Community Bank System Annual Report 2012

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FY2012 Annual Report · Community Bank System

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A C L E A R V I S I O N

C O M M U N I T Y B A N K S Y S T E M, I N C.
2 0 1 2 A N N U A L R E P O R T

C OMMUNITY BANK SYSTEM, INC.
(NYSE:CB U)

Our principal business focus is building additional value into our

enterprise through organic growth in core relationships, disciplined

lending, selective and strategic acquisitions and a consistent

approach to business regardless of economic conditions.

Marc Lichtenfeld, author of Get Rich With Dividends, had this to say

about CBU in a Bloomberg Radio interview recorded in July 2012:

They did not take a dime of TARP money,
so right off the bat, that’s a good sign. They
basically bank the way banks used to conduct
business. They know their customers, they
didn’t get into trouble with mortgages. They
have a dividend yield just under 4% and
they’ve been raising the dividend every year
for 19 years. Excellent management.

Approximately 30% of our revenue is derived from non-interest

sources with nearly half attributable to our benefits administration

and wealth management businesses. Our asset quality metrics

have remained consistently and significantly better than industry

and peer group averages. This approach has contributed to our

being named one of the nation’s best large banks in each of the

last four years, ranking 7th in 2009 and 2010, 4th in 2011 and 11th in

2012 in the annual Forbes.com analysis of America’s 100 largest

TABLE O F CO NT ENT S

financial institutions. As a result of our history of consistently

Regional Summaries

improving performance, we’ve increased our cash dividend for

20 consecutive years, a significant milestone and evidence of our

belief that payment of a meaningful and growing dividend is an

Vision Statement

Shareholder Letter

Operations Review

important component of providing favorable long-term returns to

Corporate Governance

our shareholders. As of December 31, 2012, our 5-year cumulative

Administration

total return to shareholders of 69.7% was the 3rd best among the

Selected Financial Highlights

current 100 largest US banks by asset size.

Glossary

Shareholder Information

Inside
Back Cover

We have the first or second deposit market
share in more than 70% of the towns where
we have a branch location.

REGIONAL MARKETS

REGIONAL SUMMARIES

NO RTHERN NEW YO RK

SOUT HERN NE W YORK

CE NTRA L NE W YORK

PE NNSYLVANIA

Branches

Deposits

$2.0 billion

$2.1 billion

$0.7 billion

$0.8 billion

Towns 1st /2nd Market Share

Financial Service Centers

Administrative/Operations Centers

Counties in Region

Total Market Population*

1.0 million

2.6 million

0.8 million

0.7 million

*US Census estimate - 2011

BE ONE OF AMERICA’S BEST BANKS

Community Bank operates with a clear vision of

being the best bank our customers, employees,

shareholders and regulators do business with. It is a

vision which drives us to deliver exceptional service,

products, relationships, and – above all – shareholder

returns.

CBU’s five-year cumulative total return to
shareholders was 70% – third highest among
America’s 100 largest banks.

In 2012 Forbes.com once again recognized our

success in achieving this vision. In its fourth annual

ranking of “America’s Best and Worst Banks,” Forbes®

ranked Community Bank 11th best among America’s

100 largest banks and thrifts. We have ranked 11th

or higher in each of the past four years, reflecting a

consistent ability to deliver superior performance

across important financial health metrics.

These charts display the eight financial metrics used in the
annual Forbes® analysis of the “Best and Worst Banks.”
Comparing CBU to the median values of the institutions
included in the Forbes® analysis illustrates why we’ve ranked
among the country’s best performing banks during the four
years this comparison has been published.

3.0

2.0

1.0

0.0

3.0

2.0

1.0

Return on
Average Equity %

Net Interest Margin
(FTE) %

4.2

3.8

3.4

3.0

Nonperforming Assets /
Total Assets %

Allowance for Loan Losses /
Nonperforming Loans %

300

200

100

Nonperforming Loans /
Loans Outstanding %

Leverage Ratio %

Total Risk Based
Capital Ratio %

Tier 1 Risk Based
Capital Ratio %

CBU

Median of Top 100 Banks

SHAREHOLDER LETTER – A CLEAR VI SI ON O F S UCC ESS

In 2012 we achieved what Community Bank aims to accomplish each

For that reason, we have always remained committed to a long-term

and every year: growing and sustainable returns to our shareholders.

growth strategy which focuses first and foremost on the potential for

It was with a clear vision of success that we set out to meet the

increased shareholder returns.

challenges we knew would be in store for 2012 – persistently low

interest rates, margin compression, ultra-competitive lending markets

and a low-growth economy. The vision of success which steered every

decision and strategy in 2012 is the same we’ve looked to for direction

year-in and year-out. It focuses on just four key principles: achieve

market leadership, foster local decision making, continually diversify

our revenue streams and prudently pursue acquired and organic

growth. Strategies change with the times, but our guiding vision of

success remains clear and consistent.

Celebrating 20 Consecutive Years of Dividend Growth

Dividends, of course, are a critical component of growing shareholder

returns. Therefore, in 2012 we were very excited to celebrate our

20th consecutive year of increasing dividends. Once again, our

success in executing on our vision did not go unnoticed. In July 2012

Community Bank was added to the “S&P 1500 Dividend Aristocrats,”

an index comprised of just 105 companies – and only five banks – that

have increased their annual regular cash dividend payments for at

least 20 consecutive years. Our annual common stock dividend has

Success means being a leader in each of the markets we serve. It means

increased at a rate of 8.1% per year over the last 20 years. There is

promoting local decision making within our markets, empowering our

no question that our enduring vision of success paved the way for this

bankers to make decisions in the best interest of both their customers

wonderful achievement.

and our bank, on the ground and in person. It means ensuring we have

Considering that there are more than 1,000 publicly traded banks and

growing and varied sources of revenue, in order to maintain stable

thrifts in the US, 91 of which are in the S&P 1500, and only five of those

earnings streams while also providing services and products of distinct

are “Dividend Aristocrats,” we are delighted that our vision of success

value to our customers. And, it means pursuing balanced and measured

continues to benefit our loyal shareholders. What’s more: of the five

growth, simultaneously executing toward both organic expansion and

“Dividend Aristocrat” banks, CBU had the highest annual total return

value-adding acquisitions.

to shareholders (12.1%) over the 20 years ended December 31, 2012.

This year our success in executing on our vision was once again

nationally recognized by Forbes.com. In January 2013, Forbes named

Community Bank the 11th best bank in 2012, as measured across eight

financial health metrics, among the largest 100 U.S. banks and thrifts

by assets. Among 2012’s top 100 banks, Community Bank ranked third

for cumulative total return to shareholders over the last five years

ending December 31, 2012. Since the end of 2007 – across the entire

downturn, over the course of cataclysmic shifts in regulation, and in a

period when 465 banks and thrifts failed – Community Bank delivered a

five-year 70% cumulative return to shareholders. Not only is this higher

than all but two of the largest 100 banks in the nation, but it measures

in stark contrast to the negative 6% cumulative return for the group

median. We also find it powerful to see that of the top twenty banks

ranked by 5-year total return, three-quarters have less than $15 billion

in assets. This reality affirms our longstanding belief that bigger is not

necessarily better. It’s how you extract value from the balance sheet

you have which truly determines success.

We’ve done so without boasting the highest annual dividend growth

rate among the banks on the list. In fact, we maintain a conservative

dividend payout ratio of just over 50%. Rather, we’ve achieved superior

total return by ensuring we’ve always maintained considerable capital

retention to continue funding ongoing organic and acquired growth,

which in turn grows the earnings power of our franchise.

Mark E. Tryniski,
President & Chief Executive Officer (left)

Nicholas A. DiCerbo,
Chairman of the Board (right)

The success of that approach can be seen in our results over that

same period: we have delivered 12.4% compound annual growth

in net income over the last 20 years. Such tremendous long-term

DIVIDEND GROWTH
10-year CAGR = 6.6%

value creation is no mistake. While we are committed to a long-

term approach to value creation, we of course also aim to grow in a

disciplined manner over the short term; this is evidenced perhaps best

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in the recently concluded year.

2012 Results

To execute on our clear and consistent vision, in 2012 we strategically

focused on expanding our balance sheet, growing non-interest

revenues, managing expenses, and integrating and extracting value

from our HSBC and First Niagara branch transaction. In this productive

year we accomplished each of these goals.

