FORM 10 - Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the six months ended June 30, 1997
Commission file number 0-11716
COMMUNITY BANK SYSTEM, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 16-1213679
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5790 Widewaters Parkway, DeWitt, New York 13214
(Address of principal executive offices) (Zip Code)
315/445-2282
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, No par value -- 7,536,462 shares as of August 7, 1997.
INDEX
COMMUNITY BANK SYSTEM, INC. AND SUBSIDIARIES
Part I. Information
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets --
June 30, 1997, December 31, 1996 and June 30, 1996
Consolidated statements of income --
Three months ended June 30, 1997 and 1996 and six months ended
June 30, 1997 and 1996.
Consolidated statements of cash flows -- Six months ended June
30, 1997 and 1996
Item 2. Management Discussion and Analysis of Financial Conditions and
Results of Operations
Part II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Securities Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
COMMUNITY BANK SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
June 30, December 31, June 30,
1997 1996 1996
- -------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $67,023,370 $52,534,726 $49,431,125
- -------------------------------------------------------------------------------------------------------------------------
TOTAL CASH AND CASH EQUIVALENTS 67,023,370 52,534,726 49,431,125
Investment securities
U.S. Treasury 2,990,221 2,988,749 7,994,396
U.S. Government agencies and corporations 320,585,682 285,280,374 300,184,753
States and political subdivisions 16,100,963 18,248,144 15,524,708
Mortgage-backed securities 241,034,074 250,349,672 229,385,267
Federal Reserve Bank 2,134,200 1,402,850 1,395,750
Other securities 26,739,775 20,283,502 20,083,458
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES 609,584,915 578,553,291 574,568,332
Loans 739,877,063 658,366,564 608,425,321
Less: Unearned discount 3,999,641 5,892,689 8,887,249
Reserve for possible loan losses 9,599,346 8,127,752 7,469,221
- -------------------------------------------------------------------------------------------------------------------------
NET LOANS 726,278,076 644,346,123 592,068,851
Bank premises and equipment 18,650,488 16,782,034 16,591,326
Accrued interest receivable 12,779,473 10,790,071 10,255,332
Intangible assets 43,497,116 31,241,489 32,609,299
Other assets 8,695,710 9,616,928 7,677,080
- -------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,486,509,148 $1,343,864,662 $1,283,201,345
=========================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits
Noninterest bearing $165,038,417 $144,351,214 $144,252,061
Interest bearing 1,067,516,205 882,862,042 878,155,625
- -------------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 1,232,554,622 1,027,213,256 1,022,407,686
Federal funds purchased 24,000,000 31,800,000 45,800,000
Term borrowings 75,000,000 165,000,000 100,550,000
Mandatorily redeemable capital securities of subsidiary 29,800,313 0 0
Accrued interest and other liabilities 14,462,723 10,499,179 11,097,699
- -------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,375,817,658 1,234,512,435 1,179,855,385
- -------------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock $100 stated value 0 4,500,000 4,500,000
Common stock 7,536,462 4,671,504 4,602,894
Surplus 31,288,469 33,584,773 33,095,986
Undivided profits 70,134,146 65,691,025 61,109,491
Unrealized gains (losses) on available for sale securities 1,770,415 947,853 62,948
Shares issued under employee stock plan - unearned (38,002) (42,928) (25,359)
- -------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 110,691,490 109,352,227 103,345,960
- -------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,486,509,148 $1,343,864,662 $1,283,201,345
=========================================================================================================================
See notes to consolidated financial statements
COMMUNITY BANK SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Income:
Interest and fees on loans $16,357,461 $13,834,997 $32,131,095 $27,314,520
Interest and dividends on investments:
U.S. Treasury 67,134 155,601 134,034 315,625
U.S. Government agencies and corporations 6,514,477 5,235,752 12,508,016 9,748,464
States and political subdivisions 188,906 234,876 409,088 494,533
Mortgage-backed securities 4,422,296 3,870,276 8,892,529 7,446,461
Other securities 490,206 320,287 885,869 685,836
Interest on federal funds sold 15,302 12,213 142,745 334,719
Interest on deposits at other banks 410 0 824 0
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest income 28,056,192 23,664,002 55,104,200 46,340,158
- -----------------------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest on deposits
Savings 2,430,740 2,486,199 4,763,540 5,043,971
Time 7,820,982 6,554,964 14,853,542 13,094,370
Interest on federal funds purchased and
term borrowings 2,486,828 1,032,591 5,310,960 1,406,690
Interest on mandatorily redeemable capital
securities of subsidiary 732,938 0 1,221,563 0
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest expense 13,471,488 10,073,754 26,149,605 19,545,031
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income 14,584,704 13,590,248 28,954,595 26,795,127
Less: Provision for possible loan losses 850,000 608,894 1,580,000 1,197,068
- -----------------------------------------------------------------------------------------------------------------------------------
Net Interest income after provision for loan losses 13,734,704 12,981,354 27,374,595 25,598,059
- -----------------------------------------------------------------------------------------------------------------------------------
Other income:
Fiduciary and investment services 398,790 374,131 780,329 797,296
Service charges on deposit accounts 1,060,071 1,018,915 2,010,635 1,992,778
Commissions on investment products 270,287 213,552 491,576 374,403
Other service charges, commissions and fees 779,422 381,826 1,546,095 772,723
Other operating income 21,743 12,859 27,923 17,119
Investment security gain (loss) 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
Total other income 2,530,313 2,001,283 4,856,558 3,954,319
- -----------------------------------------------------------------------------------------------------------------------------------
Other expenses:
Salaries and employee benefits 5,224,241 4,679,705 10,485,691 9,383,436
Occupancy expense, net 767,247 742,502 1,569,812 1,544,589
Equipment and furniture expense 680,964 567,638 1,309,984 1,141,156
Amortization of intangible assets 705,430 694,015 1,379,440 1,396,414
Other 3,048,427 2,375,102 5,860,651 4,844,964
- -----------------------------------------------------------------------------------------------------------------------------------
Total other expenses 10,426,309 9,058,962 20,605,578 18,310,559
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 5,838,708 5,923,675 11,625,575 11,241,819
