5790 Widewaters Parkway

DeWitt, New York 13214-1883

Dear Shareholders:

The Annual Meeting of the Shareholders of Community Bank System, Inc. (the “Company”) will be held at the Marriott Syracuse Downtown, Persian Terrace, 100 E. Onondaga Street, Syracuse, New York 13202 on Wednesday, May 15, 2024 at 12:00 p.m. Eastern Daylight Time.

Whether or not you plan to attend the Meeting, the Board of Directors strongly encourages you to review the enclosed information and vote your shares. Your vote is important.

In 2023, the Company continued to rely upon and enhance the strong foundational elements of its business. Rapidly changing market conditions, high inflation, a few high-profile bank failures and geopolitical conflicts posed significant challenges for banks and the broader financial services industry.

Despite these challenges, in 2023 the Company:

Together with our Board of Directors, we wish to thank our Shareholders for your continued interest and support. The Board remains committed to serving your interests and focused on long-term value creation for all Shareholders.

The statements included in this Proxy Statement regarding future performance and results, expectations, plans, strategies, priorities, commitments, and other statements that are not historical facts are forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are based upon current beliefs, expectations, and assumptions and are subject to significant risks, uncertainties, and changes in circumstances that could cause actual results to differ materially from the forward-looking statements. A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in the section titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023. Readers of this Proxy Statement are cautioned not to place undue reliance on these forward-looking statements, since there can be no assurance that these forward-looking statements will prove to be accurate. We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

If you are a Shareholder of record as of March 22, 2024, you will be able to vote in four ways: by telephone, by proxy card, in person at the Meeting, or by the Internet before the Meeting as follows:

See “General Information for Voting Shares” on page 9 for more information on voting at the Annual Meeting.

The Directors strive to maintain a highly engaged Board with balanced tenure and substantive expertise that has the diversity of skills and backgrounds necessary to effectively oversee the Company’s management team and serve the long-term interests of the Company’s Shareholders.

Over the course of the last five years, the Board has added four new Directors in order to enhance the skills and gender and ethnic diversity of the Board. In February of 2024, following a thorough and thoughtful director search process, the Board added Michele P. Sullivan, who is a retired partner of Crowe LLP, in order to bring additional accounting, auditing, risk, and compliance expertise to the Board. Her appointment, along with Kerrie D. MacPherson in 2019, Susan E. Skerritt in 2020, and Jeffery J. Knauss, in 2021, reflects the Board’s focused efforts to refresh the composition of the Board and foster a diverse composition of members.

The following table provides the ages, tenures, independence, diversity, and current committee membership of the 12 Director Nominees for the Annual Meeting.

A balanced Board composition, supplemented by a thoughtful approach to Director refreshment, is a continuing priority for the Company. The Governance Committee utilizes a skills matrix approach to assess the experience, skills, independence and diversity of nominees in the context of the current composition and needs of the Board. The Committee endeavors to identify nominees that possess integrity, diverse business experiences, professional achievement, appropriate skills, and geographic backgrounds reflecting the Company’s markets. In addition, the Governance Committee believes a stronger Board is one that reflects diversity. The Governance Committee also believes it is desirable to maintain a mix of experienced, tenured Directors who possess institutional knowledge along with the addition of newer Directors who have identified expertise and experience. The Governance Committee will continue to consider a diverse pool of candidates in the Director nomination process to further enhance diversity on the Board and add appropriate skills and experience in connection with succession planning at the Board level.

The charts below summarize the tenure, independence, age, and diversity of the 12 Director Nominees.

 

 

The Board is committed to sound and effective corporate governance that conforms to the highest standards of business ethics and integrity, provides robust oversight of management and promotes the long-term interests of our Shareholders. The Board regularly reviews the Company’s governance practices, industry developments, and Shareholder feedback to ensure continued effectiveness. For more information regarding our corporate governance practices, see the disclosure starting on page 27.

Below are selected highlights of the Company’s corporate governance program.

A core mission of the Company’s employees, executive leadership and Directors is active engagement with not only the Company’s customers, but the civic institutions, non-profits, schools and other organizations that comprise the communities where we live and work. As an organization that is community based, we are committed to supporting volunteerism, implementing environmentally sound practices, working with small businesses, and serving the broad financial service needs of the communities in our geographic markets. We are proud of the industry recognition we continue to receive, including being named in 2023 as the 6^th Most Trustworthy Company in America by Newsweek Magazine and one of America’s Best Banks and One of the World’s Best Banks by Forbes Magazine. In addition, we recognize that the development and support of the Company’s human capital is an essential element of the Company’s success. We are focused on furthering our corporate responsibility strategy in alignment with our business and evolution of important topics across the banking industry. In 2023, we engaged a third-party advisory firm to assist the Company with its continued focus on its corporate responsibility strategy and formed a Corporate Responsibility Committee to increase emphasis on corporate responsibility and to implement certain strategies identified by the advisor and adopted by the Company’s senior management.

Recent highlights of the Company’s commitment to corporate social responsibility and support of our communities and employees include:

The Company uses the cost-effective and environmentally-friendly “notice and access” delivery method which allows the Company to furnish proxy materials (the Proxy Statement, Form 10-K, and Annual Report) electronically via the Internet. The Company is sending a Notice of Internet Availability of Proxy Materials (the “Notice of Internet Availability”) to its Shareholders, on approximately March 29, 2024, with instructions on how to access the proxy materials online or request a printed copy of the materials.

Shareholders may follow the instructions in the Notice of Internet Availability to elect to receive future proxy materials electronically by email or in print by mail. The Company encourages Shareholders to take advantage of the availability of the proxy materials online to help reduce the environmental impact of the Meetings and reduce the Company’s printing and mailing costs.

The Annual Report of the Company for the fiscal year ended December 31, 2023, incorporating the Form 10-K filed by the Company with the SEC, is being provided to Shareholders with this Proxy Statement.

The proxy materials relating to the 2024 Annual Meeting and the 2023 Annual Report are available on the Internet at www.proxyvote.com. The Notice of Internet Availability contains the necessary codes required to access the proxy materials and to vote online or by telephone. The materials are also available on the Company’s investor relations page at: https://ir.communitybanksystem.com/financials/sec-filings-annual-report/default.aspx.

The Board has fixed the close of business on March 22, 2024 as the record date for determining which Shareholders are entitled to notice of, and to vote at, the Meeting. At the close of business on the record date, 52,761,590 shares of common stock were outstanding and entitled to vote at the Meeting, which is the Company’s only class of voting stock. Each share of outstanding common stock is entitled to one vote with respect to each proposal to come before the Meeting. The Bylaws of the Company provide that one-third of the outstanding shares of the Company, represented in person or by proxy, shall constitute a quorum at a Shareholder meeting.

If shares are registered directly in a Shareholder’s name with the Company’s transfer agent, Equiniti Trust Company, LLC (“Equiniti”), then such Shareholder is the “shareholder of record” with respect to those shares. If the shares are held in an account at a bank, broker, or other holder of record, then the Shareholder is considered the “beneficial owner of shares held in street name.” As a beneficial owner, the Shareholder has the right to instruct the broker, bank, or other organization holding the shares on how to vote such shares.

