0000950123-01-507501.txt : 20011029
0000950123-01-507501.hdr.sgml : 20011029
ACCESSION NUMBER: 0000950123-01-507501
CONFORMED SUBMISSION TYPE: S-3/A
PUBLIC DOCUMENT COUNT: 5
FILED AS OF DATE: 20011024
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: S-3/A
SEC ACT: 1933 Act
SEC FILE NUMBER: 333-68866
FILM NUMBER: 1764924
BUSINESS ADDRESS:
STREET 1: 5790 WIDEWATERS PKWY
CITY: DEWITT
STATE: NY
ZIP: 13214
BUSINESS PHONE: 8007242262
MAIL ADDRESS:
STREET 1: 5790 WIDEWATERS PARKWAY
CITY: DEWITT
STATE: NY
ZIP: 13214
S-3/A
1
y52991a1s-3a.txt
AMENDMENT NO. 1 TO FORM S-3
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 24, 2001
REGISTRATION NO. 333-68866
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
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
(315) 445-2282
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
SANFORD A. BELDEN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
5790 WIDEWATERS PARKWAY
DEWITT, NEW YORK 13214
(315) 445-2282
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
IT IS REQUESTED THAT COPIES OF NOTICES AND COMMUNICATIONS BE SENT TO:
GEORGE J. GETMAN, ESQ. JOHN J. SPIDI, ESQ.
BOND, SCHOENECK & KING, LLP MALIZIA SPIDI & FISCH, PC
ONE LINCOLN CENTER 1100 NEW YORK AVENUE, N.W.,
SYRACUSE, NEW YORK 13202 SUITE 340 WEST
(315) 422-0121 WASHINGTON, D.C. 20005
(202) 434-4660
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ----------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ----------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED WITHOUT
NOTICE. COMMUNITY BANK SYSTEM MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES, AND
COMMUNITY BANK SYSTEM IS NOT SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE OF THESE SECURITIES IS NOT PERMITTED.
PROSPECTUS (NOT COMPLETE)
ISSUED , 2001
1,200,000 SHARES
[COMMUNITY BANK SYSTEMS LOGO]
COMMON STOCK
------------------------
We are offering 1,200,000 shares of our common stock. Our common stock is
traded on the New York Stock Exchange under the symbol "CBU." The last reported
sale price of our common stock on the New York Stock Exchange on October 23,
2001 was $25.50 per share.
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 7.
------------------------
PER SHARE TOTAL
------------ ------------
Public offering price....................................... $ $
Underwriting discount....................................... $ $
Proceeds to us, before expenses............................. $ $
We have granted the underwriters an option to purchase up to an additional
180,000 shares of common stock to cover any over-allotments. The underwriters
can exercise this option at any time within thirty days after the offering. The
underwriters expect to deliver the shares of common stock to investors on or
about , 2001.
------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Shares of our common stock are not deposits or accounts and are not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency.
------------------------
JANNEY MONTGOMERY SCOTT LLC
ADVEST, INC.
RAYMOND JAMES
The date of this prospectus is , 2001
[INSIDE FRONT COVER -- EDGAR DESCRIPTION: A map of New York State and
Northeastern Pennsylvania appears on the page. Set forth immediately above the
map is a caption that reads "Community Bank System, Inc. Market Area." The map,
divided by counties, depicts the locations of Community Bank System, Inc.'s
administrative or operations centers, financial services facilities and existing
banking branches, as well as the locations of branches of FleetBoston Financial
Corporation to be acquired by Community Bank System in a pending transaction.]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF OUR COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR, AND PURCHASE, SHARES OF OUR COMMON STOCK IN THE OPEN MARKET AND
IMPOSE PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
SUCH STABILIZING TRANSACTIONS, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere, or
incorporated by reference, in this prospectus. This summary does not contain all
of the information that you should consider before making an investment
decision. This prospectus contains forward-looking statements which involve
risks and uncertainties. Our results could differ materially from those
anticipated in these forward-looking statements as a result of various factors,
including those set forth in "Risk Factors" and elsewhere in this prospectus.
Except as otherwise indicated, all information in this prospectus assumes no
exercise of the underwriters' over-allotment option.
COMMUNITY BANK SYSTEM, INC.
We are a Delaware corporation headquartered in DeWitt, New York, and the
parent company of Community Bank, N.A. We are the largest community bank
headquartered in Upstate New York based on total assets at June 30, 2001. We
operate 88 customer facilities and 71 ATMs stretching diagonally from Northern
New York to the Southern Tier and west to Lake Erie, and in Northeastern
Pennsylvania. We were ranked either first or second in deposit market share in
49 of the 66 towns in which we operate, based on publicly available information
as of the date of this prospectus. At June 30, 2001, we had approximately $2.9
billion in total assets, $2.1 billion in total deposits, $1.6 billion in total
loans and shareholders' equity of $234 million. Community Bank is a member of
the Federal Reserve System and the Federal Home Loan Bank System, and its
deposits are insured by the Federal Deposit Insurance Corporation, up to
applicable limits.
Our business strategy is to operate as a profitable, diversified financial
services company providing a variety of banking and other financial services,
with an emphasis on consumer and residential mortgage lending and commercial
business loans to small and medium sized businesses. As a result of
consolidation of small to medium sized financial institutions and the deemphasis
on retail branch banking by larger bank holding companies in the markets we
serve, we believe there is a significant opportunity for a community-focused
bank to provide a full range of financial services to small and middle-market
commercial and retail customers. Our branches are located in small towns and
villages where competition is less intense. We emphasize comprehensive retail
and small business products and responsive, decentralized decision-making which
reflects our knowledge of our local markets and customers.
Through our subsidiaries, we offer a wide range of commercial and retail
banking and financial services to businesses, individuals, agricultural and
government customers. Our account services include checking, interest-bearing
checking, money market, savings, certificates of deposit and individual
retirement accounts. We also offer residential and farm loans, business lines of
credit, working capital facilities, inventory and dealer floor plans, as well as
installment, commercial, term and student loans. Our lending focuses
predominantly on consumer and small to medium sized business borrowers, which
enables our loan portfolio to be highly diversified.
Because we believe that there is a significant potential market for
financial services and products, we offer a full range of services to satisfy
our customers' financial needs. In addition to traditional banking services and
products, we offer personal trust, employee benefit trust, benefits
administration and consulting, investment and insurance services. For the six
months ended June 30, 2001 and for the year ended December 31, 2000, our total
noninterest income from financial services and products was approximately $6.0
million and $10.8 million, respectively, as compared to $4.9 million for the
year ended December 31, 1996.
Consistent with our strategy to increase noninterest income, we acquired
Elias Asset Management, Inc., an investment management firm located in
Williamsville, New York in April 2000. As of June 30, 2001, Elias Asset
Management had approximately $586 million in assets under management for
individuals, corporate pension and profit sharing plans and foundations.
We have also emphasized expansion of our banking business through business
combinations with other banks and the acquisition of assets and deposits. From
1994 through 2000, we have completed five transactions, which added
approximately $715 million in deposits. In January 2001, we acquired The
Citizens National Bank of Malone, a commercial bank with approximately $111
million in assets, $59 million in loans
1
and $88 million in deposits. As a result of this acquisition, we added five
customer facilities and four ATMs in Northern New York. In May 2001, we
completed our acquisition of First Liberty Bank Corp., a bank holding company
based in Jermyn, Pennsylvania, with approximately $648 million in assets, $521
million in deposits and $421 million in loans. First Liberty's wholly-owned
subsidiary bank, First Liberty Bank & Trust, had 13 banking offices and 16 ATMs
in Lackawanna and Luzerne Counties in Northeastern Pennsylvania. This
acquisition expanded our operations into Pennsylvania for the first time.
We also have pending an acquisition from FleetBoston Financial Corporation
of 36 branches across the Finger Lakes and Southwestern region of New York with
approximately $479 million in deposits and approximately $181 million in loans
as of September 30, 2001. We expect to complete this acquisition in the fourth
quarter of 2001. At June 30, 2001, after giving pro forma effect to the
FleetBoston acquisition, this offering and the trust preferred offerings
discussed below, our total assets were approximately $3.3 billion, our total
loans were approximately $1.8 billion, our total deposits were approximately
$2.5 billion, and our branch network consisted of 124 customer facilities and 91
ATMs, as compared to our total assets of approximately $1.3 billion, total loans
of approximately $652 million, total deposits of approximately $1.0 billion, and
49 customer facilities and 25 ATMs at December 31, 1996 (excluding the effect
for 1996 of the pooling restatement relating to the First Liberty acquisition).
We are subject to examination and regulation by the Board of Governors of
the Federal Reserve System, the Office of the Comptroller of the Currency, or
the OCC, and the Federal Deposit Insurance Corporation, or the FDIC. This
regulation is intended for the protection of our depositors, not our
stockholders.
Our executive offices are located at 5790 Widewaters Parkway, DeWitt, New
York 13214, and our phone number is (315) 445-2282. Our web site is located at
www.communitybankna.com. The information on our web site is not a part of this
prospectus.
The information in this prospectus may not contain all of the information
that may be important to you. You should read the entire prospectus, as well as
the documents incorporated by reference in the prospectus, before you decide to
invest in our common stock.
RECENT DEVELOPMENTS
In July 2001, we participated in two pooled offerings of trust preferred
securities. In these transactions, we sold floating-rate subordinated debentures
to two wholly-owned statutory business trusts we formed for the purposes of
these offerings. These trusts, along with similar trusts formed by other
financial institutions, sold their trust preferred securities on a pooled basis
to investors in private placement transactions. We raised approximately $48.0
million, after placement agent fees and expenses, from these offerings. We are
using these funds to provide additional capital to support the FleetBoston
acquisition. See "Recent Developments -- Trust Preferred Securities Offerings."
OUR REASONS FOR THE OFFERING
We are conducting this offering principally to raise additional capital to
support our continued growth. We also expect that the net proceeds of the
offering will generally strengthen our capital position and enable both
Community Bank System and Community Bank to maintain their classifications as
"well capitalized" institutions, the highest possible capital category under the
risk-based capital adequacy guidelines established by the federal banking
regulators, namely the OCC, the Federal Reserve and the FDIC. Without the
proceeds of the offering, after the closing of the FleetBoston acquisition, we
anticipate that Community Bank System and Community Bank would fall to the next
lower capital category, "adequately capitalized," under the guidelines. Our
capital classification can affect our business in the following ways:
- we would be subject to more extensive regulatory oversight if we are in a
lower capital category;
- the amount of FDIC insurance assessments we pay is dependent in part on
our capital category;
2
- a lower capital classification may contribute to lower ratings assigned
to our senior debt by ratings agencies; and
- some of our customers may have investment policies limiting deposits with
financial institutions in capital categories lower than the "well
capitalized" category.
THE OFFERING
Common stock offered by Community
Bank System......................... 1,200,000 shares
Common stock to be outstanding after
this offering....................... 12,750,999 shares
Estimated net proceeds to Community
Bank System......................... Approximately $31.2 million
Use of proceeds..................... To support our continued growth and for
general corporate purposes. See "Use of
Proceeds."
Dividends on common stock........... $0.27 per quarter
New York Stock Exchange symbol...... CBU
The number of shares of our common stock to be outstanding after this
offering is based on the number of shares outstanding as of August 1, 2001 and
does not include the following:
- 985,192 shares of common stock issuable upon exercise of outstanding
stock options with a weighted average exercise price of approximately
$24.93 per share; and
- 2,419,940 shares of common stock reserved for future issuance under our
stock option plans.
