10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

 Washington, D.C. 20549

FORM 10-K

☒	ANNUALREPORTPURSUANTTO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF1934
	For the fiscal year ended December 31, 2016
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period fromto .

    Commission File Number: 001-13695

 (Exact name of registrant as specified in its charter)

Delaware	16‑1213679
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
5790 Widewaters Parkway, DeWitt, New York	13214-1883
(Address of principal executive offices)	(Zip Code)

 (315) 445‑2282

(Registrant's telephone number, including area code)

Securities registered pursuant of Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, Par Value $1.00 per share	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes   ☒   No   ☐  .

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   Yes   ☐   No   ☒   .

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes   ☒No   ☐   .

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes   ☒No   ☐   .

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K.   ☐   .

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.    

Large accelerated filer   ☒	Accelerated filer   ☐	Non-accelerated filer   ☐	Smaller reporting company   ☐   .
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).   Yes   ☐   No   ☒   .

The aggregate market value of the common stock, $1.00 par value per share, held by non-affiliates of the registrant computed by reference to the closing price as of the close of business on June 30, 2016 (the registrant's most recently completed second fiscal quarter): $1,765,509,358.

The number of shares of the common stock, $1.00 par value per share, outstanding as of the close of business on January 31, 2017: 44,541,700

DOCUMENTS INCORPORATED BY REFERENCE.

Portions of the Definitive Proxy Statement for the Annual Meeting of the Shareholders to be held on May 17, 2017 (the "Proxy Statement") is incorporated by reference in Part III of this Annual Report on Form 10-K.

1 of 112

TABLE OF CONTENTS

PART I		Page
Item 1	Business__________________________________________________________________________________________________________________	3
Item 1A	Risk Factors _______________________________________________________________________________________________________________	13
Item 1B	Unresolved Staff Comments ___________________________________________________________________________________________________	19
Item 2	Properties_________________________________________________________________________________________________________________	19
Item 3	Legal Proceedings___________________________________________________________________________________________________________	20
Item 4	Mine Safety Disclosures______________________________________________________________________________________________________	20
Item 4A.	Executive Officers of the Registrant______________________________________________________________________________________________	20
PART II
Item 5	Market for Registrant's Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities___________________________________	21
Item 6	Selected Financial Data_______________________________________________________________________________________________________	23
Item 7	Management's Discussion and Analysis of Financial Condition and Results of Operations____________________________________________________	25
Item 7A	Quantitative and Qualitative Disclosures about Market Risk___________________________________________________________________________	51
Item 8	Financial Statements and Supplementary Data:
	Consolidated Statements of Condition_________________________________________________________________________________________	54
	Consolidated Statements of Income___________________________________________________________________________________________	55
	Consolidated Statements of Comprehensive Income_______________________________________________________________________________	56
	Consolidated Statements of Changes in Shareholders' Equity________________________________________________________________________	57
	Consolidated Statements of Cash Flows________________________________________________________________________________________	58
	Notes to Consolidated Financial Statements_____________________________________________________________________________________	59
	Report on Internal Control over Financial Reporting_______________________________________________________________________________	98
	Report of Independent Registered Public Accounting Firm__________________________________________________________________________	99
	Two Year Selected Quarterly Data______________________________________________________________________________________________	100
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure___________________________________________________	100
Item 9A.	Controls and Procedures_____________________________________________________________________________________________________	100
Item 9B.	Other Information___________________________________________________________________________________________________________	101
PART III
Item 10	Directors, Executive Officers and Corporate Governance______________________________________________________________________________	101
Item 11	Executive Compensation_____________________________________________________________________________________________________	101
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters____________________________________________	101
Item 13	Certain Relationships and Related Transactions, and Director Independence______________________________________________________________	101
Item 14	Principal Accounting Fees and Services__________________________________________________________________________________________	101
PART IV
Item 15	Exhibits, Financial Statement Schedules__________________________________________________________________________________________	102
Item 16	Form 10-K Summary_________________________________________________________________________________________________________	105
Signatures	________________________________________________________________________________________________________________________	106

2

Part I

This Annual Report on Form 10-K contains certain forward-looking statements with respect to the financial condition, results of operations and business of Community Bank System, Inc.  These forward-looking statements by their nature address matters that involve certain risks and uncertainties.  Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements are set forth herein under the caption "Forward-Looking Statements."

Item 1. Business

Community Bank System, Inc. (the "Company") was incorporated on April 15, 1983, under the Delaware General Corporation Law.  Its principal office is located at 5790 Widewaters Parkway, DeWitt, New York 13214.  The Company is a registered financial holding company which wholly-owns two significant subsidiaries: Community Bank, N.A. (the "Bank" or "CBNA"), and Benefit Plans Administrative Services, Inc. ("BPAS").  As of December 31, 2016, BPAS owns four subsidiaries: Benefit Plans Administrative Services, LLC ("BPA"), a provider of defined contribution plan administration services; BPAS Actuarial & Pension Services, LLC ("BPAS-APS") (formally known as Harbridge Consulting Group, LLC), a provider of actuarial and benefit consulting services; BPAS Trust Company of Puerto Rico, a Puerto Rican trust company; and Hand Benefits & Trust Company ("HB&T"), a provider of collective investment fund administration and institutional trust services.  HB&T owns one subsidiary, Hand Securities, Inc. ("HSI"), an introducing broker-dealer.  The Company also wholly-owns two unconsolidated subsidiary business trusts formed for the purpose of issuing mandatorily-redeemable preferred securities which are considered Tier I capital under regulatory capital adequacy guidelines. 

The Bank's business philosophy is to operate as a community bank with local decision-making, principally in non-metropolitan markets, providing a broad array of banking and financial services to retail, commercial, and municipal customers.  As of December 31, 2016, the Bank operates 193 full-service branches operating as Community Bank, N.A. throughout 35 counties of Upstate New York and six counties of Northeastern Pennsylvania, offering a range of commercial and retail banking services.  The Bank owns the following operating subsidiaries: The Carta Group, Inc. ("Carta Group"), CBNA Preferred Funding Corporation ("PFC"), CBNA Treasury Management Corporation ("TMC"), Community Investment Services, Inc. ("CISI"),  Nottingham Advisors, Inc. ("Nottingham"), OneGroup NY, Inc. ("OneGroup"), Oneida Wealth Management, Inc. ("OWM") and Oneida Preferred Funding II LLC ("OPFCII").  OneGroup is a full-service insurance agency offering personal and commercial property insurance and other risk management products and services.  On August 19, 2016, the Company merged its insurance subsidiary CBNA Insurance Agency, Inc. ("CBNA Insurance") into OneGroup.   PFC and OPFCII primarily act as investors in residential real estate loans and properties.  TMC provides cash management, investment, and treasury services to the Bank.  CISI, The Carta Group and OWM provide broker-dealer and investment advisory services.  On April 22, 2016, the Company merged the activities of OWM into CISI.  Nottingham provides asset management services to individuals, corporations, corporate pension and profit sharing plans, and foundations.

The Company maintains a website at communitybankna.com.  Annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, are available on the Company's website free of charge as soon as reasonably practicable after such reports or amendments are electronically filed with or furnished to the Securities and Exchange Commission ("SEC").  The information posted on the website is not incorporated into or a part of this filing.  Copies of all documents filed with the SEC can also be obtained by visiting the SEC's Public Reference Room at 100 F Street, NE, Washington, DC  20549, by calling the SEC at 1-800-SEC-0330 or by accessing the SEC's website at https://www.sec.gov.

Acquisition History (2012-2016)

Northeast Retirement Services, Inc.

On December 5, 2016, the Company announced that it had entered into a definitive agreement to acquire Northeast Retirement Services, Inc. ("NRS") and its subsidiary Global Trust Company ("GTC") headquartered in Woburn, Massachusetts for approximately $148 million in Company stock and cash.  On February 3, 2017, the Company completed its acquisition of NRS and GTC.  NRS was a privately held corporation focused on providing institutional transfer agency, master recordkeeping services, custom target date fund administration, trust product administration and customized reporting services to institutional clients.  Its wholly-owned subsidiary, GTC, was chartered in the State of Maine in 2008, as a non-depository trust company which provides fiduciary services for collective investment trusts and other products.  The acquisition will strengthen and complement the Company's existing employee benefit services businesses.  Upon the completion of the merger, NRS is a wholly-owned subsidiary of BPAS and will operate as Northeast Retirement Services, LLC, a Delaware limited liability company.  The initial accounting for the assets and liabilities assumed with this acquisition is incomplete as of the date of issuance of the financial statements due to the proximity of the acquisition date to the date of issuance.

3

Merchants Bancshares, Inc. – Pending Acquisition

On October 24, 2016, the Company announced that it had entered into a definitive agreement to acquire Merchants Bancshares, Inc. ("Merchants"), parent company of Merchants Bank, a state chartered bank headquartered in South Burlington, Vermont, for approximately $362 million in Company stock and cash.  The acquisition will extend the Company's footprint into the Vermont and Western Massachusetts markets.  Upon the completion of the merger, the Bank will add 31 branch locations in Vermont and one location in Massachusetts with approximately $2.1 billion of assets, and deposits of $1.5 billion.  The acquisition is expected to close during the second or third quarter of 2017, pending both regulatory and Merchants' shareholder approval.  The Company expects to incur certain one-time, transaction-related costs in 2017.

WJL Agencies, Inc.

On January 4, 2016, the Company, through its subsidiary, CBNA Insurance, completed its acquisition of WJL Agencies, Inc. doing business as The Clark Insurance Agencies ("WJL"), an insurance agency operating in northern New York. The Company paid $0.6 million in cash for the intangible assets of the company.  Goodwill in the amount of $0.3 million and intangible assets in the amount of $0.3 million were recorded in conjunction with the acquisition.  The effects of the acquired assets and liabilities have been included in the consolidated financial statements since that date.  On August 19, 2016, the Company merged together its insurance subsidiaries and as of that date, the activities of CBNA Insurance were merged into OneGroup.

Oneida Financial Corp.

On December 4, 2015, the Company completed its acquisition of Oneida Financial Corp. ("Oneida"), parent company of Oneida Savings Bank, headquartered in Oneida, New York for approximately $158 million in Company stock and cash, comprised of $56.3 million of cash and the issuance of 2.38 million common shares.  Upon the completion of the merger, the Bank added 12 branch locations in Oneida and Madison counties and approximately $769 million of assets, including approximately $399 million of loans and $226 million of investment securities, along with $699 million of deposits.  Through the acquisition of Oneida, the Company acquired OneGroup and OWM as wholly-owned subsidiaries primarily engaged in offering insurance and investment advisory services.  These subsidiaries complement the Company's other non-banking financial services businesses.  The effects of the acquired assets and liabilities have been included in the consolidated financial statements since that date.

EBS-RMSCO, Inc.

On January 1, 2014, BPAS-APS, formerly known as Harbridge Consulting Group LLC, completed its acquisition of a professional services practice from EBS-RMSCO, Inc., a subsidiary of The Lifetime Healthcare Companies ("EBS-RMSCO").  This professional services practice, which provides actuarial valuation and consulting services to clients who sponsor pension and post-retirement medical and welfare plans, enhanced the Company's participation in the Western New York marketplace.

Bank of America Branches

On December 13, 2013,  the Bank completed its acquisition of eight retail branch-banking locations across its Northeast Pennsylvania markets from Bank of America, N.A. ("B of A"), acquiring approximately $1.1 million in loans and $303 million of deposits.  The assumed deposits consisted of $220 million of checking, savings and money market accounts ("core deposits") and $83 million of time deposits.  Under the terms of the purchase agreement, the Bank paid B of A a blended deposit premium of 2.4%, or approximately $7.3 million.

HSBC and First Niagara Branches

On July 20, 2012,  the Bank completed its acquisition of 16 retail branches in central, northern and western New York from HSBC Bank USA, N.A. ("HSBC"), acquiring approximately $106 million in loans and approximately $697 million of deposits.  The assumed deposits consisted primarily of core deposits and the acquired loans consisted of in-market performing loans, primarily residential real estate loans.  Under the terms of the purchase agreement, the Bank paid First Niagara Bank, N.A. ("First Niagara"), who acquired HSBC's Upstate New York banking business and assigned its right to purchase the 16 branches to the Bank, a blended deposit premium of 3.4%, or approximately $24 million.

On September 7, 2012, the Bank completed its acquisition of three branches in central New York from First Niagara, acquiring approximately $54 million of loans and $101 million of deposits.  The assumed deposits consisted primarily of core deposits and the acquired loans consisted of in-market performing loans, primarily residential real estate loans. Under the terms of the purchase agreement, the Bank paid a blended deposit premium of 3.1%, or approximately $3 million.

In support of the HSBC and First Niagara branch acquisitions, the Company completed a public common stock offering in late January 2012, raising $57.5 million through the issuance of 2.13 million shares of common stock.  The net proceeds of the offering were approximately $54.9 million.

4

Services

Banking

The Bank is a community bank committed to the philosophy of serving the financial needs of customers in local communities.  The Bank's branches are generally located in smaller towns and cities within its geographic market areas of Upstate New York and Northeastern Pennsylvania. The Company believes that the local character of its business, knowledge of the customers and their needs, and its comprehensive retail and business products, together with responsive decision-making at the branch and regional levels, enable the Bank to compete effectively in its geographic market.   The Bank is a member of the Federal Reserve System ("FRB") and the Federal Home Loan Bank of New York ("FHLB"), and its deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") up to applicable limits.

Employee Benefit Services

Through BPAS and its subsidiaries, the Company operates a national practice that provides employee benefit trust, collective investment fund, retirement plan administration, actuarial, VEBA/HRA and health and welfare consulting services to a diverse array of clients spanning the United States and Puerto Rico.

Wealth Management

Through the Bank, CISI, OWM, Carta Group, and Nottingham, the Company provides wealth management, retirement planning, higher educational planning, fiduciary, risk management, and personal financial planning services.  The Company offers investment alternatives including stocks, bonds, mutual funds and advisory products.

Insurance Agency

Through OneGroup, the Company offers personal and commercial property insurance and other risk management products and services. In addition, OneGroup offers employee benefit related services.  OneGroup represents many leading insurance companies.

Segment Information

The Company has identified three reportable operating business segments:  Banking, Employee Benefit Services, and All Other.  Included in the All Other segment are the smaller Wealth Management and Insurance operations.  Information about the Company's reportable business segments is included in Note U of the "Notes to Consolidated Financial Statements" filed herewith in Part II.

Competition

The banking and financial services industry is highly competitive in the New York and Pennsylvania markets.  The Company competes actively for loans, deposits and customers with other national and state banks, thrift institutions, credit unions, retail brokerage firms, mortgage bankers, finance companies, insurance agencies, and other regulated and unregulated providers of financial services.  In order to compete with other financial service providers, the Company stresses the community nature of its operations and the development of profitable customer relationships across all lines of business.

5

The table below summarizes the Bank's deposits and market share by the forty-one counties of New York and Pennsylvania in which it has customer facilities.  Market share is based on deposits of all commercial banks, credit unions, savings and loan associations, and savings banks.

							Number of
County	State	Deposits as of 6/30/2016(1) (000's omitted)		Market Share (1)			Branches		ATM's		Towns/ Cities		Towns Where Company Has 1st or 2nd Market Position
Lewis	NY	$	198,077		75.70	%		4		4		3		3
Franklin	NY		322,707		63.30	%		6		6		5		5
Hamilton	NY		54,393		54.98	%		2		2		2		2
Madison	NY		465,922		53.33	%		8		8		5		5
Allegany	NY		254,923		48.16	%		9		10		8		8
Cattaraugus	NY		405,535		42.84	%		10		11		7		6
Saint Lawrence	NY		430,746		37.27	%		13		11		11		10
Otsego	NY		355,965		34.69	%		10		9		6		5
Jefferson	NY		436,631		28.15	%		7		9		6		6
Seneca	NY		131,020		27.80	%		4		3		4		4
Clinton	NY		354,656		26.80	%		4		7		2		2
Yates	NY		95,300		25.70	%		3		2		2		1
Wyoming	PA		121,488		24.65	%		4		4		4		4
Schuyler	NY		48,371		24.43	%		1		1		1		1
Chautauqua	NY		349,177		22.87	%		12		12		10		7
Livingston	NY		176,354		22.51	%		5		6		5		4
Steuben	NY		187,672		18.31	%		8		8		7		4
Essex	NY		120,533		18.03	%		5		5		4		4
Wayne	NY		131,884		15.62	%		3		3		2		2
Delaware	NY		144,681		14.88	%		5		5		5		5
Ontario	NY		241,814		12.07	%		8		14		5		3
Oswego	NY		169,822		9.63	%		4		5		4		2
Tioga	NY		37,835		8.62	%		2		2		2		1
Oneida	NY		273,502		7.94	%		7		7		6		5
Lackawanna	PA		398,822		7.66	%		11		11		8		4
Herkimer	NY		46,717		7.55	%		1		1		1		1
Luzerne	PA		451,924		7.44	%		10		14		8		3
Chemung	NY		74,589		7.29	%		2		2		1		0
Susquehanna	PA		52,519		6.41	%		3		1		3		2
Schoharie	NY		23,327		5.38	%		1		1		1		0
Bradford	PA		46,941		4.19	%		2		2		2		1
Carbon	PA		40,002		4.07	%		2		2		2		1
Cayuga	NY		43,470		4.03	%		2		2		2		1
Washington	NY		19,194		2.67	%		1		0		1		1
Chenango	NY		22,852		2.38	%		2		2		1		0
Warren	NY		32,543		1.92	%		1		1		1		1
Onondaga	NY		151,245		1.55	%		4		4		4		1
Broome	NY		32,133		1.22	%		1		1		1		0
Ulster	NY		29,496		0.97	%		1		1		1		1
Erie	NY		117,828		0.29	%		4		4		3		2
Tompkins	NY		4,150		0.22	%		1		0		1		0
		$	7,096,760		6.95	%		193		203		157		118
(1) Deposits and Market Share data as of June 30, 2016, the most recent information available from SNL Financial LLC.  Deposit amounts include $138.9 million of intercompany balances that are eliminated upon consolidation.

6

Employees

As of December 31, 2016, the Company employed 2,222 full-time employees, 138 part-time employees and 139 temporary employees.  None of the Company's employees are represented by a collective bargaining agreement.  The Company offers a variety of employment benefits and considers its relationship with its employees to be good.

Supervision and Regulation

General

The banking industry is highly regulated with numerous statutory and regulatory requirements that are designed primarily for the protection of depositors and the financial system, and not for the purpose of protecting shareholders.  Set forth below is a description of the material laws and regulations applicable to the Company and the Bank.  This summary is not complete and the reader should refer to these laws and regulations for more detailed information.  The Company's and the Bank's failure to comply with applicable laws and regulations could result in a range of sanctions and administrative actions imposed upon the Company and/or the Bank, including the imposition of civil money penalties, formal agreements and cease and desist orders.  Changes in applicable law or regulations, and in their interpretation and application by regulatory agencies, cannot be predicted, and may have a material effect on the Company's business and results.

The Company and its subsidiaries are subject to the laws and regulations of the federal government and the states and jurisdictions in which they conduct business.  The Company, as a bank holding company, is subject to extensive regulation, supervision and examination by the Board of Governors of the Federal Reserve System ("FRB") as its primary federal regulator.  The Bank is a nationally-chartered bank and is subject to extensive regulation, supervision and examination by the Office of the Comptroller of the Currency ("OCC") as its primary federal regulator, and as to certain matters, the FRB, the Consumer Financial Protection Bureau ("CFPB"), and the Federal Deposit Insurance Corporation ("FDIC").

The Company is also subject to the jurisdiction of the SEC and is subject to disclosure and regulatory requirements under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended.  The Company's common stock is listed on the New York Stock Exchange ("NYSE") and it is subject to NYSE's rules for listed companies.  Affiliated entities, including BPAS, HB&T, HSI, BPAS Trust Company of Puerto Rico, Nottingham, CISI, OneGroup, Carta Group, and OWM are subject to the jurisdiction of certain state and federal regulators and self-regulatory organizations including, but not limited to, the SEC, the Texas Department of Banking, the Financial Industry Regulatory Authority ("FINRA"), Puerto Rico Office of the Commissioner of Financial Institutions, and state securities and insurance regulators.

The Company, the Bank, and their respective subsidiaries may be subject to the laws and regulations of the federal government and/or the various states in which they conduct business.

Federal Bank Holding Company Regulation

The Company is a bank holding company under the Bank Holding Company Act of 1956, (the "BHC Act"), and became a financial holding company effective September 30, 2015.  As a bank holding company that has elected to become a financial holding company, the Company can affiliate with securities firms and insurance companies and engage in other activities that are "financial in nature" or "incidental" or "complementary" to activities that are financial in nature, as long as it continues to meet the eligibility requirements for financial holding companies (including requirements that the financial holding company and its depository institution subsidiary maintain their status as "well capitalized" and "well managed").

Generally, FRB approval is not required for the Company to acquire a company (other than a bank holding company, bank or savings association) engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the FRB.  Prior notice to the FRB may be required, however, if the company to be acquired has total consolidated assets of $10 billion or more.  Prior FRB approval is required before the Company may acquire the beneficial ownership or control of more than 5% of the voting shares or substantially all of the assets of a bank holding company, bank or savings association.

Because the Company is a financial holding company, if the Bank were to receive a rating under the Community Reinvestment Act of 1977, as amended ("CRA"), of less than Satisfactory, the Company will be prohibited, until the rating is raised to Satisfactory or better, from engaging in new activities or acquiring companies other than bank holding companies, banks or savings associations, except that the Company could engage in new activities, or acquire companies engaged in activities, that are considered "closely related to banking" under the BHC Act.  In addition, if the FRB determines that the Company or the Bank is not well capitalized or well managed, the Company would be required to enter into an agreement with the FRB to comply with all applicable capital and management requirements and may contain additional limitations or conditions.  Until corrected, the Company could be prohibited from engaging in any new activity or acquiring companies engaged in activities that are not closely related to banking, absent prior FRB approval.

7

Federal Reserve System Regulation

Because the Company is a bank holding company, it is subject to regulatory capital requirements and required by the FRB to, among other things, maintain cash reserves against its deposits.  The Bank is under similar capital requirements administered by the OCC as discussed below.  FRB policy has historically required a bank holding company to act as a source of financial and managerial strength to its subsidiary banks.  The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act") codifies this historical policy as a statutory requirement.  To the extent the Bank is in need of capital, the Company could be expected to provide additional capital, including borrowings from the FRB for such purpose.  Both the Company and the Bank are subject to extensive supervision and regulation, which focus on, among other things, the protection of depositors' funds.

The FRB also regulates the national supply of bank credit in order to influence general economic conditions.  These policies have a significant influence on overall growth and distribution of loans, investments and deposits, and affect the interest rates charged on loans or paid for deposits.

Fluctuations in interest rates, which may result from government fiscal policies and the monetary policies of the FRB, have a strong impact on the income derived from loans and securities, and interest paid on deposits and borrowings.  While the Company and the Bank strive to model various interest rate changes and adjust our strategies for such changes, the level of earnings can be materially affected by economic circumstances beyond our control.

The Office of Comptroller of the Currency Regulation

The Bank is supervised and regularly examined by the OCC.  The various laws and regulations administered by the OCC affect the Company's practices such as payment of dividends, incurring debt, and acquisition of financial institutions and other companies.  It also affects the Bank's business practices, such as payment of interest on deposits, the charging of interest on loans, types of business conducted and the location of its offices.  The OCC generally prohibits a depository institution from making any capital distributions, including the payment of a dividend, or paying any management fee to its parent holding company if the depository institution would become undercapitalized due to the payment.  Undercapitalized institutions are subject to growth limitations and are required to submit a capital restoration plan to the OCC.  The Bank is well capitalized under regulatory standards administered by the OCC.  For additional information on our capital requirements see "Management's Discussion and Analysis of Financial Condition and Results of Operations – Shareholders' Equity" and Note P to the Financial Statements.

Federal Home Loan Bank

The Bank is a member of the FHLB, which provides a central credit facility primarily for member institutions for home mortgage and neighborhood lending.  The Bank is subject to the rules and requirements of the FHLB, including the purchase of shares of FHLB activity-based stock in the amount of 4.5% of the dollar amount of outstanding advances and FHLB capital stock in an amount equal to the greater of $1,000 or the sum of 0.15% of the mortgage-related assets held by the Bank based upon the previous year-end financial information.  The Bank was in compliance with the rules and requirements of the FHLB at December 31, 2016.

Deposit Insurance

Deposits of the Bank are insured up to the applicable limits by the Deposit Insurance Fund ("DIF") and are subject to deposit insurance assessments to maintain the DIF.  The Dodd-Frank Act permanently increased the maximum amount of deposit insurance to $250,000 per deposit category, per depositor, per institution.  A depository institution's DIF assessment is calculated by multiplying its assessment rate by the assessment base, which is defined as the average consolidated total assets less the average tangible equity of the depository institution.  The initial base assessment rate is based on its capital level and supervisory ratings (its "CAMELS ratings"), certain financial measures to assess an institution's ability to withstand asset related stress and funding related stress and, in some cases, additional discretionary adjustments by the FDIC to reflect additional risk factors.

In October 2010, the FDIC adopted a DIF restoration plan to ensure that the fund reserve ratio reaches 1.35% by September 30, 2020, as required by the Dodd-Frank Act.  At least semi-annually, the FDIC will update its loss and income projections for the fund and, if needed, will increase or decrease assessment rates, following notice-and-comment rulemaking if required.  On June 30, 2016, the fund reserve ratio reached 1.15% and the assessment rate schedule was lowered.  FDIC insurance expense totaled $3.7 million, $4.0 million and $3.9 million in 2016, 2015 and 2014, respectively.

Under the Federal Deposit Insurance Act, if the FDIC finds that an institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC, the FDIC may determine that such violation or unsafe or unsound practice or condition require the termination of deposit insurance.

8

Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010

On July 21, 2010, the Dodd-Frank Act was signed into law, which resulted in significant changes to the banking industry.  The provisions that have received the most public attention have been those that apply to financial institutions larger than the Company; however, the Dodd-Frank Act does contain numerous other provisions that affect all banks and bank holding companies and impacts how the Company and the Bank handle their operations.  The Dodd-Frank Act requires various federal agencies, including those that regulate the Company and the Bank, to promulgate new rules and regulations and to conduct various studies and reports for Congress.  The federal agencies have either completed or are in the process of completing these rules and regulations and have been given significant discretion in drafting such rules and regulations.  Several of the provisions of the Dodd-Frank Act may have the consequence of increasing the Bank's expenses, decreasing its revenues, and changing the activities in which it chooses to engage.  The specific impact of the Dodd-Frank Act on the Company's current activities or new financial activities the Company may consider in the future, the Company's financial performance, and the markets in which the Company operates depends on the manner in which the relevant agencies continue to develop and implement the required rules and regulations and the reaction of market participants to these regulatory developments.

Pursuant to FRB regulations mandated by the Dodd-Frank Act, effective October 1, 2011, interchange fees on debit card transactions are limited to a maximum of $0.21 per transaction plus 5 basis points of the transaction amount.  A debit card issuer may recover an additional one cent per transaction for fraud prevention purposes if the issuer complies with certain fraud-related requirements prescribed by the FRB.  Currently, the Company is exempt from the interchange fee cap under the "small issuer" exemption, which applies to any debit card issuer with total worldwide assets (including those of its affiliates) of less than $10 billion as of the end of the previous calendar year.  In the event the Company's assets reach $10 billion or more, it will become subject to the interchange fee limitations beginning July 1 of the following year, and the fees the Company may receive for an electronic debit transaction will be capped at the statutory limit.  The FRB also adopted requirements in the final rule that issuers include two unaffiliated networks for routing debit transactions that are applicable to the Company and the Bank.

The final rules issued by the FRB, SEC, OCC, FDIC, and Commodity Futures Trading Commission implementing Section 619 of the Dodd-Frank Act (commonly known as the Volcker Rule) prohibit insured depository institutions and companies affiliated with insured depository institutions from engaging in short-term proprietary trading of certain securities, derivatives, commodity futures and options on these instruments, for their own account.  The final rules also impose limits on banking entities' investments in, and other relationships with, hedge funds or private equity funds.  Banking entities with less than $10 billion in total consolidated assets, which generally have very little or no involvement in prohibited proprietary trading or investment activities in covered funds, do not have any compliance obligations under the final rule if they do not engage in any covered activities other than trading in certain government, agency, State or municipal obligations.

The CFPB rules implementing Section 1073 of the Dodd-Frank Act create a comprehensive new system of consumer protections for remittance transfers sent by consumers in the United States to individuals and businesses in foreign countries.  The amendments provide new protections, including disclosure requirements, and error resolution and cancellation rights, to consumers who send remittance transfers to other consumers or businesses in a foreign country.  The Bank has adopted policies and procedures to comply with the final foreign remittance transfer rules.

The scope and impact of many of the Dodd-Frank Act's provisions will continue to be determined over time, including as final regulations are issued and become effective.  As a result, the Company cannot predict the ultimate impact of the Dodd-Frank Act on the Company or the Bank at this time, including the extent to which it could increase costs or limit the Company's ability to pursue business opportunities in an efficient manner, or otherwise adversely affect its business, financial condition and results of operations.  Nor can the Company predict the impact or substance of other future legislation or regulation.  However, it is expected that they at a minimum will increase the Company's and the Bank's operating and compliance costs.  As rules and regulations continue to be implemented or issued, the Company may need to dedicate additional resources to ensure compliance, which may increase its costs of operations and adversely impact its earnings.

Capital Requirements

The Company and the Bank are required to comply with applicable capital adequacy standards established by the federal banking agencies.  The risk-based capital standards that were applicable to the Company and the Bank through December 31, 2014 were based on the 1988 Capital Accord, known as Basel I ("Basel I"), of the Basel Committee on Banking Supervision (the "Basel Committee").  However, in July 2013, the FRB, the OCC and the FDIC approved final rules (the "New Capital Rules") establishing a new comprehensive capital framework for U.S. banking organizations.  These rules went into effect for the Company and the Bank on January 1, 2015, subject to phase-in periods for certain components.

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The New Capital Rules implement the Basel Committee's December 2010 capital framework (known as "Basel III") for strengthening international capital standards as well as certain provisions of the Dodd-Frank Act.  The New Capital Rules substantially revise the risk-based capital requirements applicable to bank holding companies and depository institutions, including the Company and the Bank, compared to the previous U. S. Basel I risk-based capital rules.  The New Capital Rules define the components of capital and address other issues affecting the numerator in banking institutions regulatory capital ratios and replace the Basel I risk-weighting approach, with a more risk-sensitive one based, in part, on the standardized approach set forth in "Basel II".  The New Capital Rules also implement the requirements of Section 939A of the Dodd-Frank Act to remove references to credit ratings from the Federal banking agencies' rules.

The New Capital Rules, among other things: (i) introduces as a new capital measure "Common Equity Tier 1," ("CET1"), (ii) specify that Tier 1 capital consists of CET1 and "Additional Tier 1 capital" instruments meeting specified revised requirements, (iii) defines CET1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital, and (iv) expands the scope of the deductions from and adjustments to capital as compared to existing regulations.  Under the New Capital Rules, the most common form of Additional Tier 1 capital is non-cumulative perpetual preferred stock, and the most common form of Tier 2 capital is subordinated notes and a portion of the allowance for loan and lease losses, in each case, subject to the New Capital Rules specific requirements.

Under the New Capital Rules, the minimum capital ratios as of January 1, 2015 are as follows:

· 4.5% CET1 to total risk-weighted assets;

· 6.0% Tier 1 capital (CET1 plus Additional Tier 1 capital) to total risk-weighted assets;

· 8.0% Total capital (Tier 1 Capital plus Tier 2 capital) to total risk-weighted assets;

· 4.0% Tier 1 capital to total adjusted quarterly average assets (known as "leverage ratio")

Beginning in 2016, the New Capital Rules required the Company and the Bank to maintain a "capital conservation buffer" composed entirely of CET1. When it is fully phased-in by the beginning of 2019, banking organizations will be required to maintain a minimum capital conservation buffer of 2.5% (CET1 to Total risk-weighted assets), in addition to the minimum risk-based capital ratios. Therefore, to satisfy both the minimum risk-based capital ratios and the capital conservation buffer, a banking organization will be required to maintain the following: (i) CET1 to total risk-weighted assets of at least 7%, (ii) Tier 1 capital to total risk-weighted assets of at least 8.5%, and (iii) Total capital (Tier 1 capital plus Tier 2 capital) to total risk-weighted assets of at least 10.5% by January 1, 2019, upon full phase-in of the capital conservation buffer. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions that do not maintain a capital conservation buffer of 2.5% or more will face constraints on dividends, common share repurchases and incentive compensation based on the amount of the shortfall.

The New Capital Rules provide for a number of deductions from and adjustments to CET1. These include, for example, the requirement that mortgage servicing rights, deferred tax assets dependent upon future taxable income and significant investments in non-consolidated financial entities be deducted from CET1 to the extent that any one such category exceeds 10% of CET1 or all such categories in the aggregate exceed 15% of CET1. Under the general Basel I risk based capital rules, the effects of accumulated other comprehensive income or loss items included in shareholders' equity (for example, marks-to-market of securities held in the available for sale portfolio) were reversed for the purposes of determining regulatory capital. Under the New Capital Rules, the effects of certain accumulated other comprehensive income or loss items are not excluded; however, banks not using the advanced approaches, including the Company and the Bank, were permitted to, and in the case of the Company and the Bank they did, make a one-time permanent election to continue to exclude these items.

Consistent with the section 171 of the Dodd-Frank Act, the New Capital Rules allow certain bank holding companies to include certain hybrid securities, such as trust preferred securities, in Tier 1 capital if they had less than $15 billion in assets as of December 31, 2009 and the securities were issued before May 19, 2010.  Accordingly, the trust preferred securities classified as long-term debt on the Company's balance sheet will be included as Tier 1 capital while they are outstanding, unless the Company completes an acquisition of a depository institution holding company that did not meet this criteria, or are acquired by such an organization, after January 1, 2014, at which time they would be subject to the stated phase-out requirements of the New Capital Rules and would be included as Tier 2 capital.

Implementation of the deductions and other adjustments to CET1 began on January 1, 2015 and will be phased-in over a 4-year period (beginning at 40% on January 1, 2015 and an additional 20% per year thereafter). The implementation of the capital conservation buffer began on January 1, 2016 at the 0.625% level and will be phased in over a four-year period (increasing by that amount on each subsequent January 1, until it reaches 2.5% on January 1, 2019).

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With respect to the Bank, the New Capital Rules also revise the prompt corrective action ("PCA") regulations established pursuant to Section 38 of the Federal Deposit Insurance Act, by (i) introducing a CET1 ratio requirement for each capital category other than critically undercapitalized, with the required CET1 ratio being 6.5% for well-capitalized status; (ii) increasing the minimum Tier 1 capital ratio requirement for each capital category, with the minimum Tier 1 capital ratio for well-capitalized status being 8.0% (as compared to the current 6.0%); and (iii) eliminating the current provision that allows certain highly-rated banking organizations to maintain a 3.0% leverage ratio and still be adequately capitalized. The New Capital Rules do not change the Total risk-based PCA capital requirement for any capital category.

The New Capital Rules prescribe a new standardized approach for risk weighted-assets that expands the risk-weight categories from the current four Basel I-derived categories (0%, 20%, 50% and 100%) to a larger and more risk-sensitive number of categories, depending on the nature of the asset. The new risk-weight categories generally range from 0% for U.S. government and agency securities, to 1,250% for certain securitized exposures, and result in higher risk weights for a variety of asset categories. The standardized approach requires financial institutions to transition assets that are 90 days or more past due or on nonaccrual from their original risk weight to 150 percent.  Additionally, loans designated as high volatility commercial real estate ("HVCRE") are assigned a risk-weighting of 150 percent.

Requirements to maintain higher levels of capital or to maintain higher levels of liquid assets could adversely impact the Company's net income and return on equity. The current requirements and the Company's actual capital levels are detailed in Note P of "Notes to Consolidated Financial Statements" filed in Part II, Item 8, "Financial Statements and Supplementary Data."

Consumer Protection Laws

In connection with its banking activities, the Bank is subject to a number of federal and state laws designed to protect borrowers and promote lending to various sectors of the economy.  These laws include the Equal Credit Opportunity Act, GLB Act, the Fair Credit Reporting Act ("FCRA"), the Fair and Accurate Credit Transactions Act of 2003 ("FACT Act"), Electronic Funds Transfer Act, the Truth in Lending Act, the Home Mortgage Disclosure Act, the Dodd-Frank Act, the Real Estate Settlement Procedures Act, the Secure and Fair Enforcement for Mortgage Licensing Act ("SAFE"), and various state law counterparts.

The Dodd-Frank Act created the CFPB with broad powers to supervise and enforce consumer protection laws, including laws that apply to banks in order to prohibit unfair, deceptive or abusive practices.  The CFPB has examination authority over all banks and savings institutions with more than $10 billion in assets.  Until the Company exceeds this threshold, the OCC continues to exercise primary examination authority over the Bank with regard to compliance with federal consumer protection laws and regulations.  The Dodd-Frank Act weakens the federal preemption rules that have been applicable to national banks and gives attorney generals for the states certain powers to enforce federal consumer protection laws.  Further, under the Dodd-Frank Act, it is unlawful for any provider of consumer financial products or services to engage in any unfair, deceptive, or abusive acts or practice ("UDAAP").  A violation of the consumer protection and privacy laws, and in particular UDAAP, could have serious legal, financial, and reputational consequences.

In addition, the GLB Act requires all financial institutions to adopt privacy policies, restrict the sharing of nonpublic customer data with nonaffiliated parties and establishes procedures and practices to protect customer data from unauthorized access.  In addition, the FCRA, as amended by the FACT Act, includes provisions affecting the Company, the Bank, and their affiliates, including provisions concerning obtaining consumer reports, furnishing information to consumer reporting agencies, maintaining a program to prevent identity theft, sharing of certain information among affiliated companies, and other provisions.  The FACT Act requires persons subject to FCRA to notify their customers if they report negative information about them to a credit bureau or if they are granted credit on terms less favorable than those generally available.  The FRB and the Federal Trade Commission have extensive rulemaking authority under the FACT Act, and the Company and the Bank are subject to the rules that have been created under the FACT Act, including rules regarding limitations on affiliate marketing and implementation of programs to identify, detect and mitigate certain identity theft red flags.  The Bank is also subject to data security standards and data breach notice requirements issued by the OCC and other regulatory agencies.  The Bank has created policies and procedures to comply with these consumer protection requirements.

The CFPB issued the final rules implementing the ability-to-repay and qualified mortgage (QM) provisions of the Truth in Lending Act, as amended by the Dodd-Frank Act (the "QM Rule").  The ability-to-repay provision requires creditors to make reasonable, good faith determinations that borrowers are able to repay their mortgages before extending the credit based on a number of factors and consideration of financial information about the borrower derived from reasonably reliable third-party documents. Under the Dodd-Frank Act and the QM Rule, loans meeting the definition of "qualified mortgage" are entitled to a presumption that the lender satisfied the ability-to-repay requirements.  The presumption is a conclusive presumption/safe harbor for loans meeting the QM requirements, and a rebuttable presumption for higher-priced loans meeting the QM requirements.  The definition of a "qualified mortgage" incorporates the statutory requirements, such as not allowing negative amortization or terms longer than 30 years. The QM Rule also adds an explicit maximum 43% debt-to-income ratio for borrowers if the loan is to meet the QM definition, though some mortgages that meet government-sponsored enterprises, Federal Housing Administration, and Veterans Administration underwriting guidelines may, for a period not to exceed seven years, meet the QM definition without being subject to the 43% debt-to-income limits.  The Bank has created policies and procedures to comply with these consumer protection requirements.

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USA Patriot Act

The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 ("USA Patriot Act") imposes obligations on U.S. financial institutions, including banks and broker-dealer subsidiaries, to implement policies, procedures and controls which are reasonably designed to detect and report instances of money laundering and the financing of terrorism.  In addition, provisions of the USA Patriot Act require the federal financial institution regulatory agencies to consider the effectiveness of a financial institution's anti-money laundering activities when reviewing bank mergers and bank holding company acquisitions.  The USA Patriot Act also encourages information-sharing among financial institutions, regulators, and law enforcement authorities by providing an exemption from the privacy provisions of the GLB Act for financial institutions that comply with the provision of the Act.  Failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could have serious legal, financial and reputational consequences for the institution.  The Company has approved policies and procedures that are designed to comply with the USA Patriot Act and its regulations.

Office of Foreign Assets Control Regulation

The United States has imposed economic sanctions that affect transactions with designated foreign countries, nationals and others administrated by the Treasury's Office of Foreign Assets Control ("OFAC").  The OFAC administered sanctions can take many different forms; however, they generally contain one or more of the following elements: (i) restrictions on trade with or investment in a sanctioned country, entity or individual, including prohibitions against direct or indirect imports and exports and prohibitions on "U.S. persons" engaging in financial transactions relating to making investments, or providing investment related advice or assistance; and (ii) a blocking of assets in which the government or specially designated nationals have an interest, by prohibiting transfers of property subject to U.S. jurisdiction (including property in the possession or control of U.S. persons).  Blocked assets (e.g., property and bank deposits) cannot be paid out, withdrawn, set off or transferred in any manner without a license from OFAC.  Failure to comply with these sanctions could have serious legal, financial, and reputational consequences.

Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley Act") implemented a broad range of corporate governance, accounting and reporting reforms for companies that have securities registered under the Securities Exchange Act of 1934, as amended.  In particular, the Sarbanes-Oxley Act established, among other things: (i) new requirements for audit and other key Board of Directors committees involving independence, expertise levels, and specified responsibilities; (ii) additional responsibilities regarding the oversight of financial statements by the Chief Executive Officer and Chief Financial Officer of the reporting company; (iii) the creation of an independent accounting oversight board for the accounting industry; (iv) new standards for auditors and the regulation of audits, including independence provisions which restrict non-audit services that accountants may provide to their audit clients; (v) increased disclosure and reporting obligations for the reporting company and its directors and executive officers including accelerated reporting of company stock transactions; (vi) a prohibition of personal loans to directors and officers, except certain loans made by insured financial institutions on non-preferential terms and in compliance with other bank regulator requirements; and (vii) a range of new and increased civil and criminal penalties for fraud and other violations of the securities laws.

Electronic Fund Transfer Act

A federal banking rule under the Electronic Fund Transfer Act prohibits financial institutions from charging consumers fees for paying overdrafts on automated teller machines and one-time debit card transactions, unless a consumer consents, or opts in, to the overdraft service for those types of transactions.  The new rule does not govern overdraft fees on the payment of checks and certain other forms of bill payments.

Community Reinvestment Act of 1977

Under the Community Reinvestment Act of 1977 ("CRA"), the Bank is required to help meet the credit needs of its communities, including low- and moderate-income neighborhoods.  Although the Bank must follow the requirements of CRA, it does not limit the Bank's discretion to develop products and services that are suitable for a particular community or establish lending requirements or programs.  In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibits discrimination in lending practices.  The Bank's failure to comply with the provisions of the CRA could, at a minimum, result in regulatory restrictions on its activities and the activities of the Company.  The Bank's failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions against it by its regulators as well as other federal regulatory agencies and the Department of Justice.  The Bank's latest CRA rating was "Satisfactory".

The Bank Secrecy Act

The Bank Secrecy Act ("BSA") requires all financial institutions, including banks and securities broker-dealers, to, among other things, establish a risk-based system of internal controls reasonably designed to prevent money laundering and the financing of terrorism.  The BSA includes a variety of recordkeeping and reporting requirements (such as cash and suspicious activity reporting), as well as due diligence/know-your-customer documentation requirements.  The Company has established an anti-money laundering program and taken other appropriate measures in order to comply with BSA requirements.

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Item 1A. Risk Factors

There are risks inherent in the Company's business.  The material risks and uncertainties that management believes affect the Company are described below.  Adverse experience with these could have a material impact on the Company's financial condition and results of operations.

Changes in interest rates affect our profitability, assets and liabilities.

The Company's income and cash flow depends to a great extent on the difference between the interest earned on loans and investment securities, and the interest paid on deposits and borrowings.  Interest rates are highly sensitive to many factors that are beyond the Company's control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the FRB.  Changes in monetary policy, including changes in interest rates, could influence not only the interest we receive on loans and securities and the amount of interest we pay on deposits and borrowings, but such changes could also affect (1) our ability to originate loans and obtain deposits, which could reduce the amount of fee income generated, (2) the fair value of our financial assets and liabilities and (3) the average duration of the Company's various categories of earning assets.  If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, our net interest income could be adversely affected, which in turn could negatively affect our earnings.  Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings.  Although management believes it has implemented effective asset and liability management strategies to reduce the potential effects of changes in interest rates on the results of operations, any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on the financial condition and results of operations.

The Company operates in a highly regulated environment and may be adversely affected by changes in laws and regulations or the interpretation and examination of existing laws and regulations.

The Company and its subsidiaries are subject to extensive state and federal regulation, supervision and legislation that govern nearly every aspect of its operations.  The Company, as a bank holding company, is subject to regulation by the FRB and its banking subsidiary is subject to regulation by the OCC.  These regulations affect deposit and lending practices, capital levels and structure, investment practices, dividend policy and growth.  In addition, the non-bank subsidiaries are engaged in providing retirement plan administration, investment management and insurance brokerage services, which industries are also heavily regulated at both a state and federal level.  Such regulators govern the activities in which the Company and its subsidiaries may engage.  These regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the operation of a bank, the classification of assets by a bank and the adequacy of a bank's allowance for loan losses.  Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, legislation, interpretation or application, could have a material impact on the Company and its operations.  Changes to the regulatory laws governing these businesses could affect the Company's ability to deliver or expand its services and adversely impact its operating and financial condition.

For example, the Dodd-Frank Act, enacted in July 2010, instituted major changes to the banking and financial institutions regulatory regimes based upon the performance of, and ultimate government intervention in, the financial services sector.  To date, not all the rules required or expected to be implemented under the Dodd-Frank Act have been adopted and many of the rules that have been adopted are subject to interpretation or clarification.  The implications of the Dodd-Frank Act for the Company's businesses continue to depend to a large extent on the implementation of the legislation by the FRB and other agencies as well as how market practices and structures change in response to the requirements of the Dodd-Frank Act.  All of these changes in regulations could subject the Company, among other things, to additional costs and limit the types of financial services and products it can offer and/or increase the ability of non-banks to offer competing financial services and products.

The Company is also directly subject to the requirements of entities that set and interpret the accounting standards such as the Financial Accounting Standards Board, and indirectly subject to the actions and interpretations of the Public Company Accounting Oversight Board, which establishes auditing and related professional practice standards for registered public accounting firms and inspects registered firms to assess their compliance with certain laws, rules, and professional standards in public company audits.  These regulations, along with the currently existing tax, accounting, securities, insurance, and monetary laws, regulations, rules, standards, policies and interpretations, control the methods by which financial institutions and their holding companies conduct business, engage in strategic and tax planning, implement strategic initiatives, and govern financial reporting.

The Company's failure to comply with laws, regulations or policies could result in civil or criminal sanctions and money penalties by state and federal agencies, and/or reputation damage, which could have a material adverse effect on the Company's business, financial condition and results of operations.  See "Supervision and Regulation" for more information about the regulations to which the Company is subject.

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If the Company's total consolidated assets were to reach $10 billion, it would become subject to additional regulation and increased supervision.

The Dodd-Frank Act imposes additional regulatory requirement on institutions with $10 billion or more in assets.  The Company had $8.7 billion in assets as of December 31, 2016.  The pending merger with Merchants will result in the Company having assets of $10 billion or more and will subject the Company to the following: (1) supervision, examination and enforcement by the CFPB with respect to consumer financial protection laws, (2) regulatory stress testing requirements, whereby the Company would be required to conduct an annual stress test using assumptions for baseline, adverse and severely adverse scenarios, (3) a modified methodology for calculating FDIC insurance assessments and potentially higher assessment rates as a result of institutions with $10 billion or more in assets being required to bear a greater portion of the cost of raising the reserve ratio to 1.35% as required by the Dodd-Frank Act, (4) limitations on interchange fees for debit card transactions, (5) heightened compliance standards under the Volcker Rule, and (6) enhanced supervision as a larger financial institution.  The imposition of these regulatory requirements and increased supervision may require additional commitment of financial resources to regulatory compliance and may increase the Company's cost of operations.  Further, the results of the stress testing process may lead the Company to retain additional capital or alter the mix of its capital components.

To ensure compliance with these heightened requirements when effective, the Company's regulators may require it to fully comply with these requirements or take actions to prepare for compliance even before the Company's or the Bank's total consolidated assets equal or exceed $10 billion.  As a result, the Company may incur compliance-related costs before it might otherwise be required, including if the Company does not continue to grow at the rate it expects or at all.  The Company's regulators may also consider its preparation for compliance with these regulatory requirements when examining its operations generally or considering any request for regulatory approval the Company may make, even requests for approvals on unrelated matters.

The Company may be subject to more stringent capital requirements.

As discussed above, Basel III and the Dodd-Frank Act require the federal banking agencies to establish stricter risk-based capital requirements and leverage limits for banks and bank holding companies.  Under the legislation, the federal banking agencies are required to develop capital requirements that address systemically-risky activities.  The capital rules must address, at a minimum, risks arising from significant volumes of activity in derivatives, securities products, financial guarantees, securities borrowing and lending and repurchase agreements; concentrations in assets for which reported values are based on models; and concentrations in market share for any activity that would substantially disrupt financial markets if the institutions were forced to unexpectedly cease the activity.  These requirements, and any other new regulations, could adversely affect the Company's ability to pay dividends, or could require it to reduce business levels or to raise capital, including in ways that may adversely affect its results of operations or financial condition.

Regional economic factors may have an adverse impact on the Company's business.

The Company's main markets are located in the states of New York and Pennsylvania.  Most of the Company's customers are individuals and small and medium-sized businesses which are dependent upon the regional economy.  Accordingly, the local economic conditions in these areas have a significant impact on the demand for the Company's products and services as well as the ability of the Company's customers to repay loans, the value of the collateral securing loans and the stability of the Company's deposit funding sources.  A prolonged economic downturn in these markets could negatively impact the Company.

The Company is subject to a variety of operational risks, including reputational risk, legal and compliance risk, the risk of fraud or theft by employees or outsiders, which may adversely affect the Company's business and results of operations.

The Company is exposed to many types of operational risks, including reputational risk, legal and compliance risk, the risk of fraud or theft by employees or outsiders, unauthorized transactions by employees, or operational errors, including clerical or record keeping errors or those resulting from faulty or disabled computer or telecommunications systems or disclosure of confidential proprietary information of its customers.  Negative public opinion can result from actual or alleged conduct in any number of activities, including lending practices, sales practices, customer treatment, corporate governance and acquisitions and from actions taken by government regulators and community organizations in response to those activities. Negative public opinion can adversely affect the Company's ability to attract and keep customers and can expose the Company to litigation and regulatory action. Actual or alleged conduct by the Company can result in negative public opinion about its business.

If personal, nonpublic, confidential, or proprietary information of customers in the Company's possession were to be mishandled or misused, the Company could suffer significant regulatory consequences, reputational damage, and financial loss. Such mishandling or misuse could include, for example, if such information were erroneously provided to parties who are not permitted to have the information, either by fault of its systems, employees, or counterparties, or where such information is intercepted or otherwise inappropriately taken by third parties.

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Because the nature of the financial services business involves a high volume of transactions, certain errors may be repeated or compounded before they are discovered and successfully rectified. The Company's necessary dependence upon automated systems to record and process transactions and the large transaction volumes may further increase the risk that technical flaws or employee tampering or manipulation of those systems will result in losses that are difficult to detect.  The Company also may be subject to disruptions of our operating systems arising from events that are wholly or partially beyond its control (for example, computer viruses or electrical or telecommunications outages), which may give rise to disruption of service to customers and to financial loss or liability. The Company is further exposed to the risk that external vendors may be unable to fulfill their contractual obligations (or will be subject to the same risk of fraud or operational errors by their respective employees) and to the risk that business continuity and data security systems prove to be inadequate. The occurrence of any of these risks could result in a diminished ability to operate the Company's business, potential liability to clients, reputational damage, and regulatory intervention, which could adversely affect our business, financial condition, and results of operations, perhaps materially.

The financial services industry is highly competitive and creates competitive pressures that could adversely affect the Company's revenue and profitability.

The financial services industry in which the Company operates is highly competitive.  The Company competes not only with commercial and other banks and thrifts, but also with insurance companies, mutual funds, hedge funds, securities brokerage firms and other companies offering financial services in the U.S., globally and over the Internet.  The Company competes on the basis of several factors, including capital, access to capital, revenue generation, products, services, transaction execution, innovation, reputation and price.  Over time, certain sectors of the financial services industry have become more concentrated, as institutions involved in a broad range of financial services have been acquired by or merged into other firms.  These developments could result in the Company's competitors gaining greater capital and other resources, such as a broader range of products and services and geographic diversity.  The Company may experience pricing pressures as a result of these factors and as some of its competitors seek to increase market share by reducing prices or paying higher rates of interest on deposits.  Finally, technological change is influencing how individuals and firms conduct their financial affairs and changing the delivery channels for financial services, with the result that the Company may have to contend with a broader range of competitors including many that are not located within the geographic footprint of its banking office network.

Conditions in the insurance market could adversely affect the Company's earnings.

Revenue from insurance fees and commissions could be negatively affected by fluctuating premiums in the insurance markets or other factors beyond the Company's control.  Other factors that affect insurance revenue are the profitability and growth of the Company's clients, the renewal rate of the current insurance policies, continued development of new product and services as well as access to new markets.  The Company's insurance revenues and profitability may also be adversely affected by new laws and regulatory developments impacting the healthcare and insurance markets.

Changes in employee benefit regulations may reduce our profitability.

The Company provides products and services to certain employee benefit plans that are subject to ERISA or the Internal Revenue Code of 1986, as amended.  The U.S. Congress has, from time to time, considered legislation relating to changes in ERISA to permit application of state law remedies, such as consequential and punitive damages, in lawsuits for wrongful denial of benefits, which, if adopted, could increase our liability for damages in future litigation.  In addition, reductions in contribution levels to defined contribution plans may decrease our profitability.

In April 2016, the Department of Labor ("DOL") released its final fiduciary definition regulation package, which was scheduled to be phased in April 10, 2017 to January 1, 2018.  However, on February 3, 2017 a memorandum was issued that will most likely delay the rules implementation by 180 days.  The regulation broadens the definition of a fiduciary under ERISA to include persons providing investment advice to an employee benefit plan or an IRA for a fee or other compensation.  The DOL also released two new prohibited transaction class exemptions and amendments to current prohibited transaction exemptions.  Broker-dealers and advisors are in various stages of determining the implications of the regulations and changes to the regulations on their business models.  Even with this fluid environment, our preliminary assessment of the new regulation's impact to our business and future financial results indicates the costs will not have a significant effect on our financial condition or results of operations.  As the rules become applicable and are operationalized, we will assess what business impacts need to be addressed and how they affect the organization.

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The allowance for loan losses may be insufficient.

The Company's business depends on the creditworthiness of its customers.  The Company reviews the allowance for loan losses quarterly for adequacy considering economic conditions and trends, collateral values and credit quality indicators, including past charge-off experience and levels of past due loans and nonperforming assets.  If the Company's assumptions prove to be incorrect, the Company's allowance for loan losses may not be sufficient to cover losses inherent in the Company's loan portfolio, resulting in additions to the allowance.  Material additions to the allowance would materially decrease its net income.  It is possible that over time the allowance for loan losses will be inadequate to cover credit losses in the portfolio because of unanticipated adverse changes in the economy, market conditions or events adversely affecting specific customers, industries or markets.

Changes in the equity markets could materially affect the level of assets under management and the demand for other fee-based services.

Economic downturns could affect the volume of income from and demand for fee-based services.  Revenue from the wealth management and benefit plan administration businesses depends in large part on the level of assets under management and administration.  Market volatility, and the potential to lead customers to liquidate investments, as well as lower asset values, can reduce the level of assets under management and administration and thereby decrease the Company's investment management and administration revenues.

Mortgage banking income may experience significant volatility.

Mortgage banking income is highly influenced by the level and direction of mortgage interest rates, and real estate and refinancing activity.  In lower interest rate environments, the demand for mortgage loans and refinancing activity will tend to increase.  This has the effect of increasing fee income, but could adversely impact the estimated fair value of the Company's mortgage servicing rights as the rate of loan prepayments increase.  In higher interest rate environments, the demand for mortgage loans and refinancing activity will generally be lower.  This has the effect of decreasing fee income opportunities.

The Company depends on dividends from its banking subsidiary for cash revenues, but those dividends are subject to restrictions.

The ability of the Company to satisfy its obligations and pay cash dividends to its shareholders is primarily dependent on the earnings of and dividends from the subsidiary bank.  However, payment of dividends by the bank subsidiary is limited by dividend restrictions and capital requirements imposed by bank regulations.  The ability to pay dividends is also subject to the continued payment of interest that the Company owes on its subordinated junior debentures.  As of December 31, 2016, the Company had $102 million of subordinated junior debentures outstanding.  The Company has the right to defer payment of interest on the subordinated junior debentures for a period not exceeding 20 quarters, although the Company has not done so to date.  If the Company defers interest payments on the subordinated junior debentures, it will be prohibited, subject to certain exceptions, from paying cash dividends on the common stock until all deferred interest has been paid and interest payments on the subordinated junior debentures resumes.

Risks related to the Company's proposed merger with Merchants.

The Company and Merchants have operated and, until the completion of the merger, will continue to operate, independently.  The success of the merger, including anticipated benefits and cost savings, will depend, in part, on the Company's and Merchants' ability to successfully combine and integrate the businesses of the Company and Merchants in a manner that permits growth opportunities and does not materially disrupt the existing customer relations or result in decreased revenues due to loss of customers.  It is possible that the integration process could result in the loss of key employees, the disruption of either entity's ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the combined entity's ability to maintain relationships with customers, depositors, clients and employees or to achieve the anticipated benefits and cost savings of the merger.  If the combined company experiences difficulties with the integration process, the anticipated benefits of the merger may not be realized fully or at all, or may take longer to realize than expected.

The Company has incurred, and will continue to incur, substantial expenses in connection with the negotiation and completion of the transaction contemplated by the merger agreement with Merchants.  If the merger is not completed, the Company would have to recognize these expenses without realizing the expected benefits of the merger.  These circumstances could have an adverse effect on the Company's business, results of operations and stock price.

16

Before the merger may be completed, the Company must obtain approval from the OCC and the FRB.  Other approvals, waivers or consents from regulators may also be required.  These regulators may impose conditions on the completion of the merger or require changes to the terms of the merger.  Although the Company and Merchants do not currently expect that any such conditions or changes would be imposed, there can be no assurance that they will not be, and such conditions or changes could have the effect of delaying or preventing completion of the merger or imposing additional costs on or limiting the revenues of the combined company following the merger, any of which might have an adverse effect on the combined company following the merger.

Before the merger may be completed, Merchants must obtain the requisite approval of its stockholders.  There is no assurance that this approval will be obtained.

The risks presented by acquisitions could adversely affect the Company's financial condition and result of operations.

The business strategy of the Company includes growth through acquisition.  Any other future acquisitions will be accompanied by the risks commonly encountered in acquisitions.  These risks include among other things: obtaining timely regulatory approval, the difficulty of integrating operations and personnel, the potential disruption of our ongoing business, the inability of the Company's management to maximize its financial and strategic position, the inability to maintain uniform standards, controls, procedures and policies, and the impairment of relationships with employees and customers as a result of changes in ownership and management.  Further, the asset quality or other financial characteristics of a company may deteriorate after the acquisition agreement is signed or after the acquisition closes.

A portion of the Company's loan portfolio is acquired and was not underwritten by the Company at origination.

At December 31, 2016, 10% of the loan portfolio was acquired and was not underwritten by the Company at origination, and therefore is not necessarily reflective of the Company's historical credit risk experience. The Company performed extensive credit due diligence prior to each acquisition and marked the loans to fair value upon acquisition, with such fair valuation considering expected credit losses that existed at the time of acquisition. Additionally, the Company evaluates the expected cash flows of these loans on a quarterly basis. However, there is a risk that credit losses could be larger than currently anticipated, thus adversely affecting earnings.

The Company may be required to record impairment charges related to goodwill, other intangible assets and the investment portfolio.

The Company may be required to record impairment charges in respect to goodwill, other intangible assets and the investment portfolio.  Numerous factors, including lack of liquidity for resale of certain investment securities, absence of reliable pricing information for investment securities, the economic condition of state and local municipalities, adverse changes in the business climate, adverse actions by regulators, unanticipated changes in the competitive environment or a decision to change the operations or dispose of an operating unit could have a negative effect on the investment portfolio, goodwill or other intangible assets in future periods.

The Company's financial statements are based, in part, on assumptions and estimates, which, if conditions change, could cause unexpected losses in the future.

Pursuant to accounting principles generally accepted in the United States, the Company is required to use certain assumptions and estimates in preparing its financial statements, including in determining credit loss reserves, mortgage repurchase liability and reserves related to litigation, among other items.  Certain of the Company's financial instruments, including available-for-sale securities and certain loans, among other items, require a determination of their fair value in order to prepare the Company's financial statements.  Where quoted market prices are not available, the Company may make fair value determinations based on internally developed models or other means which ultimately rely to some degree on management judgment.  Some of these and other assets and liabilities may have no direct observable price levels, making their valuation particularly subjective, as they are based on significant estimation and judgment.  In addition, sudden illiquidity in markets or declines in prices of certain loans and securities may make it more difficult to value certain balance sheet items, which may lead to the possibility that such valuations will be subject to further change or adjustment.  If assumptions or estimates underlying the Company's financial statements are incorrect, it may experience material losses.

17

Financial services companies depend on the accuracy and completeness of information about customers and counterparties.

In deciding whether to extend credit or enter into other transactions, the Company may rely on information furnished by or on behalf of customers and counterparties, including financial statements, credit reports and other financial information. The Company may also rely on representations of those customers, counterparties or other third parties, such as independent auditors, as to the accuracy and completeness of that information. Reliance on inaccurate or misleading financial statements, credit reports or other information could have a material adverse impact on business and, in turn, the Company's financial condition and results of operations.

The Company's information systems may experience an interruption or security breach.

The Company relies heavily on communications and information systems to conduct its business.  The Company may be the subject of sophisticated and targeted attacks intended to obtain unauthorized access to assets or confidential information, destroy data, disable or degrade service, or sabotage systems, often through the introduction of computer viruses or malware, cyber-attacks and other means.  Any failure, interruption or breach in security of these systems could result in failures or disruptions in the Company's online banking system, its general ledger, and its deposit and loan servicing and origination systems or other systems.  Furthermore, if personal, confidential or proprietary information of customers or clients in the Company's possession were to be mishandled or misused, the Company could suffer significant regulatory consequences, reputational damage and financial loss.  Such mishandling or misuse could include circumstances where, for example, such information was erroneously provided to parties who are not permitted to have the information, either by fault of the Company's systems, employees, or counterparties, or where such information was intercepted or otherwise inappropriately taken by third parties.  The Company has policies and procedures designed to prevent or limit the effect of the possible failure, interruption or security breach of its information systems; however, any such failure, interruption or security breach could adversely affect the Company's business and results of operations through loss of assets or by requiring it to expend significant resources to correct the defect, as well as exposing the Company to customer dissatisfaction and civil litigation, regulatory fines or penalties or losses not covered by insurance.

The Company is exposed to fraud in many aspects of the services and products that it provides.

The Company offers a wide variety of products and services.  When account credentials and other access tools are not adequately protected, risks and potential costs may increase.  As (a) sales of these services and products expand, (b) those who are committing fraud become more sophisticated and more determined, and (c) banking services and product offerings expand, the Company's operational losses could increase.

The Company may be adversely affected by the soundness of other financial institutions.

Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. The Company has exposure to many different industries and counterparties, and routinely execute transactions with counterparties in the financial services industry. Many of these transactions expose the Company to credit risk in the event of a default by a counterparty or client. In addition, credit risk may be exacerbated when the collateral held by the Company cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure due to the Company. Any such losses could have a material adverse effect on the Company's financial condition and results of operations.

The Company is or may become involved in lawsuits, legal proceedings, information-gathering requests, investigations, and proceedings by governmental agencies or other parties that may lead to adverse consequences.

As a participant in the financial services industry, many aspects of the Company's business involve substantial risk of legal liability. The Company and its subsidiaries have been named or threatened to be named as defendants in various lawsuits arising from its or its subsidiaries' business activities (and in some cases from the activities of acquired companies). In addition, from time to time, the Company is, or may become, the subject of governmental and self-regulatory agency information-gathering requests, reviews, investigations and proceedings and other forms of regulatory inquiry, including by bank regulatory agencies, the SEC and law enforcement authorities. The results of such proceedings could lead to delays in or prohibition to acquire other companies, significant penalties, including monetary penalties, damages, adverse judgments, settlements, fines, injunctions, restrictions on the way in which the Company conducts its business, or reputational harm.

Although the Company establishes accruals for legal proceedings when information related to the loss contingencies represented by those matters indicates both that a loss is probable and that the amount of loss can be reasonably estimated, the Company does not have accruals for all legal proceedings where it faces a risk of loss. In addition, due to the inherent subjectivity of the assessments and unpredictability of the outcome of legal proceedings, amounts accrued may not represent the ultimate loss to the Company from the legal proceedings in question. Thus, the Company's ultimate losses may be higher than the amounts accrued for legal loss contingencies, which could adversely affect the Company's financial condition and results of operations.

18

The Company continually encounters technological change and the failure to understand and adapt to these changes could have a negative impact on the business.

The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. The Company's future success depends, in part, upon its ability to address the needs of its customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in the Company's operations. Many of the Company's competitors have substantially greater resources to invest in technological improvements. The Company may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to its customers. Failure to successfully keep pace with technological changes affecting the financial services industry could have a material adverse impact on the Company's financial condition and results of operations.

Trading activity in the Company's common stock could result in material price fluctuations.

The market price of the Company's common stock may fluctuate significantly in response to a number of other factors including, but not limited to:

· Changes in securities analysts' expectations of financial performance;

· Volatility of stock market prices and volumes;

· Incorrect information or speculation;

· Changes in industry valuations;

· Variations in operating results from general expectations;

· Actions taken against the Company by various regulatory agencies;

· Changes in authoritative accounting guidance by the Financial Accounting Standards Board or other regulatory agencies;

· Changes in general domestic economic conditions such as inflation rates, tax rates, unemployment rates, oil prices, labor and healthcare cost trend rates, recessions, and changing government policies, laws and regulations; and

· Severe weather, natural disasters, acts of war or terrorism and other external events.

The Company's ability to attract and retain qualified employees is critical to the success of its business, and failure to do so may have a materially adverse effect on the Company's performance.

The Company's employees are its most important resource, and in many areas of the financial services industry, competition for qualified personnel is intense.  The imposition on the Company or its employees of certain existing and proposed restrictions or taxes on executive compensation may adversely affect the Company's ability to attract and retain qualified senior management and employees.  If the Company provides inadequate succession planning, is unable to continue to retain and attract qualified employees, the Company's performance, including its competitive position, could have a materially adverse effect.

Item 1B. Unresolved Staff Comments

None

Item 2.  Properties

The Company's primary headquarters are located at 5790 Widewaters Parkway, Dewitt, New York, which is leased.  In addition, the Company has 225 properties located in the counties identified in the table on page 6, of which 148 are owned and 77 are under lease arrangements.  With respect to the Banking segment, the Company operates 193 full-service branches and eight facilities for back office banking operations.  With respect to the Employee Benefit Services segment, the Company operates 13 customer service facilities, all of which are leased.  With respect to the All Other segment, the Company operates 11 customer service facilities, nine of which are leased and two are owned.  Some properties contain tenant leases or subleases.

Real property and related banking facilities owned by the Company at December 31, 2016 had a net book value of $79.5 million and none of the properties were subject to any material encumbrances.  For the year ended December 31, 2016, the Company paid $5.8 million of rental fees for facilities leased for its operations.  The Company believes that its facilities are suitable and adequate for the Company's current operations.

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Item 3.  Legal Proceedings

The Company and its subsidiaries are subject in the normal course of business to various pending and threatened legal proceedings in which claims for monetary damages are asserted. As of December 31, 2016, management, after consultation with legal counsel, does not anticipate that the aggregate ultimate liability arising out of litigation pending or threatened 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 legal proceedings. For those matters where it is probable that the Company will incur losses and the amounts of the losses can be reasonably estimated, the Company records an expense and corresponding liability in its consolidated financial statements. To the extent the pending or threatened litigation could result in exposure in excess of that liability, the amount of such excess is not currently estimable. The range of reasonably possible losses for matters where an exposure is not currently estimable or considered probable, beyond the existing recorded liabilities, is between $0 and $1 million in the aggregate. Although the Company does not believe that the outcome of pending litigation 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.

Item 4.  Mine Safety Disclosures

Not Applicable

Item 4A.Executive Officers of the Registrant

The executive officers of the Company and the Bank who are elected by the Board of Directors are as follows:

Name	Age	Position
Mark E. Tryniski	56	Director, President and Chief Executive Officer.  Mr. Tryniski assumed his current position in August 2006. He served as Executive Vice President and Chief Operating Officer from March 2004 to July 2006 and as the Treasurer and Chief Financial Officer from June 2003 to March 2004. He previously served as a partner in the Syracuse office of PricewaterhouseCoopers LLP.
Scott Kingsley	52	Executive Vice President and Chief Financial Officer.  Mr. Kingsley joined the Company in August 2004 in his current position.  He served as Vice President and Chief Financial Officer of Carlisle Engineered Products, Inc., a subsidiary of the Carlisle Companies, Inc., from 1997 until joining the Company.
Brian D. Donahue	60	Executive Vice President and Chief Banking Officer.  Mr. Donahue assumed his current position in August 2004.  He served as the Bank's Chief Credit Officer from February 2000 to July 2004 and as the Senior Lending Officer for the Southern Region of the Bank from 1992 until June 2004.
George J. Getman	60	Executive Vice President and General Counsel.  Mr. Getman assumed his current position in January 2008.  Prior to joining the Company, he was a partner with Bond, Schoeneck & King, PLLC and served as corporate counsel to the Company.

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Part II

Item 5.  Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company's common stock has been trading on the New York Stock Exchange under the symbol "CBU" since December 31, 1997.  Prior to that, the common stock traded over-the-counter on the NASDAQ National Market under the symbol "CBSI" beginning on September 16, 1986. There were 44,541,700 shares of common stock outstanding on January 31, 2017, held by approximately 3,670 registered shareholders of record. The following table sets forth the high and low closing prices for the common stock, and the cash dividends declared with respect thereto, for the periods indicated.  The prices do not include retail mark-ups, mark-downs or commissions.

Year / Qtr	High Price		Low Price		Quarterly Dividend
2016
4th	$	62.24	$	46.07	$	0.32
3rd	$	48.11	$	39.96	$	0.32
2nd	$	42.18	$	36.78	$	0.31
1st	$	39.23	$	34.47	$	0.31
2015
4th	$	43.13	$	36.70	$	0.31
3rd	$	39.80	$	34.21	$	0.31
2nd	$	38.52	$	34.58	$	0.30
1st	$	37.71	$	33.60	$	0.30

The Company has historically paid regular quarterly cash dividends on its common stock, and declared a cash dividend of $0.32 per share for the first quarter of 2017.  The Board of Directors of the Company presently intends to continue the payment of regular quarterly cash dividends on the common stock, as well as to make payment of regularly scheduled dividends on the trust preferred stock when due, subject to the Company's need for those funds.  However, because substantially all of the funds available for the payment of dividends by the Company are derived from the subsidiary Bank, future dividends will depend upon the earnings of the Bank, its financial condition, its need for funds and applicable governmental policies and regulations.

21

The following graph compares cumulative total shareholders returns on the Company's common stock over the last five fiscal years to the S&P 600 Commercial Banks Index, the NASDAQ Bank Index, the S&P 500 Index, and the KBW Regional Banking Index. Total return values were calculated as of December 31 of each indicated year assuming a $100 investment on December 31, 2011 and reinvestment of dividends.

22

Equity Compensation Plan Information

The following table provides information as of December 31, 2016 with respect to shares of common stock that may be issued under the Company's existing equity compensation plans.

Plan Category	Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights (1)		Weighted-average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available For Future Issuance Under Equity Compensation Plans (excluding securities reflected in the first column)
Equity compensation plans approved by security holders:
1994 Long-term Incentive Plan		12,883	$	17.41		5,701
2004 Long-term Incentive Plan		1,215,998		26.51		48,830
2014 Long-term Incentive Plan		780,941		27.80		889,482
Equity compensation plans not approved by security holders		0		0		0
Total		2,009,822	$	26.95		944,013
(1) The number of securities includes 253,830 shares of unvested restricted stock.

Stock Repurchase Program

At its December 2015 meeting, the Board approved a stock repurchase program authorizing the repurchase, at the discretion of senior management, of up to 2,200,000 shares of the Company's common stock, in accordance with securities laws and regulations, during a twelve-month period starting January 1, 2016.  There were no treasury stock purchases made under this authorization in 2016.  At its December 2016 meeting, the Board approved a new stock repurchase program authorizing the repurchase, at the discretion of senior management, of up to 2,200,000 shares of the Company's common stock, in accordance with securities laws and regulations, during a twelve-month period starting January 1, 2017.  Any repurchased shares will be used for general corporate purposes, including those related to stock plan activities.  The timing and extent of repurchases will depend on market conditions and other corporate considerations as determined at the Company's discretion.

The following table presents stock purchases made during the fourth quarter of 2016:

Issuer Purchases of Equity Securities
Period	Total Number of Shares Purchased		Average Price Paid Per share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares That May Yet be Purchased Under the Plans or Programs
October 1-31, 2016		0	$	0		0		2,200,000
November 1-30, 2016(1)		50,952		54.14		0		2,200,000
December 1-31, 2016		0		0		0		2,200,000
Total		50,952	$	54.14

⁽¹⁾Included in the common shares repurchased were 91 shares acquired by the Company in connection with satisfaction of tax withholding obligations on vested restricted stock issued pursuant to the employee benefit plan and 50,861 shares acquired by the Company in connection with the administration of the Company's retirement plan.  These shares were not repurchased as part of the publicly announced repurchase plan described above.

Item 6.  Selected Financial Data

The following table sets forth selected consolidated historical financial data of the Company as of and for each of the years in the five-year period ended December 31, 2016.  The historical information set forth under the captions "Income Statement Data" and "Balance Sheet Data" is derived from the audited financial statements while the information under the captions "Capital and Related Ratios", "Selected Performance Ratios" and "Asset Quality Ratios" for all periods is unaudited.  All financial information in this table should be read in conjunction with the information contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and with the Consolidated Financial Statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K.

23

SELECTED CONSOLIDATED FINANCIAL INFORMATION

	Years Ended December 31,
(In thousands except per share data and ratios)	2016			2015			2014			2013			2012
Income Statement Data:
Loan interest income	$	211,467		$	187,743		$	185,527		$	188,197		$	192,710
Investment interest income		73,720			71,879			70,693			75,962			88,690
Interest expense		11,291			11,202			11,792			26,065			50,976
Net interest income		273,896			248,420			244,428			238,094			230,424
Provision for loan losses		8,076			6,447			7,178			7,992			9,108
Noninterest income		155,625			123,303			119,020			108,748			98,955
Gain (loss) on investment securities & early    retirement of long-term borrowings, net		0			(4	)		0			(6,568	)		291
Acquisition expenses and litigation settlement		1,706			7,037			2,923			2,181			8,247
Other noninterest expenses		265,142			226,018			223,657			219,074			203,510
Income before income taxes		154,597			132,217			129,690			111,027			108,805
Net income		103,812			91,230			91,353			78,829			77,068
Diluted earnings per share		2.32			2.19			2.22			1.94			1.93
Balance Sheet Data:
Cash equivalents	$	24,243		$	21,931		$	12,870		$	11,288		$	84,415
Investment securities		2,784,392			2,847,940			2,512,974			2,218,725			2,818,527
Loans		4,948,562			4,801,375			4,236,206			4,109,083			3,865,576
Allowance for loan losses		(47,233	)		(45,401	)		(45,341	)		(44,319	)		(42,888	)
Intangible assets		480,844			484,146			386,973			390,499			387,134
Total assets		8,666,437			8,552,669			7,489,440			7,095,864			7,496,800
Deposits		7,075,954			6,873,474			5,935,264			5,896,044			5,628,039
Borrowings		248,370			403,446			440,122			244,010			830,134
Shareholders' equity		1,198,100			1,140,647			987,904			875,812			902,778
Capital and Related Ratios:
Cash dividends declared per share	$	1.26		$	1.22		$	1.16		$	1.10		$	1.06
Book value per share		26.96			26.06			24.24			21.66			22.78
Tangible book value per share (1)		17.12			15.90			15.63			12.80			13.72
Market capitalization (in millions)		2,746			1,748			1,554			1,604			1,084
Tier 1 leverage ratio		10.55	%		10.32	%		9.96	%		9.29	%		8.40	%
Total risk-based capital to risk-adjusted assets		19.10	%		18.08	%		18.75	%		17.57	%		16.20	%
Tangible equity to tangible assets (1)		9.24	%		8.59	%		8.92	%		7.68	%		7.62	%
Dividend payout ratio		53.7	%		55.5	%		51.6	%		56.0	%		54.3	%
Period end common shares outstanding		44,437			43,775			40,748			40,431			39,626
Diluted weighted-average shares outstanding		44,720			41,605			41,232			40,726			39,927
Selected Performance Ratios:
Return on average assets		1.20	%		1.17	%		1.23	%		1.09	%		1.08	%
Return on average equity		8.57	%		8.87	%		9.65	%		9.04	%		8.82	%
Net interest margin		3.71	%		3.73	%		3.91	%		3.91	%		3.88	%
Noninterest income/operating income (FTE)		35.4	%		32.1	%		31.4	%		30.0	%		28.6	%
Efficiency ratio (2)		59.2	%		57.9	%		57.9	%		59.3	%		57.4	%
Asset Quality Ratios:
Allowance for loan losses/total loans		0.95	%		0.95	%		1.07	%		1.08	%		1.11	%
Nonperforming loans/total loans		0.48	%		0.50	%		0.56	%		0.54	%		0.75	%
Allowance for loan losses/nonperforming loans		199	%		190	%		190	%		201	%		147	%
Loan loss provision/net charge-offs		129	%		101	%		117	%		122	%		108	%
Net charge-offs/average loans		0.13	%		0.15	%		0.15	%		0.17	%		0.23	%

 ⁽¹⁾ The tangible book value per share and the tangible equity to tangible asset ratio excludes goodwill and identifiable intangible assets, adjusted for deferred tax liabilities generated from tax deductible goodwill.  The ratio is not a financial measurement required by accounting principles generally accepted in the United States of America.  However, management believes such information is useful to analyze the relative strength of the Company's capital position and is useful to investors in evaluating Company performance (See Table 20 for Reconciliation of GAAP to Non-GAAP Measures).

 ⁽²⁾ Efficiency ratio provides a ratio of operating expenses to operating income.  It excludes intangible amortization, acquisition expenses, and litigation settlement from expenses and gains and losses on investment securities & early retirement of long-term borrowings from income while adding a fully-taxable equivalent adjustment. The efficiency ratio is not a financial measurement required by accounting principles generally accepted in the United States of America.  However, the efficiency ratio is used by management in its assessment of financial performance specifically as it relates to noninterest expense control.  Management also believes such information is useful to investors in evaluating Company performance.

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Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations

This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") primarily reviews the financial condition and results of operations of the Company for the past two years, although in some circumstances a period longer than two years is covered in order to comply with SEC disclosure requirements or to more fully explain long-term trends.  The following discussion and analysis should be read in conjunction with the Selected Consolidated Financial Information beginning on page 23 and the Company's Consolidated Financial Statements and related notes that appear on pages 54 through 97.  All references in the discussion to the financial condition and results of operations refer to the consolidated position and results of the Company and its subsidiaries taken as a whole.

