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:
Scott A. Kingsley,
EVP & Chief Financial Officer
Office: (315) 445-3121
Fax: (315) 445-7347
COMMUNITY BANK SYSTEM ANNOUNCES
FOURTH QUARTER AND 2005 RESULTS
Syracuse, N.Y. - January 23, 2006 - Community Bank System, Inc. (NYSE:
CBU) reported quarterly net income of $8.3 million, or $0.27 per share, in the
fourth quarter of 2005, a 34% decrease from the $12.7 million, or $0.40 per
share, reported in the fourth quarter of 2004. The results of the quarter
included a one-time, $2.9 million ($0.07 per share) charge related to certain
early retirement actions. Full-year 2005 earnings of $50.8 million, or $1.65 per
share, were 1.2% above 2004's earnings of $50.2 million, or $1.64 per share, and
represented a new high for the company. For the year, higher non-interest income
including securities gains, improved asset quality, and organic loan and deposit
growth offset higher operating expenses, including special charges, an increased
cost of funds, lower investment income, and a higher effective tax rate. Cash
earnings per share (which excludes the after-tax effect of the amortization of
intangible assets) were $1.82 in both 2005 and 2004.
Sanford A. Belden, President and Chief Executive Officer, stated, "Our fourth
quarter and full-year results reflect a more challenging interest rate
environment, as well as our commitment to managing for profitable, long-term
growth and stability. We are pleased with the continuation of highly favorable
asset quality metrics, as well as the strong growth in our non-interest income.
Also, consistent with the direction we communicated in early 2005, we
successfully repositioned our balance sheet to achieve a more favorable interest
rate sensitivity profile, through gain-generating securities sales. We improved
key capital ratios over 2004, despite repurchasing 1.1 million of our own
shares, at a cost of $25.9 million. Lastly, we increased our quarterly dividend
to shareholders by 5.6% in August."
Net interest income was $34.9 million for the fourth quarter, consistent with
the third quarter's results, and down 9.5% from $38.6 million in the prior
year's fourth quarter. This was principally due to a $193.2 million decrease in
average earning assets, made up of a $45.7 million increase in loans, and a
$238.9 million decrease in investment securities. The fourth quarter net
interest margin of 4.12% compares to 4.32% for the fourth quarter of 2004, and
4.06% for the third quarter of 2005. The full-year net interest margin for 2005
was 4.17%, compared to 4.45% in 2004. Earning asset yields in 2005 were six
basis points above 2004, while the cost of funds increased 35 basis points,
year-over-year, resulting in net margin compression.
Total loans outstanding at the end of the fourth quarter were consistent with
the end of the third quarter, at $2.4 billion. Small increases in the business
lending and consumer mortgage portfolios were offset by declines in consumer
installment loans. For the year, loans grew $53.3 million, or 2.3%. The company
added $50.6 million of consumer installment loans in 2005, including significant
growth in its indirect auto lending operation. Consumer mortgages increased
$14.4 million, and the company began selling certain new mortgage originations
into the secondary market in the fourth quarter. Business lending was down $11.6
million for the year primarily from significant declines in automotive dealer
floor plans, a result of the robust manufacturer incentive programs in effect
during the year, and lower sales expectations for early 2006.
The loan loss provision for the quarter of $2.3 million was slightly higher than
the $2.1 million reported in the fourth quarter of 2004, and consistent with the
third quarter of 2005. Net charge-offs of $2.1 million, or 0.35% of average
loans, were down nearly $0.8 million from the fourth quarter of 2004, and $0.3
million higher than the $1.8 million reported in the third quarter of 2005.
Delinquency and non-performing loan ratios remained stable, and favorable to
historical levels. The provision for loan losses for the year of $8.5 million
was 2.5% below the $8.8 million recorded in 2004, reflecting these favorable
asset quality trends, and was $0.8 million above full-year net charge-offs of
$7.7 million.
Non-interest income (excluding securities gains) increased $1.8 million, or
16.8%, over the fourth quarter of 2004. Our employee benefits administration and
consulting business posted a 30% increase in revenues over the prior year's
fourth quarter on the strength of new product offerings to both new and existing
clients, resulting in a full-year revenue improvement of $2.0 million, or 22%.
