Exhibit 99
[LOGO] News Release
COMMUNITY BANK SYSTEM, INC.
5790 Widewaters Parkway, DeWitt, N.Y. 13214
For further information, please contact:
Mark E. Tryniski,
Chief Financial Officer
Office: (315) 445-7378
Fax: (315) 445-7347
COMMUNITY BANK SYSTEM SECOND QUARTER EPS RISES 7%
Net Interest Margin Increases; Non-Interest Income Up 22%
Syracuse, N.Y. - July 17, 2003 - Community Bank System, Inc. (NYSE: CBU),
a bank holding company with $3.4 billion in assets, has announced that diluted
earnings per share for the second quarter were $0.75, up 7.1% from the prior
year's level of $0.70 and equal to first quarter 2003 results. Diluted earnings
per share for the six months ended June 30, 2003 of $1.50 represent a 10.3%
increase over 2002 results for the same period of $1.36.
Operating Results
Net income for the second quarter was $10.0 million, an increase of 8.2% over
the $9.3 million reported in 2002. For the six months ended June 30, 2003, net
income increased 12.1% from $17.8 million to $20.0 million in 2002. Increased
earnings resulted from improved net interest margins as well as significant
increases in non-interest income.
Net interest income for the quarter of $32.1 million was up 2.1% over 2002's
level of $31.4 million, and down nominally from $32.5 million in the first
quarter of 2003. The increase in 2003 reflects an improvement in net interest
margin, partially offset by a decline in net average earning assets due to the
planned reduction of certain investment securities and borrowings as previously
announced. Net interest margins for the quarter remained strong at 4.75%,
increasing from 4.54% for the comparative 2002 quarter and down only five basis
points from 4.80% in the first quarter of 2003. While the total earning asset
yield of 6.76% for this quarter is down 39 basis points from 7.15% for the 2002
quarter, that decline was more than offset by a 56 basis point reduction in the
total cost of funds from 2.58% to 2.02%. Year-to-date net interest margin of
4.77% compares to 4.53% for six month period of 2002.
Sanford A. Belden, President and Chief Executive, stated, "Our continued
earnings improvement in the second quarter reflects the consistent strength of
our net interest margins and a 22% increase in non-interest income, despite
continued softness in our financial services business caused by adverse market
conditions. Along with achieving strong operating results during the second
quarter, we continued to take strategic steps to increase shareholder value. The
acquisition of Grange National Banc Corp. will enhance our Pennsylvania banking
franchise, while the addition of the PricewaterhouseCoopers Upstate New York
Global Human Resources Solutions consulting group will enhance our strong
retirement plan administration and consultant services business, which has
achieved significant organic growth recently."
Loan loss provision for the second quarter of 2003 was $2.7 million, down from
$3.4 million in the same quarter of 2002 and the first quarter of 2003. For the
six months ended June 2003, loan loss provision of $6.1 million compares to $4.9
million for the same period of 2002. The increase in 2003 principally reflects
specific provisioning in the first quarter related to four non-performing
commercial credits.
Non-interest income (excluding security gains and losses) increased 22% this
quarter, from $7.6 million in 2002 to $9.2 million in 2003. For the six-month
period, non-interest income increased 19.2% from $15.3 million in 2002 to $18.2
million in 2003. These increases are attributable principally to the
introduction of a particular new deposit services product late in the fourth
quarter of 2002, which accounts for approximately $1.8 million of the quarterly
increase and $3.3 million of the six month increase. Also contributing to this
improvement are increases from 2002 to 2003 in mortgage banking revenues of $.2
million and $.8 million for the quarterly and six-month periods, respectively.
Revenues from financial services were unfavorably impacted by the difficult
investment environment experienced in part of this quarter and declined from
$3.6 million in the second quarter of 2002 to $3.1 million in 2003. Year-to-date
financial services income of $6.2 million compares to $7.2 million for the same
2002 period. Declines in investment management and broker-dealer activities were
offset by continued revenue growth in the benefit plan administration business,
which has increased 36% from second quarter 2002 to 2003 ($1.1 million to $1.5
million) and 29% for the six-month period 2002 to 2003 ($2.2 million to $2.8
million).