Unless otherwise noted, all earnings per share ("EPS") figures disclosed in the MD&A refer to diluted EPS; interest income, net interest income, and net interest margin are presented on a fully tax-equivalent ("FTE") basis, which is a non-GAAP measure.  The term "this year" and equivalent terms refer to results in calendar year 2016, "last year" and equivalent terms refer to calendar year 2015, and all references to income statement results correspond to full-year activity unless otherwise noted.

This MD&A contains certain forward-looking statements with respect to the financial condition, results of operations, and business of the Company.  These forward-looking statements involve certain risks and uncertainties.  Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements are set herein under the caption "Forward-Looking Statements" on page 50.

Critical Accounting Policies

As a result of the complex and dynamic nature of the Company's business, management must exercise judgment in selecting and applying the most appropriate accounting policies for its various areas of operations.  The policy decision process not only ensures compliance with the latest generally accepted accounting principles ("GAAP"), but also reflects management's discretion with regard to choosing the most suitable methodology for reporting the Company's financial performance.  It is management's opinion that the accounting estimates covering certain aspects of the business have more significance than others due to the relative importance of those areas to overall performance, or the level of subjectivity in the selection process.  These estimates affect the reported amounts of assets and liabilities as well as disclosures of revenues and expenses during the reporting period.  Actual results could differ from these estimates.  Management believes that the critical accounting estimates include:

· Acquired loans – Acquired loans are initially recorded at their acquisition date fair values based on a discounted cash flow methodology that involves assumptions and judgments as to credit risk, prepayment risk, liquidity risk, default rates, loss severity, payment speeds, collateral values and discount rate.

Acquired loans deemed impaired at acquisition are recorded in accordance with ASC 310-30.  The excess of undiscounted cash flows expected at acquisition over the estimated fair value is referred to as the accretable discount. The difference between contractually required payments at acquisition and the undiscounted cash flows expected to be collected at acquisition is referred to as the non-accretable discount, which represents estimated future credit losses and other contractually required payments that the Company does not expect to collect. Subsequent decreases in expected cash flows are recognized as impairments through a charge to the provision for credit losses resulting in an increase in the allowance for loan losses. Subsequent improvements in expected cash flows result in a recovery of previously recorded allowance for loan losses or a reversal of a corresponding amount of the non-accretable discount, which the Company then reclassifies as an accretable discount that is recognized into interest income over the remaining life of the loans using the interest method.

For acquired loans that are not deemed impaired at acquisition, the difference between the acquisition date fair value and the outstanding balance represents the fair value adjustment for a loan, and includes both credit and interest rate considerations. Subsequent to the purchase date, the methods used to estimate the allowance for loan losses for the acquired non-impaired loans is consistent with the policy described below.  However, for loans collectively evaluated for impairment, the Company compares the net realizable value of the loans to the carrying value.  The carrying value represents the net of the loan's unpaid principal balance and the remaining purchase discount or premium that has yet to be accreted into interest income.  When the carrying value exceeds the net realizable value, an allowance for loan losses is recognized. For loans individually evaluated for impairment, a provision is recorded when the required allowance exceeds any remaining discount on the loan.

· Allowance for loan losses – The allowance for loan losses reflects management's best estimate of probable loan losses in the Company's loan portfolio. Determination of the allowance for loan losses is inherently subjective.  It requires significant estimates, including the amounts and timing of expected future cash flows on impaired loans, appraisal values of underlying collateral for collateralized loans, and the amount of estimated losses on pools of homogeneous loans which is based on historical loss experience and consideration of current economic trends, all of which may be susceptible to significant change.

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· Investment securities – Investment securities can be classified as held-to-maturity, available-for-sale or trading.  The appropriate classification is based partially on the Company's ability to hold the securities to maturity and largely on management's intentions with respect to either holding or selling the securities.  The classification of investment securities is significant since it directly impacts the accounting for unrealized gains and losses on securities.  Unrealized gains and losses on available-for-sale securities are recorded in accumulated other comprehensive income or loss, as a separate component of shareholders' equity, and do not affect earnings until realized.  The fair values of investment securities are generally determined by reference to quoted market prices, where available.  If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments, or a discounted cash flow model using market estimates of interest rates and volatility.  Investment securities with significant declines in fair value are evaluated to determine whether they should be considered other-than-temporarily impaired ("OTTI").  An unrealized loss is generally deemed to be other-than-temporary and a credit loss is deemed to exist if the present value of the expected future cash flows is less than the amortized cost basis of the debt security.  The credit loss component of an other-than-temporary impairment write-down is recorded in current earnings, while the remaining portion of the impairment loss is recognized in other comprehensive income (loss), provided the Company does not intend to sell the underlying debt security, and it is not likely that the Company will be required to sell the debt security prior to recovery of the full value of its amortized cost basis.  During 2013, the Company sold certain held-to-maturity securities and consequently did not use the held-to-maturity classification in 2014, 2015 or 2016.

· Retirement benefits - The Company provides defined benefit pension benefits to eligible employees and retirees and post-retirement health and life insurance benefits to certain eligible retirees.  The Company also provides deferred compensation and supplemental executive retirement plans for selected current and former employees.  Expense under these plans is charged to current operations and consists of several components of net periodic (benefit) cost based on various actuarial assumptions regarding future experience under the plans, including, but not limited to, discount rate, rate of future compensation increases, mortality rates, future health care costs and the expected return on plan assets.

· Provision for income taxes – The Company is subject to examinations from various taxing authorities.  Such examinations may result in challenges to the tax return treatment applied by the Company to specific transactions.  Management believes that the assumptions and judgments used to record tax-related assets or liabilities have been appropriate.  Should tax laws change or the taxing authorities determine that management's assumptions were inappropriate, an adjustment may be required which could have a material effect on the Company's results of operations.

· Intangible assets – As a result of acquisitions, the Company carries goodwill and identifiable intangible assets.  Goodwill represents the cost of acquired companies in excess of the fair value of net assets at the acquisition date.  Goodwill is evaluated at least annually, or when business conditions suggest impairment may have occurred.  Should impairment occur, goodwill will be reduced to its carrying value through a charge to earnings.  Core deposits and other identifiable intangible assets are amortized to expense over their estimated useful lives.  The determination of whether or not impairment exists is based upon discounted cash flow modeling techniques that require management to make estimates regarding the amount and timing of expected future cash flows.  It also requires them to select a discount rate that reflects the current return requirements of the market in relation to present risk-free interest rates, required equity market premiums, and company-specific performance and risk metrics, all of which are susceptible to change based on changes in economic and market conditions and other factors.  Future events or changes in the estimates used to determine the carrying value of goodwill and identifiable intangible assets could have a material impact on the Company's results of operations.

A summary of the accounting policies used by management is disclosed in Note A, "Summary of Significant Accounting Policies", starting on page 59.

Supplemental Reporting of Non-GAAP Results of Operations

The Company consistently provides supplemental reporting of its results on a "net operating" or "tangible" basis, from which the amortization of core deposits and other intangible assets (and the related goodwill, core deposit intangible and other intangible asset balances, net of applicable deferred tax amounts), special charges and recoveries, acquisition expenses and deferred tax liabilities are excluded.  Reconciliations of GAAP amounts with corresponding non-GAAP amounts are presented in Table 20.

Executive Summary

The Company's business philosophy is to operate as a community bank with local decision-making, principally in non-metropolitan markets, providing a broad array of banking and financial services to retail, commercial and municipal customers.  The Company's banking subsidiary is Community Bank, N.A. (the "Bank" or "CBNA").

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The Company's core operating objectives are: (i) grow the branch network, primarily through a disciplined acquisition strategy and certain selective de novo expansions, (ii) build profitable loan and deposit volume using both organic and acquisition strategies, (iii) increase the noninterest component of total revenue through development of banking-related fee income, growth in existing financial services business units, and the acquisition of additional financial services and banking businesses, and (iv) utilize technology to deliver customer-responsive products and services and to improve efficiencies.

Significant factors reviewed by management to evaluate achievement of the Company's operating objectives and its operating results and financial condition include, but are not limited to:  net income and earnings per share; return on assets and equity; net interest margins; noninterest revenues; noninterest expenses; asset quality; loan and deposit growth; capital management; performance of individual banking and financial services units; performance of specific product lines and customers; liquidity and interest rate sensitivity; enhancements to customer products and services and their underlying performance characteristics; technology advancements; market share; peer comparisons; and the performance of recently acquired businesses.

The Company reported net income and earnings per share for the year ended December 31, 2016 that were 13.8% and 5.9%, respectively, above the prior year amounts.  The increase in net income was due primarily to the earnings generated by the acquired Oneida businesses as well as organic growth.  Contributing to the increase in net income was an increase in net interest income, higher noninterest income and lower acquisition-related expenses.  Offsetting these items were an increase in the provision for loan loss, increased operating expenses, a higher effective tax rate and an increase in weighted average diluted shares outstanding, including the impact of the issuance of 2.38 million shares as part of the consideration for the Oneida acquisition.

The Company experienced year-over-year growth in average interest-earning assets, reflective of the addition of loans from the Oneida acquisition in December 2015, as well as solid organic loan growth. Average deposits increased in 2016 as compared to 2015, reflective of organic growth in core deposits and the impact of the Oneida transaction.  Average external borrowings in 2016 decreased from 2015 reflective of the use of the net liquidity from the Oneida acquisition to reduce overnight borrowings.

Asset quality in 2016 remained stable and favorable in comparison to averages for peer financial organizations.  As compared to the end of 2015, loan nonperforming ratios and the total loan net charge-off ratio at December 31, 2016 were improved while the total loan delinquency ratio was up slightly year-over-year.

Net Income and Profitability

Net income for 2016 was $103.8 million, an increase of $12.6 million, or 13.8%, from 2015's earnings.  Earnings per share for 2016 was $2.32, up $0.13, or 5.9%, from 2015's results.  The 2016 results included $1.7 million, or $0.03 per share, of acquisition expenses related to the Merchants and NRS acquisitions.  The 2015 results included $7.0 million, or $0.11 per share, of acquisition expenses related to the Oneida acquisition that was completed in December of 2015.

Net income for 2015 was $91.2 million, a decrease of $0.1 million, or 0.1%, from 2014's earnings, while earnings per share for 2015 was $2.19, down $0.03, or 1.4%, from 2014's results.  The 2015 results included the aforementioned acquisition expenses.  The 2014 results included a $2.8 million, or $0.05 per share, litigation settlement charge.

Table 1: Condensed Income Statements

	Years Ended December 31,
(000's omitted, except per share data)	2016		2015			2014		2013		2012
Net interest income	$	273,896	$	248,420		$	244,428	$	238,094	$	230,424
Provision for loan losses		8,076		6,447			7,178		7,992		9,108
(Loss)/Gain on sales of investment securities, net		0		(4	)		0		80,768		291
Loss on debt extinguishments		0		0			0		87,336		0
Noninterest income		155,625		123,303			119,020		108,748		98,955
Acquisition expenses and litigation settlement		1,706		7,037			2,923		2,181		8,247
Other noninterest expenses		265,142		226,018			223,657		219,074		203,510
Income before taxes		154,597		132,217			129,690		111,027		108,805
Income taxes		50,785		40,987			38,337		32,198		31,737
Net income	$	103,812	$	91,230		$	91,353	$	78,829	$	77,068
Diluted weighted average common shares outstanding		44,720		41,605			41,232		40,726		39,927
Diluted earnings per share	$	2.32	$	2.19		$	2.22	$	1.94	$	1.93

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The Company operates in three business segments: Banking, Employee Benefit Services and All Other.  The banking segment provides a wide array of lending and depository-related products and services to individuals, businesses and municipal enterprises.  In addition to these general intermediation services, the Banking segment provides treasury management solutions, capital financing products and payment processing services.  Employee Benefit Services, consisting of BPAS and its subsidiaries, provides the following on a national basis: employee benefit trust services; collective investment fund; retirement plan and VEBA/HRA and health savings account plan administration services; actuarial services; and healthcare consulting services.  BPAS services approximately 3,800 retirement plans and more than 400,000 plan participants.  In addition, BPAS employs nearly 350 professionals, and operates from 10 offices located in New York, New Jersey, Pennsylvania, Texas and Puerto Rico.  The All Other segment is comprised of wealth management and insurance services.  Wealth management activities include trust services provided by the personal trust unit of CBNA, investment products and services provided by CISI, OWM and The Carta Group, and asset advisory services provided by Nottingham.  The insurance services activities include the offerings of personal and commercial property insurance and other risk management products and services provided by OneGroup.  For additional financial information on the Company's segments, refer to Note U – Segment Information in the Notes to Consolidated Financial Statements.

The primary factors explaining 2016 earnings performance are discussed in the remaining sections of this document and are summarized as follows:

BANKING

· Net interest income increased $25.4 million, or 10.2%.  This was the result of a $668.4 million increase in average earning assets, partially offset by a two basis point decrease in the net interest margin.  Average loans grew $593.8 million related to both the Oneida acquisition and organic growth.  Also contributing to the growth in interest-earning assets was a $74.6 million increase in the average book value of investments, including cash equivalents, partially offset by a six basis-point decrease in the average yield on investments.  Average interest-bearing deposits increased $671.7 million due to the Oneida acquisition and organic core deposit growth, partially offset by the continued trend of declining time deposit balances.  Borrowing interest expense decreased as a result of a decrease in average balances of $241.9 million, or 47.1%, compared to the prior year, partially offset by a blended rate that was 64 basis points higher than the prior year.

· The loan loss provision of $8.1 million increased $1.6 million, or 25.3%, from the prior year level.  Net charge‑offs of $6.2 million were $0.1 million less than 2015.  This resulted in an annual net charge-off ratio (net charge-offs / total average loans) of 0.13%, which was two basis points lower than the prior year.  Nonperforming loans as a percentage of total loans and nonperforming assets as a percentage of loans and other real estate owned, each decreased two basis points compared to December 31, 2015 levels, and remain better than levels for the Company's peers.  Additional information on trends and policy related to asset quality is provided in the asset quality section on pages 41 through 45.

· Banking noninterest income for 2016 of $66.1 million increased by $8.4 million from 2015's level, primarily due to new deposit relationships from both acquired and organic sources, increased debit card-related revenues and $1.6 million in nonrecurring insurance-related gains, partially offset by the continuing trend of lower utilization of overdraft protection programs and other deposit-related services.

· Total banking noninterest expenses, including acquisition expenses, increased $9.3 million, or 5.0%, in 2016 to $194.0 million, primarily reflective of a full year of expenses related to an expanded branch network and other acquired activities from the Oneida acquisition, and continued investment in risk management capabilities and technology and data processing costs.  Excluding acquisition expenses, banking noninterest expenses increased $15.2 million, or 8.6%, again reflective of expanded operations resulting from the Oneida acquisition.

EMPLOYEE BENEFIT SERVICES

· Employee benefit services noninterest income for 2016 of $48.3 million increased $1.5 million, or 3.2%, from the prior year level, benefiting from a combination of new client generation, activities acquired with the Oneida transaction and expanded service offerings.

· Employee benefit services noninterest expenses for 2016 totaled $37.8 million.  This represented an increase from 2015 of $2.0 million, or 5.7%, and was attributable to the continued buildout of resources to support an expanding revenue base.

ALL OTHER (WEALTH MANAGEMENT AND INSURANCE SERVICES)

· Wealth management and insurance services noninterest income for 2016 was $43.7 million; an increase of $22.8 million from the prior year level.  The increase was primarily due to the addition of the OneGroup and OWM businesses in conjunction with the Oneida acquisition.

· Wealth management and insurance services noninterest expenses of $37.6 million increased $22.8 million from 2015 primarily due to the acquisition of OneGroup and OWM, and increased personnel costs associated with growth initiatives.

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Selected Profitability and Other Measures

Return on average assets, return on average equity, dividend payout and equity to asset ratios for the years indicated are as follows:

Table 2: Selected Ratios

	2016			2015			2014
Return on average assets		1.20	%		1.17	%		1.23	%
Return on average equity		8.57	%		8.87	%		9.65	%
Dividend payout ratio		53.7	%		55.5	%		51.6	%
Average equity to average assets		13.99	%		13.16	%		12.75	%

As displayed in Table 2, the return on average assets ratio increased while the return on average equity ratio decreased in 2016, as compared to 2015.  The increase in return on average assets was the result of an increase in net income, reflective of the full year impact of the Oneida transaction and a decrease in acquisition expenses, which outpaced the increase in average assets.  The decrease in the return on average equity ratio was the result of the aforementioned increase in net income being outpaced by the increase in average equity, due primarily to the full year impact of the issuance of common stock as consideration in the Oneida transaction, a higher average after tax investment market value adjustment and strong earnings retention.  Both return ratios decreased in 2015 as compared to 2014.  The decreases in return on average assets and return on average equity were the result of a decrease in net income, due primarily to acquisition charges related to the Oneida transaction, while both average assets and average equity increased.

The dividend payout ratio for 2016 decreased 1.8% from 2015 as net income increased 13.8% from 2015 while dividends declared increased 10.0%, a result of a 3.3% increase in the dividends declared per share in addition to an increase in the shares outstanding due to the issuance of shares as partial consideration in the Oneida transaction and the issuance of shares in connection with the administration of the Company's 401(k) plan and employee stock plan.  The dividend payout ratio for 2015 increased 3.9% from 2014 as net income decreased slightly from 2014 while dividends declared increased 7.5%, as a result of a 5.2% increase in the dividends declared per share in addition to an increase in the shares outstanding due to the shares issued in conjunction with the employee stock plan and as consideration in the Oneida transaction.

The average equity to average assets ratio continued to increase as the growth in common shareholders' equity outpaced the growth in assets.  During 2016, average equity increased at a rate of 17.8% while average assets increased at a rate of 10.8%, while in 2015 average equity rose 8.6% and average assets grew 5.3% in comparison to 2014.

Net Interest Income

Net interest income is the amount by which interest and fees on earning assets (loans, investments and cash equivalents) exceeds the cost of funds, which consists primarily of interest paid to the Company's depositors and interest on external borrowings.  Net interest margin is the difference between the yield on interest earning assets and the cost of interest-bearing liabilities as a percentage of earning assets.

As disclosed in Table 3, net interest income (with nontaxable income converted to a fully tax-equivalent basis) totaled $283.9 million in 2016, an increase of $23.0 million, or 8.8%, from the prior year.  The increase is a result of a $668.4 million, or 9.6%, increase in average interest-earning assets and a one basis point decrease in the average rate on interest-bearing liabilities, partially offset by a four basis point decline in the average yield on interest-earning assets and a $429.8 million increase in average interest-bearing liabilities.  As reflected in Table 4, the favorable impact of the lower rate on interest-bearing liabilities ($0.8 million) and the increase in interest-earning assets ($25.8 million) were partially offset by a $2.7 million unfavorable impact from the decrease in the yield on interest-earning assets and the increase in interest-bearing liabilities ($0.9 million).

The 2016 net interest margin decreased two basis points to 3.71% from the 3.73% reported in 2015.  The decrease was attributable to a four basis point decrease in the earning-asset yield, partially offset by a one basis point decrease in the cost of interest-bearing liabilities.  The 4.34% yield on loans decreased eight basis points in 2016 as compared to 4.42% in 2015, due to new loan volume for certain products carrying lower yields than the loans maturing or being prepaid in the continued low rate environment.  The yield on investments, including cash equivalents, decreased from 3.05% in 2015 to 2.99% in 2016.  This is reflective of the purchase of lower-yielding securities at various times throughout the last 24 months, as well as the effect certain changes in state tax rates had on the fully tax-equivalent adjustment.  The cost of interest-bearing liabilities was 0.20% during 2016 as compared to 0.21% for 2015.  The decreased cost primarily reflects the shift of customer deposits from higher cost time and money market deposits into non-interest bearing and lower cost checking and savings.

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The net interest margin in 2015 decreased 18 basis points to 3.73% from 3.91% reported in 2014. The decrease was attributable to a 20 basis point decrease in earning-asset yield, partially offset by a two basis point decrease in the cost of interest-bearing liabilities. The yield on loans decreased seven basis points in 2015 to 4.42% from 4.49% in 2014, due to new loan volume carrying lower yields in the continued low-rate environment than the loans maturing or being prepaid, a proportionally higher mix of shorter term adjustable rate business loans, as well as promotional rates and shorter blended maturity terms on new originations or fixed rate home equity loans.  The yield on investments, including cash equivalents, decreased from 3.42% in 2014 to 3.05% in 2015.  This is reflective of the purchase of lower-yielding Treasury securities at various times throughout the last 24 months, as well as the effect certain changes in state tax rates had on the fully tax-equivalent adjustment.  The cost of interest-bearing liabilities was 0.21% during 2015 as compared to 0.23% for 2014.  The decreased cost primarily reflects the larger proportion of funding being provided by lower-rate overnight borrowings.  Additionally, the proportion of customer deposits in higher cost time and money market deposits declined 2.5 percentage points in 2015, while the percentage of deposits in non-interest bearing and lower cost checking and savings accounts correspondingly increased.

As shown in Table 3, total FTE-basis interest income increased by $23.1 million, or 8.5%, in 2016 in comparison to 2015. Table 4 indicates that a higher average earning-asset balance created $25.8 million of incremental interest income.  As mentioned previously, this was partially offset by a lower average yield on earning assets that had a negative impact of $2.7 million.  Average loans increased $593.8 million, or 13.8%, in 2016, a result of organic and acquired growth in all loan portfolios, with the Oneida acquisition accounting for $364.2 million of the total growth.  FTE-basis loan interest income and fees increased $22.5 million, or 11.9%, in 2016 as compared to 2015, attributable to the higher average balances, partially offset by an eight basis point decrease in the loan yield.

Investment interest income (FTE basis) in 2016 was $0.6 million, or 0.7%, higher than the prior year as a result of a $74.6 million, or 2.8%, higher average book basis balance (including cash equivalents) for 2016 versus the prior year.  This was partially offset by a six basis point decrease in the average investment yield from 3.05% to 2.99% including the impact of changes in state tax structures.  During most of 2016, market interest rates continued to be low, and as a result, cash flows from higher rate maturing investments were reinvested at lower interest rates.  The investments purchased during 2016 had a weighted average yield of 2.27% as compared to 2015 purchases which had a weighted average yield of 2.46%.

Total interest income in 2015 increased $0.3 million, or 0.1%, from 2014's level.  Table 4 indicates that the lower average yield on earning assets had a negative impact of $13.6 million.  This was partially offset by a higher average earning-asset balance that created $13.9 million of incremental interest income.  Average loans increased $131.3 million, or 3.2%, in 2015, a result of organic and acquired growth in all loan portfolios, with the Oneida acquisition accounting for $24.9 million of the total growth.  FTE-basis loan interest income and fees increased $2.8 million, or 1.5%, in 2015 as compared to 2014, attributable to the higher average balances, partially offset by a seven basis point decrease in loan yields.  On a FTE basis, investment interest income, including interest on cash equivalents, totaled $82.5 million in 2015, $2.5 million, or 2.9%, lower than the prior year as a result of a 37 basis point decrease in the average investment yield from 3.42% to 3.05% that includes the effect of changes in the state tax structures.  Average investments for 2015, including cash equivalents, were $217.2 million higher than 2014, reflective of investment purchases made in the first half of the year in anticipation of liquidity to be received from the Oneida acquisition.

Total interest expense increased by $0.1 million, or 0.8%, to $11.3 million in 2016.  As shown in Table 4, lower interest rates on interest-bearing liabilities resulted in a decrease in interest expense of $0.8 million, while higher deposit balances resulted in a $0.9 million increase in interest expense.  Interest expense as a percentage of average earning assets for 2016 decreased one basis point to 0.15%.  The rate on interest-bearing deposits decreased two basis points to 0.13% as rates have held relatively steady in all interest-bearing categories throughout 2016 and 2015, as well as the change in deposit mix to a lower proportion of time deposit products.  The rate on external borrowings increased 64 basis points to 1.46% in 2016, a result of lower-rate overnight FHLB borrowings becoming a smaller proportion of this funding component.  Total average funding balances (deposits and borrowings) in 2016 increased $635.6 million, or 9.5%.  Average deposits increased $877.5 million, of which approximately $654.1 million was attributable to the Oneida acquisition, with the remaining $223.4 million attributable to organic deposit growth.  Consistent with the Company's funding mix objective and customers' unwillingness to commit to less liquid instruments in the low rate environment, average core deposit balances increased $864.3 million to 89.3% of total average deposits compared to 88% in 2015, while time deposits increased at a slower rate of $13.2 million year-over-year representing 10.7% of total average deposits for 2016 compared to 12.0% in 2015.  Average external borrowings decreased $241.9 million in 2016 as compared to the prior year, reflective of the pay down of overnight FHLB borrowings with liquidity from the Oneida acquisition and organic deposit growth.

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Total interest expense decreased by $0.6 million to $11.2 million in 2015 as compared to 2014.  As shown in Table 4, lower interest rates on interest-bearing liabilities resulted in decreasing interest expense by $1.0 million, while higher external borrowing balances accounted for $0.4 million more interest expense.  Interest expense as a percentage of average earning assets for 2015 decreased two basis points to 0.16%.  The rate on interest-bearing deposits decreased two basis points to 0.15% as rates have declined or held steady in all interest-bearing categories throughout 2015 and 2014, as well as the change in deposit mix to a lower proportion of time deposit products.  The rate on external borrowings decreased seven basis points to 0.82% in 2015 primarily due to lower-rate FHLB overnight borrowings being a larger proportion of the balance.  In 2015, total average funding increased $289.9 million or 4.6%. Average deposits increased $181.5 million, of which approximately $53.1 million was attributable to the Oneida acquisition, with the remaining $128.4 million attributable to organic deposit growth.  Consistent with the Company's funding mix objective and customers' unwillingness to commit to less liquid instruments in the low rate environment, average core deposit balances increased $288.8 million, while average time deposits declined $107.3 million year-over-year.  Average external borrowings increased $108.4 million in 2015 as compared to the prior year, reflective of the funding of the pre-investment of expected net liquidity from the Oneida acquisition.

The following table sets forth information related to average interest-earning assets and interest-bearing liabilities and their associated yields and rates for the years ended December 31, 2016, 2015 and 2014.  Interest income and yields are on a fully tax-equivalent basis using marginal income tax rates of 38.2% in 2016, 38.3% in 2015 and 38.7% in 2014.  Average balances are computed by totaling the daily ending balances in a period and dividing by the number of days in that period.  Loan interest income and yields include loan fees.  Average loan balances include nonaccrual loans and loans held for sale.

Table 3: Average Balance Sheet

	Year Ended December 31, 2016							Year Ended December 31, 2015							Year Ended December 31, 2014
(000's omitted except yields and rates)	Average Balance		Interest		Avg. Yield/Rate Paid			Average Balance		Interest		Avg. Yield/Rate Paid			Average Balance		Interest		Avg. Yield/Rate Paid
Interest-earning assets:
Cash equivalents	$	19,062	$	89		0.47	%	$	13,543	$	32		0.23	%	$	9,701	$	21		0.21	%
Taxable investment securities (1)		2,177,589		56,113		2.58	%		2,071,095		53,282		2.57	%		1,834,430		52,268		2.85	%
Nontaxable investment securities (1)		579,986		26,924		4.64	%		617,418		29,205		4.73	%		640,737		32,737		5.11	%
Loans (net of unearned discount)(2)		4,881,905		212,022		4.34	%		4,288,091		189,507		4.42	%		4,156,840		186,727		4.49	%
Total interest-earning assets		7,658,542		295,148		3.85	%		6,990,147		272,026		3.89	%		6,641,708		271,753		4.09	%
Noninterest-earning assets		1,001,525							824,417							782,195
Total assets	$	8,660,067						$	7,814,564						$	7,423,903
Interest-bearing liabilities:
Interest checking, savings and money       market deposits	$	4,712,212		4,121		0.09	%	$	4,053,761		3,598		0.09	%	$	3,867,818		3,614		0.09	%
Time deposits		750,944		3,204		0.43	%		737,734		3,373		0.46	%		845,035		4,576		0.54	%
FHLB borrowings		169,769		1,017		0.60	%		411,694		1,694		0.41	%		303,295		1,125		0.37	%
Subordinated debt held by unconsolidated        subsidiary trusts		102,158		2,949		2.89	%		102,133		2,537		2.48	%		102,116		2,477		2.43	%
Total interest-bearing liabilities		5,735,083		11,291		0.20	%		5,305,322		11,202		0.21	%		5,118,264		11,792		0.23	%
Noninterest-bearing liabilities:
Noninterest checking deposits		1,558,548							1,352,683							1,249,807
Other liabilities		154,916							128,521							109,206
Shareholders' equity		1,211,520							1,028,038							946,626
Total liabilities and shareholders' equity	$	8,660,067						$	7,814,564						$	7,423,903
Net interest earnings			$	283,857						$	260,824						$	259,961
Net interest spread						3.65	%						3.68	%						3.86	%
Net interest margin on interest-earning       assets						3.71	%						3.73	%						3.91	%
Fully tax-equivalent adjustment			$	9,961						$	12,404						$	15,533

⁽¹⁾Averages for investment securities are based on historical cost and the yields do not give effect to changes in fair value that is reflected as a component of shareholders' equity and deferred taxes.

⁽²⁾  Includes nonaccrual loans.  The impact of interest and fees not recognized on nonaccrual loans was immaterial.

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As discussed above, the change in net interest income (fully tax-equivalent basis) may be analyzed by segregating the volume and rate components of the changes in interest income and interest expense for each underlying category.

Table 4: Rate/Volume

	2016 Compared to 2015									2015 Compared to 2014
	Increase (Decrease) Due to Change in (1)									Increase (Decrease) Due to Change in (1)
(000's omitted)	Volume			Rate			Net Change			Volume			Rate			Net Change
Interest earned on:
Cash equivalents	$	17		$	40		$	57		$	9		$	2		$	11
Taxable investment securities		2,745			86			2,831			6,369			(5,355	)		1,014
Nontaxable investment securities		(1,746	)		(535	)		(2,281	)		(1,162	)		(2,370	)		(3,532	)
Loans (net of unearned discount)		25,840			(3,325	)		22,515			5,833			(3,053	)		2,780
Total interest-earning assets (2)		25,782			(2,660	)		23,122			13,897			(13,624	)		273
Interest paid on:
Interest checking, savings and           money market deposits		577			(54	)		523			170			(186	)		(16	)
Time deposits		59			(228	)		(169	)		(540	)		(663	)		(1,203	)
Short-term borrowings		(1,250	)		573			(677	)		436			133			569
Long-term borrowings		1			411			412			0			60			60
Total interest-bearing liabilities (2)		874			(785	)		89			420			(1,010	)		(590	)
Net interest earnings (2)	$	24,784		$	(1,751	)	$	23,033		$	13,302		$	(12,439	)	$	863

⁽¹⁾ The change in interest due to both rate and volume has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of change in each.

⁽²⁾ Changes due to volume and rate are computed from the respective changes in average balances and rates of the totals; they are not a summation of the changes of the components.

Noninterest Income

The Company's sources of noninterest income are of four primary types: 1) general banking services related to loans, deposits and other core customer activities typically provided through the branch network and electronic banking channels (performed by CBNA); 2) employee benefit services (performed by BPAS); 3) wealth management services, comprised of trust services (performed by the trust unit within CBNA), investment products and services (performed by CISI, The Carta Group and OWM) and asset management services (performed by Nottingham); and 4) insurance products and services (performed by OneGroup).  Additionally, the Company has periodic transactions, most often net gains or losses from the sale of investment securities and prepayment of debt instruments.

Table 5: Noninterest Income

	Years Ended December 31,
(000's omitted except ratios)	2016			2015			2014
Employee benefit services	$	46,628		$	45,388		$	42,580
Deposit service charges and fees		29,061			28,087			29,379
Electronic banking		25,781			22,263			21,156
Insurance services		23,149			3,352			1,450
Wealth management services		19,776			16,856			16,420
Other banking revenues		9,140			5,656			6,576
Mortgage banking		2,090			1,701			1,459
Subtotal		155,625			123,303			119,020
Loss on sales of investment securities, net		0			(4	)		0
Total noninterest income	$	155,625		$	123,299		$	119,020
Noninterest income/operating income (FTE basis) (1)		35.4	%		32.1	%		31.4	%

⁽¹⁾ For purposes of this ratio noninterest income excludes gains (losses) on sales of investment securities. Operating income is defined as net interest income on a fully-tax equivalent basis, plus noninterest income, excluding gains (losses) on sales of investment securities.

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As displayed in Table 5, total noninterest income, excluding losses on securities sales, increased by $32.3 million, or 26.2%, to $155.6 million in 2016 as compared to 2015.  The increase was comprised of growth in revenue from the Company's financial services businesses, driven primarily by the acquisition of OneGroup and OWM, increased debit card-related income, increased employee benefit service fees, increased deposit service fees and $1.6 million in nonrecurring insurance-related gains, partially offset by lower fees from account overdraft protection programs continuing the trend of lower utilization of overdraft protection programs and a decline in certain other deposit-related services.  Noninterest income, excluding security losses increased by $4.3 million, or 3.6%, to $123.3 million in 2015 as compared to 2014, comprised of growth in revenue from the Company's financial services businesses and increased debit card-related income, partially offset by lower banking fees due to the continuing trend of lower utilization of overdraft protection programs and a decline in certain other deposit-related services. 

Noninterest income as a percent of operating income (FTE basis) was 35.4% in 2016, up 3.3 percentage points from the prior year.  The current year increase was due to the 26.2% increase in noninterest income mentioned above, while net interest income (FTE basis) increased at a slower pace of 8.8%.  The increase in this ratio from 2014 to 2015 of 0.7 percentage points was driven by a 3.6% increase in noninterest income, primarily the result of solid organic growth in the financial services businesses and strong growth in debit card related income, while net interest income increased at a rate of 0.3%.

The largest portion of the Company's recurring noninterest income is the wide variety of fees earned from general banking services generally provided through the branch network and electronic banking channels, which totaled $64.0 million in 2016, an increase of $8.0 million, or 14.2%, from the prior year.  The increase was driven by the addition of new deposit relationships from both acquired and organic sources, as well as increased debit card-related revenues and $1.6 million in nonrecurring insurance-related gains, partially offset by the continuing trend of lower utilization of overdraft protection programs and other deposit-related services.  Fees from general banking services were $56.0 million in 2015, a decrease of $1.1 million, or 1.9%, from 2014.  The decrease was driven by the continuing trend of lower utilization of overdraft protection programs and other deposit-related services as well as smaller annual dividends from retail insurance programs that more than offset the addition of new deposit relationships from both acquired and organic sources, as well as solid growth in debit card-related revenue.  Electronic banking revenue grew $1.1 million due in large part to a continued concerted effort to increase the penetration and utilization of consumer debit and credit cards.

Mortgage banking income consists of realized gains or losses from the sale of residential mortgage loans and the origination of mortgage loan servicing rights, unrealized gains and losses on residential mortgage loans held for sale and related commitments, mortgage loan servicing fees, and other mortgage loan-related fee income earned on sold consumer mortgages.  In 2016, mortgage banking revenue of $2.1 million increased $0.4 million from the revenue generated in 2015, which increased $0.2 million from 2014.  Residential mortgage loans sold to investors, primarily the Fannie Mae, in 2016 totaled $45.9 million as compared to $35.5 million and $25.7 million during 2015 and 2014, respectively.  Residential mortgage loans held for sale and recorded at fair value at December 31, 2016 and 2015 totaled $2.4 million and $0.9 million, respectively.  Realization of the unrealized gains or losses on consumer mortgage loans held for sale and the related commitments, as well as future revenue generation from mortgage banking activities, will be dependent on market conditions and long-term interest rate trends.

As disclosed in Table 5, noninterest income from financial services (revenues from employee benefit services, wealth management services and insurance services) increased $24.0 million, or 36.5%, in 2016 to $89.6 million.  In 2016, financial services revenue accounted for 58% of total noninterest income, as compared to 53% in 2015.  Employee benefit services generated revenue of $46.6 million in 2016 that reflected growth of $1.2 million, or 2.7%, driven by a combination of new client generation, activities acquired with the Oneida transaction and expanded service offerings.  Employee benefit services revenue of $45.4 million in 2015 was $2.8 million higher than 2014's results, primarily driven by a combination of new client generation and expanded service offerings.

Wealth management and insurance services revenues increased $22.7 million, or 112%, in 2016 primarily from the acquisition of OneGroup, which was the main driver of the $19.8 million increase in insurance-related revenues. CISI revenue increased $2.3 million with a full year of acquired OWM and Carta Group activities providing $2.8 million in additional revenue over the prior year. Nottingham revenue was consistent with the prior year, and personal trust revenue increased $0.6 million due primarily to trust relationships added through the Oneida acquisition. Wealth management and insurance services revenue increased $2.3 million, or 13.1%, in 2015 primarily from the acquisition of OneGroup in December 2015, which increased insurance-related revenues by $1.9 million and the acquisition of OWM and Carta Group, which increased wealth management related revenues by $0.6 million.

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Assets under administration decreased $0.3 billion to $17.8 billion for the employee benefit services segment in 2016 as compared to 2015 due to outflows in response to broad market shifts in the fourth quarter of 2016.  Assets under management increased $0.2 billion to $4.9 billion for the wealth management businesses at year end 2016 as compared to one year earlier due to the addition of new client assets. Assets under administration within the Company's employee benefit services segment decreased $0.1 billion to $18.1 billion at the end of 2015 from $18.2 billion at year-end 2014, primarily due to lower equity market valuations.  Assets under management with the Company's wealth management services segment increased $0.9 billion to $4.7 billion at the end of 2015 from $3.8 billion at year-end 2014 due to the addition of OWM and new client assets.

In December 2015, the Company sold $221.1 million of investment securities that were part of the Oneida acquisition, realizing a nominal amount of loss.  There were no sales of investment securities in 2016 or 2014.

Noninterest Expenses

As shown in Table 6, noninterest expenses of $266.8 million in 2016 were $33.8 million, or 14.5%, higher than 2015, primarily due to the expenses associated with operating an expanded branch network and other business activities acquired with the Oneida transaction, as well as non-recurring acquisition expenses related to the Oneida acquisition and the Company's pending Merchants transaction and recently completed NRS transactions.  Noninterest expenses in 2015 increased $6.5 million, or 2.9%, from 2014 to $233.1 million and included non-recurring acquisition expenses as well as incremental operating expenses from the Oneida acquisition.

Operating expenses (excluding acquisition expenses, litigation settlement charges and amortization of intangible assets) as a percent of average assets for 2016 was 3.00%, an increase of 15 basis points from 2.85% in 2015 and five basis points higher than 2.95% in 2014.  The increase in this ratio for 2016 was due to a 16.8% increase in operating expenses, primarily a result of a full year of expanded operations due to the Oneida acquisition, while average assets grew by 10.8% due to organic loan growth and the Oneida acquisition, reflecting the impact of the acquired Oneida financial services business that do not carry as high a level of earning assets as banking operations.  The decrease in this ratio for 2015 was due to a 1.4% increase in operating expenses, primarily a result of expanded operations due to the Oneida acquisition in December 2015, while average assets grew by 5.3% due to organic loan growth, investment purchases, and the Oneida acquisition.

The efficiency ratio, a performance measurement tool widely used by banks, is defined by the Company as operating expenses (excluding acquisition expenses, litigation settlement charges and intangible amortization) divided by operating income (fully tax‑equivalent net interest income plus noninterest income, excluding net securities gains and losses and insurance-related recoveries).  Lower ratios are correlated to higher operating efficiency.  In 2016, the efficiency ratio was 1.3 percentage points higher than 2015 as the 16.8% increase in operating expenses, as defined above, grew at a faster pace than the 14.4% increase in operating income, comprised of an 8.8% increase in net interest income and a 26.2% increase in noninterest income.  This ratio was also impacted by a higher proportion of business being generated by financial services due primarily to the Oneida acquisition, which by their nature carry higher efficiency ratios.  The ratio for 2015 was equal to the 2014 ratio as the 1.4% increase in operating expenses, as defined above, was offset by a 1.4% increase in operating income.

Table 6: Noninterest Expenses

	Years Ended December 31,
(000's omitted)	2016			2015			2014
Salaries and employee benefits	$	151,647		$	126,356		$	123,077
Occupancy and equipment		30,078			27,593			27,948
Data processing and communications		34,501			30,430			29,294
Amortization of intangible assets		5,479			3,663			4,287
Legal and professional fees		8,455			6,813			7,247
Office supplies and postage		7,274			6,476			6,270
Business development and marketing		7,484			7,204			7,125
FDIC insurance premiums		3,671			3,962			3,899
Acquisition expenses and litigation settlement		1,706			7,037			2,923
Other		16,553			13,521			14,510
Total noninterest expenses	$	266,848		$	233,055		$	226,580
Operating expenses(1)/average assets		3.00	%		2.85	%		2.95	%
Efficiency ratio		59.2	%		57.9	%		57.9	%
(1)Operating expenses are total noninterest expenses excluding acquisition expenses, litigation settlement charges and amortization of intangible assets. See Table 20 for Reconciliation of GAAP to Non-GAAP Measures.

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Total salaries and employee benefits increased $25.3 million, or 20.0%, in 2016, due to the impact of annual merit increases and higher pension costs, as well as the full year impact of the addition of approximately 275 employees from the Oneida acquisition in December 2015.  Salaries and employee benefits increased $3.3 million, or 2.7%, in 2015, due to the impact of annual merit increases as well as the aforementioned addition of employees from the Oneida acquisition in December and higher pension costs, partially offset by lower incentive payments in 2015 based on the achievement of the Company's annual business objectives.  Total full-time equivalent staff at the end of 2016 was 2,262 compared to 2,182 at December 31, 2015 and 1,945 at the end of 2014.

Retirement plan expense in 2016 increased $1.5 million due to increased participation in the Company's 401(k) and defined benefit pension plans primarily as a result of the Oneida acquisition.  Last year's retirement plan expense increased $1.8 million from 2014's level due to changes in actuarial assumptions, including a decrease in the discount rate from 5.0% to 4.5%, and increased participation in the Company's 401(k) Plan. The three assumptions that have the largest impact on the calculation of annual pension expense are the discount rate utilized, the rate applied to future compensation increases and the expected rate of return on plan assets.  See Note K to the financial statements for further information about the pension plan.

Total non-personnel noninterest expenses, excluding one-time acquisition expenses, and litigation settlement charges, increased $13.8 million, or 13.9%, in 2016, mostly reflective of the additional costs associated with the acquired Oneida business activities.  Increases in occupancy and equipment, data processing and communications, amortization of intangible assets, legal and professional fees, office supplies and postage, business development and marketing and other expenses, all primarily a result of  the aforementioned additional costs associated with acquired Oneida business activities, were only partially offset by a decrease in FDIC insurance premiums resulting from a change in the structure of the FDIC assessment rate schedule in the third quarter of 2016.  Total non-personnel noninterest expenses, excluding one-time acquisition expenses, and litigation settlement charges, decreased $0.9 million, or 0.9%, in 2015 as decreases in occupancy and equipment, amortization of intangible assets, legal and professional fees and other expenses were only partially offset by increases in data processing and communications and business development and marketing.  Excluding expenses related to the retail branches acquired from Oneida, non-personnel noninterest expenses as defined above declined $1.6 million as occupancy and equipment decreased $0.5 million, amortization of intangible assets decreased $0.9 million, legal and professional fees decreased $0.4 million and other expenses declined $0.8 million, partially offset by an increase in data processing and communications. 

Acquisition expenses for 2016 totaled $1.7 million, including $0.3 million associated with the Oneida acquisition, and $0.9 million and $0.5 million associated with the Company's pending Merchants transaction and recently completed NRS acquisition, respectively.  Acquisition expenses for 2015 totaled $7.0 million and were associated with the Oneida transaction.  Acquisition expenses and litigation settlement charges totaled $2.9 million in 2014 comprised of $0.1 million of acquisition expenses related to the EBS-RMSCO acquisition and a $2.8 million litigation settlement charge pertaining to a class action lawsuit involving the sufficiency of consumer notice requirements for certain of the Company's collateral recovery activities.  The Company contested the allegations and asserted affirmative defenses to the claims, however, the settlement the Company was able to achieve was, in its judgment, a superior outcome for the shareholders when measured against the risks and resources required for litigation. 

The Company continually evaluates all aspects of its operating expense structure and is diligent about identifying opportunities to improve operating efficiencies.  The Company divested itself of one branch location in 2016 and consolidated six of its branch offices during the second half of 2014.  This realignment reduced market overlap, further strengthened its branch network, and reflects management's focus on achieving long-term performance improvements through proactive, strategic decision making.

Income Taxes

The Company estimates its income tax expense based on the amount it expects to owe the respective taxing authorities, plus the impact of deferred tax items.  Taxes are discussed in more detail in Note I of the Consolidated Financial Statements beginning on page 77.  Accrued taxes represent the net estimated amount due or to be received from taxing authorities.  In estimating accrued taxes, management assesses the relative merits and risks of the appropriate tax treatment of transactions, taking into account statutory, judicial and regulatory guidance in the context of the Company's tax position.  If the final resolution of taxes payable differs from its estimates due to regulatory determination or legislative or judicial actions, adjustments to tax expense may be required.

The effective tax rate for 2016 was 32.8%, compared to 31.0% in 2015 and 29.6% in 2014, reflective of higher proportional levels of income being generated from fully taxable sources and certain legislated changes to state tax rates and structures.

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Shareholders' Equity

Shareholders' equity ended 2016 at $1.20 billion, up $57.5 million, or 5.0%, from one year earlier.  This increase reflects net income of $103.8 million, $10.6 million from the issuance of shares through employee stock plan, $8.9 million for treasury stock issued to the Company's 401(k) plan and $4.8 million from stock-based compensation.  These increases were partially offset by common stock dividends declared of $55.7 million, an $11.4 million decrease in accumulated other comprehensive income, and treasury stock purchases of $3.5 million.  The change in other comprehensive income was comprised of a $14.7 million decrease due to changes in the unrealized gains and losses in the Company's available-for-sale investment portfolio, due principally to the rise in long-term interest rates at the end of 2016, partially offset by a positive $3.3 million adjustment to the funded status of the Company's employee retirement plans.  Excluding accumulated other comprehensive income in both 2016 and 2015, shareholders' equity rose by $68.8 million, or 6.1%.  Shares outstanding increased by 0.7 million during the year due to share issuances under the employee stock plan and to the Company's 401(k) plan.

Shareholders' equity ended 2015 at $1.14 billion, up $152.7 million, or 15.5%, from one year earlier.  This increase reflects $102.2 million related to stock issued in connection with the Oneida acquisition, net income of $91.2 million, $9.8 million from the issuance of shares through employee stock plans, $16.6 million for treasury stock issued to the Company's 401(k) benefit plan, and $4.2 million from stock-based compensation.  These increases were partially offset by common stock dividends declared of $50.6 million, an $11.5 million decrease in accumulated other comprehensive income, and treasury stock purchases of $9.1 million.  The change in other comprehensive income was comprised of a $6.9 million decrease due to changes in the unrealized gains and losses in the Company's available-for-sale investment portfolio, due principally to the rise in long-term interest rates at the end of 2015, as well as a negative $4.6 million adjustment to the funded status of the Company's employee retirement plans.  Excluding accumulated other comprehensive income in both 2015 and 2014, shareholders' equity rose by $164.2 million, or 17.2%.  Shares outstanding increased by 3.0 million during the year as 2.4 million were issued in conjunction with the Oneida acquisition and 0.9 million were added through employee stock plans, partially offset by 0.3 million that were repurchased as treasury shares.

The Company's ratio of ending Tier 1 capital to adjusted quarterly average assets (or Tier 1 leverage ratio), the primary measure for which regulators have established a 5% minimum for an institution to be considered "well-capitalized," increased 23 basis points to end the year at 10.55%.  This was the result of an 8.8% increase in Tier 1 capital, while fourth quarter average adjusted net assets (excludes investment market value adjustment, and a portion of intangible assets net of related deferred tax liabilities) increased at a slower 6.4% rate.  For additional financial information on the Company's regulatory capital, refer to Note P – Regulatory Matters in the Notes to Consolidated Financial Statements.   The tangible equity-to-tangible assets ratio (a non-GAAP measure) was 9.24% at the end of 2016 versus 8.59% one year earlier (See Table 20 for Reconciliation of GAAP to Non-GAAP Measures).  The increase was due to tangible common shareholders' equity increasing at a faster pace than tangible assets, primarily as a result of capital growth through net income generation and retention.  The Company manages organic and acquired growth in a manner that enables it to continue to maintain and grow its capital base and maintain its ability to take advantage of future strategic growth opportunities.

Cash dividends declared on common stock in 2016 of $55.7 million represented an increase of 10.0% over the prior year.  This growth was a result of the increase in outstanding shares as noted above and a $0.04 increase in dividends per share for the year. Dividends per share for 2016 of $1.26 represents a 3.3% increase from $1.22 in 2015, a result of quarterly dividends per share increasing from $0.30 to $0.31 (a 3.3% increase) during the third quarter of 2015 and from $0.31 to $0.32 (a 3.2% increase) in the third quarter of 2016.  The 2016 increase in quarterly dividends marked the 24^rd consecutive year of dividend increases for the Company.  The dividend payout ratio for this year was 53.7% compared to 55.5% in 2015, and 51.6% in 2014.  The dividend payout ratio decreased during 2016 because net income increased 13.8% from 2015 while dividends declared increased 10.0%.  The payout ratio increased during 2015 because dividends declared increased 7.5% while net income decreased 0.1%.

Liquidity

Liquidity risk is a measure of the Company's ability to raise cash when needed at a reasonable cost and minimize any loss.  The Bank maintains appropriate liquidity levels in both normal operating environments as well as stressed environments.  The Company must be capable of meeting all obligations to its customers at any time and, therefore, the active management of its liquidity position remains an important management objective.  The Bank has appointed the Asset Liability Committee ("ALCO") to manage liquidity risk using policy guidelines and limits on indicators of potential liquidity risk.  The indicators are monitored using a scorecard with three risk level limits.  These risk indicators measure core liquidity and funding needs, capital at risk and change in available funding sources.  The risk indicators are monitored using such statistics as the core basic surplus ratio, unencumbered securities to average assets, free loan collateral to average assets, loans to deposits, deposits to total funding and borrowings to total funding ratios.

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Given the uncertain nature of our customers' demands as well as the Company's desire to take advantage of earnings enhancement opportunities, the Company must have adequate sources of on- and off-balance sheet funds available that can be utilized in time of need.  Accordingly, in addition to the liquidity provided by balance sheet cash flows, liquidity must be supplemented with additional sources such as credit lines from correspondent banks and borrowings from the FHLB and the Federal Reserve Bank of New York ("Federal Reserve").  Other funding alternatives may also be appropriate from time to time, including wholesale and retail repurchase agreements, large certificates of deposit and the brokered CD market.  The primary source of non-deposit funds is FHLB overnight advances, of which $146.2 million was outstanding at December 31, 2016.

The Bank's primary sources of liquidity are its liquid assets, as well as unencumbered securities that can be used to collateralize additional funding.  At December 31, 2016, the Bank had $173.9 million of cash and cash equivalents of which $24.2 million are interest-earning deposits held at the Federal Reserve, FHLB and other correspondent banks.  The Bank also had $1.2 billion in unused FHLB borrowing capacity based on the Company's quarter-end collateral levels.  Additionally, the Company has $1.2 billion of unencumbered securities that could be pledged at the FHLB or Federal Reserve to obtain additional funding.  There is $25 million available in unsecured lines of credit with other correspondent banks at year end.

The Company's primary approach to measuring short-term liquidity is known as the Basic Surplus/Deficit model.  It is used to calculate liquidity over two time periods: first, the amount of cash that could be made available within 30 days (calculated as liquid assets less short-term liabilities as a percentage of average assets); and second, a projection of subsequent cash availability over an additional 60 days.  As of December 31, 2016, this ratio was 13.4% for 30-days and 13.3% for 90-days, excluding the Company's capacity to borrow additional funds from the FHLB and other sources.  There is a sufficient amount of liquidity given the Company's internal policy requirement of 7.5%.

A sources and uses statement is used by the Company to measure intermediate liquidity risk over the next twelve months.  As of December 31, 2016, there is more than enough liquidity available during the next year to cover projected cash outflows.  In addition, stress tests on the cash flows are performed in various scenarios ranging from high probability events with a low impact on the liquidity position to low probability events with a high impact on the liquidity position.  The results of the stress tests as of December 31, 2016 indicate the Bank has sufficient sources of funds for the next year in all simulated stressed scenarios.

To measure longer-term liquidity, a baseline projection of loan and deposit growth for five years is made to reflect how liquidity levels could change over time.  This five-year measure reflects ample liquidity for loan and other asset growth over the next five years.

Though remote, the possibility of a funding crisis exists at all financial institutions.  Accordingly, management has addressed this issue by formulating a Liquidity Contingency Plan, which has been reviewed and approved by both the Company's Board of Directors and the Company's ALCO.  The plan addresses the actions that the Company would take in response to both a short-term and long-term funding crisis.

A short-term funding crisis would most likely result from a shock to the financial system, either internal or external, which disrupts orderly short-term funding operations.  Such a crisis would likely be temporary in nature and would not involve a change in credit ratings.  A long-term funding crisis would most likely be the result of drastic credit deterioration at the Company.  Management believes that both potential circumstances have been fully addressed through detailed action plans and the establishment of trigger points for monitoring such events.

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Intangible Assets

The changes in intangible assets by reporting segment for the year ended December 31, 2016 are summarized as follows:

Table 7: Intangible Assets

(000's omitted)	Balance at December 31, 2015		Additions		Amortization		Impairment		Balance at December 31, 2016
Banking Segment
Goodwill	$	439,052	$	1,818	$	0	$	0	$	440,870
Core deposit intangibles		9,789		0		2,682		0		7,107
Total Banking Segment		448,841		1,818		2,682		0		447,977
Employee Benefit Services Segment
Goodwill		8,019		0		0		0		8,019
Other intangibles		1,086		0		420		0		666
Total Employee Benefit Services Segment		9,105		0		420		0		8,685
All Other Segment
Goodwill		16,181		72		0		0		16,253
Other intangibles		10,019		287		2,377		0		7,929
Total All Other Segment		26,200		359		2,377		0		24,182
Total	$	484,146	$	2,177	$	5,479	$	0	$	480,844

Intangible assets at the end of 2016 totaled $480.8 million, a decrease of $3.3 million from the prior year due to $5.5 million of amortization during the year, partially offset by an additional $1.6 million of intangible assets recorded in the first quarter of 2016 arising from adjustments made to fair value estimates for the Oneida acquisition and the purchase of other intangibles amounting to $0.6 million.  Intangible assets consist of goodwill and the calculated value of core deposits and customer relationships that arise from acquisitions.  Goodwill represents the excess cost of an acquisition over the fair value of the net assets acquired.  Goodwill at December 31, 2016 totaled $465.1 million, comprised of $440.9 million related to banking acquisitions and $24.2 million arising from the acquisition of financial services businesses.  Goodwill is subject to periodic impairment analysis to determine whether the carrying value of the identified businesses exceeds their fair value, which would necessitate a write-down of goodwill.  The Company completed its goodwill impairment analyses during the first quarters of 2016 and 2015 and no adjustments were necessary for the banking or financial services businesses.  The impairment analyses were based upon discounted cash flow modeling techniques that require management to make estimates regarding the amount and timing of expected future cash flows.  It also requires the selection of discount rates that reflect the current return characteristics of the market in relation to present risk-free interest rates, estimated equity market premiums and company-specific performance and risk indicators.  Management believes that there is a low probability of future impairment with regard to the goodwill associated with its whole-bank, branch and financial services business acquisitions.

Core deposit intangibles represent the value of acquired non-time deposits in excess of funding that could have been obtained in the capital markets.  Core deposit intangibles are amortized on either an accelerated or straight-line basis over periods ranging from eight to twenty years.  The recognition of customer relationship intangibles was determined based on a methodology that calculates the present value of the projected future net income derived from the acquired customer base.  These customer relationship intangibles are being amortized on an accelerated basis over periods ranging from seven to twelve years.

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Loans

The Company's loans outstanding, by type, as of December 31 are as follows:

Table 8: Loans Outstanding

(000's omitted)	2016			2015			2014			2013			2012
Consumer mortgage	$	1,819,701		$	1,769,754		$	1,613,384		$	1,582,058		$	1,448,415
Business lending		1,490,076			1,497,271			1,262,484			1,260,364			1,233,944
Consumer indirect		1,044,972			935,760			833,968			740,002			647,518
Consumer direct		191,815			195,076			184,028			180,139			171,474
Home equity		401,998			403,514			342,342			346,520			364,225
Gross loans		4,948,562			4,801,375			4,236,206			4,109,083			3,865,576
Allowance for loan losses		(47,233	)		(45,401	)		(45,341	)		(44,319	)		(42,888	)
Loans, net of allowance for loan losses	$	4,901,329		$	4,755,974		$	4,190,865		$	4,064,764		$	3,822,688
Daily average of total gross loans	$	4,881,905		$	4,288,091		$	4,156,840		$	3,954,515		$	3,628,006

As disclosed in Table 8 above, gross loans outstanding of $4.9 billion as of December 31, 2016 increased $147.2 million, or 3.1%, compared to December 31, 2015 reflecting organic growth in the consumer mortgage and consumer indirect portfolios attributable to the low interest rate environment and continued business development efforts, partially offset by decreases in the business lending, the consumer direct and home equity portfolios. Gross loans outstanding of $4.8 billion as of December 31, 2015 increased $565.2 million, or 13.3%, compared to December 31, 2014 as a result of organic and acquired growth in all of the lending portfolios.  Excluding loans acquired from Oneida, loans increased $172.5 million, or 4.1%, driven by improvement in customer demand, the continued low interest rate environment and proactive business development efforts.

The compounded annual growth rate ("CAGR") for the Company's total loan portfolio between 2011 and 2016 was 7.4%, with approximately 60% of the total growth for the period attributable to organic growth and 40% attributable to acquired balances.  The greatest overall expansion occurred in consumer installment loans, which grew at an 11.9% CAGR.  The consumer mortgage portfolio grew at a compounded annual growth rate of 8.4% from 2011 to 2016.  The business lending segment grew at a CAGR of 4.0% driven in most part by acquisitions during the five year period.  The home equity lending segment grew at a compounded annual growth rate of 4.4% from 2011 to 2016, including the impact from acquisitions.

The weighting of the components of the Company's loan portfolio enables it to be highly diversified.  Approximately 70% of loans outstanding at the end of 2016 were made to consumers borrowing on an installment, line of credit or residential mortgage loan basis.  The business lending portfolio is also broadly diversified by industry type as demonstrated by the following distributions at year-end 2016: commercial real estate (24%), restaurant & lodging (13%), healthcare (11%), general services (9%), retail trade (8%), agriculture (7%), manufacturing (7%), construction (5%), wholesale trade (5%) and motor vehicle and parts dealers (5%).  A variety of other industries with less than a 3% share of the total portfolio comprise the remaining 6%.

The consumer mortgage loans include no exposure to Alt-A or other higher-risk mortgage products and are comprised of fixed (96%) and adjustable rate (4%) residential lending.  Volume in this portion of the Company's loan portfolio has been strong over the last few years due to historically low long-term interest rates and comparatively stable real estate valuations in the Company's primary markets.  Consumer mortgages increased $49.9 million, or 2.8%, in 2016 and does not include $45.9 million of longer-term, fixed-rate residential mortgages that Company originated and sold, principally to Fannie Mae.  Consumer mortgages increased $156.4 million, or 9.7%, in 2015 and does not include $35.5 million of longer-term, fixed-rate residential mortgages that Company originated and sold, principally to Fannie Mae.  Excluding loans acquired in the Oneida transaction, the consumer mortgage portfolio grew $25.8 million, or 1.6% in 2015.  The Company's solid performance is a reflection of the high quality profile of its portfolio and its ability to successfully meet customer needs.  Market interest rates, expected duration, and the Company's overall interest rate sensitivity profile continue to be the most significant factors in determining whether the Company chooses to retain versus sell and service portions of its new consumer mortgage generation.

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The combined total of general-purpose business lending to commercial, industrial, non-profit and municipal customers, mortgages on commercial property and dealer floor plan financing is characterized as the Company's business lending activity.  The business lending portfolio decreased $7.2 million, or 0.5%, in 2016 as contractual and unscheduled principal reductions outpaced new loan volume. The portfolio increased $234.8 million, or 18.6%, in 2015.  Excluding loans from the Oneida acquisition, the portfolio grew $83.7 million, or 6.6% in 2015. Highly competitive conditions continue to prevail in the small and middle market commercial segments in which the Company primarily operates. The Company maintains its commitment to generating growth in its business portfolio in a manner that adheres to its twin goals of maintaining strong asset quality and producing profitable margins.  The Company continues to invest in additional personnel, technology, and business development resources to further strengthen its capabilities in this important product category.   

The following table shows the maturities and type of interest rates for business and construction loans as of December 31, 2016:

Table 9:  Maturity Distribution of Business and Construction Loans ⁽¹⁾

(000's omitted)	Maturing in One Year or Less		Maturing After One but Within Five Years		Maturing After Five Years		Total
Commercial, financial and agricultural	$	202,930	$	430,374	$	825,332	$	1,458,636
Real estate – construction		36,556		0		0		36,556
Total	$	239,486	$	430,374	$	825,332	$	1,495,192
Fixed interest rates	$	47,637	$	194,156	$	138,455	$	380,248
Floating or adjustable interest rates		191,849		236,218		686,877		1,114,944
Total	$	239,486	$	430,374	$	825,332	$	1,495,192

⁽¹⁾ Scheduled repayments are reported in the maturity category in which the payment is due.

Consumer installment loans, both those originated directly (such as personal installment loans and lines of credit), and indirectly (originated predominantly in automobile, marine and recreational vehicle dealerships), increased $106.0 million, or 9.4%, from one year ago.  In 2015 the portfolio increased $112.8 million, or 11.1%, from the year earlier period.  Excluding loans from the Oneida acquisition, the portfolio increased $54.3 million, or 5.3% in 2015.  The volume of new and used vehicle sales to upper-tier credit profile customers in the Company's primary markets has improved in recent years.  The Company is focused on maintaining the solid profitability produced by its in-market and contiguous market indirect portfolio, while continuing to pursue its disciplined, long-term approach to expanding its dealer network.  However, the increasingly competitive nature of this market has resulted in aggressive pricing and incentives that have caused some compression of indirect loan spreads, particularly in the automobile segment.

Home equity loans decreased $1.5 million, or 0.4%, from the end of 2015, due in part to home equity loans being paid off or down as part of the heightened level of consumer mortgage refinancing that in some cases are used to pay down or pay off home equity balances in the continued low rate environment.  Home equity loans increased $61.2 million, or 17.9%, from the end of 2014, due primarily to the $52.5 million of loans acquired from Oneida.  Excluding those loans, the portfolio increased $8.7 million, or 2.5%, as mortgage refinance activity slowed and historically low rate offerings stimulated demand for the home equity product.

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Asset Quality

The following table presents information regarding nonperforming assets as of December 31:

Table 10: Nonperforming Assets

(000's omitted)	2016			2015			2014			2013			2012
Nonaccrual loans
Consumer mortgage	$	13,684		$	12,790		$	15,323		$	12,560		$	11,286
Business lending		5,063			6,567			2,780			4,555			13,691
Consumer indirect		0			0			10			14			0
Consumer direct		0			15			20			4			8
Home equity		1,872			2,356			2,598			2,340			1,375
Total nonaccrual loans		20,619			21,728			20,731			19,473			26,360
Accruing loans 90+ days delinquent
Consumer mortgage		1,385			1,805			2,397			1,338			1,818
Business lending		145			126			350			164			247
Consumer indirect		169			102			82			755			73
Consumer direct		58			51			36			117			71
Home equity		1,319			111			241			181			539
Total accruing loans 90+ days delinquent		3,076			2,195			3,106			2,555			2,748
Nonperforming loans
Consumer mortgage		15,069			14,595			17,720			13,898			13,104
Business lending		5,208			6,693			3,130			4,719			13,938
Consumer indirect		169			102			92			769			73
Consumer direct		58			66			56			121			79
Home equity		3,191			2,467			2,839			2,521			1,914
Total nonperforming loans		23,695			23,923			23,837			22,028			29,108
Other real estate (OREO)		1,966			2,088			1,855			5,060			4,788
Total nonperforming assets	$	25,661		$	26,011		$	25,692		$	27,088		$	33,896
Nonperforming loans / total loans		0.48	%		0.50	%		0.56	%		0.54	%		0.75	%
Legacy nonperforming loans / legacy total loans (1)		0.42	%		0.49	%		0.52	%		0.49	%		0.71	%
Nonperforming assets / total loans and other real estate		0.52	%		0.54	%		0.61	%		0.66	%		0.88	%
Delinquent loans (30 days old to nonaccruing) to total loans		1.19	%		1.16	%		1.46	%		1.49	%		1.92	%
Loan loss provision to net charge-offs		129	%		101	%		117	%		122	%		108	%
Legacy loan loss provision to net charge-offs (1)		130	%		86	%		125	%		134	%		116	%
(1)Legacy loans exclude loans acquired after January 1, 2009.

The Company places a loan on nonaccrual status when the loan becomes 90 days past due, or sooner if management concludes collection of interest is doubtful, except when, in the opinion of management, it is well-collateralized and in the process of collection.  As shown in Table 10 above, nonperforming loans, defined as nonaccruing loans and accruing loans 90 days or more past due, ended 2016 at $23.7 million, a decrease of $0.2 million from one year earlier.  The ratio of nonperforming loans to total loans at December 31, 2016 decreased two basis points from the prior year to 0.48%.  Excluding nonperforming acquired loans, the ratio of nonperforming loans to total loans at the end of 2016 was 0.42%, a decrease of seven basis points from the prior year.  The ratio of nonperforming assets (which includes other real estate owned, or "OREO", in addition to nonperforming loans) to total loans plus OREO decreased to 0.52% at year-end 2016, down two basis points from one year earlier.  The Company's success at keeping these ratios at favorable levels throughout varying economic conditions was the result of continued focus on maintaining strict underwriting standards, early problem recognition, and effective collection and recovery efforts.  At December 31, 2016 OREO was comprised of five commercial real estate properties with a total value of $0.8 million and 24 residential properties with a total value of $1.2 million. This compares to four commercial real estate properties with a total value of $0.6 million and 27 residential properties with a total value of $1.5 million at December 31, 2015.

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Approximately 64% of nonperforming loans at December 31, 2016 are related to the consumer mortgage portfolio.  Collateral values of residential properties within the Company's market area have remained relatively stable over the past several years.  Additionally, improved process efficiency and economic conditions, including lower unemployment levels, have positively impacted consumers and have resulted in lower nonperforming mortgage ratios in 2015 and 2016.  Approximately 22% of the nonperforming loans at December 31, 2016 are related to the business lending portfolio, which is comprised of business loans broadly diversified by industry type.  The level of nonperforming business loans has decreased from the prior year and is below the Company's longer-term average results as a proportion of  total loans due to general economic improvements, effective problem loan management and maintenance of strict underwriting standards.  The remaining 14% percent of nonperforming loans relate to consumer installment and home equity loans.  The allowance for loan losses to nonperforming loans ratio, a general measure of coverage adequacy, was 199% at the end of 2016 compared to 190% at year-end 2015 and 190% at December 31, 2014, reflective of a larger proportional increase in the level of the allowance for loan losses than in nonperforming loans.  Excluding acquired loans, the ratio of allowance for legacy loans to nonperforming legacy loans was 245% at the end of 2016, compared to 212% at year-end 2015 and 221% at December 31, 2014.

Members of the Company's senior management, special asset officers, and lenders review all delinquent and nonaccrual loans and OREO regularly in order to identify deteriorating situations, monitor known problem credits and discuss any needed changes to collection efforts, if warranted.  Based on the group's consensus, a relationship may be assigned a special assets officer or other senior lending officer to review the loan, meet with the borrowers, assess the collateral and recommend an action plan.  This plan could include foreclosure, restructuring loans, issuing demand letters or other actions.  The Company's larger criticized credits are also reviewed on at least a quarterly basis by senior credit administration management, as well as special assets officers and senior commercial lending management to monitor their status and discuss relationship management plans.  Commercial lending management reviews the entire criticized business loan portfolio on a monthly basis.

Total delinquencies, defined as loans 30 days or more past due or in nonaccrual status, finished the current year at 1.19% of total loans outstanding, compared to 1.16% at the end of 2015.  As of year-end 2016, delinquency ratios for business lending, consumer installment loans, consumer mortgages and home equity loans were 0.65%, 1.30%, 1.54%, and 1.30%, respectively, and reflected improvement in business loan delinquencies over prior year levels, while year-end delinquency rates in the consumer categories increased. These measures were 0.78%, 1.20%, 1.49%, and 1.04%, respectively, as of December 31, 2015.  Delinquency levels, particularly in the 30 to 89 days category, tend to be somewhat volatile due to their measurement at a point in time, and therefore management believes that it is useful to evaluate this ratio over a longer time period.  The average quarter-end delinquency ratio for total loans in 2016 was 1.09%, as compared to an average of 1.16% in 2015, and 1.32% in 2014, reflective of management's continued focus on maintaining strict underwriting standards, as well as the effective utilization of its collection capabilities.

Loans are considered modified in a troubled debt restructuring ("TDR") when, due to a borrower's financial difficulties, the Company makes one or more concessions to the borrower that it would not otherwise consider.  These modifications primarily include, among others, an extension of the term of the loan or granting a period with reduced or no principal and/or interest payments, which can be recaptured through payments made over the remaining term of the loan or at maturity.  Historically, the Company has created very few TDRs.   Regulatory guidance by the OCC requires certain loans that have been discharged in Chapter 7 bankruptcy to be reported as TDRs.  In accordance with this guidance, loans that have been discharged in Chapter 7 bankruptcy but not reaffirmed by the borrower are classified as TDRs, irrespective of payment history or delinquency status, even if the repayment terms for the loan have not been otherwise modified and the Company's lien position against the underlying collateral remains unchanged.  Pursuant to that guidance, the Company records a charge-off equal to any portion of the carrying value that exceeds the net realizable value of the collateral.  As of December 31, 2016, the Company had 56 loans totaling $1.8 million considered to be nonaccruing TDRs and 158 loans totaling $3.7 million considered to be accruing TDRs.  This compares to 55 loans totaling $1.9 million considered to be nonaccruing TDRs and 183 loans totaling $4.3 million considered to be accruing TDRs at December 31, 2015.

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The changes in the allowance for loan losses for the last five years are as follows:

Table 11: Allowance for Loan Losses Activity

	Years Ended December 31,
(000's omitted except for ratios)	2016			2015			2014			2013			2012
Allowance for loan losses at beginning of period	$	45,401		$	45,341		$	44,319		$	42,888		$	42,213
Charge-offs:
Consumer mortgage		647			1,374			1,075			1,012			1,004
Business lending		1,969			2,249			1,596			3,671			5,654
Consumer indirect		7,643			6,714			6,784			4,544			5,407
Consumer direct		1,706			1,490			1,595			1,954			1,694
Home equity		218			244			765			650			423
Total charge-offs		12,183			12,071			11,815			11,831			14,182
Recoveries:
Consumer mortgage		115			80			205			36			59
Business lending		616			877			750			692			1,295
Consumer indirect		4,168			3,943			3,773			3,488			3,551
Consumer direct		901			722			846			1,034			821
Home equity		139			62			85			20			23
Total recoveries		5,939			5,684			5,659			5,270			5,749
Net charge-offs		6,244			6,387			6,156			6,561			8,433
Provision for loan losses		8,039			6,349			7,497			7,358			8,715
Provision for acquired impaired loans		37			98			(319	)		634			393
Allowance for loan losses at end of period	$	47,233		$	45,401		$	45,341		$	44,319		$	42,888
Allowance for loan losses / total loans		0.95	%		0.95	%		1.07	%		1.08	%		1.11	%
Allowance for legacy loan losses / total legacy loans (1)		1.02	%		1.05	%		1.14	%		1.15	%		1.21	%
Allowance for loan losses / nonperforming loans		199	%		190	%		190	%		201	%		147	%
Allowance for legacy loans  / nonperforming legacy loans (1)		245	%		212	%		221	%		234	%		171	%
Net charge-offs to average loans outstanding:
Consumer mortgage		0.03	%		0.08	%		0.05	%		0.06	%		0.07	%
Business lending		0.09	%		0.11	%		0.07	%		0.24	%		0.36	%
Consumer indirect		0.35	%		0.33	%		0.38	%		0.16	%		0.31	%
Consumer direct		0.40	%		0.41	%		0.40	%		0.52	%		0.54	%
Home equity		0.02	%		0.05	%		0.20	%		0.18	%		0.12	%
Total loans		0.13	%		0.15	%		0.15	%		0.17	%		0.23	%
(1)Legacy loans exclude loans acquired after January 1, 2009.

As displayed in Table 11 above, total net charge-offs in 2016 were $6.2 million, $0.1 million less than the prior year due to lower levels of net charge-offs in the business lending, consumer mortgage and home equity portfolios, partially offset by higher net charge-offs in the consumer indirect and consumer direct portfolios.  Net charge-offs in 2015 were $0.2 million more than 2014 due to higher net charge-offs in the business lending, consumer mortgage, and consumer direct portfolios, partially offset by lower levels of net charge-offs in the consumer indirect and home equity portfolios.

Due to the significant increases in average loan balances over time as a result of acquisition and organic growth, management believes that net charge-offs as a percent of average loans ("net charge-off ratio") offers the most meaningful representation of charge-off trends.  The total net charge-off ratio of 0.13% for 2016 was two basis points lower than the 0.15% ratio from 2015 and 2014.  Gross charge-offs as a percentage of average loans was 0.25% in 2016, as compared to 0.28% in 2015, and 0.28% in 2014, evidence of management's continued focus on maintaining strict underwriting standards.  Continued strong recovery efforts were evidenced by recoveries of $5.9 million in 2016, representing 49% of average gross charge-offs for the latest two years, compared to 48% in both 2015 and 2014.

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Business loan net charge-offs decreased slightly in 2016, totaling $1.4 million, or 0.09% of average business loans outstanding versus $1.4 million, or 0.11% of the average outstanding balance in 2015, reflective of the Company's disciplined risk management and underwriting standards.  Consumer installment loan net charge-offs increased to $4.3 million this year from $3.5 million in 2015, with a net charge-off ratio of 0.36% in 2016 and 0.34% in 2015.  This is reflective of the nearly 22% growth in balances since the end of 2014, higher levels of gross charge-offs of consumer installment loans in 2016 as compared to 2015 and lower market resale valuations for certain asset classes that hindered consumer installment recovery efforts.  The dollar amount of consumer mortgage net charge-offs decreased $0.8 million in 2016, with the net charge-off ratio decreasing five basis points to 0.03%.  Home equity net charge-offs decreased $0.1 million to $0.1 million in 2016 while the net charge-off ratio decreased three basis points to 0.02%.

Management continually evaluates the credit quality of the Company's loan portfolio and conducts a formal review of the adequacy of the allowance for loan losses on a quarterly basis.  The two primary components of the loan review process that are used to determine proper allowance levels are specific and general loan loss allocations.  Measurement of specific loan loss allocations is typically based on expected future cash flows, collateral values and other factors that may impact the borrower's ability to repay.  Impaired loans with outstanding balances that are greater than $0.5 million are evaluated for specific loan loss allocations.  Consumer mortgages, consumer installment and home equity loans are considered smaller balance homogeneous loans and are evaluated collectively.  The Company considers a loan to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all principal and interest according to the contractual terms of the loan agreement or the loan is delinquent 90 days or more.

The second component of the allowance establishment process, general loan loss allocations, is composed of two calculations that are computed on the five main loan segments: consumer mortgage, business lending, consumer indirect, consumer direct, and home equity.  The first calculation determines an allowance level based on the latest 36 months of historical net charge-off data for each loan category (business loans exclude balances with specific loan loss allocations).  The second calculation is qualitative and takes into consideration eight qualitative environmental factors: levels and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards, and other changes in lending policies, procedure, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations.  The allowance levels computed from the specific and general loan loss allocation methods are combined with unallocated allowances, if any, to derive the required allowance for loan losses to be reflected on the Consolidated Statement of Condition.  As it has in prior periods, the Company strives to refine and enhance its loss evaluation and estimation processes continually.

The loan loss provision is calculated by subtracting the previous period allowance for loan losses, net of the interim period net charge-offs, from the current required allowance level.  This provision is then recorded in the income statement for that period. Members of senior management and the Audit Committee of the Board of Directors review the adequacy of the allowance for loan losses quarterly.  Management is committed to continually improving the credit assessment and risk management capabilities of the Company and has dedicated the resources necessary to ensure advancement in this critical area of operations.

Acquired loans are recorded at their acquisition date fair values and, therefore, are excluded from the calculation of loan loss reserves as of the acquisition date.  To the extent there is a decrease in the present value of cashflows from the acquired impaired loans after the date of acquisition, the Company records a provision for potential losses. During the year ended December 31, 2016, an additional $0.03 million of provision for loan losses related to acquired impaired loans was recorded.  During the year ended December 31, 2015, an additional $0.1 million provision for loan loss related to acquired impaired loans was recorded.  During the year ended December 31, 2014, the Company reversed $0.3 million of its provision for loan losses related to acquired impaired loans as the value received at closure for certain loans was greater than the value for which they were being carried on the books.

For acquired loans that are not deemed impaired at acquisition, a fair value adjustment is recorded that includes both credit and interest rate considerations.  Subsequent to the purchase date, the methods utilized to estimate the required allowance for loan losses for these loans is similar to originated loans, however, the Company records a provision for loan losses only when the required allowance exceeds any remaining purchased discounts.  During 2016, the Company recorded a provision for loan losses on acquired non-impaired loans of $0.8 million.  For full year 2015, the Company recorded a provision for loan losses on acquired non-impaired loans of $1.0 million, primarily for the Oneida commercial portfolio where the net fair value of the pool was deemed greater than its par value at acquisition.  During 2014, the Company recorded a provision for loan losses on acquired non-impaired loans of $0.6 million.

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The allowance for loan losses increased to $47.2 million at the end 2016 from $45.4 million as of year-end 2015.  The $1.8 million increase was primarily due to organic growth, partially offset by improved credit quality.  The allowance for legacy loan losses increased $1.7 million as growth in the loan portfolio was partially offset by changes in the composition of the loan portfolio associated with unscheduled principal reductions in the business lending portfolio.  The ratio of the allowance for loan losses to total loans of 0.95% for year-end 2016 was consistent with 2015 and was 12 basis points below the 1.07% ratio for 2014, primarily due to consistent credit quality.  The ratio of allowance for legacy loan losses to total legacy loans decreased three basis points to 1.02% for 2016 as compared 2015.  Management believes the year-end 2016 allowance for loan losses to be adequate in light of the probable losses inherent in the Company's loan portfolio.

The loan loss provision for legacy loans of $7.2 million in 2016, was $1.9 million more than the prior year, and reflects management's assessment of the probable losses in the loan portfolio, as discussed above.  The loan loss provision as a percentage of average loans was 0.17% in 2016 as compared to 0.15% in 2015 and 0.17% in 2014.  The loan loss provision was 129% of net charge-offs this year versus 101% in 2015 and 117% in 2014, reflective of the assessed risk in the overall portfolio.

The following table sets forth the allocation of the allowance for loan losses by loan category as of the end of the years indicated, as well as the proportional share each category is to total loans.  This allocation is based on management's assessment, as of a given point in time, of the risk characteristics of each of the component parts of the total loan portfolio and is subject to changes when the risk factors of each component part change.  The allocation is not indicative of either the specific amounts of the loan categories in which future charge-offs may be taken, nor should it be taken as an indicator of future loss trends.  The allocation of the allowance to each category does not restrict the use of the allowance to absorb losses in any category.

