10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLYREPORTPURSUANTTO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF1934
	For the quarterly period ended March 31, 2017
	OR
☐	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)

NONE

(Former name, former address and former fiscal year, if changed since last report)

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 to 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

45,983,193 shares of Common Stock, $1.00 par value per share, were outstanding on April 30, 2017.

TABLE OF CONTENTS

Part I.	Financial Information	Page
Item 1.	Financial Statements (Unaudited)
	Consolidated Statements of Condition
	March 31, 2017 and December 31, 2016_________________________________________________________________	3
	Consolidated Statements of Income
	Three months ended March 31, 2017 and 2016___________________________________________________________	4
	Consolidated Statements of Comprehensive Income
	Three months ended March 31, 2017 and 2016___________________________________________________________	5
	Consolidated Statement of Changes in Shareholders' Equity
	Three months ended March 31, 2017__________________________________________________________________	6
	Consolidated Statements of Cash Flows
	Three months ended March 31, 2017 and 2016___________________________________________________________	7
	Notes to the Consolidated Financial Statements
	March 31, 2017__________________________________________________________________________________	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations_________________________	28
Item 3.	Quantitative and Qualitative Disclosures about Market Risk________________________________________________	44
Item 4.	Controls and Procedures___________________________________________________________________________	45
Part II.	Other Information
Item 1.	Legal Proceedings________________________________________________________________________________	45
Item 1A.	Risk Factors____________________________________________________________________________________	45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds________________________________________________	46
Item 3.	Defaults Upon Senior Securities_____________________________________________________________________	46
Item 4.	Mine Safety Disclosures___________________________________________________________________________	46
Item 5.	Other Information________________________________________________________________________________	46
Item 6.	Exhibits________________________________________________________________________________________	47

2

Part I.   Financial Information

Item 1.  Financial Statements

COMMUNITY BANK SYSTEM, INC.
CONSOLIDATED STATEMENTS OF CONDITION (Unaudited)
(In Thousands, Except Share Data)
	March 31,			December 31,
	2017			2016
Assets:
Cash and cash equivalents	$	291,186		$	173,857
Available-for-sale investment securities (cost of $2,695,204 and $2,706,863, respectively)		2,740,890			2,748,656
Other securities, at cost		47,828			35,736
Loans held for sale, at fair value		673			2,416
Loans		4,932,213			4,948,562
Allowance for loan losses		(47,096	)		(47,233	)
Net loans		4,885,117			4,901,329
Goodwill, net		542,986			465,142
Core deposit intangibles, net		6,553			7,107
Other intangibles, net		69,438			8,595
Intangible assets, net		618,977			480,844
Premises and equipment, net		111,154			112,318
Accrued interest and fees receivable		28,466			31,093
Other assets		189,569			180,188
Total assets	$	8,913,860		$	8,666,437
Liabilities:
Noninterest-bearing deposits	$	1,642,158		$	1,646,039
Interest-bearing deposits		5,694,719			5,429,915
Total deposits		7,336,877			7,075,954
Borrowings		0			146,200
Subordinated debt held by unconsolidated subsidiary trusts		102,177			102,170
Accrued interest and other liabilities		178,776			144,013
Total liabilities		7,617,830			7,468,337
Commitments and contingencies (See Note J)
Shareholders' equity:
Preferred stock, $1.00 par value, 500,000 shares authorized, 0 shares issued		0			0
Common stock, $1.00 par value, 75,000,000 shares authorized; 46,430,517 and 44,950,352     shares issued, respectively		46,431			44,950
Additional paid-in capital		627,015			545,775
Retained earnings		626,258			614,692
Accumulated other comprehensive income		10,354			7,843
Treasury stock, at cost (474,635 and 512,937 shares, respectively)		(14,028	)		(15,160	)
Total shareholders' equity		1,296,030			1,198,100
Total liabilities and shareholders' equity	$	8,913,860		$	8,666,437

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

3

COMMUNITY BANK SYSTEM, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In Thousands, Except Per-Share Data)
	Three Months Ended
	March 31,
	2017		2016
Interest income:
Interest and fees on loans	$	52,384	$	51,650
Interest and dividends on taxable investments		13,566		13,596
Interest on nontaxable investments		4,008		4,510
Total interest income		69,958		69,756
Interest expense:
Interest on deposits		1,730		1,894
Interest on borrowings		149		287
Interest on subordinated debt held by unconsolidated subsidiary trusts		805		694
Total interest expense		2,684		2,875
Net interest income		67,274		66,881
Provision for loan losses		1,828		1,341
Net interest income after provision for loan losses		65,446		65,540
Noninterest revenues:
Deposit service fees		14,707		13,734
Other banking services		1,159		1,579
Employee benefit services		17,189		12,011
Insurance revenues		6,400		5,841
Wealth management services		4,861		5,116
Gain on investment securities		2		0
Total noninterest revenues		44,318		38,281
Noninterest expenses:
Salaries and employee benefits		41,400		39,138
Occupancy and equipment		8,196		7,663
Data processing and communications		8,521		8,412
Amortization of intangible assets		2,768		1,442
Legal and professional fees		2,414		2,516
Office supplies and postage		1,674		1,778
Business development and marketing		2,081		2,013
FDIC insurance premiums		753		1,101
Acquisition expenses		1,716		77
Other expenses		4,052		3,529
Total noninterest expenses		73,575		67,669
Income before income taxes		36,189		36,152
Income taxes		9,932		11,749
Net income	$	26,257	$	24,403
Basic earnings per share	$	0.58	$	0.55
Diluted earnings per share	$	0.57	$	0.55
Cash dividends declared per share	$	0.32	$	0.31

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

4

COMMUNITY BANK SYSTEM, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(In Thousands)
	Three Months Ended
	March 31,
	2017			2016
Pension and other post-retirement obligations:
Amortization of actuarial losses included in net periodic pension cost, gross	$	265		$	375
Tax effect		(102	)		(144	)
Amortization of actuarial losses included in net periodic pension cost, net		163			231
Amortization of prior service cost included in net periodic pension cost, gross		(31	)		(34	)
Tax effect		12			13
Amortization of prior service cost included in net periodic pension cost, net		(19	)		(21	)
Other comprehensive income related to pension and other post-retirement    obligations, net of taxes		144			210
Unrealized gains on available-for-sale securities:
Net unrealized holding gains arising during period, gross		3,893			67,257
Tax effect		(1,526	)		(25,415	)
Net unrealized holding gains arising during period, net		2,367			41,842
Other comprehensive income related to unrealized gains on    available-for-sale securities, net of taxes		2,367			41,842
Other comprehensive income, net of tax		2,511			42,052
Net income		26,257			24,403
Comprehensive income	$	28,768		$	66,455

	As of
	March 31,			December 31,
	2017			2016
Accumulated Other Comprehensive Income By Component:
Unrealized loss for pension and other post-retirement obligations	$	(28,735	)	$	(28,969	)
Tax effect		10,918			11,008
Net unrealized loss for pension and other post-retirement obligations		(17,817	)		(17,961	)
Unrealized gain on available-for-sale securities		45,686			41,793
Tax effect		(17,515	)		(15,989	)
Net unrealized gain on available-for-sale securities		28,171			25,804
Accumulated other comprehensive income	$	10,354		$	7,843

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

5

COMMUNITY BANK SYSTEM, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
Three months ended March 31, 2017
(In Thousands, Except Share Data)
										Accumulated
	Common Stock				Additional					Other
	Shares		Amount		Paid-In		Retained			Comprehensive		Treasury
	Outstanding		Issued		Capital		Earnings			Income		Stock			Total
Balance at December 31, 2016		44,437,415	$	44,950	$	545,775	$	614,692		$	7,843	$	(15,160	)	$	1,198,100
Net income								26,257								26,257
Other comprehensive income, net of tax											2,511					2,511
Cash dividends declared:
Common, $0.32 per share								(14,691	)							(14,691	)
Common stock issued under
employee stock plan		157,801		158		1,651										1,809
Stock-based compensation						1,410										1,410
Stock issued for acquisition		1,322,364		1,323		77,160										78,483
Treasury stock issued to benefit plan		38,302				1,019							1,132			2,151
Balance at March 31, 2017		45,955,882	$	46,431	$	627,015	$	626,258		$	10,354	$	(14,028	)	$	1,296,030

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

6

COMMUNITY BANK SYSTEM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In Thousands)
	Three Months Ended
	March 31,
	2017			2016
Operating activities:
Net income	$	26,257		$	24,403
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		3,669			3,556
Amortization of intangible assets		2,768			1,442
Net accretion on securities, loans and borrowings		(406	)		(911	)
Stock-based compensation		1,410			1,219
Provision for loan losses		1,828			1,341
Amortization of mortgage servicing rights		126			131
Income from bank-owned life insurance policies		(368	)		(355	)
Net gain on sale of loans and other assets		(53	)		(68	)
Change in other assets and liabilities		7,430			(3,454	)
Net cash provided by operating activities		42,661			27,304
Investing activities:
Proceeds from maturities of available-for-sale investment securities		33,479			18,894
Proceeds from maturities of other investment securities		8,709			12,297
Purchases of available-for-sale investment securities		(16,784	)		(12,255	)
Purchases of other securities		(505	)		(4,612	)
Net change in loans		12,197			(22,031	)
Cash paid for acquisition, net of cash acquired of $11,063 and $0, respectively		(63,517	)		(575	)
Purchases of premises and equipment, net		(2,088	)		(2,639	)
Net cash used in investing activities		(28,509	)		(10,921	)
Financing activities:
Net change in deposits		260,923			245,588
Net change in borrowings		(146,200	)		(267,600	)
Issuance of common stock		1,809			932
Sales of treasury stock		2,151			5,022
Cash dividends paid		(14,186	)		(13,605	)
Withholding taxes paid on share-based compensation		(1,320	)		(1,417	)
Net cash provided by/(used in) financing activities		103,177			(31,080	)
Change in cash and cash equivalents		117,329			(14,697	)
Cash and cash equivalents at beginning of period		173,857			153,210
Cash and cash equivalents at end of period	$	291,186		$	138,513
Supplemental disclosures of cash flow information:
Cash paid for interest	$	2,707		$	2,863
Cash paid for income taxes		9,044			7,065
Supplemental disclosures of noncash financing and investing activities:
Dividends declared and unpaid		14,773			13,610
Transfers from loans to other real estate		920			390
Acquisitions:
Common stock issued		78,483			0
Fair value of assets acquired, excluding acquired cash and intangibles		31,599			0
Fair value of liabilities assumed		30,500			0

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

7

COMMUNITY BANK SYSTEM, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2017

NOTE A:  BASIS OF PRESENTATION

The interim financial data as of and for the three months ended March 31, 2017 is unaudited; however, in the opinion of Community Bank System, Inc. (the "Company"), the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods in conformity with generally accepted accounting principles ("GAAP").  The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year or any other interim period.

NOTE B:  ACQUISITIONS

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 $335 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 Company and Merchants have received regulatory approvals from the Board of Governors of the Federal Reserve System and the Office of the Comptroller of the Currency ("OCC") for the announced merger and the acquisition is expected to close on May 12, 2017, subject to the satisfaction of customary closing conditions.  The Company expects to incur certain one-time, transaction-related costs in 2017.

On March 1, 2017, the Company, through its subsidiary, OneGroup NY, Inc. ("OneGroup"), completed its acquisition of certain assets of Dryfoos Insurance Agency, Inc. ("Dryfoos"), an insurance agency headquartered in Hazleton, Pennsylvania.  The Company paid $3.3 million in cash to acquire the assets of Dryfoos, and recorded goodwill in the amount of $1.7 million and other intangible assets of $1.7 million 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 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 $148.6 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, is 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 of NRS and GTC, hereafter referred to collectively as NRS, 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 Benefit Plans Administrative Services, Inc. ("BPAS") and will operate as Northeast Retirement Services, LLC, a Delaware limited liability company.  This transaction resulted in the acquisition of $36.4 million in net tangible assets, principally cash and certificates of deposit, $60.2 million in customer list intangibles that will be amortized using the 150% declining balance method over 10 years, a $24.2 million deferred tax liability associated with the customer list intangible, and approximately $76.2 million in goodwill.  The effects of the acquired assets and liabilities have been included in the consolidated financial statements since that date. Revenues of $5.1 million and expenses of $3.6 million from NRS were included in the consolidated income statement for the three months ended March 31, 2017.

On January 4, 2017, the Company, through its subsidiary, OneGroup, completed its acquisition of certain assets of Benefits Advisory Service, Inc. ("BAS"), a benefits consulting group headquartered in Forest Hills, New York.  The Company paid $1.2 million in cash to acquire BAS and recorded intangible assets of $1.2 million 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 January 4, 2016, the Company, through its subsidiary, CBNA Insurance Agency, Inc. ("CBNA Insurance"), completed its acquisition of WJL Agencies Inc. doing business as The Clark Insurance Agencies ("WJL"), an insurance agency operating in Canton, 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.

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 were subject to adjustment based on updated information not available at the time of acquisition.

8

The above referenced insurance-related acquisitions expanded the Company's geographical presence in New York and Pennsylvania, 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 after considering the measurement period adjustments described above:

	2017										2016
(000s omitted)	BAS		NRS			Dryfoos		Total			WJL
Consideration paid :
Cash	$	1,200	$	70,073		$	3,307	$	74,580		$	575
Community Bank System, Inc. common stock		0		78,483			0		78,483			0
Total net consideration paid		1,200		148,556			3,307		153,063			575
Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash and cash equivalents		0		11,063			0		11,063			0
Investment securities		0		20,294			0		20,294			0
Premises and equipment		0		411			0		411			0
Accrued interest receivable		0		75			0		75			0
Other assets		0		10,819			0		10,819			0
Other intangibles		1,200		60,200			1,657		63,057			288
Other liabilities		0		(30,500	)		0		(30,500	)		0
Total identifiable assets, net		1,200		72,362			1,657		75,219			288
Goodwill	$	0	$	76,194		$	1,650	$	77,844		$	287

The other intangibles related to the Dryfoos, BAS and WJL acquisitions are being amortized using an accelerated method over their estimated useful life of eight years.  The goodwill, which is not amortized for book purposes, was assigned to the Employee Benefit Services for NRS, and All Other segments for Dryfoos, BAS, and WJL acquisitions.  Goodwill arising from the NRS acquisition is not deductible for tax purposes.  Goodwill arising from the Dryfoos, BAS and WJL acquisitions is 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 and $0.1 million during the three months ended March 31, 2017 and 2016, 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 NRS acquisition had been completed as of January 1, 2016 for the three months ended March 31, 2016.  The pro forma information does not include amounts related to BAS and Dryfoos as the amounts were immaterial. The table below has been prepared for comparative purposes only and is not necessarily indicative of the actual results that would have been attained had the acquisition occurred as of the beginning of the year presented, nor is it indicative of the Company's future results. Furthermore, the unaudited pro forma information does not reflect management's estimate of any revenue-enhancing opportunities nor anticipated cost savings that may have occurred as a result of the integration and consolidation of the acquisitions.

The pro forma information set forth below reflects the historical results of NRS combined with the Company's consolidated statement of income with adjustments related to amortization of customer lists intangibles.

(000's omitted)	Pro Forma (Unaudited) Three Months Ended March 31, 2016
Total revenue, net of interest expense	$	112,694
Net income		24,358

9

NOTE C:  ACCOUNTING POLICIES

The accounting policies of the Company, as applied in the consolidated interim financial statements presented herein, are substantially the same as those followed on an annual basis as presented on pages 56 through 61 of the Annual Report on Form 10-K for the year ended December 31, 2016 filed with the Securities and Exchange Commission ("SEC") on March 1, 2017.

Critical Accounting Policies

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 Accounting Standards Codification ("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 loan 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 loans 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 are 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 into interest income.  When the carrying value exceeds the net realizable value, an allowance for loan loss is recognized.

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.

10

The general loan loss allocation is composed of two calculations that are computed on five main loan segments:  business lending; consumer direct; consumer 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 of 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.

Investment Securities

The Company can classify its investments in debt and equity securities as held-to-maturity, available-for-sale, or trading.  Held-to-maturity securities are those for which the Company has the positive intent and ability to hold until maturity, and are reported at cost, which is adjusted for amortization of premiums and accretion of discounts.  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 March 31, 2017.  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.

11

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.

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.

Recently Adopted Accounting Pronouncement

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, accounting for award forfeitures, and classification on the statement of cash flows.  The amendments were effective for public business entities for the first interim and annual reporting periods beginning after December 15, 2016 and the Company adopted the amendments as of January 1, 2017.  The new guidance requires entities to prospectively recognize all excess tax benefits and tax deficiencies related to share-based payment awards as income tax benefit or expense in the statement of income when the awards vest or are settled.  Previously, income tax benefits (or deficiencies) were reported as increases (or decreases) to additional paid-in capital to the extent that those benefits were greater than (or less than) the income tax benefits recognized in earnings during the awards' vesting periods.  In addition, excess tax benefits and deficiencies are to be classified as an operating activity in the statement of cash flows, rather than a financing activity as required under prior accounting guidance.  The new guidance also requires employee taxes paid when an employer withholds shares for withholding tax purposes to be classified as a financing activity in the statement of cash flows.  The Company has elected to apply the changes in presentation on the statement of cash flows for excess tax benefits and deficiencies and employee taxes paid when an employer withholds shares on a retrospective basis.  The Company has also elected to continue to incorporate estimated forfeitures in the accrual of compensation expense, and this election had no impact on the Company's consolidated financial statements.  For the three months ended March 31, 2017, the effect on net income from excess tax benefits was $2.2 million, or approximately $0.05 per diluted common share.

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.

12

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 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.

In March 2017, the FASB issued ASU No. 2017-07, Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.  This new guidance requires the service cost component of net periodic pension and postretirement benefit costs to be presented separately from other components of net benefit cost in the statement of income.  This ASU is effective for the Company for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  This ASU is not expected to have a material impact on the Company's consolidated financial statements.

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NOTE D:  INVESTMENT SECURITIES

The amortized cost and estimated fair value of investment securities as of March 31, 2017 and December 31, 2016 are as follows:

	March 31, 2017								December 31, 2016
			Gross		Gross						Gross		Gross
	Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair
(000's omitted)	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
Available-for-Sale Portfolio:
U.S. Treasury and agency securities	$	1,878,982	$	30,358	$	1,106	$	1,908,234	$	1,876,358	$	28,522	$	2,118	$	1,902,762
Obligations of state and political subdivisions		564,501		14,603		446		578,658		582,655		13,389		1,054		594,990
Government agency mortgage-backed securities		237,257		4,526		2,729		239,054		232,657		5,040		2,467		235,230
Corporate debt securities		5,697		0		16		5,681		5,716		2		31		5,687
Government agency collateralized mortgage obligations		8,516		293		0		8,809		9,225		310		0		9,535
Marketable equity securities		251		203		0		454		252		200		0		452
Total available-for-sale portfolio	$	2,695,204	$	49,983	$	4,297	$	2,740,890	$	2,706,863	$	47,463	$	5,670	$	2,748,656
Other Securities:
Federal Home Loan Bank common stock	$	5,590					$	5,590	$	12,191					$	12,191
Federal Reserve Bank common stock		19,781						19,781		19,781						19,781
Certificates of deposit		18,758						18,758		0						0
Other equity securities		3,699						3,699		3,764						3,764
Total other securities	$	47,828					$	47,828	$	35,736					$	35,736

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

As of March 31, 2017

	Less than 12 Months						12 Months or Longer						Total
					Gross						Gross						Gross
			Fair		Unrealized				Fair		Unrealized				Fair		Unrealized
(000's omitted)		#	Value		Losses			#	Value		Losses			#	Value		Losses
Available-for-Sale Portfolio:
U.S. Treasury and agency securities		7	$	258,008	$	1,106		0	$	0	$	0		7	$	258,008	$	1,106
Obligations of state and political subdivisions		75		40,177		446		0		0		0		75		40,177		446
Government agency mortgage-backed securities		67		95,749		1,866		14		21,228		863		81		116,977		2,729
Corporate debt securities		1		2,677		16		0		0		0		1		2,677		16
Government agency collateralized mortgage obligations		0		0		0		2		2		0		2		2		0
Total available-for-sale investment portfolio		150	$	396,611	$	3,434		16	$	21,230	$	863		166	$	417,841	$	4,297

As of December 31, 2016

	Less than 12 Months						12 Months or Longer						Total
					Gross						Gross						Gross
			Fair		Unrealized				Fair		Unrealized				Fair		Unrealized
(000's omitted)		#	Value		Losses			#	Value		Losses			#	Value		Losses
Available-for-Sale Portfolio:
U.S. Treasury and agency securities		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

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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 the Ginnie Mae, Fannie Mae, and the Federal Home Loan Mortgage Corporation ("FHLMC"), 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 March 31, 2017 represents OTTI.

The amortized cost and estimated fair value of debt securities at March 31, 2017, 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
	Amortized		Fair
(000's omitted)	Cost		Value
Due in one year or less	$	38,222	$	38,447
Due after one through five years		1,199,564		1,221,056
Due after five years through ten years		1,041,199		1,058,066
Due after ten years		170,195		175,004
Subtotal		2,449,180		2,492,573
Government agency mortgage-backed securities		237,257		239,054
Government agency collateralized mortgage obligations		8,516		8,809
Total	$	2,694,953	$	2,740,436

NOTE E:  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 properties.

 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 are summarized as follows:

	March 31,			December 31,
(000's omitted)	2017			2016
Consumer mortgage	$	1,830,800		$	1,819,701
Business lending		1,468,465			1,490,076
Consumer indirect		1,055,112			1,044,972
Consumer direct		184,067			191,815
Home equity		393,769			401,998
Gross loans, including deferred origination costs		4,932,213			4,948,562
Allowance for loan losses		(47,096	)		(47,233	)
Loans, net of allowance for loan losses	$	4,885,117		$	4,901,329

15

The outstanding balance related to credit impaired acquired loans was $6.5 million and $6.6 million at March 31, 2017 and December 31, 2016, respectively.  The changes in the accretable discount related to the credit impaired acquired loans are as follows:

(000's omitted)
Balance at December 31, 2016	$	498
Accretion recognized, year-to-date		(72	)
Net reclassification to accretable from non-accretable		100
Balance at March 31, 2017	$	526

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 March 31, 2017:

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

	Past Due		90+ Days Past
	30 – 89		Due and				Total
(000's omitted)	Days		Still Accruing		Nonaccrual		Past Due		Current		Total Loans
Consumer mortgage	$	7,717	$	742	$	10,999	$	19,458	$	1,657,788	$	1,677,246
Business lending		2,776		569		2,970		6,315		1,266,627		1,272,942
Consumer indirect		8,941		123		0		9,064		1,019,069		1,028,133
Consumer direct		1,047		79		0		1,126		174,413		175,539
Home equity		967		194		1,299		2,460		312,915		315,375
Total	$	21,448	$	1,707	$	15,268	$	38,423	$	4,430,812	$	4,469,235

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

	Past Due		90+ Days Past
	30 – 89		Due and				Total		Acquired
(000's omitted)	Days		Still Accruing		Nonaccrual		Past Due		Impaired(1)		Current		Total Loans
Consumer mortgage	$	907	$	111	$	2,574	$	3,592	$	0	$	149,962	$	153,554
Business lending		332		0		1,718		2,050		5,440		188,033		195,523
Consumer indirect		147		3		0		150		0		26,829		26,979
Consumer direct		100		0		0		100		0		8,428		8,528
Home equity		415		988		506		1,909		0		76,485		78,394
Total	$	1,901	$	1,102	$	4,798	$	7,801	$	5,440	$	449,737	$	462,978

(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, 2016:

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

	Past Due		90+ Days Past
	30 – 89		Due and				Total
(000's omitted)	Days		Still Accruing		Nonaccrual		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

16

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

	Past Due		90+ Days Past
	30 – 89		Due and				Total		Acquired
(000's omitted)	Days		Still Accruing		Nonaccrual		Past Due		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 Company uses several credit quality indicators to assess credit risk in an ongoing manner.  The Company's primary credit quality indicator for its business lending portfolio is an internal credit risk rating system that categorizes loans as "pass", "special mention",  "classified", or "doubtful".  Credit risk ratings are applied 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:

	March 31, 2017						December 31, 2016
(000's omitted)	Legacy		Acquired		Total		Legacy		Acquired		Total
Pass	$	1,040,398	$	147,347	$	1,187,745	$	1,051,005	$	162,165	$	1,213,170
Special mention		141,807		24,122		165,929		135,602		29,690		165,292
Classified		90,691		18,614		109,305		90,585		15,002		105,587
Doubtful		46		0		46		474		0		474
Acquired impaired		0		5,440		5,440		0		5,553		5,553
Total	$	1,272,942	$	195,523	$	1,468,465	$	1,277,666	$	212,410	$	1,490,076

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 loans classified as current as well as those classified as 30 - 89 days past due.  Nonperforming loans include 90+ days past due and still accruing and nonaccrual loans. The following table details the balances in all other loan categories at March 31, 2017:

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

	Consumer		Consumer		Consumer		Home
(000's omitted)	Mortgage		Indirect		Direct		Equity		Total
Performing	$	1,665,505	$	1,028,010	$	175,460	$	313,882	$	3,182,857
Nonperforming		11,741		123		79		1,493		13,436
Total	$	1,677,246	$	1,028,133	$	175,539	$	315,375	$	3,196,293

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

	Consumer		Consumer		Consumer		Home
(000's omitted)	Mortgage		Indirect		Direct		Equity		Total
Performing	$	150,869	$	26,976	$	8,528	$	76,900	$	263,273
Nonperforming		2,685		3		0		1,494		4,182
Total	$	153,554	$	26,979	$	8,528	$	78,394	$	267,455

The following table details the balances in all other loan categories at December 31, 2016:

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

	Consumer		Consumer		Consumer		Home
(000's omitted)	Mortgage		Indirect		Direct		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)

	Consumer		Consumer		Consumer		Home
(000's omitted)	Mortgage		Indirect		Direct		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

All loan classes are collectively evaluated for impairment except business lending, as described in Note C.  A summary of individually evaluated impaired loans as of March 31, 2017 and December 31, 2016 follows:

	March 31,		December 31,
(000's omitted)	2017		2016
Loans with allowance allocation	$	580	$	1,109
Loans without allowance allocation		0		556
Carrying balance		580		1,665
Contractual balance		2,229		3,340
Specifically allocated allowance		46		477

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.

