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Section 1: S-4 (FORM S-4)

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As filed with the Securities and Exchange Commission on December 23, 2019
Registration No. 333-      ​
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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(Exact name of registrant as specified in its charter)
Delaware
6721
16-1213679
(State or other jurisdiction of
incorporation or organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer
Identification Number)
5790 Widewaters Parkway
DeWitt, New York 13214
(315) 445-2282
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Mark E. Tryniski
President and Chief Executive Officer
Community Bank System, Inc.
5790 Widewaters Parkway
DeWitt, New York 13214
(315) 445-2282
(Name, address, including zip code, and telephone number, including area code, of agent for service)
With copies to:
Andrew P. Alin, Esq.
Cadwalader, Wickersham & Taft LLP
200 Liberty Street
New York, New York 10281
(212) 504-6000
George J. Getman, Esq.
EVP and General Counsel
Community Bank System, Inc.
5790 Widewaters Parkway
DeWitt, New York 13214
(315) 445-2282
Kenneth J. Rollins, Esq.
Pillar Aught LLC
4201 E. Park Circle
Harrisburgh, Pennsylvania 17111
(717) 308-9910
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of the registration statement and the satisfaction or
waiver of all other conditions to the closing of the merger described herein.
If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See definitions of  “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer
Non-accelerated filer (Do not check if a smaller reporting company)
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has not elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:
Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)
Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)

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CALCULATION OF REGISTRATION FEE
Title of Each Class of Securities to be Registered
Amount to be
Registered(1)
Proposed Maximum
Offering Price per Share
Proposed Maximum
Aggregate Offering
Price(2)
Amount of
Registration Fee(3)
Common Stock, $1.00 par value
1,374,283 Shares
N/A
$95,384,182
$12,381
(1)
Represents the estimated maximum number of shares of Community Bank System, Inc. common stock estimated to be issuable upon the completion of the merger described herein. This number is based upon the product of  (x) the number of shares of Steuben Trust Corporation common stock outstanding and reserved for issuance in connection with Steuben stock options as of December 19, 2019; and (y) the stock consideration ratio of 0.8054, pursuant to the Agreement and Plan of Merger, dated as of October 18, 2019, by and between Community Bank System, Inc. and Steuben Trust Corporation, which is attached hereto as Annex A.
(2)
Pursuant to Rule 457(f), the registration fee was computed on the basis of  $68.50, the market value of the common stock of Steuben Trust Corporation, based upon the last sales price as reported on the OTC Pink Venture Market on December 19, 2019, to be exchanged or cancelled in the merger, computed in accordance with Rule 457(c), multiplied by the total number of shares of common stock of Steuben Trust Corporation that may be received by the registrant and/or cancelled upon consummation of the merger, subtracting the amount of cash to be paid by Community Bank System, Inc. for such shares.
(3)
Computed in accordance with Rule 457(f) under the Securities Act by multiplying .0001298 by the proposed maximum aggregate offering price.
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment that specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

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The information in this Proxy Statement/Prospectus is subject to completion or amendment. A registration statement relating to the shares of Community Bank System, Inc. common stock to be issued in the Merger has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This Proxy Statement/Prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation, or sale is not permitted or would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.
PRELIMINARY — SUBJECT TO COMPLETION DATED DECEMBER 23, 2019
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PROPOSED MERGER — YOUR VOTE IS VERY IMPORTANT
Dear Shareholder:
On October 18, 2019, Steuben Trust Corporation (“Steuben”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Community Bank System, Inc. (“Community Bank System”) providing for the acquisition of Steuben by Community Bank System. Steuben is holding a special meeting of shareholders on [•], at [•], Eastern time, at [•], for its shareholders of record on [•], to vote on the proposals necessary to complete the merger. If Steuben’s shareholders adopt the Merger Agreement and the merger is subsequently completed, Steuben will merge with and into Community Bank System (the “Merger”), with Community Bank System continuing as the surviving company.
If the Merger Agreement proposal is approved and the Merger is subsequently completed, Steuben shareholders will receive, in exchange for each outstanding share of Steuben common stock they hold, a combination of  $12.60 in cash and 0.8054 shares of common stock of Community Bank System. For more information, see “Proposal I — The Merger” and “The Merger Agreement.”
On October 18, 2019, which was the last trading date on the New York Stock Exchange (“NYSE”) preceding the public announcement of the Merger, the closing price of Community Bank System common stock was $63.86 per share, valuing the merger consideration at approximately $64.03 per share. On [•], the most recent practicable date prior to the mailing of this Proxy Statement/Prospectus, the closing price of Community Bank System common stock on the NYSE was $[•], valuing the total merger consideration at approximately $[•] per share.
The market prices of Community Bank System common stock and Steuben common stock will fluctuate before the completion of the Merger. You should obtain current stock price quotations for Community Bank System and Steuben common stock before you vote. Community Bank System common stock is listed on the NYSE under the symbol “CBU.” Steuben common stock is traded on the OTC Pink Venture Market (“OTC Pink”) under the symbol “SBHO.”
The Steuben board of directors has unanimously determined that the Merger and the Merger Agreement are advisable and in the best interests of Steuben and its shareholders and unanimously recommends that you vote “FOR” the adoption of the Merger Agreement and “FOR” the proposal to adjourn the Steuben special meeting, if necessary or appropriate, to solicit additional proxies in favor of the proposal to adopt the Merger Agreement.
The Merger cannot be completed unless at least two-thirds of the issued and outstanding shares of Steuben common stock entitled to vote at the special meeting vote in favor of the Merger. Whether or not you plan to attend the special meeting of shareholders, please take the time to vote by using the Internet, by telephone or by completing the enclosed proxy card and mailing it in the enclosed envelope. If you sign, date and mail your proxy card without indicating how you want to vote, your proxy will be counted as a vote “FOR” each of the proposals being voted on at Steuben’s special meeting. If you fail to vote, or you do not instruct your broker how to vote any shares held for you in “street name,” it will have same effect as voting “AGAINST” the Merger Agreement, but it will have no impact on the proposal to approve an adjournment of the special meeting.
The accompanying document is being delivered to Steuben shareholders as Community Bank System’s Prospectus for its offering of Community Bank System common stock in connection with the Merger, and as Steuben’s Proxy Statement for the solicitation of proxies for the special meeting.
This Proxy Statement/Prospectus provides you with detailed information about the proposed Merger. It also contains or references information about Steuben, Community Bank System and related matters. You are encouraged to read this document carefully. In particular, you should read the “Risk Factors” section beginning on page 12 of this Proxy Statement/​Prospectus for a discussion of the risks you should consider in evaluating the proposed Merger and how it will affect you.
On behalf of our board of directors, I thank you for your prompt attention to this matter.
Sincerely,
Brenda L. Copeland
Chief Executive Officer & Chairman of the Board of Directors
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the Merger, the issuance of the Community Bank System common stock in connection with the Merger or the other transactions described in this Proxy Statement/Prospectus, or passed upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.
The securities to be issued in connection with the Merger are not savings accounts, deposits or other obligations of any bank or savings association and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.
This Proxy Statement/Prospectus is dated [•], and is first being mailed to shareholders of Steuben on or about [•].

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STEUBEN TRUST CORPORATION
One Steuben Square
Hornell, New York 14843
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON [•]
NOTICE IS HEREBY GIVEN that a special meeting of the shareholders of Steuben Trust Corporation, a New York corporation (“Steuben”), will be held on [•], at [•], Eastern time, at [•], to consider and vote upon the following matters:
1.
a proposal to adopt the Agreement and Plan of Merger, dated as of October 18, 2019, by and between Community Bank System, Inc., a Delaware corporation (“Community Bank System”), and Steuben (the “Merger Agreement), which provides for the merger of Steuben with and into Community Bank System with Community Bank System as the surviving company (the “Merger”);
2.
a proposal to approve one or more adjournments of the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the Merger Agreement (the “adjournment proposal”); and
3.
any other business which may properly come before the special meeting or any adjournment thereof.
The Merger is described in more detail in this Proxy Statement/Prospectus, which you should read carefully in its entirety before you vote. A copy of the Merger Agreement is attached as Annex A to this Proxy Statement/Prospectus. Only holders of record of Steuben common stock at the close of business on [•] are entitled to notice of and to vote at the special meeting and any adjournments or postponements of the special meeting.
Under New York law, Steuben shareholders who do not vote in favor of adoption of the Merger Agreement and otherwise comply with the applicable provisions of New York law pertaining to dissenters’ rights will be entitled to exercise dissenters’ rights and obtain payment in cash of the fair value of their shares of Steuben common stock by strictly following the procedures set forth in detail in the accompanying Proxy Statement/Prospectus. See the section entitled “Proposal I — The Merger — Appraisal or Dissenters’ Rights” beginning on page 50. The applicable New York law is reproduced in its entirety in Annex C to this Proxy Statement/Prospectus.
Please vote as soon as possible. The affirmative vote of two-thirds of the outstanding shares of Steuben common stock entitled to vote at the special meeting of shareholders is required for the adoption of the Merger Agreement. Approval of the adjournment proposal requires the affirmative vote of a majority of the votes cast on the proposal.
If you fail to vote, or you do not instruct your broker how to vote any shares held for you in “street name,” it will have same effect as voting “AGAINST” the Merger Agreement.
To ensure your representation at the special meeting of shareholders, please follow the voting procedures described in the accompanying Proxy Statement/Prospectus and on the enclosed proxy card. This will not prevent you from voting in person, but it will help to secure a quorum and avoid added solicitation costs. Your proxy may be revoked at any time before it is voted by following the instructions provided in the Proxy Statement/Prospectus.

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THE STEUBEN BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” ALL PROPOSALS.
BY ORDER OF THE BOARD OF DIRECTORS
Mary E. Hilfiger
Corporate Secretary
Hornell, New York
[•]
YOUR VOTE IS IMPORTANT!
Whether or not you plan to attend the special meeting in person, Steuben urges you to submit your proxy as soon as possible by (1) calling the toll free telephone number specified on the enclosed proxy card, (2) accessing the Internet website specified on the enclosed proxy card, or (3) completing, signing and dating the enclosed proxy card and returning it in the postage paid envelope provided. If your shares are held in the name of a bank, broker or other fiduciary, please follow the instructions on the voting card provided by such entity.
If you have any questions concerning the Merger or other matters to be considered at the Steuben special meeting, would like additional copies of this Proxy Statement/Prospectus or need help voting your shares, please contact Steuben’s Corporate Secretary, Mary E. Hilfiger, at (866) 783-8236.
PLEASE DO NOT SEND STOCK CERTIFICATES WITH THE PROXY CARD. YOU WILL BE SENT SEPARATE INSTRUCTIONS REGARDING THE SURRENDER OF YOUR STOCK CERTIFICATES.

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QUESTIONS AND ANSWERS ABOUT THE MERGER
The following are answers to certain questions that you may have regarding the merger and the special meeting. We urge you to read carefully the remainder of this Proxy Statement/Prospectus because the information in this section may not provide all the information that might be important to you in determining how to vote. Additional important information is also contained in the annexes to, and the documents incorporated by reference in, this Proxy Statement/Prospectus.
Q:
Why am I receiving this document?
A:
Community Bank System, Inc., a Delaware corporation (“Community Bank System”), and Steuben Trust Corporation, a New York corporation (“Steuben”), have agreed to combine under the terms of an Agreement and Plan of Merger, by and between Community Bank System and Steuben, dated as of October 18, 2019 (the “Merger Agreement”), that is described in this Proxy Statement/Prospectus. A copy of the Merger Agreement is attached to this Proxy Statement/Prospectus as Annex A. In order to complete the merger of Steuben with and into Community Bank System (the “Merger”), the shareholders of Steuben must vote to adopt the Merger Agreement. Steuben will hold a special meeting of its shareholders to solicit this approval.
We are delivering this Proxy Statement/Prospectus to you as both a Proxy Statement of Steuben and a Prospectus of Community Bank System. It is a Proxy Statement because the Steuben board of directors is soliciting proxies from its shareholders. It is a Prospectus because Community Bank System will issue Community Bank System common stock to the Steuben shareholders in connection with the Merger, and this Prospectus contains information about Community Bank System common stock. This Proxy Statement/Prospectus contains important information about the Merger, the Merger Agreement, the special meeting of Steuben shareholders, and other related matters, and we encourage you to read it carefully.
Q:
What will happen to Steuben as a result of the Merger?
A:
If the Merger is completed, Steuben will cease to exist and Steuben Trust Company, the wholly-owned banking subsidiary of Steuben, will become a direct, wholly-owned subsidiary of Community Bank System. Contemporaneous with the Merger, Steuben Trust Company will merge with and into Community Bank, N.A. (“Community Bank”), the wholly-owned banking subsidiary of Community Bank System, with Community Bank being the surviving bank.
Q:
Who is being asked to approve matters in connection with the Merger?
A:
Only Steuben shareholders are being asked to vote to approve the Merger-related proposals. Community Bank System is not required to obtain Community Bank System shareholder approval of the Merger or the Merger Agreement.
Q:
What will I receive in the Merger?
A:
If the Merger Agreement proposal is approved and the Merger is subsequently completed, each outstanding share of Steuben common stock will be converted into the right to receive a combination of  $12.60 in cash and 0.8054 shares of Community Bank System common stock, plus cash in lieu of fractional shares (the “merger consideration”).
Q:
How will Steuben stock options be treated in the Merger?
A:
Each Steuben stock option outstanding and unexercised immediately prior to the effective time of the Merger, whether or not then vested or exercisable, will be cancelled and automatically converted into the right to receive a cash amount equal to the aggregate number of Steuben shares subject to such option multiplied by the excess of the value of the merger consideration over the exercise price of such option, less any applicable withholding.
Q:
Could you tell me more about Community Bank System?
A:
Community Bank System is the parent company of Community Bank and is a financial holding company registered under the Bank Holding Company Act of 1956, as amended. Community Bank is a commercial banking franchise headquartered in Upstate New York, with more than 230 customer facilities and 254 ATMs in Upstate New York, Northeastern Pennsylvania, Vermont, and Western Massachusetts.
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Community Bank is a community retail bank committed to the philosophy of serving the financial needs of customers in local communities. Community Bank emphasizes the local character of business, knowledge of the customer and customer needs, comprehensive retail and small business products, and responsive decision-making at the branch and regional levels. Community Bank and its subsidiaries offer a range of commercial and retail banking and financial services in their market areas to business, individual, agricultural and government customers. Community Bank and its employees strive to support and to actively engage in important initiatives in local communities within the market areas it serves.
Community Bank System common stock is publicly traded on the NYSE under the symbol “CBU.” At September 30, 2019, Community Bank System had on a consolidated basis approximately $11.6 billion in total assets, $9.2 billion in total deposits, $6.7 billion in total loans and shareholders’ equity of $1.8 billion. For additional information about Community Bank System, please see “Where You Can Find More Information” beginning on page 84 of this Proxy Statement/Prospectus.
Q:
When is the Merger expected to be completed?
A:
The parties are working to complete the Merger during the second quarter of 2020. Steuben and Community Bank System must first obtain the necessary regulatory approvals and the approval of the Steuben shareholders at the special meeting and satisfy other customary closing conditions. Steuben and Community Bank System cannot assure you as to when or if all the conditions to the Merger will be met, and it is possible that the parties will not complete the Merger at all.
Q:
What happens if the Merger is not completed?
A:
If the Merger is not completed, Steuben will remain an independent company. If the Merger Agreement is terminated under certain specified circumstances, Steuben may be required to pay to Community Bank System a termination fee of  $4,270,000.
Q:
Does the board of directors of Steuben have a recommendation on how I should vote on the Merger Agreement?
A:
Yes. The board of directors of Steuben unanimously determined that the Merger Agreement and the Merger are advisable and in the best interests of Steuben and its shareholders, and unanimously recommends that the shareholders of Steuben vote “FOR” the adoption of the Merger Agreement.
Q:
Are there any shareholders already committed to voting in favor of the Merger Agreement?
A:
Yes. All of the directors of Steuben and certain principal shareholders of Steuben have entered into voting agreements with Community Bank System requiring them to vote all of their shares in favor of adoption of the Merger Agreement. As of the record date for the special meeting, these shareholders held approximately [•]% of the outstanding shares of Steuben common stock.
Q:
What risks should I consider before I vote on the Merger?
A:
You should read and carefully consider the risk factors set forth in the section entitled “Risk Factors” beginning on page 12 of this Proxy Statement/Prospectus as well as the other information contained or incorporated by reference into this Proxy Statement/Prospectus, including the matters addressed in the section of this Proxy Statement/Prospectus titled “Cautionary Statement Regarding Forward-Looking Statements” on page 17.
Q:
Is there other information I should consider?
A:
Yes. Much of the business and financial information about each of the companies that may be important to you is not included in this document. Instead, that information is incorporated by reference to documents Community Bank System filed with the Securities and Exchange Commission (the “SEC”). This means that Community Bank System can satisfy its disclosure obligations to you by referring you to one or more documents filed by Community Bank System with the SEC. Please see “Where You Can Find More Information” beginning on page 84 of this Proxy Statement/Prospectus, for a list of documents that Community Bank System has incorporated by reference into this document and for instructions on how to obtain copies of those documents, free of charge.
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Q:
When and where will Steuben shareholders meet?
A:
Steuben will hold a special meeting of its shareholders on [•], at [•], Eastern time, at [•].
Q:
Who can vote at the Steuben special meeting?
A:
Holders of record of Steuben common stock at the close of business on [•], which is the record date for the Steuben special meeting, are entitled to vote at the special meeting.
Q:
How many votes must be represented in person or by proxy at the Steuben special meeting to have a quorum?
A:
A majority of the shares of Steuben common stock outstanding and entitled to vote at the special meeting, present in person or represented by proxy, constitutes a quorum at the special meeting.
Q:
What vote by Steuben shareholders is required to adopt the Merger Agreement?
A:
Assuming a quorum is present at the Steuben special meeting, adoption of the Merger Agreement will require the affirmative vote of the holders of at least two-thirds of the outstanding shares of Steuben common stock entitled to vote. Abstentions and broker non-votes will have the same effect as shares voted “AGAINST” adoption of the Merger Agreement, but they will have no impact on the proposal to approve an adjournment of the special meeting.
Q:
What do I need to do now?
A:
After you have carefully read and considered the information contained or incorporated by reference into this Proxy Statement/Prospectus, please vote your shares promptly. If you hold common stock in your name as a shareholder of record, please complete, sign, date and mail your proxy card in the enclosed postage paid return envelope as soon as possible. You may also vote by telephone or through the Internet as instructed on the enclosed proxy card. If you hold your shares in “street name” through a bank, broker or other fiduciary, you must direct your bank or broker to vote in accordance with the instructions you receive from your bank, broker or other fiduciary.
If you sign and send in your proxy and do not indicate how you want to vote, your proxy will be voted in favor of the Merger Agreement, and, if necessary, the adjournment proposal.
Q:
If my shares are held in “street name” by my broker, will the broker vote my shares for me?
A:
No. Your broker WILL NOT vote your shares unless you provide instructions on how to vote. It is important that you provide timely instruction to your broker or bank to ensure that all shares of Steuben common stock that you own are voted at the special meeting. You should instruct your broker how to vote your shares, following the directions your broker provides.
Q:
What if I fail to instruct my broker?
A:
If you do not provide your broker with instructions and your broker submits an unvoted proxy, referred to as a “broker non-vote,” the broker non-vote will have the same effect as a vote against the adoption of the Merger Agreement. Broker non-votes will have no impact on the proposal to approve an adjournment of the special meeting.
Q:
Can I attend the special meeting and vote my shares in person?
A:
Yes. Although the Steuben board of directors requests that you vote your shares by mail, by telephone, or through the Internet in advance of the special meeting, all Steuben shareholders are invited to attend the special meeting. Shareholders of record on [•] may vote in person at the special meeting. If your shares are held by a broker, bank or other nominee, then you are not the shareholder of record and you must bring to the special meeting appropriate documentation from your broker, bank or other nominee to enable you to vote at the special meeting.
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Q:
Can I change my vote?
A:
Yes. If you do not hold your shares in “street name,” there are three ways you can change your vote at any time after you have sent in your proxy card and before your proxy is voted at the special meeting: (i) you may give written notice of revocation to Steuben’s corporate secretary; (ii) you may submit a new signed proxy card bearing a later date or vote again by telephone or the Internet (any earlier proxies will be automatically revoked); or (iii) you may attend the special meeting and vote in person (however, the mere presence of a shareholder at the special meeting will not constitute revocation of a previously given proxy). If you hold your shares in “street name” through a bank, broker or other fiduciary, you should contact your bank, broker or other fiduciary to revoke your proxy.
Any written notices of revocation and other communications with respect to revocation of proxies should be addressed to Steuben as follows: Steuben Trust Corporation, Corporate Secretary, One Steuben Square, Hornell, New York 14843, which must be received by [•], Eastern time, on [•].
Q:
What are the material U.S. federal income tax consequences of the Merger to Steuben common shareholders?
A:
The Merger is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, which we refer to as the “Code”, and it is a condition to the respective obligations of Steuben and Community Bank System to complete the Merger that each of Steuben and Community Bank System receives a legal opinion to that effect. If, as expected, the Merger qualifies as a “reorganization,” a U.S. holder (as defined in “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 47 of this Proxy Statement/Prospectus) exchanging Steuben common stock in the Merger will generally recognize gain (but not loss) in an amount equal to the lesser of  (i) the amount of cash treated as received in exchange for Steuben common stock in the Merger and (ii) the excess of the “amount realized” in the transaction (i.e., the fair market value of the Community Bank System common stock at the effective time of the Merger plus the amount of cash treated as received in exchange for Steuben common stock in the Merger) over its tax basis in its surrendered Steuben common stock.
You should read “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 47 of this Proxy Statement/Prospectus for a more complete discussion of the U.S. federal income tax consequences of the Merger. Your tax consequences will depend on your individual situation. Accordingly, we strongly urge you to consult your own tax advisor to determine the particular tax consequences of the Merger to you.
Q:
Are Steuben shareholders entitled to seek appraisal or dissenters’ rights if they do not vote in favor of the adoption of the Merger Agreement?
A:
Yes. As a holder of Steuben common stock, you are entitled to seek appraisal or dissenters’ rights under the New York Business Corporation Law in connection with the Merger. Failure to follow precisely any of the statutory requirements could result in the loss of your appraisal rights.
Q:
Should Steuben shareholders send in their stock certificates with the enclosed proxy?
A:
No. Steuben shareholders SHOULD NOT send in any stock certificates now. You will receive separate written instructions for surrendering your shares of Steuben common stock.
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WHO CAN HELP ANSWER YOUR QUESTIONS
If you want to ask any questions about the Merger or the merger consideration to be issued in the Merger, you should contact:
Community Bank System, Inc. Steuben Trust Corporation
Joseph E. Sutaris
E.V.P. and Chief Financial Officer
Community Bank System, Inc.
5790 Widewaters Parkway
DeWitt, New York 13214
(315) 445-7396
Brenda L. Copeland
Chairman and Chief Executive Officer
Steuben Trust Corporation
One Steuben Square
Hornell, New York 14843
(866) 783-8236
Community Bank System files annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any reports, statements or other information that Community Bank System files at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1 800-SEC-0330 for further information on the Public Reference Room. Community Bank System’s public filings are also available at the Internet site maintained by the SEC at “http://www.sec.gov.” Community Bank System’s public filings are also available from Community Bank System at the address shown below or at its websites: www.cbna.com. Please note that Community Bank System’s and Steuben’s Internet addresses are included in this Proxy Statement/Prospectus as inactive textual references only. The information contained on Community Bank System’s and Steuben’s websites are not incorporated by reference in this Proxy Statement/Prospectus and should not be considered part of this document.
Community Bank System has filed a registration statement to register with the SEC the shares of Community Bank System common stock to be issued to Steuben shareholders in the Merger. This document is a part of the registration statement and constitutes a Prospectus of Community Bank System and a Proxy Statement of Steuben for its special meeting of shareholders. As allowed by SEC rules, this document does not contain all the information that shareholders can find in the registration statement or the exhibits to the registration statement. The SEC allows Community Bank System to “incorporate by reference” certain information into this document, which means that Community Bank System can disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is deemed to be a part of this document, except for any information which contradicts information contained directly in this document. Please see “Where You Can Find More Information” beginning on page 84 of this Proxy Statement/Prospectus to find out where you can find more information about the documents incorporated by reference.
If you wish to obtain an additional copy of this document, or any other information, without charge upon written or oral request, please see “Where You Can Find More Information” beginning on page 84 of this Proxy Statement/Prospectus to find out where you can find more information about Community Bank System and Steuben, or contact:
Community Bank System, Inc. Steuben Trust Corporation
Marguerite K. Geiss
Investor Relations/Board Secretary
Community Bank System, Inc.
5790 Widewaters Parkway
DeWitt, New York 13214
(315) 445-7313
Mary E. Hilfiger
Corporate Secretary
Steuben Trust Corporation
One Steuben Square
Hornell, New York 14843
(866) 783-8236
To obtain timely delivery of these documents, you must request the information no later than [] in order to receive them before the special meeting.
You should rely only on the information contained in, or incorporated by reference into, this Proxy Statement/Prospectus. No one has been authorized to give any information or make any representation about the Merger or Community Bank System or Steuben that differs from, or adds to, the information in this Proxy
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Statement/Prospectus or in documents that are incorporated by reference herein and publicly filed with the SEC. Therefore, if anyone does give you different or additional information, you should not rely on it. You should not assume that the information contained in this Proxy Statement/Prospectus is accurate as of any date other than the date of this Proxy Statement/Prospectus, and you should not assume that any information incorporated by reference into this document is accurate as of any date other than the date of such other document, and neither the mailing of this Proxy Statement/Prospectus to Steuben shareholders nor the issuance of Community Bank System common stock in the Merger shall create any implication to the contrary.
This Proxy Statement/Prospectus does not constitute an offer to sell, or a solicitation of an offer to purchase, the securities offered by this Proxy Statement/Prospectus, or the solicitation of a proxy, in any jurisdiction to or from any person to whom or from whom it is unlawful to make such offer, solicitation of an offer or proxy solicitation in such jurisdiction.
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SUMMARY
This summary highlights selected information from this document and may not contain all of the information that is important to you. For a more complete understanding of the Merger and for a more complete description of the legal terms of the Merger, we encourage you to read this entire Proxy Statement/​Prospectus and its annexes carefully, as well as the additional documents referred to in this Proxy Statement/​Prospectus. See “Where You Can Find More Information” beginning on page 84 of this Proxy Statement/​Prospectus.
The Merger Agreement is attached to this document as Annex A. Please read that document carefully. It is the legal document that governs the Merger and your rights in the Merger.
Information about the Companies (Page 18)
Community Bank System, Inc.
5790 Widewaters Parkway
DeWitt, New York 13214
(315) 445-2282
Community Bank System is a bank holding company operating Community Bank, which currently has more than 230 customer facilities and 254 ATMs in 40 counties in Upstate New York, six counties in Northern Pennsylvania, 12 counties in Vermont, and one county in Massachusetts. Community Bank and its subsidiaries offer a broad range of commercial banking, trust, pension administration, investment and financial services to business, individual, agricultural and government customers.
Community Bank is Community Bank System’s principal operating subsidiary. At September 30, 2019, Community Bank System had on a consolidated basis approximately $11.6 billion in total assets, $9.2 billion in total deposits, $6.7 billion in total loans and shareholders’ equity of  $1.8 billion.
Community Bank System common stock is currently listed on the NYSE under the symbol “CBU.”
Steuben Trust Corporation
One Steuben Square
Hornell, New York 14843
(866) 783-8236
Steuben is a financial holding company registered under the Bank Holding Company Act of 1956, as amended, and is subject to supervision, regulation and examination by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”). Steuben is incorporated under the laws of the State of New York and headquartered in Hornell, New York. At September 30, 2019, Steuben had total consolidated assets of approximately $576 million (including loans of approximately $340 million), deposits of approximately $483 million and shareholders’ equity of approximately $65.5 million.
Steuben conducts substantially all of its business through its subsidiary, Steuben Trust Company. Steuben Trust Company is a New York-chartered bank organized in 1902 with 14 full-service banking offices located throughout Western New York State. The primary business of Steuben Trust Company is to attract deposits from and extend loans to consumer, institutional, municipal, non-profit, agricultural and commercial customers.
Steuben common stock is currently listed on the OTC Pink Venture Market under the symbol “SBHO.”
Information about the Special Meeting
Date, Time and Place of the Special Meeting (Page 20)
A special meeting of Steuben shareholders will be held on [•], at [•].m., Eastern time, at [•].
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Actions to be Taken at the Special Meeting (Page 20)
At the special meeting, Steuben shareholders as of  [•], the record date, will be asked to vote on a proposal to adopt the Merger Agreement, and if necessary, the adjournment proposal.
Record Date; Outstanding Shares; Shares Entitled to Vote (Page 20)
Only holders of record of Steuben common stock at the close of business on the record date of  [•] are entitled to notice of and to vote at the special meeting. As of the record date, there were [•] shares of Steuben common stock outstanding, held of record by approximately [•] shareholders.
Quorum; Vote Required (Page 20)
The presence in person or by proxy of the holders of a majority of the shares of Steuben common stock outstanding on the record date will constitute a quorum for the transaction of business at the special meeting.
The adoption of the Merger Agreement requires the affirmative vote of the holders of two-thirds of the outstanding shares of Steuben common stock entitled to vote at the special meeting of shareholders. Approval of the adjournment proposal, if necessary to solicit additional proxies if there are not sufficient votes to adopt the Merger Agreement, requires the affirmative vote of a majority of the votes cast on the proposal.
Broker non-votes and abstentions will have the same effect as a vote “AGAINST” the Merger Agreement, but they will have no effect on the adjournment proposal.
Share Ownership of Management; Voting Agreements (Page 21)
On the record date, the directors, certain officers and certain principal shareholders of Steuben had voting power with respect to an aggregate of  [•] shares of Steuben common stock, or approximately [•]% of the shares of the Steuben common stock then outstanding. Each such person executed an agreement that generally commits such person to vote all shares of Steuben common stock over which he or she has voting power in favor of the Merger Agreement.
Recommendation of the Steuben Board of Directors (Page 20)
Steuben’s board of directors has unanimously approved the Merger Agreement, and recommends a vote “FOR” the adoption of the Merger Agreement, and “FOR” the adjournment proposal, if necessary.
Appraisal Rights (Page 50)
Under New York law, Steuben shareholders who submit a written objection, including notice of an intent to dissent, and do not vote in favor of the proposal to adopt the Merger Agreement will be entitled to seek dissenters’ appraisal rights in connection with the Merger, and if the Merger is completed, obtain payment in cash equal to the fair value of their shares of Steuben common stock instead of the merger consideration. To exercise their appraisal rights, Steuben shareholders must strictly follow the procedures prescribed by New York law. These procedures are summarized in this Proxy Statement/Prospectus. Failure to strictly comply with these provisions will result in the loss of appraisal rights. See the section entitled “Appraisal or Dissenters’ Rights” beginning on page 50 of this Proxy Statement/Prospectus. The applicable New York law is reproduced in its entirety in Annex C to this Proxy Statement/Prospectus.
The Merger
Structure of the Merger (Page 23)
Steuben and Community Bank System are proposing a merger of Steuben with and into Community Bank System, with Community Bank System as the surviving company. Contemporaneously with the Merger, the parties will merge Steuben Trust Company, a wholly-owned banking subsidiary of Steuben, with and into Community Bank, a wholly-owned banking subsidiary of Community Bank System, with Community Bank as the surviving entity (the “Bank Merger”).
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The Merger Agreement is attached to this document as Annex A. We encourage you to read the Merger Agreement carefully and in its entirety as it is the legal document that governs the Merger and your rights in it. You are also encouraged to read the risk factors beginning on page [•].
Merger Consideration (Page 23)
If the Merger proposal is approved and the Merger is subsequently completed, you will receive, in exchange for each outstanding share of Steuben common stock that you own, a combination of 0.8054 shares of Community Bank System common stock and $12.60 in cash, plus cash in lieu of fractional shares (the “merger consideration”).
Treatment of Steuben Equity Awards (Page 43)
At the effective time of the Merger, each option granted under Steuben’s equity plans outstanding and unexercised, whether or not then vested or exercisable, will be cancelled and converted into the right to receive a cash payment in an amount equal to the product of the number of shares of Steuben common stock underlying the option multiplied by the excess, if any, of the value of the merger consideration over the exercise price of the option, less any applicable withholding.
Opinion of Steuben’s Financial Advisor (Page 32)
In connection with the Merger, Steuben’s financial advisor, PNC FIG Advisory, Inc. (“PNC”), delivered a written opinion, dated October 17, 2019, to Steuben’s board of directors as to the fairness, from a financial point of view, of the merger consideration to be received by the holders of Steuben common stock pursuant to the Merger Agreement. The full text of PNC’s written opinion to Steuben’s board of directors, which sets forth, among other things, the assumptions made, procedures followed, factors considered and limitations on the review undertaken, is attached as Annex B to this Proxy Statement/​Prospectus. PNC’s opinion was rendered to, and was for the benefit of, Steuben’s board (in its capacity as such) in connection with its evaluation of the Merger. PNC’s opinion is not intended and does not constitute a recommendation to any shareholder as to how such shareholder should vote or act with respect to the Merger or any matter relating thereto. PNC’s opinion does not address the relative merits of the Merger as compared to any other transaction or business strategy in which Steuben might engage or the merits of the underlying decision by Steuben to engage in the Merger.
Share Information and Market Price (Page 71)
Community Bank System common stock is traded on the NYSE under the symbol “CBU.” Steuben common stock is traded on the OTC Pink Venture Market under the symbol “SBHO.” The following table shows the closing or last sale prices of Community Bank System common stock and Steuben common stock on October 18, 2019 and [•]. October 18, 2019 is the last full trading day prior to the announcement of the signing of the Merger Agreement. [•] was the last practicable trading day for which information was available prior to the date of this document. The equivalent price per share of Steuben common stock is determined by multiplying the closing price of Community Bank System common stock by the 0.8054 stock consideration and adding $12.60 to such amount.
Community
Bank System
Steuben
Equivalent
Market Value
Per Share
Closing Sale Prices Per Share on:
Historical
Historical
October 18, 2019
$ 63.86 $ 42.01 $ 64.03
[•]
The market prices of both Community Bank System common stock and Steuben common stock will fluctuate before the Merger. Steuben and Community Bank System encourage you to obtain current market prices.
Required Regulatory Approvals (Page 50)
Community Bank System must make filings with or obtain approvals from certain regulatory authorities to effect the Merger. In addition, before Steuben and Community Bank System can complete
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the Merger, they will make all filings and obtain all regulatory approvals required for the merger of their banking subsidiaries, Community Bank and Steuben Trust Company. These include the approvals (or waivers of such approvals) from the Federal Reserve Board and the Office of the Comptroller of the Currency (the “OCC”). In addition, Community Bank System must apply to list the common stock to be issued in the Merger on the NYSE.
Limitations on Considering Other Acquisition Proposals (Page 61)
Steuben has agreed to a number of limitations with respect to soliciting, negotiating and discussing acquisition proposals involving persons other than Community Bank System, and to certain related matters. The Merger Agreement does not, however, prohibit Steuben from considering an unsolicited bona fide acquisition proposal from a third party if certain specified conditions are met.
Conditions to Completion of the Merger (Page 65)
Each party’s obligation to complete the Merger is subject to the satisfaction or waiver (to the extent permitted under applicable law) of certain other conditions, including:

the SEC declaring effective the registration statement that covers the Community Bank System common stock to be issued in the Merger;

Steuben shareholders adopting the Merger Agreement by the affirmative vote of at least two-thirds of the shares outstanding and entitled to vote at the special meeting;

Community Bank System and Steuben receiving all approvals or consents required by law from any applicable governmental agency, and all applicable notice or waiting periods expiring;

no court or regulatory actions, nor any judgments, orders, decrees or injunctions, having been instituted or issued by any governmental authority, court, or administrative agency preventing the consummation of the Merger;

the representations and warranties made by Community Bank System and Steuben in the Merger Agreement continuing to be true and correct as of the effective time of the Merger (subject to the materiality standards set forth in the Merger Agreement);

Steuben and Community Bank System having complied with all of their respective covenants pursuant to the Merger Agreement in all material respects;

the NYSE approving for listing the Community Bank System common stock to be issued in the Merger;

each party’s respective outside legal counsel delivering an opinion to it, dated as of the closing date of the Merger, to the effect that the Merger will qualify as a reorganization under Section 368(a) of the Code; and

Neither Steuben nor Community Bank System having experienced a material adverse effect.
Community Bank System’s obligation to complete the Merger is also subject to the satisfaction or waiver of the following additional conditions:

no governmental authority having imposed a materially burdensome condition in connection with granting any regulatory approval;

Steuben having obtained all consents of third parties required as a result of the transactions contemplated by the Merger Agreement;

shares of Steuben common stock as to which statutory appraisal rights shall have been exercised representing not more than 10% of the outstanding shares of Steuben common stock; and

the electronic and systems conversion of all applicable data of Steuben and its subsidiaries concerning the loans, deposits and other assets and liabilities of Steuben and its subsidiaries to the Community Bank System systems being scheduled to occur and prepared for completion, in each case not later than the opening of business on the first business day following the closing date.
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Fees and Expenses; Termination Fee (Page 67)
Steuben and Community Bank System will each pay its own expenses in connection with the Merger, except that the parties will share equally all costs associated with the printing and mailing of this document. If, however, the Merger Agreement is terminated under certain circumstances relating to third party acquisition proposals, Steuben must pay a termination fee of  $4,270,000 as set forth in the Merger Agreement.
Terminating the Merger Agreement (Page 67)
Either Steuben or Community Bank System may terminate the Merger Agreement under certain circumstances, including if:

both companies consent in writing to the termination;

the Merger is not completed by October 18, 2020; however, neither party has the right to terminate the Merger Agreement if such party was in breach of its obligations under the Merger Agreement and such breach was the cause of the failure of the Merger to be consummated by such date;

any governmental entity issues a final order prohibiting the completion of the Merger;

Steuben shareholders do not approve the Merger Agreement at the special meeting; and

the other party materially breaches, and does not cure within 30 days of notice of such breach from the other party, any of the representations, warranties or covenants it has made under the Merger Agreement, which would constitute a failure of a condition to closing in favor of the terminating party.
Steuben may also terminate the Merger Agreement if Community Bank System’s stock price falls below thresholds set forth in the Merger Agreement and Community Bank System does not increase the stock consideration in the Merger pursuant to a prescribed formula in the Merger Agreement.
Community Bank System may also terminate the Merger Agreement if  (i) the Steuben board of directors effects an adverse recommendation change (i.e., (a) withdrawing, modifying or qualifying in a manner adverse to Community Bank System the approval, recommendation or declaration of advisability by the Steuben board of directors set forth in this Proxy Statement/Prospectus that the Steuben shareholders vote to adopt the Merger Agreement, (b) adopting, approving, recommending, endorsing or otherwise declaring as advisable the adoption of any acquisition proposal, (c) resolving, agreeing or proposing to take any such actions, or (d) submitting the Merger Agreement to Steuben shareholders without recommendation), (ii) Steuben has failed to substantially comply with its obligations under the Merger Agreement with respect to third party acquisition proposals or by failing to call, give notice of, convene and hold the special meeting; (iii) a tender offer or exchange offer for 15% or more of the outstanding shares of Steuben common stock is commenced and Steuben shall not have sent to its shareholders, within ten business days after the commencement of such tender or exchange offer, a statement that the Steuben board of directors recommends rejection of such tender or exchange offer, or (iv) an acquisition proposal (other than a tender or exchange offer covered by clause (iii) above) with respect to Steuben is publicly announced and, upon Community Bank System’s request, Steuben fails to issue a press release announcing its opposition to such acquisition proposal and reaffirming the Steuben board of directors’ recommendation that Steuben shareholders vote to adopt the Merger Agreement within five business days after such request.
Community Bank System may also terminate the Merger Agreement if any governmental authority has denied or rescinded any required regulatory approval or imposed a materially burdensome regulatory condition on Community Bank System in connection with granting any regulatory approval.
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Termination Fee (Page 67)
Steuben will owe Community Bank System a $4,270,000 termination fee if:

(i)(a) either party terminates the Merger Agreement in the event that approval by the shareholders of Steuben is not obtained at the Steuben special meeting or in the event that the Merger is not consummated by the expiration date; or (b) Community Bank System terminates the Merger Agreement as a result of any breach of any representation, warranty, covenant or agreement by Steuben that cannot or has not been cured within 30 days of notice of such breach; (ii) a third party acquisition proposal has been made prior to such termination; and (iii) within 12 months of such termination, Steuben enters into a definitive agreement with respect to an acquisition proposal or consummates an acquisition proposal; or

Community Bank System terminates the Merger Agreement as a result of the Steuben board of directors or any committee thereof effecting an adverse recommendation change; or

Community Bank System terminates the Merger Agreement as a result of Steuben’s failure to substantially comply with its obligations under the Merger Agreement with respect to third party acquisition proposals or its failure to call, give notice of, convene and hold the special meeting; or

Community Bank System terminates the Merger Agreement as a result of  (i) a tender offer or exchange offer for 15% or more of the outstanding shares of Steuben common stock being commenced and Steuben not providing to its shareholders, within ten business days after the commencement of such tender or exchange offer, a statement that the Steuben board of directors recommends rejection of such tender or exchange offer, or (ii) an acquisition proposal (other than a tender or exchange offer covered by clause (i) above) with respect to Steuben being publicly announced and, upon Community Bank System’s request, Steuben failing to issue a press release announcing its opposition to such acquisition proposal and reaffirming the Steuben board of directors’ recommendation that Steuben shareholders vote to adopt the Merger Agreement within five business days after such request.
The payment of the termination fee will fully discharge Steuben from any losses that may be suffered by Community Bank System based upon, resulting from or arising out of the termination of the Merger Agreement.
Interests of Steuben Directors and Executive Officers in the Merger (Page 43)
Steuben’s shareholders should be aware that some of Steuben’s directors and executive officers have interests in the Merger and have arrangements that are different from, or in addition to, those of Steuben shareholders in general. These interests include:

The cancellation of all outstanding stock options in exchange for a cash payment, regardless of whether such stock options are vested or unvested as of the closing date.

Payment of retention incentives to certain officers.

Payment of severance benefits if an executive officer experiences a qualifying termination event.

A new employment agreement between Brenda Copeland, Steuben’s Chairman and Chief Executive Officer, and Community Bank System that will become effective upon the closing of the Merger, that, among other things, will entitle Ms. Copeland to receive a cash bonus from Community Bank System upon the closing of the Merger and severance benefits if Ms. Copeland experiences a qualifying termination event.

Accelerated payment of previously vested, nonqualified deferred compensation balances to certain directors and executive officers if their service ends within 12 months following the Merger.