Deposit service fees increased 13.1% over the prior year's fourth quarter,
driven by several revenue-enhancement initiatives put into place in the current
year, and were up 8.6% on a year-over-year basis. In addition, in 2005 the
company made significant progress on its objective of shortening the average
life of its investment portfolio, generating a $0.29 per share after-tax gain
through the sale of securities that had optimized their total return and
interest-rate sensitivity characteristics. The proceeds of these securities
sales were used to reduce variable-rate, short-term borrowings throughout 2005.
As a result, the expected life-to-maturity of the portfolio has been reduced
significantly, and stands at 5.0 years at the end of 2005.
Operating expenses (excluding special charges and acquisition expenses)
increased 4.5% from $30.2 million in the fourth quarter of 2004 to $31.5 million
in the fourth quarter of 2005. This was due to increases in salary and benefit
costs, utility costs, business development expenses, and write-downs of certain
facilities, partially offset by lower amortization of intangibles. Excluding
special charges, fourth quarter operating expenses, were $0.8 million above the
third quarter, also due to the above-mentioned factors as well as higher
OREO-related costs.
The company's effective income tax rate of 24.2% in the fourth quarter 2005 was
down from 27.4% in the third quarter, and 24.9% in the fourth quarter of 2004,
due principally to fluctuations in the proportion of tax-exempt income.
Financial Position
Average earning assets of $3.7 billion at the end of the fourth quarter were
down $59.9 million from the third quarter of 2005, reflecting $8.7 million of
organic loan growth, offset by $68.6 million of net investment sales and
maturities. Compared to the fourth quarter of 2004, average earning assets were
down $193.2 million, comprised of a $45.7 million organic increase in loans,
offset by a $238.9 million decrease in investments. Despite the recognition of
$12.2 million of full-year realized securities gains, the investment portfolio
contained $13.7 million of net unrealized gains at year-end. Deposits remained
stable in the fourth quarter, compared to the third quarter, and were up $55.8
million from the end of 2004, a 1.9% increase. Total borrowings, principally
short-term and variable rate advances, were reduced by $267.4 million, or 29.1%
from December 31, 2004. These actions greatly contributed to the company's
ability to improve its overall interest-rate sensitivity profile in the current
rate environment.
Asset Quality
As of December 31, 2005, the Company's non-performing loan ratio was 0.55%,
compared to 0.56% at the end of the third quarter, and 0.55% a year ago. The
delinquency ratio was 1.46% at December 31, 2005, in line with 1.45% a year ago.
The charge-off ratio was 0.35% (of total loans) for the fourth quarter, compared
to 0.30% in the third quarter, and 0.49% for last year's fourth quarter. The
full-year charge-off ratio in 2005 was 0.33%, an improvement from 0.37% for
2004. The ratio of allowance for loan losses to total loans at the end of the
fourth quarter was 1.35%, consistent with the level reported at the end of the
third quarter and the end of 2004. The improved and stable asset quality profile
is primarily the result of the company's enhanced credit risk management
programs and continued emphasis on disciplined underwriting standards.
Stock Repurchase
During the fourth quarter of 2005 the company purchased 72,100 common shares, at
an aggregate cost of $1.7 million, and an average price per share of $22.98,
under the previously announced 1.5 million-share repurchase program. Share
repurchases in 2005 totaled 1.1 million shares at a cost of $25.9 million. At
December 31, 2005, there were 0.9 million shares available for repurchase under
the previously announced authorization.
Outlook
The Company also announced in early December that Mr. Belden has elected to
retire from his management positions with the company as of July 31, 2006.
Following his retirement, he will continue to serve as a director and Vice
Chairman of the Company's Board of Directors. Mr. Belden will also chair a
newly-created Board committee focused on growth and acquisition initiatives, and
related integration activities. As part of its long-standing succession plan,
which included several other senior-level staffing decisions made over the last
three years, the Company announced that Mark E. Tryniski, its Executive Vice
President and Chief Operating Officer, will become President and CEO upon Mr.