All shares represented by valid proxies received prior to the taking of the vote at the Meeting will be voted and, where a Shareholder specifies a choice with respect to any matter to be acted upon, the shares will be voted in accordance with the Shareholder’s instructions. If the Shareholder does not specify how the shares are to be voted, the shares will be voted in the manner recommended by the Board for matters presented for a vote at the Meeting as permitted by applicable law. An abstention by a Shareholder with respect to a matter to be voted on will be counted for purposes of determining the presence of a quorum, but will not be counted as votes cast at the Meeting. Any broker non-votes will be counted as being present for purposes of determining the presence of a quorum, but will not be counted as votes cast at the Meeting. Even if you plan on attending the Meeting, we encourage you to vote your shares in advance online, by phone, or by mail to ensure that your vote will be represented at the Meeting.

A Shareholder may revoke the proxy and change his or her vote at any time before the taking of the vote at the Meeting as follows:

Shareholders who have shares that are registered differently or are in more than one account will receive more than one Notice of Internet Availability. Shareholders with shares registered directly in the Shareholder’s name with the Company’s transfer agent may contact Equiniti at (877) 253-6847 to request consolidation. If the shares are held through a broker, bank or other organization, the Shareholder can contact the broker, bank or other organization to request consolidation.

The Company will pay its costs relating to the solicitation of proxies. The Company has retained Alliance Advisors, LLC, 200 Broadacres Drive, 3^rd Floor, Bloomfield, New Jersey 07003 to assist in soliciting proxies for a base fee of $9,500 plus reasonable and approved out-of-pocket expenses. Proxies may be solicited by officers, directors, and staff members of the Company personally, by mail, by telephone, or by other electronic means. The Company will also reimburse brokers, custodians, nominees, and fiduciaries for reasonable expenses in forwarding proxy materials to beneficial owners of the Company’s stock.

The Company’s Bylaws and Governance Guidelines provide for, among other things, (i) a mandatory retirement age of 70, (ii) advance notice prior to serving on another public company board, and (iii) review of continued Board membership in the event of a significant change in the responsibilities or job position of a Director.

The key qualifications, skills, experience and perspective that each Director Nominee brings to the Board are included in their individual biographies. The Board firmly believes that our highly-qualified Director Nominees provide the Board with a diverse complement of specific business skills, experience and perspective necessary to ensure effective oversight. The following biographies describe the Director’s age, position with the Company, when he or she started as a Director with the Company, business experience and other public company board service for the past five (5) years, and the experience and attributes held by the Director relevant to his or her qualifications to serve on the Board:

The Company owes a tremendous debt of gratitude to Mr. Tryniski. He joined the Company in 2003 as its Chief Financial Officer and has been at the helm since 2006. Under his leadership, the Company has grown from $4.2 billion in total assets to over $15.6 billion in total assets as of December 31, 2023. Mr. Tryniski is the architect of the Company’s core values of integrity, excellence, teamwork, and humility, creating a corporate culture that embodies these values, and has assembled an executive team that is poised for continued success. Although Mr. Tryniski is retiring from the Board at this year’s Annual Shareholders Meeting, he will continue to support the transition to Mr. Karaivanov by serving as a consultant for the Company until the end of the year.

of the deferred stock units track the market value of the Company stock and are ultimately paid out in shares of the Company stock on the deferred payment date. The Director equity grants are designed to provide a reasonable component of total Director compensation that aligns Director compensation with the long-term interests of the Shareholders.

The following table summarizes the annual compensation paid to each non-employee Director for his or her service to the Board and its committees in 2023. The Company does not make payments (or have any outstanding commitments to make payments) to director legacy programs or similar charitable award programs.

Directors may elect to defer all or a portion of their cash director fees pursuant to the Company’s Deferred Compensation Plan for Directors. Directors who elect to participate in the plan designate the percentage of their director fees which they wish to defer (the “deferred fees”) and the date to which they wish to defer payment of benefits under the plan (the “distribution date”). The plan administrator establishes an account for each participating director and credits to such account (i) on the date a participating director would have otherwise received payment of his or her deferred fees, the number of deferred shares of the Company’s common stock which could have been purchased with the deferred fees, and (ii) from time to time such additional number of deferred shares which could have been purchased with any dividends which would have been received had shares equal to the number of shares credited to the account actually been issued and outstanding. On the distribution date, the participating director shall be entitled to receive shares of Company common stock equal to the number of deferred shares credited to the director’s account either in a lump sum or in annual installments over a three, five, or ten year period. The effect of the plan is to permit directors to invest deferred director fees in Company stock, having the benefit of any stock price appreciation and dividends as well as the risk of any decrease in the stock price. To the extent that directors participate in the plan, the interests of participating directors will be more closely associated with the interests of the Shareholders. No earnings are deemed above-market or preferential on compensation deferred under the Deferred Compensation Plan for the Directors. Directors currently participating in the plan hold at risk share equivalent units (based on cash fees directors have deferred under the plan), which are subject to market price fluctuations in the Company’s stock in the following amounts as of December 31, 2023: Mr. Ace 3,434 units; Mr. Davis (retired), 59,301⁽¹⁾ units; Mr. Fesette 7,903 units; Mr. Pecor, 15,808⁽¹⁾ units; Ms. Steele 6,992 units; and Mr. Whipple 7,848.

The Company recognizes the continuing importance of corporate responsibility and continues to further our corporate responsibility strategy, including environmental, social and human capital, and governance initiatives, in alignment with our businesses. We understand that a thoughtful, coordinated approach to our corporate responsibility obligations will support a healthier, more sustainable future for our stakeholders including our investors, employees, communities we serve, and customers. We expect to build upon our core values as a community financial institution and our core mission of serving the financial needs of our communities. We expect our developing corporate responsibility strategy will align with the nature and scale of our business in respecting the environment and the evolution of corporate responsibility principles in our industry.

In 2023, the Company formed the Corporate Responsibility Committee made up of key members of the Company’s and Bank’s senior management to formulate ways to advance the Company’s corporate responsibility goals across the enterprise. Some of our specific efforts and commitments regarding our environment, our people and our community for 2023 and 2024 are summarized below. See the section entitled Corporate Governance on page 27 for information on our governance principles.

We recognize that our people are essential to our success and are committed to supporting the development and well-being of each individual in a collaborative and inclusive environment.

Commitment to Our Core Values. The Company continues to commit to our set of core values to guide our employees and exemplify our commitment to each other, our customers, our Shareholders, and the communities we serve:

These core values represent the Company’s focus on people – our customers, our communities, our Shareholders and each other and serve as the foundation that supports and drives the corporate responsibility initiatives below.

Commitment to Culture and Diversity. The Company is committed to fostering a diverse and inclusive environment where there is a sense of purpose, belonging, and work ownership driven by our core values and service to our customers. We aspire to empower our workforce to achieve their full potential and in 2023, our Culture and Diversity Officer introduced our Culture and Diversity Strategic Pillars and Initiatives set forth below. These strategic pillars support our commitment to knowing, respecting, and leveraging each person’s unique talents, which helps to respect diversity of thought and drive impact within the organization. We have found that focusing on strengths deepens the appreciation of each other’s unique contributions and improves individual wellbeing and organizational results.

