
		Page
Special Meeting of Stockholders	92		99
Rights of Stockholders to Dissent	92		99
Indemnification and Limitation of Liability	93		100
Certain Voting Rights and Restrictions with Respect to Mergers	94		101
Amendment to ~~Certificate/Articles~~Certificate of Incorporation	96		102
Amendment to Bylaws	96		102
Stockholder Action Without a Meeting	96		103
Preemptive Rights	97

~~EXPERTS~~103	98

Exclusive Forum Provision		103
EXPERTS		103
SUBMISSION OF STOCKHOLDER NOMINATIONS AND PROPOSALS	98
	103
LEGAL MATTERS	98
	104
WHERE YOU CAN FIND MORE INFORMATION	98
	104
ANNEX A AGREEMENT AND PLAN OF MERGER ~~AGREEMENT~~	~~A-i~~
	A-1
ANNEX B OPINION OF ~~KEEFE, BRUYETTE~~PIPER JAFFRAY & ~~WOODS, INC.~~CO.		B-1

~~iii~~ANNEX C PROVISIONS OF THE DELAWARE GENERAL CORPORATION LAW RELATING TO APPRAISAL RIGHTS

iii

TABLE OF CONTENTS

QUESTIONS AND ANSWERS ABOUT THE MERGER

The following are answers to certain questions that you may have regarding the merger and the special meeting. We urge you to read carefully the remainder of this Proxy Statement/Prospectus because the information in this section may not provide all the information that might be important to you in determining how to vote. Additional important information is also contained in the annexes to, and the documents incorporated by reference in, this Proxy Statement/Prospectus.

Why am I receiving this document?

Community Bank System, Inc. (“Community Bank System”) and ~~Oneida Financial Corp.~~Merchants Bancshares, Inc. (“~~Oneida Financial”~~Merchants”) have agreed to combine under the terms of ~~a merger agreement~~an Agreement and Plan of Merger by and between Community Bank System and ~~Oneida Financial,~~Merchants, dated as of ~~February 24, 2015~~October 22, 2016 (the “Merger Agreement”), that is described in this Proxy Statement/Prospectus. A copy of the Merger Agreement is attached to this Proxy Statement/Prospectus asAnnex A. In order to complete the merger of ~~Oneida Financial~~Merchants with and into Community Bank System (the “Merger”), the stockholders of ~~Oneida Financial~~Merchants must vote to ~~approve and~~ adopt the Merger Agreement. ~~Oneida Financial~~Merchants will hold a special meeting of its stockholders to solicit this approval, as well as the non-binding advisory approval onof the Merger-Related Executive Compensation and, if necessary, the approval of the adjournment proposal. ~~This Proxy Statement/Prospectus contains important information about the Merger, the Merger Agreement, the special meeting of Oneida Financial~~

We are delivering this Proxy Statement/Prospectus to you as both a Proxy Statement of Merchants and a Prospectus of Community Bank System. It is a Proxy Statement because the Merchants board of directors is soliciting proxies from its stockholders. It is a Prospectus because Community Bank System will issue Community Bank System common stock to the Merchants stockholders who receive stock consideration in the Merger, and this Prospectus contains information about Community Bank System common stock. This Proxy Statement/Prospectus contains important information about the Merger, the Merger Agreement, the special meeting of Merchants stockholders, and other related matters, and we encourage you to read it carefully.

~~Who is being asked to approve matters in connection with the Merger?~~

Only Oneida Financial stockholders are being asked to vote to approve the Merger-related proposals. Under Maryland law, Oneida Financial is required to obtain stockholder approval of the Merger. By this Proxy Statement/Prospectus, Oneida Financial’s board of directors is soliciting proxies from Oneida Financial’s stockholders to obtain the necessary approvals at the special meeting of stockholders as discussed below. Under Delaware law and New York Stock Exchange (“NYSE”) rules, Community Bank System is not required to obtain stockholder approval of the Merger.

~~What will I receive in the Merger?~~

If the Merger proposal is approved and the Merger is subsequently completed, subject to certain allocation procedures, you may elect to receive, for each outstanding share of Oneida Financial common stock owned, either:

~~$20.00 in cash, without interest;~~

~~0.5635 shares of Community Bank System common stock, plus cash in lieu of fractional shares; or~~

a combination of both cash and common stock of Community Bank System provided 60% of your Oneida Financial outstanding common stock will be exchanged for shares of Community Bank System common stock and the remaining 40% of your Oneida Financial outstanding common stock will be exchanged for cash.

The above consideration is subject to an allocation process to ensure that overall 40% of Oneida Financial’s common stock is exchanged for cash and 60% of Oneida Financial’s common stock is converted into Community Bank System common stock.

This Proxy Statement/Prospectus explains in more detail what amount of cash and/or Community Bank System common stock you may receive in the Merger. Because of certain limitations on the amount of cash and the number of shares Community Bank System will issue in the Merger, you may receive a combination of cash and shares of Community Bank System common stock even if you elect to receive only one type of merger consideration. Accordingly, allocations of Community Bank System common stock and cash that you receive will depend on the elections made by other Oneida Financial stockholders. For details, please see “Conversion of Oneida Financial Common Stock,” “Election Procedures” and “Allocation Mechanism” on pages [ ] through [ ].

~~What is the purpose of this document?~~

This document serves as Oneida Financial’s proxy statement and as Community Bank System’s prospectus. As a proxy statement, this document is being provided to Oneida Financial stockholders because the Oneida Financial board of directors is soliciting your proxy to vote to approve and adopt the Merger Agreement, to approve the Merger-Related Executive Compensation; and, if necessary, to approve the adjournment proposal. As a prospectus, Community Bank System is providing this document to Oneida Financial stockholders because Community Bank System is offering shares of its common stock in exchange for shares of Oneida Financial common stock in the Merger.

What will happen to ~~Oneida Financial~~Merchants as a result of the Merger?

If the Merger is completed, ~~Oneida Financial~~Merchants will cease to ~~exist. The Oneida Savings~~exist and Merchants Bank, ~~(“Oneida Savings Bank”) and The State~~the wholly-owned subsidiary of Merchants, will become a direct, wholly-owned subsidiary of Community Bank System. Immediately following completion of ~~Chittenango, currently wholly-owned direct and indirect subsidiaries of Oneida Financial,~~the Merger, Merchants Bank will then merge with and into Community Bank, N.A. (“Community Bank”), the wholly-owned subsidiary of Community Bank System, with Community Bank being the surviving bank.

Who is being asked to approve matters in connection with the Merger?

Only Merchants stockholders are being asked to vote to approve the Merger-related proposals. Community Bank System is not required to obtain Community Bank System stockholder approval of the Merger or the Merger Agreement.

What will I receive in the Merger?

If the Merger Agreement proposal is approved and the Merger is subsequently completed, each outstanding share of Merchants common stock will be converted into the right to receive either:

$40.00 in cash, without interest (the “cash election consideration”);

0.9630 shares of Community Bank System common stock, plus cash in lieu of fractional shares (the “stock election consideration”); or

a combination of both $12.00 in cash and 0.6741 shares of Community Bank System common stock, plus cash in lieu of fractional shares (the “mixed election consideration”).

The above consideration is subject to proration procedures that are designed to ensure that the total amount of cash paid, and the total number of shares of Community Bank System common stock issued, in the Merger will equal as nearly as practicable the total amount of cash and number of shares that would have been paid and issued if all of the Merchants stockholders received the mixed election consideration.

TABLE OF CONTENTS

You may elect to receive the cash election consideration, the stock election consideration, or the mixed election consideration. However, the ability to receive the consideration of your choice will depend on the elections of other Merchants stockholders. The proration of the consideration payable to Merchants stockholders in the Merger will not be known until Community Bank System tallies the results of the elections made by Merchants stockholders, which will not occur until near or after the closing of the Merger.

Will I receive the form of consideration that I elect?

If you elect to receive the mixed election consideration, you will receive the mixed election consideration. If you elect to receive the cash election consideration or stock election consideration, you may not receive the exact form of consideration that you elect. If you make no election with respect to your shares of Merchants common stock (and do not exercise appraisal rights), you will receive the mixed election consideration.

It is currently estimated that, if the Merger is completed, Community Bank System will issue, in the aggregate, approximately [•] million shares of Community Bank System common stock and pay approximately $[•] million in cash to Merchants stockholders. Under the proration procedures in the Merger Agreement, the total amount of cash paid, and the total number of shares of Community Bank System common stock issued, in the Merger to the holders of shares of Merchants common stock (other than excluded shares), as a whole, will equal as nearly as practicable the total amount of cash and number of shares that would have been paid and issued if all of such shares of Merchants common stock were converted into the mixed election consideration.

Whether you receive the amount of cash and/or stock you request in your election form will depend in part on the elections of other Merchants stockholders. You may not receive the form of consideration that you elect in the Merger, and you may instead receive a pro-rata amount of cash and/or Community Bank System common stock.

The greater the oversubscription of the stock election consideration, the less stock and more cash a Merchants stockholder making the stock election will receive. Reciprocally, the greater the oversubscription of the cash election consideration, the less cash and more stock a Merchants stockholder making the cash election will receive. However, in no event will a Merchants stockholder who makes the cash election or the stock election receive less cash and more shares of Community Bank System common stock, or fewer shares of Community Bank System common stock and more cash, respectively, than a stockholder who elects the mixed election consideration. See “The Merger Agreement — Election and Proration Procedures” beginning on page 63 of this Proxy Statement/Prospectus.

The proration of the consideration payable to Merchants stockholders who elect to receive the cash election consideration and/or the stock election consideration will not be known until Community Bank System tallies the results of the elections, which will not occur until near or after the closing of the Merger.

How will Merchants stock options be treated in the Merger?

Each Merchants stock option outstanding and unexercised immediately prior to the effective time of the Merger, whether or not then vested or exercisable, will be cancelled and automatically converted into the right to receive a cash amount equal to the aggregate number of Merchants shares subject to such optionmultiplied by the excess of the value of the mixed election consideration over the exercise price of such option.

How will shares of Merchants common stock subject to vesting or forfeiture restrictions be treated in the Merger?

Each share of Merchants common stock subject to vesting or forfeiture restrictions and granted under any Merchants benefit plan that is outstanding immediately prior to the effective time, whether or not then vested, will automatically vest in full, and any restrictions thereon will lapse, and such

TABLE OF CONTENTS

stock will be converted into the right to receive an amount of cash equal to the value of the mixed election consideration plus dividends, if any, accrued but unpaid as of the effective time with respect to such restricted share.

How will warrants to purchase Merchants common stock be treated in the Merger?

Each warrant that was originally issued on April 25, 2008 by NUVO Bank & Trust Company (with respect to which Merchants issued replacement warrants on December 4, 2015), which we refer to as “organizers’ warrants,” to purchase Merchants common stock outstanding as of the effective time will be converted at the effective time into a warrant to acquire, upon payment of the amount determined by dividing the per share exercise price immediately prior to the effective time by the stock election consideration of 0.9630, the number of shares of Community Bank System common stock determined bymultiplying (i) the number of shares of Merchants common stock which may be acquired upon exercise of such organizers’ warrant immediately prior to the effective time by (ii) the stock election consideration of 0.9630.

Each warrant that was originally issued on April 30, 2013 by NUVO Bank & Trust Company (with respect to which Merchants issued replacement warrants on December 4, 2015), which we refer to as “2013 warrants,” to purchase Merchants common stock outstanding as of the effective time will be converted into the right to receive, at the holder’s election, either (i) a cash payment in cancellation of such 2013 warrant equal to the number of shares of Merchants common stock which may be acquired upon exercise of such 2013 warrantmultiplied by the excess, if any, of the cash election consideration of $40.00 over the per share 2013 warrant exercise price immediately prior to the effective time or (ii) a replacement 2013 warrant certificate issued by Community Bank System and representing the right to acquire prior to the expiration date of the original 2013 warrant, upon payment of the amount determined by dividing the per share exercise price immediately prior to the effective time by the stock election consideration of 0.9630, that number of shares of Community Bank System common stock equal to the number of shares of Merchants common stock which may be acquired upon exercise of such 2013 warrant immediately prior to the effective timemultiplied by the stock election consideration of 0.9630.

Could you tell me more about Community Bank System?

Community Bank System is the parent company of Community Bank and is a ~~bank~~financial holding company registered under the Bank Holding Company Act of 1956, as ~~amended (“BHCA”).~~amended. Community Bank is a commercial banking franchise headquartered in Upstate New York, with ~~190~~more than 200 customer facilities and ~~187~~202 ATMs ranging diagonally from Northern New York to the Southern Tier and west to Lake Erie, and in Northeastern Pennsylvania.

Community Bank is a community retail bank committed to the philosophy of serving the financial needs of customers in local communities. Community Bank emphasizes the local character of business, knowledge of the customer and customer needs, comprehensive retail and small business products, and responsive decision-making at the branch and regional levels. Community Bank and its subsidiaries offer a range of commercial and retail banking and financial services in their market areas to business, individual, agricultural and government customers. Community Bank and its employees strive to support and to actively engage in important initiatives in local communities within the market areas it serves.

Community Bank ~~System’s~~System common stock is publicly traded on the NYSE under the symbol “CBU.” At ~~December 31, 2014,~~September 30, 2016, Community Bank System had on a consolidated basis approximately ~~$7.5~~$8.7 billion in total assets, ~~$5.9~~$7.1 billion in total deposits, ~~$4.2~~$4.9 billion in total loans and stockholders’ equity of ~~$1.0~~$1.2 billion. For additional information about Community Bank System, please see “Where You Can Find More Information” beginning on page ~~[ ].~~104 of this Proxy Statement/Prospectus.

TABLE OF CONTENTS

When is the Merger expected to be completed?

The parties are working to complete the Merger during the ~~third~~second quarter of ~~2015. Oneida Financial~~2017. Merchants and Community Bank System must first obtain the necessary regulatory approvals and the approval of the ~~Oneida Financial~~Merchants stockholders at the special meeting and satisfy other customary closing conditions. ~~Oneida Financial~~Merchants and Community Bank System cannot assure you as to when or if all the conditions to the Merger will be met, and it is possible that the parties will not complete the Merger at all.

What happens if the Merger is not completed?

If the Merger is not completed, ~~Oneida Financial stockholders will not receive any consideration for their shares of common stock in connection with the Merger. Instead, Oneida Financial~~Merchants will remain an independent ~~public company and its common stock will continue to be eligible for trading on the NASDAQ Global Market (“NASDAQ”). In the event of termination of~~company. If the Merger Agreement is terminated under certain specified circumstances, ~~Oneida Financial~~Merchants may be required to pay to Community Bank System a termination fee of ~~$4.93~~$10.72 million. ~~See the description of the Merger Agreement under “The Merger Agreement—Termination Fee and Expenses” beginning on page [ ].~~

Does the board of directors of ~~Oneida Financial~~Merchants have a recommendation on how I should vote on the Merger Agreement?

Yes. The board of directors of ~~Oneida Financial believes~~Merchants unanimously determined that the ~~proposed~~ Merger isAgreement and the Merger are advisable and in the best interests of ~~Oneida Financial~~Merchants and its stockholders, and unanimously recommends that the stockholders of ~~Oneida Financial~~Merchants vote “FOR” the ~~approval and~~ adoption of the Merger Agreement.

Why am I being asked to cast a non-binding, advisory vote to approve the Merger-Related Executive Compensation?

The Securities and Exchange Commission (“SEC”), in accordance with the ~~Dodd−Frank~~Dodd-Frank Wall Street Reform and Consumer Protection Act ~~of 2010,~~(“Dodd-Frank Act”), adopted rules that require ~~Oneida Financial~~Merchants to seek a non-binding, advisory vote with respect to certain payments that will or may be made to ~~Oneida Financial’s~~Merchants’ named executive officers in connection with the Merger. See “Proposal I— The Merger—Financial Interests of Certain Oneida Financial Directors and Certain Executive Officers in the Merger” beginning on page [ ] and “Proposal II—Merger-Related Executive Compensation” beginning on page [ ].

What will happen if ~~Oneida Financial’s~~Merchants stockholders do not approve the Merger-Related Executive Compensation proposal at the special meeting?

Oneida Financial’s named executive officers entered into employment and other related agreements with Oneida Financial prior to the contemplation of a potential transaction with Community Bank System or any other entity. Approval of the proposal related to the Merger-Related Executive Compensation is not a condition to completing the Merger. The vote with respect to the Merger-Related Executive Compensation is an advisory vote and will not be binding on ~~Oneida Financial~~Merchants regardless of whether the Merger Agreement is ~~approved and~~ adopted. Accordingly, as the compensation to be paid to the ~~Oneida Financial~~Merchants executives in connection with the Merger is ~~governed by the terms of the previously negotiated agreements and is contractually binding,~~contractual, such compensation will or may be payable if the Merger is completed regardless of the outcome of the advisory vote.

~~Will the Merger-Related Executive Compensation be paid if~~Are there any stockholders already committed to voting in favor of the Merger ~~is not consummated?~~Agreement?

~~No. Payment of the Merger-Related Executive Compensation is contingent upon the consummation of the Merger.~~

~~How do the directors and executive officers of Oneida Financial plan to vote?~~

Yes. All of the directors of ~~Oneida Financial~~Merchants and ~~certain executive officers~~another principal stockholder of ~~Oneida Financial and its subsidiaries~~Merchants have ~~agreed~~entered into voting agreements with Community Bank System requiring them to vote all of their shares in favor of adoption of the Merger ~~Agreement all shares of Oneida Financial common stock that they are entitled to vote.~~Agreement. As of the record date for the special meeting, ~~the directors of Oneida Financial and certain executive officers of Oneida Financial and its subsidiaries together had the right to vote [ ] shares, or~~these stockholders held approximately ~~[ ]%~~[•]% of the outstanding ~~Oneida Financial~~shares of Merchants common stock.

What risks should I consider before I vote on the Merger and make my election as to the form of merger consideration?

You should read and carefully consider the risk factors set forth in section entitled “Risk Factors” beginning on page ~~[ ]~~15 of this Proxy Statement/~~Prospectus.~~Prospectus as well as the other information contained or incorporated by reference into this Proxy Statement/Prospectus, including the matters addressed in the section of this Proxy Statement/Prospectus titled “Cautionary Statement Regarding Forward-Looking Statements” on page 21.

Is there other information I should consider?

Yes. Much of the business and financial information about each of the companies that may be important to you is not included in this document. Instead, that information is incorporated by reference to documents ~~Oneida Financial~~Merchants and Community Bank System separately filed with the SEC. This

vii

TABLE OF CONTENTS

means that ~~Oneida Financial~~Merchants and Community Bank System can satisfy their disclosure obligations to you by referring you to one ofor more documents separately filed by Community Bank System or ~~Oneida Financial~~Merchants with the SEC. ~~For additional information, please~~Please see “Where You Can Find More Information” beginning on page ~~[ ],~~104 of this Proxy Statement/Prospectus, for a list of documents that they have incorporated by reference into this document and for instructions on how to obtain copies of those documents, free of charge.

~~vii~~

When and where will ~~Oneida Financial~~Merchants stockholders meet?

~~Oneida Financial~~Merchants will hold a special meeting of its stockholders on ~~[ ], 2015,~~[•], at ~~[ :~~ [•] ~~[ ].m.~~, Eastern ~~Standard Time,~~time, at ~~[ ], [ ], New York.~~[•].

Who can vote at the ~~Oneida Financial~~Merchants special meeting?

Holders of record of ~~Oneida Financial~~Merchants common stock at the close of business on ~~[_____________]~~[•], ~~2015,~~ which is the record date for the ~~Oneida Financial~~Merchants special meeting, are entitled to vote at the special meeting.

How many votes must be represented in person or by proxy at the ~~Oneida Financial~~Merchants special meeting to have a quorum?

A majority of the shares of ~~Oneida Financial~~Merchants common stock outstanding and entitled to vote at the special meeting, present in person or represented by proxy, constitutes a quorum at the special meeting.

What vote by ~~Oneida Financial~~Merchants stockholders is required to ~~approve~~adopt the ~~Merger?~~Merger Agreement?

~~Approval~~Assuming a quorum is present at the Merchants special meeting, adoption of the Merger ~~proposal~~Agreement will require the affirmative vote of the holders of at least ~~a majority~~two-thirds of the outstanding shares of ~~Oneida Financial~~Merchants common stock entitled to vote. Submission of properly signed and dated proxies not designating an election will have the same effect as shares voted “FOR” the Merger proposal, “FOR” approval, on an advisory basis, of the Merger-Related Executive Compensation and “FOR” the adjournment proposal, if necessary. Abstentions and broker non-votes will have the same effect as shares voted “AGAINST” adoption of the Merger ~~proposal,~~Agreement, but they will have no impact on the advisory, non-binding proposal to approve the Merger-Related Executive Compensation or the proposal to approve an adjournment of the special meeting.

What do I need to do now?

After you have carefully read and considered the information contained or incorporated by reference into this Proxy Statement/Prospectus, ~~and have decided how you wish to vote your shares,~~ please vote your shares promptly. If you hold common stock in your name as a stockholder of record, ~~Oneida Financial and Community Bank System request that you~~please complete, sign, date and mail your proxy card in the enclosed postage paid return envelope as soon as possible. You may also ~~authorize a proxy to~~ vote ~~your shares~~ by telephone or through the Internet as instructed on the enclosed proxy card. If you hold your ~~stock~~shares in “street name” through a bank, broker or other fiduciary, you must direct your bank or broker to vote in accordance with the instructions you ~~have received~~receive from your bank, broker or other fiduciary. Submitting your proxy card, authorizing a proxy by telephone or through the Internet, or directing your bank, broker or other fiduciary to vote your shares will ensure that your shares are represented and voted at the special meeting.

If you sign and send in your proxy and do not indicate how you want to vote, your proxy will be voted in favor of the Merger Agreement, the approval, on an advisory basis, of the Merger-Related Executive Compensation, and, if necessary, the adjournment proposal. If you fail to vote, or you do not instruct your broker how to vote any shares held for you in “street name,” it will have the same effect as voting against the Merger Agreement, but it will have no impact on the Merger Related Executive Compensation proposal or the adjournment proposal.

~~viii~~

~~Should Oneida Financial stockholders send in their stock certificates with the enclosed proxy?~~

No. Oneida Financial stockholders SHOULD NOT send in any stock certificates now with the enclosed proxy. An election form and transmittal materials, with instructions for their completion will be provided to Oneida Financial stockholders under separate cover and the stock certificates should be sent with those materials at that time.

If an Oneida Financial stockholder fails to return a completed election form with such stockholder’s stock certificates,or suitable guarantee of delivery, prior to the expiration of the election period, a letter of transmittal with instructions for submitting such stock certificates will be mailed to such stockholder shortly following the effective time of the Merger.

If my shares are held in “street name” by my broker, will the broker vote my shares for me?

No. Your broker ~~will~~WILL NOT vote your shares ~~only if~~unless you provide instructions on how to vote. It is important that you provide timely instruction to your broker or bank to ensure that all shares of Merchants common stock that you own are voted at the special meeting. You should instruct your broker how to vote your shares, following the directions your broker provides. ~~If you do not give instructions to your broker, your broker will not be able to vote your shares.~~

What if I fail to instruct my broker?

If you do not provide your broker with instructions and your broker submits an unvoted proxy, referred to as a ~~broker~~“broker non-vote,” the broker non-vote ~~will be counted toward a quorum at the special meeting, but it~~ will have the same effect as a vote against the ~~approval and~~ adoption of the Merger ~~Agreement, but it~~Agreement. Broker non-votes will have no impact on the advisory, non-binding proposal to approve the Merger-Related Executive Compensation or the proposal to approve an adjournment of the special meeting.

viii

TABLE OF CONTENTS

Can I attend the special meeting and vote my shares in person?

Yes. ~~All common~~Although the Merchants board of directors requests that you vote your shares by mail, by telephone, or through the Internet in advance of the special meeting, all Merchants stockholders ~~including common stockholders of record and common stockholders who hold their shares through banks, brokers, nominees or any other holder of record, may~~are invited to attend the special meeting. ~~Holders~~Stockholders of record ~~of Oneida Financial common stock can~~on [•] may vote in person at the special meeting. If your shares are held by a broker, bank or other nominee, then you ~~hold shares in “street name”~~are not the stockholder of record and ~~wish~~you must bring to ~~attend~~ the special meeting ~~you must ask~~appropriate documentation from your broker, bank or ~~bank how~~other nominee to enable you to vote ~~those shares in person~~ at the special meeting.

Can I change my vote?

Yes. ~~An Oneida Financial common stockholder who is a stockholder of record and has given a proxy may revoke it~~If you do not hold your shares in “street name,” there are three ways you can change your vote at any time after you have sent in your proxy card and before ~~its exercise~~your proxy is voted at the special ~~meeting by~~meeting: (i) ~~giving~~you may give written notice of revocation to ~~Oneida Financial’s~~Merchants’ corporate ~~secretary,~~secretary; (ii) ~~properly submitting to Oneida Financial~~you may submit a ~~duly executed~~new signed proxy card bearing a later date or vote again by telephone or the Internet (any earlier proxies will be automatically revoked); or (iii) ~~attending~~you may attend the special meeting and ~~voting in person. Any common stockholder entitled to~~ vote in person ~~at the special meeting may vote in person regardless of whether a proxy has been previously given, and such vote will revoke any previous proxy, but~~(however, the mere presence of a ~~common~~ stockholder at the special meeting will not constitute revocation of a previously given ~~proxy.~~proxy). If you hold your shares in “street name” through a bank, broker or other fiduciary, you should contact your bank, broker or other fiduciary to revoke your proxy.

Any written notices of revocation and other communications with respect to revocation of proxies should be addressed to ~~Oneida Financial~~Merchants as follows: ~~Oneida Financial Corp.~~Merchants Bancshares, Inc., Corporate Secretary, ~~Eric E. Stickels, 182 Main Street, Oneida, New York 13421,~~275 Kennedy Drive, South Burlington, Vermont, 05403, which must be received by ~~11:59 p.m.~~[•], Eastern time, on ~~[ ].~~

~~Proxies may also be revoked via the Internet or telephone by following the instructions on your proxy card.~~

[•].

How do I make an election as to the form of merger consideration I wish to receive in the Merger?

Community Bank System will mail to each ~~Oneida Financial~~Merchants stockholder an election form/letter of transmittal which will contain instructions for making a selection of merger consideration and for surrendering your stock certificates in exchange for the merger consideration. ~~[_______________]~~American Stock Transfer & Trust Company (“American Stock Transfer”), the exchange agent for the Merger, must receive your properly completed election form/letter of transmittal and your stock certificates,or suitable guarantee of delivery, by no later than the election deadline in order for your choice as to the form of merger consideration to be considered with those made by the other ~~Oneida Financial~~Merchants stockholders. ~~Oneida Financial~~Merchants and Community Bank System expect the election deadline will be 5:00 p.m., Eastern time, on ~~[ ], 2015,~~[•], but they will notify you if this date changes.

What happens if I don’t make a valid election as to the form of merger consideration before the election deadline?

If you do not make a valid election as to the form of merger consideration before the election deadline, ~~all shares~~each share of ~~Oneida Common Stock~~Merchants common stock held by you will be converted into the right to receive ~~either the common stock~~a combination of ~~Community Bank System pursuant to the exchange ratio of 0.5635, $20.00~~$12.00 in cash ~~per share, or any combination~~and 0.6741 shares of Community Bank System common ~~stock and cash, as determined by Community Bank System pursuant to the allocation procedures described in this Proxy Statement/Prospectus.~~stock. If the Merger is completed, the exchange agent will send ~~you~~any stockholder who does not make a valid election a new letter of transmittal that ~~you~~such stockholder can use to surrender ~~your~~his or her shares of ~~Oneida Financial~~Merchants common stock in exchange for the merger consideration.

Can I change my election as to the form of merger consideration?

Yes. You can change your election as to the form of merger consideration by submitting a new election form/letter of transmittal. For a change to be effective, the exchange agent must receive your election form/letter of transmittal before the election deadline.

What are the material U.S. federal income tax consequences of the Merger to me?

~~Oneida Financial has received a legal opinion that the~~The Merger ~~will~~is intended to qualify as a ~~reorganization~~“reorganization” within the meaning of Section 368(a) of the Internal Revenue ~~Code.~~Code of 1986, as amended, which we refer to as the “Code”, and it is a condition to the obligation of Merchants to complete the Merger that Merchants receives a legal opinion to

TABLE OF CONTENTS

that effect. If, ~~you exchange your shares of Oneida Financial common stock solely for Community Bank System common stock, you should not recognize any gain or loss except for~~as expected, the cash you receive instead of any fractional share of Community Bank System common stock. If you exchange your shares of Oneida Financial common stock solely for cash, you should recognize gain or loss onMerger qualifies as a “reorganization”, the exchange. If you exchange your shares of Oneida Financial common stock for a combination of Community Bank System common stock and cash, you should recognize capital gain, but not any loss on the exchange. Because the allocations of cash and Community Bank System common stock that you will receive will depend on the elections made by other Oneida Financial stockholders (with respect to elections of all stock or all cash), you will not know the actualspecific tax consequences ~~of the Merger~~ to ~~you until the allocations are completed.~~This tax treatment may not apply to all Oneida Financial stockholders. Determining the actual tax consequences of the Merger to Oneida Financial stockholders can be complicated. Oneida Financial stockholders should consult their own tax advisor for a ~~full understanding of the Merger’s tax consequences that are particular to each stockholder.For further information, see “Proposal I—The Merger—Material~~U.S. holder (as defined in “Material U.S. Federal Income Tax Consequences of the ~~Merger”~~ Merger”beginning on page ~~[ ].~~54 of this Proxy Statement/Prospectus) exchanging Merchants common stock in the Merger will generally depend upon the form of consideration such U.S. holder receives in the Merger.

A U.S. holder exchanging all of its shares of Merchants common stock for solely Community Bank System common stock (and cash instead of fractional shares of Community Bank System common stock) pursuant to the Merger Agreement will generally not recognize gain or loss, except with respect to cash received instead of fractional shares of Community Bank System common stock.

A U.S. holder exchanging all of its shares of Merchants common stock for solely cash pursuant to the Merger Agreement will generally recognize gain or loss equal to the difference between the amount of cash it receives and its cost basis in its Merchants common stock.

A U.S. holder exchanging all of its shares of Merchants common stock for a combination of Community Bank System common stock and cash pursuant to the Merger Agreement will generally recognize gain (but not loss) in an amount equal to the lesser of (i) the amount of cash treated as received in exchange for Merchants common stock in the Merger and (ii) the excess of the “amount realized” in the transaction (i.e., the fair market value of the Community Bank System common stock at the effective time of the Merger plus the amount of cash treated as received in exchange for Merchants common stock in the Merger) over its tax basis in its surrendered Merchants common stock.

Are ~~Oneida Financial’s~~Merchants stockholders entitled to seek appraisal or dissenters’ rights if they do not vote in favor of the ~~approval~~adoption of the Merger Agreement?

~~No.~~Yes. As a holder of ~~Oneida Financial~~Merchants common stock, ~~and in accordance with Oneida Financial’s articles of incorporation,~~ you are ~~not~~ entitled to seek appraisal or dissenters’ rights under the ~~Maryland~~Delaware General Corporation Law in connection with the Merger. ~~See “Proposal I—The Merger—No Appraisal or Dissenters’ Rights” beginning on page [ ].~~Failure to follow precisely any of the statutory requirements could result in the loss of your appraisal rights.

~~How are my shares~~Should Merchants stockholders send in ~~The Oneida Savings Bank Employee Stock Ownership Plan and~~their stock certificates with the ~~Oneida Savings Bank 401(k) Savings Plan voted?~~enclosed proxy?

~~Under the terms of The Oneida Savings Bank Employee Stock Ownership Plan (the “ESOP”), the ESOP trustee votes all shares held by the ESOP, but each participant~~No. Merchants stockholders SHOULD NOT send in ~~the ESOP may direct the trustee how to vote the~~any stock certificates now. You will receive separate written instructions for making your election and surrendering your shares of ~~Oneida Financial~~Merchants common stock allocated to his or her account. The ESOP trustee, subject to the exercise of its fiduciary responsibilities, will vote unallocated shares of common stock and allocated shares for which no voting instructions are received in the same proportion as the allocated shares for which it has received timely voting instructions. A participant in the Oneida Savings Bank 401(k) Savings Plan (the “401(k) Plan”) is entitled to direct the trustee as to the shares in the Oneida Financial Corp. Stock Fund credited to his or her account. The 401(k) Plan trustee, subject to the exercise of its fiduciary responsibilities, will vote all shares for which no directions are given or for which instructions were not timely received in the same proportion as shares for which the 401(k) Plan trustee received voting instructions.

If you are a participant in the ESOP or the 401(k) Plan, you will receive a separate voting instruction form for shares allocated to your ESOP account or 401(k) Plan by which you can direct the plan trustee how to vote your shares held by either plan.

xistock.

TABLE OF CONTENTS

WHO CAN HELP ANSWER YOUR QUESTIONS

If you want to ask any questions about the Merger or the merger consideration to be issued in the Merger, you should contact:

[•]

~~[Proxy Solicitor Contact Information]~~


Community Bank System, Inc.		Merchants Bancshares, Inc.
Scott A. Kingsley E.V.P. and Chief Financial Officer Community Bank System, Inc. 5790 Widewaters Parkway DeWitt, New York 13214 (315) 445-7378		Geoffrey R. Hesslink President and Chief Executive Officer Merchants Bancshares, Inc. 275 Kennedy Drive South Burlington, Vermont 05403 (800) 322-5222

Both Community Bank System and ~~Oneida Financial~~Merchants file annual, quarterly and current reports, proxy statements and other information with the ~~Securities and Exchange Commission (“SEC”).~~SEC. You may read and copy any reports, statements or other information that Community Bank System or ~~Oneida Financial~~Merchants files at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1 800-SEC-0330 for further information on the Public Reference Room. Community Bank System’s and ~~Oneida Financial’s~~Merchants’ public filings are also available at the Internet site maintained by the SEC at ~~“http:~~“http://~~www.sec.gov.~~www.sec.gov.” Community Bank System’s and ~~Oneida Financial’s~~Merchants’ public filings are also available from Community Bank System and ~~Oneida Financial,~~Merchants, respectively, at the address shown below or at their respective websites:www.communitybankna.com or ~~www.oneidafinancial.com.~~

www.mbvt.com. Please note that Community Bank System’s and Merchants’ Internet addresses are included in this Proxy Statement/Prospectus as inactive textual references only. The information contained on Community Bank System’s and Merchants’ websites are not incorporated by reference in this Proxy Statement/Prospectus and should not be considered part of this document.

Community Bank System has filed a registration statement to register with the SEC the shares of Community Bank System common stock to be issued to ~~Oneida Financial~~Merchants stockholders in the Merger. This document is a part of the registration statement and constitutes a ~~prospectus~~Prospectus of Community Bank System and a ~~proxy statement~~Proxy Statement of ~~Oneida Financial~~Merchants for its special meeting of stockholders. As allowed by SEC rules, this document does not contain all the information that stockholders can find in the registration statement or the exhibits to the registration statement. The SEC allows Community Bank System and ~~Oneida Financial~~Merchants to “incorporate by reference” certain information into this document, which means that Community Bank System and ~~Oneida Financial~~Merchants can disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is deemed to be a part of this document, except for any information which contradicts information contained directly in this document. Please see “Where You Can Find More Information” beginning on page ~~[ ]~~104 of this Proxy Statement/Prospectus to find out where you can find more information about the documents incorporated by reference.

If you wish to obtain an additional copy of this document, or any other information, without charge upon written or oral request, please see “Where You Can Find More Information” beginning on page ~~[ ]~~104 of this Proxy Statement/Prospectus to find out where you can find more information about Community Bank System and ~~Oneida Financial,~~Merchants, or contact:


Community Bank System, Inc.	~~Oneida Financial Corp.~~	Merchants Bancshares, Inc.

Donna J. Drengel Investor Relations Community Bank System, Inc. 5790 Widewaters Parkway DeWitt, New York 13214 (315) 445-7313	~~Eric E. Stickels~~	Geoffrey R. Hesslink President ~~COO~~ and ~~Corporate Secretary~~ ~~Oneida Financial Corp.~~ ~~182 Main Street~~ ~~Oneida, New York 13421~~ ~~(315) 363-2000~~ Chief Executive Officer Merchants Bancshares, Inc. 275 Kennedy Drive South Burlington, Vermont 05403 (800) 322-5222

To obtain timely delivery of these documents, you must request the information no later than ~~[______________], 2015~~[•] in order to receive them before the special meeting.

~~xii~~

TABLE OF CONTENTS

You should rely only on the information contained in, or incorporated by reference into, this Proxy Statement/Prospectus. No one has been authorized to give any information or make any representation about the Merger or Community Bank System or Merchants that differs from, or adds to, the information in this Proxy Statement/Prospectus or in documents that are incorporated by reference herein and publicly filed with the SEC. Therefore, if anyone does give you different or additional information, you should not rely on it. You should not assume that the information contained in this Proxy Statement/Prospectus is accurate as of any date other than the date of this Proxy Statement/Prospectus, and you should not assume that any information incorporated by reference into this document is accurate as of any date other than the date of such other document, and neither the mailing of this Proxy Statement/Prospectus to Merchants stockholders nor the issuance of Community Bank System common stock in the Merger shall create any implication to the contrary.

This Proxy Statement/Prospectus does not constitute an offer to sell, or a solicitation of an offer to purchase, the securities offered by this Proxy Statement/Prospectus, or the solicitation of a proxy, in any jurisdiction to or from any person to whom or from whom it is unlawful to make such offer, solicitation of an offer or proxy solicitation in such jurisdiction.

xii

TABLE OF CONTENTS

SUMMARY

This summary highlights selected information from this document and may not contain all of the information that is important to you. For a more complete understanding of the Merger and for a more complete description of the legal terms of the Merger, we encourage you to read this entire Proxy Statement/Prospectus ~~carefully,~~and its annexes carefully, as well as the additional documents referred to in this Proxy Statement/Prospectus. See “Where You Can Find More Information” beginning on page ~~[ ].~~

104 of this Proxy Statement/Prospectus.

The Merger Agreement is attached to this document asAnnex A.Please read that document carefully. It is the legal document that governs the Merger and your rights in the Merger.

Information about the Companies (Page [ ])
22)

Community Bank System, Inc.

5790 Widewaters Parkway

DeWitt, New York 13214

(315) 445-2282

Community Bank System is a bank holding company operating Community Bank, which currently has ~~190~~more than 200 customer facilities and ~~187~~202 ATMs in 3536 counties in Upstate New York: Allegany, Broome, Cattaraugus, Cayuga, Chautauqua, Chenango, Chemung, Clinton, Delaware, Erie, Essex, Franklin, Hamilton, Herkimer, Jefferson, Lewis, Livingston, Madison, Oneida, Onondaga, Ontario, Oswego, Otsego, St. Lawrence, Saratoga, Schoharie, Schuyler, Seneca, Steuben, Tioga, Tompkins, Ulster, Warren, Washington, Wayne, and Yates, and six counties in Northern Pennsylvania: Bradford, Carbon, Lackawanna, Luzerne, Susquehanna and Wyoming. Community Bank and its subsidiaries offer a broad range of commercial banking, trust, pension administration, investment and financial services to business, individual, agricultural and government customers.

Community Bank is Community Bank System’s principal operating subsidiary. At ~~December 31, 2014,~~September 30, 2016, Community Bank System had on a consolidated basis approximately ~~$7.5~~$8.7 billion in total assets, ~~$5.9~~$7.1 billion in total deposits, ~~$4.2~~$4.9 billion in total loans and ~~$1.0 billion~~stockholders’ equity of ~~stockholders’ equity.~~

$1.2 billion.

Community Bank System common stock is currently listed on the NYSE under the symbol “CBU.”

Community Bank System announced on December 5, 2016 that is has entered into an agreement to acquire Northeast Retirement Services, Inc. (“NRS”), a leading institutional provider of plan accounting, transfer agency, fund administration, trust and retirement plan services. Upon the closing of the transaction, NRS will become a subsidiary of Benefit Plans Administrative Services, Inc. (“BPAS”), a wholly-owned subsidiary of Community Bank System. The cash and stock transaction is valued at approximately $140 million and is expected to close in the first quarter of 2017, subject to certain shareholder and regulatory approvals. The foregoing transaction is referred to in this Proxy Statement/Prospectus as the “NRS acquisition.”

~~Oneida Financial Corp.~~Merchants Bancshares, Inc.
275 Kennedy Drive
South Burlington, Vermont 05403
(802) 658-3400

~~182 Main Street~~

~~Oneida, New York 13421~~

~~(315) 363-2000~~

~~Oneida Financial,~~Merchants is a ~~Maryland corporation, is the parent savings and loan~~publicly-held bank holding company registered under the Bank Holding Company Act of ~~Oneida Savings~~1956, as amended, and is subject to supervision, regulation and examination by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”). Merchants is incorporated under the laws of the State of Delaware and headquartered in South Burlington, Vermont. At September 30, 2016, Merchants had total consolidated assets of approximately $1.99 billion (including loans of approximately $1.47 billion), deposits of approximately $1.50 billion and stockholders’ equity of approximately $158 million.

Merchants conducts substantially all of its business through its subsidiary, Merchants Bank. ~~Oneida Savings~~Merchants Bank is a ~~New York chartered savings~~Vermont-chartered nonmember stock bank ~~headquartered~~organized in ~~Oneida, New York,~~1849 with 1231 full-service banking offices located throughout the State of Vermont and one full-service banking office in ~~Madison and Oneida Counties. Oneida Savings Bank was originally founded in 1866 as a mutual savings bank, and in 1998 it converted to a New York chartered stock savings bank as part~~Massachusetts. The primary business of its reorganization into a mutual holding company corporate structure. In 2010, Oneida Financial completed its conversion from a mutual holding company to a stock holding company and sold concurrently approximately $31.5 million of common stock. Oneida Savings Bank and its subsidiaries offer a broad range of banking, trust, investment and financial services to business, individual and government customers.

~~Oneida Savings~~Merchants Bank is ~~Oneida Financial’s principal operating subsidiary. At December 31, 2014, Oneida Financial had on a consolidated basis approximately $798.2 million in total assets, $689.2 in total~~to attract deposits ~~$369.9 in total~~from and extend loans to consumer, institutional, municipal,

TABLE OF CONTENTS

non-profit and ~~$95.8 million~~commercial customers. Merchants also provides wealth management and trust services through the Merchants Trust Company Division of ~~stockholders’ equity.~~Merchants Bank.

~~Oneida Financial~~Merchants common stock is currently listed on the NASDAQ Global Select Market under the symbol ~~ONFC.~~“MBVT.”

~~Oneida Financial~~

Information about the Special Meeting

Date, Time and Community Bank System propose a merger of Community Bank System and Oneida Financial (Page [      ])
Oneida Financial and Community Bank System are proposing a merger of Oneida Financial with and into Community Bank System, with Community Bank System as the surviving entity. Immediately following the Merger, the parties will merge Oneida Savings Bank and The State Bank of Chittenango, wholly-owned banking subsidiaries of Oneida Financial, with and into Community Bank, a wholly-owned banking subsidiary of Community Bank System, with Community Bank as the surviving entity (the “Bank Merger”).
In the Merger, You May Elect to Receive Either Cash, Shares of Community Bank System or a Combination of Both (Page [      ])
If the Merger proposal is approved and the Merger is subsequently completed, subject to certain allocation procedures, you may elect to receive, for each outstanding share of Oneida Financial common stock owned, either:
· $20.00 in cash, without interest;
· 0.5635 shares of Community Bank System common stock, plus cash in lieu of fractional shares; or
· a combination of both cash and common stock of Community Bank System provided 60% of your Oneida Financial common stock will be exchanged for shares of Community Bank System common stock, pursuant to the exchange ratio of 0.5635, and the remaining 40% of your Oneida Financial common stock will be exchanged for $20.00 in cash per share.
The above consideration is subject to an allocation process that requires that overall 40% of Oneida Financial shares of common stock to be exchanged for cash and 60% of Oneida Financial’s common stock be converted into Community Bank System common stock.
To enable you to make this election, Community Bank System will mail separately an election form/letter of transmittal. Please read the instructions to the election form/letter of transmittal, and complete, sign and return it with your Oneida Financial stock certificates or appropriate guarantee of delivery before the election deadline of [      ], 2015. If you do not make a valid election as to the form of merger consideration before the election deadline, all of your shares of Oneida Financial common stock will be converted into the right to receive either the common stock of Community Bank System pursuant to the exchange ratio of 0.5635, $20.00 in cash per share, or any combination of Community Bank System common stock and cash, as determined by Community Bank System and pursuant to the allocation procedures described in the Proxy Statement/Prospectus.
Your Election of Merger Consideration is Subject to Certain Allocation Procedures (Page [      ])
Oneida Financial and Community Bank System have agreed that no more than 60%Place of the outstanding sharesSpecial Meeting (Page 24)

A special meeting of Oneida Financial common stock will be exchanged for shares of Community Bank System common stock, and that no more than 40% of the outstanding shares of Oneida Financial common stock will be exchanged for cash. Depending on the elections made by the other Oneida FinancialMerchants stockholders your election as to the form of merger consideration may be subject to certain allocation mechanisms which are designed to ensure compliance with the aggregate limitations on the form of merger consideration described in the preceding sentence. Accordingly, unless you elect to receive the combination of cash for 40% of your Oneida Financial shares, and Community Bank System common stock for 60% of your Oneida Financial shares, Oneida Financial and Community Bank System cannot assure you that you will receive the form of consideration that you elect with respect to all of the shares of Oneida Financial common stock you hold. However, if you own 100 or fewer shares of Oneida Financial common stock and elect to receive only cash in the Merger, you will receive only cash in the Merger.

~~Oneida Financial and Community Bank System Expect that Oneida Financial Stockholders Will Own Approximately [____%] of the Combined Company Following the Merger (Page [ ])~~

At the completion of the Merger, if 60% of the outstanding shares of Oneida Financial common stock are exchanged for shares of Community Bank System common stock at an exchange ratio of 0.5635, Oneida Financial stockholders are expected to own approximately [____%] of the outstanding shares of common stock of the combined company. The actual ownership percentage of the Oneida Financial stockholders in the combined company could be higher if the actual exchange ratio of the Merger, which may be adjusted if Oneida Financial’s board of directors elects to terminate the Merger Agreement in the event that the market price of Community Bank System’s common stock, over a specified period before the consummation of Merger, falls outside of a certain range and Community Bank elects to increase the exchange ratio, as described in the Terms of the Merger Agreement section on page [ ].

~~Recommendation of the Oneida Financial Board of Directors (Page [ ])~~

Oneida Financial’s board of directors has unanimously approved the Merger Agreement, and recommends a vote “FOR” approval and adoption of the Merger Agreement, “FOR” the approval, on an advisory basis, of the Merger-Related Executive Compensation, and “FOR” the adjournment proposal, if necessary. See the section entitled “Proposal I—The Merger—Oneida Financial’s Reasons for the Merger; Recommendation of Oneida Financial’s Board of Directors” beginning on page [ ] of this Proxy Statement/Prospectus.

~~Oneida Financial’s Financial Advisor Provided a Fairness Opinion to Oneida Financial’s Board of Directors in connection with the Merger (Page [ ])~~

In connection with the Merger, Oneida Financial’s financial advisor, Keefe, Bruyette & Woods, Inc. (“KBW”), delivered a written opinion, dated February 24, 2015, to the Oneida Financial board of directors as to the fairness, from a financial point of view and as of the date of the opinion, to the holders of Oneida Financial common stock of the merger consideration in the proposed Merger. The full text of the opinion, which describes the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by KBW in preparing the opinion, is attached as~~Annex B~~ ~~to this Proxy Statement/Prospectus.~~The opinion was for the information of, and was directed to, the Oneida Financial board of directors (in its capacity as such) in connection with its consideration of the financial terms of the Merger. The opinion did not address the underlying business decision of Oneida Financial to engage in the Merger or enter into the Merger Agreement or constitute a recommendation to the Oneida Financial board of directors in connection with the Merger, and it does not constitute a recommendation to any holder of Oneida Financial common stock or any shareholder of any other entity as to how to vote in connection with the Merger or any other matter(including, with respect to holders of Oneida Financial common stock, what election any such stockholder should make with respect to the stock consideration or the cash consideration (or any combination thereof)).

~~Share Information and Market Price (Page [ ])~~

Community Bank System common stock is traded on the NYSE under the symbol “CBU.” Oneida Financial common stock is traded on NASDAQ under the symbol “ONFC.” The following table shows the closing or last sale prices of Community Bank System common stock and Oneida Financial common stock on February 23, 2015 and [ ], 2015. February 23, 2015 is the last full trading day prior to the announcement of the signing of the Merger Agreement. [ ], 2015 was the last practicable trading day for which information was available prior to the date of this document. The equivalent price per share of Oneida Financial common stock is determined by multiplying the closing price of Community Bank System common stock by the 0.5635 exchange ratio.

Community Bank
System Oneida Financial
Closing Sale Prices Per Share on: Historical Historical Equivalent Market
Value Per Share
February 23, 2015 $ 35.45 $ 12.79 $ 19.98
[ ], 2015

The market prices of both Community Bank System common stock and Oneida Financial common stock will fluctuate before the Merger. Oneida Financial and Community Bank System encourage you to obtain current market prices.

~~The Special Meeting~~ will be held on ~~[ ], 2015 (Page [ ])~~

~~A special meeting of the Oneida Financial stockholders will be held~~[•], at ~~[ ], at [ ].m.~~[•].m., Eastern time, ~~on [ ], 2015.~~ at [•].

Actions to be Taken at the Special Meeting (Page 24)

At the special meeting, Merchants stockholders as of ~~Oneida Financial~~[•], the record date, will be asked to vote on a proposal to ~~approve and~~ adopt the Merger Agreement, ~~and an~~a non-binding, advisory ~~vote on~~proposal to approve the Merger-Related Executive Compensation, and if necessary, the adjournment proposal.

~~The~~

Record Date forDate; Outstanding Shares; Shares Entitled to Vote (Page 24)

Only holders of record of Merchants common stock at the ~~Special Meeting is [ ], 2015; Each Share will Entitle You to One Vote~~close of business on the ~~Merger (Page [ ])~~

~~You~~record date of [•] are entitled to notice of and to vote at the special ~~meeting if you owned shares~~meeting. As of ~~Oneida Financial common stock as of the close of business on [ ], 2015, the record date. On~~ the record date, there were [ [•] shares of ~~Oneida Financial~~Merchants common stock outstanding, ~~and entitled to vote. Each share~~held of ~~Oneida Financial common stock entitles its holder to one vote on any matter that may properly come before the special meeting, including the proposal to approve the Merger Agreement.~~record by approximately [•] stockholders.

Quorum; Vote Required (Page [ ])
24)

The presence in person or by proxy of the holders of a majority of the shares of Merchants common stock outstanding on the record date will constitute a quorum for the transaction of business at the special meeting.

The ~~approval and~~ adoption of the Merger Agreement requires the affirmative vote of the holders of ~~a majority~~two-thirds of the outstanding shares of ~~Oneida Financial~~Merchants common stock entitled to vote at the special meeting of stockholders. Approval of the Merger-Related Executive Compensation proposal requires the affirmative vote of a majority of the votes cast on the proposal. Approval of the adjournment proposal, if necessary to solicit additional proxies if there are not sufficient votes to adopt ~~and approve~~ the Merger Agreement, requires the affirmative vote of a majority of the votes cast on the proposal.

Broker non-votes and abstentions ~~would~~will have the same effect as a vote “AGAINST” the Merger Agreement, but they will have no effect on the Merger-Related Executive Compensation proposal or the adjournment proposal.

~~Oneida Financial and Community Bank System Expect Directors~~

Share Ownership of Oneida Financial and Certain Executive Officers of Oneida Financial and its Subsidiaries to Vote Their Shares in Favor of Approving the MergerManagement; Voting Agreements (Page [ ])
25)

On the record date, the directors and another principal stockholder of ~~Oneida Financial and certain executive officers of Oneida Financial and its subsidiaries, including certain related parties,~~Merchants had voting power with respect to an aggregate of [ [•] shares of ~~Oneida Financial~~Merchants common stock, or approximately ~~[ ]%~~[•]% of the shares of the ~~Oneida Financial~~Merchants common stock then outstanding. Each director of Oneida Financial and certain executive officers of Oneida Financial and its subsidiaries holding, in the aggregate, approximately [ ]% of the outstanding Oneida Financial common stocksuch person executed an agreement that generally commits such person to vote all of ~~their~~his or her shares of ~~Oneida Financial~~Merchants common stock in favor of the Merger Agreement.

Recommendation of the Merchants Board of Directors (Page 24)

~~Terms~~Merchants’ board of directors has unanimously approved the Merger Agreement, and recommends a vote “FOR” the adoption of the Merger Agreement, “FOR” the approval, on an advisory basis, of the Merger-Related Executive Compensation, and “FOR” the adjournment proposal, if necessary.

Appraisal Rights (Page [ ])57)

Under Delaware law, Merchants stockholders who do not vote in favor of adoption of the Merger Agreement will have the right to seek appraisal of the fair value of their Merchants common stock as determined by the Delaware Court of Chancery if the Merger is completed, but only if they submit a written demand for such an appraisal prior to the vote on adoption of the Merger Agreement and strictly comply with the other Delaware law procedures explained in this Proxy Statement/Prospectus. See the section entitled “Appraisal Rights” beginning on page 57 of this Proxy Statement/Prospectus. The applicable Delaware law is reproduced in its entirety inAnnex C to this Proxy Statement/Prospectus.

TABLE OF CONTENTS

The Merger

Structure of the Merger (Page 62)

Merchants and Community Bank System are proposing a merger of Merchants with and into Community Bank System, with Community Bank System as the surviving company. Immediately following the Merger, the parties will merge Merchants Bank, a wholly-owned banking subsidiary of Merchants, with and into Community Bank, a wholly-owned banking subsidiary of Community Bank System, with Community Bank as the surviving entity (the “Bank Merger”).

The Merger Agreement is attached to this document asAnnex A. We encourage you to read the Merger Agreement carefully and in its entirety as it is the legal document that governs the Merger and your rights in it. You are also encouraged to read the ~~section entitled “Risk Factors”~~risk factors beginning on page ~~[ ].~~15.

~~The~~

Merger Agreement providesConsideration (Page 62)

If the Merger proposal is approved and the Merger is subsequently completed, you may elect to receive (subject to the proration procedures described below), in exchange for each outstanding share of Merchants common stock that ~~Oneida Financial will merge with and into~~you own, either:

$40.00 in cash, without interest (the “cash election consideration”);

0.9630 shares of Community Bank System ~~with~~common stock, plus cash in lieu of fractional shares (the “stock election consideration”); or

a combination of 0.6741 shares of Community Bank System ~~continuing as the surviving corporation. Following the Merger, Oneida Savings Bank~~common stock and ~~The State Bank~~$12.00 in cash, plus cash in lieu of ~~Chittenango will merge with and into~~ fractional shares (the “mixed election consideration”).

Election Procedures (Page 63)

Community Bank System will mail separately an election form/letter of transmittal. Please read the instructions to the election form/letter of transmittal, and complete, sign and return it with ~~Community Bank being~~your Merchants stock certificates or appropriate guarantee of delivery before the ~~continuing bank.~~

~~Oneida Financial~~election deadline. Merchants and Community Bank System ~~Must Obtain~~expect the election deadline will be 5:00 p.m., Eastern time, on [•], but they will notify you if this date changes. If you do not make a valid election as to the form of merger consideration before the election deadline, all of your shares of Merchants common stock will be converted into the right to receive the mixed election consideration.

Proration Procedures (Page 63)

The merger consideration to be paid to Merchants stockholders is subject to allocation procedures that are designed to ensure that the total amount of cash paid, and the total number of shares of Community Bank System common stock issued in the Merger, as a whole, will equal as nearly as practicable the total amount of cash and number of shares that would have been paid and issued if all of the Merchants stockholders received the mixed election consideration.

The greater the oversubscription of the stock election, the less stock and more cash a Merchants stockholder making the stock election will receive. Reciprocally, the greater the oversubscription of the cash election, the less cash and more stock a Merchants stockholder making the cash election will receive. However, in no event will a Merchants stockholder who makes the cash election or the stock election receive less cash and more shares of Community Bank System common stock, or fewer shares of Community Bank System common stock and more cash, respectively, than a stockholder who makes the mixed election.

For additional detail and for illustrative examples, see “The Merger Agreement — Election and Proration Procedures” beginning on page 63 of this Proxy Statement/Prospectus.

TABLE OF CONTENTS

Treatment of Merchants Equity Awards and Warrants (Page 67)

At the effective time of the Merger, each option granted under Merchants’ equity plans outstanding and unexercised, whether or not then vested or exercisable, will be cancelled and converted into the right to receive a cash payment in an amount equal to the product of the number of shares of Merchants common stock underlying the option and the excess of the value of the mixed election consideration over the exercise price of the option.

At the effective time of the Merger, each restricted stock award granted under Merchants’ equity plans will automatically vest in full, and any restrictions thereon will lapse, and such stock will be cancelled and converted into the right to receive a cash payment equal to the value of the mixed election consideration, plus all dividends, if any, accrued but unpaid as of the effective time of the Merger with respect to such restricted share.

At the effective time of the Merger, each organizers’ warrant will be converted into a warrant to acquire, upon payment of the amount determined by dividing the per share exercise price immediately prior to the effective time by the stock election consideration of 0.9630, the number of shares of Community Bank System common stock determined bymultiplying (i) the number of shares of Merchants common stock which may be acquired upon exercise of such organizers’ warrant immediately prior to the effective time by (ii) the stock election consideration of 0.9630.

At the effective time of the Merger, each 2013 warrant will be converted into the right to receive, at the holder’s election, either (i) a cash payment in cancellation of such 2013 warrant equal to the number of shares of Merchants common stock which may be acquired upon exercise of such 2013 warrantmultiplied by the excess, if any, of the cash election consideration of $40.00 over the per share 2013 warrant exercise price immediately prior to the effective time or (ii) a replacement 2013 warrant certificate issued by Community Bank System representing the right to acquire prior to the expiration date of the original 2013 warrant, upon payment of the amount determined by dividing the per share exercise price immediately prior to the effective time by the stock election consideration of 0.9630, that number of shares of Community Bank System common stock equal to the number of shares of Merchants common stock which may be acquired upon exercise of such 2013 warrant immediately prior to the effective timemultiplied by the stock election consideration of 0.9630.

Opinion of Merchants’ Financial Advisor (Page 38)

In connection with the Merger, Merchants’ financial advisor, Piper Jaffray & Co. (“Piper”), delivered a written opinion to the Merchants board of directors, dated October 22, 2016, that, as of such date, and based upon and subject to the various factors, assumptions and limitations set forth in its opinion, the consideration offered in the Merger was fair, from a financial point of view, to the holders of Merchants common stock. The full text of Piper’s written opinion dated October 22, 2016, which sets forth, among other things, the procedures followed, assumptions made, matters considered and qualifications and limitations on the scope of review undertaken in rendering its opinion, is attached asAnnex B to this Proxy Statement/Prospectus and is incorporated herein by reference. Piper’s opinion was addressed to, and provided for the information and benefit of, the Merchants board of directors (in its capacity as such) in connection with its evaluation of the fairness of the merger consideration from a financial point of view, and did not address any other aspects or implications of the Merger. The opinion does not constitute a recommendation to the Merchants board of directors or to any other persons in respect of the Merger, including as to how any holder of Merchants common stock should vote at any stockholders’ meeting held in connection with the Merger or take, or not to take, any action in respect of the Merger. Piper’s opinion does not address the relative merits of the Merger as compared to any other business or financial strategies that might be available to Merchants, nor does it address the underlying business decision of Merchants to engage in the Merger.

Share Information and Market Price (Page 90)

Community Bank System common stock is traded on the NYSE under the symbol “CBU.” Merchants common stock is traded on the NASDAQ Global Select Market under the symbol “MBVT.” The following table shows the closing or last sale prices of Community Bank System common stock and Merchants common

TABLE OF CONTENTS

stock on October 21, 2016 and [•]. October 21, 2016 is the last full trading day prior to the announcement of the signing of the Merger Agreement. [•] was the last practicable trading day for which information was available prior to the date of this document. The equivalent price per share of Merchants common stock is determined by multiplying the closing price of Community Bank System common stock by the 0.6741 mixed stock consideration and adding $12.00 to such amount.


	Community Bank System		Merchants
	Historical		Historical		Equivalent Market Value Per Share
Closing Sale Prices Per Share on:
October 21, 2016	$	47.50	$	32.85	$	44.02
[•]

The market prices of both Community Bank System common stock and Merchants common stock will fluctuate before the Merger. Merchants and Community Bank System encourage you to obtain current market prices.

Required Regulatory Approvals to Complete the Merger (Page [ ])
57)

Community Bank System must make filings with or obtain approvals from certain regulatory authorities to effect the Merger. In addition, before ~~Oneida Financial~~Merchants and Community Bank System can complete the Merger, they will make all filings and obtain all regulatory approvals required for the merger of their banking subsidiaries, Community Bank ~~Oneida Savings Bank~~ and ~~The State Bank of Chittenango. Required approvals for the Merger and the Bank Merger~~Merchants Bank. These include the approvals of ~~the New York Department of Financial Services,~~ the Federal Reserve Board and the Office of the Comptroller of the Currency (the “OCC”). In addition, Community Bank System must apply to list the common stock to be issued in the Merger on the NYSE.

Limitations on Considering Other Acquisition Proposals (Page 73)

Merchants has agreed to a number of limitations with respect to soliciting, negotiating and discussing acquisition proposals involving persons other than Community Bank System, and to certain related matters. The Merger Agreement does not, however, prohibit Merchants from considering an unsolicited bona fide acquisition proposal from a third party if certain specified conditions are met.

Conditions to Completion of the Merger (Page [ ])
78)

In addition to the approval and adoption of the Merger by Oneida Financial stockholders and the receipt of all required regulatory approvals and expiration or termination of all statutory waiting periods in respect thereof as described above, eachEach party’s obligation to complete the Merger is ~~also~~ subject to the satisfaction or waiver (to the extent permitted under applicable law) of certain other conditions, including:

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

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

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

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

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

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

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

TABLE OF CONTENTS

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

~~Oneida Financial stockholders approving the Merger Agreement by the affirmative vote of at least a majority of the shares outstanding and entitled to vote at the special meeting;~~

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

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

~~the New York Stock Exchange approving for listing the Community Bank System common stock to be issued in the Merger; and~~

Luse Gorman, PC (“Luse Gorman”), Oneida Financial’s outside legal counsel, delivering an opinion to Oneida Financial, dated as of the date of this Proxy Statement/Prospectus and as of the closing date of the Merger, to the effect that the Merger will qualify as a tax-free reorganization under Section 368 of the Internal Revenue Code.

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

Cadwalader, Wickersham & Taft LLP (“Cadwalader”), Community Bank System’s outside legal counsel, delivering an opinion to Community Bank System, dated as of the closing date of the Merger, to the effect that the Merger will qualify as a reorganization under Section 368(a) of the Code;

Goodwin Procter LLP (“Goodwin Procter”), Merchants’ outside legal counsel, delivering an opinion to Merchants, dated as of the closing date of the Merger, to the effect that the Merger will qualify as a reorganization under Section 368(a) of the Code; and

Neither Merchants nor Community Bank System having experienced a material adverse effect.

Fees and Expenses; Termination Fee (Page [ ])
80)

~~Oneida Financial~~Merchants and Community Bank System will each pay its own expenses in connection with the Merger, except that the parties will share equally all ~~filing fees paid to the SEC in connection with the registration statement for the Merger, and all~~ costs associated with the printing and mailing of this document. If, however, the Merger Agreement is terminated under certain circumstances, ~~Oneida Financial~~Merchants must pay a termination fee of ~~$4.93~~$10.72 million as set forth in the Merger Agreement. Generally, the termination fee will become payable in connection with Merchants accepting a competing third party ~~offer to acquire Oneida Financial.~~acquisition offer.

Terminating the Merger Agreement (Page [ ])
78)

Either ~~Oneida Financial~~Merchants or Community Bank System may terminate the Merger Agreement under certain circumstances, including if:

both companies consent in writing to the termination;

the Merger is not completed by July 22, 2017; however, neither party has the right to terminate the Merger Agreement if such party was in breach of its obligations under the Merger Agreement and such breach was the cause of the failure of the Merger to be consummated by such date (if on such expiration date all conditions to the Merger have been satisfied or waived or are capable of being satisfied by the closing other than the condition relating to the receipt of required regulatory approvals, then either party has the right to extend the expiration date by an additional three month period);

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

Merchants stockholders do not approve the Merger Agreement at the special meeting; and

the other party materially breaches, and does not cure within 30 days of notice of such breach from the other party, any of the representations, warranties or covenants it has made under the Merger Agreement, which would constitute a failure of a condition to closing of such breaching party.

~~both companies consent in writing to the termination;~~

the Merger is not completed before December 31, 2015, unless failure to consummate the Merger by such date was principally due to the party seeking to terminate failing to perform the covenants set forth in the Merger Agreement;

~~any governmental entity issues a final and non-appealable order prohibiting the completion of the Merger;~~

~~Oneida Financial stockholders do not approve the Merger Agreement at the special meeting; and~~

the other party materially breaches, and does not cure within 30 days, any of the representations, warranties or covenants it has made under the Merger Agreement, and the breach entitles the non-breaching party to terminate the Merger Agreement.

~~Oneida Financial~~Merchants may terminate the Merger Agreement (i) if ~~(i)~~ Community Bank System’s stock price falls below thresholds set forth in the Merger Agreement and Community Bank System does not increase the ~~exchange ratio~~stock consideration in the Merger pursuant to a prescribed formula in the Merger Agreement, or (ii) ~~Oneida Financial’s board of directors recommends~~in order to ~~Oneida Financial stockholders~~enter into a ~~“Superior Proposal,~~definitive agreement with respect to a “superior proposal,” as defined in the Merger Agreement, ~~or Oneida Financial signs~~subject to payment of a ~~letter of intent, definitive agreement or similar document with respect~~$10.72 million termination fee to ~~a Superior Proposal, in accordance with the procedures in the Merger Agreement.~~

Community Bank System.

Community Bank System may terminate the Merger Agreement if the ~~Oneida Financial~~Merchants board of directors ~~fails~~effects an adverse recommendation change (i.e., (i) withdrawing, modifying or qualifying in a manner adverse to ~~recommend~~Community Bank System the approval, recommendation or declaration of advisability by the Merchants board of directors set forth in this Proxy Statement/Prospectus that the Merchants stockholders vote to adopt the Merger Agreement, (ii) recommending, endorsing or otherwise declaring as advisable the adoption of any acquisition proposal, (iii) resolving, agreeing or proposing to take any such actions or (iv) submitting the Merger Agreement to Merchants stockholders without recommendation).

Community Bank System may terminate the Merger Agreement if any governmental authority has denied or rescinded any required regulatory approval or ~~withdraws its approval of, the Merger, or fails to include its recommendation for approval of~~imposed a materially burdensome regulatory condition on Community Bank System in connection with granting any regulatory approval.

TABLE OF CONTENTS

Termination Fee (Page 80)

Merchants will owe Community Bank System a $10.72 million termination fee if:

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

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

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

Community Bank System terminates the Merger Agreement as a result of (i) a tender offer or exchange offer for 15% or more of the outstanding shares of Merchants common stock being commenced and Merchants not providing to its stockholders, within ten business days after the commencement of such tender or exchange offer, a statement that the Merchants board of directors recommends rejection of such tender or exchange offer, or (ii) an acquisition proposal (other than a tender or exchange offer covered by clause (i) above) with respect to Merchants being publicly announced and, upon Community Bank System’s request, Merchants failing to issue a press release announcing its opposition to such acquisition proposal and reaffirming the Merchants board of directors’ recommendation that Merchants stockholders vote to adopt the Merger Agreement within five business days after such request; or

Merchants receives a superior proposal and enters into a definitive agreement with respect thereto.

The payment of the termination fee will fully discharge Merchants from any losses that may be suffered by Community Bank System based upon, resulting from or arising out of the termination of the Merger Agreement.

~~Financial~~

Interests of Oneida Financial ManagementMerchants Directors and Executive Officers in the Merger (Page [ ])
48)

~~In considering the recommendation of the Oneida Financial board of directors, you~~Merchants’ stockholders should be aware that ~~certain~~some of ~~the~~Merchants’ directors and executive officers ~~of Oneida Financial~~ have ~~financial~~ interests in the Merger and have arrangements that are different from, or in addition to, ~~and may conflict with,~~those of Merchants stockholders in general. These interests include:

Election of ~~other Oneida Financial stockholders. Oneida Financial’s board of~~two Merchants directors ~~were aware of these interests and considered these interests, among other matters, when making its decision~~ to ~~approve the Merger Agreement, and in recommending that Oneida Financial stockholders vote to approve and adopt the Merger Agreement.~~

~~The material interests considered by Oneida Financial’s board of directors were as follows:~~

~~Michael R. Kallet and Eric E. Stickels will join~~ the boards of directors ~~of Community Bank System and Community Bank following the consummation of the Merger.~~

~~The ability to cancel stock options with an exercise price of less than $20.00 in exchange for a cash payment equal to $20.00 minus the exercise price for each option.~~

~~The acceleration of vesting of outstanding restricted stock awards, which will be exchanged for the Merger consideration.~~

Oneida Savings Bank or its wholly-owned subsidiary, OneGroup NY, Inc., previously entered into employment agreements with its executive officers which entitle them to certain payments and benefits upon a qualifying termination in connection with a change in control such as the Merger. The aggregate benefit from these employment agreements is approximately $4.26 million, assuming each executive officer has a qualifying termination event in connection with the Merger.

Certain executive officers are entitled to receive a pro-rata bonus, payable under the Oneida Financial and Oneida Savings Bank non-equity incentive plans. Such bonuses would be paid in a lump sum at the effective time of the Merger.

Executive officers and directors of Oneida Financial and its subsidiaries will receive continued indemnification coverage and continued coverage under directors’ and officers’ liability insurance policies.

These interests are described in more detail in the section of this Proxy Statement/Prospectus entitled “Proposal I—The Merger—Financial Interests of Oneida Financial’s Directors and Certain Executive Officers in the Merger” beginning on page [ ]. The Oneida Financial board knew about these interests and determined that they did not affect the benefits of the Merger to Oneida Financial stockholders.

~~Directors~~ of Community Bank System and Community Bank ~~Following~~upon the consummation of the Merger.

The acceleration of vesting of all unvested equity awards, which will automatically vest in full, with any restrictions thereon to lapse, and will be cancelled in exchange for a cash payment.

Payment with respect to outstanding stock options held by a director.

Payment of retention incentives to executive officers.

Payment of severance benefits under existing employment agreements with Merchants’ executive officers of approximately $[•] in the aggregate, assuming each executive officer has a qualifying termination event in connection with the Merger.

New employment agreements between certain executive officers of Merchants and Community Bank System that will become effective upon the closing of the Merger, ~~(Page [ ])~~that, among other things, entitle

TABLE OF CONTENTS

If
each such executive to receive a cash bonus as of the effective time of the Merger and include a waiver of the executive’s rights under his or her existing employment agreement with Merchants and an agreement to certain non-competition and non-solicitation covenants.

Payment of a pro-rata bonus to certain executive officers at the effective time of the Merger ~~is completed, two of Oneida Financial’s~~in a lump sum under the Merchants and Merchants Bank non-equity incentive plans.

Continued indemnification and liability insurance coverage for directors ~~Michael R. Kallet~~ and ~~Eric E. Stickels, will be appointed~~executive officers with respect to ~~serve as members of Community Bank System’s~~acts or omissions occurring before the Merger.

The Merchants board of directors was aware of these interests and considered them in ~~addition to~~recommending that Merchants stockholders approve the ~~12 current directors~~Merger Agreement.

Differences Between Rights of Community Bank System. These two new directorsHolders of Community Bank System will also be appointed to serve on the board of directors of Community Bank. In addition,and Merchants Stock (Page 96)

Both Merchants and Community Bank System ~~has agreed to nominate and recommend for election, Michael R. Kallet and Eric E. Stickels at Community Bank System’s next annual meeting of stockholders for which they~~ are ~~standing for election.~~

~~There are Differences in Stockholder Rights (Page [ ])~~

Delaware corporations. The rights of ~~Oneida Financial~~Merchants stockholders are currently governed by ~~Maryland law and Oneida Financial’s articles~~Merchants’ certificate of incorporation and bylaws. If the Merger is completed, certain ~~Oneida Financial~~Merchants stockholders will become stockholders of Community Bank System and their rights will be governed by ~~Delaware law and~~ Community Bank System’s certificate of incorporation and bylaws. ~~There are certain differences in the~~Merchants stockholders will have different rights when they become holders of stockholders of the two companies. These differences are described in more detail in the section of this Proxy Statement/Prospectus entitled “Comparison of Rights of Holders of Oneida Financial Common Stock and Community Bank System ~~Common Stock” beginning on page [ ].~~common stock than they currently have as holders of Merchants common stock.

Material U.S. Federal Income Tax Consequences of the Merger (Page [ ])
54)

The Merger is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Code, and it is a condition to the respective obligations of Merchants and Community Bank System to complete the Merger that each of Merchants and Community Bank System receives a legal opinion to that effect. If, ~~you exchange your~~as expected, the Merger qualifies as a “reorganization”, the specific tax consequences to a U.S. holder (as defined in “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 54 of this Proxy Statement/Prospectus) exchanging Merchants common stock in the Merger will generally depend upon the form of consideration such U.S. holder receives in the Merger.

A U.S. holder exchanging all of its shares of ~~Oneida Financial~~Merchants common stock for solely ~~for~~ Community Bank System common stock ~~you should~~(and cash instead of fractional shares of Community Bank System common stock) pursuant to the Merger Agreement will generally not recognize ~~any~~ gain or loss, except with respect to ~~the~~ cash ~~you receive~~received instead of ~~any~~ fractional ~~share~~shares of Community Bank System common stock. ~~If you exchange your~~

A U.S. holder exchanging all of its shares of ~~Oneida Financial~~Merchants common stock for solely ~~for~~ cash ~~you should~~pursuant to the Merger Agreement will generally recognize gain or loss onequal to the ~~exchange. If you exchange your shares of Oneida Financial common stock for a combination of Community Bank System common stock and cash, you should recognize capital gain, but not any loss on~~difference between the ~~exchange. Because the allocations~~amount of cash it receives and ~~Community Bank System~~its cost basis in its Merchants common ~~stock that you will receive~~stock.

•

A U.S. holder exchanging all of its shares of Merchants common stock for a combination of Community Bank System common stock and cash pursuant to the Merger Agreement will generally recognize gain (but not loss) in an amount equal to the lesser of (i) the amount of cash treated as received in exchange for Merchants common stock in the Merger and (ii) the excess of the “amount realized” in the transaction (i.e., the fair market value of the Community Bank System common stock at the effective time of the Merger plus the amount of cash treated as received in exchange for Merchants common stock in the Merger) over its tax basis in its surrendered Merchants common stock.

The U.S. federal income tax consequences described above may not apply to all holders of Merchants common stock. Your tax consequences will depend on your individual situation. Accordingly, we strongly urge you to consult your own tax advisor to determine the ~~elections made by other Oneida Financial stockholders (with respect to elections of all stock or all cash), you will not know the actual~~particular tax consequences of the Merger to you until the allocations are completed. Oneida Financial’s counsel is not able to provide an opinion regarding whether this tax treatment will apply to any individual stockholder. However, any cash received in lieu of a fractional share interest (only whole shares of Community Bank System common stock will be received by Oneida Financial stockholders) will be treated as received in full payment for such fractional share of stock and as capital gain or loss.you.

~~For further information, see “Proposal I—Material U.S. Federal Income Tax Consequences of the Merger.”~~TABLE OF CONTENTS

This tax treatment may not apply to all Oneida Financial stockholders. Determining the actual tax consequences of the Merger to Oneida Financial stockholders can be complicated. Oneida Financial stockholders should consult their own tax advisor for a full understanding of the Merger’s tax consequences that are particular to each stockholder.

~~Risk Factors (Page [ ])~~

You should consider all the information contained in or incorporated by reference into this Proxy Statement/Prospectus in deciding how to vote for the proposals presented in the Proxy Statement/Prospectus. In particular, you should consider the factors described under “Risk Factors.”

SELECTED HISTORICAL FINANCIAL DATA

The following tables summarize selected historical consolidated financial data for Community Bank System and ~~Oneida Financial.~~Merchants. The ~~“Income Statement Data”/ “Operating Data”~~following selected historical consolidated financial data as of and for the twelve months ended December 31, 2015, 2014, 2013, ~~and~~ 2012 and 2011 has been derived from each company’s audited consolidated financial statements. The following selected historical consolidated financial data as of and for the ~~“Balance Sheet Data”/ “Financial Condition Data” at December 31, 2014~~nine months ended September 30, 2016 and ~~2013 have~~2015 is derived from the unaudited consolidated financial statements of each company and has been prepared on the same basis as the selected historical consolidated financial data derived from the audited consolidated financial statements ~~which have been incorporated by reference into registration statement. The “Income Statement Data”/ “Operating Data”~~and, in the opinion of each company’s management, reflects all adjustments, consisting only of normal recurring adjustments, necessary for ~~the years ended December 31, 2011 and 2010 as well as the “Balance Sheet Data”/ “Financial Condition Data”~~a fair presentation of this data for the years ended December 31, 2012, 2011 and 2010 are derived from the companies’ annual financial statements which were prepared in accordance with U.S. GAAP and are not incorporated in this document. those dates.

The information is only a summary and should be read in conjunction with each company’s financial statements and related notes and management’s discussions and ~~analysis~~analyses contained in the annual, quarterly and other reports filed with the SEC. See “Where You Can Find More Information” beginning on page ~~[ ]~~104 of this Proxy Statement/Prospectus.

Community Bank System, Inc.

Selected Historical Financial Data
Years Ended December 31,
(In thousands except per share data and
ratios) 2014 2013 2012 2011 2010
Income Statement Data:
Loan interest income $ 185,527 $ 188,197 $ 192,710 $ 192,981 $ 178,703
Investment interest income 70,693 75,962 88,690 77,988 69,578
Interest expense 11,792 26,065 50,976 61,556 66,597
Net interest income 244,428 238,094 230,424 209,413 181,684
Provision for loan losses 7,178 7,992 9,108 4,736 7,205
Noninterest income 119,020 108,748 98,955 89,283 88,792
Gain (loss) on investment securities & early retirement of long-term borrowings, net 0 (6,568 ) 291 (61 ) 0
Acquisition expenses, litigation settlement, and contract termination charges 2,923 2,181 8,247 4,831 1,365
Other noninterest expenses 223,657 219,074 203,510 185,541 175,521
Income before income taxes 129,690 111,027 108,805 103,527 86,385
Net income 91,353 78,829 77,068 73,142 63,320
Diluted earnings per share 2.22 1.94 1.93 2.01 1.89

Balance Sheet Data:
Cash equivalents $ 12,870 $ 11,288 $ 84,415 $ 203,082 $ 114,996
Investment securities 2,512,974 2,218,725 2,818,527 2,151,370 1,742,324
Loans, net of unearned discount 4,236,206 4,109,083 3,865,576 3,471,025 3,026,363
Allowance for loan losses (45,341 ) (44,319 ) (42,888 ) (42,213 ) (42,510 )
Intangible assets 386,973 390,499 387,134 360,564 311,714
Total assets 7,489,440 7,095,864 7,496,800 6,488,275 5,444,506
Deposits 5,935,264 5,896,044 5,628,039 4,795,245 3,934,045
Borrowings 440,122 244,010 830,134 830,329 830,484
Shareholders’ equity 987,904 875,812 902,778 774,583 607,258

Capital and Related Ratios:
Cash dividends declared per share $ 1.16 $ 1.10 $ 1.06 $ 1.00 $ 0.94
Book value per share 24.24 21.66 22.78 20.94 18.23
Tangible book value per share⁽¹⁾ 15.63 12.80 13.72 11.85 9.49
Market capitalization (in millions) 1,554 1,604 1,084 1,028 925
Tier 1 leverage ratio 9.96 % 9.29 % 8.40 % 8.38 % 8.23 %
Total risk-based capital to risk-adjusted assets 18.75 % 17.57 % 16.20 % 15.51 % 14.74 %
Tangible equity to tangible assets⁽¹⁾ 8.92 % 7.68 % 7.62 % 7.12 % 6.14 %
Dividend payout ratio 51.6 % 56.0 % 54.3 % 49.3 % 49.2 %
Period end common shares outstanding 40,748 40,431 39,626 36,986 33,319
Diluted weighted-average shares outstanding 41,232 40,726 39,927 36,454 33,553

Selected Performance Ratios:
Return on average assets 1.23 % 1.09 % 1.08 % 1.18 % 1.16 %
Return on average equity 9.65 % 9.04 % 8.82 % 10.36 % 10.66 %
Net interest margin 3.91 % 3.91 % 3.88 % 4.07 % 4.04 %
Noninterest income/operating income (FTE) 31.4 % 30.0 % 28.6 % 28.4 % 31.1 %
Efficiency ratio⁽²⁾ 57.9 % 59.3 % 57.4 % 57.6 % 59.4 %

Asset Quality Ratios:
Allowance for loan losses/total loans 1.07 % 1.08 % 1.11 % 1.22 % 1.40 %
Nonperforming loans/total loans 0.56 % 0.54 % 0.75 % 0.85 % 0.61 %
Allowance for loan losses/nonperforming loans 190 % 201 % 147 % 144 % 230 %
Loan loss provision/net charge-offs 117 % 122 % 108 % 94 % 109 %
Net charge-offs/average loans 0.15 % 0.17 % 0.23 % 0.15 % 0.21 %
^{_______________________________________________________________}
⁽¹⁾ The tangible book value per share and the tangible equity to tangible asset ratio excludes goodwill and identifiable intangible assets, adjusted for deferred tax liabilities generated from tax deductible goodwill. The ratio is not a financial measurement required by accounting principles generally accepted in the United States of America. However, management believes such information is useful in analyzing the relative strength of Community Bank System’s capital position and in evaluating its performance.
⁽²⁾ Efficiency ratio provides a ratio of operating expenses to operating income. It excludes intangible amortization, acquisition expenses, litigation settlement and contract termination charges from expenses and gains and losses on investment securities and early retirement of long-term borrowings from income while adding a fully-taxable equivalent adjustment. The efficiency ratio is not a financial measurement required by accounting principles generally accepted in the United States of America. However, the efficiency ratio is used by management in assessing financial performance specifically as it relates to noninterest expense control. Management also believes such information is useful to investors in evaluating Community Bank System’s performance.
10
Oneida Financial
Selected Historical Financial Data
At December 31,
Selected Financial Condition Data: 2014 2013 2012 2011 2010
(dollars in thousands)
Total assets $ 798,169 $ 742,484 $ 681,391 $ 663,713 $ 661,579
Cash and cash equivalents 31,075 42,183 19,803 40,572 33,741
Loans receivable, net 367,859 335,701 311,703 286,604 284,479
Mortgage-backed securities 115,911 98,994 90,907 92,755 89,882
Investment securities 189,818 169,012 166,539 148,049 158,589
Trading securities 3,900 5,063 5,630 7,010 7,691
Goodwill and other intangibles 26,288 26,582 27,017 24,947 24,519
Interest bearing deposits 603,482 551,603 492,455 481,505 486,985
Non-interest bearing deposits 85,688 85,647 75,810 69,119 65,179
Borrowed funds — 1,000 6,000 11,000 12,000
Total stockholders' equity 95,773 90,644 92,981 87,902 83,361
Years ended December 31,
Selected Operating Data: 2014 2013 2012 2011 2010
(dollars in thousands, except per share data)
Total interest income $ 22,556 $ 22,403 $ 22,765 $ 23,783 $ 23,780
Total interest expense 2,634 2,603 3,173 4,023 5,681
Net interest income 19,922 19,800 19,592 19,760 18,099
Provision for loan losses 500 500 740 1,050 1,650
Net interest income after provision for loan losses 19,422 19,300 18,852 18,710 16,449
Net investment gains (losses) 2,451 484 796 58 (901 )
Change in fair value of trading securities (1,163 ) 1,935 620 199 103
Impairment of other asset — — (1,886 ) — —
Non-interest income 32,054 29,207 26,613 24,654 22,888
Non-interest expense 45,882 41,932 36,801 35,548 33,452
Intangible amortization 294 452 339 391 412
Income before income taxes 6,588 8,542 7,855 7,682 4,675
Income tax provision 1,460 2,456 2,095 1,953 914
Net income $ 5,128 $ 6,086 $ 5,760 $ 5,729 $ 3,761
Earnings per share - basic $ 0.74 $ 0.88 $ 0.84 $ 0.82 $ 0.53
Earnings per share - diluted $ 0.73 $ 0.87 $ 0.84 $ 0.82 $ 0.53
Cash dividends paid $ 0.48 $ 0.48 $ 0.48 $ 0.48 $ 0.30
Years ended December 31,
Selected Financial Ratios: 2014 2013 2012 2011 2010

Performance ratios:
Return on average assets (ratio of net income to average total assets) 0.66 % 0.86 % 0.85 % 0.86 % 0.60 %
Return on average equity (ratio of net income to average equity) 5.44 % 6.58 % 6.40 % 6.46 % 5.14 %
Interest rate spread ⁽¹⁾ 2.90 % 3.16 % 3.28 % 3.30 % 3.25 %
Net interest margin ⁽²⁾ 2.95 % 3.23 % 3.37 % 3.41 % 3.38 %
Efficiency ratio⁽³⁾ 88.28 % 85.55 % 79.63 % 80.04 % 80.99 %
Non-interest income to average total assets 4.12 % 4.12 % 3.94 % 3.70 % 3.67 %
Non-interest expense to average total assets 5.93 % 5.97 % 5.49 % 5.40 % 5.39 %
Ratio of average interest-earning assets to average interest-bearing liabilities 116.37 % 116.52 % 115.74 % 115.47 % 112.56 %
Average equity to average total assets 12.12 % 13.03 % 13.32 % 13.33 % 11.73 %
Equity to total assets (end of period) 12.00 % 12.21 % 13.65 % 13.24 % 12.60 %
Tangible equity to tangible assets (end of period)⁽⁴⁾ 9.00 % 8.95 % 10.09 % 9.86 % 9.24 %
Dividend payout ratio⁽⁵⁾ 65.42 % 55.05 % 56.98 % 58.74 % 56.07 %
Asset quality ratios:
Nonperforming assets to total assets ⁽⁶⁾ 0.07 % 0.08 % 0.32 % 0.79 % 1.15 %
Nonperforming loans to total loans 0.08 % 0.16 % 0.23 % 0.50 % 1.38 %
Net charge-offs to average loans 0.03 % 0.05 % 0.29 % 0.85 % 0.09 %
Allowance for loan losses to loans receivable, net 0.95 % 0.93 % 0.89 % 1.02 % 1.51 %
Allowance for loan losses to nonperforming loans 1,144.44 % 587.90 % 382.37 % 201.81 % 107.54 %
Bank Regulatory Capital Ratios:
Total capital (to risk-weighted assets) 16.54 % 15.97 % 15.16 % 15.62 % 15.15 %
Tier 1 capital (to risk-weighted assets) 15.77 % 15.25 % 14.50 % 14.91 % 14.11 %
Tier 1 capital (to average assets) 9.36 % 9.03 % 9.33 % 9.62 % 9.17 %

Number of full-service banking offices 12 11 11 12 11
Number of FTEs 358 354 325 330 325


	Nine months ended September 30,						Years Ended December 31,
(In thousands except per share data and ratios)	2016			2015			2015			2014			2013			2012			2011
Income Statement Data:
Loan interest income	$	157,865		$	138,422		$	187,743		$	185,527		$	188,197		$	192,710		$	192,981
Investment interest income		54,323			53,196			71,879			70,693			75,962			88,690			77,988
Interest expense		8,538			8,187			11,202			11,792			26,065			50,976			61,556
Net interest income		203,650			183,431			248,420			244,428			238,094			230,424			209,413
Provision for loan losses		5,436			3,120			6,447			7,178			7,992			9,108			4,736
Noninterest income		117,005			90,151			123,303			119,020			108,748			98,955			89,283
Gain (loss) on investment securities & early retirement of long-term borrowings, net		0			0			(4	)		0			(6,568	)		291			(61	)
Acquisition expenses, litigation settlement, and contract termination charges		342			1,318			7,037			2,923			2,181			8,247			4,831
Other noninterest expenses		199,909			166,757			226,018			223,657			219,074			203,510			185,541
Income before income taxes		114,968			102,387			132,217			129,690			111,027			108,805			103,527
Net income	$	77,420		$	71,159		$	91,230		$	91,353		$	78,829		$	77,068		$	73,142
Diluted earnings per share	$	1.74		$	1.72		$	2.19		$	2.22		$	1.94		$	1.93		$	2.01
Balance Sheet Data:
Cash equivalents	$	19,110		$	12,395		$	21,931		$	12,870		$	11,288		$	84,415		$	203,082
Investment securities		2,877,644			2,917,263			2,847,940			2,512,974			2,218,725			2,818,527			2,151,370
Loans, net of unearned discount		4,940,621			4,313,547			4,801,375			4,236,206			4,109,083			3,865,576			3,471,025
Allowance for loan losses		(46,789	)		(45,588	)		(45,401	)		(45,341	)		(44,319	)		(42,888	)		(42,213	)
Intangible assets		482,119			384,525			484,146			386,973			390,499			387,134			360,564
Total assets		8,727,746			7,997,166			8,552,669			7,489,440			7,095,864			7,496,800			6,488,275
Deposits		7,077,419			6,148,110			6,873,474			5,935,264			5,896,044			5,628,039			4,795,245
Borrowings		236,064			660,240			403,446			440,122			244,010			830,134			830,329
Shareholders’ equity		1,240,582			1,045,026			1,140,647			987,904			875,812			902,778			774,583

TABLE OF CONTENTS


	Nine months ended September 30,						Years Ended December 31,
(In thousands except per share data and ratios)	2016			2015			2015			2014			2013			2012			2011
Capital and Related Ratios:
Cash dividends declared per share	$	0.94		$	0.91		$	1.22		$	1.16		$	1.10		$	1.06		$	1.00
Book value per share		27.97			25.48			26.06			24.24			21.66			22.78			20.94
Tangible book value per share⁽¹⁾		18.06			17.05			15.90			15.63			12.80			13.72			11.85
Market capitalization (in millions)		2,134			1,525			1,748			1,554			1,604			1,084			1,028
Tier 1 leverage ratio		10.35	%		10.09	%		10.32	%		9.96	%		9.29	%		8.40	%		8.38	%
Total risk-based capital to risk-adjusted assets		15.51	%		15.93	%		18.08	%		18.75	%		17.57	%		16.20	%		15.51	%
Tangible equity to tangible assets⁽¹⁾		9.66	%		9.14	%		8.59	%		8.92	%		7.68	%		7.62	%		7.12	%
Dividend payout ratio		53.6	%		52.2	%		55.5	%		51.6	%		56.0	%		54.3	%		49.3	%
Period end common shares outstanding		44,357			41,019			43,775			40,748			40,431			39,626			36,986
Diluted weighted-average shares outstanding		44,609			41,343			41,605			41,232			40,726			39,927			36,454
Selected Performance Ratios:
Return on average assets		1.19	%		1.24	%		1.17	%		1.23	%		1.09	%		1.08	%		1.18	%
Return on average equity		8.56	%		9.40	%		8.87	%		9.65	%		9.04	%		8.82	%		10.36	%
Net interest margin		3.69	%		3.74	%		3.73	%		3.91	%		3.91	%		3.88	%		4.07	%
Noninterest income/operating income (FTE)		35.7	%		31.9	%		32.1	%		31.4	%		30.0	%		28.6	%		28.4	%
Efficiency ratio⁽²⁾		59.6	%		58.0	%		57.9	%		57.9	%		59.3	%		57.4	%		57.6	%
Asset Quality Ratios:
Allowance for loan losses/total loans		0.95	%		1.06	%		0.95	%		1.07	%		1.08	%		1.11	%		1.22	%
Nonperforming loans/total loans		0.47	%		0.58	%		0.50	%		0.56	%		0.54	%		0.75	%		0.85	%
Allowance for loan losses/nonperforming loans		201	%		181	%		190	%		190	%		201	%		147	%		144	%
Loan loss provision/net charge-offs		134	%		109	%		101	%		117	%		122	%		108	%		94	%
Net charge-offs/average loans		0.11	%		0.09	%		0.15	%		0.15	%		0.17	%		0.23	%		0.15	%

(1)

The ~~average of interest rate spread represents the difference between the weighted average yield on interest-earning assets~~tangible book value per share and the ~~weighted average cost~~tangible equity to tangible asset ratio excludes goodwill and identifiable intangible assets, adjusted for deferred tax liabilities generated from tax deductible goodwill. The ratio is not a financial measurement required by accounting principles generally accepted in the United States of ~~interest-bearing liabilities for~~America. However, management believes such information is useful in analyzing the ~~period.~~relative strength of Community Bank System’s capital position and in evaluating its performance.

(2)

Efficiency ratio provides a ratio of operating expenses to operating income. It excludes intangible amortization, goodwill impairment, acquisition expenses, litigation settlement and contract termination charges from expenses and gains and losses on investment securities and early retirement of long-term borrowings from income while adding a fully-taxable equivalent adjustment. The ~~net interest margin represents net interest income~~efficiency ratio is not a financial measurement required by accounting principles generally accepted in the United States of America. However, the efficiency ratio is used by management in assessing financial performance specifically as ~~a percent~~it relates to noninterest expense control. Management also believes such information is useful to investors in evaluating Community Bank System’s performance.

TABLE OF CONTENTS

Merchants Bancshares, Inc.
Selected Historical Financial Data


	Nine months ended September 30,				Years Ended December 31,
(In thousands except per share data and ratios)	2016		2015		2015		2014		2013		2012		2011
Summary of Operations:
Interest and dividend income	$	44,755	$	38,419	$	52,116	$	50,972	$	53,967	$	56,857	$	58,018
Interest expense		3,395		3,048		4,052		4,525		5,070		6,883		8,644
Net interest income		41,360		35,371		48,064		46,447		48,897		49,974		49,374
Provision for loan losses		905		250		250		150		800		950		750
Net interest income after provision for loan losses		40,455		35,121		47,814		46,297		48,097		49,024		48,624
Noninterest income		9,276		8,872		11,960		11,574		11,630		12,613		11,838
Noninterest expenses		34,172		31,079		43,971		42,214		39,534		40,950		40,770
Income before income taxes		15,559		12,914		15,803		15,657		20,193		20,687		15,810
Provision for income taxes		3,792		2,606		3,185		3,532		5,062		5,493		4,890
Net income	$	11,767	$	10,308	$	12,618	$	12,125	$	15,131	$	15,194	$	14,620
Share Data:
Basic earnings per common share	$	1.71	$	1.63	$	1.98	$	1.92	$	2.40	$	2.43	$	2.35
Diluted earnings per common share	$	1.71	$	1.62	$	1.98	$	1.91	$	2.40	$	2.42	$	2.35
Cash dividends declared per common share	$	0.84	$	0.84	$	1.12	$	1.12	$	1.12	$	1.12	$	1.12
Weighted average common shares outstanding⁽¹⁾		6,866,418		6,332,663		6,373,115		6,326,142		6,302,494		6,258,832		6,212,187
Period end common shares outstanding⁽²⁾		6,883,644		6,338,158		6,855,294		6,327,226		6,318,708		6,282,385		6,232,783
Period-end book value per share⁽²⁾	$	22.99	$	20.93	$	21.59	$	19.89	$	18.93	$	18.82	$	17.57
Average Balances⁽³⁾:
Total assets	$	1,959,396	$	1,736,523	$	1,775,496	$	1,667,665	$	1,677,342	$	1,648,393	$	1,507,656
Earning assets		1,880,008		1,670,727		1,708,153		1,603,460		1,617,225		1,587,190		1,461,359
Gross loans		1,432,167		1,218,067		1,240,386		1,165,586		1,133,637		1,057,446		971,003
Investments⁽⁴⁾		397,146		379,030		385,806		358,274		455,679		509,384		436,170
Total deposits		1,507,276		1,359,958		1,383,537		1,320,389		1,299,449		1,222,423		1,120,234
Shareholders’ equity		153,822		127,876		130,220		123,283		116,640		113,621		103,639
Period-End:
Total assets	$	1,994,655	$	1,818,341	$	2,021,237	$	1,723,464	$	1,725,469	$	1,708,550	$	1,611,869
Gross loans		1,477,285		1,257,932		1,414,280		1,182,334		1,166,233		1,082,923		1,027,626
Allowance for loan losses		12,540		12,210		12,040		11,833		12,042		11,562		10,619
Investments⁽⁴⁾		394,489		410,390		406,925		346,272		400,835		517,233		520,939
Total deposits		1,503,840		1,387,473		1,551,439		1,308,772		1,323,576		1,271,080		1,177,880
Shareholders’ equity		158,287		132,646		148,054		125,821		119,611		118,221		109,537

TABLE OF CONTENTS

(1)

Weighted average common shares outstanding includes an average of ~~average interest-earning assets~~281,553 and 291,561 for the ~~period.~~nine months ending September 30, 2016 and 2015, respectively and 292,676; 301,757; 312,606; 316,920; and 318,110 shares held by the Compensation Plan for Directors and Trustees for the fiscal years ended December 31, 2015, 2014, 2013, 2012, and 2011, respectively.

(2)

Period end common shares outstanding and year-end book value include 285,134 and 294,937 for the nine months ending September 30, 2016 and 2015, respectively and 299,360; 308,670; 319,854; 324,515; and 325,703 shares held by the Compensation Plan for Directors and Trustees for the fiscal years ended December 31, 2015, 2014, 2013, 2012, and 2011 respectively.

(3)

~~The efficiency ratio represents non-interest expense divided by~~2015 Year-end balances reflect the ~~sum~~inclusion of ~~net interest income~~NUVO, average balances reflect NUVO balances for only 28 days. Additionally, the Allowance for loan losses to total loans at year-end declined due to the inclusion of NUVO loan balances and ~~non-interest income, excluding net impairment losses, net investment gains (losses) and changes in fair value~~no carryover of ~~trading securities.~~allowance.

(4)

~~Tangible equity represents total equity less goodwill~~Includes Federal Home Loan Bank stock of $4.84 million and ~~other intangible assets,~~$4.38 million for the nine months ended September 30, 2016 and ~~tangible assets represents total assets less goodwill~~2015, respectively and ~~other intangibles.~~$3.80 million, $4.38 million, $7.50 million, $8.15 million, and $8.63 million for the fiscal year ending December 31, 2015, 2014, 2013, 2012 and 2011, respectively.

~~(5)~~

~~The dividend payout ratio represents total dividends paid divided by net income and reflects the waiver of dividends by Oneida Financial, MHC.~~

TABLE OF CONTENTS

SUMMARY UNAUDITED PRO FORMA COMBINED CONDENSED
CONSOLIDATED FINANCIAL INFORMATION

The following table ~~sets forth~~shows unaudited pro forma financial information about the ~~aggregate cash dividends declared~~financial condition and ~~paid or waived per period, which is calculated by multiplying the dividends declared~~results of operations, including per share data, after giving effect to the Merger and other pro forma adjustments. The unaudited pro forma financial information assumes that the Merger is accounted for under the acquisition method of accounting for business combinations, and that the assets and liabilities of Merchants will be recorded by Community Bank System at their respective fair values as of the ~~number~~date the Merger is completed. The unaudited pro forma condensed combined balance sheet gives effect to the transactions as if the transactions had occurred on September 30, 2016. The unaudited pro forma condensed combined income statements for the nine months ended September 30, 2016, and the year ended December 31, 2015, give effect to the transactions as if the transactions had become effective at January 1, 2015. The unaudited selected pro forma combined financial information has been derived from and should be read in conjunction with the consolidated financial statements and related notes of ~~shares outstanding~~Community Bank System, which are incorporated in this Proxy Statement/Prospectus by reference, the consolidated financial statements and related notes of Merchants, which are incorporated in this Proxy Statement/Prospectus by reference, and the more detailed unaudited pro forma condensed combined financial information, including the notes thereto, appearing elsewhere in this Proxy Statement/Prospectus. See “Where You Can Find More Information” on page 104 of this Proxy Statement/Prospectus and “Unaudited Pro Forma Combined Condensed Consolidated Financial Information” beginning on page 81.

The unaudited pro forma condensed combined financial information is presented for illustrative purposes only and does not indicate the financial results of the combined company had the companies actually been combined at the beginning of each period presented, nor the impact of possible business model changes. The unaudited pro forma condensed combined financial information also does not consider any potential effects of changes in market conditions on revenues, expense efficiencies, asset dispositions, and share repurchases, among other factors, including those discussed in the section entitled “Risk Factors” beginning on page 15 of this Proxy Statement/Prospectus. In addition, as explained in more detail in the ~~applicable record date.~~accompanying notes to the “Unaudited Pro Forma Combined Condensed Consolidated Financial Information” beginning on page 81 of this Proxy Statement/Prospectus, the preliminary allocation of the pro forma purchase price reflected in the unaudited pro forma condensed combined financial information is subject to adjustment and may vary significantly from the actual purchase price allocation that will be recorded upon completion of the Merger.

At or For the Years Ended December 31,
2014 2013 2012 2011 2010
(in thousands)
Dividends paid to public stockholders $ 3,354 $ 3,351 $ 3,282 $ 3,365 $ 2,109
Dividends payable to Oneida Financial MHC — — — — 1,552
Dividends waived by Oneida Financial MHC — — — — (1,552 )
Total dividends paid $ 3,354 $ 3,351 $ 3,282 $ 3,365 $ 2,109


(in thousands)	Nine months ended September 30, 2016		Year ended December 31, 2015
Statements of Income
Net interest income	$	245,947	$	298,116
Provision for loan losses		6,341		6,697
Net interest income after provision for loan losses		239,606		291,419
Noninterest revenues		126,281		135,259
Noninterest expenses		236,769		281,542
Income before taxes		129,118		145,136
Income taxes		40,802		43,070
Net income		88,316		102,066

~~(6)~~

~~Non-performing assets include non-performing loans and non-accrual trust preferred securities.~~


(in thousands)	As of September 30, 2016
Balance Sheet
Cash and cash equivalents	$	149,379
Securities		3,234,246
Net loans		6,362,659
Total assets		10,822,621
Deposits		8,581,580
Short-term borrowings		155,900
Subordinated debt held by unconsolidated subsidiary trusts		117,700
Securities sold under agreement to repurchase		276,083
Total shareholders’ equity		1,496,027

TABLE OF CONTENTS

COMPARATIVE UNAUDITED PER SHARE DATA

The following table summarizes the per share information for Community Bank System and ~~Oneida Financial~~Merchants on a historical, pro forma and equivalent basis. The pro forma and pro forma per equivalent share information gives effect to the Merger as if the Merger had been effective on the date presented in the case of the book value data, and as if the Merger had been effective as of the beginning of each period presented in the case of the earnings per share and the cash dividends data. ~~The pro forma information assumes that 60% of the outstanding shares of Oneida Financial common stock will be exchanged for shares of Community Bank System common stock in the Merger.~~ As described elsewhere in this Proxy Statement/Prospectus, the ~~exchange ratio~~stock consideration may be adjusted in the event ~~Oneida Financial~~Merchants invokes its right to terminate the Merger Agreement if the average closing price of Community Bank System common stock for a specified period prior to ~~Closing~~closing is less than ~~$28.39~~$35.77 and Community Bank System common stock underperforms a specified ~~peer−group~~peer-group index by more than 20%, and Community Bank System elects to increase the ~~exchange ratio, otherwise,~~stock consideration, in order that the Merger Agreement ~~may~~will not be ~~terminated by Oneida Financial.~~

terminated.

The pro forma information, while helpful in illustrating the financial characteristics of the combined company under one set of assumptions, does not reflect the impact of factors that may result as a consequence of the Merger or consider any potential impacts of current market conditions or the Merger on revenues, expense efficiencies, asset dispositions, and share repurchases, among other factors, nor the impact of possible business model changes. As a result, the pro forma results are not necessarily indicative of what would have occurred had the Merger taken place on the assumed dates, nor do they represent an attempt to predict or suggest future results. You should read the information in the following table in conjunction with the historical financial information and related notes contained in the annual, quarterly and other reports filed by Community Bank System ~~and Oneida Financial~~or Merchants with the SEC. See “Where You Can Find More Information” beginning on page ~~[ ].~~104 of this Proxy Statement/Prospectus. You should not rely on the pro forma information as being indicative of the results that Community Bank System will achieve in the Merger. The information below should be read in conjunction with “Unaudited Pro Forma Combined Condensed Consolidated Financial Information” beginning on page 81 of this Proxy Statement/Prospectus.

Historical Pro Forma
Per Common Share Data: Community
Bank
System Oneida
Financial Combined
Company ^(1)(2)(3) Oneida
Financial
Equivalent ⁽⁴⁾
Basic Earnings
For the year ended December 31, 2014 $ 2.24 $ 0.74 $ 2.20 $ 1.24
Diluted Earnings
For the year ended December 31, 2014 $ 2.22 $ 0.73 $ 2.17 $ 1.22
Cash Dividends
For the year ended December 31, 2014 $ 1.16 $ 0.48 $ 1.16 $ 0.65
Book Value
As of the year ended December 31, 2014 $ 24.24 $ 13.63 $ 24.88 $ 14.02


	Historical				Pro Forma
	Community Bank System		Merchants		Combined Company⁽¹⁾⁽²⁾⁽³⁾		Merchants Equivalent⁽⁴⁾
For the nine months ended September 30, 2016:
Basic Earnings per share	$	1.75	$	1.71	$	1.81	$	1.74
Diluted Earnings per share		1.74		1.71		1.79		1.72
Cash Dividends		0.94		0.84		0.94		0.91
Book Value at September 30, 2016		27.97		22.99		30.53		29.40
For the year ended December 31, 2015:
Basic Earnings per share	$	2.21	$	1.98	$	2.23	$	2.15
Diluted Earnings per share		2.19		1.98		2.21		2.13
Cash Dividends		1.22		1.12		1.22		1.17

^{_______________________________________________________________}

(1)

The pro forma combined basic earnings and diluted earnings of Community Bank System common stock ~~are~~is based on the pro forma combined net income for Community Bank System and ~~Oneida Financial~~Merchants divided by total pro forma common shares or diluted common shares of the combined entities. The pro forma information includes adjustments related to the fair value of assets and liabilities and is subject to adjustment as additional information becomes available and as additional analyses are performed. The pro forma information does not include transactional costs or anticipated cost savings or adjustments related to the fair value of assets and liabilities.

(2)

The pro forma combined book value of Community Bank System common stock is based on the pro forma combined common stockholders’ equity of Community Bank System and ~~Oneida Financial~~Merchants divided by total pro forma common shares of the combined entities. The pro forma information does not include transactional costs or anticipated cost savings or adjustments related to the fair value of assets and liabilities.

(3)

Cash dividend amounts are the same as historical because no change in dividend policy is expected as a result of the Merger.

(4)

The ~~Oneida Financial~~Merchants equivalent is calculated by multiplying the amounts in the Combined Company column times the ~~0.5635~~0.9630 exchange ratio, which represents the number of shares of Community Bank System common stock ~~Oneida Financial’s~~Merchants stockholders who make a stock election will receive for each share of ~~Oneida Financial~~Merchants common stock owned.

TABLE OF CONTENTS

RISK FACTORS

In addition to the other information contained in or incorporated by reference into this Proxy Statement/Prospectus, including the matters addressed under the section titled “Cautionary Statement Regarding Forward-Looking Statements,” you should consider carefully the risk factors described below in deciding how to vote. You should also read and consider the risk factors associated with the businesses of Community Bank System and ~~Oneida Financial~~Merchants because these risk factors may affect the operations and financial results of the combined company. Community Bank System’s risk factors may be found in Community Bank System’s Annual Report on Form 10-K for the year ended December 31, ~~2014. Oneida Financial’s~~2015 and subsequent quarterly reports on Form 10-Q. Merchants’ risk factors may be found in ~~Oneida Financial’s~~Merchants’ Annual Report on Form 10-K for the year ended December 31, ~~2014.~~2015 and subsequent quarterly reports on Form 10-Q. See “Where You Can Find More Information.”

~~Because~~

Risks Related to the price of Community Bank System common stock will fluctuate, Oneida Financial stockholders cannot be certain of the marketMerger

The value of the merger consideration.
On February 23, 2015, which was the last trading date preceding the public announcement of the Merger, the trading price ofstock consideration will vary with changes in Community Bank System’s common stock was $35.45, which, after giving effect to the 0.5635 exchange ratio, has an implied value of approximately $19.98 per share. Based on this price with respect to the stock consideration, the exchange ratio of 0.5635, and the cash consideration of $20.00 per share, upon completion of the Merger, an Oneida Financial stockholder who receives cash for 40% of his or her shares of common stock and receives stock for 60% of his or her shares of common stock would receive total merger consideration with an implied value of approximately $19.99 per share. As of [ ], 2015, the most reasonably practicable date prior to the mailing of this Proxy Statement/Prospectus, the trading price of Community Bank System’s common stock was $[ ], which, after giving effect to the 0.5635 exchange ratio, has an implied value of approximately $[ ] per share. Based on this price with respect to the stock consideration, and the cash consideration of $20.00 per share, upon completion of the Merger, an Oneida Financial stockholder who receives cash for 40% of his or her shares of common stock and receives stock for 60% of his or her shares of common stock would receive total merger consideration with an implied value of approximately $[ ] per share.
price.

~~The price of Community Bank System common stock may increase or decrease before and after completion of the Merger.~~ Upon completion of the Merger, each share of ~~Oneida Financial~~Merchants common stock will be converted into ~~merger~~the right to receive the stock election consideration, ~~consisting of shares of Oneida Financial common stock, $20.00~~the cash election consideration, or the mixed election consideration, subject to proration as set forth in ~~cash (without interest), or a combination thereof, pursuant to the terms of~~ the Merger Agreement. ~~If an Oneida Financial stockholder receives Community Bank System common~~The exchange ratio for the stock ~~as merger consideration, the implied value~~portion of the merger consideration that such stockholder will receive for each share of Oneida Financial common stock will depend on the price per share of Community Bank System common stock at the time the shares are received. The closing price of Community Bank System common stock on the date that the Merger is completed may vary from the closing price of Community Bank System common stock on the date Community Bank System and Oneida Financial announced the Merger, on the date that this Proxy Statement/Prospectus is being mailed to Oneida Financial stockholders, and on the date of the special meeting of Oneida Financial stockholders.fixed. Any change in the market price of Community Bank System common stock ~~prior to completion of the Merger~~ will affect the implied value of the merger consideration that ~~Oneida Financial~~Merchants stockholders will receive upon completion of the Merger. Accordingly, at the time of the special meeting and at the time that elections are due, you will not know or be able to determine the value of the stock election consideration or mixed election consideration. Stock price changes may result from a variety of factors, including general market and economic conditions, changes in Community Bank System’s and ~~Oneida Financial’s~~Merchants’ respective businesses, operations and prospects, and regulatory considerations. Many of these factors are beyond the control of Community Bank System and ~~Oneida Financial.~~Merchants.

You may not receive the form of merger consideration that you elect.

The consideration to be received by ~~Oneida Financial~~Merchants stockholders in the Merger is subject to proration and adjustment procedures that are designed to ensure, as nearly as practicable, that the ~~requirement~~total cash amount of consideration and the total number of shares of Community Bank System common stock issued, as a whole, will equal the total amount of cash and number of shares that ~~60%~~would have been paid and issued if all of the ~~outstanding~~Merchants stockholders received the mixed election consideration. Accordingly, unless you elect to receive a combination of 0.6741 shares of ~~Oneida Financial common stock be exchanged for~~ Community Bank System common stock and ~~the remaining 40% be exchanged~~$12.00 in cash per share for ~~cash. Accordingly, unless you elect to receive the combination of Community Bank System common stock for 60% of~~ your ~~Oneida Financial~~Merchants shares, ~~and cash for 40% of your Oneida Financial shares, or unless you have 100 or fewer shares of Oneida Financial common stock and elect to receive only cash,~~ there is no assurance that you will receive the form of consideration that you elect with respect to all shares of ~~Oneida Financial~~Merchants common stock you hold. There is a risk that you will receive a portion of the merger consideration in the form that you do not elect, ~~that~~which could result in, among other things, tax consequences that differ from those that would have resulted had you received the form of consideration you elected, including with respect to the recognition of taxable gain to the extent cash is received. For illustrative examples of how the proration procedures would work in the event there is an oversubscription of the cash election or stock election in the Merger, see “The Merger Agreement — Election and Proration Procedures” beginning on page 63 of this Proxy Statement/Prospectus.

~~Oneida Financial~~

Community Bank System and Merchants will be subject to business uncertainties and contractual restrictions while the Merger isand the NRS acquisition are pending.

Uncertainty about the effect of the Merger and the NRS acquisition on employees and customers may have an adverse effect on ~~Oneida Financial~~Merchants and ~~consequently, on~~ Community Bank System. These uncertainties may impair ~~Oneida Financial’s~~Community Bank System’s or Merchants’ ability to attract, retain and motivate key personnel until the Merger is consummated, and could cause customers and others that deal with ~~Oneida Financial~~Merchants or Community Bank System to seek to change existing business relationships with ~~Oneida Financial.~~Merchants or Community Bank System. Retention of certain employees by ~~Oneida Financial~~Merchants may be challenging while the Merger isand the NRS acquisition are pending, as certain employees may experience uncertainty about their future roles with Community Bank System. If key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not

TABLE OF CONTENTS

to remain with Community Bank System, Community Bank System’s business following the Merger could be harmed. In addition, the Merger Agreement restricts ~~Oneida Financial~~Merchants from operating its business other than in the ordinary course, and prohibits it from taking specified actions until the Merger occurs without the consent of Community Bank System. These restrictions may prevent ~~Oneida Financial~~Merchants from pursuing business opportunities that may arise prior to the completion of the Merger. Please see the section entitled “The Merger ~~Agreement—~~Agreement — Conduct of Business ~~Prior to Completion of~~Pending the ~~Merger; Covenants”~~Merger” beginning on page ~~[ ]~~68 of this Proxy Statement/Prospectus for a description of the restrictive covenants applicable to ~~Oneida Financial.~~Merchants.

There is no assurance when or even if the Merger will be completed.

Completion of the Merger is subject to satisfaction or waiver of a number of conditions. See the section entitled “The Merger ~~Agreement—Conditions to the Merger”~~Agreement” beginning on page ~~[ ].~~62 of this Proxy Statement/Prospectus. There can be no assurance that Community Bank System and ~~Oneida Financial~~Merchants will be able to satisfy the closing conditions or that closing conditions beyond their control will be satisfied or waived.

Community Bank System and ~~Oneida Financial~~Merchants can ~~mutually~~ agree at any time to terminate the Merger Agreement, even if ~~Oneida Financial~~Merchants stockholders have already voted to ~~approve~~adopt the Merger Agreement. Community Bank System and ~~Oneida Financial~~Merchants can also terminate the Merger Agreement under other specified circumstances. ~~Please see the section entitled “The Merger Agreement—Termination” beginning on page [ ].~~

The fairness opinion delivered to Oneida Financial’sMerchants’ board of directors does not reflect changes in circumstances subsequent to the date of the fairness opinion.
opinion.

~~KBW,~~Piper Jaffray & Co., financial advisor to ~~Oneida Financial~~Merchants in connection with the Merger, delivered its opinion to the board of directors of ~~Oneida Financial~~Merchants on ~~February 24, 2015.~~October 22, 2016. The opinion of ~~KBW~~Piper speaks only as of such date. Changes in the operations and prospects of ~~Oneida Financial~~Merchants or Community Bank System, general market and economic conditions and other factors beyond the control of ~~Oneida Financial~~Merchants or Community Bank System may significantly alter the value of ~~Oneida Financial~~Merchants or the ~~prices~~price of shares of Community Bank System common stock or ~~Oneida Financial~~Merchants common stock by the time the Merger is completed. ~~KBW’s~~Piper’s opinion does not speak as of the time the Merger will be completed or as of any date other than the date of such opinion. ~~Oneida Financial’s board~~For a description of ~~directors’ recommendation that Oneida~~Piper’s opinion, please see the section entitled “The Merger — Opinion of Merchants’ Financial ~~common stockholders vote “FOR” adoption of the Merger Agreement, however, is made as of the date~~Advisor,” beginning on page 38 of this Proxy Statement/Prospectus. For a description of ~~KBW’s opinion, please see the section entitled “Proposal I—The Merger—Opinion of Oneida Financial’s Financial Advisor” beginning on page [ ]. For a description of~~ the other factors considered by ~~Oneida Financial’s~~the Merchants board of directors in determining to approve the Merger and the other transactions contemplated in the Merger Agreement, please see the ~~section~~sections entitled ~~“Proposal I—The Merger—~~“The Merger — Background of the ~~Merger”~~Merger,” and ~~“Proposal I—The Merger—Oneida Financial’s~~“The Merger — Merchants’ Reasons for the Merger; Recommendation of ~~Oneida Financial’s~~Merchants’ Board of Directors,” beginning on ~~page [ ]~~pages 34 and ~~page [ ], respectively.~~36, respectively, of this Proxy Statement/Prospectus.

Community Bank System may fail to implement the Merger and the NRS acquisition successfully, achieve savings and realize the other anticipated benefits from the Merger and the NRS acquisition, which would adversely affect Community Bank System’s financial condition and results of operations.

The Merger ~~involves~~and the NRS acquisition involve the integration of ~~two~~three companies that have previously operated independently. The difficulties of combining the operations of the ~~two~~three companies ~~include~~include: integrating personnel with diverse business backgrounds; integrating core processing systems and converting customers to new systems; and retaining key employees. As a result, Community Bank System may not be able to operate the combined company as effectively as it expects. Community Bank System may also fail to achieve the anticipated potential benefits of the Merger and/or the NRS acquisition as quickly or as cost effectively as it anticipates or may not be able to achieve those benefits at all. The management of Community Bank System will have to dedicate substantial effort to integrating the ~~two~~three companies and, therefore, its focus and resources may be diverted from other strategic opportunities and from operational matters.

In addition, certain employees of ~~Oneida Financial and its subsidiaries~~Merchants or NRS may not be employed after the Merger. Employees of ~~Oneida Financial and its subsidiaries~~Merchants or NRS that Community Bank System wishes to retain may elect to terminate their employment as a result of the Merger or NRS acquisition, respectively, which could delay or disrupt the integration process. It is possible that the integration process could result in the disruption of the ongoing business of Community Bank System and its subsidiaries following the Merger and the NRS acquisition or cause inconsistencies in standards, controls, procedures and policies that adversely affect the ability of Community Bank System and its subsidiaries to maintain relationships with ~~Oneida Financial’s and its subsidiaries’~~Merchants’ or NRS’s customers and employees or to achieve the anticipated benefits of the Merger and the NRS acquisition.

TABLE OF CONTENTS

The unaudited pro forma condensed combined financial information included in this document is preliminary and the actual financial condition and results of operations of Community Bank System after the Merger may differ materially.

The unaudited pro forma condensed combined financial information in this document is presented for illustrative purposes only and is not necessarily indicative of what Community Bank System’s actual financial condition or results of operations would have been had the Merger been completed on the dates indicated. The unaudited pro forma condensed combined financial information reflects adjustments, which are based upon preliminary estimates, to record the Merchants identifiable assets acquired and liabilities assumed at fair value and the resulting goodwill recognized. The purchase price allocation reflected in this document is preliminary, and final allocation of the purchase price will be based upon the actual purchase price and the fair value of the assets and liabilities of Merchants as of the date of the completion of the Merger. Accordingly, the final acquisition accounting adjustments may differ materially from the pro forma adjustments reflected in this document. For more information, see “Unaudited Pro Forma Combined Condensed Consolidated Financial Statements” beginning on page 81 of this Proxy Statement/Prospectus.

Additional growth will subject Community Bank System to additional regulation, increased supervision and increased costs.

The Dodd-Frank Act imposes additional regulatory requirements on institutions with $10 billion or more in assets. Community Bank System had $8.7 billion in assets as of September 30, 2016. If the pending Merger with Merchants is completed, then Community Bank System will have more than $10 billion in assets and, as a result, will be subject to the additional regulatory requirements, increased supervision and increased costs, including but not limited to the following:

Regulatory stress testing requirements, whereby Community Bank System would be required to conduct an annual stress test;

The requirement to maintain an internal risk committee;

A modified methodology for calculating FDIC insurance assessments and potentially higher assessment rates as a result of institutions with $10 billion or more in assets being required to bear a greater portion of the cost of raising the reserve ratio to 1.35% as required by the Dodd-Frank Act;

Supervision, examination and enforcement by the Consumer Financial Protection Bureau (“CFPB”) with respect to consumer financial protection laws; and

A cap on the interchange fees that may be charged in certain electronic debit and prepaid card transactions. The maximum permissible interchange fee for electronic debit transactions is the sum of 21 cents per transaction and five basis points multiplied by the value of the transaction. In addition, an issuer may charge up to one cent on each transaction as a fraud prevention adjustment if the issuer meets certain fraud prevention standards.

The imposition of these regulatory requirements and increased supervision may require additional commitment of financial resources to regulatory compliance and may increase Community Bank System’s cost of operations. Further, the results of the stress testing process may lead Community Bank System to retain additional capital or alter the mix of its capital components.

Regulatory approvals may not be received, may take longer than expected or impose conditions that are not presently anticipated.

Before the Merger may be completed, Community Bank System must obtain various approvals or consents, including approvals or consents from the OCC and the Federal Reserve ~~Board and the New York State Department of Financial Services.~~Board. These governmental entities, including the OCC, may impose conditions on the completion of the Merger or require changes to the terms of the Merger Agreement or the manner in which ~~Oneida Financial~~Merchants or Community Bank System conducts ~~its business.~~their respective businesses. Although Community Bank System and ~~Oneida Financial~~Merchants do not currently expect that any such conditions or changes ~~will~~would be imposed, there can be no assurance that they will not be. Such conditions or changes could have the effect of delaying completion of the Merger or imposing additional costs on or limiting the revenues of Community Bank System, any of which might have a material adverse effect on Community Bank System following the Merger.

TABLE OF CONTENTS

There can be no assurance as to whether the regulatory approvals will be received, the timing of those approvals, or whether any conditions will be imposed.

Certain of Oneida Financial’sMerchants’ officers and directors have interests that are different from, or in addition to, interests of Oneida FinancialMerchants stockholders generally.

~~Oneida Financial’s~~Merchants stockholders should be aware that some of ~~Oneida Financial’s~~Merchants’ directors and executive officers have interests in the Merger and have arrangements that are different from, or in addition to, those of ~~Oneida Financial~~Merchants stockholders in general. ~~Oneida Financial’s board~~These interests include:

Election of two Merchants directors to the boards of directors ~~was aware~~ of ~~these interests~~Community Bank System and ~~considered these interests, among other matters, when making its decision~~Community Bank upon the consummation of the Merger.

The acceleration of vesting of all unvested equity awards, which will automatically vest in full, with any restrictions thereon to ~~approve~~lapse, and will be cancelled in exchange for a cash payment.

Payment with respect to outstanding stock options held by a director.

Payment of retention incentives to executive officers.

Payment of severance benefits under existing employment agreements with Merchants’ executive officers of approximately $[•] in the ~~Merger Agreement,~~aggregate, assuming each executive officer has a qualifying termination event in connection with the Merger.

New employment agreements between certain executive officers of Merchants and ~~in recommending~~Community Bank System that ~~Oneida Financial stockholders vote in favor~~will become effective upon the closing of the Merger, ~~Agreement.~~

~~The material interests considered by Oneida Financial’s board~~that, among other things, entitle each such executive to receive a cash bonus as of the effective time of the Merger and include a waiver of the executive’s rights under his or her existing employment agreement with Merchants and an agreement to certain non-competition and non-solicitation covenants.

Payment of a pro-rata bonus to certain executive officers at the effective time of the Merger under the Merchants and Merchants Bank non-equity incentive plans.

Continued indemnification and liability insurance coverage for directors ~~were as follows:~~

~~Messrs. Kallet and Stickels will join the boards of directors of Community Bank System and Community Bank following the consummation of the Merger.~~

~~The ability to receive, in respect of stock options with an exercise price of less than $20.00, a cash payment equal to $20.00 minus the exercise price for each option.~~

~~The acceleration of vesting of outstanding restricted stock awards, which will be exchanged for the merger consideration.~~

Oneida Savings Bank or its wholly-owned subsidiary, OneGroup NY, Inc. previously entered into employment agreements with its executive officers, which entitle them to certain payments and benefits upon a qualifying termination in connection with a change in control such as the Merger.

Executive officers and directors of Oneida Financial and its subsidiaries will receive continued indemnification coverage for their acts or omissions while serving in those capacities and continued coverage under directors’ and officers’ liability insurance policies.

and executive officers with respect to acts or omissions occurring before the Merger.

For a more complete description of these interests, see ~~“Proposal I—The Merger—Financial~~“The Merger — Interests of ~~Oneida Financial~~Merchants’ Directors and ~~Certain~~ Executive Officers in the Merger” beginning on page ~~[ ].~~48 of this Proxy Statement/Prospectus.

The shares of Community Bank System common stock tothat may be received by Oneida Financial commonMerchants stockholders as a result of the Merger will have different rights from the shares of Oneida FinancialMerchants common stock they currently hold.

Following completion of the Merger, ~~Oneida Financial stockholder~~Merchants stockholders who receive the stock consideration will no longer be stockholders of ~~Oneida Financial~~Merchants but will instead be stockholders of Community Bank System. There will be important differences between the current rights of ~~Oneida Financial~~Merchants stockholders and the rights of Community Bank System stockholders that may be important to ~~Oneida Financial~~Merchants stockholders. See the section of this Proxy Statement/Prospectus entitled “Comparison of Rights of Holders of ~~Oneida Financial~~Merchants Common Stock and Community Bank System Common Stock” ~~beginning~~commencing on page ~~[ ]for~~96 for a detailed description of the stockholder rights ~~for~~of each ~~company.~~corporation.

The price of Community Bank System common stock mightmay be affected by factors different from those affecting the shares of Merchants common stock currently, and could decrease after the Merger.

Upon completion of the Merger, holders of ~~Oneida Financial~~Merchants common stock who receive stock consideration will become stockholders of Community Bank System. Community Bank System common stock could decline in value after the Merger. The market value of Community Bank System common stock fluctuates based upon various factors, including changes in the business, operations or prospects of Community Bank System, market assessments of the Merger and/or the NRS acquisition, regulatory considerations, market and economic considerations, and other factors. Further, the market price of Community Bank System common stock after the Merger may be affected by factors different from those currently affecting the common stock of

TABLE OF CONTENTS

Community Bank System or ~~Oneida Financial.~~Merchants. The businesses of Community Bank System and ~~Oneida Financial~~Merchants differ and, accordingly, the results of operations of the combined company and the market price of Community Bank System’s shares of common stock after the Merger may be affected by factors different from those currently affecting the independent results of operations and market price of each of Community Bank System or ~~Oneida Financial.~~Merchants. For a discussion of the businesses of Community Bank System and ~~Oneida Financial~~Merchants and of certain factors to consider in connection with their businesses, see the documents incorporated by reference into this Proxy Statement/Prospectus and referred to under “Where You Can Find More Information” beginning on page ~~[ ].~~104.

~~Oneida Financial common~~

Merchants stockholders will have a reduced ownership and voting interest in the combined organization after the Merger and willlimited ability to exercise less influence over management of the combined organization.

~~Oneida Financial’s common~~Merchants stockholders currently have the right to vote in the election of the board of directors of ~~Oneida Financial~~Merchants and on other matters affecting ~~Oneida Financial.~~Merchants. Upon the completion of the Merger, each ~~Oneida Financial common~~Merchants stockholder who receives shares of Community Bank System common stock will become a stockholder of Community Bank System with a percentage ownership of the combined organization that is much smaller than the stockholder’s percentage ownership of ~~Oneida Financial.~~Merchants. It is expected that the former common stockholders of ~~Oneida Financial~~Merchants as a group will receive shares in the Merger constituting less than ~~[___%~~[•]% of the outstanding shares of Community Bank System common stock immediately after the Merger. Merchants stockholders will not have separate approval rights with respect to any actions or decisions of Community Bank System or have separate representation on Community Bank System’s board of directors. Because of this, ~~Oneida Financial’s common~~Merchants stockholders will have significantly less influence on the management and policies of Community Bank System than they now have on the management and policies of ~~Oneida Financial.~~Merchants.

~~Oneida Financial~~

Merchants stockholders who hold their stock certificates and make elections will be unable to sell their shares in the market pending the Merger.

~~Oneida Financial~~Merchants stockholders ~~may~~who wish to elect tothe form of merger consideration that they receive ~~cash, stock or mixed consideration in the Merger by completing~~must complete an election form ~~to be mailed separately to each stockholder. Elections will require that stockholders making the election turn in~~and deliver their ~~Oneida Financial~~Merchants stock certificates. This means that during the time between when the election is made and the date the Merger is completed, ~~Oneida Financial~~Merchants stockholders will be unable to sell their ~~Oneida Financial~~Merchants common stock. If the Merger is unexpectedly delayed, this period could extend for a significant period of time. ~~Oneida Financial~~Merchants stockholders can shorten the period during which they cannot sell their shares by delivering their election shortly before the election deadline. However, elections received after the election deadline will not be accepted or honored.

Two class action lawsuits have been filed against Oneida Financial and the members of the Oneida Financial board of directors, as well as Community Bank System, challenging the Merger, and an adverse judgment in such lawsuits may prevent the Merger from becoming effective or from becoming effective within the expected timeframe. In addition, Oneida Financial has filed for declaratory judgment against FinPro, Inc., and an adverse judgment in such lawsuit could adversely impact Oneida Financial.

Oneida Financial and the members of the Oneida Financial board of directors are named as defendants in two purported class action lawsuits brought by two Oneida Financial stockholders challenging the Merger, seeking, among other things, to enjoin the defendants from consummating the Merger on the agreed-upon terms. Community Bank System is also named as a defendant in the lawsuits. See “The Merger Agreement—Litigation Relating to the Merger” beginning on page [ ] for more information about the class action lawsuits related to the Merger that have been filed.

~~One of the conditions to the closing of~~

If the Merger is that no order, decree or injunction issued by a court or agency of competent jurisdiction that enjoins or prohibits the consummation of the Merger shall be in effect. If the plaintiffs in the class action lawsuits are successful in obtaining a final injunction prohibiting the defendants from consummating the Merger on the agreed-upon terms, then such injunction may prevent the Merger from becoming effective, or from becoming effective withinnot completed, Merchants will have incurred substantial expenses without its stockholders recognizing the expected timeframe, even if Oneida Financial and Community Bank System waive this closing condition.
benefits.

~~Oneida Financial~~Merchants has ~~filed a complaint alleging that FinPro, Inc. has wrongfully demanded a $1.42 million services fee~~incurred substantial expenses in connection with the Merger for which it has provided no services and for which fee it has no right to receive, contractually or otherwise. As a result, Oneida Financial is seeking a declaratory judgment nullifying the improper demand made by FinPro, Inc., and any purported agreement on which the demand is allegedly based. An adverse judgment in such lawsuit could adversely impact Oneida Financial.

~~Termination of the Merger Agreement could negatively impact Oneida Financial.~~

Merger. If the Merger ~~Agreement~~ is ~~terminated, there may be various consequences. For example, if~~not completed, Merchants expects that it will have incurred approximately $[ ] million in Merger-related expenses. These expenses would likely have a material adverse impact on the ~~Merger Agreement is terminated and Oneida Financial’s board~~operating results of directors seeks another merger or business combination partner, Oneida Financial stockholders cannot be certain that Oneida Financial will be able to find a party willing to pay an equivalent or greater price thanMerchants because it would not have realized the price Community Bank System has agreed to pay in the Merger or that such party has the same level of experience in merger and acquisition transactions. In addition, Oneida Financial’s businesses could be impacted adversely by the failure to timely consummate the Merger, without realizing anyexpected benefits of the anticipated benefits of completing the Merger, or the market price of Oneida Financial common stock could decline to the extent that the current market price reflects a market assumption that the Merger will be completed. In addition, termination of the Merger Agreement would increase the possibility of downgrades by Oneida Financial’s credit rating agencies or regulatory actions that could adversely affect Oneida Financial’s businesses.Merger. Furthermore, if the Merger Agreement is terminated under certain circumstances, ~~Oneida Financial~~Merchants may be required to pay a termination fee of ~~$4.93~~$10.72 million to Community Bank System. The payment of the termination fee could have a material adverse effect on ~~Oneida Financial’s~~Merchants’ financial condition. See “The Merger ~~Agreement—~~Agreement — Termination” and “The Merger Agreement — Termination ~~Fee and Expenses”~~Fee” beginning on ~~page [ ].~~pages 78 and 80, respectively, of this Proxy Statement/Prospectus.

The Merger Agreement limits Oneida Financial’sMerchants’ ability to pursue alternatives to the Merger.

