NOTE K: BENEFIT PLANS

Pension and post-retirement plans

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

	Pension Benefits						Post-retirement Benefits
(000's omitted)	2013			2012			2013			2012
Change in benefit obligation:
Benefit obligation at the beginning of year	$	123,739		$	112,857		$	3,051		$	3,352
Service cost		3,988			3,392			0			0
Interest cost		4,120			4,393			88			114
Participant contributions					0			608			502
Deferred actuarial loss (gain)		(14,610	)		9,352			(301	)		(72	)
Benefits paid		(6,063	)		(6,255	)		(1,106	)		(845	)
Benefit obligation at end of year		111,174			123,739			2,340			3,051
Change in plan assets:
Fair value of plan assets at beginning of year		143,661			126,309			0			0
Actual return of plan assets		25,196			10,992			0			0
Participant contributions		0			0			608			502
Employer contributions		10,622			12,615			498			343
Benefits paid		(6,063	)		(6,255	)		(1,106	)		(845	)
Fair value of plan assets at end of year		173,416			143,661			0			0
Over/(Under) funded status at year end	$	62,242		$	19,922		$	(2,340	)	$	(3,051	)

Amounts recognized in the consolidated balance sheet were:
Other assets	$	73,790		$	32,135		$	0		$	0
Other liabilities		(11,548	)		(12,213	)		(2,340	)		(3,051	)

Amounts recognized in accumulated other comprehensive income (loss) (“AOCI”) were:
Net loss (gain)	$	12,905		$	47,321		$	(25	)	$	288
Net prior service cost (credit)		797			141			(2,338	)		(2,517	)
Pre-tax AOCI		13,702			47,462			(2,363	)		(2,229	)
Taxes		(5,095	)		(18,296	)		901			848
AOCI at year end	$	8,607		$	29,166		$	(1,462	)	$	(1,381	)

The benefit obligation for the defined benefit pension plan was $99.6 million and $111.5 million as of December 31, 2013 and 2012, respectively, and the fair value of plan assets as of December 31, 2013 and 2012 was $173.4 million and $143.7 million, respectively.

The Company has unfunded supplemental pension plans for certain key active and retired executives. The projected benefit obligation for the unfunded supplemental pension plan for certain key executives was $11.4 million for 2013 and $12.0 million for 2012, respectively. The Company also has an unfunded stock balance plan for certain of its nonemployee directors. The projected benefit obligation for the unfunded stock balance plan was $0.1 million for 2013 and $0.2 million for 2012, respectively. The plan was frozen effective December 31, 2009.

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

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

	Pension Benefits					Post-retirement Benefits
(000's omitted)	2013			2012		2013			2012
Prior service cost	$	(46	)	$	90	$	109		$	503
Net (gain) loss		(20,513	)		2,368		(190	)		(51	)
Total	$	(20,559	)	$	2,458	$	(81	)	$	452

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

	Pension			Post-retirement
(000's omitted)	Benefits			Benefits
Prior service credit	$	5		$	(179	)
Net loss		(308	)		1
Total	$	(303	)	$	(178	)

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

	Pension Benefits						Post-retirement Benefits
	2013			2012			2013			2012
Discount rate		5.00	%		3.40	%		4.80	%		3.20	%
Expected return on plan assets		7.00	%		7.00	%		N/	A		N/	A
Rate of compensation increase		3.50	%		3.50	%		N/	A		N/	A

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

	Pension Benefits									Post-retirement Benefits
(000's omitted)	2013			2012			2011			2013			2012			2011
Service cost	$	3,988		$	3,392		$	2,959		$	0		$	0		$	0
Interest cost		4,120			4,393			4,497			88			114			153
Expected return on plan assets		(10,149	)		(9,196	)		(8,097	)		0			0			0
Amortization of unrecognized net loss		4,028			3,687			2,362			12			11			8
Amortization of prior service cost		75			(147	)		(149	)		(179	)		(822	)		(1,057	)
Net periodic benefit cost	$	2,062		$	2,129		$	1,572		$	(79	)	$	(697	)	$	(896	)