Operating expenses for the second quarter increased from $24.1 million in 2002
to $25.4 million in 2003, or 5.6%, resulting in an efficiency ratio (excluding
intangible amortization and security gain/loss) of 54.6% for 2003 and 53.5% for
2002. Year-to-date, the company's efficiency ratio improved from 54.6% in 2002
to 53.5% in 2003 due to operating expense increases of only 2.8% and higher
levels of interest income and non-interest income.
The company's effective tax rate declined to 25% for the six-month period ended
June 30, 2003 compared to 27% for the same period of 2002, due principally to an
increased level of average tax-exempt securities.
Financial Position
End-of-period earning assets for the second quarter declined $94 million to
$2.94 billion from $3.03 billion in second quarter 2002, consisting of an
increase in total loans of $107 million, or 6.1%, and a decrease of investment
securities (excluding market value adjustments) of $200 million, or 15.6%.
Outstanding borrowings decreased $153 million, from $550 million at June 30,
2002 to $397 million at June 30, 2003. The decreases in both investment
securities and borrowings reflect the company's deleveraging strategy initiated
in mid-2002 as a result of unfavorable investment market conditions. Deposits
increased 1.1%, from $2.51 billion in second quarter 2002 to $2.54 billion for
2003.
The increase in total loans of $107 million was driven principally by
residential real estate activity, which accounted for $81 million of the
increase and a 17% increase in consumer mortgage loans outstanding. This
increase excludes approximately $61 million of longer-term loans originated and
sold in the secondary market, $52 million of which occurred in the first and
second quarters of 2003. The remainder of the increase represents consumer
indirect loans of $37 million (14%) and business loans of $7 million (1%),
offset by a decrease in consumer direct of $18 million (5%). Year-to date, total
loans have grown $51 million, or 3%, including consumer mortgage loans of $36
million (7%), business loans of $8 million (1%), consumer indirect loans of $18
million (6%), and a reduction in consumer direct loans of $11 million (3%).
The allowance for loan losses at June 30, 2003 of $27.4 million is up from $23.9
million at June 30, 2002 largely as a result of increased provisioning related
to commercial credits. The ratio of allowance for loan losses to total loans of
1.48% compares to 1.34% at June 30, 2002 and 1.46% at December 31, 2002.
Year-to-date net charge-offs for 2003 of $5.0 million are comparable to the $4.9
million reported for the same 2002 period. Non-performing loans of $15.1 million
at June 30, 2003 are up from $11.2 million at June 30, 2002 as a result of the
same credits discussed above, however, have declined $.7 million from March 31,
2003's level of $15.8 million. The ratio of non-performing loans to total loans
of .81% at June 30, 2003 remains higher than management's target range, but is
below the .87% reported at March 31, 2003 and well below the company's most
recent peer ratio of .95% (BHCPR, March 2003). Total delinquent loans (>30 days
plus non-accrual) have
also experienced an improving trend, declining from 1.88% at December 31, 2002,
to 1.85% at March 31 2003 and 1.79% at June 30, 2003.
Mr. Belden further stated, "The benefits of our deleveraging strategy have been
validated by the ongoing strength of our earnings and net interest margins. We
continue, however, to monitor opportunities to further enhance earnings through
capital market investment transactions that are consistent with our overall
asset/liability management objectives. Real estate lending remains robust, as
reflected in increased year-to-date originations of $187 million in 2003 from
$104 million in 2002. Total loan growth has been moderated by low, single-digit
growth rates in business and consumer lending, which we expect to continue
through the remainder of 2003. We are very pleased with the improvement in
credit quality this quarter - - non-performing loans declined slightly, and
delinquencies have shown improvement in each of the past two quarters. We
continue to be effective and focused in managing credit quality, particularly
with respect to certain peer measures and a challenging economic environment."
