What changed in this filing

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Item 1. Financial Statements

2024-05-10 compared with 2023-11-09 · 325 added, 391 removed, 683 unchanged (51% of the section changed)

3 unchanged sentences

(In Thousands, Except Share Data)

September 30,

Cash and cash equivalents

15 unchanged sentences

Other Federal Home Loan Bank borrowings

Subordinated notes payable

Accrued interest and other liabilities

8 unchanged sentences

Accumulated other comprehensive loss

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)

Treasury stock, at cost ( 1,775,546 shares, including 100,870 shares held by deferred compensation arrangements at March 31, 2024 and 1,045,232 shares including 120,556 shares held by deferred compensation arrangements at December 31, 2023)

Deferred compensation arrangements ( 100,870 and 120,556 shares, respectively)

6 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Interest income:

6 unchanged sentences

Interest on borrowings

Interest on subordinated notes payable

Total interest expense

11 unchanged sentences

Gain on debt extinguishment

Unrealized loss on equity securities

Unrealized gain on equity securities

Total noninterest revenues

6 unchanged sentences

Business development and marketing

Litigation accrual

Acquisition expenses

Acquisition-related contingent consideration adjustment

Other expenses

5 unchanged sentences

COMMUNITY BANK SYSTEM, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(In Thousands)

Three Months Ended

Nine Months Ended

September 30,

Pension and other post-retirement obligations:

Amortization of actuarial (gains) losses included in net periodic pension cost, gross

Amortization of actuarial (gains) losses included in net periodic pension cost, net

Amortization of actuarial losses (gains) included in net periodic pension cost, gross

Amortization of actuarial losses (gains) included in net periodic pension cost, net

Amortization of prior service cost included in net periodic pension cost, gross

Amortization of prior service cost included in net periodic pension cost, net

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

Net unrealized losses on investment securities:

Net unrealized holding losses on investment securities, gross

Net unrealized holding losses on investment securities, net

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

Net unrealized (losses) gains on investment securities:

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

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

Reclassification adjustment for net losses included in net income, gross

Reclassification adjustment for net losses included in net income, net

Other comprehensive loss related to unrealized losses on investment securities, net of taxes

Other comprehensive loss, net of taxes

Comprehensive (loss) income

September 30,

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

Other comprehensive (loss) income, net of tax

Comprehensive income

Accumulated Other Comprehensive Loss by Component:

Unrealized loss for pension and other post-retirement obligations

Net unrealized loss for pension and other post-retirement obligations

Unrecognized prior service cost and net actuarial losses on pension and other post-retirement obligations

Net unrecognized prior service cost and net actuarial losses on pension and other post-retirement obligations

Unrealized loss on investment securities

4 unchanged sentences

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

Three months ended September 30, 2023 and 2022

(In Thousands, Except Share Data)

Comprehensive

Balance at June 30, 2023

Other comprehensive loss, net of tax

Dividends declared:

Common, $ 0.45 per share

Common stock activity under employee stock plans

Stock-based compensation

Treasury stock purchased

Treasury stock issued to benefit plans, net

Balance at September 30, 2023

Balance at June 30, 2022

Other comprehensive loss, net of tax

Dividends declared:

Common, $ 0.44 per share

Common stock activity under employee stock plans

Stock-based compensation

Treasury stock purchased to benefit plans, net

Balance at September 30, 2022

See accompanying notes to consolidated financial statements (unaudited).

COMMUNITY BANK SYSTEM, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

Nine months ended September 30, 2023 and 2022

Three months ended March 31, 2024 and 2023

(In Thousands, Except Share Data)

8 unchanged sentences

Treasury stock purchased

Treasury stock issued to benefit plans, net

Balance at September 30, 2023

Balance at March 31, 2024

Balance at December 31, 2022

Other comprehensive loss, net of tax

Other comprehensive income, net of tax

Dividends declared:

4 unchanged sentences

Treasury stock purchased

Treasury stock issued to benefit plans, net

Balance at September 30, 2022

Balance at March 31, 2023

See accompanying notes to consolidated financial statements (unaudited).

