x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
¨
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
|
COMMUNITY BANK SYSTEM, INC.
(Exact
name of registrant as specified in its
charter)
|
Delaware
|
16-1213679
|
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer
Identification No.)
|
5790 Widewaters Parkway, DeWitt, New
York
|
13214-1883
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Large
accelerated filer ¨
|
Accelerated
filer x
|
Non-accelerated
filer ¨
|
Smaller
reporting company ¨.
|
Page
|
||
Part
I.
|
Financial
Information
|
|
Item
1.
|
||
3
|
||
4
|
||
5
|
||
6
|
||
7
|
||
8
|
||
Item
2.
|
14
|
|
Item
3.
|
28
|
|
|
||
Item
4.
|
29
|
|
Part
II.
|
Other
Information
|
|
Item
1.
|
29
|
|
Item
1A.
|
29
|
|
Item
2.
|
29
|
|
Item
3.
|
29
|
|
Item
4.
|
29
|
|
Item
5.
|
29
|
|
Item
6.
|
30
|
Financial
Statements
|
(Unaudited) March
31, |
December
31,
|
|||||||
2008
|
2007
|
|||||||
Cash
and cash equivalents
|
$ | 160,394 | $ | 130,823 | ||||
Available-for-sale
investment securities, at fair value
|
1,171,603 | 1,254,622 | ||||||
Held-to-maturity
investment securities
|
136,079 | 137,250 | ||||||
Total
investment securities (fair value of $1,309,889 and $1,392,281,
respectively)
|
1,307,682 | 1,391,872 | ||||||
Loans
|
2,837,786 | 2,821,055 | ||||||
Allowance
for loan losses
|
(36,428 | ) | (36,427 | ) | ||||
Net
loans
|
2,801,358 | 2,784,628 | ||||||
Core
deposit intangibles, net
|
18,345 | 19,765 | ||||||
Goodwill
|
234,722 | 234,449 | ||||||
Other
intangibles, net
|
2,044 | 2,002 | ||||||
Intangible
assets, net
|
255,111 | 256,216 | ||||||
Premises
and equipment, net
|
70,109 | 69,685 | ||||||
Accrued
interest receivable
|
25,545 | 25,531 | ||||||
Other
assets
|
38,216 | 38,747 | ||||||
Total
assets
|
$ | 4,658,415 | $ | 4,697,502 | ||||
Liabilities:
|
||||||||
Noninterest-bearing
deposits
|
$ | 563,226 | $ | 584,921 | ||||
Interest-bearing
deposits
|
2,680,156 | 2,643,543 | ||||||
Total
deposits
|
3,243,382 | 3,228,464 | ||||||
Borrowings
|
766,153 | 801,604 | ||||||
Subordinated
debt held by unconsolidated subsidiary trusts
|
101,956 | 127,724 | ||||||
Accrued
interest and other liabilities
|
58,256 | 60,926 | ||||||
Total
liabilities
|
4,169,747 | 4,218,718 | ||||||
Commitment
and contingencies (See Note H)
|
||||||||
Shareholders'
equity:
|
||||||||
Preferred
stock $1.00 par value, 500,000 shares authorized, 0 shares
issued
|
0 | 0 | ||||||
Common
stock, $1.00 par value, 50,000,000 shares
authorized; 33,256,871 and 32,999,544 shares issued in 2008 and
2007, respectively
|
33,257 | 33,000 | ||||||
Additional
paid-in capital
|
212,713 | 208,429 | ||||||
Retained
earnings
|
314,927 | 310,281 | ||||||
Accumulated
other comprehensive income
|
1,399 | 702 | ||||||
Treasury
stock, at cost (3,364,811 and 3,364,811 shares,
respectively)
|
(73,628 | ) | (73,628 | ) | ||||
Total
shareholders' equity
|
488,668 | 478,784 | ||||||
Total
liabilities and shareholders' equity
|
$ | 4,658,415 | $ | 4,697,502 |
Three
Months Ended
|
||||||||
March
31,
|
||||||||
2008
|
2007
|
|||||||
Interest
income:
|
||||||||
Interest
and fees on loans
|
$ | 46,515 | $ | 44,935 | ||||
Interest
and dividends on taxable investments
|
10,714 | 11,103 | ||||||
Interest
and dividends on nontaxable investments
|
5,922 | 5,520 | ||||||
Total
interest income
|
63,151 | 61,558 | ||||||
Interest
expense:
|
||||||||
Interest
on deposits
|
17,694 | 18,120 | ||||||
Interest
on borrowings
|
8,041 | 7,505 | ||||||
Interest
on subordinated debt held by unconsolidated subsidiary
trusts
|
1,818 | 2,566 | ||||||
Total
interest expense
|
27,553 | 28,191 | ||||||
Net
interest income
|
35,598 | 33,367 | ||||||
Less: provision
for loan losses
|
780 | 200 | ||||||
Net
interest income after provision for loan losses
|