Other Matters
On June 9, 2003, the Company announced that its Board of Directors had
authorized a stock repurchase program to acquire up to 700,000 common shares, or
approximately 5.4% of total outstanding shares, over the course of the ensuing
twelve months. As of July 17, 2003, 40,300 shares had been repurchased at an
aggregate cost of $1.51 million and an average price per share of $37.58.
On June 9, 2003, the company announced an agreement to acquire all of the
outstanding stock of Grange National Banc Corp., a $280-million-asset national
bank based in Tunkhannock, Pa. The transaction is expected to be accretive to
earnings within the first 12 months based on anticipated cost reductions, modest
revenue enhancements, and the stock repurchase program. Grange's 12 branches
will operate as part of First Liberty Bank & Trust, a division of Community
Bank, N.A. Thomas A. McCullough, current President and Chief Executive Officer
of Grange, will become President of Pennsylvania Banking and manage all of the
Company's banking business in Northeastern Pennsylvania, including the 13
current First Liberty Bank & Trust branches. The acquisition is expected to
close during the fourth quarter of 2003, pending approval by Grange shareholders
and customary regulatory approval.
On June 9, 2003, the company announced an agreement to acquire
PricewaterhouseCoopers' (PwC) Upstate New York Global Human Resources Solutions
consulting group. This practice is a leading provider of retirement and employee
benefits consulting services throughout Upstate New York, and will be
complementary to Benefit Plans Administrative Services, Inc. (BPA), the
company's defined contribution plan administration subsidiary. Following the
acquisition, which is expected to close July 31, 2003, BPA will employ over 70
professionals and provide retirement plan administration and consulting services
to more than 700 clients.
Belden went on to say, "Both of these transactions are consistent with our
objective of enhancing shareholder value through strategic, high-quality
acquisitions. Grange has been a high-performing bank in its marketplace for many
years, with a peer-leading track record of earnings growth, loan generation and
consistently superior asset quality. We are particularly pleased that Tom
McCullough, with 35 years of banking experience, will be joining our senior
management team to take responsibility for all our Pennsylvania banking
business. The acquired PwC consulting group brings to BPA a well-known
reputation for superior service capabilities and a strong client base that will
approximately double the revenue of this business. Importantly, the
complementary nature of the service offerings of BPA and PwC will provide
substantial opportunities for enhanced revenue generation."
Updated Earnings Guidance
The company's present expectations for full-year 2003 diluted earnings per share
(excluding the effect of the share repurchase program and acquisitions described
above) remain consistent with the guidance previously reported and the current
earnings estimates of the four analysts that cover CBU, which range from $2.95
to $3.00 per share.
Mark Tryniski, Executive Vice President and Chief Financial Officer, stated, "We
have managed our balance sheet prudently and expect net interest margins to
remain strong throughout the second half of 2003; full year 2003 net interest
margin should exceed that reported in 2002. We expect asset quality and loss
provisioning to remain stable based on improving delinquency trends over the
past two quarters and diligent management of existing non-performing assets.
Total non-interest income should exceed that reported in the first half of 2003,
benefited by increasing revenue growth of BPA and improved financial services
revenues that may result from continuation of the recent strength in the
investment markets. Recurring operating expenses for the second half of 2003
should be comparable with those reported for the first half of the year."
Mr. Tryniski concluded, "We continue to expect an outstanding year of financial
performance for the company, including consummation in the third and fourth
quarters of the announced acquisitions that will further strengthen the earnings
opportunities of both our banking and financial services businesses as we move
toward 2004."
Conference Call Scheduled
A conference call will be held with company management at 10:00 a.m. (ET) on
Friday, July 18, to discuss the above results at 1-866-453-8880 (access code
6439208). An audio recording will be available one hour after the call until
September 26, and may be accessed at 1-866-453-6660 (access code 137057).
Investors may also listen to the call live via the Internet over PR Newswire,
at:
http://www.firstcallevents.com/service/ajwz384295572gf12.html
The call will be archived on this site for 90 days and may be accessed at any
time at no cost. This earnings release, including supporting financial tables,
is available within the "Press Release" section of the company's website at
www.communitybankna.com.
