What changed in this filing

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Item 1. Financial Statements

2023-08-09 compared with 2023-05-10 · 222 added, 107 removed, 764 unchanged (30% of the section changed)

8 unchanged sentences

Allowance for credit losses

Loans, net of allowance for credit losses

Core deposit intangibles, net

20 unchanged sentences

Accumulated other comprehensive loss

Treasury stock, at cost ( 634,618 shares, including 117,103 shares held by deferred compensation arrangements at March 31, 2023 and 452,952 shares including 135,437 shares held by deferred compensation arrangements at December 31, 2022)

Treasury stock, at cost ( 835,651 shares, including 118,136 shares held by deferred compensation arrangements at June 30, 2023, and 452,952 shares including 135,437 shares held by deferred compensation arrangements at December 31, 2022)

Deferred compensation arrangements ( 118,136 and 135,437 shares, respectively)

6 unchanged sentences

Three Months Ended

Six Months Ended

Interest income:

20 unchanged sentences

Gain on debt extinguishment

Unrealized gain on equity securities

Unrealized loss on equity securities

Total noninterest revenues

7 unchanged sentences

Acquisition expenses

Acquisition-related contingent consideration adjustment

Other expenses

8 unchanged sentences

Three Months Ended

Six Months Ended

Pension and other post retirement obligations:

4 unchanged sentences

Other comprehensive (loss) income related to pension and other post-retirement obligations, net of taxes

Unrealized gains (losses) on investment securities:

Net unrealized holding gains (losses) on investment securities, gross

Net unrealized holding gains (losses) on investment securities, net

Unrealized (losses) gains on investment securities:

Net unrealized holding (losses) gains on investment securities, gross

Net unrealized holding (losses) gains on investment securities, net

Reclassification adjustment for net losses included in net income, gross

Reclassification adjustment for net losses included in net income, net

Other comprehensive gain (loss) related to unrealized gains (losses) on investment securities, net of taxes

Other comprehensive income (loss), net of tax

Other comprehensive (loss) gain related to unrealized (losses) gains on investment securities, net of taxes

Other comprehensive (loss) income, net of taxes

Comprehensive income (loss)

8 unchanged sentences

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

Three months ended March 31, 2023 and 2022

Three months ended June 30, 2023 and 2022

(In Thousands, Except Share Data)

Comprehensive

Balance at March 31, 2023

Other comprehensive loss, net of tax

Dividends declared:

Common, $ 0.44 per share

Common stock activity under employee stock plans

Stock-based compensation

Treasury stock purchased

Treasury stock issued to benefit plans, net

Balance at June 30, 2023

Balance at March 31, 2022

Other comprehensive loss, net of tax

Dividends declared:

Common, $ 0.43 per share

Common stock activity under employee stock plans

Stock-based compensation

Distribution of stock under deferred compensation arrangements

Treasury stock purchased

Treasury stock issued to benefit plans, net

Balance at June 30, 2022

See accompanying notes to consolidated financial statements (unaudited).

COMMUNITY BANK SYSTEM, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

Six months ended June 30, 2023 and 2022

(In Thousands, Except Share Data)

Comprehensive

Balance at December 31, 2022

7 unchanged sentences

Treasury stock issued to benefit plans, net

Balance at March 31, 2023

Balance at June 30, 2023

Balance at December 31, 2021

7 unchanged sentences

Treasury stock issued to benefit plans, net

Balance at March 31, 2022

Balance at June 30, 2022

See accompanying notes to consolidated financial statements (unaudited).

2 unchanged sentences

(In Thousands)

Three Months Ended

Six Months Ended

Operating activities:

7 unchanged sentences

Loss on sales of investment securities

Unrealized gain on equity securities

Unrealized loss on equity securities

Income from bank-owned life insurance policies

12 unchanged sentences

Net increase in loans

Cash paid for acquisitions, net of cash acquired of $ 0 , and $ 0 , respectively

Proceeds from sales of premises and equipment, net

Purchases of premises and equipment, net

Cash (paid) received for acquisitions, net of cash acquired of $ 0 and $ 84,988 , respectively

Proceeds from sales of premises, equipment and other assets

Purchases of premises and equipment

Real estate limited partnership investments

2 unchanged sentences

Financing activities:

Net increase in deposits

Net decrease in overnight borrowings

Net decrease in deposits

Net (decrease) increase in overnight borrowings

Net decrease in securities sold under agreement to repurchase, short-term

1 unchanged sentence

Redemption of subordinated notes payable

Proceeds from the issuance of common stock

Proceeds from issuance of common stock

Purchases of treasury stock

2 unchanged sentences

Withholding taxes paid on share-based compensation

Net cash (used in) provided by financing activities

Net cash used in financing activities

Change in cash and cash equivalents

( 1,677,436 )

Cash and cash equivalents at beginning of period

13 unchanged sentences

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2023

JUNE 30, 2023

BASIS OF PRESENTATION

The interim financial data as of and for the three months ended March 31, 2023 is unaudited;

The interim financial data as of and for the three and six months ended June 30, 2023 is unaudited;

however, in the opinion of Community Bank System, Inc.

2 unchanged sentences

The Company’s unaudited interim consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited annual consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission (“SEC”) on March 1, 2023.

