-----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, RPff7XIJGXLg/EjVZA5SsPuLSn/mA6FeVy4M7PAFr24UQyTmYVa9vOjDaEtPpIL+ RxGbzhVqN/5+W3RZdCOcXg== 0000950110-98-000945.txt : 19980817 0000950110-98-000945.hdr.sgml : 19980817 ACCESSION NUMBER: 0000950110-98-000945 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 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: 001-13695 FILM NUMBER: 98689807 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 six months ended June 30, 1998 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 -- 7,622,291 shares as of August 11, 1998. ================================================================================ INDEX COMMUNITY BANK SYSTEM, INC. AND SUBSIDIARIES PART I. INFORMATION Item 1. Financial Statements (Unaudited) Consolidated balance sheets -- June 30, 1998, December 31, 1997 and June 30, 1997 Consolidated statements of income -- Three months ended June 30, 1998 and 1997 and six months ended June 30, 1998 and 1997. Consolidated statements of cash flows -- Six months ended June 30, 1998 and 1997 Consolidated statements of comprehensive income -- Six months ended June 30, 1998 and 1997 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 2 COMMUNITY BANK SYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CONDITION
June 30, December 31, June 30, 1998 1997 1997 - ---------------------------------------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks $74,838,323 $82,106,403 $67,023,370 Federal Funds Sold 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL CASH AND CASH EQUIVALENTS 74,838,323 82,106,403 67,023,370 Investment securities U.S. Treasury 2,993,295 2,991,739 2,990,221 U.S. Government agencies and corporations 225,660,514 243,234,221 319,370,719 States and political subdivisions 32,195,257 20,181,494 16,054,415 Mortgage-backed securities 342,174,140 311,840,524 239,294,881 Federal Reserve Bank 2,173,950 2,173,950 2,134,200 Other securities 26,849,434 26,760,028 26,739,775 ------------------------------------------------------------ Investment securities at Cost 632,046,590 607,181,956 606,584,211 Market value adjustment on available for sale securities 4,046,781 4,710,022 3,000,704 - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES 636,093,371 611,891,978 609,584,915 Loans 896,046,139 845,962,085 739,877,063 Less: Unearned discount 1,793,865 2,750,228 3,999,641 Reserve for possible loan losses 12,441,255 12,433,812 9,599,346 - ---------------------------------------------------------------------------------------------------------------------------------- NET LOANS 881,811,019 830,778,045 726,278,076 Bank premises and equipment 24,250,853 23,649,279 18,650,488 Accrued interest receivable 13,430,391 13,392,818 12,779,473 Intangible assets 56,340,078 58,671,755 43,497,116 Other assets 12,531,438 13,251,973 8,695,710 - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $1,699,295,473 $1,633,742,251 $1,486,509,148 ================================================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Deposits Noninterest bearing $218,792,422 $202,573,162 $165,038,417 Interest bearing 1,197,598,613 1,143,112,796 1,067,516,205 - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL DEPOSITS 1,416,391,035 1,345,685,958 1,232,554,622 Federal funds purchased 7,500,000 45,000,000 24,000,000 Term borrowings 105,000,000 80,000,000 75,000,000 Company obligated mandatorily redeemable preferred securities of subsidiary Community Capital Trust 1 holding solely junior subordinated debentures of the company 29,807,063 29,803,688 29,800,313 Accrued interest and other liabilities 17,927,532 15,240,622 14,462,723 - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 1,576,625,630 1,515,730,268 1,375,817,658 - ---------------------------------------------------------------------------------------------------------------------------------- Shareholders' equity: Preferred stock $100 stated value 0 0 0 Common stock (7,622,291; 7,586,512; 7,536,462 shares issued and outstanding) 7,622,291 7,586,512 7,536,462 Surplus 32,833,532 32,401,331 31,288,469 Undivided profits 79,880,254 75,335,527 70,134,146 Accumulated Other Comprehensive Income 2,393,671 2,778,913 1,770,415 Shares issued under employee stock plan - unearned (59,905) (90,300) (38,002) - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 122,669,843 118,011,983 110,691,490 - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,699,295,473 $1,633,742,251 $1,486,509,148 ================================================================================================================================== The accompanying notes are an integral part of the consolidated financial statements.
