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Community Bank System Reports Strong Third Quarter Operating Results

Upstate New York Branch Banking Expansion

The Company completed the acquisition and conversion of 16 HSBC branches (July 23, 2012) and three First Niagara branches (September 7, 2012) in its core Upstate New York markets in the third quarter. In total, approximately $160 million of loans and $800 million of deposits were acquired in these transactions during the quarter.

Increased Cash Dividend Declared

In September, the Company’s Board of Directors declared a quarterly cash dividend of $0.27 per share on the Company’s common stock, payable on October 10, 2012 to shareholders of record as of September 14, 2012. The increase of $0.01, or 3.8%, represented the twentieth (20 th) consecutive annual increase in the Company’s dividend. Based upon the closing price for a share of Community Bank System, Inc. common stock of $27.48 on October 22, 2012, the $0.27 per share quarterly dividend represents an approximate annual yield of 3.9%.

Conference Call Scheduled

Company management will conduct an investor call at 11:00 a.m. (ET) tomorrow (Wednesday) October 24, 2012 to discuss third quarter results. The conference call can be accessed at 1-877-641-0093 (1-904-520-5773 if outside United States and Canada). An audio recording will be available one hour after the call until December 31, 2012, and may be accessed at 1-888-284-7564 (1-904-596-3174 if outside the United States and Canada) and entering access code 2949921. Investors may also listen live via the Internet at: [ http://www.videonewswire.com/event.asp?id=89923 ] and may be accessed at any point during this time at no cost.

This earnings release, including supporting financial tables, is available within the press releases section of the Company's investor relations website at: http://ir.communitybanksystem.com. An archived webcast of the earnings call will be available on this site for one full year.

Headquartered in DeWitt, N.Y., Community Bank System, Inc. has $7.6 billion in assets and over 180 customer facilities. The Company’s banking subsidiary, Community Bank, N.A. operates across Upstate New York and Northeastern Pennsylvania, where it conducts business as First Liberty Bank & Trust. Its other subsidiaries include: Benefit Plans Administrative Services, Inc., a national employee benefits consulting and trust administration firm with offices in New York, New Jersey, Pennsylvania and Texas; the CBNA Insurance Agency, with offices in five northern New York communities; Community Investment Services, Inc., a wealth management firm delivering a wide range of financial products throughout the Company's branch network; and Nottingham Advisors, an investment management and advisory firm with offices in Buffalo, N.Y. and North Palm Beach, Florida. For more information, visit: www.communitybankna.com or www.firstlibertybank.com.

     
Summary of Financial Data
(Dollars in thousands, expect per share data)              
Quarter Ended   Year-to-Date
  September 30, September 30, September 30, September 30,
Earnings

2012

  2011   2012   2011
Loan income $48,590 $50,702 $143,305 $142,470
Investment income 22,804 19,716 66,145 58,085
Total interest income 71,394 70,418 209,450 200,555
Interest expense 12,619 15,850 38,995 46,277
Net interest income 58,775 54,568 170,455 154,278
Provision for loan losses 2,643 1,043 6,442 3,143
Net interest income after provision for loan losses 56,132 53,525 164,013 151,135
Deposit service fees 12,057 11,134 33,461 31,307
Mortgage banking revenues 128 320 682 1,698
Other banking services 1,278 1,179 2,614 2,222
Wealth management services 3,193 2,904 9,426 7,866
Benefit trust, administration, consulting and actuarial fees 8,912 7,685 26,549 23,722
Investment securities and debt extinguishment gains/(losses), net 291 (6) 291 8
Total noninterest income 25,859 23,216 73,023 66,823
Salaries and employee benefits 28,126 26,543 82,395 75,185
Occupancy and equipment and furniture 6,541 6,103 19,134 18,413
Amortization of intangible assets 1,212 1,161 3,343 3,251
Acquisition expenses 4,797 381 5,221 4,689
Other 15,409 13,905 44,765 40,997
Total operating expenses 56,085 48,093 154,858 142,535
Income before income taxes 25,906 28,648 82,178 75,423
Income taxes 7,539 8,640 23,914 21,269
Net income $18,367 $20,008 $58,264 $54,154
Basic earnings per share $0.46 $0.54 $1.48 $1.52
Diluted earnings per share $0.46   $0.54   $1.46   $1.50
 
                           

Summary of Financial Data (Dollars in thousands, except per share data)

 