Community Bank System earned $77.1 million in 2012, an increase of

more than 5% from 2011. Improved efficiency and meaningful growth

DIVIDEND PAYOUT RATIO%

54.3%

in net interest income and non-interest income helped mitigate the

National Bank, organic loan growth totaled 7%, or over $200 million,

impact of margin compression and acquisition costs related to the

in 2012. We saw increases across all portfolios, once again led by

HSBC and First Niagara branch transactions. Excluding nonrecurring

consumer lending with particular strength in residential mortgage

acquisition and litigation costs in 2012, earnings per share of $2.08

and auto lending. Our strong and sustainable core deposit base and

compared very well to $2.10 earned in 2011, particularly after

capital position allowed us to successfully compete for and fund our

considering that the industry-wide decline in net interest margin

retail customers’ borrowing needs in a time of historically low rates.

lowered our 2012 earnings by $0.21 per share. Like all of our banking

With funding costs averaging just 83 basis points for the year, we were

peers, we are experiencing substantial earnings headwinds due to

well-positioned to compete for quality credit opportunities.

the low-interest rate environment. Our net interest margin declined to

3.88% in 2012 from 4.07% in 2011. However, we effectively worked to

combat this compression by expanding our average balance sheet by

more than 15%.

Mortgage originations reached record levels in 2012, growing 36%

compared to 2011. With pristine asset quality (losses have averaged

less than seven basis points of average loans over the last nine

quarters) and new yields averaging around 4.1%, we are very pleased

Balance sheet expansion stemmed from both organic efforts and

with the growth of this portfolio and continue to hold the production on

acquisition growth. Excluding the impact of loans acquired from

our balance sheet as a high quality, low risk earning asset. Likewise,

the branch transactions this year and last year’s addition of Wilber

auto loan originations reached record levels in 2012, growing our total

TOTAL AVERAGE SHAREHOLDER RETURN
Through December 31, 2012, Including Reinvestment of Dividends

3 Years

5 Years

10 Years

15 Years

portfolio to $650 million at December 31, 2012. We primarily provide

customers with financing for used car purchases, and valuations on

these autos have been stable and favorable.

CBU

16.9 %

11.1 %

9.8 %

S&P 600 Commercial Bank

11.0 %

(5.4 %)

(1.1 %)

6.6 %

(4.4 %)

0.7 %

7.8 %

1.6 %

1.7 %

Business loan demand was muted again in 2012 as the economic

environment remains weak in our “Main Street” markets and across

the country. Nevertheless, business lending continues to be an

10.9 %

1.7 %

7.1 %

4.5 %

important component of our business model, particularly as a source

NASDAQ Bank

S&P 500

Dow Jones Ind. Avg.

10.9 %

2.6 %

7.3 %

5.8 %

of critical deposit funding and complementary fee-generating products

SOURCE: Bloomberg

and services. Of course, we continue to support those credit-worthy

completed in December 2011. Reaching $35.9 million in revenues in

customers in our markets who meet our unwavering risk-adjusted

2012, we are pleased with the growth potential our businesses in this

return requirements. Regardless of whether they seek credit in this

field offers. We reach a national client base with our diverse offerings,

challenging environment, business customers continue to value

and our highly skilled and experienced teams continuously develop our

Community Bank as a trusted partner to support all their financial

product and skill sets in response to marketplace needs and regulatory

services needs and safeguard their deposits.

changes. Likewise, our wealth management business generated

Community Bank System was one of only
14 companies to become a new member of
the S&P 1500 Dividend Aristocrats Index
in 2012, signifying that the Company has
raised its annual regular cash dividend
payment for at least 20 consecutive years.

20% revenue improvement from 2011, reflecting solid organic growth

in trust and asset management services. Combined, our financial

services revenue grew more than 15% to $48.8 million in 2012 from

$42.3 million in 2011. Over the last 10 years this revenue grew at a

compound annual rate of over 15%, clearly demonstrating our ability

to execute on our vision of diverse fee income growth. Perhaps most

advantageously, these businesses require very little capital to operate

because of their balance sheet, and so we continue to seek opportunities

to grow this area both organically and through acquisitions.

Core deposits grew more than 7%, or $268.4 million, on an organic

We are particularly pleased to report that our solid revenue growth

basis in 2012. Including those we acquired, our total deposit base at

outpaced core expense growth in 2012, driving an improvement in

December 31, 2012 was $5.6 billion, with core deposits comprising

our core recurring efficiency ratio to 57.4% from 57.6% in 2011.

82% compared to 77% at the end of 2011. Total core deposits, which

One-time costs in 2012 were principally attributable to our acquisition of

exclude certificates of deposit, grew 26% from the end of 2011 to the

19 branches from First Niagara and HSBC in the third quarter – a terrific

end of 2012, reflecting one of the many benefits of the First Niagara

transaction which deepened our market presence in Upstate New York

and HSBC branch transactions completed in the third quarter of 2012.

and met all our key criteria for acquisition success.

Of course, deposit growth and lower funding costs could not match

the significant decline in earning asset yields we and the industry

experienced in 2012. Average loan yields fell 44 basis points, while

average funding costs declined 31 basis points. We expect our

principal challenge in 2013 will be to continue defending and growing

our earnings power in a prolonged declining margin environment.

Revenue Growth a Key Factor of 2012 Success

Efforts to grow our balance sheet and revenue sources were very

SHAREHOLDERS’ EQUITY in millions
10-Year CAGR = 10.8%

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successful in achieving revenue expansion this year. Even as net

interest margin declined 19 basis points in 2012, net interest income

grew $21.0 million, or 10%, to $230.4 million. Non-interest income, or

fee income, grew $10.0 million, or 11%, to $99.2 million. Fee income

growth was an important component of our strategy in 2012, with focused

investment in our financial services offerings providing key momentum.

Our benefits administration and consulting businesses posted a 14%

increase in revenues, principally from the CAI Benefits acquisition

BOOK VALUE PER SHARE
10-year CAGR = 6.2%

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Acquisition Growth Remains a
Key Component of Success

One of the key elements to our growth strategy is high value

acquisitions. We take a disciplined approach to identifying and

evaluating opportunities that arise, and we continue to have an

ongoing appetite for acquisition prospects which will first and foremost

create value for our shareholders.

We evaluate whether we can generate earnings in a fashion that’s

commensurate with the risk associated with the transaction, and

whether the transaction will enable us to grow and sustain our

earnings and dividend. Essentially, we appraise each opportunity to

ensure its ability to create solid accretive value for our shareholders.

Our 2012 acquisition of 19 branches from First Niagara and HSBC fully

met these qualifications. In the third quarter we successfully completed

the deal, announced in the first quarter, consisting of 16 branches from

HSBC and three branches from First Niagara. We added a total of $800

million in deposits and $160 million in loans while welcoming 145 new

employees to Community Bank. By proactively raising $55 million in net

proceeds from a common stock offering in January, we also improved

our capital position going into this transaction.

CBU is a component company in more than
20 U.S. stock indices including: Russell
3,000; Russell 2,000; NYSE Financial;
S&P 1500; S&P 1500 Dividend Aristocrats.

With this acquisition, we were pleased to strengthen our ability to

provide exceptional service to consumer, business banking and private

banking clients in Upstate New York while growing our presence

and acquiring new customers. We deepened our market leadership,

executed an efficient and timely conversion, and subsequently

consolidated five acquired branches into existing Community Bank

branches to further enhance the economic and operating efficiency

of the transaction. Marking our 13th whole-bank or branch acquisition

since 2000, the First Niagara and HSBC deal allowed us to once again

leverage strong acquisition competencies developed over the course

of our growth in size and shareholder value.

Our longstanding vision for success remains unclouded;
we are focused on achieving market leadership, preserving
our decentralized decision-making process, investing in
non-interest revenues and seeking advantageous growth
opportunities, both organic and acquired.

INVESTMENT RATIONALE

n Disciplined approach to revenue and profitability growth

n Successful and effective operating strategy

n Excellent asset quality metrics

n Dominant market share — 1st or 2nd in more than
70% of our markets

n Substantial non-interest income — approximately
30% of operating revenues

n Diversified financial services businesses with
$48.8 million in 2012 revenues

n Record of successful and accretive acquisitions

n Meaningful dividend with 20 year history of

increased payouts

n Effective capital management strategies

n NYSE listed with significant liquidity

2012 TOTAL REVENUE
Grew by 10.4% in 2012
Total Revenue = $329.7 million

Net Interest Income
$230.4 million
Non-interest Income
$99.2 million

70%

30%

A Clear Vision for Success in 2013

Community Bank’s success in achieving solid shareholder value

creation is the outcome of daily efforts to enhance our value proposition

to customers and deepen engagement within our communities. It is a

proven model built on discipline and framed from the beginning with a

clear vision of what constitutes success for Community Bank.

Our vision for success was unclouded by the economic challenges

of 2012, and it remains so as we look ahead in 2013. We expect

our operating strength to continue with solid earnings, a larger

balance sheet, operating efficiency, plentiful and growing capital

levels and sound asset quality. With our expanded service footprint

and growing investment in non-banking businesses, we are well-

equipped to defend Community Bank’s earnings power in challenging

economic times. Most importantly, we maintain our clear vision

of value creation and will execute the necessary strategies to pursue

its growth. We’re proud of our consistent track record of growing

shareholder returns, and we thank you for your continued support of

Community Bank System, Inc.