2 unchanged sentences

(In Thousands)

Nine Months Ended

September 30,

Three Months Ended

Operating activities:

1 unchanged sentence

Amortization of intangible assets

Net amortization (accretion) on securities, loans and borrowings

Net amortization on securities, loans and borrowings

Stock-based compensation

3 unchanged sentences

Loss on sales of investment securities

Unrealized loss on equity securities

Unrealized gain on equity securities

Income from bank-owned life insurance policies

5 unchanged sentences

Proceeds from maturities, calls, and paydowns of held-to-maturity investment securities

Proceeds from maturities and redemptions of equity and other investment securities

Proceeds from maturities and redemptions of equity and other investment securities, net

Proceeds from sales of available-for-sale investment securities

Purchases of available-for-sale investment securities

( 1,348,400 )

Purchases of held-to-maturity investment securities

1 unchanged sentence

Net increase in loans

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

Cash paid for acquisitions

Proceeds from sales of premises, equipment and other assets

Purchases of premises and equipment

Real estate limited partnership investments

Net cash provided by (used in) investing activities

( 1,885,169 )

Net cash (used in) provided by investing activities

Financing activities:

Net increase in deposits

Net (decrease) increase in overnight borrowings

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

Proceeds from other Federal Home Loan Bank borrowings

Net decrease in overnight borrowings

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

Payments on and maturities of other Federal Home Loan Bank borrowings

Payments of contingent consideration for acquisitions

Redemption of subordinated notes payable

Proceeds from issuance of common stock

Proceeds from the issuance of common stock

Purchases of treasury stock

2 unchanged sentences

Withholding taxes paid on share-based compensation

Net cash (used in) provided by financing activities

Net cash provided by (used in) financing activities

Change in cash and cash equivalents

( 1,627,673 )

Cash and cash equivalents at beginning of period

14 unchanged sentences

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

SEPTEMBER 30, 2023

MARCH 31, 2024

BASIS OF PRESENTATION

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

The interim financial data as of and for the three months ended March 31, 2024 is unaudited;

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

1 unchanged sentence

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.

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, 2023 filed with the Securities and Exchange Commission (“SEC”) on February 29, 2024.

Subsequent Period Acquisition

On April 1, 2024, the Company, through its subsidiary OneGroup NY, Inc.

(“OneGroup”), completed the acquisition of a New York based insurance agency for $ 4.2 million in cash plus contingent consideration with an estimated fair value of $ 1.0 million at acquisition date.

The effects of the acquisition will be included in the consolidated financial statements from that date.

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.

On February 1, 2024, the Company, through its subsidiary Benefit Plans Administrative Services, LLC (“BPA”), completed the acquisition of certain assets of Creative Plan Designs Limited (“CPD”), a financial services company that provides employee benefit plan design, administration and consulting services.

Total consideration was $ 5.9 million in cash plus contingent consideration with an estimated fair value of $ 3.0 million at acquisition date.

The effects of the acquired assets are included in the consolidated financial statements from that date.

Revenues and direct expenses included in the consolidated statement of income for the three months ended March 31, 2024 were immaterial.

The acquisition of CPD includes contingent consideration arrangements that require additional consideration to be paid by the Company based on the future revenue levels of CPD over approximately three year s and a contract holdback payment.

The contract holdback will be paid upon satisfaction of certain customer retention requirements, and will be prorated based on actual results.

The contract holdback amount was estimated at the maximum level of $ 1.5 million at the acquisition date.

The revenue-based contingent consideration is payable in four installments, based on future revenue levels of CPD in 2024, 2025, 2026 and the first quarter of 2027.

The range of undiscounted amounts the Company could pay under the contingent consideration agreement is between zero and $ 2.0 million for the first three payments in total and a variable amount for the fourth payment, which is between zero and a percentage of annualized revenue above a threshold for a particular revenue stream in the first quarter of 2027.

The fair value of the contingent consideration recognized on the acquisition date of $ 3.0 million was estimated by applying the income approach, a measure that is based on significant Level 3 inputs not readily observable in the market.

Key assumptions at the date of acquisition include (1) a discount rate range of 15.1 % to 19.1 % to present value the payments and (2) probability of achievement of future revenue levels of 82 %.

During 2023, the Company, through its subsidiaries OneGroup, OneGroup Wealth Partners, Inc.

(“Wealth Partners”) and Benefit Plans Administrative Services, Inc.

(“BPAS”), completed the acquisition of certain assets of financial services companies.

The acquired companies provide insurance, wealth management and benefit plan recordkeeping services and are headquartered in New York, Pennsylvania, and Florida.

Total aggregate consideration for these acquisitions was $ 8.1 million, including $ 6.7 million in cash and $ 1.4 million in contingent consideration arrangements.

3 unchanged sentences

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 operations of these acquisitions have been integrated into the Company and discrete reporting of revenues and direct expenses for the three months ended March 31, 2024 and 2023 is not practicable.

On March 1, 2023, the Company, through its subsidiary Community Bank, N.A.

(“CBNA”), 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”), a commercial real estate finance and advisory firm, 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.

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.

