Community Bank System, Inc. (NYSE: CBU) reported second quarter 2011 net income of $18.0 million ($0.49 per share), an increase of 11.3% over the $16.2 million reported for the second quarter of 2010. The second quarter 2011 results included $3.6 million ($0.07 per share) of acquisition expenses related to the Company’s purchase of The Wilber Corporation, completed in early April. Excluding acquisition expenses and special charges, earnings per share were up 16.7% over the prior year to $0.56, a record for the Company’s second quarter. 2011 year-to-date earnings of $34.1 million, or $0.96 per share, include $4.3 million ($0.09 per share) of acquisition expenses.

Total revenue for the second quarter of 2011 was $76.9 million, an increase of $8.6 million, or 12.6%, over the second quarter of last year. The higher revenue was a result of a 16.2% increase in average earning assets, principally from the Wilber acquisition, and a three-basis point improvement in the Company’s net interest margin to 4.13%. The quarterly provision for loan losses of $1.1 million was $1.0 million lower than the second quarter of 2010, reflective of lower net charge-offs and the continuation of generally stable and favorable asset quality metrics. Total operating expenses were $51.1 million for the quarter, including $3.6 million of acquisition expenses related to Wilber. Recurring operating expenses of $47.5 million (excluding acquisition expenses and special charges) for the quarter were $3.5 million, or 7.9%, higher than the second quarter of 2010, reflective of the additional operating costs from the Wilber acquisition, partially offset by lower intangible amortization.

“With record operating earnings in each of the first two quarters, the closing of a strategic acquisition and continued strong operating metrics, we are well positioned for the second half of 2011,” said President and Chief Executive Officer Mark E. Tryniski. “Our team is successfully integrating the former Wilber National Bank branch locations that mark our substantive entry into the eastern half of Upstate New York. This acquisition remains an exciting and significant opportunity to expand our Upstate New York service area. We entered this contiguous region with significant market presence, attractive deposit share and a history of effectively attracting and retaining customers in areas with similar demographic characteristics. In addition, it would be difficult to overstate the importance of our ability to continue to deliver superior asset quality in relation to our bottom line performance. With second quarter net charge-offs of $0.7 million, or 0.08% of average loans, and nonperforming loans to total loans of 0.58%, the quality of our loan portfolio remains a significant operating strength.”

Second quarter net interest income grew to $54.2 million, an increase of 17.9% above the second quarter of 2010, resulting from an increase in interest-earning assets and a higher net interest margin. The Company has productively reinvested most of its cash flow generation during the last year, while still retaining a significant net liquidity position, which grew slightly in the second quarter with the Wilber acquisition. Low market interest rates and continued disciplined deposit pricing resulted in a 25-basis point reduction in the total cost of funds, compared to the second quarter of 2010. This was offset by a 24-basis point decline in earning asset yields, including cash equivalents, reflective of lower yields on both investment securities and loans. On a linked quarter basis the Company’s net interest margin improved five basis points, including the positive impact of acquisition-related, fair value accounting accretion.

Second quarter non-interest income of $22.8 million was 1.7% higher than the second quarter of last year. The Company’s employee benefits administration and consulting businesses grew revenues by 8.2% over last year’s second quarter, and its wealth management group (including activities from the Wilber acquisition) generated a 4.3% revenue improvement. Mortgage banking revenues were up $0.4 million from last year’s second quarter, related entirely to the recovery of previously recognized impairments of mortgage servicing rights. These improvements in non-interest income were partially offset by a $0.8 million, or 7.5 % reduction in deposit service fees, principally related to lower customer utilization of certain fee-based deposit services, including overdraft protection programs.

Quarterly operating expenses of $47.5 million (excluding acquisition expenses and special charges) were $3.5 million, or 7.9% above the second quarter of 2010, reflective of additional operating costs associated with the Wilber acquisition completed in early April, offset slightly by a decline in FDIC insurance costs and lower amortization of intangible assets.