The Merger Agreement ~~contains a “no-shop” provision that, subject to limited exceptions,~~ limits ~~Oneida Financial’s~~Merchants’ ability to initiate, solicit, encourage or knowingly facilitate any inquiries or competing third-party proposals, or knowingly engage in any negotiations, or provide any confidential information, or have any discussions with any person relating to a proposal to acquire all or a significant part of ~~Oneida Financial.~~Merchants. In addition, ~~Oneida Financial~~Merchants has agreed to pay Community Bank System a termination fee in the amount of ~~$4.93~~$10.72 million in the event that ~~Community Bank System terminates~~ the Merger Agreement is terminated for certain reasons. These provisions ~~might~~may discourage a potential competing acquirer that ~~might~~would have an interest in acquiring all or a significant part of ~~Oneida Financial~~Merchants from considering or proposing that acquisition, even if it were

TABLE OF CONTENTS

prepared to pay consideration with a higher per share market price than that proposed in the Merger, or ~~might~~may result in a potential competing acquirer proposing to pay a lower per share price to acquire ~~Oneida Financial~~Merchants than it might otherwise have proposed to pay.

Until the Merger is consummated or until the Merger Agreement is terminated in accordance with its terms, Oneida Financial can consider and participate in discussions and negotiations with respect to, and furnish non-public information to a person submitting, an alternative unsolicited bona fide takeover proposal (subject to its obligation to pay a termination fee under certain circumstances) so long as the Oneida Financial board of directors determines in good faith, after consultation with its outside legal counsel, that failure to do so would result in a violation of its fiduciary duties to Oneida Financial stockholders under Maryland law and, after reasonable inquiry and consultation with its financial advisor, that such alternative takeover proposal constitutes a superior proposal or would reasonably be likely to result in a superior proposal and that the person making the unsolicited proposal is capable of consummating the transaction. Oneida Financial has agreed to give Community Bank System seventy-two hours advance notice before considering a superior proposal or recommending another superior proposal to the Oneida Financial stockholders. In addition, Oneida Financial cannot enter into a definitive agreement with respect to another takeover proposal which it considers to be superior without giving Community Bank System three business days to match the superior proposal. Unless the Merger Agreement is terminated in accordance with its terms, Oneida Financial must proceed to hold a meeting of its stockholders to consider the Merger Agreement with Community Bank System notwithstanding Oneida Financial’s receipt of an alternative takeover proposal.

Goodwill incurred in the Merger may negatively affect Community Bank System’s financial condition.

To the extent that the merger consideration, consisting of cash plus the number of shares of Community Bank System common stock issued or to be issued in the Merger, exceeds the fair value of the net assets, including identifiable intangibles of ~~Oneida Financial,~~Merchants, that amount will be reported as goodwill by Community Bank System. In accordance with current accounting guidance, goodwill will not be amortized but will be evaluated for impairment annually. A failure to realize expected benefits of the Merger could adversely impact the carrying value of the goodwill recognized in the Merger, and in turn negatively affect Community Bank System’s financial condition.

~~In certain circumstances,~~

If the cash merger consideration received may be taxedMerger fails to qualify as a dividend rather than capital gains“reorganization” within the meaning of Section 368(a) of the Code, Merchants stockholders will be required to recognize gain or loss on the exchange of their shares of Merchants common stock in the Merger for U.S. federal income tax purposes.

The Merger is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Code, and ~~Oneida Financial’s counsel~~it is ~~not able~~a condition to ~~provide an opinion regarding whether this tax treatment will apply to any individual stockholder.~~

~~In certain circumstances,~~ the ~~cash merger consideration received by an Oneida Financial stockholder who receives~~respective obligations of Merchants and Community Bank System ~~common stock~~to complete the Merger that each of Merchants and ~~cash may be taxed as a dividend rather than as a capital gain. This could arise if there has not been a meaningful reduction in the stockholder’s interest in~~ Community Bank System receives a legal opinion to that effect. None of these opinions will be binding on the Internal Revenue Service. Merchants and Community Bank System have not sought and will not seek any ruling from the Internal Revenue Service regarding any matters relating to the Merger, and as a result, there can be no assurance that the Internal Revenue Service will not assert, or that a court would not sustain, a position contrary to any of the ~~exchange. For purposes~~conclusions set forth herein. If the Merger fails to qualify as a “reorganization” within the meaning of ~~this determination,~~Section 368(a) of the ~~stockholder generally~~Code, Merchants stockholders will be required to recognize gain or loss on the exchange of their shares of Merchants common stock in the Merger for U.S. federal income tax purposes. In addition, Merchants will be treated as ~~if the stockholder first exchanged~~having sold all of ~~the stockholder’s shares of Oneida Financial common stock solely for~~its assets to Community Bank System ~~common stock~~in a taxable transaction, and ~~then~~will recognize taxable gain to the extent the sum of the total consideration paid by Community Bank System ~~immediately redeemed a portion~~to the Merchants stockholders, plus the liabilities of Merchants, exceeds the tax basis of Merchants in its assets, including its tax basis in its bank and other subsidiaries. Community Bank System ~~common stock in exchange~~would succeed to and become liable for ~~the cash the stockholder actually received. Moreover, the Oneida Financial stockholder may be deemed to constructively own shares of Community Bank System common stock held by members~~any such Merchants corporate tax as a consequence of the ~~stockholder’s family or certain entities in which~~Merger. For further information, see “Material U.S. Federal Income Tax Consequences of the ~~stockholder has an ownership or beneficial interest, and certain stock options may be aggregated with the stockholder’s shares~~Merger” beginning on page 54 of Community Bank System common stock. Because the determination as to whether a stockholder’s interest has been meaningfully reduced based on facts and circumstances unique to each stockholder, the opinion received from Oneida Financial’s counsel does not opine as to such treatment at the individual stockholder level.this Proxy Statement/Prospectus.

TABLE OF CONTENTS

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Proxy Statement/Prospectus that are not historical facts may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (referred to as the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (referred to as the Securities Exchange Act), and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. You can identify these statements from the use of the words “may,” “will,” “should,” “could,” “would,” “plan,” “potential,” “estimate,” “project,” “believe,” “intend,” “anticipate,” “expect,” “target” and similar expressions.

These forward-looking statements are subject to significant risks, assumptions and uncertainties, including among other things, changes in general economic and business conditions and the risks and other factors set forth in the “Risk Factors” section beginning on page ~~[ ].~~

15 of this Proxy Statement/Prospectus.

Additional factors that could cause the results of Community Bank System or ~~Oneida Financial~~Merchants to differ materially from those described in the forward-looking statements can be found in the filings made by Community Bank System and ~~Oneida Financial~~Merchants with the Securities and Exchange Commission, including the Community Bank System Annual Report on Form 10-K for the fiscal year ended December 31, ~~2014~~2015 and subsequent quarterly reports on Form 10-Q, and the ~~Oneida Financial~~Merchants Annual Report on Form 10-K for the fiscal year ended December 31, ~~2014.~~2015 and subsequent quarterly reports on Form 10-Q.

Because of these and other uncertainties, Community Bank System’s and ~~Oneida Financial’s~~Merchants’ actual results, performance or achievements, or industry results, may be materially different from the results indicated by these forward-looking statements. In addition, Community Bank System’s and ~~Oneida Financial’s~~Merchants’ past results of operations do not necessarily indicate Community Bank System’s and ~~Oneida Financial’s~~Merchants’ combined future results. You should not place undue reliance on any of the forward-looking statements, which speak only as of the dates on which they were made. Neither Community Bank System nor ~~Oneida Financial~~Merchants is undertaking an obligation to update these forward-looking statements, even though its situation may change in the future, except as required under the federal securities laws. All ~~forward- looking~~forward-looking statements contained in this document are qualified by these cautionary statements.

TABLE OF CONTENTS

THE COMPANIES

Community Bank System

Community Bank System is a Delaware corporation registered as a ~~bank~~financial holding company under the ~~BHCA.~~Bank Holding Company Act of 1956, as amended. Community Bank System was incorporated in April 1983. At ~~December 31, 2014,~~September 30, 2016, Community Bank System had on a consolidated basis approximately ~~$7.5~~$8.7 billion in total assets, ~~$5.9~~$7.1 billion in total deposits, ~~$4.2~~$4.9 billion in total loans and ~~$1.0 billion~~stockholders’ equity of ~~stockholders’ equity.~~$1.2 billion. Its common stock is publicly traded on the NYSE under the symbol ~~“CBU.”~~“CBU”. Community Bank System, with its principal executive offices in DeWitt, New York, is the parent company of Community Bank, and is among the ~~country's~~country’s 150 largest financial institutions.

Community Bank is a commercial banking franchise with ~~190~~more than 200 customer facilities and ~~187~~202 ATMs stretching diagonally from Northern New York to the Southern Tier and west to Lake Erie, and in Northern Pennsylvania. Community Bank is a national bank and a member of the Federal Reserve System and the Federal Home Loan Bank System, and its deposits are insured by the FDIC, up to applicable limits.

Community Bank System’s business strategy is to operate as a profitable, diversified financial services company providing a variety of banking and other financial services, with an emphasis on consumer and residential mortgage lending and commercial business loans to small and medium-sized businesses. As a result of consolidation of small to medium-sized financial institutions and the de-emphasis on retail branch banking by larger bank holding companies in the markets Community Bank serves, it believes there is a significant opportunity for a community-focused bank to provide a full range of financial services to small and middle-market commercial and retail customers. ~~Most of~~ Community Bank’s branches are located in small towns and villages where competition is less intense. It emphasizes comprehensive retail and small business products and responsive, decentralized decision-making which reflect Community Bank’s knowledge of its local markets and customers.

Through its subsidiaries, Community Bank System offers a wide range of commercial and retail banking and financial services to businesses, individuals, agricultural and government customers. Community Bank’s account services include checking, interest-bearing checking, money market, savings, certificates of deposit and individual retirement accounts. It also ~~offer~~offers residential and farm loans, business lines of credit, working capital facilities, inventory and dealer floor plans, as well as installment, commercial, term and student loans. Community Bank’s lending focuses predominantly on consumer and small to medium-sized business borrowers, which enables its loan portfolio to be highly diversified. Because Community Bank believes that there is a significant potential market for financial services and products, it offers a full range of services to satisfy its customers’ financial needs. In addition to traditional banking services and products, it offers personal trust, employee benefit trust, benefits administration and consulting, investment and insurance services to customers in our banking markets as well as in other parts of the country. Community Bank’s subsidiary, OneGroup NY, Inc., is a regional insurance broker with headquarters in Syracuse, New York. Community Bank System’s wholly-owned subsidiary, ~~Benefit Plans Administrative Services, Inc.,~~BPAS, is a leading provider of employee benefits administration and trust services, and actuarial and consulting services to customers on a national scale.

Community Bank System announced on December 5, 2016 that is has entered into an agreement to acquire NRS, a leading institutional provider of plan accounting, transfer agency, fund administration, trust and retirement plan services. Upon the closing of the transaction, NRS will become a subsidiary of BPAS. The cash and stock transaction is valued at approximately $140 million and is expected to close in the first quarter of 2017, subject to certain shareholder and regulatory approvals.

For additional information concerning the business of Community Bank System and its financial condition, results of operations and prospects, you should refer to the documents incorporated in this document by reference. See “Where You Can Find More Information” on page ~~[ ].~~104 of this Proxy Statement/Prospectus.

TABLE OF CONTENTS~~Oneida Financial Corp.~~

Merchants Bancshares, Inc.

~~Oneida Financial~~Merchants is a ~~Maryland corporation and a savings and loan~~publicly-held bank holding company registered under the ~~Home Owners’ Loan~~Bank Holding Company Act of 1956, as ~~amended. Oneida Financial was~~amended, and is subject to supervision, regulation and examination by the Federal Reserve Board. Merchants is incorporated in March 2010. At December 31, 2014, Oneida Financial had on a consolidated basis approximately $798.2 million in total assets, $689.2 in total deposits, $369.9 in total loans and $95.8 million of stockholders’ equity. Oneida Financial’s common stock is publicly traded on NASDAQ under the ~~symbol “ONFC.” Oneida Financial’s executive offices are located at 182 Main Street, Oneida, New York 13421.~~laws of the State of Delaware and headquartered in South Burlington, Vermont. At September 30, 2016, Merchants had total consolidated assets of approximately $1.99 billion (including loans of approximately $1.47 billion), deposits of approximately $1.50 billion and stockholders’ equity of approximately $158 million.

~~Oneida Financial is the parent company~~Merchants conducts substantially all of ~~Oneida Savings~~its business through its subsidiary, Merchants Bank. ~~Oneida Savings~~Merchants Bank is a ~~New York chartered savings~~Vermont-chartered nonmember stock bank ~~headquartered~~organized in ~~Oneida, New York,~~1849 with 1231 full-service banking offices located throughout the State of Vermont and one full-service banking office in ~~Madison~~Massachusetts. The primary business of Merchants Bank is to attract deposits from and ~~Oneida Counties. Oneida Savings Bank was originally founded in 1866 as a mutual savings bank. In 1998, Oneida Savings Bank converted~~extend loans to ~~a New York chartered stock savings bank as part~~consumer, institutional, municipal, non-profit and commercial customers. Merchants also provides wealth management and trust services through the Merchants Trust Company Division of its reorganization into a mutual holding company and concurrently completed a public offering of common stock. In 2010, Oneida Financial completed its conversion from a mutual holding company to a stock holding company structure and concurrently sold additional shares of common stock. Since 1998, Oneida Savings Bank has grown its traditional community banking franchise organically and through acquisitions of banks and non-bank companies that offer insurance sales, financial services, employee benefits consulting and other risk management products and services. The expansion into insurance and other financial services businesses has enabled Oneida Savings Bank to evolve from a traditional savings bank to a full-service financial services organization.Merchants Bank.

~~Oneida Savings~~Merchants Bank’s deposits are insured by the FDIC up to the maximum ~~amount permitted~~extent provided by ~~law. Oneida Savings~~law, and it is subject to supervision and regulation by the FDIC and the Vermont Department of Financial Regulation. Merchants Bank maintains an Internet website atwww.mvbt.com. Information on Merchants Bank’s website should not be considered a part of this Proxy Statement/Prospectus.

Merchants’ principal executive offices are located at 275 Kennedy Drive, South Burlington, Vermont 05403, and its telephone number is engaged primarily in the business of accepting deposits from customers and using those deposits, together with funds generated from operations and borrowings to make one-to-four family residential and commercial real estate loans, consumer loans and commercial business loans and to invest in mortgage-backed and other securities. Municipal deposit banking services are provided through a limited purpose commercial bank subsidiary, The State Bank of Chittenango. Oneida Savings Bank also sells insurance and other commercial services and products, provides employee benefits services and offers risk management services to help mitigate and prevent work related injuries through OneGroup NY, Inc. (formerly Bailey & Haskell Associates, Inc.), a wholly owned subsidiary of Oneida Savings Bank, and provides financial and investment advisory services through Oneida Wealth Management, Inc., a wholly owned subsidiary of Oneida Savings Bank.

(802) 658-3400.

For additional information concerning the business of ~~Oneida Financial~~Merchants and its financial condition, results of operations and prospects, ~~please~~you should refer to the documents ~~Oneida Financial has filed with the SEC.~~incorporated in this document by reference. See “Where You Can Find More Information” ~~beginning~~ on page ~~[ ].~~104 of this Proxy Statement/Prospectus.

TABLE OF CONTENTS

SPECIAL MEETING OF ONEIDA FINANCIALMERCHANTS STOCKHOLDERS

General
Time, Date and Place of the Special Meeting

~~Oneida Financial~~Merchants will hold a special meeting of its stockholders on ~~[ ], 2015~~[•] at ~~[ ].m.~~[•], Eastern time, at ~~[ ].~~ [•].

Actions to be Taken at the Special Meeting

At the special meeting, ~~the Oneida Financial board of directors~~Merchants stockholders will ~~ask you to vote on a proposal to approve and adopt the Merger Agreement, as well as a proposal to approve the Merger-Related Executive Compensation. You may also~~ be asked to consider and vote ~~to adjourn or postpone~~on the ~~special meeting of stockholders if necessary to solicit additional proxies if there are not sufficient votes at the time of the meeting to approve the Merger Agreement.~~following matters:

1. a proposal to adopt the Merger Agreement, which provides for the merger of Merchants with and into Community Bank System with Community Bank System as the surviving company;
2. a non-binding, advisory proposal to approve the Merger-Related Executive Compensation;
3. a proposal to approve one or more adjournments of the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the Merger Agreement; and
4. any other business which may properly come before the special meeting or any adjournment thereof.

Record Date; Voting Power
Outstanding Shares; Shares Entitled to Vote

Holders of record of ~~Oneida Financial~~Merchants common stock at the close of business on ~~[ ], 2015,~~[•], are entitled to vote at the special meeting. This date is called athe “record date.” As of the record date, there were [ [•] issued and outstanding shares of ~~Oneida Financial~~Merchants common stock. ~~Oneida Financial~~Merchants stockholders have one vote per share on any matter that may properly come before the special meeting.

Recommendation of the Merchants Board of Directors

The Merchants board of directors has unanimously approved the Merger Agreement and the transactions contemplated by the Merger Agreement. The board of directors of Merchants believes the Merger Agreement is advisable and in the best interests of Merchants and its stockholders and recommends that you vote your shares as follows:

“FOR” the adoption of the Merger Agreement;

“FOR” the approval, on an advisory basis, of the Merger-Related Executive Compensation; and

“FOR” the adjournment of the special meeting.

Broker Non-Votes

Brokers who hold shares of ~~Oneida Financial~~Merchants common stock as nominees will not have discretionary authority to vote these shares without instructions from the beneficial owners. Any shares of ~~Oneida Financial~~Merchants common stock for which a broker has submitted an executed proxy but for which the beneficial owner has not given instructions on voting to the broker are referred to as “broker non-votes.” Broker non-votes will have ~~the~~ same effect as voting “AGAINST” the Merger Agreement, but it will have no impact on the advisory, non-binding proposal to approve the Merger-Related Executive Compensation or the proposal to approve an adjournment of the special meeting.

Quorum; Vote Required

The presence in person or by proxy of the holders of a majority of the shares of ~~Oneida Financial~~Merchants common stock outstanding on the record date will constitute a quorum for the transaction of business at the special meeting. ~~If you return valid proxy instructions or attend the meeting in person, your shares~~Abstentions will be ~~counted for purposes~~included in determining the presence of ~~determining whether there is~~ a quorum ~~even if you abstain from voting.~~at the special meeting. Broker non-votes ~~also will~~would generally be ~~counted for purposes of~~included in determining the ~~existence~~presence of a quorum; however, since the special meeting will consider and vote upon only non-discretionary matters, broker non-votes will not be included in determining the presence of a quorum.

TABLE OF CONTENTS

Proposal I: ~~Approval and~~ Adoption of the Merger ~~Agreement.~~~~Approval and adoption~~Agreement. Adoption of the Merger Agreement requires the affirmative vote of ~~a majority~~two-thirds of the outstanding shares of ~~Oneida Financial~~Merchants common stock entitled to vote on the Merger Agreement. Failure to return a properly executed proxy card or to vote in person will have the same effect as a vote against the Merger Agreement. Abstentions and broker non-votes will have the same effect as voting ~~against~~“AGAINST” the Merger Agreement.

Proposal II: Approval of the Merger-Related Executive ~~Compensation.~~Compensation. Approval of the Merger-Related Executive Compensation proposal requires the affirmative vote of a majority of the votes cast on the proposal. Abstentions and broker non-votes will not affect whether the proposal is approved.

Proposal III: Approval of the adjournment ~~proposal.~~proposal. The affirmative vote of a majority of the votes cast on the proposal is required to approve the proposal to adjourn or postpone the special meeting if necessary to solicit additional proxies if there are not sufficient votes to approve the Merger Agreement. Abstentions and broker non-votes will not affect whether the proposal is approved.

Shares Held by Oneida Financial Directors and Certain Officers;Share Ownership of Management; Voting to Approve Merger Agreement
Agreements

On the record date, the directors of ~~Oneida Financial~~Merchants and ~~certain executive officers~~another principal stockholder of ~~Oneida Financial and its subsidiaries,~~Merchants, including certain of their related parties, had voting power with respect to an aggregate of [ [•] shares of ~~Oneida Financial~~Merchants common stock, or approximately ~~[ ]%~~[•]% of the shares of ~~Oneida Financial~~Merchants common stock then outstanding. All of the directors of ~~Oneida Financial~~Merchants and ~~certain executive officers~~another principal stockholder of ~~Oneida Financial and its subsidiaries holding, in the aggregate, approximately [ ]% of the outstanding Oneida Financial common stock~~Merchants have agreed to vote in favor of the ~~approval~~adoption of the Merger Agreement all of the shares of ~~Oneida Financial~~Merchants common stock that they are entitled to vote.

~~Recommendation of the Oneida Financial Board~~

The board of directors of Oneida Financial has unanimously approved the Merger Agreement and the transactions contemplated by it. The board believes that the Merger is advisable and in the best interests of the Oneida Financial stockholders. It unanimously recommends that Oneida Financial stockholders vote “FOR” approval and adoption of the Merger Agreement. You are also asked to vote “FOR” the approval, on an advisory basis, of the Merger-Related Executive Compensation, and “FOR” the adjournment proposal, if necessary. Oneida Financial could use any adjournment or postponement for the purpose of allowing additional time to solicit proxies. See “Proposal I—The Merger—Oneida Financial’s Reasons for the Merger; Recommendation of Oneida Financial’s Board of Directors” beginning on page [ ].

Voting and Revocation of Proxies

~~Oneida Financial~~Merchants has enclosed a form of proxy with this document. To ensure your representation at the special meeting, ~~Oneida Financial~~Merchants recommends that you vote by proxy even if you plan to attend the special meeting. You can always change your vote at the special meeting. Voting instructions are included on your proxy form. If you properly complete and timely submit your proxy, your shares will be voted as you have directed. You may vote for, against, or abstain with respect to the ~~approval and~~ adoption of the Merger Agreement, the approval of the Merger-Related Executive Compensation and the approval of the adjournment ~~proposal, if necessary.~~proposal. Proxies that are properly signed and dated but which do not specify voting instructions will be voted “FOR” the ~~approval and~~ adoption of the Merger Agreement, “FOR” the approval, on an advisory basis, of the Merger-Related Executive Compensation, and “FOR” the proposal to adjourn or postpone the special meeting, ~~if necessary,~~ and in the discretion of the proxy holders as to any other matter which may properly come before the special meeting.

If you deliver a properly executed and dated proxy, you may revoke the proxy at any time before it is exercised at the special meeting. You may revoke your proxy either by:

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

~~submitting a new proxy with a later date; or~~

~~attending the special meeting and voting in person.~~

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

submitting a new proxy with a later date; or

attending the special meeting and voting in person.

Being present at the special meeting, by itself, will not revoke the proxy. You must vote in person if you wish to revoke the proxy. All written notices of revocation and other communication with respect to the revocation of proxies should be addressed to:

~~Oneida Financial Corp.~~

~~Eric E. Stickels,~~Merchants Bancshares, Inc.
Corporate Secretary

~~182 Main Street~~

~~Oneida, New York 13421~~

275 Kennedy Drive
South Burlington, Vermont 05403

If your shares are held in street name, you must follow the instructions from your broker regarding voting and revocation of proxies.

TABLE OF CONTENTS~~Participants in the ESOP or 401(k) Plan~~

If you participate in the ESOP or if you hold shares through the 401(k) Plan, you will receive a voting instruction form for each plan that reflects all shares you may direct the trustees to vote on your behalf under the plans. Under the terms of the ESOP, the ESOP trustee votes all shares held by the ESOP, but each ESOP participant may direct the trustee how to vote the shares of common stock allocated to his or her account. The ESOP trustee, subject to the exercise of its fiduciary duties, will vote all unallocated shares of Oneida Financial common stock of Oneida Financial common stock held by the ESOP and allocated shares for which no voting instructions are received in the same proportion as shares for which it has received timely voting instructions. Under the terms of the 401(k) Plan, a participant is entitled to direct the trustee as to the shares in the Oneida Financial Corp. Stock Fund credited to his or her account. The 401(k) Plan trustee will vote all shares for which no directions are given or for which instructions were not timely received in the same proportion as shares for which the trustee received voting instructions, subject to the exercise of its fiduciary duties. The deadline for returning your voting instructions to each plan’s trustee is [ ], 2015.

Solicitation of Proxies

~~Oneida Financial~~Merchants will pay for the cost of this proxy solicitation. In addition to solicitation by mail, ~~[ ],~~[•], a proxy solicitation firm, will assist ~~Oneida Financial~~Merchants in soliciting proxies for the special meeting. ~~Oneida Financial~~Merchants will pay $[ ],•], plus expenses, for these services. ~~Oneida Financial~~Merchants will, upon request, reimburse brokers, banks and other nominees for their expenses in sending proxy materials to their customers who are beneficial owners and obtaining their voting instructions. Additionally, directors, officers and employees of ~~Oneida Financial~~Merchants may solicit proxies from stockholders by telephone, in person or through other means. These persons will not receive additional compensation, but they will be reimbursed for the reasonable out-of-pocket expenses they incur in connection with this solicitation, if any.

Other Matters

~~Oneida Financial~~Merchants is unaware of any matter to be presented at the special meeting other than the proposal to ~~approve and~~ adopt the Merger Agreement, the proposal to approve, on an advisory basis, the Merger-Related Executive Compensation, and the proposal to approve one or more adjournments of the special meeting, if necessary or appropriate, including adjournments to permit further solicitations of proxies in favor of the Merger. If other matters are properly presented at the special meeting, the persons named in the proxy will have authority to vote all properly executed and dated proxies in accordance with their judgment on any such matter. ~~Proxies that have been designated~~

YOUR VOTE IS IMPORTANT!

Whether or not you plan to ~~vote against approval of the Merger Agreement will not be voted in favor of any proposal to adjourn or postpone~~attend the special meeting ~~for~~in person, Merchants urges you to submit your proxy as soon as possible by (1) calling the ~~purpose~~toll free telephone number specified on the enclosed proxy card, (2) accessing the Internet website specified on the enclosed proxy card, or (3) completing, signing and dating the enclosed proxy card and returning it in the postage paid envelope provided. If your shares are held in the name of ~~soliciting additional proxies to approve~~a bank, broker or other fiduciary, please follow the instructions on the voting card provided by such entity.

If you have any questions concerning the Merger ~~Agreement.~~or other matters to be considered at the Merchants special meeting, would like additional copies of this Proxy Statement/Prospectus or need help voting your shares, please contact Merchants’ proxy solicitor:

[•]

PLEASE DO NOT SEND STOCK CERTIFICATES WITH THE PROXY CARD. YOU WILL BE SENT SEPARATE INSTRUCTIONS REGARDING MAKING ELECTIONS AS TO THE FORM OF MERGER CONSIDERATION YOU WOULD LIKE TO RECEIVE AND THE SURRENDER OF YOUR STOCK CERTIFICATES.

TABLE OF CONTENTS

PROPOSAL I—I — THE MERGER

The detailed terms of the Merger are contained in the Merger Agreement attached asAnnex Ato this document. The following discussion and the discussion under the caption “The Merger Agreement” describe the more important aspects of the Merger and ~~the~~ material terms of the Merger Agreement. These descriptions are only a summary and are qualified in their entirety by reference to the Merger Agreement, which is attached asAnnex A.A. You are urged to read the Merger Agreement carefully because it is the legal document that actually governs your rights in the Merger.

General

~~Effect of the Merger; Management~~. The Merger Agreement provides that, after approval by the stockholders of ~~Oneida Financial~~Merchants and the satisfaction or waiver of the other conditions to the Merger, ~~Oneida Financial~~Merchants will merge with and into Community Bank System, with Community Bank System as the surviving ~~corporation.~~company. The certificate of incorporation and bylaws of Community Bank System will be the certificate of incorporation and bylaws of ~~Community Bank System after~~ the ~~Merger.~~surviving company. The directors and officers of Community Bank System immediately prior to the Merger will be the directors and officers of ~~Community Bank System after~~ the ~~Merger until they resign or until their successors are duly elected and qualified.~~surviving company. In addition, ~~Michael R. Kallet and Eric E. Stickels, each currently a director~~two current directors of ~~Oneida Financial,~~Merchants will be ~~elected~~appointed to the ~~board~~boards of directors of Community Bank System and Community Bank effective as of the closing date of the Merger.

At the effective time of the Merger, each share of Merchants common stock issued and outstanding immediately prior to the effective time of the Merger will be automatically converted into the right to receive, subject to the terms and conditions of the Merger Agreement (including proration procedures), at the election of the holder thereof, the following consideration: (i) the combination of $12.00 in cash and 0.6741 shares of Community Bank System common stock, plus cash in lieu of fractional shares; (ii) $40.00 in cash; or (iii) 0.9630 shares of Community Bank System common stock, plus cash in lieu of fractional shares.

~~Bank Merger~~. Immediately following the Merger of Community Bank System and ~~Oneida Financial, Oneida Savings~~Merchants, Merchants Bank ~~and The State Bank of Chittenango~~ will merge with and into Community Bank, with Community Bank as the surviving entity. After the Bank Merger, branches of ~~Oneida Savings~~Merchants Bank ~~and The State Bank of Chittenango~~ will become branches of Community Bank.

~~Closing; Effectiveness of the Merger~~. Oneida Financial and Community Bank System will close the Merger on the fifth business day, or any other day they mutually agree to, after the satisfaction or waiver of all conditions to the Merger Agreement and after they obtain all necessary regulatory approvals. The Merger will become effective on the date and at the time that Community Bank System and Oneida Financial file a certificate or articles of merger with each of the Delaware Secretary of State and the Maryland State Department of Assessments and Taxation.

The companies expect to complete the Merger in the ~~third~~second quarter of calendar year ~~2015,~~2017, but they must first obtain the necessary regulatory approvals and the approval of ~~Oneida Financial~~Merchants stockholders at the special meeting, and satisfy other customary closing conditions. The companies cannot assure you as to when or if all the conditions to the Merger will be met or waived, and it is possible they will not complete the Merger at all.

Background of the Merger

From time to time, the Oneida Financial board of directors has considered various strategic alternatives to enhance shareholder value, including potential acquisitions, strategic partnerships and merger transactions. In addition, Oneida Financial’s board of directors regularly reviews and discusses at meetings of the board of directors Oneida Financial’s financial performance, market, operating and regulatory risks, management succession plans, opportunities for organic and product growth, stock performance and valuations and strategies to maximize shareholder value.

Oneida Financial’s board of directors has also considered the difficulty in growing profitably and operating a financial institution under current economic, regulatory and competitive conditions. Like most community banks, Oneida Financial has incurred higher costs in complying with new banking laws, regulations and policies, as well as higher costs associated with changes in technology that affect the way customers do their banking business. Oneida Financial’s board and management have considered both organic growth strategies and business combinations with other financial institutions as a means of absorbing such higher operating costs by achieving greater economies of scale.

From time to time, senior management from other local financial institutions, including Community Bank System, have contacted Oneida Financial’s senior management regarding potential strategic business combinations. The board of directors and management of ~~Oneida Financial was made aware~~Merchants periodically review various strategic alternatives as part of their on-going efforts to improve Merchants’ banking franchise and enhance stockholder value. These reviews have focused on assessing opportunities for growth and increasing earnings organically and through acquisitions of other banks, as well as the possibility of a strategic business combination with another banking institution. The board of directors and management of Merchants also regularly review the banking industry environment, including various interest rate scenarios, regulatory compliance and non-interest expenses, and the trend towards consolidation, and in light of these ~~discussions.~~and other factors, potential strategies for enhancing Merchants’ competitive position in this environment.

~~Since completing its conversion~~Consistent with these goals and in the ordinary course of business, members of Merchants’ management have, from time to time, received inquiries from other banking institutions or their advisors regarding Merchants, and engaged in conversations with members of management of other banking institutions regarding a mutual holding company to a stock holding company and concurrent stock offering in 2010, which raised $31.5 million in gross proceeds, Oneida Financial has deployed its capital through strategic initiatives,possible business combination, including ~~expanding its insurance, trust and investment services, establishing a securities broker-dealer subsidiary, and by investing in technology to expand its e-commerce and mobile banking platforms.~~Community Bank System. In ~~addition, Oneida Financial has sought to manage its capital by paying quarterly cash dividends.~~

the course of these conversations, Community Bank System ~~has historically grown both organically and~~expressed a general interest in expanding into Vermont through a possible strategic ~~acquisitions.~~transaction with Merchants. However, prior to 2016, the parties did not engage in more significant discussions.

On April 1, 2016, a director of Community Bank System ~~has acquired and successfully integrated nine whole bank acquisitions and five different branch acquisitions~~had a conversation with one of Merchants’ directors in ~~the last 15 years, and in so doing, has significantly expanded its Upstate~~Plattsburgh, New York, ~~and northeastern Pennsylvania banking franchise. Consistent with this strategy, in 2014~~during which the Community Bank System director noted Community Bank System’s ~~board of directors continued to discuss and analyze market conditions, the mergers and acquisitions market in Upstate New York and~~ potential opportunities for growth, with its senior management and RBC Capital Markets, LLC (“RBC”), which has served as a financial advisor and investment banking firm to Community Bank System since 2010. These continued discussions included a review of the operating results, business franchise and financial characteristics of a number of community banks, including Oneida Financial.

In October 2014, Oneida Financial’s board of directors held its annual strategic planning retreat wherein it invited Keefe, Bruyette & Woods, Inc. (“KBW”) to update the board of directors on the banking industry in general, the current mergers and acquisitions market in particular, and industry trends, both generally and as they related to Oneida Financial. KBW is a nationally recognized investment banking firm and acted as Oneida Financial’s financial advisor in connection with its conversion to a stock holding company in 2010. A representative from Oneida Financial’s legal counsel, Luse Gorman, also provided a review of the fiduciary and legal obligations applicable to directors when considering a sale or merger of a company and, together with representatives of KBW, provided an overview of the process involved with selling or merging a bank or savings bank holding company. As in prior years, management and the board of directors also discussed current issues related to banking and Oneida Financial, including cyber security, Oneida Financial’s increasing regulatory burden and compliance costs as well as higher costs associated with upgrading technology, its limited access to capital markets, its general strategic options, its prospects as a stand-alone institution and, with feedback from KBW, Oneida Financial’s potential valuationinterest in a ~~merger transaction.~~

~~At the annual strategic planning retreat, there was~~business combination with Merchants at a discussion with KBW regarding potential strategic business combinations with other financial institutions, which could involve Oneida Financial as an acquirer or as an acquiree. Seventeen financial institutions were considered, six as possible acquirers of Oneida Financial and eleven as possible acquisition targets by Oneida Financial. Community Bank System was one of the six financial institutions considered as a possible acquirer of Oneida Financial. After review of publicly available financial and stock market information relating to the financial institutions considered, with particular focus on each acquirer’s financial capacity to pay, it appeared to the board that Community Bank System was the potential acquirerprice in the best position to offer a premium acquisition price to Oneida Financial’s stockholders. Also, it appeared to the board from the review that the acquisition of one of the potential targets (“Company A”) offered the best opportunity to enhance shareholder value in a transaction in which Oneida Financial would be an acquirer.high $30’s range.

TABLE OF CONTENTS

At a regularly scheduled meeting of the Oneida Financial board of directors on October 28, 2014, the board again discussed the strategic matters considered at the annual strategic planning retreat. During this meeting, the board of directors encouraged Michael R. Kallet, Chairman of the Board of DirectorsOn April 11, 2016, Geoffrey Hesslink, President and Chief Executive Officer of ~~Oneida Financial,~~Merchants, and ~~Eric E. Stickels, President and Chief Operating Officer of Oneida Financial, to continue to assess the possibility of potential business combinations.~~

At a regularly scheduled meeting of the executive committee of the board of directors (the “Executive Committee”) on November 11, 2014, the Executive Committee renewed its discussion with Messrs. Kallet and Stickels related to potential strategic business combinations, including the two different strategic business combinations with Community Bank System and Company A. The Executive Committee concurred that Messrs. Kallet and Stickels should informally explore and discuss a potential strategic business combination with the senior management of Community Bank System and of Company A.

~~At Messrs. Kallet’s and Stickels’ invitation, on November 13, 2014,~~ Mark E. Tryniski, President and Chief Executive Officer of Community Bank System, met in Burlington, Vermont to discuss their respective businesses and industry trends. Mr. Hesslink and Mr. Tryniski did not specifically discuss a potential business combination during this meeting.

On May 4, 2016, the Merchants board held a special meeting in Burlington, Vermont. At this meeting, the Merchants board discussed Community Bank System’s potential interest in a business combination with ~~Messrs. Kallet~~Merchants. The Merchants board also reviewed summary historical financial data regarding Merchants and ~~Stickels. During~~discussed Merchants’ strategic outlook in light of the current banking industry environment.

On May 26, 2016, the Merchants board held a regularly scheduled meeting ~~Messrs. Kallet~~in Burlington, Vermont. At this meeting, the Merchants board continued its discussion of Community Bank System’s potential interest in a business combination with Merchants and ~~Stickels inquired~~determined that a subset of the Merchants board consisting of Jeffrey Davis, Chairman of the Board of Merchants (who we refer to in this section as ~~to whether~~Chairman Davis), Michael Furlong, a director of Merchants and Chairman of the Board of Merchants Bank, and Mr. Hesslink, should explore Community Bank System’s level of interest.

On June 1, 2016, Chairman Davis, Mr. Furlong and Mr. Hesslink met with Mr. Tryniski and Scott Kingsley, Executive Vice President and Chief Financial Officer of Community Bank System, ~~was interested~~ in Lake George, New York, to discuss a potential ~~acquisition~~business combination between Merchants and Community Bank System. At this meeting, Mr. Tryniski noted Community Bank System’s potential interest again at a price in the high $30’s range.

On June 8, 2016, Mr. Hesslink met with Piper Jaffray & Co., financial advisor to Merchants (“Piper”), to notify them of ~~Oneida Financial,~~the potential business combination and discuss the assumptions underlying forecasted financial scenarios. Thereafter, Mr. Hesslink and representatives of Piper met periodically to refine those assumptions.

On June 13, 2016, Merchants and Community Bank System entered into a mutual confidentiality agreement pursuant to which each party agreed to keep confidential certain non-public information about the other party in connection with the consideration of a potential business combination. The confidentiality agreement also included customary standstill obligations of Community Bank System.

Also on June 13, 2016, Merchants entered into a confidentiality agreement with one of its major stockholders, Charles Davis, so that Merchants could obtain his views on a potential business combination with Community Bank System. Charles Davis is a former director of Merchants and the brother of Chairman Davis.

On June 14, 2016, Mr. Hesslink met with Mr. Tryniski and Mr. Kingsley in Lake George, New York, to discuss Merchants’ second quarter earnings and other financial matters, as well as the potential structure of the combined company.

On June 15, 2016, Chairman Davis and Mr. Tryniski ~~expressed interest in exploring such~~had a telephone conversation during which they discussed a potential ~~transaction. The meeting also included a general discussion about their respective companies, including their respective~~ business ~~strategies, business cultures~~combination between Merchants and ~~potential synergies between~~ Community Bank System and ~~Oneida Financial.~~the strategic advantages of such a combination. During this discussion, Mr. Tryniski ~~stated that~~noted Community Bank System’s potential interest at a price of $40.00.

On June 27, 2016, the Merchants board held a special meeting in Burlington, Vermont, at which members of management and representatives of Piper and Goodwin Procter LLP, counsel to Merchants (“Goodwin Procter”), were present. At this meeting, the Merchants board reviewed forecasted financial scenarios for Merchants prepared by management assuming different interest rate environments, as well as the risks, challenges and strategic opportunities facing the company. The Merchants board also discussed other strategic alternatives available to the company, including a potential business combination transaction with parties other than Community Bank System, ~~would conduct~~ additional ~~analyses~~acquisitions in order to achieve scale, and ~~before responding. Shortly after this meeting, Mr. Tryniski contacted RBC to inform them about his discussions with Messrs. Kallet and Stickels and directed RBC to begin conducting~~the potential growth or acquisition of non-interest income businesses. The representatives of Goodwin Procter reviewed the fiduciary duties of the directors in the context of their consideration of a ~~general~~potential business combination. Piper also presented a situational analysis of ~~Oneida Financial.~~

~~At a regularly scheduled meeting~~Merchants, including an overview of the ~~Oneida Financial board of directors on November 25, 2014, Messrs. Kallet~~U.S. banking market and ~~Stickels reviewed~~preliminary financial analyses with ~~the board their discussions~~respect to a potential business combination with ~~Mr. Tryniski and presented information concerning~~ Community Bank ~~System’s historical and current financial performance, as well as Oneida Financial’s historical and current financial performance.~~System. The ~~directors~~Board discussed with Piper a select number of other banking institutions that may have the capacity to

TABLE OF CONTENTS

pay in the $40.00 range being proposed by Community Bank System, and ~~its~~concluded that, based on knowledge of those institutions and current industry dynamics, it was unlikely that one of those banking institutions would be interested in engaging in a strategic transaction with Merchants at such a price range at this time.

On July 4, 2016, Chairman Davis and Mr. Hesslink met with Charles Davis in Burlington, Vermont, to obtain Mr. Davis’ views on a potential ~~interest~~business combination between Merchants and Community Bank System. At this meeting, Mr. Davis indicated his support in ~~acquiring Oneida Financial~~exploring a potential transaction with Community Bank System.

On July 7, 2016, the Merchants board held a special meeting in Burlington, Vermont, at which members of management and representatives of Goodwin Procter were present. At this meeting, the representatives of Goodwin Procter again reviewed the fiduciary duties of the directors, and the Merchants board discussed whether it was in the best interests of Merchants stockholders to explore a potential business combination with Community Bank System. After considering current market conditions and the prospects of Merchants on a stand-alone basis, the Merchants board determined to engage in discussions with Community Bank System regarding a potential business combination between the two companies. The Merchants board also discussed whether it might be advisable to explore a potential strategic transaction with other third parties in addition to Community Bank System. In particular, the Merchants board discussed potential disruptions to Merchants’ business, the risk of leaks that might arise from making contact with other parties in the industry (and the potential impact on Merchants’ business and employees of such leaks), the potential loss of Community Bank System as a strategic partner if Community Bank System learned of Merchants’ exploration of other alternatives, Merchants’ own strong knowledge and understanding of its business prospects and value on a stand-alone basis, and the likelihood that Merchants would have already been contacted by another banking institution if it were interested in engaging in strategic discussions with Merchants. Based on the foregoing considerations, the Merchants board concluded not to approach other potential strategic partners. The Merchants board also formed a Special Committee consisting of Jeffrey Davis, Michael Furlong and Geoffrey Hesslink to (1) establish, monitor and direct the process and procedures related to the review of the strategic alternatives of Merchants, (2) invite Community Bank System to submit a written indication of interest, (3) participate in and direct the negotiation of the material terms and conditions of any such transaction, (4) recommend to the Board of Directors the advisability of accepting an indication of interest and negotiating a definitive agreement with respect to any such transaction, and (5) perform any other activities or responsibilities incidental to the foregoing.

Later on ~~Oneida Financial’s stockholders, communities~~July 7, 2016, Chairman Davis and Mr. Hesslink each contacted Mr. Tryniski to report the decision of the Merchants board to engage in ~~which Oneida Savings~~discussions with Community Bank ~~operates,~~System regarding a potential business combination and ~~Oneida Savings Bank’s customers~~to invite Community Bank System to submit a written indication of interest.

On July 8, 2016, Mr. Tryniski sent a non-binding proposal to Mr. Hesslink with respect to a potential business combination between Merchants and ~~employees. They~~Community Bank System. The proposal provided for, among other things: (1) a mix of stock and cash consideration, with approximately 65% of the consideration to be paid in the form of Community Bank System common stock in a tax-free exchange; (2) a $40.00 per share price, consisting of an unspecified fixed exchange ratio for the stock component of the consideration and $14.00 per share for the cash component of the consideration; (3) one seat on Community Bank System’s combined bank/holding company board for an independent director of Merchants to be identified at a later date; (4) a customary termination provision if Community Bank System’s stock price were to materially decrease both on an absolute basis and in relation to an appropriate index; (5) a 4% termination fee payable by Merchants; and (6) a requirement that Mr. Hesslink enter into an employment agreement with Community Bank System to serve as its New England Regional President (no specific terms of an employment arrangement were included). The proposal also referenced Community Bank System’s commitment to honor the terms of existing employment, change-in-control, termination and retention agreements of Merchants, and the expected payment of severance benefits to displaced employees of Merchants in accordance with Community Bank System’s policy and retention bonuses based on development of an integration plan. Community Bank System’s proposal remained subject to the completion of due diligence and the execution of a definitive merger agreement.

TABLE OF CONTENTS

On July 15, 2016, the Merchants board held a special telephonic meeting to approve the engagement of Piper as its financial advisor. In addition, the Merchants board discussed ~~Oneida Financial’s potential strategic fit and benefits~~the role members of management should have in connection with the Board’s consideration of a business combination with Community Bank ~~System. Messrs. Kallet~~System given the references to employment and ~~Stickels noted that~~compensation arrangements with members of management in Community Bank System’s July 8^th proposal. Following this discussion, the Merchants board reconstituted the Special Committee to include only independent and disinterested directors. The Special Committee thereafter consisted of Chairman Davis, Mr. Furlong and Donald Chase.

On July 19, 2016, the Special Committee held a telephonic meeting at which Mr. Hesslink and representatives of Piper and Goodwin Procter were present. At this meeting, the Special Committee discussed the proposed terms for a business combination between Merchants and Community Bank System included in Community Bank System’s July 8^th proposal in light of current market conditions and the prospects of Merchants on a stand-alone basis, the competitive landscape and industry trends. At the conclusion of this discussion, the Special Committee directed Piper to engage in negotiations with Community Bank System’s financial advisor, RBC Capital Markets, with respect to: (1) fixing the exchange ratio at one share of Community Bank System ~~and Oneida Financial had not discussed any transaction terms, and that if discussions were to continue, they expected Community Bank System to present Oneida Financial with a written indication~~common stock for each share of ~~interest. After discussion of this information,~~Merchants common stock; (2) increasing the ~~Oneida Financial board of directors authorized Messrs. Kallet and Stickels to continue exploratory discussions with Community Bank System.~~

At Messrs. Kallet’s and Stickels’ invitation, on November 26, 2014, the Chief Executive Officer of Company A met with Messrs. Kallet and Stickels. The Chief Executive Officer of Company A indicated that Company A was intent on remaining independent and was not interested in a strategic business combination with Oneida Financial. No further discussions occurred between Oneida Financial and Company A. On December 9, 2014, Messrs. Kallet and Stickels informed the Executive Committee that Company A was not interested in a strategic business combination with Oneida Financial.

On December 12, 2014, Mr. Tryniski contacted Mr. Stickels and requested a meeting on December 18, 2014 with Messrs. Kallet and Stickels. On December 16, 2014, Messrs. Kallet and Stickels informed the Oneida Financial board of directors of Mr. Tryniski’s request for a meeting, and the board of directors again authorized Messrs. Kallet and Stickels to continue discussions and negotiations with Community Bank System, to confer with special counsel as needed, and to keep Oneida Financial directors Kent and Haskell apprisedstock component of the ~~communications and progress during~~merger consideration; (3) providing for Merchants stockholders to have the ~~holiday period. The board was also advised~~right to elect the form of consideration that ~~a special meeting of~~they would like to receive in the ~~board of directors could be necessary prior to the board’s regularly scheduled January meeting.~~

At the December 18, 2014 meeting between Messrs. Tryniski, Kallet and Stickels, Mr. Tryniski discussed the results of Community Bank System’s general analysis of Oneida Financial and again expressed its interest in acquiring Oneida Financial. At the end of the meeting, Mr. Tryniski presented a letter to Messrs. Kallet and Stickels that provided Community Bank System’s preliminary analysis of Oneida Financial and possible benefits related to a potential acquisition of Oneida Financial by Community Bank System. Community Bank System’s letter included a price range of $17.00 to $18.00 per share which would represent a market premium of approximately 30% to 40%. Additionally, the letter detailed possible benefits of a strategic business combination between Community Bank System and Oneida Financial, including a merger of companies with similar business cultures, creating an expanded branch network for customer convenience, expansion of benefits for Oneida Financial employees, and potential representationtransaction; (4) having three seats on Community Bank System’s combined bank/holding company board for independent directors of ~~directors by current Oneida Financial board members. The meeting concluded with no indication from Messrs. Kallet and Stickels regarding~~Merchants to be identified at a later date; (5) decreasing the ~~potential acceptability of terms contained in the letter or agreement with Community Bank System’s analysis provided in the letter.~~

~~In the afternoon of December 18, 2014, Messrs. Kallet and Stickels contacted Luse Gorman to advise them~~size of the ~~meeting with Mr. Tryniski,~~termination fee payable by Merchants to 2.5%; (6) providing for additional severance benefits to displaced employees of Merchants; and (7) continuing the ~~contents~~use of the ~~letter from Community~~Merchants Bank ~~System and~~name. In executive session, the ~~previous events to date.~~

On December 19, 2014, Messrs. Kallet and Stickels contacted Directors Kent and Haskell to inform them of the letter from Community Bank System and to discuss its contents. Directors Kent and Haskell, as well as Messrs. Kallet and Stickels, agreed that the price range analysis in the December 18 letter would not generate significant interest among members of the board, but authorized Messrs. Kallet and Stickels to continue discussions during the holidays and to enter into a confidentiality and non-disclosureSpecial Committee also discussed Mr. Hesslink’s potential employment agreement with Community Bank System ~~if discussions continued.~~referenced in the proposal.

Also on July 19, 2016, Merchants entered into a formal engagement letter with Piper. Prior to engaging Piper, Merchants confirmed that Piper had no conflicts of interest with respect to Community Bank System.

InOn July 19 and 20, 2016, representatives of Piper, at the ~~afternoon~~direction of ~~December 19, 2014, Oneida Financial~~the Special Committee, discussed with representatives of RBC Capital Markets the terms of Community Bank System’s July 8^th proposal.

On July 20, 2016, the Special Committee held a telephonic meeting at which Mr. Hesslink and representatives of Piper and Goodwin Procter were present. At this meeting, the Special Committee continued its discussion of Community Bank System’s July 8^th proposal. The representatives from Piper reported on their recent conversations with RBC Capital Markets regarding the proposal, which had focused on the exchange ratio. Piper reported that RBC had proposed an exchange ratio of 0.95. At the conclusion of this discussion, the Special Committee directed Piper to propose an exchange ratio of 0.9857, which was based on the closing price of the common stock of Community Bank System ~~each entered into~~of $40.48 per share on July 7^th, the day before Community Bank System submitted its indication of interest, which resulted in an implied price for the stock consideration of $40.00 per share.

From July 20 through 28, 2016, representatives of Piper, at the direction of the Special Committee, further negotiated with representatives of RBC Capital Markets regarding the terms of Community Bank System’s July 8^th proposal.

On July 26, 2016, Chairman Davis and Mr. Furlong had a ~~Mutual Confidentiality~~telephone conversation with Mr. Tryniski during which they discussed the terms of Community Bank System’s July 8^th proposal.

On July 28, 2016, the Special Committee held a telephonic meeting at which Mr. Hesslink and ~~Non-Disclosure Agreement~~representatives of Goodwin Procter were present. At this meeting, the Special Committee continued to ~~formally begin due diligence~~discuss Community Bank System’s July 8^th proposal, including the termination fee payable by Merchants and the number of seats on Community Bank System’s combined bank/holding company board to ~~provide both companies an opportunity~~be allocated to ~~share non-public information.~~Merchants.

On July 29, 2016, Chairman Davis and Mr. Furlong had a telephone conversation with Mr. Tryniski during which they discussed the number of seats on Community Bank System’s combined bank/holding company board to be allocated to Merchants.

TABLE OF CONTENTS

InLater on July 29, 2016, the Special Committee held a ~~letter dated December 24, 2014, Messrs. Kallet~~telephonic meeting at which Mr. Hesslink and ~~Stickels provided additional financial~~representatives of Piper and ~~non-financial information regarding Oneida Financial for~~Goodwin Procter were present. At this meeting, the Special Committee continued to discuss Community Bank System’s July 8^th proposal and determined to invite Community Bank System to ~~consider~~submit a revised proposal reflecting the recent negotiations between the parties and ~~evaluate~~their advisors. Following this meeting, Chairman Davis and Mr. Furlong had a telephone conversation with Mr. Tryniski to report the decision of the Special Committee.

Also on July 29, 2016, a representative of RBC Capital Markets forwarded a revised non-binding proposal to a representative of Piper for delivery to Merchants. The revised letter of intent provided the following changes to Community Bank System’s July 8^th proposal: (1) approximately 70% of the consideration to be paid in ~~preparation for further discussions, including, among other things, brief summaries~~the form of ~~Oneida Savings Bank’s history, its mission and its employee structure. Also included in this letter was an explanation as to why a merger with Oneida Financial and its non-banking operations offered~~ Community Bank System ~~a unique opportunity~~common stock; (2) subject to ~~have an immediate impact on~~allocation and proration procedures, the ~~combined organization.~~

~~On January 9, 2015, Messrs. Tryniski, Kallet and Stickels met~~ability of Merchants stockholders to further discuss Community Bank System’s interest in acquiring Oneida Financial. At the meeting, the participants discussed Oneida Financial’s non-banking lines of business and how the two companies might agree upon pricing with respect to the different lines of business. The participants agreed to meet again to further discuss a potential strategic business combinationelect between the ~~two companies.~~

~~On January 13, 2015, the Oneida Financial’s Executive Committee met to discuss the status~~stock consideration at a fixed exchange ratio of discussions with Community Bank System. Messrs. Kallet and Stickels updated the Executive Committee regarding their discussions with Mr. Tryniski and the ongoing due diligence process. The Executive Committee again authorized Messrs. Kallet and Stickels to continue the discussions with Community Bank System.

On January 15, 2015, Messrs. Tryniski, Kallet and Stickels met again to discuss (i) the terms and provisions each company would expect to see in an indication of interest, if so prepared and presented by Community Bank System, (ii) Oneida Financial’s 2015 budget, (iii) potential possible synergies between the two companies, and (iv) the performance of Oneida Financial’s non-banking subsidiaries.

~~On January 21, 2015, at Community Bank System’s regular monthly board meeting, RBC presented its transaction analysis~~0.963 of a potential merger between Oneida Financial and Community Bank System, which included information on Oneida Savings Bank’s branch network and Oneida Financial’s senior management, financial position and operating results, as well as pro forma financial information and an overview of comparable deal terms and comparable deal merger consideration. After extensive discussion and RBC’s presentation, the Community Bank System board of directors unanimously approved the terms of an indication of interest and instructed Mr. Tryniski to continue negotiations with Oneida Financial and to begin negotiations of a definitive merger agreement.

On January 21, 2015, Oneida Financial received a letter from Community Bank System (the “indication of interest”), which updated and expanded upon the December 18 letter from Community Bank System, and was subject to its completion of due diligence. The indication of interest provided for merger consideration of $20.00 for each share of ~~Oneida Financial common stock, of which 60% would be paid in~~ Community Bank System common stock ~~based~~or cash consideration of $40.00 per share; (3) two to three seats on Community Bank System’s combined bank/holding company board for independent directors of Merchants to be identified at a ~~fixed exchange ratio and 40% would be paid in cash. This indication of interest also provided, among other things, for~~later date; (4) a 3.5% termination fee payable by Merchants; and (5) increased severance benefits for displaced employees of ~~4.0% of~~Merchants. Based on the ~~aggregate transaction value, an expectation that all branch and customer contact personnel would be retained, and that Messrs. Kallet and Stickels would be asked to join the boards of directors~~closing price of Community Bank System common stock on July 28, 2016 of $44.31, the implied value of Community Bank System’s offer was $41.87 per share.

On July 30, 2016, the Special Committee held a telephonic meeting at which Mr. Hesslink and representatives of Piper and Goodwin Procter were present. At this meeting, the Special Committee discussed the revised terms for a potential business combination included in Community ~~Bank. Messrs. Kallet~~Bank System’s July 29^th proposal.

On July 31, 2016, Chairman Davis had a telephone conversation with Mr. Tryniski during which they discussed Community Bank System’s July 29^th proposal.

On August 1, 2016, the Special Committee held a special telephonic meeting at which Mr. Hesslink and ~~Stickels~~representatives of Piper and Goodwin Procter were ~~not offered positions~~present. At this meeting, the Special Committee continued to discuss Community Bank System’s July 29^th proposal. At the conclusion of ~~employment~~this discussion, the Special Committee determined to recommend to the Merchants board that the company proceed with the proposed business combination with Community Bank System.

On August 2, 2016, the Merchants board held a special meeting in Burlington, Vermont, at which members of management and representatives of Piper and Goodwin Procter were present. At this meeting, the Merchants board received an update on discussions with Community Bank System orand reviewed the terms of Community Bank ~~following~~System’s July 29^th proposal, as well as certain preliminary financial analyses prepared by Piper with respect to such proposal. The representatives of Goodwin Procter again reviewed the fiduciary duties of the directors in the context of their consideration of the proposed ~~merger.~~

In the afternoon of January 21, 2015, Messrs. Kallet and Stickels discussed the indication of interest with Directors Kent and Haskell and with Luse Gorman. Luse Gorman advised Messrs. Kallet and Stickels to inform KBW of the indication of interest and to direct KBW to prepare for a preliminary discussion of the financial aspects of the potential transaction with ~~the board of directors. Following this discussion, Messrs. Kallet and Stickels contacted KBW.~~

~~On January 27, 2015, at the regular meeting of the Oneida Financial board of directors, the board reviewed and considered the indication of interest from~~ Community Bank System. ~~Members~~After extensive discussion regarding the proposal, current market conditions, and the prospects and value of ~~Oneida Financial’s management team were present,~~Merchants on a stand-alone basis, the Merchants board authorized the Special Committee to engage in due diligence activities with Community Bank System and ~~representatives of Luse Gorman and KBW participated telephonically. Representatives of KBW discussed~~negotiate a definitive merger agreement with respect to a business combination with Community Bank System on the ~~board various financial aspects~~terms outlined in the July 29^th proposal. Following this meeting, Chairman Davis telephoned Mr. Tryniski to inform him of the ~~proposed merger that KBW had preliminarily analyzed. During this discussion,~~decision of the Merchants board ~~noted that when compared~~ to ~~mergers in~~proceed forward with Community Bank System regarding a potential business combination.

On August 3, 2016, Merchants countersigned the ~~Mid-Atlantic area announced since 2012 with deal values between $100 million and $500 million, the price offered~~non-binding letter of intent provided by Community Bank System ~~significantly exceeded~~on July 29^th, and thereafter, a representative of RBC Capital Markets on behalf of Community Bank System sent a due diligence request list to Piper.

On August 16, 2016 and throughout the ~~median price on a tangible book value basis, on a core deposit premium basis, and on a long term earnings per share basis. Additionally,~~remainder of the process, the Compensation Committee of the Merchants board ~~of directors again~~held meetings at which the Compensation Committee discussed ~~other financial institutions that could be potential acquirers of Oneida Financial, and their capacity~~the need to ~~pay a premium similar to that being offered~~(1) ensure existing contracts with employees were honored by Community Bank ~~System. After review~~System, (2) encourage executives and other employees of ~~publicly available financial~~Merchants to remain motivated and ~~stock market information relating to Community Bank System and such other financial institutions, it again appeared to~~engaged through the ~~board that it was unlikely that other potential acquirers~~closing of ~~Oneida Financial could pay an amount that equaled or exceeded the aggregate consideration proposed by Community Bank System.~~

~~Additionally, representatives of Luse Gorman reviewed with the board of directors their fiduciary duties in connection with~~ a potential business combination with Community Bank System, ~~or other potential acquirers,~~ and (3) retain such executives and employees if the ~~regulatory requirements~~transaction were not to be completed for any reason. At these meetings, the Compensation Committee authorized

TABLE OF CONTENTS

retention payments to be made to certain employees and ~~timing associated with~~executives as described in the ~~regulatory approvals that would be necessary~~section entitled “— Interests of Certain Persons in the Merger”. The Compensation Committee’s independent compensation consultant generally participated in these meetings.

On August 19, 2016, Cadwalader, Wickersham & Taft LLP, counsel to ~~complete the proposed transaction. Following extensive discussions~~Community Bank System (“Cadwalader”), provided an initial draft of the ~~terms~~merger agreement and a form of voting agreement to Goodwin Procter.

On August 22, 2016, Merchants provided Community Bank System and its advisors with access to a virtual data room containing business and legal due diligence materials. Thereafter, the parties and their advisors had numerous discussions, and Merchants provided answers to numerous questions posed by Community Bank System and its advisors, regarding the due diligence materials provided by Merchants and related matters.

On August 25, 2016, representatives of Community Bank ~~System’s proposal, including~~System met with representatives of Merchants in Lake George, New York to discuss Merchants’ business, finances and operations.

On August 29, 2016, Chairman Davis and Mr. Hesslink had a telephone conversation with Mr. Tryniski during which they discussed the ~~board’s request that certain provisions~~potential future organizational structure of the ~~indication~~combined company, the process for determining whether members of ~~interest be changed, such as~~Merchants’ management team would have continuing roles with the ~~amount of the break-up fee~~combined company, and the ~~methodology~~implementation of ~~allocating shares between stock~~a retention program for employees of Merchants. Thereafter, the parties and ~~cash,~~their advisors had additional discussions regarding the ~~Oneida Financial~~scope and terms of a retention program for executive and non-executive employees of Merchants.

On September 2, 2016, the Merchants board held a special telephonic meeting at which representatives of ~~directors unanimously accepted~~Goodwin Procter were present. At this meeting, management provided the ~~indication~~Merchants board with an update on the status of ~~interest as a basis~~due diligence and negotiations related to ~~begin negotiating a definitive merger agreement~~the proposed business combination with Community Bank System. The ~~Oneida Financial~~Merchants board also discussed executive compensation and employee retention matters.

Later on September 2, 2016, Goodwin Procter provided comments to the initial draft of ~~directors also authorized management~~the merger agreement to ~~continue~~Cadwalader. Thereafter, the parties and their advisors had discussions regarding a number of issues in the merger agreement, including: (1) the scope of the respective representations and warranties and operating covenants of Merchants and Community Bank System; (2) the definition of “material adverse effect”; (3) the circumstances in which the Merchants board may change its recommendation to stockholders regarding adoption of the merger agreement; (4) the ability of the Merchants board to respond to unsolicited inquiries following the announcement of the transaction and to terminate the merger agreement to accept a superior proposal; (5) the circumstances in which Merchants would be required to pay a termination fee to Community Bank System or reimburse Community Bank System for its expenses; (6) Community Bank System’s obligations with respect to Merchants’ employees; (7) Community Bank System’s obligations to obtain necessary regulatory approvals; and (8) the parties who would deliver voting agreements to Community Bank System.

On September 7, 2016, a representative of Piper on behalf of Merchants sent a reverse due diligence request list to RBC Capital Markets.

On September 16, 2016, Mr. Hesslink had a telephone conversation with Mr. Tryniski during which they discussed the open business issues with respect to the proposed business combination.

On September 19, 2016, the Special Committee held a telephonic meeting at which Mr. Hesslink and representatives of Piper and Goodwin Procter were present. At this meeting, the Special Committee received an update on the status of due diligence and negotiations relating to the proposed business combination with Community Bank System. The Special Committee also discussed the open issues with respect to the merger agreement, the reverse due diligence process and the proposed timing.

Later on September 19, 2016, a representative of RBC Capital Markets contacted a representative of Piper to discuss Community Bank System’s due diligence findings and the expected cost savings and restructuring costs related to the transaction, and noted that the total costs to be incurred by Community Bank System were higher than anticipated.

TABLE OF CONTENTS

On September 20, 2016, the Special Committee held a telephonic meeting at which Mr. Hesslink and representatives of Piper and Goodwin Procter were present. At this meeting, the Special Committee discussed Community Bank System’s due diligence findings and the one-time deal costs and potential reductions in Merchants’ operating costs on a post-closing basis. At the conclusion of this discussion, the Special Committee authorized management and Piper to work with Community Bank System to better understand these costs. The Special Committee also discussed the reverse due diligence process.

From September 21 through 27, 2016, representatives of Community Bank System and ~~commence negotiations~~Merchants discussed Community Bank System’s due diligence findings and the expected cost savings and restructuring costs. As part of these discussions, RBC Capital Markets, on behalf of Community Bank System, proposed a ~~definitive~~split in the value of these items between Community Bank System and Merchants stockholders. Piper, at the direction of the Special Committee, informed RBC Capital Markets that Merchants was not open to discussing a potential reduction in the exchange ratio.

On September 29, 2016, Chairman Davis and Mr. Tryniski had a telephone conversation during which they further discussed the expected restructuring costs. During this discussion, Mr. Tryniski agreed that there would be no reduction in the exchange ratio, and Mr. Davis agreed that Merchants would be allocated two (and not three) seats on Community Bank System’s combined bank/holding company board.

On September 30, 2016, the Special Committee held a telephonic meeting at which members of management and representatives of Piper and Goodwin Procter were present. At this meeting, the Special Committee discussed the remaining open issues in the merger agreement. ~~Additionally,~~

Later on September 30, 2016, the parties and their advisors held a conference call to discuss the remaining open issues in the merger agreement, the reverse due diligence process, timing considerations and employee matters.

On October 5, 2016, representatives of Merchants, Goodwin Procter and Piper met with representatives of Community Bank System and RBC Capital Markets in Lake George, New York, to discuss Community Bank System’s business, finances and operations.

On October 7, 2016, Community Bank System provided initial drafts of the employment agreements for the members of Merchants’ management team who would be continuing with the combined company, which included Mr. Hesslink, Bruce Bernier, Senior Vice President and Senior Lender of Merchants Bank, and Anita Bourgeois, Senior Vice President and Senior Director, Deposit Growth and Profitability of Merchants Bank. Thereafter, the parties and their counsel negotiated the terms of the employment agreements.

On October 20, 2016, the Merchants board held a special meeting in Essex, Vermont, at which representatives of management, Piper and Goodwin Procter were present. At this meeting, Chairman Davis provided an overview of the negotiation process to date, and the representatives of Goodwin Procter presented the terms of the proposed merger agreement and form of voting agreement. The representatives of Goodwin Procter again discussed the fiduciary duties of the directors ~~formed~~in the context of their consideration of the proposed transaction with Community Bank System. Management updated the Board on the status of Community Bank System’s due diligence regarding Merchants and the reverse due diligence process. Piper also reviewed with the Merchants board its preliminary analyses of the consideration offered in the proposed transaction from a ~~Merger Committee consisting~~financial point of ~~John E. Haskell, Daniel L. Maneen~~view. The Merchants board considered the benefits and ~~Rodney D. Kent (the “Merger Committee”) to review~~risks of the proposed business combination as described in the section entitled “— Reasons for the Merger.” Management also reviewed the proposed timing for signing and ~~assess developments~~completing the proposed business combination with ~~respect~~Community Bank System. Prior to the ~~potential merger~~Merchants board meeting, the Special Committee held a special meeting at the same location to discuss employee retention matters.

On October 20 and 21, 2016, the parties and their counsel negotiated the final terms of the merger.

TABLE OF CONTENTS

On October 22, 2016, the Special Committee and the Merchants board held a joint special meeting in Essex, Vermont, at which representatives of management, Piper and Goodwin Procter were present. At this meeting, Goodwin Procter provided an update on the final negotiations with Community Bank System and ~~to assist~~its counsel, and ~~advise Messrs. Kallet and Stickels as needed in connection~~Piper reviewed with the ~~negotiations~~Merchants board its final analyses of the ~~terms of the definitive merger agreement.~~

On January 30, 2015, a virtual data room was created by Oneida Financial, with the assistance of KBW, and Oneida Financial began to provide the virtual data room with due diligence documents requested by Community Bank System.

On February 7, 2015 and February 10, 2015, Community Bank System conducted further due diligence on Oneida Financial, including on-site due diligence of Oneida Financial’s loan portfolio, branch locations and other matters as well as interviews of Oneida Financial’s senior management.

~~On February 12, 2015, Bond Schoeneck & King PLLC (“BSK”), outside lead counsel for Community Bank System, sent Luse Gorman the initial draft of a definitive merger agreement for the transaction.~~

Between February 12, 2015 and February 24, 2015, Luse Gorman exchanged proposed revisions to the draft definitive agreement with BSK based on input and comments received from Oneida Financial senior management, the Merger Committee and KBW, and worked with BSK towards finalizing a draft merger agreement. The revisions focused on, among other things, narrowing the representations, warranties and covenants applicable to Oneida Financial and lowering the termination fee from 4% of the total merger consideration to 3.5% of the total merger consideration. During this same period, Oneida Financial conducted reverse due diligence concerning Community Bank System, which included on-site interviews with Community Bank System’s senior management and further review of documents, which included both non-public and public information.

~~A complete copy of the merger agreement was distributed to each member of the Oneida Financial board on February 20, 2015.~~

On the afternoon of February 23, 2015, the Merger Committee met with Messrs. Kallet and Stickels to review and discuss the status of the definitive merger agreement and due diligence results with respect to Community Bank System. After extensive discussion of the terms and conditions of the draft definitive merger agreement, the Merger Committee voted to recommend to the full board of directors that Oneida Financial approve the definitive merger agreement and proceed with the merger.

On February 24, 2015, the Oneida Financial board met to review and consider the terms and conditions of the draft definitive merger agreement that was distributed to the board on February 20, 2015. KBW was present at the meeting and Luse Gorman participated telephonically.

The meeting began with a summary by Mr. Stickels of the history of the negotiations and discussions with Community Bank System, as well as the due diligence process and results. Also at this meeting, KBW reviewed the financial aspects ofoffered in the proposed ~~merger and rendered to the board~~transaction from a financial point of view. Piper then provided its oral opinion, ~~(initially rendered verbally and~~subsequently confirmed ~~by a written opinion dated February 24, 2015)~~in writing, to the effect that, as of ~~such date~~October 22, 2016 and subject to the assumptions, qualifications and limitations set forth in the opinion, the consideration to be received pursuant to the merger agreement is fair, from a financial point of view, to the holders of Merchants common stock. Based on the closing price of Community Bank System common stock on October 21, 2016 of $47.50, the implied value of the merger consideration was $44.02 per share. After discussion, and upon recommendation of the Special Committee, the Merchants board unanimously adopted resolutions (1) determining that the merger agreement and the transactions contemplated thereby, including the merger, are advisable and in the best interests of the Merchants stockholders, (2) adopting the merger agreement and approving the merger and the other transactions contemplated by the merger agreement, and (3) recommending to Merchants stockholders that they adopt the merger agreement.

Later on October 22, 2016, the merger agreement and voting agreements were executed. Community Bank System also entered into employment agreements with Mr. Hesslink and the other executives of Merchants who would be continuing with the combined company following the closing, and retention agreements with members of Merchants’ management whose employment would not be continuing.

On October 24, 2016, before the U.S. stock markets opened, Merchants and Community Bank System issued a joint press release announcing the transaction.

Merchants’ Reasons for the Merger

In the course of its evaluation of the Merger and the Merger Agreement, the Merchants board of directors held numerous meetings and consulted with Merchants’ senior management as well as its legal counsel and financial advisor. In reaching its decision to approve the Merger and the Merger Agreement and recommend the adoption of the Merger Agreement by its stockholders, the Merchants board considered a number of factors, including, among others, the following:

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

Merchants’ business and financial prospects if it were to remain an independent banking institution, including local economic conditions, the interest rate environment, increasing operating costs resulting from regulatory initiatives and compliance mandates, and the competitive environment for financial institutions generally, all of which would likely impede Merchants’ ability to develop the scale necessary to achieve the premium to Merchants’ trading price that Community Bank System’s offer price presented;

the availability of alternative transactions, including the fact that, in a consolidating industry, institutions with an interest in merging with another institution typically made that interest known; the attractiveness and strategic fit of Community Bank System as a potential merger partner; and the likelihood of an alternative transaction emerging;

the fact that a significant portion of the merger consideration consists of registered shares of Community Bank System common stock and the potential that the value of Community Bank System common stock will increase after the signing of the Merger Agreement;

the ability of Merchants stockholders to elect the form of merger consideration that they wish to receive in the Merger, subject to the proration procedures described in this Proxy Statement/Prospectus;

TABLE OF CONTENTS

the October 22, 2016 financial presentation of Piper (including the assumptions and methodologies underlying the analyses in connection therewith) and the written opinion of Piper delivered to the Merchants board of directors on October 22, 2016, a copy of which is attached to this Proxy Statement/Prospectus asAnnex B, to the effect that, as of October 22, 2016 and based upon and subject to the assumptions made, procedures followed, ~~assumptions made,~~ matters considered ~~and qualifications~~ and limitations on the review undertaken ~~by KBW as set forth~~ in ~~its~~preparing such opinion, the merger consideration ~~in the proposed merger~~ was fair, from a financial point of view, to the holders of ~~Oneida Financial~~Merchants common stock, as more fully described under ~~“The Merger—~~“— Opinion of ~~Oneida Financial’s~~Merchants’ Financial ~~Advisor.”~~

~~After KBW’s presentation, Luse Gorman reviewed~~Advisor”;

the efforts made to negotiate a ~~summary of the proposed definitive merger agreement which had previously been sent~~Merger Agreement favorable to ~~each member of the board. Luse Gorman again reviewed the board’s fiduciary duties as directors of Oneida Financial in connection with~~Merchants and its ~~consideration of the proposed merger. Luse Gorman then reviewed in detail~~stockholders and the terms and conditions of the ~~proposed definitive merger agreement~~Merger Agreement, including the termination fees and circumstances under which such fees are payable by Merchants;

the ability of Merchants under the terms of the Merger Agreement to negotiate with third parties concerning certain unsolicited competing acquisition proposals if Merchants were to receive such a proposal prior to the adoption of the Merger Agreement by Merchants stockholders, and to terminate the Merger Agreement upon the payment to Community Bank System ~~including~~ of a termination fee of $10.72 million;

the ~~transaction structure, merger consideration, methodology for allocating shares between~~right of Merchants to terminate the Merger Agreement if, subject to Community Bank System’s ability to make a compensating adjustment to the stock ~~and cash~~election consideration, the ~~representations~~volume-weighted average trading price of Community Bank System common stock for a specified period prior to the date on which Merchants stockholder approval and ~~warranties that were being made by each of Oneida Financial~~all required regulatory approvals have been obtained or waived is less than $35.77 per share and Community Bank System common stock underperforms a peer group index by more than 20%;

the ~~reasons~~fact that the Merger is expected to be tax-free to Merchants stockholders to the extent that they receive Community Bank System common stock in exchange for their shares of Merchants common stock; and

the ~~differences between~~fact that two representatives from the ~~representations~~Merchants board will be directors of Community Bank System and ~~warranties made by each of the parties, the covenants and responsibilities of each party between the date of the definitive merger agreement and~~Community Bank following the closing of the ~~merger, closing conditions~~Merger.

The Merchants board of directors also weighed the factors described above against certain factors and potential risks associated with entering into the Merger Agreement, including, among others, the following:

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

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

the fact that the integration of Merchants and Community Bank System may be complex and time consuming and may require substantial resources and effort, and the risk that if the combined bank is not successfully integrated, the anticipated benefits of the Merger may not be realized fully or at all or may take longer to realize than expected, ~~timing~~due to the additional regulatory requirements that Community Bank System will be subject to as a result of it having more than $10 billion in assets following the Merger;

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

TABLE OF CONTENTS

the potential for ~~receipt~~diversion of ~~regulatory approvals,~~management and employee attention and for increased employee attrition during the period prior to the completion of the Merger, and the potential effect of the Merger on Merchants’ customers and business relationships;

the restrictions on ~~Oneida Financial’s ability~~the conduct of Merchants’ business prior to ~~solicit other merger proposals pending consummation~~the completion of the ~~merger,~~Merger, requiring Merchants to conduct its business only in the ordinary course, subject to specific limitations, which could delay or prevent Merchants from undertaking business opportunities that may arise pending completion of the Merger and could negatively impact Merchants’ customers and business relationships;

the fact that the Merger Agreement contains certain restrictions on the ability of ~~Oneida Financial~~Merchants to ~~consider an~~solicit proposals for alternative transactions or superior proposal received by Oneida Financial, subject to certain conditions, the obligation of the board to call and hold a meeting to vote to approve the merger agreement, termination rights and the ability of either party to terminate the merger agreement,engage in discussions regarding such proposals, including the ~~meaning of a “material adverse effect” standard or threshold~~requirement for determining whether a breach of a representation, warranty or covenant exists, termination fees, employee benefits and other compensation matters. Representatives of Luse Gorman also reviewed with the directors the proposed terms of the voting agreement whichMerchants to pay Community Bank System ~~asked~~a termination fee of $10.72 million in certain circumstances;

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

the fact that ~~each director of Oneida Financial sign as a condition to entering into~~Merchants will lose the ~~merger agreement.~~

autonomy associated with being an independent financial institution; and

•

the various other applicable risks associated with Merchants, Community Bank System and the Merger, including the risks described in “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors” beginning on page 21 and 15, respectively.

~~Following extensive discussion and after~~In considering the ~~foregoing and the proposed terms and conditions~~recommendation of the transaction documents, and taking into consideration the similarities between Community Bank System’s business model and corporate culture with those of Oneida Financial, as well as the factors described under “The Merger—Oneida Financial’s Reasons for the Merger; Recommendation of the Oneida Financial Board of Directors,” theMerchants board of directors ~~having determined~~with respect to the proposal to adopt the Merger Agreement, you should be aware that certain of Merchants’ directors and executive officers may have interests in the ~~terms~~Merger that are different from yours. The Merchants board was aware of and considered these interests, among other matters, in evaluating the ~~proposed~~ Merger Agreement and the transactions contemplated thereby, including the Merger, were advisable to and in the best interests of Oneida Financial and its stockholders, unanimously approved the Merger Agreement. The board authorized Mr. Kallet to execute and deliverby the Merger Agreement ~~on behalf of Oneida Financial,~~ and ~~further authorized him, with the assistance of counsel, to make such changes to the definitive Merger Agreement, provided~~in recommending that any such changes do not materially affect the significant terms of the Merger Agreement. The board also authorized the proper officers, to take such steps that are necessary or appropriate to consummate the Merger, including preparing documents and applications to be filed with the necessary banking regulators to obtain regulatory approval, submitting the Merger and the Merger Agreement ~~for consideration~~be adopted by ~~Oneida Financial’s stockholders,~~the Merchants stockholders. Please see “— Interests of Merchants Directors and ~~holding~~Executive Officers in the ~~meeting of stockholders to approve the Merger.~~ Merger” beginning on page 48.

The ~~board also unanimously recommended that stockholders vote in favor~~foregoing discussion of the ~~approval~~information and factors considered by the Merchants board of directors in reaching its conclusions and recommendations is not intended to be exhaustive, but includes the material factors considered by the Merchants board. In view of the wide variety of factors considered in connection with its evaluation of the Merger Agreement and the transactions contemplated ~~thereby, including~~by the ~~Merger.~~

~~The~~ Merger Agreement, ~~between Oneida Financial~~ and ~~Community Bank System was executed~~the complexity of these matters, the Merchants Board did not find it practicable to, and did not attempt to, quantify, rank or otherwise assign any relative or specific weights to the various specific factors considered in reaching its determination and making its recommendation. Moreover, in considering the factors described above and any other factors, individual members of the Merchants Board may have viewed factors differently or given different weight, merit or consideration to different factors. The Merchants board considered all of the foregoing factors as a whole and based its recommendation on the totality of the information presented.

Recommendation of the Merchants Board of Directors

At a meeting held on October 22, 2016, the Merchants board of directors unanimously (i) determined that the Merger Agreement and the Merger are advisable and in the best interests of Merchants and its stockholders, (ii) approved the Merger Agreement and recommended that the Merchants stockholders adopt the Merger Agreement, and (iii) directed that the Merger Agreement be submitted for consideration by the ~~parties on February 24, 2015.~~Merchants stockholders at the Merchants special meeting.

THE MERCHANTS BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ADOPTION OF THE MERGER AGREEMENT.

~~The transaction was announced on the evening of February 24, 2015 by a press release issued jointly by Oneida Financial and Community Bank System.~~TABLE OF CONTENTS

Community Bank System’s Reasons for the Merger

In reaching its determination to approve and adopt the Merger Agreement, the ~~Board~~board of directors of Community Bank System considered a number of factors, including:

the complementary geographical locations of Oneida Financial’s branch network, which will augment Community Bank System’s operations in the market areas in Upstate New York where Community Bank System already has a significant presence;

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

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

~~the fact that the Merger is expected to be accretive to operating earnings per share of Community Bank System in 2015, exclusive of one-time acquisition related charges;~~

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

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

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

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

the fact that the mixture of merger consideration includes a combination of cash and stock subject to the overall requirement that not more than 40% of Oneida Financial common stock would be exchanged for cash;

the deal protection provided by the termination fee of $4.93 million, payable under certain circumstances in the event of the termination of the Merger Agreement due to a competing offer or certain other reasons;

~~the intended tax treatment of the Merger as a tax-free reorganization for Community Bank System; and~~

~~the likelihood of receiving all of the regulatory approvals required for the Merger.~~

the opportunity to further diversify Community Bank System’s geographical markets and customer base as a whole by expanding into Vermont and Western Massachusetts, which is a natural expansion of Community Bank’s existing footprint in Upstate New York, and to do so in smaller markets similar to those in which it currently operates;

the opportunity to acquire the largest statewide independent bank in Vermont with 11% market share and ranked third in deposits;

the pricing of the transaction absorbs the cost of Community Bank System crossing the $10 billion in asset threshold and the enhanced regulatory burdens and costs associated with operating a financial holding company of that size;

Community Bank System’s past experience and success in the acquisition and integration of a bank holding company;

the fact that the Merger is expected to be accretive to operating earnings per share of Community Bank System in 2018, exclusive of one-time acquisition related charges and the impact of Community Bank System crossing the $10 billion in asset threshold;

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

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

the fact that the mixture of merger consideration includes a combination of cash and stock in which stockholders would have an election right, but no more than 30% of Merchants common stock would be exchanged for cash;

the deal protection provided by the termination fee of $10.72 million, payable under certain circumstances in the event of the termination of the Merger Agreement due to a competing offer or certain other reasons;

the intended tax treatment of the Merger; and

the likelihood of receiving all of the regulatory approvals required for the Merger.

Based on these reasons, Community Bank System’s board of directors unanimously approved the Merger Agreement and the Merger. This discussion of the factors considered by Community Bank System’s board of directors does not list every factor considered by the board but includes all material factors considered by the board. In reaching its determination to approve and adopt the Merger Agreement, the board did not give relative or specific importance to each of the factors listed above, and individual directors may have given differing importance to different factors. Please note that this explanation of the board’s reasoning and all other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed under the heading “Cautionary Statement Regarding Forward-Looking Statements” beginning on page ~~[ ].~~21 of this Proxy Statement/Prospectus.

TABLE OF CONTENTS

Oneida Financial’s Reasons forOpinion of Merchants’ Financial Advisor

Pursuant to an engagement letter dated July 19, 2016, the ~~Merger; Recommendation~~Merchants board engaged Piper as financial advisor to Merchants in connection with Merchants’ consideration of ~~Oneida Financial’s Board of Directors~~

~~In the course of its deliberations on the proposed transaction~~a possible business combination with Community Bank System, the Oneida Financial board of directors held numerous meetings and consulted with its legal counsel, Luse Gorman, with respect to its legal duties and the terms of the Merger Agreement; with Oneida Financial’s financial advisor, KBW, with respect to the financial aspects of the transaction; and with senior management regarding, among other items, operational and due diligence matters. In reaching its decision to approve the Merger and the Merger Agreement and recommend the approval and adoption of the Merger Agreement by the stockholders of Oneida Financial, the Oneida Financial board considered a number of factors, including, among others, the following:

~~information concerning the business, earnings, operations, financial condition and prospects of Oneida Financial and Community Bank System, both individually and as a combined company;~~

~~the discussion and consideration by the board of directors and management of strategic alternatives available to Oneida Financial;~~

that the implied value of the merger consideration as of February 23, 2015 of $19.99 for each share of Oneida Financial common represented a 2.02x multiple to Oneida Financial’s tangible book value as of December 31, 2014, a 27.6x multiple to Oneida Financial's last twelve months earnings per share, and a 56.3% premium over the closing price of the Oneida Financial common stock on February 23, 2015 (the last trading day before public announcement of the Merger);

the fact that 60% of the merger consideration would be in stock of Community Bank System, which would allow Oneida Financial stockholders to participate in the future performance of the combined company;

~~the advantageous geographic fit of the branch networks of the combined company, given that Oneida Financial and Community Bank System currently serve contiguous markets with very little overlap;~~

~~the compatibility of the business cultures of Oneida Financial and Community Bank System;~~

~~the complementary nature of and potential synergies related to Oneida Financial’s and Community Bank System’s non-banking lines of business;~~

the historical performance of Community Bank System’s common stock, the stock’s liquidity in terms of average daily trading volume and the level of future cash dividends anticipated to be received by Oneida Financial stockholders;

the stock component of the merger consideration, including the exchange ratio, the potential value of the Community Bank System common stock to increase after the signing of the Merger Agreement and the ability of Oneida Financial to terminate the Merger Agreement if the price of Community Bank System’s common stock drops more than 20% relative to both its price before public announcement of the transaction and the SNL Midcap U.S. Bank Index;

~~the cash component of the merger consideration, which gives Oneida Financial stockholders who desire liquidity an ability to receive cash;~~

the opinion, dated February 24, 2015, of KBW to the Oneida Financial board of directors as to the fairness, from a financial point of view and as of the date of the opinion, to the holders of Oneida Financial common stock of the merger consideration, as more fully described below under “— Opinion of Oneida Financial’s Financial Advisor;”

the terms of the Merger Agreement, including the fixed cash and stock consideration, the expected tax treatment of the Merger as a “reorganization” for United States federal income tax purposes, the size of the termination fee in relation to the overall deal size and Oneida Financial’s ability to consider unsolicited offers from third parties in certain circumstances;

the effect of the Merger on Oneida Savings Bank’s customers, and the communities served by Oneida Savings Bank, as well as its effect on Oneida Savings Bank’s employees. Oneida Financial’s directors deemed the Merger with Community Bank System to be an opportunity to provide customers and the communities served by Oneida Savings Bank with increased financial services and increased access to those services through more branch offices. Oneida Financial’s directors also considered the opportunities for career advancement in a larger organization that would be available to Oneida Financial employees who continue employment with the combined company after the Merger and the severance benefits provided for in the Merger Agreement and under Community Bank System’s policies for any Oneida Financial employees who do not continue employment with the combined company;

~~the ability of Community Bank System to complete the Merger, from a business, financial, and regulatory perspective, and its proven track record of successfully completing acquisition transactions;~~

the nature and amount of payments and other benefits to be received by Oneida Financial management in connection with the Merger pursuant to pre-existing Oneida Financial plans and compensation arrangements and the Merger Agreement; and

~~the fact that two representatives from the Oneida Financial board of directors will be directors of Community Bank System following the closing of the Merger.~~

Oneida Financial’s board of directors also considered potential risks associated with the Merger in connection with its decision to approve the Merger Agreement and the Merger, including that other parties that might be interested in proposing a transaction with Oneida Financial could be discouraged from doing so given the terms of the Merger Agreement generally prohibiting Oneida Financial from soliciting, engaging in discussions or providing information regarding an alternative transaction, requiring Oneida Financial to pay a termination fee to Community Bank System under certain circumstances, and requiring Oneida Financial’s directors and executive officers to execute agreements requiring them to vote in favor of the Merger with Community Bank System, with Community Bank System requiring the Oneida Financial directors and executive officers to execute such agreements as a condition to agreeing to enter into the Merger Agreement.

The foregoing discussion of the information and factors considered by Oneida Financial’s board of directors is not exhaustive, but includes the material factors that the board of directors considered and discussed in approving and recommending the Merger Agreement and the Merger. In view of the wide variety of factors considered and discussed by Oneida Financial’s board of directors in connection with its evaluation of the Merger and the complexity of these factors, the board of directors did not quantify, rank or assign any relative or specific weight to the foregoing factors. Rather, it considered all of the factors as a whole. The board of directors discussed the foregoing factors, and agreed that the Merger was in the best interests of Oneida Financial and its stockholders. In considering the foregoing factors, individual directors may have assigned different weights to different factors. The board of directors did not undertake to make any specific determination as to whether any factor, or particular aspect of any factor, supported or did not support its ultimate decision to approve the Merger Agreement and the Merger. The foregoing explanation of the reasoning of Oneida Financial’s board of directors and all other information presented in this section is forward-looking in nature and, therefore, should be read in light of the cautionary statements set forth in “Cautionary Statement Regarding Forward-Looking Statements” on page [ ].

For the reasons set forth above, Oneida Financial’s board of directors has unanimously approved the Merger Agreement, has determined that the Merger Agreement and the transactions contemplated thereby, including the Merger and merger consideration, are advisable and in the best interests of Oneida Financial, and unanimously recommends that Oneida Financial stockholders vote “FOR” the proposal to approve and adopt the Merger Agreement, “FOR” the proposal to approve the Merger-Related Executive Compensation, and “FOR” the proposal to approve adjournment of the special meeting if there are insufficient votes at the time of the special meeting to approve the Merger Agreement.

~~Opinion of Oneida Financial’s Financial Advisor~~

Oneida Financial engaged KBW to render financial advisory and investment banking services to Oneida Financial, including an opinion to the Oneida Financial’s board of directors as to the fairness, from a financial point of view, to the holders of Oneida Financial common stock of the merger consideration to be received by such stockholders in the proposed Merger of Oneida Financial with and into Community Bank System. ~~Oneida Financial selected KBW because KBW~~Piper is a nationally recognized investment banking firm with substantial experience in transactions similar to the ~~Merger.~~Merger and is familiar with Merchants and its business. As part of its investment banking business, ~~KBW~~Piper is ~~continually~~routinely engaged in the valuation of financial ~~services businesses~~institutions and their securities in connection with mergers and acquisitions. The Piper written opinion, dated October 22, 2016, is sometimes referred to in this section as the “Piper opinion.”

~~As part~~Piper acted as financial advisor to Merchants in connection with the proposed transaction and participated in certain of ~~its engagement, representatives~~the negotiations leading to the execution of ~~KBW attended~~the Merger Agreement. At the meeting of the ~~Oneida Financial’s~~ board of directors of Merchants held on ~~February 24, 2015, at which the Oneida Financial’s board evaluated the proposed Merger. At this meeting, KBW reviewed the financial aspects of the proposed Merger and rendered~~October 22, 2016, Piper delivered to the ~~Oneida Financial~~ board anof directors its oral opinion, ~~to the effect~~followed by delivery of its written opinion, that, as of such date, and based upon and subject to the various factors, assumptions and limitations set forth in its opinion, the consideration offered in the Merger was fair, from a financial point of view, to the holders of Merchants common stock.

The full text of Piper’s written opinion dated October 22, 2016, which sets forth, among other things, the procedures followed, assumptions made, matters considered and qualifications and limitations on the scope of review undertaken in rendering its opinion, is attached as Annex B to this Proxy Statement/Prospectus and is incorporated herein by ~~KBW~~reference. Piper’s opinion speaks only as ~~set forth~~of the date of the opinion. You are urged to read the opinion carefully and in its entirety. Piper’s opinion was addressed to, and provided for the information and benefit of, the Merchants board of directors (in its capacity as such) in connection with its evaluation of the fairness of the merger consideration ~~in the proposed Merger was fair,~~ from a financial point of view, and did not address any other aspects or implications of the Merger. The opinion does not constitute a recommendation to the ~~holders~~Merchants board of ~~Oneida Financial common stock. The Oneida Financial Board approved~~directors or to any other persons in respect of the Merger, ~~Agreement~~including as to how any holder of Merchants common stock should vote at ~~this meeting.~~

any stockholders’ meeting held in connection with the Merger or take, or not to take, any action in respect of the Merger. Piper’s opinion does not address the relative merits of the Merger as compared to any other business or financial strategies that might be available to Merchants, nor does it address the underlying business decision of Merchants to engage in the Merger. The ~~description~~issuance of the Piper opinion was approved by the fairness opinion committee of Piper. The summary of the opinion of Piper set forth ~~herein~~below is qualified in its entirety by reference to the full text of the ~~opinion, which is attached as~~~~Annex B~~ to this document and is incorporated herein by reference, and describes the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by KBW in preparing the opinion.

~~KBW’s opinion speaks only as of the date of the~~ opinion. ~~The opinion was for the information of, and was directed~~Piper has consented to the ~~Oneida Financial board (in~~inclusion of this summary of its ~~capacity as such)~~opinion in ~~connection with~~this Proxy Statement/Prospectus.

In rendering its ~~consideration of~~ opinion, Piper reviewed and analyzed, among other things:

the financial terms ~~of the Merger. The opinion addressed only the fairness, from~~contained in a ~~financial point~~draft of view, of the merger consideration in the Merger to the holders of Oneida Financial common stock. It did not address the underlying business decision of Oneida Financial to engage in the Merger or enter into the Merger Agreement ~~or constitute a recommendation to the Oneida Financial board in connection with the Merger,~~dated as of October 22, 2016;

certain financial and ~~it does not constitute a recommendation to any holder of Oneida Financial common stock or any stockholder of any~~ other ~~entity as to how to vote in connection with the Merger or any other matter (including,~~data with respect to ~~holders of Oneida Financial common stock, what election any such stockholder should make with respect~~Merchants and Community Bank System, which was publicly available or made available to Piper by Merchants or Community Bank System;

certain forward-looking information relating to Merchants and Community Bank System that was publicly available, as well as that which was furnished to Piper by Merchants or Community Bank System, including the stock consideration or the cash consideration (or any combination thereof)), nor does it constitute a recommendation on whether or not any such stockholder should enter into a voting, shareholders’ or affiliates’ agreement with respect toProjections;

materials detailing the Merger ~~or exercise any other rights that may be available to such stockholder.~~

~~KBW’s opinion was reviewed~~prepared by Merchants, Community Bank System and ~~approved~~their affiliates and by ~~KBW’s Fairness Opinion Committee in conformity with its policies~~their respective legal and ~~procedures established under~~accounting advisors including the ~~requirements of Rule 5150~~estimated amount and timing of the ~~Financial Industry Regulatory Authority.~~

~~In connection~~cost savings and related expenses (which included (1) estimated synergies of approximately 22.7% of Merchants’ non-interest expense base with 75% phased-in 2017 and 100% in 2018 and going forward and (2) an estimated $10.0 million pre-tax annual negative impact to income for Community Bank System due to $10 billion asset threshold beginning in the ~~opinion, KBW reviewed, analyzed~~second half of 2018) and ~~relied upon material bearing upon~~purchase accounting adjustments expected to result from the ~~financial~~Merger (which included (1) 0.89% gross credit mark ($12.4 million or 1.0x reserves) on the acquired loan portfolio and ~~operating condition~~(2) core deposit intangible assumed to equal 1.5% of ~~Oneida Financial~~Merchants’ core deposits (deposits less all time deposits)) (which are collectively referred to in this section as the “Synergies”);

TABLE OF CONTENTS

current and historical reported prices and trading activity of Merchants and Community Bank System and similar information for certain other publicly traded companies deemed by Piper to be comparable to Merchants and Community Bank System;

the ~~Merger, including, among other things:~~

~~a draft dated February 22, 2015 of the Merger Agreement (the most recent draft then made available to KBW);~~

certain regulatory filings of Oneida Financial and Community Bank System, including the quarterly call reports filed with respect to each quarter during the three years ended December 31, 2014 for Oneida Financial and Community Bank System;

~~the audited financial statements and Annual Reports on Form 10-K for the three fiscal years ended December 31, 2013 of Oneida Financial;~~

~~the audited financial statements and Annual Reports on Form 10-K for the three fiscal years ended December 31, 2013 of Community Bank System;~~

~~the unaudited financial statements and quarterly reports on Form 10-Q for the fiscal quarters ended March 31, 2014, June 30, 2014 and September 30, 2014 of Oneida Financial;~~

~~the unaudited financial statements and quarterly reports on Form 10-Q for the fiscal quarters ended March 31, 2014, June 30, 2014 and September 30, 2014 of Community Bank System;~~

~~the unaudited quarterly and fiscal year-end financial results for the period ended December 31, 2014 of Oneida Financial furnished to KBW by Oneida Financial;~~

~~the unaudited quarterly and fiscal year-end financial results for the period ended December 31, 2014 of Community Bank System furnished to us by Community Bank System;~~

~~certain other interim reports and other communications of Oneida Financial and Community Bank System to their respective stockholders; and~~

other financial information concerning the businesses and operations of Oneida Financial and Community Bank System furnished to KBW by Oneida Financial and Community Bank System or which KBW was otherwise directed to use for purposes of KBW’s analyses.

~~KBW’s consideration~~financial performance of ~~financial information and other factors that it deemed appropriate under the circumstances or relevant to its analyses included, among other things, the following:~~

~~the historical and current financial position and results of operations of Oneida Financial and Community Bank System;~~

~~the assets and liabilities of Oneida Financial and Community Bank System;~~

~~the nature and terms of certain other merger transactions and business combinations in the banking industry;~~

a comparison of certain financial and stock market information of Oneida Financial and Community Bank System with similar information for certain other companies the securities of which were publicly traded;

financial and operating forecasts and projections of Oneida Financial that were prepared by, and provided to KBW and discussed with KBW by, Oneida Financial management and that were used and relied upon by KBW at the direction of such management with the consent of the Oneida Financial Board;

publicly available consensus “street estimates” of Community Bank System for 2015 and 2016, as well as the long term growth rates based thereon which were prepared by and provided to KBW by Community Bank System management, all of which information was discussed with KBW by such management and used and relied upon by KBW based on such discussions with the consent of the Oneida Financial board; and

estimates regarding certain pro forma financial effects of the Merger on Community Bank System (including, without limitation, the cost savings and related expenses expected to result from the Merger), that were prepared by Community Bank System management, and provided to KBW and discussed with KBW by such management, and used and relied upon by KBW based on such discussions with the consent of the Oneida Financial board.

KBW also performed such other studies and analyses as it considered appropriate and took into account its assessment of general economic, market and financial conditions and its experience in other transactions, as well as its experience in securities valuation and knowledge of the banking industry generally. KBW also held discussions with senior management of Oneida FinancialMerchants and Community Bank System ~~regarding~~with that of certain other publicly traded companies that Piper deemed relevant;

certain financial analyses Piper performed for Merchants and Community Bank System on a pro forma combined basis giving effect to the Merger based on assumptions relating to the Synergies;

the merger consideration relative to the historical trading price of Merchants and Merchants’ tangible book value, core deposits (deposits less all jumbo time deposits and brokered deposits) and last twelve months earnings as of June 30, 2016 as well as analyst estimated earnings for 2017;

the current market environment generally and the commercial banking environment in particular;

the financial terms, to the extent publicly available, of certain business combination transactions in the depository banking industry that Piper deemed relevant; and

such other analyses, examinations and inquiries and considered such other financial, economic and market criteria as Piper deemed necessary in arriving at its opinion.

Piper also held several discussions with certain members of senior management and representatives of both Merchants and Community Bank System with respect to certain aspects of the Merger, and the past and current business operations ~~regulatory relations,~~of Merchants and Community Bank System, the financial condition and future prospects and operations of Merchants and Community Bank System, the effects of the Merger on the financial condition and future prospects of their respective companies and such other matters that KBW deemed relevant to its inquiry. KBW was not requested to, and did not, assist Oneida Financial with soliciting indications of interest from third parties other than Community Bank System, ~~regarding a potential transaction with Oneida Financial~~.

and certain other matters Piper believed necessary or appropriate to its inquiry.

In ~~conducting its review and~~ arriving at its opinion, ~~KBW~~Piper relied upon and assumed, without assuming liability or responsibility for independent verification, the accuracy and completeness of all ~~of the financial and other~~ information ~~provided to it or~~ that was publicly available ~~and did not independently verify the accuracy~~ or ~~completeness of any such information~~was furnished, or ~~assume any responsibility~~otherwise made available to, or ~~liability for such verification, accuracy~~discussed with or ~~completeness. KBW~~reviewed by Piper. Piper further relied upon the assurances of the management of ~~Oneida Financial as to the reasonableness~~Merchants and ~~achievability of~~Community Bank System that the financial ~~and operating forecasts and projections of Oneida Financial (and the assumptions and bases therefor) that were prepared by, and~~information provided ~~to KBW and discussed with KBW by, such management and KBW assumed that such forecasts and projections were reasonably~~has been prepared on a reasonable basis in accordance with industry practice, and that they are not aware of any information or facts that would make any information provided to Piper incomplete or misleading. Without limiting the generality of the foregoing, Piper assumed that with respect to financial forecasts, estimates and other forward-looking information (including the Synergies) reviewed by Piper, that such information was reasonably prepared based on assumptions reflecting the best currently available estimates and judgments of the management of Merchants and Community Bank System as to the expected future results of operations and financial condition of Merchants and Community Bank System, respectively, to which such ~~management,~~financial forecasts, estimates and other forward-looking information (including the Synergies) relate and Piper assumed that such ~~forecasts and projections~~results would be ~~realized~~achieved. Piper expressed no opinion as to any such financial forecasts, estimates or forward-looking information (including the Synergies) or the assumptions on which they were based. Piper further assumed that the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, for United States federal income tax purposes. Piper also expressed no opinion as to any of the legal, accounting and tax matters relating to the Merger and any other transactions contemplated in ~~the amounts~~connection therewith and ~~in the time periods estimated by such management. KBW further relied,~~ with the consent of ~~Oneida Financial, upon Community Bank System management as to~~Merchants relied, on the ~~reasonableness and achievability~~advice of the ~~publicly available consensus “street estimates” of Community Bank System referred to above~~outside legal counsel and the ~~long term growth rates based thereon that were prepared by Community Bank System management~~independent accountants to Merchants, and ~~provided to and discussed with KBW by such management, as well as~~on the ~~estimates regarding certain pro forma financial effects~~assumptions of the Merger on Community Bank System (and the assumptions and bases therefor, including, without limitation, the cost savings and related expenses expected to result from the Merger) that were prepared by and provided to KBW by such management ~~all~~ of which information was discussed with KBW by such management. KBW assumed, with the consent of Oneida Financial, that all such information was consistent with (in the case of the Community Bank System “street estimates” referred to above), or was otherwise reasonably prepared on a basis reflecting, the best currently available estimates and judgments of Community Bank System management and that the forecasts, projections and estimates reflected in such information would be realized in the amounts and in the time periods estimated.

~~It is understood that the forecasts, projections and estimates of Oneida Financial~~Merchants and Community Bank System, ~~provided~~as to ~~KBW were not prepared~~all accounting, legal, tax and financial reporting matters with ~~the expectation of public disclosure, that all such forecasts, projections and estimates, together with the publicly available consensus “street estimates” of Community Bank System referred~~respect to above, were based on numerous variables and assumptions that are inherently uncertain, including, without limitation, factors related to general economic and competitive conditions and that, accordingly, actual results could vary significantly from those set forth in such information. KBW assumed, based on discussions with the respective managements of Oneida FinancialMerchants and Community Bank System ~~that such information provided a reasonable basis upon which KBW could form~~and the Merger Agreement.

In arriving at its opinion, Piper assumed that the executed Merger Agreement would be in all material respects identical to the last draft reviewed by it. Piper relied upon and ~~KBW expressed no view as to any such information or the assumptions or bases therefor. KBW relied on all such information~~assumed, without independent verification, that:

the representations and warranties of all parties to the Merger Agreement and all other related documents and instruments that are referred to therein are true and correct;

TABLE OF CONTENTS

each party to such agreements will fully and timely perform all of the covenants and agreements required to be performed by such party;

the Merger will be consummated pursuant to the terms of the Merger Agreement without amendments thereto; and

all conditions to the consummation of the Merger will be satisfied without waiver by any party of any conditions or ~~analysis~~obligations thereunder.

Additionally, Piper assumed that all the necessary regulatory approvals and consents required for the Merger will be obtained in a manner that will not adversely affect Merchants and Community Bank System or the contemplated benefits of the Merger.

For purposes of rendering its opinion, Piper did not perform any appraisals or valuations of any specific assets or liabilities (fixed, contingent, derivative, off-balance sheet, or other) of Merchants or Community Bank System, and was not furnished or provided with any such appraisals or valuations, and did not inevaluate the solvency of Merchants or Community Bank System under any ~~respect assume~~state or federal law relating to bankruptcy, insolvency or similar matters. Accordingly, Piper expressed no opinion regarding the liquidation value of Merchants, Community Bank System or any ~~responsibility or liability for the accuracy or completeness thereof.~~

~~KBW also~~other entity. Piper assumed that there ~~were~~has been no material ~~changes~~change in the respective assets, ~~liabilities,~~ financial condition, results of operations, business or prospects of ~~either Oneida Financial~~Merchants or Community Bank System since the date of the ~~last~~most recent financial ~~statements of each such entity that were~~data made available to KBW. KBW is not an expert in the independent verification of the adequacy of allowances for loan losses and KBW assumed, without independent verification and with Oneida Financial’s consent, that the aggregate allowances for loan losses for Oneida Financial and Community Bank System were adequate to cover such losses. In rendering its opinion, KBW did not make or obtain any evaluations or appraisals or physical inspection of the property, assets or liabilities (contingent or otherwise) of Oneida Financial or Community Bank System, the collateral securing any of such assets or liabilities, or the collectability of any such assets, nor did KBW examine any individual loan or credit files, nor did it evaluate the solvency, financial capability or fair value of Oneida Financial or Community Bank System under any state or federal laws, including those relating to bankruptcy, insolvency or other matters. Estimates of values of companies and assets do not purport to be appraisals or necessarily reflect the prices at which companies or assets may actually be sold. Because such estimates are inherently subject to uncertainty, KBW assumed no responsibility or liability for their accuracy.

~~KBW~~Piper. Piper also assumed in all respects material to its ~~analyses:~~

that the Merger and any related transaction (including the Bank Merger) would be completed substantially in accordance with the terms set forth in the Merger Agreement (the final terms of which KBW assumed would not differ in any respect material to KBW’s analyses from the draft reviewed) with no additional payments or adjustments to the merger consideration;

~~that the representations and warranties of each party in the Merger Agreement and in all related documents and instruments referred to in the Merger Agreement were true and correct;~~

~~that each party to the Merger Agreement and all related documents would perform all of the covenants and agreements required to be performed by such party under such documents;~~

~~that there were no factors that would delay or subject to any adverse conditions, any necessary regulatory or governmental approval~~analysis that Merchants and Community Bank System would remain as a going concern for the Merger or any related transaction and that all conditions to the completion of the Merger and any related transaction would be satisfied without any waivers or modifications to the Merger Agreement; and

that in the course of obtaining the necessary regulatory, contractual, or other consents or approvals for the Merger and any related transaction, no restrictions, including any divestiture requirements, termination or other payments or amendments or modifications, would be imposed that would have a material adverse effect on the future results of operations or financial condition of Oneida Financial, Community Bank System or the combined entity or the contemplated benefits of the Merger, including the cost savings and related expenses expected to result from the Merger.

~~KBW assumed, in~~ all ~~material respects~~periods relevant to its ~~analyses,~~analysis. Without limiting the generality of the foregoing, Piper did not conduct a review of:

any individual credit files of Merchants or Community Bank System, nor evaluate the adequacy of the loan or lease reserves of Merchants or Community Bank System;

any credit mark that may be taken in connection with the Merger, nor evaluate the adequacy of any contemplated credit mark to be so taken; or

the collectability of any asset or the future performance of any loan of Merchants or Community Bank System.

Piper also assumed, with Merchants’ consent, that the ~~Merger would~~respective allowances for loan and lease losses for both Merchants and Community Bank System and the credit mark are adequate to cover any losses and will be ~~consummated in~~adequate on a ~~manner that complied with~~pro forma basis for the applicable provisions of the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and all other applicable federal and state statutes, rules and regulations. KBW further assumed that Oneida Financial relied upon advice from its advisors (other than KBW) or other appropriate sources as to all legal, financial reporting, tax, accounting and regulatory matterscombined company. Accordingly, Piper expressed no opinion with respect to ~~Oneida Financial,~~these matters.

In addition, Piper did not make any independent analysis of any pending or threatened litigation, regulatory action, possible unasserted claims or other contingent liabilities to which Merchants or Community Bank System is a party or may be subject, and at the ~~Merger, any related transaction (including~~direction of Merchants and with its consent, Piper’s opinion makes no assumption concerning, and therefore does not consider, the ~~Bank Merger), and the Merger Agreement. KBW did not provide advice with respect to~~possible assertion of claims, outcomes or damages arising out of any such matters. Piper also assumed that neither Merchants nor Community Bank System is party to any material pending transaction, including without limitation any financing, recapitalization, acquisition or merger, divestiture or spin-off, other than the Merger and the merger of the principal banking subsidiaries of Merchants and Community Bank System contemplated by the agreement.

~~KBW’s~~The Piper opinion ~~addressed only~~is necessarily based on economic, market and other conditions and upon the information made available to Piper and facts and circumstances as they exist and are subject to evaluation as of the date of the Piper opinion. It should be understood that events occurring after the date of the Piper opinion could materially affect the assumptions used in preparing the Piper opinion. Further, Piper expressed no opinion as to the price at which shares of the common stock of Merchants or Community Bank System may trade following announcement of the Merger or at any future time.

The Piper opinion addresses solely the fairness, from a financial point of view, asto holders of Merchants common stock of the ~~date~~proposed merger consideration set forth in the Merger Agreement and does not address any other terms or agreement relating to the Merger or any other terms of the Merger Agreement. Piper was

TABLE OF CONTENTS

not requested to opine as to, and the Piper opinion does not address: (1) the basic business decision to proceed with or effect the Merger; (2) the merits of the Merger relative to any alternative transaction or business strategy that may be available to Merchants; (3) Community Bank System’s ability to fund the cash portion of the merger consideration; (4) any other terms contemplated by the Merger Agreement; or (5) the fairness of the Merger, or any consideration received in connection therewith by, the holders of any other class of securities, any creditor or other constituency of Merchants. Furthermore, Piper expressed no opinion with respect to the amount or nature of compensation to any officer, director or employee of any party to the Merger, or any class of such persons, relative to the merger consideration to be received by ~~the~~ holders of ~~Oneida Financial~~Merchants common stock in the Merger or with respect to the fairness of any such ~~holders. KBW expressed no view or opinion as to any other terms or aspects~~compensation, including whether such payments are reasonable in the context of the Merger or any related transaction (including the Bank Merger), including without limitation, the form or structure of the Merger (including the form of the merger consideration or the allocation thereof among cash and stock) or any related transaction, any consequences of the Merger to Oneida Financial, its stockholders, creditors or otherwise, or any terms, aspects or implications of any voting, support, stockholder or other agreements, arrangements or understandings contemplated or entered into in connection with the Merger or otherwise. KBW’s opinion was necessarily based upon conditions as they existed and could be evaluated on the date of such opinion and the information made available to KBW through such date. Developments subsequent to the date of KBW’s opinion may have affected, and may affect, the conclusion reached in KBW’s opinion and KBW did not and does not have an obligation to update, revise or reaffirm its opinion. KBW’s opinion did not address, and KBW expressed no view or opinion with respect to:

~~the underlying business decision of Oneida Financial to engage in the Merger or enter into the Merger Agreement;~~

~~the relative merits of the Merger as compared to any strategic alternatives that are, have been or may be available to or contemplated by Oneida Financial or the Oneida Financial board;~~

the fairness of the amount or nature of any compensation to any of Oneida Financial’s officers directors or employees, or any class of such persons, relative to any compensation to the holders of Oneida Financial common stock;

the effect of the Merger or any related transaction on, or the fairness of the consideration to be received by, holders of any class of securities of Oneida Financial (other than the holders of Oneida Financial common stock solely with respect to the merger consideration, as set forth in KBW’s opinion, and not relative to the consideration to be received by holders of any other class of securities), holders of any class of securities of Community Bank System or any other party to any transaction contemplated by the Merger Agreement;

whether Community Bank System has sufficient cash, available lines of credit or other sources of funds to enable it to pay the aggregate cash consideration to the holders of Oneida Financial common stock at the closing of the Merger;

the election by holders of Oneida Financial common stock to receive the stock consideration or the cash consideration, or a combination thereof, or the actual allocation between the stock consideration and the cash consideration among such holders (including, without limitation, any re-allocation thereof as a result of proration pursuant to the Merger Agreement), or the relative fairness of the stock consideration and the cash consideration;

~~the actual value of the Community Bank System common stock to be issued in the Merger;~~

any adjustment (as provided in the Merger Agreement) in the merger consideration (including the allocation thereof among cash and stock) assumed to be paid in the Merger for purposes of KBW’s opinion;

the prices, trading range or volume at which Oneida Financial common stock or Community Bank System common stock would trade following the public announcement of the Merger or the prices, trading range or volume at which Community Bank System common stock would trade following consummation of the Merger;

~~any advice or opinions provided by any other advisor to any of the parties to the Merger or any other transaction contemplated by the Merger Agreement; or~~

any legal, regulatory, accounting, tax or similar matters relating to Oneida Financial, Community Bank System, their respective stockholders, or relating to or arising out of or as a consequence of the Merger or any related transaction (including the subsidiary bank merger), including whether or not the Merger would qualify as a tax-free reorganization for United States federal income tax purposes.

Merger.

In performing its analyses, ~~KBW~~Piper made numerous assumptions with respect to industry performance, general business, economic, market and financial conditions and other matters, which are beyond the control of ~~KBW, Oneida Financial~~Piper, Merchants and Community Bank System. Any estimates contained in the analyses performed by ~~KBW~~Piper are not necessarily indicative of actual values or future results, which may be ~~significantly~~ more or less favorable than suggested by these analyses. Additionally, estimates of the value of businesses or securities do not purport to be appraisals or to reflect the prices at which such businesses or securities might actually be sold. Accordingly, these analyses and estimates are inherently subject to substantial uncertainty. In addition, the ~~KBW~~Piper opinion was among several factors taken into consideration by the ~~Oneida Financial Board~~Merchants board in making its determination to approve the Merger Agreement and the Merger. Consequently, the analyses described below should not be viewed as determinative of the decision of the Oneida Financial board with respect to the fairness of the merger consideration.Agreement. The type and amount of consideration payable in the Merger were determined solely through negotiation between ~~Oneida Financial~~Merchants and Community Bank System, and the decision to enter into the Merger Agreement was solely that of the ~~Oneida Financial~~Merchants board.

Piper’s opinion was necessarily based upon conditions as they existed and could be evaluated on October 22, 2016, the date of such opinion, and the information made available to Piper through such date. Developments subsequent to the date of Piper’s opinion may have affected, and may affect, the conclusion reached in Piper’s opinion, and Piper did not and does not have an obligation to update, revise or reaffirm its opinion.

The following is a summary of the material financial analyses performed and presented by ~~KBW~~Piper to the ~~Oneida Financial~~Merchants board on October 22, 2016 in connection with its fairness opinion. Each analysis was provided to the Merchants board of directors. The following summary, ishowever, does not purport to be a complete description of all the ~~financial~~ analyses performed and reviewed by Piper underlying the Piper opinion or the presentation made by ~~KBW~~Piper to the ~~Oneida Financial~~Merchants board on October 22, 2016, but summarizes the material analyses performed and presented in connection with such opinion. ~~The financial analyses summarized below include information presented in tabular format. The tables alone do not constitute a complete description of the financial analyses.~~ The preparation of a fairness opinion is a complex analytic process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. ~~Therefore, a~~A fairness opinion is thus not ~~readily~~ susceptible to partial analysis or summary description. In arriving at its opinion, ~~KBW~~Piper did not attribute any particular weight to any analysis or factor that it considered, but rather made qualitative judgments as to the significance and relevance of each analysis and factor.

The financial analyses summarized below include information presented in tabular format. The tables alone do not constitute a complete description of the financial analyses. Accordingly, ~~KBW~~Piper believes that its analyses and the summary of its analyses must be considered as a whole and that selecting portions of its analyses and factors or focusing on the information presented below in tabular format, without considering all analyses and factors or the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a potentially misleading or incomplete view of the process underlying its analyses and opinion. ~~For~~Also no company or transaction used in Piper’s analysis for purposes of comparison is identical to Merchants and Community Bank System or the ~~financial analyses described below, KBW utilized~~Merger. Accordingly, an ~~implied~~analysis of the results of the comparisons is not mathematical; rather, it involves complex considerations and judgments about differences in the companies and transactions to which Merchants and Community Bank System and the Merger were compared and other factors that could affect the public trading value or transaction value of the ~~merger consideration~~companies to which they are being compared. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data that existed on or before October 22, 2016 (the date of ~~$19.99 per~~the Piper opinion), and is not necessarily indicative of current market conditions.

TABLE OF CONTENTS

Summary of Proposal. Pursuant to the terms of the Merger Agreement, at the effective time of the Merger, each share of ~~Oneida Financial~~Merchants common stock ~~consisting~~will be converted, at the election of the ~~sum of~~holder, into the right to receive the following consideration: (i) the ~~implied value~~combination of ~~the stock election consideration of 0.5635 of a share~~$12.00 in cash and 0.6741 shares of Community Bank System common ~~stock, based on the closing price~~stock; (ii) 0.9630 shares of Community Bank System common stock; or (iii) $40.00 in cash, subject to an allocation process intended to result in approximately 70% of the shares of Merchants common stock being exchanged for shares of Community Bank System. Based on ~~February 23, 2015~~Community Bank System’s closing price on October 21, 2016 of ~~$35.45, multiplied by 60%, and (ii)~~$47.50, the ~~cash election~~merger consideration was equivalent to a price of $20.00 multiplied by 40%. In addition to the financial analyses described below, KBW reviewed with the Oneida Financial board for informational purposes the implied transaction multiple for the proposed Merger of 21.3x Oneida’s estimated 2016 earnings$44.02 per share ~~(“EPS”), using estimated 2016 EPS data for Oneida Financial provided by Oneida Financial management~~of Merchants common stock. Based on this deemed value per share to Merchants stockholders and based on an aggregate of 6,883,644 shares of Merchants common stock outstanding, 27,020 options outstanding with a weighted average exercise price of $22.49 per share and 77,999 warrants outstanding with a weighted average exercise price of $29.81, the ~~implied value of the~~aggregate merger consideration to holders of ~~$19.99 per share of Oneida Financial~~Merchants common ~~stock.~~stock, options and warrants was approximately $304.7 million.

Selected Companies ~~Analysis – Oneida.~~Analysis. Using publicly available information, ~~KBW~~Piper compared the financial performance, financial condition, and market performance of ~~Oneida Financial~~Merchants to 18seventeen selected ~~banks~~major exchange traded bank holding companies and thrifts ~~referred to as the “size peer” group, traded on NASDAQ or the NYSE,~~ headquartered in the New England and Mid-Atlantic ~~region (defined as Delaware, Maryland, New Jersey, New York, and Pennsylvania) and which have~~with total assets between ~~$650 million~~$1.0 billion and ~~$1.1 billion.~~ $3.0 billion and last twelve months return on average assets between 0.50% and 1.00%. The companies included in this group were:


Company	Ticker	State
CNB Financial Corporation	CCNE	PA
Enterprise Bancorp, Inc.	EBTC	MA
BSB Bancorp, Inc.	BLMT	MA
Peoples Financial Services Corp.	PFIS	PA
ESSA Bancorp, Inc.	ESSA	PA
Chemung Financial Corporation	CHMG	NY
Old Line Bancshares, Inc.	OLBK	MD
Bankwell Financial Group, Inc.	BWFG	CT
Orrstown Financial Services, Inc.	ORRF	PA
Codorus Valley Bancorp, Inc.	CVLY	PA
First United Corporation	FUNC	MD
Community Financial Corporation	TCFC	MD
ACNB Corporation	ACNB	PA
Shore Bancshares, Inc.	SHBI	MD
1^st Constitution Bancorp	FCCY	NJ
Evans Bancorp, Inc.	EVBN	NY
Mid Penn Bancorp, Inc.	MPB	PA

Using publicly available information, ~~KBW also~~Piper compared the financial performance, financial condition, and market performance of ~~Oneida Financial~~Community Bank System to 10a regional peer group and a nationwide high performing peer group. The regional peer group was based on eight selected ~~banks~~publicly traded bank holding companies and thrifts ~~referred to as the “high fee income peer” group, traded on NASDAQ or the NYSE,~~ headquartered in the New England and Mid-Atlantic ~~region and which have~~regions of the United States with total assets ~~less than $10~~between $5.0 billion and ~~fee income to revenue ratios~~$12.0 billion and last twelve months return on average assets greater than ~~30%~~0.90%. ~~Mutual~~The companies included in this regional peer group were:


Company	Ticker	State
Provident Financial Services, Inc.	PFS	NJ
NBT Bancorp Inc.	NBTB	NY
Independent Bank Corp.	INDB	MA
Eagle Bancorp, Inc.	EGBN	MD
S&T Bancorp, Inc.	STBA	PA
Brookline Bancorp, Inc.	BRKL	MA
Tompkins Financial Corporation	TMP	NY
WSFS Financial Corporation	WSFS	DE

TABLE OF CONTENTS

The nationwide high performing peer group was based on ten selected publicly traded bank holding companies and ~~merger targets were excluded from~~thrifts headquartered in the ~~selected companies.~~

United States with total assets between $5.0 billion and $12.0 billion, last twelve months return on average assets greater than 1.10% and non-interest income to total revenue greater than 20%. The ~~selected~~ companies included in ~~Oneida Financial’s “size peer”~~this nationwide high performing peer group were:

~~Fox Chase~~
Company		Ticker	State
Pinnacle Financial Partners, Inc.		PNFP	TN
Columbia Banking System, Inc.		COLB	WA
Glacier Bancorp, Inc.	~~Parke Bancorp, Inc.~~	GBCI	MT
~~AmeriServ Financial, Inc.~~South State Corporation	~~Two River Bancorp~~	SSB	SC
~~Community~~Simmons First National Corporation		SFNC	AR
BofI Holding, Inc.		BOFI	CA
First Financial Bankshares, Inc.		FFIN	TX
Ameris Bancorp		ABCB	GA
WSFS Financial Corporation	~~Severn Bancorp, Inc.~~	WSFS	DE
~~Cape Bancorp, Inc.~~Westamerica Bancorporation	~~Mid Penn Bancorp, Inc.~~
~~ACNB Corporation~~	~~Royal Bancshares of Pennsylvania, Inc.~~
~~Ocean Shore Holding Co.~~WABC	~~DNB Financial Corporation~~
~~Unity Bancorp, Inc.~~	~~Norwood Financial Corp.~~
~~1st Constitution Bancorp~~	~~First Bank~~
~~CB Financial Services, Inc.~~	~~Stewardship Financial Corporation~~CA

To perform this analysis, ~~KBW~~Piper used ~~profitability and other~~ financial information for, or, in the case of information for the latest 12 month period or LTM, through, the most recent completed quarter available (which in the case of Oneida Financial was the fiscal quarter ended December 31, 2014 as provided by Oneida Financial management to the extent not publicly available) or as of the ~~end~~twelve-month period ended September 30, 2016 (or as of ~~such quarter and market~~the most recently available quarter). Market price information was as of ~~February 23, 2015. KBW also used 2015~~October 21, 2016. Earnings estimates for 2017 for Merchants, Community Bank System and ~~2016 EPS estimates~~other selected companies were taken from ~~consensus “street estimates” for the selected companies and estimates for Oneida~~SNL Financial, provided to KBW by Oneida Financial management. Certain financial data prepared by KBW, and as referenced in the tables presented below, may not correspond to the data presented in Oneida Financial’s historical financial statements as a ~~result of the different periods, assumptions and methods used by KBW to compute the financial data presented.~~nationally recognized earnings estimate consolidator.

~~KBW’s~~Piper’s analysis showed the following concerning Merchants’ and Community Bank System’s market performance:


	Merchants			Merchants Group Minimum			Merchants Group 25^th Percentile			Merchants Group Median			Merchants Group Mean			Merchants Group 75^th Percentile			Merchants Group Maximum
Stock Price/Tangible Book Value per Share		152.4	%		88.8	%		112.0	%		121.7	%		127.7	%		140.7	%		165.5	%
Stock Price/Last Twelve Months EPS		15.6x			7.7x			13.8x			15.8x			15.7x			17.1x			23.0x
Stock Price/2017 Est. EPS		13.4x			11.3x			12.8x			13.0x			13.7x			14.0x			18.8x
Dividend Yield		3.4	%		0.0	%		1.2	%		1.8	%		2.0	%		2.7	%		3.6	%

Using the ~~financial performance~~range of ~~Oneida Financial~~multiples representing the 25^th and 75^th percentiles, the ~~selected companies in its “size peer” group:~~

Oneida Financial Peer Group
Oneida
Financial 25^th
Percentile Average Median 75^th
Percentile
LTM Core Return on Average Assets⁽¹⁾ 0.60 % 0.55 % 0.65 % 0.64 % 0.83 %
LTM Core Return on Average Equity⁽¹⁾ 4.92 % 4.90 % 6.57 % 6.21 % 9.45 %
LTM Net Interest Margin 2.95 % 3.34 % 3.59 % 3.52 % 3.78 %
LTM Fee Income / Revenue Ratio⁽²⁾ 60.8 % 9.9 % 14.2 % 13.5 % 16.6 %
LTM Efficiency Ratio 87.0 % 72.1 % 68.8 % 66.7 % 64.8 %

~~(1)~~

~~Core income excludes extraordinary items, gains/losses on sale of securities and nonrecurring items.~~

~~(2)~~

~~Excludes gains/losses on sale of securities.~~

analysis indicated an approximate implied per share equity value range for Merchants of $24.15 to $35.91.

~~KBW’s~~


	Community Bank System			Community Bank System Regional Group Minimum			Community Bank System Regional Group 25^th Percentile			Community Bank System Regional Group Median			Community Bank System Regional Group Mean			Community Bank System Regional Group 75^th Percentile			Community Bank System Regional Group Maximum
Stock Price/Tangible Book Value per Share		278.5	%		164.7	%		186.3	%		215.3	%		211.2	%		232.3	%		265.0	%
Stock Price/Last Twelve Months EPS		21.6x			14.1x			16.8x			17.4x			17.4x			18.1x			20.9x
Stock Price/2017 Est. EPS		19.9x			13.8x			14.7x			16.2x			16.1x			17.3x			18.8x
Dividend Yield		2.7	%		0.0	%		1.8	%		2.5	%		2.1	%		2.8	%		3.4	%

TABLE OF CONTENTS

Using the range of multiples representing the 50^th and 100^th percentiles for CBU’s Regional Peer Group, the analysis ~~also showed~~indicated an approximate implied per share equity value range of $36.73 to $45.99.


	Community Bank System			Community Bank System Nationwide Group Minimum			Community Bank System Nationwide Group 25^th Percentile			Community Bank System Nationwide Group Median			Community Bank System Nationwide Group Mean			Community Bank System Nationwide Group 75^th Percentile			Community Bank System Nationwide Group Maximum
Stock Price/Tangible Book Value per Share		278.5	%		200.3	%		212.1	%		227.9	%		241.7	%		257.8	%		328.1	%
Stock Price/Last Twelve Months EPS		21.6x			11.9x			17.2x			18.0x			18.0x			18.6x			23.0x
Stock Price/2017 Est. EPS		19.9x			10.5x			14.2x			15.5x			16.0x			16.7x			21.7x
Dividend Yield		2.7	%		0.0	%		1.1	%		1.8	%		1.7	%		2.4	%		3.2	%

Using the ~~following concerning~~range of multiples representing the ~~financial condition~~50^th and 100^th percentiles for CBU’s Nationwide Peer Group, the analysis indicated an approximate implied per share equity value range for CBU of ~~Oneida Financial and the selected companies in its “size peer” group:~~

Oneida Financial Peer Group
Oneida
Financial 25^th
Percentile Average Median 75^th
Percentile
Tangible Common Equity / Tangible Assets 9.00 % 7.11 % 8.97 % 8.73 % 9.78 %
Total Risk-Based Capital/ Risk-Weighted Assets⁽¹⁾ 16.54 % 12.89 % 15.77 % 15.01 % 17.96 %
Loans / Deposits 53.9 % 83.2 % 92.9 % 93.2 % 98.6 %
Loan Loss Reserve / Gross Loans 0.94 % 1.13 % 1.46 % 1.27 % 1.60 %
Nonperforming Assets / Loans + OREO 0.35 % 3.71 % 3.20 % 2.06 % 1.54 %
LTM Net Charge-Offs / Average Loans 0.03 % 0.36 % 0.33 % 0.25 % 0.14 %

~~(1)~~

~~Total risk-based capital ratios for Oneida, Ocean Shore Holding Co. and Severn Bancorp, Inc. are as reported by their respective savings bank subsidiaries.~~

~~In addition, KBW’s analysis showed the following concerning the market performance of Oneida Financial and,~~$37.06 to the extent publicly available, the selected companies in its “size peer” group (excluding the impact of the LTM EPS multiple for one of the selected companies considered to be not meaningful because it was greater than 30.0x):

Oneida Financial Peer Group
Oneida
Financial 25^th
Percentile Average Median 75^th
Percentile
One – Year Stock Price Change 2.3 % (5.3 )% 1.9 % 0.2 % 9.6 %
One – Year Total Return 6.2 % (3.8 )% 3.7 % 2.3 % 11.1 %
YTD Stock Price Change (1.6 )% (3.6 )% 0.3 % 0.4 % 2.0 %
Stock Price / Book Value per Share 0.94 x 0.80 x 0.94 x 0.92 x 1.08 x
Stock Price / Tangible Book Value per Share 1.29 x 0.86 x 1.00 x 1.01 x 1.16 x
Stock Price / LTM EPS 17.6 x 11.7 x 14.1 x 13.6 x 14.6 x
Stock Price / 2015 Est. EPS⁽¹⁾ 14.0 x 12.4 x 14.3 x 13.5 x 14.1 x
Stock Price / 2016 Est. EPS⁽²⁾ 13.6 x 11.4 x 13.2 x 11.9 x 13.0 x
Dividend Yield⁽³⁾ 3.8 % 1.2 % 1.9 % 1.6 % 2.7 %
LTM Dividend Payout⁽³⁾ 66.2 % 8.8 % 25.2 % 20.7 % 36.9 %

~~(1)~~

Estimated 2015 EPS data was not publicly available for AmeriServ Financial, Inc., ACNB Corporation, Unity Bancorp, Inc., 1st Constitution Bancorp, CB Financial Services, Inc., Parke Bancorp, Inc., Two River Bancorp, Severn Bancorp, Inc., Mid Penn Bancorp, Inc., Royal Bancshares of Pennsylvania, Inc., Norwood Financial Corp. and Stewardship Financial Corporation.

~~(2)~~

Estimated 2016 EPS data was not publicly available for AmeriServ Financial, Inc., ACNB Corporation, Unity Bancorp, Inc., 1st Constitution Bancorp, CB Financial Services, Inc., Parke Bancorp, Inc., Two River Bancorp, Severn Bancorp, Inc., Mid Penn Bancorp, Inc., Royal Bancshares of Pennsylvania, Inc., Norwood Financial Corp. and Stewardship Financial Corporation.

~~(3)~~

~~Dividend payout and yield calculated using current dividend annualized excluding special dividends.~~

~~The selected companies included in Oneida Financial’s “high fee income peer” group were:~~

~~Community Bank System, Inc.~~	~~Bryn Mawr Bank Corporation~~
~~Tompkins Financial Corporation~~	~~Univest Corporation of Pennsylvania~~
~~Bancorp, Inc.~~	~~Arrow Financial Corporation~~
~~WSFS Financial Corporation~~	~~Orrstown Financial Services, Inc.~~
~~TriState Capital Holdings, Inc.~~	~~Shore Bancshares, Inc.~~

~~KBW’s analysis showed the following concerning the financial performance of Oneida Financial and the selected companies in its “high fee income peer” group:~~

Oneida Financial High Fee Income Peer Group
Oneida
Financial 25^th
Percentile Average Median 75^th
Percentile
LTM Core Return on Average Assets⁽¹⁾ 0.60 % 0.71 % 1.08 % 1.04 % 1.27 %
LTM Core Return on Average Equity⁽¹⁾ 4.92 % 5.92 % 10.61 % 10.29 % 12.00 %
LTM Net Interest Margin 2.95 % 3.18 % 3.34 % 3.50 % 3.82 %
LTM Fee Income / Revenue Ratio⁽²⁾ 60.8 % 31.9 % 36.3 % 33.0 % 37.4 %
LTM Efficiency Ratio 87.0 % 75.1 % 68.0 % 64.0 % 61.6 %

~~(1)~~

~~Core income excludes extraordinary items, gains/losses on sale of securities and nonrecurring items.~~

~~(2)~~

~~Excludes gains/losses on sale of securities.~~

~~KBW’s analysis also showed the following concerning the financial condition of Oneida Financial and the selected companies in its “high fee income peer” group:~~

Oneida Financial High Fee Income Peer Group
Oneida
Financial 25^th
Percentile Average Median 75^th
Percentile
Tangible Common Equity / Tangible Assets 9.00 % 8.14 % 9.01 % 8.77 % 9.77 %
Total Risk-Based Capital/ Risk-Weighted Assets⁽¹⁾ 16.54 % 12.87 % 14.43 % 13.72 % 16.13 %
Loans / Deposits 53.9 % 74.2 % 77.1 % 76.1 % 89.9 %
Loan Loss Reserve / Gross Loans 0.94 % 0.86 % 1.07 % 1.08 % 1.19 %
Nonperforming Assets / Loans + OREO 0.35 % 1.58 % 1.49 % 1.11 % 0.69 %
LTM Net Charge-Offs / Average Loans 0.03 % 0.40 % 0.29 % 0.20 % 0.12 %

~~(1)~~

~~Total risk-based capital ratios for Oneida and WSFS Financial Corporation are as reported by their respective savings bank subsidiaries.~~

In addition, KBW’s analysis showed the following concerning the market performance of Oneida Financial and the selected companies in its “high fee income peer” group (excluding the impact of the LTM EPS multiple for one of the selected companies considered to be not meaningful because it was negative):

Oneida Financial High Fee Income Peer Group
Oneida
Financial 25^th
Percentile Average Median 75^th
Percentile
One – Year Stock Price Change 2.3 % (3.9 )% (5.0 )% 2.7 % 4.5 %
One – Year Total Return 6.2 % (3.4 )% (3.1 )% 5.3 % 8.2 %
YTD Stock Price Change (1.6 )% (6.8 )% (5.2 )% (4.6 )% (1.8 )%
Stock Price / Book Value per Share 0.94 x 0.98 x 1.27 x 1.28 x 1.58 x
Stock Price / Tangible Book Value per Share 1.29 x 1.08 x 1.57 x 1.56 x 2.01 x
Stock Price / LTM EPS 17.6 x 13.8 x 14.4 x 14.6 x 16.0 x
Stock Price / 2015 Est. EPS⁽¹⁾ 14.0 x 13.4 x 15.4 x 15.3 x 16.9 x
Stock Price / 2016 Est. EPS⁽²⁾ 13.6 x 10.9 x 12.6 x 12.5 x 14.2 x
Dividend Yield⁽³⁾ 3.8 % 0.0 % 1.8 % 1.7 % 3.3 %
LTM Dividend Payout⁽³⁾ 66.2 % 0.0 % 26.3 % 24.1 % 52.6 %

~~(1)~~

~~Dividend payout and yield calculated using current dividend annualized excluding special dividends.~~

No company used as a comparison in the above selected companies analysis of Oneida Financial is identical to Oneida Financial. Accordingly, an analysis of these results is not mathematical. Rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies involved.$70.58.

