Community Bank System
Annual Report 2013

Plain-text annual report

2013 Cbu Annual Report Eleme nts of Succ e ss In science, elements are the simplest form of matter; they cannot be broken down. By understanding the properties of chemical elements, we can predict the way they’ll react. And, we can better understand why materials behave the way they do. So it is with successful companies. The elements that make up strong companies are consistent and unwavering. Like neighboring blocks in the periodic table, these elements share certain basic qualities. Stakeholders can better understand how a company will act in any environment by becoming familiar with these properties. Value. Growth. Discipline. Consistency. These simple fundamentals are the elements of Community Bank’s historic success. For more than 20 years they have been the foundation of our business model, and we believe they’ll continue to drive value creation for years to come. TA B L E O F C O N T E N T S Peer Comparison Shareholder Letter Operations Review Leadership and Governance Administration Selected Financial Highlights 1 2 6 16 18 24 Shareholder Information Inside Back Cover INVESTMENT RATIONALEDisciplined approach to revenue and profitability growthSuccessful and effective operating strategy in place for over 20 yearsBest-in-class asset quality metricsDominant market share – 1st or 2nd in more than 75% of the towns where we operateSubstantial non-interest income– more than 30% of operating revenuesDiversified financial services businesses with more than $54 million in 2013 revenuesRecord of successful and accretive acquisitionsMeaningful dividend and yieldMarket cap of more than $1.5 billionNYSE listed with significant liquidity CBU was named the fourth best bank in the country in Forbes® annual analysis of the 100 largest publicly traded banks, reflective of our continued high level of financial strength and performance. CBU Median of Top 100 Banks These charts display the nine 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 five years this comparison has been published. Return on Average Equity % Net Interest Margin (FTE) % Revenue Growth % 12 8 4 0 4.2 3.8 3.4 3.0 15 10 5 0 09 10 11 12 13 09 10 11 12 13 09 10 11 12 13 Nonperforming Loans / Loans Outstanding % Allowance for Loan Losses / Nonperforming Loans % Nonperforming Assets / Total Assets % 3.0 2.0 1.0 0 300 200 100 0 3.0 2.0 1.0 0 09 10 11 12 13 09 10 11 12 13 09 10 11 12 13 Tier 1 Risk Based Capital Ratio % Leverage Ratio % Total Risk Based Capital Ratio % 18 12 6 0 12 8 4 0 15 10 5 0 09 10 11 12 13 09 10 11 12 13 09 10 11 12 13 C B U 2 0 1 3 A N N U A L R E P O R T 1 FOURTHBEST BANK 4 The Elements of Our Success S H A R E H O L D E R L E T T E R Value, growth, discipline and consistency – these simple fundamentals are the elements of Community Bank’s historic success. In 2013 we were purposeful in executing our solid business strategy to further our track record of success. As in years past, we delivered consistent shareholder returns. Dividend growth. Leading market share. Revenue diversity. Steady loan growth. Superior asset quality. Above all, we have been steadily successful because we have a singular focus on creating value. Value for our shareholders, customers, employees and communities. In 2013 we delivered on that focus, providing a 50.1% return to our shareholders while growing our dividend for the 21st consecutive year, closing two small but valuable acquisitions and extending millions in credit to support economic growth in our markets. D E L I V E R I N G S U P E R I O R S H A R E H O L D E R V A L U E Since the end of the 2007 credit crisis and recession, Community Bank has delivered the third strongest return to shareholders of 2013’s largest 100 banks, averaging 17% per year. This outperformance compares favorably against our long-term target of achieving greater than 10% average annual shareholder returns. It is particularly strong given the unusually challenging operating environment of the last six years, over which nearly one third of the industry’s largest banks – those that survived the crisis – posted negative returns. We are gratified by our ability to provide consistent, above-average returns to our shareholders, and a growing dividend has been an essential element of that success. 2013 marks our 21st year of increased dividends, and over that period both our dividend and our stock price have grown at a 9% average annual rate. This is particularly rewarding considering that only 20% of the 1,332 publicly traded banks that existed 21 years ago remain and trade publicly today. Most were impacted by the industry trends of consolidation and, unfortunately, failures. Among those that remain, Community Bank joins just nine others to have the distinction of increasing its dividend in each of the past 21 years. Our success has not gone unnoticed. In October 2013, we were nationally recognized with our inclusion in the Barron’s 400 Index, a collection of the most fundamentally sound and attractively priced stocks from across the market. In January 2014, Forbes.com once again recognized our success by naming Community Bank System “Fourth Best Bank in America” in its annual ranking of America’s 100 largest banks and thrifts. Forbes’ analysis measures the ability of the country’s largest banks to deliver superior performance against nine important financial health metrics. While by asset size we ranked 87th out of the largest 100 banks, by financial performance we outperformed 96% of the country’s largest banks. A M O D E L B U I LT F O R S U C C E S S Community Bank’s deliberate and consistent approach to doing business in the low-growth markets we serve has helped us achieve first or second rankings in deposit market share in 75% of the towns where we operate. As a major player in these non-urban markets, we enjoy enviable customer loyalty with longstanding deposit relationships. We’ve also benefited considerably from the stability of these markets, which have not incurred the level of volatility experienced in many areas of the country. Community Bank System was selected to be part of the Barron’s 400 Index in 2013. The index “collects the most fundamentally sound and attractively priced stocks from all corners of the market, using a proven and disciplined stock-selection process. Given that only about 6% of all North American publicly listed companies are selected to the Barron’s 400 on the basis of their fundamental soundness underscores the overall strength of your company’s financial results and its bright prospects as an investment for public shareholders.” Obviously the Company is always pleased to be recognized as a financially sound and disciplined company. 