Alignment of Management Incentive Objectives with Goals. The Compensation Committee is responsible for the oversight of the Company’s human capital management, including regular review of the Company’s management resources, culture and diversity policies, succession planning, and talent development programs. In order to demonstrate the Board’s commitment to achieving the Company’s culture and diversity goals, the Compensation Committee, in reviewing the Company’s human capital management programs and management’s objectives for 2023, included a specific performance objective in the 2023 Management Incentive Plan tied to the acceleration of manager accountability for engagement. In 2024, the Company again included a performance objective in the Management Incentive Plan tied to advancing the Company’s executive leadership program, providing leadership opportunities for the graduates of that program, identifying emerging leaders in the Company and creating development plans for each.

Commitment to Employee Engagement – My Voice Survey. The Company is committed to creating a top tier workplace filled with highly satisfied and engaged employees. The Company believes that open and honest communication among employees, managers and executive leadership fosters an open and collaborative work environment where everyone can participate, develop, and thrive. In 2021, the Company launched the first company-wide employee engagement survey called “My Voice”. Thereafter, and continuing in 2023, the Company has made concerted efforts to make improvements, including developing a network of Engagement Champions across all of our business areas, to support our leaders and managers to further the My Voice efforts across the organization and surveying employees again in late 2023, with 77% of the Company’s employees participating, indicating that our employees feel heard and want to provide feedback to the Company.

In January 2024, the latest survey results were reviewed with business unit leaders, managers, and employees. As leaders across the organization remain engaged, the My Voice initiative contributes to achieving higher performance, engagement, and commitment to improve outcomes and productivity.

Commitment to Fair Pay. The Company’s compensation philosophy includes elements that reinforce our values, rewards our colleagues and maximizes long-term performance. We use various measures to ensure our colleagues are paid fairly based on the job that they hold and their performance in that role. In 2023, we continued to conduct targeted workforce planning sessions across all our business areas to ensure market competitive pay and staff development actions that support our commitment to the development of our employees. In further commitment to pay transparency and fair pay, the Company, beginning in September 2023, took a proactive approach and included the minimum and maximum annual salary or hourly pay range when advertising a job, promotion, or transfer opportunity in all internal and external job postings regardless of the state or location of the position.

Commitment to Talent Management and Employee Development. The Company offers a wide range of learning and development programs that support a broad scope of the Company’s talent development initiatives, making continuous learning a part of each employee’s relationship with the Company in a growth-oriented environment. These include a tuition reimbursement program for employees who wish to further their education with college courses. In 2023, the Company invested more than $63,000 to support these employees’ educational goals. In addition, the Company has developed a college partnership program, which offers discounted credits to employees via online courses and online certifications.

Leadership and Professional Development Opportunities and Review Process. The Company offers leadership and professional development opportunities to develop its employees and strengthen its leadership pipeline, improving employee engagement, workforce effectiveness, and organizational leadership. Various growth focused learning programs include, coaching sessions to leverage individual strengths and address behavioral competencies; career-path roadmaps aligned with career goals/progression; and a cloud-based E-Learning platform to increase efficiency and effectiveness. In 2023, 113 leaders participated in one of our 11 professional development workshops that were offered. In addition to learning and development programs, in 2023, the Company also repositioned its performance management review process to provide ongoing and more frequent feedback in order to achieve higher performance, engagement and commitment to improve outcomes and productivity.

Commitment to Employee Health & Wellbeing. The Company is committed to providing tools and resources to support employees’ overall health and wellbeing. This includes offering a variety of health and welfare benefits as well as a holistic wellbeing program that offers financial incentives for participating in the wellbeing programs. In 2023, through this program, the Company provided $770,800 in discounts on employee medical plan premiums and incentive dollars that employees could redeem for items within the wellbeing program’s store.

We continue to develop our corporate responsibility strategy and look for opportunities to integrate sustainability and corporate responsibility into our business practices with the intent to deliver community focused products and services while creating long-term sustainable value for all of our stakeholders. Set forth below are some of the environmental and community initiatives we focused on in 2023 and early 2024:

Engaged Third Party Advisor to Assist with Corporate Responsibility Strategy. In 2023, the Company engaged a third-party advisory firm to assist the Company with evaluating its corporate responsibility strategy and to focus its resources to identify and execute environmental, social, and human capital initiatives that are essential in driving success for our stakeholders, including our Shareholders, customers, employees, third-party vendors and the communities we serve.

Creation of the Corporate Responsibility Committee. In 2023, the Company’s executive management team established the Corporate Responsibility Committee, which is chaired by the Senior Vice President of Risk Management and consists of senior members of the Company’s and Bank’s management team, with the goal to identify and execute on corporate responsibility initiatives.

Appointment of Director of Community and Corporate Relations. In 2023, the Company enhanced its commitment to investing in our communities by appointing the Company’s first Director of Community and Corporate Relations. This new role reflects the importance to our entire organization of investing in our communities to support the well-being and sustainability of those places where we all live, work, and raise our families. This position will have responsibility for developing deeper priorities and strategies around how we invest in our communities, including financial support, volunteerism and other means of engagement.

Focus on Vendor Policies and Sustainable Business Operations. The Company holds itself to a standard of integrity, professional conduct, and environmentally responsible business practices. This allows us to establish trust with our employees, customers, stakeholders, and vendors. We expect the same level of commitment and conduct from our vendors as we focus on ensuring that we are operating in a socially responsible manner. As part of its vendor management program, the Company is exploring ways to increase the pool of vendors who are minority owned or have a history of creating opportunities for minority, disadvantaged individuals or Veterans, or otherwise address the needs of underserved populations or communities. As part of this effort, the Company continues to participate in the Upstate Minority Economic Alliance, the only Minority Chamber of Commerce in the Upstate New York Region, in order to leverage partnerships to expand the pool of diverse vendors. In 2023, the Company and its financial subsidiaries further supported the organization through providing meeting space and holding clinics in order to strengthen its relationship with member businesses.

Our vendor management policy has provisions that appropriately respond to vendors where we identify that their practices do not align with our principles regarding operating in a socially responsible manner, including fair labor standards, acting responsibly with the security and confidentiality of our customer information, engaging in responsible business practices and acting consistently with our codes of conduct and ethical behavior.

Commitment to Helping Others. We remain committed to strengthening the communities we serve through employee volunteerism and corporate engagement and support with a focus on serving those who are underserved in the local communities where we do business. We do this through financial support, in-kind donations, community engagement, and volunteer service. In 2023, the Company made over $3.7 million in donations, grants and sponsorships in the Bank’s footprint of Upstate New York, Northeast Pennsylvania, Vermont and Western Massachusetts. Our employees also gave generously of their time and expertise by donating over 16,000 volunteer hours during 2023. They actively participated in over 900 causes and organizations, with employees serving on the boards and committees of over 500 community charities and organizations and supporting these organization in other ways.

In addition to volunteerism, the Bank offers programs that supports its customers and neighbors. For example, in response to various natural disasters that impact our communities, the Bank from time to time offers disaster relief programs to assist customers with repairing property, cleaning up, and getting back on their feet. In 2023 when a flooding disaster shut down entire communities in Vermont, the Company provided recovery assistance in several important forms to businesses and people in its footprint. The Company contributed $100,000 for grant purposes for businesses affected by the disaster. Additionally, the Company donated to area food banks, and provided drinking water in three of its branches in communities where access to drinking water was difficult to access.

