Exhibit 99
[LOGO] News Release
COMMUNITY BANK SYSTEM, INC.
5790 Widewaters Parkway, DeWitt, N.Y. 13214 For further please contact:
Mark E. Tryniski,
Chief Operating Officer & Chief Financial Officer
Office: (315) 445-7378
Fax: (315) 445-7347
COMMUNITY BANK SYSTEM INCREASES
SECOND QUARTER 2004 NET INCOME 21%
Loan Demand Improves; Asset Quality Reaches Best Levels in Years
Syracuse, N.Y. - July 22, 2004 - Community Bank System, Inc. (NYSE: CBU)
generated a 21% increase in net income for the second quarter of 2004 as
compared to the second quarter of 2003. Earnings for the six-month period ended
June 30, 2004 were up 17% over the corresponding period of 2003. The increase in
earnings resulted primarily from organic and acquired growth in earning asset
levels and improved asset quality, offset by a lower net interest margin.
Earnings Per Share - GAAP Basis. Diluted earnings per share measured in
accordance with generally accepted accounting principles ("GAAP") for the second
quarter of 2004 were $0.40, up 5% from results of $0.38 for both the second
quarter of 2003 and the first quarter of 2004. Diluted earnings per share for
the six- months ended June 30, 2004 of $0.77 compares to $0.75 for the same 2003
period.
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 of $0.40 and $0.38
for the second quarters of 2004 and 2003, respectively, were identical to GAAP
earnings. Diluted operating earnings per share for the six months ended June 30,
2004 were $0.80, up 7% from $0.75 reported for the same 2003 period. A
reconciliation of GAAP to operating-based earnings is as follows:
Three Months Ended June 30, Six Months Ended June 30,
(000's omitted) 2004 2003 2004 2003
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Net income $ 12,141 $ 10,032 $ 23,296 $ 19,981
After-tax operating adjustments:
Net securities gains (82) 0 (89) 0
Debt prepayment costs 0 0 0 27
Acquisition expenses 252 3 847 3
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Net income - operating $ 12,311 $ 10,035 $ 24,054 $ 20,011
=========================== ===========================
Sanford A. Belden, President and Chief Executive Officer, stated, "We are
delighted with second quarter operating results, particularly the continued
improvement in our asset quality metrics, robust loan growth, and consummation
of the First Heritage acquisition. Our focus on asset quality has resulted in
delinquency, charge-off and non-performing loan ratios that are at their lowest
levels in several years. After a less active first quarter, organic loan demand
increased this quarter to an annualized growth rate of 7% on the strength of
both business and consumer credit demand. Lastly, the acquisition of First
Heritage Bank in Wilkes-Barre, Pa. closed on May 14, adding three branch
locations, $212 million of deposits, and a strong commercial lending orientation
to our existing First Liberty banking network in Northeastern Pennsylvania."
Net interest income of $37.5 million in the second quarter of 2004 was up 17%
over second quarter 2003's level of $32.1 million, primarily as a result of a
$715 million rise in average earning assets. This increase was driven by
acquisitions, organic loan growth, and securities purchases. Second quarter net
interest margin of 4.49% compares to 4.74% for the second quarter of 2003, and
4.67% for the first quarter of 2004. Net interest margin for the six months
ended June 30, 2004 of 4.58% declined from 4.77% in the equivalent period of
2003. Margin compression has been caused by the historically low interest rate
environment having a greater impact on earning-asset yields, which were down 64
basis points year-to-date versus 2003, than on the cost of funds, which fell 44
basis points over the same time frame.
Loan loss provision in the current quarter of $2.3 million was down from $2.7
million in the second quarter of 2003, despite a $388 million increase in
average loans, as net charge-off, delinquency and non-performing loan ratios
showed continued improvement. Provision for the six months through June 30, 2004
of $4.4 million compares to $6.1 million for the same period of 2003, declining
as a result of the aforementioned improvements in asset quality.
Non-interest income (excluding gain/loss on security and debt transactions)
increased $1.8 million, or 21%, to $10.8 million in second quarter 2004 from
$8.9 million in the same quarter last year. Half of this increase was due to the
acquisition in July 2003 of Harbridge Consulting Group, which contributed $0.9
million of the increase, with the balance stemming from organic growth of our
financial service businesses. Acquired and organic growth also contributed to
the 20% year-to-date increase in total non-interest income over 2003. Total
quarterly revenue from our financial services businesses was up 59%, from $2.7
million in 2003 to $4.3 million in 2004. Excluding the impact of the Harbridge
acquisition, organic growth was a very strong 28%, driven by continued growth in
our retirement plan administration business and by improvements in our wealth
management businesses.