2 C B U 2 0 13 A N N U A L R E P O R T We constantly evaluate our branch network to ensure it operates as conveniently and as efficiently as possible. Over the course of 2013 we enhanced our network by acquiring eight branches in Northeastern Pennsylvania and consolidating four branches to improve our average branch size and reduce operating costs. We also rebranded our Northeastern Pennsylvania market from First Liberty Bank and Trust to Community Bank, enhancing brand clarity and consolidating our marketing structure. Perhaps most importantly, our choice to be a major player in smaller Upstate New York and Northeastern Pennsylvania markets has challenged us to diversify our revenue streams and operate with a disciplined focus on efficiency and capital allocation. We know how to operate profitably in these service areas that are often of little interest to larger regional banks. We have a business plan that is appropriate and highly effective for our market, and it is essentially unchanged over the past 20 years. S T R AT E G I C E X E C U T I O N F O R G R O W T H Operating successfully in slower-growth markets necessitates a disciplined and flexible approach to growth. While organic growth is essential, M&A provides an important springboard for returns. Over the past 13 years we have completed 14 bank and branch deals and seven financial services firm acquisitions. We continue to have a reasonable appetite for high-value acquisition opportunities, be they branch, whole-bank or financial services transactions. We are pleased that our strong capital positions us well to engage in M&A without the need to excessively dilute shareholders by raising significant capital. When pursuing acquisitions we focus on loan and fee income growth. Our lending model effectively allows for having a local credit authority resident in each of our branches – a significant advantage compared to the model typically operated by other banks. This advantage provides considerable opportunity for us to attract and retain new customers and loans. Further, even small branch deals provide the capacity to generate fee income as a percentage of the deposit base that larger banks cannot replicate. In our model, a relatively small branch deal can enhance our presence and market density in a region. This was precisely the case in December 2013 when we closed on the purchase of eight branches from Bank of America in Northeastern Pennsylvania. The transaction increased our service capacity with a greater number of branches, while also helping cover some of the fixed costs of operating in the Pennsylvania marketplace. The value of such small deals becomes even greater in tomorrow’s rising rate environment, where the economic value of those core deposits will grow. Likewise, we continue to pursue growth in our financial services business. Revenues across these businesses have grown over 15% per year, on average, over the past 10 years. In 2013, revenues grew 11% over 2012, while pretax earnings expanded by 44%. These non-capital-intensive businesses generate impressive revenue streams and the return on equity is substantial. Importantly, they also diversify our sources of income and are highly scalable, with a national client base. At the start of 2014, we were pleased to close on a small benefits deal in the Western New York market. Our Benefit Plans Administrative Services Inc. group acquired a Rochester, New York-based professional services practice that provides actuarial valuation and consulting services to clients who sponsor pension and post-retirement medical and welfare plans. Tsr Total Shareholder Return Total Average Shareholder Returns Through January 31, 2014, including reinvestment of dividends 1 YEAR 5 YEARS 7 YEARS 12 YEARS CBU S&P 600 Comm Bank 29.7% 19.5% 11.1% 12.0% 33.0% 14.2% (3.2%) 2.2% NASDAQ Bank 28.8 % 12.0% (1.8 %) 3.6 % S&P 500 DJIA 21.5 % 19.2% 5.4% 6.0 % 16.1 % 17.6 % 6.0 % 6.5% Source: Bloomberg C B U 2 0 1 3 A N N U A L R E P O R T 3 17CBU provided an average annual total return to shareholders of 17% over the six years since the economic downturn began in 2007 – third highest among America’s largest 100 banks.AVERAGE ANNUAL TOTAL RETURN PERCENTAGE This growth strategy continues to differentiate us from the industry. Our diverse revenue streams have contributed to better-than-peer revenue growth for the past five years, consistently among the top performers of the largest 100 banks. We will continue to focus our efforts on growing the benefit administration and wealth management businesses through both organic and acquired means as a core element of our operating strategy. 2 01 3 R E S U LT S The whole of 2013 was a very productive year, and earnings of $78.8 million remained strong and consistent with 2012. Organic loan, checking and savings account growth each exceeded 6%. Substantial capital generation and careful execution of balance sheet repositioning activities helped grow our Tier 1 leverage ratio, a core measure of our capital adequacy, from 8.40% in 2012 to 9.29%. As in prior years, our strong asset quality metrics continued to improve. 2013 revenue growth of 3% benefited from careful execution of our strategic priorities. In 2013 we improved the composition of our core deposit portfolio, lowering the percentage of higher-cost time deposits and increasing the percentage of lower-cost core checking, savings and money market accounts in our deposit portfolio. We also deleveraged our investment securities portfolio and wholesale borrowings, further contributing to overall growth of 3% in net interest income. Higher net interest income, 9% growth in banking fee income, 11% revenue growth in our benefits administration and wealth management businesses and responsible expense management all combined to maintain our efficiency ratio below 60%. Positive momentum in all sources of non-interest revenue leaves us favorably positioned in 2014. A critical element of Community Bank’s success is disciplined and efficient management of our balance sheet. In 2013 we proactively undertook certain balance sheet restructuring activities which served to enhance our liquidity profile, capital position, and profitability. In the first half of 2013 we sold selected investment securities and prepaid a portion of our Federal Home Bank advances. In December 2013, we sold our portfolio of bank and insurance trust preferred collateralized debt obligations to eliminate uncertainty related to potential regulatory changes, and we redeemed our remaining Federal Home Loan Bank term borrowings. We reinvested the net liquidity created from these transactions in order to mitigate the net interest income impact of the security sales and debt extinguishments. This series of deleveraging transactions was done for both qualitative and economic reasons that improved the quality of our balance sheet, provided a modest benefit to net interest margin and created regulatory capital for use in creating future earnings and shareholder value. A strong net interest margin is an additional outcome of our disciplined balance sheet management. Our net interest margin is consistently above industry levels across economic and interest rate cycles. It was