Financial Position

Average earning assets for the second quarter of $5.66 billion were $740.3 million above the first quarter of 2011, and 16.2% higher than the second quarter of last year. Ending loans increased $477.7 million from March 2011, reflective of the Wilber acquisition which added approximately $444 million of net loans, as well as nearly $34 million of organic loan growth in the quarter, driven primarily by increases in consumer installment balances. In addition, a significant portion of the Company’s new, low-rate mortgage originations continued to be sold into the secondary market during the quarter. Average investment securities, including cash equivalents of $177.2 million, increased $292.0 million in the quarter, principally as a result of the Wilber transaction. Quarterly average deposits were $704.0 million higher than the first quarter of 2011, and 17.9% higher than the second quarter of 2010, including relationships acquired from Wilber. Average borrowings for the quarter of $839.0 million were up slightly from both the first quarter of 2011 and the second quarter of last year. Quarter-end shareholders’ equity of $730.1 million was $106.0 million higher than March 31, 2011, and included the issuance of 3.4 million additional shares in conjunction with the Wilber acquisition. The Company’s net tangible equity to net tangible assets ratio improved to 6.44% at quarter-end, up 52 basis points from the end of last year’s second quarter.

“We continued to improve operating results in the second quarter of 2011 despite soft commercial market conditions,” said Mr. Tryniski. “A very successful first quarter of results from the Wilber acquisition, combined with organic consumer loan growth and the continuation of favorable asset quality enabled us to produce record second quarter operating earnings, reflecting the effectiveness of our disciplined and balanced approach to business.”

Asset Quality

Second quarter net charge-offs were $0.7 million, compared to $1.4 million in the first quarter of 2011, and $1.5 million in the second quarter of 2010, reflective of the Company’s stable and favorable asset quality profile.

Nonperforming loans as a percentage of total loans at June 30, 2011 were 0.58%, down slightly from 0.59% at the end of March 2011, and 0.68% at June 30, 2010. The total delinquency ratio of 1.49% was up three basis points from March 31, 2011, and four basis points from the 1.45% level reported at June 30, 2010. Quarter-end nonperforming assets to total assets of 0.37%, was four basis points lower than the end of last year’s second quarter, but up two basis points from the end of March. These favorable asset quality metrics continue to be noticeably better than comparative peer and industry averages and illustrate the long-term effectiveness of the Company’s disciplined risk management and underwriting standards.

The second quarter provision for loan losses of $1.1 million was $1.0 million lower than the second quarter of 2010 and even with the first quarter of 2011. The second quarter’s provision was $0.38 million higher than quarterly net charge-offs, indicative of generally stable delinquency ratios and non-performing asset levels and a net increase in total loan balances. The ratio of allowance for loan losses to total loans outstanding was 1.22% as of June 30, 2011 (1.40% excluding acquired Wilber loans), consistent with the 1.40% reported at both March 31, 2011 and December 31, 2010, and slightly above the 1.38% level at the end of the second quarter of 2010.

Community Bank System Completes the Acquisition of The Wilber Corporation

On April 8, 2011, the Company completed the acquisition of The Wilber Corporation (NYSE Amex: GIW), parent company of the Wilber National Bank based in Oneonta, NY, for approximately $103 million in stock and cash. The acquisition extends the Bank’s New York service area to the contiguous Central, Greater Capital, and Catskills regions of Upstate New York. Upon the completion of the merger, Community Bank added 22 branch locations in eight counties, net loans of approximately $464 million, and customer deposits of nearly $772 million.

Dividend Increase

The Company’s Board of Directors approved a $0.02, or 8.3% increase in its quarterly dividend on its common stock to $0.26 per share, payable on October 7, 2011, to shareholders of record as of September 15, 2011. The increased cash dividend represents an annualized yield of 4.2% based on the Company’s closing price of $24.77 on July 25, 2011, and is the nineteenth (19 th) consecutive year of dividend increases for the Company. Mr. Tryniski commented, “The payment of a meaningful dividend is an important component of our commitment to provide consistent and favorable long-term returns to our shareholders. This increase reflects the strength of both our current operating performance and capital position.”

