-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PUvCTimam2Pcya+SM8E9yIzaCjpITGqXSAaROwTYxSwczkpA7n+Vel3Df1fpn6Jt iawDqWci+n2waEIfdfdDlQ== 0000723188-97-000021.txt : 19971114 0000723188-97-000021.hdr.sgml : 19971114 ACCESSION NUMBER: 0000723188-97-000021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971112 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMUNITY BANK SYSTEM INC CENTRAL INDEX KEY: 0000723188 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 161213679 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-11716 FILM NUMBER: 97712865 BUSINESS ADDRESS: STREET 1: 5790 WIDEWATERS PKWY CITY: DEWITT STATE: NY ZIP: 13214 BUSINESS PHONE: 3154452282 MAIL ADDRESS: STREET 1: 5790 WIDEWATERS PARKWAY CITY: DEWITT STATE: NY ZIP: 13214 10-Q 1 FORM 10-Q FORM 10 - Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the nine months ended September 30, 1997 Commission file number 0-11716 COMMUNITY BANK SYSTEM, INC. (Exact name of registrant as specified in its charter) DELAWARE 16-1213679 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5790 Widewaters Parkway, DeWitt, New York 13214 (Address of principal executive offices) (Zip Code) 315/445-2282 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Common Stock, No par value -- 7,573,662 shares as of October 23, 1997. INDEX COMMUNITY BANK SYSTEM, INC. AND SUBSIDIARIES Part I. Information Item 1. Financial Statements (Unaudited) Consolidated balance sheets -- September 30, 1997, December 31, 1996 and September 30, 1996 Consolidated statements of income -- Three months ended September 30, 1997 and 1996 and nine months ended September 30, 1997 and 1996. Consolidated statements of cash flows -- Nine months ended September 30, 1997 and 1996 Item 2. Management Discussion and Analysis of Financial Conditions and Results of Operations Part II. Other Information Item 1. Legal Proceedings Item 2. Changes in Securities Item 3. Defaults upon Senior Securities Item 4. Submission of Matters to a Vote of Securities Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K COMMUNITY BANK SYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CONDITION
September 30, December 31, September 30, 1997 1996 1996 - ---------------------------------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks $72,105,973 $52,534,726 $52,588,513 Federal Funds Sold 3,000,000 0 0 - ---------------------------------------------------------------------------------------------------------------------------- TOTAL CASH AND CASH EQUIVALENTS 75,105,973 52,534,726 52,588,513 Investment securities U.S. Treasury 2,990,946 2,988,749 2,987,989 U.S. Government agencies and corporations 279,830,386 285,280,374 296,697,193 States and political subdivisions 18,824,443 18,248,144 19,396,053 Mortgage-backed securities 264,557,137 250,349,672 257,761,480 Federal Reserve Bank 2,173,950 1,402,850 1,395,750 Other securities 26,750,379 20,283,502 17,317,833 - ---------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES 595,127,241 578,553,291 595,556,298 Loans 830,257,565 658,366,564 633,915,849 Less: Unearned discount 3,352,976 5,892,689 7,223,139 Reserve for possible loan losses 12,369,348 8,127,752 7,805,234 - ---------------------------------------------------------------------------------------------------------------------------- NET LOANS 814,535,241 644,346,123 618,887,476 Bank premises and equipment 22,251,293 16,782,034 16,665,612 Accrued interest receivable 13,876,616 10,790,071 12,248,114 Intangible assets 60,479,341 31,241,489 31,922,060 Other assets 12,879,994 9,616,928 9,553,442 - ---------------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $1,594,255,699 $1,343,864,662 $1,337,421,515 ============================================================================================================================ LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Deposits Noninterest bearing $203,467,158 $144,351,214 $144,508,906 Interest bearing 1,181,425,521 882,862,042 893,718,280 - ---------------------------------------------------------------------------------------------------------------------------- TOTAL DEPOSITS 1,384,892,679 1,027,213,256 1,038,227,186 Federal funds purchased 0 31,800,000 40,850,000 Term borrowings 50,000,000 165,000,000 140,000,000 Company obligated mandatorily redeemable preferred securities of Community Capital Trust 1 holding solely junior subordinated debentures of the Company 29,802,000 0 0 Accrued interest and other liabilities 15,099,243 10,499,179 12,480,126 - ---------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 1,479,793,922 1,234,512,435 1,231,557,312 - ---------------------------------------------------------------------------------------------------------------------------- Shareholders' equity: Preferred stock $100 stated value 0 4,500,000 4,500,000 Common stock (7,549,462; 7,474,406; 7,450,406 shares) 7,549,462 4,671,504 4,656,504 Surplus 31,526,693 33,584,773 33,215,104 Undivided profits 72,858,506 65,691,025 63,358,427 Unrealized gains (losses) on available for sale securities 2,678,739 947,853 194,198 Shares issued under employee stock plan - unearned (151,623) (42,928) (60,030) - ---------------------------------------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 114,461,777 109,352,227 105,864,203 - ---------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,594,255,699 $1,343,864,662 $1,337,421,515 ============================================================================================================================
See notes to consolidated financial statements COMMUNITY BANK SYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 - ----------------------------------------------------------------------------------------------------------------------------------- Interest Income: Interest and fees on loans $19,220,893 $14,396,967 $51,351,988 $41,711,487 Interest and dividends on investments: U.S. Treasury 67,288 109,606 201,322 425,231 U.S. Government agencies and corporations 6,154,071 5,838,472 18,662,087 15,586,936 States and political subdivisions 268,219 255,053 677,307 749,586 Mortgage-backed securities 4,413,071 4,116,944 13,305,600 11,563,405 Other securities 455,653 651,984 1,341,522 1,337,820 Interest on federal funds sold 618,483 751 761,228 335,470 Interest on deposits at other banks 510 0 1,334 0 - ----------------------------------------------------------------------------------------------------------------------------------- Total interest income 31,198,187 25,369,777 86,302,387 71,709,935 - ----------------------------------------------------------------------------------------------------------------------------------- Interest expense: Interest on deposits Savings 3,110,870 2,518,117 7,874,410 7,562,088 Time 9,413,390 6,488,619 24,266,932 19,582,989 Interest on federal funds purchased and term borrowings 1,144,565 2,125,367 6,455,525 3,532,057 Interest on mandatorily redeemable capital securities of subsidiary 716,687 0 1,938,250 0 - ----------------------------------------------------------------------------------------------------------------------------------- Total interest expense 14,385,511 11,132,103 40,535,116 30,677,134 - ----------------------------------------------------------------------------------------------------------------------------------- Net interest income 16,812,675 14,237,674 45,767,270 41,032,801 Less: Provision for possible loan losses 1,235,000 630,000 2,815,000 1,827,068 - ----------------------------------------------------------------------------------------------------------------------------------- Net Interest income after provision for loan losses 15,577,675 13,607,674 42,952,270 39,205,733 - ----------------------------------------------------------------------------------------------------------------------------------- Other income: Fiduciary and investment services 414,613 306,628 1,194,942 1,103,924 Service charges on deposit accounts 1,503,541 1,042,093 3,514,176 3,034,871 Commissions on investment products 256,380 194,033 747,956 568,436 Other service