Income taxes 2,171,000 2,399,000 4,293,000 4,579,000
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME $3,667,708 $3,524,675 $7,332,575 $6,662,819
===================================================================================================================================
Earnings per share $0.48 $0.46 $0.95 $0.87
===================================================================================================================================
COMMUNITY BANK SYSTEM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
For Six Months Ended June 30, 1997 and 1996
1997 1996
- ------------------------------------------------------------------------------------------------------------
Operating Activities:
Net income 7,332,575 6,662,819
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,011,689 967,313
Net amortization of intangible assets 1,379,440 1,396,414
Net accretion of security premiums and discounts (105,167) (1,156,881)
Provision for loan losses 1,580,000 1,197,068
Provision for deferred taxes 30,702 188,634
(Gain)\Loss on sale of investment securities 0 0
(Gain)\Loss on sale of loans (24,206) (11,504)
(Gain)\Loss on sale of assets (3,637) (5,616)
Change in interest receivable (1,989,402) (1,104,829)
Change in other assets and other liabilities 4,295,274 2,402,314
Change in unearned loan fees and costs (414,806) (229,289)
- ------------------------------------------------------------------------------------------------------------
Net Cash Provided By Operating Activities 13,092,462 10,306,443
- ------------------------------------------------------------------------------------------------------------
Investing Activities:
Proceeds from sales of investment securities 0 0
Proceeds from maturities of held to maturity investment securities 28,724,157 26,902,961
Proceeds from maturities of available for sale investment securities 5,219,523 21,717,612
Purchases of held to maturity investment securities (5,704,791) (111,788,423)
Purchases of available for sale investment securities (57,779,074) (43,769,528)
Net change in loans outstanding (84,100,299) (39,849,856)
Capital expenditures (2,876,506) (622,947)
Premium paid for branch acquisitions (12,607,707) (29,558)
- ------------------------------------------------------------------------------------------------------------
Net Cash Used By Investing Activities (129,124,697) (147,439,739)
- ------------------------------------------------------------------------------------------------------------
Financing Activities:
Net change in demand deposits, NOW accounts, and savings accounts 86,807,840 2,429,172
Net change in certificates of deposit 118,533,526 3,032,290
Net change in Federal Funds purchased (7,800,000) 45,800,000
Payments on term borrowings (90,000,000) 75,000,000
Issuance of mandatorily redeemable capital securities of subsidiary 29,800,313 0
Issuance (retirement) of common and preferred stock (3,931,346) 31,664
Cash dividends (2,889,454) (2,631,808)
- ------------------------------------------------------------------------------------------------------------
Net Cash Provided By Financing Activities 130,520,879 123,661,318
- ------------------------------------------------------------------------------------------------------------
Change In Cash And Cash Equivalents 14,488,644 (13,471,978)
Cash and cash equivalents at beginning of year 52,534,726 62,903,103
- ------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD 67,023,370 49,431,125
============================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash Paid For Interest $22,192,727 $17,592,471
============================================================================================================
Cash Paid For Income Taxes $5,445,012 $4,371,911
============================================================================================================
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING
AND INVESTING ACTIVITIES:
Dividends declared and unpaid $1,356,563 $1,215,165
============================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
Community Bank System, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
June 1997
Note A -- Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for fair presentation have
been included. Operating results for the six month period ended June 30, 1997
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1997.
Note B -- Recent Events
On January 29, 1997, Community Bank System, Inc. formed a wholly-owned
subsidiary, Community Capital Trust I, a newly-formed Delaware business trust.
The trust issued $30 million of 9.75% Company-obligated Mandatorily Redeemable
Capital Securities, Series A. The Company borrowed the proceeds of the Capital
Securities from its subsidiary by issuing Junior Subordinated Debentures having
substantially similar terms. The Capital Securities mature in year 2027 and are
treated as Tier I capital by the Federal Reserve Bank of New York.
On March 10, 1997, Community Bank System, Inc. redeemed all of its
remaining $4.5 million of 9.0% Cumulative Perpetual Preferred Stock at a 4%
premium from the proceeds of the issuance of its Junior Subordinated Debentures.
A two-for-one stock split was approved by shareholders at a Special
Shareholders Meeting held on February 19, 1997. Shareholders of record at the
close of business on February 10, 1997 were issued one additional share of
common stock for each share already held on March 12, 1997.
On June 16, 1997 CBSI's acquisition of eight branches from KeyBank,
N.A., which included $149.9 million in deposits and $24.9 million in loans, was
completed. In conjunction with this transaction, the company received $109.1
million in cash net of $12.6 million in premium.
After the close of the second quarter, on July 18, 1997 CBSI's
acquisition of 12 branches from Fleet Bank, N.A. was completed. This acquisition
included approximately $159.1 million in deposits and $65.2 million in loans. In
conjunction with this transaction, the company received $74.2 million in cash
net of $15.7 million in premium.
Part 1. Financial Information
Item 1. Financial Statements
The information required by rule 10.01 of Regulation S-X is presented on
the previous pages.
Item 2. Management Discussion and Analysis of Financial Condition and of
Operations
The purpose of the discussion is to present material changes in Community
Bank System, Inc.'s financial condition and results of operations during the six
months ended June 30, 1997 which are not otherwise apparent from the
consolidated financial statements included in these reports. When used in this
report, the term "CBSI" means Community Bank System, Inc. and its subsidiaries
on a consolidated basis, unless indicated otherwise. Financial performance
comparisons to peer bank holding companies are based on data through March 31,
1997 as provided by the Federal Reserve System; the peer group is comprised of
122 bank holding companies having $1 to $3 billion in assets.