3 COMMUNITY BANK SYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Six Months Ended June 30, June 30, -------------------------------------------------------- 1998 1997 1998 1997 - ---------------------------------------------------------------------------------------------------------------------------------- INTEREST INCOME: Interest and fees on loans $20,547,747 $16,357,461 $40,386,850 $32,131,095 Interest and dividends on investments: U.S. Treasury 67,168 67,134 134,117 134,034 U.S. Government agencies and corporations 4,329,725 6,514,477 8,885,570 12,508,016 States and political subdivisions 354,494 188,906 644,740 409,088 Mortgage-backed securities 5,264,685 4,422,296 10,850,436 8,892,529 Other securities 556,897 490,206 1,040,961 885,869 Interest on federal funds sold 97,001 15,302 164,530 142,745 Interest on deposits at other banks 503 410 995 824 - ---------------------------------------------------------------------------------------------------------------------------------- Total interest income 31,218,220 28,056,192 62,108,199 55,104,200 - ---------------------------------------------------------------------------------------------------------------------------------- INTEREST EXPENSE: Interest on deposits Savings 3,188,976 2,430,740 6,316,588 4,763,540 Time 9,740,897 7,820,982 19,052,821 14,853,542 Interest on federal funds purchased and term borrowings 1,633,360 2,486,828 3,182,345 5,310,960 Interest on mandatorily redeemable capital securities of subsidiary 732,937 732,938 1,465,875 1,221,563 - ---------------------------------------------------------------------------------------------------------------------------------- Total interest expense 15,296,170 13,471,488 30,017,629 26,149,605 - ---------------------------------------------------------------------------------------------------------------------------------- Net interest income 15,922,050 14,584,704 32,090,570 28,954,595 Less: Provision for possible loan losses 1,303,078 850,000 2,674,078 1,580,000 - ---------------------------------------------------------------------------------------------------------------------------------- Net Interest income after provision for loan losses 14,618,972 13,734,704 29,416,492 27,374,595 - ---------------------------------------------------------------------------------------------------------------------------------- OTHER INCOME: Fiduciary and investment services 474,769 398,790 945,292 780,329 Service charges on deposit accounts 1,628,261 1,060,071 3,025,962 2,010,635 Commissions on investment products 348,006 270,287 598,429 491,576 Other service charges, commissions and fees 1,072,360 779,422 2,049,532 1,546,095 Other operating income 159,697 21,743 481,068 27,923 Investment security gain (loss) 999,383 0 1,265,528 0 - ---------------------------------------------------------------------------------------------------------------------------------- Total other income 4,682,476 2,530,313 8,365,811 4,856,558 - ---------------------------------------------------------------------------------------------------------------------------------- OTHER EXPENSES: Salaries and employee benefits 6,542,199 5,224,241 12,985,917 10,485,691 Occupancy expense, net 1,003,655 767,247 2,074,727 1,569,812 Equipment and furniture expense 814,640 680,964 1,616,482 1,309,984 Amortization of intangible assets 1,162,813 705,430 2,331,677 1,379,440 Other 3,642,480 3,048,427 6,821,123 5,860,651 - ---------------------------------------------------------------------------------------------------------------------------------- Total other expenses 13,165,787 10,426,309 25,829,926 20,605,578 - ---------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 6,135,660 5,838,708 11,952,377 11,625,575 Income taxes 2,233,618 2,171,000 4,362,618 4,293,000 - ---------------------------------------------------------------------------------------------------------------------------------- NET INCOME $3,902,042 $3,667,708 $7,589,759 $7,332,575 ================================================================================================================================== EARNINGS PER SHARE - BASIC $0.51 $0.49 $1.00 $0.97 - DILUTED $0.50 $0.48 $0.98 $0.95 ================================================================================================================================== The accompanying notes are an integral part of the consolidated financial statements.
4 COMMUNITY BANK SYSTEM, INC. CONSOLIDATED STATEMENT OF CASH FLOWS For Six Months Ended June 30, 1998 and 1997
1998 1997 - ---------------------------------------------------------------------------------------------------------------------------------- Operating Activities: Net income 7,589,759 7,332,575 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,369,515 1,011,689 Net amortization of intangible assets 2,331,677 1,379,440 Net amortization of security premiums and discounts 2,899,617 (105,167) Provision for loan losses 2,674,078 1,580,000 Provision for deferred taxes 8,425 30,702 (Gain)\Loss on sale of investment securities (1,265,528) 0 (Gain)\Loss on sale of loans and other assets (165,325) (27,843) Change in interest receivable (37,573) (1,989,402) Change in other assets and other liabilities 3,707,124 4,295,274 Change in unearned loan fees and costs (641,743) (414,806) - ---------------------------------------------------------------------------------------------------------------------------------- Net Cash Provided By Operating Activities 18,470,026 13,092,462 - ---------------------------------------------------------------------------------------------------------------------------------- Investing Activities: Proceeds from sales of investment securities 42,658,104 0 Proceeds from maturities of held to maturity investment securities 30,639,566 28,724,157 Proceeds from maturities of available for sale investment securities 31,946,353 5,219,523 Purchases of held to maturity investment securities (4,832,223) (5,704,791) Purchases of available for sale investment securities (126,910,523) (57,779,074) Net change in loans outstanding (52,982,452) (84,100,299) Capital expenditures (1,888,621) (2,876,506) Premium paid for branch acquisitions 0 (12,607,707) - ---------------------------------------------------------------------------------------------------------------------------------- Net Cash Used By Investing Activities (81,369,796) (129,124,697) - ---------------------------------------------------------------------------------------------------------------------------------- Financing Activities: Net change in demand deposits, NOW accounts, and savings accounts 34,542,937 86,807,840 Net change in certificates of deposit 36,162,140 118,533,526 Net change in Federal Funds purchased (37,500,000) (7,800,000) Net change in term borrowings 25,000,000 (90,000,000) Issuance of mandatorily redeemable capital securities of subsidiary 0 29,800,313 Issuance (retirement) of common and preferred stock 464,449 (3,931,346) Cash dividends (3,037,836) (2,889,454) - ---------------------------------------------------------------------------------------------------------------------------------- Net Cash Provided By Financing Activities 55,631,690 130,520,879 - ---------------------------------------------------------------------------------------------------------------------------------- Change In Cash And Cash Equivalents (7,268,080) 14,488,644 Cash and cash equivalents at beginning of year 82,106,403 52,534,726 - ---------------------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD 74,838,323 67,023,370 ================================================================================================================================== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash Paid For Interest $26,038,492 $22,192,727 ================================================================================================================================== Cash Paid For Income Taxes $3,488,238 $5,445,012 ================================================================================================================================== SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND INVESTING ACTIVITIES: Dividends declared and unpaid $1,524,458 $1,356,563 ================================================================================================================================== The accompanying notes are an integral part of the consolidated financial statements.
