Exhibit 99
[LOGO] News Release
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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 GENERATES RECORD QUARTERLY EARNINGS
Margins Remain Strong; Two Acquisitions Closed
Syracuse, N.Y. - October 20, 2003 - Community Bank System, Inc. (NYSE:
CBU), a bank holding company with $3.6 billion in assets, has announced that
diluted earnings per share for the third quarter were a record $0.87, up from
the prior year's level of $0.84 and up from second quarter 2003 results of
$0.75. Diluted earnings per share for the nine months ended September 30, 2003
of $2.38 represent a 9% increase over 2002 results for the same period of $2.19.
Operating Results
Net income for the third quarter was $11.7 million, up from $11.1 million
reported in 2002. Increased earnings resulted principally from a $2.1 million,
or 27% increase in non-interest income. For the nine months ended September 30,
2003, net income increased nearly 10% to $31.7 million from $28.9 million in
2002.
Net interest margins remained strong at 4.63%, up over 2002's level of 4.61%,
and down from 4.75% in the second quarter of 2003. Net interest income for the
quarter at $32.5 million was identical to 2002's level, due principally to a
deleveraging strategy implemented in mid-2002 as a result of unfavorable
investment market conditions. The total earning asset yield of 6.47% for this
quarter is down 61 basis points from 7.08% for the 2002 quarter; however, that
decline was more than offset by a 63-basis-point reduction in the total cost of
funds from 2.46% to 1.83%. Year-to-date net interest margin of 4.73% compares to
4.56% for the nine-month period of 2002.
Sanford A. Belden, President and Chief Executive Officer, stated "Continued
prudent management of our balance sheet, resulting in very strong net interest
margins, and a 27% increase in non-interest income, combined to provide another
record quarter. We are particularly pleased to have generated such strong
results in light of the challenges presented by this low interest rate
environment. We have increased total loans by 3.5% this quarter and 6.5%
year-to-date, and are also encouraged by the revenue increases posted by our
financial services businesses in response to improved investment market
conditions, and as a result of the July 31 completion of our acquisition of
Harbridge Consulting Group. Furthermore, our asset quality became even stronger
during the quarter, with declines reported for both non-performing loans and
delinquencies in each of the past two quarters."
Declines in non-performing loans resulted in a lower loan loss provision for the
third quarter of 2003; the provision of $2.0 million this quarter is down from
$2.3 million in the same quarter of 2002 and down from $2.7 million reported in
the second quarter of 2003. For the nine months ended September 2003, loan loss
provision of $8.1 million compares to $7.2 million for the same period of 2002.
The increase in 2003 year-to-date reflects specific provisioning in the first
quarter related to non-performing commercial credits.
Non-interest income (excluding security gains and losses) increased 27% this
quarter, from $7.7 million in 2002 to $9.7 million in 2003. For the nine-month
period, non-interest income is up 21% from $22.6 million in 2002 to $27.4
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 $1.7 million of the quarterly
increase and $4.7 million of the nine-month increase. Also impacting
non-interest income this quarter was a $.8 million expense resulting from our
determination to keep certain originated mortgage loans in portfolio that had
previously been classified as held-for-sale.
Revenues from our financial services businesses of $3.7 million this quarter
were up 42% from $2.6 million in the prior year's quarter. This increase is due
principally to $.8 million of revenue related to the July 2003 acquisition of
Harbridge Consulting Group, formerly the Upstate New York Global Human Resources
Solutions practice of PricewaterhouseCoopers. Additionally, improved investment
markets allowed both our asset management and broker/dealer businesses to report
their best quarter since 2002. Financial services income of $9.2 million for the
nine-months ended September 2003 compares to $9.3 million for the same 2002
period. Year-to-date declines in investment management and broker/dealer
activities were nearly offset by revenue growth in the benefit plan
administration business (up 24% over 2002) and the Harbridge Consulting
acquisition.