I. EARNINGS PERFORMANCE SUMMARY
Three Months Ended Change
6/30/97 6/30/96 Amount Percent
(000's)
Net Income $3,668 $3,525 $143 4.1%
Earnings per share $0.48 $0.46 $0.02 4.3%
Weighted average
shares outstanding 7,655 7,428 227 3.1%
Return on average assets 1.04% 1.16% -0.12% N/A
Average assets $1,419,761 $1,227,101 $192,660 15.7%
Return on average
shareholders' equity 13.79% 14.13% -0.33% N/A
Average shareholders' equity $106,652 $101,974 $4,677 4.6%
Percentage of average shareholders'
equity to average assets 7.51% 8.31% -0.80% N/A
* May not foot due to rounding
Six Months Ended Change
6/30/97 6/30/96 Amount Percent
(000's)
Net Income $7,333 $6,663 $670 10.1%
Earnings per share $0.95 $0.87 $0.08 9.2%
Weighted average
shares outstanding 7,638 7,428 211 2.8%
Return on average assets 1.06% 1.12% -0.06% N/A
Average assets $1,396,841 $1,200,465 $196,377 16.4%
Return on average
shareholders' equity 13.79% 13.45% 0.34% N/A
Average shareholders' equity $107,763 $101,099 $6,664 6.6%
Percentage of average shareholders'
equity to average assets 7.71% 8.42% -0.71% N/A
* May not foot due to rounding
A. Net Income Trend
Net income for the second quarter and first six months of 1997 reached
$3.668 million and $7.333 million, up 4.1% and 10.1%, respectively, over the
comparable 1996 periods. Earnings per share rose to $.48 for the second quarter
and $.95 for the first half, up at a slightly slower pace of 4.3% and 9.2%,
respectively, because of more shares outstanding. Return on equity increased 34
basis points to 13.79% for the first six months while tangible or cash return on
equity reached 15.34%. All per share results have been adjusted for the
company's 2 for 1 stock split effective March 12, 1997.
Compared to first quarter 1997, this quarter's net income and earnings per
share were virtually unchanged, up $3,000 and $.01, respectively. The per share
increase reflects the impact of the company redeeming the $4.5 million remainder
of its cumulative perpetual preferred stock on March 10, 1997
B. Balance Sheet Trends
Our previously announced acquisition of eight branches from KeyBank, N.A.,
which included $149.9 million in deposits and $24.9 million in loans, was
successfully completed in mid-June. Even without the impact of the acquired
loans, this quarter's loan growth was the strongest in the company's history and
nearly 60% more than in second quarter 1996. During the past year, loans (before
the June branch acquisition) have climbed a record 18.6%, over one third of
which came from new markets opened by our mid-1995 branch purchases from The
Chase Manhattan Bank, N.A.
Loans outstanding increased by $61.7 million or 9.2% during the second
quarter. Excluding the loans purchased from Key, outstandings rose by 5.5% or
$36.8 million, significantly better than the $23.0 million or 4.0% growth during
second quarter 1996. The primary components of the $83.4 million increase in
loans since year-end 1996 to $735.9 million are indirect consumer loans (up
$22.2 million to $189.8 million), predominantly reflecting automobile financing
through an established dealer network; business lending products (up $37.4
million to $248.5 million), due to expanded floor plan lending to automobile
dealers and higher commercial loans ($17.1 million from Key); consumer direct
loans (up $18.9 million to $141.0 million), reflecting selected growth in
installment and personal loans ($7.8 million from Key); and consumer mortgages
(up $4.9 million, net of $2.9 million in originations sold service-retained in
the secondary market), growth of which picked up during the second quarter
because of seasonal buying and lower financial market rates.
Investments (excluding market value adjustment) totaled $606.6 million for
the quarter just ended, down $2.3 million (less than 1%) from March 31, 1997
attributable to the lack of favorable buying opportunities. Since June 30, 1996,
there has been $32.1 million (5.6%) in investment growth, which was initially
almost entirely funded by a variety of capital market borrowings and has been
replaced with the acquired deposits.
Total deposits have increased $171.5 million (16.2%) since March 31, 1997,
largely due to the deposits acquired from the Key branches (at quarter end) and
inflows of municipal deposits. Reflecting the same circumstances, total deposits
are up $210.1 million or 20.6% during the last twelve months.
C. Income Statement Trends
Major positive factors for the second quarter versus first quarter 1997
were an increase in net interest income of $215,000 on a $62.2 million expansion
in earning assets, albeit at temporarily lower margins until pending deposit
acquisitions closed; a $204,000 improvement in noninterest income from a variety
of sources (only $27,000 reflecting the Key branch acquisition); and the absence
of dividends paid on the company's cumulative perpetual preferred stock, which
was redeemed in mid-March. Offsetting these improvements was a combination of
$216,000 more in noninterest expense (including $213,000 more in one-time
acquisition-related expenses), a $120,000 higher loan loss provision expense (a
relatively modest increase because of an ample loan loss reserve), and a slight
increase in the company's tax rate.
Second quarter net interest income rose 7.3% or $1.0 million versus the
prior year. The improvement reflects $171 million more in earning assets, 65% of
which represents continued steady loan growth throughout the last twelve months
and an additional 15% due to loan growth provided by the Key branch purchase.
Almost 90% of earning asset growth was funded by the deposits acquired from Key,
which enabled a $17.5 million reduction in borrowings from one year earlier,
with the balance of the funding from higher levels of consumer, business, and
municipal time deposits. The company is expected to have the capacity for
earning asset growth and/or the potential to pay down more of its capital market
borrowings and other large liabilities with the lower cost deposits of 12 Fleet
Bank branches scheduled to be acquired in July. These temporarily higher funding
costs, in addition to the interest on CBSI's 9.75% Trust Preferred stock issued
in January 1997, resulted in a second quarter net interest margin of 4.48%, a 42
basis point decrease from one year ago. Comparing the first six months of 1997
to the same 1996 period, net interest income climbed 8.1% or $2.2 million, and
the net interest margin averaged 40 basis points lower at 4.57%.
