-----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, Pdw5YIVvgLtOOtPHgveDHAF5n396QdJW3+99I1+7/FvxHHAnVjQNyVh4Y5obQLJ8 iGvYhAvP8FAiv3M2/L4DGg== 0000950110-96-000610.txt : 19960517 0000950110-96-000610.hdr.sgml : 19960517 ACCESSION NUMBER: 0000950110-96-000610 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMUNITY BANK SYSTEM INC CENTRAL INDEX KEY: 0000723188 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 161213679 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11716 FILM NUMBER: 96567915 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 three months ended March 31, 1996 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, $1.25 par value -- 3,682,315 shares as of May 9, 1996. INDEX COMMUNITY BANK SYSTEM, INC. AND SUBSIDIARIES Part I. Information Item 1. Financial Statements (Unaudited) Consolidated balance sheets -- March 31, 1996, December 31, 1995 and March 31, 1995 Consolidated statements of income -- Three months ended March 31, 1996 and 1995 Consolidated statements of cash flows -- Three months ended March 31, 1996 and 1995 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 - ----------------------------------------------------------------------------------------------------------------------------- March 31, December 31, March 31, ASSETS 1996 1995 1995 Cash and due from banks $69,022,782 $56,903,103 $50,721,496 Interest bearing deposits with other banks 0 0 0 Federal funds sold 0 6,000,000 0 TOTAL CASH AND CASH EQUIVALENTS 69,022,782 62,903,103 50,721,496 Investment securities U.S. Treasury 8,509,441 8,524,661 16,607,542 U.S. Government agencies and corporations 241,365,255 226,972,372 175,918,083 States and political subdivisions 16,663,625 15,868,356 17,761,948 Mortgage-backed securities 214,249,615 195,188,655 162,407,975 Other securities 20,083,043 20,081,918 13,930,297 Federal Reserve Bank 1,395,750 1,395,750 551,550 TOTAL INVESTMENT SECURITIES 502,266,729 468,031,712 387,177,395 Loans 587,540,411 573,620,687 519,252,700 Less: Unearned discount 11,044,954 13,469,032 23,871,714 Reserve for possible loan losses 7,186,385 6,976,385 6,423,564 NET LOANS 569,309,072 553,175,270 488,957,422 Bank premises and equipment 16,888,080 16,935,856 10,651,544 Accrued interest receivable 9,856,481 9,150,503 8,006,653 Intangible assets 33,303,314 33,970,375 5,987,253 Other assets 7,480,640 7,878,194 8,777,761 TOTAL ASSETS $1,208,127,098 $1,152,045,013 $960,279,524 LIABILITIES AND SHAREHOLDERS' EQUITY Deposits Noninterest bearing $145,986,499 $140,288,323 $101,167,608 Interest bearing 913,521,838 876,657,901 621,212,656 TOTAL DEPOSITS 1,059,508,337 1,016,946,224 722,380,264 Federal funds purchased and securities sold under agreements to repurchase 10,000,000 0 43,765,000 Term borrowings 25,550,000 25,550,000 115,550,000 Obligations under capital lease 0 0 0 Accrued interest and other liabilities 11,580,612 9,488,540 9,621,279 TOTAL LIABILITIES 1,106,638,949 1,051,984,764 891,316,543 Shareholders' equity Preferred stock $100 stated value 4,500,000 4,500,000 0 Common stock $1.25 par value 4,602,894 4,599,531 3,485,187 Surplus 32,981,986 32,955,273 14,885,100 Undivided profits 58,799,981 57,079,501 51,768,386 Unrealized gains (losses) on available for sale securities 641,327 977,457 (1,172,571) Less: Shares issued under employee stock plan - unearned 38,039 51,513 3,121 TOTAL SHAREHOLDERS' EQUITY 101,488,149 100,060,249 68,962,981 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,208,127,098 $1,152,045,013 $960,279,524 See notes to consolidated financial statements
COMMUNITY BANK SYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME - ----------------------------------------------------------------------------------- Three Months Ended March 31, INTEREST INCOME 1996 1995 Interest and fees on loans $13,479,523 $11,470,601 Interest and dividends on investments: U.S. Treasury 160,024 296,841 U.S. Government agencies and corporations 4,512,712 3,378,957 States and political subdivisions 259,657 301,490 Mortgage-backed securities 3,576,185 2,965,514 Other securities 365,550 209,784 Interest on federal funds sold 322,506 32,777 Interest on deposits at other banks 0 0 22,676,157 18,655,964 INTEREST EXPENSE Interest on deposits Savings 2,557,772 2,002,495 Time 6,539,406 3,888,923 Interest on federal funds purchased, securities sold under agreements to repurchase and Term borrowings 374,099 2,339,030 Interest on capital