DEWITT, N.Y. -- To get to the newest and nearest branch of Community Bank Systems Inc. in Cato, the company's executives must wend their way for 40 miles through rolling countryside and past sprawling farms aglow with the brilliance of fall colors.

In fact, to get to any of its 37 branches, they'll drive for as much as several hundred miles and 6 1/2 hours through some of the state's smallest towns, from the Canadian border to the Pennsylvania line.

And despite the community bank adage about branches and credits being no more than an hour away from the president's office, bank officials wouldn't have it any other way.


"Banks are becoming more specialized, focusing on what they do best," said 52-year-old president and chief executive Sanford Belden. "And what we do best is banking in smaller markets."

The company has adopted an unusual strategy, allowing even its most distant branch managers -- branches, not separately chartered banks -- and two regional offices enormous latitude in loan decision-making, while centralizing only the highest levels of the company.

That strategy has worked for CBSI, which earned $2.7 million in the third quarter and $7.8 million so far this year, only two years after a major consolidation brought earnings from the doldrums to its current heights.

"They're operating in a lot of areas where they're the only branch in town," said First Albany Corp. bank analyst Don Kauth.

They have that large [net interest] margin to work from as a base, and what they've been doing over the past two years is try to maintain the strong margin but operate more efficiently."

Their success has also made CBSI a potential target for such acquirers as $10 billion-asset First Empire State Corp. in Buffalo and $6 billion-asset Onbancorp of Syracuse, according to First Albany.

Mr. Belden said the company has not received any formal offers, however.

But CBSI's past was not always so rosy. Formerly a five-bank holding company, CBSI languished until 1992 with weak returns on assets and equity, as low as 0.34% and 4.52% respectively in 1990.

The company adopted a super community banking strategy, keeping its five subsidiaries independent, while trying to consolidate back office operations in DeWitt.

But it wasn't saving much money and former chief executive Ted Lyons opted to restructure in 1990, closing the bank's mortgage-banking subsidiary, Community Financial Services Inc.

On Jan. 1, 1992, the bank consolidated its five banks into Community Bank and cut staff by 25%.

That still left the company operating through a subsidiary that "had no brand image or identity," since it didn't exist as a bank before, said Community Bank vice president Steven Byington.

As part of its new image, the company chose to decentralize decision-making even while it was consolidating back-office work.

Most loan decisions are made at the branches, sometimes in as little as two hours. Large commercial loans are referred to one of the two regional offices, one in Canton in the north and the other in Olean near the Pennsylvania border.

"We combine the best of responsive local decision-making that good independent community banks have with the support and control that the superregional and money-center banks have," Mr. Belden said.

After the consolidation, the company's ROA surged to 1.15% in 1992 from 0.59% in 1991 and ROE jumped to 14.76% from 7.78%.

"The results are very gratifying to me, the board of directors and the shareholders," said Mr. Belden, who came to Community Bank in October 1992 after a 20-year agricultural lending and community banking career that included stints at the U.S. Farm Credit System, $25 billion-asset First Bank System of Minneapolis, and the U.S. office of $135 billion-asset Rabobank Nederland.

He added, "It represents the culmination for me of what I wanted to do with my professional career and has given me an opportunity to put into practice the ideas about leadership and people development that I have long believed in and long tried to practice, but always in an environment where someone else had the main responsibility. That's what's so powerful about being a chief executive."

And his bank is still growing. In June, it bought three branches of Columbia Banking Federal Savings Association in Rochester from the Resolution Trust Corp. and the Cato branch from Chase Manhattan Corp. The latter deal closed last Friday.

The bank also bought a former branch building of Jefferson National Bank in Waddington, N.Y., near Canton, from the Federal Deposit Insurance Corp.

"We do so much traveling between offices," Mr. Byington said. "There's a lot of geography between our branches."

Unlike the superregional and money-center banks, the $850-million-asset holding company prefers to reach into the state's most rural areas from its corporate headquarters in the Syracuse suburb of DeWitt.

There, its small branches can dominate the market free of tight urban competition and tellers can chat on a first-name basis with their customers.

"There's plenty of competition in large cities," Mr. Byington said.

"We'd just be one of many banks where in many of the towns and villages that we're in, we're either one of the major players or the major player."

The largest branch, at regional headquarters in Olean, is in a town of only 17,000. Fifteen of CBSI's locations are the only game in town, one of which, Woodhull, has only 500 people.

The Woodhull branch, located near Amish communities, even has a hitching post in the back where Amish customers can tie their horse-drawn buggies.

"I think it creates more responsibility for us," Mr. Belden said. "We are the bank in those twons. The people in these communities rely on the bank for their banking services."

Assets at CBSI have grown at an annual clip of about 5.7%, while loan growth has surged 18% from the third quarter of 1993.

Its loan portfolio is split evenly between residential mortgages, direct consumer loans, and commercial business. Although many of the branches are in agricultural areas, only 10% of its loans are farm-related.

"We don't have a particular emphasis on agricultural lending," Mr. Belden said.

"We see that as a growth market for us, but we also see small business lending in general as a growth opportunity for us.'"

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