Operating expenses for the third quarter increased from $22.9 million in 2002 to
$25.2 million in 2003, or 10%, resulting in an efficiency ratio (excluding
intangible amortization, acquisition expense, and security gain/loss) of 52.4 %
for 2003 and 49.1% for 2002. Increases in salaries and employee benefits
(including pension costs), and occupancy costs accounted for the majority of
operating expense increases. Year-to-date, the company's efficiency ratio has
increased marginally from 52.7% in 2002 to 53.0% in 2003, resulting in large
measure from the absence of growth in net interest income due to the
deleveraging strategy in place during the first two quarters of 2003, and
increased operating expenses of 5.6%.
The company's effective tax rate declined to 24% for the nine-month period ended
September 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 third quarter 2003 of $3.15 billion compared to
$3.06 billion in third quarter 2002, consisting of an increase in total loans of
$145 million, or 8.1%, and a decrease in investment securities (excluding market
value adjustments) of $60 million. Deposits remained flat at $2.55 billion.
Outstanding borrowings increased $82 million, from $528 million at September
2002 to $611 million at September 2003. Investment securities of $1.22 billion
at September 2003 (excluding the market value adjustment of $64.8 million)
increased $144 million from the second quarter as the Company capitalized on
attractive investment market opportunities that arose during the third quarter.
The trailing twelve-month increase in total loans of $145 million was driven by
residential real estate activity, which accounted for $124 million of the
increase, including $60 million in this quarter. The remainder of the growth
reflects nominal increases in consumer and business lending. This increase
excludes approximately $76 million of longer-term mortgage loans originated and
sold in the secondary market since September 2002. Year-to date, total loans
have grown $117 million, or 6.5%, including consumer mortgage loans of $96
million (19%), business loans of $1 million (0%), consumer indirect loans of $31
million (11%), and a reduction in consumer direct loans of $10 million (-3%).
Asset quality remains sound, with continued declines in non-performing loans and
delinquencies. The allowance for loan losses at September 2003 of $27.1 million
was up slightly from $26.3 million at December 2002. The ratio of allowance for
loan losses to total loans of 1.41% compares to 1.35% at September 2002 and
1.46% at December 31, 2002. Year-to-date net charge-offs for 2003 of $7.5
million compare to $7.0 million reported for the same 2002 period.
Non-performing loans of $13.5 million at September 2003 have declined
meaningfully over the past two quarters, from $15.1 million at June 2003 and
$15.8 million at March 2003. The ratio of non-performing loans to total loans of
..70% at September 2003 has likewise declined, improving from .81% at June 2003
and .87% at March 2003. Total delinquent loans (>30 days plus non-accrual) have
experienced a 3-quarter improving trend, declining from 1.88% at December 2002,
1.85% at March 2003, and 1.79% at June 2003, to 1.64% at September 2003.
Other Matters
On July 31, 2003 the company completed its acquisition of the Upstate New York
Global Human Resources Solutions consulting group of
PricewaterhouseCoopers. This practice, renamed Harbridge Consulting Group, is a
leading provider of actuarial and employee benefits consulting services
throughout Upstate New York, and is complementary to Benefit Plans
Administrative Services, Inc. (BPA), the company's defined contribution plan
administration subsidiary. BPA and Harbridge now employ over 70 professionals
and provide retirement plan administration, actuarial, and consulting services
to more than 700 clients.
On September 5, the Company completed its acquisition of Peoples Bankcorp Inc.,
a $29 million-asset savings and loan holding company based in Ogdensburg, New
York. Peoples' single branch is being operated as a branch of Community Bank,
NA, the company's principal subsidiary, as part of its existing network of
branches in Ogdensburg and Northern New York. The purchase price of the
transaction approximated $4.0 million.
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 acquisition has been approved by Grange
shareholders and the banking regulators, and is expected to close in November
2003.
The Company announced on June 9, 2003, 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. Through September 30, 2003, approximately 208,000 shares had been
repurchased at an aggregate cost of $8.5 million and an average price per share
of $40.79. In accordance with Securities and Exchange Commission (SEC)
regulations, the company temporarily suspended its stock repurchases following
the effective date of the Form S-4 Registration Statement filed in connection
with the pending acquisition of Grange National Banc Corp. The Company will be
able resume stock repurchases at its discretion after the closing of the Grange
National Banc Corp. merger.
