EX-99 2 d70516_ex99.txt PRESS RELEASE Exhibit 99 [LOGO] News Release COMMUNITY BANK SYSTEM, INC. 5790 Widewaters Parkway, DeWitt, N.Y. 13214 For further information, please contact: Scott A. Kingsley, EVP & Chief Financial Officer Office: (315) 445-3121 Fax: (315) 445-7347 COMMUNITY BANK SYSTEM ANNOUNCES FOURTH QUARTER AND 2006 FULL YEAR RESULTS Syracuse, N.Y. - January 22, 2007 - Community Bank System, Inc. (NYSE: CBU) generated quarterly net income of $8.2 million, or $0.27 per share, in the fourth quarter of 2006, consistent with the $0.27 per share reported in the fourth quarter of 2005, despite the inclusion of a $0.01 per share expense related to the accounting for stock options required in 2006. The 2006 results also included a one-time, $2.4 million charge related to the early redemption of fixed rate, trust-preferred obligations ($0.06 per share), as well as $0.5 million of acquisition expenses and special charges ($0.01 per share). Fourth quarter of 2005's results included special charges of $2.9 million related to certain early retirement actions ($0.07 per share). Excluding the non-comparative items described above, fourth quarter 2006's results improved slightly over 2005. Full-year 2006 earnings of $38.4 million, or $1.26 per share, were 24% below 2005's record earnings of $50.8 million, or $1.65 per share, which included $12.2 million of securities gains ($0.29 per share). For the year, higher non-interest income excluding securities gains, improved asset quality, organic and acquired loan and deposit growth, and proactive operating expense management were offset by an increased cost of funds, lower investment income, and an additional $1.8 million of stock option expenses ($0.05 per share). Cash earnings per share (which excludes the after-tax effect of the amortization of intangible assets and acquisition-related market value adjustments) were $1.44 in 2006, a full $0.18 per share, or 14%, above GAAP-reported results. "I'm very pleased with the full-year performance of the company that included organic and acquired balance sheet growth, double-digit growth in non-banking revenues, continued improvements in asset quality, and reductions in operating expenses," stated Mark E. Tryniski, President and Chief Executive Officer. "The strength of this performance offset principally all of the decline in net interest margin resulting from the persistently flat yield curve environment. Our personal checking account generation effort that began in April has brought us 22,000 new customer relationships and an annualized increase in total accounts of 14%. We completed two high-quality acquisitions during 2006, with the addition of Elmira Savings & Loan in August, and Ontario National Bank in December. Earlier this month we announced an agreement to acquire Tupper Lake National Bank, which gives us entry into attractive new markets and a geographical extension to the northeastern border of New York State. Lastly, we increased our quarterly dividend by 5.3% in August, underscoring our confidence in our long-term strategies as well as our commitment to maximizing shareholder returns." Net interest income of $33.7 million for the fourth quarter was consistent with the third quarter, but down 3.6% from $35.0 million in the prior year's fourth quarter. The fourth quarter net interest margin of 3.74% compares to 3.87% for the third quarter of 2006, and 4.12% for the fourth quarter of 2005. Net interest margin for 2006 was 3.91%, compared to 4.17% in 2005, reflecting a higher cost of funds, as well as the impact of the ES&L and ONB acquisitions, which had somewhat lower net interest margin attributes. Earning asset yields in 2006 were 30 basis points above 2005, while the cost of funds increased 58 basis points, year-over-year, resulting in net margin compression. Non-interest income (excluding securities gains and debt extinguishment charges) increased $0.4 million, or 3.3%, over the fourth quarter of 2005. Our employee benefits administration and consulting business posted a 16% increase in revenues over the prior year's fourth quarter on the strength of new clients and enhanced product offerings to both new and existing clients, resulting in a full-year improvement of $2.0 million, or 18%. Revenues from deposit services increased 4.6% over the prior year, stimulated by account growth from an enhanced suite of checking account products introduced in the second quarter. The