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 REPORTS RECORD EARNINGS IN 2003
Full-year Net Interest Margin Increases; Non-interest Income Up 25%
Syracuse, N.Y. - January 26, 2004 - Community Bank System, Inc. (NYSE:
CBU), has announced its earnings results for 2003.
Earnings Results-GAAP Basis. Diluted earnings per share measured in accordance
with generally accepted accounting principles ("GAAP") for 2003 were $2.99, up
from the prior year's level of $2.93. Diluted earnings per share for the quarter
ended December 31, 2003, including the impact of a debt restructuring, were
$0.62, compared to $0.73 for the same quarter of 2002. Increased earnings in
2003 resulted from improved net interest margins, significantly higher levels of
non-interest income, and lower loan loss provisioning, offset by higher
operating expenses and a debt restructuring charge of $2.6 million (pre-tax).
Earnings Results-Operating Basis. In addition to the earnings results presented
above in accordance with GAAP, the company provides earnings results on a
non-GAAP, or operating basis. The determination of operating earnings excludes
the effects of certain items the company considers to be non-operating,
including acquisition expenses, the results of securities transactions, and debt
restructuring activities. Diluted operating earnings per share for 2003 were
$3.13, up 8.7% from the $2.88 reported in 2002. Fourth quarter 2003 diluted
operating earnings per share rose 4.2%, from $0.72 in 2002 to $0.75 in 2003. A
reconciliation of GAAP-based earnings results to operating-based earnings
results is as follows:
Three Months Ended Year Ended
December 31, December 31,
2003 2002 2003 2002
-------------------- --------------------
Diluted earnings per share $ 0.62 $ 0.73 $ 2.99 $ 2.93
Acquisition expenses 0.02 0.00 0.02 0.03
Net securities (gains)/losses 0.00 (0.06) 0.00 (0.12)
Loss on debt restructuring 0.11 0.05 0.12 0.04
-------------------- --------------------
Diluted earnings per share - operating $ 0.75 $ 0.72 $ 3.13 $ 2.88
==================== ====================
Sanford A. Belden, President and Chief Executive Officer, stated, "2003 was an
exceptional year in many respects. We are pleased that we achieved record
operating results during 2003, particularly with the strength of our net
interest margins and the 25% increase in non-interest income. We grew loans by
more than 7% (excluding acquisitions), and our vigilant attention to asset
quality resulted in improvements to our delinquency, charge-off, and
non-performing loan ratios. Consistent with our strategy of enhancing
shareholder value through strategic, high-value acquisitions, we acquired three
outstanding businesses in 2003, including Peoples Bancorp, Harbridge Consulting
Group, and Grange National Bank. More recently, we announced the acquisition of
First Heritage Bank in Wilkes-Barre, Pa., which will bring us significant
commercial lending relationships and further enhance our presence in the
important Northeastern Pennsylvania marketplace. These
acquisitions will further strengthen the earnings opportunities for both our
banking and financial services businesses as we begin 2004. Lastly, we are
delighted with the market performance of CBU shares, which appreciated by 57% in
2003 and, including the impact of the Grange acquisition, raised our total
market capitalization to nearly $700 million."
Net interest income in 2003 of $131.8 million was up 3.1% over 2002's level of
$127.9 million on the strength of higher net interest margins. Average earning
assets rose $45 million in 2003 as higher loan levels were offset by planned
securities reductions. Net interest margin increased to 4.69% in 2003 from 4.62%
in 2002. Reduction of earning asset yields from 7.18% to 6.62% was more than
offset by reductions in the total cost of funds from 2.53% to 1.93%. Net
interest margins for the fourth quarter of 2003 remained strong at 4.59%,
decreasing only 4 basis points from 4.63% in the third quarter of 2003.
Loan loss provision in 2003 was $11.2 million, down from $12.2 million in 2002
on the strength of lower delinquency, charge-off and non-performing loan ratios.
For the fourth quarter of 2003, loan loss provision was $3.1 million, compared
to $5.0 million in the comparable 2002 quarter.