~~Select Transactions~~Comparable Transaction Analysis. ~~KBW~~Piper reviewed certain publicly available information related to 14twelve selected acquisitions of banks and bank holding companies as well as thrifts and thrift ~~transactions~~holding companies with headquarters in the New England and Mid-Atlantic regions of the United States announced ~~since~~after January 1, ~~2012 with acquired companies headquartered in~~2013, where transaction value was available and the ~~Mid-Atlantic region and announced transaction values between $100 million and $500 million. Terminated transactions and transactions in which the acquired company~~buyer was a ~~mutual~~bank or bank holding company ~~were excluded from~~or a thrift or thrift holding company, the ~~selected transactions.~~seller had assets between $1.0 billion and $3.0 billion and last twelve months return on average assets between 0.25% and 1.25%. The ~~selected~~ transactions included in the group were:

~~Acquirer:~~	~~Acquired Company:~~
~~Cathay General~~Acquiror		Acquiree
OceanFirst Financial Corp.		Ocean Shore Holding Co.
People's United Financial, Inc.		Suffolk Bancorp
~~Asia Bancshares,~~Bar Harbor Bankshares		Lake Sunapee Bank Group
Investors Bancorp, Inc.		Bank of Princeton
OceanFirst Financial Corp.		Cape Bancorp, Inc.
~~Bridge~~Univest Corporation of Pennsylvania		Fox Chase Bancorp, Inc.	~~Community National Bank~~
~~S&T Bancorp,~~United Bankshares, Inc.	~~Integrity Bancshares, Inc.~~	Bank of Georgetown
WesBanco, Inc.		ESB Financial Corporation
Bank of the Ozarks, Inc.		Intervest Bancshares Corporation
~~National Penn Bancshares, Inc.~~	~~TF Financial Corporation~~
~~Bryn Mawr Bank Corporation~~	~~Continental Bank Holdings, Inc.~~
Center Bancorp, Inc.		ConnectOne Bancorp, Inc.
~~Provident~~Rockville Financial, ~~Services,~~ Inc.	~~Team Capital Bank~~
~~Peoples~~United Financial ~~Services Corp.~~	~~Penseco Financial Services Corporation~~Bancorp, Inc.
Provident New York Bancorp		Sterling Bancorp
~~NBT Bancorp Inc.~~	~~Alliance Financial Corporation~~
~~Investors Bancorp, Inc.~~	~~Marathon Banking Corporation~~
~~Berkshire Hills Bancorp, Inc.~~	~~Beacon Federal Bancorp, Inc.~~

Transaction multiples for the Merger were based on an offer price of $44.02 per share for Merchants based on Community Bank System’s October 21, 2016 closing price of $47.50. For each ~~selected~~precedent transaction, ~~KBW~~Piper derived and compared, among other things, the ~~following~~ implied transaction statistics, in each case based on the transaction consideration value per common share paid for the acquired company and the acquired company’s then latest financial statements and next year EPS consensus “street estimates” for the acquired company to the extent publicly available prior to the announcementratio of ~~the acquisition:~~

~~Price to tangible book value of the acquired company;~~

~~Tangible equity premium to core deposits (total deposits less time deposits greater than $100,000) of the acquired company, referred to as core deposit premium;~~

~~Price to LTM EPS of the acquired company; and~~

~~Price to next year estimated EPS of the acquired company.~~

~~KBW also reviewed the~~ price per common share paid for the acquired company to:

tangible book value per share of the acquired company based on the latest financial statements of the company available prior to the announcement of the acquisition;

tangible equity premium to core deposits (total deposits less time deposits greater than $100,000 and brokered deposits) based on the latest financial statements of the company available prior to the announcement of the acquisition;

the last twelve months earnings per share based on the latest financial statements of the company available prior to the announcement of the acquisition; and

analyst estimated earnings per share for ~~each selected transaction involving a publicly traded~~the forward year at the announcement of the acquisition.

TABLE OF CONTENTS

In addition, Piper derived and compared the price per share paid for the acquired company as a ~~premium to~~percentage of the closing price of the acquired company one day prior to the announcement of the acquisition (expressed as a percentage and referred to as the one day market premium). The resulting transaction multiples and premiums for the selected transactions were compared with the corresponding transaction multiples and premiums for the proposed Merger based on the implied value of the merger consideration of $19.99 per share of Oneida Financial common stock and using historical financial information for Oneida Financial as of or through December 31, 2014 as provided by Oneida Financial management to the extent not publicly available, 2015 EPS estimated data for Oneida Financial provided to KBW by Oneida Financial management and the closing price of Oneida Financial common stock on February 23, 2015.acquisition.

The results of the analysis are set forth in the following table:

Selected Transactions
Community
Bank System
/ Oneida
Financial 25^th
Percentile Average Median 75^th
Percentile
Transaction Price / Tangible Book Value 2.02 x 1.47 x 1.72 % 1.71 x 1.95 x
Core Deposit Premium 11.6 % 7.5 % 10.6 % 9.6 % 14.9 %
Transaction Price/ LTM EPS 27.6 x 17.0 x 21.8 x 19.5 x 23.8 x
Transaction Price / Fwd. EPS 21.8 x 14.1 x 17.9 x 20.0 x 20.5 x
One-Day Market Premium 56.3 % 20.7 % 36.5 % 26.7 % 48.9 %


Transaction Price to:	Merchants/Community Bank System Merger			Comparable Transactions Minimum			Comparable Transactions 25^th Percentile			Comparable Transactions Median			Comparable Transactions Mean			Comparable Transactions 75^th Percentile			Comparable Transactions Maximum
Tangible Book Value		204.2	%		110.6	%		138.0	%		157.6	%		161.7	%		183.5	%		217.9	%
Core Deposit Premium		11.3	%		2.8	%		5.6	%		8.7	%		9.9	%		12.5	%		20.5	%
LTM Earnings Per Share		21.0x			13.1x			16.4x			19.8x			19.1x			21.6x			27.6x
FWD Yr Est. Earnings Per Share		17.9x			14.0x			15.0x			17.8x			17.9x			19.3x			24.3x
One-Day Market Premium		34.0	%		10.9	%		15.0	%		17.5	%		23.5	%		29.3	%		49.1	%

~~No company or transaction used as a comparison in~~Using the ~~above selected transaction~~range of multiples representing the 25^th and 75^th percentiles, the analysis ~~is identical~~indicated an approximate implied per share equity value range for Merchants of $29.75 to Oneida Financial or the proposed Merger. Accordingly, an analysis of these results is not mathematical. Rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies involved.

~~Relative Contribution Analysis~~. KBW analyzed the relative standalone contribution of Community Bank System and Oneida Financial to various pro forma balance sheet and income statement items and the pro forma market capitalization of the combined entity. This analysis did not include purchase accounting adjustments. To perform this analysis, KBW used (i) balance sheet data for Community Bank System and Oneida Financial as of December 31, 2014, (ii) LTM EPS data for Community Bank System and Oneida Financial as reported through December 31, 2014, (iii) 2015 and 2016 EPS consensus “street estimates” for Community Bank System, (iv) financial forecasts and projections relating to the net income of Oneida provided by Oneida management, and (v) market price data as of February 23, 2015. The results of KBW’s analysis are set forth in the following table, which compares the results of KBW’s analysis with the implied pro forma ownership percentages of Community Bank System and Oneida Financial stockholders in the combined company$47.40 based on the stock consideration of 0.5635 of a share of Community Bank System common stock per share of Oneida Financial common stock at the 60% stock / 40% cash aggregate merger consideration mix provided for in the Merger Agreement and also assuming 100% stock consideration for illustrative purposes:

Community
Bank System
as a % of Total Oneida
Financial as
a % of Total
Ownership
60% stock / 40% cash 94 % 6 %
100% stock / 0% cash 91 % 9 %

Balance Sheet
Assets 90 % 10 %
Gross Loans Held for Investment 92 % 8 %
Deposits 90 % 10 %
Tangible Common Equity 90 % 10 %

Net Income to Common
2014 GAAP Net Income 95 % 5 %
2015 Estimated GAAP Net Income 93 % 7 %
2016 Estimated GAAP Net Income 94 % 6 %

Market Capitalization
Pre-Deal Market Capitalization 94 % 6 %

selected transactions.

Discounted Cash Flow Analysis. ~~KBW~~Piper performed a discounted cash flow analysis ~~of Oneida Financial~~ to estimate ~~ranges for~~a range of the ~~implied~~present values of after-tax cash flows that Merchants could provide to equity ~~value of Oneida Financial.~~holders through 2020 on a stand-alone basis. In performing this analysis, ~~KBW~~Piper used ~~financial forecasts and projections relating~~the Projections to ~~the net income and assets of Oneida Financial prepared by and provided to KBW by Oneida Financial management, and~~derive projected after-tax cash flows. The analysis assumed discount rates ranging from ~~12.0%~~11.0% to ~~15.0%.~~13.0%, which were assumed deviations, both up and down, as selected by Piper based on the Merchants discount rate of 11.8% as determined by Piper. The ~~ranges~~range of values ~~were derived~~for the discounted cash flow analysis was determined by adding ~~(i)~~(1) the present value of projected cash flows to Merchants stockholders from fiscal years 2016 to 2020 and (2) the present value of the ~~estimated free~~terminal value of Merchants common stock. In determining cash flows ~~that Oneida Financial could generate over the five-year period from 2015~~available to ~~2019 as a standalone company, and (ii) the present value of Oneida Financial’s implied terminal value at the end of such period. KBW~~Merchants stockholders, Piper assumed that ~~Oneida Financial~~Merchants would maintain a tangible common equity to tangible ~~assets~~asset ratio of ~~8.0%~~7.00% and would retain sufficient earnings to maintain ~~that level.~~these levels. Any earnings in excess of what would need to be retained were assumed to be distributed as dividends to Merchants stockholders. In calculating the terminal value of ~~Oneida Financial, KBW~~Merchants, Piper applied multiples ranging from 13.0 times to 15.0 times fiscal year 2020 estimated earnings. These multiples were selected based on a ~~range~~review of ~~12.0x to 16.0x estimated 2020 net income.~~trading multiples of common stocks of the selected bank holding companies headquartered in the New England and Mid-Atlantic regions of the United States with total assets between $1.0 billion and $3.0 billion specified above. Piper also assumed a pre-tax cost of cash of 1.50% and a marginal tax rate of 35.0%. This ~~discounted cash flow analysis~~ resulted in a range of ~~implied~~ values of Merchants from $29.71 to $35.34 per share.

Piper also performed a discounted cash flow analysis to estimate a range of the present values of after-tax cash flows that Community Bank System could provide to equity holders through fiscal year 2020 on a stand-alone basis and on a pro forma basis, which included the Synergies and the impact of crossing the $10 billion threshold. In performing this analysis, Piper used publicly available earnings estimates by research analysts covering Community Bank System, which were discussed with senior management of Community Bank System, for fiscal years 2016 (EPS of $2.32) and 2017 (EPS of $2.40), and with respect to the fiscal years 2018 through 2020 applied an earnings growth rate of 5.0% to derive projected after-tax cash flows. The analysis assumed discount rates ranging from 10.0% to 12.0%, which were assumed deviations, both up and down, as selected by Piper based on the Community Bank System discount rate of 11.3% as determined by Piper. The analysis also assumed asset growth based on analyst estimates through 2017 and 3.0% growth thereafter. The range of values for the discounted cash flow analysis was determined by adding (1) the present value of projected cash flows to Community Bank System’s stockholders from fiscal years 2016 to 2020 and (2) the present value of the terminal value of Community Bank System’s common stock. In determining cash flows available to stockholders, Piper assumed that Community Bank System would maintain a tangible common equity to tangible asset ratio of 7.00% and would retain sufficient earnings to maintain these levels. Any earnings in excess of what would need to be retained were assumed to be distributed as dividends to Community Bank System stockholders. In calculating the terminal value of

TABLE OF CONTENTS

Community Bank System, Piper applied multiples ranging from 17.0 times to 19.0 times fiscal year 2020 estimated earnings. These multiples were selected based on a review of trading multiples of the eight publicly traded bank holding companies headquartered in the Mid-Atlantic and New England regions of the United States with total assets between $5.0 billion and $12.0 billion specified above. Piper also assumed a pre-tax cost of cash of 1.50% and a marginal tax rate of 35.0%. This resulted in a range of values of Community Bank System on a stand-alone basis from $41.72 to $48.43 per share ~~of Oneida Financial common stock of $11.52 per share~~and on a pro forma basis from $41.60 to ~~$15.70~~$48.58 per share.

~~The~~Piper stated that the discounted cash flow present value analysis is a widely used valuation methodology but ~~the results of such methodology are highly dependent~~noted that it relies on ~~the~~numerous assumptions, ~~that must be made,~~ including asset and earnings growth rates, terminal values ~~dividend payout rates,~~ and discount rates. The ~~foregoing discounted cash flow analyses~~analysis did not purport to be indicative of the actual values or expected values of ~~Oneida Financial or the pro forma combined company.~~

~~Selected Companies Analysis –~~Merchants and Community Bank System.Using publicly available information, KBW compared the financial performance, financial condition and market performance of Community Bank System to 16 selected banks traded on NASDAQ or the NYSE, headquartered in the Mid-Atlantic region and which have total assets between $3 billion and $20 billion. Mutual holding companies, thrifts and merger targets were excluded from the selected companies.

~~The selected companies included in Community Bank System’s “peer” group were:~~

~~Valley National Bancorp~~	~~Tompkins Financial Corporation~~
~~Fulton Financial Corporation~~	~~Eagle Bancorp, Inc.~~
~~F.N.B. Corporation~~	~~Flushing Financial Corporation~~
~~National Penn Bancshares, Inc.~~	~~Bancorp, Inc.~~
~~NBT Bancorp Inc.~~	~~S&T Bancorp, Inc.~~
~~Sterling Bancorp~~	~~Sandy Spring Bancorp, Inc.~~
~~Customers Bancorp, Inc.~~	~~Lakeland Bancorp, Inc.~~
~~First Commonwealth Financial Corporation~~	~~Financial Institutions, Inc.~~

To perform this analysis, KBW used profitability and other financial information for, or, in the case of information for the latest 12 month period, through, the most recent completed quarter available (which in the case of Community Bank System was the fiscal quarter ended December 31, 2014 as provided by Community Bank System management to the extent not publicly available) or as of the end of such quarter and market price information as of February 23, 2015. KBW also used 2015 and 2016 EPS estimates taken from consensus “street estimates” for Community Bank System and the selected companies. Certain financial data prepared by KBW, and as referenced in the tables presented below, may not correspond to the data presented in Community Bank System historical financial statements as a result of the different periods, assumptions and methods used by KBW to compute the financial data presented.

~~KBW’s analysis showed the following concerning the financial performance of Community Bank System and the selected companies in its “peer” group:~~

Community Bank System Peer Group
Community
Bank
System 25^th
Percentile Average Median 75^th
Percentile
LTM Core Return on Average Assets⁽¹⁾ 1.26 % 0.85 % 0.92 % 0.93 % 1.01 %
LTM Core Return on Average Equity⁽¹⁾ 9.85 % 7.19 % 8.47 % 8.63 % 9.85 %
LTM Net Interest Margin 3.90 % 3.25 % 3.39 % 3.42 % 3.60 %
LTM Fee Income / Revenue Ratio⁽²⁾ 32.7 % 13.3 % 22.2 % 23.7 % 26.5 %
LTM Efficiency Ratio 57.9 % 64.5 % 61.8 % 60.5 % 56.8 %

~~(1)~~

~~Core income excludes extraordinary items, gains/losses on sale of securities and nonrecurring items.~~

~~(2)~~

~~Excludes gains/losses on sale of securities.~~

~~KBW’s analysis also showed the following concerning the financial condition of Community Bank System and the selected companies in its “peer” group:~~

Community Bank System Peer Group
Community
Bank
System 25^th
Percentile Average Median 75^th
Percentile
Tangible Common Equity / Tangible Assets 8.46 % 7.02 % 8.00 % 7.79 % 8.85 %
Total Risk-Based Capital/ Risk-Weighted Assets⁽¹⁾ 18.75 % 12.16 % 13.12 % 12.98 % 14.33 %
Loans / Deposits 71.4 % 90.6 % 90.2 % 95.6 % 99.2 %
Loan Loss Reserve / Gross Loans 1.07 % 0.83 % 1.03 % 1.14 % 1.21 %
Nonperforming Assets / Loans + OREO 0.61 % 1.30 % 1.10 % 1.16 % 1.02 %
LTM Net Charge-Offs / Average Loans 0.15 % 0.23 % 0.17 % 0.18 % 0.04 %

In addition, KBW’s analysis showed the following concerning the market performance of Community Bank System and the selected companies in its “peer” group (excluding the impact of the LTM EPS multiple for one of the selected companies considered to be not meaningful because it was negative):

Community Bank System Peer Group
Community
Bank
System 25^th
Percentile Average Median 75^th
Percentile
One – Year Stock Price Change 2.7 % 2.1 % 4.7 % 5.9 % 10.4 %
One – Year Total Return 6.1 % 5.9 % 7.5 % 8.8 % 14.0 %
YTD Stock Price Change (7.0 )% (6.7 )% (3.3 )% (3.2 )% (1.3 )%
Stock Price / Book Value per Share 1.46 x 1.16 x 1.28 x 1.22 x 1.34 x
Stock Price / Tangible Book Value per Share 2.40 x 1.46 x 1.71 x 1.67 x 2.02 x
Stock Price / LTMEPS 16.0 x 14.3 x 15.5 x 15.2 x 17.0 x
Stock Price / 2015 Est. EPS 15.9 x 13.3 x 14.2 x 14.3 x 15.2 x
Stock Price / 2016 Est. EPS 15.5 x 12.0 x 12.6 x 12.8 x 13.4 x
Dividend Yield⁽¹⁾ 3.4 % 2.4 % 2.6 % 3.1 % 3.5 %
LTM Dividend Payout⁽¹⁾ 54.1 % 35.5 % 39.5 % 40.6 % 52.1 %

~~(1)~~

~~Dividend payout and yield calculated using current dividend annualized excluding special dividends.~~

No company used as a comparison in the above selected companies analyses of Community Bank System is identical to Community Bank System. Accordingly, an analysis of these results is not mathematical. Rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies involved.

~~Forecasted Pro Forma~~ Financial Impact Analysis.~~KBW~~ Piper performed a pro forma ~~financial impact analysis~~merger analyses that combined projected income statement and balance sheet information of Merchants and Community Bank ~~System and Oneida Financial. Using closing balance sheet estimates as of September 30, 2015 for Community Bank System and Oneida Financial extrapolated from~~System. Assumptions regarding the ~~growth rates provided by~~Synergies were used to calculate the respective managements of Community Bank System and Oneida Financial, 2015 and 2016 EPS consensus “street estimates” for Community Bank System, financial forecasts and projections relating to the net income of Oneida Financial provided by Oneida Financial management, purchase accounting adjustments provided by either Community Bank System management or Oneida Financial management, and other pro forma assumptions (including cost savings and related expenses) provided by Community Bank System management, KBW analyzed the potential financial impact ofthat the Merger would have on certain projected financial results of Community Bank System. In the course of this analysis, Piper used the Projections for Merchants and used assumptions provided by Community Bank System’s management for the Synergies. For Community Bank System, Piper used publicly available earnings estimates by research analysts covering Community Bank System for 2016 and 2017 and applied an earnings growth rate of 5.0% thereafter. This analysis indicated that the Merger ~~could~~is expected to be accretive to Community Bank System’s estimated ~~2015 EPS (assuming full year impact)~~earnings per share in 2017 and ~~estimated 2016 EPS and~~2018. The analysis also indicated that the Merger is expected to be dilutive to ~~Community Bank System’s estimated~~ tangible book value per share asfor Community Bank System with an earnback (using the Crossover method) of ~~September 30, 2015. Furthermore,~~4.7 years including the ~~analysis indicated that each~~impact of crossing the $10 billion asset threshold, 3.3 years excluding the impact of crossing the $10 billion asset threshold and dilutive to Community Bank System’s tangible common equity to tangible assets ratio, leverage ratio ~~Tier 1 Risk-Based Capital Ratio~~ and ~~Total Risk Based Capital Ratio as of September 30, 2015 could be lower.~~total risk-based capital ratio. For all of the above ~~analysis,~~analyses, the actual results achieved by Community Bank System following the Merger ~~may~~will vary from the projected results, and the variations may be material.

Other Analyses. Among other things, Piper also reviewed earnings estimates, balance sheet composition and other financial data for Merchants and Community Bank System. With respect to Merchants’ public price, Piper reviewed the public price targets of the three research analysts covering Merchants as provided by SNL Financial, a nationally recognized research price target consolidator, of which the mean was $33.50. With respect to Community Bank System’s public price, Piper reviewed the public price targets of the five research analysts covering Community Bank System as provided by SNL, of which the mean was $42.80. Piper also reviewed the historical trading performances of shares of Merchants and Community Bank System common stock during the 52-week period ended October 21, 2016. Merchants common stock traded as low as $27.21 per share and as high as $33.99 per share, and the closing price of Merchants common stock on October 21, 2016 was $32.85 per share. Community Bank System common stock traded as low as $34.47 per share and as high as $48.67 per share, and the closing price of Community Bank System common stock on October 21, 2016 was $47.50 per share.

~~Miscellaneous~~Piper’s Compensation and Other Relationships.~~. KBW acted as financial advisor~~ Merchants and Piper entered into an engagement letter dated July 19, 2016 relating to ~~Oneida Financial~~the services to be provided by Piper in connection with the ~~proposed~~Merger. Pursuant to the engagement letter, Merchants agreed to pay Piper (a) a fee of $250,000 upon the delivery to the Merchants board of the written Piper opinion, which fee will be credited against the transaction fee; and (b) contingent upon closing of the Merger, a transaction fee of $1.9 million. Pursuant to the Piper engagement letter, Merchants also agreed to reimburse Piper for reasonable out-of-pocket expenses and ~~did not act as an advisor to or agent of any other person. As part of its investment banking business, KBW is continually engaged in the valuation of bank and bank holding company securities~~disbursements incurred in connection with ~~acquisitions, negotiated underwritings, secondary distributions~~its retention up to $25,000 without Merchants prior written consent. Merchants has also agreed to indemnify Piper against certain liabilities, including liabilities under the federal securities laws, arising out of ~~listed and unlisted securities, private placements and valuations for various~~its engagement.

Other than Piper’s engagement by Merchants in connection with the Merger, Piper has not provided any other ~~purposes. As specialists~~material investment banking or financial advisory services to Merchants, Community Bank System or their affiliates during the past two years; however, Piper may do so in the ~~securities of banking companies, KBW has experience in, and knowledge of, the valuation of banking enterprises.~~future. In the ordinary course of ~~KBW’s~~

TABLE OF CONTENTS

Piper’s business as a broker-dealer, ~~KBW~~Piper may, from time to time, purchase securities from and sell securities to Oneida Financial and Community Bank System. In addition, further to an existing sales and trading relationship between Oneida Financial and a KBW affiliated broker-dealer, such affiliate from time to time purchases securities from, and sells securities to, Oneida Financial. As a market maker in securities, KBW may from time to time have a long or short position in, and buy or sell, debt or equity securities of Oneida Financial andMerchants, Community Bank System ~~for its own account and for the accounts of its customers.~~

Pursuant to the KBW engagement agreement, Oneida Financial agreed to pay KBW a total cash fee equal to 1.00% of the aggregate merger consideration, $250,000 of which became payable to KBW upon the rendering of its opinion and the balance of which is contingent upon the consummation of the Merger. Oneida Financial also agreed to reimburse KBW for reasonable out-of-pocket expenses and disbursements incurred in connection with its retention and to indemnify KBW against certain liabilities relating to or arising out of KBW’s engagement or KBW’s role in connection therewith. Other than in connection with this present engagement, during the two years preceding the date of its opinion, KBW has not provided investment banking and financial advisory services to Oneida Financial. During the two years preceding the date of its opinion, KBW has not provided investment banking and financial advisory services to Community Bank System. KBW may in the future provide investment banking and financial advisory services to Oneida Financial or Community Bank System and receive compensation for such services.their affiliates.

Certain Prospective Financial Information Provided by Oneida Financial.

~~Oneida Financial~~Merchants does not, as a matter of course, publicly disclose forecasts or ~~internal~~ projections ~~as to~~of its expected future financial performance, earnings or other results ~~due to,~~because of, among other things, the inherent ~~unpredictability~~difficulty of ~~certain~~predicting financial performance for future periods and the likelihood that the underlying assumptions and ~~estimates.~~estimates may not be realized. However, during the first quarter of 2015, Oneida Financial provided to Community Bank System a summary of certain internal financial forecasts prepared in the third fiscal quarter of 2014. These internal financial forecasts were prepared by Oneida Financial’s management as part of the annual budget process. A summary of those financial forecastsMerchants is ~~included~~including in this Proxy Statement/Prospectus ~~because such forecasts~~certain unaudited prospective financial information that was prepared based on publicly available earnings estimates (the “Projections”). The Projections were ~~made available~~discussed with Piper and used by Piper in connection with its financial analyses and opinion to ~~Community Bank System and KBW.~~

the Merchants board of directors as described above under the heading “— Opinion of Merchants’ Financial Advisor.” The Projections also were provided to the Merchants board in its consideration of the Merger.

The ~~selected financial forecasts described below~~Projections were not prepared with a view toward public disclosure ~~or compliance~~and, accordingly, do not necessarily comply with published guidelines of the SEC ~~the guidelines~~or established by the American Institute of Certified Public Accountants for ~~Prospective Financial Information,~~preparation and presentation of prospective financial information or ~~U.S.~~ generally accepted accounting ~~principles, and are included~~principles. Merchants’ independent registered public accounting firm, which is listed as an expert in ~~this Proxy Statement/Prospectus only because they were made available to Community Bank System in connection with~~ the proposed Merger. The prospective financial information included in this Proxy Statement/Prospectus has been prepared by, and is the responsibility of, Oneida Financial's management. Neither Oneida Financial’ssection entitled “Experts,” or any other independent ~~auditor, Crowe Horwath LLP, nor Community Bank System’s independent auditor, PricewaterhouseCoopers LLP, examined, compiled nor performed~~accountants, did not compile, examine, audit, or perform any procedures with respect to ~~the~~such prospective financial information, ~~described below~~ and ~~accordingly, neither firm expresses an~~has not expressed any opinion or any other form of assurance ~~with respect thereto. The reports of Crowe Horwath LLP and PricewaterhouseCoopers LLP included in~~on this ~~Proxy Statement/Prospectus relate to historical financial information. They do not extend to the prospective financial~~ information ~~and should not be read to do so.~~

or its achievability.

The financial forecasts described below are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from such estimates and should be read with caution. AlthoughProjections, while presented with numerical specificity, ~~these estimates are~~necessarily were based ~~upon a variety of~~on numerous variables and assumptions made by Oneida Financial’s management with respect to, among other things, industry performance, general economic, market, interest rate, and financial conditions, operating and other revenues and expenses, effective tax rates, capital expenditures, working capital and other matters. Some or all of the assumptions may not be realized, and as historical performance suggests, theythat are inherently ~~subject to significant business, economic and competitive uncertainties and contingencies, all of which are difficult to predict~~uncertain and many of which are beyond the control of ~~Oneida Financial. In addition, some of these assumptions,~~Merchants’ management. Given that the Projections cover multiple years, by their nature, they become subject to greater uncertainty with each successive year. The assumptions upon which the Projections were based necessarily involve judgments with respect to, among other things, future economic, market, competitive and regulatory conditions, all of which are ~~subjective~~difficult or impossible to predict and many of which are beyond Merchants’ control. Important factors that may affect actual results and the achievability of the Projections include, but are not limited to, the risks and uncertainties described in ~~many respects.~~Merchants’ annual report on Form 10-K for the fiscal year ended December 31, 2015, subsequent quarterly reports on Form 10-Q and current reports on Form 8-K. See “Where You Can Find More Information” beginning on page 104 of this Proxy Statement/Prospectus.

The Projections also reflect assumptions that are subject to change and are susceptible to multiple interpretations and periodic revisions based on actual results, revised prospects for Merchants’ business, changes in general business or economic conditions, or any other transaction or event that has occurred or that may occur and that was not anticipated when the Projections were prepared. In addition, the Projections do not take into account any circumstances, transactions or events occurring after the dates on which the Projections were prepared. Accordingly, actual results will differ, and may differ materially, from those contained in the Projections. There can be no assurance that the financial results in the Projections will be realized, or that future actual financial results will not materially vary from those in the Projections.

~~Accordingly,~~The inclusion of a summary of the Projections should not be regarded as an indication that Community Bank System or Merchants or any of their respective affiliates, officers, directors, advisors or other representatives consider the Projections to be predictive of actual future events, and the Projections should not be relied upon as such. None of Community Bank System or Merchants or any of their respective affiliates, officers, directors, advisors or other representatives gives any stockholder of Merchants or any other person any assurance that actual results will not differ materially from the Projections, and, except as otherwise required by law, Community Bank System, Merchants and their respective affiliates undertake no obligation to update or otherwise revise or reconcile the Projections to reflect circumstances existing after the dates on which the Projections were prepared or to reflect the occurrence of future events, even in the event that any or all of the assumptions ~~made in preparing these~~and estimates ~~may prove~~underlying the Projections are shown to be ~~inaccurate~~in error.

In light of the foregoing factors and the uncertainties inherent in the Projections, Merchants stockholders are cautioned not to place undue, if any, reliance on such Projections.

TABLE OF CONTENTS

The following table presents a summary of the Projections, which has been included solely to give the Merchants stockholders access to certain prospective financial information that was made available to the Merchants board and used by Piper, and is not included in this Proxy Statement/Prospectus to influence any decision of Merchants stockholders as to whether to vote to adopt the Merger Agreement or for any other purpose. The Projections are based on publicly available earnings estimates by research analysts covering Merchants through 2017, with an earnings growth rate of 5.0% applied to derive fiscal years 2018 through 2020. The projected financial data provided in this table has not been updated to reflect Merchants’ current views of its future financial performance, and should not be treated as guidance with respect to projected results for 2016 or any other period.


*(in millions, except per share amounts)*	2016P⁽¹⁾		2017P		2018P		2019P		2020P
Net Income	$	16.1	$	16.9	$	17.8	$	18.7	$	19.6
Earnings Per Diluted Share	$	2.34	$	2.46	$	2.58	$	2.71	$	2.85

(1)

Based on actual results for the first six months of calendar year 2016, and publicly available earnings estimates of research analysts for the remainder of the calendar year.

The Projections were used to derive projected after-tax cash flows based on assumptions provided by management, including (1) asset growth based on analyst estimates through 2017 and 4.0% asset growth thereafter, (2) a tangible common equity to tangible assets threshold of 7.0%, (3) pre-tax cost of cash of 1.5%, and (4) a marginal tax rate of 35.0%. Based on these assumptions, the projected after-tax cash flows were: $5.8 million for the second half of 2016; $11.8 million in 2017; $12.3 million in 2018; $12.8 million in 2019; and $13.2 million in 2020. This information was not prepared with a view toward public disclosure, and actual results may differ materially from these estimates. In addition, the forecasts do not take into account any of the expense savings or charges expected to result from the Merger or any other matters contemplated by the Merger Agreement, including limitations imposed in the Merger Agreement on Oneida Financial’s ability to engage in certain activities pending completion of the Merger without Community Bank System’s consent.

For these reasons, the description of the financial forecasts in this Proxy Statement/Prospectus should not be regarded as an indication that they are necessarily predictive of actual future performance and they should not be relied on as such. No one has made, or makes, any representation regarding these estimates by their inclusion in this Proxy Statement/Prospectus and, except as may be required by applicable securities laws, Oneida Financial does not intend to update or otherwise revise the projections to reflect circumstances existing after the date when made or to reflect the occurrences of future events even if any or all of the assumptions underlying the projections are shown to be in error. For additional information on factors that may cause future financial results to materially vary from those reflected in the projections prepared by Oneida Financial’s management, see the section entitled “Cautionary Statement Regarding Forward-Looking Information” beginning on page [ ] of this Proxy Statement/Prospectus.

Below are certain financial projections that were prepared by Oneida Financial’s management and were reviewed by Community Bank System in connection with the proposed Merger (in thousands, except per share data):

As of and for the Year Ended December 31,
2015 2016 2017 2018 2019
Total Assets $ 832,149 $ 851,732 $ 871,363 $ 891,196 $ 911,774
Cash and Cash Equivalents 39,898 33,693 30,318 20,879 10,817
Loans Receivable, net 390,478 417,505 446,460 477,449 508,425
Deposits 721,426 737,519 753,494 769,044 785,171
Total Stockholders’ Equity 97,733 100,913 104,253 108,216 112,347
Net Income 6,057 6,552 7,274 7,897 8,626
Earnings Per Share 0.86 0.93 1.04 1.12 1.23

The prospective financial information for Oneida Financial that was provided to KBW by Oneida Financial’s management and utilized and relied upon by KBW, as described in “Proposal I—Opinion of Oneida Financial’s Financial Advisor,” is different in some respects from the financial forecasts disclosed in the table above. Specifically, KBW was provided with and used an assumed long-term asset growth rate for Oneida Financial of 4% per year and a projected net income for the year ending December 31, 2015 of $6.4 million. The 4% per year long-term asset growth rate and the projected net income for the year ending December 31, 2015 were based on more current financial information than that set forth in the financial forecasts provided by Oneida Financial’s management to Community Bank System.amounts.

In addition, a 2020 earnings estimate of approximately $9.1 million was used and relied upon by KBW at the direction of Oneida Financial’s management and with the consent of Oneida Financial’s board in the discounted cash flow analysis performed by KBW in connection with its opinion. This estimate, which was derived from the projected net income for the year ending December 31, 2019, utilized an assumed earnings growth rate of 6% and was calculated solely for purposes of the discounted cash flow analysis in connection with KBW’s opinion, and none of Community Bank System, Oneida Financial and KBW assumes any responsibility for any use of such estimate, or reliance on such estimate, for any other purpose.

The inclusion of the foregoing financial projections in this Proxy Statement/Prospectus should not be regarded as an admission or representation by Oneida Financial or Community Bank System that they are considered to constitute material information of Oneida Financial.

VotingStockholder Support Agreements with Directors and Another Principal Stockholder of Oneida Financial and Certain Executive Officers of Oneida Financial and its Subsidiaries.
Merchants

Community Bank System has entered into a ~~voting~~stockholder support agreement with each director of ~~Oneida Financial~~Merchants and ~~certain executive officers~~another principal stockholder of ~~Oneida Financial and its subsidiaries.~~Merchants with voting power with respect to an aggregate of [•] shares of Merchants common stock, or approximately [•]% of the shares of Merchants common stock outstanding as of the record date. Pursuant to the agreements, each director and ~~certain executive officers~~the principal stockholder of ~~Oneida Financial and its subsidiaries~~Merchants have agreed to vote “FOR” the adoption of the Merger Agreement all of ~~his or her~~the shares of ~~Oneida Financial~~Merchants common stock that ~~he or she is~~they are entitled to vote.

Financial Interests of Oneida FinancialMerchants Directors and Certain Executive Officers in the Merger

~~Certain members~~In considering the recommendation of ~~management~~the Merchants board of directors with respect to its approval of the Merger Agreement, Merchants stockholders should be aware that certain of Merchants’ directors and ~~directors of Oneida Financial~~executive officers have ~~financial~~ interests in the Merger that are different from, ~~and~~or in addition to, those of Merchants stockholders generally. These interests may ~~conflict with, interests~~create potential conflicts of ~~other Oneida Financial stockholders.~~interest. The ~~Oneida Financial~~Merchants board of directors was aware of and considered these interests, among other matters, in reaching its decision to approve, and ~~considered them in approving~~declare advisable, the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement. ~~These~~The material interests are ~~as follows:~~summarized below.

~~Share Ownership~~

Effect of the record date forMerger Agreement on Equity Awards

In connection with the ~~special meeting, Oneida Financial’s~~Merger, the Merchants’ equity awards held by Merchants’ directors and ~~certain~~executive officers will be treated the same as all outstanding Merchants’ equity awards, except as noted below under the header titled “Equity Awards of ~~Oneida Financial~~Certain Directors and its subsidiaries beneficially owned, in the aggregate, _______ shares of Oneida Financial’s common stock (excluding shares that may be acquired upon the exercise of stock options), representing approximately ____% of the outstanding shares of Oneida Financial common stock.

~~Oneida Financial Stock-Based Awards~~

Executive Officers”.

Cash Payment for Outstanding Merchants Stock Options.~~Under~~ Consistent with the terms of Merchants’ 2008 Stock Incentive Plan, the Merger Agreement ~~all outstanding stock options issued under the Oneida Financial 2012 Equity Incentive Plan, whether or not vested,~~provides that, ~~are outstanding and unexercised immediately before~~at the effective time of the Merger, each Merchants stock option outstanding and unexercised immediately prior to the effective time of the Merger, whether or not vested or exercisable, will be cancelled and automatically converted into the ~~holder of the option will~~right to receive a cash ~~payment~~amount equal to the ~~product~~aggregate number of ~~(1)~~shares of Merchants common stock subject to such optionmultiplied by the excess of the value of the mixed election consideration over the exercise price of such option.

Vesting of Merchants Restricted Stock Awards. Consistent with the terms of Merchants’ 2008 Stock Incentive Plan, the Merger Agreement provides that, at the effective time of the Merger, each share of

TABLE OF CONTENTS

Merchants common stock subject to vesting or forfeiture restrictions and granted under any Merchants benefit plan that is outstanding immediately prior to the effective time, whether or not vested, will automatically vest in full, and any restrictions thereon will lapse, and such Merchants restricted share shall be canceled and converted into the right to receive an amount of cash equal to the value of the mixed election consideration plus dividends, if any, accrued but unpaid as of the effective time with respect to such restricted share.

Treatment of Merchants Warrants. Each organizers’ warrant to purchase Merchants common stock outstanding as of the effective time will be converted at the effective time into a warrant to acquire, upon payment of the amount determined by dividing the per share exercise price immediately prior to the effective time by the stock election consideration of 0.9630, the number of shares of ~~Oneida Financial~~Community Bank System common stock determined by multiplying (i) the number of shares of Merchants common stock which may be acquired upon exercise of such organizers’ warrant immediately prior to the effective time by (ii) the stock election consideration of 0.9630. As of December 1, 2016, Don Chase held organizers’ warrants for 1,208 shares with an exercise price of $41.39 per share.

Equity Awards of Certain Directors and Executive Officers

For certain executive officers, Merchants will accelerate the vesting of outstanding equity awards that would otherwise have vested at the effective time of the Merger, so that such awards vest in December 2016 in order to mitigate the impact of Section 4999 of the Code, as discussed in more detail below. Such acceleration is subject to the ~~stock option, multiplied by (2) $20.00, less~~executive officer agreeing to (i) hold such accelerated shares through the ~~exercise price~~earlier of his or her termination of employment with Merchants or the closing of the ~~stock option, without interest,~~Merger and (ii) repay to Merchants an amount, in cash, equal to the compensation recognized by such executive officer, less ~~any required tax withholding. The number~~applicable employment and income taxes, for the accelerated shares should he or she terminate employment prior to closing of ~~Oneida Financial~~the Merger.

Outstanding stock options held by Mr. Tuttle are scheduled to expire on December 31, 2016 if they have not been exercised as of such date. Due to the pendency of the Merger, Merchants has agreed to extend the exercise period with respect to Mr. Tuttle’s stock options until the earlier of (i) the closing of the Merger, and (ii) the original expiration date of the options. As of December 1, 2016, Mr. Tuttle held options to purchase 26,520 shares of Merchants stock with a weighted average exercise price of $22.50.

Retention Incentives for Executive Officers

In order to incentivize and motivate certain executives who are not expected to be retained on a long-term basis following the closing of the Merger to provide critical services during the pendency of the Merger, Community Bank System has entered into retention agreements with each of Messrs. Cataldo and Watson and Mses. Thresher, Abbott, and Dragon. Under these retention agreements, an amount equal to 40% of the executive’s base salary (or 50% of base salary, in the case of Ms. Thresher) will become payable upon the closing of the Merger, subject to the executive’s continued service through the closing of the Merger and completion of certain activities and other items prior to the closing of the Merger related to the integration of Merchants with Community Bank System. In the event that the retention bonus (together with any other payments to the executive officers) would constitute a “parachute payment” and would be subject to the excise tax imposed by Section 4999 of Code, such amounts would be reduced to the largest payment possible without the imposition of an excise tax under Section 4999 of the Code.

In addition, for performance in 2016, Merchants intends to grant restricted stock awards under the 2008 Stock Incentive Plan in early 2017 to these executive officers ~~and non-employee directors of Oneida Financial are as follows:~~

Executive Officer/Director of Oneida Financial �� Oneida Financial
Stock Options
(#) Cash Payment for
Cancelled Options
($)
Michael R. Kallet 25,000 242,500
Eric E. Stickels 20,000 194,000
Deresa F. Durkee 10,000 97,000
Pierre J. Morrisseau 10,000 97,000
John F. Catanzarita 10,000 97,000
Non-employee directors as a group (10 persons) 39,000 378,300

~~Acceleration of Vesting of~~(the “2017 Restricted Stock ~~Awards~~Grants”). ~~Under~~It is expected that the value of each restricted stock award will be approximately 15% of each executive officer’s respective 2017 base salary and will have terms and conditions consistent with Merchants’ past practice, which include three-year cliff vesting subject to acceleration upon a change in control of Merchants, including as a result of the Merger.

TABLE OF CONTENTS

Quantification of Equity Acceleration and Retention Incentives

The following table quantifies the payments and benefits that Merchants’ executive officers may receive in connection with the Merger due to the accelerated vesting of unvested restricted shares held as of December 1, 2016 and the payment of retention incentives. As of December 1, 2016, none of Merchants’ executive officers held any stock options and none of Merchants’ directors held unvested restricted shares or unvested stock options or had received, or were expected to receive, any retention incentives.


Executive Officer	Restricted Stock				Value of 2017 Restricted Stock Grant ($)⁽²⁾		Value of Retention Bonus ($)		Total ($)
Executive Officer	Number of Shares		Estimated Value ($)⁽¹⁾		Value of 2017 Restricted Stock Grant ($)⁽²⁾		Value of Retention Bonus ($)		Total ($)
Laura Abbott		879		37,621		23,250		62,000		122,871
Bruce Bernier		1,204		51,531		—		—		51,531
Anita Bourgeois		—		—		—		—		—
Michael Cataldo		342		14,638		22,200		59,200		96,038
Jacqueline Dragon		1,463		62,616		21,750		58,000		142,366
Geoffrey Hesslink		6,153		263,348		—		—		263,348
Eric Segal		—		—		—		—		—
Marie Thresher		3,182		136,190		43,500		145,000		324,690
Jonathan Watson		879		37,621		24,450		65,200		127,271

(1)

Amounts based upon multiplying the number of shares of restricted stock held by the executive officer by $42.80 (the average closing price of a share of Merchants stock over the first five business days following the public announcement of the Merger).

(2)

Amounts reflect the estimated value of the 2017 Restricted Stock Award upon the date of grant (calculated as a percentage of each executive officer’s current base salary). The actual value the executive officers may receive in the Merger with respect to such 2017 Restricted Stock Award may be more or less than this amount depending upon the executive officer’s base salary in effect upon the date of grant and the difference between the value of Merchants stock upon the grant date and the actual per share merger consideration.

Severance Arrangements with Merchants

Merchants has an existing employment agreement with each of its executive officers, which provides that if, within 24 months following a change in control, an executive is terminated without cause or resigns for good reason, the executive will be paid a lump sum amount equal to the sum of (i) a prorated bonus and (ii) three times (for Mr. Hesslink) or two times (for the other executives) the executive’s then-current base salary. Furthermore, Merchants will continue to pay its share of the cost of health insurance for the executive for up to 18 months following such termination. The prorated bonus portion of the cash severance shall be calculated as the amount payable under Merchants’ annual incentive compensation plan based on the extent to which the applicable performance criteria for the year of termination of employment have been achieved, as measured through the end of the most recently completed calendar quarter, multiplied by a fraction, the numerator of which shall be the number of days the executive was employed by Merchants in the year of termination of employment and the denominator of which shall be 365.

In the event that any payments to the executive officers would constitute a “parachute payment” and would be subject to the excise tax imposed by Section 4999 of the Code, such amounts would be reduced to the largest payment possible without the imposition of an excise tax under Section 4999 of the Code. As noted above, Merchants has accelerated the vesting of certain equity awards that would otherwise have vested at the effective time of the Merger, so that such awards vest in December 2016 in order to mitigate the impact of Section 4999 of the Code.

As described below, Community Bank System has entered into employment agreements with each of Messrs. Hesslink and Bernier, and Ms. Bourgeois, which agreements will become effective upon the closing of the Merger and will supersede the employment agreements each executive is currently party to with Merchants.

TABLE OF CONTENTS

Community Bank System has confirmed its intention to honor the terms of the ~~Merger Agreement, Oneida Financial restricted stock awards~~employment agreements with Messrs. Cataldo and Watson and Mses. Thresher, Abbott, and Dragon. Community Bank System further acknowledged that these executive officers would have ~~not yet vested~~good reason to resign following the closing of the Merger. The following table quantifies the potential payments and benefits that these executive officers may receive under their employment agreements, assuming a termination without cause or resignation for good reason following the Merger. As noted above, such amounts may be subject to reduction to the extent necessary to avoid the imposition of an excise tax under Section 4999 of the Code.


Executive Officer	Severance Payment ($)⁽¹⁾		Estimated Value of Benefits Continuation ($)		Total ($)
Laura Abbott		345,565		21,463		367,028
Michael Cataldo		329,962		15,897		345,859
Jacqueline Dragon		323,275		8,055		331,330
Eric Segal		—		—		—
Marie Thresher		659,853		—		659,853
Jonathan Watson		363,403		21,736		385,139

(1)

For purposes of this table, the prorated bonus portion of the severance was calculated based upon target bonus opportunity, and assuming a termination of employment on December 1, 2016. Because the actual termination date is expected to occur on or following the effective time of the Merger, which is expected to occur in the second quarter of 2017, the actual prorated bonus may be less than this amount.

New Employment Agreements with Community Bank System

Community Bank System entered into employment agreements with each of Messrs. Hesslink and Bernier, and Ms. Bourgeois, which agreements will become effective upon the closing of the Merger and will supersede the employment agreements each executive is currently party to with Merchants. Mr. Hesslink has accepted a position with Community Bank System as Regional President, New England, Mr. Bernier has accepted a position with Community Bank System as Senior Lender for Vermont, and Ms. Bourgeois has accepted a position with Community Bank System as the Vice President of Retail and Municipal Banking for New England, in each case, effective upon and following the closing of the Merger.

Under the new agreements, each executive will receive a signing bonus payable upon the first payroll date following the effective date of the Merger in the following amount: Mr. Hesslink, $1,281,000; Mr. Bernier, $500,000; and Ms. Bourgeois, $360,000. Mr. Hesslink’s base salary will be $350,000 with target incentive compensation of 25% of base salary; Mr. Bernier’s base salary will be $160,000 with target incentive compensation of 25% of base salary; and Ms. Bourgeois’ base salary will be $160,000 with target incentive compensation of 20% of base salary. If the executive is terminated without cause or resigns for good reason during the term of the employment agreement (which is two years for Mr. Bernier and Ms. Bourgeois, and three years for Mr. Hesslink) or within 12 months after the term of the agreement expires (or 24 months for Mr. Hesslink), the executive will be entitled to accelerated vesting of equity awards and severance in an amount equal to the sum of the executive’s base salary and most recent bonus amount (or target bonus if no payment has yet been made or if such bonus was for a partial year). Upon a termination for any reason other than for cause within two years after a change in control, Mr. Hesslink shall receive the greater of (i) two times the sum of his base salary and any payments made under the management incentive plan in the previous 12 months, or (ii) base salary plus expected payments to be made under the management incentive plan. The agreements contain restrictive covenants, including non-solicitation and non-competition covenants.

In the event that any payments to the executive officers under the employment agreements (together with any other payments) would constitute a “parachute payment” and would be subject to the excise tax imposed by Section 4999 of the Code, such amounts would be reduced to the largest payment possible without the imposition of an excise tax under Section 4999 of the Code unless payment of the full amount despite payment of the excise tax would be a greater net amount.

TABLE OF CONTENTS

Regulatory Requirements

Notwithstanding the foregoing, all payments and benefits under the Merchants plans and arrangements are subject to any required regulatory approval or satisfaction of a condition in any regulatory approval, as applicable.

Director Deferred Compensation

Certain of Merchants’ directors have deferred compensation under Merchants’ director deferred compensation plans. All such deferred compensation is fully ~~vested following~~vested. Community Bank System will honor the terms and obligations of Merchants’ director deferred compensation plans, unless such plans are terminated prior to the effective time of the Merger by mutual agreement of Merchants and Community Bank System.

Retained Directors

At the effective time of the Merger, Community Bank System will expand the size of its board of directors by two seats and appoint two directors of Merchants to the board of directors of Community Bank System and Community Bank. Each appointed director will qualify as an “Independent Outside Director” of Community Bank System under ISS Guidelines and will meet all legal and regulatory requirements for serving on the board of directors of Community Bank System. One appointed director will be appointed to the class of directors of Community Bank System with terms expiring at the second annual meeting of stockholders occurring after the effective time of the Merger and ~~each share of restricted stock~~the other appointed director will be ~~exchanged for~~appointed to the ~~merger consideration. The unvested restricted stock awards held by Oneida Financial’s executive officers and non-employee~~class of directors ~~are as follows:~~

~~Executive Officer/Director of Oneida Financial~~	~~Oneida Financial~~ ~~Unvested Restricted~~ ~~Stock Awards~~ ~~(#)~~
~~Michael R. Kallet~~	~~40,000~~
~~Eric E. Stickels~~		~~32,000~~
~~Deresa F. Durkee~~		~~16,000~~
~~Pierre J. Morrisseau~~		~~16,000~~
~~John F. Catanzarita~~		~~16,000~~
~~Non-employee directors as a group (10 persons)~~		~~30,000~~

~~Employment Agreements~~of Community Bank System with ~~Executive Officers~~

~~Oneida Savings~~terms expiring at the third annual meeting of stockholders occurring after the effective time of the Merger. It has not yet been determined which members of the Merchants board of directors will serve on the board of directors Community Bank has existing employment agreements with Michael R. Kallet, Eric E. Stickels and Deresa F. Durkee. OneGroup NY, Inc., the wholly-owned insurance subsidiary agency and employee benefit subsidiary of Oneida Savings Bank, has existing employment agreements with Pierre J. Morrisseau and John F. Catanzarita. System.

Indemnification

Pursuant to the Merger Agreement, Community Bank System has agreed to honor in accordance with their terms all benefits payable under the employment agreements, which provide certain benefits in the event the executive officer’s employment is terminated under specified circumstancesthat it will, from and ~~within a specified period of time following a change in control, such as the Merger.~~

If an executive officer’s employment is terminated without “cause,” or the executive officer resigns for “good reason” (each term as defined in the employment agreements), within six months prior to, or 12 months following, the occurrence of a change in control at a time when the employment agreement is in effect, Oneida Savings Bank will make payments and provide benefits as follows:

For Messrs. Kallet and Stickels, a lump sum cash severance payment equal to 2.99 times the average annual compensation paid to the executive by Oneida Savings Bank or Oneida Financial and included in his gross income for income tax purposes during the five full calendar years immediately preceding the year during which the change in control occurs.

For Ms. Durkee, a lump sum cash severance payment equal to 2.0 times the average annual compensation paid to the executive by Oneida Savings Bank or Oneida Financial and included in her gross income for income tax purposes during the five full calendar years immediately preceding the year during which the change in control occurs.

For Messrs. Morrisseau and Catanzarita, a lump sum cash severance payment equal to 2.0 times the average annual compensation paid to the executive by OneGroup NY, Inc., Oneida Savings Bank or Oneida Financial and included in his gross income for income tax purposes during the two calendar years immediately preceding the year during which the change in control occurs.

For each executive officer, except for Mr. Kallet, a cash bonus payment equal to the estimated amount necessary for the executive officer to use the after-tax portion of such payment to pay the premiums of his or her supplemental disability and life insurance coverage for 18 months with respect to Mr. Stickels and Ms. Durkee or 12 months with respect to Messrs. Morrisseau and Catanzarita.

For each executive officer, continued life insurance coverage and non-taxable medical and dental insurance coverage at substantially same levels that existed prior to his or her date of termination, which would be provided for 18 months for Mr. Kallet, Mr. Stickels and Ms. Durkee and 12 months for Messrs. Morrisseau and Catanzarita.

The employment agreements provide that the payments described above will be reduced to the extent necessary to avoid penalties under Section 280G of the Internal Revenue Code. The employment agreements for Mr. Kallet, Mr. Stickels and Ms. Durkee contain non-competition and non-solicitation covenants, which each executive officer must comply with for 24 months following his or her date of termination. The employment agreements for Messrs. Morrisseau and Catanzarita each provide for a two year non-competition covenant following the executive’s date of termination, except for his qualifying termination event (as described above) in connection with a change in control.

For an estimate of the amounts payable in connection with a qualifying termination of employment following the merger to Oneida Financial’s named executive officers under their employment agreements, see “Merger Related Compensation for Oneida Financial’s Named Executive Officers” below.

~~Performance Based Compensation Plans~~

The Oneida Financial Corp. Performance Based Compensation Plan (the “Company Incentive Plan”) and the Oneida Savings Bank Performance Based Compensation Plan (the “Bank Incentive Plan”) were adopted to provide financial incentives to certain executives who contribute materially to the continued growth, development and future business success of Oneida Financial and Oneida Savings Bank. Messrs. Kallet and Stickels are participants in the Company Incentive Plan. Ms. Durkee is a participant in the Bank Incentive Plan. Messrs. Morrisseau and Catanzarita are not participants in either plan.

For 2015, the Compensation Committee established an aggregate bonus pool under the Company Incentive Plan equal to 4.0% of Oneida Financial Corp.’s net income (as reported on a consolidated basis) and an aggregate bonus pool under the Bank Incentive Plan equal to 8.5% of Oneida Savings Bank’s net income. The bonus pool under each of the plans will be allocated based on Oneida Financial’s and Oneida Savings Bank’s satisfaction of certain target performance thresholds related to return on average assets and return on average tangible equity and Oneida Financial’s net income growth rate, and will be distributed to participants based on their category level under the plans.

Pursuant to the plans and the Merger Agreement, each participant in the Company Incentive Plan and the Bank Incentive Plan is entitled to receive a pro-rata portion of his or her annual incentive award (the “Pro-Rata Award”) payable under the plans, calculated from the first day of the plan year beginning on January 1, 2015 (or beginning on January 1, 2016 if the effective time of Merger occurs in the 2016 calendar year) untilafter the effective time of the Merger, ~~as if~~indemnify and hold harmless the ~~performance requirements attributable to~~present and former directors, officers and employees of Merchants and its subsidiaries against any costs or expenses, judgments, settlements effected with the ~~awards achieved “target” performance. The Pro-Rata Award will be paid to each participant~~prior written consent of Community Bank System, fines, losses, taxes, damages or liabilities incurred in ~~a cash lump sum at~~connection with any claim, action, suit, proceeding or investigation arising before or after the effective time of the ~~Merger.~~

~~For an estimate~~Merger, arising in whole or in part out of, or pertaining to the fact that such person is or was a director, officer or employee of Merchants or its subsidiaries, or otherwise in connection with any action taken or not taken at the request of Merchants or its subsidiaries or is or was serving at the request of Merchants or its subsidiaries as a director, officer employee, agent, trustee or fiduciary of another person and pertaining to matters, acts or omissions existing or occurring at or prior to the effective time of the ~~amounts payable~~Merger, including matters, acts or omissions occurring in connection with the approval of the Merger Agreement and the transactions contemplated thereby, to ~~Oneida Financial’s named executive officers who~~the fullest extent permitted by applicable law. Community Bank System has also agreed to advance expenses as incurred by any indemnified party to the fullest extent permitted by applicable law within thirty days after a written request setting forth such expenses in reasonable detail, provided that such indemnified party to whom expenses are ~~participants in the Company Incentive Plan or the Bank Incentive Plan, see “Merger Related Compensation for Oneida Financial’s Named Executive Officers” below.~~advanced provides an undertaking to repay such advances if it is ultimately decided that such indemnified party is not entitled to indemnification.

~~Indemnification;~~

Directors’ and Officers’ Insurance

Community Bank System has further agreed ~~to indemnify all directors, officers, and employees of Oneida Financial~~that for a period of six years toafter the ~~fullest extent permitted by law against:~~

~~all liabilities and expenses relating to claims, proceedings, or investigations resulting from the person’s status as a director, officer, or employee~~effective time of ~~Oneida Financial or any Oneida Financial subsidiary, whether pertaining to matters existing prior to the Merger and whether asserted prior to or after the Merger; and~~

~~all liabilities and expenses relating to claims, proceedings or investigations arising out of the Merger Agreement or the Merger.~~

Community Bank System has also agreed that all rights to indemnification and all limitations on liability existing in favor of Oneida Financial’s directors, officers and employees provided in Oneida Financial’s certificate of incorporation, bylaws or similar governing documents with respect to matters occurring prior to the Merger, it will ~~continue~~cause to be maintained in ~~full force and~~ effect ~~after~~ the ~~Merger. Community Bank System has agreed to honor those commitments as though it were the indemnifying party.~~

~~Community Bank System will maintain Oneida Financial’s existing~~current policies of directors’ and officers’ liability insurance ~~policy,~~maintained by Merchants with respect to claims against them arising from matters, acts or ~~a policy providing comparable coverage amounts~~omissions occurring at or before the effective time of the Merger (including the transactions contemplated by the Merger Agreement). Community Bank System will not be obligated to expend, on ~~terms no less favorable, covering those persons for a period~~an annual basis, an amount in excess of ~~six years from~~three hundred percent of the current annual premium paid as of the date of the Merger ~~subject to certain maximum cost limits.~~

~~Continued Director Fees~~

~~Two current directors of Oneida Financial, Michael R. Kallet~~Agreement by Merchants for such directors’ and ~~Eric E. Stickels, will become directors of~~officers’ liability insurance (the “premium cap”) and if such premiums at any time exceed the premium cap, then Community Bank System ~~and Community Bank. As such, they~~shall cause to be maintained policies of insurance which will ~~receive directors’ fees and benefits~~provide the maximum coverage available at an annual premium equal to the premium cap. In lieu of the foregoing, Merchants in ~~accordance~~consultation with Community Bank ~~System’s policies on compensation of non-employee directors from time to time. Subject~~System may obtain at or prior to the ~~exercise of~~effective time a substitute policy for a price that in the ~~fiduciary duties of Community Bank System’s board of directors, Community Bank System will cause~~aggregate does not exceed the Nominating and Corporate Governance Committee of Community Bank System to nominate, and will cause its board to recommend for election, Messrs. Kallet and Stickels at Community Bank System’s next annual meeting of stockholders at which they are standing for election. See “The Merger Agreement—Directors, Employees and Employee Benefits” on page [ ] for more information.premium cap.

TABLE OF CONTENTS

Merger-Related Executive Compensation for Oneida Financial’sMerchants’ Named Executive Officers

The ~~following~~ table ~~and related footnotes provide~~below sets forth the information ~~about~~required by Item 402(t) of Regulation S-K regarding the compensation ~~to be paid to Oneida Financial’s named executive officers~~ that is based on or otherwise relates to the Merger for Merchants’ named executive officers who were executive officers as of December 1, 2016 (Mr. Hesslink and Ms. Thresher) and who are receiving compensation relating to the Merger, assuming that (i) a change of control of Merchants occurred on December 1, 2016, the latest practicable date prior to the filing of this proxy/prospectus, (ii) the price per share of Merchants common stock is $42.80 (the ~~“Merger-Related~~average closing market price of Merchants’ common stock on NASDAQ over the first five business days following the October 24, 2016 public announcement of the Merger Agreement), (iii) the named executive officer’s base salary rates and annual target bonuses remain unchanged from those in place as of such date, and (iv) no named executive officer receives any additional equity grants on or prior to the effective time of the Merger other than the 2017 Restricted Stock Grant to Ms. Thresher as described above under “Retention Incentives for Executive ~~Compensation”)~~Officers”. ~~The Merger-Related Executive Compensation shown~~Amounts set forth in the table ~~and described in the footnotes below is~~may be subject to reduction to the extent necessary to avoid the imposition of an ~~advisory (non-binding) vote of Oneida Financial’s stockholders as more fully described in “Proposal II—Merger-Related Executive Compensation” on page [ ].~~

~~The table below sets forth the aggregate dollar value~~excise tax under Section 4999 of the ~~various elements~~Code.

As described above, Merchants has entered into employment agreements with Mr. Hesslink and Ms. Thresher. At the time of ~~Merger-Related Executive Compensation~~the execution of the merger agreement, Mr. Hesslink entered into a new employment agreement with Community Bank System that ~~each~~will supersede his existing employment agreement with Merchants effective upon the closing of the Merger. Ms. Thresher remains subject to her employment agreement with Merchants. For Mr. Hesslink, the table presents the terms of his new employment agreement with Community Bank System and assumes he will not be terminated and will be employed by Community Bank System following the closing of the merger. For Ms. Thresher, it is assumed that she is terminated without cause or resigns for good reason immediately following the closing of the Merger.

Merchants’ named executive officers who were not executive officers as of December 1, 2016 (Mr. Tuttle, Thomas Meshako and Molly Dillon) and Merchants’ interim principal financial officer ~~of Oneida Financial would receive~~(Mr. Segal) are not entitled to any compensation that is based on or otherwise relates to the ~~Merger, assuming the following:~~Merger.

Golden Parachute Compensation


Name	Cash ($)⁽¹⁾		Equity ($)⁽²⁾		Other ($)⁽³⁾		Total ($)
Geoffrey Hesslink (President and Chief Executive Officer)		—		263,348		1,281,000		1,544,348
Marie Thresher (Executive Vice President, Chief Operating Officer)		659,853		179,690		145,000		984,543

·(1)

Amount equals the ~~estimated~~total cash severance upon a qualifying termination of employment. The cash severance payment is “double-trigger” (i.e., it is contingent upon a qualifying termination of employment following the effective time of the Merger). The severance amount will be paid in a lump sum. For purposes of this table, the prorated bonus portion of the severance was calculated based upon target bonus opportunity, and assuming a termination of employment on December 1, 2016. Because the actual termination date is expected to occur on or following the effective time of the Merger, which is ~~March 30, 2015;~~expected to occur in the second quarter of 2017, the actual prorated bonus may be less than this amount.

·(2)

~~each named executive officer experiences a qualifying termination event at~~Amount equals the ~~effective time~~value of the ~~Merger; and~~

~~all amounts below have been calculated~~single-trigger vesting for the unvested equity held by the executive upon the consummation of the Merger. The value is based onupon a price per share of $42.80, which is the average closing price of ~~Oneida Financial common~~Merchants stock ~~of $19.65 (the average closing market price of Oneida Financial common stock~~on NASDAQ over the first five business days following the ~~first~~ public announcement of the Merger ~~on February 24, 2015).~~

The amounts shown below are estimates based on multiple assumptions that may or may not actually occur, including assumptions described in this Proxy Statement/Prospectus. As a result, the actual amounts to be received by a named executive officer may differ materially from the amounts set forth below.

Merger-Related Executive Compensation
Executive Cash
($) Equity
($)(1) Pension/NQDC
($) Perquisites/
Benefits
($)(2) Tax
Reimbursement
($) Other
($) Total
($)
Michael R. Kallet 1,609,243 (3) 1,028,500 — 19,003 — — 2,656,746
Eric E. Stickels 1,046,122 (4) 822,800 — 19,003 — — 1,887,925
Deresa F. Durkee 304,233 (4) 411,400 — 19,003 — — 734,636
Pierre J. Morrisseau 658,994 (5) 411,400 — 12,449 — — 1,082,843
John F. Catanzarita 658,058 (5) 411,400 — 12,449 — — 1,081,907

~~(1)~~

~~Represents: (i)~~Agreement. For Ms. Thresher, the amount includes the estimated value of the acceleration of Oneida Financial’s restricted stock awards based on a per share price of $19.65, the average closing price per share over the first five business days following the announcement of the Merger Agreement; and (ii) the cash payment related2017 Restricted Stock Award to ~~the cancellation of stock options~~be awarded in an amount equal to the product of the number of shares of Oneida Financial common stock subject to the stock options multiplied by the excess, if any, of (A) $20.00 over (B) the exercise price per share payable pursuant to the stock option. Pursuant to the Merger Agreement, such vesting of the restricted stock and the cash payment in lieu of the cancelled stock options is a single trigger event effective upon consummation of the Merger, and is not conditioned upon termination of the executive’s employment. For Mr. Kallet, the equity amount represents $786,000 attributable to the value of 40,000 Oneida Financial restricted stock awards for which vesting is accelerated and $242,500 attributable to the payment in cancellation of 25,000 Oneida Financial stock options with an exercise price of $10.30 per option. For Mr. Stickels, the equity amount represents $628,800 attributable to the value of 32,000 Oneida Financial restricted stock awards for which vesting is accelerated and $194,000 attributable to the payment in cancellation of 20,000 Oneida Financial stock options with an exercise price of $10.30 per option. For Ms. Durkee, Mr. Morrisseau and Mr. Catanzarita, the equity amounts each represent $314,400 attributable to the value of 16,000 Oneida Financial restricted stock awards for which vesting is accelerated and $97,000 attributable to the payment in cancellation of 10,000 Oneida Financial stock options with an exercise price of $10.30 per option.2017. For a ~~description~~discussion of the treatment of unvested equity and the ~~outstanding equity awards held by Oneida Financial directors and certain executive officers, please~~assumptions with respect to such 2017 Restricted Stock Award, see ~~“—Financial Interests of Oneida Financial Directors and Certain~~“Change in Control Equity Acceleration for Executive Officers ~~in the Merger.~~”

~~(2)~~

~~Represents the present value of health care~~ and ~~life insurance benefits provided: (i) to Mr. Kallet, Mr. Stickels and Ms. Durkee~~“Retention Incentives for 18 months following his or her qualifying termination of employment; and (ii) to Mr. Morrisseau and Mr. Catanzarita for 12 months following his qualifying termination of employment. Such benefits are provided under each executive’s employment agreement, and would be triggered in the event of the executive’s qualifying termination event within six months prior or 12 months following the Merger. Present values are calculated using 120% of the applicable federal rate (compounded semi-annually) for March 2014, as published by the Internal Revenue Service. For a description of the employment agreements, please see “—Financial Interests of Oneida Financial Directors and Certain Executive Officers in the Merger—~~Employment Agreements with~~ Executive Officers.” above.

(3)

~~Represents~~Amount equals the ~~sum of: (i)~~signing bonus that Mr. Hesslink will receive from Community Bank System and the cash ~~severance~~retention bonus that Ms. Thresher will receive from Community Bank System upon the closing of $1,574,028 payable under Mr. Kallet’s employment agreement, and (ii) the Pro-Rata Bonus of $35,215 payable under the Company Incentive Plan. Such payments under the employment agreement would be triggered upon his qualifying termination event within six months prior or 12 months following the Merger. ~~The Merger Agreement provides that the Pro-Rata Bonus would~~Each such payment will be paid ~~to Mr. Kallet~~ in a ~~cash~~ lump sum at the effective time of the Merger, which is not conditioned upon the termination of his employment. Please see ““—Financial Interests of Oneida Financial Directors and Certain Executive Officers in the Merger—~~Employment Agreements with Executive Officers”~~ ~~and “—Financial Interests of Oneida Financial Directors and Certain Executive Officers in the Merger—~~~~Performance Based Compensation Plans~~~~” for further details.~~sum.

~~(4)~~

Represents the sum of: (i) the cash severance and cash bonus payable under Mr. Stickels’ and Ms. Durkee’s employment agreements, which are $1,022,646 and $295,467, respectively; and (ii) a Pro-Rata Bonus of $23,477 and $8,766 payable to Mr. Stickels and Ms. Durkee, respectively. Such payments under the employment agreements would be triggered by their qualifying termination event within six months prior or 12 months following the Merger. The Merger Agreement provides that the Pro-Rata Bonuses would be paid to Mr. Stickels and Ms. Durkee in a cash lump sum at the effective time of the Merger, which is not conditioned upon the termination of their employment. Please see “—Financial Interests of Oneida Financial Directors and Certain Executive Officers in the Merger—~~Employment Agreements with Executive Officers~~~~” and “— Financial Interests of Oneida Financial Directors and Certain Executive Officers in the Merger —~~~~Performance Based Compensation Plans~~~~” for further details.~~

~~(5)~~

Represents the sum of the cash severance and cash bonus payable under Messrs. Morrisseau’s and Catanzarita’s employment agreements. Such payments would be triggered by their qualifying termination event within six months prior or 12 months following the Merger. Please see “—Financial Interests of Oneida Financial Directors and Certain Executive Officers in the Merger—~~Employment Agreements with Executive Officers~~~~” for further details.~~

TABLE OF CONTENTS

Material Federal U.S. Income Tax Consequences of the Merger

~~Generally.~~The following discussion is based on, and subject to, the Code, the Treasury regulations promulgated under the Code, existing interpretations, court decisions, and administrative rulings, all of which are in effect as of the date of this proxy statement/prospectus, and all of which are subject to change, possibly with retroactive effect. Any such change could affect the continuing validity of the discussion.

This summary only addresses the material U.S. ~~Federal~~federal income tax ~~considerations~~consequences of the Merger to the Merchants stockholders that ~~are generally applicable to Oneida Financial stockholders. The following discussion~~hold Merchants common stock as a capital asset within the meaning of Section 1221 of the Code. This summary does not ~~deal with~~address all ~~Federal~~aspects of U.S. federal income ~~tax considerations~~taxation that may be ~~relevant~~applicable to ~~certain Oneida Financial~~Merchants stockholders in light of their particular circumstances or to Merchants stockholders subject to special treatment under U.S. federal income tax law, such as:

stockholders who are not U.S. holders;

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

financial institutions;

insurance companies;

tax-exempt organizations;

brokers, banks or dealers in securities or currencies;

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

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

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

stockholders ~~who:~~

~~are dealers in securities;~~

~~are insurance companies or tax-exempt organizations;~~

~~are subject to alternative minimum tax;~~

~~hold their shares as part of a hedge, straddle or other risk reduction transaction;~~

~~are foreign persons; or~~

~~acquired their Oneida Financial common stock through stock options or otherwise as compensation.~~

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

stockholders who acquired their shares of Merchants common stock pursuant to the exercise of employee stock options or otherwise acquired shares as compensation or through a tax-qualified retirement plan.

In addition, itthe discussion does not address ~~the~~any alternative minimum tax or any state, local or foreign tax consequences of the Merger, nor does it address any tax consequences arising under the unearned income Medicare contribution tax pursuant to the Health Care and Education Reconciliation Act of 2010.

U.S. Holders

For purposes of this summary, the term “U.S. holder” means a beneficial holder of Merchants common stock that is:

a citizen or resident of the U.S.; or

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

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

If a partnership (including any entity or arrangement, domestic or foreign, ~~state, or local~~that is treated as a partnership for U.S. federal income tax ~~laws or~~purposes) holds Merchants common stock, the tax ~~consequences~~treatment of ~~transactions completed before or after~~a partner will generally depend on the ~~Merger, such as the exercise of options or rights to purchase Oneida Financial common stock in anticipation~~status of the ~~Merger.~~

~~The following discussion is based on~~partners and the ~~Internal Revenue Code, applicable Treasury Regulations, judicial decisions, and administrative rulings and practice, all as~~activities of the ~~date of this document, all of which are subject to change. Any change could be applied to transactions that were completed before the change,~~partnership. Partnerships and ~~could affect the accuracy of the statements and conclusions~~partners in ~~this discussion and~~such a partnership should consult their tax advisers about the tax consequences of the Merger to ~~Community Bank System, Oneida Financial and Oneida Financial stockholders.~~them.

The Merger

Neither Oneida Financial nor Community Bank System has requested or will request a ruling from the Internal Revenue Service with regard to any of the tax consequences of the Merger. Luse Gorman, Oneida Financial’s outside legal counsel, has rendered an opinion as [ ], 2015 and, as a condition to the completion of the Merger, is required to render an updated opinion at the closing ofThe parties intend for the Merger to ~~Oneida Financial to the effect that the Merger constitutes~~qualify as a “reorganization” ~~within the meaning of Section 368(a).~~

The opinion assumes that the Merger will take place in the manner described in the Merger Agreement. The tax opinion also assumes the truth and accuracy of certain factual representations that have been made by Oneida Financial which are customarily given in transactions of this kind.

~~Caveat.~~Oneida Financial stockholders should recognize that the opinion of Luse Gorman is not binding on the Internal Revenue Service or the courts. If the Internal Revenue Service were to assert successfully that the Merger is not a reorganization within the meaning of Section 368(a) of the Code. It is a condition to Merchants’ obligation to complete the Merger that Merchants receive an opinion from Goodwin Procter, dated as of the closing date of the Merger, to the effect that the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. It is a condition to

TABLE OF CONTENTS

Community Bank System’s obligation to complete the Merger that Community Bank System receive an opinion from Cadwalader, dated as of the closing date of the Merger, to the effect that the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. In addition, in connection with the filing of the registration statement of which this document is a part, Goodwin Procter has delivered an opinion to Merchants to the same effect as the opinion described above. These opinions will be based on representation letters provided by Merchants and Community Bank System and on customary factual assumptions. None of the opinions described above will be binding on the Internal Revenue ~~Code, then each stockholder~~Service. Merchants and Community Bank System have not sought and will not seek any ruling from the Internal Revenue Service regarding any matters relating to the Merger, and as a result, there can be no assurance that the Internal Revenue Service will not assert, or that a court would not sustain, a position contrary to any of ~~Oneida Financial would~~the conclusions set forth below. In addition, if any of the representations or assumptions upon which those opinions are based are inconsistent with the actual facts, the United States federal income tax consequences of the Merger could be ~~required~~adversely affected. Based on factual representations contained in the representation letters provided by Merchants and Community Bank System, and on certain customary factual assumptions, all of which representations and assumptions must continue to be true and accurate as of the effective time of the Merger, in the opinion of Goodwin Procter, the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code.

The tax consequences of the Merger to a U.S. holder of Merchants common stock will generally depend upon the form of consideration such U.S. holder receives in the Merger.

Exchange for Solely Community Bank System Common Stock. Pursuant to the Merger Agreement, upon exchanging all of your shares of Merchants common stock for solely Community Bank System common stock (and cash instead of fractional shares of Community Bank System common stock), you will generally not recognize gain or loss, except with respect to cash received instead of fractional shares of Community Bank System common stock (see “Cash Instead of Fractional Shares” below).

Exchange for Solely Cash. Pursuant to the Merger Agreement, upon exchanging all of your shares of Merchants common stock for solely cash, you will generally recognize gain or loss equal to the difference between ~~(1)~~ the ~~fair market value~~amount of cash you receive and your cost basis in your Merchants common stock.

Exchange for Community Bank System Common Stock and Cash. Pursuant to the Merger Agreement, upon exchanging all of your shares of Merchants common stock for a combination of Community Bank System common stock and cash, you will generally recognize gain (but not loss) in an amount equal to the lesser of: (1) the amount of cash treated as received in exchange for Merchants common stock in the Merger and (2) the tax basis in the Oneida Financial common stock surrendered in the Merger. If this were to occur, each Oneida Financial stockholder’s total initial tax basis in the Community Bank System common stock received would be equal to its fair market value, and the holding period for the Community Bank System common stock would begin the day after the Merger. Assuming that(excluding any cash received would not be treated as a dividend as described below, the gain or loss would be a long-term capital gain or loss if the holding period for the Oneida Financial common stock was more than one year and the Oneida Financial common stock was a capital asset in the hands of an Oneida Financial stockholder.

Based on the opinion of Luse Gorman, counsel to Oneida Financial, that the Merger will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code, the tax consequences to stockholders of Oneida Financial are set forth below:

~~Exchange Solely for Community Bank System Common Stock.~~ ~~No gain or loss will be recognized by an Oneida Financial stockholder who receives solely shares of Community Bank System common stock (except for~~ cash received in lieu of fractional shares of Community Bank System common stock); and (2) the excess, if any, of (a) the sum of the amount of cash treated as ~~discussed below)~~received in exchange for ~~his or her shares~~Merchants common stock in the Merger (excluding any cash received in lieu of ~~Oneida Financial common stock. The tax basis of the~~fractional shares of Community Bank System common stock) plus the fair market value of Community Bank System common stock (including the fair market value of any fractional share) received ~~by an Oneida Financial stockholder~~ in ~~such exchange~~the Merger, over (b) your cost basis in the Merchants common stock exchanged. If you acquired different blocks of Merchants common stock at different times or at different prices, you should consult your individual tax advisor regarding the manner in which gain or loss should be determined.

Except as described in the section entitled “Dividend Treatment” below, any recognized gain will generally be ~~equal (except for~~long-term capital gain if, as of the effective date of the Merger, your holding period with respect to the surrendered Merchants common stock exceeds one year. The aggregate tax basis ~~attributable to~~of the Community Bank System common stock you receive as a result of the Merger (including any fractional shares of Community Bank System common stock deemed received) will be the same as ~~discussed below) to the~~your aggregate tax basis ~~of the Oneida Financial~~in Merchants common stock ~~surrendered~~you surrender in the Merger, decreased by the amount of cash you receive that is treated as received in exchange for ~~the~~Merchants common stock (excluding any cash received in lieu of a fractional share of Community Bank System common ~~stock.~~stock) and increased by the amount of gain, if any, you recognize in the exchange (excluding any gain resulting from cash received in lieu of a fractional share of Community Bank System common stock). The holding period of the Community Bank System common stock ~~received~~you receive as a result of the exchange will include the holding period of ~~shares of Oneida Financial~~Merchants common stock ~~surrendered in exchange for the Community Bank System common stock, provided that such shares were held as capital assets of the Oneida Financial stockholder at the effective time of the Merger.~~

~~Exchange Solely for Cash~~. An Oneida Financial stockholder who receives solely cash in exchange for all of his or her shares of Oneida Financial common stock (and is not treated as constructively owning Community Bank System common stock after the Merger under the circumstances referred to below under “—~~Possible Dividend Treatment~~”) will recognize gain or loss for federal income tax purposes equal to the difference between the cash received and such stockholder’s tax basis in the Oneida Financial common stock surrendered in exchange for the cash. Such gain or loss will be a capital gain or loss, provided that such shares were held as capital assets of the Oneida Financial stockholder at the effective time of the Merger. Such gain or loss will be long-term capital gain or loss if the Oneida Financial stockholder’s holding period is more than one year at the effective time of the Merger. The Internal Revenue Code contains limitations on the extent to which a taxpayer may deduct capital losses from ordinary income.

~~Exchange for Community Bank System Common Stock and Cash~~. An Oneida Financial stockholder who receives a combination of Community Bank System common stock and cash in exchange for his or her Oneida Financial common stock will not be permitted to recognize any loss for federal income tax purposes. Such a stockholder will recognize gain, if any, equal to the lesser of (1) the amount of cash received or (2) the amount of gain “realized” in the transaction. The amount of gain an Oneida Financial stockholder “realizes” will equal the amount by which (a) the cash plus the fair market value at the effective time of the Merger of Community Bank System common stock received exceeds (b) the stockholder’s tax basis in the Oneida Financial common stock to beyou surrendered in the ~~exchange for the~~Merger.

TABLE OF CONTENTS

Cash Instead of Fractional Shares. If you receive cash and Community Bank System common stock. Any recognized gain could be taxed as a capital gain or a dividend, as described below. The tax basis of the shares of Community Bank System common stock received by such Oneida Financial stockholder will be the same as the tax basis of the shares of Oneida Financial common stock surrendered in exchange for the shares of Community Bank System common stock, adjusted as provided in Section 358(a) of the Internal Revenue Code for the gain recognized and/or cash received in exchange for such shares of Oneida Financial common stock. The holding period for shares of Community Bank System common stock received by such Oneida Financial stockholder will include such stockholder’s holding period for the Oneida Financial common stock surrendered in exchange for the Community Bank System common stock, provided that such shares were held as capital assets of the stockholder at the effective time of the Merger.

An Oneida Financial stockholder’s Federal income tax consequences will also depend on whether his or her shares of Oneida Financial common stock were purchased at different times and at different prices. If they were, the Oneida Financial stockholder could realize gain with respect to some of the shares of Oneida Financial common stock and loss with respect to other shares. Such Oneida Financial stockholder would have to recognize such gain to the extent such stockholder receives cash with respect to those shares in which the stockholder’s adjusted tax basis is less than the amount of cash plus the fair market value at the effective time of the Merger of the Community Bank System common stock received, but could not recognize loss with respect to those shares in which the Oneida Financial stockholder’s adjusted tax basis is greater than the amount of cash plus the fair market value at the effective time of the Merger of the Community Bank System common stock received. Any disallowed loss would be included in the adjusted basis of the Community Bank System common stock. Such an Oneida Financial stockholder is urged to consult his or her own tax advisor regarding the tax consequences of the Merger to that stockholder.

~~Possible Dividend Treatment~~. ~~In certain circumstances, an Oneida Financial stockholder who receives solely cash or a combination of cash and Community Bank System common stock~~ in the Merger may receive dividend income, rather than capital gain, treatment on all or a portion of the gain recognized by that stockholder if the receipt of cash “has the effect of the distribution of a dividend.” The determination of whether a cash payment has such effect is based on a comparison of the Oneida Financial stockholder’s proportionate interest in Community Bank System after the Merger with the proportionate interest the stockholder would have had if the stockholder had received solely Community Bank System common stock in the Merger. This could happen because the stockholder’s purchase (or the purchase by a family member or certain entities described below) of additional Community Bank System stock or a repurchase of shares by Community Bank System. For purposes of this comparison, the Oneida Financial stockholder may be deemed to constructively own shares of Community Bank System common stock held by certain members of the stockholder’s family or certain entities in which the stockholder has an ownership or beneficial interest and certain stock options may be aggregated with the stockholder’s shares of Community Bank System common stock. The amount of the cash payment that may be treated as a dividend is limited to the stockholder’s ratable share of the accumulated earnings and profits of Oneida Financial at the effective time of the Merger. Any gain that is not treated as a dividend will be taxed as a capital gain, provided that the stockholder’s shares were held as capital assets at the effective time of the Merger. Because the determination of whether a cash payment will be treated as having the effect of a dividend depends primarily upon the facts and circumstances of each Oneida Financial stockholder, stockholders are urged to consult their own tax advisors regarding the tax treatment of any cash received in the Merger.

~~Cash in Lieu of Fractional Shares~~. An Oneida Financial stockholder who holds Oneida Financial common stock as a capital asset and who receives in the Merger, in exchange for such stock, solely Community Bank System common stock and cash in lieuinstead of a fractional share interest in Community Bank System common stock, you will be treated as having received such fractional share in the Merger, and then as having received cash in ~~full payment~~exchange for such fractional ~~share~~share. Gain or loss would be recognized in an amount equal to the difference between the amount of ~~stock~~cash received and your adjusted tax basis allocable to such fractional share. Except as described in the section entitled “Dividend Treatment” below, this gain or loss will generally be a capital gain or loss, ~~notwithstanding the dividend rules discussed above.~~

~~Backup Withholding.~~ ~~Unless an exemption applies under the backup withholding rules of Section 3406 of the Internal Revenue Code, the exchange agent shall be required to,~~ and will withhold 28% of any cash payments to which an Oneida Financial stockholder is entitled pursuant to the Merger, unless the Oneida Financial stockholder signs the substitute IRS Form W-9 enclosed with the letter of transmittal sent by the exchange agent. Unless an applicable exemption exists and is proved in a manner satisfactory to the exchange agent, this completed form provides the information, including the Oneida Financial stockholder’s taxpayer identification number, and certification necessary to avoid backup withholding. Any amounts withheld under the backup withholding rules may be ~~allowed as a credit against your U.S. Federal income tax liability, provided you timely furnish the required information to the IRS.~~

~~Tax Treatment of the Entities.~~ Nolong-term capital gain or loss ~~will be recognized by Community Bank System or Oneida Financial~~if, as ~~a result~~ of the ~~Merger.~~

~~Reporting Requirements.~~ ~~A holder of Oneida Financial common stock that receives Community Bank System common stock as a result~~effective date of the Merger, ~~may be required to retain records related to such stockholder’s Oneida Financial~~you have held your shares of Merchants common stock for more than one year.

Dividend Treatment. There are certain circumstances in which all or part of the gain you recognize will be treated as a dividend rather than as capital gains. In general, this determination depends upon whether, and ~~file with its U.S. Federal income~~to what extent, the Merger reduces your deemed percentage share ownership interest in Community Bank System. Because the possibility of dividend treatment depends primarily upon your particular circumstances, including the application of certain constructive ownership rules, you should consult your own tax ~~return a statement setting forth facts relating to~~advisor regarding the ~~Merger.~~

~~The preceding discussion does not purport to be a complete analysis of all~~ potential tax consequences of the Merger ~~that~~to you.

Backup Withholding and Information Reporting

In general, information reporting requirements may apply to the cash payments made to a U.S. holder in connection with the Merger, unless an exemption applies. Backup withholding may be ~~relevant~~imposed on the above payments if a U.S. holder (1) fails to provide a taxpayer identification number or appropriate certificates or (2) otherwise fails to comply with all applicable requirements of the backup withholding rules.

Any amounts withheld from payments to a U.S. holder under the backup withholding rules are not an additional tax and will be allowed as a refund or credit against the U.S. holder’s applicable U.S. federal income tax liability, provided the required information is furnished to the IRS. U.S. holders should consult their own tax advisors regarding the application of backup withholding based on their particular ~~Oneida Financial stockholder. You~~circumstances and the availability and procedure for obtaining an exemption from backup withholding.

The foregoing discussion is for general information purposes only and is not intended to be a complete analysis or description of all potential U.S. federal income tax consequences of the Merger. The discussion does not address tax consequences which may vary with, or are ~~urged~~contingent on, your individual circumstances. Moreover, the discussion does not address any non-income tax or any foreign, state or local tax consequences of the Merger. Accordingly, you are strongly encouraged to consult with your own tax ~~advisors regarding~~advisor as to the ~~specific~~ tax consequences of the Merger ~~to you,~~in your particular circumstances, including the applicability and effect of ~~foreign,~~the unearned income Medicare contribution tax pursuant to the Health Care and Education Reconciliation Act of 2010, the alternative minimum tax and any state, local or foreign and other tax laws and of changes in those laws.

Accounting Treatment of the Merger

The Merger will be accounted for as a “business combination,” as that term is used under generally accepted accounting principles, for accounting and financial reporting purposes, with Community Bank System treated as the acquirer. Under the acquisition method of accounting, the assets (including identifiable intangible assets) and liabilities (including executory contracts and other commitments) of ~~Oneida Financial~~Merchants as of the effective time of the Merger will be recorded at their respective fair values and added to those of Community Bank System. Any excess of purchase price over the fair values is recorded as goodwill. Consolidated financial statements of Community Bank System issued after the Merger would reflect these fair values and would not be restated retroactively to reflect the historical financial position or results of operations of ~~Oneida Financial.~~Merchants.

Restrictions on Sales of Community Bank System Common Stock by Certain Affiliates

The shares of Community Bank System common stock to be issued in the Merger will be freely transferable under the Securities Act, except for shares issued to any stockholder who is an “affiliate” of Community Bank System as defined by Rule 144 under the Securities Act. Affiliates consist of individuals or entities that control, are controlled by, or are under common control with Community Bank System and include the executive officers and directors of Community Bank System and may include significant stockholders of Community Bank System.

TABLE OF CONTENTS

New York Stock Exchange Listing

Community Bank System has agreed to make an application to list the shares of its common stock to be issued in the Merger on the NYSE. The stock must be authorized for listing on the NYSE, subject to official notice of issuance, for the Merger to be completed.

Regulatory Approvals and Notices for the Merger

Pursuant to the Merger Agreement, Community Bank System will submit applications for all necessary regulatory approvals and will give all requisite notices to governmental agencies regarding both the Merger and the Bank Merger. Certain approvals ~~or waivers~~ must be obtained from, or other filings made with, various bank regulatory and other authorities, including the OCC, ~~New York State Department of Financial Services, and~~ the Federal Reserve ~~Board.~~

Board, and state banking regulators.

The closing of the Merger is conditioned upon the receipt of all approvals of regulatory authorities required for the Merger and the Bank Merger, the expiration of all notice periods and waiting periods after the grant of regulatory approvals, and the satisfaction of all conditions contained in any regulatory approvals or consents.

The Comptroller of the ~~Currency.~~Currency. The Bank Merger is subject to approval by the OCC. Community Bank filed an application on ~~[ ], 2015.~~

~~The~~December [•], 2016. Following the OCC approval, the Bank Merger ~~may not be completed until~~Act imposes a waiting period of up to 30 days after the ~~15th day following the date of the~~OCC approval ~~by the OCC. During this 15-day period,~~in order to permit the United States Department of Justice ~~may comment adversely on~~to file any objections to the Bank Merger ~~or challenge~~under the ~~Bank Merger on~~federal antitrust ~~grounds. The commencement~~laws. This waiting period may be reduced to 15 days if the Department of ~~an antitrust action would stay~~Justice has not provided any adverse comments relating to the ~~effectiveness~~competitive factors of the ~~OCC approval unless a court specifically orders otherwise.~~transaction, which the parties expect to occur.

~~You should be aware that any approval by the OCC:~~

~~reflects only its views that the Bank Merger does not contravene applicable competitive standards imposed by law and is consistent with regulatory policies relating to safety and soundness;~~

~~is not an opinion of the OCC that the Bank Merger is financially favorable to the stockholders of Oneida Financial or that the OCC has considered the adequacy of the terms of the Bank Merger; and~~

~~is not an endorsement of or recommendation for the Bank Merger.~~

Federal Reserve ~~Board.~~Board. The Federal Reserve Board is Community Bank System’s primary regulatory. Community Bank System will be requesting confirmation from the Federal Reserve that no application is required to the Federal Reserve under Section 3 of the BHC Act for the transactions contemplated by the Merger Agreement. Community Bank System expects such confirmation will be obtained, but if that were not the case, Community Bank System would need to obtain prior approval of the transactions contemplated by the Merger Agreement from the Federal Reserve Board.

~~New York State Department of Financial Services~~.federal banking regulator. The Merger is subject to approval by the ~~New York State Department of Financial Services.~~Federal Reserve Board. Community Bank System filed an application with the Federal Reserve Board on ~~[ ], 2015.~~

~~Litigation Relating~~December [•], 2016 requesting approval of the Merger. In determining whether to approve the proposed transaction, the Federal Reserve Board will consider factors such as financial and managerial resources, future prospects, the convenience and needs to the ~~Merger~~community and competitive factors.

You should be aware that any governmental agency approval issued:

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

is not an endorsement of or recommendation for the transaction.

Appraisal or Dissenters’ Rights

Holders of shares of Merchants common stock who meet certain requirements are entitled to seek appraisal rights.

~~On March 4, 2015,~~Under Section 262 of the Delaware General Corporation Law, or the “DGCL,” holders of shares of Merchants common stock who do not vote in favor of the adoption of the Merger Agreement and who otherwise follow the procedures set forth in Section 262 of the DGCL (which we refer to as “Section 262”) will be entitled to have their shares appraised by the Delaware Court of Chancery and to receive payment in cash for the “fair value” of the shares, exclusive of any element of value arising from the accomplishment or expectation of the Merger, together with interest, determined as described below.

Failure to follow precisely any of the statutory requirements could result in the loss of your appraisal rights.

The following discussion is not a ~~purported~~complete statement of the law pertaining to appraisal rights under the DGCL and is qualified in its entirety by the full text of Section 262, which is attached to this Proxy Statement/Prospectus asAnnex C. The following summary does not constitute any legal or other advice nor does it constitute a recommendation that Merchants stockholders exercise their appraisal rights under Section 262. Only a holder of record of shares of Merchants common stock is entitled to demand appraisal of the shares registered in that holder’s name. A person having a beneficial interest in shares of common stock of Merchants held of record in the name of another person, such as a broker, fiduciary, depositary or other

TABLE OF CONTENTS

nominee, must act promptly to cause the record holder to follow the steps summarized below properly and in a timely manner to perfect appraisal rights. If you hold your shares of Merchants common stock through a broker, bank or other nominee and you wish to exercise appraisal rights, you should consult with your broker, bank or other nominee to determine the appropriate procedures for the making of a demand for appraisal by the nominee.

Under Section 262, where a merger agreement is to be submitted for adoption at a meeting of stockholders, the corporation, not less than 20 days prior to the meeting, must notify each of its stockholders as of the record date that appraisal rights are available, and must include in the notice a copy of Section 262. This Proxy Statement/Prospectus shall constitute such notice, and the full text of Section 262 is attached to this Proxy Statement/Prospectus asAnnex C. In connection with the Merger, any holder of shares of Merchants common stock who wishes to exercise appraisal rights, or who wishes to preserve such holder’s right to do so, should review the following discussion andAnnex C carefully because failure to timely and properly comply with the procedures specified may result in the loss of appraisal rights. In addition, because of the complexity of the procedures for exercising the right to seek appraisal of shares of common stock, Merchants believes that if a stockholder is considering exercising such rights such stockholder should consider seeking legal and financial advice.

Filing Written Demand

Any holder of ~~Oneida Financial filed~~shares of Merchants common stock wishing to exercise appraisal rights must deliver to Merchants, before the vote on the adoption of the Merger Agreement at the Merchants special meeting, a ~~lawsuit~~written demand for the appraisal of the stockholder’s shares, and that stockholder must not vote in ~~New York Supreme Court, Oneida County, captioned~~~~Paul Parshall v. Richard B. Myers, et al.~~ ~~On March 13, 2015, another purported~~favor of the adoption of the Merger Agreement. A holder of shares of Merchants common stock wishing to exercise appraisal rights must hold the shares of record on the date the written demand for appraisal is made and must continue to hold the shares of record through the effective time of the Merger. A proxy that is submitted and does not contain voting instructions will, unless revoked, be voted in favor of the adoption of the Merger Agreement, and will constitute a waiver of the stockholder’s right of appraisal and nullify any previously delivered written demand for appraisal. Therefore, a stockholder ~~filed~~who submits a ~~lawsuit~~proxy and who wishes to exercise appraisal rights must submit a proxy containing instructions to vote against the adoption of the Merger Agreement or abstain from voting on the adoption of the Merger Agreement. Voting against the adoption of the Merger Agreement or abstaining from voting or failing to vote on the proposal to adopt the Merger Agreement will not by itself constitute a written demand for appraisal satisfying the requirements of Section 262. The written demand for appraisal must be in ~~New York Supreme Court, Oneida County, captioned~~~~John Solak, v. Richard B. Myers et al~~~~. Both lawsuits~~addition to and separate from any proxy or vote on the adoption of the Merger Agreement. The demand must reasonably inform Merchants of the identity of the holder, as well as the intention of the holder to demand an appraisal of the “fair value” of the shares held by the holder. A stockholder’s failure to deliver the written demand prior to the taking of the vote on the adoption of the Merger Agreement at the Merchants special meeting will constitute a waiver of appraisal rights.

Only a holder of record of shares of Merchants common stock is entitled to demand appraisal rights for the shares registered in that holder’s name. A demand for appraisal in respect of shares of Merchants common stock should be executed by or on behalf of the holder of record. If the shares are ~~brought~~owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of the demand should be made in that capacity, and if the shares are owned of record by more than one person, as in a joint tenancy and tenancy in common, the demand should be executed by or on behalf of all joint owners. An authorized agent, including an agent for two or more joint owners, may execute a demand for appraisal on behalf of a ~~putative class~~holder of ~~Oneida Financial’s~~record; however, the agent must identify the record owner or owners and expressly disclose that, in executing the demand, the agent is acting as agent for the record owner or owners. Stockholders who hold their shares in bank, brokerage accounts or other nominee forms and who wish to exercise appraisal rights are urged to consult with their bank, broker or other nominee to determine the appropriate procedures for the making of a demand for appraisal by such nominee.

All written demands for appraisal pursuant to Section 262 should be delivered to the Corporate Secretary of Merchants at Merchants Bancshares, Inc., 275 Kennedy Drive, South Burlington, Vermont 05403.

TABLE OF CONTENTS

Any holder of shares of Merchants common stock who has not commenced an appraisal proceeding or joined such proceeding as a named party may withdraw his, her or its demand for appraisal and accept the consideration offered pursuant to the Merger Agreement by delivering to the surviving corporation of the Merger a written withdrawal of the demand for appraisal and an acceptance of the Merger; however, any such attempt to withdraw the demand made more than 60 days after the effective date of the Merger will require written approval of the surviving corporation of the Merger. No appraisal proceeding in the Delaware Court of Chancery will be dismissed without the approval of the Delaware Court of Chancery, and such approval may be conditioned upon such terms as the Delaware Court of Chancery deems just; provided, that this restriction will not affect the right of any former Merchants stockholder who has not commenced an appraisal proceeding or joined such proceeding as a named party to withdraw such stockholder’s demand for appraisal and to accept the merger consideration within 60 days after the effective date of the Merger.

Notice by the Surviving Corporation

If the Merger is completed, within ten days after the effective time of the Merger, the surviving corporation of the Merger will notify each holder of shares of Merchants common stock who has made a written demand for appraisal pursuant to Section 262, and who has not voted in favor of or consented to the adoption of the Merger Agreement, that the Merger has become effective and the effective date thereof.

Filing a Petition for Appraisal

Within 120 days after the effective time of the Merger, but not thereafter, the surviving corporation of the Merger or any holder of shares of Merchants common stock who has so complied with Section 262 and is entitled to appraisal rights under Section 262 may file a petition in the Delaware Court of Chancery demanding a determination of the fair value of the shares held by all holders who have properly demanded appraisal of their shares. The surviving corporation of the Merger is under no obligation to file a petition or initiate any negotiations with respect to the fair value of shares of Merchants common stock. Community Bank System, which will be the surviving corporation of the Merger, has no present intention to, and holders of Merchants common stock should assume that Community Bank System will not, file a petition or initiate any negotiations with respect to the fair value of shares of Merchants common stock. Accordingly, any holders of shares of Merchants common stock who desire to have their shares appraised should initiate all necessary action to perfect their appraisal rights in respect of shares of Merchants common stock within the time prescribed in Section 262.

Within 120 days after the effective time of the Merger, any holder of shares of Merchants common stock who has complied with the requirements for exercise of appraisal rights will be entitled, upon written request, to receive from the surviving corporation of the Merger a statement setting forth the aggregate number of shares of Merchants common stock not voted in favor of the adoption of the merger and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. The statement must be mailed to the stockholder within ten days after a written request therefor has been received by the surviving corporation of the Merger or within ten days after the expiration of the period for delivery of demands for appraisal, whichever is later. A beneficial owner of shares held either in a voting trust or by a nominee on behalf of such person may, in such person’s own name, file a petition seeking appraisal or request the foregoing statement. As noted above, however, the demand for appraisal can only be made by a stockholder of record.

If a petition for an appraisal is timely filed by a holder of shares of Merchants common stock and a copy thereof is served upon the surviving corporation of the Merger, the surviving corporation will then be obligated within 20 days of service to file with the Delaware Register in Chancery a duly verified list containing the names and addresses of all stockholders who have demanded appraisal of their shares and with whom agreements as to the value of their shares have not been reached. After notice is provided to the stockholders as required by the court, the Delaware Court of Chancery is empowered to conduct a hearing on the petition to determine those stockholders who have complied with Section 262 and who have become entitled to appraisal rights thereunder. The Delaware Court of Chancery may require the stockholders who demanded appraisal of their shares to submit their stock certificates to the Register in Chancery for notation thereon of the pendency of the appraisal proceeding, and if any stockholder fails to comply with the direction, the Delaware Court of Chancery may dismiss the proceedings as to such stockholder.

TABLE OF CONTENTS

Judicial Determination of Fair Value

After determining the holders of shares of Merchants common stock entitled to appraisal, the Delaware Court of Chancery will appraise the “fair value” of their shares, exclusive of any element of value arising from the accomplishment or expectation of the Merger, together with interest, if any, to be paid upon the amount determined to be the fair value. In determining fair value, the Delaware Court of Chancery will take into account all relevant factors.

Stockholders considering seeking appraisal should be aware that the “fair value” of their shares as so determined could be more than, the same as or less than the consideration they would receive pursuant to the Merger Agreement if they did not seek appraisal of their shares. Although the parties to the Merger Agreement believe that the merger consideration is fair, no representation is made as to the outcome of the appraisal of fair value as determined by the Delaware Court of Chancery, and Merchants stockholders should recognize that such an ~~order~~appraisal could result in a determination of a value higher or lower than, or the same as, the value of the merger consideration. Stockholders should be aware that ~~they are properly maintainable~~an investment banking opinion as ~~class actions.~~

~~Both complaints name Oneida Financial, Oneida Financial’s directors,~~to the fairness, from a financial point of view, of the consideration payable in a sale transaction, such as the Merger, is not an opinion as to, and does not otherwise address, fair value under Section 262. Neither Merchants nor Community Bank System anticipate offering more than the merger consideration to any Merchants stockholder exercising appraisal rights, and each of Merchants and Community Bank System ~~as defendants~~reserves the right to assert, in any appraisal proceeding, that for purposes of Section 262, the “fair value” of a share of Merchants common stock is less than the value of the merger consideration, and ~~allege~~ that the ~~Director Defendants breached their fiduciary duties~~methods that are generally considered acceptable in the financial community and otherwise admissible in court should be considered in the appraisal proceedings. If a petition for appraisal is not timely filed, then the right to an appraisal will cease. The costs of the action (which do not include attorneys’ fees or the fees and expenses of experts) may be determined by ~~failing to maximize shareholder value~~the Delaware Court of Chancery and taxed upon the parties as the Delaware Court of Chancery deems equitable under the circumstances. The Delaware Court of Chancery may also order that all or a portion of the expenses incurred by a stockholder in connection with an appraisal, including, without limitation, reasonable attorneys’ fees and the fees and expenses of experts utilized in the appraisal proceeding, be charged pro rata against the value of all the shares entitled to be appraised.

Unless the court in its discretion determines otherwise for good cause shown, interest from the effective date of the Merger through the date of payment of the judgment shall be compounded quarterly and shall accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the effective date of the Merger and ~~allege~~the date of payment of the judgment.

If any stockholder who demands appraisal of shares of Merchants common stock under Section 262 fails to perfect, or successfully withdraws or loses, such holder’s right to appraisal, the stockholder’s shares of Merchants common stock will be deemed to have been converted at the effective time of the Merger into the right to receive the merger consideration applicable to such shares. A stockholder will fail to perfect, or lose or withdraw, the holder’s right to appraisal if no petition for appraisal is filed within 120 days after the effective time of the Merger or if the stockholder delivers to the surviving corporation of the Merger a written withdrawal of the holder’s demand for appraisal and an acceptance of the merger consideration in accordance with Section 262.

From and after the effective time of the Merger, no dissenting stockholder shall have any rights of a stockholder of Merchants with respect to that ~~Community Bank System~~holder’s shares for any purpose, except to receive payment of fair value and ~~Oneida Financial aided~~to receive payment of dividends or other distributions on the holder’s shares of Merchants common stock, if any, payable to Merchants stockholders of record as of a time prior to the effective time of the Merger; provided, however, that if a dissenting stockholder delivers to the surviving corporation of the Merger a written withdrawal of the demand for an appraisal within 60 days after the effective time of the Merger and ~~abetted~~acceptance of the Merger, or subsequently with the written approval of the surviving corporation of the Merger, then the right of that dissenting stockholder to an appraisal will cease and the dissenting stockholder will be entitled to receive the merger consideration in accordance with the terms of the Merger Agreement. Once a petition for appraisal is filed with the Delaware Court of Chancery, however, the appraisal proceeding may not be dismissed as to any former Merchants stockholder without the approval of the court, and such approval may be conditioned upon such terms as the court deems just; provided, that such restriction shall not affect the right of any former Merchants stockholder who has not commenced an appraisal

TABLE OF CONTENTS

proceeding or joined the proceeding as a named party to withdraw such stockholder’s demand for appraisal and to accept the merger consideration within 60 days after the effective time of the Merger.

Failure to comply strictly with all of the procedures set forth in Section 262 may result in the loss of a stockholder’s statutory appraisal rights. Consequently, any Merchants stockholder wishing to exercise appraisal rights is urged to consult legal and financial advisors before attempting to exercise those ~~alleged breaches~~rights.

TABLE OF CONTENTS

THE MERGER AGREEMENT

The following is a summary of ~~fiduciary duty. The complaints allege that~~ the ~~director Defendants improperly favored Community Bank System and discouraged alternative bids~~material provisions of the Merger Agreement. This summary is qualified in its entirety by ~~agreeing~~reference to the Merger ~~Agreement’s non-solicitation provision~~Agreement, a copy of which is included as Annex Ato this Proxy Statement/Prospectus and ~~termination fee provision. Plaintiffs cite that Community Bank System agreed in~~is incorporated herein by reference. You should read the Merger Agreement ~~to appoint two~~carefully and in its entirety, as it is the legal document governing the Merger.

The Merger and the Bank Merger

The boards of ~~Oneida’s~~ directors ~~to the boards~~ of Community Bank System and Merchants have each unanimously approved and adopted the Merger Agreement, which provides for the merger of Merchants with and into Community Bank System, with Community Bank System as the surviving company in the Merger.

The Merger Agreement also provides that, unless otherwise determined by Community Bank System in its sole discretion, immediately after the effective ~~upon~~time of the Merger, Merchants Bank, a Vermont-based commercial bank and wholly-owned subsidiary of Merchants, will merge with and into Community Bank, a national banking association and wholly-owned subsidiary of Community Bank System, with Community Bank as the surviving bank of such merger. The terms and conditions of the merger of Merchants Bank and Community Bank are set forth in a separate plan of merger and merger agreement, the form of which is attached as Exhibit A to the Merger Agreement, included asAnnex A to this Proxy Statement/Prospectus. We refer to the merger of Merchants Bank and Community Bank as the “Bank Merger.”

Closing and Effective Time of the Merger

The closing of the Merger will take place at 10:00 a.m., New York City time, on a date which shall be no later than three business days after the satisfaction or waiver (subject to applicable law) of the latest to occur of the conditions to completion of the Merger (other than those conditions that by their nature can only be satisfied at the closing, but subject to the satisfaction or waiver thereof), unless another date, time or place is agreed to in writing by Community Bank System and Merchants. Simultaneously with the closing of the Merger. The complaints allege that Oneida Financial’s directors and certain executive officers of Oneida Financial and its subsidiaries together own approximately 17% of Oneida Financial’s outstanding shares, and they have entered into voting agreements to vote their shares in favor of the Merger, Agreement. In addition, the complaints allege that the consideration to be received by Oneida Financial common stockholders is unreasonable, inadequate and unfair. The complaints seek declaratory and injunctive relief to invalidate the Merger Agreement and prevent the consummation of the Merger unless Oneida Financial implements an auction or similar process to obtain the highest possible price for Oneida Financial. The complaints further seek unspecified damages, as well as costs including plaintiffs’ attorneys’ and experts’ fees.

~~Each of~~ Community Bank System and ~~Oneida Financial believes~~Merchants will file a certificate of merger with the Secretary of State of the State of Delaware. The Merger will become effective at such time as the certificate of merger is filed or such other time as may be specified in the certificate of merger.

We currently expect that the ~~claims asserted are without merit and intends~~Merger will be completed in the second quarter of 2017, subject to ~~vigorously defend against these lawsuits.~~

~~Oneida Financial has filed a complaint alleging that FinPro, Inc. has wrongfully demanded a $1.42 million services fee in connection with~~the adoption of the Merger ~~for which it has provided no services~~Agreement by Merchants stockholders and for which fee it has no right to receive, contractually or otherwise. As a result, Oneida Financial is seeking a declaratory judgment nullifying the improper demand made by FinPro, Inc., and any purported agreement on which the demand is allegedly based. An adverse judgment in such lawsuit could adversely impact Oneida Financial.

~~No Appraisal or Dissenters’ Rights~~

Appraisal or dissenters’ rights are statutory rights that, if applicable under law, enable stockholders to dissent from an extraordinary transaction, such as a merger, and to demand that the corporation pay the fair value for their shares as determined by a court in a judicial proceeding insteadother conditions. However, completion of receiving the consideration offered to stockholders in that extraordinary transaction. Under the Maryland General Corporation Law, and pursuant to Oneida Financial’s articles of incorporation, holders of Oneida Financial common stock will not be entitled to appraisal rights in the Merger ~~with respect~~could be delayed if there is a delay in satisfying any other conditions to ~~their shares~~the Merger. No assurance is made as to whether, or when, Community Bank System and Merchants will complete the Merger. See “— Conditions to Completion of ~~Oneida Financial common stock because Oneida Financial common stock is listed~~the Merger” on ~~a national securities exchange and Oneida Financial’s articles~~page 78 of ~~incorporation do not provide for appraisal rights.~~this Proxy Statement/Prospectus.

THE MERGER AGREEMENT
ConversionBoard of Oneida Financial Common Stock
Directors

At the effective time of the Merger, Community Bank System and Community Bank will each ~~outstanding~~expand the size of its board of directors by two seats and appoint two directors of Merchants to serve on the boards of directors of Community Bank System and Community Bank. The two directors have not been determined yet, but will be mutually agreed upon by Community Bank System and Merchants. Each appointed director will qualify as an “Independent Outside Director” under ISS Guidelines and will meet all legal and regulatory requirements for serving on the boards of directors of Community Bank System and Community Bank. With respect to the Community Bank System board of directors, one appointed director will be appointed to the class of directors with terms expiring at the second annual meeting of stockholders occurring after the effective time of the Merger and the other appointed director will be appointed to the class of directors with terms expiring at the third annual meeting of stockholders occurring after the effective time of the Merger.

Merger Consideration

Under the terms of the Merger Agreement, each share of ~~Oneida Financial~~Merchants common stock outstanding immediately prior to the effective time of the Merger (excluding certain shares held by Merchants, Community Bank System and their wholly-owned subsidiaries, which are referred to as “excluded shares,” and dissenting shares described below) will be converted into the right to receive, at the election of ~~each Oneida Financial stockholder, but subject~~the holder thereof (subject to the ~~allocation~~proration procedures described ~~below and under~~below): (a) the ~~section below entitled “—Allocation Mechanism,” either:~~mixed election consideration, which is a

TABLE OF CONTENTS

~~a number of shares of Community Bank System common stock equal to the exchange ratio of 0.5635 for each share of Oneida Financial common stock owned, plus cash~~combination of $12.00 in ~~lieu of any fractional share; or~~

~~cash at the rate of $20.00, without interest, for each share of Oneida Financial common stock owned; or~~

a combination of both cash and shares of Community Bank System common stock provided 60% of the electing stockholder’s shares of Oneida Financial common stock owned will be exchanged for shares of Community Bank System common stock and the remaining 40% of the electing stockholder’s shares of Oneida Financial common stock will be exchanged for cash, using the same exchange rates for stock and cash described above.

~~As described in more detail below, the above consideration is subject to an allocation process to ensure that overall 40% of Oneida Financial’s common stock is exchanged for~~ cash and ~~60%~~0.6741 shares of ~~Oneida Financial’s~~Community Bank System common stock; (b) the cash election consideration of $40.00 in cash; or (c) the stock ~~is converted into~~election consideration of 0.9630 shares of Community Bank System common stock.

No fractional shares of Community Bank System common stock will be issued in connection with the Merger. Instead, each Merchants stockholder who would otherwise receive a fractional share of Community Bank System common stock will receive a cash payment, without interest, equal to: (i) the fractional share amountmultiplied by (ii) the volume-weighted average trading price per share of Community Bank System common stock on the NYSE during the 20 trading day period ending on and including the third trading day immediately preceding the date of the closing of the Merger.

A Merchants stockholder also has the right to obtain the fair value of his or her shares of Merchants common stock in lieu of receiving the merger consideration by strictly following the appraisal procedures under Section 262 of the DGCL, attached asAnnex C. Shares of Merchants common stock outstanding immediately prior to the effective time of the Merger and which are held by a stockholder who does not vote to adopt the Merger Agreement and who properly demands the fair value of such shares pursuant to, and who complies with, the appraisal procedures under the DGCL are referred to as “dissenting shares.” See “Proposal I — The ~~market~~Merger — Appraisal or Dissenters’ Rights” beginning on page 57 of this Proxy Statement/Prospectus.

If Community Bank System or Merchants changes the number of shares of Community Bank System common stock or Merchants common stock outstanding prior to the effective time of the Merger as a result of a reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or similar recapitalization with respect to the Community Bank System common stock or Merchants common stock and the record date for such corporate action is prior to the effective time of the Merger, then the merger consideration shall be appropriately and proportionately adjusted.

Based upon the closing sale price of the Community Bank System common stock ~~will fluctuate between~~on the NYSE of $[•] on [•], the last practicable trading date prior to the printing of this ~~document and~~Proxy Statement/Prospectus, the ~~date~~value of the ~~Merger and after the Merger. Therefore, the~~mixed election consideration was approximately $[•].

The value of the shares of Community Bank System common stock ~~that Oneida Financial~~to be issued to Merchants stockholders ~~may receive~~ in the Merger ~~may increase~~will fluctuate between now and the closing date of the Merger. We make no assurances as to whether or ~~decrease prior to and after~~when the Merger will be completed, and ~~may be worth more or less than the amount of cash consideration being offered in the Merger. You should~~you are advised to obtain current ~~market~~sale prices for the Community Bank System common stock.

See “Risk Factors — The ~~exchange ratio for~~value of the ~~Merger may~~stock consideration will vary with changes in Community Bank System’s stock price” on page 15 of this Proxy Statement/Prospectus.

Election and Proration Procedures

Election Materials and Procedures

An election form will be ~~adjusted appropriately if~~mailed to each holder of record of Merchants common stock as of the close of business on the fifth business day prior to such mailing date (the “election form record date”), on a date to be mutually agreed by Community Bank System ~~changes the number of outstanding shares of its common stock as a result of any stock split, recapitalization, reclassification or other similar change~~and Merchants that is not more than 45 days nor less than 30 days prior to the ~~completion~~anticipated closing date of the ~~Merger.~~

Merger or on such other date as Community Bank System and Merchants mutually agree (the “mailing date”). Community Bank System will make available one or more election forms as may reasonably be requested from time to time by all persons who become holders or beneficial owners of Merchants common stock between the election form record date and the close of business on the business day prior to the 25^th day following the mailing date (the “election deadline”).

Each election form will permit the holder (or the beneficial owner through appropriate and customary documentation and instructions) to specify (i) the number of shares of such holder’s Merchants common stock with respect to which such holder makes a mixed election, (ii) the number of shares of such holder’s Merchants common stock with respect to which such holder makes a cash election and (iii) the number of shares of such holder’s Merchants common stock with respect to which such holder makes a stock election. Any shares of Merchants common stock with respect to which the exchange agent has not ~~issue~~received an effective, properly completed election form accompanied by related stock certificates or book-entry shares on

TABLE OF CONTENTS

or before the election deadline will be deemed to be “no election shares,” and the holders of such no election shares will be deemed to have made a mixed election with respect to such no election shares.

Any election form may be revoked or changed by the authorized person properly submitting such election form, by written notice received by the exchange agent prior to the election deadline. In the event an election form is revoked prior to the election deadline, the shares of Merchants common stock represented by such election form will become no election shares, except to the extent a subsequent election is properly made with respect to any ~~fractional~~or all of such shares of Merchants common stock prior to the election deadline. Subject to the terms of the Merger Agreement and the election form, the exchange agent will have reasonable discretion to determine whether any election, revocation or change has been properly or timely made and to disregard immaterial defects in the ~~Merger. Instead, you will receive cash in an amount equal to~~election forms, and any good faith decisions of the ~~fraction of a share~~exchange agent regarding such matters shall be binding and conclusive. None of Community Bank System, ~~common stock that you would have otherwise been entitled~~Merchants or the exchange agent shall be under any obligation to ~~receive~~notify any person of any defect in ~~the Merger, multiplied by $20.00. Community Bank System will pay no interest on any cash in lieu of fractional shares.~~an election form.

Proration Procedures

At the effective time of the Merger, you will no longer have any rights as a holder of Oneida Financial common stock, but you will, upon proper surrender of your Oneida Financial shares, have the rights of a holder of Community Bank System common stock. For a comparison of the rights you have as a holder of Oneida Financial common stock to the rights you will have as a holder of Community Bank System common stock, please read “Comparison of Rights of Holders of Oneida Financial Common Stock and Community Bank System Common Stock” beginning on page [ ].

~~Election Procedures~~

~~Subject to the allocation procedures described below and in the section entitled “—Allocation Mechanism,” you will have the right~~A stockholder’s ability to elect to receive ~~with respect to your shares of Oneida Financial common stock either:~~cash or shares of Community Bank System stock in exchange for shares of Merchants common stock in the Merger is subject to proration procedures set forth in the Merger Agreement. These procedures are designed to ensure that the total amount of cash ~~or a mixture~~paid, and the total number of shares of Community Bank System common stock ~~for 60%~~issued, in the Merger to the holders of shares of Merchants common stock, as a whole, will equal as nearly as practicable the total amount of cash and number of shares that would have been paid and issued if all shares of Merchants common stock were converted into the mixed election consideration.

The greater the oversubscription of the stock election, the less stock and more cash a Merchants stockholder making the stock election will receive. Reciprocally, the greater the oversubscription of the cash election, the less cash and more stock a Merchants stockholder making the cash election will receive. However, in no event will a Merchants stockholder who makes the cash election or the stock election receive less cash and more shares of ~~Oneida Financial~~Community Bank System common stock, ~~you own,~~or fewer shares of Community Bank System common stock and more cash, ~~for 40%~~respectively, than a stockholder who makes the mixed election.

Set forth below are illustrative examples of how the proration and adjustment procedures will work in the event there is an oversubscription of the cash election or the stock election.

Example A — Proration if Too Many Merchants Stockholders Elect to Receive All Cash.For purposes of this example, assume the following:

There are 6,883,644 outstanding shares of ~~Oneida Financial~~Merchants common stock.

Merchants stockholders make a mixed election with respect to 688,364 shares (or 10%) of Merchants common stock.

Merchants stockholders make a cash election with respect to 3,441,822 shares (or 50%) of Merchants common stock.

Merchants stockholders make a stock election with respect to the remaining 2,753,458 shares (or 40%) of Merchants common stock.

There are no shares of Merchants common stock ~~you own.~~outstanding subject to vesting or forfeiture restrictions, and no dissenting shares.

You hold 1,000 shares of Merchants common stock and have made an effective cash election with respect to those shares. In this example, proration would be required with respect to the Merchants stockholders who made a cash election.

TABLE OF CONTENTS

~~All-Stock Election~~Step 1. ~~If you make~~Derive the ~~all-stock~~cash election ~~you will receive~~amount. The cash election amount equals the number of shares with respect to which cash elections have been mademultiplied by the cash election consideration of $40.00.

In this example, the cash election amount is calculated as follows:

3,441,822 * $40.00 = $137,672,880.00

Step 2. Derive the available cash election amount. The available cash election amount equals (a) the product of $12.00multiplied by the total number of shares of Merchants common stock issued and outstanding immediately prior to the effective time of the Merger,minus (b) the product of the total number of shares with respect to which a mixed election has been mademultiplied by $12.00,minus (c) the product of the total number of dissenting shares and shares of Merchants common stock subject to vesting or forfeiture restrictions as of immediately prior to the effective time of the Mergermultiplied by the value of the mixed election consideration. The value of the mixed election consideration is equal to the sum of (i) $12.00 and (ii) the product of (a) 0.6741 and (b) the volume-weighted average trading price of Community Bank System common stock on the NYSE during the 20 trading day period ending on and including the third trading day immediately preceding the effective date of the Merger.

In this example, the available cash election amount is calculated as follows:

(6,883,644 * $12.00) – (688,364 * $12.00) = $74,343,360.00

Step 3. Determine the pro rata cash consideration to be received by each share of Merchants common stock with respect to which a cash election is made. The pro rata cash consideration is calculated by multiplying $40.00 by a fraction, the numerator of which is the available cash election amount and the denominator of which is the cash election amount (such fraction, the “cash fraction”).

In this example, the pro rata cash consideration is calculated as follows:

$40.00 *

$74,343,360.00

$137,672,880.00

= $40.00 * 0.54 = $21.60

Step 4. Determine the pro rata stock consideration to be received by each share of Merchants common stock with respect to which a cash election is made. The pro rata stock consideration is a number of shares of Community Bank System common stock equal to the ~~applicable exchange ratio determined~~stock election consideration of 0.9630multiplied by one minus the cash fraction.

In this example, the pro rata stock consideration is calculated as follows:

0.9630 * (1-0.54) = 0.4430

Thus, in ~~accordance with the section captioned “—Conversion~~this example, if you own 1,000 shares of ~~Oneida Financial Common Stock” above, for each share of Oneida Financial~~Merchants common stock and make a cash election with respect to those shares, you ~~own, subject to the allocation procedures described below, plus cash~~would receive:

$21,600 in ~~lieu of any fractional share.~~

~~All-Cash Election~~~~. If you make the all-cash election, you will receive $20.00 in cash, without interest, for each share of Oneida Financial common stock you own, subject to the allocation procedures described below.~~

~~Mixed Election~~~~. If you make the mixed election, you will receive (i)~~cash; and

443 shares of Community Bank System common stock.

Example B — Proration if Too Many Merchants Stockholders Elect to Receive All Stock.For purposes of this example, assume the following:

There are 6,883,644 outstanding shares of Merchants common stock.

Merchants stockholders make the mixed election with respect to 688,364 shares (or 10%) of Merchants common stock.

Merchants stockholders make the cash election with respect to 688,364 shares (or 10%) of Merchants common stock.

Merchants stockholders make the stock ~~based upon~~election with respect to the ~~exchange ratio, for 60%~~remaining 5,506,915 shares (or 80%) of Merchants common stock.

TABLE OF CONTENTS

There are no shares of Merchants common stock outstanding subject to vesting or forfeiture restrictions, and no dissenting shares.

You hold 1,000 shares of Merchants common stock and have made an effective stock election with respect to those shares. In this example, proration would be required with respect to the ~~total~~Merchants stockholders who made a stock election.

Step 1. Derive the cash election amount. In this example, the cash election amount is calculated as follows:

688,364 * $40.00 = $27,534,560.00

Step 2. Derive the available cash election amount. In this example, the available cash election amount is calculated as follows:

(6,883,644 * $12.00) – (688,364 * $12.00) = $74,343,360.00

Step 3. Determine the pro rata cash consideration to be received by each share of Merchants common stock with respect to which a stock election is made. The pro rata cash consideration is calculated by dividing the difference between the available cash election amount and the cash election amount by the number of Merchants shares with respect to which a stock election was made.

In this example, the pro rata cash consideration is calculated as follows:

$74,343,360.00 - $27,534,560.00

5,506,915

= $8.50

Step 4. Determine the pro rata stock consideration to be received by each share of Merchants common stock with respect to which a stock election is made. The pro rata stock consideration is a number of shares of Oneida Financial common stock you own, and (ii) $20.00 per share in cash, without interest, for 40% of the total number of shares of Oneida Financial common stock you own, plus cash in lieu of any fractional share.

~~Non-Election Shares~~. If you do not make a valid election on a timely basis indicating your preference as to the receipt of cash or Community Bank System common stock, you will receive for each share of Oneida Financial Common Stock you own either (i) Community Bank System common stock equal to the ~~applicable exchange ratio determined~~stock election consideration of 0.9630multiplied by a fraction, the numerator of which is the difference between the cash election consideration of $40.00, and $8.50 (the cash amount calculated in ~~accordance~~Step 3), and the denominator of which is the cash election consideration of $40.00.

In this example, the pro rata stock consideration is calculated as follows:

0.9630 *

($40.00–$8.50)

$40.00

= 0.7584

Thus, in this example, if you own 1,000 shares of Merchants common stock and make a stock election with ~~the section captioned “— Conversion of Oneida Financial Common Stock” above, (ii) $20.00~~respect to those shares, you would receive:

$8,500 in ~~cash, without interest, or (iii) a combination~~cash; and

758 shares of Community Bank System common stock, ~~and~~plus cash ~~as determined by Community Bank System.~~

~~Representative Shares.~~ ~~Record holders of shares of Oneida Financial common stock who hold those shares as nominees, trustees or~~ in ~~other representative capacities may submit multiple election forms/letters of transmittal, provided that those record holders certify that each~~lieu of the ~~election forms/letters of transmittal covers all of the shares of Oneida Financial common stock held for the benefit of a particular beneficial owner.~~

additional 0.4 fractional share.

No Recommendation Regarding Elections

Under the terms of the Merger Agreement, no more than 40% of the outstanding shares of Oneida Financial common stock will be converted into the right to receive cash, and no more than 60% the outstanding shares of Oneida Financial common stock will be converted into the right to receiveNeither Merchants nor Community Bank System common stock. Therefore, if the elections result in an oversubscription of either stock or cash, [_____________] will follow the procedures for allocating Community Bank System common stock and cash described below under “—~~Allocation Mechanism.” Accordingly, Oneida Financial and Community Bank System cannot guarantee that you will receive the form of~~is making any recommendation as to which merger consideration ~~that~~election a Merchants stockholder should make. If you ~~elect~~are a Merchants stockholder, you must make your own decision with respect to ~~all~~these elections and may wish to seek the advice of your own attorneys or accountants.

Information About the Merger Consideration Elections

The mix of consideration payable to Merchants stockholders who make the cash election or the stock election will not be known until the results of the ~~shares of Oneida Financial common stock you own.~~

~~Election Form/Letter of Transmittal.~~ ~~You~~elections made by Merchants stockholders are tallied, which will receive an election form/letter of transmittal and other appropriate and customary transmittal materials in a separate mailing. The election form/letter of transmittal will allow you to select either (i)not occur until near or after the ~~all-cash election, (ii) the all-stock election or (ii) the mixed election. [_____________] will send each Oneida Financial stockholder who was a holder of record as~~closing of the ~~close~~Merger.

TABLE OF CONTENTS

Procedures for Converting Shares of business on [ ], 2015 the election form/letter of transmittal and will use reasonable efforts to make available as promptly as possible a duplicate election form/letter of transmittal to any holder of Oneida Financial common stock who makes a request for such election form/letter of transmittal after the initial mailing and prior to 5:00 p.m., Eastern time, on [ ], 2015 (the “election deadline”). Oneida Financial and Community Bank System will notify you if there is a change in the election deadline.
Oneida Financial stockholders should not forward their Oneida Financial stock certificates with their proxy cards.
If you wish to elect the type of merger consideration you will receive in theMerchants Common Stock into Merger you must make a valid election prior to the election deadline with respect to your shares of Oneida Financial common stock. Accordingly, you should carefully review and follow the instructions to the election form/letter of transmittal.
Consideration

Exchange Agent

To make a valid election, you must submit a properly completed election form/letter of transmittal so that it is actually received by [_______________] at or prior to the election deadline in accordance with the instructions to the election form/letter of transmittal. An election form/letter of transmittal will be deemed properly completed only if accompanied by stock certificates (or an appropriate guarantee of delivery of stock certificates as set forth in the notice of guaranteed delivery included with the election form/letter of transmittal from a firm that is a member of a registered national securities exchange or a commercial bank or trust company in the United States, provided that the stock certificates are in fact delivered to [_____________] by the time required in such guarantee of delivery) representing all shares of Oneida Financial common stock covered by the election form/letter of transmittal (or, if such certificates have been lost, stolen, destroyed or mutilated, an affidavit as to the ownership of that certificate by the claimant and to its loss, theft, destruction or mutilation, along with customary identification and, if required by Community Bank System, an indemnity agreement or the posting of a bond).

You may revoke an election at any time prior to the election deadline, and you may either resubmit a new election or simply withdraw your prior election. If you wish to change an election, you may resubmit the election form/letter of transmittal in accordance with the election procedures, so long as the resubmitted election form/letter of transmittal is received by the election deadline. If you wish to withdraw an election, you must provide written notice of withdrawal to the exchange agent by 5:00 p.m. local time, on the election deadline. In the event of a withdrawal of an election, [________________] will, upon receiving a written request from you, return the certificates of Oneida Financial common stock (or guarantee of delivery, if applicable) submitted by you, and you will be deemed not to have made an election and your shares of Oneida Financial common stock will be treated as non-election shares unless you resubmit another election form/letter of transmittal in accordance with the election procedures. [______________] will have reasonable discretion to determine whether any election, change, or withdrawal request has been properly or timely made and to disregard immaterial defects in any election form/letter of transmittal, and any good faith decisions of the exchange agent and Community Bank System regarding these matters will be binding and conclusive. Neither Community Bank System nor the exchange agent will be under any obligation to notify any person of any defects in an election form/letter of transmittal.

~~Deposit of Merger Consideration.~~ ~~At or prior~~Prior to the effective time of the Merger, Community Bank System will designate a bank or trust company that is reasonably acceptable to Merchants to act as the exchange agent in connection with the Merger (such agent is referred to in this Proxy Statement/Prospectus as the “exchange agent”). The exchange agent shall also act as the agent for Merchants stockholders for the purpose of receiving and holding their election forms and Merchants certificates and book-entry shares and shall obtain no rights or interests in the shares represented thereby. At or prior to the closing of the Merger, Community Bank System will deposit, or cause to be deposited, with ~~[____________],~~the exchange agent the aggregate amount of cash and number of shares of Community Bank System common stock necessary to satisfy the aggregate merger consideration payable, and any dividends or other distributions with respect thereto.

Transmittal Materials and Procedures

Promptly (but not more than five business days) after the effective time of the Merger, Community Bank System will cause the exchange agent to send transmittal materials, which will include the appropriate form of letter of transmittal, to holders of record of shares of Merchants common stock (other than excluded shares and dissenting shares) providing instructions on how to effect the transfer and cancellation of shares of Merchants common stock in exchange for merger consideration.

After the effective time of the Merger, when a Merchants stockholder delivers a properly executed letter of transmittal and any other documents as may reasonably be required by the exchange agent, ~~for its~~the holder of shares of Merchants common stock will be entitled to receive (i) the number of shares of Community Bank System common stock and an amount in cash that such holder is entitled to receive as a result of the Merger (after taking into account all of the shares of Merchants common stock held immediately prior to the Merger by such holder, and such holder’s merger consideration election) and (ii) any cash in lieu of fractional shares and in respect of dividends or other distributions to which the holder is entitled.

No interest will be paid or accrued on any amount payable upon cancellation of shares of Merchants common stock. The shares of Community Bank System common stock issued and cash amount paid in accordance with the Merger Agreement upon conversion of the shares of Merchants common stock (including any cash paid in lieu of fractional shares) will be deemed to have been issued and paid in full satisfaction of all rights pertaining to the shares of Merchants common stock.

If any portion of the merger consideration is to be delivered to a person or entity other than the holder in whose name any surrendered certificate is registered, it will be a condition of such exchange ~~agent~~that (i) the certificate surrendered must be properly endorsed or must be otherwise in proper form for transfer and (ii) the person or entity requesting such payment pays any transfer or other similar taxes required by reason of the payment of the merger consideration to a person or entity other than the registered holder of the certificate surrendered or will establish to the satisfaction of Community Bank System that such tax has been paid or is not required to be paid. Payment of the applicable merger consideration with respect to book-entry shares will only be made to the person or entity in whose name such book-entry shares are registered. The shares of Community Bank System common stock constituting the stock portion of the merger consideration may be in uncertificated book-entry form, unless a physical certificate is otherwise required by any applicable law.

Treatment of Merchants Equity Awards and Warrants

Each Merchants stock option outstanding and unexercised immediately prior to the effective time of the Merger, whether or not vested or exercisable, will be cancelled and automatically converted into the right to receive a cash amount equal to the aggregate number of Merchants shares subject to such optionmultiplied by the excess of the value of the mixed election consideration over the exercise price of such option. The value of the mixed election consideration is equal to the sum of (i) $12.00 and (ii) the product of (a) 0.6741 and (b) the volume-weighted average trading price of Community Bank System common stock on the NYSE during the 20 trading day period ending on and including the third trading day immediately preceding the effective date of the Merger.