Nicholas A. DiCerbo
Chairman of the Board

FINANCIAL SERVICES REVENUE in millions
10-year CAGR = 15.2%

Mark E. Tryniski
President and Chief Executive Officer

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OUR FOCUS – MARKET LEADERSHIP

Operating as a community bank with local decision-making, principally

Establishing a Strong Presence in Central New York

in non-urban markets, and offering a broad array of banking and

financial services to retail, commercial, and municipal customers – this

describes our business philosophy. Following this approach, Community

Bank System has grown into not only one of the largest community

banks based in Upstate New York, but one of the 100 largest banks in

North America, with $7.5 billion in assets and $5.6 billion in deposits.

We operate more than 180 customer facilities throughout 35 counties

of Upstate New York and in five counties of Northeastern Pennsylvania.

We focus on mostly non-urban markets, where leadership positions can

be earned. This focus has produced a market leading branch system in

which we have the first or second deposit market share in more than

In 2011 we entered the Central New York region by acquiring the

former Wilber National Bank to extend our service area in the Central,

Greater Capital District and Catskill regions. This transaction provided a

significant retail presence, as well as attractive deposit share in markets

contiguous to our existing service area with demographic characteristics

very similar to our existing markets. With 13 Central Region branches

now located in towns where we have the first or second ranked deposit

market share, and with over 40% of the total deposits for Otsego County,

we have a substantial presence in our newest region.

Our Growing Presence in Northeast Pennsylvania

70% of the towns where we have a retail customer location.

We took our successful community banking philosophy to Northeast

Our branch locations dominate the financial
landscape of the non-urban communities
across Upstate New York.

Expanding Our Northern Leadership Position

Our position as a formidable banking competitor in the North Country of

Upstate New York was further cemented by acquiring 18 branch-banking

centers from Citizens Financial Group, Inc. in November 2008 and six

additional branches from HSBC in July of 2012. We have built a very

strong market presence in the 12 counties which reach from Oswego

north to the Vermont and Quebec borders and cover nearly 18,000

square miles. Our 55 branch locations dominate the financial landscape

in the communities of the Northern Tier where approximately one in

every seven retail bank locations in the region proudly displays the

Community Bank, N.A. logo.

Our Solid Southern Tier

Pennsylvania by acquiring First Liberty Bank & Trust

in 2001.

We expanded our market position by acquiring Grange National Bank

and First Heritage Bank, both becoming part of First Liberty. The recent

development of more efficient methods for extracting natural gas from

the Marcellus Shale have had a positive economic impact on many

small towns throughout Northeast Pennsylvania. Rents and royalty

payments to land owners have become a source of substantial deposit

growth for banks in the region, including First Liberty.

BRANCH LOCATIONS

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We also dominate the banking landscape across the Finger Lakes

to the southwest corner of Upstate New York in the area stretching

REVENUE PER EMPLOYEE 1
10-year CAGR = 2.0%

in thousands

from Jamestown to Elmira and north to Lake Ontario. With our strong

retail franchise of 77 branch locations, we hold the number one or

number two market position in eight of the 16 counties in this region,

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as well as in 39 local communities. Our 2012 branch acquisitions from

First Niagara and HSBC further strengthened our Southern New York

Region market position.

1 Per average full time equivalent employee

Our indirect auto lending portfolio continues to be a strong contributor
to balance sheet expansion. In 2012, our record level auto loan originations
led year-over-year organic loan growth of over $200 million, or 7%. Pictured
above, Community Bank’s Robert Zehr (left), Vice President, Senior Indirect
Marketing Manager, reviews product offerings with long-time Northern New York
client John Barstow, Chairman of the Board and President of Barstow Motors, Inc.

||We recently expanded our Operations

Center in Canton, NY to ensure we have the

capacity to accommodate future growth.

RESPONSIVE LOCAL DECISION-MAKIN G

We emphasize responsive, local decision-making and customer

support, and we’re committed to the philosophy of serving the financial

needs of customers within our local markets. Our branches are located

primarily in smaller towns and cities within Upstate New York

and Northeastern Pennsylvania where we have built meaningful

market presence. We’re firmly convinced that the local character

of our business, knowledge of our customers and their needs, and

a comprehensive line of retail and business products enable us to

compete effectively in our markets. With the addition of 14 branches

(after consolidations) from HSBC and First Niagara, we continue working

to solidify and expand the service relationship with our new customers.

Focused on the Right Relationships

We have always been an in-footprint lender, to customers we know in

the communities we serve.

strong organic growth during this period, as well as the branch and

whole-bank acquisitions completed over the past five years.

Our focus on identifying and satisfying the needs of our customers

continues to yield solid results, as we ended 2012 with total loans of

$3.9 billion, up $394 million or 11% from year-end 2011 reflecting both

our branch acquisitions and strong organic growth in our consumer

A Consistent Focus on Asset Quality

Prudent credit management has been, and continues to be, a

foundational strength of this institution.

mortgage and consumer indirect installment portfolios. Business

Our credit quality continues to rank among the strongest in the

lending, which represents approximately one-third of our portfolio,

banking industry, as it has consistently throughout the credit crisis and

and includes commercial and industrial loans and mortgages on

economic downturn. During 2012, our net charge-offs were 23 basis

commercial properties, increased modestly during 2012 reflecting the

points, compared to 111 basis points for the banking industry, and our

continued soft demand and conservative growth characteristics that

non-performing loans to total loans at year-end were 75 basis points,

exist across most markets. While we remain focused on growing

compared to the industry average of 362 basis points. Our success

our business portfolio, we are committed to doing so in a manner

at keeping non-performing and delinquency ratios at manageable

that adheres to our strong asset quality standards and produces

levels reflects our continued focus on maintaining strict underwriting

acceptable margins. We continuously invest in personnel, technology

standards, as well as our extensive knowledge of our local markets,

and business development resources which further strengthen our

economic factors and most importantly, our customers.

competitive capabilities.

A Core Deposit Focus

Our deposit mix has been steadily evolving over the last several

years reflecting the success of our focus on growing core deposit

relationships through a combination of proactive marketing efforts,

EXCEPTIONAL ASSET QUALITY
At or for the twelve months ended December 31, 2012

CBU

ACBN1

ACBN1
Assets
> $1 B

competitive product offerings and high quality customer service.

Loan loss allowance/ NPLs2

148%

60%

58%

Core deposit “non-time” accounts were 82% of our total deposits

NPLs2/ loans outstanding

0.75%

3.62%

3.76%

of $5.6 billion at the end of 2012. Core deposits have grown by

Net charge- offs/ average loans3

0.23%

1.11%

1.17%

$2.8 billion, a compound annual growth rate of 20.3%, from the end

1 ACBN = All Commercial Banks, National 2 NPLs = Nonperforming loans

of 2007 through our 2012 year-end. This increase was a reflection of

3 FDIC Statistics - Net charge-off to loans

Our local character, extensive customer knowledge, and comprehensive product
menu, along with responsive decision-making at the branch and regional levels
make us a very effective competitor within our markets.

||INVESTMENT IN NON-INTEREST REVENU ES

Non-interest income growth has long been a key component of our

strategy to create value for our shareholders and customers alike.

We aim to continually diversify into new service areas while growing

our existing revenue sources. Our focused investment on financial

services offerings has expanded our revenue sources beyond trad-

itional banking services. With this diversification, we’ve successfully

developed stable earnings streams which are less dependent on

interest rate cycles or capital resources. Most importantly, non-interest

income is a meaningful driver of earnings power derived from services

and products of distinct value to our customers.

This includes the traditional products such as ATM service, debit

cards and risk protection programs offered throughout the Community

Bank, NA and First Liberty Bank and Trust branch network, as well as

additional specialized service offerings available beyond our branch

banking footprint.

Employee Benefit Trust, Administration,
Actuarial and Consulting Services

MIX OF NON-INTEREST INCOME
2012 Total Non-interest Income = $99.2 million

47%

Deposit Service Fees
$46.1 million
Benefit Plan Services
$35.9 million
Wealth Management Services 13%
$12.9 million
Mortgage Banking and Other
$4.3 million

36%

FINANCIAL SERVICES REVENUE COMPOSITION
2012 Total Financial Services Revenue = $48.8 million

Benefit Plan Services
$35.9 million
Wealth Management
$12.9 million

74%

26%

We entered this business in 1996 by acquiring a small benefits

benefits administration offerings, which generated $35.9 million in

administration firm in Central New York. Since then, we’ve expanded

revenue in 2012, up 14% from 2011.

through solid organic growth and four subsequent acquisitions which

increased our services and product offerings and added meaningful

expertise and structural support.