Non-interest income (excluding security and debt transactions) increased by more
than 25% in 2003, from $30.1 million in 2002 to $37.7 million in 2003. This
raises the ratio of non-interest income to total income from 17.7% in 2002 to
20.7% in 2003. This increase is due principally to the introduction of a new
deposit service introduced late in the fourth quarter of 2002 which accounts for
approximately $6.2 million of the increase, and the acquisition in July 2003 of
Harbridge Consulting Group, which contributed approximately $1.6 million of the
increase. Revenues from financial services were unfavorably impacted by the
difficult investment environment experienced in the first half of 2003; however,
the last half of 2003 showed improvement of 12% over the first half of 2003
(excluding the Harbridge acquisition). Total financial services income in 2003
of $12.9 million (including Harbridge) compares to $11.8 million in 2002.
Declines in investment management, trust, and broker-dealer activities were
offset by continued expansion of the benefit plan administration business, which
delivered 21% revenue growth in 2003.
Operating expenses (excluding acquisition expenses) increased from $94.3 million
in 2002 to $102.0 million in 2003, and from $23.8 million in fourth quarter 2002
to $27.5 million in 2003. The efficiency ratio (excluding intangible
amortization, debt restructuring and security gain/loss) increased to 53.3% in
2003 from 52.0% in 2002. The fourth quarter 2003 efficiency ratio of 54.4%
compares to 50.3% for 2002. Increases in 2003 operating expenses for both the
full-year and quarterly periods are due in large measure to the additional
operating expenses associated with the three acquisitions closed during 2003, as
well as significant increases in pension, medical, and other benefit costs
recognized in the fourth quarter of 2003.
The company's effective tax rate declined to 24.0% in 2003 from 26.5% in 2002,
due principally to higher proportions of tax-exempt income. The fourth quarter
effective tax rate was 24.1% in 2003 and 25.0% in 2002.
Financial Position
End-of-year earning assets of $3.40 billion represent an increase of $371
million over 2002 levels of $3.03 billion. This increase reflects organic loan
growth of $134 million, or 7.4%, and acquired earning assets of $250 million.
Investment securities of $1.33 billion at December 31, 2003 were up slightly
from the $1.29 billion reported at year-end 2002. Outstanding borrowings rose to
$668 million from $544 million at December 31, 2002, with the increase used
principally to fund strong consumer mortgage demand. Excluding the impact of
$249 million of acquired deposits, total deposits decreased approximately 1%
from $2.51 billion at year-end 2002 to $2.48 billion in 2003.
Total organic loan growth of $134 million was driven principally by consumer
mortgage demand, which accounted for $127 million, an increase of 25% over 2002.
This increase excludes approximately $67 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 reflects an increase in indirect
installment lending of $38 million (+13%), and reductions in business loans of
$9 million (-1.4%) and direct installment loans of $22 million (-5.8%).
Asset Quality
Asset quality metrics continued to improve, with year-over-year reductions in
delinquency, charge-off, and non-performing loan ratios. The allowance for loan
losses at year-end of $29.1 million is up from $26.3 million at December 2002,
largely as a result of increased loan balances. The ratio of allowance for loan
losses to total loans of 1.37% at year-end 2003 compares to 1.46% at December
31, 2002. This decrease reflects improved asset quality metrics, as well as the
lower credit risk profile of consumer mortgages which have increased from 28% of
total loans in 2002 to 35% in 2003. Total net charge-offs for 2003 of $10.3
million are comparable to the $9.8 million reported for the same 2002 period,
and compare favorably against a 7.2% increase in average loans outstanding.
Non-performing loans of $13.2 million at year-end are up from $11.6 million in
2002; however, represent only .62% of total loans versus .64% at year-end 2002.
Total delinquent loans (>30 days plus non-accrual) also experienced an improving
trend, declining from 1.88% at December 31, 2002, to 1.76% at year-end 2003.
Stock Split
On January 21, 2004, the company announced a two-for-one stock split, subject to
shareholder approval of an increase in its authorized shares. The split will be
effected in the form of a 100% stock dividend, which the company expects to be
payable on or about April 12, 2004, to shareholders of record on or about March
17, 2004. The company will seek approval of an amendment to increase its total
authorized shares from 20 million to 50 million shares at a special Meeting of
Shareholders to be held on or about March 26, 2004. The company expects to mail
a proxy statement to shareholders in February 2004, that further explains the
stock split and shareholder vote necessary to authorize additional shares.
First Heritage Acquisition
On January 6, 2004, the company announced an agreement to acquire First Heritage
Bank in an all-stock transaction valued at approximately $74 million.