TABLE OF CONTENTS

automatically vest in full, and any restrictions thereon will lapse, and such Merchants restricted share shall be canceled and converted into the right to receive an amount of cash equal to the value of the mixed election consideration plus dividends, if any, accrued but unpaid as of the effective time with respect to such restricted share.

Each organizers’ warrant to purchase Merchants common stock outstanding as of the effective time will be converted at the effective time into a warrant to acquire, upon payment of the amount determined by dividing the per share exercise price immediately prior to the effective time by the stock election consideration of 0.9630, the number of shares of Community Bank System common stock determined bymultiplying (i) the number of shares of Merchants common stock which may be acquired upon exercise of such organizers’ warrant immediately prior to the effective time by (ii) the stock election consideration of 0.9630.

Each 2013 warrant to purchase Merchants common stock outstanding as of the effective time will be converted into the right to receive, at the holder’s election, either (i) a cash payment in cancellation of such 2013 warrant equal to the number of shares of Merchants common stock which may be acquired upon exercise of such 2013 warrantmultiplied by the excess, if any, of the cash election consideration of $40.00 over the per share 2013 warrant exercise price immediately prior to the effective time or (ii) a replacement 2013 warrant certificate issued by Community Bank System and representing the right to acquire prior to the expiration date of the original 2013 warrant, upon payment of the amount determined by dividing the per share exercise price immediately prior to the effective time by the stock election consideration of 0.9630, that number of shares of Community Bank System common stock equal to the number of shares of Merchants common stock which may be acquired upon exercise of such 2013 warrant immediately prior to the effective timemultiplied by the stock election consideration of 0.9630.

Conduct of Business Pending the Merger

Pursuant to the Merger Agreement, Merchants agreed to certain restrictions on its activities until the effective time of the Merger. In general, Merchants has agreed that, except as otherwise permitted by the Merger Agreement, or as required by applicable law, it will:

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

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

maintain its books, accounts and records in the usual manner on a basis consistent with that previously employed.

Each of Merchants and Community Bank System have agreed to take no action that would adversely affect or materially delay the receipt of regulatory or governmental approvals required for the transactions contemplated by the Merger Agreement, the timing of the effectiveness of the Registration Statement of which this Proxy Statement/Prospectus is a part, or to perform its covenants and agreements or to consummate the transactions contemplated by the Merger Agreement.

Community Bank System has agreed that except as otherwise permitted by the Merger Agreement or as required by applicable law, it will not (i) amend any provision of its organizational documents in a manner that would adversely affect the economic benefits of the Merger to the stockholders of Merchants or the consummation of the transactions contemplated by the Merger Agreement or (ii) take any action or knowingly fail to take any action where such action or failure to act would reasonably be expected to prevent the Merger from qualifying as a “reorganization” within the meaning of Section 368(a) of the Code.

Merchants has also agreed that except as otherwise permitted by the Merger Agreement, as required by applicable law, or with the prior written consent of Community Bank System (not to be unreasonably withheld, conditioned or delayed) it will not:

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

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

TABLE OF CONTENTS

make, declare, set aside or pay any dividend or make any other distribution on, or directly or indirectly redeem, purchase or otherwise acquire, any shares of its capital stock or any securities or obligations convertible (whether currently convertible or convertible only after the passage of time or the occurrence of certain events) into or exchangeable for any shares of its capital stock, other than the declaration and payment of dividends by any subsidiaries of Merchants to Merchants or any of its wholly-owned subsidiaries, dividends not greater than $0.28 per share per calendar quarter to the extent consistent with past practice, and acquisitions of shares of Merchants common stock resulting from the forfeiture of Merchants restricted shares (including for purposes of tax withholding upon vesting) or the net exercise of Merchants stock options or Merchants warrants, in each case outstanding as of the date of the Merger Agreement in accordance with their terms as of the date thereof;

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

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

make any investment in any other person, other than in the ordinary course of business consistent with practice;

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

terminate or allow to be terminated any of the policies of insurance maintained on its business or property, cancel any material indebtedness owing to it or any claims that it may possess or waive any right of substantial value or discharge or satisfy any material noncurrent liability (except as may be required by law or contract in effect prior to the date of the Merger Agreement or entered into after the date of the Merger Agreement in accordance with its terms);

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

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

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

sell, assign or transfer any of its assets in excess of $50,000 in the aggregate (except in the ordinary course of business consistent with past practice);

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

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

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

TABLE OF CONTENTS

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

other than as required by benefit plans and contracts in effect as of the date of the Merger Agreement, (i) adopt, enter into, establish, terminate or amend any benefit plan with respect to any director, officer or other service provider with an annual base salary or wages that is reasonably anticipated to exceed $125,000 or, other than in the ordinary course of business consistent with past practice with respect to any other service provider, (ii) change the compensation or benefits of any director, officer or other service provider with an annual base salary or wages that is reasonably anticipated to exceed $125,000 or, other than in the ordinary course of business consistent with past practice, of any other service provider, (iii) adopt or enter into any collective bargaining agreement or any other similar agreement with any labor organization, group or association, (iv) adopt, enter into, establish, amend or grant any employment, severance, change in control, termination, deferred compensation, pension or retirement arrangement, (v) grant or pay any incentive compensation, (vi) accelerate any rights or benefits under any Merchants benefit plan, including accelerating the vesting of, or the lapsing of restrictions with respect to, any Merchants restricted shares or any Merchants stock options, or (vii) hire or terminate (other than for cause) any director, officer, or any other service provider with annual base salary or wages that is reasonably anticipated to exceed $125,000;

commence, settle or agree to settle any litigation, except in the ordinary course of business consistent with past practice that (i) involves only the payment of money damages not in excess of $50,000 individually or $200,000 in the aggregate, (ii) does not involve the imposition of any equitable relief on, or the admission of wrongdoing by, Merchants or its applicable subsidiary and (iii) would not create precedent for claims that are reasonably likely to be material to Merchants or any of its subsidiaries;

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

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

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

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

surrender any claim for a refund of taxes;

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

merge or consolidate with any other person;

change its fiscal or tax year;

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

enter into any material contract;

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

open any new branch or deposit taking facility or close, relocate or materially renovate any existing branch or facility;

TABLE OF CONTENTS

make any loans, or enter into any commitments to make loans, which vary other than in immaterial respects from its written loan policies (subject to certain exceptions and thresholds and provided that Merchants may extend or renew loans in the ordinary course of business consistent with past lending practices or in connection with the workout or renegotiation of current loans);

adopt or enter into a plan of complete or partial liquidation, dissolution, restructuring, recapitalization or other reorganization;

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

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

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

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

incur or commit to incur any capital expenditure or authorization or commitment with respect to them that, in the aggregate is in excess of $1,000,000, except as disclosed in the annual business plan or budget previously disclosed to Community Bank System or in the ordinary course of business consistent with past practice;

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

agree or commit to take any of the actions set forth above.

Regulatory Matters

This Proxy Statement/Prospectus forms part of a Registration Statement on Form S-4 which Community Bank System has filed with the SEC. Each of Community Bank System and Merchants has agreed to use reasonable best efforts to have the Registration Statement declared effective as promptly as practicable after its filing and to keep the Registration Statement effective for as long as necessary to consummate the transactions contemplated by the Merger Agreement. Each of Community Bank System and Merchants has agreed to furnish the other with all information concerning themselves, their subsidiaries, directors, officers and stockholders and such other matters as may be reasonably necessary or advisable in connection with this Proxy Statement/Prospectus, the Registration Statement or any other statement, filing, notice or application made by or on behalf of either party or any of their respective subsidiaries to any governmental authority in connection with the Merger, the Bank Merger and the other transactions contemplated by the Merger Agreement.

Community Bank System has agreed to use its reasonable best efforts to obtain all necessary state securities law or “blue sky” permits and approvals required to carry out the transactions contemplated by the Merger Agreement, and Merchants has agreed to furnish all information concerning it and the holders of its capital stock as may be reasonably requested in connection with any such action.

Community Bank System and Merchants have agreed to use all respective reasonable best efforts to take, or cause to be taken, in good faith, all actions and to do, or cause to be done, all things necessary, proper, or advisable under applicable laws, to permit the consummation of the Merger as promptly as practicable.

Community Bank System and Merchants each have the right to review and consult in advance on all the information relating to such party which appears in any filing made with, or written materials submitted to, any third party or any governmental authority in connection with the transactions contemplated by the Merger Agreement, provided that each party has agreed to act reasonably and promptly in exercising the foregoing right. Community Bank System and Merchants will consult with each other with respect to the obtaining of all permits, consents, approvals and authorizations of all third parties and governmental authorities necessary

TABLE OF CONTENTS

or advisable to consummate the transactions contemplated by the Merger Agreement, and each party will keep the other apprised of the status of matters relating to the completion of the transactions contemplated by the Merger Agreement. Each of Community Bank System and Merchants has agreed to consult with the other in advance of any meeting or conference with any governmental authority with respect to the transactions contemplated by the Merger Agreement and, to the extent permitted by such governmental authority, Merchants will give Community Bank System and/or its counsel the opportunity to attend and participate in such meetings and conferences.

Additionally, each of Community Bank System and Merchants has agreed to cooperate fully with and furnish information to the other party, and obtain all consents of, and give all notices to and make all filings with, all governmental authorities and other third parties that may be or become necessary for the performance of its obligations under the Merger Agreement and the consummation of the other transactions contemplated by the Merger Agreement. Further, to the extent permitted by applicable law, each of Community Bank System and Merchants has agreed to promptly advise the other upon receiving any communication, whether in writing or oral, from any governmental authority whose consent is required for consummation of the transactions contemplated by the Merger Agreement that causes such party to believe that there is a reasonable likelihood that any required approval will not be obtained or that the receipt of any approval will be materially delayed.

Further, each of Community Bank System and Merchants has agreed to use its reasonable best efforts to avoid the entry of, or to have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order by a governmental authority that would restrain, prevent or delay the closing of the Merger.

In connection with seeking regulatory approval for the Merger, neither Community Bank System nor any of its subsidiaries is required take, or agree to take, any actions, or to accept any restriction, requirement or condition, that, individually or in the aggregate, would reasonably be expected to have a material adverse effect on Community Bank System, Merchants and their respective subsidiaries, taken as a whole, or prohibit or materially limit the ownership or operation by Merchants or any of its subsidiaries, or Community Bank System or any of its subsidiaries, of all or any material portion of the business or assets of Merchants and its subsidiaries or Community Bank System and its subsidiaries, in each case taken as a whole, or compel Community Bank System or any of its subsidiaries to dispose of or hold separate all or any material portion of the business or assets of Merchants and its subsidiaries or Community Bank System and its subsidiaries, in each case taken as a whole.

NYSE Listing

Community Bank System has agreed to cause the shares of Community Bank System common stock to be issued to the holders of Merchants common stock in the Merger to be authorized for listing on the NYSE, subject to official notice of issuance, prior to the effective time of the Merger.

Merchants Debt

Community Bank System will execute and deliver at or prior to the effective time of the Merger any instruments required for the due assumption of Merchants’ outstanding fixed and floating rate Junior Subordinated Debentures due 2034 and other agreements to the extent reasonably required by the terms of such debentures. Merchants has agreed to take all actions reasonably required by Community Bank System in order to facilitate Community Bank System’s assumption of the aforementioned Merchants debentures.

Employee Matters

Under the Merger Agreement, with respect to employees of Merchants who are employed by Community Bank following the Merger (each, a “continuing employee”), Community Bank will: (i) recognize service with Merchants prior to the Merger for purposes of determining eligibility, vesting and level of benefits under its health, welfare, paid time off and severance plans, except for pension benefit accrual purposes or to the extent that such recognition would result in duplication of benefits; (ii) use its commercially reasonable efforts to waive pre-existing condition exclusions to the extent these exclusions were waived under the analogous Merchants benefit plan; and (iii) use its commercially reasonable efforts to recognize for purposes of annual deductible and out-of-pocket limits under its medical and dental plans, deductible and out-of-pocket expenses

TABLE OF CONTENTS

paid by continuing employees in the calendar year in which the effective time of the Merger occurs. Further, during the 12 months after the effective date of the Merger, Community Bank will make available to continuing employees and their dependents employer-provided health coverage under Merchants plans or on the same basis as Community Bank provides such coverage to similarly situated employees of Community Bank and its Subsidiaries, and Community Bank will provide COBRA coverage to former Merchants employees.

Community Bank will honor employment agreements and severance arrangements of Merchants specified in a disclosure schedule to the Merger Agreement, except to the extent such arrangements are superseded or terminated as of or following the effective time of the Merger. In the event the employment of a continuing employee without an individual agreement is terminated without cause during a specified period following the effective time of the Merger, Community Bank will provide certain severance benefits based on length of service. Community Bank will honor the terms and obligations of Merchants director deferred compensation plans, unless such plans are terminated prior to the effective time of the Merger by mutual agreement of Merchants and Community Bank. Upon the request of Community Bank, prior to the effective time of the Merger Merchants will terminate, continue or merge its benefit plans, other than employment agreements and severance arrangements specified in a disclosure schedule to the Merger Agreement and its director deferred compensation plans.

The Merger Agreement does not amend or modify any benefit plan or limit the rights of Community Bank to amend, terminate or otherwise modify any benefit plan.

Indemnification and Directors’ and Officers’ Insurance

From and after the effective time of the Merger, Community Bank System has agreed to indemnify and hold harmless the present and former directors, officers and employees of Merchants and its subsidiaries against any costs or expenses, judgments, settlements effected with the prior written consent of Community Bank System, fines, losses, taxes, damages or liabilities incurred in connection with any claim, action, suit, proceeding or investigation arising before or after the effective time of the Merger, arising in whole or in part out of, or pertaining to the fact that such person is or was a director, officer or employee of Merchants or its subsidiaries, or otherwise in connection with any action taken or not taken at the request of Merchants or its subsidiaries or is or was serving at the request of Merchants or its subsidiaries as a director, officer employee, agent, trustee or fiduciary of another person and pertaining to matters, acts or omissions existing or occurring at or prior to the effective time of the Merger, including matters, acts or omissions occurring in connection with the approval of the Merger Agreement and the transactions contemplated thereby, to the fullest extent permitted by applicable law. Community Bank System has also agreed to advance expenses as incurred by any indemnified party to the fullest extent permitted by applicable law within 30 days after a written request setting forth such expenses in reasonable detail, provided that such indemnified party to whom expenses are advanced provides an undertaking to repay such advances if it is ultimately decided that such indemnified party is not entitled to indemnification.

For a period of six years after the effective time of the Merger, Community Bank System will cause to be maintained in effect the current policies of directors’ and officers’ liability insurance maintained by Merchants with respect to claims against them arising from matters, acts or omissions occurring at or before the effective time of the Merger (including the transactions contemplated by the Merger Agreement). Community Bank System will not be obligated to expend, on an annual basis, an amount in excess of 300% of the current annual premium paid as of the date of the Merger Agreement by Merchants for such directors’ and officers’ liability insurance (the “premium cap”) and if such premiums at any time exceed the premium cap, then Community Bank System shall cause to be maintained policies of insurance which will provide the maximum coverage available at an annual premium equal to the premium cap. In lieu of the foregoing, Merchants in consultation with Community Bank System may obtain at or prior to the effective time a substitute policy for a price that in the aggregate does not exceed the premium cap.

No Solicitation

Merchants has agreed that it will not, and will cause its subsidiaries and its subsidiaries’ directors, officers, employees and representatives and affiliates not to, directly or indirectly: (i) initiate, solicit, knowingly encourage or knowingly facilitate inquiries or proposals with respect to, (ii) continue, engage or

TABLE OF CONTENTS

participate in any negotiations concerning, (iii) provide to any person any confidential or nonpublic information or data or have or participate in any discussions with any person relating to, or (iv) approve, recommend, agree to or accept, any acquisition proposal.

An “acquisition proposal” is defined as any offer, proposal or inquiry relating to, or any third party indication of interest in, (i) any acquisition or purchase, direct or indirect, of 15% or more of the consolidated assets of Merchants and its subsidiaries or 15% or more of any class of equity or voting securities of Merchants or any of its subsidiaries whose assets, individually or in the aggregate, constitute more than 15% of the consolidated assets of Merchants, (ii) any tender offer (including a self-tender offer) or exchange offer that, if consummated, would result in a third party beneficially owning 15% or more of any class of equity or voting securities of Merchants or any of its subsidiaries whose assets, individually or in the aggregate, constitute more than 15% of the consolidated assets of Merchants, or (iii) any merger, consolidation, share exchange, business combination, reorganization, recapitalization, liquidation, dissolution or other similar transaction involving Merchants or any of its subsidiaries whose assets, individually or in the aggregate, constitute more than 15% of the consolidated assets of Merchants.

If Merchants receives an unsolicited bona fide acquisition proposal that was not received in violation of the provisions described above, and the Merchants board of directors concludes in good faith that such acquisition proposal constitutes or is reasonably likely to result in a superior proposal (as defined below) and that failure to take such actions would be inconsistent with its fiduciary duties under applicable law, then Merchants may, and may permit its directors, officers, employees and representatives to: (i) enter into a confidentiality agreement with the third party making the acquisition proposal with terms and conditions no less favorable to Merchants than the confidentiality agreement entered into by Merchants and Community Bank System prior to the execution of the Merger Agreement; (ii) furnish non-public information or data to the third party making the acquisition proposal pursuant to such confidentiality agreement (and provide to Community Bank System any information not previously provided to Community Bank System); and (iii) participate in such negotiations or discussions with the third party making the acquisition proposal regarding such proposal.

A “superior proposal” means any bona fide, unsolicited, written acquisition proposal for at least a majority of the outstanding shares of Merchants common stock on terms that the Merchants board of directors concludes in good faith to be more favorable from a financial point of view to its stockholders than the Merger and the other transactions contemplated by the Merger Agreement (including taking into account the terms, if any, proposed by Community Bank System to amend or modify the terms of the transactions contemplated by the Merger Agreement in response to such proposal), (i) after receiving the advice of its financial advisor, (ii) after taking into account the likelihood of consummation of such transaction on the terms set forth therein and (iii) after taking into account all legal (with the advice of outside counsel), financial (including the financing terms of any such proposal), regulatory and other aspects of the proposal and any other relevant factors permitted under applicable law.

Notwithstanding the above, Merchants (without any determination by its board of directors or consultation with outside counsel or its financial advisor) may, following receipt of an unsolicited bona fide acquisition proposal, contact such third party solely in order to clarify and understand the terms and conditions of such acquisition proposal and/or to direct such third party to the Merger Agreement.

Merchants must promptly advise Community Bank System within 24 hours following receipt of any acquisition proposal, any request for information, discussion or negotiation that is reasonably likely to lead to or that contemplates an acquisition proposal, or any inquiry, proposal or offer that is reasonably likely to lead to, an acquisition proposal. Merchants must furnish a copy of, or a description of the terms and conditions of such acquisition proposal and must keep Community Bank System informed of any related developments, discussions and negotiations within 24 hours of any such event or occurrence. Merchants must also promptly (within 24 hours) notify Community Bank System if it determines to begin providing information or to engage in discussions or negotiations concerning an acquisition proposal and shall not provide such information or engage in such discussions prior to providing such notice to Community Bank System.

The Merger Agreement generally prohibits Merchants’ board of directors from (i) withdrawing, modifying or qualifying in a manner adverse to Community Bank System the approval, recommendation or declaration

TABLE OF CONTENTS

of advisability by the Merchants board of directors set forth in this Proxy Statement/Prospectus that the Merchants stockholders vote to adopt the Merger Agreement, (ii) recommending, endorsing or otherwise declaring as advisable the adoption of any acquisition proposal, (iii) resolving, agreeing or proposing to take any such actions or (iv) submitting the Merger Agreement to Merchants’ stockholders without recommendation, in each case prior to the date of the special meeting of stockholders (any such action, an “adverse recommendation change”).

The Merchants board of directors may effect an adverse recommendation change in response to (i) an acquisition proposal that constitutes a superior proposal, or (ii) an intervening event (as defined below), if the board of directors concludes in good faith (after receiving the advice of its outside counsel and, with respect to financial matters, its financial advisor) that the failure to effect such adverse recommendation change would be inconsistent with its fiduciary duties to stockholders under applicable law.

An “intervening event” means any material event or development or material change in circumstance with respect to Merchants that arises or occurs after the date of the Merger Agreement and was neither known by nor reasonably foreseeable to the Merchants board of directors as of or prior to the date of the Merger Agreement and does not relate to any acquisition proposal or any required regulatory approval.

In addition, solely in the case of a superior proposal that did not result from a breach by Merchants of its nonsolicitation obligations under the Merger Agreement, the Merchants board of directors may cause Merchants to terminate the Merger Agreement and authorize Merchants to enter into a definitive agreement with respect to such superior proposal, if the board of directors concludes in good faith (after receiving the advice of its outside counsel and, with respect to financial matters, its financial advisor) that the failure to take such action would be inconsistent with its fiduciary duties to stockholders under applicable law, provided that no such termination will be effective until Merchants pays to Community Bank System the termination fee of $10,720,000.00. See “— Termination,” beginning on page 78 of this Proxy Statement/Prospectus and “— Termination Fee” beginning on page 80 of this Proxy Statement/Prospectus.

The board of directors of Merchants may not effect an adverse recommendation change or terminate the Merger Agreement in response to a superior proposal without providing Community Bank System with at least four business days’ prior written notice of its intention to take such action and with a reasonably detailed description of the acquisition proposal or intervening event giving rise to its determination to take such action, and without taking into account in good faith, at the end of such notice period, any amendment or modification of the Merger Agreement proposed by Community Bank System and determining, after taking into account the advice of its outside counsel and, with respect to financial matters, its financial advisor, that failure to take such action would nevertheless be inconsistent with its fiduciary duties under applicable law. Merchants has further agreed to, and to cause its financial and legal advisors to, negotiate with Community Bank System in good faith (to the extent Community Bank System seeks to negotiate) regarding any revisions to the Merger Agreement proposed by Community Bank System during such four business day period. Any material amendment to any acquisition proposal or any material development with respect to any intervening event, as the case may be, will require a new notice period as referred to above, except that any reference to four business days shall instead be three business days.

If the Merchants board of directors effects an adverse recommendation change and Community Bank System determines to terminate the Merger Agreement, Merchants will be required to pay Community Bank System a termination fee of $10,720,000 in cash. See “— Termination,” beginning on page 78 of this Proxy Statement/Prospectus and “— Termination Fee” beginning on page 80 of this Proxy Statement/Prospectus.

Notwithstanding any superior proposal, intervening event or anything contained in the Merger Agreement, unless the Merger Agreement has been terminated in accordance with its terms, the Merchants special meeting shall be convened for the purpose of submitting the Merger Agreement to the Merchants stockholders to vote on the adoption of such and any other matters contemplated thereby.

TABLE OF CONTENTS

Representations and Warranties

The Merger Agreement contains generally customary representations and warranties of Merchants and Community Bank System relating to their respective businesses. The representations and warranties of each of Merchants and Community Bank System have been made solely for the benefit of the other party, and these representations and warranties should not be read alone. Instead, such provisions or descriptions should be read only in conjunction with the other information provided elsewhere in this document or incorporated by reference into this document. See “Who Can Help Answer Your Questions” on page xi of this Proxy Statement/Prospectus. In addition, these representations and warranties:

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

will not survive consummation of the Merger;

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

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

were made only as of the date of the Merger Agreement or such other date as is specified in the Merger Agreement.

The representations and warranties made by Merchants and Community Bank System to each other primarily relate to:

corporate organization, standing and power;

capitalization;

ownership of subsidiaries;

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

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

regulatory approvals required in connection with the Merger;

reports filed with governmental entities, including the SEC;

financial statements;

compliance with laws and the absence of regulatory agreements;

employee benefits plans and labor matters;

absence of a material adverse effect on Merchants or Community Bank System, respectively, since December 31, 2015;

fees paid to financial advisors;

accuracy of the information included in the Registration Statement and any amendments thereto;

certain actions with respect to the Merger;

tax matters;

litigation;

ownership of the other party’s common stock; and

Community Reinvestment Act compliance.

TABLE OF CONTENTS

Merchants has also made representations and warranties to Community Bank System with respect to:

the inapplicability to the Merger of state takeover laws;

material contracts;

environmental matters;

intellectual property;

real and personal property;

loan and investment portfolio matters;

adequacy of allowances for losses;

maintenance of insurance policies;

privacy of customer information;

technology systems;

administration of trust accounts;

liquidity of investment securities;

receipt of a fairness opinion from its financial advisor; and

transactions with insiders and affiliates.

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

TABLE OF CONTENTS

Conditions to Completion of the Merger

The obligations of Community Bank System and Merchants to complete the Merger are subject to the satisfaction of the following conditions:

the approval of the Merger Agreement by Merchants stockholders;

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

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

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

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

the ~~Merger, by wire transfer of immediately available funds.~~

~~Letter of Transmittal~~~~. As soon as practicable after the completion~~accuracy of the Merger, the exchange agent will send a letter of transmittal to each person who was an Oneida Financial stockholder at the effective time of the Merger but did not previously and properly surrender his or her shares of Oneida Financial common stock to the exchange agent prior to the election deadline. This mailing will explain how to surrender shares of Oneida Financial common stock in exchange for the merger consideration the holder is entitled to receive under the Merger Agreement.

~~Dividends; Closing of Transfer Books.~~ Any dividends declared by Community Bank System on its common stock after the Merger will include the shares of Community Bank System common stock issuable in the Merger. However, no dividend or other distribution payable to the holders of record of Community Bank System common stock at or as of any time after the completion of the Merger will be paid to the former Oneida Financial stockholders until they surrender their shares as described above, and no interest will be paid on any dividend or distribution. After the completion of the Merger, the stock transfer books of Oneida Financial will close and there will be no more transfers on the transfer books of Oneida Financial. Any shares of Oneida Financial common stock that are presented for transfer after the effective time of the Merger will be cancelled and exchanged for Community Bank System common stock and/or checks for cash, as provided in the Merger Agreement.

~~Lost, Stolen, Destroyed or Mutilated Certificates~~. If any certificate evidencing shares of Oneida Financial common stock is lost, stolen, destroyed or mutilated, Community Bank System may require its holder to provide an affidavit to that effect and to deliver an indemnity agreement and/or post a bond in an amount that Community Bank System may direct as indemnity against any claim that may be made by another party with respect to the certificate. Once these requirements have been satisfied, America Stock Transfer will issue, in exchange for such lost, stolen, destroyed or mutilated certificate, Community Bank System common stock and/or checks for cash, as provided in the Merger Agreement.

~~Allocation Mechanism~~

Pursuant to the terms of the Merger Agreement, no more than 40% of the outstanding Oneida Financial common stock will be converted into the right to receive cash in the Merger, and no more than 60% of the outstanding Oneida Financial common stock will be converted into the right to receive shares of Community Bank System common stock in the Merger. Therefore, depending on the aggregate elections made by the Oneida Financial stockholders for each election category, all-cash and all-stock elections are subject to a~~pro rata~~ allocation to preserve these limitations on the amount of cash to be paid and the number of shares of Community Bank System common stock to be issued in the Merger. However, holders of 100 or fewer shares of Oneida Financial common stock who have made the all-cash election are not subject to this allocation mechanism. As a result, unless this exception applies to you and your shares, you may receive a mix of cash and stock even if you make the all-cash election or the all-stock election.

~~Reduction of Shares Entitled to Receive Cash~~. If, at the election deadline, more than 40% of the total number of outstanding shares of Oneida Financial common stock have elected to receive cash pursuant to the all-cash election or the mixed election, then, after first allocating the non-election shares in accordance with the provisions therefor in the Merger Agreement, Community Bank System will remove a certain number of shares otherwise subject to the all-cash election and instead treat those shares as being subject to the all-stock election, so that a number of shares equal, as nearly as possible, to 40% of the total number of outstanding shares of Oneida Financial common stock will be exchanged for cash in the Merger. Community Bank System will determine the number of shares to be allocated on a~~pro rata~~ basis in relation to the total number of shares subject to the all-cash election (excepting out the number of shares subject to the all-cash election made by stockholders with 100 or fewer shares). Oneida Financial stockholders who have made the mixed election will not be required to have more than 60% of their shares of Oneida Financial common stock converted into shares of Community Bank System in the Merger. Notice of this allocation will be provided to each Oneida Financial stockholder who had made the all-cash election but will receive stock consideration because of the allocation, after the completion of the Merger.

~~Increase of Shares Entitled to Receive Cash~~. If, at the election deadline, less than 40% of the total number of outstanding shares of Oneida Financial common stock have elected to receive cash pursuant to the all-cash election or the mixed election, then, after first allocating the non-election shares in accordance with the provisions therefor in the Merger Agreement, Community Bank System will remove a certain number of shares otherwise subject to the all-stock election and instead treat those shares as being subject to the all-cash election, so that a number of shares equal, as nearly as possible, to 40% of the total number of outstanding shares of Oneida Financial common stock will be exchanged for cash in the Merger. Community Bank System will determine the number of shares to be allocated on a~~pro rata~~ basis in relation to the total number of shares subject to the all-cash election. Oneida Financial stockholders who have made the all-stock election or the mixed election will not be required to have more than 40% of their shares of Oneida Financial common stock converted into cash. Notice of this allocation will be provided promptly to each Oneida Financial stockholder who had made the all-stock election but will receive cash consideration because of the allocation, after the completion of the Merger.

~~The allocation described above will be computed and completed by Community Bank System as soon as practicable after the election deadline.~~

Because the Federal income tax consequences of receiving cash, Community Bank System common stock, or both cash and Community Bank System common stock will be different, you are strongly urged to read carefully the information set forth under the caption “Proposal I—The Merger—Material U.S. Federal Income Tax Consequences of the Merger” and to consult your own tax advisors for a full understanding of the Merger’s tax consequences to you. In addition, because the value of the Community Bank System common stock will fluctuate, the economic value per share received by Oneida Financial stockholders who receive the stock consideration may, as of the date of the effective time of the Merger or as of the date of the receipt of the consideration by them, be more or less than the amount of cash consideration per share received by Oneida Financial stockholders who receive cash consideration.

~~Conversion of Options and Stock Awards~~

At the effective time of the Merger, each option to purchase Oneida Financial common stock issued by Oneida Financial which is outstanding, unexpired and unexercised, whether or not previously vested and exercisable, will be canceled and the holder thereof will receive a cash payment equal to the number of shares of Oneida Financial common stock that were issuable upon the exercise of such option multiplied by the amount by which $20.00 exceeds the exercise price of such option.

Also at the effective time of the Merger, each restricted stock award issued pursuant to Oneida Financial’s 2012 Equity Incentive Plan that is outstanding shall vest in full, any restrictions thereon shall lapse, and such shares shall be converted into in the right to receive the merger consideration, which is described above.

~~Representations and Warranties~~

In the Merger Agreement, each party makes customary representations and warranties about themselves concerning various business, legal, financial, regulatory and other pertinent matters. These representations and warranties will not survive after the Merger. Under certain circumstances, a party may decline to complete the Merger if the other party’s ~~representations and warranties prove to be inaccurate.~~

~~Each of Community Bank System and Oneida Financial has made representations and warranties regarding, among other things~~

~~corporate matters, including due organization, good standing, and qualification;~~

~~capitalization;~~

authority to enter into the transactions contemplated by the Merger and the absence of conflicts with or violations or breach of any agreement or instrument of obligation, organizational documents, or any other obligation that would occur as a result of the Merger;

~~required governmental reports and filings;~~

~~required SEC filings, compliance with GAAP, and the maintenance of books and records;~~

~~the absence of any Material Adverse Effect since December 31, 2013;~~

~~the absence of undisclosed liabilities;~~

~~property matters;~~

~~tax matters;~~

~~employee benefit plans;~~

~~legal proceedings;~~

~~labor matters;~~

~~brokers and finders;~~

~~environmental liability;~~

~~compliance with laws; and~~

~~agreements with and examination by banking authorities.~~

~~Oneida Financial has made other representations and warranties about itself to Community Bank System, including as to:~~

~~the absence of certain changes since September 30, 2014;~~

~~capital expenditures;~~

~~disposition of assets;~~

~~dividends;~~

~~accounting methods;~~

~~leases;~~

~~loan portfolio matters;~~

~~material contracts;~~

~~employee hiring and salaries;~~

~~insurance;~~

~~administration of trust accounts;~~

~~intellectual property;~~

~~risk management instruments;~~

~~investment securities;~~

~~related party transactions;~~

~~broker-dealer and investment advisory matters;~~

~~the applicability of takeover statutes;~~

~~the receipt of a fairness opinion from a financial advisor; and~~

~~its insurance agency subsidiary, OneGroup.~~

In addition, Community Bank System has represented to Oneida Financial that it currently has and will have at the time of the Merger sufficient unissued shares of Community Bank System common stock and sufficient cash to pay the merger consideration.

~~The~~ representations and warranties in the Merger Agreement ~~are complicated and not easily summarized. For more information~~ on the ~~representations~~date of the Merger Agreement and ~~warranties~~as of the closing date of the Merger (or such other date specified in the Merger Agreement) other than, in most cases, inaccuracies that would not reasonably be expected to have a material adverse effect on such party;

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

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

receipt by each party of an opinion of its counsel to the effect that the Merger will qualify as a reorganization within the meaning of Section 368(a) of the Code.

In addition to the mutual closing conditions, Community Bank System’s obligation to complete the Merger is subject to the satisfaction or waiver of the condition that no governmental authority has imposed a materially burdensome regulatory condition in connection with granting any regulatory approval.

Termination

The Merger Agreement may be terminated at any time prior to the effective time of the Merger, as follows:

by the mutual written consent of Community Bank System and ~~Oneida Financial, please refer~~Merchants;

by Community Bank System or Merchants in the event of the breach of any representation, warranty, covenant or agreement by the other party that would prevent any closing condition of either party from being satisfied and such breach cannot be or has not been cured within 30 days of written notice of such breach (provided that the right to cure may not extend beyond the “expiration date” described below);

by Community Bank System or Merchants if approval by the stockholders of Merchants is not obtained;

by Community Bank System or Merchants if any court or other governmental authority issues a final and non-appealable order permanently prohibiting the Merger or the Bank Merger;

TABLE OF CONTENTS

by Community Bank System or Merchants if the Merger is not consummated by July 22, 2017; provided, that neither party has the right to terminate the Merger Agreement if such party was in breach of its obligations under the Merger Agreement and such breach was the cause of the failure of the Merger to be consummated by such date, and provided further that, if on the expiration date all conditions to the Merger ~~Agreement attached as~~~~Annex A~~ ~~to this Proxy Statement/Prospectus.~~

~~Conditions~~have been satisfied or waived or are capable of being satisfied by the closing other than the condition relating to the ~~Merger~~

~~Mutual Conditions.~~~~Before~~receipt of required regulatory approvals, then either ~~Oneida Financial or~~party has the right to extend the expiration date by an additional three month period;

by Community Bank System ~~will be obligated to complete the Merger, the following conditions must have been satisfied:~~

if any governmental authority has denied or rescinded any required regulatory approval or imposed a materially burdensome regulatory condition on Community Bank System in connection with granting any regulatory approval;

·•

~~Oneida Financial stockholders approve the Merger Agreement, and all other corporate actions necessary on the part of each party to authorize the Merger are taken;~~

~~Oneida Financial and~~by Community Bank System receive all approvals or consents required by law or mutually deemed necessary from any applicable governmental agency, all applicable notice or waiting periods under all laws expire, and all conditions contained in the ~~approvals or consents, if any, are satisfied;~~

event that (i) the ~~SEC declares effective the registration statement covering the Community Bank System common stock to be issued in the Merger, and the registration statement is not the subject~~Merchants board of ~~any stop order~~directors or any ~~actual or threatened proceeding seeking a stop order;~~

Community Bank System receives all necessary authorizations and approvals from state securities agencies or commissions for the issuance of its common stock in the Merger, or confirms that no authorizations or approvals are required;

there is no order, decree or injunction in effect which prohibits the completion of the Merger, and there is no actual or threatened governmental action or proceeding that prevents the completion of the Merger;

~~the NYSE approves for listing the Community Bank System common stock to be issued to the Oneida Financial stockholders in the Merger, subject to official notice of issuance; and~~

~~Luse Gorman, Oneida Financial’s legal counsel, delivers~~committee thereof has effected an ~~opinion to Oneida Financial, dated as of the date~~adverse recommendation change (see “— No Solicitation” beginning on page 73 of this Proxy Statement/~~Prospectus and as of the closing date of the Merger,~~Prospectus), (ii) Merchants has failed to ~~the effect that the Merger will qualify as a reorganization under Section 368(a) of the Internal Revenue Code, and as to certain other related matters.~~

~~Conditions to Obligations of Oneida Financial.~~~~Before Oneida Financial will be obligated to complete the Merger, the following additional conditions must have been satisfied:~~

~~the representations and warranties of Community Bank System contained~~comply in the Merger Agreement are true and correct as of the date of the Merger Agreement and on the closing date. The representations and warranties may contain inaccuracies if, taken together, they would not have aall material ~~adverse effect on Community Bank System;~~

~~Community Bank System has materially performed~~respects with its obligations under the Merger Agreement ~~which are intended to be performed before the closing; and~~

~~Community Bank System has delivered to Oneida Financial a customary closing certificate as to the above two matters.~~

~~Conditions to Obligations of Community Bank System.~~~~Before Community Bank System will be obligated to complete the Merger, the following additional conditions must have been satisfied:~~

the representations and warranties of Oneida Financial contained in the Merger Agreement are true and correct as of the date of the Merger Agreement and on the closing date. The representations and warranties may contain inaccuracies if, taken together, they would not have a material adverse effect on Oneida Financial;

~~Oneida Financial has materially performed its obligations under the Merger Agreement which are intended to be performed before the closing;~~

~~Oneida Financial has delivered to Community Bank System a customary closing certificate as to the above two matters;~~

the required regulatory approvals approving the Merger contain no condition or requirement which would be reasonably likely to result in a material adverse effect on Community Bank System following the completion of the Merger;

to the extent that any contract or agreement of Oneida Financial requires the consent of or waiver from any other party because of the Merger, Oneida Financial receives the consent or waiver unless the failure to receive the same will not have a material adverse effect on Community Bank System; and

Oneida Financial has delivered to Community Bank System duly-executed copies of each transaction document to be delivered in connection with the Merger together with such other documents, consents or other deliverables as may be reasonably requested by Community Bank System.

Unless prohibited by law, any of the conditions to the Merger may be waived by the applicable party. As described below, if these conditions are not satisfied or waived, each party may have a right to terminate the Merger Agreement under certain circumstances.

~~Termination~~

~~Either Oneida Financial or Community Bank System may terminate the Merger Agreement at any time before the completion of the Merger if:~~

~~both parties consent in writing to the termination pursuant to the authorization of the respective boards of directors;~~

the other party materially breaches, and does not cure within 30 days of written notice to the extent curable, any of the representations or warranties or any covenant or agreement it has made under the Merger Agreement and the breach entitles the non-breaching party to not complete the Merger;

~~the parties are not able to obtain required governmental approvals;~~

~~any governmental entity issued a final and non-appealable order to prohibit the completion of the Merger;~~

~~Oneida Financial stockholders do not approve the Merger Agreement at a special meeting called for that purpose; or~~

the Merger is not completed on or before December 31, 2015, unless the Merger was not completed principally because the party seeking to terminate breached a covenant or obligation of the Merger Agreement.

~~In addition, Community Bank System may terminate the Merger Agreement at any time before the completion of the Merger if:~~

Oneida Financial’s board of directors withdraws, modifies or changes its approval or recommendation of the Merger Agreement or the transactions contemplated by the Merger Agreement in a manner adverse to Community Bank System, or Oneida Financial did not include in this Proxy Statement/Prospectus the recommendation of its board of directors in favor of the approval of the Merger Agreement or the transactions contemplated by it;

following its receipt of a Takeover Proposal or the public announcement of a Takeover Proposal, Oneida Financial fails to timely comply with its covenants to call a special stockholders’ meeting, recommend the approval of the Merger Agreement, and solicit proxies in favor of the approval of the Merger Agreement (please see “— No Solicitation of Takeover Proposals; Superior Proposals” on page [ ] for the definition of a Takeover Proposal);

~~Oneida Financial’s board of directors recommends to Oneida Financial stockholders a Superior Proposal or Oneida Financial executes a letter of intent, definitive agreement or similar document~~ with respect to ~~a Superior Proposal (please see “— No Solicitation~~third party acquisition proposals or by failing to call, give notice of, ~~Takeover Proposals; Superior Proposals” on page [ ] for~~convene and hold the ~~definition of a Superior Proposal);~~

special meeting; (iii) a tender offer or exchange offer ~~is commenced in respect of 25%~~for 15% or more of the outstanding shares of ~~Oneida Financial~~Merchants common stock is commenced and ~~Oneida Financial fails to send~~Merchants shall not have sent to its stockholders, within ten business days ofafter the commencement of ~~the~~such tender or exchange offer, a statement that the Merchants board of directors ~~of Oneida Financial~~ recommends rejection of ~~the~~such tender or exchange ~~offer;~~offer, or

~~a Takeover Proposal with respect to Oneida Financial~~ (iv) an acquisition proposal (other than a tender or exchange offer covered by ~~the preceding paragraph)~~clause (iii) above) with respect to Merchants is publicly announced and, upon Community Bank System’s request, ~~Oneida Financial~~Merchants fails to issue a press release announcing its opposition to such acquisition proposal and reaffirming the ~~Takeover Proposal~~Merchants board of directors’ recommendation that Merchants stockholders vote to adopt the Merger Agreement within ~~three~~five business days ~~of the request.~~after such request;

~~In addition, Oneida Financial may terminate~~

by Merchants, if its board of directors so determines by a majority vote of the ~~Merger Agreement:~~

members of its entire board, at any time during the five business day period commencing on the latest of the date, which is referred to as the determination date, on which (i) all regulatory approvals have been received, and (ii) the approval of the merger agreement by the Merchants stockholders is obtained, if both of the following conditions are satisfied:

·º

~~at any time before~~ the completion of the Merger, if its board of directors recommends to the Oneida Financial stockholders a Superior Proposal or if Oneida Financial executes a letter of intent, definitive agreement or similar document with respect to a Superior Proposal, provided that Oneida Financial has complied with the relevant procedures set forth in the Merger Agreement; or

~~during the 5 day period starting on the Determination Date, if, on the Determination Date, the 20 day~~volume-weighted average ~~daily~~ trading price of Community Bank ~~System~~System’s common stock on the ~~Determination Date has decreased beyond certain minimum thresholds specified in~~NYSE for the ~~Merger Agreement relative to both (i)~~20 trading days ending on the ~~$35.49 per share starting price~~third trading day immediately preceding the determination date isless than $35.77; and ~~(ii) the performance of the~~

Community Bank System’s common stock underperforms a peer group index (the SNL Midcap U.S. Bank Index between February 23, 2015 and the Determination Date. For purposes of the foregoing termination right, “Determination Date” means the first day after the date all regulatory approvals (or waivers thereof) required to consummate the Merger have been obtained. In the event Oneida Financial elects to exercise its option to terminate the Merger Agreement as a result of such diminution in the trading price of Community Bank System common stock, Community Bank System may elect to adjust the ratio of Community Bank System common stock to be exchanged in the Merger for Oneida Financial common stock in order to achieve the required minimum thresholds, and if Community Bank System so elects, the Merger Agreement will not be terminated.Index) by more than 20%.

Under certain circumstances, in the event either party fails to satisfy the closing conditions set forth in the Merger Agreement (and/or such conditions are not waived by the other party), the other party can terminate the Merger Agreement without completing the Merger, even if Oneida Financial stockholders have already voted to approve the Merger Agreement. If the ~~Merger Agreement is terminated pursuant to its terms,~~Merchants board of directors exercises the ~~Merger Agreement will become void and have no effect, except with respect to the parties’ respective obligations regarding confidential information and~~ termination fee and expenses as set forth in the Merger Agreement. Please see “—Termination Fee and Expenses” on page [ ] for further information. A termination of the Merger Agreement will not relieve the breaching party from liability for its willful breach giving rise to such termination.

~~Conduct of Business Prior to Completion of the Merger; Covenants~~

~~The Merger Agreement provides that, during the period from the date of the Merger Agreement (February 24, 2015) to the completion of the Merger, Oneida Financial and~~right described above, Community Bank System will ~~use their reasonable best efforts~~have the option to ~~maintain their respective properties, businesses and relationships with customers, employees and others, and will cause their respective subsidiaries to do~~increase the same. During the same period, other than as set forth in the Merger Agreement, neither Oneida Financial nor any of its subsidiaries may take any of the following actions, among others, without the prior written consentamount of Community Bank System ~~(which consent may not~~common stock to be ~~unreasonably withheld):~~

conduct its business other than in the ordinary course, substantially consistent with past practice, or become responsible for obligations of more than $50,000 or which require performance over one year or longer (other than loans and investments in the ordinary course of business);

~~declare, set aside, make or pay any dividend or other distribution on any of its stock, other than regular quarterly dividends consistent with past practices;~~

~~issue any of its stock or cause any of its treasury shares to become outstanding (except pursuant to a valid exercise of an unexpired stock option);~~

~~issue, authorize or amend any rights to acquire its stock or any rights related to its stock;~~

~~repurchase or reacquire any of its stock or any securities convertible into its stock;~~

~~incur additional debt or other obligation for borrowed money, except in the ordinary course of business consistent with past practice;~~

~~effect any recapitalization, reclassification, stock dividend, stock split or similar transaction;~~

~~amend its articles of incorporation or bylaws;~~

~~create or permit any lien or encumbrance on its stock;~~

~~merge or consolidate with any other entity, or acquire control of any other entity or create a subsidiary;~~

~~waive, cancel or compromise any material right, debt or claim other than in the ordinary course of business consistent with past practice and with prior notice to Community Bank System;~~

sell, encumber, dispose of or acquire any assets with a value of more than $50,000, other than in foreclosure or in similar proceedings or transactions in investment portfolio securities in ordinary course of business consistent with past practice;

~~make total capital expenditures of more than $50,000;~~

~~open or close branches or facilities, or enter into or modify any leases or contracts relating to its branches or facilities;~~

increase compensation of, or pay or provide bonus, incentive, severance or other benefits to, its employees or directors, except in a manner consistent with past practice or as required by law or existing contracts;

adopt, modify or commit itself to any employee benefits plan or any employment agreement, except in the ordinary course of business consistent with past practice or as required by existing plans or contracts;

~~accelerate the vesting of any deferred compensation;~~

~~change its lending, investment, asset/liability management or other material banking policies in a material way, except as required by law;~~

~~change its accounting methods or tax reporting methods, unless required by generally accepted accounting principles or by law;~~

~~except as may be required by law, take any action~~provided to Merchants stockholders such that ~~would cause its representations and warranties in the Merger Agreement to become untrue in any material manner prior to the Merger, or cause any conditions to the Merger to be unsatisfied; or~~

~~take or agree to take any other action which would interfere with or delay the Merger or make the Merger more costly.~~

~~Until~~ the ~~Merger is completed, except as set forth in~~implied value of the ~~Merger Agreement or as consented~~exchange ratio would be equivalent to ~~in writing by Oneida Financial (which consent may not be unreasonably withheld),~~the minimum implied value that would have avoided triggering the termination right described above. If Community Bank System ~~has agreed~~elects to ~~conduct its business in~~increase the ordinary course and substantially consistent with past practice. Community Bank System, however, is permitted to acquire or agree to acquire any entity or its assets while the Merger is pending, so long as the acquisition would not materially delay or prevent the completion of the Merger.

~~In the Merger Agreement, while the Merger is pending, Oneida Financial also agreed to:~~

~~call and hold a special meeting of its stockholders to vote on the approval of the Merger Agreement, even if Oneida Financial’s board of directors withdraws or modifies its recommendation;~~

cause its board of directors to recommend that Oneida Financial stockholders vote in favor of the Merger Agreement and to solicit proxies in favor of the Merger Agreement (but subject to fiduciary duties of its board of directors); and

~~cooperate in preparing for the integration of Oneida Financial’s business and operations with those of Community Bank after the Merger, to the extent permitted by law.~~

~~Furthermore, the Merger Agreement also contains certain other agreements relating~~exchange ratio pursuant to the ~~conduct of the companies pending the completion of the Merger, including among others those requiring Oneida Financial and Community Bank System to:~~preceding sentence, no termination will occur.

~~cooperate with each other to prepare and file with the SEC a registration statement for the Merger;~~

cooperate with each other to take all actions required to comply with all legal requirements to complete the Merger, and to apply for and obtain all regulatory and third party consents and approvals required to complete the Merger;

consult and agree with each other regarding the content of any press release or other public disclosure relating to the Merger, but the parties may each make any disclosure mandated by law or rules of the NYSE or NASDAQ after notifying the other party;

~~refrain from taking any action that would adversely affect the qualification of the Merger as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code;~~

keep each other advised of all material developments on our respective businesses, and furnish the other party such financial data and other information concerning the furnishing party as may be reasonably requested from time to time;

refrain from taking any actions that would cause the Merger to be subject to any Takeover Law, and if the Merger is or becomes subject to any Takeover Law, to take all actions within its control to exempt the Merger from such Takeover Law. “Takeover Law” means any legal requirement pertaining to mergers, business combinations, sale of control, affiliate transactions or antitrust laws or regulations; and

~~use reasonable best efforts in good faith to take or cause to be taken actions necessary or desirable to complete the Merger on the earliest possible date.~~

~~No Solicitation of Takeover Proposals; Superior Proposals~~

Under the terms of the Merger Agreement, Oneida Financial has agreed not to directly or indirectly solicit, initiate, respond to any Takeover Proposal. A “Takeover Proposal” is any proposal or offer to acquire Oneida Financial (through a merger, recapitalization or other business combination) or 25% or more of the equity interests in Oneida Financial, or 25% or more of Oneida Financial’s assets. Oneida Financial also agreed to immediately terminate all existing negotiations and discussions concerning a Takeover Proposal, other than with Community Bank System.

In addition, Oneida Financial has agreed not to negotiate, discuss or furnish nonpublic information with or to any third party in connection with a Takeover Proposal or otherwise facilitate the efforts of any third party with respect to a Takeover Proposal, recommend or endorse any Takeover Proposal, or enter into a letter of intent, term sheet or other agreement with a third party providing for a possible Takeover Proposal.

If Oneida Financial becomes aware of or receives a Takeover Proposal, it must immediately notify Community Bank System of that fact and the details of the Takeover Proposal. Oneida Financial must also refer the party making a Takeover Proposal to Section 5.12 of the Merger Agreement or make a copy of Section 5.12 of the Merger Agreement available to such party.

Notwithstanding the foregoing, unless the Merger Agreement is terminated in accordance with its terms, Oneida Financial may participate in discussions or negotiations with, and furnish non-public information and afford access to its business and properties,

by Merchants, prior to the ~~party making a Takeover Proposal but only if:~~

~~it is a unsolicited, bona fide Takeover Proposal made in writing;~~

Oneida Financial’s board of directors determines in good faith, after consultation with outside legal counsel, that a failure to take such actions would constitute a violation of the board’s fiduciary duties under applicable law; and

Oneida Financial��s board of directors determines, in its reasonable and good faith judgment, after reasonable inquiry and consultation with its financial advisor, that the Takeover Proposal would be reasonably likely to result in a transaction more favorable to Oneida Financial stockholders than the Merger with Community Bank System, and that the party making the Takeover Proposal is financially capable of consummating it or is capable of obtaining any requisite financing for the Takeover Proposal.

~~A Takeover Proposal that meets the above criteria is referred to in the Merger Agreement as a “Superior Proposal.”~~

If Oneida Financial receives a Superior Proposal, Oneida Financial’s board of directors may recommend the Superior Proposal to the stockholders of Oneida Financial if the board determines in good faith, after consultation with outside legal counsel, that the board is required by its fiduciary duties to do so. In that case, the Oneida Financial board may withdraw, modify or refrain from making its recommendation of the Merger Agreement to the stockholders of Oneida Financial,~~provided~~~~that:~~

Oneida Financial provides Community Bank System at least 72 hours’ prior notice of its intent to take such action and any Oneida Financial board meeting at which the board is reasonably expected to consider a Superior Proposal;

~~Oneida Financial’s board does not recommend a Superior Proposal to the Oneida Financial stockholders for a period equal to three business days after Community Bank System’s~~ receipt of ~~a copy of the Superior Proposal and the identity of the offering party; and~~

Oneida Financial does not enter into a definitive agreement relating to a Superior Proposal, unless Community Bank System fails to match the terms of the Superior Proposal or provide an alternative proposal upon terms which, after consideration of the board of directors of Oneida Financial in good faith, are not more favorable than the Superior Proposal, within three business days after Community Bank System’s receipt of a copy of the Superior Proposal and the identity of the offering party.

Even if the Oneida Financial board withdraws, modifies or refrains from making its recommendation of the Merger Agreement to the stockholders of Oneida Financial as set forth above, unless the Merger Agreement is terminated pursuant to its terms, Oneida Financial must hold and convene a special meeting of its stockholders to vote on the Merger Agreement and must provide to its stockholders material information concerning the special meeting.

Before Oneida Financial provides nonpublic information to a third party as permitted by the Merger Agreement, Oneida Financial must require the third party to deliver a confidentiality agreement that is at least as restrictive as the one executed by Community Bank System, and must furnish the same information to Community Bank System, if not previously disclosed.

~~Termination Fee and Expenses~~

~~Generally.~~ Except as provided below, Oneida Financial and Community Bank System will each pay its own expenses in connection with the Merger, except that the parties will share equally all filing fees due the SEC in connection with the Merger and all costs associated with the printing and mailing of this document.

~~Termination Fee~~. In the event that the Merger Agreement is terminated for certain reasons, Oneida Financial must pay Community Bank System in immediately available funds within three business days of the termination date, a termination fee of $4.93 million. The termination fee will be payable if the Merger Agreement is terminated by Community Bank System or Oneida Financial, as applicable, under any of the following circumstances:

following its receipt of a Takeover Proposal or the public announcement of a Takeover Proposal, Oneida Financial fails to timely comply with its covenants to call a special stockholders’ meeting, to recommend the approval of the Merger Agreement, or to solicit proxies in favor of the approval of the Merger Agreement;

Oneida Financial’s board of directors recommends to Oneida Financial stockholders a Superior Proposal, or Oneida Financial executes a letter of intent, definitive agreement or similar document with respect to a Superior Proposal;

a tender or exchange offer for 25% or more of the outstanding shares of Oneida Financial common stock is commenced, and Oneida Financial fails to send to its stockholders, within 10 business days of the commencement, a statement that the board of directors of Oneida Financial recommends rejection of the tender or exchange offer;

a Takeover Proposal with respect to Oneida Financial (other than a tender or exchange offer covered by the preceding paragraph) is publicly announced and, upon Community Bank System’s request, Oneida Financial fails to issue a press release announcing its board’s opposition to the Takeover Proposal within three business days of the request; or

Oneida Financial enters into a definitive agreement relating to a Takeover Proposal or consummates a Takeover Proposal within 9 months after (i) Community Bank System terminates this Merger Agreement because of a breach by Oneida Financial or (ii) the failure of Oneida Financial to hold a special stockholders meeting to approve the Merger or the failure of the stockholders of Oneida Financial to approve the Merger, in each case after the public disclosure of a Takeover Proposal.

~~Directors, Employees and Employee Benefits~~

~~Directors.~~Pursuant to the Merger Agreement, Community Bank System has agreed to appoint Messrs. Kallet and Stickels of Oneida Financial to serve as members of Community Bank System’s and Community Bank’s board of directors, in addition to the current directors of Community Bank System and Community Bank. Subject to the Community Bank System board’s fiduciary duties, Community Bank System has also agreed to nominate Messrs. Kallet and Stickels to the board of directors of Community Bank System at the next annual meeting of shareholders at which they are standing for election, and to recommend that Community Bank System stockholders vote in favor of their election.

~~Messrs. Kallet and Stickels will also be appointed to serve on the board of directors of Community Bank during the same period they serve as directors of Community Bank System.~~

~~Employees and Employee Benefits.~~

Employees of Oneida Financial or any of its subsidiaries who continue as employees of Community Bank System or any of its subsidiaries after the Merger will be given credit for past service with Oneida Financial for purposes of determining eligibility for and vesting of employee benefits (but not for pension benefit accrual purposes) under all welfare and retirement programs maintained by Community Bank System or its subsidiaries in which those employees participate after the Merger and for purposes of determining length of vacation, sick time, paid time off and severance. Community Bank System also agreed to provide severance benefits to each employee of Oneida Financial or any of its subsidiaries who is terminated without cause after the Merger. Employees terminated without cause within 12 months after the effective time of the Merger shall (subject to meeting applicable eligibility and vesting requirements) receive severance benefits no less than those provided under the terms of Community Bank System’s severance policy in effect as of the date of the Merger Agreement and employees terminated without cause later than 12 months after the effective time of the Merger shall (subject to meeting applicable eligibility and vesting requirements) receive benefits no less than those provided under the terms of Community Bank System’s severance policy in effect as of the date of termination of employment. Community Bank System has agreed to honor all employment agreements and severance agreements of Oneida Financial and its subsidiaries in effect on the date of the Merger Agreement, except to the extent they are superseded or terminated with the consent of the affected parties.

Community Bank System or its subsidiaries will make health insurance coverage available to employees of Oneida Financial or its subsidiaries who continue as employees of Community Bank System or any of its subsidiaries after the Merger on the same basis as Community Bank System makes health insurance coverage available to its or its subsidiaries’ employees. Former Oneida Financial or Oneida Financial subsidiary employees and qualified beneficiaries will have the right to continued coverage under group health plans of Community Bank System to the extent required by COBRA.

At the effective time of the Merger, Community Bank System will, or will direct Oneida Financial to, pay to each participant in the Oneida Financial Corp. Performance Based Compensation Plan and the Oneida Savings Bank Performance Based Compensation Plan a lump sum cash payment equal to the pro-rata portion of such participant’s annual incentive award payable thereunder calculated from the beginning of the then-current calendar year through the effective date of the Merger as if the company and individual performance goals are achieved at the “target” performance for such award.

Oneida Financial agreed to cooperate with Community Bank System to coordinate the post-Merger integration or transition of employee benefit plans and programs maintained by Oneida Financial before the Merger, by terminating one or more of those plans or programs, and/or causing benefit accruals and entitlements to cease, upon the effectiveness of the Merger, or by facilitating the merger of the plans and programs into those maintained by Community Bank System. Any Oneida Financial employee benefits plans or programs not terminated or amended, nor merged into those of Community Bank System, will be assumed by Community Bank System to the extent permitted by their terms.

~~Indemnification~~

Community Bank System agreed to provide, for at least six years following the Merger, indemnification to the current or former directors, officers and employees of Oneida Financial. Community Bank System also agreed to use its reasonably best efforts to provide directors’ and officers’ liability insurance for the directors and officers of Oneida Financial for at least six years after the completion of the Merger, as long as the premiums for the insurance do not exceed the current premiums expended by Oneida Financial for similar coverage by more than 150%. The Merger Agreement provides that the foregoing indemnification rights are in addition to the obligations of indemnification provided under the applicable charter documents of Oneida Financial (and provisions of Maryland law referenced or incorporated therein) assumed by Community Bank System by reason of the Merger. For more details, please see “Proposal I—The Merger—Financial Interests of Oneida Financial Directors and Certain Executive Officers in the Merger—~~Indemnification; Directors’ and Officers’ Insurance~~~~” on page [ ].~~

~~Amendment and Waiver~~

Oneida Financial and Community Bank System may agree to amend or supplement the Merger Agreement at any time before completion of the Merger, if approved by their respective boards of directors. However, after the approval of the Merger Agreement by ~~Oneida Financial~~Merchants stockholders, in order to accept a superior proposal in accordance with and subject to the terms and conditions of the Merger Agreement, provided that Merchants shall substantially concurrently with such termination enter into a definitive agreement with respect to such superior proposal and that concurrently with or prior to such termination Merchants shall pay to Community Bank System the termination fee of $10,720,000. See “— Termination Fee” below.

TABLE OF CONTENTS

Termination Fee

Merchants will owe Community Bank System a $10,720,000 termination fee if:

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

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

Community Bank System terminates the Merger Agreement as a result of (i) a tender offer or exchange offer for 15% or more of the outstanding shares of Merchants common stock being commenced and Merchants not sending to its stockholders, within ten business days after the commencement of such tender or exchange offer, a statement that the Merchants board of directors recommends rejection of such tender or exchange offer, or (ii) an acquisition proposal (other than a tender or exchange offer covered by clause (i) above) with respect to Merchants being publicly announced and, upon Community Bank System’s request, Merchants failing to issue a press release announcing its opposition to such acquisition proposal and reaffirming the Merchants board of directors’ recommendation that Merchants stockholders vote to adopt the Merger Agreement within five business days after such request; or

Merchants receives a Superior Proposal and terminates the Merger Agreement in order to enter into a definitive agreement with respect thereto.

Amendment; Waiver

The Merger Agreement may be amended by the parties at any time. However, after adoption of the Merger Agreement by the Merchants stockholders, no amendment or supplement which by law requires further stockholder approval may be effected without first obtaining the further stockholder approval. Before completion of the Merger, except as prohibited by law, any provision of the Merger Agreement may be ~~waived~~made which by law requires further approval of the ~~party~~Merchants stockholders without obtaining that approval.

At any time prior to the effective time of the Merger, the parties may, to the extent legally allowed, waive or extend the time for ~~whose benefit~~compliance or fulfillment of the ~~provision was intended. The~~obligations of the other party; and waive any or all of the conditions precedent to the obligations contained in the Merger Agreement ~~provides that any amendment or supplement~~on the part of the other party. A waiver must be in writing ~~and that any waiver must be~~ signed by ~~an executive officer~~a duly authorized officer.

Expenses

Regardless of whether the Merger is completed, all expenses incurred in connection with the Merger, the Bank Merger, the Merger Agreement and other transactions contemplated thereby will be paid by the party ~~giving~~incurring the ~~waiver.~~

~~Modification of Structure~~

~~The Merger Agreement provides~~expenses, except that ~~upon the mutual written consent of Oneida Financial and~~ Community Bank System ~~(which consent on~~and Merchants shall bear and pay 50% of all printing and mailing costs associated with this Proxy Statement/Prospectus.

TABLE OF CONTENTS

UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following unaudited pro forma combined condensed consolidated financial information combines the ~~part~~historical consolidated financial position and results of ~~Oneida Financial shall not be unreasonably withheld or delayed), or at the request~~operations of ~~a regulatory authority,~~ Community Bank System ~~shall~~and its subsidiaries and Merchants and its subsidiaries, as an acquisition by Community Bank System of Merchants using the acquisition method of accounting and giving effect to the related pro forma adjustments described in the accompanying notes. Under the acquisition method of accounting, the assets and liabilities of Merchants will be recorded by Community Bank System at their respective fair values as of the date the merger is completed. The unaudited pro forma combined financial information should be read in conjunction with Community Bank System’s Quarterly Report on Form 10-Q for the period ended September 30, 2016, and Annual Report on Form 10-K for the year ended December 31, 2015, which are incorporated in this Proxy Statement/Prospectus by reference, and Merchants’ Quarterly Report on Form 10-Q for the period ended September 30, 2016, and Annual Report on Form 10-K for the year ended December 31, 2015, which are incorporated in this Proxy Statement/Prospectus by reference. See “Where You Can Find More Information” on page 104 of this Proxy Statement/Prospectus.

The unaudited pro forma combined condensed financial information is presented for illustrative purposes only and does not indicate the financial results of the combined company had the companies actually been combined at the beginning of each period presented, nor the impact of possible business model changes. The unaudited pro forma combined condensed consolidated financial information also does not consider any potential effects of changes in market conditions on revenues, expense efficiencies, asset dispositions, and share repurchases, among other factors. In addition, as explained in more detail in the accompanying notes beginning on page 85 of this Proxy Statement/Prospectus, the preliminary allocation of the pro forma purchase price reflected in the unaudited pro forma combined condensed consolidated financial information is subject to adjustment and may vary significantly from the actual purchase price allocation that will be recorded upon completion of the Merger.

The Merchants merger was announced on October 24, 2016 and provides that the stockholders of Merchants will have the ~~right~~option to ~~modify~~receive, at their election, consideration per share equal to (i) 0.9630 shares of Community Bank System common stock, (ii) $40.00 in cash or (iii) the ~~structure~~combination of 0.6741 shares of Community Bank System common stock and $12.00 in cash, with both, (i) and (ii) subject to proration and adjustment procedures to ensure that the total amount of cash paid, and the total number of shares of Community Bank System common stock issued in the Merger to Merchants stockholders, as a whole, will equal as nearly as practicable to the total amount of cash and number of shares that would have been paid and issued if all of the ~~Merger~~Merchants stockholders received the consideration in (iii). The cash and ~~related transactions,~~stock consideration would be equivalent to $44.02 for each share of Merchants common stock based upon the closing price of Community Bank System common stock as of October 21, 2016, the last trading day prior to the ~~extent that such revised structure~~public announcement of the signing of the merger agreement. The transaction is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Code.

The unaudited pro forma combined condensed balance sheet gives effect to the merger as if the transaction had occurred on September 30, 2016. The unaudited pro forma combined condensed income statements for the nine months ended September 30, 2016 and the year ended December 31, 2015 give effect to the merger as if the transaction had become effective on January 1, 2015.

TABLE OF CONTENTS

Community Bank System and Subsidiaries

Unaudited Combined Condensed Consolidated Balance Sheet as of
September 30, 2016


(in thousands, except per share data)	Community Bank System As Reported			Merchants As Reported			Pro Forma Adjustments			Ref		Community Bank System Pro Forma Combined
Assets:
Cash and cash equivalents	$	161,542		$	78,717		$	(90,880	)		A	$	149,379
Securities available-for-sale		2,842,255			298,973			0					3,141,228
Securities held-to-maturity		0			90,672			2,346			B		93,018
Loans		4,940,621			1,477,285			(8,458	)		C		6,409,448
Allowance for loan losses		(46,789	)		(12,540	)		12,540			C		(46,789	)
Net loans		4,893,832			1,464,745			4,082					6,362,659
Goodwill		465,142			7,011			165,479			D		637,632
Other intangibles, net		16,977			1,207			19,193			E		37,377
Other assets		347,998			53,330			0			F		401,328
Total assets	$	8,727,746		$	1,994,655		$	100,220				$	10,822,621
Liabilities:
Deposits	$	7,077,419		$	1,503,840		$	321			G	$	8,581,580
Short-term borrowings		133,900			22,000			0					155,900
Subordinated debt held by unconsolidated subsidiary trusts		102,164			20,619			(5,083	)		H		117,700
Securities sold under agreement to repurchase		0			276,083			0					276,083
Long-term debt		0			3,673			31			I		3,704
Other liabilities		173,681			10,153			7,793			J		191,627
Total liabilities		7,487,164			1,836,368			3,062					9,326,594
Shareholders' equity:
Preferred stock		0			0			0					0
Common stock		44,857			72			4,569			K		49,498
Additional paid-in capital		540,549			55,356			196,796			L		792,701
Retained earnings		602,513			112,218			(119,918	)		M		594,813
Accumulated other comprehensive income/(loss)		66,091			(2,273	)		2,273			N		66,091
Deferred compensation arrangements		0			6,352			0			L		6,352
Treasury stock, at cost		(13,428	)		(13,438	)		13,438			O		(13,428	)
Total equity		1,240,582			158,287			97,158					1,496,027
Total liabilities and equity	$	8,727,746		$	1,994,655		$	100,220				$	10,822,621
Common shares outstanding (000)		44,357			6,884			(2,243	)		P		48,998
Book value per common share	$	27.97		$	22.99							$	30.53

See accompanying notes to unaudited pro forma combined condensed consolidated financial statements.

TABLE OF CONTENTS

Community Bank System and Subsidiaries

Unaudited Combined Condensed Consolidated Income Statement for the Nine Months Ended
September 30, 2016


(in thousands, except per share data)	Community Bank System As Reported		Merchants As Reported		Pro Forma Adjustments			Ref		Community Bank System Pro Forma Combined
Interest income:
Interest and fees on loans	$	157,865	$	38,759	$	1,077			Q	$	197,701
Interest and dividends on taxable investments		40,956		5,996		0					46,952
Interest on nontaxable investments		13,367		0		0					13,367
Total interest income		212,188		44,755		1,077					258,020
Interest expense		8,538		3,395		140			R		12,073
Net interest income		203,650		41,360		937					245,947
Provision for loan losses		5,436		905		0					6,341
Net interest income after provision for loan losses		198,214		40,455		937					239,606
Noninterest revenues:
Deposit service fees		43,636		5,467		0					49,103
Other banking services		6,039		1,264		0					7,303
Employee benefit services		34,949		0		0					34,949
Insurance revenues		17,340		0		0					17,340
Wealth management services		15,041		2,545		0					17,586
Total noninterest revenues		117,005		9,276		0					126,281
Noninterest expenses:
Salaries and employee benefits		115,388		17,549		0					132,937
Amortization of intangible assets		4,204		153		2,822			T		7,179
Acquisition expenses		342		537		(476	)		U		403
Other expenses		80,317		15,933		0					96,250
Total noninterest expenses		200,251		34,172		2,346					236,769
Income before taxes		114,968		15,559		(1,409	)				129,118
Income taxes		37,548		3,792		(538	)		V		40,802
Net income		77,420		11,767		(871	)			$	88,316
Income attributable to unvested stock-based compensation awards		398		0		0					398
Income available to common shareholders	$	77,022	$	11,767	$	(871	)			$	87,918
Basic earnings per share	$	1.75	$	1.71						$	1.81
Diluted earnings per share	$	1.74	$	1.71						$	1.79
Weighted-average common shares outstanding:
Basic		44,023		6,866		(2,225	)		W		48,664
Diluted		44,382		6,886		(2,245	)		W		49,023

See accompanying notes to unaudited pro forma combined condensed consolidated financial statements.

TABLE OF CONTENTS

Community Bank System and Subsidiaries

Unaudited Combined Condensed Consolidated Income Statement for the Year Ended
December 31, 2015


(in thousands, except per share data)	Community Bank System As Reported			Merchants As Reported		Pro Forma Adjustments			Ref		Community Bank System Pro Forma Combined
Interest income:
Interest and fees on loans	$	187,743		$	44,087	$	1,489			Q	$	233,319
Interest and dividends on taxable investments		52,871			8,029		0					60,900
Interest on nontaxable investments		19,008			0		0					19,008
Total interest income		259,622			52,116		1,489					313,227
Interest expense		11,202			4,052		(143	)		R, S		15,111
Net interest income		248,420			48,064		1,632					298,116
Provision for loan losses		6,447			250		0					6,697
Net interest income after provision for loan losses		241,973			47,814		1,632					291,419
Noninterest revenues:
Deposit service fees		52,747			6,588		0					59,335
Other banking services		4,960			1,847		0					6,807
Employee benefit services		45,388			0		0					45,388
Insurance revenues		3,352			0		0					3,352
Wealth management services		16,856			3,525		0					20,381
Loss on sales of investment securities, net		(4	)		0		0					(4	)
Total noninterest revenues		123,299			11,960		0					135,259
Noninterest expenses:
Salaries and employee benefits		126,356			21,879		0					148,235
Amortization of intangibles		3,663			17		4,516			T		8,196
Acquisition expenses		7,037			1,875		0					8,912
Other expenses		95,999			20,200		0					116,199
Total noninterest expenses		233,055			43,971		4,516					281,542
Income before taxes		132,217			15,803		(2,884	)				145,136
Income taxes		40,987			3,185		(1,102	)		V		43,070
Net income		91,230			12,618		(1,782	)				102,066
Income attributable to unvested stock-based compensation awards		453			0		0					453
Income available to common shareholders	$	90,777		$	12,618		($1,782	)			$	101,613
Basic earnings per share	$	2.21		$	1.98						$	2.23
Diluted earnings per share	$	2.19		$	1.98						$	2.21
Weighted-average common shares outstanding:
Basic		40,996			6,373		(1,732	)		W		45,637
Diluted		41,401			6,386		(1,745	)		W		46,042

See accompanying notes to unaudited pro forma combined condensed consolidated financial statements.

TABLE OF CONTENTS

Community Bank System and Subsidiaries

Notes to the Combined Condensed Financial Statements

Note 1 — Basis of Presentation

The unaudited pro forma combined condensed consolidated financial information and notes have been prepared to illustrate the effects of the merger transaction involving Community Bank System and Merchants using the acquisition method of accounting with Community Bank System treated as the acquirer. The unaudited pro forma combined condensed consolidated financial information is presented for illustrative purposes only and does ~~not: (i) change~~not necessarily indicate the financial results of the combined companies had the companies actually been combined at the beginning of each period presented, nor does it necessarily indicate the results of operations in ~~kind, value~~future periods or ~~reduce~~the future financial position of the combined entities. Under the acquisition method of accounting, the assets and liabilities of Merchants, as of the effective date of the merger, will be recorded by Community Bank System at their respective fair values and the excess of the merger consideration over the fair value of the net assets will be allocated to goodwill and other intangible assets.

The Merchants merger is currently expected to close in the second quarter of 2017 and is subject to customary closing conditions, including the approval by the stockholders of Merchants and required regulatory approvals. The Merchants merger provides that the stockholders of Merchants will have the option to receive, at their election, consideration per share equal to (i) 0.9630 shares of Community Bank System common stock, (ii) $40.00 in cash or (iii) the combination of 0.6741 shares of Community Bank System common stock and $12.00 in cash, with both, (i) and (ii) subject to proration and adjustment procedures to ensure that the total amount of cash paid, and the total number of shares of Community Bank System common stock issued in the Merger to Merchants stockholders, as a whole, will equal as nearly as practicable to the total amount of cash and number of shares that would have been paid and issued if all of the Merchants stockholders received the consideration in (iii). The cash and stock consideration would be equivalent to $44.02 for each share of Merchants common stock based upon the closing price of Community Bank System common stock as of October 21, 2016, the last trading day prior to the public announcement of the signing of the merger agreement. The transaction is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Code.

The pro forma allocation of purchase price reflected in the unaudited pro forma combined condensed consolidated financial information is subject to adjustment and may vary from the actual purchase price allocation that will be recorded at the time the merger transaction is completed. Adjustments may include, but not be limited to, changes in (i) Merchants’ balance sheet through the effective date of the merger; (ii) the aggregate value of merger consideration paid if the price of Community Bank System’s shares vary from the estimated price per share, which represents the closing share price of Community Bank System common shares; (iii) total merger related expenses if consummation and/or implementation costs vary from currently estimated amounts; and (iv) the underlying values of assets and liabilities if market conditions differ from current assumptions.

The accounting policies of Community Bank System and Merchants are in the process of being reviewed in detail. Upon completion of such review, conforming adjustments or financial statement reclassification may be determined.

Note 2 — Preliminary Purchase Price Allocation

The pro forma adjustments include the estimated accounting entries to record the merger transaction under the acquisition method of accounting for business combinations. The excess of the purchase price over the fair value of net assets acquired is allocated to goodwill and other intangible assets. Estimated fair value adjustments included in the pro forma financial statements are based upon available information and certain assumptions considered reasonable, and may be revised as additional information becomes available. The purchase price is contingent on the Community Bank System price per common share at the date of close of the transaction, which has not yet occurred.

TABLE OF CONTENTS

Community Bank System and Subsidiaries

Notes to the Combined Condensed Financial Statements

Note 2 — Preliminary Purchase Price Allocation – (continued)

The pro forma purchase price for the Merchants merger based on the Community Bank System closing stock price as of November 30, 2016 is as follows:


(000s omitted)
Pro forma purchase price
Cash consideration:
Estimated shares outstanding		6,884
Estimated overall cash election proration		0.30
Estimated shares for cash election		2,065
Cash consideration per share	$	40.00
Estimated cash consideration	$	82,600
Equity portion of purchase price:
Estimated shares outstanding		6,884
Estimated overall stock election proration		0.70
Estimated shares for stock election		4,819
Exchange ratio		0.963
Total Community Bank System share issues		4,641
Estimated Community Bank System share price on acquisition date	$	56.70
Equity portion of purchase price	$	263,145
Total pro forma purchase price for outstanding common stock	$	345,745
Estimated cash consideration for in-the-money stock options	$	580
Total pro forma purchase price	$	346,325

The preliminary purchase price allocation for the Merchants merger is as follows:


(000s omitted)
Preliminary pro forma goodwill
Total pro forma purchase price	$	346,325
Net assets at fair value
Fair value of assets acquired:
Cash and cash equivalents	$	78,717
Investment securities		391,991
Loans, net		1,468,827
Other assets		53,330
Core deposit intangibles		20,400
Total assets acquired		2,013,265
Fair value of liabilities assumed:
Deposits		1,504,161
Short-term borrowings		22,000
Subordinated debt held by unconsolidated subsidiary trusts		15,536
Securities sold under agreement to repurchase		276,083
Long-term debt		3,704
Other liabilities		17,946
Total liabilities assumed		1,839,430
Net assets acquired		173,835
Preliminary pro forma goodwill	$	172,490

TABLE OF CONTENTS

Community Bank System and Subsidiaries

Notes to the Combined Condensed Financial Statements

Note 3 — Pro Forma Adjustments

The following pro forma adjustments have been reflected in the unaudited pro forma combined condensed consolidated financial information. All taxable adjustments were calculated using a 38.2% tax rate to arrive at deferred tax asset or liability adjustments. All adjustments are based on current assumptions and valuations, which are subject to change.

Adjustments to cash to reflect the estimated cash of $83.2 million used to purchase Merchants and an additional $7.7 million in after-tax merger costs associated with the Merchants transaction.

Adjustment to record Merchants held-to-maturity securities at fair value.

Adjustments to loans to reflect the estimated fair value adjustments to acquired loans of $13.1 million for net credit deterioration based on historical loss factors and certain qualitative factors, an estimated write-up of $4.6 million related to the difference in loan portfolio interest rates and current market interest rates, and the reversal of Merchants' allowance for loan losses of $12.5 million. Prior to the completion of the Merchants transaction, Community Bank System will finalize its determination of the fair values of the acquired loans which could significantly change from the amount and the composition of the estimated fair value adjustments for acquired loans.

Adjustments to eliminate the Merchants goodwill of $7.0 million and record estimated goodwill of $172.5 million associated with the Merchants transaction. The following depicts the sensitivity of the purchase price and resulting goodwill to changes in Community Bank System’s common stock price.


(in thousands)	Equity Consideration		Cash Consideration		Total Purchase Price		Estimated Goodwill
As presented in pro forma	$	263,145	$	83,180	$	346,325	$	172,490
Up 10%		289,459		83,180		372,639		198,804
Down 10%		236,830		83,180		320,010		146,175

Adjustments to eliminate Merchants core deposit intangible asset of $1.2 million and record estimated $20.4 million in core deposit intangibles associated with the Merchants transaction.

Prior to the completion of the Merchants transaction, Community Bank System will obtain independent third party appraisals of all significant premises and equipment owned by Merchants. Such appraisals could result in further adjustments to the carrying values of the acquired premises and equipment.

Adjustment to Merchants time deposits of $0.3 million to reflect a current market rate of interest.

Adjustment to Merchants subordinated debt held by unconsolidated subsidiary trusts of $5.1 million to reflect a current market rate of interest.

Adjustment to Merchants long-term debt to reflect a current market rate of interest.

Adjustment to other liabilities to record a deferred tax liability of $7.8 million associated with the Merchants transaction core deposit intangible asset adjustment.

Adjustments to eliminate Merchants common stock of $72,000 and record the issuance of 4.64 million Community Bank System shares to Merchants stockholders.

Adjustments to eliminate Merchants additional paid in capital of $55.4 million and record additional paid in capital of $252.2 million, net of $6.4 million allocated to deferred compensation arrangements, associated with the Merchants transaction.

Adjustments to eliminate Merchants retained earnings balances of $112.2 million and record the impact of $7.7 million in after-tax merger costs associated with the Merchants transaction.

TABLE OF CONTENTS

Community Bank System and Subsidiaries

Notes to the Combined Condensed Financial Statements

Note 3 — Pro Forma Adjustments – (continued)

Adjustment to eliminate Merchants accumulated other comprehensive loss of $2.3 million.

Adjustment to eliminate Merchants treasury stock balance of $13.4 million.

Adjustments to Community Bank System common shares outstanding to eliminate shares of Merchants common stock of 6.89 million and record Community Bank System share issues of 4.64 million for the Merchants transaction.

Net adjustments to interest and fees on loans of $1.1 million for the nine months ended September 30, 2016 and $1.5 million for the year ended December 31, 2015 to record estimated amortization of premiums and accretion of discounts on acquired loans of Merchants using a weighted average maturity of approximately 9.7 years. The estimated amortization of premiums and accretion of discounts on acquired loans of Merchants is approximately $1.5 million for the year ended December 31, 2015, $1.4 million for the year ended December 31, 2016, $1.3 million for the year ended December 31, 2017, $0.9 million for the year ended December 31, 2018, $0.9 million for the year ended December 31, 2019 and $2.5 million thereafter.

Prior to the completion of the Merchants transaction, Community Bank System will evaluate the subordinated debt held by unconsolidated subsidiary trusts to finalize the necessary fair value adjustment to reflect current interest rates for similar instruments. The fair value adjustment associated with the Merchants subordinated debt held by unconsolidated subsidiary trusts will then be amortized into earnings as an increase in interest expense. This adjustment includes Community Bank System’s estimate of the expected amortization of $0.1 million for the nine months ended September 30, 2016 and $0.2 million for the year ended December 31, 2015 based on the remaining term of the subordinated debt held by unconsolidated subsidiary trusts. The estimated amortization of the fair value adjustment for subordinated debt held by unconsolidated subsidiary trusts is approximately $0.2 million for the year ended December 31, 2015, $0.2 million for the year ended December 31, 2016, $0.2 million for the year ended December 31, 2017, $0.2 million for the year ended December 31, 2018, $0.2 million for the year ended December 31, 2019 and $4.1 million thereafter.

Prior to the completion of the Merchants transaction, Community Bank System will evaluate the assumed time deposits to finalize the necessary fair value adjustment to reflect current interest rates for comparable deposits. The fair value adjustment associated with Merchants time deposits will then be accreted into earnings as a reduction in the cost of such time deposits. This adjustment includes Community Bank System’s estimate of the expected accretion of $0.3 million that would be recorded for the year ended December 31, 2015 using a weighted-average maturity of approximately one year.

Net adjustments to amortization of intangible assets of $2.8 million for the nine months ended September 30, 2016 and $4.5 million for the year ended December 31, 2015 to eliminate Merchants core deposit intangible amortization and record estimated amortization of core deposit intangible on acquired deposits from Merchants using the Sum of the Years Digit method over an estimated eight year life. The estimated amortization of the core deposit intangible on acquired deposits from Merchants is approximately $4.5 million for the year ended December 31, 2015, $4.0 million for the year ended December 31, 2016, $3.4 million for the year ended December 31, 2017, $2.8 million for the year ended December 31, 2018, $2.3 million for the year ended December 31, 2019 and $3.4 million thereafter.

Adjustment to eliminate $0.5 million in acquisition expenses recorded on Merchants associated with the transaction with Community Bank System.

TABLE OF CONTENTS

Community Bank System and Subsidiaries

Notes to the Combined Condensed Financial Statements

Note 3 — Pro Forma Adjustments – (continued)

Adjustment to income tax expense to record income tax effect of pro forma adjustments at the estimated statutory tax rate of 38.2%.

Adjustments to weighted-average Community Bank System common shares outstanding to eliminate Merchants common stock outstanding and record Community Bank System common shares outstanding based on the total estimated Community Bank System share issue of 4.64 million for the Merchants transaction. See Note 2 to unaudited pro forma combined condensed consolidated financial statements.

Note 4 — Estimated Cost Savings and Merger Integration Costs

Community Bank System expects to realize approximately $10.6 million, or approximately 22.7% of Merchants’ noninterest expense base, in annual pre-tax cost savings following the merger. Estimated cost savings is expected to be ~~received by~~fully realized in fiscal year 2018 and is excluded from this pro forma analysis.

Merger- and integration-related costs are not included in the ~~Oneida Financial stockholders; (2) adversely affect~~pro forma combined statements of income since they will be recorded in the ~~tax consequences~~combined results of income as they are incurred prior to, ~~the Oneida Financial stockholders;~~ or ~~(3) delay or impair consummation~~after completion of, the ~~Merger. The Merger Agreement~~merger and ~~any related documents~~are not indicative of what the historical results of the combined company would ~~then~~have been had the companies been actually combined during the periods presented. Merger- and integration-related costs are estimated to be ~~appropriately amended in order to reflect any such revised structure.~~$12.5 million pre-tax for the Merchants transaction.

TABLE OF CONTENTS

MARKET PRICE AND DIVIDEND INFORMATION

Community Bank System.Community Bank System common stock is listed on the NYSE under the symbol ~~“CBU.”~~“CBU”. The following table contains for each of the indicated calendar quarters the high and low sales prices of Community Bank System common stock as reported on the NYSE, and the dividends declared per share of Community Bank System common stock.

High Low Cash Dividends
Declared Per
Share
Year Ending December 31, 2015
Quarter Ending June 30, 2015 (through [ ], 2015) $ [ ] $ [ ]
Quarter Ending March 31, 2015 $ [ ] $ [ ] $ 0.30

Year Ended December 31, 2014
Quarter Ended December 31, 2014 $ 38.99 $ 32.84 $ 0.30
Quarter Ended September 30, 2014 $ 37.29 $ 33.59 $ 0.30
Quarter Ended June 30, 2014 $ 39.91 $ 35.27 $ 0.28
Quarter Ended March 31, 2014 $ 39.43 $ 33.74 $ 0.28

Year Ended December 31, 2013
Quarter Ended December 31, 2013 $ 40.27 $ 33.23 $ 0.28
Quarter Ended September 30, 2013 $ 34.71 $ 31.12 $ 0.28
Quarter Ended June 30, 2013 $ 30.85 $ 27.64 $ 0.27
Quarter Ended March 31, 2013 $ 29.92 $ 27.60 $ 0.27


	High		Low		Cash Dividends Declared Per Share
Year Ending December 31, 2016
Quarter Ending December 31, 2016 (through December 5, 2016)	$	58.00	$	46.07
Quarter Ended September 30, 2016	$	48.38	$	39.60	$	0.32
Quarter Ended June 30, 2016	$	42.19	$	36.61	$	0.31
Quarter Ended March 31, 2016	$	39.30	$	34.27	$	0.31
Year Ended December 31, 2015
Quarter Ended December 31, 2015	$	44.11	$	36.11	$	0.31
Quarter Ended September 30, 2015	$	40.50	$	34.15	$	0.31
Quarter Ended June 30, 2015	$	38.64	$	34.46	$	0.30
Quarter Ended March 31, 2015	$	38.40	$	33.54	$	0.30
Year Ended December 31, 2014
Quarter Ended December 31, 2014	$	39.01	$	32.84	$	0.30
Quarter Ended September 30, 2014	$	37.75	$	33.58	$	0.30
Quarter Ended June 30, 2014	$	40.00	$	34.79	$	0.28
Quarter Ended March 31, 2014	$	40.64	$	33.51	$	0.28

On [ [•] ~~2015,~~, the closing price of Community Bank System common stock reported on the NYSE was $[ ].

•].

Community Bank System has historically paid regular quarterly cash dividends on its common stock, and the board of directors of Community Bank System presently intends to continue the payment of regular quarterly cash dividends, subject to the need for those funds for other purposes. However, because substantially all of the funds available for the payment of dividends by Community Bank System are derived from Community Bank, future dividends will depend upon the earnings of Community Bank, its financial condition, its need for funds and applicable governmental policies and regulations. In addition, the indentures pertaining to the subordinated junior debentures Community Bank System issued in connection with its trust preferred offerings would generally restrict its ability to pay cash dividends if Community Bank System defers interest payments on the subordinated junior debentures.

TABLE OF CONTENTS

~~Oneida Financial.~~Merchants.~~Oneida Financial~~ Merchants common stock is traded on NASDAQ under symbol ~~“ONFC.~~“MBVT.” The following table contains for each of the indicated calendar quarters the high and low sales prices of ~~Oneida Financial~~Merchants common stock as reported on NASDAQ, and the dividends declared per share of ~~Oneida Financial~~Merchants common stock.

High Low Cash Dividends
Declared Per Share
Year Ending December 31, 2015
Quarter Ending June 30, 2015 (through [ ], 2015) $ [ ] $ [ ]
Quarter Ending March 31, 2015

Year Ended December 31, 2014
Quarter Ended December 31, 2014 $ 13.42 $ 12.50 $ 0.12
Quarter Ended September 30, 2014 $ 13.85 $ 12.48 $ 0.12
Quarter Ended June 30, 2014 $ 13.77 $ 12.12 $ 0.12
Quarter Ended March 31, 2014 $ 12.75 $ 11.51 $ 0.12

Year Ended December 31, 2013
Quarter Ended December 31, 2013 $ 13.40 $ 12.50 $ 0.12
Quarter Ended September 30, 2013 $ 16.32 $ 12.46 $ 0.12
Quarter Ended June 30, 2013 $ 13.88 $ 11.62 $ 0.12
Quarter Ended March 31, 2013 $ 12.90 $ 10.75 $ 0.12


	High		Low		Cash Dividends Declared Per Share
Year Ending December 31, 2016
Quarter Ending December 31, 2016 (through December 5, 2016)	$	50.45	$	32.15
Quarter Ended September 30, 2016	$	33.99	$	31.65	$	0.28
Quarter Ended June 30, 2016	$	32.00	$	28.16	$	0.28
Quarter Ended March 31, 2016	$	31.22	$	27.00	$	0.28
Year Ended December 31, 2015
Quarter Ended December 31, 2015	$	34.00	$	28.63	$	0.28
Quarter Ended September 30, 2015	$	33.49	$	27.56	$	0.28
Quarter Ended June 30, 2015	$	33.50	$	28.60	$	0.28
Quarter Ended March 31, 2015	$	31.18	$	26.40	$	0.28
Year Ended December 31, 2014
Quarter Ended December 31, 2014	$	32.47	$	27.74	$	0.28
Quarter Ended September 30, 2014	$	32.38	$	28.19	$	0.28
Quarter Ended June 30, 2014	$	33.00	$	28.32	$	0.28
Quarter Ended March 31, 2014	$	33.85	$	28.82	$	0.28

On the record date for the ~~Oneida Financial~~Merchants special meeting, there were issued and outstanding approximately [ [•] shares of ~~Oneida Financial~~Merchants common stock, held of record by approximately [ [•] holders. On ~~[ ], 2015,~~[•], the closing price of ~~Oneida Financial~~Merchants common stock reported on NASDAQ was $[ ].•].

~~Oneida Financial~~Merchants has historically paid regular quarterly cash dividends on its common stock, and the board of directors of ~~Oneida Financial~~Merchants presently intends to continue the payment of regular quarterly cash dividends, subject to the need to use those funds for other purposes. However, because substantially all of the funds available for the payment of dividends by ~~Oneida Financial~~Merchants are derived from ~~Oneida Savings~~Merchants Bank, future dividends will depend upon the earnings of ~~Oneida Savings~~Merchants Bank, its financial condition, its need for funds and applicable governmental policies and regulations. Under the terms of the Merger Agreement, other than regular quarterly dividends consistent with past practices, ~~Oneida Financial~~Merchants is not permitted to declare, set aside or pay any cash dividends while the Merger is still pending.

The following table presents the closing price of a share of Community Bank System, as reported on the NYSE, and ~~Oneida Financial~~Merchants common stock, as reported on NASDAQ, on ~~February 23, 2015,~~October 21, 2016, the last full trading day prior to the public announcement of the Merger, and on ~~[ ], 2015~~ [•], the last practicable trading day prior to the date of this ~~joint~~ Proxy Statement/Prospectus. The following table also presents the equivalent per share value of the Community Bank System common stock that ~~Oneida Financial~~Merchants stockholders would receive for each share of their ~~Oneida Financial~~Merchants common stock if the Merger was completed on those dates:

Community
Bank System
Common
Stock Oneida
Financial
Common
Stock Equivalent Value Per
Share of Oneida
Financial Common
Stock⁽¹⁾

February 23, 2015 $ 35.45 $ 12.79 $ 19.98
[ ], 2015


	Community Bank System Common Stock		Merchants Common Stock		Equivalent Value Per Share of Merchants Common Stock⁽¹⁾
October 21, 2016	$	47.50	$	32.85	$	44.02
[•]

(1)

Calculated by multiplying the closing price of Community Bank System common stock as of the specified date by the 0.6741 mixed stock election consideration and adding $12.00 to such amount.

~~(1) Calculated by multiplying the closing price of Community Bank System common stock as of the specified date by the exchange ratio of 0.5635.~~TABLE OF CONTENTS

PROPOSAL II—II — MERGER-RELATED EXECUTIVE COMPENSATION

As required by ~~Item 402(t) of Regulation S-K and~~ Regulation 14A of the Securities Exchange Act of 1934, as amended, ~~Oneida Financial~~Merchants is providing its stockholders with the opportunity to cast an advisory, non-binding vote on the compensation that may become payable to its named executive officers in connection with the completion of the Merger, as disclosed in the section of this Proxy Statement/Prospectus captioned ~~“Proposal I—The Merger—~~“The Merger — Merger-Related Executive Compensation for ~~Oneida Financial’s~~Merchants’ Named Executive Officers,” beginning on page ~~[ ] of this Proxy Statement/Prospectus,~~53, and the related table and narratives.

Merchants’ board of directors encourages you to review this information carefully.

Your vote is requested. Oneida Financial believes that the information regarding compensation that may become payable to its named executive officers in connection with the completion of the Merger, as disclosed in the section of this Proxy Statement/Prospectus captioned “Proposal I—The Merger—Merger-Related Executive Compensation for Oneida Financial’s Named Executive Officers” is reasonable and demonstrates that Oneida Financial’s executive compensation program was designed appropriately and structured to ensure the retention of talented executives and a strong alignment with the long-term interests of Oneida Financial’s stockholders. This vote is not intended to address any specific item of compensation, but rather the overall compensation that may become payable to ~~Oneida Financial’s~~Merchants’ named executive officers in connection with the completion of the Merger. In addition, this vote is separate and independent from the vote of stockholders to approve the completion of the Merger. ~~Oneida Financial~~Merchants asks that its stockholders vote “FOR” the following resolution:

RESOLVED, that the compensation that may become payable to ~~Oneida Financial’s~~Merchants’ named executive officers in connection with the completion of the Merger, as disclosed in the section captioned ~~“Proposal I—The Merger—Merger-Related~~“The Merger — Interest of Merchants Directors and Executive ~~Compensation for Oneida Financial’s Named Executive Officers”~~Officers in the Merger” (beginning on page ~~[ ]~~48 of the Proxy Statement/Prospectus dated ~~[ ])~~[•]) and the related table and narratives, is hereby APPROVED.

Approval of this proposal is not a condition to the completion of the Merger. Additionally, this vote is advisory and, therefore, it will not be binding on ~~Oneida Financial,~~Merchants, nor will it overrule any prior decision or require ~~Oneida Financial’s~~Merchants’ board of directors (or any committee thereof) to take any action. However, Oneida Financial’s board of directors values the opinions of Oneida Financial’s stockholders, and to the extent that there is any significant vote against the named executive officer compensation as disclosed in this Proxy Statement/Prospectus, Oneida Financial’s board of directors will consider stockholders’ concerns and will evaluate whether any actions are necessary to address those concerns. Oneida Financial’sMerchants’ board of directors will consider the affirmative vote of a majority of the votes cast on the matter “FOR” the foregoing resolution as advisory approval of the compensation that may become payable to ~~Oneida Financial’s~~Merchants’ named executive officers in connection with the completion of the Merger.

~~ONEIDA FINANCIAL’S~~

MERCHANTS’ BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE APPROVAL OF THE ADVISORY, NON-BINDING PROPOSAL TO APPROVE THE MERGER-RELATED EXECUTIVE COMPENSATION.

TABLE OF CONTENTS

PROPOSAL III — ADJOURNMENT OR POSTPONEMENT OF THE MEETING

Merchants is also submitting a proposal for consideration at the special meeting to authorize the named proxies to approve one or more adjournments of the special meeting if there are not sufficient votes to adopt the Merger Agreement at the time of the special meeting. Even though a quorum may be present at the special meeting, it is possible that Merchants may not have received sufficient votes to adopt the Merger Agreement by the time of the special meeting. In that event, Merchants would need to adjourn the special meeting in order to solicit additional proxies.

To allow the proxies that have been received by Merchants at the time of the special meeting to be voted for an adjournment, if necessary, Merchants is submitting a proposal to approve one or more adjournments, and only under those circumstances, to you for consideration. If the new date, time and place is announced at the special meeting before the adjournment, Merchants is not required to give notice of the time and place of the adjourned meeting, unless the board of directors fixes a new record date for the special meeting.

The adjournment proposal relates only to an adjournment of the special meeting occurring for purposes of soliciting additional proxies for adoption of the Merger Agreement proposal in the event that there are insufficient votes to approve that proposal. The Merchants board of directors retains full authority to the extent set forth in the Merchants bylaws and Delaware law to adjourn the special meeting for any other purpose, or to postpone the special meeting before it is convened, without the consent of any Merchants stockholders.

THE BOARD OF DIRECTORS OF MERCHANTS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE PROPOSAL TO ADJOURN THE SPECIAL MEETING, IF NECESSARY OR APPROPRIATE, INCLUDING TO SOLICIT ADDITIONAL PROXIES TO ADOPT THE MERGER AGREEMENT.

OTHER MATTERS

As of the date of this document, management of Merchants knows of no other matters which may be brought before the special stockholders’ meeting other than as described in this document. However, if any matter other than the Merger or related matters should properly come before the special meeting, the proxies will be deemed to confer authority to the individuals named as authorized therein to vote the shares represented by the proxy as to any matters that fall within the purposes set forth in the notices of special meeting.

TABLE OF CONTENTS

DESCRIPTION OF CAPITAL STOCK OF COMMUNITY BANK SYSTEM

~~Oneida Financial~~Merchants stockholders who receive shares of Community Bank System common stock in the Merger will become stockholders of Community Bank System. Community Bank System is a Delaware corporation subject to the provisions of Delaware law. Given below is a summary of the material features of the Community Bank System common stock. This summary is not a complete discussion of the charter documents and other instruments of Community Bank System that create the rights of the stockholders. You are urged to read carefully those documents and instruments, which have been incorporated by reference as exhibits to the registration statement of which this document is a part. Please see “Where You Can Find More Information” on page ~~[ ]~~104 of this Proxy Statement/Prospectus for information on how to obtain copies of those documents and instruments.

General

Community Bank System is authorized to issue 75,000,000 shares of common stock, par value $1.00 per share. As of ~~[ ], 2015, [~~ [•], [•] shares of common stock were issued and outstanding. Community Bank System’s certificate of incorporation also authorizes the board of directors, without stockholder approval (subject to the rules of the NYSE, if applicable), to issue up to 500,000 shares of preferred stock, par value $1.00 per share, and to establish the relative rights, designations, preferences and limitations or restrictions of the preferred stock. As of the date of this document, there were no shares of preferred stock issued and outstanding.

Common Stock

Voting Rights. The holders of common stock are entitled to one vote per share on all matters to be voted on by the stockholders. No stockholders have cumulative voting rights in the election of directors.

Dividends.Community Bank System may pay dividends as declared from time to time by the board of directors out of funds legally available for dividends, subject to certain restrictions. The holders of Community Bank System common stock will be entitled to receive any dividends on the common stock in proportion to their holdings.

Rights in Liquidation.In the event of a liquidation, dissolution or winding up of Community Bank System, each holder of Community Bank System common stock would be entitled to receive, after payment of all debts and liabilities of Community Bank System and after any required distribution to holders of any issued and outstanding preferred stock, a pro rata portion of all remaining assets of Community Bank System.

No Preemptive Rights; No Redemption.Holders of shares of Community Bank System common stock are not entitled to preemptive rights with respect to any shares of any capital stock of Community Bank System that may be issued. Community Bank System common stock is not subject to call or redemption.

Certain Certificate of Incorporation and Bylaws Provisions

There are provisions in Community Bank System’s certificate of incorporation and bylaws which are intended to discourage non-negotiated takeover attempts. These provisions are intended to avoid costly takeover battles and lessen Community Bank System’s exposure to coercive takeover attempts at an unfair price, and are designed to maximize ~~shareholder~~stockholder value in connection with unsolicited ~~offer~~ takeover attempts. These provisions, however, could reduce the premium that potential acquirers might be willing to pay in an acquisition, which may in turn reduce the market price that investors might be willing to pay in the future for shares of Community Bank System common stock.

Community Bank System’s certificate of incorporation authorizes the board of directors to issue, without further stockholder approval, up to 500,000 shares of preferred stock with rights senior to those of its common stock, except as may be required with respect to a particular transaction by applicable law or by regulatory agencies having jurisdiction over ~~the~~ Community Bank System. The board of directors of Community Bank System is permitted to establish from time to time the relative rights, designations, preferences and limitations or restrictions of the preferred stock. The preferred stock could be used to deter future attempts to gain control of ~~the~~ Community Bank System.

Community Bank System has a classified board which provides for the board to be divided into three classes, as nearly equal in number as possible, with approximately one-third of the directors to be elected

TABLE OF CONTENTS

annually for three-year terms. A classified board helps to assure continuity and stability of corporate leadership and policy by extending the time required to elect a majority of the directors to at least two successive annual meetings. This extension of time may also discourage a tender offer or takeover bid by making it more difficult for a majority of stockholders to change the composition of the board of directors.

In addition, Community Bank System’s certificate of incorporation contains a provision which requires that certain business combinations be approved by the affirmative vote of either (a) the holders of three-fourths of the outstanding shares of Community Bank System common stock and a majority of the board of directors; or (b) the holders of two-thirds of the outstanding shares of Community Bank System common stock and two-thirds of the continuing ~~directors.~~Directors. These “supermajority” requirements could result in Community Bank System’s board exercising a stronger influence over any proposed takeover (subject to its fiduciary duties) by refusing to approve a proposed business combination and by obtaining sufficient additional votes, including votes obtained through the issuance of additional shares to parties friendly to their interests, to preclude the two-thirds or three-fourths stockholder approval requirement.

Community Bank System’s certificate of incorporation also provides that the above described provisions designed to protect Community Bank System from unfriendly takeover attempts can only be amended by the affirmative vote of (a) holders of at least three-fourths of the outstanding shares of Community Bank System common stock and a majority of the board of directors, or (b) holders of at least two-thirds of the outstanding shares of Community Bank System common stock and two-thirds of the continuing directors.

Under the certificate of incorporation of Community Bank System, the stockholders of the company are prohibited from approving corporate actions by a written consent in lieu of a meeting. Instead, any corporate action to be approved by Community Bank System stockholders must be so approved at a stockholders’ meeting.

TABLE OF CONTENTS

COMPARISON OF RIGHTS OF HOLDERS OF ONEIDA FINANCIALMERCHANTS COMMON STOCK AND COMMUNITY BANK SYSTEM COMMON STOCK

~~Oneida Financial~~Merchants is incorporated under the laws of the State of ~~Maryland.~~Delaware. The rights of ~~Oneida Financial~~Merchants stockholders derive from ~~Oneida Financial’s articles~~Merchants’ certificate of incorporation and bylaws and from the ~~Maryland~~Delaware General Corporation Law (“~~MGCL”~~DGCL”).

Community Bank System is incorporated under the laws of the State of Delaware. The rights of Community Bank System stockholders derive from Community Bank System’s certificate of incorporation and bylaws and from the ~~Delaware General Corporation Law (“DGCL”).~~

DGCL.

Thus, following the Merger, the rights of ~~Oneida Financial~~Merchants stockholders who become Community Bank System stockholders in the Merger will no longer be governed by the ~~laws of the State of Maryland, Oneida Financial’s articles~~Merchants’ certificate of incorporation and ~~Oneida Financial’s~~Merchants’ bylaws, ~~and~~but instead will be governed ~~by the laws of the State of Delaware, as well as~~ by Community Bank System’s certificate of incorporation and Community Bank System’s bylaws.

Set forth below is a summary of material differences between the rights of ~~Oneida Financial~~Merchants stockholders under the ~~Oneida Financial~~Merchants articles of incorporation and the ~~Oneida Financial~~Merchants bylaws, and the rights of Community Bank System stockholders under the Community Bank System certificate of incorporation and Community Bank System bylaws. The summary set forth below is not intended to provide a comprehensive discussion of each company’s governing documents. This summary is qualified in its entirety by reference to the full text of the ~~Oneida Financial articles~~Merchants certificate of incorporation and bylaws, and the Community Bank System certificate of incorporation and Community Bank System bylaws.

Authorized Capital Stock

Community Bank System.Under its certificate of incorporation, Community Bank System is authorized to issue 75,000,000 shares of common stock, par value $1.00 per share, and 500,000 shares of preferred stock, par value $1.00 per share. At ~~[ ], 2015,~~[•], there were [ [•] shares of Community Bank System common stock issued and outstanding. Although no shares of preferred stock are currently outstanding, the board of directors may, without stockholder approval (subject to the rules of the NYSE, if applicable), issue shares of preferred stock with the relative rights, designations, preferences and limitations or restrictions established by the board. The ability of Community Bank System to issue shares of preferred stock could have an anti-takeover effect.

~~Oneida Financial.~~Merchants.~~Under its articles~~ Merchants’ authorized capital stock consists of ~~incorporation, Oneida Financial is authorized to issue 30,000,000~~(i) 10,000,000 shares of common stock, ~~$0.01~~with a par value of $0.01 per ~~share, and 10,000,000~~share; (ii) 200,000 shares of Class A non-voting preferred stock, with a par value of $0.01 per share; and (iii) 1,500,000 shares of Class B voting preferred stock, with a par value of $0.01 per share. ~~At [ ], 2015 there were [ ] shares of Oneida Financial common stock issued and outstanding. Under the MGCL and the articles~~The Merchants certificate of incorporation ~~of Oneida Financial, the~~authorizes Merchants’ board of directors may increase or decrease the number of authorized shares without stockholder approval. Although no shares of preferred stock are currently outstanding, the board of directors may, without stockholder approval, establish one or more series of preferred stock and, for any series of preferred stock, to determine the terms and rights of the series, including voting rights, dividend rights, conversion and redemption rights and liquidation preferences. The ability of Oneida Financial to issue shares of preferred stock ~~could have an anti-takeover effect.~~in one or more series and to fix the designations, powers, preferences, and rights of the shares of preferred stock in each series. At [•], there were [•] shares of common stock issued and outstanding. No shares of Merchants preferred stock were issued and outstanding as of that date.

Quorum of Stockholders

Community Bank System.In order to have a quorum for the transaction of business at any stockholders’ meeting, the holders of at least one-third of the shares entitled to vote at the meeting must be present in person or represented by proxy, unless a greater number is required by the ~~Delaware General Corporation Law.~~

DGCL.

~~Oneida Financial.~~Merchants.In order to have a quorum for the transaction of business at any stockholders’ meeting, the holders of at least a majority of the shares entitled to vote at the meeting must be present in person or represented by proxy.

Nomination of Directors and ShareholderStockholder Proposals

Community Bank System.Community Bank System’s bylaws provide that nominations of persons for election to the board of directors may be made at a meeting of stockholders by or at the direction of the board of directors, or by any stockholder entitled to vote at the election who gives advanced written notice to the Secretary not less than 60 days or more than 90 days prior to the meeting (provided that if Community Bank System gives less than 60 days’ notice of the meeting date, the nominating stockholder’s notice must be given

TABLE OF CONTENTS

within 10ten days following the mailing date of the Community Bank System notice).

Each such notice must contain specified information concerning the nominee, the nominating stockholder and certain related interests of the nominating stockholder.

Community Bank System’s bylaws provide that for business to be properly brought before an annual meeting by a ~~shareholder,~~stockholder, the ~~shareholder~~stockholder must give timely written notice to the Secretary at least 45 days prior to the date of the annual meeting, provided, however, that if less than 60 ~~days~~days’ notice of the annual meeting is given, then the ~~stockholder's~~stockholder’s written notice of the business to be brought before the annual meeting must be so received not later than the close of business on the ~~15th~~15^th day following the date on which such notice of the date of annual meeting was mailed.

Each such notice must contain specified information concerning the proposed business, the proposing stockholder and certain related interests of the proposing stockholder.

~~Oneida Financial.~~Merchants. ~~Oneida’s~~Merchants’ bylaws provide that ~~nominations~~stockholders of Merchants may nominate one or more persons for election as director only if such nominations are delivered to the ~~board~~secretary of ~~directors and business to be brought before an annual meeting may be made by any stockholder entitled to vote~~Merchants at the ~~election or meeting, respectively, who gives advanced written notice~~principal executive offices of the corporation not later than the close of business on the 90^th day and not earlier than the close of business on the 120^th day prior to the ~~Secretary not less than 80 nor more than 90 days prior to such meeting (provided~~first anniversary of the preceding year’s annual meeting; provided, however, that ~~if Oneida gives less than 90 days’ notice or prior public disclosure of~~in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, or if no annual meeting was held in the ~~stockholder’s~~preceding year, notice by the stockholder to be timely must be ~~submitted no~~so delivered not later than the close of business on the later of the 90^th day prior to the scheduled date of such annual meeting or the tenth day following the day on which ~~notice~~public announcement of ~~the meeting was mailed to stockholders or public disclosure regarding~~ the date of such meeting is first made. Each such notice must contain specified information concerning the nominee, the nominating stockholder and certain related interests of the nominating stockholder.

Merchants’ bylaws provide that a proposal by a stockholder for submission of a matter to a vote of stockholders at an annual meeting ~~was made).~~must be delivered to the secretary of Merchants within the same time frame as stockholder nominations for directors described above. Each such notice must contain specified information concerning the proposal, the proposing stockholder and certain related interests of the proposing stockholder.

In addition, the stockholder must provide specified updates or supplements to the foregoing information.

QualificationElection of Directors

Community Bank System. Community Bank System’s bylaws provide that directors shall, except as otherwise required by law or by the certificate of incorporation, be elected by a plurality of the votes cast at a meeting of stockholders by the holders of shares entitled to vote in the election. No stockholder has the right of cumulative voting in the election of directors.

Merchants. Merchants’ bylaws provide that any election of directors by stockholders shall be determined by a plurality of the votes properly cast on the election of directors. No stockholder has the right of cumulative voting in the election of directors.

Qualification of Directors

Community Bank System.Delaware law provides that a director need not be a ~~stockholder.~~stockholder unless so required by the certificate of incorporation or the bylaws. The Community Bank System certificate of incorporation and the Community Bank System bylaws do not contain further qualifications for directors. Currently, ~~all of the directors~~each director of Community Bank System also ~~serve~~serves as a director of Community Bank, which is a national banking association. The National Bank Act and the related regulations require that a director of a national banking association must be a citizen of the United States and must own shares of capital stock of the association or its parent company, the aggregate par value, stockholders’ equity or fair market value of which shares is not less than $1,000. Generally, at least a majority of the directors of a national banking association must have resided in the state in which the association is located, or within 100 miles of the location of the office of the association, for at least one year immediately before the election as a director and must continue to reside within those areas during the term of office. Community Bank System has a mandatory retirement policy and under its bylaws, directors must retire at December 31 of the year in which the director reaches age 70.

TABLE OF CONTENTS

~~Oneida Financial.~~Merchants. ~~Oneida Financial’s~~Delaware law provides that a director need not be a stockholder unless so required by the certificate of incorporation or the bylaws. The Merchants certificate of incorporation and the Merchants bylaws do not contain ~~certain~~further qualifications for directors. There are no residency requirements to serve as a director of ~~Oneida Financial, including that~~Merchants, nor do the Merchants certificate of incorporation or bylaws specify any disqualifications from serving as a ~~person is not qualified to serve as~~director. Currently, Merchants’ board of directors consists of 11 directors. Each Merchants director if he or she is under indictment for or has been convicted of a criminal offense involving dishonesty and the penalty could be imprisonment for more than one year; is a person against whom a banking agency has, in the past ten years, issued a nonappealable cease and desist order for conduct involving dishonesty or breach of trust; or has been found by a regulatory agency or court to have breached a fiduciary duty involving personal profit or committed a willful violation of any law, rule or regulation governing banking, securities, commodities or insurance. Additionally, no person may servealso serves as a director of ~~Oneida Financial and at the same time be~~Merchants Bank, a ~~director or officer of another co-operative bank, credit union, savings bank, savings and loan association, trust company, bank holding company or banking association that has an office in~~Vermont chartered commercial bank. Vermont law does not impose any ~~county in which Oneida Financial or any of~~stock ownership requirements on Merchants Bank directors. Merchants does not have a mandatory retirement policy for its ~~subsidiaries has an office.~~directors.

Number of Directors

Community Bank System. The total number of directors on the board of directors may be changed from time to time by the board or the stockholders. Neither the certificate of incorporation nor the bylaws imposes any limitation on the total number of directors of Community Bank System. The Community Bank System board of directors is currently composed of ~~twelve directors.~~12 directors and divided into three classes. After consummation of the Merger, the board will be composed of ~~fourteen~~14 directors.

~~Oneida Financial.~~Merchants. The ~~total~~Merchants bylaws provide that the number of directors onconstituting the board of directors ~~may~~will be ~~changed from time to time~~fixed solely and exclusively by resolution of the board of directors or by the ~~board, provided~~stockholders at the annual meeting, subject to the limitation contained in the Merchants certificate of incorporation that the number ~~may never~~of directors shall not be less than ~~the minimum required under the MGCL. Under the MGCL, a corporation must have at least one director.~~nine. The ~~Oneida Financial~~Merchants board of directors is currently composed of ~~twelve directors.~~11 directors and is divided into three classes as nearly equal in number as possible, with approximately one-third of the directors elected by the stockholders each year at the annual meeting of stockholders. Directors hold office until the third annual meeting following their election or until a successor has been duly elected and qualified or until a director’s earlier death, resignation or removal.

Removal of Directors

Community Bank System. Under Delaware law, directors of a corporation with a classified board (like Community Bank System) may be removed by the holders of a majority of shares then entitled to vote at the election of directors, but only for cause, unless the certificate of incorporation of the corporation provides that they can also be removed without cause. The ~~certificate of incorporation~~bylaws of Community Bank System ~~permits~~permit the stockholders representing a majority of the shares then entitled to vote to remove directors with or without cause. The board of directors is not authorized to remove a director.

~~Oneida Financial.~~Merchants. ~~Oneida Financial has~~Under Delaware law, directors of a corporation with a classified board (like Merchants) may be removed by the holders of ~~directors. Under Maryland law, if~~ a ~~board~~majority of shares then entitled to vote at the election of directors, ~~has been divided into classes, a director may not~~but only for cause, unless the certificate of incorporation of the corporation provides that they can also be removed without cause. Under ~~its articles~~the Merchants bylaws, any director, or the entire board of ~~incorporation, Oneida Financial stockholders~~directors, may ~~remove a director~~be removed from office for cause by the affirmative vote of the holders of a majority of the ~~outstanding voting~~ shares then entitled to vote in the election of ~~Oneida Financial.~~directors. The board of directors is not authorized to remove a director.

PaymentVacancies on the Board of Dividends
Directors

Community Bank System. Community Bank System’s bylaws provide that all vacancies on the board of directors may be filled by vote of a majority of the directors then in office, although less than a quorum, or by a sole remaining director, or may be filled by a plurality of the votes cast by stockholders of Community Bank System entitled to vote in the election at a special meeting of stockholders called for that purpose.

Merchants. Merchants’ certificate of incorporation provides that in case of any vacancy on the board of directors or any increase in the number of directors constituting the whole board, such vacancy shall be filled by the directors or by the stockholders at the time having voting power.

Voting and Proxies

Community Bank System. Holders of Community Bank System are entitled to one vote for each share of capital stock standing in their name on the record of stockholders.

At any meeting of stockholders (at which a quorum was present to organize the meeting), all matters, except as otherwise provided by law or by certificate of incorporation or by the bylaws, shall be decided by a

TABLE OF CONTENTS

majority of the votes cast at such meeting by the holders of shares present in person or represented by proxy and entitled to vote thereon, whether or not a quorum is present when the vote is taken. Every stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for him by proxy. The validity and enforceability of any proxy shall be determined in accordance with Section 212 of the DGCL.

Merchants. Holders of Merchants are entitled to one vote for each share of capital stock standing in their name on the record of stockholders.

At any meeting of stockholders (at which a quorum was present to organize the meeting), any matter before any such meeting (other than an election of a director or directors), except as otherwise provided by law or by certificate of incorporation or by the bylaws, shall be decided by a majority of the votes cast at such meeting by the holders of shares present in person, represented by written proxy, or by a transmission permitted by Section 212(c) of the DGCL, whether or not a quorum is present when the vote is taken. Every stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for him by proxy. The validity and enforceability of any proxy shall be determined in accordance with Section 212 of the DGCL.

Payment of Dividends

Community Bank System.Delaware law provides that dividends may be paid either out of a corporation’s surplus or, in the event that no surplus exists, from its net profits, if any, from either the year the dividends were declared or the prior year. Capital surplus is the excess of the net assets of the corporation over the stated capital of the corporation. There are certain other regulatory and contractual restrictions on Community Bank System’s ability to pay cash dividends.

~~Oneida Financial.~~Merchants.~~Holders of common stock are entitled, when declared by the Oneida Financial board, to receive dividends, subject to the rights of holders of preferred stock. Under Maryland~~ Delaware law noprovides that dividends ~~redemptions, stock repurchases or other distributions~~ may be paid either out of a corporation’s surplus or, in the event that no surplus exists, from its net profits, if any, from either the year the dividends were declared or ~~paid if, after giving effect to~~ the ~~dividend, redemption, stock repurchase or other distribution, (1)~~prior year. Capital surplus is the corporation would not be able to pay its debts as they become due in the usual course of business or (2) the corporation’s total assets would be less than the sum of its total liabilities plus, unless the corporation’s charter provides otherwise, the amount that would be needed, if the corporation were to be dissolved at the timeexcess of the distribution, to satisfy the preferential rights upon dissolution of stockholders whose preferential rights are superior to those receiving the distribution. The board of directors may base a determination regarding the legality of the declaration or payment of a distribution on financial statements prepared on the basis of accounting practices and principles that are reasonable in the circumstances or on a fair valuation or other method that is reasonable in the circumstances.

~~In addition, a Maryland corporation that would be prohibited from making a distribution because its~~net assets ~~would be less than the sum of its total liabilities and preferences of outstanding preferred stock may also make a distribution from the net earnings~~ of the corporation ~~for~~over the ~~fiscal year in which the distribution is made, the net earnings~~stated capital of the ~~corporation for the preceding fiscal year, or the sum of the net earnings of the corporation for the preceding eight fiscal quarters.~~corporation. There are certain other regulatory and contractual restrictions on Merchants’ ability to pay cash dividends.

Special Meeting of Stockholders

Community Bank System. Under the DGCL, a special meeting of stockholders may be called by a corporation’s board of directors or by the persons authorized to do so in the corporation’s certificate of incorporation or bylaws. Community Bank System’s bylaws provide that a special meeting may be called by the ~~board, the~~ Chairman of the ~~board~~Board or the ~~executive committee~~President or the Secretary or by any three or more Directors.

At any special meeting of stockholders, only such business may be transacted as is related to the ~~board.~~

purpose or purposes of such meeting set forth in the notice thereof given pursuant to the bylaws or in any waiver of notice thereof given pursuant to the bylaws.

~~Oneida Financial.~~Merchants.~~Oneida Financial’s~~ Under the DGCL, a special meeting of stockholders may be called by a corporation’s board of directors or by the persons authorized to do so in the corporation’s certificate of incorporation or bylaws. Merchants’ bylaws provide that a special meeting of stockholders may be called by the ~~President,~~board of directors pursuant to a resolution approved by the affirmative vote of a majority of the ~~board~~directors then in office, except as otherwise required by statute and subject to the rights of ~~directors,~~the holders of any series of undesignated preferred stock.

Only those matters set forth in the notice of the special meeting may be considered or byacted upon at a special meeting of stockholders ~~entitled to cast at least a majority~~ of ~~all the votes to be cast at the meeting.~~Merchants.

Rights of Stockholders to Dissent

Community Bank System.Under Delaware law, appraisal rights are generally available for the shares of any class or series of stock of a corporation involved in a merger or consolidation. However, no appraisal rights are available for any stock, which on the record date of the stockholder meeting to approve the transaction, is listed on a national securities exchange or NASDAQ, or held of record by more than 2,000 stockholders. Also, no appraisal rights are available to stockholders of the surviving corporation in a merger if

TABLE OF CONTENTS

their approval is not required. Notwithstanding the foregoing, appraisal rights are available for the class or series if the holders thereof receive in the merger or consolidation anything except:

~~shares of stock of the corporation surviving or resulting from such merger or consolidation;~~

shares of stock of the corporation surviving or resulting from such merger or consolidation;

shares of stock of any other corporation that, at the effective date of the merger or consolidation, are either ~~listed on a national securities exchange or NASDAQ, or held of record by more than 2,000 stockholders;~~

~~cash in lieu of fractional shares; or~~

~~any combination of the foregoing.~~

~~Oneida Financial.~~~~Under Maryland law, a shareholder is not entitled to appraisal rights in any transaction where the stock at issue is~~ listed on a national securities exchange or NASDAQ, or held of record by more than 2,000 stockholders;

cash in lieu of fractional shares; or

any combination of the foregoing.

Merchants. Holders of Merchants common stock are subject to certain exceptions. Oneida Financial’s stock is listed on NASDAQ, a national securities exchange, so Oneida Financial stockholders do not have appraisal rights. Additionally, under Oneida Financial’s articles of incorporation, Oneida Financial has opted out of Maryland’sthe same appraisal rights ~~statute.~~under Delaware law described directly above.

Indemnification and Limitation of Liability

Community Bank System.The Community Bank System certificate of incorporation provides that a director shall not be personally liable to Community Bank System or its stockholders for monetary damages for a breach of fiduciary duty, except for liability:

~~for a breach of the duty of loyalty;~~

~~for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;~~

~~under Section 174 of the Delaware General Corporation Law; or~~

~~for any transaction from which the director derived an improper personal benefit.~~

for a breach of the duty of loyalty;

for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;

under Section 174 of the Delaware General Corporation Law; or

for any transaction from which the director derived an improper personal benefit.

Community Bank System will indemnify to the fullest extent permitted by Delaware law any person against liabilities and expenses incurred by reason of the fact that he or she was acting as a director or officer of Community Bank System. Community Bank System may also provide indemnification to its employees and agents. However, indemnification is only available if a person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation. To receive indemnification in a criminal proceeding, the person must also have had no reasonable cause to believe his or her conduct was unlawful.

~~Oneida Financial.~~Merchants.Under Maryland law, directors’ and officers’ liability to the corporation or its stockholders for money damages may be expanded or limited, except that liability of a director or officer may not be limited: (1) to the extent that it is proved that the person actually received an improper benefit or profit in money, property, or services, for the amount of the improper benefit or profit; (2) to the extent that a final adjudication adverse to the person is entered based on a finding that the person’s action or failure to act was the result of active and deliberate dishonesty and was material to the cause of action in the proceeding; or (3) in an action brought by a state agency against a director or officer of a banking institution, credit union, savings and loan association, or the subsidiary of any such organization. Oneida Financial’s articles The Merchants certificate of incorporation ~~provide~~provides that ano director of ~~the corporation will not~~Merchants shall be personally liable to ~~the corporation~~Merchants or to any of its stockholders for monetary damages ~~subject to the limitations, described above, under Maryland law.~~

~~Under Maryland law, a corporation may not indemnify~~for breach of fiduciary duty as a director, notwithstanding any provision of law imposing such liability; provided, however, that the liability of a director shall not be limited or ~~officer if it is established that: (i) the act or omission~~eliminated for any of the ~~director~~following:

any breach of the director’s duty of loyalty to Merchants or ~~officer was material to the matter giving rise to the proceeding; and (1) was committed~~its stockholders;

acts or omissions not in ~~bad~~good faith or ~~(2) was~~which involve intentional misconduct or a knowing violation of law;

unlawful distributions under the ~~result of active and deliberate dishonesty;~~DGCL; or ~~(ii)~~

for any transaction from which the director ~~or officer actually received~~derived an improper personal ~~benefit in money, property or services; or (iii) in the case~~benefit.

The Merchants certificate of ~~any criminal proceeding, the~~incorporation provides that Merchants must indemnify each director orand officer ~~had reasonable cause to believe that the act or omission was unlawful.~~

~~Under Maryland law, a corporation may not indemnify a director or officer who has been adjudged liable in a suit by or in the right~~ of the corporation, his or ~~in which~~her heirs, executors and administrators, and may indemnify each employee and agent of Merchants, his or her heirs, executors, administrators and all other persons whom Merchants is authorized to indemnify under the ~~director or officer was adjudged liable~~DGCL, to the corporation or on the basis that a personal benefit was improperly received. A court may order indemnification if it determines that the director is fairly and reasonably entitled to indemnification, even though the director did not meet the prescribed standard of conduct, was adjudged liable to the corporation or was adjudged liable on the basis that personal benefit was improperly received; however, indemnification for an adverse judgment in a suit by or in the right of the corporation, or for a judgment of liability on the basis that personal benefit was improperly received, is limited to expenses. Except for a proceeding brought to enforce indemnification or where a resolution of the board of directors or an agreement approved by the board expressly provides otherwise, a corporation may not indemnify a director for a proceeding brought by the director against the corporation.

Oneida Financial indemnifies (1) its current and former directors and officers, to the fullest extent required or permitted by Maryland law, including the advancement of expenses under the procedures and to the fullest extent permitted by law (i) against all expenses (including attorney’s fees), judgments, fines, and ~~(2) other employees~~amounts paid in settlement actually and ~~agents of Oneida Financial to such extent as authorized~~reasonably incurred by the ~~board~~indemnified person in connection with any action, suit or proceeding, whether civil, criminal, administrative or investigative, or in connection with any appeal therein, or otherwise, and (ii) against all expenses (including attorney’s fees) actually and reasonably incurred by the indemnified person in connection with the defense or settlement of ~~directors~~any derivative action or suit or in connection with any appeal or otherwise; and ~~permitted~~no provision of the Merchants certificate of incorporation is to be construed as limiting any of the rights conferred by ~~law; provided, that, except as provided in section B of article 10 of Oneida Financial’s articles of incorporation~~the DGCL with respect to ~~proceedings to enforce rights to~~ indemnification ~~Oneida Financial will indemnify any such indemnitee in connection with a proceeding (or part~~ of ~~a proceeding) initiated by such indemnitee only if such proceeding (or part of a proceeding) was authorized by the board of~~officers and directors.

TABLE OF CONTENTS

Certain Voting Rights and Restrictions with Respect to Mergers

Community Bank System.Under Delaware law, any merger, consolidation or sale of all or substantially all of the assets of a corporation requires approval by a majority of the outstanding shares, unless the corporation’s certificate of incorporation requires a higher percentage. Where approval of stockholders is required by Delaware law, the Community Bank System certificate of incorporation requires a higher percentage with respect to “business combinations” with “interested stockholders” as discussed below.

An interested stockholder is the beneficial owner of common stock representing three percent or more of the votes entitled to be cast, an affiliate or associate of Community Bank System who was an interested stockholder at any time during the preceding two years, or an assignee or successor in interest of shares which were owned at any time during the preceding two years by an interested stockholder.

A business combination between Community Bank System and an interested stockholder requires the approval of a majority of the board of directors and at least three-fourths of the votes entitled to be cast, or at least two-thirds of the votes entitled to be cast and two-thirds of the continuing directors. A “business combination” includes:

~~a merger or consolidation with Community Bank System or any of its subsidiaries;~~

any sale, lease, exchange, mortgage, pledge, transfer or other disposition involving any assets or securities of Community Bank System or any of its subsidiaries having an aggregate fair market value of $3,000,000 or more;

~~the adoption of any plan or proposal for the liquidation or dissolution of Community Bank System;~~

any reclassification of securities, recapitalization, any merger or consolidation of Community Bank System with one of its subsidiaries, or any other transaction which has the effect of increasing the proportion of the outstanding shares of any class of equity or convertible securities which is beneficially owned by an interested stockholder; and

~~any agreement, contract, or other arrangement providing for any one or more of the actions specified in the foregoing.~~

any merger or consolidation with Community Bank System or any of its subsidiaries with (i) any interested stockholder or (ii) any other corporation (whether or not itself an interested stockholder) which is or after such merger or consolidation will be an affiliate or associate of an interested stockholder;

any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any interested stockholder or any affiliate or associate of any interested stockholder involving any assets or securities of Community Bank System or any of its subsidiaries having an aggregate fair market value of $3,000,000 or more;

the adoption of any plan or proposal for the liquidation or dissolution of Community Bank System proposed by or on behalf of an interested stockholder or any affiliate or associate of any interested stockholder;

any reclassification of securities (including any reverse stock split), or recapitalization, any merger or consolidation of Community Bank System with one of its subsidiaries, or any other transaction (whether or not with or otherwise involving an interested stockholder) which has the effect, directly or indirectly, of increasing the proportion of the outstanding shares of any class of equity or convertible securities which is beneficially owned by an interested stockholder or any affiliate or associate of any interested stockholder; and

any agreement, contract, or other arrangement providing for any one or more of the actions specified in the foregoing.

In addition, Section 203 of the ~~Delaware General Corporation Law~~DGCL applies to Delaware corporations with a class of voting stock listed on a national securities exchange, authorized for quotation on NASDAQ, or held of record by 2,000 or more persons, and restricts transactions which may be entered into by a corporation and certain of its stockholders. Community Bank System has not elected to “opt out” of Section 203, as permitted by that section.

Section 203 provides, in essence, that an “interested stockholder,” defined as a stockholder acquiring more than 15%, but less than 85%, of the outstanding voting stock of a corporation subject to the statute and its affiliates and associates, may not engage in certain “business combinations” with the corporation for a period of three years subsequent to the date on which the stockholder became an interested stockholder unless:

~~prior to that date, the corporation’s board of directors approved either the business combination or the transaction in which the stockholder became an interested person, or~~

the business combination is approved by the corporation’s board of directors and authorized at a stockholders’ meeting by a vote of at least two-thirds of the outstanding voting stock of the corporation not owned by the interested person.

prior to that date, the corporation’s board of directors approved either the business combination or the transaction in which the stockholder became an interested person, or

Section 203 defines the term “business combination” to include a wide variety of transactions with or caused by an interested person in which the interested person receives or could receive a benefit on other than

TABLE OF CONTENTS

a pro rata basis with other stockholders, including mergers, certain asset sales, certain issuances of additional shares to the interested person, transactions with the corporation which increase the proportionate interest of the interested person or transactions in which the interested person receives certain other benefits.

~~Oneida Financial.~~Merchants.~~Under Maryland law, a proposed consolidation, merger, share exchange, or transfer must~~ The Merchants certificate of incorporation generally requires that specified business combination transactions be approved by the affirmative vote of ~~two-thirds~~the holders of ~~all votes entitled to be cast on~~at least 80% of Merchants voting stock, unless the ~~matter, unless a different number, not less than a majority,~~transaction is ~~specified in the articles of incorporation. Oneida Financial’s articles of incorporation specifies that a proposed consolidation, merger, share exchange, or transfer must be~~ approved by the ~~affirmative~~unanimous vote of all of Merchants’ directors then in office. This vote requirement applies to any of the following: (i) any plan of merger or consolidation to which Merchants is a party and which requires stockholder approval, or (ii) any sale, lease, exchange, mortgage, pledge or other disposition of all, or substantially all of Merchants’ assets not made in the usual and regular course of business, or (iii) a combination or majority share acquisition in which Merchants is the acquiring corporation and a majority of ~~all votes entitled~~its voting shares is issued or transferred to ~~be cast on~~another corporation or entity, or person, or to stockholders of another corporation or entity. If the ~~matter.~~

Under Maryland law, as may be made applicable by the board of directors of Oneida Financial, business combinations between Oneida Financial and an interested shareholder or an affiliate of an interested shareholder are prohibited for five years after the most recent date on which the interested shareholder becomes an interested shareholder. An interested shareholder is (i) any person who beneficially owns 10% or more of the voting power of Oneida Financial’s voting stock after the date on which Oneida Financial has 100 or more beneficial owners of its stock, or (ii) an affiliate or associate of Oneida Financial at any time after the date on which Oneida Financial has 100 or more beneficial owners of its stock who, within two years prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then-outstanding Oneida Financial voting stock. A person is not an interested shareholder if the board of directors approves in advance the transaction by which the person would otherwise become an interested shareholder, which approval may be subject to compliance with terms and conditions set by the board.

~~After the five-year period, any~~ business combination ~~between Oneida Financial and an interested shareholder generally must be recommended by Oneida Financial’s board of directors and~~is unanimously approved by the ~~affirmative~~directors, the required stockholder vote ~~of at least (i) 80%~~to approve the transaction is reduced to two-thirds (66 2/3%) of the outstanding shares of voting ~~stock, and (ii) two-thirds~~capital stock.

Merchants has not elected to “opt out” of Section 203 of the ~~outstanding shares~~Delaware General Corporation Law, as permitted by that section (see description of voting stock other than shares held by the interested shareholder or their affiliate or associate. These super-majority vote requirements do not apply if Oneida Financial’s stockholders receive a minimum price, as defined under Maryland law, for their shares in the form of cash or other consideration in the same form as previously paid by the interested shareholder for its shares.Section 203 above).