Second quarter noninterest income rose nicely, up over 26% from one year
earlier, primarily due to improved sales of mutual funds as well as the
contribution of our July 1996 purchase of Benefit Plans Administrators (BPA) of
Utica, NY.
The company's second quarter 1997 efficiency ratio (overhead compared to
recurring operating income) was up 2.9 percentage points from one year earlier
to 60.6% but unchanged from the first quarter 1997 level. Compared to second
quarter 1996, recurring operating income (net interest income plus noninterest
income) rose by 9.6%--a somewhat reduced rate due to earning asset growth being
temporarily supported by higher cost funds--while overhead increased by 12.7%.
Noninterest income increased 10.8% before the contribution of BPA's pension
administration revenues and associated investment management fees earned through
CBNA's trust department. Excluding the combined impact of BPA and related CBNA
expenses in both years and one-time expenses of the Key and Fleet branch
acquisitions, second quarter noninterest expense rose 9.1%, reflecting annual
personnel expense increases, the impact of stock-based director compensation, a
one-time filing fee, higher advertising expense, an increase in certain problem
asset costs, and higher intangible amortization expense due to the Key branch
acquisition. The second quarter efficiency ratio excluding the impact of
intangibles rose 3.2 percentage points to 56.5% from a year earlier.
Despite higher pretax income, first half 1997 income taxes fell by
$286,000 from the same 1996 period because of increases in non-taxable
investment income. As a result, the effective tax rate was reduced to 36.9%
versus 40.7% one year earlier. CBSI's marginal tax rates are 35% for federal and
9% for state tax purposes.
D. Asset Quality Trend
Asset quality remains good; though the ratio of net charge-offs to loans
rose 17 basis points in the second quarter to .39%, the ratio of non-performing
loans to loans outstanding was up only slightly to .48%, the latter still less
than half the level of peer banks nationwide based on data available as of March
31, 1997.
Second quarter 1997 loan loss provision expense rose by $241,000 or 40%
over the prior year's level, resulting in a $383,000 or 32% increase in the
provision for the first six months. Year-to-date net charge-offs rose $432,000
or 61% to $1.1 million, resulting in a net charge-offs to average outstandings
ratio of .34% for the period versus .24% in 1996. Consumer installment loans
accounted for all but 5% of the change. The loan loss reserve/loans outstandings
ratio rose 5 basis points during the quarter to 1.30%, reflecting 125% coverage
of the provision over net charge-offs as well as the addition of a $1.0 million
valuation allowance resulting from intensive credit review of the loans
purchased from Key. Nonperforming loans rose $209,000 during the second quarter
to $3.505 million, a level $730,000 or 26% higher than one year ago; about
three-quarters of the latter increase pertains to consumer installment loans
with the balance in commercial loans.
Despite some recent softening in the company's asset quality ratios
compared to the highly favorable net charge-off experience of 1993-1996 and
nonperforming loan levels of 1995, today's loan portfolio credit strength
remains better than industry norms; as of March 31,1997 data, CBSI's
nonperforming loans/loans outstanding ratio was in the very strong 20th peer
percentile. Combined delinquencies and nonaccruals were 1.42% of total loans at
quarter end compared to 1.27% one year earlier and 1.46% at year end, all
measures well within the company's internal guideline of 2.0%. Besides present
coverage of the loan loss reserve over nonperformers being 2.7 times versus peer
bank coverage of 2.2 times as of March 31, 1997, over $1.25 million or
approximately 13% of the reserve is available for absorbing general, unforeseen
loan losses after allocation by specific customer and loan type.
E. Capital and Other Trends
As of June 30, 1997, the tier I leverage ratio was 6.93% versus 5.65%
twelve months earlier. The large increase in the ratio is attributable to the
impact of the issuance of $30 million in Trust Preferred securities offset by
the redemption in early March of the remaining 45,000 shares ($4.5 million) of
more expensive cumulative perpetual preferred stock. Growth in the present ratio
also considers the favorable earnings during the last 12 months and scheduled
amortization of intangible assets, partially offset by the continued strategy to
leverage the balance sheet when attractive investment opportunities present
themselves. Compared to December 31, 1996, the ratio was up 1.04 percentage
points due to the Trust Preferred offering, first half earnings and intangible
amortization, partially offset by investment growth funded with capital market
borrowings.
As a result of the aforementioned reasons, the tier I risk-based capital
ratio of June 30, 1997 was 11.67%, or 106 basis points higher than it was as of
June 30, 1996. This compares to a 6% "well-capitalized " regulatory minimum.
Book value per share increased 9.5% from June 30, 1996 to $14.69 as of the
most recent quarter end, while tangible book value per share (which additionally
reflects intangible amortization) has fallen slightly to $8.92, down $.07 or
less than 1% over the same period due to the intangibles related to the Key
acquisition.
The bank's liquidity level is very favorable as of June 30, 1997. In the
event of a liquidity crisis, more than $285 million (essentially short term
assets minus short term liabilities) or 20.2% of assets could be converted into
cash within a 30-day time period. Over a 90 day time period, 19.3% of assets
could be converted to cash.
As shown by the statement of cash flows preceding the Management
Discussion and Analysis, the bank's cash and cash equivalents increased by $14.5
million during the first six months to $67.0 million as of June 30, 1997, a
level $17.6 million higher than one year earlier. The increase in cash and cash
equivalents during the first half of 1997 reflects asset expansion (about half
of which related to net growth in investment securities) being entirely financed
by deposit growth and issuance of the Trust Preferred securities. Net cash
provided by operating activities during the first half of 1997 is almost
entirely responsible for the increase in cash and cash equivalents.
II. SUPPLEMENTAL INFORMATION TO EARNINGS PERFORMANCE SUMMARY
The following sections of this report discuss more fully certain of the
balance sheet and earnings trends summarized above.
A. Net Interest Income
Changes in net interest income reflect changes in both net interest margin
and earning asset levels.