Conference Call Scheduled

Company management will conduct an investor call at 11:00 a.m. (ET) tomorrow (July 27, 2011) to discuss second quarter results. The conference call can be accessed at 1-866-337-4015 (1-904-271-2003 if outside United States and Canada). An audio recording will be available one hour after the call until September 30, 2011, and may be accessed at 1-888-284-7564 (1-904-596-3174 if outside the United States and Canada) and entering access code 2669551. Investors may also listen live via the Internet at: http://www.videonewswire.com/event.asp?id=80868.

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.

Headquartered in DeWitt, N.Y., Community Bank System, Inc. has $6.4 billion in assets and over 170 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., an employee benefits consulting and trust administration firm with offices in Upstate New York, Pittsburgh and Philadelphia, Pennsylvania and Houston, Texas; the CBNA Insurance Agency, with offices in four northern New York communities; 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, Florida. For more information, visit: www.communitybankna.com or www.firstlibertybank.com.

Summary of Financial Data
(Dollars in thousands, except per share data)                          
Quarter Ended     Year-to-date
June 30,     June 30,     June 30,     June 30,
        2011     2010     2011     2010
Earnings                          
Loan income $49,471 $44,851 $91,768 $89,524
Investment income 20,379 17,772 38,369 34,151
Total interest income 69,850 62,623 130,137 123,675
Interest expense 15,663 16,678 30,427 34,448
Net interest income 54,187 45,945 99,710 89,227
Provision for loan losses 1,050 2,050 2,100 3,870
Net interest income after provision for loan losses 53,137 43,895 97,610 85,357
Deposit service fees 10,488 11,337 20,173 21,856
Mortgage banking revenues 982 592 1,378 1,075
Other banking services 645 523 1,043 963
Trust, investment and asset management fees 2,782 2,666 4,962 5,042
Benefit plan administration, consulting and actuarial fees 7,854 7,260 16,037 15,159
Investment securities and debt extinguishment gain, net 14 0 14 0
Total noninterest income 22,765 22,378 43,607 44,095
Salaries and employee benefits 25,531 22,509 48,642 45,445
Occupancy and equipment and furniture 6,253 5,614 12,310 11,839
Amortization of intangible assets 1,189 1,849 2,090 3,708
FDIC insurance 1,177 1,485 2,538 3,057
Acquisition expenses & special charges 3,617 199 4,308 199
Other 13,359 12,564 24,554 24,165
Total operating expenses 51,126 44,220 94,442 88,413
Income before income taxes 24,776 22,053 46,775 41,039
Income taxes 6,790 5,891 12,629 10,875
Net income $17,986 $16,162 $34,146 $30,164
Basic earnings per share $0.49 $0.49 $0.97 $0.91
Diluted earnings per share       $0.49     $0.48     $0.96     $0.90
 