Additionally, Oneida Financial’s articles of incorporation prohibit the record owner of any outstanding common stock that is beneficially owned, directly or indirectly, by a person who, as of any record date for the determination of stockholders entitled to vote on any matter, beneficially owns in excess of 10% of the outstanding shares of common stock, from voting in respect of the shares held in excess of the 10% limit, unless the acquisition of shares in excess of 10% was approved by a majority of Oneida Financial’s directors who are unaffiliated with the holder in excess of 10% of the outstanding shares of common stock.

~~Oneida Financial has opted out of the control share statute.~~

Amendment to Certificate/ArticlesCertificate of Incorporation

Community Bank System.Under Delaware law, the Community Bank System certificate of incorporation may be amended only if the amendment is first proposed by the Community Bank System board of directors and is approved by a majority of outstanding shares entitled to vote thereon. Where the rights of a certain class of shares is affected by the amendment, a majority of that class of shares must also approve the amendment, regardless if such class is otherwise entitled to vote on the amendment. Under Community Bank System’s certificate of incorporation, amendments to provisions relating to the election and classification of directors, the limitation of director’s liability, a business combination with an interested stockholder or an amendment to the certificate require the approval of a majority of the board of directors and at least three-fourths of the votes entitled to be cast by the holders of Community Bank System common stock, or at least two-thirds of the votes entitled to be cast and two-thirds of the continuing directors.

~~Oneida Financial.~~Merchants. ~~Oneida Financial’s articles~~ Under Delaware law, the Merchants certificate of incorporation may be amended ~~upon~~only if the ~~submission of an~~ amendment is first proposed by the Merchants board of directors and is approved by a majority of outstanding shares entitled to vote thereon. Where the rights of a certain class of shares is affected by the amendment, a majority of that class of shares must also approve the amendment, regardless if such class is otherwise entitled to vote on the amendment. The Merchants certificate of incorporation provides that any amendment to the certificate of incorporation requires the vote of two-thirds (66 2/3%) of the ~~stockholders, by~~outstanding shares entitled to vote. In addition, the Merchants certificate of incorporation provides that amendments to certain sections of the Merchants certificate of incorporation that have an antitakeover effect require the affirmative vote of ~~at least two-thirds of the outstanding voting common stock of Oneida Financial,~~80% or ~~by the affirmative vote of a majority~~more of the outstanding shares ~~of common stock if at least two-thirds of the members of the board of directors approves such amendment. However, approval by at least 80% of the outstanding common stock is required~~entitled to amend certain provisions regarding, but not limited to, the limitation of voting rights, classification of the board, board vacancies, removal of directors, amendment of the bylaws, acquisition offers, issuance of preferred stock, a shareholder quorum, indemnification of officers and directors, cumulative voting, advance notice requirements for shareholder proposals and nominations, and the provision requiring at least 80% outstanding voting stock approval to amend the aforementioned provisions.vote.

Amendment to Bylaws

Community Bank System.The board of directors of Community Bank System may adopt, amend or repeal Community Bank System’s bylaws by a majority vote, provided that the bylaws may also be adopted, amended or repealed by the stockholders of Community Bank System by the affirmative vote of a majority of shares present in person or represented by proxy and entitled to vote on the subject matter.

~~Oneida Financial.~~Merchants.~~Oneida Financial’s articles of incorporation and~~ The Merchants bylaws ~~permit its~~authorize the board of directors to ~~adopt,~~ amend or repeal the bylaws ~~at any time, upon approval~~by vote of a majority of the ~~full board. Oneida Financial’s stockholders~~board of directors at a meeting. The Merchants bylaws also ~~have the power to adopt, amend~~may be amended or ~~repeal the bylaws, upon~~repealed by the affirmative vote of the holders of at least ~~80%~~75% percent of the outstanding shares entitled to ~~vote.~~vote on such amendment or repeal, voting together as a single class; provided, however, that if the board of directors recommends that stockholders approve the amendment or repeal, its adoption will only require the affirmative vote of the majority of the outstanding shares entitled to vote on such amendment or repeal, voting together as a single class.

TABLE OF CONTENTS

Stockholder Action Without a Meeting

Community Bank System. Community Bank System’s certificate of incorporation prohibits stockholder action without a meeting.

~~Oneida Financial~~Merchants. ~~The MGCL permits~~Merchants’ certificate of incorporation provides that any action required or permitted to be taken by law, by the certificate of incorporation or by the Merchants bylaws to be taken at aany annual or special meeting of ~~the~~ stockholders tomay be taken without a meeting, without prior notice and without a vote, if one or more written consents setting forth the action so taken are signed by ~~unanimous written or electronic consent~~the holders of all ~~stockholders~~outstanding shares of Merchants capital stock that are entitled to vote on the matter.

Preemptive Rights

Community Bank System. Under the DGCL, unless the certificate of incorporation provides otherwise, stockholders have no preemptive rights. Community Bank System’s certificate of incorporation does not provide for preemptive rights. Accordingly, Community Bank System stockholders do not have preemptive rights.

~~Oneida Financial.~~Merchants. Under the ~~MGCL,~~DGCL, unless the ~~articles~~certificate of incorporation provides otherwise, stockholders have no preemptive rights. ~~Oneida Financial’s articles~~Merchants’ certificate of incorporation does not provide for preemptive rights. Accordingly, ~~Oneida Financial’s~~Merchants stockholders do not have preemptive rights.

Exclusive Forum Provision

Community Bank System. Community Bank System’s bylaws do not provide an exclusive forum provision.

Merchants. Merchants’ bylaws provide that unless the corporation consents in writing to the selection of an alternative forum, the sole and exclusive forum for any stockholder (including a beneficial owner of stock) to bring (i) any derivative action or proceeding on behalf of the corporation, (ii) any action asserting a claim of, or a claim based on, breach of a fiduciary duty owed by any current or former director, officer, employee or stockholder (including a beneficial owner of stock) of the corporation to the corporation or the corporation’s stockholders (including beneficial owners of stock), (iii) any action asserting a claim against the corporation or any current or former director, officer, employee or stockholder (including a beneficial owner of stock) of the corporation arising pursuant to any provision of the DGCL or the certificate or the bylaws, (iv) any action to interpret, apply, enforce or determine the validity of the certificate of incorporation or the bylaws, or (v) any action asserting a claim against the corporation or any current or former director, officer, employee or stockholder (including a beneficial owner of stock) of the corporation governed by the internal affairs doctrine shall be the Court of Chancery of the State of Delaware.

EXPERTS

The consolidated financial statements of Community Bank System and management’s assessment of the effectiveness of internal controls over financial reporting (which is included in Management’s Report on Internal Controls over Financial Reporting) incorporated in this registration statement by reference to Community Bank ~~System's~~System’s Annual Report on Form 10-K for the year ended December 31, ~~2014,~~2015, have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm given ~~upon~~on the authority of said firm as experts in accounting and auditing.

The ~~consolidated~~financial statements ~~of condition of Oneida Financial as of December 31, 2014 and 2013, and~~incorporated in this proxy statement/prospectus by reference to the ~~related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2014, included in its~~Merchants Bancshares, Inc. Annual Report on Form 10-K for the year ended December 31, ~~2014,~~2015 have been so incorporated ~~by reference herein~~ in reliance ~~upon~~on the report of Crowe Horwath LLP, an independent registered public accounting firm, ~~and upon~~given on the authority of said firm as experts in ~~accounting~~auditing and ~~auditing.~~accounting.

SUBMISSION OF STOCKHOLDER NOMINATIONS AND PROPOSALS

If the Merger is completed in the expected ~~timeframe, Oneida Financial~~time frame, Merchants will not hold another annual meeting of stockholders. If the Merger is not completed or if the Merger is delayed and the ~~2015~~2017 annual meeting of stockholders becomes necessary, ~~Oneida Financial’s~~Merchants’ bylaws provide that in order for a stockholder to make nominations for the election of directors or proposals for business to be brought before the annual meeting, a

TABLE OF CONTENTS

stockholder must deliver notice of such nominations and/or proposals to the Corporate Secretary not less than 8090 nor more than 90120 days prior to the ~~date~~first anniversary of the preceding year’s annual meeting; provided, however, that ~~if less than 90 days’ notice or prior public disclosure of~~in the event the date of the annual meeting is ~~given to stockholders,~~more than 30 days before or more than 60 days after such anniversary date, such notice must be received not later than ~~the~~ close of business on the ~~10th~~later of the tenth day following the day on which ~~notice of the date of the annual meeting was mailed to stockholders or prior~~ public disclosure of the meeting date was ~~made.~~first made or the 90^th day prior to the scheduled date of such annual meeting. A copy of the bylaws may be obtained from ~~Oneida Financial.~~Merchants.

LEGAL MATTERS

The validity of the shares of Community Bank System common stock to be issued pursuant to the terms of the Merger Agreement will be passed upon for Community Bank System by ~~Bond, Schoeneck & King, PLLC, Syracuse, New York. Luse Gorman, PC, Washington, DC~~George J. Getman, the Executive Vice President and General Counsel of Community Bank System.

Goodwin Procter LLP, Boston, Massachusetts has delivered an opinion to ~~Oneida Financial,~~Merchants, as to certain federal income tax consequences of the Merger. See ~~“Proposal I—The Merger—~~“The Merger — Material ~~U.S. Federal Income~~ Tax Consequences of the Merger.”

WHERE YOU CAN FIND MORE INFORMATION

Both Community Bank System and ~~Oneida Financial~~Merchants file annual, quarterly and current reports, proxy statements and other information with the SEC.

You may read and copy any reports, statements or other information that Community Bank System or ~~Oneida Financial~~Merchants files ~~with the SEC~~ at the SEC’s Public Reference room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the Public Reference ~~Room.~~room. Community Bank System’s and ~~Oneida Financial’s~~Merchants’ public filings are also available at the Internet site maintained by the SEC at ~~“http:~~“http://~~www.sec.gov.~~www.sec.gov.” You can also inspect reports, proxy statements and other information about Community Bank System at the offices of the ~~NYSE,~~New York Stock Exchange, 20 Broad Street, New York, New York 10005.

Community Bank System’s and ~~Oneida Financial’s~~Merchants’ public filings are also available from Community Bank System and ~~Oneida Financial,~~Merchants, respectively, at the address shown below or at their respective websites:www.communitybankna.com or ~~www.oneidafinancial.com.~~

www.mbvt.com.

As allowed by SEC rules, this document does not contain all the information that stockholders can find in the registration statement or the exhibits to the registration statement. The SEC allows Community Bank System and ~~Oneida Financial~~Merchants to “incorporate by reference” certain information into this document, which means that Community Bank System and ~~Oneida Financial~~Merchants can disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is deemed to be a part of this document, except for any information which contradicts information contained directly in this document. This document incorporates by reference the documents set forth below that Community Bank System and ~~Oneida Financial~~Merchants have previously filed with the SEC.

TABLE OF CONTENTS

Community Bank System

Commission Filings (File No. 001-13695)

Annual Report on Form 10-K

Year ended December 31, ~~2014,~~2015, filed on ~~March 2, 2015~~February 29, 2016

Quarterly Report on Form 10-Q

Quarter ended March 31, 2016, filed on May 9, 2016 Quarter ended June 30, 2016, filed on August 9, 2016 Quarter ended September 30, 2016, filed on November 9, 2016

Proxy Statement for Annual Meeting of Stockholders

~~Filed on [ ], 2015~~

Filed on April 1, 2016

Current Reports on Form 8-K

~~Filed January 2, 2015 and February 25, 2015~~

Filed January 7, 2016, March 16, 2016, May 20, 2016, October 24, 2016, October 27, 2016, and December 5, 2016.

Registration Statements on
Form 8-A

Filed December 9, 1997 and February 27, 1995

~~Oneida Financial~~

Merchants
Commission Filings (File No. 001-34813)0-11595)

Annual Report on Form 10-K

Year ended December 31, ~~2014,~~2015, filed on March ~~25, 2015~~14, 2016

Quarterly Report on Form 10-Q

Quarter ended March 31, 2016, filed on May 9, 2016 Quarter ended June 30, 2016, filed on August 3, 2016 Quarter ended September 30, 2016, filed on November 7, 2016

Proxy Statement for Annual Meeting of Stockholders

Filed on April 15, 2016

Current Reports on Form 8-K

~~Filed February 25, 2015 and March 26, 2015~~

Filed January 8, 2016, January 21, 2016 (Item 8.01), January 25, 2016 (Item 8.01), February 23, 2016, March 25, 2016, April 28, 2016 (Item 8.01), May 27, 2016, and October 24, 2016 (Items 1.01 and 5.03)

All filings made with the SEC by Community Bank System or ~~Oneida Financial~~Merchants pursuant to the Exchange Act of 1934 after the date of this Proxy Statement/Prospectus and the ~~initial registration statement and prior to the effectiveness~~date of the ~~registration statement~~Merchants special meeting are incorporated into this document by reference and made a part of this document. These additional documents include periodic reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K.

Community Bank System has supplied all information contained or incorporated by reference in this document relating to Community Bank System. ~~Oneida Financial~~Merchants has supplied all information contained or incorporated by reference in this document relating to ~~Oneida Financial.~~Merchants. Neither Community Bank System nor ~~Oneida Financial~~Merchants assumes any responsibility for the accuracy or completeness of the information provided by the other party.

You may obtain documents pertaining to Community Bank System which are incorporated by reference in this document, from Community Bank System without charge, excluding all exhibits (unless specifically incorporated by reference as an exhibit to this document), by requesting them in writing or by telephone from Community Bank System at the following ~~address and telephone number:~~

address:

Community Bank System, Inc.

5790 Widewaters Parkway

DeWitt, New York 13214

Attention: Donna J. Drengel, Investor Relations

Telephone: (315) 445-7313

TABLE OF CONTENTS

You may obtain documents pertaining to ~~Oneida Financial~~Merchants which are incorporated by reference in this document, from ~~Oneida Financial~~Merchants without charge, excluding all exhibits (unless specifically incorporated by reference as an exhibit to this document), by requesting them in writing or by telephone from Merchants at the following ~~address and telephone number:~~address:

~~Oneida Financial Corp.~~

~~182 Main Street~~

~~Oneida, New York 13421~~

Merchants Bancshares, Inc.
275 Kennedy Drive
South Burlington, Vermont 05403
Attention: ~~Eric E. Stickels,~~Corporate Secretary

Telephone: ~~(315) 363-2000~~

(800) 322-5222

If you would like to request documents from Community Bank System or ~~Oneida Financial,~~Merchants, please do so at least five business days before the date of the special meeting in order to receive timely delivery of the requested documents prior to the special meeting.

You should rely only on the information contained or incorporated by reference in this document to vote your shares at the special meeting held by ~~Oneida Financial.~~your company. Neither Community Bank System nor ~~Oneida Financial~~Merchants has authorized anyone to provide you with information that is different from what is contained in this document. This document is dated ~~[ ], 2015.~~[•]. You should not assume that the information contained in this document is accurate after that date.

TABLE OF CONTENTS

Execution Copy

ANNEX A

AGREEMENT AND PLAN OF MERGER

~~dated as of~~

~~February 24, 2015~~

~~among~~

BY AND BETWEEN

COMMUNITY BANK SYSTEM, INC.

AND

MERCHANTS BANCSHARES, INC.

Dated as of October 22, 2016

~~and~~TABLE OF CONTENTS

~~ONEIDA FINANCIAL CORP.~~

~~Annex A-i~~

~~table of contents~~

		Page
ARTICLE 1
~~ARTICLE I~~TRANSACTIONS AND TERMS OF MERGER	~~DEFINITIONS~~	~~A-2~~

~~ARTICLE II~~ Section 1.1 Merger			~~THE MERGER~~A-1	~~A-11~~
Section 1.2 Bank Merger			A-1
Section 1.3 Closing			A-2
Section 1.4 Effective Time			A-2
Section 1.5 Organizational Documents of Surviving Corporation; Directors and Officers			A-2
Section 1.6 Tax Consequences			A-2
Section 1.7 Structure Change			A-2
ARTICLE 2
~~2.1~~TREATMENT OF SECURITIES	~~The Merger~~	~~A-11~~
~~2.2~~	~~Merger Consideration~~	~~A-11~~
~~2.3~~	~~Effect of Merger~~	~~A-16~~
~~2.4~~	~~Procedure to Exchange Shares~~	~~A-17~~
~~2.5~~	~~Tax Treatment~~	~~A-18~~
~~2.6~~	~~Modification of Structure~~	~~A-18~~
~~2.7~~	~~Closing~~	~~A-18~~

~~ARTICLE III~~ Section 2.1 Treatment of Common Stock			~~REPRESENTATIONS AND WARRANTIES OF ONEIDA~~A-3	~~A-18~~
Section 2.2 Election and Proration Procedures			A-3
Section 2.3 Payment for Securities; Surrender of Merchants Certificates			A-5
Section 2.4 Dissenters’ Rights			A-7
Section 2.5 Treatment of Merchants Equity Awards			A-7
Section 2.6 Withholding			A-8
Section 2.7 Fractional Shares			A-8
Section 2.8 Warrants			A-8
ARTICLE 3
~~3.1~~REPRESENTATIONS AND WARRANTIES	~~Capital Structure of Oneida~~	~~A-19~~
~~3.2~~	~~Organization, Standing and Authority of Oneida~~	~~A-19~~
~~3.3~~	~~Ownership of Onyx Subsidiaries; Capital Structure of Oneida Subsidiaries~~	~~A-19~~
~~3.4~~	~~Authorized and Effective Agreement~~	~~A-19~~
~~3.5~~	~~Regulatory Filings~~	~~A-20~~
~~3.6~~	~~SEC Documents; Financial Statements; Books and Records; Minute Books.~~	~~A-21~~
~~3.7~~	~~Material Adverse Change~~	~~A-21~~
~~3.8~~	~~Absence of Undisclosed Liabilities~~	~~A-21~~
~~3.9~~	~~Absence of Certain Changes~~	~~A-21~~
~~3.10~~	~~Properties~~	~~A-23~~
~~3.11~~	~~Loans; Nonperforming and Classified Assets~~	~~A-23~~
~~3.12~~	~~Tax Matters~~	~~A-25~~
~~3.13~~	~~Employee Benefit Plans~~	~~A-26~~
~~3.14~~	~~Material Contracts~~	~~A-27~~
~~3.15~~	~~Legal Proceedings~~	~~A-28~~
~~3.16~~	~~Compliance with Laws~~	~~A-28~~
~~3.17~~	~~Labor Matters~~	~~A-29~~
~~3.18~~	~~Brokers and Finders~~	~~A-29~~
~~3.19~~	~~Insurance~~	~~A-29~~
~~3.20~~	~~Environmental Liability~~	~~A-29~~
~~3.21~~	~~Administration of Trust Accounts~~	~~A-30~~
~~3.22~~	~~Intellectual Property~~	~~A-30~~
~~3.23~~	~~Certain Information~~	~~A-31~~
~~3.24~~	~~Risk Management Instruments~~	~~A-31~~
~~3.25~~	~~Related Party Transactions~~	~~A-31~~
~~3.26~~	~~Takeover Statutes Not Applicable; No Rights Agreement~~	~~A-31~~
~~3.27~~	~~Investment Securities~~	~~A-32~~
~~3.28~~	~~Capitalization~~	~~A-32~~
~~3.29~~	~~Banking, Anti-Corruption, Anti-Money Laundering and Customer Information Security Laws~~	~~A-32~~

~~Annex A-ii~~

~~3.30~~	~~Agreements with and Examination by Banking Authorities~~	~~A-33~~
~~3.31~~	~~Ownership of CBSI Common Stock~~	~~A-34~~
~~3.32~~	~~Disclosure~~	~~A-34~~
~~3.33~~	~~OneGroup.~~	~~A-34~~
~~3.34~~	~~Broker-Dealer and Investment Advisory Matters.~~	~~A-35~~

~~ARTICLE IV~~ Section 3.1 Disclosure Letters			~~REPRESENTATIONS AND WARRANTIES OF CBSI~~A-9	~~A-36~~
Section 3.2 Representations and Warranties of Merchants			A-9
Section 3.3 Representations and Warranties of Community			A-25
ARTICLE 4
~~4.1~~COVENANTS AND ADDITIONAL AGREEMENTS OF THE PARTIES	~~Capital Structure of CBSI~~	~~A-36~~
~~4.2~~	~~Organization, Standing and Authority of CBSI~~	~~A-36~~
~~4.3~~	~~Authorized and Effective Agreement~~	~~A-36~~
~~4.4~~	~~Regulatory Filings~~	~~A-37~~
~~4.5~~	~~SEC Documents; Financial Statements; Books and Records; Minute Books~~	~~A-37~~
~~4.6~~	~~Material Adverse Change~~	~~A-38~~
~~4.7~~	~~Absence of Undisclosed Liabilities~~	~~A-38~~
~~4.8~~	~~Properties~~	~~A-38~~
~~4.9~~	~~Tax Matters~~	~~A-38~~
~~4.10~~	~~Employee Benefit Plans~~	~~A-39~~
~~4.11~~	~~Legal Proceedings~~	~~A-39~~
~~4.12~~	~~Labor Matters~~	~~A-39~~
~~4.13~~	~~Brokers and Finders~~	~~A-40~~
~~4.14~~	~~Environmental Liability~~	~~A-40~~
~~4.15~~	~~Certain Information~~	~~A-40~~
~~4.16~~	~~Capitalization~~	~~A-41~~
~~4.17~~	~~Banking, Anti-Corruption, Anti-Money Laundering and Customer Information Security Laws~~	~~A-41~~
~~4.18~~	~~Agreements with and Examination by Banking Authorities~~	~~A-42~~
~~4.19~~	~~Disclosure~~	~~A-42~~
~~4.20~~	~~Merger Consideration~~	~~A-42~~

~~ARTICLE V~~ Section 4.1 Conduct of Business Prior to Effective Time			~~COVENANTS~~A-32	~~A-43~~
Section 4.2 Forbearances			A-32
Section 4.3 Litigation			A-35
Section 4.4 State Filings			A-35
Section 4.5 Merchants Stockholder Approval			A-35
Section 4.6 Listing of Community Common Stock			A-36
Section 4.7 Reasonable Best Efforts			A-36
Section 4.8 Applications and Consents			A-37
Section 4.9 Notification of Certain Matters			A-38
Section 4.10 Investigation and Confidentiality			A-38
Section 4.11 Press Releases; Publicity			A-39
Section 4.12 Acquisition Proposals			A-39
Section 4.13 Takeover Laws			A-40
Section 4.14 Employee Matters			A-41

TABLE OF CONTENTS


		Page
Section 4.15 Certain Policies			A-42
Section 4.16 Indemnification			A-42
Section 4.17 Merchants Debt			A-43
Section 4.18 Exemption from Liability under Section 16(b)			A-44
Section 4.19 Systems Integration			A-44
Section 4.20 Dividends			A-44
ARTICLE 5
~~5.1~~CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE	~~Shareholders’ Meeting~~	~~A-43~~
~~5.2~~	~~Proxy Statement; Registration Statement~~	~~A-44~~
~~5.3~~	~~Applications~~	~~A-44~~
~~5.4~~	~~Best Efforts~~	~~A-45~~
~~5.5~~	~~Investigation and Confidentiality~~	~~A-46~~
~~5.6~~	~~Press Releases and Other Public Disclosures~~	~~A-47~~
~~5.7~~	~~Actions Pending the Merger~~	~~A-47~~
~~5.8~~	~~Certain Policies~~	~~A-49~~
~~5.9~~	~~Employee Benefits; Directors and Management; Indemnification~~	~~A-50~~
~~5.10~~	~~Dividends; Termination of DRIP Plan~~	~~A-52~~
~~5.11~~	~~Takeover Laws~~	~~A-53~~
~~5.12~~	~~No Solicitation~~	~~A-53~~

~~ARTICLE VI~~ Section 5.1 Conditions to Obligations of Each Party			~~CONDITIONS PRECEDENT~~A-44	~~A-54~~
Section 5.2 Conditions to Obligations of Community			A-45
Section 5.3 Conditions to Obligations of Merchants			A-46
ARTICLE 6
~~6.1~~TERMINATION	~~Conditions Precedent to Obligations of CBSI and Oneida~~	~~A-54~~
~~6.2~~	~~Conditions Precedent to Obligations of Oneida~~	~~A-56~~

~~Annex A-iii~~

~~6.3~~	~~Conditions Precedent to Obligations of CBSI~~	~~A-57~~

~~ARTICLE VII~~ Section 6.1 Termination			~~TERMINATION~~A-46	~~A-58~~
Section 6.2 Termination Fee			A-48
Section 6.3 Effect of Termination			A-49
ARTICLE 7
~~7.1~~MISCELLANEOUS	~~Termination~~	~~A-58~~
~~7.2~~	~~Effect of Termination~~	~~A-60~~
~~7.3~~	~~Fee~~	~~A-60~~

~~ARTICLE VIII~~ Section 7.1 Definitions	~~MISCELLANEOUS~~	~~A-61~~
		A-50
~~8.1~~	~~Survival~~ Section 7.2 Non-Survival of Representations ~~Warranties~~ and ~~Covenants.~~Covenants			A-58	~~A-61~~
~~8.2~~ Section 7.3 Expenses			~~Amendment or Supplement~~A-58	~~A-61~~
~~8.3~~ Section 7.4 Entire Agreement			~~Waiver.~~A-58	~~A-61~~
~~8.4~~ Section 7.5 Amendments			~~Entire Agreement~~A-58	~~A-61~~
~~8.5~~ Section 7.6 Waivers			~~No Assignment~~A-58	~~A-62~~
~~8.6~~ Section 7.7 Assignment			~~Notices~~A-59	~~A-62~~
~~8.7~~ Section 7.8 Notices			~~Captions~~A-59	~~A-62~~
~~8.8~~ Section 7.9 Governing Law; Jurisdiction			~~Counterparts~~A-59	~~A-62~~
~~8.9~~ Section 7.10 Counterparts			~~Governing Law~~A-60	~~A-63~~
~~8.10~~ Section 7.11 Captions			A-60
Section 7.12 Interpretations			A-60
Section 7.13 Severability			A-60
Section 7.14 Waiver of Jury Trial			A-60	~~A-63~~

~~Annex A-iv~~

Section 7.15

Specific Performance

A-61

LIST OF EXHIBITS


Exhibit		Description
A		Form of Bank Merger Agreement
B		Stockholder Support Agreement Signatories
C		Form of Stockholder Support Agreement

A-ii

TABLE OF CONTENTS

AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER ~~(“Agreement”~~ (this “Agreement”) is made and entered into as of ~~February 24, 2015,~~October 22, 2016, by and between ~~COMMUNITY BANK SYSTEM, INC.~~Community Bank System, Inc., a Delaware corporation (“~~CBSI~~Community”), and ~~Oneida Financial Corp.~~Merchants Bancshares, Inc., a ~~Maryland~~Delaware corporation (“~~Oneida~~Merchants”).

Recitals

WHEREAS, ~~CBSI~~Community is a ~~stock-owned~~ bank holding company, the principal banking ~~subsidiary~~Subsidiary of which is Community Bank, N.A., a national banking association (“Community Bank”);

WHEREAS, ~~Oneida~~Merchants is a ~~stock-owned savings and loan~~bank holding company, the principal banking ~~subsidiaries~~Subsidiary of which ~~are The Oneida Savings~~is Merchants Bank, a ~~New York-chartered savings bank (“Oneida Savings Bank”) and The State Bank of Chittenango, a New York-chartered limited purpose~~Vermont-based commercial bank (“~~State~~Merchants Bank ~~of Chittenango~~”);

WHEREAS, the ~~respective~~ Boards of Directors of ~~CBSI~~Community and ~~Oneida~~Merchants have ~~each determined that it is~~approved this Agreement and the transactions described herein in accordance with the General Corporation Law of the State of Delaware (the “DGCL”) and have declared the same advisable and in the best interests of Community and Merchants, respectively, and their respective ~~shareholders~~stockholders;

WHEREAS, this Agreement provides for ~~CBSI~~the acquisition of Merchants by Community pursuant to ~~acquire Oneida through~~ the merger of Merchants with and into Community (the “Merger”) of Oneida with and into CBSI upon the terms and subject to the conditions set forth herein, and that the Merger presents an opportunity for their respective companies and shareholders to achieve long-term strategic and financial benefits;

~~WHEREAS~~~~, following~~. Following the consummation of the Merger, ~~Oneida Savings~~Merchants Bank ~~and State Bank of Chittenango, each of which shall become a wholly-owned subsidiary of CBSI as a result of the Merger,~~ shall merge (the “Bank ~~Mergers~~Merger”) with and into Community Bank, with Community Bank continuing as the surviving bank, pursuant to ~~a plan~~the terms of ~~merger;~~

the Agreement and Plan of Merger between Community Bank and Merchants Bank attached hereto asExhibit A (the “Bank Merger Agreement”);

WHEREAS, ~~in furtherance of such acquisition, the respective Boards of Directors of CBSI and Oneida have each approved this Agreement and~~for U.S. federal income tax purposes, it is intended that the Merger ~~in accordance with the General Corporation Law of the State of Delaware (the “DGCL”), the Maryland General Corporation Law (the “MGCL”), respectively, and upon the terms and conditions set forth herein;~~

~~WHEREAS~~~~, upon the consummation and effectiveness of the Merger, all of the issued and outstanding shares of common stock, par value $0.01 per share, of Oneida (“Oneida Common Stock~~”) shall ~~be converted into the right to receive, at the election of the holders thereof, shares of common stock, par value $1.00 per share, of CBSI (“CBSI Common Stock”) and/or cash, as provided inArticle II~~ ~~of this Agreement;~~

~~WHEREAS~~~~, the parties desire to effectuate the Merger~~qualify as a ~~tax free reorganization~~“reorganization” within the meaning of Section 368(a)~~(1)(A)~~ of the ~~Internal Revenue~~ Code, and this Agreement is intended to be and is adopted as a plan of ~~1986, as amended (the “Code”);~~

reorganization for purposes of Sections 354 and 361 of the Code; and

WHEREAS, concurrently with the execution and delivery of this Agreement, ~~and~~ as a condition and inducement to ~~CBSI’s~~Community’s willingness to enter into this Agreement, ~~all executive officers and directors~~each of ~~Oneida holding~~the individuals listed onExhibit B attached hereto who holds shares of ~~Oneida~~Merchants Common Stock ~~have entered into~~has executed and delivered to Community an agreement in substantially the form ofExhibit C attached hereto (each a ~~Voting Agreement (the~~ “~~Voting~~Stockholder Support Agreement”), ~~substantially in the form attached hereto asExhibit A; and~~

~~Annex A-1~~

~~WHEREAS,~~~~the parties desire~~pursuant to ~~make certain representations, warranties and agreements in connection with the Merger and also to prescribe certain conditions~~which they have agreed, among other things, subject to the ~~Merger.~~

terms of such Stockholder Support Agreement, to vote the shares of Merchants Common Stock held of record by such Persons or as to which they otherwise have beneficial ownership to adopt this Agreement.

NOW, THEREFORE, in consideration of the ~~foregoing~~above and the mutual warranties, representations, covenants, ~~representations,~~ and agreements set forth herein, ~~contained,~~ and for other good and valuable consideration, the receipt and sufficiency of which ~~are~~is hereby acknowledged, and intending to be legally bound hereby, the ~~parties~~Parties agree as follows:

ARTICLE 1

TRANSACTIONS AND TERMS OF MERGER

~~ARTICLE I~~

~~DEFINITIONS~~

“~~Agreement” is defined in the preamble hereof.~~

“~~All Cash Election” is defined in~~Section ~~2.2(a)(ii)~~1.1Merger ~~hereof.~~

“~~All Stock Election” is defined inSection 2.2(a)(i)~~ ~~hereof.~~

“~~Anti-Corruption Laws” is defined inSection 3.29(b)~~ ~~hereof.~~

“~~Anti-Money Laundering Laws” is defined inSection 3.29(c)~~ ~~hereof.~~

“~~Average Closing Price” is defined inSection 7.1(h)~~ ~~hereof.~~

“~~Bank Holding Company Act” shall mean the Bank Holding Company Act of 1956, as amended.~~

“~~Bank Mergers” is defined in the preamble of this Agreement.~~

“~~Bank Secrecy Act” shall mean the Bank Secrecy Act of 1970, Public Law 91-508, as amended, and any regulations promulgated thereunder.~~

“~~Cash Election Shares” is defined inSection 2.2(a)(ii)~~ ~~hereof.~~

“~~Cash Portion” is defined inSection 2.2(a)(iii)~~ ~~hereof.~~

“~~CBSI” is defined in the preamble of this Agreement.~~

“~~CBSI Common Stock” is defined in the preamble of this Agreement.~~

“~~CBSI Financial Statements~~” shall mean (i) the consolidated statements of condition of CBSI as of December 31, 2012, December 31, 2013 and September 30, 2014 and the related consolidated statements of income, cash flows and changes in shareholders’ equity (including related notes, if any) for the two years ended December 31, 2012 and 2013 and the nine months ended September 30, 2014, as filed by CBSI in its SEC Documents and (ii) the consolidated statements of condition of CBSI and related consolidated statements of income, cash flows and changes in shareholders’ equity (including related notes, if any) as filed by CBSI in its SEC Documents as of dates or with respect to periods ended subsequent to September 30, 2014.

~~Annex A-2~~

“~~CBSI Plan” is defined inSection 4.10~~ ~~hereof.~~

“~~CBSI Ratio” is defined inSection 7.1(h)(A)~~ ~~hereof.~~

“~~CERCLA” is defined inSection 3.20(a)~~ ~~hereof.~~

“~~Closing” shall mean the consummation of the Transactions.~~

“~~Closing Date” shall mean the date specified pursuant toSection 2.7~~ ~~hereof as the date on which the parties hereto shall close the Transactions.~~

“~~Code” is defined in the preamble of this Agreement.~~

“~~Commission” or “SEC” shall mean the Securities and Exchange Commission.~~

“~~Community Bank” is defined in the preamble of this Agreement.~~

“~~Community Reinvestment Act” shall mean title VIII of the Housing and Community Development Act of 1977, Public Law 95-128, as amended, and any regulations promulgated thereunder.~~

“~~Confidentiality Agreement” is defined inSection 5.5(f)~~ ~~hereof.~~

“~~Continuing Employees” is defined inSection 5.9(a)~~ ~~hereof.~~

“~~Delinquent Loan~~” shall mean (i) all Loans with principal and/or interest that are 30-89 days past due, (ii) all Loans with principal and/or interest that are at least 90 days past due and still accruing, (iii) all Loans with principal and/or interest that are nonaccruing, (iv) impaired Loans, including, without limitation, any Loans which constitute troubled debt restructurings under GAAP or applicable law, (v) OREO and (vi) net charge-offs from September 30, 2014 through the Closing Date.

“~~Determination Date” is defined inSection 7.1(h)~~ ~~hereof.~~

“~~DGCL” is defined in the preamble of this Agreement.~~

“~~Dodd-Frank Act” shall mean the Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111-203, as amended, and any regulations promulgated thereunder.~~

“~~DRIP Plan” means the Direct Stock Purchase and Dividend Reinvestment Plan maintained by Oneida.~~

“~~Effective Time” is defined inSection 2.1(b)~~ ~~hereof.~~

“~~Election” is defined inSection 2.2(c)~~ ~~hereof.~~

~~Annex A-3~~

“~~Election Deadline” is defined inSection 2.2(c)~~ ~~hereof.~~

“~~Election Form” is defined inSection 2.2(c)~~ ~~hereof.~~

“~~Electronic Funds Transfer Act” shall mean Public Law 95-630, as amended, and any regulations promulgated thereunder.~~

“~~Environmental Costs and Liabilities~~” shall mean any and all losses, liabilities, obligations, damages, fines, penalties, judgments, actions, claims, costs and expenses (including, without limitation, fees, disbursements and expenses of legal counsel, experts, engineers and consultants and the costs of investigation and feasibility studies and remedial activities) arising from or under any Environmental Law or order or contract with any governmental authority or any other Person.

“~~Environmental Law” shall mean any federal, state, local or foreign law (including any common law), statute, code, ordinance, rule, regulation or other requirement relating~~. Subject to the ~~environment, natural resources or public or employee health~~terms and safety, and includes, but is not limited to, CERCLA, the Hazardous Materials Transportation Act, 49 U.S.C. § 1801 et seq., as amended, the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq., as amended, the Clean Water Act, 33 U.S.C. § 2601 et seq., as amended, the Toxic Substances Control Act, 15 U.S.C. § 6901 et seq., as amended, the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. § 136 et seq., as amended, the Oil Pollution Act of 1990, 33 U.S.C. § 2701 et seq., as amended, and the Occupational Safety and Health Act, 29 U.S.C. § 6901 et seq., as amended.

“~~Equal Credit Opportunity Act” means the Equal Credit Opportunity Act of 1974, 15 U.S.C. § 1691~~~~et seq~~~~.,as amended, and any regulations promulgated thereunder.~~

“~~ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.~~

“~~ERISA Affiliate” is defined inSection 3.13(a)~~ ~~hereof.~~

“~~Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.~~

“~~Exchange Agent” is defined inSection 2.4(a)~~ ~~hereof.~~

“~~Exchange Ratio” shall mean 0.5635 shares of CBSI Common Stock for each whole share of Oneida Common Stock.~~

“~~Fair Credit Reporting Act” shall mean title VI of Public Law 91-508, as amended, and any regulations promulgated thereunder.~~

“~~Fair Debt Collection Practices Act” shall mean Public Law 95-109, 15 U.S.C. § 1692~~~~et seq~~~~., as amended, and any regulations promulgated thereunder.~~

“~~Fair Housing Act” shall mean title VIII of the Civil Rights Act of 1968, Public Law 90-284, as amended, and any regulations promulgated thereunder.~~

~~Annex A-4~~

“~~FDIA” shall mean the Federal Deposit Insurance Act.~~

“~~FDIC” shall mean the Federal Deposit Insurance Corporation.~~

“~~Federal Reserve Act” shall mean Public Law 63-43, 12 U.S.C. § 221~~~~et seq~~~~., as amended, and any regulations promulgated thereunder.~~

“~~Federal Reserve Board” shall mean the Board of Governors of the Federal Reserve System.~~

“~~Fee” is defined inSection 7.3(b)~~ ~~hereof.~~

“~~Final Index Price” is defined inSection 7.1(h)~~ ~~hereof.~~

“~~Foreign Corrupt Practices Act” shall mean Public Law 95-213, 15 U.S.C. § 78dd-1~~~~et seq~~~~., as amended, and any regulations promulgated thereunder.~~

“~~GAAP” shall mean U.S. generally accepted accounting principles.~~

“~~Gramm-Leach-Bliley Act” shall mean Public Law 106-102, as amended, and any regulations promulgated thereunder.~~

“~~Hazardous Materials~~” shall mean any petroleum or petroleum products, radioactive materials, asbestos containing materials, radon gas, PCBs and any other hazardous or toxic substance, material or waste which is or becomes regulated under, or defined as a “hazardous substance,” “pollutant,” “contaminant,” “toxic chemical,” “hazardous materials,” “toxic substance” or “hazardous chemical” under any Environmental Law.

“~~HOLA” shall mean the Home Owners’ Loan Act, as amended.~~

“~~Home Mortgage Disclosure Act” shall mean Public Law 94-200, 12 U.S.C. § 2801~~~~et seq~~~~., as amended, and any regulations promulgated thereunder.~~

“~~Indemnified Party” is defined inSection 5.9(g)~~ ~~hereof.~~

“~~Index Price” is defined inSection 7.1(h)~~ ~~hereof.~~

“~~Index Ratio” is defined inSection 7.1(h)(B) hereof~~.

“~~Intellectual Property~~” shall mean domestic and foreign letters patent, patents, patent applications, patent licenses, software license-d or owned, know-how licenses, trade names, common law and other trademarks, service marks, licenses of trademarks, trade names and/or service marks, trademark registrations and applications, service mark registrations and applications and copyright registrations and applications.

“~~Interagency Policy Statement” shall mean the Interagency Statement on Retail Sales of Nondeposit Investment Products issued by the FDIC, the OCC and the Federal Reserve Board.~~

~~Annex A-5~~

“~~IRS” means the United States Department of the Treasury, Internal Revenue Service.~~

“~~Knowledge~~” shall mean the actual knowledge, after due inquiry: with respect to Oneida, of the following Persons: Michael R. Kallet, Eric E. Stickels, Deresa F. Durkee, John F. Catanzarita, Pierre J. Morrisseau, and Donald J. Abernathy; and with respect to CBSI, of the following Persons: Mark E. Tryniski, Scott A. Kingsley, Brian D. Donahue, George J. Getman and Joseph F. Serbun.

“~~Loan” is defined inSection 3.11(a)~~ ~~hereof.~~

“~~Material Adverse Effect~~” shall mean, with respect to any party, a material adverse effect on the business, results of operations or financial condition of such party and its Subsidiaries, taken as a whole, or a material adverse effect on such party’s ability to consummate the Transactions;~~provided~~,~~however~~, that in determining whether a Material Adverse Effect has occurred there shall be excluded any effect on the referenced party the primary cause of which is (i) any change in banking or similar laws, rules or regulations of general applicability or interpretations thereof by courts or governmental authorities, (ii) any change in GAAP or regulatory accounting requirements applicable to FDIC insured depository institutions or their holding companies generally, (iii) general changes in conditions including interest rates, in the banking industry or in the global or United States economy or financial markets, with respect to clause (i), (ii) or (iii), to the extent that such a change does not materially affect the referenced party to a materially different extent than other similarly situated banking organizations, (iv) the announcement of this Agreement and the Transactions contemplated thereby, and compliance with this Agreement, on the business, customer relations, financial condition or results of operations of the parties and their respective Subsidiaries, including expenses incurred by the parties hereto in ~~consummating the Transactions contemplated by this Agreement and (v) any action or omission of the referenced party or any of its Subsidiaries taken~~accordance with the ~~prior written consent of~~DGCL, at the ~~other party to this Agreement in contemplation of the Merger.~~

“~~Merger” is defined in the preamble of this Agreement.~~

“~~Merger Consideration” is~~Effective Time (as defined inSection ~~2.2~~1.4 ~~hereof.~~

“~~MGCL” is defined in the preamble of this Agreement.~~

“~~Mixed Election” is defined inSection 2.2(a)(iii)~~ ~~hereof.~~

“~~Mixed Election Shares” is defined inSection 2.2(a)(iii)~~ ~~hereof.~~

“~~NASDAQ” shall mean The NASDAQ Stock Market operated by The NASDAQ OMX Group, Inc~~.

“~~New Director” is defined inSection 5.9(f)~~ ~~hereof.~~

“~~Non-election Shares” is defined inSection 2.2(a)(iv)~~ ~~hereof.~~

~~Annex A-6~~

“~~NYSE” shall mean the New York Stock Exchange operated by Intercontinental Exchange, Inc.~~

“~~OCC” shall mean the United States Department of the Treasury, Office of the Comptroller of Currency.~~

“~~OneGroup” means OneGroup NY, Inc.~~herein), ~~a wholly owned Subsidiary of Oneida Savings Bank, which is engaged in the business of providing insurance brokerage services and benefits and risk management consulting services.~~

“~~Oneida” is defined in the preamble of this Agreement.~~

“~~Oneida Banks” means Oneida Savings Bank and State Bank of Chittenango.~~

“~~Oneida Cash Incentive Plans” shall mean the Oneida Financial Corp. Performance Based Compensation Plan and the Oneida Savings Bank Performance Based Compensation Plan.~~

“~~Oneida Common Stock” is defined in the preamble of this Agreement.~~

“~~Oneida Financial Statements~~” shall mean (i) the consolidated statements of condition of Oneida as of December 31, 2012, December 31, 2013 and September 30, 2014, as filed by Oneida in its SEC Documents and the related consolidated statements of income, cash flows and changes in shareholders’ equity (including related notes, if any) for the two years ended December 31, 2012 and 2013 and the nine months ended September 30, 2014 and (ii) the consolidated statements of condition of Oneida and related consolidated statements of income, cash flows and changes in shareholders’ equity (including related notes, if any) as filed by Oneida in its SEC Documents as of dates or with respect to periods ended subsequent to September 30, 2014.

“~~Oneida Option~~” means all Rights to acquire shares of Oneida Common Stock or any other equity securities of Oneida granted under any stock option plan, program or agreement maintained by Oneida or any of its Subsidiaries or to which Oneida or any of its Subsidiaries is a party.

“~~Oneida Plan” is defined inSection 3.13~~ ~~hereof.~~

“~~Oneida Restricted Stock” is defined inSection 2.2(l)~~ ~~hereof.~~

“~~Oneida Savings Bank” is defined in the preamble of this Agreement.~~

“~~Oneida Shareholders’ Meeting” shall mean the special meeting of the shareholders of Oneida to be called for the purpose of approving this Agreement and the Transactions.~~

“~~Option Consideration” is defined inSection 2.2(k)~~ ~~hereof.~~

“~~OREO” is defined inSection 3.11(b)~~ ~~hereof.~~

~~Annex A-7~~

“~~Person~~” shall mean an individual, corporation, partnership, bank, limited liability company, trust, association, unincorporated organization, other entity or group (as defined in Section 13(d)(3) of the Exchange Act).

“~~Preferred Stock” shall mean the 10,000,000 authorized shares of preferred stock of Oneida, none of which are issued or outstanding.~~

“~~Previously Disclosed~~” shall mean disclosed prior to the execution hereof in (i) an SEC Document filed with the SEC subsequent to December 31, 2011, or (ii) a schedule dated of even date herewith from the party making such disclosure and delivered to the other party prior to the execution hereof. Any information Previously Disclosed for any purpose hereunder shall be deemed to be disclosed for all purposes hereunder provided that the relevance of the disclosed information to the representations or warranties in question is reasonably apparent. The inclusion of any matter Previously Disclosed shall not be deemed an admission or otherwise to imply that any such matter is material for purposes of this Agreement.

“~~Proxy Statement/Prospectus~~” shall mean the proxy statement/prospectus (or similar documents) together with any supplements thereto and related materials sent to the shareholders of Oneida to solicit their votes in connection with this Agreement and the Merger.

“~~Registration Statement” shall mean the registration statement under the Securities Act covering the shares of CBSI Common Stock to be issued in connection with the Merger.~~

“~~Registration Statement Effective Date” is defined inSection 5.1(a)~~ ~~hereof.~~

“~~Related Party~~” shall mean a 5%-or-greater shareholder of Oneida, a director or executive officer of Oneida or any of its Subsidiaries, or any member of such Person’s family, or any corporation, partnership, limited liability company, other business entity or trust in which such Person or any member of such Person’s family has greater than a ten percent (10%) interest, or of which such Person or any member of such Person’s family is an officer, director, partner, member or trustee.

“~~Related Party Transaction” is defined inSection 3.25~~ ~~hereof.~~

“~~RESPA” means the Real Estate Settlement Procedures Act, Public Law 95-533, 12 U.S.C. § 2601~~~~et seq~~~~., as amended, and any regulations promulgated thereunder.~~

“~~Rights~~” shall mean warrants, options, rights, convertible securities and other arrangements or commitments which obligate an entity to issue or dispose of any of its capital stock, and stock appreciation rights, performance units and other similar stock-based rights whether they obligate the issuer thereof to issue stock or other securities or to pay cash.

“~~S.A.F.E. Act” shall mean the Secure and Fair Enforcement for Mortgage Licensing Act of 2008, title V of Public Law 110-289, 12 U.S.C. § 5100~~~~et seq~~~~, as amended, and any regulations promulgated thereunder.~~

“~~Sanctioned Country” is defined inSection 3.29(d)~~ ~~hereof.~~

~~Annex A-8~~

“~~Sanctions” is defined inSection 3.29(d)~~ ~~hereof.~~

“~~Sarbanes-Oxley Act” shall mean the Sarbanes-Oxley Act of 2002, Public Law 107-204, as amended, and any regulations promulgated thereunder.~~

“~~SEC Documents” shall mean all publically available reports and registration statements filed, or required to be filed, by a party hereto pursuant to the Securities Laws.~~

“~~Securities Act” shall mean the Securities Act of 1933, as amended.~~

“~~Securities Laws~~” shall mean the Securities Act; the Exchange Act; the Investment Company Act of 1940, as amended; the Investment Advisers Act of 1940, as amended; the Trust Indenture Act of 1939, as amended; and the rules and regulations of the Commission promulgated thereunder.

“~~Starting Date” is defined inSection 7.1(h)~~ ~~hereof.~~

“~~Starting Price” is defined inSection 7.1(h)~~ ~~hereof.~~

“~~State Bank of Chittenango” is defined in the preamble of this Agreement.~~

“~~Stock Election Shares” is defined inSection 2.2(a)(i)~~ ~~hereof.~~

“~~Stock Portion” is defined inSection 2.2(a)(iii)~~ ~~hereof.~~

“~~Subsidiary” shall mean with respect to any party, any Person which is consolidated with such party for financial reporting purposes;provided~~,~~however, that “Subsidiary” shall not include any subsidiary trust formed for the purpose of issuing trust preferred or similar securities.~~

“~~Superior Proposal” is defined inSection 5.12(b)(i)~~ ~~hereof.~~

“~~Surviving Corporation” is defined inSection 2.1(a)~~ ~~hereof.~~

“~~Takeover Law~~” shall mean (a) any law or regulation regulating hostile takeovers, or mergers, business combinations, sale of control, affiliate transactions involving interested shareholders or related parties, or (b) any antitrust law or regulation which is applicable to the Transactions.

“~~Takeover Proposal” is defined inSection 5.12(a)~~ ~~hereof.~~

“~~Tax Returns~~” shall mean all returns, reports, estimates, information statements or other written submissions, and any schedules or attachments thereto, required or permitted to be filed pursuant to the statutes, rules and regulations of any federal, state, local or foreign government Tax authority, including but not limited to, original returns and filings, amended returns, claims for refunds, information returns and accounting method change requests.

~~Annex A-9~~

“~~Taxes~~” shall mean all taxes, however denominated, including any interest, penalties, criminal sanctions or additions to tax (including, without limitation, any underpayment penalties for insufficient estimated tax payments) or other additional amounts that may become payable in respect thereof (or in respect of a failure to file any Tax Return when and as required), imposed by any federal, state, local or foreign government or any agency or political subdivision of any such government, which taxes shall include, without limiting the generality of the foregoing, all income taxes, payroll and employment taxes, withholding taxes (including withholding taxes in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder or other Person or entity), unemployment insurance taxes, social security (or similar) taxes, sales and use taxes, excise taxes, franchise taxes, gross receipts taxes, occupation taxes, real and personal property taxes, stamp taxes, value added taxes, transfer taxes, profits or windfall profits taxes, licenses in the nature of taxes, estimated taxes, severance taxes, duties (custom and others), workers’ compensation taxes, premium taxes, environmental taxes (including taxes under Section 59A of the Code), disability taxes, registration taxes, alternative or add-on minimum taxes, estimated taxes, and other fees, assessments, charges or obligations of the same or of a similar nature.

“~~Transaction Documents” shall mean, collectively, the Voting Agreements, and certificates and other documents contemplated thereby or by this Agreement in order to consummate the Transactions.~~

“~~Transactions” shall mean the Merger of Oneida with and into CBSI, the Bank Mergers, and the other transactions contemplated by this Agreement.~~

“~~Truth in Lending Act” shall mean title I of the Consumer Credit Protection Act, Public Law 90-321, as amended, and any regulations promulgated thereunder.~~

“~~USA PATRIOT Act” means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, as amended, and any regulations promulgated thereunder.~~

“~~Voting Agreement” is defined in the preamble of this Agreement.~~

For purposes of this Agreement, the terms “Oneida,” “Oneida Savings Bank,” “State Bank of Chittenango,” “CBSI,” “Community Bank” and “Subsidiary” include all of the respective predecessors thereof (including without limitation, any previously acquired Person).

~~Annex A-10~~

~~ARTICLE II~~

~~THE MERGER~~

~~2.1.~~ ~~The Merger~~.

~~(a) At the Effective Time, and upon the terms and subject to the conditions of this Agreement, Oneida~~Merchants shall be merged with and into ~~CBSI,~~Community. Community shall be the surviving corporation (the “Surviving Corporation”) resulting from the Merger and the separate corporate existence of Merchants shall thereupon cease. Community shall continue to be governed by the Laws of the State of Delaware, and the separate corporate existence of Community with all of its rights, privileges, immunities, powers and franchises shall continue unaffected by the Merger.

Section 1.2Bank Merger. Prior to the Effective Time, Community and Merchants shall cause Community Bank and Merchants Bank, respectively, to execute the Bank Merger Agreement. Subject to the terms and conditions of this Agreement and the Bank Merger Agreement, Merchants Bank shall be merged with and into Community Bank in accordance with the provisions of 12 U.S.C. Section 215a-1 and with the effect provided in 12 U.S.C. Section 215a-1. Community Bank shall be the surviving bank resulting from the Bank Merger and the separate existence of ~~Oneida~~Merchants Bank shall ~~cease and CBSI~~thereupon cease. Community Bank shall continue asto be governed by the ~~surviving corporation. CBSI as~~Laws of the ~~surviving corporation~~United States, and the separate existence of Community Bank

TABLE OF CONTENTS

with all of its rights, privileges, immunities, powers and franchises shall continue unaffected by the Bank Merger. Subject to the satisfaction of the conditions to closing set forth in the Bank Merger Agreement, the Bank Merger shall occur immediately following the Merger unless otherwise determined by Community in its sole discretion.

Section 1.3Closing. Subject to the terms and conditions of this Agreement, the closing of the Merger (the “Closing”) shall take place at 10:00 a.m., New York City time, at the offices of Cadwalader, Wickersham & Taft LLP, 200 Liberty Street, New York, New York 10281, on a date which shall be no later than three (3) Business Days after the ~~Merger~~satisfaction or waiver (subject to applicable Law) of the latest to occur of the conditions set forth inArticle 5 hereof (other than those conditions that by their nature can only be satisfied at the Closing, but subject to the satisfaction or waiver thereof), unless another date, time or place is ~~hereinafter sometimes referred~~agreed to asin writing by Community and Merchants (the date on which the Closing occurs, the “~~Surviving Corporation~~Closing Date”).

Section 1.4Effective Time.”

~~(b) At or contemporaneously with~~ Subject to the terms and conditions of this Agreement, on the Closing Date, the ~~parties~~Parties shall cause ~~the Merger~~ to be ~~consummated by filing a certificate of merger or articles of merger as contemplated by the DGCL and/or the MGCL, together with any required related documents,~~filed with the Secretary of State of the State of Delaware a certificate of merger (the “Certificate of Merger”) as provided in Section 251 of the DGCL. The Merger shall become effective as of the date and time that the ~~Department~~Certificate of ~~Assessments and Taxation~~Merger is duly filed with the Secretary of State of the State of ~~Maryland,~~Delaware, or such later time as is agreed upon by Community and Merchants and specified in ~~such form as required by,~~the Certificate of Merger (such date and ~~executed in accordance with,~~time when the ~~relevant provisions of the DGCL and/or the MGCL (the time of the last of such filings being~~Merger becomes effective, the “Effective Time”).

~~2.2.~~ Section 1.5~~Merger Consideration~~Organizational Documents of Surviving Corporation; Directors and Officers. ~~Subject~~(a) The Organizational Documents of Community in effect immediately prior to ~~the provisions of this Agreement, at~~ the Effective Time ~~automatically~~shall be the Organizational Documents of the Surviving Corporation after the Effective Time until otherwise amended or repealed.

(b) The directors of Community immediately prior to the Effective Time shall be the directors of the Surviving Corporation as of the Effective Time;provided,however, that effective immediately after the Effective Time, Community shall expand the size of its Board of Directors, and shall cause Community Bank to expand the size of its Board of Directors, by two (2) seats and appoint two (2) directors of Merchants who would each qualify as an “Independent Outside Director” of Community under ISS Guidelines and who meet all legal and regulatory requirements for serving on the Board of Directors of Community Bank, in each case as mutually agreed upon by Community and Merchants (the “Merchants Director Designees”) to serve on the Board of Directors of each of the Surviving Corporation and Community Bank. The Merchants Director Designees shall be appointed to the Board of Directors of the Surviving Corporation such that (x) one (1) Merchants Director Designee is appointed to the class of directors of the Surviving Corporation with terms expiring at the second annual meeting of stockholders occurring after the Effective Time and (y) one (1) Merchants Director Designee is appointed to the class of directors of the Surviving Corporation with terms expiring at the third annual meeting of stockholders occurring after the Effective Time. The officers of Community immediately prior to the Effective Time shall be the officers of the Surviving Corporation as of the Effective Time, until the earlier of their resignation or removal or otherwise ceasing to be an officer or until their respective successors are duly elected and qualified, as the case may be.

Section 1.6Tax Consequences. It is intended that the Merger shall qualify as a “reorganization” within the meaning of Section 368(a) of the Code, and this Agreement is intended to be and is adopted as a “plan of reorganization” for the purposes of Sections 354 and 361 of the Code.

Section 1.7Structure Change. Community may at any time change the method of effecting the Merger and the Bank Merger (including by providing for the merger of Merchants with a wholly-owned Subsidiary of Community) if and to the extent requested by Community, and Merchants agrees to enter into such amendments to this Agreement as Community may reasonably request in order to give effect to such restructuring;provided,however, that no such change or amendment shall (a) alter or change the amount or kind of the Merger Consideration provided for in this Agreement, (b) adversely affect the Tax treatment of the Merger with respect to Merchants’ stockholders or prevent the rendering of the opinions contemplated inSections 5.2(d) and5.3(d), (c) be reasonably likely to cause the Closing to be prevented or materially delayed or the receipt of the Requisite Regulatory Approvals to be prevented or materially delayed or (d) require submission to or approval of the Merchants stockholders after the plan of merger set forth herein has been adopted by the Merchants stockholders.

TABLE OF CONTENTS

ARTICLE 2

TREATMENT OF SECURITIES

Section 2.1Treatment of Common Stock. (a)Treatment of Merchants Common Stock. At the Effective Time, by virtue of the Merger and without any action on the part of the Parties or holders of any ~~Person,~~securities of Merchants or of Community, subject toSection 2.1(c) and any applicable withholding Tax, each share of ~~Oneida~~Merchants Common Stock issued and outstanding immediately prior to the Effective Time (other than Merchants Shares to be cancelled in accordance withSection 2.1(b), Merchants Restricted Shares and other than any Proposed Dissenting Shares) shall be automatically converted into the right to receive, at the election of the holder thereof in accordance with, and subject to, the terms, conditions and procedures set forth in thisArticle 2 (including the proration procedures inSection 2.2(c)) and subject to potential adjustment as provided inSection 6.1(h), the following consideration (collectively, the “Merger Consideration”), in each case without interest: (i) the combination (such election, a “Mixed Election”) of (A) $12.00 in cash (the “Mixed Cash Consideration”) and (B) 0.6741 validly issued, fully paid and non-assessable Community Shares (the “Mixed Stock Consideration” and, together with the Mixed Cash Consideration, the “Mixed Election Consideration”); (ii) (such election, a “Cash Election”) $40.00 in cash (the “Cash Election Consideration”); or (iii) (such election, a “Stock Election”) 0.9630 validly issued, fully paid and nonassessable Community Shares (such number of Community Shares, the “Stock Election Consideration”), without interest. From and after the Effective Time, all such Merchants Shares shall no longer be outstanding and shall automatically be cancelled and shall cease to exist, and each applicable holder of such Merchants Shares shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration therefor upon the surrender of such Merchants Shares in accordance withSection 2.2(c) orSection 2.3(b) or in accordance withSection 2.5, as applicable, including the right to receive, pursuant toSection 2.7, cash in lieu of fractional shares of Community Common Stock, if any, into which such Merchants Shares have been converted pursuant to thisSection 2.1(a) (the “Fractional Share Consideration”), together with the amounts, if any, payable pursuant toSection 2.3(f).

(b)Cancellation of Merchants Common Stock. At the Effective Time, all Merchants Shares owned by any of the Parties or by any of their respective Subsidiaries (other than any such shares owned in a fiduciary capacity or as a result of debts previously contracted) shall be cancelled and shall cease to exist, and no consideration shall be delivered in exchange therefor.

(c)Adjustment to Merger Consideration. The Merger Consideration shall be adjusted appropriately to reflect the effect of any stock split, reverse stock split, stock dividend (including any dividend or distribution of securities convertible into Merchants Common Stock or Community Common Stock, as applicable), reorganization, recapitalization, reclassification, combination, exchange of shares or other like change with respect to the number of shares of Merchants Common Stock or Community Common Stock outstanding after the date hereof and prior to the Effective Time.

(d)Community Common Stock. At and after the Effective Time, each share of Community Common Stock issued and outstanding immediately prior to the Effective Time shall ~~be converted at the election of the holder thereof (in accordance with the election~~remain an issued and ~~allocation procedures set forth in thisSection 2.2) into either (i) shares of CBSI Common Stock based upon the Exchange Ratio; (ii) cash, at the rate of $20.00 for each~~outstanding share of ~~Oneida Common Stock; or (iii) a combination of such shares of CBSI~~Community Common Stock and ~~cash, as more fully set forth inSection 2.2(a)(iii)~~ ~~(the shares of CBSI Common Stock issuable and the cash payable in connection with the Merger sometimes being referred to as the “Merger Consideration”).~~

~~(a)~~ ~~Election as to Outstanding Oneida Common Stock. The shareholders of Oneida~~ shall not be ~~given the following options in connection with the exchange of their Oneida Common Stock pursuant to the Merger:~~

(i) At the option of each holder of Oneida Common Stock, all of such holder’s Oneida Common Stock shall be converted into the right to receive such number of shares of CBSI Common Stock equal to the number of shares of Oneida Common Stock held by such holder multipliedaffected by the ~~Exchange Ratio (such~~Merger.

Section 2.2Election and Proration Procedures. (a) An election ~~the “All Stock Election” and such shares, the “Stock Election Shares”), provided that:~~

~~(A) Fractional shares will not be issued and cash (payable by check) will be paid in lieu thereof as provided inSection 2.2(j); and~~

~~(B) After giving effect toSection 2.2(a)(i), (ii), and (iii)~~, in no event shall, in the aggregate, more than sixty percent (60%) of Oneida Common Stock issued and outstanding immediately prior to the Effective Time be converted into and become shares of CBSI Common Stock; or

~~Annex A-11~~

(ii) At the option of each holder of Oneida Common Stock, all of such holder’s Oneida Common Stock shall be converted into the right to receive cash (payable by check) in an amount equal to the number of shares of Oneida Common Stock held by such holder multiplied by $20.00 (such election, the “~~All Cash Election” and such shares, the “Cash Election Shares”), provided that:~~

~~(A) After giving effect toSection 2.2(a)(i), (ii), and (iii), in no event shall, in the aggregate, more than forty percent (40%) of Oneida Common Stock issued and outstanding immediately prior to the Effective Time be converted into and become cash; or~~

~~(iii) At the option of each holder of Oneida Common Stock, sixty percent (60%) of such holder’s aggregate number of shares of Oneida Common Stock (the “Stock Portion~~”) shall be converted into the right to receive such number of shares of CBSI Common Stock equal to the number of shares of Oneida Common Stock in the Stock Portion multiplied by the Exchange Ratio, and forty percent (40%) of such holder’s aggregate number of shares of Oneida Common Stock (the “~~Cash Portion~~”) shall be converted into the right to receive cash (payable by check) in an amount equal to the number of shares of Oneida Common Stock in the Cash Portion multiplied by $20.00 (such election, the “~~Mixed Election” and such shares, the “Mixed Election Shares”), provided that:~~

~~(A) Fractional shares will not be issued and cash (payable by check) will be paid in lieu thereof as provided inSection 2.2(j); and~~

~~(B) After giving effect toSection 2.2(a)(i), (ii) and (iii)~~, in no event shall, in the aggregate, more than sixty percent (60%) of Oneida Common Stock issued and outstanding immediately prior to the Effective Time be converted into and become shares of CBSI Common Stock;

~~(C) After giving effect toSection 2.2(a)(i), (ii), and (iii), in no event shall, in the aggregate, more than forty percent (40%) of Oneida Common Stock issued and outstanding immediately prior to the Effective Time be converted into and become cash; or~~

(iv) If the holder of Oneida Common Stock indicates on the Election Form that such record holder has no preference as to the receipt of cash or CBSI Common Stock for such shares, or if no election is validly made by a holder by the Election Deadline pursuant to~~Section 2.2(d)~~ (“~~Non-election Shares”), all of such holder’s shares of Oneida Common Stock shall be converted into the right to receive CBSI Common Stock as set forth inSection 2.2(a)(i), cash as set forth inSection 2.2(a)(ii), or any combination of CBSI Common Stock and cash as determined by CBSI;provided~~,~~however, that no fractional shares shall be issued and cash will be paid in lieu thereof as provided inSection 2.2(j). Prior to any allocation of Cash Election Shares, Stock Election Shares or Mixed Election Shares pursuant toSection 2.2(f) and (g), such Non-election Shares of Oneida Common Stock shall be allocated by CBSI on a~~~~pro rata~~ basis among non-electing holders based upon the number of shares of Oneida Common Stock for which an election has not been received by the Election Deadline in order to achieve the overall ratio of sixty percent (60%) of Oneida Common Stock to be converted into CBSI Common Stock and forty percent (40%) of Oneida Common Stock to be converted into cash. Notice of such allocation shall be provided promptly to each holder of Non-election Shares whose shares of Oneida Common Stock are allocated pursuant to this~~Section 2.2(a)(iv)~~.

~~Annex A-12~~

~~(b)~~ ~~Treasury Shares and Shares Held by CBSI~~. There are no shares of Oneida Common Stock or Preferred Stock held in treasury by Oneida. Each share of Oneida Common Stock owned by any Subsidiary of Oneida, CBSI or any Subsidiary of CBSI (in each case other than in a fiduciary capacity) immediately prior to the Effective Time shall be cancelled without any conversion thereof and no payment or distribution shall be made with respect thereto.

~~(c)~~ ~~Procedures for Election. CBSI shall prepare an election~~ form ~~and other appropriate and customary transmittal materials~~ in such form as isCommunity shall reasonably specify and as shall be reasonably acceptable to ~~Oneida~~Merchants (the “Election Form”) ~~which~~ shall be mailed on a date to ~~Oneida’s shareholders of record five (5) business~~be mutually agreed by the Parties that is not more than forty-five (45) days nor less than thirty (30) days prior to the ~~mailing~~anticipated Closing Date or on such other date so as ~~to permit Oneida’s shareholders to exercise their right to validly elect~~ the ~~form of Merger Consideration~~Parties shall mutually agree (the “~~Election~~Mailing Date”) ~~set forth inSection 2.2(a)~~to each holder of record of Merchants Common Stock as of the close of business on the fifth (5^th) Business Day prior to the Mailing Date (the “Election ~~Deadline, subject~~Form Record Date”).

(b) Community shall make available one or more Election Forms as may reasonably be requested from time to ~~the allocation and election procedures set forth in thisSection 2.2. CBSI shall mail~~time by all Persons who become holders (or beneficial owners) of Merchants Common Stock between the Election Form ~~no later than twenty (20) days~~Record Date and the close of business on the Business Day prior to the Election Deadline, and Merchants shall ~~use reasonable efforts~~provide to make available as promptly as possible a duplicate Election Form to any shareholder of Oneida who requests such Election Form following the initial mailing of the Election Forms and prior to the Election Deadline. As used herein, “~~Election Deadline~~” means 5:00 p.m. on the date selected by CBSI as the last day on which Election Forms may be validly returned by Oneida shareholders, which day shall be not less than twenty (20) days after the initial mailing of the Election Forms and be no later than five (5) days prior to the Closing Date.

~~(d)~~ ~~Perfection of the Election. Any Election shall have been made properly only if~~ the Exchange Agent all information reasonably necessary for it to perform as specified herein.

TABLE OF CONTENTS

(c) Each Election Form shall ~~have received by 5:00 p.m. local time in~~permit the ~~city in~~holder (or the beneficial owner through appropriate and customary documentation and instructions) to specify (x) the number of shares of such holder’s Merchants Common Stock with respect to which such holder makes a Mixed Election (each such share, a “Mixed Election Share”), (y) the number of shares of such holder’s Merchants Common Stock with respect to which such holder makes a Cash Election (each such share, a “Cash Election Share”), and (z) the number of shares of such holder’s Merchants Common Stock with respect to which such holder makes a Stock Election (each such share, a “Stock Election Share”). Any Merchants Shares with respect to which the ~~principal office of such~~ Exchange Agent ~~is located, on the date of~~has not received an effective, properly completed Election Form (including duly executed transmittal materials included with the Election ~~Deadline, an Election Form properly completed and signed and~~Form), accompanied by ~~certificates of the shares of Oneida Common Stock~~any Merchants Certificates or Book-Entry Shares to which such Election Form ~~applies~~relates, or by an appropriate customary ~~guarantee~~guaranty of delivery of ~~such certificates, as set forth in such Election Form,~~the related Merchants Certificates from a member of any registered national securities exchange or a commercial bank or trust company in the United ~~States; provided, that~~States, on or before 5:00 p.m., Eastern Time, on the twenty-fifth (25^th) day following the Mailing Date (or such ~~certificates are~~other time and date as the Parties shall agree) (the “Election Deadline”) (other than Merchants Shares to be cancelled in fact delivered to the Exchange Agent by the time required in such guarantee of delivery. Failure to deliver shares of Oneida Common Stock covered by such a guarantee of delivery within the time set forth on such guaranteeaccordance withSection 2.1(b), Merchants Restricted Shares and Proposed Dissenting Shares) shall be deemed to ~~invalidate any otherwise properly~~be “No Election Shares,” and the holders of such No Election Shares shall be deemed to have made a Mixed Election ~~unless otherwise determined by CBSI, in its sole discretion. Oneida and CBSI~~with respect to such No Election Shares. The Parties shall cooperate to issue a press release reasonably satisfactory to each of them announcing the date of the Election Deadline not more than fifteen (15) ~~business days~~Business Days before, and at least five (5) ~~business days~~Business Days prior to, the Election Deadline.

~~(e)~~ ~~Withdrawal of Shares. Any holder of Oneida Common Stock may at any time prior to~~ Not later than ten (10) Business Days after the Election Deadline, ~~revoke~~unless the ~~holder’s~~Effective Time has not yet occurred, in which case as soon after the Effective Time as is reasonably practicable, Community shall cause the Exchange Agent to effect the following prorations to the Merger Consideration:

(i) If the Cash Election Amount is greater than the Available Cash Election Amount, then each Cash Election Share shall, instead of being converted into the Cash Election Consideration, be converted into the right to receive (A) an amount of cash (without interest) equal to the product of the Cash Election Consideration,multiplied by a fraction, (1) the numerator of which shall be the Available Cash Election Amount and (2) the denominator of which shall be the Cash Election Amount (such fraction, the “Cash Fraction”), and (B) a number of validly issued, fully paid and nonassessable Community Shares equal to the product of the Stock Election Considerationmultiplied by a fraction equal to one (1)minus the Cash Fraction.

(ii) If the Available Cash Election Amount is greater than the Cash Election Amount, then each Stock Election Share shall, instead of being converted into the right to receive the Stock Election Consideration, be converted into the right to receive (A) an amount of cash (without interest) equal to the amount of such excessdivided by the number of Stock Election Shares, and (B) a number of validly issued, fully paid and nonassessable Community Shares equal to the product of the Stock Election Considerationmultiplied by a fraction, the numerator of which shall be the difference between (I) the Cash Election Considerationminus (II) the amount calculated in clause (A) of this paragraph, and the denominator of which shall be the Cash Election Consideration.

(d) Any election ~~and either (i) submit~~shall have been properly made only if the Exchange Agent shall have actually received a ~~new~~properly completed Election Form ~~in accordance~~(including duly executed transmittal materials included with the ~~procedures~~Election Form), accompanied by any Merchants Certificates or Book-Entry Shares to which such Election Form relates, or by an appropriate customary guaranty of delivery of the related Merchants Certificates from a member of any registered national securities exchange or a commercial bank or trust company in~~Section 2.2(d)~~, the United States, by the Election Deadline. Any Election Form may be revoked or ~~(ii) withdraw~~changed by the ~~certificate(s) for Oneida Common Stock deposited therewith~~authorized Person properly submitting such Election Form, by ~~providing~~ written notice ~~that is~~ received by the Exchange Agent ~~by 5:00 p.m., local time for the Exchange Agent, on~~prior to the Election Deadline. In the event an Election Form is revoked prior to the Election Deadline, the shares of Merchants Common Stock represented by such Election Form shall become No Election Shares, except to the ~~termination~~extent a subsequent election is properly made with respect to any or all of such shares of Merchants Common Stock prior to the Election Deadline. Subject to the terms of this Agreement and of the Election Form, the Exchange Agent shall ~~return~~have reasonable discretion to determine whether any ~~certificates deposited by the holder of Oneida Common Stock to such holder at the address~~election, revocation or change has been properly or timely made and to ~~the Person set forth~~disregard immaterial defects in the Election ~~Form.~~Forms, and any good faith

TABLE OF CONTENTS

~~Annex A-13~~

~~(f)~~ ~~Reduction of Shares Deposited for Cash. If more than forty percent (40%)~~decisions of the ~~total number~~Exchange Agent regarding such matters shall be binding and conclusive. None of Community, Merchants, or the Exchange Agent shall be under any obligation to notify any Person of any defect in an Election Form.

Section 2.3Payment for Securities; Surrender of Merchants Certificates.

(a)Exchange Fund. Prior to the Effective Time, Community shall designate a bank or trust company reasonably acceptable to Merchants to act as the exchange agent in connection with the Merger (the “Exchange Agent”). The Exchange Agent shall also act as the agent for Merchants’ stockholders (other than with respect to Merchants Restricted Shares) for the purpose of receiving and holding their Election Forms and Merchants Certificates and Book-Entry Shares and shall obtain no rights or interests in the shares represented thereby. At or prior to the Closing, Community shall deposit, or cause to be deposited, with the Exchange Agent (i) evidence of Community Common Stock issuable pursuant toSection 2.1(a) in book-entry form equal to the aggregate Community Common Stock portion of the Merger Consideration (excluding any Fractional Share Consideration), and (ii) cash in immediately available funds in an amount sufficient to pay the aggregate cash portion of the Merger Consideration, Fractional Share Consideration and any dividends underSection 2.3(f) (such evidence of book-entry shares of Community Common Stock and cash amounts, together with any dividends or other distributions with respect thereto, the “Exchange Fund”), in each case, for the sole benefit of the holders of shares of ~~Oneida~~Merchants Common Stock. In the event the Exchange Fund shall be insufficient to pay the aggregate cash portion of the Merger Consideration, Fractional Share Consideration and any dividends underSection 2.3(f), Community shall promptly deposit additional funds with the Exchange Agent in an amount which is equal to the deficiency in the amount required to make such payment. Community shall cause the Exchange Agent to make, and the Exchange Agent shall make, delivery of the Merger Consideration, including payment of the Fractional Share Consideration, and any amounts payable in respect of dividends or other distributions on shares of Community Common Stock ~~issued and outstanding at~~(other than with respect to Merchants Restricted Shares) in accordance withSection 2.3(f) out of the ~~Election Deadline, have been deposited~~Exchange Fund in accordance with this Agreement. The Exchange Fund shall not be used for ~~exchange with~~any purpose that is not expressly provided for in this Agreement. The cash ~~pursuant to~~portion of the ~~All Cash Election and/or the Mixed Election and not withdrawn pursuant toSection 2.2(e), CBSI will cause to~~Exchange Fund shall be ~~eliminated~~invested by the Exchange Agent ~~from~~as reasonably directed by Community;provided,however,that (x) no such investment or loss thereon shall affect the ~~shares deposited~~amounts payable to holders of Merchants Certificates or Book-Entry Shares pursuant to ~~the All Cash Election (subject~~this Article 2 and (y) no such investment shall have maturities that would reasonably be expected to ~~the limitations described inSection 2.2(f)(iv)), a sufficient number of such shares so that the total number of shares remaining on deposit for exchange into cash~~prevent or delay payments to be made pursuant to this Agreement. Any interest and other income resulting from such investments shall be paid to Community on the ~~All Cash Election and~~earlier of (A) one (1) year after the ~~Mixed Election does not exceed forty percent (40%)~~Effective Time or (B) the full payment of the ~~shares of Oneida Common Stock issued and outstanding on the Election Deadline. The holders of Oneida Common Stock who have made the Mixed Election shall not be required to have~~Exchange Fund.

(b)Procedures for Surrender. Promptly (but no more than ~~sixty percent (60%) of their shares of Oneida Common Stock converted into CBSI Common Stock. After giving effect toSection 2.2(a)(iv), such elimination will be effected as follows:~~

~~(i) Subject to the limitations described inSection 2.2(f)(iv)~~, CBSI will eliminate or cause to be eliminated from the shares deposited pursuant to the All Cash Election, and will add or cause to be added to the shares deposited for CBSI Common Stock pursuant to the All Stock Election, on a~~pro rata~~ ~~basis in relation to the total number of shares deposited pursuant to the All Cash Election minus the number of shares so deposited by the holders described inSection 2.2(f)(iv)~~, such number of whole shares of Oneida Common Stock on deposit for cash pursuant to the All Cash Election as may be necessary so that the total number of shares remaining on deposit for cash pursuant to the All Cash Election or the Mixed Election is equal, as nearly as practicable, to forty percent (40%) of the shares of Oneida Common Stock issued and outstanding immediately prior tofive (5) Business Days) after the Effective ~~Time;~~

~~(ii) All shares of Oneida Common Stock that are eliminated pursuant toSection 2.2(f)(i)~~ ~~from the shares deposited for cash pursuant to All Cash Election~~Time, Community shall ~~be converted into CBSI Common Stock as provided bySection 2.2(a)(i)~~;

(iii) Notice of such allocation shall be provided by CBSI or the Exchange Agent promptly after the Election Deadline to each holder whose shares of Oneida Common Stock are eliminated from the shares on deposit for exchange with cash pursuant to~~Section 2.2(f)(i); and~~

(iv) Notwithstanding the foregoing, the holders of one hundred (100) or fewer shares of Oneida Common Stock of record on the date of this Agreement who have elected the All Cash Election shall not be required to have any of their shares of Oneida Common Stock converted into CBSI Common Stock.

~~(g)~~ ~~Increase of Shares Deposited for Cash~~. If fewer than forty percent (40%) of the total number of shares of Oneida Common Stock issued and outstanding have, at the Election Deadline, been deposited for cash pursuant to the All Cash Election and/or the Mixed Election and not withdrawn pursuant to~~Section 2.2(e), CBSI will promptly add, or~~ cause ~~to be added by~~ the Exchange Agent to ~~such deposited shares, a sufficient number of shares of Oneida Common Stock deposited~~mail (and make available for shares of CBSI Common Stock pursuant to the All Stock Election so that the total number of shares of Oneida Common Stock on deposit for cash pursuant to the All Cash Election and the Mixed Election immediately prior to the Effective Time is not less than forty percent (40%) of the shares of Oneida Common Stock issued and outstanding immediately prior to the Effective Time. The holders of Oneida Common Stock who have elected to have their shares converted pursuant to the Mixed Election shall not be required to have more than forty percent (40%) of their shares of Oneida Common Stock converted into cash. After giving effect to~~Section 2.2(a)(iv), such addition will be effected as follows:~~

~~Annex A-14~~

(i) CBSI will cause to be added to the shares deposited for cash pursuant to the All Cash Election or the Mixed Election, and will eliminate or cause to be eliminated from the shares deposited for CBSI Common Stock pursuant to the All Stock Election, on a~~pro rata~~ basis in relation to the total number of shares of Oneida Common Stock deposited for shares of CBSI Common Stock pursuant to the All Stock Election, such number of whole shares of Oneida Common Stock not then on deposit for cash as may be necessary so that the number of shares remaining on deposit for exchange with cash is equal, as nearly as practicable, to forty percent (40%) of the shares of Oneida Common Stock issued and outstanding immediately prior to the Effective Time;

~~(ii) All shares of Oneida Common Stock that are added pursuant toSection 2.2(g)(i)~~ ~~to the shares deposited for cash shall be converted into cash as provided~~collection by~~Section 2.2(a)(ii); and~~

~~(iii) Notice of such allocation shall be provided by CBSI or the Exchange Agent promptly after the Election Deadline~~ hand) to each holder ~~whose shares~~ of ~~Oneida Common Stock are added to the shares on deposit for cash pursuant toSection 2.2(g)(i)~~.

~~(h)~~ ~~CBSI Common Stock. Each share of CBSI Common Stock outstanding immediately prior to the Effective Time shall remain unchanged and shall constitute the common stock of the Surviving Corporation.~~

~~(i)~~ ~~Adjustments to Exchange Ratio~~. If, subsequent to the date of this Agreement but prior to the Effective Time, the outstanding shares of CBSI Common Stock or Oneida Common Stock shall be increased, decreased, changed into or exchanged for a different number of shares, in each case by reason of any stock split, recapitalization, or reclassification or other similar change, the Exchange Ratio shall be adjusted proportionately.

~~(j)~~ ~~Fractional Shares. No certificates or scrip representing less than one share of CBSI Common Stock shall be issued upon the surrender for exchange~~record of a certificate or certificates which immediately prior to the Effective Time represented outstanding Merchants Shares (the “Merchants Certificates”) or non-certificated Merchants Shares represented by book-entry (“Book-Entry Shares”) and whose Merchants Shares were converted pursuant toSection 2.1 into the right to receive the Merger Consideration and who has not theretofore submitted its Merchants Certificates or Book-Entry Shares with an Election Form (i) a letter of transmittal, which shall specify that delivery shall be effected, and risk of loss and title to the Merchants Certificates shall pass, only upon delivery of the Merchants Certificates (or affidavits of loss in lieu thereof) to the Exchange Agent and shall be in such form and have such other provisions as Community may reasonably specify and (ii) instructions for effecting the surrender of the Merchants Certificates (or affidavits of loss in lieu thereof) or Book-Entry Shares in exchange for payment of the Merger Consideration into which such Merchants Shares have been converted pursuant toSection 2.1, including any amount payable in respect of Fractional Share Consideration in accordance withSection 2.7, and any dividends or other distributions on shares of ~~Oneida~~Community Common ~~Stock. In~~Stock in accordance withSection 2.3(f). Upon surrender of a Merchants Certificate (or an affidavit of loss in lieu thereof) or Book-Entry Share for cancellation to the Exchange Agent or to such other agent or agents as may be appointed by Community, together with such letter of ~~any~~transmittal or Election Form duly completed and validly executed in accordance with the instructions thereto, and such ~~fractional share, each~~other documents as may be required pursuant to such instructions, the holder of such ~~shares who would otherwise have been~~Merchants Certificate or Book-Entry Share shall be entitled to ~~a fraction of a share of CBSI Common Stock, upon surrender of certificates representing shares of Oneida Common Stock for~~receive in exchange ~~shall be paid upon such surrender cash (without interest) in an amount equal to such fraction multiplied by $20.00.~~

~~Annex A-15~~

~~(k)~~ ~~Oneida Options. Subject~~therefor the applicable Merger Consideration pursuant to the provisions of this ~~Agreement, at~~Article 2,

TABLE OF CONTENTS

any Fractional Share Consideration that such holder has the ~~Effective Time, automatically~~right to receive pursuant to the provisions ofSection 2.7, and any amounts that such holder has the right to receive in respect of dividends or other distributions on shares of Community Common Stock in accordance withSection 2.3(f) for each Merchants Share formerly represented by ~~virtue~~such Merchants Certificate or Book-Entry Share, to be mailed (or made available for collection by hand if so elected by the surrendering holder) within five (5) Business Days following the later to occur of (x) the completion of the prorations to the Merger Consideration as described inSection 2.2(c) and (y) the Exchange Agent’s receipt of such Merchants Certificate (or affidavit of loss in lieu thereof) or Book-Entry Share, and the Merchants Certificate or Book-Entry Share so surrendered shall be forthwith cancelled. The Exchange Agent shall accept such Merchants Certificates (or affidavits of loss in lieu thereof) or Book-Entry Shares upon compliance with such reasonable terms and conditions as the Exchange Agent may impose to effect an orderly exchange thereof in accordance with normal exchange practices. If payment of the Merger Consideration is to be made to a Person other than the Person in whose name the surrendered Merchants Certificate is registered, it shall be a condition precedent of payment that (A) the Merchants Certificate so surrendered shall be properly endorsed or shall be otherwise in proper form for transfer and ~~without~~(B) the Person requesting such payment shall have paid any ~~action on~~transfer and other similar Taxes required by reason of the ~~part~~payment of ~~any~~the Merger Consideration to a Person ~~each Oneida Option which is outstanding, unexpired and unexercised immediately prior~~other than the registered holder of the Merchants Certificate surrendered or shall have established to the ~~Effective Time, whether~~satisfaction of Community that such Tax either has been paid or is not ~~previously vested~~required to be paid. Payment of the applicable Merger Consideration with respect to Book-Entry Shares shall only be made to the Person in whose name such Book-Entry Shares are registered. Until surrendered as contemplated by thisSection 2.3, each Merchants Certificate and ~~exercisable,~~Book-Entry Share shall be ~~cancelled and the holder thereof shall receive, no later than the first payroll payment date~~deemed at any time after the Effective Time ~~a cash payment equal~~ to represent only the product obtained by multiplying (i) the aggregate number of shares of Oneida Common Stock that were issuable upon the exercise of such Oneida Option and (ii) $20.00, less any exercise price payable pursuant to such Oneida Option, without interest, less any required withholdings (the “~~Option Consideration”). In the event any Oneida Option is subject to Section 409A of the Code, the payment of the Option Consideration shall be delayed to the extent necessary to comply with Section 409A of the Code.~~

~~(l)~~ ~~Oneida Stock Awards~~. Subject to the provisions of this Agreement, at the Effective Time, automatically by virtue of the Merger and without any action on the part of any Person, each restricted stock award issued pursuant to Oneida’s 2012 Equity Incentive Plan (“~~Oneida Restricted Stock~~”) that is outstanding immediately prior to the Effective Time shall vest in full and the restrictions thereon shall lapse, and, as of the Effective Time, each such share of Oneida Common Stock shall be entitledright to receive the applicable Merger Consideration as contemplated by thisArticle 2, including any amount payable in respect of Fractional Share Consideration in accordance withSection ~~2.2~~2.7.

~~2.3.~~ ~~Effect of Merger~~.

~~Upon the Effective Time of the Merger:~~

~~(a) The certificate of incorporation~~, and bylaws of CBSI, each as in effect immediately prior to the Effective Time, shall be the certificate of incorporation and bylaws, respectively, of the Surviving Corporation, in each case until amended in accordance with the DGCL.

(b) All respective assets, rights, franchises, and interest of Oneida and CBSI in and to every type of property shall be vested in the Surviving Corporation by virtue of the Merger without any ~~deed~~dividends or other ~~transfer; and the Surviving Corporation, without any order or other action~~distributions on the part of any court or otherwise, shall hold and enjoy all rights of property, franchises and interest, in the same manner and to the same extent as such rights, franchises and interests were held and enjoyed by Oneida and CBSI immediately prior to the Effective Time.

(c) The Surviving Corporation shall be liable for all of the liabilities of Oneida and CBSI and shall be bound by and subject to all of the obligations and contracts of Oneida and CBSI, provided that nothing in this Agreement shall render the Surviving Corporation liable for a liability or obligation of Oneida, the satisfaction of which is subject to the prior approval or consent of any regulatory authority, unless such regulatory approval or consent has been obtained. All rights of creditors and obligees and all liens on property of Oneida and CBSI shall be preserved and unimpaired.

(d) The directors and officers of CBSI immediately prior to the Effective Time shall be the directors and officers, respectively, of the Surviving Corporation, with the addition of the New Directors pursuant to~~Section 5.9(f)~~.

~~Annex A-16~~

~~2.4.~~ ~~Procedure to Exchange Shares~~.

(a) At or prior to the Effective Time, CBSI shall cause to be deposited with American Stock Transfer & Trust Company or another financial institution experienced in serving as an exchange agent for a public company merger (the “~~Exchange Agent”), for exchange in accordance with thisArticle II, the aggregate number of~~ shares of ~~CBSI Common Stock, cash, by wire transfer of immediately available funds, into which the outstanding shares of Oneida Common Stock shall be converted pursuant toSection 2.2~~ ~~of this Agreement and an estimated amount of cash, by wire transfer of immediately available funds, into which any fractional shares of Oneida Common Stock shall be converted pursuant toSection 2.2(j)~~. As soon as practical after the Effective Time, but no later than five (5) business days after the Effective Time, CBSI shall cause the Exchange Agent to mail to each holder of record of Oneida Common Stock who theretofore has not submitted such holder’s shares of Oneida Common Stock with an Election Form, a letter of transmittal in customary form specifying the procedures for delivery of such holders’ shares of Oneida Common Stock to the Exchange Agent in exchange for the Merger Consideration and cash in lieu of fractional shares issuable pursuant to this~~Article II~~. Upon surrender to the Exchange Agent of its shares of Oneida Common Stock in the manner set forth in the letter of transmittal, accompanied by a properly completed letter of transmittal, a holder of Oneida Common Stock will be entitled to receive the Merger Consideration promptly after the Effective Time, determined as provided in~~Section 2.2~~. Until so surrendered, each share of Oneida Common Stock shall represent after the Effective Time, for all purposes, only the right to receive, without interest, the applicable Merger Consideration and any cash in lieu of fractional shares of CBSI Common Stock to be issued or paid in consideration therefor upon surrender of such share of OneidaCommunity Common Stock in accordance with ~~thisArticle II~~Section 2.3(f).

(b) No dividends or other distributions declared after the Effective Time with respect to CBSI Common Stock shall be paid to the holder of any unsurrendered share of Oneida Common Stock until such holder shall surrender such certificate in accordance with this Agreement. After the surrender of a share of Oneida Common Stock in accordance with this Agreement, the record holder thereof shall be entitled to receive any such dividends or other distributions,, without ~~any~~ interest ~~thereon, which theretofore have become payable with respect to shares of CBSI Common Stock.~~

thereon.

(c)Transfer Books; No Further Ownership Rights in Merchants Shares. At the Effective Time, the stock transfer books of ~~Oneida~~Merchants shall be closed and thereafter there shall be no ~~transfer~~further registration of ~~Oneida Common Stock~~transfers of Merchants Shares on the records of Merchants. From and after the Effective Time, the holders of Merchants Certificates or Book-Entry Shares (including, for the avoidance of doubt, Merchants Restricted Shares) outstanding immediately prior to the Effective Time shall ~~thereafter be made~~cease to have any rights with respect to such Merchants Shares except as otherwise provided for herein or ~~recognized.~~by applicable Law. If, after the Effective Time, ~~shares~~Merchants Certificates or Book-Entry Shares (including, for the avoidance of ~~Oneida Common Stock~~doubt, Merchants Restricted Shares) are presented to the Surviving Corporation for ~~transfer,~~any reason, they shall be cancelled and exchanged ~~for the Merger Consideration~~ as provided in this~~Section 2.4~~.

Agreement.

(d) InTermination of Exchange Fund; No Liability. At any time following twelve (12) months after the ~~event~~Effective Time, Community shall be entitled to require the Exchange Agent to deliver to it any ~~certificate evidencing shares~~funds (including any interest received with respect thereto) remaining in the Exchange Fund that have not been disbursed, or for which disbursement is pending subject only to the Exchange Agent’s routine administrative procedures, to holders of ~~Oneida Common Stock~~Merchants Certificates or Book-Entry Shares, and thereafter such holders shall ~~have been lost, stolen, destroyed~~be entitled to look only to Community (subject to abandoned property, escheat or mutilated, upon the making of an affidavit of that fact by the Person claiming such certificate to be lost, stolen, destroyed or mutilated and, if required by CBSI, the making of an indemnity agreement in a form reasonably requested by CBSI and/or the posting by such Person of a bond in such amountother similar Laws) as ~~CBSI may reasonably direct as indemnity against any claim that may be made against it~~general creditors thereof with respect to ~~such certificate,~~the applicable Merger Consideration, including any amount payable in respect of Fractional Share Consideration in accordance withSection 2.7, and any dividends or other distributions on shares of Community Common Stock in accordance withSection 2.3(f), payable upon due surrender of their Merchants Certificates or Book-Entry Shares and compliance with the procedures inSection 2.3(b), without any interest thereon. Notwithstanding the foregoing, neither Community nor the Exchange Agent ~~will issue in exchange for such lost, stolen, destroyed or mutilated certificate the Merger Consideration deliverable in respect thereof pursuant to this Agreement.~~

~~Annex A-17~~

~~(e) Neither CBSI nor Oneida~~ shall be liable to any holder of ~~shares of Oneida Common Stock~~a Merchants Certificate or Book-Entry Share for any Merger Consideration or other amounts delivered to a public official pursuant to any applicable abandoned property, escheat or similar ~~law. After~~Law.

(e)Lost, Stolen or Destroyed Merchants Certificates. In the ~~first anniversary~~event that any Merchants Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or destroyed Merchants Certificates, upon the making of an affidavit of that fact by the holder thereof, the applicable Merger Consideration payable in respect thereof pursuant toSection 2.1 hereof, including any amount payable in respect of Fractional Share Consideration in accordance withSection 2.7, and any dividends or other distributions on shares of Community Common Stock in accordance withSection 2.3(f).

TABLE OF CONTENTS

(f)Dividends or Distributions with Respect to Community Common Stock. No dividends or other distributions with respect to Community Common Stock with a record date after the Effective Time shall be paid to the holder of any unsurrendered Merchants Certificate or Book-Entry Share with respect to the shares of Community Common Stock issuable hereunder, and all such dividends and other distributions shall be paid by Community to the Exchange Agent and shall be included in the Exchange Fund, in each case until the surrender of such Merchants Certificate or Book-Entry Share (or affidavit of loss in lieu thereof) in accordance with this Agreement. Subject to applicable Laws, following surrender of any such Merchants Certificate or Book-Entry Share (or affidavit of loss in lieu thereof) there shall be paid to the holder thereof, without interest, (i) the amount of dividends or other distributions with a record date after the Effective Time theretofore paid with respect to such shares of Community Common Stock to which such holder is entitled pursuant to this Agreement and (ii) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time but prior to such surrender and with a payment date subsequent to such surrender payable with respect to such shares of Community Common Stock.

Section 2.4Dissenters’ Rights. (a) Notwithstanding anything in this Agreement to the contrary, Merchants Shares issued and outstanding immediately prior to the Effective Time and held by a holder of record who did not vote in favor of the adoption of this Agreement (or consent thereto in writing) and is entitled to demand and properly demands appraisal of such Merchants Shares (“Dissenting Shares”) pursuant to, and who complies in all respects with, Section 262 of the DGCL (the “Appraisal Rights”) shall not be converted into the right to receive the Merger Consideration payable pursuant toSection 2.1, but instead at the Effective Time shall be converted into the right to receive payment of the fair value of such Merchants Shares in accordance with the Appraisal Rights (it being understood and acknowledged that at the Effective Time, such Dissenting Shares shall no longer be outstanding, shall automatically be cancelled and shall cease to exist, and such holder shall cease to have any rights with respect thereto other than the right to receive the appraised value of such Dissenting Shares to the extent afforded by the Appraisal Rights);provided,however, that if any such holder (including any holder of Proposed Dissenting Shares) shall fail to perfect or otherwise shall waive, withdraw or lose the right to payment of the fair value of such Dissenting Shares under the Appraisal Rights, then the right of such holder to be paid the fair value of such holder’s Dissenting Shares shall cease and such Dissenting Shares shall be deemed to have been converted as of the Effective Time ~~CBSI~~into, and to have become exchangeable solely for the right to receive, without interest or duplication, the Mixed Election Consideration. “Proposed Dissenting Shares” means shares of Merchants Common Stock whose holders provide demands for appraisal to Merchants prior to the Merchants Stockholder Meeting and do not vote in favor of the adoption of this Agreement, in each case in accordance with the Appraisal Rights.

(b) Merchants shall give prompt notice to Community of any demands received by Merchants for appraisal of any Merchants Shares, of any withdrawals of such demands and of any other instruments served pursuant to the DGCL and received by Merchants relating to Appraisal Rights, and Community shall have the opportunity to participate in and direct all negotiations and proceedings with respect to such demands. Prior to the Effective Time, Merchants shall not, without the prior written consent of Community, make any payment with respect to, or settle or compromise or offer to settle or compromise, any such demand, or agree to do any of the foregoing.

Section 2.5Treatment of Merchants Equity Awards. (a) As of the Effective Time, each option to purchase Merchants Common Stock granted under any Merchants Benefit Plan that is outstanding and unexercised immediately prior to the Effective Time (a “Merchants Stock Option”), whether or not then vested or exercisable, shall, automatically and without any action on behalf of the holder thereof, be cancelled and converted into a right of the former holder of such Merchants Stock Option to receive the applicable Merchants Stock Option Consideration. For purposes of this Agreement, the “Merchants Stock Option Consideration” means, with respect to a Merchants Stock Option, an amount of cash, without interest, equal to the product of (x) the number of shares of Merchants Common Stock underlying such Merchants Stock Optionmultiplied by (y) the excess, if any, of the Per Share Merger Consideration Value over the exercise price per share of such Merchants Stock Option. “Per Share Merger Consideration Value” means (i) the Mixed Cash Considerationplus (ii) the value equal to the Mixed Stock Considerationmultiplied by the Average Trading Price.

TABLE OF CONTENTS

(b) As of the Effective Time, notwithstanding anything to the contrary contained herein, each share of Merchants Common Stock subject to vesting or forfeiture restrictions and granted under any Merchants Benefit Plan that is outstanding immediately prior to the Effective Time (a “Merchants Restricted Share”), whether or not then vested, shall, automatically and without any action on behalf of the holder thereof, vest in full and the restrictions thereon shall lapse, and such Merchants Restricted Share shall be cancelled and converted into a right of the former holder of such Merchants Restricted Share to receive an amount of cash, without interest, equal to the Per Share Merger Consideration Value plus all dividends, if any, accrued but unpaid as of the Effective Time with respect to such Merchants Restricted Share.

(c) Prior to the Effective Time, Merchants or its Board of Directors or a committee thereof, as applicable, shall pass resolutions and take any actions as are necessary to effectuate the provisions of thisSection 2.5.

(d) Subject toSection 2.6, promptly following the Effective Time but no later than thirty (30) days following the Effective Time, any amounts due to the former holders of Merchants Stock Options and Merchants Restricted Shares pursuant to thisSection 2.5 shall be paid through the payroll system of the Surviving Corporation or one of its Subsidiaries;provided,however, that, to the extent any such amounts constitute nonqualified deferred compensation subject to Section 409A of the Code, such amounts shall be paid at the earliest time permitted under the terms of the applicable plan that will not trigger a Tax or penalty under Section 409A of the Code.

Section 2.6Withholding. Community shall be entitled to ~~instruct~~deduct and withhold, or cause the Exchange Agent or the Surviving Corporation or any of its Subsidiaries to ~~release~~deduct and withhold, from the consideration otherwise payable to ~~CBSI~~a holder of Merchants Common Stock, Merchants Stock Options or Merchants Restricted Shares pursuant to this Agreement, any amounts as are required to be withheld or deducted with respect to such consideration under the Code, or any applicable provisions of state, local or foreign Tax Law. To the extent that amounts are so withheld and timely remitted to the appropriate Governmental Authority, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of Merchants Common Stock, Merchants Stock Options or Merchants Restricted Shares in respect of which such deduction and withholding was made.

Section 2.7Fractional Shares. No certificate or scrip representing fractional shares of Community Common Stock shall be issued upon the surrender for exchange of Merchants Certificates or Book-Entry Shares, and such fractional share interests shall not entitle the owner thereof to vote or to any other rights of a stockholder of Community. Notwithstanding any other provision of this Agreement, each holder of shares of Merchants Common Stock converted pursuant to the Merger who would otherwise have been entitled to receive a fraction of a share of Community Common Stock shall receive, in lieu thereof, cash, without interest, in an amount equal to such fractional part of a share of Community Common Stockmultiplied by the Average Trading Price (rounded to the nearest whole cent).

Section 2.8Warrants. (a) As of the ~~shares~~Effective Time, each outstanding Organizers’ Warrant shall become and be converted into a warrant to acquire, upon the payment of ~~CBSI Common Stock and cash then remaining undistributed to former shareholders~~the Adjusted Organizers’ Warrant Exercise Price on or before the expiration date of ~~Oneida. Thereafter, CBSI~~the Organizers’ Warrants (which expiration date shall ~~deliver~~not be affected by the ~~appropriate~~Merger), that number of shares of ~~CBSI~~Community Common Stock ~~and/~~determined by multiplying (i) the number of shares of Merchants Common Stock which may be acquired upon exercise of such Organizers’ Warrant immediately prior to the Effective Time by (ii) the Stock Election Consideration (the “Adjusted Organizers’ Warrant Share Number”), and each holder of an Organizers’ Warrant shall, upon surrender of the certificate for such Organizers’ Warrant to Community, receive in exchange therefor a new Warrant certificate issued by Community and reflecting the Adjusted Organizers’ Warrant Share Number and the Adjusted Organizers’ Warrant Exercise Price for such Organizers’ Warrant and containing all other terms as in the certificate for the Organizers’ Warrant so surrendered, with appropriate provision being made with respect to the rights and interests of such holder in accordance with the terms of the applicable Organizers’ Warrant (a “Replacement Organizers’ Warrant Certificate”). For purposes of this Agreement, the term “Adjusted Organizers’ Warrant Exercise Price” means the adjusted per share exercise price of the Organizers’ Warrant determined by dividing the per share exercise price immediately prior to the Effective Time by the Stock Election Consideration.

TABLE OF CONTENTS

(b) As of the Effective Time, each outstanding 2013 Warrant shall become and be converted into the right to receive, upon election of the holder thereof, (i) the 2013 Warrant Cash Payment; or (ii) a ~~check for~~Replacement 2013 Warrant Certificate with respect to such 2013 Warrant. For the purposes of this Agreement:

(i) “Adjusted 2013 Warrant Exercise Price” means, with respect to a 2013 Warrant, the adjusted per share exercise price of the 2013 Warrants determined by dividing the per share 2013 Warrant exercise price immediately prior to the Effective Time by the Stock Election Consideration;

(ii) “Adjusted 2013 Warrant Share Number” means, with respect to a 2013 Warrant, that number of shares of Community Common Stock determined by multiplying (x) the number of shares of Merchants Common Stock which may be acquired upon the exercise of such 2013 Warrant immediately prior to the Effective Time by (y) the Stock Election Consideration;

(iii) “2013 Warrant Cash Payment” means, with respect to a 2013 Warrant, a cash payment in ~~lieu~~cancellation of ~~fractional~~such 2013 Warrant equal to (x) the number of shares of Merchants Common Stock which may be acquired upon the exercise of such 2013 Warrantmultiplied by (y) the excess, if any, ~~from time to time, as shares~~ of ~~Oneida Common Stock,~~ the ~~accompanying letter of transmittal and other related documents are presented~~Cash Election Consideration over the per share 2013 Warrant exercise price immediately prior to the ~~Exchange Agent or CBSI, until at such time as such shares~~Effective Time; and ~~cash are delivered~~

(iv) “Replacement 2013 Warrant Certificate” means, with respect to a ~~public official pursuant~~2013 Warrant, a replacement warrant certificate issued by Community and representing the right to ~~any applicable abandoned property, escheat or similar law.~~

~~2.5.~~ ~~Tax Treatment. The parties hereto intend that~~acquire prior to the ~~Merger qualify as a tax-free reorganization under Section 368(a) of the Code and that this Agreement shall constitute a plan of reorganization as that term is used in Sections 354 and 361 of the Code.~~

~~2.6.~~ ~~Modification of Structure. Upon the mutual written consent of Oneida and CBSI~~2013 Warrant expiration date (which ~~consent on the part of Oneida~~expiration date shall not be ~~unreasonably withheld~~affected by the Merger) that number of shares of Community Common Stock equal to the Adjusted 2013 Warrant Share Number, at a price per share equal to the Adjusted 2013 Warrant Exercise Price, and containing all other terms as in the certificate for the 2013 Warrant so surrendered, with appropriate provision being made with respect to the rights and interests of the holder thereof in accordance with the terms of the 2013 Warrant.

(c) Community and Merchants will cooperate in providing all notices and communications to the holders of Merchants Warrants, and in taking all necessary or ~~delayed)~~appropriate actions to facilitate the exercise of the election referred to inSection 2.8(b) prior to the Effective Time, and the adjustments and issuance of replacement certificates referenced inSections 2.8(a) and(b).

ARTICLE 3

REPRESENTATIONS AND WARRANTIES

Section 3.1Disclosure Letters. Concurrently with the execution and delivery of this Agreement, Merchants has delivered to Community and Community has delivered to Merchants a letter (the “Merchants Disclosure Letter” and the “Community Disclosure Letter,” respectively) setting forth, among other things, items the disclosure of which is necessary or appropriate either in response to an express disclosure requirement contained in a provision hereof or as an exception to one or more of Merchants’ or Community’s, respectively, representations or warranties contained in thisArticle 3 or to one or more of its covenants contained inArticle 4;provided, that (a) no such item is required to be set forth in the Merchants Disclosure Letter or at the ~~request~~Community Disclosure Letter as an exception to any representation or warranty of Merchants or Community, respectively, if its absence would not result in the related representation or warranty being deemed untrue or incorrect, and (b) the mere inclusion of an item in the Merchants Disclosure Letter or the Community Disclosure Letter as an exception to a representation or warranty shall not be deemed an admission by Merchants or Community, respectively, that such item represents a material exception or fact, event or circumstance or that such item would reasonably be expected to result in a Material Adverse Effect on Merchants or Community, respectively. Any disclosures made with respect to a subsection ofSection 3.2 orSection 3.3 shall be deemed to qualify any ~~regulatory authority, CBSI shall have~~other subsections ofSection 3.2 orSection 3.3, respectively, specifically referenced or cross-referenced or that contains sufficient detail to enable a reasonable Person to recognize the ~~right~~relevance of such disclosure to ~~modify~~such other subsections.

Section 3.2Representations and Warranties of Merchants. Subject to and giving effect toSection 3.1 and except as (i) set forth in the ~~structure of~~Merchants Disclosure Letter or (ii) disclosed in any of ~~the Transactions, provided that (a) there are no adverse tax consequences~~Merchants’ SEC Reports filed with or furnished to the ~~shareholders~~SEC on or after December 31, 2015 and prior to the date of ~~Oneida as a result~~this Agreement (but excluding any risk factor disclosures contained under the heading “Risk Factors”, any

TABLE OF CONTENTS

disclosure of ~~such modification, (b) the Merger Consideration is not changed~~risks included in ~~kind, value~~any “forward-looking statements” disclaimer or ~~reduced~~any other statements that are similarly forward-looking in ~~amount as a result of such modification, and (c) consummation of the Transactions is not likely to be impaired or delayed as a result of such modification.~~

~~2.7.~~ ~~Closing~~. The Closing of the Transactions shall be held at the offices of Bond, Schoeneck & King, PLLC, One Lincoln Center, Syracuse, New York on the fifth business day, or other mutually agreeable time, following satisfaction or waiver of the conditions to consummation of the Merger set forth in~~Article VI~~ ~~hereof (the “Closing Date~~”). Alternatively, the parties may agree that the Closing shall occur without their or their counsel’s physical presence in the same location, through the transmission and execution of documents and instruments using electronic media, including, but not limited to, email and facsimile. Digital signatures produced by such means shall have the same force and effect as handwritten signatures. If the parties elect to use this method for the Closing, following the Closing, they shall promptly execute handwritten documents and instruments and exchange the signature pages thereof so that each party shall have a complete set of manually signed documents memorializing the Closing.

~~ARTICLE III~~

~~REPRESENTATIONS AND WARRANTIES OF ONEIDA~~

~~Except as Previously Disclosed, Oneida~~nature), Merchants hereby represents and warrants to ~~CBSI~~Community as follows:

~~Annex A-18~~

~~3.1.~~ ~~Capital Structure of Oneida~~. The authorized capital stock of Oneida consists of (i) 10,000,000 shares of Preferred Stock, none of which are issued and outstanding and (ii) 30,000,000 shares of Oneida Common Stock, of which 7,025,444 shares are issued and outstanding, which amount includes 153,000 shares granted pursuant to Oneida Restricted Stock awards. No shares of Oneida Common Stock are held in treasury. Except for (i) 172,348 shares of Oneida Common Stock reserved for issuance upon the exercise of outstanding Oneida Options, (ii) 153,000 shares of Oneida Common Stock subject to outstanding Oneida Restricted Stock awards, there are no outstanding options, warrants, agreements, arrangements, commitments or any similar Rights in existence for the purchase of or issuance of, or which encumber in any way, Oneida Common Stock or any equity interest in any Subsidiary of Oneida. All outstanding shares of Oneida Common Stock have been duly authorized and validly issued and are fully paid and nonassessable. None of the shares of Oneida capital stock has been issued in violation of the preemptive rights of any Person.

~~3.2.~~ (a)Organization, Standing, and ~~Authority of Oneida~~Power. Each Subsidiary of ~~Oneida~~Merchants is listed in Section 3.2(a) of the Merchants Disclosure Letter. Merchants and each of its Subsidiaries ~~is a~~(i) are duly organized, ~~corporation,~~ validly existing, and (as to corporations) are in good standing under the ~~laws~~Laws of ~~its incorporation with full~~the jurisdiction of their respective organization, (ii) have the requisite corporate power and authority to own, lease, and operate ~~the~~their properties ~~it purports to own, lease or operate~~and assets and to carry on ~~its business~~their businesses as now ~~conducted. Each of Oneida~~conducted, and ~~its Subsidiaries is~~(iii) are duly ~~licensed~~qualified or ~~qualified~~licensed to do business and in good standing in the ~~states~~States of the United States and foreign jurisdictions where ~~its ownership or leasing~~the character of ~~property~~their assets or the nature or conduct of ~~its~~their business requires ~~such qualification,~~them to be so qualified or licensed, except in the case of this clause (iii) where the failure to be so qualified or licensed, individually or ~~qualified~~in the aggregate, has not had and would not reasonably be expected to have a Material Adverse Effect on ~~Oneida. Oneida~~Merchants. Merchants is registered with the Federal Reserve Board as a ~~savings and loan~~bank holding company ~~under~~within the ~~HOLA.~~meaning of the BHC Act and meets the applicable requirements for qualification as such. Merchants Bank is a nonmember bank chartered in the State of Vermont. Merchants Bank is an “insured depository institution” as defined in the Federal Deposit Insurance Act and applicable regulations thereunder, its deposits are insured by the Deposit Insurance Fund and all premiums and assessments required to be paid in connection therewith have been paid when due. No action for the revocation or termination of such deposit insurance is pending or, to the Knowledge of Merchants, threatened.

~~3.3.~~ (b)~~Ownership~~Authority; No Breach of ~~Oneida Subsidiaries; Capital Structure of Oneida Subsidiaries~~Agreement. ~~A true and complete list of all Subsidiaries of Oneida, and each of their respective Subsidiaries, together with~~(i) Merchants has the jurisdiction of incorporation of each Subsidiary and the percentage of each Subsidiary’s outstanding capital stock owned by Oneida or another Subsidiary of Oneida, has been Previously Disclosed and Oneida does not, directly or indirectly, own any equity or similar interest in, or any interest convertible into or exchangeable or exercisable for, any equity or similar interest in, any other Person.

~~3.4.~~ ~~Authorized and Effective Agreement~~.

~~(a) Oneida has all requisite~~ corporate power and authority necessary to ~~enter into~~execute, deliver, and perform ~~all of~~ its obligations under this Agreement and ~~each of~~to consummate the ~~Transaction Documents to which it is a party.~~transactions contemplated hereby. The execution, delivery, and ~~delivery~~performance of this Agreement, and the consummation of the ~~Transactions and thereby~~transactions contemplated hereby, have been duly and validly authorized by all necessary corporate action (including valid authorization and adoption of this Agreement by Merchants’ duly constituted Board of Directors), subject only to the Merchants Stockholder Approval. This Agreement has been duly executed and delivered by Merchants and, assuming due authorization, execution, and delivery of this Agreement by Community, this Agreement represents a legal, valid and binding obligation of Merchants enforceable against Merchants in ~~respect thereof on~~accordance with its terms (except in all cases as such enforceability may be limited by (A) bankruptcy, insolvency, reorganization, moratorium, receivership, conservatorship and other Laws now or hereafter in effect relating to or affecting the ~~part~~enforcement of ~~Oneida,~~creditors’ rights generally and (B) general equitable principles and except ~~for~~that the ~~affirmative vote of a majority~~availability of the ~~issued and outstanding shares~~equitable remedy of ~~Oneida Common Stock,~~specific performance or injunctive relief is subject to the discretion of the court before which ~~is the only shareholder vote required to approve the Merger pursuant to Oneida’s articles of incorporation and bylaws. The~~any proceeding may be brought).

(ii) Merchants’ Board of Directors ~~of Oneida~~ has unanimously: (A) approved and ~~adopted~~declared advisable this Agreement and the Merger and the other transactions contemplated hereby; (B) determined that this Agreement and the transactions contemplated hereby are in the best interests of Merchants and the holders of Merchants Common Stock; (C) resolved to recommend that the holders of Merchants Common Stock adopt this Agreement (such recommendation being the “Merchants Directors’ Recommendation”); and (D) directed that this Agreement be submitted to ~~Oneida’s shareholders~~the holders of Merchants Common Stock for ~~approval at a meeting of shareholders to be held as soon as practicable. The~~their adoption.

(iii) Merchants Bank’s Board of Directors ~~of Oneida~~ has unanimously ~~recommended that~~approved and declared advisable the ~~shareholders of Oneida approve this~~Bank Merger Agreement, the Bank Merger and the ~~Merger. In~~other transactions contemplated hereby and thereby.

(iv) The Merchants Stockholder Approval is the only vote of the holders of any class or series of Merchants’ capital stock or other securities required by applicable Law in connection with ~~its approval of this Agreement and~~ the Merger, the Board of Directors of Oneida has received a written fairness opinion dated on or about the date hereof from Keefe Bruyette & Woods, Inc., to the effect that, subject to the terms, limitations, and conditions set forth therein, the Merger Consideration is fair, from a financial point of view, to the common shareholders of Oneida, which opinion has not been rescinded prior to the execution of this Agreement.

~~Annex A-19~~

~~(b) This Agreement and each Transaction Document to which Oneida is a party have been duly executed and delivered by Oneida and, assuming the accuracy~~consummation of the ~~representation contained~~Merger. No vote of the holders of any class or series of Merchants’ capital stock or other securities is required in~~Section 4.3(b)~~ ~~hereof, this Agreement constitutes~~ connection with the ~~legal, valid and binding obligation~~consummation of ~~Oneida, enforceable against Oneida in accordance with its terms, except that such enforceability may~~any of the transactions contemplated hereby to be ~~subject to bankruptcy, insolvency and~~consummated by Merchants other ~~laws of general applicability relating to or affecting creditors’ rights and to general equity principles.~~than the Merger.

~~(c) Except as Previously Disclosed, neither~~(v) Neither the execution and delivery ~~by Oneida~~ of this Agreement or the Bank Merger Agreement by Merchants or Merchants Bank, as applicable, nor the consummation by either of them of the ~~Transactions,~~transactions contemplated hereby or thereby, nor compliance by ~~Oneida~~either of them with any of the provisions hereof or thereof, ~~shall (i)~~will (A) violate, conflict with or result in a breach of any provision of the ~~articles~~Organizational Documents of ~~incorporation or bylaws of Oneida~~Merchants or any of its Subsidiaries, ~~(ii) assuming the consents and approvals contemplated bySection 5.3~~ ~~hereof and the consents and approvals which are Previously Disclosed are duly obtained, constitute or~~(B) violate, conflict with, result in a breach of any ~~term, condition or~~ provision of or the loss of any benefit under, constitute a default (or an event which, with notice or lapse

TABLE OF CONTENTS

of time, or both, would constitute a default) under, result in the termination of or ~~give rise to any~~a right of termination or cancellation ~~or acceleration with respect to,~~under, accelerate the performance required by, or result in the creation of any ~~lien, charge or encumbrance~~Lien (other than Permitted Liens) upon any ~~property~~of the respective properties or ~~asset~~assets of ~~Oneida~~Merchants or any of its Subsidiaries ~~pursuant to,~~under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, ~~agreement~~lease, Contract, Permit or other instrument or obligation to which ~~Oneida~~Merchants or any of its Subsidiaries is a party, or ~~(iii) assuming~~by which they or any of their respective properties or assets may be bound, or (C) subject to receipt of the ~~consents~~Requisite Regulatory Approvals and ~~approvals~~the expiration of any waiting period required by Law as described in clause (vi) below, violate any Law or Order applicable to Merchants or its Subsidiaries or any of their respective material assets, except, in the case of clauses (B) and (C), as, individually or in the aggregate, has not had and would not reasonably be expected to have a Material Adverse Effect on Merchants.

(vi) Other than in connection or compliance with the provisions of the Securities Laws, and other than (A) the Requisite Regulatory Approvals, (B) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware as required by the DGCL and (C) as set forth in Section 3.2(b)(vi)(C) of the Merchants Disclosure Letter, no Order of, or Consent of, to or with, any Governmental Authority or other third party is necessary in connection with the execution, delivery or performance of this Agreement or the Bank Merger Agreement by Merchants or Merchants Bank, as applicable, or the consummation by Merchants or Merchants Bank, as applicable, of the Merger, the Bank Merger and the other transactions contemplated by~~Section 5.3~~ ~~hereof~~ this Agreement and the ~~consents~~Bank Merger Agreement.

(c)Capital Stock.

(i) Merchants’ authorized capital stock consists of (i) 10,000,000 shares of Merchants Common Stock, of which, as of October 20, 2016 (the “Capitalization Date”), 6,883,644 shares are issued and ~~approvals~~outstanding (which includes 14,102 Merchants Restricted Shares and 99,633 Merchants Deferred Shares) with 296,972 shares held in its treasury, (ii) 200,000 shares of Class A Non-Voting Preferred Stock, par value $0.01 per share, of which, as of the date of this Agreement, zero shares are ~~Previously Disclosed~~issued and outstanding, and (iii) 1,500,000 shares of Class B Voting Preferred Stock, par value $0.01 per share (together with the Class A Non-Voting Preferred Stock, the “Merchants Preferred Stock”), of which, as of the date of this Agreement, zero shares are issued and outstanding. As of the Capitalization Date there were 27,020 shares of Merchants Common Stock reserved for issuance upon the exercise of outstanding Merchants Stock Options at a weighted average exercise price of $22.49 (of which Merchants Stock Options with respect to 27,020 shares are exercisable), 43,629 shares of Merchants Common Stock reserved for issuance upon the exercise of 2013 Warrants at an exercise price of $20.69 and 34,370 shares of Merchants Common Stock reserved for issuance upon the exercise of Organizers’ Warrants at an exercise price of $41.39. Set forth in Section 3.2(c)(i) of the Merchants Disclosure Letter is a true and complete schedule of all outstanding Rights to acquire shares of Merchants Common Stock (including all Merchants Warrants), including grant date, vesting schedule, exercise price, expiration date and the name of the holder of such Rights. Except as set forth in thisSection 3.2(c) or in Section 3.2(c)(i) of the Merchants Disclosure Letter, there are no shares of Merchants Common Stock or other equity securities of Merchants outstanding and no outstanding Rights relating to the Merchants Common Stock or Merchants Preferred Stock, and no Person has any Contract or any right or privilege (whether pre-emptive or contractual) capable of becoming a Contract or Right for the purchase, subscription or issuance of any securities of Merchants. All of the outstanding shares of Merchants Common Stock are duly ~~obtained, conflict with~~and validly issued and outstanding and are fully paid (or will be fully paid when vested) and, except as expressly provided otherwise under applicable Law, nonassessable under the DGCL. None of the outstanding shares of Merchants Common Stock has been issued in violation of any preemptive rights of the current or ~~violate any law, order, writ, injunction, decree, statute, rule or regulation applicable to Oneida or~~past stockholders of Merchants. Neither Merchants nor any of its Subsidiaries has any outstanding bonds, debentures, notes or ~~their respective assets;~~other obligations having the right to vote (or convertible into, or exchangeable or exercisable for, securities having the right to vote) with the stockholders of Merchants or such Subsidiary on any matter.

(ii) There are no Contracts among Merchants and its stockholders or by which Merchants is bound with respect to the voting, transfer, repurchase or redemption of Merchants Common Stock or the

TABLE OF CONTENTS

granting of registration rights to any holder thereof. All of the outstanding shares of Merchants Common Stock and all Rights to acquire shares of Merchants Common Stock have been issued in compliance with all applicable federal and state Securities Laws, and all Merchants Restricted Shares and all Merchants Common Stock underlying Merchants Stock Options have been validly and timely registered with the SEC. All issued and outstanding shares of capital stock of Merchants’ Subsidiaries have been duly authorized and are validly issued, fully paid and nonassessable. All of the outstanding shares of capital stock of Merchants’ Subsidiaries are owned by Merchants or a wholly owned Subsidiary thereof, free and clear of all Liens. None of Merchants’ Subsidiaries has outstanding any Right to acquire any shares of its capital stock or any security convertible into such shares, or has any obligation or commitment to issue, sell or deliver any of the foregoing or any shares of its capital stock. The outstanding capital stock of each of Merchants’ Subsidiaries has been issued in compliance with all legal requirements and is not subject to any preemptive or similar rights. Each of the Subsidiaries of Merchants is directly or indirectly wholly owned by Merchants. Merchants has no direct or indirect ownership interest in any firm, corporation, bank, joint venture, association, partnership or other entity, nor is it under any current or prospective obligation to form or participate in, provide funds to, make any loan, capital contribution, guarantee, credit enhancement or other investment in, or assume any Liability or obligation of, any Person other than lending transactions which occur in the ordinary course of business consistent with past practice. Section 3.2(c)(ii) of the Merchants Disclosure Letter sets forth a true, correct and complete listing of each outstanding series of trust preferred securities and subordinated debt securities of Merchants and certain information with respect thereto, including the holders of such securities as of the date of this Agreement.

(d)Reports; Financial Statements. (i) Merchants and each of its Subsidiaries have timely filed (or furnished, as applicable) all reports, registrations and statements, together with any amendments required to be made with respect thereto, that they were required to file since December 31, 2013 with any Governmental Authorities (including any Regulatory Authorities), including any report, registration or statement required to be filed (or furnished, as applicable) pursuant to the Laws of the United States, any state or political subdivision, any foreign entity or jurisdiction, or any other Governmental Authority or Regulatory Authority, and have paid all fees and assessments due and payable in connection therewith, except ~~in case of clauses (ii)~~where the failure to file such report, registration or statement or to pay such fees and ~~(iii) above, for any such breach, default, right, lien, charge, encumbrances, violation or conflict which,~~assessments, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on ~~Oneida.~~

~~(d)~~Merchants. Except ~~as Previously Disclosed, other than as contemplated~~for normal examinations conducted by~~Section 5.3~~ ~~hereof,~~ a Regulatory Authority in the ordinary course of business of Merchants and its Subsidiaries, (A) no ~~consent, approval~~Regulatory Authority has initiated or ~~authorization of,~~has pending any proceeding or, ~~declaration, notice, filing or registration with, any governmental or regulatory authority, or any other Person, is required to be made or obtained by Oneida on or prior~~ to the ~~Closing Date in connection with~~Knowledge of Merchants, investigation into the ~~execution, delivery and performance~~business or operations of ~~this Agreement~~Merchants or any of ~~the Transaction Documents to which it is a party or the consummation of the Transactions.~~

~~3.5.~~ ~~Regulatory Filings. Each of Oneida and~~ its Subsidiaries since December 31, 2013, (B) there is no unresolved violation, criticism, or exception by any Regulatory Authority with respect to any report or statement relating to any examinations or inspections of Merchants or any of its Subsidiaries, and (C) there has ~~filed all reports required~~been no formal or informal inquiries by, ~~statute~~ or ~~regulation to be filed~~disagreements or disputes with, any ~~federal~~Regulatory Authority with respect to the business, operations, policies or ~~state bank regulatory agency, except where~~procedures of Merchants or any of its Subsidiaries since December 31, 2013, in each case of clauses (A) through (C), which would reasonably be expected to have, either individually or in the ~~failure to so file would not have~~aggregate, a Material Adverse Effect on ~~Oneida, and such reports were prepared in accordance with the applicable statutes, regulations and instructions in existence as~~Merchants.

(ii) An accurate copy of ~~the date of filing of such reports in all material respects.~~

~~Annex A-20~~

~~3.6.~~ each final SEC ~~Documents; Financial Statements; Books and Records; Minute Books. Oneida has filed or furnished all forms, reports and documents required to be~~Report filed with or furnished by Merchants or any of its Subsidiaries to the SEC since ~~January 1, 2012. The SEC Documents filed or furnished by Oneida (i) were prepared in all material respects in accordance with the requirements of~~December 31, 2013 pursuant to the Securities Act or the Exchange Act (the “Merchants Reports”) is publicly available. No Merchants Report, as of the date thereof (and, in the case ~~may be,~~of registration statements and ~~(ii) did not at the time they were filed (or if amended or superseded by a filing prior to the date of this Agreement, then~~proxy statements, on the ~~date~~dates of ~~such filing) contain~~effectiveness and the dates of the relevant meetings, respectively), contained any untrue statement of a material fact or ~~omit~~omitted to state aany material fact required to be stated therein or necessary in order to make the statements therein, in ~~the~~ light of the circumstances ~~under~~in which they were made, not ~~misleading. The Oneida Financial Statements~~misleading, except that information filed ~~by Oneida~~or furnished as of a later date (but before the date of this Agreement) shall be deemed to modify information as of an earlier date. As of their respective dates, all of the Merchants Reports complied in ~~its~~all material respects with the published rules and regulations of the SEC ~~Documents prior to~~with respect thereto. As of the date of this Agreement, ~~and~~no executive officer of Merchants has failed in any respect to make the ~~Oneida Financial Statements filed by Oneida in its SEC Documents after~~certifications required

TABLE OF CONTENTS

of him or her under Section 302 or 906 of the Sarbanes-Oxley Act. As of the date of this Agreement, ~~will~~there are no outstanding comments from or unresolved issues raised by the SEC with respect to any of the Merchants Reports.

(iii) The financial statements of Merchants and its Subsidiaries included (or incorporated by reference) in the Merchants Reports (including the related notes, where applicable) (the “Merchants Financial Statements”) (A) have been prepared from, and are in accordance with, the books and records of Merchants and its Subsidiaries, (B) fairly present in all material respects the consolidated results of operations, cash flows, changes in stockholders’ equity and consolidated financial position of ~~Oneida~~Merchants and its Subsidiaries for the respective fiscal periods or as of the respective dates ~~indicated~~therein set forth (subject in the case of unaudited statements to year-end audit adjustments normal in nature and amount), (C) complied, as of their respective dates of filing with the ~~consolidated income, changes~~SEC, in ~~shareholders’ equity~~all material respects with applicable accounting requirements and ~~cash flows~~with the published rules and regulations of ~~Oneida~~the SEC with respect thereto and ~~its consolidated Subsidiaries for~~(D) have been prepared in accordance with GAAP consistently applied during the periods ~~then ended and~~involved, except, in each case, as indicated in such ~~financial statement has been~~statements or ~~will be, as~~in the case may be, prepared in conformity with GAAP applied to financial institutions applied on a consistent basis, except that the unaudited interim financial statements were or are subject to normal and recurring year-end adjustments which were not or are not expected to be material in amount, and may not contain certain notes ~~as may be permitted by the applicable rules promulgated by the SEC.~~thereto. The books and records of ~~Oneida~~Merchants and ~~each of~~ its Subsidiaries ~~fairly reflect~~have been, and are being, maintained in all material respects ~~the transactions to which it is a party or by which its properties are subject or bound. Such books~~in accordance with GAAP and ~~records have been properly kept and maintained and are in compliance with all~~any other applicable legal and accounting requirements ~~in all material respects. The minute books of Oneida~~ and each of its Subsidiaries contain records which are accurate in all material respects of all corporate actions of its shareholders and Board of Directors (including committees of its Board of Directors).

~~3.7.~~ ~~Material Adverse Change. Oneida~~reflect only actual transactions. Crowe Horwath LLP has not resigned (or informed Merchants that it intends to resign) or been dismissed as independent public accountants of Merchants as a result of or in connection with any disagreements with Merchants on a ~~consolidated basis, suffered any change in its~~matter of accounting principles or practices, financial ~~condition, results of operations~~statement disclosure or ~~business since December 31, 2013, which, individually~~auditing scope or ~~in the aggregate with any other such changes, would constitute a Material Adverse Effect with respect to Oneida.~~procedure.

~~3.8.~~ ~~Absence of Undisclosed Liabilities~~.(iv) Neither ~~Oneida~~Merchants nor any of its Subsidiaries has any ~~liability (contingent~~Liability (whether absolute, accrued, contingent or ~~otherwise) that is material~~otherwise and whether due or to ~~Oneida~~become due) required by GAAP to be included on a consolidated basis, or that, when combined with all similar liabilities, would be material to Oneida on a consolidated basis, except as disclosed in the Oneida Financial Statements contained in an SEC Document filed prior to the date hereof andbalance sheet of Merchants, except for those liabilities that are reflected or reserved against on the consolidated balance sheet of Merchants included in its Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2016 (including any notes thereto), and for liabilities incurred (A) in the ordinary course of business consistent with past practice since ~~September~~June 30, ~~2014.~~2016 that are not, individually or in the aggregate, material to Merchants and its Subsidiaries, taken as a whole, or (B) in connection with this Agreement and the transactions contemplated hereby.

(v) The records, systems, controls, data and information of Merchants and its Subsidiaries are recorded, stored, maintained and operated under means (including any electronic, mechanical or photographic process, whether computerized or not) that are under the exclusive ownership and direct control of Merchants or its Subsidiaries or accountants (including all means of access thereto and therefrom). Merchants (A) has implemented and maintains disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) to ensure that material information relating to Merchants, including its Subsidiaries, is made known to the chief executive officer and the chief financial officer of Merchants by others within those entities as appropriate to allow timely decisions regarding required disclosures and to make the certifications required by the Exchange Act and Sections 302 and 906 of the Sarbanes-Oxley Act, and (B) has disclosed, based on its most recent evaluation prior to the date hereof, to Merchants’ outside auditors and the audit committee of Merchants’ Board of Directors (x) any significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) which are reasonably likely to adversely affect Merchants’ ability to record, process, summarize and report financial information, and (y) to the Knowledge of Merchants, any fraud, whether or not material, that involves management or other employees who have a significant role in Merchants’ internal controls over financial reporting. To the Knowledge of Merchants, there is no reason to believe that Merchants’ outside auditors and its chief executive officer and chief financial officer will not be able to give the certifications and attestations required pursuant to the rules and regulations adopted pursuant to Section 404 of the Sarbanes-Oxley Act, without qualification, when next due.

(vi) Since December 31, 2013, (A) neither Merchants nor any of its Subsidiaries, nor, to the Knowledge of Merchants, any director, officer, auditor, accountant or Representative of Merchants or any of its Subsidiaries, has received or otherwise had or obtained knowledge of any material complaint, allegation, assertion or claim, whether written or oral, regarding the accounting or auditing practices,

TABLE OF CONTENTS~~3.9.~~

procedures, methodologies or methods (including with respect to loan loss reserves, write-downs, charge-offs and accruals) of Merchants or any of its Subsidiaries or their respective internal accounting controls, including any material complaint, allegation, assertion or claim that Merchants or any of its Subsidiaries has engaged in questionable accounting or auditing practices, and (B) no attorney representing Merchants or any of its Subsidiaries, whether or not employed by Merchants or any of its Subsidiaries, has reported evidence of a material violation of Securities Laws, breach of fiduciary duty or similar violation by Merchants or any of its officers, directors, employees or agents to the Board of Directors of Merchants or any committee thereof or to the Knowledge of Merchants, to any director or officer of Merchants.