Subsequent Period Acquisition

On May 1, 2023, the Company, through its subsidiary OneGroup NY, Inc.

(“OneGroup”), completed the acquisition of certain assets of Hyde Park Insurance Services, Inc., an insurance agency headquartered in Tampa, Florida for $ 4.3 million in cash.

The effects of the acquired assets will be included in the 2023 consolidated financial statements beginning in the second quarter of 2023.

Current and Prior Period Acquisitions

On May 1, 2023, the Company, through its subsidiary OneGroup NY, Inc.

(“OneGroup”), completed the acquisition of certain assets of Hyde Park Insurance Services, Inc.

(“Hyde Park”), an insurance agency headquartered in Tampa, Florida for $ 4.3 million in cash.

The Company recorded a $ 2.8 million customer list intangible and recognized $ 1.5 million of goodwill in conjunction with the acquisition.

The effects of the acquired assets have been included in the consolidated financial statements since that date.

Revenues of approximately $ 0.2 million and direct expenses of approximately $ 0.1 million were included in the consolidated statements of income for the three and six months ended June 30, 2023.

On March 1, 2023, the Company completed the acquisition of certain assets of Axiom Realty Group, which includes Axiom Capital Corp., Axiom Realty Management, LLC and Axiom Realty Advisors, LLC (collectively referred to as “Axiom”) for $ 1.8 million in cash.

1 unchanged sentence

The effects of the acquired assets have been included in the consolidated financial statements since that date.

Revenues of approximately $ 0.1 million and direct expenses of approximately $ 0.2 million were included in the consolidated statement of income for the three months ended March 31, 2023.

Revenues for the three months ended June 30, 2023 were immaterial and were approximately $ 0.1 million for the six months ended June 30, 2023.

Direct expenses of approximately $ 0.5 million and $ 0.7 million were included in the consolidated statements of income for the three and six months ended June 30, 2023, respectively.

On November 1, 2022, the Company, through its subsidiary OneGroup, completed its acquisition of certain assets of JMD Associates, LLC (“JMD”), an insurance agency headquartered in Boca Raton, Florida.

1 unchanged sentence

The effects of the acquired assets have been included in the consolidated financial statements since that date.

Revenues of approximately $ 0.1 million and direct expenses of approximately $ 0.1 million were included in the consolidated statement of income for the three months ended March 31, 2023.

Revenues of approximately $ 0.2 million and $ 0.3 million and direct expenses of approximately $ 0.1 million and $ 0.2 million were included in the consolidated statements of income for the three and six months ended June 30, 2023, respectively.

On May 13, 2022, the Company completed its acquisition of Elmira Savings Bank (“Elmira”), a New York State chartered savings bank headquartered in Elmira, New York, for $ 82.2 million in cash.

The acquisition enhanced the Company’s presence in five counties in New York’s Southern Tier and Finger Lakes regions.

In connection with the acquisition, the Company acquired approximately $ 583.7 million of identifiable assets, including $ 437.0 million of loans, $ 11.3 million of investment securities, and $ 8.0 million of core deposit intangibles, as well as $ 522.3 million of deposits.

In connection with the acquisition, the Company acquired $ 583.6 million of identifiable assets, including $ 436.8 million of loans, $ 11.3 million of investment securities, and $ 8.0 million of core deposit intangibles, as well as $ 522.3 million of deposits.

Goodwill of $ 42.1 million was recognized as a result of the merger.

The effects of the acquired assets and liabilities have been included in the consolidated financial statements since that date.

Revenues of approximately $ 4.7 million and direct expenses of approximately $ 1.1 million from the Elmira branch network, which may not include certain shared expenses, were included in the consolidated statement of income for the three months ended March 31, 2023.

Revenues of approximately $ 3.5 million and $ 7.1 million and direct expenses of approximately $ 1.3 million and $ 2.4 million from the Elmira branch network, which may not include certain shared expenses, were included in the consolidated statements of income for the three and six months ended June 30, 2023, respectively.

Revenues of approximately $ 2.4 million and direct expenses of approximately $ 0.6 million from the Elmira branch network were included in the consolidated statements of income for the three and six months ended June 30, 2022.

The Company incurred certain transaction-related costs in 2022 in connection with the Elmira acquisition.

2 unchanged sentences

The effects of the acquired assets have been included in the consolidated financial statements since that date.

Included in the consolidated statements of income for the three months ended March 31, 2023 and 2022 are revenues of approximately $ 0.2 million and $ 0.3 million, respectively, and direct expenses of approximately $ 0.1 million in each of the three months ended March 31, 2023 and 2022.

Included in the consolidated statements of income for the three and six months ended June 30, 2023 are revenues of approximately $ 0.2 million and $ 0.4 million, respectively, and direct expenses of approximately $ 0.1 million and $ 0.2 million for the three and six months ended June 30, 2023, respectively.

Revenues of approximately $ 0.3 million and $ 0.6 million and direct expenses of approximately $ 0.1 million and $ 0.2 million were included in the consolidated statements of income for the three and six months ended June 30, 2022, respectively.

The assets and liabilities assumed in the acquisitions were recorded at their estimated fair values based on management’s best estimates using information available at the date of the acquisition, and were subject to adjustment based on updated information not available at the time of the acquisitions.