charges, commissions and fees 1,176,516 853,954 2,722,611 1,626,677 Other operating income 46,871 42,839 74,794 59,958 Investment security gain (loss) 4,637 0 4,637 0 - ----------------------------------------------------------------------------------------------------------------------------------- Total other income 3,402,557 2,439,547 8,259,115 6,393,866 - ----------------------------------------------------------------------------------------------------------------------------------- Other expenses: Salaries and employee benefits 6,147,884 4,956,317 16,633,575 14,339,753 Occupancy expense, net 904,809 746,234 2,474,621 2,290,823 Equipment and furniture expense 644,102 585,552 1,954,086 1,726,708 Amortization of intangible assets 1,141,248 687,239 2,520,688 2,083,653 Other 3,448,541 2,683,645 9,309,192 7,528,609 - ----------------------------------------------------------------------------------------------------------------------------------- Total other expenses 12,286,584 9,658,987 32,892,162 27,969,546 - ----------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 6,693,649 6,388,234 18,319,224 17,630,053 Income taxes 2,459,000 2,596,000 6,752,000 7,175,000 - ----------------------------------------------------------------------------------------------------------------------------------- NET INCOME $4,234,649 $3,792,234 $11,567,224 $10,455,053 =================================================================================================================================== Earnings per share $0.55 $0.50 $1.50 $1.36 ===================================================================================================================================
COMMUNITY BANK SYSTEM, INC. CONSOLIDATED STATEMENT OF CASH FLOWS For Nine Months Ended September 30, 1997 and 1996
1997 1996 - ------------------------------------------------------------------------------------------------------------ Operating Activities: Net income 11,567,224 10,455,053 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,542,424 2,210,108 Net amortization of intangible assets 2,520,687 2,083,653 Net accretion of security premiums and discounts (222,810) (1,565,635) Provision for loan losses 2,815,000 1,827,068 Provision for deferred taxes (140,818) 7,149 (Gain)\Loss on sale of investment securities (4,637) 0 (Gain)\Loss on sale of loans and other assets (74,794) (59,958) Change in interest receivable (3,086,545) (3,097,611) Change in other assets and other liabilities 9,703 1,837,258 Change in unearned loan fees and costs (674,441) (598,782) - ------------------------------------------------------------------------------------------------------------ Net Cash Provided By Operating Activities 14,250,993 13,098,303 - ------------------------------------------------------------------------------------------------------------ Investing Activities: Proceeds from sales of investment securities 45,901,587 2,766,400 Proceeds from maturities of held to maturity investment securities 68,181,763 52,039,664 Proceeds from maturities of available for sale investment securities 10,605,524 24,569,334 Purchases of held to maturity investment securities (7,328,804) (129,033,626) Purchases of available for sale investment securities (130,780,769) (77,634,810) Net change in loans outstanding (175,804,853) (66,892,356) Capital expenditures (7,009,354) (1,933,822) Premium paid for branch acquisitions (28,210,898) (29,558) - ------------------------------------------------------------------------------------------------------------ Net Cash Used By Investing Activities (224,445,804) (196,148,774) - ------------------------------------------------------------------------------------------------------------ Financing Activities: Net change in demand deposits, NOW accounts, and savings accounts 186,791,050 (447,759) Net change in certificates of deposit 170,888,373 21,728,721 Net change in Federal Funds purchased (31,800,000) 0 Net change in term borrowings (115,000,000) 155,300,000 Issuance of mandatorily redeemable capital securities of subsidiary 29,802,000 0 Issuance (retirement) of common and preferred stock (3,680,122) 204,391 Cash dividends (4,235,243) (4,049,472) - ------------------------------------------------------------------------------------------------------------ Net Cash Provided By Financing Activities 232,766,058 172,735,881 - ------------------------------------------------------------------------------------------------------------ Change In Cash And Cash Equivalents 22,571,247 (10,314,590) Cash and cash equivalents at beginning of year 52,534,726 62,903,103 - ------------------------------------------------------------------------------------------------------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD 75,105,973 52,588,513 ============================================================================================================ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash Paid For Interest $36,487,592 $27,859,125 ============================================================================================================ Cash Paid For Income Taxes $7,932,467 $7,182,149 ============================================================================================================ SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND INVESTING ACTIVITIES: Dividends declared and unpaid $1,509,892 $1,340,798 ============================================================================================================
The accompanying notes are an integral part of the consolidated financial statements. Community Bank System, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) September 1997 Note A -- Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Operating results for the nine month period ended September 30, 1997 are not necessarily indicative of the results that may be expected for the year ended December 31, 1997. Note B -- Recent Events On March 10, 1997, Community Bank System, Inc. redeemed all of its remaining $4.5 million of 9.0% Cumulative Perpetual Preferred Stock at a 4% premium from the proceeds of the issuance of its Junior Subordinated Debentures. A two-for-one stock split was approved by shareholders at a Special Shareholders Meeting held on February 19, 1997. Shareholders of record at the close of business on February 10, 1997 were issued one additional share of common stock for each share already held on March 12, 1997. On June 16, 1997 CBSI's acquisition of eight branches from Key Bank, N.A., which included $149.9 million in deposits and $24.9 million in loans, was completed. In conjunction with this transaction, the company received $109.1 million in cash net of $12.6 million in premium. On July 18, 1997 CBSI's acquisition of 12 branches from Fleet Bank, N.A. was completed. This acquisition included approximately $159.1 million in deposits and $65.2 million in loans. In conjunction with this transaction, the company received $74.2 million in cash net of $15.7 million in premium. Note C - Company Obligated Mandatorily Redeemable Preferred Securities of Community Capital Trust I On January 29, 1997, Community Bank System, Inc. formed a wholly-owned subsidiary, Community Capital Trust I, a Delaware statutory business trust. The Trust has issued $30 million aggregate liquidation amount of 9.75% company-obligated Mandatorily Redeemable Preferred Securities representing undivided beneficial interests in the assets on the Trust. The Company borrowed the proceeds of the Preferred Securities from the Trust by issuing Junior Subordinated Debentures to the Trust having substantially similar terms as the Preferred Securities. The sole assets of the Trust on September 30, 1997 were $30,723,736 aggregate principal amount of the Company's Junior Subordinated Debentures, together with the related accrued interest receivable thereon. The Preferred Securities mature in 2027, and are treated as Tier 1 capital by the Federal Reserve Bank of New York. The guarantees issued by the Company for the Trust, together with the Company's obligations under the Trust Agreement, the Junior Subordinated Debentures and the Indenture under which the Junior Subordinated Debentures were issued, constitute a full and unconditional guarantee by the Company of the Preferred Securities issued by the Trust. Part 1. Financial Information Item 1. Financial Statements The information required by rule 10.01 of Regulation S-X is presented on the previous pages. Item 2. Management Discussion and Analysis of Financial Condition and of Operations The purpose of the discussion is to present material changes in Community Bank System, Inc.'s financial condition and results of operations during the nine months ended September 30, 1997 which are not otherwise apparent from the consolidated financial statements included in these reports. When used in this report, the term "CBSI" means Community Bank System, Inc. and its subsidiaries on a consolidated basis, unless indicated otherwise. Financial performance comparisons to peer bank holding companies are based on data through June 30, 1997 as provided by the Federal Reserve System; the peer group is comprised of 120 bank holding companies having $1 to $3 billion in assets. I. EARNINGS PERFORMANCE SUMMARY
