EX-99 3 d72845_ex99.htm PRESS RELEASE
     
    Exhibit 99
   
  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
     
 
COMMUNITY BANK SYSTEM REPORTS
HIGHER THIRD QUARTER REVENUE AND EARNINGS
 
                SYRACUSE, N.Y. — October 22, 2007 — Community Bank System, Inc. (NYSE: CBU) generated year-over-year and quarter-over-quarter increases in both net interest income and noninterest income during the third quarter of 2007, resulting in $11.0 million of net earnings or $0.37 per share. This marks the company’s highest EPS figure in the last eight quarters, representing a 2.8% increase over its year-ago level and an 8.8% climb over the prior quarter.

Year-to-date net income of $31.0 million was 2.7% greater than the $30.2 million generated during the first nine months of 2006. The $1.02 per share earned to date in 2007 is 2.0%, or $0.02 per share, greater than the first nine months of 2006, due principally to a 19% increase in noninterest income as well as a 78% reduction in the company’s provision for loan losses. Year-to-date cash earnings per share (which exclude the after-tax effect of intangible asset amortization and acquisition-related market value adjustments) were $1.16, a meaningful $0.14 per share, or 14%, above GAAP-reported results.

“Our company generated yet another solid quarter, continuing to steadily produce through fluctuating market conditions,” said President and Chief Executive Officer Mark E. Tryniski. “We continued our double-digit rate of growth for non-interest income with a 28% increase over the prior year’s quarter, and received balanced contributions again from both our banking and financial services revenue sources. We also achieved our first expansion in core net interest margin in the past seven quarters, and maintained our outstanding asset quality profile.”

CBU increased its noninterest income by $3.8 million, or 28%, over the third quarter of 2006, to $17.6 million — a quarterly record high for the company, excluding investment securities gains. Banking noninterest income rose $1.2 million, or 14.3%, while financial services revenues climbed $2.6 million, or 51.3%. Consistent with prior years, the third quarter’s banking-related revenues included nearly $0.8 million of annual dividends from the creditor life and disability programs in which the company participates. The increase in banking services came mainly from new and expanded account relationships and growing debit card-related revenues. The increase in financial services revenues is from both acquired and organic growth, and includes a full quarter contribution of the Hand Benefits & Trust transaction completed in May. The company’s noninterest-income-to-operating-income ratio during the quarter was 31.7%, nearly three percentage points higher than the previous quarter and 5% higher than the year-ago quarter.

Net interest income was $34.3 million, 2.8% above the second quarter of 2007 and 1.4% over the third quarter of 2006. Reported quarterly net interest margin was 3.56%, versus 3.64% in the prior quarter and 3.87% a year ago. However, excluding a $200-million short-term investment leverage strategy put into place during the quarter, the company’s net margin would have increased five basis points over the prior quarter to 3.69%. This strategy not only produced positive net interest income, but it also served to demonstrate the company’s ability to freely access liquidity sources despite tightened credit market conditions.

 


CBU increased total loans by $24.7 million over the prior quarter to $2.8 billion. This was comprised of very strong performances in consumer mortgages (increased $21.1 million) and in consumer installment lending (increased $20.1 million), partially offset by a $16.5 million decline in business lending. Year-to-date, total loans are up $90.4 million, including acquisitions, with increases across all three major portfolio categories. The reduction in business lending outstandings during the quarter was impacted by several unscheduled payoffs and line reductions related to ownership changes and other capital-raising initiatives.

Mr. Tryniski added, “We continue to perform well within the consumer lending lines, producing annualized growth rates of 9-10% across these portfolios during the quarter. We also remain free of exposure to the well-publicized mortgage lending crisis that has affected many of the nation’s largest urban markets, as we have no subprime or other higher-risk mortgage products within our real estate or investment portfolios. And while our commercial lending portfolio was down slightly versus the second quarter, our overall credit profile in the portfolio improved. In addition, during this period of modest asset growth within our industry, we are taking the opportunity to strengthen our commercial services’ delivery process and commit additional resources to this important line of business.”