                                 
2012       2011
  3rd Qtr       2nd Qtr       1st Qtr       4th Qtr       3rd Qtr
Earnings                                  
Loan income $48,590 $47,077 $47,638 $50,511 $50,702
Investment income 22,804 23,468 19,873 19,903 19,716
Total interest income 71,394 70,545 67,511 70,414 70,418
Interest expense 12,619 12,774 13,602 15,279 15,850
Net interest income 58,775 57,771 53,909 55,135 54,568
Provision for loan losses 2,643 2,155 1,644 1,593 1,043
Net interest income after provision for loan losses 56,132 55,616 52,265 53,542 53,525
Deposit service fees 12,057 11,035 10,369 11,027 11,134
Mortgage banking revenues 128 234 320 37 320
Other banking services 1,278 662 674 694 1,179
Wealth management services 3,193 3,101 3,132 2,831 2,904
Benefit trust, administration, consulting and actuarial fees 8,912 8,664 8,973 7,879 7,685
Investment securities gains/(losses), net 291 0 0 (69) (6)
Total noninterest income 25,859 23,696 23,468 22,399 23,216
Salaries and employee benefits 28,126 26,844 27,425 27,093 26,543
Occupancy and equipment and furniture 6,541 6,130 6,463 6,089 6,103
Amortization of intangible assets 1,212 1,045 1,086 1,130 1,161
Acquisition expenses 4,797 164 260 142 381
Other 15,409 15,187 14,169 13,383 13,905
Total operating expenses 56,085 49,370 49,403 47,837 48,093
Income before income taxes 25,906 29,942 26,330 28,104 28,648
Income taxes 7,539 8,871 7,504 9,116 8,640
Net income $18,367 $21,071 $18,826 $18,988 $20,008
Basic earnings per share $0.46 $0.53 $0.49 $0.51 $0.54
Diluted earnings per share $0.46       $0.53       $0.48       $0.51       $0.54
Profitability                                  
Return on assets 0.98% 1.20% 1.14% 1.16% 1.23%
Return on equity 8.12% 9.82% 9.22% 9.96% 10.67%
Return on tangible equity (3) 13.27% 16.01% 15.59% 17.91% 19.63%
Noninterest income/operating income (FTE) (1) 28.8% 27.6% 28.8% 27.6% 28.5%
Efficiency ratio (2) 56.5%       56.1%       59.0%       57.2%       57.0%
Components of Net Interest Margin (FTE)                                  
Loan yield 5.25% 5.42% 5.58% 5.80% 5.81%
Cash equivalents yield 0.26% 0.34% 0.26% 0.25% 0.25%
Investment yield 3.82% 3.97% 4.33% 4.49% 4.55%
Earning asset yield 4.54% 4.78% 4.89% 5.11% 5.13%
Interest-bearing deposit rate 0.40% 0.44% 0.56% 0.65% 0.70%
Borrowing rate 3.56% 2.85% 3.79% 4.21% 4.27%
Cost of all interest-bearing funds 0.94% 0.99% 1.13% 1.27% 1.32%
Cost of funds (includes DDA) 0.78% 0.84% 0.96% 1.08% 1.12%
Net interest margin (FTE) 3.79% 3.96% 3.96% 4.06% 4.04%
Fully tax-equivalent adjustment $4,332       $4,335       $4,031       $3,851       $3,836
 
                           

Summary of Financial Data (Dollars in thousands, except per share data)

 