5 COMMUNITY BANK SYSTEM, INC. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For Six Months Ended June 30, 1998 and 1997
1998 1997 - ------------------------------------------------------------------------------------------------------------------------------ Other comprehensive income, before tax: Unrealized gains on securities: Change in unrealized holding gains arising during period $ 614,231 $1,390,637 Less: reclassification adjustment for gains included in net income (1,265,528) 0 - ------------------------------------------------------------------------------------------------------------------------------ Other comprehensive income, before tax (651,297) 1,390,637 Income tax expense related to items of other comprehensive income 266,055 (568,075) - ------------------------------------------------------------------------------------------------------------------------------ Other comprehensive income, net of tax (385,242) 822,562 Plus: Net income 7,589,759 7,332,575 - ------------------------------------------------------------------------------------------------------------------------------ Comprehensive income $7,204,517 $8,155,137 ============================================================================================================================== The accompanying notes are an integral part of the consolidated financial statements.
6 COMMUNITY BANK SYSTEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1998 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 six month period ended June 30, 1998 are not necessarily indicative of the results that may be expected for the year ended December 31, 1998. 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 June 30, 1998 were $30,735,063 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. Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This pronouncement requires the Company to report the effects of unrealized investment holding gains or losses on comprehensive income as displayed in the Statement of Comprehensive Income. In May 1998 the FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Bank does not invest in derivative instruments. Application of this pronouncement is not expected to have a material effect on the financial statements of the Company. 7 NOTE B -- EARNINGS PER SHARE Basic earnings per share is computed based on the weighted average shares outstanding. Diluted earnings per share is computed based on the weighted average shares outstanding adjusted for the dilutive effect of the assumed exercise of stock options during the year. The following is a reconciliation of basic to diluted earnings per share for the three months ended June 30:
- ---------------------------------------------------------------------------------------------------------- Income Shares Per Share Amount - ---------------------------------------------------------------------------------------------------------- Net Income for Three Months Ended June 30, 1998 $3,902,042 Basic EPS 3,902,042 7,616,011 $0.51 Effect of diluted securities: Stock options 0 143,420 -------------------------------------- DILUTED EPS $3,902,042 7,759,431 $0.50 ==================================================================================================== Net Income for Three Months Ended June 30, 1997 $3,667,708 Less: Preferred stock dividends ------------------- Basic EPS 3,667,708 7,501,482 $0.49 Effect of diluted securities: Stock options 0 118,851 -------------------------------------- DILUTED EPS $3,667,708 7,620,333 $0.48 ==================================================================================================== Net Income for Six Months Ended June 30, 1998 $7,589,759 Basic EPS 7,589,759 7,607,082 $1.00 Effect of diluted securities: Stock options 0 144,036 -------------------------------------- DILUTED EPS $7,589,759 7,751,118 $0.98 ==================================================================================================== Net Income for Six Months Ended June 30, 1997 $7,332,575 Less: Preferred stock dividends (78,750) ------------------- Basic EPS 7,253,825 7,514,910 $0.97 Effect of diluted securities: Stock options 0 123,438 -------------------------------------- DILUTED EPS $7,253,825 7,638,348 $0.95 ====================================================================================================
8 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 six months ended June 30, 1998 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 March 31, 1998 as provided by the Federal Reserve System; the peer group is comprised of 140 bank holding companies having $1 to $3 billion in assets. 9 COMMUNITY BANK SYSTEM, INC. SUMMARY OF OPERATIONS EARNINGS AND BALANCE SHEET RECAP 2ND AND 1ST QUARTER 1998 AND FULL YEAR COMPARISONS
000s Omitted Three Months Ended June 30, --------------------------------------------------- Line --------------- Change Change No. Earnings 1998 1997 Amount Percent - ------ --------------- -------- -------- -------- ------- 1 Net interest income $15,922 $14,585 $1,337 9.2% 2 Loan loss provision 1,303 850 453 53.3% 3 Net interest income after 14,620 13,735 885 6.4% provision for loan losses 4 Investment security gain (loss) 1,000 0 1,000 -- 5 Other income 3,683 2,530 1,153 45.6% 6 Other expense 12,003 9,721 2,282 23.5% 7 Intangible amortization 1,163 705 458 65.0% 8 Income before income tax 6,137 5,839 298 5.1% 9 Income tax 2,234 2,171 63 2.9% 10 Net income $3,902 $3,668 $234 6.4% Earnings per share 11a Basic $0.51 $0.49 $0.02 4.1% 11b Diluted $0.50 $0.48 $0.02 4.2% ======== ======== ======== ======= ---------------------------------- Balances At Period End ---------------------------------- 12 Loans $894,252 $735,877 $158,375 21.5% 13 Investments (excl. mkt val adj) 632,047 609,585 22,462 3.7% 14 Earning assets 1,526,334 1,345,492 180,842 13.4% 15 Loan loss reserve 12,441 9,599 2,842 29.6% 16 Intangible assets 56,340 43,497 12,843 29.5% 17 Total assets 1,699,295 1,486,509 212,786 14.3% 18 Deposits 1,416,391 1,232,555 183,836 14.9% 19 Borrowings 142,307 128,800 13,507 10.5% 20 Total equity $122,670 $110,691 $11,979 10.8% 000s Omitted