In accordance with the 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 the three months ended March 31, 2017 and 2016 was immaterial.

TDRs that are less than $0.5 million are collectively included in the general loan loss allocation and the qualitative review.  TDRs that are commercial loans and greater than $0.5 million are individually evaluated for impairment, and if necessary, a specific allocation of the allowance for loan losses is provided.  As a result, the determination of the amount of allowance for loan losses related to TDRs is the same as detailed in the critical accounting policies.

18

Information regarding TDRs as of March 31, 2017 and December 31, 2016 is as follows:

	March 31, 2017												December 31, 2016
(000's omitted)	Nonaccrual				Accruing				Total				Nonaccrual				Accruing				Total
		#	Amount			#	Amount			#	Amount			#	Amount			#	Amount			#	Amount
Consumer mortgage		44	$	2,082		43	$	1,812		87	$	3,894		36	$	1,520		45	$	1,956		81	$	3,476
Business lending		6		76		4		323		10		399		6		91		5		690		11		781
Consumer indirect		0		0		79		776		79		776		0		0		78		771		78		771
Consumer direct		0		0		13		76		13		76		0		0		23		65		23		65
Home equity		14		267		7		213		21		480		14		221		7		216		21		437
Total		64	$	2,425		146	$	3,200		210	$	5,625		56	$	1,832		158	$	3,698		214	$	5,530

The following table presents information related to loans modified in a TDR during the three months ended March 31, 2017 and 2016.  Of the loans noted in the table below, all loans for the three months ended March 31, 2017 and 2016 were modified due to a Chapter 7 bankruptcy as described previously.  The financial effects of these restructurings were immaterial.

	Three Months Ended March 31, 2017				Three Months Ended  March 31, 2016
(000's omitted)	Number of loans modified		Outstanding Balance		Number of loans modified		Outstanding Balance
Consumer mortgage		7	$	502		4	$	266
Business lending		0		0		0		0
Consumer indirect		8		106		12		238
Consumer direct		4		15		0		0
Home equity		2		98		1		0
Total		21	$	721		17	$	504

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:

	Three Months Ended March 31, 2017
	Consumer			Business			Consumer			Consumer			Home						Acquired
(000's omitted)	Mortgage			Lending			Indirect			Direct			Equity			Unallocated			Impaired			Total
Beginning balance	$	10,094		$	17,220		$	13,782		$	2,979		$	2,399		$	651		$	108		$	47,233
Charge-offs		(85	)		(695	)		(1,947	)		(417	)		(38	)		0			0			(3,182	)
Recoveries		7			71			869			245			25			0			0			1,217
Provision		133			261			1,292			45			(27	)		122			2			1,828
Ending balance	$	10,149		$	16,857		$	13,996		$	2,852		$	2,359		$	773		$	110		$	47,096
	Three Months Ended March 31, 2016
	Consumer			Business			Consumer			Consumer			Home						Acquired
(000's omitted)	Mortgage			Lending			Indirect			Direct			Equity			Unallocated			Impaired			Total
Beginning balance	$	10,198		$	15,749		$	12,422		$	2,997		$	2,666		$	1,201		$	168		$	45,401
Charge-offs		(88	)		(210	)		(1,854	)		(462	)		(57	)		0			0			(2,671	)
Recoveries		45			136			1,114			221			9			0			0			1,525
Provision		(7	)		1,020			652			119			(38	)		(322	)		(83	)		1,341
Ending balance	$	10,148		$	16,695		$	12,334		$	2,875		$	2,580		$	879		$	85		$	45,596

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NOTE F:  GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS

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

	March 31, 2017							December 31, 2016
	Gross					Net		Gross					Net
	Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
(000's omitted)	Amount		Amortization			Amount		Amount		Amortization			Amount
Amortizing intangible assets:
Core deposit intangibles	$	39,688	$	(33,135	)	$	6,553	$	39,688	$	(32,581	)	$	7,107
Other intangibles		80,910		(11,472	)		69,438		17,853		(9,258	)		8,595
Total amortizing intangibles	$	120,598	$	(44,607	)	$	75,991	$	57,541	$	(41,839	)	$	15,702

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

(000's omitted)
Apr - Dec 2017	$	10,496
2018		11,918
2019		9,886
2020		8,150
2021		7,119
Thereafter		28,422
Total	$	75,991

Shown below are the components of the Company's goodwill at December 31, 2016 and March 31, 2017:

(000's omitted)	December 31, 2016			Activity		March 31, 2017
Goodwill	$	469,966		$	77,844	$	547,810
Accumulated impairment		(4,824	)		0		(4,824	)
Goodwill, net	$	465,142		$	77,844	$	542,986

NOTE G:  MANDATORILY REDEEMABLE PREFERRED SECURITIES

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:

	Issuance	Par		Maturity
Trust	Date	Amount	Interest Rate	Date	Call Price
III	7/31/2001	$24.5 million	3 month LIBOR plus 3.58% (4.62%)	7/31/2031	Par
IV	12/8/2006	$75 million	3 month LIBOR plus 1.65% (2.78%)	12/15/2036	Par

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NOTE H:  BENEFIT PLANS

The Company provides a qualified defined benefit pension to eligible employees and retirees, other post-retirement health and life insurance benefits to certain retirees, an unfunded supplemental pension plan for certain key executives, and an unfunded stock balance plan for certain of its nonemployee directors.  The Company accrues for the estimated cost of these benefits through charges to expense during the years that employees earn these benefits.  The Company made a $2.9 million contribution to its defined benefit pension plan in the first quarter of 2017.

The net periodic (benefit) cost for the three months ended March 31, 2017 and 2016 is as follows:

	Pension Benefits						Post-retirement Benefits
	Three Months Ended						Three Months Ended
	March 31,						March 31,
(000's omitted)	2017			2016			2017			2016
Service cost	$	1,039		$	1,026		$	0		$	0
Interest cost		1,361			1,406			19			20
Expected return on plan assets		(3,121	)		(2,960	)		0			0
Amortization of unrecognized net loss		263			377			2			(1	)
Amortization of prior service cost		14			11			(45	)		(45	)
Net periodic (benefit) cost	$	(444	)	$	(140	)	$	(24	)	$	(26	)

NOTE I:  EARNINGS PER SHARE

The two class method is used in the calculations of basic and diluted earnings per share.  Under the two class method, earnings available to common shareholders for the period are allocated between common shareholders and participating securities according to dividends declared and participation rights in undistributed earnings.  The Company has determined that all of its outstanding non-vested stock awards are participating securities as of March 31, 2017.

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 adjusted for the dilutive effect of restricted stock 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 0.2 million weighted-average anti-dilutive stock options outstanding for the three months ended March 31, 2017, compared to approximately 0.6 million weighted-average anti-dilutive stock options outstanding for the three months ended March 31, 2016 that were not included in the computation below.

The following is a reconciliation of basic to diluted earnings per share for the three months ended March 31, 2017 and 2016:

	Three Months Ended
	March 31,
(000's omitted, except per share data)	2017			2016
Net income	$	26,257		$	24,403
Income attributable to unvested stock-based compensation awards		(138	)		(89	)
Income available to common shareholders	$	26,119		$	24,314
Weighted-average common shares outstanding – basic		45,284			43,863
Basic earnings per share	$	0.58		$	0.55
Net income	$	26,257		$	24,403
Income attributable to unvested stock-based compensation awards		(138	)		(89	)
Income available to common shareholders	$	26,119		$	24,314
Weighted-average common shares outstanding – basic		45,284			43,863
Assumed exercise of stock options		703			333
Weighted-average common shares outstanding – diluted		45,987			44,196
Diluted earnings per share	$	0.57		$	0.55

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Stock Repurchase Program

At its December 2016 meeting, the Company's Board of Directors 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, 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 Company did not repurchase any shares under the authorized plan during the first three months of 2017.

NOTE J:  COMMITMENTS, CONTINGENT LIABILITIES AND RESTRICTIONS

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

The contract amounts of commitments and contingencies are as follows:

(000's omitted)	March 31, 2017		December 31, 2016
Commitments to extend credit	$	770,666	$	773,442
Standby letters of credit		23,004		22,656
Total	$	793,670	$	796,098

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 March 31, 2017, 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 K:  FAIR VALUE

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

     Level 1 -	Quoted prices in active markets for identical assets or liabilities.
     Level 2 -	Quoted prices in active markets for similar assets or liabilities, or quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.
     Level 3 -	Significant valuation assumptions not readily observable in a market.

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.

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	March 31, 2017
(000's omitted)	Level 1		Level 2			Level 3		Total Fair Value
Available-for-sale investment securities:
U.S. Treasury and agency securities	$	1,908,234	$	0		$	0	$	1,908,234
Obligations of state and political subdivisions		0		578,658			0		578,658
Government agency mortgage-backed securities		0		239,054			0		239,054
Corporate debt securities		0		5,681			0		5,681
Government agency collateralized mortgage obligations		0		8,809			0		8,809
Marketable equity securities		454		0			0		454
Total available-for-sale investment securities		1,908,688		832,202			0		2,740,890
Mortgage loans held for sale		0		673			0		673
Commitments to originate real estate loans for sale		0		0			114		114
Forward sales commitments		0		(19	)		0		(19	)
Total	$	1,908,688	$	832,856		$	114	$	2,741,658

	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

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

 Mortgage loans held for sale –The Company has elected to value loans held for sale at fair value in order to more closely match the gains and losses associated with loans held for sale with the gains and losses on forward sales contracts.  Accordingly, the impact on the valuation will be recognized in the Company's consolidated statement of income.  All mortgage loans held for sale are current and in performing status.  The fair value of mortgage loans held for sale is determined using quoted secondary-market prices of loans with similar characteristics and, as such, has been classified as a Level 2 valuation.  The unpaid principal value of mortgage loans held for sale at March 31, 2017 was approximately $0.7 million.  The unrealized gain on mortgage loans held for sale was recognized in mortgage banking and other income in the consolidated statement and is immaterial.

 Forward sales commitments – The Company enters into forward sales commitments to sell certain residential real estate loans.  Such commitments are considered to be derivative financial instruments and, therefore, are carried at estimated fair value in the other asset or other liability section of the consolidated 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.

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 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:

	Three Months Ended March 31,
	2017			2016
(000's omitted)	Commitments to Originate			Commitments to Originate
	Real Estate			Real Estate
	Loans for Sale			Loans for Sale
Beginning balance	$	54		$	117
Total losses included in earnings (1)		(54	)		(117	)
Commitments to originate real estate loans held for sale, net		114			282
Ending balance	$	114		$	282

(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.

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

	March 31, 2017								December 31, 2016
(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	$	535	$	535	$	0	$	0	$	633	$	633
Other real estate owned		0		0		2,486		2,486		0		0		1,966		1,966
Total	$	0	$	0	$	3,021	$	3,021	$	0	$	0	$	2,599	$	2,599

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.

Other real estate owned ("OREO") is valued at the time the loan is foreclosed upon and the asset is transferred to OREO. The value is based primarily on third party appraisals, less costs to sell. The appraisals are sometimes further discounted based on management's historical knowledge, changes in market conditions from the time of valuation, and/or management's expertise and knowledge of the customer and customer's business. Such discounts are significant, ranging from 2% to 96% at March 31, 2017 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.

24

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 March 31, 2017.

The Company determines fair values based on quoted market values, where available, estimates of present values, or other valuation techniques.  Those techniques are significantly affected by the assumptions used, including, but not limited to, the discount rate and estimates of future cash flows.  In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, may not be realized in immediate settlement of the instrument.  The significant unobservable inputs used in the determination of fair value of assets classified as Level 3 on a recurring or non-recurring basis are as follows:

(000's omitted)	Fair Value at March 31, 2017		Valuation Technique	Significant Unobservable Inputs	Significant Unobservable Input Range (Weighted Average)
Other real estate owned	$	2,486	Fair Value of Collateral	Estimated cost of disposal/market adjustment		2.3% - 96.0% (35.4	%)
Impaired loans		535	Fair Value of Collateral	Estimated cost of disposal/market adjustment		9% - 43% (26.0	%)
Commitments to originate   real estate loans for sale		114	Discounted cash flow	Embedded servicing value		1	%

(000's omitted)	Fair Value at December 31, 2016		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	%

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 March 31, 2017 and December 31, 2016 are as follows:

	March 31, 2017				December 31, 2016
	Carrying		Fair		Carrying		Fair
(000's omitted)	Value		Value		Value		Value
Financial assets:
Net loans	$	4,885,117	$	4,918,453	$	4,901,329	$	4,935,140
Financial liabilities:
Deposits		7,336,877		7,331,201		7,075,954		7,071,191
Borrowings		0		0		146,200		146,200
Subordinated debt held by unconsolidated subsidiary trusts		102,177		91,164		102,170		90,144

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.

25

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.

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 L:  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 March 31, 2017.  The effect of the changes to these derivatives for the three months then ended was also immaterial.

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NOTE M:  SEGMENT INFORMATION

Operating segments are components of an enterprise, which are evaluated regularly by the "chief operating decision maker" in deciding how to allocate resources and assess performance.  The Company's chief operating decision maker is the President and Chief Executive Officer of the Company. The Company has identified Banking, Employee Benefit Services and All Other as its reportable operating business segments.  Community Bank, N.A. (the "Bank" or "CBNA") operates the Banking segment that provides full-service banking to consumers, businesses, and governmental units in northern, central, and western New York as well as northeastern Pennsylvania.  Employee Benefit Services, which includes the operating subsidiaries Benefit Plans Administrative Services, LLC, BPAS Actuarial and Pension Services, LLC (formerly Harbridge Consulting Group, LLC), BPAS Trust Company of Puerto Rico, Northeast Retirement Services, LLC, and Hand Benefits & Trust Company, 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 Community Investment Services, Inc. ("CISI"), and The Carta Group, Inc., as well as asset management provided by Nottingham Advisors, Inc., and (b) full-service insurance, risk management and employee benefit services provided by OneGroup.  The accounting policies used in the disclosure of business segments are the same as those described in the summary of significant accounting policies (See Note A, Summary of Significant Accounting Policies of the most recent Form 10-K for the year ended December 31, 2016 filed with the SEC on March 1, 2017).

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
Three Months Ended March 31, 2017
Net interest income	$	67,134	$	78	$	62	$	0		$	67,274
Provision for loan losses		1,828		0		0		0			1,828
Noninterest revenues		15,867		17,636		11,479		(664	)		44,318
Amortization of intangible assets		554		1,591		623		0			2,768
Acquisition expenses		521		1,062		133		0			1,716
Other operating expenses		49,493		11,370		8,892		(664	)		69,091
Income before income taxes	$	30,605	$	3,691	$	1,893	$	0		$	36,189
Assets	$	8,663,042	$	221,437	$	72,526	$	(43,145	)	$	8,913,860
Goodwill	$	440,870	$	84,213	$	17,903	$	0		$	542,986
Three Months Ended March 31, 2016
Net interest income	$	66,798	$	40	$	43	$	0		$	66,881
Provision for loan losses		1,341		0		0		0			1,341
Noninterest revenues		15,313		12,390		11,144		(566	)		38,281
Amortization of intangible assets		719		116		607		0			1,442
Acquisition expenses		70		0		7		0			77
Other operating expenses		48,460		9,447		8,809		(566	)		66,150
Income before income taxes	$	31,521	$	2,867	$	1,764	$	0		$	36,152
Assets	$	8,546,646	$	38,535	$	69,385	$	(38,665	)	$	8,615,901
Goodwill	$	440,870	$	8,019	$	16,253	$	0		$	465,142

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Item 2. 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 Community Bank System, Inc. (the "Company" or "CBSI") as of and for the three months ended March 31, 2017 and 2016, although in some circumstances the fourth quarter of 2016 is also discussed in order to more fully explain recent trends.  The following discussion and analysis should be read in conjunction with the Company's Consolidated Financial Statements and related notes that appear on pages 3 through 27.  All references in the discussion of 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, the term "this year" and equivalent terms refers to results in calendar year 2017, "last year" and equivalent terms refer to calendar year 2016, "first quarter" refers to the three months ended March 31, and earnings per share ("EPS") figures refer to diluted EPS.

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 42.

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 loan 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 are 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 OTTI write-down is recorded in 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 more likely than not that the Company will be required to sell the debt security prior to recovery of the full value of its amortized cost basis.

 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.  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.

 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 current credit 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" on pages 59-65 of the most recent Form 10-K (fiscal year ended December 31, 2016) filed with the Securities and Exchange Commission ("SEC") on March 1, 2017.

Supplemental Reporting of Non-GAAP Results of Operations

The Company also provides supplemental reporting of its results on a "net adjusted" or "tangible" basis, from which it excludes the after-tax effect of amortization of core deposit and other intangible assets (and the related goodwill, core deposit intangible and other intangible asset balances, net of applicable deferred tax amounts) and expenses associated with acquisitions.Reconciliations of GAAP amounts with corresponding non-GAAP amounts are presented in Table 11.

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").

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 revenues 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 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.

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On January 4, 2017, the Company, through its subsidiary, OneGroup NY, Inc. ("OneGroup"), completed its acquisition of certain assets of Benefits Advisory Service, Inc. ("BAS"), a benefits consulting group headquartered in Forest Hills, New York.  The Company paid $1.2 million in cash to acquire BAS and recorded intangible assets of $1.2 million in conjunction with the acquisition.

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 $148.6 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, is 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 of NRS and GTC, hereafter referred to collectively as NRS, 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 Benefit Plans Administrative Services, Inc. ("BPAS") and will operate as Northeast Retirement Services, LLC, a Delaware limited liability company.  This transaction resulted in the acquisition of $36.4 million in net tangible assets, principally cash and certificates of deposit, $60.2 million in customer list intangibles that will be amortized over 10 years, a $24.2 million deferred tax liability associated with the customer list intangible, and approximately $76.2 million in goodwill.

On March 1, 2017, the Company, through its subsidiary, OneGroup, completed its acquisition of certain assets of Dryfoos Insurance Agency, Inc. ("Dryfoos"), an insurance agency headquartered in Hazleton, Pennsylvania.  The Company paid $3.3 million in cash to acquire the assets of Dryfoos, and recorded goodwill in the amount of $1.7 million and other intangible assets of $1.6 million in conjunction with the acquisition.

Current year first quarter net income increased $1.9 million compared to the comparable 2016 timeframe.  Earnings per share of $0.57 for the first quarter were $0.02 above the first quarter of 2016.  The higher net income was primarily due to the NRS acquisition and a reduction of income tax expense in the first quarter of 2017 related to new accounting guidance for share-based compensation transactions.

Both average loans and average deposits in the first quarter of 2017 were higher than their respective balances in the prior year first quarter as a result of organic growth.  Ending balances for the loan portfolio at March 31, 2017 were down from December 31, 2016, as seasonally expected, but were higher than the end of March 2016.  Deposit balances at the end of March 2017 increased from the 2016 year-end level.

The trends of declining yields on interest-earning assets and rates of interest-bearing liabilities continue.  Interest rates have increased moderately over the past five months but it continues to be a historically low rate environment that has generally meant that higher rate interest-earning assets continue to be replaced with lower rate assets, although that has moderated over the last year.  The continued modest decline in the cost of funds is a result of a larger proportion of deposits coming from lower rate and noninterest-bearing accounts, instead of higher cost time deposits and borrowings.

The first quarter 2017 provision for loan losses was $0.5 million higher than the first quarter of 2016, reflective of higher levels of net charge-offs and an increase in the loan portfolio balance.  Asset quality in the first quarter of 2017 remained stable and favorable.  First quarter net charge-off, nonperforming loan, and delinquent loan ratios were comparable to those experienced in the first quarter of 2016.

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 $335 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 Company and Merchants have received regulatory approvals from the Board of Governors of the Federal Reserve System and the Office of the Comptroller of the Currency ("OCC") for the announced merger and the acquisition is expected to close on May 12, 2017, subject to the satisfaction of customary closing conditions.  The Company expects to incur certain one-time, transaction-related costs in 2017.

Net Income and Profitability

As shown in Table 1, net income for the first quarter of $26.3 million was up $1.9 million, or 7.6%, as compared to the first quarter of 2016.  Earnings per share of $0.57 for the first quarter was two cents greater than was generated in the first quarter of 2016.  The increases are primarily due to the effects of the NRS acquisition and a $2.2 million reduction of income tax expense in the first quarter of 2017 related to new accounting guidance for share-based transactions that requires all excess tax benefits and deficiencies associated with share-based compensation be recognized as income tax expense or benefit.

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As reflected in Table 1, first quarter net interest income of $67.3 million was up $0.4 million, or 0.6%, from the comparable prior year period.  The quarterly improvement resulted from an increase in interest-earning assets, primarily from solid loan growth in the consumer mortgage and consumer installment loan portfolios, partially offset by a decrease in loan and investment yields.

The provision for loan losses for the current first quarter increased $0.5 million as compared to the prior year first quarter, reflective of changes in certain asset quality metrics and growth of the loan portfolio.

First quarter noninterest revenues were $44.3 million, an increase of $6.0 million, or 15.8%, from the first quarter of 2016.  The increase was a result of the NRS, Dryfoos and BAS acquisitions completed in the first quarter of 2017, as well as organic revenue growth generated by the Company's other financial services subsidiaries and a slight increase in banking noninterest income.

Noninterest expenses of $73.6 million for the first quarter, increased $5.9 million, or 8.7%, from the prior year first quarter.  Excluding acquisition-related expenses, first quarter 2017 operating expenses were $4.3 million, or 6.3%, higher than one year earlier, primarily resulting from operating a larger franchise, including the impact of the NRS acquisition.