34,818 | 33,167 | ||||||
Noninterest
income:
|
||||||||
Deposit
service fees
|
8,261 | 6,977 | ||||||
Other
banking services
|
595 | 670 | ||||||
Benefit
plan administration, consulting and actuarial fees
|
6,312 | 3,972 | ||||||
Wealth
management services
|
2,163 | 1,860 | ||||||
Gain
on sales of investment securities
|
287 | 0 | ||||||
Total
noninterest income
|
17,618 | 13,479 | ||||||
Operating
expenses:
|
||||||||
Salaries
and employee benefits
|
20,386 | 18,286 | ||||||
Occupancy
and equipment
|
5,573 | 4,666 | ||||||
Data
processing and communications
|
3,985 | 3,565 | ||||||
Amortization
of intangible assets
|
1,531 | 1,515 | ||||||
Legal
and professional fees
|
1,298 | 1,187 | ||||||
Office
supplies and postage
|
1,278 | 1,046 | ||||||
Business
development and marketing
|
1,322 | 950 | ||||||
Other
|
3,001 | 2,704 | ||||||
Total
operating expenses
|
38,374 | 33,919 | ||||||
Income
before income taxes
|
14,062 | 12,727 | ||||||
Income
taxes
|
3,164 | 3,071 | ||||||
Net
income
|
$ | 10,898 | $ | 9,656 | ||||
Basic
earnings per share
|
$ | 0.37 | $ | 0.32 | ||||
Diluted
earnings per share
|
$ | 0.36 | $ | 0.32 | ||||
Dividends
declared per share
|
$ | 0.21 | $ | 0.20 |
Accumulated
|
||||||||||||||||||||||||||||
Common
Stock
|
Additional
|
Other
|
||||||||||||||||||||||||||
Shares
|
Amount
|
Paid-In
|
Retained
|
Comprehensive
|
Treasury
|
|||||||||||||||||||||||
Outstanding
|
Issued
|
Capital
|
Earnings
|
Income
|
Stock
|
Total
|
||||||||||||||||||||||
Balance
at December 31, 2007
|
29,634,733 | $ | 33,000 | $ | 208,429 | $ | 310,281 | $ | 702 | $ | (73,628 | ) | $ | 478,784 | ||||||||||||||
Net
income
|
10,898 | 10,898 | ||||||||||||||||||||||||||
Other
comprehensive gain, net of tax
|
697 | 697 | ||||||||||||||||||||||||||
Dividends
declared:
|
||||||||||||||||||||||||||||
Common,
$0.21 per share
|
(6,252 | ) | (6,252 | ) | ||||||||||||||||||||||||
Common
stock issued under Stock plan, including tax benefits of
$294
|
257,327 | 257 | 3,632 | 3,889 | ||||||||||||||||||||||||
Stock
options earned
|
652 | 652 | ||||||||||||||||||||||||||
Balance
at March 31, 2008
|
29,892,060 | $ | 33,257 | $ | 212,713 | $ | 314,927 | $ | 1,399 | $ | (73,628 | ) | $ | 488,668 |
Three
Months Ended
|
||||||||
March
31,
|
||||||||
2008
|
2007
|
|||||||
Other
comprehensive income (loss), before tax:
|
||||||||
Change
in pension liability
|
$ | (146 | ) | $ | (50 | ) | ||
Change
in unrealized loss on derivative instruments used in cash flow hedging
relationship
|
(2,758 | ) | (423 | ) | ||||
Unrealized
gain (loss) on securities:
|
||||||||
Unrealized
holding gain arising during period
|
4,280 | 1,413 | ||||||
Reclassification
adjustment for gains included in net income
|
(287 | ) | 0 | |||||
Other
comprehensive income (loss), before tax:
|
1,089 | 940 | ||||||
Income
tax expense related to other comprehensive income
|
(392 | ) | (237 | ) | ||||
Other
comprehensive income, net of tax:
|
697 | 703 | ||||||
Net
income
|
10,898 | 9,656 | ||||||
Comprehensive
income
|
$ | 11,595 | $ | 10,359 |
Three
Months Ended March 31,
|
||||||||
2008
|
2007
|
|||||||
Operating
activities:
|
||||||||
Net
income
|
$ | 10,898 | $ | 9,656 | ||||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||
Depreciation
|
2,332 | 2,267 | ||||||
Amortization
of intangible assets
|
1,531 | 1,515 | ||||||
Net
(accretion) amortization of premiums and discounts on securities and
loans
|
(470 | ) | (405 | ) | ||||
Amortization
of unearned compensation and discount on subordinated debt
|
128 | 100 | ||||||
Provision
for loan losses
|
780 | 200 | ||||||
Gain
on investment securities and debt extinguishments
|
(287 | ) | 0 | |||||
Loss
(Gain) on sale of loans and other assets
|
39 | (34 | ) | |||||
Proceeds
from the sale of loans held for sale
|