Three Months Ended Change 9/30/97 9/30/96 Amount Percent (000's) Net Income $4,235 $3,792 $442 11.7% Earnings per share $0.55 $0.50 $0.05 10.0% Weighted average shares outstanding 7,697 7,449 248 3.3% Return on average assets 1.06% 1.17% -0.11% N/A Average assets $1,587,153 $1,288,949 $298,204 23.1% Return on average shareholders' equity 15.01% 14.70% 0.31% N/A Average shareholders' equity $111,892 $104,362 $7,530 7.2% Percentage of average shareholders' equity to average assets 7.05% 8.10% -1.05% N/A
* May not foot due to rounding
Nine Months Ended Change 9/30/97 9/30/96 Amount Percent (000's) Net Income $11,567 $10,455 $1,112 10.6% Earnings per share $1.50 $1.36 $0.14 10.3% Weighted average shares outstanding 7,661 7,456 205 2.7% Return on average assets 1.06% 1.14% -0.08% N/A Average assets $1,460,976 $1,230,175 $230,801 18.8% Return on average shareholders' equity 14.22% 13.88% 0.34% N/A Average shareholders' equity $109,155 $102,195 $6,960 6.8% Percentage of average shareholders' equity to average assets 7.47% 8.31% -0.84% N/A
* May not foot due to rounding A. Net Income Trend Net income for the third quarter and first nine months of 1997 reached record highs of $4.235 million and $11.567 million, up 11.7% and 10.6%, respectively, over the comparable 1996 periods. Earnings per share were also a record, rising to $.55 for the third quarter and $1.50 year-to-date, up 10.0% and 10.3%, respectively. Third quarter return on equity increased 31 basis points to 15.01%, bringing the nine month level to 14.22% or 16.06% based on tangible or cash return on equity. All per share results have been adjusted for the company's 2 for 1 stock split effective March 12, 1997. The results reflect the contributions of eight branches acquired in southwestern New York in mid-June from KeyBank, N.A. and twelve branches acquired in northern New York in mid-July from Fleet Bank. Taken together, these branch purchases added approximately $309 million in deposits (or 22% of our quarter-end deposit base) and $90 million in loans (or 11% of our quarter-end loan base). During the past year, loans (before the summer acquisitions) have climbed a record 17.6%, three-eighths of which came from new markets opened by our mid-1995 branch purchases from The Chase Manhattan Bank, N.A. In addition, third quarter noninterest income rose nicely, up over 39% from one year earlier. While over one-third of the increase reflects the impact of the acquisitions, fees related to fiduciary services, benefit plan administration, and mutual fund sales, all areas of priority strategic focus, were up a combined 13.2%. Nearly $450,000 in non-recurring acquisition expenses were incurred during the quarter. The company was more than able to offset them by $321,000 in income accretion resulting from $29.5 million in called bonds as well as a three-fold increase in the annual dividend on its creditor life insurance program. Lastly, asset quality remains acceptable. Though the ratio of net charge-offs to loans rose 10 basis points in the third quarter to .49% and is 30 basis points higher than the prior year's abnormally low level, the ratio of non-performing loans to loans outstanding was up only slightly to .53%, the latter still approximately half the level of peer banks nationwide based on data available as of June 30, 1997. Compared to second quarter 1997, this quarter's net income rose $567,000 or 15.5% while earnings per share were up $.07 or 14.8%. Major positive factors were an increase in net interest income of $2.2 million on a $124 million expansion in average earning assets, representing nearly a full-quarter's impact of the Key and Fleet branch acquisitions, and an $868,000 increase in other income, of which $243,000 reflects the annual creditor life insurance dividend and $336,000 reflects the acquisitions. Offsetting these improvements was a combination of $1.4 million more in operating expense, including $229,000 of added one-time acquisition-related expenses; $436,000 greater intangible amortization generated by the acquisitions; and a $385,000 higher loan loss provision expense, maintaining 125% coverage of net charge-offs as in the second quarter. Third quarter net interest income rose 18.1% or $2.6 million versus the prior year. The improvement reflects $203 million more in earning assets, 55% of which represents continued steady loan growth throughout the last twelve months, with the balance due to loan growth provided by the two branch acquisitions. The company's investment portfolio was unchanged at $595 million. Asset growth was funded by the deposits acquired from Key and Fleet, which enabled a $101 million reduction in borrowings from one year earlier, with the balance of the funding largely from higher levels of consumer, business, and municipal time deposits. The third quarter net interest margin at 4.67% was 15 basis points lower than one year earlier or 24 basis points less after excluding the called bond income accretion. The reduction largely represents a higher overall cost of deposits due to more competitive rates paid on and greater mix of money market and time deposits, and the cost of $30 million of 9.75% Trust Preferred stock issued in January 1997. Comparing the first nine months of 1997 to the same 1996 period, net interest income climbed 11.5% or $4.7 million, and the net interest margin averaged 32 basis points lower at 4.59%. The company's third quarter 1997 efficiency ratio (overhead compared to recurring operating income) was up 2.9 percentage points from one year earlier at 60.4%. Excluding non-recurring bond income accretion, one-time acquisition-related expenses, and 1996's SAIF insurance fund assessment of $263,000, the third quarter efficiency ratio was 59.1% this year versus 55.9% in 1996. Compared to third quarter 1996, recurring operating income (net interest income before called bond income accretion, plus noninterest income before net securities gains) rose by 19.2% while overhead (excluding one-time expenses in both years) increased by 26.0%. The bulk of the higher noninterest expense reflects personnel increases related to branch expansion (both acquired branch staff and volume-sensitive positions in operations and other areas to support the expanded balance sheet), greater data processing requirements, expanded facilities costs, more office supplies and advertising, an increase in certain problem asset costs, and higher intangible amortization. Excluding the impact of intangibles from the efficiency ratio calculation improves the ratio by 5.6 and 4.1 percentage points in 1997 and 1996, respectively. Despite higher pretax income, taxes for the first nine months of 1997 taxes fell by $423,000 from the same 1996 period because of lower New York State taxes on investment income. As a result, the effective tax rate was reduced to 36.9% versus 40.7% one year