Operating expenses (excluding acquisition expenses) increased from $25.2 million
in second quarter 2003 to $29.4 million in the current quarter. This increase is
due principally to four acquisitions completed over the past year, and to a
lesser degree to increased compensation and benefits costs. The efficiency ratio
(excluding intangible amortization and gain/loss on security and debt
transactions) decreased to 53.2% in second quarter 2004 from 54.4% in the same
quarter of last year. The efficiency ratio through June 30, 2004 of 53.8%
compares to 53.3% for the same period of 2003.
The company's year-to-date effective income tax rate of 24.8% is up from 24.0%
for the first quarter of 2004, due principally to a lower expected proportion of
tax-exempt income.
Financial Position
Earning assets of $3.9 billion at the end of the quarter were up $530 million
over the first quarter 2004 level of $3.4 billion. This increase reflects
annualized organic loan growth of 7%, or $35 million, acquired loans of $206
million and net securities acquired and purchased of $288 million. Earning asset
growth was funded by acquired deposits of $212 million, increased borrowings of
$341 million, and organic deposit outflow of $18 million.
The $35 million of organic loan growth was attributable to strengthened
performance in both business and consumer markets. Business loans were up 6% on
an annualized basis, with consumer mortgages up 9% and consumer installment
loans up 5%.
Asset Quality
Charge-off, non-performing and delinquency ratios continued to improve this
quarter and are now at their lowest levels in several years. Year over year, the
charge-off ratio has declined from 0.57% to 0.26%, the non-performing loan ratio
has declined from 0.82% to 0.56%, and the delinquency ratio has declined from
1.79% to 1.50%. The ratio of allowance for loan losses to total loans at the end
of second quarter 2004 was 1.37%, as compared to 1.48% one year earlier and
1.37% the end of first quarter 2004. This reduction reflects an improved asset
quality profile brought on by stabilized economic conditions, enhanced credit
risk management initiatives, and an increased proportion of lower-risk consumer
mortgages in the loan portfolio.
First Heritage Acquisition
The acquisition of First Heritage Bank closed on May 14, 2004, adding three
branches in Luzerne county to First Liberty Bank & Trust, the Pennsylvania
banking division of Community Bank, N.A. Robert P. Matley, formerly President
and Chief Operating Officer of First Heritage, is now serving as Senior Lending
Officer and Executive Vice President of Pennsylvania Banking. The fair value of
net assets acquired approximated $62 million, including $206 million of loans,
$212 million of deposits, and intangible assets of $38 million. Consideration
included 2.6 million shares of CBU stock with a fair value of $52 million.
Stock Repurchase
The Company announced on May 21, 2004 that its Board of Directors had approved
the continuation of a stock repurchase program previously announced in June
2003. The program provides for the repurchase of up to 1,400,000 common shares,
of which 1,119,287 have been repurchased through June 30, 2004, at an aggregate
cost of $23.9 million and an average price per share of $21.31.
Other Matters
As noted in our April 2004 conference call and press release, management had
been evaluating the prepayment of certain Federal Home Loan Bank borrowings to
strengthen the company's interest-rate sensitivity and earnings profile. As a
result of subsequent changes in the interest rate environment, the company was
more effectively able to achieve its objectives through a combination of
securities investment, deposit management, and intermediate term funding from
the Federal Home Loan Bank.
Conference Call Scheduled
A conference call will be held with company management at 11:00 a.m. (EST) on
Friday, July 23, to discuss the above results at 1-866-453-5550 (access code
5411895). An audio recording will be available one hour after the call until
September 30, and may be accessed at 1-866-453-6660 (access code 149461).
Investors may also listen to the call live via the Internet at:
http://phx.corporate-r.net/playerlink.zhtml?c=95653&s=wm&e=915486
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 Investor Relations/News &
Media 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. CBU's wholly-owned banking subsidiary has $4.4 billion in
assets and 130 customer facilities across Upstate New York, where it operates as
Community Bank, N.A ., and Northeastern Pennsylvania, where it operates as First
Liberty Bank & Trust. For further information please visit our websites at:
www.communitybankna.com or www.firstlibertybank.com.