RISK FACTORS
Prospective investors should carefully consider the matters set forth under
"Risk Factors" beginning on page 7.
3
SELECTED CONSOLIDATED FINANCIAL DATA
You should read the following selected consolidated financial data with our
consolidated financial statements and notes, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," appearing in our
Current Report on Form 8-K dated August 31, 2001, as amended, and Quarterly
Report on Form 10-Q for the quarter ended June 30, 2001. We have filed these
reports with the SEC, and they are "incorporated by reference" into this
prospectus, which means that we can disclose information by referring you to
those documents.
The historical information below has been restated retroactively for all
periods presented, pursuant to the pooling-of-interests method of accounting, to
reflect the combined results of operations and financial position of Community
Bank System and First Liberty, which was acquired on May 11, 2001.
We acquired Benefit Plans Administrators on July 8, 1996, eight branches
from Key Bank of New York on June 16, 1997, 12 branches from Fleet Bank on July
18, 1997, Elias Asset Management on April 3, 2000 and Citizens National Bank on
January 26, 2001. Each of these acquisitions was accounted for as a purchase
and, accordingly, the results of operations of the acquired businesses are
included in the information below since the dates of acquisition.
The income statement data for each of the years in the three year period
ended December 31, 2000 and the balance sheet data at December 31, 1999 and 2000
are derived from the audited consolidated financial statements and notes
appearing in our Current Report on Form 8-K dated August 31, 2001, as amended.
The income statement data for the years ended December 31, 1996 and 1997 and the
balance sheet data at December 31, 1996, 1997 and 1998 are derived in part from
our audited consolidated financial statements and notes appearing in our Annual
Reports on Form 10-K for the years ended December 31, 1997 and 1998 and the
audited consolidated financial statements and notes included in the Annual
Reports on Form 10-K for the years ended December 31, 1997 and 1998 of First
Liberty. The income statement data for the six months ended June 30, 2000 and
2001 and the balance sheet data at June 30, 2001 are derived from the unaudited
consolidated financial statements appearing in our Quarterly Report on Form 10-Q
for the quarter ended June 30, 2001.
In our opinion, our unaudited consolidated financial statements include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation. The interim results for the six months ended June 30, 2001
are not necessarily indicative of results to be expected for the year ending
December 31, 2001. Historical results are not indicative of the results to be
expected in the future.
4
SELECTED CONSOLIDATED FINANCIAL INFORMATION
AT OR FOR THE SIX
MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Interest income................ $ 100,091 $ 92,080 $ 189,436 $ 166,447 $ 165,303 $ 158,944 $ 137,627
Interest expense............... 53,871 46,704 99,140 78,490 81,216 76,327 62,945
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income............ 46,220 45,376 90,296 87,957 84,087 82,617 74,682
Provision for possible loan
losses....................... 2,741 3,276 7,722 5,856 5,663 5,080 3,730
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income after
provision for possible loan
losses....................... 43,479 42,100 82,574 82,101 78,424 77,537 70,952
Noninterest income............. 12,655 10,596 23,279 18,143 16,812 14,057 11,119
Security gains/(losses)........ (128) (160) (159) (413) 2,006 (205) 9
Noninterest expense............ 36,233 32,293 65,565 62,002 61,389 56,224 48,545
Amortization expense........... 3,001 2,351 4,891 4,723 4,748 3,903 2,929
Acquisition expense............ 5,487 0 336 0 1,098 0 0
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes..... 11,285 17,892 34,902 33,106 30,007 31,263 30,606
Provision for income taxes..... 3,426 5,099 10,003 9,444 10,472 10,581 11,403
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income before cumulative
effect of change in
accounting principle......... 7,859 12,793 24,899 23,662 19,535 20,682 19,203
Cumulative effect of change in
accounting principle......... 0 0 0 0 194 0 0
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income................... $ 7,859 $ 12,793 $ 24,899 $ 23,662 $ 19,729 $ 20,682 $ 19,203
========== ========== ========== ========== ========== ========== ==========
Net income -- Operating(1)... $ 11,199 $ 12,887 $ 25,192 $ 23,906 $ 19,192 $ 20,803 $ 19,198
Net income -- Cash
Operating(2)............... $ 13,137 $ 14,280 $ 28,085 $ 26,700 $ 22,000 $ 23,111 $ 20,926
BALANCE SHEET DATA:
Total assets................... $2,851,689 $2,576,179 $2,650,673 $2,493,977 $2,296,059 $2,218,793 $1,920,561
Loans, net of unearned
discount..................... 1,569,076 1,497,119 1,515,877 1,425,773 1,293,135 1,203,806 994,967
Total deposits................. 2,051,385 1,891,698 1,948,557 1,844,752 1,874,666 1,830,488 1,514,797
Long term borrowings........... 352,000 95,000 240,000 145,567 155,470 100,744 100,000
Trust preferred securities..... 29,827 29,821 29,824 29,817 29,810 29,804 0
Shareholders' equity........... 234,171 172,783 201,791 165,705 179,073 173,596 160,994
COMMON PER SHARE DATA:
Net income (diluted)........... $ 0.68 $ 1.19 $ 2.32 $ 2.18 $ 1.75 $ 1.84 $ 1.74
Cash dividend declared......... 0.54 0.50 1.04 0.96 0.86 0.76 0.69
Book value -- stated........... 20.28 16.36 19.11 15.55 16.50 15.62 14.68
Book value -- tangible......... 14.34 11.28 13.88 10.47 11.02 9.85 8.84
SELECTED PERFORMANCE RATIOS(3):
Return on average total
assets....................... 0.56% 1.02% 0.97% 1.00% 0.85% 1.00% 1.06%
Return on average total
assets -- Operating(1)....... 0.80% 1.03% 0.98% 1.01% 0.84% 1.00% 1.06%
Return on average total
assets -- Cash
Operating(2)................. 0.93% 1.14% 1.11% 1.13% 0.94% 1.12% 1.16%
Return on average common
shareholders' equity......... 6.95% 15.45% 14.27% 13.56% 10.89% 12.61% 12.54%
Return on average common
shareholders' equity --
Operating(1)................. 9.90% 15.56% 14.44% 13.70% 10.81% 12.68% 12.53%
Return on average common
shareholders' equity -- Cash
Operating(2)................. 11.61% 17.24% 16.28% 15.30% 12.05% 14.09% 13.66%
Common dividend payout ratio... 75.94% 44.05% 40.62% 40.39% 44.85% 37.99% 37.45%
5
AT OR FOR THE SIX
MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
Common dividend payout ratio --
Operating(1)................. 53.29% 43.73% 40.14% 39.98% 45.08% 37.76% 37.46%
Net interest margin (taxable
equivalent basis)............ 3.87% 4.15% 4.06% 4.33% 4.14% 4.40% 4.53%
Noninterest income to operating
income....................... 20.30% 18.00% 19.51% 15.54% 9.57% 14.13% 12.52%
Efficiency ratio............... 70.25% 58.75% 59.00% 59.70% 65.34% 61.20% 59.05%
Efficiency
ratio -- Operating(4)........ 56.45% 54.80% 54.64% 55.47% 59.66% 57.23% 55.69%
ASSET QUALITY RATIOS:
Non-performing loans to total
loans........................ 0.71% 0.44% 0.49% 0.52% 0.48% 0.50% 0.86%
Non-performing assets to total
assets....................... 0.46% 0.30% 0.33% 0.36% 0.35% 0.35% 0.50%
Allowance for loan losses to
loans........................ 1.33% 1.33% 1.32% 1.32% 1.32% 1.41% 1.32%
Allowance for loan losses to
non-performing loans......... 187.00% 306.00% 270.63% 253.32% 276.26% 280.93% 153.80%
Allowance for loan losses to
non-performing assets........ 158.09% 259.47% 227.36% 208.70% 214.04% 215.58% 136.88%
Net charge-offs (recoveries) to
average total loans.......... 0.36% 0.25% 0.42% 0.33% 0.45% 0.43% 0.26%
CAPITAL RATIOS:
Total shareholders' equity to
total assets................. 8.21% 6.71% 7.61% 6.64% 7.80% 7.82% 8.38%
Tier I capital to risk-adjusted
assets....................... 12.18% 11.76% 10.84% 11.03% 11.34% 11.05% 12.12%
Total risk-based capital to
risk-adjusted assets......... 10.95% 10.51% 12.08% 12.26% 12.59% 12.30% 13.91%
Tier I leverage ratio.......... 6.58% 6.62% 6.75% 6.83% 6.75% 7.04% 6.80%
---------------
(1) Operating adjusted amounts and ratios exclude the after tax effect of
acquisition expenses and net security gains/(losses) and, accordingly, are
not presented in accordance with Generally Accepted Accounting Principles.
(2) Cash Operating adjusted amounts and ratios exclude the after tax effect of
acquisition expenses, net security gains/(losses), and amortization expenses
and, accordingly, are not presented in accordance with Generally Accepted
Accounting Principles.
(3) Ratios are annualized for the six months ended June 30, 2000 and 2001.
(4) Efficiency Ratio Operating adjusted excludes acquisition expenses and
amortization expense and, accordingly, is not presented in accordance with
Generally Accepted Accounting Principles.
6
RISK FACTORS
You should carefully consider the risks described below before investing in
our common stock. If any of the following risks actually occur, our business
could be harmed. This could cause the price of our stock to decline, and you may
lose part or all of your investment. This prospectus contains forward-looking
statements that involve risks and uncertainties, including statements about our
future plans, objectives, intentions and expectations. Many factors, including
those described below, could cause actual results to differ materially from
those discussed in forward-looking statements.
WE MAY FAIL TO IMPLEMENT OUR ACQUISITIONS SUCCESSFULLY, ACHIEVE SAVINGS AND
REALIZE THE OTHER ANTICIPATED BENEFITS FROM THE ACQUISITIONS BECAUSE OF
DIFFICULTIES IN INTEGRATING OUR BUSINESS OPERATIONS.
We recently acquired First Liberty, a bank holding company based in Jermyn,
Pennsylvania. We have also entered into a definitive agreement to purchase 36
bank branches in the Finger Lakes and Southwestern regions of New York from
FleetBoston, which acquisition we expect to complete in the fourth quarter of
2001. The integration of the acquired companies or branches following an
acquisition will be complex and time-consuming and will present us with
challenges. As a result, we may not be able to operate the combined company as
effectively as we expect. We may also fail to achieve the anticipated potential
benefits of the acquisitions as quickly or as cost effectively as we anticipate
or may not be able to achieve those benefits at all. Specifically, we will face
significant challenges integrating the companies' organizations, procedures and
operations in a timely and efficient manner and retaining key personnel. In
addition, our management will have to dedicate substantial effort to integrating
the acquired companies and branches and, therefore, its focus and resources may
be diverted from other strategic opportunities and from operational matters.
There may also be undisclosed liabilities that we assume with the acquired
business.
SOME OF OUR BORROWERS DO NOT REPAY THEIR LOANS, AND LOSSES FROM LOAN DEFAULTS
MAY EXCEED THE RESERVE WE ESTABLISH FOR THAT PURPOSE, WHICH MAY HAVE AN ADVERSE
EFFECT ON OUR BUSINESS.