Table 12: Allowance for Loan Losses by Loan Type

	2016					2015					2014					2013					2012
(000's omitted except for ratios)	Allowance		Loan Mix			Allowance		Loan Mix			Allowance		Loan Mix			Allowance		Loan Mix			Allowance		Loan Mix
Consumer mortgage	$	10,094		36.8	%	$	10,198		36.8	%	$	10,286		38.1	%	$	8,994		38.5	%	$	7,070		37.5	%
Business lending		17,220		30.0	%		15,749		31.0	%		15,787		29.7	%		17,507		30.5	%		18,013		31.6	%
Consumer indirect		13,782		21.1	%		12,422		19.5	%		11,544		19.7	%		10,248		18.0	%		9,606		16.7	%
Consumer direct		2,979		3.9	%		2,997		4.1	%		3,083		4.3	%		3,181		4.4	%		3,303		4.4	%
Home equity		2,399		8.1	%		2,666		8.4	%		2,701		8.1	%		1,830		8.4	%		1,451		9.4	%
Acquired impaired loans		108		0.1	%		168		0.2	%		173		0.1	%		530		0.2	%		779		0.4	%
Unallocated		651					1,201					1,767					2,029					2,666
Total	$	47,233		100.0	%	$	45,401		100.0	%	$	45,341		100.0	%	$	44,319		100.0	%	$	42,888		100.0	%

As demonstrated in Table 12 above and discussed previously, business lending and consumer installment by their nature carries higher credit risk than residential real estate, and as a result these loans carry allowance for loan losses that cover a higher percentage of their total portfolio balances.  The unallocated allowance is maintained for inherent losses in the portfolio that is not reflected in the historical loss ratios, model imprecision, and for acquired loan portfolios in the process of being fully integrated at year-end.  The unallocated allowance decreased from $1.8 million at year-end 2014 to $1.2 million at year-end 2015 to $0.7 million at December 31, 2016 due in part to the full integration of the acquired Oneida loan portfolio.  The general declines in the unallocated portion of the allowance, as well as changes in year-over-year allowance allocations reflect management's continued refinement of its loss estimation techniques.  However, given the inherent imprecision in the many estimates used in the determination of the allocated portion of the allowance, management deliberately remained cautious and conservative in establishing the overall allowance for loan losses.  Management considers the allocated and unallocated portions of the allowance for loan losses to be prudent and reasonable.  Furthermore, the Company's allowance for loan loss is general in nature and is available to absorb losses from any loan category.

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Funding Sources

The Company utilizes a variety of funding sources to support the earning-asset base as well as to achieve targeted growth objectives.  Overall funding is comprised of three primary sources that possess a variety of maturity, stability, and price characteristics; deposits of individuals, partnerships and corporations (nonpublic deposits), municipal deposits that are collateralized for amounts not covered by FDIC insurance (public funds), and external borrowings.  The average daily amount of deposits and the average rate paid on each of the following deposit categories are summarized below for the years indicated:

Table 13: Average Deposits

	2016					2015					2014
(000's omitted, except rates)	Average Balance		Average Rate Paid			Average Balance		Average Rate Paid			Average Balance		Average Rate Paid
Noninterest checking deposits	$	1,558,548		0.00	%	$	1,352,683		0.00	%	$	1,249,807		0.00	%
Interest checking deposits		1,631,560		0.03	%		1,429,450		0.03	%		1,334,745		0.03	%
Regular savings deposits		1,303,814		0.07	%		1,106,127		0.08	%		1,039,173		0.08	%
Money market deposits		1,776,838		0.16	%		1,518,184		0.15	%		1,493,900		0.16	%
Time deposits		750,944		0.43	%		737,734		0.46	%		845,035		0.54	%
Total deposits	$	7,021,704		0.10	%	$	6,144,178		0.11	%	$	5,962,660		0.14	%

As displayed in Table 13, average total deposits in 2016 increased $877.5 million, or 14.3%, from the prior year comprised of a $864.3 million, or 16.0%, increase in core deposits, and a $13.2 million, or 1.8%, increase in time deposits.  Excluding the impact of the Oneida acquisition, average deposits increased $223.5 million, or 3.7%, as compared to 2015.  Consistent with the Company's focus on expanding core account relationships and reduced customer demand for time deposits, average non-acquired, non-time ("core") deposit balances grew $316.1 million, or 5.9%, as compared to 2015 while non-acquired time deposits balances declined $92.6 million, or 12.7%.  This shift in mix also reflects the diminished rate differential between core and time deposits in the low interest rate environment and contributed to the lower the cost of deposits, including the impact of non-interest checking deposits, to 0.10% in 2016 as compared to 0.11% for 2015.

Total average deposits for 2015 equaled $6.14 billion, up $181.5 million, or 3.0%, from 2014.  Excluding the impact of the Oneida acquisition, average deposits increased $128.4 million, or 2.2%, as compared to 2014.  Average core deposit balances grew $244.9 million, or 4.8%, as compared to 2014 while non-acquired time deposits balances declined $116.6 million, or 13.8%.  The cost of deposits, including the impact of non-interest checking deposits, decreased to 0.11% in 2015 as compared to 0.14% for 2014.

Nonpublic, core deposits are frequently considered to be a bank's most attractive source of funding because they are generally stable, do not need to be collateralized, have a relatively low cost, generate solid fee income, and provide a strong customer base for which a variety of loan, deposit and other financial service-related products can be cross-sold.  The Company's funding composition continues to benefit from a high level of nonpublic deposits, which reached an all-time high in 2016 with an average balance of $6.05 billion, an increase of $599.3 million, or 11.0%, over the comparable 2015 period.  Excluding the impact of the Oneida acquisition, average nonpublic deposits increased $126.4 million during 2016.

Full-year average public fund deposits increased $278.2 million, or 40.0%, during 2016 to $974.1 million.  Excluding the impact of the Oneida acquisition, average public fund deposits increased $97.1 million, or 14.2%, during 2016.  Public fund deposit balances tend to be more volatile than nonpublic deposits because they are heavily impacted by the seasonality of tax collection and fiscal spending patterns, as well as the longer-term financial position of the local government entities, which can change from year to year.  However, the Company has many strong, long-standing relationships with municipal entities throughout its markets and the diversified core deposits held by these customers have provided an attractive and comparatively stable funding source over an extended time period.  The Company is required to collateralize all local government deposits in excess of FDIC coverage with marketable securities from its investment portfolio.  Because of this stipulation, as well as the competitive bidding nature of municipal time deposits, management considers this funding source to share some of the attributes of external borrowings.

46

The mix of average deposits has been changing throughout the last several years.  The weighting of core (noninterest checking, interest checking, savings, and money market accounts) has increased, while time deposits' weighting has decreased.  This change in deposit mix reflects the Company's focus on expanding core account relationships and customers' preference for unrestricted accounts in the current low rate environment.  The average balance for time deposit accounts decreased from 12.0% of total average deposits in 2015 to 10.7% of total average deposits for 2016.  Correspondingly, average core deposit balances have increased from 88.0% in 2015 to 89.3% in 2016.  This shift in mix, combined with lower average offered interest rates resulted in the cost of interest-bearing deposits to decline to 0.13% in 2016, as compared to 0.15% in 2015 and 0.17% in 2014.  The total cost of deposit funding, which includes noninterest-bearing deposits, also declined in 2016 to 0.10%, versus 0.11% in 2015, benefiting from the 15.2% increase in average non-interest bearing checking balances.

The remaining maturities of time deposits in amounts of $250,000 or more outstanding as of December 31 are as follows:

Table 14: Maturity of Time Deposits $250,000 or More

(000's omitted)	2016		2015
Less than three months	$	14,221	$	18,970
Three months to six months		10,832		11,147
Six months to one year		17,089		17,212
Over one year		9,082		8,101
Total	$	51,224	$	55,430

Borrowing sources for the Company include the FHLB, Federal Reserve, and other correspondent banks, as well as access to the brokered CD and repurchase markets through established relationships with primary market security dealers.  The Company also had $102.2 million in floating-rate subordinated debt outstanding at the end of 2016 that is held by unconsolidated subsidiary trusts.

As shown in Table 15, year-end 2016 external borrowings totaled $248.4 million, a decrease of $155.0 million from the $403.4 million outstanding at the end of 2015 as the liquidity from the Oneida acquisition and deposit growth was used to pay down overnight borrowings.  Overnight advances from the FHLB were used to fund the purchase of investment securities and cover other liquidity needs during 2016 and 2015.  External borrowings averaged $271.9 million, or 3.7% of total funding sources for 2016, as compared to $513.8 million, or 7.7% of total funding sources for 2015.  This ratio decreased due to the Company utilizing FHLB overnight advances during the first half of 2015 to fund the pre-investment liquidity expected to be received from the Oneida acquisition.  As shown in Table 15, at the end of 2016 the Company had $146.2 million, or 59% of external borrowings, that had remaining terms of one year or less as compared to 75% of external borrowings maturing within one year at December 31, 2015.

As displayed in Table 3 on page 31, after a decrease in the percentage of funding from deposits in 2015 due to borrowings used to fund pre-investment activity conducted early in the year, the percentage of funding from deposits increased in 2016 due to the pay down of borrowings after the Oneida acquisition was completed. The percentage of average funding derived from deposits was 96.3% in 2016 as compared to 92.3% in 2015 and 93.6% in 2014.  During 2016, average borrowings decreased 47.1% while average deposits increased 14.3%.

The following table summarizes the outstanding balance of borrowings of the Company as of December 31:

Table 15: Borrowings

(000's omitted, except rates)	2016			2015			2014
FHLB overnight advance	$	146,200		$	301,300		$	338,000
Subordinated debt held by unconsolidated subsidiary trusts		102,170			102,146			102,122
Balance at end of period	$	248,370		$	403,446		$	440,122
Daily average during the year	$	271,927		$	513,827		$	405,411
Maximum month-end balance	$	414,648		$	701,338		$	521,211
Weighted-average rate during the year		1.46	%		0.82	%		0.89	%
Weighted-average year-end rate		1.70	%		1.05	%		0.79	%

47

The following table shows the contractual maturities of various obligations as of December 31, 2016:

Table 16: Maturities of Contractual Obligations

(000's omitted)	Maturing Within One Year or Less		Maturing After One Year but Within Three Years		Maturing After Three Years but Within Five Years		Maturing After Five Years		Total
FHLB overnight advance	$	146,200	$	0	$	0	$	0	$	146,200
Subordinated debt held by unconsolidated subsidiary trusts		0		0		0		102,527		102,527
Interest on borrowings		3,159		6,294		6,294		44,159		59,906
Operating leases		6,078		10,614		6,955		7,297		30,944
Total	$	155,437	$	16,908	$	13,249	$	153,983	$	339,577

Financial Instruments with Off-Balance Sheet Risk

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers.  These financial instruments consist primarily of commitments to extend credit and standby letters of credit.  Commitments to extend credit are agreements to lend to customers, generally having fixed expiration dates or other termination clauses that may require payment of a fee.  These commitments consist principally of unused commercial and consumer credit lines.  Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of an underlying contract with a third party.  The credit risks associated with commitments to extend credit and standby letters of credit are essentially the same as that involved with extending loans to customers and are subject to normal credit policies.  Collateral may be required based on management's assessment of the customer's creditworthiness.  The fair value of these commitments is considered immaterial for disclosure purposes.

The contractual amounts of these off-balance sheet financial instruments as of December 31 were as follows:

Table 17: Off-Balance Sheet Financial Instruments

(000's omitted)	2016		2015
Commitments to extend credit	$	773,442	$	811,442
Standby letters of credit		22,656		19,053
Total	$	796,098	$	830,495

Investments

The objective of the Company's investment portfolio is to hold low-risk, high-quality earning assets that provide favorable returns and provide another effective tool to actively manage its asset/liability position in order to maximize future net interest income opportunities.  This must be accomplished within the following constraints: (a) implementing certain interest rate risk management strategies which achieve a relatively stable level of net interest income; (b) providing both the regulatory and operational liquidity necessary to conduct day-to-day business activities; (c) considering investment risk-weights as determined by the regulatory risk-based capital guidelines; and (d) generating a favorable return without undue compromise of the other requirements.

The carrying value of the Company's investment portfolio ended 2016 at $2.78 billion, a decrease of $63.5 million, or 2.2%, from the end of 2015.  The book value (excluding unrealized gains and losses) of the portfolio decreased $39.5 million from December 31, 2015, and the unrealized holding gain on the available-for-sale securities decreased $24.0 million.  During 2016, the Company purchased $8.6 million of obligations of state and political subdivisions at an average yield of 4.24% and $57.4 million of government agency mortgage-backed securities at an average rate of 2.20%.  Offsetting these purchases were $109.6 million of maturities, calls and collections.

The carrying value of the Company's investment portfolio increased $335.0 million during 2015 to end the year at $2.85 billion.  The book value of available-for-sale investments increased $344.4 million from December 31, 2014.  During 2015, the Company purchased $398.2 million of U.S. Treasury and agency securities at an average yield of 1.96%, $86.3 million of obligations of state and political subdivisions at an average yield of 4.00%, and $18.5 million of government agency mortgage-backed securities at an average rate of 2.47%.  Offsetting these purchases were $169.5 million of maturities, calls and collections.  Additionally, $225.7 million of investment securities were acquired as part of the Oneida transaction, of which $221.1 million were subsequently sold.

48

The investment portfolio has limited credit risk due to the composition continuing to heavily favor U.S. Treasury debentures, U.S. Agency mortgage-backed pass-throughs, U.S. Agency CMOs and municipal bonds.  The U.S. Treasury debentures, U.S. Agency mortgage-backed pass-throughs and U.S. Agency CMOs are all AAA-rated (highest possible rating) by Moody's and AA+ by Standard and Poor's.  The majority of the municipal bonds are A-rated or higher.  The portfolio does not include any private label mortgage-backed securities (MBSs) or private label collateralized mortgage obligations.  The overall mix of securities within the portfolio over the last year has changed, with an increase in the proportion of U.S. Treasury and Agency securities and government agency mortgage-backed securities, and a decrease in the proportion of obligations of state and political subdivisions and other securities.

The net pre-tax unrealized market value gain on the available-for-sale investment portfolio as of December 31, 2016 was $41.8 million, as compared to $65.8 million one year earlier.  This decrease is indicative of the interest rate movements during the respective time periods and the changes in the size and composition of the portfolio.

The following table sets forth the amortized cost and market value for the Company's investment securities portfolio:

Table 18: Investment Securities

	2016				2015				2014
(000's omitted)	Amortized Cost/Book Value		Fair Value		Amortized Cost/Book Value		Fair Value		Amortized Cost/Book Value		Fair Value
Available-for-Sale Portfolio:
U.S. Treasury and agency securities	$	1,876,358	$	1,902,762	$	1,866,819	$	1,899,978	$	1,479,134	$	1,517,733
Obligations of state and political subdivisions		582,655		594,990		640,455		666,883		645,398		671,903
Government agency mortgage-backed securities		232,657		235,230		205,220		210,865		228,971		237,728
Corporate debt securities		5,716		5,687		16,672		16,680		26,803		27,091
Government agency collateralized mortgage obligations		9,225		9,535		12,862		13,308		17,330		18,025
Marketable equity securities		252		452		250		399		250		445
Total available-for-sale portfolio		2,706,863		2,748,656		2,742,278		2,808,113		2,397,886		2,472,925
Other Securities:
FHLB common stock		12,191		12,191		19,317		19,317		19,553		19,553
Federal Reserve Bank common stock		19,781		19,781		16,050		16,050		16,050		16,050
Other equity securities		3,764		3,764		4,460		4,460		4,446		4,446
Total other securities		35,736		35,736		39,827		39,827		40,049		40,049
Total	$	2,742,599	$	2,784,392	$	2,782,105	$	2,847,940	$	2,437,935	$	2,512,974

The following table sets forth as of December 31, 2016, the maturities of investment debt securities and the weighted-average yields of such securities, which have been calculated on the cost basis, weighted for scheduled maturity of each security:

Table 19: Maturities of Investment Debt Securities

(000's omitted, except rates)	Maturing Within One Year or Less			Maturing After One Year But Within Five Years			Maturing After Five Years But Within Ten Years			Maturing After Ten Years			Total Amortized Cost/Book Value
Available-for-Sale Portfolio:
U.S. Treasury and agency securities	$	0		$	768,791		$	1,107,567		$	0		$	1,876,358
Obligations of state and political subdivisions		34,986			151,935			194,589			201,145			582,655
Government agency mortgage-backed securities (2)		4			842			27,744			204,067			232,657
Corporate debt securities		3,008			2,708			0			0			5,716
Government agency collateralized mortgage obligations (2)		0			17			986			8,222			9,225
Available-for-sale portfolio	$	37,998		$	924,293		$	1,330,886		$	413,434		$	2,706,611
Weighted-average yield (1)		2.42	%		2.27	%		2.51	%		3.34	%		2.55	%

⁽¹⁾ Weighted-average yields are an arithmetic computation of income (not fully tax-equivalent adjusted) divided by book balance; they may differ from the yield to maturity, which considers the time value of money.

 ⁽²⁾ Mortgage-backed securities and collateralized mortgage obligations are listed based on the contractual maturity.  Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay certain obligations with or without penalties

49

Impact of Inflation and Changing Prices

The Company's financial statements have been prepared in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation.  Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature.  As a result, interest rates have a more significant impact on a financial institution's performance than the effect of general levels of inflation.  Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services.  Notwithstanding this, inflation can directly affect the value of loan collateral, real estate in particular.

New Accounting Pronouncements

See "New Accounting Pronouncements" Section of Note A of the notes to the consolidated financial statements on page 64 for recently issued accounting pronouncements applicable to the Company that have not yet been adopted.

Forward-Looking Statements

This document contains comments or information that constitute forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995), which involve significant risks and uncertainties.  Actual results may differ materially from the results discussed in the forward-looking statements.  Moreover, the Company's plans, objectives and intentions are subject to change based on various factors (some of which are beyond the Company's control).  Factors that could cause actual results to differ from those discussed in the forward-looking statements include:  (1) risks related to credit quality, interest rate sensitivity and liquidity;  (2) the strength of the U.S. economy in general and the strength of the local economies where the Company conducts its business;  (3) the effect of, and changes in, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System;  (4) inflation, interest rate, market and monetary fluctuations;  (5) the timely development of new products and services and customer perception of the overall value thereof (including features, pricing and quality) compared to competing products and services;  (6) changes in consumer spending, borrowing and savings habits;  (7) technological changes and implementation and financial risks associated with transitioning to new technology-based systems involving large multi-year contracts; (8)the ability of the Company to maintain the security of its financial, accounting, technology, data processing and other operating systems and facilities;  (9) any acquisitions or mergers that might be considered or consummated by the Company and the costs and factors associated therewith, including differences in the actual financial results of the acquisition or merger compared to expectations and the realization of anticipated cost savings and revenue enhancements;  (10) the ability to maintain and increase market share and control expenses;  (11) the nature, timing and effect of changes in banking regulations or other regulatory or legislative requirements affecting the respective businesses of the Company and its subsidiaries, including changes in laws and regulations concerning taxes, accounting, banking, risk management, securities and other aspects of the financial services industry, specifically the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010;  (12) changes in the Company's organization, compensation and benefit plans and in the availability of, and compensation levels for, employees in its geographic markets;  (13) the outcome of pending or future litigation and government proceedings; (14) other risk factors outlined in the Company's filings with the SEC from time to time; and (15) the success of the Company at managing the risks of the foregoing.

The foregoing list of important factors is not all-inclusive.  Such forward-looking statements speak only as of the date on which they are made and the Company does not undertake any obligation to update any forward-looking statement, whether written or oral, to reflect events or circumstances after the date on which such statement is made.  If the Company does update or correct one or more forward-looking statements, investors and others should not conclude that the Company will make additional updates or corrections with respect thereto or with respect to other forward-looking statements.

50

Reconciliation of GAAP to Non-GAAP Measures

Table 20: GAAP to Non-GAAP Reconciliations

(000's omitted)	2016			2015			2014			2013			2012
Income statement data
Core operating expenses, revenues & Efficiency Ratio
Noninterest expenses (GAAP)	$	266,848		$	233,055		$	226,580		$	221,255		$	211,757
Acquisition expenses		(1,706	)		(7,037	)		(123	)		(2,181	)		(5,747	)
Amortization of intangibles		(5,479	)		(3,663	)		(4,287	)		(4,469	)		(4,607	)
Litigation settlement		0			0			(2,800	)		0			(2,500	)
Core operating expenses (non-GAAP) - numerator	$	259,663		$	222,355		$	219,370		$	214,605		$	198,903
Tax-equivalent net interest income		283,857			260,824			259,961			253,154			247,330
Noninterest revenues		155,625			123,299			119,020			102,180			99,246
Insurance-related recovery		(950	)		0			0			0			0
Loss (Gain) on sale of investments & early retirement     of long-term borrowings, net		0			4			0			6,568			(291	)
Core operating revenues (non-GAAP) - denominator	$	438,532		$	384,127		$	378,981		$	361,902		$	346,285
Efficiency ratio (non-GAAP)		59.2	%		57.9	%		57.9	%		59.3	%		57.4	%

(000's omitted)	2016			2015			2014			2013			2012
Balance sheet data
Net tangible equity-to-assets ratio at period end
Shareholders' equity (GAAP)	$	1,198,100		$	1,140,647		$	987,904		$	875,812		$	902,778
Intangible assets		(480,844	)		(484,146	)		(386,973	)		(390,499	)		(387,134	)
Deferred taxes on goodwill		43,504			39,724			35,842			32,339			27,947
Tangible common equity (non-GAAP) - numerator	$	760,760		$	696,225		$	636,773		$	517,652		$	543,591
Total assets (GAAP)	$	8,666,437		$	8,552,669		$	7,489,440		$	7,095,864		$	7,496,800
Intangible assets		(480,844	)		(484,146	)		(386,973	)		(390,499	)		(387,134	)
Deferred taxes on goodwill		43,504			39,724			35,842			32,339			27,947
Tangible assets (non-GAAP) - denominator	$	8,229,097		$	8,108,247		$	7,138,309		$	6,737,704		$	7,137,613
Net tangible equity-to-assets ratio at period end (non-GAAP)		9.24	%		8.59	%		8.92	%		7.68	%		7.62	%

Item 7A.  Quantitative and Qualitative Disclosures about Market Risk

Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates, prices or credit risk.  Credit risk associated with the Company's loan portfolio has been previously discussed in the asset quality section of the MD&A.  Management believes that the tax risk of the Company's municipal investments associated with potential future changes in statutory, judicial and regulatory actions is minimal.  Treasury, agency, mortgage-backed and CMO securities issued by government agencies comprise 78% of the total portfolio and are currently rated AAA by Moody's Investor Services and AA+ by Standard & Poor's.  Municipal and corporate bonds account for 22% of the total portfolio, of which, 98% carry a minimum rating of A-.  The remaining 2% of the portfolio is comprised of other investment grade securities.  The Company does not have material foreign currency exchange rate risk exposure.  Therefore, almost all the market risk in the investment portfolio is related to interest rates.

51

The ongoing monitoring and management of both interest rate risk and liquidity, in the short and long term time horizons is an important component of the Company's asset/liability management process, which is governed by limits established in the policies reviewed and approved annually by the Company's Board of Directors.  The Board of Directors delegates responsibility for carrying out the policies to the ALCO, which meets each month.  The committee is made up of the Company's senior management as well as regional and line-of-business managers who oversee specific earning asset classes and various funding sources.  As the Company does not believe it is possible to reliably predict future interest rate movements, it has maintained an appropriate process and set of measurement tools, which enables it to identify and quantify sources of interest rate risk in varying rate environments.  The primary tool used by the Company in managing interest rate risk is income simulation.

While a wide variety of strategic balance sheet and treasury yield curve scenarios are tested on an ongoing basis, the following reflects the Company's projected net interest income sensitivity over the subsequent twelve months based on:

· Asset and liability levels using December 31, 2016 as a starting point.

· There are assumed to be conservative levels of balance sheet growth, low-to-mid single digit growth in loans and deposits, while using the cash flows from investment contractual maturities and prepayments to repay short-term capital market borrowings or reinvest into securities or cash equivalents.

· The prime rate and federal funds rates are assumed to move up over a 12-month period while moving the long end of the treasury curve to spreads over the three month treasury that are more consistent with historical norms (normalized yield curve).  In the -50 basis point model, the prime and federal funds rates move lower in the first quarter of year one while moving the long end of the curve to levels over the three month treasury using spreads at a time when the yield curve was flat.  Deposit rates are assumed to move in a manner that reflects the historical relationship between deposit rate movement and changes in the federal funds rate.

· Cash flows are based on contractual maturity, optionality, and amortization schedules along with applicable prepayments derived from internal historical data and external sources.

Net Interest Income Sensitivity Model

Change in interest rates	Calculated annualized increase (decrease) in projected net interest income at December 31, 2016
+200 basis points	($3,294,000)
+100 basis points	($1,538,000)
-50 basis points	($2,699,000)

The modeled net interest income (NII) decreases in rising rate environments from the flat rate scenario.  The decrease is largely a result of assumed deposit and funding costs increasing faster than the repricing of corresponding assets.  In the short term (year one) the assumed increase of deposit rates in the rising rate environment temporarily outweighs the benefit of earning asset yields increasing to higher levels.  However, over a longer time period (years two and beyond), the growth in NII improves in the rising rate environments as lower yielding assets mature and are replaced at higher rates.

In the falling rate environment scenario, the Bank shows interest rate risk exposure to lower short term rates and also a flatter yield curve.  Net interest income declines during the first twelve months largely due to lower assumed rates on adjustable and variable rate assets.  Corresponding deposit rates are assumed to remain constant.  Despite federal funds trading between 0.50% and 0.75%, the Company believes both short-term rates and long-term treasury rates could potentially fall further in this scenario, and thus, the model includes the impact of this lower treasury rate scenario.

The analysis does not represent a Company forecast and should not be relied upon as being indicative of expected operating results.  These hypothetical estimates are based upon numerous assumptions: the nature and timing of interest rate levels (including yield curve shape), prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment/replacement of asset and liability cash flows, and other factors.  While the assumptions are developed based upon current economic and local market conditions, the Company cannot make any assurances as to the predictive nature of these assumptions, including how customer preferences or competitor influences might change.  Furthermore, the sensitivity analysis does not reflect actions that the ALCO might take in responding to or anticipating changes in interest rates.

52

Item 8.  Financial Statements and Supplementary Data

The following consolidated financial statements and independent registered public accounting firm's report of Community Bank System, Inc. are contained on pages 54 through 97 of this item.

· Consolidated Statements of Condition,

December 31, 2016 and 2015

· Consolidated Statements of Income,

Years ended December 31, 2016, 2015, and 2014

· Consolidated Statements of Comprehensive Income,

Years ended December 31, 2016, 2015, and 2014

· Consolidated Statements of Changes in Shareholders' Equity,

Years ended December 31, 2016, 2015, and 2014

· Consolidated Statements of Cash Flows,

Years ended December 31, 2016, 2015, and 2014

· Notes to Consolidated Financial Statements,

December 31, 2016

· Management's Report on Internal Control Over Financial Reporting

· Report of Independent Registered Public Accounting Firm

Quarterly Selected Data (Unaudited) for 2016 and 2015 are contained on page 100.

53

COMMUNITY BANK SYSTEM, INC.
CONSOLIDATED STATEMENTS OF CONDITION
(In Thousands, Except Share Data)
	December 31,
	2016			2015
Assets:
Cash and cash equivalents	$	173,857		$	153,210
Available-for-sale investment securities (cost of $2,706,863 and $2,742,278, respectively)		2,748,656			2,808,113
Other securities, at cost		35,736			39,827
Loans held for sale, at fair value		2,416			932
Loans		4,948,562			4,801,375
Allowance for loan losses		(47,233	)		(45,401	)
Net loans		4,901,329			4,755,974
Goodwill		465,142			463,252
Core deposit intangibles, net		7,107			9,789
Other intangibles, net		8,595			11,105
Intangible assets, net		480,844			484,146
Premises and equipment, net		112,318			114,434
Accrued interest and fees receivable		31,093			25,904
Other assets		180,188			170,129
Total assets	$	8,666,437		$	8,552,669
Liabilities:
Noninterest-bearing deposits	$	1,646,039		$	1,499,616
Interest-bearing deposits		5,429,915			5,373,858
Total deposits		7,075,954			6,873,474
Borrowings		146,200			301,300
Subordinated debt held by unconsolidated subsidiary trusts		102,170			102,146
Accrued interest and other liabilities		144,013			135,102
Total liabilities		7,468,337			7,412,022
Commitments and contingencies (See Note N)
Shareholders' equity:
Preferred stock, $1.00 par value, 500,000 shares authorized, 0 shares issued		0			0
Common stock, $1.00 par value, 75,000,000 shares authorized; 44,950,352 and
44,442,568 shares issued, respectively		44,950			44,443
Additional paid-in capital		545,775			528,015
Retained earnings		614,692			566,591
Accumulated other comprehensive income		7,843			19,235
Treasury stock, at cost (512,937 and 667,708 shares, respectively)		(15,160	)		(17,637	)
Total shareholders' equity		1,198,100			1,140,647
Total liabilities and shareholders' equity	$	8,666,437		$	8,552,669

The accompanying notes are an integral part of the consolidated financial statements.

54

COMMUNITY BANK SYSTEM, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per-Share Data)
	Years Ended December 31,
	2016		2015			2014
Interest income:
Interest and fees on loans	$	211,467	$	187,743		$	185,527
Interest and dividends on taxable investments		56,201		52,871			50,247
Interest and dividends on nontaxable investments		17,519		19,008			20,446
Total interest income		285,187		259,622			256,220
Interest expense:
Interest on deposits		7,325		6,971			8,191
Interest on borrowings		1,017		1,694			1,124
Interest on subordinated debt held by unconsolidated subsidiary trusts		2,949		2,537			2,477
Total interest expense		11,291		11,202			11,792
Net interest income		273,896		248,420			244,428
Provision for loan losses		8,076		6,447			7,178
Net interest income after provision for loan losses		265,820		241,973			237,250
Noninterest income:
Deposit service fees		58,595		52,747			52,756
Other banking revenues		7,477		4,960			5,814
Employee benefit services		46,628		45,388			42,580
Insurance services		23,149		3,352			1,450
Wealth management services		19,776		16,856			16,420
Loss on sales of investment securities, net		0		(4	)		0
Total noninterest income		155,625		123,299			119,020
Noninterest expenses:
Salaries and employee benefits		151,647		126,356			123,077
Occupancy and equipment		30,078		27,593			27,948
Data processing and communications		34,501		30,430			29,294
Amortization of intangible assets		5,479		3,663			4,287
Legal and professional fees		8,455		6,813			7,247
Office supplies and postage		7,274		6,476			6,270
Business development and marketing		7,484		7,204			7,125
FDIC insurance premiums		3,671		3,962			3,899
Acquisition expenses		1,706		7,037			123
Other expenses		16,553		13,521			17,310
Total noninterest expenses		266,848		233,055			226,580
Income before income taxes		154,597		132,217			129,690
Income taxes		50,785		40,987			38,337
Net income	$	103,812	$	91,230		$	91,353
Basic earnings per share	$	2.34	$	2.21		$	2.24
Diluted earnings per share	$	2.32	$	2.19		$	2.22
Cash dividends declared per share	$	1.26	$	1.22		$	1.16

The accompanying notes are an integral part of the consolidated financial statements.

55

COMMUNITY BANK SYSTEM, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
	Years Ended December 31,
	2016			2015			2014
Pension and other post retirement obligations:
Amortization of actuarial losses/(gains) included in net periodic pension cost, gross	$	5,514		$	(7,236	)	$	(13,904	)
Tax effect		(2,108	)		2,774			5,374
Amortization of actuarial losses/(gains) included in net periodic pension cost, net		3,406			(4,462	)		(8,530	)
Amortization of prior service cost included in net periodic pension cost, gross		(136	)		(170	)		(1,698	)
Tax effect		52			65			657
Amortization of prior service cost included in net periodic pension cost, net		(84	)		(105	)		(1,041	)
Other comprehensive income/(loss) related to pension and other post retirement obligations, net of taxes		3,322			(4,567	)		(9,571	)
Unrealized (losses)gains on securities:
Net unrealized holding (losses)/gains arising during period, gross		(24,042	)		(9,209	)		106,040
Tax effect		9,328			2,289			(39,203	)
Net unrealized holding (losses)/gains arising during period, net		(14,714	)		(6,920	)		66,837
Reclassification adjustment for net losses included in net income, gross		0			4			0
Tax effect		0			(2	)		0
Reclassification adjustment for net losses included in net income, net		0			2			0
Other comprehensive (loss)/income related to unrealized (losses)/gains on     available-for-sale securities, net of taxes		(14,714	)		(6,918	)		66,837
Other comprehensive (loss)/income, net of tax		(11,392	)		(11,485	)		57,266
Net income		103,812			91,230			91,353
Comprehensive income	$	92,420		$	79,745		$	148,619
	As of December 31,
		2016			2015			2014
Accumulated Other Comprehensive Income By Component:
Unrealized loss for pension and other postretirement obligations	$	(28,969	)	$	(34,347	)	$	(26,941	)
Tax effect		11,008			13,064			10,225
Net unrealized loss for pension and other postretirement obligations		(17,961	)		(21,283	)		(16,716	)
Unrealized gain on available-for-sale securities		41,793			65,835			75,039
Tax effect		(15,989	)		(25,317	)		(27,603	)
Net unrealized gain on available-for-sale securities		25,804			40,518			47,436
Accumulated other comprehensive income	$	7,843		$	19,235		$	30,720

The accompanying notes are an integral part of the consolidated financial statements.

56

COMMUNITY BANK SYSTEM, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended December 31, 2014, 2015 and 2016
(In Thousands, Except Share Data)
	Common Stock					Additional Paid-in Capital					Accumulated
	Shares Outstanding			Amount Issued				Retained Earnings			Other Comprehensive (Loss)/Income			Treasury Stock			Total
Balance at December 31, 2013		40,431,318		$	41,213	$	396,528	$	481,732		$	(26,546	)	$	(17,115	)	$	875,812
Net income									91,353									91,353
Other comprehensive income, net of tax												57,266						57,266
Dividends declared:
Common, $1.16 per share									(47,100	)								(47,100	)
Common stock issued under employee stock plan,   including tax benefits of $2,068		399,013			393		8,891								133			9,417
Stock-based compensation							3,993											3,993
Treasury stock purchased		(123,000	)												(4,368	)		(4,368	)
Treasury stock issued to benefit plan		40,390					572								959			1,531
Balance at December 31, 2014		40,747,721			41,606		409,984		525,985			30,720			(20,391	)		987,904
Net income									91,230									91,230
Other comprehensive loss, net of tax												(11,485	)					(11,485	)
Dividends declared:
Common, $1.22 per share									(50,624	)								(50,624	)
Common stock issued under  employee stock plan,   including tax benefits of $2,297		458,817			459		9,315											9,774
Stock-based compensation							4,201											4,201
Stock issued for acquisition		2,377,329			2,378		99,824											102,202
Treasury stock purchased		(265,230	)												(9,126	)		(9,126	)
Treasury stock issued to benefit plan		456,223					4,691								11,880			16,571
Balance at December 31, 2015		43,774,860			44,443		528,015		566,591			19,235			(17,637	)		1,140,647
Net income									103,812									103,812
Other comprehensive loss, net of tax												(11,392	)					(11,392	)
Dividends declared:
Common, $1.26 per share									(55,711	)								(55,711	)
Common stock issued under employee stock plan,   including tax benefits of $3,091		507,784			507		10,036											10,543
Stock-based compensation							4,783											4,783
Treasury stock purchased		(67,826	)												(3,470	)		(3,470	)
Treasury stock issued to benefit plan		222,597					2,941								5,947			8,888
Balance at December 31, 2016		44,437,415		$	44,950	$	545,775	$	614,692		$	7,843		$	(15,160	)	$	1,198,100

The accompanying notes are an integral part of the consolidated financial statements.

57

COMMUNITY BANK SYSTEM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)	Years Ended December 31,
	2016			2015			2014
Operating activities:
Net income	$	103,812		$	91,230		$	91,353
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		14,398			13,132			13,082
Amortization of intangible assets		5,479			3,663			4,287
Net (accretion)/amortization on securities, loans and borrowings		(4,405	)		(3,289	)		(3,533	)
Stock-based compensation		4,783			4,201			3,993
Provision for loan losses		8,076			6,447			7,178
Provision for deferred income taxes		13,066			10,716			7,461
Amortization of mortgage servicing rights		518			409			444
Income from bank-owned life insurance policies		(1,505	)		(1,086	)		(1,037	)
Loss on sales of investment securities, net		0			4			0
Net gain on sale of loans and other assets		(837	)		(180	)		(154	)
Change in other assets and liabilities		(12,124	)		(8,784	)		(970	)
Net cash provided by operating activities		131,261			116,463			122,104
Investing activities:
Proceeds from sales of available-for-sale investment securities		0			221,136			0
Proceeds from maturities of available-for-sale investment securities		109,638			169,562			137,282
Proceeds from maturities of other securities		8,703			1,790			13
Purchases of available-for-sale investment securities		(65,966	)		(503,000	)		(310,517	)
Purchases of other securities		(4,612	)		0			(7,500	)
Net change in loans		(159,871	)		(176,754	)		(137,207	)
Cash received/(paid) for acquisitions, net of cash acquired of $0, $81,772, and $0,respectively		(575	)		25,505			(924	)
Settlement of bank owned life insurance policies		3,127			0			1,097
Purchases of premises and equipment, net		(12,442	)		(12,400	)		(13,376	)
Net cash used in investing activities		(121,998	)		(274,161	)		(331,132	)
Financing activities:
Net change in deposits		202,480			238,969			39,220
Net change in borrowings, net of payments of $0, $0 and $13		(155,100	)		(36,700	)		196,087
Issuance of common stock		10,543			9,774			9,417
Purchase of treasury stock		(3,470	)		(9,126	)		(4,368	)
Sale of treasury stock		8,888			16,571			1,531
Cash dividends paid		(55,048	)		(49,273	)		(46,178	)
Tax benefits from share-based payment arrangements		3,091			2,297			2,068
Net cash provided by financing activities		11,384			172,512			197,777
Change in cash and cash equivalents		20,647			14,814			(11,251	)
Cash and cash equivalents at beginning of year		153,210			138,396			149,647
Cash and cash equivalents at end of year	$	173,857		$	153,210		$	138,396
Supplemental disclosures of cash flow information:
Cash paid for interest	$	11,268		$	11,252		$	11,937
Cash paid for income taxes		32,239			28,891			29,457
Supplemental disclosures of noncash financing and investing activities:
Dividends declared and unpaid		14,268			13,605			12,254
Transfers from loans to other real estate		2,612			3,943			2,546
Acquisitions:
Common stock issued		0			102,202			0
Fair value of assets acquired, excluding acquired cash and intangibles		0			675,025			64
Fair value of liabilities assumed		0			700,574			0

The accompanying notes are an integral part of the consolidated financial statements.

58

COMMUNITY BANK SYSTEM, INC.

NOTE A:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Community Bank System, Inc. (the "Company") is a registered financial holding company which wholly-owns two significant consolidated subsidiaries: Community Bank, N.A. (the "Bank" or "CBNA"), and Benefit Plans Administrative Services, Inc. ("BPAS").  As of December 31, 2016, BPAS owns four subsidiaries:  Benefit Plans Administrative Services, LLC ("BPA"), a provider of defined benefit contribution plan administration services; BPAS Actuarial & Pension Services, LLC ("BPAS-APS") (formally known as Harbridge Consulting Group, LLC), a provider of actuarial and benefit consulting services; BPAS Trust Company of Puerto Rico, a Puerto Rican trust company; and Hand Benefits & Trust Company ("HB&T"), a provider of collective investment fund administration and institutional trust services.  HB&T owns one subsidiary, Hand Securities Inc. ("HSI"), an introducing broker-dealer.  The Company also wholly-owns two unconsolidated subsidiary business trusts formed for the purpose of issuing mandatorily-redeemable preferred securities which are considered Tier I capital under regulatory capital adequacy guidelines (see Note P).

As of December 31, 2016, the Bank operated 193 full service branches under the Community Bank, N.A. name throughout 35 counties of Upstate New York and six counties of Northeastern Pennsylvania offering a range of commercial and retail banking services.  The Bank owns the following operating subsidiaries:  The Carta Group, Inc. ("Carta Group"), CBNA Preferred Funding Corporation ("PFC"), CBNA Treasury Management Corporation ("TMC"), Community Investment Services, Inc. ("CISI"), Nottingham Advisors, Inc. ("Nottingham"), OneGroup NY, Inc. ("OneGroup"), Oneida Wealth Management, Inc. ("OWM"), and Oneida Preferred Funding II LLC ("OPFC II").  OneGroup is a full-service insurance agency offering personal and commercial property insurance and other risk management products and services.  On August 19, 2016, the Company merged its insurance subsidiary CBNA Insurance Agency, Inc. ("CBNA Insurance") into OneGroup.  PFC and OPFC II primarily act as investors in residential real estate loans and properties.  TMC provides cash management, investment, and treasury services to the Bank.  CISI, The Carta Group and OWM provide broker-dealer and investment advisory services.  On April 22, 2016, the Company merged the activities of OWM into CISI.  Nottingham provides asset management services to individuals, corporations, corporate pension and profit sharing plans, and foundations.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries.  All intercompany accounts and transactions have been eliminated in consolidation.

Variable Interest Entities ("VIE") are legal entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the legal entities to finance its activities without additional subordinated financial support.  VIEs may be required to be consolidated by a company if it is determined the company is the primary beneficiary of a VIE.  The primary beneficiary of a VIE is the enterprise that has: (1) the power to direct the activities of the VIE that most significantly impact the VIE's economic performance, and (2) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits of the VIE that could potentially be significant to the VIE.  The Company's VIE's are described in more detail in Note T to the consolidated financial statements.

Critical Accounting Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  Critical accounting estimates include the allowance for loan losses, actuarial assumptions associated with the pension, post-retirement and other employee benefit plans, the provision for income taxes, investment valuation and other-than-temporary impairment, the carrying value of goodwill and other intangible assets, and acquired loan valuations.

Risk and Uncertainties

In the normal course of its business, the Company encounters economic and regulatory risks.  There are three main components of economic risk: interest rate risk, credit risk and market risk.  The Company is subject to interest rate risk to the degree that its interest-bearing liabilities mature or reprice at different speeds, or on different basis, from its interest-earning assets.  The Company's primary credit risk is the risk of default on the Company's loan portfolio that results from the borrowers' inability or unwillingness to make contractually required payments.  Market risk reflects potential changes in the value of collateral underlying loans, the fair value of investment securities, and loans held for sale.

The Company is subject to regulations of various governmental agencies.  These regulations can change significantly from period to period.  The Company also undergoes periodic examinations by the regulatory agencies which may subject it to further changes with respect to asset valuations, amounts of required loan loss allowances, and operating restrictions resulting from the regulators' judgments based on information available to them at the time of their examinations.

59

Revenue Recognition

The Company recognizes income on an accrual basis. CISI, OWM and Carta Group recognize fee income when investment and insurance products are sold to customers.  Nottingham provides asset management services to brokerage firms and clients and recognizes income ratably over the contract period during which service is performed.  Revenue from BPA's administration and recordkeeping services is recognized ratably over the service contract period.  Revenue from consulting and actuarial services is recognized when services are rendered.  OneGroup recognizes commission revenue at the later of the effective date of the insurance policy, or the date on which the policy premium is billed to the customer.  At that date, the earnings process has been completed and the impact of refunds for policy cancellations can be reasonably estimated to establish reserves. The reserve for policy cancellations is based upon historical cancellation experience adjusted for known circumstances. All intercompany revenue and expense among related entities are eliminated in consolidation.

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, and highly liquid investments with original maturities of less than 90 days.  The carrying amounts reported in the balance sheet for cash and cash equivalents approximate those assets' fair values.

Investment Securities

The Company can classify its investments in debt and equity securities as trading, held-to-maturity, or available-for-sale.  Held-to-maturity securities are those for which the Company has the positive intent and ability to hold until maturity, and are reported at amortized cost.  The Company did not use the held-to-maturity classification in 2015 or 2016.  Securities classified as available-for-sale are reported at fair value with net unrealized gains and losses reflected as a separate component of shareholders' equity, net of applicable income taxes.  None of the Company's investment securities have been classified as trading securities at December 31, 2016.  Certain equity securities are stated at cost and include restricted stock of the Federal Reserve Bank of New York ("Federal Reserve") and Federal Home Loan Bank of New York ("FHLB").

Fair values for investment securities are based upon quoted market prices, where available.  If quoted market prices are not available, fair values are based upon quoted market prices of comparable instruments, or a discounted cash flow model using market estimates of interest rates and volatility.

The Company conducts an assessment of all securities in an unrealized lossposition to determine if other-than-temporary impairment ("OTTI") exists on a quarterly basis. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis.  The OTTI assessment considers the security structure, recent security collateral performance metrics, if applicable, external credit ratings, failure of the issuer to make scheduled interest or principal payments, judgment about and expectations of future performance, and relevant independent industry research, analysis, and forecasts. The severity of the impairment and the length of time the security has been impaired is also considered in the assessment.  The assessment of whether an OTTI decline exists is performed on each security, regardless of the classification of the security as available-for-sale or held-to-maturity, and involves a high degree of subjectivity and judgment that is based on the information available to management at a point in time.

An OTTI loss must be recognized for a debt security in an unrealized loss position if there is intent to sell the security or it is more likely than not the Company will be required to sell the security prior to recovery of its amortized cost basis. In this situation, the amount of loss recognized in income is equal to the difference between the fair value and the amortized cost basis of the security. Even if management does not have the intent, and it is not more likely than not that the Company will be required to sell the securities, an evaluation of the expected cash flows to be received is performed to determine if a credit loss has occurred. For debt securities, a critical component of the evaluation for OTTI is the identification of credit-impaired securities, where the Company does not expect to receive cash flows sufficient to recover the entire amortized cost basis of the security.  In the event of a credit loss, only the amount of impairment associated with the credit loss would be recognized in income. The portion of the unrealized loss relating to other factors, such as liquidity conditions in the market or changes in market interest rates, is recorded in accumulated other comprehensive loss.

Equity securities are also evaluated to determine whether the unrealized loss is expected to be recoverable based on whether evidence exists to support a realizable value equal to or greater than the amortized cost basis. If it is probable that the amortized cost basis will not be recovered, taking into consideration the estimated recovery period and the ability to hold the equity security until recovery, OTTI is recognized in earnings equal to the difference between the fair value and the amortized cost basis of the security.

The specific identification method is used in determining the realized gains and losses on sales of investment securities and OTTI charges.  Premiums and discounts on securities are amortized and accreted, respectively, on the interest method basis over the period to maturity or estimated life of the related security.  Purchases and sales of securities are recognized on a trade date basis.

60

Loans

Loans are stated at unpaid principal balances, net of unearned income.  Mortgage loans held for sale are carried at fair value and are included in loans held for sale on the balance sheet. Fair values for variable rate loans that reprice frequently are based on carrying values.  Fair values for fixed rate loans are estimated using discounted cash flows and interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.  The carrying amount of accrued interest approximates its fair value.

Interest on loans is accrued and credited to operations based upon the principal amount outstanding.  Nonrefundable loan fees and related direct costs are deferred and included in the loan balances where they are amortized over the life of the loan as an adjustment to loan yield using the effective yield method.  Premiums and discounts on purchased loans are amortized using the effective yield method over the life of the loans.

Acquired loans

Acquired loans are initially recorded at their acquisition date fair values.  The carryover of allowance for loan losses is prohibited as any credit losses in the loans are included in the determination of the fair value of the loans at the acquisition date. Fair values for acquired loans are based on a discounted cash flow methodology that involves assumptions and judgments as to credit risk, prepayment risk, liquidity risk, default rates, loss severity, payment speeds, collateral values and discount rate.

Acquired impaired loans

Acquired loans that have evidence of deterioration in credit quality since origination and for which it is probable, at acquisition, that the Company will be unable to collect all contractually required payments are accounted for as impaired loans under ASC 310-30.  The excess of undiscounted cash flows expected at acquisition over the estimated fair value is referred to as the accretable discount and is recognized into interest income over the remaining life of the loans using the interest method. The difference between contractually required payments at acquisition and the undiscounted cash flows expected to be collected at acquisition is referred to as the non-accretable discount. The non-accretable discount represents estimated future credit losses and other contractually required payments that the Company does not expect to collect. Subsequent decreases in expected cash flows are recognized as impairments through a charge to the provision for credit losses resulting in an increase in the allowance for loan losses. Subsequent improvements in expected cash flows result in a recovery of previously recorded allowance for loan losses or a reversal of a corresponding amount of the non-accretable discount, which the Company then reclassifies as an accretable discount that is recognized into interest income over the remaining life of the loans using the interest method.

Acquired loans that met the criteria for non-accrual of interest prior to acquisition may be considered performing upon acquisition, regardless of whether the customer is contractually delinquent, if the Company can reasonably estimate the timing and amount of the expected cash flows on such loans and if the Company expects to fully collect the new carrying value of the loans. As such, the Company may no longer consider the loan to be non-accrual or non-performing and may accrue interest on these loans, including the impact of any accretable discount.

Acquired non-impaired loans

Acquired loans that do not meet the requirements under ASC 310-30 are considered acquired non-impaired loans. The difference between the acquisition date fair value and the outstanding balance represents the fair value adjustment for a loan and includes both credit and interest rate considerations. Fair value adjustments may be discounts (or premiums) to a loan's cost basis and are accreted (or amortized) to net interest income (or expense) over the loan's remaining life in accordance with ASC 310-20. Fair value adjustments for revolving loans are accreted (or amortized) using a straight line method. Term loans are accreted (or amortized) using the constant effective yield method.

Subsequent to the purchase date, the methods used to estimate the allowance for loan losses for the acquired non-impaired loans is consistent with the policy described below.  However, the Company compares the net realizable value of the loans to the carrying value, for loans collectively evaluated for impairment.  The carrying value represents the net of the loan's unpaid principal balance and the remaining purchase discount (or premium) that has yet to be accreted (or amortized) into interest income (or interest expense).  When the carrying value exceeds the net realizable value, an allowance for loan losses is recognized.

Impaired and Other Nonaccrual Loans

The Company places a loan on nonaccrual status when the loan becomes 90 days past due (or sooner, if management concludes collection is doubtful), except when, in the opinion of management, it is well-collateralized and in the process of collection. A loan may be placed on nonaccrual status earlier than ninety days past due if there is deterioration in the financial position of the borrower or if other conditions of the loan so warrant. When a loan is placed on nonaccrual status, uncollected accrued interest is reversed against interest income and the amortization of nonrefundable loan fees and related direct costs is discontinued. Interest income during the period the loan is on nonaccrual status is recorded on a cash basis after recovery of principal is reasonably assured. Nonaccrual loans are returned to accrual status when management determines that the borrower's performance has improved and that both principal and interest are collectible.  This generally requires a sustained period of timely principal and interest payments and a well-documented credit evaluation of the borrower's financial condition.

61

A loan is considered modified in a troubled debt restructuring ("TDR") when, due to a borrower's financial difficulties, the Company makes a concession(s) to the borrower that it would not otherwise consider.  These modifications may include, among others, an extension for the term of the loan, or granting a period when interest–only payments can be made with the principal payments and interest caught up over the remaining term of the loan or at maturity.  Generally, a nonaccrual loan that has been modified in a TDR remains on nonaccrual status for a period of 12 months to demonstrate that the borrower is able to meet the terms of the modified loan.  If the borrower's ability to meet the revised payment schedule is uncertain, the loan remains on nonaccrual status.

Regulatory guidance issued by the OCC requires certain loans that have been discharged in Chapter 7 bankruptcy to be reported as TDRs.  In accordance with this new guidance, loans that have been discharged in Chapter 7 bankruptcy but not reaffirmed by the borrower are classified as TDRs, irrespective of payment history or delinquency status, even if the repayment terms for the loan have not been otherwise modified and the Company's lien position against the underlying collateral remains unchanged.  Pursuant to that guidance, the Company records a charge-off equal to any portion of the carrying value that exceeds the net realizable value of the collateral.

Commercial loans greater than $0.5 million are evaluated individually for impairment.  A loan is considered impaired, based on current information and events, if it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  The measurement of impaired loans is generally based upon the present value of expected future cash flows or the fair value of the collateral, if the loan is collateral-dependent.

The Company's charge-off policy by loan type is as follows:

· Business lending loans are generally charged-off to the extent outstanding principal exceeds the fair value of estimated proceeds from collection efforts, including liquidation of collateral.  The charge-off is recognized when the loss becomes reasonably quantifiable.

· Consumer installment loans are generally charged-off to the extent outstanding principal balance exceeds the fair value of collateral, and are recognized by the end of the month in which the loan becomes 90 days past due.

· Consumer mortgage and home equity loans are generally charged-off to the extent outstanding principal exceeds the fair value of the property, less estimated costs to sell, and are recognized when the loan becomes 180 days past due.

Allowance for Loan Losses

Management continually evaluates the credit quality of the Company's loan portfolio, and performs a formal review of the adequacy of the allowance for loan losses on a quarterly basis.  The allowance reflects management's best estimate of probable losses inherent in the loan portfolio.  Determination of the allowance is subjective in nature and requires significant estimates.   The Company's allowance methodology consists of two broad components - general and specific loan loss allocations.

The general loan loss allocation is composed of two calculations that are computed on five main loan segments:  business lending, consumer installment - direct, consumer installment - indirect, home equity and consumer mortgage.  The first calculation is quantitative and determines an allowance level based on the latest 36 months of historical net charge-off data for each loan class (commercial loans exclude balances with specific loan loss allocations).  The second calculation is qualitative and takes into consideration eight qualitative environmental factors:  levels and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards, and other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations.    A component of the qualitative calculation is the unallocated allowance for loan loss.  The qualitative and quantitative calculations are added together to determine the general loan loss allocation.  The specific loan loss allocation relates to individual commercial loans that are both greater than $0.5 million and in a nonaccruing status with respect to interest.  Specific loan losses are based on discounted estimated cash flows, including any cash flows resulting from the conversion of collateral or collateral shortfalls.  The allowance levels computed from the specific and general loan loss allocation methods are combined with unallocated allowances and allowances needed for acquired loans to derive the total required allowance for loan losses to be reflected on the Consolidated Statement of Condition.

Loan losses are charged off against the allowance, while recoveries of amounts previously charged off are credited to the allowance.  A provision for loan losses is charged to operations based on management's periodic evaluation of factors previously mentioned.

Intangible Assets

Intangible assets include core deposit intangibles, customer relationship intangibles and goodwill arising from acquisitions. Core deposit intangibles and customer relationship intangibles are amortized on either an accelerated or straight-line basis over periods ranging from seven to 20 years. The initial and ongoing carrying value of goodwill and other intangible assets is based upon discounted cash flow modeling techniques that require management to make estimates regarding the amount and timing of expected future cash flows.  It also requires use of a discount rate that reflects the current return requirements of the market in relation to present risk-free interest rates, required equity market premiums, peer volatility indicators, and company-specific risk indicators.

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The Company evaluates goodwill for impairment on an annual basis, or more often if events or circumstances indicate there may be impairment.  The implied fair value of a reporting unit's goodwill is compared to its carrying amount and the impairment loss is measured by the excess of the carrying value over fair value.  The fair value of each reporting unit is compared to the carrying amount of that reporting unit in order to determine if impairment is indicated.

Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation.  Computer software costs that are capitalized only include external direct costs of obtaining and installing the software.  The Company has not developed any internal use software.  Depreciation is calculated using the straight-line method over the estimated useful lives of the assets.  Useful lives range from three to 10 years for equipment; three to seven years for software and hardware; and 10 to 40 years for building and building improvements.  Land improvements are depreciated over 20 years and leasehold improvements are amortized over the shorter of the term of the respective lease plus any optional renewal periods that are reasonably assured or life of the asset. Maintenance and repairs are charged to expense as incurred.

Other Real Estate

Other real estate owned is comprised of properties acquired through foreclosure, or by deed in lieu of foreclosure.  These assets are carried at fair value less estimated costs of disposal.  At foreclosure, if the fair value, less estimated costs to sell, of the real estate acquired is less than the Company's recorded investment in the related loan, a write-down is recognized through a charge to the allowance for loan losses.  Any subsequent reduction in value is recognized by a charge to income.  Operating costs associated with the properties are charged to expense as incurred.  At December 31, 2016 and 2015, other real estate amounted to $2.0 million and $2.1 million, respectively, and is included in other assets.

Mortgage Servicing Rights

Originated mortgage servicing rights are recorded at their fair value at the time of sale of the underlying loan, and are amortized in proportion to and over the period of estimated net servicing income or loss.  The Company uses a valuation model that calculates the present value of future cash flows to determine the fair value of servicing rights.  In using this valuation method, the Company incorporates assumptions that market participants would use in estimating future net servicing income, which includes estimates of the servicing cost per loan, the discount rate, and prepayment speeds.  The carrying value of the originated mortgage servicing rights is included in other assets and is evaluated quarterly for impairment using these same market assumptions.  The amount of impairment recognized is the amount by which the carrying value of the capitalized servicing rights for a stratum exceeds estimated fair value.  Impairment is recognized through a valuation allowance.

Treasury Stock

Repurchases of shares of the Company's common stock are recorded at cost as a reduction of shareholders' equity.  Reissuance of shares of treasury stock is recorded at average cost.

Income Taxes

The Company and its subsidiaries file a consolidated federal income tax return.  Provisions for income taxes are based on taxes currently payable or refundable as well as deferred taxes that are based on temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements.  Deferred tax assets and liabilities are reported in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled.

Benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority having full knowledge of all relevant information. A tax position meeting the more-likely-than-not recognition threshold should be measured at the largest amount of benefit for which the likelihood of realization upon ultimate settlement exceeds 50 percent.

Retirement Benefits

The Company provides defined benefit pension benefits to eligible employees and post-retirement health and life insurance benefits to certain eligible retirees.  The Company also provides deferred compensation and supplemental executive retirement plans for selected current and former employees, officers, and directors.  Expense under these plans is charged to current operations and consists of several components of net periodic benefit cost based on various actuarial assumptions regarding future experience under the plans, including discount rate, rate of future compensation increases and expected return on plan assets.

Assets Under Management or Administration

Assets held in fiduciary or agency capacities for customers are not included in the accompanying consolidated statements of condition as they are not assets of the Company.  All fees associated with providing asset management services are recorded on an accrual basis of accounting and are included in noninterest income.

Advertising

Advertising costs amounting to approximately $3.9 million, $3.6 million and $3.2 million for the years ending December 31, 2016, 2015 and 2014, respectively, are nondirect response in nature and expensed as incurred.

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Earnings Per Share

Using the two-class method, basic earnings per common share is computed based upon net income available to common shareholders divided by the weighted average number of common shares outstanding during each period, which excludes the outstanding unvested restricted stock.  Diluted earnings per share is computed using the weighted average number of common shares determined for the basic earnings per common share computation plus the dilutive effect of stock options using the treasury stock method.  Stock options where the exercise price is greater than the average market price of common shares were not included in the computation of earnings per diluted share as they would have been anti-dilutive.

Stock-based Compensation

Companies are required to measure and record compensation expense for stock options and other share-based payments on the instruments' fair value on the date of grant.  Stock-based compensation expense is recognized ratably over the requisite service period for all awards (see Note L).

Fair Values of Financial Instruments

The Company determines fair values based on quoted market values where available or on estimates using present values or other valuation techniques.  Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows.  In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument.  Certain financial instruments and all nonfinancial instruments are excluded from this disclosure requirement.  Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.  The fair values of investment securities, loans, deposits, and borrowings have been disclosed in Note R.

Reclassifications

Certain reclassifications have been made to prior years' balances to conform to the current year presentation.

New Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606).  This new guidance supersedes the revenue recognition requirements in ASC 605, Revenue Recognition, and is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects consideration to which the entity expects to be entitled in exchange for those goods and services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.  This guidance is effective for the Company for annual and interim periods beginning after December 15, 2017, and should be applied either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this guidance recognized at the date of initial application.  The Company's implementation efforts include the identification of revenue within the scope of the guidance, as well as evaluation of revenue contracts.  The Company's review is ongoing, and the Company will continue to evaluate any impact as additional guidance is issued and as our internal assessment progresses.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This guidance addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The primary focus of this guidance is to supersede the guidance to classify equity securities with readily determinable fair values into different categories (trading or available-for-sale) and requires equity securities to be measured at fair value with changes in the fair value recognized through net income. This guidance requires adoption through a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption.  This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  Early adoption is permitted for all companies in any interim or annual period. The Company is currently evaluating the effect the guidance will have on the Company's consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This new guidance supersedes the lease requirements in Topic 840, Leases and is based on the principle that a lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term.  The accounting applied by a lessor is largely unchanged from that applied under the previous guidance.  In addition, the guidance requires an entity to separate the lease components from the nonlease components in a contract.  The ASU requires disclosures about the amount, timing, and judgments related to a reporting entity's accounting for leases and related cash flows.  The standard is required to be applied to all leases in existence as of the date of adoption using a modified retrospective transition approach.  This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted for all companies in any interim or annual period.  The Company occupies certain offices and uses certain equipment under non-cancelable operating lease agreements, which currently are not reflected in its consolidated statement of condition.  The Company expects to recognize lease liabilities and right of use assets associated with these lease agreements; however, the extent of the impact on the Company's consolidated financial statements is currently under evaluation.

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In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718).  The amendments simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows.  The new guidance requires all excess tax benefits and tax deficiencies be recognized as income tax expense or benefit in the income statement.  The tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. This guidance requires certain amendments to be applied through a cumulative-effect adjustment to equity as of the beginning of the fiscal period in which the guidance is adopted while other amendments are required to be applied retrospectively or prospectively.  This ASU is effective for fiscal periods beginning after December 15, 2016, and interim periods within those annual periods.  The Company expects adoption of the guidance will result in increased volatility to reported income tax expense related to excess tax benefits and tax deficiencies for share-based payment transactions; however, the actual amounts recognized in tax expense will be dependent on the amount of share-based transactions entered into and the Company's stock price on the date of exercise or vesting.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326).  This new guidance significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income.  This ASU will replace the "incurred loss" model under existing guidance with an "expected loss" model for instruments measured at amortized cost, and require entities to record allowances for available-for-sale debt securities rather than reduce the carrying amount, as they do today under the other-than-temporary impairment model.  This ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans.  This guidance requires adoption through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted.  This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.  Early adoption is permitted for all companies as of fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  The Company is currently evaluating the impact the guidance will have on the Company's consolidated financial statements, and expects an increase in the allowance for credit losses resulting from the change to expected losses for the estimated life of the financial asset, including an allowance for debt securities. The amount of the increase in the allowance for credit losses resulting from the new guidance will be impacted by the portfolio composition and asset quality at the adoption date, as well as economic conditions and forecasts at the time of adoption.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230). The amendments provide guidance on the following eight specific cash flow issues: 1) debt prepayment or debt extinguishment costs; 2) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; 3) contingent consideration payments made after a business combination; 4) proceeds from the settlement of insurance claims; 5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; 6) distributions received from equity method investees; 7) beneficial interests in securitization transactions; and 8) separately identifiable cash flows and application of the predominance principle. This ASU is effective for fiscal years beginning after December 31, 2017, including interim periods within those fiscal years.  Early adoption is permitted, including adoption in an interim period. As this guidance only affects the classification within the statement of cash flows, this ASU is not expected to have a material impact on the Company's consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350). The amendments simplify how an entity is required to test goodwill for impairment by eliminating the requirement to measure a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill.  Instead, an entity will perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and recognize an impairment charge for the amount by which the carrying amount of the reporting unit exceeds its fair value.  Impairment loss recognized under this new guidance will be limited to the goodwill allocated to the reporting unit.  This ASU is effective prospectively for the Company for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019.  Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.  This ASU is not expected to have a material impact on the Company's consolidated financial statements.

NOTE B:  ACQUISITIONS

Subsequent Event – Northeast Retirement Services, Inc.

On February 3, 2017, the Company completed its acquisition of Northeast Retirement Services, Inc. ("NRS") and its subsidiary Global Trust Company ("GTC") headquartered in Woburn, Massachusetts (see Note V).

Pending Acquisition – Merchants Bancshares, Inc.

On October 24, 2016, the Company announced that it had entered into a definitive agreement to acquire Merchants Bancshares, Inc. ("Merchants"), parent company of Merchants Bank headquartered in South Burlington, Vermont, for approximately $362 million in Company stock and cash.  The acquisition will extend the Company's footprint into the Vermont and Western Massachusetts markets.  Upon the completion of the merger, Community Bank will add 31 branch locations in Vermont and one location in Massachusetts with approximately $2.1 billion of assets, and deposits of $1.5 billion.  The acquisition is expected to close during the second or third quarter of 2017, pending both customary regulatory and Merchants shareholder approval.  The Company expects to incur certain one-time, transaction-related costs in 2017.

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On January 4, 2016, the Company, through its subsidiary, CBNA Insurance, completed its acquisition of WJL Agencies Inc. doing business as The Clark Insurance Agencies ("WJL"), an insurance agency operating in northern New York. The Company paid $0.6 million in cash for the intangible assets of the company.  Goodwill in the amount of $0.3 million and intangible assets in the amount of $0.3 million were recorded in conjunction with the acquisition.  The effects of the acquired assets and liabilities have been included in the consolidated financial statements since that date.  On August 19, 2016, the Company merged together its insurance subsidiaries and as of that date, the activities of CBNA Insurance were merged into OneGroup.

On December 4, 2015, the Company completed its acquisition of Oneida Financial Corp. ("Oneida"), parent company of Oneida Savings Bank, headquartered in Oneida, New York for approximately $158 million in Company stock and cash, comprised of $56.3 million of cash and the issuance of 2.38 million common shares.  Upon the completion of the merger, the Bank added 12 branch locations in Oneida and Madison counties and approximately $769 million of assets, including approximately $399 million of loans and $226 million of investment securities, along with $699 million of deposits.  Through the acquisition of Oneida, the Company acquired OneGroup and OWM as wholly-owned subsidiaries primarily engaged in offering insurance and investment advisory services.  These subsidiaries complement the Company's other non-banking financial services businesses. The effects of the acquired assets and liabilities have been included in the consolidated financial statements since that date.

On January 1, 2014, the Company, through its subsidiary, BPAS-APS (formerly known as Harbridge Consulting Group, LLC), completed its acquisition of a professional services practice from EBS-RMSCO, Inc., a subsidiary of The Lifetime Healthcare Companies ("EBS-RMSCO").  This professional services practice, which provides actuarial valuation and consulting services to clients who sponsor pension and post-retirement medical and welfare plans, enhanced the Company's participation in the Western New York marketplace.  The effects of the acquired assets and liabilities have been included in the consolidated financial statements since that date.

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 acquisition, and are subject to adjustment based on updated information not available at the time of acquisition.  During the first quarter of 2016, the carrying amount of other assets decreased by $0.9 million and other liabilities increased by $0.7 million as a result of adjustments made to fair value estimates recorded for the Oneida acquisition. Other assets decreased as a result of new information obtained related to the fair value calculation of loans partially offset by a decrease in the fair value adjustment made to accounts receivable for uncollectible accounts as actual cash receipts exceed anticipated cash receipts.  Other liabilities increased as a result of updated information related to deferred taxes.  Goodwill increased $1.6 million as a result of these changes in fair value estimates.

The above referenced acquisitions expanded the Company's geographical presence in New York and management expects that the Company will benefit from greater geographic diversity and the advantages of other synergistic business development opportunities.  The following table summarizes the estimated fair value of the assets acquired and liabilities assumed.

(000s omitted)	2016		2015			2014
Consideration paid:
Cash	$	575	$	56,266		$	924
Community Bank System, Inc. common stock		0		102,202			0
Total net consideration paid		575		158,468			924
Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash and cash equivalents		0		81,772			0
Investment securities		0		225,729			0
Loans		0		399,422			0
Premises and equipment		0		22,212			0
Accrued interest receivable		0		1,133			0
Other assets		0		26,529			163
Core deposit intangibles		0		2,570			0
Other intangibles		288		9,994			578
Deposits		0		(699,241	)		0
Other liabilities		0		(1,333	)		0
Total identifiable assets (liabilities), net		288		68,787			741
Goodwill	$	287	$	89,681		$	183

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Acquired loans that have evidence of deterioration in credit quality since origination and for which it is probable, at acquisition, that the Company will be unable to collect all contractually required payments were aggregated by comparable characteristics and  recorded at fair value without a carryover of the related allowance for loan losses.  Cash flows for each loan were determined using an estimate of credit losses and an estimated rate of prepayments.  Projected monthly cash flows were then discounted to present value using a market-based discount rate.  The excess of the undiscounted expected cash flows over the estimated fair value is referred to as the "accretable yield" and is recognized into interest income over the remaining lives of the acquired loans.

The following is a summary of the loans acquired from Oneida at the date of acquisition:

(000's omitted)	Acquired Impaired Loans			Acquired Non-Impaired Loans			Total Acquired Loans
Contractually required principal and interest at acquisition	$	5,138		$	484,937		$	490,075
Contractual cash flows not expected to be collected		(1,977	)		(4,833	)		(6,810	)
Expected cash flows at acquisition		3,161			480,104			483,265
Interest component of expected cash flows		(341	)		(83,502	)		(83,843	)
Fair value of acquired loans	$	2,820		$	396,602		$	399,422

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.

The core deposit intangibles and other intangibles related to the EBS-RMSCO, Oneida and WJL acquisitions are being amortized using an accelerated method over their estimated useful life of approximately eight years.  The goodwill, which is not amortized for book purposes, was assigned to the Banking and All Other segments for the Oneida acquisition, the Employee Benefit Services segment for the EBS-RMSCO acquisition, and to the All Other segment for WJL.  The goodwill arising from the EBS-RMSCO and WJL deals is deductible for tax purposes.  Goodwill arising from the Oneida acquisition is not deductible for tax purposes.

Direct costs related to the acquisitions were expensed as incurred.  Merger and acquisition integration-related expenses amount to $1.7 million, $7.0 million and $0.1 million during 2016, 2015 and 2014, respectively, and have been separately stated in the Consolidated Statements of Income.

Supplemental Pro Forma Financial Information

The following unaudited condensed pro forma information assumes the Oneida acquisition had been completed as of January 1, 2014 for the year ended December 31, 2015 and December 31, 2014.  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 years 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 or the impact of conforming certain acquiree accounting policies to the Company's policies that may have occurred as a result of the integration and consolidation of the acquisitions.

The pro forma information set forth below reflects adjustments related to (a) certain purchase accounting fair value adjustments; and (b) amortization of customer lists and core deposit intangibles.  Expenses totaling $14.0 million related to conversion of systems and other costs of integration, as well as certain one-time costs, are excluded from the pro forma year ended December 31, 2015 and were included in the pro forma year ended December 31, 2014.

	Actual since Acquisition Through			Pro Forma (Unaudited) Year Ended December 31,
(000's omitted)	December 31, 2015			2015		2014
Total revenue, net of interest expense	$	3,667		$	426,541	$	416,713
Net income (loss)		(3,905	)		96,894		85,665

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NOTE C:  INVESTMENT SECURITIES

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

	2016								2015
(000's omitted)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available-for-Sale Portfolio:
U.S. Treasury and agency securities	$	1,876,358	$	28,522	$	2,118	$	1,902,762	$	1,866,819	$	35,186	$	2,027	$	1,899,978
Obligations of state and political subdivisions		582,655		13,389		1,054		594,990		640,455		26,487		59		666,883
Government agency mortgage-backed securities		232,657		5,040		2,467		235,230		205,220		6,906		1,261		210,865
Corporate debt securities		5,716		2		31		5,687		16,672		66		58		16,680
Government agency collateralized mortgage obligations		9,225		310		0		9,535		12,862		446		0		13,308
Marketable equity securities		252		200		0		452		250		163		14		399
Total available-for-sale portfolio	$	2,706,863	$	47,463	$	5,670	$	2,748,656	$	2,742,278	$	69,254	$	3,419	$	2,808,113
Other Securities:
Federal Home Loan Bank common stock	$	12,191					$	12,191	$	19,317					$	19,317
Federal Reserve Bank common stock		19,781						19,781		16,050						16,050
Other equity securities		3,764						3,764		4,460						4,460
Total other securities	$	35,736					$	35,736	$	39,827					$	39,827

A summary of investment securities that have been in a continuous unrealized loss position for less than or greater than twelve months is as follows:

As of December 31, 2016

	Less than 12 Months						12 Months or Longer						Total
(000's omitted)		#	Fair Value		Gross Unrealized Losses			#	Fair Value		Gross Unrealized Losses			#	Fair Value		Gross Unrealized Losses
Available-for-Sale Portfolio:
U.S. Treasury and agency securities		13	$	449,242	$	2,118		0	$	0	$	0		13	$	449,242	$	2,118
Obligations of state and political subdivisions		197		102,106		1,054		0		0		0		197		102,106		1,054
Government agency mortgage-backed securities		57		83,862		1,637		15		21,788		830		72		105,650		2,467
Corporate debt securities		1		2,677		31		0		0		0		1		2,677		31
Government agency collateralized mortgage obligations		0		0		0		2		2		0		2		2		0
Total available-for-sale investment portfolio		268	$	637,887	$	4,840		17	$	21,790	$	830		285	$	659,677	$	5,670

As of December 31, 2015

	Less than 12 Months						12 Months or Longer						Total
(000's omitted)		#	Fair Value		Gross Unrealized Losses			#	Fair Value		Gross Unrealized Losses			#	Fair Value		Gross Unrealized Losses
Available-for-Sale Portfolio:
U.S. Treasury and agency securities		9	$	353,844	$	2,027		0	$	0	$	0		9	$	353,844	$	2,027
Obligations of state and political subdivisions		18		8,804		34		2		735		25		20		9,539		59
Government agency mortgage-backed securities		17		24,178		161		19		30,103		1,100		36		54,281		1,261
Corporate debt securities		1		3,024		0		1		2,710		58		2		5,734		58
Government agency collateralized mortgage obligations		0		0		0		2		3		0		2		3		0
Marketable equity securities		1		87		14		0		0		0		1		87		14
Total available-for-sale investment portfolio		46	$	389,937	$	2,236		24	$	33,551	$	1,183		70	$	423,488	$	3,419

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The unrealized losses reported pertaining to securities issued by the U.S. government and its sponsored entities, include treasuries, agencies, and mortgage-backed securities issued by Ginnie Mae, Fannie Mae, and Freddie Mac which are currently rated AAA by Moody's Investor Services, AA+ by Standard & Poor's and are guaranteed by the U.S. government. The majority of the obligations of state and political subdivisions and corporations carry a credit rating of A or better.  Additionally, a majority of the obligations of state and political subdivisions carry a secondary level of credit enhancement. The Company does not intend to sell these securities, nor is it more likely than not that the Company will be required to sell these securities prior to recovery of the amortized cost. 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 December 31, 2016 represents OTTI.

The amortized cost and estimated fair value of debt securities at December 31, 2016, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.  Securities not due at a single maturity date are shown separately.

	Available-for-Sale
(000's omitted)	Amortized Cost		Fair Value
Due in one year or less	$	37,994	$	38,212
Due after one through five years		923,434		939,357
Due after five years through ten years		1,302,156		1,319,913
Due after ten years		201,145		205,957
Subtotal		2,464,729		2,503,439
Government agency mortgage-backed securities		232,657		235,230
Government agency collateralized mortgage obligations		9,225		9,535
Total	$	2,706,611	$	2,748,204

Cash flow information on investment securities for the years ended December 31 is as follows:

(000's omitted)	2016		2015		2014
Gross gains on sales of investment securities	$	0	$	3	$	0
Gross losses on sales of investment securities		0		7		0

Investment securities with a carrying value of $1.865 billion and $1.750 billion at December 31, 2016 and 2015, respectively, were pledged to collateralize certain deposits and borrowings.

NOTE D:  LOANS

The segments of the Company's loan portfolio are disaggregated into the following classes that allow management to monitor risk and performance:

· Consumer mortgages consist primarily of fixed rate residential instruments, typically 10 – 30 years in contractual term, secured by first liens on real property.

· Business lending is comprised of general purpose commercial and industrial loans including, but not limited to agricultural-related and dealer floor plans, as well as mortgages on commercial property.

· Consumer indirect consists primarily of installment loans originated through selected dealerships and are secured by automobiles, marine and other recreational vehicles.

· Consumer direct consists of all other loans to consumers such as personal installment loans and lines of credit.

· Home equity products are consumer purpose installment loans or lines of credit most often secured by a first or second lien position on residential real estate with terms up to 30 years.

The balances of these classes at December 31 are summarized as follows:

(000's omitted)	2016			2015
Consumer mortgage	$	1,819,701		$	1,769,754
Business lending		1,490,076			1,497,271
Consumer indirect		1,044,972			935,760
Consumer direct		191,815			195,076
Home equity		401,998			403,514
Gross loans, including deferred origination costs		4,948,562			4,801,375
Allowance for loan losses		(47,233	)		(45,401	)
Loans, net of allowance for loan losses	$	4,901,329		$	4,755,974

69

The Company had approximately $22.8 million and $20.0 million of net deferred loan origination costs included in gross loans as of December 31, 2016 and 2015, respectively.

Certain directors and executive officers of the Company, as well as associates of such persons, are loan customers.  Loans to these individuals were made in the ordinary course of business under normal credit terms and do not have more than a normal risk of collection.  Following is a summary of the aggregate amount of such loans during 2016 and 2015.

(000's omitted)	2016			2015
Balance at beginning of year	$	11,337		$	8,928
New loans		4,959			5,138
Payments		(5,346	)		(2,729	)
Balance at end of year	$	10,950		$	11,337

Acquired loans

Acquired loans are recorded at fair value as of the date of purchase with no allowance for loan loss.  The outstanding principal balance and the related carrying amount of acquired loans included in the Consolidated Statement of Condition at December 31 are as follows:

(000's omitted)	2016		2015
Credit impaired acquired loans:
Outstanding principal balance	$	6,354	$	8,339
Carrying amount		5,553		7,299
Non-impaired acquired loans:
Outstanding principal balance		497,308		620,942
Carrying amount		489,807		610,355
Total acquired loans:
Outstanding principal balance		503,662		629,281
Carrying amount		495,360		617,654

The outstanding balance related to credit impaired acquired loans was $6.6 million and $8.5 million at December 31, 2016 and 2015, respectively.  The changes in the accretable discount related to the credit impaired acquired loans are as follows:

(000's omitted)	2016			2015
Balance at beginning of year	$	810		$	705
Oneida acquisition		0			341
Accretion recognized		(455	)		(552	)
Net reclassification to accretable from nonaccretable		143			316
Balance at end of year	$	498		$	810

Credit Quality

Management monitors the credit quality of its loan portfolio on an ongoing basis.  Measurement of delinquency and past due status are based on the contractual terms of each loan.  Past due loans are reviewed on a monthly basis to identify loans for non-accrual status.  The following is an aged analysis of the Company's past due loans by class as of December 31, 2016:

Legacy Loans (excludes loans acquired after January 1, 2009)

(000's omitted)	Past Due 30 - 89 days		90+ Days Past Due and Still Accruing		Nonaccrual		Total Past Due		Current		Total Loans
Consumer mortgage	$	11,379	$	1,180	$	11,352	$	23,911	$	1,635,849	$	1,659,760
Business lending		3,921		145		3,811		7,877		1,269,789		1,277,666
Consumer indirect		13,883		166		0		14,049		1,000,776		1,014,825
Consumer direct		1,549		58		0		1,607		180,315		181,922
Home equity		1,250		414		1,437		3,101		315,928		319,029
Total	$	31,982	$	1,963	$	16,600	$	50,545	$	4,402,657	$	4,453,202

70

Acquired Loans (includes loans acquired after January 1, 2009)

(000's omitted)	Past Due 30 - 89 days		90+ Days Past Due and Still Accruing		Nonaccrual		Total Past Due		Acquired Impaired(1)		Current		Total Loans
Consumer mortgage	$	1,539	$	205	$	2,332	$	4,076	$	0	$	155,865	$	159,941
Business lending		528		0		1,252		1,780		5,553		205,077		212,410
Consumer indirect		231		3		0		234		0		29,913		30,147
Consumer direct		231		0		0		231		0		9,662		9,893
Home equity		778		905		435		2,118		0		80,851		82,969
Total	$	3,307	$	1,113	$	4,019	$	8,439	$	5,553	$	481,368	$	495,360

⁽¹⁾ Acquired impaired loans were not classified as nonperforming assets as the loans are considered to be performing under ASC 310-30.  As a result interest income, through the accretion of the difference between the carrying amount of the loans and the expected cashflows, is being recognized on all acquired impaired loans.