Revenues of approximately $ 0.6 million and $ 0.1 million and direct expenses of approximately $ 0.7 million and $ 0.2 million were included in the consolidated statements of income for the three months ended March 31, 2024 and 2023, respectively.

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

During the first quarter of 2024, an additional cash consideration payment of $ 0.1 million was made associated with a 2023 acquisition based upon the receipt of new information resulting in a $ 0.1 million increase to the carrying value of other intangibles and had no impact on the carrying value of goodwill.

The Axiom acquisition generally expanded the Company’s lending presence nationwide.

The OneGroup and Wealth Partners acquisitions generally expanded the Company’s insurance and wealth management presence in New York, Florida and Pennsylvania.

The BPAS and BPA acquisitions generally expanded the Company’s employee benefit services presence in New York.

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

5 unchanged sentences

Recognized amounts of identifiable assets acquired and liabilities assumed:

Cash and cash equivalents

Investment securities

Loans, net of allowance for credit losses on PCD loans

Premises and equipment, net

Accrued interest and fees receivable

Core deposit intangibles

Other intangibles

Other liabilities

Other Federal Home Loan Bank borrowings

Total identifiable assets, net

(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.

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)

Par value of PCD loans at acquisition

Allowance for credit losses at acquisition

Non-credit discount at acquisition

Fair value of PCD loans at acquisition

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.

(1) Includes amounts for all OneGroup, Wealth Partners and BPAS acquisitions completed in 2023.

The other intangibles related to the CPD acquisition are being amortized using an accelerated method over an estimated useful life of twelve years .

The other intangibles related to the OneGroup, Wealth Partners and BPAS acquisitions completed in 2023 and the Axiom acquisition are being amortized using an accelerated method over an estimated useful life of eight years .

The goodwill, which is not amortized for book purposes, was assigned to the Employee Benefit Services segment for the CPD acquisition and the BPAS acquisition completed in 2023, the Insurance segment for the OneGroup acquisitions completed in 2023, the Wealth Management segment for the Wealth Partners acquisition completed in 2023, and the Banking and Corporate segment for the Axiom acquisition.

Goodwill arising from all of the acquisitions completed in the first quarter of 2024 and 2023 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

Total revenue, net of interest expense

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.

Merger and acquisition integration-related expenses were immaterial during both the three months ended March 31, 2024 and 2023 and have been separately stated in the consolidated statements of income.

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 84 through 97 of the Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (“SEC”) on February 29, 2024 except as noted below.

Contract Balances

4 unchanged sentences

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

As of 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 March 31, 2024, $ 30.2 million of accounts receivable, including $ 8.7 million of unbilled fee revenue, and $ 3.6 million of unearned revenue, was recorded in the consolidated statements of condition.

As of December 31, 2023, $ 41.7 million of accounts receivable, including $ 8.1 million of unbilled fee revenue, and $ 0.8 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.

Segment Information

Effective January 1, 2024, the Company changed its determination of reportable segments and reportable measure of segment profit or loss in connection with the appointment of the Company’s new President and Chief Executive Officer, who serves as the Company’s chief operating decision maker (“CODM”), and changes in the information the CODM regularly reviews and uses to allocate resources and assess performance.

The appointment of the Company’s new President and Chief Executive Officer followed the retirement of the Company’s former President and Chief Executive Officer, who previously served as the Company’s CODM until December 31, 2023.

The change in determination of reportable segments was also driven by a change in the disaggregation of segment information that management believes would be useful to readers of the financial statements and to also align its reportable segments with financial information communicated to external parties, the Board of Directors and the business leaders who regularly meet with the CODM that also review this information at the same level of disaggregation.

The change in reportable measure of segment profit or loss aligns with a change in the measurement principles of the internal reporting package used by the CODM to allocate resources and assess performance, which is presented on an operating basis excluding certain items considered non-core to the underlying business.

Effective January 1, 2024, the Company has identified (1) Banking and Corporate;

(2) Employee Benefit Services;

(3) Insurance;

and (4) Wealth Management as its reportable segments and determined that operating income before income taxes is the reportable measure of segment profit or loss that the CODM regularly reviews and uses to allocate resources and assess performance.

The Company’s insurance services revenue and wealth management services revenue are reported separately in the Insurance reportable segment and Wealth Management reportable segment, respectively.

The prior period has been recast to conform to the new current period presentation.

See Note L for more detail on segment information.

Reclassifications

1 unchanged sentence

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.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures , to update reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses and information used to assess segment performance by the CODM.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

The Company adopted this guidance as of January 1, 2024 and the enhanced disclosures are expected to be initially provided in its December 31, 2024 Form 10-K in alignment with the mandatory effective dates of the ASU.