earlier. CBSI's marginal tax rates are 35% for federal and 9% for state tax purposes for both years. B. Balance Sheet Trends Loans outstanding increased by $91 million or 12.4% during the third quarter. Excluding the loans purchased from Fleet, outstandings rose by 3.5% or $26 million compared to growth of $37 million (before the Key loan purchase) during second quarter 1997 and $27 million during third quarter 1996. About 60% of the reduction in growth versus the spring quarter is due to slower indirect loan growth, with the balance due to reduced direct installment and business loan growth. The primary components of the $200 million increase in loans over the last twelve months to $827 million are consumer direct loans (up $84 million or 77% to $193 million), with almost half the growth due to home equity loans purchased from Fleet and nearly 10% due to the Key direct installment loan purchases; business lending products (up $80 million or 41% to $277 million), with about $17 million each in purchases from Key and Fleet, nearly $6 million due to expanded floor plan lending to automobile dealers, and $47 million in general purpose borrowing; indirect consumer loans (up $36 million or 23% to $196 million), predominantly reflecting automobile financing through an established dealer network (no loans purchased from Key and Fleet); and consumer mortgages, virtually unchanged from one year earlier at $161 million due to $7.4 million in originations sold service-retained in the secondary market and regular portfolio paydowns. Investments (excluding market value adjustment) totaled $593.6 million for the quarter just ended, down $13.0 million (2.1%) from June 30, 1997 attributable to the lack of favorable buying opportunities. Since September 30, 1996, there has been a $1.6 million (less than 1%) investment decline, which was caused largely by called bonds and limited attractive reinvestment opportunities. Total average deposits for September 1997 are $224 million (19.2%) higher than average June 1997 deposits due largely to a full month's impact of the Key branches acquired in Mid-1997 and the deposits acquired from the Fleet branches (mid-July) . Primarily reflecting the Fleet and Key Branch acquisitions, total average deposits for September 1997 are up $356.4 million or 34% over the same 1996 period. Excluding the impact of the two acquisitions, total average deposits are up $40 million or 3.9% . Average IPC deposits excluding Key and Fleet are up $31 million or 3.4% due primarily to growth in business and individual CD's less than $100,000. Asset Quality Trend Third quarter 1997 loan loss provision expense rose by $605,000 or 96% over the prior year's level, resulting in a $988,000 or 54% increase in the provision for the first nine months. Year-to-date net charge-offs rose $1.1 million or 113% to $2.1 million, resulting in a net charge-offs to average outstandings ratio of .39% for the period versus .23% in 1996. Consumer installment loans accounted for all but 12% of the change. The loan loss reserve/loans outstandings ratio rose 20 basis points during the quarter to 1.50%, reflecting 125% coverage of the provision over net charge-offs as well as the addition of a $2.5 million valuation allowance resulting from intensive credit review of the loans purchased from Fleet. Nonperforming loans rose $857,000 during the third quarter to $4.362 million, a level $1.150 million or 36% higher than one year ago; about 85% of the latter increase pertains to consumer installment loans with the balance in real estate mortgages. Despite some recent softening in the company's asset quality ratios compared to the highly favorable net charge-off experience of 1993-1996 and nonperforming loan levels of 1995, today's loan portfolio credit strength remains better than industry norms; as of June 30, 1997 data, CBSI's nonperforming loans/loans outstanding ratio was in the very strong 21st peer percentile. Combined delinquencies and nonaccruals were 1.72% of total loans at quarter end compared to 1.31% one year earlier and 1.46% at year end, all measures well within the company's internal guideline of 2.0%. In addition, CBSI's present coverage of the loan loss reserve over nonperformers is 2.8 times versus 2.3 times based on peer data as available of June 30, 1997. Lastly, management is confident that an ample portion of the reserve ($2.2 million or 17.5%) is available for absorbing general, unforeseen loan losses after allocation by specific customer and loan type. Capital and Other Trends As of September 30, 1997, the tier I leverage ratio was 5.32% versus 5.65% twelve months earlier. The decrease in the ratio is attributable to intangibles resulting from the Key and Fleet acquisitions partially offset by the impact of the issuance of $30 million in Trust Preferred securities (net of the redemption in early March of the remaining 45,000 shares ($4.5 million) of more expensive cumulative perpetual preferred stock). The decline was also limited by favorable earnings during the last 12 months and scheduled amortization of intangible assets. As a result of the aforementioned reasons, the tier I risk-based capital ratio of September 30, 1997 was 8.92%, or 165 basis points lower than it was as of September 30, 1996. This compares to a 6% "well-capitalized " regulatory minimum. Book value per share increased 11.4% from September 30, 1996 to $15.16 as of the most recent quarter end, while tangible book value per share fell to $7.15, down 23.3% over the same period due to the added intangibles related to the Key and Fleet acquisitions, net of intangible amortization related to previous acquisitions. The bank's liquidity level is very favorable as of September 30, 1997. In the event of a liquidity crisis, more than $251 million (essentially short term assets minus short term liabilities) or 15.8% of assets could be converted into cash within a 30-day time period. Over a 90 day time period, 14.5% of assets could be converted to cash. As shown by the statement of cash flows preceding the Management Discussion and Analysis, the bank's cash and cash equivalents increased by $22.6 million during the first nine months to $75.1 million as of September 30, 1997, a level $22.5 million higher than one year earlier. The increase in cash and cash equivalents through nine months of 1997 reflects the excess of deposit growth, issuance of the Trust Preferred securities, and cash provided by operating activities over asset growth (almost 80% of which relates to increased loans). II. SUPPLEMENTAL INFORMATION TO EARNINGS PERFORMANCE SUMMARY The following sections of this report discuss more fully certain of the balance sheet and earnings trends summarized above. A. Net Interest Income Changes in net interest income reflect changes in both net interest margin and earning asset levels. On a tax-equivalent basis, net interest income for third quarter 1997 increased $2.6 million or 18.0% over the same 1996 period to $16.9 million. This reflects a $252.7 million (21.3%) increase in average earning assets with $188.7 million in average loan growth and $64.0 million in average investment growth. The net interest margin was 15 BP lower than for the same 1996 quarter despite a 28.5% reduction in capital market borrowings to $103.6 million. The primary reason for the lower margin was the 13 basis point (BP) higher cost of funds resulting from the aforementioned issuance of the $30 million of 9.75% Trust Preferred stock and a greater mix of and higher overall rates paid on money market and time deposits. A 9 BP increase in earning asset yields offset a portion of the cost of funds increase. Compared to second quarter 1997, there was a $2.3 million increase in net interest income. The change is attributable to earning asset growth plus a 19 BP higher net interest margin, which was largely due to a 24 BP lower cost of funds reflecting a portion of borrowings replaced with relatively lower cost acquired deposits. The table below shows these underlying dynamics of the change in net interest income.