A condensed income statement is as follows:

Table 1: Condensed Income Statements

	Three Months Ended
	March 31,
(000's omitted, except per share data)	2017		2016
Net interest income	$	67,274	$	66,881
Provision for loan losses		1,828		1,341
Noninterest revenues		44,318		38,281
Noninterest expenses		73,575		67,669
Income before income taxes		36,189		36,152
Income taxes		9,932		11,749
Net income	$	26,257	$	24,403
Diluted weighted average common shares outstanding		46,227		44,356
Diluted earnings per share	$	0.57	$	0.55

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 earning assets and the cost of interest-bearing funds as a percentage of earning assets.

As shown in Table 2, net interest income (with nontaxable income converted to a fully tax-equivalent basis) for the first quarter totaled $69.6 million, an increase of $0.2 million, or 0.3%, from the same period last year.  The increase resulted from an $111.8 million increase in average interest-earning assets and a $34.6 million decrease in average interest-bearing liabilities, partially offset by a two basis point decrease in the net interest margin.  As reflected in Table 3, the first quarter volume increase in interest-earning assets combined with the decrease in interest-bearing liabilities and decrease in the rate on interest-bearing liabilities had a $1.2 million favorable impact on net interest income, while the rate decrease on interest-earning assets had a $1.0 million unfavorable impact on net interest income.

The lower net interest margin for the first quarter of 2017 as compared to the first quarter of 2016 was the result of the average yield on interest-earning assets decreasing three basis points while the average rate on interest-bearing liabilities decreased one basis point.  Declining asset yields outweighed the positive effect of modestly lower funding costs on the net interest margin.

The average yield on earning assets decreased as the average yields for loans and investments continued to decline.  For the first quarter the average yield on loans decreased two basis points compared to the prior year period while the average yield on investments, including cash equivalents, declined eight basis points.  The decline in the loan yield was due to yields on new loan volume being generally below rates of the overall portfolio in the continued low-rate environment.  The lower average yield of investments was the result of maturing higher interest rate investments being replaced with lower rate instruments or being used to pay down external borrowings.

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The average rate on interest-bearing liabilities decreased one basis point as a slight decline in the average rate for interest-bearing deposits was partially offset by an increase in the average rate on external borrowings.  The average rate on interest-bearing deposits decreased one basis point for the first quarter while the average rate on borrowings increased 85 basis points when compared to the prior year first quarter.  The increase in the average cost of borrowings was the result of lower-rate overnight FHLB borrowings becoming a smaller proportion of this funding component, as well as increased costs resulting from increases in the Federal Funds rate in December 2016 and March 2017.

The average balance of investments, including cash equivalents, decreased $14.7 million for the quarter as compared to the corresponding prior year period primarily related to maturities, calls and principal payments on the nontaxable municipal investment portfolio outpacing new purchases.  Average loan balances increased $126.5 million, or 2.6%, as compared to the prior year quarter, due to organic loan growth in the consumer mortgage and indirect loan portfolios.

In comparison to the prior year first quarter, total first quarter average interest-bearing deposits increased $84.8 million primarily a result of new customers and growth in the balances of existing accounts.  The average borrowing balance decreased $119.4 million for the quarter, and was reflective of the decrease in overnight FHLB borrowings due to additional funding from organic deposit growth.

Table 2 below sets forth information related to average interest-earning assets and interest-bearing liabilities and their associated yields and rates for the periods indicated.  Interest income and yields are on a fully tax-equivalent basis ("FTE") using marginal income tax rates of 38.1% and 38.2% in 2017 and 2016, respectively.  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 amortization of deferred loan fees and costs as well as accretion of acquired loan marks.  Average loan balances include nonaccrual loans and loans held for sale.

Table 2: Quarterly Average Balance Sheet

	Three Months Ended							Three Months Ended
	March 31, 2017							March 31, 2016
					Avg.							Avg.
	Average				Yield/Rate			Average				Yield/Rate
(000's omitted except yields and rates)	Balance		Interest		Paid			Balance		Interest		Paid
Interest-earning assets:
Cash equivalents	$	40,209	$	79		0.79	%	$	22,355	$	26		0.47	%
Taxable investment securities (1)		2,203,175		13,487		2.48	%		2,172,983		13,570		2.51	%
Nontaxable investment securities (1)		540,518		6,161		4.62	%		603,297		6,931		4.62	%
Loans (net of unearned discount)(2)		4,939,092		52,541		4.31	%		4,812,575		51,753		4.33	%
Total interest-earning assets		7,722,994		72,268		3.80	%		7,611,210		72,280		3.82	%
Noninterest-earning assets		1,024,272							993,054
Total assets	$	8,747,266						$	8,604,264
Interest-bearing liabilities:
Interest checking, savings, and money market deposits	$	4,847,582		1,028		0.09	%	$	4,666,174		1,029		0.09	%
Time deposits		695,464		702		0.41	%		792,099		865		0.44	%
FHLB borrowings		75,414		149		0.80	%		194,815		287		0.59	%
Subordinated debt held by unconsolidated subsidiary trusts		102,173		805		3.20	%		102,149		694		2.73	%
Total interest-bearing liabilities		5,720,633		2,684		0.19	%		5,755,237		2,875		0.20	%
Noninterest-bearing liabilities:
Noninterest checking deposits		1,620,473							1,527,585
Other liabilities		149,272							144,196
Shareholders' equity		1,256,888							1,177,246
Total liabilities and shareholders' equity	$	8,747,266						$	8,604,264
Net interest earnings			$	69,584						$	69,405
Net interest spread						3.61	%						3.62	%
Net interest margin on interest-earning assets						3.65	%						3.67	%
Fully tax-equivalent adjustment			$	2,310						$	2,524

(1)	Averages for investment securities are based on historical cost and the yields do not give effect to changes in fair value that are reflected as a component of noninterest-earning assets, 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 and disclosed in Table 3 below, 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 3: Rate/Volume

	Three months ended March 31, 2017
	versus March 31, 2016
	Increase (Decrease) Due to Change in (1)
							Net
(000's omitted)	Volume			Rate			Change
Interest earned on:
Cash equivalents	$	29		$	24		$	53
Taxable investment securities		187			(270	)		(83	)
Nontaxable investment securities		(716	)		(54	)		(770	)
Loans		1,350			(562	)		788
Total interest-earning assets (2)		1,054			(1,066	)		(12	)
Interest paid on:
Interest checking, savings and money market deposits		39			(40	)		(1	)
Time deposits		(101	)		(62	)		(163	)
Borrowings		(214	)		76			(138	)
Subordinated debt held by unconsolidated subsidiary trusts		0			111			111
Total interest-bearing liabilities (2)		(17	)		(174	)		(191	)
Net interest earnings (2)		1,012			(833	)		179

(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 such change in each component.
(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 Revenues

The Company's sources of noninterest revenues 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 and its subsidiaries); 3) wealth management services, comprised of trust services (performed by the trust unit within CBNA), investment products and services (performed by Community Investment Services, Inc. ("CISI")) and asset management services (performed by Nottingham Advisors, Inc.); 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 4: Noninterest Revenues

	Three Months Ended
	March 31,
(000's omitted)	2017			2016
Deposit service fees	$	14,707		$	13,734
Employee benefit services		17,189			12,011
Wealth management services		4,861			5,116
Insurance revenues		6,400			5,841
Other banking services		787			1,121
Mortgage banking		372			458
Subtotal		44,316			38,281
Gain on sales of investment securities, net		2			0
Total noninterest revenues	$	44,318		$	38,281
Noninterest revenues/operating revenues (FTE basis) (1)		38.9	%		35.5	%

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

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As displayed in Table 4, noninterest revenues, excluding gain on sales of securities, were $44.3 million in the first quarter of 2017.  This represents an increase of $6.0 million, or 15.8%, for the quarter in comparison to the same 2016 timeframe, with the increase primarily related to incremental financial services revenues from the NRS acquisition.

General recurring banking noninterest revenue of $15.5 million for the first quarter of 2017 was up $0.6 million, or 4.3%, as compared to the corresponding prior year period.  This increase was primarily driven by growth in debit card-related revenue and an increase in revenue from overdraft protection programs.

Mortgage banking income, which totaled $0.4 million for the first quarter of 2017, was down slightly as compared to the first quarter of 2016.  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 residential mortgage loan-related fee income.  Residential mortgage loans sold to investors, primarily Fannie Mae, totaled $7.9 million in the first quarter of 2017 compared to $5.6 million in the first quarter of 2016.  Residential mortgage loans held for sale at March 31, 2017 totaled $0.7 million.  Realization of the unrealized gains or losses on mortgage loans held for sale and the related commitments, as well as future revenue generation from mortgage banking activities, are dependent on market conditions and long-term interest rate trends.

Employee benefit services revenue increased $5.2 million, or 43.1%, for the three months ended March 31, 2017 as compared to the prior year, primarily related to the NRS acquisition completed in February 2017.  Wealth management and insurance services revenues for the first quarter of 2017 were up $0.3 million as compared to the prior year first quarter primarily due to revenue growth from OneGroup.

The ratio of noninterest revenues to total revenues (FTE basis) was 38.9% for the quarter versus 35.5% for the equivalent period of 2016.  The increase is a function of a 15.8% increase in non-interest income while net interest income (FTE basis) increased at a lesser 0.26% rate.

Noninterest Expenses

Table 5 below sets forth the quarterly results of the major operating expense categories for the current and prior year, as well as efficiency ratios (defined below), a standard measure of expense utilization effectiveness commonly used in the banking industry.

Table 5: Noninterest Expenses

	Three Months Ended
	March 31,
(000's omitted)	2017			2016
Salaries and employee benefits	$	41,400		$	39,138
Occupancy and equipment		8,196			7,663
Data processing and communications		8,521			8,412
Amortization of intangible assets		2,768			1,442
Legal and professional fees		2,414			2,516
Office supplies and postage		1,674			1,778
Business development and marketing		2,081			2,013
FDIC insurance premiums		753			1,101
Acquisition expenses		1,716			77
Other		4,052			3,529
Total noninterest expenses	$	73,575		$	67,669
Operating expenses(1)/average assets		3.20	%		3.09	%
Efficiency ratio(2)		60.7	%		61.4	%

(1)	Operating expenses, a non-GAAP measure, is calculated as total noninterest expenses less acquisition expenses and amortization of intangibles.  See Table 11 for Reconciliation of Quarterly GAAP to Non-GAAP Measures.
(2)	Efficiency ratio, a non-GAAP measure, is calculated as operating expenses as defined in (1) divided by net interest income on a fully tax-equivalent basis plus noninterest revenues.  See Table 11 for Reconciliation of Quarterly GAAP to Non-GAAP Measures.

34

As shown in Table 5, noninterest expenses were $73.6 million for the first quarter, an increase of $5.9 million, or 8.7%, from the prior year period.  Included in first quarter 2017 operating expenses are $1.6 million more acquisition expenses than the corresponding 2016 period.  Salaries and employee benefits increased $2.3 million, or 5.8%, for the first quarter period as compared to the comparable period of 2016.  The main drivers of the increase were more average full-time equivalent employees due to the NRS acquisition and annual merit-based personnel cost increases.  The remaining change to quarterly operating expenses can be attributed to higher occupancy and equipment (up $0.5 million), other expenses (up $0.5 million), amortization of intangible assets (up $1.3 million), data processing and communications (up $0.1 million), and business development and marketing (up $0.1 million); all primarily a result of additional costs associated with acquired NRS business activities, offset by lower legal and professional ($0.1 million less), office supplies and postage ($0.1 million less) and FDIC insurance premiums ($0.3 million less).

The Company's efficiency ratio (total operating expenses excluding intangible amortization and acquisition expenses divided by FTE net interest income and non-interest income) was 60.7% for the first quarter, 0.7% favorable to the comparable quarter of 2016.  This resulted in an increase in operating income of 5.8% from higher FTE-adjusted net interest income and growth in noninterest revenues, while operating expenses (as described above) increased by a smaller 4.4%.  Current year operating expenses, excluding intangible amortization and acquisition expenses, as a percentage of average assets increased 11 basis points versus the prior year quarter.  First quarter operating expenses (as defined above) increased 4.4% year-over-year while average assets increased at a slower 1.7% rate.

Income Taxes

The first quarter 2017 effective income tax rate was 27.4% as compared to 32.5% for the first quarter of 2016, reflective of a $2.2 million reduction of income tax expense in the first quarter of 2017 as a result of new accounting guidance for share-based transactions that requires all excess tax benefits and deficiencies associated with share-based compensation be recognized as income tax expense or benefit, partially offset by a higher proportion of income being generated from fully-taxable sources.  Excluding the $2.2 million reduction in income tax expense associated with the change in accounting for share-based transactions, the adjusted effective tax rate for the first quarter would have been 33.5%.

Investments

The carrying value of investments (including unrealized gains and losses on available-for-sale securities) was $2.79 billion at the end of the first quarter, an increase of $4.3 million from December 31, 2016 and $114.2 million lower than March 31, 2016.  The book value (excluding unrealized gains and losses) of investments increased $0.4 million from December 31, 2016 and decreased $26.8 million from March 31, 2016.  During the first three months of 2017, the Company purchased $1.8 million of obligations of state and political subdivisions with an average yield of 4.52%, and $15.0 million of government agency mortgage-backed securities with an average yield of 2.59%.  The Company also had $33.5 million of investment maturities, calls and principal payments received during the first three months of 2017.  Additionally, $20.3 million of certificates of deposit were acquired as part of the NRS acquisition, of which $1.5 million were subsequently redeemed. During the final nine months of 2016, the Company purchased $6.0 million of obligations of state and political subdivisions and $47.7 million of government agency mortgage-backed securities.  These purchases were more than offset by calls, maturities, and principal payments received of $90.5 million during the same time period.

The change in the carrying value of investments is also impacted by the amount of net unrealized gains in the available-for-sale portfolio.  At March 31, 2017, the portfolio had a $45.7 million net unrealized gain, an increase of $3.9 million from the unrealized gain at December 31, 2016 and a $87.4 million decrease from the unrealized gain at March 31, 2016.  These changes in the net unrealized gain were principally driven by the movement in longer-term interest rates over the past year.

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Table 6: Investment Securities

	March 31, 2017				December 31, 2016				March 31, 2016
	Amortized		Fair		Amortized		Fair		Amortized		Fair
(000's omitted)	Cost		Value		Cost		Value		Cost		Value
Available-for-Sale Portfolio:
U.S. Treasury and agency securities	$	1,878,982	$	1,908,234	$	1,876,358	$	1,902,762	$	1,868,429	$	1,963,543
Obligations of state and political subdivisions		564,501		578,658		582,655		594,990		632,114		662,392
Government agency mortgage-backed securities		237,257		239,054		232,657		235,230		208,300		215,271
Corporate debt securities		5,697		5,681		5,716		5,687		16,639		16,684
Government agency collateralized mortgage   obligations		8,516		8,809		9,225		9,535		11,911		12,436
Marketable equity securities		251		454		252		452		251		410
Total available-for-sale portfolio		2,695,204		2,740,890		2,706,863		2,748,656		2,737,644		2,870,736
Other Securities:
Federal Home Loan Bank common stock		5,590		5,590		12,191		12,191		7,258		7,258
Federal Reserve Bank common stock		19,781		19,781		19,781		19,781		20,663		20,663
Certificates of deposit		18,758		18,758		0		0		0		0
Other equity securities		3,699		3,699		3,764		3,764		4,221		4,221
Total other securities		47,828		47,828		35,736		35,736		32,142		32,142
Total investments	$	2,743,032	$	2,788,718	$	2,742,599	$	2,784,392	$	2,769,786	$	2,902,878

Loans

As shown in Table 7, loans ended the first quarter at $4.93 billion, up $111.0 million, or 2.3%, from one year earlier and down $16.3 million, or 0.3%, from the end of 2016.  The growth during the last twelve months was primarily attributable to organic growth in the consumer mortgage and consumer installment portfolios, partially offset by decreases in the business lending and home equity portfolios.  The decrease during the first three months of 2017 occurred primarily in the business lending and home equity portfolios, while the consumer mortgage and consumer installment portfolios increased.

Table 7: Loans

(000's omitted)	March 31, 2017				December 31, 2016				March 31, 2016
Consumer mortgage	$	1,830,800	37.1	%	$	1,819,701	36.8	%	$	1,777,792	36.9	%
Business lending		1,468,465	29.8	%		1,490,076	30.1	%		1,509,421	31.3	%
Consumer indirect		1,055,112	21.4	%		1,044,972	21.1	%		941,151	19.5	%
Consumer direct		184,067	3.7	%		191,815	3.9	%		189,535	3.9	%
Home equity		393,769	8.0	%		401,998	8.1	%		403,273	8.4	%
Total loans	$	4,932,213	100.0	%	$	4,948,562	100.0	%	$	4,821,172	100.0	%

Consumer mortgages increased $53.0 million, or 3.0%, from one year ago and increased $11.1 million, or 0.6%, from December 31, 2016.  Consumer mortgage volume has been relatively strong over the last several years due to historically low long-term rates and comparatively stable real estate valuations in the Company's primary markets.  Interest rate levels and expected duration continue to be the most significant factors in determining whether the Company chooses to retain, versus sell and service, portions of its new mortgage production.

The combined total of general-purpose business lending to commercial and industrial customers, mortgages on commercial property, and dealer floor plan financing is characterized as the Company's business lending activity.  The business lending portfolio decreased $41.0 million, or 2.7%, from March 31, 2016 as contractual and unscheduled principal reductions outpaced new loan volume.  Additionally, the portfolio decreased $21.6 million, or 1.5%, from December 31, 2016 as a result of unusually large unscheduled payoffs.  Highly competitive conditions continue to prevail in the small and middle market segments in which the Company 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.

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Consumer installment loans, both those originated directly (such as personal installment and lines of credit), and indirectly (originated predominantly in automobile, marine, and recreational vehicle dealerships), increased $108.5 million, or 9.6%, on a year-over-year basis, due to strong organic growth in the indirect portfolio, partially offset by a modest decrease in the direct portfolio.  The volume of new and used vehicle sales to upper tier credit profile customers in the Company's primary markets has increased 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.  Consumer installment loans increased $2.4 million, or 0.2%, as compared to December 31, 2016, as seasonally expected.

Home equity loans decreased $9.5 million, or 2.4%, from one year ago 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.  The portfolio decreased $8.2 million, or 2.0%, from December 31, 2016, in part due to lower seasonal demand.

Asset Quality

Table 8 below exhibits the major components of nonperforming loans and assets and key asset quality metrics for the periods ending March 31, 2017 and 2016 and December 31, 2016.

Table 8: Nonperforming Assets

	March 31,			December 31,			March 31,
(000's omitted)	2017			2016			2016
Nonaccrual loans
Consumer mortgage	$	13,573		$	13,684		$	13,526
Business lending		4,688			5,063			7,837
Consumer indirect		0			0			0
Consumer direct		0			0			14
Home equity		1,805			1,872			2,388
Total nonaccrual loans		20,066			20,619			23,765
Accruing loans 90+ days delinquent
Consumer mortgage		853			1,385			1,556
Business lending		569			145			46
Consumer indirect		126			169			183
Consumer direct		79			58			59
Home equity		1,182			1,319			483
Total accruing loans 90+ days delinquent		2,809			3,076			2,327
Nonperforming loans
Consumer mortgage		14,426			15,069			15,082
Business lending		5,257			5,208			7,883
Consumer indirect		126			169			183
Consumer direct		79			58			73
Home equity		2,987			3,191			2,871
Total nonperforming loans		22,875			23,695			26,092
Other real estate owned (OREO)		2,486			1,966			2,031
Total nonperforming assets	$	25,361		$	25,661		$	28,123
Nonperforming loans / total loans		0.46	%		0.48	%		0.54	%
Nonperforming assets / total loans and other real estate		0.51	%		0.52	%		0.58	%
Delinquent loans (30 days past due to nonaccruing) to total loans		0.94	%		1.19	%		1.00	%
Net charge-offs to average loans outstanding (quarterly)		0.16	%		0.18	%		0.10	%
Legacy net charge-offs to average legacy loans outstanding (quarterly)		0.17	%		0.17	%		0.09	%
Provision for loan losses to net charge-offs (quarterly)		93	%		120	%		117	%
Legacy provision for loan losses to net charge-offs (quarterly) (1)		85	%		133	%		112	%
(1)Legacy loans exclude loans acquired after January 1, 2009. These ratios are included for comparative purposes to prior periods.

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As displayed in Table 8, nonperforming assets at March 31, 2017 were $25.4 million, a $0.3 million decrease versus the level at the end of 2016 and a $2.8 million decrease as compared to one year earlier.  Nonperforming loans decreased $0.8 million from year-end 2016 and were down $3.2 million from March 31, 2016.  Other real estate owned ("OREO") at the end of March 2017 of $2.5 million increased $0.5 million from the end of 2016 and increased $0.5 million from March 31, 2016.  At March 31, 2017, OREO consisted of six commercial properties with a total value of $0.8 million and 32 residential properties with a total value of $1.7 million.  This compares to five commercial properties with a total value of $0.8 million and 24 residential OREO properties with a total value of $1.2 million at December 31, 2016, and four commercial properties with a total value of $0.6 million and 28 residential OREO properties with a total value of $1.4 million at March 31, 2016.  Nonperforming loans were 0.46% of total loans outstanding at the end of the first quarter, two basis points lower than the level at December 31, 2016 and eight basis points lower than the level at March 31, 2016.

Approximately 63% of nonperforming loans at March 31, 2017 are related to the consumer mortgage portfolio.  Collateral values of residential properties within the Company's market area have remained stable over the past several years.  Additionally, improved process efficiency and economic conditions as well as lower unemployment levels have positively impacted consumers and have resulted in generally improving nonperforming mortgage levels.  Approximately 23% of the nonperforming loans at March 31, 2017 were 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% of nonperforming loans relate to consumer installment and home equity loans, with home equity non-performing loan levels being driven by the same factors identified for consumer mortgages.  The allowance for loan losses to nonperforming loans ratio, a general measure of coverage adequacy, was 206% at the end of the first quarter, as compared to 199% at year-end 2016 and 175% at March 31, 2016.

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 a quarterly basis by senior credit administration management, special assets officers and commercial lending management to monitor their status and discuss relationship management plans.  Commercial lending management reviews the criticized loan portfolio on a monthly basis.

Delinquent loans (30 days past due through nonaccruing) as a percent of total loans was 0.94% at the end of the first quarter, 25 basis points below the 1.19% at year-end 2016 and six basis points lower than the 1.00% at March 31, 2016.  The business lending delinquency ratio at the end of the first quarter was eight basis points below the level at December 31, 2016 and 13 basis points lower than the level at March 31, 2016.  The delinquency rate for consumer direct and consumer indirect loans also decreased as compared to December 31, 2016, but the delinquency rate for consumer installment loans was up slightly from March 31, 2016.  The delinquency ratio for consumer mortgages was lower than the level at December 31, 2016 and the level one year ago.  The home equity delinquency ratio at the end of the first quarter was lower than the level at December 31, 2016 but was higher than the level at March 31, 2016.  The Company's success at keeping the nonperforming and delinquency ratios at favorable levels has been the result of its continued focus on maintaining strict underwriting standards, as well as the effective utilization of its collection and recovery capabilities.