lease 0 0 9,471,277 8,230,448 NET INTEREST INCOME 13,204,880 10,425,516 Provision for possible loan losses 588,174 254,411 NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 12,616,706 10,171,105 OTHER INCOME Fiduciary services 423,165 339,936 Service charges on deposit accounts 973,863 661,759 Other service charges, commissions and fees 551,748 377,849 Other operating income 4,260 17,506 Investment security gain (loss) 0 0 1,953,036 1,397,050 14,569,742 11,568,155 OTHER EXPENSES Salaries, wages and employee benefits 4,703,731 3,711,283 Occupancy expense of bank premises, net 802,087 540,068 Equipment and furniture expense 573,518 426,158 Other 3,172,261 2,346,128 9,251,597 7,023,637 INCOME BEFORE INCOME TAXES 5,318,145 4,544,518 Income taxes 2,180,000 1,793,000 NET INCOME $3,138,145 $2,751,518 Earnings per common share $0.82 $0.98 See notes to consolidated financial statements
COMMUNITY BANK SYSTEM, INC. CONSOLIDATED STATEMENT OF CASH FLOWS For Three Months Ended March 31, 1996 and 1995 Increase (Decrease) in Cash and Cash Equivalents 1996 1995 - -------------------------------------------------------------------------------------------------- Operating Activities: Net income $3,138,145 $2,751,518 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 485,262 359,012 Net amortization of intangible assets 702,399 119,355 Net accretion of security premiums and discounts (675,655) (325,696) Provision for loan losses 588,174 254,411 Provision for deferred taxes 140,010 (37,021) (Gain)\Loss on sale of investment securities 0 0 (Gain)\Loss on sale of loans (4,536) (15,506) (Gain)\Loss on sale of assets 276 (2,000) Change in interest receivable (705,978) (1,349,327) Change in other assets and other liabilities 2,395,952 1,535,518 Change in unearned loan fees and costs (94,536) (37,635) - -------------------------------------------------------------------------------------------------- Net Cash Provided By Operating Activities 5,969,513 3,252,629 - -------------------------------------------------------------------------------------------------- Investing Activities: Proceeds from sales of investment securities 0 0 Proceeds from maturities of held to maturity investment securities 5,981,751 (18,863,990) Proceeds from maturities of available for sale investment securities 17,553,153 (5,320,612) Purchases of held to maturity investment securities (32,237,521) 17,133,295 Purchases of available for sale investment securities (25,429,259) 0 Net change in loans outstanding (16,622,903) (13,956,164) Capital expenditures (443,542) (417,046) Premium paid for branch acquisitions (29,558) 0 - -------------------------------------------------------------------------------------------------- Net Cash Used By Investing Activities (51,227,879) (21,424,517) - -------------------------------------------------------------------------------------------------- Financing Activities: Net change in demand deposits, NOW accounts, and savings accounts 24,780,429 579,180 Net change in certificates of deposit 17,781,684 42,163,460 Net change in term borrowings 10,000,000 (3,535,000) Issuance (retirement) of common and preferred stock 30,076 0 Cash dividends (1,214,144) (836,445) - -------------------------------------------------------------------------------------------------- Net Cash Provided By Financing Activities 51,378,045 38,371,195 - -------------------------------------------------------------------------------------------------- Change In Cash And Cash Equivalents 6,119,679 20,199,307 Cash and cash equivalents at beginning of year 62,903,103 30,522,189 - -------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD 69,022,782 50,721,496 ================================================================================================== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash Paid For Interest $8,134,677 $6,042,995 ================================================================================================== Cash Paid For Income Taxes $401,535 $474,503 ================================================================================================== SUPPLEMENTAL DISCLOSURE OF NONCASH AND OTHER INVESTING ACTIVITIES: Dividends declared and unpaid $1,235,415 $836,445 ================================================================================================== The accompanying notes are an integral part of the consolidated financial statements.