Community Bank System, Inc. (NYSE: CBU) is a registered bank holding
company based in DeWitt, N.Y. with $3.4 billion in assets. Its wholly-owned
banking subsidiary, Community Bank, N.A. (http://www.communitybankna.com), is
the third largest community banking franchise headquartered in Upstate New York,
having 116 customer facilities and 85 ATMs stretching diagonally from Northern
New York to the Southern Tier, west to Lake Erie, and in Northeastern
Pennsylvania. Other subsidiaries within the CBU family are Elias Asset
Management, Inc., an investment management firm based in Williamsville, N.Y.;
Benefit Plans Administrative Services, Inc. (BPA), a pension administration and
consulting firm located in Utica, N.Y., serving sponsors of defined benefit and
defined contribution plans; and Community Investment Services, Inc. (CISI), a
broker-dealer delivering financial products, including mutual funds, annuities,
individual stocks and bonds, and long-term health care and other selected
insurance products, from various locations within Community Bank's branch system
and from offices in Jamestown and Lockport, N.Y.
* * * * * * *
This press release contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. The following factors, among
others, could cause the actual results of CBU's operations to differ materially
from CBU's expectations: the successful integration of operations of its
acquisitions; competition; changes in economic conditions, interest rates and
financial markets; and changes in legislation or regulatory requirements. CBU
does not assume any duty to update forward-looking statements.
Community Bank System, Inc.
Summary of Financial Data
(Dollars in thousands, except per share data)
Jun 30, Jun 30, Change Change
2003 2002 Amount Percent
---- ---- ------ -------
Quarterly
Net interest income $ 32,102 $31,437 $ 665 2.1%
Loan loss provision 2,673 3,384 (711) -21.0%
Net interest income after provision for loan losses 29,429 28,053 1,376 4.9%
Financial services non-interest income 3,104 3,550 (446) -12.6%
Banking services non-interest income 6,094 4,017 2,077 51.7%
Total non-interest income before security gains & debt ext 9,198 7,567 1,631 21.6%
Security gains & debt ext 0 1,144 (1,144) 0.0%
Total non-interest income 9,198 8,711 487 5.6%
Financial services operating expenses 2,854 2,645 209 7.9%
Banking services operating expenses 21,320 19,821 1,499 7.6%
Intangible amortization 1,251 1,504 (253) -16.8%
Total recurring operating expenses 25,425 23,970 1,455 6.1%
Acquisition expenses 5 108 (103) -95.4%
Total operating expenses 25,430 24,078 1,352 5.6%
Income before taxes 13,197 12,686 511 4.0%
Income tax 3,165 3,416 (251) -7.3%
Net income $ 10,032 $ 9,270 $ 762 8.2%
Basic earnings per share $ 0.77 $ 0.71 $ 0.06 8.5%
Diluted earnings per share $ 0.75 $ 0.70 $ 0.05 7.1%
Year to Date
Net interest income $ 64,586 $61,605 $ 2,981 4.8%
Loan loss provision 6,073 4,902 1,171 23.9%
Net interest income after provision for loan losses 58,513 56,703 1,810 3.2%
Financial services non-interest income 6,192 7,193 (1,001) -13.9%
Banking services non-interest income 12,046 8,109 3,937 48.6%
Total non-interest income before security gains & debt ext 18,238 15,302 2,936 19.2%
Security gains & debt ext (45) 1,144 (1,189) -103.9%
Total non-interest income 18,193 16,446 1,747 10.6%
Financial services operating expenses 5,435 5,370 65 1.2%
Banking services operating expenses 42,095 39,613 2,482 6.3%
Intangible amortization 2,532 3,044 (512) -16.8%
Total recurring operating expenses 50,062 48,027 2,035 4.2%
Acquisition expenses 5 700 (695) -99.3%
Total operating expenses 50,067 48,727 1,340 2.8%
Income before taxes 26,639 24,422 2,217 9.1%
Income tax 6,660 6,594 66 1.0%
Net income $ 19,979 $17,828 $ 2,151 12.1%
Basic earnings per share $ 1.53 $ 1.38 $ 0.15 10.9%
Diluted earnings per share $ 1.50 $ 1.36 $ 0.14 10.3%
Community Bank System, Inc.