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Table 9: Allowance for Loan Losses Activity

	Three Months Ended
	March 31,
(000's omitted)	2017			2016
Allowance for loan losses at beginning of period	$	47,233		$	45,401
Charge-offs:
Consumer mortgage		85			88
Business lending		695			210
Consumer indirect		1,947			1,854
Consumer direct		417			462
Home equity		38			57
Total charge-offs		3,182			2,671
Recoveries:
Consumer mortgage		7			45
Business lending		71			136
Consumer indirect		869			1,114
Consumer direct		245			221
Home equity		25			9
Total recoveries		1,217			1,525
Net charge-offs		1,965			1,146
Provision for loans losses		1,828			1,341
Allowance for loan losses at end of period	$	47,096		$	45,596
Allowance for loan losses / total loans		0.95	%		0.95	%
Allowance for legacy loan losses / total legacy loans (1)		1.01	%		1.04	%
Allowance for loan losses / nonperforming loans		206	%		175	%
Allowance for legacy loan losses  / legacy nonperforming loans (1)		266	%		200	%
Net charge-offs (annualized) to average loans outstanding:
Consumer mortgage		0.02	%		0.01	%
Business lending		0.17	%		0.02	%
Consumer indirect		0.42	%		0.32	%
Consumer direct		0.36	%		0.49	%
Home equity		0.01	%		0.05	%
Total loans		0.16	%		0.10	%

⁽¹⁾ Legacy loans exclude loans acquired after January 1, 2009.  These ratios are included for comparative purposes to prior periods.

As displayed in Table 9, net charge-offs during the first quarter of 2017 were $2.0 million, or $0.8 million more than the first quarter of 2016.  Net charge-offs for the consumer installment, business lending, and consumer mortgage portfolios experienced higher levels of net charge-offs through the first three months of 2017 as compared to the first three months of 2016, while the home equity portfolio had lower levels of net charge-offs.  The net charge-off ratio (net charge-offs as a percentage of average loans outstanding) for the first quarter of 2017 was 0.16%, six basis points higher than the first quarter of 2016.  Net charge-off ratios for the first quarter of 2017 were consistent with the Company's average long-term historical levels.

The provision for loan losses was $1.8 million in the first quarter, with $1.6 million related to legacy loans and $0.2 million related to acquired loans.  The provision was $0.5 million higher than the equivalent prior year period, reflective of a larger loan portfolio and changes in certain asset quality metrics.  The allowance for loan losses of $47.1 million as of March 31, 2017 increased $1.5 million from one year ago, reflective of the increase in the size of the loan portfolio.  Stable asset quality metrics have resulted in an allowance for loan losses to total loans ratio of 0.95% at March 31, 2017, equal to the level reported at March 31, 2016 and December 31, 2016.

As of March 31, 2017, the purchase discount related to the $463.0 million of remaining non-impaired loan balances acquired from Oneida, HSBC Bank USA, N.A., First Niagara Bank, N.A., and Wilber National Bank was approximately $7.1 million, or 1.5% of that portfolio, with $1.9 million included in the allowance for loan losses to account for acquired loans where the carrying value exceeded the estimated net recoverable value.

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Deposits

As shown in Table 10, average deposits of $7.2 billion in the first quarter were up $177.7 million, or 2.5%, compared to the first quarter of 2016, and increased $87.4 million, or 1.2%, from the fourth quarter of last year.  The mix of average deposit balances continues to change as the weightings of core deposits (noninterest checking, interest checking, savings and money markets) have increased from the prior year levels.  Conversely, the proportion of time deposits decreased over the past 12 months, consistent with the last several years.  This change in deposit mix reflects the Company's goal of expanding core account relationships and reducing higher cost time deposit balances, as well as the preference of certain customers to hold a higher proportion of their funds in liquid accounts in the low interest rate environment.  This shift in product mix resulted in the quarterly average cost of deposits declining from 0.11% in the first quarter of 2016 to 0.10% in the most recent quarter.  The Company continues to focus heavily on growing its core deposit relationships through its proactive marketing efforts, competitive product offerings and high quality customer service.

Average nonpublic fund deposits for the first quarter of 2017 increased $36.1 million, or 0.6%, versus the fourth quarter of 2016 and increased $114.5 million, or 1.9% compared to the year-earlier period.  Average public fund deposits for the first quarter increased $51.3 million, or 5.1%, from the fourth quarter of 2016 and $63.2 million, or 6.4%, from the first quarter of 2016.  Public fund deposits as a percentage of total deposits increased from 14.2% in the first quarter of 2016 to 14.7% in the first quarter of 2017.

Table 10: Quarterly Average Deposits

	March 31,		December 31,		March 31,
(000's omitted)	2017		2016		2016
Noninterest checking deposits	$	1,620,473	$	1,603,703	$	1,527,585
Interest checking deposits		1,694,645		1,642,761		1,616,731
Regular savings deposits		1,320,691		1,309,273		1,278,134
Money market deposits		1,832,246		1,806,780		1,771,309
Time deposits		695,464		713,606		792,099
Total deposits	$	7,163,519	$	7,076,123	$	6,985,858
Nonpublic fund deposits	$	6,108,961	$	6,072,911	$	5,994,507
Public fund deposits		1,054,558		1,003,212		991,351
Total deposits	$	7,163,519	$	7,076,123	$	6,985,858

Borrowings

External borrowings were $102.2 million at the end of the first quarter, $146.2 million, or 58.9%, lower than borrowings at December 31, 2016, and $33.7 million, or 24.8%, lower than the end of the first quarter of 2016.  This was a result of utilizing increased funding from organic deposit growth to reduce overnight borrowings at the FHLB.

Shareholders' Equity

Total shareholders' equity was $1.30 billion at the end of the first quarter, an increase of $97.9 million from the balance at December 31, 2016.  This increase consisted of $78.5 million related to stock issued in connection with the NRS acquisition, net income of $26.3 million, a $2.5 million increase in other comprehensive income, $2.1 million from treasury stock issued to the Company's 401(k) plan, $1.8 million from shares issued under the employee stock plan, and $1.4 million from employee stock options earned, partially offset by dividends declared of $14.7 million.  The change in other comprehensive income was comprised of a $2.4 million increase in the after-tax market value adjustment on the available-for-sale investment portfolio and a positive $0.1 million adjustment to the funded status of the Company's retirement plans.  Over the past 12 months, total shareholders' equity increased by $95.4 million, as net income and the issuance of common stock in association with the NRS acquisition, the employee stock plan and the Company's 401(k) plan, more than offset a lower market value adjustment on investments, dividends declared and the change in the funded status of the Company's defined benefit pension and other postretirement plans.

40

The Company's Tier 1 leverage ratio, a primary measure of regulatory capital for which 5% is the requirement to be "well-capitalized", was 10.35% at the end of the first quarter, down 20 basis points from year-end 2016 and 40 basis points higher than its level one year earlier.  The decrease in the Tier 1 leverage ratio in comparison to December 31, 2016 was primarily due to the impact of intangible assets from the NRS acquisition, partially offset by net earnings retention, resulting in ending shareholders' equity excluding intangibles and other comprehensive income items decreasing 1.6%, while average assets excluding intangibles and the market value adjustment on investments increased 0.3%.  The Tier 1 leverage ratio increased as compared to the prior year's first quarter as shareholders' equity, excluding intangibles and other comprehensive income, increased 5.3% due to strong earnings retention, partially offset by the impact of intangible assets from the NRS acquisition, while average assets excluding intangibles and the market value adjustment increased 1.3%, driven by organic loan growth.  The net tangible equity-to-assets ratio (a non-GAAP measure) of 8.91% decreased 33 basis points from December 31, 2016 and decreased 34 basis points as compared to March 31, 2016.  The decrease in the tangible equity ratio over the past 12 months was due to a decrease in tangible equity primarily attributable the impact of intangibles resulting from the NRS transaction and the decrease in the investment market value adjustment, while tangible assets increased due to organic loan growth.

The dividend payout ratio (dividends declared divided by net income) for the first three months of 2017 was 56.0%, up from 55.8% for the three months ended March 31, 2016.  Dividends declared increased 7.9% as the Company's quarterly dividend per share was raised from $0.31 to $0.32 in August 2016, while net income for increased 7.6% over the prior year period.  Additionally, the number of common shares outstanding increased 4.3% over the last twelve months including the impact of the 1.32 million shares issued in the NRS transaction that accounted for 3.0% of the total increase.  The dividend increase marked the Company's 24^th consecutive year of increased dividend payouts to common shareholders.

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.

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 acquired 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 there were no outstanding borrowings at March 31, 2017.

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 March 31, 2017, the Bank had $291.2 million of cash and cash equivalents of which $133.1 million are interest-earning deposits held at the Federal Reserve, FHLB and other correspondent banks.  The Bank also had $1.4 billion in unused FHLB borrowing capacity based on the Company's quarter-end collateral levels.  Additionally, the Company has $1.1 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.

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 March 31, 2017, this ratio was 13.1% for 30-days and 13.0% 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 based on 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 March 31, 2017, 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 March 31, 2017 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.

41

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 (the "Board") 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.

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.  Forward-looking statements often use words such as "anticipate," "target," "expect," "estimate," "intend," "plan," "goal," "forecast, " "believe," or other words of similar meaning.  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, but not limited to, 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 would make additional updates or corrections with respect thereto or with respect to other forward-looking statements.

42

Reconciliation of Quarterly GAAP to Non-GAAP Measures

Table 11: Quarterly GAAP to Non-GAAP Reconciliations

	Three Months Ended
	March 31,
(000's omitted)	2017			2016
Income statement data
Net income
Net income (GAAP)	$	26,257		$	24,403
Amortization of intangibles (1)		2,008			973
Acquisition expenses (1)		1,245			52
Adjusted net income (non-GAAP)	$	29,510		$	25,428
Earnings per common share
Diluted earnings per share (GAAP)	$	0.57		$	0.55
Amortization of intangibles (1)		0.04			0.02
Acquisition expenses (1)		0.03			0.00
Diluted adjusted net earnings per share (non-GAAP)	$	0.64		$	0.57
Noninterest operating expenses
Noninterest expenses (GAAP)	$	73,575		$	67,669
Amortization of intangibles		(2,768	)		(1,442	)
Acquisition expenses		(1,716	)		(77	)
Total adjusted noninterest expenses (non-GAAP)	$	69,091		$	66,150
Efficiency ratio
Adjusted noninterest expenses (non-GAAP) - numerator	$	69,091		$	66,150
Tax-equivalent net interest income		69,584			69,405
Noninterest revenues		44,318			38,281
Gain on sales of investments		(2	)		0
Operating revenues (non-GAAP) - denominator	$	113,900		$	107,686
Efficiency ratio (non-GAAP)		60.7	%		61.4	%
	March 31,			December 31,			March 31,
(000's omitted)		2017			2016			2016
Balance sheet data – at end of quarter
Total assets
Total assets (GAAP)	$	8,913,860		$	8,666,437		$	8,615,901
Intangible assets		(618,977	)		(480,844	)		(484,881	)
Deferred taxes on intangible assets		68,236			43,504			40,483
Total tangible assets (non-GAAP)	$	8,363,119		$	8,229,097		$	8,171,503
Total common equity
Common stock, APIC, Retained earnings, and Treasury stock	$	1,285,676		$	1,190,257		$	1,139,378
Accumulated other comprehensive income		10,354			7,843			61,287
Shareholders' Equity (GAAP)		1,296,030			1,198,100			1,200,665
Intangible assets		(618,977	)		(480,844	)		(484,881	)
Deferred taxes on intangible assets		68,236			43,504			40,483
Total tangible common equity (non-GAAP)	$	745,289		$	760,760		$	756,267
Net tangible equity-to-assets ratio at quarter end
Total tangible common equity (non-GAAP) - numerator	$	745,289		$	760,760		$	756,267
Total tangible assets (non-GAAP) - denominator		8,363,119			8,229,097			8,171,503
Net tangible equity-to-assets ratio at quarter end (non-GAAP)		8.91	%		9.24	%		9.25	%
(1) After tax effect.

43

Item 3. 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 79% 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 21% of the total portfolio, of which, 97% carry a minimum rating of A-.  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.

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.  The Board 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 March 31, 2017 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 -75 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 March 31, 2017
+200 basis points	($1,183,000)
+100 basis points	($218,000)
-75 basis points	($3,069,000)

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.

44

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.

Item 4. 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 (the "Exchange Act"), designed to ensure information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is: (i) recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and (ii) accumulated and communicated to management, including the principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.  Based on management's evaluation of the effectiveness of the Company's disclosure controls and procedures, with the participation of the Chief Executive Officer and the Chief Financial Officer, it has concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, these disclosure controls and procedures were effective as of March 31, 2017.

Changes in Internal Control over Financial Reporting

The Company regularly assesses the adequacy of its internal controls over financial reporting.  There have been no changes in the Company's internal controls over financial reporting in connection with the evaluation referenced in the paragraph above that occurred during the Company's quarter ended March 31, 2017 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

Part II.Other Information

Item 1.   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 March 31, 2017, 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 1A.    Risk Factors

There has not been any material change in the risk factors disclosure from that contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2016 filed with the SEC on March 1, 2017.

45

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

a)  Not applicable.

b)  Not applicable.

c)  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 first quarter of 2017:

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
January 1-31, 2017 (1)		1,714	$	59.95		0		2,200,000
February 1-28, 2017		0		0		0		2,200,000
March 1-31, 2017 (1)		20,656	$	59.41		0		2,200,000
Total		22,370	$	59.45

⁽¹⁾ Included in the common shares repurchased were shares acquired by the Company in connection with satisfaction of tax withholding obligations on vested restricted stock issued pursuant to the employee benefit plan of 1,714 shares and 20,656 shares in January 2017 and March 2017, respectively. These shares were not repurchased as part of the publicly announced repurchase plan described above.

Item 3.Defaults Upon Senior Securities

Not applicable.

Item 4.Mine Safety Disclosures

Not applicable.

Item 5.Other Information

Not applicable.

46

Item 6.Exhibits

Exhibit No.Description

10.1	Employment Agreement, dated as of January 1, 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).(1)
10.2	Employment Agreement, dated as of January 1, 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).(1)
10.3	Registration Rights Agreement.  Incorporated by reference to Exhibit 10.1 to the Registration Statement on Form S-3 filed on February 3, 2017 (File No. 333-215894)).
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. (2)
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. (2)
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 Shareholders' 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⁾  Denotes management contract or compensatory plan or arrangement.

⁽²⁾  Filed herewith.

⁽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.

47

Signatures

Pursuant to the requirements 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.

Date: May 10, 2017	/s/ Mark E. Tryniski
	Mark E. Tryniski, President and Chief Executive
	Officer
Date: May 10, 2017	/s/ Scott Kingsley
	Scott Kingsley, Treasurer and Chief
	Financial Officer

48

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 quarterly report on Form 10-Q 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:  May 10, 2017

/s/ Mark E. Tryniski

Mark E. Tryniski

President and Chief Executive Officer

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 quarterly report on Form 10-Q 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.

Dated:  May 10, 2017

/s/ Scott Kingsley

Scott Kingsley

Treasurer and Chief Financial Officer

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 Quarterly Report of Community Bank System, Inc. (the "Company") on Form 10-Q for the quarter ended March 31, 2017 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.

This certification accompanies this Form 10-Q and shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that Section.

/s/ Mark E. Tryniski

Mark E. Tryniski

President and Chief Executive Officer

May 10, 2017

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 Quarterly Report of Community Bank System, Inc. (the "Company") on Form 10-Q for the quarter ended March 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Scott Kingsley, Treasurer and 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.

This certification accompanies this Form 10-Q and shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that Section.

/s/ Scott Kingsley

Scott Kingsley

Treasurer and Chief Financial Officer

May 10, 2017

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2017	Apr. 30, 2017
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 Common Stock, Shares Outstanding		45,983,193
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q1
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2017

XML

CONSOLIDATED STATEMENTS OF CONDITION (Unaudited) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Assets:
Cash and cash equivalents	$ 291,186	$ 173,857
Available-for-sale investment securities (cost of $2,695,204 and $2,706,863, respectively)	2,740,890	2,748,656
Other securities, at cost	47,828	35,736
Loans held for sale, at fair value	673	2,416
Loans	4,932,213	4,948,562
Allowance for loan losses	(47,096)	(47,233)
Net loans	4,885,117	4,901,329
Goodwill, net	542,986	465,142
Core deposit intangibles, net	6,553	7,107
Other intangibles, net	69,438	8,595
Intangible assets, net	618,977	480,844
Premises and equipment, net	111,154	112,318
Accrued interest and fees receivable	28,466	31,093
Other assets	189,569	180,188
Total assets	8,913,860	8,666,437
Liabilities:
Noninterest-bearing deposits	1,642,158	1,646,039
Interest-bearing deposits	5,694,719	5,429,915
Total deposits	7,336,877	7,075,954
Borrowings	0	146,200
Subordinated debt held by unconsolidated subsidiary trusts	102,177	102,170
Accrued interest and other liabilities	178,776	144,013
Total liabilities	7,617,830	7,468,337
Commitments and contingencies (See Note J)
Shareholders' equity:
Preferred stock, $1.00 par value, 500,000 shares authorized, 0 shares issued	0	0
Common stock, $1.00 par value, 75,000,000 shares authorized; 46,430,517 and 44,950,352 shares issued, respectively	46,431	44,950
Additional paid-in capital	627,015	545,775
Retained earnings	626,258	614,692
Accumulated other comprehensive income	10,354	7,843
Treasury stock, at cost (474,635 and 512,937 shares, respectively)	(14,028)	(15,160)
Total shareholders' equity	1,296,030	1,198,100
Total liabilities and shareholders' equity	$ 8,913,860	$ 8,666,437

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CONSOLIDATED STATEMENTS OF CONDITION (Unaudited) (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Assets:
Available-for-sale investment securities, cost	$ 2,695,204	$ 2,706,863
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)	46,430,517	44,950,352
Treasury stock, shares at cost (in shares)	474,635	512,937

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CONSOLIDATED STATEMENTS OF INCOME (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Interest income:
Interest and fees on loans	$ 52,384	$ 51,650
Interest and dividends on taxable investments	13,566	13,596
Interest and dividends on nontaxable investments	4,008	4,510
Total interest income	69,958	69,756
Interest expense:
Interest on deposits	1,730	1,894
Interest on borrowings	149	287
Interest on subordinated debt held by unconsolidated subsidiary trusts	805	694
Total interest expense	2,684	2,875
Net interest income	67,274	66,881
Provision for loan losses	1,828	1,341
Net interest income after provision for loan losses	65,446	65,540
Noninterest revenues:
Deposit service fees	14,707	13,734
Other banking services	1,159	1,579
Employee benefit services	17,189	12,011
Insurance services	6,400	5,841
Wealth management services	4,861	5,116
Gain on investment securities	2	0
Total noninterest revenues	44,318	38,281
Noninterest expenses:
Salaries and employee benefits	41,400	39,138
Occupancy and equipment	8,196	7,663
Data processing and communications	8,521	8,412
Amortization of intangible assets	2,768	1,442
Legal and professional fees	2,414	2,516
Office supplies and postage	1,674	1,778
Business development and marketing	2,081	2,013
FDIC insurance premiums	753	1,101
Acquisition expenses	1,716	77
Other expenses	4,052	3,529
Total noninterest expenses	73,575	67,669
Income before income taxes	36,189	36,152
Income taxes	9,932	11,749
Net income	$ 26,257	$ 24,403
Basic earnings per share (in dollars per share)	$ 0.58	$ 0.55
Net income per diluted common share (in dollars per share)	0.57	0.55
Cash dividends declared per share (in dollars per share)	$ 0.32	$ 0.31

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
Pension and other post-retirement obligations:
Amortization of actuarial losses included in net periodic pension cost, gross	$ 265	$ 375
Tax effect	(102)	(144)
Amortization of actuarial losses included in net periodic pension cost, net	163	231
Amortization of prior service cost included in net periodic pension cost, gross	(31)	(34)
Tax effect	12	13
Amortization of prior service cost included in net periodic pension cost, net	(19)	(21)
Other comprehensive income related to pension and other post-retirement obligations, net of taxes	144	210
Unrealized gains on available-for-sale securities:
Net unrealized holding gains arising during period, gross	3,893	67,257
Tax effect	(1,526)	(25,415)
Net unrealized holding gains arising during period, net	2,367	41,842
Other comprehensive income related to unrealized gains on available-for-sale securities, net of taxes	2,367	41,842
Other comprehensive income, net of tax	2,511	42,052
Net income	26,257	24,403
Comprehensive income	28,768	$ 66,455
Accumulated Other Comprehensive Income By Component:
Unrealized loss for pension and other postretirement obligations	(28,735)		$ (28,969)
Tax effect	10,918		11,008
Net unrealized loss for pension and other postretirement obligations	(17,817)		(17,961)
Unrealized gain on available-for-sale securities	45,686		41,793
Tax effect	(17,515)		(15,989)
Net unrealized gain on available-for-sale securities	28,171		25,804
Accumulated other comprehensive income	$ 10,354		$ 7,843

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CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited) - 3 months ended Mar. 31, 2017 - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-In Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income [Member]	Treasury Stock [Member]	Total
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
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income			26,257			26,257
Other comprehensive income, net of tax				2,511		2,511
Cash dividends declared:
Common, $0.32 per share			(14,691)			(14,691)
Common stock issued under employee stock plan	$ 158	1,651				1,809
Common stock issued under employee stock plan (in shares)	157,801
Stock-based compensation		1,410				1,410
Stock issued for acquisition	$ 1,323	77,160				78,483
Stock issued for acquisition (in shares)	1,322,364
Treasury stock issued to benefit plan		1,019			1,132	2,151
Treasury stock issued to benefit plan (in shares)	38,302
Balance at Mar. 31, 2017	$ 46,431	$ 627,015	$ 626,258	$ 10,354	$ (14,028)	$ 1,296,030
Balance (in shares) at Mar. 31, 2017	45,955,882

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CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited) (Parenthetical) - $ / shares	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Cash dividends declared:
Dividends declared per common share (in dollars per share)	$ 0.32	$ 0.31

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Operating activities:
Net income	$ 26,257	$ 24,403
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	3,669	3,556
Amortization of intangible assets	2,768	1,442
Net accretion on securities, loans and borrowings	(406)	(911)
Stock-based compensation	1,410	1,219
Provision for loan losses	1,828	1,341
Amortization of mortgage servicing rights	126	131
Income from bank-owned life insurance policies	(368)	(355)
Net gain on sale of loans and other assets	(53)	(68)
Change in other assets and liabilities	7,430	(3,454)
Net cash provided by operating activities	42,661	27,304
Investing activities:
Proceeds from maturities of available-for-sale investment securities	33,479	18,894
Proceeds from maturities of other investment securities	8,709	12,297
Purchases of available-for-sale investment securities	(16,784)	(12,255)
Purchases of other securities	(505)	(4,612)
Net change in loans	12,197	(22,031)
Cash paid for acquisition, net of cash acquired of $11,063 and $0, respectively	(63,517)	(575)
Purchases of premises and equipment, net	(2,088)	(2,639)
Net cash used in investing activities	(28,509)	(10,921)
Financing activities:
Net change in deposits	260,923	245,588
Net change in borrowings	(146,200)	(267,600)
Issuance of common stock	1,809	932
Sales of treasury stock	2,151	5,022
Cash dividends paid	(14,186)	(13,605)
Withholding taxes paid on share-based compensation	(1,320)	(1,417)
Net cash provided by/(used in) financing activities	103,177	(31,080)
Change in cash and cash equivalents	117,329	(14,697)
Cash and cash equivalents at beginning of period	173,857	153,210
Cash and cash equivalents at end of period	291,186	138,513
Supplemental disclosures of cash flow information:
Cash paid for interest	2,707	2,863
Cash paid for income taxes	9,044	7,065
Supplemental disclosures of noncash financing and investing activities:
Dividends declared and unpaid	14,773	13,610
Transfers from loans to other real estate	920	390
Acquisitions:
Common stock issued	78,483	0
Fair value of assets acquired, excluding acquired cash and intangibles	31,599	0
Fair value of liabilities assumed	$ 30,500	$ 0

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Investing activities:
Cash acquired from acquisition	$ 11,063	$ 0

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BASIS OF PRESENTATION

3 Months Ended

Mar. 31, 2017

BASIS OF PRESENTATION [Abstract]

BASIS OF PRESENTATION

NOTE A:  BASIS OF PRESENTATION

The interim financial data as of and for the three months ended March 31, 2017 is unaudited; however, in the opinion of Community Bank System, Inc. (the “Company”), the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods in conformity with generally accepted accounting principles (“GAAP”).  The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year or any other interim period.