Average total deposit balances for the quarter increased $44.0 million from the second quarter of 2007, with increases generated from core checking, money market, and savings accounts, partially offset by a decrease in time deposits, including seasonal declines in public funds.

Total operating expenses increased $2.6 million versus the previous quarter, reflecting the two acquisitions completed in the second quarter. Year-to-date operating expenses increased $10.3 million over the first nine months of 2006, again due mainly to increased personnel and other recurring operating expenses resulting from the four acquisitions completed since August 2006, along with strategic increases in business development and marketing costs.

The effective income tax rate was 24.3% during the quarter and 24.5% for the first nine months of 2007, consistent with prior year rates.

Asset Quality

The company’s asset quality metrics remained excellent, with non-performing loan and charge-off ratios remaining at the historically low levels achieved in recent quarters.

The provision for loan losses of $0.5 million was $96,000 higher than the second quarter of 2007, reflecting a slightly higher level of charge-offs. Year-to-date, the provision for loan losses was $4.1 million lower than the 2006 year-to-date provision, reflective of the company’s lowest level of charge-offs and nonperforming loans in over four years.

Net charge-offs in the third quarter were $0.75 million, which was $0.6 million below the average quarterly net charge-offs during the previous eight quarters. The net charge-off ratio of 0.11% was 11 basis points below the average net charge-off ratio for the previous eight quarters. Net charge-offs were $1.7 million for the nine months ended September 30, 2007, a decrease of $2.9 million from the same period last year. The year-to-date net charge-off ratio was 0.09%, compared to 0.25% for the comparable 2006 period.

 


Nonperforming loans as a percentage of total loans were down 0.02% from the end of June 2007 to 0.34%. This was significantly better than the already favorable average of 0.49% generated over the prior eight quarters. The delinquency ratio increased slightly to 1.10%, up from 0.95% at June 30, 2007, but down from the 1.22% level reported at September 30, 2006. Nonperforming assets to total assets improved to 0.22%, from the already low 0.25% level of the previous quarter, and 0.32% one year ago. These excellent asset quality metrics illustrate the continued effectiveness of the company’s disciplined risk management and underwriting standards.

Dividend Increase

During the quarter CBU’s Board of Directors declared a 5.0% increase in its quarterly cash dividend to $0.21 per share of common stock. Mr. Tryniski commented, “We were very pleased to provide shareholders with our 13th dividend increase in the last 14 years, representing an annualized yield of 4.7% based on last Friday’s closing share price of $18.01. We are equally pleased to remain a member of Mergent, Inc.’s ‘Dividend Achievers Index,’ as one of only 326 companies which have raised their annual dividend for at least 10 consecutive years, out of more than 10,000 U.S. publicly traded companies. This underscores our commitment to steady, long-term shareholder returns, as well as our ability to consistently generate meaningful results, regardless of the economic or industry-specific operating environment.”

Stock Repurchases

During the third quarter of 2007 the company purchased 233,000 common shares, at an aggregate cost of approximately $4.26 million, under the previously announced share repurchase programs authorized in December 2006. At September 30, 2007, there were 1.02 million remaining shares available for repurchase under these programs.

Other Initiatives

The company remains pleased with the integration progress of its most recent acquisitions, as both Tupper Lake National Bank and Hand Benefit & Trust have begun to productively contribute to its bottom-line results. In addition, the company is actively pursuing additional investments in both of these business lines in order to capitalize on available growth opportunities.

Conference Call Scheduled

A conference call will be held with company management at 11:00 a.m. (ET) on Tuesday, October 23, 2007, to discuss the above results at 1-866-709-4186. An audio recording will be available one hour after the call until December 31, 2007, and may be accessed at 1-888-284-7564 (access code 221739). Investors may also listen live via the Internet at: http://www.videonewswire.com/event.asp?id=42527.

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: http://www.communitybankna.com.