On a tax-equivalent basis, net interest income for second quarter 1997
increased $975,000 (7.1%) over the same 1996 period to $14.7 million. This
reflects a $190.2 million (16.9%) increase in average earning assets with $108.5
million in loan growth and $81.7 million in investment growth. The net interest
margin was 42 BP lower than a year earlier . This was largely due to the 52
basis point (BP) higher cost of funds resulting from a $120.8 million increase
in average capital market borrowings, which included the aforementioned issuance
of the $30 million of 9.75% Trust Preferred stock. An 8 BP increase in earning
asset yields offset a portion of the cost of funds increase.
Compared to first quarter 1997, there was a $200,000 increase in net
interest income. The change is attributable to earning asset growth, partially
offset by the 14 BP lower net interest margin largely due to the absence of
$321,000 in non-recurring income recognized in the prior quarter. Excluding
first quarter non-recurring income, the second quarter net interest margin would
have been 4 BP lower versus 14 BP lower.
The table below shows these underlying dynamics.
For the Quarter Net Net Yield on Cost Average
Ended: Interest Interest Earning of Earning
(000's) Income Margin Assets Funds Assets
(a) (a) (a) (b)
-------------------------------------------------------------------
Amount and Change from Preceding Quarter
-------------------------------------------------------------------
June 30, 1996
Amount $13,698 4.90% 8.51% 3.64% $1,124,059
Change $373 -0.14% -0.11% 0.05% 5.6%
September 30, 1996
Amount $14,355 4.82% 8.55% 3.78% $1,185,913
Change $656 -0.09% 0.04% 0.14% 5.5%
December 31, 1996
Amount $14,350 4.70% 8.55% 3.91% $1,214,708
Change ($5) -0.12% 0.00% 0.13% 2.4%
March 31, 1997
Amount $14,474 4.62% 8.67% 4.11% $1,269,910
Change $124 -0.08% 0.12% 0.20% 4.5%
June 30, 1997
Amount $14,674 4.48% 8.59% 4.16% $1,314,305
Change $200 -0.14% -0.08% 0.05% 3.5%
Change from
June 30, 1996 to
June 30, 1997
Amount $975 -0.42% 0.08% 0.52% $190,246
% Change 7.1% --- --- --- 16.9%
YTD June 30,
1996 $27,023 4.97% 8.56% 3.59% $1,094,018
1997 $29,148 4.55% 8.63% 4.08% $1,292,231
$ Change $2,124 --- --- --- $198,212
% Change 7.9% -0.42% 0.07% 0.49% 18.1%
Note: (a) All net interest income, margin, and earning asset yield figures are
full-tax equivalent.
(b) Interest expense divided by total average deposits and borrowed
funds.
* May not foot due to rounding
Despite the high proportion (89th peer percentile) of the bank's assets
being in investments (whose yields are relatively low compared to loans), and
greater funding costs caused by both temporarily higher levels of borrowings in
advance of the pending branch acquisitions and interest on CBSI's Trust
Preferred stock issued in January 1997, the net interest margin is still
slightly better than the norm being in the 54th peer percentile as of March 31,
1997. This is attributable to high earning asset yields being in the favorable
80th percentile, offset by a temporarily high cost of funds being in the 73rd
percentile.
B. Capital
The common shares of Community Bank System, Inc. are traded in the NASDAQ
National Market System under the symbol CBSI. Stock price activity, numbers of
shares outstanding, cash dividends declared and share volume traded are shown
below. Note that all per share figures have been adjusted for CBSI's 2 for 1
stock split effective March 12, 1997.
For the Quarter Market Market Market # of Cash Share
Ended: Price Price Price Shares Dividend Volume
High Low Close Outstanding Declared Traded
----------------------------------------------------------------------------------------
Amount and Change from Preceding Quarter
----------------------------------------------------------------------------------------
June 30, 1996
Amount $16.25 $15.38 $15.57 7,364,630 $0.165 447,194
Change -0.8% 1.7% 0.4% 0.0% 0.0% 41.4%
September 30, 1996
Amount $17.75 $17.00 $17.13 7,450,406 $0.18 445,958
Change 9.2% 10.6% 10.0% 1.2% 9.1% -0.3%
December 31, 1996
Amount $20.13 $17.00 $19.63 7,474,406 $0.18 624,249
Change 13.4% 0.0% 14.6% 0.3% 0.0% 40.0%
March 31, 1997
Amount $24.25 $19.25 $23.50 7,518,262 $0.18 652,661
Change 20.5% 13.2% 19.7% 0.6% 0.0% 4.6%
June 30, 1997
Amount $29.00 $23.00 $28.25 7,536,462 $0.18 712,647
Change 19.6% 19.5% 20.2% 0.2% 0.0% 9.2%
Change from
June 30, 1996 to
June 30, 1997
Amount $12.75 $7.63 $12.69 171,832 $0.015 265,453
% Change 78.5% 49.6% 81.5% 2.3% 9.1% 59.4%
CBSI's stock closed second quarter 1997 at $28.25, up 81.5% from one year
earlier when it closed at $15.57. The volume of shares traded at 712,647 was
59.4% more than during second quarter 1996, due largely to NASDAQ's standard
practice of not adjusting the historical volume of shares traded in the event of
a stock split.
The cash dividend shown above reflects a 1.5 cent (9%) per share increase
in the quarterly dividend per common share that was effective in third quarter
1996. This most recent increase was the sixth dividend increase within five
years. The 1997 common dividend payout of 37.0% has increased slightly (with
higher earnings) from the same 1996 period but remains within the company's
targeted 30-40% guideline.
C. Loans
Loans outstanding, net of unearned discount, reached a record $735.9
million as of June 30, 1997, a very favorable $ 136.3 million (22.7%) growth in
the last twelve months. The $61.7 million in quarterly growth from the end of
the first quarter to the end of the second quarter ($24.9 million resulting from
the former Key branches) represents the 20th consecutive quarter that
oustandings have grown. As shown in the table below, CBNA is predominantly a
retail bank, with more than 66% of its outstandings spread across three basic
consumer loan types.