New Accounting Pronouncements

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures to enhance the transparency and decision usefulness of income tax disclosures.

The update requires enhancements to the rate reconciliation, including disclosure of specific categories and additional information for reconciling items meeting a quantitative threshold as well as disclosure of income taxes paid disaggregated by federal, state and foreign taxes, and individual jurisdictions meeting a quantitative threshold.

The amendments in this update are effective for fiscal years beginning after December 15, 2024 and early adoption is permitted.

The Company is evaluating the impact this will have on the consolidated financial statements.

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

The amortized cost and estimated fair value of investment securities as of March 31, 2024 and December 31, 2023 are as follows:

March 31, 2024

December 31, 2023

17 unchanged sentences

Total equity and other securities

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.

Included in the Company’s investment securities portfolio is Federal Reserve Bank (“FRB”) common stock with a carrying value of $ 33.6 million at both March 31, 2024 and December 31, 2023.

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.

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

As of September 30, 2023

As of March 31, 2024

Less than 12 Months

9 unchanged sentences

Held-to-Maturity Portfolio:

Treasury and agency securities

U.S Treasury and agency securities

Government agency mortgage-backed securities

12 unchanged sentences

Held-to-Maturity Portfolio:

Treasury and agency securities

U.S Treasury and agency securities

Government agency mortgage-backed securities

Total held-to-maturity portfolio

3 unchanged sentences

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.

The Company holds two corporate debt securities in an unrealized loss position and, based on an analysis of the financial position of the issuers including financial performance, liquidity and regulatory capital ratios, the issuers of the securities show a remote 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.

As such, management does not believe any individual unrealized loss as of March 31, 2024 represents credit losses and no unrealized losses have been recognized in the provision for credit losses.

Accordingly, there is no allowance for credit losses on the Company’s available-for-sale portfolio as of March 31, 2024.

Accrued interest receivable on available-for-sale debt securities, included in accrued interest and fees receivable on the consolidated statements of condition, totaled $ 11.6 million at March 31, 2024 and is excluded from the estimate of credit losses.

Securities classified as held-to-maturity are included under the Current Expected Credit Loss (“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.

The Company notes that at March 31, 2024 all securities in the held-to-maturity classification are U.S.

Treasury securities and government agency mortgage-backed securities;

2 unchanged sentences

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

At 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.

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

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.

Accordingly, there is no allowance for credit losses on the Company’s held-to-maturity debt portfolio as of March 31, 2024.

Accrued interest receivable on held-to-maturity debt securities, included in accrued interest and fees receivable on the consolidated statements of condition, totaled $ 3.3 million at March 31,2024 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.

The amortized cost and estimated fair value of debt securities at March 31, 2024, by contractual maturity, are shown below.

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

9 unchanged sentences

Government agency collateralized mortgage obligations

Investment securities with a fair value of $ 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.

Investment securities with a carrying value of $ 2.76 billion and $ 2.14 billion at March 31, 2024 and December 31, 2023, respectively, were pledged to collateralize certain deposits and borrowings.

Securities pledged to collateralize certain deposits and borrowings included $ 393.5 million and $ 598.9 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.

Treasury securities that were pledged as collateral for securities sold under agreement to repurchase at March 31, 2024 and December 31, 2023, respectively.

All securities sold under agreement to repurchase as of March 31, 2024 and December 31, 2023 have an overnight and continuous maturity.

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

4 unchanged sentences

The segments of the Company’s loan portfolio are summarized as follows:

September 30,

(000’s omitted)

Business lending

CRE – multifamily

CRE – owner occupied

CRE – non-owner occupied

Commercial & industrial and other business loans

Consumer mortgage

4 unchanged sentences

Loans, net of allowance for credit losses

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

The following table presents the aging of the amortized cost basis of the Company’s past due loans by segment as of March 31, 2024 and December 31, 2023:

90+ Days Past

(000’s omitted)

March 31, 2024

Still Accruing

Business lending

CRE – multifamily

CRE – owner occupied

CRE – non-owner occupied

Commercial & industrial and other business loans

Consumer mortgage

1 unchanged sentence

Consumer direct

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:

90+ Days Past

(000’s omitted)

December 31, 2023

Still Accruing

Business lending

CRE – multifamily

CRE – owner occupied

CRE – non-owner occupied

Commercial & industrial and other business loans

Consumer mortgage

1 unchanged sentence

Consumer direct

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

No interest income on nonaccrual loans was recognized during the three months ended March 31, 2024 and 2023.

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

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.