Continued indemnification and liability insurance coverage for directors and executive officers with respect to acts or omissions occurring before the Merger.
The Steuben board of directors was aware of these interests and considered them in recommending that Steuben shareholders approve the Merger Agreement.
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Differences Between Rights of Holders of Community Bank System and Steuben Stock (Page 76)
The rights of Steuben shareholders as such are currently governed by New York law and Steuben’s certificate of incorporation and bylaws. If the Merger is completed, Steuben shareholders will become shareholders of Community Bank System and their rights will be governed by Delaware law and Community Bank System’s certificate of incorporation and bylaws. There are certain differences in the rights of shareholders of the two companies. These differences are described in more detail in the section of this Proxy Statement/Prospectus entitled “Comparison of Rights of Holders of Steuben Common Stock and Community Bank System Common Stock” beginning on page 76.
Material U.S. Federal Income Tax Consequences of the Merger (Page 47)
The Merger is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Code, and it is a condition to the respective obligations of Steuben and Community Bank System to complete the Merger that each of Steuben and Community Bank System receives a legal opinion to that effect. If, as expected, the Merger qualifies as a “reorganization,” a U.S. holder (as defined in “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 47 of this Proxy Statement/​Prospectus) exchanging Steuben common stock in the Merger will generally recognize gain (but not loss) in an amount equal to the lesser of  (i) the amount of cash treated as received in exchange for Steuben common stock in the Merger and (ii) the excess of the “amount realized” in the transaction (i.e., the fair market value of the Community Bank System common stock at the effective time of the Merger plus the amount of cash treated as received in exchange for Steuben common stock in the Merger) over its tax basis in its surrendered Steuben common stock.
You should read “Material U.S. Federal Income Tax Consequences of the Merger beginning on page 47 of this Proxy Statement/Prospectus for a more complete discussion of the U.S. federal income tax consequences of the Merger. Your tax consequences will depend on your individual situation. Accordingly, we strongly urge you to consult your own tax advisor to determine the particular tax consequences of the Merger to you.
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SELECTED HISTORICAL FINANCIAL DATA
The following tables summarize selected historical consolidated financial data for Community Bank System. The following selected historical consolidated financial data as of and for the twelve months ended December 31, 2018, 2017, 2016, 2015 and 2014 has been derived from Community Bank System’s audited consolidated financial statements. The following selected historical consolidated financial data as of and for the nine months ended September 30, 2019 and 2018 is derived from the unaudited consolidated financial statements of Community Bank System and has been prepared on the same basis as the selected historical consolidated financial data derived from the audited consolidated financial statements and, in the opinion of Community Bank System’s management, reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of this data for those dates.
The information is only a summary and should be read in conjunction with Community Bank System’s financial statements and related notes and management’s discussions and analyses contained in the annual, quarterly and other reports filed with the SEC. See “Where You Can Find More Information” beginning on page 84 of this Proxy Statement/Prospectus.
Community Bank System, Inc.
Selected Historical Financial Data
(In thousands except per share data
and ratios)
Nine months ended
September 30,
Years Ended December 31,
2019
2018
2018
2017
2016
2015
2014
Income Statement Data:
Loan interest income
$ 227,701 $ 212,849 $ 286,165 $ 253,949 $ 211,467 $ 187,743 $ 185,527
Investment interest income
57,979 57,463 76,568 75,506 73,720 71,879 70,693
Interest expense
19,245 12,644 17,678 13,780 11,291 11,202 11,792
Net interest income
266,435 257,668 345,055 315,675 273,896 248,420 244,428
Provision for loan losses
5,573 8,342 10,837 10,984 8,076 6,447 7,178
Noninterest revenues
168,586 169,437 223,720 202,421 155,625 123,303 119,020
Gain (loss) on investment securities & loss on debt extinguishment, net
4,910 404 339 2 0 (4) 0
Acquisition expenses and litigation settlement
7,789 (769) (769) 25,986 1,706 7,037 2,923
Other noninterest expenses
268,968 258,445 346,058 321,163 265,142 226,018 223,657
Income before income taxes
157,601 161,491 212,988 159,965 154,597 132,217 129,690
Net income
126,179 127,818 168,641 150,717 103,812 91,230 91,353
Diluted earnings per share
2.41 2.46 3.24 3.03 2.32 2.19 2.22
Balance Sheet Data:
Cash equivalents
$ 781,732 $ 56,891 $ 29,083 $ 19,652 $ 24,243 $ 21,931 $ 12,870
Investment securities
2,481,742 2,948,057 2,981,658 3,081,379 2,784,392 2,847,940 2,512,974
Loans, net of unearned discount
6,853,191 6,300,888 6,281,121 6,256,757 4,948,562 4,801,375 4,236,206
Allowance for loan losses
(49,423) (50,133) (49,284) (47,583) (47,233) (45,401) (45,341)
Intangible assets
840,685 811,700 807,349 825,088 480,844 484,146 386,973
Total assets
11,597,297 10,659,567 10,607,295 10,746,198 8,666,437 8,552,669 7,489,440
Deposits
9,168,285 8,463,821 8,322,371 8,444,420 7,075,954 6,873,474 5,935,264
Borrowings
328,795 374,498 413,682 485,896 248,370 403,446 440,122
Shareholders’ equity
1,840,421 1,668,345 1,713,783 1,635,315 1,198,100 1,140,647 987,904
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(In thousands except per share data
and ratios)
Nine months ended
September 30,
Years Ended December 31,
2019
2018
2018
2017
2016
2015
2014
Capital and Related Ratios:
Cash dividends declared per share
$ 1.17 $ 1.06 $ 1.44 $ 1.32 $ 1.26 $ 1.22 $ 1.16
Book value per share
35.63 32.63 33.43 32.26 26.96 26.06 24.24
Tangible book value per share(1)
20.24 17.67 18.59 16.94 17.12 15.90 15.63
Market capitalization (in millions)
3,187 3,123 2,988 2,725 2,746 1,748 1,554
Tier 1 leverage ratio
10.76% 10.72% 11.08% 10.00% 10.55% 10.32% 9.96%
Total risk-based capital to risk-adjusted
assets
17.54% 18.41% 19.06% 17.45% 19.10% 18.08% 18.75%
Tangible equity to tangible assets(1)
9.68% 9.13% 9.68% 8.61% 9.24% 8.59% 8.92%
Dividend payout ratio
47.9% 42.4% 43.8% 43.5% 53.7% 55.5% 51.6%
Period end common shares
outstanding
51,660 51,137 51,528 50,696 44,437 43,775 40,748
Diluted weighted-average shares outstanding
52,301 51,925 51,975 49,665 44,720 41,605 41,232
Selected Performance Ratios:
Return on average assets
1.55% 1.60% 1.58% 1.49% 1.20% 1.17% 1.23%
Return on average equity
9.50% 10.40% 10.20% 10.21% 8.57% 8.87% 9.65%
Net interest margin
3.78% 3.72% 3.73% 3.69% 3.71% 3.73% 3.91%
Noninterest revenues/operating revenues
(FTE)(2)
38.9% 39.9% 39.6% 38.8% 35.5% 32.3% 31.7%
Efficiency ratio(3)
59.2% 57.7% 58.0% 58.3% 59.6% 58.2% 58.4%
Asset Quality Ratios:
Allowance for loan losses/total loans
0.72% 0.80% 0.78% 0.76% 0.95% 0.95% 1.07%
Nonperforming loans/total loans
0.42% 0.40% 0.40% 0.44% 0.48% 0.50% 0.56%
Allowance for loan losses/​nonperforming loans
172% 201% 197% 173% 199% 190% 190%
Loan loss provision/net charge-offs
103% 144% 119% 103% 129% 101% 117%
Net charge-offs/average loans
0.11% 0.12% 0.15% 0.18% 0.13% 0.15% 0.15%
(1)
The tangible book value per share and the tangible equity to tangible asset ratio excludes goodwill and identifiable intangible assets, adjusted for deferred tax liabilities generated from tax deductible goodwill and other intangible assets. The ratio is not a financial measurement required by accounting principles generally accepted in the United States of America. However, management believes such information is useful to analyze the relative strength of the Company’s capital position and is useful to investors in evaluating Company performance. (See GAAP to Non-GAAP Reconciliations on page 87 of this Proxy Statement/Prospectus).
(2)
For purposes of this ratio, noninterest revenues excludes gains and losses on investment securities, loss on debt extinguishment and insurance-related recoveries. Operating revenues, a non-GAAP measure, is defined as net interest income on a fully-tax equivalent basis, plus noninterest revenues, excluding gains and losses on investment securities, loss on debt extinguishment, insurance-related recoveries and acquired non-impaired loan accretion. (See GAAP to Non-GAAP Reconciliations on page 87 of this Proxy Statement/Prospectus).
(3)
Efficiency ratio provides a ratio of operating expenses to operating income. It excludes intangible amortization, acquisition expenses, and litigation settlement from expenses and acquired non-impaired loan accretion, insurance-related recoveries, gains and losses on investment securities, and loss on debt extinguishment from income while adding a fully-taxable equivalent adjustment. The efficiency ratio is not a financial measurement required by accounting principles generally accepted in the United States of America. However, the efficiency ratio is used by management in its assessment of financial performance specifically as it relates to noninterest expense control. Management also believes such information is useful to investors in evaluating Company performance. (See GAAP to Non-GAAP Reconciliations on page 87 of this Proxy Statement/Prospectus).
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COMPARATIVE UNAUDITED PER SHARE DATA
The following table summarizes the per share information for Community Bank System and Steuben on a historical, pro forma and equivalent basis. The pro forma and pro forma per equivalent share information gives effect to the Merger as if the Merger had been effective on the date presented in the case of the book value data, and as if the Merger had been effective as of the beginning of each period presented in the case of the earnings per share and the cash dividends data. As described elsewhere in this Proxy Statement/Prospectus, the merger consideration may be adjusted in the event Steuben invokes its right to terminate the Merger Agreement if the average closing price of Community Bank System common stock for a specified period prior to closing is less than $50.06 and Community Bank System common stock underperforms a specified peer-group index by more than 20%, and Community Bank System elects to increase the stock consideration, in order that the Merger Agreement will not be terminated.
The pro forma information, while helpful in illustrating the financial characteristics of the combined company under one set of assumptions, does not reflect the impact of factors that may result as a consequence of the Merger or consider any potential impacts of current market conditions or the Merger on revenues, expense efficiencies, asset dispositions, and share repurchases, among other factors, nor the impact of possible business model changes. As a result, the pro forma results are not necessarily indicative of what would have occurred had the Merger taken place on the assumed dates, nor do they represent an attempt to predict or suggest future results. You should read the information in the following table in conjunction with the historical financial information and related notes contained in the annual, quarterly and other reports filed by Community Bank System or Steuben with the SEC. See “Where You Can Find More Information” beginning on page 84 of this Proxy Statement/Prospectus. You should not rely on the pro forma information as being indicative of the results that Community Bank System will achieve in the Merger.
Historical
Pro Forma
Community
Bank
System
Steuben
Combined
Company(1)(2)(3)
Steuben
Equivalent(4)
For the nine months ended
September 30, 2019:
Basic Earnings per share
$ 2.44 $ 3.12 $ 2.47 $ 1.99
Diluted Earnings per share
$ 2.41 $ 3.12 $ 2.45 $ 1.97
Cash Dividends
$ 1.17 $ 1.06 $ 1.17 $ 0.94
Book Value at September 30, 2019
$ 35.63 $ 38.81 $ 36.29 $ 29.23
For the year ended
December 31, 2018:
Basic Earnings per share
$ 3.28 $ 4.12 $ 3.33 $ 2.68
Diluted Earnings per share
$ 3.24 $ 4.11 $ 3.29 $ 2.65
Cash Dividends
$ 1.44 $ 1.31 $ 1.44 $ 1.16
(1)
The pro forma combined basic earnings and diluted earnings of Community Bank System common stock are based on the pro forma combined net income for Community Bank System and Steuben divided by total pro forma common shares or diluted common shares of the combined entities. The pro forma information is subject to adjustment as additional information becomes available and as additional analyses are performed. The pro forma information does not include transactional costs or anticipated cost savings or adjustments related to the fair value of assets and liabilities.
(2)
The pro forma combined book value of Community Bank System common stock is based on the pro forma combined common stockholders’ equity of Community Bank System and Steuben divided by total pro forma common shares of the combined entities. The pro forma information does not include transactional costs or anticipated cost savings or adjustments related to the fair value of assets and liabilities.
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(3)
Cash dividend amounts are the same as historical because no change in dividend policy is expected as a result of the Merger.
(4)
The Steuben equivalent is calculated by multiplying the amounts in the Combined Company column times the 0.8054 exchange ratio, which represents the number of shares of Community Bank System common stock Steuben’s shareholders will receive for each share of Steuben common stock owned.
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RISK FACTORS
In addition to the other information contained in or incorporated by reference into this Proxy Statement/​Prospectus, including the matters addressed under the section titled “Cautionary Statement Regarding Forward-Looking Statements,” you should consider carefully the risk factors described below in deciding how to vote. You should also read and consider the risk factors associated with the businesses of Community Bank System and Steuben because these risk factors may affect the operations and financial results of the combined company. Community Bank System’s risk factors may be found in Community Bank System’s Annual Report on Form 10-K for the year ended December 31, 2018 and subsequent quarterly reports on Form 10-Q. See “Where You Can Find More Information.”
Risks Related to the Merger
The value of the stock consideration will vary with changes in Community Bank System’s stock price.
Upon completion of the Merger, each share of Steuben common stock will be converted into the right to receive the merger consideration as set forth in the Merger Agreement. The exchange ratio for the stock portion of the merger consideration is fixed. Any change in the market price of Community Bank System common stock will affect the implied value of the merger consideration that Steuben shareholders will receive upon completion of the Merger. Accordingly, at the time of the special meeting, you will not know or be able to determine the value of the merger consideration. Stock price changes may result from a variety of factors, including general market and economic conditions, changes in Community Bank System’s and Steuben’s respective businesses, operations and prospects, and regulatory considerations. Many of these factors are beyond the control of Community Bank System and Steuben.
Community Bank System and Steuben will be subject to business uncertainties and contractual restrictions while the Merger is pending.
Uncertainty about the effect of the Merger on employees and customers may have an adverse effect on Steuben and Community Bank System. These uncertainties may impair Community Bank System’s or Steuben’s ability to attract, retain and motivate key personnel until the Merger is consummated, and could cause customers and others that deal with Steuben or Community Bank System to seek to change existing business relationships with Steuben or Community Bank System. Retention of certain employees by Steuben may be challenging while the Merger is pending, as certain employees may experience uncertainty about their future roles with Community Bank System. If key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with Community Bank System, Community Bank System’s business following the Merger could be harmed. In addition, the Merger Agreement restricts Steuben from operating its business other than in the ordinary course, and prohibits it from taking specified actions until the Merger occurs without the consent of Community Bank System. These restrictions may prevent Steuben from pursuing business opportunities that may arise prior to the completion of the Merger. Please see the section entitled “The Merger Agreement — Conduct of Business Prior to Completion of the Merger; Covenants” beginning on page 56 of this Proxy Statement/Prospectus for a description of the restrictive covenants applicable to Steuben.
There is no assurance when or even if the Merger will be completed.
Completion of the Merger is subject to satisfaction or waiver of a number of conditions. See the section entitled “The Merger Agreement” beginning on page 54 of this Proxy Statement/Prospectus. There can be no assurance that Community Bank System and Steuben will be able to satisfy the closing conditions or that closing conditions beyond their control will be satisfied or waived.
Community Bank System and Steuben can agree at any time to terminate the Merger Agreement, even if Steuben shareholders have already voted to adopt the Merger Agreement. Community Bank System and Steuben can also terminate the Merger Agreement under other specified circumstances.
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The fairness opinion delivered to Steuben’s board of directors prior to the signing of the Merger Agreement does not reflect changes in circumstances subsequent to the date of the fairness opinion.
PNC, financial advisor to Steuben in connection with the Merger, delivered its opinion to the board of directors of Steuben on October 17, 2019. The opinion of PNC speaks only as of such date. Changes in the operations and prospects of Steuben or Community Bank System, general market and economic conditions and other factors beyond the control of Steuben or Community Bank System may significantly alter the value of Steuben or the price of shares of Community Bank System common stock or Steuben common stock by the time the Merger is completed. PNC’s opinion does not speak as of the time the Merger will be completed or as of any date other than the date of such opinion. For a description of PNC’s opinion, please see the section entitled “The Merger — Opinion of Steuben’s Financial Advisor,” beginning on page 32 of this Proxy Statement/Prospectus. For a description of the other factors considered by the Steuben board of directors in determining to approve the Merger and the other transactions contemplated in the Merger Agreement, please see the sections entitled “The Merger — Background of the Merger,” and “The Merger — Steuben’s Reasons for the Merger; Recommendation of Steuben’s Board of Directors,” beginning on pages 23 and 28, respectively, of this Proxy Statement/Prospectus.
Community Bank System may fail to implement the Merger successfully, achieve savings and realize the other anticipated benefits from the Merger, which would adversely affect Community Bank System’s financial condition and results of operations.
The Merger involves the integration of two companies that have previously operated independently. The difficulties of combining the operations of the two companies include: integrating personnel with diverse business backgrounds; integrating core processing systems and converting customers to new systems; and retaining key employees. As a result, Community Bank System may not be able to operate the combined company as effectively as it expects. Community Bank System may also fail to achieve the anticipated potential benefits of the Merger as quickly or as cost effectively as it anticipates or may not be able to achieve those benefits at all. The management of Community Bank System will have to dedicate substantial effort to integrating the two companies and, therefore, its focus and resources may be diverted from other strategic opportunities and from operational matters.
In addition, certain employees of Steuben may not be employed after the Merger. Employees of Steuben that Community Bank System wishes to retain may elect to terminate their employment as a result of the Merger which could delay or disrupt the integration process. It is possible that the integration process could result in the disruption of the ongoing business of Community Bank System and its subsidiaries following the Merger or cause inconsistencies in standards, controls, procedures and policies that adversely affect the ability of Community Bank System and its subsidiaries to maintain relationships with Steuben’s customers and employees or to achieve the anticipated benefits of the Merger.
Regulatory approvals may not be received, may take longer than expected or impose conditions that are not presently anticipated.
Before the Merger may be completed, Community Bank System must obtain various approvals or consents (or waivers of such approvals or consents), including from the OCC and the Federal Reserve Board. These governmental entities may impose conditions on the completion of the Merger or require changes to the terms of the Merger Agreement or the manner in which Steuben or Community Bank System conducts their respective businesses. Although Community Bank System and Steuben do not currently expect that any such conditions or changes would be imposed, there can be no assurance that they will not be. Such conditions or changes could have the effect of delaying completion of the Merger or imposing additional costs on or limiting the revenues of Community Bank System, any of which might have a material adverse effect on Community Bank System following the Merger.
There can be no assurance as to whether the regulatory approvals will be received, the timing of those approvals, or whether any conditions will be imposed.
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Certain of Steuben’s officers and directors have interests that are different from, or in addition to, interests of Steuben shareholders generally.
Steuben shareholders should be aware that some of Steuben’s directors and executive officers have interests in the Merger and have arrangements that are different from, or in addition to, those of Steuben shareholders in general. These interests include:

The cancellation of all outstanding stock options in exchange for a cash payment, regardless of whether such stock options are vested or unvested as of the closing date.

Payment of retention incentives to certain officers.

Payment of severance benefits if an executive officer experiences a qualifying termination event.

A new employment agreement between Brenda Copeland, Steuben’s Chairman and Chief Executive Officer, and Community Bank System that will become effective upon the closing of the Merger, that, among other things, will entitle Ms. Copeland to receive a cash bonus from Community Bank System upon the closing of the Merger and severance benefits if Ms. Copeland experiences a qualifying termination event.

Accelerated payment of previously vested, nonqualified deferred compensation balances to certain directors and executive officers if their service ends within 12 months following the Merger.

Continued indemnification and liability insurance coverage for directors and executive officers with respect to acts or omissions occurring before the Merger.
For a more complete description of these interests, see “The Merger — Interests of Steuben’s Directors and Executive Officers in the Merger” beginning on page 43 of this Proxy Statement/Prospectus.
The shares of Community Bank System common stock that will be received by Steuben shareholders as a result of the Merger will have different rights from the shares of Steuben common stock they currently hold.
Following completion of the Merger, Steuben shareholders will no longer be shareholders of Steuben but will instead be shareholders of Community Bank System. There will be important differences between the current rights of Steuben shareholders and the rights of Community Bank System shareholders that may be important to Steuben shareholders. See the section of this Proxy Statement/Prospectus entitled “Comparison of Rights of Holders of Steuben Common Stock and Community Bank System Common Stock” commencing on page 76 for a detailed description of the shareholder rights of each corporation.
The price of Community Bank System common stock may be affected by factors different from those affecting the shares of Steuben common stock currently, and could decrease after the Merger.
Upon completion of the Merger, holders of Steuben common stock will become shareholders of Community Bank System. Community Bank System common stock could decline in value after the Merger. The market value of Community Bank System common stock fluctuates based upon various factors, including changes in the business, operations or prospects of Community Bank System, market assessments of the Merger, regulatory considerations, market and economic considerations, and other factors. Further, the market price of Community Bank System common stock after the Merger may be affected by factors different from those currently affecting the common stock of Community Bank System or Steuben. The businesses of Community Bank System and Steuben differ and, accordingly, the results of operations of the combined company and the market price of Community Bank System’s shares of common stock after the Merger may be affected by factors different from those currently affecting the independent results of operations and market price of each of Community Bank System or Steuben. For a discussion of the businesses of Community Bank System and Steuben and of certain factors to consider in connection with their businesses, see the documents incorporated by reference into this Proxy Statement/Prospectus and referred to under “Where You Can Find More Information” beginning on page 84.
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Steuben shareholders will have limited ability to exercise influence over management of the combined organization.
Steuben shareholders currently have the right to vote in the election of the board of directors of Steuben and on other matters affecting Steuben. Upon the completion of the Merger, each Steuben shareholder will become a shareholder of Community Bank System with a percentage ownership of the combined organization that is much smaller than the shareholder’s percentage ownership of Steuben. It is expected that the former common shareholders of Steuben as a group will receive shares in the Merger constituting less than [•]% of the outstanding shares of Community Bank System common stock immediately after the Merger. Steuben shareholders will not have separate approval rights with respect to any actions or decisions of Community Bank System or have separate representation on Community Bank System’s board of directors. Because of this, Steuben shareholders will have significantly less influence on the management and policies of Community Bank System than they now have on the management and policies of Steuben.
If the Merger is not completed, Steuben will have incurred substantial expenses without its shareholders recognizing the expected benefits.
Steuben has incurred substantial expenses in connection with the Merger. If the Merger is not completed, Steuben expects that it will have incurred approximately $[•] million in Merger-related expenses. These expenses would likely have a material adverse impact on the operating results of Steuben because it would not have realized the expected benefits of the Merger. Furthermore, if the Merger Agreement is terminated under certain circumstances, Steuben may be required to pay a termination fee of  $4,270,000 to Community Bank System. The payment of the termination fee could have a material adverse effect on Steuben’s financial condition. See “The Merger Agreement — Termination” and “The Merger Agreement —Termination Fee” beginning on pages 66 and 67, respectively, of this Proxy Statement/Prospectus.
The Merger Agreement limits Steuben’s ability to pursue alternatives to the Merger.
The Merger Agreement limits Steuben’s ability to initiate, solicit, encourage or knowingly facilitate any inquiries or competing third-party proposals, or knowingly engage in any negotiations, or provide any confidential information, or have any discussions with any person relating to a proposal to acquire all or a significant part of Steuben. Further, if Steuben receives a competing proposal that its board of directors deems to be superior to the Merger, it will still be required to submit the Merger Agreement to a vote of Steuben shareholders and will not be permitted to terminate the Merger Agreement in order to accept such proposal. In addition, Steuben has agreed to pay Community Bank System a termination fee in the amount of  $4,270,000 in the event that the Merger Agreement is terminated for certain reasons. These provisions may discourage a potential competing acquirer that would have an interest in acquiring all or a significant part of Steuben from considering or proposing that acquisition, even if it were prepared to pay consideration with a higher per share market price than that proposed in the Merger, or may result in a potential competing acquirer proposing to pay a lower per share price to acquire Steuben than it might otherwise have proposed to pay.
Goodwill incurred in the Merger may negatively affect Community Bank System’s financial condition.
To the extent that the merger consideration, consisting of cash plus the number of shares of Community Bank System common stock issued or to be issued in the Merger, exceeds the fair value of the net assets, including identifiable intangibles of Steuben, that amount will be reported as goodwill by Community Bank System. In accordance with current accounting guidance, goodwill will not be amortized but will be evaluated for impairment annually. A failure to realize expected benefits of the Merger could adversely impact the carrying value of the goodwill recognized in the Merger, and in turn negatively affect Community Bank System’s financial condition.
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If the Merger fails to qualify as a “reorganization” within the meaning of Section 368(a) of the Code, Steuben shareholders will be required to recognize gain or loss on the exchange of their shares of Steuben common stock in the Merger for U.S. federal income tax purposes.
The Merger is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Code, and it is a condition to the respective obligations of Steuben and Community Bank System to complete the Merger that each of Steuben and Community Bank System receives a legal opinion to that effect. None of these opinions will be binding on the Internal Revenue Service. Steuben and Community Bank System have not sought and will not seek any ruling from the Internal Revenue Service regarding any matters relating to the Merger, and as a result, there can be no assurance that the Internal Revenue Service will not assert, or that a court would not sustain, a position contrary to any of the conclusions set forth herein. If the Merger fails to qualify as a “reorganization” within the meaning of Section 368(a) of the Code, Steuben shareholders will be required to recognize gain or loss on the exchange of their shares of Steuben common stock in the Merger for U.S. federal income tax purposes. Furthermore, if the Merger fails to qualify as a reorganization, Community Bank System, as successor to Steuben, may incur a significant tax liability since the Merger would be treated as a taxable sale of Steuben’s assets for U.S. federal income tax purposes. For further information, see “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 47 of this Proxy Statement/Prospectus.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Proxy Statement/Prospectus that are not historical facts may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (referred to as the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (referred to as the Securities Exchange Act), and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. You can identify these statements from the use of the words “may,” “will,” “should,” “could,” “would,” “plan,” “potential,” “estimate,” “project,” “believe,” “intend,” “anticipate,” “expect,” “target” and similar expressions.
These forward-looking statements are subject to significant risks, assumptions and uncertainties, including among other things, changes in general economic and business conditions and the risks and other factors set forth in the “Risk Factors” section beginning on page 12 of this Proxy Statement/Prospectus.
Additional factors that could cause the results of Community Bank System or Steuben to differ materially from those described in the forward-looking statements can be found in the filings made by Community Bank System with the Securities and Exchange Commission, including the Community Bank System Annual Report on Form 10-K for the fiscal year ended December 31, 2018 and subsequent quarterly reports on Form 10-Q.
Because of these and other uncertainties, Community Bank System’s and Steuben’s actual results, performance or achievements, or industry results, may be materially different from the results indicated by these forward-looking statements. In addition, Community Bank System’s and Steuben’s past results of operations do not necessarily indicate Community Bank System’s and Steuben’s combined future results. You should not place undue reliance on any of the forward-looking statements, which speak only as of the dates on which they were made. Neither Community Bank System nor Steuben is undertaking an obligation to update these forward-looking statements, even though its situation may change in the future, except as required under the federal securities laws. All forward-looking statements contained in this document are qualified by these cautionary statements.
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THE COMPANIES
Community Bank System
Community Bank System is a Delaware corporation registered as a financial holding company under the Bank Holding Company Act of 1956, as amended. Community Bank System was incorporated in April 1983. At September 30, 2019, Community Bank System had on a consolidated basis approximately $11.6 billion in total assets, $9.2 billion in total deposits, $6.7 billion in total loans and shareholders’ equity of  $1.8 billion. Its common stock is publicly traded on the NYSE under the symbol “CBU”. Community Bank System, with its principal executive offices in DeWitt, New York, is the parent company of Community Bank, and is among the country’s 150 largest financial institutions.
Community Bank is a commercial banking franchise with more than 230 customer facilities and 254 ATMs stretching diagonally from Northern New York to the Southern Tier and west to Lake Erie, in Northern Pennsylvania, across Vermont and in Western Massachusetts. Community Bank is a national bank and a member of the Federal Reserve System and the Federal Home Loan Bank System, and its deposits are insured by the FDIC, up to applicable limits.
Community Bank System’s business strategy is to operate as a profitable, diversified financial services company providing a variety of banking and other financial services, with an emphasis on consumer and residential mortgage lending and commercial business loans to small and medium-sized businesses. As a result of consolidation of small to medium-sized financial institutions and the de-emphasis on retail branch banking by larger bank holding companies in the markets Community Bank serves, it believes there is a significant opportunity for a community-focused bank to provide a full range of financial services to small and middle-market commercial and retail customers. Community Bank’s branches are located in small towns and villages where competition is less intense. It emphasizes comprehensive retail and small business products and responsive, decentralized decision-making which reflect Community Bank’s knowledge of its local markets and customers.
Through its subsidiaries, Community Bank System offers a wide range of commercial and retail banking and financial services to businesses, individuals, agricultural and government customers. Community Bank’s account services include checking, interest-bearing checking, money market, savings, certificates of deposit and individual retirement accounts. It also offers residential and farm loans, business lines of credit, working capital facilities, inventory and dealer floor plans, as well as installment, commercial, term and student loans. Community Bank’s lending focuses predominantly on consumer and small to medium-sized business borrowers, which enables its loan portfolio to be highly diversified. Because Community Bank believes that there is a significant potential market for financial services and products, it offers a full range of services to satisfy its customers’ financial needs. In addition to traditional banking services and products, it offers personal trust, employee benefit trust, benefits administration and consulting, investment and insurance services to customers in our banking markets as well as in other parts of the country. Community Bank’s subsidiary, OneGroup NY, Inc., is a regional insurance broker with headquarters in Syracuse, New York. Community Bank System’s wholly-owned subsidiary, BPAS, is a leading provider of employee benefits administration and trust services, and actuarial and consulting services to customers on a national scale.
For additional information concerning the business of Community Bank System and its financial condition, results of operations and prospects, you should refer to the documents incorporated in this document by reference. See “Where You Can Find More Information” on page 84 of this Proxy Statement/​Prospectus.
Steuben Trust Corporation
Steuben is a financial holding company registered under the Bank Holding Company Act of 1956, as amended, and is subject to supervision, regulation and examination by the Federal Reserve Board. Steuben is incorporated under the laws of the State of New York and headquartered in Hornell, New York. At September 30, 2019, Steuben had total consolidated assets of approximately $576 million (including loans of approximately $340 million), deposits of approximately $483 million and shareholders’ equity of approximately $65.5 million.
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Steuben conducts substantially all of its business through its subsidiary, Steuben Trust Company. Steuben Trust Company is a New York-chartered bank organized in 1902 with 14 full-service banking offices located in Western New York. The primary business of Steuben Trust Company is to attract deposits from and extend loans to consumer, institutional, municipal, non-profit, agricultural and commercial customers.
Steuben Trust Company’s deposits are insured by the FDIC to the maximum extent provided by law, and it is subject to supervision and regulation by the FDIC and the New York State Department of Financial Services. Steuben Trust Company maintains an Internet website at www.steubentrust.com. Information on Steuben Bank’s website should not be considered a part of this Proxy Statement/​Prospectus.
Steuben’s principal executive offices are located at One Steuben Square, Hornell, New York 14843, and its telephone number is (866) 783-8236.
For additional information concerning the business of Steuben and its financial condition, results of operations and prospects, see “Where You Can Find More Information” on page 84 of this Proxy Statement/​Prospectus.
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SPECIAL MEETING OF STEUBEN SHAREHOLDERS
Time, Date and Place of the Special Meeting
Steuben will hold a special meeting of its shareholders on [•] at [•], Eastern time, at [•].
Actions to be Taken at the Special Meeting
At the special meeting, Steuben shareholders will be asked to consider and vote on the following matters:
1.
a proposal to adopt the Merger Agreement, which provides for the merger of Steuben with and into Community Bank System with Community Bank System as the surviving company;
2.
a proposal to approve one or more adjournments of the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the Merger Agreement; and
3.
any other business which may properly come before the special meeting or any adjournment thereof.
Record Date; Outstanding Shares; Shares Entitled to Vote
Holders of record of Steuben common stock at the close of business on [•], are entitled to vote at the special meeting. This date is called the “record date.” As of the record date, there were [•] issued and outstanding shares of Steuben common stock. Steuben shareholders have one vote per share on any matter that may properly come before the special meeting.
Recommendation of the Steuben Board of Directors
The Steuben board of directors has unanimously approved the Merger Agreement and the transactions contemplated by the Merger Agreement. The board of directors of Steuben believes the Merger Agreement is advisable and in the best interests of Steuben and its shareholders and recommends that you vote your shares as follows:

“FOR” the adoption of the Merger Agreement; and

“FOR” the adjournment of the special meeting.
Broker Non-Votes
Brokers who hold shares of Steuben common stock as nominees will not have discretionary authority to vote these shares without instructions from the beneficial owners. Any shares of Steuben common stock for which a broker has submitted an executed proxy but for which the beneficial owner has not given instructions on voting to the broker are referred to as “broker non-votes.” Broker non-votes will have the same effect as voting “AGAINST” the Merger Agreement, but it will have no impact on the proposal to approve an adjournment of the special meeting.
Quorum; Vote Required
The presence in person or by proxy of the holders of a majority of the shares of Steuben common stock outstanding on the record date will constitute a quorum for the transaction of business at the special meeting. Abstentions will be included in determining the presence of a quorum at the special meeting. Broker non-votes would generally be included in determining the presence of a quorum; however, since the special meeting will consider and vote upon only non-discretionary matters, broker non-votes will not be included in determining the presence of a quorum.
Proposal I: Adoption of the Merger Agreement.   Adoption of the Merger Agreement requires the affirmative vote of two-thirds of the outstanding shares of Steuben common stock entitled to vote on the Merger Agreement. Failure to return a properly executed proxy card or to vote in person will have the same effect as a vote “AGAINST” the Merger Agreement. Abstentions and broker non-votes will have the same effect as voting “AGAINST” the Merger Agreement.
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Proposal II: Approval of the adjournment proposal.   The affirmative vote of a majority of the votes cast on the proposal is required to approve the proposal to adjourn or postpone the special meeting if necessary to solicit additional proxies if there are not sufficient votes to approve the Merger Agreement. Abstentions and broker non-votes will not affect whether the proposal is approved.
Share Ownership of Management; Voting Agreements
On the record date, the directors, certain officers and certain principal shareholders of Steuben had voting power with respect to an aggregate of  [•] shares of Steuben common stock, or approximately [•]% of the shares of Steuben common stock then outstanding. Each such person has agreed to vote in favor of the adoption of the Merger Agreement all of the shares of Steuben common stock that they are entitled to vote.
Voting and Revocation of Proxies
Steuben has enclosed a form of proxy with this document. To ensure your representation at the special meeting, Steuben recommends that you vote by proxy even if you plan to attend the special meeting. You can always change your vote at the special meeting. Voting instructions are included on your proxy form. If you properly complete and timely submit your proxy, your shares will be voted as you have directed. You may vote for, against, or abstain with respect to the adoption of the Merger Agreement and the approval of the adjournment proposal. Proxies that are properly signed and dated but which do not specify voting instructions will be voted “FOR” the adoption of the Merger Agreement and “FOR” the proposal to adjourn or postpone the special meeting, and in the discretion of the proxy holders as to any other matter which may properly come before the special meeting.
If you deliver a properly executed and dated proxy, you may revoke the proxy at any time before it is exercised at the special meeting. You may revoke your proxy either by:

filing with the Secretary of Steuben prior to the special meeting, at Steuben’s principal executive offices, a written revocation of the proxy;

submitting a new proxy with a later date; or

attending the special meeting, notifying the Secretary and voting in person.
Being present at the special meeting, by itself, will not revoke the proxy. You must notify the Secretary and vote in person if you wish to revoke the proxy at the special meeting. All written notices of revocation and other communication with respect to the revocation of proxies should be addressed to:
Steuben Trust Corporation
Corporate Secretary
One Steuben Square
Hornell, New York 14843
If your shares are held in street name, you must follow the instructions from your broker regarding voting and revocation of proxies.
Solicitation of Proxies
Steuben will pay for the cost of this proxy solicitation. In addition to solicitation by mail, directors, officers and employees of Steuben may solicit proxies from shareholders by telephone, in person or through other means. These persons will not receive additional compensation, but they will be reimbursed for the reasonable out-of-pocket expenses they incur in connection with this solicitation, if any. Although it has not determined to do so as of the date of this document, Steuben may also engage a proxy solicitation firm to aid in the solicitation of proxies. Steuben expects to pay customary fees and reimburse certain out-of-pocket expenses of any proxy solicitation firm engaged by it. Steuben also expects to make arrangements with brokerage firms, fiduciaries and other custodians who hold shares of record as nominees to forward this document and other solicitation materials to the beneficial owner of these shares. Steuben will reimburse these brokerage firms, fiduciaries and other custodians for their reasonable out-of-pocket expenses in connection with this solicitation.
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Other Matters
Steuben is unaware of any matter to be presented at the special meeting other than the proposal to adopt the Merger Agreement and the proposal to approve one or more adjournments of the special meeting, if necessary or appropriate, including adjournments to permit further solicitations of proxies in favor of the Merger. If other matters are properly presented at the special meeting, the persons named in the proxy will have authority to vote all properly executed and dated proxies in accordance with their judgment on any such matter.
YOUR VOTE IS IMPORTANT!
Whether or not you plan to attend the special meeting in person, Steuben urges you to submit your proxy as soon as possible by (1) calling the toll free telephone number specified on the enclosed proxy card, (2) accessing the Internet website specified on the enclosed proxy card, or (3) completing, signing and dating the enclosed proxy card and returning it in the postage paid envelope provided. If your shares are held in the name of a bank, broker or other fiduciary, please follow the instructions on the voting card provided by such entity.
If you have any questions concerning the Merger or other matters to be considered at the Steuben special meeting, would like additional copies of this Proxy Statement/Prospectus or need help voting your shares, please contact Steuben’s Corporate Secretary, Mary E. Hilfiger, at (866) 783-8236.
PLEASE DO NOT SEND STOCK CERTIFICATES WITH THE PROXY CARD. YOU WILL BE SENT SEPARATE INSTRUCTIONS REGARDING THE SURRENDER OF YOUR STOCK CERTIFICATES.
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PROPOSAL I — THE MERGER
The detailed terms of the Merger are contained in the Merger Agreement attached as Annex A to this document. The following discussion and the discussion under the caption “The Merger Agreement” describe the more important aspects of the Merger and material terms of the Merger Agreement. These descriptions are only a summary and are qualified in their entirety by reference to the Merger Agreement, which is attached as Annex A. You are urged to read the Merger Agreement carefully because it is the legal document that actually governs your rights in the Merger.
General
The Merger Agreement provides that, after approval by the shareholders of Steuben and the satisfaction or waiver of the other conditions to the Merger, Steuben will merge with and into Community Bank System, with Community Bank System as the surviving company. The certificate of incorporation and bylaws of Community Bank System will be the certificate of incorporation and bylaws of the surviving company. The directors and officers of Community Bank System immediately prior to the Merger will be the directors and officers of the surviving company.
At the effective time of the Merger, each share of Steuben common stock issued and outstanding immediately prior to the effective time of the Merger will be automatically converted into the right to receive, subject to the terms and conditions of the Merger Agreement, the combination of  $12.60 in cash and 0.8054 shares of Community Bank System common stock, plus cash in lieu of fractional shares.
Contemporaneously with the Merger of Community Bank System and Steuben, Steuben Trust Company will merge with and into Community Bank, with Community Bank as the surviving entity. After the Bank Merger, branches of Steuben Trust Company will become branches of Community Bank.
The companies expect to complete the Merger in the second quarter of calendar year 2020, but they must first obtain the necessary regulatory approvals and the approval of Steuben shareholders at the special meeting, and satisfy the other closing conditions described in this Proxy Statement/Prospectus. The companies cannot assure you as to when or if all the conditions to the Merger will be met or waived, and it is possible they will not complete the Merger at all.
Background of the Merger
The board of directors and senior management of Steuben regularly review and evaluate Steuben’s business plan and strategic alternatives for enhancing long term shareholder value, including organic growth and de novo branching, acquisitions of branches or other institutions or business lines, and strategic partnerships or affiliations with other institutions. From time to time, informal discussions would be held with representatives of potential targets, “merger of equal” candidates, and acquirors; however, except as described below, none of the discussions held within the last several years resulted in the extension of a formal indication of interest.
In evaluating its business plan and strategic alternatives, Steuben’s board and senior management also review Steuben’s financial performance and return to shareholders, as well as trends in the financial marketplace, including merger and acquisition and capital markets activity.
As a result of strategic planning sessions held over the last several years, the Steuben board of directors identified several immediate challenges to continuing Steuben’s strong financial performance and remaining an independent community bank for the long-term. First, Steuben would have to increase its investment in technology, not only to keep pace with continued customer migration toward technology-driven banking products, but also to compete against a growing number of technology companies competing in the traditional banking space, as well as in the area of cyber security, as community banks have become a focus of cyber criminals. Second, Steuben’s core processing agreement was scheduled to expire on December 31, 2019, and, should Steuben renew the agreement and later determine to sell, the termination costs could be expected to negatively impact pricing. Third, the Steuben board believed it likely that prolonged interest-rate compression would continue to put pressure on Steuben’s earnings, which rely primarily on net interest income. Fourth, because Steuben’s relatively small shareholder base continues to age, a redistribution of shares among new shareholders with no ties to the local community appeared likely, which
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could be expected to result in large blocks of shares becoming available for sale in an illiquid market, creating potentially severe downward pressure on Steuben’s stock price. And, finally, Brenda Copeland, Chairman and Chief Executive Officer, and Jim Nicoloff, then Chief Financial Officer and currently Executive Vice President and Treasurer, were approaching retirement age, creating future uncertainty at several critical positions within the organization, particularly in light of the high level of competition for executive talent in the banking industry and the challenge for smaller, rural organizations like Steuben to attract and retain such talent.
Addressing each of the foregoing challenges while remaining an independent community bank represented significant execution risk to Steuben, its continued profitability and its stock price. While certain of these challenges could be addressed through an investment of capital in people and technology, other challenges were outside of the control of the organization. Recognizing these challenges and risks, the board of directors, with assistance from Steuben’s financial advisor, Ambassador Financial Group, Inc., or Ambassador (now PNC FIG Advisory, Inc., or PNC), began to evaluate in earnest the potential for addressing each of these challenges through a strategic combination with an unaffiliated financial institution, including through an acquisition of a smaller institution, a merger of equals and a merger with a larger institution. From time to time, various potential deal candidates were considered, and potential structure and pricing metrics were discussed, in each case with representatives of Ambassador.
On April 24, 2017, Ms. Copeland met with the Chairman and Chief Executive Officer of another New York-headquartered community bank, referred to in this discussion as Institution A, at the other party’s request to discuss a potential “merger of equals” transaction. At that meeting, Institution A’s Chairman and CEO described how a combination of Steuben and Institution A could resolve a number of challenges facing both organizations, including those related to succession planning and creating economies of scale. Following the meeting, Institution A’s Chairman and CEO requested to meet David Shults, who was Chairman of the board of directors of Steuben at the time, as well as Steuben’s single largest shareholder and representative of Steuben’s largest shareholder group, in order to continue the discussion. Mr. Shults subsequently met with the Chairman and CEO, who informally proposed a merger of equals of the two organizations in which the combined bank holding company would operate two separate bank subsidiaries, and be overseen by a board comprised of five directors from Institution A and four directors from Steuben.
From May to August 2017, Mr. Shults, Ms. Copeland and John Eagleton, President and a director of Steuben, had periodic discussions with representatives of Institution A regarding a possible strategic combination, and regularly updated the Steuben board with respect to the timing and substance of such discussions.
At its regularly scheduled meeting on August 15, 2017, the Steuben board of directors unanimously approved authorizing senior management to engage in more formal discussions regarding a potential combination with Institution A, and on August 21, 2017, the parties executed a confidentiality agreement to such discussion.
On September 5, 2017, the Steuben board of directors met with the board of directors of Institution A to gain a familiarity with one another, and to discuss the general terms of a potential transaction. General deal structure and pricing methodologies were discussed, but no material terms were agreed upon.
At the Steuben board meeting on November 16, 2017, representatives of Ambassador provided the Steuben board with an overview of valuation methodologies and recent merger and acquisition activity in the community bank space, and discussed potential strategic partners for Steuben, including Institution A. The representatives of Ambassador also discussed potential financial considerations for Steuben should it determine to remain independent.
Throughout the fourth quarter of 2017 and into the first quarter of 2018, numerous meetings were held between representatives of Steuben and Institution A to determine the feasibility of a transaction between the parties.
On January 8, 2018, Institution A submitted a proposed term sheet to Steuben, which provided for the merger of Steuben with and into Institution A in an all-stock transaction reflecting a purchase price representing approximately 1.5x to 1.55x Steuben’s tangible book value per share as of December 31, 2017, or approximately $53.67 per share of Steuben common stock.
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On February 8, 2018, the Steuben board of directors unanimously approved continuing discussions with Institution A understanding that the final purchase price would not be less than 1.5x Steuben’s tangible book value.
Negotiations continued throughout February of 2018.
On March 18, 2018, the Chairman and CEO of Institution A contacted Ms. Copeland to advise her that, due to recent downward pressure on Institution A’s stock price, Institution A determined it necessary to terminate any further negotiations regarding a strategic combination. The parties agreed that negotiations could recommence if Institution A’s stock price adequately recovered.
Between April 2018 and August 2018, Mr. Shults and the Chairman and CEO of Institution A had periodic conversations in order to maintain lines of communication. In early September 2018, the Chairman and CEO of Institution A advised Mr. Shults that Institution A was prepared to recommence formal negotiations regarding a strategic combination with Steuben. Mr. Shults reported such conversation to the Steuben board at its regularly scheduled meeting on September 13, 2018.
On June 18, 2018, Mr. Eagleton contacted the Chief Executive Officer of another New York-headquartered community bank, referred to in this discussion as Institution B, to discuss
Institution B’s long-term plans and challenges to remaining independent.
On July 2, 2018, Ms. Copeland had lunch with the CEO of Institution B. Discussion focused on the potential attractiveness of a combination of the two institutions in a merger of equals transaction as a means to address the challenges facing each respective institution’s continued independence.
On July 9, 2018, Ms. Copeland and Mr. Eagleton had dinner with the CEO and Chairman of Institution B to further explore and discuss the general terms of a potential combination. The discussion focused primarily on cultural similarities and market opportunities for a combined organization. Pricing was not discussed.
On August 11, 2018, the CEO and Chairman of Institution B informed Ms. Copeland that it engaged a financial advisor to advise it in connection with a potential transaction with Steuben, which advised Institution B that a combination with Steuben would not provide adequate liquidity for Institution B’s shareholders.
On September 10, 2018, Mr. Shults had a lunch meeting with the CEO and Chairman of Institution B, at which the parties determined that additional discussions were unlikely to result in a transaction. No further discussions were held with Institution B.
On October 2, 2018, Institution A submitted a new proposal in order to recommence negotiations regarding a combination of the two entities. The material terms were the same as the January 2018 proposal, except that the consideration offered in the all-stock transaction now reflected a proposed purchase price of  $52.00 per share of Steuben common stock due to Institution A’s stock price having not yet fully recovered.
On November 15, 2018, the Steuben board met to discuss Institution A’s proposal. At this meeting, representatives of Ambassador reviewed with the Steuben board various deal pricing scenarios and assumptions for a combination with Institution A. The Steuben board unanimously approved negotiating a formal of letter of intent with Institution A and authorized senior management to engage legal counsel to advise Steuben in connection with the proposed transaction.
On November 20, 2018, Ms. Copeland contacted a representative of the law firm of Pillar Aught LLC, or Pillar+Aught, and expressed the Steuben board’s desire to engage legal counsel to advise the board in its consideration of a proposed business combination with Institution A. Following a discussion regarding the experience of members of Pillar+Aught in representing banks in sale transactions, Pillar+Aught was invited to submit a proposal to provide the services requested.
On November 26, 2018, Steuben formally engaged Pillar+Aught to serve as Steuben’s legal advisor in connection with the negotiations with Institution A and any resultant transaction.
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On November 28, 2018, Institution A submitted a formal letter of intent, which clarified various provisions of the original proposed term sheet at the request of Steuben’s representatives, but again provided for an all-stock transaction reflecting a purchase price of  $52.00 per share of Steuben common stock.
On December 13, 2018, representatives of management updated the Steuben board on the status of the proposed combination with Institution A. The Steuben board unanimously approved the letter of intent, and authorized management to engage in due diligence of Institution A and to proceed to negotiate a definitive merger agreement.
On December 18, 2018, Institution A and Steuben executed the letter of intent.
From late December 2018 through late February of 2019, Steuben and Institution A engaged in extensive due diligence of the other party, including the review of credit quality, management interviews, and negotiated the terms of a definitive agreement. Management provided regular updates to the Steuben board regarding the status of the negotiations.
In late February of 2019, representatives of Institution A advised Steuben that, due to its own contractual obligations, its transaction costs would be materially greater than originally anticipated and, as a result, Institution A would have to either revisit the consideration provided for in the letter of intent or terminate negotiations and abandon the transaction.
On March 14, 2019, representatives of senior management, Pillar+Aught and Ambassador updated the Steuben board regarding the issues that had been identified during due diligence and Institution A’s proposal to revisit the consideration offered to Steuben’s shareholders. Following extensive discussion by the Steuben board, the Steuben board unanimously determined to terminate further negotiations with Institution A.
In May 2019, another community bank, referred to in this discussion as Institution C, contacted Steuben indicating its interest in pursuing a strategic combination with Steuben.
On June 4, 2019, representatives of Institution C met with representatives of senior management of Steuben, at which meeting Institution C indicated that it was exploring a potential sale of the bank and wanted to gauge Steuben’s interest in participating in that process.
On June 13, 2019, Ms. Copeland reported to the Steuben board the opportunity to participate in the sale process of Institution C. The Steuben board unanimously approved authorizing management to continue informal discussions with Institution C.
In early July of 2019, representatives of PNC (formerly Ambassador) advised Ms. Copeland that, during a meeting with Community Bank System to generally discuss financial and strategic matters, Community Bank System had inquired as to whether Steuben might be interested in a merger of Steuben into Community Bank System, indicating that Community Bank System found Steuben to be an attractive partner due to its strong performance and relatively low risk profile.
At its meeting on July 11, 2019, Ms. Copeland reported to the Steuben board that Institution C was seeking offers from multiple parties and, due to the presence of multiple large shareholders within Institution C’s shareholder base who were known to desire immediate liquidity at a substantial premium, that it was unlikely that Steuben would be able to offer the cash necessary to be the successful bidder in that sale process. At this meeting, Ms. Copeland also reported that she had been advised by PNC that Community Bank System had expressed interest in discussing a potential transaction with Steuben.
On July 24, 2019, a lunch meeting was held at which Ms. Copeland, Mr. Shults, Mark Tryniski, President and Chief Executive Officer, and Scott Kingsley, Executive Vice President and Chief Operating Officer, of Community Bank System introduced themselves and discussed a potential combination of their institutions. During these initial discussions, Community Bank System gave an overview of its organization, culture and business philosophy, and indicated that it would expect to propose a merger of Steuben with and into Community Bank System, at a purchase price of  $63.00 per share of Steuben common stock, with a consideration mix of 75% stock and 25% cash. In connection with the holding company merger, Steuben Trust Company would be merged with and into Community Bank System’s wholly-owned bank subsidiary, Community Bank, N.A.
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On August 1 and 5, 2019, Ms. Copeland and Mr. Shults updated the Steuben board with respect to their meeting with Messrs. Tryniski and Kingsley. The Steuben board unanimously agreed that a consideration mix of 80% stock and 20% cash would be more attractive to shareholders of Steuben. In accordance with Steuben’s directives, representatives of PNC then communicated this desired consideration mix to Community Bank System.
On August 9, 2019, Community Bank System submitted a letter of intent to Steuben, which provided for the merger of Steuben with and into Community Bank System for a purchase price of  $63.00 per share, with a consideration mix of 80% stock and 20% cash. The cash portion would be fixed at $12.60 per share, with the exchange ratio for the stock portion to be fixed immediately prior to execution of the definitive agreement.
On August 16, 2019, Community Bank System and Steuben entered into a Mutual Confidentiality Agreement which provided for a 60-day exclusivity period during which Steuben agreed not to solicit or participate in discussions with respect to competing acquisition proposals.
At a board meeting on August 16, 2019, the Steuben board of directors reviewed the proposed terms of the transaction. Representatives of PNC were present, and answered questions posed by the Steuben board. PNC also discussed other potential strategic partners located in New York and Pennsylvania, and the potential financial ability of such institutions to propose financial terms that might be favorable relative to that proposed by Community Bank System. Following extensive discussion, the Steuben board unanimously approved the letter of intent and authorized management to commence due diligence and negotiate the definitive merger agreement.
During the period from August 14, 2019 through October 15, 2019, both Steuben and Community Bank System performed their respective due diligence reviews of the other party, which consisted of extensive document and credit review as well as management interviews. Also during this period, Steuben and Community Bank System, with the assistance of their respective legal counsel and financial advisors, negotiated the terms of the definitive merger agreement and ancillary agreements. Negotiations between the parties focused primarily on the following areas: the representations, warranties and covenants of the parties; commitments related to Steuben employee and director retention, benefits and severance; conditions to each party’s obligation to consummate the merger; and the circumstances under which the merger agreement could be terminated, including whether Steuben would have the ability to terminate the merger agreement if it received a superior proposal from a third party, and circumstances related to a material decline in Community Bank System’s stock price.
On October 10, 2019, representatives of Community Bank System presented Ms. Copeland with a proposed employment agreement providing for her continued employment with Community Bank System following the merger in order to assist in the transition of Steuben customers and employees to Community Bank System, and the integration process, generally. Ms. Copeland engaged separate counsel to advise her in connection with the negotiation of her employment agreement, which negotiation occurred over the following eight days.
On October 17, 2019, Steuben’s board of directors met to consider the proposed merger agreement and certain ancillary documents. Steuben’s executive management, as well as representatives of PNC, Steuben’s financial advisor, Pillar+Aught, Steuben’s legal advisor, and Mr. Shults, Steuben’s general outside counsel and retired Chairman, participated in the meeting. A detailed summary of the merger agreement negotiated to date, as well as certain ancillary documents, including a draft of PNC’s presentation materials to be reviewed at the meeting, had been made available to board members in advance of the meeting. At the meeting, PNC made a financial presentation to the Steuben board, and PNC delivered its opinion to the Steuben board to the effect that, as of such date and based upon and subject to various considerations set forth in the opinion, the merger consideration to be received by the holders of Steuben common stock pursuant to the merger agreement was fair to the holders of Steuben common stock, from a financial point of view.
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At the October 17 meeting, representatives of Pillar+Aught reviewed with the Steuben board of directors their fiduciary duties under New York law in connection with a proposed merger, and reviewed in detail the terms of the merger agreement and ancillary documents, including the shareholder support agreements required by Community Bank System to be executed by the directors, executive officers and Mr. Shults. Representatives of Pillar+Aught also discussed the proposed resolutions that the board would be requested to approve.
Following review and discussion among the members of Steuben’s board of directors, including consideration of the impact of the transaction on Steuben’s employees, customers and community and the other factors described under “— Steuben’s Reasons for the Merger,” Steuben’s board of directors determined that the merger agreement and the transactions contemplated by the merger agreement, including the merger of Steuben with Community Bank System, were advisable and in the best interests of Steuben and its shareholders, and the directors unanimously voted to adopt the merger agreement and the transactions contemplated thereby, and recommended that Steuben’s shareholders approve the merger agreement.
On October 18, 2019, the parties executed the definitive merger agreement and ancillary documents and announced the transaction on October 21, 2019.
Steuben’s Reasons for the Merger
In the course of its evaluation of the Merger and the Merger Agreement, the Steuben board of directors held numerous meetings and consulted with Steuben’s senior management as well as Steuben’s legal counsel and financial advisor. In reaching its decision to approve the Merger and the Merger Agreement and recommend the adoption of the Merger Agreement by its shareholders, the Steuben board considered a number of factors, including, among others, the following:

the Steuben board’s and management’s knowledge of Steuben’s business, operations, properties, assets, financial condition, operating results, historical market prices and prospects, and its and their understanding of Community Bank System’s business, operations, properties, assets, financial condition, operating results, historical market prices and prospects, including the information obtained through due diligence;

Steuben’s business and financial prospects if it were to remain an independent banking institution, including local economic conditions, the interest rate environment, increasing operating costs resulting from changes in technology, regulatory initiatives and compliance mandates, and the competitive environment for financial institutions generally, all of which would likely impede Steuben’s ability to develop the scale necessary to achieve the premium to Steuben’s trading price implied by the merger consideration;

the understanding of Steuben’s board of directors of the strategic options potentially available to Steuben and the board of directors’ assessment of those options taking into account a number of factors, including the obstacles confronting a relatively smaller community financial institution to grow organically in Steuben’s markets and attract qualified talent to replace retiring members of senior management, and the decreasing number of smaller acquisition candidates available on acceptable terms to achieve desired size and scale;

the fact that a significant portion of the merger consideration consists of registered shares of Community Bank System common stock, the potential that the value of Community Bank System common stock will increase after the signing of the Merger Agreement, and the strong historical total return to shareholders of Community Bank System common stock;

the understanding of Steuben’s board of directors regarding the attractiveness of the premium being offered by Community Bank System relative to the premium that could reasonably be expected from any other likely potential acquiror of Steuben;

the October 17, 2019 financial presentation of PNC to the Steuben board of directors and the written opinion of PNC, dated October 17, 2019, delivered to the Steuben board of directors regarding the fairness, from a financial point of view and as of the date of the opinion, to the holders of Steuben common stock of the merger consideration, as more fully described under “— Opinion of Steuben’s Financial Advisor”;
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the efforts made to negotiate a Merger Agreement favorable to Steuben and its shareholders and the terms and conditions of the Merger Agreement, including the termination fees and circumstances under which such fees are payable by Steuben;

the ability of Steuben under the terms of the Merger Agreement to negotiate with third parties concerning certain unsolicited competing acquisition proposals if Steuben were to receive such a proposal prior to the adoption of the Merger Agreement by Steuben shareholders, and of the Steuben board of directors to change its recommendation that Steuben’s shareholders adopt the Merger Agreement under certain circumstances, subject to payment to Community Bank System of a termination fee of  $4,270,000;

the right of Steuben to terminate the Merger Agreement if, subject to Community Bank System’s ability to make a compensating adjustment to the merger consideration, the volume-weighted average trading price of Community Bank System common stock for a specified period prior to the date on which Steuben shareholder approval and all required regulatory approvals have been obtained or waived is less than $50.06 per share and Community Bank System common stock underperforms an agreed-upon peer group index by more than 20%;

the 80% stock/20% cash consideration mix payable to Steuben shareholders in the transaction;

the fact that the Merger is expected to be tax-free to Steuben shareholders to the extent that they receive Community Bank System common stock in exchange for their shares of Steuben common stock;

the increased liquidity for Steuben shareholders who receive Community Bank System common stock in the transaction;

the cash dividend rate on Community Bank System common stock and the ability for Steuben shareholders to participate in cash dividends declared in the future;

the opportunity to expand relationships with Steuben’s existing customer base through the increased lending capacity and variety of product offerings afforded by the combined institution;

the anticipated impact on employees of Steuben, including the fact that a merger with Community Bank System will result in greater opportunities for advancement, as well as better benefits being offered, for continuing employees;

Community Bank System’s offer of continued employment to Ms. Copeland as an employee of Community Bank System post-merger, and its determination to also offer employment to Mr. Eagleton, in order to assist in the transition and integration process;

the pending expiration of Steuben’s core processing agreement, and the negative impact that the termination costs related to such an agreement following a long-term renewal would be expected to have on pricing a future strategic combination;

the effect of a redistribution of shares of Steuben common stock among new shareholders having little or no ties to the local community, which could be anticipated to result in large blocks becoming available for sale in an illiquid market, creating downward pressure on Steuben’s stock price;

the challenges associated with attracting and retaining new executive talent to replace Steuben’s Chairman and Chief Executive Officer, as well as its Executive Vice President and Treasurer, as such individuals near retirement;

Community Bank System’s previous acquisition experience, including its successful completion of three bank acquisitions since 2015 with combined total assets of over $3 billion, leading the Steuben board to believe integration risk associated with this merger is not significant; and