Six Months Ended June 30, --------------------------------------------------- Line --------------- Change Change No. Earnings 1998 1997 Amount Percent - ------ --------------- -------- -------- -------- ------- 1 Net interest income $32,091 $28,955 $3,136 10.8% 2 Loan loss provision 2,674 1,580 1,094 69.2% 3 Net interest income after 29,417 27,375 2,042 7.5% provision for loan losses 4 Investment security gain (loss) 1,266 0 1,266 -- 5 Other income 7,100 4,857 2,243 46.2% 6 Other expense 23,498 19,227 4,271 22.2% 7 Intangible amortization 2,332 1,379 953 69.1% 8 Income before income tax 11,953 11,626 327 2.8% 9 Income tax 4,363 4,293 70 1.6% 10 Net income $7,590 $7,333 $257 3.5% Earnings per share 11a Basic $1.00 $0.97 $0.03 3.1% 11b Diluted $0.98 $0.95 $0.03 3.2% ======== ======== ======== ======= ---------------------------------- Balances At Period End ---------------------------------- 12 Loans $894,252 $735,877 $158,375 21.5% 13 Investments (excl. mkt val adj) 632,047 609,585 22,462 3.7% 14 Earning assets 1,526,334 1,345,492 180,842 13.4% 15 Loan loss reserve 12,441 9,599 2,842 29.6% 16 Intangible assets 56,340 43,497 12,843 29.5% 17 Total assets 1,699,295 1,486,509 212,786 14.3% 18 Deposits 1,416,391 1,232,555 183,836 14.9% 19 Borrowings 142,307 128,800 13,507 10.5% 20 Total equity $122,670 $110,691 $11,979 10.8% 000s Omitted Three Months Ended, --------------------------------------------------- Line --------------- Jun 30 Mar 31 Change Change No. Earnings 1998 1998 Amount Percent - ------ --------------- -------- -------- -------- ------- 1 Net interest income $15,922 $16,168 ($246) -1.5% 2 Loan loss provision 1,303 1,371 ($68) -5.0% 3 Net interest income after 14,619 14,797 ($178) -1.2% provision for loan losses 4 Investment security gain (loss) 1,000 266 734 -- 5 Other income 3,683 3,416 267 7.8% 6 Other expense 12,003 11,494 509 4.4% 7 Intangible amortization 1,163 1,169 (6) -0.5% 8 Income before income tax 6,136 5,816 320 5.5% 9 Income tax 2,234 2,129 105 4.9% 10 Net income $3,902 3,688 214 5.8% Earnings per share 11a Basic $0.51 $0.49 $0.02 4.1% 11b Diluted $0.50 $0.48 $0.02 4.2% ======== ======== ======== ======= ---------------------------------- Balances At Period End ---------------------------------- 12 Loans $894,252 $855,559 $38,693 4.5% 13 Investments (excl. mkt val adj) 632,047 654,042 (21,995) -3.4% 14 Earning assets 1,526,334 1,509,601 16,733 1.1% 15 Loan loss reserve 12,441 12,434 7 0.1% 16 Intangible assets 56,340 57,503 (1,163) -2.0% 17 Total assets 1,699,295 1,675,568 23,727 1.4% 18 Deposits 1,416,391 1,396,306 20,085 1.4% 19 Borrowings 142,307 140,805 1,502 1.1% 20 Total equity $122,670 $119,802 $2,868 2.4%
10 COMMUNITY BANK SYSTEM, INC. SUMMARY OF OPERATIONS KEY RATIO RECAP 2ND AND 1ST QUARTER 1998 AND FULL YEAR COMPARISONS
000s Omitted Three Months Ended June 30, -------------------------------------------------------------- Line ---------------- Change Change No. Profitability 1998 1997 Amount Percent ----- ---------------- ------- ------- ---------- ------- 21 Return on assets 0.93% 1.04% (0.11)%pts. -- 22 Return on equity 13.06% 13.79% (0.73)%pts. -- 23 Cash earnings per share (diluted) $0.59 $0.53 $0.06 11.3% 24 Tangible return on assets 1.09% 1.15% (0.06)%pts. -- 25 Tangible return on equity 15.34% 15.36% (0.02)%pts. -- 26 Net interest margin 4.19% 4.48% (0.29)%pts. -- 27 Non interest income / 18.7% 14.7% 4.00 %pts. -- operating income (excl. sec. gains) 28 Efficiency ratio (excl. sec. gains & intang. amort.) 60.8% 56.5% 4.3 %pts. -- ----------- Capital ----------- 29 Tier I leverage ratio 5.75% 6.93% (1.18)%pts. -- Common shares 30a Weighted average 7,759 7,655 104 1.4% 30b Period end 7,622 7,536 86 1.1% 31 Cash dividends declared per common share $0.20 $0.18 $0.02 11.1% 32 Common stock price $31.31 $28.25 $3.06 10.8% 33a Book value $16.09 $14.69 $1.40 9.5% 33b Tangible book value $8.70 $8.92 ($0.22) -2.5% ----------------------------- Asset Quality Ratios ----------------------------- 34 Loan loss reserve / loans outstanding 1.39% 1.30% 0.09 %pts. -- 35 Nonperforming loans / loans outstanding 0.45% 0.48% (0.03)%pts. -- 36 Loan loss reserve / nonperforming loans 308% 274% 34 %pts. -- 37 Net charge-offs / average loans 0.59% 0.39% 0.20 %pts. -- 38 Loan loss provision / net charge-offs 100% 125% (25)%pts. -- 39 Nonperforming assets / loans outstanding + OREO 0.56% 0.58% (0.02)%pts. -- 000s Omitted Six Months Ended June 30, -------------------------------------------------------------- Line ---------------- Change Change No. Profitability 1998 1997 Amount Percent ----- ---------------- ------- ------- ---------- ------- 21 Return on assets 0.92% 1.06% (0.14)%pts. -- 22 Return on equity 12.80% 13.79% (0.99)%pts. -- 23 Cash earnings per share (diluted) $1.16 $1.06 $0.10 9.4% 24 Tangible return on assets 1.08% 1.18% (0.10)%pts. -- 25 Tangible return on equity 15.12% 15.34% (0.22)%pts. -- 26 Net interest margin 4.31% 4.57% (0.26)%pts. -- 27 Non interest income / 18.0% 14.3% 3.70 %pts. -- operating income (excl. sec. gains) 28 Efficiency ratio (excl. sec. gains & intang. amort.) 59.6% 56.5% 3.1 %pts. -- ----------- Capital ----------- 29 Tier I leverage ratio 5.75% 6.93% (1.18)%pts. -- Common shares 30a Weighted average 7,751 7,638 113 1.5% 30b Period end 7,622 7,536 86 1.1% 31 Cash dividends declared per common share $0.40 $0.36 $0.04 11.1% 32 Common stock price $31.31 $28.25 $3.06 10.8% 33a Book value $16.09 $14.69 $1.40 9.5% 33b Tangible book value $8.70 $8.92 ($0.22) -2.5% ----------------------------- Asset Quality Ratios ----------------------------- 34 Loan loss reserve / loans outstanding 1.39% 1.30% 0.09 %pts. -- 35 Nonperforming loans / loans outstanding 0.45% 0.48% (0.03)%pts. -- 36 Loan loss reserve / nonperforming loans 308% 274% 34 %pts. -- 37 Net charge-offs / average loans 0.62% 0.34% 0.28 %pts. -- 38 Loan loss provision / net charge-offs 100% 139% (39)%pts. -- 39 Nonperforming assets / loans outstanding + OREO 0.56% 0.58% (0.02)%pts. -- 000s Omitted Three Months Ended, -------------------------------------------------------------- Line ---------------- Jun 30 Mar 31 Change Change No. Profitability 1998 1998 Amount Percent ----- ---------------- ------- ------- ---------- ------- 21 Return on assets 0.93% 0.91% 0.02 %pts. -- 22 Return on equity 13.06% 12.54% 0.52 %pts. -- 23 Cash earnings per share (diluted) $0.59 $0.57 $0.02 3.5% 24 Tangible return on assets 1.09% 1.08% 0.01 %pts. -- 25 Tangible return on equity 15.34% 14.89% 0.45 %pts. -- 26 Net interest margin 4.19% 4.45% (0.26)%pts. -- 27 Non interest income / 18.7% 17.3% 1.40 %pts. -- operating income (excl. sec. gains) 28 Efficiency ratio (excl. sec. gains & intang. amort.) 