438 | 3,889 | ||||||
Origination
of loans held for sale
|
(440 | ) | (3,863 | ) | ||||
Excess
tax benefits from share-based payment arrangements
|
(287 | ) | (106 | ) | ||||
Change
in other operating assets and liabilities
|
(5,591 | ) | (3,691 | ) | ||||
Net
cash provided by operating activities
|
9,071 | 9,528 | ||||||
Investing
activities:
|
||||||||
Proceeds
from sales of available-for-sale investment securities
|
24,974 | 3,023 | ||||||
Proceeds
from maturities of held-to-maturity investment securities
|
1,645 | 8,095 | ||||||
Proceeds
from maturities of available-for-sale investment
securities
|
187,092 | 56,610 | ||||||
Purchases
of held-to-maturity investment securities
|
(510 | ) | (785 | ) | ||||
Purchases
of available-for-sale investment securities
|
(124,262 | ) | (153,413 | ) | ||||
Net
increase in loans outstanding
|
(17,509 | ) | 18,704 | |||||
Cash
paid for acquisition (net of cash acquired of $0)
|
(304 | ) | 0 | |||||
Capital
expenditures
|
(2,786 | ) | (2,271 | ) | ||||
Net
cash provided by (used in) investing activities
|
68,340 | (70,037 | ) | |||||
Financing
activities:
|
||||||||
Net
change in non-interest checking, interest checking and savings
accounts
|
27,531 | 42,636 | ||||||
Net
change in time deposits
|
(12,613 | ) | 67,533 | |||||
Net
change in short-term borrowings
|
(45,254 | ) | (20,394 | ) | ||||
Change
in long-term borrowings (net of payments of $197 and $322)
|
9,803 | (322 | ) | |||||
Payment
on subordinated debt held by unconsolidated subsidiary
trusts
|
(25,774 | ) | (30,928 | ) | ||||
Issuance
of common stock
|
4,419 | 2,004 | ||||||
Purchase
of treasury stock
|
0 | (1,252 | ) | |||||
Cash
dividends paid
|
(6,239 | ) | (5,989 | ) | ||||
Tax
benefits from share-based payment arrangements
|
287 | 106 | ||||||
Net
cash (used in) provided by financing activities
|
(47,840 | ) | 53,394 | |||||
Change
in cash and cash equivalents
|
29,571 | (7,115 | ) | |||||
Cash
and cash equivalents at beginning of period
|
130,823 | 232,032 | ||||||
Cash
and cash equivalents at end of period
|
$ | 160,394 | $ | 224,917 | ||||
Supplemental
disclosures of cash flow information:
|
||||||||
Cash
paid for interest
|
$ | 28,316 | $ | 29,475 | ||||
Cash
paid for income taxes
|
75 | 0 | ||||||
Supplemental
disclosures of noncash financing and investing activities:
|
||||||||
Dividends
declared and unpaid
|
6,252 | 6,027 | ||||||
Gross
change in unrealized gain on available-for-sale investment
securities
|
3,993 | 1,413 |
(000's
omitted)
|
||||
Cash
and due from banks
|
$ | 9,374 | ||
Available-for-sale
investment securities
|
28,830 | |||
Loans
net of allowance for loan losses of $747
|
54,768 | |||
Premises
and equipment, net
|
3,034 | |||
Other
assets
|
1,286 | |||
Core
deposit & customer list intangibles
|
2,190 | |||
Goodwill
|
14,289 | |||
Total
assets acquired
|
113,771 | |||
Deposits
|
84,120 | |||
Borrowings
|
4,288 | |||
Other
liabilities
|
3,490 | |||
Total
liabilities assumed
|
91,898 | |||
Net
assets acquired
|
$ | 21,873 |
Per
Share
|
||||||||||||
(000's
omitted, except per share data)
|
Income
|
Shares
|
Amount
|
|||||||||
Three
Months Ended March 31, 2008
|
||||||||||||
Basic
EPS
|
$ | 10,898 | 29,720 | $ | 0.37 | |||||||
Stock
options and restricted stock
|
316 | |||||||||||
Diluted
EPS
|
$ | 10,898 | 30,036 | $ | 0.36 | |||||||
Three
Months Ended March 31, 2007
|
||||||||||||
Basic
EPS
|
$ | 9,656 | 30,192 | $ | 0.32 | |||||||
Stock
options and restricted stock
|
355 | |||||||||||
Diluted
EPS
|
$ | 9,656 | 30,547 | $ | 0.32 |
As
of March 31, 2008
|
As
of December 31, 2007
|
|||||||||||||||||||||||
Gross
|
Net
|
Gross
|
Net
|
|||||||||||||||||||||
Carrying
|
Accumulated
|
Carrying
|
Carrying
|
Accumulated
|
Carrying
|
|||||||||||||||||||
(000's
omitted)
|
Amount
