Welcome to the Community Bank System Third Quarter 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 and Form 10-K filed with the Securities and Exchange Commission. Today’s 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, Erin. Good morning, and thank you all for joining our third quarter conference call. It was another busy and productive quarter for the company. Earnings per share of $0.54 excluding acquisition expenses equal our all-time high quarterly results. Decline in margins over the last year’s third quarter cost us $0.06 per share which was overcome by a 15% larger average balance sheet, 11% greater fee income and improvement in the efficiency ratio. Credit demand was again the highlight of the quarter with loans growing organically nearly a $100 million for the second consecutive quarter or 11% annualized. Mortgage and consumer installment lending remained very strong with business lending declining modestly. Given the historical seasonality of our loan cycle, it’s important we perform well in the second and third quarters of every year and we certainly did that this year. During the quarter we closed on both legs of the branch acquisition previously announced in the first quarter consisting of 16 branches from HSBC and 3 branches from First Niagara. In the aggregate, we assumed approximately $800 million of deposits and $160 million of loans at a blended deposit premium of 3.2%, both conversions went extremely well and we subsequently consolidated 5 acquired branches into existing community bank branches to further enhance the economic and operating efficiency of the transaction. Our principal business focus is creating, growing at sustainable returns to our shareholders. In September, we announced an increase in our quarterly dividend from $0.26 to $0.27 per share which marks the 20th consecutive year of increasing dividends. We’re pleased with this milestone and to join a small handful of banks across the country who achieved it. It also represents a pay-out ratio of just over 50% affording us considerable capital retention to fund ongoing organic and acquired growth. Looking forward, we expect our operating strength to continue with solid earnings, a larger balance sheet, operating efficiency plus full and growing capital levels and sound asset quality. As I commented last quarter, I expect our principal challenge in the near-term will be to maintain earnings in a declining margin environment. We’ve been able to accomplish that for the past several quarters through growth in the balance sheet, growth in non-interest revenues and focused expense control and we will continue to vigorously manage both the left and the right side of our balance sheet in the top half and bottom half of our P&L. Scott?

Thank you, Mark, and good morning, everyone. As Mark mentioned, our operating performance for the third quarter remained very favorable and at record quarterly levels. Our third quarter reported earnings of $0.46 per share included $0.08 of share of acquisition expenses as well as $0.01 per share of additional loan loss provision of related to loans we just acquired. We completed the acquisition and conversion of 16 former HSBC branches in July and the remaining 3 First Niagara branches in September which resulted in the third quarter reflecting the various attributes of the transactions at roughly 70% of a full quarter impact. As a reminder, we initiated a liquidity pre-investment strategy late in March of this year deriving a meaningful portion of the transactions' positive impact on net interest income in the second quarter. Upon the completion of the branch transaction we did fully extinguish all remaining short-term borrowed funds and for the third quarter, we're in an overnight invested cash position that averaged $138 million nightly. Also, as a reminder we did raise the necessary capital to support the branch acquisition in late January which did negatively impact the EPS for the first half for the year. We felt strongly that it was important to eliminate any potential market uncertainty relative to our ability to timely capitalize the deal. We believe the successful execution of the common stock offering in January validated that decision despite the $0.01 per month EPS dilution that it did entail. I’ll first discuss some balance sheet items. Average earning assets of $6.63 billion for the quarter were up $322 million from the second quarter of 2012 and included an increase in cash equivalents of $128 million and an increase in average loans of $196 million. Investments were essentially unchanged from the second quarter. Ending…

[Operator Instructions] I have Joseph Fenech.

Scott, you said that the third quarter represented about 70% of a full quarter impact from the deal, so the margin was down 17 basis points, is it, back of the envelope, is it way too simple to assume you’re going to see another 6 basis points or so of a NIM compression in the fourth quarter related to the deal or is there other considerations with, putting the excess cash to work what have you that can offset a bit of that?

Really good question, Joseph, I do think, we think where there is a little bit more erosion coming in the fourth quarter just from the expected retention of cash balances. There is really nothing all that attractive for us right now in the current environment, from adding to your point full utilization or full invested outcomes, that’s why I do think we expect maybe to your point 3 to 6 more of margin erosion.

Okay. And then, saw a deal at a pretty high multiple in Syracuse over the past since you had your last conference call, can you just talk about your appetite for acquisitions kind of in and around the market, just remind us what your geographic preference is for, preferences are and then sort of the threshold in terms of asset size and then I know that’s a lot all at once, but just if you could talk generally about your appetite for deals, that would be helpful?