Through the first quarter of 2023, the carrying amount of accrued interest and fees receivable, other assets and other liabilities associated with the Elmira acquisition was adjusted upon receipt of new information as a result of adjustments to employee benefits accruals and deferred income taxes.

Through the first six months of 2023, the carrying amount of loans, accrued interest and fees receivable, other assets and other liabilities associated with the Elmira acquisition was adjusted upon receipt of new information.

The adjustments resulted in a net decrease to goodwill of $ 0.1 million.

The Elmira and Axiom acquisitions generally expanded the Company’s banking geographic presence in New York.

The OneGroup acquisitions generally expanded the Company’s nonbanking presence in New York and Florida.

During the three months ended June 30, 2023, the carrying amount of other intangibles associated with the Axiom acquisition was adjusted upon receipt of new information.

The adjustment resulted in a net decrease to goodwill of $ 0.6 million.

The Elmira and Axiom acquisitions generally expanded the Company’s banking presence in New York.

The OneGroup acquisitions generally expanded the Company’s insurance services presence in New York and Florida.

Management expects that the Company will benefit from greater geographic diversity and the advantages of other synergistic business development opportunities.

13 unchanged sentences

Total identifiable assets, net

(1) Includes amounts for OneGroup acquisition completed in 2023.

(1) Includes amounts for all OneGroup acquisitions completed in 2023, including immaterial acquisitions not described above.

(2) Includes amounts for all OneGroup acquisitions completed in 2022.

The Company acquired loans from Elmira for which there was not evidence of a more-than-insignificant deterioration in credit quality since origination (non-PCD loans) with an unpaid principal balance of $ 455.7 million at the acquisition date.

The Company acquired loans from Elmira for which there was not evidence of a more-than-insignificant deterioration in credit quality since origination (non-Purchased Credit Deteriorated, or “PCD”, loans) with an unpaid principal balance of $ 455.7 million at the acquisition date.

Total fair value adjustments for non-PCD loans resulted in a net discount of $ 20.8 million.

10 unchanged sentences

Borrowings assumed with the Elmira acquisition included Federal Home Loan Bank of New York (“FHLB”) borrowings with a fair value of $ 17.6 million, with maturity dates ranging from January 2023 through March 2027 and a weighted average interest rate of 2.48 %.

The core deposit intangibles related to the Elmira acquisition and other intangibles related to three of the OneGroup acquisitions completed in 2022, the OneGroup acquisition completed in 2023, and the Axiom acquisition are being amortized using an accelerated method over an estimated useful life of eight years .

The core deposit intangibles related to the Elmira acquisition and other intangibles related to three of the OneGroup acquisitions completed in 2022, the OneGroup acquisitions completed in 2023, and the Axiom acquisition are being amortized using an accelerated method over an estimated useful life of eight years .

The other intangibles associated with the fourth remaining OneGroup acquisition completed in 2022 are being amortized using an accelerated method over their estimated useful life of ten years .

The goodwill, which is not amortized for book purposes, was assigned to the Banking segment for the Elmira and Axiom acquisitions and the All Other segment for the OneGroup acquisition completed in 2023 and the JMD acquisition.

Goodwill arising from the Elmira acquisition is not deductible for tax purposes.

Goodwill arising from the Axiom acquisition, the OneGroup acquisition completed in 2023, and the JMD acquisition is deductible for tax purposes.

Goodwill arising from the Axiom acquisition, the OneGroup acquisitions completed in 2023, and the JMD acquisition is deductible for tax purposes.

Direct costs related to the acquisitions were expensed as incurred.

Merger and acquisition integration-related expenses were $ 0.1 million and $ 0.3 million during the three months ended March 31, 2023 and 2022, respectively, and have been separately stated in the consolidated statements of income.

Merger and acquisition integration-related expenses were immaterial for the three months ended June 30, 2023 and $ 0.1 million for the six months ended June 30, 2023.

Merger and acquisition integration-related expenses were $ 4.0 million and $ 4.3 million during the three and six months ended June 30, 2022, respectively.

These expenses have been separately stated in the consolidated statements of income.

Supplemental Pro Forma Financial Information

The following unaudited condensed pro forma information assumes the Elmira acquisition had been completed as of January 1, 2021 for the three and six months ended June 30, 2022.

The table below has been prepared for comparative purposes only and is not necessarily indicative of the actual results that would have been attained had the acquisition occurred as of the beginning of the year presented, nor is it indicative of the Company’s future results.

Furthermore, the unaudited pro forma information does not reflect management’s estimate of any revenue-enhancing opportunities nor anticipated cost savings that may have occurred as a result of the integration and consolidation of the acquisition.

The pro forma information set forth below reflects the historical results of Elmira combined with the Company’s consolidated statements of income with adjustments related to (a) certain purchase accounting fair value adjustments and (b) amortization of core deposit intangibles.

Acquisition-related expenses totaling $ 4.0 million and $ 4.3 million for the three and six months ended June 30, 2022, respectively, related to Elmira were included in the pro forma information as if they were incurred in the first quarter of 2021.

Pro Forma (Unaudited)

Three Months Ended

Six Months Ended

(000’s omitted)

June 30, 2022

Total revenue, net of interest expense

ACCOUNTING POLICIES

6 unchanged sentences

The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances.