7 unchanged sentences

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

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

The following tables show the amount of business lending loans by credit quality category at March 31, 2024 and December 31, 2023:

(000’s omitted)

Term Loans Amortized Cost Basis by Origination Year

September 30, 2023

Business lending:

March 31, 2024

CRE – multifamily:

Special mention

Total CRE – multifamily

Current period gross charge-offs

CRE – owner occupied:

Special mention

Total CRE – owner occupied

Current period gross charge-offs

CRE – non-owner occupied:

Special mention

Total CRE – non-owner occupied

Current period gross charge-offs

Commercial & industrial and other business loans:

Special mention

Total commercial & industrial and other business loans

Current period gross charge-offs

Total business lending:

Special mention

Total business lending

Current period gross charge-offs

2 unchanged sentences

December 31, 2023

Business lending:

CRE – multifamily:

Special mention

Total CRE – multifamily

Current period gross charge-offs

CRE – owner occupied:

Special mention

Total CRE – owner occupied

Current period gross charge-offs

CRE – non-owner occupied:

Special mention

Total CRE – non-owner occupied

Current period gross charge-offs

Commercial & industrial and other business loans:

Special mention

Total commercial & industrial and other business loans

Current period gross charge-offs

Total business lending:

Special mention

Total business lending

Current period gross charge-offs

All other loans are underwritten and structured using standardized criteria and characteristics, primarily payment performance, and are monitored collectively on a monthly basis.

2 unchanged sentences

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

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

The following tables detail the balances in all other loan categories at March 31, 2024 and December 31, 2023:

(000’s omitted)

Term Loans Amortized Cost Basis by Origination Year

September 30, 2023

March 31, 2024

Consumer mortgage:

18 unchanged sentences

(2) FICO CDE refers to loans with FICO scores less than 720 at origination and potentially higher risk.

The following table details the balances in all other loan categories at December 31, 2022:

(000’s omitted)

7 unchanged sentences

Total consumer mortgage

Current period gross charge-offs

Consumer indirect:

1 unchanged sentence

Total consumer indirect

Current period gross charge-offs

Consumer direct:

1 unchanged sentence

Total consumer direct

Current period gross charge-offs

Nonperforming

Total home equity

Current period gross charge-offs

(1) FICO AB refers to higher tiered loans with FICO scores greater than or equal to 720 at origination.

1 unchanged sentence

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,

A summary of individually assessed business loans as of March 31, 2024 and December 31, 2023 follows:

(000’s omitted)

4 unchanged sentences

Specifically allocated allowance

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.

The average carrying balance of individually assessed loans was $ 14.5 million and $ 3.1 million for the three months ended March 31, 2024 and 2023, respectively.

No interest income was recognized on individually assessed loans for the three months ended March 31, 2024 and 2023.

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

When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses.

4 unchanged sentences

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

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 estimate of allowance for credit losses includes historical losses from loans that were modified due to borrower financial difficulty, therefore a charge to the allowance for credit losses is generally not recorded upon modification.

The following table presents the amortized cost basis of loans at March 31, 2024 that were both experiencing financial difficulty and modified during the three months ended March 31, 2024, 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.

The Company did not have any modifications to borrowers experiencing financial difficulty other than term extensions.

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

Three Months Ended

September 30, 2023

Total Class of

(000s omitted except for percentages)

Business lending

Nine Months Ended

September 30, 2023

March 31, 2024

Total Class of

(000s omitted except for percentages)

Business lending

Consumer mortgage

CRE – owner occupied

CRE – non-owner occupied

Commercial & industrial and other business loans

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.

The following table presents the performance of such loans that have been modified in the last 12 months.

March 31, 2024

90+ Days Past

2 unchanged sentences

(000s omitted)

Business lending

CRE – owner occupied

CRE – non-owner occupied

Commercial & industrial and other business loans

Consumer mortgage

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:

The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty during the three months ended March 31, 2024:

Three Months Ended

September 30, 2023

Weighted-Average

Term Extension (Years)

Business lending

Nine Months Ended

September 30, 2023

March 31, 2024

Weighted-Average

Term Extension (Years)

Business lending

Consumer mortgage

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)

Business lending

Consumer mortgage

Consumer indirect

Consumer direct

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

(000’s omitted)

loans modified

Business lending

Consumer mortgage

Consumer indirect

Consumer direct

CRE – owner occupied

CRE – non-owner occupied

Commercial & industrial and other business loans

There were no loans modified to borrowers with financial difficulty that had a payment default subsequent to modification during the three months ended March 31, 2024 and 2023.