(e)Absence of Certain Changes or Events. Since ~~September 30, 2014,~~December 31, 2015 through the date hereof, (A) except for the negotiation of this Agreement and ~~except as Previously Disclosed, Oneida has not:~~

~~(a) suffered any material damage, destruction or loss of physical property or assets (whether or not covered by insurance);~~

~~(b) issued, sold or otherwise disposed of any~~the transactions contemplated hereby, Merchants and each of its ~~capital stock or granted or issued any Rights to acquire shares of~~Subsidiaries has conducted its ~~capital stock, except shares of Oneida Common Stock issued under the DRIP Plan (which shares are included~~business in ~~the number of shares issued and outstanding set forth inSection 3.1~~);

~~(c) incurred or agreed to incur any~~all material ~~indebtedness for borrowed money, other than~~respects in the ordinary course of business consistent with past ~~practice;~~

~~Annex A-21~~

~~(d) made or obligated itself to make any capital expenditure in excess of $75,000, individually or in the aggregate;~~

~~(e) waived any material right, except in the ordinary course of business consistent with past practice;~~

(f) sold, transferred or otherwise disposed of any assets, or canceled, or agreed to cancel, any material debts or claims, in each case, other than in the ordinary course of business consistent with past practice;

~~(g) mortgaged, pledged or subjected to any charge, lien, claim or encumbrance any of its material properties or assets, other than in the ordinary course of business;~~

(h) declared, set aside or paid any dividend (whether in cash, property or stock) with respect to any of its capital stock, or redeemed, purchased or otherwise acquired any of its capital stock, except shares of Oneida Common Stock purchased for issuance under the DRIP Plan (which shares are included in the number of shares issued and outstanding set forth in~~Section 3.1~~);

(i) increased the salaries, bonuses or other compensation of any of its directors, officers, employees or agents, or adopted or increased any benefits under any insurance, pension or other employee benefit plan, payment or arrangement made to, for or with any such director, officer, employee or agent, except for changes in salaries of employees earning less than $60,000 per year made in the ordinary course of business consistent with past practice;

(j) made or permitted any amendment or termination of any material contract, agreement or license to which it is a party, other than in the ordinary course of business consistent with past practice;

~~(k) made any material change in its accounting methods or practices with respect to its financial condition, properties, business or operations;~~

~~(l) repaid any outstanding loans, other than repayments in the ordinary course of business;~~

~~(m) entered into any other material transaction not in the ordinary course of business;~~

~~(n) hired any new officers;~~

~~(o) entered into any real estate or equipment lease, requiring aggregate rental payments in excess of $25,000; or~~

~~(p) agreed to or otherwise become obligated to do any of the foregoing.~~

~~Annex A-22~~

~~3.10.~~ ~~Properties~~. Oneida and its Subsidiaries have good and marketable title free and clear of all liens, encumbrances, charges, defaults or equitable interests to all of the properties and assets, real and personal, which are material to the business of Oneida on a consolidated basis, and which are reflected on the Oneida Financial Statements as of September 30, 2014 or acquired after such date, except (i) liens for taxes not yet due and payable, (ii) pledges to secure deposits and other liens incurred in the ordinary course of banking business as reflected in the books and records of Oneida, (iii) such imperfections of title, easements and encumbrances, if any, as are not material in character, amount or extent and (iv) dispositions and encumbrances for adequate consideration in the ordinary course of business consistent with past practice. All written or oral lease agreements (and all amendments thereto) pursuant to which Oneida or any of its Subsidiaries, as lessee, leases real and personal property which, individually or in the aggregate, are material to the business of Oneida on a consolidated basis are valid and enforceable against Oneida and the lessor in accordance with their respective terms. All tangible property used in the business of Oneida is in good condition, reasonable wear and tear excepted, and is usable in the ordinary course of business consistent with Oneida’s past practices.

~~3.11.~~ ~~Loans; Nonperforming and Classified Assets~~.

~~(a) Each loan, line of credit, extension of credit, credit enhancement, guarantee, loan participation, lease, promissory note, borrowing arrangement and loan commitment (“Loan~~”) on the books and records of Oneida and its Subsidiaries (i) arose out of a bona fide arm’s-length transaction made in the ordinary course of business, (ii) was made and has been serviced in all material respects in accordance with their customary lending standards in the ordinary course of business, (iii) is evidenced in all material respects by appropriate and sufficient documentation and, (iv) to the Knowledge of Oneida, constitutes the legal, valid and binding obligation of the obligor therein, except as may be provided by bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar laws of general applicability relating to or affecting creditor’s rights or by general equity principles and (v) Oneida has not received written notice from the obligor asserting any defense, set-off or counterclaim with respect thereto.

~~(b) Oneida has Previously Disclosed to CBSI in writing as of the date of this Agreement: (i) a listing of the Other Real Estate Owned (“OREO~~”) acquired by foreclosure or by deed-in-lieu thereof, including the book value thereof and (ii) each Loan with a Related Party or an Oneida Subsidiary, or to the Knowledge of Oneida, any Person controlling, controlled by or under common control with any of the foregoing. All OREO is carried on the books of Oneida, net of reserves, at fair market value less cost to sell.

~~(c) All reserves or other allowances for Loan losses reflected in the Oneida Financial Statements comply with all applicable laws and are adequate under GAAP. Neither Oneida~~practice, (B) neither Merchants nor any of its Subsidiaries has ~~been notified by~~taken any state or federal bank regulatory agency that its reserves are inadequate or that the practices and policies of Oneida and its Subsidiaries in establishing its reserves reflected in the Oneida Financial Statements, and in accounting for delinquent and classified assets generally fail to comply with applicable accounting or regulatory requirements, or that bank regulators or Oneida’s independent auditor believes such reserves to be inadequate or inconsistent with the historical loss experience of Oneida and its Subsidiaries. Oneida’s reserves and allowances for Loan losses are in compliance with the standards established by state and federal bank regulatory agencies, are sufficient ataction which, if taken after the date of this Agreement, would constitute a breach ofSection 4.2(a),(b),(d),(f),(k)(iii),(k)(iv),(m),(n),(q), or(x) and (C) there have been no facts, events, changes, circumstances or effects that have had, or would reasonably be expected to ~~cover its reasonably anticipated Loan losses, and are consistent with Oneida’s past practices.~~

~~Annex A-23~~

~~(d) All Loans owned by Oneida or any Oneida Subsidiary,~~have, individually or in which Oneida or any Oneida Subsidiary has an interest, comply in all material respects with all applicable laws, including, but not limited to, applicable usury statutes, underwriting and recordkeeping requirements and the ~~Truth in Lending Act, the Equal Credit Opportunity Act, and the Real Estate Settlement Procedures Act.~~

~~(e) Each mortgage held by Oneida and each Oneida Subsidiary creates~~aggregate, a ~~valid and enforceable lien~~Material Adverse Effect on the real property described therein having the priority indicated by the terms of such mortgage, subject only to such exceptions as are described in attorneys’ opinions regarding title or in title insurance policies in the mortgage files relating to the Loans secured thereby or are not material as to the collectability of such Loans. Oneida and each Oneida Subsidiary have properly perfected or caused to be properly perfected all security interests, liens and other interests in collateral securing any Loans made by it. Oneida and each Oneida Subsidiary has full recourse to the borrowers and guarantors of all Loans held by them, and neither Oneida nor any Oneida Subsidiary has taken action which would result in a waiver or negation of any rights or remedies available against the borrower or guarantor on any Loan.

Merchants.

(f) Each outstanding Loan participation sold by Oneida or any Oneida Subsidiary was sold with the risk of non-payment of all or any portion of that underlying loan to be shared by each participant proportionately to the share of such Loan represented by such participation without any recourse of such other lender or participant to Oneida or any Oneida Subsidiary for payment or repurchase of the amount of such Loan represented by the participation or liability under any yield maintenance or similar obligation.

(g) Oneida has Previously Disclosed to CBSI in writing: (i) all Loans held by Oneida or any Oneida Subsidiary that, during the past twelve months, have had their respective terms to maturity accelerated or with respect to which Oneida or an Oneida Subsidiary has notified the borrower of its intention to accelerate the Loan or declare a default, (ii) all Loan commitments or lines of credit that have been terminated or amended by Oneida or an Oneida Subsidiary during the past 12 months by reason of a default or adverse developments in the condition of the borrower or other events or circumstances affecting the credit of the borrower, (iii) each borrower, customer or other party which has notified Oneida or an Oneida Subsidiary during the past 12 months of, or has asserted against Oneida, orally or in writing, any “lender liability” or similar claim, (iv) all Loans, (A) that are contractually past due 90 days or more in the payment of principal and/or interest, (B) that are on non-accrual status, (C) that as of the date of this Agreement are classified as “Other Loans Specially Mentioned”, “Special Mention”, “Substandard”, “Doubtful”, “Loss”, “Classified”, “Criticized”, “Watch List” or words of similar import, together with the principal amount of and accrued and unpaid interest on each such loan and the identity of the obligor thereunder, (D) where, during the past two years, the interest rate terms have been reduced and/or the maturity dates have been extended subsequent to the agreement under which the Loan was originally created due to concerns regarding the borrower’s ability to pay in accordance with such initial terms, or (E) where a specific reserve allocation exists in connection therewith and (v) all assets classified by Oneida as OREO and all other assets currently held that were acquired through foreclosure or in lieu of foreclosure.

~~Annex A-24~~

~~3.12.~~ Tax Matters.

~~(a) Oneida~~ (i) All material amounts of Taxes of Merchants and each of its Subsidiaries (whether or not shown or required to be shown on any Tax Return) have been fully and timely paid. Each of Merchants and its Subsidiaries has timely filed ~~federal and state income Tax Returns for each year through December 31, 2013 and have timely filed, or caused to be filed,~~ all ~~other~~material Tax Returns required to behave been filed ~~with respect to Oneida or any of its Subsidiaries. All Taxes due~~ by it or on ~~behalf of Oneida or any of~~ its Subsidiaries have been paid or adequate reserves have been established on the Oneida Financial Statements for the payment of such Taxes. Neither Oneida nor any of its Subsidiaries will have any liability for any such Taxes in excess of the amounts so paid or reserves or accruals so established, except where such liability would not, individually or in the aggregate, have a Material Adverse Effect on Oneida.

~~(b) All Tax Returns filed by Oneida~~behalf, and each ~~of its Subsidiaries are~~such Tax Return is true, complete and accurate in all material respects. Neither ~~Oneida~~Merchants nor any of its Subsidiaries is ~~delinquent in~~ the ~~payment~~beneficiary of ~~any material Tax, and none of them has requested~~ any extension of time within which to file any Tax ~~Returns which~~Return. Merchants and each of its Subsidiaries have ~~not since been filed. No material audit examination, deficiency, adjustment, refund claim or litigation with respect~~made available to Community true and correct copies of the United States federal, state and local income Tax Returns ~~paid Taxes, unpaid Taxes or Tax attributes of Oneida~~filed by it for any Taxable Period ending after December 31, 2012. No claim has been ~~proposed, asserted or assessed (tentatively or otherwise). There are currently no agreements~~made by a Taxing Authority in ~~effect with respect to Oneida~~writing within the past five (5) years in a jurisdiction where Merchants or any of its Subsidiaries does not file a Tax Return that Merchants or any of its Subsidiaries may be subject to ~~extend~~Taxes by that jurisdiction.

(ii) Neither Merchants nor any of its Subsidiaries has received any notice of assessment or proposed assessment in connection with any Tax that has not been paid or otherwise settled, withdrawn, or resolved, and there is no threatened or pending dispute, action, suit, proceeding, claim, investigation, audit, examination, or other Litigation regarding any Tax of Merchants, any of its Subsidiaries or the assets of Merchants or any of its Subsidiaries. No officer or employee responsible for Tax matters of Merchants or any of its Subsidiaries expects any Taxing Authority to assess any additional Tax for any period for which a Tax Return has been filed. There are no agreements, waivers or other arrangements providing for an extension of time with respect to the assessment of any Tax or deficiency against Merchants or any of its Subsidiaries that are currently in force, and neither Merchants nor any of its Subsidiaries has waived or extended the applicable statute of limitations for the assessment or collection of any ~~Tax.~~Tax or agreed to a Tax assessment or deficiency.

~~(c)~~(iii) Neither the Transactions nor the termination of the employment of any employees of Oneida prior to or following consummation of the Transactions will result in Oneida or any of its Subsidiaries (or any successor thereof) making or being required to make any “excess parachute payment” as that term is defined in Section 280G of the Code.

~~(d) Except as Previously Disclosed, neither Oneida~~Merchants nor any of its Subsidiaries is a party to a Tax allocation, sharing, indemnification or similar agreement or any agreement ~~providing~~(other than an agreement solely between Merchants and its Subsidiaries) pursuant to which it has any obligation to any Person with respect to Taxes, and neither Merchants nor any of its Subsidiaries has been a member of an affiliated group filing a consolidated federal, state or local income Tax Return or any combined, affiliated or unitary group for any Tax purpose (other than the ~~allocation~~group of which it is currently a member), and neither Merchants nor any of its Subsidiaries has any Tax liability under Treasury Regulation Section 1.1502-6 or ~~sharing~~any similar provision of Law, or ~~indemnification~~as a transferee or successor, by Contract or otherwise, other than with respect to the group of which Merchants is the parent. None of Merchants and its Subsidiaries have any deferred gain or loss arising out of any deferred intercompany transaction, as described in Treasury Regulation Section 1.1502-13, or, in the case of any of its Subsidiaries, have an excess loss account in its stock, as described in Treasury Regulation Section 1.1502-19.

TABLE OF CONTENTS

(iv) Merchants and its Subsidiaries have withheld and paid over to the appropriate Taxing Authority all material amounts of Taxes required to have been withheld and paid over by them, and have complied in all material respects with all information reporting and backup withholding requirements under all applicable federal, state, local and foreign Laws in connection with amounts paid or owing to any Person, including Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee or independent contractor, and Taxes required to be withheld and paid pursuant to Sections 1441, 1442 and 3406 of the Code or similar provisions under state, local or foreign Law.

(v) Neither Merchants nor any of its Subsidiaries has been a party to any distribution occurring during the five (5)-year period ending on the date hereof in which the parties to such distribution treated the distribution as one to which Section 355 of the Code applied. No Liens for ~~Taxes.~~Taxes exist with respect to any assets of Merchants or any of its Subsidiaries, except for statutory Liens for Taxes not yet due and payable.

~~(e)~~(vi) Neither ~~Oneida~~Merchants nor any of its Subsidiaries is ~~required to include in income any adjustment in any taxable period ending after~~a “controlled foreign corporation” within the ~~date hereof pursuant to Section 481(a)~~meaning of the Section 957(a) of the Code. Merchants and each of its Subsidiaries have complied with all of the income inclusion and Tax reporting provisions of the U.S. anti-deferral Tax regimes, including the controlled foreign corporation, passive foreign investment company and foreign personal holding company regimes.

~~(f)~~(vii) Neither ~~Oneida~~Merchants nor any of its Subsidiaries is or has ever been a United States real property holding corporation within the meaning of Section 897(c) of the Code or any comparable provision of state Tax Law. Neither Merchants nor any of its Subsidiaries has ~~executed~~been or ~~entered into~~will be required to include any ~~written agreement with~~item in income or exclude any item of deduction from taxable income for any Tax ~~authority conceding or agreeing~~period (or portion thereof) ending after the Closing Date: (A) pursuant to ~~any treatment~~Section 481 of ~~Taxes or Tax attributes, including, without limitation, an IRS Form 870 or Form 870-AD, closing agreement or special closing agreement, affecting Oneida~~the Code or any comparable provision under state, local or foreign Tax Law; (B) as a result of ~~its Subsidiaries pursuant to~~any “closing agreement” as described in Section 7121 of the Code or any ~~predecessor~~comparable provision ~~thereof or any similar provision of~~under state, local, or foreign ~~law, which agreement~~Tax Law, executed on or prior to the Closing Date; (C) with respect to any intercompany transaction or excess loss account described in Treasury Regulations under Section 1502 of the Code or any comparable provision under state, local, or foreign Tax Law; (D) with respect to any installment sale or open transaction disposition made on or prior to the Closing Date; or (E) with respect to any prepaid amount received on or prior to the Closing Date.

(viii) Neither Merchants nor any of its Subsidiaries has participated in any reportable transaction, as defined in Treasury Regulation Section 1.6011-4(b)(1) or any comparable provision of state or local Tax Law.

(g)Environmental Matters. (i) Merchants has delivered, or caused to be delivered, to Community, or provided Community access to, true and complete copies of all material environmental site assessments, environmental test results, environmental analytical data, boring logs and other material environmental reports and studies held by Merchants and each of its Subsidiaries relating to their respective properties and Facilities.

(ii) Except as, individually or in the aggregate, has not had and would not reasonably be expected to have a Material Adverse Effect on Merchants: (A) Merchants and each of its Subsidiaries and their respective Facilities and properties are, and for the past five (5) years have been, in compliance with all Environmental Laws; and (B) neither Merchants nor its Subsidiaries has received any written notice from any Person alleging that its respective Facilities or properties are in violation of, or require environmental investigation or remediation under, Environmental Laws.

(iii) Except as, individually or in the aggregate, has not had and would not reasonably be expected to have a Material Adverse Effect on Merchants, during the period of Merchants’ or any of its Subsidiaries’ ownership or operation (including but not limited to ownership or operation, directly or indirectly, in a fiduciary capacity) of their respective properties and Facilities, there have been no releases, discharges, spillages or disposals of Hazardous Material on, under or affecting such properties or Facilities.

(h)Compliance with Permits, Laws and Orders. (i) Merchants and each of its Subsidiaries have in effect all Permits and have made all filings, applications and registrations with Governmental Authorities that

TABLE OF CONTENTS

are required for them to own, lease or operate their respective properties and assets and to carry on their respective businesses as now conducted (and have paid all fees and assessments due and payable in connection therewith) and there has occurred no Default under any material ~~impact on~~Permit applicable to their respective businesses or, to the ~~calculation~~Knowledge of Merchants, employees conducting their respective businesses.

(ii) Merchants and each of its Subsidiaries are, and at all times since December 31, 2013 have been, in compliance in all material respects with all Laws applicable to their businesses, operations, properties or assets, including the ~~Taxes~~Federal Reserve Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Community Reinvestment Act, the Home Mortgage Disclosure Act, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of ~~CBSI~~2001, the Bank Secrecy Act, the Truth in Lending Act, the Fair Debt Collection Practices Act, the Electronic Fund Transfer Act, the Fair Credit Reporting Act and all other applicable fair lending Laws and other Laws relating to discriminatory business practices.

(iii) Neither Merchants nor any of its Subsidiaries has received, since December 31, 2013, any written, or to the Knowledge of Merchants, oral notification or communication from any Governmental Authority (A) asserting that Merchants or any of its Subsidiaries ~~after~~is in Default under any of the ~~Effective Time.~~Permits, Laws or Orders which such Governmental Authority enforces, or (B) threatening or contemplating revocation or limitation of, or which would have the effect of revoking or limiting, any Permits.

(iv) Neither Merchants nor any of its Subsidiaries is subject to any cease-and-desist or other order or enforcement action issued by, or is a party to any written agreement, consent agreement or memorandum of understanding with, or is a party to any commitment letter or similar undertaking to, or is subject to any order or directive by, or has been ordered to pay any civil money penalty by, or has been since December 31, 2013, a recipient of any supervisory letter from, or since December 31, 2013, has adopted any policies, procedures or board resolutions at the request or suggestion of, any Regulatory Authority or other Governmental Authority that currently restricts in any material respect the conduct of its business or that in any material manner relates to its capital adequacy, its ability to pay dividends, its credit or risk management policies, its management or its business (each, whether or not set forth in the Merchants Disclosure Letter, a “Merchants Regulatory Agreement”), nor has Merchants or any of its Subsidiaries been advised in writing or, to the Knowledge of Merchants, orally, since December 31, 2013, by any Regulatory Authority or other Governmental Authority that it is considering issuing, initiating, ordering or requesting any such Merchants Regulatory Agreement.

~~Annex A-25~~

(v) Merchants Bank has been in existence as a Vermont chartered bank for at least five (5) years. Each of Merchants and Merchants Bank is “adequately capitalized” (as defined in applicable bank regulations) as of the date hereof.

(vi) Neither Merchants nor any of its Subsidiaries (nor to Merchants’ Knowledge any of their respective directors, executives, Representatives, agents or employees) (A) has used or is using any corporate funds for any illegal contribution, gift, entertainment or other unlawful expense relating to political activity, (B) has used or is using any corporate funds for any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds, (C) has violated or is violating any provision of the Foreign Corrupt Practices Act of 1977, as amended, or any other applicable anti-bribery or anti-corruption Laws (collectively, the “Anti-Corruption Laws”) or (D) has made any bribe, unlawful rebate, payoff, influence payment, kickback or other unlawful payment. Merchants and its Subsidiaries have established and maintain a system of internal controls designed to provide reasonable assurances regarding compliance by Merchants and its Subsidiaries with all applicable Anti-Corruption Laws.

(vii) Merchants and its Subsidiaries are and since December 31, 2011 have been conducting operations at all times in compliance in all material respects with applicable financial recordkeeping and reporting requirements of all money laundering Laws administered or enforced by any Governmental Authority in jurisdictions where Merchants and its Subsidiaries conduct business (collectively, the “Anti-Money Laundering Laws”). Merchants and its Subsidiaries have established and maintain a system of internal controls designed to ensure compliance by Merchants and its Subsidiaries with applicable financial recordkeeping and reporting requirements of the Anti-Money Laundering Laws.

TABLE OF CONTENTS

(viii) Except as required by the Bank Secrecy Act, to Merchants’ Knowledge, no employee of Merchants or any of its Subsidiaries has provided or is providing information to any law enforcement agency regarding the commission or possible commission of any crime or the violation or possible violation of any applicable Law by Merchants or any of its Subsidiaries or any employee thereof acting in its capacity as such. Neither Merchants nor any of its Subsidiaries nor any officer, employee, contractor, subcontractor or agent of Merchants or any such Subsidiary has discharged, demoted, suspended, threatened, harassed or in any other manner discriminated against any employee of Merchants or any of its Subsidiaries in the terms and conditions of employment because of any act of such employee described in 18 U.S.C. Section 1514A(a).

(ix) Neither Merchants nor any of its Subsidiaries nor to the Knowledge of Merchants, any director, officer, agent, employee or any other Person acting on behalf of Merchants or any of its Subsidiaries, is currently the subject or the target of any sanctions administered or enforced by any Governmental Authority (collectively, “Sanctions”), nor is Merchants or any of its Subsidiaries located, organized or resident in a country or territory that is the subject or the target of Sanctions (each, a “Sanctioned Country”). For the past five (5) years, Merchants and its Subsidiaries have not knowingly engaged in, are not now knowingly engaged in and will not engage in, any dealings or transactions with any Person that at the time of the dealing or transaction is or was the subject or the target of Sanctions or with any Sanctioned Country. Merchants and its Subsidiaries have established and maintain a system of internal controls designed to provide reasonable assurances regarding compliance by Merchants and its Subsidiaries with all applicable Sanctions.

(i)Labor Matters. (i) Neither Merchants nor any of its Subsidiaries is a party to or bound by or currently negotiating any collective bargaining agreement or any other similar agreement with any labor organization, group or association. Since December 31, 2013, neither Merchants nor any its Subsidiaries has experienced any organizational campaign, petition or other unionization activity relating to any Service Provider, including seeking to make Merchants or any of its Subsidiaries conform to demands of organized labor or enter into any collective bargaining agreement or any other similar agreement with any labor organization, group or association. There is no strike, work stoppage or labor disturbance pending or, to the Knowledge of Merchants, threatened against Merchants or any of its Subsidiaries, and none of Merchants nor any of its Subsidiaries has experienced any such strike, stoppage or disturbance since December 31, 2013. The consent or consultation of, or the rendering of formal advice by, any labor or trade union, works council or other employee representative body is not required for Merchants to enter into this Agreement or to consummate any of the transactions contemplated hereby.

(ii) There is no unfair labor practice charge or other material Litigation regarding Service Providers against Merchants or any of its Subsidiaries pending, or to the Knowledge of Merchants, threatened, before any court, arbitrator or Governmental Authority (including the National Labor Relations Board). Neither Merchants nor any of its Subsidiaries has failed to comply with any collective bargaining agreement or any other similar agreement with any labor organization, group or association and there are no grievances pending, or to the Knowledge of Merchants, threatened, under any such agreement.

(iii) Merchants and its Subsidiaries are and have been since December 31, 2013 in compliance in all material respects with, and to the Knowledge of Merchants are not under investigation with respect to, applicable Laws with respect to employment and employee matters, including employment practices, employee benefits, labor relations, terms and conditions of employment, Tax withholding, discrimination, equal employment, fair employment practices, immigration, employee classification, human rights, pay equity, workers’ compensation, employee safety and health, facility closings and layoffs (including the Worker Adjustment and Retraining Notification Act of 1988 (together with any other similar Laws, “WARN”)) and wages and hours. During the ninety (90) day period prior to the date hereof, neither Merchants nor any of its Subsidiaries has effectuated or announced or has plans to effectuate or announce (A) a “plant closing”, (B) a “mass layoff” or (C) any other transaction, layoff, reduction in force or employment terminations sufficient in number to trigger application under WARN. No Service Providers provide services to Merchants or any of its Subsidiaries outside of the United States.

TABLE OF CONTENTS~~3.13.~~

(j)Employee Benefit Plans.

~~(a) Oneida has Previously Disclosed to CBSI in writing~~ (i) Section 3.2(j)(i) of the Merchants Disclosure Letter contains a ~~true~~correct and complete list ofidentifying each ~~Oneida~~Merchants Benefit Plan. ~~For purposes of thisSection 3.13, the term “Oneida~~No Merchants Benefit Plan” means each bonus, deferred compensation, incentive compensation, stock purchase, stock option, severance pay, medical, life or other insurance, profit-sharing, or pension plan, program, agreement or arrangement, and each other employee benefit plan, program, agreement or arrangement, sponsored, maintained or contributed to or required to be contributed to by Oneida or any Subsidiary or by any trade or business, whether or not incorporated, that together with Oneida would be deemed a “single employer” under Section 414 is operated outside of the ~~Code (an “ERISA Affiliate”) for the benefit of any employee or director or former employee or former director of Oneida or any ERISA Affiliate of Oneida.~~

~~(b) With respect to each of the Oneida Plans, Oneida has made available to CBSI true~~United States. True and complete copies of each ~~of the following documents: (i) the Oneida~~Merchants Benefit Plan ~~and~~(and, if applicable, related documents (including all amendments thereto); (ii) the most recent annual reports, financial statements, and actuarial reports, if any; (iii) the most recent summary plan description, together with each summary of material modifications, required under ERISA with respect to such Oneida Plantrust or funding agreements or insurance policies) and all material ~~communications relating~~amendments thereto and material written interpretations thereof (including summary plan descriptions) have been furnished to ~~each such Oneida Plan; and (iv) the most recent~~Community together with any related (A) determination letter received from the Internal Revenue Service (“IRS ~~with respect to each Oneida Plan that is intended to be qualified under the Code and all~~”), (B) material communications to or from the IRS, ~~or any other governmental or regulatory agency or authority relating to each Oneida Plan.~~

(c) No liability under Title IV of ERISA has been incurred by Oneida or any ERISA Affiliate of Oneida that has not been satisfied in full, and no condition exists that presents a material risk to Oneida or any ERISA Affiliate of Oneida of incurring a liability under such Title, other than liability for premium payments to the Pension Benefit Guaranty Corporation ~~which premiums~~(“PBGC”) or any other Governmental Authority and (C) the three (3) most recent annual reports on Form 5500, financial statements and actuarial reports.

(ii) Since December 31, 2013, all Merchants Benefit Plans have been administered in all material respects in compliance with their terms and with the applicable provisions of ERISA, the Code and all other applicable Laws and no events have occurred with respect to any Merchants Benefit Plan that could reasonably be expected to result in payment or ~~will be paid when due.~~

~~(d) Neither Oneida nor,~~assessment by or against Merchants or any of its Subsidiaries of any material excise taxes under ERISA or the Code. There are no pending or, to the Knowledge of ~~Oneida,~~Merchants, threatened Litigation, governmental audits or investigations or other proceedings or participant claims (other than claims for benefits in the ordinary course of business) with respect to or against any ~~ERISA Affiliate of Oneida, nor any of the Oneida Plans, nor any trust created thereunder, nor, to the Knowledge of Oneida, any trustee~~Merchants Benefit Plan or ~~administrator thereof has engaged in a~~its assets. No prohibited transaction (within the meaning of Section 406 of ERISA and Section 4975 of the Code) ~~in connection with which Oneida~~ or any ~~ERISA Affiliate~~breach of ~~Oneida could~~a fiduciary duty has occurred with respect to any Merchants Benefit Plan that has caused or would reasonably be expected to ~~either directly~~cause Merchants or ~~indirectly,~~any of its Subsidiaries to incur any material ~~liability~~Liability under ERISA or the Code. Each Merchants Benefit Plan that is a “non-qualified deferred compensation plan” (as defined for purposes of Section 409A of the Code) is in all material ~~cost.~~

~~(e) Full payment~~respects in documentary compliance with, and has been ~~made, or will be made~~operated and administered in ~~accordance~~all material respects in compliance with, Section ~~404(a)(6)~~409A of the Code and the applicable guidance issued thereunder. All amounts due and payable under any Merchants Benefit Plan have been timely paid except as would not result in a material Liability of ~~all amounts~~Merchants or its Subsidiaries.

(iii) Each Merchants Benefit Plan that ~~Oneida or any ERISA Affiliate of Oneida~~ is ~~required~~intended to ~~pay~~be qualified under Section ~~412~~401(a) of the Code has received a favorable determination letter with respect to its tax-qualified status and the tax-exempt status of any related trust, or ~~under~~has pending or has time remaining in which to file, an application for such determination from the ~~terms~~IRS, and, to the Knowledge of ~~the Oneida Plans.~~Merchants, there are no facts or circumstances that would reasonably be expected to cause any such determination letter to be revoked or not be reissued.

~~(f) The fair market value of the assets held under~~(iv) With respect to each ~~Oneida~~Merchants Benefit Plan that is subject to Title IV of ERISA ~~equals~~ or ~~exceeds~~Section 412 of the ~~actuarial present value~~Code (each, a “Title IV Plan”), (A) no Liability to PBGC (other than Liability for premiums) has been incurred and all premiums required to be paid to PBGC have been timely paid, (B) Merchants or its relevant ERISA Affiliate has satisfied the minimum funding standard under ERISA and the Code, (C) the assets of ~~all accrued benefits under each~~ such ~~Oneida Plan.~~Title IV Plan, as determined in the most recent valuation, equaled or exceeded the accumulated benefit obligations of such Title IV Plan, (D) such Title IV Plan is not in “at risk status” and (E) neither Merchants nor its ERISA Affiliates has received written or, to the Knowledge of Merchants, oral notice from PBGC, nor is Merchants otherwise aware, that an event or condition exists that would constitute grounds for termination of such Title IV Plan by PBGC. No reportable event under Section 4043 of ERISA has occurred with respect to any ~~Oneida~~Merchants Benefit Plan other than any ~~reportable event occurring by reason of the Transactions or a~~ reportable event for which the requirement of notice to ~~the Pension Benefit Guaranty Corporation~~PBGC has been ~~waived.~~

~~Annex A-26~~

~~(g)~~waived nor has any event described in 4062 of ERISA occurred. None of the ~~Oneida Plans is~~assets of Merchants or any of its Subsidiaries are subject to any Lien by reason of a failure to make timely installments or other payments to a Title IV Plan. Neither Merchants nor any of its ERISA Affiliates has engaged in any transaction described in Section 4069 of the Code nor has incurred or reasonably expects to incur, any Liability arising in connection with the termination of a Title IV Plan. Neither Merchants nor any of its ERISA Affiliates (nor any predecessor thereto) sponsors, maintains, administers or contributes to or has any obligation to contribute to (nor in the past six years, sponsored, maintained, administered or contributed to or had any obligation to contribute to) any “multiemployer ~~pension~~ plan,” as such term is defined in Section 3(37) of ERISA, a “multiple employer welfare arrangement,” as such term is defined in Section 3(40) of ERISA or a single employer plan that has two or more contributing sponsors, at least two of whom are not under common control, within the meaning of Section 4063(a) of ERISA.

TABLE OF CONTENTS

~~(h) A favorable determination letter~~(v) Neither Merchants nor any of its ERISA Affiliates has ~~been issued by the IRS~~any current or projected obligations or Liability for post-employment or post-retirement health, medical, or life insurance benefits under any Merchants Benefit Plan, other than with respect to ~~each~~benefit coverage mandated by Section 4980B of the Oneida Plans that is intended to be “qualified” within the meaning of Section 401(a) of the Code to the effect that such plan is so qualified and, to the Knowledge of Oneida, no condition exists that could adversely affect the qualified status of any such Oneida Plan. Each of the Oneida Plans that is intended to satisfy the requirements of Section 125 or 501(c)(9) of the Code satisfies such requirements in all material respects. Each of the Oneida Plans has been operated and administered in all material respects in accordance with its terms and applicable laws, including but not limited to ERISA and the Code.

(i) There are no actions, suits or claims pending, or, to the Knowledge of Oneida, threatened or anticipated (other than routine claims for benefits) against any Oneida Plan, the assets of any Oneida Plan or against Oneida or any ERISA Affiliate of Oneida with respect to any Oneida Plan. There is no judgment, decree, injunction, rule or order of any court, governmental body, commission, agency or arbitrator outstanding against or in favor of any Oneida Plan or any fiduciary thereof, other than rules of general applicability. There are no pending or, to the Knowledge of Oneida, threatened audits, examinations or investigations by any governmental body, commission or agency involving any Oneida Plan.

~~(j) Except as Previously Disclosed, the~~(vi) The consummation of the ~~Transactions~~transactions contemplated by this Agreement will not ~~result in, and is not a precondition to, (i)~~(either alone or together with any ~~current or former employee or director of Oneida or~~other event) (A) entitle any ~~ERISA Affiliate of Oneida becoming entitled~~Service Provider to severance pay ~~unemployment compensation~~ or ~~any~~ similar payment, ~~(ii)~~(B) enhance any ~~acceleration in~~benefits or accelerate the time of payment or vesting or trigger any payment of funding (through a grantor trust or otherwise) of compensation or benefits under, increase in the amount payable or trigger any other obligation pursuant to, any Merchants Benefit Plan or otherwise or (C) result in any violation of, or default under, or limit the right of Merchants or its Subsidiaries, or, after the Effective Time, Community or any of its Subsidiaries, to amend, modify or terminate any Merchants Benefit Plan. There is no Contract, plan or arrangement covering any Service Provider that, individually or collectively, would entitle any Service Provider to any tax gross-up or similar payment from Merchants or any of its Subsidiaries or that could give rise to the payment of any ~~compensation due~~amount that would not be deductible pursuant to ~~any such current~~the terms of Section 162(m) or ~~former employee or director, or (iii) any renewal or extension~~Section 280G of the ~~term of any agreement regarding compensation for any such current or former employee or director.~~Code.

~~3.14.~~ (k)Material Contracts.

~~(a)~~ (i) Except as ~~Previously Disclosed,~~listed in Section 3.2(k) of the Merchants Disclosure Letter, as of the date of this Agreement, neither ~~Oneida~~Merchants nor any of its Subsidiaries, nor any of their respective assets, businesses or operations, is a party to, or is bound or affected by, ~~(i)~~or receives benefits under, (A) any ~~material contract, as defined in Item 601(b)(10)~~Contract relating to the borrowing of ~~Regulation S-K promulgated~~money by the SEC, which has not been filed as an exhibit to Oneida’s SEC Documents, (ii) any agreement, arrangement or commitment which could reasonably be expected to involve expenditures or receipt by OneidaMerchants or any of its Subsidiaries ~~in excess~~or the guarantee by Merchants or any of ~~$50,000 in the aggregate, whether~~its Subsidiaries of any such obligation (other than Contracts evidencing deposit liabilities, purchases of federal funds, fully-secured repurchase agreements, Federal Home Loan Bank advances of Merchants Bank or ~~not made~~Contracts pertaining to trade payables incurred in the ordinary course of business ~~(other than Loans~~consistent with past practice), (B) any Contract containing covenants that limit the ability of Merchants or ~~loan commitments and funding transactions~~any of its Affiliates (including, after the Effective Time, Community or any of its Affiliates) to engage in any line of business or to compete in any line of business or with any Person, or that involve any restriction of the geographic area in which, or method by which, Merchants or any of its Subsidiaries or Affiliates (including, after the Effective Time, Community or any of its Affiliates) may carry on its business, (C) any Contract or series of related Contracts for the purchase of materials, supplies, goods, services, equipment or other assets that (x) provides for or is reasonably likely to require annual payments by Merchants or any of its Subsidiaries of $50,000 or more or (y) have a term exceeding twelve (12) months in duration (except those entered into in the ordinary course of business consistent with past practice with respect to Loans, lines of ~~the Oneida Banks)~~credit, letters of credit, depositor agreements, certificates of deposit and similar routine banking activities), ~~(iii)~~(D) any ~~agreement, arrangement~~Contract between or ~~commitment restricting the nature or geographic scope of its business activities in any material respect, (iv) any agreement, indenture or other instrument relating to the borrowing of money by Oneida~~among Merchants or any of its Subsidiaries or Affiliates, (E) any Contract involving Intellectual Property (excluding generally commercially available “off the ~~guarantee~~shelf” software programs licensed pursuant to “shrink wrap” or “click and accept” licenses), (F) any Contract relating to the provision of data processing, network communications or other technical services to or by ~~Oneida of~~Merchants or any of its Subsidiaries, (G) any Contract with respect to the formation, creation, operation, management or control of ~~any such obligation,~~a joint venture, partnership, limited liability company or other ~~than instruments relating to transactions entered into in the ordinary course of the banking business of the Oneida Banks consistent with past practice, (v) any agreement,~~similar arrangement or ~~commitment relating~~agreement, (H) any Contract that provides any rights to investors in Merchants, including registration, preemptive or anti-dilution rights or rights to designate members of or observers to the ~~employment~~Merchants Board of ~~a Person who is or was a director or officer of Oneida~~Directors, (I) any Contract that provides for potential material indemnification payments by Merchants or any ~~Oneida Subsidiary or to the employment, election, retention in office or severance~~ of its Subsidiaries, (J) any present or former director or officer of Oneida or any Oneida Subsidiary, (vi) any agreement, arrangement or commitment that would obligate Oneida or any Oneida Subsidiary to pay any stay or retention bonus or change-in-control, severance or termination payment to any current or former director or officer of Oneida or any Oneida Subsidiary as a result of the consummation of the Transactions or the separation from service of any such director or officer following consummation of the Transactions, or (vii) any contract, agreementContract or understanding with a labor union, in each case whether written or ~~oral.~~

~~Annex A-27~~

~~(b) Except~~oral, or (K) any other Contract or amendment thereto that would be required to be filed as ~~Previously Disclosed,~~an exhibit to any SEC Report (as described in Items 601(b)(4) and 601(b)(10) of Regulation S-K). With respect to each Contract described above: (w) the Contract is valid and binding on Merchants or the applicable Subsidiary party thereto and, to the Knowledge of Merchants, each other party thereto and is in full force and effect, enforceable in accordance with its terms (except in all cases as such enforceability may be limited by (1) bankruptcy, insolvency, reorganization, moratorium, receivership, conservatorship and other Laws now or hereafter in effect relating to or affecting the enforcement of creditors’ rights generally and (2) general equitable principles and except that the availability of the equitable remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding may be brought); (x) neither ~~Oneida~~Merchants nor any of its Subsidiaries is in ~~default under~~Default thereunder; (y) neither Merchants nor any ~~agreement, commitment, arrangement, lease, insurance policy~~of its Subsidiaries has repudiated or waived any material provision of any such Contract; and (z) no other ~~instrument~~party to any such Contract is, to the Knowledge of Merchants, in Default in any material

TABLE OF CONTENTS

respect or has repudiated or waived any material provision of any such Contract. No Consent is required by any such Contract for the execution, delivery or performance of this Agreement or the Bank Merger Agreement or the consummation of the Merger or the Bank Merger or the other transactions contemplated hereby or thereby. All indebtedness for money borrowed of Merchants and its Subsidiaries is prepayable without penalty or premium.

(ii) All interest rate swaps, caps, floors, collars, option agreements, futures, and forward contracts, and other similar risk management arrangements, Contracts or agreements, whether entered into for Merchants’ own account or for the account of one or more of its Subsidiaries or their respective customers, were entered into (A) in the ordinary course of business consistent with past practice and in accordance with prudent business practices and all applicable Laws and (B) with counterparties believed to be financially responsible, and each of them is enforceable in accordance with its terms (except in all cases as such enforceability may be limited by (1) bankruptcy, insolvency, reorganization, moratorium, receivership, conservatorship and other Laws now or hereafter in effect relating to or affecting the enforcement of creditors’ rights generally and (2) general equitable principles and except that the availability of the equitable remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding may be brought), and is in full force and effect. Neither Merchants nor any of its Subsidiaries, nor to the Knowledge of Merchants, any other party thereto, is in Default of any of its obligations under any such agreement or arrangement.

(l)Legal Proceedings. There is no material Litigation pending or, to the Knowledge of Merchants, threatened against or involving Merchants or any of its Subsidiaries or its or any of its Subsidiaries’ assets, interests or rights, nor are there any Orders of any Governmental Authority outstanding against Merchants or any of its Subsidiaries, nor do any facts or circumstances exist that would be likely to form the basis for any material claim against Merchants or any of its Subsidiaries. There is no material Litigation pending or, to the Knowledge of Merchants, threatened, against or involving any officer, director, advisory director or employee of Merchants or its Subsidiaries, in each case by reason of any person being or having been an officer, director, advisory director or employee of Merchants or its Subsidiaries.

(m)Intellectual Property. (i) Either Merchants or one of its Subsidiaries owns, or is licensed or otherwise ~~and whether written~~possesses legally enforceable rights to use, all Intellectual Property (including the Technology Systems) that is used by Merchants or ~~oral, and there has not occurred any event that, with~~its Subsidiaries in its or its Subsidiaries’ business, except where the ~~lapse of time or giving of notice or both, would constitute~~failure to possess such ~~a default, except for such defaults which would not,~~rights, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on ~~Oneida.~~

~~3.15.~~ ~~Legal Proceedings. Except as Previously Disclosed, there are no actions, suits or proceedings instituted, pending or, to the Knowledge of Oneida or~~Merchants. Neither Merchants nor any of its Subsidiaries ~~threatened against Oneida~~has (A) licensed to any Person in source code form any Intellectual Property owned by Merchants or any of its Subsidiaries or ~~against~~(B) entered into any ~~asset, interest~~exclusive agreements relating to Intellectual Property owned by Merchants or ~~right~~its Subsidiaries.

(ii) Section 3.2(m)(ii) of ~~Oneida~~the Merchants Disclosure Letter lists all patents and patent applications, all registered and material unregistered trademarks and applications therefor, trade names and service marks, registered copyrights and applications therefor, domain names, web sites and mask works owned by or ~~any of~~exclusively licensed to Merchants or its Subsidiaries ~~that, if decided against Oneida~~included in its Intellectual Property, including the jurisdictions in which each such Intellectual Property right has been issued or registered or in which any ~~of its Subsidiaries, would,~~application for such issuance and registration has been filed. Except as, individually or in the aggregate, has not had and would not reasonably be expected to have a Material Adverse Effect on ~~Oneida. There~~Merchants, no royalties or other continuing payment obligations are ~~no actual~~due in respect of any third-party patents, trademarks or copyrights, including software.

(iii) All patents, registered trademarks, registered service marks and registered copyrights held by Merchants and its Subsidiaries are valid and subsisting. Since December 31, 2013, neither Merchants nor any of its Subsidiaries (A) has been sued in any Litigation which involves a claim of infringement of any patents, trademarks, service marks, copyrights or violation of any trade secret or other proprietary right of any third party or (B) has brought any Litigation for infringement of its Intellectual Property or breach of any license or other Contract involving its Intellectual Property against any third party.

(n)Loan and Investment Portfolios. (i) All loans, loan agreements, notes or borrowing arrangements (including leases, lines of credit, extensions of credit, credit enhancements, commitments, guarantees, loan

TABLE OF CONTENTS

participations, promissory notes, loan commitments and interest-bearing assets) (collectively, “Loans”) in which Merchants or any of its Subsidiaries is the creditor (A) were at the time and under the circumstances in which made, made for good, valuable and adequate consideration in the ordinary course of business of Merchants and its Subsidiaries and are the legal, valid and binding obligations of the obligors thereof, enforceable in accordance with their terms (except in all cases as such enforceability may be limited by (1) bankruptcy, insolvency, reorganization, moratorium, receivership, conservatorship and other Laws now or hereafter in effect relating to or affecting the enforcement of creditors’ rights generally and (2) general equitable principles), (B) are evidenced by notes, agreements or other evidences of indebtedness that are true, genuine and what they purport to be, (C) to the extent secured, have been secured by valid Liens that have been perfected and (D) are not the subject of any written notice from an obligor asserting any defense, set-off or counterclaim with respect thereto that, if valid, would materially and adversely affect the value of the related Loan.

(ii) True and complete lists of all Loans as of June 30, 2016 and on a monthly basis thereafter, and of the investment portfolios of Merchants and each of its Subsidiaries as of such date, are disclosed in Section 3.2(n)(ii) of the Merchants Disclosure Letter. Except as specifically set forth in Section 3.2(n)(ii) of the Merchants Disclosure Letter, neither Merchants nor any of its Subsidiaries is a party to any Loan that, as of the most recent month-end prior to the date of this Agreement, (A) was delinquent by more than thirty (30) days in the payment of principal and/or interest, (B) to the Knowledge of Merchants, was otherwise in material default for more than thirty (30) days, (C) was on non-accrual status or classified as “substandard,” “doubtful,” “loss,” “other assets specially mentioned,” “special mention,” “criticized,” “classified,” “watch list” or any comparable classification by Merchants or any of its Subsidiaries or any Regulatory Authority having jurisdiction over Merchants or any of its Subsidiaries, (D) was an obligation of any director, executive officer or five percent (5%) stockholder of Merchants or any of its Subsidiaries who is subject to Regulation O of the Federal Reserve Board (12 C.F.R. Part 215), or any Person controlling, controlled by or under common control with any of the foregoing, (E) was in violation of any Law within such Law’s statute of limitations period that materially and adversely affects the value of the Loan, (F) has had its respective terms to maturity accelerated or with respect to which Merchants or any Subsidiary of Merchants has notified the borrower of its intention to accelerate the Loan or declare a default, (G) has been terminated or amended by Merchants or any Subsidiary of Merchants during the past twelve (12) months by reason of a default or adverse developments in the condition of the borrower or other events or circumstances affecting the credit of the borrower (except for modifications and amendments contained in the loan file, true and complete copies of which have been made available to Community), (H) has a borrower, customer or other party to such Loan which has notified Merchants or any Subsidiary of Merchants during the past twelve (12) months of, or has asserted against Merchants, in writing, or to the Knowledge of ~~Oneida, threatened actions, suits~~ Merchants, orally, any “lender liability” claim that, if valid, would materially and adversely affect the value of the Loan, (I) has, during the past two (2) years, had its interest rate terms reduced and/or ~~proceedings~~the maturity dates extended subsequent to the agreement under which ~~present a claim~~the Loan was originally created due to ~~restrain or prohibit~~concerns regarding the ~~Transactions or~~borrower’s ability to ~~impose any material liability or restrictions~~pay in accordance with such initial terms (except for reductions, extensions, modifications and amendments contained in the loan file, true and complete copies of which have been made available to Community), (J) in connection ~~therewith. To the Knowledge~~therewith, has a specific reserve allocation, or (K) was classified by Merchants as “other real estate owned,” including all other assets currently held that were acquired through foreclosure or in lieu of ~~Oneida, as of the date of this Agreement there are no actions, suits or proceedings instituted, pending or threatened against any present or former director or officer of Oneida~~foreclosure (such Loans described in subsections (A) through (K), “Delinquent Loans”).

(iii) Each outstanding Loan (including Loans held for resale to investors) in which Merchants or any of its Subsidiaries is the creditor was solicited and originated, and is and has been administered and, where applicable, serviced, and the relevant loan or other similar files are being maintained, in all material respects, in accordance with the relevant notes or other credit or security documents, the written underwriting standards of Merchants and its Subsidiaries (and, in the case of Loans held for resale to investors, the underwriting standards, if any, of the applicable investors) and with all applicable federal, state and local Laws.

(iv) None of the agreements pursuant to which Merchants or any of its Subsidiaries has sold Loans or pools of Loans or participations in Loans or pools of Loans contains any obligation to repurchase such

TABLE OF CONTENTS

Loans or interests therein solely on account of a payment default by the obligor on any such Loan, and neither Merchants nor any of its Subsidiaries has received written notice of any pending claim for it to repurchase Loans or interests therein.

(v) Neither Merchants nor any of its Subsidiaries is now nor has it ever been since December 31, 2013, subject to any material fine, suspension, settlement or other Contract or other administrative agreement or sanction by, or any reduction in any loan purchase commitment from, any Governmental Authority or Regulatory Authority relating to the origination, sale or servicing of mortgage or consumer Loans.

(o)Adequacy of Allowances for Losses. Each of the allowances for losses on Loans and other real estate included on the balance sheet included in the Merchants Financial Statements as of June 30, 2016 is adequate in accordance with applicable regulatory guidelines and GAAP in all material respects, and, to the Knowledge of Merchants, there are no facts or circumstances that are likely to require in accordance with applicable regulatory guidelines or GAAP a future material increase in any such provisions for losses or a material decrease in any of the allowances therefor (specifically excluding changes in accounting or regulatory standards that may impact the allowance, including but not limited to the Financing Accounting Standards Board’s current expected credit loss (“CECL”) requirements). Each of the allowances for losses on Loans and other real estate reflected on the books of Merchants and its Subsidiaries at all times from and after the date of the balance sheet included in the Merchants Financial Statements as of June 30, 2016 is adequate in accordance with applicable regulatory guidelines and GAAP in all material respects, and, to the Knowledge of Merchants, there are no facts or circumstances (specifically excluding changes in accounting or regulatory standards that may impact the allowance, including but not limited to CECL requirements) that are likely to require, in accordance with applicable regulatory guidelines or GAAP, a future material increase in any of such provisions for losses or a material decrease in any of the allowances therefor.

(p)Community Reinvestment Act. Merchants and its Subsidiaries have complied in all material respects with the provisions of the Community Reinvestment Act of 1977 (“CRA”) and the rules and regulations thereunder, has a CRA rating of not less than “satisfactory” in its most recently completed exam, has received no material criticism from regulators with respect to discriminatory lending practices, and to the Knowledge of Merchants, there are no conditions, facts or circumstances that could result in a CRA rating of less than “satisfactory” or material criticism from regulators or consumers with respect to discriminatory lending practices.

(q)Privacy of Customer Information. Merchants and its Subsidiaries’ collection and use of all non-public personal information (“NPPI”) relating to customers, former customers and prospective customers that will be transferred to Community or a Subsidiary of Community pursuant to this Agreement and the Bank Merger Agreement and the other transactions contemplated hereby complies in all material respects with all applicable privacy policies, the Gramm-Leach-Bliley Act, the Fair Credit Reporting Act and all other applicable state, federal and foreign privacy Laws, and any contract or industry standard relating to privacy. For purposes of thisSection 3.2(q), “NPPI” means any information relating to an identified or identifiable natural person, including, but not limited to “personally identifiable financial information” as that term is defined in 12 CFR Part 1016.

(r)Technology Systems. (i) To the Knowledge of Merchants, no action will be necessary as a result of the transactions contemplated by this Agreement to enable use of the Technology Systems to continue by the Surviving Corporation and its Subsidiaries to the same extent and in the same manner that it has been used by Merchants and its Subsidiaries prior to the Effective Time.

(ii) The Technology Systems (for a period of eighteen (18) months prior to the Effective Time) have not suffered unplanned disruption causing a Material Adverse Effect on Merchants. Except for ongoing payments due under Contracts with third parties, the Technology Systems are free from any Liens (other than Permitted Liens). Access to business-critical parts of the Technology Systems is not shared with any third party.

(iii) Merchants has furnished to Community a true and correct copy of Merchants’ disaster recovery and business continuity arrangements.

TABLE OF CONTENTS

(iv) Neither Merchants nor any of its Subsidiaries has received notice of or is aware of any material circumstances, including the execution of this Agreement or the Bank Merger Agreement or the consummation of the transactions contemplated hereby or thereby, that would ~~reasonably be expected~~enable any third party to ~~give rise~~terminate any of Merchants’ or any of its Subsidiaries’ agreements or arrangements relating to ~~a right by such director or officer to claim indemnification from Oneida or its Subsidiaries.~~

~~3.16.~~ ~~Compliance with Laws~~the Technology Systems (including maintenance and support).

~~(a) Oneida~~(s)Insurance Policies. Merchants and each of its Subsidiaries ~~hold,~~maintains in full force and ~~have at~~effect insurance policies and bonds in such amounts and against such liabilities and hazards of the types and amounts as (i) it reasonably believes to be adequate for its business and operations and the value of its properties and (ii) are comparable to those maintained by other banking organizations of similar size and complexity. Section 3.2(s) of the Merchants Disclosure Letter sets forth a true and complete list of all times since January 1, 2011 held, all material licenses, franchises, permits and authorizations necessary for the lawful conduct of their respective businesses and ownership of their respective properties, rights and assets (and have paid all material fees and assessments due and payable in connection therewith), and to the Knowledge of Oneida, no suspension or cancellation ofsuch insurance policies. Neither Merchants nor any ~~such necessary license, franchise, permit or authorization is threatened.~~

~~(b) Oneida and each~~ of its Subsidiaries is now liable for, nor has any such member received notice of, any material retroactive premium adjustment. Merchants and its Subsidiaries are in compliance in all material respects with ~~all statutes~~their insurance policies and ~~regulations applicable to the conduct of its business, and neither Oneida nor~~are not in Default under any of ~~its Subsidiaries has received notification from any agency~~the terms thereof, each such policy is in full force and effect, none of Merchants or department of federal, state or local government (i) asserting a violation of any such statute or regulation, (ii) threatening to revoke any license, franchise, permit or government authorization or (iii) in any way restricting or limiting its operations.

~~Annex A-28~~

~~3.17.~~ ~~Labor Matters~~. With respect to their employees, neither Oneida nor its Subsidiaries is a party to any collective bargaining or other similar agreement with any labor organization, group or association or has engaged in any unfair labor practice. Since December 31, 2013, neither Oneida nor its Subsidiaries have experienced any attempt by organized labor or its representatives to make Oneida or any of its Subsidiaries conform to demands of organized labor relating to their employees or to enter into a binding agreement with organized labor that would cover the employees of Oneida or any of its Subsidiaries. To the Knowledge of Oneida, there is no unfair labor practice charge or other complaint by any employee or former employee of Oneida or any of its Subsidiaries against any of them pending before any court, arbitrator or governmental agency arising out of Oneida’s or such Subsidiary’s activities or such employee’s employment with Oneida or such Subsidiary. There is no strike, work stoppage or labor disturbance pending or, to the Knowledge of Oneida, threatened against Oneida or any of its Subsidiaries, and neither Oneida nor any of its Subsidiaries has experienced any such strike, stoppage or disturbance since December 31, 2013.

~~3.18.~~ ~~Brokers and Finders~~. Neither Oneida nor any of its Subsidiaries, nor any of their respective officers, directors or employees, has engaged any broker, finder or financial advisor or become obligated to or incurred any liability for any fees or commissions in connection with the Transactions, except for the firm of Keefe Bruyette & Woods, Inc. to provide financial advice with respect to the Transactions provided for in this Agreement. Oneida has heretofore furnished to CBSI a complete and correct copy of all agreements between Oneida or any of its Subsidiaries and Keefe Bruyette & Woods, Inc., pursuant to which such firm would be entitled to any payment relating to the Transactions.

~~3.19.~~ ~~Insurance. Except as Previously Disclosed, each of Oneida and its Subsidiaries currently maintains insurance in amounts reasonably adequate for their operations. Neither Oneida nor~~ any of its Subsidiaries has received any notice of a material premium increase ~~over current rates~~ or involuntary cancellation with respect to any of ~~their~~its insurance policies or bonds and, ~~within~~except for policies insuring against potential liabilities of officers, directors and employees of Merchants and its Subsidiaries, Merchants or one of its Subsidiaries is the sole beneficiary of any such policy, and all premiums and other payments due under any such policy have been paid, and all claims thereunder have been filed in due and timely fashion. Within the last ~~two calendar~~three (3) years, ~~neither Oneida nor~~none of Merchants or any of its Subsidiaries has been refused any basic insurance coverage sought or applied for (other than certain exclusions for coverage of certain events or circumstances as stated in such policies), and ~~neither Oneida nor any of its Subsidiaries~~Merchants has ~~any~~no reason to believe that its existing insurance coverage cannot be renewed as and when the same shall expire, upon terms and conditions standard in the market at the time renewal is sought as favorable as those presently in effect. ~~Oneida~~

(t)Corporate Documents. Merchants has ~~Previously Disclosed~~delivered to Community, with respect to Merchants and each of its Subsidiaries, true and correct copies of its Organizational Documents, all as amended and currently in effect. All of the foregoing are current, complete and correct in all material respects.

(u)State Takeover Laws. Assuming the accuracy of Community’s representations and warranties set forth inSection 3.3(r), Merchants has taken all action required to be taken by it in order to (i) exempt this Agreement and the transactions contemplated hereby from, and this Agreement and the transactions contemplated hereby are exempt from, the requirements of any “moratorium,” “control share,” “fair price,” “affiliate transaction,” “anti-greenmail,” “business combination” or other anti-takeover Law of any jurisdiction (collectively, “Takeover Laws”) and (ii) make this Agreement and the transactions contemplated hereby comply with, and this Agreement and the transactions contemplated hereby do comply with, the requirements of any provisions of its Organizational Documents concerning “business combination,” “fair price,” “voting requirement,” “constituency requirement” or other related provisions.

(v)Certain Actions. Neither Merchants nor any of its Subsidiaries or Affiliates has taken or agreed to take any action, and to the Knowledge of Merchants, there are no facts or circumstances that are reasonably likely to (i) prevent the Merger from qualifying as a “reorganization” within the meaning of Section 368(a) of the Code, or (ii) materially impede or delay receipt of any Requisite Regulatory Approval. To the Knowledge of Merchants, there exists no fact, circumstance, or reason that would cause any Requisite Regulatory Approval not to be received in a timely manner.

(w)Real and Personal Property. Except as would not reasonably be expected, either individually or in the aggregate, to have a Material Adverse Effect on Merchants, (a) Merchants or a Subsidiary of Merchants has good and marketable title to all the real property reflected in the latest audited balance sheet included in the Merchants Reports as being owned by Merchants or a Subsidiary of Merchants or acquired after the date thereof (except properties sold or otherwise disposed of since the date thereof in the ordinary course of business consistent with past practice) (the “Merchants Owned Properties ”), free and clear of all Liens, except (i) Liens for current Taxes and assessments not yet past due or the amount or validity of which is being contested in good faith by appropriate proceedings, (ii) Liens for real property Taxes not yet due and payable, (iii) easements, rights of way, and other similar encumbrances, (iv) mechanics’, workmen’s, repairmen’s, warehousemen’s and carrier’s Liens arising in the ordinary course of business of Merchants

TABLE OF CONTENTS

consistent with past practice, (v) restrictions on transfers under applicable Securities Laws, or (vi) such imperfections or irregularities of title or Liens as do not materially affect the value or use of the properties or assets subject thereto or affected thereby or otherwise materially impair business operations at such properties (clauses (i) through (v), collectively, “Permitted Liens”), and (b) is the lessee of all leasehold estates reflected in the latest audited financial statements included in such Merchants Reports or acquired after the date thereof (except for leases that have expired by their terms since the date thereof) (collectively with the Merchants Owned Properties, the “Merchants Real Property”), free and clear of all Liens of any nature whatsoever, except for Permitted Liens or any encumbrances on a landlord’s fee title which do not materially adversely affect Merchants’ or its Subsidiary’s, as applicable, present use of such property, and is in possession of the properties purported to be leased thereunder, and each such lease is valid without Default thereunder by the lessee or, to the Knowledge of Merchants, the lessor. There are no pending or, to the Knowledge of Merchants, threatened condemnation proceedings against the Merchants Real Property. Merchants has previously made available to Community a true and complete list of all ~~outstanding claims~~Merchants Real Property as of the date hereof by Oneida or any of its Subsidiaries under any insurance policy. The deposits of the Oneida Banks are insured by the FDIC in accordance with the FDIA, and the Oneida Banks have paid all assessments and filed all reports required by the FDIA.

~~3.20.~~ ~~Environmental Liability~~.

(a) During the period that Oneida or any of its Subsidiaries has owned, leased or operated any properties or facilities, neither it nor any other Person has disposed, released, or participated in or authorized the release of Hazardous Materials on, from or under such properties or facilities. There is not now nor has there ever been any presence, disposal, release or threatened release of Hazardous Materials on, from or under any of such properties or facilities, which may have occurred prior to Oneida having taken possession of any of such properties or facilities. For the purposes of this Agreement, the terms “disposal,” “release,” and “threatened release” shall have the definitions assigned thereto by the Comprehensive Environmental Response Compensation and Liability Act of 1980, 42 U. S.C. § 9601 et seq., as amended (“~~CERCLA”).~~Agreement.

~~Annex A-29~~

(b) The operations of Oneida or any of its Subsidiaries, and properties that Oneida or any of its Subsidiaries owns or leases, are in compliance with Environmental Law. During the time that Oneida or any of its Subsidiaries has owned or leased its properties and facilities, neither Oneida or any of its Subsidiaries nor, to the best Knowledge of Oneida, any third party has used, generated, manufactured or stored on, under or about such properties or facilities or transported or arranged for disposal to or from such properties or facilities, any Hazardous Materials in violation of applicable Environmental Law.

(c) During the time that Oneida or any of its Subsidiaries has owned or leased its properties and facilities, there has been no litigation brought or, to the best Knowledge Oneida, threatened against Oneida or any of its Subsidiaries by, or any settlement reached by Oneida or any of its Subsidiaries with, any Person alleging the presence, disposal, release or threatened release of any Hazardous Materials, on from or under any of such properties or facilities.

(d) There are no facts, circumstances or conditions relating to the properties and facilities owned or leased by Oneida or any of its Subsidiaries known to Oneida which are reasonably likely to give rise to a claim under any Environmental Law or to any material Environmental Costs and Liabilities.

~~3.21.~~ (x)Administration of Trust Accounts. ~~Oneida~~Merchants and each of its Subsidiaries have ~~properly~~ administered all common trust funds and collective investment funds and all accounts for which each of them acts as a fiduciary or agent, including but not limited to accounts for which it serves as a trustee, agent, custodian, personal representative, guardian, conservator or investment advisor, in accordance in all material respects with the terms of the governing documents and applicable ~~state and federal law and regulation and common law, except where the failure to do so would not, individually or in the aggregate, have a Material Adverse Effect on Oneida.~~Law. Neither ~~Oneida~~Merchants nor any of its Subsidiaries, nor any of their respective directors, officers or employees acting on behalf of ~~Oneida~~Merchants or any of its Subsidiaries, has committed any breach of trust with respect to any such common trust fund or collective investment fund or fiduciary or agency account, and the accountings for each such common trust fund or collective investment fund or fiduciary or agency account are true and correct in all material respects and accurately reflect the assets of such common trust fund or collective investment fund or fiduciary or agency ~~account, except~~account.

(y)Brokers and Finders. Except for ~~such breaches and failures to be true, correct and accurate which would not, individually or in the aggregate, have a Material Adverse Effect on Oneida.~~

~~3.22.~~ ~~Intellectual Property. Each~~Piper Jaffray & Co., neither Merchants nor any of ~~Oneida and~~ its Subsidiaries, ~~owns~~nor any of their respective directors, officers, employees or Representatives, has employed any broker or finder or incurred any Liability for any financial advisory fees, investment bankers’ fees, brokerage fees, commissions or finders’ fees in connection with this Agreement or the ~~entire right, title~~transactions contemplated hereby. A true and ~~interest in and to, or has valid licenses with respect to, all~~complete copy of the ~~Intellectual Property necessary in all material respects~~engagement letter between Merchants and Piper Jaffray & Co. has been delivered to ~~conduct their respective businesses~~Community.

(z)Fairness Opinion. Prior to the execution of this Agreement, Merchants has received an executed opinion of Piper Jaffray & Co. to the effect that as of the date thereof and ~~operations~~based upon and subject to the matters set forth therein, the Merger Consideration is fair, from a financial point of view, to the stockholders of Merchants. Such opinion has not been amended or rescinded as ~~presently conducted, except where~~of the ~~failure~~date of this Agreement. Merchants will make available to ~~do so would not, individually~~Community solely for informational purposes a copy of the executed opinion as soon as practicable following the execution of this Agreement.

(aa)Transactions with Insiders and Affiliates. There are no agreements, Contracts, plans, arrangements or ~~in the aggregate, have a Material Adverse Effect on Oneida. The ownership, licensing or use of Intellectual Property by Oneida~~other transactions between Merchants or any of its Subsidiaries, ~~does not conflict with, infringe, misappropriate~~on the one hand, and any (i) officer or ~~otherwise violate~~director of Merchants or any of its Subsidiaries, (ii) record or beneficial owner of five percent (5%) or more of the ~~Intellectual Property rights~~voting securities of Merchants or (iii) related interest or family member of any such officer, director or record or beneficial owner, in any case other Person. None of such Intellectual Property is subject to any outstanding order, decree, judgment, stipulation, settlement, lien, charge, encumbrance or attachment, which order, decree, judgment, stipulation, settlement, lien, charge, encumbrance or attachment would, individually or in the aggregate, have a Material Adverse Effect on Oneida. Upon consummation of the Transactions, CBSI will be entitled to continue to use all such Intellectual Property without the payment of any fees, licenses or other payments.than bank customer relationships, employment and related agreements, employee benefit plans and bank-owned life insurance policies.

~~Annex A-30~~

~~3.23.~~ (bb)Certain Information. When the Registration Statement or any post-effective amendment thereto shall become effective, and at all times subsequent to such effectiveness up to and including the time of the ~~Oneida Shareholders’~~Merchants Stockholder Meeting to vote upon the ~~approval~~adoption of this Agreement, such Registration Statement and all amendments or supplements thereto, with respect to all information set forth or incorporated by reference therein furnished by ~~Oneida~~Merchants relating to ~~Oneida~~Merchants or any of its Subsidiaries, (i) shall comply in all material respects with the applicable provisions of the Securities Laws, and (ii) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements contained therein, in the light of the circumstances under which they were made, not misleading.

TABLE OF CONTENTS

All information concerning Merchants and its directors, officers, and stockholders included (or submitted for inclusion) in any application and furnished by it pursuant toSection 4.5 or4.8 of this Agreement shall be true, correct and complete in all material respects.

(cc)Investment Securities. (i) Except for pledges to secure public and trust deposits, Federal Reserve borrowings, repurchase agreements and reverse repurchase agreements entered into in arm’s-length transactions pursuant to normal commercial terms and conditions and other pledges required by Law, none of the investments reflected in the Merchants Financial Statements, and none of the material investments made by Merchants or any of its Subsidiaries since June 30, 2016, is subject to any restriction (contractual, statutory or otherwise) that would materially impair the ability of the entity holding such investment freely to dispose of such investment at any time.

(ii) Each of Merchants and its Subsidiaries has good title in all material respects to all securities and commodities owned by it (except those sold under repurchase agreements), free and clear of any Lien, except as set forth in the financial statements included in the Merchants Reports or to the extent such securities or commodities are pledged in the ordinary course of business consistent with past practice to secure obligations of Merchants or its Subsidiaries. Such securities and commodities are valued on the books of Merchants in accordance with GAAP in all material respects.

(iii) Merchants and its Subsidiaries and their respective businesses employ investment, securities, commodities, risk management and other policies, practices and procedures that Merchants believes are prudent and reasonable in the context of such businesses and Merchants and its Subsidiaries have, since December 31, 2013, been in compliance in all material respects with such policies, practices and procedures. Prior to the date of this Agreement, Merchants has made available to Community the material terms of such policies, practices and procedures.

(dd)Ownership of Community Common Stock. Neither Merchants, any Subsidiary of Merchants nor, to the Knowledge of Merchants, any director or officer of Merchants or of any Subsidiary of Merchants, beneficially owns or, within the past two (2) years has beneficially owned, in the aggregate three percent (3%) or more of the outstanding shares of Community Common Stock.

Section 3.3Representations and Warranties of Community. Subject to and giving effect toSection 3.1 and except as (i) set forth in the Community Disclosure Letter or (ii) disclosed in any of Community’s SEC Reports filed with or furnished to the SEC on or after December 31, 2015 and prior to the date of this Agreement (but excluding any risk factor disclosures contained under the heading “Risk Factors”, any disclosure of risks included in any “forward-looking statements” disclaimer or any other statements that are similarly forward-looking in nature), Community hereby represents and warrants to Merchants as follows:

(a)Organization, Standing, and Power. Community and each of its Subsidiaries (i) are duly organized, validly existing and (as to corporations) in good standing under the Laws of the jurisdiction of their respective organization, (ii) have the requisite corporate power and authority to own, lease and operate their properties and assets and to carry on their businesses as now conducted, and (iii) are duly qualified or licensed to do business and in good standing in the States of the United States and foreign jurisdictions where the character of their assets or the nature or conduct of their business requires them to be so qualified or licensed, except in the case of this clause (iii), where the failure to be so qualified or licensed, individually or in the aggregate, has not had and would not reasonably be expected to have a Material Adverse Effect on Community. Community is registered with the Federal Reserve Board as a bank holding company within the meaning of the BHC Act and meets the applicable requirements for qualification as such. Community Bank is a national banking association with its main office located in the State of New York. Community Bank is an “insured depository institution” as defined in the Federal Deposit Insurance Act and applicable regulations thereunder, its deposits are insured by the Deposit Insurance Fund and all premiums and assessments required to be paid in connection therewith have been paid when due. No action for the revocation or termination of such deposit insurance is pending or, to the Knowledge of Community, threatened.

(b)Authority; No Breach of Agreement. (i) Community has the corporate power and authority necessary to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby. Assuming the accuracy of the representations and warranties set forth in

TABLE OF CONTENTS

Section 3.2(dd), the execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action (including valid authorization and adoption of this Agreement by Community’s duly constituted Board of Directors). Assuming due authorization, execution and delivery of this Agreement by Merchants, this Agreement represents a legal, valid and binding obligation of Community, enforceable against Community in accordance with its terms (except in all cases as such enforceability may be limited by (A) bankruptcy, insolvency, reorganization, moratorium, receivership, conservatorship and other Laws now or hereafter in effect relating to or affecting the enforcement of creditors’ rights generally and (B) general equitable principles, except that the availability of the equitable remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding may be brought).

(ii) Community’s Board of Directors has duly approved and declared advisable this Agreement and the Merger and the other transactions contemplated hereby, including the Bank Merger Agreement and the Bank Merger. Community Bank’s Board of Directors has duly approved and declared advisable the Bank Merger Agreement, the Bank Merger and the other transactions contemplated hereby and thereby.

(iii) Neither the execution and delivery of this Agreement or the Bank Merger Agreement by Community or Community Bank, as applicable, nor the consummation by either of them of the transactions contemplated hereby, nor compliance by them with any of the provisions hereof, will (A) violate, conflict with or result in a breach of any provision of the Organizational Documents of Community or Community Bank, (B) violate, conflict with, result in a breach of any provision of or the loss of any benefit under, constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate the performance required by, or result in the creation of any Lien (other than Permitted Liens) upon any of the respective properties or assets of Community or any of its Subsidiaries under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease, Contract, Permit or other instrument or obligation to which Community or any of its Subsidiaries is a party, or by which they or any of their respective properties or assets may be bound, or (C) subject to receipt of the Requisite Regulatory Approvals and the expiration of any waiting period required by Law as described in clause (iv) below, violate any Law or Order applicable to Community or Community Bank or any of their respective material assets, except, in the case of clauses (B) and (C), as individually or in the aggregate, has not had and would not reasonably be expected to have a material adverse effect on the ability of Community to perform its obligations under this Agreement or to timely consummate the Merger.

(iv) Other than in connection or compliance with the provisions of the Securities Laws, and other than (A) the Requisite Regulatory Approvals, (B) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware as required by the DGCL and (C) as set forth in Section 3.3(b)(iv)(C) of the Community Disclosure Letter, no Order of, or Consent of, to or with any Governmental Authority or other third party is necessary in connection with the execution, delivery or performance of this Agreement or the Bank Merger Agreement by Community or Community Bank, as applicable, or the consummation by Community or Community Bank, as applicable, of the Merger, the Bank Merger and the other transactions contemplated by this Agreement and the Bank Merger Agreement.

(c)Capital Stock. Community’s authorized capital stock consists of (i) 75,000,000 shares of Community Common Stock, of which, as of the Capitalization Date, 44,363,269 shares were issued and outstanding (which includes 257,340 shares of Community Common Stock subject to vesting or forfeiture restrictions and granted under a Benefit Plan of Community or its Subsidiaries) with 498,681 shares held in its treasury and (ii) 500,000 shares of preferred stock, $1.00 par value per share (the “Community Preferred Stock”), of which, as of the Capitalization Date, zero shares were issued and outstanding. As of the Capitalization Date there were (x) 1,856,539 shares of Community Common Stock reserved for issuance upon the exercise of outstanding stock options to purchase Community Common Stock granted under a Benefit Plan of Community or its Subsidiaries at a weighted average exercise price of $30.70 (of which stock options with respect to 1,050,323 shares are exercisable) and (y) 203,077 shares of Community Common Stock subject to deferred stock units and share equivalent units with respect to Community Common Stock granted under a Benefit Plan

TABLE OF CONTENTS

of Community or its Subsidiaries. Except as set forth in thisSection 3.3(c) or granted under a Benefit Plan, as of the Capitalization Date there were no shares of Community Common Stock or other equity securities of Community outstanding and no outstanding Rights relating to Community Common Stock or Community Preferred Stock, and no Person has any Contract or any right or privilege (whether preemptive or contractual) capable of becoming a Contract or Right for the purchase, subscription or issuance of any securities of Community. All of the outstanding shares of Community Common Stock are duly and validly issued and outstanding and are fully paid (or will be fully paid when vested) and, except as expressly provided otherwise under applicable Law, non-assessable under the DGCL. None of the outstanding shares of Community Common Stock have been issued in violation of any preemptive rights of the current or past stockholders of Community. All of the outstanding shares of Community Common Stock and all Rights to acquire shares of Community Common Stock have been issued in compliance in all material respects with all applicable federal and state Securities Laws. All issued and outstanding shares of capital stock of Community’s Subsidiaries have been duly authorized and are validly issued, fully paid and (except as provided in 12 U.S.C. Section 55) nonassessable. The outstanding capital stock of each of Community’s Subsidiaries has been issued in compliance with all legal requirements and is not subject to any preemptive or similar rights. Community owns all of the issued and outstanding shares of capital stock or other ownership interests of all of its material Subsidiaries, free and clear of all Liens (other than Permitted Liens).

(d)Reports; Financial Statements. (i) Community and each of its Subsidiaries have timely filed (or furnished, as applicable) all reports, registrations and statements, together with any amendments required to be made with respect thereto, that they were required to file since December 31, 2013 with any Governmental Authorities (including any Regulatory Authorities), including any report, registration or statement required to be filed (or furnished, as applicable) pursuant to the Laws of the United States, any state or political subdivisions, any foreign entity or jurisdiction, or any other Governmental Authority or Regulatory Authority, and have paid all fees and assessments due and payable in connection therewith, except where the failure to file such report, registration or statement or to pay such fees and assessments, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Community. Except for normal examinations conducted by a Regulatory Authority in the ordinary course of business of Community and its Subsidiaries, (A) no Regulatory Authority has initiated or has pending any proceeding or, to the Knowledge of Community, investigation into the business or operations of Community or any of its Subsidiaries since December 31, 2013, (B) there is no unresolved violation, criticism, or exception by any Regulatory Authority with respect to any report or statement relating to any examinations or inspections of Community or any of its Subsidiaries, and (C) there has been no formal or informal inquiries by, or disagreements or disputes with, any Regulatory Authority with respect to the business, operations, policies or procedures of Community or any of its Subsidiaries since December 31, 2013, in each case of clauses (A) through (C), which would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on Community.

(ii) An accurate copy of each final SEC Report filed with or furnished by Community or any of its Subsidiaries to the SEC since December 31, 2013 pursuant to the Securities Act or the Exchange Act (the “Community Reports”) is publicly available. No Community Report, as of the date thereof (and, in the case of registration statements and proxy statements, on the dates of effectiveness and the dates of the relevant meetings, respectively), contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances in which they were made, not misleading, except that information filed or furnished as of a later date (but before the date of this Agreement) shall be deemed to modify information as of an earlier date. As of their respective dates, all of the Community Reports complied in all material respects with the published rules and regulations of the SEC with respect thereto. As of the date of this Agreement, no executive officer of Community has failed in any respect to make the certifications required of him or her under Section 302 or 906 of the Sarbanes-Oxley Act.

(iii) The financial statements of Community and its Subsidiaries included (or incorporated by reference) in the Community Reports (including the related notes, where applicable) (A) have been prepared from, and are in accordance with, the books and records of Community and its Subsidiaries, (B) fairly present in all material respects the consolidated results of operations, cash flows, changes in

TABLE OF CONTENTS

stockholders’ equity and consolidated financial position of Community and its Subsidiaries for the respective fiscal periods or as of the respective dates therein set forth (subject in the case of unaudited statements to year-end audit adjustments normal in nature and amount), (C) complied, as of their respective dates of filing with the SEC, in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto and (D) have been prepared in accordance with GAAP consistently applied during the periods involved, except, in each case, as indicated in such statements or in the notes thereto. The books and records of Community and its Subsidiaries have been, and are being, maintained in all material respects in accordance with GAAP and any other applicable legal and accounting requirements and reflect only actual transactions. PricewaterhouseCoopers LLP has not resigned (or informed Community that it intends to resign) or been dismissed as independent public accountants of Community as a result of or in connection with any disagreements with Community on a matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure.

(iv) Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Community, neither Community nor any of its Subsidiaries has any Liability (whether absolute, accrued, contingent or otherwise and whether due or to become due) required by GAAP to be included on a consolidated balance sheet of Community, except for those liabilities that are reflected or reserved against on the consolidated balance sheet of Community included in its Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2016 (including any notes thereto), and for liabilities incurred (A) in the ordinary course of business consistent with past practice since June 30, 2016, or (B) in connection with this Agreement and the transactions contemplated hereby.

(v) The records, systems, controls, data and information of Community and its Subsidiaries are recorded, stored, maintained and operated under means (including any electronic, mechanical or photographic process, whether computerized or not) that are under the exclusive ownership and direct control of Community or its Subsidiaries or accountants (including all means of access thereto and therefrom), except for any non-exclusive ownership and non-direct control that, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Community. Community (A) has implemented and maintains disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) to ensure that material information relating to Community, including its Subsidiaries, is made known to the chief executive officer and the chief financial officer of Community by others within those entities as appropriate to allow timely decisions regarding required disclosures and to make the certifications required by the Exchange Act and Sections 302 and 906 of the Sarbanes-Oxley Act, and (B) has disclosed, based on its most recent evaluation prior to the date hereof, to Community’s outside auditors and the audit committee of Community’s Board of Directors (x) any significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) which are reasonably likely to adversely affect Community’s ability to record, process, summarize and report financial information, and (y) to the Knowledge of Community, any fraud, whether or not material, that involves management or other employees who have a significant role in Community’s internal controls over financial reporting. To the Knowledge of Community, there is no reason to believe that Community’s outside auditors and its chief executive officer and chief financial officer will not be able to give the certifications and attestations required pursuant to the rules and regulations adopted pursuant to Section 404 of the Sarbanes-Oxley Act, without qualification, when next due.

(vi) Since December 31, 2013, (A) neither Community nor any of its Subsidiaries, nor, to the Knowledge of Community, any director, officer, auditor, accountant or Representative of Community or any of its Subsidiaries, has received or otherwise had or obtained knowledge of any material complaint, allegation, assertion or claim, whether written or oral, regarding the accounting or auditing practices, procedures, methodologies or methods (including with respect to loan loss reserves, write-downs, charge-offs and accruals) of Community or any of its Subsidiaries or their respective internal accounting controls, including any material complaint, allegation, assertion or claim that Community or any of its Subsidiaries has engaged in questionable accounting or auditing practices, and (B) no attorney representing Community or any of its Subsidiaries, whether or not employed by Community or any of its

TABLE OF CONTENTS

Subsidiaries, has reported evidence of a material violation of Securities Laws, breach of fiduciary duty or similar violation by Community or any of its officers, directors, employees or agents to the Board of Directors of Community or any committee thereof or to the Knowledge of Community, to any director or officer of Community.

(e)Legal Proceedings. There is no Litigation pending or, to the Knowledge of Community, threatened against Community or any of its Subsidiaries or its or any of its Subsidiaries’ assets, interests or rights, nor do any facts or circumstances exist that would be likely to form the basis for any claim against Community or any of its Subsidiaries, in each case that, if adversely determined, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect on Community. Except as, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Community, there are no Orders of any Governmental Authority outstanding against Community or any of its Subsidiaries.

(f)Compliance with Laws. (i) Community and each of its Subsidiaries are, and at all times since December 31, 2013, have been, in compliance in all material respects with all Laws applicable to their businesses, operations, properties, assets and employees. Community and each of its Subsidiaries have in effect all Permits necessary for them to own, lease or operate their material properties and assets and to carry on their businesses and operations as now conducted and, to Community’s Knowledge, there has occurred no Default under any material Permit applicable to their respective businesses or employees conducting their respective businesses.

(ii) Neither Community nor any of its Subsidiaries is subject to any cease-and-desist or other order or enforcement action issued by, or is a party to any written agreement, consent agreement or memorandum of understanding with, or is a party to any commitment letter or similar undertaking to, or is subject to any order or directive by, or has been ordered to pay any civil money penalty by, or has been since December 31, 2013, a recipient of any supervisory letter from, or since December 31, 2013, has adopted any policies, procedures or board resolutions at the request or suggestion of any Regulatory Authority or other Governmental Authority that currently restricts in any material respect the conduct of its business or that in any material manner relates to its capital adequacy, its ability to pay dividends, its credit or risk management policies, its management or its business (each, whether or not set forth in the Community Disclosure Letter, a “Community Regulatory Agreement”), nor has Community or any of its Subsidiaries been advised in writing or, to the Knowledge of Community, orally, since December 31, 2013, by any Regulatory Authority or other Governmental Authority that it is considering issuing, initiating, ordering or requesting any such Community Regulatory Agreement.

(iii) Neither Community nor any of its Subsidiaries (nor, to the Knowledge of Community, any of their respective directors, executives, Representatives, agents or employees) (A) has used or is using any corporate funds for any illegal contributions, gifts, entertainment or other unlawful expenses relating to political activity, (B) has used or is using any corporate funds for any direct or indirect unlawful payments to any foreign or domestic governmental officials or employees, (C) has violated or is violating any provision of the Foreign Corrupt Practices Act of 1977, (D) has established or maintained, or is maintaining, any unlawful fund of corporate monies or other properties or (E) has made any bribe, unlawful rebate, payoff, influence payment, kickback or other unlawful payment of any nature.

(g)Labor Matters. Neither Community nor any of its Subsidiaries is a party to or bound by or currently negotiating any collective bargaining agreement or any other similar agreement with any labor organization, group or association. There is no strike, work stoppage or labor disturbance pending or, to the Knowledge of Community, threatened against Community or any of its Subsidiaries, and none of Community nor any of its Subsidiaries has experienced any such strike, stoppage or disturbance since December 31, 2013, in either case that is material to Community. The consent or consultation of, or the rendering of formal advice by, any labor or trade union, works council or other employee representative body is not required for Community to enter into this Agreement or to consummate any of the transactions contemplated hereby.

(h)Absence of Certain Changes or Events. Since December 31, 2015 through the date of this Agreement, (A) except for the negotiation of this Agreement and the transactions contemplated hereby, Community and each of its Subsidiaries has conducted its business in all material respects in the ordinary course of business consistent with past practice, and (B) there have been no facts, events, changes,

TABLE OF CONTENTS

circumstances or effects that have had, or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Community.

(i)Community Reinvestment Act. Community Bank has complied in all material respects with the provisions of the CRA and the rules and regulations thereunder, has a CRA rating of not less than “satisfactory” in its most recently completed exam, has received no material criticism from regulators with respect to discriminatory lending practices, and to the Knowledge of Community, there are no conditions, facts or circumstances that could result in a CRA rating of less than “satisfactory” or material criticism from regulators or consumers with respect to discriminatory lending practices.

(j)Legality of Community Securities. All shares of Community Common Stock to be issued pursuant to the Merger have been duly authorized and, when issued pursuant to this Agreement, will be validly and legally issued, fully paid and nonassessable.

(k)Certain Actions. Neither Community nor any of its Subsidiaries or Affiliates has taken or agreed to take any action, and to the Knowledge of Community, there are no facts or circumstances, that are reasonably likely to (i) prevent the Merger from qualifying as a “reorganization” within the meaning of Section 368(a) of the Code, or (ii) materially impede or delay receipt of any Requisite Regulatory Approval. To Community’s Knowledge there exists no fact, circumstance, or reason that would cause any Requisite Regulatory Approval not to be received in a timely manner.

(l)Brokers and Finders. Except for RBC Capital Markets, neither Community nor any of its Subsidiaries, nor any of their respective directors, officers, employees or Representatives, has employed any broker or finder or incurred any Liability for any financial advisory fees, investment bankers’ fees, brokerage fees, commissions or finders’ fees in connection with this Agreement or the transactions contemplated hereby.

(m)Merger Consideration. Community now has and will have, at the Effective Time, unissued shares of Community Common Stock and shares of Community Common Stock held in its treasury that are not reserved for any other purpose sufficient to issue the number of shares of Community Common Stock contemplated byArticle 2, and a sufficient amount of cash to pay the amounts contemplated byArticle 2.

(n)Certain Information. When the Registration Statement or any post-effective amendment thereto shall become effective, and at all times subsequent to such effectiveness up to and including the time of the Merchants Stockholder Meeting to vote upon the adoption of this Agreement, such Registration Statement and all amendments or supplements thereto, with respect to all information set forth or incorporated by reference therein furnished by Community relating to Community or any of its Subsidiaries, (i) shall comply in all material respects with the applicable provisions of the Securities Laws, and (ii) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements contained therein, in the light of the circumstances under which they were made, not misleading. All information concerning ~~Oneida~~Community and its directors, officers, and ~~shareholders~~stockholders included (or submitted for inclusion) in any application and furnished by it pursuant toSection ~~5.2~~4.5 or~~5.3~~4.8 of this Agreement shall be true, correct and complete in all material respects.

~~3.24.~~ (o)~~Risk Management Instruments~~Employee Benefit Plans. Except as would not be material to Community, (i) since December 31, 2013, all Community Benefit Plans have been administered in all material respects in compliance with their terms and with the applicable provisions of ERISA, the Code and all other applicable Laws; (ii) with respect to each Community Benefit Plan that is a Title IV Plan, (A) no Liability to PBGC (other than Liability for premiums) has been incurred and all premiums required to be paid to PBGC have been timely paid, (B) Community or its relevant ERISA Affiliate has satisfied the minimum funding standard under ERISA and the Code, (C) the assets of such Title IV Plan, as determined in the most recent valuation, equaled or exceeded the accumulated benefit obligations of such Title IV Plan, (D) such Title IV Plan is not in “at risk status” and (E) neither Community nor its ERISA Affiliates has received written or, to the Knowledge of Community, oral notice from PBGC, nor is Community otherwise aware, that an event or condition exists that would constitute grounds for termination of such Title IV Plan by PBGC; (iii) neither Community nor any of its ERISA Affiliates (nor any predecessor thereto) sponsors, maintains, administers or contributes to or has any obligation to contribute to (nor in the past six years, sponsored, maintained, administered or contributed to or had any obligation to contribute to) any “multiemployer plan,” as such term is defined in Section 3(37) of ERISA,

TABLE OF CONTENTS

“multiple employer welfare arrangement,” as such term is defined in Section 3(40) of ERISA or a single employer plan that has two or more contributing sponsors, at least two of whom are not under common control, within the meaning of Section 4063(a) of ERISA; and (iv) nether Community nor any of its ERISA Affiliates has any current or projected obligations or Liability for post-employment or post-retirement health, medical, or life insurance benefits under any Community Benefit Plan, other than with respect to benefit coverage mandated by Section 4980B of the Code.

(p)Tax Matters. (i) All ~~interest rate swaps, caps, floors, option~~material amounts of Taxes of Community and each of its Subsidiaries (whether or not shown or required to be shown on any Tax Return) have been fully and timely paid. Each of Community and its Subsidiaries has timely filed all material Tax Returns required to have been filed by it or on its behalf, and each such Tax Return is true, complete and accurate in all material respects. Neither Community nor any of its Subsidiaries is the beneficiary of any extension of time within which to file any Tax Return. No claim has been made by a Taxing Authority in writing within the past five (5) years in a jurisdiction where Community or any of its Subsidiaries does not file a Tax Return that Community or any of its Subsidiaries may be subject to Taxes by that jurisdiction.

(ii) Neither Community nor any of its Subsidiaries has received any notice of assessment or proposed assessment in connection with any Tax that has not been paid or otherwise settled, withdrawn, or resolved, and there is no threatened or pending dispute, action, suit, proceeding, claim, investigation, audit, examination, or other Litigation regarding any Tax of Community, any of its Subsidiaries or the assets of Community or any of its Subsidiaries. No officer or employee responsible for Tax matters of Community or any of its Subsidiaries expects any Taxing Authority to assess any additional Tax for any period for which a Tax Return has been filed. There are no agreements, ~~futures~~waivers or other arrangements providing for an extension of time with respect to the assessment of any Tax or deficiency against Community or any of its Subsidiaries that are currently in force, and ~~forward contracts and other similar risk management arrangements~~neither Community nor any of its Subsidiaries has waived or extended the applicable statute of limitations for the assessment or collection of any Tax or agreed to ~~which Oneida~~a Tax assessment or deficiency.

(iii) Neither Community nor any of its Subsidiaries is a party ~~whether entered into for Oneida’s own account,~~to a Tax allocation, sharing, indemnification or ~~for the account of one~~similar agreement or ~~more of such Subsidiaries or their customers, were entered into (i) in accordance~~any agreement (other than an agreement solely between Community and its Subsidiaries) pursuant to which it has any obligation to any Person with ~~prudent business practices and all applicable laws, rules, regulations and regulatory policies and (ii) with parties reasonably believed~~respect to be financially responsible; and each of them constitutes the valid and legally binding obligation of Oneida or such Subsidiary, enforceable in accordance with its terms (except that enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar laws of general equity principles),Taxes, and neither ~~Oneida~~Community nor any of its Subsidiaries has been a member of an affiliated group filing a consolidated federal, state or local income Tax Return or any combined, affiliated or unitary group for any Tax purpose (other than the group of which it is currently a member), and neither Community nor any of its Subsidiaries has any Tax liability under Treasury Regulation Section 1.1502-6 or any similar provision of Law, or as a transferee or successor, by Contract or otherwise, other than with respect to ~~Oneida’s Knowledge,~~the group of which Community is the parent. None of Community and its Subsidiaries have any ~~other party thereto, is~~deferred gain or loss arising out of any deferred intercompany transaction, as described in ~~breach~~Treasury Regulation Section 1.1502-13, or, in the case of any of its ~~obligations~~Subsidiaries, have an excess loss account in its stock, as described in Treasury Regulation Section 1.1502-19.

(iv) Community and its Subsidiaries have withheld and paid over to the appropriate Taxing Authority all material amounts of Taxes required to have been withheld and paid over by them, and have complied in all material respects with all information reporting and backup withholding requirements under all applicable federal, state, local and foreign Laws in connection with amounts paid or owing to any ~~such agreement~~Person, including Taxes required to have been withheld and paid in connection with amounts paid or ~~arrangement. Oneida has previously made available~~owing to ~~CBSI all of such agreements~~any employee or independent contractor, and ~~arrangements that are in effect as~~Taxes required to be withheld and paid pursuant to Sections 1441, 1442 and 3406 of the ~~date~~Code or similar provisions under state, local or foreign Law.

(v) Neither Community nor any of ~~this Agreement.~~

~~3.25.~~ ~~Related Party Transactions. Except as Previously Disclosed, no Related Party~~its Subsidiaries has been ~~directly or indirectly~~ a party to any ~~contract or other arrangement (whether written or oral)~~distribution occurring during the five (5)-year period ending on the date hereof in which the parties to such distribution treated the distribution as one to which Section 355 of the Code applied. No Liens for Taxes exist with ~~Oneida~~respect to any assets of Community or any of its Subsidiaries, pertaining to Loans, services (other than as an employee), products, goods or supplies, rental of real or personal property, or otherwise requiring payments, provided from or to Oneida in an amount in excess of $50,000 in the aggregate (collectively, the “~~Related Party Transactions~~”). Each Related Party Transaction that is an arrangement to make a Loan to the applicable Related Party, or is a deposit or other investment by the applicable Related Party, is an arms’-length transaction on substantially normal commercial terms and conditions that are applicable for comparable transactions to Oneida’s unaffiliated customers and, if a Loan, was approved pursuant to normal underwriting standards.

~~3.26.~~ ~~Takeover Statutes Not Applicable; No Rights Agreement~~. The Board of Directors of Oneida has taken all actions so that the restrictions contained in Section 3-602 of the MGCL applicable to a “business combination” (as defined in Section 3-601 of the MGCL) will not apply to the execution or delivery of this Agreement or any Transaction Document to which Oneida is a party, or to the consummation of the Transactions. Oneida has no shareholder rights agreement or plan or other similar plan, agreement or arrangement.

~~Annex A-31~~

~~3.27.~~ ~~Investment Securities. Except as Previously Disclosed,~~ except for ~~pledges to secure public~~statutory Liens for Taxes not yet due and trust deposits, Federal Reserve borrowings, repurchase agreements and reverse repurchase agreements entered into in arms’-length transactions pursuant to normal commercial terms and conditions and other pledges required by law, none of the investments reflected in the Oneida Financial Statements, and none of the material investments made by Oneida orpayable.

(vi) Neither Community nor any of its Subsidiaries ~~since December 31, 2013,~~ is ~~subject to any restriction (contractual, statutory or otherwise) that would materially impair~~a “controlled foreign corporation” within the ~~ability~~meaning of Section 957(a) of the ~~entity~~Code. Community and each of its Subsidiaries have complied with all

TABLE OF CONTENTS

of the income inclusion and Tax reporting provisions of the U.S. anti-deferral Tax regimes, including the controlled foreign corporation, passive foreign investment company and foreign personal holding ~~such investment freely to dispose~~company regimes.

(vii) Neither Community nor any of ~~such investment at~~its Subsidiaries has participated in any ~~time.~~reportable transaction, as defined in Treasury Regulation Section 1.6011-4(b)(1) or any comparable provision of state or local Tax Law.

~~3.28.~~ (q)Regulatory Capitalization. ~~Oneida~~Community Bank is, and as of immediately prior to the Effective Time will be, “well capitalized,” as such term is defined in the rules and regulations promulgated by the OCC. Community is, and immediately prior to the Effective Time will be, “well capitalized” as such term is defined in the rules and regulations promulgated by the ~~Federal Reserve Board for a savings and loan holding company and~~FRB.

(r)Ownership of Merchants Common Stock. As of the ~~Oneida Banks are “well capitalized”~~date hereof, Community is not an “interested stockholder” of Merchants as ~~such term is~~ defined in Section 203(c) of the ~~rules and regulations promulgated by the FDIC.~~

~~3.29.~~ ~~Banking, Anti-Corruption, Anti-Money Laundering and Customer Information Security Laws~~.

~~(a) Oneida and each~~DGCL. Neither Parent, nor any of its Subsidiaries ~~have, since January 1, 2011, complied~~or Affiliates, is a “related person” as defined in ~~all material respects~~Article Fourteenth of the certificate of incorporation of Merchants, as amended through the date hereof.

ARTICLE 4

COVENANTS AND ADDITIONAL AGREEMENTS OF THE PARTIES

Section 4.1Conduct of Business Prior to Effective Time. During the period from the date of this Agreement until the earlier of the termination of this Agreement pursuant toArticle 6 or the Effective Time, except as expressly permitted by this Agreement or as required by applicable Law, (a) Merchants shall, and shall cause its Subsidiaries to, (i) conduct its business in the ordinary course consistent with ~~are~~past practice, (ii) use commercially reasonable efforts to maintain and preserve intact its business organization, employees and advantageous business relationships, and (iii) maintain its books, accounts and records in the usual manner on a basis consistent with that heretofore employed, and (b) neither Party shall, nor shall permit its Subsidiaries to, knowingly take any action that would materially adversely affect or materially delay the satisfaction of the conditions set forth inSection 5.1(a) or5.1(b), the timing of the effectiveness of the Registration Statement under the Securities Act or the ability of either Party to perform its covenants and agreements under this Agreement or to consummate the transactions contemplated hereby. Without limiting the generality of the foregoing, Community shall not, ~~presently in material default or violation under,~~ and ~~have no Knowledge of or reason to believe that any facts or circumstances exist which would cause Oneida or~~shall not permit any of its Subsidiaries to, ~~be in material default or violation under, any law, statute, order, rule or regulation of any governmental entity applicable~~prior to ~~Oneida or any of its Subsidiaries, including, without limitation (to~~ the extent applicable to Oneida or its Subsidiaries), all laws related to data protection or privacy, the USA PATRIOT Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Community Reinvestment Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Home Mortgage Disclosure Act, the Fair Debt Collection Practices Act, the Electronic Fund Transfer Act, the Dodd-Frank Act, the Foreign Corrupt Practices Act, the Interagency Policy Statement, the S.A.F.E. Act, RESPA, the Bank Secrecy Act, the Gramm-Leach-Bliley Act, the provisionsearlier of the ~~Information Security Program established~~termination of this Agreement pursuant to ~~12 C.F.R. part 364, any regulations promulgated~~Article 6 or the Effective Time, except as expressly permitted by ~~the Consumer Financial Protection Bureau, and any other law~~this Agreement or regulation relating to bank secrecy, discriminatory or abusive or deceptive lending or any other product or service, financing or leasing practices, money laundering prevention, the Federal Reserve Act, the Sarbanes-Oxley Act, and all agency requirements relating to the origination, sale and servicing of mortgage and consumer loans. Each of the Oneida Banks has been rated “satisfactory” or betteras required by ~~federal or state regulators for purposes of the Community Reinvestment Act.~~

(b) Neither Oneida nor any of its Subsidiaries nor any director, officer, agent, employee or any other Person acting on behalf of Oneida or its Subsidiaries has (i) used any funds for any unlawful contribution, payment, benefit, gift, entertainment or other unlawful expense relating to political activity; (ii) made or taken an act in furtherance of an offer, promise or authorization of any direct or indirect unlawful payment or benefit to any government or regulatory official or employee, including of any government-owned or controlled entity or of a public international organization, or any Person acting in an official capacity for or on behalf of any of the foregoing; (iii) violated or is in violation ofapplicable Law, (x) amend any provision of ~~any applicable anti-bribery or anti-corruption laws (collectively,~~Community’s Organizational Documents in a manner that would adversely affect the “~~Anti-Corruption Laws~~”), or (iv) made, offered, agreed, requested or accepted any unlawful bribe or other unlawful benefit, including any rebate, payoff, influence payment, kickback or other unlawful or improper payment or benefit, in the case of each of clauses (i) through (iv) of this~~Section 3.29(b)~~ ~~in connection with the operation~~economic benefits of the ~~businesses~~Merger to the stockholders of Oneida and its Subsidiaries. Oneida and its Subsidiaries have established and maintain a system of internal controls designed to provide reasonable assurances regarding compliance by Oneida and its Subsidiaries with all applicable Anti-Corruption Laws.

~~Annex A-32~~

(c) Oneida and its Subsidiaries are and since January 1, 2011 have been conducting operations at all times in compliance in all material respects with applicable financial recordkeeping and reporting requirements of all money laundering laws administeredMerchants or ~~enforced by any governmental entity in jurisdictions where Oneida and its Subsidiaries conduct business (collectively,~~ the “~~Anti-Money Laundering Laws~~”). Oneida and its Subsidiaries have established and maintain a system of internal controls designed to ensure compliance by Oneida and its Subsidiaries with applicable financial recordkeeping and reporting requirementsconsummation of the ~~Anti-Money Laundering Laws.~~

(d) Neither Oneida nor any of its Subsidiaries nor to the Knowledge of Oneida, any director, officer, agent, employee or any other Person acting on behalf of Oneida or any of its Subsidiaries, is currently the subject or the target of any sanctions administered or enforcedtransactions contemplated by ~~any governmental entity (collectively, “Sanctions”), nor is Oneida or any of its Subsidiaries located, organized or resident in a country or territory that is the subject or the target of Sanctions (each, a “Sanctioned Country~~”). For the past five (5) years, Oneida and its Subsidiaries have not knowingly engaged in, are not now knowingly engaged in and will not engage in, any dealings or transactions with any Person that at the time of the dealing or transaction is or was the subject or the target of Sanctions or with any Sanctioned Country. Oneida and its Subsidiaries have established and maintain a system of internal controls designed to provide reasonable assurances regarding compliance by Oneida and its Subsidiaries with all applicable Sanctions.

~~3.30.~~ ~~Agreements with and Examination by Banking Authorities~~. Neither Oneida nor any of its Subsidiaries is a party to any commitment, letter (other than letters addressed to regulated depository institutions generally), written agreement, memorandum of understanding, order to cease and desist with, is subject to any order or directive specifically naming or referring to Oneida or any of its Subsidiaries by, has been required to adopt any board resolution by, any federal or state governmental entity charged with the supervision or regulation of banks or savings and loan holding companies or engaged in the insurance of bank deposits which is currently in effect, and neither Oneida nor any of its Subsidiaries has received notice from any such federal or state governmental entity that any such Person may be required to enter into, or otherwise be subject to, any such commitment, letter, written agreement, memorandum of understanding or cease or desist order. Neither Oneida nor any of its Subsidiaries has been informed by any bank regulator that it is contemplating issuing, requesting or amending any such order, directive, agreement, memorandum of understanding, commitment letter or similar submission.

~~Annex A-33~~

~~3.31.~~ ~~Ownership of CBSI Common Stock~~. Neither Oneida, any Subsidiary nor, to the Knowledge of Oneida, any director or officer of Oneida or any Subsidiary, beneficially owns or, within the past two years has beneficially owned, in the aggregate three percent (3%) or more of the outstanding shares of CBSI Common Stock.

~~3.32.~~ ~~Disclosure. None of the representations and warranties of Oneida contained in~~ this Agreement or (y) take any action or knowingly fail to take any action where such action or failure to act would reasonably be expected to prevent the Merger from qualifying as a “reorganization” within the meaning of Section 368(a) of the Transaction Documents to which it is a party, or any of the written information or documents furnished by Oneida to CBSI in connection therewith, taken as a whole, contains or will contain any untrue statement of a material fact, or omits to state any material fact required to be stated or necessary to make any such information or document, in light of the circumstances, not misleading.

Code.

~~3.33.~~ Section 4.2~~OneGroup.~~Forbearances

~~(a) OneGroup is duly licensed as an insurance agency and each Person engaged in selling insurance for OneGroup is duly licensed as an insurance agent by~~. During the State of New York and such other applicable states as required to engage in the business as presently conducted and authorized to sell the types of insurance products sold by OneGroup and to otherwise conduct business as presently conducted by OneGroup. All such licenses are in full force and effect and in good standing and there are no pending or threatened suits or proceedings with respect to the suspension, revocation, cancellation, restriction or non-renewal of any such license. A true and complete list of all licenses issued or granted to OneGroup and each Person engaged in selling insurance for OneGroup has been Previously Disclosed to CBSI in writing. Neither OneGroup nor any of its employees or agents has transacted any insurance business in any jurisdiction requiring a license therefor without possessing such a license.

~~(b) No insurance company or broker for which OneGroup acted during the five years preceding~~period from the date of this Agreement ~~has cancelled~~until the earlier of the termination of this Agreement pursuant to Article 6 or terminated any agreement with OneGroup and no insurance company or broker whom OneGroup currently represents has threatened or notified OneGroup, orally or in writing, of any intention to cancel or terminate any existing agreement with OneGroup.

(c) OneGroup has (i) processed in the normal course of business all requests and orders from customers for insurance policies and endorsements thereto, (ii) notified applicable insurance companies of all claims under insurance policies sold by OneGroup to the extent that such claims have come to the attention of OneGroup, (iii) notified customers of all return premiums due to them on account of all agency-billed premiums and remitted to customers or allowed as credit to customers in OneGroup’s historically normal and customary course of business all return premiums due thereto which have come into the possession of OneGroup, (iv) not prebilled or advanced-billed any customer accounts for premiums applicable to policies of insurance effective on or after the Effective Time, except in accordance with OneGroup’s historically normal and customary course of business, and (v) not received any advance commission payments from any insurance company on account of direct-billed insurance policies or endorsements that are to be effective or renewed on or after the Effective Time. All premiums collectedas expressly permitted by ~~OneGroup which are properly due and payable on or prior to the date of~~ this Agreement to insurance companies or other insurance agents or brokers applicable to premium billings for insurance business written for OneGroup customer accounts to be effective prior to the Effective Time, the due date of which premium billing is prior to the Effective Time, has been paid or will be paid by OneGroup prior to any default thereon. As(including as set forth in Section 4.2 of the ~~date of this Agreement,~~Merchants Disclosure Letter) or as required by applicable Law, Merchants shall not, and ~~to the Knowledge of Oneida, OneGroup has~~shall not ~~received notice from~~permit any of its ~~top twenty (20) insurance customers (measured by aggregate insurance premiums received during~~Subsidiaries to, without the ~~twelve month period ended December 31, 2014) that such customer intends to transfer its insurance business to another agent.~~

~~Annex A-34~~

~~3.34.~~ ~~Broker-Dealer and Investment Advisory Matters.~~

prior written consent of Community (which consent shall not be unreasonably withheld, conditioned or delayed):

(a) ~~Each~~amend or propose to amend its Organizational Documents or any resolution or agreement concerning indemnification of ~~Oneida and~~ its ~~Subsidiaries, and each~~directors or officers;

(b) (i) adjust, split, combine, subdivide or reclassify any capital stock, (ii) make, declare, set aside or pay any dividend or make any other distribution on, or directly or indirectly redeem, purchase or otherwise acquire, any shares of their respective officers and employees, who are required to be registered, licensed or qualified as (i) a broker-dealer or investment adviser or (ii) registered representative or investment adviser representative with the SECits capital stock or any securities or ~~insurance commission~~obligations convertible (whether currently convertible or ~~other governmental entity are duly registered as such, and such registrations are in full force and effect. Each Subsidiary that is a broker-dealer~~convertible only after the passage of time or ~~that provides investment management~~the occurrence of certain events) into or investment advisory or administration services has operated and is currently operating in compliance in all material respects with all laws and regulations applicable to it or its business and has all material registrations, permits, and licenses requiredexchangeable for ~~the operation~~any shares of its ~~business as presently conducted. There is no action, suit, proceeding or investigation pending or,~~capital stock, other than (A) dividends paid by any of the Subsidiaries of Merchants to ~~the Knowledge of Oneida, threatened that would reasonably be likely to lead to the revocation, suspension or restriction of any such registration, permit or license.~~

~~(b) The information contained in the currently effective Forms ADV and BD as filed with the SEC by Oneida~~Merchants or any ~~Subsidiary was complete and accurate~~of its wholly-owned Subsidiaries, (B) regular quarterly cash dividends by Merchants at a rate not in ~~all material respects as~~excess of the time of filing thereof. Except as disclosed on Forms ADV or BD filed prior to the date of this Agreement, neither Oneida, any Subsidiary nor any of their directors, officers, employees, “associated persons” or “affiliated persons” (as those terms are defined in the Securities Laws) has been the subject of disqualification, censure, or other disciplinary action, proceeding or order of or by any governmental agency.

(c) Each contract or agreement between Oneida or any applicable Subsidiary and any client or customer receiving investment management or investment advisory or administration services (i) has been duly authorized, executed and delivered in material compliance with all applicable laws and regulations, (ii) is a valid and binding agreement enforceable in accordance with its terms and (iii) is in full force and effect. Oneida and each applicable Subsidiary have complied in all material respects with its obligations under any such contract or agreement and there are no material disputes pending or, to the Knowledge of Oneida, threatened by any client or customer under the terms of any such contract or agreement.

~~Annex A-35~~

~~ARTICLE IV~~

~~REPRESENTATIONS AND WARRANTIES OF CBSI~~

~~Except as Previously Disclosed, CBSI hereby represents and warrants to Oneida as follows:~~

~~4.1.~~ ~~Capital Structure of CBSI~~. The authorized capital stock of CBSI consists of (i) 500,000 shares of preferred stock, par value $1.00 per share, none of which were issued and outstanding and (ii) 75,000,000 shares of CBSI Common Stock, par value $1.00$0.28 per share of ~~which,~~Merchants Common Stock with record and payment

TABLE OF CONTENTS

dates consistent with the comparable quarters in the prior year (subject toSection 4.20) and (C) acquisitions of shares of Merchants Common Stock resulting from the forfeiture of Merchants Restricted Shares (including for purposes of tax withholding upon vesting) or the net exercise of Merchants Stock Options or Merchants Warrants, in each case outstanding as of the date hereof, 40,661,534 shares are issued and outstanding and 1,001,688 shares are held in treasury. All outstanding shares of CBSI Common Stock have been duly authorized and validly issued and are fully paid and nonassessable. None of the shares of CBSI Common Stock has been issued in violation of the preemptive rights of any Person. The shares of CBSI Common Stock to be issued in connection with the Merger have been duly authorized and, when issued in accordance with ~~the~~their terms ~~of this Agreement, will be validly issued, fully paid, nonassessable and free and clear of any preemptive rights.~~

~~4.2.~~ ~~Organization, Standing and Authority of CBSI~~. Each of CBSI and its Subsidiaries is a duly organized corporation or bank, validly existing and in good standing under the laws of its incorporation with full corporate power and authority to own, lease and operate the properties it purports to own, lease or operate and to carry on its business as now conducted, except where the failure to be in good standing or to have such power or authority would not have a Material Adverse Effect on CBSI. Each of CBSI and its Subsidiaries is duly licensed or qualified to do business in the states of the United States and foreign jurisdictions where its ownership or leasing of property or the conduct of its business requires such qualification, except where the failure to be so licensed or qualified would not have a Material Adverse Effect on CBSI. CBSI is registered as a bank holding company under the Bank Holding Company Act.

~~4.3.~~ ~~Authorized and Effective Agreement~~.

(a) CBSI has all requisite corporate power and authority to enter into and perform all of its obligations under this Agreement and each of the Transaction Documents to which it is a party. The execution and delivery of this Agreement and each such Transaction Document and the consummation of the Transactions have been duly and validly authorized by all necessary corporate action in respect thereof on the part of CBSI. The Board of Directors of CBSI has approved and adopted this Agreement and the Merger.

~~(b) This Agreement and each Transaction Document to which CBSI is a party have been duly executed and delivered by CBSI and, assuming the accuracy of the representation contained inSection 3.4(b)~~ hereof, this Agreement constitutes the legal, valid and binding obligations of CBSI, enforceable against CBSI in accordance with its terms, except that such enforceability may be subject to bankruptcy, insolvency and other laws of general applicability relating to or affecting creditors’ rights and to general equity principles.

~~Annex A-36~~

(c) Neither the execution and delivery by CBSI of this Agreement or any Transaction Document to which it is a party, nor consummation of the Transactions, nor compliance by CBSI with any of the provisions hereof or thereof shall (i) conflict with or result in a breach of any provision of the certificate of incorporation or bylaws of CBSI, (ii) assuming the consents and approvals contemplated by~~Section 5.3~~ hereof and the consents and approvals which are Previously Disclosed are duly obtained, constitute or result in a breach of any term, condition or provision of, or constitute a default under, or give rise to any right of termination, cancellation or acceleration with respect to, or result in the creation of any lien, charge or encumbrance upon any property or asset of CBSI or any of its Subsidiaries pursuant to, any note, bond, mortgage, indenture, license, agreement or other instrument or obligation to which CBSI or any of its Subsidiaries is a party, or (iii) assuming the consents and approvals contemplated by~~Section 5.3~~ hereof and the consents and approvals which are Previously Disclosed are duly obtained, conflict with or violate any law, order, writ, injunction, decree, statute, rule or regulation applicable to CBSI or any of its Subsidiaries or their respective assets; except, in case of clauses (ii) and (iii) above, for any such breach, default, right, lien, charge, encumbrances, violation or conflict which, individually or in the aggregate, would not have a Material Adverse Effect on CBSI.

~~(d) Other than as contemplated bySection 5.3~~ hereof, no consent, approval or authorization of, or declaration, notice, filing or registration with, any governmental or regulatory authority, or any other Person, is required to be made or obtained by CBSI on or prior to the Closing Date in connection with the execution, delivery and performance of this Agreement or any of the Transaction Documents to which it is a party or the consummation of the Transactions.

~~4.4.~~ ~~Regulatory Filings~~. Each of CBSI and its Subsidiaries has filed all reports required by statute or regulation to be filed with any federal or state bank regulatory agency, except where the failure to so file would not have a Material Adverse Effect on CBSI, and such reports were prepared in accordance with the applicable statutes, regulations and instructions in existence as of the date hereof, (iii) grant or issue any Rights, (iv) issue or otherwise permit to become outstanding, sell, pledge, dispose of, ~~filing~~grant, transfer, lease, license, guarantee, encumber, or authorize the issuance, sale, pledge, disposition, grant, transfer, lease, license, guarantee or encumbrance of, ~~such reports~~any shares of its capital stock or Rights, other than issuances of Merchants Common Stock upon the exercise of Merchants Stock Options or Merchants Warrants, in ~~all material respects.~~

~~4.5.~~ ~~SEC Documents; Financial Statements; Books and Records; Minute Books~~. CBSI has filed all forms, reports and documents required to be filed with the SEC since January 1, 2012. The SEC Documents (i) were prepared in all material respects in accordance with the requirements of the Securities Act or the Exchange Act, as theeach case may be, and (ii) did not at the time they were filed (or if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing) contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The CBSI Financial Statements filed by CBSI in its SEC Documents prior to the date of this Agreement fairly present, and the CBSI Financial Statements filed by CBSI in its SEC Documents after the date of this Agreement will fairly present, the consolidated financial position of CBSIoutstanding as of the ~~dates indicated and~~date hereof pursuant to their terms as of the ~~consolidated income, changes in shareholders’ equity and cash flows of CBSI and its consolidated Subsidiaries for the periods then ended and each such financial statement has been~~date hereof, or will be, as the case may be, prepared in conformity with GAAP applied to financial institutions applied on a consistent basis, except that the unaudited interim financial statements were or are subject to normal and recurring year-end adjustments which were not or are not expected to be material in amount, and may not contain certain related notes as may be permitted by the applicable rules promulgated by the SEC. The books and records of CBSI and each of its Subsidiaries fairly reflect in all material respects the transactions to which it is a party or by which its properties are subject or bound. Such books and records have been properly kept and maintained and are in compliance with all applicable legal and accounting requirements in all material respects.

~~Annex A-37~~

~~4.6.~~ ~~Material Adverse Change. CBSI has not, on a consolidated basis, suffered~~(iv) make any change in ~~its financial condition, results~~any instrument or Contract governing the terms of ~~operations or business since December 31, 2013, which, individually or in the aggregate with any other such changes, would constitute a Material Adverse Effect with respect to CBSI.~~

~~4.7.~~ ~~Absence of Undisclosed Liabilities. Neither CBSI nor~~ any of its Subsidiaries has any liability (contingent or otherwise) that is material to CBSI on a consolidated basis, or that, when combined with all similar liabilities, would be material to CBSI on a consolidated basis, except as disclosed in the CBSI Financial Statements contained in an SEC Document filed prior to the date hereof and except for liabilities incurredsecurities;

(c) other than in the ordinary course of business consistent with past practice, ~~since September 30, 2014.~~make any investment (either by purchase of stock or securities, contributions to capital, property transfers, or purchase of any property or assets) in any other Person;

~~4.8.~~ ~~Properties. CBSI and its Subsidiaries have good and marketable title free and clear of all liens, encumbrances, charges, defaults~~(d) charge off (except as may otherwise be required by Law or equitable interests to all of the properties and assets, real and personal, which are material to the business of CBSI on a consolidated basis, and which are reflected on the CBSI Financial Statements as of September 30, 2014by Regulatory Authorities or acquired after such date, except (i) liens for taxes not yet due and payable, (ii) pledges to secure deposits and other liens incurred in the ordinary course of banking business as reflected in the books and records of CBSI, (iii) such imperfections of title, easements and encumbrances, if any, as are not material in character, amountby GAAP) or ~~extent and (iv) dispositions and encumbrances for adequate consideration~~sell (except in the ordinary course of business consistent with past ~~practice. All written or oral lease agreements (and all amendments thereto) pursuant to which CBSI or~~practices) any of its ~~Subsidiaries, as lessee, leases real and personal~~portfolio of Loans;

(e) terminate or allow to be terminated any of the policies of insurance it maintains on its business or property, ~~which, individually~~cancel any material indebtedness owing to it or ~~in the aggregate, are material~~any claims that it may have possessed with respect to the ~~business~~repayment of ~~CBSI on a consolidated basis are valid and enforceable against CBSI and~~any such material indebtedness, or waive any right of substantial value or discharge or satisfy any material noncurrent Liability (except as may otherwise be required by Law or Contract in effect as of the ~~lessor~~date hereof or entered into after the date hereof in accordance with ~~their respective terms. All tangible property used~~the terms of this Agreement);

(f) enter into any new line of business, or change in ~~the business of CBSI is in good condition, reasonable wear~~any material respect its lending, investment, underwriting, risk and ~~tear excepted,~~asset liability management or other banking and ~~is usable~~operating policies, except as required by applicable Laws or any policies imposed on it by any Governmental Authority;

(g) except in the ordinary course of business consistent with ~~CBSI’s~~ past ~~practices.~~

~~4.9.~~ ~~Tax Matters~~.

~~(a) CBSI and each of its Subsidiaries have timely filed federal income tax returns for each year through December 31, 2013 and have timely filed,~~practice: (i) lend any money or ~~caused to be filed, all other Tax Returns required to be filed with respect to CBSI or~~pledge any of its ~~Subsidiaries,~~credit in connection with any aspect of its business whether as a guarantor, surety, issuer of a letter of credit or otherwise; (ii) mortgage or otherwise subject to any Lien, encumbrance or other Liability any of its assets; (iii) except ~~where the failure to file timely such federal income and~~for property held as other ~~Tax Returns would not,~~real estate owned, sell, assign or transfer any of its assets in excess of $50,000 in the aggregate ~~have~~for Merchants and its Subsidiaries; or (iv) transfer, agree to transfer or grant, or agree to grant, a ~~Material Adverse Effect on CBSI. All Taxes due by or on behalf of CBSI or~~license to, any of its ~~Subsidiaries have been paid~~material Intellectual Property;

(h) other than in the ordinary course of business consistent with past practice, incur any indebtedness for borrowed money (other than short-term indebtedness incurred to refinance short-term indebtedness (it being understood that for purposes of thisSection 4.2(h), “short-term” shall mean maturities of six (6) months or ~~adequate reserves have been established on the CBSI Financial Statements~~less)); or assume, guarantee, endorse or otherwise as an accommodation become responsible for the ~~payment~~obligations of ~~such Taxes, except where~~any Person;

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

(j) terminate, or waive any material provision of, any Contract described inSection 3.2(k) other than normal renewals of Contracts without materially adverse changes of terms, or otherwise amend or modify any such failure to pay or establish adequate reserves would not, in the aggregate, have a Material Adverse Effect on CBSI. Neither CBSI nor any of its Subsidiaries will have any material liability for any such Taxes in excess of the amounts so paid or reserves or accruals so established except where such liability would not have a Material Adverse Effect on CBSI.Contract;

~~Annex A-38~~

(b) All Tax Returns filed by CBSI and each of its Subsidiaries are complete and accurate in all material respects. Neither CBSI nor any of its Subsidiaries is delinquent in the payment of any material Tax and none of them has requested any extension of time within which to file any Tax Returns which have not since been filed. Except as fully settled and paid or accrued on the CBSI Financial Statements, no material audit examination, deficiency, adjustment, refund claim or litigation with respect to Tax Returns, paid Taxes, unpaid Taxes or Tax attributes of CBSI or any of its Subsidiaries has been proposed, asserted or assessed (tentatively or otherwise).

~~(c) Neither CBSI nor any of its Subsidiaries is required to include in income any adjustment in any taxable period ending after the date hereof pursuant to Section 481(a) of the Code~~(k) other than ~~any adjustment for which it already has made an accrual.~~

~~4.10.~~ ~~Employee~~as required by Merchants Benefit Plans~~. Each of~~ as in effect at the CBSI Plans complies with the requirements of applicable law, including ERISA and the Code, except where the failure to so comply would not, in individually or in the aggregate, have a Material Adverse Effect on CBSI. For purposesdate of this Agreement ~~the term “CBSI~~or as expressly contemplated in this Agreement, (i) adopt, enter into, establish, terminate or amend any Benefit Plan” means each bonus, incentive compensation, severance pay, medical or other insurance program, retirement plan, or other employee benefit plan program, agreement or arrangement sponsored, maintained or contributed to by CBSI or any ERISA Affiliate or under which CBSI or any ERISA Affiliate has any liability or obligation. No liability under Title IV of ERISA has been incurred by CBSI or any ERISA Affiliate that has not been satisfied in full, and no condition exists that presents a material risk to CBSI or any ERISA Affiliate of incurring any such liability. Full payment has been made, or will be made in accordance with Section 404(a)(6) of the Code of all amounts that CBSI or any ERISA Affiliate is required to pay under Section 412 of the Code or under the terms of the CBSI Plans, and no accumulated funding deficiency (within the meaning of Section 412 of the Code) exists with respect to any ~~CBSI Plan.~~

~~4.11.~~ ~~Legal Proceedings. There are no actions, suits~~director, officer or ~~proceedings instituted, pending~~other Service Provider with an annual base salary or wages that is reasonably anticipated to ~~the Knowledge of CBSI, threatened against CBSI~~exceed $125,000 or, ~~any of its Subsidiaries or against any asset, interest or right of CBSI or any of its Subsidiaries that, if decided against CBSI or any of its Subsidiaries, would, individually or~~other than in the ~~aggregate, have a Material Adverse Effect on CBSI. There are no actual or, to the Knowledge~~ordinary course of ~~CBSI, threatened actions, suits or proceedings which present a claim to restrain or prohibit the Transactions or to impose any material liability or restrictions in connection therewith.~~

~~4.12.~~ ~~Labor Matters. With~~business consistent with past practice, with respect to ~~their employees, neither CBSI nor its Subsidiaries~~any other Service Provider, (ii) change the compensation or benefits of any director, officer or other Service Provider with an annual base salary or wages that is ~~a party~~reasonably anticipated to exceed $125,000 or, other than in the ordinary course of business consistent with past practice, of any other Service Provider, (iii) adopt or enter into any collective bargaining agreement or any other similar agreement with any labor organization, group or association, (iv) adopt, enter into, establish, amend or grant any

TABLE OF CONTENTS

employment, severance, change in control, termination, deferred compensation, pension or retirement arrangement, (v) grant or pay any incentive compensation, (vi) accelerate any rights or benefits under any Merchants Benefit Plan, including accelerating the vesting of, or the lapsing of restrictions with respect to, any Merchants Restricted Shares or Merchants Stock Options or (vii) hire or terminate (other than for cause) any director, officer, or any other Service Provider with annual base salary or wages that is reasonably anticipated to exceed $125,000;

(l) commence, settle or agree to settle any Litigation, except in the ordinary course of business consistent with past practice that (i) involves only the payment of money damages not in excess of $50,000 individually or $200,000 in the aggregate, (ii) does not involve the imposition of any equitable relief on, or the admission of wrongdoing by, Merchants or the applicable Subsidiary thereof, and (iii) would not create precedent for claims that are reasonably likely to be material to Merchants or any of its Subsidiaries;

(m) revalue any of its assets or change any method of accounting or accounting practice used by it, other than changes required by GAAP or the FDIC or any Regulatory Authority;

(n) (i) file any Tax Return except in the ordinary course of business consistent with past practice or amend any Tax Return; (ii) settle or compromise any Tax Liability; (iii) make, change or revoke any Tax election or change any method of Tax accounting, except as required by applicable Law; (iv) enter into any “closing agreement” as described in Section 7121 of the Code (or any similar provision of state, local or foreign Law); (v) surrender any claim for a refund of Taxes; or (vi) consent to any extension or waiver of the limitations period applicable to any claim or assessment with respect of Taxes;

(o) change its fiscal or Tax year;

(p) merge or consolidate with any other Person;

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

(r) enter into any Contract that would have been required to be disclosed in Section 3.2(k) of the Merchants Disclosure Letter had it been entered into prior to the execution of this Agreement;

(s) make any changes in the mix, rates, terms or maturities of Merchants Bank’s deposits or other Liabilities, except in a manner and pursuant to policies consistent with past practice and competitive factors in the market place; open any new branch or deposit taking facility; or close, relocate or materially renovate any existing branch or facility;

(t) make any Loans, or enter into any commitments to make Loans, which vary other than in immaterial respects from its written Loan policies, a true and correct copy of which policies has ~~engaged~~been provided to Community;provided, that this covenant shall not prohibit Merchants Bank from extending or renewing Loans in the ordinary course of business consistent with past lending practices or in connection with the workout or renegotiation of Loans currently in its Loan portfolio;

(u) adopt or enter into a plan of complete or partial liquidation, dissolution, restructuring, recapitalization or other reorganization;

(v) renew or enter into any non-compete, exclusivity, non-solicitation or similar agreement that would restrict or limit, in any ~~unfair labor practice. Since December 31, 2013, neither CBSI nor its Subsidiaries have experienced any attempt by organized labor or its representatives to make CBSI~~material respect, the operations of Merchants or any of its Subsidiaries ~~conform to demands of organized labor relating to their employees~~ or, ~~to enter into a binding agreement with organized labor that would cover~~after the ~~employees of CBSI~~Effective Time, Community or any of its ~~Subsidiaries. To the Knowledge~~Subsidiaries;

(w) waive any material benefits of, ~~CBSI, there~~or agree to modify in any adverse respect, or fail to enforce, or consent to any matter with respect to which its consent is ~~no unfair labor practice charge~~required under, any confidentiality, standstill or ~~other complaint by any employee or former employee of CBSI~~similar agreement to which Merchants or any of its Subsidiaries ~~against~~is a party;

(x) engage in (or modify in a manner adverse to Merchants or its Subsidiaries) any transactions (except for any ordinary course banking relationships permitted under applicable Law) with any Affiliate or any director or officer thereof (or any Affiliate or immediate family member of any such Person or any Affiliate of such Person’s immediate family members);

TABLE OF CONTENTS

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

(z) incur or commit to incur any capital expenditure or authorization or commitment with respect to them that, in the aggregate is in excess of $1,000,000, except as disclosed in the annual business plan or budget previously disclosed to Community or in the ordinary course of business consistent with past practice;

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

(bb) agree or commit to take any of ~~them pending~~the actions prohibited by thisSection 4.2.

Section 4.3Litigation. Each of Community and Merchants shall promptly notify each other in writing of any Litigation issued, commenced, brought, conducted or heard by or before, or otherwise involving, any court, arbitrator or governmental agency arising out of CBSI’s or such Subsidiary’s activities or such employee’s employment with CBSI or such Subsidiary. There is no strike, work stoppage or labor disturbanceGovernmental Authority pending or, to the Knowledge of ~~CBSI,~~Community or Merchants, as applicable, threatened against ~~CBSI~~Community, Merchants or ~~any of its Subsidiaries, and neither CBSI nor any of its Subsidiaries has experienced any such strike, stoppage or disturbance since December 31, 2013.~~

~~Annex A-39~~

~~4.13.~~ ~~Brokers and Finders. Neither CBSI nor any of its Subsidiaries, nor~~ any of their respective ~~officers,~~Subsidiaries or directors that (a) questions or ~~employees, has engaged~~would reasonably be expected to question the validity of this Agreement or the other agreements contemplated hereby or any ~~broker, finder~~actions taken or ~~financial advisor~~to be taken by Community, Merchants or ~~become obligated~~their respective Subsidiaries with respect hereto or thereto, or (b) seeks to enjoin or otherwise restrain the transactions contemplated hereby or thereby. Merchants shall give Community the opportunity to participate (at its own expense) in the defense or settlement of any stockholder or derivative Litigation against Merchants and/or its directors relating to the transactions contemplated by this Agreement (“Stockholder Litigation”), and no such settlement shall be agreed to without Community’s prior written consent (which consent shall not be unreasonably withheld, conditioned or delayed). Without otherwise limiting the Indemnified Parties’ rights with regard to the right of counsel, following the Effective Time, the Indemnified Parties shall be entitled to retain Goodwin Procter LLP or such other counsel selected by such Indemnified Parties prior to the Effective Time to defend any Stockholder Litigation.

Section 4.4State Filings. Upon the terms and subject to the conditions of this Agreement and prior to or ~~incurred any liability for any fees or commissions~~ in connection with the ~~Transactions, except for~~Closing, Community and Merchants shall execute and the ~~firm~~Parties shall cause to be filed the Certificate of ~~RBC Capital Markets~~Merger with the Secretary of State of the State of Delaware and any other such filings with the State of Delaware necessary to ~~provide financial advice with respect to~~effect the ~~Transactions provided for~~transactions contemplated in this Agreement.

~~4.14.~~ Section 4.5~~Environmental Liability~~.

(a) During the period that CBSI or any of its Subsidiaries has owned, leased or operated any properties or facilities, neither it nor any other Person has disposed, released, or participated in or authorized the release, from or under such properties or facilities. There is not now nor has there ever been any presence, disposal, release, from or under any of such properties or facilities, which may have occurred prior to CBSI having taken possession of any of such properties or facilities. For the purposes of this Agreement, the terms “disposal,” “release,” and “threatened release” shall have the definitions assigned thereto by CERCLA.

(b) The operations of CBSI or any of its Subsidiaries, and properties that CBSI or any of its Subsidiaries owns or leases, are in compliance with Environmental Law. During the time that CBSI or any of its Subsidiaries has owned or leased its properties and facilities, neither CBSI or any of its Subsidiaries nor, to the best Knowledge of CBSI, any third party has used, generated, manufactured or stored on, under or about such properties or facilities or transported or arranged for disposal to or from such properties or facilities, any Hazardous Materials in violation of applicable Environmental Law.

(c) During the time that CBSI or any of its Subsidiaries has owned or leased its properties and facilities, there has been no litigation brought or, to the best Knowledge CBSI, threatened against CBSI or any of its Subsidiaries by, or any settlement reached by CBSI or any of its Subsidiaries with, any Person alleging the presence, disposal, release or threatened release of any Hazardous Materials, on from or under any of such properties or facilities which has not been addressed or remediated in accordance with applicable Environmental Laws.

(d) There are no facts, circumstances or conditions relating to the properties and facilities owned or leased by CBSI or any of its Subsidiaries known to CBSI which are reasonably likely to give rise to a claim under any Environmental Law or to any material Environmental Costs and Liabilities.

~~4.15.~~ ~~Certain Information~~Merchants Stockholder Approval. When the Registration Statement or any post-effective amendment thereto shall become effective, and at all times subsequent to such effectiveness up to and including the time of the Oneida Shareholders’ Meeting to vote upon the approval of this Agreement, such Registration Statement and all amendments or supplements thereto, with respect to all information set forth or incorporated by reference therein furnished by CBSI relating to CBSI or any of its Subsidiaries, (i) shall comply in all material respects with the applicable provisions of the Securities Laws, and (ii) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements contained therein, in the light of the circumstances under which they were made, not misleading. All information concerning CBSI and its directors, officers, and shareholders included (or submitted for inclusion) in any application and furnished by it pursuant to~~Sections 5.2~~ or~~5.3~~ ~~of this Agreement shall be true, correct and complete in all material respects.~~

~~Annex A-40~~

~~4.16.~~ ~~Capitalization~~. CBSI is “well capitalized” as such term is defined in the rules and regulations promulgated by the Federal Reserve Board for a bank holding company and Community Bank is “well capitalized” as such term is defined in the rules and regulations promulgated by the FDIC.

~~4.17.~~ ~~Banking, Anti-Corruption, Anti-Money Laundering and Customer Information Security Laws~~.

(a) CBSI and each of its Subsidiaries have, since January 1, 2011, complied in all material respects with, are not presently in material default or violation under, and have no Knowledge of or reason to believe that any facts or circumstances exist which would cause CBSI or any of its Subsidiaries to be in material default or violation under, any law, statute, order, rule or regulation of any governmental entity applicable to CBSI or any of its Subsidiaries, including, without limitation (to the extent applicable to CBSI or its Subsidiaries), all laws related to data protection or privacy, the USA PATRIOT Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Community Reinvestment Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Home Mortgage Disclosure Act, the Fair Debt Collection Practices Act, the Electronic Fund Transfer Act, the Dodd-Frank Act, the Foreign Corrupt Practices Act, the Interagency Policy Statement, the S.A.F.E. Act, RESPA, the Bank Secrecy Act, the Gramm-Leach-Bliley Act, the provisions of the Information Security Program established pursuant to 12 C.F.R. part 364, any regulations promulgated by the Consumer Financial Protection Bureau, and any other law or regulation relating to bank secrecy, discriminatory or abusive or deceptive lending or any other product or service, financing or leasing practices, money laundering prevention, the Federal Reserve Act, the Sarbanes-Oxley Act, and all agency requirements relating to the origination, sale and servicing of mortgage and consumer loans. Community Bank has been rated “satisfactory” or better by federal or state regulators for purposes of the Community Reinvestment Act.

(b) Neither CBSI nor any of its Subsidiaries nor any director, officer, agent, employee or any other Person acting on behalf of CBSI or its Subsidiaries has (i) used any funds for any unlawful contribution, payment, benefit, gift, entertainment or other unlawful expense relating to political activity; (ii) made or taken an act in furtherance of an offer, promise or authorization of any direct or indirect unlawful payment or benefit to any government or regulatory official or employee, including of any government-owned or controlled entity or of a public international organization, or any Person acting in an official capacity for or on behalf of any of the foregoing; (iii) violated or is in violation of any provision of any applicable Anti-Corruption Laws, or (iv) made, offered, agreed, requested or accepted any unlawful bribe or other unlawful benefit, including any rebate, payoff, influence payment, kickback or other unlawful or improper payment or benefit, in the case of each of clauses (i) through (iv) of this~~Section 4.17(b)~~ in connection with the operation of the businesses of CBSI and its Subsidiaries. CBSI and its Subsidiaries have established and maintain a system of internal controls designed to provide reasonable assurances regarding compliance by CBSI and its Subsidiaries with all applicable Anti-Corruption Laws.