As of March 31, 2023, $ 31.7 million of accounts receivable, including $ 9.2 million of unbilled fee revenue, and $ 1.8 million of unearned revenue, was recorded in the consolidated statements of condition.

As of June 30, 2023, $ 32.5 million of accounts receivable, including $ 8.5 million of unbilled fee revenue, and $ 1.1 million of unearned revenue, was recorded in the consolidated statements of condition.

As of December 31, 2022, $ 33.3 million of accounts receivable, including $ 8.8 million of unbilled fee revenue, and $ 1.1 million of unearned revenue, was recorded in the consolidated statements of condition.

3 unchanged sentences

Principal forgiveness is defined as any contractual reduction in the amount of principal due without receiving payment or assets.

Interest rate reduction is defined as the change results in the borrower receiving a below market interest rate.

Interest rate reduction is defined as the change resulting in the borrower receiving a below market interest rate.

A delay in payment that is other-than-insignificant is determined by considering factors including the amount of the restructured payments relative to the unpaid principal or collateral value of the loan, as well as the timing of the restructured payment relative to the frequency of payments due under the debt, the debt’s original contract maturity and the debt’s original expected duration.

12 unchanged sentences

INVESTMENT SECURITIES

The amortized cost and estimated fair value of investment securities as of March 31, 2023 and December 31, 2022 are as follows:

March 31, 2023

The amortized cost and estimated fair value of investment securities as of June 30, 2023 and December 31, 2022 are as follows:

June 30, 2023

December 31, 2022

18 unchanged sentences

A summary of investment securities that have been in a continuous unrealized loss position is as follows:

As of March 31, 2023

As of June 30, 2023

Less than 12 Months

24 unchanged sentences

Held-to-Maturity Portfolio:

U.S Treasury and agency securities

Treasury and agency securities

Total held-to-maturity portfolio

6 unchanged sentences

The unrealized losses in the portfolios are primarily attributable to changes in interest rates.

As such, management does not believe any individual unrealized loss as of March 31, 2023 represents credit losses and no unrealized losses have been recognized in the provision for credit losses.

Accordingly, there is no allowance for credit losses on the Company’s available-for-sale portfolio as of March 31, 2023.

Accrued interest receivable on available-for-sale debt securities, included in accrued interest and fees receivable on the consolidated statements of condition, totaled $ 12.3 million at March 31, 2023 and is excluded from the estimate of credit losses.

As such, management does not believe any individual unrealized loss as of June 30, 2023 represents credit losses and no unrealized losses have been recognized in the provision for credit losses.

Accordingly, there is no allowance for credit losses on the Company’s available-for-sale investment portfolio as of June 30, 2023.

Accrued interest receivable on available-for-sale debt securities, included in accrued interest and fees receivable on the consolidated statements of condition, totaled $ 12.7 million at June 30, 2023 and is excluded from the estimate of credit losses.

Securities classified as held-to-maturity are included under the CECL methodology.

Calculation of expected credit loss under CECL is done on a collective (“pooled”) basis, with assets grouped when similar risk characteristics exist.

The Company notes that at March 31, 2023 all securities in the held-to-maturity classification are U.S.

The Company notes that at June 30, 2023 all securities in the held-to-maturity classification are U.S.

Treasury securities and government agency mortgage-backed securities;

2 unchanged sentences

Treasury securities and government agency mortgage-backed securities often receive the highest credit rating by rating agencies and the Company has concluded that the possibility of default is considered remote.

At June 30, 2023 the U.S.

Treasury securities and government agency mortgage-backed securities held by the Company in the held-to-maturity category carry an AA+ rating from Standard & Poor’s, Aaa from Moody’s Investor Services, and AAA from Fitch.

On August 1, 2023, Fitch downgraded the U.S.

government’s long term rating from AAA to AA+.

The credit rating downgrade does not impact the Company’s conclusion regarding the credit risk of U.S.

government debt securities held in its investment portfolio.

The Company concludes that the long history with no credit losses for these securities (adjusted for current conditions and reasonable and supportable forecasts) indicates an expectation that nonpayment of the amortized cost basis is zero.

Management has concluded that there is no prepayment risk and it is expected to recover the recorded investment.

Accordingly, there is no allowance for credit losses on the Company’s held-to-maturity debt portfolio as of March 31, 2023.

Accrued interest receivable on held-to-maturity debt securities, included in accrued interest and fees receivable on the consolidated statements of condition, totaled $ 2.8 million at March 31, 2023 and is excluded from the estimate of credit losses.

Management has concluded that the prepayment risk associated with these securities is insignificant and it is expected to recover the recorded investment.

Accordingly, there is no allowance for credit losses on the Company’s held-to-maturity debt portfolio as of June 30, 2023.

Accrued interest receivable on held-to-maturity debt securities, included in accrued interest and fees receivable on the consolidated statements of condition, totaled $ 4.7 million at June 30, 2023 and is excluded from the estimate of credit losses.

The Company has the intent and ability to hold the securities to maturity.

The amortized cost and estimated fair value of debt securities at March 31, 2023, by contractual maturity, are shown below.

The amortized cost and estimated fair value of debt securities at June 30, 2023, by contractual maturity, are shown below.

Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

9 unchanged sentences

Government agency collateralized mortgage obligations

Investment securities with a fair value of $ 3.75 billion and $ 2.18 billion at March 31, 2023 and December 31, 2022, respectively, were pledged to collateralize certain deposits and borrowings.

Investment securities with a fair value of $ 3.45 billion and $ 2.18 billion at June 30, 2023 and December 31, 2022, respectively, were pledged to collateralize certain deposits, borrowings and potential future borrowings.

Securities pledged to collateralize certain deposits and borrowings included $ 597.1 million and $ 466.9 million of U.S.

Treasury securities that were pledged as collateral for securities sold under agreement to repurchase at March 31, 2023 and December 31, 2022, respectively.

All securities sold under agreement to repurchase as of March 31, 2023 and December 31, 2022 have an overnight and continuous maturity.

Treasury securities that were pledged as collateral for securities sold under agreement to repurchase at June 30, 2023 and December 31, 2022, respectively.

All securities sold under agreement to repurchase as of June 30, 2023 and December 31, 2022 have an overnight and continuous maturity.

During the first quarter of 2023, the Company sold $ 786.1 million in book value of available-for-sale U.S.

12 unchanged sentences

Loans, net of allowance for credit losses

The following table presents the aging of the amortized cost basis of the Company’s past due loans by segment as of March 31, 2023:

The following table presents the aging of the amortized cost basis of the Company’s past due loans by segment as of June 30, 2023:

90+ Days Past

13 unchanged sentences

Consumer direct

No interest income on nonaccrual loans was recognized during the three months ended March 31, 2023 and 2022.

No interest income on nonaccrual loans was recognized during the three and six months ended June 30, 2023.

An immaterial amount of accrued interest was written off on nonaccrual loans by reversing interest income.

10 unchanged sentences

The condition of the borrower has deteriorated to the point that collection of the balance is improbable based on current facts and conditions and loss is likely.

The following tables show the amount of business lending loans by credit quality category at March 31, 2023 and December 31, 2022:

The following tables show the amount of business lending loans by credit quality category at June 30, 2023 and December 31, 2022:

(000’s omitted)

Term Loans Amortized Cost Basis by Origination Year

March 31, 2023

June 30, 2023

Business lending:

12 unchanged sentences

Nonperforming loans include 90+ days past due and still accruing and nonaccrual loans.

The following table details the balances in all other loan categories at March 31, 2023:

The following table details the balances in all other loan categories at June 30, 2023:

(000’s omitted)

Term Loans Amortized Cost Basis by Origination Year

March 31, 2023

June 30, 2023

Consumer mortgage:

39 unchanged sentences

Business lending loans greater than $ 0.5 million that are on nonaccrual are individually assessed, and if necessary, a specific allocation of the allowance for credit losses is provided.

A summary of individually assessed business loans as of March 31, 2023 and December 31, 2022 follows:

A summary of individually assessed business loans as of June 30, 2023 and December 31, 2022 follows:

(000’s omitted)

4 unchanged sentences

Specifically allocated allowance

The average carrying balance of individually assessed loans was $ 3.1 million and $ 12.3 million for the three months ended March 31, 2023 and 2022, respectively.

No interest income was recognized on individually assessed loans for the three months ended March 31, 2023 and 2022.

The average carrying balance of individually assessed loans was $ 2.5 million and $ 8.7 million for the three months ended June 30, 2023 and 2022, respectively.

The average carrying balance of individually assessed loans was $ 3.1 million and $ 12.2 million for the six months ended June 30, 2023 and 2022, respectively.

No interest income was recognized on individually assessed loans for the three or six months ended June 30, 2023 and 2022.

Occasionally, the Company modifies loans to borrowers experiencing financial difficulty by providing principal forgiveness, term extension, payment delay, or interest rate reduction.

5 unchanged sentences

Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.

During the three months ended March 31, 2023, the amount of loans that were modified to borrowers experiencing financial difficulty was immaterial.

During the three and six months ended June 30, 2023, the amount of loans that were modified to borrowers experiencing financial difficulty was immaterial.

Prior to the adoption of ASU 2022-02 on January 1, 2023, modified loans were reviewed by the Company to identify if a troubled debt restructuring (“TDR”) had occurred, which is when, for economic or legal reasons related to a borrower’s financial difficulties, the Company grants a concession to the borrower that it would not otherwise consider.

Terms may be modified to fit the ability of the borrower to repay in line with its current financial standing and the restructuring of the loan may include the transfer of assets from the borrower to satisfy the debt, a modification of loan terms, or a combination of the two.

The amount of TDRs as of December 31, 2022 and the amount of loans modified in a TDR during the three months ended March 31, 2022 were immaterial.

The amount of TDRs as of December 31, 2022 and the amount of loans modified in a TDR during the three and six months ended June 30, 2022 were immaterial.

Allowance for Credit Losses

The following presents by loan segment the activity in the allowance for credit losses during the three months ended March 31, 2023 and 2022:

Three Months Ended March 31, 2023

The following presents by segment the activity in the allowance for credit losses during the three months and six months ended June 30, 2023 and 2022:

Three Months Ended June 30, 2023

(000’s omitted)

6 unchanged sentences

Total allowance for credit losses

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

(000’s omitted)

6 unchanged sentences

Total allowance for credit losses

The allowance for credit losses increased to $ 63.2 million at March 31, 2023 compared to $ 61.1 million at December 31, 2022 and $ 50.1 million at March 31, 2022, reflective of a weaker economic forecast and an increase in loans outstanding.