Sure. Thanks, Joseph. I think as everyone knows one of the elements to our growth strategy is high value acquisitions and I think we first and foremost try to take a very disciplined approach to identifying those opportunities as well as evaluating those that that come to us. We have, as you know, this year closed on the Branch acquisition; last year, closed on the Wilber acquisition; in 2008 closed on the Citizens branch acquisitions in Northern part of New York State. So certainly continue to have an ongoing appetite for acquisition opportunities which will first and foremost create value for our shareholders. In terms of the question of size, I think we have done the last handful of transactions that I just commented on and then somewhat larger than the previous acquisitions mainly because of just the growing balance sheet of the company and it evolves to a point where you can’t get the sufficient shareholder benefit out of the smaller transactions. So I think if you look at the last 3 in size they were in the 600 to 900 [indiscernible] range. We certainly would continue and will continue to look at opportunities in that range and maybe even modestly above that for an opportunity that’s highly attractive I think. We certainly look at billion-dollar range opportunities if they had proper risk reward characteristics, were properly qualitatively attractive and most importantly represented high value opportunity for our shareholders. Geographically, we continued to look principally within and contiguous to our existing footprint in upstate New York and Northern New York, Western New York. The Wilber merger allowed us to look closer into, down towards, the Hudson Valley region and maybe, the Northeast corner of Pennsylvania and maybe the Northwest part of New Jersey. We’ve been interested in Ohio as…

Yes. I had just one follow up and that’s all helpful, Mark, but does the price paid in the Syracuse deal change the landscape at all in terms of how you are thinking about things of upstate New York or should we just not be that surprised and just sort of the cost of doing business in a market where all the potential acquirers traded big multiples?

I am not going to comment on a specific transaction. I think when we look at any opportunity, we look at first and foremost the opportunity to create value for our shareholders which is can we grow earnings in a fashion that’s commensurate with the risk associated with the transaction and can we grow our dividend and is it sustainable and those are the metrics and the framework that we use to evaluate any acquisition so we aren’t so much wedded to any notion of here is what the last 10 deals are or here is what the going multiple is in the market. We look at what can we put together in the transaction that makes sense for our shareholders first and foremost and if a transaction does not makes sense for us in terms of the opportunity it creates for earnings accretion then we will not do it. So I guess the answer is it doesn’t really matter to us what the multiples in market are when things get over heated we will probably do fewer acquisitions and we'll grow and create growing earnings other ways and when multiples are such that we can be successful we’ll have more opportunities so I don’t view it as much as a function of what the market is as what the opportunity is in any particular transaction to create solid accretive growth for our shareholders.

The next question comes from David Darst.

So just the organic loan growth trends continue to be pretty good and that I guess should we think about your ability to continue to grow residential mortgages along with the refi wave or you’re actually seeing something different where you think you can continue to grow residential portfolio and consumer loans and use that as a way to soak up some of the liquidity you have at period end.

Looking right now our residential pipeline is over $100 million, it really hasn’t come down much since the end of the last quarter so I suspect that Q4 will be another very strong year with respect to residential mortgage growth. I mean, it’s clear if you look at the last couple of quarters and even beyond that in terms of the refinancing trend, it’s above the trend line, right. So it’s above average and I think we will continue to see moderation and decline of those pipelines in those originations as the refi boom wears out but with that said I think we’ve always even through, if you look at 2008 and 2009 when things weren’t going well generally, in terms of the economy and real estate in particular, we still have very strong mortgage originations. So I think some of that is just a function of the markets we’re in they didn’t boom and crash as hard. So I think the core purchase money mortgage originations have tend to be relatively stable I think, the deviation right now from, from the standard trend line is more a function of refinancings which will decline as the refinance trend declines.

David, I think we’ve said before too that, our consideration for the portfolio and of mortgages also reflects the fact that we’ve a very small investment portfolio that is mortgage backed securities and as you can expect that’s running off relatively quickly with the refinancing activities in the marketplace and understand that we would rather portfolio our own originated paper at par than pay 103 or 104 or 105 premium to buy buckets of MBS securities that are actually, not in our marketplace usually. So I think that’s some of the other ALCO considerations, we give to relative to holding versus selling.

Where would you see the mortgage portfolio increase, what’s the maximum levels as a percentage of loan portfolio, you’d be comfortable with it?

