Exhibit 99
[GRAPHIC]
News Release
5790 Widewaters Parkway, DeWitt, N.Y. 13214 For further information, please
contact:
Mark E. Tryniski,
Chief Operating Officer & Chief Financial Officer
Office: (315) 445-7378
Fax: (315) 445-7347
COMMUNITY BANK SYSTEM'S FIRST QUARTER 2004 NET INCOME INCREASES 12%
Non-Interest Income up 19%; Net Interest Margin Remains Strong
Syracuse, N.Y. - April 22, 2004 - Community Bank System, Inc. (NYSE: CBU)
generated a 12.1% increase in net income for the first quarter of 2004 as
compared to the first quarter of 2003. The increase in earnings was primarily
driven by higher non-interest income, increased earning asset levels, a reduced
cost of funds and improved asset quality, partially offset by higher recurring
operating expenses, and acquisition expenses of $970,000.
All per share data contained herein reflect a two-for-one stock split approved
by shareholders on March 26, 2004 and paid as a 100% stock dividend on April 12,
2004.
Earnings Per Share - GAAP Basis. Diluted earnings per share measured in
accordance with generally accepted accounting principles ("GAAP") for the first
quarter of 2004 were $0.38, equal to the results in the first quarter of 2003,
and up from $0.31 reported in the fourth quarter of 2003.
Earnings Per Share - 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, as well. Operating earnings exclude the
effects of certain items the company considers to be non-operating, including
acquisition expenses, and net gains and losses from securities and debt
prepayment transactions. Diluted operating earnings per share for first quarter
2004 were $0.40, up 5.3% from the $0.38 generated in the first quarter of 2003.
A reconciliation of GAAP to operating-based earnings is as follows:
Three Months Ended
(in thousands) March 31,
2004 2003
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Net income $ 11,155 $9,949
After-tax operating adjustments:
Acquisition expenses 595 0
Debt prepayment costs 0 27
Net securities (gains)/losses (6) 0
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Net income - operating basis $ 11,744 $9,976
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Sanford A. Belden, President and Chief Executive Officer, stated, "We are very
pleased with first quarter operating results, particularly the continued
strength of our net interest margin, improvements in our asset quality
indicators, and increases in non-interest income. A strong net interest margin
of 4.67% this quarter, combined with a higher level of interest-earning assets
derived from consumer mortgage growth and the Grange acquisition in November
2003, helped produce 11% growth in net interest income. Our continued focus on
asset quality resulted in improvements this quarter in the delinquency,
charge-off and non-performing loan ratios over the comparative 2003 quarter.
Non-interest income was up 19% this quarter as well, attributable principally to
the contributions of the 2003 Grange and Harbridge Consulting Group
acquisitions. Preparations for next month's acquisition of First Heritage Bank
of Wilkes-Barre, Pa. are proceeding well and necessary regulatory approvals have
been received. This acquisition will further strengthen our banking network in
the Northeastern Pennsylvania marketplace, increasing our Pa.-based deposits to
nearly $900 million. Lastly, the 56% price appreciation of CBU common shares in
2003 prompted us to initiate a two-for-one stock split, which was paid on April
12, 2004 in the form of a 100% stock dividend. We expect this action to expand
retail ownership and enhance the liquidity of our stock by making our shares
more accessible to a broader range of investors."
Net interest income of $36.0 million in the first quarter of 2004 was up 10.7%
over first quarter 2003's level of $32.5 million, primarily as a result of a
$381 million rise in average earning assets. This increase was driven by organic
loan growth, the addition of Grange's loan portfolio, and securities purchases.
The net interest margin of 4.67% decreased 12 basis points versus the same
quarter of 2003. Excluding accretion on called securities, the net interest
margin was 4.59%, down 16 basis points from first quarter 2003's level. This was
caused by the low interest rate environment having a greater impact on
earning-asset yields, which were down 64 basis points (excluding accretion on
called securities), than on the cost of funds, which fell 47 basis points.
However, excluding accretion, the margin is equal to that reported in the fourth
quarter of 2003. Declining loan yields have effectively been offset by reduced
funding costs resulting from debt prepayments effected in December 2003 and the
rollover benefit of lower cost time deposits.
Loan loss provision in the current quarter of $2.1 million was down from $3.4
million in the first quarter of 2003, despite a $285 million increase in loans,
as the net charge-off, delinquency and non-performing loan ratios all showed
improvement.
Non-interest income (excluding security and debt transactions) increased $1.7
million or 19% to $10.5 million in first quarter 2004 from $8.8 million in the
same quarter last year. This increase was due principally to the acquisition in
July 2003 of Harbridge Consulting Group, which contributed more than $0.9
million of the increase, and the addition of the 12-branch Grange acquisition
that contributed substantially to a $0.5 million increase in overdraft fees.