Community Bank System, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) March 1996 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 three-month period ended March 31, 1996 are not necessarily indicative of the results that may be expected for the year ended December 31, 1996. 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 three months ended March 31, 1996 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 December 31, 1995 as provided by the Federal Reserve System; the peer group is comprised of 110 bank holding companies having $1 to $3 billion in assets. I. EARNINGS PERFORMANCE SUMMARY Three Months Ended Change 3/31/96 3/31/95 Amount Percent (000's) Net Income $3,138 $2,752 $387 14.1% Earnings per share $0.82 $0.98 ($0.16) -16.3% Weighted average shares outstanding 3,712 2,815 897 31.9% Return on average assets 1.08% 1.20% -0.12% N/A Average assets $1,173,828 $929,778 $244,051 26.2% Return on average shareholders' equity 12.76% 16.62% -3.86% N/A Average shareholders' equity $100,223 $67,151 $33,073 49.3% Percentage of average shareholders' equity to average assets 8.54% 7.22% 1.32% N/A * May not foot due to rounding A. Net Income Trend Net income for the first quarter of 1996 reached a record high of $3.138 million, up 14.1% over the comparable 1995 period. As a result of the company's issuance of 862,500 of additional common shares in late June and early July of 1995, common shares outstanding were higher by almost 32% in the first quarter, causing a reduction in earnings per share to $.82, down 16.3% from first quarter 1995, when earnings per share established an all-time high of $.98. The $.82 compares favorably to $.80 per share in fourth quarter 1995 and $.77 in third quarter 1995, when results first reflected the company's mid-July 1995 purchase of 15 branches from The Chase Manhattan Bank, N.A. Another example of the company's steady progress since the acquisition is the increase in tangible book value per share to $17.29 from the September 30, 1995 level of $14.92. B. Balance Sheet Trends Loans outstanding increased 2.9% during the quarter, up from 2.5% growth during first quarter 1995. Over 60% of the $16.3 million in loan growth since year end to $576 million was originated in markets served by the former Chase branches, which presently comprise 32% of the bank's depositor base. The primary components of the increase in loans since year end are the bank's business lending products (up $7.4 million); indirect consumer loans (up $3.7 million), predominantly reflecting automobile financing through an established dealer network; and consumer mortgages (up $3.7 million, net of $2.0 million in originations sold service-retained in the secondary market). Increases continue to be modest in the consumer direct loan product line (up $1.4 million, including variable-rate home equity products). The portfolio contains no credit card receivables. Investments totaled $502 million for the quarter just ended, up $28.2 million (6.0%) from year-end 1995. This increase is attributable to favorable investing opportunities largely funded by capital market borrowings. Total deposits increased 4.2% since December 31, 1995 to $1.06 billion, largely the result of seasonal increases in municipal deposits. Average total deposits for the quarter were down 1.25% from fourth quarter 1995 because of the sale of three former Chase branches in mid-December 1995 to NBT Bank, N.A.. C. Income Statement Trends First quarter net interest income rose a strong 26% or $2.8 million versus the same period last year. This increase reflects a 15 basis point improvement in net interest margin to 5.04%, largely due to a lower overall rate paid on interest-bearing deposits. Compared to fourth quarter 1995, the net interest margin was virtually unchanged. Noninterest income in first quarter 1996 climbed 40% over the same period last year to $2.0 million. The nearly $560,000 improvement largely reflects expanded fiduciary income, higher fees from annuity and mutual fund sales, and increased Visa merchant and debit card fees, as well as greater overdraft fees, service charges and commissions from an expanded customer base gained from last year's Chase branch purchase. Progress continues toward addressing the bank's relative shortfall in noninterest income compared to its peers. Overhead was up 