For the Quarter Net Net Yield on Cost Average Ended: Interest Interest Earning of Earning (000's) Income Margin Assets Funds Assets (b) ------------------------------------------------------------------- Amount and Change from Preceding Quarter ------------------------------------------------------------------- September 30, 1996 Amount $14,358 4.82% 8.55% 3.78% $1,185,913 Change $659 -0.08% 0.04% 0.14% 5.5% December 31, 1996 Amount $14,351 4.70% 8.55% 3.91% $1,214,708 Change ($7) -0.12% 0.00% 0.13% 2.4% March 31, 1997 Amount $14,474 4.62% 8.67% 4.11% $1,269,910 Change $123 -0.08% 0.12% 0.20% 4.5% June 30, 1997 Amount $14,674 4.48% 8.59% 4.16% $1,314,305 Change $200 -0.14% -0.08% 0.05% 3.5% September 30, 1997 Amount $16,940 4.67% 8.64% 3.91% $1,438,593 Change $2,266 0.19% 0.05% -0.24% 9.5% Change from September 30, 1996 to September 30, 1997 Amount $2,582 -0.15% 0.09% 0.13% $252,681 % Change 18.0% --- --- --- 21.3% YTD September 30, 1996 $41,381 4.91% 8.56% 3.64% $1,124,873 1997 $46,087 4.59% 8.63% 4.04% $1,341,554 $ Change $4,706 --- --- --- $216,681 % Change 11.4% -0.32% 0.08% 0.40% 19.3%
Note: (a) All net interest income, margin, and earning asset yield figures are full-tax equivalent. (b) Interest expense divided by total average deposits and borrowed funds. * May not foot due to rounding Despite the high proportion (85th peer percentile) of the bank's assets being in investments (whose yields are relatively low compared to loans), and a greater funding cost (71st peer percentile) caused in part by interest on CBSI's Trust Preferred stock issued in January 1997, the net interest margin is still at the peer norm, being in the 52nd peer percentile as of June 30, 1997. This is attributable to high earning asset yields being in the favorable 70th percentile. Again, the margin has increased since the end of June (comparative date) by 19 BP and should now look even more favorable in peer comparisons.. B. Capital The common shares of Community Bank System, Inc. are traded in the NASDAQ National Market System under the symbol CBSI. Stock price activity, numbers of shares outstanding, cash dividends declared and share volume traded are shown below. Note that all per share figures have been adjusted for CBSI's 2 for 1 stock split effective March 12, 1997.
For the Quarter Market Market Market # of Cash Share Ended: Price Price Price Shares Dividend Volume High Low Close Outstanding Declared Traded ---------------------------------------------------------------------------------------------- Amount and Change from Preceding Quarter ---------------------------------------------------------------------------------------------- September 30, 1996 Amount $17.75 $17.00 $17.13 7,450,406 $0.18 445,958 Change 9.2% 10.6% 10.0% 1.2% 9.1% -0.3% December 31, 1996 Amount $20.13 $17.00 $19.63 7,474,406 $0.18 624,249 Change 13.4% 0.0% 14.6% 0.3% 0.0% 40.0% March 31, 1997 Amount $24.25 $19.25 $23.50 7,518,262 $0.18 652,661 Change 20.5% 13.2% 19.7% 0.6% 0.0% 4.6% June 30, 1997 Amount $29.00 $23.00 $28.25 7,536,462 $0.18 712,647 Change 19.6% 19.5% 20.2% 0.2% 0.0% 9.2% September 30, 1997 Amount $29.75 $26.25 $29.00 7,549,462 $0.20 588,796 Change 2.6% 14.1% 2.7% 0.2% 11.1% -17.4% Change from September 30, 1996 to September 30, 1997 Amount $12.00 $9.25 $11.88 99,056 $0.02 142,838 % Change 67.6% 54.4% 69.3% 1.3% 11.1% 32.0%
CBSI's stock closed third quarter 1997 at $29.00, up 69.3% from one year earlier when it closed at $17.13. The volume of shares traded at 588,796 was 32.0% more than during second quarter 1996, due largely to NASDAQ's standard practice of not adjusting the historical volume of shares traded in the event of a stock split. The cash dividend shown above reflects a 2 cent (11.1%) per share increase in the quarterly dividend per common share that was effective in third quarter 1997. This most recent increase was the seventh dividend increase within six years. The 1997 common dividend payout of 36.5% has increased slightly (with higher earnings) from the same 1996 period and remains within the company's targeted 30-40% guideline. C. Loans Loans outstanding, net of unearned discount, reached a record $826.9 million as of September 30, 1997, a very favorable $ 200.2 million (31.9%) growth in the last twelve months of which $90.1 million were acquired from Key and Fleet. The $91.0 million in quarterly growth from the end of the second quarter to the end of the third quarter ($65.2 million resulting from the loans acquired from the former Fleet branches) represents the 21st consecutive quarter that outstandings have increased. As shown in the table below, CBNA is still predominantly a retail bank, with 66.6% of its outstandings spread across three basic consumer loan types.