Steuben’s strategic discussions which took place with Institution A, Institution B and
Institution C and the discussions between Steuben’s management and Steuben’s financial advisor to identify other potential business combination partners during the period from 2017 through 2019.
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The Steuben board of directors also weighed the factors described above against certain factors and potential risks associated with entering into the Merger Agreement, including, among others, the following:

the fact that the exchange ratio is fixed, which means that Steuben shareholders could be adversely affected by a decrease in the trading price of Community Bank System common stock following the signing of the Merger Agreement;

the possibility of costs and delays resulting from seeking the regulatory approvals necessary to complete the transactions contemplated by the Merger Agreement, the possibility that the Merger may not be completed if such approvals are not obtained, and the potential negative impacts on Steuben, its business and the price of Steuben common stock if such approvals are not obtained;

the fact that the integration of Steuben and Community Bank System may be complex and time consuming and may require substantial resources and effort, and the risk that if the combined bank is not successfully integrated, the anticipated benefits of the Merger may not be realized fully or at all or may take longer to realize than expected;

the possibility that the anticipated strategic and other benefits to Steuben and the combined bank following the completion of the Merger will not be realized or will take longer to realize than expected;

the potential for diversion of management and employee attention and for increased employee attrition during the period prior to the completion of the Merger, and the potential effect of the Merger on Steuben’s customers and business relationships;

the restrictions on the conduct of Steuben’s business prior to the completion of the Merger, requiring Steuben to conduct its business only in the ordinary course, subject to specific limitations, which could delay or prevent Steuben from undertaking business opportunities that may arise pending completion of the Merger and could negatively impact Steuben’s customers and business relationships;

the fact that the Merger Agreement contains certain restrictions on the ability of Steuben to solicit proposals for alternative transactions or engage in discussions regarding such proposals, including the requirement for Steuben to pay Community Bank System a termination fee of  $4,270,000 in certain circumstances;

the transaction costs to be incurred by Steuben in connection with the Merger;

the fact that Steuben will lose the autonomy associated with being an independent financial institution; and

the various other applicable risks associated with Steuben, Community Bank System and the Merger, including the risks described in “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors” beginning on page 17 and 12, respectively.
In considering the recommendation of the Steuben board of directors with respect to the proposal to adopt the Merger Agreement, you should be aware that certain of Steuben’s directors and executive officers may have interests in the Merger that are different from yours. The Steuben board was aware of and considered these interests, among other matters, in evaluating the Merger Agreement and the transactions contemplated by the Merger Agreement and in recommending that the Merger Agreement be adopted by the Steuben shareholders. Please see “— Interests of Steuben Directors and Executive Officers in the Merger” beginning on page 43.
The foregoing discussion of the information and factors considered by the Steuben board of directors in reaching its conclusions and recommendations is not intended to be exhaustive, but includes the material factors considered by the Steuben board. In view of the wide variety of factors considered in connection with its evaluation of the Merger Agreement and the transactions contemplated by the Merger Agreement, and the complexity of these matters, the Steuben Board did not find it practicable to, and did not attempt to, quantify, rank or otherwise assign any relative or specific weights to the various specific factors considered in reaching its determination and making its recommendation. Moreover, in considering the
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factors described above and any other factors, individual members of the Steuben Board may have viewed factors differently or given different weight, merit or consideration to different factors. The Steuben board considered all of the foregoing factors as a whole and based its recommendation on the totality of the information presented.
Recommendation of the Steuben Board of Directors
At a meeting held on October 17, 2019, the Steuben board of directors unanimously (i) determined that the Merger Agreement and the Merger are advisable and in the best interests of Steuben and its shareholders, (ii) approved the Merger Agreement and recommended that the Steuben shareholders adopt the Merger Agreement, and (iii) directed that the Merger Agreement be submitted for consideration by the Steuben shareholders at the Steuben special meeting.
THE STEUBEN BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ADOPTION OF THE MERGER AGREEMENT.
Community Bank System’s Reasons for the Merger
In reaching its determination to approve and adopt the Merger Agreement, the board of directors of Community Bank System considered a number of factors, including:

the complementary geographical locations of Steuben’s branch network, which will expand and augment Community Bank System’s operations in the market areas in Western New York where Community Bank System already has a presence;

the opportunity to further diversify Community Bank System’s geographical markets and customer base as a whole, by increasing the size of its Western New York operations through the Merger, and to do so in existing and similar markets to those in which it currently operates;

Community Bank System’s past experience and success in the acquisition and integration of a bank holding company with operations in Upstate New York;

the fact that the Merger is expected to be accretive to operating earnings per share of Community Bank System in 2021 exclusive of one-time acquisition related charges;

the potential for the combined company to enhance non-interest income growth by providing enhanced and additional financial products and services to the customers of Steuben in the areas of benefit plan administration, investment management, comprehensive cash management, brokerage services and insurance;

the business, operations, technology, asset quality, competitive position, stock price performance, financial condition and results of operations of Steuben on a historical and prospective basis;

the anticipated operating efficiencies, cost savings and opportunities for revenue enhancements of the combined company following the completion of the Merger, and the likelihood that they would be achieved after the Merger;

the exchange ratio for the Merger and the resulting relative interests of Community Bank System shareholders in the common stock of the combined company, and the amount of total cash consideration to be paid in the Merger;

the deal protection provided by the termination fee of  $4,270,000, payable under certain circumstances in the event of the termination of the Merger Agreement due to a competing offer or certain other reasons;

the intended tax treatment of the Merger; and

the likelihood of receiving all of the regulatory approvals required for the Merger.
Based on these reasons, Community Bank System’s board of directors unanimously approved the Merger Agreement and the Merger. This discussion of the factors considered by Community Bank System’s board of directors does not list every factor considered by the board but includes all material factors considered by the board. In reaching its determination to approve and adopt the Merger Agreement, the
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board did not give relative or specific importance to each of the factors listed above, and individual directors may have given differing importance to different factors. Please note that this explanation of the board’s reasoning and all other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed under the heading “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 17 of this Proxy Statement/Prospectus.
Opinion of Steuben’s Financial Advisor
Steuben retained PNC to act as Steuben’s financial advisor in connection with the possible business combination of Steuben with another party. PNC is a nationally recognized investment banking firm whose principal business specialty is financial institutions. In the ordinary course of its investment banking business, PNC is regularly engaged in the valuation of financial institutions and their securities in connection with mergers and acquisitions and other corporate transactions.
On October 17, 2019, PNC delivered its opinion to Steuben’s board of directors to the effect that, as of such date and based upon and subject to various considerations set forth in the opinion, the merger consideration to be received by the holders of Steuben common stock pursuant to the Merger Agreement was fair to the holders of Steuben common stock from a financial point of view.
The full text of PNC’s written opinion to Steuben, which sets forth, among other things, the assumptions made, procedures followed, factors considered and limitations on the review undertaken, is attached as Annex B to this Proxy Statement/Prospectus and is incorporated by reference in its entirety into this Proxy Statement/Prospectus. Holders of Steuben common stock are encouraged to read the opinion carefully in its entirety. The following summary of PNC’s opinion is qualified in its entirety by reference to the full text of such opinion.
PNC’s opinion was rendered to Steuben’s board of directors for the benefit of Steuben’s board (in its capacity as such) in connection with its evaluation of the Merger. PNC’s opinion is not intended to and does not constitute a recommendation to any shareholder as to how such shareholder should vote or act with respect to the Merger or any matter relating thereto. PNC’s opinion does not address the relative merits of the Merger as compared to any other transaction or business strategy in which Steuben might engage or the merits of the underlying decision by Steuben to engage in the Merger.
No limitations were imposed by Steuben on the scope of PNC’s investigation or on the procedures followed by PNC in rendering its opinion.
In rendering the opinion, PNC:

Reviewed a draft dated October 17, 2019 of the Merger Agreement;

Reviewed Steuben’s audited financial statements as of or for the fiscal years ended December 31, 2018, December 31, 2017 and December 31, 2016 and Steuben’s interim financial statements as of or for the quarters ended June 30, 2019 and March 31, 2019;

Reviewed Community Bank System’s Form 10-K for the fiscal year ended December 31, 2018, including the financial statements contained therein;

Reviewed Community Bank System’s Form 10-Q for the quarter ended June 30, 2019 and Form 10-Q for the quarter ended March 31, 2019, including the financial statements contained therein;

Reviewed Steuben Trust Company’s and Community Bank’s respective quarterly call reports for June 30, 2019, March 31, 2019, December 31, 2018, September 30, 2018, and June 30, 2018;

Reviewed other publicly available information regarding Steuben and Community Bank System, including research analysts’ estimates for Community Bank System discussed with PNC by the management of Community Bank System;

Reviewed certain non-public information provided to PNC by or on behalf of Steuben and Community Bank System, regarding Steuben and Community Bank System (including financial projections and forecasts for Steuben provided to PNC by the management of Steuben and
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long-term growth rate and other assumptions for Community Bank System provided to PNC by the management of Community Bank System) and projected cost savings anticipated by the management of Community Bank System to be realized from the Merger;

Reviewed recently reported stock prices and trading activity of Steuben common stock and Community Bank System common stock;

Discussed the past and current operations, financial condition and future prospects of Steuben and Community Bank System with senior executives of Steuben and Community Bank System, respectively;

Reviewed and analyzed certain publicly available financial and stock market data of banking companies that PNC selected as relevant to PNC’s analysis of Steuben and Community Bank System;

Reviewed and analyzed certain publicly available financial data of transactions that PNC selected as relevant to PNC’s analysis of Steuben;

Considered Community Bank System’s financial and capital position and certain potential pro forma financial effects of the Merger on Community Bank System;

Conducted other analyses and reviewed other information PNC considered necessary or appropriate; and

Incorporated PNC’s assessment of the overall economic environment and market conditions, as well as PNC’s experience in mergers and acquisitions, bank stock valuations and other transactions.
In rendering PNC’s opinion, PNC also relied upon and assumed, without independent verification, the accuracy, reasonableness and completeness of the information provided to PNC by or on behalf of Steuben and Community Bank System and publicly available information used in PNC’s analyses. PNC did not assume any responsibility for the accuracy, reasonableness and completeness of any of the foregoing materials provided to PNC and publicly available information or for the independent verification thereof. Further, PNC relied on the assurances of managements of Steuben and Community Bank System that they were not aware of any facts or circumstances that would make any of the foregoing materials provided to PNC inaccurate or misleading. With respect to the financial projections and forecasts for Steuben and research analysts’ estimates and long-term growth rate and other assumptions for Community Bank System reviewed by PNC and other non-public information related to projected cost savings referred to above, PNC assumed, with Steuben’s consent, that they were reasonably prepared on bases reflecting (or, in the case of research analysts’ estimates, were consistent with) the best currently available estimates and judgments of the respective managements of Steuben and Community Bank System, as the case may be, as to the future financial performance of Steuben and Community Bank System and such cost savings and that the financial results reflected in such projections, forecasts, estimates and assumptions as well as such cost savings would be realized in the amounts and at the times projected. PNC assumed no responsibility for and expressed no view as to any of the foregoing information reviewed by PNC or the assumptions on which they were based.
PNC is not an expert in the evaluation of deposit accounts or loan, mortgage or similar portfolios or allowances for losses with respect thereto and PNC was not requested to, and PNC did not, conduct a review of individual credit files or loan, mortgage or similar portfolios. PNC assumed no responsibility for and expressed no view as to the adequacy or sufficiency of allowances for losses or other matters with respect thereto and PNC assumed that each of Steuben and Community Bank System had, and the pro forma combined company would have, appropriate reserves to cover any such losses. PNC did not conduct any independent valuation or appraisal of any of the assets or liabilities (contingent or otherwise) of Steuben, Community Bank System or any other party, and PNC was not furnished with any such valuation or appraisal.
PNC’s opinion was based on conditions as they existed and the information PNC received, as of the date of PNC’s opinion. PNC does not have any obligation to update, revise or reaffirm its opinion. PNC expressed no opinion as to the actual value of Community Bank System common stock when issued in the
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Merger or the prices at which Steuben common stock or Community Bank System common stock might trade at any time. In connection with PNC’s engagement, PNC was not authorized to, and PNC did not, solicit indications of interest from third parties other than Community Bank System with respect to the possible sale of Steuben.
In rendering PNC’s opinion, PNC assumed, with Steuben’s consent, that the Merger and related transactions would be consummated on the terms described in the Merger Agreement, without any waiver or modification of any material terms or conditions. PNC also assumed, with Steuben’s consent, that, in the course of obtaining the necessary governmental, regulatory and other third party approvals, consents and releases for the Merger, including with respect to any divestiture or other requirements, no delay, limitation, restriction or condition would be imposed that would have an adverse effect on Steuben, Community Bank System or the Merger (including the contemplated benefits thereof). PNC also assumed, with Steuben’s consent, that the final Merger Agreement would not differ from the draft reviewed by PNC in any respect material to PNC’s analyses or opinion. PNC further assumed, with Steuben’s consent, that the Merger would qualify for U.S. federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended.
PNC expressed no view or opinion as to any terms or other aspects (other than the merger consideration to the extent expressly specified in PNC’s opinion) of the Merger or any related transaction, including, without limitation, the form of the merger consideration or the allocation thereof between cash and Community Bank System common stock. PNC’s opinion did not address the relative merits of the Merger as compared to any other transaction or business strategy in which Steuben might engage or the merits of the underlying decision by Steuben to engage in the Merger. PNC expressed no opinion with respect to the fairness of the amount or nature of any compensation to any of the officers, directors, or employees of any party to the Merger, or any class of such persons, relative to the merger consideration or otherwise.
In performing its analyses, PNC made numerous assumptions with respect to industry performance, general business, economic, market and financial conditions and other matters, which are beyond the control of PNC, Steuben and Community Bank System. Any estimates contained in the analyses performed by PNC are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by these analyses. Additionally, estimates of the value of businesses or securities do not purport to be appraisals or to reflect the prices at which such businesses or securities might actually be sold. Accordingly, these analyses and estimates are inherently subject to substantial uncertainty. In addition, PNC’s opinion was among several factors taken into consideration by Steuben’s board in making its determination to approve the Merger Agreement and the Merger. Consequently, the analyses described below should not be viewed as determinative of the decision of the Steuben board with respect to the fairness of the merger consideration. The type and amount of consideration payable in the Merger were determined through negotiation between Steuben and Community Bank System and the decision of Steuben to enter into the Merger Agreement was solely that of Steuben’s board.
Selected Implied Transaction Statistics for the Merger
Using financial information for Steuben as of June 30, 2019 or for the 12 months ended June 30, 2019 and the closing price of Steuben common stock on October 16, 2019, PNC calculated the following implied transaction statistics for the merger based on the implied per share value of the merger consideration of $63.11(1), or an implied transaction value of approximately $106.6 million:
Transaction value / tangible book value
167%
Transaction value / last twelve months earnings per share
15.1x
Core deposit premium(2)
11.0%
Market premium to most recent closing price
37.2%
(1)
Based on Community Bank System’s most recent closing price of  $62.71 on October 16, 2019.
(2)
Calculated as follows: (implied transaction value – tangible equity) / core deposits; where core deposits are defined as: total deposits, less time deposit accounts with balances over $100,000, foreign deposits, and unclassified deposits.
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The following is a summary of the material financial analysis presented by PNC to Steuben’s board in connection with rendering its opinion. This summary is not a complete description of the analyses and procedures performed by PNC in the course of arriving at its opinion. The financial analyses summarized below include information presented in tabular format. The tables alone do not constitute a complete description of the financial analyses. The preparation of a fairness opinion is a complex analytical process involving various determinations as to appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. Therefore, a fairness opinion is not readily susceptible to partial analysis or summary description. In arriving at its opinion, PNC did not attribute any particular weight to any analysis or factor that it considered, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, PNC believes that its analyses and the summary of its analyses must be considered as a whole and that selecting portions of its analyses and factors or focusing on the information presented below in tabular format, without considering all analyses and factors or the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the process underlying its analyses and opinion. No company, transaction or business used in PNC’s analyses for comparative purposes is identical to Steuben, Community Bank System or the proposed Merger and an evaluation of the results of those analyses is not entirely mathematical.
Selected Companies Analysis of Steuben
PNC performed a selected companies analysis by comparing the financial and stock performance of Steuben with those of the following 13 selected publicly traded financial institutions, referred to as the comparable institutions, that were headquartered in New York or Pennsylvania, that had established branch networks, that were not mutual institutions or merger or acquisition targets and that had assets between $400.0 million and $700.0 million, average one-year daily trading volume greater than 50 shares, tangible equity to tangible assets ratios less than 14.0%, and nonperforming assets to assets ratios less than 2.0%:
Description of Comparable Institutions
Institution
City, State
Ticker
Exchange
Ballston Spa Bancorp, Inc.
Ballston Spa, NY
BSPA
OTC Pink
Elmira Savings Bank
Elmira, NY
ESBK
NASDAQ
ES Bancshares, Inc.
Newburgh, NY
ESBS
OTC Pink
Jeffersonville Bancorp
Jeffersonville, NY
JFBC
OTCQB
Jonestown Bank and Trust Co.
Jonestown, PA
JNES
OTC Pink
Juniata Valley Financial Corp.
Mifflintown, PA
JUVF
OTC Pink
Mauch Chunk Trust Financial Corp.
Jim Thorpe, PA
MCHT
OTC Pink
MNB Corporation
Bangor, PA
MNBC
OTC Pink
Muncy Bank Financial, Inc.
Muncy, PA
MYBF
OTC Pink
Northumberland Bancorp
Northumberland, PA
NUBC
OTC Pink
Susquehanna Community Financial, Inc.
West Milton, PA
SQCF
OTC Pink
Woodlands Financial Services Company
Williamsport, PA
WDFN
OTC Pink
York Traditions Bank
York, PA
YRKB
OTC Pink
Source: S&P Global Market Intelligence
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PNC compared the financial performance of Steuben and the comparable institutions as indicated in the following table:
Financial Performance of Steuben and Comparable Institutions(1)
Assets
In Thousands
Tangible
Equity/​
Tang.
Assets
Tangible
Comm. Eq./​
Tang.
Assets
NPAs/​
Assets
Return
on
Average
Assets
Return
on
Average
Equity
High
$ 662,064 13.33% 13.33% 1.74% 1.30% 13.09%
75th Percentile
551,777 10.20 10.21 1.08 1.06 11.33
Median
519,520 9.58 9.58 0.67 0.93 10.12
25th Percentile
473,895 8.77 8.77 0.42 0.62 7.29
Low
409,061 5.28 5.28 0.28 0.35 6.17
Steuben
$ 576,601 11.05% 11.05% 0.55% 1.25% 11.96%
Source: S&P Global Market Intelligence
(1)
Financial data is as of June 30, 2019 or for the 12 months ended June 30, 2019.
PNC then compared the stock performance of Steuben and the comparable institutions as indicated in the following table:
Stock Performance of Steuben and Comparable Institutions(1)
Stock Price/
Earnings per Share
Tang.
Book
Per Share
Shares
Traded
Daily(2)
LTM
MRQ
(annualized)
Assets
Per Share
Dividend
Yield
High
17.4x 17.0x 162% 15.4% 6.44% 6,078
75th Percentile
13.9 13.9 114 11.4 3.46 763
Median
11.1 9.9 108 10.0 2.84 498
25th Percentile
10.7 9.2 100 8.9 2.33 272
Low
8.8 8.5 74 3.9 0.00 53
Steuben
11.0x 10.7x 121% 13.4% 3.04% 276
Source: S&P Global Market Intelligence.
(1)
Financial data is as of June 30, 2019 or for the 12 or three months ended June 30, 2019. Market data is as of October 16, 2019.
(2)
Average volume of shares traded daily over the past year.
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PNC also reviewed the historical stock price performance of Steuben relative to the comparable institutions and selected stock indices, as indicated in the following tables:
Steuben Historical Stock Performance
Relative to Comparable Institutions and Selected Indices
One-Year Stock Performance
Date
Steuben
(SBHO)
Comparable
Institutions
S&P 500
NASDAQ Bank
Index
October 16, 2019
92% 99% 106% 94%
October 16, 2018
100 100 100 100
Three-Year Stock Performance
Date
Steuben
(SBHO)
Comparable
Institutions
S&P 500
NASDAQ Bank
Index
October 16, 2019
142% 129% 140% 121%
October 14, 2016
100 100 100 100
Discounted Cash Flow Analysis of Steuben
PNC performed a discounted cash flow analysis to estimate a range for the implied equity value of Steuben common stock based on the present value of future dividends over a seven-year period and terminal values at the end of such period. In this analysis, PNC assumed discount rates of 9%, 12% and 15% and calculated terminal values of 11x and 14x estimated earnings at the end of seven years. PNC used financial projections and forecasts for Steuben provided to PNC by the management of Steuben. This analysis indicated an implied present value reference range of Steuben common stock of  $35.71 per share to $61.53 per share, which are 8.6x and 14.8x, respectively, of Steuben’s earnings for the 12 months ended June 30, 2019 and 95% and 164%, respectively, of Steuben’s tangible book value as of June 30, 2019.
Selected Transactions Analysis of Steuben
PNC performed a selected transactions analysis by reviewing the following information for purposes of comparison with selected implied transaction ratios for the Merger:

Publicly available acquisition metrics of selected transactions in the United States that were announced from January 1, 2015 through October 16, 2019 with announced deal values of $10 million or more and publicly announced transaction price to tangible common book, excluding mergers of equals (“National M&A Transactions”).