Some borrowers do not repay loans that we make to them. This risk is
inherent in the banking business. If a significant amount of loans is not
repaid, it would have an adverse effect on our earnings and overall financial
condition. Like all financial institutions, we maintain a reserve for loan
losses to provide for loan defaults and nonperformance. The allowance for loan
losses reflects our management's best estimate of probable losses in the loan
portfolio at the relevant balance sheet date. This evaluation is primarily based
upon a review of our and the banking industry's historical loan loss experience,
known risks contained in the loan portfolio, composition and growth of the loan
portfolio, and economic factors. However, the determination of an appropriate
level of loan loss allowance is an inherently difficult process and is based on
numerous assumptions. As a result, our reserve for loan losses may not be
adequate to cover actual losses, and future provisions for loan losses may
adversely affect our earnings.
OUR PROPOSED BRANCH ACQUISITION WILL SIGNIFICANTLY DECREASE OUR TANGIBLE BOOK
VALUE.
In accordance with our agreement with FleetBoston, we have agreed to pay a
premium over the book value of the deposits and loans we will acquire in the
FleetBoston acquisition. This premium will decrease the tangible book value of
our common stock in the approximate amount of $5.31 per share to $9.03 per share
as of June 30, 2001, on a pro forma basis after giving effect to this offering
and the FleetBoston acquisition. At June 30, 2001, the tangible book value of
our common stock was $14.34 per share. See "Pro Forma Consolidated Statement of
Financial Condition." While we believe that our common stock trades primarily on
the basis of earnings per share and growth in earnings per share, this tangible
book value dilution may adversely affect the trading price of our stock as our
stock trades, in part, on the basis of our tangible book value per share.
CHANGES IN INTEREST RATES AFFECT OUR PROFITABILITY AND ASSETS.
Changes in prevailing interest rates may hurt our business. We derive our
income mainly from the difference or "spread" between the interest earned on
loans, securities and other interest-earning assets, and
7
interest paid on deposits, borrowings and other interest-bearing liabilities. In
general, the larger the spread, the more we earn. When market rates of interest
change, the interest we receive on our assets and the interest we pay on our
liabilities will fluctuate. This can cause decreases in our spread and can
adversely affect our income.
Changes in market interest rates could reduce the value of our financial
assets. Fixed-rate investments, mortgage-backed and related securities and
mortgage loans generally decrease in value as interest rates rise. In addition,
interest rates affect how much money we can lend. For example, when interest
rates rise, the cost of borrowing increases and loan originations tend to
decrease.
If we are unsuccessful in managing the effects of changes in interest
rates, our financial condition and results of operations could suffer.
REGIONAL ECONOMIC FACTORS MAY HAVE AN ADVERSE IMPACT ON OUR BUSINESS.
Substantially all of our business is with customers in our market areas in
New York and Pennsylvania. Most of our customers are individuals and small and
medium-sized businesses which are dependent upon the regional economy. Adverse
changes in economic and business conditions in our markets could adversely
affect our borrowers, their ability to repay their loans and to borrow
additional funds or buy financial services and products from us, and
consequently our financial condition and performance.
WE FACE STRONG COMPETITION FROM OTHER BANKS AND FINANCIAL INSTITUTIONS WHICH CAN
HURT OUR BUSINESS.
We conduct our banking operations in a number of competitive local markets.
In those markets, we compete against commercial banks, savings banks, savings
and loans associations, credit unions, mortgage banks, brokerage firms,
investment advisory firms, insurance companies and other financial institutions.
Many of these entities are larger organizations with significantly greater
financial, management and other resources than we have, and they offer the same
or similar banking or financial services that we offer in our markets. Moreover,
new and existing competitors may expand their business in or into our markets.
Increased competition in our markets may result in a reduction in loans,
deposits and other sources of our revenues. Ultimately, we may not be able to
compete successfully against current and future competitors.
WE DEPEND ON DIVIDENDS FROM OUR BANKING SUBSIDIARY FOR CASH REVENUES, BUT THOSE
DIVIDENDS ARE SUBJECT TO RESTRICTIONS.
Our ability to satisfy our obligations and pay cash dividends to our
stockholders is primarily dependent on the earnings of and dividends from the
subsidiary bank. However, payment of dividends by the bank subsidiary is limited
by dividend restrictions and capital requirements imposed by bank regulations.
Our ability to pay dividends is also subject to our continued payment of
interest that we owe on our subordinated junior debentures. As of the date of
this prospectus, we have $79.3 million of subordinated junior debentures
outstanding. We have the right to defer payment of interest on the subordinated
junior debentures for a period not exceeding 20 quarters. If we defer interest
payments on the subordinated junior debentures, we will be prohibited, subject
to certain exceptions, from paying cash dividends on our common stock until we
pay all deferred interest and resume interest payments on the subordinated
junior debentures. See "Dividend Policy."
GOVERNMENT REGULATIONS AND POLICIES IMPOSE LIMITATIONS AND MAY RESULT IN HIGHER
OPERATING COSTS AND COMPETITIVE DISADVANTAGES.
We are subject to extensive federal government supervision and regulation
that is intended primarily to protect depositors and the FDIC's Bank Insurance
Fund, rather than our stockholders. Existing banking laws subject us to
substantial limitations with respect to loans, the purchase of securities, the
payment of dividends and many other aspects of our banking business. Some of the
banking laws may increase the cost of doing business or otherwise adversely
affect us and create competitive advantages for non-bank competitors. There can
be no assurance that future legislation or government policy will not adversely
affect the banking industry
8
or our operations. Federal economic and monetary policy may affect our ability
to attract deposits, make loans and achieve satisfactory interest spreads.
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, and Section 21E of the Securities
Exchange Act of 1934. We intend these forward-looking statements to be covered
by the safe harbor provisions for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995, and we are including this
statement for purposes of complying with these safe harbor provisions. We have
based these forward-looking statements on our current expectations and
projections about future events. These forward-looking statements are not
guarantees of future performance and are subject to risks, uncertainties and
assumptions, including those set forth under "Risk Factors." Words such as
"expect," "anticipate," "intend," "plan," "believe," "estimate" and variations
of these words and similar expressions are intended to identify these
forward-looking statements. We undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise. In light of these risks, uncertainties and
assumptions, the forward-looking events discussed in this prospectus might not
occur.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RECENT RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements incorporated by reference in this prospectus. This discussion
contains forward-looking statements which involve risks and uncertainties. Our
actual results could differ materially from those anticipated in the
forward-looking statements as a result of certain factors, including but not
limited to those discussed in "Risk Factors" and elsewhere in this prospectus.
On May 11, 2001, we completed the acquisition of First Liberty through a merger
accounted for as a pooling of interests. As a result, we have retroactively
restated our historical financial statements to include the financial condition
and results of operations of First Liberty. All information below reflects this
restatement. The January 26, 2001 acquisition of Citizens National Bank has been
accounted for as a purchase. Accordingly, the results of operations of Citizens
are included in the information below since the date of acquisition.
FINANCIAL CONDITION
Our consolidated total assets at June 30, 2001 increased $201.0 million, or
7.6%, to $2.85 billion from $2.65 billion at December 31, 2000. The growth was
primarily due to the acquisition of Citizens in January 2001, which increased
assets, loans and deposits by $111 million, $59 million, and $88 million,
respectively. In addition, to put excess capital from the First Liberty
acquisition to profitable use, we increased investment securities during the
first six months of 2001 by $135 million (excluding unrealized gains), largely
funded with long-term advances from the Federal Home Loan Bank of New York.
Loans at June 30, 2001 increased $53.2 million to $1.57 billion from $1.52
billion at December 31, 2000. The increase was primarily attributable to the
acquisition of the loan portfolio of Citizens as well as increases in commercial
loans and consumer real estate loans of $8.5 million and $3.6 million,
respectively. We continued to experience success with our "no-closing-cost"
residential mortgage program. Overall loan growth was offset by a $17.7 million
reduction in installment loans, as the addition of new business was not adequate
to offset the repayment of existing loans.
The ratio of nonperforming assets to total assets was 0.46% at June 30,
2001, compared to 0.33% at December 31, 2000. The primary reason for the
increase was a rise in nonperforming assets of $5.0 million, or 82.7%, during
the first half of 2001, largely attributable to $3.9 million in delinquent
commercial loans of a related group of borrowers and a $0.9 million increase in
foreclosed property. The allowance for loan losses as a percent of total loans
was 1.33% at June 30, 2001 compared to 1.32% at December 31, 2000. Because of
the higher nonperforming loans, the ratio of the allowance to total
non-performing loans was 187% at June 30, 2001, a reduction from 271% coverage
at December 31, 2000. Our management continually reviews the adequacy of the
loan loss reserve based upon internal review of loans and guidelines promulgated
by bank regulators.
Total liabilities at June 30, 2001 increased $168.6 million to $2.6 billion
from $2.4 billion at December 31, 2000. Total deposits during the six-month
period increased $102.8 million, including $84 million related to Citizens, to
$2.05 billion from $1.95 billion at December 31, 2000. Core deposits (accounts
held by individuals, partnerships and corporations) increased by $142 million,
or 8.2%, while public deposits (largely accounts of local municipalities)
decreased by $39 million. To put excess capital from the First Liberty
acquisition to profitable use, we increased investment securities during the
first six months of 2001 by $135 million (excluding unrealized gains), largely
funded with long-term advances from the Federal Home Loan Bank of New York.
Total shareholders' equity grew by $32.4 million, from $201.8 million at
December 31, 2000, to $234.2 million at June 30, 2001. The increase was
primarily a result of net earnings of $7.9 million for the six months ended June
30, 2001, the re-issuance of all 648,100 shares of treasury stock and 303,900
shares of new stock in the acquisition of Citizens, and an increase of $4.8
million in unrealized gains on securities available for sale, net of income
taxes and reclassification adjustments for gains.
10
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
General. Net income decreased by $4.9 million, or 38.6%, to $7.9 million
for the six months ended June 30, 2001 from $12.8 million for the six months
ended June 30, 2000. This decrease was largely due to $5.5 million in one-time
acquisition expenses associated with the Citizens and First Liberty
transactions. For the same period, cash operating net income, which excludes the
after-tax effect of intangible amortization expense (the cost of steadily
writing down the premiums paid for acquisitions), one-time acquisition costs,
and net securities losses, was $13.1 million, a decrease of $1.1 million, or
8.0%, versus $14.3 million earned in the first half of 2000.
For the six months ended June 30, 2001, our return on average assets ratio,
or ROA, was 0.56%, our return on average equity ratio, or ROE, was 6.95% and our
efficiency ratio, which excludes intangible amortization, one-time acquisition
expenses, and net securities losses, was 56.5%. For the same period last year,
our ROA, ROE, and efficiency ratio were 1.02%, 15.45%, and 54.8%, respectively.
On a cash operating earnings basis, our ROA was 0.93% and 1.14% for the first
half of 2001 and 2000, respectively. For the same two periods, our cash
operating ROE was 11.61% and 17.24%, respectively.
Net Interest Income. The increase in net interest income for the first
half of 2001 was due to an $8.0 million, or 8.7%, increase in interest income,
partially offset by a $7.2 million, or 15.3%, increase in interest expense.
Interest income for the six months ended June 30, 2001 increased $8.0
million, or 8.7%, to $100.1 million from $92.1 million for the same period in
2000. The increase was primarily the result of a 10.6% increase ($248 million)
in average earning assets for the first half of 2001, compared to the same
period in 2000. Though average loans increased 7.7% ($112 million), loan
interest income increased 6.3%. Similarly, while average investments increased
15.3% ($136 million) for the period, interest income from investments increased
13.7%. The resulting lower yields on loans and investments during the first six
months of 2001 reflect the significantly lower market interest rates relative to
the comparable period in 2000.
