COMMUNITY FINANCIAL SYSTEM, INC. 10-Q

Item 1. Financial Statements COMMUNITY BANK SYSTEM, INC. CONSOLIDATED STATEMENTS OF CONDITION (Unaudited) (In Thousands, Except Share Data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31, ​ 2023 2022 Assets: ​ ​ ​ Cash and cash equivalents ​ $ 455,807 ​ $ 209,896 Available-for-sale investment securities includes pledged securities that can be sold or repledged of $ 542,828 and $ 466,902 , respectively (cost of $ 3,314,815 and $ 4,675,474 , respectively) ​ 2,767,636 ​ 4,151,851 Held-to-maturity securities (fair value of $ 990,660 and $ 1,034,795 , respectively) ​ ​ 1,125,540 ​ ​ 1,079,695 Equity and other securities (cost of $ 66,006 and $ 82,424 , respectively) ​ 66,825 ​ 83,342 ​ ​ ​ ​ ​ ​ ​ Loans ​ 9,450,066 ​ 8,809,394 Allowance for credit losses ​ ( 64,945 ) ​ ( 61,059 ) Loans, net of allowance for credit losses ​ 9,385,121 ​ 8,748,335 ​ ​ ​ ​ ​ ​ Goodwill ​ 845,396 ​ 841,841 Core deposit intangibles, net ​ 9,087 ​ 12,304 Other intangibles, net ​ 46,851 ​ 48,692 Goodwill and intangible assets, net ​ 901,334 ​ 902,837 ​ ​ ​ ​ ​ ​ ​ Premises and equipment, net ​ ​ 174,749 ​ ​ 160,778 Accrued interest and fees receivable ​ 46,933 ​ 52,613 Other assets ​ 462,377 ​ 446,304 ​ ​ ​ ​ ​ ​ ​ Total assets ​ $ 15,386,322 ​ $ 15,835,651 ​ ​ ​ ​ ​ Liabilities: ​ ​ ​ ​ ​ ​ Noninterest-bearing deposits ​ $ 3,780,519 ​ $ 4,140,617 Interest-bearing deposits ​ 9,250,269 ​ 8,871,691 Total deposits ​ 13,030,788 ​ 13,012,308 ​ ​ ​ ​ ​ ​ ​ Overnight borrowings ​ 0 ​ 768,400 Securities sold under agreement to repurchase, short-term ​ 330,252 ​ 346,652 Other Federal Home Loan Bank borrowings ​ 316,837 ​ 19,474 Subordinated notes payable ​ 0 ​ 3,249 Accrued interest and other liabilities ​ 153,506 ​ 133,863 Total liabilities ​ 13,831,383 ​ 14,283,946 ​ ​ ​ ​ ​ Commitments and contingencies (See Note J) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Shareholders’ equity: ​ ​ ​ ​ ​ ​ Preferred stock, $ 1.00 par value, 500,000 shares authorized, 0 shares issued ​ 0 ​ 0 Common stock, $ 1.00 par value, 75,000,000 shares authorized; 54,363,812 and 54,190,201 shares issued, respectively ​ 54,364 ​ 54,190 Additional paid-in capital ​ 1,057,433 ​ 1,050,231 Retained earnings ​ 1,179,196 ​ 1,152,452 Accumulated other comprehensive loss ​ ( 691,693 ) ​ ( 686,439 ) Treasury stock, at cost ( 936,823 shares, including 119,308 shares held by deferred compensation arrangements at September 30, 2023, and 452,952 shares including 135,437 shares held by deferred compensation arrangements at December 31, 2022) ​ ( 51,198 ) ​ ( 26,485 ) Deferred compensation arrangements ( 119,308 and 135,437 shares, respectively) ​ 6,837 ​ 7,756 Total shareholders’ equity ​ 1,554,939 ​ 1,551,705 ​ ​ ​ ​ ​ ​ ​ Total liabilities and shareholders’ equity ​ $ 15,386,322 ​ $ 15,835,651 ​ See accompanying notes to consolidated financial statements (unaudited). ​ 3 Table of Contents COMMUNITY BANK SYSTEM, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In Thousands, Except Per-Share Data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, ​ 2023 2022 2023 2022 Interest income: ​ ​ ​ ​ Interest and fees on loans ​ $ 115,138 ​ $ 88,434 ​ $ 322,775 ​ $ 238,907 Interest and dividends on taxable investments ​ 18,969 ​ 23,737 ​ 61,718 ​ 71,228 Interest and dividends on nontaxable investments ​ 3,449 ​ 3,704 ​ 10,569 ​ 9,611 Total interest income ​ 137,556 ​ 115,875 ​ 395,062 ​ 319,746 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest expense: ​ ​ ​ ​ ​ ​ ​ ​ Interest on deposits ​ 24,555 ​ 3,855 ​ 53,431 ​ 9,111 Interest on borrowings ​ 5,215 ​ 1,588 ​ 13,498 ​ 2,113 Interest on subordinated notes payable ​ 0 ​ 38 ​ 38 ​ 115 Total interest expense ​ 29,770 ​ 5,481 ​ 66,967 ​ 11,339 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest income ​ 107,786 ​ 110,394 ​ 328,095 ​ 308,407 Provision for credit losses ​ 2,878 ​ 5,061 ​ 7,130 ​ 12,005 Net interest income after provision for credit losses ​ 104,908 ​ 105,333 ​ 320,965 ​ 296,402 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest revenues: ​ ​ ​ ​ ​ ​ ​ ​ Deposit service fees ​ 16,007 ​ 17,452 ​ 46,839 ​ 49,745 Mortgage banking ​ ​ 113 ​ 171 ​ 399 ​ 595 Other banking services ​ 1,471 ​ 912 ​ 4,535 ​ 2,521 Employee benefit services ​ 29,997 ​ 27,884 ​ 87,946 ​ 86,385 Insurance services ​ 12,113 ​ 11,332 ​ 35,495 ​ 31,521 Wealth management services ​ 7,934 ​ ​ 7,502 ​ ​ 24,037 ​ ​ 24,276 Loss on sales of investment securities ​ ​ 0 ​ ​ 0 ​ ​ ( 52,329 ) ​ ​ 0 Gain on debt extinguishment ​ ​ 0 ​ ​ 0 ​ ​ 242 ​ ​ 0 Unrealized loss on equity securities ​ ( 49 ) ​ ​ ( 4 ) ​ ( 99 ) ​ ​ ( 24 ) Total noninterest revenues ​ 67,586 ​ 65,249 ​ 147,065 ​ 195,019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest expenses: ​ ​ ​ ​ ​ ​ ​ ​ Salaries and employee benefits ​ 70,687 ​ 66,190 ​ 210,208 ​ 193,236 Data processing and communications ​ 15,480 ​ 14,184 ​ 42,900 ​ 40,454 Occupancy and equipment ​ 10,358 ​ 10,364 ​ 31,835 ​ 31,740 Amortization of intangible assets ​ 3,576 ​ 3,837 ​ 10,948 ​ 11,420 Legal and professional fees ​ 3,826 ​ 3,194 ​ 12,129 ​ 10,196 Business development and marketing ​ 4,628 ​ 3,616 ​ 12,096 ​ 9,975 Acquisition expenses ​ ​ 0 ​ ​ 409 ​ ​ 56 ​ ​ 4,668 Acquisition-related contingent consideration adjustment ​ ​ 80 ​ ​ 0 ​ ​ 1,080 ​ ​ 400 Other expenses ​ 7,869 ​ 6,391 ​ ​ 22,342 ​ 16,327 Total noninterest expenses ​ 116,504 ​ 108,185 ​ ​ 343,594 ​ 318,416 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income before income taxes ​ 55,990 ​ 62,397 ​ ​ 124,436 ​ 173,005 Income taxes ​ 11,861 ​ 13,706 ​ ​ 26,218 ​ 37,454 Net income ​ $ 44,129 ​ $ 48,691 ​ $ 98,218 ​ $ 135,551 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic earnings per share ​ $ 0.82 ​ $ 0.90 ​ $ 1.82 ​ $ 2.51 Diluted earnings per share ​ $ 0.82 ​ $ 0.90 ​ $ 1.82 ​ $ 2.49 ​ See accompanying notes to consolidated financial statements (unaudited). 4 Table of Contents COMMUNITY BANK SYSTEM, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) (In Thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, ​ 2023 2022 2023 2022 Pension and other post retirement obligations: ​ ​ ​ ​ ​ Amortization of actuarial (gains) losses included in net periodic pension cost, gross ​ $ ( 550 ) ​ $ 220 ​ $ ( 1,648 ) ​ $ 660 Tax effect ​ 134 ​ ( 53 ) ​ 401 ​ ( 160 ) Amortization of actuarial (gains) losses included in net periodic pension cost, net ​ ( 416 ) ​ 167 ​ ( 1,247 ) ​ ​ 500 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortization of prior service cost included in net periodic pension cost, gross ​ 160 ​ 109 ​ 480 ​ 327 Tax effect ​ ( 39 ) ​ ( 26 ) ​ ( 117 ) ​ ( 79 ) Amortization of prior service cost included in net periodic pension cost, net ​ 121 ​ 83 ​ 363 ​ 248 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive (loss) income related to pension and other post-retirement obligations, net of taxes ​ ( 295 ) ​ 250 ​ ( 884 ) ​ 748 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net unrealized losses on investment securities: ​ ​ ​ ​ ​ ​ ​ ​ Net unrealized holding losses on investment securities, gross ​ ( 105,326 ) ​ ( 301,023 ) ​ ( 58,105 ) ​ ( 919,962 ) Tax effect ​ 25,630 ​ 73,119 ​ 14,120 ​ 223,460 Net unrealized holding losses on investment securities, net ​ ( 79,696 ) ​ ( 227,904 ) ​ ( 43,985 ) ​ ( 696,502 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Reclassification adjustment for net losses included in net income, gross ​ 0 ​ 0 ​ 52,329 ​ 0 Tax effect ​ 0 ​ 0 ​ ( 12,714 ) ​ 0 Reclassification adjustment for net losses included in net income, net ​ 0 ​ 0 ​ 39,615 ​ 0 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive loss related to unrealized losses on investment securities, net of taxes ​ ( 79,696 ) ​ ( 227,904 ) ​ ( 4,370 ) ​ ( 696,502 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive loss, net of taxes ​ ( 79,991 ) ​ ( 227,654 ) ​ ( 5,254 ) ​ ( 695,754 ) Net income ​ 44,129 ​ 48,691 ​ 98,218 ​ 135,551 Comprehensive (loss) income ​ $ ( 35,862 ) ​ $ ( 178,963 ) ​ $ 92,964 ​ $ ( 560,203 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of ​ ​ September 30, ​ December 31, ​ 2023 2022 Accumulated Other Comprehensive Loss By Component: ​ ​ ​ ​ ​ Unrealized loss for pension and other post-retirement obligations $ ( 42,701 ) ​ $ ( 41,533 ) Tax effect 10,516 ​ 10,232 Net unrealized loss for pension and other post-retirement obligations ( 32,185 ) ​ ( 31,301 ) ​ ​ ​ ​ ​ ​ ​ Unrealized loss on investment securities ( 870,559 ) ​ ( 864,783 ) Tax effect 211,051 ​ 209,645 Net unrealized loss on investment securities ( 659,508 ) ​ ( 655,138 ) ​ ​ ​ ​ ​ ​ ​ Accumulated other comprehensive loss $ ( 691,693 ) ​ $ ( 686,439 ) ​ See accompanying notes to consolidated financial statements (unaudited). ​ ​ 5 Table of Contents COMMUNITY BANK SYSTEM, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited) Three months ended September 30, 2023 and 2022 (In Thousands, Except Share Data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ Additional ​ ​ ​ ​ Other ​ ​ ​ ​ Deferred ​ ​ ​ ​ ​ Shares ​ Amount ​ Paid-In ​ Retained ​ Comprehensive ​ Treasury ​ Compensation ​ ​ ​ Outstanding Issued Capital Earnings Loss Stock Arrangements Total ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at June 30, 2023 ​ 53,528,090 ​ $ 54,364 ​ $ 1,054,871 ​ $ 1,159,126 ​ $ ( 611,702 ) ​ $ ( 46,038 ) ​ $ 6,785 ​ $ 1,617,406 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ ​ ​ ​ ​ ​ 44,129 ​ ​ ​ ​ ​ ​ ​ 44,129 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive loss, net of tax ​ ​ ​ ​ ​ ​ ​ ​ ( 79,991 ) ​ ​ ​ ​ ​ ( 79,991 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Dividends declared: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common, $ 0.45 per share ​ ​ ​ ​ ​ ​ ( 24,059 ) ​ ​ ​ ​ ​ ​ ​ ( 24,059 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common stock activity under employee stock plans 71 ​ 0 ​ 47 ​ ​ ​ ​ ​ ​ ​ ​ ​ 47 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stock-based compensation ​ ​ ​ ​ 2,515 ​ ​ ​ ​ ​ ​ ​ ​ ​ 2,515 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Treasury stock purchased ​ ( 100,000 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 5,108 ) ​ ​ ​ ​ ​ ( 5,108 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Treasury stock issued to benefit plans, net ( 1,172 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 52 ) ​ 52 ​ 0 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at September 30, 2023 ​ 53,426,989 ​ $ 54,364 ​ $ 1,057,433 ​ $ 1,179,196 ​ $ ( 691,693 ) ​ $ ( 51,198 ) ​ $ 6,837 ​ $ 1,554,939 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at June 30, 2022 ​ 53,734,027 ​ $ 54,185 ​ $ 1,046,303 ​ $ 1,098,664 ​ $ ( 518,727 ) ​ $ ( 26,369 ) ​ $ 7,640 ​ $ 1,661,696 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 48,691 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 48,691 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive loss, net of tax ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 227,654 ) ​ ​ ​ ​ ​ ​ ​ ​ ( 227,654 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Dividends declared: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common, $ 0.44 per share ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 23,714 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 23,714 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common stock activity under employee stock plans ​ 2,892 ​ ​ 3 ​ ​ 284 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 287 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stock-based compensation ​ ​ ​ ​ ​ ​ ​ 1,857 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1,857 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Treasury stock purchased to benefit plans, net ​ ( 903 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 57 ) ​ ​ 57 ​ ​ 0 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at September 30, 2022 53,736,016 ​ $ 54,188 ​ $ 1,048,444 ​ $ 1,123,641 ​ $ ( 746,381 ) ​ $ ( 26,426 ) ​ $ 7,697 ​ $ 1,461,163 ​ See accompanying notes to consolidated financial statements (unaudited). ​ 6 Table of Contents COMMUNITY BANK SYSTEM, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited) Nine months ended September 30, 2023 and 2022 (In Thousands, Except Share Data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ Common Stock ​ Additional ​ ​ ​ ​ Other ​ ​ ​ ​ Deferred ​ ​ ​ ​ ​ Shares ​ Amount ​ Paid-In ​ Retained ​ Comprehensive ​ Treasury ​ Compensation ​ ​ ​ ​ Outstanding Issued Capital Earnings Loss Stock Arrangements Total ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at December 31, 2022 53,737,249 ​ $ 54,190 ​ $ 1,050,231 ​ $ 1,152,452 ​ $ ( 686,439 ) ​ $ ( 26,485 ) ​ $ 7,756 ​ $ 1,551,705 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ ​ ​ ​ ​ ​ 98,218 ​ ​ ​ ​ ​ ​ ​ 98,218 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive loss, net of tax ​ ​ ​ ​ ​ ​ ​ ​ ( 5,254 ) ​ ​ ​ ​ ​ ( 5,254 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Dividends declared: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common, $ 1.33 per share ​ ​ ​ ​ ​ ​ ( 71,474 ) ​ ​ ​ ​ ​ ​ ​ ( 71,474 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common stock activity under employee stock plans 173,610 ​ 174 ​ 537 ​ ​ ​ ​ ​ ​ ​ ​ ​ 711 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stock-based compensation ​ ​ ​ ​ 6,709 ​ ​ ​ ​ ​ ​ ​ ​ ​ 6,709 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Distribution of stock under deferred compensation arrangements 19,264 ​ ​ ​ ( 44 ) ​ ​ ​ ​ ​ 1,126 ​ ( 1,082 ) ​ 0 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Treasury stock purchased ​ ( 500,000 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 25,676 ) ​ ​ ​ ​ ​ ( 25,676 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Treasury stock issued to benefit plans, net ( 3,134 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 163 ) ​ 163 ​ 0 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at September 30, 2023 53,426,989 ​ $ 54,364 ​ $ 1,057,433 ​ $ 1,179,196 ​ $ ( 691,693 ) ​ $ ( 51,198 ) ​ $ 6,837 ​ $ 1,554,939 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at December 31, 2021 53,878,047 ​ $ 54,092 ​ $ 1,041,304 ​ $ 1,058,286 ​ $ ( 50,627 ) ​ $ ( 10,610 ) ​ $ 8,362 ​ $ 2,100,807 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ ​ ​ ​ ​ ​ 135,551 ​ ​ ​ ​ ​ ​ ​ 135,551 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive loss, net of tax ​ ​ ​ ​ ​ ​ ​ ​ ( 695,754 ) ​ ​ ​ ​ ​ ( 695,754 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Dividends declared: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common, $ 1.30 per share ​ ​ ​ ​ ​ ​ ( 70,196 ) ​ ​ ​ ​ ​ ​ ​ ( 70,196 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common stock activity under employee stock plans 95,586 ​ 96 ​ 990 ​ ​ ​ ​ ​ ​ ​ ​ ​ 1,086 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stock-based compensation ​ ​ ​ ​ 6,047 ​ ​ ​ ​ ​ ​ ​ ​ ​ 6,047 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Distribution of stock under deferred compensation arrangements ​ 14,934 ​ ​ ​ ​ ​ 103 ​ ​ ​ ​ ​ ​ ​ ​ 739 ​ ​ ( 842 ) ​ ​ 0 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Treasury stock purchased ​ ( 250,000 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 16,378 ) ​ ​ ​ ​ ​ ( 16,378 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Treasury stock issued to benefit plans, net ( 2,551 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 177 ) ​ 177 ​ 0 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at September 30, 2022 53,736,016 ​ $ 54,188 ​ $ 1,048,444 ​ $ 1,123,641 ​ $ ( 746,381 ) ​ $ ( 26,426 ) ​ $ 7,697 ​ $ 1,461,163 ​ See accompanying notes to consolidated financial statements (unaudited). ​ ​ ​ ​ ​ 7 Table of Contents COMMUNITY BANK SYSTEM, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In Thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended ​ ​ September 30, ​ 2023 2022 Operating activities: ​ ​ Net income ​ $ 98,218 ​ $ 135,551 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ Depreciation ​ 9,781 ​ 10,956 Amortization of intangible assets ​ 10,948 ​ 11,420 Net amortization (accretion) on securities, loans and borrowings ​ 3,675 ​ ( 14,519 ) Stock-based compensation ​ 6,709 ​ 6,047 Gain on debt extinguishment ​ ​ ( 242 ) ​ ​ 0 Provision for credit losses ​ 7,130 ​ 12,005 Amortization of mortgage servicing rights ​ 654 ​ 554 Loss on sales of investment securities ​ ​ 52,329 ​ ​ 0 Unrealized loss on equity securities ​ ​ 99 ​ ​ 24 Income from bank-owned life insurance policies ​ ( 1,762 ) ​ ( 1,543 ) Net gain on sale of assets ​ ( 1,067 ) ​ ( 570 ) Change in other assets and liabilities ​ ( 2,758 ) ​ ( 16,889 ) Net cash provided by operating activities ​ 183,714 ​ 143,036 Investing activities: ​ ​ Proceeds from maturities, calls, and paydowns of available-for-sale investment securities ​ 582,614 ​ 210,152 Proceeds from maturities, calls, and paydowns of held-to-maturity investment securities ​ ​ 72 ​ ​ 0 Proceeds from maturities and redemptions of equity and other investment securities ​ 20,960 ​ 2,247 Proceeds from sales of available-for-sale investment securities ​ ​ 733,789 ​ ​ 0 Purchases of available-for-sale investment securities ​ 0 ​ ( 1,348,400 ) Purchases of held-to-maturity investment securities ​ ​ ( 23,933 ) ​ ​ 0 Purchases of equity and other securities ​ ( 4,542 ) ​ ( 6,108 ) Net increase in loans ​ ( 660,031 ) ​ ( 735,072 ) Cash (paid) received for acquisitions, net of cash acquired of $ 0 and $ 84,988 , respectively ​ ( 8,301 ) ​ 345 Proceeds from sales of premises, equipment and other assets ​ ​ 5,902 ​ ​ 1,928 Purchases of premises and equipment ​ ( 13,889 ) ​ ( 10,014 ) Real estate limited partnership investments ​ ​ 0 ​ ​ ( 247 ) Net cash provided by (used in) investing activities ​ 632,641 ​ ( 1,885,169 ) Financing activities: ​ ​ Net increase in deposits ​ ​ 18,480 ​ ​ 52,858 Net (decrease) increase in overnight borrowings ​ ( 768,400 ) ​ 119,800 Net (decrease) increase in securities sold under agreement to repurchase, short-term ​ ​ ( 16,400 ) ​ ​ 28,052 Proceeds from other Federal Home Loan Bank borrowings ​ ​ 300,000 ​ ​ 0 Payments on and maturities of other Federal Home Loan Bank borrowings ​ ​ ( 2,713 ) ​ ​ ( 71 ) Payments of contingent consideration for acquisitions ​ ​ ( 1,214 ) ​ ​ 0 Redemption of subordinated notes payable ​ ​ ( 3,000 ) ​ ​ 0 Proceeds from issuance of common stock ​ 711 ​ 1,086 Purchases of treasury stock ​ ( 25,839 ) ​ ( 16,555 ) Increase in deferred compensation arrangements ​ 163 ​ 177 Cash dividends paid ​ ( 71,048 ) ​ ( 69,681 ) Withholding taxes paid on share-based compensation ​ ( 1,184 ) ​ ( 1,206 ) Net cash (used in) provided by financing activities ​ ( 570,444 ) ​ 114,460 Change in cash and cash equivalents ​ 245,911 ​ ( 1,627,673 ) Cash and cash equivalents at beginning of period ​ 209,896 ​ 1,875,064 Cash and cash equivalents at end of period ​ $ 455,807 ​ $ 247,391 Supplemental disclosures of cash flow information: ​ ​ ​ ​ ​ ​ Cash paid for interest ​ $ 64,147 ​ $ 11,793 Cash paid for income taxes ​ 29,198 ​ 41,061 Supplemental disclosures of noncash financing and investing activities: ​ ​ ​ ​ ​ ​ Dividends declared and unpaid ​ 24,189 ​ 23,750 Transfers from loans to other real estate ​ 232 ​ 303 Transfers from premises and equipment, net to other assets ​ ​ 1,948 ​ ​ 5,113 Acquisitions: ​ ​ ​ ​ ​ ​ Fair value of assets acquired, excluding acquired cash and intangibles ​ 243 ​ 490,623 Fair value of liabilities assumed ​ 18 ​ 543,507 Contingent consideration in exchange for acquired assets ​ ​ 1,450 ​ ​ 0 ​ See accompanying notes to consolidated financial statements (unaudited). ​ ​ 8 Table of Contents COMMUNITY BANK SYSTEM, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) SEPTEMBER 30, 2023 NOTE A: BASIS OF PRESENTATION The interim financial data as of and for the three and nine months ended September 30, 2023 is unaudited; however, in the opinion of Community Bank System, Inc. (the “Company”), the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the results for the interim periods in conformity with generally accepted accounting principles in the United States of America (“GAAP”) and Article 10 of Regulation S-X. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year or any other interim period. 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. ​ NOTE B: ACQUISITIONS Current and Prior Period Acquisitions During the nine months ended September 30, 2023, the Company, through its subsidiaries OneGroup NY, Inc. (“OneGroup”) and OneGroup Wealth Partners, Inc. (“Wealth Partners”), completed the acquisition of certain assets of five financial services companies. The acquired companies provide insurance and wealth management services and are headquartered in New York, Pennsylvania, and Florida. Total aggregate consideration for these acquisitions was $ 7.9 million, including $ 6.5 million in cash and $ 1.4 million in contingent consideration arrangements. The contingent consideration arrangements are based on achieving certain levels of retained revenue over a period ranging from two to five years . The fair value of these arrangements has been recorded based on the assumption that retained revenue levels will meet or exceed the required threshold for the maximum contingent consideration payments. Aggregate assets acquired were $ 4.9 million, including $ 4.7 million of customer list intangible assets and the Company recorded goodwill of $ 3.0 million. The effects of the acquired assets have been included in the consolidated financial statements since the date of acquisition. Revenues and direct expenses included in the consolidated statements of income for the three and nine months ended September 30, 2023 were immaterial. 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. The Company recorded a $ 1.2 million customer list intangible and recognized $ 0.6 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 $ 0.3 million and $ 0.4 million and direct expenses of approximately $ 0.5 million and $ 1.2 million were included in the consolidated statements of income for the three and nine months ended September 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 $ 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 $ 3.9 million and $ 11.0 million and direct expenses of approximately $ 1.1 million and $ 3.5 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 nine months ended September 30, 2023, respectively. Revenues of approximately $ 4.8 million and $ 7.2 million and direct expenses of approximately $ 1.2 million and $ 1.8 million from the Elmira branch network were included in the consolidated statements of income for the three and nine months ended September 30, 2022, respectively. The Company incurred certain transaction-related costs in 2022 in connection with the Elmira acquisition. 9 Table of Contents During 2022, the Company, through its subsidiary OneGroup, completed acquisitions of certain assets of four insurance agencies for an aggregate amount of $ 3.5 million in cash. The Company recorded a $ 2.9 million customer list intangible asset and a $ 0.1 million intangible asset for a noncompete agreement and recognized $ 0.5 million of goodwill in conjunction with the acquisitions. The effects of the acquired assets have been included in the consolidated financial statements since the date of acquisition. Revenues and direct expenses included in the consolidated statements of income for the three and nine months ended September 30, 2023 and 2022 were immaterial. 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 nine 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. During the nine months ended September 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 and Wealth Partners acquisitions generally expanded the Company’s insurance and wealth management presence in New York, Florida and Pennsylvania. Management expects that the Company will benefit from greater geographic diversity and the advantages of other synergistic business development opportunities. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed after considering the measurement period adjustments described above: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 (000s omitted) Axiom Other (1) Total Elmira Other (2) Total Consideration: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash ​ $ 1,819 ​ $ 6,482 ​ $ 8,301 ​ $ 82,179 ​ $ 3,477 ​ $ 85,656 Contingent consideration ​ ​ 0 ​ ​ 1,450 ​ ​ 1,450 ​ ​ 0 ​ ​ 0 ​ ​ 0 Total net consideration ​ ​ 1,819 ​ ​ 7,932 ​ ​ 9,751 ​ ​ 82,179 ​ ​ 3,477 ​ ​ 85,656 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Recognized amounts of identifiable assets acquired and liabilities assumed: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ 84,988 ​ 0 ​ 84,988 Investment securities ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ 11,305 ​ 0 ​ 11,305 Loans, net of allowance for credit losses on PCD loans ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ 436,796 ​ 0 ​ 436,796 Premises and equipment, net ​ ​ 25 ​ ​ 41 ​ ​ 66 ​ 11,303 ​ 14 ​ 11,317 Accrued interest and fees receivable ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ 882 ​ 0 ​ 882 Other assets ​ ​ 2 ​ ​ 175 ​ ​ 177 ​ 30,337 ​ 0 ​ 30,337 Core deposit intangibles ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ 7,970 ​ 0 ​ 7,970 Other intangibles ​ ​ 1,176 ​ ​ 4,714 ​ ​ 5,890 ​ 0 ​ 3,014 ​ 3,014 Deposits ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ( 522,295 ) ​ 0 ​ ( 522,295 ) Other liabilities ​ ​ ( 9 ) ​ ​ ( 9 ) ​ ​ ( 18 ) ​ ( 3,596 ) ​ ( 34 ) ​ ( 3,630 ) Other Federal Home Loan Bank borrowings ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ( 17,616 ) ​ 0 ​ ( 17,616 ) Total identifiable assets, net ​ ​ 1,194 ​ ​ 4,921 ​ ​ 6,115 ​ 40,074 ​ 2,994 ​ 43,068 Goodwill ​ $ 625 ​ $ 3,011 ​ $ 3,636 ​ $ 42,105 ​ $ 483 ​ $ 42,588 (1) Includes amounts for four OneGroup acquisitions and one Wealth Partners acquisition completed in 2023. (2) Includes amounts for four OneGroup acquisitions completed in 2022. The Company acquired certain 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 Table of Contents The Company acquired certain loans from Elmira for which there was evidence of a more-than-insignificant deterioration in credit quality since origination (PCD loans). There were no investment securities acquired from Elmira for which there was evidence of a more-than-insignificant deterioration in credit quality since origination. The carrying amount of those loans is as follows at the date of acquisition: ​ ​ ​ ​ ​ (000s omitted) PCD Loans Par value of PCD loans at acquisition ​ $ 2,184 Allowance for credit losses at acquisition ​ ( 71 ) Non-credit discount at acquisition ​ ( 81 ) Fair value of PCD loans at acquisition ​ $ 2,032 ​ The fair value of checking, savings and money market deposit accounts acquired were assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand. Certificate of deposit accounts were valued at the present value of the certificates’ expected contractual payments discounted at market rates for similar certificates. 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 and Wealth Partners 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 and Wealth Partners acquisitions completed in 2023 and 2022. Goodwill arising from the Elmira acquisition is not deductible for tax purposes. Goodwill arising from the Axiom acquisition and the OneGroup and Wealth Partners acquisitions completed in 2023 and 2022 is deductible for tax purposes. Direct costs related to the acquisitions were expensed as incurred. Merger and acquisition integration-related expenses were immaterial for the three and nine months ended September 30, 2023. Merger and acquisition integration-related expenses were $ 0.4 million and $ 4.7 million during the three and nine months ended September 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 nine months ended September 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 $ 0.4 million and $ 4.7 million for the three and nine months ended September 30, 2022, respectively, related to Elmira were included in the pro forma information as if they were incurred in the first quarter of 2021. The effects of the Elmira acquisition are reflected in all periods in 2023. ​ ​ ​ ​ ​ ​ ​ ​ ​ Pro Forma (Unaudited) ​ ​ Three Months Ended ​ Nine Months Ended (000’s omitted) September 30, 2022 September 30, 2022 Total revenue, net of interest expense ​ $ 175,595 ​ $ 512,687 Net income ​ 49,016 ​ 141,138 ​ ​ 11 Table of Contents NOTE C: SIGNIFICANT ACCOUNTING POLICIES The accounting policies of the Company, as applied in the consolidated interim financial statements presented herein, are substantially the same as those followed on an annual basis as presented on pages 76 through 87 of the 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 except as noted below. Contract Balances A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. The Company’s noninterest revenue streams are largely based on transactional activity or standard month-end revenue accruals such as asset management fees based on month-end market values. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances. As of September 30, 2023, $ 35.3 million of accounts receivable, including $ 8.1 million of unbilled fee revenue and $ 0.9 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. Loan Modifications The Company, in certain situations, will modify a loan with a borrower experiencing financial difficulty that results in a direct change in the timing or amount of contractual cash flows. Applicable modifications include, but are not limited to, principal forgiveness, interest rate reduction, other-than-insignificant payment delay, term extension (other than administrative) or a combination thereof. 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 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. Generally, a delay in payment greater than 90 days in the last twelve months would be considered other-than-insignificant. The Company considers several factors to assess whether a borrower is experiencing financial difficulty, including, but not limited to, payment default or expected payment default, bankruptcy of the borrower, substantial doubt whether the borrower will continue as a going concern and estimates or projections of the borrower’s financial condition that indicate that the borrower will be unable to service the loan in accordance with the contractual provisions of the existing agreement. Following the adoption of ASU 2022-02 on January 1, 2023, the Company has established a policy to identify and disclose information required by FASB ASC 310-10-50 regarding modifications made to borrowers experiencing financial difficulty. ​ Reclassifications Certain reclassifications have been made to prior period balances to conform to the current period’s presentation. ​ Recently Adopted Accounting Pronouncements In March 2022, the Financial Accounting Standards Board (“FASB”) issued ASU 2022-02 , Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures , which addresses and amends areas identified by the FASB as part of its post-implementation review of the accounting standard that introduced the current expected credit losses (“CECL”) model. The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require disclosure of current-period gross charge-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. ASU 2022-02 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years for entities that have adopted the CECL accounting standard. The Company adopted this guidance on January 1, 2023 on a prospective basis and while it resulted in expanded disclosures, the adoption of this standard did not have a material impact on the Company’s consolidated financial statements. ​ 12 Table of Contents NOTE D: INVESTMENT SECURITIES The amortized cost and estimated fair value of investment securities as of September 30, 2023 and December 31, 2022 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2023 ​ December 31, 2022 ​ ​ ​ ​ ​ Gross ​ Gross ​ ​ ​ ​ ​ ​ ​ Gross ​ Gross ​ ​ ​ ​ ​ Amortized ​ Unrealized ​ Unrealized ​ Fair ​ Amortized ​ Unrealized ​ Unrealized ​ Fair (000’s omitted) Cost Gains Losses Value Cost Gains Losses Value Available-for-Sale Portfolio: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Treasury and agency securities ​ $ 2,378,607 ​ $ 0 ​ $ 399,168 ​ $ 1,979,439 ​ $ 3,660,546 ​ $ 0 ​ $ 417,009 ​ $ 3,243,537 Obligations of state and political subdivisions ​ 506,838 ​ 20 ​ 72,393 ​ 434,465 ​ 549,118 ​ 506 ​ 45,327 ​ 504,297 Government agency mortgage-backed securities ​ 411,083 ​ 6 ​ 74,018 ​ 337,071 ​ 444,689 ​ 58 ​ 60,114 ​ 384,633 Corporate debt securities ​ 8,000 ​ 0 ​ 826 ​ 7,174 ​ 8,000 ​ 0 ​ 886 ​ 7,114 Government agency collateralized mortgage obligations ​ 10,287 ​ 0 ​ 800 ​ 9,487 ​ 13,121 ​ 1 ​ 852 ​ 12,270 Total available-for-sale portfolio ​ $ 3,314,815 ​ $ 26 ​ $ 547,205 ​ $ 2,767,636 ​ $ 4,675,474 ​ $ 565 ​ $ 524,188 ​ $ 4,151,851 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Held-to-Maturity Portfolio: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Treasury and agency securities ​ $ 1,101,679 ​ $ 0 ​ $ 134,091 ​ $ 967,588 ​ $ 1,079,695 ​ $ 0 ​ $ 44,900 ​ $ 1,034,795 Government agency mortgage-backed securities ​ ​ 23,861 ​ ​ 0 ​ ​ 789 ​ ​ 23,072 ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 0 Total held-to-maturity portfolio ​ $ 1,125,540 ​ $ 0 ​ $ 134,880 ​ $ 990,660 ​ $ 1,079,695 ​ $ 0 ​ $ 44,900 ​ $ 1,034,795 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Equity and Other Securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Equity securities, at fair value ​ $ 251 ​ $ 69 ​ $ 0 ​ $ 320 ​ $ 251 ​ $ 168 ​ $ 0 ​ $ 419 Federal Home Loan Bank common stock ​ 26,524 ​ 0 ​ 0 ​ 26,524 ​ 47,497 ​ 0 ​ 0 ​ 47,497 Federal Reserve Bank common stock ​ 33,568 ​ 0 ​ 0 ​ 33,568 ​ 31,144 ​ 0 ​ 0 ​ 31,144 Other equity securities, at adjusted cost ​ 5,663 ​ 750 ​ 0 ​ 6,413 ​ 3,532 ​ 750 ​ 0 ​ 4,282 Total equity and other securities ​ $ 66,006 ​ $ 819 ​ $ 0 ​ $ 66,825 ​ $ 82,424 ​ $ 918 ​ $ 0 ​ $ 83,342 ​ Included in the Company’s investment securities portfolio is Federal Reserve Bank (“FRB”) common stock with a carrying value of $ 33.6 million and $ 31.1 million at September 30, 2023 and December 31, 2022, respectively. The investment in FRB stock represents approximately half of the total required subscription, and the remaining half is unpaid and remains subject to call by the FRB. 13 Table of Contents A summary of investment securities that have been in a continuous unrealized loss position is as follows: As of September 30, 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Less than 12 Months 12 Months or Longer Total ​ ​ ​ ​ ​ ​ ​ Gross ​ ​ ​ ​ ​ ​ Gross ​ ​ ​ ​ ​ ​ Gross ​ ​ ​ ​ Fair ​ Unrealized ​ ​ ​ Fair ​ Unrealized ​ ​ ​ Fair ​ Unrealized (000’s omitted) # Value Losses # Value Losses # Value Losses Available-for-Sale Portfolio: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Treasury and agency securities ​ 0 ​ $ 0 ​ $ 0 ​ 64 ​ $ 1,979,439 ​ $ 399,168 ​ 64 ​ $ 1,979,439 ​ $ 399,168 Obligations of state and political subdivisions ​ 285 ​ 165,835 ​ 12,417 ​ 434 ​ 263,067 ​ 59,976 ​ 719 ​ 428,902 ​ 72,393 Government agency mortgage-backed securities ​ 65 ​ 11,134 ​ 539 ​ 727 ​ 325,079 ​ 73,479 ​ 792 ​ 336,213 ​ 74,018 Corporate debt securities ​ 0 ​ ​ 0 ​ ​ 0 ​ 2 ​ ​ 7,174 ​ ​ 826 ​ 2 ​ ​ 7,174 ​ ​ 826 Government agency collateralized mortgage obligations ​ 0 ​ 0 ​ 0 ​ 40 ​ 9,467 ​ 800 ​ 40 ​ 9,467 ​ 800 Total available-for-sale investment portfolio ​ 350 ​ $ 176,969 ​ $ 12,956 ​ 1,267 ​ $ 2,584,226 ​ $ 534,249 ​ 1,617 ​ $ 2,761,195 ​ $ 547,205 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Held-to-Maturity Portfolio: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Treasury and agency securities ​ 23 ​ $ 967,588 ​ $ 134,091 ​ 0 ​ $ 0 ​ $ 0 ​ 23 ​ $ 967,588 ​ $ 134,091 Government agency mortgage-backed securities 16 ​ ​ 23,072 ​ ​ 789 0 ​ ​ 0 ​ ​ 0 16 ​ ​ 23,072 ​ ​ 789 Total held-to-maturity portfolio 39 ​ $ 990,660 ​ $ 134,880 0 ​ $ 0 ​ $ 0 39 ​ $ 990,660 ​ $ 134,880 ​ As of December 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Less than 12 Months 12 Months or Longer Total ​ ​ ​ ​ ​ ​ ​ Gross ​ ​ ​ ​ ​ ​ Gross ​ ​ ​ ​ ​ ​ Gross ​ ​ ​ ​ Fair ​ Unrealized ​ ​ ​ Fair ​ Unrealized ​ ​ ​ Fair ​ Unrealized (000’s omitted) # Value Losses # Value Losses # Value Losses Available-for-Sale Portfolio: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Treasury and agency securities ​ 41 ​ $ 1,384,075 ​ $ 132,511 ​ 61 ​ $ 1,859,462 ​ $ 284,498 ​ 102 ​ $ 3,243,537 ​ $ 417,009 Obligations of state and political subdivisions ​ 582 ​ 370,524 ​ 35,488 ​ 76 ​ 47,923 ​ 9,839 ​ 658 ​ 418,447 ​ 45,327 Government agency mortgage-backed securities ​ 497 ​ 190,727 ​ 19,508 ​ 274 ​ 189,919 ​ 40,606 ​ 771 ​ 380,646 ​ 60,114 Corporate debt securities ​ 0 ​ ​ 0 ​ ​ 0 ​ 2 ​ ​ 7,114 ​ ​ 886 ​ 2 ​ ​ 7,114 ​ ​ 886 Government agency collateralized mortgage obligations ​ 29 ​ 9,968 ​ 600 ​ 17 ​ 2,274 ​ 252 ​ 46 ​ 12,242 ​ 852 Total available-for-sale investment portfolio ​ 1,149 ​ $ 1,955,294 ​ $ 188,107 ​ 430 ​ $ 2,106,692 ​ $ 336,081 ​ 1,579 ​ $ 4,061,986 ​ $ 524,188 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Held-to-Maturity Portfolio: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Treasury and agency securities ​ 23 ​ $ 1,034,795 ​ $ 44,900 ​ 0 ​ $ 0 ​ $ 0 ​ 23 ​ $ 1,034,795 ​ $ 44,900 Total held-to-maturity portfolio ​ 23 ​ $ 1,034,795 ​ $ 44,900 ​ 0 ​ $ 0 ​ $ 0 ​ 23 ​ $ 1,034,795 ​ $ 44,900 ​ 14 Table of Contents The unrealized losses reported pertaining to available-for-sale securities issued by the U.S. government and its sponsored entities include treasuries, agencies, and mortgage-backed securities issued by Ginnie Mae, Fannie Mae, and Freddie Mac, which are currently rated AAA by Moody’s Investor Services, AA+ by Standard & Poor’s and are guaranteed by the U.S. government. The majority of the obligations of state and political subdivisions carry a credit rating of A or better. Additionally, a portion of the obligations of state and political subdivisions carry a secondary level of credit enhancement. The Company holds two corporate debt securities in an unrealized loss position and, based on an analysis done by the Company, the issuers of the securities show a low risk of default. Timely interest payments continue to be made on the securities. 