inverted yield curve experienced in 2006 served to confirm the prudence of our decision in 2005 to reposition our balance sheet to achieve a more favorable interest rate sensitivity profile through gain-generating securities sales. Quarterly operating expenses (excluding special charges and acquisition expenses, and stock option expenses) increased less than 1%, year-over-year, from $31.5 million in 2005 to $31.8 million in the fourth quarter of 2006. Additionally, excluding the incremental operating expenses related to the ES&L and ONB transactions, both quarterly and full-year operating expenses actually declined from 2005. The company's effective income tax rate of 20.6% in the fourth quarter of 2006 was down from 24.4% in the third quarter, and 24.1% in the fourth quarter of 2005, due principally to fluctuations in the proportion of tax-exempt income, as well as the impact of the debt extinguishment charge incurred during the quarter. Financial Position Average earning assets of $4.0 billion for the fourth quarter were up $127.6 million from the third quarter of 2006, reflecting $110.3 million of organic and acquired loan growth, and a $17.3 million increase in investment securities, primarily short-term/cash equivalent instruments. Compared to the fourth quarter of 2005, average earning assets increased $263.3 million, comprised entirely of acquired and organic increases in loans. Ending deposits grew $29.5 million in the fourth quarter, compared to the third quarter, and were up $184.8 million from the end of 2005, a 6.2% increase. Total borrowings, net of invested cash equivalents, increased $53.2 million from December 31, 2005, reflective of the two, all-cash acquisitions completed in 2006, as well as the issuance of additional trust preferred securities. In December 2006 the company issued $75 million of trust preferred securities at an annual rate equal to the three-month LIBOR rate plus 1.65%. The securities mature on December 15, 2036, and can be called without penalty beginning on December 15, 2011. The net proceeds of the offering will be used for general corporate purposes including the early redemption of the company's $30 million of fixed-rate trust preferred securities in January 2007. The company also entered into a five-year, interest rate swap agreement to convert the variable rate of the trust preferred issuance into a fixed rate of 6.43%. Asset Quality As of December 31, 2006, the company's non-performing loan ratio was 0.47%, consistent with the end of the third quarter, and improved from 0.55% a year ago. The year-end 2006 delinquency ratio was 1.33%, 0.13% better than the 1.46% reported a year ago. The charge-off ratio was 0.21% (of total loans) for the fourth quarter, compared to 0.17% in the third quarter, and 0.35% for last year's fourth quarter. The full-year charge-off ratio in 2006 was 0.24%, a meaningful improvement from 0.33% in 2005. The ratio of allowance for loan losses to total loans at the end of the fourth quarter was 1.34%, consistent with the levels reported over the last nine quarters. The loan loss provision for the quarter of $1.4 million was slightly higher than the $1.3 million reported in the third quarter, but $0.8 million lower than the fourth quarter of 2005. The full-year provision of $6.6 million was $1.9 million below the $8.5 million recorded in 2005, and was $0.5 million above full-year net charge-offs. The company's enhanced credit risk management programs and continued emphasis on disciplined underwriting standards continue to have favorable impacts on the asset quality profile. Stock Repurchase Program During 2006 the company purchased 259,000 of its common shares, at an aggregate cost of $5.5 million, under the previously announced 1.5 million-share repurchase program. In December, the Board of Directors approved an extension of the existing program (with 647,000 shares available), and also approved an additional 900,000-share authorization. Both programs expire on December 31, 2008. Outlook Mr. Tryniski commented, "Our 2007 forecast reflects the continuation of a flat or inverted yield curve environment and our expectation of continued reductions in our securities portfolio from contractual cash flows. Consistent with our fourth quarter results, we expect our 2007 full-year net interest margin to be 10 - 15 basis points below the 3.91% reported in 2006, with continued organic loan and deposit growth. We expect our