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 amount of commitments and contingencies are as follows:

(000's omitted)	March 31, 2015		December 31, 2014
Commitments to extend credit	$	786,327	$	733,827
Standby letters of credit		22,788		23,916
Total	$	809,115	$	757,743

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, 2015, 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.

The Bank reached an agreement in principle to settle the first of two related class actions pending in the United States District Court for the Middle District of Pennsylvania which were commenced October 30, 2013 and May 29, 2014, respectively. The first action alleged that notices provided by the Bank in connection with the repossession of the named plaintiff’s automobile failed to comply with certain requirements of the Pennsylvania and New York Uniform Commercial Code (UCC) and related statutes. The plaintiff sought to pursue the action as a class action on behalf of herself and similarly situated plaintiffs who had their automobiles repossessed and sought to recover statutory damages under the UCC. The second action filed May 29, 2014 contained similar allegations, which the plaintiff also sought to pursue as a class action for statutory damages. In response to these actions, the Bank has contested the allegations that the notices were deficient, asserted various legal defenses and counterclaims, and opposed class certification. On September 30, 2014, the Bank reached an agreement in principle to settle the first action for $2.8 million in exchange for release of all claims of the class members covered by these actions. A litigation settlement charge of $2.8 million with respect to the settlement of the class actions was recorded in the third quarter of 2014. In connection with this settlement, on March 25, 2015, the parties executed a settlement agreement and the plaintiff’s counsel filed a motion with the Court for preliminary approval. The settlement is subject to the Court’s final approval following notice to the class members, including the ability of class members to oppose or opt-out of the settlement.

On March 4, 2015, in connection with the pending merger of Oneida Financial Corp. into Community Bank System, Inc., a purported stockholder of Oneida Financial filed a lawsuit in New York Supreme Court, Oneida County, captioned Paul Parshall v. Richard B. Myers, et al. On March 13, 2015, another purported stockholder filed a lawsuit in New York Supreme Court, Oneida County, captioned John Solak, v. Richard B. Myers et al. On April 24, 2015, a third purported shareholder filed a lawsuit in the Circuit Court for Baltimore City, Maryland, captioned Linda Colvin v. Oneida Financial Corp, et al. These lawsuits are brought on behalf of a putative class of Oneida Financial’s common stockholders and seek an order that they are properly maintainable as class actions.

These complaints name Oneida Financial, Oneida Financial’s directors, and Community Bank System as defendants and generally allege that the Director Defendants breached their fiduciary duties by failing to maximize shareholder value in connection with the Merger, and that Community Bank System and/or Oneida Financial aided and abetted those alleged breaches of fiduciary duty. The complaints allege that the director Defendants improperly favored Community Bank System and discouraged alternative bids by agreeing to the Merger Agreement’s non-solicitation provision and termination fee provision. Plaintiffs cite that Community Bank System agreed in the Merger Agreement to appoint two of Oneida’s directors to the boards of Community Bank System and Community Bank, effective upon the closing of the Merger. The complaints allege that the voting agreements entered into by Oneida Financial’s directors and certain executive officers to vote their shares in favor of the Merger Agreement were improper. In addition, the complaints allege that the consideration to be received by Oneida Financial common stockholders is unreasonable, inadequate and unfair. The complaints seek declaratory and injunctive relief to invalidate the Merger Agreement and prevent the consummation of the Merger. The complaints further seek unspecified damages, as well as costs including plaintiffs’ attorneys’ and experts’ fees.

On or about April 10, 2015, plaintiffs in the Parshall and Solak actions filed amended complaints and moved to consolidate the actions and to appoint co-lead interim counsel for the Plaintiffs. Community Bank did not oppose such motion and answered the amended complaints filed by plaintiffs in these actions. The parties in these actions have further agreed to an expedited discovery and briefing schedule.

Each of Community Bank System and Oneida Financial believes that the claims asserted are without merit and intends to vigorously defend against these lawsuits.