The following is an aged analysis of the Company's past due loans by class as of December 31, 2015:

Legacy Loans (excludes loans acquired after January 1, 2009)

(000's omitted)	Past Due 30 - 89 days		90+ Days Past Due and Still Accruing		Nonaccrual		Total Past Due		Current		Total Loans
Consumer mortgage	$	10,482	$	1,411	$	11,394	$	23,287	$	1,558,171	$	1,581,458
Business lending		4,442		126		5,381		9,949		1,223,679		1,233,628
Consumer indirect		11,575		102		0		11,677		878,662		890,339
Consumer direct		1,414		51		1		1,466		176,585		178,051
Home equity		1,093		111		2,029		3,233		297,012		300,245
Total	$	29,006	$	1,801	$	18,805	$	49,612	$	4,134,109	$	4,183,721

Acquired Loans (includes loans acquired after January 1, 2009)

(000's omitted)	Past Due 30 - 89 days		90+ Days Past Due and Still Accruing		Nonaccrual		Total Past Due		Acquired Impaired(1)		Current		Total Loans
Consumer mortgage	$	1,373	$	394	$	1,396	$	3,163	$	0	$	185,133	$	188,296
Business lending		535		0		1,186		1,721		7,299		254,623		263,643
Consumer indirect		245		0		0		245		0		45,176		45,421
Consumer direct		140		0		14		154		0		16,871		17,025
Home equity		636		0		327		963		0		102,306		103,269
Total	$	2,929	$	394	$	2,923	$	6,246	$	7,299	$	604,109	$	617,654

⁽¹⁾ Acquired impaired loans were not classified as nonperforming assets as the loans are considered to be performing under ASC 310-30.  As a result interest income, through the accretion of the difference between the carrying amount of the loans and the expected cashflows, is being recognized on all acquired impaired loans.

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", or "classified".  Credit risk ratings are applied individually to those classes of loans that have significant or unique credit characteristics that benefit from a case-by-case evaluation.  In general, the following are the definitions of the Company's credit quality indicators:

Pass	The condition of the borrower and the performance of the loans are satisfactory or better.
Special Mention	The condition of the borrower has deteriorated although the loan performs as agreed.
Classified	The condition of the borrower has significantly deteriorated and the performance of the loan could further deteriorate if deficiencies are not corrected.
Doubtful	The condition of the borrower has deteriorated to the point that collection of the balance is improbable based on current facts and conditions.

71

The following table shows the amount of business lending loans by credit quality category:

	December 31, 2016						December 31, 2015
(000's omitted)	Legacy		Acquired		Total		Legacy		Acquired		Total
Pass	$	1,051,005	$	162,165	$	1,213,170	$	1,048,364	$	219,374	$	1,267,738
Special mention		135,602		29,690		165,292		124,768		20,007		144,775
Classified		90,585		15,002		105,587		60,181		16,963		77,144
Doubtful		474		0		474		315		0		315
Acquired impaired		0		5,553		5,553		0		7,299		7,299
Total	$	1,277,666	$	212,410	$	1,490,076	$	1,233,628	$	263,643	$	1,497,271

All other loans are underwritten and structured using standardized criteria and characteristics, primarily payment performance, and are normally risk rated and monitored collectively on a monthly basis.  These are typically loans to individuals in the consumer categories and are delineated as either performing or nonperforming.  Performing loans include current, 30 – 89 days past due and acquired impaired loans.  Nonperforming loans include 90+ days past due and still accruing and nonaccrual loans.  The following tables detail the balances in all loan categories except for business lending at December 31, 2016:

Legacy loans (excludes loans acquired after January 1, 2009)

(000's omitted)	Consumer Mortgage		Consumer Indirect		Consumer Direct		Home Equity		Total
Performing	$	1,647,228	$	1,014,659	$	181,864	$	317,178	$	3,160,929
Nonperforming		12,532		166		58		1,851		14,607
Total	$	1,659,760	$	1,014,825	$	181,922	$	319,029	$	3,175,536

 Acquired loans (includes loans acquired after January 1, 2009)

(000's omitted)	Consumer Mortgage		Consumer Indirect		Consumer Direct		Home Equity		Total
Performing	$	157,404	$	30,144	$	9,893	$	81,629	$	279,070
Nonperforming		2,537		3		0		1,340		3,880
Total	$	159,941	$	30,147	$	9,893	$	82,969	$	282,950

The following table details the balances in all other loan categories at December 31, 2015:

Legacy loans (excludes loans acquired after January 1, 2009)

(000's omitted)	Consumer Mortgage		Consumer Indirect		Consumer Direct		Home Equity		Total
Performing	$	1,568,653	$	890,237	$	177,999	$	298,105	$	2,934,994
Nonperforming		12,805		102		52		2,140		15,099
Total	$	1,581,458	$	890,339	$	178,051	$	300,245	$	2,950,093

Acquired loans (includes loans acquired after January 1, 2009)

(000's omitted)	Consumer Mortgage		Consumer Indirect		Consumer Direct		Home Equity		Total
Performing	$	186,506	$	45,421	$	17,011	$	102,942	$	351,880
Nonperforming		1,790		0		14		327		2,131
Total	$	188,296	$	45,421	$	17,025	$	103,269	$	354,011

72

All loan classes are collectively evaluated for impairment except business lending, as described in Note A.  A summary of individually evaluated impaired loans as of December 31, 2016 and 2015 is as follows:

(000's omitted)	2016		2015
Loans with allowance allocation	$	1,109	$	0
Loans without allowance allocation		556		2,376
Carrying balance		1,665		2,376
Contractual balance		3,340		3,419
Specifically allocated allowance		477		0
Average impaired loans		4,683		2,922
Interest income recognized		0		0

In the course of working with borrowers, the Company may choose to restructure the contractual terms of certain loans.  In this scenario, the Company attempts to work-out an alternative payment schedule with the borrower in order to optimize collectability of the loan.  Any loans that are modified are reviewed by the Company to identify if a troubled debt restructuring ("TDR") has 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.  With regard to determination of the amount of the allowance for loan losses, troubled debt restructured loans are considered to be impaired.  As a result, the determination of the amount of allowance for loan losses related to impaired loans for each portfolio segment within TDRs is the same as detailed previously.

In accordance with clarified guidance issued by the OCC, loans that have been discharged in Chapter 7 bankruptcy but not reaffirmed by the borrower, are classified as TDRs, irrespective of payment history or delinquency status, even if the repayment terms for the loan have not been otherwise modified.  The Company's lien position against the underlying collateral remains unchanged.  Pursuant to that guidance, the Company records a charge-off equal to any portion of the carrying value that exceeds the net realizable value of the collateral.  The amount of loss incurred in 2016, 2015 and 2014 was immaterial.

TDRs less than $0.5 million are collectively included in the general loan loss allocation and the qualitative review, if necessary.  Commercial loans greater than $0.5 million are individually evaluated for impairment, and if necessary, a specific allocation of the allowance for loan losses is provided.

Information regarding TDRs as of December 31, 2016 and December 31, 2015 is as follows

	December 31, 2016												December 31, 2015
(000's omitted)	Nonaccrual				Accruing				Total				Nonaccrual				Accruing				Total
		#	Amount			#	Amount			#	Amount			#	Amount			#	Amount			#	Amount
Consumer mortgage		36	$	1,520		45	$	1,956		81	$	3,476		37	$	1,472		54	$	2,486		91	$	3,958
Business lending		6		91		5		690		11		781		8		217		6		737		14		954
Consumer indirect		0		0		78		771		78		771		0		0		77		691		77		691
Consumer direct		0		0		23		65		23		65		0		0		32		37		32		37
Home equity		14		221		7		216		21		437		10		203		14		301		24		504
Total		56	$	1,832		158	$	3,698		214	$	5,530		55	$	1,892		183	$	4,252		238	$	6,144

The following table presents information related to loans modified in a TDR during the years ended December 31, 2016 and 2015.  Of the loans noted in the table below, all loans for the years ended December 31, 2016 and December 31, 2015, were modified due to a Chapter 7 bankruptcy as described previously.  The financial effects of these restructurings were immaterial.

	December 31, 2016				December 31, 2015
(000's omitted)		#	Amount			#	Amount
Consumer mortgage		9	$	597		21	$	1,374
Business lending		0		0		3		67
Consumer indirect		33		459		35		349
Consumer direct		3		51		6		11
Home equity		3		50		6		63
Total		48	$	1,157		71	$	1,864

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Allowance for Loan Losses

The allowance for loan losses is general in nature and is available to absorb losses from any loan type despite the analysis below.  The following presents by class the activity in the allowance for loan losses:

(000's omitted)	Consumer Mortgage			Business Lending			Consumer Indirect			Consumer Direct			Home Equity			Unallocated			Acquired Impaired			Total
Balance at December 31, 2014	$	10,286		$	15,787		$	11,544		$	3,083		$	2,701		$	1,767		$	173		$	45,341
Charge-offs		(1,374	)		(2,146	)		(6,714	)		(1,490	)		(244	)		0			(103	)		(12,071	)
Recoveries		80			877			3,943			722			62			0			0			5,684
Provision		1,206			1,231			3,649			682			147			(566	)		98			6,447
Balance at December 31, 2015		10,198			15,749			12,422			2,997			2,666			1,201			168			45,401
Charge-offs		(647	)		(1,872	)		(7,643	)		(1,706	)		(218	)		0			(97	)		(12,183	)
Recoveries		115			616			4,168			901			139			0			0			5,939
Provision		428			2,727			4,835			787			(188	)		(550	)		37			8,076
Balance at December 31, 2016	$	10,094		$	17,220		$	13,782		$	2,979		$	2,399		$	651		$	108		$	47,233

NOTE E:  PREMISES AND EQUIPMENT

Premises and equipment consist of the following at December 31:

(000's omitted)	2016			2015
Land and land improvements	$	22,585		$	22,191
Bank premises		116,663			112,011
Equipment and construction in progress		80,527			80,684
Premises and equipment, gross		219,775			214,886
Accumulated depreciation		(107,457	)		(100,452	)
Premises and equipment, net	$	112,318		$	114,434

NOTE F:  GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS

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

	December 31, 2016							December 31, 2015
(000's omitted)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Amortizing intangible assets:
Core deposit intangibles	$	39,688	$	(32,581	)	$	7,107	$	39,688	$	(29,899	)	$	9,789
Other intangibles		17,853		(9,258	)		8,595		17,565		(6,460	)		11,105
Total amortizing intangibles	$	57,541	$	(41,839	)	$	15,702	$	57,253	$	(36,359	)	$	20,894

The estimated aggregate amortization expense for each of the five succeeding fiscal years ended December 31 is as follows:

2017	$	4,413
2018		3,566
2019		2,782
2020		2,119
2021		1,531
Thereafter		1,291
Total	$	15,702

74

Shown below are the components of the Company's goodwill at December 31, 2016 and 2015:

(000's omitted)	Year Ended December 31, 2014			Activity		Year Ended December 31, 2015			Activity		Year Ended December 31, 2016
Goodwill	$	379,998		$	88,078	$	468,076		$	1,890	$	469,966
Accumulated impairment		(4,824	)		0		(4,824	)		0		(4,824	)
Goodwill, net	$	375,174		$	88,078	$	463,252		$	1,890	$	465,142

During the first quarter of 2016, the Company performed its annual internal valuation of goodwill and impairment analysis by comparing the fair value of each reporting unit to its carrying value.  Results of the valuations indicate there was no goodwill impairment.  There were no events between the date of the valuation and year end that warranted additional analysis.

Mortgage Servicing Rights

Under certain circumstances, the Company sells consumer residential mortgage loans in the secondary market and typically retains the right to service the loans sold.  Generally, the Company's residential mortgage loans sold to third parties are sold on a non-recourse basis.  Upon sale, a mortgage servicing right ("MSR") is established, which represents the current fair value of future net cash flows expected to be realized for performing the servicing activities.  The Company stratifies these assets based on predominant risk characteristics, namely expected term of the underlying financial instruments, and uses a valuation model that calculates the present value of future cash flows to determine the fair value of servicing rights. MSRs are recorded in other assets at the lower of the initial capitalized amount, net of accumulated amortization or fair value.  Mortgage loans serviced for others are not included in the accompanying consolidated statements of condition.

The following table summarizes the changes in carrying value of MSRs and the associated valuation allowance:

(000's omitted)	2016			2015
Carrying value before valuation allowance at beginning of period	$	1,472		$	1,089
Additions		481			403
Oneida acquisition		0			389
Amortization		(518	)		(409	)
Carrying value before valuation allowance at end of period		1,435			1,472
Valuation allowance balance at beginning of period		0			0
Impairment charges		(226	)		(133	)
Impairment recoveries		226			133
Valuation allowance balance at end of period		0			0
Net carrying value at end of period	$	1,435		$	1,472
Fair value of MSRs at end of period	$	1,928		$	1,962
Principal balance of loans sold during the year	$	45,852		$	35,491
Principal balance of loans serviced for others	$	365,374		$	377,909
Custodial escrow balances maintained in connection with loans serviced for others	$	5,603		$	5,700

The following table summarizes the key economic assumptions used to estimate the value of the MSRs at December 31:

	2016	2015
Weighted-average contractual life (in years)	20.8	19.9
Weighted-average constant prepayment rate (CPR)	15.1%	14.9%
Weighted-average discount rate	3.5%	3.3%

NOTE G:  DEPOSITS

Deposits consist of the following at December 31:

(000's omitted)	2016		2015
Noninterest checking	$	1,646,039	$	1,499,616
Interest checking		1,644,029		1,575,379
Savings		1,303,851		1,255,027
Money market		1,778,907		1,738,904
Time		703,128		804,548
Total deposits	$	7,075,954	$	6,873,474

75

The approximate maturities of time deposits at December 31, 2016 are as follows:

(000's omitted)	All Accounts		Accounts $250,000 or Greater
2017	$	492,000	$	42,142
2018		103,698		1,713
2019		48,096		2,337
2020		32,774		2,717
2021		26,208		2,315
Thereafter		352		0
Total	$	703,128	$	51,224

NOTE H:  BORROWINGS

Outstanding borrowings at December 31 are as follows:

(000's omitted)	2016		2015
FHLB overnight advance	$	146,200	$	301,300
Subordinated debt held by unconsolidated subsidiary trusts,
net of discount of $357 and $381, respectively		102,170		102,146
Total borrowings	$	248,370	$	403,446

FHLB advances are collateralized by a blanket lien on the Company's residential real estate loan portfolio and various investment securities.

Borrowings at December 31, 2016 have contractual maturity dates as follows:

(000's omitted, except rate)	Carrying Value		Weighted-average Rate at December 31, 2016
January 3, 2017	$	146,200		0.74	%
July 31, 2031		24,850		4.47	%
December 15, 2036		77,320		2.61	%
Total	$	248,370		1.70	%

The weighted-average interest rate on borrowings for the years ended December 31, 2016 and 2015 was 1.46% and 0.82%, respectively.

The Company sponsors two business trusts, Community Statutory Trust III and Community Capital Trust IV, of which 100% of the common stock is owned by the Company.  The trusts were formed for the purpose of issuing company-obligated mandatorily redeemable preferred securities to third-party investors and investing the proceeds from the sale of such preferred securities solely in junior subordinated debt securities of the Company.  The debentures held by each trust are the sole assets of that trust.  Distributions on the preferred securities issued by each trust are payable quarterly at a rate per annum equal to the interest rate being earned by the trust on the debentures held by that trust and are recorded as interest expense in the consolidated financial statements.  The preferred securities are subject to mandatory redemption, in whole or in part, upon repayment of the debentures.  The Company has entered into agreements which, taken collectively, fully and unconditionally guarantee the preferred securities subject to the terms of each of the guarantees.  The terms of the preferred securities of each trust are as follows:

Trust	Issuance Date	Par Amount	Interest Rate	Maturity Date	Call Price
III	7/31/2001	$24.5 million	3 month LIBOR plus 3.58% (4.47%)	7/31/2031	Par
IV	12/8/2006	$75 million	3 month LIBOR plus 1.65% (2.61%)	12/15/2036	Par

76

NOTE I:  INCOME TAXES

The provision for income taxes for the years ended December 31 is as follows:

(000's omitted)	2016		2015		2014
Current:
Federal	$	32,829	$	27,663	$	30,006
State and other		4,890		2,608		870
Deferred:
Federal		11,444		9,604		6,867
State and other		1,622		1,112		594
Provision for income taxes	$	50,785	$	40,987	$	38,337

Components of the net deferred tax liability, included in other liabilities, as of December 31 are as follows:

(000's omitted)	2016			2015
Allowance for loan losses	$	18,366		$	17,791
Employee benefits		6,311			6,633
Debt extinguishment		299			613
Other, net		5,202			9,704
Deferred tax asset		30,178			34,741
Investment securities		32,839			38,314
Tax-deductible goodwill		43,504			39,724
Loan origination costs		8,228			7,295
Depreciation		71			886
Mortgage servicing rights		548			565
Pension		18,194			14,807
Deferred tax liability		103,384			101,591
Net deferred tax liability	$	(73,206	)	$	(66,850	)

The Company has determined that no valuation allowance is necessary as it is more likely than not that the gross deferred tax assets will be realized through carryback of future deductions to taxable income in prior years, future reversals of existing temporary differences, and through future taxable income.

A reconciliation of the differences between the federal statutory income tax rate and the effective tax rate for the years ended December 31 is shown in the following table:

	2016	2015	2014
Federal statutory income tax rate	35.0%	35.0%	35.0%
Increase (reduction) in taxes resulting from:
Tax-exempt interest	(4.0)	(5.0)	(5.4)
State income taxes, net of federal benefit	2.7	1.8	0.7
Other	(0.9)	(0.8)	(0.7)
Effective income tax rate	32.8%	31.0%	29.6%

A reconciliation of the unrecognized tax benefits for the years ended December 31 is shown in the following table:

(000's omitted)	2016			2015			2014
Unrecognized tax benefits at beginning of year	$	127		$	162		$	138
Changes related to:
Positions taken during the current year		0			0			24
Lapse of statutes of limitations		(35	)		(35	)		0
Unrecognized tax benefits at end of year	$	92		$	127		$	162

77

As of December 31, 2016, the total amount of unrecognized tax benefits that would impact the Company's effective tax rate if recognized is $0.1 million.  It is reasonably possible that the amount of unrecognized tax benefits could change in the next twelve months as a result of various examinations and expiration of statutes of limitations on prior tax returns.

The Company's policy is to recognize interest and penalties related to unrecognized tax benefits as part of income taxes in the consolidated statement of income.  The accrued interest related to tax positions was immaterial.

The Company's federal and state income tax returns are routinely subject to examination from various governmental taxing authorities.  Such examinations may result in challenges to the tax return treatment applied by the Company to specific transactions.  Management believes that the assumptions and judgment used to record tax-related assets or liabilities have been appropriate.  Future examinations by taxing authorities of the Company's federal or state tax returns could have a material impact on the Company's results of operations.  The Company's federal income tax returns for years after 2012 may still be examined by the Internal Revenue Service.  New York State income tax returns for years after 2012 may still be examined by the New York Department of Taxation and Finance.  It is not possible to estimate when those examinations may be completed.

NOTE J:  LIMITS ON DIVIDENDS AND OTHER REVENUE SOURCES

The Company's ability to pay dividends to its shareholders is largely dependent on the Bank's ability to pay dividends to the Company.  In addition to the capital requirements discussed below, the circumstances under which the Bank may pay dividends are limited by federal statutes, regulations, and policies.  For example, as a national bank, the Bank must obtain the approval of the Office of the Comptroller of the Currency ("OCC") for payments of dividends if the total of all dividends declared in any calendar year would exceed the total of the Bank's net profits, as defined by applicable regulations, for that year, combined with its retained net profits for the preceding two years.  Furthermore, the Bank may not pay a dividend in an amount greater than its undivided profits then on hand after deducting its losses and bad debts, as defined by applicable regulations.  At December 31, 2016, the Bank had approximately $57.6 million in undivided profits legally available for the payment of dividends.

In addition, the Board of Governors of the Federal Reserve System ("FRB") and the OCC are authorized to determine under certain circumstances that the payment of dividends would be an unsafe or unsound practice and to prohibit payment of such dividends.  The FRB has indicated that banking organizations should generally pay dividends only out of current operating earnings.

There are also statutory limits on the transfer of funds to the Company by its banking subsidiary, whether in the form of loans or other extensions of credit, investments or assets purchases.  Such transfer by the Bank to the Company generally is limited in amount to 10% of the Bank's capital and surplus, or 20% in the aggregate.  Furthermore, such loans and extensions of credit are required to be collateralized in specific amounts.

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NOTE K:  BENEFIT PLANS

Pension and post-retirement plans

The Company provides a qualified defined benefit pension to eligible employees and retirees, other post-retirement health and life insurance benefits to certain retirees, an unfunded supplemental pension plan for certain key executives, and an unfunded stock balance plan for certain of its nonemployee directors.  Using a measurement date of December 31, the following table shows the funded status of the Company's plans reconciled with amounts reported in the Company's consolidated statements of condition:

	Pension Benefits						Post-retirement Benefits
(000's omitted)	2016			2015			2016			2015
Change in benefit obligation:
Benefit obligation at the beginning of year	$	127,134		$	127,513		$	1,918		$	2,256
Service cost		4,106			3,324			0			0
Interest cost		5,624			5,506			82			87
Plan amendment / acquisition		22			2,395			0			0
Participant contributions		0			0			516			509
Deferred actuarial (gain)/loss		(1,628	)		(2,091	)		174			(45	)
Benefits paid		(8,174	)		(9,513	)		(884	)		(889	)
Benefit obligation at end of year		127,084			127,134			1,806			1,918
Change in plan assets:
Fair value of plan assets at beginning of year		172,026			177,865			0			0
Actual return of plan assets		14,402			1,125			0			0
Participant contributions		0			0			516			509
Employer contributions		2,146			616			368			380
Plan acquisition		0			1,933			0			0
Benefits paid		(8,174	)		(9,513	)		(884	)		(889	)
Fair value of plan assets at end of year		180,400			172,026			0			0
Over/(Under) funded status at year end	$	53,316		$	44,892		$	(1,806	)	$	(1,918	)
Amounts recognized in the consolidated statement of condition were:
Other assets	$	64,709		$	56,361		$	0		$	0
Other liabilities		(11,393	)		(11,469	)		(1,806	)		(1,918	)
Amounts recognized in accumulated other comprehensive income (loss) ("AOCI") were:
Net loss	$	28,323		$	34,016		$	183		$	4
Net prior service cost (credit)		2,264			2,307			(1,801	)		(1,980	)
Pre-tax AOCI		30,587			36,323			(1,618	)		(1,976	)
Taxes		(11,622	)		(13,815	)		614			751
AOCI at year end	$	18,965		$	22,508		$	(1,004	)	$	(1,225	)

The benefit obligation for the defined benefit pension plan was $115.7 million as of December 31, 2016 and 2015, and the fair value of plan assets as of December 31, 2016 and 2015 was $180.4 million and $172.0 million, respectively.  Effective December 31, 2015, the State Bank of Chittenango pension plan was merged into the Community Bank System, Inc. Pension Plan and the combined plan was revalued.

The Company has unfunded supplemental pension plans for certain key active and retired executives.  The projected benefit obligation for the unfunded supplemental pension plan for certain key executives was $11.3 million for 2016 and $11.4 million for 2015, respectively.  The Company also has an unfunded stock balance plan for certain of its nonemployee directors.  The projected benefit obligation for the unfunded stock balance plan was $0.1 million for 2016 and $0.1 million for 2015, respectively.  The plan was frozen effective December 31, 2009.

Effective December 31, 2009, the Company terminated its post-retirement medical program for current and future employees.  Remaining plan participants will include only existing retirees as of December 31, 2010.  This change was accounted for as a negative plan amendment and a $3.5 million, net of income taxes, benefit for prior service was recognized in AOCI in 2009.  This negative plan amendment is being amortized over the expected benefit utilization period of remaining plan participants.

79

Amounts recognized in accumulated other comprehensive income, net of tax, for the year ended December 31, are as follows:

	Pension Benefits						Post-retirement Benefits
(000's omitted)	2016			2015			2016		2015
Prior service (credit)/cost	$	(26	)	$	(5	)	$	110	$	110
Net (gain) loss		(3,517	)		4,482			111		(20	)
Total	$	(3,543	)	$	4,477		$	221	$	90

The estimated costs, net of tax, that will be amortized from accumulated other comprehensive (income) loss into net periodic (income) cost over the next fiscal year are as follows:

(000's omitted)	Pension Benefits		Post-retirement Benefits
Prior service cost/(credit)	$	55	$	(179	)
Net loss		1,010		6
Total	$	1,065	$	(173	)

The weighted-average assumptions used to determine the benefit obligations as of December 31 are as follows:

	Pension Benefits		Post-retirement Benefits
	2016	2015	2016	2015
Discount rate	4.50%	4.70%	4.40%	4.70%
Expected return on plan assets	7.00%	7.00%	N/A	N/A
Rate of compensation increase	3.50%	3.50%	N/A	N/A

The net periodic benefit cost as of December 31 is as follows:

	Pension Benefits									Post-retirement Benefits
(000's omitted)	2016			2015			2014			2016			2015			2014
Service cost	$	4,106		$	3,324		$	3,530		$	0		$	0		$	0
Interest cost		5,624			5,506			5,271			82			87			102
Expected return on plan assets		(11,842	)		(12,169	)		(11,922	)		0			0			0
Plan amendment		20			0			0			0			0			0
Amortization of unrecognized net loss/(gain)		1,508			1,466			(307	)		(5	)		(13	)		(7	)
Amortization of prior service cost		43			8			5			(179	)		(179	)		(179	)
Net periodic (benefit)	$	(541	)	$	(1,865	)	$	(3,423	)	$	(102	)	$	(105	)	$	(84	)

Prior service costs in which all or almost all of the plan's participants are fully eligible for benefits under the plan are amortized on a straight-line basis over the expected future working years of all active plan participants.  Unrecognized gains or losses are amortized using the "corridor approach", which is the minimum amortization required. Under the corridor approach, the net gain or loss in excess of 10 percent of the greater of the projected benefit obligation or the market-related value of the assets is amortized on a straight-line basis over the expected future working years of all active plan participants.

The weighted-average assumptions used to determine the net periodic pension cost for the years ended December 31 are as follows:

	Pension Benefits			Post-retirement Benefits
	2016	2015	2014	2016	2015	2014
Discount rate	4.70%	4.50%	5.00%	4.70%	4.50%	4.80%
Expected return on plan assets	7.00%	7.00%	7.00%	N/A	N/A	N/A
Rate of compensation increase	3.50%	3.50%	3.50%	N/A	N/A	N/A

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The amount of benefit payments that are expected to be paid over the next ten years are as follows:

(000's omitted)	Pension Benefits		Post-retirement Benefits
2017	$	7,225	$	145
2018		7,320		143
2019		7,504		141
2020		7,752		138
2021		7,914		136
2022-2026		41,823		636

The payments reflect future service and are based on various assumptions including retirement age and form of payment (lump-sum versus annuity). Actual results may differ from these estimates.

The assumed discount rate is used to reflect the time value of future benefit obligations.  The discount rate was determined based upon the yield on high-quality fixed income investments expected to be available during the period to maturity of the pension benefits.  This rate is sensitive to changes in interest rates.  A decrease in the discount rate would increase the Company's obligation and future expense while an increase would have the opposite effect.   The expected long-term rate of return was estimated by taking into consideration asset allocation, reviewing historical returns on the type of assets held and current economic factors.  Based on the Company's anticipation of future experience under the defined benefit pension plan, the mortality tables used to determine future benefit obligations under the plan were updated as of December 31, 2016 to the RP-2014 Mortality Table for annuitants and non-annuitants, adjusted backward to 2006 with Scale MP-2014, and then adjusted for mortality improvements with the Scale MP-2016 mortality improvement scale on a generational basis.  The appropriateness of the assumptions is reviewed annually.

Plan Assets

The investment objective for the defined benefit pension plan is to achieve an average annual total return over a five-year period equal to the assumed rate of return used in the actuarial calculations.  At a minimum performance level, the portfolio should earn the return obtainable on high quality intermediate-term bonds.  The Company's perspective regarding portfolio assets combines both preservation of capital and moderate risk-taking.   Asset allocation favors equities, with a target allocation of approximately 60% equity securities and 40% fixed income securities and money market funds.  Due to the volatility in the market, the target allocation is not always desirable and asset allocations will fluctuate between acceptable ranges.  Prohibited transactions include purchase of securities on margin, uncovered call options, and short sale transactions.

The fair values of the Company's defined benefit pension plan assets at December 31, 2016 by asset category are as follows:

Asset category (000's omitted)	Quoted Prices in Active Markets for Identical Assets  Level 1		Significant Observable Inputs Level 2		Significant Unobservable Inputs Level 3		Total
Money Market Accounts	$	103	$	8,048	$	0	$	8,151
Equity securities:
U.S. large-cap		43,235		0		0		43,235
U.S mid/small cap		19,032		0		0		19,032
CBSI stock		7,417		0		0		7,417
International		27,064		0		0		27,064
		96,748		0		0		96,748
Fixed income securities:
Government securities		25,375		5,863		0		31,238
Investment grade bonds		15,253		0		0		15,253
High yield(a)		16,615		0		0		16,615
		57,243		5,863		0		63,106
Other investments (b)		12,023		58		0		12,081
Total (c)	$	166,117	$	13,969	$	0	$	180,086

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The fair values of the Company's defined benefit pension plan assets at December 31, 2015 by asset category are as follows:

Asset category (000's omitted)	Quoted Prices in Active Markets for Identical Assets  Level 1		Significant Observable Inputs Level 2		Significant Unobservable Inputs Level 3		Total
Money Market Accounts	$	2,240	$	5,750	$	0	$	7,990
Equity securities:
U.S. large-cap		34,985		0		0		34,985
U.S mid/small cap		12,354		0		0		12,354
CBSI stock		8,393		0		0		8,393
International		28,136		0		0		28,136
		83,868		0		0		83,868
Fixed income securities:
Government securities		31,397		6,488		0		37,885
Investment grade bonds		14,517		0		0		14,517
High yield(a)		17,365		0		0		17,365
		63,279		6,488		0		69,767
Other investments (b)		9,937		63		0		10,000
Total (c)	$	159,324	$	12,301	$	0	$	171,625

(a) This category is exchange-traded funds representing a diversified index of high yield corporate bonds.

(b) This category is comprised of exchange-traded funds and mutual funds holding non-traditional investment classes including private equity funds

      and alternative exchange funds.

(c) Excludes dividends and interest receivable totaling $0.3 million and $0.4 million at December 31, 2016 and 2015, respectively.

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

· Money market funds - Managed portfolios, including commercial paper and other fixed income securities issued by U.S. and foreign corporations, asset-backed commercial paper, U.S. government securities, obligations of foreign governments and U.S. and foreign banks, which are valued at the closing price reported on the market on which the underlying securities are traded.

· Equity securities and other investments – Mutual funds, equity securities and common stock of the Company which are valued at the quoted market price of shares held at year-end.

· Fixed income securities - U.S. Treasuries, municipal bonds and notes, government sponsored entities, and corporate debt valued at the closing price reported on the active market on which the individual securities are traded or for municipal bonds and notes based on quoted prices for similar assets in the active market.

The Company makes contributions to its funded qualified pension plan as required by government regulation or as deemed appropriate by management after considering the fair value of plan assets, expected return on such assets, and the value of the accumulated benefit obligation.  The Company made a $1.53 million contribution to the State Bank of Chittenango pension plan in 2016.  The Company made a $2.9 million contribution to its defined benefit pension plan in 2017.  The Company funds the payment of benefit obligations for the supplemental pension and post-retirement plans because such plans do not hold assets for investment.

Tupper Lake National Bank ("TLNB"), acquired in 2007, participated in the Pentegra Defined Benefit Plan for Financial Institutions ("Pentegra DB Plan"), a multi-employer tax qualified defined benefit pension plan.  The identification number and plan number of the Pentegra DB Plan are 13-5645888 and 333, respectively. All employees of TLNB who met minimum service requirements participated in the plan.  As of June 30, 2015, the Pentegra DB Plan had total assets of $3.3 billion, actuarial present value of accumulated benefits of $3.3 billion and was at least 80 percent funded.  The assets of the multi-employer plan may be used to satisfy obligations of any of the employers participating in the plan.  As a result, contributions made by the Company may be used to provide benefits to participants of other participating employers.  Contributions for 2016, 2015 and 2014 were approximately $0.05 million, $0.03 million, and $0.06 million, respectively. Contributions made by the Company to the Pentegra DB Plan do not represent more than 5% of contributions made to the Pentegra DB Plan.

The assumed health care cost trend rate used in the post-retirement health plan at December 31, 2016 was 7.50% for the pre-65 participants and 5.80% for the post-65 participants for medical costs and 10.5% for prescription drugs.  The rate to which the cost trend rate is assumed to decline (the ultimate trend rate) and the year that the rate reaches the ultimate trend rate is 3.89% and 2075, respectively.

82

Assumed health care cost trend rates impact the amounts reported for the health care plan.  A one-percentage-point increase or decrease in the trend rate would increase the service and interest cost components by nominal amounts.

401(k) Employee Stock Ownership Plan

The Company has a 401(k) Employee Stock Ownership Plan in which employees can contribute from 1% to 90% of eligible compensation, with the first 3% being eligible for a 100% matching contribution in the form of Company common stock and the next 3% being eligible for a 50% matching contributions in the form of Company common stock.  The expense recognized under this plan for the years ended December 31, 2016, 2015 and 2014 was $4.3 million, $3.6 million, and $3.4 million, respectively.  Effective January 1, 2010, the defined benefit pension plan was modified to a new plan design that includes an interest credit contribution to be made to the 401(k) plan.  The expense recognized for this interest credit contribution for the years ended December 31, 2016, 2015, and 2014 was $0.7 million, $1.1 million, and $0.9 million, respectively.

The Company acquired the Oneida Savings Bank 401(k) Savings Plan and the Oneida Savings Bank Employee Stock Ownership Plan with the Oneida acquisition.  Effective January 26, 2016, the Oneida Savings Bank 401(k) Savings Plan was merged into and became part of the Community Bank System, Inc. 401(k) Employee Stock Ownership Plan, and effective March 16, 2016, the Oneida Savings Bank Employee Stock Ownership plan was merged into and became part of the Community Bank System, Inc. 401(k) Employee Stock Ownership Plan.

Other Deferred Compensation Arrangements

In addition to the supplemental pension plans for certain executives, the Company has nonqualified deferred compensation arrangements for several former directors, officers and key employees.  All benefits provided under these plans are unfunded and payments to plan participants are made by the Company.  At December 31, 2016 and 2015, the Company has recorded a liability of $3.2 million and $3.6 million, respectively.  The expense recognized under these plans for the years ended December 31, 2016, 2015, and 2014 was approximately $0.03 million, $0.1 million, and $0.3 million, respectively.

Deferred Compensation Plan for Directors

Directors may defer all or a portion of their director fees under the Deferred Compensation Plan for Directors.  Under this plan, there is a separate account for each participating director which is credited with the amount of shares that could have been purchased with the director's fees as well as any dividends on such shares.  On the distribution date, the director will receive common stock equal to the accumulated share balance in their account.  As of December 31, 2016 and 2015, there were 154,013 and 151,672 shares credited to the participants' accounts, for which a liability of $4.0 million and $3.8 million was accrued, respectively.  The expense recognized under the plan for the years ended December 31, 2016, 2015 and 2014, was $0.2 million, $0.2 million, and $0.2 million, respectively.

NOTE L:  STOCK-BASED COMPENSATION PLANS

The Company has a long-term incentive program for directors, officers and employees.  Under this program, the Company initially authorized four million shares of Company common stock for the grant of incentive stock options, nonqualified stock options, restricted stock awards, and retroactive stock appreciation rights.  The long-term incentive program was amended effective May 25, 2011 and May 14, 2014 to authorize an additional 900,000 shares and 1,000,000 shares of Company common stock, respectively, for the grant of incentive stock options, nonqualified stock options, restricted stock awards, and retroactive stock appreciation rights.    As of December 31, 2016, the Company has authorization to grant up to approximately 0.9 million additional shares of Company common stock for these instruments.  The nonqualified (offset) stock options in its Director's Stock Balance Plan vest and become exercisable immediately and expire one year after the date the director retires or two years in the event of death.  The remaining options have a ten-year term, and vest and become exercisable on a grant-by-grant basis, ranging from immediate vesting to ratably over a five-year period.

83

Activity in this long-term incentive program is as follows:

	Stock Options
	Outstanding			Weighted-average Exercise Price of Shares
Outstanding at December 31, 2014		2,151,776		$	25.92
Granted		293,242			35.36
Exercised		(469,730	)		22.42
Forfeited		(5,987	)		30.21
Outstanding at December 31, 2015		1,969,301			28.15
Granted		330,383			38.02
Exercised		(525,298	)		25.12
Forfeited		(18,394	)		34.47
Outstanding at December 31, 2016		1,755,992			30.85
Exercisable at December 31, 2016		959,638		$	26.94

The following table summarizes the information about stock options outstanding under the Company's stock option plan at December 31, 2016:

		Options outstanding						Options exercisable
Range of Exercise Price		Shares		Weighted-average Exercise Price		Weighted- average Remaining Life (years)		Shares		Weighted-average Exercise Price
$	0.00 – $18.00		44,436	$	17.70		2.22		44,436	$	17.70
$	18.001 – $23.00		267,307		19.06		1.97		267,307		19.06
$	23.001 – $28.00		159,662		26.28		5.54		159,536		26.28
$	28.001 – $29.00		203,365		28.78		5.22		153,369		28.78
$	29.001 – $30.00		254,826		29.79		6.21		144,226		29.79
$	30.001 – $40.00		826,396		37.08		8.31		190,764		37.06
TOTAL			1,755,992	$	30.85		6.28		959,638	$	26.94

The weighted-average remaining contractual term of outstanding and exercisable stock options at December 31, 2016 is 6.28 years and 4.89 years, respectively.  The aggregate intrinsic value of outstanding and exercisable stock options at December 31, 2016 is $54.3 million and $33.4 million, respectively.

The Company recognized stock-based compensation expense related to incentive and non-qualified stock options of $2.2 million, $1.8 million and $2.0 million for the years ended December 31, 2016, 2015 and 2014, respectively.  A related income tax benefit was recognized of $0.8 million, $0.7 million and $0.9 million for the 2016, 2015 and 2014 years, respectively.  Compensation expense related to restricted stock vesting recognized in the income statement for 2016, 2015 and 2014 was approximately $2.4 million, $2.2 million and $2.0 million, respectively.

Management estimated the fair value of options granted using the Black-Scholes option-pricing model.  This model was originally developed to estimate the fair value of exchange-traded equity options, which (unlike employee stock options) have no vesting period or transferability restrictions.  As a result, the Black-Scholes model is not necessarily a precise indicator of the value of an option, but it is commonly used for this purpose.  The Black-Scholes model requires several assumptions, which management developed based on historical trends and current market observations.

	2016			2015			2014
Weighted-average Fair Value of Options Granted	$	7.90		$	7.48		$	8.38
Assumptions:
Weighted-average expected life (in years)		6.50			6.50			6.50
Future dividend yield		3.43	%		3.40	%		3.70	%
Share price volatility		30.00	%		30.34	%		30.71	%
Weighted-average risk-free interest rate		1.72	%		1.73	%		2.69	%

84

Unrecognized stock-based compensation expense related to non-vested stock options totaled $4.4 million at December 31, 2016.  The weighted-average period over which this unrecognized expense would be recognized is 3.2 years.  The total fair value of stock options vested during 2016, 2015, and 2014 were $2.1 million, $1.9 million and $1.9 million, respectively.

During the 12 months ended December 31, 2016 and 2015, proceeds from stock option exercises totaled $12.0 million and $10.4 million, respectively, and the related tax benefits from exercise were approximately $2.7 million and $2.1 million, respectively.   During the twelve months ended December 31, 2016 and 2015, approximately 0.4 million shares were issued in connection with stock option exercises each year.  The total intrinsic value of options exercised during 2016, 2015 and 2014 were $10.3 million, $7.6 million and $5.7 million, respectively.

A summary of the status of the Company's unvested restricted stock awards as of December 31, 2016, and changes during the twelve months ended December 31, 2016 and 2015, is presented below:

	Restricted Shares			Weighted-average grant date fair value
Unvested at December 31, 2014		245,721		$	26.13
Awards		60,519			35.39
Forfeitures		(874	)		32.43
Vestings		(59,055	)		28.35
Unvested at December 31, 2015		246,311			27.85
Awards		148,240			27.04
Forfeitures		(42,394	)		17.49
Vestings		(98,327	)		25.64
Unvested at December 31, 2016		253,830		$	29.98

Unrecognized stock-based compensation expense related to unvested restricted stock totaled $5.7 million at December 31, 2016, which will be recognized as expense over the next five years.  The weighted-average period over which this unrecognized expense would be recognized is 4.7 years.  The total fair value of restricted stock vested during 2016, 2015, and 2014 were $2.5 million, $1.7 million and $1.6 million, respectively.

NOTE M:  EARNINGS PER SHARE

The two class method is used in the calculations of basic and diluted earnings per share.  Under the two class method, earnings available to common shareholders for the period are allocated between common shareholders and participating securities according to dividends declared and participation rights in undistributed earnings.  The Company has determined that all of its outstanding non-vested stock awards are participating securities as of December 31, 2016.

Basic earnings per share are computed based on the weighted-average of the common shares outstanding for the period.  Diluted earnings per share are based on the weighted-average of the shares outstanding and the assumed exercise of stock options during the year.  The dilutive effect of options is calculated using the treasury stock method of accounting.  The treasury stock method determines the number of common shares that would be outstanding if all the dilutive options (those where the average market price is greater than the exercise price) 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.  There were approximately 0.3 million, 0.3 million and 0.2 million weighted-average anti-dilutive stock options outstanding at December 31, 2016, 2015 and 2014, respectively, which were not included in the computation below.

85

The following is a reconciliation of basic to diluted earnings per share for the years ended December 31, 2016, 2015 and 2014.

(000's omitted, except per share data)	2016			2015			2014
Net income	$	103,812		$	91,230		$	91,353
Income attributable to unvested stock-based compensation awards		(550	)		(453	)		(456	)
Income available to common shareholders	$	103,262		$	90,777		$	90,897
Weighted-average common shares outstanding - basic		44,091			40,996			40,548
Basic earnings per share	$	2.34		$	2.21		$	2.24
Net income	$	103,812		$	91,230		$	91,353
Income attributable to unvested stock-based compensation awards		(550	)		(453	)		(456	)
Income available to common shareholders	$	103,262		$	90,777		$	90,897
Weighted-average common shares outstanding		44,091			40,996			40,548
Assumed exercise of stock options		394			405			481
Weighted-average common shares outstanding – diluted		44,485			41,401			41,029
Diluted earnings per share	$	2.32		$	2.19		$	2.22
Cash dividends declared per share	$	1.26		$	1.22		$	1.16

Stock Repurchase Program

At its December 2015 meeting, the Board approved a stock repurchase program authorizing the repurchase of up to 2.2 million shares of the Company's common stock, in accordance with securities laws and regulations, through December 31, 2016.  At its December 2016 meeting, the Board approved a similar program for 2017, authorizing the repurchase of up to 2.2 million shares of the Company's common stock through December 31, 2017.  Any repurchased shares will be used for general corporate purposes, including those related to stock plan activities.  The timing and extent of repurchases will depend on market conditions and other corporate considerations as determined at the Company's discretion.  There were no stock repurchases pursuant to the announced plan in 2016.  During 2015 and 2014, the Company repurchased approximately 0.3 million and 0.1 million, respectively, shares of its common stock in open market transactions.

NOTE N:  COMMITMENTS, CONTINGENT LIABILITIES AND RESTRICTIONS

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers.  These financial instruments consist primarily of commitments to extend credit and standby letters of credit.  Commitments to extend credit are agreements to lend to customers, generally having fixed expiration dates or other termination clauses that may require payment of a fee.  These commitments consist principally of unused commercial and consumer credit lines.  Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of an underlying contract with a third party.  The credit risks associated with commitments to extend credit and standby letters of credit are essentially the same as that involved with extending loans to customers and are subject to the Company's normal credit policies.  Collateral may be obtained based on management's assessment of the customer's creditworthiness.  The fair value of the standby letters of credit is immaterial for disclosure.

The contract amounts of commitments and contingencies are as follows at December 31:

(000's omitted)	2016		2015
Commitments to extend credit	$	773,442	$	811,442
Standby letters of credit		22,656		19,053
Total	$	796,098	$	830,495

The Company has unused lines of credit of $25.0 million at December 31, 2016.  The Company has unused borrowing capacity of approximately $1.2 billion through collateralized transactions with the FHLB and $26.0 million through collateralized transactions with the Federal Reserve.

The Company is required to maintain a reserve balance, as established by the Federal Reserve.  The required average total reserve for the 14-day maintenance period of December 22, 2016 through January 4, 2017 was $82.8 million, with $64.9 million represented by cash on hand and the remaining $17.9 million was required to be on deposit with the Federal Reserve.

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The Company and its subsidiaries are subject in the normal course of business to various pending and threatened legal proceedings in which claims for monetary damages are asserted. As of December 31, 2016, management, after consultation with legal counsel, does not anticipate that the aggregate ultimate liability arising out of litigation pending or threatened 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 legal proceedings. For those matters where it is probable that the Company will incur losses and the amounts of the losses can be reasonably estimated, the Company records an expense and corresponding liability in its consolidated financial statements. To the extent the pending or threatened litigation could result in exposure in excess of that liability, the amount of such excess is not currently estimable. The range of reasonably possible losses for matters where an exposure is not currently estimable or considered probable, beyond the existing recorded liabilities, is between $0 and $1 million in the aggregate. Although the Company does not believe that the outcome of pending litigation 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.

NOTE O:  LEASES

The Company leases buildings, office space, and equipment under agreements that expire in various years.  Rental expense included in operating expenses amounted to $5.8 million, $5.4 million and $5.3 million in 2016, 2015 and 2014, respectively.  The future minimum rental commitments as of December 31, 2016 for all non-cancelable operating leases are as follows:

2017	$	6,078
2018		5,574
2019		5,040
2020		3,857
2021		3,098
Thereafter		7,297
Total	$	30,944

NOTE P:  REGULATORY MATTERS

The Company and the Bank are subject to various regulatory capital requirements administered by federal banking agencies.  Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company's and the Bank's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.  The Company's and the Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.  Management believes, as of December 31, 2016, that the Company and Bank meet all applicable capital adequacy requirements.

Basel III Transitional rules became effective for the Company on January 1, 2015 with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019.  Beginning in 2016, the Company and the Bank are required to maintain a "capital conservation buffer," composed entirely of common equity Tier 1 capital, in addition to minimum risk-based capital ratios.  The required capital conservation buffer for 2016 is 0.625%.  Therefore, to satisfy both the minimum risk-based capital ratios and the capital conservation buffer in 2016, the Company and the Bank must maintain: (i) Common equity Tier 1 capital to total risk-weighted assets of at least 5.125%, (ii) Tier 1 capital to total risk-weighted assets of at least 6.625%, and (iii) Total capital (Tier 1 capital plus Tier 2 capital) to total risk-weighted assets of at least 8.625%. As of December 31, 2016 and 2015, the amounts, ratios and requirements for the Company are presented below calculated under the Basel III Standardized Transitional Approach.  As of December 31, 2016, the most recent notification from the OCC categorized the Company and Bank as "well capitalized" under the regulatory framework for prompt corrective action.

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											For capital adequacy					To be well-capitalized
						For capital adequacy					purposes plus Capital					under prompt
	Actual					purposes					Conservation Buffer					corrective action
(000's omitted)	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
Community Bank System, Inc.:
2016
Tier 1 Leverage ratio	$	858,347		10.55	%	$	325,438		4.00	%						$	406,798		5.00	%
Tier 1 risk-based capital		858,347		18.10	%		284,583		6.00	%	$	314,228		6.625	%		379,445		8.00	%
Total risk-based capital		905,996		19.10	%		379,445		8.00	%		409,089		8.625	%		474,306		10.00	%
Common equity tier 1 capital		759,199		16.01	%		213,438		4.50	%		243,082		5.125	%		308,299		6.50	%
2015
Tier 1 Leverage ratio	$	788,717		10.32	%	$	305,761		4.00	%						$	382,201		5.00	%
Tier 1 risk-based capital		788,717		17.09	%		276,886		6.00	%							369,181		8.00	%
Total risk-based capital		834,539		18.08	%		369,181		8.00	%							461,477		10.00	%
Common equity tier 1 capital		689,528		14.94	%		207,664		4.50	%							299,960		6.50	%
Community Bank, N.A.:
2016
Tier 1 Leverage ratio	$	672,633		8.30	%	$	324,080		4.00	%						$	405,099		5.00	%
Tier 1 risk-based capital		672,633		14.28	%		282,662		6.00	%	$	312,106		6.625	%		376,883		8.00	%
Total risk-based capital		720,282		15.29	%		376,883		8.00	%		406,327		8.625	%		471,104		10.00	%
Common equity tier 1 capital		672,578		14.28	%		211,997		4.50	%		241,441		5.125	%		306,217		6.50	%
2015
Tier 1 Leverage ratio	$	673,443		8.88	%	$	303,256		4.00	%						$	379,070		5.00	%
Tier 1 risk-based capital		673,443		14.65	%		275,739		6.00	%							367,652		8.00	%
Total risk-based capital		719,265		15.65	%		367,652		8.00	%							459,565		10.00	%
Common equity tier 1 capital		673,326		14.65	%		206,804		4.50	%							298,717		6.50	%

NOTE Q:  PARENT COMPANY STATEMENTS

The condensed balance sheets of the parent company at December 31 are as follows:

(000's omitted)	2016		2015
Assets:
Cash and cash equivalents	$	151,127	$	97,317
Investment securities		3,628		3,576
Investment in and advances to:
Bank subsidiary		1,116,554		1,117,419
Non-bank subsidiaries		35,566		30,643
Other assets		10,345		9,996
Total assets	$	1,317,220	$	1,258,951
Liabilities and shareholders' equity:
Accrued interest and other liabilities	$	16,950	$	16,158
Borrowings		102,170		102,146
Shareholders' equity		1,198,100		1,140,647
Total liabilities and shareholders' equity	$	1,317,220	$	1,258,951

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The condensed statements of income of the parent company for the years ended December 31 is as follows:

(000's omitted)	2016			2015			2014
Revenues:
Dividends from subsidiaries:
Bank subsidiary	$	89,000		$	70,000		$	57,200
Non-bank subsidiaries		1,750			6,000			3,900
Interest and dividends on investments		102			94			88
Total revenues		90,852			76,094			61,188
Expenses:
Interest on borrowings		2,949			2,537			2,477
Acquisition expenses		429			0			0
Other expenses		11			19			37
Total expenses		3,389			2,556			2,514
Income before tax benefit and equity in undistributed net income of subsidiaries		87,463			73,538			58,674
Income tax benefit/(expense)		866			(572	)		581
Income before equity in undistributed net income of subsidiaries		88,329			72,966			59,255
Equity in undistributed net income of subsidiaries		15,483			18,264			32,098
Net income	$	103,812		$	91,230		$	91,353
Other comprehensive (loss)/income, net of tax:
Other comprehensive income/(loss) related to pension and    other post retirement obligations		3,322			(4,567	)		(9,571	)
Other comprehensive (loss)/income related to unrealized    (losses)/gains on available-for-sale securities		(14,714	)		(6,918	)		66,837
Other comprehensive (loss)/income		(11,392	)		(11,485	)		57,266
Comprehensive income	$	92,420		$	79,745		$	148,619

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The statements of cash flows of the parent company for the years ended December 31 is as follows:

(000's omitted)	2016			2015			2014
Operating activities:
Net income	$	103,812		$	91,230		$	91,353
Adjustments to reconcile net income to net cash provided by operating activities
Equity in undistributed net income of subsidiaries		(15,483	)		(18,264	)		(32,098	)
Net change in other assets and other liabilities		(215	)		(27	)		(479	)
Net cash provided by operating activities		88,114			72,939			58,776
Investing activities:
Proceeds from sale of investment securities		0			0			3
Cash received for acquisitions, net of cash acquired of $0, $81,772, and $0,      respectively		0			25,505			0
Capital contributions to subsidiaries		0			(80,231	)		0
Net cash (used in) provided by investing activities		0			(54,726	)		3
Financing activities:
Issuance of common stock		15,326			13,975			13,410
Purchase of treasury stock		(3,470	)		(9,126	)		(4,368	)
Sale of treasury stock		8,888			16,571			1,531
Cash dividends paid		(55,048	)		(49,273	)		(46,178	)
Net cash used in financing activities		(34,304	)		(27,853	)		(35,605	)
Change in cash and cash equivalents		53,810			(9,640	)		23,174
Cash and cash equivalents at beginning of year		97,317			106,957			83,783
Cash and cash equivalents at end of year	$	151,127		$	97,317		$	106,957
Supplemental disclosures of cash flow information:
Cash paid for interest	$	2,909		$	2,523		$	2,473
Supplemental disclosures of noncash financing activities
Dividends declared and unpaid	$	14,268		$	13,605		$	12,254
Capital contributions to subsidiaries		0			76,461			0
Common stock issued for acquisition		0			102,202			0

NOTE R:  FAIR VALUE

Accounting standards allow entities an irrevocable option to measure certain financial assets and financial liabilities at fair value.  Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings.  The Company has elected to value mortgage loans held for sale at fair value in order to more closely match the gains and losses associated with loans held for sale with the gains and losses on forward sales contracts.  Accordingly, the impact on the valuation will be recognized in the Company's consolidated statement of income.  All mortgage loans held for sale are current and in performing status.

Accounting standards establish a framework for measuring fair value and require certain disclosures about such fair value instruments.  It defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. exit price).  Inputs used to measure fair value are classified into the following hierarchy:

· Level 1 – Quoted prices in active markets for identical assets or liabilities.

· Level 2 – Quoted prices in active markets for similar assets or liabilities, or quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.

· Level 3 – Significant valuation assumptions not readily observable in a market.

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A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.  The following tables set forth the Company's financial assets and liabilities that were accounted for at fair value on a recurring basis.  There were no transfers between any of the levels for the periods presented.

	December 31, 2016
(000's omitted)	Level 1		Level 2			Level 3		Total Fair Value
Available-for-sale investment securities:
U.S. Treasury and agency securities	$	1,902,762	$	0		$	0	$	1,902,762
Obligations of state and political subdivisions		0		594,990			0		594,990
Government agency mortgage-backed securities		0		235,230			0		235,230
Corporate debt securities		0		5,687			0		5,687
Government agency collateralized mortgage obligations		0		9,535			0		9,535
Marketable equity securities		452		0			0		452
Total available-for-sale investment securities		1,903,214		845,442			0		2,748,656
Mortgage loans held for sale		0		2,416			0		2,416
Commitments to originate real estate loans for sale		0		0			54		54
Forward sales commitments		0		3			0		3
Total	$	1,903,214	$	847,861		$	54	$	2,751,129
	December 31, 2015
(000's omitted)	Level 1		Level 2			Level 3		Total Fair Value
Available-for-sale investment securities:
U.S. Treasury and agency securities	$	1,899,978	$	0		$	0	$	1,899,978
Obligations of state and political subdivisions		0		666,883			0		666,883
Government agency mortgage-backed securities		0		210,865			0		210,865
Corporate debt securities		0		16,680			0		16,680
Government agency collateralized mortgage obligations		0		13,308			0		13,308
Marketable equity securities		399		0			0		399
Total available-for-sale investment securities		1,900,377		907,736			0		2,808,113
Mortgage loans held for sale		0		932			0		932
Commitments to originate real estate loans for sale		0		0			117		117
Forward sales commitments		0		(37	)		0		(37	)
Total	$	1,900,377	$	908,631		$	117	$	2,809,125

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

· Available for sale investment securities – The fair value of available-for-sale investment securities is based upon quoted prices, if available.  If quoted prices are not available, fair values are measured using quoted market prices for similar securities or model-based valuation techniques.  Level 1 securities include U.S. Treasury obligations and marketable equity securities that are traded by dealers or brokers in active over-the-counter markets.  Level 2 securities include U.S. agency securities, mortgage-backed securities issued by government-sponsored entities, municipal securities and corporate debt securities that are valued by reference to prices for similar securities or through model-based techniques in which all significant inputs, such as reported trades, trade execution data, LIBOR swap yield curve, market prepayment speeds, credit information, market spreads, and security's terms and conditions, are observable.  See Note C for further disclosure of the fair value of investment securities.

· Mortgage loans held for sale – Mortgage loans held for sale are carried at fair value, which is determined using quoted secondary-market prices of loans with similar characteristics and, as such, have been classified as a Level 2 valuation.  The unpaid principal value of mortgage loans held for sale at December 31, 2016 is approximately $2.4 million.  The unrealized gain on mortgage loans held for sale of approximately $2,000 was recognized in other banking services in the Consolidated Statement of Income for the year ended December 31, 2016.

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· Forward sales commitments – The Company enters into forward sales commitments to sell certain residential real estate loans.  Such commitments are considered to be derivative financial instruments and, therefore, are carried at estimated fair value in the other asset or other liability section of the consolidated balance sheet.  The fair value of these forward sales commitments is primarily measured by obtaining pricing from certain government-sponsored entities and reflects the underlying price the entity would pay the Company for an immediate sale on these mortgages.  As such, these instruments are classified as Level 2 in the fair value hierarchy.

· Commitments to originate real estate loans for sale – The Company enters into various commitments to originate residential real estate loans for sale.  Such commitments are considered to be derivative financial instruments and, therefore, are carried at estimated fair value in the other asset or other liability section of the consolidated balance sheet.  The estimated fair value of these commitments is determined using quoted secondary market prices obtained from certain government-sponsored entities.  Additionally, accounting guidance requires the expected net future cash flows related to the associated servicing of the loan to be included in the fair value measurement of the derivative.  The expected net future cash flows are based on a valuation model that calculates the present value of estimated net servicing income.  The valuation model incorporates assumptions that market participants would use in estimating future net servicing income.  Such assumptions include estimates of the cost of servicing loans, appropriate discount rate and prepayment speeds.  The determination of expected net cash flows is considered a significant unobservable input contributing to the Level 3 classification of commitments to originate real estate loans for sale.

 The changes in Level 3 assets measured at fair value on a recurring basis are summarized in the following tables:

	For the Year Ending December 31,
	2016			2015
(000's omitted)	Commitments to Originate Real Estate Loans for Sale			Commitments to Originate Real Estate Loans for Sale
Beginning balance	$	117		$	185
Total (losses)/gains included in earnings (1)		(1,234	)		(808	)
Commitments to originate real estate loans held for sale, net		1,171			740
Ending balance	$	54		$	117
(1) Amounts included in earnings associated with the commitments to originate real estate loans for sale are reported as a component of other banking services in the Consolidated Statement of Income.

Assets and liabilities measured on a non-recurring basis:

	December 31, 2016								December 31, 2015
(000's omitted)	Level 1		Level 2		Level 3		Total Fair Value		Level 1		Level 2		Level 3		Total Fair Value
Impaired loans	$	0	$	0	$	633	$	633	$	0	$	0	$	1,765	$	1,765
Other real estate owned		0		0		1,966		1,966		0		0		2,088		2,088
Total	$	0	$	0	$	2,599	$	2,599	$	0	$	0	$	3,853	$	3,853

Loans are generally not recorded at fair value on a recurring basis.  Periodically, the Company records nonrecurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans.  Nonrecurring adjustments also include certain impairment amounts for collateral-dependent loans calculated when establishing the allowance for credit losses. Such amounts are generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated valuation amount does not necessarily represent the fair value of the loan. Real estate collateral is typically valued using independent appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace, adjusted for non-observable inputs.  Thus, the resulting nonrecurring fair value measurements are generally classified as Level 3. Estimates of fair value used for other collateral supporting commercial loans generally are based on assumptions not observable in the marketplace and, therefore, such valuations classify as Level 3.  At December 31, 2016, there were two impaired loans recorded at the fair value of the underlying collateral.

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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 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% to 97% at December 31, 2016, and result in a Level 3 classification of the inputs for determining fair value. OREO is reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors identified above. The Company recovers the carrying value of OREO through the sale of the property. The ability to affect future sales prices is subject to market conditions and factors beyond the Company's control and may impact the estimated fair value of a property.

Originated mortgage servicing rights are recorded at their fair value at the time of sale of the underlying loan, and are amortized in proportion to and over the estimated period of net servicing income.  The fair value of mortgage servicing rights is based on a valuation model incorporating inputs that market participants would use in estimating future net servicing income.  Such inputs include estimates of the cost of servicing loans, appropriate discount rate, and prepayment speeds and are considered to be unobservable and contribute to the Level 3 classification of mortgage servicing rights.    In accordance with GAAP, the Company must record impairment charges, on a nonrecurring basis, when the carrying value of a stratum exceeds its estimated fair value.  Impairment is recognized through a valuation allowance.  There is no valuation allowance at December 31, 2016 as the fair value of mortgage servicing rights of approximately $1.9 million exceeded the carrying value of approximately $1.4 million.

The Company evaluates goodwill for impairment on an annual basis, or more often if events or circumstances indicate there may be impairment.  The fair value of each reporting unit is compared to the carrying amount of that reporting unit in order to determine if impairment is indicated.  If so, the implied fair value of the reporting unit's goodwill is compared to its carrying amount and the impairment loss is measured by the excess of the carrying value of the goodwill over fair value of the goodwill.  In such situations, the Company performs a discounted cash flow modeling technique that requires management to make estimates regarding the amount and timing of expected future cash flows of the assets and liabilities of the reporting unit that enable the Company to calculate the implied fair value of the goodwill.  It also requires use of a discount rate that reflects the current return expectation of the market in relation to present risk-free interest rates, expected equity market premiums, peer volatility indicators and company-specific risk indicators.  The Company did not recognize an impairment charge during 2016 or 2015.

The significant unobservable inputs used in the determination of fair value of assets classified as Level 3 on a recurring or non-recurring basis as of December 31, 2016 are as follows:

(000's omitted)	Fair Value		Valuation Technique	Significant Unobservable Inputs	Significant Unobservable Input Range (Weighted Average)
Other real estate owned	$	1,966	Fair value of collateral	Estimated cost of disposal/market adjustment		9.0% - 97.0% (29.6	%)
Impaired loans		633	Fair value of collateral	Estimated cost of disposal/market adjustment		15.0% - 50.0% (36.5	%)
Commitments to originate   real estate loans for sale		54	Discounted cash flow	Embedded servicing value		1	%

The significant unobservable inputs used in the determination of fair value of assets classified as Level 3 on a recurring or non-recurring basis as of December 31, 2015 are as follows:

(000's omitted)	Fair Value		Valuation Technique	Significant Unobservable Inputs	Significant Unobservable Input Range (Weighted Average)
Other real estate owned	$	2,088	Fair value of collateral	Estimated cost of disposal/market adjustment		5.3% - 74.0% (27.7	%)
Impaired loans		1,765	Fair value of collateral	Estimated cost of disposal/market adjustment		9.0% - 20.0% (17.9	%)
Commitments to originate   real estate loans for sale		117	Discounted cash flow	Embedded servicing value		1	%

The Company determines fair values based on quoted market values, where available, estimates of present values, or other valuation techniques.  Those techniques are significantly affected by the assumptions used, including, but not limited to, the discount rate and estimates of future cash flows.  In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, may not be realized in immediate settlement of the instrument.  Certain financial instruments and all nonfinancial instruments are excluded from fair value disclosure requirements.  Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

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The carrying amounts and estimated fair values of the Company's other financial instruments that are not accounted for at fair value at December 31, 2016 and 2015 are as follows:

	December 31, 2016				December 31, 2015
(000's omitted)	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets:
Net loans	$	4,901,329		4,935,140	$	4,755,974	$	4,808,856
Financial liabilities:
Deposits		7,075,954		7,071,191		6,873,474		6,871,098
Borrowings		146,200		146,200		301,300		301,300
Subordinated debt held by unconsolidated subsidiary trusts		102,170		90,144		102,146		84,680

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

Loans have been classified as a Level 3 valuation.  Fair values for variable rate loans that reprice frequently are based on carrying values.  Fair values for fixed rate loans are estimated using discounted cash flows and interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.

Deposits have been classified as a Level 2 valuation.  The fair value of demand deposits, interest-bearing checking deposits, savings accounts and money market deposits is the amount payable on demand at the reporting date.  The fair value of time deposit obligations are based on current market rates for similar products.

Borrowings have been classified as a Level 2 valuation.  The fair value of FHLB overnight advances is the amount payable on demand at the reporting date.  Fair values for long-term borrowings are estimated using discounted cash flows and interest rates currently being offered on similar borrowings, and are immaterial as of the reporting dates.

Subordinated debt held by unconsolidated subsidiary trusts have been classified as a Level 2 valuation.   The fair value of subordinated debt held by unconsolidated subsidiary trusts 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.  The fair values of each approximate the respective carrying values because the instruments are payable on demand or have short-term maturities and present relatively low credit risk and interest rate risk.

NOTE S:  DERIVATIVE INSTRUMENTS

The Company is party to derivative financial instruments in the normal course of its business to meet the financing needs of its customers and to manage its own exposure to fluctuations in interest rates.  These financial instruments have been limited to commitments to originate real estate loans held for sale and forward sales commitments.  The Company does not hold or issue derivative financial instruments for trading or other speculative purposes.

The Company enters into forward sales commitments for the future delivery of residential mortgage loans, and interest rate lock commitments to fund loans at a specified interest rate.  The forward sales commitments are utilized to reduce interest rate risk associated with interest rate lock commitments and loans held for sale.  Changes in the estimated fair value of the forward sales commitments and interest rate lock commitments subsequent to inception are based on changes in the fair value of the underlying loan resulting from the fulfillment of the commitment and changes in the probability that the loan will fund within the terms of the commitment, which is affected primarily by changes in interest rates and the passage of time.  At inception and during the life of the interest rate lock commitment, the Company includes the expected net future cash flows related to the associated servicing of the loan as part of the fair value measurement of the interest rate lock commitments.  These derivatives are recorded at fair value, which were immaterial at December 31, 2016.  The effect of the changes to these derivatives for the year then ended was also immaterial.

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NOTE T:  VARIABLE INTEREST ENTITIES

The Company's wholly-owned subsidiaries, Community Statutory Trust III and Community Capital Trust IV, are VIEs for which the Company is not the primary beneficiary.  Accordingly, the accounts of these entities are not included in the Company's consolidated financial statements.  See further information regarding Community Statutory Trust III and Community Capital Trust IV in Note H: Borrowings.

In connection with the Company's acquisition of Oneida, the Company acquired OPFC II which holds a 50% membership interest in 706 North Clinton, LLC ("706 North Clinton"), an entity formed for the purpose of acquiring and rehabilitating real property.  The real property held by 706 North Clinton is principally occupied by subsidiaries of the Company. The Company analyzed the operating agreement and capital structure of 706 North Clinton and determined that it was the primary beneficiary and therefore should consolidate 706 North Clinton in its financial statements.  This conclusion was based on the determination that the Company has a de facto agency relationship because of the financing arrangement between the other member of 706 North Clinton and the Bank which provides OPFC II with both the power to direct the activities of 706 North Clinton and the obligation to absorb any losses of 706 North Clinton.

The carrying amount of the assets and liabilities of 706 North Clinton and the classification of these assets and liabilities in the Company's Consolidated Statements of Financial Condition at December 31 is as follows:

(000's omitted)	2016		2015
Cash and cash equivalents	$	30	$	42
Premises and equipment, net		6,429		6,592
Other assets		0		9
Total assets	$	6,459	$	6,643
Accrued interest and other liabilities / Total liabilities	$	1	$	5

In addition to the assets and liabilities of 706 North Clinton, the minority interest in 706 North Clinton of $3.23 million at December 31, 2016 is included in the Company's Consolidated Statement of Financial Condition.  The creditors of 706 North Clinton do not have a claim on the general assets of the Company.  The Company's maximum loss exposure net of minority interest in 706 North Clinton is approximately $4.8 million as of December 31, 2016, including a $1.6 million loss exposure related to the financing agreement between the other member of 706 North Clinton and the Bank.

95

NOTE U:  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.  CBNA operates the Banking segment that provides full-service banking to consumers, businesses, and governmental units in northern, central, and western New York as well as northeast Pennsylvania.  Employee Benefit Services, which includes BPA, BPAS-APS (formerly Harbridge Consulting Group, LLC), BPAS Trust Company of Puerto Rico and HB&T, provides employee benefit trust, collective investment fund, retirement plan administration, 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 CISI, OWM, and The Carta Group, and asset management provided by Nottingham, 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).

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

(000's omitted)	Banking		Employee Benefit Services		All Other		Eliminations			Consolidated Total
2016
Net interest income	$	273,542	$	162	$	192	$	0		$	273,896
Provision for loan losses		8,076		0		0		0			8,076
Noninterest income		66,059		48,261		43,747		(2,442	)		155,625
Amortization of intangible assets		2,682		420		2,377		0			5,479
Other operating expenses		191,268		37,337		35,206		(2,442	)		261,369
Income before income taxes	$	137,575	$	10,666	$	6,356	$	0		$	154,597
Assets	$	8,598,057	$	38,742	$	71,428	$	(41,790	)	$	8,666,437
Goodwill	$	440,870	$	8,019	$	16,253	$	0		$	465,142
2015
Net interest income	$	248,167	$	132	$	121	$	0		$	248,420
Provision for loan losses		6,447		0		0		0			6,447
Noninterest income		57,704		46,784		20,967		(2,156	)		123,299
Amortization of intangible assets		2,803		515		345		0			3,663
Other operating expenses		181,865		35,218		14,465		(2,156	)		229,392
Income before income taxes	$	114,756	$	11,183	$	6,278	$	0		$	132,217
Assets	$	8,513,228	$	35,011	$	70,067	$	(65,637	)	$	8,552,669
Goodwill	$	439,052	$	8,019	$	16,181	$	0		$	463,252
2014
Net interest income	$	244,243	$	92	$	93	$	0		$	244,428
Provision for loan losses		7,178		0		0		0			7,178
Noninterest income		58,565		43,701		18,634		(1,880	)		119,020
Amortization of intangible assets		3,438		647		202		0			4,287
Other operating expenses		178,472		32,846		12,855		(1,880	)		222,293
Income before income taxes	$	113,720	$	10,300	$	5,670	$	0		$	129,690
Assets	$	7,463,379	$	31,513	$	15,635	$	(21,087	)	$	7,489,440
Goodwill	$	364,495	$	8,019	$	2,660	$	0		$	375,174

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NOTE V:  SUBSEQUENT EVENTS

Companies are required to evaluate events and transactions that occur after the balance sheet date but before the date the financial statements are issued, or available to be issued in the case of non-public entities.  They must recognize in the financial statements the effect of all events or transactions that provide additional evidence of conditions that existed at the balance sheet date, including the estimates inherent in the financial preparation process.  Entities do not recognize the impact of events or transactions that provide evidence about conditions that did not exist at the balance sheet date but arose after that date.   

On February 3, 2017, the Company completed its acquisition of Northeast Retirement Services, Inc. ("NRS") and its subsidiary Global Trust Company ("GTC") headquartered in Woburn, Massachusetts for approximately $148 million in Company stock and cash. NRS was a privately held corporation focused on providing institutional transfer agency, master recordkeeping services, custom target date fund administration, trust product administration and customized reporting services to institutional clients.  Its wholly-owned subsidiary, GTC, was chartered in the State of Maine in 2008, as a non-depository trust company which provides fiduciary services for collective investment trusts and other products.  The acquisition will strengthen and complement the Company's existing employee benefit services businesses.  Upon the completion of the merger, NRS is a wholly-owned subsidiary of BPAS and will operate as Northeast Retirement Services, LLC, a Delaware limited liability company.  The initial accounting for the assets and liabilities assumed with this acquisition is incomplete as of the date of issuance of the financial statements due to the proximity of the acquisition date to the date of issuance.

97

Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).  Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based on our evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2016.

The consolidated financial statements of the Company have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm that was engaged to express an opinion as to the fairness of presentation of such financial statements.  PricewaterhouseCoopers LLP was also engaged to audit the effectiveness of the Company's internal control over financial reporting.  The report of PricewaterhouseCoopers LLP follows this report.

Community Bank System, Inc.

By:  /s/ Mark E. Tryniski

Mark E. Tryniski,

President, Chief Executive Officer and Director

By:  /s/ Scott  Kingsley

Scott Kingsley,

Treasurer and Chief Financial Officer

98

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of

Community Bank System, Inc.

In our opinion, the accompanying consolidated statements of condition and the related consolidated statements of income, comprehensive income, changes in shareholders' equity, and cash flows present fairly, in all material respects, the financial position of Community Bank System, Inc. and its subsidiaries at December 31, 2016 and December 31, 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016 in conformity with accounting principles generally accepted in the United States of America.  Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control over Financial Reporting.  Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits.  We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects.  Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/PricewaterhouseCoopers LLP

Buffalo, New York

March 1, 2017

99

TWO YEAR SELECTED QUARTERLY DATA (Unaudited)

2016 Results	4th		3rd		2nd		1st
(000's omitted, except per share data)	Quarter		Quarter		Quarter		Quarter		Total
Net interest income	$	70,246	$	68,463	$	68,306	$	66,881	$	273,896
Provision for loan losses		2,640		1,790		2,305		1,341		8,076
Net interest income after provision for loan losses		67,606		66,673		66,001		65,540		265,820
Noninterest income		38,620		39,952		38,772		38,281		155,625
Noninterest expenses		66,597		66,226		66,356		67,669		266,848
Income before income taxes		39,629		40,399		38,417		36,152		154,597
Income taxes		13,237		13,239		12,560		11,749		50,785
Net income	$	26,392	$	27,160	$	25,857	$	24,403	$	103,812
Basic earnings per share	$	0.59	$	0.61	$	0.58	$	0.55	$	2.34
Diluted earnings per share	$	0.59	$	0.61	$	0.58	$	0.55	$	2.32
2015 Results	4th		3rd		2nd		1st
(000's omitted, except per share data)	Quarter		Quarter		Quarter		Quarter		Total
Net interest income	$	64,989	$	62,363	$	61,228	$	59,840	$	248,420
Provision for loan losses		3,327		1,906		591		623		6,447
Net interest income after provision for loan losses		61,662		60,457		60,637		59,217		241,973
Noninterest income		33,148		31,386		29,719		29,046		123,299
Noninterest expenses		64,980		56,079		56,048		55,948		233,055
Income before income taxes		29,830		35,764		34,308		32,315		132,217
Income taxes		9,759		10,742		10,468		10,018		40,987
Net income	$	20,071	$	25,022	$	23,840	$	22,297	$	91,230
Basic earnings per share	$	0.48	$	0.61	$	0.58	$	0.55	$	2.21
Diluted earnings per share	$	0.47	$	0.60	$	0.58	$	0.54	$	2.19

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures, as defined in Rule 13a -15(e) and 15d – 15(e) under the Securities Exchange Act of 1934, as amended, designed to: (i) record, process, summarize, and report within the time periods specified in the SEC's rules and forms, and (ii) accumulate and communicate to management, including the principal executive and principal financial officers, as appropriate, to allow timely decisions regarding disclosure. Based on evaluation of the Company's disclosure controls and procedures, with the participation of the Chief Executive Officer ("CEO") and the Chief Financial Officer ("CFO"), the CEO and CFO have concluded that, as of the end of the period covered by this Annual Report on Form 10-K, these disclosure controls and procedures were effective as of December 31, 2016.

Management's Annual Report on Internal Control over Financial Reporting

Management's annual report on internal control over financial reporting is included under the heading "Report on Internal Control Over Financial Reporting" at Item 8 of this Annual Report on Form 10-K.

Report of the Registered Public Accounting Firm

The report of the Company's registered public accounting firm is included under the heading "Report of the Independent Registered Public Accounting Firm" at Item 8 of this Annual Report on Form 10-K.

100

Changes in Internal Control over Financial Reporting

The Company continually assesses the adequacy of its internal control over financial reporting and enhances its controls in response to internal control assessments, and internal and external audit and regulatory recommendations.  No change in internal control over financial reporting during the quarter ended December 31, 2016 has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Item 9B. Other Information

None

Part III

Item 10.  Directors, Executive Officers and Corporate Governance

The information concerning the Directors of the Company required by this Item 10 is incorporated herein by reference to the sections entitled "Nominees for Director and Directors Continuing in Office" in the Company's Definitive Proxy Statement for its 2017 Annual Meeting of Shareholders, which will be filed with the SEC on or about March 31, 2017 (the "Proxy Statement").  The information concerning executive officers of the Company required by this Item 10 is presented in Item 4A of this Annual Report on Form 10-K.  Disclosure of compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, by the Company's directors and executive officers is incorporated by reference to the section entitled "Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement.  In addition, information concerning Audit Committee and Audit Committee Financial Expert is included in the Proxy Statement under the caption "Audit Committee Report" and is incorporated herein by reference.

The Company has adopted a code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.  The text of the code of ethics is posted on the Company's website at www.communitybankna.com, and is available free of charge in print to any person who requests it. The Company intends to satisfy the requirements under Item 5.05 of Form 8-K regarding an amendment to, or a waiver from, the code of ethics that relates to certain elements thereof, by posting such information on its website referenced above.

Item 11.  Executive Compensation

The information required by this Item 11 is incorporated herein by reference to the section entitled "Compensation of Executive Officers" in the Company's Proxy Statement.

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this Item 12 is incorporated herein by reference to the section entitled "Nominees for Director and Directors Continuing in Office" in the Company's Proxy Statement.

Item 13.  Certain Relationships and Related Transactions and Director Independence

The information required by this Item 13 is incorporated herein by reference to the sections entitled "Corporate Governance" and "Transactions with Related Parties" in the Company's Proxy Statement.

Item 14.  Principal Accounting Fees and Services

The information required by this Item 14 is incorporated herein by reference to the section entitled "Audit Fees" in the Company's Proxy Statement.

101

Part IV

Item 15.  Exhibits, Financial Statement Schedules

(a)  Documents filed as part of this report

(1)All financial statements.  The following consolidated financial statements of Community Bank System, Inc. and subsidiaries are included in Item 8:

-	Consolidated Statements of Condition,
	December 31, 2016 and 2015
-	Consolidated Statements of Income,
	Years ended December 31, 2016, 2015, and 2014
-	Consolidated Statements of Comprehensive Income,
	Years ended December 31, 2016, 2015, and 2014
-	Consolidated Statements of Changes in Shareholders' Equity,
	Years ended December 31, 2016, 2015, and 2014
-	Consolidated Statement of Cash Flows,
	Years ended December 31, 2016, 2015, and 2014
-	Notes to Consolidated Financial Statements,
	December 31, 2016
-	Report of Independent Registered Public Accounting Firm
-	Quarterly selected data,
	Years ended December 31, 2016 and 2015 (unaudited)

(2)Financial statement schedules.  Schedules are omitted since the required information is either not applicable or shown elsewhere in the financial statements.

(3)Exhibits.  The exhibits filed as part of this report and exhibits incorporated herein by reference to other documents are listed below:

2.1	Assignment, Purchase and Assumption Agreement, dated as of January 19, 2012, by and among Community Bank, N.A. and First Niagara Bank, N.A.  Incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed on January 20, 2012 (Registration No. 001-13695).
2.2	Purchase and Assumption Agreement, dated as of January 19, 2012, by and among Community Bank, N.A. and First Niagara Bank, N.A.  Incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K filed on January 20, 2012 (Registration No. 001-13695).
2.3	Assignment, Purchase and Assumption Agreement, dated as of January 19, 2012, by and between Community Bank, N.A. and First Niagara Bank, N.A., as amended as restated as of July 19, 2012.   Incorporated by reference to Exhibit No. 99.1 to the Current Report on Form 8-K filed on July 24, 2012 (Registration No. 001-13695).
2.4	Amendment No. 1 to Purchase and Assumption Agreement, dated as of September 6, 2012, by and among Community Bank, N.A. and First Niagara Bank, N.A. Incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K filed on September 13, 2012 (Registration No. 001-13695).
2.5	Purchase and Assumption Agreement, dated as of July 23, 2013, by and between Community Bank, N.A. and Bank of America, N.A.  Incorporated by reference to Exhibit No. 2.1 to the Current Report on Form 8-K filed on July 26, 2013 (Registration No. 001-13695).
2.6	Agreement and Plan of Merger, dated as of February 24, 2015, by and between Community Bank System, Inc. and Oneida Financial Corp.  Incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed on February 25, 2015 (Registration No. 001-13695).