Summary of Financial Data
(Dollars in thousands, except per share data)
2003 2002
2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr
------- ------- ------- ------- -------
Earnings
Net interest income $ 32,102 $ 32,484 $ 33,847 $ 32,397 $ 31,437
Loan loss provision 2,673 3,400 5,041 2,278 3,384
Net interest income after provision for loan losses 29,429 29,084 28,806 30,119 28,053
Financial services non-interest income 3,104 3,090 2,843 3,689 3,550
Banking services non-interest income 6,094 5,952 4,910 4,183 4,017
Total non-interest income before security gains & debt ext 9,198 9,042 7,753 7,872 7,567
Security gains & debt ext 0 (45) 313 216 1,144
Total non-interest income 9,198 8,997 8,066 8,088 8,711
Financial services operating expenses 2,854 2,581 2,610 2,500 2,645
Banking services operating expenses 21,320 20,775 20,105 18,972 19,821
Intangible amortization 1,251 1,281 1,312 1,597 1,504
Total recurring operating expenses 25,425 24,637 24,027 23,069 23,970
Acquisition expenses 5 0 0 0 108
Total operating expenses 25,430 24,637 24,027 23,069 24,078
Income before taxes 13,197 13,444 12,845 15,138 12,686
Income tax 3,165 3,495 3,206 4,087 3,416
Net income $ 10,032 $ 9,949 $ 9,639 $ 11,051 $ 9,270
Basic earnings per share $ 0.77 $ 0.76 $ 0.74 $ 0.85 $ 0.71
Diluted earnings per share $ 0.75 $ 0.75 $ 0.73 $ 0.84 $ 0.70
Profitability
Return on assets 1.20% 1.19% 1.11% 1.28% 1.10%
Return on equity 11.74% 12.25% 11.91% 14.56% 13.21%
Net interest margin (FTE) 4.75% 4.80% 4.83% 4.61% 4.54%
Non interest income/operating income (FTE) 20.8% 20.3% 17.3% 18.1% 18.0%
(excluding net security gains)
Efficiency ratio (1) 54.6% 52.5% 50.6% 49.4% 53.5%
Components of Net Interest Margin (FTE)
Loan yield 6.81% 7.04% 7.33% 7.45% 7.43%
Investment yield 6.69% 6.75% 6.79% 6.58% 6.78%
Earning asset yield 6.76% 6.93% 7.11% 7.08% 7.15%
Interest bearing deposits rate 1.92% 2.07% 2.24% 2.48% 2.63%
Borrowed funds rate - FHLB & other 4.12% 3.89% 3.83% 3.88% 4.03%
Borrowed funds rate - Trust preferred 7.02% 7.17% 7.31% 7.38% 7.36%
Cost of all interest bearing funds 2.38% 2.50% 2.66% 2.87% 3.01%
Cost of funds (includes DDA) 2.02% 2.12% 2.27% 2.46% 2.58%
Cost of funds / earning assets 2.01% 2.13% 2.28% 2.47% 2.61%
Net interest margin (FTE) 4.75% 4.80% 4.83% 4.61% 4.54%
Average Balances for Period
Loans $1,834,610 $ 1,807,889 $1,797,678 $1,763,855 $1,742,110
Investments (excluding market value adjustment) 1,126,151 1,189,466 1,254,285 1,302,928 1,296,787
Earning assets 2,960,761 2,997,355 3,051,963 3,066,783 3,038,897
Total assets 3,356,400 3,388,435 3,445,620 3,438,076 3,390,665
Deposits-IPC 2,362,058 2,352,546 2,377,402 2,388,182 2,353,187
Deposits-public funds 167,516 184,457 161,443 154,051 192,114
Total deposits 2,529,574 2,537,003 2,538,845 2,542,233 2,545,301
FHLB borrowings & other borrowings 347,954 388,783 446,535 468,841 449,542
Trust preferred 76,896 77,193 77,368 77,354 77,498
Total borrowings 424,850 465,976 523,903 546,195 527,040
Total shareholders' equity $ 342,830 $ 329,503 $ 320,979 $ 301,148 $ 281,436
(1) Excludes intangible amortization, acquisition expenses, securities
gain/loss, and debt extinguishment
Community Bank System, Inc.