For the Quarter Consumer Consumer Consumer Business Total Yield on
Ended: Direct Indirect Mortgages Lending Loans Loans
(000's)
-------------------------------------------------------------------------------
Amount and Change from Preceding Quarter Quarterly Average
-------------------------------------------------------------------------------
June 30, 1996
Amount $105,895 $149,197 $155,579 $188,868 $599,538 9.44%
Change 0.1% 7.5% 3.5% 4.0% 4.0% (0.08)
September 30, 1996
Amount $109,137 $159,996 $161,388 $196,171 $626,693 9.36%
Change 3.1% 7.2% 3.7% 3.9% 4.5% (0.08)
December 31, 1996
Amount $122,087 $167,629 $151,691 $211,068 $652,474 9.46%
Change 11.9% 4.8% -6.0% 7.6% 4.1% 0.10
March 31, 1997
Amount $125,219 $177,051 $153,512 $218,396 $674,178 9.67%
Change 2.6% 5.6% 1.2% 3.5% 3.3% 0.20
June 30, 1997
Amount $140,951 $189,828 $156,561 $248,538 $735,877 9.40%
Change 12.6% 7.2% 2.0% 13.8% 9.2% (0.27)
Change from
June 30, 1996 to
June 30, 1997
Amount $35,055 $40,632 $982 $59,670 $136,339 -0.04%
Change 33.1% 27.2% 0.6% 31.6% 22.7% N/A
Loan mix
June 30, 1996 to 17.7% 24.9% 25.9% 31.5% 100.0%
June 30, 1997 19.2% 25.8% 21.3% 33.8% 100.0%
Change 1.5% 0.9% -4.7% 2.3% ---
* May not foot due to rounding
More than 44% of the bank's loan growth in the last twelve months came
from the generally prime-based business lending portfolio, which increased $59.7
million or 31.6%, reflecting strong business development efforts and the
contribution of acquired branches amounting to $17.1 million in commercial loans
at quarter end. Even without the former Key loans, business lending would have
increased 22.5%.
Almost 30% of the bank's loan growth in the last twelve months came from
the indirect lending portfolio (applications taken at dealer locations - none of
which came from the former Key branches), which grew 27.2%. This reflects good
automobile demand industry-wide, as well as continued greater emphasis on this
product line in the bank's Southern Region.
The remaining growth over this period resulted from a 33.1% growth in
consumer direct loans (applications taken at branch locations - $6.4 million of
the $35.0 million in growth resided in the former Key branches) and less than a
1% increase in Consumer Mortgages (none from Key branches). Both increases
reflect a change in late October 1996 to reporting fixed rate Home Equities in
Consumer Direct Loans instead of Consumer Mortgages.
Despite a 25 BP increase in the average prime rate, the average loan yield
for the quarter just ended is 4 BP lower than a year ago primarily due to the
increasing mix of relatively lower yielding business loans (as compared to the
higher yielding consumer loans) and lower yields on consumer mortgages
reflective of financial market trends.
D. Asset Quality
The following table reflects the detail of non-performing and restructured
loan levels. The ratio of non-performing assets to total assets was .29% as of
June 30, 1997, up 4 basis points from a year ago. OREO for all periods is
recorded at the lower of cost or market less estimated cost to sell. The ratio
of nonperforming assets to loans plus OREO at .58% remains better than the
company's internal goal of less than .75%. Nonaccruing loans rose $274,000 or
14.8%, about equally due to consumer installment and real estate loans. The
change in loans delinquent 90 days or more reflects some softening in commercial
and consumer installment loans.
(000's or % Ratios) June 30, March 31, December 31, September 30, June 30, June 30, 1997 - 1996
1997 1997 1996 1996 1996 $ Chg % Chg
Loans accounted for on a $2,122 $2,253 $2,023 $2,036 $1,848 $274 14.8%
non-accrual basis
Accruing loans which are
contractually past due
90 days or more as to
principal and interest
payments $1,383 $1,043 $823 $1,176 $927 $456 49.2%
------- ------- ----- ------- -----
Total Non-Performing Loans $3,505 $3,296 $2,846 $3,212 $2,775 $730 26.3%
Loans which are "troubled
debt restructurings" as
defined in Statement of
Financial Accounting
Standards No. 15
"Accounting by Debtors
and Creditors for
Troubled Debt
Restructurings" $0 $0 $32 $0 $0 $0 0.0%
Other Real Estate (OREO) $745 $726 $746 $693 $476 $270 56.7%
----- ----- ----- ----- -----
Total Non-Performing Assets $4,250 $4,022 $3,624 $3,905 $3,251 $1,000 30.8%
Total Non-Performing Assets/ 0.29% 0.29% 0.29% 0.29% 0.25% --- 0.04%
Total Assets
Total Non-Performing Assets/
Total Loans & OREO 0.58% 0.60% 0.55% 0.62% 0.54% --- 0.04%
Total Non-Performing Loans/
Total Loans 0.48% 0.49% 0.44% 0.51% 0.46% --- 0.01%
------------------------------------------------------------------------------------------------
Loan Loss Allowance $9,599 $8,400 $8,128 $7,806 $7,469 $2,130 28.5%
Loan Loss Allowance/
Total Loans 1.30% 1.25% 1.25% 1.25% 1.25% --- 0.05%
Loan Loss Allowance/
Non-Performing Assets 226% 209% 224% 200% 230% --- -4%
------------------------------------------------------------------------------------------------
Loan Loss Provision
-YTD $1,580 $730 $2,897 $1,827 $1,197 $383 32.0%
-Qtr Ended $850 $730 $1,070 $630 $609 $241 39.6%
Loan Loss Provision/
Average Loans
-YTD 0.47% 0.45% 0.48% 0.41% 0.42% --- 0.05%
-Qtr Ended 0.49% 0.45% 0.67% 0.41% 0.42% --- 0.07%
* May not foot due to rounding
The table below reflects quarterly and year-to-date charge-off and recovery
trends. As previously discussed year-to-date net charge-offs rose $432,000 or
61% to $1.1 million, resulting in a net charge-offs to average outstandings
ratio of .34% for the period versus .24% in 1996. Consumer installment loans
accounted for all but 5% of the change. As shown in the table on the previous
page, the loan loss reserve/loans outstandings ratio rose 5 basis points during
the quarter to 1.30%, reflecting 125% coverage of the provision over net
charge-offs as well as the addition of a $1.0 million valuation allowance
resulting from intensive credit review of the loans purchased from Key.