Wealth Management, Investments,
Insurance and Asset Advisory Services

Our Benefit Plans Administrative Services, Inc. (BPAS) is truly a nation-

of consistent organic growth mixed with productive acquisitions.

wide business with wide-ranging capabilities

including: defined

Our wealth management services are offered across our service

contribution plan benefit administration; health care and benefit plan

footprint, primarily utilizing our branch system, and include: personal

consulting; flexible benefit plan administration; actuarial services; and

trust services; investment advisory and brokerage services; auto,

As with BPAS, the success of our wealth management group is a result

collective investment fund administration.

Our recent acquisition of CAI Benefits in December 2011 contributed

to the growing revenue prospects and strong operating returns of our

homeowners, commercial and life insurance programs; and asset

management. In 2012, our wealth management group continued to

grow principally through organic means, and generated $12.9 million

of revenues, up 20% from 2011.

Over the last 10 years our financial services revenue grew at a

compound annual rate of over 15%, clearly demonstrating our ability

to execute on our vision of diverse fee income growth. These non-

capital intensive businesses provide key earnings momentum through

economic cycles and across an expanded service area beyond our

branch network footprint. We’re confident that we’ll continue to

realize success in these non-banking arenas as a result of continued

new client generation and expanded service offerings.

Our wealth management professionals are focused

on the needs and goals of our clients.

Community Bank’s subsidiary BPAS is a national provider of benefit adminis-
tration, actuarial, consulting and institutional trust services. BPAS services over
3,500 retirement plans and more than 250,000 plan participants across the
United States and Puerto Rico.

||LEVERAGE ORGAN IC AND ACQUIRED GROWT H O PPO RT U N I TI ES

One of Community Bank’s greatest strengths is our discipline in

pursuing balanced and measured growth. Our vision of success has

always pointed clearly to both organic expansion and value-adding

acquisitions. We operate a growth model which leverages all

opportunities and directs capital to those which offer the strongest

prospects for sustainable value creation.

The First Niagara and HSBC branch
acquisition marked our 13th whole-bank or
branch acquisition since 2000.

We also continue to seek financial services opportunities with the

We believe that acquisition growth sets the stage for organic growth.

potential to contribute meaningfully to our fee income growth, and

As we’ve expanded and deepened our presence across our footprint,

which are scalable businesses that can operate both within and

and as we’ve invested in non-banking businesses as a core revenue

outside our banking network. The relatively small amounts of capital

driver, we’ve gained access to new customers, geographies, products

required to acquire and operate these businesses, as well as the stable

and services. With each acquisition we elevate our platforms and

earnings streams makes them a compelling alternative.

profile, allowing us to provide a wider range of products, enhanced

service and improved convenience to our existing customers. It is a

virtuous cycle with results that are illustrated by our loan and deposit

For all opportunities, we evaluate the potential to generate earnings

commensurate with the risk associated with the transaction, as well

as whether the transaction will enable us to grow and sustain our

earnings and dividend.

Recent Strategic Acquisitions
2008

Acquired Philadelphia based Alliance Benefit Group MidAtlantic

Acquired 18 branches from Citizens Financial Group, Inc.

in Northern New York

2011

Acquired Wilber Corporation, parent company of

Wilber National Bank, in Central New York

Acquired CAI Benefits, Inc., a New York City and New Jersey based

actuarial and retirement benefits firm

2012

Acquired 19 branches from First Niagara and HSBC

in Upstate New York

growth over the last 10 years.

TOTAL LOANS in billions
10-year CAGR = 7.9%

4
.
2
$

1
.
2
$

7
.
2
$

8
.
2
$

1
.
3
$

5
.
3
0 $
.
3
$

9
.
3
$

TOTAL DEPOSITS in billions
10-year CAGR = 8.4%

6
.
5
8 $
.
4
9 $
3
$

7
3
$

9
3
$

7
2
$

9
2
$

0
3
$

2
3
$

Our vision of success clearly focuses on value-creating growth

opportunities, and we have an ongoing appetite for acquisitions

which make strategic and financial sense. We have a proven core

competency for both whole-bank transactions and for multi-branch

acquisitions within or adjacent to our existing geographic footprint.

Our focus has been and remains primarily on non-urban markets which

offer the potential to earn meaningful deposit market share.

We have expanded and deepened our presence across our footprint with acquisition
growth, which sets the stage for organic growth. Acquisitions have accelerated
the development of banking-related fee income, increased the diversity of non-
interest income from new financial services businesses, and spurred incremental
growth of existing revenue sources.

||CORPORATE GOVERNANCE

The strongest champions of Community Bank System’s

vision for the future are the members of its executive

management team. Led by President and Chief Executive

Officer Mark Tryniski, the executive leadership includes:

Scott Kingsley, Executive Vice President and Chief

Financial Officer; Brian Donahue, Executive Vice President

and Chief Banking Officer; and Joe Getman, Executive

Vice President and General Counsel. With over 40 years

of collective experience at Community Bank, the executive

leadership understand and execute on the bank’s sound

strategy year in and year out.

Mark Tryniski has been President and Chief Executive

Officer of CBU since 2006. Mark first joined the company

in 2003, serving as the company’s Chief Financial Officer

and later as its Executive Vice President and Chief

Operating Officer. Prior to joining Community Bank, Mark

was a partner with PricewaterhouseCoopers.

Scott Kingsley has held his current role as Chief

Financial Officer since 2004. Prior to joining CBU,

Scott was Vice President and Chief Financial Officer of

Ohio-based Carlisle Engineered Products, Inc.

The Company’s Chief Banking Officer, Brian Donahue,

has helped to develop the company’s banking operations

over the past 20 years. During that time, he has held the

positions of Chief Credit Officer and Senior Loan Officer of

the Southern Region.

Joe Getman has served as Executive Vice President

and General Counsel of our company since 2008. Before

joining the executive management team, Joe was a senior

partner at Bond, Schoeneck & King, PLLC, during which

time he provided corporate counsel to the company.

COMMUNITY BANK, N.A.
REGIONAL ADVISORY BOARDS

First Liberty (Pa.)

Edward A. Coach

Michael J. Coleman

John H. Graham

Scott E. Henry

Edward I. Johnson, Jr.

Thomas A. McCullough

William K. Nasser, Jr.

Russell G. Newell

Frank J. Niemiec

James M. O’Brien

Adirondack

Paul M. Cantwell, Jr.

William M. Dempsey

Alexander C. Edwards

Joseph Vernon Lamb III

James R. Langley, Jr.

Carl J. Madonna

Kim A. Murray

Central

Mary C. Albrecht

Olon T. Archer

Thomas J. Davis

Joseph P. Mirabito

Benjamin C. Nesbitt

James L. Seward

Geoffrey A. Smith

David F. Wilber III

Our advisory boards provide
important guidance to CBU’s
leadership and Board, bringing
insight into the unique needs
of the bank’s different regions
and customers.

FROM TOP TO BOTTOM

Mark Tryniski, Scott
Kingsley, Brian Donahue
and Joe Getman

BOARD OF DIREC TORS

Nicholas A. DiCerbo
Chairman of the Board;
DiCerbo & Palumbo, Partner;
Director since 1984

Brian R. Ace
Laceyville Hardware, Owner;
Compensation Committee, Vice Chair;
Nominating/ Corporate Governance Committee;
Director since 2003

Neil E. Fesette
Fesette Realty, LLC and Fesette Property Management,
Owner, President and CEO;
Nominating/ Corporate Governance Committee, Chair;
Trust Committee;
Director since 2010

James W. Gibson
Retired, KPMG, LLP, Partner;
Compensation Committee;
Director since 2009

John Parente
CP Media, LLC, CEO;
Strategic/ Executive Committee;
Loan/ ALCO Committee, Vice Chair;
Director since 2010

Mark E. Tryniski
Community Bank System, Inc., President and CEO;
Director since 2006

Alfred S. Whittet
Retired, The Wilber Corporation, CEO;
Trust Committee, Chair;
Director since 2011

James A. Wilson
Lead Director of the Board;
Retired, Parente Randolph, LLC, Principal Partner;
Nominating/ Corporate Governance Committee;
Audit/ Compliance/ Risk Management Committee, Chair;
Director since 2009

Mark J. Bolus
Bolus Motor Lines, Inc., President and CEO;
Compensation Committee, Chair;
Strategic/ Executive Committee;
Director since 2010

James A. Gabriel
Franklin & Gabriel, Owner;
Strategic/ Executive Committee;
Loan/ ALCO Committee, Chair;
Director since 1984

Edward S. Mucenski
Pinto, Mucenski, Hooper, Van House & Company, P.C.,

Partner and Managing Director;

Compensation Committee;
Audit/ Compliance/ Risk Management Committee, Vice Chair;
Director since 2010

Sally A. Steele
Attorney at Law;
Strategic/ Executive Committee, Chair;
Director since 2003

John F. Whipple
Buffamante Whipple Buttafaro, P.C., CEO;
Nominating/ Corporate Governance Committee;
Audit/ Compliance/ Risk Management Committee;
Director since 2010

Brian R. Wright
Hinman, Howard & Kattell, LLP, Attorney, Special Counsel;
Nominating/ Corporate Governance Committee;
Strategic/ Executive Committee;
Director since 2011

All bank board members participate in the Loan/ ALCO Committee

The Board of Directors sincerely thanks Paul M. Cantwell, Jr. for the dedicated service he has
provided to Community Bank System over the past 12 years. Paul became a director in 2001
and served as Chairman of the Board from 2006 to 2010. Following his 2012 retirement, he
will continue to provide guidance to the bank as a member of its Adirondack Advisory Board.

