Good day, ladies and gentlemen. And welcome to today's Community Bank System Fourth Quarter and Year End 2016 Earnings Conference Call. Please note that this presentation contains forward-looking statements within the provisions of the Private Securities Litigation Reform Act of 1995 that are based on current expectations, estimates and projections about the industry, markets and economic environment, in which the company operates. Such statements involve risks and uncertainties that could cause actual results to differ materially from the results discussed in these statements. These risks are detailed in the company’s annual report Form 10-K filed with the Securities and Exchange Commission. Today’s call presenters are Mark Tryniski, President and Chief Executive Officer; and Scott Kingsley, Executive Vice President and Chief Financial Officer. Gentlemen, you may begin.

Thank you, Greg. Good morning, everyone, and thank you all for joining our Q4 and full year conference call. Our financial and operating performance for the fourth quarter and full year were strong, which Scott will discuss in further detail. Beyond financial performance, it was an exceptional year in positioning us for future and continued earnings and dividend growth. The Merchants transaction that we announced in October and discussed on our third quarter call is progressing well. Integration efforts are underway and despite the baseless protest filed with the Fed Reserve by a serial activist, we expect to close in the second or early third quarter. We are equally pleased about the acquisition of Northeast Retirement Services, a leading provider of plan accounting, transfer agency, fund administration and trust and retirement plan services to institutional clients. Based outside of Boston, NRS has very strong margins and is growing at double-digits. The combination of NRS with BPAS, our existing benefits business will create a platform with over $80 million of annual revenue, more than %50 billion of trust assets and 3800 clients across the United States and Puerto Rico. The transaction is expected to be modestly accretive to GAAP earning in 2017, but will accelerate substantially as intangible assets amortize down. Just as important, however, the transaction will be significantly and immediately accretive to cash earnings providing substantial support to our dividend capacity. We're looking forward to close in early February. 2016 was a very good year for our shareholders. We achieved record operating earnings for the seventh consecutive year. The share performance was strong and we increased our dividends for the 24th consecutive year. Beyond that and more important for our future, we strategically and effectively deployed capital in a manner that tremendously strengthens our capacity to continue to generate growing earnings and growing dividends. We are in an exceptionally strong position as we head into 2017 and beyond and as always, remain mindful of our responsibility to create exceptional value for shareholders. Scott?

Thank you, Mark and good morning, everyone. As Mark noted, the fourth quarter of 2016 was another very solid operating quarter for us and as a reminder, included a full quarter of the activities of the Oneida Financial acquisition that we completed in December of 2015. Reported fourth quarter earnings was $0.59 per share, which included $0.02 a share of acquisition expenses, but also included almost $0.02 a share of incremental dividend income from an active Limited Partnership, Wheat Cole. As Mark also mentioned, full year 2016 operating income of $2.33 a share represented the seventh consecutive year of record results, despite having to overcome a $%0.07 per share tax rate headwinds in 2016 versus 2015. I'll first cover some updated balance sheet items. Average earning assets of $7.69 billion for the fourth quarter were up modestly from the third quarter and were 5.3% higher than the fourth quarter of 2015. Average loans increased $21 million in the fourth quarter or 0.4% on a linked quarter basis, as solid organic growth in consumer mortgages and consumer installment products were partially offset by a second consecutive quarter of net declines in commercial balances, the result of an unusually large level of unscheduled payouts. Quarter end investment securities were down $93 million from the end of September, a result of very modest portfolio of cash flow reinvestment in the fourth quarter, as well as a meaningful decline in the investment portfolio of net unrealized gain position due to market interest rate increases during the quarter. Average quarterly deposits were up $101 million in the fourth quarter of 2016 or 1.4%. 2016 was again a continuation of the favorable overall asset quality results that is part of our credit DNA. Fourth quarter net charge-offs of $2.2 million or 0.18% of total loans were…

Thank you, sir. [Operator Instructions] Our first question will come from Alex Twerdahl with Sandler O’Neill.

Hey. Good morning, guys.

Good morning, Alex.

Good morning, Alex.

First off, I was wondering if you can give us a little bit of an update on how the loan pipeline looked at the end of the year?

Sure. If you look back over the course of 2016, we had a - overall about 3% growth, which is about our markets, slower growth markets, but there was a lot of decisions amongst the different businesses, was a very strong year for the auto lending and indirect installment loan; lending was up double-digits. The consumer mortgage business was up little over at 3%, which is a fairly typical year absent you know, significant refi activity, because of interest rates. And commercial banking business was flat, and a lot of good wins and some significant very large unexpected payoffs as well, so kind of a mix results there. But overall typical for us in terms of overall growth in our portfolios. Right now the mortgage business it tends to - the pipeline to tends to get little bit better this time of the year and that accelerates, it’s consistent with where it’s been in the past. The auto lending business, obviously not a pipeline there, but I think the fourth quarter results were maybe a bit better than what we expected. And the commercial banking pipeline is fairly consistent as well, not significantly offered up or not significantly down. So I would suggest that heading into first quarter our pipelines are relatively stable with no significant variations in any of those pipelines either way Alex.