Community Bank System is based in DeWitt, N.Y., with $4.8 billion in assets and 140 customer facilities across Upstate New York, where it operates as Community Bank, N.A., and Northeastern Pennsylvania, where it is known as First Liberty Bank & Trust. Its other subsidiaries include: BPAS, an employee benefits administration and consulting firm with offices in Upstate New York, Pittsburgh, and Houston; the CBNA Insurance Agency, with offices in Tupper Lake and Plattsburgh, N.Y.; Community Investment Services, 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, N.Y., and North Palm Beach, Fla. For more information, visit: www.communitybankna.com or www.firstlibertybank.com.
 
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Summary of Financial Data
(Dollars in thousands, expect per share data)
Quarter Ended
September 30,		 Year-to-Date
September 30,
  
   
 
 
    2007   2006   2007   2006  
 
Earnings                  
Loan income   $ 47,821   $ 43,482   $ 138,846   $ 121,570  
Investment Income     17,785     15,679     51,574     48,731  
   Total interest income     65,606     59,161     190,420     170,301  
Interest Expense     31,326     25,369     89,435     69,215  
   Net interest income     34,280     33,792     100,985     101,086  
Provision for loan losses     510     1,300     1,124     5,175  
   Net interest income after provision for loan losses     33,770     32,492     99,861     95,911  
Deposit service fees     8,382     7,329     23,184     21,001  
Other banking services     1,512     1,329     2,607     2,166  
Trust, investment and asset management fees     2,185     1,815     6,054     5,631  
Benefit plan administration, consulting and actuarial fees     5,509     3,271     14,248     9,807  
Debt extinguishment charges and investment securities
    losses, net		     (16 )   0     (24 )   0  
   Total noninterest income     17,572     13,744     46,069     38,605  
Salaries and employee benefits     19,086     16,741     55,652     49,948  
Professional fees     1,365     1,119     3,604     3,510  
Occupancy and equipment and furniture     4,883     4,346     14,089     13,553  
Amortization of intangible assets     1,629     1,520     4,725     4,502  
Other     9,703     7,960     26,023     22,815  
Special charges/acquisition expenses     99     154     723     155  
   Total operating expenses     36,765     31,840     104,816     94,483  
Income before income taxes     14,577     14,396     41,114     40,033  
Income taxes     3,548     3,517     10,070     9,808  
     Net income   $ 11,029   $ 10,879   $ 31,044   $ 30,225  
Basic earnings per share   $ 0.37   $ 0.36   $ 1.04   $ 1.01  
Diluted earnings per share   $ 0.37   $ 0.36   $ 1.02   $ 1.00  
Diluted earnings per share-cash (1)   $ 0.41   $ 0.40   $ 1.16   $ 1.13  


Summary of Financial Data
(Dollars in thousands, expect per share data)
2007 2006
   
 
 