~~Annex A-41~~

(c) CBSI and its Subsidiaries are and since January 1, 2011 have been conducting operations at all times in compliance in all material respects with the Anti-Money Laundering Laws. CBSI and its Subsidiaries have established and maintain a system of internal controls designed to ensure compliance by CBSI and its Subsidiaries with applicable financial recordkeeping and reporting requirements of the Anti-Money Laundering Laws.

(d) Neither CBSI nor any of its Subsidiaries nor, to the Knowledge of CBSI, any director, officer, agent, employee or any other Person acting on behalf of CBSI or any of its Subsidiaries is currently the subject or the target of any Sanctions, nor is CBSI or any of its Subsidiaries located, organized or resident in a Sanctioned Country. For the past five (5) years, CBSI and its Subsidiaries have not knowingly engaged in, are not now knowingly engaged in and will not engage in, any dealings or transactions with any Person that at the time of the dealing or transaction is or was the subject or the target of Sanctions or with any Sanctioned Country. CBSI and its Subsidiaries have established and maintain a system of internal controls designed to provide reasonable assurances regarding compliance by CBSI and its Subsidiaries with all applicable Sanctions.

~~4.18.~~ ~~Agreements with and Examination by Banking Authorities~~. Neither CBSI nor any of its Subsidiaries is a party to any commitment, letter (other than letters addressed to regulated depository institutions generally), written agreement, memorandum of understanding, order to cease and desist with, is subject to any order or directive specifically naming or referring to CBSI or any of its Subsidiaries by, has been required to adopt any board resolution by, any federal or state governmental entity charged with the supervision or regulation of banks or bank holding companies or engaged in the insurance of bank deposits which is currently in effect, and neither CBSI nor any of its Subsidiaries has received notice from any such federal or state governmental entity that any such Person may be required to enter into, or otherwise be subject to, any such commitment, letter, written agreement, memorandum of understanding or cease or desist order. Neither CBSI nor any of its Subsidiaries has been informed by any bank regulator that it is contemplating issuing, requesting or amending any such order, directive, agreement, memorandum of understanding, commitment letter or similar submission.

~~4.19.~~ ~~Disclosure~~. None of the representations and warranties of CBSI contained in this Agreement or any of the Transaction Documents to which it is a party, or any of the written information or documents furnished by CBSI to Oneida in connection therewith, taken as a whole, contains or will contain any untrue statement of a material fact, or omits to state any material fact required to be stated or necessary to make any such information or document, in light of the circumstances, not misleading.

~~4.20.~~ ~~Merger Consideration~~. CBSI now has and will have, at the Effective Time, unissued shares of CBSI Common Stock and shares of CBSI Common Stock held in its treasury that are not reserved for any other purpose sufficient to issue the number of shares of CBSI Common Stock contemplated by~~Article II, and a sufficient amount of cash to pay the amount contemplated byArticle II~~.

~~Annex A-42~~

~~ARTICLE V~~

~~COVENANTS~~

~~5.1.~~ ~~Shareholders’ Meeting~~.

~~(a) Oneida~~Merchants shall call and give notice of ~~the Oneida Shareholders’~~a meeting of its stockholders (the “Merchants Stockholder Meeting”) to be held as ~~promptly~~soon as reasonably practicable after the Registration Statement ~~contemplated bySection 5.2~~is ~~first~~ declared effective by the SEC ~~but in no event later than 10 business days after the date of such effectiveness (the “Registration Statement Effective Date”),~~ for the purpose of ~~voting upon~~obtaining the ~~approval of this Agreement~~Merchants Stockholder Approval and, if so desired and mutually agreed (or otherwise required by Law), upon other matters of the type customarily brought before an annual ~~meeting~~ or special meeting of ~~shareholders~~stockholders to adopt a merger ~~agreement. Oneida~~agreement, and Merchants shall use ~~all~~its reasonable best efforts to ~~hold the Oneida Shareholders’ Meeting~~cause such meeting to occur as soon as ~~practicable after the Registration Statement Effective Date, subject to the applicable notice requirements under its governing documents and the MGCL.~~

~~(b)~~reasonably practicable. The Board of Directors of ~~Oneida~~Merchants shall use its reasonable best efforts to obtain from the ~~shareholders~~stockholders of ~~Oneida votes sufficient under its governing documents and~~Merchants the ~~MGCL to approve this Agreement and the Transactions,~~Merchants Stockholder Approval, including by communicating to ~~Oneida’s shareholders~~ its ~~recommendation~~stockholders the Merchants Directors’ Recommendation (and including such recommendation in the Proxy ~~Statement/Prospectus) that they adopt~~Statement), and ~~approve this Agreement and~~Merchants shall engage a proxy solicitor reasonably acceptable to Community to assist in the ~~Transactions contemplated herein and taking all other action necessary or desirable to secure the vote~~solicitation of ~~shareholders to obtain such approval.~~

~~(c) NotwithstandingSection 5.1(b)~~ ~~above, but subject~~proxies from stockholders relating to the ~~provisions~~Merchants Stockholder Approval;provided,however, that, prior to receipt of the Merchants Stockholder Approval and subject to~~Section 5.12~~Sections 6.1 and~~Article VII~~6.2 ~~hereof,~~, if the Board of Directors of ~~Oneida,~~Merchants, after receiving the advice of its outside counsel and, with respect to financial matters, its financial ~~advisors,~~advisor, determines in good faith that, because of (x) the receipt ~~by Oneida~~ of ~~a Takeover~~an Acquisition Proposal that constitutes a Superior Proposal or (y) the occurrence of an Intervening Event, failure to take such action would be inconsistent with its fiduciary duties under applicable Law, the Board of Directors of ~~Oneida concludes in good faith constitutes a Superior Proposal, it would violate its fiduciary duties under applicable law to continue to recommend this Agreement, then in submitting this agreement to~~Merchants may (A) make an Adverse Recommendation Change (although the ~~shareholders of Oneida, the Board of Directors of Oneida may submit this Agreement without recommendation (although any~~ resolutions ~~of the Board of Directors of Oneida~~ approving this Agreement as of the date hereof ~~shall~~may not be rescinded or amended), in which event the Board of Directors of ~~Oneida~~Merchants may communicate the basis for its ~~lack of recommendation~~Adverse Recommendation Change to Merchants’ stockholders in the Proxy ~~Statement/Prospectus~~Statement or an appropriate amendment or supplement thereto to the extent required by ~~law;~~Law or (B) solely in the case of a Superior Proposal that did not result from a breach by Merchants of its obligations underSection 4.12(a), cause Merchants to terminate this Agreement pursuant toSection 6.1(i) and authorize Merchants to enter into a definitive agreement with respect to such Superior Proposal (it being understood and

TABLE OF CONTENTS

agreed that no such termination shall be effective unless in advance of or concurrently with such termination Merchants pays or causes to be paid to Community the Termination Fee and otherwise complies withSection 6.1(i) andSection 6.2(c));providedfurther, that the Board of Directors of ~~Oneida shall~~Merchants (including any committee thereof) may not take any actions under the foregoing proviso unless (i) it gives Community at least four (4) Business Days’ prior written notice of its intention to take such action ~~under this sentence unless it has complied with~~and a reasonably detailed description of the ~~provisions~~Acquisition Proposal or Intervening Event giving rise to its determination to take such action (including, in the case of~~Section 5.12(b)(ii)~~.

~~(d) Notwithstanding any withdrawal, modification or change~~ an Acquisition Proposal, the latest material terms and conditions and the identity of the third party in any ~~recommendation~~such Acquisition Proposal (including an unredacted copy of all proposed agreements and other documents with respect to such Acquisition Proposal) or any amendment or modification thereof) and (ii) at the end of such notice period, the Board of Directors of ~~Oneida, Oneida agrees~~Merchants takes into account in good faith any amendment or modification to ~~hold the Oneida Shareholders’ Meeting within the time period specified above unless~~ this Agreement ~~is terminated~~proposed by Community and after receiving the advice of its outside counsel and, with respect to financial matters, its financial advisor, determines in ~~accordance~~good faith that it would nevertheless be inconsistent with its ~~terms. Oneida~~fiduciary duties under applicable Law to fail to take such action. During the four (4) Business Day notice period referred to in clause (i) above, Merchants shall, and shall cause its financial and legal advisors to, negotiate with Community in good faith (to the extent Community seeks to negotiate) regarding any revisions to the terms of the transactions contemplated by this Agreement proposed by Community. Any material amendment to any Acquisition Proposal or material development with respect to any Intervening Event will be deemed to be a new Acquisition Proposal or Intervening Event, as the case may be, for purposes of thisSection 4.5(a) and will require a new notice period as referred to in thisSection 4.5(a), except that any reference to four (4) Business Days shall instead be three (3) Business Days.

(b) Subject to applicable Law, Merchants shall adjourn or postpone the ~~Oneida Shareholders’~~Merchants Stockholder Meeting ~~to a date and time mutually agreed upon by Oneida and CBSI~~ if, ~~(i)~~ as of the time for which ~~the Oneida Shareholders’ Meeting~~such meeting is originally scheduled there are insufficient shares of ~~Oneida~~Merchants Common Stock represented (either in person or by proxy) to constitute a quorum necessary to conduct the business of such meeting, or ~~(ii)~~ if on the date of ~~the Oneida Shareholders’ Meeting Oneida~~such meeting Merchants has not received proxies representing a sufficient number of ~~votes~~shares necessary to ~~approve~~obtain the Merchants Stockholder Approval, and, subject to the terms and conditions of this Agreement, Merchants shall continue to use all reasonable best efforts, together with its proxy solicitor, to solicit proxies from Merchants stockholders in favor of the Merchants Stockholder Approval. Notwithstanding anything to the contrary herein, unless this Agreement has been terminated in accordance with its terms, the Merchants Stockholder Meeting shall be convened and this Agreement shall be submitted to the stockholders of Merchants at the Merchants Stockholder Meeting, for the purpose of voting on the adoption of this Agreement and the ~~Transactions,provided, that Oneida~~other matters contemplated hereby, and nothing contained herein shall ~~not~~ be ~~required~~deemed to ~~adjourn or postpone the Oneida Shareholders’ Meeting more than twice as a result~~relieve Merchants of (i) or (ii) above. If, between the date hereof and the Oneida Shareholders’ Meeting, Keefe Bruyette & Woods, Inc. shall amend or withdraw its fairness opinion, Oneida shall give prompt notice thereof to CBSI.

~~Annex A-43~~

such obligation.

~~5.2.~~ Section 4.6~~Proxy Statement; Registration Statement~~Listing of Community Common Stock. ~~As promptly as practicable after the date hereof, CBSI~~Community shall prepare and file the Registration Statement with the SEC, and Oneida shall cooperate in the preparation of the Registration Statement, which shall include the Proxy Statement/Prospectus to be mailed to the shareholders of Oneida in connection with obtaining their approval of this Agreement. CBSI will advise Oneida, promptly after it receives notice thereof, of the time when the Registration Statement or any post-effective amendment thereto has become effective or any supplement or amendment has been filed, of the issuance of any stop order, of the suspension of qualification of the CBSI Common Stock issuable in connection with the Merger for offering or sale in any jurisdiction, or the initiation or threat of any proceeding for any such purpose, or of any request by the SEC for the amendment or supplement of the Registration Statement or for additional information. If, at any time prior to the Effective Time, any event or circumstance relating to a party to this Agreement, or its directors, officers or 5% or greater shareholders, shall be discovered by such party that pursuant to the Securities Act or the Exchange Act should be set forth in an amendment or a supplement to the Registration Statement or the Proxy Statement/Prospectus included therein, such party shall promptly notify the other party. To the extent applicable, CBSI shall take all actions necessary to register or qualifycause the shares of ~~CBSI~~Community Common Stock to be issued in the Merger pursuant to all applicable state “blue sky” or securities laws and shall maintain such registrations or qualifications in effect for all purposes hereof. CBSI shall apply for, and shall use reasonable best efforts to obtain, approval to list the shares of CBSI Common Stock to be ~~issued in the Merger~~approved for listing on the NYSE, subject to official notice of issuance, prior to the Effective Time.

~~5.3.~~ Section 4.7~~Applications~~. As promptly as practicable after the date hereof, and after a reasonable opportunity for review by the other party and its counsel, CBSI and Oneida shall submit any requisite applications for prior approval of, and notices with respect to, the Transactions to the OCC, the Federal Reserve Board and the New York Department of Financial Services, and each of the parties hereto shall, and shall cause its Subsidiaries to, submit any applications, notices or other filings to any other state or federal government agency, department or body, the approval of which is required or desirable for consummation of the Merger. Oneida and CBSI each represent and warrant to the other that all information concerning their respective directors, officers, shareholders and Subsidiaries included (or submitted for inclusion) in any such application and furnished by them shall be true, correct and complete in all material respects. Each party agrees to consult with the other party with respect to obtaining all necessary approvals and consents and each will keep the other apprised of the status of matters relating to such approvals and consents, including providing the other party with copies of all material written communications to, or received from, any regulatory authority in respect of the Transactions. The parties agree to cooperate with each other in seeking regulatory approvals by, among other things, providing each other with information which may be necessary or advisable in connection with any application to, or filing with, any regulatory authority.

~~Annex A-44~~

~~5.4.~~ Reasonable Best Efforts.

(a) Subject to the terms and conditions of this Agreement, ~~CBSI and Oneida shall each~~includingSection 4.8, the Parties will use all reasonable best efforts ~~in good faith~~ to ~~(i) furnish such information as may be required or desirable in connection with the preparation of the documents referred to inSections 5.2~~ ~~and5.3~~ ~~above, and (ii)~~ take, or cause to be taken, in good faith, all ~~action~~actions, and to do, or cause to be done, all things necessary, proper or ~~desirable on its part so as~~advisable under applicable Laws to permit consummation of the Merger ~~at the earliest possible date, including, without limitation, (1) obtaining the consent or approval of Persons whose consent or approval is required for~~as promptly as practicable and otherwise to enable consummation of the ~~Transactions, provided~~transactions contemplated hereby, and each will cooperate fully with and furnish information to the other Party to that ~~Oneida~~end, and obtain all consents of, and give all notices to and make all filings with, all Governmental Authorities and other third parties that may be or become necessary for the performance of its obligations under this Agreement and the consummation of the transactions contemplated hereby;provided, that Merchants shall not agree to make any payments or modifications to agreements in connection therewith without the prior written consent of ~~CBSI,~~Community, which consent shall not be unreasonably withheld, conditioned or ~~delayed,~~delayed; and ~~(2) requesting~~providedfurther, that nothing contained herein shall preclude any Party from exercising its rights under this Agreement.

(b) Immediately following the ~~delivery of appropriate opinions, consents and letters from their respective counsel and independent auditors. Subject to~~Effective Time (or such later time as Community may direct), the ~~terms and conditions of this Agreement, no party hereto~~Parties shall take ~~or fail~~all actions necessary to consummate the Bank Merger.

TABLE OF CONTENTS

(c) Each Party undertakes and agrees to use its reasonable efforts to cause the Merger to qualify, and to take ~~or cause or permit its Subsidiaries to take or fail to take, or to the best of its ability permit to be taken or not to be taken by any third party, any~~no action that would ~~substantially impair the prospects of completing~~reasonably be expected to prevent the Merger ~~pursuant to this Agreement, that would materially delay such completion, or that would adversely affect the qualification of the Merger~~from qualifying, as a ~~reorganization~~“reorganization” within the meaning of Section 368(a) of the Code. In

(d) The Parties shall consult with respect to the ~~event that either party has~~character, amount and timing of restructuring charges to be taken ~~any action, whether before, on or after~~by each of them in connection with the ~~date hereof, that would adversely affect such qualification, each party~~transactions contemplated hereby and shall take such ~~action~~charges in accordance with GAAP, as such Parties mutually agree upon.

Section 4.8Applications and Consents. (a) Community and Merchants shall promptly prepare and file with the ~~other party may reasonably request to cure such effect to the extent curable without a Material Adverse Effect on either of the parties.~~

(b) Each party hereto shall give prompt notice to the other party of (i) the occurrence, or failure to occur, of any event which occurrence or failure would be reasonably likely to cause any representation or warranty contained in this Agreement to be untrue or inaccurate at any time from the date hereof to the Closing Date such that the condition set forth in~~Section 6.2(a)~~ or~~6.3(a)~~, as applicable, would not be met if such failure to be true or accurate were to occur or be continuing on the Closing Date, and (ii) any material failure of any party to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder, and each party shall use all reasonable best efforts in good faith to remedy such failure.

~~(c) From~~SEC, no later than forty-five (45) days after the date of this Agreement, ~~through~~ the ~~Effective Time, to~~Registration Statement, in which the ~~extent permitted by law, Oneida shall cause the Oneida Banks to provide such assistance to Community Bank~~Proxy Statement will be included as reasonably necessary for Community Bank to prepare for the conversion and transfer in connection with the Merger all information concerning the loans, deposits and other assets and liabilities of the Oneida Banks into Community Bank’s own data processing system, with a ~~view to facilitating the integration~~prospectus. Each of Community ~~Bank’s~~ and Merchants shall use reasonable best efforts to have the Oneida Banks’ systems and otherwise combining Community Bank’s and the Oneida Banks’ operations upon consummation of the Merger. Such assistance shall include providing Community Bank with computer file instructions with respect to the information in its data processing system regarding the assets and liabilities of the Oneida Banks, together with operational procedures designed to implement the transfer of such information to Community Bank, provided that the confidentiality of customer information shall be preserved and no information shall be transferred until the Effective Time. After execution of this Agreement, the Oneida Banks and Community Bank shall each designate an individual to serve as liaison concerning the transfer of data processing information and other similar operational matters. Prior to the Effective Time, Oneida shall not enter into, extend, modify, or terminate, any agreement with a third party vendor providing information technology or data processing services or software to Oneida or any Oneida Subsidiary without the prior written consent of CBSI, which consent shall not be unreasonably withheld or delayed.

~~Annex A-45~~

(d) Each party shall provide, and shall request its auditors to provide, the other party with such historical financial information regarding it (and related audit reports and consents) as the other party may reasonably request for disclosure purposesRegistration Statement declared effective under the Securities ~~Laws.~~

~~(e) Each party shall take all steps,~~Act as ~~may be~~promptly as practicable after such filing and to keep the Registration Statement effective for so long as necessary ~~or appropriate,~~ to ~~cause~~consummate the transactions ~~contemplated byArticle II~~ ~~and any other dispositions of equity securities of Oneida (including derivative securities) or acquisitions of equity securities of CBSI in connection with the consummation of the Transactions~~ contemplated by this Agreement, and Merchants shall thereafter as promptly as practicable mail or deliver the Proxy Statement to its stockholders. Community shall also use its reasonable best efforts to obtain all necessary state Securities Law or “Blue Sky” permits and approvals required to carry out the transactions contemplated by this Agreement, and Merchants shall furnish all information concerning Merchants and the holders of Merchants Common Stock as may be ~~exempt under Rule 16b-3 promulgated under the Exchange Act.~~reasonably requested in connection with any such action.

~~5.5.~~ ~~Investigation~~(b) The Parties shall cooperate with each other and ~~Confidentiality~~.

~~(a) Oneida~~use, and ~~CBSI each will keep the other advised~~cause their applicable Subsidiaries to use, their reasonable best efforts to promptly prepare and file all necessary documentation, to effect all applications, notices, petitions and filings, to obtain as promptly as practicable all Permits, Consents, approvals and authorizations of all ~~material developments relevant~~third parties and Governmental Authorities which are necessary or advisable to ~~its and its Subsidiaries’ businesses~~consummate the transactions contemplated by this Agreement (including the Requisite Regulatory Approvals), and to ~~consummation~~comply with the terms and conditions of ~~the Transactions.~~all such Permits, Consents, approvals and authorizations of all such Governmental Authorities and third parties. Without limiting the generality of the foregoing, (i) representatives of Oneida and CBSI shall confer periodically regarding the financial condition, assets, liabilities, operations and business of Oneida and the Oneida Banks and matters relating to the completion of the Transactions, and (ii) as soon as reasonably ~~available, but~~practicable and in no event ~~more~~later than ~~three (3) business~~forty five (45) days after ~~filing, Oneida~~the date of this Agreement, Community and Merchants shall, ~~furnish~~and shall cause their respective Subsidiaries to, ~~CBSI all reports~~each prepare and file any applications, notices and filings required to be filed ~~by it or~~with any Governmental Authority in order to obtain the ~~Oneida Banks with,~~Requisite Regulatory Approvals.

(c) Community and ~~all material notices received by it or~~Merchants shall have the ~~Oneida Banks from, any regulatory authority subsequent~~right to review in advance, and, to the ~~date hereof,~~extent practicable, each will consult the other on, in each case subject to applicable Laws relating to the exchange of information, all the information relating to Merchants or Community, as the case may be, and any ~~regulatory requirements~~of their respective Subsidiaries, which appears in any filing made with, or written materials submitted to, ~~maintain~~any third party or any Governmental Authority in connection with the ~~confidentiality of such reports and notices.~~

~~(b) Oneida and CBSI~~transactions contemplated by this Agreement. In exercising the foregoing right, each ~~may make or cause to be made such investigation~~ of the ~~financial~~Parties shall act reasonably and ~~legal condition~~as promptly as practicable. The Parties agree that they will consult with each other with respect to the obtaining of all Permits, Consents, approvals and authorizations of all third parties and Governmental Authorities necessary or advisable to consummate the transactions contemplated by this Agreement and each Party will keep the other apprised of the status of matters relating to completion of the transactions contemplated hereby. Each Party shall consult with the other in advance of any meeting or conference with any Governmental Authority in connection with the transactions contemplated by this Agreement and, to the extent permitted by such Governmental Authority, Merchants shall give Community and/or its counsel the opportunity to attend and participate in such meetings and conferences.

(d) In furtherance and not in limitation of the foregoing, each of Community and Merchants shall use its reasonable best efforts to avoid the entry of, or to have vacated, lifted, reversed or overturned any decree, judgment, injunction or other Order, whether temporary, preliminary or permanent, that would restrain, prevent or delay the Closing.

(e) Community and Merchants shall, upon request, furnish each other with all information concerning themselves, their Subsidiaries, directors, officers and stockholders and such other matters as ~~such party~~may be reasonably ~~deems~~ necessary or advisable in connection with the ~~Transactions,~~Proxy Statement, the Registration Statement or any other statement, filing, notice or application made by or on behalf of Community, Merchants or any of their

TABLE OF CONTENTS

respective Subsidiaries to any Governmental Authority in connection with the Merger, the Bank Merger and the other transactions contemplated by this Agreement.

(f) To the extent permitted by applicable Law, Community and Merchants shall promptly advise each other upon receiving any communication, whether in writing or oral, from any Governmental Authority whose Consent is required for consummation of the transactions contemplated by this Agreement that causes such Party to believe that there is a reasonable likelihood that any Requisite Regulatory Approval will not be obtained or that the receipt of any such Consent will be materially delayed.

(g) As used in this Agreement, the “Requisite Regulatory Approvals” shall mean all regulatory authorizations, Consents, Orders or approvals from, to or with (x) the Federal Reserve Board, the OCC, the FDIC, the Vermont Department of Financial Regulation and/or the Massachusetts Division of Banks that are necessary to consummate the transactions contemplated by this Agreement, including the Merger and the Bank Merger, and (y) any other Governmental Authority that are necessary to consummate the transactions contemplated by this Agreement, including the Merger and the Bank Merger, except in the case of this clause (y) for any such authorizations, Consents, Orders or approvals the failure of which to be obtained or made would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Merchants or Community, as the case may be.

(h) Notwithstanding anything to the contrary in this Agreement, nothing in this Agreement shall require Community or its Subsidiaries to take, or agree to take, any actions, or to accept any restriction, requirement or condition, that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect on Community, Merchants and their respective Subsidiaries, taken as a whole, or prohibit or materially limit the ownership or operation by Merchants or any of its Subsidiaries, or Community or any of its Subsidiaries, of all or any material portion of the business or assets of Merchants and its Subsidiaries or Community and its Subsidiaries, in each case taken as a whole, or compel Community or any of its Subsidiaries to dispose of or hold separate all or any material portion of the business or assets of Merchants and its Subsidiaries or Community and its Subsidiaries, in each case taken as a whole (a “Materially Burdensome Regulatory Condition”).

Section 4.9Notification of Certain Matters. Each Party will give prompt written notice to the other (and subsequently keep such other Party informed on a current basis) upon its becoming aware of the occurrence or existence of any fact, event, change, circumstance or effect that (a) is reasonably likely to result in any Material Adverse Effect on it, or (b) would cause or constitute a breach of any of its representations, warranties, covenants, or agreements contained herein;provided,~~however~~, that any failure to give notice in accordance with the foregoing with respect to any breach shall not be deemed to constitute the failure of any condition set forth inSection 5.2(a) or5.2(b), orSection 5.3(a) or5.3(b), as the case may be, to be satisfied, or otherwise constitute a breach of this Agreement by such ~~investigation~~Party due to its failure to give such notice unless the underlying breach would independently result in a failure of the conditions set forth inSection 5.2(a) or5.2(b), orSection 5.3(a) or5.3(b), as the case may be, or give rise to a termination right underSection 6.1.

Section 4.10Investigation and Confidentiality. (a) Upon reasonable notice and subject to applicable Laws, Merchants shall, beand shall cause its Subsidiaries to, afford to the officers, employees, accountants, counsel, advisors and other Representatives of Community, access, during normal business hours during the period prior to the Effective Time, to all of their properties, books, Contracts, commitments, personnel, information technology systems and records, and, during such period, Merchants shall, and shall cause its Subsidiaries to, make available to Community such information concerning their respective businesses, properties and personnel as Community may reasonably ~~related to such transactions and the party conducting such investigation~~request. Community shall use ~~its~~commercially reasonable ~~best~~ efforts to minimize any ~~disruptions~~interference with Merchants’ regular business operations during any such access. Neither Merchants nor any of its Subsidiaries shall be required to provide access to or to disclose information where such access or disclosure would jeopardize the attorney-client privilege of Merchants (after giving due consideration to the ~~operations~~existence of any common interest, joint defense or similar agreement between the other party. CBSI and Oneida agree to furnish the other and the other’s advisors with such financial data and other information with respect to its business and properties as such other party shall from time to time reasonably request, including, without limitation, information with respect to Oneida’s delinquentParties) or ~~problem Loans of the nature described inSection 3.11~~.

~~(c) Promptly following the occurrence of an event~~contravene any Law or ~~fact which, if such event or fact had occurred~~binding agreement entered into prior to the date of this ~~Agreement, would have been~~Agreement. The Parties will make appropriate substitute disclosure arrangements under circumstances in which the restrictions of the preceding sentence apply. No investigation by Community shall affect the representations and warranties of Merchants or the right of Community to rely thereon.

TABLE OF CONTENTS

(b) Each Party shall, and shall cause its directors, officers, employees and Representatives to, maintain the confidentiality of all confidential information furnished to it by the other Party concerning its and its Subsidiaries’ businesses, operations and financial positions to the extent required ~~to have been Previously Disclosed, the applicable party shall update its disclosure letter required to be delivered under the terms of this Agreement unless such event or fact is disclosed~~by, and in ~~an SEC Document filed~~accordance with, the ~~SEC.~~Confidentiality Agreement.

~~Annex A-46~~

~~(d) Oneida~~(c) Merchants shall provide ~~CBSI,~~Community, no later than fifteen (15) days after the end of each month, ~~a written update on~~an updated list of each of its Delinquent ~~Loans and Loans Previously Disclosed pursuant to~~Loans.

Section ~~3.11(g)~~4.11Press Releases; Publicity.

~~(e) No update of a party’s disclosure letter after the date hereof, and no investigation done after the date hereof pursuant to thisSection 5.5~~ ~~or otherwise shall affect or be deemed to modify any representation or warranty made by, or the conditions~~ Prior to the ~~obligations~~Effective Time, each Party shall consult with and obtain the approval (not to ~~consummate~~be unreasonably withheld, conditioned or delayed) of the ~~Merger of, any party hereto.~~

(f) Each party hereto shall hold all information furnished by the other party or any of such party’s Subsidiaries or representatives pursuant to this Agreement in confidence and in accordance with the confidentiality agreement dated December 19, 2014, between Oneida and CBSI (the “~~Confidentiality Agreement”).~~

~~5.6.~~ ~~Press Releases and Other Public Disclosures. Oneida and CBSI shall agree with each~~ other as to the form and substance of any press release, other public statement or stockholder communication related to this Agreement and the transactions contemplated hereby prior to issuing such press release, public statement or ~~the Transactions, and shall consult and agree with each other as to the form and substance of~~stockholder communication or making any other public ~~disclosures~~or stockholder disclosure related ~~thereto, including without limitation, any communications with securities market professionals and investors,~~thereto;provided,~~however~~, that nothing ~~contained herein~~in thisSection 4.11 shall be deemed to prohibit any ~~party, following notification to the other parties,~~Party from making any disclosure ~~which,~~that its counsel deems necessary or advisable in order to satisfy such Party’s disclosure obligations imposed by Law, NASDAQ or the ~~opinion~~NYSE; andprovidedfurther that, notwithstanding the foregoing, Merchants shall not be required to consult with Community before issuing any press release, other public statement or stockholder communication with respect to an Adverse Recommendation Change effected in accordance withSection 4.5(a) or with respect to its receipt and consideration of any Acquisition Proposal in accordance withSection 4.12(e).

Section 4.12Acquisition Proposals. (a) Merchants agrees that it will not, and will cause its Subsidiaries and its Subsidiaries’ respective directors, officers, employees and Representatives not to, directly or indirectly, (i) initiate, solicit, knowingly encourage or knowingly facilitate inquiries or proposals with respect to, (ii) continue, engage or participate in any negotiations concerning, (iii) provide any confidential or nonpublic information or data to, or have or participate in any discussions with, any Person (other than Persons who are Affiliates or Representatives of Merchants or Community) relating to, or (iv) except as expressly permitted bySection 4.5(a), approve, recommend, agree to or accept, any Acquisition Proposal;provided,that, prior to, but not after, the time the Merchants Stockholder Approval is obtained, if Merchants receives an unsolicitedbona fideAcquisition Proposal after the date of this Agreement that was not received in violation of clauses (i) – (iv) above, and Merchants’ Board of Directors concludes in good faith that such Acquisition Proposal constitutes or is reasonably likely to result in a Superior Proposal, Merchants may, and may permit its directors, officers, employees and Representatives to, furnish or cause to be furnished nonpublic information or data to and participate in such negotiations or discussions with the Person making such Acquisition Proposal to the extent that the Board of Directors of Merchants concludes in good faith (after receiving the advice of its outside counsel ~~is required by~~and, with respect to financial matters, its financial advisor) that failure to take such actions would be inconsistent with its fiduciary duties under applicable ~~law or NYSE or NASDAQ rules.~~

~~5.7.~~ Law;~~Actions Pending the Merger~~provided.

~~(a) Prior~~further, that prior to providing any nonpublic information permitted to be provided pursuant to the ~~Closing Date,~~foregoing proviso, Merchants shall have entered into an Acceptable Confidentiality Agreement and ~~except as otherwise~~shall provide to Community any such information not previously provided ~~for by~~to Community. Notwithstanding anything to the contrary contained in this Agreement, ~~or consented to or approved in writing~~Merchants and its Representatives may (without any determination by the Board of Directors of Merchants or consultation with outside counsel or its financial advisor) (x) following receipt of an unsolicitedbona fide Acquisition Proposal after the date of this Agreement and prior to the time the Merchants Stockholder Approval is obtained that was not received in violation of clauses (i) – (iv) above, contact such third party solely in order to clarify and understand the terms and conditions of such Acquisition Proposal so as to determine whether such Acquisition Proposal constitutes or is reasonably likely to result in a Superior Proposal and/or (y) direct any Person who makes an Acquisition Proposal or who expresses interest to Merchants in making an Acquisition Proposal to this Agreement, including the provisions of thisSection 4.12. Merchants will immediately cease and cause to be terminated any activities, discussions or negotiations conducted before the date of this Agreement with any Persons other ~~party hereto, each of CBSI and Oneida~~than Community with respect to any Acquisition Proposal. Merchants shall ~~and shall cause each of its Subsidiaries to,~~ use its reasonable best efforts, subject to ~~preserve~~applicable Law, to, within ten (10) Business Days after the date hereof, request and confirm the return or destruction of any confidential information provided to any Person (other than Community and its ~~properties, business~~Affiliates and ~~relationships with customers, employees~~its and ~~other Persons.~~their Representatives) pursuant to any existing confidentiality, standstill or similar agreements to which it or any of its Subsidiaries is a party relating to an Acquisition Proposal.

TABLE OF CONTENTS

(b) ~~Except~~Merchants shall promptly, and in any event within twenty four (24) hours of receipt, advise Community in writing in the event Merchants or any of its directors, employees, officers or Representatives receives (i) any Acquisition Proposal or indication by any Person that it is considering making an Acquisition Proposal or (ii) any request for information, discussion or negotiation that is reasonably likely to lead to or that contemplates an Acquisition Proposal, in each case together with the terms and conditions of such Acquisition Proposal, request, inquiry, proposal or offer, and shall furnish Community with a copy of such Acquisition Proposal (or, where such Acquisition Proposal is not in writing, with a description of the material terms and conditions thereof). Merchants shall keep Community informed (orally and in writing) in all material respects on a timely basis of the status and details (including, within twenty four (24) hours after the occurrence of any amendment, modification, development, discussion or negotiation) of any such Acquisition Proposal, request, inquiry, proposal or offer, including furnishing copies of any written inquiries, correspondence and draft documentation, and written summaries of any material oral inquiries or discussions. Without limiting any of the foregoing, Merchants shall promptly (and in any event within twenty four (24) hours) notify Community orally and in writing if it determines to begin providing information or to engage in discussions or negotiations concerning an Acquisition Proposal and shall in no event begin providing such information or engaging in such discussions or negotiations prior ~~written consent~~to providing such notice.

(c) Neither the Board of ~~CBSI (which consent will not be unreasonably withheld or delayed) or~~Directors of Merchants nor any committee thereof shall, except as expressly permitted bySection 4.5(a), (i) (A) withdraw (or modify or qualify in any manner adverse to Community) the approval, recommendation or declaration of advisability by the Board of Directors of Merchants or any such committee of this Agreement, ~~Oneida shall not, and shall not~~the Merger, or any of the other transactions contemplated hereby, (B) recommend, endorse or otherwise declare advisable the adoption of any Acquisition Proposal, (C) resolve, agree or propose to take any such actions or (D) submit this Agreement to its stockholders without recommendation (each such action set forth in this clause (i) being referred to herein as an “Adverse Recommendation Change”) or (ii) (A) cause or permit Merchants or any of its Subsidiaries ~~to:~~

~~(1) carry on its business~~to enter into any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement, option agreement, joint venture agreement, partnership agreement or other ~~than in the usual, regular and ordinary course in substantially the same manner as heretofore conducted,~~Contract constituting or ~~incur an obligation in excess of $50,000 in the aggregate~~relating to, or which ~~requires performance over more than one year~~is intended to or is reasonably likely to lead to, any Acquisition Proposal (other than ~~loans~~an Acceptable Confidentiality Agreement in accordance withSection 4.12(a)) or (B) resolve, agree or propose to take any such actions.

(d) Merchants agrees that any breach by its directors, officers, employees, Affiliates or Representatives of thisSection 4.12 shall be deemed a breach by Merchants.

(e) Nothing contained in this Agreement shall prevent Merchants or its Board of Directors from complying with Rules 14d-9 and ~~investments booked~~14e-2 under the Exchange Act or Item 1012(a) of Regulation M-A with respect to an Acquisition Proposal;provided, that such rules will in ~~the usual, regular and ordinary course of business);~~

(2) declare, set aside, make or pay any dividend or other distribution in respect of its capital stock or earnings other than its regular quarterly cash dividends on Oneida Common Stock in amounts consistent with past practice;

(3) issue any shares of its capital stock or permit any treasury shares to become outstanding (except that Oneida may issue shares of Oneida Common Stock pursuant to a valid exercise of an unexpired Oneida Option), or redeem, purchase or otherwise acquire any shares of its capital stock or any securities or obligations convertible into or exchangeable for any shares of its capital stock;

~~Annex A-47~~

~~(4) incur any additional debt obligation or other obligation for borrowed money other than in the ordinary course of business consistent with past practice;~~

~~(5) issue, grant or authorize any Rights (or amend~~no way eliminate or modify the effect that any action pursuant to such rules would otherwise have under this Agreement. Notwithstanding anything to the contrary contained in this Agreement, a “stop, look and listen” communication shall not be deemed an Adverse Recommendation Change if the Board of Directors of Merchants publicly states that the Merchants Directors’ Recommendation has not changed or refers stockholders to the Merchants Directors’ Recommendation.

Section 4.13Takeover Laws. None of Merchants, Community or their respective Boards of Directors shall take any action that would cause any Takeover Law to become applicable to this Agreement, the Merger, or any of the other transactions contemplated hereby, and each shall take all necessary steps to exempt (or ensure the continued exemption of) the Merger and the other transactions contemplated hereby from any applicable Takeover Law now or hereafter in effect. If any Takeover Law may become, or may purport to be, applicable to the transactions contemplated hereby, each Party and the members of their respective Boards of Directors will grant such approvals and take such actions as are necessary so that the transactions contemplated by this Agreement may be consummated as promptly as practicable on the terms contemplated hereby and otherwise act to eliminate or ~~exercisability~~minimize the effects of any outstanding Rights) or effect any recapitalization, reclassification, stock dividend, stock split or like change in capitalization, or redeem, repurchase or otherwise acquire any shares of its capital stock;

~~(6) amend or otherwise change its articles of incorporation or articles of association or bylaws; impose, or suffer the imposition,~~Takeover Law on any ~~share~~ of ~~capital stock of Oneida~~the transactions contemplated by this Agreement, including, if necessary, challenging the validity or applicability of any ~~lien, charge~~such Takeover Law.

TABLE OF CONTENTS

Section 4.14Employee Matters. (a) The current employees of Merchants or ~~encumbrance;~~

~~(7) merge or consolidate with, or acquire control over, any Person or create any Subsidiary;~~

(8) waive or release any material right or cancel or compromise any material debt or claim other than in the ordinary course of business consistent with past practice with prior notice to CBSI;

(9) sell, liquidate, pledge or encumber or dispose of, or acquire any, assets with a value in excess of $50,000 (other than assets acquired in foreclosure, in lieu of foreclosure or other legal proceedings relating to collateral for Loans, in each case in the ordinary course of business consistent with past practice); make any capital expenditure in excess of $50,000 in the aggregate; or establish new branches or other similar facilities, close existing branches or similar facilities or enter into or modify any leases or other contracts relating thereto;

(10) hire any new employee without first consulting with CBSI; increase the rate of compensation of, pay or agree to pay any bonus to, or provide any additional employee benefit or incentive (including without limitation, any “change of control” or severance payment) to any of its ~~directors, officers~~Subsidiaries who continue as employees of Community or ~~employees~~its Subsidiaries after the Effective Time (“Continuing Employees”) shall be given, subject to applicable Law, credit for past service with Merchants and its Subsidiaries to the extent credited by Merchants and its Subsidiaries prior to the Effective Time for purposes of determining eligibility for and vesting of employee benefits (but not for pension benefit accrual purposes) under all welfare and retirement programs maintained by Community or its Subsidiaries in which such Continuing Employees participate following the Effective Time and for purposes of determining length of vacation, sick time, paid time off and severance under Community’s applicable plan or policy, except if any such credit would result in a duplication of benefits. In addition, under the welfare plans of Community and its Subsidiaries in which Continuing Employees participate, Community shall use its commercially reasonable efforts to (i) waive, or cause to be waived, for each participating Continuing Employee, any limitations on benefits relating to pre-existing conditions to the same extent such limitations are waived under any comparable plan of Merchants or its Subsidiaries prior to the Effective Time and (ii) recognize for purposes of annual deductible and out-of-pocket limits under its medical and dental plans, deductible and out-of-pocket expenses paid by each participating Continuing Employee in the calendar year in which the Effective Time occurs.

(b) In the event that the employment of any Continuing Employee shall be terminated by Community or one of its Subsidiaries, other than for Cause, during the Severance Period (as each term is defined inSchedule 4.14(b)), such Continuing Employee shall be entitled (subject to meeting applicable eligibility and vesting requirements) to receive severance benefits as ~~required~~set forth inSchedule 4.14(b).

(c) Prior to the Effective Time, Merchants shall take, and shall cause its Subsidiaries to take, all actions that may be requested by ~~law~~Community in writing with respect to (i) causing one or ~~contractual obligation~~more Merchants Benefit Plans (other than (x) any employment agreements and severance arrangements with Continuing Employees in effect as of the date ~~hereof;~~of this Agreement to the extent such agreements are set forth on Section 3.2(j)(i) of the Merchants Disclosure Letter and (y) the Director Deferred Compensation Plans (provided,however, that the Parties may mutually determine to terminate such plans) to terminate as of or ~~become party~~following the date immediately preceding the Effective Time or for benefit accruals and entitlements to ~~adopt, terminate, amend,~~cease as of or ~~commit itself~~following the date immediately preceding the Effective Time, (ii) causing the continuation on and after the Effective Time of any Contract, arrangement or insurance policy relating to any pension, retirement, profit sharing or welfare benefit plan or agreement or employment agreement, other than in the ordinary course of business consistent with past practice or except as required by existing plans or agreements; or accelerate the vesting of any deferred compensation;

~~(11) change its lending, investment, asset/liability management or other material banking policies in any material respect except~~Merchants Benefit Plan for such period as may be ~~required~~requested by ~~changes~~Community, or (iii) cooperating with Community to facilitate the merger of any Merchants Benefit Plan into any Benefit Plan of Community or its Subsidiaries as of or following the Effective Time. All resolutions, notices, or other documents issued, adopted or executed in ~~applicable law~~connection with the implementation of thisSection 4.14(c) shall be subject to Community’s reasonable prior review and approval, which shall not be unreasonably withheld, conditioned or ~~changes required by a regulatory authority;~~delayed.

~~(12) change~~(d) Community shall honor, each in accordance with its ~~methods of accounting~~terms, the employment agreements and severance arrangements in effect ~~at December 31, 2013,~~as of the date of this Agreement to the extent such agreements are set forth on Section 3.2(j)(i) of the Merchants Disclosure Letter, except to the extent that any such agreements or arrangements are superseded or terminated as ~~required by changes in GAAP concurred in by its independent certified public accountants,~~of or ~~change~~following the Effective Time.

(e) In the event of any termination of any Merchants Benefit Plan providing employer-provided health coverage or consolidation of any such plan with any Benefit Plan of Community or any of its ~~methods~~Subsidiaries providing employer-provided health coverage within twelve (12) months after the Effective Time, (i) Community shall, or shall cause its Subsidiaries to, make available to Continuing Employees and their dependents employer-provided health coverage on the same basis as it provides such coverage to similarly situated employees of ~~reporting income, deductions~~Community and its Subsidiaries and (ii) former employees of Merchants or ~~other items for federal income tax purposes from those employed in the preparation of its federal income tax returns for the year ended December 31, 2013, except as required by applicable law;~~

~~Annex A-48~~

~~(13) take any action that could result in (i)~~ any of its ~~representations or warranties in this Agreement being or becoming untrue~~Subsidiaries and their qualified beneficiaries will have the right to continued coverage under group health plans of Community to the extent required by COBRA. During the twelve (12) months after the Effective Time, unless a Continuing Employee causes coverage to terminate under a Merchants Benefit Plan providing employer-provided health coverage prior to the time that a Continuing Employee becomes eligible to participate in any ~~material respects at~~Benefit Plan of Community or any of its Subsidiaries providing employer-provided health coverage, neither Community nor any of its Subsidiaries shall terminate the coverage of any of the Continuing Employees or their dependents as of the Effective Time under any Merchants Benefit Plan providing

TABLE OF CONTENTS

employer-provided health coverage prior to the time such Continuing Employees and their dependents become eligible to participate in a Benefit Plan of Community or any of its Subsidiaries providing employer-provided health coverage.

(f) As of the Effective Time, Community shall assume the Merchants Amended and Restated Deferred Compensation Plan for Directors, the Merchants 1996 Compensation Plan for Non-Employee Directors, the Merchants Salary Continuation Plan and the Merchants and Subsidiaries Amended and Restated 2008 Compensation Plan for Non-Employee Directors and Trustees (collectively, the “Director Deferred Compensation Plans”) and shall continue to honor the terms and obligations thereunder unless the Director Deferred Compensation Plans are terminated prior to the Effective Time ~~(ii)~~by mutual agreement of the Parties.

(g) The provisions of thisSection 4.14 are solely for the benefit of the parties hereto, and no Service Provider or any other Person shall be regarded for any purpose as a third party beneficiary of this Agreement. Nothing herein, expressed or implied, shall be construed as an amendment to any Benefit Plan for any purpose or confer upon any Continuing Employee or any other Person any right to employment or continued employment with any of the ~~conditions to the Merger set forth inArticle VI~~ ~~not being satisfied, except as may be required by law~~parties hereto or ~~(iii) materially delaying the receipt of necessary regulatory approvals for the Transactions except as may be required by law or regulatory requirement; or~~

~~(14) agree to do~~ any of ~~the foregoing~~their Subsidiaries or ~~take~~Affiliates for any ~~other action which would~~period. Nothing in ~~any manner interfere with, impede, delay, or make more costly the consummation of the Transactions.~~

~~(c) CBSI shall not, except with the prior written consent of Oneida (which consent shall not unreasonably be withheld or delayed) or as expressly permitted by~~ this ~~Agreement, carry on its business other than in the usual, regular and ordinary course in substantially the same manner as heretofore conducted;provided~~Section 4.14,~~however, that nothing herein~~ shall be construed to ~~prevent CBSI from acquiring~~limit the right of Community or ~~agreeing~~any of its Subsidiaries (including, following the Effective Time, Merchants and its Subsidiaries) to ~~acquire~~amend or terminate any ~~Person,~~Merchants Benefit Plan or other employee benefit plan, to the extent such amendment or termination is permitted by ~~merging or consolidating with, by purchasing an equity interest in or a portion~~the terms of the ~~assets~~applicable plan, nor shall anything in thisSection 4.14 be construed to require Community or any of ~~or by~~its Subsidiaries to retain the employment of any ~~other manner, such Person or taking actions reasonably related thereto, so long as such transaction would not materially delay or prevent~~particular Continuing Employee for any fixed period of time following the ~~consummation of the Transactions.~~

Effective Time.

~~5.8.~~ Section 4.15Certain Policies. Following receipt of all ~~regulatory approvals required to consummate the Merger~~Requisite Regulatory Approvals and ~~the Bank Mergers and approval~~adoption of this Agreement at the ~~Oneida Shareholders’~~Merchants Stockholder Meeting:

(a) ~~Oneida~~Merchants shall, consistent with GAAP and applicable ~~law~~Law and on a basis mutually satisfactory to it and ~~CBSI,~~Community, modify and change its accounting, investment, loan, litigation and real estate valuation policies and practices (including loan classifications, content and size of investment portfolio, and levels of reserves and accruals) so as to be applied, in all material respects, on a basis that is consistent with that of ~~CBSI;~~

Community;

(b) ~~Oneida~~Merchants and ~~CBSI~~Community shall review the adequacy of reserves for loan losses currently established by ~~Oneida~~Merchants and, if deemed warranted by both parties under GAAP, ~~Oneida~~Merchants shall make mutually acceptable changes to such reserves; and

(c) ~~Oneida~~Merchants shall consult with ~~CBSI~~Community with respect to determining the amount and timing of recognizing, for financial accounting and income Tax reporting purposes, ~~Oneida’s~~Merchants’ expenses incurred in connection with the ~~Transactions~~Merger, the Bank Merger and the transactions contemplated by this Agreement, and, subject to GAAP and applicable ~~law, Oneida~~Law, Merchants shall recognize its costs and expenses in connection with the ~~Transactions~~transactions contemplated hereby at such time or times as are reasonably requested by ~~CBSI.~~

~~Annex A-49~~

Community.

~~5.9.~~ Section 4.16~~Employee Benefits; Directors and Management;~~ Indemnification.

(a) ~~The current employees of Oneida or any of its Subsidiaries who continue as employees of CBSI or its Subsidiaries after the Effective Time (“Continuing Employees~~”) shall be given credit for past service with Oneida for purposes of determining eligibility for and vesting of employee benefits (but not for pension benefit accrual purposes) under all welfare and retirement programs maintained by CBSI or its Subsidiaries in which such Continuing Employees participate following the Merger and for purposes of determining length of vacation, sick time, paid time off and severance under CBSI’s applicable plan or policy. In the event that the employment of any Continuing Employee shall be terminated by CBSI or one of its Subsidiaries without cause within twelve months after the Effective Time, such Continuing Employee shall be entitled (subject to meeting applicable eligibility and vesting requirements) to receive severance benefits no less than those provided under the terms of CBSI’s severance policy in effect as of the date of this Agreement, which has been Previously Disclosed. In the event that the employment of any Continuing Employee shall be terminated by CBSI or one of its Subsidiaries without cause more than twelve months after the Effective Time, such Continuing Employee shall be entitled (subject to meeting applicable eligibility and vesting requirements) to receive severance benefits no less than those provided under the terms of CBSI’s severance policy in effect as of the date of termination of employment.

(b) Prior to the Effective Time, Oneida shall take all actions, provided such actions comply with applicable law or do not trigger adverse tax consequences to any employee or independent contractor of Oneida or any Oneida Subsidiary, that may be requested by CBSI in writing upon advance notice of not less than 30 days with respect to (i) causing one or more Oneida Plans to terminate as of or immediately prior to the Effective Time or for benefit accrual and entitlements to cease as of the Effective Time, (ii) causing the continuation onFrom and after the Effective Time, of any contract, arrangement or insurance policy relating to any Oneida Plan for such period as may be requested by CBSI, or (iii) cooperating with CBSI to facilitate the merger of any Oneida Plan into any CBSI Plan as of or following the Effective Time.

~~(c) CBSI~~Community shall ~~honor the employment agreements~~indemnify and ~~severance arrangements in effect as of the date of this Agreement and Previously Disclosed by Oneida to CBSI, except~~hold harmless, to the fullest extent ~~that~~permitted by applicable Law, each present and former director, officer or employee of Merchants and its Subsidiaries (in each case, when acting in such capacity) (each, an “Indemnified Party”) against any ~~such agreements~~costs or ~~arrangements are superseded or terminated as of or following the Effective Time,~~expenses (including reasonable attorneys’ fees and disbursements), judgments, settlements effected with the prior written consent of ~~the affected parties.~~

~~(d) In the event of any termination of any Oneida~~Community (such consent not to be unreasonably withheld, conditioned or ~~any Oneida Subsidiary health plan~~delayed), fines, losses, taxes, damages or ~~consolidation of any such plan~~liabilities incurred in connection with ~~any CBSI~~ or CBSI Subsidiary health plan, CBSI shall make available to Continuing Employees and their dependents employer-provided health coverage on the same basis as it provides such coverage to CBSI or CBSI Subsidiary employees. Unless a Continuing Employee causes coverage to terminate under an Oneida or Oneida Subsidiary health plan prior to the time that a Continuing Employee becomes eligible to participate in the CBSI or CBSI Subsidiary health plan, neither CBSI nor any CBSI Subsidiary shall terminate the existing coverage of any of the Continuing Employees or their dependents under any of the Oneida or Oneida Subsidiary health plans prior to the time such Continuing Employees and their dependents become eligible to participate in the health plans, programs and benefits common to all employees of CBSI or CBSI Subsidiary and their dependents. In the event of a termination or consolidation of any Oneida or Oneida Subsidiary health plan on or after the Effective Time, former employees of Oneida or Oneida Subsidiary and qualified beneficiaries will have the right to continued coverage under group health plans of CBSI to the extent required by COBRA.

(e) At the Effective Time, CBSI shall, or direct Oneida to, pay each participant in the Oneida Cash Incentive Plans a lump sum cash payment equal to the pro-rata portion of his or her annual incentive award payable under the Oneida Cash Incentive Plans, calculated from the first day of the plan year beginning on January 1, 2015 (or beginning on January 1, 2016 if the Effective Time occurs in the 2016 calendar year) until the Effective Time, as if the company and individual performance goals are achieved at “target” performance for such award.

~~Annex A-50~~

(f) Prior to the Effective Time, CBSI shall cause its Board of Directors and Community Bank’s Board of Directors (subject to their continuing fiduciary duties between the date hereof and the Effective Time) to take all requisite actions to expand the size thereof by two directors and appoint Eric E. Stickels and Michael R. Kallet(each, a “~~New Director~~”) as directors of CBSI and Community Bank to fill the vacancies created by the expansion, effective as of the Effective Time. Subject to the exercise of the fiduciary duties of CBSI’s Board of Directors, CBSI shall cause the Nominating and Corporate Governance Committee to nominate, and shall cause its Board to recommend for election, each New Director at CBSI’s next annual meeting of shareholders at which they are standing for election. Nothing contained in this~~Section 5.9(f)~~ ~~shall be construed to limit the ability of the respective Boards of Directors of CBSI and Community Bank to further increase the size of such Boards from time to time as they may deem appropriate.~~

~~(g) (1) In the event~~arising out of any threatened or actual claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or ~~administrative, including, without limitation, any such claim, action, suit, proceeding~~investigative, whether formal or ~~investigation in which any Person (the “Indemnified Party”) who is now,~~informal, and whether arising before or ~~has been at any time prior to the date of this Agreement, or who becomes prior to~~after the Effective Time (regardless of whether the Indemnified Party is as a ~~director~~named party or ~~officer of Oneida is, or is threatened to be, made~~ a participant other than as a named party, ~~based in whole or in part on, or~~including as a witness), arising in whole or in part out of, or pertaining to, ~~(i)~~ the fact that hesuch person is or was a director, officer or employee of ~~Oneida~~Merchants or any of its Subsidiaries or ~~(ii) this Agreement~~otherwise in connection with any action taken or not taken at the request of Merchants or any of its Subsidiaries or is or was serving at the ~~Transactions, whether~~request of Merchants or any of its Subsidiaries as a director, officer employee, agent, trustee or fiduciary of another Person (including in any ~~case asserted~~capacity with respect to any employee benefit plan) and pertaining to matters, acts or ~~arising before~~omissions existing or ~~after~~occurring at or prior to the

TABLE OF CONTENTS

Effective Time, ~~CBSI~~including matters, acts or omissions occurring in connection with the approval of this Agreement and the transactions contemplated by this Agreement; and Community shall ~~for a period of six years after the Effective Time, indemnify and hold harmless, to the fullest extent permitted~~also advance expenses as incurred by ~~law, each~~ such Indemnified Party against any losses, claims, damages, liabilities, costs, expenses (including reasonable attorney’s fees and expenses in advance of the final disposition of any claim, suit, proceeding or investigation to each Indemnified Party to the fullest extent permitted by ~~the DGCL upon receipt of any undertaking required by the DGCL), judgments, fines and amounts paid~~applicable Law within thirty (30) days after a written request setting forth such expenses in settlement in connection with any such threatened or actual claim, action, suit, proceeding or investigation, and in the event of any such threatened or actual claim, action, suit, proceeding or investigation (whether asserted or arising before or after the Effective Time),reasonable detail;provided that the Indemnified Party ~~may retain counsel reasonably satisfactory~~ to ~~them after consultation with CBSI;provided~~,~~however~~,whom expenses are advanced provides an undertaking (in a reasonable and customary form) to repay such advances if it is ultimately determined that (1) CBSI shall have the right to assume the defense thereof and upon such assumption CBSI shall not be liable to any Indemnified Party for any legal expenses of other counsel or any other expenses subsequently incurred by any Indemnified Party in connection with the defense thereof, except that if CBSI elects not to assume such defense or counsel for the Indemnified Party reasonably advises the Indemnified Party that there are issues which raise conflicts of interest between CBSI and the Indemnified Party, the Indemnified Party may retain counsel reasonably satisfactory to them after notification, and CBSI shall pay the reasonable fees and expenses of such counsel for the Indemnified Party, (2) CBSI shall be obligated pursuant to this paragraph to pay for only one firm of counsel for all Indemnified Parties, (3) CBSI shall not be liable for any settlement effected without its prior written consent, (4) CBSI shall have no obligation hereunder to any Indemnified Party when and if a court of competent jurisdiction shall ultimately determine, and such determination shall have become final and nonappealable, that indemnification of such Indemnified Party is not entitled to indemnification. The Indemnified Party shall reasonably cooperate with Community in the ~~manner contemplated hereby is prohibited by applicable law, and (5) CBSI shall no obligation hereunder to defend or indemnify an~~ Indemnified ~~Party from a claim, action or suit between such Indemnified Party and CBSI or any of its Subsidiaries. Any Indemnified Party wishing to claim indemnification under thisSection 5.9(g), upon becoming aware~~Party’s defense of any such claim, action, suit, proceeding or ~~investigation, shall promptly notify CBSI thereof, provided that the failure~~investigation.

(b) For a period of ~~any Indemnified Party to so notify CBSI shall relieve it of its obligations to indemnify hereunder to the extent that such failure materially prejudices CBSI.~~

~~Annex A-51~~

(2) The indemnification rights provided in subparagraph (1) above, are in addition to the obligations of indemnification (including the advancement of expenses) in favor of the directors and officers of Oneida (including former directors and officers) under Oneida’s articles of incorporation and bylaws (and provisions of Maryland law referenced or incorporated therein) that are assumed by CBSI by reason of the Merger.

~~(3) CBSI will use its reasonably best efforts to cause the Persons who served as directors or officers of Oneida on or before~~six (6) years after the Effective Time, Community shall cause to be ~~covered by Oneida’s existing~~maintained in effect the current policies of directors’ and officers’ liability insurance ~~policy (provided~~maintained by Merchants (provided, that ~~CBSI~~Community may substitute therefor policies with a substantially comparable insurer of at least the same coverage and amounts containing terms and conditions which are ~~not~~no less advantageous ~~than such policy) but~~to the insured) with respect to claims against the present and former officers and directors of Merchants or any of its Subsidiaries arising from matters, acts or omissions which occurred at or before the Effective Time (including in ~~no event~~connection with the approval of this Agreement and the transactions contemplated by this Agreement);provided, that Community shall ~~any insured Person~~not be ~~entitled under thisSection 5.9~~obligated to ~~insurance coverage more favorable than that provided to him or her~~expend, on an annual basis, an amount in ~~such capacities~~excess of three hundred percent (300%) of the current annual premium paid as of the date hereof by Merchants for such insurance (the “Premium Cap”), and if such premiums for such insurance would at any time exceed the Premium Cap, then Community shall cause to be maintained policies of insurance which, in Community’s good faith determination, provide the maximum coverage available at an annual premium equal to the Premium Cap. In lieu of the foregoing, Merchants in consultation with ~~respect to acts or omissions resulting from their service as such on~~Community, may (and at the request of Community, Merchants shall use its reasonable best efforts to) obtain at or prior to the Effective ~~Time. Such insurance~~Time a six (6) year “tail” policy providing equivalent coverage to that described in the preceding sentence if and to the extent that the same may be obtained for an amount that, in the aggregate, does not exceed the Premium Cap. If Merchants obtains such a “tail policy,” Community shall ~~commence at~~maintain such “tail” policy in full force and effect and continue to honor its obligations thereunder for such six (6) year period.

(c) Subject to applicable Law, the obligations of Community and Merchants under thisSection 4.16 shall not be terminated or modified after the Effective Time in a manner so as to adversely affect any Indemnified Party or any other Person entitled to the benefit of thisSection 4.16 without the prior written consent of the affected Indemnified Party or affected Person (it being expressly agreed that the Indemnified Parties shall be third-party beneficiaries of thisSection 4.16).

(d) The provisions of thisSection 4.16 shall survive the Effective Time and are intended to be for the benefit of, and shall be enforceable by, each Indemnified Party and his or her heirs and representatives and are in addition to, and not in substitution for, any other rights to indemnification, advancement, exculpation or contribution that any such individual may have under the Bylaws of Merchants or its Subsidiaries, or by indemnification agreement, resolution, contract or otherwise. If Community or any of its successors or assigns will consolidate with or merge into any other entity and not be ~~provided for a period~~the continuing or surviving entity of ~~no less than six years after~~such consolidation or merger, transfer all or substantially all of its assets or deposits to any other entity or engage in any similar transaction, then in each case to the extent the obligations set forth in thisSection 4.16 are not otherwise transferred and assumed by such successors and assigns by operation of Law or otherwise, Community will cause proper provision to be made so that the successors and assigns of Community will expressly assume the obligations set forth in thisSection 4.16.

Section 4.17Merchants Debt. (a) Community will execute and deliver, or cause to be executed and delivered, by or on behalf of Merchants, at or prior to the Effective ~~Time;provided~~,~~however, that in no event shall CBSI be~~Time, any supplements, amendments or other instruments required for the due assumption of Merchants’ outstanding fixed and floating rate Junior Subordinated Debentures due 2034 (the “Merchants Debentures”) and (to the extent informed of such requirement by Merchants) other agreements to ~~expend more than 150%~~the extent reasonably required by the terms of the ~~current amount expended by Oneida to maintain or procure insurance coverage pursuant hereto.~~Merchants Debentures.

(b) Prior to the Effective Time, ~~Oneida agrees~~Merchants shall, and shall causes its Subsidiaries to, ~~renew~~take all such actions reasonably requested by Community or any ~~such existing insurance~~of its Subsidiaries with respect to the Merchants Debentures (i) to the extent required by the terms of the Merchants Debentures or under applicable Law to ~~purchase~~be taken prior to the

TABLE OF CONTENTS

Effective Time, including, without limitation, the giving of any ~~“discovery period” insurance provided for thereunder at CBSI’s request.~~

notices that may be required in connection with the Merger or the Bank Merger, and the delivery of any supplemental indentures, legal opinions, officers’ certificates or other documents or instruments required in connection with the Merger, the Bank Merger and the respective consummation thereof or (ii) in order to facilitate Community’s compliance with the foregoingSection 4.17(a).

~~5.10.~~ Section 4.18~~Dividends; Termination~~Exemption from Liability under Section 16(b). The Board of ~~DRIP Plan~~Directors of Community and of Merchants, or a committee of non-employee directors thereof (as such term is defined for purposes of Rule 16b-3(d) under the Exchange Act), shall reasonably promptly, and in any event prior to the Effective Time, take all such steps as may be required to cause (in the case of Merchants) any dispositions of or other transactions in Merchants Common Stock by the Merchants Insiders, and (in the case of Community) any acquisitions of Community Common Stock by any person who, immediately following the Merger, will be officers or directors of Community subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to Community, in each case pursuant to the transactions contemplated by this Agreement, to be exempt from liability pursuant to Rule 16b-3 under the Exchange Act to the fullest extent permitted by applicable Law.

Section 4.19Systems Integration. From and after the date hereof, Merchants and Merchants Bank shall and shall cause their directors, officers and employees to, and shall use commercially reasonable efforts (during normal business hours and without undue disruption to either business) to cause Merchants Bank’s data processing consultants and software providers to, cooperate and assist Community, upon Community’s reasonable request, in connection with an electronic and systems conversion of all applicable data of Merchants and its Subsidiaries concerning the Loans, deposits and other assets and Liabilities of Merchants and its Subsidiaries to the Community systems. Merchants and its Subsidiaries shall cooperate with Community in connection with the planning for the efficient and orderly combination of the parties and the operation of Community Bank (including the former operations of Merchants Bank) after the Bank Merger, and in preparing for the consolidation of appropriate operating functions to be effective at the Effective Time or such later date as Community may decide. After the execution of this Agreement, Merchants and Community shall each designate an individual to serve as liaison concerning the transfer of data processing information and other similar operational matters. Notwithstanding any other provision contained in this Agreement, (i) neither Community nor Community Bank shall be permitted to exercise control of Merchants or Merchants Bank prior to the Effective Time, and (ii) neither Merchants nor Merchants Bank shall be under any obligation to act in a manner that could reasonably be deemed to constitute anti-competitive behavior under federal or state antitrust Laws.

Section 4.20Dividends. After the date of this Agreement, ~~CBSI~~each of Community and ~~Oneida~~Merchants shall coordinate with the other the declaration of any dividends in respect of ~~CBSI~~Community Common Stock and ~~Oneida~~Merchants Common Stock and the record dates and payment dates relating thereto, it being the intention of the ~~parties hereto~~Parties that holders of ~~Oneida~~Merchants Common Stock shall not receive two (2) dividends, ~~other than regular dividends thereon, subject to any regulatory limitations,~~ or fail to receive ~~such regular dividends subject to~~one (1) dividend, in any ~~regulatory limitations, for any calendar~~ quarter ~~prior to the Effective Time~~ with respect to their shares of ~~Oneida~~Merchants Common Stock and ~~for any calendar quarter following the Effective Time with respect to~~ any shares of ~~CBSI~~Community Common Stock ~~that~~any such holder receives as Merger Consideration. Oneida shall suspend its DRIP Plan effective as of the date of this Agreement with the effect that no additional shares of Oneida Common Stock shall be issued thereunder prior to the Effective Time or the termination of this Agreement. Prompt notice of such suspension shall be given to all Oneida shareholders. Upon the Effective Time, the DRIP Plan shall be terminated, and Oneida and CBSI shall cooperate in ~~providing any required notice of such termination of such termination to the shareholders of Oneida.~~

~~Annex A-52~~

~~5.11.~~ ~~Takeover Laws~~. No party hereto shall take any action that would cause the Transactions to be subject to the requirements imposed by any Takeover Law, and each of them shall take all necessary steps within its control to exempt (or ensure the continued exemption of) all such Transactions from, or if necessary challenge the validity or applicability of, any applicable Takeover Law, as now or hereafter in effect.

~~5.12.~~ ~~No Solicitation~~.

~~(a) Subject toSection 5.12(b)~~ hereof, from and after the date of this Agreement until the earlier of the Closing or the termination of this Agreement in accordance with its terms, neither Oneida nor any Person acting on behalf of Oneida shall, directly or indirectly, (a) solicit, initiate or respond to discussions or engage in negotiations with any Person (whether such negotiations are initiated by Oneida or otherwise) or take any other action intended or designed to facilitate the efforts of any Person, other than CBSI, relating to the possible acquisition, recapitalization or other business combination involving Oneida or any of its Subsidiaries (whether by way of merger, purchase of capital stock, purchase of assets or otherwise) or twenty-five percent (25%) or more of its capital stock or assets (with any such efforts by any such Person, including a firm proposal to make such an acquisition, to be referred to as “~~Takeover Proposal~~”), (b) provide non-public information with respect to Oneida or any of its Subsidiaries to any Person, other than CBSI and its professional advisors or Oneida’s professional advisors, or (c) enter into an agreement, or a letter of intent or term sheet, with any Person, other than CBSI, providing for a possible Takeover Proposal. If Oneida receives any offer or proposal relating to a Takeover Proposal, Oneida shall immediately notify CBSI thereof, including information as to the identity of the party making any such offer or proposal and the specific terms of such offer or proposal, as the case may be. Oneida shall immediately cease and cause to be terminated any activities, discussions, or negotiations conducted before the date of this Agreement with any Person other than CBSI with respect to any Takeover Proposal. Oneida will promptly (and in any event within twenty-four (24) hours) advise CBSI following receipt of any communication or inquiry which could reasonably be expected to lead to a Takeover Proposal and the substance thereof (including any terms and conditions discussed and the identity of the party making such communication or inquiry) and will promptly advise CBSI of any related developments, discussions and negotiations on a current basis.

~~(b) (i) Notwithstanding anything to the contrary contained inSection 5.12(a)~~ prior to the Closing or the termination of this Agreement in accordance with its terms, to the extent the Board of Directors of Oneida determines, in good faith, after consultation with outside legal counsel, that a failure to take such actions would constitute a violation of its fiduciary duties under applicable law, Oneida may: participate in discussions or negotiations with, and, subject to the requirements of~~Section 5.12(c)~~, furnish non-public information, and afford access to the properties, books or records of Oneida or any of its Subsidiaries, to any Person after such Person has delivered to Oneida in writing an unsolicited bona fide Takeover Proposal with respect to Oneida or any of its Subsidiaries (which has not been withdrawn) which the Board of Directors of Oneida in its good faith judgment determines, after reasonable inquiry and consultation with its financial advisor (i) would be reasonably likely to result in a transaction more favorable than that contemplated by this Agreement to the shareholders of Oneida (which judgment must be reasonable), and (ii) that the Person making such Takeover Proposal is financially capable of consummating such Takeover Proposal or that the financing necessary to consummate such Takeover Proposal, to the extent required, is then committed or is capable of being obtained by such Person (a “~~Superior Proposal”). In addition, notwithstanding the provisions ofSection 5.12(a)~~ ~~above, in connection with a submitted, written bona fide Takeover Proposal or potential Takeover Proposal, Oneida shall refer any third party to thisSection 5.12~~ ~~or make a copy of thisSection 5.12~~ ~~available to such third party.~~

~~Annex A-53~~

(ii) In the event Oneida or any of its Subsidiaries receives a Superior Proposal, prior to taking any action with respect thereto Oneida shall (A) provide CBSI not less than seventy-two (72) hours prior written notice of its intent to take such action and any meeting of the Board of Directors of Oneida at which such Board of Directors is reasonably expected to consider a Superior Proposal, (B) not recommend to its shareholders a Superior Proposal for a period of not less than three (3) business days after CBSI’s receipt of a copy of such Superior Proposal and the identity of the third party, and (C) not enter into a definitive agreement relating to such Superior Proposal unless CBSI fails to match the terms of the Superior Proposal, or provide an alternative proposal upon terms which, after consideration by the Board of Directors of Oneida in good faith, are not more favorable than the Superior Proposal, within three (3) business days after CBSI’s receipt of a copy of such Superior Proposal and the identity of the third party; and~~provided~~,~~further, that unless this Agreement is terminated pursuant toArticle VII, nothing contained in thisSection 5.12(b)~~ ~~shall limit Oneida’s obligation to hold and convene the Oneida Shareholders’ Meeting in accordance withSection 5.1~~ hereof (regardless of whether the recommendation of the Board of Directors of Oneida shall have been withdrawn, modified or not yet made) or to provide the shareholders of Oneida with material information relating to this Agreement and the Oneida Shareholders’ Meeting. Any material amendment to any Superior Proposal shall be deemed to be a new Superior Proposal for purposes of determining any time periods and obligations of Oneida pursuant to this~~Section 5.12(b)(ii)~~.

(c) Notwithstanding anything to the contrary herein, neither Oneida nor any of its Subsidiaries shall provide any non-public information to a third party unless: (x) Oneida provides such non-public information pursuant to a nondisclosure agreement with terms regarding the protection of oral or written confidential information at least as restrictive as such termsexchange therefor in the ~~Confidentiality Agreement heretofore entered into by the parties hereto; and (y) such non-public information has been previously delivered or made available to CBSI.~~Merger.

ARTICLE VI
5

CONDITIONS PRECEDENT
TO OBLIGATIONS TO CONSUMMATE

~~6.1.~~ Section 5.1Conditions ~~Precedent~~ to Obligations of ~~CBSI and Oneida~~Each Party. The respective obligations of ~~the parties~~each Party to ~~effect~~consummate the Merger ~~shall be~~and the other transactions contemplated hereby are subject to the satisfaction ~~or waiver~~ of the following conditions, atunless waived by each Party pursuant toSection 7.6:

(a)Stockholder Approval. Merchants shall have obtained the Merchants Stockholder Approval.

(b)Regulatory Approvals. (i) All Requisite Regulatory Approvals shall have been obtained or ~~prior~~made and be in full force and effect and all waiting periods required by Law shall have expired, and (ii) solely insofar as this condition relates to the ~~Closing Date:~~obligations of Community, no such Requisite Regulatory Approval shall impose or contain any Materially Burdensome Regulatory Condition.

TABLE OF CONTENTS

~~(a) All corporate action necessary to authorize~~(c)No Orders or Restraints; Illegality. No Order issued by any Governmental Authority (whether temporary, preliminary, or permanent) preventing the ~~execution, delivery and performance of this Agreement and~~ consummation of the ~~Transactions, including without limitation~~Merger or the ~~Oneida shareholder approval contemplated bySection 5.1~~ ~~hereof,~~Bank Merger shall be in effect and no Law or Order shall have been ~~duly and validly taken;~~

~~Annex A-54~~

~~(b) The parties hereto shall have received all regulatory approvals required~~enacted, entered, promulgated or ~~mutually deemed necessary in connection with~~enforced by any Governmental Authority that prohibits, restrains or makes illegal the Transactions, all notice periods and waiting periods required under applicable law or by the terms of such approvals shall have passed, and all conditions contained in any such approval required to have been satisfied prior to consummation of ~~such transactions shall have been satisfied;~~the Merger or the Bank Merger.

~~(c)~~(d)Registration Statement. The Registration Statement ~~(including any post-effective amendment thereto)~~ shall be effective under the Securities Act, no stop ~~order~~orders suspending the effectiveness of ~~such~~the Registration Statement shall have been issued, and no action, suit, proceeding, ~~shall be pending~~ or ~~threatened in writing~~investigation by the ~~Commission~~SEC to suspend the effectiveness ~~of such Registration Statement, and CBSI~~thereof shall have ~~received all “blue sky” or state securities approvals or other authorizations, or confirmations as to the availability~~been initiated and be continuing.

(e)Listing of ~~an exemption from registration requirements as may be necessary;~~

(d) There shall not have been instituted, pending or threatened in writing any action or proceeding by any governmental authority or administrative agency, nor shall there be in any effect any judgment, order, decree or injunction of any governmental authority, administrative agency or court of competent jurisdiction, or any other legal restraint, preventing or seeking to prevent the consummation of the Transactions;

~~(e)~~Community Common Stock. The shares of ~~CBSI~~Community Common Stock ~~issuable in the Merger~~to be issued pursuant to this Agreement shall have been approved for listing on the NYSE, subject to official notice of ~~issuance; and~~

(f) Oneida shall have received an opinion of Luse Gorman, PC, in form and substance reasonably satisfactory to Oneida (a copy of which shall have been furnished to CBSI no less than three business days prior to the issuance thereof in order to provide CBSI an opportunity to review and comment thereon), dated as of the date the Registration Statement is effective and on the Closing Date, substantially to the effect that, on the basis of facts, representations and assumptions set forth or referred to in such opinions, the Merger will be treated for federal income tax purposes as a reorganization or part of a reorganization within the meaning of Section 368(a) of the Code, and that:

~~(1) Oneida and CBSI will each be a party to such reorganization within the meaning of Section 368(b) of the Code;~~

(2) No gain or loss will be recognized by CBSI or Oneida as a result of the Merger (except for amounts resulting from any required change in accounting methods, any income and deferred gain recognized pursuant to Treasury regulations issued under Section 1502 of the Code, or other exceptions as set forth in such opinion);

(3) No gain or loss will be recognized by Oneida shareholders who receive only shares of CBSI Common Stock in exchange for their shares of Oneida Common Stock, except that gain or loss will be recognized on receipt of cash, if any, in lieu of fractional shares;

~~Annex A-55~~

(4) Each Oneida shareholder’s aggregate tax basis in any shares of CBSI Common Stock received in the Transactions will be the same as the aggregate tax basis of the shares of Oneida Common Stock such shareholder surrendered in the exchange therefor, decreased by the amount of any cash received and any tax basis allocable to the cash received for fractional shares of CBSI Common Stock, and increased by the amount of gain recognized by the Oneida shareholder with respect to cash received;

(5) Gain, but not loss, will be recognized by Oneida shareholders on the exchange of Oneida Common Stock for CBSI Common Stock and cash in an amount equal to the lesser of the Oneida shareholder’s gain realized with respect to such exchange or the amount of cash received; and

(6) Each Oneida shareholder’s holding period in any shares of CBSI Common Stock received in the Transactions will, in each instance, include the period during which the shares of Oneida Common Stock surrendered in exchange therefor were held, provided that such shares of Oneida Common Stock were held as capital assets by the shareholder at the Effective Time.

issuance.

~~6.2.~~ Section 5.2Conditions ~~Precedent~~ to Obligations of ~~Oneida~~Community. The obligations of ~~Oneida~~Community to ~~effect~~consummate the Merger ~~shall be~~and the other transactions contemplated hereby are subject to the satisfaction of the following ~~additional~~ conditions, ~~at or prior to the Closing Date~~ unless waived by ~~Oneida~~Community pursuant toSection ~~8.3~~7.6 ~~hereof:~~

(a)Representations and Warranties. The representations and warranties of ~~CBSI~~Merchants set forth in~~Article IV~~ ~~hereof~~ this Agreement shall be true and correct as of the date of this Agreement and as of the Closing Date as though made onat and as of the Closing Date ~~(or, in~~(except that representations and warranties that by their terms speak specifically as of the ~~case~~date of ~~any representation~~this Agreement or some other date shall be true and ~~warranty which specifically relates to an earlier date,~~correct as of such ~~earlier~~ date)~~, except as otherwise contemplated by this Agreement or consented to in writing by Oneida;~~;provided,however, that, ~~(i)~~ in ~~determining whether~~each case, no representation or ~~not~~warranty of Merchants (other than the ~~condition contained in this paragraph (a) is satisfied, no effect shall be given to any qualifications or exceptions in such~~ representations and warranties ~~relating~~set forth in (i)Section 3.2(c)(i), which shall be true and correct except to ~~materiality or Material Adverse Effect~~ade minimis extent, andSection 3.2(e)(C), which shall be true and correct in all respects, and (ii)Sections 3.2(a),3.2(b)(i),3.2(b)(ii),3.2(b)(iii),3.2(b)(iv),3.2(b)(v)(A),3.2(c)(ii),3.2(t),3.2(u),3.2(y) and3.2(z) (collectively, the ~~condition contained~~“Merchants Fundamental Representations”), which shall be true and correct in ~~this paragraph (a)~~all material respects) shall be deemed ~~to be satisfied~~untrue and incorrect for purposes hereunder as a consequence of the existence of any fact, event, change, circumstance or effect inconsistent with such representation or warranty, unless ~~the failure of~~ such ~~representations and warranties to be so true and correct constitute,~~fact, event, change, circumstance or effect, individually or ~~in the aggregate,~~taken together with all other facts, events, changes, circumstances or effects inconsistent with any representation or warranty of Merchants, has had or would reasonably be expected to have a Material Adverse Effect on ~~CBSI;~~

~~(b) CBSI~~Merchants; provided,further, that for purposes of determining whether a representation or warranty (other than a Merchants Fundamental Representation) is true and correct for purposes of thisSection 5.2(a), any qualification or exception for, or reference to, materiality (including the terms “material,” “materially,” “in all material respects,” “Material Adverse Effect” or similar terms or phrases) in any such representation or warranty shall be disregarded; and Community shall have ~~in all material respects performed all obligations and complied with all covenants required by this Agreement to be performed or complied with at or prior to the Closing Date;~~

~~(c) CBSI shall have delivered to Oneida~~received a certificate, dated the Closing Date, signed on behalf of Merchants by the chief executive officer of Merchants, to such effect.

(b)Performance of Agreements and Covenants. Each and all of the agreements and covenants of Merchants to be performed and complied with pursuant to this Agreement prior to the Effective Time shall have been duly performed and complied with in all material respects and Community shall have received a certificate, dated the Closing Date, signed on behalf of Merchants by ~~its President~~the chief executive officer of Merchants, to such effect.

(c)Material Adverse Effect. Since the date hereof, there shall not have occurred any fact, event, change, circumstance or effect, individually or taken together with all other facts, events, changes, circumstances or effects, that has had or would reasonably be expected to have a Material Adverse Effect on Merchants.

(d)Tax Opinion. Community shall have received a written opinion from Cadwalader, Wickersham & Taft LLP in form and ~~Chief Executive Officer,~~substance reasonably satisfactory to Community, dated as of the Closing Date, substantially to the effect that the ~~conditions set forth~~Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. In rendering such opinion, counsel may require and rely upon representations contained in ~~paragraphs (a)~~certificates of officers of Community and ~~(b) of thisSection 6.2~~ ~~have been satisfied;~~Merchants reasonably satisfactory in form and substance to such counsel.

~~Annex A-56~~

TABLE OF CONTENTS

~~6.3.~~ Section 5.3Conditions ~~Precedent~~ to Obligations of ~~CBSI~~Merchants.

The obligations of ~~CBSI~~Merchants to ~~effect~~consummate the Merger ~~shall be~~and the other transactions contemplated hereby are subject to the satisfaction of the following ~~additional~~ conditions, ~~at or prior to the Closing Date,~~ unless waived by ~~CBSI~~Merchants pursuant toSection ~~8.3~~7.6 ~~hereof:~~

(a)Representations and Warranties. The representations and warranties of ~~Oneida~~Community set forth in~~Article III~~ ~~hereof~~ this Agreement shall be true and correct as of the date of this Agreement and as of the Closing Date as though made onat and as of the Closing Date ~~(or, in~~(except that representations and warranties that by their terms speak specifically as of the ~~case~~date of ~~any representation~~this Agreement or some other date shall be true and ~~warranty which specifically relates to an earlier date,~~correct as of such ~~earlier~~ date)~~, except as otherwise contemplated by this Agreement or consented to in writing by CBSI;~~;provided,however, that, ~~(i)~~ in ~~determining whether~~each case, no representation or ~~not~~warranty of Community (other than the ~~condition contained in this paragraph (a) is satisfied, no effect shall be given to any qualifications or exceptions in such~~ representations and warranties ~~relating to materiality or Material Adverse Effect~~set forth in (i)Section 3.3(h)(B), which shall be true and correct in all respects, and (ii)Sections 3.3(a),3.3(b)(i),3.3(b)(ii),3.3(b)(iii)(A),3.3(c),3.3(j) and3.3(m) (collectively, the ~~condition contained~~“Community Fundamental Representations”) which shall be true in ~~this paragraph (a)~~all material respects) shall be deemed ~~to be satisfied~~untrue or incorrect for purposes hereunder as a consequence of the existence of any fact, event, change, circumstance or effect inconsistent with such representation or warranty, unless ~~the failure of~~ such ~~representations and warranties to be so true and correct constitute,~~fact, event, change, circumstance or effect, individually or ~~in the aggregate,~~taken together with all other facts, events, changes, circumstances or effects inconsistent with any representation or warranty of Community has had or would reasonably be expected to have a Material Adverse Effect on ~~Oneida;~~

~~(b) Oneida~~Community;provided,further, that for purposes of determining whether a representation or warranty (other than a Community Fundamental Representation) is true and correct for purposes of thisSection 5.3(a), any qualification or exception for, or reference to, materiality (including the terms “material,” “materially,” “in all material respects,” “Material Adverse Effect” or similar terms or phrases) in any such representation or warranty shall be disregarded; and Merchants shall have ~~in all material respects performed all obligations and complied with all covenants required by this Agreement to be performed or complied with at or prior to the Closing Date;~~

~~(c) Oneida shall have delivered to CBSI~~received a certificate, dated the Closing Date, signed on behalf of Community by the chief executive officer of Community, to such effect.

(b)Performance of Agreements and ~~signed by its Chief Executive Officer,~~Covenants. Each and all of the agreements and covenants of Community to be performed and complied with pursuant to this Agreement prior to the ~~effect that the conditions set forth in paragraphs (a) and (b) of thisSection 6.3~~ ~~have been satisfied;~~

(d) The required regulatory approvals approving the Transactions shall contain no condition or requirement which would be reasonably likely to result in a Material Adverse Effect on CBSI following the consummation of the Transactions;

(e) To the extent that any material, lease, license, loan, financing agreement or other contract or agreement to which Oneida is a party requires the consent of or waiver from the other party thereto as a result of the Transactions, such consent or waiverEffective Time shall have been ~~obtained, unless~~duly performed and complied with in all material respects and Merchants shall have received a certificate, dated the ~~failure~~Closing Date, signed on behalf of Community by the chief executive officer of Community, to ~~do so~~such effect.

(c)Material Adverse Effect. Since the date hereof, there shall not have occurred any fact, event, change, circumstance or effect, individually or taken together with all other facts, events, changes, circumstances or effects, that has had or would ~~not~~reasonably be expected to have a Material Adverse Effect on ~~CBSI; and~~Community.

~~(f) Oneida~~(d)Tax Opinion. Merchants shall have ~~delivered~~received a written opinion from Goodwin Procter LLP in form and substance reasonably satisfactory to ~~CBSI duly-executed copies of each~~Merchants, dated as of the ~~Transaction Documents together with~~Closing Date, substantially to the effect that the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. In rendering such ~~other documents, consents or other deliverables as~~opinion, counsel may berequire and rely upon representations contained in certificates of officers of Community and Merchants reasonably ~~requested by CBSI~~satisfactory in form and substance to ~~consummate the Transactions.~~such counsel.

~~Annex A-57~~

ARTICLE VII
6

TERMINATION

~~7.1.~~ Section 6.1Termination. ~~This~~Notwithstanding any other provision of this Agreement, and notwithstanding the Merchants Stockholder Approval (except as provided inSection 6.1(i)), this Agreement may be terminated and the Merger abandoned at any time prior to the Effective ~~Time, either before or after approval by the shareholders of Oneida:~~

Time:

(a) ~~by the~~By mutual written consent ~~duly authorized by~~of Merchants and Community;

(b) By either Community or Merchants (provided, that the ~~respective Boards~~terminating Party is not then in material breach of ~~Directors~~any representation, warranty, covenant or other agreement contained herein) if there shall have been a breach of any of the ~~parties hereto;~~

~~(b) by CBSI in writing, if Oneida has,~~covenants or ~~by Oneida in writing, if CBSI has, breached (i)~~agreements or any ~~covenant~~of the representations or ~~agreement contained herein or (ii)~~warranties (or any such representation or warranty ~~contained herein,~~shall cease to be true) set forth in this Agreement on the part of Merchants, in the case of a termination by Community, or Community, in the case of a termination by Merchants, which breach or failure to be true, either individually or in the aggregate with all the other breaches by such Party (or failures of representations or warranties to be true), would constitute, if occurring or continuing on the Closing Date, the failure of a condition set forth inSection 5.2, in the case of a termination by Community,

TABLE OF CONTENTS

orSection 5.3, in the case of a termination by Merchants, and which is not cured within thirty (30) days following written notice to Merchants, in ~~either~~the case ~~if (x)~~of a termination by Community, or Community, in the case of a termination by Merchants, or by its nature or timing cannot be cured during such period (or such fewer days as remain prior to the ~~extent~~Expiration Date);

(c) By either Community or Merchants in the event that ~~such breach is curable, such breach~~the Merchants Stockholder Approval has not been ~~cured within 30 days after~~obtained by reason of the ~~date on which written notice thereof is given~~failure to obtain the ~~breaching party and (y) such breach would entitle~~required vote at the ~~non-breaching party~~Merchants Stockholders Meeting;provided that Merchants may not ~~to consummate the Transactions~~terminate this Agreement under~~Article VI~~ ~~hereof;~~

~~(c) by any party hereto in writing, if the applications for governmental approval referred to in~~ thisSection ~~5.3~~6.1(c) ~~hereof have been denied,~~if it has not complied in all material respects with any adjournment or ~~if any governmental entity~~postponement obligations underSection 4.5;

(d) By either Community or Merchants in the event that a court of competent jurisdiction or other Governmental Authority shall have issued ~~a final nonappealable order~~any Order restraining, enjoining or otherwise prohibiting the ~~Merger;~~

~~(d) by any party hereto in writing, if~~Merger or the ~~shareholders of Oneida do not approve this Agreement~~Bank Merger and such Order shall have become final and nonappealable;provided that the ~~Transactions at the special meeting duly called for that purpose;~~

(e) by any party hereto in writing, if the Merger shall not have been consummated by the close of business on December 31, 2015, unless the failure to so consummate by such date shall be principally due to the failure of the partyParty seeking to terminate this Agreement shall have used its reasonable best efforts to ~~perform~~have such Order lifted;

(e) By either Community or ~~observe~~Merchants in the ~~covenants~~event that the Merger has not been consummated by 5:00 p.m., New York City time, on the nine (9) month anniversary of the date of this Agreement (the “Expiration Date”),provided that the failure to consummate the transactions contemplated hereby on or before such date is not caused by any breach of this Agreement by the Party electing to terminate pursuant to thisSection 6.1(e) and ~~agreements~~provided,further, that if, on the Expiration Date, all conditions to this Agreement have been satisfied or waived or, with respect to conditions that can only be satisfied at the Closing, are then capable of being satisfied at the Closing, except for the conditions set forth ~~herein;~~

inSection 5.1(b), then either Community or Merchants shall have the right, by written notice to the other Party not later than 5:00 p.m., New York City time, on the Expiration Date, to extend the Expiration Date for an additional three (3) month period;

(f) ~~by CBSI,~~By Community in the event that Community or any of its Affiliates receives written notice from a Governmental Authority that it has finally determined not to grant (or has rescinded or revoked if previously approved) any Requisite Regulatory Approval or receives written notice from a Governmental Authority that it has finally determined not to grant such Requisite Regulatory Approval without imposing a Materially Burdensome Regulatory Condition;

(g) By Community in the event that (i) the Merchants Board of Directors or any committee thereof effects an Adverse Recommendation Change (it being understood that any written notice by Merchants to Community of ~~Oneida~~Merchants’ intention to make an Adverse Recommendation Change pursuant toSection 4.5 in advance of making an Adverse Recommendation Change shall ~~withdraw, modify or change its approval or recommendation of~~not result in Community having any termination rights pursuant to this ~~Agreement or the Transactions in a manner adverse to CBSI, or Oneida shall have~~Section 6.1(g)), (ii) Merchants has failed to ~~include~~comply in ~~the Proxy Statement/Prospectus the recommendation of~~all material respects with its ~~Board of Directors in favor of the approval of this Agreement~~obligations underSection 4.5 or ~~the Transactions; (ii) following its receipt of a Takeover Proposal or the public announcement of a Takeover Proposal, Oneida shall fail~~4.12 (it being understood and agreed that any failure to ~~timely~~ comply with the ~~covenants contained in~~first sentence ofSection ~~5.2~~4.12(a)~~; (iii) the Board of Directors of Oneida~~ shall ~~have recommended~~be deemed a failure by Merchants to ~~the shareholders of Oneida a Superior Proposal, or Oneida shall have executed a letter of intent, a definitive agreement or similar document with respect to a Superior Proposal; (iv)~~comply in all material respects only if such non-compliance resulted in an Acquisition Proposal), (iii) a tender offer or exchange offer for ~~25%~~fifteen percent (15%) or more of the outstanding shares of ~~Oneida~~Merchants Common Stock is commenced and ~~Oneida~~Merchants shall not have sent to its ~~shareholders,~~stockholders, within ~~10 business days~~ten (10) Business Days after the commencement of such tender or exchange offer, a statement that the Board of Directors of ~~Oneida~~Merchants recommends rejection of such tender or exchange ~~offer;~~offer, or ~~(v) a Takeover~~(iv) an Acquisition Proposal (other than a tender or exchange offer covered by clause ~~(iv)~~(iii) of thisSection ~~7.1(f)~~6.1(g)) with respect to ~~Oneida~~Merchants is publicly announced and, upon ~~CBSI’s~~Community’s request, ~~Oneida~~Merchants fails to issue a press release announcing its opposition to such ~~Takeover~~Acquisition Proposal and reaffirming the Merchants Directors’ Recommendation within ~~three (3) business days~~five (5) Business Days after such request;;

~~Annex A-58~~

~~(g) by Oneida,~~(h) By Merchants, if the Merchants Board of Directors of Oneida shall have recommended to the shareholders of Oneida a Superior Proposal, or Oneida shall have executed a letter of intent, a definitive agreement or similar document with respect to a Superior Proposal, in each case in accordance with~~Section 5.12, provided that Oneida has complied with all provisions thereof.~~

~~(h) by Oneida, if the Board of Directors of Oneida~~ so determines by a majority vote ~~of the majority~~ of the members of the entire Merchants Board of Directors, ~~of Oneida,~~ at any time during the ~~five-day~~five (5)-day period commencing ~~with~~on the Determination Date, ~~(as defined below),~~if and only if both of the following conditions are satisfied:

(i) (A) The Community Market Value is less than (B) the Initial Community Market Valuemultiplied by 0.75; and

(ii) (A) The number obtained by dividing the ~~Average Closing Price~~Community Market Value by the ~~Starting Price (as defined below)~~Initial Community Market Value (the “~~CBSI~~Community Ratio”) ~~shall be~~is less than ~~0.80; and~~

(B) ~~(x) the CBSI Ratio shall be less than (y)~~ the number obtained by dividing the Final Index Price by the Initial Index Price ~~on the Starting Date (each as defined below)~~ and subtracting 0.20 from ~~the~~such quotient ~~in this clause (B) (y)~~ (such number, ~~in this clause (B) (y) that results from dividing the Final Index Price by the Index Price on the Starting Date being referred to herein as~~ the “Index ~~Ratio~~”

TABLE OF CONTENTS

Ratio”);

subject, however, to the following ~~three~~four (4) sentences. If ~~Oneida~~Merchants elects to exercise its termination right pursuant to thisSection ~~7.1(h)~~6.1(h), it shall give prompt written notice thereof to ~~CBSI (provided that such notice~~Community, but in any event not later than the end of ~~election~~the five (5) day period referred to ~~terminate may be withdrawn at any time within the aforementioned five-day period).~~above. During the ~~five-day~~five (5) Business Day period commencing with its receipt of such notice, ~~CBSI~~Community shall have the option ~~to increase~~of increasing the ~~consideration to be received by the holders of Oneida Common~~ Stock ~~hereunder, by adjusting the Exchange Ratio (calculated to the nearest one one-thousandth)~~Election Consideration to equal the lesser of (A) a ~~number~~quotient (rounded to the nearest ~~one one-thousandth) obtained by dividing (A)~~one-ten-thousandth), the numerator of which is equal to the product of the ~~Starting Price, 0.80 and the Exchange Ratio~~Stock Election Consideration (as then in effect) ~~by (B) the Average Closing Price~~ and ~~(y) a number (rounded to the nearest one one-thousandth) obtained by dividing (A) the product of~~ the Index Ratio, and the ~~Exchange~~denominator of which is equal to the Community Ratio, or (B) a quotient (rounded to the nearest one-ten-thousandth), the numerator of which is equal to the product of the Stock Election Consideration (as then in effect), the Initial Community Market Value and 0.75, and the denominator of which is the Community Market Value. If the Stock Election Consideration is so increased, the Mixed Stock Consideration shall be automatically increased to equal the amount obtained by ~~(B)~~multiplying the ~~CBSI Ratio.~~increased Stock Election Consideration determined pursuant to the immediately preceding sentence by 0.70. If ~~CBSI so elects~~ within such ~~five-day~~five (5) Business Day period, ~~it shall give prompt~~Community delivers written notice to ~~Oneida of~~Merchants that it intends to proceed with the Merger by paying such ~~election and~~additional consideration as contemplated by the ~~revised Exchange Ratio, whereupon~~two preceding sentences, then no termination shall have occurred pursuant to thisSection ~~7.1(h)~~6.1(h), and this Agreement shall remain in full force and effect in accordance with its terms (except asthat the ~~Exchange Ratio~~Stock Election Consideration and the Mixed Stock Consideration shall have been so modified).

For purposes of thisSection ~~7.1(h)~~6.1(h), the following terms shall have the meanings ~~indicated:~~

indicated below:

“~~Average Closing~~Community Market Value” means the volume-weighted average trading price of the Community Common Stock on the NYSE for the twenty (20) trading day period ending on and including the third (3^rd) trading day immediately preceding the Determination Date.

“Determination Date” means the later of (i) the date on which the last Requisite Regulatory Approval is obtained without regard to any requisite waiting period or (ii) the date on which the Merchants Stockholder Approval is obtained.

“Final Index Price” ~~shall mean~~means the average closing price of the ~~daily closing~~Index for the same trading days used in calculating the Community Market Value.

“Index” means the SNL Midcap U.S. Bank Index or, if such Index is not available, such substitute or similar Index as substantially replicates the SNL Midcap U.S. Bank Index.

“Initial Community Market Value” means $47.70.

“Initial Index Price” means $340.33.

If Community or any company belonging to the Index declares or effects a stock dividend, reclassification, recapitalization, split-up, combination, exchange of shares or similar transaction between the date of this Agreement and the Determination Date, the prices for the ~~shares~~common stock of ~~CBSI Common Stock~~such company shall be appropriately adjusted for the ~~20 consecutive full trading days on~~purposes of applying thisSection 6.1(h); or

(i) By Merchants, prior to the receipt of the Merchants Stockholder Approval, in order to accept a Superior Proposal in accordance with, and subject to the terms and conditions of,Section 4.5(a);provided,however, that Merchants shall substantially concurrently with such termination enter into a definitive agreement with respect to such Superior Proposal and concurrently with or prior to such termination Merchants shall pay or cause to be paid to Community the Termination Fee pursuant toSection 6.2(c).

The Party desiring to terminate this Agreement pursuant to clause (b), (c), (d), (e), (f), (g), (h) or (i) of thisSection 6.1 shall give written notice of such termination to the other Party in accordance withSection 7.8, specifying the provision or provisions hereof pursuant to which such ~~shares are actually traded~~termination is effected.

Section 6.2Termination Fee. (a) In the event that (i) (A) either Party terminates this Agreement pursuant toSection 6.1(c) or6.1(e), or (B) Community terminates this Agreement pursuant toSection 6.1(b), (ii) prior to the event giving rise to the right to terminate this Agreement, an Acquisition Proposal shall have been made known to the Board of Directors or management of Merchants or any of its Subsidiaries or shall have been made directly to its stockholders or been publicly announced, and (iii) within twelve (12) months

TABLE OF CONTENTS

following such termination an Acquisition Proposal is consummated or a definitive agreement is entered into by Merchants with respect to an Acquisition Proposal, Merchants shall pay Community, by wire transfer of immediately available funds, an amount equal to $10,720,000 (the “Termination Fee”), on the ~~NYSE~~date of the earliest to occur of the events described in clause (iii) above;provided that for purposes of thisSection 6.2(b), all references in the definition of “Acquisition Proposal” to fifteen percent (15%) shall be to fifty percent (50%).

(b) In the event that Community terminates this Agreement pursuant toSection 6.1(g), Merchants shall pay to Community, by wire transfer of immediately available funds, the Termination Fee within two (2) Business Days after the date this Agreement is terminated.

(c) In the event that Merchants terminates this Agreement pursuant toSection 6.1(i), Merchants shall pay to Community, by wire transfer of immediately available funds, the Termination Fee concurrently with or prior to the termination of this Agreement.

(d) Merchants hereby acknowledges that the agreements contained in thisSection 6.2 are an integral part of the transactions contemplated by this Agreement and that, without these agreements, Community would not enter into this Agreement. In the event that Merchants fails to pay if and when due any amount payable under thisSection 6.2, then (i) Merchants shall reimburse Community for all costs and expenses (including disbursements and reasonable fees of counsel) incurred in connection with the collection of such overdue amount, and (ii) Merchants shall pay to Community interest on such overdue amount (for the period commencing as of the date such overdue amount was originally required to be paid and ending on the date such overdue amount is actually paid in full) at a rate per annum equal to the “prime rate” (as ~~reported by~~published in the “Money Rates” column inThe Wall Street Journal or, if not ~~reported thereby, any other authoritative source) ending at the close of trading~~published therein, in another national financial publication selected by Community) in effect on the ~~Determination Date.~~

~~Annex A-59~~

“~~Determination Date” shall mean the first business day after the~~ date ~~all regulatory approvals (or waivers thereof)~~such overdue amount was originally required to ~~consummate the Merger and the Bank Mergers have been obtained (disregarding any waiting period).~~be paid.

“~~Final Index Price” shall mean the average~~(e) The payment of the ~~Index Prices for~~Termination Fee shall fully discharge Merchants from and be the ~~20 consecutive full trading days ending on the trading day prior~~sole and exclusive remedy of Community with respect to ~~the Determination Date.~~

“~~Index Price” shall mean the closing price on the Starting Date~~any and all losses that may be suffered by Community based upon, resulting from or arising out of the ~~SNL Midcap U.S. Bank Index.~~

“~~Starting Date” shall mean the last trading day immediately preceding the date~~circumstances giving rise to such termination of ~~the first public announcement of entry into~~ this Agreement.

“~~Starting Price~~” In no event shall ~~mean $35.49 per share of CBSI Common Stock.~~

Merchants be required to pay the Termination Fee on more than one occasion.

~~7.2.~~ Section 6.3Effect of Termination. In the event of the termination and abandonment of this Agreement ~~is terminated~~ pursuant toSection ~~7.1~~6.1 ~~hereof,~~, this Agreement shall become void and have no effect, and none of Community, Merchants, any of their respective Subsidiaries, or any of the officers or directors of any of them, shall have any Liability of any nature whatsoever hereunder or in conjunction with the transactions contemplated hereby, except that (i) the provisions of~~Sections 5.5~~Section 4.10(b),~~7.3~~,~~8.6~~,~~8.9~~Article 6 and~~8.10~~Article 7 ~~hereof~~ shall survive any such termination and abandonment, and (ii) except as set forth inSection 6.2(e), a termination ~~pursuant toSection 7.1~~of this Agreement shall not relieve the breaching ~~party~~Party from ~~liability~~Liability for ~~any willful breach~~an uncured Willful Breach of ~~such~~a representation, warranty, covenant or agreement of such Party contained in this Agreement.

TABLE OF CONTENTS

ARTICLE 7

MISCELLANEOUS

Section 7.1Definitions. (a) Except as otherwise provided herein, the capitalized terms set forth below shall have the following meanings:

“2013 Warrants” means the warrants originally issued on April 30, 2013 by NUVO Bank & Trust Company (with respect to which Merchants issued replacement warrants on December 4, 2015) to purchase shares of Merchants Common Stock at a price per share of $20.69, expiring on April 30, 2017.

“Acceptable Confidentiality Agreement” means a confidentiality agreement containing terms substantially similar to and no less favorable in the aggregate to Merchants than the terms of the Confidentiality Agreement;provided,however, that such confidentiality agreement may contain additional provisions that permit Merchants to comply with the provisions ofSections 4.5 and4.12.

“Acquisition Proposal” shall mean, other than the transactions contemplated by this Agreement, any offer, proposal or ~~representation~~inquiry relating to, or ~~warranty~~any third party indication of interest in, (i) any acquisition or purchase, direct or indirect, of fifteen percent (15%) or more of the consolidated assets of Merchants and its Subsidiaries or fifteen percent (15%) or more of any class of equity or voting securities of Merchants or any of its Subsidiaries whose assets, individually or in the aggregate, constitute more than fifteen percent (15%) of the consolidated assets of Merchants, (ii) any tender offer (including a self-tender offer) or exchange offer that, if consummated, would result in a third party beneficially owning fifteen percent (15%) or more of any class of equity or voting securities of Merchants or any of its Subsidiaries whose assets, individually or in the aggregate, constitute more than fifteen percent (15%) of the consolidated assets of Merchants, or (iii) any merger, consolidation, share exchange, business combination, reorganization, recapitalization, liquidation, dissolution or other similar transaction involving Merchants or any of its Subsidiaries whose assets, individually or in the aggregate, constitute more than fifteen percent (15%) of the consolidated assets of Merchants.

“Affiliate” of a Person shall mean any other Person directly, or indirectly through one or more intermediaries, controlling, controlled by or under common control with such Person. For purposes of this definition, “control” (and its derivatives) shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of equity, voting or other interests, as trustee or executor, by Contract or otherwise.

“Available Cash Election Amount” shall mean the difference between (a) the product of the Mixed Cash Considerationmultiplied bythe total number of shares of Merchants Common Stock (other than Merchants Shares to be cancelled in accordance withSection 2.1(b)) issued and outstanding immediately prior to the Effective Time,minus (b) the product of (i) the total number of Mixed Election Shares (it being understood, for the avoidance of doubt, that No Election Shares shall be deemed to be Mixed Election Shares for this purpose),multiplied by(ii) the Mixed Cash Consideration, minus (c) the product of (i) the total number of Dissenting Shares and Merchants Restricted Shares as of immediately prior to the Effective Timemultiplied by(ii) the Per Share Merger Consideration Value.

“Average Trading Price” shall mean the volume-weighted average trading price of Community Common Stock on the NYSE during the twenty (20) trading day period ending on and including the third (3^rd) trading day immediately preceding the date upon which the Effective Time occurs.

“Benefit Plan” shall mean any “employee benefit plan” (as that term is defined in Section 3(3) of ERISA), including any plan that is a “multiemployer plan” as defined in Section 3(37) of ERISA, and any other employee benefit plan, policy, or agreement, whether or not covered by ERISA, and any pension, retirement, profit-sharing, deferred compensation, equity compensation, employment, stock purchase, gross-up, retention, incentive compensation, collective bargaining agreement, employee stock ownership, severance, change in control, vacation, bonus, or deferred compensation plan, policy, or arrangement, any medical, vision, dental, or other written health plan, any life insurance plan, fringe benefit plan, and any other employee program or agreement, whether formal or informal or written or oral.

TABLE OF CONTENTS

“BHC Act” shall mean the federal Bank Holding Company Act of 1956, as amended, and rules and regulations thereunder.

“Business Day” shall mean any day that the NYSE is normally open for trading for a full day and that is not a Saturday, a Sunday or a day on which banks in New York, New York are authorized or required to close for regular banking business.

“Cash Election Amount” shall mean the product of the number of Cash Election Sharesmultipliedby the Cash Election Consideration.

“Code” shall mean the Internal Revenue Code of 1986, as amended, any successor statute thereto, and the rules and regulations thereunder.

“Community Benefit Plan” shall mean any Benefit Plan that is entered into, maintained by, sponsored in whole or in part by, or contributed to by Community or any Subsidiary or ERISA Affiliate thereof, or under which Community or any Subsidiary or ERISA Affiliate thereof could reasonably be expected to have any obligation or Liability, whether actual or contingent, with respect to any employee of Community.

“Community Common Stock” or “Community Shares” shall mean the $1.00 par value per share common stock of Community.

“Confidentiality Agreement” shall mean that certain Confidentiality Agreement, dated June 13, 2016, by and between Community and Merchants.

“Consent” shall mean any filing, notice, registration, consent, approval, authorization, clearance, exemption, waiver, or similar affirmation with, to or by any Person pursuant to any Contract, Law, Order, or Permit.

“Contract” shall mean any written or oral agreement, arrangement, commitment, contract, indenture, instrument, lease, understanding, note, bond, license, mortgage, deed of trust or undertaking of any kind or character to which any Person is a party or that is binding on any Person or its capital stock, assets, or business.

“Default” shall mean (i) any breach or violation of or default under any Contract, Law, Order, or Permit, (ii) any occurrence of any event that with the passage of time or the giving of notice or both would constitute a breach or violation of or default under any Contract, Law, Order, or Permit, or (iii) any occurrence of any event that with or without the passage of time or the giving of notice or both would give rise to a right to terminate or revoke, change the current terms of, or renegotiate, or to accelerate, increase, or impose any Liability under, any Contract, Law, Order, or Permit.

“Environmental Laws” shall mean all Laws relating to pollution or protection of human health or the environment (including ambient air, surface water, ground water, land surface, or subsurface strata) and which are administered, interpreted, or enforced by the United States Environmental Protection Agency and state and local agencies with jurisdiction over, and including common Law in respect of, pollution or protection of the environment, including the Comprehensive Environmental Response, Compensation and Liability Act, as amended, the Resource Conservation and Recovery Act, as amended, and other Laws relating to emissions, discharges, releases, or threatened releases of any Hazardous Material, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of any Hazardous Material, including all requirements for Permits, licenses and other authorizations that may be required.

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder.

“ERISA Affiliate” of any Person means any entity that is, or at any relevant time was, treated as a single employer with such Person under Section 414 of the Code.

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.

TABLE OF CONTENTS

“Exhibits” A through C, inclusive, shall mean the Exhibits so marked, copies of which are attached to this Agreement. Such Exhibits are hereby incorporated by reference herein and made a part hereof, and may be referred to in this Agreement and any other related instrument or document without being attached hereto.

“Facilities” shall mean all buildings and improvements on the property of any Person.

“FDIC” shall mean the Federal Deposit Insurance Corporation.

“Federal Reserve Board” shall mean the Board of Governors of the Federal Reserve System (including any Federal Reserve Bank).

“FINRA” shall mean the Financial Industry Regulatory Authority.

“GAAP” shall mean accounting principles generally accepted in the United States of America, consistently applied during the periods involved.

“Governmental Authority” shall mean each Regulatory Authority and any other domestic or foreign court, arbitrator or arbitration panel, administrative agency, commission or other governmental authority or instrumentality (including the staff thereof), or any industry self-regulatory authority (including the staff thereof).

“Hazardous Material” shall mean (i) any hazardous substance, hazardous material, hazardous waste, regulated substance, or toxic substance (as those terms are defined by any applicable Environmental Laws), and (ii) any chemicals, pollutants, contaminants, petroleum, petroleum products that are or become regulated under any applicable local, state, or federal Law (and specifically shall include asbestos requiring abatement, removal, or encapsulation pursuant to the requirements of governmental authorities and any polychlorinated biphenyls).

“Intellectual Property” shall mean (i) any patents, copyrights, trademarks, service marks, maskworks or similar rights throughout the world, and applications or registrations for any of the foregoing, (ii) any proprietary interest, whether registered or unregistered, in know-how, copyrights, trade secrets, database rights, data in databases, website content, inventions, invention disclosures or applications, software (including source and object code), operating and manufacturing procedures, designs, specifications and the like, (iii) any proprietary interest in any similar intangible asset of a technical, scientific or creative nature, including slogans, logos and the like and (iv) any proprietary interest in or to any documents or other tangible media containing any of the foregoing.

“Intervening Event” shall mean any material event or development or material change in circumstances with respect to Merchants and its Subsidiaries, taken as a whole, that (i) arises or occurs after the date of this Agreement and was neither known by nor reasonably foreseeable to the Merchants Board of Directors as of or prior to the date hereof and (ii) does not relate to (A) any Acquisition Proposal or (B) any Requisite Regulatory Approval.

“ISS” shall mean Institutional Shareholder Services, Inc.

“Knowledge” shall mean (i) with respect to Merchants, the knowledge of the individuals listed in Section 7.1 of the Merchants Disclosure Letter, after reasonable inquiry, and (ii) with respect to Community, the knowledge of the individuals listed in Section 7.1 of the Community Disclosure Letter, after reasonable inquiry.

“Law” shall mean any code, law (including any rule of common law), ordinance, regulation, rule, or statute applicable to a Person or its assets, Liabilities, or business, including those promulgated, interpreted, or enforced by any Governmental Authority.

“Liability” shall mean any direct or indirect, primary or secondary, liability, indebtedness, obligation, penalty, cost, or expense (including costs of investigation, collection, and defense), claim, deficiency, or guaranty of any type, whether accrued, absolute or contingent, liquidated or unliquidated, matured or unmatured, or otherwise.

TABLE OF CONTENTS

“Lien” shall mean any mortgage, pledge, claim, reservation, restriction (other than a restriction on transfers arising under the Securities Laws), security interest, lien, or encumbrance of any nature whatsoever of, on, or with respect to any property or property interest, other than Liens for property Taxes not yet due and payable.

“Litigation” shall mean any action, arbitration, cause of action, claim, complaint, criminal prosecution, demand letter, governmental or other examination or investigation, hearing, inquiry, administrative or other proceeding, or notice (written or oral) by any Person alleging potential Liability, but shall not include claims of entitlement under any Benefit Plans that are made or received in the ordinary course of business.

“Material Adverse Effect” on Merchants or Community, as the case may be, shall mean a material adverse effect on (i) the financial condition, property, business, assets (tangible or intangible), liabilities or results of operations of such Party and its Subsidiaries taken as a whole or (ii) the ability of such Party and its Subsidiaries to perform their obligations under this Agreement or to timely consummate the Merger, the Bank Merger, or the other transactions contemplated by this Agreement;provided,however, that “Material Adverse Effect” shall not be deemed to include: (x) for purposes of (i) above, (A) changes after the date of this Agreement in GAAP or regulatory accounting requirements generally applicable to banks and their holding companies, (B) changes after the date of this Agreement in Laws or interpretations of Laws by Governmental Authorities of general applicability to banks and their holding companies, (C) changes after the date of this Agreement in general economic or market conditions in the United States or any state or territory thereof, in each case generally affecting banks and their holding companies, (D) changes after the date of this Agreement in market interest rates, (E) changes resulting from the announcement or pendency of the Merger or the other transactions contemplated hereby (including the impact thereof on relationships with customers, Service Providers or partners) or actions or inactions expressly required by this Agreement, (F) changes resulting from any Stockholder Litigation, and (G) changes after the date of this Agreement resulting from any failure to meet internal projections or forecasts or estimates of revenues or earnings for any period (it being understood that the circumstances giving rise to such ~~termination.~~failure that are not otherwise excluded from the definition of Material Adverse Effect may be taken into account in determining whether there has been a Material Adverse Effect), except with respect to clauses (A), (B), (C) and (D) to the extent that the effects of such changes are disproportionately adverse to the financial condition, property, business, assets (tangible or intangible), liabilities or results of operations of such Party and its Subsidiaries taken as a whole, as compared to other banks and their holding companies; or (y) for purposes of (ii) above, the impact of actions and omissions of a Party (or any of its Subsidiaries) taken with the prior informed written consent of the other Party.

“Merchants Benefit Plan” shall mean any Benefit Plan that is entered into, maintained by, sponsored in whole or in part by, or contributed to by Merchants or any Subsidiary or ERISA Affiliate thereof, or under which Merchants or any Subsidiary or ERISA Affiliate thereof could reasonably be expected to have any obligation or Liability, whether actual or contingent, with respect to any Service Provider.

“Merchants Common Stock” or “Merchants Shares” shall mean the $0.01 par value per share common stock of Merchants.

“Merchants Deferred Share” shall mean a right to receive a share of Merchants Common Stock under any Director Deferred Compensation Plan that is outstanding immediately prior to the Effective Time.

“Merchants Insiders” shall mean those officers and directors of Merchants subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to Merchants.

“Merchants Stockholder Approval” shall mean the adoption of this Agreement by the holders of at least sixty-six and two-thirds percent (66 2/3%) of the outstanding shares of Merchants Common Stock.

“Merchants Warrants” means the 2013 Warrants and the Organizers’ Warrants.

“NYSE” shall mean the New York Stock Exchange.

“OCC” shall mean the Office of the Comptroller of the Currency.

TABLE OF CONTENTS

“Order” shall mean any administrative decision or award, decree, injunction, judgment, order, quasi-judicial decision or award, ruling, or writ of any federal, state, local, or foreign or other court, arbitrator, mediator, tribunal, administrative agency, or other Governmental Authority.

“Organizational Documents” shall mean the articles of incorporation, certificate of incorporation, charter, bylaws or other similar governing instruments, in each case as amended as of the date specified, of any Person.

“Organizers’ Warrants” means the warrants originally issued on April 25, 2008 by NUVO Bank & Trust Company (with respect to which Merchants issued replacement warrants on December 4, 2015), to purchase Merchants Common Stock at a price per share of $41.39, expiring on April 25, 2018.

“Party” shall mean Community, on the one hand, or Merchants, on the other hand, and “Parties” shall mean Community and Merchants.

“Permit” shall mean any federal, state, local, and foreign governmental approval, authorization, certificate, easement, filing, franchise, license, or permit from Governmental Authorities that are required for the operation of the businesses of a Person or its Subsidiaries.

“Person” shall mean any natural person or any legal, commercial, or governmental entity, including a corporation, general partnership, joint venture, limited partnership, limited liability company, trust, business association, or person acting in a representative capacity, as well as any syndicate or group that would be deemed to be a person under Section 13(d)(3) of the Exchange Act.

“Proxy Statement” shall mean the proxy statement relating to the Merchants Stockholder Meeting (including any amendments or supplements thereto).

“Registration Statement” shall mean the Registration Statement on Form S-4, or other appropriate form, including any pre-effective or post-effective amendments or supplements thereto, filed with the SEC by Community under the Securities Act with respect to the shares of Community Common Stock to be issued to the holders of Merchants Common Stock in connection with the transactions contemplated by this Agreement.

“Regulatory Authorities” shall mean, collectively, the Federal Trade Commission, the United States Department of Justice, the Federal Reserve Board (including any Federal Reserve Bank), the OCC, the FDIC, the Consumer Financial Protection Bureau, the Internal Revenue Service, the Vermont Commissioner, the Massachusetts Commissioner of Banks, the New York Department of Financial Services, the Pennsylvania Department of Banking & Securities, any state attorney general, all federal and state regulatory agencies having jurisdiction over the Parties and their respective Subsidiaries, FINRA, and the SEC (including, in each case, the staff thereof).

“Representative” shall mean any investment banker, financial advisor, attorney, accountant, consultant, agent or other representative of a Person.

“Rights” shall mean, with respect to any Person, securities, or obligations convertible into or exercisable or exchangeable for, or giving any other Person any right to subscribe for or acquire, or any options, calls, restricted stock, deferred stock awards, stock units, phantom awards, dividend equivalents, or commitments relating to, or any stock appreciation right or other instrument the value of which is determined in whole or in part by reference to the market price or value of, shares of capital stock of such Person, whether vested or unvested or exercisable or unexercisable, and shall include Merchants Stock Options and Merchants Warrants.

“SEC” shall mean the United States Securities and Exchange Commission or any successor thereto.

“SEC Reports” shall mean all forms, proxy statements, registration statements, reports, schedules, and other documents filed, or required to be filed, by a Party or any of its Subsidiaries with the SEC.

“Securities Act” shall mean the Securities Act of 1933, as amended, and the rules and regulations thereunder.

“Securities Laws” shall mean the Securities Act, the Exchange Act, the Investment Company Act of 1940, the Investment Advisers Act of 1940, and the Trust Indenture Act of 1939, each as amended, state securities and “Blue Sky” Laws, including in each case the rules and regulations thereunder.

TABLE OF CONTENTS

“Service Provider” shall mean any current or former director, officer, employee or individual independent contractor or consultant of Merchants or any of its Subsidiaries.

“Subsidiary” or “Subsidiaries” shall have the meaning assigned in Rule 1-02(x) of Regulation S-X of the SEC.

“Superior Proposal” means any bona fide, unsolicited, written Acquisition Proposal for at least a majority of the outstanding shares of Merchants Common Stock on terms that the Board of Directors of Merchants concludes in good faith to be more favorable from a financial point of view to Merchants’ stockholders than the Merger and the other transactions contemplated by this Agreement (including the terms, if any, proposed by Community to amend or modify the terms of the transactions contemplated by this Agreement), (i) after receiving the advice of its financial advisor (which shall be a nationally recognized investment banking firm), (ii) after taking into account the likelihood of consummation of such transaction on the terms set forth therein (as compared to, and with due regard for, the terms herein) and (iii) after taking into account all legal (with the advice of outside counsel), financial (including the financing terms of any such proposal), regulatory and other aspects of such proposal (including any expense reimbursement and break-up fee provisions and conditions to closing) and any other relevant factors permitted under applicable Law.

“Tax” or “Taxes” shall mean all federal, state, local, and foreign taxes, charges, fees, levies, imposts, duties, or other like assessments, including assessments for unclaimed property, as well as income, gross receipts, excise, employment, sales, use, transfer, intangible, recording, license, payroll, franchise, severance, documentary, stamp, occupation, windfall profits, environmental, federal highway use, commercial rent, customs duties, capital stock, paid-up capital, profits, withholding, Social Security, single business and unemployment, disability, real property, personal property, registration, ad valorem, value added, alternative or add-on minimum, estimated, or other tax or governmental fee of any kind whatsoever, imposed by or required to be paid or withheld by the United States or any state, local, or foreign government or subdivision or agency thereof, whether disputed or not, including any related interest, penalties, and additions imposed thereon or with respect thereto, and including any Liability for Taxes of another Person pursuant to a contract, as a transferee or successor, under Treasury Regulation Section 1.1502-6 or analogous provision of state, local or foreign Law or otherwise.

“Tax Return” shall mean any report, return, information return, or other information provided or required to be provided to a Taxing Authority in connection with Taxes, including any return of an Affiliated or combined or unitary group that includes a Party or its Subsidiaries and including without limitation any estimated Tax return.

“Taxable Period” shall mean any period prescribed by any Taxing Authority.

“Taxing Authority” shall mean any federal, state, local, municipal, foreign, or other Governmental Authority, instrumentality, commission, board or body having jurisdiction over the Parties to impose or collect any Tax.

“Technology Systems” shall mean the electronic data processing, information, record keeping, communications, telecommunications, hardware, third-party software, networks, peripherals, portfolio trading and computer systems, including any outsourced systems and processes, and Intellectual Property used by Merchants.

“Vermont Commissioner” shall mean the Commissioner of the Department of Financial Regulation of the State of Vermont.

“Willful Breach” shall mean a material breach of, or failure to perform any of the covenants or other agreements contained in, this Agreement, that is a consequence of an act or failure to act by the breaching or non-performing party with actual knowledge, or knowledge that a person acting reasonably under the circumstances should have, that such party’s act or failure to act would, or would be reasonably expected to, result in or constitute a breach of or failure of performance under this Agreement.

TABLE OF CONTENTS

(b) The terms set forth below shall have the meanings ascribed thereto in the referenced sections:


2013 Warrant Cash Payment		Section 2.8(b)(ii)
Adjusted 2013 Warrant Exercise Price		Section 2.8(b)(i)
Adjusted 2013 Warrant Share Number		Section 2.8(b)(ii)
Adjusted Organizers’ Warrant Exercise Price		Section 2.8(a)
Adjusted Organizers’ Warrant Share Number		Section 2.8(a)
Adverse Recommendation Change		Section 4.12(c)
Agreement		Preamble
Anti-Corruption Laws		Section 3.2(h)(vi)
Anti-Money Laundering Laws		Section 3.2(h)(vii)
Appraisal Rights		Section 2.4(a)
Bank Merger		Recitals
Bank Merger Agreement		Recitals
Book-Entry Shares		Section 2.3(b)
Capitalization Date		Section 3.2(c)(i)
Cash Election		Section 2.1(a)
Cash Election Consideration		Section 2.1(a)
Cash Election Share		Section 2.2(c)
Cash Fraction		Section 2.2(c)(i)
CECL		Section 3.2(o)
Certificate of Merger		Section 1.4
Closing		Section 1.3
Closing Date		Section 1.3
Community		Preamble
Community Bank		Recitals
Community Disclosure Letter		Section 3.1
Community Fundamental Representations		Section 5.3(a)
Community Market Value		Section 6.1(h)
Community Preferred Stock		Section 3.3(c)
Community Ratio		Section 6.1(h)
Community Regulatory Agreement		Section 3.3(f)(ii)
Community Reports		Section 3.3(d)(ii)
Continuing Employees		Section 4.14(a)
CRA		Section 3.2(p)
Delinquent Loans		Section 3.2(n)(ii)
Determination Date		Section 6.1(h)
DGCL		Recitals
Director Deferred Compensation Plans		Section 4.14(f)
Dissenting Shares		Section 2.4(a)
Effective Time		Section 1.4
Election Deadline		Section 2.2(c)
Election Form		Section 2.2(a)
Election Form Record Date		Section 2.2(a)
Exchange Agent		Section 2.3(a)
Exchange Fund		Section 2.3(a)
Expiration Date		Section 6.1(e)
Final Index Price		Section 6.1(h)
Fractional Share Consideration		Section 2.1(a)
Indemnified Party		Section 4.16(a)
Index		Section 6.1(h)
Index Ratio		Section 6.1(h)(ii)
Initial Community Market Value		Section 6.1(h)
Initial Index Price		Section 6.1(h)

TABLE OF CONTENTS


IRS		Section 3.2(j)(i)
Loans		Section 3.2(n)(i)
Mailing Date		Section 2.2(a)
Materially Burdensome Regulatory Condition		Section 4.8(h)
Merchants		Preamble
Merchants Bank		Recitals
Merchants Certificates		Section 2.3(b)
Merchants Debentures		Section 4.17(a)
Merchants Director Designees		Section 1.5(b)
Merchants Directors’ Recommendation		Section 3.2(b)(ii)
Merchants Disclosure Letter		Section 3.1
Merchants Financial Statements		Section 3.2(d)(iii)
Merchants Fundamental Representations		Section 5.2(a)
Merchants Owned Properties		Section 3.2(w)
Merchants Preferred Stock		Section 3.2(c)(i)
Merchants Real Property		Section 3.2(w)
Merchants Regulatory Agreement		Section 3.2(h)(iv)
Merchants Reports		Section 3.2(d)(ii)
Merchants Restricted Share		Section 2.5(b)
Merchants Stock Option		Section 2.5(a)
Merchants Stock Option Consideration		Section 2.5(a)
Merchants Stockholder Meeting		Section 4.5(a)
Merger		Recitals
Merger Consideration		Section 2.1(a)
Mixed Cash Consideration		Section 2.1(a)
Mixed Election		Section 2.1(a)
Mixed Election Consideration		Section 2.1(a)
Mixed Election Share		Section 2.2(c)
Mixed Stock Consideration		Section 2.1(a)
No Election Shares		Section 2.2(c)
NPPI		Section 3.2(q)
PBGC		Section 3.2(j)(i)
Per Share Merger Consideration Value		Section 2.5(a)
Permitted Liens		Section 3.2(w)
Premium Cap		Section 4.16(b)
Proposed Dissenting Shares		Section 2.4(a)
Replacement 2013 Warrant Certificate		Section 2.8(b)(iv)
Replacement Organizers’ Warrant Certificate		Section 2.8(a)
Requisite Regulatory Approvals		Section 4.8(g)
Sanctioned Country		Section 3.2(h)(ix)
Sanctions		Section 3.2(h)(ix)
Stock Election		Section 2.1(a)
Stock Election Consideration		Section 2.1(a)
Stock Election Share		Section 2.2(c)
Stockholder Litigation		Section 4.3
Stockholder Support Agreement		Recitals
Surviving Corporation		Section 1.1
Takeover Laws		Section 3.2(u)
Termination Fee		Section 6.2(a)
Title IV Plan		Section 3.2(j)(iv)
WARN		Section 3.2(i)(iii)

TABLE OF CONTENTS

(c) Any singular term in this Agreement shall be deemed to include the plural, and any plural term the singular. Whenever the words “include,” “includes,” or “including” are used in this Agreement, they shall be deemed followed by the words “without limitation.” The words “hereby,” “herein,” “hereof” or “hereunder,” and similar terms are to be deemed to refer to this Agreement as a whole and not to any specific section.

~~7.3.~~ Section 7.2~~Fee~~Non-Survival of Representations and Covenants.

~~(a) Except as set forth~~ The respective representations, warranties, obligations, covenants, and agreements of the Parties shall be deemed only to be conditions of the Merger and shall not survive the Effective Time, except forSection 4.16 and for those other covenants and agreements contained in this Agreement that by their terms apply or are to be performed in whole or in part after the Effective Time.

Section 7.3Expenses,. Each of the Parties shall bear and pay all ~~fees~~direct costs and expenses incurred by it or on its behalf in connection with ~~this Agreement~~the transactions contemplated hereunder, whether or not such transactions are consummated, including filing, registration, and ~~the Transactions (including~~application fees, printing fees, and fees and expenses of its own financial or other consultants, investment bankers, accountants, and ~~counsel) shall be paid by the party incurring such expenses, whether or not such transactions are consummated,~~counsel, except that ~~CBSI~~Community and ~~Oneida each~~Merchants shall bear and pay ~~50%~~fifty percent (50%) of all printing and mailing costs ~~and filing fees~~ associated with the Registration Statement and ~~the~~ Proxy ~~Statement/Prospectus~~Statement and any amendment or supplement thereto.

(b) As a condition of CBSI’s willingness, and in order to induce CBSI, to enter into this Agreement and consummate the transactions contemplated by this Agreement, Oneida hereby agrees to pay CBSI, and CBSI shall be entitled to payment of FOUR MILLION NINE HUNDRED AND THIRTY THOUSAND DOLLARS ($4,930,000) (the “~~Fee~~”), as liquidated damages and not as a penalty. The Fee shall be paid within three (3) business days after written demand for payment is made by CBSI, following the occurrence of any of the events set forth below:

~~(i) The termination of this Agreement by Oneida pursuant to~~Section ~~7.1(g)~~ ~~or by CBSI pursuant toSection 7.1(f)~~;

(ii) The entering into a definitive agreement by Oneida relating to a Takeover Proposal or the consummation of a Takeover Proposal involving Oneida within nine (9) months after the occurrence of any of the following: (i) the termination of the Agreement by CBSI pursuant to~~Section 7.1(b)~~ because of a breach by Oneida; or (ii) the failure of Oneida to hold the Oneida Shareholders’ Meeting or the failure of the shareholders of Oneida to approve this Agreement, in each case after the public disclosure of a Takeover Proposal.

~~Annex A-60~~

~~(c) The right to receive payment of the Fee underSection 7.3(b)~~ ~~will constitute the sole and exclusive remedy of CBSI and Community Bank against Oneida and its Subsidiaries and their respective officers and directors with respect to a termination listed underSection 7.3(b)~~.

~~ARTICLE VIII~~

~~MISCELLANEOUS~~

~~8.1.~~ ~~Survival of Representations, Warranties and Covenants~~. All representations, warranties and covenants in this Agreement or in any instrument delivered pursuant hereto shall expire on, and be terminated and extinguished at, the Effective Time other than covenants that by their terms are to survive or be performed after the Effective Time; provided, that no such representations, warranties or covenants shall be deemed to be terminated or extinguished so as to deprive CBSI or Oneida (or any director, officer or controlling Person thereof) of any defense in law or equity which otherwise would be available against the claims of any Person, including, without limitation, any shareholder or former shareholder of either CBSI or Oneida, the aforesaid representations, warranties and covenants being material inducements to the consummation by CBSI and Oneida of the Transactions.

~~8.2.~~ ~~Amendment or Supplement~~. This Agreement may be amended or supplemented at any time prior to the Effective Time only by mutual agreement of the parties hereto or thereto. Any such amendment or supplement must be in writing and approved by their respective Boards of Directors;~~provided~~,~~however~~, that, after approval of this Agreement by the respective shareholders of Oneida or CBSI, no amendment may be made which by law requires further approval by such shareholders without obtaining such further approval.

~~8.3.~~ ~~Waiver~~. Except where not permitted by law, CBSI or Oneida, by written instrument signed by an executive officer of such party, may at any time (whether before or after approval of this Agreement by the shareholders of Oneida) extend the time for the performance of any of the obligations or other acts of the other party, and may waive (i) any inaccuracies of such other party in the representations or warranties contained in this Agreement or any document delivered pursuant hereto, (ii) compliance with any of the covenants, undertakings or agreements of such other party, or satisfaction of any of the conditions precedent to its obligations, contained herein or (iii) the performance by such other party of any of its obligations set out herein or therein. No failure or delay on the part of any party hereto in the exercise of any right hereunder shall impair such right or be construed as a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof or of any other right.

~~8.4.~~ 7.4Entire Agreement. ~~This~~Except as otherwise expressly provided herein, this Agreement ~~contains~~(including the Merchants Disclosure Letter, the Community Disclosure Letter and the Exhibits) constitutes the entire agreement between the ~~parties~~Parties with respect to the ~~Transactions~~transactions contemplated hereunder and ~~supersede~~supersedes all prior arrangements or understandings with respect thereto, written or oral, other than ~~documents referred~~the Confidentiality Agreement, which shall remain in effect. The representations and warranties in this Agreement are the product of negotiations among the Parties and are for the sole benefit of the Parties. Any inaccuracies in such representations and warranties are subject to ~~herein. The terms~~waiver by the Parties in accordance herewith without notice or Liability to any other Person. In some instances, the representations and ~~conditions~~warranties in this Agreement may represent an allocation among the Parties of risks associated with particular matters regardless of the knowledge of any of the Parties. Consequently, Persons other than the Parties may not rely upon the representations and warranties in this Agreement as characterizations of actual facts or circumstances as of the date of this Agreement ~~shall inure~~or as of any other date. Notwithstanding any other provision hereof to the ~~benefit~~contrary, except forSection 4.16, no consent, approval, or agreement of ~~and~~any third party beneficiary will be ~~binding upon the parties hereto and thereto and their respective successors. Except for the provisions~~required to amend, modify or waive any provision of~~Article II~~ ~~andSection 5.9(c) and (d)~~ ~~and as specifically set forth herein, nothing~~ this Agreement. Nothing in this Agreement, ~~expressed~~express or implied, is intended to confer upon any ~~party,~~Person, other than the ~~parties hereto and thereto, and~~Parties or their respective successors, any rights, remedies, obligations, or ~~liabilities. This~~liabilities under or by reason of this Agreement;provided that, notwithstanding the foregoing clause, following the Effective Time only (but not unless and until the Effective Time occurs), (i) the provisions ofSection 4.16 shall be enforceable by each Indemnified Party described therein, and (ii) each holder of Merchants Common Stock, who properly surrenders his, her or its Merchants Common Stock in accordance withArticle 2, shall have the right to receive the applicable Merger Consideration and such right shall be enforceable by such holder of Merchants Common Stock.

Section 7.5Amendments. Before the Effective Time, this Agreement ~~shall constitute~~(including the Merchants Disclosure Letter, the Community Disclosure Letter and the Exhibits) may be amended by a ~~plan of reorganization within the meaning of Section 368~~subsequent writing signed by each of the ~~Code.~~

~~Annex A-61~~

Parties, whether before or after the Merchants Stockholder Approval has been obtained, except to the extent that any such amendment would require the approval of the stockholders of Merchants, unless such required approval is obtained.