60.8% 58.3% 2.52 %pts. -- ----------- Capital ----------- 29 Tier I leverage ratio 5.75% 5.65% 0.10 %pts. -- Common shares 30a Weighted average 7,759 7,743 16 0.2% 30b Period end 7,622 7,602 20 0.3% 31 Cash dividends declared per common share $0.20 $0.20 $0.00 0.0% 32 Common stock price $31.31 $34.00 ($2.69) -7.9% 33a Book value $16.09 $15.76 $0.33 2.1% 33b Tangible book value $8.70 $8.18 $0.52 6.4% ----------------------------- Asset Quality Ratios ----------------------------- 34 Loan loss reserve / loans outstanding 1.39% 1.45% (0.06)%pts. -- 35 Nonperforming loans / loans outstanding 0.45% 0.48% (0.03)%pts. -- 36 Loan loss reserve / nonperforming loans 308% 303% 5.00 %pts. -- 37 Net charge-offs / average loans 0.59% 0.65% (0.06)%pts. -- 38 Loan loss provision / net charge-offs 100% 100% 0.00 %pts. -- 39 Nonperforming assets / loans outstanding + OREO 0.56% 0.58% (0.02)%pts. --
11
COMMUNITY BANK SYSTEM, INC. SUMMARY OF OPERATIONS KEY RATIO RECAP 2ND AND 1ST QUARTER 1998 AND FULL YEAR COMPARISONS 000s Omitted Three Months Ended June 30, ------------------------------------------------------------ Line ------------------------ Change Change No. Asset Quality Components 1998 1997 Amount Percent ------------------------------------------------------------ ------------------------ 40 Nonaccruing loans $2,693 $2,122 $571 26.9% 41 90+ days delinquent $1,350 $1,383 -$33 -2.4% ------ ------ ---- ----- 42 Tot nonperforming loans $4,043 $3,505 $538 15.3% 43 Troubled debt restructurings $126 $0 $126 -- 44 Other real estate $975 $745 $230 30.9% ------ ------ ---- ----- 45 Tot nonperforming assets $5,144 $4,250 $894 21.0% 000s Omitted Six Months Ended June 30, ---------------------------------------------------------- Line ------------------------ Change Change No. Asset Quality Components 1998 1997 Amount Percent ---------------------------------------------------------- ------------------------ 40 Nonaccruing loans $2,693 $2,122 $571 26.9% 41 90+ days delinquent 1,350 1,383 -33 -2.4% ------ ------ ---- ----- 42 Tot nonperforming loans 4,043 3,505 538 15.3% 43 Troubled debt restructurings 126 0 126 -- 44 Other real estate 975 745 230 30.9% ------ ------ ---- ----- 45 Tot nonperforming assets $5,144 $4,250 $894 21.0% 000s Omitted Three Months Ended, ------------------------------------------------------- Line ------------------------ Jun 30 Mar 31 Change Change No. Asset Quality Components 1998 1998 Amount Percent ------------------------------------------------------- ------------------------ 40 Nonaccruing loans $2,693 $2,532 $161 6.4% 41 90+ days delinquent 1,350 1,578 -228 -14.4% ------ ------ ---- ----- 42 Tot nonperforming loans 4,043 4,110 -67 -1.6% 43 Troubled debt restructurings 126 88 38 43.2% 44 Other real estate 975 870 105 12.1% ------ ------ ---- ----- 45 Tot nonperforming assets $5,144 $5,068 $76 1.5%
12 Net income for the second quarter and first six months of 1998 reached $3.902 million and $7.590 million, up 6.4% and 3.5%, respectively, over the comparable 1997 periods. Earnings per share (diluted) rose to $.50 for the second quarter and $.98 for the first half, up at a slightly slower pace of 4.2% and 3.2%, respectively, because of more shares outstanding. Compared to first quarter 1998 results, second quarter 1998 net income rose by 5.8% while earnings per share were up by $.02. Cash earnings per share climbed to $.59 for the second quarter of 1998, up 11.3% compared to last year, and were 9.4% higher at $1.16 for the first half. Cash or tangible return on assets (ROA) was 1.08% for the first six months while nominal ROA was .92%. Tangible return on equity (ROE) at 15.12% exceeded nominal ROE by 2.32 percentage points at 12.80% for the same period. The difference between cash and nominal results reflects the contribution of the company's acquisitions on an economic basis, which excludes the non-cash impact of amortizing the premiums paid for the acquisitions. Second quarter results reflect the underlying strength of our franchise, which was partially obscured in the first quarter by the devastating impact of the January ice storm on our North Country operations and by certain seasonal factors. Loan growth continues to be good, up $38.7 million or 4.5% during the quarter, exceeding the $36.8 million increase during the same quarter last year, before considering the loans residing in the eight branches acquired in June 1997 from Key Bank, N.A. Since year end , loans have risen by $51 million or 6.1%; the former Key branches and 12 branches acquired from Fleet Bank in July 1997 contributed over 60% of this growth . Also important to our second quarter results is an improvement in recurring fee income, up by 13.8% compared to first quarter 1998, and over 40% higher than one year earlier due to growth provided by the mid-1997 acquisitions. Lastly, asset quality improved during the quarter, as measured by lower delinquencies, a reduction in the nonperforming loan/loans outstanding ratio to .45%, and a continued decrease in the level of net charge-offs from the unusually high level in the fourth quarter of 1997. While the flat Treasury yield curve of the last six months has put downward pressure on yields especially in our investment portfolio, unrealized gains in the portfolio remain substantial at $10.4 million, even after $1.0 million in gains taken in the second quarter and $266,000 in the first quarter. These gains resulted from investment strategies involving $41 million in sales designed to improve the company's interest rate risk position. As a