-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NI7b6TsE5pvG5YrInnsU4C91OWUuabgs3hwdIX45Ji7AvYKCFF72UIzQ26kj2l6w XuuIDt4p6VAepJ5/SaLQeQ== 0001005477-96-000492.txt : 19961125 0001005477-96-000492.hdr.sgml : 19961125 ACCESSION NUMBER: 0001005477-96-000492 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 DATE AS OF CHANGE: 19961122 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMUNITY BANK SYSTEM INC CENTRAL INDEX KEY: 0000723188 STANDARD INDUSTRIAL CLASSIFICATION: 6021 IRS NUMBER: 161213679 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11716 FILM NUMBER: 96666819 BUSINESS ADDRESS: STREET 1: 5790 WIDEWATERS PKWY CITY: DEWITT STATE: NY ZIP: 13214 BUSINESS PHONE: 3154452282 MAIL ADDRESS: STREET 1: 5790 WIDEWATERS PARKWAY CITY: DEWITT STATE: NY ZIP: 13214 10-Q 1 FORM 10-Q FORM 10 - Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the three months ended September 30, 1996 Commission file number 0-11716 COMMUNITY BANK SYSTEM, INC. (Exact name of registrant as specified in its charter) DELAWARE 16-1213679 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5790 Widewaters Parkway, DeWitt, New York 13214 (Address of principal executive offices) (Zip Code) 315/445-2282 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Common Stock, $1.25 par value -- 3,725,203 shares as of November 13, 1996. INDEX COMMUNITY BANK SYSTEM, INC. AND SUBSIDIARIES Part I. Information Item 1. Financial Statements (Unaudited) Consolidated balance sheets -- September 30, 1996, December 31, 1995 and September 30, 1995 Consolidated statements of income -- Three months ended September 30, 1996 and 1995 and nine months ended September 30, 1996 and 1995 Consolidated statements of cash flows -- Nine months ended September 30, 1996 and 1995 Item 2. Management Discussion and Analysis of Financial Conditions and Results of Operations Part II. Other Information Item 1. Legal Proceedings Item 2. Changes in Securities Item 3. Defaults upon Senior Securities Item 4. Submission of Matters to a Vote of Securities Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K COMMUNITY BANK SYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CONDITION - - --------------------------------------------------------------------------------
September 30, December 31, September 30, 1996 1995 1995 ASSETS Cash and due from banks $ 52,588,513 $ 56,903,103 $ 46,932,326 Federal funds sold 0 6,000,000 47,400,000 --------------- --------------- --------------- TOTAL CASH AND CASH EQUIVALENTS 52,588,513 62,903,103 94,332,326 Investment securities U.S. Treasury 2,987,989 8,524,661 8,539,080 U.S. Government agencies and corporations 296,697,193 226,972,372 236,548,042 States and political subdivisions 19,396,053 15,868,356 15,636,238 Mortgage-backed securities 257,761,480 195,188,655 200,470,937 Other securities 17,317,833 20,081,918 20,106,091 Federal Reserve Bank 1,395,750 1,395,750 569,600 --------------- --------------- --------------- TOTAL INVESTMENT SECURITIES 595,556,298 468,031,712 481,869,988 Loans 633,915,849 573,620,687 561,310,415 Less: Unearned discount 7,223,139 13,469,032 16,319,521 Reserve for possible loan losses 7,805,234 6,976,385 6,791,385 --------------- --------------- --------------- NET LOANS 618,887,476 553,175,270 538,199,509 Bank premises and equipment 16,665,612 16,935,856 17,147,617 Accrued interest receivable 12,248,114 9,150,503 9,896,240 Intangible assets 31,922,060 33,970,375 37,663,096 Other assets 9,553,442 7,878,194 7,806,111 --------------- --------------- --------------- TOTAL ASSETS $ 1,337,421,515 $ 1,152,045,013 $ 1,186,914,887 =============== =============== =============== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits Noninterest bearing $ 144,508,906 $ 140,288,323 $ 149,984,614 Interest bearing 893,718,280 876,657,901 922,722,341 --------------- --------------- --------------- TOTAL DEPOSITS 1,038,227,186 1,016,946,224 1,072,706,955 Federal funds purchased and securities sold under agreements to repurchase 40,850,000 0 0 Term borrowings 140,000,000 25,550,000 550,000 Accrued interest and other liabilities 12,480,126 9,488,540 12,186,796 --------------- --------------- --------------- TOTAL LIABILITIES 1,231,557,312 1,051,984,764 1,085,443,751 Shareholders' equity Preferred stock $100 stated value 4,500,000 4,500,000 9,000,000 Common stock $1.25 par value 4,656,504 4,599,531 4,593,031 Surplus 33,215,104 32,955,273 32,740,106 Undivided profits 63,358,427 57,079,501 55,227,384 Unrealized gains (losses) on available for sale securities 194,198 977,457 38,105 Shares issued under employee stock plan - unearned (60,030) (51,513) (127,490) --------------- --------------- --------------- TOTAL SHAREHOLDERS' EQUITY 105,864,203 100,060,249 101,471,136 --------------- --------------- --------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,337,421,515 $ 1,152,045,013 $ 1,186,914,887 =============== =============== ===============
See notes to consolidated financial statements COMMUNITY BANK SYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CONDITION - - --------------------------------------------------------------------------------