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ACQUISITIONS

3 Months Ended

Mar. 31, 2017

ACQUISITIONS [Abstract]

ACQUISITIONS

NOTE B:  ACQUISITIONS

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 $335 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 Company and Merchants have received regulatory approvals from the Board of Governors of the Federal Reserve System and the Office of the Comptroller of the Currency (“OCC”) for the announced merger and the acquisition is expected to close on May 12, 2017, subject to the satisfaction of customary closing conditions.  The Company expects to incur certain one-time, transaction-related costs in 2017.

On March 1, 2017, the Company, through its subsidiary, OneGroup NY, Inc. (“OneGroup”), completed its acquisition of certain assets of Dryfoos Insurance Agency, Inc. (“Dryfoos”), an insurance agency headquartered in Hazleton, Pennsylvania.  The Company paid $3.3 million in cash to acquire the assets of Dryfoos, and recorded goodwill in the amount of $1.7 million and other intangible assets of $1.7 million 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 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 $148.6 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, is 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 of NRS and GTC, hereafter referred to collectively as NRS, 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 Benefit Plans Administrative Services, Inc. (“BPAS”) and will operate as Northeast Retirement Services, LLC, a Delaware limited liability company.  This transaction resulted in the acquisition of $36.4 million in net tangible assets, principally cash and certificates of deposit, $60.2 million in customer list intangibles that will be amortized using the 150% declining balance method over 10 years, a $24.2 million deferred tax liability associated with the customer list intangible, and approximately $76.2 million in goodwill.  The effects of the acquired assets and liabilities have been included in the consolidated financial statements since that date. Revenues of $5.1 million and expenses of $3.6 million from NRS were included in the consolidated income statement for the three months ended March 31, 2017.

On January 4, 2017, the Company, through its subsidiary, OneGroup, completed its acquisition of certain assets of Benefits Advisory Service, Inc. (“BAS”), a benefits consulting group headquartered in Forest Hills, New York.  The Company paid $1.2 million in cash to acquire BAS and recorded intangible assets of $1.2 million 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 January 4, 2016, the Company, through its subsidiary, CBNA Insurance Agency, Inc. (“CBNA Insurance”), completed its acquisition of WJL Agencies Inc. doing business as The Clark Insurance Agencies (“WJL”), an insurance agency operating in Canton, 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.

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 were subject to adjustment based on updated information not available at the time of acquisition.

The above referenced insurance-related acquisitions expanded the Company’s geographical presence in New York and Pennsylvania, 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 after considering the measurement period adjustments described above:

	2017										2016
(000s omitted)	BAS		NRS			Dryfoos		Total			WJL
Consideration paid :
Cash	$	1,200	$	70,073		$	3,307	$	74,580		$	575
Community Bank System, Inc. common stock		0		78,483			0		78,483			0
Total net consideration paid		1,200		148,556			3,307		153,063			575
Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash and cash equivalents		0		11,063			0		11,063			0
Investment securities		0		20,294			0		20,294			0
Premises and equipment		0		411			0		411			0
Accrued interest receivable		0		75			0		75			0
Other assets		0		10,819			0		10,819			0
Other intangibles		1,200		60,200			1,657		63,057			288
Other liabilities		0		(30,500	)		0		(30,500	)		0
Total identifiable assets, net		1,200		72,362			1,657		75,219			288
Goodwill	$	0	$	76,194		$	1,650	$	77,844		$	287

The other intangibles related to the Dryfoos, BAS and WJL acquisitions are being amortized using an accelerated method over their estimated useful life of eight years.  The goodwill, which is not amortized for book purposes, was assigned to the Employee Benefit Services for NRS, and All Other segments for Dryfoos, BAS, and WJL acquisitions.  Goodwill arising from the NRS acquisition is not deductible for tax purposes.  Goodwill arising from the Dryfoos, BAS and WJL acquisitions is 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 and $0.1 million during the three months ended March 31, 2017 and 2016, 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 NRS acquisition had been completed as of January 1, 2016 for the three months ended March 31, 2016.  The pro forma information does not include amounts related to BAS and Dryfoos as the amounts were immaterial. The table below has been prepared for comparative purposes only and is not necessarily indicative of the actual results that would have been attained had the acquisition occurred as of the beginning of the year presented, nor is it indicative of the Company’s future results. Furthermore, the unaudited pro forma information does not reflect management’s estimate of any revenue-enhancing opportunities nor anticipated cost savings that may have occurred as a result of the integration and consolidation of the acquisitions.

The pro forma information set forth below reflects the historical results of NRS combined with the Company’s consolidated statement of income with adjustments related to amortization of customer lists intangibles.

(000’s omitted)	Pro Forma (Unaudited) Three Months Ended  March 31, 2016
Total revenue, net of interest expense	$	112,694
Net income		24,358

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ACCOUNTING POLICIES

3 Months Ended

Mar. 31, 2017

ACCOUNTING POLICIES [Abstract]

ACCOUNTING POLICIES

NOTE C:  ACCOUNTING POLICIES

The accounting policies of the Company, as applied in the consolidated interim financial statements presented herein, are substantially the same as those followed on an annual basis as presented on pages 56 through 61 of the Annual Report on Form 10-K for the year ended December 31, 2016 filed with the Securities and Exchange Commission (“SEC”) on March 1, 2017.

Critical Accounting Policies

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 Accounting Standards Codification (“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 loan 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 loans 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 are 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 into interest income.  When the carrying value exceeds the net realizable value, an allowance for loan loss is recognized.

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 direct; consumer 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 of 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.

Investment Securities

The Company can classify its investments in debt and equity securities as held-to-maturity, available-for-sale, or trading.  Held-to-maturity securities are those for which the Company has the positive intent and ability to hold until maturity, and are reported at cost, which is adjusted for amortization of premiums and accretion of discounts.  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 March 31, 2017.  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.

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.

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.

Recently Adopted Accounting Pronouncement

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, accounting for award forfeitures, and classification on the statement of cash flows.  The amendments were effective for public business entities for the first interim and annual reporting periods beginning after December 15, 2016 and the Company adopted the amendments as of January 1, 2017.  The new guidance requires entities to prospectively recognize all excess tax benefits and tax deficiencies related to share-based payment awards as income tax benefit or expense in the statement of income when the awards vest or are settled.  Previously, income tax benefits (or deficiencies) were reported as increases (or decreases) to additional paid-in capital to the extent that those benefits were greater than (or less than) the income tax benefits recognized in earnings during the awards’ vesting periods.  In addition, excess tax benefits and deficiencies are to be classified as an operating activity in the statement of cash flows, rather than a financing activity as required under prior accounting guidance.  The new guidance also requires employee taxes paid when an employer withholds shares for withholding tax purposes to be classified as a financing activity in the statement of cash flows.  The Company has elected to apply the changes in presentation on the statement of cash flows for excess tax benefits and deficiencies and employee taxes paid when an employer withholds shares on a retrospective basis.  The Company has also elected to continue to incorporate estimated forfeitures in the accrual of compensation expense, and this election had no impact on the Company’s consolidated financial statements.  For the three months ended March 31, 2017, the effect on net income from excess tax benefits was $2.2 million, or approximately $0.05 per diluted common share.

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 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.

In March 2017, the FASB issued ASU No. 2017-07, Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.  This new guidance requires the service cost component of net periodic pension and postretirement benefit costs to be presented separately from other components of net benefit cost in the statement of income.  This ASU is effective for the Company for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  This ASU is not expected to have a material impact on the Company’s consolidated financial statements.

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INVESTMENT SECURITIES

3 Months Ended

Mar. 31, 2017

INVESTMENT SECURITIES [Abstract]

INVESTMENT SECURITIES

NOTE D:  INVESTMENT SECURITIES

The amortized cost and estimated fair value of investment securities as of March 31, 2017 and December 31, 2016 are as follows:

	March 31, 2017								December 31, 2016
(000's omitted)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available-for-Sale Portfolio:
U.S. Treasury and agency securities	$	1,878,982	$	30,358	$	1,106	$	1,908,234	$	1,876,358	$	28,522	$	2,118	$	1,902,762
Obligations of state and political subdivisions		564,501		14,603		446		578,658		582,655		13,389		1,054		594,990
Government agency mortgage-backed securities		237,257		4,526		2,729		239,054		232,657		5,040		2,467		235,230
Corporate debt securities		5,697		0		16		5,681		5,716		2		31		5,687
Government agency collateralized mortgage obligations		8,516		293		0		8,809		9,225		310		0		9,535
Marketable equity securities		251		203		0		454		252		200		0		452
Total available-for-sale portfolio	$	2,695,204	$	49,983	$	4,297	$	2,740,890	$	2,706,863	$	47,463	$	5,670	$	2,748,656
Other Securities:
Federal Home Loan Bank common stock	$	5,590					$	5,590	$	12,191					$	12,191
Federal Reserve Bank common stock		19,781						19,781		19,781						19,781
Certificates of deposit		18,758						18,758		0						0
Other equity securities		3,699						3,699		3,764						3,764
Total other securities	$	47,828					$	47,828	$	35,736					$	35,736

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

As of March 31, 2017

	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		7	$	258,008	$	1,106		0	$	0	$	0		7	$	258,008	$	1,106
Obligations of state and political subdivisions		75		40,177		446		0		0		0		75		40,177		446
Government agency mortgage-backed securities		67		95,749		1,866		14		21,228		863		81		116,977		2,729
Corporate debt securities		1		2,677		16		0		0		0		1		2,677		16
Government agency collateralized mortgage obligations		0		0		0		2		2		0		2		2		0
Total available-for-sale investment portfolio		150	$	396,611	$	3,434		16	$	21,230	$	863		166	$	417,841	$	4,297

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

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 the Ginnie Mae, Fannie Mae, and the Federal Home Loan Mortgage Corporation (“FHLMC”), 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 March 31, 2017 represents OTTI.

The amortized cost and estimated fair value of debt securities at March 31, 2017, 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	$	38,222	$	38,447
Due after one through five years		1,199,564		1,221,056
Due after five years through ten years		1,041,199		1,058,066
Due after ten years		170,195		175,004
Subtotal		2,449,180		2,492,573
Government agency mortgage-backed securities		237,257		239,054
Government agency collateralized mortgage obligations		8,516		8,809
Total	$	2,694,953	$	2,740,436

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LOANS

3 Months Ended

Mar. 31, 2017

LOANS [Abstract]

LOANS

NOTE E:  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 properties.

· 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 are summarized as follows:

(000's omitted)	March 31, 2017			December 31, 2016
Consumer mortgage	$	1,830,800		$	1,819,701
Business lending		1,468,465			1,490,076
Consumer indirect		1,055,112			1,044,972
Consumer direct		184,067			191,815
Home equity		393,769			401,998
Gross loans, including deferred origination costs		4,932,213			4,948,562
Allowance for loan losses		(47,096	)		(47,233	)
Loans, net of allowance for loan losses	$	4,885,117		$	4,901,329

The outstanding balance related to credit impaired acquired loans was $6.5 million and $6.6 million at March 31, 2017 and December 31, 2016, respectively.  The changes in the accretable discount related to the credit impaired acquired loans are as follows:

(000’s omitted)
Balance at December 31, 2016	$	498
Accretion recognized, year-to-date		(72	)
Net reclassification to accretable from non-accretable		100
Balance at March 31, 2017	$	526

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 March 31, 2017:

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	$	7,717	$	742	$	10,999	$	19,458	$	1,657,788	$	1,677,246
Business lending		2,776		569		2,970		6,315		1,266,627		1,272,942
Consumer indirect		8,941		123		0		9,064		1,019,069		1,028,133
Consumer direct		1,047		79		0		1,126		174,413		175,539
Home equity		967		194		1,299		2,460		312,915		315,375
Total	$	21,448	$	1,707	$	15,268	$	38,423	$	4,430,812	$	4,469,235

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	$	907	$	111	$	2,574	$	3,592	$	0	$	149,962	$	153,554
Business lending		332		0		1,718		2,050		5,440		188,033		195,523
Consumer indirect		147		3		0		150		0		26,829		26,979
Consumer direct		100		0		0		100		0		8,428		8,528
Home equity		415		988		506		1,909		0		76,485		78,394
Total	$	1,901	$	1,102	$	4,798	$	7,801	$	5,440	$	449,737	$	462,978

(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, 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 Company uses several credit quality indicators to assess credit risk in an ongoing manner.  The Company’s primary credit quality indicator for its business lending portfolio is an internal credit risk rating system that categorizes loans as “pass”, “special mention”,  “classified”, or “doubtful”.  Credit risk ratings are applied 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:

	March 31, 2017						December 31, 2016
(000’s omitted)	Legacy		Acquired		Total		Legacy		Acquired		Total
Pass	$	1,040,398	$	147,347	$	1,187,745	$	1,051,005	$	162,165	$	1,213,170
Special mention		141,807		24,122		165,929		135,602		29,690		165,292
Classified		90,691		18,614		109,305		90,585		15,002		105,587
Doubtful		46		0		46		474		0		474
Acquired impaired		0		5,440		5,440		0		5,553		5,553
Total	$	1,272,942	$	195,523	$	1,468,465	$	1,277,666	$	212,410	$	1,490,076

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 loans classified as current as well as those classified as 30 - 89 days past due.  Nonperforming loans include 90+ days past due and still accruing and nonaccrual loans. The following table details the balances in all other loan categories at March 31, 2017:

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

(000’s omitted)	Consumer Mortgage		Consumer Indirect		Consumer Direct		Home Equity		Total
Performing	$	1,665,505	$	1,028,010	$	175,460	$	313,882	$	3,182,857
Nonperforming		11,741		123		79		1,493		13,436
Total	$	1,677,246	$	1,028,133	$	175,539	$	315,375	$	3,196,293

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

(000’s omitted)	Consumer Mortgage		Consumer Indirect		Consumer Direct		Home Equity		Total
Performing	$	150,869	$	26,976	$	8,528	$	76,900	$	263,273
Nonperforming		2,685		3		0		1,494		4,182
Total	$	153,554	$	26,979	$	8,528	$	78,394	$	267,455

The following table details the balances in all other loan categories 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

All loan classes are collectively evaluated for impairment except business lending, as described in Note C.  A summary of individually evaluated impaired loans as of March 31, 2017 and December 31, 2016 follows:

(000’s omitted)	March 31, 2017		December 31, 2016
Loans with allowance allocation	$	580	$	1,109
Loans without allowance allocation		0		556
Carrying balance		580		1,665
Contractual balance		2,229		3,340
Specifically allocated allowance		46		477

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.

In accordance with the 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 the three months ended March 31, 2017 and 2016 was immaterial.

TDRs that are less than $0.5 million are collectively included in the general loan loss allocation and the qualitative review.  TDRs that are commercial loans and greater than $0.5 million are individually evaluated for impairment, and if necessary, a specific allocation of the allowance for loan losses is provided.  As a result, the determination of the amount of allowance for loan losses related to TDRs is the same as detailed in the critical accounting policies.

Information regarding TDRs as of March 31, 2017 and December 31, 2016 is as follows:

	March 31, 2017												December 31, 2016
(000’s omitted)	Nonaccrual				Accruing				Total				Nonaccrual				Accruing				Total
		#	Amount			#	Amount			#	Amount			#	Amount			#	Amount			#	Amount
Consumer mortgage		44	$	2,082		43	$	1,812		87	$	3,894		36	$	1,520		45	$	1,956		81	$	3,476
Business lending		6		76		4		323		10		399		6		91		5		690		11		781
Consumer indirect		0		0		79		776		79		776		0		0		78		771		78		771
Consumer direct		0		0		13		76		13		76		0		0		23		65		23		65
Home equity		14		267		7		213		21		480		14		221		7		216		21		437
Total		64	$	2,425		146	$	3,200		210	$	5,625		56	$	1,832		158	$	3,698		214	$	5,530

The following table presents information related to loans modified in a TDR during the three months ended March 31, 2017 and 2016.  Of the loans noted in the table below, all loans for the three months ended March 31, 2017 and 2016 were modified due to a Chapter 7 bankruptcy as described previously.  The financial effects of these restructurings were immaterial.

	Three Months Ended March 31, 2017				Three Months Ended March 31, 2016
(000’s omitted)	Number of  loans modified		Outstanding Balance		Number of  loans modified		Outstanding Balance
Consumer mortgage		7	$	502		4	$	266
Business lending		0		0		0		0
Consumer indirect		8		106		12		238
Consumer direct		4		15		0		0
Home equity		2		98		1		0
Total		21	$	721		17	$	504

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:

	Three Months Ended March 31, 2017
(000’s omitted)	Consumer Mortgage			Business Lending			Consumer Indirect			Consumer Direct			Home Equity			Unallocated		Acquired Impaired		Total
Beginning balance	$	10,094		$	17,220		$	13,782		$	2,979		$	2,399		$	651	$	108	$	47,233
Charge-offs		(85	)		(695	)		(1,947	)		(417	)		(38	)		0		0		(3,182	)
Recoveries		7			71			869			245			25			0		0		1,217
Provision		133			261			1,292			45			(27	)		122		2		1,828
Ending balance	$	10,149		$	16,857		$	13,996		$	2,852		$	2,359		$	773	$	110	$	47,096

	Three Months Ended March 31, 2016
(000’s omitted)	Consumer Mortgage			Business Lending			Consumer Indirect			Consumer Direct			Home Equity			Unallocated			Acquired Impaired			Total
Beginning balance	$	10,198		$	15,749		$	12,422		$	2,997		$	2,666		$	1,201		$	168		$	45,401
Charge-offs		(88	)		(210	)		(1,854	)		(462	)		(57	)		0			0			(2,671	)
Recoveries		45			136			1,114			221			9			0			0			1,525
Provision		(7	)		1,020			652			119			(38	)		(322	)		(83	)		1,341
Ending balance	$	10,148		$	16,695		$	12,334		$	2,875		$	2,580		$	879		$	85		$	45,596

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GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS

3 Months Ended

Mar. 31, 2017

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:

	March 31, 2017							December 31, 2016
(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	$	(33,135	)	$	6,553	$	39,688	$	(32,581	)	$	7,107
Other intangibles		80,910		(11,472	)		69,438		17,853		(9,258	)		8,595
Total amortizing intangibles	$	120,598	$	(44,607	)	$	75,991	$	57,541	$	(41,839	)	$	15,702

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

(000's omitted)
Apr - Dec 2017	$	10,496
2018		11,918
2019		9,886
2020		8,150
2021		7,119
Thereafter		28,422
Total	$	75,991

Shown below are the components of the Company’s goodwill at December 31, 2016 and March 31, 2017:

(000’s omitted)	December 31, 2016			Activity		March 31, 2017
Goodwill	$	469,966		$	77,844	$	547,810
Accumulated impairment		(4,824	)		0		(4,824	)
Goodwill, net	$	465,142		$	77,844	$	542,986

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MANDATORILY REDEEMABLE PREFERRED SECURITIES

3 Months Ended

Mar. 31, 2017

MANDATORILY REDEEMABLE PREFERRED SECURITIES [Abstract]

MANDATORILY REDEEMABLE PREFERRED SECURITIES

NOTE G:  MANDATORILY REDEEMABLE PREFERRED SECURITIES

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% (4.62%)	7/31/2031	Par
IV	12/8/2006	$75 million	3 month LIBOR plus 1.65% (2.78%)	12/15/2036	Par

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BENEFIT PLANS

3 Months Ended

Mar. 31, 2017

BENEFIT PLANS [Abstract]

BENEFIT PLANS

NOTE H:  BENEFIT PLANS

The Company provides a qualified defined benefit pension to eligible employees and retirees, other post-retirement health and life insurance benefits to certain retirees, an unfunded supplemental pension plan for certain key executives, and an unfunded stock balance plan for certain of its nonemployee directors.  The Company accrues for the estimated cost of these benefits through charges to expense during the years that employees earn these benefits.  The Company made a $2.9 million contribution to its defined benefit pension plan in the first quarter of 2017.

The net periodic (benefit) cost for the three months ended March 31, 2017 and 2016 is as follows:

	Pension Benefits						Post-retirement Benefits
	Three Months Ended March 31,						Three Months Ended March 31,
(000's omitted)	2017			2016			2017			2016
Service cost	$	1,039		$	1,026		$	0		$	0
Interest cost		1,361			1,406			19			20
Expected return on plan assets		(3,121	)		(2,960	)		0			0
Amortization of unrecognized net loss		263			377			2			(1	)
Amortization of prior service cost		14			11			(45	)		(45	)
Net periodic (benefit) cost	$	(444	)	$	(140	)	$	(24	)	$	(26	)

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EARNINGS PER SHARE

3 Months Ended

Mar. 31, 2017

EARNINGS PER SHARE [Abstract]

EARNINGS PER SHARE

NOTE I:  EARNINGS PER SHARE

The two class method is used in the calculations of basic and diluted earnings per share.  Under the two class method, earnings available to common shareholders for the period are allocated between common shareholders and participating securities according to dividends declared and participation rights in undistributed earnings.  The Company has determined that all of its outstanding non-vested stock awards are participating securities as of March 31, 2017.

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 adjusted for the dilutive effect of restricted stock 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 0.2 million weighted-average anti-dilutive stock options outstanding for the three months ended March 31, 2017, compared to approximately 0.6 million weighted-average anti-dilutive stock options outstanding for the three months ended March 31, 2016 that were not included in the computation below.

The following is a reconciliation of basic to diluted earnings per share for the three months ended March 31, 2017 and 2016:

	Three Months Ended March 31,
(000's omitted, except per share data)	2017			2016
Net income	$	26,257		$	24,403
Income attributable to unvested stock-based compensation awards		(138	)		(89	)
Income available to common shareholders	$	26,119		$	24,314
Weighted-average common shares outstanding – basic		45,284			43,863
Basic earnings per share	$	0.58		$	0.55
Net income	$	26,257		$	24,403
Income attributable to unvested stock-based compensation awards		(138	)		(89	)
Income available to common shareholders	$	26,119		$	24,314
Weighted-average common shares outstanding – basic		45,284			43,863
Assumed exercise of stock options		703			333
Weighted-average common shares outstanding – diluted		45,987			44,196
Diluted earnings per share	$	0.57		$	0.55

Stock Repurchase Program

At its December 2016 meeting, the Company’s Board of Directors 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, 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 Company did not repurchase any shares under the authorized plan during the first three months of 2017.

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COMMITMENTS, CONTINGENT LIABILITIES AND RESTRICTIONS

3 Months Ended

Mar. 31, 2017

COMMITMENTS, CONTINGENT LIABILITIES AND RESTRICTIONS [Abstract]

COMMITMENTS, CONTINGENT LIABILITIES AND RESTRICTIONS

NOTE J:  COMMITMENTS, CONTINGENT LIABILITIES AND RESTRICTIONS

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

The contract amounts of commitments and contingencies are as follows:

(000's omitted)	March 31, 2017		December 31, 2016
Commitments to extend credit	$	770,666	$	773,442
Standby letters of credit		23,004		22,656
Total	$	793,670	$	796,098

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 March 31, 2017, 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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FAIR VALUE

3 Months Ended

Mar. 31, 2017

FAIR VALUE [Abstract]

FAIR VALUE

NOTE K:  FAIR VALUE

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

·     Level 1 -	Quoted prices in active markets for identical assets or liabilities.
·     Level 2 -	Quoted prices in active markets for similar assets or liabilities, or quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.
·     Level 3 -	Significant valuation assumptions not readily observable in a market.

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.