a key driver of our outperformance compared to the 100 largest banks in 2013 when, against industry tides, we expanded our net interest margin to 3.91%, measuring nearly 50 basis points higher than the median, which saw a decline of 18 basis points from 2012. Community Bank’s net interest margin has exceeded the median for the 100 largest banks by a range of 28 to 49 basis points over the last five years. Profitable management of our balance sheet reflects a disciplined approach to funding coupled with quality, plain vanilla asset production. We’ve been successful in proactively managing deposit funding costs, benefiting our margin, but declining asset yields remain a challenge. Nevertheless, our approach remains simple: extend basic loans to Dg Dividend Growth 4 C B U 2 0 13 A N N U A L R E P O R T 2121 consecutive years of increased dividends by Community Bank System puts the Company in a very select group of dividend achievers.CONSECUTIVE YEARS OF INCREASED DIVIDENDScredit-worthy borrowers seeking financing for every day needs, such as mortgages and business lines of credit, and fund them primarily with customer deposits. Dividend Growth 04 05 06 07 08 09 10 11 12 13 $ 0.68 $ 0.74 $0.78 $ 0.82 $ 0.86 $ 0.88 $ 0.94 $ 1.00 $ 1.06 $ 1.10 10-year CAGR = 6.1% Disciplined balance sheet management is reflected in our superior asset quality. We continued to report very favorable net charge-off results with 2013 losses measuring just 0.17% of average loans. Indeed, our annual net charge-offs have measured under 0.25% of average loans over each the last eight years. We consider this exceptional. Finally, through balance sheet actions and significant earnings power, our risk-based capital ratios at the close of 2013 were well above the industry and above where we’ve typically ranged. Today we have record levels of capital, and we are eager to use it in a manner that is effective in creating growing and sustainable value for our shareholders. E L E M E N T S F O R S U C C E S S I N 2 014 A N D B E Y O N D For more than 20 years we have steadily grown our dividend, delivered consistent profitability and executed a sound approach to franchise growth by carefully evaluating the economics of every decision we make. Looking ahead, we see strong operating momentum from progress and initiatives over the last two years. Today we have the best balance sheet we have ever had in terms of asset mix, funding, asset quality and capital – key components for value creation. These elements of our success are unchanged, and we will work hard to keep them that way in 2014 and beyond. We have many elements that have been pivotal to our success, including our talented and experienced Board of Directors. After more than two decades of service as the President and as a director of Wilber National Bank, and then as a valued member of the Community Bank System Board, Alfred Whittet retired in 2013. With extensive experience in managing a financial institution, his considerable knowledge and perspective on all aspects of bank operations will be missed. The Board thanks him for his important contributions. Today and always, Community Bank System views your investment as the highest honor, and we strive to reward your loyalty with steady, superior returns. Thank you for your continued support of Community Bank System, Inc. Nicholas A. DiCerbo (left) Chairman of the Board Mark E. Tryniski (right) President and Chief Executive Officer C B U 2 0 1 3 A N N U A L R E P O R T 5 75 Rms Retail Market Share Community Bank supports small businesses with business lending making up over 30% of our total loans. 6 C B U 2 0 13 A N N U A L R E P O R T Community Bank has built a market-leading branch system serving predominantly non-urban markets in the Northeast where leadership positions can be earned. With more than 180 customer facilities spanning 41 counties in New York and Pennsylvania, we still operate like a $1 billion bank. Our business approach emphasizes responsive local decision-making, customer service and support, and authority at the branch level, with a focus on generating and retaining core deposit accounts. This approach has earned Community Bank a dominant market share in much of Upstate New York, where there is modest competition and modest growth, but where we have achieved solid performance over time. Our Northeastern Pennsylvania market presence is located in a more urban area, which is more competitive and where we currently have a smaller deposit market share but generally more business lending opportunities than our other markets. During 2013 we rebranded our First Liberty Bank and Trust branches in this market to Community Bank, N.A., to bring enhanced unity and brand awareness to our retail banking network. In December 2013, we expanded and further strengthened our presence in Northeastern Pennsylvania with our acquisition of eight branches from Bank of America, N.A., which included over $303 million in customer deposit accounts and approximately $0.9 million of net performing loans. The acquired branches add enhanced density and elevate our market presence across the northeast corner of the Keystone State. 04 05 06 07 08 09 10 11 12 13 $ 5.9 C B U 2 0 1 3 A N N U A L R E P O R T 7 LEADING DEPOSIT SHARECBU has assembled a strong retail banking franchise where it enjoys leading deposit share in more than 75% of towns where we operate.75Total Deposits In billions $ 5.6$ 4.8$ 3.9$ 3.9$ 3.7$ 3.2$ 3.2$ 3.0$ 2.910-year CAGR = 8.0%7 As Acquisition Strategy As an architect designs models, so we have carefully designed our franchise with an eye toward growth. 8 C B U 2 0 13 A N N U A L R E P O R T As a community bank committed to the philosophy of serving the financial needs of customers in local communities, our branches are generally located in smaller towns and cities across Upstate New York and Northeastern Pennsylvania. A core operating strategy of the Company is to grow the branch network, primarily through a disciplined acquisition strategy. Since 2008, we have completed four transactions in which we acquired 59 branch locations, approximately $731 million in loans, and $2.1 billion in deposits. We always keep our lines of communication to potential merger partners open and continue to look for opportunities in contiguous markets, including eastern Ohio, Upper New England, and New Jersey, as well as our established markets in Upstate New York and northern Pennsylvania. Our primary merger targets are smaller whole banks, or larger institutions seeking to shed portions of their branch networks. To Community Bank, the right cultural fit is an essential ingredient for any potential transaction. That fit is exemplified by the local character of the business, knowledge of the customers and their needs, as well as comprehensive retail and business products and offerings. We combine this with responsive decision-making at the branch and regional levels, enabling our branch locations to compete effectively within their individual geographic market. We take into consideration key financial elements when evaluating an acquisition target, including expected earnings generation of the new branches as part of our franchise, as well as the expected return on the capital deployed. Our Expanding Footprint Community Bank System serves predominantly non-urban markets in the Northeast where leadership positions can be earned. We continue to look for opportunities to grow in contiguous markets, including eastern Ohio, Upper New England, and New Jersey, as well as our established markets in Upstate New York and northern Pennsylvania. C B U 2 0 1 3 A N N U A L R E P O R T 9 ACQUISITIONSSince 2006, Community Bank has completed seven separate branch or whole-bank acquisitions, adding nearly 80 retail banking locations and over $3 billion in assets.7NYPANJOHCTVTNHMA31 Rd Revenue Diversity With comprehensive financial planning, benefits administration and trust services offerings, we add value for our customers beyond basic banking. 