    3rd Qtr   2nd Qtr   1st Qtr   4th Qtr   3rd Qtr  
Earnings                      
Loan income   $ 47,821   $ 46,090   $ 44,935   $ 45,543   $ 43,482  
Investment Income     17,785     17,166     16,623     16,057     15,679  
   Total interest income     65,606     63,256     61,558     61,600     59,161  
Interest Expense     31,326     29,918     28,191     27,877     25,369  
   Net interest income     34,280     33,338     33,367     33,723     33,792  
Provision for loan losses     510     414     200     1,410     1,300  
   Net interest income after provision for loan losses     33,770     32,924     33,167     32,313     32,492  
Deposit service fees     8,382     7,825     6,977     7,347     7,329  
Other banking services     1,512     425     670     564     1,329  
Trust, investment and asset management fees     2,185     2,009     1,860     1,765     1,815  
Benefit plan administration, consulting and actuarial fees     5,509     4,767     3,972     3,398     3,271  
Debt extinguishment charges and investment securities losses, net     (16 )   (8 )   0     (2,403 )   0  
   Total noninterest income     17,572     15,018     13,479     10,671     13,744  
Salaries and employee benefits     19,086     18,280     18,286     17,155     16,741  
Professional fees     1,365     1,054     1,185     1,083     1,119  
Occupancy and equipment and furniture     4,883     4,557     4,649     4,331     4,346  
Amortization of intangible assets     1,629     1,581     1,515     1,525     1,520  
Other     9,703     8,495     7,825     8,134     7,960  
Special charges/acquisition expenses     99     165     459     492     154  
   Total operating expenses     36,765     34,132     33,919     32,720     31,840  
Income before income taxes     14,577     13,810     12,727     10,264     14,396  
Income taxes     3,548     3,451     3,071     2,112     3,517  
     Net income   $ 11,029   $ 10,359   $ 9,656   $ 8,152   $ 10,879  
Basic earnings per share   $ 0.37   $ 0.34   $ 0.32   $ 0.27   $ 0.36  
Diluted earnings per share   $ 0.37   $ 0.34   $ 0.32   $ 0.27   $ 0.36  
Diluted earnings per share-cash (1)   $ 0.41   $ 0.39   $ 0.36   $ 0.31   $ 0.40  
Profitability                      
Return on assets     0.94 %   0.92 %   0.88 %   0.73 %   1.01 %
Return on equity     9.47 %   8.92 %   8.43 %   6.89 %   9.44 %
Noninterest income/operating income (FTE) (2)     31.7 %   28.9 %   26.6 %   25.9 %   26.8 %
Efficiency ratio (3)     63.1 %   62.2 %   63.1 %   60.8 %   58.8 %
Components of Net Interest Margin (FTE)                      
Loan yield     6.86 %   6.84 %   6.81 %   6.80 %   6.77 %
Investment yield     5.82 %   6.06 %   6.11 %   5.96 %   5.94 %
Earning asset yield     6.50 %   6.58 %   6.58 %   6.52 %   6.49 %
Interest-bearing deposit rate     2.94 %   2.96 %   2.80 %   2.70 %   2.55 %
Short-term borrowing rate     4.07 %   4.20 %   4.16 %   3.91 %   4.21 %
Long-term borrowing rate     5.83 %   5.58 %   5.57 %   5.80 %   5.70 %
Cost of all interest-bearing funds     3.47 %   3.47 %   3.37 %   3.32 %   3.15 %
Cost of funds (includes DDA)     2.99 %   2.99 %   2.90 %   2.84 %   2.68 %
Net interest margin (FTE)     3.56 %   3.64 %   3.74 %   3.74 %   3.87 %
Fully tax-equivalent adjustment   $ 3,645   $ 3,722   $ 3,796   $ 3,743   $ 3,764  


Summary of Financial Data
(Dollars in thousands, expect per share data)
2007 2006
   
 
 