102

2.7	Agreement and Plan of Merger, dated as of October 22, 2016, by and between Community Bank System, Inc. and Merchants Bancshares, Inc.  Incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed on October 27, 2016 (Registration No. 001-13695).
2.8	Agreement and Plan of Merger, dated as of December 2, 2016, by and among Community Bank System, Inc., Northeast Retirement Services, Inc., Cohiba Merger Sub, LLC and Shareholder Representative Services LLC.  Incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed on December 8, 2016 (Registration No. 001-13695).
3.1	Certificate of Incorporation of Community Bank System, Inc., as amended.  Incorporated by reference to Exhibit No. 3.1 to the Registration Statement on Form S-4 filed on October 20, 2000 (Registration No. 333-48374).
3.2	Certificate of Amendment of Certificate of Incorporation of Community Bank System, Inc. Incorporated by reference to Exhibit No. 3.1 to the Quarterly Report on Form 10-Q filed on May 7, 2004 (Registration No. 001-13695).
3.3	Certificate of Amendment of Certificate of Incorporation of Community Bank System, Inc. Incorporated by reference to Exhibit No. 3.1 to the Quarterly Report on Form 10-Q filed on August 9, 2013 (Registration No. 001-13695).
3.4	Bylaws of Community Bank System, Inc., amended July 18, 2007.  Incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed on July 24, 2007 (Registration No. 001-13695).
4.1	Form of Common Stock Certificate.  Incorporated by reference to Exhibit No. 4.1 to the Amendment No. 1 to the Registration Statement on Form S-3 filed on September 29, 2008 (Registration No. 333-153403).
10.1	Indenture, dated as of December 8, 2006, between Community Bank System, Inc. and Wilmington Trust Company, as trustee.  Incorporated by reference to Exhibit No. 4.1 to the Current Report on Form 8-K filed on December 12, 2006 (Registration No. 001-13695).
10.2	Amended and Restated Declaration of Trust, dated as of December 8, 2006, among Community Bank System, Inc., as sponsor, Wilmington Trust Company, as Delaware trustee, Wilmington Trust Company, as institutional trustee, and Mark E. Tryniski, Scott A. Kingsley, and Joseph J. Lemchak as administrators.  Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on December 12, 2006 (Registration No. 001-13695).
10.3	Guarantee Agreement, dated as of December 8, 2006, between Community Bank System, Inc., as guarantor, and Wilmington Trust Company, as guarantee trustee.  Incorporated by reference to Exhibit 10.1 to the Form 8-K filed on December 12, 2006 (Registration No. 001-13695).
10.4	Employment Agreement, effective January 1, 2015, by and between Community Bank System, Inc., Community Bank, N.A., and Mark E. Tryniski.  Incorporated by reference to Exhibit No. 10.1 to the Current Report on Form 8-K filed on January 2, 2015 (Registration No. 001-13695).(2)
10.5	Supplemental Retirement Plan Agreement, effective as of December 31, 2008, by and among Community Bank, N.A., Community Bank System, Inc., and Mark E. Tryniski.  Incorporated by reference to Exhibit No. 10.2 to the Current Report on Form 8-K filed on March 19, 2009 (Registration No. 001-13695).(2)

103

10.6	Employment Agreement, dated as of January1, 2017, by and among Community Bank System, Inc., Community Bank N.A., and Scott Kingsley.  Incorporated by reference to Exhibit No. 10.1 to the Current Report on Form 8-K filed on January 6, 2017 (Registration No. 001-13695).(2)
10.7	Supplemental Retirement Plan Agreement, effective September 29, 2009, by and between Community Bank System Inc., Community Bank, N.A., and Scott Kingsley.  Incorporated by reference to Exhibit No. 10.1 to the Current Report on Form 8-K filed on October 1, 2009 (Registration No. 001-13695).(2)
10.8	Employment Agreement, dated as of March 11, 2016, by and between Community Bank System, Inc., Community Bank N.A., and Brian D. Donahue.  Incorporated by reference to Exhibit No. 10.1 to the Current Report on Form 8-K filed on March 16, 2016 (Registration No. 001-13695).(2)
10.9	Supplemental Retirement Plan Agreement, dated as of October 18, 2013, by and between Community Bank System Inc., Community Bank, N.A., and Brian D. Donahue.  Incorporated by reference to Exhibit No. 10.2 to the Current Report on Form 8-K filed on October 23, 2013 (Registration No. 001-13695).(2)
10.10	Employment Agreement, dated as of January1, 2017, by and among Community Bank System, Inc., Community Bank N.A., and George J. Getman.   Incorporated by reference to Exhibit No. 10.2 to the Current Report on Form 8-K filed on January 6, 2017 (Registration No. 001-13695).(2)
10.11	Supplemental Retirement Plan Agreement, dated as of October 18, 2013, by and among Community Bank System, Inc., Community Bank, N.A., and George J. Getman.  Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed on October 23, 2013 (Registration No. 001-13695).(2)
10.12	Employment Agreement, dated as of March 11, 2016, by and among Community Bank System, Inc., Community Bank N.A., and Joseph F. Serbun.   Incorporated by reference to Exhibit No. 10.2 to the Current Report on Form 8-K filed on March 16, 2016 (Registration No. 001-13695).(2)
10.13	Pre-2005 Supplemental Retirement Agreement, effective December 31, 2004, by and between Community Bank System, Inc., Community Bank, N.A., and Sanford Belden.  Incorporated by reference to Exhibit No. 10.3 to the Annual Report on Form 10-K filed on March 15, 2005 (Registration No. 001-13695).(2)
10.14	Post-2004 Supplemental Retirement Agreement, effective January 1, 2005, by and between Community Bank System, Inc., Community Bank, N.A., and Sanford Belden.  Incorporated by reference to Exhibit No. 10.2 to the Annual Report on Form 10-K filed on March 15, 2005 (Registration No. 001-13695).(2)
10.15	Supplemental Retirement Plan Agreement, effective March 26, 2003, by and between Community Bank System Inc. and Thomas McCullough.  Incorporated by reference to Exhibit No. 10.11 to the Annual Report on Form 10-K filed on March 12, 2004 (Registration No. 001-13695).(2)
10.16	2004 Long-Term Incentive Compensation Program, as to be amended.  Incorporated by reference to Exhibit No. 99.1 to the Registration Statement on Form S-8 filed on December 19, 2012 (Registration No. 001-13695).(2)
10.17	2014 Long-Term Incentive Plan.  Incorporated by reference to Appendix A to the Definitive Proxy Statement on Schedule 14A filed on April 4, 2014 (Registration No. 001-13695).(2)
10.18	Stock Balance Plan for Directors, as amended.  Incorporated by reference to Annex I to the Definitive Proxy Statement on Schedule 14A filed on March 31, 1998 (Registration No. 001-13695).(2)
10.19	Deferred Compensation Plan for Directors, as amended.  Incorporated by reference to Annex I to the Definitive Proxy Statement on Schedule 14A filed on March 31, 1998 (Registration No. 001-13695).(2)

104

10.20	Community Bank System, Inc. Pension Plan Amended and Restated as of January 1, 2004.  Incorporated by reference to Exhibit No. 10.27 to the Annual Report on Form 10-K filed on March 15, 2005 (Registration No. 001-13695).(2)
10.21	Amendment #1 to the Community Bank System, Inc. Pension Plan, as amended and restated as of January 1, 2004 ("Plan").  Incorporated by reference to Exhibit No. 10.27 to the Annual Report on Form 10-K filed on March 15, 2005 (Registration No. 001-13695).(2)
10.22	Amendment #1 to the Deferred Compensation Plan For Certain Executive Employees of Community Bank System, Inc., as amended and restated as of January 1, 2002.  Incorporated by reference to Exhibit No. 10.33 to the Annual Report on Form 10-K filed on March 15, 2005 (Registration No. 001-13695).(2)
10.23	Community Bank System, Inc. 401(k) Employee Stock Ownership Plan, dated as of December 20, 2011.  Incorporated by reference to Exhibit 4.5 to the Registration Statement on Form S-8 filed on December 20, 2013 (Registration No. 001-13695).(2)
14.1	Community Bank System, Inc., Code of Ethics.  Incorporated by reference to Exhibit No. 1 to the Annual Report on Form 10-K filed on March 15, 2005 (Registration No. 001-13695).
21.1	Subsidiaries of Registrant.(1)
23.1	Consent of PricewaterhouseCoopers LLP.(1)
31.1	Certification of Mark E. Tryniski, President and Chief Executive Officer of the Registrant, pursuant to Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(1)
31.2	Certification of Scott Kingsley, Treasurer and Chief Financial Officer of the Registrant, pursuant to Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(1)
32.1	Certification of Mark E. Tryniski, President and Chief Executive Officer of the Registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(3)
32.2	Certification of Scott Kingsley, Treasurer and Chief Financial Officer of the Registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(3)
101	Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Statements of Condition, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Stockholders' Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements tagged as blocks of text and in detail.(4)

(1) Filed herewith.

(2) Denotes management contract or compensatory plan or arrangement.

(3) Furnished herewith.

(4) XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

B.Not applicable

C.Not applicable.

Item 16. Form 10-K Summary

None

105

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

COMMUNITY BANK SYSTEM, INC.

By:

/s/ Mark E. Tryniski

Mark E. Tryniski

President and Chief Executive Officer

March 1, 2017

Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 1^st day of March 2017.

By:

/s/ Mark E. Tryniski

Mark E. Tryniski

President, Chief Executive Officer and Director

(Principal Executive Officer)

By:

/s/ Scott Kingsley

Scott Kingsley

Treasurer and Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

Directors:

/s/ Brian R. Ace	/s/ John Parente
Brian R. Ace, Director	John Parente, Director
/s/ Mark J. Bolus	/s/ Sally A. Steele
Mark J. Bolus, Director	Sally A. Steele, Director and Chair of the Board of Directors
/s/ Nicholas A. DiCerbo	/s/ John F. Whipple, Jr.
Nicholas A. DiCerbo, Director	John F. Whipple Jr., Director
/s/ Neil E. Fesette	/s/ Michael R. Kallet
Neil E. Fesette, Director	Michael R. Kallet, Director
/s/ James A. Gabriel	/s/ Eric E. Stickels
James A. Gabriel, Director	Eric E. Stickels, Director
/s/ Edward S. Mucenski
Edward S. Mucenski, Director

106

EX-21.1

Exhibit 21.1

Subsidiaries of Registrant

As of December 31, 2016

Name	Jurisdiction of Incorporation
Community Bank, N.A.	Federally Chartered
Community Statutory Trust III	Connecticut
Community Capital Trust IV	Delaware
Benefit Plans Administrative Services, Inc.	New York
Benefit Plans Administrative Services, LLC	New York
BPAS Actuarial and Pension Services, LLC	New York
CBNA Treasury Management Corporation	New York
Community Investment Services, Inc.	New York
CBNA Preferred Funding Corp.	Delaware
CFSI Close-Out Corp.	New York
Nottingham Advisors, Inc.	Delaware
First of Jermyn Realty Company, Inc.	Pennsylvania
Brilie Corporation	New York
Town & Country Agency LLC	New York
Hand Benefits & Trust Company	Texas
Hand Securities, Inc.	Texas
Western Catskill Realty, LLC	New York
BPAS Trust Company of Puerto Rico	Puerto Rico
OneGroup NY, Inc.	New York
Workplace Health Solutions Inc.	New York
Oneida Wealth Management, Inc.	New York
McMahon, Fenaroli & White, Inc.	New York
Oneida Preferred Funding II, LLC	New York
The Carta Group, Inc.	New York
Cohiba Merger Sub, LLC (Northeast Retirement Services, LLC as of February 3, 2017)	Delaware

107

EX-23.1

 Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-179119 and 333-215894) and Form S-8 (Nos. 333-61916, 333-61672, 333-17011, 333-16635, 033-60607, 333-119887, 333-119590,  333-185556, 333-192994, 333-196866, and 333-210240) of Community Bank System, Inc. of our report dated March 1, 2017 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/PricewaterhouseCoopers LLP

Buffalo, New York

March 1, 2017

108

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Mark E. Tryniski, certify that:

1. I have reviewed this annual report on Form 10-K of Community Bank System, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  March 1, 2017

/s/ Mark E. Tryniski

Mark E. Tryniski,

President, Chief Executive Officer and Director

109

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Scott Kingsley, certify that:

1. I have reviewed this annual report on Form 10-K of Community Bank System, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  March 1, 2017

/s/ Scott Kingsley

Scott Kingsley,

Treasurer and Chief Financial Officer

110

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Community Bank System, Inc. (the "Company") on Form 10-K for the year ended December 31, 2016 as filed with the Securities and Exchange Commission on the date hereof  (the "Report"), I, Mark E. Tryniski, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Mark E. Tryniski

Mark E. Tryniski

President, Chief Executive Officer and Director

March 1, 2017

111

EX-32.2

 Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Community Bank System, Inc. (the "Company") on Form 10-K for the year ended December 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Scott Kingsley, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Scott Kingsley

Scott Kingsley,

Treasurer and Chief Financial Officer

March 1, 2017

112

XML

Document and Entity Information - USD ($)	12 Months Ended
	Dec. 31, 2016	Jan. 31, 2017	Jun. 30, 2016
Document and Entity Information [Abstract]
Entity Registrant Name	COMMUNITY BANK SYSTEM, INC.
Entity Central Index Key	0000723188
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Public Float			$ 1,765,509,358
Entity Common Stock, Shares Outstanding		44,541,700
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	FY
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2016

XML

CONSOLIDATED STATEMENTS OF CONDITION - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Assets:
Cash and cash equivalents	$ 173,857	$ 153,210
Available-for-sale investment securities (cost of $2,706,863 and $2,742,278, respectively)	2,748,656	2,808,113
Other securities, at cost	35,736	39,827
Loans held for sale, at fair value	2,416	932
Loans	4,948,562	4,801,375
Allowance for loan losses	(47,233)	(45,401)
Net loans	4,901,329	4,755,974
Goodwill	465,142	463,252
Core deposit intangibles, net	7,107	9,789
Other intangibles, net	8,595	11,105
Intangible assets, net	480,844	484,146
Premises and equipment, net	112,318	114,434
Accrued interest and fees receivable	31,093	25,904
Other assets	180,188	170,129
Total assets	8,666,437	8,552,669
Liabilities:
Noninterest-bearing deposits	1,646,039	1,499,616
Interest-bearing deposits	5,429,915	5,373,858
Total deposits	7,075,954	6,873,474
Borrowings	146,200	301,300
Subordinated debt held by unconsolidated subsidiary trusts	102,170	102,146
Accrued interest and other liabilities	144,013	135,102
Total liabilities	7,468,337	7,412,022
Commitments and contingencies (See Note N)
Shareholders' equity:
Preferred stock, $1.00 par value, 500,000 shares authorized, 0 shares issued	0	0
Common stock, $1.00 par value, 75,000,000 shares authorized; 44,950,352 and 44,442,568 shares issued, respectively	44,950	44,443
Additional paid-in capital	545,775	528,015
Retained earnings	614,692	566,591
Accumulated other comprehensive income	7,843	19,235
Treasury stock, at cost (512,937 and 667,708 shares, respectively)	(15,160)	(17,637)
Total shareholders' equity	1,198,100	1,140,647
Total liabilities and shareholders' equity	$ 8,666,437	$ 8,552,669

XML

CONSOLIDATED STATEMENTS OF CONDITION (Parenthetical) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Assets:
Available-for-sale investment securities, cost	$ 2,706,863	$ 2,742,278
Shareholders' equity:
Preferred stock, par value (in dollars per share)	$ 1.00	$ 1.00
Preferred stock, shares authorized (in shares)	500,000	500,000
Preferred stock, shares issued (in shares)	0	0
Common stock, par value (in dollars per share)	$ 1.00	$ 1.00
Common stock, shares authorized (in shares)	75,000,000	75,000,000
Common stock, shares issued (in shares)	44,950,352	44,442,568
Treasury stock, at cost (in shares)	512,937	667,708

XML

CONSOLIDATED STATEMENTS OF INCOME - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Interest income:
Interest and fees on loans	$ 211,467	$ 187,743	$ 185,527
Interest and dividends on taxable investments	56,201	52,871	50,247
Interest and dividends on nontaxable investments	17,519	19,008	20,446
Total interest income	285,187	259,622	256,220
Interest expense:
Interest on deposits	7,325	6,971	8,191
Interest on borrowings	1,017	1,694	1,124
Interest on subordinated debt held by unconsolidated subsidiary trusts	2,949	2,537	2,477
Total interest expense	11,291	11,202	11,792
Net interest income	273,896	248,420	244,428
Provision for loan losses	8,076	6,447	7,178
Net interest income after provision for loan losses	265,820	241,973	237,250
Noninterest income:
Deposit service fees	58,595	52,747	52,756
Other banking revenues	7,477	4,960	5,814
Employee benefit services	46,628	45,388	42,580
Insurance services	23,149	3,352	1,450
Wealth management services	19,776	16,856	16,420
Loss on sales of investment securities, net	0	(4)	0
Total noninterest income	155,625	123,299	119,020
Noninterest expenses:
Salaries and employee benefits	151,647	126,356	123,077
Occupancy and equipment	30,078	27,593	27,948
Data processing and communications	34,501	30,430	29,294
Amortization of intangible assets	5,479	3,663	4,287
Legal and professional fees	8,455	6,813	7,247
Office supplies and postage	7,274	6,476	6,270
Business development and marketing	7,484	7,204	7,125
FDIC insurance premiums	3,671	3,962	3,899
Acquisition expenses	1,706	7,037	123
Other expenses	16,553	13,521	17,310
Total noninterest expenses	266,848	233,055	226,580
Income before income taxes	154,597	132,217	129,690
Income taxes	50,785	40,987	38,337
Net income	$ 103,812	$ 91,230	$ 91,353
Basic earnings per share (in dollars per share)	$ 2.34	$ 2.21	$ 2.24
Diluted earnings per share (in dollars per share)	2.32	2.19	2.22
Cash dividends declared per share (in dollars per share)	$ 1.26	$ 1.22	$ 1.16

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Pension and other post retirement obligations:
Amortization of actuarial losses/(gains) included in net periodic pension cost, gross	$ 5,514	$ (7,236)	$ (13,904)
Tax effect	(2,108)	2,774	5,374
Amortization of actuarial losses/(gains) included in net periodic pension cost, net	3,406	(4,462)	(8,530)
Amortization of prior service cost included in net periodic pension cost, gross	(136)	(170)	(1,698)
Tax effect	52	65	657
Amortization of prior service cost included in net periodic pension cost, net	(84)	(105)	(1,041)
Other comprehensive income/(loss) related to pension and other post retirement obligations, net of taxes	3,322	(4,567)	(9,571)
Unrealized (losses)/gains on securities:
Net unrealized holding (losses)/gains arising during period, gross	(24,042)	(9,209)	106,040
Tax effect	9,328	2,289	(39,203)
Net unrealized holding (losses)/gains arising during period, net	(14,714)	(6,920)	66,837
Reclassification adjustment for net losses included in net income, gross	0	4	0
Tax effect	0	(2)	0
Reclassification adjustment for net losses included in net income, net	0	2	0
Other comprehensive (loss)/income related to unrealized (losses)/gains on available-for-sale securities, net of taxes	(14,714)	(6,918)	66,837
Other comprehensive (loss)/income, net of tax	(11,392)	(11,485)	57,266
Net income	103,812	91,230	91,353
Comprehensive income	92,420	79,745	148,619
Accumulated Other Comprehensive Income By Component:
Unrealized loss for pension and other postretirement obligations	(28,969)	(34,347)	(26,941)
Tax effect	11,008	13,064	10,225
Net unrealized loss for pension and other postretirement obligations	(17,961)	(21,283)	(16,716)
Unrealized gain on available-for-sale securities	41,793	65,835	75,039
Tax effect	(15,989)	(25,317)	(27,603)
Net unrealized gain on available-for-sale securities	25,804	40,518	47,436
Accumulated other comprehensive income	$ 7,843	$ 19,235	$ 30,720

XML

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive (Loss)/Income [Member]	Treasury Stock [Member]	Total
Balance at Dec. 31, 2013	$ 41,213	$ 396,528	$ 481,732	$ (26,546)	$ (17,115)	$ 875,812
Balance (in shares) at Dec. 31, 2013	40,431,318
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income			91,353			91,353
Other comprehensive income (loss), net of tax				57,266		57,266
Dividends declared:
Common			(47,100)			(47,100)
Common stock issued under employee stock plan, including tax benefits	$ 393	8,891			133	9,417
Common stock issued under employee stock plan, including tax benefits (in shares)	399,013
Stock-based compensation		3,993				3,993
Treasury stock purchased					(4,368)	$ (4,368)
Treasury stock purchased (in shares)	(123,000)					(100,000)
Treasury stock issued to benefit plan		572			959	$ 1,531
Treasury stock issued to benefit plan (in shares)	40,390
Balance at Dec. 31, 2014	$ 41,606	409,984	525,985	30,720	(20,391)	987,904
Balance (in shares) at Dec. 31, 2014	40,747,721
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income			91,230			91,230
Other comprehensive income (loss), net of tax				(11,485)		(11,485)
Dividends declared:
Common			(50,624)			(50,624)
Common stock issued under employee stock plan, including tax benefits	$ 459	9,315				9,774
Common stock issued under employee stock plan, including tax benefits (in shares)	458,817
Stock-based compensation		4,201				4,201
Stock issued for acquisition	$ 2,378	99,824				102,202
Stock issued for acquisition (in shares)	2,377,329
Treasury stock purchased					(9,126)	$ (9,126)
Treasury stock purchased (in shares)	(265,230)					(300,000)
Treasury stock issued to benefit plan		4,691			11,880	$ 16,571
Treasury stock issued to benefit plan (in shares)	456,223
Balance at Dec. 31, 2015	$ 44,443	528,015	566,591	19,235	(17,637)	1,140,647
Balance (in shares) at Dec. 31, 2015	43,774,860
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income			103,812			103,812
Other comprehensive income (loss), net of tax				(11,392)		(11,392)
Dividends declared:
Common			(55,711)			(55,711)
Common stock issued under employee stock plan, including tax benefits	$ 507	10,036				10,543
Common stock issued under employee stock plan, including tax benefits (in shares)	507,784
Stock-based compensation		4,783				4,783
Treasury stock purchased					(3,470)	$ (3,470)
Treasury stock purchased (in shares)	(67,826)					0
Treasury stock issued to benefit plan		2,941			5,947	$ 8,888
Treasury stock issued to benefit plan (in shares)	222,597
Balance at Dec. 31, 2016	$ 44,950	$ 545,775	$ 614,692	$ 7,843	$ (15,160)	$ 1,198,100
Balance (in shares) at Dec. 31, 2016	44,437,415

XML

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Parenthetical) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Cash dividends declared:
Dividends declared per common share (in dollars per share)	$ 1.26	$ 1.22	$ 1.16
Common stock issued under employee stock plan, tax benefits	$ 3,091	$ 2,297	$ 2,068

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Operating activities:
Net income	$ 103,812	$ 91,230	$ 91,353
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	14,398	13,132	13,082
Amortization of intangible assets	5,479	3,663	4,287
Net (accretion)/amortization on securities, loans and borrowings	(4,405)	(3,289)	(3,533)
Stock-based compensation	4,783	4,201	3,993
Provision for loan losses	8,076	6,447	7,178
Provision for deferred income taxes	13,066	10,716	7,461
Amortization of mortgage servicing rights	518	409	444
Income from bank-owned life insurance policies	(1,505)	(1,086)	(1,037)
Loss on sales of investment securities, net	0	4	0
Net gain on sale of loans and other assets	(837)	(180)	(154)
Change in other assets and liabilities	(12,124)	(8,784)	(970)
Net cash provided by operating activities	131,261	116,463	122,104
Investing activities:
Proceeds from sales of available-for-sale investment securities	0	221,136	0
Proceeds from maturities of available-for-sale investment securities	109,638	169,562	137,282
Proceeds from maturities of other securities	8,703	1,790	13
Purchases of available-for-sale investment securities	(65,966)	(503,000)	(310,517)
Purchases of other securities	(4,612)	0	(7,500)
Net change in loans	(159,871)	(176,754)	(137,207)
Cash received/(paid) for acquisitions, net of cash acquired of $0, $81,772, and $0, respectively	(575)	25,505	(924)
Settlement of bank-owned life insurance policies	3,127	0	1,097
Purchases of premises and equipment, net	(12,442)	(12,400)	(13,376)
Net cash (used in) provided by investing activities	(121,998)	(274,161)	(331,132)
Financing activities:
Net increase in deposits	202,480	238,969	39,220
Net change in borrowings, net of payments of $0, $0 and $13	(155,100)	(36,700)	196,087
Issuance of common stock	10,543	9,774	9,417
Purchases of treasury stock	(3,470)	(9,126)	(4,368)
Sale of treasury stock	8,888	16,571	1,531
Cash dividends paid	(55,048)	(49,273)	(46,178)
Tax benefits from share-based payment arrangements	3,091	2,297	2,068
Net cash provided by (used in) financing activities	11,384	172,512	197,777
Change in cash and cash equivalents	20,647	14,814	(11,251)
Cash and cash equivalents at beginning of year	153,210	138,396	149,647
Cash and cash equivalents at end of year	173,857	153,210	138,396
Supplemental disclosures of cash flow information:
Cash paid for interest	11,268	11,252	11,937
Cash paid for income taxes	32,239	28,891	29,457
Supplemental disclosures of noncash financing and investing activities:
Dividends declared and unpaid	14,268	13,605	12,254
Transfers from loans to other real estate	2,612	3,943	2,546
Acquisitions:
Common stock issued	0	102,202	0
Fair value of assets acquired, excluding acquired cash and intangibles	0	675,025	64
Fair value of liabilities assumed	$ 0	$ 700,574	$ 0

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Investing activities:
Cash acquired related to acquisition	$ 0	$ 81,772	$ 0
Financing activities:
Payment made on borrowings	$ 0	$ 0	$ 13

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2016

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE A:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations 

Community Bank System, Inc. (the “Company”) is a registered financial holding company which wholly-owns two significant consolidated subsidiaries: Community Bank, N.A. (the “Bank” or “CBNA”), and Benefit Plans Administrative Services, Inc. (“BPAS”).  As of December 31, 2016, BPAS owns four subsidiaries:  Benefit Plans Administrative Services, LLC (“BPA”), a provider of defined benefit contribution plan administration services; BPAS Actuarial & Pension Services, LLC (“BPAS-APS”) (formally known as Harbridge Consulting Group, LLC), a provider of actuarial and benefit consulting services; BPAS Trust Company of Puerto Rico, a Puerto Rican trust company; and Hand Benefits & Trust Company (“HB&T”), a provider of collective investment fund administration and institutional trust services.  HB&T owns one subsidiary, Hand Securities Inc. (“HSI”), an introducing broker-dealer.  The Company also wholly-owns two unconsolidated subsidiary business trusts formed for the purpose of issuing mandatorily-redeemable preferred securities which are considered Tier I capital under regulatory capital adequacy guidelines (see Note P).

As of December 31, 2016, the Bank operated 193 full service branches under the Community Bank, N.A. name throughout 35 counties of Upstate New York and six counties of Northeastern Pennsylvania offering a range of commercial and retail banking services.  The Bank owns the following operating subsidiaries:  The Carta Group, Inc. (“Carta Group”), CBNA Preferred Funding Corporation (“PFC”), CBNA Treasury Management Corporation (“TMC”), Community Investment Services, Inc. (“CISI”), Nottingham Advisors, Inc. (“Nottingham”), OneGroup NY, Inc. (“OneGroup”), Oneida Wealth Management, Inc. (“OWM”), and Oneida Preferred Funding II LLC (“OPFC II”).  OneGroup is a full-service insurance agency offering personal and commercial property insurance and other risk management products and services.  On August 19, 2016, the Company merged its insurance subsidiary CBNA Insurance Agency, Inc. (“CBNA Insurance”) into OneGroup.  PFC and OPFC II primarily act as investors in residential real estate loans and properties.  TMC provides cash management, investment, and treasury services to the Bank.  CISI, The Carta Group and OWM provide broker-dealer and investment advisory services.  On April 22, 2016, the Company merged the activities of OWM into CISI.  Nottingham provides asset management services to individuals, corporations, corporate pension and profit sharing plans, and foundations.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries.  All intercompany accounts and transactions have been eliminated in consolidation.

Variable Interest Entities (“VIE”) are legal entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the legal entities to finance its activities without additional subordinated financial support.  VIEs may be required to be consolidated by a company if it is determined the company is the primary beneficiary of a VIE.  The primary beneficiary of a VIE is the enterprise that has: (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (2) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits of the VIE that could potentially be significant to the VIE.  The Company’s VIE’s are described in more detail in Note T to the consolidated financial statements.

Critical Accounting Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  Critical accounting estimates include the allowance for loan losses, actuarial assumptions associated with the pension, post-retirement and other employee benefit plans, the provision for income taxes, investment valuation and other-than-temporary impairment, the carrying value of goodwill and other intangible assets, and acquired loan valuations.

Risk and Uncertainties

In the normal course of its business, the Company encounters economic and regulatory risks.  There are three main components of economic risk: interest rate risk, credit risk and market risk.  The Company is subject to interest rate risk to the degree that its interest-bearing liabilities mature or reprice at different speeds, or on different basis, from its interest-earning assets.  The Company’s primary credit risk is the risk of default on the Company’s loan portfolio that results from the borrowers’ inability or unwillingness to make contractually required payments.  Market risk reflects potential changes in the value of collateral underlying loans, the fair value of investment securities, and loans held for sale.

The Company is subject to regulations of various governmental agencies.  These regulations can change significantly from period to period.  The Company also undergoes periodic examinations by the regulatory agencies which may subject it to further changes with respect to asset valuations, amounts of required loan loss allowances, and operating restrictions resulting from the regulators’ judgments based on information available to them at the time of their examinations.

Revenue Recognition

The Company recognizes income on an accrual basis. CISI, OWM and Carta Group recognize fee income when investment and insurance products are sold to customers.  Nottingham provides asset management services to brokerage firms and clients and recognizes income ratably over the contract period during which service is performed.  Revenue from BPA’s administration and recordkeeping services is recognized ratably over the service contract period.  Revenue from consulting and actuarial services is recognized when services are rendered.  OneGroup recognizes commission revenue at the later of the effective date of the insurance policy, or the date on which the policy premium is billed to the customer.  At that date, the earnings process has been completed and the impact of refunds for policy cancellations can be reasonably estimated to establish reserves. The reserve for policy cancellations is based upon historical cancellation experience adjusted for known circumstances. All intercompany revenue and expense among related entities are eliminated in consolidation.

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, and highly liquid investments with original maturities of less than 90 days.  The carrying amounts reported in the balance sheet for cash and cash equivalents approximate those assets’ fair values.

Investment Securities

The Company can classify its investments in debt and equity securities as trading, held-to-maturity, or available-for-sale.  Held-to-maturity securities are those for which the Company has the positive intent and ability to hold until maturity, and are reported at amortized cost.  The Company did not use the held-to-maturity classification in 2015 or 2016.  Securities classified as available-for-sale are reported at fair value with net unrealized gains and losses reflected as a separate component of shareholders' equity, net of applicable income taxes.  None of the Company's investment securities have been classified as trading securities at December 31, 2016.  Certain equity securities are stated at cost and include restricted stock of the Federal Reserve Bank of New York (“Federal Reserve”) and Federal Home Loan Bank of New York (“FHLB”).

Fair values for investment securities are based upon quoted market prices, where available.  If quoted market prices are not available, fair values are based upon quoted market prices of comparable instruments, or a discounted cash flow model using market estimates of interest rates and volatility.

The Company conducts an assessment of all securities in an unrealized lossposition to determine if other-than-temporary impairment (“OTTI”) exists on a quarterly basis. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis.  The OTTI assessment considers the security structure, recent security collateral performance metrics, if applicable, external credit ratings, failure of the issuer to make scheduled interest or principal payments, judgment about and expectations of future performance, and relevant independent industry research, analysis, and forecasts. The severity of the impairment and the length of time the security has been impaired is also considered in the assessment.  The assessment of whether an OTTI decline exists is performed on each security, regardless of the classification of the security as available-for-sale or held-to-maturity, and involves a high degree of subjectivity and judgment that is based on the information available to management at a point in time.

An OTTI loss must be recognized for a debt security in an unrealized loss position if there is intent to sell the security or it is more likely than not the Company will be required to sell the security prior to recovery of its amortized cost basis. In this situation, the amount of loss recognized in income is equal to the difference between the fair value and the amortized cost basis of the security. Even if management does not have the intent, and it is not more likely than not that the Company will be required to sell the securities, an evaluation of the expected cash flows to be received is performed to determine if a credit loss has occurred. For debt securities, a critical component of the evaluation for OTTI is the identification of credit-impaired securities, where the Company does not expect to receive cash flows sufficient to recover the entire amortized cost basis of the security.  In the event of a credit loss, only the amount of impairment associated with the credit loss would be recognized in income. The portion of the unrealized loss relating to other factors, such as liquidity conditions in the market or changes in market interest rates, is recorded in accumulated other comprehensive loss.

Equity securities are also evaluated to determine whether the unrealized loss is expected to be recoverable based on whether evidence exists to support a realizable value equal to or greater than the amortized cost basis. If it is probable that the amortized cost basis will not be recovered, taking into consideration the estimated recovery period and the ability to hold the equity security until recovery, OTTI is recognized in earnings equal to the difference between the fair value and the amortized cost basis of the security.

The specific identification method is used in determining the realized gains and losses on sales of investment securities and OTTI charges.  Premiums and discounts on securities are amortized and accreted, respectively, on the interest method basis over the period to maturity or estimated life of the related security.  Purchases and sales of securities are recognized on a trade date basis.

Loans

Loans are stated at unpaid principal balances, net of unearned income.  Mortgage loans held for sale are carried at fair value and are included in loans held for sale on the balance sheet. Fair values for variable rate loans that reprice frequently are based on carrying values.  Fair values for fixed rate loans are estimated using discounted cash flows and interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.  The carrying amount of accrued interest approximates its fair value.

Interest on loans is accrued and credited to operations based upon the principal amount outstanding.  Nonrefundable loan fees and related direct costs are deferred and included in the loan balances where they are amortized over the life of the loan as an adjustment to loan yield using the effective yield method.  Premiums and discounts on purchased loans are amortized using the effective yield method over the life of the loans.

Acquired loans

Acquired loans are initially recorded at their acquisition date fair values.  The carryover of allowance for loan losses is prohibited as any credit losses in the loans are included in the determination of the fair value of the loans at the acquisition date. Fair values for acquired loans are based on a discounted cash flow methodology that involves assumptions and judgments as to credit risk, prepayment risk, liquidity risk, default rates, loss severity, payment speeds, collateral values and discount rate.

Acquired impaired loans

Acquired loans that have evidence of deterioration in credit quality since origination and for which it is probable, at acquisition, that the Company will be unable to collect all contractually required payments are accounted for as impaired loans under ASC 310-30.  The excess of undiscounted cash flows expected at acquisition over the estimated fair value is referred to as the accretable discount and is recognized into interest income over the remaining life of the loans using the interest method. The difference between contractually required payments at acquisition and the undiscounted cash flows expected to be collected at acquisition is referred to as the non-accretable discount. The non-accretable discount represents estimated future credit losses and other contractually required payments that the Company does not expect to collect. Subsequent decreases in expected cash flows are recognized as impairments through a charge to the provision for credit losses resulting in an increase in the allowance for loan losses. Subsequent improvements in expected cash flows result in a recovery of previously recorded allowance for loan losses or a reversal of a corresponding amount of the non-accretable discount, which the Company then reclassifies as an accretable discount that is recognized into interest income over the remaining life of the loans using the interest method.

Acquired loans that met the criteria for non-accrual of interest prior to acquisition may be considered performing upon acquisition, regardless of whether the customer is contractually delinquent, if the Company can reasonably estimate the timing and amount of the expected cash flows on such loans and if the Company expects to fully collect the new carrying value of the loans. As such, the Company may no longer consider the loan to be non-accrual or non-performing and may accrue interest on these loans, including the impact of any accretable discount.

Acquired non-impaired loans

Acquired loans that do not meet the requirements under ASC 310-30 are considered acquired non-impaired loans. The difference between the acquisition date fair value and the outstanding balance represents the fair value adjustment for a loan and includes both credit and interest rate considerations. Fair value adjustments may be discounts (or premiums) to a loan’s cost basis and are accreted (or amortized) to net interest income (or expense) over the loan’s remaining life in accordance with ASC 310-20. Fair value adjustments for revolving loans are accreted (or amortized) using a straight line method. Term loans are accreted (or amortized) using the constant effective yield method.

Subsequent to the purchase date, the methods used to estimate the allowance for loan losses for the acquired non-impaired loans is consistent with the policy described below.  However, the Company compares the net realizable value of the loans to the carrying value, for loans collectively evaluated for impairment.  The carrying value represents the net of the loan’s unpaid principal balance and the remaining purchase discount (or premium) that has yet to be accreted (or amortized) into interest income (or interest expense).  When the carrying value exceeds the net realizable value, an allowance for loan losses is recognized.

Impaired and Other Nonaccrual Loans

The Company places a loan on nonaccrual status when the loan becomes 90 days past due (or sooner, if management concludes collection is doubtful), except when, in the opinion of management, it is well-collateralized and in the process of collection. A loan may be placed on nonaccrual status earlier than ninety days past due if there is deterioration in the financial position of the borrower or if other conditions of the loan so warrant. When a loan is placed on nonaccrual status, uncollected accrued interest is reversed against interest income and the amortization of nonrefundable loan fees and related direct costs is discontinued. Interest income during the period the loan is on nonaccrual status is recorded on a cash basis after recovery of principal is reasonably assured. Nonaccrual loans are returned to accrual status when management determines that the borrower’s performance has improved and that both principal and interest are collectible.  This generally requires a sustained period of timely principal and interest payments and a well-documented credit evaluation of the borrower’s financial condition.

A loan is considered modified in a troubled debt restructuring (“TDR”) when, due to a borrower’s financial difficulties, the Company makes a concession(s) to the borrower that it would not otherwise consider.  These modifications may include, among others, an extension for the term of the loan, or granting a period when interest–only payments can be made with the principal payments and interest caught up over the remaining term of the loan or at maturity.  Generally, a nonaccrual loan that has been modified in a TDR remains on nonaccrual status for a period of 12 months to demonstrate that the borrower is able to meet the terms of the modified loan.  If the borrower’s ability to meet the revised payment schedule is uncertain, the loan remains on nonaccrual status.

Regulatory guidance issued by the OCC requires certain loans that have been discharged in Chapter 7 bankruptcy to be reported as TDRs.  In accordance with this new guidance, loans that have been discharged in Chapter 7 bankruptcy but not reaffirmed by the borrower are classified as TDRs, irrespective of payment history or delinquency status, even if the repayment terms for the loan have not been otherwise modified and the Company’s lien position against the underlying collateral remains unchanged.  Pursuant to that guidance, the Company records a charge-off equal to any portion of the carrying value that exceeds the net realizable value of the collateral.

Commercial loans greater than $0.5 million are evaluated individually for impairment.  A loan is considered impaired, based on current information and events, if it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  The measurement of impaired loans is generally based upon the present value of expected future cash flows or the fair value of the collateral, if the loan is collateral-dependent.

The Company’s charge-off policy by loan type is as follows:

· Business lending loans are generally charged-off to the extent outstanding principal exceeds the fair value of estimated proceeds from collection efforts, including liquidation of collateral.  The charge-off is recognized when the loss becomes reasonably quantifiable.

· Consumer installment loans are generally charged-off to the extent outstanding principal balance exceeds the fair value of collateral, and are recognized by the end of the month in which the loan becomes 90 days past due.

· Consumer mortgage and home equity loans are generally charged-off to the extent outstanding principal exceeds the fair value of the property, less estimated costs to sell, and are recognized when the loan becomes 180 days past due.

Allowance for Loan Losses

Management continually evaluates the credit quality of the Company’s loan portfolio, and performs a formal review of the adequacy of the allowance for loan losses on a quarterly basis.  The allowance reflects management’s best estimate of probable losses inherent in the loan portfolio.  Determination of the allowance is subjective in nature and requires significant estimates.   The Company’s allowance methodology consists of two broad components - general and specific loan loss allocations.

The general loan loss allocation is composed of two calculations that are computed on five main loan segments:  business lending, consumer installment - direct, consumer installment - indirect, home equity and consumer mortgage.  The first calculation is quantitative and determines an allowance level based on the latest 36 months of historical net charge-off data for each loan class (commercial loans exclude balances with specific loan loss allocations).  The second calculation is qualitative and takes into consideration eight qualitative environmental factors:  levels and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards, and other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations.    A component of the qualitative calculation is the unallocated allowance for loan loss.  The qualitative and quantitative calculations are added together to determine the general loan loss allocation.  The specific loan loss allocation relates to individual commercial loans that are both greater than $0.5 million and in a nonaccruing status with respect to interest.  Specific loan losses are based on discounted estimated cash flows, including any cash flows resulting from the conversion of collateral or collateral shortfalls.  The allowance levels computed from the specific and general loan loss allocation methods are combined with unallocated allowances and allowances needed for acquired loans to derive the total required allowance for loan losses to be reflected on the Consolidated Statement of Condition.

Loan losses are charged off against the allowance, while recoveries of amounts previously charged off are credited to the allowance.  A provision for loan losses is charged to operations based on management’s periodic evaluation of factors previously mentioned.

Intangible Assets

Intangible assets include core deposit intangibles, customer relationship intangibles and goodwill arising from acquisitions. Core deposit intangibles and customer relationship intangibles are amortized on either an accelerated or straight-line basis over periods ranging from seven to 20 years. The initial and ongoing carrying value of goodwill and other intangible assets is based upon discounted cash flow modeling techniques that require management to make estimates regarding the amount and timing of expected future cash flows.  It also requires use of a discount rate that reflects the current return requirements of the market in relation to present risk-free interest rates, required equity market premiums, peer volatility indicators, and company-specific risk indicators.

The Company evaluates goodwill for impairment on an annual basis, or more often if events or circumstances indicate there may be impairment.  The implied fair value of a reporting unit’s goodwill is compared to its carrying amount and the impairment loss is measured by the excess of the carrying value over fair value.  The fair value of each reporting unit is compared to the carrying amount of that reporting unit in order to determine if impairment is indicated.

Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation.  Computer software costs that are capitalized only include external direct costs of obtaining and installing the software.  The Company has not developed any internal use software.  Depreciation is calculated using the straight-line method over the estimated useful lives of the assets.  Useful lives range from three to 10 years for equipment; three to seven years for software and hardware; and 10 to 40 years for building and building improvements.  Land improvements are depreciated over 20 years and leasehold improvements are amortized over the shorter of the term of the respective lease plus any optional renewal periods that are reasonably assured or life of the asset. Maintenance and repairs are charged to expense as incurred.

Other Real Estate

Other real estate owned is comprised of properties acquired through foreclosure, or by deed in lieu of foreclosure.  These assets are carried at fair value less estimated costs of disposal.  At foreclosure, if the fair value, less estimated costs to sell, of the real estate acquired is less than the Company’s recorded investment in the related loan, a write-down is recognized through a charge to the allowance for loan losses.  Any subsequent reduction in value is recognized by a charge to income.  Operating costs associated with the properties are charged to expense as incurred.  At December 31, 2016 and 2015, other real estate amounted to $2.0 million and $2.1 million, respectively, and is included in other assets.

Mortgage Servicing Rights

Originated mortgage servicing rights are recorded at their fair value at the time of sale of the underlying loan, and are amortized in proportion to and over the period of estimated net servicing income or loss.  The Company uses a valuation model that calculates the present value of future cash flows to determine the fair value of servicing rights.  In using this valuation method, the Company incorporates assumptions that market participants would use in estimating future net servicing income, which includes estimates of the servicing cost per loan, the discount rate, and prepayment speeds.  The carrying value of the originated mortgage servicing rights is included in other assets and is evaluated quarterly for impairment using these same market assumptions.  The amount of impairment recognized is the amount by which the carrying value of the capitalized servicing rights for a stratum exceeds estimated fair value.  Impairment is recognized through a valuation allowance.

Treasury Stock

Repurchases of shares of the Company’s common stock are recorded at cost as a reduction of shareholders’ equity.  Reissuance of shares of treasury stock is recorded at average cost.

Income Taxes

The Company and its subsidiaries file a consolidated federal income tax return.  Provisions for income taxes are based on taxes currently payable or refundable as well as deferred taxes that are based on temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements.  Deferred tax assets and liabilities are reported in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled.

Benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority having full knowledge of all relevant information. A tax position meeting the more-likely-than-not recognition threshold should be measured at the largest amount of benefit for which the likelihood of realization upon ultimate settlement exceeds 50 percent.

Retirement Benefits

The Company provides defined benefit pension benefits to eligible employees and post-retirement health and life insurance benefits to certain eligible retirees.  The Company also provides deferred compensation and supplemental executive retirement plans for selected current and former employees, officers, and directors.  Expense under these plans is charged to current operations and consists of several components of net periodic benefit cost based on various actuarial assumptions regarding future experience under the plans, including discount rate, rate of future compensation increases and expected return on plan assets.

Assets Under Management or Administration

Assets held in fiduciary or agency capacities for customers are not included in the accompanying consolidated statements of condition as they are not assets of the Company.  All fees associated with providing asset management services are recorded on an accrual basis of accounting and are included in noninterest income.

Advertising

Advertising costs amounting to approximately $3.9 million, $3.6 million and $3.2 million for the years ending December 31, 2016, 2015 and 2014, respectively, are nondirect response in nature and expensed as incurred.

Earnings Per Share

Using the two-class method, basic earnings per common share is computed based upon net income available to common shareholders divided by the weighted average number of common shares outstanding during each period, which excludes the outstanding unvested restricted stock.  Diluted earnings per share is computed using the weighted average number of common shares determined for the basic earnings per common share computation plus the dilutive effect of stock options using the treasury stock method.  Stock options where the exercise price is greater than the average market price of common shares were not included in the computation of earnings per diluted share as they would have been anti-dilutive.

Stock-based Compensation

Companies are required to measure and record compensation expense for stock options and other share-based payments on the instruments’ fair value on the date of grant. Stock-based compensation expense is recognized ratably over the requisite service period for all awards (see Note L).

Fair Values of Financial Instruments

The Company determines fair values based on quoted market values where available or on estimates using present values or other valuation techniques.  Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows.  In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument.  Certain financial instruments and all nonfinancial instruments are excluded from this disclosure requirement.  Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.  The fair values of investment securities, loans, deposits, and borrowings have been disclosed in Note R.

Reclassifications

Certain reclassifications have been made to prior years’ balances to conform to the current year presentation.

New Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606).  This new guidance supersedes the revenue recognition requirements in ASC 605, Revenue Recognition, and is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects consideration to which the entity expects to be entitled in exchange for those goods and services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.  This guidance is effective for the Company for annual and interim periods beginning after December 15, 2017, and should be applied either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this guidance recognized at the date of initial application.  The Company’s implementation efforts include the identification of revenue within the scope of the guidance, as well as evaluation of revenue contracts.  The Company’s review is ongoing, and the Company will continue to evaluate any impact as additional guidance is issued and as our internal assessment progresses.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This guidance addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The primary focus of this guidance is to supersede the guidance to classify equity securities with readily determinable fair values into different categories (trading or available-for-sale) and requires equity securities to be measured at fair value with changes in the fair value recognized through net income. This guidance requires adoption through a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption.  This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  Early adoption is permitted for all companies in any interim or annual period. The Company is currently evaluating the effect the guidance will have on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This new guidance supersedes the lease requirements in Topic 840, Leases and is based on the principle that a lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term.  The accounting applied by a lessor is largely unchanged from that applied under the previous guidance.  In addition, the guidance requires an entity to separate the lease components from the nonlease components in a contract.  The ASU requires disclosures about the amount, timing, and judgments related to a reporting entity’s accounting for leases and related cash flows.  The standard is required to be applied to all leases in existence as of the date of adoption using a modified retrospective transition approach.  This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted for all companies in any interim or annual period.  The Company occupies certain offices and uses certain equipment under non-cancelable operating lease agreements, which currently are not reflected in its consolidated statement of condition.  The Company expects to recognize lease liabilities and right of use assets associated with these lease agreements; however, the extent of the impact on the Company’s consolidated financial statements is currently under evaluation.

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718).  The amendments simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows.  The new guidance requires all excess tax benefits and tax deficiencies be recognized as income tax expense or benefit in the income statement.  The tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. This guidance requires certain amendments to be applied through a cumulative-effect adjustment to equity as of the beginning of the fiscal period in which the guidance is adopted while other amendments are required to be applied retrospectively or prospectively.  This ASU is effective for fiscal periods beginning after December 15, 2016, and interim periods within those annual periods.  The Company expects adoption of the guidance will result in increased volatility to reported income tax expense related to excess tax benefits and tax deficiencies for share-based payment transactions; however, the actual amounts recognized in tax expense will be dependent on the amount of share-based transactions entered into and the Company’s stock price on the date of exercise or vesting.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326).  This new guidance significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income.  This ASU will replace the “incurred loss” model under existing guidance with an “expected loss” model for instruments measured at amortized cost, and require entities to record allowances for available-for-sale debt securities rather than reduce the carrying amount, as they do today under the other-than-temporary impairment model.  This ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans.  This guidance requires adoption through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted.  This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.  Early adoption is permitted for all companies as of fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  The Company is currently evaluating the impact the guidance will have on the Company’s consolidated financial statements, and expects an increase in the allowance for credit losses resulting from the change to expected losses for the estimated life of the financial asset, including an allowance for debt securities. The amount of the increase in the allowance for credit losses resulting from the new guidance will be impacted by the portfolio composition and asset quality at the adoption date, as well as economic conditions and forecasts at the time of adoption.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230). The amendments provide guidance on the following eight specific cash flow issues: 1) debt prepayment or debt extinguishment costs; 2) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; 3) contingent consideration payments made after a business combination; 4) proceeds from the settlement of insurance claims; 5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; 6) distributions received from equity method investees; 7) beneficial interests in securitization transactions; and 8) separately identifiable cash flows and application of the predominance principle. This ASU is effective for fiscal years beginning after December 31, 2017, including interim periods within those fiscal years.  Early adoption is permitted, including adoption in an interim period. As this guidance only affects the classification within the statement of cash flows, this ASU is not expected to have a material impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350). The amendments simplify how an entity is required to test goodwill for impairment by eliminating the requirement to measure a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill.  Instead, an entity will perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and recognize an impairment charge for the amount by which the carrying amount of the reporting unit exceeds its fair value.  Impairment loss recognized under this new guidance will be limited to the goodwill allocated to the reporting unit.  This ASU is effective prospectively for the Company for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019.  Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.  This ASU is not expected to have a material impact on the Company’s consolidated financial statements.

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ACQUISITIONS

12 Months Ended

Dec. 31, 2016

ACQUISITIONS [Abstract]

ACQUISITIONS

NOTE B:  ACQUISITIONS

Subsequent Event – Northeast Retirement Services, Inc.

On February 3, 2017, the Company completed its acquisition of Northeast Retirement Services, Inc. (“NRS”) and its subsidiary Global Trust Company (“GTC”) headquartered in Woburn, Massachusetts (see Note V).

Pending Acquisition – Merchants Bancshares, Inc.

On October 24, 2016, the Company announced that it had entered into a definitive agreement to acquire Merchants Bancshares, Inc. (“Merchants”), parent company of Merchants Bank headquartered in South Burlington, Vermont, for approximately $362 million in Company stock and cash.  The acquisition will extend the Company’s footprint into the Vermont and Western Massachusetts markets.  Upon the completion of the merger, Community Bank will add 31 branch locations in Vermont and one location in Massachusetts with approximately $2.0 billion of assets, and deposits of $1.5 billion.  The acquisition is expected to close during the third quarter of 2017, pending both customary regulatory and Merchants shareholder approval.  The Company expects to incur certain one-time, transaction-related costs in 2017.

On January 4, 2016, the Company, through its subsidiary, CBNA Insurance, completed its acquisition of WJL Agencies Inc. doing business as The Clark Insurance Agencies (“WJL”), an insurance agency operating in northern New York. The Company paid $0.6 million in cash for the intangible assets of the company.  Goodwill in the amount of $0.3 million and intangible assets in the amount of $0.3 million were recorded in conjunction with the acquisition.  The effects of the acquired assets and liabilities have been included in the consolidated financial statements since that date.  On August 19, 2016, the Company merged together its insurance subsidiaries and as of that date, the activities of CBNA Insurance were merged into OneGroup.

On December 4, 2015, the Company completed its acquisition of Oneida Financial Corp. (“Oneida”), parent company of Oneida Savings Bank, headquartered in Oneida, New York for approximately $158 million in Company stock and cash, comprised of $56.3 million of cash and the issuance of 2.38 million common shares.  Upon the completion of the merger, the Bank added 12 branch locations in Oneida and Madison counties and approximately $769 million of assets, including approximately $399 million of loans and $226 million of investment securities, along with $699 million of deposits.  Through the acquisition of Oneida, the Company acquired OneGroup and OWM as wholly-owned subsidiaries primarily engaged in offering insurance and investment advisory services.  These subsidiaries complement the Company’s other non-banking financial services businesses. The effects of the acquired assets and liabilities have been included in the consolidated financial statements since that date.

On January 1, 2014, the Company, through its subsidiary, BPAS-APS (formerly known as Harbridge Consulting Group, LLC), completed its acquisition of a professional services practice from EBS-RMSCO, Inc., a subsidiary of The Lifetime Healthcare Companies (“EBS-RMSCO”).  This professional services practice, which provides actuarial valuation and consulting services to clients who sponsor pension and post-retirement medical and welfare plans, enhanced the Company’s participation in the Western New York marketplace.  The effects of the acquired assets and liabilities have been included in the consolidated financial statements since that date.

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 acquisition, and are subject to adjustment based on updated information not available at the time of acquisition.  During the first quarter of 2016, the carrying amount of other assets decreased by $0.9 million and other liabilities increased by $0.7 million as a result of adjustments made to fair value estimates recorded for the Oneida acquisition. Other assets decreased as a result of new information obtained related to the fair value calculation of loans partially offset by a decrease in the fair value adjustment made to accounts receivable for uncollectible accounts as actual cash receipts exceed anticipated cash receipts.  Other liabilities increased as a result of updated information related to deferred taxes.  Goodwill increased $1.6 million as a result of these changes in fair value estimates.

The above referenced acquisitions expanded the Company’s geographical presence in New York and management expects that the Company will benefit from greater geographic diversity and the advantages of other synergistic business development opportunities.  The following table summarizes the estimated fair value of the assets acquired and liabilities assumed.

(000s omitted)	2016		2015			2014
Consideration paid:
Cash	$	575	$	56,266		$	924
Community Bank System, Inc. common stock		0		102,202			0
Total net consideration paid		575		158,468			924
Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash and cash equivalents		0		81,772			0
Investment securities		0		225,729			0
Loans		0		399,422			0
Premises and equipment		0		22,212			0
Accrued interest receivable		0		1,133			0
Other assets		0		26,529			163
Core deposit intangibles		0		2,570			0
Other intangibles		288		9,994			578
Deposits		0		(699,241	)		0
Other liabilities		0		(1,333	)		0
Total identifiable assets (liabilities), net		288		68,787			741
Goodwill	$	287	$	89,681		$	183

Acquired loans that have evidence of deterioration in credit quality since origination and for which it is probable, at acquisition, that the Company will be unable to collect all contractually required payments were aggregated by comparable characteristics and  recorded at fair value without a carryover of the related allowance for loan losses.  Cash flows for each loan were determined using an estimate of credit losses and an estimated rate of prepayments.  Projected monthly cash flows were then discounted to present value using a market-based discount rate.  The excess of the undiscounted expected cash flows over the estimated fair value is referred to as the “accretable yield” and is recognized into interest income over the remaining lives of the acquired loans.

The following is a summary of the loans acquired from Oneida at the date of acquisition:

(000’s omitted)	Acquired Impaired Loans			Acquired Non-Impaired Loans			Total Acquired Loans
Contractually required principal and interest at acquisition	$	5,138		$	484,937		$	490,075
Contractual cash flows not expected to be collected		(1,977	)		(4,833	)		(6,810	)
Expected cash flows at acquisition		3,161			480,104			483,265
Interest component of expected cash flows		(341	)		(83,502	)		(83,843	)
Fair value of acquired loans	$	2,820		$	396,602		$	399,422

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.

The core deposit intangibles and other intangibles related to the EBS-RMSCO, Oneida and WJL acquisitions are being amortized using an accelerated method over their estimated useful life of approximately eight years.  The goodwill, which is not amortized for book purposes, was assigned to the Banking and All Other segments for the Oneida acquisition, the Employee Benefit Services segment for the EBS-RMSCO acquisition, and to the All Other segment for WJL.  The goodwill arising from the EBS-RMSCO and WJL deals is deductible for tax purposes.  Goodwill arising from the Oneida acquisition is not deductible for tax purposes.

Direct costs related to the acquisitions were expensed as incurred.  Merger and acquisition integration-related expenses amount to $1.7 million, $7.0 million and $0.1 million during 2016, 2015 and 2014, respectively, and have been separately stated in the Consolidated Statements of Income.

 

Supplemental Pro Forma Financial Information

The following unaudited condensed pro forma information assumes the Oneida acquisition had been completed as of January 1, 2014 for the year ended December 31, 2015 and December 31, 2014.  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 years 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 or the impact of conforming certain acquiree accounting policies to the Company’s policies that may have occurred as a result of the integration and consolidation of the acquisitions.

The pro forma information set forth below reflects adjustments related to (a) certain purchase accounting fair value adjustments; and (b) amortization of customer lists and core deposit intangibles.  Expenses totaling $14.0 million related to conversion of systems and other costs of integration, as well as certain one-time costs, are excluded from the pro forma year ended December 31, 2015 and were included in the pro forma year ended December 31, 2014.

	Actual since Acquisition Through			Pro Forma (Unaudited) Year Ended December 31,
(000’s omitted)	December 31, 2015			2015		2014
Total revenue, net of interest expense	$	3,667		$	426,541	$	416,713
Net income (loss)		(3,905	)		96,894		85,665

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INVESTMENT SECURITIES

12 Months Ended

Dec. 31, 2016

INVESTMENT SECURITIES [Abstract]

INVESTMENT SECURITIES

NOTE C:  INVESTMENT SECURITIES

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

	2016								2015
(000's omitted)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available-for-Sale Portfolio:
U.S. Treasury and agency securities	$	1,876,358	$	28,522	$	2,118	$	1,902,762	$	1,866,819	$	35,186	$	2,027	$	1,899,978
Obligations of state and political subdivisions		582,655		13,389		1,054		594,990		640,455		26,487		59		666,883
Government agency mortgage-backed securities		232,657		5,040		2,467		235,230		205,220		6,906		1,261		210,865
Corporate debt securities		5,716		2		31		5,687		16,672		66		58		16,680
Government agency collateralized mortgage obligations		9,225		310		0		9,535		12,862		446		0		13,308
Marketable equity securities		252		200		0		452		250		163		14		399
Total available-for-sale portfolio	$	2,706,863	$	47,463	$	5,670	$	2,748,656	$	2,742,278	$	69,254	$	3,419	$	2,808,113
Other Securities:
Federal Home Loan Bank common stock	$	12,191					$	12,191	$	19,317					$	19,317
Federal Reserve Bank common stock		19,781						19,781		16,050						16,050
Other equity securities		3,764						3,764		4,460						4,460
Total other securities	$	35,736					$	35,736	$	39,827					$	39,827

A summary of investment securities that have been in a continuous unrealized loss position for less than or greater than twelve months is as follows:

As of December 31, 2016

		Less than 12 Months					12 Months or Longer					Total
(000's omitted)	#	Fair Value		Gross Unrealized Losses		#	Fair Value		Gross Unrealized Losses		#	Fair Value		Gross Unrealized Losses
Available-for-Sale Portfolio:
U.S. Treasury and agency securities	13	$	449,242	$	2,118	0	$	0	$	0	13	$	449,242	$	2,118
Obligations of state and political subdivisions	197		102,106		1,054	0		0		0	197		102,106		1,054
Government agency mortgage-backed securities	57		83,862		1,637	15		21,788		830	72		105,650		2,467
Corporate debt securities	1		2,677		31	0		0		0	1		2,677		31
Government agency collateralized mortgage obligations	0		0		0	2		2		0	2		2		0
Total available-for-sale investment portfolio	268	$	637,887	$	4,840	17	$	21,790	$	830	285	$	659,677	$	5,670

As of December 31, 2015

		Less than 12 Months							12 Months or Longer							Total
(000's omitted)	#	Fair Value			Gross Unrealized Losses			#	Fair Value			Gross Unrealized  Losses			#	Fair Value			Gross Unrealized Losses
Available-for-Sale Portfolio:
U.S. Treasury and agency securities	9		$	353,844		$	2,027	0		$	0		$	0	9		$	353,844		$	2,027
Obligations of state and political subdivisions	18			8,804			34	2			735			25	20			9,539			59
Government agency mortgage-backed securities	17			24,178			161	19			30,103			1,100	36			54,281			1,261
Corporate debt securities	1			3,024			0	1			2,710			58	2			5,734			58
Government agency collateralized mortgage obligations	0			0			0	2			3			0	2			3			0
Marketable equity securities	1			87			14	0			0			0	1			87			14
Total available-for-sale investment portfolio	46		$	389,937		$	2,236	24		$	33,551		$	1,183	70		$	423,488		$	3,419

The unrealized losses reported pertaining to securities issued by the U.S. government and its sponsored entities, include treasuries, agencies, and mortgage-backed securities issued by Ginnie Mae, Fannie Mae, and Freddie Mac which are currently rated AAA by Moody’s Investor Services, AA+ by Standard & Poor’s and are guaranteed by the U.S. government. The majority of the obligations of state and political subdivisions and corporations carry a credit rating of A or better.  Additionally, a majority of the obligations of state and political subdivisions carry a secondary level of credit enhancement. The Company does not intend to sell these securities, nor is it more likely than not that the Company will be required to sell these securities prior to recovery of the amortized cost. 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 December 31, 2016 represents OTTI.

The amortized cost and estimated fair value of debt securities at December 31, 2016, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.  Securities not due at a single maturity date are shown separately.

	Available-for-Sale
(000's omitted)	Amortized Cost		Fair Value
Due in one year or less	$	37,994	$	38,212
Due after one through five years		923,434		939,357
Due after five years through ten years		1,302,156		1,319,913
Due after ten years		201,145		205,957
Subtotal		2,464,729		2,503,439
Government agency mortgage-backed securities		232,657		235,230
Government agency collateralized mortgage obligations		9,225		9,535
Total	$	2,706,611	$	2,748,204

Cash flow information on investment securities for the years ended December 31 is as follows:

(000's omitted)	2016		2015		2014
Gross gains on sales of investment securities	$	0	$	3	$	0
Gross losses on sales of investment securities		0		7		0

Investment securities with a carrying value of $1.865 billion and $1.750 billion at December 31, 2016 and 2015, respectively, were pledged to collateralize certain deposits and borrowings.

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LOANS

12 Months Ended

Dec. 31, 2016

LOANS [Abstract]

LOANS

NOTE D:  LOANS

The segments of the Company’s loan portfolio are disaggregated into the following classes that allow management to monitor risk and performance:

· Consumer mortgages consist primarily of fixed rate residential instruments, typically 10 – 30 years in contractual term, secured by first liens on real property.

· Business lending is comprised of general purpose commercial and industrial loans including, but not limited to agricultural-related and dealer floor plans, as well as mortgages on commercial property.

· Consumer indirect consists primarily of installment loans originated through selected dealerships and are secured by automobiles, marine and other recreational vehicles.

· Consumer direct consists of all other loans to consumers such as personal installment loans and lines of credit.

· Home equity products are consumer purpose installment loans or lines of credit most often secured by a first or second lien position on residential real estate with terms up to 30 years.

The balances of these classes at December 31 are summarized as follows:

(000's omitted)	2016			2015
Consumer mortgage	$	1,819,701		$	1,769,754
Business lending		1,490,076			1,497,271
Consumer indirect		1,044,972			935,760
Consumer direct		191,815			195,076
Home equity		401,998			403,514
Gross loans, including deferred origination costs		4,948,562			4,801,375
Allowance for loan losses		(47,233	)		(45,401	)
Loans, net of allowance for loan losses	$	4,901,329		$	4,755,974

The Company had approximately $22.8 million and $20.0 million of net deferred loan origination costs included in gross loans as of December 31, 2016 and 2015, respectively.

Certain directors and executive officers of the Company, as well as associates of such persons, are loan customers.  Loans to these individuals were made in the ordinary course of business under normal credit terms and do not have more than a normal risk of collection.  Following is a summary of the aggregate amount of such loans during 2016 and 2015.

(000's omitted)	2016			2015
Balance at beginning of year	$	11,337		$	8,928
New loans		4,959			5,138
Payments		(5,346	)		(2,729	)
Balance at end of year	$	10,950		$	11,337

Acquired loans

Acquired loans are recorded at fair value as of the date of purchase with no allowance for loan loss.  The outstanding principal balance and the related carrying amount of acquired loans included in the Consolidated Statement of Condition at December 31 are as follows:

(000's omitted)	2016		2015
Credit impaired acquired loans:
Outstanding principal balance	$	6,354	$	8,339
Carrying amount		5,553		7,299
Non-impaired acquired loans:
Outstanding principal balance		497,308		620,942
Carrying amount		489,807		610,355
Total acquired loans:
Outstanding principal balance		503,662		629,281
Carrying amount		495,360		617,654

The outstanding balance related to credit impaired acquired loans was $6.6 million and $8.5 million at December 31, 2016 and 2015, respectively.  The changes in the accretable discount related to the credit impaired acquired loans are as follows:

(000's omitted)	2016			2015
Balance at beginning of year	$	810		$	705
Oneida acquisition		0			341
Accretion recognized		(455	)		(552	)
Net reclassification to accretable from nonaccretable		143			316
Balance at end of year	$	498		$	810

Credit Quality

Management monitors the credit quality of its loan portfolio on an ongoing basis.  Measurement of delinquency and past due status are based on the contractual terms of each loan.  Past due loans are reviewed on a monthly basis to identify loans for non-accrual status.  The following is an aged analysis of the Company’s past due loans by class as of December 31, 2016:

Legacy Loans (excludes loans acquired after January 1, 2009)

(000’s omitted)	Past Due 30 - 89 days		90+ Days Past Due and Still Accruing		Nonaccrual		Total Past Due		Current		Total Loans
Consumer mortgage	$	11,379	$	1,180	$	11,352	$	23,911	$	1,635,849	$	1,659,760
Business lending		3,921		145		3,811		7,877		1,269,789		1,277,666
Consumer indirect		13,883		166		0		14,049		1,000,776		1,014,825
Consumer direct		1,549		58		0		1,607		180,315		181,922
Home equity		1,250		414		1,437		3,101		315,928		319,029
Total	$	31,982	$	1,963	$	16,600	$	50,545	$	4,402,657	$	4,453,202

Acquired Loans (includes loans acquired after January 1, 2009)

(000’s omitted)	Past Due 30 - 89 days		90+ Days Past Due and Still Accruing		Nonaccrual		Total Past Due		Acquired Impaired(1)		Current		Total Loans
Consumer mortgage	$	1,539	$	205	$	2,332	$	4,076	$	0	$	155,865	$	159,941
Business lending		528		0		1,252		1,780		5,553		205,077		212,410
Consumer indirect		231		3		0		234		0		29,913		30,147
Consumer direct		231		0		0		231		0		9,662		9,893
Home equity		778		905		435		2,118		0		80,851		82,969
Total	$	3,307	$	1,113	$	4,019	$	8,439	$	5,553	$	481,368	$	495,360

⁽¹⁾ Acquired impaired loans were not classified as nonperforming assets as the loans are considered to be performing under ASC 310-30.  As a result interest income, through the accretion of the difference between the carrying amount of the loans and the expected cashflows, is being recognized on all acquired impaired loans.

The following is an aged analysis of the Company’s past due loans by class as of December 31, 2015:

Legacy Loans (excludes loans acquired after January 1, 2009)

(000’s omitted)	Past Due 30 - 89 days		90+ Days Past Due and Still Accruing		Nonaccrual		Total Past Due		Current		Total Loans
Consumer mortgage	$	10,482	$	1,411	$	11,394	$	23,287	$	1,558,171	$	1,581,458
Business lending		4,442		126		5,381		9,949		1,223,679		1,233,628
Consumer indirect		11,575		102		0		11,677		878,662		890,339
Consumer direct		1,414		51		1		1,466		176,585		178,051
Home equity		1,093		111		2,029		3,233		297,012		300,245
Total	$	29,006	$	1,801	$	18,805	$	49,612	$	4,134,109	$	4,183,721

Acquired Loans (includes loans acquired after January 1, 2009)

(000’s omitted)	Past Due 30 - 89 days		90+ Days Past Due and Still Accruing		Nonaccrual		Total Past Due		Acquired Impaired(1)		Current		Total Loans
Consumer mortgage	$	1,373	$	394	$	1,396	$	3,163	$	0	$	185,133	$	188,296
Business lending		535		0		1,186		1,721		7,299		254,623		263,643
Consumer indirect		245		0		0		245		0		45,176		45,421
Consumer direct		140		0		14		154		0		16,871		17,025
Home equity		636		0		327		963		0		102,306		103,269
Total	$	2,929	$	394	$	2,923	$	6,246	$	7,299	$	604,109	$	617,654

⁽¹⁾ Acquired impaired loans were not classified as nonperforming assets as the loans are considered to be performing under ASC 310-30.  As a result interest income, through the accretion of the difference between the carrying amount of the loans and the expected cashflows, is being recognized on all acquired impaired loans.

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”, or “classified”.  Credit risk ratings are applied individually to those classes of loans that have significant or unique credit characteristics that benefit from a case-by-case evaluation.  In general, the following are the definitions of the Company’s credit quality indicators:

Pass The condition of the borrower and the performance of the loans are satisfactory or better.

Special Mention The condition of the borrower has deteriorated although the loan performs as agreed.

Classified The condition of the borrower has significantly deteriorated and the performance of the loan could further deteriorate if deficiencies are not corrected.

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

The following table shows the amount of business lending loans by credit quality category:

	December 31, 2016						December 31, 2015
(000’s omitted)	Legacy		Acquired		Total		Legacy		Acquired		Total
Pass	$	1,051,005	$	162,165	$	1,213,170	$	1,048,364	$	219,374	$	1,267,738
Special mention		135,602		29,690		165,292		124,768		20,007		144,775
Classified		90,585		15,002		105,587		60,181		16,963		77,144
Doubtful		474		0		474		315		0		315
Acquired impaired		0		5,553		5,553		0		7,299		7,299
Total	$	1,277,666	$	212,410	$	1,490,076	$	1,233,628	$	263,643	$	1,497,271

All other loans are underwritten and structured using standardized criteria and characteristics, primarily payment performance, and are normally risk rated and monitored collectively on a monthly basis.  These are typically loans to individuals in the consumer categories and are delineated as either performing or nonperforming.  Performing loans include current, 30 – 89 days past due and acquired impaired loans.  Nonperforming loans include 90+ days past due and still accruing and nonaccrual loans.  The following tables detail the balances in all loan categories except for business lending at December 31, 2016:

Legacy loans (excludes loans acquired after January 1, 2009)

(000’s omitted)	Consumer Mortgage		Consumer Indirect		Consumer Direct		Home Equity		Total
Performing	$	1,647,228	$	1,014,659	$	181,864	$	317,178	$	3,160,929
Nonperforming		12,532		166		58		1,851		14,607
Total	$	1,659,760	$	1,014,825	$	181,922	$	319,029	$	3,175,536

Acquired loans (includes loans acquired after January 1, 2009)

(000’s omitted)	Consumer Mortgage		Consumer Indirect		Consumer Direct		Home Equity		Total
Performing	$	157,404	$	30,144	$	9,893	$	81,629	$	279,070
Nonperforming		2,537		3		0		1,340		3,880
Total	$	159,941	$	30,147	$	9,893	$	82,969	$	282,950

The following table details the balances in all other loan categories at December 31, 2015:

Legacy loans (excludes loans acquired after January 1, 2009)

(000’s omitted)	Consumer Mortgage		Consumer Indirect		Consumer Direct		Home Equity		Total
Performing	$	1,568,653	$	890,237	$	177,999	$	298,105	$	2,934,994
Nonperforming		12,805		102		52		2,140		15,099
Total	$	1,581,458	$	890,339	$	178,051	$	300,245	$	2,950,093

Acquired loans (includes loans acquired after January 1, 2009)

(000’s omitted)	Consumer Mortgage		Consumer Indirect		Consumer Direct		Home Equity		Total
Performing	$	186,506	$	45,421	$	17,011	$	102,942	$	351,880
Nonperforming		1,790		0		14		327		2,131
Total	$	188,296	$	45,421	$	17,025	$	103,269	$	354,011

All loan classes are collectively evaluated for impairment except business lending, as described in Note A.  A summary of individually evaluated impaired loans as of December 31, 2016 and 2015 is as follows:

(000’s omitted)	2016		2015
Loans with allowance allocation	$	1,109	$	0
Loans without allowance allocation		556		2,376
Carrying balance		1,665		2,376
Contractual balance		3,340		3,419
Specifically allocated allowance		477		0
Average impaired loans		4,683		2,922
Interest income recognized		0		0

In the course of working with borrowers, the Company may choose to restructure the contractual terms of certain loans.  In this scenario, the Company attempts to work-out an alternative payment schedule with the borrower in order to optimize collectability of the loan.  Any loans that are modified are reviewed by the Company to identify if a troubled debt restructuring (“TDR”) has 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.  With regard to determination of the amount of the allowance for loan losses, troubled debt restructured loans are considered to be impaired.  As a result, the determination of the amount of allowance for loan losses related to impaired loans for each portfolio segment within TDRs is the same as detailed previously.

In accordance with clarified guidance issued by the OCC, loans that have been discharged in Chapter 7 bankruptcy but not reaffirmed by the borrower, are classified as TDRs, irrespective of payment history or delinquency status, even if the repayment terms for the loan have not been otherwise modified.  The Company’s lien position against the underlying collateral remains unchanged.  Pursuant to that guidance, the Company records a charge-off equal to any portion of the carrying value that exceeds the net realizable value of the collateral.  The amount of loss incurred in 2016, 2015 and 2014 was immaterial.

TDRs less than $0.5 million are collectively included in the general loan loss allocation and the qualitative review, if necessary.  Commercial loans greater than $0.5 million are individually evaluated for impairment, and if necessary, a specific allocation of the allowance for loan losses is provided.

Information regarding TDRs as of December 31, 2016 and December 31, 2015 is as follows

	December 31, 2016												December 31, 2015
(000’s omitted)	Nonaccrual				Accruing				Total				Nonaccrual				Accruing				Total
		#	Amount			#	Amount			#	Amount			#	Amount			#	Amount			#	Amount
Consumer mortgage		36	$	1,520		45	$	1,956		81	$	3,476		37	$	1,472		54	$	2,486		91	$	3,958
Business lending		6		91		5		690		11		781		8		217		6		737		14		954
Consumer indirect		0		0		78		771		78		771		0		0		77		691		77		691
Consumer direct		0		0		23		65		23		65		0		0		32		37		32		37
Home equity		14		221		7		216		21		437		10		203		14		301		24		504
Total		56	$	1,832		158	$	3,698		214	$	5,530		55	$	1,892		183	$	4,252		238	$	6,144

The following table presents information related to loans modified in a TDR during the years ended December 31, 2016 and 2015.  Of the loans noted in the table below, all loans for the years ended December 31, 2016 and December 31, 2015, were modified due to a Chapter 7 bankruptcy as described previously.  The financial effects of these restructurings were immaterial.

	December 31, 2016				December 31, 2015
(000’s omitted)		#	Amount			#	Amount
Consumer mortgage		9	$	597		21	$	1,374
Business lending		0		0		3		67
Consumer indirect		33		459		35		349
Consumer direct		3		51		6		11
Home equity		3		50		6		63
Total		48	$	1,157		71	$	1,864

Allowance for Loan Losses

The allowance for loan losses is general in nature and is available to absorb losses from any loan type despite the analysis below.  The following presents by class the activity in the allowance for loan losses:

(000’s omitted)	Consumer Mortgage			Business Lending			Consumer Indirect			Consumer Direct			Home Equity			Unallocated			Acquired Impaired			Total
Balance at December 31, 2014	$	10,286		$	15,787		$	11,544		$	3,083		$	2,701		$	1,767		$	173		$	45,341
Charge-offs		(1,374	)		(2,146	)		(6,714	)		(1,490	)		(244	)		0			(103	)		(12,071	)
Recoveries		80			877			3,943			722			62			0			0			5,684
Provision		1,206			1,231			3,649			682			147			(566	)		98			6,447
Balance at December 31, 2015		10,198			15,749			12,422			2,997			2,666			1,201			168			45,401
Charge-offs		(647	)		(1,872	)		(7,643	)		(1,706	)		(218	)		0			(97	)		(12,183	)
Recoveries		115			616			4,168			901			139			0			0			5,939
Provision		428			2,727			4,835			787			(188	)		(550	)		37			8,076
Balance at December 31, 2016	$	10,094		$	17,220		$	13,782		$	2,979		$	2,399		$	651		$	108		$	47,233

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PREMISES AND EQUIPMENT

12 Months Ended

Dec. 31, 2016

PREMISES AND EQUIPMENT [Abstract]

PREMISES AND EQUIPMENT

NOTE E:  PREMISES AND EQUIPMENT

Premises and equipment consist of the following at December 31:

(000's omitted)	2016			2015
Land and land improvements	$	22,585		$	22,191
Bank premises		116,663			112,011
Equipment and construction in progress		80,527			80,684
Premises and equipment, gross		219,775			214,886
Accumulated depreciation		(107,457	)		(100,452	)
Premises and equipment, net	$	112,318		$	114,434

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GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS

12 Months Ended

Dec. 31, 2016

GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS [Abstract]

GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS

NOTE F:  GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS

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

	December 31, 2016							December 31, 2015
(000's omitted)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Amortizing intangible assets:
Core deposit intangibles	$	39,688	$	(32,581	)	$	7,107	$	39,688	$	(29,899	)	$	9,789
Other intangibles		17,853		(9,258	)		8,595		17,565		(6,460	)		11,105
Total amortizing intangibles	$	57,541	$	(41,839	)	$	15,702	$	57,253	$	(36,359	)	$	20,894

The estimated aggregate amortization expense for each of the five succeeding fiscal years ended December 31 is as follows:

2017	$	4,413
2018		3,566
2019		2,782
2020		2,119
2021		1,531
Thereafter		1,291
Total	$	15,702

Shown below are the components of the Company’s goodwill at December 31, 2016 and 2015:

(000’s omitted)	Year Ended December 31, 2014			Activity		Year Ended December 31, 2015			Activity		Year Ended December 31, 2016
Goodwill	$	379,998		$	88,078	$	468,076		$	1,890	$	469,966
Accumulated impairment		(4,824	)		0		(4,824	)		0		(4,824	)
Goodwill, net	$	375,174		$	88,078	$	463,252		$	1,890	$	465,142

During the first quarter of 2016, the Company performed its annual internal valuation of goodwill and impairment analysis by comparing the fair value of each reporting unit to its carrying value.  Results of the valuations indicate there was no goodwill impairment.  There were no events between the date of the valuation and year end that warranted additional analysis.

Mortgage Servicing Rights

Under certain circumstances, the Company sells consumer residential mortgage loans in the secondary market and typically retains the right to service the loans sold.  Generally, the Company’s residential mortgage loans sold to third parties are sold on a non-recourse basis.  Upon sale, a mortgage servicing right (“MSR”) is established, which represents the current fair value of future net cash flows expected to be realized for performing the servicing activities.  The Company stratifies these assets based on predominant risk characteristics, namely expected term of the underlying financial instruments, and uses a valuation model that calculates the present value of future cash flows to determine the fair value of servicing rights. MSRs are recorded in other assets at the lower of the initial capitalized amount, net of accumulated amortization or fair value.  Mortgage loans serviced for others are not included in the accompanying consolidated statements of condition.