For the Quarter Consumer Consumer Consumer Business Total Yield on Ended: Direct Indirect Mortgages Lending Loans Loans (000's) ------------------------------------------------------------------------------- Amount and Change from Preceding Quarter Quarterly Average ------------------------------------------------------------------------------- September 30, 1996 Amount $109,137 $159,996 $161,388 $196,171 $626,693 9.36% Change 3.1% 7.2% 3.7% 3.9% 4.5% (0.08) December 31, 1996 Amount $122,087 $167,629 $151,691 $211,068 $652,474 9.46% Change 11.9% 4.8% -6.0% 7.6% 4.1% 0.10 March 31, 1997 Amount $125,219 $177,051 $153,512 $218,396 $674,178 9.67% Change 2.6% 5.6% 1.2% 3.5% 3.3% 0.20 June 30, 1997 Amount $140,951 $189,828 $156,561 $248,538 $735,877 9.40% Change 12.6% 7.2% 2.0% 13.8% 9.2% (0.27) September 30, 1997 Amount $193,119 $196,296 $160,929 $276,561 $826,905 9.52% Change 37.0% 3.4% 2.8% 11.3% 12.4% 0.12 Change from September 30, 1996 to September 30, 1997 Amount $83,981 $36,299 ($458) $80,390 $200,212 0.17% Change 76.9% 22.7% -0.3% 41.0% 31.9% N/A Loan mix September 30, 1996 to 17.4% 25.5% 25.8% 31.3% 100.0% September 30, 1997 23.4% 23.7% 19.5% 33.4% 100.0% Change 5.9% -1.8% -6.3% 2.1% --- * May not foot due to rounding
More than 42% or $84.0 million of the bank's growth in the last twelve months came from consumer direct loans, of which $55.3 million resulted from acquired loans. In addition, the increase reflects a change in late October 1996 to reporting fixed rate Home Equities in Consumer Direct Loans (recognizing them as a substitute for conventional installment borrowing) instead of Consumer Mortgages. This reclassification accounts for the decline in consumer mortgages - - no mortgages were acquired. More than 40% of the bank's loan growth in the last twelve months came from the generally prime-based business lending portfolio, which increased $80.4 million or 41.0%, reflecting strong business development efforts and the contribution of the acquired branches, amounting to $34.8 million in commercial loans at quarter end. Even without the former Key and Fleet loans, business lending would have increased 23.2%. Almost 18% of the bank's loan growth in the last twelve months came from the indirect lending portfolio (applications taken at dealer locations - none of which came from the former Key or Fleet branches), which grew 22.7%. This reflects good automobile demand industry-wide, as well as continued greater emphasis on this product line in the bank's Southern Region. Due in part to a 25 BP increase in the average prime rate and higher yielding acquired Fleet loans, the average loan yield for the quarter just ended is 17 BP higher than a year ago. D. Asset Quality The following table reflects the detail of non-performing and restructured loan levels. The ratio of non-performing assets to total assets was .33% as of September 30, 1997, up 4 basis points from a year ago. OREO for all periods is recorded at the lower of cost or market less estimated cost to sell. The ratio of nonperforming assets to loans plus OREO at .63% remains better than the company's internal goal of less than .75%. Nonaccruing loans fell $133,000 or 6.5% as a result of a drop in commercial loan non-accruals, which was almost matched by higher commercial loan delinquencies. The balance of the change in loans delinquent 90 days or more reflects softening in consumer installment loans. The ratio of non performing consumer loans to consumer loans outstanding increased 23 BP over the last 12 months to .48% at September 30, 1997. The same ratio for time and demand loans fell 25 BPs to .62% and for mortgages increased 1 BP to .47%.
(000's or % Ratios) September 30, June 30, March 31, December 31, September 30, September 30, 1997 - 1996 1997 1997 1997 1996 1996 $ Chg % Chg Loans accounted for on a $1,903 $2,122 $2,253 $2,023 $2,036 ($133) -6.5% non-accrual basis Accruing loans which are contractually past due 90 days or more as to principal and interest payments $2,459 $1,383 $1,043 $823 $1,176 $1,283 109.1% ------- ------- ------- ----- ------- Total Non-Performing Loans $4,362 $3,505 $3,296 $2,846 $3,212 $1,150 35.8% Loans which are "troubled debt restructurings" as defined in Statement of Financial Accounting Standards No. 15 "Accounting by Debtors and Creditors for Troubled Debt Restructurings" $0 $0 $53 $32 $0 $0 0.0% Other Real Estate (OREO) $872 $745 $726 $746 $693 $179 25.8% ----- ----- ----- ----- ----- Total Non-Performing Assets $5,234 $4,250 $4,075 $3,624 $3,905 $1,329 34.0% Total Non-Performing Assets/ 0.33% 0.29% 0.29% 0.27% 0.29% --- 0.04% Total Assets Total Non-Performing Assets/ Total Loans & OREO 0.63% 0.58% 0.60% 0.55% 0.62% --- 0.01% Total Non-Performing Loans/ Total Loans 0.53% 0.48% 0.49% 0.44% 0.51% --- 0.01% ---------------------------------------------------------------------------------------------- Loan Loss Allowance $12,368 $9,599 $8,400 $8,128 $7,806 $4,563 58.5% Loan Loss Allowance/ Total Loans 1.50% 1.30% 1.25% 1.25% 1.25% --- 0.25% Loan Loss Allowance/ Non-Performing Assets 236% 226% 206% 224% 200% --- 36% ---------------------------------------------------------------------------------------------- Loan Loss Provision -YTD $2,815 $1,580 $730 $2,897 $1,827 $988 54.1% -Qtr Ended $1,235 $850 $730 $1,070 $630 $605 96.0% Loan Loss Provision/ Average Loans -YTD 0.52% 0.47% 0.45% 0.48% 0.41% --- 0.11% -Qtr Ended 0.61% 0.49% 0.45% 0.67% 0.41% --- 0.20%
* May not foot due to rounding Loans 30 days or more past due plus nonaccruing loans have increased $6 million or 72.4% during the last year, largely due to an increase in delinquent installment loans. A good portion of this latter increase relates to two problems (one lender and one dealer relationship), both which have been resolved. The balance of the consumer increase reflects a generalized trend. The rise in commercial loan delinquency is in the 30-89 day category.
For the Quarter Ended: (000's) Loans Delinquent 30 days or more incl. Non-Accruals September 30, June 30, March 31, December 31, September 30, September 30, 1997 - 1996 1997 1997 1997 1996 1996 $ Chg % Chg Time & Demand $3,917 $3,172 $3,080 $2,539 $2,371 $1,546 65.2% Installment (Gross) $7,780 $5,196 $4,193 $5,177 $3,881 $3,899 100.5% Real Estate Mortgages $2,621 $2,104 $2,128 $1,889 $2,051 $570 27.8% ------------------------------------------------------------------------------------------------------- Total Delinquencies $14,318 $10,472 $9,401 $9,605 $8,303 $6,015 72.4% Time & Demand 1.38% 1.24% 1.37% 1.17% 1.17% --- 0.21% Installment (Gross) 2.44% 1.86% 1.65% 2.12% 1.64% --- 0.80% Real Estate Mortgages 1.16% 1.03% 1.06% 0.96% 1.05% --- 0.11% ------------------------------------------------------------------------------------------------------- Total Delinquencies 1.72% 1.42% 1.38% 1.46% 1.31% --- 0.41%
The table below reflects quarterly and year-to-date charge-off and recovery trends. As previously discussed, year-to-date net charge-offs rose $1,100,000 or 112.1% to $2.1 million, resulting in a net charge-offs to average outstandings ratio of .39% for the period versus .23% in 1996. Consumer installment loans accounted for all but $135,000 or 12% of the change. As shown in the table on the previous page, the loan loss reserve/loans outstandings ratio rose 25 basis points during the last 12 months to 1.50%, reflecting 133% coverage of the provision over net charge-offs as well as the addition of a total $3.5 million valuation allowance resulting from intensive credit review of the loans purchased from Key and Fleet.