Three Months Ended Nine Months Ended September 30, September 30, INTEREST INCOME 1996 1995 1996 1995 Interest and fees on loans $14,396,967 $12,921,662 $41,711,487 $ 36,531,460 Interest and dividends on investments: U.S Treasury 109,606 232,928 425,231 831,450 U.S. Government agencies and corporations 5,838,472 4,207,083 15,586,936 11,168,627 States and political subdivisions 255,053 248,350 749,586 828,401 Mortgage-backed securities 4,116,944 3,528,308 11,563,405 9,490,387 Other securities 651,984 318,056 1,337,820 789,105 Interest on federal funds sold 751 897,271 335,470 930,048 Interest on deposits at other banks 0 0 0 0 ----------- ----------- ----------- ------------ 25,369,777 22,353,658 71,709,935 60,569,478 INTEREST EXPENSE Interest on deposits Savings 2,518,117 2,882,700 7,562,088 6,910,453 Time 6,488,619 6,257,370 19,582,989 14,469,132 Interest on federal funds purchased, securities sold under agreements to repurchase and Term borrowings 2,125,367 479,771 3,532,057 5,458,707 ----------- ----------- ----------- ------------ 11,132,103 9,619,841 30,677,134 26,838,292 ----------- ----------- ----------- ------------ NET INTEREST INCOME 14,237,674 12,733,817 41,032,801 33,731,186 Provision for possible loan losses 630,000 275,217 1,827,068 1,128,657 ----------- ----------- ----------- ------------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 13,607,674 12,458,600 39,205,733 32,602,529 OTHER INCOME Fiduciary services 306,628 336,024 1,103,924 1,023,130 Service charges on deposit accounts 1,042,093 961,083 3,034,871 2,326,488 Commissions on investment products 194,033 90,720 568,436 343,355 Other service charges, commissions and fees 491,224 412,784 1,263,947 918,229 Other income 405,569 7,938 422,688 118,464 Investment security gain (loss) 0 0 0 (149,750) ----------- ----------- ----------- ------------ 2,439,547 1,808,549 6,393,866 4,579,916 ----------- ----------- ----------- ------------ OTHER EXPENSES 16,047,221 14,267,149 45,599,599 37,182,445 Salaries, wages and employee benefits 4,956,317 4,561,056 14,339,753 11,872,247 Occupancy expense of bank premises, net 746,234 707,945 2,290,823 1,806,139 Equipment and furniture expense 585,552 513,603 1,726,708 1,393,510 Amortization of intangible assets 707,280 710,145 2,143,777 950,698 Other 2,663,604 2,735,890 7,468,485 7,360,833 ----------- ----------- ----------- ------------ 9,658,987 9,228,639 27,969,546 23,383,427 ----------- ----------- ----------- ------------ INCOME BEFORE INCOME TAXES 6,388,234 5,038,510 17,630,053 13,799,018 Income taxes 2,596,000 2,008,000 7,175,000 5,446,000 ----------- ----------- ----------- ------------ NET INCOME $ 3,792,234 $ 3,030,510 $10,455,053 $ 8,353,018 =========== =========== =========== ============ Earnings per common share $ 0.99 $ 0.77 $ 2.72 $ 2.62 =========== =========== =========== ============
See notes to consolidated financial statements COMMUNITY BANK SYSTEM, INC. CONSOLIDATED STATEMENT OF CASH FLOWS For Nine Months Ended September 30, 1996 and 1995 Increase (Decrease) in Cash and Cash Equivalents
1996 1995 - - ----------------------------------------------------------------------------------------------------- Operating Activities: Net income $ 10,455,053 $ 8,353,018 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 2,210,108 1,135,329 Net amortization of intangible assets 2,083,653 889,971 Net accretion of security premiums and discounts (1,565,635) (1,020,668) Provision for loan losses 1,827,068 1,128,657 Provision for deferred taxes 190,586 7,149 (Gain)\Loss on sale of investment securities 0 149,750 (Gain)\Loss on sale of loans (48,136) (89,967) (Gain)\Loss on sale of assets (11,822) (28,497) Change in interest receivable (3,097,611) (3,238,914) Change in other assets and other liabilities 1,837,258 1,822,658 Change in unearned loan fees and costs (598,782) (80,924) - - ----------------------------------------------------------------------------------------------------- Net Cash Provided By Operating Activities 13,098,303 9,210,999 - - ----------------------------------------------------------------------------------------------------- Investing Activities: Proceeds from sales of investment securities 2,766,400 3,950,250 Proceeds from maturities of held to maturity investment securities 52,039,664 19,245,333 Proceeds from maturities of available for sale investment securities 24,569,334 27,418,674 Purchases of held to maturity investment securities (129,033,626) (96,174,839) Purchases of available for sale investment securities (77,634,810) (53,591,493) Net change in loans outstanding (66,892,356) (62,360,975) Capital expenditures (1,933,822) (7,662,939) Premium paid for branch acquisitions (29,558) (32,446,459) - - ----------------------------------------------------------------------------------------------------- Net Cash Used By Investing Activities (196,148,774) (201,622,448) - - ----------------------------------------------------------------------------------------------------- Financing Activities: Net change in demand deposits, NOW accounts, and savings accounts (447,759) 191,240,040 Net change in certificates of deposit 21,728,721 201,829,291 Net change in term borrowings 155,300,000 (162,300,000) Issuance (retirement) of common and preferred stock 204,391 27,962,850 Cash dividends (4,049,472) (2,510,595) - - ----------------------------------------------------------------------------------------------------- Net Cash Provided By Financing Activities 172,735,881 256,221,586 - - ----------------------------------------------------------------------------------------------------- Change In Cash And Cash Equivalents (10,314,590) 63,810,137 Cash and cash equivalents at beginning of year 62,903,103 30,522,189 - - ----------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD 52,588,513 94,332,326 ===================================================================================================== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash Paid For Interest $ 27,859,125 $ 22,543,115 ===================================================================================================== Cash Paid For Income Taxes $ 7,182,149 $ 5,353,452 ===================================================================================================== SUPPLEMENTAL DISCLOSURE OF NONCASH AND OTHER INVESTING ACTIVITIES: Dividends declared and unpaid $ 1,340,798 $ 1,102,297 =====================================================================================================