Interest expense for the six months ended June 30, 2001 increased
approximately $7.2 million, or 15.3%, to $53.9 million from $46.7 million for
the same period in 2000. This increase was primarily due to a $6.3 million
increase in interest expense paid on time deposits. Time deposit accounts
averaged $1.1 billion for the first half of 2001 at an average cost of 5.88%.
This compares to an average balance of $967.4 million at an average cost of
5.40% for the comparable period in 2000.
In contrast to the average rate on outstanding time deposits, rates on our
overall borrowings were more responsive to the falling rate environment, down
from a 6.38% average rate for the first half of last year to 5.88% this year.
During this period, the inverted treasury yield curve presented us with a unique
opportunity to both extend the maturity of our short term borrowing position
while lowering the overall interest paid on such funding. Consequently, interest
on federal funds purchased and term borrowings rose $923,000, or 6.6%, for the
first six months of 2001, while the average outstanding balance increased by
16.0% to $513 million versus $442 million for the comparable 2000 period.
Due to the asset sensitive nature of our balance sheet, earning asset
yields adjusted downward more quickly on loans than the steady but slower rate
decrease on consumer deposits, causing compression of our net interest margin.
In addition, the substantially steeper and lower-yielding treasury curve
affected reinvestment activity within the investment portfolio as new
investments were purchased at relatively lower yields. As a result, our net
interest margin declined to 3.87% for the six months ended June 30, 2001 from
4.15% for the comparable 2000 period. Because the average balance of earning
assets increased, however, our net interest income rose by $844,000 despite the
margin compression.
In a period of declining interest rates, we typically experience a 12-month
lag effect in benefiting from lower prevailing rates. During the next 12 months,
we have $912 million in certificates of deposit (84% of total certificates of
deposit at June 30, 2001) that are scheduled to mature that at June 30, 2001 had
a weighted average cost of 5.59%. Based on current market rates of 3.6% to 4.1%
for six and twelve month certificates of deposit, we anticipate the rollover of
these deposits at these lower rates to result in a significant reduction of
interest expense and corresponding increase in the net interest margin.
11
Provision for Loan Losses. For the six months ended June 30, 2001, the
provision for loan losses amounted to $2.7 million, a decrease of $535,000, or
16.3%, compared to $3.3 million for the same period in 2000. This decrease
reflects a higher than normal provision in the second quarter of 2000 due to the
identification of probable losses that were recognized later that year. Net
charge-offs for the first six months of 2001 were $2.8 million, or 0.36% of
average loans, compared to $1.8 million, or 0.25% of average loans, for the
comparable period in 2000. Net charge-offs for full-year 2000 were $6.2 million
or 0.42% of average loans outstanding.
Other Income. Other income increased approximately $2.1 million, or 20.0%,
to $12.5 million for the six-month period ended June 30, 2001 compared to $10.4
million for the six-month period ended June 30, 2000. The improvement was
primarily attributable to financial services revenues, which increased $1.4
million, or 30.6%, to $6.0 million during the first six months of 2001, compared
to $4.6 million in the comparable period in 2000. The bulk of the increase
reflects a full six-months' contribution of Elias Asset Management, which was
acquired in April 2000. In addition, service charges, commissions and overdraft
fees rose $737,000, or 14.9%, to $5.7 million for the first half of 2001 from
$4.9 million for the same period last year. The contribution of Citizens
beginning in late January 2001, the impact of an increase in fees charged for
overdrafts in May 2001 in our New York market, and an overall increase in late
2000 in fees charged in First Liberty's market, are the primary causes of the
higher general banking fees. The ratio of noninterest income to operating income
increased 2.3 percentage points to 20.3%, when compared to the first six months
of 2000.
Other Expenses. Other expenses increased approximately $10.1 million, or
29.1%, to $44.7 million for the six months ended June 30, 2001 as compared to
$34.6 million for the same period in 2000. The most significant increase in
other expenses was for one-time acquisition expenses of $5.5 million related to
the Citizens and First Liberty acquisitions. These nonrecurring costs primarily
consist of consulting fees, severance and write-downs of obsolete software. In
addition to these readily identifiable acquisition expenses, there were a
variety of miscellaneous start-up costs, including overtime, temporary help, and
supplies, as well as adjustments to pension expense. These expenses related to
Citizens and First Liberty, which approximate $280,000, along with the larger
one-time costs related to Citizens and First Liberty, are not expected to recur
in future periods.
Because our acquisitions of Citizens and Elias Asset Management were
accounted for under the purchase accounting method, our financial statements and
results were not retroactively restated for the periods prior to their
respective dates of acquisition. Therefore, the overhead expense of the former
Citizens branches is included for five months of 2001 (versus none for 2000),
and the overhead expense of Elias Asset Management is included for the full
first two quarters of 2001 (versus only one quarter of 2000). These expenses
account for $1.4 million of the increase for the first six months of 2001.
The Citizens and Elias Asset Management acquisitions also resulted in
goodwill amortization of $379,000 and $218,000 of their respective purchase
premiums for the six months ended June 30, 2001 compared to no amortization
expense and $77,000, respectively, for the same period in 2000. Based on the new
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets", this goodwill amortization is expected to be eliminated in
future periods beginning in 2002. In addition, $770,000 in quarterly
amortization of goodwill related to our other acquisitions will be eliminated
under the new standard, with $432,000 per quarter in deposit intangible
amortization remaining. Approximately $890,000 per quarter in 2002 in deposit
intangible amortization is projected for the proposed FleetBoston branch
acquisition.
We acquired First Liberty on May 11, 2001, and their other expenses are
included for the full six months of 2001. Their first quarter 2001 operating
expense (excluding one-time costs) was $3.5 million. Due to reductions in staff
which occurred at acquisition date, approximately $465,000 in recurring
quarterly costs was eliminated in the second quarter. Another $335,000 is
projected to be reduced in the third quarter. In total, annualized expense
savings of approximately $3.2 million are anticipated as a result of staffing
the First Liberty branches according to the more efficient Community Bank model
and having Community Bank's operations and administrative centers in Olean,
Canton, and DeWitt, New York process First Liberty's back office work,
previously performed in Scranton, Pennsylvania.
12
Excluding the aforementioned non-recurring expenses, higher intangible
amortization, and the timing impact of the way our Elias Asset Management and
Citizens acquisitions were accounted for, other expenses would have increased
$2.2 million, or 6.8%, during the first six months of 2001 versus the comparable
prior year period.
Income Taxes. Applicable income taxes decreased $1.7 million for the six
months ended June 30, 2001 as compared to the same period in 2000. The decrease
resulted from lower pre-tax earnings.
RECENT DEVELOPMENTS
PENDING FLEETBOSTON BRANCH ACQUISITION
On June 7, 2001, we entered into a definitive agreement with FleetBoston to
acquire certain loans and assets, and assume certain deposits, related to 36
FleetBoston branches located in the Southwestern and Finger Lakes regions of New
York State. Under this agreement, we will acquire the facilities and equipment,
including 20 ATMs, as well as real estate and leases, associated with the
operation of these branches. The transaction is subject to pending regulatory
approvals and certain other conditions, and is expected to close early in the
fourth quarter of 2001.
We view this acquisition as a unique opportunity to augment our branch
network in our existing market areas, as well as to expand our services and
market area into contiguous markets in the Southwestern and Finger Lakes regions
of New York State. The acquisition of the branches provides us the opportunity
to increase our business substantially, without significantly increasing
overhead or operating costs. Based on total deposits as of June 30, 2000 (the
last date for which market share information on deposits is publicly available),
we expect the FleetBoston acquisition to increase our total deposits in the
Southwestern region of New York by $298 million and our deposit market share in
that market from 2.0% to 3.7%, and to increase our total deposits in the Finger
Lakes region of New York by $212 million and our deposit market share in that
market from 3.3% to 4.8%. We believe that this transaction will provide us with
the benefits of acquiring a "whole-bank franchise" in the market area, without
the normal whole-bank acquisition costs and risks associated with the
integration of senior-level management.
At March 31, 2001, loans to be acquired under the agreement with
FleetBoston were approximately $243 million and deposits to be assumed were
approximately $484 million. Both amounts are subject to adjustments due to
run-off or growth of deposits and loans occurring in the ordinary course of
business prior to the closing date, and to adjustments in the loan amount based
on loan size limits and credit quality standards under the agreement. As of
September 30, 2001, FleetBoston loans to be acquired by us were approximately
$181 million and FleetBoston deposits to be acquired were approximately $479
million.
TRUST PREFERRED SECURITIES OFFERINGS
On July 16, 2001, we formed a wholly-owned subsidiary, Community Capital
Trust II, as a Delaware business trust. The trust issued $25 million of 30-year
floating rate capital securities. We have unconditionally guaranteed all of the
trust's obligations under the capital securities. We borrowed the proceeds of
the capital securities from the trust by issuing to the trust subordinated
junior debentures having substantially similar terms. These debentures are the
sole assets of the trust. The capital securities mature in year 2031 and are
treated as Tier 1 capital by the Federal Reserve. The capital securities are a
pooled trust preferred fund of MM Community Funding I, Ltd., and the interest
rate is tied to the six-month LIBOR plus 3.75% with a five year call provision.
This rate adjusts semiannually. The current coupon yield is 7.57% for the
six-month period ending January 15, 2002.
On July 31, 2001, we formed a wholly-owned subsidiary, Community Statutory
Trust III, as a Connecticut business trust. The trust issued $24.45 million of
30-year floating rate capital securities. We have unconditionally guaranteed all
of the trust's obligations under the capital securities. We borrowed the
proceeds of the capital securities from the trust by issuing to the trust
subordinated junior debentures having substantially similar terms. These
debentures are the sole assets of the trust. The capital securities mature in
13
year 2031 and are treated as Tier 1 capital by the Federal Reserve. The capital
securities are a pooled trust preferred fund of First Tennessee/KBW Pooled Trust
Preferred Deal III, and the interest rate is tied to the three-month LIBOR plus
3.58% with a five year call provision. This rate adjusts quarterly. The current
coupon yield is 7.29% for the three-month period ending October 31, 2001.
We are using the proceeds of these offerings to provide additional capital
to support the FleetBoston acquisition.
RECENT FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Selected Financial and Other Data
The following tables set forth historical and other data at the dates and
for the periods indicated. Financial data as of September 30, 2001, and for the
three and nine months ended September 2001 and 2000, is unaudited. The
historical information below has been restated retroactively for all periods
presented, pursuant to the pooling-of-interests accounting method of accounting,
to reflect our May 11, 2001 merger with First Liberty. In our opinion, the
information below includes all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation. The interim results for the
three and nine months ended September 30, 2001 are not necessarily indicative of
results to be expected for the year ending December 31, 2001 or any other
period.