The following table summarizes the changes in carrying value of MSRs and the associated valuation allowance:

(000’s omitted)	2016			2015
Carrying value before valuation allowance at beginning of period	$	1,472		$	1,089
Additions		481			403
Oneida acquisition		0			389
Amortization		(518	)		(409	)
Carrying value before valuation allowance at end of period		1,435			1,472
Valuation allowance balance at beginning of period		0			0
Impairment charges		(226	)		(133	)
Impairment recoveries		226			133
Valuation allowance balance at end of period		0			0
Net carrying value at end of period	$	1,435		$	1,472
Fair value of MSRs at end of period	$	1,928		$	1,962
Principal balance of loans sold during the year	$	45,852		$	35,491
Principal balance of loans serviced for others	$	365,374		$	377,909
Custodial escrow balances maintained in connection with loans serviced for others	$	5,603		$	5,700

The following table summarizes the key economic assumptions used to estimate the value of the MSRs at December 31:

	2016			2015
Weighted-average contractual life (in years)		20.8			19.9
Weighted-average constant prepayment rate (CPR)		15.1	%		14.9	%
Weighted-average discount rate		3.5	%		3.3	%

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DEPOSITS

12 Months Ended

Dec. 31, 2016

DEPOSITS [Abstract]

DEPOSITS

NOTE G:  DEPOSITS

Deposits consist of the following at December 31:

(000's omitted)	2016		2015
Noninterest checking	$	1,646,039	$	1,499,616
Interest checking		1,644,029		1,575,379
Savings		1,303,851		1,255,027
Money market		1,778,907		1,738,904
Time		703,128		804,548
Total deposits	$	7,075,954	$	6,873,474

The approximate maturities of time deposits at December 31, 2016 are as follows:

(000's omitted)	All Accounts		Accounts $250,000 or Greater
2017	$	492,000	$	42,142
2018		103,698		1,713
2019		48,096		2,337
2020		32,774		2,717
2021		26,208		2,315
Thereafter		352		0
Total	$	703,128	$	51,224

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BORROWINGS

12 Months Ended

Dec. 31, 2016

BORROWINGS [Abstract]

BORROWINGS

NOTE H:  BORROWINGS

Outstanding borrowings at December 31 are as follows:

(000's omitted)	2016		2015
FHLB overnight advance	$	146,200	$	301,300
Subordinated debt held by unconsolidated subsidiary trusts, net of discount of $357 and $381, respectively		102,170		102,146
Total borrowings	$	248,370	$	403,446

FHLB advances are collateralized by a blanket lien on the Company's residential real estate loan portfolio and various investment securities.

Borrowings at December 31, 2016 have contractual maturity dates as follows:

(000's omitted, except rate)	Carrying Value		Weighted-average Rate at December 31, 2016
January 3, 2017	$	146,200		0.74	%
July 31, 2031		24,850		4.47	%
December 15, 2036		77,320		2.61	%
Total	$	248,370		1.70	%

The weighted-average interest rate on borrowings for the years ended December 31, 2016 and 2015 was 1.46% and 0.82%, respectively.

The Company sponsors two business trusts, Community Statutory Trust III and Community Capital Trust IV, of which 100% of the common stock is owned by the Company.  The trusts were formed for the purpose of issuing company-obligated mandatorily redeemable preferred securities to third-party investors and investing the proceeds from the sale of such preferred securities solely in junior subordinated debt securities of the Company.  The debentures held by each trust are the sole assets of that trust.  Distributions on the preferred securities issued by each trust are payable quarterly at a rate per annum equal to the interest rate being earned by the trust on the debentures held by that trust and are recorded as interest expense in the consolidated financial statements.  The preferred securities are subject to mandatory redemption, in whole or in part, upon repayment of the debentures.  The Company has entered into agreements which, taken collectively, fully and unconditionally guarantee the preferred securities subject to the terms of each of the guarantees.  The terms of the preferred securities of each trust are as follows:

Trust	Issuance Date	Par Amount	Interest Rate	Maturity Date	Call Price
III	7/31/2001	$24.5 million	3 month LIBOR plus 3.58% (4.47%)	7/31/2031	Par
IV	12/8/2006	$75 million	3 month LIBOR plus 1.65% (2.61%)	12/15/2036	Par

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INCOME TAXES

12 Months Ended

Dec. 31, 2016

INCOME TAXES [Abstract]

INCOME TAXES

NOTE I:  INCOME TAXES

The provision for income taxes for the years ended December 31 is as follows:

(000's omitted)	2016		2015		2014
Current:
Federal	$	32,829	$	27,663	$	30,006
State and other		4,890		2,608		870
Deferred:
Federal		11,444		9,604		6,867
State and other		1,622		1,112		594
Provision for income taxes	$	50,785	$	40,987	$	38,337

Components of the net deferred tax liability, included in other liabilities, as of December 31 are as follows:

(000's omitted)	2016			2015
Allowance for loan losses	$	18,366		$	17,791
Employee benefits		6,311			6,633
Debt extinguishment		299			613
Other, net		5,202			9,704
Deferred tax asset		30,178			34,741
Investment securities		32,839			38,314
Tax-deductible goodwill		43,504			39,724
Loan origination costs		8,228			7,295
Depreciation		71			886
Mortgage servicing rights		548			565
Pension		18,194			14,807
Deferred tax liability		103,384			101,591
Net deferred tax liability	$	(73,206	)	$	(66,850	)

The Company has determined that no valuation allowance is necessary as it is more likely than not that the gross deferred tax assets will be realized through carryback of future deductions to taxable income in prior years, future reversals of existing temporary differences, and through future taxable income.

A reconciliation of the differences between the federal statutory income tax rate and the effective tax rate for the years ended December 31 is shown in the following table:

	2016			2015			2014
Federal statutory income tax rate		35.0	%		35.0	%		35.0	%
Increase (reduction) in taxes resulting from:
Tax-exempt interest		(4.0	)		(5.0	)		(5.4	)
State income taxes, net of federal benefit		2.7			1.8			0.7
Other		(0.9	)		(0.8	)		(0.7	)
Effective income tax rate		32.8	%		31.0	%		29.6	%

A reconciliation of the unrecognized tax benefits for the years ended December 31 is shown in the following table:

(000’s omitted)	2016			2015			2014
Unrecognized tax benefits at beginning of year	$	127		$	162		$	138
Changes related to:
Positions taken during the current year		0			0			24
Lapse of statutes of limitations		(35	)		(35	)		0
Unrecognized tax benefits at end of year	$	92		$	127		$	162

As of December 31, 2016, the total amount of unrecognized tax benefits that would impact the Company’s effective tax rate if recognized is $0.1 million.  It is reasonably possible that the amount of unrecognized tax benefits could change in the next twelve months as a result of various examinations and expiration of statutes of limitations on prior tax returns.

The Company’s policy is to recognize interest and penalties related to unrecognized tax benefits as part of income taxes in the consolidated statement of income.  The accrued interest related to tax positions was immaterial.

The Company’s federal and state income tax returns are routinely subject to examination from various governmental taxing authorities.  Such examinations may result in challenges to the tax return treatment applied by the Company to specific transactions.  Management believes that the assumptions and judgment used to record tax-related assets or liabilities have been appropriate.  Future examinations by taxing authorities of the Company’s federal or state tax returns could have a material impact on the Company’s results of operations.  The Company’s federal income tax returns for years after 2012 may still be examined by the Internal Revenue Service.  New York State income tax returns for years after 2012 may still be examined by the New York Department of Taxation and Finance.  It is not possible to estimate when those examinations may be completed.

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LIMITS ON DIVIDENDS AND OTHER REVENUE SOURCES

12 Months Ended

Dec. 31, 2016

LIMITS ON DIVIDENDS AND OTHER REVENUE SOURCES [Abstract]

LIMITS ON DIVIDENDS AND OTHER REVENUE SOURCES

NOTE J:  LIMITS ON DIVIDENDS AND OTHER REVENUE SOURCES

The Company’s ability to pay dividends to its shareholders is largely dependent on the Bank’s ability to pay dividends to the Company.  In addition to the capital requirements discussed below, the circumstances under which the Bank may pay dividends are limited by federal statutes, regulations, and policies.  For example, as a national bank, the Bank must obtain the approval of the Office of the Comptroller of the Currency (“OCC”) for payments of dividends if the total of all dividends declared in any calendar year would exceed the total of the Bank’s net profits, as defined by applicable regulations, for that year, combined with its retained net profits for the preceding two years.  Furthermore, the Bank may not pay a dividend in an amount greater than its undivided profits then on hand after deducting its losses and bad debts, as defined by applicable regulations.  At December 31, 2016, the Bank had approximately $57.6 million in undivided profits legally available for the payment of dividends.

In addition, the Board of Governors of the Federal Reserve System (“FRB”) and the OCC are authorized to determine under certain circumstances that the payment of dividends would be an unsafe or unsound practice and to prohibit payment of such dividends.  The FRB has indicated that banking organizations should generally pay dividends only out of current operating earnings.

There are also statutory limits on the transfer of funds to the Company by its banking subsidiary, whether in the form of loans or other extensions of credit, investments or assets purchases.  Such transfer by the Bank to the Company generally is limited in amount to 10% of the Bank’s capital and surplus, or 20% in the aggregate.  Furthermore, such loans and extensions of credit are required to be collateralized in specific amounts.

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BENEFIT PLANS

12 Months Ended

Dec. 31, 2016

BENEFIT PLANS [Abstract]

BENEFIT PLANS

NOTE K:  BENEFIT PLANS

Pension and post-retirement plans

The Company provides a qualified defined benefit pension to eligible employees and retirees, other post-retirement health and life insurance benefits to certain retirees, an unfunded supplemental pension plan for certain key executives, and an unfunded stock balance plan for certain of its nonemployee directors.  Using a measurement date of December 31, the following table shows the funded status of the Company's plans reconciled with amounts reported in the Company's consolidated statements of condition:

	Pension Benefits						Post-retirement Benefits
(000's omitted)	2016			2015			2016			2015
Change in benefit obligation:
Benefit obligation at the beginning of year	$	127,134		$	127,513		$	1,918		$	2,256
Service cost		4,106			3,324			0			0
Interest cost		5,624			5,506			82			87
Plan amendment / acquisition		22			2,395			0			0
Participant contributions		0			0			516			509
Deferred actuarial (gain)/loss		(1,628	)		(2,091	)		174			(45	)
Benefits paid		(8,174	)		(9,513	)		(884	)		(889	)
Benefit obligation at end of year		127,084			127,134			1,806			1,918
Change in plan assets:
Fair value of plan assets at beginning of year		172,026			177,865			0			0
Actual return of plan assets		14,402			1,125			0			0
Participant contributions		0			0			516			509
Employer contributions		2,146			616			368			380
Plan acquisition		0			1,933			0			0
Benefits paid		(8,174	)		(9,513	)		(884	)		(889	)
Fair value of plan assets at end of year		180,400			172,026			0			0
Over/(Under) funded status at year end	$	53,316		$	44,892		$	(1,806	)	$	(1,918	)
Amounts recognized in the consolidated statement of condition were:
Other assets	$	64,709		$	56,361		$	0		$	0
Other liabilities		(11,393	)		(11,469	)		(1,806	)		(1,918	)
Amounts recognized in accumulated other comprehensive income (loss) (“AOCI”) were:
Net loss	$	28,323		$	34,016		$	183		$	4
Net prior service cost (credit)		2,264			2,307			(1,801	)		(1,980	)
Pre-tax AOCI		30,587			36,323			(1,618	)		(1,976	)
Taxes		(11,622	)		(13,815	)		614			751
AOCI at year end	$	18,965		$	22,508		$	(1,004	)	$	(1,225	)

The benefit obligation for the defined benefit pension plan was $115.7 million as of December 31, 2016 and 2015, and the fair value of plan assets as of December 31, 2016 and 2015 was $180.4 million and $172.0 million, respectively.  Effective December 31, 2015, the State Bank of Chittenango pension plan was merged into the Community Bank System, Inc. Pension Plan and the combined plan was revalued.

The Company has unfunded supplemental pension plans for certain key active and retired executives.  The projected benefit obligation for the unfunded supplemental pension plan for certain key executives was $11.3 million for 2016 and $11.4 million for 2015, respectively.  The Company also has an unfunded stock balance plan for certain of its nonemployee directors.  The projected benefit obligation for the unfunded stock balance plan was $0.1 million for 2016 and $0.1 million for 2015, respectively.  The plan was frozen effective December 31, 2009.

Effective December 31, 2009, the Company terminated its post-retirement medical program for current and future employees.  Remaining plan participants will include only existing retirees as of December 31, 2010.  This change was accounted for as a negative plan amendment and a $3.5 million, net of income taxes, benefit for prior service was recognized in AOCI in 2009.  This negative plan amendment is being amortized over the expected benefit utilization period of remaining plan participants.

Amounts recognized in accumulated other comprehensive income, net of tax, for the year ended December 31, are as follows:

	Pension Benefits						Post-retirement Benefits
(000's omitted)	2016			2015			2016		2015
Prior service (credit)/cost	$	(26	)	$	(5	)	$	110	$	110
Net (gain) loss		(3,517	)		4,482			111		(20	)
Total	$	(3,543	)	$	4,477		$	221	$	90

The estimated costs, net of tax, that will be amortized from accumulated other comprehensive (income) loss into net periodic (income) cost over the next fiscal year are as follows:

(000's omitted)	Pension Benefits		Post-retirement Benefits
Prior service cost/(credit)	$	55	$	(179	)
Net loss		1,010		6
Total	$	1,065	$	(173	)

The weighted-average assumptions used to determine the benefit obligations as of December 31 are as follows:

	Pension Benefits						Post-retirement Benefits
	2016			2015			2016			2015
Discount rate		4.50	%		4.70	%		4.40	%		4.70	%
Expected return on plan assets		7.00	%		7.00	%		N/A			N/A
Rate of compensation increase		3.50	%		3.50	%		N/A			N/A

The net periodic benefit cost as of December 31 is as follows:

	Pension Benefits									Post-retirement Benefits
(000's omitted)	2016			2015			2014			2016			2015			2014
Service cost	$	4,106		$	3,324		$	3,530		$	0		$	0		$	0
Interest cost		5,624			5,506			5,271			82			87			102
Expected return on plan assets		(11,842	)		(12,169	)		(11,922	)		0			0			0
Plan amendment		20			0			0			0			0			0
Amortization of unrecognized net loss/(gain)		1,508			1,466			(307	)		(5	)		(13	)		(7	)
Amortization of prior service cost		43			8			5			(179	)		(179	)		(179	)
Net periodic (benefit)	$	(541	)	$	(1,865	)	$	(3,423	)	$	(102	)	$	(105	)	$	(84	)

Prior service costs in which all or almost all of the plan’s participants are fully eligible for benefits under the plan are amortized on a straight-line basis over the expected future working years of all active plan participants.  Unrecognized gains or losses are amortized using the “corridor approach”, which is the minimum amortization required. Under the corridor approach, the net gain or loss in excess of 10 percent of the greater of the projected benefit obligation or the market-related value of the assets is amortized on a straight-line basis over the expected future working years of all active plan participants.

The weighted-average assumptions used to determine the net periodic pension cost for the years ended December 31 are as follows:

	Pension Benefits									Post-retirement Benefits
	2016			2015			2014			2016			2015			2014
Discount rate		4.70	%		4.50	%		5.00	%		4.70	%		4.50	%		4.80	%
Expected return on plan assets		7.00	%		7.00	%		7.00	%		N/A			N/A			N/A
Rate of compensation increase		3.50	%		3.50	%		3.50	%		N/A			N/A			N/A

The amount of benefit payments that are expected to be paid over the next ten years are as follows:

(000's omitted)	Pension Benefits		Post-retirement Benefits
2017	$	7,225	$	145
2018		7,320		143
2019		7,504		141
2020		7,752		138
2021		7,914		136
2022-2026		41,823		636

The payments reflect future service and are based on various assumptions including retirement age and form of payment (lump-sum versus annuity). Actual results may differ from these estimates.

The assumed discount rate is used to reflect the time value of future benefit obligations.  The discount rate was determined based upon the yield on high-quality fixed income investments expected to be available during the period to maturity of the pension benefits.  This rate is sensitive to changes in interest rates.  A decrease in the discount rate would increase the Company’s obligation and future expense while an increase would have the opposite effect.   The expected long-term rate of return was estimated by taking into consideration asset allocation, reviewing historical returns on the type of assets held and current economic factors.  Based on the Company’s anticipation of future experience under the defined benefit pension plan, the mortality tables used to determine future benefit obligations under the plan were updated as of December 31, 2016 to the RP-2014 Mortality Table for annuitants and non-annuitants, adjusted backward to 2006 with Scale MP-2014, and then adjusted for mortality improvements with the Scale MP-2016 mortality improvement scale on a generational basis.  The appropriateness of the assumptions is reviewed annually.

Plan Assets

The investment objective for the defined benefit pension plan is to achieve an average annual total return over a five-year period equal to the assumed rate of return used in the actuarial calculations.  At a minimum performance level, the portfolio should earn the return obtainable on high quality intermediate-term bonds.  The Company’s perspective regarding portfolio assets combines both preservation of capital and moderate risk-taking.   Asset allocation favors equities, with a target allocation of approximately 60% equity securities and 40% fixed income securities and money market funds.  Due to the volatility in the market, the target allocation is not always desirable and asset allocations will fluctuate between acceptable ranges.  Prohibited transactions include purchase of securities on margin, uncovered call options, and short sale transactions.

The fair values of the Company’s defined benefit pension plan assets at December 31, 2016 by asset category are as follows:

Asset category (000’s omitted)	Quoted Prices in Active Markets for Identical Assets Level 1		Significant Observable Inputs Level 2		Significant Unobservable Inputs Level 3		Total
Money Market Accounts	$	103	$	8,048	$	0	$	8,151
Equity securities:
U.S. large-cap		43,235		0		0		43,235
U.S mid/small cap		19,032		0		0		19,032
CBSI stock		7,417		0		0		7,417
International		27,064		0		0		27,064
		96,748		0		0		96,748
Fixed income securities:
Government securities		25,375		5,863		0		31,238
Investment grade bonds		15,253		0		0		15,253
High yield(a)		16,615		0		0		16,615
		57,243		5,863		0		63,106
Other investments (b)		12,023		58		0		12,081
Total (c)	$	166,117	$	13,969	$	0	$	180,086

The fair values of the Company’s defined benefit pension plan assets at December 31, 2015 by asset category are as follows:

Asset category (000’s omitted)	Quoted Prices in Active Markets for Identical Assets Level 1		Significant Observable Inputs Level 2		Significant Unobservable Inputs Level 3		Total
Money Market Accounts	$	2,240	$	5,750	$	0	$	7,990
Equity securities:
U.S. large-cap		34,985		0		0		34,985
U.S mid/small cap		12,354		0		0		12,354
CBSI stock		8,393		0		0		8,393
International		28,136		0		0		28,136
		83,868		0		0		83,868
Fixed income securities:
Government securities		31,397		6,488		0		37,885
Investment grade bonds		14,517		0		0		14,517
High yield(a)		17,365		0		0		17,365
		63,279		6,488		0		69,767
Other investments (b)		9,937		63		0		10,000
Total (c)	$	159,324	$	12,301	$	0	$	171,625

(a) This category is exchange-traded funds representing a diversified index of high yield corporate bonds.

(b) This category is comprised of exchange-traded funds and mutual funds holding non-traditional investment classes including private equity funds and alternative exchange funds.

(c) Excludes dividends and interest receivable totaling $0.3 million and $0.4 million at December 31, 2016 and 2015, respectively.

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

· Money market funds - Managed portfolios, including commercial paper and other fixed income securities issued by U.S. and foreign corporations, asset-backed commercial paper, U.S. government securities, obligations of foreign governments and U.S. and foreign banks, which are valued at the closing price reported on the market on which the underlying securities are traded.

· Equity securities and other investments – Mutual funds, equity securities and common stock of the Company which are valued at the quoted market price of shares held at year-end.

· Fixed income securities - U.S. Treasuries, municipal bonds and notes, government sponsored entities, and corporate debt valued at the closing price reported on the active market on which the individual securities are traded or for municipal bonds and notes based on quoted prices for similar assets in the active market.

The Company makes contributions to its funded qualified pension plan as required by government regulation or as deemed appropriate by management after considering the fair value of plan assets, expected return on such assets, and the value of the accumulated benefit obligation.  The Company made a $1.53 million contribution to the State Bank of Chittenango pension plan in 2016.  The Company made a $2.9 million contribution to its defined benefit pension plan in 2017.  The Company funds the payment of benefit obligations for the supplemental pension and post-retirement plans because such plans do not hold assets for investment.

Tupper Lake National Bank (“TLNB”), acquired in 2007, participated in the Pentegra Defined Benefit Plan for Financial Institutions (“Pentegra DB Plan”), a multi-employer tax qualified defined benefit pension plan.  The identification number and plan number of the Pentegra DB Plan are 13-5645888 and 333, respectively. All employees of TLNB who met minimum service requirements participated in the plan.  As of June 30, 2015, the Pentegra DB Plan had total assets of $3.3 billion, actuarial present value of accumulated benefits of $3.3 billion and was at least 80 percent funded.  The assets of the multi-employer plan may be used to satisfy obligations of any of the employers participating in the plan.  As a result, contributions made by the Company may be used to provide benefits to participants of other participating employers.  Contributions for 2016, 2015 and 2014 were approximately $0.05 million, $0.03 million, and $0.06 million, respectively. Contributions made by the Company to the Pentegra DB Plan do not represent more than 5% of contributions made to the Pentegra DB Plan.

The assumed health care cost trend rate used in the post-retirement health plan at December 31, 2016 was 7.50% for the pre-65 participants and 5.80% for the post-65 participants for medical costs and 10.5% for prescription drugs.  The rate to which the cost trend rate is assumed to decline (the ultimate trend rate) and the year that the rate reaches the ultimate trend rate is 3.89% and 2075, respectively.

Assumed health care cost trend rates impact the amounts reported for the health care plan.  A one-percentage-point increase or decrease in the trend rate would increase the service and interest cost components by nominal amounts.

401(k) Employee Stock Ownership Plan

The Company has a 401(k) Employee Stock Ownership Plan in which employees can contribute from 1% to 90% of eligible compensation, with the first 3% being eligible for a 100% matching contribution in the form of Company common stock and the next 3% being eligible for a 50% matching contributions in the form of Company common stock.  The expense recognized under this plan for the years ended December 31, 2016, 2015 and 2014 was $4.3 million, $3.6 million, and $3.4 million, respectively.  Effective January 1, 2010, the defined benefit pension plan was modified to a new plan design that includes an interest credit contribution to be made to the 401(k) plan.  The expense recognized for this interest credit contribution for the years ended December 31, 2016, 2015, and 2014 was $0.7 million, $1.1 million, and $0.9 million, respectively.

The Company acquired the Oneida Savings Bank 401(k) Savings Plan and the Oneida Savings Bank Employee Stock Ownership Plan with the Oneida acquisition.  Effective January 26, 2016, the Oneida Savings Bank 401(k) Savings Plan was merged into and became part of the Community Bank System, Inc. 401(k) Employee Stock Ownership Plan, and effective March 16, 2016, the Oneida Savings Bank Employee Stock Ownership plan was merged into and became part of the Community Bank System, Inc. 401(k) Employee Stock Ownership Plan.

Other Deferred Compensation Arrangements

In addition to the supplemental pension plans for certain executives, the Company has nonqualified deferred compensation arrangements for several former directors, officers and key employees.  All benefits provided under these plans are unfunded and payments to plan participants are made by the Company.  At December 31, 2016 and 2015, the Company has recorded a liability of $3.2 million and $3.6 million, respectively.  The expense recognized under these plans for the years ended December 31, 2016, 2015, and 2014 was approximately $0.03 million, $0.1 million, and $0.3 million, respectively.

Deferred Compensation Plan for Directors

Directors may defer all or a portion of their director fees under the Deferred Compensation Plan for Directors.  Under this plan, there is a separate account for each participating director which is credited with the amount of shares that could have been purchased with the director’s fees as well as any dividends on such shares.  On the distribution date, the director will receive common stock equal to the accumulated share balance in their account.  As of December 31, 2016 and 2015, there were 154,013 and 151,672 shares credited to the participants’ accounts, for which a liability of $4.0 million and $3.8 million was accrued, respectively.  The expense recognized under the plan for the years ended December 31, 2016, 2015 and 2014, was $0.2 million, $0.2 million, and $0.2 million, respectively.

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STOCK-BASED COMPENSATION PLANS

12 Months Ended

Dec. 31, 2016

STOCK-BASED COMPENSATION PLANS [Abstract]

STOCK-BASED COMPENSATION PLANS

NOTE L:  STOCK-BASED COMPENSATION PLANS

The Company has a long-term incentive program for directors, officers and employees.  Under this program, the Company initially authorized four million shares of Company common stock for the grant of incentive stock options, nonqualified stock options, restricted stock awards, and retroactive stock appreciation rights.  The long-term incentive program was amended effective May 25, 2011 and May 14, 2014 to authorize an additional 900,000 shares and 1,000,000 shares of Company common stock, respectively, for the grant of incentive stock options, nonqualified stock options, restricted stock awards, and retroactive stock appreciation rights.    As of December 31, 2016, the Company has authorization to grant up to approximately 0.9 million additional shares of Company common stock for these instruments.  The nonqualified (offset) stock options in its Director’s Stock Balance Plan vest and become exercisable immediately and expire one year after the date the director retires or two years in the event of death.  The remaining options have a ten-year term, and vest and become exercisable on a grant-by-grant basis, ranging from immediate vesting to ratably over a five-year period.

Activity in this long-term incentive program is as follows:

	Stock Options
	Outstanding			Weighted- average Exercise Price of Shares
Outstanding at December 31, 2014		2,151,776		$	25.92
Granted		293,242			35.36
Exercised		(469,730	)		22.42
Forfeited		(5,987	)		30.21
Outstanding at December 31, 2015		1,969,301		$	28.15
Granted		330,383			38.02
Exercised		(525,298	)		25.12
Forfeited		(18,394	)		34.47
Outstanding at December 31, 2016		1,755,992			30.85
Exercisable at December 31, 2016		959,638		$	26.94

The following table summarizes the information about stock options outstanding under the Company’s stock option plan at December 31, 2016:

		Options outstanding						Options exercisable
Range of Exercise Price		Shares		Weighted -average Exercise Price		Weighted- average Remaining Life (years)		Shares		Weighted -average Exercise Price
$	0.00 – $18.00		44,436	$	17.70		2.22		44,436	$	17.70
$	18.001 – $23.00		267,307		19.06		1.97		267,307		19.06
$	23.001 – $28.00		159,662		26.28		5.54		159,536		26.28
$	28.001 – $29.00		203,365		28.78		5.22		153,369		28.78
$	29.001 – $30.00		254,826		29.79		6.21		144,226		29.79
$	30.001 – $40.00		826,396		37.08		8.31		190,764		37.06
TOTAL			1,755,992	$	30.85		6.28		959,638	$	26.94

The weighted-average remaining contractual term of outstanding and exercisable stock options at December 31, 2016 is 6.28 years and 4.89 years, respectively.  The aggregate intrinsic value of outstanding and exercisable stock options at December 31, 2016 is $54.3 million and $33.4 million, respectively.

The Company recognized stock-based compensation expense related to incentive and non-qualified stock options of $2.2 million, $1.8 million and $2.0 million for the years ended December 31, 2016, 2015 and 2014, respectively.  A related income tax benefit was recognized of $0.8 million, $0.7 million and $0.9 million for the 2016, 2015 and 2014 years, respectively.  Compensation expense related to restricted stock vesting recognized in the income statement for 2016, 2015 and 2014 was approximately $2.4 million, $2.2 million and $2.0 million, respectively.

Management estimated the fair value of options granted using the Black-Scholes option-pricing model.  This model was originally developed to estimate the fair value of exchange-traded equity options, which (unlike employee stock options) have no vesting period or transferability restrictions.  As a result, the Black-Scholes model is not necessarily a precise indicator of the value of an option, but it is commonly used for this purpose.  The Black-Scholes model requires several assumptions, which management developed based on historical trends and current market observations.

	2016			2015			2014
Weighted-average Fair Value of Options Granted	$	7.90		$	7.48		$	8.38
Assumptions:
Weighted-average expected life (in years)		6.50			6.50			6.50
Future dividend yield		3.43	%		3.40	%		3.70	%
Share price volatility		30.00	%		30.34	%		30.71	%
Weighted-average risk-free interest rate		1.72	%		1.73	%		2.69	%

Unrecognized stock-based compensation expense related to non-vested stock options totaled $4.4 million at December 31, 2016.  The weighted-average period over which this unrecognized expense would be recognized is 3.2 years.  The total fair value of stock options vested during 2016, 2015, and 2014 were $2.1 million, $1.9 million and $1.9 million, respectively.

During the 12 months ended December 31, 2016 and 2015, proceeds from stock option exercises totaled $12.0 million and $10.4 million, respectively, and the related tax benefits from exercise were approximately $2.7 million and $2.1 million, respectively.   During the twelve months ended December 31, 2016 and 2015, approximately 0.4 million shares were issued in connection with stock option exercises each year.  The total intrinsic value of options exercised during 2016, 2015 and 2014 were $10.3 million, $7.6 million and $5.7 million, respectively.

A summary of the status of the Company’s unvested restricted stock awards as of December 31, 2016, and changes during the twelve months ended December 31, 2016 and 2015, is presented below:

	Restricted Shares			Weighted-average grant date fair value
Unvested at December 31, 2014		245,721		$	26.13
Awards		60,519			35.39
Forfeitures		(874	)		32.43
Vestings		(59,055	)		28.35
Unvested at December 31, 2015		246,311		$	27.85
Awards		148,240			27.04
Forfeitures		(42,394	)		17.49
Vestings		(98,327	)		25.64
Unvested at December 31, 2016		253,830		$	29.98

Unrecognized stock-based compensation expense related to unvested restricted stock totaled $5.7 million at December 31, 2016, which will be recognized as expense over the next five years.  The weighted-average period over which this unrecognized expense would be recognized is 4.7 years.  The total fair value of restricted stock vested during 2016, 2015, and 2014 were $2.5 million, $1.7 million and $1.6 million, respectively.

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EARNINGS PER SHARE

12 Months Ended

Dec. 31, 2016

EARNINGS PER SHARE [Abstract]

EARNINGS PER SHARE

NOTE M:  EARNINGS PER SHARE

The two class method is used in the calculations of basic and diluted earnings per share.  Under the two class method, earnings available to common shareholders for the period are allocated between common shareholders and participating securities according to dividends declared and participation rights in undistributed earnings.  The Company has determined that all of its outstanding non-vested stock awards are participating securities as of December 31, 2016.

Basic earnings per share are computed based on the weighted-average of the common shares outstanding for the period.  Diluted earnings per share are based on the weighted-average of the shares outstanding and the assumed exercise of stock options during the year.  The dilutive effect of options is calculated using the treasury stock method of accounting.  The treasury stock method determines the number of common shares that would be outstanding if all the dilutive options (those where the average market price is greater than the exercise price) 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.  There were approximately 0.3 million, 0.3 million and 0.2 million weighted-average anti-dilutive stock options outstanding at December 31, 2016, 2015 and 2014, respectively, which were not included in the computation below.

The following is a reconciliation of basic to diluted earnings per share for the years ended December 31, 2016, 2015 and 2014.

(000's omitted, except per share data)	2016			2015			2014
Net income	$	103,812		$	91,230		$	91,353
Income attributable to unvested stock-based compensation awards		(550	)		(453	)		(456	)
Income available to common shareholders	$	103,262		$	90,777		$	90,897
Weighted-average common shares outstanding - basic		44,091			40,996			40,548
Basic earnings per share	$	2.34		$	2.21		$	2.24
Net income	$	103,812		$	91,230		$	91,353
Income attributable to unvested stock-based compensation awards		(550	)		(453	)		(456	)
Income available to common shareholders	$	103,262		$	90,777		$	90,897
Weighted-average common shares outstanding		44,091			40,996			40,548
Assumed exercise of stock options		394			405			481
Weighted-average common shares outstanding – diluted		44,485			41,401			41,029
Diluted earnings per share	$	2.32		$	2.19		$	2.22
Cash dividends declared per share	$	1.26		$	1.22		$	1.16

Stock Repurchase Program

At its December 2015 meeting, the Board approved a stock repurchase program authorizing the repurchase of up to 2.2 million shares of the Company’s common stock, in accordance with securities laws and regulations, through December 31, 2016.  At its December 2016 meeting, the Board approved a similar program for 2017, authorizing the repurchase of up to 2.2 million shares of the Company’s common stock through December 31, 2017.  Any repurchased shares will be used for general corporate purposes, including those related to stock plan activities.  The timing and extent of repurchases will depend on market conditions and other corporate considerations as determined at the Company’s discretion.  There were no stock repurchases pursuant to the announced plan in 2016.  During 2015 and 2014, the Company repurchased approximately 0.3 million and 0.1 million, respectively, shares of its common stock in open market transactions.

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COMMITMENTS, CONTINGENT LIABILITIES AND RESTRICTIONS

12 Months Ended

Dec. 31, 2016

COMMITMENTS, CONTINGENT LIABILITIES AND RESTRICTIONS [Abstract]

COMMITMENTS, CONTINGENT LIABILITIES AND RESTRICTIONS

NOTE N:  COMMITMENTS, CONTINGENT LIABILITIES AND RESTRICTIONS

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers.  These financial instruments consist primarily of commitments to extend credit and standby letters of credit.  Commitments to extend credit are agreements to lend to customers, generally having fixed expiration dates or other termination clauses that may require payment of a fee.  These commitments consist principally of unused commercial and consumer credit lines.  Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of an underlying contract with a third party.  The credit risks associated with commitments to extend credit and standby letters of credit are essentially the same as that involved with extending loans to customers and are subject to the Company’s normal credit policies.  Collateral may be obtained based on management’s assessment of the customer’s creditworthiness.  The fair value of the standby letters of credit is immaterial for disclosure.

The contract amounts of commitments and contingencies are as follows at December 31:

(000's omitted)	2016		2015
Commitments to extend credit	$	773,442	$	811,442
Standby letters of credit		22,656		19,053
Total	$	796,098	$	830,495

The Company has unused lines of credit of $25.0 million at December 31, 2016.  The Company has unused borrowing capacity of approximately $1.2 billion through collateralized transactions with the FHLB and $26.0 million through collateralized transactions with the Federal Reserve.

The Company is required to maintain a reserve balance, as established by the Federal Reserve Bank.  The required average total reserve for the 14-day maintenance period of December 22, 2016 through January 4, 2017 was $82.8 million, with $64.9 million represented by cash on hand and the remaining $17.9 million was required to be on deposit with the Federal Reserve.

The Company and its subsidiaries are subject in the normal course of business to various pending and threatened legal proceedings in which claims for monetary damages are asserted. As of December 31, 2016, management, after consultation with legal counsel, does not anticipate that the aggregate ultimate liability arising out of litigation pending or threatened 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 legal proceedings. For those matters where it is probable that the Company will incur losses and the amounts of the losses can be reasonably estimated, the Company records an expense and corresponding liability in its consolidated financial statements. To the extent the pending or threatened litigation could result in exposure in excess of that liability, the amount of such excess is not currently estimable. The range of reasonably possible losses for matters where an exposure is not currently estimable or considered probable, beyond the existing recorded liabilities, is between $0 and $1 million in the aggregate. Although the Company does not believe that the outcome of pending litigation 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.

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LEASES

12 Months Ended

Dec. 31, 2016

LEASES [Abstract]

LEASES

NOTE O:  LEASES

The Company leases buildings, office space, and equipment under agreements that expire in various years.  Rental expense included in operating expenses amounted to $5.8 million, $5.4 million and $5.3 million in 2016, 2015 and 2014, respectively.  The future minimum rental commitments as of December 31, 2016 for all non-cancelable operating leases are as follows:

2017	$	6,078
2018		5,574
2019		5,040
2020		3,857
2021		3,098
Thereafter		7,297
Total	$	30,944

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REGULATORY MATTERS

12 Months Ended

Dec. 31, 2016

REGULATORY MATTERS [Abstract]

REGULATORY MATTERS

NOTE P:  REGULATORY MATTERS

The Company and the Bank are subject to various regulatory capital requirements administered by federal banking agencies.  Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.  The Company’s and the Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.  Management believes, as of December 31, 2016, that the Company and Bank meet all applicable capital adequacy requirements.

Basel III Transitional rules became effective for the Company on January 1, 2015 with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019.  Beginning in 2016, the Company and the Bank are required to maintain a “capital conservation buffer,” composed entirely of common equity Tier 1 capital, in addition to minimum risk-based capital ratios.  The required capital conservation buffer for 2016 is 0.625%.  Therefore, to satisfy both the minimum risk-based capital ratios and the capital conservation buffer in 2016, the Company and the Bank must maintain: (i) Common equity Tier 1 capital to total risk-weighted assets of at least 5.125%, (ii) Tier 1 capital to total risk-weighted assets of at least 6.625%, and (iii) Total capital (Tier 1 capital plus Tier 2 capital) to total risk-weighted assets of at least 8.625%. As of December 31, 2016 and 2015, the amounts, ratios and requirements for the Company are presented below calculated under the Basel III Standardized Transitional Approach.  As of December 31, 2016, the most recent notification from the OCC categorized the Company and Bank as “well capitalized” under the regulatory framework for prompt corrective action.

	Actual					For capital adequacy purposes					For capital adequacy purposes plus Capital Conservation Buffer					To be well-capitalized under prompt corrective action
(000's omitted)	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
Community Bank System, Inc.:
2016
Tier 1 Leverage ratio	$	858,347		10.55	%	$	325,438		4.00	%						$	406,798		5.00	%
Tier 1 risk-based capital		858,347		18.10	%		284,583		6.00	%	$	314,228		6.625	%		379,445		8.00	%
Total risk-based capital		905,996		19.10	%		379,445		8.00	%		409,089		8.625	%		474,306		10.00	%
Common equity tier 1 capital		759,199		16.01	%		213,438		4.50	%		243,082		5.125	%		308,299		6.50	%
2015
Tier 1 Leverage ratio	$	788,717		10.32	%	$	305,761		4.00	%						$	382,201		5.00	%
Tier 1 risk-based capital		788,717		17.09	%		276,886		6.00	%							369,181		8.00	%
Total risk-based capital		834,539		18.08	%		369,181		8.00	%							461,477		10.00	%
Common equity tier 1 capital		689,528		14.94	%		207,664		4.50	%							299,960		6.50	%
Community Bank, N.A.:
2016
Tier 1 Leverage ratio	$	672,633		8.30	%	$	324,080		4.00	%						$	405,099		5.00	%
Tier 1 risk-based capital		672,633		14.28	%		282,662		6.00	%	$	312,106		6.625	%		376,883		8.00	%
Total risk-based capital		720,282		15.29	%		376,883		8.00	%		406,327		8.625	%		471,104		10.00	%
Common equity tier 1 capital		672,578		14.28	%		211,997		4.50	%		241,441		5.125	%		306,217		6.50	%
2015
Tier 1 Leverage ratio	$	673,443		8.88	%	$	303,256		4.00	%						$	379,070		5.00	%
Tier 1 risk-based capital		673,443		14.65	%		275,739		6.00	%							367,652		8.00	%
Total risk-based capital		719,265		15.65	%		367,652		8.00	%							459,565		10.00	%
Common equity tier 1 capital		673,326		14.65	%		206,804		4.50	%							298,717		6.50	%

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PARENT COMPANY STATEMENTS

12 Months Ended

Dec. 31, 2016

PARENT COMPANY STATEMENTS [Abstract]

PARENT COMPANY STATEMENTS

NOTE Q:  PARENT COMPANY STATEMENTS

The condensed balance sheets of the parent company at December 31 are as follows:

(000's omitted)	2016		2015
Assets:
Cash and cash equivalents	$	151,127	$	97,317
Investment securities		3,628		3,576
Investment in and advances to:
Bank subsidiary		1,116,554		1,117,419
Non-bank subsidiaries		35,566		30,643
Other assets		10,345		9,996
Total assets	$	1,317,220	$	1,258,951
Liabilities and shareholders' equity:
Accrued interest and other liabilities	$	16,950	$	16,158
Borrowings		102,170		102,146
Shareholders' equity		1,198,100		1,140,647
Total liabilities and shareholders' equity	$	1,317,220	$	1,258,951

The condensed statements of income of the parent company for the years ended December 31 is as follows:

(000's omitted)	2016			2015			2014
Revenues:
Dividends from subsidiaries:
Bank subsidiary	$	89,000		$	70,000		$	57,200
Non-bank subsidiaries		1,750			6,000			3,900
Interest and dividends on investments		102			94			88
Total revenues		90,852			76,094			61,188
Expenses:
Interest on borrowings		2,949			2,537			2,477
Acquisition expenses		429			0			0
Other expenses		11			19			37
Total expenses		3,389			2,556			2,514
Income before tax benefit and equity in undistributed net income of subsidiaries		87,463			73,538			58,674
Income tax benefit/(expense)		866			(572	)		581
Income before equity in undistributed net income of subsidiaries		88,329			72,966			59,255
Equity in undistributed net income of subsidiaries		15,483			18,264			32,098
Net income	$	103,812		$	91,230		$	91,353
Other comprehensive (loss)/income, net of tax:
Other comprehensive income/(loss) related to pension and other post retirement obligations		3,322			(4,567	)		(9,571	)
Other comprehensive (loss)/income related to unrealized (losses)/gains on available-for-sale securities		(14,714	)		(6,918	)		66,837
Other comprehensive (loss)/income		(11,392	)		(11,485	)		57,266
Comprehensive income	$	92,420		$	79,745		$	148,619

The statements of cash flows of the parent company for the years ended December 31 is as follows:

(000's omitted)	2016			2015			2014
Operating activities:
Net income	$	103,812		$	91,230		$	91,353
Adjustments to reconcile net income to net cash provided by operating activities
Equity in undistributed net income of subsidiaries		(15,483	)		(18,264	)		(32,098	)
Net change in other assets and other liabilities		(215	)		(27	)		(479	)
Net cash provided by operating activities		88,114			72,939			58,776
Investing activities:
Proceeds from sale of investment securities		0			0			3
Cash received for acquisitions, net of cash acquired of $0, $81,772, and $0, respectively		0			25,505			0
Capital contributions to subsidiaries		0			(80,231	)		0
Net cash (used in) provided by investing activities		0			(54,726	)		3
Financing activities:
Issuance of common stock		15,326			13,975			13,410
Purchase of treasury stock		(3,470	)		(9,126	)		(4,368	)
Sale of treasury stock		8,888			16,571			1,531
Cash dividends paid		(55,048	)		(49,273	)		(46,178	)
Net cash used in financing activities		(34,304	)		(27,853	)		(35,605	)
Change in cash and cash equivalents		53,810			(9,640	)		23,174
Cash and cash equivalents at beginning of year		97,317			106,957			83,783
Cash and cash equivalents at end of year	$	151,127		$	97,317		$	106,957
Supplemental disclosures of cash flow information:
Cash paid for interest	$	2,909		$	2,523		$	2,473
Supplemental disclosures of noncash financing activities
Dividends declared and unpaid	$	14,268		$	13,605		$	12,254
Capital contributions to subsidiaries		0			76,461			0
Common stock issued for acquisition		0			102,202			0

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FAIR VALUE

12 Months Ended

Dec. 31, 2016

FAIR VALUE [Abstract]

FAIR VALUE

NOTE R:  FAIR VALUE

Accounting standards allow entities an irrevocable option to measure certain financial assets and financial liabilities at fair value.  Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings.  The Company has elected to value mortgage loans held for sale at fair value in order to more closely match the gains and losses associated with loans held for sale with the gains and losses on forward sales contracts.  Accordingly, the impact on the valuation will be recognized in the Company’s consolidated statement of income.  All mortgage loans held for sale are current and in performing status.

Accounting standards establish a framework for measuring fair value and require certain disclosures about such fair value instruments.  It defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. exit price).  Inputs used to measure fair value are classified into the following hierarchy:

· Level 1 – Quoted prices in active markets for identical assets or liabilities.

· Level 2 – Quoted prices in active markets for similar assets or liabilities, or quoted prices for identical or similar assets or     liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.

· Level 3 – Significant valuation assumptions not readily observable in a market.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.  The following tables set forth the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis.  There were no transfers between any of the levels for the periods presented.

	December 31, 2016
(000's omitted)	Level 1		Level 2		Level 3		Total Fair Value
Available-for-sale investment securities:
U.S. Treasury and agency securities	$	1,902,762	$	0	$	0	$	1,902,762
Obligations of state and political subdivisions		0		594,990		0		594,990
Government agency mortgage-backed securities		0		235,230		0		235,230
Corporate debt securities		0		5,687		0		5,687
Government agency collateralized mortgage obligations		0		9,535		0		9,535
Marketable equity securities		452		0		0		452
Total available-for-sale investment securities		1,903,214		845,442		0		2,748,656
Mortgage loans held for sale		0		2,416		0		2,416
Commitments to originate real estate loans for sale		0		0		54		54
Forward sales commitments		0		3		0		3
Total	$	1,903,214	$	847,861	$	54	$	2,751,129

	December 31, 2015
(000's omitted)	Level 1		Level 2			Level 3		Total Fair Value
Available-for-sale investment securities:
U.S. Treasury and agency securities	$	1,899,978	$	0		$	0	$	1,899,978
Obligations of state and political subdivisions		0		666,883			0		666,883
Government agency mortgage-backed securities		0		210,865			0		210,865
Corporate debt securities		0		16,680			0		16,680
Government agency collateralized mortgage obligations		0		13,308			0		13,308
Marketable equity securities		399		0			0		399
Total available-for-sale investment securities		1,900,377		907,736			0		2,808,113
Mortgage loans held for sale		0		932			0		932
Commitments to originate real estate loans for sale		0		0			117		117
Forward sales commitments		0		(37	)		0		(37	)
Total	$	1,900,377	$	908,631		$	117	$	2,809,125

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

· Available for sale investment securities – The fair value of available-for-sale investment securities is based upon quoted prices, if available.  If quoted prices are not available, fair values are measured using quoted market prices for similar securities or model-based valuation techniques.  Level 1 securities include U.S. Treasury obligations and marketable equity securities that are traded by dealers or brokers in active over-the-counter markets.  Level 2 securities include U.S. agency securities, mortgage-backed securities issued by government-sponsored entities, municipal securities and corporate debt securities that are valued by reference to prices for similar securities or through model-based techniques in which all significant inputs, such as reported trades, trade execution data, LIBOR swap yield curve, market prepayment speeds, credit information, market spreads, and security’s terms and conditions, are observable.  See Note C for further disclosure of the fair value of investment securities.

· Mortgage loans held for sale – Mortgage loans held for sale are carried at fair value, which is determined using quoted secondary-market prices of loans with similar characteristics and, as such, have been classified as a Level 2 valuation.  The unpaid principal value of mortgage loans held for sale at December 31, 2016 is approximately $2.4 million.  The unrealized gain on mortgage loans held for sale of approximately $2,000 was recognized in other banking services in the Consolidated Statement of Income for the year ended December 31, 2016.

· Forward sales commitments – The Company enters into forward sales commitments to sell certain residential real estate loans.  Such commitments are considered to be derivative financial instruments and, therefore, are carried at estimated fair value in the other asset or other liability section of the consolidated balance sheet.  The fair value of these forward sales commitments is primarily measured by obtaining pricing from certain government-sponsored entities and reflects the underlying price the entity would pay the Company for an immediate sale on these mortgages.  As such, these instruments are classified as Level 2 in the fair value hierarchy.

· Commitments to originate real estate loans for sale – The Company enters into various commitments to originate residential real estate loans for sale.  Such commitments are considered to be derivative financial instruments and, therefore, are carried at estimated fair value in the other asset or other liability section of the consolidated balance sheet.  The estimated fair value of these commitments is determined using quoted secondary market prices obtained from certain government-sponsored entities.  Additionally, accounting guidance requires the expected net future cash flows related to the associated servicing of the loan to be included in the fair value measurement of the derivative.  The expected net future cash flows are based on a valuation model that calculates the present value of estimated net servicing income.  The valuation model incorporates assumptions that market participants would use in estimating future net servicing income.  Such assumptions include estimates of the cost of servicing loans, appropriate discount rate and prepayment speeds.  The determination of expected net cash flows is considered a significant unobservable input contributing to the Level 3 classification of commitments to originate real estate loans for sale.

 The changes in Level 3 assets measured at fair value on a recurring basis are summarized in the following tables:

	For the Year Ending December 31,
	2016			2015
(000's omitted)	Commitments to Originate Real Estate Loans for Sale			Commitments to Originate Real Estate Loans for Sale
Beginning balance	$	117		$	185
Total (losses)/gains included in earnings (1)		(1,234	)		(808	)
Commitments to originate real estate loans held for sale, net		1,171			740
Ending balance	$	54		$	117

⁽¹⁾ Amounts included in earnings associated with the commitments to originate real estate loans for sale are reported as a component of other banking services in the Consolidated Statement of Income.

Assets and liabilities measured on a non-recurring basis:

	December 31, 2016								December 31, 2015
(000's omitted)	Level 1		Level 2		Level 3		Total Fair Value		Level 1		Level 2		Level 3		Total Fair Value
Impaired loans	$	0	$	0	$	633	$	633	$	0	$	0	$	1,765	$	1,765
Other real estate owned		0		0		1,966		1,966		0		0		2,088		2,088
Total	$	0	$	0	$	2,599	$	2,599	$	0	$	0	$	3,853	$	3,853

Loans are generally not recorded at fair value on a recurring basis.  Periodically, the Company records nonrecurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans.  Nonrecurring adjustments also include certain impairment amounts for collateral-dependent loans calculated when establishing the allowance for credit losses. Such amounts are generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated valuation amount does not necessarily represent the fair value of the loan. Real estate collateral is typically valued using independent appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace, adjusted for non-observable inputs.  Thus, the resulting nonrecurring fair value measurements are generally classified as Level 3. Estimates of fair value used for other collateral supporting commercial loans generally are based on assumptions not observable in the marketplace and, therefore, such valuations classify as Level 3.  At December 31, 2016, there were two impaired loans recorded at the fair value of the underlying collateral.   

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 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% to 97% at December 31, 2016, and result in a Level 3 classification of the inputs for determining fair value. OREO is reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors identified above. The Company recovers the carrying value of OREO through the sale of the property. The ability to affect future sales prices is subject to market conditions and factors beyond the Company’s control and may impact the estimated fair value of a property.

Originated mortgage servicing rights are recorded at their fair value at the time of sale of the underlying loan, and are amortized in proportion to and over the estimated period of net servicing income.  The fair value of mortgage servicing rights is based on a valuation model incorporating inputs that market participants would use in estimating future net servicing income.  Such inputs include estimates of the cost of servicing loans, appropriate discount rate, and prepayment speeds and are considered to be unobservable and contribute to the Level 3 classification of mortgage servicing rights.    In accordance with GAAP, the Company must record impairment charges, on a nonrecurring basis, when the carrying value of a stratum exceeds its estimated fair value.  Impairment is recognized through a valuation allowance.  There is no valuation allowance at December 31, 2016 as the fair value of mortgage servicing rights of approximately $1.9 million exceeded the carrying value of approximately $1.4 million.

The Company evaluates goodwill for impairment on an annual basis, or more often if events or circumstances indicate there may be impairment.  The fair value of each reporting unit is compared to the carrying amount of that reporting unit in order to determine if impairment is indicated.  If so, the implied fair value of the reporting unit’s goodwill is compared to its carrying amount and the impairment loss is measured by the excess of the carrying value of the goodwill over fair value of the goodwill.  In such situations, the Company performs a discounted cash flow modeling technique that requires management to make estimates regarding the amount and timing of expected future cash flows of the assets and liabilities of the reporting unit that enable the Company to calculate the implied fair value of the goodwill.  It also requires use of a discount rate that reflects the current return expectation of the market in relation to present risk-free interest rates, expected equity market premiums, peer volatility indicators and company-specific risk indicators.  The Company did not recognize an impairment charge during 2016 or 2015.

The significant unobservable inputs used in the determination of fair value of assets classified as Level 3 on a recurring or non-recurring basis as of December 31, 2016 are as follows:

(000's omitted)	Fair Value		Valuation Technique	Significant Unobservable Inputs	Significant Unobservable Input Range (Weighted Average)
Other real estate owned	$	1,966	Fair value of collateral	Estimated cost of disposal/market adjustment		9.0% - 97.0% (29.6	%)
Impaired loans		633	Fair value of collateral	Estimated cost of disposal/market adjustment		15.0% - 50.0% (36.5	%)
Commitments to originate real estate loans for sale		54	Discounted cash flow	Embedded servicing value		1	%

The significant unobservable inputs used in the determination of fair value of assets classified as Level 3 on a recurring or non-recurring basis as of December 31, 2015 are as follows:

(000's omitted)	Fair Value		Valuation Technique	Significant Unobservable Inputs	Significant Unobservable Input Range (Weighted Average)
Other real estate owned	$	2,088	Fair value of collateral	Estimated cost of disposal/market adjustment		5.3% - 74.0% (27.7	%)
Impaired loans		1,765	Fair value of collateral	Estimated cost of disposal/market adjustment		9.0% - 20.0% (17.9	%)
Commitments to originate real estate loans for sale		117	Discounted cash flow	Embedded servicing value		1	%

The Company determines fair values based on quoted market values, where available, estimates of present values, or other valuation techniques.  Those techniques are significantly affected by the assumptions used, including, but not limited to, the discount rate and estimates of future cash flows.  In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, may not be realized in immediate settlement of the instrument.  Certain financial instruments and all nonfinancial instruments are excluded from fair value disclosure requirements.  Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

The carrying amounts and estimated fair values of the Company’s other financial instruments that are not accounted for at fair value at December 31, 2016 and 2015 are as follows:

	December 31, 2016				December 31, 2015
(000's omitted)	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets:
Net loans	$	4,901,329		4,935,140	$	4,755,974	$	4,808,856
Financial liabilities:
Deposits		7,075,954		7,071,191		6,873,474		6,871,098
Borrowings		146,200		146,200		301,300		301,300
Subordinated debt held by unconsolidated subsidiary trusts		102,170		90,144		102,146		84,680

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

Loans have been classified as a Level 3 valuation.  Fair values for variable rate loans that reprice frequently are based on carrying values.  Fair values for fixed rate loans are estimated using discounted cash flows and interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.

Deposits have been classified as a Level 2 valuation.  The fair value of demand deposits, interest-bearing checking deposits, savings accounts and money market deposits is the amount payable on demand at the reporting date.  The fair value of time deposit obligations are based on current market rates for similar products.

Borrowings have been classified as a Level 2 valuation.  The fair value of FHLB overnight advances is the amount payable on demand at the reporting date.  Fair values for long-term borrowings are estimated using discounted cash flows and interest rates currently being offered on similar borrowings, and are immaterial as of the reporting dates.

Subordinated debt held by unconsolidated subsidiary trusts have been classified as a Level 2 valuation.   The fair value of subordinated debt held by unconsolidated subsidiary trusts 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.  The fair values of each approximate the respective carrying values because the instruments are payable on demand or have short-term maturities and present relatively low credit risk and interest rate risk.

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DERIVATIVE INSTRUMENTS

12 Months Ended

Dec. 31, 2016

DERIVATIVE INSTRUMENTS [Abstract]

DERIVATIVE INSTRUMENTS

NOTE S:  DERIVATIVE INSTRUMENTS

The Company is party to derivative financial instruments in the normal course of its business to meet the financing needs of its customers and to manage its own exposure to fluctuations in interest rates.  These financial instruments have been limited to commitments to originate real estate loans held for sale and forward sales commitments.  The Company does not hold or issue derivative financial instruments for trading or other speculative purposes.

The Company enters into forward sales commitments for the future delivery of residential mortgage loans, and interest rate lock commitments to fund loans at a specified interest rate.  The forward sales commitments are utilized to reduce interest rate risk associated with interest rate lock commitments and loans held for sale.  Changes in the estimated fair value of the forward sales commitments and interest rate lock commitments subsequent to inception are based on changes in the fair value of the underlying loan resulting from the fulfillment of the commitment and changes in the probability that the loan will fund within the terms of the commitment, which is affected primarily by changes in interest rates and the passage of time.  At inception and during the life of the interest rate lock commitment, the Company includes the expected net future cash flows related to the associated servicing of the loan as part of the fair value measurement of the interest rate lock commitments.  These derivatives are recorded at fair value, which were immaterial at December 31, 2016.  The effect of the changes to these derivatives for the year then ended was also immaterial.

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VARIABLE INTEREST ENTITIES

12 Months Ended

Dec. 31, 2016

VARIABLE INTEREST ENTITIES [Abstract]

VARIABLE INTEREST ENTITIES

NOTE T:  VARIABLE INTEREST ENTITIES

The Company’s wholly-owned subsidiaries, Community Statutory Trust III and Community Capital Trust IV, are VIEs for which the Company is not the primary beneficiary.  Accordingly, the accounts of these entities are not included in the Company’s consolidated financial statements.  See further information regarding Community Statutory Trust III and Community Capital Trust IV in Note H: Borrowings.

In connection with the Company’s acquisition of Oneida, the Company acquired OPFC II which holds a 50% membership interest in 706 North Clinton, LLC (“706 North Clinton”), an entity formed for the purpose of acquiring and rehabilitating real property.  The real property held by 706 North Clinton is principally occupied by subsidiaries of the Company. The Company analyzed the operating agreement and capital structure of 706 North Clinton and determined that it was the primary beneficiary and therefore should consolidate 706 North Clinton in its financial statements.  This conclusion was based on the determination that the Company has a de facto agency relationship because of the financing arrangement between the other member of 706 North Clinton and the Bank which provides OPFC II with both the power to direct the activities of 706 North Clinton and the obligation to absorb any losses of 706 North Clinton.

The carrying amount of the assets and liabilities of 706 North Clinton and the classification of these assets and liabilities in the Company’s Consolidated Statements of Financial Condition at December 31 is as follows:

(000's omitted)	2016		2015
Cash and cash equivalents	$	30	$	42
Premises and equipment, net		6,429		6,592
Other assets		0		9
Total assets	$	6,459	$	6,643
Accrued interest and other liabilities / Total liabilities	$	1	$	5

In addition to the assets and liabilities of 706 North Clinton, the minority interest in 706 North Clinton of $3.23 million at December 31, 2016 is included in the Company’s Consolidated Statement of Financial Condition.  The creditors of 706 North Clinton do not have a claim on the general assets of the Company.  The Company’s maximum loss exposure net of minority interest in 706 North Clinton is approximately $4.8 million as of December 31, 2016, including a $1.6 million loss exposure related to the financing agreement between the other member of 706 North Clinton and the Bank.

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SEGMENT INFORMATION

12 Months Ended

Dec. 31, 2016

SEGMENT INFORMATION [Abstract]

SEGMENT INFORMATION

NOTE U:  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.  CBNA operates the Banking segment that provides full-service banking to consumers, businesses, and governmental units in northern, central, and western New York as well as northeast Pennsylvania.  Employee Benefit Services, which includes BPA, BPAS-APS (formerly Harbridge Consulting Group, LLC), BPAS Trust Company of Puerto Rico and HB&T, provides employee benefit trust, collective investment fund, retirement plan administration, 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 CISI, OWM, and The Carta Group, and asset management provided by Nottingham, 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).

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

(000's omitted)	Banking		Employee Benefit Services		All Other		Eliminations			Consolidated Total
2016
Net interest income	$	273,542	$	162	$	192	$	0		$	273,896
Provision for loan losses		8,076		0		0		0			8,076
Noninterest income		66,059		48,261		43,747		(2,442	)		155,625
Amortization of intangible assets		2,682		420		2,377		0			5,479
Other operating expenses		191,268		37,337		35,206		(2,442	)		261,369
Income before income taxes	$	137,575	$	10,666	$	6,356	$	0		$	154,597
Assets	$	8,598,057	$	38,742	$	71,428	$	(41,790	)	$	8,666,437
Goodwill	$	440,870	$	8,019	$	16,253	$	0		$	465,142
2015
Net interest income	$	248,167	$	132	$	121	$	0		$	248,420
Provision for loan losses		6,447		0		0		0			6,447
Noninterest income		57,704		46,784		20,967		(2,156	)		123,299
Amortization of intangible assets		2,803		515		345		0			3,663
Other operating expenses		181,865		35,218		14,465		(2,156	)		229,392
Income before income taxes	$	114,756	$	11,183	$	6,278	$	0		$	132,217
Assets	$	8,513,228	$	35,011	$	70,067	$	(65,637	)	$	8,552,669
Goodwill	$	439,052	$	8,019	$	16,181	$	0		$	463,252
2014
Net interest income	$	244,243	$	92	$	93	$	0		$	244,428
Provision for loan losses		7,178		0		0		0			7,178
Noninterest income		58,565		43,701		18,634		(1,880	)		119,020
Amortization of intangible assets		3,438		647		202		0			4,287
Other operating expenses		178,472		32,846		12,855		(1,880	)		222,293
Income before income taxes	$	113,720	$	10,300	$	5,670	$	0		$	129,690
Assets	$	7,463,379	$	31,513	$	15,635	$	(21,087	)	$	7,489,440
Goodwill	$	364,495	$	8,019	$	2,660	$	0		$	375,174

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SUBSEQUENT EVENTS

12 Months Ended

Dec. 31, 2016

SUBSEQUENT EVENTS [Abstract]

SUBSEQUENT EVENTS

NOTE V:  SUBSEQUENT EVENTS

Companies are required to evaluate events and transactions that occur after the balance sheet date but before the date the financial statements are issued, or available to be issued in the case of non-public entities.  They must recognize in the financial statements the effect of all events or transactions that provide additional evidence of conditions that existed at the balance sheet date, including the estimates inherent in the financial preparation process.  Entities do not recognize the impact of events or transactions that provide evidence about conditions that did not exist at the balance sheet date but arose after that date.

On February 3, 2017, the Company completed its acquisition of Northeast Retirement Services, Inc. (“NRS”) and its subsidiary Global Trust Company (“GTC”) headquartered in Woburn, Massachusetts for approximately $148 million in Company stock and cash. NRS was a privately held corporation focused on providing institutional transfer agency, master recordkeeping services, custom target date fund administration, trust product administration and customized reporting services to institutional clients.  Its wholly-owned subsidiary, GTC, was chartered in the State of Maine in 2008, as a non-depository trust company which provides fiduciary services for collective investment trusts and other products.  The acquisition will strengthen and complement the Company’s existing employee benefit services businesses.  Upon the completion of the merger, NRS is a wholly-owned subsidiary of BPAS and will operate as Northeast Retirement Services, LLC, a Delaware limited liability company.  The initial accounting for the assets and liabilities assumed with this acquisition is incomplete as of the date of issuance of the financial statements due to the proximity of the acquisition date to the date of issuance.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Dec. 31, 2016

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

Nature of Operations

Nature of Operations 

Community Bank System, Inc. (the “Company”) is a registered financial holding company which wholly-owns two significant consolidated subsidiaries: Community Bank, N.A. (the “Bank” or “CBNA”), and Benefit Plans Administrative Services, Inc. (“BPAS”).  As of December 31, 2016, BPAS owns four subsidiaries:  Benefit Plans Administrative Services, LLC (“BPA”), a provider of defined benefit contribution plan administration services; BPAS Actuarial & Pension Services, LLC (“BPAS-APS”) (formally known as Harbridge Consulting Group, LLC), a provider of actuarial and benefit consulting services; BPAS Trust Company of Puerto Rico, a Puerto Rican trust company; and Hand Benefits & Trust Company (“HB&T”), a provider of collective investment fund administration and institutional trust services.  HB&T owns one subsidiary, Hand Securities Inc. (“HSI”), an introducing broker-dealer.  The Company also wholly-owns two unconsolidated subsidiary business trusts formed for the purpose of issuing mandatorily-redeemable preferred securities which are considered Tier I capital under regulatory capital adequacy guidelines (see Note P).

As of December 31, 2016, the Bank operated 193 full service branches under the Community Bank, N.A. name throughout 35 counties of Upstate New York and six counties of Northeastern Pennsylvania offering a range of commercial and retail banking services.  The Bank owns the following operating subsidiaries:  The Carta Group, Inc. (“Carta Group”), CBNA Preferred Funding Corporation (“PFC”), CBNA Treasury Management Corporation (“TMC”), Community Investment Services, Inc. (“CISI”), Nottingham Advisors, Inc. (“Nottingham”), OneGroup NY, Inc. (“OneGroup”), Oneida Wealth Management, Inc. (“OWM”), and Oneida Preferred Funding II LLC (“OPFC II”).  OneGroup is a full-service insurance agency offering personal and commercial property insurance and other risk management products and services.  On August 19, 2016, the Company merged its insurance subsidiary CBNA Insurance Agency, Inc. (“CBNA Insurance”) into OneGroup.  PFC and OPFC II primarily act as investors in residential real estate loans and properties.  TMC provides cash management, investment, and treasury services to the Bank.  CISI, The Carta Group and OWM provide broker-dealer and investment advisory services.  On April 22, 2016, the Company merged the activities of OWM into CISI.  Nottingham provides asset management services to individuals, corporations, corporate pension and profit sharing plans, and foundations.

Principles of Consolidation

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries.  All intercompany accounts and transactions have been eliminated in consolidation.

Variable Interest Entities (“VIE”) are legal entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the legal entities to finance its activities without additional subordinated financial support.  VIEs may be required to be consolidated by a company if it is determined the company is the primary beneficiary of a VIE.  The primary beneficiary of a VIE is the enterprise that has: (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (2) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits of the VIE that could potentially be significant to the VIE.  The Company’s VIE’s are described in more detail in Note T to the consolidated financial statements.

Critical Accounting Estimates in the Preparation of Financial Statements

Critical Accounting Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  Critical accounting estimates include the allowance for loan losses, actuarial assumptions associated with the pension, post-retirement and other employee benefit plans, the provision for income taxes, investment valuation and other-than-temporary impairment, the carrying value of goodwill and other intangible assets, and acquired loan valuations.

Risk and Uncertainties

Risk and Uncertainties

In the normal course of its business, the Company encounters economic and regulatory risks.  There are three main components of economic risk: interest rate risk, credit risk and market risk.  The Company is subject to interest rate risk to the degree that its interest-bearing liabilities mature or reprice at different speeds, or on different basis, from its interest-earning assets.  The Company’s primary credit risk is the risk of default on the Company’s loan portfolio that results from the borrowers’ inability or unwillingness to make contractually required payments.  Market risk reflects potential changes in the value of collateral underlying loans, the fair value of investment securities, and loans held for sale.

The Company is subject to regulations of various governmental agencies.  These regulations can change significantly from period to period.  The Company also undergoes periodic examinations by the regulatory agencies which may subject it to further changes with respect to asset valuations, amounts of required loan loss allowances, and operating restrictions resulting from the regulators’ judgments based on information available to them at the time of their examinations.

Revenue Recognition

Revenue Recognition

The Company recognizes income on an accrual basis. CISI, OWM and Carta Group recognize fee income when investment and insurance products are sold to customers.  Nottingham provides asset management services to brokerage firms and clients and recognizes income ratably over the contract period during which service is performed.  Revenue from BPA’s administration and recordkeeping services is recognized ratably over the service contract period.  Revenue from consulting and actuarial services is recognized when services are rendered.  OneGroup recognizes commission revenue at the later of the effective date of the insurance policy, or the date on which the policy premium is billed to the customer.  At that date, the earnings process has been completed and the impact of refunds for policy cancellations can be reasonably estimated to establish reserves. The reserve for policy cancellations is based upon historical cancellation experience adjusted for known circumstances. All intercompany revenue and expense among related entities are eliminated in consolidation.

Cash and Cash Equivalents

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, and highly liquid investments with original maturities of less than 90 days.  The carrying amounts reported in the balance sheet for cash and cash equivalents approximate those assets’ fair values.

Investment Securities

Investment Securities

The Company can classify its investments in debt and equity securities as trading, held-to-maturity, or available-for-sale.  Held-to-maturity securities are those for which the Company has the positive intent and ability to hold until maturity, and are reported at amortized cost.  The Company did not use the held-to-maturity classification in 2015 or 2016.  Securities classified as available-for-sale are reported at fair value with net unrealized gains and losses reflected as a separate component of shareholders' equity, net of applicable income taxes.  None of the Company's investment securities have been classified as trading securities at December 31, 2016.  Certain equity securities are stated at cost and include restricted stock of the Federal Reserve Bank of New York (“Federal Reserve”) and Federal Home Loan Bank of New York (“FHLB”).

Fair values for investment securities are based upon quoted market prices, where available.  If quoted market prices are not available, fair values are based upon quoted market prices of comparable instruments, or a discounted cash flow model using market estimates of interest rates and volatility.

The Company conducts an assessment of all securities in an unrealized lossposition to determine if other-than-temporary impairment (“OTTI”) exists on a quarterly basis. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis.  The OTTI assessment considers the security structure, recent security collateral performance metrics, if applicable, external credit ratings, failure of the issuer to make scheduled interest or principal payments, judgment about and expectations of future performance, and relevant independent industry research, analysis, and forecasts. The severity of the impairment and the length of time the security has been impaired is also considered in the assessment.  The assessment of whether an OTTI decline exists is performed on each security, regardless of the classification of the security as available-for-sale or held-to-maturity, and involves a high degree of subjectivity and judgment that is based on the information available to management at a point in time.

An OTTI loss must be recognized for a debt security in an unrealized loss position if there is intent to sell the security or it is more likely than not the Company will be required to sell the security prior to recovery of its amortized cost basis. In this situation, the amount of loss recognized in income is equal to the difference between the fair value and the amortized cost basis of the security. Even if management does not have the intent, and it is not more likely than not that the Company will be required to sell the securities, an evaluation of the expected cash flows to be received is performed to determine if a credit loss has occurred. For debt securities, a critical component of the evaluation for OTTI is the identification of credit-impaired securities, where the Company does not expect to receive cash flows sufficient to recover the entire amortized cost basis of the security.  In the event of a credit loss, only the amount of impairment associated with the credit loss would be recognized in income. The portion of the unrealized loss relating to other factors, such as liquidity conditions in the market or changes in market interest rates, is recorded in accumulated other comprehensive loss.

Equity securities are also evaluated to determine whether the unrealized loss is expected to be recoverable based on whether evidence exists to support a realizable value equal to or greater than the amortized cost basis. If it is probable that the amortized cost basis will not be recovered, taking into consideration the estimated recovery period and the ability to hold the equity security until recovery, OTTI is recognized in earnings equal to the difference between the fair value and the amortized cost basis of the security.

The specific identification method is used in determining the realized gains and losses on sales of investment securities and OTTI charges.  Premiums and discounts on securities are amortized and accreted, respectively, on the interest method basis over the period to maturity or estimated life of the related security.  Purchases and sales of securities are recognized on a trade date basis.

Loans

Loans

Loans are stated at unpaid principal balances, net of unearned income.  Mortgage loans held for sale are carried at fair value and are included in loans held for sale on the balance sheet. Fair values for variable rate loans that reprice frequently are based on carrying values.  Fair values for fixed rate loans are estimated using discounted cash flows and interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.  The carrying amount of accrued interest approximates its fair value.

Interest on loans is accrued and credited to operations based upon the principal amount outstanding.  Nonrefundable loan fees and related direct costs are deferred and included in the loan balances where they are amortized over the life of the loan as an adjustment to loan yield using the effective yield method.  Premiums and discounts on purchased loans are amortized using the effective yield method over the life of the loans.

Acquired Loans

Acquired loans

Acquired loans are initially recorded at their acquisition date fair values.  The carryover of allowance for loan losses is prohibited as any credit losses in the loans are included in the determination of the fair value of the loans at the acquisition date. Fair values for acquired loans are based on a discounted cash flow methodology that involves assumptions and judgments as to credit risk, prepayment risk, liquidity risk, default rates, loss severity, payment speeds, collateral values and discount rate.

Acquired impaired loans

Acquired loans that have evidence of deterioration in credit quality since origination and for which it is probable, at acquisition, that the Company will be unable to collect all contractually required payments are accounted for as impaired loans under ASC 310-30.  The excess of undiscounted cash flows expected at acquisition over the estimated fair value is referred to as the accretable discount and is recognized into interest income over the remaining life of the loans using the interest method. The difference between contractually required payments at acquisition and the undiscounted cash flows expected to be collected at acquisition is referred to as the non-accretable discount. The non-accretable discount represents estimated future credit losses and other contractually required payments that the Company does not expect to collect. Subsequent decreases in expected cash flows are recognized as impairments through a charge to the provision for credit losses resulting in an increase in the allowance for loan losses. Subsequent improvements in expected cash flows result in a recovery of previously recorded allowance for loan losses or a reversal of a corresponding amount of the non-accretable discount, which the Company then reclassifies as an accretable discount that is recognized into interest income over the remaining life of the loans using the interest method.

Acquired loans that met the criteria for non-accrual of interest prior to acquisition may be considered performing upon acquisition, regardless of whether the customer is contractually delinquent, if the Company can reasonably estimate the timing and amount of the expected cash flows on such loans and if the Company expects to fully collect the new carrying value of the loans. As such, the Company may no longer consider the loan to be non-accrual or non-performing and may accrue interest on these loans, including the impact of any accretable discount.

Acquired non-impaired loans

Acquired loans that do not meet the requirements under ASC 310-30 are considered acquired non-impaired loans. The difference between the acquisition date fair value and the outstanding balance represents the fair value adjustment for a loan and includes both credit and interest rate considerations. Fair value adjustments may be discounts (or premiums) to a loan’s cost basis and are accreted (or amortized) to net interest income (or expense) over the loan’s remaining life in accordance with ASC 310-20. Fair value adjustments for revolving loans are accreted (or amortized) using a straight line method. Term loans are accreted (or amortized) using the constant effective yield method.

Subsequent to the purchase date, the methods used to estimate the allowance for loan losses for the acquired non-impaired loans is consistent with the policy described below.  However, the Company compares the net realizable value of the loans to the carrying value, for loans collectively evaluated for impairment.  The carrying value represents the net of the loan’s unpaid principal balance and the remaining purchase discount (or premium) that has yet to be accreted (or amortized) into interest income (or interest expense).  When the carrying value exceeds the net realizable value, an allowance for loan losses is recognized.

Impaired and Other Nonaccrual Loans

Impaired and Other Nonaccrual Loans

The Company places a loan on nonaccrual status when the loan becomes 90 days past due (or sooner, if management concludes collection is doubtful), except when, in the opinion of management, it is well-collateralized and in the process of collection. A loan may be placed on nonaccrual status earlier than ninety days past due if there is deterioration in the financial position of the borrower or if other conditions of the loan so warrant. When a loan is placed on nonaccrual status, uncollected accrued interest is reversed against interest income and the amortization of nonrefundable loan fees and related direct costs is discontinued. Interest income during the period the loan is on nonaccrual status is recorded on a cash basis after recovery of principal is reasonably assured. Nonaccrual loans are returned to accrual status when management determines that the borrower’s performance has improved and that both principal and interest are collectible.  This generally requires a sustained period of timely principal and interest payments and a well-documented credit evaluation of the borrower’s financial condition.

A loan is considered modified in a troubled debt restructuring (“TDR”) when, due to a borrower’s financial difficulties, the Company makes a concession(s) to the borrower that it would not otherwise consider.  These modifications may include, among others, an extension for the term of the loan, or granting a period when interest–only payments can be made with the principal payments and interest caught up over the remaining term of the loan or at maturity.  Generally, a nonaccrual loan that has been modified in a TDR remains on nonaccrual status for a period of 12 months to demonstrate that the borrower is able to meet the terms of the modified loan.  If the borrower’s ability to meet the revised payment schedule is uncertain, the loan remains on nonaccrual status.

Regulatory guidance issued by the OCC requires certain loans that have been discharged in Chapter 7 bankruptcy to be reported as TDRs.  In accordance with this new guidance, loans that have been discharged in Chapter 7 bankruptcy but not reaffirmed by the borrower are classified as TDRs, irrespective of payment history or delinquency status, even if the repayment terms for the loan have not been otherwise modified and the Company’s lien position against the underlying collateral remains unchanged.  Pursuant to that guidance, the Company records a charge-off equal to any portion of the carrying value that exceeds the net realizable value of the collateral.

Commercial loans greater than $0.5 million are evaluated individually for impairment.  A loan is considered impaired, based on current information and events, if it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  The measurement of impaired loans is generally based upon the present value of expected future cash flows or the fair value of the collateral, if the loan is collateral-dependent.

The Company’s charge-off policy by loan type is as follows:

· Business lending loans are generally charged-off to the extent outstanding principal exceeds the fair value of estimated proceeds from collection efforts, including liquidation of collateral.  The charge-off is recognized when the loss becomes reasonably quantifiable.

· Consumer installment loans are generally charged-off to the extent outstanding principal balance exceeds the fair value of collateral, and are recognized by the end of the month in which the loan becomes 90 days past due.

· Consumer mortgage and home equity loans are generally charged-off to the extent outstanding principal exceeds the fair value of the property, less estimated costs to sell, and are recognized when the loan becomes 180 days past due.

Allowance for Loan Losses

Allowance for Loan Losses

Management continually evaluates the credit quality of the Company’s loan portfolio, and performs a formal review of the adequacy of the allowance for loan losses on a quarterly basis.  The allowance reflects management’s best estimate of probable losses inherent in the loan portfolio.  Determination of the allowance is subjective in nature and requires significant estimates.   The Company’s allowance methodology consists of two broad components - general and specific loan loss allocations.

The general loan loss allocation is composed of two calculations that are computed on five main loan segments:  business lending, consumer installment - direct, consumer installment - indirect, home equity and consumer mortgage.  The first calculation is quantitative and determines an allowance level based on the latest 36 months of historical net charge-off data for each loan class (commercial loans exclude balances with specific loan loss allocations).  The second calculation is qualitative and takes into consideration eight qualitative environmental factors:  levels and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards, and other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations.    A component of the qualitative calculation is the unallocated allowance for loan loss.  The qualitative and quantitative calculations are added together to determine the general loan loss allocation.  The specific loan loss allocation relates to individual commercial loans that are both greater than $0.5 million and in a nonaccruing status with respect to interest.  Specific loan losses are based on discounted estimated cash flows, including any cash flows resulting from the conversion of collateral or collateral shortfalls.  The allowance levels computed from the specific and general loan loss allocation methods are combined with unallocated allowances and allowances needed for acquired loans to derive the total required allowance for loan losses to be reflected on the Consolidated Statement of Condition.

Loan losses are charged off against the allowance, while recoveries of amounts previously charged off are credited to the allowance.  A provision for loan losses is charged to operations based on management’s periodic evaluation of factors previously mentioned.

Intangible Assets

Intangible Assets

Intangible assets include core deposit intangibles, customer relationship intangibles and goodwill arising from acquisitions. Core deposit intangibles and customer relationship intangibles are amortized on either an accelerated or straight-line basis over periods ranging from seven to 20 years. The initial and ongoing carrying value of goodwill and other intangible assets is based upon discounted cash flow modeling techniques that require management to make estimates regarding the amount and timing of expected future cash flows.  It also requires use of a discount rate that reflects the current return requirements of the market in relation to present risk-free interest rates, required equity market premiums, peer volatility indicators, and company-specific risk indicators.

The Company evaluates goodwill for impairment on an annual basis, or more often if events or circumstances indicate there may be impairment.  The implied fair value of a reporting unit’s goodwill is compared to its carrying amount and the impairment loss is measured by the excess of the carrying value over fair value.  The fair value of each reporting unit is compared to the carrying amount of that reporting unit in order to determine if impairment is indicated.

Premises and Equipment

Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation.  Computer software costs that are capitalized only include external direct costs of obtaining and installing the software.  The Company has not developed any internal use software.  Depreciation is calculated using the straight-line method over the estimated useful lives of the assets.  Useful lives range from three to 10 years for equipment; three to seven years for software and hardware; and 10 to 40 years for building and building improvements.  Land improvements are depreciated over 20 years and leasehold improvements are amortized over the shorter of the term of the respective lease plus any optional renewal periods that are reasonably assured or life of the asset. Maintenance and repairs are charged to expense as incurred.