Publicly available acquisition metrics of selected transactions in which the selling bank was located in Pennsylvania, New Jersey, or New York that were announced from January 1, 2016 through October 16, 2019 with seller assets between $300 million and $800 million (“Regional Transactions”).
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The results of the analysis for National M&A Transactions are set forth in the following table:
National M&A Transactions(1)
Year
Number
of Deals
Median
Price/​
Last 12
Months
Earnings
Median
Price/​
Tangible
Common
Book (%)
Highest 3rd by Announced Price-to-Tangible Book
2019 (through Oct. 16, 2019)
29 15.5x 189%
2018 46 24.4 216
2017 47 21.9 209
2016 38 20.3 179
2015 47 23.7 181
Middle 3rd by Announced Price-to-Tangible Book
2019 (through Oct. 16, 2019)
30 15.2x 158%
2018 46 24.4 173
2017 47 22.9 167
2016 39 20.0 141
2015 46 22.8 143
Lowest 3rd by Announced Price-to-Tangible Book
2019 (through Oct. 16, 2019)
30 16.7x 129%
2018 46 24.9 134
2017 47 20.8 132
2016 39 18.2 116
2015 46 23.4 118
Community / Steuben 15.1x 167%
Source: S&P Global Market Intelligence.
(1)
Median pricing data of the selected transactions in the sub-group indicated are shown.
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The results of the analysis for the Regional Transactions are set forth in the following table with primary focus on the median values:
Regional Transactions
Acquirer/Seller
Deal
Value
Deal
Value/​
Last 12
Months
Earnings
Deal
Value/​
Common
Tangible
Book
(in mill.)
Mid Penn Bancorp, Inc./First Priority Financial Corp.
$ 91 32.6x 194%
Community Bank System, Inc./Kinderhook Bank Corp.
93 23.4 193
Lakeland Bancorp, Inc./Highlands Bancorp, Inc.
57 22.5 189
Northwest Bancshares, Inc./Donegal Financial Services Corp.
86 20.3 174
OceanFirst Financial Corp./Capital Bank of New Jersey
77 13.3 168
Citizens & Northern Corporation/Monument Bancorp, Inc.
43 16.7 164
DNB Financial Corporation/East River Bank
49 21.7 158
Sussex Bancorp/Community Bank of Bergen County, NJ
47 27.9 158
OceanFirst Financial Corp./Country Bank Holding Company, Inc.
102 9.8 151
ConnectOne Bancorp, Inc./Greater Hudson Bank
76 NM 145
Investors Bancorp, Inc./Gold Coast Bancorp, Inc.
64 27.3 138
Norwood Financial Corp./Delaware Bancshares, Inc.
15 25.7 114
Median
$ 70 22.5x 161%
Community / Steuben
$ 107 15.1x 167%
Source: S&P Global Market Intelligence
Selected Companies Analysis of Community Bank System
PNC performed a selected companies analysis by comparing the financial and stock performance of Community with those of the following 10 selected publicly traded financial institutions, referred to as the comparable institutions, that were not mutual institutions or merger or acquisition targets and that had assets between $7.5 billion and $15.0 billion, tangible equity to tangible assets ratios less than 13.0%, efficiency ratios less than 65.0%, returns on average tangible common equity greater than 10.0%, noninterest income to operating revenue ratios greater than 20.0%, and commercial loans to total loans ratios less than 20.0%:
Overview of Community Bank System and Comparable Institutions
Institution
City, State
Ticker
Exchange
First Commonwealth Financial Corporation
Indiana, PA
FCF
NYSE
First Financial Bankshares, Inc.
Abilene, TX
FFIN
NASDAQ
First Interstate BancSystem, Inc.
Billings, MT
FIBK
NASDAQ
Glacier Bancorp, Inc.
Kalispell, MT
GBCI
NASDAQ
NBT Bancorp Inc.
Norwich, NY
NBTB
NASDAQ
Northwest Bancshares, Inc.
Warren, PA
NWBI
NASDAQ
Park National Corporation
Newark, OH
PRK
NYSEAM
Renasant Corporation
Tupelo, MS
RNST
NASDAQ
TowneBank
Portsmouth, VA
TOWN
NASDAQ
WesBanco, Inc.
Wheeling, WV
WSBC
NASDAQ
Source: S&P Global Market Intelligence
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PNC compared the financial performance of Community Bank System and the comparable institutions as indicated in the following table:
Financial Performance of Community Bank System and Comparable Institutions(1)
Assets
In
Millions
Tangible
Equity/​
Tang.
Assets
NPAs/​
Assets
Return
on
Average
Assets
Return
on
Average
Equity
Return
on Avg.
Tang.
Common
Equity
Risk
Based
Capital
Ratio
Nonint.
Income/​
Oper.
Revenue
High
$ 14,415 12.69% 1.06% 2.06% 15.17% 18.30% 21.16% 35.24%
75th Percentile
12,631 9.92 0.54 1.35 11.60 16.74 15.16 26.60
Median
11,224 9.56 0.46 1.30 10.00 15.92 14.70 24.15
25th Percentile
8,902 9.10 0.37 1.24 8.74 14.78 13.72 22.35
Low
7,979 8.41 0.35 1.07 8.33 11.94 13.02 20.41
Community
$ 10,745 10.15% 0.25% 1.60% 9.98% 20.31% 19.84% 38.77%
Source: S&P Global Market Intelligence.
(1)
Financial data is as of June 30, 2019 or for the 12 months ended June 30, 2019.
PNC then compared the stock performance of Community Bank System and the comparable institutions as indicated in the following table:
Stock Performance of Community Bank System and Comparable Institutions(1)
Stock Price/
Earnings per Share
Tang.
Book
Per
Share
Assets
Per
Share
Dividend
Yield
Shares
Traded
Daily(2)
LTM
MRQ
(annualized)
High
28.7x 26.9x 457% 56.7% 4.41% 660,502
75th Percentile
15.9 17.3 217 18.7 3.20 411,786
Median
14.8 15.3 193 16.7 2.93 205,669
25th Percentile
12.9 12.2 181 16.6 2.68 130,473
Low
12.1 11.1 177 16.1 1.44 37,548
Community
19.2x 18.2x 321% 30.1% 2.62% 209,609
Source: S&P Global Market Intelligence.
(1)
Financial data is as of June 30, 2019 or for the 12 or three months ended June 30, 2019. Market data is as of October 16, 2019.
(2)
Average volume of shares traded daily over the past year.
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PNC also reviewed the historical stock price performance of Community Bank System relative to the comparable institutions and selected stock indices, as indicated in the following tables:
Community Bank System Historical Stock Performance
Relative to Comparable Institutions and Selected Indices
One-Year Stock Performance
Date
Community
(CBU)
Comparable
Institutions
S&P 500
NASDAQ Bank
Index
October 16, 2019
107% 95% 106% 94%
October 16, 2018
100 100 100 100
Three-Year Stock Performance
Date
Community
(CBU)
Comparable
Institutions
S&P 500
NASDAQ Bank
Index
October 16, 2019
132% 114% 140% 121%
October 14, 2016
100 100 100 100
Discounted Cash Flow Analysis of Community Bank System
PNC performed a discounted cash flow analysis to estimate a range for the implied equity value of Community Bank System common stock based on the present value of future dividends over a seven-year period and terminal values at the end of such period. In this analysis, PNC assumed discount rates of 7%, 10% and 13% and calculated terminal values of 15x and 22x estimated earnings per share at the end of seven years. PNC used research analysts’ estimates for Community Bank System and long-term growth rate and other assumptions for Community Bank System provided to PNC by the management of Community Bank System. This analysis indicated an implied present value range of Community Bank System common stock of  $34.00 per share to $65.21 per share, which are 10.4x and 20.0x, respectively, Community Bank System’s earnings per share for the 12 months ended June 30, 2019 and 175% and 338%, respectively, of Community Bank System’s tangible book value per share as of June 30, 2019.
Financial Impact Analysis on Community Bank System
PNC also conducted a financial impact analysis assuming that the Merger would close at the end of the first quarter of 2020. PNC used historical financial data as of June 30, 2019, financial projections and forecasts for Steuben provided to PNC by the management of Steuben, research analysts’ estimates for Community Bank System, long-term growth rate and other assumptions for Community Bank System provided to PNC by the management of Community Bank System and projected cost savings anticipated by the management of Community Bank System to be realized from the Merger. PNC also incorporated other pro forma assumptions as provided by Community Bank System. The analysis indicated that the Merger could be accretive to Community Bank System’s tangible book value per share as of March 31, 2020 and could be accretive to Community Bank System’s earnings per share (excluding transaction expenses) for each of calendar years 2020 and 2021. All of the results of PNC’s financial impact analysis may vary materially from the actual results achieved by Community Bank System.
Other Disclosures
PNC, as part of its financial advisory business, is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions and valuations for corporate and other purposes. Steuben selected PNC to act as a financial advisor and to provide a fairness opinion based on PNC’s experience, including in connection with mergers and acquisitions of commercial banks and bank holding companies.
Steuben has agreed to pay PNC a fee for its services currently estimated to be approximately $960,000, a portion of which fee became payable upon presentation of PNC’s opinion and a significant portion of PNC’s fee currently estimated to be approximately $835,000 is contingent upon the closing of the Merger. In addition, portions of PNC’s fee became payable after the signing of PNC’s engagement agreement and
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the execution of an exclusivity agreement between Community Bank System and Steuben, and a portion of PNC’s fee is payable upon the mailing of this Proxy Statement/Prospectus. Steuben has also agreed to reimburse PNC’s reasonable out-of-pocket expenses incurred in connection with its engagement and to indemnify PNC against certain liabilities arising out of the performance of its obligations under the engagement letter.
PNC FIG Advisory, Inc. is an indirect, wholly owned subsidiary of The PNC Financial Services Group, Inc. (“PNC Financial”), a large diversified financial services company. PNC Financial and its affiliates are engaged in a broad range of financial services and securities activities. PNC Financial or an affiliate (other than PNC FIG Advisory, Inc.) provides, or has provided, certain financial services to Community Bank System. Over the two years preceding the date of its opinion, PNC FIG Advisory, Inc. provided investment banking services to Community Bank System for which PNC received compensation from Community Bank System. PNC FIG Advisory, Inc. acted as financial advisor to Community Bank System in connection with a potential transaction which was not ultimately consummated. PNC FIG Advisory, Inc. and its affiliates may from time to time purchase securities from, and sell securities to, Steuben Trust Company and Community Bank. In the future, PNC Financial may pursue opportunities to provide financial services to Steuben or Community Bank System, including the provision of investment banking or other consulting services by PNC FIG Advisory, Inc.
PNC’s fairness committee approved the issuance of its opinion letter dated October 17, 2019.
Certain Prospective Financial Information
Steuben does not, as a matter of course, publicly disclose forecasts or projections of its expected future financial performance, earnings or other results because of, among other things, the inherent uncertainty of the underlying assumptions. However, the companies are including in this Proxy Statement/Prospectus certain unaudited prospective financial information that was prepared based on Steuben internal earnings estimates (the “Projections”). The Projections were provided to PNC and used by PNC in connection with the financial analyses performed in connection with PNC’s opinion to the Steuben board of directors as described above under the heading “— Opinion of Steuben’s Financial Advisor.” The Projections also were provided to the Steuben board in its consideration of the Merger.
The Projections were not prepared with a view toward public disclosure and, accordingly, do not necessarily comply with published guidelines of the SEC or established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information or generally accepted accounting principles. Neither company’s independent registered public accounting firm, nor any other independent accountants, compiled, examined, audited, or performed any procedures with respect to such prospective financial information, and has not expressed any opinion or any other form of assurance on this information or its achievability.
The Projections, while presented with numerical specificity, necessarily were based on numerous variables and assumptions that are inherently uncertain and many of which are beyond the control of each respective company’s management. Given that the Projections cover multiple years, by their nature, they become subject to greater uncertainty with each successive year. The assumptions upon which the Projections were based necessarily involve judgments with respect to, among other things, future economic, market, competitive and regulatory conditions, all of which are difficult to predict and many of which are beyond each respective company’s control. Important factors may affect actual results and the achievability of the Projections.
The Projections also reflect assumptions that are subject to change and are susceptible to multiple interpretations and periodic revisions based on actual results, revised prospects for the applicable company’s business, changes in general business or economic conditions, or any other transaction or event that has occurred or that may occur and that was not anticipated when the Projections were prepared. In addition, the Projections do not take into account any circumstances, transactions or events occurring after the dates on which the Projections were prepared. Accordingly, actual results may differ, and may differ materially, from those contained in the Projections. There can be no assurance that the financial results in the Projections will be realized, or that future actual financial results will not materially vary from those in the Projections.
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The inclusion of a summary of the Projections should not be regarded as an indication that Community Bank System or Steuben or any of their respective affiliates, officers, directors, advisors or other representatives consider the Projections to be necessarily predictive of actual future events, and the Projections should not be relied upon as such. None of Community Bank System or Steuben or any of their respective affiliates, officers, directors, advisors or other representatives gives any shareholder of Steuben or any other person any assurance that actual results will not differ materially from the Projections, and, except as otherwise required by law, Community Bank System, Steuben and their respective affiliates undertake no obligation to update or otherwise revise or reconcile the Projections to reflect circumstances existing after the dates on which the Projections were prepared or to reflect the occurrence of future events, even in the event that any or all of the assumptions and estimates underlying the Projections are shown to be in error.
In light of the foregoing factors and the uncertainties inherent in the Projections, Steuben shareholders are cautioned not to place undue, or any, reliance on such Projections.
Steuben provided to PNC, and PNC used in the discounted cash-flow analysis of Steuben performed in connection with PNC’s opinion to the Steuben board of directors, a net income growth rate assumption of 7.5% and a dividend growth rate assumption of 6% to be applied, respectively, to Steuben’s net income and dividends for the fiscal year ended June 30, 2019. This resulted in the following estimated net income and dividends (in thousands):
12 months ending June 30,
2019
2020
2021
2022
2023
2024
2025
2026
Net Income
$ 7,031 7,558 8,125 8,735 9,390 10,094 10,851 11,665
Dividend
$ 2,361 2,503 2,653 2,813 2,981 3,160 3,350 3,551
This information was not prepared with a view toward public disclosure, and actual results may differ materially from these projected amounts. The Projections have been included solely to give the Steuben shareholders access to certain prospective financial information that was made available to the Steuben board and used by PNC, and is not included in this Proxy Statement/Prospectus to influence any decision of Steuben shareholders as to whether to vote to adopt the Merger Agreement or for any other purpose. The Projections should not be treated as guidance with respect to projected results for 2019 or any other period.
The prospective financial information included in this Proxy Statement/Prospectus has been prepared by, and is the responsibility of, Community Bank System’s and Steuben’s management. PricewaterhouseCoopers LLP has not audited, reviewed, examined, compiled nor applied agreed-upon procedures with respect to the accompanying prospective financial information and, accordingly, PricewaterhouseCoopers LLP does not express an opinion or any other form of assurance with respect thereto. The PricewaterhouseCoopers LLP report incorporated by reference in this document relates to the Community Bank System’s previously issued financial statements. It does not extend to the prospective financial information and should not be read to do so.
Shareholder Support Agreements with Directors and Certain Principal Shareholders of Steuben
Community Bank System has entered into a shareholder support agreement with each director of Steuben and certain officers and principal shareholders of Steuben with voting power with respect to an aggregate of  [•] shares of Steuben common stock, or approximately [•]% of the shares of Steuben common stock outstanding as of the record date. Pursuant to the agreements, each such person has agreed to vote “FOR” the adoption of the Merger Agreement all of the shares of Steuben common stock that they are entitled to vote at the special meeting.
Interests of Steuben Directors and Executive Officers in the Merger
In considering the recommendation of the Steuben board of directors with respect to its approval of the Merger Agreement, Steuben shareholders should be aware that certain of Steuben’s directors and executive officers have interests in the Merger that are different from, or in addition to, those of Steuben shareholders generally. These interests may create potential conflicts of interest. The Steuben board of
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directors was aware of and considered these interests, among other matters, in reaching its decision to approve, and declare advisable, the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement. The material interests are summarized below.
Effect of the Merger Agreement on Director and Executive Officer Common Stock
Steuben’s directors and executive officers will receive the same merger consideration as other Steuben shareholders for each outstanding share of Steuben common stock that they own at the effective time of the Merger. For information regarding beneficial ownership of Steuben common stock by each of Steuben’s current directors and executive officers, see “Description of Security Ownership of Directors, Executive Officers and Certain Beneficial Owners of Steuben” beginning on page 69 of this Proxy Statement/​Prospectus.
Effect of the Merger Agreement on Outstanding Stock Options
In connection with the Merger, each Steuben stock option outstanding and unexercised immediately prior to the effective time of the Merger, whether or not vested or exercisable, will be cancelled and automatically converted into the right to receive a cash amount equal to the aggregate number of shares of Steuben common stock subject to such option multiplied by the excess of the value of the merger consideration over the exercise price of such option, less any applicable withholding.
Retention Incentives for Executive Officers
In order to incentivize and motivate certain officers to provide critical services during the pendency of the Merger, certain Steuben officers will receive retention payments, subject to their continued employment with Steuben through the effective time of the Merger, on the first regular payroll date following the Merger. The Steuben executive officers eligible to receive these payments (and the amount of each such payment) are: Brenda L. Copeland ($960,000), Mary E. Hilfiger ($37,692), Susan A. Lacy ($54,500), Amy L. Muhleisen ($48,865), James P. Nicoloff  ($100,000), and Amber R. Phelps ($71,500). Ms. Hilfiger and Ms. Muhleisen are eligible to receive their respective bonuses only if they decline an offer of continued employment with Community Bank System, and Ms. Phelps’s bonus will be reduced to $43,000 if she accepts an offer of continued employment with Community Bank System.
Severance Arrangements for Certain Executive Officers
Pursuant to the Merger Agreement, Steuben’s executive officers (other than Ms. Copeland and Mr. Eagleton, whose severance rights are governed by their respective employment agreements, as discussed below) will become entitled to severance pay if they experience a termination of their employment without “cause” as defined in the Merger Agreement. For the following executive officers, the potential severance payment in the event of termination is as follows: Mary E. Hilfiger ($32,308), Susan A. Lacy ($54,500), Amy L. Muhleisin ($41,135), James P. Nicoloff  ($100,000), and Amber R. Phelps ($71,500).
Eagleton Employment Agreement
John S. Eagleton, Steuben’s current President, entered into an employment agreement with Steuben on June 19, 2017, which expires on June 19, 2020. Under Mr. Eagleton’s employment agreement, if Mr. Eagleton is terminated without “cause” or resigns for “good reason” following a change in control of Steuben, Mr. Eagleton is entitled to receive one and one-half times his current base salary as severance ($457,500 in total), subject to Mr. Eagleton’s execution of a general release of claims and non-disparagement covenant.
Mr. Eagleton’s employment agreement contains restrictive covenants, including (i) a non-compete and non-solicit of employees, representatives, agents, customers, suppliers, lessors, and other Steuben business relations, in each case that apply during the term of Mr. Eagleton’s agreement and for 18 months thereafter, and (ii) a perpetual confidentiality covenant.
New Employment Agreement between Brenda L. Copeland and Community Bank System
In connection with the Merger Agreement, Community Bank System entered into a new employment agreement with Brenda L. Copeland, Steuben’s current Chairman and Chief Executive Officer, which will
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become effective upon the closing of the Merger. Ms. Copeland has accepted a position with Community Bank System as Southern Tier Business Development and Retention Executive, effective upon and following the closing of the Merger, for a period of 13 months thereafter. For her services under the employment agreement, Ms. Copeland will be paid a base salary of  $130,000 per year. In addition, under the new agreement, Ms. Copeland will receive a one-time cash bonus of  $500,000 payable upon the effective date of the Merger. If Ms. Copeland is terminated without “cause” or resigns for “good reason” during the 13-month term of the employment agreement, she will be entitled (subject to her execution of a general release of claims) to continued payment of her base salary through the end of the 13-month term. Ms. Copeland’s new employment agreement also contains restrictive covenants, including (i) a non-compete during her employment and for 12 months thereafter, (ii) a non-solicit of employees (including a no-hire) and customers during her employment and for 2 years thereafter, (iii) a perpetual confidentiality covenant, and (iv) a perpetual reciprocal non-disparagement covenant.
In the event that any payments or benefits to or for Ms. Copeland under the employment agreement (together with any other payments) would constitute a “parachute payment” and would be subject to the excise tax imposed by Section 4999 of the Code, such payments and benefits under the employment agreement would be reduced to the largest payment possible that would not cause the imposition of an excise tax under Section 4999 of the Code.
Regulatory Requirements
Notwithstanding the foregoing, all payments and benefits under the Steuben plans and arrangements are subject to any required regulatory approval or satisfaction of a condition in any regulatory approval, as applicable.
Director Deferred Compensation
Certain of Steuben’s directors have deferred compensation under Steuben’s director deferred compensation plans. All such deferred compensation is fully vested. Community Bank System will honor the terms and obligations of Steuben’s director deferred compensation plans, unless such plans are terminated prior to the effective time of the Merger by mutual agreement of Steuben and Community Bank System.
Indemnification
Pursuant to the Merger Agreement, Community Bank System has agreed that it will, from and after the effective time of the Merger, indemnify and hold harmless the present and former directors and officers of Steuben and its subsidiaries against any costs or expenses, judgments, settlements effected with the prior written consent of Community Bank System, fines, losses, taxes, damages or liabilities incurred in connection with any claim, action, suit, proceeding or investigation arising before or after the effective time of the Merger, arising in whole or in part out of, or pertaining to the fact that such person is or was a director, officer or employee of Steuben or its subsidiaries, or otherwise in connection with any action taken or not taken at the request of Steuben or its subsidiaries or is or was serving at the request of Steuben or its subsidiaries as a director, officer employee, agent, trustee or fiduciary of another person and pertaining to matters, acts or omissions existing or occurring at or prior to the effective time of the Merger, including matters, acts or omissions occurring in connection with the approval of the Merger Agreement and the transactions contemplated thereby, to the fullest extent permitted by applicable law. Community Bank System has also agreed to advance expenses as incurred by any indemnified party to the fullest extent permitted by applicable law within thirty days after a written request setting forth such expenses in reasonable detail, provided that such indemnified party to whom expenses are advanced provides an undertaking to repay such advances if it is ultimately decided that such indemnified party is not entitled to indemnification.
Directors’ and Officers’ Insurance
Community Bank System has further agreed that for a period of six years after the effective time of the Merger, it will cause to be maintained in effect the current policies of directors’ and officers’ liability insurance maintained by Steuben with respect to claims against them arising from matters, acts or
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omissions occurring at or before the effective time of the Merger (including the transactions contemplated by the Merger Agreement). Community Bank System will not be obligated to expend, on an annual basis, an amount in excess of 200% of the current annual premium paid as of the date of the Merger Agreement by Steuben for such directors’ and officers’ liability insurance (the “premium cap”) and if such premiums at any time exceed the premium cap, then Community Bank System shall cause to be maintained policies of insurance which will provide the maximum coverage available at an annual premium equal to the premium cap. In lieu of the foregoing, Steuben in consultation with Community Bank System may obtain at or prior to the effective time a substitute policy for a price that in the aggregate does not exceed the premium cap.
Merger-Related Executive Compensation for Steuben’s Chief Executive Officer and President
The table below sets forth, for illustrative purposes, the information regarding the compensation that is based on or otherwise relates to the Merger for Steuben’s Chief Executive Officer and President (Ms. Copeland and Mr. Eagleton), who are receiving compensation relating to the Merger, assuming that (i) a change of control of Steuben occurred on December 19, 2019, the latest practicable date prior to the filing of this Proxy Statement/Prospectus, and (ii) the merger consideration valued as of such date is approximately $69.56 per share.
As described above, Steuben has an existing employment agreement with Mr. Eagleton and, at the time of the execution of the Merger Agreement, Ms. Copeland entered into a new employment agreement with Community Bank System that is effective upon the closing of the Merger. For Ms. Copeland, the table below presents the retention payment described above, the one-time cash bonus provided under her new employment agreement with Community Bank System described above, the cash salary payable for the 13-month term of her new employment agreement (which remains payable if Ms. Copeland is terminated without “cause” or resigns for “good reason” during the term), and the cash payment to be made by Community Bank System in consideration of the cancellation of her unvested stock options outstanding as of December 1, 2019. For Mr. Eagleton, the table below presents the severance Mr. Eagleton would be due under his existing employment agreement (assuming that he is terminated without “cause” or resigns for “good reason” immediately following the closing of the Merger) and the cash payment to be made by Community Bank System in consideration of the cancellation of his unvested stock options outstanding as of December 1, 2019.
Merger-Related Compensation
Name
Cash
($)
Equity(1)
($)
Total
($)
Brenda L. Copeland
(Chairman and Chief Executive Officer)
1,600,833(2) 100,128 1,700,961(3)
John S. Eagleton
(President)
457,500(4) 38,304 495,804
Total
2,058,333 138,432 2,196,765
(1)
This column includes only the value of unvested stock options outstanding as of December 19, 2019, under the assumptions described above, which will be cancelled and cashed out pursuant to the terms of the Merger Agreement.
(2)
Includes the $960,000 retention payment described above, $500,000 one-time bonus described above, and $140,833 in base salary payments expected to be paid over the 13-month term of Ms. Copeland’s new employment agreement described above (which remains payable if Ms. Copeland is terminated without “cause” or resigns for “good reason” during the term).
(3)
In the event that any payments or benefits to Ms. Copeland would constitute a “parachute payment” and would be subject to the excise tax imposed by Section 4999 of the Code, such amounts would be reduced to the largest payment possible without the imposition of an excise tax under Section 4999 of the Code. This illustrative estimate does not include the impact of any such potential reduction.
(4)
Includes severance payable under Mr. Eagleton’s employment agreement (assuming that he is terminated without “cause” or resigns for “good reason” immediately following the closing of the Merger).
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Material U.S. Federal Income Tax Consequences of the Merger
The following discussion is based on, and subject to, the Code, the Treasury regulations promulgated under the Code, existing interpretations, court decisions, and administrative rulings, all of which are in effect as of the date of this Proxy Statement/Prospectus, and all of which are subject to change, possibly with retroactive effect. Any such change could affect the continuing validity of the discussion.
This summary only addresses the material U.S. federal income tax consequences of the Merger to the Steuben shareholders that hold Steuben common stock as a capital asset within the meaning of Section 1221 of the Code. This summary does not address all aspects of U.S. federal income taxation that may be applicable to Steuben shareholders in light of their particular circumstances or to Steuben shareholders subject to special treatment under U.S. federal income tax law, such as:

U.S. expatriates, investors subject to the U.S. “inversion” rules, and shareholders who are not U.S. holders;

pass-through entities or investors in pass-through entities;

financial institutions;

insurance companies;

tax-exempt organizations;

brokers, banks or dealers in securities or currencies;

traders in securities that elect to use a mark-to-market method of accounting;

persons whose functional currency is not the U.S. dollar;

persons who purchased or sell their shares of Steuben common stock as part of a wash sale;

persons who exercise dissenters’ rights;

individual retirement and other tax-deferred accounts;

mutual funds or pension plans;

trusts and estates;

real estate investment trusts or regulated investment companies;

shareholders who hold their shares of Steuben common stock as part of a hedge, straddle, constructive sale or conversion transaction; and

shareholders who acquired their shares of Steuben common stock pursuant to the exercise of employee stock options or otherwise acquired shares as compensation or through a tax-qualified retirement plan.
In addition, the discussion does not address any alternative minimum tax or any state, local or foreign tax consequences of the Merger, nor does it address any tax consequences arising under the unearned income Medicare contribution tax pursuant to the Health Care and Education Reconciliation Act of 2010.
U.S. Holders
For purposes of this summary, the term “U.S. holder” means a beneficial holder of Steuben common stock that is:

a citizen or resident of the United States;

a corporation (including any entity treated as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States or any of its political subdivisions;

an estate that is subject to U.S. federal income tax on its income regardless of its source; or