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

(000’s omitted)

Business lending

Consumer mortgage

Consumer indirect

Consumer direct

Allowance for credit losses – loans

Liabilities for off-balance-sheet credit exposures

Total allowance for credit losses

Three Months Ended September 30, 2022

(000’s omitted)

Business lending

Consumer mortgage

Consumer indirect

Consumer direct

Allowance for credit losses – loans

Liabilities for off-balance-sheet credit exposures

Total allowance for credit losses

Nine Months Ended September 30, 2023

The following presents by loan segment the activity in the allowance for credit losses during the three months ended March 31, 2024 and 2023:

Three Months Ended March 31, 2024

(000’s omitted)

6 unchanged sentences

Total allowance for credit losses

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

(000’s omitted)

6 unchanged sentences

Total allowance for credit losses

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.

The allowance for credit losses increased to $ 70.1 million at March 31, 2024 compared to $ 66.7 million at December 31, 2023 and $ 63.2 million at March 31, 2023, reflective of an increase in loans outstanding, a stable economic forecast and an increase in the qualitative assessment of future uncertainty primarily concerning the business lending and consumer indirect portfolios.

Accrued interest receivable on loans, included in accrued interest and fees receivable on the consolidated statements of condition, totaled $ 34.4 million at March 31, 2024, and is excluded from the estimate of credit losses and amortized cost basis of loans.

Under ASU No.

1 unchanged sentence

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.

The Company considered historical losses immediately prior, through and following the Great Recession 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 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 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.

The scenarios utilized forecast stable unemployment levels, modest GDP and real household income growth, offset by some declines in auto, housing and commercial real estate prices.

Management developed expected loss estimates considering factors for segments as outlined below:

14 unchanged sentences

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.

At March 31, 2024, loans with a carrying amount of approximately $ 4.44 billion were pledged for the availability to secure certain borrowings with the FHLB and FRB.

There were $ 394.4 million of borrowings outstanding under these arrangements at March 31, 2024.

At March 31, 2024 and December 31, 2023, there were foreclosures in process of $ 5.2 million and $ 5.8 million, respectively.

During the three months ended March 31, 2024, the Company did not purchase any loans, while the Company sold $ 1.2 million of secondary market eligible residential consumer mortgage loans during the period.

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

March 31, 2024

December 31, 2023

6 unchanged sentences

(000’s omitted)

Oct - Dec 2023

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

Apr - Dec 2024

Shown below are the components of the Company’s goodwill at December 31, 2023 and March 31, 2024:

(000’s omitted)

December 31, 2023

September 30, 2023

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.

March 31, 2024

During January 2024, the Company secured $ 300.0 million in short-term borrowings through the Bank Term Funding Program at the Federal Reserve at a rate of 4.87 % , to fund expected net loan growth.

These short-term borrowings matured during March 2024 and the Bank Term Funding Program has ceased making new loans as of March 11, 2024.

BENEFIT PLANS

2 unchanged sentences

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

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

The Company made a $ 4.0 million contribution to its defined benefit pension plan in the first quarter of 2024.

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:

The Company did no t make a contribution to its defined benefit pension plan in the first quarter of 2023.

The post-retirement benefits component of net periodic benefit cost for the three months ended March 31, 2024 and 2023 is immaterial.

The pension benefits component of net periodic benefit cost for the three months ended March 31, 2024 and 2023 is as follows:

Pension Benefits

Three Months Ended

Nine Months Ended

September 30,

(000’s omitted)

1 unchanged sentence

Expected return on plan assets

Amortization of unrecognized net (gain) loss

Amortization of unrecognized net loss (gain)

Amortization of prior service cost

3 unchanged sentences

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.

The Company has determined that all of its outstanding non-vested stock awards are participating securities as of March 31, 2024.

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

2 unchanged sentences

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:

At March 31, 2024 and 2023, weighted-average anti-dilutive stock options outstanding were immaterial.

The following is a reconciliation of basic to diluted earnings per share for the three months ended March 31, 2024 and 2023:

Three Months Ended

Nine Months Ended

September 30,

(000’s omitted, except per share data)

13 unchanged sentences

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 .

There were 750,000 shares of treasury stock purchases made under this authorization during the first quarter of 2024 with an average price paid per share of $ 45.95 .

At its December 2022 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, 2023.

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 .

There were 607,161 shares of treasury stock purchases made under this authorization during 2023 with an average price paid per share of $ 49.44 , including 200,000 shares of treasury stock purchases made under this authorization during the first quarter of 2023 with an average price paid per share of $ 54.53 .

COMMITMENTS, CONTINGENT LIABILITIES AND RESTRICTIONS

8 unchanged sentences

The contract amounts of commitments and contingencies are as follows:

September 30,

(000’s omitted)

1 unchanged sentence

Standby letters of credit

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.