14
CONSOLIDATED CONDENSED BALANCE SHEET
SEP 30, DEC 31,
2001 2000
----------- -----------
(IN THOUSANDS OF DOLLARS)
ASSETS
Cash and due from banks..................................... $ 85,579 $ 76,456
Investment securities....................................... 1,050,856 929,581
Loans, net of unearned discount............................. 1,564,806 1,515,877
Reserve for loan losses..................................... (21,083) (20,035)
Premises and equipment...................................... 44,170 40,941
Intangible assets, net...................................... 66,996 55,234
Other assets................................................ 53,026 52,619
---------- ----------
Total Assets................................................ $2,844,350 $2,650,673
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest bearing....................................... $ 350,621 $ 316,162
Interest bearing.......................................... 1,737,485 1,632,395
---------- ----------
Total Deposits.............................................. 2,088,106 1,948,557
Federal funds purchased..................................... 41,100 48,730
Borrowings.................................................. 338,100 391,100
Company obligated mandatorily redeemable preferred
securities of subsidiary holding solely junior
subordinated debentures of the Company.................... 77,805 29,824
Accrued interest and other liabilities...................... 48,553 30,671
---------- ----------
Total Liabilities........................................... 2,593,664 2,448,882
---------- ----------
Shareholders' equity
Common stock.............................................. 11,579 11,208
Surplus................................................... 46,596 37,711
Undivided profits......................................... 169,127 163,917
Accumulated other comprehensive income.................... 23,748 5,966
Treasury stock............................................ 0 (17,006)
Shares issued under employee stock plan -- unearned....... (363) (5)
---------- ----------
Total Shareholders' Equity.................................. 250,686 201,791
---------- ----------
Total Liabilities and Shareholders' Equity.................. $2,844,350 $2,650,673
========== ==========
15
CONSOLIDATED CONDENSED STATEMENT OF INCOME
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------- -------------------
SEP 30, JUN 30, SEP 30, SEP 30, SEP 30,
2001 2001 2000 2001 2000
------- ------- ------- -------- --------
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Interest income............................ $48,591 $50,110 $48,094 $148,682 $140,242
Interest expense........................... 24,783 27,057 25,756 78,654 72,460
------- ------- ------- -------- --------
Net interest income........................ 23,809 23,054 22,338 70,029 67,782
Provision for possible loan losses......... 1,579 1,415 2,308 4,320 5,584
------- ------- ------- -------- --------
Net interest income after provision for
loan losses.............................. 22,229 21,639 20,030 65,708 62,198
Noninterest income......................... 6,971 6,630 6,523 19,627 17,118
Security gains/(losses).................... 29 (138) 0 (100) (160)
Noninterest expense........................ 18,198 18,602 16,465 54,432 48,825
Amortization expense....................... 1,541 1,541 1,259 4,542 3,610
Acquisition expense........................ 631 4,636 0 6,117 0
------- ------- ------- -------- --------
Income before income taxes................. 8,858 3,351 8,829 20,144 26,721
Provision for income taxes................. 2,416 1,241 2,529 5,842 7,628
Net income............................... $ 6,443 $ 2,110 $ 6,300 $ 14,302 $ 19,093
======= ======= ======= ======== ========
Net income -- Operating(1)............... $ 6,801 $ 4,949 $ 6,300 $ 18,000 $ 19,093
Net income -- Cash Operating(2).......... $ 7,808 $ 5,957 $ 7,046 $ 20,945 $ 21,231
Net income (diluted) per share............. $ 0.55 $ 0.18 $ 0.59 $ 1.23 $ 1.78
Selected Performance Ratios(3) :
Return on average total assets............. 0.90% 0.29% 0.99% 0.67% 1.01%
Return on average total
assets -- Operating(1)................... 0.95% 0.68% 0.99% 0.85% 1.01%
Return on average total assets -- Cash
Operating(2)............................. 1.09% 0.82% 1.11% 0.99% 1.13%
Return on average common shareholders'
equity................................... 10.73% 3.65% 14.68% 8.30% 15.17%
Return on average common shareholders'
equity -- Operating (1).................. 11.33% 8.56% 14.68% 10.44% 15.17%
Return on average common shareholders'
equity -- Cash Operating(2).............. 13.01% 10.30% 16.42% 12.15% 16.86%
Net interest margin (taxable equivalent
basis)................................... 3.94% 3.78% 3.94% 3.88% 4.07%
Noninterest income to operating income..... 21.31% 21.06% 21.52% 20.68% 19.18%
Efficiency ratio........................... 62.21% 79.08% 58.48% 68.65% 58.86%
Efficiency ratio -- Operating(4)........... 55.61% 59.08% 54.30% 57.32% 54.68%
Asset Quality Ratios:
Nonperforming loans to total loans......... 0.54% 0.71% 0.51% 0.54% 0.51%
Allowance for loan losses to loans......... 1.35% 1.33% 1.34% 1.35% 1.34%
Allowance for loan losses to nonperforming
loans.................................... 247.49% 187.15% 264.99% 247.49% 264.99%
Net charge-offs (recoveries) to average
total loans.............................. 0.33% 0.39% 0.58% 0.35% 0.37%
---------------
(1)Operating adjusted amounts and ratios exclude the after tax effect of
acquisition expenses and net security gains/(losses) and, accordingly, are
not presented in accordance with Generally Accepted Accounting Principles.
16
(2)Cash Operating adjusted amounts and ratios exclude the after tax effect of
acquisition expenses, net security gains/(losses), and amortization expenses
and, accordingly, are not presented in accordance with Generally Accepted
Accounting Principles.
(3)Ratios are annualized for the three months ended June 30, 2001 and for the
three and nine months ended September 30, 2000 and 2001.
(4)Efficiency Ratio Operating adjusted excludes acquisition expenses and
amortization expense and, accordingly, is not presented in accordance with
Generally Accepted Accounting Principles.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RECENT DEVELOPMENTS
Results of Operations
Net income for third quarter 2001 was $6.4 million, an increase of $142,000
or 2.3% from the same period last year. Earnings per share (diluted) for the
quarter were $0.55, down $0.04 or 7.1% from third quarter 2000, reflective of a
greater number of shares outstanding due to the January 26, 2001 acquisition of
Citizens. For the first nine months of 2001, net income was $14.3 million, a
decrease of 25% from the comparable period in the prior year, while earnings per
share (diluted) were $1.23, a 31% decrease over the same period in 2000.
Results of operations for the three and nine months ended September 30,
2001 include $602,000 and $6.2 million, respectively, in net one-time
acquisition expenses and related securities gains/losses associated with our May
11, 2001 merger with First Liberty and our planned acquisition of FleetBoston
branches scheduled to close in fourth quarter 2001. When these nonrecurring
expenses are excluded, operating earnings for third quarter 2001 were $6.8
million, an increase of 7.9% from the same period last year, while per share
(diluted) results were $0.58, down $0.01 or 1.19%, over the same periods.
Compared to second quarter 2001, operating earnings and earnings per share were
each up 37% in the three months ended September 30, 2001. For the first nine
months of 2001, operating earnings were $18.0 million and $1.55 per share,
reductions of 5.7% and 13.1%, respectively, over the comparable period in 2000.
Cash operating earnings for third quarter 2001 were $7.8 million, an
increase of 10.8% from the same period last year. This performance measure
excludes intangible amortization expense, which is a non-cash expenditure, as
well as net one-time acquisition costs and related securities gains/losses. Cash
operating earnings per share (diluted) for the quarter ended September 30, 2001
were $0.67, as compared to $0.66 for the same quarter in 2000. Compared to
second quarter 2001, cash operating earnings and cash operating earnings per
share (diluted) were up 31% each in the third quarter of 2001. For the first
nine months, cash operating earnings were $20.9 million, down 1.3% from the
comparable period in 2000, while cash operating earnings per share (diluted)
were $1.80, a decrease of 9.1% from the comparable prior year period.
Net interest income for third quarter 2001 rose by 6.6% over the same
period last year to $23.8 million, an increase of $755,000 over second quarter
2001, the largest linked quarter increase in two years. This improvement
reflects restoration of the net interest margin to the third quarter 2000 level
of 3.94%, reversing a steady decrease since then. The rise in net interest
margin was caused by an accelerated decrease in our cost of funds due to
downward deposit repricing consistent with lower financial market interest
rates. For the first nine months of the year, net interest income rose by 3.3%
over the first nine months of 2000 to $70.0 million, with the net interest
margin averaging 3.88% versus 4.07% in the prior year.
Noninterest income (excluding securities transactions) for the quarter
ended September 30, 2001 exceeded third quarter 2000 and second quarter 2001
levels by 6.9% and 5.1%, respectively, rising to $7.0 million. This improvement
reflects higher revenues from the sale of financial services products, with the
bulk of the increase compared to second quarter 2001 due to the annual dividend
from our creditor life insurance program through the New York State Bankers
Association. The ratio of noninterest income to operating income in the three
months ended September 30, 2001 was 21.3%, up slightly from the three months
ended June 30, 2001. For the first nine months of this year, other income
climbed 14.7% or $2.5 million over the same period in 2000 to $19.6 million,
particularly reflective of the April 3, 2000 acquisition of Elias Asset
Management, growth in pension administration and broker-dealer fees, and higher
service charge and deposit fees.
17
Excluding intangible amortization and acquisition expenses related to First
Liberty and the planned FleetBoston branch acquisition, overhead in the third
quarter of this year was down by $404,000 or 2.2% from second quarter 2001 to
$18.2 million. The bulk of this decrease reflects the additional impact of the
First Liberty cost reductions implemented in mid-second quarter. Our efficiency
ratio, excluding intangible amortization, net securities gains/losses, and
one-time acquisition-related expenses, decreased 3.5 percentage points from the
second quarter to 55.6%, moving back toward the 54.3% level of one year ago.
Besides lower expenses, the efficiency ratio improved because of increased
noninterest income and better margins, which caused operating income (full
tax-equivalent) to rise by 3.9% to $32.7 million. For the first nine months of
the year, the efficiency ratio was 57.3%, 2.6 percentage points higher than in
the same period in 2000. This increase reflects growth in operating income (full
tax-equivalent) of 6.4% to $94.9 million versus an 11.5% increase in noninterest
expense, excluding intangible amortization and acquisition costs, to $54.4
million.
Loan loss provision expense for third quarter 2001 decreased $729,000 or
32% from the same period last year to $1.6 million, mirroring a 40% decrease in
net charge-offs. Compared to second quarter 2001, the provision rose $164,000 or
12%, increasing the loan loss reserve to a level sufficient to absorb the
probable losses within the portfolio at September 30, 2001. Net charge-offs for
the third quarter were $1.3 million, a 16% reduction from the second quarter
level. For the first nine months of 2001, loan loss provision expense decreased
$1.3 million or 23% to $4.3 million. Net charge-offs as a percent of average
loans outstanding were 0.35% and 0.37% for the nine months ended September 30,
2001 and 2000, respectively.
Provision for income taxes for third quarter 2001 versus the same quarter
last year decreased $113,000 compared to a $29,000 increase in income before tax
over the same periods. This reflects an adjustment in the third quarter tax rate
such that the year-to-date effective rate was reduced to 29.0% from the 30.4%
rate through June 30, 2001. The reduction was caused by continued implementation
of various tax strategies, principally increased purchases of tax-exempt
municipal investments. For the nine months ended September 30, 2001, provision
for taxes decreased $1.8 million or 23% from the comparable prior year period,
while income before tax was lower by $6.6 million or 25%. The effective tax rate
for the same 2000 period was 28.6%.
Financial Condition
Earning assets at September 30, 2001 were $2.6 billion, a decrease of 1.8%
from June 30, 2001. Our investment portfolio, which comprises 39% of earning
assets, decreased $43 million during the quarter to $1.0 billion. This reduction
occurred largely because we did not immediately replace $38 million in
investment sales late in the quarter, the gain from which was used to offset the
penalty to prepay $95 million in term borrowings in anticipation of the
FleetBoston branch deposits. Compared to December 31, 2000, earning assets rose
$170 million or 7.0% while investments increased $121 million or 13.0% at
September 30, 2001. Our acquisition of Citizens accounts for approximately $104
million and $46 million, respectively, of these increases.