The accompanying notes are an integral part of the consolidated financial statements. Community Bank System, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) September 1996 Note A -- Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Operating results for the nine month period ended September 30, 1996 are not necessarily indicative of the results that may be expected for the year ended December 31, 1996. Part 1. Financial Information Item 1. Financial Statements The information required by rule 10.01 of Regulation S-X is presented on the previous pages. Item 2. Management Discussion and Analysis of Financial Condition and of Operations The purpose of the discussion is to present material changes in Community Bank System, Inc.'s financial condition and results of operations during the nine months ended September 30, 1996 which are not otherwise apparent from the consolidated financial statements included in these reports. When used in this report, the term "CBSI" means Community Bank System, Inc. and its subsidiaries on a consolidated basis, unless indicated otherwise. Financial performance comparisons to peer bank holding companies are based on data through June 30, 1996 as provided by the Federal Reserve System; the peer group is comprised of 114 bank holding companies having $1 to $3 billion in assets. I. EARNINGS PERFORMANCE SUMMARY
Three Months Ended Change 9/30/96 9/30/95 Amount Percent (000's) Net Income $3,792 $3,031 $762 25.1% Earnings per share $0.99 $0.77 $0.22 28.6% Weighted average shares outstanding 3,724 3,687 37 1.0% Return on average assets 1.17% 1.04% 0.13% N/A Average assets $1,288,949 $1,155,716 $133,233 11.5% Return on average shareholders' equity 14.70% 12.47% 2.23% N/A Average shareholders' equity $104,362 $98,947 $5,414 5.5% Percentage of average shareholders' equity to average assets 8.10% 8.56% -0.46% N/A
* May not foot due to rounding A. Net Income Trend Net income and earnings per share reached record highs in the third quarter of 1996 at $3.792 million and $.99, respectively. Compared to third quarter 1995, net income rose 25% while earnings per share were up 29%. For the first nine months of the year, net income was $10.455 million, 25% higher than in 1995, while earnings per share rose 3.8% to $2.72, reflecting 20% more shares outstanding due to last year's common stock issuance. The .$99 per share compares favorably to $.92 per share in the second quarter and $ .82 per share in the first quarter of this year. This achievement also reflects elimination of the short-term earnings per share dilution caused by the company's mid-1995 purchase of 15 branches from The Chase Manhattan Bank, N.A. and related $27.5 million capital raising. In addition, tangible book value per share has accelerated nicely to $18.64, up 25% from the September 30, 1995 level of $14.92. Steady improvement since last year's branch acquisition resulted in return on shareholder equity reaching 14.70% for the quarter just ended. Tangible return on tangible equity, which a growing number of bank analysts and investors consider to be a better measure of a company's core profitability and value being created for shareholders, increased to 24.21%. While third quarter results have not yet been released for the 28 bank regional peer group against which we regularly compare performance, our tangible return on tangible equity was the highest for this group in the second quarter of this year. B. Balance Sheet Trends Loans outstanding increased 4.5% during the quarter, up from 4.0% and 2.9% growth during the second and first quarters of 1996, respectively. Over the last twelve months, loans have risen by 15%, marking consistent progress toward a fourth consecutive year in which loan growth has exceeded 15%. More than 40% of the $82 million in loan growth originated in the markets served by the former Chase branches; excluding their impact, loans would have risen by 8.7%, highlighting the strategic contribution of the new branches to CBSI's success. The primary components of the $66.5 million increase in loans since year end 1995 are the bank's business lending products (up $22.0 million); indirect consumer loans (up $24.9 million), predominantly reflecting automobile financing through an established dealer network; and consumer mortgages (up $14.8 million, net of $5.6 million in originations sold service-retained in the secondary market). Increases continue to be modest in the consumer direct loan product line (up $4.8 million, including variable-rate home equity products). The portfolio contains no credit card receivables. Investments totaled $595.3 million for the quarter just ended, up $20.8 million (3.6%) from June 30, 1996. The second quarter increase is attributable to favorable buying opportunities funded by capital market borrowings. Since September 30, 1995, there has been $66.0 million (12.5%) in investment growth. Total deposits have increased 1.6% since June 30, 1996 to $1.04 billion, largely the result of seasonal inflows of municipal deposits in September compared to a low period for municipal deposits in June, caused in part by New York State budget delays . During the last twelve months, total deposits have fallen $34.5 million or 3.2%, reflecting the sale in December 1995 of three of the original 15 Chase branches with $43 million in deposits. C. Income Statement Trends Third quarter tax equivalent net interest income rose 11.8% or $1.5 million versus the same period last year. The improvement reflects average earning asset growth of $128 million, 38% of which resulted from an expansion of the company's investment portfolio largely during the second quarter of this year when financial market rates were attractive. Continued steady loan growth throughout the last twelve months along with CBSI's targeted investment strategy was funded by greater borrowings, almost 55% or $100 million at original terms of one year or more as of quarter end. The net interest margin for the quarter was unchanged from a year earlier at 4.82%. Ten basis points of the current margin reflects a one-time accounting change that the company had the flexibility to adopt coincident with its