Total revenue from our financial services businesses was up $1.3 million over
the prior year period, as the 31% increase in revenue at the company's benefit
plans administration business was the primary driver of growth beyond the
incremental revenue produced by Harbridge. Expansion of revenue from financial
services was the primary reason why the non-interest income to operating income
(FTE) ratio rose to 21.1% in first quarter 2004 from 20.0% in the equivalent
prior year period.
Operating expenses (excluding acquisition expenses) increased from $24.4 million
in first quarter 2003 to $28.8 million in the current quarter. The efficiency
ratio (excluding intangible amortization, debt prepayment and security
gain/loss) increased to 54.5% in first quarter 2004 from 52.3% in the same
quarter of last year. The increases in operating expenses were due principally
to the three acquisitions made in 2003, and to a lesser degree to increased
compensation and benefits costs.
The company's effective income tax rate of 24.0% was essentially unchanged from
the fourth quarter of 2003, but was two percentage points lower than first
quarter 2003's rate due principally to a higher proportion of tax-exempt income.
Financial Position
Earning assets of $3.38 billion at the end of the quarter were up $397 million
over the first quarter 2003 level of $2.98 billion. This increase reflects
organic loan growth of 5.4% or $99 million, $47 million of net securities
purchases and acquired earning assets of $251 million. Outstanding borrowings
rose to $592 million from $446 million at March 31, 2003, as more funding was
needed to support strong consumer mortgage and indirect loan growth and
increases in the securities portfolio. Total deposits increased $205 million, or
8.1%, over the last 12 months to $2.74 billion, as $249 million of deposits were
added through the company's two bank acquisitions in 2003.
The $99 million of organic loan growth was primarily attributable to the
consumer mortgage segment, which produced a $122 million, or 23% increase over
the year-earlier period. The balance of the change reflects an increase in
indirect installment loans of $36 million (+12%), and reductions in business
loans of $33 million (-5.2%) and direct installment loans of $26 million
(-6.9%).
Asset Quality
The company experienced further asset quality improvements in the current
quarter, with reductions in delinquency, charge-off, and non-performing loan
ratios in comparison to the prior year's quarter. The allowance for loan losses
of $28.8 million at quarter-end was up from $27.4 million at March 31, 2003,
principally as a result of higher loan balances. The ratio of allowance for loan
losses to total loans at the end of first quarter 2004 was 1.37% versus 1.50%
one year earlier. This reduction reflects an improved asset quality profile
brought on by stabilized economic conditions, enhanced credit risk management
resources, and an increased proportion of lower-risk consumer mortgages in the
loan portfolio. Total net charge-offs of $2.3 million in the current quarter
were essentially flat with the prior year amount of $2.4 million, but represent
a reduction in the ratio of net charge-offs to average loans outstanding from
0.53% to 0.44%. Total delinquent loans (> 30 days past due) declined from 1.85%
at first quarter-end 2003 to 1.65% at March 31, 2004.
Non-performing loans of $14.0 million at quarter-end were down $1.9 million in
comparison to the end of first quarter 2003. This 12% improvement, combined with
the aforementioned loan growth, resulted in an improvement in the ratio of
non-performing loans to total loans, from 0.87% at March 31, 2003 to 0.66% at
the end of the current quarter.
Stock Split
At a special meeting held on March 26, 2004, shareholders approved a two-for-one
stock split and an increase in authorized shares from 20 million to 50 million
shares. Ninety-two percent of common shares outstanding were voted, with 96% of
those voting in favor of the split and share increase. The split was effected in
the form of a 100% stock dividend and was paid on April 12, 2004 to shareholders
of record as of March 17, 2004.
First Heritage Acquisition
The pending acquisition of First Heritage Bank is expected to close on May 15,
2004, subject to approval by two-thirds of First Heritage shareholders on May 5,
2004. Headquartered in Wilkes-Barre, Pa., First Heritage is a closely held, $270
million-asset bank with three branches in Luzerne county. First Heritage 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.
Stock Repurchase
The Company announced on June 9, 2003, that its Board of Directors had
authorized a stock repurchase program to acquire up to 1,400,000 common shares,
or approximately 5.4% of total outstanding shares, over the course of the
ensuing twelve months. Through March 31, 2004, approximately 539,000 shares had
been repurchased at an aggregate cost of $11.2 million and an average price per
share of $20.83. 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 First Heritage Bank. The Company will be able to
resume stock repurchases at its discretion after the closing of the First
Heritage merger.