10 C B U 2 0 13 A N N U A L R E P O R T Community Bank continues to diversify its revenue streams, which is a key component of its plan for long-term value creation for its stockholders. Over the years we have developed a healthy mix of non-interest income, complementing our strong deposit service fee income with specialized financial services, including our employee benefit trust, administration, actuarial and consulting services, as well as an SEC registered investment advisory firm, investment and trust services, and a full service independent property and casualty insurance agency. The same operating strategy that drives our retail bank growth is behind our approach to financial services - disciplined growth through organic and acquired opportunities and a keen focus on profitable relationships. We look for acquisitions which will be accretive to earnings and low risk. Since 2007 we have completed five professional services acquisitions under these guiding principles, including our most recent transaction with EBS-RMSCO, Inc. to acquire its actuarial valuation and consulting practice. Together, these strategic acquisitions have helped us nearly double revenue generated from financial services in the past seven years, up $26.1 million, or 93.2%, to $54.1 million in 2013. This growth has directly contributed to our ability to grow our total non-interest income at a compound annual growth rate of 11.2% over that same time period. Non-interest income now makes up more than 30% of our operating revenues, providing stable earnings power to help mitigate factors like interest rate risk in today’s environment. We will continue to grow these business lines through organic and acquisitive means, as we look to expand our national footprint, diversify our service offerings, and accomplish our number one priority of delivering exceptional returns to our shareholders. C B U 2 0 1 3 A N N U A L R E P O R T 11 04 05 06 07 08 09 10 11 12 13 $ 54.1 31Financial Services Revenue In millions 10-year CAGR =15.4% $48.8$42.3$39.4$36.4$34.4$28.0$20.6$18.5$ 16.7PERCENTAGE OF NON-INTEREST INCOME 31% of our total revenue comes from non-interest income sources.6 Lg Loan Growth Providing loans to help customers realize their dreams – like homeownership – has been a central factor in Community Bank’s success. 1 2 C B U 2 0 13 A N N U A L R E P O R T 04 05 06 07 08 09 10 11 12 13 Community Bank is committed to a consistent and disciplined approach to loan growth, with a focus on the smaller customers within our service footprint that our large competitors tend to overlook. Our branch managers function as local bank presidents, leveraging their deep knowledge of our markets in pursuit of profitable lending opportunities. We have neither originated nor held subprime, Alternative-A paper or other higher risk mortgage lending, nor do we have any shared national credits. Our commercial lending is well diversified and we don’t hesitate to exit from unprofitable lending relationships. Although Community Bank is firmly committed to maintaining superior asset quality and profitable margins, we have never retreated from our markets or from our customers during economic downturns, including the recessionary period that began in 2007. When you adhere to a business strategy that is disciplined and effective there is simply never a need to change your approach. And, we believe that our emphasis on profitable customer relationships across all business lines and our conservative risk management makes our returns particularly robust relative to risk assumed. Following this approach, the Bank’s net loans have grown by more than $1 billion, to $4.1 billion, a compound annual growth rate of 10.7% since the end of 2010. This increase is reflective of strong organic loan growth within our service footprint, as well as the recent branch and whole-bank acquisitions we’ve undertaken. During 2013, average loans grew $326.5 million due to strong organic growth in our consumer mortgage, consumer indirect, direct and business lending portfolios, as well as loans acquired in the HSBC and First Niagara branch transactions. Our loan portfolio has historically been, and remains, well diversified with residential mortgage loans – all originated within our service area – accounting for 39%, business and commercial loans making up 30%, and consumer installment lending representing the remaining 31% of total loans. $ 4.1 C B U 2 0 1 3 A N N U A L R E P O R T 13 PERCENTAGE OF ORGANIC GROWTHOur experienced in-market lenders originated $243 million of new net loans in 2013, driving organic loan growth of more than 6% over 2012.6Total Loans In billions $ 3.9$ 3.5$ 3.0$ 3.1$ 3.1$ 2.8$ 2.7$ 2.4$ 2.410-year CAGR = 6.9%25 Saq Superior Asset Quality We are proud to partner with healthy and growing customers, who are the backbone of our communities and of Community Bank’s superior asset quality. 