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ACQUISITIONS | 3 Months Ended
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Mar. 31, 2020
ACQUISITIONS [Abstract] |
ACQUISITIONS | NOTE B: ACQUISITIONS Pending Acquisition – Steuben Trust Corporation On October 21, 2019, the Company announced that it had entered into a definitive agreement to acquire Steuben Trust Corporation (“Steuben”), parent company of Steuben Trust Company, a New York State chartered bank headquartered in Hornell, New York. Based on the Company’s closing stock price on April 30, 2020 of $62.49, the transaction was valued at approximately $106.7 million in Company stock and cash. Steuben currently operates 14 branch locations in Western New York. The acquisition will extend the Company’s footprint into two new counties in Western New York State and enhance the Company’s presence in four Western New York State counties in which it currently operates. The Steuben shareholders approved the merger with the Company at its Special Meeting held on March 3, 2020. The acquisition is scheduled to close during the second quarter of 2020. However, due to the novel Coronavirus (“COVID-19”) crisis, it is uncertain as to whether or not the closing date of the merger may be delayed. The Company expects to incur certain one-time, transaction-related costs in 2020 in connection with the Steuben acquisition. On September 18, 2019, the Company, through its subsidiary, Community Investment Services, Inc. (“CISI”), completed its acquisition of certain assets of a practice engaged in the financial services business headquartered in Syracuse, New York. The Company paid $0.5 million in cash to acquire a customer list, and recorded a $0.5 million customer list intangible asset in conjunction with the acquisition. The effects of the acquired assets have been included in the consolidated financial statements since that date. On July 12, 2019, the Company completed its merger with Kinderhook Bank Corp. (“Kinderhook”), parent company of The National Union Bank of Kinderhook, headquartered in Kinderhook, New York, for $93.4 million in cash. The merger added 11 branch locations across a five county area in the Capital District of Upstate New York. The merger resulted in the acquisition of $642.8 million of assets, including $479.9 million of loans and $39.8 million of investment securities, as well as $568.2 million of deposits and $40.0 million in goodwill. The effects of the acquired assets and liabilities have been included in the consolidated financial statements since that date. Revenues, excluding interest income on acquired investments, of approximately $4.5 million, and direct expenses, which may not include certain shared expenses, of approximately $1.9 million from Kinderhook were included in the consolidated income statement for the three months ended March 31, 2020. On January 2, 2019, the Company, through its subsidiary, CISI, completed its acquisition of certain assets of Wealth Resources Network, Inc. (“Wealth Resources”), a financial services business headquartered in Liverpool, New York. The Company paid $1.2 million in cash to acquire a customer list from Wealth Resources, and recorded a $1.2 million customer list intangible asset in conjunction with the acquisition. The effects of the acquired assets have been included in the consolidated financial statements since that date. The assets and liabilities assumed in the acquisitions were recorded at their estimated fair values based on management's best estimates using information available at the dates of the acquisitions, and were subject to adjustment based on updated information not available at the time of the acquisitions. During the fourth quarter of 2019, associated with the Kinderhook acquisition, the carrying amount of deposits increased by $0.08 million, loans decreased by $0.05 million, other liabilities increased by $0.04 million, other assets decreased by $0.04 million, and accrued interest and fees receivable increased by $0.01 million as a result of updated information not available at the time of acquisition. Goodwill associated with the Kinderhook acquisition increased by $0.2 million as a result of these adjustments. During the first quarter of 2020, the carrying amount of other liabilities associated with the Kinderhook acquisition decreased by $0.3 million as a result of an adjustment to accrued income taxes and deferred income taxes. Goodwill associated with the Kinderhook acquisition decreased $0.3 million as a result of this adjustment. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed after considering the measurement period adjustments described above:
|  | 2019 |