Other Matters
The company is presently evaluating elective actions to prepay a portion or all
of its $190 million outstanding term borrowings from the Federal Home Loan Bank,
resulting in a one-time after-tax prepayment cost of up to $20 million.
Management believes this action may be beneficial to shareholder value through
the resulting strengthening of the company's interest-rate sensitivity profile,
optimization of future earnings performance, and improvements to return on
equity.
Conference Call Scheduled
A conference call will be held with company management at 11:00 a.m. (EST) on
Thursday, April 22, to discuss the above results at 1-866-453-5550 (access code
2822972). An audio recording will be available one hour after the call until
June 30, and may be accessed at 1-866-453-6660 (access code 144314). Investors
may also listen to the call live via the Internet at:
www.firstcallevents.com/service/ajwz402554372gf12.html
This webcast will be archived on this site for one full year and may be accessed
at any point during this 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 pending 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, 129
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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2004 2003
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1st Qtr 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
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Earnings
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Interest income $49,921 $ 49,163 $ 46,676 $47,019 $ 48,271
Interest expense 13,967 14,460 14,137 14,917 15,787
Net interest income 35,954 34,703 32,539 32,102 32,484
Provision for loan losses 2,050 3,093 2,029 2,673 3,400
Net interest income after provision for loan losses 33,904 31,610 30,510 29,429 29,084
Deposit service fees 5,784 6,099 6,080 5,740 5,205
Other banking services 650 596 (37) 476 869
Trust, investment and asset management fees 1,702 1,728 1,747 1,530 1,677
Benefit plan administration, consulting and actuarial fees 2,384 1,931 1,987 1,201 1,101
Non-interest income before security gains & debt ext 10,520 10,354 9,777 8,947 8,852
Security gains & debt ext 10 (2,656) 3 0 (45)
Total non-interest income 10,530 7,698 9,780 8,947 8,807
Salaries and employee benefits 15,167 14,921 13,226 12,317 12,700
Occupancy and equipment and furniture 4,782 4,355 4,140 4,305 4,325
Amortization of intangible assets 1,639 1,292 1,269 1,251 1,281
Other 7,198 6,983 6,407 7,301 6,141
Total recurring operating expenses 28,786 27,551 25,042 25,174 24,447
Acquisition expenses 970 328 165 5 0
Total operating expenses 29,756 27,879 25,207 25,179 24,447
Income before income taxes 14,678 11,429 15,083 13,197 13,444
Income taxes 3,523 2,759 3,354 3,165 3,495
Net income $11,155 $ 8,670 $ 11,729 $10,032 $ 9,949
Basic earnings per share $ 0.39 $ 0.32 $ 0.45 $ 0.38 $ 0.38
Diluted earnings per share $ 0.38 $ 0.31 $ 0.44 $ 0.38 $ 0.38
Diluted earnings per share - operating (1) $ 0.40 $ 0.37 $ 0.44 $ 0.38 $ 0.38
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Profitability
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Return on assets 1.17% 0.93% 1.35% 1.20% 1.19%
Return on equity 10.92% 9.51% 13.83% 11.74% 12.25%
Non-interest income/operating income (FTE) (2) 21.1% 21.5% 21.6% 20.3% 20.0%
Efficiency ratio (3) 54.5% 54.5% 52.5% 54.4% 52.3%
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Components of Net Interest Margin (FTE)
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Loan yield 6.21% 6.35% 6.55% 6.81% 7.04%
Investment yield 6.53% 6.34% 6.34% 6.69% 6.75%
Earning asset yield 6.33% 6.35% 6.47% 6.76% 6.93%
Interest bearing deposit rate 1.56% 1.63% 1.72% 1.92% 2.07%
Short-term borrowing rate 1.27% 1.25% 1.22% 1.29% 1.33%
Long-term borrowing rate 6.26% 6.18% 6.17% 6.18% 6.25%
Cost of all interest bearing funds 1.97% 2.07% 2.19% 2.39% 2.50%
Cost of funds (includes DDA) 1.66% 1.75% 1.84% 2.02% 2.13%
Net interest margin (FTE) 4.67% 4.59% 4.63% 4.74% 4.79%
Fully tax-equivalent adjustment $ 3,335 $ 3,141 $ 3,008 $ 2,962 $ 2,980
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2004 2003
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1st Qtr 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
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Average Balances