32% this quarter to $9.3 million compared to first quarter 1995. Approximately 45% of the $2.2 million increase reflected personnel costs, relating to the acquisition of the Chase branches and required operational support, annual merit awards, and selective staff additions in lending and financial product sales. A significant balance of the non-personnel expense increase was also related to the new branches and the cost of servicing their 25,000 customers, in addition to amortization of intangible assets associated with the Chase transaction. As a percentage of average assets, annualized overhead is favorably below the peer norm and is attributable to persistent cost control efforts as well as strong asset growth. Compared to fourth quarter 1995, overhead was lower by 4.0% or more than $380,000. The reduction is explained by the absence of over $150,000 in one-time Chase-related acquisition expenses incurred in the October to December period, the sale of the three branches to NBT Bank, N.A. in late fourth quarter 1995, and an intensified focus on expense control in 1996. As a result, the company's efficiency ratio (overhead compared to recurring operating income) improved from the fourth quarter 1995 level by 1.8 percentage points to 60.6%. This compares favorably to the peer bank median of 62.8% based on data available through year-end 1995. Primarily as a result of higher pretax income, YTD 1996 income taxes increased by $387,000 over the same 1995 period. CBSI's marginal tax rates are 35% federal and 9% state (plus a 2.5% surcharge scheduled to be phased out over time). The company is currently under examination by the Internal Revenue Service in connection with tax years 1990 to 1993, and has received certain notices of proposed adjustments. The company intends to vigorously defend its position with respect to these proposed adjustments and believes ultimate resolution will not have a material impact on the financial statements. However, approximately $70,000 was provided in 1996's first quarter to cover the proposed adjustments (in addition to provisions made in 1995), and as a result, first quarter 1996's effective tax rate was 41.0% as compared to first quarter 1995's rate of 39.4%. D. Asset Quality Trend Asset quality remains strong at the company. Net charge-offs for the first quarter were $378,000 or .27% of average loans, a 6 basis point decline since last year's fourth quarter ratio of .33% but an 18 basis point increase compared to first quarter 1995, which had unusually favorable gross charge-off and recovery experience. Nonperforming loans continue to be monitored closely and managed conservatively, ending the quarter at $2.6 million, a 17% decrease from a year earlier. The current level represents a modest increase over the year-end 1995 level of $2.0 million, largely due to greater nonaccruing commercial and real estate loans. As a result, the ratio of nonperforming loans to loans outstanding stood at .46% at quarter end, still highly favorable compared to the peer median of .99% at December 31, 1995. There is no troubled debt restructuring as of the most recent quarter end. Loan loss provision expense was slightly less in first quarter 1996 than in the fourth quarter 1995, nonetheless sufficient to maintain the ratio of loan loss reserves to loans outstanding at 1.25% and cover a slightly lower level of net chargeoffs. This resulted in coverage over nonperformers considered very ample by management at 2.7 times. E. Capital and Other Trends As of March 31, 1996, the tier I leverage ratio of 5.76% was 95 basis points lower than 12 months earlier. However, it is still well above the 5% minimum required to be a "well-capitalized" bank as defined by the FDIC. The decrease in the ratio is attributable to the acquired Chase deposits and associated intangibles, partially offset by favorable earnings during the last 12 months and continued amortization of intangibles from previous acquisitions. The present ratio also includes the impact of 862,500 shares ($18.5 million in net proceeds) in common stock and 90,000 ($9.0 million) shares in preferred stock that were issued mid 1995 to finance the Chase branch acquisition. As a result of the aforementioned reasons, the tier I risk-based capital ratio as of March 31, 1996 was 10.67%, or 174 basis points lower than it was as of