share ($263,000) of the one-time assessment signed into law on September 30 to rebuild the SAIF deposit insurance fund. Compared to second quarter 1996, tax equivalent net interest income increased $656,000. Average earning assets climbed almost $62 million, about a third of which reflected investment portfolio growth. The net interest margin narrowed by 9 basis points. This was caused by a higher cost of funds resulting from an increased share of longer term borrowings offset by a slightly higher earning asset yield resulting from the one-time accounting change discusses above. Noninterest income in third quarter 1996 climbed 35% over the same period last year. More than half the growth reflects the contribution of CBSI's acquisition earlier in the quarter of Benefit Plans Administrative Services, Inc. (BPA), a pension administration and consulting firm located in Utica, NY. The balance of the improvement, which represents a 14.8% increase versus third quarter 1995, largely reflects higher fees from the sale of annuities and mutual funds, increased Visa merchant and debit card fees, and greater overdraft fees, service charges and commissions from an expanded customer base gained from last year's Chase branch purchase. For the first nine months of this year, noninterest income rose 35% versus the comparable 1995 period (excluding net securities losses in second quarter 1995). Overhead was up 4.7% this quarter compared to the third quarter in 1995. Both periods contain certain nonrecurring expense items. Excluding this quarter's impact of the SAIF insurance assessment and added overhead of the BPA acquisition and last year's impact of one-time expenses related to the Chase branch acquisition, overhead increased by 6.3 %. The bulk of the addition reflects higher benefit and incentive expenses as well as a full quarter's impact of a variety of occupancy, equipment, and processing costs associated with the new branches. Compared to second quarter 1996, overhead rose .5%, excluding the SAIF assessment and BPA acquisition. For the first nine months of this year, overhead rose 19.6%; 1996 contains the full impact of the Chase and BPA acquisitions while 1995 reflects only a partial quarter's impact of the new branches. When non interest expense is expressed as a percentage of assets, the bank is in the favorable 41st peer percentile. The company's efficiency ratio (overhead compared to recurring operating income) improved from the third quarter 1995 level by 5.5 percentage points to 57.5%. This performance compares positively to the national peer bank median of 59.8% based on data available through June 30, 1996. The ratio is now better than the level prior to the Chase transaction, and excluding the amortization of intangibles, is an even more meaningful 5.0% lower at 53.3%. This improvement reflects continued focus on strict expense control as well as leveraging CBSI's capital through the Chase branch acquisition and subsequent selected capital market borrowing. Primarily as a result of higher pretax income, YTD 1996 income taxes increased by $1.7 million over the same 1995 period. CBSI's marginal tax rates are 35% federal and 9% state (plus a 2.5% surcharge scheduled to be phased out over time). D. Asset Quality Trend Asset quality remains good at the company. Net charge-offs for the third quarter were .19% of average loans, slightly more than for the comparable quarter last year but lower than in each of the subsequent quarters. Nonperforming loans continue to be monitored closely and managed conservatively, ending the quarter at $3.2 million, up $1.4 million over the September 30, 1995 level. As a result, the ratio of nonperforming loans to loans outstanding has risen 18 basis points since then to .51% at quarter end, still only about half the national peer bank median of 1.02% at June 30, 1996. This increase was largely due to higher but manageable levels of nonaccruing commercial loans and 90-day real estate and installment loan delinquencies. Total delinquencies and nonaccruals were 1.31% of total loans at quarter end, well within the company's internal guideline of 2.0%. Third quarter loan loss provision expense was about 1.3 times greater than for the same period last year. Coverage of net charge-offs improved to 214%, consistent with CBSI's strong loan growth so that the ratio of loan loss reserves to loans outstanding was maintained at 1.25%. Coverage of the reserve over nonperformers is considered strong by management at 2.4 times, which compares favorably to the national peer bank norm of 2.1 times as of June 30, 1996. Over 12% of the reserve is available for absorbing general, unforeseen loan losses after allocation by specific customer and loan type. E. Capital and Other Trends As of September 30, 1996, the tier I leverage ratio was 5.65% versus 5.55% twelve months earlier. The increase in the ratio is attributable to favorable earnings during the last 12 months and scheduled amortization of intangible assets, partially offset by the continued strategy to leverage the balance sheet when favorable investment opportunities present themselves. The present ratio also includes the impact of redeeming (in 1995) 45,000 shares ($4.5 million) in preferred stock. The ratio is still well above the 5% minimum required to be a "well-capitalized" bank as defined by the FDIC. Compared to second quarter 1996, the ratio remained unchanged due to strong investment growth funded with capital market borrowings being fully offset by earnings and intangible amortization. As a result of the aforementioned reasons, the tier I risk-based capital ratio as of September 30, 1996 was 10.57%, or 16 basis points higher than it was as of September 30, 1995. This compares to a 6% "well-capitalized" regulatory minimum. Book value per share increased 8.1% from September 30, 1995 to $27.21 as of the of the most recent quarter end, while tangible book value per share (which additionally reflects intangible amortization) has risen nicely to $18.64, up 25.0% over the same period. The bank's liquidity level is very favorable as of September 30, 1996. In the event of a liquidity crisis, over $230 million (essentially short term assets minus short term liabilities) or 17.1% of assets could be converted into cash within a 30-day time period. Over a 90 day time period, 16.1% of assets could be converted to cash. As shown by the statement of cash flows preceding the Management Discussion and Analysis, the bank's cash and cash equivalents grew $3.2 million during the quarter to $52.6 million as of September 30, 1996, a level $41.7 million lower than one year earlier. Net cash provided by operating activities was $13.1 million reflecting favorable earnings. Financing activities provided cash of $172.7 million. Investing activities utilized $196.1 million. II. SUPPLEMENTAL INFORMATION TO EARNINGS PERFORMANCE SUMMARY The following sections of this report discuss more fully certain of the balance sheet and earnings trends summarized above. A. Net Interest Income The change in net interest income reflects changes in net interest margin and earning asset levels. On a tax-equivalent basis, net interest income for third quarter 1996 increased $1.5 million (11.7%) over the same 1995 period to $14.4 million. This reflects a $128.09 million (12.1%) increase in average earning assets with $80 million in loan growth and $48 million in investment growth. The net interest margin was unchanged from a year earlier largely due to the 12 BP higher cost of funds resulting from the increased mix of longer term borrowings being fully offset by higher earning asset yields largely due to the aforementioned one-time accounting change. Compared to second quarter 1996, there was a $656,000 increase in net interest income. The change is attributable to earning asset growth, partially offset by a 9 BP lower net interest margin. The table below shows these underlying dynamics.
For the Quarter Net Net Yield on Cost Average Ended: Interest Interest Earning of Earning (000's) Income Margin Assets Funds Assets (b) --------------------------------------------------------- Amount and Change from Preceeding Quarter --------------------------------------------------------- September 30, 1995 Amount $12,849 4.82% 8.43% 3.66% $1,057,820 Change $2,150 0.07% -0.30% -0.43% 17.0% December 31, 1995 Amount $13,467 5.05% 8.60% 3.56% $1,058,510 Change $618 0.23% 0.17% -0.09% 0.1% March 31, 1996 Amount $13,325 5.04% 8.62% 3.59% $1,063,977 Change ($142) -0.01% 0.02% 0.02% 0.5% June 30, 1996 Amount $13,698 4.90% 8.51% 3.64% $1,124,059 Change $373 -0.14% -0.11% 0.05% 5.6% September 30, 1996 Amount $14,355 4.82% 8.55% 3.78% $1,185,913 Change $656 -0.09% 0.04% 0.14% 5.5% Change from September 30, 1995 to September 30, 1996 Amount $1,506 0.00% 0.12% 0.12% $128,093 $0 % Change 11.7% --- --- --- 12.1% ---
Note: (a) All net interest income, margin, and earning asset yield figures are full-tax equivalent. (b) Interest expense divided by total deposits and borrowed funds. * May not foot due to rounding Despite the high proportion of (89th peer percentile) of the bank's assets being in investments (whose yields are relatively low compared to loans), the net interest margin is in the favorable 66th peer percentile as of June 30, 1996. This is attributable to high earning asset yields being in the favorable 71st percentile and a low cost of funds being in the 40th percentile. B. Capital The common shares of Community Bank System, Inc. are traded in the NASDAQ National Market System under the symbol CBSI. Stock price activity, numbers of shares outstanding, cash dividends declared and share volume traded are shown below.
For the Quarter Market Market Market # of Cash Share Ended: Price Price Price Shares Dividend Volume High Low Close Outstanding Declared Traded ------------------------------------------------------------------------------------ Amount and Change from Preceeding Quarter ------------------------------------------------------------------------------------ September 30, 1995 Amount $36.75 $25.25 $33.75 3,674,325 $0.30 2,664,957 Change 26.7% 4.1% 32.4% 4.9% 0.0% 37.0% December 31, 1995 Amount $34.25 $31.00 $32.00 3,679,625 $0.33 629,130 Change -6.8% 22.8% -5.2% 0.1% 10.0% -76.4% March 31, 1996 Amount $32.75 $30.25 $31.00 3,682,315 $0.33 316,309 Change -4.4% -2.4% -3.1% 0.1% 0.0% -49.7% June 30, 1996 Amount $32.50 $30.75 $31.13 3,682,315 $0.33 447,194 Change -0.8% 1.7% 0.4% 0.0% 0.0% 41.4% September 30, 1996 Amount $35.50 $34.00 $34.25 3,725,203 $0.36 445,958 Change 9.2% 10.6% 10.0% 1.2% 9.1% -0.3% Change from September 30, 1995 to September 30, 1996 Amount ($1.25) $8.75 $0.50 50,878 $0.06 (2,218,999) % Change -3.4% 34.7% 1.5% 1.4% 20.0% -83.3%
CBSI's stock closed third quarter 1996 at $34.25, up 1.5% from one year earlier when it closed at $33.75. The volume of shares traded at 445,958 was 83% less than during third quarter 1995, when trading was unusually high related to market speculation regarding the Chase transaction. The cash dividend shown above reflects a 3 cent (9%) per share increase in the quarterly dividend per common share that was effective in third quarter 1996, as well as a 3 cent increase effective in the fourth quarter of last year. This most recent increase was the sixth dividend increase within five years. The 1996 common dividend payout of 36.1% has increased from the same 1995 period but remains within the company's targeted 30-40% guideline. C. Loans Loans outstanding, net of unearned discount, reached a record $626.7 million as of September 30, 1996, a very favorable $ 81.7 million (15.0%) growth in the last twelve months. Outstandings have now climbed for eighteen consecutive quarters. As shown in the table below, CBNA is predominantly a retail bank, with almost 70% of its outstandings spread across three basic consumer loan types.