|
Amortization
|
Amount
|
Amount
|
Amortization
|
Amount
|
||||||||||||||||||
Amortizing
intangible assets:
|
||||||||||||||||||||||||
Core
deposit intangibles
|
$ | 66,368 | $ | (48,023 | ) | $ | 18,345 | $ | 66,368 | $ | (46,603 | ) | $ | 19,765 | ||||||||||
Other
intangibles
|
4,076 | (2,032 | ) | 2,044 | 3,923 | (1,921 | ) | 2,002 | ||||||||||||||||
Total
amortizing intangibles
|
70,444 | (50,055 | ) | 20,389 | 70,291 | (48,524 | ) | 21,767 | ||||||||||||||||
Non-amortizing
intangible assets:
|
||||||||||||||||||||||||
Goodwill
|
234,722 | 0 | 234,722 | 234,449 | 0 | 234,449 | ||||||||||||||||||
Total
intangible assets, net
|
$ | 305,166 | $ | (50,055 | ) | $ | 255,111 | $ | 304,740 | $ | (48,524 | ) | $ | 256,216 |
(000's
omitted)
|
Amount
|
|||
Apr-Dec
2008
|
$ | 4,561 | ||
2009
|
5,499 | |||
2010
|
3,579 | |||
2011
|
1,481 | |||
2012
|
1,221 | |||
Thereafter
|
4,048 | |||
Total
|
$ | 20,389 |
Issuance
|
Par
|
Maturity
|
||||
Date
|
Amount
|
Interest
Rate
|
Date
|
Call
Provision
|
Call
Price
|
|
III
|
7/31/2001
|
$24.5
million
|
3
month LIBOR plus 3.58% (6.82%)
|
7/31/2031
|
5
year beginning 2006
|
107.5000%
declining to par in 2011
|
IV
|
12/8/2006
|
$75
million
|
3
month LIBOR plus 1.65% (4.45%)
|
12/15/2036
|
5
year beginning 2012
|
Par
|
Pension
Benefits
|
Post-retirement
Benefits
|
|||||||||||||||
Three
Months Ended
|
Three
Months Ended
|
|||||||||||||||
March
31,
|
March
31,
|
|||||||||||||||
(000's
omitted)
|
2008
|
2007
|
2008
|
2007
|
||||||||||||
Service
cost
|
$ | 779 | $ | 763 | $ | 175 | $ | 148 | ||||||||
Interest
cost
|
819 | 678 | 150 | 131 | ||||||||||||
Expected
return on plan assets
|
(1,117 | ) | (1,024 | ) | 0 | 0 | ||||||||||
Net
amortization and deferral
|
165 | 247 | 25 | 29 | ||||||||||||
Amortization
of prior service cost
|
(28 | ) | (23 | ) | 27 | 28 | ||||||||||
Amortization
of transition obligation
|
0 | 0 | 10 | 10 | ||||||||||||
Net
periodic benefit cost
|
$ | 618 | $ | 641 | $ | 387 | $ | 346 |
(000's
omitted)
|
March
31, 2008
|
December
31, 2007
|
||||||
Commitments
to extend credit
|
$ | 481,598 | $ | 482,517 | ||||
Standby
letters of credit
|
10,296 | 10,121 | ||||||
Total
|
$ | 491,894 | $ | 492,638 |
|
·
|
Level
1 – Quoted prices in active markets for identical assets or
liabilities.
|
|
·
|
Level
2 – Quoted prices in active markets for similar assets or liabilities, or
quoted prices for identical or similar assets or liabilities in markets
that are not active, or inputs other than quoted prices that are
observable for the asset or
liability.
|
|
·
|
Level
3 – Significant valuation assumptions not readily observable in a
market.
|
(000's
omitted)
|
Level
1
|
Level
2
|
Level
3
|
Total
Fair Value
|
||||||||||||
Available-for-sale
investment securities
|
$ | 1,062 | $ | 1,052,200 | $ | 69,584 | $ | 1,122,846 | ||||||||
Derivative
assets/(liabilities), net
|
0 | (5,003 | ) | 0 | (5,003 | ) | ||||||||||
Total
|
$ | 1,062 | $ | 1,047,197 | $ | 69,584 | $ | 1,117,843 |
|
·
|
Available
for sale investment securities – The fair value of available for sale
investment securities is based upon quoted prices, if
available. If quoted prices are not available, fair values are
measured using quoted market prices for similar securities or model-based
valuation techniques. Level 1 securities include U.S. Treasury
securities that are traded by dealers or brokers in active
over-the-counter markets. Level 2 securities include
mortgage-backed securities issued by government sponsored entities,
municipal securities and corporate debt securities. Securities
classified as Level 3 include asset-backed securities in less liquid
markets. The value of these instruments is determined using
pricing models or similar techniques as well as significant judgment or
estimation.