Summary of Financial Data
                       
(Dollars in thousands, except per share data)                            
2011       2010
        2nd Qtr     1st Qtr       4th Qtr     3rd Qtr     2nd Qtr
Earnings                                  
Loan income $49,471 $42,297 $44,085 $45,094 $44,851
Investment income 20,379 17,990 17,924 17,503 17,772
Total interest income 69,850 60,287 62,009 62,597 62,623
Interest expense 15,663 14,764 15,876 16,273 16,678
Net interest income 54,187 45,523 46,133 46,324 45,945
Provision for loan losses 1,050 1,050 1,935 1,400 2,050
Net interest income after provision for loan losses 53,137 44,473 44,198 44,924 43,895
Deposit service fees 10,488 9,685 10,321 11,180 11,337
Mortgage banking revenues 982 396 1,408 1,215 592
Other banking services 645 398 462 863 523
Trust, investment and asset management fees 2,782 2,180 2,391 2,400 2,666
Benefit plan administration, consulting and actuarial fees 7,854 8,183 7,201 7,256 7,260
Investment securities and debt extinguishment gain, net 14 0 0 0 0
Total noninterest income 22,765 20,842 21,783 22,914 22,378
Salaries and employee benefits 25,531 23,111 22,900 23,056 22,509
Occupancy and equipment and furniture 6,253 6,057 5,520 5,574 5,614
Amortization of intangible assets 1,189 901 972 1,277 1,849
FDIC insurance 1,177 1,361 1,182 1,599 1,485
Acquisition expenses & special charges 3,617 691 1,107 57 199
Other 13,359 11,195 12,440 12,789 12,564
Total operating expenses 51,126 43,316 44,121 44,352 44,220
Income before income taxes 24,776 21,999 21,860 23,486 22,053
Income taxes 6,790 5,839 5,966 6,224 5,891
Net income $17,986 $16,160 $15,894 $17,262 $16,162
Basic earnings per share $0.49 $0.48 $0.48 $0.52 $0.49
Diluted earnings per share       $0.49     $0.48       $0.47     $0.51     $0.48
Profitability                                  
Return on assets 1.14% 1.19% 1.15% 1.25% 1.19%
Return on equity 10.15% 10.70% 10.27% 11.28% 11.12%
Noninterest income/operating income (FTE) (1) 28.7% 29.6% 30.3% 31.4% 31.0%
Efficiency ratio (2)       58.4%     59.3%       57.9%     57.9%     58.0%
Components of Net Interest Margin (FTE)                                  
Loan yield 5.77% 5.73% 5.73% 5.81% 5.87%
Cash equivalents yield 0.24% 0.25% 0.25% 0.27% 0.25%
Investment yield 4.75% 5.01% 5.00% 4.84% 4.97%
Earning asset yield 5.24% 5.30% 5.36% 5.41% 5.48%
Interest-bearing deposit rate 0.70% 0.75% 0.86% 0.90% 0.96%
Borrowing rate 4.24% 4.28% 4.28% 4.28% 4.28%
Cost of all interest-bearing funds 1.34% 1.47% 1.56% 1.59% 1.64%
Cost of funds (includes DDA) 1.14% 1.25% 1.32% 1.35% 1.39%
Net interest margin (FTE) 4.13% 4.08% 4.07% 4.08% 4.10%
Fully tax-equivalent adjustment       $4,018     $3,969       $3,865     $3,788     $3,835
 