Influenced by the softening economy, loans decreased $4.1 million or 0.3%
during third quarter 2001 to $1.6 billion at September 30, 2001. The primary
reasons for the decrease are a slowing in commercial loan demand (outstandings
lower by $6.5 million), partially due to seasonal reduction in automobile floor
plan financing, and run-off of residential portfolio mortgages ($5.6 million
lower). Consumer installment loans rose $8.0 million during three month ended
September 30, 2001 because of growth in direct loans and elimination of run-off
in indirect loans that had been occurring since September 30, 2000. Over the
first nine months of 2000, total loans have risen $49 million or 3.2%, including
$54 million related to the Citizens acquisition in January 2001.
Nonperforming loans were reduced by $2.6 million during the third quarter
of 2001 to $8.5 million, reflective of $3.9 million in related commercial loans
that had been 90 days delinquent being brought more current. Compared to
year-end 2000, nonperforming loans were $1.1 million or 15% higher at September
30, 2001. The nonperforming loan/outstandings ratio at September 30, 2001
improved 17 basis points from the mid-year level to .54%, though the ratio
remained five basis points higher than at December 30, 2000. The allowance for
loan losses was $21.1 million at September 30, 2001, up 5.2% from December 30,
2000. The
18
ratio of allowance for loan losses to nonperforming loans was 2.47 times based
on a 1.35% ratio to loans outstanding as of September 30, 2001. Both ratios
improved during the quarter ended September 30, 2001. At December 31, 2000, the
loan loss allowance was 1.32% of outstanding loans while the allowance equaled
2.71 times nonperforming loans.
Mortgage loans originated and sold in the secondary market increased for
the fourth straight quarter to $14.6 million as the refinancing pace quickened.
Sales for the nine months ended September 30, 2001 were $32.1 million compared
to $9.5 million for all of 2000, with mortgage banking and servicing fees
increasing 44%. The serviced loan portfolio stood at $113 million as of
September 30, 2001, up 25% from one year earlier.
Deposits rose $37 million or 1.8% during third quarter 2001 to $2.1
billion. Deposits of individuals, partnerships and corporations, generally
considered a bank's core deposits, were up 2.5% while public fund deposits
decreased 2.1% during the quarter. Compared to December 31, 2000, deposits rose
$140 million or 7.2% at September 30, 2001, with approximately $86 million of
this increase contributed by our acquisition of Citizens. Total borrowings were
reduced by $71 million during the quarter to $458 million, which included the
addition of approximately $50 million in floating rate trust preferred
securities in July 2001 to finance the anticipated FleetBoston acquisition.
Borrowings at the end of third quarter 2001 were down $13 million or 2.7%
compared to December 31, 2000.
Shareholders' equity rose $16.5 million during third quarter 2001 to $250.7
million as a result of earnings, net of dividends paid, and a $12.9 million
increase in other comprehensive income. The latter reflects the positive impact
of the current falling rate environment on the unrealized gain, net of taxes, on
securities held for sale, which essentially represents our entire investment
portfolio. Compared to December 31, 2000, shareholders' equity has risen 24% or
$49 million, $18 million of which reflects higher comprehensive income. In
addition to earnings, net of dividends paid, approximately $25 million in common
stock was issued in the Citizens acquisition.
19
PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
JUNE 30, 2001
The table below contains our unaudited pro forma consolidated financial
condition, assuming that this offering, the trust preferred securities offerings
and the FleetBoston branch acquisition were all completed on June 30, 2001. The
information contained in the table should be read in conjunction with the
audited financial statements and notes included in our Current Report on Form
8-K dated August 31, 2001, as amended, and the unaudited financial statements
and notes included in our Quarterly Report on Form 10-Q for the quarter ended
June 30, 2001, which are incorporated by reference in this prospectus. This
information has been prepared by us, is unaudited and may not be indicative of
actual results.
TRUST PREFERRED COMMON
CBSI SECURITIES STOCK FLEETBOSTON BRANCH CBSI
HISTORICAL OFFERINGS(1) OFFERING(2) ACQUISITION(3)(4) PRO FORMA
---------- --------------- ------------ ------------------ ----------
(DOLLARS IN THOUSANDS)
ASSETS
Cash and due from banks............. $ 65,264 $ 7,732 $ 72,996
Investment securities............... 1,072,149 $47,953 $31,250 48,648 1,200,000
Loans, net of unearned discount..... 1,569,076 242,761 1,811,837
Reserve for possible loan losses.... (20,860) (3,950) (24,810)
Premises and equipment.............. 43,020 7,776 50,796
Intangible assets, net.............. 68,552 81,806 150,358
Other assets........................ 54,488 1,497 3,600 59,585
---------- ------- ------- --------- ----------
TOTAL ASSETS.......................... $2,851,689 $49,450 $31,250 $ 388,373 $3,320,762
========== ======= ======= ========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest bearing............... $ 322,056 $ 69,426 $ 391,482
Interest bearing.................. 1,729,329 414,151 2,143,480
---------- --------- ----------
Total Deposits...................... 2,051,385 483,577 2,534,962
Federal funds purchased............. 25,500 25,500
Borrowings.......................... 473,100 $ (98,804) 374,296
Company obligated mandatorily
redeemable preferred securities of
subsidiary holding solely junior
subordinated debentures of the
Company........................... 29,827 $49,450 79,277
Accrued interest and other
liabilities....................... 37,706 3,600 41,306
---------- ------- ------- --------- ----------
TOTAL LIABILITIES..................... 2,617,518 49,450 -- 388,373 3,055,341
---------- ------- ------- --------- ----------
Shareholders' equity
Common stock........................ 11,548 1,200 12,748
Surplus............................. 46,270 30,050 76,320
Undivided profits................... 165,808 165,808
Accumulated other comprehensive
income............................ 10,781 10,781
Shares issued under employee stock
plan -- unearned.................. (236) (236)
---------- ------- ----------
TOTAL SHAREHOLDERS' EQUITY............ 234,171 31,250 265,421
---------- ------- ------- --------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY.............................. $2,851,689 $49,450 $31,250 $ 388,373 $3,320,762
========== ======= ======= ========= ==========
---------------
(1)Reflects net proceeds from two trust preferred offerings that closed in July
2001. Investable funds increase pro forma investments by $48 million.
(2)Reflects net proceeds from the sale of common stock in this offering.
20
(3)Reflects FleetBoston branch acquisition, including $81,806 excess of purchase
price over the fair value of net assets acquired. All information is as of
March 31, 2001. Pro forma borrowings are reduced by $99 million from funds
available for investment from deposits assumed from FleetBoston, net of loans
and other assets acquired. The remaining investable funds increase pro forma
investments by approximately $49 million.
(4)The actual amounts of loans to be acquired, and deposits to be assumed, under
the agreement with FleetBoston are subject to certain adjustments
contemplated by the agreement. See "Recent Developments -- Pending
FleetBoston Branch Acquisition." As of September 30, 2001, FleetBoston loans
to be acquired by us were approximately $181 million and FleetBoston deposits
to be assumed by us were approximately $479 million. As a result of the
additional intangible asset created by the FleetBoston acquisition, proforma
tangible book value per share will decrease to $9.03 from $14.34 as of June
30, 2001.
21
CAPITALIZATION
The following table provides (i) our capitalization as of June 30, 2001,
(ii) our capitalization as adjusted to give effect to this offering and the sale
of trust preferred securities by our wholly-owned statutory business trusts in
July 2001, (iii) our capitalization on a pro forma basis to give effect to the
proposed acquisition of 36 bank branches from FleetBoston, and (iv) our actual
and pro forma capital ratios.
AS OF JUNE 30, 2001
---------------------------------------------------
AS ADJUSTED
-------------------------------------
SECURITIES OFFERINGS
CBSI SECURITIES AND BRANCH
HISTORICAL OFFERINGS(1) ACQUISITION(2)
---------- ------------- --------------------
(DOLLARS IN THOUSANDS)
Company obligated mandatorily redeemable preferred
securities of subsidiary holding solely junior
subordinated debentures of the Company............ $ 29,827 $ 79,277 $ 79,277
SHAREHOLDERS' EQUITY
Common stock, no par $1.00 stated value; 20,000,000
shares authorized; 11,548,381 shares outstanding
(historical)...................................... 11,548 12,748 12,748
Surplus............................................. 46,270 76,320 76,320
Undivided profits................................... 165,808 165,808 165,808
Accumulated other comprehensive income.............. 10,781 10,781 10,781
Shares issued under employee stock
plan -- unearned.................................. (236) (236) (236)
-------- -------- --------
Total Shareholders' Equity.......................... 234,171 265,421 265,421
-------- -------- --------
Total Capitalization................................ $263,998 $344,698 $344,698
======== ======== ========
COMPANY CAPITAL RATIOS(3):
Tier 1 risk-based capital ratio................... 11.20% 16.08% 9.81%
Total risk-based capital ratio.................... 12.45% 17.33% 11.06%
Leverage ratio.................................... 6.58% 9.27% 5.75%
---------------
(1) Assumes the sale of approximately $33.6 million of common stock, less
underwriting discounts and commissions of approximately $2.0 million and
estimated expenses related to the offering of approximately $350,000, and
completion of the trust preferred securities offerings.
(2) Reflects the sale of trust preferred securities in July 2001, and assumes
the sale of common stock and consummation of the FleetBoston branch
acquisition.
(3) The capital ratios, as adjusted, are computed including the total estimated
net proceeds from the sale of the common stock, in a manner consistent with
regulatory guidelines.
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the 1,200,000 shares of
common stock that we are offering at an assumed public offering price of $28.00
per share will be approximately $31.2 million after deducting estimated
underwriting discounts and commissions and estimated offering expenses payable
by us. If the underwriters exercise their over-allotment option in full, we
estimate that our net proceeds from this offering will be approximately $36.0
million.
The primary purpose of this offering is to raise additional capital to
support our continued growth. As discussed in detail below, we are offering our
common stock also in part to enable Community Bank System and Community Bank to
remain in the highest category of capital adequacy for federal bank regulatory
purposes and to generally strengthen our capital position and ratios. We expect
to contribute the net proceeds of this offering to Community Bank to be used for
general corporate purposes.
22
We are subject to risk-based capital requirements and guidelines imposed by
the Federal Reserve, and Community Bank is subject to similar requirements and
guidelines adopted by the OCC and the FDIC. These guidelines are intended to
make regulatory capital requirements more sensitive to differences in risk
profiles among banking organizations and to account for off-balance sheet
exposures in assessing capital adequacy. Classifications under these guidelines
are based on two categories of capital ratios: first, ratios of capital to
risk-weighted assets and certain other activities; second, a leverage ratio of
capital to total assets. For these purposes, capital is divided into two tiers
(Tier I and Tier II) according to the nature of the investment in the
institution, and the regulations establish standards governing the mix of
capital between the two tiers for the purpose of the calculating the ratios.
The Federal Deposit Insurance Act established the following five capital
categories for financial institutions: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized. The implementing regulations adopted by the OCC and the
Federal Reserve under this Act provide that an institution is deemed to be well
capitalized if the institution has a total risk-based capital ratio of 10.0% or
greater, a Tier I risk-based ratio of 6.0% or greater, and a leverage ratio of
5.0% or greater, and is not subject to an order or written directive to meet and
maintain a specific level of any capital measure. An adequately capitalized
institution is defined as one that has a total-risk based capital ratio of 8.0%
or greater, a Tier I risk-based ratio of 4.0% or greater, and a leverage ratio
of 4.0% or greater (or 3.0% or greater in some cases).
Both Community Bank System and Community Bank are currently well
capitalized under these regulatory guidelines. However, unless we complete this
offering, we anticipate that our acquisition of the FleetBoston branches would
cause Community Bank System and Community Bank to drop to the adequately
capitalized category. We believe that a change in our capital classification
would have a number of ramifications on our business:
First, federal regulations impose progressively more restrictive
constraints on, and more stringent regulatory oversight over, our operation,
management and capital distributions, depending on our capital category.