For the Quarter Gross Recoveries Net Gross Recoveries/ Net Loan Loss
Ended: Charge-offs Charge-offs Charge-offs/ Prior Year Charge-offs/ Provision/
(000's) Average Loans Gross Average Loans Net
Charge-offs Charge-offs
-----------------------------------------------------------------------------------------------------------
Amount and Change from Preceding Quarter
-----------------------------------------------------------------------------------------------------------
June 30, 1996
Amount $500 $174 $326 0.35% 39.7% 0.23% 187%
Change ($66) ($14) ($52) -0.05% -3.2% -0.04% 123%
September 30, 1996
Amount $486 $193 $293 0.33% 43.6% 0.20% 215%
Change ($14) $19 ($33) -0.02% 3.9% -0.03% 28%
December 31, 1996
Amount $907 $160 $747 0.60% 36.2% 0.49% 143%
Change $421 ($33) $454 0.27% -7.4% 0.30% -72%
March 31, 1997
Amount $649 $192 $457 0.40% 31.6% 0.28% 160%
Change ($258) $32 ($290) -0.20% -4.6% -0.21% 16%
June 30, 1997
Amount $832 $154 $678 0.49% 25.1% 0.40% 125%
Change $184 ($38) $221 0.09% -6.5% 0.12% -34%
Change from
June 30, 1996 to
June 30, 1997
Amount $333 ($20) $352 --- --- --- ---
% Change 66.6% -11.3% 108.1% 0.14% -14.6% 0.17% -61%
YTD June 30,
1996 $1,065 $361 $704 0.37% 41.3% 0.24% 170%
1997 $1,481 $345 $1,136 0.44% 28.3% 0.34% 139%
$ Change $416 ($16) $432 --- --- --- ---
% Change 39.1% -4.3% 61.3% 0.07% -13.0% 0.10% -31%
E. Deposits
The table below displays the components of total deposits including volume
and rate trends over the last five quarters.
For the Quarter Average Average Average Average Average Average
Ended: Demand Savings Money Time Total Deposits/
(000's) Market Deposits Earning
Assets
--------------------------------------------------------------------------------
Amount and Average Rate
--------------------------------------------------------------------------------
June 30, 1996
Amount $143,227 $347,462 $63,224 $485,358 $1,039,270 92.5%
Yield / Rate ---- 2.43% 2.46% 5.43% 3.50%
September 30, 1996
Amount $144,692 $341,349 $67,941 $472,739 $1,026,721 86.6%
Yield / Rate ---- 2.44% 2.48% 5.46% 3.49%
December 31, 1996
Amount $146,338 $329,640 $59,907 $491,323 $1,027,208 84.6%
Yield / Rate ---- 2.43% 2.49% 5.54% 3.58%
March 31, 1997
Amount $141,725 $325,911 $58,503 $512,295 $1,038,433 81.8%
Yield / Rate ---- 2.45% 2.50% 5.57% 3.66%
June 30, 1997
Amount $148,513 $333,356 $62,720 $560,335 $1,104,925 84.1%
Yield / Rate ---- 2.44% 2.57% 5.60% 3.72%
Change in quarterly average
outstandings & yield / rate
June 30, 1996 to
June 30, 1997
Amount $5,287 ($14,105) ($504) $74,977 $65,654 -8.4%
% Change 3.7% -4.1% -0.8% 15.4% 6.3% -9.1%
Change (% pts) ---- 0.01 0.10 0.17 0.22
Deposit Mix
June 30, 1996 to 13.8% 33.4% 6.1% 46.7% 100.0%
June 30, 1997 13.4% 30.2% 5.7% 50.7% 100.0%
Change -0.3% -3.3% -0.4% 4.0% ----
* May not foot due to rounding
Average deposits increased $65.7 million or 6.3% for the 1997 quarter just
ended as compared to the same 1996 quarter. Due to relative lateness of the Key
acquisition in the second quarter, the $145 million in Key branch deposits had
an impact on average deposits of approximately $25 million. Overall decreases in
Savings and Money Market accounts were offset by a large increase in average
time deposits ($75.0 million increase - of which almost $12 million of the
average was related to the former Key branches), reflecting the bank's objective
to extend its deposit liabilities by offering very competitive rates on its
Certificates of Deposit.
Due largely to the growing mix of higher cost time deposits (upon which
the rate is also increasing) and an average Fed Funds rate moving up 30 BP's
from second quarter 1996 to second quarter 1997 (which influences certain
deposit pricing), the average total deposit rate moved up 22 BP's. The higher
time deposit mix also reflects the continuing flow of Savings and Money Market
deposits back into Time Deposits as rates have become more attractive.
F. Liquidity and Borrowing Position
The following table shows the trend of major earning assets and funding
sources over the last five quarters.