Other Real Estate

Other Real Estate

Other real estate owned is comprised of properties acquired through foreclosure, or by deed in lieu of foreclosure.  These assets are carried at fair value less estimated costs of disposal.  At foreclosure, if the fair value, less estimated costs to sell, of the real estate acquired is less than the Company’s recorded investment in the related loan, a write-down is recognized through a charge to the allowance for loan losses.  Any subsequent reduction in value is recognized by a charge to income.  Operating costs associated with the properties are charged to expense as incurred.  At December 31, 2016 and 2015, other real estate amounted to $2.0 million and $2.1 million, respectively, and is included in other assets.

Mortgage Servicing Rights

Mortgage Servicing Rights

Originated mortgage servicing rights are recorded at their fair value at the time of sale of the underlying loan, and are amortized in proportion to and over the period of estimated net servicing income or loss.  The Company uses a valuation model that calculates the present value of future cash flows to determine the fair value of servicing rights.  In using this valuation method, the Company incorporates assumptions that market participants would use in estimating future net servicing income, which includes estimates of the servicing cost per loan, the discount rate, and prepayment speeds.  The carrying value of the originated mortgage servicing rights is included in other assets and is evaluated quarterly for impairment using these same market assumptions.  The amount of impairment recognized is the amount by which the carrying value of the capitalized servicing rights for a stratum exceeds estimated fair value.  Impairment is recognized through a valuation allowance.

Treasury Stock

Treasury Stock

Repurchases of shares of the Company’s common stock are recorded at cost as a reduction of shareholders’ equity.  Reissuance of shares of treasury stock is recorded at average cost.

Income Taxes

Income Taxes

The Company and its subsidiaries file a consolidated federal income tax return.  Provisions for income taxes are based on taxes currently payable or refundable as well as deferred taxes that are based on temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements.  Deferred tax assets and liabilities are reported in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled.

Benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority having full knowledge of all relevant information. A tax position meeting the more-likely-than-not recognition threshold should be measured at the largest amount of benefit for which the likelihood of realization upon ultimate settlement exceeds 50 percent.

Retirement Benefits

Retirement Benefits

The Company provides defined benefit pension benefits to eligible employees and post-retirement health and life insurance benefits to certain eligible retirees.  The Company also provides deferred compensation and supplemental executive retirement plans for selected current and former employees, officers, and directors.  Expense under these plans is charged to current operations and consists of several components of net periodic benefit cost based on various actuarial assumptions regarding future experience under the plans, including discount rate, rate of future compensation increases and expected return on plan assets.

Assets Under Management or Administration

Assets Under Management or Administration

Assets held in fiduciary or agency capacities for customers are not included in the accompanying consolidated statements of condition as they are not assets of the Company.  All fees associated with providing asset management services are recorded on an accrual basis of accounting and are included in noninterest income.

Advertising

Advertising

Advertising costs amounting to approximately $3.9 million, $3.6 million and $3.2 million for the years ending December 31, 2016, 2015 and 2014, respectively, are nondirect response in nature and expensed as incurred.

Earnings Per Share

Earnings Per Share

Using the two-class method, basic earnings per common share is computed based upon net income available to common shareholders divided by the weighted average number of common shares outstanding during each period, which excludes the outstanding unvested restricted stock.  Diluted earnings per share is computed using the weighted average number of common shares determined for the basic earnings per common share computation plus the dilutive effect of stock options using the treasury stock method.  Stock options where the exercise price is greater than the average market price of common shares were not included in the computation of earnings per diluted share as they would have been anti-dilutive.

Stock-based Compensation

Stock-based Compensation

Companies are required to measure and record compensation expense for stock options and other share-based payments on the instruments’ fair value on the date of grant. Stock-based compensation expense is recognized ratably over the requisite service period for all awards (see Note L).

Fair Values of Financial Instruments

Fair Values of Financial Instruments

The Company determines fair values based on quoted market values where available or on estimates using present values or other valuation techniques.  Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows.  In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument.  Certain financial instruments and all nonfinancial instruments are excluded from this disclosure requirement.  Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.  The fair values of investment securities, loans, deposits, and borrowings have been disclosed in Note R.

Reclassifications

Reclassifications

Certain reclassifications have been made to prior years’ balances to conform to the current year presentation.

New Accounting Pronouncements

New Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606).  This new guidance supersedes the revenue recognition requirements in ASC 605, Revenue Recognition, and is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects consideration to which the entity expects to be entitled in exchange for those goods and services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.  This guidance is effective for the Company for annual and interim periods beginning after December 15, 2017, and should be applied either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this guidance recognized at the date of initial application.  The Company’s implementation efforts include the identification of revenue within the scope of the guidance, as well as evaluation of revenue contracts.  The Company’s review is ongoing, and the Company will continue to evaluate any impact as additional guidance is issued and as our internal assessment progresses.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This guidance addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The primary focus of this guidance is to supersede the guidance to classify equity securities with readily determinable fair values into different categories (trading or available-for-sale) and requires equity securities to be measured at fair value with changes in the fair value recognized through net income. This guidance requires adoption through a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption.  This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  Early adoption is permitted for all companies in any interim or annual period. The Company is currently evaluating the effect the guidance will have on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This new guidance supersedes the lease requirements in Topic 840, Leases and is based on the principle that a lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term.  The accounting applied by a lessor is largely unchanged from that applied under the previous guidance.  In addition, the guidance requires an entity to separate the lease components from the nonlease components in a contract.  The ASU requires disclosures about the amount, timing, and judgments related to a reporting entity’s accounting for leases and related cash flows.  The standard is required to be applied to all leases in existence as of the date of adoption using a modified retrospective transition approach.  This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted for all companies in any interim or annual period.  The Company occupies certain offices and uses certain equipment under non-cancelable operating lease agreements, which currently are not reflected in its consolidated statement of condition.  The Company expects to recognize lease liabilities and right of use assets associated with these lease agreements; however, the extent of the impact on the Company’s consolidated financial statements is currently under evaluation.

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718).  The amendments simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows.  The new guidance requires all excess tax benefits and tax deficiencies be recognized as income tax expense or benefit in the income statement.  The tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. This guidance requires certain amendments to be applied through a cumulative-effect adjustment to equity as of the beginning of the fiscal period in which the guidance is adopted while other amendments are required to be applied retrospectively or prospectively.  This ASU is effective for fiscal periods beginning after December 15, 2016, and interim periods within those annual periods.  The Company expects adoption of the guidance will result in increased volatility to reported income tax expense related to excess tax benefits and tax deficiencies for share-based payment transactions; however, the actual amounts recognized in tax expense will be dependent on the amount of share-based transactions entered into and the Company’s stock price on the date of exercise or vesting.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326).  This new guidance significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income.  This ASU will replace the “incurred loss” model under existing guidance with an “expected loss” model for instruments measured at amortized cost, and require entities to record allowances for available-for-sale debt securities rather than reduce the carrying amount, as they do today under the other-than-temporary impairment model.  This ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans.  This guidance requires adoption through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted.  This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.  Early adoption is permitted for all companies as of fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  The Company is currently evaluating the impact the guidance will have on the Company’s consolidated financial statements, and expects an increase in the allowance for credit losses resulting from the change to expected losses for the estimated life of the financial asset, including an allowance for debt securities. The amount of the increase in the allowance for credit losses resulting from the new guidance will be impacted by the portfolio composition and asset quality at the adoption date, as well as economic conditions and forecasts at the time of adoption.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230). The amendments provide guidance on the following eight specific cash flow issues: 1) debt prepayment or debt extinguishment costs; 2) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; 3) contingent consideration payments made after a business combination; 4) proceeds from the settlement of insurance claims; 5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; 6) distributions received from equity method investees; 7) beneficial interests in securitization transactions; and 8) separately identifiable cash flows and application of the predominance principle. This ASU is effective for fiscal years beginning after December 31, 2017, including interim periods within those fiscal years.  Early adoption is permitted, including adoption in an interim period. As this guidance only affects the classification within the statement of cash flows, this ASU is not expected to have a material impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350). The amendments simplify how an entity is required to test goodwill for impairment by eliminating the requirement to measure a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill.  Instead, an entity will perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and recognize an impairment charge for the amount by which the carrying amount of the reporting unit exceeds its fair value.  Impairment loss recognized under this new guidance will be limited to the goodwill allocated to the reporting unit.  This ASU is effective prospectively for the Company for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019.  Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.  This ASU is not expected to have a material impact on the Company’s consolidated financial statements.

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ACQUISITIONS (Tables)

12 Months Ended

Dec. 31, 2016

ACQUISITIONS [Abstract]

Estimated Fair Value of Assets Acquired and Liabilities Assumed

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed.

(000s omitted)	2016		2015			2014
Consideration paid:
Cash	$	575	$	56,266		$	924
Community Bank System, Inc. common stock		0		102,202			0
Total net consideration paid		575		158,468			924
Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash and cash equivalents		0		81,772			0
Investment securities		0		225,729			0
Loans		0		399,422			0
Premises and equipment		0		22,212			0
Accrued interest receivable		0		1,133			0
Other assets		0		26,529			163
Core deposit intangibles		0		2,570			0
Other intangibles		288		9,994			578
Deposits		0		(699,241	)		0
Other liabilities		0		(1,333	)		0
Total identifiable assets (liabilities), net		288		68,787			741
Goodwill	$	287	$	89,681		$	183

Summary of Loans Acquired

The following is a summary of the loans acquired from Oneida at the date of acquisition:

(000’s omitted)	Acquired Impaired Loans			Acquired Non-Impaired Loans			Total Acquired Loans
Contractually required principal and interest at acquisition	$	5,138		$	484,937		$	490,075
Contractual cash flows not expected to be collected		(1,977	)		(4,833	)		(6,810	)
Expected cash flows at acquisition		3,161			480,104			483,265
Interest component of expected cash flows		(341	)		(83,502	)		(83,843	)
Fair value of acquired loans	$	2,820		$	396,602		$	399,422

Pro Forma Financial Information

The pro forma information set forth below reflects adjustments related to (a) certain purchase accounting fair value adjustments; and (b) amortization of customer lists and core deposit intangibles.  Expenses totaling $14.0 million related to conversion of systems and other costs of integration, as well as certain one-time costs, are excluded from the pro forma year ended December 31, 2015 and were included in the pro forma year ended December 31, 2014.

	Actual since Acquisition Through			Pro Forma (Unaudited) Year Ended December 31,
(000’s omitted)	December 31, 2015			2015		2014
Total revenue, net of interest expense	$	3,667		$	426,541	$	416,713
Net income (loss)		(3,905	)		96,894		85,665

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INVESTMENT SECURITIES (Tables)

12 Months Ended

Dec. 31, 2016

INVESTMENT SECURITIES [Abstract]

Amortized Cost and Estimated Fair Value of Investment Securities

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

	2016								2015
(000's omitted)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available-for-Sale Portfolio:
U.S. Treasury and agency securities	$	1,876,358	$	28,522	$	2,118	$	1,902,762	$	1,866,819	$	35,186	$	2,027	$	1,899,978
Obligations of state and political subdivisions		582,655		13,389		1,054		594,990		640,455		26,487		59		666,883
Government agency mortgage-backed securities		232,657		5,040		2,467		235,230		205,220		6,906		1,261		210,865
Corporate debt securities		5,716		2		31		5,687		16,672		66		58		16,680
Government agency collateralized mortgage obligations		9,225		310		0		9,535		12,862		446		0		13,308
Marketable equity securities		252		200		0		452		250		163		14		399
Total available-for-sale portfolio	$	2,706,863	$	47,463	$	5,670	$	2,748,656	$	2,742,278	$	69,254	$	3,419	$	2,808,113
Other Securities:
Federal Home Loan Bank common stock	$	12,191					$	12,191	$	19,317					$	19,317
Federal Reserve Bank common stock		19,781						19,781		16,050						16,050
Other equity securities		3,764						3,764		4,460						4,460
Total other securities	$	35,736					$	35,736	$	39,827					$	39,827

Summary of Investment Securities That Have Been in a Continuous Unrealized Loss Position for Less Than or Greater Than Twelve Months

A summary of investment securities that have been in a continuous unrealized loss position for less than or greater than twelve months is as follows:

As of December 31, 2016

		Less than 12 Months					12 Months or Longer					Total
(000's omitted)	#	Fair Value		Gross Unrealized Losses		#	Fair Value		Gross Unrealized Losses		#	Fair Value		Gross Unrealized Losses
Available-for-Sale Portfolio:
U.S. Treasury and agency securities	13	$	449,242	$	2,118	0	$	0	$	0	13	$	449,242	$	2,118
Obligations of state and political subdivisions	197		102,106		1,054	0		0		0	197		102,106		1,054
Government agency mortgage-backed securities	57		83,862		1,637	15		21,788		830	72		105,650		2,467
Corporate debt securities	1		2,677		31	0		0		0	1		2,677		31
Government agency collateralized mortgage obligations	0		0		0	2		2		0	2		2		0
Total available-for-sale investment portfolio	268	$	637,887	$	4,840	17	$	21,790	$	830	285	$	659,677	$	5,670

As of December 31, 2015

		Less than 12 Months							12 Months or Longer							Total
(000's omitted)	#	Fair Value			Gross Unrealized Losses			#	Fair Value			Gross Unrealized  Losses			#	Fair Value			Gross Unrealized Losses
Available-for-Sale Portfolio:
U.S. Treasury and agency securities	9		$	353,844		$	2,027	0		$	0		$	0	9		$	353,844		$	2,027
Obligations of state and political subdivisions	18			8,804			34	2			735			25	20			9,539			59
Government agency mortgage-backed securities	17			24,178			161	19			30,103			1,100	36			54,281			1,261
Corporate debt securities	1			3,024			0	1			2,710			58	2			5,734			58
Government agency collateralized mortgage obligations	0			0			0	2			3			0	2			3			0
Marketable equity securities	1			87			14	0			0			0	1			87			14
Total available-for-sale investment portfolio	46		$	389,937		$	2,236	24		$	33,551		$	1,183	70		$	423,488		$	3,419

Amortized Cost and Estimated Fair Value of Debt Securities by Contractual Maturity

The amortized cost and estimated fair value of debt securities at December 31, 2016, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.  Securities not due at a single maturity date are shown separately.

	Available-for-Sale
(000's omitted)	Amortized Cost		Fair Value
Due in one year or less	$	37,994	$	38,212
Due after one through five years		923,434		939,357
Due after five years through ten years		1,302,156		1,319,913
Due after ten years		201,145		205,957
Subtotal		2,464,729		2,503,439
Government agency mortgage-backed securities		232,657		235,230
Government agency collateralized mortgage obligations		9,225		9,535
Total	$	2,706,611	$	2,748,204

Cash Flow Information on Investment Securities

Cash flow information on investment securities for the years ended December 31 is as follows:

(000's omitted)	2016		2015		2014
Gross gains on sales of investment securities	$	0	$	3	$	0
Gross losses on sales of investment securities		0		7		0

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LOANS (Tables)

12 Months Ended

Dec. 31, 2016

Accounts, Notes, Loans and Financing Receivable [Line Items]

Schedule of Loans Receivable, Net

The balances of these classes at December 31 are summarized as follows:

(000's omitted)	2016			2015
Consumer mortgage	$	1,819,701		$	1,769,754
Business lending		1,490,076			1,497,271
Consumer indirect		1,044,972			935,760
Consumer direct		191,815			195,076
Home equity		401,998			403,514
Gross loans, including deferred origination costs		4,948,562			4,801,375
Allowance for loan losses		(47,233	)		(45,401	)
Loans, net of allowance for loan losses	$	4,901,329		$	4,755,974

Summary of Aggregate Amounts Loaned to Related Parties

Following is a summary of the aggregate amount of such loans during 2016 and 2015.

(000's omitted)	2016			2015
Balance at beginning of year	$	11,337		$	8,928
New loans		4,959			5,138
Payments		(5,346	)		(2,729	)
Balance at end of year	$	10,950		$	11,337

Outstanding Principal Balance and Related Carrying Amount of Acquired Loans

The outstanding principal balance and the related carrying amount of acquired loans included in the Consolidated Statement of Condition at December 31 are as follows:

(000's omitted)	2016		2015
Credit impaired acquired loans:
Outstanding principal balance	$	6,354	$	8,339
Carrying amount		5,553		7,299
Non-impaired acquired loans:
Outstanding principal balance		497,308		620,942
Carrying amount		489,807		610,355
Total acquired loans:
Outstanding principal balance		503,662		629,281
Carrying amount		495,360		617,654

Schedule of Accretable Discount Related to Credit Impaired Acquired Loans

The changes in the accretable discount related to the credit impaired acquired loans are as follows:

(000's omitted)	2016			2015
Balance at beginning of year	$	810		$	705
Oneida acquisition		0			341
Accretion recognized		(455	)		(552	)
Net reclassification to accretable from nonaccretable		143			316
Balance at end of year	$	498		$	810

Aged Analysis of Past Due Loans by Class

The following is an aged analysis of the Company’s past due loans by class as of December 31, 2016:

Legacy Loans (excludes loans acquired after January 1, 2009)

(000’s omitted)	Past Due 30 - 89 days		90+ Days Past Due and Still Accruing		Nonaccrual		Total Past Due		Current		Total Loans
Consumer mortgage	$	11,379	$	1,180	$	11,352	$	23,911	$	1,635,849	$	1,659,760
Business lending		3,921		145		3,811		7,877		1,269,789		1,277,666
Consumer indirect		13,883		166		0		14,049		1,000,776		1,014,825
Consumer direct		1,549		58		0		1,607		180,315		181,922
Home equity		1,250		414		1,437		3,101		315,928		319,029
Total	$	31,982	$	1,963	$	16,600	$	50,545	$	4,402,657	$	4,453,202

Acquired Loans (includes loans acquired after January 1, 2009)

(000’s omitted)	Past Due 30 - 89 days		90+ Days Past Due and Still Accruing		Nonaccrual		Total Past Due		Acquired Impaired(1)		Current		Total Loans
Consumer mortgage	$	1,539	$	205	$	2,332	$	4,076	$	0	$	155,865	$	159,941
Business lending		528		0		1,252		1,780		5,553		205,077		212,410
Consumer indirect		231		3		0		234		0		29,913		30,147
Consumer direct		231		0		0		231		0		9,662		9,893
Home equity		778		905		435		2,118		0		80,851		82,969
Total	$	3,307	$	1,113	$	4,019	$	8,439	$	5,553	$	481,368	$	495,360

⁽¹⁾ Acquired impaired loans were not classified as nonperforming assets as the loans are considered to be performing under ASC 310-30.  As a result interest income, through the accretion of the difference between the carrying amount of the loans and the expected cashflows, is being recognized on all acquired impaired loans.

The following is an aged analysis of the Company’s past due loans by class as of December 31, 2015:

Legacy Loans (excludes loans acquired after January 1, 2009)

(000’s omitted)	Past Due 30 - 89 days		90+ Days Past Due and Still Accruing		Nonaccrual		Total Past Due		Current		Total Loans
Consumer mortgage	$	10,482	$	1,411	$	11,394	$	23,287	$	1,558,171	$	1,581,458
Business lending		4,442		126		5,381		9,949		1,223,679		1,233,628
Consumer indirect		11,575		102		0		11,677		878,662		890,339
Consumer direct		1,414		51		1		1,466		176,585		178,051
Home equity		1,093		111		2,029		3,233		297,012		300,245
Total	$	29,006	$	1,801	$	18,805	$	49,612	$	4,134,109	$	4,183,721

Acquired Loans (includes loans acquired after January 1, 2009)

(000’s omitted)	Past Due 30 - 89 days		90+ Days Past Due and Still Accruing		Nonaccrual		Total Past Due		Acquired Impaired(1)		Current		Total Loans
Consumer mortgage	$	1,373	$	394	$	1,396	$	3,163	$	0	$	185,133	$	188,296
Business lending		535		0		1,186		1,721		7,299		254,623		263,643
Consumer indirect		245		0		0		245		0		45,176		45,421
Consumer direct		140		0		14		154		0		16,871		17,025
Home equity		636		0		327		963		0		102,306		103,269
Total	$	2,929	$	394	$	2,923	$	6,246	$	7,299	$	604,109	$	617,654

⁽¹⁾ Acquired impaired loans were not classified as nonperforming assets as the loans are considered to be performing under ASC 310-30.  As a result interest income, through the accretion of the difference between the carrying amount of the loans and the expected cashflows, is being recognized on all acquired impaired loans.

Summary of Non-Business Impaired Loans

A summary of individually evaluated impaired loans as of December 31, 2016 and 2015 is as follows:

(000’s omitted)	2016		2015
Loans with allowance allocation	$	1,109	$	0
Loans without allowance allocation		556		2,376
Carrying balance		1,665		2,376
Contractual balance		3,340		3,419
Specifically allocated allowance		477		0
Average impaired loans		4,683		2,922
Interest income recognized		0		0

Troubled Debt Restructurings on Financing Receivables

Information regarding TDRs as of December 31, 2016 and December 31, 2015 is as follows

	December 31, 2016												December 31, 2015
(000’s omitted)	Nonaccrual				Accruing				Total				Nonaccrual				Accruing				Total
		#	Amount			#	Amount			#	Amount			#	Amount			#	Amount			#	Amount
Consumer mortgage		36	$	1,520		45	$	1,956		81	$	3,476		37	$	1,472		54	$	2,486		91	$	3,958
Business lending		6		91		5		690		11		781		8		217		6		737		14		954
Consumer indirect		0		0		78		771		78		771		0		0		77		691		77		691
Consumer direct		0		0		23		65		23		65		0		0		32		37		32		37
Home equity		14		221		7		216		21		437		10		203		14		301		24		504
Total		56	$	1,832		158	$	3,698		214	$	5,530		55	$	1,892		183	$	4,252		238	$	6,144

The following table presents information related to loans modified in a TDR during the years ended December 31, 2016 and 2015.  Of the loans noted in the table below, all loans for the years ended December 31, 2016 and December 31, 2015, were modified due to a Chapter 7 bankruptcy as described previously.  The financial effects of these restructurings were immaterial.

	December 31, 2016				December 31, 2015
(000’s omitted)		#	Amount			#	Amount
Consumer mortgage		9	$	597		21	$	1,374
Business lending		0		0		3		67
Consumer indirect		33		459		35		349
Consumer direct		3		51		6		11
Home equity		3		50		6		63
Total		48	$	1,157		71	$	1,864

Schedule of Allowance for Loan Losses by Class

The following presents by class the activity in the allowance for loan losses:

(000’s omitted)	Consumer Mortgage			Business Lending			Consumer Indirect			Consumer Direct			Home Equity			Unallocated			Acquired Impaired			Total
Balance at December 31, 2014	$	10,286		$	15,787		$	11,544		$	3,083		$	2,701		$	1,767		$	173		$	45,341
Charge-offs		(1,374	)		(2,146	)		(6,714	)		(1,490	)		(244	)		0			(103	)		(12,071	)
Recoveries		80			877			3,943			722			62			0			0			5,684
Provision		1,206			1,231			3,649			682			147			(566	)		98			6,447
Balance at December 31, 2015		10,198			15,749			12,422			2,997			2,666			1,201			168			45,401
Charge-offs		(647	)		(1,872	)		(7,643	)		(1,706	)		(218	)		0			(97	)		(12,183	)
Recoveries		115			616			4,168			901			139			0			0			5,939
Provision		428			2,727			4,835			787			(188	)		(550	)		37			8,076
Balance at December 31, 2016	$	10,094		$	17,220		$	13,782		$	2,979		$	2,399		$	651		$	108		$	47,233

Business Lending [Member]

Accounts, Notes, Loans and Financing Receivable [Line Items]

Schedule of Loans by Credit Quality Indicator

The following table shows the amount of business lending loans by credit quality category:

	December 31, 2016						December 31, 2015
(000’s omitted)	Legacy		Acquired		Total		Legacy		Acquired		Total
Pass	$	1,051,005	$	162,165	$	1,213,170	$	1,048,364	$	219,374	$	1,267,738
Special mention		135,602		29,690		165,292		124,768		20,007		144,775
Classified		90,585		15,002		105,587		60,181		16,963		77,144
Doubtful		474		0		474		315		0		315
Acquired impaired		0		5,553		5,553		0		7,299		7,299
Total	$	1,277,666	$	212,410	$	1,490,076	$	1,233,628	$	263,643	$	1,497,271

All Other Loans [Member]

Accounts, Notes, Loans and Financing Receivable [Line Items]

Schedule of Loans by Credit Quality Indicator

The following tables detail the balances in all loan categories except for business lending at December 31, 2016:

Legacy loans (excludes loans acquired after January 1, 2009)

(000’s omitted)	Consumer Mortgage		Consumer Indirect		Consumer Direct		Home Equity		Total
Performing	$	1,647,228	$	1,014,659	$	181,864	$	317,178	$	3,160,929
Nonperforming		12,532		166		58		1,851		14,607
Total	$	1,659,760	$	1,014,825	$	181,922	$	319,029	$	3,175,536

Acquired loans (includes loans acquired after January 1, 2009)

(000’s omitted)	Consumer Mortgage		Consumer Indirect		Consumer Direct		Home Equity		Total
Performing	$	157,404	$	30,144	$	9,893	$	81,629	$	279,070
Nonperforming		2,537		3		0		1,340		3,880
Total	$	159,941	$	30,147	$	9,893	$	82,969	$	282,950

The following table details the balances in all other loan categories at December 31, 2015:

Legacy loans (excludes loans acquired after January 1, 2009)

(000’s omitted)	Consumer Mortgage		Consumer Indirect		Consumer Direct		Home Equity		Total
Performing	$	1,568,653	$	890,237	$	177,999	$	298,105	$	2,934,994
Nonperforming		12,805		102		52		2,140		15,099
Total	$	1,581,458	$	890,339	$	178,051	$	300,245	$	2,950,093

Acquired loans (includes loans acquired after January 1, 2009)

(000’s omitted)	Consumer Mortgage		Consumer Indirect		Consumer Direct		Home Equity		Total
Performing	$	186,506	$	45,421	$	17,011	$	102,942	$	351,880
Nonperforming		1,790		0		14		327		2,131
Total	$	188,296	$	45,421	$	17,025	$	103,269	$	354,011

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PREMISES AND EQUIPMENT (Tables)

12 Months Ended

Dec. 31, 2016

PREMISES AND EQUIPMENT [Abstract]

Components of Premises and Equipment

Premises and equipment consist of the following at December 31:

(000's omitted)	2016			2015
Land and land improvements	$	22,585		$	22,191
Bank premises		116,663			112,011
Equipment and construction in progress		80,527			80,684
Premises and equipment, gross		219,775			214,886
Accumulated depreciation		(107,457	)		(100,452	)
Premises and equipment, net	$	112,318		$	114,434

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GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS (Tables)

12 Months Ended

Dec. 31, 2016

GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS [Abstract]

Gross Carrying Amount and Accumulated Amortization for Each Type of Identifiable Intangible Asset

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

	December 31, 2016							December 31, 2015
(000's omitted)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Amortizing intangible assets:
Core deposit intangibles	$	39,688	$	(32,581	)	$	7,107	$	39,688	$	(29,899	)	$	9,789
Other intangibles		17,853		(9,258	)		8,595		17,565		(6,460	)		11,105
Total amortizing intangibles	$	57,541	$	(41,839	)	$	15,702	$	57,253	$	(36,359	)	$	20,894

Estimated Aggregate Amortization Expense

The estimated aggregate amortization expense for each of the five succeeding fiscal years ended December 31 is as follows:

2017	$	4,413
2018		3,566
2019		2,782
2020		2,119
2021		1,531
Thereafter		1,291
Total	$	15,702

Components of Goodwill

Shown below are the components of the Company’s goodwill at December 31, 2016 and 2015:

(000’s omitted)	Year Ended December 31, 2014			Activity		Year Ended December 31, 2015			Activity		Year Ended December 31, 2016
Goodwill	$	379,998		$	88,078	$	468,076		$	1,890	$	469,966
Accumulated impairment		(4,824	)		0		(4,824	)		0		(4,824	)
Goodwill, net	$	375,174		$	88,078	$	463,252		$	1,890	$	465,142

Changes in Carrying Value of MSRs and Associated Valuation Allowance

The following table summarizes the changes in carrying value of MSRs and the associated valuation allowance:

(000’s omitted)	2016			2015
Carrying value before valuation allowance at beginning of period	$	1,472		$	1,089
Additions		481			403
Oneida acquisition		0			389
Amortization		(518	)		(409	)
Carrying value before valuation allowance at end of period		1,435			1,472
Valuation allowance balance at beginning of period		0			0
Impairment charges		(226	)		(133	)
Impairment recoveries		226			133
Valuation allowance balance at end of period		0			0
Net carrying value at end of period	$	1,435		$	1,472
Fair value of MSRs at end of period	$	1,928		$	1,962
Principal balance of loans sold during the year	$	45,852		$	35,491
Principal balance of loans serviced for others	$	365,374		$	377,909
Custodial escrow balances maintained in connection with loans serviced for others	$	5,603		$	5,700

Summary of Key Economic Assumptions Used to Estimate Value of MSRs

The following table summarizes the key economic assumptions used to estimate the value of the MSRs at December 31:

	2016			2015
Weighted-average contractual life (in years)		20.8			19.9
Weighted-average constant prepayment rate (CPR)		15.1	%		14.9	%
Weighted-average discount rate		3.5	%		3.3	%

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DEPOSITS (Tables)

12 Months Ended

Dec. 31, 2016

DEPOSITS [Abstract]

Components of Deposits

Deposits consist of the following at December 31:

(000's omitted)	2016		2015
Noninterest checking	$	1,646,039	$	1,499,616
Interest checking		1,644,029		1,575,379
Savings		1,303,851		1,255,027
Money market		1,778,907		1,738,904
Time		703,128		804,548
Total deposits	$	7,075,954	$	6,873,474

Maturities of Time Deposits

The approximate maturities of time deposits at December 31, 2016 are as follows:

(000's omitted)	All Accounts		Accounts $250,000 or Greater
2017	$	492,000	$	42,142
2018		103,698		1,713
2019		48,096		2,337
2020		32,774		2,717
2021		26,208		2,315
Thereafter		352		0
Total	$	703,128	$	51,224

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BORROWINGS (Tables)

12 Months Ended

Dec. 31, 2016

BORROWINGS [Abstract]

Outstanding Borrowings

Outstanding borrowings at December 31 are as follows:

(000's omitted)	2016		2015
FHLB overnight advance	$	146,200	$	301,300
Subordinated debt held by unconsolidated subsidiary trusts, net of discount of $357 and $381, respectively		102,170		102,146
Total borrowings	$	248,370	$	403,446

Borrowings by Contractual Maturity Dates

Borrowings at December 31, 2016 have contractual maturity dates as follows:

(000's omitted, except rate)	Carrying Value		Weighted-average Rate at December 31, 2016
January 3, 2017	$	146,200		0.74	%
July 31, 2031		24,850		4.47	%
December 15, 2036		77,320		2.61	%
Total	$	248,370		1.70	%

Terms of Preferred Securities

The terms of the preferred securities of each trust are as follows:

Trust	Issuance Date	Par Amount	Interest Rate	Maturity Date	Call Price
III	7/31/2001	$24.5 million	3 month LIBOR plus 3.58% (4.47%)	7/31/2031	Par
IV	12/8/2006	$75 million	3 month LIBOR plus 1.65% (2.61%)	12/15/2036	Par

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INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2016

INCOME TAXES [Abstract]

Provision for Income Taxes

The provision for income taxes for the years ended December 31 is as follows:

(000's omitted)	2016		2015		2014
Current:
Federal	$	32,829	$	27,663	$	30,006
State and other		4,890		2,608		870
Deferred:
Federal		11,444		9,604		6,867
State and other		1,622		1,112		594
Provision for income taxes	$	50,785	$	40,987	$	38,337

Components of Net Deferred Tax Liability

Components of the net deferred tax liability, included in other liabilities, as of December 31 are as follows:

(000's omitted)	2016			2015
Allowance for loan losses	$	18,366		$	17,791
Employee benefits		6,311			6,633
Debt extinguishment		299			613
Other, net		5,202			9,704
Deferred tax asset		30,178			34,741
Investment securities		32,839			38,314
Tax-deductible goodwill		43,504			39,724
Loan origination costs		8,228			7,295
Depreciation		71			886
Mortgage servicing rights		548			565
Pension		18,194			14,807
Deferred tax liability		103,384			101,591
Net deferred tax liability	$	(73,206	)	$	(66,850	)

Reconciliation of Differences between Federal Statutory Income Tax Rate and Effective Tax Rate

A reconciliation of the differences between the federal statutory income tax rate and the effective tax rate for the years ended December 31 is shown in the following table:

	2016			2015			2014
Federal statutory income tax rate		35.0	%		35.0	%		35.0	%
Increase (reduction) in taxes resulting from:
Tax-exempt interest		(4.0	)		(5.0	)		(5.4	)
State income taxes, net of federal benefit		2.7			1.8			0.7
Other		(0.9	)		(0.8	)		(0.7	)
Effective income tax rate		32.8	%		31.0	%		29.6	%

Reconciliation of Unrecognized Tax Benefits

A reconciliation of the unrecognized tax benefits for the years ended December 31 is shown in the following table:

(000’s omitted)	2016			2015			2014
Unrecognized tax benefits at beginning of year	$	127		$	162		$	138
Changes related to:
Positions taken during the current year		0			0			24
Lapse of statutes of limitations		(35	)		(35	)		0
Unrecognized tax benefits at end of year	$	92		$	127		$	162

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BENEFIT PLANS (Tables)

12 Months Ended

Dec. 31, 2016

BENEFIT PLANS [Abstract]

Funded Status of Plans Reconciled with Amounts Reported in Consolidated Statements of Condition

Using a measurement date of December 31, the following table shows the funded status of the Company's plans reconciled with amounts reported in the Company's consolidated statements of condition:

	Pension Benefits						Post-retirement Benefits
(000's omitted)	2016			2015			2016			2015
Change in benefit obligation:
Benefit obligation at the beginning of year	$	127,134		$	127,513		$	1,918		$	2,256
Service cost		4,106			3,324			0			0
Interest cost		5,624			5,506			82			87
Plan amendment / acquisition		22			2,395			0			0
Participant contributions		0			0			516			509
Deferred actuarial (gain)/loss		(1,628	)		(2,091	)		174			(45	)
Benefits paid		(8,174	)		(9,513	)		(884	)		(889	)
Benefit obligation at end of year		127,084			127,134			1,806			1,918
Change in plan assets:
Fair value of plan assets at beginning of year		172,026			177,865			0			0
Actual return of plan assets		14,402			1,125			0			0
Participant contributions		0			0			516			509
Employer contributions		2,146			616			368			380
Plan acquisition		0			1,933			0			0
Benefits paid		(8,174	)		(9,513	)		(884	)		(889	)
Fair value of plan assets at end of year		180,400			172,026			0			0
Over/(Under) funded status at year end	$	53,316		$	44,892		$	(1,806	)	$	(1,918	)
Amounts recognized in the consolidated statement of condition were:
Other assets	$	64,709		$	56,361		$	0		$	0
Other liabilities		(11,393	)		(11,469	)		(1,806	)		(1,918	)
Amounts recognized in accumulated other comprehensive income (loss) (“AOCI”) were:
Net loss	$	28,323		$	34,016		$	183		$	4
Net prior service cost (credit)		2,264			2,307			(1,801	)		(1,980	)
Pre-tax AOCI		30,587			36,323			(1,618	)		(1,976	)
Taxes		(11,622	)		(13,815	)		614			751
AOCI at year end	$	18,965		$	22,508		$	(1,004	)	$	(1,225	)

Amounts Recognized in Accumulated Other Comprehensive Income, Net of Tax

Amounts recognized in accumulated other comprehensive income, net of tax, for the year ended December 31, are as follows:

	Pension Benefits						Post-retirement Benefits
(000's omitted)	2016			2015			2016		2015
Prior service (credit)/cost	$	(26	)	$	(5	)	$	110	$	110
Net (gain) loss		(3,517	)		4,482			111		(20	)
Total	$	(3,543	)	$	4,477		$	221	$	90

Estimated Costs, Net of Tax, That Will Be Amortized from Accumulated Other Comprehensive (Income) Loss into Net Periodic (Income) Cost over Next Fiscal Year

The estimated costs, net of tax, that will be amortized from accumulated other comprehensive (income) loss into net periodic (income) cost over the next fiscal year are as follows:

(000's omitted)	Pension Benefits		Post-retirement Benefits
Prior service cost/(credit)	$	55	$	(179	)
Net loss		1,010		6
Total	$	1,065	$	(173	)

Weighted-Average Assumptions Used to Determine Benefit Obligations

The weighted-average assumptions used to determine the benefit obligations as of December 31 are as follows:

	Pension Benefits						Post-retirement Benefits
	2016			2015			2016			2015
Discount rate		4.50	%		4.70	%		4.40	%		4.70	%
Expected return on plan assets		7.00	%		7.00	%		N/A			N/A
Rate of compensation increase		3.50	%		3.50	%		N/A			N/A

Net Periodic Benefit Cost

The net periodic benefit cost as of December 31 is as follows:

	Pension Benefits									Post-retirement Benefits
(000's omitted)	2016			2015			2014			2016			2015			2014
Service cost	$	4,106		$	3,324		$	3,530		$	0		$	0		$	0
Interest cost		5,624			5,506			5,271			82			87			102
Expected return on plan assets		(11,842	)		(12,169	)		(11,922	)		0			0			0
Plan amendment		20			0			0			0			0			0
Amortization of unrecognized net loss/(gain)		1,508			1,466			(307	)		(5	)		(13	)		(7	)
Amortization of prior service cost		43			8			5			(179	)		(179	)		(179	)
Net periodic (benefit)	$	(541	)	$	(1,865	)	$	(3,423	)	$	(102	)	$	(105	)	$	(84	)

Weighted-Average Assumptions Used to Determine Net Periodic Pension Cost

The weighted-average assumptions used to determine the net periodic pension cost for the years ended December 31 are as follows:

	Pension Benefits									Post-retirement Benefits
	2016			2015			2014			2016			2015			2014
Discount rate		4.70	%		4.50	%		5.00	%		4.70	%		4.50	%		4.80	%
Expected return on plan assets		7.00	%		7.00	%		7.00	%		N/A			N/A			N/A
Rate of compensation increase		3.50	%		3.50	%		3.50	%		N/A			N/A			N/A

Amount of Expected Benefit Payments

The amount of benefit payments that are expected to be paid over the next ten years are as follows:

(000's omitted)	Pension Benefits		Post-retirement Benefits
2017	$	7,225	$	145
2018		7,320		143
2019		7,504		141
2020		7,752		138
2021		7,914		136
2022-2026		41,823		636

Fair Value of Defined Benefit Plan Assets by Asset Category

The fair values of the Company’s defined benefit pension plan assets at December 31, 2016 by asset category are as follows:

Asset category (000’s omitted)	Quoted Prices in Active Markets for Identical Assets Level 1		Significant Observable Inputs Level 2		Significant Unobservable Inputs Level 3		Total
Money Market Accounts	$	103	$	8,048	$	0	$	8,151
Equity securities:
U.S. large-cap		43,235		0		0		43,235
U.S mid/small cap		19,032		0		0		19,032
CBSI stock		7,417		0		0		7,417
International		27,064		0		0		27,064
		96,748		0		0		96,748
Fixed income securities:
Government securities		25,375		5,863		0		31,238
Investment grade bonds		15,253		0		0		15,253
High yield(a)		16,615		0		0		16,615
		57,243		5,863		0		63,106
Other investments (b)		12,023		58		0		12,081
Total (c)	$	166,117	$	13,969	$	0	$	180,086

The fair values of the Company’s defined benefit pension plan assets at December 31, 2015 by asset category are as follows:

Asset category (000’s omitted)	Quoted Prices in Active Markets for Identical Assets Level 1		Significant Observable Inputs Level 2		Significant Unobservable Inputs Level 3		Total
Money Market Accounts	$	2,240	$	5,750	$	0	$	7,990
Equity securities:
U.S. large-cap		34,985		0		0		34,985
U.S mid/small cap		12,354		0		0		12,354
CBSI stock		8,393		0		0		8,393
International		28,136		0		0		28,136
		83,868		0		0		83,868
Fixed income securities:
Government securities		31,397		6,488		0		37,885
Investment grade bonds		14,517		0		0		14,517
High yield(a)		17,365		0		0		17,365
		63,279		6,488		0		69,767
Other investments (b)		9,937		63		0		10,000
Total (c)	$	159,324	$	12,301	$	0	$	171,625

(a) This category is exchange-traded funds representing a diversified index of high yield corporate bonds.

(b) This category is comprised of exchange-traded funds and mutual funds holding non-traditional investment classes including private equity funds and alternative exchange funds.

(c) Excludes dividends and interest receivable totaling $0.3 million and $0.4 million at December 31, 2016 and 2015, respectively.

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STOCK-BASED COMPENSATION PLANS (Tables)

12 Months Ended

Dec. 31, 2016

STOCK-BASED COMPENSATION PLANS [Abstract]

Activity in Long-Term Incentive Program

Activity in this long-term incentive program is as follows:

	Stock Options
	Outstanding			Weighted- average Exercise Price of Shares
Outstanding at December 31, 2014		2,151,776		$	25.92
Granted		293,242			35.36
Exercised		(469,730	)		22.42
Forfeited		(5,987	)		30.21
Outstanding at December 31, 2015		1,969,301		$	28.15
Granted		330,383			38.02
Exercised		(525,298	)		25.12
Forfeited		(18,394	)		34.47
Outstanding at December 31, 2016		1,755,992			30.85
Exercisable at December 31, 2016		959,638		$	26.94

Summary of Information about Stock Options Outstanding under Stock Option Plan

The following table summarizes the information about stock options outstanding under the Company’s stock option plan at December 31, 2016:

		Options outstanding						Options exercisable
Range of Exercise Price		Shares		Weighted -average Exercise Price		Weighted- average Remaining Life (years)		Shares		Weighted -average Exercise Price
$	0.00 – $18.00		44,436	$	17.70		2.22		44,436	$	17.70
$	18.001 – $23.00		267,307		19.06		1.97		267,307		19.06
$	23.001 – $28.00		159,662		26.28		5.54		159,536		26.28
$	28.001 – $29.00		203,365		28.78		5.22		153,369		28.78
$	29.001 – $30.00		254,826		29.79		6.21		144,226		29.79
$	30.001 – $40.00		826,396		37.08		8.31		190,764		37.06
TOTAL			1,755,992	$	30.85		6.28		959,638	$	26.94

Summary of Valuation Assumptions Used to Estimate Value of Stock Options

The Black-Scholes model requires several assumptions, which management developed based on historical trends and current market observations.

	2016			2015			2014
Weighted-average Fair Value of Options Granted	$	7.90		$	7.48		$	8.38
Assumptions:
Weighted-average expected life (in years)		6.50			6.50			6.50
Future dividend yield		3.43	%		3.40	%		3.70	%
Share price volatility		30.00	%		30.34	%		30.71	%
Weighted-average risk-free interest rate		1.72	%		1.73	%		2.69	%

Activity of Unvested Restricted Stock Awards

A summary of the status of the Company’s unvested restricted stock awards as of December 31, 2016, and changes during the twelve months ended December 31, 2016 and 2015, is presented below:

	Restricted Shares			Weighted-average grant date fair value
Unvested at December 31, 2014		245,721		$	26.13
Awards		60,519			35.39
Forfeitures		(874	)		32.43
Vestings		(59,055	)		28.35
Unvested at December 31, 2015		246,311		$	27.85
Awards		148,240			27.04
Forfeitures		(42,394	)		17.49
Vestings		(98,327	)		25.64
Unvested at December 31, 2016		253,830		$	29.98

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EARNINGS PER SHARE (Tables)

12 Months Ended

Dec. 31, 2016

EARNINGS PER SHARE [Abstract]

Reconciliation of Basic to Diluted Earnings per Share

The following is a reconciliation of basic to diluted earnings per share for the years ended December 31, 2016, 2015 and 2014.

(000's omitted, except per share data)	2016			2015			2014
Net income	$	103,812		$	91,230		$	91,353
Income attributable to unvested stock-based compensation awards		(550	)		(453	)		(456	)
Income available to common shareholders	$	103,262		$	90,777		$	90,897
Weighted-average common shares outstanding - basic		44,091			40,996			40,548
Basic earnings per share	$	2.34		$	2.21		$	2.24
Net income	$	103,812		$	91,230		$	91,353
Income attributable to unvested stock-based compensation awards		(550	)		(453	)		(456	)
Income available to common shareholders	$	103,262		$	90,777		$	90,897
Weighted-average common shares outstanding		44,091			40,996			40,548
Assumed exercise of stock options		394			405			481
Weighted-average common shares outstanding – diluted		44,485			41,401			41,029
Diluted earnings per share	$	2.32		$	2.19		$	2.22
Cash dividends declared per share	$	1.26		$	1.22		$	1.16

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COMMITMENTS, CONTINGENT LIABILITIES AND RESTRICTIONS (Tables)

12 Months Ended

Dec. 31, 2016

COMMITMENTS, CONTINGENT LIABILITIES AND RESTRICTIONS [Abstract]

Off Balance Sheet Financial Instruments Contract Amounts

The contract amounts of commitments and contingencies are as follows at December 31:

(000's omitted)	2016		2015
Commitments to extend credit	$	773,442	$	811,442
Standby letters of credit		22,656		19,053
Total	$	796,098	$	830,495

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LEASES (Tables)

12 Months Ended

Dec. 31, 2016

LEASES [Abstract]

Future Minimum Rental Commitments

The future minimum rental commitments as of December 31, 2016 for all non-cancelable operating leases are as follows:

2017	$	6,078
2018		5,574
2019		5,040
2020		3,857
2021		3,098
Thereafter		7,297
Total	$	30,944

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REGULATORY MATTERS (Tables)

12 Months Ended

Dec. 31, 2016

REGULATORY MATTERS [Abstract]

Capital Ratios and Amounts

As of December 31, 2016, the most recent notification from the OCC categorized the Company and Bank as “well capitalized” under the regulatory framework for prompt corrective action.

	Actual					For capital adequacy purposes					For capital adequacy purposes plus Capital Conservation Buffer					To be well-capitalized under prompt corrective action
(000's omitted)	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
Community Bank System, Inc.:
2016
Tier 1 Leverage ratio	$	858,347		10.55	%	$	325,438		4.00	%						$	406,798		5.00	%
Tier 1 risk-based capital		858,347		18.10	%		284,583		6.00	%	$	314,228		6.625	%		379,445		8.00	%
Total risk-based capital		905,996		19.10	%		379,445		8.00	%		409,089		8.625	%		474,306		10.00	%
Common equity tier 1 capital		759,199		16.01	%		213,438		4.50	%		243,082		5.125	%		308,299		6.50	%
2015
Tier 1 Leverage ratio	$	788,717		10.32	%	$	305,761		4.00	%						$	382,201		5.00	%
Tier 1 risk-based capital		788,717		17.09	%		276,886		6.00	%							369,181		8.00	%
Total risk-based capital		834,539		18.08	%		369,181		8.00	%							461,477		10.00	%
Common equity tier 1 capital		689,528		14.94	%		207,664		4.50	%							299,960		6.50	%
Community Bank, N.A.:
2016
Tier 1 Leverage ratio	$	672,633		8.30	%	$	324,080		4.00	%						$	405,099		5.00	%
Tier 1 risk-based capital		672,633		14.28	%		282,662		6.00	%	$	312,106		6.625	%		376,883		8.00	%
Total risk-based capital		720,282		15.29	%		376,883		8.00	%		406,327		8.625	%		471,104		10.00	%
Common equity tier 1 capital		672,578		14.28	%		211,997		4.50	%		241,441		5.125	%		306,217		6.50	%
2015
Tier 1 Leverage ratio	$	673,443		8.88	%	$	303,256		4.00	%						$	379,070		5.00	%
Tier 1 risk-based capital		673,443		14.65	%		275,739		6.00	%							367,652		8.00	%
Total risk-based capital		719,265		15.65	%		367,652		8.00	%							459,565		10.00	%
Common equity tier 1 capital		673,326		14.65	%		206,804		4.50	%							298,717		6.50	%

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PARENT COMPANY STATEMENTS (Tables)

12 Months Ended

Dec. 31, 2016

PARENT COMPANY STATEMENTS [Abstract]

Condensed Balance Sheets of Parent Company

The condensed balance sheets of the parent company at December 31 are as follows:

(000's omitted)	2016		2015
Assets:
Cash and cash equivalents	$	151,127	$	97,317
Investment securities		3,628		3,576
Investment in and advances to:
Bank subsidiary		1,116,554		1,117,419
Non-bank subsidiaries		35,566		30,643
Other assets		10,345		9,996
Total assets	$	1,317,220	$	1,258,951
Liabilities and shareholders' equity:
Accrued interest and other liabilities	$	16,950	$	16,158
Borrowings		102,170		102,146
Shareholders' equity		1,198,100		1,140,647
Total liabilities and shareholders' equity	$	1,317,220	$	1,258,951

Condensed Statements of Income of Parent Company

The condensed statements of income of the parent company for the years ended December 31 is as follows:

(000's omitted)	2016			2015			2014
Revenues:
Dividends from subsidiaries:
Bank subsidiary	$	89,000		$	70,000		$	57,200
Non-bank subsidiaries		1,750			6,000			3,900
Interest and dividends on investments		102			94			88
Total revenues		90,852			76,094			61,188
Expenses:
Interest on borrowings		2,949			2,537			2,477
Acquisition expenses		429			0			0
Other expenses		11			19			37
Total expenses		3,389			2,556			2,514
Income before tax benefit and equity in undistributed net income of subsidiaries		87,463			73,538			58,674
Income tax benefit/(expense)		866			(572	)		581
Income before equity in undistributed net income of subsidiaries		88,329			72,966			59,255
Equity in undistributed net income of subsidiaries		15,483			18,264			32,098
Net income	$	103,812		$	91,230		$	91,353
Other comprehensive (loss)/income, net of tax:
Other comprehensive income/(loss) related to pension and other post retirement obligations		3,322			(4,567	)		(9,571	)
Other comprehensive (loss)/income related to unrealized (losses)/gains on available-for-sale securities		(14,714	)		(6,918	)		66,837
Other comprehensive (loss)/income		(11,392	)		(11,485	)		57,266
Comprehensive income	$	92,420		$	79,745		$	148,619

Statements of Cash Flows of Parent Company

The statements of cash flows of the parent company for the years ended December 31 is as follows:

(000's omitted)	2016			2015			2014
Operating activities:
Net income	$	103,812		$	91,230		$	91,353
Adjustments to reconcile net income to net cash provided by operating activities
Equity in undistributed net income of subsidiaries		(15,483	)		(18,264	)		(32,098	)
Net change in other assets and other liabilities		(215	)		(27	)		(479	)
Net cash provided by operating activities		88,114			72,939			58,776
Investing activities:
Proceeds from sale of investment securities		0			0			3
Cash received for acquisitions, net of cash acquired of $0, $81,772, and $0, respectively		0			25,505			0
Capital contributions to subsidiaries		0			(80,231	)		0
Net cash (used in) provided by investing activities		0			(54,726	)		3
Financing activities:
Issuance of common stock		15,326			13,975			13,410
Purchase of treasury stock		(3,470	)		(9,126	)		(4,368	)
Sale of treasury stock		8,888			16,571			1,531
Cash dividends paid		(55,048	)		(49,273	)		(46,178	)
Net cash used in financing activities		(34,304	)		(27,853	)		(35,605	)
Change in cash and cash equivalents		53,810			(9,640	)		23,174
Cash and cash equivalents at beginning of year		97,317			106,957			83,783
Cash and cash equivalents at end of year	$	151,127		$	97,317		$	106,957
Supplemental disclosures of cash flow information:
Cash paid for interest	$	2,909		$	2,523		$	2,473
Supplemental disclosures of noncash financing activities
Dividends declared and unpaid	$	14,268		$	13,605		$	12,254
Capital contributions to subsidiaries		0			76,461			0
Common stock issued for acquisition		0			102,202			0

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FAIR VALUE (Tables)

12 Months Ended

Dec. 31, 2016

FAIR VALUE [Abstract]

Summary of Fair Value Measured on a Recurring Basis

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

	December 31, 2016
(000's omitted)	Level 1		Level 2		Level 3		Total Fair Value
Available-for-sale investment securities:
U.S. Treasury and agency securities	$	1,902,762	$	0	$	0	$	1,902,762
Obligations of state and political subdivisions		0		594,990		0		594,990
Government agency mortgage-backed securities		0		235,230		0		235,230
Corporate debt securities		0		5,687		0		5,687
Government agency collateralized mortgage obligations		0		9,535		0		9,535
Marketable equity securities		452		0		0		452
Total available-for-sale investment securities		1,903,214		845,442		0		2,748,656
Mortgage loans held for sale		0		2,416		0		2,416
Commitments to originate real estate loans for sale		0		0		54		54
Forward sales commitments		0		3		0		3
Total	$	1,903,214	$	847,861	$	54	$	2,751,129

	December 31, 2015
(000's omitted)	Level 1		Level 2			Level 3		Total Fair Value
Available-for-sale investment securities:
U.S. Treasury and agency securities	$	1,899,978	$	0		$	0	$	1,899,978
Obligations of state and political subdivisions		0		666,883			0		666,883
Government agency mortgage-backed securities		0		210,865			0		210,865
Corporate debt securities		0		16,680			0		16,680
Government agency collateralized mortgage obligations		0		13,308			0		13,308
Marketable equity securities		399		0			0		399
Total available-for-sale investment securities		1,900,377		907,736			0		2,808,113
Mortgage loans held for sale		0		932			0		932
Commitments to originate real estate loans for sale		0		0			117		117
Forward sales commitments		0		(37	)		0		(37	)
Total	$	1,900,377	$	908,631		$	117	$	2,809,125

Changes in Level 3 Assets Measured at Fair Value on a Recurring Basis

The changes in Level 3 assets measured at fair value on a recurring basis are summarized in the following tables:

	For the Year Ending December 31,
	2016			2015
(000's omitted)	Commitments to Originate Real Estate Loans for Sale			Commitments to Originate Real Estate Loans for Sale
Beginning balance	$	117		$	185
Total (losses)/gains included in earnings (1)		(1,234	)		(808	)
Commitments to originate real estate loans held for sale, net		1,171			740
Ending balance	$	54		$	117

⁽¹⁾ Amounts included in earnings associated with the commitments to originate real estate loans for sale are reported as a component of other banking services in the Consolidated Statement of Income.

Assets and Liabilities Measured on a Non-Recurring Basis

Assets and liabilities measured on a non-recurring basis:

	December 31, 2016								December 31, 2015
(000's omitted)	Level 1		Level 2		Level 3		Total Fair Value		Level 1		Level 2		Level 3		Total Fair Value
Impaired loans	$	0	$	0	$	633	$	633	$	0	$	0	$	1,765	$	1,765
Other real estate owned		0		0		1,966		1,966		0		0		2,088		2,088
Total	$	0	$	0	$	2,599	$	2,599	$	0	$	0	$	3,853	$	3,853

Significant Unobservable Inputs, Fair Value Valuation Techniques

The significant unobservable inputs used in the determination of fair value of assets classified as Level 3 on a recurring or non-recurring basis as of December 31, 2016 are as follows:

(000's omitted)	Fair Value		Valuation Technique	Significant Unobservable Inputs	Significant Unobservable Input Range (Weighted Average)
Other real estate owned	$	1,966	Fair value of collateral	Estimated cost of disposal/market adjustment		9.0% - 97.0% (29.6	%)
Impaired loans		633	Fair value of collateral	Estimated cost of disposal/market adjustment		15.0% - 50.0% (36.5	%)
Commitments to originate real estate loans for sale		54	Discounted cash flow	Embedded servicing value		1	%

The significant unobservable inputs used in the determination of fair value of assets classified as Level 3 on a recurring or non-recurring basis as of December 31, 2015 are as follows:

(000's omitted)	Fair Value		Valuation Technique	Significant Unobservable Inputs	Significant Unobservable Input Range (Weighted Average)
Other real estate owned	$	2,088	Fair value of collateral	Estimated cost of disposal/market adjustment		5.3% - 74.0% (27.7	%)
Impaired loans		1,765	Fair value of collateral	Estimated cost of disposal/market adjustment		9.0% - 20.0% (17.9	%)
Commitments to originate real estate loans for sale		117	Discounted cash flow	Embedded servicing value		1	%

Carrying Amounts and Estimated Fair Values of Other Financial Instruments

The carrying amounts and estimated fair values of the Company’s other financial instruments that are not accounted for at fair value at December 31, 2016 and 2015 are as follows:

	December 31, 2016				December 31, 2015
(000's omitted)	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets:
Net loans	$	4,901,329		4,935,140	$	4,755,974	$	4,808,856
Financial liabilities:
Deposits		7,075,954		7,071,191		6,873,474		6,871,098
Borrowings		146,200		146,200		301,300		301,300
Subordinated debt held by unconsolidated subsidiary trusts		102,170		90,144		102,146		84,680

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VARIABLE INTEREST ENTITIES (Tables)

12 Months Ended

Dec. 31, 2016

VARIABLE INTEREST ENTITIES [Abstract]

Carrying Amount and Classification of Assets and Liabilities of 706 North Clinton

The carrying amount of the assets and liabilities of 706 North Clinton and the classification of these assets and liabilities in the Company’s Consolidated Statements of Financial Condition at December 31 is as follows:

(000's omitted)	2016		2015
Cash and cash equivalents	$	30	$	42
Premises and equipment, net		6,429		6,592
Other assets		0		9
Total assets	$	6,459	$	6,643
Accrued interest and other liabilities / Total liabilities	$	1	$	5

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SEGMENT INFORMATION (Tables)

12 Months Ended

Dec. 31, 2016

SEGMENT INFORMATION [Abstract]

Schedule of Segment Reporting Information by Segment

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

(000's omitted)	Banking		Employee Benefit Services		All Other		Eliminations			Consolidated Total
2016
Net interest income	$	273,542	$	162	$	192	$	0		$	273,896
Provision for loan losses		8,076		0		0		0			8,076
Noninterest income		66,059		48,261		43,747		(2,442	)		155,625
Amortization of intangible assets		2,682		420		2,377		0			5,479
Other operating expenses		191,268		37,337		35,206		(2,442	)		261,369
Income before income taxes	$	137,575	$	10,666	$	6,356	$	0		$	154,597
Assets	$	8,598,057	$	38,742	$	71,428	$	(41,790	)	$	8,666,437
Goodwill	$	440,870	$	8,019	$	16,253	$	0		$	465,142
2015
Net interest income	$	248,167	$	132	$	121	$	0		$	248,420
Provision for loan losses		6,447		0		0		0			6,447
Noninterest income		57,704		46,784		20,967		(2,156	)		123,299
Amortization of intangible assets		2,803		515		345		0			3,663
Other operating expenses		181,865		35,218		14,465		(2,156	)		229,392
Income before income taxes	$	114,756	$	11,183	$	6,278	$	0		$	132,217
Assets	$	8,513,228	$	35,011	$	70,067	$	(65,637	)	$	8,552,669
Goodwill	$	439,052	$	8,019	$	16,181	$	0		$	463,252
2014
Net interest income	$	244,243	$	92	$	93	$	0		$	244,428
Provision for loan losses		7,178		0		0		0			7,178
Noninterest income		58,565		43,701		18,634		(1,880	)		119,020
Amortization of intangible assets		3,438		647		202		0			4,287
Other operating expenses		178,472		32,846		12,855		(1,880	)		222,293
Income before income taxes	$	113,720	$	10,300	$	5,670	$	0		$	129,690
Assets	$	7,463,379	$	31,513	$	15,635	$	(21,087	)	$	7,489,440
Goodwill	$	364,495	$	8,019	$	2,660	$	0		$	375,174

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) $ in Millions	12 Months Ended
	Dec. 31, 2016 USD ($) Subsidiary Trust Branch Component Calculation Segment Factor	Dec. 31, 2015 USD ($)	Dec. 31, 2014 USD ($)
Subsidiary, Sale of Stock [Line Items]
Number of significant consolidated subsidiaries owned | Subsidiary	2
Number of unconsolidated subsidiary business trusts owned | Trust	2
Number of bank branches | Branch	193
Number of counties in New York where the bank has facilities | Branch	35
Number of counties in Pennsylvania where the bank has facilities | Branch	6
Risks and Uncertainties [Abstract]
Number of main components of economic risk | Component	3
Financing Receivable, Recorded Investment, Past Due [Line Items]
Period for which a nonaccrual TDR loan remains on nonaccrual status	12 months
Number of days past due for loans to be placed on nonaccrual status	90 days
Allowance for Loan Losses [Abstract]
Number of broad components used in allowance methodology | Component	2
Number of calculations used for general loan loss allocations | Calculation	2
Number of main loan segments | Segment	5
Period of historical net charge-off data for each loan class used in determining allowance level	36 months
Number of qualitative environmental factors used in qualitative calculation for general loan loss allocations | Factor	8
Other Real Estate [Abstract]
Other real estate | $	$ 2.0	$ 2.1
Advertising [Abstract]
Advertising costs | $	$ 3.9	$ 3.6	$ 3.2
Consumer Installment Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Number of days past due after which loans are charged off to the extent outstanding principal balance exceeds fair value of collateral/property	90 days
Consumer Mortgage Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Number of days past due after which loans are charged off to the extent outstanding principal balance exceeds fair value of collateral/property	180 days
Home Equity Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Number of days past due after which loans are charged off to the extent outstanding principal balance exceeds fair value of collateral/property	180 days
Equipment [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful life	3 years
Equipment [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful life	10 years
Software [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful life	3 years
Software [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful life	7 years
Hardware [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful life	3 years
Hardware [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful life	7 years
Building and Building Improvements [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful life	10 years
Building and Building Improvements [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful life	40 years
Land Improvements [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful life	20 years
BPAS [Member]
Subsidiary, Sale of Stock [Line Items]
Number of significant consolidated subsidiaries owned | Subsidiary	4
Hand Benefits & Trust [Member]
Subsidiary, Sale of Stock [Line Items]
Number of significant consolidated subsidiaries owned | Subsidiary	1
Core Deposits [Member] | Minimum [Member]
Finite-Lived Intangible Assets [Line Items]
Intangible asset useful life (amortization period)	7 years
Core Deposits [Member] | Maximum [Member]
Finite-Lived Intangible Assets [Line Items]
Intangible asset useful life (amortization period)	20 years
Customer Relationships [Member] | Minimum [Member]
Finite-Lived Intangible Assets [Line Items]
Intangible asset useful life (amortization period)	7 years
Customer Relationships [Member] | Maximum [Member]
Finite-Lived Intangible Assets [Line Items]
Intangible asset useful life (amortization period)	20 years
Commercial Portfolio Segment [Member] | Minimum [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Threshold balance of loans individually evaluated for impairment | $	$ 0.5

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ACQUISITIONS (Details) shares in Thousands, $ in Thousands			3 Months Ended
	Oct. 24, 2016 USD ($) Branch	Dec. 04, 2015 USD ($) Branch shares	Mar. 31, 2016 USD ($)
Merchants Bancshares, Inc. [Member]
Business Acquisition [Line Items]
Purchase price of acquisition	$ 362,000
Deposits to be acquired	1,500,000
Assets acquired	$ 2,100,000
Merchants Bancshares, Inc. [Member] | VERMONT [Member]
Business Acquisition [Line Items]
Number of branch locations to be added upon merger | Branch	31
Merchants Bancshares, Inc. [Member] | MASSACHUSETTS [Member]
Business Acquisition [Line Items]
Number of branch locations to be added upon merger | Branch	1
Oneida Financial Corp [Member]
Business Acquisition [Line Items]
Purchase price of acquisition		$ 158,468
Deposits to be acquired		$ 699,241
Issuance of common shares (in shares) | shares		2,380
Number of new branch locations included in acquisition or purchase agreement | Branch		12
Assets acquired		$ 769,000
Decrease in other assets as a result of fair value adjustment			$ (900)
Increase in other liabilities as a result of fair value adjustment			700
Increase in goodwill as a result of fair value adjustment			$ 1,600

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ACQUISITIONS, Estimated Fair Value of Assets Acquired and Liabilities Assumed (Details) - USD ($) $ in Thousands				12 Months Ended
	Jan. 04, 2016	Dec. 04, 2015	Jan. 02, 2014	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Consideration paid [Abstract]
Cash				$ 575	$ (25,505)	$ 924
Recognized amounts of identifiable assets acquired and liabilities assumed [Abstract]
Goodwill				$ 465,142	$ 463,252	$ 375,174
EBS-RMSCO, Inc. [Member]
Consideration paid [Abstract]
Cash			$ 924
Community Bank System, Inc. common stock			0
Total net consideration paid			924
Recognized amounts of identifiable assets acquired and liabilities assumed [Abstract]
Cash and cash equivalents			0
Investment securities			0
Loans			0
Premises and equipment			0
Accrued interest receivable			0
Other assets			163
Deposits			0
Other liabilities			0
Total identifiable assets (liabilities), net			741
Goodwill			183
EBS-RMSCO, Inc. [Member] | Core Deposits [Member]
Recognized amounts of identifiable assets acquired and liabilities assumed [Abstract]
Intangibles			0
EBS-RMSCO, Inc. [Member] | Other Intangibles [Member]
Recognized amounts of identifiable assets acquired and liabilities assumed [Abstract]
Intangibles			$ 578
WJL Agencies Inc [Member]
Consideration paid [Abstract]
Cash	$ 575
Community Bank System, Inc. common stock	0
Total net consideration paid	575
Recognized amounts of identifiable assets acquired and liabilities assumed [Abstract]
Cash and cash equivalents	0
Investment securities	0
Loans	0
Premises and equipment	0
Accrued interest receivable	0
Other assets	0
Deposits	0
Other liabilities	0
Total identifiable assets (liabilities), net	288
Goodwill	287
WJL Agencies Inc [Member] | Core Deposits [Member]
Recognized amounts of identifiable assets acquired and liabilities assumed [Abstract]
Intangibles	0
WJL Agencies Inc [Member] | Other Intangibles [Member]
Recognized amounts of identifiable assets acquired and liabilities assumed [Abstract]
Intangibles	$ 288
Oneida Financial Corp [Member]
Consideration paid [Abstract]
Cash		$ 56,266
Community Bank System, Inc. common stock		102,202
Total net consideration paid		158,468
Recognized amounts of identifiable assets acquired and liabilities assumed [Abstract]
Cash and cash equivalents		81,772
Investment securities		225,729
Loans		399,422
Premises and equipment		22,212
Accrued interest receivable		1,133
Other assets		26,529
Deposits		(699,241)
Other liabilities		(1,333)
Total identifiable assets (liabilities), net		68,787
Goodwill		89,681
Oneida Financial Corp [Member] | Core Deposits [Member]
Recognized amounts of identifiable assets acquired and liabilities assumed [Abstract]
Intangibles		2,570
Oneida Financial Corp [Member] | Other Intangibles [Member]
Recognized amounts of identifiable assets acquired and liabilities assumed [Abstract]
Intangibles		$ 9,994

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ACQUISITIONS, Summary of Loans Acquired (Details) - Oneida Financial Corp [Member] $ in Thousands	Dec. 04, 2015 USD ($)
Summary of loans acquired [Abstract]
Contractually required principal and interest at acquisition	$ 490,075
Contractual cash flows not expected to be collected	(6,810)
Expected cash flows at acquisition	483,265
Interest component of expected cash flows	(83,843)
Fair value of acquired loans	399,422
Acquired Impaired Loans [Member]
Summary of loans acquired [Abstract]
Contractually required principal and interest at acquisition	5,138
Contractual cash flows not expected to be collected	(1,977)
Expected cash flows at acquisition	3,161
Interest component of expected cash flows	(341)
Fair value of acquired loans	2,820
Acquired Non Impaired Loans [Member]
Summary of loans acquired [Abstract]
Contractually required principal and interest at acquisition	484,937
Contractual cash flows not expected to be collected	(4,833)
Expected cash flows at acquisition	480,104
Interest component of expected cash flows	(83,502)
Fair value of acquired loans	$ 396,602

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ACQUISITIONS, Intangible Asset, Goodwill and Acquisition-related Expenses (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Summary of loans acquired [Abstract]
Merger and acquisition integration-related expenses	$ 1,706	$ 7,037	$ 123
EBS-RMSCO, Inc. [Member] | Core Deposits [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated useful life	8 years
EBS-RMSCO, Inc. [Member] | Other Intangibles [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated useful life	8 years
Oneida Financial Corp [Member] | Core Deposits [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated useful life	8 years
Oneida Financial Corp [Member] | Other Intangibles [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated useful life	8 years
WJL Agencies Inc [Member] | Core Deposits [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated useful life	8 years
WJL Agencies Inc [Member] | Other Intangibles [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated useful life	8 years

XML

ACQUISITIONS, Supplemental Pro Forma Financial Information (Details) - USD ($) $ in Thousands	1 Months Ended	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2015	Dec. 31, 2014
Supplemental Pro Forma Financial Information [Abstract]
Expenses related to conversion of systems and other costs of integration, as well as certain one-time costs		$ 14,000
Total revenue, net of interest expense, actual	$ 3,667
Net income (loss), actual	$ (3,905)
Total revenue, net of interest expense, pro forma		426,541	$ 416,713
Net income (loss), pro forma		$ 96,894	$ 85,665

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INVESTMENT SECURITIES (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Available-for-Sale Portfolio [Abstract]
Amortized cost	$ 2,706,863	$ 2,742,278
Gross unrealized gains	47,463	69,254
Gross unrealized losses	5,670	3,419
Fair value	2,748,656	2,808,113
Available For Sale Debt Securities Amortized Cost Basis [Abstract]
Amortized cost	2,706,611
Estimated fair value	2,748,204
Other Securities [Abstract]
Amortized cost	35,736	39,827
Estimated fair value	35,736	39,827
U.S. Treasury and Agency Securities [Member]
Available For Sale Debt Securities Amortized Cost Basis [Abstract]
Amortized cost	1,876,358	1,866,819
Gross unrealized gains	28,522	35,186
Gross unrealized losses	2,118	2,027
Estimated fair value	1,902,762	1,899,978
Obligations of State and Political Subdivisions [Member]
Available For Sale Debt Securities Amortized Cost Basis [Abstract]
Amortized cost	582,655	640,455
Gross unrealized gains	13,389	26,487
Gross unrealized losses	1,054	59
Estimated fair value	594,990	666,883
Government Agency Mortgage-Backed Securities [Member]
Available For Sale Debt Securities Amortized Cost Basis [Abstract]
Amortized cost	232,657	205,220
Gross unrealized gains	5,040	6,906
Gross unrealized losses	2,467	1,261
Estimated fair value	235,230	210,865
Corporate Debt Securities [Member]
Available For Sale Debt Securities Amortized Cost Basis [Abstract]
Amortized cost	5,716	16,672
Gross unrealized gains	2	66
Gross unrealized losses	31	58
Estimated fair value	5,687	16,680
Government Agency Collateralized Mortgage Obligations [Member]
Available For Sale Debt Securities Amortized Cost Basis [Abstract]
Amortized cost	9,225	12,862
Gross unrealized gains	310	446
Gross unrealized losses	0	0
Estimated fair value	9,535	13,308
Marketable Equity Security [Member]
Available For Sale Equity Securities Amortized Cost Basis [Abstract]
Amortized cost	252	250
Gross unrealized gains	200	163
Gross unrealized losses	0	14
Estimated fair value	452	399
Federal Home Loan Bank Common Stock [Member]
Other Securities [Abstract]
Amortized cost	12,191	19,317
Estimated fair value	12,191	19,317
Federal Reserve Bank Common Stock [Member]
Other Securities [Abstract]
Amortized cost	19,781	16,050
Estimated fair value	19,781	16,050
Other Equity Securities [Member]
Other Securities [Abstract]
Amortized cost	3,764	4,460
Estimated fair value	$ 3,764	$ 4,460

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INVESTMENT SECURITIES, Investment Securities in a Continuous Unrealized Loss Position (Details) $ in Thousands	Dec. 31, 2016 USD ($) Position	Dec. 31, 2015 USD ($) Position
Available-for-Sale Securities in Unrealized Loss Positions, Number of Positions [Abstract]
Less than 12 months | Position	268	46
12 months or longer | Position	17	24
Total | Position	285	70
Available-for-Sale Securities, in Unrealized Loss Position, Fair Value [Abstract]
Less than 12 months	$ 637,887	$ 389,937
12 months or longer	21,790	33,551
Total	659,677	423,488
Available-for-Sale Securities, in Unrealized Loss Position, Gross Unrealized Losses [Abstract]
Less than 12 months	4,840	2,236
12 months or longer	830	1,183
Total	$ 5,670	$ 3,419
U.S. Treasury and Agency Securities [Member]
Available-for-Sale Securities in Unrealized Loss Positions, Number of Positions [Abstract]
Less than 12 months | Position	13	9
12 months or longer | Position	0	0
Total | Position	13	9
Available-for-Sale Securities, in Unrealized Loss Position, Fair Value [Abstract]
Less than 12 months	$ 449,242	$ 353,844
12 months or longer	0	0
Total	449,242	353,844
Available-for-Sale Securities, in Unrealized Loss Position, Gross Unrealized Losses [Abstract]
Less than 12 months	2,118	2,027
12 months or longer	0	0
Total	$ 2,118	$ 2,027
Obligations of State and Political Subdivisions [Member]
Available-for-Sale Securities in Unrealized Loss Positions, Number of Positions [Abstract]
Less than 12 months | Position	197	18
12 months or longer | Position	0	2
Total | Position	197	20
Available-for-Sale Securities, in Unrealized Loss Position, Fair Value [Abstract]
Less than 12 months	$ 102,106	$ 8,804
12 months or longer	0	735
Total	102,106	9,539
Available-for-Sale Securities, in Unrealized Loss Position, Gross Unrealized Losses [Abstract]
Less than 12 months	1,054	34
12 months or longer	0	25
Total	$ 1,054	$ 59
Government Agency Mortgage-Backed Securities [Member]
Available-for-Sale Securities in Unrealized Loss Positions, Number of Positions [Abstract]
Less than 12 months | Position	57	17
12 months or longer | Position	15	19
Total | Position	72	36
Available-for-Sale Securities, in Unrealized Loss Position, Fair Value [Abstract]
Less than 12 months	$ 83,862	$ 24,178
12 months or longer	21,788	30,103
Total	105,650	54,281
Available-for-Sale Securities, in Unrealized Loss Position, Gross Unrealized Losses [Abstract]
Less than 12 months	1,637	161
12 months or longer	830	1,100
Total	$ 2,467	$ 1,261
Corporate Debt Securities [Member]
Available-for-Sale Securities in Unrealized Loss Positions, Number of Positions [Abstract]
Less than 12 months | Position	1	1
12 months or longer | Position	0	1
Total | Position	1	2
Available-for-Sale Securities, in Unrealized Loss Position, Fair Value [Abstract]
Less than 12 months	$ 2,677	$ 3,024
12 months or longer	0	2,710
Total	2,677	5,734
Available-for-Sale Securities, in Unrealized Loss Position, Gross Unrealized Losses [Abstract]
Less than 12 months	31	0
12 months or longer	0	58
Total	$ 31	$ 58
Government Agency Collateralized Mortgage Obligations [Member]
Available-for-Sale Securities in Unrealized Loss Positions, Number of Positions [Abstract]
Less than 12 months | Position	0	0
12 months or longer | Position	2	2
Total | Position	2	2
Available-for-Sale Securities, in Unrealized Loss Position, Fair Value [Abstract]
Less than 12 months	$ 0	$ 0
12 months or longer	2	3
Total	2	3
Available-for-Sale Securities, in Unrealized Loss Position, Gross Unrealized Losses [Abstract]
Less than 12 months	0	0
12 months or longer	0	0
Total	$ 0	$ 0
Marketable Equity Security [Member]
Available-for-Sale Securities in Unrealized Loss Positions, Number of Positions [Abstract]
Less than 12 months | Position		1
12 months or longer | Position		0
Total | Position		1
Available-for-Sale Securities, in Unrealized Loss Position, Fair Value [Abstract]
Less than 12 months		$ 87
12 months or longer		0
Total		87
Available-for-Sale Securities, in Unrealized Loss Position, Gross Unrealized Losses [Abstract]
Less than 12 months		14
12 months or longer		0
Total		$ 14

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INVESTMENT SECURITIES, Amortized Cost and Estimated Fair Value of Debt Securities by Contractual Maturity (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Available-for-Sale, Debt Maturities, Amortized Cost [Abstract]
Due in one year or less	$ 37,994
Due after one through five years	923,434
Due after five years through ten years	1,302,156
Due after ten years	201,145
Subtotal	2,464,729
Amortized cost	2,706,611
Available-for-Sale, Debt Maturities, Fair Value [Abstract]
Due in one year or less	38,212
Due after one through five years	939,357
Due after five years through ten years	1,319,913
Due after ten years	205,957
Subtotal	2,503,439
Fair value	2,748,204
Government Agency Mortgage-Backed Securities [Member]
Available-for-Sale, Debt Maturities, Amortized Cost [Abstract]
Without single maturity date	232,657
Amortized cost	232,657	$ 205,220
Available-for-Sale, Debt Maturities, Fair Value [Abstract]
Without single maturity date	235,230
Fair value	235,230	210,865
Government Agency Collateralized Mortgage Obligations [Member]
Available-for-Sale, Debt Maturities, Amortized Cost [Abstract]
Without single maturity date	9,225
Amortized cost	9,225	12,862
Available-for-Sale, Debt Maturities, Fair Value [Abstract]
Without single maturity date	9,535
Fair value	$ 9,535	$ 13,308

XML

INVESTMENT SECURITIES, Cash Flow Information on Investment Securities (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Cash flow information on investment securities [Abstract]
Gross gains on sales of investment securities	$ 0	$ 3	$ 0
Gross losses on sales of investment securities	0	7	$ 0
Investment securities pledged to collateralize certain deposits and borrowings	$ 1,865,000	$ 1,750,000

XML

LOANS, Loan Summary (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Loans receivable, net [Abstract]
Gross loans, including deferred origination costs	$ 4,948,562	$ 4,801,375
Allowance for loan losses	(47,233)	(45,401)	$ (45,341)
Net loans	4,901,329	4,755,974
Net deferred loan origination costs	22,800	20,000
Loans receivable, related parties [Roll Forward]
Balance at beginning of year	11,337	8,928
New loans	4,959	5,138
Payments	(5,346)	(2,729)
Balance at end of year	$ 10,950	11,337
Consumer Mortgage [Member] | Minimum [Member]
Loans receivable, net [Abstract]
Typical contract term	10 years
Consumer Mortgage [Member] | Maximum [Member]
Loans receivable, net [Abstract]
Typical contract term	30 years
Business Lending [Member]
Loans receivable, net [Abstract]
Gross loans, including deferred origination costs	$ 1,490,076	1,497,271
Home Equity [Member] | Maximum [Member]
Loans receivable, net [Abstract]
Typical contract term	30 years
Residential Portfolio Segment [Member] | Consumer Mortgage [Member]
Loans receivable, net [Abstract]
Gross loans, including deferred origination costs	$ 1,819,701	1,769,754
Allowance for loan losses	(10,094)	(10,198)	(10,286)
Commercial Portfolio Segment [Member] | Business Lending [Member]
Loans receivable, net [Abstract]
Gross loans, including deferred origination costs	1,490,076	1,497,271
Allowance for loan losses	(17,220)	(15,749)	(15,787)
Consumer Portfolio Segment [Member] | Consumer Indirect [Member]
Loans receivable, net [Abstract]
Gross loans, including deferred origination costs	1,044,972	935,760
Allowance for loan losses	(2,979)	(2,997)	(3,083)
Consumer Portfolio Segment [Member] | Consumer Direct [Member]
Loans receivable, net [Abstract]
Gross loans, including deferred origination costs	191,815	195,076
Allowance for loan losses	(13,782)	(12,422)	(11,544)
Consumer Portfolio Segment [Member] | Home Equity [Member]
Loans receivable, net [Abstract]
Gross loans, including deferred origination costs	401,998	403,514
Allowance for loan losses	$ (2,399)	$ (2,666)	$ (2,701)

XML

LOANS, Acquired Loans (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Credit impaired acquired loans [Abstract]
Outstanding principal balance	$ 6,354	$ 8,339
Carrying amount	5,553	7,299
Credit impaired acquired loans, total balance due	6,600	8,500
Non-impaired acquired loans [Abstract]
Outstanding principal balance	497,308	620,942
Carrying amount	489,807	610,355
Total acquired loans [Abstract]
Outstanding principal balance	503,662	629,281
Carrying amount	495,360	617,654
Accretable discount related to acquired loans [Roll forward]
Balance at beginning of year	810	705
Oneida acquisition	0	341
Accretion recognized	(455)	(552)
Net reclassification to accretable from nonaccretable	143	316
Balance at end of year	$ 498	$ 810

XML

LOANS, Credit Quality By Past Due Status (Details) - USD ($) $ in Thousands		Dec. 31, 2016	Dec. 31, 2015
Aged analysis of the company's loans [Abstract]
Total loans		$ 4,948,562	$ 4,801,375
Legacy Loan [Member]
Aged analysis of the company's loans [Abstract]
90 + days past due and still accruing		1,963	1,801
Nonaccrual		16,600	18,805
Total past due		50,545	49,612
Current		4,402,657	4,134,109
Total loans		4,453,202	4,183,721
Legacy Loan [Member] | Past Due 30 - 89 Days [Member]
Aged analysis of the company's loans [Abstract]
Total past due		31,982	29,006
Acquired Loans [Member]
Aged analysis of the company's loans [Abstract]
90 + days past due and still accruing		1,113	394
Nonaccrual		4,019	2,923
Total past due		8,439	6,246
Acquired impaired	[1]	5,553	7,299
Current		481,368	604,109
Total loans		495,360	617,654
Acquired Loans [Member] | Past Due 30 - 89 Days [Member]
Aged analysis of the company's loans [Abstract]
Total past due		3,307	2,929
Consumer Mortgage [Member] | Legacy Loan [Member]
Aged analysis of the company's loans [Abstract]
Total loans		1,659,760	1,581,458
Consumer Mortgage [Member] | Acquired Loans [Member]
Aged analysis of the company's loans [Abstract]
Total loans		159,941	188,296
Business Lending [Member]
Aged analysis of the company's loans [Abstract]
Total loans		1,490,076	1,497,271
Business Lending [Member] | Legacy Loan [Member]
Aged analysis of the company's loans [Abstract]
Total loans		1,277,666	1,233,628
Business Lending [Member] | Acquired Loans [Member]
Aged analysis of the company's loans [Abstract]
Total loans		212,410	263,643
Consumer Indirect [Member] | Legacy Loan [Member]
Aged analysis of the company's loans [Abstract]
Total loans		1,014,825	890,339
Consumer Indirect [Member] | Acquired Loans [Member]
Aged analysis of the company's loans [Abstract]
Total loans		30,147	45,421
Consumer Direct [Member] | Legacy Loan [Member]
Aged analysis of the company's loans [Abstract]
Total loans		181,922	178,051
Consumer Direct [Member] | Acquired Loans [Member]
Aged analysis of the company's loans [Abstract]
Total loans		9,893	17,025
Home Equity [Member] | Legacy Loan [Member]
Aged analysis of the company's loans [Abstract]
Total loans		319,029	300,245
Home Equity [Member] | Acquired Loans [Member]
Aged analysis of the company's loans [Abstract]
Total loans		82,969	103,269
Residential Portfolio Segment [Member] | Consumer Mortgage [Member]
Aged analysis of the company's loans [Abstract]
Total loans		1,819,701	1,769,754
Residential Portfolio Segment [Member] | Consumer Mortgage [Member] | Legacy Loan [Member]
Aged analysis of the company's loans [Abstract]
90 + days past due and still accruing		1,180	1,411
Nonaccrual		11,352	11,394
Total past due		23,911	23,287
Current		1,635,849	1,558,171
Total loans		1,659,760	1,581,458
Residential Portfolio Segment [Member] | Consumer Mortgage [Member] | Legacy Loan [Member] | Past Due 30 - 89 Days [Member]
Aged analysis of the company's loans [Abstract]
Total past due		11,379	10,482
Residential Portfolio Segment [Member] | Consumer Mortgage [Member] | Acquired Loans [Member]
Aged analysis of the company's loans [Abstract]
90 + days past due and still accruing		205	394
Nonaccrual		2,332	1,396
Total past due		4,076	3,163
Acquired impaired	[1]	0	0
Current		155,865	185,133
Total loans		159,941	188,296
Residential Portfolio Segment [Member] | Consumer Mortgage [Member] | Acquired Loans [Member] | Past Due 30 - 89 Days [Member]
Aged analysis of the company's loans [Abstract]
Total past due		1,539	1,373
Commercial Portfolio Segment [Member] | Business Lending [Member]
Aged analysis of the company's loans [Abstract]
Total loans		1,490,076	1,497,271
Commercial Portfolio Segment [Member] | Business Lending [Member] | Legacy Loan [Member]
Aged analysis of the company's loans [Abstract]
90 + days past due and still accruing		145	126
Nonaccrual		3,811	5,381
Total past due		7,877	9,949
Current		1,269,789	1,223,679
Total loans		1,277,666	1,233,628
Commercial Portfolio Segment [Member] | Business Lending [Member] | Legacy Loan [Member] | Past Due 30 - 89 Days [Member]
Aged analysis of the company's loans [Abstract]
Total past due		3,921	4,442
Commercial Portfolio Segment [Member] | Business Lending [Member] | Acquired Loans [Member]
Aged analysis of the company's loans [Abstract]
90 + days past due and still accruing		0	0
Nonaccrual		1,252	1,186
Total past due		1,780	1,721
Acquired impaired	[1]	5,553	7,299
Current		205,077	254,623
Total loans		212,410	263,643
Commercial Portfolio Segment [Member] | Business Lending [Member] | Acquired Loans [Member] | Past Due 30 - 89 Days [Member]
Aged analysis of the company's loans [Abstract]
Total past due		528	535
Consumer Portfolio Segment [Member] | Consumer Indirect [Member]
Aged analysis of the company's loans [Abstract]
Total loans		1,044,972	935,760
Consumer Portfolio Segment [Member] | Consumer Indirect [Member] | Legacy Loan [Member]
Aged analysis of the company's loans [Abstract]
90 + days past due and still accruing		166	102
Nonaccrual		0	0
Total past due		14,049	11,677
Current		1,000,776	878,662
Total loans		1,014,825	890,339
Consumer Portfolio Segment [Member] | Consumer Indirect [Member] | Legacy Loan [Member] | Past Due 30 - 89 Days [Member]
Aged analysis of the company's loans [Abstract]
Total past due		13,883	11,575
Consumer Portfolio Segment [Member] | Consumer Indirect [Member] | Acquired Loans [Member]
Aged analysis of the company's loans [Abstract]
90 + days past due and still accruing		3	0
Nonaccrual		0	0
Total past due		234	245
Acquired impaired	[1]	0	0
Current		29,913	45,176
Total loans		30,147	45,421
Consumer Portfolio Segment [Member] | Consumer Indirect [Member] | Acquired Loans [Member] | Past Due 30 - 89 Days [Member]
Aged analysis of the company's loans [Abstract]
Total past due		231	245
Consumer Portfolio Segment [Member] | Consumer Direct [Member]
Aged analysis of the company's loans [Abstract]
Total loans		191,815	195,076
Consumer Portfolio Segment [Member] | Consumer Direct [Member] | Legacy Loan [Member]
Aged analysis of the company's loans [Abstract]
90 + days past due and still accruing		58	51
Nonaccrual		0	1
Total past due		1,607	1,466
Current		180,315	176,585
Total loans		181,922	178,051
Consumer Portfolio Segment [Member] | Consumer Direct [Member] | Legacy Loan [Member] | Past Due 30 - 89 Days [Member]
Aged analysis of the company's loans [Abstract]
Total past due		1,549	1,414
Consumer Portfolio Segment [Member] | Consumer Direct [Member] | Acquired Loans [Member]
Aged analysis of the company's loans [Abstract]
90 + days past due and still accruing		0	0
Nonaccrual		0	14
Total past due		231	154
Acquired impaired	[1]	0	0
Current		9,662	16,871
Total loans		9,893	17,025
Consumer Portfolio Segment [Member] | Consumer Direct [Member] | Acquired Loans [Member] | Past Due 30 - 89 Days [Member]
Aged analysis of the company's loans [Abstract]
Total past due		231	140
Consumer Portfolio Segment [Member] | Home Equity [Member]
Aged analysis of the company's loans [Abstract]
Total loans		401,998	403,514
Consumer Portfolio Segment [Member] | Home Equity [Member] | Legacy Loan [Member]
Aged analysis of the company's loans [Abstract]
90 + days past due and still accruing		414	111
Nonaccrual		1,437	2,029
Total past due		3,101	3,233
Current		315,928	297,012
Total loans		319,029	300,245
Consumer Portfolio Segment [Member] | Home Equity [Member] | Legacy Loan [Member] | Past Due 30 - 89 Days [Member]
Aged analysis of the company's loans [Abstract]
Total past due		1,250	1,093
Consumer Portfolio Segment [Member] | Home Equity [Member] | Acquired Loans [Member]
Aged analysis of the company's loans [Abstract]
90 + days past due and still accruing		905	0
Nonaccrual		435	327
Total past due		2,118	963
Acquired impaired	[1]	0	0
Current		80,851	102,306
Total loans		82,969	103,269
Consumer Portfolio Segment [Member] | Home Equity [Member] | Acquired Loans [Member] | Past Due 30 - 89 Days [Member]
Aged analysis of the company's loans [Abstract]
Total past due		$ 778	$ 636

[1] Acquired impaired loans were not classified as nonperforming assets as the loans are considered to be performing under ASC 310-30. As a result interest income, through the accretion of the difference between the carrying amount of the loans and the expected cashflows, is being recognized on all acquired impaired loans.