Belden further stated, "We continue to follow our strategy of enhancing
shareholder value through strategic, high-value acquisitions, including the
Ogdensburg and Harbridge Consulting Group transactions that were closed this
quarter. Our pending acquisition of Grange National Banc Corp. was
overwhelmingly approved by their shareholders on October 17, with integration
efforts proceeding exceptionally well. We expect this transaction to close on
November 22, at which time Tom McCullough, Grange's President and Chief
Executive Officer, will become President of Pennsylvania Banking and manage all
of the company's banking business in Northeastern Pennsylvania."
Updated Earnings Guidance
Based upon year-to-date operating performance and analysis regarding fourth
quarter results, the company's present expectations for full-year 2003 diluted
earnings per share, excluding the effects of acquisition expenses and any
balance sheet restructuring as discussed below, are $3.20 to $3.25 per share.
The company is presently evaluating elective actions to enhance its
interest-rate sensitivity profile and optimize future operating performance.
Such fourth quarter actions may include the sale of securities and the repayment
or refinancing of certain outstanding borrowings and, if effected, may serve to
increase or decrease earnings that would have been otherwise reported for 2003.
Earnings guidance with respect to 2004 will be provided in January 2004.
Conference Call Scheduled
A conference call will be held with company management at 10:00 a.m. (ET) on
Tuesday, October 21, 2003 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 December 31 and may be accessed at 1-866-453-6660 (access code 139402).
Investors may also listen to the call live via the Internet over PR Newswire,
at:
http://www.firstcallevents.com/service/ajwz389323263gf12.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 "Investor Services" 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. Upon completion of the Grange National Banc Corp.
acquisition, the company will have over $3.8 billion in assets, and its
wholly-owned banking subsidiary, Community Bank, N.A.
(http://www.communitybankna.com), will become the second largest community
banking franchise headquartered in Upstate New York, having 130 customer
facilities and 95 ATMs across Upstate New York and Northeastern Pennsylvania.
Other subsidiaries within the CBU family are Elias Asset Management, Inc., an
investment management firm based in Williamsville, N.Y.; Community Investment
Services, Inc., a broker-dealer delivering financial products, including mutual
funds, annuities, individual stocks and bonds, and insurance products, from
various locations throughout Community Bank's branch system; and Benefit Plans
Administrative Services, Inc., an employee benefits company which includes BPA,
a retirement plan administration firm located in Utica, N.Y., and Harbridge
Consulting Group, an actuarial and consulting firm based in Syracuse, 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.
Summary of Financial Data
(Dollars in thousands, except per share data)
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Quarter Ended Year to Date
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- ----------------------------------------------------- Sept. 30, Sept. 30, Sept. 30, Sept. 30,
Earnings 2003 2002 2003 2002
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Interest income $46,610 $51,516 $141,775 $153,516
Interest expense 14,071 19,119 44,650 59,514
Net interest income 32,539 32,397 97,125 94,002
Loan loss provision 2,029 2,278 8,102 7,180
Net interest income after provision for loan losses 30,510 30,119 89,023 86,822
Non-interest income before security gains & debt ext. 9,722 7,667 27,405 22,601
Security gains & debt ext. 3 215 (42) 1,359
Total non-interest income 9,725 7,882 27,363 23,960