Commitment to Community-Focused Mortgage Banking. For more than 150 years, the Bank has focused on serving the financial needs of its customers. The Bank offers several lending programs sponsored by state and federal agencies designed to encourage first time home ownership, affordable home mortgages for those in lower and moderate-income groups, and mortgages for those living in rural areas that would not be eligible for traditional mortgage products. The Bank ensures its mortgage marketing efforts extend to those who live in economically disadvantaged areas within its geographic communities. In addition, the Bank offers mortgages with up to 90% loan-to-value ratios without the requirement of mortgage insurance (typically required in loan-to-value ratios over 80%), and a “No Closing Cost” mortgage product that facilitates the ability of borrowers to attain home ownership with a product that provides for the Bank to absorb mortgage related closing costs, such as filing fees, bank legal fees, appraisal, application, and underwriting/processing fees, provided that the borrower does not prepay the mortgage within three years of the closing. The Bank also provides community development lending products such as Veteran Administration mortgages to create a broader pool of borrowers and help make home ownership possible for borrowers who may not qualify for traditional mortgages.

Commitment to Underrepresented Communities and Low and Moderate Income Households. During 2023, the Bank made $161.4 million of mortgage loans to low-and moderate-income households in order to enable sustainable homeownership which is a major vehicle for building wealth and economic opportunity. In addition, the Bank offered a special purpose credit product to underrepresented communities, including borrowers in minority and low-to-moderate income areas in Buffalo, Rochester, and Syracuse, New York that assisted 107 customers in 2023 to obtain residential mortgages on favorable terms and will again offer the program in 2024.

Financial Literacy Programs. The Bank’s staff provides financial literacy programs within the Bank’s footprint with the goal of promoting financial literacy and access to financial services and products. The Bank offers financial literacy programs in which employee volunteers present lessons to adults and children in both classrooms and with non-profit organizations focused on adults in lower and middle income communities on topics ranging from making spending decisions to budgeting and the importance of savings. In the Adirondack New York region alone, employees presented 19 types of financial literacy classes to more than 700 students in 2023.

Commitment to Supporting Local Businesses and Communities. The Bank’s commercial lending professionals are dedicated to servicing business owners in under-served markets within the Bank’s footprint with the goal of providing access to financial services and products. The Bank continues to focus on the expansion of its Business Banking group to offer credit support up to $2,000,000 as well as a greater portfolio of small business banking services. Because small businesses are engines for our local economies by keeping money close to home and supporting neighborhoods and communities, the Bank also works with government agencies to offer lending programs to small businesses and agricultural loan products. The Bank has financed community development projects that help enrich and revitalize the communities where it operates, including financing for health care facilities, solar energy companies, farming operations, addiction counseling services, places of worship, ambulance companies, and community theaters. The goal of all of these efforts is to provide support and opportunities to cultivate robust communities for the Company’s customers, employees, and stakeholders. In addition, the Bank is a member of the Upstate Minority Economic Alliance in order to cultivate the Bank’s relationship with minority owned small businesses and provide better access to financial services and products for such businesses.

In 2023, the Company pledged $250,000 to the G+E Fund at the CenterState CEO Foundation specifically earmarked to support entrepreneurs of color, women, veterans, new Americans and those with low to moderate incomes, providing them access to flexible capital with borrower-friendly terms to facilitate the growth of their businesses.

Protecting our Customers’ Data. We are committed to providing a high level of customer care including measures to safeguard our customers’ data. The Company has developed a cybersecurity program and framework which is administered by a team of experienced professionals, including the Company’s Chief Risk Officer and Chief Information Security Officer (“CISO”), and supported by external technology and consulting services. The Company’s Risk Committee, which is made up of the entire Board of Directors, is responsible for the oversight of the cybersecurity program. Directors Ms. MacPherson and Ms. Skerritt have cybersecurity oversight experience and have received the Cybersecurity Oversight Certification issued by the National Association of Corporate Directors. In an effort to remain vigilant against cybersecurity attacks, the Company further provides annual and ongoing training to all of its employees so that they have an understanding and appreciation of the cybersecurity environment and risks and the Company’s policies to combat such risks. Such training includes annual mandatory training sessions on cybersecurity for all employees, periodic informational notices regarding emerging threats, and periodic testing to ensure employees are reporting suspicious activities and are diligent in their efforts to avoid phishing attacks and cybersecurity breaches. The CISO also conducts and participates in annual table top exercises with management and on occasion, with representatives from the Board, in order to be prepared in the event of a material cybersecurity event.

Improved Digital Banking. The Bank continues to devote significant resources to expand our digital banking services to include powerful, flexible and easy to use technology. Our customers are seeking efficient and convenient solutions to manage their finances and digital banking has emerged as a transformative force, offering a wide range of benefits to busy consumer and commercial customers. In 2023, we enhanced the consumer digital banking platform with the addition of a complimentary credit monitoring service to provide our customers a convenient way to make routine credit checks available in order to assist them with seeing where their credit stands, spotting problems that could suggest identity theft or fraud, and enabling them with information to take measures to improve their credit scores.

Ethical Business Practices and Balancing Business Risk. Our Code of Ethics and the Code of Conduct make clear our expectations for the conduct of our Directors, officers and employees. We recently amended the Code of Ethics to clarify the Company’s commitment to compliance with anti-corruption and anti-bribery laws. As of March 22, 2024, the Company has not been fined in connection with any violation of any anti-corruption or anti-bribery law. We ensure compliance with these Codes through training and monitoring so that we can maintain our track record of business success based upon the highest level of ethics and professionalism. Our banking employees are required to complete online training and testing to verify their understanding of the legal requirements, including training on unfair, deceptive or abusive acts and practices, fair lending, and anti-money laundering.

Our risk management team, with Board oversight, carefully monitors Enterprise Risk Management. The risk management process includes active engagement among different areas of the Company. This combined with oversight by various Board Committees ensures that risk management is supported by appropriate information gathering and monitoring.

Investment in Solar Tax Equity Fund. We invested $5,000,000 in a solar tax equity fund to participate in regionally-based small- to mid-size solar projects primarily designed to promote public welfare, including the welfare of low- and moderate-income communities or families.

Other Environmental Initiatives. The Company supports environmental and sustainability objectives by encouraging recycling and responsible waste management practices throughout the organization. We continue to evaluate opportunities to reduce energy consumption in areas such as facilities, equipment, and operations by moving to more efficient equipment, HVAC systems, lighting and use of technology solutions to reduce our energy usage. The Company

is focusing on the use of improved lighting in the build out of its new DeWitt, New York headquarters and the new branch locations that it will open during 2024 and 2025. We recycle all of our electronics through appropriate channels to ensure that harmful substances do not pollute the environment, and in 2023, we recycled 66,000 pounds of electronic equipment. We continue to migrate our data to additional secure, cloud based solutions which minimize the energy use at our data and disaster recovery centers.

The Company has an ongoing initiative to eliminate paper from its work streams and move to completely digital documentation in its business activities where possible. The Bank provides and encourages the use of digital banking and e-statements to its customers, has expanded the use of online platforms for account opening, lending products, communications, remote deposit capture, and various statements and notices. We expanded the digital workflows and robotic process automation technologies in our internal operating and administrative systems, including the migration of mortgage documentation to a fully digital documentation and storage process. In 2023, the Bank saw a 13% increase in customers using its online banking platform.

We are committed to strong corporate governance policies, practices, and procedures designed to make the Board more effective in exercising its oversight role. The following section provides an overview of the Company’s corporate governance structure, including key governance documents that guide the Board and management in the performance of their duties which are regularly reviewed by the Board.