Belden's retirement. Also consistent with that plan, James A. Wears, President,
New York Banking, and Michael A. Patton, President, Financial Services, retired
as of December 31, 2005.
Mr. Tryniski commented, "This Company's track record in identifying and
executing accretive, high-value acquisitions continues to be an important
component of our strategic growth plan. Sandy's appointment as chair of the
Acquisition and Integration Committee ensures the retention of his considerable
expertise, and speaks clearly to its importance and our intentions for continued
growth."
Mr. Tryniski added, "Our 2006 forecast reflects an assumption that the yield
curve will remain flat for the year. We expect our net interest margin for the
full year to be near 4.0%, compared to 4.17% for 2005, with continued organic
loan and deposit growth. We continue to expect strong growth from our employee
benefits administration and consulting business, as well as improvements from
our banking non-interest income sources. Operating expenses are expected to be
held relatively flat through reductions in personnel costs and branch
consolidation, offset by increases in strategic business development
initiatives. We will also begin recognizing compensation expense for stock
options in 2006, with an estimated $0.04 - 0.05 per share impact. Excluding the
effect of income and gains generated from last year's securities sales and the
fourth quarter early retirement charge, we expect earnings per share in 2006 to
approximate that reported in 2005. This expectation presumes a continued flat
yield-curve environment and reductions in the securities portfolio from
contractual cash flows. Any improvements in the interest-rate or capital market
environment in 2006 could present opportunities for securities or other actions
that might impact operating results."
Conference Call Scheduled
A conference call will be held with company management at 11:00 a.m. (ET) on
Tuesday, January 24, 2006, to discuss the above results at 1-877-641-0087. An
audio recording will be available one hour after the call until March 31, 2006,
and may be accessed at 1-866-453-6660 (access code 210746). Investors may also
listen live via the Internet at: http://phx.corporate-ir.net/phoenix.zhtml?
p=irol-eventDetails&c=95653&eventID=1191889.
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 $4.2 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.
Summary of Financial Data
(Dollars in thousands, except per share data)
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Quarter Ended Year to Date
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- ----------------------------------------------------------- December 31, December 31, December 31, December 31,
Earnings 2005 2004 2005 2004
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Loan income $38,816 $ 36,034 $147,608 $137,077
Investment income 16,302 19,481 71,586 75,718
Total interest income 55,118 55,515 219,194 212,795
Interest expense 20,198 16,940 75,572 61,752
Net interest income 34,920 38,575 143,622 151,043
Provision for loan losses 2,250 2,100 8,534 8,750
Net interest income after provision for loan losses 32,670 36,475 135,088 142,293
Deposit service fees 7,341 6,488 27,358 25,201
Other banking services 616 372 2,793 2,431
Trust, investment and asset management fees 1,844 1,789 7,307 7,537
Benefit plan administration, consulting and actuarial fees 2,937 2,256 11,193 9,204
Investment securities (losses) gains, net 0 (73) 12,195 72
Total non-interest income 12,738 10,832 60,846 44,445
Salaries, employee benefits and professional fees 17,624 16,557 69,766 65,724
Occupancy and equipment and furniture 5,030 4,668 20,094 18,813
Amortization of intangible assets 1,604 2,013 7,125 7,414
Other 7,278 6,934 27,461 26,244
Special charges/acquisition expenses 2,895 270 2,943 1,704
Total operating expenses 34,431 30,442 127,389 119,899
Income before income taxes 10,977 16,865 68,545 66,839