On November 16, 2023, the FDIC issued a final rulemaking that implemented a special assessment to recover the uninsured deposit losses from bank failures that occurred during 2023.

The final rule anticipates collecting the special assessment over eight quarterly assessment periods beginning in 2024 at an annual rate of approximately 13.4 basis points of uninsured deposits that exceeded $ 5.0 billion as of December 31, 2022.

The FDIC has indicated that the amount of the special assessment will be adjusted as their loss estimates change.

The Company accrued $ 1.5 million of expense related to the FDIC special assessment in 2023.

During the three months ended March 31, 2024, the Company accrued an additional $ 0.4 million associated with an expected increase to the FDIC special assessment based on the receipt of new information.

Total FDIC insurance expense was $ 2.6 million and $ 2.1 million for the three months ended March 31, 2024 and 2023, respectively.

Legal Contingencies

On at least a quarterly basis, the Company assesses its liabilities and contingencies in connection with pending or threatened legal proceedings or other matters in which claims for monetary damages are asserted.

For those matters where it is probable that the Company will incur losses and the amounts of the losses are reasonably estimable, 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.

The range of losses that are reasonably possible 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.

The Company recorded a loss contingency in 2023 related to the anticipated settlement, following mediation, of a threatened collective and class action asserted against CBNA on behalf of certain nonexempt branch employees, regarding unpaid wages under the Fair Labor Standards Act and applicable state labor laws.

On February 5, 2024, following a mediation held on February 1, 2024, the Company agreed to a settlement in the amount of $ 5.8 million.

A settlement agreement has been executed by the parties and the terms of the settlement have been approved by the Court.

The Company recorded a $ 5.8 million litigation accrual at December 31, 2023 and there was no change as of March 31, 2024.

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

7 unchanged sentences

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

September 30, 2023

March 31, 2024

(000’s omitted)

20 unchanged sentences

Equity securities

Mortgage loans held for sale

Commitments to originate real estate loans for sale

Forward sales commitments

Interest rate swap agreements asset

Interest rate swap agreements liability

The valuation techniques used to measure fair value for the items in the table above are as follows:

10 unchanged sentences

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.

The unpaid principal value of mortgage loans held for sale was approximately $ 0.1 million at March 31, 2024 and $ 0.4 million at December 31, 2023.

Mortgage loans held for sale are included in other assets in the consolidated statements of condition.

12 unchanged sentences

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

March 31, 2024

December 31, 2023

10 unchanged sentences

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.

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 classify 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 value is based primarily on third party appraisals, less estimated 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.

Such discounts are significant, ranging from 9.0 % to 73.8 % at March 31, 2024 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.

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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.

In accordance with GAAP, the Company must record impairment charges, on a nonrecurring basis, when the carrying value of a stratum 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.

There is a valuation allowance of approximately $ 1.2 million at March 31, 2024 and December 31, 2023.

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

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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.

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

The contingent consideration related to the FBD acquisition completed in 2021 was revalued at December 31, 2023.

The remaining contingent consideration accrual was adjusted to the maximum potential amount of $ 2.7 million, using a potential probability of achievement of 100 %.

The first of the two required payments were made on the TGA contingent consideration in the third quarter of 2023 in the amount of $ 2.4 million, based on actual retained revenue results.

The remaining contingent consideration liability related to the TGA acquisition was revalued at December 31, 2023 for an adjusted fair value of $ 1.0 million.

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

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(000’s omitted, except per loan data)

September 30, 2023

March 31, 2024

Valuation Technique

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(Weighted Average)

Individually assessed loans

Fair value of collateral

Estimated cost of disposal/market adjustment

Other real estate owned

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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 individually assessed loans was calculated by dividing the total of the book value of the collateral of the individually assessed loans classified as Level 3 by the total of the fair value of the collateral of the individually assessed loans classified as Level 3.

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.

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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 carrying amounts and estimated fair values of the Company’s other financial instruments that are not accounted for at fair value at March 31, 2024 and December 31, 2023 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

March 31, 2024

December 31, 2023

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Other Federal Home Loan Bank borrowings

Subordinated notes payable

The following is a further description of the principal valuation methods used by the Company to estimate the fair values of its financial instruments.

11 unchanged sentences

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 time deposit obligations are based on current market rates for similar securities.

Borrowings 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.

Fair values for other FHLB borrowings are estimated using discounted cash flows and interest rates currently being offered on similar securities.

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.

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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.

Operating segments are components of an enterprise, which are evaluated regularly by the CODM in deciding how to allocate resources and assess performance.

The Company’s CODM is the President and Chief Executive Officer of the Company.