Summary of Financial Data
(Dollars in thousands, except per share data)
2003 2002
2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr
------- ------- ------- ------- -------
Balances At Period End
Loans $1,858,015 $1,820,686 $1,806,905 $1,779,440 $1,751,184
Investments (excluding market value adjustment) 1,081,241 1,154,188 1,219,254 1,284,695 1,281,724
Earning assets 2,939,256 2,974,874 3,026,159 3,064,135 3,032,908
Loan loss allowance 27,417 27,350 26,331 24,080 23,883
Core deposit intangibles,net 28,237 29,488 30,769 32,081 33,678
Goodwill, net 104,059 104,059 104,059 103,628 102,602
Total intangible assets, net 132,296 133,547 134,828 135,709 136,280
Market value adjustment 85,878 71,099 64,567 73,222 42,816
Total assets 3,356,261 3,374,840 3,434,204 3,468,592 3,408,893
Deposits 2,541,974 2,535,960 2,505,356 2,551,735 2,513,261
FHLB borrowings & other borrowings 319,864 365,213 463,241 450,869 472,497
Trust preferred borrowings 76,903 76,889 77,375 77,361 77,347
Total borrowings 396,767 442,102 540,616 528,230 549,844
Total shareholders' equity 351,819 336,984 325,038 324,161 298,529
Assets under management or administration $1,577,584 $1,438,869 $1,363,631 $1,267,289 $1,370,346
Capital
Tier I leverage ratio 7.77% 7.44% 7.05% 6.87% 6.66%
Tangible equity / tangible assets 6.81% 6.28% 5.77% 5.65% 4.96%
Accumulated other comprehensive income $ 52,438 $ 43,414 $ 38,551 $ 43,728 $ 25,546
Diluted weighted average common shares outstanding 13,346 13,244 13,167 13,172 13,194
Period end common shares outstanding 13,019 13,017 12,979 12,963 12,959
Cash dividends declared per common share $ 0.29 $ 0.29 $ 0.29 $ 0.29 $ 0.27
Book value $ 27.02 $ 25.89 $ 25.04 $ 25.01 $ 23.04
Tangible book value $ 16.86 $ 15.63 $ 14.66 $ 14.54 $ 12.52
Common stock price (end of period) $ 38.00 $ 31.43 $ 31.35 $ 29.63 $ 32.25
Total shareholder return - trailing 12 months 22.0% 8.1% 24.1% 11.8% 19.6%
Asset Quality
Nonperforming loans $ 15,135 $ 15,841 $ 11,644 $ 12,217 $ 11,170
Other real estate 943 700 704 1,033 1,671
Nonperforming assets 16,108 16,580 12,391 13,296 12,900
Net charge-offs $ 2,606 $ 2,381 $ 2,791 $ 2,080 $ 3,511
Loan loss allowance / loans outstanding 1.48% 1.50% 1.46% 1.35% 1.36%
Nonperforming loans / loans outstanding 0.81% 0.87% 0.64% 0.69% 0.64%
Loan loss allowance / nonperforming loans 181% 173% 226% 197% 214%
Net charge-offs / average loans 0.57% 0.53% 0.62% 0.47% 0.81%
Loan loss provision / net charge-offs 103% 143% 181% 110% 96%
Nonperforming assets / loans outstanding + OREO 0.87% 0.91% 0.69% 0.75% 0.74%