David, I don’t know that we’ve penciled in any maximum level, I think if you look at in terms of risk characteristics for us, we’ve got a ways to go. When you have a portfolio that has 6 basis points of loss, you’re really not spending a lot of time worrying about the loss or the loss development characteristics of that portfolio. I think instead we would be more paying attention to expected duration characteristics over a cycle.

I think the other point is that $1.4 billion, it doesn’t represent an over-weighting of our total interest earning assets as well. So I think we’re not like, we may certainly at some point make the judgment to sell more of the 30 year production. Right now, a lot of the production last couple of quarters has been 15 year and 20 year. So the average maturities are not at 30 years, they’re much less than that and the ultimate duration of that asset class is closer to 10 to 12 year. So at this point we’re not really concerned about it in any respect it doesn’t represent an over-weighting if you will in our view of interest earning assets on the balance sheet.

Okay. And are there small business or other commercial relationships that were housed in the branches that stayed with either HSBC or First Niagara that create opportunities for you to drive more value out of the branches?

They’re little bit and to clarify that there were relationships at the mid market and above level that stayed with HSBC across multiple geographies above State of New York. As you might expect those are probably more concentrated in the 4 urban upstate markets where our participation is a little bit lower. But I would say it does create some opportunities for us relative to, that small business person who did end up staying with HSBC or who was purchased by First Niagara, making another decision on their long term banking needs. So I think any kind of positioning or displacement opportunity does create an opportunity for other institutions much like us but I think what you’ll find right now and I don’t think upstate New York is radically different than the rest of the country. It’s a very competitive landscape for commercial banking right now. There is a lot of people with lot of liquidity and they’ve come through the cycle and survived periods where they were forced to shrink their balance sheet some of the competitors in our marketplace and now they’re back at it in full glory. So I think our stance is that continues to be a competitive area. We continued to have to pick our spots in that area but I think that’s probably why you’re not seeing us, with outside growth characteristics in commercial banking right now.

The next question comes from Damon DelMonte.

Scott, I was wondering if you could give us a little guidance on the overall expense base once all of the moving parts are shaken out, is what would be a good range for us to look at for the fourth quarter kind of going into 13.

In terms of the basics Damon I would probably say is that, if we think we’ve encouraged 70% of the operating activities and the operating cost associated with the acquired branches, if you just did the math generically you’d probably add another $800,000 to $900,000 of fourth quarter expense to get a full run rate. I think we’re actually hoping to do little modestly better than that. I think we think some of the consolidations we did simultaneous with the closings will allow for a little bit of, little bit of opportunity for us there. The fourth quarter for us is a little bit seasonally more expensive as we turned the heat on in some of our branches and as you know the first quarter is a bit more expensive than that. So from a run rate standpoint, third quarter is usually pretty good for us. So I would expect a little bit more need for a little higher incremental expense base in the fourth quarter plus the acquisitions we just talked about. We’re in our budgeting cycle and our forecasting cycle for next year already, I think we expect some kind of cost of living basis in terms of merit increases, in terms of other attributes of our existing expense base, but I don’t think it’s far outside of the historical norm, Damon.

Okay, it’s helpful. With regard to the provision for loan losses, this quarter is $2.6 million, last quarter is $2.2 million, you haven't been above the $2 million level for a while, how should we think about the provision kind of again going through the fourth quarter and as you look out into 2013?

You know Damon, I think that, I will make the comment about $0.5 million of this quarter’s provision was from the rather confusing and sometimes perverse outcome of fair value loan accounting to find acquisitions in that in certain of the assets that we acquired or some of the retail assets that we acquired actually had a higher interest rate mark, than they did loan credit mark. So in other words, we acquired assets with a fair value higher than their par value or contractual value. So what that created and the only other transaction I thought of that was even close to this was the Capital One / ING transaction where they actually had a write-up in their loans which meant on the first day or on for day one purchase accounting, they had to record a provision for loan loss for now inherent loans, and that’s a lot for people to swallow in terms of understanding but I think if I look at a going forward expectation, I would say, I wouldn’t expect that $0.5 million to exist going forward. And I think any time your charge-offs are between $1.3 million or $1.4 million and $2 million and you have a growing loan portfolio, a $2 million provision is not out of the norm for us.

[Operator Instructions] Sir, at this time I have no other questions in queue.

Great, thank you, Erin. Thank you all for joining the call this quarter and we will talk again next year. Thank you. Thanks.

That concludes today’s conference. Thank you for your participation. You may now disconnect.