For the Quarter Consumer Consumer Consumer Business Total Yield on Ended: Direct Indirect Mortgages Lending Loans Loans (000's) --------------------------------------------------------------------------------------------- Amount and Change from Preceeding Quarter Quarterly Average --------------------------------------------------------------------------------------------- September 30, 1995 Amount $103,316 $132,509 $144,206 $164,960 $544,991 9.63% Change 6.0% 11.5% 1.3% 11.5% 5.8% 0.03 December 31, 1995 Amount $104,317 $135,107 $146,561 $174,167 $560,152 9.65% Change 1.0% 5.6% 1.6% 5.6% 2.8% 0.02 March 31, 1996 Amount $105,759 $138,821 $150,301 $181,614 $576,495 9.52% Change 1.4% 2.7% 2.6% 4.3% 2.9% (0.13) June 30, 1996 Amount $105,895 $149,197 $155,579 $188,868 $599,538 9.44% Change 0.1% 7.5% 3.5% 4.0% 4.0% (0.08) September 30, 1996 Amount $109,137 $159,996 $161,388 $196,171 $626,693 9.36% Change 3.1% 7.2% 3.7% 3.9% 4.5% (0.08) Change from September 30, 1995 to September 30, 1996 Amount $5,821 $27,487 $17,181 $31,212 $81,702 -0.27% Change 5.6% 20.7% 11.9% 18.9% 15.0% N/A Loan mix September 30, 1995 to 19.0% 24.3% 26.5% 30.3% 100.0% September 30, 1996 17.4% 25.5% 25.8% 31.3% 100.0% Change -1.5% 1.2% -0.7% 1.0% ---
* May not foot due to rounding Since the Chase acquisition, loans at the remaining 12 branch locations have increased by over 3.2 times to $52.7 million. Almost 40% of the bank's loan growth in the last twelve months came from the generally prime-based business lending portfolio, which increased 18.9% reflecting strong business development efforts. More than a third of the bank's loan growth in the last twelve months came from the indirect lending portfolio (applications taken at dealer locations), which grew 20.7%. This reflects good automobile demand industry-wide, as well as continued greater emphasis on this product line in the bank's Southern Region. The remaining growth over this period resulted from a 11.9% increase in consumer mortgages and an 5.6% growth in consumer direct loans (applications taken at branch locations). Due, in part, to an over a 50 BP decrease in the average prime rate, the average loan yield for the quarter just ended is 27 BP lower than the same quarter a year ago. D. Asset Quality The following table reflects the detail of non-performing and restructured loan levels. The ratio of non-performing assets to total assets was .29% as of September 30, 1996, up 10 basis points from a year ago. There is no troubled debt restructuring. OREO for all periods is recorded at the lower of cost or market less estimated cost to sell. The ratio of nonperforming assets to loans plus OREO at .62% remains better than the company's internal goal of less than .75%. Non-performing assets were up $677,000 or 49.8%. Over half of this increase was caused by one large mortgage loan whose condition is being monitored closely. 3 Months 3 Months 12 Months (000's or % Ratios) September 30, September 30, Dec 31, 1996 1995 1995 Loans accounted for on a $2,036 $1,359 $1,328 non-accrual basis Accruing loans which are contractually past due 90 days or more as to principal and interest payments $1,176 $ 460 $ 667 Loans which are "troubled debt restructurings" as defined in Statement of Financial Accounting Standards No. 15 "Accounting by Debtors and Creditors for Troubled Debt Restructurings $ 0 $ 0 $ 0 Other Real Estate (OREO) $ 693 $ 443 $ 614 Total Non-Performing Assets $3,905 $2,262 $2,609 Total Non-Performing Assets/ 0.29% 0.19% 0.23% Total Assets Total Non-Performing Assets/ 0.62% 0.41% 0.47% Total Loans & OREO Loan Loss Allowance / 200% 300% 267% Non-Performing Assets * May not foot due to rounding E. Deposits The table below displays the components of total deposits including volume and rate trends over the last five quarters.
