ACQUISITIONS

9 Months Ended

Sep. 30, 2023

ACQUISITIONS

ACQUISITIONS

NOTE B: ACQUISITIONS

Current and Prior Period Acquisitions

During the nine months ended September 30, 2023, the Company, through its subsidiaries OneGroup NY, Inc. (“OneGroup”) and OneGroup Wealth Partners, Inc. (“Wealth Partners”), completed the acquisition of certain assets of five financial services companies. The acquired companies provide insurance and wealth management services and are headquartered in New York, Pennsylvania, and Florida. Total aggregate consideration for these acquisitions was $7.9 million, including $6.5 million in cash and $1.4 million in contingent consideration arrangements. The contingent consideration arrangements are based on achieving certain levels of retained revenue over a period ranging from two to five years. The fair value of these arrangements has been recorded based on the assumption that retained revenue levels will meet or exceed the required threshold for the maximum contingent consideration payments. Aggregate assets acquired were $4.9 million, including $4.7 million of customer list intangible assets and the Company recorded goodwill of $3.0 million. The effects of the acquired assets have been included in the consolidated financial statements since the date of acquisition. Revenues and direct expenses included in the consolidated statements of income for the three and nine months ended September 30, 2023 were immaterial.

On March 1, 2023, the Company completed the acquisition of certain assets of Axiom Realty Group, which includes Axiom Capital Corp., Axiom Realty Management, LLC and Axiom Realty Advisors, LLC (collectively referred to as “Axiom”) for $1.8 million in cash. The Company recorded a $1.2 million customer list intangible and recognized $0.6 million of goodwill in conjunction with the acquisition. The effects of the acquired assets have been included in the consolidated financial statements since that date. Revenues of approximately $0.3 million and $0.4 million and direct expenses of approximately $0.5 million and $1.2 million were included in the consolidated statements of income for the three and nine months ended September 30, 2023, respectively.

On May 13, 2022, the Company completed its acquisition of Elmira Savings Bank (“Elmira”), a New York State chartered savings bank headquartered in Elmira, New York, for $82.2 million in cash. The acquisition enhanced the Company’s presence in five counties in New York’s Southern Tier and Finger Lakes regions. In connection with the acquisition, the Company acquired $583.6 million of identifiable assets, including $436.8 million of loans, $11.3 million of investment securities, and $8.0 million of core deposit intangibles, as well as $522.3 million of deposits. Goodwill of $42.1 million was recognized as a result of the merger. The effects of the acquired assets and liabilities have been included in the consolidated financial statements since that date. Revenues of approximately $3.9 million and $11.0 million and direct expenses of approximately $1.1 million and $3.5 million from the Elmira branch network, which may not include certain shared expenses, were included in the consolidated statements of income for the three and nine months ended September 30, 2023, respectively. Revenues of approximately $4.8 million and $7.2 million and direct expenses of approximately $1.2 million and $1.8 million from the Elmira branch network were included in the consolidated statements of income for the three and nine months ended September 30, 2022, respectively. The Company incurred certain transaction-related costs in 2022 in connection with the Elmira acquisition.

During 2022, the Company, through its subsidiary OneGroup, completed acquisitions of certain assets of four insurance agencies for an aggregate amount of $3.5 million in cash. The Company recorded a $2.9 million customer list intangible asset and a $0.1 million intangible asset for a noncompete agreement and recognized $0.5 million of goodwill in conjunction with the acquisitions. The effects of the acquired assets have been included in the consolidated financial statements since the date of acquisition. Revenues and direct expenses included in the consolidated statements of income for the three and nine months ended September 30, 2023 and 2022 were immaterial.

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 date of the acquisition, and were subject to adjustment based on updated information not available at the time of the acquisitions. Through the first nine months of 2023, the carrying amount of loans, accrued interest and fees receivable, other assets and other liabilities associated with the Elmira acquisition was adjusted upon receipt of new information. The adjustments resulted in a net decrease to goodwill of $0.1 million. During the nine months ended September 30, 2023, the carrying amount of other intangibles associated with the Axiom acquisition was adjusted upon receipt of new information. The adjustment resulted in a net decrease to goodwill of $0.6 million.