The Company is dedicated to being a financial industry leader in corporate governance and business ethics. The Board is composed of independent Directors, other than the current and former CEOs, with diverse backgrounds who bring a wealth of knowledge and business experience to the Company. The Company has significantly increased the Board’s ethnic and gender diversity and the level of identified skill sets over the last several years. We will continue to consider a diverse pool of candidates in our Director nomination process to further enhance the diversity on the Board and add appropriate skills and experience in connection with succession planning at the Board level.

From the top down, the Company is committed to fostering an effective risk management environment to serve the interests of the Company, its customers, and its Shareholders. The Board has adopted the Code of Ethics and the Code of Conduct to make clear its expectation for the conduct of our Directors, officers and employees. The Company ensures compliance with these Codes through training and monitoring so that the Company can maintain its track record of business success based upon the highest level of ethics and professionalism.

The Board has adopted a majority voting standard policy to provide Shareholders with more effective input in the direction of the Company. Under the policy, if the election of Directors is uncontested, a Director Nominee who does not receive the votes of at least the majority of votes cast with respect to such nominee’s election is expected to tender to the Board his or her resignation promptly following the certification of election results. The Governance Committee will make a recommendation to the Board that it either accept or reject such resignation based on relevant considerations. The Board will act on the resignation, taking into consideration the Governance Committee’s recommendation, and will publicly disclose its decision and the rationale behind its decision within 90 days of the certification of the election

results. If the Board does not accept the resignation, the Director may continue to serve until his or her successor is duly elected or any earlier resignation, removal or separation. If the Board accepts the nominee’s resignation, then the Board may, in its sole discretion, fill any resulting vacancy or decrease the size of the Board pursuant to the Company’s Bylaws.

The New York Stock Exchange (“NYSE”) listing standards and the Company’s Corporate Governance Guidelines require the Board to be comprised of at least a majority of independent Directors. The Board has determined that 11 of the 12 Directors nominated to serve on the Board are independent under the NYSE standards and the Company’s Corporate Governance Guidelines.

For a Director to be considered independent, the Board must determine that the Director does not have any direct or indirect material relationship with the Company. To assist it in determining director independence, the Board uses standards which conform to, or are more exacting than, the NYSE independence requirements. Under these standards, absent other material relationships, transactions or interests, a Director will be deemed to be independent unless, within the preceding three years: (i) the Director was employed by the Company or received more than $120,000 per year in direct compensation from the Company, other than director and committee fees and pension or other forms of deferred compensation payments for prior service, (ii) the Director was a partner of or employed by the Company’s independent auditor, (iii) the Director is part of an interlocking directorate in which an executive officer of the Company serves on the Compensation Committee of another company that employs the Director, (iv) the Director is an executive officer or employee of another company that makes payments to, or receives payments from, the Company for property or services in an amount which, in any fiscal year, exceeds the greater of one million dollars or 2% of the other company’s consolidated gross revenues, or (v) the Director had an immediate family member in any of the categories in (i) – (iv). In determining whether a Director is independent, the Board reviews the stated standards but also considers whether a Director has any direct or indirect material relationships, transactions or interests with the Company that might be viewed as interfering with the exercise of his or her independent judgment.

Based on these independence standards, the Board determined that the following individuals who served as Directors during all or part of the last fiscal year were independent Directors during such year and continue to be deemed independent by the Board: Brian R. Ace, Mark J. Bolus, Jeffrey L. Davis (retired), Neil E. Fesette, Jeffery J. Knauss, Kerrie D. MacPherson, John Parente, Raymond C. Pecor, III, Susan E. Skerritt, Sally A. Steele, Eric E. Stickels, and John F. Whipple, Jr. The Board has also evaluated and determined that Michele P. Sullivan, who joined the Board in February 2024, is deemed independent.

Various Directors, executive officers and other related persons of the Company and the Bank (and members of their immediate families and corporations, trusts, and other entities with which these individuals are associated) may have loans with the Bank including business and consumer loans which are offered in the ordinary course of business by the Bank. All such loans are made in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with persons not related to the Bank, and do not involve more than the normal risk of collectability or present other unfavorable features. The Company expects that the Bank will continue to have banking transactions in the ordinary course of business with its Directors, executive officers and other related persons on substantially the same terms, including interest rates and collateral, as those then prevailing for comparable transactions with others.

The Company also has a Related Party Transaction Policy, administered by the Audit Committee, which provides procedures for the review and approval of related party transactions involving the Company’s Directors, executive officers, Director Nominees, and other related persons. In deciding whether to approve such related party transactions, the Audit Committee will consider, among other factors it deems appropriate, whether the transaction is on terms comparable to those generally available to nonaffiliated parties and is consistent with the best interests of the Company. For purposes of this policy, a “related party transaction” is a transaction, arrangement, or relationship or series of similar transactions, arrangements or relationships in which (i) the Company or one of its subsidiaries is involved, (ii) the amount involved exceeds $120,000 in any calendar year, and (iii) a related party has a direct or indirect material interest. Related persons include executive officers, Directors, Director Nominees, beneficial owners of more than 5% of the Company’s stock, immediate family members of any of the foregoing persons, and any firm, corporation or other entity in which any of the foregoing persons has a direct or indirect material interest. The Audit Committee reviews and approves all related person transactions after its determination that such transactions are performed at market terms and consistent with the best interests of the Company.

The Company’s long-standing practice is to have a separation of the position of Board Chair and the CEO. In addition, the Company maintains a Lead Director structure to provide an additional source of independent leadership for the Board in the event the Chair of the Board is not deemed to be independent for some reason. In the event the Chair is deemed not to be an independent Director at any time, the Lead Director will preside at meetings and executive sessions of the Board.

The duties of the Lead Director include, but are not limited to, the following: (i) presiding at all meetings of the Board and at executive sessions of the Board at which the Chair is not present, (ii) serving as a liaison between the Chair and the independent Directors, (iii) authority to call meetings of the independent Directors, and (iv) serving as an independent point of contact for Shareholders wishing to communicate with the Board.

Both the Board Chair and Committee Chairs are subject to four year term rotation guidelines, unless waived by the Board, providing for continuous development of strong leadership qualities on the Board. In addition, the Company encourages Committee Chairs and Directors to participate in continuing board education opportunities and includes educational topics as a component of Board meetings over the course of each year.

Pursuant to the Company’s Corporate Governance Guidelines, the independent Directors meet in executive sessions at the end of Board and Committee meetings as appropriate on a regular basis, without the Company’s management and non-independent Directors present, to facilitate full discussion of important matters.

The Board conducts an annual self-evaluation that is intended to determine whether the Board, its committees, and each member of the Board are functioning effectively, and to provide Directors with an opportunity to reflect upon and improve processes and effectiveness. The Chair of the Governance Committee leads the evaluation process which includes a solicitation of Director comments on an anonymous basis and compilation of written evaluative comments to identify issues and areas of focus in a robust discussion of the Board’s performance. To ensure a robust Board evaluation process, the Board intends to engage a third party consultant to conduct its board evaluation in 2024.

The Audit, Compensation, and Governance Committees conduct their own annual self-evaluation and report the results to the Board. Such committee’s evaluation includes an assessment of the committee’s compliance with its charter and the Company’s policies and procedures, as well as ways to improve committee processes and effectiveness.