Second, the FDIC has established a risk-related deposit insurance
assessment system, under which each institution's insurance assessment rate is
based partly on the institution's capital category. Accordingly, our FDIC
insurance assessment rate may increase if our capital category falls to a lower
tier.
Third, ratings agencies such as Fitch and Standard & Poor's assign their
ratings on our senior debt partially based upon our capital category. A lower
capital category may result in lower ratings for our senior debt, which in turn
could increase the cost of our future borrowings.
Finally, investment policies of some of our customers may limit or prohibit
deposits with financial institutions that do not fall within the well
capitalized classification. Our ability to retain and attract deposits from
those customers would be adversely affected if our capital category fell to
lower than well capitalized.
23
PRICE RANGE OF OUR COMMON STOCK AND DIVIDEND INFORMATION
Our common stock is traded on the New York Stock Exchange under the symbol
CBU. The following table sets forth for the periods indicated the high and low
sale prices for our common stock, as reported on the New York Stock Exchange,
and the dividends declared per share on our common stock.
CASH
DIVIDENDS
DECLARED
HIGH LOW PER SHARE
------ ------ ---------
YEAR ENDING DECEMBER 31, 2001
Fourth Quarter (through October 23, 2001)............. $27.80 $25.20 --
Third Quarter......................................... 29.84 24.75 $0.27
Second Quarter........................................ 28.94 26.50 0.27
First Quarter......................................... 29.66 25.16 0.27
YEAR ENDED DECEMBER 31, 2000
Fourth Quarter........................................ $25.91 $22.00 $0.27
Third Quarter......................................... 26.25 21.88 0.27
Second Quarter........................................ 24.38 21.88 0.25
First Quarter......................................... 23.50 20.00 0.25
YEAR ENDED DECEMBER 31, 1999
Fourth Quarter........................................ $27.25 $22.69 $0.25
Third Quarter......................................... 29.00 24.38 0.25
Second Quarter........................................ 30.44 22.63 0.23
First Quarter......................................... 33.63 23.69 0.23
On October 23, 2001, the last reported sale price of our common stock on
the New York Stock Exchange was $25.50. As of October 23, 2001, there were
11,586,962 shares of our common stock outstanding, held by approximately 2,983
holders of record.
DIVIDEND POLICY
We have historically paid regular quarterly cash dividends on our common
stock, and our board of directors presently intends to continue the payment of
regular quarterly cash dividends, subject to the need for those funds for debt
service and other purposes. However, because substantially all of the funds
available for the payment of dividends are derived from Community Bank, future
dividends will depend upon the earnings of Community Bank, its financial
condition and its need for funds.
Moreover, there are a number of federal banking policies and regulations
that would restrict our ability to pay dividends. In particular, because
Community Bank is a depository institution whose deposits are insured by the
FDIC, it may not pay dividends or distribute capital assets if it is in default
on any assessment due the FDIC. Also, as a national bank, Community Bank is
subject to OCC regulations which impose certain minimum capital requirements
that would affect the amount of cash available for distribution to us. Lastly,
under Federal Reserve policy, we are required to maintain adequate regulatory
capital, are expected to serve as a source of financial strength to Community
Bank and to commit resources to support Community Bank. These policies and
regulations may have the effect of reducing the amount of dividends that we can
declare to our stockholders.
24
UNDERWRITING
Janney Montgomery Scott LLC, Advest, Inc. and Raymond James & Associates,
Inc. are the representatives of the underwriters. Subject to the terms and
conditions of the underwriting agreement, the underwriters have agreed to
purchase, and we have agreed to sell to the underwriters, the number of shares
of common stock set forth opposite the name of the underwriters at the public
offering price less the underwriting discount on the cover page of the
prospectus.
NUMBER OF
UNDERWRITER SHARES
----------- ---------
Janney Montgomery Scott LLC.................................
Advest, Inc.................................................
Raymond James & Associates, Inc. ...........................
---------
Total............................................. 1,200,000
=========
The underwriting agreement provides that the obligations of the
underwriters to purchase the shares of common stock that are being offered are
subject to approval of legal matters by counsel and to other conditions. Each
underwriter is obligated to purchase all of the shares being offered (other than
those covered by the over-allotment option described below) if it purchases any
of the shares.
The underwriters propose to offer some of the shares directly to the public
at the public offering price set forth on the cover page of this prospectus and
some of the shares to certain dealers at the public offering price less a
concession not in excess of $ per share. The underwriters may allow, and the
dealers may reallow, a concession not in excess of $ per share on sales to
other dealers. After the public offering, the offering price and other selling
terms may be changed by the underwriters.
We have granted to the underwriters an option, exercisable for up to 30
days after the date of the Registration Statement, to purchase up to an
additional 180,000 shares of common stock at the public offering price set forth
on the cover page less underwriting discounts and commissions. To the extent
that the underwriters exercise this option, we will be obligated to sell that
amount of shares of common stock to the underwriters. The underwriters may
exercise this option only to cover over-allotments made in connection with this
offering. If purchased, the underwriters will offer the additional shares of
common stock on the same terms as those on which the 1,200,000 shares of common
stock are being offered.
The following table shows the per share and total underwriting discount to
be paid to the underwriters by us. These amounts are shown assuming both no
exercise and full exercise of the underwriters' option to purchase additional
shares:
NO EXERCISE FULL EXERCISE
----------- -------------
Per share underwriting discounts and commissions.... $ $
Total underwriting discounts and commissions
to be paid by us.................................. $ $
We estimate that the total expenses of the offering, excluding the
underwriting discount and commissions, will be approximately $350,000. Expenses
of the offering, excluding underwriting discount and commissions, include the
SEC filing fee, printing expenses, transfer agent and registration fees, listing
fees, professional fees and other miscellaneous fees.
In connection with the offering, the underwriters may purchase and sell
shares of our common stock in the open market. These transactions may include
over-allotment, syndicate covering transactions and stabilizing transactions.
Over-allotment involves syndicate sales of shares of common stock in excess of
the number of shares of common stock to be purchased by the underwriters in the
offering, which creates a syndicate short position. Syndicate covering
transactions involve purchases of shares of common stock in the open market
after the distribution has been completed in order to cover syndicate short
positions. Stabilizing transactions consist of bids or purchases of shares of
common stock made for the purpose of preventing or retarding a decline in the
market price of the common stock while the offering is in progress.
25
The underwriters may also impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when the
shares of common stock originally sold by that syndicate member are purchased in
a stabilizing transaction or syndicate covering transaction to cover syndicate
short positions. The imposition of a penalty bid may have an effect on the price
of the common stock to the extent that it may discourage resales of the common
stock.
Any of these transactions may cause the price of the common stock to be
higher than it would otherwise be in the absence of the transactions. These
transactions, if commenced, may be discontinued at any time.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933.
We have agreed not to offer, sell, contract to sell, grant options to
purchase, or otherwise dispose of any shares of our common stock or securities
exchangeable for or convertible into our common stock for a period of 180 days
after the date of this prospectus without the prior consent of the
representatives of the underwriters. This agreement does not apply to any
existing employee benefit plans and issuance of our stock in acquisitions. Our
directors and officers have agreed not to, directly or indirectly, sell, hedge,
or otherwise dispose of any shares of common stock, options to acquire shares of
common stock, or securities exchangeable for or convertible into shares of
common stock, for a period of 180 days after the date of this prospectus without
the prior written consent of the representatives of the underwriters. The
representatives of the underwriters may, in their sole discretion and at any
time without notice, release all or any portion of the securities subject to
these lock-up agreements.
Janney Montgomery Scott has in the past, and may in the future, perform
various services for us, including investment banking services, for which they
have or may receive customary fees.
LEGAL MATTERS
The validity of the issuance of the common stock offered hereby will be
passed upon for us by Bond, Schoeneck & King, LLP, Syracuse, New York. Certain
legal matters in connection with this offering will be passed upon for the
underwriters by Malizia Spidi & Fisch, PC, Washington, D.C.
EXPERTS
The audited consolidated financial statements as of December 31, 1999 and
2000, and for each of the three years in the period ended December 31, 2000, as
retroactively restated to give effect to the pooling of interests with First
Liberty, incorporated in this prospectus by reference to our Current Report on
Form 8-K, dated August 31, 2001, as amended on October 24, 2001, have been
audited, except as they relate to First Liberty, by PricewaterhouseCoopers LLP,
independent accountants, and, insofar as they relate to First Liberty, by KPMG
LLP, independent accountants, whose reports thereon appear in the Form 8-K, as
amended on October 24, 2001. Such financial statements have been so incorporated
by reference in reliance on the reports of such independent accountants given on
the authority of such firms as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We are a reporting company and file annual, quarterly and special reports,
proxy statements and other information with the Securities and Exchange
Commission, or the SEC. You may read and copy such materials at the public
reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may also obtain copies of such material from the SEC
at prescribed rates for the cost of copying by writing to the Public Reference
Section of the SEC at the same address. You may call the SEC at 1-800-SEC-0330
for more information on the public reference rooms. You can also find our SEC
filings at the SEC's web site at www.sec.gov. You can also inspect reports,
proxy statements and other information about us at the offices of the New York
Stock Exchange, 20 Broad Street, New York, New York 10005.
26
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" information that we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the documents listed below and any future filings we will make with
the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934 after the date of this prospectus and prior to the termination of this
offering:
- Annual Report on Form 10-K for the year ended December 31, 2000 filed on
March 30, 2001, as amended on October 24, 2001;
- Quarterly Report on Form 10-Q for the quarter ended March 31, 2001 filed
on May 15, 2001;
- Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 filed
on August 17, 2001;
- Current Report on Form 8-K filed on February 13, 2001;
- Current Report on Form 8-K filed on May 29, 2001, as amended on July 25,
2001;
- Current Report on Form 8-K filed on August 31, 2001, as amended on
October 24, 2001;
- Proxy Statement on Schedule 14A for our 2001 Annual Meeting filed on
April 3, 2001; and
- The description of the common stock and the associated share purchase
rights contained in our Registration Statements on Form 8-A filed on
February 27, 1995 and December 9, 1997.
Our SEC file number for these filings is 1-13695. You may request a copy of
these filings at no cost, by writing or telephoning us at the following address:
COMMUNITY BANK SYSTEM, INC.
5790 Widewaters Parkway
DeWitt, New York 13214
(315) 445-7313
Attention: Donna J. Drengel, Corporate Secretary
27
------------------------------------------------------
------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANY OTHER PERSON TO PROVIDE YOU WITH INFORMATION THAT IS
DIFFERENT. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY, SHARES OF COMMON
STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THIS
PROSPECTUS MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE
INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE ON THE DATE OF THIS
PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE
OF OUR COMMON STOCK.
------------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary.................... 1
Selected Consolidated Financial
Data................................ 4
Risk Factors.......................... 7
Forward-Looking Statements............ 9
Management's Discussion and Analysis
of Financial Condition and Recent
Results of Operations............... 10
Recent Developments................... 13
Pro Forma Consolidated Statement of
Financial Condition................. 20
Capitalization........................ 22
Use of Proceeds....................... 22
Price Range of Our Common Stock and
Dividend History.................... 24
Dividend Policy....................... 24
Underwriting.......................... 25
Legal Matters......................... 26
Experts............................... 26
Where You Can Find More Information... 26
Incorporation of Certain Documents by
Reference........................... 27
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
1,200,000 SHARES
[COMMUNITY BANK SYSTEMS LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
JANNEY MONTGOMERY SCOTT LLC
ADVEST, INC.