|
|
·
|
Derivative
assets and liabilities – The fair value of derivative instruments traded
in over-the-counter markets where quoted market prices are not readily
available, are measured using models that primarily use market observable
inputs, such as yield curves and option
volatilities.
|
(000's
omitted)
|
AFS
investments
|
|||
Balance
at December 31, 2007
|
$ | 73,442 | ||
Total
gains (losses) included in earnings (a)
|
6 | |||
Total
gains (losses) included in other comprehensive income
|
(3,796 | ) | ||
Purchases
|
0 | |||
Sales/calls
|
(68 | ) | ||
Transfers
|
0 | |||
Balance
at March 31, 2008
|
$ | 69,584 |
(000's
omitted)
|
Banking
|
Other
|
Consolidated
Total
|
|||||||||
For
the Three Months Ended March
31, 2008
|
||||||||||||
Net
interest income
|
$ | 35,515 | $ | 83 | $ | 35,598 | ||||||
Provision
for loan losses
|
780 | 0 | 780 | |||||||||
Noninterest
income excluding gain (loss) on investment securities and debt
extinguishments
|
8,467 | 8,864 | 17,331 | |||||||||
Gain
on investment securities
|
287 | 0 | 287 | |||||||||
Amortization
of intangible assets
|
1,421 | 110 | 1,531 | |||||||||
Other
operating expenses
|
29,870 | 6,973 | 36,843 | |||||||||
Income
before income taxes
|
$ | 12,198 | $ | 1,864 | $ | 14,062 | ||||||
Assets
|
$ | 4,622,569 | $ | 35,846 | $ | 4,658,415 | ||||||
Goodwill
|
$ | 221,315 | $ | 13,407 | $ | 234,722 | ||||||
For the Three Months
Ended March 31, 2007
|
||||||||||||
Net
interest income
|
$ | 33,240 | $ | 127 | $ | 33,367 | ||||||
Provision
for loan losses
|
200 | 0 | 200 | |||||||||
Noninterest
income excluding gain (loss) on investment securities and debt
extinguishments
|
7,168 | 6,311 | 13,479 | |||||||||
Amortization
of intangible assets
|
1,445 | 70 | 1,515 | |||||||||
Other
operating expenses
|
27,470 | 4,934 | 32,404 | |||||||||
Income
before income taxes
|
$ | 11,293 | $ | 1,434 | $ | 12,727 | ||||||
Assets
|
$ | 4,528,735 | $ | 30,153 | $ | 4,558,888 | ||||||
Goodwill
|
$ | 208,932 | $ | 11,336 | $ | 220,268 |
Item 2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
·
|
Allowance
for loan losses - The allowance for loan losses reflects management's best
estimate of probable losses inherent in the loan
portfolio. Determination of the allowance is inherently
subjective. It requires significant estimates including the
amounts and timing of expected future cash flows on impaired loans and the
amount of estimated losses on pools of homogeneous loans which is based on
historical loss experience and consideration of current economic trends,
all of which may be susceptible to significant
change.
|
·
|
Actuarial
assumptions associated with pension, post-retirement and other employee
benefit plans - These assumptions include discount rate, rate of future
compensation increases and expected return on plan
assets.
|
·
|
Provision
for income taxes - The Company is subject to examinations from various
taxing authorities. Such examinations may result in challenges
to the tax return treatment applied by the Company to specific
transactions. Management believes that the assumptions and
judgements used to record tax related assets or liabilities have been
appropriate. Should tax laws change or the taxing authorities
determine that management's assumptions were inappropriate an adjustment
may be required which could have a material effect on the Company's
results of operations.
|
·
|
Carrying
value of goodwill and other intangible assets - The carrying value of
goodwill and other intangible assets is based upon discounted cash flow
modeling techniques that require management to make estimates regarding
the amount and timing of expected future cash flows. It also
requires use of a discount rate that reflects the current return
requirements of the market in relation to present risk-free interest
rates, required equity market premiums, and company-specific risk
indicators.