a trust (A) the administration of which is subject to the primary supervision of a U.S. court and
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which has one or more United States persons (within the meaning of the Code) who have the authority to control all substantial decisions of the trust or (B) that has in effect a valid election under applicable Treasury regulations to be treated as a United States person.
If a partnership (including any entity or arrangement, domestic or foreign, that is treated as a partnership for U.S. federal income tax purposes) holds Steuben common stock, the tax treatment of a partner will generally depend on the status of the partners and the activities of the partnership. Partnerships and partners in such a partnership should consult their tax advisers about the tax consequences of the Merger to them.
The Merger
The parties intend for the Merger to qualify as a “reorganization” within the meaning of Section 368(a) of the Code. It is a condition to Steuben’s obligation to complete the Merger that Steuben receive an opinion from Pillar+Aught, dated as of the closing date of the Merger, to the effect that the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. It is a condition to Community Bank System’s obligation to complete the Merger that Community Bank System receive an opinion from Cadwalader, Wickersham & Taft LLP, dated as of the closing date of the Merger, to the effect that the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. In addition, in connection with the filing of the registration statement of which this document is a part, Pillar+Aught has delivered an opinion to Steuben to the same effect as the opinion described above. These opinions will be based on representation letters provided by Steuben and Community Bank System and on customary factual assumptions. None of the opinions described above will be binding on the Internal Revenue Service. Steuben and Community Bank System have not sought and will not seek any ruling from the Internal Revenue Service regarding any matters relating to the Merger, and as a result, there can be no assurance that the Internal Revenue Service will not assert, or that a court would not sustain, a position contrary to any of the conclusions set forth below. In addition, if any of the representations or assumptions upon which those opinions are based are inconsistent with the actual facts, the U.S. federal income tax consequences of the Merger could be adversely affected. Based on factual representations contained in the representation letters provided by Steuben and Community Bank System, and on certain customary factual assumptions, all of which representations and assumptions must continue to be true and accurate as of the effective time of the Merger, in the opinion of Pillar+Aught, the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code.
Tax Consequences of the Merger Generally to Holders of Steuben Common Stock.   Pursuant to the Merger Agreement, upon exchanging all of your shares of Steuben common stock for a combination of Community Bank System common stock and cash, you will generally recognize gain (but not loss) in an amount equal to the lesser of: (1) the amount of cash treated as received in exchange for Steuben common stock in the Merger (excluding any cash received in lieu of fractional shares of Community Bank System common stock); and (2) the excess, if any, of  (a) the sum of the amount of cash treated as received in exchange for Steuben common stock in the Merger (excluding any cash received in lieu of fractional shares of Community Bank System common stock) plus the fair market value of Community Bank System common stock (including the fair market value of any fractional share) received in the Merger, over (b) your cost basis in the Steuben common stock exchanged. If you acquired different blocks of Steuben common stock at different times or at different prices, you should consult your individual tax advisor regarding the manner in which gain or loss should be determined.
Except as described in the section entitled “Dividend Treatment” below, any recognized gain will generally be long-term capital gain if, as of the effective date of the Merger, your holding period with respect to the surrendered Steuben common stock exceeds one year. The aggregate tax basis of the Community Bank System common stock you receive as a result of the Merger (including any fractional shares of Community Bank System common stock deemed received) will be the same as your aggregate tax basis in Steuben common stock you surrender in the Merger, decreased by the amount of cash you receive that is treated as received in exchange for Steuben common stock (excluding any cash received in lieu of a fractional share of Community Bank System common stock) and increased by the amount of gain, if any, you recognize in the exchange (excluding any gain resulting from cash received in lieu of a fractional share of Community Bank System common stock). The holding period of the Community Bank System common stock you receive as a result of the exchange will include the holding period of Steuben common stock you surrendered in the Merger.
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Cash Instead of Fractional Shares.   If you receive cash in the Merger instead of a fractional share interest in Community Bank System common stock, you will be treated as having received such fractional share in the Merger, and then as having received cash in exchange for such fractional share. Gain or loss would be recognized in an amount equal to the difference between the amount of cash received and your adjusted tax basis allocable to such fractional share. Except as described in the section entitled “Dividend Treatment” below, this gain or loss will generally be a capital gain or loss, and will be long-term capital gain or loss if, as of the effective date of the Merger, you have held your shares of Steuben common stock for more than one year.
Dividend Treatment.   There are certain circumstances in which all or part of the gain you recognize will be treated as a dividend rather than as capital gains. In general, this determination depends upon whether, and to what extent, the Merger reduces your deemed percentage share ownership interest in Community Bank System. Because the possibility of dividend treatment depends primarily upon your particular circumstances, including the application of certain constructive ownership rules, you should consult your own tax advisor regarding the potential tax consequences of the Merger to you.
Backup Withholding and Information Reporting
In general, information reporting requirements may apply to the cash payments made to a U.S. holder in connection with the Merger, unless an exemption applies. Backup withholding may be imposed on the above payments if a U.S. holder (1) fails to provide a taxpayer identification number or appropriate certificates or (2) otherwise fails to comply with all applicable requirements of the backup withholding rules.
Any amounts withheld from payments to a U.S. holder under the backup withholding rules are not an additional tax and will be allowed as a refund or credit against the U.S. holder’s applicable U.S. federal income tax liability, provided the required information is furnished to the IRS. U.S. holders should consult their own tax advisors regarding the application of backup withholding based on their particular circumstances and the availability and procedure for obtaining an exemption from backup withholding.
The foregoing discussion is for general information purposes only and is not intended to be a complete analysis or description of all potential U.S. federal income tax consequences of the Merger. The discussion does not address tax consequences which may vary with, or are contingent on, your individual circumstances. Moreover, the discussion does not address any non-income tax or any foreign, state or local tax consequences of the Merger. Accordingly, you are strongly encouraged to consult with your own tax advisor as to the tax consequences of the Merger in your particular circumstances, including the applicability and effect of the unearned income Medicare contribution tax pursuant to the Health Care and Education Reconciliation Act of 2010, the alternative minimum tax and any state, local or foreign and other tax laws and of changes in those laws.
Accounting Treatment of the Merger
The Merger will be accounted for as a “business combination,” as that term is used under generally accepted accounting principles, for accounting and financial reporting purposes, with Community Bank System treated as the acquirer. Under the acquisition method of accounting, the assets (including identifiable intangible assets) and liabilities (including executory contracts and other commitments) of Steuben as of the effective time of the Merger will be recorded at their respective fair values and added to those of Community Bank System. Any excess of purchase price over the fair values is recorded as goodwill. Consolidated financial statements of Community Bank System issued after the Merger would reflect these fair values and would not be restated retroactively to reflect the historical financial position or results of operations of Steuben.
Restrictions on Sales of Community Bank System Common Stock by Certain Affiliates
The shares of Community Bank System common stock to be issued in the Merger will be freely transferable under the Securities Act, except for shares issued to any shareholder who is an “affiliate” of Community Bank System as defined by Rule 144 under the Securities Act. Affiliates consist of individuals or entities that control, are controlled by, or are under common control with Community Bank System and include the executive officers and directors of Community Bank System and may include significant shareholders of Community Bank System.
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New York Stock Exchange Listing
Community Bank System has agreed to make an application to list the shares of its common stock to be issued in the Merger on the NYSE. The stock must be authorized for listing on the NYSE, subject to official notice of issuance, for the Merger to be completed.
Regulatory Approvals and Notices for the Merger
Pursuant to the Merger Agreement, Community Bank System will submit applications for all necessary regulatory approvals and will give all requisite notices to governmental agencies regarding both the Merger and the Bank Merger. Certain approvals must be obtained from, or other filings made with, various bank regulatory and other authorities, including the OCC, the Federal Reserve Board, and state banking regulators.
The closing of the Merger is conditioned upon the receipt of all approvals of regulatory authorities required for the Merger and the Bank Merger, the expiration of all notice periods and waiting periods after the grant of regulatory approvals, and the satisfaction of all conditions contained in any regulatory approvals or consents.
The Comptroller of the Currency.   The Bank Merger is subject to approval by the OCC. Community Bank filed an application on [•]. Following the OCC approval, the Bank Merger Act imposes a waiting period of up to 30 days after the OCC approval in order to permit the United States Department of Justice to file any objections to the Bank Merger under the federal antitrust laws. This waiting period may be reduced to 15 days if the Department of Justice has not provided any adverse comments relating to the competitive factors of the transaction, which the parties expect to occur.
Federal Reserve Board.   The Federal Reserve Board is Community Bank System’s primary federal banking regulator. The Merger is subject to approval by the Federal Reserve Board. Community Bank System plans to file a request for a determination by the Federal Reserve Board that no regulatory purpose would be served by requiring an application under Section 3 of the Bank Holding Company Act of 1956, as amended, with respect to the Merger. In determining whether to approve the proposed transaction, the Federal Reserve Board will consider factors such as financial and managerial resources, future prospects, the convenience and needs to the community and competitive factors.
New York State Department of Financial Services.   Community Bank System also has filed a request for a determination by the New York State Department of Financial Services that no regulatory purpose would be served by requiring an application under the New York Banking Law with respect to the Merger.
You should be aware that any governmental agency approval issued:

reflects only the agency’s views that the transaction does not contravene applicable competitive standards imposed by law and is consistent with regulatory requirements and policies; and

is not an endorsement of or recommendation for the transaction.
Appraisal or Dissenters’ Rights
Holders of shares of Steuben common stock who meet certain requirements are entitled to seek appraisal rights.
Under Section 623 of the New York Business Corporation Law, or the “NYBCL,” holders of shares of Steuben common stock who do not vote in favor of the adoption of the Merger Agreement and who otherwise follow the procedures set forth in Section 623 of the NYBCL (which we refer to as “Section 623”) will be entitled to have their shares appraised by the applicable court and to receive payment in cash for the “fair value” of the shares, together with interest, determined as described below.
Failure to follow precisely any of the statutory requirements could result in the loss of your appraisal rights.
The following discussion is not a complete statement of the law pertaining to appraisal rights under the NYBCL and is qualified in its entirety by the full text of Section 623, which is attached to this Proxy Statement/Prospectus as Annex C. Under New York law, if a Steuben shareholder does not wish to accept
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the merger consideration provided for in the Merger Agreement, such shareholder has the right to object to the Merger and file a written objection including a notice of election to dissent and demand for payment of the fair value of his or her shares with Steuben. If a shareholder intends to dissent and demand to receive payment of the fair value of his or her shares, such shareholder must comply with the provisions of Section 623 in order to receive payment for his or her shares. Steuben and Community Bank System will require strict compliance with the statutory procedures.
The following is intended as a brief summary of the material provisions of the New York statutory procedures required to be followed by a Steuben shareholder in order to dissent from the Merger and receive payment of the fair value of his or her shares.
This Proxy Statement/Prospectus constitutes Steuben’s notice to its shareholders of the availability of dissenters’ rights in connection with the Merger in compliance with the requirement of Section 623. If a shareholder wishes to consider exercising his or her dissenters’ rights, such shareholder should carefully review the text of Section 623 contained in Annex C because failure to timely and properly comply with the requirements of Section 623 will result in the loss of such shareholder’s rights under New York law.
Filing Written Demand
If you elect to dissent, you must satisfy the conditions stated below. Section 623 requires that a shareholder intending to enforce his or her right to receive payment for his or her shares in connection with a merger transaction, file with the corporation (in this case, Steuben), before the special meeting of shareholders, or at the special meeting, but before the vote, written objection to the merger. The written objection shall include:

A notice of election to dissent;

The shareholder’s name and residence address;

The number and class of shares as to which is dissented; and

A demand for payment of the fair value of the shares if the Merger is consummated.
A shareholder may not dissent as to less than all of the shares as to which he or she has a right to dissent. The written notice of election to dissent must be in addition to and separate from any proxy or vote abstaining from or against the Merger. Voting against or failing to vote for the Merger by itself does not constitute an election to dissent within the meaning of Section 623. A dissenting shareholder must not vote in favor of the Merger. An abstention or failure to vote will satisfy this requirement, but a vote in favor of the Merger, by proxy or in person, will constitute a waiver of the shareholder’s election to dissent in respect of the shares so voted and will nullify any previously filed written notices of election to dissent. Finally, a dissenting shareholder must continuously be the beneficial owner of such shares of Steuben through the effective date of the Merger. If the shareholder fails to comply with any of these conditions and the Merger is completed, the shareholder will be entitled to receive payment for his or her shares of Steuben common stock as provided for in the Merger Agreement, but will not have dissenters’ rights with respect to his or her shares of Steuben common stock.
All notices of election to dissent should be addressed to Mary E. Hilfiger, Secretary, Steuben Trust Corporation, One Steuben Square, Hornell, New York 14843 and should be executed by, or on behalf of, the record holder of the shares of Steuben common stock.
To be effective, a notice of election to dissent by a holder of Steuben common stock must be made by or in the name of such registered shareholder, fully and correctly, as the shareholder’s name appears on his or her stock certificate(s) and cannot be made by the beneficial owner if he or she does not also hold the shares of record. The beneficial holder must, in such cases, have the registered owner submit the required notice of election to dissent with respect of such shares.
If shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of a notice of election to dissent should be made in such capacity; and if the shares are owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand should be
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executed by or for all joint owners. A record owner, such as a broker, who holds shares as a nominee for others, may exercise his or her dissenters’ rights with respect to the shares held for one or more beneficial owners, while not exercising this right for other beneficial owners.
If a shareholder’s shares of Steuben common stock are held in a brokerage account or in other nominee form and he or she wishes to exercise dissenters’ rights, such shareholder should consult with his or her broker or such other nominee to determine the appropriate procedures.
If holders of two-thirds of the common stock of Steuben approve the Merger, then within ten (10) days of such approval, Steuben shall give written notice of such approval by registered mail to each shareholder of Steuben who filed an election to dissent with Steuben, and who did not withdraw his or her notice of election to dissent prior to the vote or vote in favor of the Merger.
At the time of filing the notice of election to dissent or within one month thereafter, the dissenting shareholder shall submit his or her stock certificate(s) to either Steuben or the agent. Upon receipt thereof, the applicable entity shall note conspicuously on the stock certificate(s) that a notice of election has been filed and return the stock certificate(s) to the shareholder who submitted them. Any shareholder with stock certificates who fails to submit his or her stock certificates for such notation shall at the option of Steuben, by written notice with 45 days of the date of filing such notice of election to dissent, lose his or her dissenters’ rights.
Notice by the Surviving Corporation
Within 15 days of the effective date of the Merger, but not later than 90 days from the date of the shareholders’ meeting at which the Merger Agreement was adopted and approved, Steuben or Community Bank System, as the successor to Steuben, shall make a written offer by registered mail to each shareholder who has filed a notice of election to dissent to pay for his or her shares of common stock at a specified price that Steuben or Community Bank System considers to be their fair value.
This offer shall be accompanied by a statement setting forth the aggregate number of shares with respect to which notices of election to dissent have been received and the aggregate number of holders of such shares. So long as the Merger has become effective, such offer must also be accompanied by (1) advance payment to each shareholder who submitted his or her stock certificates to Steuben or the paying agent for notation in an amount equal to eighty percent (80%) of the amount of such offer, or (2) as to a shareholder who has not yet submitted his or her stock certificates, if the time period has not expired, or if Steuben or Community Bank System elects to grant the shareholder additional time, a statement that advance payment of eighty percent (80%) of the offer shall be promptly made by Community Bank System once certificates have been submitted and notated. If the Merger has not become effective at the time of the offer, then Community Bank System may wait until the Merger becomes effective to send the advance payment or statement of advance payment to the dissenting shareholders and any offer extended without the payment or statement of payment may be conditioned on the effectiveness of the Merger. Each advance payment or statement as to advance payment shall advise the recipient shareholder that acceptance of such payment does not constitute a waiver of any dissenters’ rights. The offer made to each dissenting shareholder shall be made at the same price per share to all dissenting shareholders of the same class of stock.
If within 30 days of Steuben or Community Bank System making the offer to the dissenting shareholders, Steuben or Community Bank System and any shareholder agree on the price to be paid for his or her shares, payment for the shares shall made within 60 days after the later of the offer or the effective date of the Merger, upon surrender of stock certificates for the subject shares.
Judicial Determination of Fair Value
If Community Bank System fails to make an offer for the dissenting shares within 15 days of the effective date of the Merger, or if Community Bank System fails to agree on an offer price with any dissenting shareholder within the 30 day period, Community Bank System shall within 20 days of the expiration of the applicable period, institute a special proceeding in the supreme court in the judicial district where the offices of Steuben were located.
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If Community Bank System fails to timely institute such proceeding, any dissenting shareholder may institute such proceeding within 30 days of the expiration of the 20 day period. If such a proceeding is not then timely instituted, all dissenters’ rights shall be lost unless the supreme court, for good cause shown, shall otherwise direct.
If a proceeding is instituted, the court shall determine whether a dissenting shareholder is entitled to receive payment for his or her shares, and the court shall fix the fair value of such shares as of the close of business on the day prior to the shareholders’ meeting at which the Merger was authorized. A final order shall be entered against Community Bank System for payment to the dissenting shareholders including interest from the effective date of the Merger. Each party to such proceeding shall bear its own costs and expenses, provided that the court may appoint or assess expenses and fees against the dissenting shareholders if the court finds that their refusal to accept the Community Bank System offer was arbitrary, or not in good faith. Similarly, the court may appoint and assess fees and expenses against Community Bank System if any of the following occur: (A) the fair value of the shares as determined by the court materially exceeds the amount which Community Bank System offered to pay; (B) no offer or required advance payment was made by Community Bank System; (C) Community Bank System failed to institute the special proceeding; or (D) Community Bank System failed to act in good faith. Community Bank System must make payment pursuant to the court order within 60 days after final determination of the proceeding.
Investment banker opinions as to the fairness from a financial point of view of the consideration payable in a transaction such as the Merger are not opinions as to, and do not in any way address, “fair value” under Section 623.
In view of the complexity of Section 623, Steuben shareholders who may wish to dissent from the Merger and pursue dissenters’ rights should consult their own legal and financial advisors before attempting to exercise those rights.
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THE MERGER AGREEMENT
The following is a summary of the material provisions of the Merger Agreement. This summary is qualified in its entirety by reference to the Merger Agreement, a copy of which is included as Annex A to this Proxy Statement/Prospectus and is incorporated herein by reference. You should read the Merger Agreement carefully and in its entirety, as it is the legal document governing the Merger.
The Merger and the Bank Merger
The boards of directors of Community Bank System and Steuben have each unanimously approved and adopted the Merger Agreement, which provides for the merger of Steuben with and into Community Bank System, with Community Bank System as the surviving company in the Merger.
The Merger Agreement also provides that, unless otherwise determined by Community Bank System in its sole discretion, immediately after the effective time of the Merger, Steuben Trust Company, a New York State-chartered bank and wholly-owned subsidiary of Steuben, will merge with and into Community Bank, a national banking association and wholly-owned subsidiary of Community Bank System, with Community Bank as the surviving bank of such merger. The terms and conditions of the merger of Steuben Trust Company and Community Bank are set forth in a separate plan of merger and merger agreement, the form of which is attached as Exhibit A to the Merger Agreement, included as Annex A to this Proxy Statement/Prospectus. We refer to the merger of Steuben Trust Company and Community Bank as the “Bank Merger.”
Closing and Effective Time of the Merger
The closing of the Merger will take place at 10:00 a.m., New York City time, on a date which shall be no later than three business days after the satisfaction or waiver (subject to applicable law) of the latest to occur of the conditions to completion of the Merger (other than those conditions that by their nature can only be satisfied at the closing, but subject to the satisfaction or waiver thereof), unless another date, time or place is agreed to in writing by Community Bank System and Steuben. Simultaneously with the closing of the Merger, Community Bank System and Steuben will file a certificate of merger with each of the Secretary of State of the State of Delaware and the Secretary of State of the State of New York. The Merger will become effective at such time as the certificates of merger are filed or such other time as may be specified in the certificates of merger.
We currently expect that the Merger will be completed in the second quarter of 2020, subject to the adoption of the Merger Agreement by Steuben shareholders and other conditions. However, completion of the Merger could be delayed if there is a delay in satisfying any other conditions to the Merger. No assurance is made as to whether, or when, Community Bank System and Steuben will complete the Merger. See “— Conditions to Completion of the Merger” on page 65 of this Proxy Statement/Prospectus.
Merger Consideration
Under the terms of the Merger Agreement, each share of Steuben common stock outstanding immediately prior to the effective time of the Merger (excluding certain shares held by Steuben, Community Bank System and their wholly-owned subsidiaries, which are referred to as “excluded shares,” and dissenting shares described below) will be converted into the right to receive a combination of  $12.60 in cash and 0.8054 shares of Community Bank System common stock.
No fractional shares of Community Bank System common stock will be issued in connection with the Merger. Instead, each Steuben shareholder who would otherwise receive a fractional share of Community Bank System common stock will receive a cash payment, without interest, equal to: (i) the fractional share amount multiplied by (ii) the average closing price of Community Bank System common stock on the NYSE during the 30 trading day period ending on the trading day immediately preceding the date of the closing of the Merger.
A Steuben shareholder also has the right to obtain the fair value of his or her shares of Steuben common stock in lieu of receiving the merger consideration by strictly following the appraisal procedures under Section 623, attached as Annex C. Shares of Steuben common stock outstanding immediately prior
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to the effective time of the Merger and which are held by a shareholder who does not vote to adopt the Merger Agreement and who is entitled to demand and properly demands the appraisal of such shares pursuant to, and who complies in all respects with, the appraisal procedures under the NYBCL are referred to as “dissenting shares.” See “Proposal I — The Merger — Appraisal or Dissenters’ Rights” beginning on page 50 of this Proxy Statement/Prospectus.
If Community Bank System or Steuben changes the number of shares of Community Bank System common stock or Steuben common stock outstanding prior to the effective time of the Merger as a result of any stock split, reverse stock split, stock dividend (including any dividend or distribution of securities convertible into Steuben common stock or Community Bank System common stock), reorganization, recapitalization, reclassification, combination, exchange of shares or other like change, then the merger consideration shall be appropriately and proportionately adjusted.
Based upon the closing sale price of the Community Bank System common stock on the NYSE of  $[•] on [•], the last practicable trading date prior to the printing of this Proxy Statement/Prospectus, the value of the merger consideration was approximately $[•].
The value of the shares of Community Bank System common stock to be issued to Steuben shareholders in the Merger will fluctuate between now and the closing date of the Merger. We make no assurances as to whether or when the Merger will be completed, and you are advised to obtain current sale prices for the Community Bank System common stock. See “Risk Factors — The value of the stock consideration will vary with changes in Community Bank System’s stock price” on page 12 of this Proxy Statement/Prospectus.
Procedures for Converting Shares of Steuben Common Stock into Merger Consideration
Exchange Agent
Prior to the effective time of the Merger, Community Bank System will designate a bank or trust company reasonably acceptable to Steuben to act as the exchange agent in connection with the Merger (such agent is referred to in this Proxy Statement/Prospectus as the “exchange agent”). At or immediately after the effective time, Community Bank System will deposit, or cause to be deposited, with the exchange agent evidence of the number of shares of Community Bank System common stock and the aggregate amount of cash necessary to satisfy the aggregate merger consideration payable and any dividends or other distributions with respect thereto.
Transmittal Materials and Procedures
Promptly after the effective time of the Merger, Community Bank System will cause the exchange agent to send transmittal materials, which will include the appropriate form of letter of transmittal, to holders of record of shares of Steuben common stock (other than excluded shares and dissenting shares) providing instructions on how to effect the transfer and cancellation of shares of Steuben common stock in exchange for merger consideration.
After the effective time of the Merger, when a Steuben shareholder delivers a properly executed letter of transmittal and any other documents as may reasonably be required by the exchange agent, the holder of shares of Steuben common stock will be entitled to receive (i) the number of shares of Community Bank System common stock and an amount in cash that such holder is entitled to receive as a result of the Merger (after taking into account all of the shares of Steuben common stock held immediately prior to the Merger by such holder) and (ii) any cash in lieu of fractional shares and in respect of dividends or other distributions to which the holder is entitled.
No interest will be paid or accrued on any amount payable upon cancellation of shares of Steuben common stock. The shares of Community Bank System common stock issued and cash amount paid in accordance with the Merger Agreement upon conversion of the shares of Steuben common stock (including any cash paid in lieu of fractional shares) will be deemed to have been issued and paid in full satisfaction of all rights pertaining to the shares of Steuben common stock.
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If any portion of the merger consideration is to be delivered to a person or entity other than the holder in whose name any surrendered certificate is registered, it will be a condition of such exchange that (i) the certificate so surrendered shall be properly endorsed or shall be otherwise in proper form for transfer and (ii) the person or entity requesting such payment pays any transfer or other similar taxes required by reason of the payment of the merger consideration to a person or entity other than the registered holder of the certificate surrendered or shall have established to the satisfaction of Community Bank System that such tax has been paid or is not required to be paid. Payment of the applicable merger consideration with respect to book-entry shares will only be made to the person or entity in whose name such book-entry shares are registered. The shares of Community Bank System common stock constituting the stock portion of the merger consideration may be in uncertificated book entry form, unless a physical certificate is otherwise required by any applicable law.
Treatment of Steuben Equity Awards
Each Steuben stock option outstanding and unexercised immediately prior to the effective time of the Merger, whether or not vested or exercisable, will be cancelled and automatically converted into the right to receive a cash amount equal to the aggregate number of Steuben shares subject to such option multiplied by the excess, if any, of the value of the merger consideration over the exercise price of such option. The value of the merger consideration is equal to the sum of  (i) $12.60 and (ii) the product of  (a) 0.8054 and (b) the average trading price of Community Bank System common stock on the NYSE during the 30 trading day period ending on the trading day immediately preceding the effective date of the Merger.
Conduct of Business Pending the Merger
Pursuant to the Merger Agreement, Steuben agreed to certain restrictions on its activities until the effective time of the Merger. In general, Steuben has agreed that, except as otherwise permitted by the Merger Agreement, or as required by applicable law, it will:

conduct its business in the ordinary course consistent with past practice;

use reasonable best efforts to maintain and preserve intact its business organization, employees and advantageous business relationships; and

maintain its books, accounts and records in the usual manner on a basis consistent with that previously employed.
Each of Steuben and Community Bank System have agreed to take no action that would adversely affect or delay the receipt of shareholder approvals and regulatory or governmental approvals required for the transactions contemplated by the Merger Agreement, the timing of the effectiveness of the Registration Statement of which this Proxy Statement/Prospectus is a part, or to perform its covenants and agreements or to consummate the transactions contemplated by the Merger Agreement.
Steuben has also agreed that except as otherwise permitted by the Merger Agreement, as required by applicable law, or with the prior written consent of Community Bank System (not to be unreasonably withheld, conditioned or delayed) it will not:

amend or propose to amend its organizational documents or any resolution or agreement concerning indemnification of its directors or officers;

adjust, split, combine, subdivide or reclassify any capital stock;

make, declare, set aside or pay any dividend or make any other distribution on, or directly or indirectly redeem, purchase or otherwise acquire, any shares of its capital stock or any securities or obligations convertible (whether currently convertible or convertible only after the passage of time or the occurrence of certain events) into or exchangeable for any shares of its capital stock, other than the declaration and payment of dividends by any subsidiaries of Steuben to Steuben or any of its wholly-owned subsidiaries, dividends not greater than $0.36 per share per calendar quarter to the extent consistent with past practice, acquisitions of shares of Steuben common stock resulting from the net exercise of Steuben stock options outstanding as of the date of the
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Merger Agreement in accordance with their terms as of the date thereof, and dividends payable on the trust preferred securities issued in connection with the Steuben debentures in accordance with the terms of the applicable governing documents;

issue or otherwise permit to become outstanding, sell, pledge, dispose of, grant, transfer, lease, license, guarantee, encumber, or authorize the issuance, sale, pledge, disposition, grant, transfer, lease, license, guarantee or encumbrance of, any shares of its capital stock or rights related to its capital stock (other than issuances of Steuben common stock upon the exercise of Steuben stock options in existence on the date of the Merger Agreement pursuant to their terms);

fulfill participant purchases of Steuben common stock under the Steuben dividend reinvestment plan through the issuance of authorized and unissued Steuben common stock or Steuben treasury stock;

make any material change in any instrument or contract governing the terms of any of its securities;

make any material investment in any other person or entity other than a wholly-owned subsidiary of Steuben, other than in the ordinary course of business consistent with practice;

charge off  (except as may be required by law or by regulatory authorities or by GAAP) or sell (except in the ordinary course of business consistent with past practices) any of its portfolio of loans;

terminate or allow to be terminated any of the policies of insurance maintained on its business or property, cancel any material indebtedness owing to it or any claims that it may possess or waive any right of substantial value or discharge or satisfy any material noncurrent liability;

enter into any material new line of business or change its lending, investment, underwriting, risk and asset liability management and other banking and operating policies other than as required by law or any regulatory agreement or order;

lend any money or pledge any of its credit in connection with any aspect of its business (except in the ordinary course of business consistent with past practice);

mortgage or otherwise subject to any lien, encumbrance or other liability any of its assets (except in the ordinary course of business consistent with past practice);

sell, assign or transfer any of its assets in excess of  $25,000 in the aggregate (except in the ordinary course of business consistent with past practice);

transfer, agree to transfer or grant, or agree to grant a license to, any of its material intellectual property (except in the ordinary course of business consistent with past practice);

except in the ordinary course of business consistent with past practice, incur any indebtedness for borrowed money (other than short-term indebtedness incurred to refinance short-term indebtedness) or assume, guarantee, endorse or otherwise as an accommodation become responsible for the obligations of any other person;

other than purchases of investment securities in the ordinary course of business consistent with past practice, materially restructure or materially change its investment securities portfolio or its gap position, through purchases, sales or otherwise, or the manner in which the portfolio is classified or reported;

terminate, materially amend or modify or waive any material provision of any material contract other than normal renewals of contracts without materially adverse changes of terms, or enter into any material contract;