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 September 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 September 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 $ 11.8 million at September 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 September 30, 2023 all securities in the held-to-maturity classification are U.S. Treasury securities and government agency mortgage-backed securities; therefore, they share the same risk characteristics and can be evaluated on a collective basis. The expected credit loss on these securities is evaluated based on historical credit losses of this security type and the expected possibility of default in the future, and these securities are guaranteed by the U.S. government. U.S. 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 September 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 AAA rating from Moody’s Investor Services and an AA+ rating from Standard & Poor’s. 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 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 September 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 $ 2.9 million at September 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 September 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. Securities not due at a single maturity date, including government agency mortgage-backed securities and government agency collateralized mortgage obligations, are shown separately. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Held-to-Maturity ​ Available-for-Sale ​ ​ Amortized ​ Fair ​ Amortized ​ Fair (000’s omitted) Cost Value Cost Value Due in one year or less ​ $ 0 ​ $ 0 ​ $ 17,031 ​ $ 16,799 Due after one through five years ​ 0 ​ 0 ​ ​ 1,473,904 ​ ​ 1,295,411 Due after five years through ten years ​ 549,555 ​ 506,275 ​ ​ 685,913 ​ ​ 587,185 Due after ten years ​ 552,124 ​ 461,313 ​ ​ 716,597 ​ ​ 521,683 Subtotal ​ 1,101,679 ​ 967,588 ​ ​ 2,893,445 ​ ​ 2,421,078 Government agency mortgage-backed securities ​ 23,861 ​ 23,072 ​ ​ 411,083 ​ ​ 337,071 Government agency collateralized mortgage obligations ​ 0 ​ 0 ​ ​ 10,287 ​ ​ 9,487 Total ​ $ 1,125,540 ​ $ 990,660 ​ $ 3,314,815 ​ $ 2,767,636 ​ Investment securities with a fair value of $ 2.19 billion and $ 2.18 billion at September 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 $ 542.8 million and $ 466.9 million of U.S. Treasury securities that were pledged as collateral for securities sold under agreement to repurchase at September 30, 2023 and December 31, 2022, respectively. All securities sold under agreement to repurchase as of September 30, 2023 and December 31, 2022 have an overnight and continuous maturity. 15 Table of Contents During the first quarter of 2023, the Company sold $ 786.1 million in book value of available-for-sale U.S. Treasury and agency securities, recognizing $ 52.3 million of gross realized losses. The sales were completed in January and February 2023 as part of a strategic balance sheet repositioning and were unrelated to the negative developments in the banking industry that occurred in March 2023. The proceeds from these sales of $ 733.8 million were redeployed entirely towards paying off existing overnight borrowings. ​ NOTE E: LOANS AND ALLOWANCE FOR CREDIT LOSSES The segments of the Company’s loan portfolio are summarized as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31, (000’s omitted) 2023 2022 Business lending ​ $ 3,914,935 ​ $ 3,645,665 Consumer mortgage ​ 3,196,764 ​ 3,012,475 Consumer indirect ​ 1,708,302 ​ 1,539,653 Consumer direct ​ 185,301 ​ 177,605 Home equity ​ 444,764 ​ 433,996 Gross loans, including deferred origination costs ​ 9,450,066 ​ 8,809,394 Allowance for credit losses ​ ( 64,945 ) ​ ( 61,059 ) Loans, net of allowance for credit losses ​ $ 9,385,121 ​ $ 8,748,335 ​ The following table presents the aging of the amortized cost basis of the Company’s past due loans by segment as of September 30, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Past Due ​ 90+ Days Past ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 30 – 89 ​ Due and ​ ​ ​ ​ Total ​ ​ ​ ​ ​ ​ (000’s omitted) Days Still Accruing Nonaccrual Past Due Current Total Loans Business lending ​ $ 13,545 ​ $ 0 ​ $ 5,638 ​ $ 19,183 ​ $ 3,895,752 ​ $ 3,914,935 Consumer mortgage ​ 15,282 ​ 2,908 ​ 25,205 ​ 43,395 ​ 3,153,369 ​ 3,196,764 Consumer indirect ​ 15,175 ​ 290 ​ 0 ​ 15,465 ​ 1,692,837 ​ 1,708,302 Consumer direct ​ 1,313 ​ 29 ​ 24 ​ 1,366 ​ 183,935 ​ 185,301 Home equity ​ 3,331 ​ 504 ​ 2,255 ​ 6,090 ​ 438,674 ​ 444,764 Total ​ $ 48,646 ​ $ 3,731 ​ $ 33,122 ​ $ 85,499 ​ $ 9,364,567 ​ $ 9,450,066 ​ The following table presents the aging of the amortized cost basis of the Company’s past due loans by segment as of December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Past Due ​ 90+ Days Past ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 30 – 89 ​ Due and ​ ​ ​ ​ Total ​ ​ ​ ​ ​ ​ (000’s omitted) Days Still Accruing Nonaccrual Past Due Current Total Loans Business lending ​ $ 9,818 ​ $ 0 ​ $ 4,689 ​ $ 14,507 ​ $ 3,631,158 ​ $ 3,645,665 Consumer mortgage ​ 13,757 ​ 3,510 ​ 22,583 ​ 39,850 ​ 2,972,625 ​ 3,012,475 Consumer indirect ​ 16,767 ​ 178 ​ 0 ​ 16,945 ​ 1,522,708 ​ 1,539,653 Consumer direct ​ 1,307 ​ 132 ​ 28 ​ 1,467 ​ 176,138 ​ 177,605 Home equity ​ 3,595 ​ 299 ​ 1,945 ​ 5,839 ​ 428,157 ​ 433,996 Total ​ $ 45,244 ​ $ 4,119 ​ $ 29,245 ​ $ 78,608 ​ $ 8,730,786 ​ $ 8,809,394 ​ No interest income on nonaccrual loans was recognized during the three and nine months ended September 30, 2023. An immaterial amount of accrued interest was written off on nonaccrual loans by reversing interest income. 16 Table of Contents The Company uses several credit quality indicators to assess credit risk in an ongoing manner. The Company’s primary credit quality indicator for its business lending portfolio is an internal credit risk rating system that categorizes loans as “pass”, “special mention”, “classified”, or “doubtful”. Credit risk ratings are applied to loans individually based on a case-by-case evaluation. In general, the following are the definitions of the Company’s credit quality indicators: ​ ​ ​ Pass The condition of the borrower and the performance of the loans are satisfactory or better. Special Mention ​ The condition of the borrower has deteriorated and the loan has potential weaknesses, although the loan performs as agreed. Loss may be incurred at some future date if conditions deteriorate further. Classified ​ The condition of the borrower has significantly deteriorated and the loan has a well-defined weakness or weaknesses. The performance of the loan could further deteriorate and incur loss if deficiencies are not corrected. Doubtful ​ 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 September 30, 2023 and December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revolving ​ Revolving ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans ​ Loans ​ ​ ​ (000’s omitted) ​ Term Loans Amortized Cost Basis by Origination Year ​ Amortized ​ Converted ​ ​ ​ September 30, 2023 2023 2022 2021 2020 2019 Prior Cost Basis to Term Total Business lending: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Risk rating ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ $ 290,903 ​ $ 659,190 ​ $ 325,480 ​ $ 205,591 ​ $ 224,256 ​ $ 710,607 ​ $ 721,951 ​ $ 526,358 ​ $ 3,664,336 Special mention ​ 19,647 ​ 3,463 ​ 18,359 ​ 2,655 ​ 3,523 ​ 58,407 ​ 22,473 ​ ​ 43,473 ​ 172,000 Classified ​ 459 ​ 2,746 ​ 2,657 ​ 5,146 ​ 2,863 ​ 21,488 ​ 14,428 ​ ​ 28,324 ​ 78,111 Doubtful ​ 0 ​ 0 ​ 0 ​ 488 ​ 0 ​ 0 ​ 0 ​ ​ 0 ​ 488 Total business lending ​ $ 311,009 ​ $ 665,399 ​ $ 346,496 ​ $ 213,880 ​ $ 230,642 ​ $ 790,502 ​ $ 758,852 ​ $ 598,155 ​ $ 3,914,935 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Current period gross charge-offs ​ $ 0 ​ $ 160 ​ $ 0 ​ $ 0 ​ $ 0 ​ $ 0 ​ $ 458 ​ $ 0 ​ $ 618 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revolving ​ Revolving ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans ​ Loans ​ ​ ​ (000’s omitted) ​ Term Loans Amortized Cost Basis by Origination Year ​ Amortized ​ Converted ​ ​ ​ December 31, 2022 2022 2021 2020 2019 2018 Prior Cost Basis to Term Total Business lending: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Risk rating ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ $ 747,573 ​ $ 373,913 ​ $ 232,591 ​ $ 246,820 ​ $ 168,468 ​ $ 604,745 ​ $ 646,771 ​ $ 401,531 ​ $ 3,422,412 Special mention ​ 2,787 ​ 4,836 ​ 3,781 ​ 3,676 ​ 14,593 ​ 45,627 ​ 29,403 ​ ​ 29,975 ​ 134,678 Classified ​ 1,800 ​ 775 ​ 1,138 ​ 3,196 ​ 12,235 ​ 38,138 ​ 10,587 ​ ​ 20,706 ​ 88,575 Doubtful ​ 0 ​ 0 ​ 0 ​ 0 ​ 0 ​ 0 ​ 0 ​ ​ 0 ​ 0 Total business lending ​ $ 752,160 ​ $ 379,524 ​ $ 237,510 ​ $ 253,692 ​ $ 195,296 ​ $ 688,510 ​ $ 686,761 ​ $ 452,212 ​ $ 3,645,665 ​ 17 Table of Contents All other loans are underwritten and structured using standardized criteria and characteristics, primarily payment performance, and are monitored collectively on a monthly basis. These are typically loans to individuals in the consumer categories and are delineated as either performing or nonperforming. Performing loans include loans classified as current as well as those classified as 30 - 89 days past due. 