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LOANS, Amount of Business Lending Loans by Credit Quality Category (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Financing Receivable, Recorded Investment [Line Items]
Loans	$ 4,948,562	$ 4,801,375
Legacy Loan [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	4,453,202	4,183,721
Acquired Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	495,360	617,654
Business Lending [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	1,490,076	1,497,271
Business Lending [Member] | Legacy Loan [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	1,277,666	1,233,628
Business Lending [Member] | Acquired Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	212,410	263,643
Business Lending [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	1,213,170	1,267,738
Business Lending [Member] | Pass [Member] | Legacy Loan [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	1,051,005	1,048,364
Business Lending [Member] | Pass [Member] | Acquired Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	162,165	219,374
Business Lending [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	165,292	144,775
Business Lending [Member] | Special Mention [Member] | Legacy Loan [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	135,602	124,768
Business Lending [Member] | Special Mention [Member] | Acquired Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	29,690	20,007
Business Lending [Member] | Classified [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	105,587	77,144
Business Lending [Member] | Classified [Member] | Legacy Loan [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	90,585	60,181
Business Lending [Member] | Classified [Member] | Acquired Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	15,002	16,963
Business Lending [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	474	315
Business Lending [Member] | Doubtful [Member] | Legacy Loan [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	474	315
Business Lending [Member] | Doubtful [Member] | Acquired Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Business Lending [Member] | Acquired Impaired [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	5,553	7,299
Business Lending [Member] | Acquired Impaired [Member] | Legacy Loan [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Business Lending [Member] | Acquired Impaired [Member] | Acquired Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	5,553	7,299
All Other Loans [Member] | Legacy Loan [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	3,175,536	2,950,093
All Other Loans [Member] | Acquired Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	282,950	354,011
All Other Loans [Member] | Performing [Member] | Legacy Loan [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	3,160,929	2,934,994
All Other Loans [Member] | Performing [Member] | Acquired Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	279,070	351,880
All Other Loans [Member] | Nonperforming [Member] | Legacy Loan [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	14,607	15,099
All Other Loans [Member] | Nonperforming [Member] | Acquired Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	3,880	2,131
Consumer Mortgage [Member] | Legacy Loan [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	1,659,760	1,581,458
Consumer Mortgage [Member] | Acquired Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	159,941	188,296
Consumer Mortgage [Member] | Performing [Member] | Legacy Loan [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	1,647,228	1,568,653
Consumer Mortgage [Member] | Performing [Member] | Acquired Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	157,404	186,506
Consumer Mortgage [Member] | Nonperforming [Member] | Legacy Loan [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	12,532	12,805
Consumer Mortgage [Member] | Nonperforming [Member] | Acquired Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	2,537	1,790
Consumer Indirect [Member] | Legacy Loan [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	1,014,825	890,339
Consumer Indirect [Member] | Acquired Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	30,147	45,421
Consumer Indirect [Member] | Performing [Member] | Legacy Loan [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	1,014,659	890,237
Consumer Indirect [Member] | Performing [Member] | Acquired Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	30,144	45,421
Consumer Indirect [Member] | Nonperforming [Member] | Legacy Loan [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	166	102
Consumer Indirect [Member] | Nonperforming [Member] | Acquired Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	3	0
Consumer Direct [Member] | Legacy Loan [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	181,922	178,051
Consumer Direct [Member] | Acquired Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	9,893	17,025
Consumer Direct [Member] | Performing [Member] | Legacy Loan [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	181,864	177,999
Consumer Direct [Member] | Performing [Member] | Acquired Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	9,893	17,011
Consumer Direct [Member] | Nonperforming [Member] | Legacy Loan [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	58	52
Consumer Direct [Member] | Nonperforming [Member] | Acquired Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	0	14
Home Equity [Member] | Legacy Loan [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	319,029	300,245
Home Equity [Member] | Acquired Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	82,969	103,269
Home Equity [Member] | Performing [Member] | Legacy Loan [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	317,178	298,105
Home Equity [Member] | Performing [Member] | Acquired Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	81,629	102,942
Home Equity [Member] | Nonperforming [Member] | Legacy Loan [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	1,851	2,140
Home Equity [Member] | Nonperforming [Member] | Acquired Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	$ 1,340	$ 327

XML

LOANS, Summary of Impaired Loans, Excluding Purchased Impaired (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Impaired loans [Abstract]
Loans with allowance allocation	$ 1,109	$ 0
Loans without allowance allocation	556	2,376
Unpaid principal balance	1,665	2,376
Contractual balance	3,340	3,419
Allowance for loan loss allocated	477	0
Average impaired loans	4,683	2,922
Interest income recognized	$ 0	$ 0

XML

LOANS, Troubled Debt Restructuring (TDR) (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2016 USD ($) Loan	Dec. 31, 2015 USD ($) Loan
Financing Receivable, Modifications [Line Items]
TDRs, number | Loan	214	238
TDRs, amount	$ 5,530	$ 6,144
Loans modified in TDR during the year, number | Loan	48	71
Loans modified in TDR during the year, amount	$ 1,157	$ 1,864
Maximum [Member]
Financing Receivable, Modifications [Line Items]
Threshold balance of TDR loans collectively included in general loan loss allocation and qualitative review	$ 500
Nonaccrual [Member]
Financing Receivable, Modifications [Line Items]
TDRs, number | Loan	56	55
TDRs, amount	$ 1,832	$ 1,892
Accruing [Member]
Financing Receivable, Modifications [Line Items]
TDRs, number | Loan	158	183
TDRs, amount	$ 3,698	$ 4,252
Residential Portfolio Segment [Member] | Consumer Mortgage [Member]
Financing Receivable, Modifications [Line Items]
TDRs, number | Loan	81	91
TDRs, amount	$ 3,476	$ 3,958
Loans modified in TDR during the year, number | Loan	9	21
Loans modified in TDR during the year, amount	$ 597	$ 1,374
Residential Portfolio Segment [Member] | Consumer Mortgage [Member] | Nonaccrual [Member]
Financing Receivable, Modifications [Line Items]
TDRs, number | Loan	36	37
TDRs, amount	$ 1,520	$ 1,472
Residential Portfolio Segment [Member] | Consumer Mortgage [Member] | Accruing [Member]
Financing Receivable, Modifications [Line Items]
TDRs, number | Loan	45	54
TDRs, amount	$ 1,956	$ 2,486
Commercial Portfolio Segment [Member] | Minimum [Member]
Financing Receivable, Modifications [Line Items]
Threshold balance of loan individually evaluated for impairment	$ 500
Commercial Portfolio Segment [Member] | Business Lending [Member]
Financing Receivable, Modifications [Line Items]
TDRs, number | Loan	11	14
TDRs, amount	$ 781	$ 954
Loans modified in TDR during the year, number | Loan	0	3
Loans modified in TDR during the year, amount	$ 0	$ 67
Commercial Portfolio Segment [Member] | Business Lending [Member] | Nonaccrual [Member]
Financing Receivable, Modifications [Line Items]
TDRs, number | Loan	6	8
TDRs, amount	$ 91	$ 217
Commercial Portfolio Segment [Member] | Business Lending [Member] | Accruing [Member]
Financing Receivable, Modifications [Line Items]
TDRs, number | Loan	5	6
TDRs, amount	$ 690	$ 737
Consumer Portfolio Segment [Member] | Consumer Indirect [Member]
Financing Receivable, Modifications [Line Items]
TDRs, number | Loan	78	77
TDRs, amount	$ 771	$ 691
Loans modified in TDR during the year, number | Loan	33	35
Loans modified in TDR during the year, amount	$ 459	$ 349
Consumer Portfolio Segment [Member] | Consumer Indirect [Member] | Nonaccrual [Member]
Financing Receivable, Modifications [Line Items]
TDRs, number | Loan	0	0
TDRs, amount	$ 0	$ 0
Consumer Portfolio Segment [Member] | Consumer Indirect [Member] | Accruing [Member]
Financing Receivable, Modifications [Line Items]
TDRs, number | Loan	78	77
TDRs, amount	$ 771	$ 691
Consumer Portfolio Segment [Member] | Consumer Direct [Member]
Financing Receivable, Modifications [Line Items]
TDRs, number | Loan	23	32
TDRs, amount	$ 65	$ 37
Loans modified in TDR during the year, number | Loan	3	6
Loans modified in TDR during the year, amount	$ 51	$ 11
Consumer Portfolio Segment [Member] | Consumer Direct [Member] | Nonaccrual [Member]
Financing Receivable, Modifications [Line Items]
TDRs, number | Loan	0	0
TDRs, amount	$ 0	$ 0
Consumer Portfolio Segment [Member] | Consumer Direct [Member] | Accruing [Member]
Financing Receivable, Modifications [Line Items]
TDRs, number | Loan	23	32
TDRs, amount	$ 65	$ 37
Consumer Portfolio Segment [Member] | Home Equity [Member]
Financing Receivable, Modifications [Line Items]
TDRs, number | Loan	21	24
TDRs, amount	$ 437	$ 504
Loans modified in TDR during the year, number | Loan	3	6
Loans modified in TDR during the year, amount	$ 50	$ 63
Consumer Portfolio Segment [Member] | Home Equity [Member] | Nonaccrual [Member]
Financing Receivable, Modifications [Line Items]
TDRs, number | Loan	14	10
TDRs, amount	$ 221	$ 203
Consumer Portfolio Segment [Member] | Home Equity [Member] | Accruing [Member]
Financing Receivable, Modifications [Line Items]
TDRs, number | Loan	7	14
TDRs, amount	$ 216	$ 301

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LOANS, Allowance for Loan Losses (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Allowance for loan losses [Roll Forward]
Balance, beginning of period	$ 45,401	$ 45,341
Charge-offs	(12,183)	(12,071)
Recoveries	5,939	5,684
Provision	8,076	6,447	$ 7,178
Balance, end of period	47,233	45,401	45,341
Acquired Impaired [Member]
Allowance for loan losses [Roll Forward]
Balance, beginning of period	168	173
Charge-offs	(97)	(103)
Recoveries	0	0
Provision	37	98
Balance, end of period	108	168	173
Residential Portfolio Segment [Member] | Consumer Mortgage [Member]
Allowance for loan losses [Roll Forward]
Balance, beginning of period	10,198	10,286
Charge-offs	(647)	(1,374)
Recoveries	115	80
Provision	428	1,206
Balance, end of period	10,094	10,198	10,286
Commercial Portfolio Segment [Member] | Business Lending [Member]
Allowance for loan losses [Roll Forward]
Balance, beginning of period	15,749	15,787
Charge-offs	(1,872)	(2,146)
Recoveries	616	877
Provision	2,727	1,231
Balance, end of period	17,220	15,749	15,787
Consumer Portfolio Segment [Member] | Home Equity [Member]
Allowance for loan losses [Roll Forward]
Balance, beginning of period	2,666	2,701
Charge-offs	(218)	(244)
Recoveries	139	62
Provision	(188)	147
Balance, end of period	2,399	2,666	2,701
Consumer Portfolio Segment [Member] | Consumer Indirect [Member]
Allowance for loan losses [Roll Forward]
Balance, beginning of period	2,997	3,083
Charge-offs	(1,706)	(1,490)
Recoveries	901	722
Provision	787	682
Balance, end of period	2,979	2,997	3,083
Consumer Portfolio Segment [Member] | Consumer Direct [Member]
Allowance for loan losses [Roll Forward]
Balance, beginning of period	12,422	11,544
Charge-offs	(7,643)	(6,714)
Recoveries	4,168	3,943
Provision	4,835	3,649
Balance, end of period	13,782	12,422	11,544
Unallocated Financing Receivables [Member]
Allowance for loan losses [Roll Forward]
Balance, beginning of period	1,201	1,767
Charge-offs	0	0
Recoveries	0	0
Provision	(550)	(566)
Balance, end of period	$ 651	$ 1,201	$ 1,767

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PREMISES AND EQUIPMENT (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Property, Plant and Equipment [Line Items]
Premises and equipment, gross	$ 219,775	$ 214,886
Accumulated depreciation	(107,457)	(100,452)
Premises and equipment, net	112,318	114,434
Land and Land Improvements [Member]
Property, Plant and Equipment [Line Items]
Premises and equipment, gross	22,585	22,191
Bank Premises [Member]
Property, Plant and Equipment [Line Items]
Premises and equipment, gross	116,663	112,011
Equipment and Construction in Progress [Member]
Property, Plant and Equipment [Line Items]
Premises and equipment, gross	$ 80,527	$ 80,684

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GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Finite-Lived Intangible Assets [Line Items]
Gross carrying amount	$ 57,541	$ 57,253
Accumulated amortization	(41,839)	(36,359)
Net carrying amount	15,702	20,894
Finite-lived intangible assets, future amortization expense [Abstract]
2017	4,413
2018	3,566
2019	2,782
2020	2,119
2021	1,531
Thereafter	1,291
Net carrying amount	15,702	20,894
Components of goodwill [Abstract]
Goodwill	469,966	468,076	$ 379,998
Goodwill, activity	1,890	88,078
Accumulated impairment	(4,824)	(4,824)	(4,824)
Accumulated impairment, activity	0	0
Goodwill, net	465,142	463,252	$ 375,174
Goodwill, net, activity	1,890	88,078
Servicing Asset at Fair Value, Amount [Roll Forward]
Carrying value before valuation allowance at beginning of period	1,472	1,089
Additions	481	403
Oneida acquisition	0	389
Amortization	(518)	(409)
Carrying value before valuation allowance at end of period	1,435	1,472
Valuation allowance balance at beginning of period	0	0
Impairment charges	(226)	(133)
Impairment recoveries	226	133
Valuation allowance balance at end of period	0	0
Net carrying value at end of period	1,435	1,472
Fair value of MSRs at end of period	1,928	1,962
Principal balance of loans sold during the year	45,852	35,491
Principal balance of loans serviced for others	365,374	377,909
Custodial escrow balances maintained in connection with loans serviced for others	$ 5,603	$ 5,700
Key economic assumptions used to estimate the value of the MSRs [Abstract]
Weighted-average contractual life	20 years 9 months 18 days	19 years 10 months 24 days
Weighted-average constant prepayment rate (CPR)	15.10%	14.90%
Weighted-average discount rate	3.50%	3.30%
Core Deposit Intangibles [Member]
Finite-Lived Intangible Assets [Line Items]
Gross carrying amount	$ 39,688	$ 39,688
Accumulated amortization	(32,581)	(29,899)
Net carrying amount	7,107	9,789
Finite-lived intangible assets, future amortization expense [Abstract]
Net carrying amount	7,107	9,789
Other Intangibles [Member]
Finite-Lived Intangible Assets [Line Items]
Gross carrying amount	17,853	17,565
Accumulated amortization	(9,258)	(6,460)
Net carrying amount	8,595	11,105
Finite-lived intangible assets, future amortization expense [Abstract]
Net carrying amount	$ 8,595	$ 11,105

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DEPOSITS (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
DEPOSITS [Abstract]
Noninterest checking	$ 1,646,039	$ 1,499,616
Interest checking	1,644,029	1,575,379
Savings	1,303,851	1,255,027
Money market	1,778,907	1,738,904
Time	703,128	804,548
Total deposits	7,075,954	6,873,474
Maturities of time deposits [Abstract]
2017	492,000
2018	103,698
2019	48,096
2020	32,774
2021	26,208
Thereafter	352
Total	703,128	$ 804,548
Maturities of time deposits, accounts $250,000 or greater [Abstract]
2017	42,142
2018	1,713
2019	2,337
2020	2,717
2021	2,315
Thereafter	0
Total	$ 51,224

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BORROWINGS, Outstanding Borrowings (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Debt Instrument [Line Items]
Total borrowings	$ 248,370	$ 403,446
Subordinated debt held by unconsolidated subsidiary trust, discount	357	381
Federal Home Loan Bank Overnight Advance [Member]
Debt Instrument [Line Items]
Total borrowings	146,200	301,300
Subordinated Debt Held By Unconsolidated Subsidiary Trust [Member]
Debt Instrument [Line Items]
Total borrowings	$ 102,170	$ 102,146

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BORROWINGS, Contractual Maturity on Borrowings (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Debt Instrument [Line Items]
Carrying value	$ 248,370	$ 403,446
Weighted-average rate at period end	1.70%
Weighted-average interest rate on borrowings during period	1.46%	0.82%
Federal Home Loan Bank Overnight Advance [Member]
Debt Instrument [Line Items]
Carrying value	$ 146,200	$ 301,300
Federal Home Loan Bank Overnight Advance [Member] | January 3, 2017 [Member]
Debt Instrument [Line Items]
Carrying value	$ 146,200
Weighted-average rate at period end	0.74%
Subordinated Debt Held By Unconsolidated Subsidiary Trust [Member]
Debt Instrument [Line Items]
Carrying value	$ 102,170	$ 102,146
Subordinated Debt Held By Unconsolidated Subsidiary Trust [Member] | July 31, 2031 [Member]
Debt Instrument [Line Items]
Carrying value	$ 24,850
Weighted-average rate at period end	4.47%
Subordinated Debt Held By Unconsolidated Subsidiary Trust [Member] | December 15, 2036 [Member]
Debt Instrument [Line Items]
Carrying value	$ 77,320
Weighted-average rate at period end	2.61%

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BORROWINGS, Preferred Securities (Details) $ in Millions	12 Months Ended
	Dec. 31, 2016 USD ($) Trust
Debt Instrument [Line Items]
Number of unconsolidated subsidiary business trusts owned | Trust	2
Percent ownership of unconsolidated subsidiary trusts	100.00%
Preferred Debt [Member] | Community Statutory Trust III [Member]
Terms of preferred securities for each trust [Abstract]
Issuance date	Jul. 31, 2001
Par amount	$ 24.5
Variable interest rate basis	3 month LIBOR
Variable interest rate, basis spread	3.58%
Effective interest rate	4.47%
Maturity date	Jul. 31, 2031
Call price	Par
Preferred Debt [Member] | Community Capital Trust IV [Member]
Terms of preferred securities for each trust [Abstract]
Issuance date	Dec. 08, 2006
Par amount	$ 75.0
Variable interest rate basis	3 month LIBOR
Variable interest rate, basis spread	1.65%
Effective interest rate	2.61%
Maturity date	Dec. 15, 2036
Call price	Par

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INCOME TAXES, Provision for Income Taxes (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Current [Abstract]
Federal	$ 32,829	$ 27,663	$ 30,006
State and other	4,890	2,608	870
Deferred [Abstract]
Federal	11,444	9,604	6,867
State and other	1,622	1,112	594
Provision for income taxes	$ 50,785	$ 40,987	$ 38,337

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INCOME TAXES, Components of Net Deferred Tax Liability (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Components of net deferred tax liability [Abstract]
Allowance for loan losses	$ 18,366	$ 17,791
Employee benefits	6,311	6,633
Debt extinguishment	299	613
Other, net	5,202	9,704
Deferred tax asset	30,178	34,741
Investment securities	32,839	38,314
Tax-deductible goodwill	43,504	39,724
Loan origination costs	8,228	7,295
Depreciation	71	886
Mortgage servicing rights	548	565
Pension	18,194	14,807
Deferred tax liability	103,384	101,591
Net deferred tax liability	$ (73,206)	$ (66,850)

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INCOME TAXES, Effective Tax Rate Reconciliation (Details)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Effective tax rate reconciliation [Abstract]
Federal statutory income tax rate	35.00%	35.00%	35.00%
Increase (reduction) in taxes resulting from [Abstract]
Tax-exempt interest	(4.00%)	(5.00%)	(5.40%)
State income taxes, net of federal benefit	2.70%	1.80%	0.70%
Other	(0.90%)	(0.80%)	(0.70%)
Effective income tax rate	32.80%	31.00%	29.60%

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INCOME TAXES, Unrecognized Tax Benefits (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Unrecognized tax benefits [Roll forward]
Unrecognized tax benefits at beginning of year	$ 127	$ 162	$ 138
Changes related to [Abstract]
Positions taken during the current year	0	0	24
Lapse of statutes of limitation	(35)	(35)	0
Unrecognized tax benefits at end of year	92	$ 127	$ 162
Unrecognized tax benefits that would impact effective tax rate, if recognized	$ 100

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LIMITS ON DIVIDENDS AND OTHER REVENUE SOURCES (Details) $ in Millions	Dec. 31, 2016 USD ($)
LIMITS ON DIVIDENDS AND OTHER REVENUE SOURCES [Abstract]
Undivided profits legally available for the payments of dividends	$ 57.6
Percentage of Bank's capital and surplus that can be transferred to Company, maximum	10.00%
Aggregate percentage of Bank's capital and surplus that can be transferred to Company, maximum	20.00%

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BENEFIT PLANS, Funded Status and Amounts Recognized in Balance Sheets and AOCI (Details) - USD ($) $ in Thousands		12 Months Ended
		Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2009
Change in plan assets [Roll Forward]
Fair value of plan assets at beginning of year	[1]	$ 171,625
Fair value of plan assets at end of year	[1]	180,086	$ 171,625
Amounts recognized in accumulated other comprehensive income (loss) (AOCI) [Abstract]
AOCI at year end		17,961	21,283	$ 16,716
Accumulated other comprehensive income (loss), negative postretirement medical plan amendment, arising during period, net of tax					$ 3,500
Pension Benefits [Member]
Change in benefit obligation [Roll Forward]
Benefit obligation at the beginning of year		127,134	127,513
Service cost		4,106	3,324	3,530
Interest cost		5,624	5,506	5,271
Plan amendment / acquisition		22	2,395
Participant contributions		0	0
Deferred actuarial (gain)/loss		(1,628)	(2,091)
Benefits paid		(8,174)	(9,513)
Benefit obligation at end of year		127,084	127,134	127,513
Change in plan assets [Roll Forward]
Fair value of plan assets at beginning of year		172,026	177,865
Actual return of plan assets		14,402	1,125
Participant contributions		0	0
Employer contributions		2,146	616
Plan acquisition		0	1,933
Benefits paid		(8,174)	(9,513)
Fair value of plan assets at end of year		180,400	172,026	177,865
Over/(Under) funded status at year end		53,316	44,892
Amounts recognized in the consolidated statement of condition [Abstract]
Other assets		64,709	56,361
Other liabilities		(11,393)	(11,469)
Amounts recognized in accumulated other comprehensive income (loss) (AOCI) [Abstract]
Net loss		28,323	34,016
Net prior service cost (credit)		2,264	2,307
Pre-tax AOCI		30,587	36,323
Taxes		(11,622)	(13,815)
AOCI at year end		18,965	22,508
Post-retirement Benefits [Member]
Change in benefit obligation [Roll Forward]
Benefit obligation at the beginning of year		1,918	2,256
Service cost		0	0	0
Interest cost		82	87	102
Plan amendment / acquisition		0	0
Participant contributions		516	509
Deferred actuarial (gain)/loss		174	(45)
Benefits paid		(884)	(889)
Benefit obligation at end of year		1,806	1,918	2,256
Change in plan assets [Roll Forward]
Fair value of plan assets at beginning of year		0	0
Actual return of plan assets		0	0
Participant contributions		516	509
Employer contributions		368	380
Plan acquisition		0	0
Benefits paid		(884)	(889)
Fair value of plan assets at end of year		0	0	$ 0
Over/(Under) funded status at year end		(1,806)	(1,918)
Amounts recognized in the consolidated statement of condition [Abstract]
Other assets		0	0
Other liabilities		(1,806)	(1,918)
Amounts recognized in accumulated other comprehensive income (loss) (AOCI) [Abstract]
Net loss		183	4
Net prior service cost (credit)		(1,801)	(1,980)
Pre-tax AOCI		(1,618)	(1,976)
Taxes		614	751
AOCI at year end		(1,004)	(1,225)
Unfunded Supplementary Pension Plans [Member]
Change in benefit obligation [Roll Forward]
Benefit obligation at the beginning of year		11,400
Benefit obligation at end of year		11,300	11,400
Amounts recognized in accumulated other comprehensive income (loss) (AOCI) [Abstract]
Benefit obligation for defined benefit pension plan prior to plan revaluation		115,700	115,700
Unfunded Stock Balance [Member] | Nonemployee Directors [Member]
Change in benefit obligation [Roll Forward]
Benefit obligation at the beginning of year		100
Benefit obligation at end of year		$ 100	$ 100

[1] Excludes dividends and interest receivable totaling $0.3 million and $0.4 million at December 31, 2016 and 2015, respectively.

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BENEFIT PLANS, Amounts Recognized in AOCI, Net of Tax (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Amounts recognized in AOCI, net of tax [Abstract]
Total	$ (3,322)	$ 4,567	$ 9,571
Pension Benefits [Member]
Amounts recognized in AOCI, net of tax [Abstract]
Prior service (credit)/cost	(26)	(5)
Net (gain) loss	(3,517)	4,482
Total	(3,543)	4,477
Post-retirement Benefits [Member]
Amounts recognized in AOCI, net of tax [Abstract]
Prior service (credit)/cost	110	110
Net (gain) loss	111	(20)
Total	$ 221	$ 90

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BENEFIT PLANS, Costs That Will Be Amortized from AOCI in Next Fiscal Year (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2016 USD ($)
Pension Benefits [Member]
Costs that will be amortized from accumulated other comprehensive income (loss) in net periodic (income) cost in next fiscal year [Abstract]
Prior service cost/(credit)	$ 55
Net loss	1,010
Total	1,065
Post-retirement Benefits [Member]
Costs that will be amortized from accumulated other comprehensive income (loss) in net periodic (income) cost in next fiscal year [Abstract]
Prior service cost/(credit)	(179)
Net loss	6
Total	$ (173)

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BENEFIT PLANS, Weighted-average Assumptions Used to Determine Benefit Obligations (Details)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Pension Benefits [Member]
Weighed average assumption used in calculating benefit obligations [Abstract]
Discount rate	4.50%	4.70%
Expected return on plan assets	7.00%	7.00%
Rate of compensation increase	3.50%	3.50%
Post-retirement Benefits [Member]
Weighed average assumption used in calculating benefit obligations [Abstract]
Discount rate	4.40%	4.70%

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BENEFIT PLANS, Net Periodic Benefit Cost (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Prior service costs [Abstract]
Maximum percentage of net gain or loss over the greater of the projected benefit obligation or the market-related value of assets without requiring amortization	10.00%
Pension Benefits [Member]
Net periodic benefit cost [Abstract]
Service cost	$ 4,106	$ 3,324	$ 3,530
Interest cost	5,624	5,506	5,271
Expected return on plan assets	(11,842)	(12,169)	(11,922)
Plan amendment	20	0	0
Amortization of unrecognized net loss/(gain)	1,508	1,466	(307)
Amortization of prior service cost/(credit)	43	8	5
Net periodic (benefit)	(541)	(1,865)	(3,423)
Post-retirement Benefits [Member]
Net periodic benefit cost [Abstract]
Service cost	0	0	0
Interest cost	82	87	102
Expected return on plan assets	0	0	0
Plan amendment	0	0	0
Amortization of unrecognized net loss/(gain)	(5)	(13)	(7)
Amortization of prior service cost/(credit)	(179)	(179)	(179)
Net periodic (benefit)	$ (102)	$ (105)	$ (84)

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BENEFIT PLANS, Weighted-average Assumptions Used to Determine Net Periodic Benefit Cost (Details)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Pension Benefits [Member]
Weighted Average Assumptions Used in Calculating Net Periodic Benefit Cost [Abstract]
Discount rate	4.70%	4.50%	5.00%
Expected return on plan assets	7.00%	7.00%	7.00%
Rate of compensation increase	3.50%	3.50%	3.50%
Post-retirement Benefits [Member]
Weighted Average Assumptions Used in Calculating Net Periodic Benefit Cost [Abstract]
Discount rate	4.70%	4.50%	4.80%

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BENEFIT PLANS, Estimated Future Benefit Payments (Details) $ in Thousands	Dec. 31, 2016 USD ($)
Pension Benefits [Member]
Estimated Future Benefit Payments [Abstract]
2017	$ 7,225
2018	7,320
2019	7,504
2020	7,752
2021	7,914
2022-2026	41,823
Post-retirement Benefits [Member]
Estimated Future Benefit Payments [Abstract]
2017	145
2018	143
2019	141
2020	138
2021	136
2022-2026	$ 636

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BENEFIT PLANS, Target Plan Assets Allocation (Details)	12 Months Ended
	Dec. 31, 2016
Equity Securities [Member]
Plan Assets [Abstract]
Target allocation percentage of assets	60.00%
Fixed Income Securities [Member]
Plan Assets [Abstract]
Target allocation percentage of assets	40.00%

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BENEFIT PLANS, Fair Value of Plan Assets by Assets Category (Details) - USD ($) $ in Thousands		2 Months Ended	12 Months Ended
		Mar. 01, 2017	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets	[1]		$ 180,086	$ 171,625
Total dividends and interest receivable excluded from plan assets			300	400
Quoted Prices in Active Markets For Identical Assets, Level 1 [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets	[1]		166,117	159,324
Significant Observable Inputs, Level 2 [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets	[1]		13,969	12,301
Significant Unobservable Inputs, Level 3 [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets	[1]		0	0
Money Market Accounts [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets			8,151	7,990
Money Market Accounts [Member] | Quoted Prices in Active Markets For Identical Assets, Level 1 [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets			103	2,240
Money Market Accounts [Member] | Significant Observable Inputs, Level 2 [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets			8,048	5,750
Money Market Accounts [Member] | Significant Unobservable Inputs, Level 3 [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets			0	0
Equity Securities [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets			96,748	83,868
Equity Securities [Member] | Quoted Prices in Active Markets For Identical Assets, Level 1 [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets			96,748	83,868
Equity Securities [Member] | Significant Observable Inputs, Level 2 [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets			0	0
Equity Securities [Member] | Significant Unobservable Inputs, Level 3 [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets			0	0
U.S. Large-Cap [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets			43,235	34,985
U.S. Large-Cap [Member] | Quoted Prices in Active Markets For Identical Assets, Level 1 [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets			43,235	34,985
U.S. Large-Cap [Member] | Significant Observable Inputs, Level 2 [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets			0	0
U.S. Large-Cap [Member] | Significant Unobservable Inputs, Level 3 [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets			0	0
U.S Mid/Small Cap [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets			19,032	12,354
U.S Mid/Small Cap [Member] | Quoted Prices in Active Markets For Identical Assets, Level 1 [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets			19,032	12,354
U.S Mid/Small Cap [Member] | Significant Observable Inputs, Level 2 [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets			0	0
U.S Mid/Small Cap [Member] | Significant Unobservable Inputs, Level 3 [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets			0	0
CBSI Stock [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets			7,417	8,393
CBSI Stock [Member] | Quoted Prices in Active Markets For Identical Assets, Level 1 [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets			7,417	8,393
CBSI Stock [Member] | Significant Observable Inputs, Level 2 [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets			0	0
CBSI Stock [Member] | Significant Unobservable Inputs, Level 3 [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets			0	0
International [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets			27,064	28,136
International [Member] | Quoted Prices in Active Markets For Identical Assets, Level 1 [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets			27,064	28,136
International [Member] | Significant Observable Inputs, Level 2 [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets			0	0
International [Member] | Significant Unobservable Inputs, Level 3 [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets			0	0
Fixed Income Securities [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets			63,106	69,767
Fixed Income Securities [Member] | Quoted Prices in Active Markets For Identical Assets, Level 1 [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets			57,243	63,279
Fixed Income Securities [Member] | Significant Observable Inputs, Level 2 [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets			5,863	6,488
Fixed Income Securities [Member] | Significant Unobservable Inputs, Level 3 [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets			0	0
Government Securities [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets			31,238	37,885
Government Securities [Member] | Quoted Prices in Active Markets For Identical Assets, Level 1 [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets			25,375	31,397
Government Securities [Member] | Significant Observable Inputs, Level 2 [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets			5,863	6,488
Government Securities [Member] | Significant Unobservable Inputs, Level 3 [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets			0	0
Investment Grade Bonds [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets			15,253	14,517
Investment Grade Bonds [Member] | Quoted Prices in Active Markets For Identical Assets, Level 1 [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets			15,253	14,517
Investment Grade Bonds [Member] | Significant Observable Inputs, Level 2 [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets			0	0
Investment Grade Bonds [Member] | Significant Unobservable Inputs, Level 3 [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets			0	0
International Bonds [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets				5,085
International Bonds [Member] | Quoted Prices in Active Markets For Identical Assets, Level 1 [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets				5,085
International Bonds [Member] | Significant Observable Inputs, Level 2 [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets				0
International Bonds [Member] | Significant Unobservable Inputs, Level 3 [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets				0
High Yield [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets	[2]		16,615	17,365
High Yield [Member] | Quoted Prices in Active Markets For Identical Assets, Level 1 [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets	[2]		16,615	17,365
High Yield [Member] | Significant Observable Inputs, Level 2 [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets	[2]		0	0
High Yield [Member] | Significant Unobservable Inputs, Level 3 [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets	[2]		0	0
Other Investments [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets	[3]		12,081	10,000
Other Investments [Member] | Quoted Prices in Active Markets For Identical Assets, Level 1 [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets	[3]		12,023	9,937
Other Investments [Member] | Significant Observable Inputs, Level 2 [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets	[3]		58	63
Other Investments [Member] | Significant Unobservable Inputs, Level 3 [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets	[3]		0	0
State Bank of Chittenango Pension Plan [Member]
Defined Benefit Plan Disclosure [Line Items]
Employer contributions			0
Pension Benefits [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of plan assets			180,400	172,026	$ 177,865
Employer contributions			$ 2,146	$ 616
Subsequent Event [Member] | Pension Benefits [Member]
Defined Benefit Plan Disclosure [Line Items]
Employer contributions		$ 2,900

[1] Excludes dividends and interest receivable totaling $0.3 million and $0.4 million at December 31, 2016 and 2015, respectively.

[2] This category is exchange-traded funds representing a diversified index of high yield corporate bonds.

[3] This category is comprised of exchange-traded funds and mutual funds holding non-traditional investment classes including private equity funds and alternative exchange funds.

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BENEFIT PLANS, Multi-employer Defined Benefit Plan (Details) - Multiemployer Plans, Pension [Member] - Pentegra DB Plan [Member] - Tupper Lake National Bank [Member] - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Jun. 30, 2015
Multiemployer Plans [Line Items]
Identification number	135645888
Plan number	333
Fair value of plan assets				$ 3,300,000
Projected benefit obligation				$ 3,300,000
Funded status	At least 80 percent
Period contributions	$ 50	$ 30	$ 60
Significance of employer contributions	false

XML

BENEFIT PLANS, Assumed Health Care Cost Trend Rate (Details)	12 Months Ended
	Dec. 31, 2016
Assumed Health Care Cost Trend Rates [Abstract]
Assumed health care cost trend rate for medical costs for participants younger than 65	7.50%
Assumed health care cost trend rate for medical cost for participants older than 65	5.80%
Assumed health care cost trend rate for prescription drugs	10.50%
Ultimate health care cost trend rate	3.89%
Year that rate reaches ultimate trend rate	2075

XML

BENEFIT PLANS, 401(K) Employee Stock Ownership Plan (Details) - Employee Stock Ownership Plan 401K Plan [Member] - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Defined Contribution Plan Disclosure [Line Items]
Percentage of first eligible compensation fully matched by employer	3.00%
Percentage of matching contribution in the form of common stock	100.00%
Percentage of the next eligible compensation matched at 50% by employer	3.00%
Percentage of matching contributions for the next eligible compensation in the form of company stock	50.00%
(Income)/expense recognized under plan	$ 4.3	$ 3.6	$ 3.4
Interest credit contribution expense recognized for 401(k) plan	$ 0.7	$ 1.1	$ 0.9
Minimum [Member]
Defined Contribution Plan Disclosure [Line Items]
Contribution from eligible compensation	1.00%
Maximum [Member]
Defined Contribution Plan Disclosure [Line Items]
Contribution from eligible compensation	90.00%

XML

BENEFIT PLANS, Other Deferred Compensation Arrangements (Details) - Other Deferred Compensation Arrangements [Member] - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Deferred Compensation Arrangement with Individual, Excluding Share-based Payments and Postretirement Benefits [Line Items]
Liability recorded for compensation plan	$ 3,200	$ 3,600
Expense recognized under plan	$ 30	$ 100	$ 300

XML

BENEFIT PLANS, Deferred Compensation Plan for Directors (Details) - Deferred Compensation Plan for Directors [Member] - Directors [Member] - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]
Deferred compensation arrangement with individual, shares credited (in shares)	154,013	151,672
Liability accrued for compensation plan	$ 4.0	$ 3.8
Expense recognized under plan	$ 0.2	$ 0.2	$ 0.2

XML

STOCK-BASED COMPENSATION PLANS, Long-Term Incentive Program (Details) - shares			12 Months Ended
	May 14, 2014	May 25, 2011	Dec. 31, 2016
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares of common stock authorized for stock-based compensation plan (in shares)			4,000,000
Additional shares of common stock authorized for stock-based compensation plan (in shares)	1,000,000	900,000
Number of shares available for grant (in shares)			900,000
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Term of options			10 years
Award vesting period			5 years

XML

STOCK-BASED COMPENSATION PLANS, Activity in Long-Term Incentive Program (Details) - Stock Options [Member] - $ / shares	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Options, Outstanding [Roll Forward]
Outstanding, beginning of period (in shares)	1,969,301	2,151,776
Granted (in shares)	330,383	293,242
Exercised (in shares)	(525,298)	(469,730)
Forfeited (in shares)	(18,394)	(5,987)
Outstanding, end of period (in shares)	1,755,992	1,969,301
Exercisable, end of period (in shares)	959,638
Weighted-average exercise price of shares [Abstract]
Outstanding, beginning of period (in dollars per share)	$ 28.15	$ 25.92
Granted (in dollars per share)	38.02	35.36
Exercised (in dollars per share)	25.12	22.42
Forfeited (in dollars per share)	34.47	30.21
Outstanding, end of period (in dollars per share)	30.85	$ 28.15
Exercisable, end of period (in dollars per share)	$ 26.94

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STOCK-BASED COMPENSATION PLANS, Summary of Stock Options Outstanding (Details) $ / shares in Units, $ in Millions	12 Months Ended
	Dec. 31, 2016 USD ($) $ / shares shares
Options [Abstract]
Options outstanding, shares (in shares) | shares	1,755,992
Options outstanding, weighted-average exercise price (in dollars per share)	$ 30.85
Options outstanding, weighted-average remaining life	6 years 3 months 11 days
Options exercisable, shares (in shares) | shares	959,638
Options exercisable, weighted-average exercise price (in dollars per share)	$ 26.94
Weighted-average remaining contractual term of outstanding stock options	6 years 3 months 11 days
Weighted-average remaining contractual term of outstanding and exercisable stock options	4 years 10 months 20 days
Aggregate intrinsic value of outstanding stock options | $	$ 54.3
Aggregate intrinsic value of exercisable stock options | $	$ 33.4
$0.00 - $18.00 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Exercise price range, lower range limit (in dollars per share)	$ 0
Exercise price range, upper range limit (in dollars per share)	$ 18.00
Options [Abstract]
Options outstanding, shares (in shares) | shares	44,436
Options outstanding, weighted-average exercise price (in dollars per share)	$ 17.70
Options outstanding, weighted-average remaining life	2 years 2 months 19 days
Options exercisable, shares (in shares) | shares	44,436
Options exercisable, weighted-average exercise price (in dollars per share)	$ 17.70
$18.001 - $23.00 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Exercise price range, lower range limit (in dollars per share)	18.001
Exercise price range, upper range limit (in dollars per share)	$ 23.00
Options [Abstract]
Options outstanding, shares (in shares) | shares	267,307
Options outstanding, weighted-average exercise price (in dollars per share)	$ 19.06
Options outstanding, weighted-average remaining life	1 year 11 months 19 days
Options exercisable, shares (in shares) | shares	267,307
Options exercisable, weighted-average exercise price (in dollars per share)	$ 19.06
$23.001 - $28.00 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Exercise price range, lower range limit (in dollars per share)	23.001
Exercise price range, upper range limit (in dollars per share)	$ 28.00
Options [Abstract]
Options outstanding, shares (in shares) | shares	159,662
Options outstanding, weighted-average exercise price (in dollars per share)	$ 26.28
Options outstanding, weighted-average remaining life	5 years 6 months 14 days
Options exercisable, shares (in shares) | shares	159,536
Options exercisable, weighted-average exercise price (in dollars per share)	$ 26.28
$28.001 - $29.00 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Exercise price range, lower range limit (in dollars per share)	28.001
Exercise price range, upper range limit (in dollars per share)	$ 29.00
Options [Abstract]
Options outstanding, shares (in shares) | shares	203,365
Options outstanding, weighted-average exercise price (in dollars per share)	$ 28.78
Options outstanding, weighted-average remaining life	5 years 2 months 19 days
Options exercisable, shares (in shares) | shares	153,369
Options exercisable, weighted-average exercise price (in dollars per share)	$ 28.78
$29.001 - $30.00 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Exercise price range, lower range limit (in dollars per share)	29.001
Exercise price range, upper range limit (in dollars per share)	$ 30.00
Options [Abstract]
Options outstanding, shares (in shares) | shares	254,826
Options outstanding, weighted-average exercise price (in dollars per share)	$ 29.79
Options outstanding, weighted-average remaining life	6 years 2 months 16 days
Options exercisable, shares (in shares) | shares	144,226
Options exercisable, weighted-average exercise price (in dollars per share)	$ 29.79
$30.001 - $40.00 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Exercise price range, lower range limit (in dollars per share)	30.001
Exercise price range, upper range limit (in dollars per share)	$ 40.00
Options [Abstract]
Options outstanding, shares (in shares) | shares	826,396
Options outstanding, weighted-average exercise price (in dollars per share)	$ 37.08
Options outstanding, weighted-average remaining life	8 years 3 months 22 days
Options exercisable, shares (in shares) | shares	190,764
Options exercisable, weighted-average exercise price (in dollars per share)	$ 37.06

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STOCK-BASED COMPENSATION PLANS, Stock-Based Compensation Expense Recognized (Details) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense related to incentive and non-qualified stock options recognized	$ 2.2	$ 1.8	$ 2.0
Income tax benefit recognized	0.8	0.7	0.9
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense related to incentive and non-qualified stock options recognized	$ 2.4	$ 2.2	$ 2.0

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STOCK-BASED COMPENSATION PLANS, Assumptions Used to Estimate Value of Stock Options (Details) - $ / shares	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
STOCK-BASED COMPENSATION PLANS [Abstract]
Fair value assumptions, method used	Black-Scholes model	Black-Scholes model	Black-Scholes model
Weighted-average Fair Value of Options Granted (in dollars per share)	$ 7.90	$ 7.48	$ 8.38
Assumptions [Abstract]
Weighted-average expected life	6 years 6 months	6 years 6 months	6 years 6 months
Future dividend yield	3.43%	3.40%	3.70%
Share price volatility	30.00%	30.34%	30.71%
Weighted-average risk-free interest rate	1.72%	1.73%	2.69%

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STOCK-BASED COMPENSATION PLANS, Unrecognized Stock-Based Compensation Expense and Stock Option Exercises (Details) - Stock Options [Member] - USD ($) shares in Millions, $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized stock-based compensation expense related to non-vested stock options	$ 4.4
Weighted average period for recognition of unrecognized compensation cost	3 years 2 months 12 days
Total fair value of stock options vested	$ 2.1	$ 1.9	$ 1.9
Proceeds from stock option exercises	12.0	10.4
Related tax benefits from stock option exercises	$ 2.7	$ 2.1
Shares issued in connection with stock option exercise (in shares)	0.4	0.4
Total intrinsic value of options exercised	$ 10.3	$ 7.6	$ 5.7

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STOCK-BASED COMPENSATION PLANS, Activity of Unvested Restricted Stock Awards (Details) - Restricted Stock [Member] - USD ($) $ / shares in Units, $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Restricted Shares [Roll Forward]
Unvested, beginning of period (in shares)	246,311	245,721
Awards (in shares)	148,240	60,519
Forfeitures (in shares)	(42,394)	(874)
Vestings (in shares)	(98,327)	(59,055)
Unvested, end of period (in shares)	253,830	246,311	245,721
Weighted-average grant date fair value [Abstract]
Unvested, beginning of period (in dollars per share)	$ 27.85	$ 26.13
Awards (in dollars per share)	27.04	35.39
Forfeitures (in dollars per share)	17.49	32.43
Vestings (in dollars per share)	25.64	28.35
Unvested, end of period (in dollars per share)	$ 29.98	$ 27.85	$ 26.13
Unrecognized stock-based compensation expense	$ 5.7
Award vesting period	5 years
Weighted-average period for recognition of unrecognized compensation cost	4 years 8 months 12 days
Total fair value of restricted stock vested	$ 2.5	$ 1.7	$ 1.6

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EARNINGS PER SHARE (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
EARNINGS PER SHARE [Abstract]
Weighted-average anti-dilutive stock options outstanding (in shares)	300	300	200
Basic earnings per share [Abstract]
Net income	$ 103,812	$ 91,230	$ 91,353
Income attributable to unvested stock-based compensation awards	(550)	(453)	(456)
Income available to common shareholders	$ 103,262	$ 90,777	$ 90,897
Weighted-average common shares outstanding - basic (in shares)	44,091	40,996	40,548
Basic earnings per share (in dollars per share)	$ 2.34	$ 2.21	$ 2.24
Diluted earnings per share [Abstract]
Net income	$ 103,812	$ 91,230	$ 91,353
Income attributable to unvested stock-based compensation awards	(550)	(453)	(456)
Income available to common shareholders	$ 103,262	$ 90,777	$ 90,897
Weighted-average common shares outstanding (in shares)	44,091	40,996	40,548
Assumed exercise of stock options (in shares)	394	405	481
Weighted-average common shares outstanding - diluted (in shares)	44,485	41,401	41,029
Diluted earnings per share (in dollars per share)	$ 2.32	$ 2.19	$ 2.22
Cash dividends declared per share (in dollars per share)	$ 1.26	$ 1.22	$ 1.16
Stock Repurchase Program [Abstract]
Number of common shares authorized to be repurchased (in shares)	2,200	2,200
Number of common shares repurchased (in shares)	0	300	100

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COMMITMENTS, CONTINGENT LIABILITIES AND RESTRICTIONS (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Contract amount of commitments and contingencies	$ 796,098	$ 830,495
Unused lines of credit	25,000
Federal Home Loan Bank unused borrowing capacity	1,200,000
Federal Reserve unused borrowing capacity	26,000
Federal Reserve required average total reserve	82,800
Federal Reserve requirement represented by cash on hand	64,900
Required deposit with Federal Reserve	17,900
Minimum [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Range of reasonably possible losses for such matters in the aggregate, beyond the existing recorded liability	0
Maximum [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Range of reasonably possible losses for such matters in the aggregate, beyond the existing recorded liability	1,000
Commitments to Extend Credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Contract amount of commitments and contingencies	773,442	811,442
Standby Letters of Credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Contract amount of commitments and contingencies	$ 22,656	$ 19,053

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LEASES (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
LEASES [Abstract]
Rental expense	$ 5,800	$ 5,400	$ 5,300
Future minimum rental commitments [Abstract]
2017	6,078
2018	5,574
2019	5,040
2020	3,857
2021	3,098
Thereafter	7,297
Total	$ 30,944

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REGULATORY MATTERS (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Tier 1 Leverage ratio [Abstract]
Tier 1 Leverage ratio, actual amount	$ 858,347	$ 788,717
Tier 1 Leverage ratio, actual ratio	10.55%	10.32%
Tier 1 leverage ratio for capital adequacy purposes, amount	$ 325,438	$ 305,761
Tier 1 leverage ratio for capital adequacy purposes, ratio	4.00%	4.00%
Tier 1 leverage capital to be well-capitalized under prompt corrective action, amount	$ 406,798	$ 382,201
Tier 1 leverage capital to be well-capitalized under prompt corrective action, ratio	5.00%	5.00%
Tier 1 risk-based capital [Abstract]
Tier 1 risk-based capital, actual amount	$ 858,347	$ 788,717
Tier 1 risk-based capital, actual ratio	18.10%	17.09%
Tier 1 risk-based capital for capital adequacy purposes, amount	$ 284,583	$ 276,886
Tier 1 risk-based capital for capital adequacy purposes, ratio	6.00%	6.00%
Tier 1 risk-based capital for capital adequacy purposes plus capital conservation buffer, amount	$ 314,228
Tier 1 risk-based capital for capital adequacy purposes plus capital conservation buffer, ratio	6.625%
Tier 1 risk based capital to be well-capitalized under prompt corrective action, amount	$ 379,445	$ 369,181
Tier 1 risk-based capital to be well-capitalized under prompt corrective action, ratio	8.00%	8.00%
Total risk-based capital [Abstract]
Total risk-based capital, actual amount	$ 905,996	$ 834,539
Total risk-based capital, actual ratio	19.10%	18.08%
Total risk-based capital for capital adequacy purposes, amount	$ 379,445	$ 369,181
Total risk-based capita for capital adequacy purposes, ratio	8.00%	8.00%
Total risk-based capital for capital adequacy purposes plus capital conservation buffer, amount	$ 409,089
Total risk-based capita for capital adequacy purposes plus capital conservation buffer, ratio	8.625%
Total risk based capital to be well-capitalized under prompt corrective action, amount	$ 474,306	$ 461,477
Total risk based capital to be well-capitalized under prompt corrective action, ratio	10.00%	10.00%
Common equity Tier 1 capital [Abstract]
Common equity Tier 1 capital, actual amount	$ 759,199	$ 689,528
Common equity Tier 1 capital, actual ratio	16.01%	14.94%
Common equity Tier 1 capital for capital adequacy purposes, amount	$ 213,438	$ 207,664
Common equity Tier 1 capital for capital adequacy purposes, ratio	4.50%	4.50%
Common equity Tier 1 capital for capital adequacy purposes plus capital conservation buffer, amount	$ 243,082
Common equity Tier 1 capital for capital adequacy purposes plus capital conservation buffer, ratio	5.125%
Common equity Tier 1 capital to be well-capitalized under prompt corrective action, amount	$ 308,299	$ 299,960
Common equity Tier 1 capital to be well-capitalized under prompt corrective action, ratio	6.50%	6.50%
Community Bank, N.A. [Member]
Tier 1 Leverage ratio [Abstract]
Tier 1 Leverage ratio, actual amount	$ 672,633	$ 673,443
Tier 1 Leverage ratio, actual ratio	8.30%	8.88%
Tier 1 leverage ratio for capital adequacy purposes, amount	$ 324,080	$ 303,256
Tier 1 leverage ratio for capital adequacy purposes, ratio	4.00%	4.00%
Tier 1 leverage capital to be well-capitalized under prompt corrective action, amount	$ 405,099	$ 379,070
Tier 1 leverage capital to be well-capitalized under prompt corrective action, ratio	5.00%	5.00%
Tier 1 risk-based capital [Abstract]
Tier 1 risk-based capital, actual amount	$ 672,633	$ 673,443
Tier 1 risk-based capital, actual ratio	14.28%	14.65%
Tier 1 risk-based capital for capital adequacy purposes, amount	$ 282,662	$ 275,739
Tier 1 risk-based capital for capital adequacy purposes, ratio	6.00%	6.00%
Tier 1 risk-based capital for capital adequacy purposes plus capital conservation buffer, amount	$ 312,106
Tier 1 risk-based capital for capital adequacy purposes plus capital conservation buffer, ratio	6.625%
Tier 1 risk based capital to be well-capitalized under prompt corrective action, amount	$ 376,883	$ 367,652
Tier 1 risk-based capital to be well-capitalized under prompt corrective action, ratio	8.00%	8.00%
Total risk-based capital [Abstract]
Total risk-based capital, actual amount	$ 720,282	$ 719,265
Total risk-based capital, actual ratio	15.29%	15.65%
Total risk-based capital for capital adequacy purposes, amount	$ 376,883	$ 367,652
Total risk-based capita for capital adequacy purposes, ratio	8.00%	8.00%
Total risk-based capital for capital adequacy purposes plus capital conservation buffer, amount	$ 406,327
Total risk-based capita for capital adequacy purposes plus capital conservation buffer, ratio	8.625%
Total risk based capital to be well-capitalized under prompt corrective action, amount	$ 471,104	$ 459,565
Total risk based capital to be well-capitalized under prompt corrective action, ratio	10.00%	10.00%
Common equity Tier 1 capital [Abstract]
Common equity Tier 1 capital, actual amount	$ 672,578	$ 673,326
Common equity Tier 1 capital, actual ratio	14.28%	14.65%
Common equity Tier 1 capital for capital adequacy purposes, amount	$ 211,997	$ 206,804
Common equity Tier 1 capital for capital adequacy purposes, ratio	4.50%	4.50%
Common equity Tier 1 capital for capital adequacy purposes plus capital conservation buffer, amount	$ 241,441
Common equity Tier 1 capital for capital adequacy purposes plus capital conservation buffer, ratio	5.125%
Common equity Tier 1 capital to be well-capitalized under prompt corrective action, amount	$ 306,217	$ 298,717
Common equity Tier 1 capital to be well-capitalized under prompt corrective action, ratio	6.50%	6.50%

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PARENT COMPANY STATEMENTS, Condensed Balance Sheets (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Assets [Abstract]
Cash and cash equivalents	$ 173,857	$ 153,210	$ 138,396	$ 149,647
Investment in and advances to [Abstract]
Other assets	180,188	170,129
Total assets	8,666,437	8,552,669	7,489,440
Liabilities and shareholders' equity [Abstract]
Accrued interest and other liabilities	144,013	135,102
Borrowings	102,170	102,146
Shareholders' equity	1,198,100	1,140,647	987,904	875,812
Total liabilities and shareholders' equity	8,666,437	8,552,669
Parent Company [Member]
Assets [Abstract]
Cash and cash equivalents	151,127	97,317	$ 106,957	$ 83,783
Investment securities	3,628	3,576
Investment in and advances to [Abstract]
Bank subsidiary	1,116,554	1,117,419
Non-bank subsidiaries	35,566	30,643
Other assets	10,345	9,996
Total assets	1,317,220	1,258,951
Liabilities and shareholders' equity [Abstract]
Accrued interest and other liabilities	16,950	16,158
Borrowings	102,170	102,146
Shareholders' equity	1,198,100	1,140,647
Total liabilities and shareholders' equity	$ 1,317,220	$ 1,258,951

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PARENT COMPANY STATEMENTS, Condensed Statements of Income (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Expenses [Abstract]
Interest on borrowings	$ 2,949	$ 2,537	$ 2,477
Acquisition expenses	1,706	7,037	123
Other expenses	16,553	13,521	17,310
Income before tax benefit and equity in undistributed net income of subsidiaries	154,597	132,217	129,690
Income tax benefit/(expense)	(50,785)	(40,987)	(38,337)
Net income	103,812	91,230	91,353
Other comprehensive (loss)/income, net of tax [Abstract]
Other comprehensive income/(loss) related to pension and other post retirement obligations	3,322	(4,567)	(9,571)
Other comprehensive (loss)/income related to unrealized (losses)/gains on available-for-sale securities	(14,714)	(6,918)	66,837
Other comprehensive (loss)/income, net of tax	(11,392)	(11,485)	57,266
Comprehensive income	92,420	79,745	148,619
Parent Company [Member]
Dividends from subsidiaries [Abstract]
Bank subsidiary	89,000	70,000	57,200
Non-bank subsidiaries	1,750	6,000	3,900
Interest and dividends on investments	102	94	88
Total revenues	90,852	76,094	61,188
Expenses [Abstract]
Interest on borrowings	2,949	2,537	2,477
Acquisition expenses	429	0	0
Other expenses	11	19	37
Total expenses	3,389	2,556	2,514
Income before tax benefit and equity in undistributed net income of subsidiaries	87,463	73,538	58,674
Income tax benefit/(expense)	866	(572)	581
Income before equity in undistributed net income of subsidiaries	88,329	72,966	59,255
Equity in undistributed net income of subsidiaries	15,483	18,264	32,098
Net income	103,812	91,230	91,353
Other comprehensive (loss)/income, net of tax [Abstract]
Other comprehensive income/(loss) related to pension and other post retirement obligations	3,322	(4,567)	(9,571)
Other comprehensive (loss)/income related to unrealized (losses)/gains on available-for-sale securities	(14,714)	(6,918)	66,837
Other comprehensive (loss)/income, net of tax	(11,392)	(11,485)	57,266
Comprehensive income	$ 92,420	$ 79,745	$ 148,619

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PARENT COMPANY STATEMENTS, Condensed Statements of Cash Flows (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Operating activities [Abstract]
Net income	$ 103,812	$ 91,230	$ 91,353
Adjustments to reconcile net income to net cash provided by operating activities [Abstract]
Net change in other assets and other liabilities	(12,124)	(8,784)	(970)
Net cash provided by operating activities	131,261	116,463	122,104
Investing activities [Abstract]
Cash received for acquisitions, net of cash acquired of $0, $81,772, and $0, respectively	(575)	25,505	(924)
Net cash (used in) provided by investing activities	(121,998)	(274,161)	(331,132)
Financing activities [Abstract]
Issuance of common stock	10,543	9,774	9,417
Purchases of treasury stock	(3,470)	(9,126)	(4,368)
Sale of treasury stock	8,888	16,571	1,531
Net cash provided by (used in) financing activities	11,384	172,512	197,777
Change in cash and cash equivalents	20,647	14,814	(11,251)
Cash and cash equivalents at beginning of year	153,210	138,396	149,647
Cash and cash equivalents at end of year	173,857	153,210	138,396
Supplemental disclosures of cash flow information [Abstract]
Cash paid for interest	11,268	11,252	11,937
Supplemental disclosures of noncash financing activities [Abstract]
Dividends declared and unpaid	14,268	13,605	12,254
Common stock issued for acquisition	0	102,202	0
Cash acquired related to acquisition	0	81,772	0
Parent Company [Member]
Operating activities [Abstract]
Net income	103,812	91,230	91,353
Adjustments to reconcile net income to net cash provided by operating activities [Abstract]
Equity in undistributed net income of subsidiaries	(15,483)	(18,264)	(32,098)
Net change in other assets and other liabilities	(215)	(27)	(479)
Net cash provided by operating activities	88,114	72,939	58,776
Investing activities [Abstract]
Proceeds from sale of investment securities	0	0	3
Cash received for acquisitions, net of cash acquired of $0, $81,772, and $0, respectively	0	25,505	0
Capital contributions to subsidiaries	0	(80,231)	0
Net cash (used in) provided by investing activities	0	(54,726)	3
Financing activities [Abstract]
Issuance of common stock	15,326	13,975	13,410
Purchases of treasury stock	(3,470)	(9,126)	(4,368)
Sale of treasury stock	8,888	16,571	1,531
Cash dividends paid	(55,048)	(49,273)	(46,178)
Net cash provided by (used in) financing activities	(34,304)	(27,853)	(35,605)
Change in cash and cash equivalents	53,810	(9,640)	23,174
Cash and cash equivalents at beginning of year	97,317	106,957	83,783
Cash and cash equivalents at end of year	151,127	97,317	106,957
Supplemental disclosures of cash flow information [Abstract]
Cash paid for interest	2,909	2,523	2,473
Supplemental disclosures of noncash financing activities [Abstract]
Dividends declared and unpaid	14,268	13,605	12,254
Capital contributions to subsidiaries	0	76,461	0
Common stock issued for acquisition	0	102,202	0
Cash acquired related to acquisition	$ 0	$ 81,772	$ 0

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FAIR VALUE, Financial Assets and Liabilities Accounted for at Fair Value on a Recurring Basis (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	$ 2,748,656	$ 2,808,113
Recurring [Member]
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	2,748,656	2,808,113
Mortgage loans held for sale	2,416	932
Commitments to originate real estate loans for sale	54	117
Forward sales commitments	3	(37)
Total	2,751,129	2,809,125
Recurring [Member] | U.S. Treasury and Agency Securities [Member]
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	1,902,762	1,899,978
Recurring [Member] | Obligations of State and Political Subdivisions [Member]
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	594,990	666,883
Recurring [Member] | Government Agency Mortgage-Backed Securities [Member]
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	235,230	210,865
Recurring [Member] | Corporate Debt Securities [Member]
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	5,687	16,680
Recurring [Member] | Government Agency Collateralized Mortgage Obligations [Member]
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	9,535	13,308
Recurring [Member] | Marketable Equity Securities [Member]
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	452	399
Recurring [Member] | Level 1 [Member]
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	1,903,214	1,900,377
Mortgage loans held for sale	0	0
Commitments to originate real estate loans for sale	0	0
Forward sales commitments	0	0
Total	1,903,214	1,900,377
Recurring [Member] | Level 1 [Member] | U.S. Treasury and Agency Securities [Member]
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	1,902,762	1,899,978
Recurring [Member] | Level 1 [Member] | Obligations of State and Political Subdivisions [Member]
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	0	0
Recurring [Member] | Level 1 [Member] | Government Agency Mortgage-Backed Securities [Member]
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	0	0
Recurring [Member] | Level 1 [Member] | Corporate Debt Securities [Member]
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	0	0
Recurring [Member] | Level 1 [Member] | Government Agency Collateralized Mortgage Obligations [Member]
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	0	0
Recurring [Member] | Level 1 [Member] | Marketable Equity Securities [Member]
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	452	399
Recurring [Member] | Level 2 [Member]
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	845,442	907,736
Mortgage loans held for sale	2,416	932
Commitments to originate real estate loans for sale	0	0
Forward sales commitments	3	(37)
Total	847,861	908,631
Mortgage loans held for sale, at principal value	2,400
Mortgage loans held for sale, gross unrealized gain (Loss)	2
Recurring [Member] | Level 2 [Member] | U.S. Treasury and Agency Securities [Member]
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	0	0
Recurring [Member] | Level 2 [Member] | Obligations of State and Political Subdivisions [Member]
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	594,990	666,883
Recurring [Member] | Level 2 [Member] | Government Agency Mortgage-Backed Securities [Member]
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	235,230	210,865
Recurring [Member] | Level 2 [Member] | Corporate Debt Securities [Member]
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	5,687	16,680
Recurring [Member] | Level 2 [Member] | Government Agency Collateralized Mortgage Obligations [Member]
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	9,535	13,308
Recurring [Member] | Level 2 [Member] | Marketable Equity Securities [Member]
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	0	0
Recurring [Member] | Level 3 [Member]
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	0	0
Mortgage loans held for sale	0	0
Commitments to originate real estate loans for sale	54	117
Forward sales commitments	0	0
Total	54	117
Recurring [Member] | Level 3 [Member] | U.S. Treasury and Agency Securities [Member]
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	0	0
Recurring [Member] | Level 3 [Member] | Obligations of State and Political Subdivisions [Member]
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	0	0
Recurring [Member] | Level 3 [Member] | Government Agency Mortgage-Backed Securities [Member]
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	0	0
Recurring [Member] | Level 3 [Member] | Corporate Debt Securities [Member]
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	0	0
Recurring [Member] | Level 3 [Member] | Government Agency Collateralized Mortgage Obligations [Member]
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	0	0
Recurring [Member] | Level 3 [Member] | Marketable Equity Securities [Member]
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	$ 0	$ 0

XML

FAIR VALUE, Unobservable Input Reconciliation (Details) - Commitments to Originate Real Estate Loans for Sale [Member] - USD ($) $ in Thousands		12 Months Ended
		Dec. 31, 2016	Dec. 31, 2015
Level 3 Assets Measured at Fair Value on a Recurring Basis [Abstract]
Beginning balance		$ 117	$ 185
Total (losses)/gains included in earnings	[1]	(1,234)	(808)
Commitments to originate real estate loans held for sale, net		1,171	740
Ending balance		$ 54	$ 117

[1] Amounts included in earnings associated with the commitments to originate real estate loans for sale are reported as a component of other banking services in the Consolidated Statement of Income.

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FAIR VALUE, Assets and Liabilities Measured on Nonrecurring Basis (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2016 USD ($) Loan	Dec. 31, 2015 USD ($)	Dec. 31, 2014 USD ($)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Number of impaired loans recorded at fair value of underlying collateral | Loan	2
Fair value of MSRs at end of period	$ 1,928	$ 1,962
Valuation allowance	477	0
Carrying value before valuation allowance at end of period	1,435	1,472	$ 1,089
Mortgage Servicing Rights [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of MSRs at end of period	1,900
Valuation allowance	0
Carrying value before valuation allowance at end of period	1,400
Other Real Estate Owned [Member] | Market Approach Valuation Technique [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total	$ 1,966	$ 2,088
Other Real Estate Owned [Member] | Market Approach Valuation Technique [Member] | Minimum [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount rate	9.00%	5.30%
Other Real Estate Owned [Member] | Market Approach Valuation Technique [Member] | Maximum [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount rate	97.00%	74.00%
Level 3 [Member] | Other Real Estate Owned [Member] | Market Approach Valuation Technique [Member] | Minimum [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount rate	9.00%
Level 3 [Member] | Other Real Estate Owned [Member] | Market Approach Valuation Technique [Member] | Maximum [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount rate	97.00%
Non-recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	$ 633	$ 1,765
Other real estate owned	1,966	2,088
Total	2,599	3,853
Non-recurring [Member] | Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	0	0
Other real estate owned	0	0
Total	0	0
Non-recurring [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	0	0
Other real estate owned	0	0
Total	0	0
Non-recurring [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	633	1,765
Other real estate owned	1,966	2,088
Total	$ 2,599	$ 3,853

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FAIR VALUE, Significant Unobservable Inputs (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Other Real Estate Owned [Member] | Fair Value of Collateral [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair value	$ 1,966	$ 2,088
Other Real Estate Owned [Member] | Fair Value of Collateral [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Estimated cost of disposal/market adjustment	9.00%	5.30%
Other Real Estate Owned [Member] | Fair Value of Collateral [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Estimated cost of disposal/market adjustment	97.00%	74.00%
Other Real Estate Owned [Member] | Fair Value of Collateral [Member] | Weighted Average [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Estimated cost of disposal/market adjustment	29.60%	27.70%
Impaired Loans [Member] | Fair Value of Collateral [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair value	$ 633	$ 1,765
Impaired Loans [Member] | Fair Value of Collateral [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Estimated cost of disposal/market adjustment	15.00%	9.00%
Impaired Loans [Member] | Fair Value of Collateral [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Estimated cost of disposal/market adjustment	50.00%	20.00%
Impaired Loans [Member] | Fair Value of Collateral [Member] | Weighted Average [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Estimated cost of disposal/market adjustment	36.50%	17.90%
Commitments to Originate Real Estate Loans for Sale [Member] | Discounted Cash Flow [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair value	$ 54	$ 117
Embedded servicing value	1.00%	1.00%

XML

FAIR VALUE, Carrying Amounts and Estimated Fair Values of Other Financial Instruments (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Carrying Value [Member]
Financial assets [Abstract]
Net loans	$ 4,901,329	$ 4,755,974
Financial liabilities [Abstract]
Deposits	7,075,954	6,873,474
Borrowings	146,200	301,300
Subordinated debt held by unconsolidated subsidiary trusts	102,170	102,146
Fair Value [Member]
Financial assets [Abstract]
Net loans	4,935,140	4,808,856
Financial liabilities [Abstract]
Deposits	7,071,191	6,871,098
Borrowings	146,200	301,300
Subordinated debt held by unconsolidated subsidiary trusts	$ 90,144	$ 84,680

XML

VARIABLE INTEREST ENTITIES (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Variable Interest Entity [Line Items]
Cash and cash equivalents	$ 173,857	$ 153,210	$ 138,396	$ 149,647
Premises and equipment, net	112,318	114,434
Other assets	180,188	170,129
Variable Interest Entity, Primary Beneficiary [Member] | 706 North Clinton [Member]
Variable Interest Entity [Line Items]
Cash and cash equivalents	30	42
Premises and equipment, net	6,429	6,592
Other assets	0	9
Total assets	6,459	6,643
Accrued interest and other liabilities / Total liabilities	1	$ 5
Minority interest	3,230
Loss of minority interest	4,800
Minority interest loss exposure related to financing agreement	$ 1,600
Variable Interest Entity, Primary Beneficiary [Member] | 706 North Clinton [Member] | Oneida Preferred Funding II LLC [Member]
Variable Interest Entity [Line Items]
Percentage of membership interest	50.00%

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SEGMENT INFORMATION (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Information about reportable segments [Abstract]
Net interest income	$ 273,896	$ 248,420	$ 244,428
Provision for loan losses	8,076	6,447	7,178
Noninterest income	155,625	123,299	119,020
Amortization of intangible assets	5,479	3,663	4,287
Other operating expenses	261,369	229,392	222,293
Income before income taxes	154,597	132,217	129,690
Assets	8,666,437	8,552,669	7,489,440
Goodwill	465,142	463,252	375,174
Eliminations [Member]
Information about reportable segments [Abstract]
Net interest income	0	0	0
Provision for loan losses	0	0	0
Noninterest income	(2,442)	(2,156)	(1,880)
Amortization of intangible assets	0	0	0
Other operating expenses	(2,442)	(2,156)	(1,880)
Income before income taxes	0	0	0
Assets	(41,790)	(65,637)	(21,087)
Goodwill	0	0	0
Banking [Member] | Operating Segments [Member]
Information about reportable segments [Abstract]
Net interest income	273,542	248,167	244,243
Provision for loan losses	8,076	6,447	7,178
Noninterest income	66,059	57,704	58,565
Amortization of intangible assets	2,682	2,803	3,438
Other operating expenses	191,268	181,865	178,472
Income before income taxes	137,575	114,756	113,720
Assets	8,598,057	8,513,228	7,463,379
Goodwill	440,870	439,052	364,495
Employee Benefit Services [Member] | Operating Segments [Member]
Information about reportable segments [Abstract]
Net interest income	162	132	92
Provision for loan losses	0	0	0
Noninterest income	48,261	46,784	43,701
Amortization of intangible assets	420	515	647
Other operating expenses	37,337	35,218	32,846
Income before income taxes	10,666	11,183	10,300
Assets	38,742	35,011	31,513
Goodwill	8,019	8,019	8,019
All Other [Member] | Operating Segments [Member]
Information about reportable segments [Abstract]
Net interest income	192	121	93
Provision for loan losses	0	0	0
Noninterest income	43,747	20,967	18,634
Amortization of intangible assets	2,377	345	202
Other operating expenses	35,206	14,465	12,855
Income before income taxes	6,356	6,278	5,670
Assets	71,428	70,067	15,635
Goodwill	$ 16,253	$ 16,181	$ 2,660

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SUBSEQUENT EVENTS (Details) $ in Millions	Feb. 03, 2017 USD ($)
Subsequent Event [Member] | Northeast Retirement Services, Inc. [Member]
Subsequent Event [Line Items]
Purchase price of acquisition	$ 148