Headquartered in Wilkes-Barre, Pa., First Heritage is a closely held $275
million-asset bank with three branches in Luzerne county. The transaction is
expected to be accretive to earnings within the first 12 months based on
anticipated cost reductions, modest revenue enhancements, and opportunities to
restructure the balance sheet. Like all branches within the Pennsylvania
franchise, First Heritage's three branches will operate as part of First Liberty
Bank & Trust, a division of Community Bank, N.A. Robert P. Matley, currently
President and Chief Operating Officer of First Heritage, will become Senior
Lending Officer and Executive Vice President of Pennsylvania Banking. The
acquisition is expected to close during the second quarter of 2004, pending both
customary regulatory and First Heritage shareholder approval.
Grange Successfully Merged
On November 24, 2003, the company completed its previously announced acquisition
of Grange National Banc Corp., a $280 million-asset bank holding company based
in Tunkhannock, Pa. Grange's banking subsidiary, Grange National Bank, and its
12 branches are now operating as part of First Liberty Bank & Trust. Thomas A.
McCullough has been appointed President of Pennsylvania Banking and is managing
all of the company's banking business in Northeastern Pennsylvania and its
combined 24 branch locations.
2004 Earnings Guidance
Mark Tryniski, Executive Vice President and Chief Financial Officer, stated,
"Prudent management of our balance sheet has resulted in strong net interest
margins. However, the present interest rate environment continues to exert
downward pressure that we expect will continue into 2004. Overall economic and
business conditions in our markets have been stable, and we expect to be well
challenged in meeting loan generation objectives in 2004. After a difficult 2003
for our asset-based financial services businesses, we are hopeful that revenue
gains in the second half of the year by these units will continue into 2004 on
the improving attractiveness of investment markets. The three acquisitions we
closed in 2003 are all expected to provide incremental earnings opportunities in
2004."
Mr. Tryniski concluded, "Subject to the effects of actual events and
circumstances, our present estimate of diluted earnings per share for 2004 is
between $3.20 and $3.30 per share."
Conference Call Scheduled
A conference call will be held with company management at 1:00 p.m. (ET) on
Monday, January 26, to discuss the above results at 1-866-453-5550 (access code
3435033). An audio recording will be available one hour after the call until
March 31, and may be accessed at 1-866-453-6660 (access code 142983). Investors
may also listen to the call live via the Internet over PR Newswire, at:
http://www.firstcallevents.com/service/ajwz396796329gf12.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 Releases & News" link within the Investor
Relations 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 recently announced acquisition of
First Heritage Bank in Wilkes-Barre, Pa., CBU's wholly-owned banking subsidiary,
Community Bank, N.A. will have approximately $4.1 billion of assets, 132
customer facilities and 98 ATMs across Upstate New York and Northeastern
Pennsylvania, where it operates as First Liberty Bank & Trust, a division of
Community Bank N.A. 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 System's
branch network; 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
--------------------------------------------------------
- ------------------------------------------------------------- Dec. 31, Dec. 31, Dec. 30, Dec. 30,
Earnings 2003 2002 2003 2002
- ---------------------------------------------------------------------------------------------------------------------
Interest income $49,163 $51,411 $191,129 $205,093
Interest expense 14,460 17,562 59,301 77,243
Net interest income 34,703 33,849 131,828 127,850
Loan loss provision 3,093 5,042 11,195 12,222
Net interest income after provision for loan losses 31,610 28,807 120,633 115,628
Deposit service fees 6,099 4,586 23,124 16,480
Other banking services 516 425 1,653 1,805
Trust, investment and asset management fees 1,728 1,477 6,682 8,003