Okay. Great. And then, you know, we've seen a little bit of rate hike last month, and we've seen the five year treasury kind of expand a lot during the fourth quarter, have you seen any of that translates into slightly better pricing for you guys on new productions?

I would suggest its been limited. I think some of our existing variable rate commercial business has repriced and we've got a slight, I would say modest benefits from that, as it relates to new production and new business, its still on the commercial side, tremendously competitive. So we haven't seen a lot of reaction there. In terms of significant rate relief, we are still experiencing slightly declining margins in our commercial business, whereas for most of the consumer businesses those yields have pretty much stabilized. So modest benefit for the rate increases, still highly competitive from a rate perspective on the commercial side and the consumer portfolios had pretty much stabilized in terms of yield.

And then just my final question is maybe you can give us just a little bit more color on that Limited Partnership what that was, whether or not that type of gain is something we can expect in the future?

Sure. Alex, I'll take that one. It's an operating Limited Partnership that we've been the owner of since the Wilber transaction back in 2011, it’s a Limited Partnership that has some of the attributes of yield generation for Wilber and some CRA related credit came from that – from some of those activities. Late in the third quarter, early in the fourth quarter this Limited Partnership had one of their underlying portfolio companies that actually was monetized. That gave them the flexibility to create a larger than typical dividends to the Partnership holders in the fourth quarter. So from a running forward standpoint, from a run rate standpoint very hard to predict. There are some still underlying good portfolio companies in the Limited Partnership, but we wouldn’t put them into our forecast, too difficult to predict.

Okay. All right. Thanks for taking my questions.

Thanks, Alex.

Thanks, Alex.

Moving on, our next question comes from Joseph Fenech with Hovde Group.

Morning, guys.

Morning, Joe.

Morning, Joe.

Guys, I don’t have much on the quarter, a typically strong one for you all, just a question on the go forward M&A strategy, you know, we've seen banks that trade at multiple similar to yours, get more aggressive in their talk and their actions on M&A. There was obviously a big one this morning. How do you all think about the approach here, does it not change at all or is there more or an inclination to get aggressive, maybe take on a little higher than normal integration risk, but with a view maybe that that’s trumped by the prospect of putting the currency to work? And that’s obviously setting aside the attitude of the potential target, which I know factors in. Just trying to get a read, though, on your thought process?

I guess, I would summarize it Joe, as we don’t believe in aggression, we believe in discipline and from my perspective it’s about being disciplined and executing well in high value opportunities. It doesn’t really matter to us whether we're trading at a higher multiple or lower multiple. It certainly makes potential strategic opportunities more valuable, but we wouldn’t ever consider doing something we wouldn’t otherwise do solely because our shares are trading at a premium to the market.

No, I understand that but to the extent Mark that maybe you say, hey, you had your wish list right over the next two to three years. Do you say to yourself, hey, maybe it make sense to try to push a little harder on targets A or B, that we may thought may to market in the next 18 to 24 months? Do you push a little harder on stuff you already knew you are interested in, I understand your comment on discipline thought?

I would say the short answer is yes, it creates a different opportunity in terms of capacity to you know, to make a transaction with a strategic target more attractive to the seller.

Okay. All right, thanks.

Thanks, Joe.

[Operator Instructions] Next from KBW, we have Collyn Gilbert.

Thanks. Good morning, gentlemen.

Morning, Collyn.

Just Scott, if you could talk a little bit about how you are kind of seeing the securities portfolio now and sort of what your strategy is going to be to manage that going forward and where you are seeing yields running off, what you are purchasing and then how that kind of affects your NIM outlook?

Sure. So from a scheduled cash flow standpoint, 2017 is roughly $120 million expectation here. So on a base of $2.8 billion, not a ton, most of that is in the municipal security side. So we tend to have slightly better yields in the municipal securities portfolio concentration standpoint than the rest of the things we're holding, especially treasury securities. So I would say the way we are posturing for now is with the expectation of rate increases in the market, we're probably not a very active buyer, I think we're trying to find high quality municipal securities of the right durations when we get them, chances are that will result in running off yields being a little bit higher than what we purchased. We did buy a few million dollars worth of mortgage backed securities, most of those come with CRA type benefits as well, we'll continue to monitor those. In terms of investment cash flows, you know, hopefully here over the next handful of months we'll get an opportunity to blend in the Merchants investment portfolio with ours, relative to how we want to position the combined portfolio. But for now I think its sort of business as usual and certainly wouldn’t be surprised to see the next couple of quarters, our investment securities being in a net run-off position.