Summary of Financial Data                        
(Dollars in thousands, except per share data)                            
2011       2010
        2nd Qtr     1st Qtr       4th Qtr     3rd Qtr     2nd Qtr
Average Balances                                  
Loans $3,454,246 $3,005,926 $3,061,060 $3,088,590 $3,074,259
Cash equivalents 177,154 159,044 105,242 50,484 64,731
Taxable investment securities 1,447,816 1,188,182 1,159,110 1,182,243 1,204,551
Nontaxable investment securities 579,795 565,564 554,014 550,660 524,697
Total interest-earning assets 5,659,011 4,918,716 4,879,426 4,871,977 4,868,238
Total assets 6,313,391 5,487,618 5,481,129 5,474,952 5,454,073
Interest-bearing deposits 3,864,671 3,234,986 3,206,327 3,217,831 3,252,025
Borrowings 839,003 830,454 831,025 832,568 837,356
Total interest-bearing liabilities 4,703,674 4,065,440 4,037,352 4,050,399 4,089,381
Noninterest-bearing deposits 813,789 739,515 743,698 736,203 717,171
Shareholders' equity       $710,765     $612,559       $613,734     $606,912     $582,715
Balance Sheet Data                                  
Cash and cash equivalents $273,693 $296,938 $211,837 $179,556 $133,967
Investment securities 2,088,105 1,792,246 1,742,324 1,769,149 1,757,967
Loans:
Business lending 1,290,893 1,006,114 1,023,286 1,045,849 1,061,828
Consumer mortgage 1,149,219 1,055,164 1,057,332 1,065,297 1,064,471
Consumer installment - indirect 549,449 500,058 494,813 508,502 511,810
Home equity 330,213 299,925 305,936 312,396 312,118
Consumer installment - direct 158,376 139,183 144,996 148,353 140,924
Total loans 3,478,150 3,000,444 3,026,363 3,080,397 3,091,151
Allowance for loan losses 42,531 42,147 42,510 42,610 42,603
Intangible assets 363,015 311,076 311,714 312,686 313,963
Other assets 230,053 190,815 194,778 197,039 193,357
Total assets 6,390,485 5,549,372 5,444,506 5,496,217 5,447,802
Deposits:
Noninterest-bearing 849,071 754,892 741,166 738,994 713,544
Non-maturity interest-bearing 2,721,589 2,361,312 2,272,013 2,253,447 2,203,686
Time 1,186,442 904,827 920,866 973,894 1,022,745
Total deposits 4,757,102 4,021,031 3,934,045 3,966,335 3,939,975
Borrowings 728,441 728,385 728,460 729,508 729,557
Subordinated debt held by unconsolidated subsidiary trusts 102,036 102,030 102,024 102,018 102,012
Other liabilities 72,835 73,826 72,719 82,556 76,438
Total liabilities 5,660,414 4,925,272 4,837,248 4,880,417 4,847,982
Shareholders' equity 730,071 624,100 607,258 615,800 599,820
Total liabilities and shareholders' equity       6,390,485     5,549,372       5,444,506     5,496,217     5,447,802
Capital                                  
Tier 1 leverage ratio 8.06% 8.42% 8.23% 7.99% 7.75%
Tangible equity / net tangible assets (3) 6.44% 6.36% 6.14% 6.21% 5.92%
Diluted weighted average common shares O/S 37,061 33,989 33,786 33,606 33,570
Period end common shares outstanding 36,807 33,429 33,319 33,162 33,146
Cash dividends declared per common share $0.24 $0.24 $0.24 $0.24 $0.24
Book value $19.84 $18.67 $18.23 $18.57 $18.10
Tangible book value (3) $10.59 $10.01 $9.49 $9.74 $9.20
Common stock price (end of period)       $24.79     $24.27       $27.77     $23.01     $22.03
 
Summary of Financial Data                      
(Dollars in thousands, except per share data)                            
2011       2010
      2nd Qtr     1st Qtr       4th Qtr     3rd Qtr     2nd Qtr
Asset Quality                                
Nonaccrual loans $17,833 $14,953 $15,378 $16,025 $18,798
Accruing loans 90+ days delinquent 2,498 2,774 3,091 1,863 2,076
Total nonperforming loans 20,331 17,727 18,469 17,888 20,874
Other real estate owned (OREO) 3,269 1,945 2,011 2,689 1,555
Total nonperforming assets 23,600 19,672 20,480 20,577 22,429
Net charge-offs 666 1,413 2,035 1,393 1,542
Loan loss allowance/loans outstanding 1.22% 1.40% 1.40% 1.38% 1.38%
Nonperforming loans/loans outstanding 0.58% 0.59% 0.61% 0.58% 0.68%
Loan loss allowance/nonperforming loans 209% 238% 230% 238% 204%
Net charge-offs/average loans 0.08% 0.19% 0.26% 0.18% 0.20%
Delinquent loans/ending loans 1.49% 1.46% 1.91% 1.64% 1.45%
Loan loss provision/net charge-offs 158% 74% 95% 100% 133%
Nonperforming assets/total assets     0.37%     0.35%       0.38%     0.37%     0.41%

(1)
 

Excludes gain (loss) on investment securities and amortization/accretion of fair market value purchase accounting adjustments.

(2)

Excludes intangible amortization, goodwill impairment, acquisition expenses, special charges, gain (loss) on investment securities, and amortization/accretion of fair market value purchase accounting adjustments.

(3)

Includes deferred tax liabilities (of approximately $22.6 million at 6/30/11) related to 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.

Copyright Business Wire 2010

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