result, the combined level of net interest income and securities gains increased by $488,000 in the second quarter, nearly offsetting $509,000 more in overhead expense. Over two thirds or $350,000 of this latter increase is comprised of certain one-time or periodic expenses and timing differences, including severance, medical expense, external audit costs, consulting fees, and shareholder communications and supplies. Reflective of the company's mid-1997 acquisitions, second quarter net interest income was higher by 9.2% or nearly $1.3 million over the same period last year; compared to first quarter 1998, net interest income was off by 1.5% or $246,000. The net interest margin for second quarter 1997, first quarter 1998, and second quarter 1998 was 4.48%, 4.45%, and 4.19%, respectively. While loan yields have trended down a bit since year end, the primary reason for the shrinkage in margin is a cost of funds unchanged at 3.95% for each quarter against a decrease in the yield on the company's investment portfolio from 7.13% in the first quarter to 6.56% in the second. This latter decrease was primarily caused by accelerated write-down of premiums on certain collateralized mortgage obligations (CMOs) as a result of prepayments due to unusually high mortgage refinancing activity nationwide. Even in the current environment, the investment portfolio yield remains at a favorable 100 basis point spread over the 3-year Treasury rate. In addition to benefiting the company's rate risk position, the investment strategies noted above helped mitigate the impact of the CMO prepayments. Consistent with managing CBSI's investment portfolio based on total return, proceeds from these strategies were reinvested with the expectation that the resulting income, including gains, will exceed that which would have been earned had the sold securities been held to maturity. In addition, part of the proceeds will be used to pay down scheduled term borrowings. Including securities gains, the adjusted net interest margin was 4.52% and 4.45% for the first quarter and second quarter, respectively. 13 Second quarter loan growth at $38.7 million to $894 million as of June 30, 1998 was more than triple the first quarter 1998 rate of $12.3 million, which was partially reduced by the North Country ice storm and regular seasonal factors. Business lending continued the strength exhibited in the first quarter, up at an even higher $14.2 million pace. The increase in consumer mortgages, consistent with the unusually attractive refinancing environment, was almost equally strong at $13.7 million, over four times the first quarter increase. Growth in indirect installment loans resumed, up $7.2 million versus a depressed $850,000 pace in the preceding quarter. And direct installment borrowing rose $3.5 million versus a negative $3.3 million in the first quarter. As previously discussed, asset quality improved for the second consecutive quarter following the fourth quarter 1997 level. Net charges-offs are now down 19% from that level with a related drop to .59% as a ratio to average loans outstanding. Nonperforming loans at $4.0 million are slightly lower than year-end and first quarter levels, being a favorable .45% of outstandings and enabling the provision to be limited to replacing net charge-offs. Though the loan loss reserve to loans ratio decreased 6 basis points during the last three months to 1.39%, coverage over nonperformers remains an ample 3.1 times, compared to the 2.4 times industry norm at March 31, 1998. Combined delinquencies and nonaccruals improved again in the second quarter to 1.37% of total loans as of June 30 versus 1.82% at year end, remaining well within the company's internal guideline of 2.0%. The company's second quarter 1998 efficiency ratio (overhead less intangible amortization compared to net interest and other income before net securities gains) rose to 60.8% from 58.3% in the first quarter. Offsetting the reduction in net interest income discussed above was a $267,000 increase in noninterest income, comprised of $171,000 more in fiduciary and related fees, $257,000 greater service charges and commissions (in part reflecting a mid-second quarter pricing increase), less $161,000 in lower nonrecurring income. For the first six months of 1998, the ratio of recurring noninterest income to operating income was 17.0%, a significant 2.7 percentage point increase over one year earlier, reflective of the company's strategy to increase its income sources that are less susceptible to interest rate fluctuation. For the same two periods, the company's recurring efficiency ratio was 60.3% this year versus 56.5% prior to the full impact of 1997's acquisitions beginning in the third quarter. YEAR 2000 Our Company is keenly aware of the challenges presented by Year 2000 Business Risk compliance. We have established a task force comprised of key personnel to define and coordinate the Year 2000 effort. CBSI has adopted the five elements outlined by its banking regulators: Awareness, Assessment, Renovation, Validation, and Implementation. It is anticipated that complete review and verification of our internal systems, as well as those of our major service providers, will be accomplished by December 31, 1998. Management believes that there will be no incomplete or untimely aspects in the Year 2000 implementation. Our overall assessment indicates that the Year 2000 effort will not have a material financial impact on current or future operating conditions or financial results. 14 SUPPLEMENTAL SCHEDULES A) The following table sets forth certain information concerning average interest-earning and interest-bearing liabilities and the yields and rate thereon. Interest income and resultant yield information in the tables are on a fully tax-equivalent basis using a marginal federal income tax rate of 35%. Averages are computed on daily average balances for each month in the period divided by the number of days in the period. Yields and amount earned include loan fees. Nonaccrual loans have been included in interest earnings for purposes of these computations.