Accrued interest receivable on loans, included in accrued interest and fees receivable on the consolidated statements of condition, totaled $ 23.8 million at March 31, 2023, and is excluded from the estimate of credit losses and amortized cost basis of loans.

Six Months Ended June 30, 2023

(000’s omitted)

Business lending

Consumer mortgage

Consumer indirect

Consumer direct

Allowance for credit losses – loans

Liabilities for off-balance-sheet credit exposures

Total allowance for credit losses

Six Months Ended June 30, 2022

(000’s omitted)

Business lending

Consumer mortgage

Consumer indirect

Consumer direct

Allowance for credit losses – loans

Liabilities for off-balance-sheet credit exposures

Total allowance for credit losses

The allowance for credit losses for loans increased to $ 63.3 million at June 30, 2023 compared to $ 61.1 million at December 31, 2022 and $ 55.5 million at June 30, 2022, reflective of a weaker economic forecast and an increase in loans outstanding.

Accrued interest receivable on loans, included in accrued interest and fees receivable on the consolidated statements of condition, totaled $ 25.0 million at June 30, 2023 and is excluded from the estimate of credit losses and amortized cost basis of loans.

Under ASU No.

5 unchanged sentences

Management determined that these qualitative adjustments were needed to adjust historical information for expected losses and to reflect changes as a result of current conditions.

For qualitative macroeconomic adjustments, the Company uses third party forecasted economic data scenarios utilizing a base scenario and two alternative scenarios that are weighted, with forecasts available as of March 31, 2023.

These forecasts were factored into the qualitative portion of the calculation of the estimated credit losses and include the impact of a decline in residential real estate and vehicle prices as well as inflation.

16 unchanged sentences

In addition, current delinquencies, charge-offs and acquired loans were considered.

During the three months ended March 31, 2023, the Company did not purchase any loans, while the Company sold $ 0.5 million of secondary market eligible residential consumer mortgage loans during the period.

During the six months ended June 30, 2023, the Company did not purchase any loans, while the Company sold $ 1.8 million of secondary market eligible residential consumer mortgage loans during the period.

During the six months ended June 30, 2022, the Company purchased $ 436.9 million of loans in connection with the acquisition of Elmira and sold $ 3.7 million of secondary market eligible residential consumer mortgage loans.

GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS

The gross carrying amount and accumulated amortization for each type of identifiable intangible asset are as follows:

March 31, 2023

June 30, 2023

December 31, 2022

6 unchanged sentences

(000’s omitted)

Apr - Dec 2023

Shown below are the components of the Company’s goodwill at December 31, 2022 and March 31, 2023:

Jul - Dec 2023

Shown below are the components of the Company’s goodwill at December 31, 2022 and June 30, 2023:

(000’s omitted)

December 31, 2022

March 31, 2023

June 30, 2023

BENEFIT PLANS

2 unchanged sentences

The service cost component of net periodic benefit income is included in the salaries and employee benefits line of the consolidated statements of income, while the other components of net periodic benefit income are included in other expenses.

The Company did not make a contribution to its defined benefit pension plan in the first quarter of 2023.

The Company made a $ 4.3 million contribution to its defined benefit pension plan in the second quarter of 2023.

The Company made a $ 0.1 million contribution to its defined benefit pension plan in the first quarter of 2022.

The net periodic benefit cost for the three months ended March 31, 2023 and 2022 is as follows:

The post-retirement benefits component of net periodic benefit cost for the three and six months ended June 30, 2023 and 2022 is immaterial.

The pension benefits component of net periodic benefit cost for the three and six months ended June 30, 2023 and 2022 is as follows:

Pension Benefits

Post-retirement Benefits

Three Months Ended

Six Months Ended

(000’s omitted)

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Under the two class method, earnings available to common shareholders for the period are allocated between common shareholders and participating securities according to dividends declared and participation rights in undistributed earnings.

The Company has determined that all of its outstanding non-vested stock awards are participating securities as of March 31, 2023.

The Company has determined that all of its outstanding non-vested stock awards are participating securities as of June 30, 2023.

Basic earnings per share are computed based on the weighted-average of the common shares outstanding for the period.

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The treasury stock method determines the number of common shares that would be outstanding if all the dilutive options were exercised and the proceeds were used to repurchase common shares in the open market at the average market price for the applicable time period.

At March 31, 2023, weighted-average anti-dilutive stock options outstanding were immaterial, compared to approximately 0.2 million for the three months ended March 31, 2022 that were not included in the computation below.

The following is a reconciliation of basic to diluted earnings per share for the three months ended March 31, 2023 and 2022:

Weighted-average anti-dilutive stock options outstanding for the three and six months ended June 30, 2023 were immaterial and 0.2 million, respectively, compared to approximately 0.4 million and 0.3 million weighted-average anti-dilutive stock options outstanding for the three and six months ended June 30, 2022, respectively, that were not included in the computation below.