The business of the Board is conducted at regular and special meetings of the Board and its Committees. The Board held 10 regular meetings and three special meetings during the fiscal year ended December 31, 2023. During this period, each Director of the Company attended at least 75% of the aggregate of the total number of meetings of the Board and the total number of meetings held by committees of the Board on which he or she served.

The Company encourages all Directors to attend each Annual Meeting of Shareholders. All of the Directors attended, either remotely or in person, the Company’s Annual Meeting of Shareholders held on May 17, 2023.

Visit the Company’s Investor Relations website at https://ir.communitybanksystem.com/corporate-overview/documents/default.aspx to view the following documents:

These documents are available free of charge on the Company’s website or by writing the Company at Community Bank System, Inc., 5790 Widewaters Parkway, DeWitt, New York 13214, Attention: Board Secretary/Investor Relations to any Shareholder or interested party who requests a copy.

Among its standing committees, the Company has an Audit Committee, Compensation Committee, Governance Committee, Risk Committee, Strategic/Executive Committee, and Trust Committee (formerly the Trust and Financial Services Committee).

 

Set forth below is a description of the primary duties of the standing committees of the Board and its members as of the date of this Proxy Statement. In addition to the standing committees listed below, the Board also has a Strategic/Executive Committee that leads the Board’s annual strategic planning process and other matters designated by the Board from time to time. Mr. Fesette is the Chair of the Strategic/Executive Committee and Messrs. Bolus and Parente and Ms. Steele are members of the Committee, all of whom are independent Directors.

An integral part of Company’s risk management oversight is the role of the Board. This is reinforced by the independence and reporting structure of the Chief Risk Officer, who reports to the Board Risk Committee. Our management is responsible for managing risks in our business, including development of appropriate controls and processes to assess and monitor risks. Management does not view risk in isolation but considers risk in developing and evaluating business strategy and business decisions. The Board views its role as one of oversight and of responsibility for ensuring appropriate policies are in place and reinforcing the perspective that risk management should be properly integrated with our business strategies and culture. The Board focuses on understanding management’s risk management processes, the effectiveness of those processes and related policies, and the way in which management proactively manages risks. The Board oversees and reviews various

aspects of the Company’s risk management efforts, either directly or through its committees, and exercises its risk oversight function in several ways. The Board oversees risk management through the reporting of the Company’s risk management and internal audit functions, the oversight of various Board committees, and reports from management.

The Board and its committees review and approve various policies that address and mitigate material risks, including credit risks, interest rate risks, investment risks, liquidity risks, operational risks, strategic risks, reputational risks, and compliance/legal risks, among other matters. With respect to cybersecurity risk, the Risk Committee oversees the Company’s efforts to manage cybersecurity risk and senior management is responsible for the day-to-day management of cybersecurity risk, and for designing and implementing policies, processes and procedures to address and mitigate this risk. The Board also reviews and monitors enterprise risks through various reports presented by management, internal and external auditors, and regulatory examiners.

While the Board has primary responsibility for the oversight of the Company’s risk management, the Board’s standing committees support the Board by regularly monitoring various risks in their respective areas of oversight. Each of the committee chairs updates the full Board at its regular meetings concerning the activities of the committee, the significant issues it has discussed and the actions taken by the committee. The following table highlights the role of the Board and each committee in risk oversight:

The Board has adopted stock ownership guidelines for the CEO, CFO and Executive Vice Presidents (“Senior Executives”) of the Company which require (i) the CEO to own shares of Company common stock and/or share equivalents equal to at least four times his base salary, and (ii) the Chief Financial Officer and other Executive Vice Presidents to own shares of common stock and/or share equivalents equal to at least two times their base salary. Such Senior Executives are required to retain 75% of shares received from stock option exercises or other equity awards, net of taxes, until they have satisfied the equity ownership requirements. All Senior Executives are in compliance with, or exceed, the requirements of the stock ownership guidelines established by the Company.

The Board has also adopted stock ownership guidelines for Directors of the Company which require each Director to own shares of Company common stock and/or share equivalent units equal in value to at least five times the annual base Board member retainer within six years of becoming a Director. Under the guidelines, the qualifying share equivalent units consist of at risk units resulting from the Director’s deferment of cash director fees under the deferred compensation plan and annual equity grants. All Directors are in compliance, or exceed, the requirements of the stock ownership guidelines.

The Company’s Policy Prohibiting Insider Trading (“Insider Trading Policy”) prohibits short sales, hedging, and transactions in put options, call options, or other derivative securities in the Company’s securities for all Company personnel, including Directors, executive officers, and employees. In addition, the Insider Trading Policy also prohibits holding stock in a margin account or pledging of Company stock as collateral by Directors, executive officers, and other employees unless written pre-approval is obtained from the Compliance Officer designated in the Insider Trading Policy.

Shareholders and any interested parties may communicate directly with the Board by sending correspondence to the address shown below. The receipt of any such correspondence addressed to the Board and the nature of its content will be reported at the next Board meeting and appropriate action, if any, will be taken. If a Shareholder or an interested party desires to communicate with a specific director, the correspondence should be addressed to that Director. Correspondence addressed to a specific director will be delivered to the Director promptly after receipt by the Company. The Director will review the correspondence received and, if appropriate, report the receipt of the correspondence and the nature of its content to the Board at its next meeting, so that the appropriate action, if any, may be taken.

Correspondence should be addressed to:

Community Bank System, Inc.

Attention: [Board of Directors or Specific Director]

5790 Widewaters Parkway

DeWitt, New York 13214-1883

Set forth below is information about the number of shares of the Company’s common stock beneficially owned by the Directors and executive officers of the Company:

Set forth below is information about the number of shares held by persons the Company knows to be the beneficial owners of more than 5% of the Company’s outstanding common stock as of March 22, 2024.

Joseph E. Sutaris currently serves as EVP and CFO. From November 2017 to June 2018, Mr. Sutaris was the SVP – Finance and Accounting. From September 2016 to November 2017, he served as the Bank’s Director of Municipal Banking. From April 2011 to September 2016, he was the SVP of the Central Region of the Bank. Prior to April 2011, Mr. Sutaris was the EVP, CFO, Treasurer and Secretary of Wilber Corp. and Wilber National Bank.

Michael N. Abdo currently serves as EVP and General Counsel since July 1, 2022. From January 2020 to July 2022, he served as SVP, Senior Associate General Counsel and September 2013 through December 2020, Associate General Counsel. Prior to joining the Company in 2013, Mr. Abdo was a senior associate at the law firm of Cadwalader, Wickersham and Taft LLP in New York, New York.

Maureen Gillan-Myer joined the Company as EVP and Chief Human Resources Officer on October 1, 2021. Prior to joining the Company, she served as the Chief Human Resources Officer of HSBC US from February 2016 through September 2021 and as its Senior Vice President- Talent Acquisition from May 2009 through February 2016.

Jeffrey M. Levy was appointed Senior Vice President and Chief Banking Officer on January 1, 2024. He served as President, Commercial Banking from January 2022 through December 31, 2023; as SVP, Commercial Banking Sales Executive from June 2021 to December 2021; as SVP, Regional President of Capital Region from June 2019 to June 2021; and as SVP, Commercial Banking Team Leader from January 2018 to June 2019. Prior to joining the Bank, he served as the EVP and President of Commercial Banking at NBT Bank, N.A. from December 2006 to August 2016.