Salaries and employee benefits 13,226 11,951 38,244 36,189
Occupancy and equipment and furniture 4,140 3,496 12,770 11,749
Intangible amortization 1,269 1,597 3,801 4,641
Other 6,352 5,820 19,677 17,944
Total recurring operating expenses 24,987 22,864 74,492 70,523
Acquisition expenses 165 0 170 700
Total operating expenses 25,152 22,864 74,662 71,223
Income before tax 15,083 15,137 41,724 39,559
Income tax 3,354 4,087 10,014 10,681
Net income $11,729 $11,050 $31,710 $28,878
Basic earnings per share $0.90 $0.85 $2.43 $2.23
Diluted earnings per share $0.87 $0.84 $2.38 $2.19
Diluted earnings per share - operating $0.88 $0.84 $2.38 $2.23
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Summary of Financial Data
(Dollars in thousands, except per share data)
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2003 2002
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3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr
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Earnings
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Interest income $46,610 $46,953 $48,212 $51,353 $51,516
Interest expense 14,071 14,851 15,728 17,506 19,119
Net interest income 32,539 32,102 32,484 33,847 32,397
Provision for loan losses 2,029 2,673 3,400 5,041 2,278
Net interest income after provision for loan losses 30,510 29,429 29,084 28,806 30,119
Non-interest income before security gains & debt ext. 9,722 8,891 8,792 7,532 7,667
Security gains & debt ext. 3 0 (45) 313 215
Total non-interest income 9,725 8,891 8,747 7,845 7,882
Salaries and employee benefits 13,226 12,317 12,700 11,675 11,951
Occupancy and equipment and furniture 4,140 4,305 4,325 3,945 3,496
Amortization of intangible assets 1,269 1,251 1,281 1,312 1,597
Other 6,352 7,245 6,081 6,874 5,820
Total recurring operating expenses 24,987 25,118 24,387 23,806 22,864
Acquisition expenses 165 5 0 0 0
Total operating expenses 25,152 25,123 24,387 23,806 22,864
Income before income taxes 15,083 13,197 13,444 12,845 15,137
Income taxes 3,354 3,165 3,495 3,206 4,087
Net income $11,729 $10,032 $9,949 $9,639 $11,050
Basic earnings per share $0.90 $0.77 $0.76 $0.74 $0.85
Diluted earnings per share $0.87 $0.75 $0.75 $0.73 $0.84
Diluted earnings per share - operating $0.88 $0.75 $0.75 $0.73 $0.84
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Profitability
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Return on assets 1.36% 1.20% 1.19% 1.11% 1.28%
Return on equity 13.83% 11.74% 12.25% 11.91% 14.56%
Non-interest income/operating income (FTE) (1) 21.5% 20.2% 19.9% 16.8% 17.7%
Efficiency ratio (2) 52.4% 54.3% 52.2% 50.3% 49.1%
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Components of Net Interest Margin (FTE)
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Loan yield 6.55% 6.81% 7.04% 7.33% 7.45%
Investment yield 6.34% 6.69% 6.75% 6.79% 6.58%
Earning asset yield 6.47% 6.76% 6.93% 7.11% 7.08%
Interest bearing deposit rate 1.72% 1.92% 2.07% 2.24% 2.48%
Borrowed funds rate - FHLB & other 3.59% 4.12% 3.89% 3.83% 3.88%
Borrowed funds rate - trust preferred 6.88% 7.02% 7.17% 7.31% 7.38%
Cost of all interest bearing funds 2.18% 2.38% 2.50% 2.66% 2.87%
Cost of funds (includes DDA) 1.83% 2.02% 2.12% 2.27% 2.46%
Cost of funds/earning assets 1.83% 2.01% 2.13% 2.28% 2.47%
Net interest margin (FTE) 4.63% 4.75% 4.80% 4.83% 4.61%
Fully tax-equivalent adjustment $3,008 $2,962 $2,980 $3,326 $3,229
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Average Balances
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Loans $1,879,858 $1,834,610 $1,807,889 $1,797,678 $1,763,855
Taxable investment securities 761,407 724,616 786,990 850,777 911,776
Non-taxable investment securities 402,105 401,535 402,476 403,508 391,152
Total interest-earning assets 3,043,370 2,960,761 2,997,355 3,051,963 3,066,783
Total assets 3,433,513 3,356,400 3,388,435 3,445,620 3,438,076