14 C B U 2 0 13 A N N U A L R E P O R T Community Bank maintains its commitment to generating growth in its loan portfolio in a manner that adheres to its twin goals of maintaining strong asset quality and producing profitable margins. Our approach remains simple: extend fairly-priced, straightforward loans to credit-worthy borrowers seeking financing for everyday needs, from car loans to mortgages to business lines of credit. In 2013 our asset quality remained exceptional compared to the industry. We attribute this success to strong underwriting, a stable economy in our footprint and solid customer relationships. Our net loan charge-off ratio, non-performing loan ratios and loan delinquency ratios were all favorable to 2012 and to our peers. Due to our success in achieving significant acquisition and organic loan growth, net charge-offs as a percent of average loans (“net charge-off ratio”) offers a meaningful representation of asset quality trends. Our net charge-off ratio remains best in class, with 2013 losses measuring just 0.17% of average loans compared to 0.69% for the banking industry. While the industry has seen volatile swings in assets quality, our loan losses have consistently measured under 0.25% for the past eight years. Asset quality results continue to be very favorable across our primary portfolios, with total annual net charge-offs measuring less than 0.25% of average loans in each of our residential mortgage, home equity, business loan and consumer installment businesses. Our reserve coverage of nonperforming loans is also particularly strong. At 201%, our ratio of reserves to nonperforming loans also far exceeds the 66% average for the industry. Consistent Strong Asset Quality Exceptional Asset Quality At or for the twelve months ended December 31, 2013 0.9% 0.8% 0.7% 0.6% 0.5% 0.4% 0.3% 0.2% 0.1% 0.0% CBU ACBN 1 ACBN 1 Assets > $1 B Loan loss allowance/ NPLs2 201% 66% 64% NPLs2/ loans outstanding 0.54% 2.64% 2.74% Net charge- offs/ average loans3 0.17% 0.69% 0.73% 1 ACBN = All Commercial Banks, National 2 NPLs = Nonperforming loans 3 FDIC Statistics - Net charge-off to loans 04 05 06 07 08 09 10 11 12 13 Nonperforming Loans/Total Loans Net Charge-offs/Average Loans C B U 2 0 1 3 A N N U A L R E P O R T 15 CONSISTENT LOW NET CHARGE-OFFS Our net charge-offs have consistently measured under 0.25% for the past eight years.25 Leadership and Governance Lg 1 2 3 4 Community Bank, N.A. Regional Advisory Boards Executive Management An eleven year Community Bank System veteran, Mark Tryniski1 has led the Company as President and Chief Executive Officer since 2006, previously serving in the roles of Chief Financial Officer and Chief Operating Officer. Prior to joining CBU, Mark was a partner with PricewaterhouseCoopers. Scott Kingsley 2 provides sound leadership as Chief Financial Officer of Community Bank System, a role he has held since 2004. Previously, Scott served as CFO of Carlisle Engineered Products, Inc. in Ohio. For more than 20 years, CBU has benefited from the talent and experience of Brian Donahue.3 Now the company’s Chief Banking Officer, Brian has also served as Chief Credit Officer and Senior Loan Officer for the Southern Region. Joe Getman,4 Executive Vice President and General Counsel, joined Community Bank System in 2008. Joe joined CBU from Bond, Schoeneck & King, PLLC, where he provided corporate counsel to CBU as a senior partner of the firm. Pennsylvania 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 Joseph P. Mirabito Benjamin C. Nesbitt James L. Seward Geoffrey A. Smith Alfred S. Whittet David F. Wilber III 16 C B U 2 0 13 A N N U A L R E P O R T 49The Community Bank executive leadership team has served the Company for a combined 49 years, bringing extensive financial services experience to its sound strategy and performance.1 5 2 6 3 7 10 11 12 13 4 9 8 1 2 3 4 5 6 7 Board of Directors Nicholas A. DiCerbo Chairman of the Board; DiCerbo & Palumbo, Partner; Director since 1984 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 Brian R. Ace Laceyville Hardware, Owner; Compensation Committee, Vice Chair; Nominating/ Corporate Governance Committee Director since 2003 Mark J. Bolus Bolus Motor Lines, Inc., President and CEO; Compensation Committee, Chair; Strategic/ Executive Committee; Director since 2010 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 A. Gabriel Franklin & Gabriel, Owner; Trust Committee, Chair; Loans/ ALCO Committee, Vice Chair; Strategic/ Executive Committee; Director since 1984 James W. Gibson Retired, KPMG, LLP, Partner; Audit/ Compliance/ Risk Management Committee; Compensation Committee; Director since 2009 8 9 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 John Parente CP Media, LLC, CEO; Loan/ ALCO Committee, Chair; Strategic/ Executive Committee; Audit/ Compliance/ Risk Management Committee; Director since 2010 10 Sally A. Steele Attorney at Law; Strategic/ Executive Committee, Chair; Trust Committee; Director since 2003 11 Mark E. Tryniski Community Bank System, Inc., President and CEO; Director since 2006 12 13 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; Strategic/ Executive Compensation Committee; Nominating/ Corporate Governance Committee; Director since 2011 Note: All bank board members participate in the Loan/ ALCO Committee C B U 2 0 1 3 A N N U A L R E P O R T 17 The Board of Directors extends its gratitude to Alfred S. Whittet for his outstanding service to Community Bank System, Inc. Mr. Whittet, the former CEO of The Wilber Corporation, joined the Board in 2011. As a member of our Board, including chair of our trust committee, he provided valuable guidance over the past several years, and he remains a key member of our Central Region Advisory Board. ADMINISTRATION Executive Mark E. Tryniski, President and Chief Executive Officer Barry J. Westington, Vice President, Tracie M. Clayson, Loan Operations Special Assets Officer Unit Manager Stephen B. Dupree, Reports Analyst Deanna L. Foster, Loan Operations Finance & Treasury Management Unit Manager Scott A. Kingsley, Executive Vice President, Joseph J. Lemchak, Senior Vice President, Chief Financial Officer Chief Investment Officer Allyson B. Krieger, Project Administrator Tami L. Ozogar, Loan Operations Unit Manager Brian D. Donahue, Executive Vice President, Susan S. Fox, Vice President, Corporate Controller Frank A. Palmisano, Manager Network Chief Banking Officer Robert R. Frost, Vice President, Administration George J. (Joe) Getman, Executive Vice President, Director of Planning & Financial Analysis Risk Management General Counsel Retail & Business Banking Sean M. Howard, Vice President, Paul J. Ward, Senior Vice President, Senior Treasury Officer Chief Risk Officer Richard M. Heidrick, Senior Vice President, Randy Pray, Vice President, Mark S. Ackerly, Vice President, Consumer Banking Corporate Purchasing Manager Director of Information Security Joseph F. Serbun, Senior Vice President, Brian Fancher, Benefits Accounting Manager Melissa R. Cloce, Vice President, Chief Credit Officer Laura J. Mattice, General Accounting Manager Compliance Manager Joseph E. Sutaris, Senior Vice President, Dennelle T. Michalski, Financial Controls Manager Mark J. Houghtaling, Vice President, Regional Banking Executive Hal Wentworth, Senior Vice President, Retail Banking and Marketing Scott J. Boser, Vice President, Retail Lending Manager George J. Burke, Vice President, Director of Mortgage Banking Cynthia L. Lefko, Vice President, Cash Management Product and Sales 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 Michael J. Stacey, Vice President, Collections Manager Pamela S. Dent, Recovery Specialist Jennifer Hernandez, Mortgage Processing Manager Sherry Stone, Branch Services Regional Administrator Credit Administration Stephen G. Hardy, Senior Vice President, Chief Credit Administrator Nancy Mastrucci, Vice President, Senior Credit Manager Mark A. Guenthner, Vice President, Special Assets Manager Denise Rhoads, Vice President, Commercial