# # #
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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- ------------------------------------------------------------- June 30, June 30, June 30, June 30,
Earnings 2004 2003 2004 2003
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Interest income $ 52,136 $ 47,019 $102,057 $ 95,290
Interest expense 14,679 14,917 28,646 30,704
Net interest income 37,457 32,102 73,411 64,586
Loan loss provision 2,300 2,673 4,350 6,073
Net interest income after provision for loan losses 35,157 29,429 69,061 58,513
Deposit service fees 6,201 5,740 11,985 10,945
Other banking services 246 475 896 1,344
Trust, investment and asset management fees 2,062 1,530 3,764 3,207
Benefit plan administration, consulting and actuarial fees 2,275 1,202 4,659 2,303
Non-interest income before security gains & debt ext 10,784 8,947 21,304 17,799
Security gains & debt ext 135 0 145 (45)
Total non-interest income 10,919 8,947 21,449 17,754
Salaries and employee benefits 15,392 12,318 30,559 25,018
Occupancy and equipment and furniture 4,650 4,305 9,432 8,630
Intangible amortization 1,759 1,251 3,398 2,532
Other 7,563 7,300 14,761 13,441
Total recurring operating expenses 29,364 25,174 58,150 49,621
Acquisition expenses 411 5 1,381 5
Total operating expenses 29,775 25,179 59,531 49,626
Income before tax 16,301 13,197 30,979 26,641
Income tax 4,160 3,165 7,683 6,660
Net income $ 12,141 $ 10,032 $ 23,296 $ 19,981
Basic earnings per share $ 0.41 $ 0.38 $ 0.80 $ 0.77
Diluted earnings per share $ 0.40 $ 0.38 $ 0.77 $ 0.75
Diluted earnings per share - operating (1) $ 0.40 $ 0.38 $ 0.80 $ 0.75
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Summary of Financial Data
(Dollars in thousands, except per share data)
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2004 2003
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2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr
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Earnings
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Interest income $ 52,136 $ 49,921 $ 49,163 $ 46,676 $ 47,019
Interest expense 14,679 13,967 14,460 14,137 14,917
Net interest income 37,457 35,954 34,703 32,539 32,102
Provision for loan losses 2,300 2,050 3,093 2,029 2,673
Net interest income after provision for loan losses 35,157 33,904 31,610 30,510 29,429
Deposit service fees 6,201 5,784 6,099 6,080 5,740
Other banking services 246 650 596 (37) 475
Trust, investment and asset management fees 2,062 1,702 1,728 1,747 1,530
Benefit plan administration, consulting and actuarial fees 2,275 2,384 1,931 1,987 1,202
Non-interest income before security gains & debt ext 10,784 10,520 10,354 9,777 8,947
Security gains & debt ext 135 10 (2,656) 3 0
Total non-interest income 10,919 10,530 7,698 9,780 8,947
Salaries and employee benefits 15,392 15,167 14,921 13,226 12,318
Occupancy and equipment and furniture 4,650 4,782 4,355 4,140 4,305
Amortization of intangible assets 1,759 1,639 1,292 1,269 1,251
Other 7,563 7,198 6,983 6,407 7,300
Total recurring operating expenses 29,364 28,786 27,551 25,042 25,174
Acquisition expenses 411 970 328 165 5
Total operating expenses 29,775 29,756 27,879 25,207 25,179
Income before income taxes 16,301 14,678 11,429 15,083 13,197
Income taxes 4,160 3,523 2,759 3,354 3,165
Net income $ 12,141 $ 11,155 $ 8,670 $ 11,729 $ 10,032
Basic earnings per share $ 0.41 $ 0.39 $ 0.32 $ 0.45 $ 0.38
Diluted earnings per share $ 0.40 $ 0.38 $ 0.31 $ 0.44 $ 0.38
Diluted earnings per share - operating (1) $ 0.40 $ 0.40 $ 0.37 $ 0.44 $ 0.38
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Profitability
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Return on assets 1.18% 1.17% 0.93% 1.35% 1.20%
Return on equity 11.34% 10.92% 9.51% 13.83% 11.74%
Non-interest income/operating income (FTE) (2) 20.8% 21.1% 21.5% 21.6% 20.3%
Efficiency ratio (3) 53.2% 54.5% 54.5% 52.5% 54.4%
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Components of Net Interest Margin (FTE)
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Loan yield 6.04% 6.21% 6.35% 6.55% 6.81%
Investment yield 6.19% 6.53% 6.34% 6.34% 6.69%
Earning asset yield 6.10% 6.33% 6.35% 6.47% 6.76%
Interest bearing deposit rate 1.48% 1.56% 1.63% 1.72% 1.92%
Short-term borrowing rate 1.23% 1.27% 1.25% 1.22% 1.29%
Long-term borrowing rate 5.22% 6.26% 6.18% 6.17% 6.18%
Cost of all interest bearing funds 1.90% 1.97% 2.07% 2.19% 2.39%
Cost of funds (includes DDA) 1.61% 1.66% 1.75% 1.84% 2.02%
Net interest margin (FTE) 4.49% 4.67% 4.59% 4.63% 4.74%
Fully tax-equivalent adjustment $ 3,626 $ 3,335 $ 3,141 $ 3,008 $ 2,962