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Loans $2,111,388 $2,017,817 $1,879,858 $1,834,610 $1,807,889
Taxable investment securities 817,503 834,221 764,931 728,155 790,180
Non-taxable investment securities 452,935 417,893 402,105 401,535 402,476
Total interest-earning assets 3,381,826 3,269,931 3,046,894 2,964,300 3,000,545
Total assets 3,841,103 3,695,233 3,437,016 3,359,927 3,391,625
Interest-bearing deposits 2,227,978 2,141,724 2,059,840 2,073,398 2,087,784
Short-term borrowings 356,163 336,250 207,925 132,775 171,339
Long-term borrowings 270,479 294,728 295,509 295,534 297,785
Total interest-bearing liabilities 2,854,620 2,772,702 2,563,274 2,501,707 2,556,908
Shareholders' equity $ 410,816 $ 361,525 $ 336,572 $ 342,830 $ 329,503
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Balance Sheet Data
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Cash and cash equivalents $ 79,373 $ 103,923 $ 117,190 $ 109,898 $ 104,325
Investment securities 1,347,590 1,329,534 1,292,685 1,170,372 1,228,608
Loans:
Consumer mortgage 743,699 739,593 606,084 545,828 520,480
Business lending 673,812 689,436 630,886 637,984 639,149
Consumer indirect 326,463 325,241 318,162 305,550 290,790
Consumer direct 361,441 374,239 368,871 368,653 370,267
Total loans 2,105,415 2,128,509 1,924,003 1,858,015 1,820,686
Allowance for loan losses 28,821 29,095 27,117 27,417 27,350
Intangible assets 194,820 196,111 140,292 132,296 133,547
Other assets 124,259 126,415 121,666 116,658 118,528
Total assets 3,822,636 3,855,397 3,568,719 3,359,822 3,378,344
Deposits 2,740,933 2,725,488 2,553,350 2,541,974 2,535,960
Borrowings 512,072 587,396 533,630 319,864 365,213
Subordinated debt held by unconsolidated subsidiary trusts 80,404 80,390 80,376 80,362 80,348
Other liabilities 66,204 57,295 59,601 65,803 59,839
Total liabilities 3,399,613 3,450,569 3,226,957 3,008,003 3,041,360
Shareholders' equity 423,023 404,828 341,762 351,819 336,984
Total liabilities and shareholders' equity 3,822,636 3,855,397 3,568,719 3,359,822 3,378,344
Assets under management or administration $1,863,601 $1,806,941 $1,600,141 $1,577,584 $1,438,869
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Capital
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Tier 1 leverage ratio 7.22% 7.26% 7.39% 7.76% 7.43%
Tangible equity / tangible assets 6.29% 5.70% 5.88% 6.80% 6.27%
Accumulated other comprehensive income $ 47,584 $ 35,958 $ 39,582 $ 52,438 $ 43,414
Diluted weighted average common shares outstanding 29,557 28,013 26,816 26,693 26,488
Period end common shares outstanding 28,560 28,330 25,921 26,038 26,034
Cash dividends declared per common share $ 0.16 $ 0.16 $ 0.16 $ 0.15 $ 0.15
Book value 14.81 14.29 13.18 13.51 12.94
Tangible book value 7.99 7.37 7.77 8.43 7.81
Common stock price (end of period) 23.14 24.50 21.96 19.00 15.72
Total shareholders return - trailing 12 months 51.3% 61.2% 53.2% 22.0% 8.1%
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2004 2003
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1st Qtr 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
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Asset Quality
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Non-accrual loans $12,499 $11,940 $10,518 $12,678 $13,577
Accruing loans 90+ days delinquent 1,462 1,307 3,018 2,457 2,264
Total non-performing loans 13,961 13,247 13,536 15,135 15,841
Restructured loans 27 28 29 30 39
Other real estate owned (OREO) 1,014 1,077 812 943 700
Total non-performing assets 15,002 14,352 14,377 16,108 16,580
Net charge-offs $ 2,324 $ 2,744 $ 2,532 $ 2,606 $ 2,381
Loan loss allowance/loans outstanding 1.37% 1.37% 1.41% 1.48% 1.50%
Non-performing loans/loans outstanding 0.66% 0.62% 0.70% 0.81% 0.87%
Loan loss allowance/non-performing loans 206% 220% 200% 181% 173%
Net charge-offs/average loans 0.44% 0.54% 0.53% 0.57% 0.53%
Loan loss provision/net charge-offs 88% 113% 80% 103% 143%
Non-performing assets/loans outstanding plus OREO 0.71% 0.67% 0.75% 0.87% 0.91%
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(1) 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 prepayment costs.
(2) Excludes results of securities transactions and debt prepayment costs.
(3) Excludes intangible amortization, acquisition expenses, results of
securities transactions and debt prepayment costs.