Appraisal Manager Michael J. Brassard, Vice President, Special Assets Officer Noel I. Donnelly, Vice President, Special Assets Officer 18 C B U 2 0 13 A N N U A L R E P O R T Robert E. Pierce, Financial Reporting Manager Administrative Services Timothy J. Baker, Senior Vice President, Director of Special Projects Bernadette R. Barber, Senior Vice President, Chief Human Resources Officer Michael N. Abdo, Associate General Counsel 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 Facilities Robert D. Harder, Vice President, Senior Regional Human Resources Manager Michael F. Joyce, Vice President, Director of Real Estate Lorie M. Semmel, Vice President, HR Operations Manager Donna Skechus, Vice President, Special Projects Manager Rhoda Awinyo, Associate Marketing Manager Donna J. Drengel, Board Secretary and Shareholder Relations John A. Puchir, Sales Manager Technology & Operations Credit Risk Manager Daniel P. O’Connell, Vice President, Director of Internal Audit Dorothy A. Quarltere, Vice President, Compliance Manager Lynne M. Wadsworth, Vice President, Asst. Director of Internal Audit Anthony A. Antonello, Assistant Vice President, Asst Corporate Security Officer Teresa Bower, Loan Review Team Leader Lawrence D. Witter, Financial Intelligence Unit Director COMMUNITY BANK 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, J. Michael Wilson, Senior Vice President, Commercial Banking Team Leader Chief Technology Officer Aaron S. Friot, Vice President, Director of Information Technology Robin E. Dumas, Vice President, Electronic Banking Manager William D. McIncrow, Vice President, Commercial Banking Officer Russell E. Sturtz, Assistant Vice President, Commercial Banking Officer James R. Ferguson, Senior Indirect Barbara L. Snyder, Vice President, Loan/Business Development Officer Loan Operations Manager Christina E. Sullivan, Vice President, Deposit Operations Manager Elmira Arthur J. Sable, Vice President, Commercial Banking Officer Erwin/Painted Post Orchard Park Tunkhannock Michael G. Austin, Vice President, Patrick M. Gorman, Vice President, Walter Sarafinko, Vice President, Small Business Loan Manager Commercial Banking Officer Commercial Banking Officer John D. Clark, Vice President, Plattsburgh Wilkes-Barre Commercial Banking Officer Paul Connelly, Vice President, David M. McHale, Senior Vice President, Richard R. Sisson, Vice President, Commercial Banking Officer Commercial Banking Officer Commercial Banking Officer Potsdam Geneva Ronald J. Bacon, Vice President, A. Edward Nork, Senior Vice President, Commercial Banking Officer Loren C. Herod, Vice President, Senior Commercial Banking Officer Stacia L. Arnaud, Assistant Vice President, Agricultural Banking Team Leader Matthew J. Rollins, Assistant Vice President, Commercial Banking Officer Charles Van Hooft, Vice President, Agricultural Banking Officer John Pekarovsky, Commercial Banking Officer Agricultural Banking Officer Saranac Lake Stephen H. Rich, Vice President, Commercial Banking Team Leader D. James Vedora, Vice President, Commercial Banking Officer Mark Miller, Assistant Vice President, Commercial Banking Officer Rebecca L. Snyder, Agricultural Banking Officer Johnson City Edward P. Michalek, Vice President, Commercial Banking Team Leader Lakewood David S. Alm, Vice President, Senior Commercial Banking Officer Lowville Kevin J. Kent, Vice President, Commercial Banking Officer Malone Craig Stevens, Vice President, Commercial Banking Officer Springville Michael Boza, Agricultural Banking Officer Watertown Duane M. Pelkey, Vice President, Senior Commercial Banking Officer Jeffrey T. Fallon Vice President, Commercial Banking Officer Andrew Rice, Assistant Vice President, Agricultural Banking Officer Wellsville Douglas O. Frank, Vice President, Commercial Banking Officer James M. Knapp, Vice President, Business Development Officer Lawrence P. Fleury, Assistant Vice President, PENNSYLVANIA Senior Indirect Loan/Business Development Robert P. Matley, Executive Vice President, Officer North Creek President Pennsylvania Banking Robert A. Cirko, Senior Vice President, Eugene M. Arsenault, Vice President, Regional Retail Banking Manager Business Banking Hazelton Paul Baynum, Vice President, WEALTH MANAGEMENT GROUP Paul A. Restante, Managing Director Barbara Toczko-Maculloch, Senior Vice President, Regional Sales Manager John Klobusicky, Senior Vice President, Market – Investment Manager Theresa Kalil-Lennon, Vice President, Regional Sales Manager Trust and Investment Services Catherine B. Koebelin, Senior Vice President, Chief Trust Officer, Olean Charles J. Perrillo, Senior Vice President, Chief Trust 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 Lauren Carlson, Trust Officer, Oneonta Patricia A. Crolly, Trust Officer, Scranton PA Scott P. Brechbuehl, Vice President, Scranton Thomas LaPage, Assistant Vice President, Commercial Banking Officer Robert P. Jewell, Trust Officer, Elmira Warren C. Rozelle, Senior Vice President, Trust Officer, Canton Commercial Banking Team Leader Patricia A. Lowe, Trust Operations Officer Matthew Dougherty, Senior Vice President, Adam C. Niebanck, Trust Officer, Oneonta Commercial Banking Officer Amy B. Schlee, Trust Officer, Oneonta Mary Elizabeth D’Andrea, Senior Vice President, Commercial Banking Officer Samuel DeStefano, Vice President, Senior Indirect Market Manager 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, Client Services Manager Nicholas Verbanic, Vice President, Portfolio Manager C B U 2 0 1 3 A N N U A L R E P O R T 19 Jonathan M. Luce, Assistant Vice President, Joseph S. Tomko, Senior Vice President, Commercial Banking Officer Commercial Banking Officer Allison M. Mosher, Assistant Vice President, Neil D. King, Assistant Vice President, Commercial Banking Officer Commercial Banking Officer Commercial Banking Officer Olean Mark P. Saglimben, Vice President, Senior Commercial Banking Commercial Banking Officer Gretchen Copella, Vice President, Commercial Banking Officer Oneonta Jeffrey C. Lord, Vice President, Commercial Banking Team Leader John M. Connolly, Vice President, Commercial Banking Officer Community Investment Services, Inc. 3501 Masons Mill Road, Suite 505, Clayton Paul A. Restante, President Audrey Pound, Vice President, Operations Manager CISI Lockport Financial Consultants Peter Albano, Wilkes-Barre PA Jonathan Bartholomew, Cicero Robert Bittner, Geneva Eric E. Brunet, Ogdensburg Lucas A. Burton, Olean Joseph M. Butler, Jr., Watertown Thomas Ciolek, Avon Daniel P. Drappo, Black River James G. Durso, Waterloo Timothy Forman, Lake Placid Kevin C. Gildner, Wellsville Jason Grover, Canandaigua Justin P. Hooper, Plattsburgh Randall J. Hulick, Springville Kyle A. Leikam, Dunkirk Rick P. Little, Tunkhannock PA Huntingdon Valley, PA Lori E. Fearnside, Manager Mary Anne Geary, Senior Vice President, Fort Covington Plan Administrative Services Richard Schultz, Senior Vice President, Fiduciary Services Harbridge Consulting Group, LLC