Effective January 1, 2024, the Company has identified (1) Banking and Corporate;

(2) Employee Benefit Services;

(3) Insurance;

See Note C for further detail on the factors used to identify the Company’s reportable segments and reportable measure of segment profit or loss.

CBNA operates the Banking and Corporate segment that provides a wide array of lending and depository-related products and services to individuals, businesses, and governmental units with branch locations in Upstate New York as well as Northeastern Pennsylvania, Vermont and Western Massachusetts.

In addition to these general intermediation services, the Banking and Corporate segment provides treasury management solutions and payment processing services.

The Banking and Corporate segment also includes certain corporate overhead-related expenses.

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

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

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

The Insurance segment is comprised of personal and commercial lines of insurance and other risk management products and services provided by OneGroup NY, Inc.

The Wealth Management segment is comprised of wealth management services including trust services provided by the Nottingham Trust division 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).

as well as asset management services provided by Nottingham Advisors, Inc.

Operating noninterest revenues exclude certain items considered non-core to the underlying business including realized and unrealized gains or losses on investment securities and gains or losses on debt extinguishment.

Operating noninterest expenses also exclude certain items considered non-core to the underlying business including amortization of intangible assets, acquisition expenses, acquisition-related contingent consideration adjustments, litigation accrual and restructuring expenses.

Both operating noninterest revenues and operating noninterest expenses include certain intersegment activity associated with transactions between the segments and are eliminated in consolidation.

Segment assets include certain segment cash balances held as deposits with CBNA and are eliminated in consolidation.

Information about reportable segments and reconciliation of the information to the consolidated financial statements follows:

1 unchanged sentence

Benefit Services

Three Months Ended September 30, 2023

Three Months Ended March 31, 2024

Net interest income

Provision for credit losses

Noninterest revenues

Operating noninterest revenues

Operating noninterest expenses

Operating income before income taxes

Core deposit intangibles & Other intangibles, net

Reconciliation of total segment operating income before income taxes to total consolidated income before income taxes:

Total segment operating income before income taxes

Unrealized gain on equity securities

Amortization of intangible assets

Acquisition expenses

Acquisition-related contingent consideration adjustment

Other operating expenses

Income before income taxes

Core deposit intangibles & Other intangibles

Three Months Ended September 30, 2022

Net interest income

Provision for credit losses

Noninterest revenues

Litigation accrual

Total consolidated income before income taxes

Reconciliation of total segment operating noninterest revenues to total consolidated noninterest revenues:

Total segment operating noninterest revenues

Elimination of intersegment revenues

Unrealized gain on equity securities

Total consolidated noninterest revenues

Reconciliation of total segment operating noninterest expenses to total consolidated noninterest expenses:

Total segment operating noninterest expenses

Elimination of intersegment expenses

Amortization of intangible assets

Acquisition expenses

Other operating expenses

Income before income taxes

Core deposit intangibles & Other intangibles

Litigation accrual

Total consolidated noninterest expenses

Reconciliation of total segment assets to total consolidated assets:

Total segment assets

Elimination of intersegment cash and deposits

Total consolidated assets

(000's omitted)

Benefit Services

Nine Months Ended September 30, 2023

Three Months Ended March 31, 2023

Net interest income

Provision for credit losses

Operating noninterest revenues

Operating noninterest expenses

Operating income before income taxes

Core deposit intangibles & Other intangibles, net

Reconciliation of total segment operating income before income taxes to total consolidated income before income taxes:

Total segment operating income before income taxes

Loss on sales of investment securities

Gain on debt extinguishment

Other noninterest revenues

Amortization of intangible assets

Acquisition expenses

Acquisition-related contingent consideration adjustment

Other operating expenses

Income before income taxes

Nine Months Ended September 30, 2022

Net interest income

Provision for credit losses

Noninterest revenues

Total consolidated income before income taxes

Reconciliation of total segment operating noninterest revenues to total consolidated noninterest revenues:

Total segment operating noninterest revenues

Elimination of intersegment revenues

Loss on sales of investment securities

Gain on debt extinguishment

Total consolidated noninterest revenues

Reconciliation of total segment operating noninterest expenses to total consolidated noninterest expenses:

Total segment operating noninterest expenses

Elimination of intersegment expenses

Amortization of intangible assets

Acquisition expenses

Acquisition-related contingent consideration adjustment

Other operating expenses

Income before income taxes

Total consolidated noninterest expenses

Reconciliation of total segment assets to total consolidated assets:

Total segment assets

Elimination of intersegment cash and deposits

Total consolidated assets

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

What changed 10-Q

Item 1. Financial Statements