For the Quarter Gross Recoveries Net Gross Recoveries/ Net Loan Loss Ended: Charge-offs Charge-offs Charge-offs/ Prior Year Charge-offs/ Provision/ (000's) Average Loans Gross Average Loans Net Charge-offs Charge-offs ---------------------------------------------------------------------------------------------------- Amount and Change from Preceding Quarter ---------------------------------------------------------------------------------------------------- September 30, 1996 Amount $486 $193 $293 0.32% 43.6% 0.19% 215% Change ($14) $19 ($33) -0.03% 3.9% -0.03% 28% December 31, 1996 Amount $907 $160 $747 0.56% 36.2% 0.46% 143% Change $421 ($33) $454 0.25% -7.4% 0.27% -72% March 31, 1997 Amount $649 $192 $457 0.40% 31.6% 0.28% 160% Change ($258) $32 ($290) -0.17% -4.6% -0.18% 16% June 30, 1997 Amount $832 $154 $678 0.48% 25.1% 0.39% 125% Change $184 ($38) $221 0.08% -6.5% 0.11% -34% September 30, 1997 Amount $1,173 $187 $986 0.58% 30.2% 0.49% 125% Change $341 $33 $308 0.10% 5.1% 0.10% 0% Change from September 30, 1996 to September 30, 1997 Amount $687 ($6) $693 --- --- --- --- % Change 141.5% -2.9% 236.3% 0.27% -13.4% 0.30% -90% YTD September 30, 1997 1996 $1,551 $553 $998 0.35% 42.1% 0.23% 183% 1997 $2,654 $532 $2,122 0.49% 29.0% 0.39% 133% $ Change $1,103 ($21) $1,125 --- --- --- --- % Change 71.1% -3.8% 112.7% 0.14% -13.1% 0.17% -50%
E. Deposits The table below displays the components of total deposits including volume and rate trends over the last five quarters.
For the Quarter Average Average Average Average Average Average Ended: Demand Savings Money Time Total Deposits/ (000's) Market Deposits Earning Assets -------------------------------------------------------------------------------- Amount and Average Rate -------------------------------------------------------------------------------- September 30, 1996 Amount $144,692 $341,349 $67,941 $472,739 $1,026,721 86.6% Yield / Rate ---- 2.44% 2.48% 5.46% 3.49% December 31, 1996 Amount $146,338 $329,640 $59,907 $491,323 $1,027,208 84.6% Yield / Rate ---- 2.43% 2.49% 5.54% 3.58% March 31, 1997 Amount $141,725 $325,911 $58,503 $512,295 $1,038,433 81.8% Yield / Rate ---- 2.45% 2.50% 5.57% 3.66% June 30, 1997 Amount $148,513 $333,356 $62,720 $560,335 $1,104,925 84.1% Yield / Rate ---- 2.44% 2.57% 5.60% 3.72% September 30, 1997 Amount $193,467 $401,450 $93,663 $666,045 $1,354,624 94.2% Yield / Rate ---- 2.41% 2.86% 5.61% 3.67% Change in quarterly average outstandings & yield / rate September 30, 1996 to September 30, 1997 Amount $48,775 $60,100 $25,722 $193,305 $327,903 7.6% % Change 33.7% 17.6% 37.9% 40.9% 31.9% 8.8% Change (% pts) ---- -0.04 0.39 0.15 0.18 Deposit Mix September 30, 1996 to 14.1% 33.2% 6.6% 46.0% 100.0% September 30, 1997 14.3% 29.6% 6.9% 49.2% 100.0% Change 0.2% -3.6% 0.3% 3.1% ----
* May not foot due to rounding Average deposits increased $327.9 million or 31.9% for the 1997 quarter just ended compared to the same 1996 quarter. At purchase date, acquired Key deposits totaled $149.9 million, while Fleet deposits totaled $159.1 million. Deposits were acquired in all major categories. Forty-five percent of the Key and Fleet deposits were classified as CDs (including IRAs), slightly less than the core bank mix. Due largely to the overall growing mix of higher cost time deposits (upon which the rate is also increasing) and an average Fed Funds rate moving up 26 BP's from third quarter 1996 to third quarter 1997 (which influences certain deposit pricing), the average total deposit rate moved up 18 BP's. F. Liquidity and Borrowing Position The following table shows the trend of major earning assets and funding sources over the last five quarters.
For the Quarter Average Average Ave Core Average Average Average Ended: Loans Investments Deposits Municipal Capital Market Interest (000's) (a) (b) Deposits Borrowings Bearing Liabilities -------------------------------------------------------------------------------- Amount and Average Yield / Rate -------------------------------------------------------------------------------- September 30, 1996 Amount $611,922 $573,991 $900,950 $125,771 $144,987 $1,027,016 Yield / Rate 9.36% 7.48% 3.54% 3.14% 5.83% 4.31% December 31, 1996 Amount $639,764 $574,944 $903,111 $124,097 $168,011 $1,048,880 Yield / Rate 9.46% 7.50% 3.62% 3.26% 5.94% 4.45% March 31, 1997 Amount $661,724 $608,187 $902,103 $136,330 $213,961 $1,110,670 Yield / Rate 9.67% 7.37% 3.72% 3.25% 6.28% 4.63% June 30, 1997 Amount $697,918 $616,387 $939,626 $165,299 $194,665 $1,151,076 Yield / Rate 9.40% 7.59% 3.70% 3.86% 6.63% 4.69% September 30, 1997 Amount $800,598 $637,996 $1,173,670 $180,954 $103,596 $1,264,753 Yield / Rate 9.52% 7.33% 3.67% 3.63% 7.13% 4.51% Change in quarterly average outstandings & yield / rate from September 30, 1996 to September 30, 1997 Amount $188,676 $64,004 $272,720 $55,183 ($41,391) $237,737 % Change 30.8% 11.2% 30.3% 43.9% -28.5% 23.1% Change (%pts) 0.17 -0.16 0.14 0.49 1.30 0.20
Note (a) Yield on average investments (including Federal Funds sold) calculated on a full-tax equivalent basis, excluding the impact of bond discount accretion on called bonds of $126,000 and $320,000 in 2nd and 3rd quarter 1997, respectively, and a $302 one-time adjustment in 3rd quarter 1996. (b) Defined as total deposits minus municipal deposits; includes CDs > $100,000 for individuals and businesses. * May not foot due to rounding Borrowings for third quarter 1997 averaged $104.0 million compared to $145.0 million for third quarter 1996. The decrease resulted from the acquired deposits utilized to pay down a portion of short-term borrowings, partially offset by the issuance of $30 million in Trust Preferred securities. Average loans grew $188.7 million (30.8%) in the past twelve months while average investments grew $64.0 million (11.2%). G. Investments and Asset/Liability Management The investment portfolio at quarter end comprised 42.0% of earning assets, down from 48.7% on September 30, 1996, primarily because of the planned faster growth of the loan portfolio versus the investment portfolio (in part due to loans acquired in the acquisitions). As shown by the table below, the bank's investments consist primarily of U.S. Treasury securities, mortgage-backed securities (including U.S. agencies and collateralized mortgage obligations), and tax-exempt obligations of state and political subdivisions.