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

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

	Pension Benefits									Post-retirement Benefits
	2013			2012			2011			2013			2012			2011
Discount rate		3.40	%		4.10	%		4.40	%		3.20	%		3.90	%		4.50	%
Expected return on plan assets		7.00	%		7.50	%		7.50	%		N/	A		N/	A		N/	A
Rate of compensation increase		3.50	%		4.00	%		4.00	%		N/	A		N/	A		N/	A

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

	Pension		Post-retirement
(000's omitted)	Benefits		Benefits
2014	$	6,021	$	230
2015		7,396		220
2016		7,882		196
2017		8,110		194
2018		8,132		192
2019-2023		48,507		811

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

The assumed discount rate is used to reflect the time value of future benefit obligations. The discount rate was determined based upon the yield on high-quality fixed income investments expected to be available during the period to maturity of the pension benefits. This rate is sensitive to changes in interest rates. A decrease in the discount rate would increase the Company’s obligation and future expense while an increase would have the opposite effect. The expected long-term rate of return was estimated by taking into consideration asset allocation, reviewing historical returns on the type of assets held and current economic factors. The appropriateness of the assumptions is reviewed annually.

Plan Assets

The investment objective for the defined benefit pension plan is to achieve an average annual total return over a five-year period equal to the assumed rate of return used in the actuarial calculations. At a minimum performance level, the portfolio should earn the return obtainable on high quality intermediate-term bonds. The Company’s perspective regarding portfolio assets combines both preservation of capital and moderate risk-taking. Asset allocation favors equities, with a target allocation of approximately 60% equity securities and 40% fixed income securities. In order to diversify the risk within the pension portfolio, the pension committee authorized that up to 15% of the assets may be in alternative investments, which are primarily hedge funds. No more than 10% of the portfolio can be in stock of the Company. Due to the volatility in the market, the target allocation is not always desirable and asset allocations will fluctuate between acceptable ranges. Prohibited transactions include purchase of securities on margin, uncovered call options, and short sale transactions.

The fair values of the Company’s defined benefit pension plan assets at December 31, 2013 by asset category are as follows:

Asset category (000’s omitted)	Quoted Prices in Active Markets for Identical Assets Level 1		Significant Observable Inputs Level 2		Significant Unobservable Inputs Level 3		Total

Money Market Accounts	$	709	$	10,231	$	0	$	10,940
Equity securities:
U.S. large-cap		50,513		0		0		50,513
U.S mid/small cap		19,308		0		0		19,308
CBSI stock		9,913		0		0		9,913
International		33,485		0		0		33,485
		113,219		0		0		113,219

Fixed income securities:
Government securities		7,676		6,814		0		14,490
Investment grade bonds		17,400		0		0		17,400
International bonds		2,712		0		0		2,712
High yield(b)		14,243		0		0		14,243
		42,031		6,814		0		48,845

Other types of investments:
Alternative investments (c)		0		77		0		77

Total (d)	$	155,959	$	17,122	$	0	$	173,081

The fair values of the Company’s defined benefit pension plan assets at December 31, 2012 by asset category are as follows:

Asset category (000’s omitted)	Quoted Prices in Active Markets for Identical Assets Level 1		Significant Observable Inputs Level 2		Significant Unobservable Inputs Level 3		Total

Money Market Accounts	$	410	$	19,977	$	0	$	20,387
Equity securities:
U.S. large-cap		40,547		0		0		40,547
U.S mid/small cap		10,311		0		0		10,311
CBSI stock		11,486		0		0		11,486
International		22,428		0		0		22,428
Commodities (a)		2,735		0		0		2,735
		87,507		0		0		87,507

Fixed income securities:
Government securities		5,383		8,269		0		13,652
Investment grade bonds		10,517		0		0		10,517
High yield(b)		11,516		0		0		11,516
		27,416		8,269		0		35,685

Other types of investments:
Alternative investments (c)		0		82		0		82

Total (d)	$	115,333	$	28,328	$	0	$	143,661

(a)	This category includes investments in exchange-traded funds reflecting the performance of an underlying commodity index.