For the Quarter Average Average Ave Core Average Average Average
Ended: Loans Investments Deposits Municipal Capital Market Interest-
(000's) (a) (b) Deposits Borrowings Bearing
Liabilities
--------------------------------------------------------------------------------
Amount and Average Yield / Rate
--------------------------------------------------------------------------------
June 30, 1996
Amount $589,407 $534,653 $893,135 $146,136 $73,858 $969,902
Yield / Rate 9.44% 7.48% 3.52% 3.39% 5.62% 4.18%
September 30, 1996
Amount $611,922 $573,991 $900,950 $125,771 $144,987 $1,027,016
Yield / Rate 9.36% 7.69% 3.54% 3.14% 5.83% 4.31%
December 31, 1996
Amount $639,764 $574,944 $903,111 $124,097 $168,011 $1,048,880
Yield / Rate 9.46% 7.53% 3.62% 3.26% 5.94% 4.45%
March 31, 1997
Amount $661,724 $608,187 $902,103 $136,330 $213,961 $1,110,670
Yield / Rate 9.67% 7.59% 3.72% 3.25% 6.28% 4.63%
June 30, 1997
Amount $697,918 $616,387 $939,626 $165,299 $194,665 $1,151,076
Yield / Rate 9.40% 7.67% 3.70% 3.86% 6.63% 4.69%
Change in quarterly average
outstandings & yield / rate
from June 30, 1996 to
June 30, 1997
Amount $108,512 $81,734 $46,491 $19,163 $120,807 $181,175
% Change 18.4% 15.3% 5.2% 13.1% 163.6% 18.7%
Change (%pts) -0.04 0.20 0.18 0.47 1.01 0.52
Note (a) Yield on average investments calculated on a full-tax equivalent basis.
(b) Defined as total deposits minus municipal deposits; includes
CDs > $100,000 for individuals and businesses.
* May not foot due to rounding
Borrowings for second quarter 1997 averaged $195.0 million compared to
$74.0 million for second quarter 1996. The increase resulted in part from the
issuance of $30 million of Capital Securities in anticipation of funding future
branch deposit acquisitions and repaying the company's more expensive
outstanding preferred stock. Average loans grew $108.5 million (18.4%) in the
last year while average investments grew $81.7 million (15.3%); about 64% of the
combined increase was funded with capital market borrowings, a large part of
which the bank has the capacity to repay from the acquired branch deposits.
G. Investments and Asset/Liability Management
The investment portfolio at quarter end comprised 45.3% of earning assets,
down from 48.9% on June 30, 1996, primarily because of the planned faster growth
of the loan portfolio versus the investment portfolio. Largely through fixed
rate investment purchases, the absolute level of the investment portfolio has
grown by $35.0 million or 6.1% during the last twelve months.
As shown by the table below, the bank's investments consist primarily of
U.S. Treasury securities, mortgage-backed securities (including U.S. agencies
and collateralized mortgage obligations), and tax-exempt obligations of state
and political subdivisions.
For the Quarter U.S. Mtg-Backs Tax Other Market Total Invests /
Ended: Gov'ts (a) Exempts (b) Value Investments Earning
(000's) Adjustment Assets
at
--------------------------------------------------------------- Period
Amount and Change from Preceding Quarter End
---------------------------------------------------------------
June 30, 1996
Amount $308,641 $228,843 $15,508 $21,469 $107 $574,568 48.9%
Change 23.4% 7.4% -6.8% 0.0% -90.2% 14.4% 2.4
September 30, 1996
Amount $299,909 $257,234 $19,379 $18,704 $331 $595,556 48.7%
Change -2.8% 12.4% 25.0% -12.9% 208.5% 3.7% (0.2)
December 31, 1996
Amount $287,949 $249,071 $18,233 $21,717 $1,614 $578,584 47.0%
Change -4.0% -3.2% -5.9% 16.1% 388.1% -2.8% (1.7)
March 31, 1997
Amount $325,174 $242,825 $12,545 $28,887 ($269) $609,162 47.5%
Change 12.9% -2.5% -31.2% 33.0% -116.7% 5.3% 0.5
June 30, 1997
Amount $322,361 $239,295 $16,054 $28,904 $3,001 $609,615 45.3%
Change -0.9% -1.5% 28.0% 0.1% -1213.7% 0.1% (2.2)
Change from
June 30, 1996 to
June 30, 1997
Amount $13,720 $10,452 $546 $7,435 $2,893 $35,047 -3.6%
Change 4.4% 4.6% 3.5% 34.6% 2698.7% 6.1% ---
Investment Mix
June 30, 1996 to 53.7% 39.8% 2.7% 3.7% 0.0% 100.0%
June 30, 1997 52.9% 39.3% 2.6% 4.7% 0.5% 100.0%
Change -0.8% -0.6% -0.1% 1.0% 0.5% ---
Note:(a) Includes CMO's and pass throughs
(b) Includes Money Market Investments, Federal Home Loan Bank,
and other stock
* May not foot due to rounding
The average fully taxable equivalent yield in the last year (as shown in
the table in section F) has increased 20 BP to 7.67% on average for second
quarter 1997 versus 7.48% for second quarter 1996, largely due to a $126,000
bond discount accretion adjustment (earned when $ 7.9 million in bonds were
called).
The portfolio market value increased from 100.4% of book value one year
ago to 101.7% of book value as of June 30, 1997. The average life of the
portfolio increased slightly from 4.2 years on June 30, 1996 to 4.3 years on
June 30, 1997.
As of the most recent quarter end, 43.1% of the investment portfolio was
classified as available-for-sale (AFS) in accordance with SFAS No. 115, with the
remainder (56.9%) as held-to-maturity. The pretax market value adjustment of the
AFS portfolio was a favorable $3.0 million as compared to $107,000 a year
earlier.
Part II. Other Information
Item 1. Legal Proceedings.
Not Applicable
Item 2. Changes in Securities.
Not Applicable
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Securities Holders.
Not Applicable.
Item 5. Other Information.
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits required by Item 601 of Regulation S-K:
(11) Statement re Computation of earnings per share
(21) Subsidiaries of the registrant
- Community Bank, National Association, State of New York
- Community Financial Services, Inc., State of New York
- Community Capital Trust I, State of Delaware
b) Reports on Form 8-K: None
SIGNATURES
Pursuant to the requirements of The Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Community Bank System, Inc.
Date: August 7, 1997 /s/ Sanford A. Belden
----------------------------------------------------
Sanford A. Belden, President and
Chief Executive Officer
Date: August 7, 1997 /s/ David G. Wallace
----------------------------------------------------
David G. Wallace, Senior Vice President
Chief Financial Officer