ADMIN ISTRATI ON

Executive
Mark E. Tryniski, President and
Chief Executive Officer
Scott A. Kingsley, Executive Vice President,
Chief Financial Officer
Brian D. Donahue, Executive Vice President,
Chief Banking Officer
George J. (Joe) Getman, Executive Vice President,
General Counsel

Credit & Branch Administration
Joseph F. Serbun, Senior Vice President,
Chief Credit Officer
Stephen G. Hardy, Senior Vice President,
Chief Credit Administrator
Richard M. Heidrick, Senior Vice President,
Consumer Banking
Joseph E. Sutaris, Senior Vice President,
Regional Banking Executive
Scott J. Boser, Vice President,
Retail Lending Manager
George J. Burke, Vice President,
Director of Mortgage Banking
Mark A. Guenthner, Vice President,
Special Assets Manager
Noel I. Donnelly, Vice President,
Special Assets Officer
Cynthia L. Lefko, Vice President,
Cash Management Product and
Sales Manager
Nancy Mastrucci, Vice President,
Senior Credit Manager
Judith A. Meyer, Vice President,
Branch Services Administrator
Tammy R. Neumann, Vice President,
Regional Branch Coordinator
J. Randall Palko, Vice President,
Regional Branch Administrator
Denise Rhoads, Vice President,
Commercial Appraisal Manager
Michael J. Stacey, Vice President,
Collections Manager
Robert Zehr, Vice President,
Senior Indirect Market Manager
Pamela S. Dent, Recovery Specialist
Stephen B. Dupree, Reports Analyst
Jennifer Hernandez, Mortgage
Processing Manager
Sherry Stone, Branch Services
Regional Administrator

Finance & Treasury Management
Joseph J. Lemchak, Senior Vice President,
Chief Investment Officer
Shannon M. Davis, Vice President,
Asset Liability Manager
Susan S. Fox, Vice President,
Corporate Controller

Robert R. Frost, Vice President,
Manager of Financial Analysis & Planning
Sean M. Howard, Vice President,
Portfolio Investment Officer
Randy Pray, Vice President,
Corporate Purchasing Manager
Pamela J. Taylor, Vice President,
Data Warehousing Manager
Brian Fancher, Benefits Accounting Manager
Laura J. Mattice, General Accounting Manager
Dennelle T. Michalski, Financial Controls Manager
Robert E. Pierce, Financial Reporting Manager

Administration
Timothy J. Baker, Senior Vice President,
Director of Special Projects
Bernadette R. Barber, Senior Vice President,
Chief Human Resources Officer
Harold M. Wentworth, Senior Vice President,
Retail Banking and Marketing
Kristine M. Besaw, Vice President,
Senior Regional Human Resources Manager
Danielle M. Cima, Associate General Counsel,
Corporate Secretary
Brett C. Fisk, Vice President,
Director of Real Estate & Facilities
Robert D. Harder, Vice President,
Senior Regional Human Resources Manager
Michael F. Joyce, Vice President,
Director of Real Estate
Diane C. Seaman, Vice President,
Human Resources Manager/
Organizational Development
Lorie M. Semmel, Vice President,
HR Operations Manager
Donna Skechus, Vice President,
Special Projects Manager
Donna J. Drengel, Board Secretary and
Shareholder Relations
John A. Puchir, Sales Manager

Technology & Operations
J. Michael Wilson, Senior Vice President,
Chief Technology Officer
Aaron S. Friot, Vice President,
Director of Information Technology
Robin E. Dumas, Vice President,
Electronic Banking Manager
Nancy M. Lewis, Vice President,
Item Processing Manager

Barbara L. Snyder, Vice President,
Loan Operations Manager

Christina E. Sullivan, Vice President,
Deposit Operations Manager
Tracie M. Clayson, Loan Operations Unit Manager
Deanna L. Foster, Loan Operations Unit Manager
Allyson B. Krieger,Technical Project Administrator
Tami L. Ozogar, Loan Operations Unit Manager
Frank A. Palmisano, Manager Network Administration

Dale Pike, Senior Imaging Supervisor
Julie A. Rhodes, Deposit Operations Unit Leader

Risk Management
Paul J. Ward, Senior Vice President,
Chief Risk Officer
Mark S. Ackerly, Vice President,
Director of Information Security
Melissa R. Cloce, Vice President,
Compliance Manager
Mark J. Houghtaling, Vice President,
Credit Risk Manager
Daniel P. O’Connell, Vice President,
Director of Internal Audit
Dorothy A. Quarltere, Vice President,
Compliance Manager
Stuart A. Smith, Vice President, Security Officer
Lynne M. Wadsworth, Vice President,
Asst. Director of Internal Audit
Anthony A. Antonello, Senior Security Investigator
Teresa Bower, Loan Review Team Leader

COM M UNIT Y BA NK

Business Banking
Buffalo
David McKinley, Vice President,

Commercial Banking

Canton
Nicholas S. Russell, Senior Vice President of
Commercial Banking Northern Region

Clifton Springs
Tina Bounds, Assistant Vice President,

Mortgage Specialist

DeWitt/Syracuse

Luke Fagan, Vice President,
Commercial Banking Team Leader
William D. McIncrow, Vice President,

Commercial Banking Officer

Russell E. Sturtz, Assistant Vice President,

Commercial Banking Officer

Elmira
Arthur J. Sable, Vice President,
Commercial Banking Officer

Erwin/Painted Post
Michael G. Austin, Vice President,
Small Business Banking Manager

John D. Clark, Vice President,
Commercial Banking Officer
Richard R. Sisson, Vice President,

Credit Underwriter

Jill R. Staats, Small Business Banking,

Senior Underwriter

Geneva
David Gooding, Vice President,
Commercial Banking Officer
Loren C. Herod, Vice President,
Agricultural Banking Team Leader
Charles Van Hooft, Vice President,
Agricultural Banking Officer

Stephen H. Rich, Vice President,

Commercial Banking Team Leader

Johnson City
Edward P. Michalek, Vice President,

Commercial Banking Officer

Lakewood
Roger E. Dickinson, Vice President,

Senior Commercial Banking Officer

Lowville
Kevin J. Kent, Vice President,
Commercial Banking Officer

Malone
Lawrence P. Fleury, Assistant Vice President,
Senior Business Development Officer

North Creek
Eugene M. Arsenault, Vice President,

Commercial Banking Officer

Olean
Mark P. Saglimben, Vice President,

Senior Commercial Banking Officer
Scott P. Brechbuehl, Vice President,
Commercial Banking Officer

Gretchen Copella, Assistant Vice President,

Commercial Banking Officer

Eric M. Garvin, Assistant Vice President,

Commercial Banking Officer

Oneonta
Jeffrey T. Lord, Vice President,

Commercial Banking Team Leader

John M. Connolly, Vice President,
Commercial Banking Officer

Andrew Rice, Assistant Vice President,

Agricultural Banking Officer

Robert Zehr, Vice President,

Senior Indirect Market Manager

Wellsville
Douglas O. Frank, Vice President,
Commercial Banking Officer
James M. Knapp, Vice President,
Business Development Officer

FI R ST L IBE RTY BANK & T RUST

Robert P. Matley, Executive Vice President,
President Pennsylvania Banking
Robert A. Cirko, Senior Vice President,
Regional Retail Banking Manager

Business Banking
Hazelton
Paul Baynum, Assistant Vice President,

Commercial Banking Officer

Olyphant
Barry J. Westington, Vice President,

Special Assets Officer

Scranton
Warren C. Rozelle, Senior Vice President,
Commercial Banking Team Leader

Matthew Dougherty, Senior Vice President,

Commercial Banking Officer

Mary Elizabeth D’Andrea, Senior Vice President,

Commercial Banking Officer
Samuel DeStefano, Vice President,
Senior Indirect Market Manager