Benefit plan administration, consulting and actuarial fees 1,931 1,045 6,220 3,845
Non-interest income before security gains & debt ext. 10,274 7,533 37,679 30,133
Security gains & debt ext. (2,656) 313 (2,698) 1,673
Total non-interest income 7,618 7,846 34,981 31,806
Salaries and employee benefits 14,921 11,675 53,164 47,864
Occupancy and equipment and furniture 4,355 3,945 17,125 15,692
Intangible amortization 1,292 1,312 5,093 5,953
Other 6,903 6,875 26,581 24,821
Total recurring operating expenses 27,471 23,807 101,963 94,330
Acquisition expenses 328 0 498 700
Total operating expenses 27,799 23,807 102,461 95,030
Income before tax 11,429 12,846 53,153 52,404
Income tax 2,759 3,206 12,773 13,887
Net income $ 8,670 $ 9,640 $ 40,380 $ 38,517
Basic earnings per share $0.64 $0.74 $3.07 $2.97
Diluted earnings per share $0.62 $0.73 $2.99 $2.93
Diluted earnings per share - operating (1) $0.75 $0.72 $3.13 $2.88
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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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4th Qtr 3rd Qtr 2nd Qtr 1st Qtr 4th Qtr
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Earnings
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Interest income $49,163 $46,676 $47,019 $48,271 $51,410
Interest expense 14,460 14,137 14,917 15,787 17,562
Net interest income 34,703 32,539 32,102 32,484 33,848
Provision for loan losses 3,093 2,029 2,673 3,400 5,042
Net interest income after provision for loan losses 31,610 30,510 29,429 29,084 28,806
Deposit service fees 6,099 6,080 5,740 5,204 4,586
Other banking services 516 (92) 420 810 425
Trust, investment and asset management fees 1,728 1,747 1,530 1,677 1,477
Benefit plan administration, consulting and actuarial fees 1,931 1,987 1,201 1,101 1,045
Non-interest income before security gains & debt ext. 10,274 9,722 8,891 8,792 7,533
Security gains & debt ext. (2,656) 3 0 (45) 313
Total non-interest income 7,618 9,725 8,891 8,747 7,846
Salaries and employee benefits 14,921 13,226 12,317 12,700 11,675
Occupancy and equipment and furniture 4,355 4,140 4,305 4,325 3,945
Amortization of intangible assets 1,292 1,269 1,251 1,281 1,312
Other 6,903 6,352 7,245 6,081 6,875
Total recurring operating expenses 27,471 24,987 25,118 24,387 23,807
Acquisition expenses 328 165 5 0 0
Total operating expenses 27,799 25,152 25,123 24,387 23,807
Income before income taxes 11,429 15,083 13,197 13,444 12,845
Income taxes 2,759 3,354 3,165 3,495 3,206
Net income $ 8,670 $11,729 $10,032 $ 9,949 $ 9,639
Basic earnings per share $0.64 $0.90 $0.77 $0.76 $0.74
Diluted earnings per share $0.62 $0.87 $0.75 $0.75 $0.73
Diluted earnings per share - operating (1) $0.75 $0.88 $0.75 $0.75 $0.72
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Profitability
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Return on assets 0.93% 1.35% 1.20% 1.19% 1.11%
Return on equity 9.51% 13.83% 11.74% 12.25% 11.91%
Non-interest income/operating income (FTE) (2) 21.4% 21.5% 20.2% 19.9% 16.8%
Efficiency ratio (3) 54.4% 52.4% 54.3% 52.2% 50.3%
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Components of Net Interest Margin (FTE)
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Loan yield 6.35% 6.55% 6.81% 7.04% 7.33%
Investment yield 6.34% 6.34% 6.69% 6.75% 6.79%
Earning asset yield 6.35% 6.47% 6.76% 6.93% 7.11%
Interest bearing deposit rate 1.63% 1.72% 1.92% 2.07% 2.24%
Borrowed funds rate - FHLB & other 3.06% 3.59% 4.12% 3.89% 3.83%
Borrowed funds rate - subordinated debt 6.89% 6.91% 7.05% 7.19% 7.32%
Cost of all interest bearing funds 1.87% 1.97% 2.17% 2.28% 2.44%
Cost of funds (includes DDA) 1.58% 1.66% 1.83% 1.94% 2.08%
Cost of funds/earning assets 1.59% 1.66% 1.83% 1.94% 2.09%
Net interest margin (FTE) 4.59% 4.63% 4.74% 4.79% 4.83%
Fully tax-equivalent adjustment $ 3,141 $ 3,008 $ 2,962 $ 2,980 $ 3,326
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Average Balances
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Loans $2,017,817 $1,879,858 $1,834,610 $1,807,889 $1,797,678
Taxable investment securities 834,221 764,931 728,155 790,212 853,620
Non-taxable investment securities 417,893 402,105 401,535 402,476 403,508