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

(c) This category is comprised of non-traditional investment classes including private equity funds and alternative exchange funds.

(d)	Excludes dividends and interest receivable totaling $335,000 and $352,000 at December 31, 2013 and 2012, respectively.

The Company makes contributions to its funded qualified pension plan as required by government regulation or as deemed appropriate by management after considering the fair value of plan assets, expected return on such assets, and the value of the accumulated benefit obligation. The Company made a contribution to its defined benefit pension plan of $10 million during the third quarter of 2013. The Company funds the payment of benefit obligations for the supplemental pension and post-retirement plans because such plans do not hold assets for investment.

Tupper Lake National Bank (“TLNB”), acquired in 2007, participated in the Pentegra Defined Benefit Plan for Financial Institutions (“Pentegra DB Plan”), a multi-employer tax qualified defined benefit pension plan. The identification number and plan number of the Pentegra DB Plan are 13-5645888 and 333, respectively. All employees of TLNB who met minimum service requirements participated in the plan. As of June 30, 2012, the Pentegra DB Plan had total assets of $2.8 billion, actuarial present value of accumulated benefits of $3.0 billion and was at least 80 percent funded. The assets of the multi-employer plan may be used to satisfy obligations of any of the employers participating in the plan. As a result, contributions made by the Company may be used to provide benefits to participants of other participating employers. Contributions for 2013, 2012 and 2011 were $22,000, $53,000 and $131,000, respectively. Contributions made by the Company to the Pentegra DB Plan do not represent more than 5% of contributions made to the Pentegra DB Plan.

The assumed health care cost trend rate used in the post-retirement health plan at December 31, 2013 was 7.50% for the pre-65 participants and 5.80% for the post-65 participants for medical costs and 6.25% for prescription drugs. The rate to which the cost trend rate is assumed to decline (the ultimate trend rate) and the year that the rate reaches the ultimate trend rate is 5.0% and 2021, respectively.

Assumed health care cost trend rates impact the amounts reported for the health care plan. A one-percentage-point increase in the trend rate would increase the service and interest cost components by $200 and increase the benefit obligation by $5,000. A one-percentage-point decrease in the trend rate would decrease the service and interest cost components by $200 and decrease the benefit obligation by $6,000.

401(k) Employee Stock Ownership Plan

The Company has a 401(k) Employee Stock Ownership Plan in which employees can contribute from 1% to 90% of eligible compensation, with the first 3% being eligible for a 100% matching contribution in the form of Company common stock and the next 3% being eligible for a 50% matching contributions in the form of Company common stock. The expense recognized under this plan for the years ended December 31, 2013, 2012 and 2011 was $3,215,000, $2,956,000, and $2,752,000, respectively. Effective January 1, 2010 the defined benefit pension plan was modified to a new plan design that includes an interest credit contribution to be made to the 401(k) plan. The expense recognized for this interest credit contribution for the years ended December 31, 2013, 2012 and 2011 was $650,000, $419,000 and $203,000, respectively.

Other Deferred Compensation Arrangements

In addition to the supplemental pension plans for certain executives, the Company has nonqualified deferred compensation arrangements for several former directors, officers and key employees. All benefits provided under these plans are unfunded and payments to plan participants are made by the Company. At December 31, 2013 and 2012, the Company has recorded a liability of $4,238,000 and $4,729,000, respectively. The (income)/expense recognized under these plans for the years ended December 31, 2013, 2012, and 2011 was ($52,000), $439,000, and $584,000, respectively.

Deferred Compensation Plan for Directors

Directors may defer all or a portion of their director fees under the Deferred Compensation Plan for Directors. Under this plan, there is a separate account for each participating director which is credited with the amount of shares that could have been purchased with the director’s fees as well as any dividends on such shares. On the distribution date, the director will receive common stock equal to the accumulated share balance in his account. As of December 31, 2013 and 2012, there were 153,396 and 146,298 shares credited to the participants’ accounts, for which a liability of $3,424,000 and $3,117,000 was accrued, respectively. The expense recognized under the plan for the years ended December 31, 2013, 2012 and 2011, was $162,000, $148,000, and $125,000, respectively.