|
Three
Months Ended
|
||||||||
March
31,
|
||||||||
(000's
omitted, except per share data)
|
2008
|
2007
|
||||||
Net
interest income
|
$ | 35,598 | $ | 33,367 | ||||
Provision
for loan losses
|
780 | 200 | ||||||
Noninterest
income excluding security losses
|
17,331 | 13,479 | ||||||
Gain
on sales of investment securities
|
287 | 0 | ||||||
Operating
expenses
|
38,374 | 33,919 | ||||||
Income
before taxes
|
14,062 | 12,727 | ||||||
Income
taxes
|
3,164 | 3,071 | ||||||
Net
income
|
$ | 10,898 | $ | 9,656 | ||||
Diluted
earnings per share
|
$ | 0.36 | $ | 0.32 |
Three
Months Ended
|
||||||||
March
31,
|
||||||||
(000's
omitted)
|
2008
|
2007
|
||||||
Net
income
|
$ | 10,898 | $ | 9,656 | ||||
After-tax
cash adjustments:
|
||||||||
Amortization
of market value adjustments on net assets acquired in
mergers
|
156 | 179 | ||||||
Amortization
of intangible assets
|
1,187 | 1,150 | ||||||
Net
income – cash
|
$ | 12,241 | $ | 10,985 | ||||
Diluted
earnings per share – cash
|
$ | 0.41 | $ | 0.36 |
Three
Months Ended
|
Three
Months Ended
|
|||||||||||||||||||||||
(000's
omitted except yields and rates)
|
March
31, 2008
|
March
31, 2007
|
||||||||||||||||||||||
Avg.
|
Avg.
|
|||||||||||||||||||||||
Average
|
Yield/Rate
|
Average
|
Yield/Rate
|
|||||||||||||||||||||
Balance
|
Interest
|
Paid
|
Balance
|
Interest
|
Paid
|
|||||||||||||||||||
Interest-earning
assets:
|
||||||||||||||||||||||||
Cash
equivalents
|
$ | 44,728 | $ | 318 | 2.86 | % | $ | 102,553 | $ | 1,329 | 5.26 | % | ||||||||||||
Taxable
investment securities (1)
|
764,234 | 10,717 | 5.64 | % | 741,304 | 10,280 | 5.62 | % | ||||||||||||||||
Nontaxable
investment securities
(1)
|
540,993 | 9,334 | 6.94 | % | 500,273 | 8,639 | 7.00 | % | ||||||||||||||||
Loans
(net of unearned discount)
|
2,822,100 | 46,672 | 6.65 | % | 2,684,566 | 45,106 | 6.81 | % | ||||||||||||||||
Total
interest-earning assets
|
4,172,055 | 67,041 | 6.46 | % | 4,028,696 | 65,354 | 6.58 | % | ||||||||||||||||
Noninterest-earning
assets
|
469,964 | 440,548 | ||||||||||||||||||||||
Total
assets
|
$ | 4,642,019 | $ | 4,469,244 | ||||||||||||||||||||
Interest-bearing
liabilities:
|
||||||||||||||||||||||||
Interest
checking, savings and money market deposits
|
$ | 1,260,934 | 2,714 | 0.87 | % | $ | 1,198,183 | 3,340 | 1.13 | % | ||||||||||||||
Time
deposits
|
1,398,650 | 14,980 | 4.31 | % | 1,424,289 | 14,780 | 4.21 | % | ||||||||||||||||
Short-term
borrowings
|
426,116 | 4,419 | 4.17 | % | 159,444 | 1,637 | 4.16 | % | ||||||||||||||||
Long-term
borrowings
|
457,177 | 5,440 | 4.79 | % | 613,624 | 8,434 | 5.57 | % | ||||||||||||||||
Total
interest-bearing liabilities
|
3,542,877 | 27,553 | 3.13 | % | 3,395,540 | 28,191 | 3.37 | % | ||||||||||||||||
Noninterest-bearing
liabilities:
|
||||||||||||||||||||||||
Demand
deposits
|
555,927 | 552,087 | ||||||||||||||||||||||
Other
liabilities
|
60,465 | 56,994 | ||||||||||||||||||||||
Shareholders'
equity
|
482,750 | 464,623 | ||||||||||||||||||||||
Total
liabilities and shareholders' equity
|
$ | 4,642,019 | $ | 4,469,244 | ||||||||||||||||||||
Net
interest earnings
|
$ | 39,488 | $ | 37,163 | ||||||||||||||||||||
Net
interest spread
|
3.33 | % | 3.21 | % | ||||||||||||||||||||
Net
interest margin on interest-earnings assets
|
3.81 | % | 3.74 | % | ||||||||||||||||||||
Fully
tax-equivalent adjustment
|
$ | 3,890 | $ | 3,796 |
(1)
|
Averages
for investment securities are based on historical cost basis and the
yields do not give effect to changes in fair value that is reflected as a
component of shareholders' equity and deferred
taxes.