Total interest-earning assets 3,269,931 3,046,894 2,964,300 3,000,577 3,054,806
Total assets 3,695,221 3,437,021 3,359,927 3,390,648 3,448,482
Interest-bearing deposits 2,141,724 2,059,840 2,073,398 2,087,784 2,084,807
FHLB borrowings & other 550,596 423,066 347,954 388,783 446,535
Subordinated debt held by unconsolidated subsidiary trusts 80,382 80,368 80,355 80,341 80,327
Total interest-bearing liabilities 2,772,702 2,563,274 2,501,707 2,556,908 2,611,669
Shareholders' equity $361,513 $336,572 $342,830 $329,503 $320,979
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Balance Sheet Data
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Cash and cash equivalents $ 103,923 $117,190 $109,898 $104,325 $113,531
Investment securities 1,329,534 1,292,685 1,170,372 1,228,608 1,286,583
Loans:
Consumer mortgage 739,593 606,084 545,828 520,480 510,309
Business lending 689,436 630,886 637,984 639,149 629,874
Consumer indirect 325,241 318,162 305,550 290,790 287,380
Consumer direct 374,239 368,871 368,653 370,267 379,342
Total loans 2,128,509 1,924,003 1,858,015 1,820,686 1,806,905
Allowance for loan losses 29,095 27,117 27,417 27,350 26,331
Intangible assets 195,001 140,292 132,296 133,547 134,828
Other assets 126,415 121,666 116,658 118,528 121,731
Total assets 3,854,287 3,568,719 3,359,822 3,378,344 3,437,247
Deposits 2,725,488 2,553,350 2,541,974 2,535,960 2,505,356
Borrowings 587,396 533,630 319,864 365,213 463,241
Subordinated debt held by unconsolidated subsidiary trusts 80,390 80,376 80,362 80,348 80,334
Other liabilities 57,295 59,601 65,803 59,839 63,278
Total liabilities 3,450,569 3,226,957 3,008,003 3,041,360 3,112,209
Shareholders' equity 403,718 341,762 351,819 336,984 325,038
Total liabilities and shareholders' equity 3,854,287 3,568,719 3,359,822 3,378,344 3,437,247
Assets under management or administration $1,806,941 $1,600,141 $1,577,584 $1,438,869 $1,363,631
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Capital
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Tier 1 leverage ratio 7.35% 7.50% 7.87% 7.54% 7.14%
Tangible equity / tangible assets 5.70% 5.88% 6.80% 6.27% 5.76%
Accumulated other comprehensive income $ 35,959 $39,582 $52,438 $43,414 $38,551
Diluted weighted average common shares outstanding 14,007 13,408 13,346 13,244 13,196
Period end common shares outstanding 14,165 12,960 13,019 13,017 12,979
Cash dividends declared per common share $0.32 $0.32 $0.29 $0.29 $0.29
Book value 28.50 26.37 27.02 25.89 25.04
Tangible book value 14.73 15.55 16.86 15.63 14.66
Common stock price (end of period) 49.00 43.91 38.00 31.43 31.35
Total shareholders return - trailing 12 months 61.2% 53.2% 22.0% 8.1% 24.1%
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Asset Quality
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Non-accrual loans $11,940 $10,518 $12,678 $13,577 $9,754
Accruing loans 90+ days delinquent 1,307 3,018 2,457 2,264 1,890
Total non-performing loans 13,247 13,536 15,135 15,841 11,644
Restructured loans 28 29 30 39 43
Other real estate owned (OREO) 1,077 812 943 700 704
Total non-performing assets 14,352 14,377 16,108 16,580 12,391
Net charge-offs $ 2,744 $ 2,532 $ 2,606 $ 2,381 $2,790
Loan loss allowance/loans outstanding 1.37% 1.41% 1.48% 1.50% 1.46%
Non-performing loans/loans outstanding 0.62% 0.70% 0.81% 0.87% 0.64%
Loan loss allowance/non-performing loans 220% 200% 181% 173% 226%
Net charge-offs/average loans 0.54% 0.53% 0.57% 0.53% 0.62%
Loan loss provision/net charge-offs 113% 80% 103% 143% 181%
Non-performing assets/loans outstanding plus OREO 0.67% 0.75% 0.87% 0.91% 0.69%
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(1) Excludes after-tax effect of acquisition expenses, securities gain/loss
and debt extinguishment.
(2) Excludes securities gain/loss and debt extinguishment.
(3) Excludes intangible amortization, acquisition expenses, securities
gain/loss, and debt extinguishment.
Certain prior period balances have been restated to reflect the fourth quarter
2003 adoption of FIN No. 46, "Consolidation of Variable Interest Entities." This
pronouncement requires the deconsolidation of previously consolidated subsidiary
trusts, resulting in the restatement of trust preferred securities to
subordinated debt.