Interest-bearing deposits 2,059,840 2,073,398 2,087,784 2,084,807 2,094,930
FHLB borrowings & other 423,066 347,954 388,783 446,535 468,841
Trust preferred securities 76,909 76,896 77,193 77,368 77,354
Total interest-bearing liabilities 2,559,815 2,498,248 2,553,760 2,608,710 2,641,125
Shareholders' equity $336,572 $342,830 $329,503 $320,979 $301,146
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Summary of Financial Data
(Dollars in thousands, except per share data)
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2003 2002
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3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr
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Balance Sheet Data
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Cash and cash equivalents $117,190 $109,898 $104,325 $113,531 $103,178
Investment securities 1,289,159 1,166,812 1,225,081 1,283,565 1,356,863
Loans:
Consumer mortgage 606,084 545,828 520,480 510,309 482,117
Business lending 630,886 637,984 639,149 629,874 629,073
Consumer indirect 318,162 305,550 290,790 287,380 280,345
Consumer direct 368,871 368,653 370,267 379,342 387,905
Total loans 1,924,003 1,858,015 1,820,686 1,806,905 1,779,440
Allowance for loan losses 27,117 27,417 27,350 26,331 24,080
Intangible assets 140,292 132,296 133,547 134,828 135,709
Other assets 121,688 116,657 118,551 121,706 117,482
Total assets 3,565,215 3,356,261 3,374,840 3,434,204 3,468,592
Deposits 2,553,350 2,541,974 2,535,960 2,505,356 2,551,735
Borrowings 533,630 319,864 365,213 463,241 450,869
Trust preferred securities 76,917 76,903 76,889 77,375 77,361
Other liabilities 59,556 65,701 59,794 63,194 64,466
Total liabilities 3,223,453 3,004,442 3,037,856 3,109,166 3,144,431
Shareholders' equity 341,762 351,819 336,984 325,038 324,161
Total liabilities and shareholders' equity 3,565,215 3,356,261 3,374,840 3,434,204 3,468,592
Assets under management or administration $1,600,141 $1,577,584 $1,438,869 $1,363,631 $1,267,289
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Capital
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Tier 1 leverage ratio 7.40% 7.77% 7.44% 7.05% 6.87%
Tangible equity / tangible assets 5.88% 6.81% 6.28% 5.77% 5.65%
Accumulated other comprehensive income $39,582 $52,438 $43,414 $38,551 $43,728
Diluted weighted average common shares outstanding 13,408 13,346 13,244 13,196 13,172
Period end common shares outstanding 12,960 13,019 13,017 12,979 12,963
Cash dividends declared per common share $0.32 $0.29 $0.29 $0.29 $0.29
Book value 26.37 27.02 25.89 25.04 25.01
Tangible book value 15.55 16.86 15.63 14.66 14.54
Common stock price (end of period) 43.91 38.00 31.43 31.35 29.63
Total shareholders return - trailing 12 months 53.2% 22.0% 8.1% 24.1% 11.8%
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Asset Quality
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Non-accrual loans $10,518 $12,678 $13,577 $9,754 $10,928
Accruing loans 90+ days delinquent 3,018 2,457 2,264 1,890 1,289
Total non-performing loans 13,536 15,135 15,841 11,644 12,217
Restructured loans 29 30 39 43 46
Other real estate owned (OREO) 812 943 700 704 1,033
Total non-performing assets 14,377 16,108 16,580 12,391 13,296
Net charge-offs $2,532 $2,606 $2,381 $2,790 $2,081
Loan loss allowance/loans outstanding 1.41% 1.48% 1.50% 1.46% 1.35%
Non-performing loans/loans outstanding 0.70% 0.81% 0.87% 0.64% 0.69%
Loan loss allowance/non-performing loans 200% 181% 173% 226% 197%
Net charge-offs/average loans 0.53% 0.57% 0.53% 0.62% 0.47%
Loan loss provision/net charge-offs 80% 103% 143% 181% 109%
Non-performing assets/loans outstanding plus OREO 0.75% 0.87% 0.91% 0.69% 0.75%
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(1) Excludes securities gain/loss and debt extinguishment
(2) Excludes intangible amortization, acquisition expenses, securities
gain/loss, and debt extinguishment