For the Quarter Average Average Average Average Average Average Ended: Demand Savings Money Time Total Deposits/ (000's) Market Deposits Earning Assets ----------------------------------------------------------------------------------- Amount and Average Rate ----------------------------------------------------------------------------------- September 30, 1995 Amount $142,413 $345,812 $79,542 $447,253 $1,015,020 96.0% Yield / Rate ---- 2.68% 2.72% 5.55% 3.57% December 31, 1995 Amount $144,997 $363,553 $74,627 $465,560 $1,048,737 99.1% Yield / Rate ---- 2.54% 2.62% 5.60% 3.55% March 31, 1996 Amount $141,690 $347,589 $70,753 $475,561 $1,035,593 97.3% Yield / Rate ---- 2.46% 2.48% 5.53% 3.53% June 30, 1996 Amount $143,227 $347,462 $63,224 $485,358 $1,039,270 92.5% Yield / Rate ---- 2.43% 2.46% 5.43% 3.50% September 30, 1996 Amount $144,692 $341,349 $67,941 $472,739 $1,026,721 86.6% Yield / Rate ---- 2.44% 2.48% 5.46% 3.49% Change in quarterly average outstandings & yield / rate September 30, 1995 to September 30, 1996 Amount $2,278 ($4,463) ($11,602) $25,487 $11,701 ($0) % Change 1.6% -1.3% -14.6% 5.7% 1.2% -9.8% Change (% pts) ---- -0.24 -0.24 -0.09 -0.08 0.00 Deposit Mix September 30, 1995 to 14.0% 34.1% 7.8% 44.1% 100.0% September 30, 1996 14.1% 33.2% 6.6% 46.0% 100.0% Change 0.1% -0.8% -1.2% 2.0% ----
* May not foot due to rounding There was a 1.2% increase in average deposits from third quarter 1995 to the quarter just ended. This was made up of $25.5 million or 5.7% growth in time deposits and $2.3 million or 1.6% growth in average demand deposits. This was offset by declines in savings and money market accounts of $4.5 million (-1.3%) and $11.6 million (-14.6%), respectively. This increase in average total deposits comes despite the sale of three branches with $43 million in deposits in December of 1995 to NBT bank. Despite average Fed Funds moving down 50 BP during this period and material interest rate decreases from third quarter 1995 to third quarter 1996 in all individual deposit categories, the average total deposit rate moved down only 8 BP attributable to an expanding mix of higher cost time deposits. This higher mix reflects the strategy to attract additional time deposits competitively priced with capital market borrowings. F. Liquidity and Borrowing Position The following table shows the trend of major earning assets and funding sources over the last five quarters.
For the Quarter Average Average Ave Core Average Average Average Ended: Loans Investments Deposits Municipal Capital Market Interest (000's) (a) (b) Deposits Borrowings Bearing Liabilities ------------------------------------------------------------------------------------------------- Amount and Average Yield / Rate ------------------------------------------------------------------------------------------------- September 30, 1995 Amount $532,156 $525,664 $892,283 $122,737 $29,002 $901,609 Yield / Rate 9.63% 7.21% 3.61% 3.30% 6.56% 4.23% December 31, 1995 Amount $550,480 $508,031 $921,111 $127,626 $5,604 $909,344 Yield / Rate 9.65% 7.45% 3.60% 3.24% 5.39% 4.13% March 31, 1996 Amount $569,267 $494,710 $884,358 $151,235 $26,143 $920,046 Yield / Rate 9.52% 7.57% 3.57% 3.29% 5.76% 4.14% June 30, 1996 Amount $589,407 $534,653 $893,135 $146,136 $73,858 $969,902 Yield / Rate 9.44% 7.48% 3.52% 3.39% 5.62% 4.18% September 30, 1996 Amount $611,922 $573,991 $900,950 $125,771 $144,987 $1,027,016 Yield / Rate 9.36% 7.69% 3.54% 3.14% 5.83% 4.31% Change in quarterly average outstandings & yield / rate from September 30, 1995 to September 30, 1996 Amount $79,766 $48,327 $8,667 $3,034 $115,985 $125,407 % Change 15.0% 9.2% 1.0% 2.5% 399.9% 13.9% Change (%pts) -0.27 0.48 -0.07 -0.16 -0.73 0.08
Note (a) Yield on average investments calculated on a full-tax equivalent basis. (b) Defined as total deposits minus municipal deposits; includes CDs > $100,000 for individuals and businesses. * May not foot due to rounding Borrowings for third quarter 1996 averaged $144.9 million compared to $29.0 million for third quarter 1995. This increase resulted from borrowings being virtually paid off with the acquired Chase deposits and capital issued from the end of June through mid- July 1995. Borrowing levels have increased to fund investment opportunities resulting from favorable market conditions. Average loans grew $79.8 million (15%) in the last year while average investments grew $48.3 million or 9.2%, the combined increase funded almost entirely with the aforementioned capital market borrowings. G. Investments and Asset/Liability Management The investment portfolio at quarter end comprised 48.7% of earning assets, down from 49.3% on September 30, 1995, increasing through a combination of floating and fixed rate investment purchases. As a result, the investment portfolio has grown by $66.0 million or 12.5% during the last twelve months. As shown by the table below, the bank's investments consist primarily of U.S. treasury securities, mortgage-backed securities (including U.S. agencies and collateralized mortgage obligations), and tax-exempt obligations of state and political subdivisions. As of the most recent quarter end, 19.9% of the bank's entire portfolio was invested in agency-guaranteed collateralized mortgage obligations (CMOs). The portfolio does not contain any Principal Only (PO), Interest Only (IO), or Inverse Floater Traunches.