asset quality profile to remain stable, and to continue to closely manage operating expenses." Conference Call Scheduled A conference call will be held with company management at 11:00 a.m. (ET) on Tuesday, January 23, 2007, to discuss the above results at 1-866-838-2057. An audio recording will be available one hour after the call until March 31, 2007, and may be accessed at 1-888-284-7564 (access code 203909). Investors may also listen live via the Internet at: http://www.videonewswire.com/event.asp?id=37319. This webcast will be archived on this site for one full year and may be accessed at any point during this time at no cost. This earnings release, including supporting financial tables, is available within the Investor Relations / News & Media section of the company's website at: www.communitybankna.com. Community Bank System, Inc. (NYSE: CBU) is a registered bank holding company based in DeWitt, N.Y., with $4.5 billion in assets and over 130 customer facilities. Its wholly-owned banking subsidiary operates as Community Bank, N.A. across Upstate New York, and as First Liberty Bank & Trust throughout Northeastern Pennsylvania. Its other subsidiaries include: BPA-Harbridge, which provides actuarial, administration, consulting and daily valuation recordkeeping services for benefit plans from offices in Upstate New York, New England, and Pennsylvania; Community Investment Services, Inc., a broker-dealer delivering financial products throughout the company's branch network; and Nottingham Advisors, a wealth management and advisory firm with offices in Buffalo, NY, and North Palm Beach, Fla. For further information please visit our websites at: www.communitybankna.com or www.firstlibertybank.com. Summary of Financial Data (Dollars in thousands, except per share data)
------------------------------------------------------------------------------------------------------------------------ Quarter Ended Year to Date ------------------------------------------------------------ ----------------------------------------------------------- December 31, December 31, December 31, December 31, Earnings 2006 2005 2006 2005 ------------------------------------------------------------------------------------------------------------------------ Loan income $ 45,543 $ 38,816 $ 167,113 $ 147,608 Investment income 16,057 16,379 64,788 71,836 Total interest income 61,600 55,195 231,901 219,444 Interest expense 27,877 20,198 97,092 75,572 Net interest income 33,723 34,997 134,809 143,872 Provision for loan losses 1,410 2,250 6,585 8,534 Net interest income after provision for loan losses 32,313 32,747 128,224 135,338 Deposit service fees 7,347 7,264 28,348 27,108 Other banking services 564 616 2,730 2,793 Trust, investment and asset management fees 1,765 1,844 7,396 7,307 Benefit plan administration, consulting and actuarial fees 3,398 2,937 13,205 11,193 Gain (loss) on investment securities & debt extinguishment (2,403) 0 (2,403) 12,195 Total non-interest income 10,671 12,661 49,276 60,596 Salaries and employee benefits 16,763 16,223 65,497 65,059 Professional fees 1,083 1,327 4,351 4,540 Stock option expense 392 0 1,848 0 Occupancy and equipment and furniture 4,331 4,401 17,884 17,756 Amortization of intangible assets 1,525 1,604 6,027 7,125 Other 8,134 7,981 30,949 29,966 Special charges/acquisition expenses 492 2,895 647 2,943 Total operating expenses 32,720 34,431 127,203 127,389 Income before income taxes 10,264 10,977 50,297 68,545 Income taxes 2,112 2,651 11,920 17,740 Net income $ 8,152 $ 8,326 $ 38,377 $ 50,805 Basic earnings per share $ 0.27 $ 0.28 $ 1.28 $ 1.68 Diluted earnings per share $ 0.27 $ 0.27 $ 1.26 $ 1.65 Diluted earnings per share-cash (1) $ 0.31 $ 0.32 $ 1.44 $ 1.84 ------------------------------------------------------------------------------------------------------------------------
Summary of Financial Data (Dollars in thousands, except per share data)