The following is a reconciliation of basic to diluted earnings per share for the three and six months ended June 30, 2023 and 2022:

Three Months Ended

Six Months Ended

(000’s omitted, except per share data)

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Stock Repurchase Program

At its December 2022 meeting, the Board approved a new stock repurchase program authorizing the repurchase, at the discretion of senior management, of up to 2,697,000 shares of the Company’s common stock, in accordance with securities and banking laws and regulations, during the twelve-month period starting January 1, 2023.

At its December 2022 meeting, the Board of Directors of the Company (the “Board”) approved a new stock repurchase program authorizing the repurchase, at the discretion of senior management, of up to 2,697,000 shares of the Company’s common stock, in accordance with securities and banking laws and regulations, during the twelve-month period starting January 1, 2023.

Any repurchased shares will be used for general corporate purposes, including those related to stock plan activities.

The timing and extent of repurchases will depend on market conditions and other corporate considerations as determined at the Company’s discretion.

There were 200,000 shares of treasury stock purchases made under this authorization during the first quarter of 2023.

There were 400,000 shares of treasury stock purchases made under this authorization during the first six months of 2023 with an average price paid per share of $ 51.42 .

At its December 2021 meeting, the Board approved a stock repurchase program authorizing the repurchase, at the discretion of senior management, of up to 2,697,000 shares of the Company’s common stock, in accordance with securities and banking laws and regulations, during the twelve-month period starting January 1, 2022.

There were 250,000 shares of treasury stock purchases made under this authorization in 2022, including 50,000 shares of treasury stock purchases made during the first quarter of 2022.

There were 250,000 shares of treasury stock purchases made under this authorization in 2022, all of which were repurchased during the first six months of 2022, with an average price paid per share of $ 65.51 .

COMMITMENTS, CONTINGENT LIABILITIES AND RESTRICTIONS

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The Company and its subsidiaries are subject in the normal course of business to various pending and threatened legal proceedings or other matters in which claims for monetary damages are asserted.

As of March 31, 2023, management, after consultation with legal counsel, does not anticipate that the aggregate ultimate liability arising out of such pending or threatened matters against the Company or its subsidiaries will be material to the Company’s consolidated financial position.

As of June 30, 2023, management, after consultation with legal counsel, does not anticipate that the aggregate ultimate liability arising out of such pending or threatened matters against the Company or its subsidiaries will be material to the Company’s consolidated financial position.

On at least a quarterly basis, the Company assesses its liabilities and contingencies in connection with such matters.

1 unchanged sentence

To the extent such matters could result in exposure in excess of that liability, the amount of such excess is not currently estimable.

The range of reasonably possible losses for matters where an exposure is not currently estimable or considered probable, beyond the existing recorded liabilities, is believed to be between $ 0 and $ 1 million in the aggregate.

This estimated range is based on information currently available to the Company and involves elements of judgment and significant uncertainties.

The amount of reasonably possible losses for matters where an exposure is not currently estimable or considered probable, beyond the existing recorded liabilities, is not believed to be material in the aggregate.

This is based on information currently available to the Company and involves elements of judgment and significant uncertainties.

The Company does not believe that the outcome of pending or threatened litigation or other matters will be material to the Company’s consolidated financial position, it cannot rule out the possibility that such outcomes will be material to the consolidated results of operations for a particular reporting period in the future.

On May 11, 2023, the FDIC issued a notice of proposed rulemaking that would implement a special assessment to recover the uninsured deposit losses from recent bank failures.

The FDIC has proposed collecting the special assessment over eight quarterly assessment periods beginning in 2024 at an annual rate of approximately 12.5 basis points of uninsured deposits that exceeded $5 billion as of December 31, 2022.

There is sufficient uncertainty around the final FDIC regulation that would impact both the timing and amount recognized in the consolidated financial statements.

While the Company continues to assess the impact of the special assessment to the Company’s future operating results, if the final rule for the FDIC special assessment is enacted as proposed, the impact is not expected to be material to the Company’s consolidated financial statements.

Accounting standards establish a framework for measuring fair value and require certain disclosures about such fair value instruments.

7 unchanged sentences

There were no transfers between any of the levels for the periods presented.

March 31, 2023

June 30, 2023

(000’s omitted)

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The fair value of mortgage loans held for sale is determined using quoted secondary-market prices of loans with similar characteristics and, as such, has been classified as a Level 2 valuation.

The unpaid principal value of mortgage loans held for sale was approximately $ 0.3 million at March 31, 2023.

The unpaid principal value of mortgage loans held for sale was approximately $ 1.4 million at June 30, 2023.

There were no mortgage loans held for sale at December 31, 2022.

19 unchanged sentences

The fair value information of assets and liabilities measured on a non-recurring basis presented below is not as of the period-end, but rather as of the date the fair value adjustment was recorded closest to the date presented.

March 31, 2023

June 30, 2023

December 31, 2022

13 unchanged sentences

The appraisals are sometimes further discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the customer and customer’s business.

Such discounts are significant, ranging from 9.0 % to 72.8 % at March 31, 2023 and result in a Level 3 classification of the inputs for determining fair value.

Such discounts are significant, ranging from 9.0 % to 75.1 % at June 30, 2023 and result in a Level 3 classification of the inputs for determining fair value.

OREO is reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors identified above.