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 September 30, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revolving ​ Revolving ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans ​ Loans ​ ​ ​ (000’s omitted) ​ Term Loans Amortized Cost Basis by Origination Year ​ Amortized ​ Converted ​ ​ ​ September 30, 2023 2023 2022 2021 2020 2019 Prior Cost Basis to Term Total Consumer mortgage: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ FICO AB (1) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ $ 274,173 ​ $ 358,296 ​ $ 466,228 ​ $ 203,702 ​ $ 160,654 ​ $ 629,208 ​ $ 0 ​ $ 79,618 ​ $ 2,171,879 Nonperforming ​ 0 ​ 415 ​ 707 ​ 566 ​ 175 ​ 5,207 ​ 0 ​ ​ 198 ​ 7,268 Total FICO AB ​ 274,173 ​ 358,711 ​ 466,935 ​ 204,268 ​ 160,829 ​ 634,415 ​ 0 ​ ​ 79,816 ​ 2,179,147 FICO CDE (2) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ 93,988 ​ 153,636 ​ 169,225 ​ 105,444 ​ 73,939 ​ 343,507 ​ 28,997 ​ ​ 28,036 ​ 996,772 Nonperforming ​ 0 ​ 1,592 ​ 1,362 ​ 1,250 ​ 1,476 ​ 13,909 ​ 0 ​ ​ 1,256 ​ 20,845 Total FICO CDE ​ 93,988 ​ 155,228 ​ 170,587 ​ 106,694 ​ 75,415 ​ 357,416 ​ 28,997 ​ ​ 29,292 ​ 1,017,617 Total consumer mortgage ​ $ 368,161 ​ $ 513,939 ​ $ 637,522 ​ $ 310,962 ​ $ 236,244 ​ $ 991,831 ​ $ 28,997 ​ $ 109,108 ​ $ 3,196,764 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Current period gross charge-offs ​ $ 0 ​ $ 0 ​ $ 0 ​ $ 0 ​ $ 85 ​ $ 281 ​ $ 0 ​ $ 0 ​ $ 366 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consumer indirect: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ $ 573,832 ​ $ 622,019 ​ $ 306,229 ​ $ 83,299 ​ $ 55,759 ​ $ 66,874 ​ $ 0 ​ $ 0 ​ $ 1,708,012 Nonperforming ​ 46 ​ 154 ​ 19 ​ 33 ​ 6 ​ 32 ​ 0 ​ ​ 0 ​ 290 Total consumer indirect ​ $ 573,878 ​ $ 622,173 ​ $ 306,248 ​ $ 83,332 ​ $ 55,765 ​ $ 66,906 ​ $ 0 ​ $ 0 ​ $ 1,708,302 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Current period gross charge-offs ​ $ 277 ​ $ 2,551 ​ $ 1,435 ​ $ 890 ​ $ 482 ​ $ 855 ​ $ 0 ​ $ 0 ​ $ 6,490 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consumer direct: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ $ 66,421 ​ $ 59,136 ​ $ 30,516 ​ $ 10,059 ​ $ 6,088 ​ $ 6,337 ​ $ 6,690 ​ $ 1 ​ $ 185,248 Nonperforming ​ 0 ​ 0 ​ 0 ​ 5 ​ 5 ​ 30 ​ 13 ​ ​ 0 ​ 53 Total consumer direct ​ $ 66,421 ​ $ 59,136 ​ $ 30,516 ​ $ 10,064 ​ $ 6,093 ​ $ 6,367 ​ $ 6,703 ​ $ 1 ​ $ 185,301 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Current period gross charge-offs ​ $ 70 ​ $ 524 ​ $ 378 ​ $ 48 ​ $ 73 ​ $ 154 ​ $ 119 ​ $ 0 ​ $ 1,366 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Home equity: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ $ 49,059 ​ $ 64,935 ​ $ 65,262 ​ $ 32,797 ​ $ 26,802 ​ $ 47,484 ​ $ 126,958 ​ $ 28,708 ​ $ 442,005 Nonperforming ​ 0 ​ 140 ​ 10 ​ 244 ​ 280 ​ 611 ​ 942 ​ ​ 532 ​ 2,759 Total home equity ​ $ 49,059 ​ $ 65,075 ​ $ 65,272 ​ $ 33,041 ​ $ 27,082 ​ $ 48,095 ​ $ 127,900 ​ $ 29,240 ​ $ 444,764 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Current period gross charge-offs ​ $ 0 ​ $ 0 ​ $ 0 ​ $ 64 ​ $ 0 ​ $ 9 ​ $ 17 ​ $ 0 ​ $ 90 (1) FICO AB refers to higher tiered loans with FICO scores greater than or equal to 720 at origination. (2) FICO CDE refers to loans with FICO scores less than 720 at origination and potentially higher risk. ​ 18 Table of Contents The following table details the balances in all other loan categories at December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revolving ​ Revolving ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans ​ Loans ​ ​ ​ (000’s omitted) ​ Term Loans Amortized Cost Basis by Origination Year ​ Amortized ​ Converted ​ ​ ​ December 31, 2022 2022 2021 2020 2019 2018 Prior Cost Basis to Term Total Consumer mortgage: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ FICO AB (1) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ $ 379,171 ​ $ 492,731 ​ $ 217,889 ​ $ 173,942 ​ $ 100,161 ​ $ 604,258 ​ $ 954 ​ $ 58,639 ​ $ 2,027,745 Nonperforming ​ 0 ​ 75 ​ 573 ​ 184 ​ 399 ​ 4,347 ​ 0 ​ ​ 449 ​ 6,027 Total FICO AB ​ 379,171 ​ 492,806 ​ 218,462 ​ 174,126 ​ 100,560 ​ 608,605 ​ 954 ​ ​ 59,088 ​ 2,033,772 FICO CDE (2) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ 160,388 ​ 178,262 ​ 112,640 ​ 79,357 ​ 54,861 ​ 323,189 ​ 27,884 ​ ​ 22,056 ​ 958,637 Nonperforming ​ 120 ​ 974 ​ 1,250 ​ 1,606 ​ 2,127 ​ 13,177 ​ 151 ​ ​ 661 ​ 20,066 Total FICO CDE ​ 160,508 ​ 179,236 ​ 113,890 ​ 80,963 ​ 56,988 ​ 336,366 ​ 28,035 ​ ​ 22,717 ​ 978,703 Total consumer mortgage ​ $ 539,679 ​ $ 672,042 ​ $ 332,352 ​ $ 255,089 ​ $ 157,548 ​ $ 944,971 ​ $ 28,989 ​ $ 81,805 ​ $ 3,012,475 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consumer indirect: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ $ 777,513 ​ $ 422,594 ​ $ 129,449 ​ $ 99,593 ​ $ 52,298 ​ $ 58,028 ​ $ 0 ​ $ 0 ​ $ 1,539,475 Nonperforming ​ 18 ​ 1 ​ 53 ​ 67 ​ 15 ​ 24 ​ 0 ​ ​ 0 ​ 178 Total consumer indirect ​ $ 777,531 ​ $ 422,595 ​ $ 129,502 ​ $ 99,660 ​ $ 52,313 ​ $ 58,052 ​ $ 0 ​ $ 0 ​ $ 1,539,653 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consumer direct: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ $ 84,111 ​ $ 46,381 ​ $ 17,066 ​ $ 12,729 ​ $ 5,573 ​ $ 5,020 ​ $ 6,563 ​ $ 2 ​ $ 177,445 Nonperforming ​ 6 ​ 51 ​ 1 ​ 1 ​ 29 ​ 50 ​ 22 ​ ​ 0 ​ 160 Total consumer direct ​ $ 84,117 ​ $ 46,432 ​ $ 17,067 ​ $ 12,730 ​ $ 5,602 ​ $ 5,070 ​ $ 6,585 ​ $ 2 ​ $ 177,605 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Home equity: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ $ 69,575 ​ $ 72,270 ​ $ 37,964 ​ $ 31,506 ​ $ 16,068 ​ $ 41,097 ​ $ 132,703 ​ $ 30,569 ​ $ 431,752 Nonperforming ​ 0 ​ 10 ​ 114 ​ 169 ​ 105 ​ 606 ​ 563 ​ ​ 677 ​ 2,244 Total home equity ​ $ 69,575 ​ $ 72,280 ​ $ 38,078 ​ $ 31,675 ​ $ 16,173 ​ $ 41,703 ​ $ 133,266 ​ $ 31,246 ​ $ 433,996 (1) FICO AB refers to higher tiered loans with FICO scores greater than or equal to 720 at origination. (2) FICO CDE refers to loans with FICO scores less than 720 at origination and potentially higher risk. ​ 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 September 30, 2023 and December 31, 2022 follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, December 31, (000’s omitted) 2023 2022 Loans with allowance allocation ​ $ 3,484 ​ $ 0 Loans without allowance allocation ​ 1,055 ​ 3,163 Carrying balance ​ 4,539 ​ 3,163 Contractual balance ​ 4,555 ​ 4,201 Specifically allocated allowance ​ 470 ​ 0 ​ The average carrying balance of individually assessed loans was $ 4.5 million and $ 3.2 million for the three months ended September 30, 2023 and 2022, respectively. The average carrying balance of individually assessed loans was $ 6.6 million and $ 12.2 million for the nine months ended September 30, 2023 and 2022, respectively. No interest income was recognized on individually assessed loans for the three or nine months ended September 30, 2023 and 2022. Occasionally, the Company modifies loans to borrowers experiencing financial difficulty by providing principal forgiveness, term extension, payment delay, interest rate reduction. When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses. 19 Table of Contents In some cases, the Company provides multiple types of modifications on one loan. Typically, one type of modification, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another modification, such as principal forgiveness, may be granted. Upon the Company’s determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is charged off. 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. The estimate of allowance for credit losses includes historical losses from loans that were modified due to borrower financial difficulty, therefore a change to the allowance for credit losses is generally not recorded upon modification. The following tables present the amortized cost basis of loans at September 30, 2023 that were both experiencing financial difficulty and modified during the three and nine months ended September 30, 2023, by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers experiencing financial difficulty as compared to the amortized cost basis of each class of financing receivable is also presented below. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ September 30, 2023 ​ ​ ​ ​ ​ Total Class of ​ ​ Term ​ Financing (000s omitted except for percentages) Extension Receivable Business lending ​ $ 1,401 0.04 % Total ​ $ 1,401 0.01 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended ​ ​ September 30, 2023 ​ ​ ​ ​ ​ Total Class of ​ ​ Term ​ Financing (000s omitted except for percentages) Extension Receivable Business lending ​ $ 2,150 0.05 % Consumer mortgage ​ 198 0.01 % Home equity ​ 29 0.01 % Total ​ $ 2,377 0.03 % ​ The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table presents the performance of such loans that have been modified at September 30, 2023. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 90+ Days Past ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Past Due 30 – ​ Due and Still ​ Non- ​ ​ ​ (000s omitted) Current 89 Days Accruing Accrual Total Business lending ​ $ 2,150 ​ $ 0 ​ $ 0 ​ $ 0 ​ $ 2,150 Consumer mortgage ​ 0 ​ 0 ​ 0 ​ 198 ​ 198 Home equity ​ 29 ​ 0 ​ 0 ​ 0 ​ 29 Total ​ $ 2,179 ​ $ 0 ​ $ 0 ​ $ 198 ​ $ 2,377 ​ 20 Table of Contents The following tables present the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the three and nine months ended September 30, 2023: ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ September 30, 2023 ​ ​ Weighted-Average ​ Term Extension (Years) Business lending 10.0 Total 10.0 ​ ​ ​ ​ ​ ​ Nine Months Ended ​ ​ September 30, 2023 ​ ​ Weighted-Average ​ Term Extension (Years) Business lending 8.3 Consumer mortgage 3.1 Home equity 9.9 Total 7.8 ​ There were no loans modified to borrowers with financial difficulty that had a payment default subsequent to modification during the three and nine months ended September 30, 2023. ​ 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 are presented below. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 (000’s omitted) Nonaccrual Accruing Total ​ # Amount # Amount # Amount Business lending 1 ​ $ 135 3 ​ $ 271 4 ​ $ 406 Consumer mortgage 52 ​ 2,218 46 ​ 2,114 98 ​ 4,332 Consumer indirect 0 ​ 0 56 ​ 600 56 ​ 600 Consumer direct 0 ​ 0 18 ​ 5 18 ​ 5 Home equity 9 ​ 108 9 ​ 178 18 ​ 286 Total 62 ​ $ 2,461 132 ​ $ 3,168 194 ​ $ 5,629 ​ 21 Table of Contents The following table presents information related to loans modified in a TDR during the three months and nine months ended September 30, 2022. Of the loans noted in the table below, all consumer mortgage loans for the three months and nine months ended September 30, 2022 were modified due to a Chapter 7 bankruptcy as described previously. The financial effects of these restructurings were immaterial. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended Nine Months Ended ​ ​ September 30, 2022 ​ September 30, 2022 ​ ​ Number of ​ Outstanding ​ Number of ​ Outstanding (000’s omitted) loans modified Balance loans modified Balance Business lending 0 ​ $ 0 0 ​ $ 0 Consumer mortgage 1 ​ 184 5 ​ 459 Consumer indirect 6 ​ 71 12 ​ 127 Consumer direct 2 ​ 3 2 ​ 3 Home equity 0 ​ 0 1 ​ 6 Total 9 ​ $ 258 20 ​ $ 595 ​ Allowance for Credit Losses The following presents by segment the activity in the allowance for credit losses during the three months and nine months ended September 30, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, 2023 ​ ​ Beginning ​ Charge- ​ ​ ​ ​ ​ ​ ​ Ending (000’s omitted) balance offs Recoveries Provision balance Business lending ​ $ 25,291 ​ $ ( 139 ) ​ $ 152 ​ $ 740 ​ $ 26,044 Consumer mortgage ​ 14,553 ​ ( 143 ) ​ 3 ​ 558 ​ 14,971 Consumer indirect ​ 17,808 ​ ( 2,100 ) ​ 1,319 ​ 1,263 ​ 18,290 Consumer direct ​ 3,032 ​ ( 554 ) ​ 217 ​ 351 ​ 3,046 Home equity ​ 1,600 ​ ( 6 ) ​ 2 ​ ( 2 ) ​ 1,594 Unallocated ​ 1,000 ​ 0 ​ 0 ​ 0 ​ 1,000 Allowance for credit losses – loans ​ 63,284 ​ ( 2,942 ) ​ 1,693 ​ 2,910 ​ 64,945 Liabilities for off-balance-sheet credit exposures ​ 933 ​ 0 ​ 0 ​ ( 32 ) ​ 901 Total allowance for credit losses ​ $ 64,217 ​ $ ( 2,942 ) ​ $ 1,693 ​ $ 2,878 ​ $ 65,846 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Beginning ​ Charge- ​ ​ ​ ​ ​ ​ ​ Ending (000’s omitted) balance offs Recoveries Provision balance Business lending ​ $ 23,241 ​ $ ( 495 ) ​ $ 755 ​ $ 430 ​ $ 23,931 Consumer mortgage ​ ​ 12,631 ​ ​ ( 113 ) ​ ​ 4 ​ ​ 1,296 ​ ​ 13,818 Consumer indirect ​ 14,378 ​ ( 1,706 ) ​ 1,386 ​ 2,960 ​ 17,018 Consumer direct ​ 2,822 ​ ( 342 ) ​ 174 ​ 361 ​ 3,015 Home equity ​ 1,470 ​ ( 32 ) ​ 11 ​ 132 ​ 1,581 Unallocated ​ 1,000 ​ 0 ​ 0 ​ 0 ​ 1,000 Allowance for credit losses – loans ​ 55,542 ​ ( 2,688 ) ​ 2,330 ​ 5,179 ​ 60,363 Liabilities for off-balance-sheet credit exposures ​ 1,223 ​ 0 ​ 0 ​ ( 118 ) ​ 1,105 Total allowance for credit losses ​ $ 56,765 ​ $ ( 2,688 ) ​ $ 2,330 ​ $ 5,061 ​ $ 61,468 22 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, 2023 ​ Beginning Charge- ​ ​ Ending (000’s omitted) ​ balance ​ offs ​ Recoveries ​ Provision ​ balance Business lending ​ $ 23,297 ​ $ ( 618 ) ​ $ 437 ​ $ 2,928 ​ $ 26,044 Consumer mortgage ​ 14,343 ​ ( 366 ) ​ 35 ​ 959 ​ 14,971 Consumer indirect ​ 17,852 ​ ( 6,490 ) ​ 4,342 ​ 2,586 ​ 18,290 Consumer direct ​ 2,973 ​ ( 1,366 ) ​ 637 ​ 802 ​ 3,046 Home equity ​ 1,594 ​ ( 90 ) ​ 13 ​ 77 ​ 1,594 Unallocated ​ 1,000 ​ 0 ​ 0 ​ 0 ​ 1,000 Allowance for credit losses – loans ​ 61,059 ​ ( 8,930 ) ​ 5,464 ​ 7,352 ​ 64,945 Liabilities for off-balance-sheet credit exposures ​ 1,123 ​ 0 ​ 0 ​ ( 222 ) ​ 901 Total allowance for credit losses ​ $ 62,182 ​ $ ( 8,930 ) ​ $ 5,464 ​ $ 7,130 ​ $ 65,846 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ PCD ​ ​ ​ ​ ​ ​ ​ Beginning Charge- ​ ​ ​ Allowance at ​ Ending (000’s omitted) ​ balance ​ offs ​ Recoveries ​ Acquisition ​ Provision ​ balance Business lending ​ $ 22,995 ​ $ ( 650 ) ​ $ 1,249 ​ $ 71 ​ $ 266 ​ $ 23,931 Consumer mortgage ​ 10,017 ​ ( 230 ) ​ 21 ​ ​ 0 ​ 4,010 ​ 13,818 Consumer indirect ​ 11,737 ​ ( 5,183 ) ​ 3,732 ​ ​ 0 ​ 6,732 ​ 17,018 Consumer direct ​ 2,306 ​ ( 859 ) ​ 577 ​ ​ 0 ​ 991 ​ 3,015 Home equity ​ 1,814 ​ ( 69 ) ​ 132 ​ ​ 0 ​ ( 296 ) ​ 1,581 Unallocated ​ 1,000 ​ 0 ​ 0 ​ ​ 0 ​ 0 ​ 1,000 Allowance for credit losses – loans ​ 49,869 ​ ( 6,991 ) ​ 5,711 ​ ​ 71 ​ 11,703 ​ 60,363 Liabilities for off-balance-sheet credit exposures ​ 803 ​ 0 ​ 0 ​ ​ 0 ​ 302 ​ 1,105 Total allowance for credit losses ​ $ 50,672 ​ $ ( 6,991 ) ​ $ 5,711 ​ $ 71 ​ $ 12,005 ​ $ 61,468 ​ The allowance for credit losses for loans increased to $ 64.9 million at September 30, 2023 compared to $ 61.1 million at December 31, 2022 and $ 60.4 million at September 30, 2022, reflective of a stable 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 $ 28.4 million at September 30, 2023 and is excluded from the estimate of credit losses and amortized cost basis of loans. Under ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) , also referred to as “CECL”, the Company utilizes the historical loss rate on its loan portfolio as the initial basis for the estimate of credit losses using the cumulative loss, vintage loss and line loss methods, which is derived from the Company’s historical loss experience. Adjustments to historical loss experience were made for differences in current loan-specific risk characteristics and to address current period delinquencies, charge-off rates, risk ratings, lack of loan level data through an entire economic cycle, changes in loan sizes and underwriting standards, as well as the addition of acquired loans which were not underwritten by the Company. The Company considered historical losses immediately prior, through and following the Great Recession of 2008 compared to the historical period used for modeling to adjust the historical information to account for longer-term expectations for loan credit performance. Under CECL, the Company is required to consider future economic conditions to determine current expected credit losses. Management selected an eight-quarter reasonable and supportable forecast period with a four-quarter reversion to the historical mean to use as part of the economic forecast, and utilizes a two-quarter lag adjustment for economic factors that are not dependent on collateral values and no lag for factors that do utilize collateral values. 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 September 30, 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. The scenarios utilized forecast stable unemployment levels offset by modest GDP and household income growth and continued deterioration in residential real estate, commercial real estate and used auto prices. 23 Table of Contents Management developed expected loss estimates considering factors for segments as outlined below: ● Business lending – non real estate: The Company selected projected unemployment and GDP as indicators of forecasted losses related to business lending and utilize both factors in an even weight for the calculation. The Company also considered delinquencies, risk rating changes, recent charge-off history and acquired loans as part of the review of estimated losses. ● Business lending – real estate: The Company selected projected unemployment and commercial real estate values as indicators of forecasted losses related to commercial real estate loans and utilize both factors in an even weight for the calculation. The Company also considered the factors noted in business lending – non real estate. ● Consumer mortgages and home equity: The Company selected projected unemployment and residential real estate values as indicators of forecasted losses related to mortgage lending and utilize both factors in an even weight for the calculation. In addition, current delinquencies, charge-offs and acquired loans were considered. ● Consumer indirect: The Company selected projected unemployment and vehicle valuation indices as indicators of forecasted losses related to indirect lending and utilize both factors in an even weight for the calculation. In addition, current delinquencies, charge-offs and acquired loans were considered. ● Consumer direct: The Company selected projected unemployment and inflation-adjusted household income as indicators of forecasted losses related to consumer direct lending and utilize both factors in an even weight for the calculation. In addition, current delinquencies, charge-offs and acquired loans were considered. At September 30, 2023, loans with a carrying amount of approximately $ 4.30 billion were pledged to secure certain borrowings with the FHLB and FRB. There were $ 315.8 million of borrowings outstanding under these arrangements at September 30, 2023. ​ During the nine months ended September 30, 2023, the Company did not purchase any loans, while the Company sold $ 4.6 million of secondary market eligible residential consumer mortgage loans during the period. During the nine months ended September 30, 2022, the Company purchased $ 436.9 million of loans in connection with the acquisition of Elmira, consisting of $ 125.3 million of business lending loans, $ 271.4 million of consumer mortgage loans, $ 9.4 million of consumer indirect loans, $ 12.5 million of consumer direct loans and $ 18.3 million of home equity loans. The Company sold $ 4.5 million of secondary market eligible residential consumer mortgage loans during the nine months ended September 30, 2022. ​ NOTE F: GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS The gross carrying amount and accumulated amortization for each type of identifiable intangible asset are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2023 December 31, 2022 ​ ​ Gross ​ ​ ​ ​ Net ​ Gross ​ ​ ​ ​ Net ​ Carrying Accumulated Carrying Carrying Accumulated Carrying (000’s omitted) ​ Amount Amortization Amount Amount Amortization Amount Amortizing intangible assets: ​ ​ ​ ​ ​ ​ ​ Core deposit intangibles ​ $ 77,373 ​ $ ( 68,286 ) ​ $ 9,087 ​ $ 77,373 ​ $ ( 65,069 ) ​ $ 12,304 Other intangibles ​ 125,703 ​ ( 78,852 ) ​ 46,851 ​ 119,813 ​ ( 71,121 ) ​ 48,692 Total amortizing intangibles ​ $ 203,076 ​ $ ( 147,138 ) ​ $ 55,938 ​ $ 197,186 ​ $ ( 136,190 ) ​ $ 60,996 ​ 24 Table of Contents The estimated aggregate amortization expense for each of the five succeeding fiscal years ended December 31 is as follows: ​ ​ ​ ​ ​ (000’s omitted) Oct - Dec 2023 ​ $ 3,563 2024 ​ ​ 12,808 2025 ​ 10,927 2026 ​ 9,625 2027 ​ 4,049 Thereafter ​ 14,966 Total ​ $ 55,938 ​ Shown below are the components of the Company’s goodwill at December 31, 2022 and September 30, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (000’s omitted) December 31, 2022 Additions September 30, 2023 Goodwill ​ $ 841,841 ​ $ 3,555 ​ $ 845,396 ​ ​ ​ NOTE G: BORROWINGS During the third quarter of 2023, the Company secured $ 300.0 million of fixed rate FHLB term borrowings. The borrowings consisted of a $ 100.0 million five year fixed rate advance with a rate of 4.50 % and a $ 200.0 million five year monthly amortizing advance with a rate of 4.78 % , both of which have contractual final maturity dates in August 2028. ​ NOTE H: BENEFIT PLANS The Company provides a qualified defined benefit pension to eligible employees and retirees, other post-retirement health and life insurance benefits to certain retirees, an unfunded supplemental pension plan for certain key executives, and an unfunded stock balance plan for certain of its nonemployee directors. The Company accrues for the estimated cost of these benefits through charges to expense during the years that employees earn these benefits. 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 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 post-retirement benefits component of net periodic benefit cost for the three and nine months ended September 30, 2023 and 2022 is immaterial. The pension benefits component of net periodic benefit cost for the three and nine months ended September 30, 2023 and 2022 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pension Benefits ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, (000’s omitted) 2023 2022 2023 2022 Service cost ​ $ 1,108 ​ $ 1,240 ​ $ 3,324 ​ $ 3,720 Interest cost ​ ​ 1,890 ​ ​ 1,334 ​ ​ 5,670 ​ ​ 4,002 Expected return on plan assets ​ ( 4,020 ) ​ ( 4,756 ) ​ ​ ( 12,060 ) ​ ​ ( 14,268 ) Amortization of unrecognized net (gain) loss ​ ( 555 ) ​ 211 ​ ​ ( 1,665 ) ​ ​ 633 Amortization of prior service cost ​ 205 ​ 154 ​ ​ 615 ​ ​ 462 Net periodic benefit ​ $ ( 1,372 ) ​ $ ( 1,817 ) ​ $ ( 4,116 ) ​ $ ( 5,451 ) ​ ​ NOTE I: EARNINGS PER SHARE The two class method is used in the calculations of basic and diluted earnings per share. 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 September 30, 2023. 25 Table of Contents Basic earnings per share are computed based on the weighted-average of the common shares outstanding for the period. Diluted earnings per share are based on the weighted-average of the shares outstanding and the assumed exercise of stock options during the year. The dilutive effect of options is calculated using the treasury stock method of accounting. 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. Weighted-average anti-dilutive stock options outstanding for the three and nine months ended September 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 nine months ended September 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 nine months ended September 30, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, (000’s omitted, except per share data) 2023 2022 2023 2022 Net income ​ $ 44,129 ​ $ 48,691 ​ $ 98,218 ​ $ 135,551 Income attributable to unvested stock-based compensation awards ​ ( 158 ) ​ ( 142 ) ​ ( 327 ) ​ ( 386 ) Income available to common shareholders ​ $ 43,971 ​ $ 48,549 ​ $ 97,891 ​ $ 135,165 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average common shares outstanding – basic ​ 53,502 ​ 53,830 ​ 53,673 ​ 53,915 Basic earnings per share ​ $ 0.82 ​ $ 0.90 ​ $ 1.82 ​ $ 2.51 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ $ 44,129 ​ $ 48,691 ​ $ 98,218 ​ $ 135,551 Income attributable to unvested stock-based compensation awards ​ ( 158 ) ​ ( 142 ) ​ ( 327 ) ​ ( 386 ) Income available to common shareholders ​ $ 43,971 ​ $ 48,549 ​ $ 97,891 ​ $ 135,165 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average common shares outstanding – basic ​ 53,502 ​ 53,830 ​ 53,673 ​ 53,915 Assumed exercise of stock options ​ 104 ​ 302 ​ 135 ​ 328 Weighted-average common shares outstanding – diluted ​ 53,606 ​ 54,132 ​ 53,808 ​ 54,243 Diluted earnings per share ​ $ 0.82 ​ $ 0.90 ​ $ 1.82 ​ $ 2.49 ​ Stock Repurchase Program 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 500,000 shares of treasury stock purchases made under this authorization during the first nine months of 2023 with an average price paid per share of $ 51.35 . 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, all of which were repurchased during the first nine months of 2022, with an average price paid per share of $ 65.51 . ​ 26 Table of Contents NOTE J: COMMITMENTS, CONTINGENT LIABILITIES AND RESTRICTIONS The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments consist primarily of commitments to extend credit and standby letters of credit. Commitments to extend credit are agreements to lend to customers, generally having fixed expiration dates or other termination clauses that may require payment of a fee. These commitments consist principally of unused commercial and consumer credit lines. Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of an underlying contract with a third party. The credit risks associated with commitments to extend credit and standby letters of credit are essentially the same as that involved with extending loans to customers and are subject to the Company’s normal credit policies. Collateral may be obtained based on management’s assessment of the customer’s creditworthiness. The fair value of the standby letters of credit is immaterial for disclosure. The contract amounts of commitments and contingencies are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, December 31, (000’s omitted) ​ 2023 ​ 2022 Commitments to extend credit ​ $ 1,532,806 ​ $ 1,486,791 Standby letters of credit ​ 58,552 ​ 57,347 Total ​ $ 1,591,358 ​ $ 1,544,138 ​ 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 September 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. For those matters where it is probable that the Company will incur losses and the amounts of the losses can be reasonably estimated, the Company records an expense and corresponding liability in its consolidated financial statements. 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 losses for matters where an exposure is not currently estimable or considered probable 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. While 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. ​ NOTE K: FAIR VALUE Accounting standards establish a framework for measuring fair value and require certain disclosures about such fair value instruments. It defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. exit price). Inputs used to measure fair value are classified into the following hierarchy: ​ ​ ​ ● Level 1 - Quoted prices in active markets for identical assets or liabilities. ● Level 2 - Quoted prices in active markets for similar assets or liabilities, or quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability. ● Level 3 - Significant valuation assumptions not readily observable in a market. ​ 27 Table of Contents A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The following tables set forth the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis. There were no transfers between any of the levels for the periods presented. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Fair (000’s omitted) Level 1 Level 2 Level 3 Value Available-for-sale investment securities: ​ ​ ​ ​ U.S. Treasury and agency securities ​ $ 1,921,264 ​ $ 58,175 ​ $ 0 ​ $ 1,979,439 Obligations of state and political subdivisions ​ 0 ​ 434,465 ​ 0 ​ 434,465 Government agency mortgage-backed securities ​ 0 ​ 337,071 ​ 0 ​ 337,071 Corporate debt securities ​ 0 ​ 7,174 ​ 0 ​ 7,174 Government agency collateralized mortgage obligations ​ 0 ​ 9,487 ​ 0 ​ 9,487 Total available-for-sale investment securities ​ 1,921,264 ​ 846,372 ​ 0 ​ 2,767,636 Equity securities ​ 320 ​ 0 ​ 0 ​ 320 Mortgage loans held for sale ​ ​ 0 ​ ​ 604 ​ ​ 0 ​ ​ 604 Commitments to originate real estate loans for sale ​ ​ 0 ​ ​ 0 ​ ​ 13 ​ ​ 13 Forward sales commitments ​ ​ 0 ​ ​ 10 ​ ​ 0 ​ ​ 10 Total ​ $ 1,921,584 ​ $ 846,986 ​ $ 13 ​ $ 2,768,583 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Fair (000’s omitted) Level 1 Level 2 Level 3 Value Available-for-sale investment securities: ​ ​ ​ ​ U.S. Treasury and agency securities ​ $ 3,178,189 ​ $ 65,348 ​ $ 0 ​ $ 3,243,537 Obligations of state and political subdivisions ​ 0 ​ 504,297 ​ 0 ​ 504,297 Government agency mortgage-backed securities ​ 0 ​ 384,633 ​ 0 ​ 384,633 Corporate debt securities ​ 0 ​ 7,114 ​ 0 ​ 7,114 Government agency collateralized mortgage obligations ​ 0 ​ 12,270 ​ 0 ​ 12,270 Total available-for-sale investment securities ​ 3,178,189 ​ 973,662 ​ 0 ​ 4,151,851 Equity securities ​ 419 ​ 0 ​ 0 ​ 419 Commitments to originate real estate loans for sale ​ ​ 0 ​ ​ 0 ​ ​ 5 ​ ​ 5 Forward sales commitments ​ ​ 0 ​ ​ 5 ​ ​ 0 ​ ​ 5 Interest rate swap agreements asset ​ 0 ​ 1 ​ 0 ​ 1 Interest rate swap agreements liability ​ 0 ​ ( 1 ) ​ ​ 0 ​ ( 1 ) Total ​ $ 3,178,608 ​ $ 973,667 ​ $ 5 ​ $ 4,152,280 ​ The valuation techniques used to measure fair value for the items in the table above are as follows: ● Available-for-sale investment securities and equity securities – The fair values of available-for-sale investment securities are based upon quoted prices, if available. If quoted prices are not available, fair values are measured using quoted market prices for similar securities or model-based valuation techniques. Level 1 securities include U.S. Treasury obligations and marketable equity securities that are traded by dealers or brokers in active over-the-counter markets. Level 2 securities include U.S. agency securities, mortgage-backed securities issued by government-sponsored entities, municipal securities and corporate debt securities that are valued by reference to prices for similar securities or through model-based techniques in which all significant inputs, such as reported trades, trade execution data, interest rate swap yield curves, market prepayment speeds, credit information, market spreads, and security’s terms and conditions, are observable. See Note D for further disclosure of the fair value of investment securities. 28 Table of Contents ● Mortgage loans held for sale – The Company has elected to value loans held for sale at fair value in order to more closely match the gains and losses associated with loans held for sale with the gains and losses on forward sales contracts. Accordingly, the impact on the valuation will be recognized in the Company’s consolidated statements of income. All mortgage loans held for sale are current and in performing status. 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 $ 0.6 million at September 30, 2023. There were no mortgage loans held for sale at December 31, 2022. Mortgage loans held for sale are included in other assets in the consolidated statements of condition. The unrealized gain on mortgage loans held for sale was recognized in mortgage banking revenues in the consolidated statements of income and is immaterial. ● Forward sales commitments – The Company enters into forward sales commitments to sell certain residential real estate loans. Such commitments are considered to be derivative financial instruments and, therefore, are carried at estimated fair value in the other asset or other liability section of the consolidated statements of condition. The fair value of these forward sales commitments is primarily measured by obtaining pricing from certain government-sponsored entities and reflects the underlying price the entity would pay the Company for an immediate sale on these mortgages. As such, these instruments are classified as Level 2 in the fair value hierarchy. ● Commitments to originate real estate loans for sale – The Company enters into various commitments to originate residential real estate loans for sale. Such commitments are considered to be derivative financial instruments and, therefore, are carried at estimated fair value in the other asset or other liability section of the consolidated statements of condition. The estimated fair value of these commitments is determined using quoted secondary market prices obtained from certain government-sponsored entities. Additionally, accounting guidance requires the expected net future cash flows related to the associated servicing of the loan to be included in the fair value measurement of the derivative. The expected net future cash flows are based on a valuation model that calculates the present value of estimated net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income. Such assumptions include estimates of the cost of servicing loans, appropriate discount rate and prepayment speeds. The determination of expected net cash flows is considered a significant unobservable input contributing to the Level 3 classification of commitments to originate real estate loans for sale. ● Interest rate swap agreements – The interest rate swaps are reported at their fair value utilizing Level 2 inputs from third parties. The fair value of the interest rate swaps are determined using prices obtained from a third party advisor. The fair value measurement of the interest rate swap is determined by netting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on the expectation of future interest rates derived from observed market interest rate curves. The changes in Level 3 assets measured at fair value on a recurring basis are immaterial. 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. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2023 ​ December 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ Total Fair ​ ​ ​ ​ ​ ​ Total Fair (000’s omitted) ​ Level 1 ​ Level 2 ​ Level 3 ​ Value ​ Level 1 ​ Level 2 ​ Level 3 ​ Value Individually assessed loans ​ $ 0 ​ $ 0 ​ $ 3,014 $ 3,014 ​ $ 0 ​ $ 0 ​ $ 0 $ 0 Other real estate owned ​ ​ 0 ​ ​ 0 ​ ​ 578 ​ 578 ​ ​ 0 ​ ​ 0 ​ ​ 503 ​ 503 Mortgage servicing rights ​ 0 ​ 0 ​ 309 309 ​ 0 ​ 0 ​ 1,169 1,169 Contingent consideration ​ ​ 0 ​ ​ 0 ​ ​ ( 2,950 ) ​ ​ ( 2,950 ) ​ ​ 0 ​ ​ 0 ​ ​ ( 2,800 ) ​ ​ ( 2,800 ) Total ​ $ 0 ​ $ 0 ​ $ 951 $ 951 ​ $ 0 ​ $ 0 ​ $ ( 1,128 ) $ ( 1,128 ) ​ 29 Table of Contents Loans are generally not recorded at fair value on a recurring basis. Periodically, the Company records nonrecurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Nonrecurring adjustments also include certain impairment amounts for collateral-dependent loans calculated when establishing the allowance for credit losses. Such amounts are generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated valuation amount does not necessarily represent the fair value of the loan. Real estate collateral is typically valued using independent appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace, adjusted for non-observable inputs. Thus, the resulting nonrecurring fair value measurements are generally classified as Level 3. Estimates of fair value used for other collateral supporting commercial loans generally are based on assumptions not observable in the marketplace and, therefore, such valuations are classified as Level 3. Other real estate owned (“OREO”) is valued at the time the loan is foreclosed upon and the asset is transferred to OREO. The value is based primarily on third party appraisals, less costs to sell. 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 73.8 % at September 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. The Company recovers the carrying value of OREO through the sale of the property. The ability to affect future sales prices is subject to market conditions and factors beyond the Company’s control and may impact the estimated fair value of a property. Originated mortgage servicing rights are recorded at their fair value at the time of sale of the underlying loan, and are amortized in proportion to and over the estimated period of net servicing income. The fair value of mortgage servicing rights is based on a valuation model incorporating inputs that market participants would use in estimating future net servicing income. Such inputs include estimates of the cost of servicing loans, appropriate discount rate and prepayment speeds and are considered to be unobservable and contribute to the Level 3 classification of mortgage servicing rights. In accordance with GAAP, the Company must record impairment charges, on a nonrecurring basis, when the carrying value of a mortgage servicing rights class exceeds its estimated fair value. Impairment is recognized through a valuation allowance. There is a valuation allowance of approximately $ 1.2 million and $ 0.7 million at September 30, 2023 and December 31, 2022, respectively. The Company has recorded contingent consideration liabilities that arise from acquisition activity. The contingent consideration is recorded at fair value at the date of acquisition. The valuation of contingent consideration is calculated using an income approach method, which provides an estimation of the fair value of an asset or liability based on future cash flows over a discrete projection period, discounted to present value using an appropriate rate of return. The assumptions used in the valuation calculation are based on significant unobservable inputs, therefore such valuations are classified 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 of achievement of retained revenue level of 37.8 %. 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. No adjustments were made to the fair value of the contingent consideration related to the FBD acquisition during the three months ended September 30, 2023. 