	March 31, 2017
(000's omitted)	Level 1		Level 2			Level 3		Total Fair  Value
Available-for-sale investment securities:
U.S. Treasury and agency securities	$	1,908,234	$	0		$	0	$	1,908,234
Obligations of state and political subdivisions		0		578,658			0		578,658
Government agency mortgage-backed securities		0		239,054			0		239,054
Corporate debt securities		0		5,681			0		5,681
Government agency collateralized mortgage obligations		0		8,809			0		8,809
Marketable equity securities		454		0			0		454
Total available-for-sale investment securities		1,908,688		832,202			0		2,740,890
Mortgage loans held for sale		0		673			0		673
Commitments to originate real estate loans for sale		0		0			114		114
Forward sales commitments		0		(19	)		0		(19	)
Total	$	1,908,688	$	832,856		$	114	$	2,741,658

	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

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

· Mortgage loans held for sale –The Company has elected to value loans held for sale at fair value in order to more closely match the gains and losses associated with loans held for sale with the gains and losses on forward sales contracts.  Accordingly, the impact on the valuation will be recognized in the Company’s consolidated statement of income.  All mortgage loans held for sale are current and in performing status.  The fair value of mortgage loans held for sale is determined using quoted secondary-market prices of loans with similar characteristics and, as such, has been classified as a Level 2 valuation.  The unpaid principal value of mortgage loans held for sale at March 31, 2017 was approximately $0.7 million.  The unrealized gain on mortgage loans held for sale was recognized in mortgage banking and other income in the consolidated statement and is immaterial.

· Forward sales commitments – The Company enters into forward sales commitments to sell certain residential real estate loans.  Such commitments are considered to be derivative financial instruments and, therefore, are carried at estimated fair value in the other asset or other liability section of the consolidated 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:

	Three Months Ended March 31,
	2017			2016
(000's omitted)	Commitments  to Originate Real Estate Loans for Sale			Commitments  to Originate Real Estate Loans for Sale
Beginning balance	$	54		$	117
Total losses included in earnings (1)		(54	)		(117	)
Commitments to originate real estate loans held for sale, net		114			282
Ending balance	$	114		$	282

⁽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.

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

	March 31, 2017								December 31, 2016
(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	$	535	$	535	$	0	$	0	$	633	$	633
Other real estate owned		0		0		2,486		2,486		0		0		1,966		1,966
Total	$	0	$	0	$	3,021	$	3,021	$	0	$	0	$	2,599	$	2,599

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.

Other real estate owned (“OREO”) is valued at the time the loan is foreclosed upon and the asset is transferred to OREO. The value is based primarily on third party appraisals, less costs to sell. The appraisals are sometimes further discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the customer and customer’s business. Such discounts are significant, ranging from 2% to 96% at March 31, 2017 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 March 31, 2017.

The Company determines fair values based on quoted market values, where available, estimates of present values, or other valuation techniques.  Those techniques are significantly affected by the assumptions used, including, but not limited to, the discount rate and estimates of future cash flows.  In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, may not be realized in immediate settlement of the instrument.  The significant unobservable inputs used in the determination of fair value of assets classified as Level 3 on a recurring or non-recurring basis are as follows:

(000's omitted)	Fair Value at  March 31, 2017		Valuation Technique	Significant Unobservable Inputs	Significant  Unobservable Input  Range (Weighted Average)
Other real estate owned	$	2,486	Fair Value of Collateral	Estimated cost of disposal/market adjustment		2.3% - 96.0% (35.4	%)
Impaired loans		535	Fair Value of Collateral	Estimated cost of disposal/market adjustment		9% - 43% (26.0	%)
Commitments to originate real estate loans for sale		114	Discounted cash flow	Embedded servicing value		1	%

(000's omitted)	Fair Value at  December 31, 2016		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	%

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 March 31, 2017 and December 31, 2016 are as follows:

	March 31, 2017				December 31, 2016
(000's omitted)	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets:
Net loans	$	4,885,117	$	4,918,453	$	4,901,329	$	4,935,140
Financial liabilities:
Deposits		7,336,877		7,331,201		7,075,954		7,071,191
Borrowings		0		0		146,200		146,200
Subordinated debt held by unconsolidated subsidiary trusts		102,177		91,164		102,170		90,144

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.

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

3 Months Ended

Mar. 31, 2017

DERIVATIVE INSTRUMENTS [Abstract]

DERIVATIVE INSTRUMENTS

NOTE L:  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 March 31, 2017.  The effect of the changes to these derivatives for the three months then ended was also immaterial.

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SEGMENT INFORMATION

3 Months Ended

Mar. 31, 2017

SEGMENT INFORMATION [Abstract]

SEGMENT INFORMATION

NOTE M:  SEGMENT INFORMATION

Operating segments are components of an enterprise, which are evaluated regularly by the “chief operating decision maker” in deciding how to allocate resources and assess performance.  The Company’s chief operating decision maker is the President and Chief Executive Officer of the Company. The Company has identified Banking, Employee Benefit Services and All Other as its reportable operating business segments.  Community Bank, N.A. (the “Bank” or “CBNA”) operates the Banking segment that provides full-service banking to consumers, businesses, and governmental units in northern, central, and western New York as well as northeastern Pennsylvania.  Employee Benefit Services, which includes the operating subsidiaries Benefit Plans Administrative Services, LLC, BPAS Actuarial and Pension Services, LLC (formerly Harbridge Consulting Group, LLC), BPAS Trust Company of Puerto Rico, Northeast Retirement Services, LLC, and Hand Benefits & Trust Company, 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 Community Investment Services, Inc. (“CISI”), and The Carta Group, Inc., as well as asset management provided by Nottingham Advisors, Inc., and (b) full-service insurance, risk management and employee benefit services provided by OneGroup.  The accounting policies used in the disclosure of business segments are the same as those described in the summary of significant accounting policies (See Note A, Summary of Significant Accounting Policies of the most recent Form 10-K for the year ended December 31, 2016 filed with the SEC on March 1, 2017).

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
Three Months Ended March 31, 2017
Net interest income	$	67,134	$	78	$	62	$	0		$	67,274
Provision for loan losses		1,828		0		0		0			1,828
Noninterest revenues		15,867		17,636		11,479		(664	)		44,318
Amortization of intangible assets		554		1,591		623		0			2,768
Acquisition expenses		521		1,062		133		0			1,716
Other operating expenses		49,493		11,370		8,892		(664	)		69,091
Income before income taxes	$	30,605	$	3,691	$	1,893	$	0		$	36,189
Assets	$	8,663,042	$	221,437	$	72,526	$	(43,145	)	$	8,913,860
Goodwill	$	440,870	$	84,213	$	17,903	$	0		$	542,986

Three Months Ended March 31, 2016
Net interest income	$	66,798	$	40	$	43	$	0		$	66,881
Provision for loan losses		1,341		0		0		0			1,341
Noninterest revenues		15,313		12,390		11,144		(566	)		38,281
Amortization of intangible assets		719		116		607		0			1,442
Acquisition expenses		70		0		7		0			77
Other operating expenses		48,460		9,447		8,809		(566	)		66,150
Income before income taxes	$	31,521	$	2,867	$	1,764	$	0		$	36,152
Assets	$	8,546,646	$	38,535	$	69,385	$	(38,665	)	$	8,615,901
Goodwill	$	440,870	$	8,019	$	16,253	$	0		$	465,142

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BASIS OF PRESENTATION (Policies)

3 Months Ended

Mar. 31, 2017

BASIS OF PRESENTATION [Abstract]

Basis of Presentation

The interim financial data as of and for the three months ended March 31, 2017 is unaudited; however, in the opinion of Community Bank System, Inc. (the “Company”), the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods in conformity with generally accepted accounting principles (“GAAP”).  The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year or any other interim period.

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ACCOUNTING POLICIES (Policies)

3 Months Ended

Mar. 31, 2017

ACCOUNTING POLICIES [Abstract]

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 Accounting Standards Codification (“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 loan 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 loans 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 are 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 into interest income.  When the carrying value exceeds the net realizable value, an allowance for loan loss is recognized.

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 direct; consumer 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 of 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.

Investment Securities

Investment Securities

The Company can classify its investments in debt and equity securities as held-to-maturity, available-for-sale, or trading.  Held-to-maturity securities are those for which the Company has the positive intent and ability to hold until maturity, and are reported at cost, which is adjusted for amortization of premiums and accretion of discounts.  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 March 31, 2017.  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.

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.

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.

Recently Adopted Accounting Pronouncement

Recently Adopted Accounting Pronouncement

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, accounting for award forfeitures, and classification on the statement of cash flows.  The amendments were effective for public business entities for the first interim and annual reporting periods beginning after December 15, 2016 and the Company adopted the amendments as of January 1, 2017.  The new guidance requires entities to prospectively recognize all excess tax benefits and tax deficiencies related to share-based payment awards as income tax benefit or expense in the statement of income when the awards vest or are settled.  Previously, income tax benefits (or deficiencies) were reported as increases (or decreases) to additional paid-in capital to the extent that those benefits were greater than (or less than) the income tax benefits recognized in earnings during the awards’ vesting periods.  In addition, excess tax benefits and deficiencies are to be classified as an operating activity in the statement of cash flows, rather than a financing activity as required under prior accounting guidance.  The new guidance also requires employee taxes paid when an employer withholds shares for withholding tax purposes to be classified as a financing activity in the statement of cash flows.  The Company has elected to apply the changes in presentation on the statement of cash flows for excess tax benefits and deficiencies and employee taxes paid when an employer withholds shares on a retrospective basis.  The Company has also elected to continue to incorporate estimated forfeitures in the accrual of compensation expense, and this election had no impact on the Company’s consolidated financial statements.  For the three months ended March 31, 2017, the effect on net income from excess tax benefits was $2.2 million, or approximately $0.05 per diluted common share.

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 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.

In March 2017, the FASB issued ASU No. 2017-07, Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.  This new guidance requires the service cost component of net periodic pension and postretirement benefit costs to be presented separately from other components of net benefit cost in the statement of income.  This ASU is effective for the Company for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  This ASU is not expected to have a material impact on the Company’s consolidated financial statements.

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ACQUISITIONS (Tables)

3 Months Ended

Mar. 31, 2017

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 after considering the measurement period adjustments described above:

	2017										2016
(000s omitted)	BAS		NRS			Dryfoos		Total			WJL
Consideration paid :
Cash	$	1,200	$	70,073		$	3,307	$	74,580		$	575
Community Bank System, Inc. common stock		0		78,483			0		78,483			0
Total net consideration paid		1,200		148,556			3,307		153,063			575
Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash and cash equivalents		0		11,063			0		11,063			0
Investment securities		0		20,294			0		20,294			0
Premises and equipment		0		411			0		411			0
Accrued interest receivable		0		75			0		75			0
Other assets		0		10,819			0		10,819			0
Other intangibles		1,200		60,200			1,657		63,057			288
Other liabilities		0		(30,500	)		0		(30,500	)		0
Total identifiable assets, net		1,200		72,362			1,657		75,219			288
Goodwill	$	0	$	76,194		$	1,650	$	77,844		$	287

Pro Forma Financial Information

The pro forma information set forth below reflects the historical results of NRS combined with the Company’s consolidated statement of income with adjustments related to amortization of customer lists intangibles.

(000’s omitted)	Pro Forma (Unaudited) Three Months Ended  March 31, 2016
Total revenue, net of interest expense	$	112,694
Net income		24,358

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INVESTMENT SECURITIES (Tables)

3 Months Ended

Mar. 31, 2017

INVESTMENT SECURITIES [Abstract]

Amortized Cost and Estimated Fair Value of Investment Securities

The amortized cost and estimated fair value of investment securities as of March 31, 2017 and December 31, 2016 are as follows:

	March 31, 2017								December 31, 2016
(000's omitted)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available-for-Sale Portfolio:
U.S. Treasury and agency securities	$	1,878,982	$	30,358	$	1,106	$	1,908,234	$	1,876,358	$	28,522	$	2,118	$	1,902,762
Obligations of state and political subdivisions		564,501		14,603		446		578,658		582,655		13,389		1,054		594,990
Government agency mortgage-backed securities		237,257		4,526		2,729		239,054		232,657		5,040		2,467		235,230
Corporate debt securities		5,697		0		16		5,681		5,716		2		31		5,687
Government agency collateralized mortgage obligations		8,516		293		0		8,809		9,225		310		0		9,535
Marketable equity securities		251		203		0		454		252		200		0		452
Total available-for-sale portfolio	$	2,695,204	$	49,983	$	4,297	$	2,740,890	$	2,706,863	$	47,463	$	5,670	$	2,748,656
Other Securities:
Federal Home Loan Bank common stock	$	5,590					$	5,590	$	12,191					$	12,191
Federal Reserve Bank common stock		19,781						19,781		19,781						19,781
Certificates of deposit		18,758						18,758		0						0
Other equity securities		3,699						3,699		3,764						3,764
Total other securities	$	47,828					$	47,828	$	35,736					$	35,736

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 is as follows:

As of March 31, 2017

	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		7	$	258,008	$	1,106		0	$	0	$	0		7	$	258,008	$	1,106
Obligations of state and political subdivisions		75		40,177		446		0		0		0		75		40,177		446
Government agency mortgage-backed securities		67		95,749		1,866		14		21,228		863		81		116,977		2,729
Corporate debt securities		1		2,677		16		0		0		0		1		2,677		16
Government agency collateralized mortgage obligations		0		0		0		2		2		0		2		2		0
Total available-for-sale investment portfolio		150	$	396,611	$	3,434		16	$	21,230	$	863		166	$	417,841	$	4,297

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

Amortized Cost and Estimated Fair Value of Debt Securities by Contractual Maturity

The amortized cost and estimated fair value of debt securities at March 31, 2017, 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	$	38,222	$	38,447
Due after one through five years		1,199,564		1,221,056
Due after five years through ten years		1,041,199		1,058,066
Due after ten years		170,195		175,004
Subtotal		2,449,180		2,492,573
Government agency mortgage-backed securities		237,257		239,054
Government agency collateralized mortgage obligations		8,516		8,809
Total	$	2,694,953	$	2,740,436

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LOANS (Tables)

3 Months Ended

Mar. 31, 2017

Accounts, Notes, Loans and Financing Receivable [Line Items]

Schedule of Loans Receivable, Net

The balances of these classes are summarized as follows:

(000's omitted)	March 31, 2017			December 31, 2016
Consumer mortgage	$	1,830,800		$	1,819,701
Business lending		1,468,465			1,490,076
Consumer indirect		1,055,112			1,044,972
Consumer direct		184,067			191,815
Home equity		393,769			401,998
Gross loans, including deferred origination costs		4,932,213			4,948,562
Allowance for loan losses		(47,096	)		(47,233	)
Loans, net of allowance for loan losses	$	4,885,117		$	4,901,329

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)
Balance at December 31, 2016	$	498
Accretion recognized, year-to-date		(72	)
Net reclassification to accretable from non-accretable		100
Balance at March 31, 2017	$	526

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 March 31, 2017:

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	$	7,717	$	742	$	10,999	$	19,458	$	1,657,788	$	1,677,246
Business lending		2,776		569		2,970		6,315		1,266,627		1,272,942
Consumer indirect		8,941		123		0		9,064		1,019,069		1,028,133
Consumer direct		1,047		79		0		1,126		174,413		175,539
Home equity		967		194		1,299		2,460		312,915		315,375
Total	$	21,448	$	1,707	$	15,268	$	38,423	$	4,430,812	$	4,469,235

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	$	907	$	111	$	2,574	$	3,592	$	0	$	149,962	$	153,554
Business lending		332		0		1,718		2,050		5,440		188,033		195,523
Consumer indirect		147		3		0		150		0		26,829		26,979
Consumer direct		100		0		0		100		0		8,428		8,528
Home equity		415		988		506		1,909		0		76,485		78,394
Total	$	1,901	$	1,102	$	4,798	$	7,801	$	5,440	$	449,737	$	462,978

(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, 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.

Summary of Non-Business Impaired Loans

All loan classes are collectively evaluated for impairment except business lending, as described in Note C.  A summary of individually evaluated impaired loans as of March 31, 2017 and December 31, 2016 follows:

(000’s omitted)	March 31, 2017		December 31, 2016
Loans with allowance allocation	$	580	$	1,109
Loans without allowance allocation		0		556
Carrying balance		580		1,665
Contractual balance		2,229		3,340
Specifically allocated allowance		46		477

Troubled Debt Restructurings on Financing Receivables

Information regarding TDRs as of March 31, 2017 and December 31, 2016 is as follows:

	March 31, 2017												December 31, 2016
(000’s omitted)	Nonaccrual				Accruing				Total				Nonaccrual				Accruing				Total
		#	Amount			#	Amount			#	Amount			#	Amount			#	Amount			#	Amount
Consumer mortgage		44	$	2,082		43	$	1,812		87	$	3,894		36	$	1,520		45	$	1,956		81	$	3,476
Business lending		6		76		4		323		10		399		6		91		5		690		11		781
Consumer indirect		0		0		79		776		79		776		0		0		78		771		78		771
Consumer direct		0		0		13		76		13		76		0		0		23		65		23		65
Home equity		14		267		7		213		21		480		14		221		7		216		21		437
Total		64	$	2,425		146	$	3,200		210	$	5,625		56	$	1,832		158	$	3,698		214	$	5,530

The following table presents information related to loans modified in a TDR during the three months ended March 31, 2017 and 2016.  Of the loans noted in the table below, all loans for the three months ended March 31, 2017 and 2016 were modified due to a Chapter 7 bankruptcy as described previously.  The financial effects of these restructurings were immaterial.

	Three Months Ended March 31, 2017				Three Months Ended March 31, 2016
(000’s omitted)	Number of  loans modified		Outstanding Balance		Number of  loans modified		Outstanding Balance
Consumer mortgage		7	$	502		4	$	266
Business lending		0		0		0		0
Consumer indirect		8		106		12		238
Consumer direct		4		15		0		0
Home equity		2		98		1		0
Total		21	$	721		17	$	504

Schedule of Allowance for Loan Losses by Class

The following presents by class the activity in the allowance for loan losses:

	Three Months Ended March 31, 2017
(000’s omitted)	Consumer Mortgage			Business Lending			Consumer Indirect			Consumer Direct			Home Equity			Unallocated		Acquired Impaired		Total
Beginning balance	$	10,094		$	17,220		$	13,782		$	2,979		$	2,399		$	651	$	108	$	47,233
Charge-offs		(85	)		(695	)		(1,947	)		(417	)		(38	)		0		0		(3,182	)
Recoveries		7			71			869			245			25			0		0		1,217
Provision		133			261			1,292			45			(27	)		122		2		1,828
Ending balance	$	10,149		$	16,857		$	13,996		$	2,852		$	2,359		$	773	$	110	$	47,096

	Three Months Ended March 31, 2016
(000’s omitted)	Consumer Mortgage			Business Lending			Consumer Indirect			Consumer Direct			Home Equity			Unallocated			Acquired Impaired			Total
Beginning balance	$	10,198		$	15,749		$	12,422		$	2,997		$	2,666		$	1,201		$	168		$	45,401
Charge-offs		(88	)		(210	)		(1,854	)		(462	)		(57	)		0			0			(2,671	)
Recoveries		45			136			1,114			221			9			0			0			1,525
Provision		(7	)		1,020			652			119			(38	)		(322	)		(83	)		1,341
Ending balance	$	10,148		$	16,695		$	12,334		$	2,875		$	2,580		$	879		$	85		$	45,596

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:

	March 31, 2017						December 31, 2016
(000’s omitted)	Legacy		Acquired		Total		Legacy		Acquired		Total
Pass	$	1,040,398	$	147,347	$	1,187,745	$	1,051,005	$	162,165	$	1,213,170
Special mention		141,807		24,122		165,929		135,602		29,690		165,292
Classified		90,691		18,614		109,305		90,585		15,002		105,587
Doubtful		46		0		46		474		0		474
Acquired impaired		0		5,440		5,440		0		5,553		5,553
Total	$	1,272,942	$	195,523	$	1,468,465	$	1,277,666	$	212,410	$	1,490,076

All Other Loans [Member]

Accounts, Notes, Loans and Financing Receivable [Line Items]

Schedule of Loans by Credit Quality Indicator

The following table details the balances in all other loan categories at March 31, 2017:

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

(000’s omitted)	Consumer Mortgage		Consumer Indirect		Consumer Direct		Home Equity		Total
Performing	$	1,665,505	$	1,028,010	$	175,460	$	313,882	$	3,182,857
Nonperforming		11,741		123		79		1,493		13,436
Total	$	1,677,246	$	1,028,133	$	175,539	$	315,375	$	3,196,293

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

(000’s omitted)	Consumer Mortgage		Consumer Indirect		Consumer Direct		Home Equity		Total
Performing	$	150,869	$	26,976	$	8,528	$	76,900	$	263,273
Nonperforming		2,685		3		0		1,494		4,182
Total	$	153,554	$	26,979	$	8,528	$	78,394	$	267,455

The following table details the balances in all other loan categories 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

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GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS (Tables)

3 Months Ended

Mar. 31, 2017

GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS [Abstract]

Gross Carrying Amount and Accumulated Amortization of Identifiable Intangible Assets

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

	March 31, 2017							December 31, 2016
(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	$	(33,135	)	$	6,553	$	39,688	$	(32,581	)	$	7,107
Other intangibles		80,910		(11,472	)		69,438		17,853		(9,258	)		8,595
Total amortizing intangibles	$	120,598	$	(44,607	)	$	75,991	$	57,541	$	(41,839	)	$	15,702

Estimated Aggregate Amortization Expense

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

(000's omitted)
Apr - Dec 2017	$	10,496
2018		11,918
2019		9,886
2020		8,150
2021		7,119
Thereafter		28,422
Total	$	75,991

Components of Goodwill

Shown below are the components of the Company’s goodwill at December 31, 2016 and March 31, 2017:

(000’s omitted)	December 31, 2016			Activity		March 31, 2017
Goodwill	$	469,966		$	77,844	$	547,810
Accumulated impairment		(4,824	)		0		(4,824	)
Goodwill, net	$	465,142		$	77,844	$	542,986

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MANDATORILY REDEEMABLE PREFERRED SECURITIES (Tables)

3 Months Ended

Mar. 31, 2017

MANDATORILY REDEEMABLE PREFERRED SECURITIES [Abstract]

Terms of Preferred Securities for Each Trust

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% (4.62%)	7/31/2031	Par
IV	12/8/2006	$75 million	3 month LIBOR plus 1.65% (2.78%)	12/15/2036	Par

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BENEFIT PLANS (Tables)

3 Months Ended

Mar. 31, 2017

BENEFIT PLANS [Abstract]

Net Periodic (Benefit) Cost

The net periodic (benefit) cost for the three months ended March 31, 2017 and 2016 is as follows:

	Pension Benefits						Post-retirement Benefits
	Three Months Ended March 31,						Three Months Ended March 31,
(000's omitted)	2017			2016			2017			2016
Service cost	$	1,039		$	1,026		$	0		$	0
Interest cost		1,361			1,406			19			20
Expected return on plan assets		(3,121	)		(2,960	)		0			0
Amortization of unrecognized net loss		263			377			2			(1	)
Amortization of prior service cost		14			11			(45	)		(45	)
Net periodic (benefit) cost	$	(444	)	$	(140	)	$	(24	)	$	(26	)

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EARNINGS PER SHARE (Tables)

3 Months Ended

Mar. 31, 2017

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 three months ended March 31, 2017 and 2016:

	Three Months Ended March 31,
(000's omitted, except per share data)	2017			2016
Net income	$	26,257		$	24,403
Income attributable to unvested stock-based compensation awards		(138	)		(89	)
Income available to common shareholders	$	26,119		$	24,314
Weighted-average common shares outstanding – basic		45,284			43,863
Basic earnings per share	$	0.58		$	0.55
Net income	$	26,257		$	24,403
Income attributable to unvested stock-based compensation awards		(138	)		(89	)
Income available to common shareholders	$	26,119		$	24,314
Weighted-average common shares outstanding – basic		45,284			43,863
Assumed exercise of stock options		703			333
Weighted-average common shares outstanding – diluted		45,987			44,196
Diluted earnings per share	$	0.57		$	0.55

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COMMITMENTS, CONTINGENT LIABILITIES AND RESTRICTIONS (Tables)

3 Months Ended

Mar. 31, 2017

COMMITMENTS, CONTINGENT LIABILITIES AND RESTRICTIONS [Abstract]

Off Balance Sheet Financial Instruments Contract Amounts

The contract amounts of commitments and contingencies are as follows:

(000's omitted)	March 31, 2017		December 31, 2016
Commitments to extend credit	$	770,666	$	773,442
Standby letters of credit		23,004		22,656
Total	$	793,670	$	796,098

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FAIR VALUE (Tables)

3 Months Ended

Mar. 31, 2017

FAIR VALUE [Abstract]

Summary of Fair Value Measured on a Recurring Basis

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.