6 unchanged sentences

Impairment is recognized through a valuation allowance.

There is a valuation allowance of approximately $ 0.7 million at March 31, 2023 and December 31, 2022.

There is a valuation allowance of approximately $ 1.0 million and $ 0.7 million at June 30, 2023 and December 31, 2022, respectively.

The Company has recorded contingent consideration liabilities that arise from acquisition activity.

2 unchanged sentences

The assumptions used in the valuation calculation are based on significant unobservable inputs, therefore such valuations classify as Level 3.

The contingent consideration related to the Fringe Benefits Design of Minnesota, Inc.

(“FBD”) acquisition completed in 2021 was revalued at June 30, 2023.

The range of the undiscounted amounts the Company could pay under the agreement remained at between zero and $ 2.7 million.

Key assumptions include (1) a discount rate of 6.91 % applied to present value the payment, and (2) probability adjusted level of retained revenue of $ 4.7 million.

Based on the results of the June 2023 revaluation, the Company recorded a reduction to the fair value of the contingent consideration of $ 0.1 million which is included in the consolidated statements of income as an acquisition-related contingent consideration adjustment.

The adjusted fair value at June 30, 2023 was $ 1.0 million.

The contingent consideration related to the Thomas Gregory Associates Insurance Brokers, Inc.

(“TGA”) acquisition completed by OneGroup in 2021 was revalued at June 30, 2023.

The range of the undiscounted amounts the Company could pay under the agreement remained at between zero and $ 3.4 million.

Key assumptions include (1) a discount rate range of 6.73 % to 6.94 % applied to present value the payment, and (2) probability adjusted level of retained revenue of $ 3.3 million to $ 4.0 million.

Based on the results of the June 2023 revaluation, the Company recorded an increase to the fair value of the contingent consideration of $ 1.1 million which is included in the consolidated statements of income as an acquisition-related contingent consideration adjustment.

The adjusted fair value at June 30, 2023 was $ 2.8 million.

The Company determines fair values based on quoted market values, where available, estimates of present values, or other valuation techniques.

5 unchanged sentences

(000’s omitted, except per loan data)

March 31, 2023

June 30, 2023

Valuation Technique

55 unchanged sentences

Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

The carrying amounts and estimated fair values of the Company’s other financial instruments that are not accounted for at fair value at March 31, 2023 and December 31, 2022 are presented below.

The carrying amounts and estimated fair values of the Company’s other financial instruments that are not accounted for at fair value at June 30, 2023 and December 31, 2022 are presented below.

The table presented below excludes other financial instruments for which the carrying value approximates fair value including cash and cash equivalents, accrued interest receivable and accrued interest payable.

March 31, 2023

June 30, 2023

December 31, 2022

29 unchanged sentences

(the “Bank” or “CBNA”) operates the Banking segment that provides full-service banking to consumers, businesses, and governmental units in Upstate New York as well as Northeastern Pennsylvania, Vermont and Western Massachusetts.

Employee Benefit Services, which includes the operating subsidiaries of Benefit Plans Administrative Services, LLC, BPAS Actuarial and Pension Services, LLC, BPAS Trust Company of Puerto Rico, Fringe Benefits Design of Minnesota, Inc.

(“FBD”), Northeast Retirement Services, LLC (“NRS”), Global Trust Company, Inc.

(“GTC”), and Hand Benefits & Trust Company, provides employee benefit trust, collective investment fund, retirement plan administration, fund administration, transfer agency, actuarial, VEBA/HRA, and health and welfare consulting services.

2 unchanged sentences

and OneGroup Wealth Partners, Inc.

as well as asset management provided by Nottingham Advisors, Inc., and (b) full-service insurance, risk management and employee benefit services provided by OneGroup NY, Inc.

as well as asset management provided by Nottingham Advisors, Inc., and (b) full-service insurance, risk management and employee benefit services provided by OneGroup.

The accounting policies used in the disclosure of business segments are the same as those described in the summary of significant accounting policies (See Note A, Summary of Significant Accounting Policies of the most recent Form 10-K for the year ended December 31, 2022 filed with the SEC on March 1, 2023).

2 unchanged sentences

Benefit Services

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

Net interest income

Provision for credit losses

Noninterest revenues

Amortization of intangible assets

Acquisition expenses

Acquisition-related contingent consideration adjustment

Other operating expenses

Income before income taxes

Core deposit intangibles & Other intangibles

Three Months Ended June 30, 2022

Net interest income

Provision for credit losses

Noninterest revenues

Amortization of intangible assets

Acquisition expenses

Acquisition-related contingent consideration adjustment

Other operating expenses

Income before income taxes

Core deposit intangibles & Other intangibles

(000's omitted)

Benefit Services

Six Months Ended June 30, 2023

Net interest income

Provision for credit losses

Loss on sales of investment securities

3 unchanged sentences

Acquisition expenses

Acquisition-related contingent consideration adjustment

Other operating expenses

Income (loss) before income taxes

Core deposit intangibles & Other intangibles

Three Months Ended March 31, 2022

Income before income taxes

Six Months Ended June 30, 2022

Net interest income

3 unchanged sentences

Acquisition expenses

Acquisition-related contingent consideration adjustment

Other operating expenses

Income before income taxes

Core deposit intangibles & Other intangibles

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements