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ACQUISITIONS | 3 Months Ended
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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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