Okay. Okay, that’s helpful. And then just drilling a little bit more on the margin, just how you sort of see the margin trending, let's assume, you know, two rate hikes maybe this year. And just digging in a little bit more to really what's driving the liability sensitivity of the balance sheet and or is not really of that liability sensitive as perhaps what the disclosures may show?

Really good question, probably the $10,000 question. If we had the prognostication tools, we would really like to know that ourselves. But we kind of view it this way Collyn. If you pull out things like Federal Reserve bank dividends and the Limited Partnership dividend that we had in the fourth quarter, and in the third quarter we had an above average amount of yield attached to some commercial loan payoffs, if you pull those things out, we essentially started the year at 367 operating margin in the first quarter, went to 368 in the second quarter, to 365 in the third quarter to 366 in the fourth quarter. So we seemed to have found a band and a range. To Mark's point, asset repricing. So very competitive on the commercial side, but we think we're past the inflection points on the mortgage and the car loan side. In other words, new production is at or slightly above where we had been. We just talked about where we were investment securities. So there is your asset side. The liabilities side and why we do think we are liability tested it is the $7 billion at 10 basis points. When in the point in the cycle where we actually have to see some rate movement up on the deposit side. Our disclosure modeling basically uses the period of 2003 to 2006. The last time there were meaningful rate increases. But that’s only as good as – clearly the deposit portfolio looked different then, not only for us, but for everybody, you know, at that point in time we were still about 30% to 35% certificate in the portfolio, today we're more like 8% certificates. So I think its going to be the speed on the way up. I think we like our chances of being those who lag, a reason being is 70% loan to deposit ratio and for in market places where we tend to have a fair leadership position from a deposit share standpoint. But you know, that will be the difficulty. Obviously, no rate changes after the first 25 in December of last year, no deposit rate changes after the second 25 in December this year, you know, does the third or the fourth one actually starts to move funding up, really good question, that’s why in our modeling we think it does, and that’s why at $7 million of 10 basis points liabilities, that’s quite frankly has a little bit more inflection than the asset that we price for us.

Okay. Okay, that’s really helpful. And what deposit betas do guys assume in your assumptions?

You know, we moved them up, you know, Collyn, its difficult to – we tend to move them up very little in the first 50 and then we go up about a 30% to 35% of the rate movements from 50 to 100 and then more like 66% when you go from a 100 to 150. So doing it in waves you know, assuming you get three kinds o movements at 75 basis points, we don’t expect a ton in 2017 and that’s why we said, we're a champion and a cheerleader for higher rates, but we don’t really see a ton of benefit for that for a year to year and half.

Okay…

The other thing I would say – the other comment I would just make is the deposit betas that we use for our disclosures and such, are more conservative than what we experienced in last up rate cycle by a substantial margin and have you know, reflected neutral to slightly down net interest margin over above in six quarter period and after that there is a significant improvement in margin and net interest income. So we like the asset liability mix right now, we really like the core deposit funding, we understand if rates move up there will likely be a transition at some level, as it was on the way down of deposits transitioning out of the checking and savings, money market type instruments, into CDs, which also helps from the perspective that it creates a natural hedge against further interest rate. So we like our ALCO position quite a bit, right now.

Okay. Okay, that’s great color. Thank you. And then just moving to the Merchants deal Mark, I think you had indicated that you know, perhaps because of a dissident consumer group or whatever, community group, could delay the closing maybe to early 3Q? Is that really the primary driver for maybe why you push it out to see closing in 3Q? And any more color you could offer on the - sort of the timing of that closing would be great?

Yes, that’s solely the reason. So it was a, I guess, a protest, we call it that, that was filed the last minute on Friday I believe. So you know, we're still trying to work through it and understand it. So yes, and I think we expected to close in the second quarter and I think at this juncture it’s not impossible that it moves to early third quarter, but we certainly would still be shooting for our original closing date. I mean, some of the comments that have made in this protest were, as I said are baseless and similar to those that were made in the last go around with respect to the Oneida transaction. So, we've had - there will be some familiarity with these applications as it relates to the regulators. So we are hopeful that this one will move through the process a bit more efficiently than it did with the Oneida transaction.

Okay. Okay, that’s really helpful. Thank you.

Thanks, Collyn.

[Operator Instructions] And gentlemen, at this time, it looks like we have no further questions from the audience.

Excellent. Thank you all for joining and we will talk again in April. Thank you.

And once again, ladies and gentlemen, that does conclude today's conference call. We appreciate your participation. You may now disconnect.