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Community Bank System Reports Strong Third Quarter Operating Results

Community Bank System, Inc. (NYSE: CBU) reported third quarter 2012 net income of $18.4 million, or $0.46 per share, compared with $20.0 million, or $0.54 per share reported for the third quarter of 2011. Current year results included $4.8 million of acquisition-related expenses, or $0.08 per share, compared with $0.4 million incurred in the prior year period. The Company reported earnings of $58.3 million for the first nine months of 2012, an increase of 7.6% over the first three quarters of 2011.

“Our third quarter operating performance was at record levels and was characterized by solid revenue growth, strong organic loan generation, a continuation of our stable and favorable asset quality profile, and the successful completion of the branch acquisitions announced earlier in the year,” said President and Chief Executive Officer Mark E. Tryniski. “With the acquisition and conversion process of 19 former HSBC and First Niagara branch locations in our core Upstate New York markets completed, we are working to solidify and expand the service relationship with our new customers and remain excited by the potential to create incremental shareholder value from this transaction. In September, we increased our quarterly dividend to $0.27 per share, or 3.8% higher, marking the twentieth consecutive year of dividend increases for the Company. We believe that this demonstrates the Company’s commitment to the payment of a meaningful and growing dividend as an important component of providing consistent and favorable long-term returns to our shareholders.”

Total revenue for the third quarter of 2012 was $84.6 million, an increase of $6.9 million, or 8.8%, compared to the prior year third quarter. Net interest income increased 7.7% from the prior year quarter to $58.8 million, the result of an $890 million increase in average interest-earning assets, comprised of an additional $663 million of investment securities (including cash equivalents) and a $227 million increase in average loans. On a linked quarter basis, ending loans grew $250.8 million, with $152.6 million of the increase coming from the branch acquisitions, and $98.2 million (or 2.8%) from organic growth, primarily in consumer installment and mortgage products. Although quarterly net interest income was up 1.7% and 7.7% over the second quarter of 2012 and the third quarter of 2011 respectively, as expected, the completion of the branch acquisitions (and its associated net liquidity characteristics) in the quarter contributed to a reduction in the Company’s net interest margin to 3.79%. Quarterly net interest income generation reflected the pre-investing of a portion of the net liquidity received from the branch acquisitions principally in US Treasury and other high-quality government securities that began late in the first quarter of 2012.

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