Quarters Ending June 30, (000's omitted except yields ----------------------------------------------------------------------------------- and rates) ASSETS: 1998 Avg. 1997 Avg. Avg. Amt. of Yield/Rate Avg. Amt. of Yield/Rate Balance Interest Paid Balance Interest Paid -------- -------- ---------- --------- -------- ---------- Interest-earning assets: Federal funds sold $6,891 98 5.65% 1,142 15 5.38% Time deposits in other banks 35 1 5.76% 30 0 5.48% Taxable investment securities 627,169 10,282 6.58% 602,698 11,494 7.65% Nontaxable investment securities 26,002 422 6.51% 12,517 278 8.90% Loans (net of yearned discount) 877,616 20,548 9.39% 697,918 16,357 9.40% --------- --------- Total interest-earning assets 1,537,713 31,351 8.18% 1,314,305 28,144 8.59% Noninterest earning assets Cash and due from banks 55,511 40,592 Premises and equipment 24,296 16,944 Other Assets 83,475 56,391 Less:allowance for loans (12,245) (8,526) Net unrealized gains/(losses) on available-for-sale portfolio 3,065 54 --------- --------- Total 1,691,815 1,419,760 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY: Interest-bearing liabilities Savings deposits 506,630 3,190 2.53% 396,076 2,430 2.46% Time deposits 695,904 9,741 5.61% 560,335 7,821 5.61% Short-term borrowings 8,163 113 5.55% 69,803 1,024 5.89% Long-term borrowings 134,806 2,253 6.70% 124,862 2,195 7.05% ---------------------- ----------------------- Total interest-bearing liabilities 1,345,503 15,297 4.56% 1,151,076 13,470 4.69% Noninterest bearing liabilities Demand deposits 208,192 148,513 Other liabilities 18,255 13,519 Shareholders' equity 119,865 106,652 --------- ---------- Total 1,691,815 1,419,760 Net interest earnings 16,054 14,674 ====== ====== Net yield on interest-earning assets 4.19% 4.48% ==== ====== Federal tax exemption on nontaxable investment securities included in interest income 131 89
15 B) The change in net interest income may be analyzed by segregating the volume and rate components of the changes in interest income and interest expense for each underlying category.
(000's omitted) 2nd Quarter 1998 Compared to 2nd Quarter 1997 Increase (Decrease) Due to Change In: (1) Volume Rate Net Change ------ ---- ---------- Interest earned on: Federal funds sold and securities purchased under agreements to resell 77 6 83 Time deposits in other banks - 1 1 Taxable investment securities 467 (1,679) (1,212) Nontaxable investment securities 299 (155) 144 Loans (net of unearned discounts) 4,211 (20) 4,191 Total interest-earning assets (2) 4,785 (1,578) 3,207 Interest paid on: Savings deposits 678 82 760 Time deposits 1,896 24 1,920 Short-term borrowings (905) (6) (911) Long-term borrowings 175 (117) 58 Total interest-bearing liabilities 2,273 (446) 1,827 Net interest earnings (2) 2,495 (1,115) 1,380
(1) The change in interest due to both rate and volume has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of change in each. (2) Changes due to volume and rate are computed from the respective changes in average balances and rates of the totals; they are not a summation of the changes of the components. 16 C) The following table sets forth information by category of noninterest expenses of the Company for the periods indicated.