This Compensation Discussion and Analysis (“CD&A”) provides an overview of the principles and practices underlying our executive compensation program and the decisions made by the Compensation Committee of the Board related to compensation in fiscal year 2023.

This CD&A and the Executive Compensation Tables starting on page 56 provide compensation information for our “named executives” who are identified as follows:

The 2023 year was marked by transition and transformation. The Company successfully transitioned leadership in the CEO role from Mr. Tryniski to Mr. Karaivanov. It also focused resources and capital to ensure all four of the Company’s businesses, banking, employee benefit services, insurance services and wealth management services, were positioned for resilience and growth. This included transformational business planning through organic and inorganic investments in talent, capabilities, systems and markets. The Company’s banking business was transformed through a balance sheet repositioning, which enhanced liquidity and leveraged the talent and experience of the lending team to expand existing client relationships and forge new ones in all of its major markets, driving loan growth of over 10%. In addition, the Bank restructured its branch network to create a greater focus on growth markets by closing certain underperforming branches and approved a plan to open several de novo branches with the goal of expanding the Bank’s footprint into new areas. The Company’s wealth management business enhanced its leadership team providing a fresh perspective on market opportunities and reinvigorating strategic objectives. Organic growth and a series of small acquisitions drove over an 18% increase in insurance services revenues in 2023. In the employee benefit services business, several strategic partnerships were solidified driving plan participant counts to record levels. This transition and transformation was executed by the management team while navigating rapidly changing market conditions, high inflation and banking industry turmoil throughout 2023.

Successful Year. Although earnings per share decreased in 2023, the Company was able to maintain strong regulatory capital, liquidity, loan growth, revenue performance and asset quality, while positioning the Company for future growth. In 2023, total revenues decreased $27.2 million, or 4.0%, driven by losses on the sale of investment securities during the year associated with the balance sheet repositioning. Exclusive of these losses, gain on debt extinguishment and unrealized loss on equity securities, operating revenues, a non-GAAP measure, were up $24.9 million, or 3.7% from 2022. Net interest income increased to $437.3 million, or 4.0% during 2023, and revenue in all three of the Company’s nonbanking businesses, employee benefit services, insurance services, and wealth management services, increased. Loan growth and asset quality remained strong. Ending loans outstanding increased $895.2 million, or 10.2%, during 2023 and net charge-offs / average loans remained low at 0.06%.

31^st Consecutive Year of Dividend Increases. Reflecting the Company’s focus on sustainable long-term returns for its Shareholders, the Company increased its quarterly cash dividend to Shareholders by 2.27%, to $0.45 per share, in July 2023, marking the 31^st consecutive year of annual increases in its cash dividend.

Executive Compensation Payouts for 2023. After considering the Company’s operating performance, financial results, and achievement level of predetermined performance goals and strategic objectives, the Compensation Committee took the following actions relating to 2023 short-term and long-term incentive compensation decisions with respect to its named executives and other key employees:

In March 2023, the Committee granted the named executives performance-based restricted stock.¹ The performance-based restricted stock grant is subject to satisfaction of the selected performance criteria and vesting after the end of a three-year performance period. For the performance period from 2023 through 2025, the Committee continued with the same performance measures used in 2022: (1) the Company’s three-year total shareholder return as compared and ranked against the KBW Regional Bank Index (KRX) constituents (50 banks) as of January 2023, and (2) the three-year average core return on average tangible common equity (“Core ROATCE”) measured by the Company’s percentile rank of the three-year average Core ROATCE against the KRX constituents. The named executives received 50% of their total long-term equity grant in the form of performance-based restricted stock. The equity program is described in more detail on page 50-52.

In March 2023, the Company also granted stock options and time-based restricted stock awards at target levels. The time-based restricted stock is subject to a three-year incremental vesting schedule (i.e., 1/3 per year), and the stock options are subject to a five-year vesting schedule (i.e., 1/5 per year). The Compensation Committee selects stock options as one of the equity-based long-term incentives because options create close alignment with the Shareholder experience and due to their ten-year term, support the Company’s business strategy and compensation philosophy by providing a link to long-term business objectives and sustained long-term value creation. The use of restricted stock awards provides value that is directly linked to our stock price and encourages share ownership. Both of these awards align the named executives’ interests with the Shareholders’ interests by encouraging preservation of long-term stock value.

Pay-for-Performance Alignment. A significant portion of executive pay is in the form of performance-based pay (annual cash incentive and equity) that promotes the achievement of the Company’s annual and long-term performance goals, placing significant weight on improvement in operating earnings per share (“EPS”), and achievement of total shareholder returns above its peer group and the KRX market index. The Company believes operating EPS reflects a strong alignment between its performance and progress towards continuously increasing Shareholder value.

As part of its oversight, the Compensation Committee considers the results of the Shareholders’ annual advisory vote on executive compensation (“say-on-pay proposal”). At our 2023 Annual Meeting of Shareholders, the say-on-pay proposal received 82% support, after receiving support above 93% support in 2022 and 2021. The Committee was disappointed by the reduced support and directed management to expand its outreach to its Shareholders to discuss their concerns regarding the Company’s practices. The Company reached out to 12 of its largest institutional Shareholders, who collectively owned approximately 40% of our shares outstanding in 2023, and engaged with all of those who expressed an interest in providing feedback regarding their concerns surrounding the 2022 compensation program. Based on discussions with our Shareholders, the decline in support was associated with what was viewed as a one-time cash severance payment made to a named executive upon retirement. To address this concern and mitigate risk of any such payment being made in the future, the Company has eliminated employment agreements for named executives, except for the President and Chief Executive Officer, and adopted an Executive Severance Plan (described on page 63), which, among other things, provides that no severance payments shall be paid upon a covered executive’s retirement. We will continue to monitor feedback and engage with major Shareholders in recognition of the value this engagement adds to our process.

In July 2023, the Company announced the retirement of Mr. Tryniski as CEO and the selection of Mr. Karaivanov, the Company’s Executive Vice President and COO, to succeed Mr. Tryniski as the Company’s CEO effective January 1, 2024.

Mr. Karaivanov brings a significant amount of experience in the financial service industry to his role as CEO. Prior to joining the Company, Mr. Karaivanov served as Managing Director in Lazard’s Financial Institutions Group and has extensive banking, financial services, and fintech experience. When he joined the Company in June 2021 as its Executive Vice President of Financial Services and Corporate Development, he was responsible for the business and financial performance of three of the Company’s four business lines – employee benefit services, insurance services, and wealth management. When he assumed the COO role, in October 2022, he acquired responsibility for the Company’s banking business. Through his service as the EVP of Financial Services and Corporate Development and then COO, he has gained a tremendous amount of insight in all areas of the Company’s operations and its people and has positioned himself to lead the Company into the future and to execute on the Company’s objective to deliver above average returns with below average risk.

The successful transition of leadership from Mr. Tryniski, who has served as CEO since August 2006, to Mr. Karaivanov has served as a significant milestone in a transformational year for the Company. To continue to support this transition, after Mr. Tryniski’s term as a Director ends at this year’s Annual Shareholders Meeting, he will continue as a consultant to the Company until December 31, 2024 in order to ensure a successful transition. Under the terms of the consulting arrangement, Mr. Tryniski will receive a monthly consulting payment of $5,000.