The Elmira and Axiom acquisitions generally expanded the Company’s banking presence in New York. The OneGroup and Wealth Partners acquisitions generally expanded the Company’s insurance and wealth management presence in New York, Florida and Pennsylvania. 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:

	2023						2022
(000s omitted)	Axiom		Other(1)		Total		Elmira		Other(2)		Total
Consideration:
Cash	$	1,819	$	6,482	$	8,301	$	82,179	$	3,477	$	85,656
Contingent consideration		0		1,450		1,450		0		0		0
Total net consideration		1,819		7,932		9,751		82,179		3,477		85,656
Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash and cash equivalents		0		0		0		84,988		0		84,988
Investment securities		0		0		0		11,305		0		11,305
Loans, net of allowance for credit losses on PCD loans		0		0		0		436,796		0		436,796
Premises and equipment, net		25		41		66		11,303		14		11,317
Accrued interest and fees receivable		0		0		0		882		0		882
Other assets		2		175		177		30,337		0		30,337
Core deposit intangibles		0		0		0		7,970		0		7,970
Other intangibles		1,176		4,714		5,890		0		3,014		3,014
Deposits		0		0		0		(522,295)		0		(522,295)
Other liabilities		(9)		(9)		(18)		(3,596)		(34)		(3,630)
Other Federal Home Loan Bank borrowings		0		0		0		(17,616)		0		(17,616)
Total identifiable assets, net		1,194		4,921		6,115		40,074		2,994		43,068
Goodwill	$	625	$	3,011	$	3,636	$	42,105	$	483	$	42,588

(1) Includes amounts for four OneGroup acquisitions and one Wealth Partners acquisition completed in 2023.

(2) Includes amounts for four OneGroup acquisitions completed in 2022.

The Company acquired certain loans from Elmira for which there was not evidence of a more-than-insignificant deterioration in credit quality since origination (non-Purchased Credit Deteriorated, or “PCD”, loans) with an unpaid principal balance of $455.7 million at the acquisition date. Total fair value adjustments for non-PCD loans resulted in a net discount of $20.8 million.

The Company acquired certain loans from Elmira for which there was evidence of a more-than-insignificant deterioration in credit quality since origination (PCD loans). There were no investment securities acquired from Elmira for which there was evidence of a more-than-insignificant deterioration in credit quality since origination. The carrying amount of those loans is as follows at the date of acquisition:

(000s omitted)	PCD Loans
Par value of PCD loans at acquisition	$	2,184
Allowance for credit losses at acquisition		(71)
Non-credit discount at acquisition		(81)
Fair value of PCD loans at acquisition	$	2,032

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.

Borrowings assumed with the Elmira acquisition included Federal Home Loan Bank of New York (“FHLB”) borrowings with a fair value of $17.6 million, with maturity dates ranging from January 2023 through March 2027 and a weighted average interest rate of 2.48%.

The core deposit intangibles related to the Elmira acquisition and other intangibles related to three of the OneGroup acquisitions completed in 2022, the OneGroup and Wealth Partners acquisitions completed in 2023, and the Axiom acquisition are being amortized using an accelerated method over an estimated useful life of eight years. The other intangibles associated with the fourth remaining OneGroup acquisition completed in 2022 are being amortized using an accelerated method over their estimated useful life of ten years. The goodwill, which is not amortized for book purposes, was assigned to the Banking segment for the Elmira and Axiom acquisitions and the All Other segment for the OneGroup and Wealth Partners acquisitions completed in 2023 and 2022. Goodwill arising from the Elmira acquisition is not deductible for tax purposes. Goodwill arising from the Axiom acquisition and the OneGroup and Wealth Partners acquisitions completed in 2023 and 2022 is deductible for tax purposes.

Direct costs related to the acquisitions were expensed as incurred. Merger and acquisition integration-related expenses were immaterial for the three and nine months ended September 30, 2023. Merger and acquisition integration-related expenses were $0.4 million and $4.7 million during the three and nine months ended September 30, 2022, respectively. These expenses have been separately stated in the consolidated statements of income.

Supplemental Pro Forma Financial Information

The following unaudited condensed pro forma information assumes the Elmira acquisition had been completed as of January 1, 2021 for the three and nine months ended September 30, 2022. 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 acquisition.

The pro forma information set forth below reflects the historical results of Elmira combined with the Company’s consolidated statements of income with adjustments related to (a) certain purchase accounting fair value adjustments and (b) amortization of core deposit intangibles. Acquisition-related expenses totaling $0.4 million and $4.7 million for the three and nine months ended September 30, 2022, respectively, related to Elmira were included in the pro forma information as if they were incurred in the first quarter of 2021. The effects of the Elmira acquisition are reflected in all periods in 2023.

	Pro Forma (Unaudited)
	Three Months Ended		Nine Months Ended
(000’s omitted)	September 30, 2022		September 30, 2022
Total revenue, net of interest expense	$	175,595	$	512,687
Net income		49,016		141,138