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2004 2003
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2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr
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Average Balances
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Loans $2,222,827 $2,111,388 $2,017,817 $1,879,858 $1,834,610
Taxable investment securities 949,099 817,503 834,221 764,931 728,155
Non-taxable investment securities 506,950 452,935 417,893 402,105 401,535
Total interest-earning assets 3,678,876 3,381,826 3,269,931 3,046,894 2,964,300
Total assets 4,145,955 3,841,103 3,695,233 3,437,016 3,359,927
Interest-bearing deposits 2,320,030 2,227,978 2,141,724 2,059,840 2,073,398
Short-term borrowings 416,767 356,163 336,250 207,925 132,775
Long-term borrowings 376,350 270,479 294,728 295,509 295,534
Total interest-bearing liabilities 3,113,147 2,854,620 2,772,702 2,563,274 2,501,707
Shareholders' equity $ 430,660 $ 410,816 $ 361,525 $ 336,572 $ 342,830
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Balance Sheet Data
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Cash and cash equivalents $ 101,410 $ 79,373 $ 103,923 $ 117,190 $ 109,898
Investment securities 1,584,353 1,347,590 1,329,534 1,292,685 1,170,372
Loans:
Consumer mortgage 780,550 743,699 739,593 606,084 545,828
Business lending 853,034 673,812 689,436 630,886 637,984
Consumer indirect 340,868 326,463 325,241 318,162 305,550
Consumer direct 372,283 361,441 374,239 368,871 368,653
Total loans 2,346,735 2,105,415 2,128,509 1,924,003 1,858,015
Allowance for loan losses 32,040 28,821 29,095 27,117 27,417
Intangible assets 230,783 194,820 196,111 140,292 132,296
Other assets 126,513 124,259 126,415 121,666 116,658
Total assets 4,357,754 3,822,636 3,855,397 3,568,719 3,359,822
Deposits 2,934,933 2,740,933 2,725,488 2,553,350 2,541,974
Borrowings 852,850 512,072 587,396 533,630 319,864
Subordinated debt held by unconsolidated subsidiary trusts 80,418 80,404 80,390 80,376 80,362
Other liabilities 48,156 66,204 57,295 59,601 65,803
Total liabilities 3,916,357 3,399,613 3,450,569 3,226,957 3,008,003
Shareholders' equity 441,397 423,023 404,828 341,762 351,819
Total liabilities and shareholders' equity 4,357,754 3,822,636 3,855,397 3,568,719 3,359,822
Assets under management or administration $1,936,063 $1,863,601 $1,806,941 $1,600,141 $1,577,584
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Capital
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Tier 1 leverage ratio 6.98% 7.22% 7.26% 7.39% 7.76%
Tangible equity / tangible assets 5.10% 6.29% 5.70% 5.88% 6.80%
Accumulated other comprehensive income $ 16,287 $ 47,584 $ 35,958 $ 39,582 $ 52,438
Diluted weighted average common shares outstanding 30,670 29,557 28,013 26,816 26,693
Period end common shares outstanding 30,617 28,560 28,330 25,921 26,038
Cash dividends declared per common share $ 0.16 $ 0.16 $ 0.16 $ 0.16 $ 0.15
Book value 14.42 14.81 14.29 13.18 13.51
Tangible book value 6.88 7.99 7.37 7.77 8.43
Common stock price (end of period) 22.79 23.14 24.50 21.96 19.00
Total shareholders return - trailing 12 months 23.2% 51.3% 61.2% 53.2% 22.0%
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2004 2003
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2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr
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Asset Quality
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Non-accrual loans $11,142 $12,499 $11,940 $10,518 $12,678
Accruing loans 90+ days delinquent 1,234 1,462 1,307 3,018 2,457
Restructured loans 856 27 28 29 30
Total non-performing loans 13,232 13,988 13,275 13,565 15,165
Other real estate owned (OREO) 1,044 1,014 1,077 812 943
Total non-performing assets 14,276 15,002 14,352 14,377 16,108
Net charge-offs $ 1,438 $ 2,324 $ 2,744 $ 2,532 $ 2,606
Loan loss allowance/loans outstanding 1.37% 1.37% 1.37% 1.41% 1.48%
Non-performing loans/loans outstanding 0.56% 0.66% 0.62% 0.71% 0.82%
Loan loss allowance/non-performing loans 242% 206% 219% 200% 181%
Net charge-offs/average loans 0.26% 0.44% 0.54% 0.53% 0.57%
Loan loss provision/net charge-offs 160% 88% 113% 80% 103%
Non-performing assets/loans outstanding plus OREO 0.61% 0.71% 0.67% 0.75% 0.87%
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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 restructuring activities
(2) Excludes results of securities transactions and debt restructuring
activities
(3) Excludes intangible amortization, acquisition expenses, results of
securities transactions and debt restructuring activities