For the Quarter U.S. Mtg-Backs Tax Other Total Invests / Ended: Gov'ts (a) Exempts (b) Investments Earning (000's) (c) Assets at ----------------------------------------------------------------------------------- Period Amount and Change from Preceding Quarter End ----------------------------------------------------------------------------------- September 30, 1995 Amount $244,887 $200,644 $15,609 $68,065 $529,205 49.3% Change 15.4% 13.0% -6.5% 229.4% 23.9% 3.9 December 31, 1995 Amount $235,137 $193,919 $15,844 $27,467 $472,367 45.8% Change -4.0% -3.4% 1.5% -59.6% -10.7% (3.4) March 31, 1996 Amount $250,033 $213,031 $16,642 $21,468 $501,174 46.6% Change 6.3% 9.9% 5.0% -21.8% 6.1% 0.7 June 30, 1996 Amount $308,641 $228,843 $15,508 $21,469 $574,461 48.9% Change 23.4% 7.4% -6.8% 0.0% 14.6% 2.4 September 30, 1996 Amount $299,909 $257,234 $19,379 $18,704 $595,226 48.7% Change -2.8% 12.4% 25.0% -12.9% 3.6% (0.2) Change from September 30, 1995 to September 30, 1996 Amount $55,022 $56,590 $3,770 ($49,361) $66,020 -0.5% Change 22.5% 28.2% 24.2% -72.5% 12.5% --- Investment Mix September 30, 1995 to 46.3% 37.9% 2.9% 12.9% 100.0% September 30, 1996 50.4% 43.2% 3.3% 3.1% 100.0% Change 4.1% 5.3% 0.3% -9.7% ---
Note: (a) Includes CMOs and pass throughs (b) Includes Money Market Investments, Federal Home Loan Bank, and other stock (c) Excludes market value adjustment * May not foot due to rounding The average fully taxable equivalent yield in the last year has increased 40 basis points to 7.61% on average for third quarter 1996 versus third quarter 1995; this increase is largely the result of the aforementioned accounting change, which resulted in two third quarter Federal Home Loan Bank dividends. The 13 basis point increase in the portfolio rate in third quarter 1996 compared to second quarter 1996 again is largely due to the extra FHLB dividend. Excluding the extra FHLB dividend, the third quarter average investment rise was 7.48%. The portfolio market value decreased from 102.5% of book value one year ago to 100.6% of book value as of September 30, 1996. The average portfolio life based on earliest redemption date increased from 4.4 years on September 30, 1995 to 5.2 years on September 30, 1996, largely attributable to first quarter 1996 buying of selected longer term floating rate investments (which move with 1 month LIBOR and 3 month T-Bill) structured to minimize interest rate risk. As of the most recent quarter end, 33.8% of the investment portfolio was classified as available-for-sale (AFS) in accordance with SFAS No. 115, with the remainder (66.2%) as held-to-maturity. The pretax market value adjustment of the AFS portfolio was a favorable $ 331,000 as compared to $65,000 a year earlier. Part II. Other Information Item 1. Legal Proceedings. Not Applicable Item 2. Changes in Securities. Not Applicable Item 3. Defaults Upon Senior Securities. Not Applicable. Item 4. Submission of Matters to a Vote of Securities Holders. Not Applicable. Item 5. Other Information. Not Applicable. Item 6. Exhibits and Reports on Form 8-K a) Exhibits required by Item 601 of Regulation S-K: (11) Statement re Computation of earnings per share (21)Subsidiaries of the registrant - Community Bank, National Association, State of New York - Northeastern Computer Services, Inc. State of New York - Community Financial Services, Inc., State of New York b) No reports on Form 8-K were filed during first quarter 1996. SIGNATURES Pursuant to the requirements of The Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Community Bank System, Inc. Date: November 14, 1996 /s/ Sanford A. Belden ---------------------------------- Sanford A. Belden, President and Chief Executive Officer Date: November 14, 1996 /s/ David G. Wallace ---------------------------------- David G. Wallace, Senior Vice President Chief Financial Officer
EX-11 2 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS COMMUNITY BANK SYSTEM, INC. Statement re: Earnings Per Share Computation Exhibit 11
Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 Primary Earnings Per Share Net Income $3,792,234 $3,030,510 $10,455,053 $8,353,018 Less: Accured Dividend on Preferred Stock (101,250) (202,500) (303,750) (202,500) Income applicable to common stock $3,690,984 $2,828,010 $10,151,303 $8,150,518 Weighted average number of common shares 3,687,881 3,646,104 3,695,147 3,077,915 Add: Shares issuable from assumed exercise of incentive stock options 36,542 40,953 32,782 30,474 Weighted average number of common shares - adjusted 3,724,423 3,687,057 3,727,929 3,108,389 Primary Earnings Per Share $0.99 $0.77 $2.72 $2.62 Fully diluted Earnings Per Share Net Income $3,690,984 $2,828,010 $10,151,303 $8,150,518 Weighted average number of common shares - adjusted 3,724,423 3,687,057 3,727,929 3,108,389 Add: Equivalent number of common shares assumijng conversion of preferred 0 0 0 0 Weighted average number of common shares - adjusted 3,724,423 3,687,057 3,727,929 3,108,389 Fully diluted earnings per share $0.99 $0.77 $2.72 $2.62
EX-27 3 FDS
9 1,000 9-MOS DEC-31-1996 SEP-30-1996 52589 0 0 0 201177 394379 397671 626693 7805 1337422 1038227 40850 12480 140000 0 4500 4657 96708 1337422 41711 29664 335 71710 27145 30677 41033 1827 0 27970 17630 17630 0 0 10455 2.72 2.72 0 0 0 0 0 0 0 0 0 0 0 0
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