(000s omitted) |  | Kinderhook |  |  | Other (1) |  |  | Total |
Consideration paid : |  |  |  |  |  |  |  |  |
Cash |  | $ | 93,384 |  |  | $ | 1,650 |  |  | $ | 95,034 |
Total net consideration paid |  |  | 93,384 |  |  |  | 1,650 |  |  |  | 95,034 |
Recognized amounts of identifiable assets acquired and liabilities assumed: |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  |  | 90,381 |  |  |  | 0 |  |  |  | 90,381 |
Investment securities |  |  | 39,770 |  |  |  | 0 |  |  |  | 39,770 |
Loans |  |  | 479,877 |  |  |  | 0 |  |  |  | 479,877 |
Premises and equipment |  |  | 13,970 |  |  |  | 0 |  |  |  | 13,970 |
Accrued interest and fees receivable |  |  | 1,130 |  |  |  | 0 |  |  |  | 1,130 |
Other assets |  |  | 14,109 |  |  |  | 0 |  |  |  | 14,109 |
Core deposit intangibles |  |  | 3,573 |  |  |  | 0 |  |  |  | 3,573 |
Other intangibles |  |  | 0 |  |  |  | 1,650 |  |  |  | 1,650 |
Deposits |  |  | (568,161 | ) |  |  | 0 |  |  |  | (568,161 | )
Other liabilities |  |  | (2,922 | ) |  |  | 0 |  |  |  | (2,922 | )
Other Federal Home Loan Bank borrowings |  |  | (2,420 | ) |  |  | 0 |  |  |  | (2,420 | )
Subordinated notes payable |  |  | (13,831 | ) |  |  | 0 |  |  |  | (13,831 | )
Subordinated debt held by unconsolidated subsidiary trusts |  |  | (2,062 | ) |  |  | 0 |  |  |  | (2,062 | )
Total identifiable assets, net |  |  | 53,414 |  |  |  | 1,650 |  |  |  | 55,064 |
Goodwill |  | $ | 39,970 |  |  | $ | 0 |  |  | $ | 39,970 |
(1) Includes amounts related to both acquisitions completed by CISI in 2019. Under ASC 310-30, acquired loans that have evidence of deterioration in credit quality since origination and for which it is probable, at acquisition, that the Company will be unable to collect all contractually required payments were aggregated by comparable characteristics and recorded at fair value without a carryover of the related allowance for loan losses. Cash flows for each loan were determined using an estimate of credit losses and rate of prepayments. Projected monthly cash flows were then discounted to present value using a market-based discount rate. The excess of the undiscounted expected cash flows over the estimated fair value is referred to as the “accretable yield” and is recognized into interest income over the remaining lives of the acquired loans. On January 1, 2020, the Company adopted ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) which replaces the ASC 310-30 acquired impaired loans methodology described above with the purchased credit deteriorated (“PCD”) methodology discussed in Note C: Accounting Policies. The following is a summary of the loans acquired from Kinderhook at the date of acquisition:
(000s omitted) |  | Acquired Impaired Loans |  |  | Acquired Non-impaired Loans |  |  | Total Acquired Loans |
Contractually required principal and interest at acquisition |  | $ | 13,350 |  |  | $ | 636,384 |  |  | $ | 649,734 |
Contractual cash flows not expected to be collected |  |  | (4,176 | ) |  |  | (5,472 | ) |  |  | (9,648 | )
Expected cash flows at acquisition |  |  | 9,174 |  |  |  | 630,912 |  |  |  | 640,086 |
Interest component of expected cash flows |  |  | (551 | ) |  |  | (159,658 | ) |  |  | (160,209 | )
Fair value of acquired loans |  | $ | 8,623 |  |  | $ | 471,254 |  |  | $ | 479,877 |
The fair value of checking, savings and money market deposit accounts acquired were assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand. Certificate of deposit accounts were valued at the present value of the certificates’ expected contractual payments discounted at market rates for similar certificates. The fair value of subordinated notes payable was estimated using discounted cash flows and interest rates being offered on similar securities. Subordinated notes payable assumed with the Kinderhook acquisition included $3.0 million of subordinated notes with a fixed interest rate of 6.0% maturing in February 2028 and $10.0 million of subordinated notes with a fixed interest rate of 6.375% maturing in November 2025. The core deposit intangibles and other intangibles related to both acquisitions completed by CISI in 2019 and the Kinderhook acquisition 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 Banking segment for the Kinderhook acquisition. Goodwill arising from the Kinderhook acquisition is not deductible for tax purposes. Direct costs related to the acquisitions were expensed as incurred. Merger and acquisition integration-related expenses amount to $0.4 million and $0.5 million during the three months ended March 31, 2020 and the three months ended March 31, 2019, respectively, and have been separately stated in the consolidated statements of income.

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