~~8.5.~~ Section 7.6~~No Assignment~~Waivers. ~~No party hereto may assign~~(a) Prior to or at the Effective Time, either Party shall have the right to waive any Default in the performance of ~~its rights~~any term of this Agreement by the other Party, to waive or extend the time for the compliance or fulfillment by the other Party of any and all of such other Party’s obligations under this Agreement, and to waive any or all of the conditions precedent to its obligations under this Agreement, except any condition which, if not satisfied, would result in the violation of any Law. No waiver by a Party shall be effective unless in writing signed by a duly authorized officer of such Party.

(b) The failure of any Party at any time or times to require performance of any provision hereof shall in no manner affect the right of such Party at a later time to enforce the same or any other ~~Person.~~provision of this Agreement. No waiver of any condition or of the breach of any term contained in this Agreement in one or

TABLE OF CONTENTS

more instances shall be deemed to be or construed as a further or continuing waiver of such condition or breach or a waiver of any other condition or of the breach of any other term of this Agreement.

~~8.6.~~ Section 7.7Assignment. Except as expressly contemplated hereby, neither this Agreement nor any of the rights, interests, or obligations hereunder shall be assigned by any Party without the prior written consent of the other Party. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of, and be enforceable by the Parties and their respective successors and assigns.

Section 7.8Notices. All notices or other communications which are required or permitted hereunder shall be in writing and sufficient if delivered ~~personally or sent~~by hand, by facsimile or electronic transmission, ~~or overnight express or~~by email, by registered or certified mail, postage ~~prepaid, addressed~~pre-paid, or by courier or overnight carrier, to the Persons at the addresses set forth below (or at such other address as ~~follows:~~may be provided hereunder), and shall be deemed to have been delivered as of the date so delivered:

To Community:

~~If to Oneida:~~	~~Oneida Financial Corp.~~
	~~182 Main Street~~
	~~Oneida, New York 13421~~
	~~Attention: Michael R. Kallet, Chief Executive Officer~~
	~~Facsimile: (315) 366-3709~~

~~With a required copy to:~~	~~Luse Gorman, PC~~
	~~5335 Wisconsin Ave., NW Suite 780~~
	~~Washington, DC 20015~~
	~~Attention: Eric Luse, Esq.~~
	~~Facsimile: (202) 362-2902~~

~~If to CBSI:~~	~~Community Bank System, Inc.~~
	~~5790 Widewaters Parkway~~
	~~Dewitt, New York 13214~~
	~~Attention: President and Chief Executive Officer~~
	~~Facsimile: (315) 445-7347~~

~~With a required copy to:~~	~~Bond, Schoeneck & King, PLLC~~
	~~One Lincoln Center~~
	~~Syracuse, New York 13202~~
	~~Attention: Ronald C. Berger~~
	~~Facsimile: (315) 218-8100~~

Community Bank System, Inc.
5790 Widewaters Parkway
DeWitt, New York 13214
Fax: (315) 445-7347
Email: Joe.Getman@communitybankna.com
Attention: General Counsel

Copy to Counsel (which shall not constitute notice):

Cadwalader, Wickersham & Taft LLP
200 Liberty Street
New York, New York 10281
Fax: (212) 504-6666
Email: Andrew.Alin@cwt.com
Attention: Andrew P. Alin

To Merchants:

Merchants Bancshares, Inc.
275 Kennedy Drive
South Burlington, Vermont 05403
Fax: (802) 865-1834
Email: ghesslink@mbvt.com
Attention: President & Chief Executive Officer

Copy to Counsel (which shall not constitute notice):

Goodwin Procter LLP
100 Northern Avenue
Boston, Massachusetts 02110
Fax: (617) 523-1231
Email: wmayer@goodwinlaw.com
skirby@goodwinlaw.com
lhaddad@goodwinlaw.com
Attention: William P. Mayer
Samantha M. Kirby
Lisa R. Haddad

~~8.7.~~ Section 7.9Governing Law; Jurisdiction. (a) This Agreement and all disputes or controversies arising out of or relating to this Agreement and the transactions contemplated hereby shall be governed by, and construed in accordance with, the internal Laws of the State of Delaware, without regard to any applicable conflicts of law principles that would result in the application of the Laws of another jurisdiction,provided that the Laws of the United States shall govern the consummation of the Bank Merger.

TABLE OF CONTENTS

(b) Each of the Parties hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of the Court of Chancery of the State of Delaware or, if under applicable Law, exclusive jurisdiction over such matters is vested in the Federal courts, any Federal court located in the State of Delaware, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the agreements delivered in connection herewith or the transactions contemplated hereby or thereby or for recognition or enforcement of any judgment relating thereto, and each of the Parties hereby irrevocably and unconditionally (i) agrees not to commence any such action or proceeding except in such courts, (ii) agrees that any claim in respect of any such action or proceeding may be heard and determined in such Court of Chancery or, to the extent required by Law, in such Federal court, (iii) waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any such action or proceeding in any such court, and (iv) waives, to the fullest extent permitted by Law, (x) any claim that such Party is not personally subject to the jurisdiction of any such court, (y) any claim that such Party and such Party’s property is immune from any legal process issued by any such court and (z) the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. Each of the Parties agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by Law. Each Party irrevocably consents to service of process in the manner provided for notices inSection 7.8. Nothing in this Agreement will affect the right of any Party to serve process in any other manner permitted by Law.

Section 7.10Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. The exchange of copies of this Agreement and of signature pages by facsimile or electronic transmission shall constitute effective execution and delivery of this Agreement as to the Parties and may be used in lieu of the original Agreement for all purposes. Signatures of the Parties transmitted by facsimile or electronic transmission shall be deemed to be their original signatures for all purposes.

Section 7.11Captions. The captions contained in this Agreement are for reference purposes only and are not part of this Agreement.

~~8.8.~~ Section 7.12~~Counterparts~~Interpretations. ~~This~~Neither this Agreement ~~may be executed in~~nor any ~~number of counterparts, and each such counterpart~~uncertainty or ambiguity herein shall be ~~deemed~~construed or resolved against any Party, whether under any rule of construction or otherwise. No Party to be an original instrument, but all such counterparts together shall constitute but one agreement. A facsimile copy or electronic transmission of a signature page shall be deemed to be an original signature page.

~~Annex A-62~~

~~8.9.~~ ~~Governing Law~~. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and entirely to be performed within such jurisdiction, except to the extent federal law may be applicable.

~~8.10.~~ ~~Waiver of Jury Trial. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY ACTION, CLAIM OR OTHER PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.~~

~~[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]~~

~~Annex A-63~~

IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby, have caused this Agreement to be executed by their duly authorized officers, all as of the day and year first above written.

	~~COMMUNITY BANK SYSTEM, INC.~~

	~~By:~~	~~/s/ Mark E. Tryniski~~
	~~Name:~~	~~Mark E. Tryniski~~
	~~Title:~~	~~President and Chief Executive Officer~~

	~~ONEIDA FINANCIAL CORP.~~

	~~By:~~	~~/s/ Michael R. Kallet~~
	~~Name:~~	~~Michael R. Kallet~~
	~~Title:~~	~~Chief Executive Officer~~

~~Annex A-64~~

~~EXHIBIT A~~

~~VOTING AGREEMENT~~

~~This Voting Agreement, dated as of February 24, 2015 (this “Agreement”), is by and between Community Bank System, Inc., a Delaware corporation (“CBSI”), and the undersigned shareholder (the “Shareholder”) of Oneida Financial Corp., a Maryland corporation (“Oneida”).~~

~~RECITALS~~

~~A. Concurrently with the execution of this Agreement, CBSI and Oneida entered into an Agreement and Plan of Merger (the “Merger Agreement”) which provides for the merger of Oneida with and into CBSI (the “Merger~~”). Pursuant to the Merger, shares of capital stock of Oneida will be converted into the merger consideration, consisting of cash and shares of common stock of CBSI, on the basis set forth in the Merger Agreement.

B. The Shareholder has the legal power to vote, or to direct the voting of (by law, contract or otherwise), the shares of the outstanding common stock of Oneida indicated on the final page of this Agreement (the “~~Shares”).~~

C. As a material inducement to enter into the Merger Agreement, CBSI desires the Shareholder to agree, and the Shareholder is willing to agree, to vote or cause to be voted, as the case may be, the Shares and any other such shares of capital stock of Oneida subsequently acquired by the Shareholder so as to facilitate consummation of the Merger as provided in this Agreement.

~~NOW, THEREFORE, intending to be legally bound, the parties agree as follows:~~

1. ~~Agreement to Vote Shares; Additional Purchases~~.

~~1.1~~ ~~Agreement to Vote Shares~~. At every meeting of the shareholders of Oneida called with respect to the approval of the Merger Agreement and/or the Merger, and at every adjournment thereof, and on every action or approval by written consent of the shareholders of Oneida with respect to the approval of the Merger Agreement and/or the Merger, the Shareholder shall vote, or cause to be voted, the Shares and any New Shares (as defined below) in favor of adoption and approval of the Merger Agreement and the Merger.

~~1.2~~ ~~Agreement to Retain Shares~~. The Shareholder shall not transfer, sell, exchange, pledge or otherwise dispose of or encumber the Shares or any New Shares; provided, however, that the Shareholder may transfer the Shares if the transferee, prior to such transfer, executes a voting agreement with respect to the Shares to be transferred, substantially in the form of this Agreement, and provides such executed agreement to CBSI.

~~1.3~~ ~~Additional Purchases~~. The Shareholder agrees that any shares of capital stock of Oneida that the Shareholder purchases or with respect to which the Shareholder otherwise acquires the power to vote, or to direct the voting (“~~New Shares~~”), after the execution of this Agreement and prior to the Expiration Date (as defined below) shall be subject to the terms and conditions of this Agreement to the same extent as if they constituted Shares.

~~Annex A-65~~

2. ~~Representations and Warranties of the Shareholder~~. The Shareholder (i) has the legal power and authority to vote, or to direct the voting of, the Shares, which at the date hereof are (except to the extent set forth in a schedule delivered herewith) free and clear of any liens, options, security interests or other similar encumbrances; (ii) does not possess the right to vote, or to direct the voting of, as the date hereof, any shares of capital stock of Oneida other than the Shares; and (iii) has full power and authority to make, enter into and carry out the terms of this Agreement.

3. ~~Proxy~~. The Shareholder hereby covenants and agrees to execute and deliver a proxy to be tendered at every meeting of Oneida shareholders called with respect to the approval of the Merger Agreement and/or the Merger, in the reasonable opinion of CBSI, to carry out the purpose of this Agreement.

4. ~~Termination~~. This Agreement shall terminate and shall have no further force or effect as of the earlier to occur of (i) such date and time as the Merger shall become effective in accordance with the terms and provisions of the Merger Agreement, or (ii) such date and time as the Merger Agreement shall have been terminated pursuant to Article VII thereof (the “~~Expiration Date”).~~

5. ~~Fiduciary Duties. If the Shareholder is a Director of Oneida, nothing in~~ this Agreement shall be considered the draftsman. The Parties acknowledge and agree that this Agreement has been reviewed, negotiated, and accepted by all Parties and their attorneys and shall be construed and interpreted according to ~~prevent~~ the ~~Shareholder from exercising his/her fiduciary obligations~~ordinary meaning of the words used so as ~~a Director~~fairly to accomplish the purposes and intentions of ~~Oneida in~~ the event of a Superior Proposal as set forth in the Merger Agreement, provided that the Shareholder, in his/her capacity as a shareholder of Oneida, shall remain obligated to comply with Shareholder’s obligations in this Agreement.Parties.

6. ~~Miscellaneous~~.

~~6.1~~ Section 7.13Severability. If any term ~~provision, covenant~~ or ~~restriction~~provision of this Agreement is ~~held~~determined by a court of competent jurisdiction to be invalid, void or unenforceable, ~~then~~ the ~~remainder~~remaining provisions hereof, or the application of ~~the terms, provisions, covenants and restrictions of this Agreement~~such provision to Persons or circumstances other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and ~~shall~~ in no way be affected, impaired or ~~invalidated.~~invalidated thereby, so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any Party. Upon such determination, the Parties shall negotiate in good faith in an effort to agree upon a suitable and equitable substitute provision to effect the original intent of the Parties. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable.

~~6.2~~ Section 7.14~~Binding Effect and Assignment~~Waiver of Jury Trial. ~~This Agreement~~THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT THAT ANY PARTY MAY HAVE TO TRIAL BY JURY IN RESPECT OF ANY PROCEEDING, LITIGATION OR COUNTERCLAIM BASED ON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. IF THE SUBJECT MATTER OF ANY LAWSUIT IS ONE IN WHICH THE WAIVER OF JURY TRIAL IS PROHIBITED, NO PARTY TO THIS AGREEMENT SHALL PRESENT AS A NONCOMPULSORY COUNTERCLAIM IN ANY SUCH LAWSUIT ANY CLAIM BASED ON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT. FURTHERMORE, NO

TABLE OF CONTENTS

PARTY TO THIS AGREEMENT SHALL SEEK TO CONSOLIDATE ANY SUCH ACTION IN WHICH A JURY TRIAL CANNOT BE WAIVED.

Section 7.15Specific Performance. The Parties agree that irreparable damage would occur and ~~all~~that the Parties would not have any adequate remedy at law in the event that any of the provisions ~~hereof~~of this Agreement were not performed in accordance with their specific terms or were otherwise breached, except as expressly provided in the following sentence. It is accordingly agreed that the Parties shall be ~~binding upon~~entitled to an injunction or injunctions to prevent breaches or threatened breaches of this Agreement and ~~inure~~to enforce specifically the terms and provisions of this Agreement and, in any action for specific performance, each Party waives the defense of adequacy of a remedy at law and waives any requirement for the securing or posting of any bond in connection with such remedy, this being in addition to any other remedy to which they are entitled at law or in equity (subject to the ~~benefit~~limitations set forth in this Agreement). The Parties hereto further agree that (i) by seeking the remedies provided for in thisSection 7.15, a Party shall not in any respect waive its right to seek any other form of ~~the parties hereto and their respective successors and permitted assigns, but, except as otherwise specifically provided herein, neither~~relief that may be available to a Party under this Agreement ~~nor~~(including monetary damages) for breach of any of the ~~rights, interests~~provisions of this Agreement or ~~obligations~~in the event that this Agreement has been terminated or in the event that the remedies provided for in thisSection 7.15 are not available or otherwise are not granted, and (ii) nothing set forth in thisSection 7.15 shall require any Party to institute any proceeding for (or limit any Party’s right to institute any proceeding for) specific performance under thisSection 7.15 prior or as a condition to exercising any termination right underArticle 6 (and pursuing damages after such termination (subject toSection 6.3)).

[Remainder of Page Intentionally Left Blank]

TABLE OF CONTENTS

IN WITNESS WHEREOF, each of the ~~parties hereto may~~Parties has caused this Agreement to be ~~assigned by any~~executed on its behalf as of the day and year first above written.

COMMUNITY BANK SYSTEM, INC.

By:

/s/ Mark Tryniski

Name: Mark Tryniski
Title: President & Chief Executive Officer

MERCHANTS BANCSHARES, INC.

By:

/s/ Geoffrey Hesslink

Name: Geoffrey Hesslink
Title: President & Chief Executive Officer

TABLE OF CONTENTS

Exhibit A

BANK AGREEMENT AND PLAN OF MERGER

THIS BANK AGREEMENT AND PLAN OF MERGER (this “Bank Plan of Merger”), dated as of [•], 2016, is by and between COMMUNITY BANK, NATIONAL ASSOCIATION, a federally chartered national bank with its main office located at 5790 Widewaters Parkway, DeWitt, New York 13214 (“Community Bank”) and MERCHANTS BANK, a Vermont-chartered commercial bank with its main office located at 275 Kennedy Drive, South Burlington, VT (“Merchants Bank”).

BACKGROUND

A. Community Bank is a wholly-owned subsidiary of Community Bank System, Inc., a bank holding company registered under the Bank Holding Company Act of 1956, as amended (the “BHC Act”) (“Community”). The issued and outstanding capital stock of Community Bank at the date hereof consists of [•] shares of common stock, par value $5.00 per share (“Community Bank Common Stock”).

B. Merchants Bank is a wholly-owned subsidiary of Merchants Bancshares, Inc., a bank holding company under the BHC Act (“Merchants”). The authorized capital stock of Merchants Bank consists of 874,576 shares of common stock, par value $5.00 per share (“Merchants Bank Common Stock”), of which [•] shares of Merchants Bank Common Stock are issued and outstanding at the date hereof.

C. Community and Merchants are parties ~~without prior written consent~~to an Agreement and Plan of Merger (the “Holding Company Plan of Merger”) dated as of October 22, 2016 providing, among other things, for the ~~other parties.~~merger of Merchants with and into Community, with Community as the resulting entity, and for the merger of Merchants Bank with and into Community Bank, with Community Bank as the resulting entity. This Bank Plan of Merger is being executed by Community Bank and Merchants Bank pursuant to the Holding Company Plan of Merger.

~~6.3~~ ~~Amendments~~D. The respective Boards of Directors and ~~Modification. This Agreement may not be modified, amended, altered or supplemented except upon~~shareholders of Community Bank and Merchants Bank have unanimously adopted resolutions approving this Bank Plan of Merger and authorizing the execution and delivery of this Bank Plan of Merger. The respective Boards of Directors of Community Bank and Merchants Bank deem the merger of Merchants Bank with and into Community Bank, pursuant to the terms and conditions set forth or referred to herein, to be desirable and in the best interests of the respective banks and their respective shareholders.

AGREEMENT

In consideration of the premises and of the mutual covenants and agreements herein contained, and in accordance with the applicable laws and regulations of the United States of America and the State of Vermont, Community Bank and Merchants Bank, intending to be legally bound hereby, agree to the following terms:

ARTICLE I
MERGER; BUSINESS

1.1Merger. Subject to the terms and conditions of this Bank Plan of Merger and in accordance with the applicable laws and regulations of the United States of America and the State of Vermont, on the Effective Date (as that term is defined in Article V hereof): (i) Merchants Bank shall merge with and into Community Bank; (ii) the separate existence of Merchants Bank shall cease; and (iii) Community Bank shall be the surviving entity and shall continue to operate under the name Community Bank, National Association (such transaction referred to herein as the “Bank Merger,” and Community Bank, as the surviving entity in the Bank Merger, referred to herein as the “Continuing Bank”).

1.2Business. The business of the Continuing Bank shall continue to be conducted at Community Bank’s main office, which is located at 5790 Widewaters Parkway, DeWitt, New York 13214, and at its legally established branches. The main office of Merchants Bank and its other branch offices shall continue as branch offices of the Continuing Bank.

ARTICLE II
CHARTER AND BYLAWS

2.1 On the Effective Date, the Articles of Association and Bylaws of Community Bank shall be the Articles of Association and Bylaws of the Continuing Bank. No changes to the Articles of Association or

TABLE OF CONTENTS

Bylaws of the Continuing Bank are being made in connection with the Bank Merger. A copy of the Articles of Association of Community Bank is attached hereto asExhibit A.

ARTICLE III
BOARD OF DIRECTORS AND OFFICERS

3.1Board of Directors. On and after the Effective Date, the directors of the Continuing Bank shall consist of the following persons, who shall serve as such until their successors have been elected and qualified:

[Insert name, address, and occupation of each director of Continuing Bank serving until the next annual meeting of the shareholders.]

3.2Officers. On and after the Effective Date, the officers of the Continuing Bank shall consist of the following persons:

[Insert name and address of each officer of Continuing Bank.]

ARTICLE IV
CONVERSION OF SHARES

4.1Capital Stock of Community Bank. Each share of Community Bank Common Stock issued and outstanding immediately prior to the Effective Date shall, on and after the Effective Date, continue to be issued and outstanding as a share of common stock of the Continuing Bank.

4.2Capital Stock of Merchants Bank. Each share of Merchants Bank Common Stock issued and outstanding immediately prior to the Effective Date, and each share of Merchants Bank Common Stock issued and held in the treasury of Merchants Bank immediately prior to the Effective Date, if any, shall, on the Effective Date, be cancelled, and no cash, stock, or other property shall be delivered in exchange therefor.

4.3Capital Stock of Continuing Bank. On the Effective Date, the authorized capital stock of the Continuing Bank shall consist of [•] shares of common stock, par value $5.00 per share, all of which will be issued and outstanding.

ARTICLE V
EFFECTIVE DATE OF THE MERGER

The Bank Merger shall become effective on the date (“Effective Date”) on which the merger of Merchants with and into Community, pursuant to the Holding Company Merger Agreement, shall become effective, which date shall be subsequent to the date on which the Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System (or any Federal Reserve Bank acting under a delegation of authority), in each case to the extent required by law, have approved the Bank Merger or waived any applicable approval requirement, and to the date of receipt of any other approvals required to consummate the Bank Merger.

ARTICLE VI
EFFECT OF THE BANK MERGER

On the Effective Date, the separate existence of Merchants Bank shall cease, and all of the property (real, personal and mixed) assets, rights, and powers of Merchants Bank shall transfer to and be vested in, and all liabilities, debts, duties, and obligations of Merchants Bank shall transfer to and be assumed by the Continuing Bank, all without further act or deed, as provided by operation of law under applicable laws and regulations.

ARTICLE VII
CONDITIONS PRECEDENT

The obligations of Community Bank and Merchants Bank to effect the Bank Merger shall be subject to consummation of the merger of Merchants with and into Community as set forth in the Holding Company Plan of Merger.

TABLE OF CONTENTS

ARTICLE VIII
TERMINATION

This Bank Plan of Merger shall automatically terminate upon any termination of the Holding Company Plan of Merger.

ARTICLE IX
MISCELLANEOUS

9.1Extensions; Waivers. Each party to this Bank Plan of Merger, by a written ~~agreement executed~~instrument signed by a duly authorized officer, may extend the ~~parties hereto.~~

~~Annex A-66~~

~~6.4~~ ~~Specific Performance; Injunctive Relief. The parties~~time for the performance of any of the obligations or other acts of the other party hereto, ~~acknowledge that CBSI will be irreparably harmed~~ and ~~that there will be no adequate remedy at law for a violation of~~may waive compliance with any of the covenants, or ~~agreements~~performance of any of the ~~Shareholder set forth herein. Therefore, it is agreed that,~~obligations, of the other party contained in ~~addition to any~~this Bank Plan of Merger.

9.2Notices. Any notice or other ~~remedies that may be available to CBSI upon any such violation, CBSI shall have the right to enforce such covenants and agreements by specific performance, injunctive relief~~communication required or ~~by any other means available to CBSI at law or in equity.~~

~~6.5~~ ~~Notices. All notices, requests, claims, demands and other communications hereunder~~permitted under this Bank Plan of Merger shall be ~~in writing~~given to the parent company of the party to which such notice or communication is given and shall be effective, (i) when delivered, if delivered by hand, (ii) the next business day, if sent by nationally recognized overnight delivery specifying next day delivery, or (iii) three business days after depositing in the United States mails, if sent by certified mail, postage prepaid, receipt requested, in each case, addressed to a party’s address set forth below:

~~If to CBSI:~~

~~Community Bank System, Inc.~~

~~5790 Widewaters Parkway~~

~~Dewitt, New York 13214~~

~~Attention: President and Chief Executive Officer~~

~~With a required copy to:~~

~~Bond, Schoeneck & King, PLLC~~

~~One Lincoln Center~~

~~Syracuse, New York 13202~~

~~Attention: Ronald C. Berger, Esq.~~

~~If to the Shareholder: To the address for notice set forth on the last page hereof.~~

~~With a required copy to:~~

~~Luse Gorman, PC~~

~~5335 Wisconsin Ave., NW Suite 780~~

~~Washington, DC 20015~~

~~Attention: Eric Luse, Esq.~~

~~or to such other address as any party may have furnished to the other in writing in accordance herewith.~~

~~6.6~~ ~~Governing Law. This Agreement shall be governed by, and construed and enforced~~ in accordance with the ~~laws~~provisions of Section 7.8 of the ~~State~~Holding Company Plan of ~~New York (without regard to the principles of conflict of laws thereof).~~Merger.

~~Annex A-67~~

~~6.7~~ ~~Entire Agreement. This Agreement contains the entire understanding~~9.3Captions. The headings of the ~~parties in respect~~several Articles and Sections herein are inserted for convenience of reference only and are not intended to be part of or to affect the ~~subject matter hereof, and supersedes all prior negotiations and understandings between the parties with respect to such subject matter.~~meaning or interpretation of this Bank Plan of Merger.

~~6.8~~ ~~Counterparts~~.9.4Counterparts. This ~~Agreement~~Bank Plan of Merger may be executed in ~~several~~two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same ~~agreement.~~instrument.

9.5Governing Law. This Bank Plan of Merger shall be governed by, and construed in accordance with, the terms of the Holding Company Plan of Merger and the laws of the United States of America and, in the absence of controlling federal law, in accordance with the laws of the State of New York.

~~6.9~~ ~~Effect~~[signature page follows]

TABLE OF CONTENTS

IN WITNESS WHEREOF, Community Bank and Merchants Bank have caused this Bank Agreement and Plan of ~~Headings~~Merger to be executed by their duly authorized officers and their corporate seals to be hereunto affixed as of the date first written above.

COMMUNITY BANK, N.A.

By:

Name:
Title:

MERCHANTS BANK

By:

Name:
Title:

TABLE OF CONTENTS

Exhibit B

STOCKHOLDER SUPPORT AGREEMENT SIGNATORIES

Directors
Geoffrey Hesslink
Scott Boardman

Janette Bombardier
Donald Chase
Karen Danaher
Jeffrey Davis
Michael Furlong
Lorilee Lawton
Joseph F. Larkin
Raymond Pecor III
Michael Tuttle

Stockholder
Charles Davis

TABLE OF CONTENTS

Exhibit C

STOCKHOLDER SUPPORT AGREEMENT

STOCKHOLDER SUPPORT AGREEMENT, dated as of October 22, 2016 (this “Agreement”), by and between Community Bank System, Inc., a Delaware corporation (“Community”), and the stockholder identified on the signature pages hereto (the “Stockholder”).

WHEREAS, concurrently herewith, Merchants Bancshares, Inc., a Delaware corporation (“Merchants”) and Community are entering into an Agreement and Plan of Merger, dated as of even date herewith (the “Merger Agreement”), pursuant to which Merchants will merge with and into Community on the terms and conditions set forth therein, with Community surviving such merger (the “Merger”) and as provided therein Merchants Bank will merge with and into Community Bank (the “Bank Merger”), and, in connection with the Merger, the shares of common stock, par value $0.01 per share, of Merchants (“Merchants Common Stock”) issued and outstanding immediately prior to the Effective Time, other than any shares to be cancelled pursuant to Section 2.1(b) of the Merger Agreement and other than any Proposed Dissenting Shares, will, without any further action on the part of the holder thereof, be cancelled and extinguished and automatically converted into the right to receive the Merger Consideration as set forth in the Merger Agreement;

WHEREAS, as of the date hereof, the Stockholder is the record and beneficial owner of, and has the sole right to vote and dispose of, the number of shares of Merchants Common Stock set forth on the signature page of the Stockholder hereto (such Merchants Common Stock, together with any other capital stock of Merchants acquired by the Stockholder after the date hereof whether acquired directly or indirectly, upon the exercise of options or warrants, conversion of convertible securities or otherwise, and any other securities issued by Merchants that are entitled to vote on the adoption of the Merger Agreement held or acquired by the Stockholder (whether acquired heretofore or hereafter), being collectively referred to herein as the “Shares”);

WHEREAS, receiving the Merchants Stockholder Approval is a condition to the consummation of the transactions contemplated by the Merger Agreement; and

WHEREAS, as an inducement to Community to enter into the Merger Agreement and incur the obligations therein, Community has required that the Stockholder enter into this Agreement.

NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

Section 1.AGREEMENT TO VOTE, RESTRICTIONS ON VOTING AND DISPOSITIONS, REVOCATION OF PROXIES.

(a)Agreement to Vote Merchants Common Stock. The ~~section~~Stockholder irrevocably and unconditionally hereby agrees that from the date hereof until the Expiration Time, at any meeting (whether annual or special and each adjourned or postponed meeting) of Merchants’ stockholders, however called or in connection with any written consent of Merchants’ stockholders, the Stockholder will (x) appear at such meeting or otherwise cause its Owned Shares (as defined below) to be counted as present thereat for purposes of calculating a quorum and (y) vote or cause to be voted all of the Shares beneficially owned by the Stockholder that the Stockholder is entitled to vote as of the relevant time (the “Owned Shares”), (1) in favor of the adoption of the Merger Agreement, (2) against any Acquisition Proposal, without regard to any recommendation to the stockholders of Merchants by the Board of Directors of Merchants concerning such Acquisition Proposal, and without regard to the terms of such Acquisition Proposal, or any other proposal made in opposition to or that is otherwise in competition or inconsistent with the transactions contemplated by the Merger Agreement, (3) against any agreement, amendment of any agreement (including the Organizational Documents of Merchants or the Organizational Documents of Merchants Bank), or any other action that is intended or would reasonably be expected to prevent, impede, or, in any material respect, interfere with, delay, postpone, or discourage the transactions contemplated by the Merger Agreement, or (4) against any action, agreement, transaction or proposal that would reasonably be expected to result in any of the conditions to Community’s obligations under the Merger Agreement not being fulfilled.

TABLE OF CONTENTS

(b)Restrictions on Transfers. The Stockholder hereby agrees that, from the date hereof until the Expiration Time, the Stockholder shall not, directly or indirectly, sell, offer to sell, give, pledge, encumber, assign, tender, exchange, grant any option for the sale of or otherwise transfer or dispose of, or enter into any agreement, arrangement or understanding to sell, any Shares (collectively, “Transfer”) other than in connection with (i) transfers by will or operation of law or for bona fide estate planning purposes,provided that as a condition to such Transfer, such transferee shall execute an agreement that is identical to this Agreement (except to reflect the change in the identity of the Stockholder) andprovided,further, that the assigning Stockholder shall remain jointly and severally liable for the breaches of any of his or her transferees of the terms hereof, (ii) the exercise of any Merchants Stock Options or Merchants Warrants in an amount that is sufficient to satisfy the applicable exercise price or for payment of any tax liability incurred by the Stockholder in connection with such exercise, or (iii) the forfeiture of any Merchants Restricted Shares to Merchants in accordance with the terms of the underlying award agreement or for the payment of any tax liability incurred by the Stockholder in connection with the vesting of any Merchants Restricted Shares.

(c)Transfer of Voting Rights. The Stockholder hereby agrees that the Stockholder shall not deposit any Shares in a voting trust, grant any proxy or power of attorney or enter into any voting agreement or similar agreement or arrangement in contravention of the obligations of the Stockholder under this Agreement with respect to any of the Shares.

(d)Acquired Shares. Any Shares or other voting securities of Merchants with respect to which beneficial ownership is acquired by the Stockholder or his or her affiliates, including, without limitation, by purchase, as a result of a stock dividend, stock split, recapitalization, combination, reclassification, exchange or change of such Shares or upon exercise or conversion of any securities of Merchants, if any, after the date hereof shall automatically become subject to the terms of this Agreement.

(e)Grant of Irrevocable Proxy, Appointment of Proxy. (i) THE STOCKHOLDER HEREBY GRANTS TO, AND APPOINTS, COMMUNITY AND ANY DESIGNEE OF COMMUNITY, EACH OF THEM INDIVIDUALLY, THE STOCKHOLDER’S IRREVOCABLE (UNTIL THE TERMINATION OF THIS AGREEMENT) PROXY AND ATTORNEY-IN-FACT (WITH FULL POWER OF SUBSTITUTION) TO VOTE THE SHARES SOLELY AS INDICATED IN SECTION 1. THE STOCKHOLDER INTENDS THIS PROXY TO BE IRREVOCABLE (UNTIL THE TERMINATION OF THIS AGREEMENT) AND COUPLED WITH AN INTEREST AND WILL TAKE SUCH FURTHER ACTION OR EXECUTE SUCH OTHER INSTRUMENTS AS MAY BE NECESSARY TO EFFECTUATE THE INTENT OF THIS PROXY AND HEREBY REVOKES ANY PROXY PREVIOUSLY GRANTED BY THE STOCKHOLDER WITH RESPECT TO THE SHARES (THE STOCKHOLDER REPRESENTING TO COMMUNITY THAT ANY SUCH PROXY IS NOT IRREVOCABLE).

(ii) The proxy granted in thisSection 1(e) shall automatically expire at the Expiration Time.

(f)Inconsistent Agreements. The Stockholder hereby agrees that he or she shall not enter into any agreement, contract or understanding with any Person prior to the termination of this Agreement, directly or indirectly, to vote, grant a proxy or power of attorney or give instructions with respect to the voting of the Stockholder’s Shares in any manner which is inconsistent with this Agreement.

Section 2.REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE STOCKHOLDER.

(a)Representations and Warranties. The Stockholder represents and warrants to Community as follows:

(i)Capacity. The Stockholder is an individual and has all requisite capacity, power and authority to enter into and perform his or her obligations under this Agreement. No filing with, and no permit, authorization, consent or approval of, any Governmental Authority is necessary on the part of the Stockholder for the execution, delivery and performance of this Agreement by the Stockholder or the consummation by the Stockholder of the transactions contemplated hereby.

(ii)Due Execution. This Agreement has been duly executed and delivered by the Stockholder.

(iii)Binding Agreement. Assuming the due authorization, execution and delivery of this Agreement by Community, this Agreement constitutes the valid and binding agreement of the Stockholder, enforceable against the Stockholder in accordance with its terms (except in all cases as such

TABLE OF CONTENTS

enforceability may be limited by applicable bankruptcy, insolvency, reorganization, receivership, conservatorship, moratorium, or similar laws affecting the enforcement of creditors’ rights generally and except that the availability of the equitable remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding may be brought).

(iv)Non-Contravention. The execution and delivery of this Agreement by the Stockholder does not, and the performance by the Stockholder of his or her obligations hereunder and the consummation by the Stockholder of the transactions contemplated hereby will not violate or conflict with, or constitute a default under, any agreement, instrument, contract or other obligation or any order, arbitration award, judgment or decree to which the Stockholder is a party or by which the Stockholder is bound, or to the knowledge of the Stockholder, any statute, rule or regulation to which the Stockholder is subject. Except as contemplated by this Agreement, the Stockholder (a) has not entered into any voting agreement or voting trust with respect to any Shares or entered into any other contract relating to the voting of the Shares and (b) has not appointed or granted a proxy or power of attorney with respect to any Shares, in either case, which is inconsistent with the Stockholder’s obligations pursuant to this Agreement.

(v)Ownership of Shares. Except for restrictions in favor of Community pursuant to this Agreement and restrictions in favor of Merchants with respect to any Merchants Restricted Shares, and except for such transfer restrictions of general applicability as may be provided under the Securities Act, and the “blue sky” laws of the various States of the United States, the Stockholder owns, beneficially and of record, all of the Stockholder’s Shares, as applicable, free and clear of any proxy, voting restriction, adverse claim, pledge, security interest, voting trust or agreement, understanding or arrangement, or other encumbrance or lien and has sole voting power and sole power of disposition with respect to the Stockholder’s Shares with no restrictions on the Stockholder’s rights of voting or disposition pertaining thereto and no Person other than the Stockholder has any right to direct or approve the voting or disposition of any of the Stockholder’s Owned Shares. As of the date hereof, the number of Owned Shares equals the number of Shares set forth on the Stockholder’s signature page hereto (inclusive of any Merchants Restricted Shares owned by the Stockholder as set forth on the Stockholder’s signature page hereto), and would include, (i) if exercised, the number of shares of Merchants Common Stock issuable upon the exercise of Merchants Stock Options or Merchants Warrants as set forth on the Stockholder’s signature page hereto and (ii) if settled in Merchants Common Stock, the number of shares of Merchants Common Stock issuable upon the settlement of Merchants Deferred Shares as set forth on the Stockholder’s signature page hereto.

(vi)Legal Actions. As of the date hereof, there is no action, suit, investigation, complaint or other proceeding pending against the Stockholder or, to the knowledge of the Stockholder, threatened against the Stockholder that restricts or prohibits (or, if successful, would restrict or prohibit) the performance by the Stockholder of his or her obligations under this Agreement.

(vii)Reliance. The Stockholder understands and acknowledges that Community is entering into the Merger Agreement in reliance upon the Stockholder’s execution and delivery of this Agreement and the representations and warranties of the Stockholder contained herein.

(b)Covenants. From the date hereof until the Expiration Time:

(i) the Stockholder agrees not to take any action that would make any representation or warranty of the Stockholder contained herein untrue or incorrect in any material respect or have the effect of preventing, impeding, or, in any material respect, interfering with or adversely affecting the performance by the Stockholder of his or her obligations under this Agreement;

(ii) the Stockholder hereby agrees, while this Agreement is in effect, to promptly notify Community of the number of any new shares of Merchants Common Stock acquired by the Stockholder, if any, after the date hereof. Any such shares shall be subject to the terms of this Agreement as though owned by the Stockholder on the date hereof; and

(iii) the Stockholder hereby authorizes Community and Merchants to publish and disclose in any announcement or disclosure required by the SEC and any proxy statement filed in connection with the

TABLE OF CONTENTS

transactions contemplated by the Merger Agreement the Stockholder’s identity and ownership of the Owned Shares and the nature of the Stockholder’s obligations under this Agreement.

Section 3.FURTHER ASSURANCES. FROM TIME TO TIME, AT THE REQUEST OF COMMUNITY AND WITHOUT FURTHER CONSIDERATION, THE STOCKHOLDER SHALL EXECUTE AND DELIVER SUCH ADDITIONAL DOCUMENTS AND TAKE ALL SUCH FURTHER ACTION AS MAY BE NECESSARY TO CONSUMMATE AND MAKE EFFECTIVE THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.

Section 4.TERMINATION. OTHER THAN WITH RESPECT TO THIS SECTION AND SECTION 6, WHICH SHALL SURVIVE ANY TERMINATION OF THIS AGREEMENT, THIS AGREEMENT WILL TERMINATE UPON THE EARLIER TO OCCUR OF (A) THE CONSUMMATION OF THE MERGER AND (B) THE DATE OF TERMINATION OF THE MERGER AGREEMENT IN ACCORDANCE WITH ITS TERMS (THE “EXPIRATION TIME”);PROVIDED THAT NO SUCH TERMINATION SHALL RELIEVE ANY PARTY HERETO FROM ANY LIABILITY FOR ANY UNCURED WILLFUL BREACH OF THIS AGREEMENT OCCURRING PRIOR TO SUCH TERMINATION.

Section 5.APPRAISAL RIGHTS. THE STOCKHOLDER HEREBY WAIVES ANY RIGHTS OF APPRAISAL OR RIGHTS TO DISSENT FROM THE MERGER THAT THE STOCKHOLDER MAY HAVE UNDER APPLICABLE LAW, INCLUDING SECTION 262 OF THE DGCL.

Section 6.MISCELLANEOUS.

(a)Expenses. All expenses incurred in connection with this Agreement and the transactions contemplated by this Agreement shall be paid by the party incurring such expenses.

(b)Notices. All notices or other communications which are required or permitted hereunder shall be in writing and sufficient if delivered by hand, by facsimile or electronic transmission, by email, by registered or certified mail, postage pre-paid, or by courier or overnight carrier, to the Persons at the addresses set forth below (or at such other address as may be provided hereunder), and shall be deemed to have been delivered as of the date so delivered:

(i)

To Community, to:

Community Bank System, Inc.
5790 Widewaters Parkway
DeWitt, New York 13214
Attn: General Counsel
Email: Joe.Getman@communitybankna.com
Fax Number: (315) 445-7347

(ii)

with a copy (which shall not constitute notice) to:

Cadwalader, Wickersham & Taft LLP
200 Liberty Street
New York, New York 10281
Attn: Andrew P. Alin
Email: Andrew.Alin@cwt.com
Fax Number: (212) 504-6666

(iii) If to the Stockholder, to the address for the Stockholder set forth on the signature pages hereto.

(c)Amendments, Waivers, Etc. This Agreement may not be amended, changed, supplemented, waived or otherwise modified or terminated except by an instrument in writing signed by Community and the Stockholder.

(d)Successors and Assigns. No party may assign any of its, his or her rights or delegate any of its, his or her obligations under this Agreement without the prior written consent of the other parties, except Community may, without the consent of the Stockholder, assign any of its rights and delegate any of its

TABLE OF CONTENTS

obligations under this Agreement to any Affiliate of Community. Subject to the preceding sentence, this Agreement shall be binding upon and shall inure to the benefit of and be enforceable by the parties and their respective successors and assigns, including without limitation any corporate successor by merger or otherwise. Notwithstanding any Transfer of Merchants Common Stock consistent with this Agreement, the transferor shall remain liable for the performance of all obligations of such transferor under this Agreement.

(e)No Third Party Beneficiaries. Nothing expressed or referred to in this Agreement will be construed to give any Person, other than the parties to this Agreement, any legal or equitable right, remedy or claim under or with respect to this Agreement or any provision of this Agreement except for such rights as may inure to a successor or permitted assignee underSection 6(d).

(f)No Partnership, Agency, or Joint Venture. This Agreement is intended to create, and creates, a contractual relationship and is not intended to create, and does not create, any agency, partnership, joint venture or any like relationship between the parties hereto.

(g)Entire Agreement. This Agreement embodies the entire agreement and understanding among the parties relating to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter.

(h)Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule or law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible.

(i)Specific Performance; Remedies Cumulative. The parties hereto acknowledge that money damages are not an adequate remedy for violations of this Agreement and that any party, in addition to any other rights and remedies which the parties may have hereunder or at law or in equity, may, in his, her or its sole discretion, apply to a court of competent jurisdiction for specific performance or injunction or such other relief as such court may deem just and proper in order to enforce this Agreement or prevent any violation hereof and, to the extent permitted by applicable law, each party waives any objection to the imposition of such relief. All rights, powers and remedies provided under this Agreement or otherwise available in respect hereof at law or in equity shall be cumulative and not alternative, and the exercise or beginning of the exercise of any thereof by any party shall not preclude the simultaneous or later exercise of any other such rights, powers or remedies by such party.

(j)No Waiver. The failure of any party hereto to exercise any right, power or remedy provided under this Agreement or otherwise available in respect hereof at law or in equity, or to insist upon compliance by any other party hereto with his, her or its obligations hereunder, and any custom or practice of the parties at variance with the terms hereof, shall not constitute a waiver by such party of his, her or its right to exercise any such right, power or remedy or to demand such compliance.

(k)Governing Law; Jurisdiction.

(i) This Agreement and all disputes or controversies arising out of or relating to this Agreement and the transactions contemplated hereby shall be governed by, and construed in accordance with, the internal Laws of the State of Delaware, without regard to any applicable conflicts of law principles that would result in the application of the Laws of another jurisdiction.

(ii) Each of the parties hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of the Court of Chancery of the State of Delaware or, if under applicable Law, exclusive jurisdiction over such matters is vested in the Federal courts, any Federal court located in the State of Delaware, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the agreements delivered in connection herewith or the transactions contemplated hereby or thereby or for recognition or enforcement of any judgment relating thereto, and

TABLE OF CONTENTS

each of the Parties hereby irrevocably and unconditionally (i) agrees not to commence any such action or proceeding except in such courts, (ii) agrees that any claim in respect of any such action or proceeding may be heard and determined in such Court of Chancery or, to the extent required by Law, in such Federal court, (iii) waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any such action or proceeding in any such court, and (iv) waives, to the fullest extent permitted by Law, (x) any claim that such party is not personally subject to the jurisdiction of any such court, (y) any claim that such party and such party’s property is immune from any legal process issued by any such court and (z) the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. Each of the parties agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by Law. Each party irrevocably consents to service of process in the manner provided for notices in Section 6(b). Nothing in this Agreement will affect the right of any party to serve process in any other manner permitted by Law.

(l)Waiver of Jury Trial. THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT THAT ANY PARTY MAY HAVE TO TRIAL BY JURY IN RESPECT OF ANY PROCEEDING, LITIGATION OR COUNTERCLAIM BASED ON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. IF THE SUBJECT MATTER OF ANY LAWSUIT IS ONE IN WHICH THE WAIVER OF JURY TRIAL IS PROHIBITED, NO PARTY TO THIS AGREEMENT SHALL PRESENT AS A NONCOMPULSORY COUNTERCLAIM IN ANY SUCH LAWSUIT ANY CLAIM BASED ON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT. FURTHERMORE, NO PARTY TO THIS AGREEMENT SHALL SEEK TO CONSOLIDATE ANY SUCH ACTION IN WHICH A JURY TRIAL CANNOT BE WAIVED.

(m)Drafting and Representation. The parties have participated jointly in the negotiation and drafting of this Agreement. No provision of this Agreement will be interpreted for or against any party because that party or his, her or its legal representative drafted the provision.

(n)Name, Captions, Gender. Section headings ~~herein~~of this Agreement are for ~~convenience~~reference purposes only and ~~shall not affect~~are to be given no effect in the construction or interpretation of this Agreement. Whenever the context may require, any pronoun used herein shall include the corresponding masculine, feminine or neuter forms.

~~[Remainder~~(o)Capacity. This Agreement shall only apply to actions taken by the Stockholder in his or her capacity as a stockholder of Merchants and, if applicable, shall not in any way limit or affect actions the Stockholder or any of his or her Representatives may take in such Person’s capacity as a director, officer, or employee of Merchants, including in exercising rights under the Merger Agreement, and no such actions or omissions shall be deemed a breach of this ~~page intentionally left blank]~~Agreement or be construed to prohibit, limit or restrict the Stockholder from exercising the Stockholder’s fiduciary duties as a director or officer of Merchants.

(p)Counterparts. This Agreement may be executed by facsimile or PDF and in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies each signed by less than all, but together signed by all, the parties hereto.

~~Annex A-68~~

(q)Definitions. Capitalized terms used herein and not defined shall have the meanings specified in the Merger Agreement.

(r)No Agreement Until Executed. Irrespective of negotiations among the parties or the exchanging of drafts of this Agreement, this Agreement shall not constitute or be deemed to evidence a contract, agreement, arrangement or understanding between the parties hereto unless and until (i) the Merger Agreement is validly approved by Merchants’ Board of Directors, (ii) the Merger Agreement is executed by all parties thereto, and (iii) this Agreement is executed by all parties hereto.

[SIGNATURE PAGES FOLLOW]

TABLE OF CONTENTS

IN WITNESS WHEREOF, the parties hereto have ~~caused this Voting Agreement to be~~ duly executed onand delivered this Agreement as of the date and year first ~~above written.~~written above.

COMMUNITY BANK SYSTEM, INC.

	~~COMMUNITY BANK SYSTEM, INC.~~

	By:
		~~Mark E. Tryniski~~
		~~President and Chief Executive Officer~~

	~~SHAREHOLDER:~~
	~~(All owners must sign if shares are jointly owned)~~


	~~Print~~ Name:


	~~Print Name:~~

	~~Shareholder’s Address for Notice:~~







	~~This Agreement applies to ________ Shares of Oneida Common Stock over which the Shareholder has the legal power to vote or direct the voting plus any New Shares (as defined above).~~ Title:

[SIGNATURE PAGE TO STOCKHOLDER SUPPORT AGREEMENT]

TABLE OF CONTENTS

IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement as of the date and year first written above.

[NAME OF STOCKHOLDER]

~~Annex A-69~~

By:

Name:
Address:

Shares of Merchants Common Stock:
Merchants Stock Options:
Merchants Restricted Shares:
Merchants Deferred Shares:
Merchants Warrants:

[SIGNATURE PAGE TO STOCKHOLDER SUPPORT AGREEMENT]

TABLE OF CONTENTS

ANNEX B

OPINION OF ~~KEEFE, BRUYETTE & WOODS, INC.~~PIPER


		100 Federal Street, 33^rd Floor Boston, MA 02110 Tel: 617 654-0700 \| Fax: 617 654-0710 Piper Jaffray & Co. Since 1895. Member SIPC and NYSE.

~~February 24, 2015~~

~~The~~ October 22, 2016

Board of Directors

~~Oneida Financial Corp.~~

~~182 Main Street~~

~~Oneida, NY 13421~~

Merchants Bancshares, Inc.
275 Kennedy Drive
South Burlington, VT 05403

Members of the Board:

You have requested ~~the~~our opinion ~~of Keefe, Bruyette & Woods, Inc. (“KBW” or “we”) as investment bankers~~ as to the fairness, from a financial point of view, to the holders of common ~~shareholders~~stock, par value $0.01 per share (the “Company Common Stock”), of ~~Oneida Financial Corp. (“Oneida”~~Merchants Bancshares, Inc. (the “Company”), of the Merger Consideration (as defined below) to be received ~~by such shareholders in the proposed merger (the “Merger”) of Oneida with and into Community Bank System, Inc. (“Community”),~~ pursuant to ~~the~~an Agreement and Plan of Merger (the “Agreement”), to be entered into between the Company and Community Bank System, Inc. (the “Acquiror”). The Agreement provides for, among ~~Oneida and Community. Pursuant to~~other things, the ~~terms~~merger (the “Merger”) of the ~~Agreement~~Company with and ~~subject~~into the Acquiror, pursuant to which, upon the ~~terms, conditions and limitations set forth therein, at the Effective Time (as defined in the Agreement), automatically by virtue~~effective time of the Merger, and without any action on the part of Community, Oneida, the holders of any of the shares of common stock, $0.01 par value per share, of Oneida (the “Oneida Common Stock”), or the holders of any of the shares of common stock, $1.00 par value per share, of Community (the “Community Common Stock”), each share of ~~Oneida~~Company Common Stock, issued and outstanding immediately prior to the ~~Effective Time (excluding~~effective time of the Merger, except for certain shares of ~~Oneida~~Company Common Stock ~~held by any subsidiary of Oneida, Community or any subsidiary of Community (other than~~as specified in ~~a fiduciary capacity)) shall~~the Agreement, will be converted into the right to receive, at the election of each holder of Company Common Stock, the ~~holder thereof (subject to proration~~following consideration: (i) the combination of $12.00 in cash (the “Mixed Cash Consideration”) and ~~reallocation as set forth in~~0.6741 shares (the “Mixed Stock Consideration” and, together with the ~~Agreement, as to which we express no opinion), into either: (i) 0.5635~~Mixed Cash Consideration, the “Mixed Election Consideration”) of acommon stock, par value $1.00 per share, of ~~Community~~the Acquiror (the “Acquiror Common Stock”); (ii) 0.963 shares of Acquiror Common Stock (the “Stock Election Consideration”); or ~~(ii) $20.00~~(iii) $40.00 in cash (the “Cash Election Consideration”~~); provided that~~ and together with the Agreement provides that each holder of shares of Oneida Common Stock may, with respect to such holder’s aggregate number of shares, elect to convert 60% of such shares into the Stock Consideration and 40% of such shares into the Cash Consideration; provided further that the Agreement provides that, in the aggregate, 40% of the total number of shares of Oneida Common Stock issued and outstanding at the Effective Time shall be converted into the Cash Consideration and 60% of the total number of shares of Oneida Common Stock issued and outstanding at the Effective Time shall be converted into the Stock Consideration. The StockMixed Election Consideration and the ~~Cash~~Stock Election Consideration, ~~taken together, are referred to herein as~~ the “Merger ~~Consideration.”~~Consideration”). Cash will be paid in lieu of any fractional shares. The holders of the Company Common Stock will be offered the opportunity to elect to receive the Merger Consideration in the form of the Mixed Election Consideration, the Stock Election Consideration or the Cash Election Consideration in exchange for each of their shares of Company Common Stock. All elections will be subject to allocation and proration procedures described in the Agreement that are intended to ensure that 70% of the shares of Company Common Stock at the time of the Merger are exchanged for Acquiror Common Stock and the remainder for cash. The terms and conditions of the Merger are more fully set forth in the Agreement. Capitalized terms not otherwise defined in this letter have the meanings set forth in the Agreement.

TABLE OF CONTENTS

Confidential
Merchants Bancshares, Inc.
October 22, 2016
Page 2 of 4

The Agreement further provides that, following the Transaction, each of Oneida Savings Bank and State Bank of Chittenango, both wholly-owned subsidiaries of Oneida, will merge with and into Community Bank, N.A.Piper Jaffray & Co., ~~a wholly-owned subsidiary of Community, pursuant to a separate plan of merger (such transactions collectively, the “Bank Merger”).~~

~~Annex B-1~~

~~KBW has acted~~ as ~~financial advisor to Oneida and not as an advisor to or agent of any other person. As~~ part of ~~our~~its investment banking business, ~~we are continually~~is regularly engaged in the valuation of ~~bank~~financial institutions and ~~bank holding company~~their securities in connection with mergers and acquisitions ~~negotiated underwritings, secondary distributions of listed~~ and ~~unlisted securities, private placements and valuations for various~~ other ~~purposes. As specialists in the securities of banking companies, we have experience in, and knowledge of, the valuation of banking enterprises.~~corporate transactions. In ~~the ordinary course of~~arriving at our business as a broker-dealer, KBW may from time to time purchase securities from, and sell securities to, Oneida and Community. In addition, further to an existing sales and trading relationship between Oneida and a KBW affiliated broker-dealer, such affiliate from time to time purchases securities from, and sells securities to, Oneida. As a market maker in securities, we may from time to time have a long or short position in, and buy or sell debt or equity securities of, Oneida and Community for our own account and for the accounts of our customers. We have acted exclusively for the board of directors of Oneida (the “Board”) in rendering this opinion and will receive a fee from Oneida for our services. A portion of our fee is payable upon the rendering of this opinion and a significant portion is contingent upon the successful completion of the Merger. In addition, Oneida has agreed to indemnify us for certain liabilities arising out of our engagement.

Other than in connection with this present engagement, in the past two years, KBW has not provided investment banking and financial advisory services to Oneida. In the past two years, KBW has not provided investment banking and financial advisory services to Community. We may in the future provide investment banking and financial advisory services to Oneida or Community and receive compensation for such services.

~~In connection with this~~ opinion, we ~~have~~have: (i) reviewed ~~analyzed~~ and ~~relied upon material bearing upon~~analyzed the financial ~~and operating condition~~terms of ~~Oneida and Community and the Merger, including among other things, the following: (i)~~ a draft ~~dated February 22, 2015~~ of the Agreement ~~(the most recent draft~~dated October 22, 2016; (ii) reviewed and analyzed certain financial and other data with respect to the Company and the Acquiror that was publicly available or made available to ~~us); (ii)~~us by the Company and by the Acquiror; (iii) reviewed and analyzed certain ~~regulatory filings of Oneida~~forward-looking information relating to the Company and ~~Community, including~~ the quarterly call reports filed with respect to each quarter during the three years ended December 31, 2014 for Oneida and Community; (iii) the audited financial statements and Annual Reports on Form 10-K for the three fiscal years ended December 31, 2013 of Oneida; (iv) the audited financial statements and Annual Reports on Form 10-K for the three fiscal years ended December 31, 2013 of Community; (v) the unaudited financial statements and quarterly reports on Form 10-Q for the fiscal quarters ended March 31, 2014, June 30, 2014 and September 30, 2014 of Oneida; (vi) the unaudited financial statements and quarterly reports on Form 10-Q for the fiscal quarters ended March 31, 2014, June 30, 2014 and September 30, 2014 of Community; (vii) the unaudited quarterly and fiscal year-end financial results for the period ended December 31, 2014 of OneidaAcquiror that was publicly available, as well as that was furnished to us by ~~Oneida; (viii)~~ the ~~unaudited quarterly~~Company and ~~fiscal year-end financial~~the Acquiror, including internally prepared forecasts of the Company’s expected operating results ~~for~~on a stand-alone basis; (iv) reviewed and analyzed materials detailing the ~~period ended December 31, 2014 of Community furnished to us~~Merger prepared by ~~Community; (ix) certain other interim reports~~the Company, the Acquiror and ~~other communications of Oneida~~their affiliates and ~~Community to~~by their respective ~~shareholders;~~legal and ~~(x) other financial information concerning~~accounting advisors, including the ~~businesses~~estimated amount and ~~operations~~timing of Oneida and Community furnished to us by Oneida and Community or which we were otherwise directed to use for purposes of our analyses. Our consideration of financial information and other factors that we deemed appropriate under the circumstances or relevant to our analyses included, among other things, the following: (i) the historical and current financial position and results of operations of Oneida and Community; (ii) the assets and liabilities of Oneida and Community; (iii) the nature and terms of certain other merger transactions and business combinations in the banking industry; (iv) a comparison of certain financial and stock market information of Oneida and Community with similar information for certain other companies the securities of which are publicly traded; (v) financial and operating forecasts and projections of Oneida that were prepared by, and provided to us and discussed with us by, Oneida management and that were used and relied upon by us at the direction of such management with the consent of the Board; (vi) publicly available consensus “street estimates” of Community for 2015 and 2016, as well as the long term growth rates based thereon which were prepared by and provided to us by Community management, all of which information was discussed with us by such management and used and relied upon by us based on such discussions with the consent of the Board; and (vii) estimates regarding certain pro forma financial effects of the Merger on Community (including, without limitation, the cost savings and related expenses and purchase accounting adjustments expected to result from the ~~Merger), that were prepared by Community~~Merger (the “Synergies”); (v) conducted discussions with members of senior management and ~~provided to us and discussed with us by such management, and used and relied upon by us based on such discussions with the consent~~representatives of the ~~Board. We have also performed such other studies~~Company and ~~analyses as we considered appropriate~~the Acquiror concerning the matters described in clauses (i), (ii), (iii) and ~~have taken into account our assessment of general economic, market and financial conditions and our experience in other transactions,~~(iv) above, as well as ~~our experience in securities valuation~~their respective businesses and ~~knowledge~~prospects before and after giving effect to the Merger and the Synergies; (vi) reviewed the current and historical reported prices and trading activity of Company Common Stock and the Acquiror Common Stock and similar information for certain other publicly traded companies deemed by us to be comparable to the Company and the Acquiror; (vii) compared the financial performance of the Company and the Acquiror with that of certain other publicly traded companies that we deemed relevant; (viii) performed certain financial analyses for the Company and the Acquiror on a pro forma combined basis giving effect to the Merger based on assumptions relating to the Synergies; (ix) analyzed the Merger Consideration relative to the historical trading price of Company Common Stock and the Company’s tangible book value, core deposits (deposits less all jumbo time deposits and brokered deposits) and last twelve months earnings as of June 30, 2016 as well as analyst estimated earnings for 2017; (x) considered the current market environment generally and the commercial banking environment in particular; and (xi) reviewed the financial terms, to the extent publicly available, of certain business combination transactions in the depository banking industry ~~generally. We~~that we deemed relevant. In addition, we have also held discussions with senior management of Oneida and Community regarding the past and current business operations, regulatory relations, financial condition and future prospects of their respective companies andconducted such other ~~matters~~analyses, examinations and inquiries and considered such other financial, economic and market criteria as we have deemed ~~relevant to~~necessary in arriving at our ~~inquiry. We have not been requested to, and have not, assisted Oneida with soliciting indications of interest from third parties other than Community regarding a potential transaction with Oneida.~~

~~Annex B-2~~

opinion.

In ~~conducting our review and~~ arriving at our opinion, we have relied upon and assumed, without assuming liability or responsibility for independent verification, the accuracy and completeness of all information that was publicly available or was furnished, or otherwise made available, to us or discussed with or reviewed by us. We have further relied upon the assurances of the management of the Company and the Acquiror that the financial information provided has been prepared on a reasonable basis in accordance with industry practice, and ~~other~~that they are not aware of any information or facts that would make any information provided to us incomplete or ~~that was publicly available and we have not independently verified~~misleading. Without limiting the accuracy or completeness of any such information or assumed any responsibility or liability for such verification, accuracy or completeness. We have relied upon management of Oneida as to the reasonableness and achievabilitygenerality of the ~~financial and operating forecasts and projections~~foregoing, for the purpose of ~~Oneida (and the assumptions and bases therefor) that were prepared by, and provided to us and discussed with us by, such management and~~this opinion, we have assumed that with respect to financial forecasts, estimates and other forward-looking information (including the Synergies) reviewed by us, that such ~~forecasts and projections were~~information has been reasonably prepared based on ~~a basis~~assumptions reflecting the best currently available estimates and judgments of ~~such~~the management of the Company and ~~that such forecasts and projections will be realized in~~ the ~~amounts and in the time periods currently estimated by such management. We have further relied, with the consent of Oneida, upon Community management~~Acquiror as to the ~~reasonableness~~expected future results of operations and ~~achievability~~financial condition of the ~~publicly available consensus “street estimates” of Community referred to above~~Company and the ~~long term growth rates based thereon that were prepared by Community management~~Acquiror, respectively, to which such financial forecasts, estimates and ~~provided to~~other forward-looking information (including the Synergies) relate and discussed with us by such management, as well as the estimates regarding certain pro forma financial effects of the Merger on Community (and the assumptions and bases therefor, including, without limitation, the cost savings and related expenses expected to result from the Merger) that were prepared by and provided to us by such management, all of which information was discussed with us by such management. Wewe have assumed with the consent of Oneida, that all such information is consistent with (in the case of the Community “street estimates” referred to above), or was otherwise reasonably prepared on a basis reflecting, the best currently available estimates and judgments of Community management and that the forecasts, projections and estimates reflected in such information will be realized in the amounts and in the time periods currently estimated.

It is understood that the forecasts, projections and estimates of Oneida and Community provided to us were not prepared with the expectation of public disclosure, that all such forecasts, projections and estimates, together with the publicly available consensus “street estimates” of Community referred to above, are based on numerous variables and assumptions that are inherently uncertain, including, without limitation, factors related to general economic and competitive conditions and that, accordingly, actual results could vary significantly from those set forth in such information. We have assumed, based on discussions with the respective managements of Oneida and Community, that such ~~information provide a reasonable basis upon which we could form our opinion and we~~results would be achieved. We express no ~~view~~opinion as to any such financial forecasts, estimates or forward-looking information (including the Synergies) or the assumptions ~~or bases therefor.~~on which they were based. We have further assumed that the Merger will qualify as a tax-free reorganization for United States federal income tax purposes. We express no opinion as to any of the legal, accounting and tax matters relating to the Merger and any other transactions contemplated in connection therewith and have relied, with your consent, on advice of the outside legal counsel and the independent accountants to the Company, and on the assumptions of the management of the Company and the Acquiror, as to all accounting, legal, tax and financial reporting matters with respect to the Company, the Acquiror and the Agreement.

TABLE OF CONTENTS

Confidential
Merchants Bancshares, Inc.
October 22, 2016
Page 3 of 4

In arriving at our opinion, we have assumed that the executed Agreement will be in all material respects identical to the last draft reviewed by us. We have relied ~~on all such information without independent verification or analysis~~upon and ~~do not in any respect assume any responsibility or liability for the accuracy or completeness thereof.~~

~~Annex B-3~~

We also assumed that there were no material changes in the assets, liabilities, financial condition, results of operations, business or prospects of either Oneida or Community since the date of the last financial statements of each such entity that were made available to us. We are not experts in the independent verification of the adequacy of allowances for loan losses and we have assumed without independent verification, ~~and with your consent,~~ that the aggregate allowances for loan losses for Oneida and Community are adequate to cover such losses. In rendering our opinion, we have not made or obtained any evaluations or appraisals or physical inspection of the property, assets or liabilities (contingent or otherwise) of Oneida or Community, the collateral securing any of such assets or liabilities, or the collectability of any such assets, nor have we examined any individual loan or credit files, nor did we evaluate the solvency, financial capability or fair value of Oneida or Community under any state or federal laws, including those relating to bankruptcy, insolvency or other matters. Estimates of values of companies and assets do not purport to be appraisals or necessarily reflect the prices at which companies or assets may actually be sold. Because such estimates are inherently subject to uncertainty, we assume no responsibility or liability for their accuracy.

~~We have assumed, in all respects material to our analyses, the following:~~ (i) that the Merger and any related transaction (including the Bank Merger) will be completed substantially in accordance with the terms set forth in the Agreement (the final terms of which we have assumed will not differ in any respect material to our analyses from the draft reviewed) with no additional payments or adjustments to the Merger Consideration; (ii) that the representations and warranties of ~~each party in the Agreement and in~~ all ~~related documents and instruments referred to in the Agreement are true and correct; (iii) that each party~~parties to the Agreement and all other related documents and instruments that are referred to therein are true and correct, (ii) each party to such agreements will fully and timely perform all of the covenants and agreements required to be performed by such party, ~~under such documents; (iv) that there are no factors that would delay or subject to any adverse conditions, any necessary regulatory or governmental approval for~~(iii) the Merger ~~or any related transaction~~will be consummated pursuant to the terms of the Agreement without amendments thereto and ~~that~~(iv) all conditions to the ~~completion~~consummation of the Merger ~~and any related transaction~~ will be satisfied without waiver by any ~~waivers~~party of any conditions or ~~modifications to the Agreement; and (v)~~obligations thereunder. Additionally, we have assumed that ~~in the course of obtaining~~all the necessary regulatory ~~contractual, or other~~approvals and consents ~~or approvals~~required for the Merger ~~and any related transaction, no restrictions, including any divestiture requirements, termination or other payments or amendments or modifications,~~ will be ~~imposed~~obtained in a manner that will ~~have a material adverse effect on~~not adversely affect the ~~future results of operations or financial condition of Oneida, Community or~~Company, the ~~combined entity~~Acquiror or the contemplated benefits of the Merger.

In arriving at our opinion, we have not performed any appraisals or valuations of any specific assets or liabilities (fixed, contingent, derivative, off-balance sheet, or other) of the Company or the Acquiror, and have not been furnished or provided with any such appraisals or valuations, nor have we evaluated the solvency of the Company or the Acquiror under any state or federal law relating to bankruptcy, insolvency or similar matters. Accordingly, we express no opinion regarding the liquidation value of the Company, the Acquiror or any other entity. We have assumed that there has been no material change in the respective assets, financial condition, results of operations, business or prospects of the Company or the Acquiror since the date of the most recent financial data made available to us. We have also assumed in all respects material to our analysis that the Company and the Acquiror would remain as a going concern for all periods relevant to our analysis. Without limiting the generality of the foregoing, we have not: (i) conducted a review of any individual credit files of the Company or the Acquiror, nor have we evaluated the adequacy of the loan or lease reserves of the Company or the Acquiror, (ii) conducted a review of any credit mark that may be taken in connection with the Merger, nor have we evaluated the adequacy of any contemplated credit mark to be so taken, or (iii) conducted a review of the collectability of any asset or the future performance of any loan of the Company or the Acquiror. We have assumed, with your consent, that the respective allowances for loan and lease losses for the Company and the Acquiror, and the credit mark are adequate to cover such losses and will be adequate on a pro forma basis for the Acquiror. Accordingly, we express no opinion with respect to the foregoing. Again, without limiting the generality of the foregoing, we have undertaken no independent analysis of any pending or threatened litigation, regulatory action, possible unasserted claims or other contingent liabilities, to which the Company or the Acquiror is a party or may be subject, and at the direction of the Company and with your consent, our opinion makes no assumption concerning, and therefore does not consider, the possible assertion of claims, outcomes or damages arising out of any such matters. We have also assumed that neither the Company nor the Acquiror is party to any material pending transaction, including without limitation any financing, recapitalization, acquisition or merger, divestiture or spin-off, other than the ~~cost savings~~Merger and ~~related expenses expected~~the merger of the principal banking subsidiaries of the Company and Acquiror contemplated by the Agreement.

No company or transaction used in any analysis for purposes of comparison is identical to ~~result~~the Company, the Acquiror or the Merger. Accordingly, an analysis of the results of the comparisons is not solely mathematical; rather, it involves complex considerations and judgments about differences in the companies and transactions to which the Company, the Acquiror and the Merger were compared and other factors that could affect the public trading value or transaction value of the companies.

This opinion is necessarily based on economic, market and other conditions and upon the information available to us and facts and circumstances as they exist and are subject to evaluation on the date hereof. Events occurring after the date hereof could materially affect the assumptions used in preparing this opinion. We are not expressing any opinion herein as to the price at which shares of Company Common Stock or Acquiror Common Stock may trade following announcement of the Merger or at any future time. We have not undertaken to reaffirm or revise this opinion or otherwise comment upon any events occurring after the date hereof and do not have any obligation to update, revise or reaffirm this opinion.

TABLE OF CONTENTS

Confidential
Merchants Bancshares, Inc.
October 22, 2016
Page 4 of 4

We have been engaged by the Company to act as its financial advisor in connection with the Merger and we will receive a transaction fee from the Company for providing our services, a significant portion of which is contingent upon the consummation of the Merger. We ~~have assumed,~~will also receive a fee for rendering this opinion, which opinion fee will be credited in ~~all material respects~~full towards the transaction fee becoming payable to ~~our analyses, that~~us upon closing of the Merger. Our opinion fee is not contingent upon the consummation of the Merger ~~will be consummated~~or the conclusions reached in ~~a manner that complies~~our opinion. The Company has also agreed to indemnify us against certain liabilities and reimburse us for certain expenses in connection with our services. Other than our engagement by the Company in connection with the ~~applicable provisions~~Merger, we have not provided investment banking services to the Company, the Acquiror or entities that are affiliated with the Company or the Acquiror over the past three years; however, we may do so in the future. In addition, in the ordinary course of our business, we and our affiliates may actively trade securities of the ~~Securities Act~~Company or the Acquiror for our own account or the account of ~~1933, as amended,~~our customers and, accordingly, may at any time hold a long or short position in such securities. We may also, in the ~~Securities Exchange Act of 1934, as amended,~~future, provide investment banking and ~~all other~~financial advisory services to the Acquiror or entities that are affiliated with the Acquiror, for which we would expect to receive compensation.

Consistent with applicable ~~federal and state statutes, rules and regulations. We have further assumed that Oneida has relied upon advice from its advisors (other than KBW) or other appropriate sources as to all~~ legal ~~financial reporting, tax, accounting~~ and regulatory ~~matters~~requirements, Piper Jaffray has adopted policies and procedures to establish and maintain the independence of its Research Department and personnel. As a result, Piper Jaffray’s research analysts may hold opinions, make statements or recommendations, and/or publish research reports with respect to ~~Oneida, Community,~~the Acquiror and the Merger and other participants in the Merger that differ from the views of Piper Jaffray’s investment banking personnel.

This opinion is provided to the Board of Directors of the Company in connection with its consideration of the Merger and is not intended to be and does not constitute a recommendation to any ~~related transaction (including~~stockholder of the ~~Bank Merger), and the Agreement. KBW has not provided advice~~Company as to how such stockholder should act or vote with respect to the Merger or any ~~such matters.~~

~~Annex B-4~~

other matter. Except with respect to the use of this opinion in connection with the proxy statement relating to the Merger in accordance with our engagement letter with the Company, this opinion shall not be disclosed, referred to, published or otherwise used (in whole or in part), nor shall any public references to us be made, without our prior written approval. This opinion has been approved for issuance by the Piper Jaffray Opinion Committee.

This opinion addresses ~~only~~solely the fairness, from a financial point of view, asto holders of Company Common Stock of the ~~date hereof, of the~~proposed Merger Consideration ~~to be received by the holders of Oneida Common Stock~~set forth in the ~~Merger to such holders. We express no view or opinion as to~~Agreement and does not address any other terms or ~~aspects~~agreement relating to the Merger or any other terms of the Agreement. We were not requested to opine as to, and this opinion does not address: (i) the basic business decision to proceed with or effect the Merger; (ii) the merits of the Merger relative to any alternative transaction or business strategy that may be available to the Company; (iii) the Acquiror’s ability to fund the Mixed Cash Consideration and the Cash Consideration; (iv) any other terms contemplated by the Agreement; or (v) the fairness of the Merger, or any ~~related transaction (including~~consideration received in connection therewith by, the ~~Bank Merger), including without limitation, the form~~holders of any other class of securities or ~~structure~~any creditor or other constituency of the Merger (including the form of Merger Consideration or the allocation thereof among cash and stock) or any related transaction, any consequences of the Merger to Oneida, its shareholders, creditors or otherwise, or any terms, aspects or implications of any voting, support, shareholder or other agreements, arrangements or understandings contemplated or entered into in connection with the Merger or otherwise. Our opinion is necessarily based upon conditions as they exist and can be evaluated on the date hereof and the information made available to us through the date hereof. It is understood that subsequent developments may affect the conclusion reached in this opinion and that KBW does not have an obligation to update, revise or reaffirm this opinion. Our opinion does not address, andCompany. Furthermore, we express no ~~view or~~ opinion with respect to (i) the underlying business decision of Oneida to engage in the Merger or enter into the Agreement, (ii) the relative merits of the Merger as compared to any strategic alternatives that are, have been or may be available to or contemplated by Oneida or the Board, (iii) the fairness of the amount or nature of ~~any~~ compensation to any officer, director or employee of ~~Oneida’s officers, directors or employees,~~any party to the Merger, or any class of such persons, relative to ~~any compensation to the holders of Oneida Common Stock, (iv) the effect of~~ the Merger ~~or any related transaction on, or the fairness of the consideration~~Consideration to be received by holders of ~~any class of securities of Oneida (other than the holders of Oneida~~Company Common Stock ~~solely~~in the Merger or with respect to the ~~Merger Consideration, as set forth herein, and not relative to the consideration to be received by holders~~fairness of any ~~other class of securities), holders of any class of securities of Community or any other party to any transaction contemplated by~~such compensation, including whether such payments are reasonable in the Agreement, (v) whether Community has sufficient cash, available lines of credit or other sources of funds to enable it to pay the aggregate Cash Consideration to the holders of Oneida Common Stock at the closingcontext of the Merger, (vi) the election by holders of Oneida Common Stock to receive the Stock Consideration or the Cash Consideration, or a combination thereof, or the actual allocation between the Stock Consideration and the Cash Consideration among such holders (including, without limitation, any re-allocation thereof as a result of proration pursuant to the Agreement), or the relative fairness of the Stock Consideration and the Cash Consideration, (vii) the actual value of the Community Common Stock to be issued in the Merger, (viii) any adjustment (as provided in the Agreement) in the Merger Consideration (including the allocation thereof among cash and stock) assumed to be paid in the Merger for purposes of our opinion, (ix) the prices, trading range or volume at which Oneida Common Stock or Community Common Stock will trade following the public announcement of the Merger or the prices, trading range or volume at which Community Common Stock will trade following consummation of the Merger, (x) any advice or opinions provided by any other advisor to any of the parties to the Merger or any other transaction contemplated by the Agreement, or (xi) any legal, regulatory, accounting, tax or similar matters relating to Oneida, Community, their respective shareholders, or relating to or arising out of or as a consequence of the Merger or any related transaction (including the Bank Merger), including whether or not the Merger would qualify as a tax-free reorganization for United States federal income tax purposes.

~~This opinion is for the information of, and is directed to, the Board (in its capacity as such) in connection with its consideration of the financial terms of the~~ Merger. This opinion is not to be used for any other purpose and may not be published, referred to, reproduced, disseminated or quoted from, in whole or in part, nor shall any public reference to KBW be made, without our prior written consent. This opinion does not constitute a recommendation to the Board as to how it should vote on the Merger or to any holder of Oneida Common Stock or shareholder of any other entity as to how to vote in connection with the Merger or any other matter (including, with respect to holders of Oneida Common Stock, what election any such shareholder should make with respect to the Stock Consideration or the Cash Consideration (or any combination thereof)), nor does it constitute a recommendation on whether or not any such shareholder should enter into a voting, shareholders’, or affiliates’ agreement with respect to the Merger or exercise any other rights that may be available to such holder.

This opinion has been reviewed and approved by our Fairness Opinion Committee in conformity with our policies and procedures established under the requirements of Rule 5150 of the Financial Industry Regulatory Authority.

Based upon and subject to the foregoing and based upon such other factors as we consider relevant, it is our opinion that ~~as of the date hereof,~~ the Merger Consideration ~~to be received by the holders of Oneida Common Stock in the Merger~~ is fair, from a financial point of view, to the holders of Company Common Stock as of the date hereof.

Sincerely,

[GRAPHIC MISSING]
PIPER JAFFRAY & CO.

TABLE OF CONTENTS

ANNEX C

Provisions of the Delaware General Corporation Law relating to Appraisal Rights

Section 262 Appraisal rights.

(a) Any stockholder of a corporation of this State who holds shares of stock on the date of the making of a demand pursuant to subsection (d) of this section with respect to such ~~holders.~~shares, who continuously holds such shares through the effective date of the merger or consolidation, who has otherwise complied with subsection (d) of this section and who has neither voted in favor of the merger or consolidation nor consented thereto in writing pursuant to §228 of this title shall be entitled to an appraisal by the Court of Chancery of the fair value of the stockholder’s shares of stock under the circumstances described in subsections (b) and (c) of this section. As used in this section, the word “stockholder” means a holder of record of stock in a corporation; the words “stock” and “share” mean and include what is ordinarily meant by those words; and the words “depository receipt” mean a receipt or other instrument issued by a depository representing an interest in one or more shares, or fractions thereof, solely of stock of a corporation, which stock is deposited with the depository.

(b) Appraisal rights shall be available for the shares of any class or series of stock of a constituent corporation in a merger or consolidation to be effected pursuant to §251 (other than a merger effected pursuant to §251(g) of this title and, subject to paragraph (b)(3) of this section, §251(h) of this title), §252, §254, §255, §256, §257, §258, §263 or §264 of this title:

	~~Very truly yours,~~



	~~Keefe, Bruyette & Woods, Inc.~~

(1) Provided, however, that, except as expressly provided in §363(b) of this title, no appraisal rights under this section shall be available for the shares of any class or series of stock, which stock, or depository receipts in respect thereof, at the record date fixed to determine the stockholders entitled to receive notice of the meeting of stockholders to act upon the agreement of merger or consolidation, were either: (i) listed on a national securities exchange or (ii) held of record by more than 2,000 holders; and further provided that no appraisal rights shall be available for any shares of stock of the constituent corporation surviving a merger if the merger did not require for its approval the vote of the stockholders of the surviving corporation as provided in §251(f) of this title.

~~Annex B-5~~

(2) Notwithstanding paragraph (b)(1) of this section, appraisal rights under this section shall be available for the shares of any class or series of stock of a constituent corporation if the holders thereof are required by the terms of an agreement of merger or consolidation pursuant to §§251, 252, 254, 255, 256, 257, 258, 263 and 264 of this title to accept for such stock anything except:

a. Shares of stock of the corporation surviving or resulting from such merger or consolidation, or depository receipts in respect thereof;

b. Shares of stock of any other corporation, or depository receipts in respect thereof, which shares of stock (or depository receipts in respect thereof) or depository receipts at the effective date of the merger or consolidation will be either listed on a national securities exchange or held of record by more than 2,000 holders;

c. Cash in lieu of fractional shares or fractional depository receipts described in the foregoing paragraphs (b)(2)a. and b. of this section; or

d. Any combination of the shares of stock, depository receipts and cash in lieu of fractional shares or fractional depository receipts described in the foregoing paragraphs (b)(2)a., b. and c. of this section.

(3) In the event all of the stock of a subsidiary Delaware corporation party to a merger effected under §251(h), §253 or §267 of this title is not owned by the parent immediately prior to the merger, appraisal rights shall be available for the shares of the subsidiary Delaware corporation.

(4) In the event of an amendment to a corporation’s certificate of incorporation contemplated by §363(a) of this title, appraisal rights shall be available as contemplated by §363(b) of this title, and the procedures of this section, including those set forth in subsections (d) and (e) of this section, shall apply

TABLE OF CONTENTS

as nearly as practicable, with the word “amendment” substituted for the words “merger or consolidation,” and the word “corporation” substituted for the words “constituent corporation” and/or “surviving or resulting corporation.”

(c) Any corporation may provide in its certificate of incorporation that appraisal rights under this section shall be available for the shares of any class or series of its stock as a result of an amendment to its certificate of incorporation, any merger or consolidation in which the corporation is a constituent corporation or the sale of all or substantially all of the assets of the corporation. If the certificate of incorporation contains such a provision, the provisions of this section, including those set forth in subsections (d), (e), and (g) of this section, shall apply as nearly as is practicable.

(d) Appraisal rights shall be perfected as follows:

(1) If a proposed merger or consolidation for which appraisal rights are provided under this section is to be submitted for approval at a meeting of stockholders, the corporation, not less than 20 days prior to the meeting, shall notify each of its stockholders who was such on the record date for notice of such meeting (or such members who received notice in accordance with §255(c) of this title) with respect to shares for which appraisal rights are available pursuant to subsection (b) or (c) of this section that appraisal rights are available for any or all of the shares of the constituent corporations, and shall include in such notice a copy of this section and, if one of the constituent corporations is a nonstock corporation, a copy of §114 of this title. Each stockholder electing to demand the appraisal of such stockholder’s shares shall deliver to the corporation, before the taking of the vote on the merger or consolidation, a written demand for appraisal of such stockholder’s shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such stockholder’s shares. A proxy or vote against the merger or consolidation shall not constitute such a demand. A stockholder electing to take such action must do so by a separate written demand as herein provided. Within ten days after the effective date of such merger or consolidation, the surviving or resulting corporation shall notify each stockholder of each constituent corporation who has complied with this subsection and has not voted in favor of or consented to the merger or consolidation of the date that the merger or consolidation has become effective; or

(2) If the merger or consolidation was approved pursuant to §228, §251(h), §253, or §267 of this title, then either a constituent corporation before the effective date of the merger or consolidation or the surviving or resulting corporation within ten days thereafter shall notify each of the holders of any class or series of stock of such constituent corporation who are entitled to appraisal rights of the approval of the merger or consolidation and that appraisal rights are available for any or all shares of such class or series of stock of such constituent corporation, and shall include in such notice a copy of this section and, if one of the constituent corporations is a nonstock corporation, a copy of §114 of this title. Such notice may, and, if given on or after the effective date of the merger or consolidation, shall, also notify such stockholders of the effective date of the merger or consolidation. Any stockholder entitled to appraisal rights may, within 20 days after the date of mailing of such notice or, in the case of a merger approved pursuant to §251(h) of this title, within the later of the consummation of the offer contemplated by §251(h) of this title and 20 days after the date of mailing of such notice, demand in writing from the surviving or resulting corporation the appraisal of such holder’s shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such holder’s shares. If such notice did not notify stockholders of the effective date of the merger or consolidation, either (i) each such constituent corporation shall send a second notice before the effective date of the merger or consolidation notifying each of the holders of any class or series of stock of such constituent corporation that are entitled to appraisal rights of the effective date of the merger or consolidation or (ii) the surviving or resulting corporation shall send such a second notice to all such holders on or within ten days after such effective date; provided, however, that if such second notice is sent more than 20 days following the sending of the first notice or, in the case of a merger approved pursuant to §251(h) of this title, later than the later of the consummation of the offer contemplated by §251(h) of this title and 20 days following the sending of the first notice, such second notice need only be sent to each stockholder who is entitled to appraisal rights and who has demanded appraisal of such holder’s shares in accordance with this subsection. An affidavit of the

TABLE OF CONTENTS

secretary or assistant secretary or of the transfer agent of the corporation that is required to give either notice that such notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. For purposes of determining the stockholders entitled to receive either notice, each constituent corporation may fix, in advance, a record date that shall be not more than ten days prior to the date the notice is given, provided, that if the notice is given on or after the effective date of the merger or consolidation, the record date shall be such effective date. If no record date is fixed and the notice is given prior to the effective date, the record date shall be the close of business on the day next preceding the day on which the notice is given.

(e) Within 120 days after the effective date of the merger or consolidation, the surviving or resulting corporation or any stockholder who has complied with subsections (a) and (d) of this section hereof and who is otherwise entitled to appraisal rights, may commence an appraisal proceeding by filing a petition in the Court of Chancery demanding a determination of the value of the stock of all such stockholders. Notwithstanding the foregoing, at any time within 60 days after the effective date of the merger or consolidation, any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party shall have the right to withdraw such stockholder’s demand for appraisal and to accept the terms offered upon the merger or consolidation. Within 120 days after the effective date of the merger or consolidation, any stockholder who has complied with the requirements of subsections (a) and (d) of this section hereof, upon written request, shall be entitled to receive from the corporation surviving the merger or resulting from the consolidation a statement setting forth the aggregate number of shares not voted in favor of the merger or consolidation and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. Such written statement shall be mailed to the stockholder within ten days after such stockholder’s written request for such a statement is received by the surviving or resulting corporation or within ten days after expiration of the period for delivery of demands for appraisal under subsection (d) of this section hereof, whichever is later. Notwithstanding subsection (a) of this section, a person who is the beneficial owner of shares of such stock held either in a voting trust or by a nominee on behalf of such person may, in such person’s own name, file a petition or request from the corporation the statement described in this subsection.

(f) Upon the filing of any such petition by a stockholder, service of a copy thereof shall be made upon the surviving or resulting corporation, which shall within 20 days after such service file in the office of the Register in Chancery in which the petition was filed a duly verified list containing the names and addresses of all stockholders who have demanded payment for their shares and with whom agreements as to the value of their shares have not been reached by the surviving or resulting corporation. If the petition shall be filed by the surviving or resulting corporation, the petition shall be accompanied by such a duly verified list. The Register in Chancery, if so ordered by the Court, shall give notice of the time and place fixed for the hearing of such petition by registered or certified mail to the surviving or resulting corporation and to the stockholders shown on the list at the addresses therein stated. Such notice shall also be given by one or more publications at least one week before the day of the hearing, in a newspaper of general circulation published in the City of Wilmington, Delaware or such publication as the Court deems advisable. The forms of the notices by mail and by publication shall be approved by the Court, and the costs thereof shall be borne by the surviving or resulting corporation.

(g) At the hearing on such petition, the Court shall determine the stockholders who have complied with this section and who have become entitled to appraisal rights. The Court may require the stockholders who have demanded an appraisal for their shares and who hold stock represented by certificates to submit their certificates of stock to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with such direction, the Court may dismiss the proceedings as to such stockholder. If immediately before the merger or consolidation the shares of the class or series of stock of the constituent corporation as to which appraisal rights are available were listed on a national securities exchange, the Court shall dismiss the proceedings as to all holders of such shares who are otherwise entitled to appraisal rights unless (1) the total number of shares entitled to appraisal exceeds 1% of the outstanding shares of the class or series eligible for appraisal, (2) the value of the consideration provided in the merger or consolidation for such total number of shares exceeds $1 million, or (3) the merger was approved pursuant to §253 or §267 of this title.

TABLE OF CONTENTS

(h) After the Court determines the stockholders entitled to an appraisal, the appraisal proceeding shall be conducted in accordance with the rules of the Court of Chancery, including any rules specifically governing appraisal proceedings. Through such proceeding the Court shall determine the fair value of the shares exclusive of any element of value arising from the accomplishment or expectation of the merger or consolidation, together with interest, if any, to be paid upon the amount determined to be the fair value. In determining such fair value, the Court shall take into account all relevant factors. Unless the Court in its discretion determines otherwise for good cause shown, and except as provided in this subsection, interest from the effective date of the merger through the date of payment of the judgment shall be compounded quarterly and shall accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the effective date of the merger and the date of payment of the judgment. At any time before the entry of judgment in the proceedings, the surviving corporation may pay to each stockholder entitled to appraisal an amount in cash, in which case interest shall accrue thereafter as provided herein only upon the sum of (1) the difference, if any, between the amount so paid and the fair value of the shares as determined by the Court, and (2) interest theretofore accrued, unless paid at that time. Upon application by the surviving or resulting corporation or by any stockholder entitled to participate in the appraisal proceeding, the Court may, in its discretion, proceed to trial upon the appraisal prior to the final determination of the stockholders entitled to an appraisal. Any stockholder whose name appears on the list filed by the surviving or resulting corporation pursuant to subsection (f) of this section and who has submitted such stockholder’s certificates of stock to the Register in Chancery, if such is required, may participate fully in all proceedings until it is finally determined that such stockholder is not entitled to appraisal rights under this section.

(i) The Court shall direct the payment of the fair value of the shares, together with interest, if any, by the surviving or resulting corporation to the stockholders entitled thereto. Payment shall be so made to each such stockholder, in the case of holders of uncertificated stock forthwith, and the case of holders of shares represented by certificates upon the surrender to the corporation of the certificates representing such stock. The Court’s decree may be enforced as other decrees in the Court of Chancery may be enforced, whether such surviving or resulting corporation be a corporation of this State or of any state.

(j) The costs of the proceeding may be determined by the Court and taxed upon the parties as the Court deems equitable in the circumstances. Upon application of a stockholder, the Court may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorney’s fees and the fees and expenses of experts, to be charged pro rata against the value of all the shares entitled to an appraisal.

(k) From and after the effective date of the merger or consolidation, no stockholder who has demanded appraisal rights as provided in subsection (d) of this section shall be entitled to vote such stock for any purpose or to receive payment of dividends or other distributions on the stock (except dividends or other distributions payable to stockholders of record at a date which is prior to the effective date of the merger or consolidation); provided, however, that if no petition for an appraisal shall be filed within the time provided in subsection (e) of this section, or if such stockholder shall deliver to the surviving or resulting corporation a written withdrawal of such stockholder’s demand for an appraisal and an acceptance of the merger or consolidation, either within 60 days after the effective date of the merger or consolidation as provided in subsection (e) of this section or thereafter with the written approval of the corporation, then the right of such stockholder to an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed as to any stockholder without the approval of the Court, and such approval may be conditioned upon such terms as the Court deems just; provided, however that this provision shall not affect the right of any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party to withdraw such stockholder’s demand for appraisal and to accept the terms offered upon the merger or consolidation within 60 days after the effective date of the merger or consolidation, as set forth in subsection (e) of this section.

(l) The shares of the surviving or resulting corporation to which the shares of such objecting stockholders would have been converted had they assented to the merger or consolidation shall have the status of authorized and unissued shares of the surviving or resulting corporation.

TABLE OF CONTENTS

PART II: INFORMATION NOT REQUIRED IN THE PROSPECTUS

Item 20.Indemnification of Directors and Officers

Section 145 of the Delaware General Corporation Law authorizes a corporation to indemnify any director, officer, employee or other agent of the corporation.

The Registrant’s Bylaws provide indemnity to the Registrant’s directors and officers in such capacity or as directors or officers of a wholly-owned subsidiary of the Registrant for liability resulting from judgments, fines, expenses or settlement amounts actually and reasonably incurred in connection with any action brought against such person in such capacity to the fullest extent and in the manner set forth in and permitted by the Delaware General Corporation Law, and any other applicable law, as from time to time in effect. Under Delaware law and the Bylaws, no indemnification may be provided for any person with respect to any matter as to which he or she shall have been adjudicated in any proceeding not to have acted in good faith in the reasonable belief that his or her action was in the best interests of the Registrant or of such subsidiary.

In addition, as permitted under Delaware law, the Registrant maintains liability insurance covering directors and officers of the Registrant and its subsidiaries.

Item 21.Exhibits and Financial Statement Schedules

~~(a) The following exhibits are filed as part of this Registration Statement on Form S-4:~~

~~Exhibit~~
~~Number~~

(a)

The following exhibits are filed as part of this Registration Statement on Form S-4:


Exhibit Number		Description of Exhibit
2.1		Agreement and Plan of Merger, dated as of ~~February 24, 2015,~~October 22, 2016, by and between Community Bank System, Inc. and ~~Oneida~~Merchants Bancshares, Inc. (attached as Annex A to the Proxy Statement/Prospectus contained in this Registration Statement on Form S-4).
3.1		Certificate of Incorporation of Community Bank System, Inc. (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-4 filed on October 20, 2000 (File No. 333-48374)).
3.2		Certificate of Amendment of Certificate of Incorporation of Community Bank System, Inc. (incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q filed on May 7, 2004 (File No. 001-13695)).
3.3		Certificate of Amendment of Certificate of Incorporation of Community Bank System, Inc. (incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q filed on August 9, 2013 (File No. 001-13695)).
3.4		Amended Bylaws of Community Bank System, Inc. (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed on July 24, 2007 (File No. 001-13695)).
4.1		Form of Common Stock Certificate of Community Bank System, Inc. (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-3 filed on September 29, 2008 (File No. 333-153403)).
5.1		Opinion of George J. Getman, EVP and General Counsel of Community Bank System, Inc., as to the validity of the securities being registered.
8.1		Opinion of Goodwin Procter LLP, as to certain tax matters.
10.1		Form of Stockholder Support Agreement, by and between Community Bank System, Inc. and the directors and certain stockholders of Merchants Bancshares, Inc. (attached as Exhibit C to Annex A of the Proxy Statement/Prospectus contained in this Registration Statement on Form S-4).
23.1		Consent of Goodwin Procter LLP (set forth in Exhibit 8.1).
23.2		Consent of PricewaterhouseCoopers, LLP.
23.3		Consent of Crowe Horwath LLP.
24		Power of Attorney (included in signature page).
99.1		Form of proxy card for the special meeting of the stockholders of Merchants Bancshares, Inc.*
99.2		Consent of Piper Jaffray & Co.

To be filed by amendment.

II-1

TABLE OF CONTENTS

(b)

Not applicable.

(c)

The fairness opinion of Piper Jaffray & Co. is attached as Annex B to the Proxy Statement/Prospectus contained in this Registration Statement on Form S-4.

Item 22.Undertakings

(a)

The registrant hereby undertakes:

(1)

To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement:

(i)

to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended (the “Securities Act”);

(ii)

to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or most recent post-effective amendment thereof) which individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in the volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent not more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and

(iii)

to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

(2)

That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(3)

To remove from registration by means of a post-effective amendment any of the securities being registered that remain unsold at the termination of the offering.

(b)

The registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(c)

(1)

The registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form.

II-2

TABLE OF CONTENTS

(2)

The registrant undertakes that every prospectus (i) that is filed pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet the requirements of section 10(a)(3) of the Securities Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for the purposes of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(d)

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

(e)

The registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.

(f)

The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of, and included in the registration statement when it became effective.

II-3

TABLE OF CONTENTS

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the Town of DeWitt, State of New York on December 7, 2016.

COMMUNITY BANK SYSTEM, INC.

By:

/s/ Mark E. Tryniski

Name: Mark E. Tryniski
Title: President and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of Mark E. Tryniski and Scott Kingsley, severally, acting alone and without the other, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including pre-effective and post-effective amendments) to this Registration Statement and to sign any registration statement (and any post-effective amendments thereto) effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming that said attorney-in-fact, agent or his substitutes may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, the registration statement has been signed by the following persons in the capacities and on the date indicated.


Signature	Title	Date
/s/ Mark E. Tryniski Mark E. Tryniski	Director, President and Chief Executive Officer (Principal Executive Officer)	December 7, 2016
/s/ Scott Kingsley Scott Kingsley	Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer)	December 7, 2016
/s/ Brian R. Ace Brian R. Ace	Director	December 7, 2016
/s/ Mark J. Bolus Mark J. Bolus	Director	December 7, 2016
/s/ Nicholas A. DiCerbo Nicholas A. DiCerbo	Director and Chairman of the Board of Directors	December 7, 2016
/s/ Neil E. Fesette Neil E. Fesette	Director	December 7, 2016
/s/ James A. Gabriel James A. Gabriel	Director	December 7, 2016
/s/ James W. Gibson, Jr. James W. Gibson, Jr.	Director	December 7, 2016
/s/ Michael R. Kallet Michael R. Kallet	Director	December 7, 2016
/s/ Edward S. Mucenski Edward S. Mucenski	Director	December 7, 2016

II-4

TABLE OF CONTENTS


Signature	Title	Date
/s/ John Parente John Parente	Director	December 7, 2016
/s/ Sally A. Steele Sally A. Steele	Director	December 7, 2016
/s/ Eric E. Stickels Eric E. Stickels	Director	December 7, 2016
/s/ John F. Whipple, Jr. John F. Whipple, Jr.	Director	December 7, 2016

II-5

TABLE OF CONTENTS

Exhibit Index


Exhibit Number		Description of Exhibit
2.1		Agreement and Plan of Merger, dated as of October 22, 2016, by and between Community Bank System, Inc. and Merchants Corp. (attached as Annex A to the Proxy Statement/Prospectus contained in this Registration Statement on Form S-4).
3.1		Certificate of Incorporation of Community Bank System, Inc. (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-4 filed on October 20, 2000 (File No. 333-48374)).
3.2		Certificate of Amendment of Certificate of Incorporation of Community Bank System, Inc. (incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q filed on May 7, 2004 (File No. 001-13695)).
3.3		Certificate of Amendment of Certificate of Incorporation of Community Bank System, Inc. (incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q filed on August 9, 2013 (File No. 001-13695)).
3.4		Amended Bylaws of Community Bank System, Inc. (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed on July 24, 2007 (File No. 001-13695)).
4.1		Form of Common Stock Certificate of Community Bank System, Inc. (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-3 filed on September 29, 2008 (File No. 333-153403)).
5.1		Opinion of ~~Bond, Schoeneck & King, PLLC~~George J. Getman, EVP and General Counsel of Community Bank System, Inc. as to the validity of the securities being registered.

~~II-1~~

~~Exhibit~~ ~~Number~~		~~Description of Exhibit~~
8.1		~~Form of~~ Opinion of ~~Luse Gorman, PC,~~Goodwin Procter LLP, as to certain tax matters.
10.1		Form of ~~Voting~~Stockholder Support Agreement by and between Community Bank System, Inc. and the directors and ~~executive officers~~certain stockholders of ~~Oneida Financial Corp.~~Merchants Bancshares, Inc. (attached as Exhibit AC to Annex A of the Proxy Statement/Prospectus contained in this Registration Statement on Form S-4).
23.1		Consent of ~~Bond, Schoeneck & King, PLLC (set forth in Exhibit 5.1).~~
~~23.2~~		~~Consent of Luse Gorman, PC~~Goodwin Procter LLP (set forth in Exhibit 8.1).
~~23.3~~23.2		Consent of PricewaterhouseCoopers, LLP.
~~23.4~~23.3		Consent of Crowe Horwath LLP.
~~24.1~~24		Power of ~~Attorney.~~Attorney (included in signature page).
99.1		Form of proxy card for the special meeting of the stockholders of ~~Oneida Financial Corp.~~Merchants Bancshares, Inc.*
99.2		Consent of ~~Keefe, Bruyette~~Piper Jaffray & ~~Woods, Inc.~~
~~99.3~~		~~Consent of Michael R. Kallet pursuant to Rule 438 promulgated under the Securities Act of 1933, as amended.~~
~~99.4~~		~~Consent of Eric E. Stickels pursuant to Rule 438 promulgated under the Securities Act of 1933, as amended.~~

~~____________________________________~~

~~To be filed by amendment.~~

~~(b) Not applicable.~~

~~(c) Not applicable.~~

~~Item 22.~~~~Undertakings~~

~~(a) The Registrant hereby undertakes:~~

~~(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:~~

~~(i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended (the “Securities Act”);~~

(ii) to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or most recent post-effective amendment thereof) which individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in the volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent not more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;

(iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

~~II-2~~

Co.

(2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be a bona fide offering thereof.

~~(3) To remove from registration by means of a post-effective amendment any of the securities being registered that remain unsold at the termination of the offering.~~

(b) The Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(c)(1) The Registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form.

(2) The Registrant undertakes that every prospectus (i) that is filed pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet the requirements of section 10(a)(3) of the Securities Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for the purposes of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(d) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

~~II-3~~

(e) The Registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.

(f) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of, and included in the registration statement when it became effective.

~~II-4~~

~~SIGNATURES~~

	~~COMMUNITY BANK SYSTEM, INC.~~

	~~By:~~	~~/s/ Mark E. Tryniski~~
	~~Name: Mark E. Tryniski~~
	~~Title: President and Chief Executive Officer~~

~~Pursuant to the requirements of the Securities Act of 1933, the registration statement has been signed by the following persons in the capacities and on the date indicated.~~

~~Signature~~	~~Title~~	~~Date~~

~~/s/ Mark E. Tryniski~~	~~Director, President and Chief~~	~~March 30, 2015~~
~~Mark E. Tryniski~~	~~Executive Officer~~
	~~(Principal Executive Officer)~~

~~/s/ Scott Kingsley~~	~~Treasurer and Chief FinancialOfficer~~	~~March 30, 2015~~
~~Scott Kingsley~~	~~(Principal Financial and~~
	~~Accounting Officer)~~

~~/s/ Brian R. Ace~~	~~Director~~	~~March 30, 2015~~
~~Brian R. Ace~~

~~/s/ Mark J. Bolus~~	~~Director~~	~~March 30, 2015~~
~~Mark J. Bolus~~

~~/s/ Nicholas A. DiCerbo~~	~~Director~~	~~March 30, 2015~~
~~Nicholas A. DiCerbo~~

~~/s/ Neil E. Fesette~~	~~Director~~	~~March 30, 2015~~
~~Neil E. Fesette~~

~~/s/ James A. Gabriel~~	~~Director~~	~~March 30, 2015~~
~~James A. Gabriel~~

~~/s/ James W. Gibson, Jr.~~	~~Director~~	~~March 30, 2015~~
~~James W. Gibson, Jr.~~

~~II-5~~

~~Signature~~	~~Title~~	~~Date~~

~~/s/ Edward S. Mucenski~~	~~Director~~	~~March 30, 2015~~
~~Edward S. Mucenski~~

~~/s/ John Parente~~	~~Director~~	~~March 30, 2015~~
~~John Parente~~


~~/s/ Sally A. Steele~~	~~Director~~	~~March 30, 2015~~
~~Sally A. Steele~~

~~/s/ John F. Whipple, Jr.~~	~~Director~~	~~March 30, 2015~~
~~John F. Whipple, Jr.~~

~~/s/ James A. Wilson~~	~~Director~~	~~March 30, 2015~~
~~James A. Wilson~~

~~II-6~~

~~Exhibit Index~~

~~Exhibit~~ ~~Number~~		~~Description of Exhibit~~
~~2.1~~		Agreement and Plan of Merger, dated as of February 24, 2015, by and between Community Bank System, Inc. and Oneida Financial Corp. (attached as Annex A to the Proxy Statement/Prospectus contained in this Registration Statement on Form S-4).
~~3.1~~		~~Certificate of Incorporation of Community Bank System, Inc. (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-4 filed on October 20, 2000 (File No. 333-48374)).~~
~~3.2~~		Certificate of Amendment of Certificate of Incorporation of Community Bank System, Inc. (incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q filed on May 7, 2004 (File No. 001-13695)).
~~3.3~~		Certificate of Amendment of Certificate of Incorporation of Community Bank System, Inc. (incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q filed on August 9, 2013 (File No. 001-13695)).
~~3.4~~		~~Amended Bylaws of Community Bank System, Inc. (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed on July 24, 2007 (File No. 001-13695)).~~
~~4.1~~		~~Form of Common Stock Certificate of Community Bank System, Inc. (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-3 filed on September 29, 2008 (File No. 333-153403)).~~
~~5.1~~		~~Opinion of Bond, Schoeneck & King, PLLC as to the validity of the securities being registered.~~
~~8.1~~		~~Form of Opinion of Luse Gorman, PC, as to certain tax matters.~~
~~10.1~~		Form of Voting Agreement, by and between Community Bank System, Inc. and the directors and executive officers of Oneida Financial Corp. (attached as Exhibit A to Annex A of the Proxy Statement/Prospectus contained in this Registration Statement on Form S-4).
~~23.1~~		~~Consent of Bond, Schoeneck & King, PLLC (set forth in Exhibit 5.1).~~
~~23.2~~		~~Consent of Luse Gorman, PC (set forth in Exhibit 8.1).~~
~~23.3~~		~~Consent of PricewaterhouseCoopers, LLP.~~
~~23.4~~		~~Consent of Crowe Horwath LLP.~~
~~24.1~~		~~Power of Attorney.~~
~~99.1~~		Form of proxy card for the special meeting of the stockholders of Oneida Financial Corp.*
~~99.2~~		~~Consent of Keefe, Bruyette & Woods, Inc.~~
~~99.3~~		~~Consent of Michael R. Kallet pursuant to Rule 438 promulgated under the Securities Act of 1933, as amended.~~
~~99.4~~		~~Consent of Eric E. Stickels pursuant to Rule 438 promulgated under the Securities Act of 1933, as amended.~~

~~____________________________________~~

To be filed by amendment.

II-6

~~II-7~~


Delaware	6721	16-1213679
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)


Large accelerated filerx		Accelerated filer¨o
Non-accelerated filero¨ (Do not check if a smaller reporting company)		Smaller reporting company¨o


Title of Each Class of Securities to be Registered	Amount to be Registered ⁽¹⁾	Proposed Maximum Offering Price per Share	Proposed Maximum Aggregate Offering Price ⁽²⁾		Amount of Registration Fee ⁽³⁾		Amount to be Registered⁽¹⁾		Proposed Maximum Offering Price per Share		Proposed Maximum Aggregate Offering Price⁽²⁾		Amount of Registration Fee⁽³⁾
Common Stock, $1.00 par value	2,485,303 Shares	N/A	$	86,268,895	$	10,025		4,712,434.24		N/A	$	347,088,503.25	$	30,504.89

	~~Sincerely,~~

	~~Michael R. Kallet~~
	Jeffrey L. Davis Chairman of the Board of Directors ~~and Chief Executive Officer~~

	BY ORDER OF THE BOARD OF DIRECTORS

	~~Eric E. Stickels~~
	~~Secretary~~

		Page

QUESTIONS AND ANSWERS ABOUT THE MERGER	iv
	iv
WHO CAN HELP ANSWER YOUR QUESTIONS	~~xii~~
	xi
SUMMARY	1
	1
SELECTED HISTORICAL FINANCIAL DATA	9
	9
SUMMARY UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL INFORMATION			13
COMPARATIVE UNAUDITED PER SHARE DATA	13
	14
RISK FACTORS	15
	15
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS	23
	21
THE COMPANIES	24
	22
Community Bank System	24
	~~Oneida Financial Corp.~~22	25

~~SPECIAL MEETING OF ONEIDA FINANCIAL STOCKHOLDERS~~Merchants	26
	23
~~General~~SPECIAL MEETING OF MERCHANTS STOCKHOLDERS	26		24
Time, Date and Place of the Special Meeting			24
Actions to be Taken at the Special Meeting			24
Record Date; ~~Voting Power~~Outstanding Shares; Shares Entitled to Vote	26		24
Recommendation of the Merchants Board of Directors			24
Broker Non-Votes			24
Quorum; Vote Required	26		24
~~Shares Held by Oneida Financial Directors and Certain Officers;~~Share Ownership of Management; Voting ~~to Approve Merger Agreement~~Agreements	27
	~~Recommendation of the Oneida Financial Board~~25	27
Voting and Revocation of Proxies	27		25
~~Participants in the ESOP or 401(k) Plan~~	28
~~Soliciation~~Solicitation of Proxies	28		26
Other Matters	28
	26
PROPOSAL I—I — THE MERGER	29
	27
General	29		27
Background of the Merger	29		27
Merchants’ Reasons for the Merger			34
Recommendation of the Merchants Board of Directors			36
Community Bank System’s Reasons for the Merger	36
	~~Oneida Financial’s Reasons for the Merger; Recommendation of Oneida Financial’s Board of Directors~~37	37
Opinion of ~~Oneida Financial’s~~Merchants’ Financial Advisor	39		38
Certain Prospective Financial Information ~~Provided by Oneida Financial~~	54		47
~~Voting~~Stockholder Support Agreements with Directors ~~of Oneida Financial~~ and ~~Certain Executive Officers~~Another Principal Stockholder of ~~Oneida Financial and its Subsidiaries~~ Merchants	55		48
~~Financial~~ Interests of ~~Oneida Financial~~Merchants Directors and ~~Certain~~ Executive Officers in the Merger	56
	~~Merger-Related Executive Compensation for Oneida Financial’s Named Executive Officers~~48	59
Material Federal U.S. ~~Federal~~ Income Tax Consequences of the Merger	61		54
Accounting Treatment of the Merger	64		56
Restrictions on Sales of Community Bank System Common Stock by Certain Affiliates	64

New York Stock Exchange Listing	65	57
Regulatory Approvals and Notices for the Merger	65	57
~~Litigation Relating to the Merger~~	65
No Appraisal or Dissenters’ Rights	66	57


		Page
THE MERGER AGREEMENT			62
~~THE MERGER AGREEMENT~~The Merger and the Bank Merger	67
	62
~~Conversion~~Closing and Effective Time of ~~Oneida Financial Common Stock~~the Merger	67		62
Board of Directors			62
Merger Consideration			62
Election and Proration Procedures	67		63
~~Allocation Mechanism~~Procedures for Converting Shares of Merchants Common Stock into Merger Consideration	70		67
~~Conversion~~Treatment of ~~Options~~Merchants Equity Awards and ~~Stock Awards~~Warrants			67
Conduct of Business Pending the Merger			68
Regulatory Matters			71
NYSE Listing			72
Merchants Debt			72
Employee Matters			72
Indemnification and Directors’ and Officers’ Insurance			73
No Solicitation			73
Representations and Warranties	72		76
Conditions to Completion of the Merger	73		78
Termination	75
	~~Conduct of Business Prior to Completion of the Merger; Covenants~~78	76
~~No Solicitation of Takeover Proposals; Superior Proposals~~	78
Termination Fee ~~and Expenses~~	80
	~~Directors, Employees and Employee Benefits~~80	81
~~Indemnification~~	82
~~Amendment and Waiver~~	82
~~Modification of Structure~~	82

Amendment; Waiver			80
Expenses			80
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS			81
MARKET PRICE AND DIVIDEND INFORMATION	83
	90
PROPOSAL ~~II—~~II — MERGER-RELATED EXECUTIVE COMPENSATION	86
	92
PROPOSAL III — ADJOURNMENT OR POSTPONEMENT OF THE MEETING			93
DESCRIPTION OF CAPITAL STOCK OF COMMUNITY BANK SYSTEM	87
	94
General	87		94
Common Stock	87		94
Certain Certificate of Incorporation and Bylaws Provisions	87
	94
COMPARISON OF RIGHTS OF HOLDERS OF ~~ONEIDA FINANCIAL~~MERCHANTS COMMON STOCK AND COMMUNITY BANK SYSTEM COMMON STOCK	89
	96
Authorized Capital Stock	89		96
Quorum of Stockholders	90		96
Nomination of Directors and ~~Shareholder~~Stockholder Proposals	90		96
Election of Directors			97
Qualification of Directors	90		97
Number of Directors	91		98
Removal of Directors	91		98
Vacancies on the Board of Directors			98
Voting and Proxies			98
Payment of Dividends	91		99

	Community Bank System		Oneida Financial
Closing Sale Prices Per Share on:	Historical		Historical		Equivalent Market Value Per Share
February 23, 2015	$	35.45	$	12.79	$	19.98
[ ], 2015

	Years Ended December 31,
(In thousands except per share data and ratios)	2014			2013			2012			2011			2010
Income Statement Data:
Loan interest income	$	185,527		$	188,197		$	192,710		$	192,981		$	178,703
Investment interest income		70,693			75,962			88,690			77,988			69,578
Interest expense		11,792			26,065			50,976			61,556			66,597
Net interest income		244,428			238,094			230,424			209,413			181,684
Provision for loan losses		7,178			7,992			9,108			4,736			7,205
Noninterest income		119,020			108,748			98,955			89,283			88,792
Gain (loss) on investment securities & early retirement of long-term borrowings, net		0			(6,568	)		291			(61	)		0
Acquisition expenses, litigation settlement, and contract termination charges		2,923			2,181			8,247			4,831			1,365
Other noninterest expenses		223,657			219,074			203,510			185,541			175,521
Income before income taxes		129,690			111,027			108,805			103,527			86,385
Net income		91,353			78,829			77,068			73,142			63,320
Diluted earnings per share		2.22			1.94			1.93			2.01			1.89

Balance Sheet Data:
Cash equivalents	$	12,870		$	11,288		$	84,415		$	203,082		$	114,996
Investment securities		2,512,974			2,218,725			2,818,527			2,151,370			1,742,324
Loans, net of unearned discount		4,236,206			4,109,083			3,865,576			3,471,025			3,026,363
Allowance for loan losses		(45,341	)		(44,319	)		(42,888	)		(42,213	)		(42,510	)
Intangible assets		386,973			390,499			387,134			360,564			311,714
Total assets		7,489,440			7,095,864			7,496,800			6,488,275			5,444,506
Deposits		5,935,264			5,896,044			5,628,039			4,795,245			3,934,045
Borrowings		440,122			244,010			830,134			830,329			830,484
Shareholders’ equity		987,904			875,812			902,778			774,583			607,258

Capital and Related Ratios:
Cash dividends declared per share	$	1.16		$	1.10		$	1.06		$	1.00		$	0.94
Book value per share		24.24			21.66			22.78			20.94			18.23
Tangible book value per share⁽¹⁾		15.63			12.80			13.72			11.85			9.49
Market capitalization (in millions)		1,554			1,604			1,084			1,028			925
Tier 1 leverage ratio		9.96	%		9.29	%		8.40	%		8.38	%		8.23	%
Total risk-based capital to risk-adjusted assets		18.75	%		17.57	%		16.20	%		15.51	%		14.74	%
Tangible equity to tangible assets⁽¹⁾		8.92	%		7.68	%		7.62	%		7.12	%		6.14	%
Dividend payout ratio		51.6	%		56.0	%		54.3	%		49.3	%		49.2	%
Period end common shares outstanding		40,748			40,431			39,626			36,986			33,319
Diluted weighted-average shares outstanding		41,232			40,726			39,927			36,454			33,553

Selected Performance Ratios:
Return on average assets		1.23	%		1.09	%		1.08	%		1.18	%		1.16	%
Return on average equity		9.65	%		9.04	%		8.82	%		10.36	%		10.66	%
Net interest margin		3.91	%		3.91	%		3.88	%		4.07	%		4.04	%
Noninterest income/operating income (FTE)		31.4	%		30.0	%		28.6	%		28.4	%		31.1	%
Efficiency ratio⁽²⁾		57.9	%		59.3	%		57.4	%		57.6	%		59.4	%

Asset Quality Ratios:
Allowance for loan losses/total loans		1.07	%		1.08	%		1.11	%		1.22	%		1.40	%
Nonperforming loans/total loans		0.56	%		0.54	%		0.75	%		0.85	%		0.61	%
Allowance for loan losses/nonperforming loans		190	%		201	%		147	%		144	%		230	%
Loan loss provision/net charge-offs		117	%		122	%		108	%		94	%		109	%
Net charge-offs/average loans		0.15	%		0.17	%		0.23	%		0.15	%		0.21	%

	At December 31,
Selected Financial Condition Data:	2014		2013		2012		2011		2010
	(dollars in thousands)
Total assets	$	798,169	$	742,484	$	681,391	$	663,713	$	661,579
Cash and cash equivalents		31,075		42,183		19,803		40,572		33,741
Loans receivable, net		367,859		335,701		311,703		286,604		284,479
Mortgage-backed securities		115,911		98,994		90,907		92,755		89,882
Investment securities		189,818		169,012		166,539		148,049		158,589
Trading securities		3,900		5,063		5,630		7,010		7,691
Goodwill and other intangibles		26,288		26,582		27,017		24,947		24,519
Interest bearing deposits		603,482		551,603		492,455		481,505		486,985
Non-interest bearing deposits		85,688		85,647		75,810		69,119		65,179
Borrowed funds		—		1,000		6,000		11,000		12,000
Total stockholders' equity		95,773		90,644		92,981		87,902		83,361

	Years ended December 31,
Selected Operating Data:	2014			2013		2012			2011		2010
	(dollars in thousands, except per share data)
Total interest income	$	22,556		$	22,403	$	22,765		$	23,783	$	23,780
Total interest expense		2,634			2,603		3,173			4,023		5,681
Net interest income		19,922			19,800		19,592			19,760		18,099
Provision for loan losses		500			500		740			1,050		1,650
Net interest income after provision for loan losses		19,422			19,300		18,852			18,710		16,449
Net investment gains (losses)		2,451			484		796			58		(901	)
Change in fair value of trading securities		(1,163	)		1,935		620			199		103
Impairment of other asset		—			—		(1,886	)		—		—
Non-interest income		32,054			29,207		26,613			24,654		22,888
Non-interest expense		45,882			41,932		36,801			35,548		33,452
Intangible amortization		294			452		339			391		412
Income before income taxes		6,588			8,542		7,855			7,682		4,675
Income tax provision		1,460			2,456		2,095			1,953		914
Net income	$	5,128		$	6,086	$	5,760		$	5,729	$	3,761
Earnings per share - basic	$	0.74		$	0.88	$	0.84		$	0.82	$	0.53
Earnings per share - diluted	$	0.73		$	0.87	$	0.84		$	0.82	$	0.53
Cash dividends paid	$	0.48		$	0.48	$	0.48		$	0.48	$	0.30

	Years ended December 31,
Selected Financial Ratios:	2014			2013			2012			2011			2010

Performance ratios:
Return on average assets (ratio of net income to average total assets)		0.66	%		0.86	%		0.85	%		0.86	%		0.60	%
Return on average equity (ratio of net income to average equity)		5.44	%		6.58	%		6.40	%		6.46	%		5.14	%
Interest rate spread ⁽¹⁾		2.90	%		3.16	%		3.28	%		3.30	%		3.25	%
Net interest margin ⁽²⁾		2.95	%		3.23	%		3.37	%		3.41	%		3.38	%
Efficiency ratio⁽³⁾		88.28	%		85.55	%		79.63	%		80.04	%		80.99	%
Non-interest income to average total assets		4.12	%		4.12	%		3.94	%		3.70	%		3.67	%
Non-interest expense to average total assets		5.93	%		5.97	%		5.49	%		5.40	%		5.39	%
Ratio of average interest-earning assets to average interest-bearing liabilities		116.37	%		116.52	%		115.74	%		115.47	%		112.56	%
Average equity to average total assets		12.12	%		13.03	%		13.32	%		13.33	%		11.73	%
Equity to total assets (end of period)		12.00	%		12.21	%		13.65	%		13.24	%		12.60	%
Tangible equity to tangible assets (end of period)⁽⁴⁾		9.00	%		8.95	%		10.09	%		9.86	%		9.24	%
Dividend payout ratio⁽⁵⁾		65.42	%		55.05	%		56.98	%		58.74	%		56.07	%
Asset quality ratios:
Nonperforming assets to total assets ⁽⁶⁾		0.07	%		0.08	%		0.32	%		0.79	%		1.15	%
Nonperforming loans to total loans		0.08	%		0.16	%		0.23	%		0.50	%		1.38	%
Net charge-offs to average loans		0.03	%		0.05	%		0.29	%		0.85	%		0.09	%
Allowance for loan losses to loans receivable, net		0.95	%		0.93	%		0.89	%		1.02	%		1.51	%
Allowance for loan losses to nonperforming loans		1,144.44	%		587.90	%		382.37	%		201.81	%		107.54	%
Bank Regulatory Capital Ratios:
Total capital (to risk-weighted assets)		16.54	%		15.97	%		15.16	%		15.62	%		15.15	%
Tier 1 capital (to risk-weighted assets)		15.77	%		15.25	%		14.50	%		14.91	%		14.11	%
Tier 1 capital (to average assets)		9.36	%		9.03	%		9.33	%		9.62	%		9.17	%

Number of full-service banking offices		12			11			11			12			11
Number of FTEs		358			354			325			330			325

	At or For the Years Ended December 31,
	2014		2013		2012		2011		2010
	(in thousands)
Dividends paid to public stockholders	$	3,354	$	3,351	$	3,282	$	3,365	$	2,109
Dividends payable to Oneida Financial MHC		—		—		—		—		1,552
Dividends waived by Oneida Financial MHC		—		—		—		—		(1,552	)
Total dividends paid	$	3,354	$	3,351	$	3,282	$	3,365	$	2,109

	Historical				Pro Forma
Per Common Share Data:	Community Bank System		Oneida Financial		Combined Company ^(1)(2)(3)		Oneida Financial Equivalent ⁽⁴⁾
Basic Earnings
For the year ended December 31, 2014	$	2.24	$	0.74	$	2.20	$	1.24
Diluted Earnings
For the year ended December 31, 2014	$	2.22	$	0.73	$	2.17	$	1.22
Cash Dividends
For the year ended December 31, 2014	$	1.16	$	0.48	$	1.16	$	0.65
Book Value
As of the year ended December 31, 2014	$	24.24	$	13.63	$	24.88	$	14.02

				Oneida Financial Peer Group
	Oneida Financial			25^th Percentile			Average			Median			75^th Percentile
LTM Core Return on Average Assets⁽¹⁾		0.60	%		0.55	%		0.65	%		0.64	%		0.83	%
LTM Core Return on Average Equity⁽¹⁾		4.92	%		4.90	%		6.57	%		6.21	%		9.45	%
LTM Net Interest Margin		2.95	%		3.34	%		3.59	%		3.52	%		3.78	%
LTM Fee Income / Revenue Ratio⁽²⁾		60.8	%		9.9	%		14.2	%		13.5	%		16.6	%
LTM Efficiency Ratio		87.0	%		72.1	%		68.8	%		66.7	%		64.8	%

				Selected Transactions
	Community Bank System / Oneida Financial			25^th Percentile			Average			Median			75^th Percentile
Transaction Price / Tangible Book Value		2.02	x		1.47	x		1.72	%		1.71	x		1.95	x
Core Deposit Premium		11.6	%		7.5	%		10.6	%		9.6	%		14.9	%
Transaction Price/ LTM EPS		27.6	x		17.0	x		21.8	x		19.5	x		23.8	x
Transaction Price / Fwd. EPS		21.8	x		14.1	x		17.9	x		20.0	x		20.5	x
One-Day Market Premium		56.3	%		20.7	%		36.5	%		26.7	%		48.9	%

	Community Bank System as a % of Total			Oneida Financial as a % of Total
Ownership
60% stock / 40% cash		94	%		6	%
100% stock / 0% cash		91	%		9	%

Balance Sheet
Assets		90	%		10	%
Gross Loans Held for Investment		92	%		8	%
Deposits		90	%		10	%
Tangible Common Equity		90	%		10	%

Net Income to Common
2014 GAAP Net Income		95	%		5	%
2015 Estimated GAAP Net Income		93	%		7	%
2016 Estimated GAAP Net Income		94	%		6	%

Market Capitalization
Pre-Deal Market Capitalization		94	%		6	%

				Community Bank System Peer Group
	Community Bank System			25^th Percentile			Average			Median			75^th Percentile
LTM Core Return on Average Assets⁽¹⁾		1.26	%		0.85	%		0.92	%		0.93	%		1.01	%
LTM Core Return on Average Equity⁽¹⁾		9.85	%		7.19	%		8.47	%		8.63	%		9.85	%
LTM Net Interest Margin		3.90	%		3.25	%		3.39	%		3.42	%		3.60	%
LTM Fee Income / Revenue Ratio⁽²⁾		32.7	%		13.3	%		22.2	%		23.7	%		26.5	%
LTM Efficiency Ratio		57.9	%		64.5	%		61.8	%		60.5	%		56.8	%

Executive Officer/Director of Oneida Financial	��	Oneida Financial Stock Options (#)		Cash Payment for Cancelled Options ($)
Michael R. Kallet			25,000		242,500
Eric E. Stickels			20,000		194,000
Deresa F. Durkee			10,000		97,000
Pierre J. Morrisseau			10,000		97,000
John F. Catanzarita			10,000		97,000
Non-employee directors as a group (10 persons)			39,000		378,300

Merger-Related Executive Compensation
Executive	Cash ($)			Equity ($)(1)		Pension/NQDC ($)		Perquisites/ Benefits ($)(2)		Tax Reimbursement ($)		Other ($)		Total ($)
Michael R. Kallet		1,609,243	(3)		1,028,500		—		19,003		—		—		2,656,746
Eric E. Stickels		1,046,122	(4)		822,800		—		19,003		—		—		1,887,925
Deresa F. Durkee		304,233	(4)		411,400		—		19,003		—		—		734,636
Pierre J. Morrisseau		658,994	(5)		411,400		—		12,449		—		—		1,082,843
John F. Catanzarita		658,058	(5)		411,400		—		12,449		—		—		1,081,907

	High		Low		Cash Dividends Declared Per Share
Year Ending December 31, 2015
Quarter Ending June 30, 2015 (through [ ], 2015)	$	[ ]	$	[ ]
Quarter Ending March 31, 2015	$	[ ]	$	[ ]	$	0.30

Year Ended December 31, 2014
Quarter Ended December 31, 2014	$	38.99	$	32.84	$	0.30
Quarter Ended September 30, 2014	$	37.29	$	33.59	$	0.30
Quarter Ended June 30, 2014	$	39.91	$	35.27	$	0.28
Quarter Ended March 31, 2014	$	39.43	$	33.74	$	0.28

Year Ended December 31, 2013
Quarter Ended December 31, 2013	$	40.27	$	33.23	$	0.28
Quarter Ended September 30, 2013	$	34.71	$	31.12	$	0.28
Quarter Ended June 30, 2013	$	30.85	$	27.64	$	0.27
Quarter Ended March 31, 2013	$	29.92	$	27.60	$	0.27

	High		Low		Cash Dividends Declared Per Share
Year Ending December 31, 2015
Quarter Ending June 30, 2015 (through [ ], 2015)	$	[ ]	$	[ ]
Quarter Ending March 31, 2015

Year Ended December 31, 2014
Quarter Ended December 31, 2014	$	13.42	$	12.50	$	0.12
Quarter Ended September 30, 2014	$	13.85	$	12.48	$	0.12
Quarter Ended June 30, 2014	$	13.77	$	12.12	$	0.12
Quarter Ended March 31, 2014	$	12.75	$	11.51	$	0.12

Year Ended December 31, 2013
Quarter Ended December 31, 2013	$	13.40	$	12.50	$	0.12
Quarter Ended September 30, 2013	$	16.32	$	12.46	$	0.12
Quarter Ended June 30, 2013	$	13.88	$	11.62	$	0.12
Quarter Ended March 31, 2013	$	12.90	$	10.75	$	0.12

As filed with the Securities and Exchange Commission on March 30, 2015December 7, 2016

Registration No. 333-

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549___________________

FORM S-4REGISTRATION STATEMENTUNDER THE SECURITIES ACT OF 1933

CALCULATION OF REGISTRATION FEE

PRELIMINARY -— SUBJECT TO COMPLETION DATED MARCH 30, 2015DECEMBER 7, 2016

PROPOSED MERGER¾ — YOUR VOTE IS VERY IMPORTANT

Dear Stockholder:

NOTICE OF SPECIAL MEETING OF STOCKHOLDERSTO BE HELD ON[ [•], 2015___________________________

YOUR VOTE IS IMPORTANT!

TABLE OF CONTENTS

QUESTIONS AND ANSWERS ABOUT THE MERGER

WHO CAN HELP ANSWER YOUR QUESTIONS

SUMMARY

Information about the Companies (Page [ ])22)

Information about the Special Meeting

Actions to be Taken at the Special Meeting (Page 24)

Record Date forDate; Outstanding Shares; Shares Entitled to Vote (Page 24)

Quorum; Vote Required (Page [ ])24)

Share Ownership of Oneida Financial and Certain Executive Officers of Oneida Financial and its Subsidiaries to Vote Their Shares in Favor of Approving the MergerManagement; Voting Agreements (Page [ ])25)

Recommendation of the Merchants Board of Directors (Page 24)

Appraisal Rights (Page [ ])57)

The Merger

Structure of the Merger (Page 62)

Merger Agreement providesConsideration (Page 62)

Election Procedures (Page 63)

Proration Procedures (Page 63)

Treatment of Merchants Equity Awards and Warrants (Page 67)

Opinion of Merchants’ Financial Advisor (Page 38)

Share Information and Market Price (Page 90)

Required Regulatory Approvals to Complete the Merger (Page [ ])57)

Limitations on Considering Other Acquisition Proposals (Page 73)

Conditions to Completion of the Merger (Page [ ])78)

Fees and Expenses; Termination Fee (Page [ ])80)

Terminating the Merger Agreement (Page [ ])78)

Termination Fee (Page 80)

Interests of Oneida Financial ManagementMerchants Directors and Executive Officers in the Merger (Page [ ])48)

Differences Between Rights of Community Bank System. These two new directorsHolders of Community Bank System will also be appointed to serve on the board of directors of Community Bank. In addition,and Merchants Stock (Page 96)

Material U.S. Federal Income Tax Consequences of the Merger (Page [ ])54)

SELECTED HISTORICAL FINANCIAL DATA

Merchants Bancshares, Inc.Selected Historical Financial Data

SUMMARY UNAUDITED PRO FORMA COMBINED CONDENSEDCONSOLIDATED FINANCIAL INFORMATION

COMPARATIVE UNAUDITED PER SHARE DATA

RISK FACTORS

Risks Related to the price of Community Bank System common stock will fluctuate, Oneida Financial stockholders cannot be certain of the marketMerger

You may not receive the form of merger consideration that you elect.

Community Bank System and Merchants will be subject to business uncertainties and contractual restrictions while the Merger isand the NRS acquisition are pending.

There is no assurance when or even if the Merger will be completed.

The fairness opinion delivered to Oneida Financial’sMerchants’ board of directors does not reflect changes in circumstances subsequent to the date of the fairness opinion.opinion.

Community Bank System may fail to implement the Merger and the NRS acquisition successfully, achieve savings and realize the other anticipated benefits from the Merger and the NRS acquisition, which would adversely affect Community Bank System’s financial condition and results of operations.

The unaudited pro forma condensed combined financial information included in this document is preliminary and the actual financial condition and results of operations of Community Bank System after the Merger may differ materially.

Additional growth will subject Community Bank System to additional regulation, increased supervision and increased costs.

Regulatory approvals may not be received, may take longer than expected or impose conditions that are not presently anticipated.

Certain of Oneida Financial’sMerchants’ officers and directors have interests that are different from, or in addition to, interests of Oneida FinancialMerchants stockholders generally.

The shares of Community Bank System common stock tothat may be received by Oneida Financial commonMerchants stockholders as a result of the Merger will have different rights from the shares of Oneida FinancialMerchants common stock they currently hold.

The price of Community Bank System common stock mightmay be affected by factors different from those affecting the shares of Merchants common stock currently, and could decrease after the Merger.

Merchants stockholders will have a reduced ownership and voting interest in the combined organization after the Merger and willlimited ability to exercise less influence over management of the combined organization.

Merchants stockholders who hold their stock certificates and make elections will be unable to sell their shares in the market pending the Merger.

The Merger Agreement limits Oneida Financial’sMerchants’ ability to pursue alternatives to the Merger.

Goodwill incurred in the Merger may negatively affect Community Bank System’s financial condition.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

THE COMPANIES

Community Bank System

Merchants Bancshares, Inc.

SPECIAL MEETING OF ONEIDA FINANCIALMERCHANTS STOCKHOLDERS

GeneralTime, Date and Place of the Special Meeting

Actions to be Taken at the Special Meeting

Record Date; Voting PowerOutstanding Shares; Shares Entitled to Vote

Recommendation of the Merchants Board of Directors

Broker Non-Votes

Quorum; Vote Required

Shares Held by Oneida Financial Directors and Certain Officers;Share Ownership of Management; Voting to Approve Merger AgreementAgreements

Voting and Revocation of Proxies

Solicitation of Proxies

Other Matters

YOUR VOTE IS IMPORTANT!

PROPOSAL I—I — THE MERGER

General

Background of the Merger

Merchants’ Reasons for the Merger

As filed with the Securities and Exchange Commission on March 30, 2015
December 7, 2016

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
___________________

FORM S-4

REGISTRATION STATEMENT

UNDER THE SECURITIES ACT OF 1933

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON[ [•], 2015
___________________________

Information about the Companies (Page [ ])
22)

Quorum; Vote Required (Page [ ])
24)

Share Ownership of Oneida Financial and Certain Executive Officers of Oneida Financial and its Subsidiaries to Vote Their Shares in Favor of Approving the MergerManagement; Voting Agreements (Page [ ])
25)

Required Regulatory Approvals to Complete the Merger (Page [ ])
57)

Conditions to Completion of the Merger (Page [ ])
78)

Fees and Expenses; Termination Fee (Page [ ])
80)

Terminating the Merger Agreement (Page [ ])
78)

Interests of Oneida Financial ManagementMerchants Directors and Executive Officers in the Merger (Page [ ])
48)

Material U.S. Federal Income Tax Consequences of the Merger (Page [ ])
54)

Merchants Bancshares, Inc.
Selected Historical Financial Data

SUMMARY UNAUDITED PRO FORMA COMBINED CONDENSED
CONSOLIDATED FINANCIAL INFORMATION

The fairness opinion delivered to Oneida Financial’sMerchants’ board of directors does not reflect changes in circumstances subsequent to the date of the fairness opinion.
opinion.

General
Time, Date and Place of the Special Meeting

Record Date; Voting Power
Outstanding Shares; Shares Entitled to Vote

Shares Held by Oneida Financial Directors and Certain Officers;Share Ownership of Management; Voting to Approve Merger Agreement
Agreements

VotingStockholder Support Agreements with Directors and Another Principal Stockholder of Oneida Financial and Certain Executive Officers of Oneida Financial and its Subsidiaries.
Merchants

THE MERGER AGREEMENT
ConversionBoard of Oneida Financial Common Stock
Directors

Community Bank System and Subsidiaries

Unaudited Combined Condensed Consolidated Balance Sheet as of
September 30, 2016

Community Bank System and Subsidiaries

Unaudited Combined Condensed Consolidated Income Statement for the Nine Months Ended
September 30, 2016

Community Bank System and Subsidiaries

Unaudited Combined Condensed Consolidated Income Statement for the Year Ended
December 31, 2015

Community Bank System and Subsidiaries

Notes to the Combined Condensed Financial Statements

	Community Bank System Common Stock		Oneida Financial Common Stock		Equivalent Value Per Share of Oneida Financial Common Stock⁽¹⁾

February 23, 2015	$	35.45	$	12.79	$	19.98
[ ], 2015