                                 
2012       2011
  3rd Qtr       2nd Qtr       1st Qtr       4th Qtr       3rd Qtr
Average Balances                                  
Loans $3,708,143 $3,512,427 $3,454,240 $3,473,366 $3,481,087
Cash equivalents 138,251 10,017 251,828 233,984 240,127
Taxable investment securities 2,065,121 2,091,575 1,565,215 1,495,590 1,458,127
Nontaxable investment securities 717,608 692,839 613,947 567,835 560,051
Total interest-earning assets 6,629,123 6,306,858 5,885,230 5,770,775 5,739,392
Total assets 7,426,818 7,058,473 6,618,812 6,474,722 6,447,210
Interest-bearing deposits 4,409,813 4,003,213 3,964,062 3,929,231 3,926,457
Borrowings 918,789 1,182,707 859,774 830,344 832,505
Total interest-bearing liabilities 5,328,602 5,185,920 4,823,836 4,759,575 4,758,962
Noninterest-bearing deposits 1,066,689 907,153 884,451 878,443 867,373
Shareholders' equity 900,147       862,747       821,043       756,334       743,730
Balance Sheet Data                                  
Cash and cash equivalents $287,753 $130,902 $132,055 $324,878 $425,877
Investment securities 2,895,285 2,931,918 2,765,145 2,151,370 2,075,283
Loans:
Business lending 1,233,928 1,216,309 1,210,773 1,226,439 1,261,125
Consumer mortgage 1,390,130 1,289,155 1,245,217 1,214,621 1,167,781
Consumer installment - indirect 642,196 591,249 542,605 556,955 564,423
Home equity 372,493 310,555 317,716 323,840 328,468
Consumer installment - direct 173,710 154,402 144,428 149,170 154,672
Total loans 3,812,457 3,561,670 3,460,739 3,471,025 3,476,469
Allowance for loan losses 42,817 41,828 41,809 42,213 42,463
Intangible assets 388,397 358,435 359,480 360,564 360,228
Other assets 229,298 225,234 236,848 222,651 208,460
Total assets 7,570,373 7,166,331 6,912,458 6,488,275 6,503,854
Deposits:
Noninterest-bearing 1,098,135 944,695 911,131 894,464 887,009
Non-maturity interest-bearing 3,533,837 2,942,333 2,974,191 2,776,532 2,782,241
Time 1,076,657 1,023,324 1,066,685 1,124,249 1,169,503
Total deposits 5,708,629 4,910,352 4,952,007 4,795,245 4,838,753
Borrowings 728,116 1,157,872 910,427 728,281 728,335
Subordinated debt held by unconsolidated subsidiary trusts 102,067 102,060 102,054 102,048 102,042
Other liabilities 126,962 110,988 107,297 88,118 79,091
Total liabilities 6,665,774 6,281,272 6,071,785 5,713,692 5,748,221
Shareholders' equity 904,599 885,059 840,673 774,583 755,633
Total liabilities and shareholders' equity 7,570,373       7,166,331       6,912,458       6,488,275       6,503,854
Capital                                  
Tier 1 leverage ratio 8.32% 8.98% 9.37% 8.38% 8.17%
Tangible equity/net tangible assets (3) 7.54% 8.09% 7.70% 7.12% 6.79%
Diluted weighted average common shares O/S 40,139 40,057 39,323 37,491 37,312
Period end common shares outstanding 39,571 39,472 39,439 36,986 36,829
Cash dividends declared per common share $0.27 $0.26 $0.26 $0.26 $0.26
Book value $22.86 $22.42 $21.32 $20.94 $20.52
Tangible book value (3) $13.73 $14.00 $12.84 $11.85 $11.37
Common stock price (end of period) $28.19       $27.12       $28.78       $27.80       $22.69
 
                             

Summary of Financial Data (Dollars in thousands, except per share data)

 

                                 
2012       2011
  3rd Qtr       2nd Qtr       1st Qtr       4th Qtr       3rd Qtr
Asset Quality                                  
Nonaccrual loans $27,370 $28,571 $27,757       $28,285 $16,502
Accruing loans 90+ days delinquent 3,349 3,437 3,889 3,090 2,319
Total nonperforming loans 30,719 32,008 31,646 31,375 18,821
Other real estate owned (OREO) 3,384 2,899 2,690 2,682 2,776
Total nonperforming assets 34,103 34,907 34,336 34,057 21,597
Net charge-offs 1,654 2,136 2,048 1,844 1,111
Allowance for loan losses/loans outstanding 1.12% 1.17% 1.21% 1.22% 1.22%
Nonperforming loans/loans outstanding 0.81% 0.90% 0.91% 0.90% 0.54%
Allowance for loan losses/nonperforming loans 139% 131% 132% 135% 226%
Net charge-offs/average loans 0.18% 0.24% 0.24% 0.21% 0.13%
Delinquent loans/ending loans 1.79% 1.71% 1.78% 2.05% 1.56%
Loan loss provision/net charge-offs 160% 101% 80% 86% 94%
Nonperforming assets/total assets 0.45%       0.49%       0.50%       0.52%       0.33%
Asset Quality (excluding loans acquired since 1/1/09)                                  
Nonaccrual loans $21,733 $22,395 $20,178 $17,585 $13,540
Accruing loans 90+ days delinquent 3,038 3,070 2,700 2,878 2,233
Total nonperforming loans 24,771 25,465 22,878 20,463 15,773
Other real estate owned (OREO) 1,671 1,577 1,778 1,734 1,810
Total nonperforming assets 26,442 27,042 24,656 22,196 17,583
Net charge-offs 1,754 1,217 752 1,844 1,111
Allowance for loan losses/loans outstanding 1.24% 1.28% 1.30% 1.36% 1.38%
Nonperforming loans/loans outstanding 0.74% 0.79% 0.74% 0.69% 0.52%
Allowance for loan losses/nonperforming loans 167% 161% 175% 197% 268%
Net charge-offs/average loans 0.21% 0.16% 0.10% 0.24% 0.14%
Delinquent loans/ending loans 1.65% 1.62% 1.61% 1.77% 1.57%
Loan loss provision/net charge-offs 119% 180% 37% 79% 72%
Nonperforming assets/total assets 0.37%       0.40%       0.38%       0.36%       0.29%
 
(1) Excludes gain (loss) on investment securities.
(2) Excludes intangible amortization, goodwill impairment, acquisition expenses, and gain (loss) on investment securities.
(3) Includes deferred tax liabilities (of approximately $27.0 million at 9/30/12) generated from tax deductible goodwill.
 

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.



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