Three Months Ended June 30, Six Months Ended June 30, (000's omitted) ------------------------------------------- ----------------------------------- Change Change Change Change 1998 1997 Amount Percent 1998 1997 Amount Percent ----- ------ ------ ------- ------ ------ ------- ------- Personnel expense 6,542 5,225 1,317 25.2% 12,986 10,486 2,500 23.8% Net occupancy expense 1,004 767 237 30.9% 2,075 1,570 505 32.2% Equipment expense 814 681 133 19.5% 1,616 1,310 306 23.4% Professional fees 485 352 133 37.8% 758 761 (3) -0.4% Data processing expense 1,056 741 315 42.5% 2,019 1,494 525 35.1% Amortization 1,206 746 460 61.7% 2,375 1,420 955 67.3% Stationary and supplies 423 372 51 13.7% 718 643 75 11.7% Deposit insurance premiums 46 38 8 21.1% 95 49 46 93.9% Other 1,590 1,505 85 5.6% 3,188 2,873 315 11.0% Total 13,166 10,427 2,739 26.3% 25,830 20,606 5,224 25.4% Total operating expenses as a percentage of average assets 3.12% 2.95% 0.18% pts 3.12% 2.97% 0.14% pts Efficiency ratio 60.8% 56.5% 4.32% pts 59.6% 56.5% 3.05% pts (excl sec.gains & intang. amort)
D) The amounts of the Bank's loans outstanding (net of deferred loan fees or costs) at the dates indicated are shown in the following table according to type of loan:
As of June 30, -------------------------------------------------- (000's omitted) Change Change 1998 1997 Amount Percent ------- ------- ------- ------- Real estate mortgages: Residential 301,712 236,682 65,030 27.48% Commercial Loans secured by real estate 90,488 62,593 27,895 44.57% Farm 11,618 8,595 3,023 35.17% Total 403,818 307,870 95,948 31.177% Commercial, financial, and agricultural Agricultural 24,189 23,111 1,078 4.66% Commercial and financial 154,451 121,112 33,339 27.53% Total 178,640 144,223 34,417 23.86% Installment loans to individuals: Direct 94,974 74,228 20,746 27.95% Indirect 207,957 192,392 15,565 8.09% Student and other 5,335 13,857 (8,522) -61.50% Total 308,266 280,477 27,789 9.91% Other Loans 5,322 7,306 (1,984) -27.16% Gross Loans 896,046 739,876 156,170 21.11% Less: Unearned discounts 1,794 3,999 (2,205) -55.14% Reserve for possible loan losses 12,441 9,599 2,842 29.61% Net loans 881,811 726,278 155,533 21.42%
17 E) The following table presents information concerning the aggregate amount of nonperforming assets:
As of June 30, (000's omitted) ---------------------------------------------------- Change Change 1998 1997 Amount Percent ------ ------ ------ -------- Loans accounted for on a nonaccrual basis 2,693 2,122 571 26.9% Accruing loans which are contractually past due 90 days or more as to principal or interest payments 1,350 1,383 (33) -2.4% ------ ------ ---- ----- Total nonperforming loans 4,043 3,505 538 15.3% 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" 126 0 126 Other Real Estate 975 745 230 30.9% ---- ---- ---- ----- Total nonperforming assets 5,144 4,250 894 21.0% Ratio of allowance for loan losses to period-end loans 1.39% 1.30% Ratio of allowance for loan losses to period-end nonperforming loans 308.00% 274.00% Ratio of allowance for loan losses to period-end nonperforming assets 41.3% 44.3% Ratio of nonperforming assets to period-end total loans and other real estate owned 0.56% 0.58%
The impact of interest not recognized on nonaccrual loans, and interest income that would have been recorded if the restructured loans had been current in accordance with their original terms, was immaterial. The Company's policy is to place a loan on a nonaccrual status and recognize income on a cash basis when it is more than ninety days past due, except when in the opinion of management it is well secured and in the process of collection. 18 F) The following table summarizes loan balances at the end of each period indicated and the daily average amount of loans. Also summarized are changes in the allowance for possible loan losses arising from loans charged off and recoveries on loans previously charged off and additions to the allowance which have been charged to expenses.
Three Months Ended June 30, Six Months Ended June 30, (000's omitted) ------------------------------------------ ------------------------------------- Change Change Change Change 1998 1997 Amount Percent 1998 1997 Amount Percent ------- ------- ------- ------- ------- ------- ------- ------- Amount of loans outstanding at end of period 896,046 739,877 156,169 21.1% 896,046 739,877 156,169 21.1% Daily average amount of loans (net 877,616 697,918 179,698 25.7% 863,492 679,921 183,571 27.0% of unearned discount) Balance of allowance for possible loan losses at beginning of period 12,434 8,401 4,033 48.0% 12,434 8,128 4,306 53.0% Loans charged off: Commercial, financial, and agricultural 59 48 11 22.9% 281 88 193 219.3% Real estate construction 0 0 0 0 0 0 0 Real estate mortgage 0 24 (24) -100.0% 0 25 (25) -100.0% Installment 1,450 759 691 91.0% 2,840 1,367 1,473 107.8% Total loans charged off 1,509 831 678 81.6% 3,121 1,480 1,641 110.9% Recoveries of loans previously charged off: Commercial, financial, and agricultural 12 50 (38) -76.0% 82 92 (10) -10.9% Real estate construction 0 0 0 0 0 0 Real estate mortgage 0 0 0 0 0 0 Installment 201 102 99 97.1% 372 252 120 47.6% Total recoveries 213 152 61 40.1% 454 344 110 32.0% Net loans charged off 1,296 679 617 90.9% 2,667 1,136 1,531 134.8% Additions to allowance charged to expense 1,303 850 453 53.3% 2,674 1,580 1,094 69.2% Reserves on acquired loans (1) 0 1,027 (1,027) -100.0% 0 1,027 (1,027) -100.0% Balance at end of period 12,441 9,599 2,842 29.6% 12,441 9,599 2,842 29.6% Ratio of net chargeoffs to average loans outstanding 0.15% 0.10% 0.31% 0.17%
(1) These reserve additions are attributable to loans purchased from Key Bank in association with the purchases of branch offices in June of 1997. 19 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: (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: N/A 20 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. /s/ SANFORD A. BELDEN Date: August 13, 1998 ---------------------------------- Sanford A. Belden, President and Chief Executive Officer Date: August 13, 1998 /s/ CHARLES M. ERTEL ----------------------------------- Charles M. Ertel, Assistant Treasurer (Chief Accounting Officer) 21 EX-27 2 ARTICLE 9 FDS FOR 10-Q
9 1,000 6-MOS DEC-31-1998 JUN-30-1998 74,838 0 0 0 398,122 237,971 260,772 894,252 12,441 1,699,295 1,416,391 7,500 17,928 105,000 7,622 29,807 0 115,048 1,699,295 40,387 21,556 166 62,109 25,369 30,018 32,091 2,674 1,266 25,830 11,952 11,952 0 0 7,590 1.00 0.98 0 0 0 0 0 0 0 0 0 0 0 0
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