------------------------------------------------------ 2006 2005 ------------------------------------------------------ 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr 4th Qtr ------------------------------------------------------------------------------------------------------------------ Earnings ------------------------------------------------------------------------------------------------------------------ Loan income $45,543 $43,482 $39,760 $38,328 $38,816 Investment income 16,057 15,679 16,722 16,330 16,379 Total interest income 61,600 59,161 56,482 54,658 55,195 Interest expense 27,877 25,369 22,873 20,973 20,198 Net interest income 33,723 33,792 33,609 33,685 34,997 Provision for loan losses 1,410 1,300 1,725 2,150 2,250 Net interest income after provision for loan losses 32,313 32,492 31,884 31,535 32,747 Deposit service fees 7,347 7,329 7,063 6,609 7,264 Other banking services 564 1,329 361 476 616 Trust, investment and asset management fees 1,765 1,815 1,766 2,050 1,844 Benefit plan administration, consulting and actuarial fees 3,398 3,271 3,155 3,381 2,937 Gain (loss) on investment securities & debt extinguishment (2,403) 0 0 0 0 Total non-interest income 10,671 13,744 12,345 12,516 12,661 Salaries and employee benefits 16,763 16,332 16,004 16,398 16,223 Professional fees 1,083 1,119 1,108 1,041 1,327 Stock option expense 392 409 421 626 0 Occupancy and equipment and furniture 4,331 4,346 4,448 4,759 4,401 Amortization of intangible assets 1,525 1,520 1,489 1,493 1,604 Other 8,134 7,960 7,737 7,118 7,981 Special charges/acquisition expenses 492 154 1 0 2,895 Total operating expenses 32,720 31,840 31,208 31,435 34,431 Income before income taxes 10,264 14,396 13,021 12,616 10,977 Income taxes 2,112 3,517 3,137 3,154 2,651 Net income $ 8,152 $10,879 $ 9,884 $ 9,462 $ 8,326 Basic earnings per share $ 0.27 $ 0.36 $ 0.33 $ 0.32 $ 0.28 Diluted earnings per share $ 0.27 $ 0.36 $ 0.33 $ 0.31 $ 0.27 Diluted earnings per share-cash (1) $ 0.31 $ 0.40 $ 0.37 $ 0.35 $ 0.32 ------------------------------------------------------------------------------------------------------------------- Profitability ------------------------------------------------------------------------------------------------------------------- Return on assets 0.73% 1.01% 0.95% 0.93% 0.80% Return on equity 6.89% 9.44% 8.76% 8.38% 7.21% Non-interest income/operating income (FTE) (2) 25.9% 26.8% 24.8% 25.2% 24.7% Efficiency ratio (3) 60.8% 58.8% 59.8% 60.3% 58.5% ------------------------------------------------------------------------------------------------------------------- Components of Net Interest Margin (FTE) ------------------------------------------------------------------------------------------------------------------- Loan yield 6.80% 6.77% 6.60% 6.49% 6.42% Investment yield 5.96% 5.94% 6.17% 6.10% 6.01% Earning asset yield 6.52% 6.49% 6.45% 6.35% 6.28% Interest-bearing deposit rate 2.70% 2.55% 2.38% 2.19% 2.02% Short-term borrowing rate 3.91% 4.21% 3.63% 3.61% 3.33% Long-term borrowing rate 5.80% 5.70% 5.60% 5.62% 5.67% Cost of all interest-bearing funds 3.32% 3.15% 2.96% 2.80% 2.63% Cost of funds (includes DDA) 2.84% 2.68% 2.50% 2.34% 2.20% Net interest margin (FTE) 3.74% 3.87% 4.00% 4.06% 4.12% Fully tax-equivalent adjustment $ 3,743 $ 3,764 $ 3,747 $ 3,464 $ 3,512 -------------------------------------------------------------------------------------------------------------------
Summary of Financial Data (Dollars in thousands, except per share data)
----------------------------------------------------------------------- 2006 2005 ----------------------------------------------------------------------- 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr 4th Qtr ------------------------------------------------------------------------------------------------------------------------------------ Average Balances ------------------------------------------------------------------------------------------------------------------------------------ Loans $2,668,442 $2,558,137 $2,425,763 $2,400,926 $2,406,094 Taxable investment securities 797,541 776,028 803,536 787,664 782,820 Nontaxable investment securities 508,467 512,721 518,309 522,112 522,276 Total interest-earning assets 3,974,450 3,846,886 3,747,608 3,710,702 3,711,190 Total assets 4,423,468 4,272,052 4,167,403 4,144,391 4,154,774 Interest-bearing deposits 2,576,041 2,540,150 2,460,781 2,410,348 2,382,620 Short-term borrowings 160,262 125,013 127,208 163,940 232,157 Long-term borrowings 599,121 534,811 509,102 468,884 427,082 Total interest-bearing liabilities 3,335,424 3,199,974 3,097,091 3,043,172 3,041,859 Noninterest-bearing deposits 558,439 557,398 565,651 588,957 596,065 Shareholders' equity 469,127 456,996 452,408 458,163 457,947 ------------------------------------------------------------------------------------------------------------------------------------ Balance Sheet Data ------------------------------------------------------------------------------------------------------------------------------------ Cash and cash equivalents $ 232,032 $ 119,430 $ 124,453 $ 121,795 $ 114,605 Investment securities 1,229,271 1,250,251 1,253,202 1,307,041 1,303,117 Loans: Consumer mortgage 912,505 890,939 822,235 814,885 815,463 Business lending 960,034 953,808 827,021 820,722 819,605 Consumer installment 829,019 816,815 795,010 772,614 776,701 Total loans 2,701,558 2,661,562 2,444,266 2,408,221 2,411,769 Allowance for loan losses 36,313 35,517 32,900 32,720 32,581 Intangible assets 246,136 239,635 221,896 223,385 224,878 Other assets 125,113 137,099 128,263 131,808 130,741 Total assets 4,497,797 4,372,460 4,139,180 4,159,530 4,152,529 Deposits 3,168,299 3,138,774 3,039,038 3,063,022 2,983,507 Borrowings 647,481 628,412 512,997 506,241 572,588 Subordinated debt held by unconsolidated subsidiary trusts 158,014 80,545 80,530 80,517 80,502 Other liabilities 62,475 60,130 55,039 54,348 58,337 Total liabilities 4,036,269 3,907,861 3,687,604 3,704,128 3,694,934 Shareholders' equity 461,528 464,599 451,576 455,402 457,595 Total liabilities and shareholders' equity 4,497,797 4,372,460 4,139,180 4,159,530 4,152,529 Assets under management or administration $3,153,576 $2,944,725 $2,713,423 $2,642,226 $2,505,966 ------------------------------------------------------------------------------------------------------------------------------------ Capital ------------------------------------------------------------------------------------------------------------------------------------ Tier 1 leverage ratio 8.79% 7.26% 7.73% 7.68% 7.57% Tangible equity / tangible assets 5.07% 5.44% 5.86% 5.89% 5.93% Accumulated other comprehensive income (4,697) 3,798 (3,638) 3,495 8,420 Diluted weighted average common shares O/S 30,454 30,334 30,308 30,479 30,516 Period end common shares outstanding 30,020 29,867 29,850 29,908 29,957 Cash dividends declared per common share $ 0.20 $ 0.20 $ 0.19 $ 0.19 $ 0.19 Book value 15.37 15.56 15.13 15.23 15.28 Tangible book value 7.17 7.53 7.69 7.76 7.77 Common stock price (end of period) 23.00 22.16 20.17 22.33 22.55 ------------------------------------------------------------------------------------------------------------------------------------
Summary of Financial Data (Dollars in thousands, except per share data)
----------------------------------------------------------- 2006 2005 ----------------------------------------------------------- 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr 4th Qtr ----------------------------------------------------------------------------------------------------------------------- Asset Quality ----------------------------------------------------------------------------------------------------------------------- Nonaccrual loans $11,382 $11,414 $10,327 $13,701 $12,232 Accruing loans 90+ days delinquent 1,207 1,133 765 1,213 1,075 Total nonperforming loans 12,589 12,547 11,092 14,914 13,307 Other real estate owned (OREO) 1,838 1,320 1,353 1,613 1,048 Total nonperforming assets 14,427 13,867 12,445 16,527 14,355 Net charge-offs 1,400 1,115 1,545 2,011 2,129 Loan loss allowance/loans outstanding 1.34% 1.33% 1.35% 1.36% 1.35% Nonperforming loans/loans outstanding 0.47% 0.47% 0.45% 0.62% 0.55% Loan loss allowance/nonperforming loans 288% 283% 297% 219% 245% Net charge-offs/average loans 0.21% 0.17% 0.26% 0.34% 0.35% Loan loss provision/net charge-offs 101% 117% 112% 107% 106% Nonperforming assets/loans outstanding plus OREO 0.53% 0.52% 0.51% 0.69% 0.59% -----------------------------------------------------------------------------------------------------------------------
(1) Excludes the after-tax effect of amortization of intangible assets and market value adjustment amortization on acquired loans and deposits. (2) Excludes gain (loss) on investment securities & debt extinguishment. (3) Excludes intangible amortization, acquisition expenses/special charges and gain(loss) on investment securities & debt extinguishment. # # # This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The following factors, among others, could cause the actual results of CBU's operations to differ materially from CBU's expectations: the successful integration of operations of its acquisitions; competition; changes in economic conditions, interest rates and financial markets; and changes in legislation or regulatory requirements. CBU does not assume any duty to update forward-looking statements.