    3rd Qtr   2nd Qtr   1st Qtr   4th Qtr   3rd Qtr  
Average Balances                      
Loans   $ 2,775,337   $ 2,712,021   $ 2,684,566   $ 2,668,442   $ 2,558,137  
Taxable investment securities     971,340     885,164     843,857     797,541     776,028  
Nontaxable investment securities     477,369     485,922     500,273     508,467     512,721  
   Total interest-earning assets     4,224,046     4,083,107     4,028,696     3,974,450     3,846,886  
Total assets     4,679,318     4,536,348     4,469,244     4,423,468     4,272,052  
Interest-bearing deposits     2,735,349     2,718,135     2,622,472     2,576,041     2,540,150  
Short-term borrowings     307,090     154,799     159,444     160,262     125,013  
Long-term borrowings     536,859     589,686     613,624     599,121     534,811  
   Total interest-bearing liabilities     3,579,298     3,462,620     3,395,540     3,335,424     3,199,974  
Noninterest-bearing deposits     583,946     557,195     552,087     558,439     557,398  
Shareholders’ equity   $ 462,172   $ 465,652   $ 464,623   $ 469,127   $ 456,996  
Balance Sheet Data                      
Cash and cash equivalents   $ 205,224   $ 242,410   $ 224,917   $ 232,032   $ 119,430  
Investment securities     1,433,930     1,219,360     1,317,554     1,229,271     1,250,251  
Loans:                      
   Consumer mortgage     969,567     948,430     914,909     912,505     890,939  
   Business lending     972,394     988,886     957,853     960,034     953,808  
   Consumer installment     849,949     829,860     809,472     829,019     816,815  
     Total loans     2,791,910     2,767,176     2,682,234     2,701,558     2,661,562  
Allowance for loan losses     36,447     36,690     35,891     36,313     35,517  
Intangible assets     256,766     258,110     244,598     246,136     239,635  
Other assets     141,484     132,783     125,476     125,113     137,099  
   Total assets     4,792,867     4,583,149     4,558,888     4,497,797     4,372,460  
Deposits     3,304,604     3,364,577     3,278,468     3,168,299     3,138,774  
Borrowings     821,343     577,134     626,765     647,481     628,412  
Subordinated debt held by unconsolidated
   subsidiary trusts		     127,123     127,111     127,099     158,014     80,545  
Other liabilities     71,455     54,703     59,659     62,475     60,130  
   Total liabilities     4,324,525     4,123,525     4,091,991     4,036,269     3,907,861  
Shareholders’ equity     468,342     459,624     466,897     461,528     464,599  
   Total liabilities and shareholders’ equity     4,792,867     4,583,149     4,558,888     4,497,797     4,372,460  
Assets under management or administration   $ 4,708,901   $ 4,518,642   $ 3,296,238   $ 3,153,576   $ 2,944,725  
Capital                      
Tier 1 leverage ratio     7.67 %   7.90 %   8.29 %   8.81 %   7.26 %
Tangible equity / tangible assets     4.66 %   4.66 %   5.15 %   5.07 %   5.44 %
Accumulated other comprehensive income     (4,444 )   (11,610 )   (3,994 )   (4,697 )   3,798  
Diluted weighted average common
   shares O/S		     30,078     30,396     30,547     30,454     30,334  
Period end common shares outstanding     29,672     29,873     30,096     30,020     29,867  
Cash dividends declared per common share   $ 0.21   $ 0.20   $ 0.20   $ 0.20   $ 0.20  
Book value     15.78     15.39     15.51     15.37     15.56  
Tangible book value     7.13     6.75     7.39     7.17     7.53  
Common stock price (end of period)     19.52     20.02     20.92     23.00     22.16  


Summary of Financial Data
(Dollars in thousands, expect per share data)
2007 2006
 
 
 
    3rd Qtr   2nd Qtr   1st Qtr   4th Qtr   3rd Qtr  
Asset Quality                      
Nonaccrual loans   $ 8,932   $ 9,191   $ 10,697   $ 11,382   $ 11,414  
Accruing loans 90+ days delinquent     451     779     1,914     1,207     1,133  
   Total nonperforming loans     9,383     9,970     12,611     12,589     12,547  
Other real estate owned (OREO)     1,097     1,411     1,916     1,838     1,320  
     Total nonperforming assets     10,480     11,381     14,527     14,427     13,867  
Net charge-offs     753     362     622     1,400     1,115  
Loan loss allowance/loans outstanding     1.31 %   1.33 %   1.34 %   1.34 %   1.33 %
Nonperforming loans/loans outstanding     0.34 %   0.36 %   0.47 %   0.47 %   0.47 %
Loan loss allowance/nonperforming loans     388 %   368 %   285 %   288 %   283 %
Net charge-offs/average loans     0.11 %   0.05 %   0.09 %   0.21 %   0.17 %
Delinquent loans/ending loans     1.10 %   0.95 %   1.02 %   1.33 %   1.22 %
Loan loss provision/net charge-offs     68 %   114 %   32 %   101 %   117 %
Nonperforming assets/total assets     0.22 %   0.25 %   0.32 %   0.32 %   0.32 %
 
(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.