One Lincoln Center, Syracuse, NY Vincent F. Spina, President Steven P. Chase, Senior Vice President Sarah E. Dam, Senior Vice President 335 Lexington Ave., 5th Floor, New York, NY Sheryl Gabriel, Senior Vice President Hand Benefits & Trust 820 Gessner, Suite 1250, Houston, TX W. David Hand, Chief Executive Officer Stephen Hand, President James Goodwin, Senior Vice President, VEBA/HRA Services Kathy Harvey, Senior Vice President, Trust Operations 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, Andrew Lomanto, Plattsburgh/Malone BRANCH LOCATIONS District Manager David Long, Horseheads/Consumer Square Community Bank Northern New York Market Jude R. McDonough, Scranton PA Adams Chad J. Murray, Falconer Charles A. Nicosia, Oneonta David H. O’Neil, Jr., Boonville Joseph Topichak, Corning Michele Wilck, Newark/Palmyra Michael Bufalini, Watertown Andrew Mangano, Fulton 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 SERVICES Barry S. Kublin, President Mary L. Peters, Assistant Vice President, Retail Service Officer Joseph Monnat, Assistant Vice President, Retail Service Officer Lowville (7395 Turin Road) Christopher M. Castle, Assistant Vice President, Manager Alexandria Bay Matthew Honeywell, Assistant Vice President, Stephen H. Allen, Vice President, Manager Manager Ausable Forks Lyons Falls Nancy Fruin, Assistant Vice President, Manager Valerie A. Daniels, Assistant Vice President, Madrid Manager Black River Marsha L. Watson, Manager Malone (Elm Street) Christina S. Meagher, Assistant Vice President, Byron Tuthill, Vice President, District Manager Manager Boonville Malone (West Main Street) Stacey Brunell, Assistant Vice President, (101 Main Street and Headwaters Plaza) Debra Roberts, Assistant Vice President, Manager Massena Manager Brushton Joy Graves, Assistant Vice President, Manager North Creek Bryon Tuthill, Vice President, District Manager Lori A. DeMars, Assistant Vice President, Canton Benefit Plans Administrative Services, LLC 6 Rhoads Drive, Utica, NY David R. Peggs, Vice President, Manager Julie A. Rhodes, Retail Srv Officer II Paul M. Neveu, Senior Vice President, Champlain Sales & Marketing Melissa M. Peryea, Assistant Vice President, Linda S. Pritchard, Senior Vice President, Manager Recordkeeping Services Chateaugay Barbara J. LaVoie, Manager 2 0 C B U 2 0 13 A N N U A L R E P O R T Manager Norwood Adrienne Smith, Manager Ogdensburg (825 State Street) Robert L. Seymour, Vice President, District Manager Ogdensburg (320 Ford Street) Denise Barse, Manager Old Forge Community Bank Southern New York Market Dunkirk (345 Central Avenue) Barbara B. Criss, Vice President, Manager Addison Jean M. Coughlin, Assistant Vice President, Plattsburgh (Margaret Street) Robin K. Knapp, Assistant Vice President, Kent G. Backus, Vice President, Manager Manager Elmira Regional Retail Banking Manager Alfred Denise E. Allen, Vice President, District Manager Plattsburgh (Route 3) Beth L. Plaisted, Manager Christy Parsons, Retail Service Officer James E. Snook, Vice President, Manager Allegany Courtney Shaw, Retail Service Officer Plattsburgh (468 Route 3) Stephanie L. Kolkowski, Assistant Vice President, Vicki Weller, Retail Service Officer Kent G. Backus Vice President, Manager Regional Retail Banking Manager Avon Erwin/Painted Post Angela M. Long, Branch Supervisor Plattsburgh (In-store – Wal-Mart) Deborah K. Fitch, Branch Manager Falconer Arlene Favreau, Branch Supervisor Angelica Joann W. Anderson, Assistant Vice President, Potsdam (64-70 Market Street and May Road) Diana L. Grastorf, Branch Supervisor Manager Victoria G. Strader, Vice President, Bath Fillmore Joel P. Brazie, Assistant Vice President, Julie A. Hall, Assistant Vice President, Branch Manager Pulaski Manager Steven P. Gaffney, Vice President, Manager Belfast District Manager Franklinville Saranac Lake (Broadway) Lisa Perry, Branch Supervisor Sandra S. Wolfer, Manager Brenda Darrah, Assistant Vice President, Bolivar Fulton Manager Saranac Lake (Lake Flower) Renee L. Darrah, Manager St. Regis Falls Judy Gilliland, Manager Tina Stephens, Assistant Vice President, Brocton Phyllis A. Crockett, Manager Canandaigua (County Road 10) Manager Geneva (Canandaigua Road) Tina Jackson, Assistant Vice President, Manager Bryon Tuthill, Vice President, District Manager Paul E. Lepore, Vice President, District Manager Geneva (Seneca Street) Star Lake Canandaigua (South Main Street) John Latanyshyn, Manager Connie Green, Branch Manager Christopher Bross, Vice President, Manager Gowanda Ticonderoga Cassadaga Ralph Swanson, Vice President, Manager Maria E. Beuerlein, Assistant Vice President, Susan C. Sekuterski, Manager Hammondsport Manager Tupper Lake (Hosely) Cato Tiesha Combes, Manager John W. Salamy, Vice President, Manager Cicero Tupper Lake (Park Street) John W. Salamy, Vice President, Manager Claire Brown, Retail Service Officer Waddington Adrienne Smith, Branch Manager Watertown (1125 Arsenal Street) Elizabeth A. Brown, Assistant Vice President, Manager Watertown (216 Washington Street) Rita J. Walldroff, Vice President, Regional Retail Banking Manager Catherine Ward, Vice President, Manager 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 Robert Avvampato, Assistant Vice President, Manager Cuba West Carthage Shavonne Henderson, Manager Naura L. Christman, Assistant Vice President, Dansville Kelly L. Bussmann, Assistant Vice President, Manager Hannibal Debra A. Davis, Assistant Vice President, District Manager Hornell Melissa M. Ponticello, Assistant Vice President, Manager Horseheads-Consumer Square Cynthia A. Welliver, Assistant Vice President, Manager Houghton College Julie A. Hall, Assistant Vice President, District Manager Interlaken Denise Ector, Manager Ithaca Manager Whitehall Holly A. Rabideau, Manager Jody R. Tonkery, Vice President, District Manager Jessica Thomas, Retail Service Officer Dunkirk (3909 Vineyard Drive) Jason DeChard, Manager Michael MacDonald, Manager Jamestown (1281 North Main Street) Kathleen S. Bemus, Assistant Vice President, Manager C B U 2 0 1 3 A N N U A L R E P O R T 21 Jamestown (25 Main Street - Brooklyn Square) Portville (1471 East State Road) Community Bank Central New York Market Glori A. Taylor, Manager Brenda Blackwell, Manager Boiceville Lakewood Portville (7 North Main Street) Brad Bernard, Manager Lisa R. Allenson, Vice President, District Manager Katrina Savitcheff, Branch Supervisor Cobleskill Livonia Randolph Arthur C. Lafleur, III, District Manager Ronda Howard, Manager Diane M. Lecceardone, Manager Cooperstown (Main Street) Moravia Ripley Naomi G. Grigoli, Manager Kathleen M. Longyear, Manager Patricia J. Knight, Manager Cooperstown Otsego (State Highway) Mount Morris Rushville Wende E. Ebberts, Manager Susan Neelin, Manager Christine M. Copper, Manager Delhi Naples Salamanca Tina A. Seguare, Manager Joilette M. Pendleton, Manager Robin K. Bowser, Manager Downsville Newark (Church Street) Seneca Falls Jean M. Lacey, Manager Phyllis A. Adriansen, Vice