Jonathan M. Luce, Assistant Vice President,

Joseph S. Tomko, Senior Vice President,

Commercial Banking Officer

Allison M. Mosher, Assistant Vice President,

Commercial Banking Officer

Orchard Park
Patrick M. Gorman, Vice President,
Commercial Banking Officer

Plattsburgh
Paul Connelly, Vice President,
Commercial Banking Officer

Tracy Clark, Assistant Vice President,

Commercial Banking Officer

Potsdam
Ronald J. Bacon, Vice President,

Senior Commercial Banking Officer

Matthew J. Rollins, Assistant Vice President,

Commercial Banking Officer

Saranac Lake
Craig Stevens, Vice President,
Commercial Banking Officer

Watertown
Duane M. Pelkey, Vice President,

Senior Commercial Banking Officer
Michael J. Brassard, Vice President,

Loan Workout Officer

Jeffrey T. Fallon Vice President,
Commercial Banking Officer

Tunkhannock
Walter Sarafinko, Assistant Vice President,

Commercial Banking Officer

Wilkes-Barre

Francis R. Doyle, Senior Vice President,
Commercial Banking Team Leader
David M. McHale, Senior Vice President,

Commercial Banking Officer

A. Edward Nork, Senior Vice President,

Commercial Banking Officer

Stacia L. Arnaud, Assistant Vice President,

Commercial Banking Officer

Neil D. King, Assistant Vice President,

Commercial Banking Officer

W E ALTH MA NAGE M ENT GRO UP

Charles E. Kopp, Managing Director

Trust and Investment Services
Catherine B. Koebelin, Vice President,
Chief Trust Officer Olean
Charles J. Perrillo, Vice President,
Trust Chief Investment Officer, Oneonta
Herbert A. Simmerly, Vice President,
Senior Trust Officer, Oneonta
Vincent L. Mastrucci, Vice President,
Trust Officer, Scranton PA

Paul J. Snodgrass, Vice President,
Trust Officer, Canton
Priscilla R. Welch, Vice President,
Senior Trust Officer, Oneonta
Patricia E. Barie, Trust Officer, Olean
Michael Byrne, Trust Officer, Geneva
Charlotte S. Carlson, Trust Officer, Lakewood
Lauren Carlson, Trust Officer, Oneonta
Patricia A. Crolly, Trust Officer, Scranton PA
Robert P. Jewell, Trust Officer, Elmira
Thomas LaPage, Trust Officer, Canton
Patricia A. Lowe, Trust Operations Officer
Adam C. Niebanck, Trust Officer, Oneonta
Amy B. Schlee, Trust Officer, Oneonta

Nottingham Advisors, LLC
500 Essjay Road, Suite 220,
Williamsville, NY
Thomas S. Quealy, Chief Executive Officer
Lawrence V, Whistler, President,
Chief Investment Officer
Karen A. Mohn, Chief Compliance Officer,
Operations Manager
Nicholas Verbanic, Vice President,
Portfolio Manager

Community Investment Services, Inc.
Paul A. Restante, President
Barbara Toczko-Maculloch, Sr. Vice President,
Regional Sales Mgr.
Audrey Pound, Operations Manager

Financial Consultants
Peter Albano, Wilkes-Barre PA
Jonathan Bartholomew, Watertown
Robert Bittner, Geneva
Eric E. Brunet, Canton
Lucas A. Burton, Olean
Joseph M. Butler, Jr., Watertown
Thomas Ciolek, Avon
Daniel P. Drappo, Black River
James G. Durso, Waterloo
John F. Fabrizio, Skaneateles
Timothy Forman, Tupper Lake
Kevin C. Gildner, Wellsville
Jason Grover, Canandaigua
Justin P. Hooper, Plattsburgh
Randall J. Hulick, Springville
Kyle A. Leikam, Dunkirk
Rick P. Little, Tunkhannock PA
Andrew Lomanto, Plattsburgh/Malone
David Long, Elmira
Jude R. McDonough, Scranton PA
Chad J. Murray, Jamestown
Charles A. Nicosia, Oneonta
David H. O’Neil, Jr., Boonville
Joseph Topichak, Corning
Michele Wilck, Newark/Palmyra

CBNA Insurance Agency
Mark J. Moeller, President
117 Park Street, Tupper Lake, NY
173 Margaret Street, Plattsburgh, NY
6 Clinton Street, Heuvelton, NY
8242 Route 3, Harrisville, NY
217 West Main Street, Malone, NY

BENEFIT PLAN S ERVI C ES

Barry S. Kublin, President

Benefit Plans Administrative Services, LLC
6 Rhoads Drive, Utica, NY
Paul M. Neveu, Senior Vice President, Sales
Robert A. Malczyk, Vice President, Sales
Linda S. Pritchard, Vice President, Operations
3501 Masons Mill Road, Suite 505,
Huntingdon Valley, PA
Mary Anne Geary, Vice President
Richard Schultz, Vice President

Harbridge Consulting Group, LLC
One Lincoln Center, Syracuse, NY
Vincent F. Spina, President
Steven P. Chase, Vice President
Sarah E. Dam, Vice President
Kenneth M. Prell, Vice President
Sheila L. Yoensky, Vice President
Kevin J. Wade, Vice President
335 Lexington Ave., 5th Floor, New York, NY
Burton Sivin, Senior Vice President
Sheryl Gabriel, Vice President
George Gomez, Vice President
William Nusblat, Vice President
Jeffrey Schreiber, Vice President

Hand Benefits & Trust
820 Gessner, Suite 1250, Houston, TX
W. David Hand, Chief Executive Officer
Stephen Hand, President
James Goodwin, Vice President
Kathy Harvey, Vice President

BRANCH LOCAT ION S

Community Bank Northern New York Market
Adams
Christopher M. Castle, Manager
Alexandria Bay
Matthew Honeywell, Manager
Ausable Forks
Valerie A. Daniels, Assistant Vice President,

Manager

Black River
Christina S. Meagher, Assistant
Vice President, Manager

Boonville

North Creek

(101 Main Street and Headwaters Plaza)

Debra Roberts, Assistant Vice President,

Manager

Brushton
James H. McElwain, Branch Supervisor
Canton
David R. Peggs, Vice President, Manager
Champlain
Melissa M. Peryea, Assistant Vice President,

Manager

Chateaugay
Barbara J. LaVoie, Manager
Clayton

Lori E. Fearnside, Manager

Fort Covington
Gayle E. Miner, Branch Supervisor
Gouverneur
Diane Easton, Vice President, Manager
Harrisville
Karen Pierce, Branch Supervisor
Hermon
Connie J. Green, Branch Manager
Heuvelton
Carol Peacock, Branch Supervisor
Indian Lake
Brenda K. Lanphear, Manager
Lake Placid
Katie R. Stephenson, Assistant Vice President,

Manager

Long Lake
Viccann Novak, Manager
Lowville (7605 State Street)
Tina M. Paczkowski, Vice President,

District Manager

Mary L. Peters, Assistant Vice President,

Retail Service Officer

Joseph Monnat, Assistant Vice President,

Retail Service Officer
Lowville (7395 Turin Road)
Stephen H. Allen, Manager
Lyons Falls
Nancy Fruin, Assistant Vice President, Manager
Madrid
Marsha L. Watson, Manager
Malone (Elm Street)
Byron Tuthill, Vice President, District Manager
Malone (West Main Street)
Stacey Brunell, Assistant Vice President,

Lori A. DeMars, Assistant Vice President,
Manager

Norwood
Victoria Strader, Vice President, Manager
Ogdensburg (825 State Street)
Robert L. Seymour, Vice President,

District Manager

Ogdensburg (320 Ford Street)
Sandra C. Kendall, Vice President, Manager
Old Forge
Barbara B. Criss, Vice President, Manager
Plattsburgh (Margaret Street)
Mary Gibbs, Vice President, Manager
Plattsburgh (Route 3)
James E. Snook, Vice President, Manager
Plattsburgh (468 Route 3)
Kent G. Backus Vice President,

Regional Retail Banking Manager

Plattsburgh (In-store – Wal-Mart)
Arlene Favreau, Branch Supervisor
Potsdam (64-70 Market Street and May Road)
Victoria G. Strader, Vice President,

Branch Manager

Helen M. Hollinger, Assistant Vice President,

Retail Service Officer

Pulaski
Steven P. Gaffney, Vice President, Manager
Saranac Lake (Broadway)
Brenda Darrah, Assistant Vice President, Manager
Saranac Lake (Lake Flower)
Renee L. Darrah, Manager
St. Regis Falls
Cynthia M. Murphy, Assistant Vice President,

Manager

Star Lake
Connie Green, Branch Manager
Ticonderoga
Maria E. Beuerlein, Assistant Vice President,

Manager

Tupper Lake (Hosely)
John W. Salamy, Vice President, Manager
Tupper Lake (Park Street)
Gail Auclair, Vice President, Manager
Clair Brown, Retail Service Officer
Waddington
Marsha Watson, Manager
Watertown (1125 Arsenal Street)
Elizabeth A. Brown, Assistant Vice President,