	March 31, 2017
(000's omitted)	Level 1		Level 2			Level 3		Total Fair  Value
Available-for-sale investment securities:
U.S. Treasury and agency securities	$	1,908,234	$	0		$	0	$	1,908,234
Obligations of state and political subdivisions		0		578,658			0		578,658
Government agency mortgage-backed securities		0		239,054			0		239,054
Corporate debt securities		0		5,681			0		5,681
Government agency collateralized mortgage obligations		0		8,809			0		8,809
Marketable equity securities		454		0			0		454
Total available-for-sale investment securities		1,908,688		832,202			0		2,740,890
Mortgage loans held for sale		0		673			0		673
Commitments to originate real estate loans for sale		0		0			114		114
Forward sales commitments		0		(19	)		0		(19	)
Total	$	1,908,688	$	832,856		$	114	$	2,741,658

	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

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:

	Three Months Ended March 31,
	2017			2016
(000's omitted)	Commitments  to Originate Real Estate Loans for Sale			Commitments  to Originate Real Estate Loans for Sale
Beginning balance	$	54		$	117
Total losses included in earnings (1)		(54	)		(117	)
Commitments to originate real estate loans held for sale, net		114			282
Ending balance	$	114		$	282

⁽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

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

	March 31, 2017								December 31, 2016
(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	$	535	$	535	$	0	$	0	$	633	$	633
Other real estate owned		0		0		2,486		2,486		0		0		1,966		1,966
Total	$	0	$	0	$	3,021	$	3,021	$	0	$	0	$	2,599	$	2,599

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 are as follows:

(000's omitted)	Fair Value at  March 31, 2017		Valuation Technique	Significant Unobservable Inputs	Significant  Unobservable Input  Range (Weighted Average)
Other real estate owned	$	2,486	Fair Value of Collateral	Estimated cost of disposal/market adjustment		2.3% - 96.0% (35.4	%)
Impaired loans		535	Fair Value of Collateral	Estimated cost of disposal/market adjustment		9% - 43% (26.0	%)
Commitments to originate real estate loans for sale		114	Discounted cash flow	Embedded servicing value		1	%

(000's omitted)	Fair Value at  December 31, 2016		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	%

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 March 31, 2017 and December 31, 2016 are as follows:

	March 31, 2017				December 31, 2016
(000's omitted)	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets:
Net loans	$	4,885,117	$	4,918,453	$	4,901,329	$	4,935,140
Financial liabilities:
Deposits		7,336,877		7,331,201		7,075,954		7,071,191
Borrowings		0		0		146,200		146,200
Subordinated debt held by unconsolidated subsidiary trusts		102,177		91,164		102,170		90,144

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SEGMENT INFORMATION (Tables)

3 Months Ended

Mar. 31, 2017

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
Three Months Ended March 31, 2017
Net interest income	$	67,134	$	78	$	62	$	0		$	67,274
Provision for loan losses		1,828		0		0		0			1,828
Noninterest revenues		15,867		17,636		11,479		(664	)		44,318
Amortization of intangible assets		554		1,591		623		0			2,768
Acquisition expenses		521		1,062		133		0			1,716
Other operating expenses		49,493		11,370		8,892		(664	)		69,091
Income before income taxes	$	30,605	$	3,691	$	1,893	$	0		$	36,189
Assets	$	8,663,042	$	221,437	$	72,526	$	(43,145	)	$	8,913,860
Goodwill	$	440,870	$	84,213	$	17,903	$	0		$	542,986

Three Months Ended March 31, 2016
Net interest income	$	66,798	$	40	$	43	$	0		$	66,881
Provision for loan losses		1,341		0		0		0			1,341
Noninterest revenues		15,313		12,390		11,144		(566	)		38,281
Amortization of intangible assets		719		116		607		0			1,442
Acquisition expenses		70		0		7		0			77
Other operating expenses		48,460		9,447		8,809		(566	)		66,150
Income before income taxes	$	31,521	$	2,867	$	1,764	$	0		$	36,152
Assets	$	8,546,646	$	38,535	$	69,385	$	(38,665	)	$	8,615,901
Goodwill	$	440,870	$	8,019	$	16,253	$	0		$	465,142

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ACQUISITIONS (Details) $ in Thousands	Feb. 03, 2017 USD ($)	Oct. 24, 2016 USD ($) Branch Location
Merchants Bancshares, Inc. [Member]
Business Acquisition [Line Items]
Purchase price of acquisition		$ 335,000
Deposits to be acquired		1,500,000
Assets acquired		$ 2,000,000
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 | Location		1
Northeast Retirement Services, Inc. [Member]
Business Acquisition [Line Items]
Purchase price of acquisition	$ 148,556
Tangible assets, net	$ 36,400
Factor of straight-line rate of depreciation used in declining balance depreciation method	150.00%
Period of amortization	10 years
Deferred tax liability	$ 24,200
Revenues earned	5,100
Expenses incurred	$ 3,600

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ACQUISITIONS, Estimated Fair Value of Assets Acquired and Liabilities Assumed (Details) - USD ($) $ in Thousands					3 Months Ended
	Mar. 01, 2017	Feb. 03, 2017	Jan. 04, 2017	Jan. 04, 2016	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
Consideration paid [Abstract]
Cash					$ 63,517	$ 575
Recognized amounts of identifiable assets acquired and liabilities assumed [Abstract]
Goodwill					542,986	$ 465,142	$ 465,142
BAS [Member]
Consideration paid [Abstract]
Cash			$ 1,200
Community Bank System, Inc. common stock			0
Total net consideration paid			1,200
Recognized amounts of identifiable assets acquired and liabilities assumed [Abstract]
Cash and cash equivalents			0
Investment securities			0
Premises and equipment			0
Accrued interest receivable			0
Other assets			0
Other liabilities			0
Total identifiable assets, net			1,200
Goodwill			0
BAS [Member] | Other Intangibles [Member]
Recognized amounts of identifiable assets acquired and liabilities assumed [Abstract]
Intangibles			$ 1,200
NRS [Member]
Consideration paid [Abstract]
Cash		$ 70,073
Community Bank System, Inc. common stock		78,483
Total net consideration paid		148,556
Recognized amounts of identifiable assets acquired and liabilities assumed [Abstract]
Cash and cash equivalents		11,063
Investment securities		20,294
Premises and equipment		411
Accrued interest receivable		75
Other assets		10,819
Other liabilities		(30,500)
Total identifiable assets, net		72,362
Goodwill		76,194
NRS [Member] | Customer Lists [Member]
Recognized amounts of identifiable assets acquired and liabilities assumed [Abstract]
Intangibles		$ 60,200
Dryfoos [Member]
Consideration paid [Abstract]
Cash	$ 3,307
Community Bank System, Inc. common stock	0
Total net consideration paid	3,307
Recognized amounts of identifiable assets acquired and liabilities assumed [Abstract]
Cash and cash equivalents	0
Investment securities	0
Premises and equipment	0
Accrued interest receivable	0
Other assets	0
Other liabilities	0
Total identifiable assets, net	1,657
Goodwill	1,650
Dryfoos [Member] | Other Intangibles [Member]
Recognized amounts of identifiable assets acquired and liabilities assumed [Abstract]
Intangibles	$ 1,657
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
Premises and equipment				0
Accrued interest receivable				0
Other assets				0
Other liabilities				0
Total identifiable assets, net				288
Goodwill				287
WJL Agencies Inc [Member] | Other Intangibles [Member]
Recognized amounts of identifiable assets acquired and liabilities assumed [Abstract]
Intangibles				$ 288
Total [Member]
Consideration paid [Abstract]
Cash					74,580
Community Bank System, Inc. common stock					78,483
Total net consideration paid					153,063
Recognized amounts of identifiable assets acquired and liabilities assumed [Abstract]
Cash and cash equivalents					11,063
Investment securities					20,294
Premises and equipment					411
Accrued interest receivable					75
Other assets					10,819
Other liabilities					(30,500)
Goodwill					77,844
Total [Member] | Other Intangibles [Member]
Recognized amounts of identifiable assets acquired and liabilities assumed [Abstract]
Intangibles					63,057
Total [Member] | Customer Lists [Member]
Recognized amounts of identifiable assets acquired and liabilities assumed [Abstract]
Total identifiable assets, net					$ 75,219

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ACQUISITIONS, Intangible Asset, Goodwill and Acquisition-related Expenses (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Summary of loans acquired [Abstract]
Merger and acquisition integration-related expenses	$ 1,716	$ 77
Benefits Advisory Service, Inc [Member] | Other Intangibles [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated useful life	8 years
Dryfoos Insurance Agency, Inc [Member] | Other Intangibles [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) $ in Thousands	3 Months Ended
	Mar. 31, 2016 USD ($)
Supplemental Pro Forma Financial Information [Abstract]
Total revenue, net of interest expense, pro forma	$ 112,694
Net income, pro forma	$ 24,358

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ACCOUNTING POLICIES (Details) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2017 USD ($) Component Calculation Segment Factor $ / shares	Mar. 31, 2016 USD ($) $ / shares
Financing Receivable, Allowance for Credit Losses [Line Items]
Number of broad components used in allowance methodology | Component	2
Number of calculations used for general loan loss allocation | 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 loan loss allocation | Factor	8
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Net income	$ 26,257	$ 24,403
Net income per diluted common share (in dollars per share) | $ / shares	$ 0.57	$ 0.55
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, Allowance for Credit Losses [Line Items]
Threshold balance of loans individually evaluated for impairment	$ 500
ASU 2016-09 [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Net income	$ 2,200
Net income per diluted common share (in dollars per share) | $ / shares	$ 0.05

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INVESTMENT SECURITIES (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Available-for-Sale Portfolio [Abstract]
Amortized cost	$ 2,695,204	$ 2,706,863
Gross unrealized gains	49,983	47,463
Gross unrealized losses	4,297	5,670
Fair value	2,740,890	2,748,656
Available For Sale Debt Securities Amortized Cost Basis [Abstract]
Amortized cost	2,694,953
Fair value	2,740,436
Other Securities [Abstract]
Amortized cost	47,828	35,736
Fair value	47,828	35,736
U.S. Treasury and Agency Securities [Member]
Available For Sale Debt Securities Amortized Cost Basis [Abstract]
Amortized cost	1,878,982	1,876,358
Gross unrealized gains	30,358	28,522
Gross unrealized losses	1,106	2,118
Fair value	1,908,234	1,902,762
Obligations of State and Political Subdivisions [Member]
Available For Sale Debt Securities Amortized Cost Basis [Abstract]
Amortized cost	564,501	582,655
Gross unrealized gains	14,603	13,389
Gross unrealized losses	446	1,054
Fair value	578,658	594,990
Government Agency Mortgage-Backed Securities [Member]
Available For Sale Debt Securities Amortized Cost Basis [Abstract]
Amortized cost	237,257	232,657
Gross unrealized gains	4,526	5,040
Gross unrealized losses	2,729	2,467
Fair value	239,054	235,230
Corporate Debt Securities [Member]
Available For Sale Debt Securities Amortized Cost Basis [Abstract]
Amortized cost	5,697	5,716
Gross unrealized gains	0	2
Gross unrealized losses	16	31
Fair value	5,681	5,687
Government Agency Collateralized Mortgage Obligations [Member]
Available For Sale Debt Securities Amortized Cost Basis [Abstract]
Amortized cost	8,516	9,225
Gross unrealized gains	293	310
Gross unrealized losses	0	0
Fair value	8,809	9,535
Marketable Equity Securities [Member]
Available For Sale Equity Securities Amortized Cost Basis [Abstract]
Amortized cost	251	252
Gross unrealized gains	203	200
Gross unrealized losses	0	0
Fair value	454	452
Federal Home Loan Bank Common Stock [Member]
Other Securities [Abstract]
Amortized cost	5,590	12,191
Fair value	5,590	12,191
Federal Reserve Bank Common Stock [Member]
Other Securities [Abstract]
Amortized cost	19,781	19,781
Fair value	19,781	19,781
Certificates of Deposit [Member]
Other Securities [Abstract]
Amortized cost	18,758	0
Fair value	18,758	0
Other Equity Securities [Member]
Other Securities [Abstract]
Amortized cost	3,699	3,764
Fair value	$ 3,699	$ 3,764

XML

INVESTMENT SECURITIES, Investment Securities in a Continuous Unrealized Loss Position (Details) $ in Thousands	Mar. 31, 2017 USD ($) Position	Dec. 31, 2016 USD ($) Position
Available-for-Sale Portfolio in Unrealized Loss Positions, Number of Positions [Abstract]
Less than 12 months | Position	150	268
12 months or longer | Position	16	17
Total | Position	166	285
Available-for-Sale Securities, in Unrealized Loss Position, Fair Value [Abstract]
Less than 12 months	$ 396,611	$ 637,887
12 months or longer	21,230	21,790
Total	417,841	659,677
Available-for-Sale Portfolio, Debt Maturities, Gross Unrealized Losses [Abstract]
Less than 12 months	3,434	4,840
12 months or longer	863	830
Total	$ 4,297	$ 5,670
U.S. Treasury and Agency Securities [Member]
Available-for-Sale Portfolio in Unrealized Loss Positions, Number of Positions [Abstract]
Less than 12 months | Position	7	13
12 months or longer | Position	0	0
Total | Position	7	13
Available-for-Sale Securities, in Unrealized Loss Position, Fair Value [Abstract]
Less than 12 months	$ 258,008	$ 449,242
12 months or longer	0	0
Total	258,008	449,242
Available-for-Sale Portfolio, Debt Maturities, Gross Unrealized Losses [Abstract]
Less than 12 months	1,106	2,118
12 months or longer	0	0
Total	$ 1,106	$ 2,118
Obligations of State and Political Subdivisions [Member]
Available-for-Sale Portfolio in Unrealized Loss Positions, Number of Positions [Abstract]
Less than 12 months | Position	75	197
12 months or longer | Position	0	0
Total | Position	75	197
Available-for-Sale Securities, in Unrealized Loss Position, Fair Value [Abstract]
Less than 12 months	$ 40,177	$ 102,106
12 months or longer	0	0
Total	40,177	102,106
Available-for-Sale Portfolio, Debt Maturities, Gross Unrealized Losses [Abstract]
Less than 12 months	446	1,054
12 months or longer	0	0
Total	$ 446	$ 1,054
Government Agency Mortgage-Backed Securities [Member]
Available-for-Sale Portfolio in Unrealized Loss Positions, Number of Positions [Abstract]
Less than 12 months | Position	67	57
12 months or longer | Position	14	15
Total | Position	81	72
Available-for-Sale Securities, in Unrealized Loss Position, Fair Value [Abstract]
Less than 12 months	$ 95,749	$ 83,862
12 months or longer	21,228	21,788
Total	116,977	105,650
Available-for-Sale Portfolio, Debt Maturities, Gross Unrealized Losses [Abstract]
Less than 12 months	1,866	1,637
12 months or longer	863	830
Total	$ 2,729	$ 2,467
Corporate Debt Securities [Member]
Available-for-Sale Portfolio in Unrealized Loss Positions, Number of Positions [Abstract]
Less than 12 months | Position	1	1
12 months or longer | Position	0	0
Total | Position	1	1
Available-for-Sale Securities, in Unrealized Loss Position, Fair Value [Abstract]
Less than 12 months	$ 2,677	$ 2,677
12 months or longer	0	0
Total	2,677	2,677
Available-for-Sale Portfolio, Debt Maturities, Gross Unrealized Losses [Abstract]
Less than 12 months	16	31
12 months or longer	0	0
Total	$ 16	$ 31
Government Agency Collateralized Mortgage Obligations [Member]
Available-for-Sale Portfolio 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	2
Total	2	2
Available-for-Sale Portfolio, Debt Maturities, Gross Unrealized Losses [Abstract]
Less than 12 months	0	0
12 months or longer	0	0
Total	$ 0	$ 0

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INVESTMENT SECURITIES, Amortized Cost and Estimated Fair Value of Debt Securities by Contractual Maturity (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Available-for-Sale, Debt Maturities, Amortized Cost [Abstract]
Due in one year or less	$ 38,222
Due after one through five years	1,199,564
Due after five years through ten years	1,041,199
Due after ten years	170,195
Subtotal	2,449,180
Amortized cost	2,694,953
Available-for-Sale, Debt Maturities, Fair Value [Abstract]
Due in one year or less	38,447
Due after one through five years	1,221,056
Due after five years through ten years	1,058,066
Due after ten years	175,004
Subtotal	2,492,573
Fair value	2,740,436
Government Agency Mortgage-Backed Securities [Member]
Available-for-Sale, Debt Maturities, Amortized Cost [Abstract]
Without single maturity date	237,257
Amortized cost	237,257	$ 232,657
Available-for-Sale, Debt Maturities, Fair Value [Abstract]
Without single maturity date	239,054
Fair value	239,054	235,230
Government Agency Collateralized Mortgage Obligations [Member]
Available-for-Sale, Debt Maturities, Amortized Cost [Abstract]
Without single maturity date	8,516
Amortized cost	8,516	9,225
Available-for-Sale, Debt Maturities, Fair Value [Abstract]
Without single maturity date	8,809
Fair value	$ 8,809	$ 9,535

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LOANS, Loan Summary (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Dec. 31, 2016	Mar. 31, 2016	Dec. 31, 2015
Loans receivable, net [Abstract]
Gross loans, including deferred origination costs	$ 4,932,213	$ 4,948,562
Allowance for loan losses	(47,096)	(47,233)	$ (45,596)	$ (45,401)
Net loans	4,885,117	4,901,329
Credit impaired acquired loans, total balance due	6,500	6,600
Accretable discount related to credit impaired acquired loans [Roll forward]
Beginning Balance	498
Accretion recognized, year-to-date	(72)
Net reclassification to accretable from non-accretable	100
Ending Balance	$ 526
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	$ 1,468,465	1,490,076
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	$ 1,830,800	1,819,701
Allowance for loan losses	(10,149)	(10,094)	(10,148)	(10,198)
Commercial Portfolio Segment [Member] | Business Lending [Member]
Loans receivable, net [Abstract]
Gross loans, including deferred origination costs	1,468,465	1,490,076
Allowance for loan losses	(16,857)	(17,220)	(16,695)	(15,749)
Consumer Portfolio Segment [Member] | Consumer Indirect [Member]
Loans receivable, net [Abstract]
Gross loans, including deferred origination costs	1,055,112	1,044,972
Allowance for loan losses	(13,996)	(13,782)	(12,334)	(12,422)
Consumer Portfolio Segment [Member] | Consumer Direct [Member]
Loans receivable, net [Abstract]
Gross loans, including deferred origination costs	184,067	191,815
Allowance for loan losses	(2,852)	(2,979)	(2,875)	(2,997)
Consumer Portfolio Segment [Member] | Home Equity [Member]
Loans receivable, net [Abstract]
Gross loans, including deferred origination costs	393,769	401,998
Allowance for loan losses	$ (2,359)	$ (2,399)	$ (2,580)	$ (2,666)

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LOANS, Credit Quality By Past Due Status (Details) - USD ($) $ in Thousands		Mar. 31, 2017	Dec. 31, 2016
Aged analysis of the company's loans [Abstract]
Total loans		$ 4,932,213	$ 4,948,562
Legacy Loans [Member]
Aged analysis of the company's loans [Abstract]
90 + days past due and still accruing		1,707	1,963
Nonaccrual		15,268	16,600
Total past due		38,423	50,545
Current		4,430,812	4,402,657
Total loans		4,469,235	4,453,202
Legacy Loans [Member] | Past Due 30 - 89 Days [Member]
Aged analysis of the company's loans [Abstract]
Total past due		21,448	31,982
Acquired Loans [Member]
Aged analysis of the company's loans [Abstract]
90 + days past due and still accruing		1,102	1,113
Nonaccrual		4,798	4,019
Total past due		7,801	8,439
Acquired impaired	[1]	5,440	5,553
Current		449,737	481,368
Total loans		462,978	495,360
Acquired Loans [Member] | Past Due 30 - 89 Days [Member]
Aged analysis of the company's loans [Abstract]
Total past due		1,901	3,307
Consumer Mortgage [Member] | Legacy Loans [Member]
Aged analysis of the company's loans [Abstract]
Total loans		1,677,246	1,659,760
Consumer Mortgage [Member] | Acquired Loans [Member]
Aged analysis of the company's loans [Abstract]
Total loans		153,554	159,941
Business Lending [Member]
Aged analysis of the company's loans [Abstract]
Total loans		1,468,465	1,490,076
Business Lending [Member] | Legacy Loans [Member]
Aged analysis of the company's loans [Abstract]
Total loans		1,272,942	1,277,666
Business Lending [Member] | Acquired Loans [Member]
Aged analysis of the company's loans [Abstract]
Total loans		195,523	212,410
Consumer Indirect [Member] | Legacy Loans [Member]
Aged analysis of the company's loans [Abstract]
Total loans		1,028,133	1,014,825
Consumer Indirect [Member] | Acquired Loans [Member]
Aged analysis of the company's loans [Abstract]
Total loans		26,979	30,147
Consumer Direct [Member] | Legacy Loans [Member]
Aged analysis of the company's loans [Abstract]
Total loans		175,539	181,922
Consumer Direct [Member] | Acquired Loans [Member]
Aged analysis of the company's loans [Abstract]
Total loans		8,528	9,893
Home Equity [Member] | Legacy Loans [Member]
Aged analysis of the company's loans [Abstract]
Total loans		315,375	319,029
Home Equity [Member] | Acquired Loans [Member]
Aged analysis of the company's loans [Abstract]
Total loans		78,394	82,969
Residential Portfolio Segment [Member] | Consumer Mortgage [Member]
Aged analysis of the company's loans [Abstract]
Total loans		1,830,800	1,819,701
Residential Portfolio Segment [Member] | Consumer Mortgage [Member] | Legacy Loans [Member]
Aged analysis of the company's loans [Abstract]
90 + days past due and still accruing		742	1,180
Nonaccrual		10,999	11,352
Total past due		19,458	23,911
Current		1,657,788	1,635,849
Total loans		1,677,246	1,659,760
Residential Portfolio Segment [Member] | Consumer Mortgage [Member] | Legacy Loans [Member] | Past Due 30 - 89 Days [Member]
Aged analysis of the company's loans [Abstract]
Total past due		7,717	11,379
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		111	205
Nonaccrual		2,574	2,332
Total past due		3,592	4,076
Acquired impaired	[1]	0	0
Current		149,962	155,865
Total loans		153,554	159,941
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		907	1,539
Commercial Portfolio Segment [Member] | Business Lending [Member]
Aged analysis of the company's loans [Abstract]
Total loans		1,468,465	1,490,076
Commercial Portfolio Segment [Member] | Business Lending [Member] | Legacy Loans [Member]
Aged analysis of the company's loans [Abstract]
90 + days past due and still accruing		569	145
Nonaccrual		2,970	3,811
Total past due		6,315	7,877
Current		1,266,627	1,269,789
Total loans		1,272,942	1,277,666
Commercial Portfolio Segment [Member] | Business Lending [Member] | Legacy Loans [Member] | Past Due 30 - 89 Days [Member]
Aged analysis of the company's loans [Abstract]
Total past due		2,776	3,921
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		1,718	1,252
Total past due		2,050	1,780
Acquired impaired	[1]	5,440	5,553
Current		188,033	205,077
Total loans		195,523	212,410
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		332	528
Consumer Portfolio Segment [Member] | Consumer Indirect [Member]
Aged analysis of the company's loans [Abstract]
Total loans		1,055,112	1,044,972
Consumer Portfolio Segment [Member] | Consumer Indirect [Member] | Legacy Loans [Member]
Aged analysis of the company's loans [Abstract]
90 + days past due and still accruing		123	166
Nonaccrual		0	0
Total past due		9,064	14,049
Current		1,019,069	1,000,776
Total loans		1,028,133	1,014,825
Consumer Portfolio Segment [Member] | Consumer Indirect [Member] | Legacy Loans [Member] | Past Due 30 - 89 Days [Member]
Aged analysis of the company's loans [Abstract]
Total past due		8,941	13,883
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	3
Nonaccrual		0	0
Total past due		150	234
Acquired impaired	[1]	0	0
Current		26,829	29,913
Total loans		26,979	30,147
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		147	231
Consumer Portfolio Segment [Member] | Consumer Direct [Member]
Aged analysis of the company's loans [Abstract]
Total loans		184,067	191,815
Consumer Portfolio Segment [Member] | Consumer Direct [Member] | Legacy Loans [Member]
Aged analysis of the company's loans [Abstract]
90 + days past due and still accruing		79	58
Nonaccrual		0	0
Total past due		1,126	1,607
Current		174,413	180,315
Total loans		175,539	181,922
Consumer Portfolio Segment [Member] | Consumer Direct [Member] | Legacy Loans [Member] | Past Due 30 - 89 Days [Member]
Aged analysis of the company's loans [Abstract]
Total past due		1,047	1,549
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	0
Total past due		100	231
Acquired impaired	[1]	0	0
Current		8,428	9,662
Total loans		8,528	9,893
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		100	231
Consumer Portfolio Segment [Member] | Home Equity [Member]
Aged analysis of the company's loans [Abstract]
Total loans		393,769	401,998
Consumer Portfolio Segment [Member] | Home Equity [Member] | Legacy Loans [Member]
Aged analysis of the company's loans [Abstract]
90 + days past due and still accruing		194	414
Nonaccrual		1,299	1,437
Total past due		2,460	3,101
Current		312,915	315,928
Total loans		315,375	319,029
Consumer Portfolio Segment [Member] | Home Equity [Member] | Legacy Loans [Member] | Past Due 30 - 89 Days [Member]
Aged analysis of the company's loans [Abstract]
Total past due		967	1,250
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		988	905
Nonaccrual		506	435
Total past due		1,909	2,118
Acquired impaired	[1]	0	0
Current		76,485	80,851
Total loans		78,394	82,969
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		$ 415	$ 778