For the Quarter U.S. Mtg-Backs Tax Other Market Total Invests / Ended: Gov'ts (a) Exempts (b) Value Investments Earning (000's) Adjustment Assets at Period End ------------------------------------------------------------------------------------------ Amount and Change from Preceding Quarter ------------------------------------------------------------------------------------------ September 30, 1996 Amount $299,909 $257,234 $19,379 $18,704 $331 $595,556 48.7% Change -2.8% 12.4% 25.0% -12.9% 208.5% 3.7% (0.2) December 31, 1996 Amount $287,949 $249,071 $18,233 $21,717 $1,614 $578,584 47.0% Change -4.0% -3.2% -5.9% 16.1% 388.1% -2.8% (1.7) March 31, 1997 Amount $325,174 $242,825 $12,545 $28,887 ($269) $609,162 47.5% Change 12.9% -2.5% -31.2% 33.0% -116.7% 5.3% 0.5 June 30, 1997 Amount $322,361 $239,295 $16,054 $28,904 $3,001 $609,615 45.3% Change -0.9% -1.5% 28.0% 0.1% -1213.7% 0.1% (2.2) September 30, 1997 Amount $280,763 $262,248 $18,652 $31,959 $4,540 $598,162 42.0% Change -12.9% 9.6% 16.2% 10.6% 51.3% -1.9% (3.3) Change from September 30, 1996 to September 30, 1997 Amount ($19,146) $5,014 ($727) $13,256 $4,209 $2,606 -6.8% Change -6.4% 1.9% -3.8% 70.9% 1272.6% 0.4% --- Investment Mix September 30, 1996 to 50.4% 43.2% 3.3% 3.1% 0.1% 100.0% September 30, 1997 46.9% 43.8% 3.1% 5.3% 0.8% 100.0% Change -3.4% 0.7% -0.1% 2.2% 0.7% ---
Note:(a) Includes CMO's and pass throughs (b) Includes Money Market Investments, Federal Home Loan Bank, and other stock * May not foot due to rounding The average fully taxable equivalent yield in the last year (as shown in the table in section F) has decreased 15 BP to 7.33% on average for third quarter 1997 versus 7.48% for third quarter 1996; these yields exclude the impact of two Federal Home Loan Bank dividends recognized in the third quarter of 1996 (reflecting a change to accrual matching of the dividend to the period in which it is earned) and $321,000 in third quarter 1997 bond discount accretion adjustments on $29.5 million in called bonds. The downward trend in yield reflects the impact of a flat Treasury yield curve offering less attractive reinvestment opportunities. The portfolio market value increased from 100.6% of book value one year ago to 102.2% of book value as of September 30, 1997. The average life of the portfolio decreased from 4.8 years on September 30, 1996 to 3.4 years on September 30, 1997. This decrease was due to the sale of approximately $22 million in variable rate, long-term securities. As of the most recent quarter end, 50.1% of the investment portfolio was classified as available-for-sale (AFS) in accordance with SFAS No. 115, with the remainder (49.9%) as held-to-maturity. The pretax market value adjustment of the AFS portfolio was a favorable $4.2 million as compared to $647,000 a year earlier. Part II. Other Information Item 1. Legal Proceedings. Not Applicable Item 2. Changes in Securities. Not Applicable Item 3. Defaults Upon Senior Securities. Not Applicable. Item 4. Submission of Matters to a Vote of Securities Holders. Not Applicable. Item 5. Other Information. Not Applicable. Item 6. Exhibits and Reports on Form 8-K a) Exhibits required by Item 601 of Regulation S-K: (11) Statement re Computation of earnings per share (21) Subsidiaries of the registrant - Community Bank, National Association, State of New York - Community Financial Services, Inc., State of New York - Community Capital Trust I, State of Delaware - Benefit Plans Administrative Services, Inc., State of New York b) Reports on Form 8-K: - Filed on August 5, 1997. Item 5. Other Events. News release dated August 4, 1997 announcing the purchase of 20 branch offices in two separate transactions. Eight (8) branch offices purchased from Key Bank, N.A. (New York) on June 16, 1997 and twelve (12) branch offices purchased from Fleet Bank on July 18, 1997. - Filed on August 22, 1997. Item 5. Other Events. News release dated August 21, 1997 announcing the declaration of quarterly dividend to shareholders of $.20 per share on its common stock, an increase of $.02 per share per quarter. SIGNATURES Pursuant to the requirements of The Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Community Bank System, Inc. Date: November 10, 1997 /s/ Sanford A. Belden ---------------------------------------------------- Sanford A. Belden, President and Chief Executive Officer Date: November 10, 1997 /s/ David G. Wallace ---------------------------------------------------- David G. Wallace, Senior Vice President Chief Financial Officer EX-11 2 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
COMMUNITY BANK SYSTEM, INC. Statement re: Earnings Per Share Computation Exhibit 11 Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 Primary Earnings Per Share: Net Income $4,234,649 $3,792,234 $11,567,224 $10,455,053 Less: Accrued Dividends on Preferred Stock 0 (101,250) (78,750) (303,750) Income applicable ---------------------------- ----------------------------- to common stock $4,234,649 $3,690,984 $11,488,474 $10,151,303 ---------------------------- ----------------------------- Weighted average number of common shares 7,544,738 7,375,762 7,524,963 7,390,294 Add: Shares issuable from assumed exercise of incentive stock options 152,457 73,084 135,709 65,564 Weighted average number of ---------------------------- ----------------------------- common shares - adjusted 7,697,195 7,448,846 7,660,672 7,455,858 ---------------------------- ----------------------------- Primary Earnings Per Share $0.55 $0.50 $1.50 $1.36 ============================ ============================= Fully diluted Earnings Per Share: Net income applicable to common stock $4,234,649 $3,690,984 $11,488,474 $10,151,303 ---------------------------- ----------------------------- Weighted average number of common shares - adjusted 7,703,538 7,459,752 7,693,682 7,472,018 Add: Equivalent number of common shares assuming conversion of preferred 0 0 0 0 Weighted average number of ---------------------------- ----------------------------- common shares - adjusted 7,703,538 7,459,752 7,693,682 7,472,018 ---------------------------- ----------------------------- Fully diluted earnings per share $0.55 $0.49 $1.49 $1.36 ============================ =============================
EX-27 3 FDS
9 1,000 9-MOS DEC-31-1997 SEP-30-1997 72,106 0 3,000 0 285,559 309,568 317,663 826,905 12,369 1,594,256 1,384,893 0 15,099 50,000 29,802 0 7,549 106,913 1,594,256 51,352 34,187 763 86,302 32,141 40,535 45,767 2,815 5 32,892 18,319 18,319 0 0 11,567 1.50 1.49 0 0 0 0 0 0 0 0 0 0 0 0
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