March 31, 1995. This compares to a 6% "well-capitalized" regulatory minimum. Book value per share increased 6.5% from March 31, 1995 to $26.34, while tangible book value per share fell 23.5% to $17.29 over the same period, reflecting the deposit premium resulting from the July 1995 Chase branch acquisition. The bank's liquidity level is extremely favorable as of March 31, 1996. In the event of a liquidity crisis, over $232.7 million (essentially short term assets minus short term liabilities) or 19.3% of assets could be converted into cash within a 30-day time period. Over a 90 day time period, 17.7% 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 grew $6.1 million during the quarter to $69.0 million as of March 31, 1996, a level $18.3 million higher than one year earlier. Net cash provided by operating activities was $6.0 million reflecting favorable earnings. Financing activities provided cash of $51.4 million, of which investing activities utilized $51.2 million due to investment purchases and maturities, the premium paid on the acquisition, and loan growth. 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 The change in net interest income reflects changes in net interest margin, earning asset levels, and the number of days of accrual in the period. On a tax-equivalent basis, net interest income for first quarter 1996 increased $2.8 million (26.1%) over the same 1995 period to $13.3 million. This reflects a $187 million increase (21.3%) in average earning assets due to the Chase acquisition and a 15 basis point increase in the net interest margin, largely due to a lower cost of funds resulting from using the Chase deposits to pay down higher cost borrowings. Compared with fourth quarter 1995, there was a $142,000 decrease in net interest income. The change is primarily attributable to one less day in the quarter. There was little to no change in earning assets or net interest margin between the two periods. The table below shows these underlying dynamics. For the Quarter Net Net Yield on Cost Average Loans / Ended: Interest Interest Earning of Earning Earning (000's) Income Margin Assets Funds Assets Assets ------ ------ ------ ------ ------ ------ Amount and Change Period from Preceding Quarter End ------ ------ ------ ------ ------ ------ March 31, 1995 Amount $10,564 4.88% 8.69% 3.90% $877,322 56.1% Change ($120) -0.21% 0.30% 0.53% 5.4% 0.1 June 30, 1995 Amount $10,699 4.74% 8.73% 4.09% $904,478 54.7% Change $135 -0.14% 0.04% 0.19% 3.1% (1.5) September 30, 1995 Amount $12,849 4.82% 8.43% 3.66% $1,057,820 50.7% Change $2,150 0.07% -0.30% -0.43% 17.0% (3.9) December 31, 1995 Amount $13,467 5.05% 8.60% 3.56% $1,058,510 54.2% Change $618 0.23% 0.17% -0.09% 0.1% 3.4 March 31, 1996 Amount $13,325 5.04% 8.62% 3.59% $1,063,977 53.4% Change ($142) -0.01% 0.02% 0.02% 0.5% (0.7) Change from March 31, 1995 to March 31, 1996 Amount $2,761 0.15% -0.07% -0.31% $186,655 ($0) % Change 26.1% --- --- --- 21.3% --- Note: (a) All net interest income, margin, and earning asset yield figures are full-tax equivalent. * May not foot due to rounding The company's net interest margin is in the 70th percentile as of December 31, 1995. This performance is largely the result of high earning asset yields being in the favorable 71st percentile versus cost of funds being at the peer norm. 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. 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 ------ ------ ------ ------ ------ ------ March 31, 1995 Amount $27.75 $25.25 $27.13 2,788,150 $0.30 199,855 Change -12.6% -1.9% 3.3% 0.0% 0.0% 36.2% June 30, 1995 Amount $29.00 $24.25 $25.50 3,503,150 $0.30 1,945,143 Change 4.5% -4.0% -6.0% 25.6% 0.0% 466.0% September 30, 1995 Amount $36.50 $25.25 $33.75 3,674,325 $0.30 2,664,957 Change 25.9% 4.1% 32.4% 4.9% 0.0% 37.0% December 31, 1995 Amount $34.25 $31.00 $32.00 3,679,625 $0.33 629,130 Change -6.2% 22.8% -5.2% 0.1% 10.0% -76.4% March 31, 1996 Amount $32.75 $30.25 $31.00 3,682,315 $0.33 316,309 Change -4.4% -2.4% -3.1% 0.1% 0.0% -49.7% Change from March 31, 1995 to March 31, 1996 Amount $5.00 $5.00 $3.88 894,165 $0.03 116,454 % Change 18.0% 19.8% 14.3% 32.1% 10.0% -8.0%