The Compensation Committee reviews and administers the Company’s compensation policies and practices for the executive officers of the Company, including the named executives. The Company is focused on rewarding long-term sustained performance. We strive to consistently maintain strong financial performance while balancing a relatively conservative risk profile to deliver financial returns to our Shareholders. In administering compensation policies and practices, the Committee seeks to achieve the following compensation objectives:

The Committee achieves these objectives by using a combination of base salary, incentive-based cash awards, and equity award components. Compensation consists of the following four elements:

The Company’s ability to attract and retain talented employees and executives with the skills and experience to develop and execute business opportunities is essential to its success and providing value to its Shareholders. The Company seeks to provide fair and competitive compensation to its employees by structuring compensation principally around two general parameters:

To support this pay-performance alignment, a significant amount of the Company’s named executives’ total compensation is variable and incentive based, and tied to the achievement of Company performance goals and long-term Shareholder value. The Company believes pay-performance alignment should be evaluated over a multiple year period since much of its pay is related to longer-term performance results.

 

The Compensation Committee is responsible for oversight of the Company’s human capital, including the development, oversight and administration of the Company’s compensation and benefits programs. The Compensation Committee currently consists of five members of the Board of Directors, each of whom is an independent, non-employee Director. In carrying out its duties, the Committee reviews and approves the Company’s goals and objectives with respect to the CEO and other named executives and seeks to align compensation with the Company’s business objectives and performance. The Compensation Committee evaluates the performance of the CEO and the other named executives in light of such goals and objectives and determines compensation levels based on such evaluation. The Committee oversees the administration of broad-based compensation plans for the Company and its subsidiary entities and the review and approval of executive-level employment agreements. The Committee, in conjunction with the entire Board, also oversees succession planning for key positions, talent development, and diversity and inclusion practices.

The Compensation Committee has retained Meridian Compensation Partners, LLC (“Meridian”) to serve as an independent compensation consultant with respect to executive and Board compensation. Meridian’s work has included a review and refreshment of the Company’s Peer Group and a comprehensive assessment of the Company’s executive compensation programs and pay levels for the named executives compared to the market, including advice and counsel related to market trends and best practices regarding the structure and governance of our executive compensation programs. The Committee has assessed Meridian’s independence pursuant to SEC rules and concluded that no conflict of interest exists that would prevent Meridian from serving as an independent advisor to the Committee. Meridian provided no services to the Company or its management other than services related to the Company’s compensation programs.

Although the Compensation Committee makes independent determinations on all matters related to the compensation of the named executives utilizing executive sessions without management present, certain members of management are requested to attend and provide input to the Committee throughout the year. The Compensation Committee receives input from Company management, including the CEO, CFO, COO, CHRO, General Counsel and others as needed to ensure that it has the information and perspective needed to carry out its duties.

Understanding the industry’s landscape is essential to establishing the Company’s program targets and making compensation decisions. The Company regularly reviews competitive market data and compares executive pay and performance to ensure alignment. It has been the Committee’s practice to benchmark the named executives’ compensation periodically against a peer group and market data. In 2022, the Compensation Committee engaged Meridian to develop the appropriate peer group to reflect the Company’s growth and changes in the banking industry landscape as well as conduct a benchmarking study. The Committee targets total compensation to be competitive with the market as reflected through peer group and industry surveys. The Compensation Committee uses the peer group information and additional market data to determine the base salaries and other compensation elements for the named executives. In 2024, Meridian will review the Company’s peer group and conduct a benchmarking study.

In July 2022, Meridian updated the Company’s peer group using objective selection criteria including size, geography, and business model to position the Company close to the median for asset size and revenue. This resulted in minor adjustments in the peer group, with the removal of peer companies who had been acquired or no longer fit the peer group criteria and the addition of peer companies that fit the criteria. Meridian used this updated peer group to compare the Company’s target pay program, including base salary, incentives, and total direct compensation, to the market and provide a reference for discussing potential pay decisions and changes to the compensation structure.

The Committee adopted the following peer group presented by Meridian (the “Peer Group”) to conduct benchmarking and assess our executive compensation program for 2023 compensation decisions:

Industry comparisons are only one element of the Compensation Committee’s holistic review of our executive compensation programs. As described above, although the Compensation Committee views market data as an essential element in its compensation determination process, it believes that market data should be used in conjunction with the Compensation Committee’s overall review and analysis of the Company’s and its named executives’ performance as well as the Company’s business and retention needs in making compensation decisions.

The compensation program for executives is built around our pay-for-performance philosophy. The Company’s compensation program consists of three primary elements:

These compensation elements and 2023 pay decisions are described in more detail below.

The Company uses the base salary to provide the foundation of a fair and competitive compensation opportunity for each named executive. The Compensation Committee reviews the base salaries of our named executives annually to determine whether any adjustments are advisable based on market analysis, individual performance and contributions, and the Company’s performance and retention needs. Base salaries are generally intended to be competitive with corresponding executives in the Peer Group. The Committee recognizes that base salaries are the foundation for the

other performance-based pay programs to the extent they are expressed as percentages of base salary (e.g., the target cash incentive under the MIP is a percentage of the executive’s base salary). As a result, the Committee carefully considers the appropriate base salary amounts to ensure a proper pay mix and positioning.

In December 2022, based upon the results of the updated analysis of the Peer Group, the Compensation Committee approved a 14.3% base salary increase for Mr. Levy and a 3.3% base salary increase for the other named executives, as follows:

Following the announcement of Mr. Tryniski’s retirement, in July of 2023, the Company made various leadership changes to support the successful transition of the CEO role, including the appointment of Mr. Karaivanov, as CEO, effective January 1, 2024, as well as the appointment of Mr. Levy as Chief Banking Officer effective as of January 1, 2024. Mr. Levy has over 25 years of experience running retail and commercial operations for national banks. The appointment of Mr. Levy to Chief Banking Officer provides the Company with a seasoned banker positioned to lead the Bank as it expands its core operations through the opening of several de novo branches in 2024 and 2025.

In December 2023, the Compensation Committee approved increases in base salaries, effective January 1, 2024, for Mr. Karaivanov and Mr. Levy, consistent with their new roles, as well as base salary increases of 3% for the remaining named executives. The salaries for 2024 are as follows:

Annual incentives under the MIP are designed to reward performance achievements relative to specified, pre-determined Company performance goals. The goals are set to focus on strategic and tactical priorities in the operation of the Company.

Each of our named executives is assigned a target incentive opportunity under the MIP, defined as a percentage of base salary. The Compensation Committee periodically reviews target incentives to ensure they remain appropriate based on market analysis, individual performance and contributions, and the Company’s performance and retention needs. Based on this review, the target amounts were increased from fiscal 2022 to fiscal 2023 as set forth in the table below:

At the beginning of each fiscal year, the Compensation Committee establishes annual corporate performance goals. Corporate goals are proposed by the CEO, reviewed and approved by the Committee, and approved by the Board. The Committee considers and assigns a relative weight to each goal to reflect relative importance to enhance Shareholder value. The Company’s corporate goals under the 2023 MIP are summarized in the table below, including each goal’s

(i) weight, (ii) threshold, target, and maximum levels of achievement, (iii) achievement level in 2023, and (iv) weighted attainment percentage based on 2023 performance. The final weighted achievement level, if any, determined by the Compensation Committee is identified by check mark in the Payout Level column.