Manager

Massena
Joy Graves, Assistant Vice President,

Manager

Newcomb
Viccann Novak, Manager

Watertown (1218 Arsenal Street)
Margaret Farone, Manager
Watertown (216 Washington Street)
Rita J. Walldroff, Vice President,
Regional Retail Banking Mgr

Catherine Ward, Vice President, Manager

West Carthage
Naura L. Christman, Manager
Whitehall
Holly A. Rabideau, Manager

Community Bank Southern New York Market
Addison
Robin K. Knapp, Assistant Vice President,

Manager

Alfred
Beth L. Plaisted, Manager
Allegany
Stephanie L. Kolkowski,

Assistant Vice President, Manager

Avon
Deborah K. Fitch, Branch Manager
Angelica
Diana L. Grastorf, Branch Supervisor
Bath
Joel P. Brazie, Assistant Vice President,

Manager

Belfast
Lisa Perry, Branch Supervisor
Bolivar
Judy Gilliland, Manager
Brocton
Phyllis A. Crockett, Manager
Canandaigua (County Road 10)
Paul E. Lepore, Vice President, District Manager
Deanna Nissen, Branch Supervisor
Canandaigua (South Main Street)
Christopher Bross, Manager
Cassadaga
Susan C. Sekuterski, Manager
Cato
Tiesha Combes, Manager
Cicero
Robert M. Liedka, Jr., Manager
Clifton Springs

(26 East Main Street and Clifton Plaza)
Theresa P. Dorgan, Vice President, Manager
Clymer
Laurie L. Harvey, Manager
Corning (West Market Street)
Wendy B. Daines, Vice President, Manager
Corning North
Beth A. Robins, Manager
Cuba
Mary M. Quigley, Vice President, Manager
Dansville
Jody R. Tonkery, Vice President, District Manager
Carolyn M. Scoppa, Vice President,

Retail Service Officer
Dunkirk (3909 Vineyard Drive)
Jason DeChard, Manager

Dunkirk (345 Central Avenue)
Jean M. Coughlin, Assistant Vice President,

Manager

Elmira
Denise E. Allen, Vice President, District Manager
Robert J. Avvampato. Retail Service Officer
Courtney Shaw, Retail Service Officer
Vicki Weller, Retail Service Officer
Erwin/Painted Post

Laura Noonan, Branch Supervisor

Falconer
Joann W. Anderson, Assistant Vice President,

Manager

Fillmore
Julie A. Hall, Manager
Franklinville
Sandra S. Wolfer, Manager
Fulton
Tina Stephens, Assistant Vice President,

Manager

Geneva
Robert Sollenne, Vice President, Manager
Gowanda
Daniel L. Drozdiel, Vice President,

District Manager

Ralph Swanson, Vice President, Manager
Nathan Pleakis, Retail Service Officer
Hammondsport
Kelly L. Bussmann, Assistant Vice President,

Manager

Hannibal
Debra A. Davis, Assistant Vice President,

District Manager

Hornell
Melissa M. Ponticello, Manager
Horseheads-Consumer Square
Cynthia A. Welliver, Assistant Vice President,

Manager
Houghton College
Julie Hall, Manager
Interlaken
Denise Ector, Manager
Ithaca
Michael MacDonald, Manager
Jamestown (1281 North Main Street)
Kathleen S. Bemus, Assistant Vice President,

Manager

Jamestown (25 Main Street - Brooklyn Square)
Glori A. Taylor, Manager
Lakewood

Lisa R. Allenson, Vice President, District Manager

Livonia
Ronda Howard, Manager
Moravia
Kathleen M. Longyear, Manager

Mount Morris
Stacey Lewis, Manager
Naples
Joilette M. Pendleton, Manager
Newark Plaza
Brenda K. Westcott, Manager
Nichols
Kathleen M. Bowen, Assistant Vice President,

Manager
North Collins
Ellen M. Pavlovic, Assistant Vice President,

Manager

Olean (201 North Union Street)
Jody L. Spears, Vice President,

District Manager

Theresa M. Raftis, Assistant Vice President,

Retail Service Officer

Olean (Delaware Park)
Kelly Crandall, Manager
Oswego

Fred Aldrich IV, Vice President, Manager

Ovid
Jacqueline M. Robinson, Manager
Owego

Florence Rossi, Assistant Vice President,
Manager

Palmyra
Cheryl A. Ford, Manager
Penn Yan (151 Main Street)
Thomas R. May, Vice President, Manager
Dana L. Crans, Retail Service Officer
Penn Yan (272 Lake Street)
Teresa A. Vivier, Manager
Phelps
Susan J. Lanse, Manager
Portville (1471 East State Road)
Brenda Blackwell, Manager
Portville (7 North Main Street)
Christine P. Boser, Branch Supervisor
Randolph
Diane M. Lecceardone, Manager
Ripley
Patricia J. Knight, Manager
Rushville
Christine M. Copper, Branch Supervisor
Salamanca
Robin K. Bowser, Manager
Seneca Falls
David W. Sloan, Vice President,

Regional Retail Banking Manager

Christine Plate, Manager
Sherman
Shannon R. Stevens, Manager
Silver Creek
Mark J. Catalano, Assistant Vice President,

District Manager

Skaneateles
Desiree R. Murphy, Assistant Vice President,

Manager

Springville (Cascade Drive)
Mary Ann Lutz, Manager
Jason Mongillo, Retail Service Officer
Springville (North Buffalo Street)
Brooke Baker, Manager
Kristen Woodarek, Retail Service Officer
Waterloo
Larry D. Ledgerwood, Vice President,

Manager
Watkins Glen
Anthony Fraboni, Vice President, Manager
Laurel M. Fox, Assistant Vice President,

Retail Service Officer
Wellsville (4196 Bolivar Road)
Lori Dzielski, Manager
Wellsville (113 Main Street)
David E. Newton, Vice President,

District Manager

Virginia L. Elliott, Assistant Vice President,

Manager

Westfield
Carl Swan, Manager
Woodhull
Lynn S. Vitale, Manager
Yorkshire
Joseph D. Fore, Assistant Vice President,

Manager

Community Bank Central New York Market
Boiceville
Roy S. Todd, Manager
Cobleskill
Arthur C. Lafleur, III, District Manager
Cooperstown (Main Street)
Janice E. Eichler, Manager
Cooperstown Otsego (State Highway)
Wende Ebberts, Manager
Delhi
Tina A. Seguare, Manager
Downsville
Jean M. Lacey, Manager
Fleischmanns
Marilee A. Asher, Manager
Halfmoon
Richard A. Griesche, District Manager
Johnson City
Michelle Carlsson, Manager
Milford
Rosemary Aborn, Manager
Morris
Michael Walling, District Manager
Norwich (State Highway)
Caryn M. Wake, Manager

Norwich (Broad Street)
Jason C. Yager, Manager
Oneonta (Main Street)
Susan M. DelCostello, Manager
Nancy Miller, Gold Club
Oneonta (Chestnut Street)
Paula M. Morell, Manager
Oneonta (Southside)
Sean A. Hall, Manager
Oneonta (FoxCare Center)
Richard J. Follett, Assistant Vice President,

District Manager
Lesley A. Bohacek, Manager

Otego
Dorothy J. Kelley, Manager
Schenevus
Gerald V. Coombs, Jr., Manager
Sidney
Bridget Fisk, Assistant Vice President,

District Manager

Sharon D. Cutting, Manager
Walton
Donna A. Bundy, Manager

First Liberty Bank & Trust
Carbondale
Bobbiann Davis, Manager
Clarks Summit
David C. Griffin, Vice President, Manager
Daleville
Susan M. Pitoniak, Manager
Dickson City

Noxen/Bowman’s Creek
Colleen M. Bullock, Manager
Olyphant
Theresa A. Collins, Vice President,

District Manager

Pittston
Nolan Ayres, Assistant Vice President,

Manager

Scranton (Keyser Avenue)
John Peterson, Vice President,

District Manager

Scranton (Minooka - Davis Street)
David H. Lencicki, Vice President, Manager
Scranton (North Washington Avenue)
Karen E. Sweeney, Manager
Scranton (Wyoming Avenue)
Patricia M. Calabro, Vice President,

Manager

Towanda

Lori A. Smith, Manager

Sue McClary, Business Development Officer
Tunkhannock
Karen Fuller, Vice President,

District Manager

Jennifer Chesner, Manager
Brigitte S. Meskers, Retail Service Officer
Trucksville/Back Mountain
Susanne M. Mullin, Assistant Vice President,