CBSI's stock closed first quarter 1996 at $31.00, over 14% higher than one year earlier, and consistent with an overall higher trading range. The volume of shares traded at 316,000 was approximately 58% greater than during first quarter 1995. The cash dividend shown above reflects a 3 cent (10%) per share increase in the quarterly dividend per common share that was effective in fourth quarter 1995. This was the fifth dividend increase within four years. The 1996 common dividend payout of 38.7% has increased from the same 1995 period but remains within the company's targeted 30-40% guideline. C. Loans Loans outstanding, net of unearned discount, reached a record $576.5 million as of March 31, 1996, a very favorable $ 81.1 million (16.4%) growth in the last twelve months. Outstandings have now climbed for sixteen consecutive quarters. As shown in the table below, CBNA is predominantly a retail bank, with almost 70% 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 Quarterly from Preceding Quarter Average -------- -------- -------- -------- -------- ------- March 31, 1995 Amount $98,641 $113,895 $142,371 $140,475 $495,381 9.52% Change -0.1% 11.1% -0.5% 1.3% 2.5% 0.26 June 30, 1995 Amount $97,480 $127,439 $142,413 $147,978 $515,311 9.60% Change -1.2% 11.9% 0.0% 5.3% 4.0% 0.08 September 30, 1995 Amount $103,316 $132,509 $144,206 $164,960 $544,991 9.63% Change 6.0% 11.5% 1.3% 11.5% 5.8% 0.03 December 31, 1995 Amount $104,317 $135,107 $146,561 $174,167 $560,152 9.65% Change 1.0% 5.6% 1.6% 5.6% 2.8% 0.02 March 31, 1996 Amount $105,759 $138,821 $150,301 $181,614 $576,495 9.52% Change 1.4% 2.7% 2.6% 4.3% 2.9% (0.13) Change from March 31, 1995 to March 31, 1996 Amount $7,118 $24,926 $7,930 $41,140 $81,114 -0.00% Change 7.2% 21.9% 5.6% 29.3% 16.4% N/A Loan mix March 31, 1995 to 19.9% 23.0% 28.7% 28.4% 100.0% March 31, 1996 18.3% 24.1% 26.1% 31.5% 100.0% Change -1.6% 1.1% -2.7% 3.1% --- * May not foot due to rounding
Included in loan growth over the past year is the favorable impact of the Chase branch purchase, which initially contributed $12.8 million in largely commercial loans. Since that time, loans at these branch locations have increased by over 165% to $34.3 million. Without the impact of the new Chase markets, loan growth would have been limited to 9.4% for the last twelve months, indicating the strategically-important contribution of the Chase branch purchase. Over 50% of the bank's loan growth in the last twelve months came from the generally prime-based business lending portfolio, which increased more than 29%. Just under a third of this growth came from commercial loans acquired at acquisition of the 12 retained Chase branches. More than 30% of the bank's loan growth in the last twelve months came from the indirect lending portfolio (applications taken at dealer locations), which grew 22%. This reflects good automobile demand industry-wide (despite some slowing in recent quarters), as well as continued greater emphasis on this product line in the bank's Southern Region. The remaining growth over this period resulted from a 5.6% increase in consumer mortgages and a 7.2% growth in consumer direct loans (applications taken at branch locations). Despite a 50 BP decrease in the average prime rate, the average loan yield for the quarter just ended is unchanged from the same quarter a year ago. This is attributable to significant growth in the higher yielding commercial loans (although yields are lower than a year ago), a reduced mix of mortgage loans, and mortgage and installment loan rates remaining relatively stable. The 13 basis point decrease in the loan yield since fourth quarter 1995 is the result of the impact of 25 BP drops in the prime rate in both December 1995 and February 1996. D. 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 -------- -------- ------- -------- ------- ------ March 31, 1995 Amount $102,850 $237,540 $66,035 $295,808 $702,233 80.0% Yield / Rate ---- 2.63% 2.83% 5.33% 3.40% June 30, 1995 Amount $104,882 $233,875 $63,308 $310,756 $712,820 78.8% Yield / Rate ---- 2.68% 2.94% 5.58% 3.57% September 30, 1995 Amount $142,413 $345,812 $79,542 $447,253 $1,015,020 96.0% Yield / Rate ---- 2.68% 2.72% 5.55% 3.57% 4.16% December 31, 1995 Amount $144,997 $363,553 $74,627 $465,560 $1,048,737 99.1% Yield / Rate ---- 2.54% 2.62% 5.60% 3.55% March 31, 1996 Amount $141,690 $347,589 $70,753 $475,561 $1,035,593 97.3% Yield / Rate ---- 2.46% 2.48% 5.53% 3.53% Change in quarterly average outstandings & yield / rate March 31, 1995 March 31, 1996 Amount $38,840 $110,048 $4,718 $179,754 $333,360 $0 % Change 37.8% 46.3% 7.1% 60.8% 47.5% 21.6% Change (% pts) ---- -0.18 -0.35 0.20 0.13 0.00 Deposit Mix March 31, 1995 to 14.6% 33.8% 9.4% 42.1% 100.0% March 31, 1996 13.8% 34.7% 7.1% 44.4% 100.0% Change -0.8% 0.8% -2.3% 2.3% ---- * May not foot due to rounding
There was a 47.5% increase in average deposits from first quarter 1995 to the quarter just ended . Of this growth, almost 54% was in time deposits (up $180 million), with the remainder split between $39 million in demand deposit growth and $110 million in savings growth. The major reason for the total deposit increase was the $383 million in deposits from the 15 Chase branches acquired in third quarter 1995, less $43 million in deposits sold to NBT Bank in mid-December. Despite decreases from first quarter 1995 to first quarter 1996 in savings and money market rates (average Fed Funds moved down 43 BP during this period), the average deposit rate moved up 13 BP attributable to an expanding mix of higher (and increased) cost time deposits. E. 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 Ave Average Interest Ended: Loans Investments Deposits Municipal Capital Market Bearing (000's) (a) (b) Deposits Borrowings Liabilities ------- -------- -------- -------- -------- ------ Amount and Average Yield / Rate ------- -------- -------- -------- -------- ------ March 31, 1995 Amount $488,436 $388,886 $581,033 $121,200 $153,625 $753,008 Yield / Rate 9.52% 7.64% 3.38% 3.51% 6.17% 4.43% June 30, 1995 Amount $507,159 $397,319 $587,592 $125,228 $169,277 $777,216 Yield / Rate 9.60% 7.62% 3.55% 3.66% 6.26% 4.64% September 30, 1995 Amount $532,156 $525,664 $892,283 $122,737 $29,002 $901,609 Yield / Rate 9.63% 7.21% 3.61% 3.30% 6.56% 4.23% December 31, 1995 Amount $550,480 $508,031 $921,111 $127,626 $5,604 $909,344 Yield / Rate 9.65% 7.45% 3.60% 3.24% 5.39% 4.13% March 31, 1996 Amount $569,267 $494,710 $884,358 $151,235 $26,143 $920,046 Yield / Rate 9.52% 7.57% 3.57% 3.29% 5.76% 4.14% Change in quarterly average outstandings & yield / rate from March 31, 1995 to March 31, 1996 Amount $80,831 $105,823 $303,326 $30,034 ($127,481) $167,038 % Change 16.5% 27.2% 52.2% 24.8% -83.0% 22.2% Change (%pts) -0.00 -0.06 0.20 -0.22 -0.42 -0.29
Note (a) Yield on average investments calculated on a full-tax equivalent basis. (b) Defined as total deposits minus municipal deposits; includes CDs > $100,000 for individuals and businesses. * May not foot due to rounding Borrowings for first quarter 1996 averaged $26.1 million compared to $153.6 million for first quarter 1995. This resulted from borrowings being virtually paid off with the acquired Chase deposits and capital issued from the end of June through mid-July 1995. Borrowing levels have increased in the most recent quarter to fund investment opportunities resulting from favorable market conditions. F. Investments and Asset/Liability Management The investment portfolio at quarter end comprised 46.6% of earning assets, up from 43.9% on March 31, 1995, primarily due to the investment by acquisition date of Chase deposits in excess of those required to paydown capital market borrowings and fund the purchased loans. In addition, following the reduction in money market investments associated with the sale of deposits to NBT Bank, investments have increased through a combination of floating and fixed rate investment purchases. As a result, the investment portfolio has grown by $115.1 million or 29.7% during the last twelve months. 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. As of the most recent quarter end, 18.5% of the bank's entire portfolio was invested in agency-guaranteed collateralized mortgage obligations (CMOs). The portfolio does not contain any Principal Only (PO), Interest Only (IO), or Inverse Floater Traunches. Invests / For the Quarter U.S. Mtg-Backs Tax Other Total Earning Ended: Gov'ts (a) Exempts (b) Investments Assets (000's) -------- -------- ------- ------- -------- ------- Amount and Change (Period from Preceding Quarter End) -------- -------- ------- ------- -------- ------- March 31, 1995 Amount $192,526 $162,408 $17,762 $14,482 $387,177 43.9% Change 2.9% 4.5% -14.5% -5.2% 2.3% (0.1) June 30, 1995 Amount $212,508 $177,284 $16,727 $20,675 $427,195 45.3% Change 10.4% 9.2% -5.8% 42.8% 10.3% 1.5 September 30, 1995 Amount $245,087 $200,471 $15,636 $68,076 $529,270 49.3% Change 15.3% 13.1% -6.5% 229.3% 23.9% 3.9 December 31, 1995 Amount $235,497 $195,189 $15,868 $27,478 $474,032 45.8% Change -3.9% -2.6% 1.5% -59.6% -10.4% (3.4) March 31, 1996 Amount $249,875 $214,250 $16,664 $21,479 $502,267 46.6% Change 6.1% 9.8% 5.0% -21.8% 6.0% 0.7 Change from March 31, 1995 to March 31, 1996 Amount $57,349 $51,842 ($1,098) $6,997 $115,089 2.7% Change 29.8% 31.9% -6.2% 48.3% 29.7% --- Investment Mix March 31, 1995 49.7% 41.9% 4.6% 3.7% 100.0% March 31, 1996 49.7% 42.7% 3.3% 4.3% 100.0% Change 0.0% 0.7% -1.3% 0.5% --- 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 has remained relatively stable, decreasing only 7 basis points to 7.57% on average for first quarter 1996 versus first quarter 1995; this limited reduction was achieved despite falling market rates in the third and fourth quarters of 1995 and much of the first quarter of 1996. The favorable 12 basis point movement in the portfolio rate compared to fourth quarter 1995 is the result of increasing market rates toward the end of the quarter, which allowed the bank to replace lower yielding fed funds sold and maturing investments with higher yielding securities; in addition, a $221,000 bond discount was taken into income as a result of a security being called. The portfolio market value increased slightly from 100.5% of book value one year ago to 102.1% of book value as of March 31, 1996. The average portfolio life based on earliest redemption date increased from 3.9 years on March 31, 1995 to 5.2 years on March 31, 1996, attributable to buying selected longer term floating rate investments (move with 1 month LIBOR and 3 month T-Bill) structured to minimize interest rate risk. As of the most recent quarter end, 31.8% of the investment portfolio was classified as available-for-sale (AFS) in accordance with SFAS No. 115 with the remainder (68.2%) as held-to-maturity. The pretax market value adjustment of the AFS portfolio was a favorable $1.1 million as compared to ($1.9) million a year earlier. G. Subsequent Events On April 29, 1996, Community Bank System, Inc. (CBSI) and Benefit Plans Administrators (BPA), an independent third party administrator of defined benefit and defined contribution plans located in Utica, NY, announced that they signed a definitive agreement under which BPA would be a wholly-owned subsidiary of CBSI. BPA's revenues for its most recent fiscal year end were $1.3 million. 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 - Northeastern Computer Services, Inc. State of New York - Community Financial Services, Inc., State of New York b) No reports on Form 8-K were filed during first quarter 1996. 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: May 14, 1996 /s/ Sanford A. Belden Sanford A. Belden, President and Chief Executive Officer Date: May 14, 1996 /s/ David G. Wallace David G. Wallace, Senior Vice President and Chief Financial Officer Community Bank System, Inc. Statement re Earnings Per Share Computation Exhibit 11 Three Months Ended March 31, 1996 1995 Primary Earnings Per Share Net Income 3,138,145 2,751,518 Less: Accrued Preferred Stock Dividend -101,250 0 ------------- ------------- Income applicable to common stock 3,036,895 2,751,518 ========= ========= Weighted average number of common shares 3,681,967 2,788,150 Add: Shares issuable from assumed exercise of incentive stock options 30,192 27,227 ------------- ------------- Weighted average number of common shares - adjusted 3,712,159 2,751,518 ========== =========== Primary earnings per share $0.82 $0.98 ========== =========== Fully Diluted Earnings Per Share Net Income 3,036,895 2,751,518 ========== =========== Weighted average number of common shares - adjusted 3,712,159 2,818,963 Add: Equivalent number of common shares assuming conversion of preferred ---------- ----------- Weighted average number of common shares - adjusted 3,712,159 2,818,963 ========== =========== Fully diluted earnings per share $0.82 $0.98 ========== =========== EX-27 2
9 1000 3-MOS DEC-31-1996 MAR-31-1996 69,022 0 0 0 159,706 342,542 351,244 576,495 7,186 1,208,127 1,059,508 10,000 11,581 25,550 0 4,500 4,603 92,385 1,208,127 13,480 8,873 323 22,676 9,097 9,471 13,205 588 0 9,252 5,318 5,318 0 0 3,138 0.82 0.82 0 0 0 0 0 0 0 0 0 0 0 0
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