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 of achievement of retained revenue level of 86.1 %. 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. In the third quarter of 2023, the first of the two required payments were made on the contingent consideration in the amount of $ 2.4 million, based on actual retained revenue results. An additional $ 0.1 million adjustment was recorded to adjust the fair value of the remaining contingent consideration liability, resulting in a fair value of $ 0.5 million at September 30, 2023. 30 Table of Contents The Company determines fair values based on quoted market values, where available, estimates of present values, or other valuation techniques. Those techniques are significantly affected by the assumptions used, including, but not limited to, the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, may not be realized in immediate settlement of the instrument. The significant unobservable inputs used in the determination of fair value of assets classified as Level 3 on a recurring or non-recurring basis are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Significant Unobservable ​ ​ Fair Value at ​ ​ ​ ​ ​ Input Range ​ (000’s omitted, except per loan data) ​ September 30, 2023 ​ Valuation Technique ​ Significant Unobservable Inputs (Weighted Average) ​ Individually assessed loans ​ $ 3,014 Fair value of collateral Estimated cost of disposal/market adjustment ​ 27.2 % Other real estate owned ​ ​ 578 Fair value of collateral Estimated cost of disposal/market adjustment ​ 9.0 % – 73.8 % ( 38.5 %) ​ Commitments to originate real estate loans for sale ​ 13 Discounted cash flow Embedded servicing value ​ 1.0 % Mortgage servicing rights ​ 309 Discounted cash flow Weighted average constant prepayment rate ​ 5.6 % - 6.1 % ( 5.6 %) ​ ​ ​ ​ ​ ​ ​ ​ Weighted average discount rate ​ ​ 5.3 % - 5.7 % ( 5.7 %) ​ ​ ​ ​ ​ ​ ​ ​ Adequate compensation ​ $ 7 /loan ​ Contingent consideration ​ ​ ( 2,950 ) ​ Discounted cash flow ​ Discount rate ​ ​ 6.7 % - 6.9 % ( 6.9 %) ​ ​ ​ ​ ​ ​ ​ ​ Probability of achievement ​ ​ 37.8 % - 100.0 % ( 70.9 %) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Significant Unobservable ​ ​ ​ Fair Value at ​ ​ ​ ​ ​ Input Range ​ (000's omitted, except per loan data) ​ December 31, 2022 ​ Valuation Technique ​ Significant Unobservable Inputs ​ (Weighted Average) Other real estate owned ​ $ 503 Fair value of collateral Estimated cost of disposal/market adjustment ​ 9.0 % - 72.8 % ( 35.7 %) ​ Commitments to originate real estate loans for sale ​ ​ 5 ​ Discounted cash flow ​ Embedded servicing value ​ ​ 1.0 % Mortgage servicing rights ​ 1,169 Discounted cash flow Weighted average constant prepayment rate ​ 2.9 % - 3.3 % ( 2.9 %) ​ ​ ​ Weighted average discount rate ​ 4.6 % - 4.9 % ( 4.9 %) ​ ​ ​ ​ ​ ​ ​ Adequate compensation ​ $ 7 /loan ​ Contingent consideration ​ ​ ( 2,800 ) ​ Discounted cash flow ​ Discount rate ​ ​ 5.9 % - 6.2 % ( 6.1 %) ​ ​ ​ ​ ​ ​ ​ ​ Probability of achievement ​ ​ 44.9 % - 53.5 % ( 50.1 %) ​ ​ The significant unobservable inputs used in the determination of the fair value of assets classified as Level 3 have an inherent measurement uncertainty that, if changed, could result in higher or lower fair value measurements of these assets as of the reporting date. The weighted average of the estimated cost of disposal/market adjustment for other real estate owned was calculated by dividing the total of the differences between the appraisal values of the real estate and the book values of the real estate divided by the totals of the appraisal values of the real estate. The weighted average of the constant prepayment rate for mortgage servicing rights was calculated by adding the constant prepayment rates used in each loan pool weighted by the balance in each loan pool. The weighted average of the discount rate for mortgage servicing rights was calculated by adding the discount rates used in each loan pool weighted by the balance in each loan pool. The weighted average of the discount rate for the contingent consideration was calculated by adding the discount rates used for the calculation of the fair value of each payment of contingent consideration, weighted by the amount of the payment as part of the total fair value of contingent consideration. The weighted average of the probability of achievement was determined by calculating the proportion of the probability-weighted payment of the total maximum payment, weighted by the amount of the payment as part of the total fair value of contingent consideration. 31 Table of Contents Certain financial instruments and all nonfinancial instruments are excluded from fair value disclosure requirements. 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 September 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. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2023 ​ December 31, 2022 ​ Carrying Fair Carrying Fair (000’s omitted) ​ Value ​ Value ​ Value ​ Value Financial assets: ​ ​ ​ ​ Net loans ​ $ 9,385,121 ​ $ 8,836,726 ​ $ 8,748,335 ​ $ 8,696,185 Held-to-maturity securities ​ ​ 1,125,540 ​ ​ 990,660 ​ ​ 1,079,695 ​ ​ 1,034,795 Financial liabilities: ​ ​ ​ ​ ​ ​ ​ ​ Deposits ​ 13,030,788 ​ 12,997,731 ​ 13,012,308 ​ 12,981,487 Overnight borrowings ​ 0 ​ 0 ​ 768,400 ​ 768,400 Securities sold under agreement to repurchase, short-term ​ 330,252 ​ 330,252 ​ 346,652 ​ 346,652 Other Federal Home Loan Bank borrowings ​ 316,837 ​ 313,111 ​ 19,474 ​ 19,377 Subordinated notes payable ​ 0 ​ 0 ​ 3,249 ​ 3,249 ​ The following is a further description of the principal valuation methods used by the Company to estimate the fair values of its financial instruments. Loans have been classified as a Level 3 valuation. Fair values for variable rate loans that reprice frequently are based on carrying values. Fair values for fixed rate loans are estimated using discounted cash flows and interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Held-to-maturity U.S. Treasury and agency securities have been classified as a Level 1 valuation. The fair values of held-to-maturity U.S. Treasury and agency investment securities are based upon quoted prices, if available. If quoted prices are not available, fair values are measured using quoted market prices for similar securities or model-based valuation techniques. Held-to-maturity government agency mortgage-backed securities have been classified as a Level 2 valuation. The fair values of held-to-maturity government agency mortgage-backed securities are based on current market rates for similar products. Deposits have been classified as a Level 2 valuation. The fair value of demand deposits, interest-bearing checking deposits, savings accounts and money market deposits is the amount payable on demand at the reporting date. The fair value of time deposit obligations are based on current market rates for similar products. Borrowings and subordinated notes payable have been classified as a Level 2 valuation. The fair value of overnight borrowings and securities sold under agreement to repurchase, short-term, is the amount payable on demand at the reporting date. Fair values for other FHLB borrowings and subordinated notes payable are estimated using discounted cash flows and interest rates currently being offered on similar securities. The difference between the carrying values of subordinated notes payable, and their fair values, are not material as of the reporting dates. Other financial assets and liabilities – cash and cash equivalents have been classified as a Level 1 valuation, while accrued interest receivable and accrued interest payable have been classified as a Level 2 valuation. The fair values of each approximate the respective carrying values because the instruments are payable on demand or have short-term maturities and present relatively low credit risk and interest rate risk. ​ 32 Table of Contents NOTE L: SEGMENT INFORMATION Operating segments are components of an enterprise, which are evaluated regularly by the “chief operating decision maker” in deciding how to allocate resources and assess performance. The Company’s chief operating decision maker is the President and Chief Executive Officer of the Company. The Company has identified Banking, Employee Benefit Services and All Other as its reportable operating business segments. Community Bank, N.A. (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, 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. The All Other segment is comprised of: (a) wealth management services including trust services provided by the personal trust unit within the Bank, broker-dealer and investment advisory services provided by Community Investment Services, Inc., The Carta Group, Inc. 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. 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). ​ Information about reportable segments and reconciliation of the information to the consolidated financial statements follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Employee ​ ​ ​ ​ ​ ​ ​ Consolidated (000’s omitted) Banking Benefit Services All Other Eliminations Total Three Months Ended September 30, 2023 ​ ​ ​ ​ ​ Net interest income ​ $ 107,169 ​ $ 486 ​ $ 131 ​ $ 0 ​ $ 107,786 Provision for credit losses ​ 2,878 ​ 0 ​ 0 ​ 0 ​ 2,878 Noninterest revenues ​ 18,448 ​ 30,777 ​ 20,438 ​ ( 2,077 ) ​ 67,586 Amortization of intangible assets ​ 1,004 ​ 1,596 ​ 976 ​ 0 ​ 3,576 Acquisition expenses ​ 0 ​ 0 ​ 0 ​ 0 ​ 0 Acquisition-related contingent consideration adjustment ​ ​ 0 ​ ​ 0 ​ ​ 80 ​ ​ 0 ​ ​ 80 Other operating expenses ​ 78,884 ​ 18,996 ​ 17,045 ​ ( 2,077 ) ​ 112,848 Income before income taxes ​ $ 42,851 ​ $ 10,671 ​ $ 2,468 ​ $ 0 ​ $ 55,990 Assets ​ $ 15,160,821 ​ $ 237,310 ​ $ 103,721 ​ $ ( 115,530 ) ​ $ 15,386,322 Goodwill ​ $ 732,598 ​ $ 85,384 ​ $ 27,414 ​ $ 0 ​ $ 845,396 Core deposit intangibles & Other intangibles ​ $ 10,110 ​ $ 28,258 ​ $ 17,570 ​ $ 0 ​ $ 55,938 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest income ​ $ 110,311 ​ $ 75 ​ $ 8 ​ $ 0 ​ $ 110,394 Provision for credit losses ​ 5,061 ​ 0 ​ 0 ​ 0 ​ 5,061 Noninterest revenues ​ 19,427 ​ 28,451 ​ 19,210 ​ ( 1,839 ) ​ 65,249 Amortization of intangible assets ​ 1,266 ​ 1,633 ​ 938 ​ 0 ​ 3,837 Acquisition expenses ​ 409 ​ 0 ​ 0 ​ 0 ​ 409 Other operating expenses ​ 73,554 ​ 17,711 ​ 14,513 ​ ( 1,839 ) ​ 103,939 Income before income taxes ​ $ 49,448 ​ $ 9,182 ​ $ 3,767 ​ $ 0 ​ $ 62,397 Assets ​ $ 15,373,021 ​ $ 250,784 ​ $ 102,883 ​ $ ( 132,141 ) ​ $ 15,594,547 Goodwill ​ $ 735,680 ​ $ 85,381 ​ $ 23,923 ​ $ 0 ​ $ 844,984 Core deposit intangibles & Other intangibles ​ $ 13,550 ​ $ 35,045 ​ $ 15,645 ​ $ 0 ​ $ 64,240 ​ 33 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Employee ​ ​ ​ ​ ​ ​ ​ Consolidated (000's omitted) Banking Benefit Services All Other Eliminations Total Nine Months Ended September 30, 2023 ​ ​ ​ ​ ​ Net interest income ​ $ 326,621 ​ $ 1,129 ​ $ 345 ​ $ 0 ​ $ 328,095 Provision for credit losses ​ 7,130 ​ 0 ​ 0 ​ 0 ​ 7,130 Loss on sales of investment securities ​ ( 52,329 ) ​ 0 ​ 0 ​ 0 ​ ( 52,329 ) Gain on debt extinguishment ​ ​ 242 ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 242 Other noninterest revenues ​ ​ 54,397 ​ ​ 90,416 ​ ​ 60,764 ​ ​ ( 6,425 ) ​ ​ 199,152 Amortization of intangible assets ​ 3,370 ​ 4,860 ​ 2,718 ​ 0 ​ 10,948 Acquisition expenses ​ 16 ​ 0 ​ 40 ​ 0 ​ 56 Acquisition-related contingent consideration adjustment ​ ​ 0 ​ ​ ( 100 ) ​ ​ 1,180 ​ ​ 0 ​ ​ 1,080 Other operating expenses ​ 232,647 ​ 56,709 ​ 48,579 ​ ( 6,425 ) ​ 331,510 Income before income taxes ​ $ 85,768 ​ $ 30,076 ​ $ 8,592 ​ $ 0 ​ $ 124,436 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest income ​ $ 308,177 ​ $ 210 ​ $ 20 ​ $ 0 ​ $ 308,407 Provision for credit losses ​ 12,005 ​ 0 ​ 0 ​ 0 ​ 12,005 Noninterest revenues ​ 55,634 ​ 88,093 ​ 57,065 ​ ( 5,773 ) ​ 195,019 Amortization of intangible assets ​ 3,506 ​ 4,974 ​ 2,940 ​ 0 ​ 11,420 Acquisition expenses ​ 4,665 ​ 3 ​ 0 ​ 0 ​ 4,668 Acquisition-related contingent consideration adjustment ​ ​ 0 ​ ​ ( 100 ) ​ ​ 500 ​ ​ 0 ​ ​ 400 Other operating expenses ​ 212,616 ​ 53,026 ​ 42,059 ​ ( 5,773 ) ​ 301,928 Income before income taxes ​ $ 131,019 ​ $ 30,400 ​ $ 11,586 ​ $ 0 ​ $ 173,005 ​ ​ ​ ​ ​ 34 Table of Contents