Manager

Wilkes Barre (Franklin Street)
David P. Dobbs, Vice President,

District Manager

Lisa Rochinski, Manager

Gary J. Missal, Assistant Vice President,

Manager

Sandra A. Wheeler, Retail Service Officer
Wyalusing
Douglas M. Jackson, Manager

Edwardsville
Denise M. Johnson, Manager
Hazleton (Airport Road)
Paula Palance, Vice President, Manager
Jermyn

Lisa Browning, Assistant Vice President,
Manager

Jessup
Mary Z. Bieszczad, Vice President, Manager
Kingston (Wyoming Avenue)
Susan M. Russick, Assistant Vice President,

Manager

Laceyville
Kevin W. Huyck, Assistant Vice President,

Manager

Lawton
Greg M. Culver, Manager
Little Meadows
Mary A. Sivers, Branch Manager
Meshoppen
Jennifer Ramey, Branch Manager
Montrose
Steven Stranburg, Vice President, Manager

SELEC TED FI N ANC IAL H IG H LI G HT S

Income Statement
(in millions)

2012

2006

Net interest income

$ 230.4

$ 134.8

CAGR
(6-year)

9.3%

Non-interest income

99.0

51.7

11.4%

Operating expenses

203.5

126.6

Provision for loan loss

9.1

6.6

8.2%

5.5%

Net income

$ 77.1

$ 38.4

12.3%

Net interest margin

3.88%

3.91%

Per Share Data
(diluted)

Earnings per share

$ 1.93

$ 1.26

Cash dividends declared

1.06

0.78

Book value

22.78

15.37

7.4%

5.3%

6.8%

Tangible book value

$ 13.72

$ 7.17

11.4%

Balance Sheet Data
(end of period, in millions)

Assets

Loans, net

Deposits

$ 7,497

$ 4,498

3,866

2,702

5,628

3,168

Shareholders’ equity

903

462

8.9%

6.2%

10.1%

11.8%

GLOSSARY

Consumer direct lending

Loan loss provision

Direct lending to consumers through the bank’s branches, largely
on an installment basis, for the purchase of automobiles and
durable (long-lasting) goods for the home, and for educational and
general purposes. Also includes loans secured by the equity in a
borrower’s home.

Consumer indirect lending

Loans originated through applications taken on the premises of
automobile, boat, and other dealers selling substantially priced goods,
electronically submitted to the bank, and approved within a very short
time period while the consumer remains on premises.

Core deposits

The total of checking, interest checking, savings and money market
deposits. Generally considered a bank’s most stable and affordable
source of funds.

The charge against earnings to increase the allowance for loan
losses (net of current period charge-offs) sufficient to absorb losses
inherent in the company’s loan portfolios.

Net interest income

Banking revenues generated from standard lending and investment
activities, equaling the difference between interest income on loans
and investments and interest expense on deposits and borrowings.
The primary source of earnings before expenses for most banks.

Net interest margin

A performance measure or ratio which is calculated by dividing net
interest income by average interest-earning assets. The most basic
indicator of the relative return on lending, investing, and depository
activities before overhead and loan loss provision. Interest rate
spread is a component of the net interest margin.

Coverage ratio

Non-interest income

The ratio of loan loss allowance to nonperforming loans (loans for
which payment is delinquent 90 days or more and loans for which
interest is not being accrued) or nonperforming assets (additionally
includes collateral acquired by a bank after a loan has defaulted)
is considered an indicator of the strength of a financial institution’s
allowance for loan losses.

Diluted shares (or fully diluted)

A calculation which includes those shares issued and outstanding
or issuable upon the exercise of in-the-money stock options held by
employees or Directors, offset by the number of shares which the
company could repurchase on the open market with the cash received
upon exercise. Shares held in treasury are excluded.

Efficiency ratio

A measure of a bank’s operating leverage or productivity, derived by
dividing overhead expense by revenues (net interest income (FTE) plus
non-interest income), excluding the effect of gains or losses on the
sale of securities or the extinguishment of debt, amortization of
intangibles, and acquisition-related expenses. The lower the ratio,
the better the efficiency.

Fully tax equivalent (FTE)

Restatement of tax-exempt interest income as if it was fully taxable.
Enables tax-exempt interest income to be compared to taxable interest
income on a consistent basis.

IPC deposits

Deposits from individuals, partnerships and corporations
(i.e., all consumer and commercial deposits). Excludes deposits
from local governments/municipalities. Constitutes the major
component of core deposits (see above).

Revenues generated from fee-based depositor and borrowing services
(including interchange and overdraft fees), the sale of financial
services products, and gains or losses from the sale of securities and
extinguishment of debt, if any.

Nonperforming assets

Represent loans delinquent as to interest or principal for a period
of 90 days or more, loans for which interest is not being accrued
(no payments expected), restructured loans, and real estate acquired
through foreclosure.

Tangible equity/assets

Shareholders’ equity, net of goodwill and other intangible
assets, divided by the assets of the company, net of goodwill and
intangible assets.

Troubled Asset Relief Program (TARP)

A program of the United States government to purchase assets from,
and provide capital to, financial institutions in order to strengthen the
financial sector. It was the largest component of the government’s
measures to address the crisis in the financial services industry over the
past few years. The company chose not to participate in this program.

Tier 1 capital

Shareholders’ equity, adjusted for the unrealized gain or loss on
securities held for sale and for certain assets, such as goodwill and
other intangibles. The primary measure of a bank’s capital as defined by
various bank regulatory agencies.

SHAREHOLDER INFORMATION

Corporate Headquarters

Community Bank System, Inc.

5790 Widewaters Parkway

DeWitt, NY 13214-1883

Investor Information

Macquarie Securities Group

Investor and shareholder information

John Moran / 212.231.0662

regarding Community Bank System, Inc.,

john.moran@macquarie.com

including all filings with the Securities and

Phone: 315.445.2282 or 800.724.2262

Exchange Commission, is available through

Fax: 315.445.7347

www.communitybankna.com

the company’s website:

www.communitybankna.com

Stock Listing

Copies may also be obtained without charge

Common stock of Community Bank System,

upon written request to:

Inc. is listed on the New York Stock

Exchange (NYSE) under the symbol: CBU.

Newspaper listing for common stock:

CmntyBkSys.

Annual Meeting

Wednesday, May 8, 2013

1:00 P.M. EST

Riveredge Resort

17 Holland Street

Alexandria Bay, NY 13607

Ms. Josephine Anne E. Rurka

Investor Relations Department

Community Bank System, Inc.

5790 Widewaters Parkway

DeWitt, NY 13214-1883

315.445.7300

josie.rurka@communitybankna.com

Independent Auditors

The Board of Directors appointed

PricewaterhouseCoopers, LLP as auditor

Transfer Agent and Registrant of Stock

for the company for the year ended

Shareholders requiring a change of

December 31, 2012

Raymond James & Associates

Anthony Polini / 212.856.4897

anthony.polini@raymondjames.com

RBC Capital Markets

Gerard Cassidy / 207.780.1554

gerard.cassidy@rbccm.com

Sandler O’Neill & Partners LP

Joseph Fenech / 212.466.7938

jfenech@sandleroneill.com

Investor’s Choice Program

CBU offers convenient, low-cost options

for investors wishing to steadily buy shares.

For information, contact:

Ms. Donna J. Drengel

Shareholder Relations Department

Community Bank System, Inc.

5790 Widewaters Parkway

DeWitt, NY 13214-1883

Phone: 315.445.7313

donna.drengel@communitybankna.com

name, address or ownership of stock, or

information about shareholder records, lost

or stolen certificates, and dividend checks,

direct deposit and reinvestment should

contact:

American Stock Transfer & Trust Company

Operations Center

6201 15th Avenue

Brooklyn, NY 11219

800.937.5449

www.amstock.com

Analyst Coverage

The following analysts published research

about Community Bank System in 2012:

Boenning & Scattergood

American Stock Transfer & Trust Co.

Operations Center

6201 15th Avenue

Brooklyn, NY 11219

800.937.5449

www.amstock.com

Matthew Schultheis / 610.832.5290

mschultheis@boenninginc.com

Guggenheim Partners

David Darst / 615.208.1224

david.darst@guggenheimpartners.com

Keefe, Bruyette & Woods Inc.

Damon DelMonte / 860.722.5908

ddelmonte@kbw.com

SAFE HARBOR S TAT E MENT

The Community Bank System, Inc. Annual Report contains forward-looking statements, within the provisions of the

Private Security Litigation Reform Act of 1995, that are based on current expectations, estimates, and projections about the industry, markets and economic

environment in which the company operates. Such statements involve risks and uncertainties that could cause actual results to differ materially from the results

discussed in these statements. These risks are detailed in the company’s periodic reports filed with the Securities and Exchange Commission.

COMMUNITY BANK SYSTEM, INC.
5790 Widewaters Parkway
DeWitt, NY 13214-1883
800.724.2262
315.445.7347 fax

communitybankna.com