[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	Mar. 31, 2017	Dec. 31, 2016
Financing Receivable, Recorded Investment [Line Items]
Loans	$ 4,932,213	$ 4,948,562
Legacy Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	4,469,235	4,453,202
Acquired Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	462,978	495,360
Business Lending [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	1,468,465	1,490,076
Business Lending [Member] | Legacy Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	1,272,942	1,277,666
Business Lending [Member] | Acquired Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	195,523	212,410
Business Lending [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	1,187,745	1,213,170
Business Lending [Member] | Pass [Member] | Legacy Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	1,040,398	1,051,005
Business Lending [Member] | Pass [Member] | Acquired Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	147,347	162,165
Business Lending [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	165,929	165,292
Business Lending [Member] | Special Mention [Member] | Legacy Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	141,807	135,602
Business Lending [Member] | Special Mention [Member] | Acquired Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	24,122	29,690
Business Lending [Member] | Classified [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	109,305	105,587
Business Lending [Member] | Classified [Member] | Legacy Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	90,691	90,585
Business Lending [Member] | Classified [Member] | Acquired Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	18,614	15,002
Business Lending [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	46	474
Business Lending [Member] | Doubtful [Member] | Legacy Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	46	474
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	5,440	5,553
Business Lending [Member] | Acquired Impaired [Member] | Legacy Loans [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	5,440	5,553
All Other Loans [Member] | Legacy Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	3,196,293	3,175,536
All Other Loans [Member] | Acquired Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	267,455	282,950
All Other Loans [Member] | Performing [Member] | Legacy Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	3,182,857	3,160,929
All Other Loans [Member] | Performing [Member] | Acquired Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	263,273	279,070
All Other Loans [Member] | Nonperforming [Member] | Legacy Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	13,436	14,607
All Other Loans [Member] | Nonperforming [Member] | Acquired Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	4,182	3,880
Consumer Mortgage [Member] | Legacy Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	1,677,246	1,659,760
Consumer Mortgage [Member] | Acquired Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	153,554	159,941
Consumer Mortgage [Member] | Performing [Member] | Legacy Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	1,665,505	1,647,228
Consumer Mortgage [Member] | Performing [Member] | Acquired Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	150,869	157,404
Consumer Mortgage [Member] | Nonperforming [Member] | Legacy Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	11,741	12,532
Consumer Mortgage [Member] | Nonperforming [Member] | Acquired Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	2,685	2,537
Consumer Indirect [Member] | Legacy Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	1,028,133	1,014,825
Consumer Indirect [Member] | Acquired Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	26,979	30,147
Consumer Indirect [Member] | Performing [Member] | Legacy Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	1,028,010	1,014,659
Consumer Indirect [Member] | Performing [Member] | Acquired Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	26,976	30,144
Consumer Indirect [Member] | Nonperforming [Member] | Legacy Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	123	166
Consumer Indirect [Member] | Nonperforming [Member] | Acquired Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	3	3
Consumer Direct [Member] | Legacy Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	175,539	181,922
Consumer Direct [Member] | Acquired Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	8,528	9,893
Consumer Direct [Member] | Performing [Member] | Legacy Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	175,460	181,864
Consumer Direct [Member] | Performing [Member] | Acquired Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	8,528	9,893
Consumer Direct [Member] | Nonperforming [Member] | Legacy Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	79	58
Consumer Direct [Member] | Nonperforming [Member] | Acquired Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Home Equity [Member] | Legacy Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	315,375	319,029
Home Equity [Member] | Acquired Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	78,394	82,969
Home Equity [Member] | Performing [Member] | Legacy Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	313,882	317,178
Home Equity [Member] | Performing [Member] | Acquired Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	76,900	81,629
Home Equity [Member] | Nonperforming [Member] | Legacy Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	1,493	1,851
Home Equity [Member] | Nonperforming [Member] | Acquired Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	$ 1,494	$ 1,340

XML

LOANS, Summary of Impaired Loans, Excluding Purchased Impaired (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Impaired loans [Abstract]
Loans with allowance allocation	$ 580	$ 1,109
Loans without allowance allocation	0	556
Carrying balance	580	1,665
Contractual balance	2,229	3,340
Specifically allocated allowance	$ 46	$ 477

XML

LOANS, Troubled Debt Restructuring (TDR) (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2017 USD ($) Loan	Mar. 31, 2016 USD ($) Loan	Dec. 31, 2016 USD ($) Loan
Financing Receivable, Modifications [Line Items]
TDRs, number | Loan	210		214
TDRs, amount	$ 5,625		$ 5,530
Loans modified in TDR during the year, number | Loan	21	17
Loans modified in TDR during the year, amount	$ 721	$ 504
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	64		56
TDRs, amount	$ 2,425		$ 1,832
Accruing [Member]
Financing Receivable, Modifications [Line Items]
TDRs, number | Loan	146		158
TDRs, amount	$ 3,200		$ 3,698
Residential Portfolio Segment [Member] | Consumer Mortgage [Member]
Financing Receivable, Modifications [Line Items]
TDRs, number | Loan	87		81
TDRs, amount	$ 3,894		$ 3,476
Loans modified in TDR during the year, number | Loan	7	4
Loans modified in TDR during the year, amount	$ 502	$ 266
Residential Portfolio Segment [Member] | Consumer Mortgage [Member] | Nonaccrual [Member]
Financing Receivable, Modifications [Line Items]
TDRs, number | Loan	44		36
TDRs, amount	$ 2,082		$ 1,520
Residential Portfolio Segment [Member] | Consumer Mortgage [Member] | Accruing [Member]
Financing Receivable, Modifications [Line Items]
TDRs, number | Loan	43		45
TDRs, amount	$ 1,812		$ 1,956
Commercial Portfolio Segment [Member] | Minimum [Member]
Financing Receivable, Modifications [Line Items]
Threshold balance of loans individually evaluated for impairment	$ 500
Commercial Portfolio Segment [Member] | Business Lending [Member]
Financing Receivable, Modifications [Line Items]
TDRs, number | Loan	10		11
TDRs, amount	$ 399		$ 781
Loans modified in TDR during the year, number | Loan	0	0
Loans modified in TDR during the year, amount	$ 0	$ 0
Commercial Portfolio Segment [Member] | Business Lending [Member] | Nonaccrual [Member]
Financing Receivable, Modifications [Line Items]
TDRs, number | Loan	6		6
TDRs, amount	$ 76		$ 91
Commercial Portfolio Segment [Member] | Business Lending [Member] | Accruing [Member]
Financing Receivable, Modifications [Line Items]
TDRs, number | Loan	4		5
TDRs, amount	$ 323		$ 690
Consumer Portfolio Segment [Member] | Consumer Indirect [Member]
Financing Receivable, Modifications [Line Items]
TDRs, number | Loan	79		78
TDRs, amount	$ 776		$ 771
Loans modified in TDR during the year, number | Loan	8	12
Loans modified in TDR during the year, amount	$ 106	$ 238
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	79		78
TDRs, amount	$ 776		$ 771
Consumer Portfolio Segment [Member] | Consumer Direct [Member]
Financing Receivable, Modifications [Line Items]
TDRs, number | Loan	13		23
TDRs, amount	$ 76		$ 65
Loans modified in TDR during the year, number | Loan	4	0
Loans modified in TDR during the year, amount	$ 15	$ 0
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	13		23
TDRs, amount	$ 76		$ 65
Consumer Portfolio Segment [Member] | Home Equity [Member]
Financing Receivable, Modifications [Line Items]
TDRs, number | Loan	21		21
TDRs, amount	$ 480		$ 437
Loans modified in TDR during the year, number | Loan	2	1
Loans modified in TDR during the year, amount	$ 98	$ 0
Consumer Portfolio Segment [Member] | Home Equity [Member] | Nonaccrual [Member]
Financing Receivable, Modifications [Line Items]
TDRs, number | Loan	14		14
TDRs, amount	$ 267		$ 221
Consumer Portfolio Segment [Member] | Home Equity [Member] | Accruing [Member]
Financing Receivable, Modifications [Line Items]
TDRs, number | Loan	7		7
TDRs, amount	$ 213		$ 216

XML

LOANS, Allowance for Loan Losses (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Allowance for loan losses [Roll Forward]
Beginning balance	$ 47,233	$ 45,401
Charge-offs	(3,182)	(2,671)
Recoveries	1,217	1,525
Provision	1,828	1,341
Ending balance	47,096	45,596
Acquired Impaired [Member]
Allowance for loan losses [Roll Forward]
Beginning balance	108	168
Charge-offs	0	0
Recoveries	0	0
Provision	2	(83)
Ending balance	110	85
Residential Portfolio Segment [Member] | Consumer Mortgage [Member]
Allowance for loan losses [Roll Forward]
Beginning balance	10,094	10,198
Charge-offs	(85)	(88)
Recoveries	7	45
Provision	133	(7)
Ending balance	10,149	10,148
Commercial Portfolio Segment [Member] | Business Lending [Member]
Allowance for loan losses [Roll Forward]
Beginning balance	17,220	15,749
Charge-offs	(695)	(210)
Recoveries	71	136
Provision	261	1,020
Ending balance	16,857	16,695
Consumer Portfolio Segment [Member] | Consumer Indirect [Member]
Allowance for loan losses [Roll Forward]
Beginning balance	13,782	12,422
Charge-offs	(1,947)	(1,854)
Recoveries	869	1,114
Provision	1,292	652
Ending balance	13,996	12,334
Consumer Portfolio Segment [Member] | Consumer Direct [Member]
Allowance for loan losses [Roll Forward]
Beginning balance	2,979	2,997
Charge-offs	(417)	(462)
Recoveries	245	221
Provision	45	119
Ending balance	2,852	2,875
Consumer Portfolio Segment [Member] | Home Equity [Member]
Allowance for loan losses [Roll Forward]
Beginning balance	2,399	2,666
Charge-offs	(38)	(57)
Recoveries	25	9
Provision	(27)	(38)
Ending balance	2,359	2,580
Unallocated Financing Receivables [Member]
Allowance for loan losses [Roll Forward]
Beginning balance	651	1,201
Charge-offs	0	0
Recoveries	0	0
Provision	122	(322)
Ending balance	$ 773	$ 879

XML

GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Dec. 31, 2016	Mar. 31, 2016
Finite-Lived Intangible Assets [Line Items]
Gross carrying amount	$ 120,598	$ 57,541
Accumulated amortization	(44,607)	(41,839)
Net carrying amount	75,991	15,702
Estimated aggregate amortization expense [Abstract]
Apr - Dec 2017	10,496
2018	11,918
2019	9,886
2020	8,150
2021	7,119
Thereafter	28,422
Net carrying amount	75,991	15,702
Components of goodwill [Abstract]
Goodwill	547,810	469,966
Goodwill, activity	77,844
Accumulated impairment	(4,824)	(4,824)
Accumulated impairment, activity	0
Goodwill, net	542,986	465,142	$ 465,142
Goodwill, net, activity	77,844
Core Deposit Intangibles [Member]
Finite-Lived Intangible Assets [Line Items]
Gross carrying amount	39,688	39,688
Accumulated amortization	(33,135)	(32,581)
Net carrying amount	6,553	7,107
Estimated aggregate amortization expense [Abstract]
Net carrying amount	6,553	7,107
Other Intangibles [Member]
Finite-Lived Intangible Assets [Line Items]
Gross carrying amount	80,910	17,853
Accumulated amortization	(11,472)	(9,258)
Net carrying amount	69,438	8,595
Estimated aggregate amortization expense [Abstract]
Net carrying amount	$ 69,438	$ 8,595

XML

MANDATORILY REDEEMABLE PREFERRED SECURITIES (Details) $ in Millions	3 Months Ended
	Mar. 31, 2017 USD ($) Trust
Debt Instrument [Line Items]
Number of wholly owned, unconsolidated subsidiary trusts | 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	4.62%
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	2.78%
Maturity date	Dec. 15, 2036
Call price	Par

XML

BENEFIT PLANS (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Pension Benefits [Member]
Net periodic benefit cost [Abstract]
Service cost	$ 1,039	$ 1,026
Interest cost	1,361	1,406
Expected return on plan assets	(3,121)	(2,960)
Amortization of unrecognized net loss	263	377
Amortization of prior service cost	14	11
Net periodic (benefit) cost	(444)	(140)
Post-retirement Benefits [Member]
Net periodic benefit cost [Abstract]
Service cost	0	0
Interest cost	19	20
Expected return on plan assets	0	0
Amortization of unrecognized net loss	2	(1)
Amortization of prior service cost	(45)	(45)
Net periodic (benefit) cost	$ (24)	$ (26)

XML

EARNINGS PER SHARE (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
EARNINGS PER SHARE [Abstract]
Weighted-average anti-dilutive stock options outstanding (in shares)	200,000	600,000
Basic earnings per share [Abstract]
Net income	$ 26,257	$ 24,403
Income attributable to unvested stock-based compensation awards	(138)	(89)
Income available to common shareholders	$ 26,119	$ 24,314
Weighted-average common shares outstanding - basic (in shares)	45,284,000	43,863,000
Basic earnings per share (in dollars per share)	$ 0.58	$ 0.55
Diluted earnings per share [Abstract]
Net income	$ 26,257	$ 24,403
Income attributable to unvested stock-based compensation awards	(138)	(89)
Income available to common shareholders	$ 26,119	$ 24,314
Weighted-average common shares outstanding - basic (in shares)	45,284,000	43,863,000
Assumed exercise of stock options (in shares)	703,000	333,000
Weighted-average common shares outstanding - diluted (in shares)	45,987,000	44,196,000
Net income per diluted common share (in dollars per share)	$ 0.57	$ 0.55
Stock Repurchase Program [Abstract]
Number of common shares authorized to be repurchased (in shares)			2,200,000
Number of common shares repurchased (in shares)	0

XML

COMMITMENTS, CONTINGENT LIABILITIES AND RESTRICTIONS (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Off-balance Sheet Risks, Disclosure Information [Line Items]
Contract amount of commitments and contingencies	$ 793,670	$ 796,098
Minimum [Member]
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]
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]
Off-balance Sheet Risks, Disclosure Information [Line Items]
Contract amount of commitments and contingencies	770,666	773,442
Standby Letters of Credit [Member]
Off-balance Sheet Risks, Disclosure Information [Line Items]
Contract amount of commitments and contingencies	$ 23,004	$ 22,656

XML

FAIR VALUE, Financial Assets and Liabilities Accounted for at Fair Value On a Recurring Basis (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	$ 2,740,890	$ 2,748,656
Recurring [Member]
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	2,740,890	2,748,656
Mortgage loans held for sale	673	2,416
Commitments to originate real estate loans for sale	114	54
Forward sales commitments	(19)	3
Total	2,741,658	2,751,129
Recurring [Member] | U.S. Treasury and Agency Securities [Member]
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	1,908,234	1,902,762
Recurring [Member] | Obligations of State and Political Subdivisions [Member]
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	578,658	594,990
Recurring [Member] | Government Agency Mortgage-Backed Securities [Member]
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	239,054	235,230
Recurring [Member] | Corporate Debt Securities [Member]
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	5,681	5,687
Recurring [Member] | Government Agency Collateralized Mortgage Obligations [Member]
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	8,809	9,535
Recurring [Member] | Marketable Equity Securities [Member]
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	454	452
Recurring [Member] | Level 1 [Member]
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	1,908,688	1,903,214
Mortgage loans held for sale	0	0
Commitments to originate real estate loans for sale	0	0
Forward sales commitments	0	0
Total	1,908,688	1,903,214
Recurring [Member] | Level 1 [Member] | U.S. Treasury and Agency Securities [Member]
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	1,908,234	1,902,762
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	454	452
Recurring [Member] | Level 2 [Member]
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	832,202	845,442
Mortgage loans held for sale	673	2,416
Commitments to originate real estate loans for sale	0	0
Forward sales commitments	(19)	3
Total	832,856	847,861
Mortgage loans held for sale, at principal value	700
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	578,658	594,990
Recurring [Member] | Level 2 [Member] | Government Agency Mortgage-Backed Securities [Member]
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	239,054	235,230
Recurring [Member] | Level 2 [Member] | Corporate Debt Securities [Member]
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	5,681	5,687
Recurring [Member] | Level 2 [Member] | Government Agency Collateralized Mortgage Obligations [Member]
Available-for-sale investment securities [Abstract]
Available-for-sale investment securities	8,809	9,535
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	114	54
Forward sales commitments	0	0
Total	114	54
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		3 Months Ended
		Mar. 31, 2017	Mar. 31, 2016
Level 3 Assets Measured at Fair Value on a Recurring Basis [Abstract]
Beginning balance		$ 54	$ 117
Total losses included in earnings	[1]	(54)	(117)
Commitments to originate real estate loans held for sale, net		114	282
Ending balance		$ 114	$ 282

[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.

XML

FAIR VALUE, Assets and Liabilities Measured on Nonrecurring Basis (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2017	Dec. 31, 2016
Fair Value Inputs [Abstract]
Valuation allowance	$ 46	$ 477
Other Real Estate Owned [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total	$ 2,486	$ 1,966
Other Real Estate Owned [Member] | Market Approach Valuation Technique [Member] | Minimum [Member]
Fair Value Inputs [Abstract]
Discount rate	2.30%	9.00%
Other Real Estate Owned [Member] | Market Approach Valuation Technique [Member] | Maximum [Member]
Fair Value Inputs [Abstract]
Discount rate	96.00%	97.00%
Mortgage Servicing Rights [Member]
Fair Value Inputs [Abstract]
Valuation allowance	$ 0
Level 3 [Member] | Other Real Estate Owned [Member] | Market Approach Valuation Technique [Member] | Minimum [Member]
Fair Value Inputs [Abstract]
Discount rate	2.00%
Level 3 [Member] | Other Real Estate Owned [Member] | Market Approach Valuation Technique [Member] | Maximum [Member]
Fair Value Inputs [Abstract]
Discount rate	96.00%
Non-recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	$ 535	$ 633
Other real estate owned	2,486	1,966
Total	3,021	2,599
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	535	633
Other real estate owned	2,486	1,966
Total	$ 3,021	$ 2,599

XML

FAIR VALUE, Significant Unobservable Inputs (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2017	Dec. 31, 2016
Other Real Estate Owned [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair value	$ 2,486	$ 1,966
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	2.30%	9.00%
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	96.00%	97.00%
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	35.40%	29.60%
Impaired Loans [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair value	$ 535	$ 633
Impaired Loans [Member] | Fair Value of Collateral [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Estimated cost of disposal/market adjustment	9.00%	15.00%
Impaired Loans [Member] | Fair Value of Collateral [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Estimated cost of disposal/market adjustment	43.00%	50.00%
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	26.00%	36.50%
Commitments To Originate Real Estate Loans For Sale [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair value	$ 114	$ 54
Commitments To Originate Real Estate Loans For Sale [Member] | Discounted Cash Flow [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Embedded servicing value	1.00%	1.00%

XML

FAIR VALUE, Carrying Amounts and Estimated Fair Values of Other Financial Instruments (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Carrying Value [Member]
Financial assets [Abstract]
Net loans	$ 4,885,117	$ 4,901,329
Financial liabilities [Abstract]
Deposits	7,336,877	7,075,954
Borrowings	0	146,200
Subordinated debt held by unconsolidated subsidiary trusts	102,177	102,170
Fair Value [Member]
Financial assets [Abstract]
Net loans	4,918,453	4,935,140
Financial liabilities [Abstract]
Deposits	7,331,201	7,071,191
Borrowings	0	146,200
Subordinated debt held by unconsolidated subsidiary trusts	$ 91,164	$ 90,144

XML

SEGMENT INFORMATION (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
Information about reportable segments
Net interest income	$ 67,274	$ 66,881
Provision for loan losses	1,828	1,341
Noninterest revenues	44,318	38,281
Amortization of intangible assets	2,768	1,442
Acquisition expenses	1,716	77
Other operating expenses	69,091	66,150
Income before income taxes	36,189	36,152
Assets	8,913,860	8,615,901	$ 8,666,437
Goodwill	542,986	465,142	$ 465,142
Eliminations [Member]
Information about reportable segments
Net interest income	0	0
Provision for loan losses	0	0
Noninterest revenues	(664)	(566)
Amortization of intangible assets	0	0
Acquisition expenses	0	0
Other operating expenses	(664)	(566)
Income before income taxes	0	0
Assets	(43,145)	(38,665)
Goodwill	0	0
Banking [Member] | Operating Segments [Member]
Information about reportable segments
Net interest income	67,134	66,798
Provision for loan losses	1,828	1,341
Noninterest revenues	15,867	15,313
Amortization of intangible assets	554	719
Acquisition expenses	521	70
Other operating expenses	49,493	48,460
Income before income taxes	30,605	31,521
Assets	8,663,042	8,546,646
Goodwill	440,870	440,870
Employee Benefit Services [Member] | Operating Segments [Member]
Information about reportable segments
Net interest income	78	40
Provision for loan losses	0	0
Noninterest revenues	17,636	12,390
Amortization of intangible assets	1,591	116
Acquisition expenses	1,062	0
Other operating expenses	11,370	9,447
Income before income taxes	3,691	2,867
Assets	221,437	38,535
Goodwill	84,213	8,019
All Other [Member]
Information about reportable segments
Net interest income	62	43
Provision for loan losses	0	0
Noninterest revenues	11,479	11,144
Amortization of intangible assets	623	607
Acquisition expenses	133	7
Other operating expenses	8,892	8,809
Income before income taxes	1,893	1,764
Assets	72,526	69,385
Goodwill	$ 17,903	$ 16,253