Income taxes 2,651 4,199 17,740 16,643
Net income $ 8,326 $ 12,666 $ 50,805 $ 50,196
Basic earnings per share $ 0.28 $ 0.41 $ 1.68 $ 1.68
Diluted earnings per share $ 0.27 $ 0.40 $ 1.65 $ 1.64
Diluted earnings per share-cash (1) $ 0.31 $ 0.45 $ 1.82 $ 1.82
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Summary of Financial Data
(Dollars in thousands, except per share data)
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2005 2004
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4th Qtr 3rd Qtr 2nd Qtr 1st Qtr 4th Qtr
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Earnings
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Loan income $38,816 $37,134 $36,156 $35,502 $ 36,034
Investment income 16,302 16,936 18,627 19,721 19,481
Total interest income 55,118 54,070 54,783 55,223 55,515
Interest expense 20,198 19,126 18,727 17,521 16,940
Net interest income 34,920 34,944 36,056 37,702 38,575
Provision for loan losses 2,250 2,275 2,134 1,875 2,100
Net interest income after provision for loan losses 32,670 32,669 33,922 35,827 36,475
Deposit service fees 7,341 7,237 6,703 6,077 6,488
Other banking services 616 1,411 241 525 372
Trust, investment and asset management fees 1,844 1,823 1,859 1,781 1,789
Benefit plan administration, consulting and actuarial fees 2,937 2,767 2,639 2,850 2,256
Investment securities gains (losses), net 0 5,305 5,164 1,726 (73)
Total non-interest income 12,738 18,543 16,606 12,959 10,832
Salaries, employee benefits and professional fees 17,624 17,451 17,324 17,367 16,557
Occupancy and equipment and furniture 5,030 5,043 4,855 5,166 4,668
Amortization of intangible assets 1,604 1,553 1,984 1,984 2,013
Other 7,278 6,679 7,031 6,473 6,934
Special charges/acquisition expenses 2,895 1 6 41 270
Total operating expenses 34,431 30,727 31,200 31,031 30,442
Income before income taxes 10,977 20,485 19,328 17,755 16,865
Income taxes 2,651 5,621 5,047 4,421 4,199
Net income $ 8,326 $14,864 $14,281 $13,334 $ 12,666
Basic earnings per share $ 0.28 $ 0.49 $ 0.47 $ 0.44 $ 0.41
Diluted earnings per share $ 0.27 $ 0.48 $ 0.46 $ 0.43 $ 0.40
Diluted earnings per share-cash (1) $ 0.31 $ 0.52 $ 0.51 $ 0.48 $ 0.45
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Profitability
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Return on assets 0.79% 1.39% 1.33% 1.23% 1.15%
Return on equity 7.21% 12.59% 12.23% 11.47% 10.75%
Non-interest income/operating income (FTE) 24.9% 32.5% 29.6% 23.8% 20.4%
Efficiency ratio (2) 58.5% 56.4% 57.2% 55.0% 52.9%
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Components of Net Interest Margin (FTE)
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Loan yield 6.42% 6.17% 6.18% 6.16% 6.09%
Investment yield 6.02% 5.91% 6.04% 6.20% 6.00%
Earning asset yield 6.28% 6.07% 6.13% 6.18% 6.05%
Interest bearing deposit rate 2.03% 1.86% 1.73% 1.56% 1.49%
Short-term borrowing rate 3.33% 2.96% 3.34% 2.72% 2.22%
Long-term borrowing rate 5.67% 5.83% 5.43% 5.00% 4.92%
Cost of all interest-bearing funds 2.64% 2.45% 2.36% 2.18% 2.06%
Cost of funds (includes DDA) 2.20% 2.05% 1.99% 1.85% 1.75%
Net interest margin (FTE) 4.12% 4.06% 4.16% 4.34% 4.32%
Fully tax-equivalent adjustment $ 3,512 $ 3,533 $ 3,533 $ 3,777 $ 3,754
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Summary of Financial Data
(Dollars in thousands, except per share data)
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2005 2004
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4th Qtr 3rd Qtr 2nd Qtr 1st Qtr 4th Qtr
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Average Balances
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Loans $2,406,153 $2,397,472 $2,352,533 $2,342,467 $2,360,493
Taxable investment securities 774,420 841,823 944,015 972,962 991,687
Non-taxable investment securities 522,089 523,301 519,843 557,796 543,672
Total interest-earning assets 3,702,662 3,762,596 3,816,391 3,873,225 3,895,852
Total assets 4,155,228 4,230,791 4,306,863 4,380,012 4,397,549