President, Manager David W. Sloan, Vice President, Fleischmanns Newark Plaza Brenda K. Westcott, Manager Nichols Regional Retail Banking Manager Marilee A. Asher, Manager Christine Plate, Manager Sherman Halfmoon Richard A. Griesche, Manager Kathleen M. Bowen, Assistant Vice President, Shannon R. Stevens, Manager Johnson City Manager North Collins Silver Creek Michelle Carlsson, Manager Mark J. Catalano, Assistant Vice President, Milford Ellen M. Pavlovic, Assistant Vice President, Manager District Manager Skaneateles Olean (201 North Union Street) Desiree R. Murphy, Assistant Vice President, Eric M. Garvin, Vice President, Manager Regional Retail Banking Manager Springville (Cascade Drive) Jody L. Spears, Vice President, District Manager Mary Ann Lutz, Assistant Vice President, Theresa M. Raftis, Assistant Vice President, Manager Retail Service Officer Olean (Delaware Park) Kelly Crandall, Manager Orchard Park Jason Mongillo, Retail Service Officer Springville (North Buffalo Street) Brooke Baker, Vice President, Manager Kristen Woodarek, Retail Service Officer Cynthia Andrews, Assistant Vice President, Waterloo Manager Oswego Larry D. Ledgerwood, Vice President, Manager Fred Aldrich IV, Vice President, Manager Watkins Glen 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 Oneonta (Chestnut Street) Paula M. Morell, Manager Oneonta (Southside) Sean A. Hall, Manager Oneonta (FoxCare Center) Ovid Anthony Fraboni, Vice President, Manager Richard J. Follett, Assistant Vice President, Jacqueline M. Robinson, Manager Laurel M. Fox, Retail Service Officer Owego Wellsville (4196 Bolivar Road) Florence Rossi, Assistant Vice President, Lori Dzielski, Manager Manager Palmyra Wellsville (113 Main Street) Virginia L. Elliott, Assistant Vice President, Cheryl A. Ford, Vice President, Manager Manager Penn Yan (151 Main Street) Westfield Thomas R. May, Vice President, Manager Carl Swan, Manager Dana L. Crans, Retail Service Officer Woodhull Penn Yan (272 Lake Street) Teresa A. Vivier, Manager Phelps Amy Shaffer, Manager Lynn S. Vitale, Manager Yorkshire Joseph D. Fore, Assistant Vice President, Manager 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 2 2 C B U 2 0 13 A N N U A L R E P O R T Gold Club Noxen/Bowman’s Creek Nancy Miller, Assistant Vice President Colleen M. Bullock, Manager & Gold Club Manager Olyphant Community Bank Pennsylvania Market Theresa A. Collins, Vice President, Carbondale District Manager Bobbiann Davis, Manager Pittston Clarks Summit Nolan Ayres, Assistant Vice President, David C. Griffin, Vice President, Manager Manager Scranton (Keyser Avenue) John Peterson, Vice President, District Manager Scranton (Linden Street) Suzanne Kennedy, Assistant Vice President, Manager Scranton (Minooka - Davis Street) David H. Lencicki, Vice President, Manager Scranton (North Washington Avenue) Karen E. Sweeney, Manager Scranton (Wyoming Avenue) Karen E. Sweeney, 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, Vice President, Manager Wilkes Barre (Franklin Street) David P. Dobbs, Vice President, District Manager Gary J. Missal, Assistant Vice President, Manager Sandra A. Wheeler, Retail Service Officer Wilkes Barre (South Main Street) Sandra A. Wheeler, Retail Service Officer Wyalusing Douglas M. Jackson, Manager Daleville Susan M. Pitoniak, Manager Dickson City Lisa Rochinski, Manager Edwardsville Denise M. Johnson, Manager Freeland Daniel J. Boote, Assistant Vice President, Manager Hazleton (Airport Road) Paula Palance, Vice President, Manager Hazleton (North Church Street) Lori A. Roth, Vice President, Manager Hazleton (West Broad Street) Emmanuel Marte, 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 Kingston (James Street) Karen R. Shuster, Vice President, Manager Laceyville Annette Gravelle, Manager Lansford Sarah A. White, Manager Lawton Greg M. Culver, Manager Lehighton Dana M. Cannariato, Assistant Vice President, Manager Little Meadows Mary A. Sivers, Branch Manager Meshoppen Jennifer Ramey, Branch Manager Montrose Steven Stranburg, Vice President, Manager C B U 2 0 1 3 A N N U A L R E P O R T 2 3 Income Statement In millions 2013 2006 CAGR (7-year) Net interest income $ 238.1 $ 134.8 8.5% Non-interest income 108.7 51.7 11.2% Operating expenses 221.3 127.2 Provision for loan loss 8.0 6.6 8.2% 2.8% Net income $ 78.8 $ 38.4 10.8% Net interest margin 3.91% 3.91% – Per Share Data Diluted Earnings per share $ 1.94 $ 1.26 Cash dividends declared 1.10 0.78 Book value 21.66 15.37 Tangible book value $ 12.80 $ 7.17 Balance Sheet Data End of period, In millions Assets Loans, net Deposits $ 7,096 $ 4,498 4,109 2,702 5,896 3,168 Shareholders’ equity $ 876 $ 462 6.4% 5.0% 5.0% 8.6% 6.7% 6.2% 9.3% 9.6% 04 05 06 07 08 09 10 11 12 13 $ 21.66 2 4 C B U 2 0 13 A N N U A L R E P O R T Selected Financial Highlights Book Value per Share$ 22.78$ 20.94$ 18.23$ 17.25$ 16.69$ 16.16$ 15.37$ 15.28$ 15.4910-year CAGR = 4.2% Corporate Headquarters Investor Information Macquarie Securities Group Community Bank System, Inc. Investor and shareholder information John Moran / 212.231.0662 5790 Widewaters Parkway DeWitt, NY 13214-1883 regarding Community Bank System, Inc., john.moran@macquarie.com including all filings with the Securities Phone: 315.445.2282 or 800.724.2262 and Exchange Commission, is available Fax: 315.445.7347 through the company’s website: www.communitybankna.com www.communitybankna.com Stock Listing Copies may also be obtained without Common stock of Community Bank System, charge 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 Ms. Josephine Anne E. Rurka Investor Relations Department Community Bank System, Inc. 5790 Widewaters Parkway DeWitt, NY 13214-1883 Wednesday, May 14, 2014 315.445.7300 1:00 P.M. EST josie.rurka@communitybankna.com DoubleTree by Hilton Hotel Syracuse 6301 State Route 298 East Syracuse, NY 13057 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, 2013 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 the last twelve months: Boenning & Scattergood Matthew Schultheis / 610.832.5290 mschultheis@boenninginc.com Guggenheim Partners David Darst / 615.208.1224 david.darst@guggenheimpartners.com Keefe, Bruyette & Woods Inc. Collyn Gilbert / 973.549.4092 collyn.gilbert@kbw.com Raymond James & Associates Anthony Polini / 212.856.4897 anthony.polini@raymondjames.com RBC Capital Markets Jake Civello / 617.725.2152 jake.civello@rbccm.com Sandler O’Neill & Partners LP Joseph Fenech / 212.466.7938 jfenech@sandleroneill.com Sterne Agee Matthew Breese / 207.699.5800 mbreese@sterneagee.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 or American Stock Transfer & Trust Co. Operations Center 6201 15th Avenue Brooklyn, NY 11219 800.937.5449 www.amstock.com 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. Shareholder InformationSafe Harbor StatementCOMMUNITY BANK SYSTEM, INC. 5790 Widewaters Parkway DeWitt, NY 13214-1883 800.724.2262 315.445.7347 fax communitybankna.com 

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