RAYMOND JAMES
, 2001
------------------------------------------------------
------------------------------------------------------
PART II:
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses in connection with the issuance and distribution of the
securities being registered hereby, other than underwriting discounts and
commissions, are as follows:
Securities and Exchange Commission Registration Fee......... $ 9,595
National Association of Securities Dealers Filing Fee....... 4,338
New York Stock Exchange Additional Listing Fee.............. 4,830
Legal Fees*................................................. 90,000
Accounting Fees*............................................ 150,000
Transfer Agent and Registrar*............................... 10,000
Printing, Postage and Handling Expenses*.................... 50,000
Miscellaneous Expenses*..................................... 31,237
--------
Total............................................. $350,000
---------------
* Estimated
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the Delaware General Corporation Law authorizes a
corporation to indemnify any director, officer, employee or other agent of the
corporation.
The Registrant's By-laws provide indemnity to the Registrant's directors
and officers in such capacity or as directors or officers of a wholly-owned
subsidiary of the Registrant for liability resulting from judgments, fines,
expenses or settlement amounts actually and reasonably incurred in connection
with any action brought against such person in such capacity to the fullest
extent and in the manner set forth in and permitted by the Delaware General
Corporation Law, and any other applicable law, as from time to time in effect.
Under Delaware law and the By-laws, no indemnification may be provided for any
person with respect to any matter as to which he or she shall have been
adjudicated in any proceeding not to have acted in good faith in the reasonable
belief that his or her action was in the best interests of the Registrant or of
such subsidiary.
In addition, as permitted under Delaware law, the Registrant maintains
liability insurance covering directors and officers of the Registrant and its
subsidiaries.
ITEM 16. EXHIBITS
The following exhibits are filed as part of this Registration Statement:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
1.1 Proposed Form of Underwriting Agreement*
4.1 Specimen Certificate of Common Stock**
5.1 Opinion of Bond, Schoeneck & King, LLP**
23.1 Consent of PricewaterhouseCoopers LLP**
23.2 Consent of KPMG LLP**
23.3 Consent of Bond, Schoeneck & King, LLP (included in Exhibit
5.1)**
24.1 Power of Attorney (included in signature page)***
---------------
* To be filed by amendment
** Filed herewith
***Previously Filed
II-1
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement or amendment to be signed on its behalf by the undersigned thereunto
duly authorized, in DeWitt, New York on this 23rd day of October, 2001.
COMMUNITY BANK SYSTEM, INC.
By: /s/ SANFORD A. BELDEN
------------------------------------
Name: Sanford A. Belden
Title: President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ SANFORD A. BELDEN Director, President and Chief October 23, 2001
--------------------------------------------------- Executive Officer
Sanford A. Belden (Principal Executive Officer)
* Treasurer October 23, 2001
--------------------------------------------------- (Principal Financial Officer)
David G. Wallace
* Assistant Treasurer October 23, 2001
--------------------------------------------------- (Principal Accounting Officer)
Charles M. Ertel
* Director October 23, 2001
---------------------------------------------------
John M. Burgess
* Director October 23, 2001
---------------------------------------------------
Paul M. Cantwell, Jr.
* Director October 23, 2001
---------------------------------------------------
William M. Dempsey
* Director October 23, 2001
---------------------------------------------------
Nicholas A. DiCerbo
* Director October 23, 2001
---------------------------------------------------
James A. Gabriel
* Director October 23, 2001
---------------------------------------------------
Lee T. Hirchey
Director
---------------------------------------------------
Harold Kaplan
Director
---------------------------------------------------
Saul Kaplan
II-3
SIGNATURE TITLE DATE
--------- ----- ----
* Director October 23, 2001
---------------------------------------------------
David C. Patterson
* Director October 23, 2001
---------------------------------------------------
Peter A. Sabia
* Director October 23, 2001
---------------------------------------------------
William N. Sloan
*By: /s/ SANFORD A. BELDEN
----------------------------------------
Sanford A. Belden
Attorney-In-Fact, pursuant to Power of
Attorney dated August 31, 2001
II-4
EX-4.1
3
y52991a1ex4-1.txt
SPECIMEN CERTIFICATE OF COMMON STOCK
EXHIBIT 4.1
NUMBER
[SEAL]
COMMON STOCK
SEE REVERSE FOR CERTAIN DEFINITIONS
AND OTHER IMPORTANT INFORMATION
10579
-------------------
SHARES
**************
-------------------
[LOGO]
COMMUNITY BANK SYSTEM, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
--------------------------------------------------------------------------------
THIS CERTIFIES THAT CUSIP 203607 10 6
0000011527 **************
**************
**************
**************
**************
IS THE OWNER OF ************************** **************
--------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
[CERTIFICATE OF STOCK]
Community Bank System, Inc., hereinafter called the "company", transferable on
the books of the company by the holder hereof in person, or by duly authorized
attorney, upon the surrender of this certificate properly endorsed. This
certificate is not valid until countersigned and registered by the Transfer
Agent and Registrar.
In Witness Whereof, the company has caused this certificate to be signed by its
duly authorized officers with their facsimile signatures, and its seal to be
hereunto affixed.
Dated
10579001020 JOY
COUNTERSIGNED AND REGISTERED
AMERICAN STOCK TRANSFER & TRUST COMPANY
(NEW YORK, N.Y.)
TRANSFER AGENT AND REGISTRAR
BY
/s/ /s/ Donna J. Drengel /s/ Sanford A. Belden
------------------------ ----------------------- -----------------------
AUTHORIZED SIGNATURE CORPORATE SECRETARY PRESIDENT AND
CHIEF EXECUTIVE OFFICER
COMMUNITY BANK SYSTEM, INC.
THE COMPANY WILL FURNISH TO ANY SHAREHOLDER UPON REQUEST AND WITHOUT
CHARGE A FULL STATEMENT OF THE DESIGNATIONS, PREFERENCES, LIMITATIONS AND
RELATIVE RIGHTS OF THE SHARES OF EACH CLASS OF STOCK AUTHORIZED TO BE ISSUED BY
THE COMPANY. ANY SUCH REQUEST MAY BE DIRECTED TO THE TRANSFER AGENT NAMED ON
THE FACE HEREOF.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right
of survivorship and not as
tenants in common
UNIF GIFT MIN ACT - Custodian
----------------------------
(Cust) (Minor)
under Uniform Gifts to Minors
Act................... .....
(State)
Additional abbreviations may also be used though not in the above list.
For value received, ....................... hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the Certificate, in every particular, without
alteration or enlargement, or any change whatever.
---------------------------------------
--------------------------------------- ........................................
................................................................................
Please print or typewrite name and address including postal zip code of assignee
................................................................................
................................................................................
..........................................................................Shares
of the Stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint .........................................................
................................................................................
Attorney to transfer the said stock on the books of the within-named Company
with full power of substitution in the premises.
Dated -------------------------------------------
-------------------------------------------------
Shareholder Signature
-------------------------------------------------
Shareholder Signature (if in joint tenant name)
Signature(s) Guaranteed:
------------------------------------------------------------------------------
THE SIGNATURES SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCK BROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
Until the Separation Time (as defined in the Rights Agreement referred to
below), this certificate also evidences and entitles the holder hereof to
certain Rights as set forth in a Rights Agreement, dated as of February 21,
1995 (as such may be amended from time to time, the "Rights Agreement"),
between Community Bank System, Inc. (the "Company") and Community Bank,
National Association, as Rights Agent, the terms of which are hereby
incorporated herein by reference and a copy of which is on file at the
principal executive offices of the Company. Under certain circumstances, as set
forth in the Rights Agreement, such Rights may be terminated, may be exchanged
for shares of Common Stock or other securities or assets of the Company, may
expire, may become void (if they are "Beneficially Owned" by an "Acquiring
Person" or an Affiliate or Associate thereof, as such terms are defined in the
Rights Agreement, or by any transferee of any of the foregoing) or may be
evidenced by separate certificates and may no longer be evidenced by this
certificate. The Company will mail or arrange for the mailing of a copy of the
Rights Agreement to the holder of this certificate without charge within five
days after the receipt of a written request therefor.
EX-5.1
4
y52991a1ex5-1.txt
OPINION OF BOND, SCHOENECK & KING, LLP
EXHIBIT 5.1
October 24, 2001
Community Bank Systems, Inc.
5790 Widewaters Parkway
Dewitt, NY 13214
Re: Community Bank Systems, Inc / Registration Statement of Form S-3
Dear Ladies and Gentlemen:
We have acted as counsel to Community Bank System, Inc., a Delaware corporation
(the "Company"), in connection with the preparation and filing of the
Registration Statement on Form S-3 (Registration No. 333-68866) (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), covering an aggregate of 1,380,000 shares of common stock, no
par value, of the Company (the "Shares") to be sold by the Company.
As such counsel, we have examined such corporate records, certificates and other
documents and such questions of law as we have considered necessary or
appropriate for the purposes of this opinion. In rendering this opinion, we have
(a) assumed (i) the genuineness of all signatures on all documents examined by
us, (ii) the authenticity of all documents submitted to us as originals, and
(iii) the conformity to original documents of all documents submitted to us as
photostatic or conformed copies and the authenticity of the originals of such
copies; and (b) relied on (i) certificates of public officials and (ii) as to
matters of fact, statements and certificates of officers of the Company.
Based upon the foregoing, we are of the opinion that the Shares have been duly
authorized and, when issued and delivered as described in the Registration
Statement and the related prospectus against payment described therein, the
Shares will be validly issued, fully paid and non-assessable shares of common
stock of the Company.
We are attorneys admitted to the Bar of the State of New York, and we express no
opinion as to the laws of any jurisdiction other than the laws of the United
States of America and the General Corporation Law of the State of Delaware.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the use of our name under the heading "Legal Matters" in the
prospectus forming a part of the Registration Statement. In giving such consent
we do not
October 23, 2001
Page 2
thereby concede that we are within the category of persons whose consent is
required under Section 7 of the Securities Act or the rules and regulations
promulgated thereunder.
Very truly yours,
/s/ BOND, SCHOENECK & KING, LLP
EX-23.1
5
y52991a1ex23-1.txt
CONSENT OF PRICEWATERHOUSECOOPERS LLP
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Amendment No. 1 to
the registration statement on Form S-3 of our report dated January 26, 2001,
except for the pooling of interests with First Liberty Bank Corp. described in
Note A and the information in Note R as to which the date is August 10, 2001,
relating to the financial statements of Community Bank System, Inc., which
appear in the Current Report on Form 8-K/A, dated August 31, 2001. We also
consent to the reference to us under the heading "Experts" in such registration
statement.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Syracuse, New York
October 23, 2001
EX-23.2
6
y52991a1ex23-2.txt
CONSENT OF KPMG LLP
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Community Bank System, Inc.
We consent to incorporation by reference in the Amendment No. 1 to the
registration statement on Form S-3 of Community Bank System, Inc. of our audit
report dated January 29, 2001, with respect to the consolidated balance sheets
of First Liberty Bank Corp. and subsidiaries as of December 31, 2000 and 1999,
and the related consolidated statements of operations, changes in shareholders'
equity, and cash flows for each of the years in the three year period ended
December 31, 2000, which report appears in the Form 8-K/A of Community Bank
System, Inc. dated August 31, 2001, as amended October 24, 2001, and to the
reference to our firm under the heading "Experts" in the registration statement.
/s/ KPMG LLP
Philadelphia, Pennsylvania
October 24, 2001