Interest-bearing deposits 2,378,784 2,381,919 2,381,864 2,381,332 2,354,817
Short-term borrowings 232,157 338,405 462,913 436,180 482,930
Long-term borrowings 427,082 371,877 338,957 439,244 439,345
Total interest-bearing liabilities 3,038,022 3,092,201 3,183,734 3,256,756 3,277,092
Shareholders' equity $ 457,947 $ 468,559 $ 468,352 $ 471,576 $ 468,799
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Balance Sheet Data
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Cash and cash equivalents $ 114,606 $ 154,672 $ 105,391 $ 135,040 $ 118,345
Investment securities 1,303,090 1,318,436 1,506,273 1,554,829 1,584,339
Loans:
Consumer mortgage 815,795 813,611 803,127 801,923 801,412
Business lending 819,605 816,145 824,007 816,616 831,244
Consumer installment 776,417 782,137 751,766 715,856 725,837
Total loans 2,411,817 2,411,893 2,378,900 2,334,395 2,358,493
Allowance for loan losses 32,581 32,460 32,011 31,898 31,778
Intangible assets 224,878 226,481 228,539 230,521 232,500
Other assets 130,924 133,641 126,937 131,765 131,932
Total assets 4,152,734 4,212,663 4,314,029 4,354,652 4,393,831
Deposits 2,984,768 2,985,919 2,977,517 2,976,953 2,928,978
Borrowings 572,588 626,151 717,930 774,476 840,065
Subordinated debt held by unconsolidated subsidiary trusts 80,502 80,488 80,474 80,460 80,446
Other liabilities 57,281 59,656 65,020 62,337 69,714
Total liabilities 3,695,139 3,752,214 3,840,941 3,894,226 3,919,203
Shareholders' equity 457,595 460,449 473,088 460,426 474,628
Total liabilities and shareholders' equity 4,152,734 4,212,663 4,314,029 4,354,652 4,393,831
Assets under management or administration $2,505,966 $2,394,012 $2,283,638 $2,203,181 $2,176,655
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Capital
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Tier 1 leverage ratio 7.57% 7.34% 7.14% 6.83% 6.94%
Tangible equity / tangible assets 5.92% 5.86% 5.99% 5.57% 5.82%
Accumulated other comprehensive income $ 8,420 $ 14,487 $ 28,089 $ 21,709 $ 34,200
Diluted weighted average common shares O/S 30,516 30,712 30,940 31,192 31,500
Period end common shares outstanding 29,957 29,903 30,238 30,322 30,642
Cash dividends declared per common share $ 0.19 $ 0.19 $ 0.18 $ 0.18 $ 0.18
Book value 15.28 15.40 15.65 15.18 15.49
Tangible book value 7.77 7.81 8.09 7.58 7.90
Common stock price (end of period) 22.55 22.60 24.39 22.91 28.25
Total shareholders return - trailing 12 months -17.6% -7.3% 10.1% 1.9% 18.5%
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Summary of Financial Data
(Dollars in thousands, except per share data)
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2005 2004
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4th Qtr 3rd Qtr 2nd Qtr 1st Qtr 4th Qtr
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Asset Quality
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Non-accrual loans $12,232 $12,896 $12,455 $13,432 $11,798
Accruing loans 90+ days delinquent 1,075 672 898 1,254 1,158
Total non-performing loans 13,307 13,568 13,353 14,686 12,956
Other real estate owned (OREO) 1,048 882 684 1,444 1,645
Total non-performing assets 14,355 14,450 14,037 16,130 14,601
Net charge-offs $ 2,129 $ 1,826 $ 2,021 $ 1,755 $ 2,931
Loan loss allowance/loans outstanding 1.35% 1.35% 1.35% 1.37% 1.35%
Non-performing loans/loans outstanding 0.55% 0.56% 0.56% 0.63% 0.55%
Loan loss allowance/non-performing loans 245% 239% 240% 217% 245%
Net charge-offs/average loans 0.35% 0.30% 0.34% 0.30% 0.49%
Loan loss provision/net charge-offs 106% 125% 106% 107% 72%
Non-performing assets/loans outstanding plus OREO 0.59% 0.60% 0.59% 0.69% 0.62%
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(1) Cash earnings exclude the after-tax effect of amortization of intangible
assets.
(2) Excludes intangible amortization, acquisition expenses/special charges,
results of securities transactions and debt restructuring activities.
# # #
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.