|
1st
Quarter 2008 versus 1st Quarter 2007
|
||||||||||||
Increase
(Decrease) Due to Change in (1)
|
||||||||||||
Volume
|
Rate
|
Net
Change
|
||||||||||
(000's
omitted)
|
||||||||||||
Interest
earned on:
|
||||||||||||
Cash
equivalents
|
$ | (562 | ) | $ | (449 | ) | $ | (1,011 | ) | |||
Taxable
investment securities
|
321 | 116 | 437 | |||||||||
Nontaxable
investment securities
|
703 | (8 | ) | 695 | ||||||||
Loans
(net of unearned discount)
|
2,283 | (717 | ) | 1,566 | ||||||||
Total
interest-earning assets
(2)
|
2,309 | (622 | ) | 1,687 | ||||||||
Interest
paid on:
|
||||||||||||
Interest
checking, savings and money market deposits
|
168 | (794 | ) | (626 | ) | |||||||
Time
deposits
|
(269 | ) | 469 | 200 | ||||||||
Short-term
borrowings
|
2,766 | 16 | 2,782 | |||||||||
Long-term
borrowings
|
(1,961 | ) | (1,033 | ) | (2,994 | ) | ||||||
Total
interest-bearing liabilities (2)
|
1,192 | (1,830 | ) | (638 | ) | |||||||
Net
interest earnings (2)
|
$ | 1,343 | $ | 982 | $ | 2,325 |
(1)
|
The
change in interest due to both rate and volume has been allocated in
proportion to the relationship of the absolute dollar amounts of such
change in each component.
|
(2)
|
Changes
due to volume and rate are computed from the respective changes in average
balances and
rates and are not a summation of the changes of the
components.
|
Three
Months Ended
|
||||||||
March
31,
|
||||||||
(000's
omitted)
|
2008
|
2007
|
||||||
Deposit
service charges and fees
|
$ | 8,261 | $ | 6,977 | ||||
Benefit
plan administration, consulting and actuarial fees
|
6,312 | 3,972 | ||||||
Wealth
management services
|
2,163 | 1,860 | ||||||
Other
banking services
|
373 | 413 | ||||||
Mortgage
banking
|
222 | 257 | ||||||
Subtotal
|
17,331 | 13,479 | ||||||
Gain
on sales of investment securities
|
287 | 0 | ||||||
Total
noninterest income
|
$ | 17,618 | $ | 13,479 | ||||
Noninterest
income/total income (FTE)
|
30.5 | % | 26.6 | % |
Three
Months Ended
|
||||||||
March
31,
|
||||||||
(000's
omitted)
|
2008
|
2007
|
||||||
Salaries
and employee benefits
|
$ | 20,386 | $ | 18,286 | ||||
Occupancy
and equipment
|
5,573 | 4,666 | ||||||
Data
processing and communications
|
3,985 | 3,565 | ||||||
Amortization
of intangible assets
|
1,531 | 1,515 | ||||||
Legal
and professional fees
|
1,298 | 1,187 | ||||||
Office
supplies and postage
|
1,278 | 1,046 | ||||||
Business
development and marketing
|
1,322 | 950 | ||||||
Other
|
3,001 | 2,704 | ||||||
Total
operating expenses
|
$ | 38,374 | $ | 33,919 | ||||
Operating
expenses/average assets
|
3.32 | % | 3.08 | % | ||||
Efficiency
ratio
|
64.8 | % | 63.8 | % |
March
31, 2008
|
December
31, 2007
|
March
31, 2007
|
||||||||||||||||||||||
Amortized
|
Amortized
|
Amortized
|
||||||||||||||||||||||
Cost/Book
|
Fair
|
Cost/Book
|
Fair
|
Cost/Book
|
Fair
|
|||||||||||||||||||
(000's
omitted)
|
Value
|
Value
|
Value
|
Value
|
Value
|
Value
|
||||||||||||||||||
Held-to-Maturity
Portfolio:
|
||||||||||||||||||||||||
U.S.
Treasury and Agency securities
|
$ | 127,019 | $ | 129,117 | $ | 127,055 | $ | 127,382 | $ | 127,164 | $ | 124,538 | ||||||||||||
Obligations
of state and political subdivisions
|
5,850 | 5,959 | 6,207 | 6,289 | 7,345 | 7,373 | ||||||||||||||||||
Other
securities
|
3,210 | 3,210 | 3,988 | 3,988 | 4,004 | 4,004 | ||||||||||||||||||
Total
held-to-maturity portfolio
|
136,079 | 138,286 | 137,250 | 137,659 | 138,513 | 135,915 | ||||||||||||||||||
Available-for-Sale
Portfolio:
|
||||||||||||||||||||||||
U.S.