other than as required by benefit plans and contracts in effect as of the date of the Merger Agreement, (i) adopt, enter into, establish, terminate, renew or amend any benefit plan (or communicate any intention to take such action), (ii) change the compensation or benefits of any director, officer or other service provider, other than across-the-board cost of living increases in
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base salary not to exceed 2% of current base salary, (iii) adopt, enter into, or amend any collective bargaining agreement or any other similar agreement with any labor organization, group or association, (iv) adopt, enter into, establish, amend or grant any employment, severance, change in control, termination, deferred compensation, pension or retirement arrangement, (v) grant or pay any equity awards or other incentive compensation, or pay any bonus or incentive compensation under a pre-existing plan in excess of the amount accrued, (vi) accelerate any rights or benefits under any Steuben benefit plan, including accelerating the vesting of, or the lapsing of restrictions with respect to, any Steuben stock options, or otherwise amend the terms of any outstanding equity awards or equity-based awards, (vii) pay any severance in excess of what is legally required, (viii) take any action to fund or secure the payment of any amounts under any benefit plan, or change any assumptions used to calculate funding or contribution obligations to any benefit plan, other than as required by GAAP, or (ix) hire or terminate (other than for cause) any director, officer, or any other service provider with annual base salary or wages that is reasonably anticipated to exceed $100,000;

commence, settle or agree to settle any litigation, except in the ordinary course of business consistent with past practice that (i) involves only the payment of money damages not in excess of $50,000 individually or $100,000 in the aggregate, (ii) does not involve the imposition of any equitable relief on, or the admission of wrongdoing by, Steuben or its applicable subsidiary and (iii) would not create precedent for claims that are reasonably likely to be material to Steuben or any of its subsidiaries;

materially revalue any of its assets or change any method of accounting or accounting practice used by it, other than changes required by GAAP or any regulatory authority;

file any tax return except in the ordinary course of business consistent with past practice or amend any tax return;

settle or compromise any tax liability;

make, change or revoke any tax election or change any method of tax accounting, except as required by applicable law;

enter into any “closing agreement” as described in Section 7121 of the Code (or any similar provision or state, local or foreign law);

surrender any claim for a refund of taxes;

consent to any extension or waiver of the limitations period applicable to any claim or assessment with respect to taxes;

change its fiscal or tax year;

knowingly take, or knowingly omit to take, any action that is reasonably likely to result in any of the conditions to the Merger not being satisfied;

merge or consolidate itself or its subsidiaries with any other person or entity, or restructure, reorganize or completely or partially liquidate or dissolve itself or any of its subsidiaries;

acquire assets outside of the ordinary course of business consistent with past practice from any other person or entity with a value or purchase price in the aggregate in excess of  $50,000;

make any changes in the mix, rates, terms or maturities of Steuben Bank’s deposits or other liabilities, except in a manner and pursuant to policies consistent with past practice and competitive factors in the market place;

open any new branch or deposit taking facility or close, relocate or materially renovate any existing branch or facility;
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make any loans, or enter into any commitments to make loans, which vary other than in immaterial respects from its written loan policies (provided that Steuben may extend or renew loans in the ordinary course of business consistent with past lending practices or in connection with the workout or renegotiation of current loans);

renew or enter into any non-compete, exclusivity, non-solicitation or similar agreement that would restrict or limit, in any material respect, the operations of Steuben or any of its subsidiaries;

waive any material benefits of, or agree to modify in any adverse respect, or fail to enforce, or consent to any matter with respect to which its consent is required under, any confidentiality, standstill or similar agreement to which it is a party;

engage in any transactions (except for ordinary course banking relationships permitted under applicable law) with any affiliate or any director or officer thereof;

enter into any new lease of real property or amend the terms of any existing lease of real property (except in the ordinary course of business consistent with past practice);

incur or commit to incur any capital expenditure or authorization or commitment with respect to them that, in the aggregate is in excess of  $100,000, except as disclosed in the annual business plan or budget previously disclosed to Community Bank System;

take any action or knowingly fail to take any action where such action or failure to act would reasonably be expected to prevent the Merger from qualifying as a “reorganization” within the meaning of Section 368(a) of the Code; or

agree or commit to take any of the actions set forth above.
Regulatory Matters
This Proxy Statement/Prospectus forms part of a Registration Statement on Form S-4 which Community Bank System has filed with the SEC. Each of Community Bank System and Steuben has agreed to use reasonable best efforts to have the Registration Statement declared effective as promptly as practicable after its filing and to keep the Registration Statement effective for as long as necessary to consummate the transactions contemplated by the Merger Agreement. Each of Community Bank System and Steuben has agreed to furnish the other with all information concerning themselves, their subsidiaries, directors, officers and shareholders and such other matters as may be reasonably necessary or advisable in connection with this Proxy Statement/Prospectus, the Registration Statement or any other statement, filing, notice or application made by or on behalf of either party or any of their respective subsidiaries to any governmental authority in connection with the Merger, the Bank Merger and the other transactions contemplated by the Merger Agreement.
Community Bank System has agreed to use its reasonable best efforts to obtain all necessary state securities law or “blue sky” permits and approvals required to carry out the transactions contemplated by the Merger Agreement, and Steuben has agreed to furnish all information concerning it and the holders of its capital stock as may be reasonably requested in connection with any such action.
Community Bank System and Steuben have agreed to use all respective reasonable best efforts to take, or cause to be taken, in good faith, all actions and to do, or cause to be done, all things necessary, proper, or advisable under applicable laws, to permit the consummation of the Merger as promptly as practicable.
Community Bank System and Steuben each have the right to review and consult in advance on all the information relating to such party which appears in any filing made with, or written materials submitted to, any third party or any governmental authority in connection with the transactions contemplated by the Merger Agreement, provided that each party has agreed to act reasonably and promptly in exercising the foregoing right. Community Bank System and Steuben will consult with each other with respect to the obtaining of all permits, consents, approvals and authorizations of all third parties and governmental authorities necessary or advisable to consummate the transactions contemplated by the Merger Agreement, and each party will keep the other apprised of the status of matters relating to the completion of the transactions contemplated by the Merger Agreement. Each of Community Bank System and Steuben has agreed to consult with the other in advance of any meeting or conference with any governmental authority
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with respect to the transactions contemplated by the Merger Agreement and, to the extent permitted by such governmental authority, Steuben will give Community Bank System and/or its counsel the opportunity to attend and participate in such meetings and conferences.
Additionally, each of Community Bank System and Steuben has agreed to cooperate fully with and furnish information to the other party, and obtain all consents of, and give all notices to and make all filings with, all governmental authorities and other third parties that may be or become necessary for the performance of its obligations under the Merger Agreement and the consummation of the other transactions contemplated by the Merger Agreement. Further, to the extent permitted by applicable law, each of Community Bank System and Steuben has agreed to promptly advise the other upon receiving any communication from any governmental authority whose consent is required for consummation of the transactions contemplated by the Merger Agreement that causes such party to believe that there is a reasonable likelihood that any required approval will not be obtained or that the receipt of any approval will be materially delayed.
Further, each of Community Bank System and Steuben has agreed to use its reasonable best efforts to avoid the entry of, or to have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order by a governmental authority that would restrain, prevent or delay the closing of the Merger.
In connection with seeking regulatory approval for the Merger, neither Community Bank System nor any of its subsidiaries is required take, or agree to take, any actions, or to accept any restriction, requirement or condition, that, individually or in the aggregate, would reasonably be expected to have a material adverse effect on Community Bank System, Steuben and their respective subsidiaries, taken as a whole, or prohibit or materially limit the ownership or operation by Steuben or any of its subsidiaries, or Community Bank System or any of its subsidiaries, of all or any material portion of the business or assets of Steuben and its subsidiaries or Community Bank System and its subsidiaries, in each case taken as a whole, or compel Community Bank System or any of its subsidiaries to dispose of or hold separate all or any material portion of the business or assets of Steuben and its subsidiaries or Community Bank System and its subsidiaries, in each case taken as a whole.
NYSE Listing
Community Bank System has agreed to cause the shares of Community Bank System common stock to be issued to the holders of Steuben common stock in the Merger to be authorized for listing on the NYSE, subject to official notice of issuance, prior to the effective time of the Merger.
Steuben Debt
Community Bank System will execute and deliver at or prior to the effective time of the Merger any instruments required for the due assumption of Steuben’s outstanding Junior Subordinated Debt Securities due September 15, 2037 and other agreements to the extent reasonably required by the terms of such debentures. Steuben has agreed to take all actions reasonably requested by Community Bank System (i) to the extent required by the terms of the Steuben debentures or under applicable law to be taken prior to the effective time, including without limitation, the giving of any notices that may be required in connection with the Merger or the Bank Merger, and the delivery of any supplemental indentures, legal opinions, officers’ certificates, or other documents or instruments required in connection with the Merger, the Bank Merger and the respective consummation thereof or (ii) in order to facilitate Community Bank System’s assumption of the aforementioned Steuben debentures.
Employee Matters
Under the Merger Agreement, with respect to employees of Steuben who are employed by Community Bank System following the Merger (each, a “continuing employee”), Community Bank System will: (i) recognize service with Steuben prior to the Merger for purposes of determining eligibility for employee benefits under all employee health and welfare programs maintained by Community Bank System and for purposes of determining length of vacation, sick time and paid time off under Community Bank System’s applicable plan or policy, but not for eligibility, vesting, or accrual with respect to any defined benefit pension plan, retiree health plan, or equity award or other long-term incentive compensation plans or to the
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extent that such recognition would result in duplication of benefits; (ii) use its commercially reasonable efforts to waive pre-existing condition exclusions to the extent these exclusions were waived under the analogous Steuben benefit plan; and (iii) use its commercially reasonable efforts to recognize for purposes of annual deductible and out-of-pocket limits under its medical and dental plans, deductible and out-of-pocket expenses paid by continuing employees in the calendar year in which the effective time of the Merger occurs. Further, during the 12 months after the effective date of the Merger, Community Bank System will make available to continuing employees and their dependents employer-provided health coverage under Steuben plans or on the same basis as Community Bank System provides such coverage to similarly situated employees of Community Bank and its subsidiaries, and Community Bank System will provide any required COBRA coverage to former Steuben employees.
Community Bank System will honor employment and severance arrangements of Steuben specified in a disclosure schedule to the Merger Agreement, except to the extent such arrangements are superseded or terminated as of or following the effective time of the Merger. In the event the employment of a continuing employee without an individual agreement is terminated without “cause” during a specified period following the effective time of the Merger (or resigns at the effective time of the Merger due to certain compensation decreases or relocation in lieu of accepting a continuing job offer with Community Bank System), Community Bank System will provide certain severance benefits based on length of service. Community Bank System will honor the terms and obligations of Steuben deferred compensation plans and split-dollar arrangements and will refrain from terminating such plans and arrangements for a one-year period following the Merger. Upon the request of Community Bank System, prior to the effective time of the Merger Steuben will terminate, continue or merge its benefit plans, other than the employment agreements, severance arrangements, and deferred compensation plans and split-dollar arrangements described above.
The Merger Agreement does not amend or modify any benefit plan or limit the rights of Community Bank System to amend, terminate or otherwise modify any benefit plan (except for the deferred compensation plans and split-dollar arrangements described above, which Community Bank System has agreed to refrain from terminating for a one-year period following the Merger), and does not require Community Bank System to retain the employment of any particular employee for any fixed period of time following the Merger.
Indemnification and Directors’ and Officers’ Insurance
From and after the effective time of the Merger, Community Bank System has agreed to indemnify and hold harmless the present and former directors and officers of Steuben and its subsidiaries against any costs or expenses, judgments, settlements effected with the prior written consent of Community Bank System, fines, losses, damages or liabilities incurred in connection with any claim, action, suit, proceeding or investigation arising before or after the effective time of the Merger, arising in whole or in part out of, or pertaining to the fact that such person is or was a director, officer or employee of Steuben or its subsidiaries or is or was serving at the request of Steuben or its subsidiaries as a director, officer, agent, trustee or fiduciary of another person or entity and pertaining to matters, acts or omissions existing or occurring at or prior to the effective time of the Merger, including matters, acts or omissions occurring in connection with the approval of the Merger Agreement and the transactions contemplated thereby, to the fullest extent permitted by applicable law. Community Bank System has also agreed to advance expenses as incurred by any indemnified party to the fullest extent permitted by applicable law within 30 days after a written request setting forth such expenses in reasonable detail, provided that such indemnified party to whom expenses are advanced provides an undertaking to repay such advances if it is ultimately decided that such indemnified party is not entitled to indemnification.
For a period of six years after the effective time of the Merger, Community Bank System will cause to be maintained in effect the current policies of directors’ and officers’ liability insurance maintained by Steuben with respect to claims against them arising from facts or events which occurred at or before the effective time of the Merger (including the transactions contemplated by the Merger Agreement). Community Bank System will not be obligated to expend, on an annual basis, an amount in excess of 200% of the current annual premium paid as of the date of the Merger Agreement by Steuben for such directors’ and officers’ liability insurance (the “premium cap”) and if such premiums at any time exceed the premium
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cap, then Community Bank System will cause to be maintained policies of insurance which will provide the maximum coverage available at an annual premium equal to the premium cap. In lieu of the foregoing, Steuben in consultation with Community Bank System may obtain at or prior to the effective time a substitute policy for a price that in the aggregate does not exceed the premium cap.
No Solicitation
Steuben has agreed that it will not, and will cause its directors, officers, employees and representatives and affiliates not to, directly or indirectly: (i) initiate, solicit, encourage or knowingly facilitate inquiries or proposals with respect to, (ii) continue, engage or participate in any negotiations concerning, (iii) provide any confidential or nonpublic information or data to, or have or participate in any discussions with any person or entity relating to, or (iv) approve, recommend, agree to or accept, any acquisition proposal.
An “acquisition proposal” is defined as any offer, proposal or inquiry relating to, or any third party indication of interest in, (i) any acquisition or purchase, direct or indirect, of 15% or more of the consolidated assets of Steuben and its subsidiaries or 15% or more of any class of equity or voting securities of Steuben or any of its subsidiaries whose assets, individually or in the aggregate, constitute more than 15% of the consolidated assets of Steuben, (ii) any tender offer (including a self-tender offer) or exchange offer that, if consummated, would result in a third party beneficially owning 15% or more of any class of equity or voting securities of Steuben or any of its subsidiaries whose assets, individually or in the aggregate, constitute more than 15% of the consolidated assets of Steuben, or (iii) any merger, consolidation, share exchange, business combination, reorganization, recapitalization, liquidation, dissolution or other similar transaction involving Steuben or any of its subsidiaries whose assets, individually or in the aggregate, constitute more than 15% of the consolidated assets of Steuben.
If Steuben receives an unsolicited bona fide acquisition proposal that was not received in violation of the provisions described above, and the Steuben board of directors concludes in good faith that such acquisition proposal constitutes or is reasonably likely to result in a superior proposal (as defined below) and that failure to take such actions would be inconsistent with its fiduciary duties under applicable law, then Steuben may, and may permit its directors, officers, employees and representatives to: (i) enter into a confidentiality agreement with the third party making the acquisition proposal with terms and conditions no less favorable to Steuben than the confidentiality agreement entered into by Steuben and Community Bank System prior to the execution of the Merger Agreement; (ii) furnish non-public information or data to the third party making the acquisition proposal pursuant to such confidentiality agreement (and provide to Community Bank System any information not previously provided to Community Bank System); and (iii) participate in such negotiations or discussions with the third party making the acquisition proposal regarding such proposal.
A “superior proposal” means any bona fide, unsolicited, written acquisition proposal for at least a majority of the outstanding shares of Steuben common stock on terms that the Steuben board of directors concludes in good faith to be more favorable from a financial point of view to its shareholders than the Merger and the other transactions contemplated by the Merger Agreement (including taking into account the terms, if any, proposed by Community Bank System to amend or modify the terms of the transactions contemplated by the Merger Agreement in response to such proposal), (i) after receiving the advice of its financial advisor, (ii) after taking into account the likelihood of consummation of such transaction on the terms set forth therein and (iii) after taking into account all legal (with the advice of outside counsel), financial (including the financing terms of any such proposal), regulatory and other aspects of the proposal and any other relevant factors permitted under applicable law.
Notwithstanding the above, Steuben (without any determination by its board of directors or consultation with outside counsel or its financial advisor) may, following receipt of an unsolicited bona fide acquisition proposal, contact the third party making such proposal solely in order to clarify and understand the terms and conditions of such acquisition proposal and/or to direct such third party to the Merger Agreement.
Steuben must promptly advise Community Bank System within 24 hours following receipt of any acquisition proposal, any request for information, discussion or negotiation that is reasonably likely to lead to or that contemplates an acquisition proposal, or any inquiry, proposal or offer that is reasonably likely to
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lead to, an acquisition proposal. Steuben must furnish a copy of, or a description of the terms and conditions of such acquisition proposal and must keep Community Bank System informed of any related developments, discussions and negotiations within 24 hours of any such event or occurrence. Steuben must also promptly (within 24 hours) notify Community Bank System if it determines to begin providing information or to engage in discussions or negotiations concerning an acquisition proposal and shall not provide such information or engage in such discussions prior to providing such notice to Community Bank System.
The Merger Agreement generally prohibits Steuben’s board of directors from (i) withdrawing, modifying or qualifying in a manner adverse to Community Bank System the approval, recommendation or declaration of advisability by the Steuben board of directors set forth in this Proxy Statement/Prospectus that the Steuben shareholders vote to adopt the Merger Agreement, (ii) adopting, approving, recommending, endorsing or otherwise declaring as advisable the adoption of any acquisition proposal, (iii) resolving, agreeing or proposing to take any such actions or (iv) submitting the Merger Agreement to Steuben’s shareholders without recommendation (any such action, an “adverse recommendation change”).
The Steuben board of directors may submit the Merger Agreement to Steuben’s shareholders without recommendation, and communicate the basis therefor, in response to (i) an acquisition proposal that constitutes a superior proposal, or (ii) an intervening event (as defined below), if the board of directors concludes in good faith (after receiving the advice of its outside counsel and, with respect to financial matters, its financial advisor) that the failure to take such action would be inconsistent with its fiduciary duties to shareholders under applicable law.
An “intervening event” means any material event or development or material change in circumstances with respect to Steuben and its subsidiaries, taken as a whole, that arises or occurs after the date of the Merger Agreement and was neither known by nor reasonably foreseeable to the Steuben board of directors as of or prior to the date of the Merger Agreement and does not relate to any acquisition proposal or any required regulatory approval.
The board of directors of Steuben may not submit the Merger Agreement to Steuben’s shareholders without recommendation without providing Community Bank System with at least five business days’ prior written notice of its intention to take such action and with a reasonably detailed description of the acquisition proposal or intervening event giving rise to its determination to take such action, and without taking into account in good faith, at the end of such notice period, any amendment or modification of the Merger Agreement proposed by Community Bank System and determining, after taking into account the advice of its outside counsel and, with respect to financial matters, its financial advisor, that failure to take such action would nevertheless be inconsistent with its fiduciary duties under applicable law. Steuben has further agreed to, and to cause its financial and legal advisors to, negotiate with Community Bank System in good faith (to the extent Community Bank System seeks to negotiate) regarding any revisions to the Merger Agreement proposed by Community Bank System during such five business day period. Any material amendment to any acquisition proposal or any material development with respect to any intervening event, as the case may be, will require a new notice period as referred to above.
If the Steuben board of directors effects an adverse recommendation change and Community Bank System determines to terminate the Merger Agreement, Steuben will be required to pay Community Bank System a termination fee of  $4,270,000 in cash. See “— Termination,” beginning on page 66 of this Proxy Statement/Prospectus and “— Termination Fee” beginning on page 67 of this Proxy Statement/Prospectus.
Notwithstanding any superior proposal, intervening event or anything contained in the Merger Agreement, unless the Merger Agreement has been terminated in accordance with its terms, the Steuben special meeting shall be convened for the purpose of submitting the Merger Agreement to the Steuben shareholders to vote on the adoption of such and any other matters contemplated thereby.
Steuben Dividend Reinvestment Plan
Steuben shall take such action as is necessary to (i) provide that as of no later than five business days prior to the effective time of the Merger, no further Steuben common stock will be purchased under the Steuben Dividend Reinvestment Investment Plan and (ii) terminate the Steuben Dividend Reinvestment
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Plan prior to the effective time of the Merger in accordance with the Steuben Dividend Reinvestment Plan, and ensure that no purchase or other rights under the Steuben Dividend Reinvestment Plan enable the holder of such rights to acquire any interest in Steuben as a result of such purchase or the exercise of such rights at or after the effective time.
Representations and Warranties
The Merger Agreement contains generally customary representations and warranties of Steuben and Community Bank System relating to their respective businesses. The representations and warranties of each of Steuben and Community Bank System have been made solely for the benefit of the other party, and these representations and warranties should not be read alone. Instead, such provisions or descriptions should be read only in conjunction with the other information provided elsewhere in this document or incorporated by reference into this document. See “Who Can Help Answer Your Questions” on page viii of this Proxy Statement/Prospectus. In addition, these representations and warranties:

have been qualified by information set forth in confidential disclosure schedules to the Merger Agreement, which modify, qualify and create exceptions to the representations and warranties in the Merger Agreement;

will not survive consummation of the Merger;

may be intended not as statements of fact, but rather as a way of allocating the risk to one of the parties to the Merger Agreement if those statements turn out to be inaccurate;

are in some cases subject to a materiality standard described in the Merger Agreement which may differ from what may be viewed as material by you; and

were made only as of the date of the Merger Agreement or such other date as is specified in the Merger Agreement.
The representations and warranties made by Steuben and Community Bank System to each other primarily relate to:

corporate organization, standing and power;

corporate authorization to enter into the Merger Agreement and to consummate the Merger;

regulatory approvals required in connection with the Merger;

capitalization;

reports filed with governmental entities, including the SEC;

reports; financial statements;

absence of any breach of organizational documents, violation of law or breach of agreements as a result of the Merger;

compliance with laws and the absence of regulatory agreements;

labor matters;

legal proceedings;

Community Reinvestment Act compliance;

privacy of customer information;

insurance policies;

certain actions with respect to the Merger;

brokers and finders; and

certain information with respect to the Merger.
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Steuben has also made representations and warranties to Community Bank System with respect to:

tax matters

environmental matters;

employee benefit plans;

intellectual property;

material contracts;

loan and investment portfolio matters;

adequacy of allowances for losses

technology systems;

corporate documents;

the inapplicability to the Merger of state takeover laws;

real property;

administration of trust accounts;

the opinion of its financial advisor;

transactions with insiders and affiliates;

investment securities; and

ownership of Community Bank System common stock.
Certain of the representations and warranties of Steuben and Community Bank System are qualified as to “materiality” or “material adverse effect.” For purposes of the Merger Agreement, the term “material adverse effect” means, with respect to Steuben or Community Bank System, as the case may be, a material adverse effect on (i) the condition (financial or otherwise), property, business, assets (tangible or intangible), liabilities or results of operations of such party and its subsidiaries taken as a whole or (ii) the ability of such party and its subsidiaries to perform their obligations under the Merger Agreement or to timely consummate the Merger, the Bank Merger, or the other transactions contemplated by the Merger Agreement; provided, however, that “material adverse effect” does not include (x) for purposes of  (i) above, (A) changes after the date of the Merger Agreement in GAAP or regulatory accounting requirements generally applicable to banks and their holding companies, (B) changes after the date of the Merger Agreement in laws, rules or regulations or interpretations of laws, rules or regulations by governmental authorities of general applicability to banks and their holding companies, (C) changes after the date of the Merger Agreement in general economic or market conditions in the United States or any state or territory thereof, in each case generally affecting banks and their holding companies, (D) changes after the date of the Merger Agreement in market interest rates, (E) changes resulting from the announcement or pendency of the Merger or the other transactions contemplated by the Merger Agreement (including the impact thereof on relationships with customers, service providers or partners) or actions or inactions expressly required by the Merger Agreement or (F) any failure to meet internal projections or forecasts or estimates of revenues or earnings for any period (it being understood that the circumstances giving rise to such failure that are not otherwise excluded from the definition of material adverse effect may be taken into account in determining whether there has been a material adverse effect), except with respect to clauses (A), (B), (C) and (D) to the extent that the effects of such changes are disproportionately adverse to the condition (financial or otherwise), property, business, assets (tangible or intangible), liabilities or results of operations of such party and its subsidiaries taken as a whole, as compared to other banks and their holding companies.
Conditions to Completion of the Merger
The obligations of Community Bank System and Steuben to complete the Merger are subject to the satisfaction of the following conditions:
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the approval of the Merger Agreement by Steuben shareholders;

all regulatory approvals from the Federal Reserve, the FDIC, the OCC, the New York Department of Financial Services, and any other regulatory approval that is necessary to consummate the transactions contemplated by the Merger Agreement and the failure of which to be obtained or made would reasonably be expected to have, individually or in the aggregate, a material adverse effect on Community Bank System or Steuben, as the case may be, shall have been obtained or made and be in full force and effect and all waiting periods required by law shall have expired;

the absence of any order, injunction or decree issued by any court or agency of competent jurisdiction or other law preventing or making illegal the consummation of the Merger or the Bank Merger;

the effectiveness of the Registration Statement on Form S-4, of which this Proxy Statement/​Prospectus is a part, under the Securities Act, and no order suspending such effectiveness having been issued or threatened;

the authorization for listing on the NYSE of the shares of Community Bank System common stock to be issued in the Merger;

the accuracy of the other party’s representations and warranties in the Merger Agreement on the date of the Merger Agreement and as of the closing date of the Merger (or such other date specified in the Merger Agreement) other than, in most cases, inaccuracies that would not reasonably be expected to have a material adverse effect on such party;

the performance in all material respects by the other party of its respective obligations under the Merger Agreement;

the absence of any event which is expected to have or result in a material adverse effect on the other party; and

receipt by each party of an opinion of its counsel to the effect that the Merger will qualify as a reorganization within the meaning of Section 368(a) of the Code.
In addition to the mutual closing conditions, Community Bank System’s obligation to complete the Merger is subject to the satisfaction or waiver of the following additional conditions:

No governmental authority shall have imposed a materially burdensome condition in connection with granting any regulatory approval;

Steuben shall have obtained all consents of third parties required as a result of the transactions contemplated by the Merger Agreement;

Shares of Steuben common stock as to which statutory appraisal rights shall have been exercised shall represent not more than 10% of the outstanding shares of Steuben common stock; and