Treasury and Agency securities
|
251,006 | 260,473 | 432,832 | 438,526 | 484,354 | 483,805 | ||||||||||||||||||
Obligations
of state and political subdivisions
|
534,985 | 547,991 | 532,431 | 543,963 | 491,172 | 502,447 | ||||||||||||||||||
Corporate
securities
|
37,259 | 37,626 | 40,457 | 40,270 | 35,568 | 35,209 | ||||||||||||||||||
Collateralized
mortgage obligations
|
32,340 | 32,722 | 34,451 | 34,512 | 41,005 | 40,592 | ||||||||||||||||||
Asset-backed
securities
|
73,038 | 68,454 | 73,089 | 72,300 | 0 | 0 | ||||||||||||||||||
Mortgage-backed
securities
|
171,882 | 174,418 | 72,655 | 73,525 | 74,067 | 73,308 | ||||||||||||||||||
Subtotal
|
1,100,510 | 1,121,684 | 1,185,915 | 1,203,096 | 1,126,166 | 1,135,361 | ||||||||||||||||||
Equity
securities
|
49,919 | 49,919 | 51,526 | 51,526 | 43,680 | 43,680 | ||||||||||||||||||
Total
available-for-sale portfolio
|
1,150,429 | 1,171,603 | 1,237,441 | 1,254,622 | 1,169,846 | 1,179,041 | ||||||||||||||||||
Net
unrealized gain on available-for-sale portfolio
|
21,174 | 0 | 17,181 | 0 | 9,195 | 0 | ||||||||||||||||||
Total
|
$ | 1,307,682 | $ | 1,309,889 | $ | 1,391,872 | $ | 1,392,281 | $ | 1,317,554 | $ | 1,314,956 |
(000's omitted)
|
March 31, 2008
|
December 31, 2007
|
March 31, 2007
|
|||||||||||||||||||||
Business
lending
|
$ | 998,443 | 35.2 | % | $ | 984,780 | 34.9 | % | $ | 957,853 | 35.7 | % | ||||||||||||
Consumer
mortgage
|
987,807 | 34.8 | % | 977,553 | 34.7 | % | 914,909 | 34.1 | % | |||||||||||||||
Consumer
installment
|
851,536 | 30.0 | % | 858,722 | 30.4 | % | 809,472 | 30.2 | % | |||||||||||||||
Total
loans
|
$ | 2,837,786 | 100.0 | % | $ | 2,821,055 | 100.0 | % | $ | 2,682,234 | 100.0 | % |
March
31,
|
December
31,
|
March
31,
|
||||||||||
(000's
omitted)
|
2008
|
2007
|
2007
|
|||||||||
Nonaccrual
loans
|
$ | 7,662 | $ | 7,140 | $ | 9,451 | ||||||
Accruing
loans 90+ days delinquent
|
392 | 622 | 1,914 | |||||||||
Restructured
loans
|
1,095 | 1,126 | 1,246 | |||||||||
Total
nonperforming loans
|
9,149 | 8,888 | 12,611 | |||||||||
Other
real estate (OREO)
|
1,027 | 1,007 | 1,916 | |||||||||
Total
nonperforming assets
|
$ | 10,176 | $ | 9,895 | $ | 14,527 | ||||||
Allowance
for loan losses to total loans
|
1.28 | % | 1.29 | % | 1.34 | % | ||||||
Allowance
for loan losses to nonperforming loans
|
398 | % | 410 | % | 285 | % | ||||||
Nonperforming
loans to total loans
|
0.32 | % | 0.32 | % | 0.47 | % | ||||||
Nonperforming
assets to total loans and other real estate
|
0.36 | % | 0.35 | % | 0.54 | % | ||||||
Delinquent
loans (30 days old to nonaccruing) to total loans
|
0.99 | % | 1.10 | % | 1.02 | % | ||||||
Net
charge-offs to average loans outstanding (quarterly)
|
0.11 | % | 0.13 | % | 0.09 | % | ||||||
Loan
loss provision to net charge-offs (quarterly)
|
100 | % | 98 | % | 32 | % |
Three
Months Ended
|
||||||||
March
31,
|
||||||||
(000's
omitted)
|
2008
|
2007
|
||||||
Allowance
for loan losses at beginning of period
|
$ | 36,427 | $ | 36,313 | ||||
Charge-offs:
|
||||||||
Business
lending
|
277 | 240 | ||||||
Consumer
mortgage
|
52 | 235 | ||||||
Consumer
installment
|
1,348 | 1,161 | ||||||
Total
charge-offs
|
1,677 | 1,636 | ||||||
Recoveries:
|
||||||||
Business
lending
|
173 | 257 | ||||||
Consumer
mortgage
|
46 | 1 | ||||||
Consumer
installment
|
679 | 756 | ||||||
Total
recoveries
|
898 | 1,014 | ||||||
Net
charge-offs
|
779 | 622 | ||||||
Provision
for loans losses
|
780 | 200 | ||||||
Allowance
for loan losses at end of period
|
$ | 36,428 | $ | 35,891 | ||||
Net
charge-offs to average loans outstanding:
|
||||||||
Business
lending
|
0.04 | % | -0.01 | % | ||||
Consumer
mortgage
|
0.00 | % | 0.10 | % | ||||
Consumer
installment
|
0.31 | % | 0.20 | % | ||||
Total
loans
|
0.11 | % | 0.09 | % |
March
31,
|
December
31,
|
March
31,
|
||||||||||
(000's
omitted)
|
2008
|
2007
|
2007
|
|||||||||
Demand
deposits
|
$ | 555,927 | $ | 574,266 | $ | 552,087 | ||||||
Interest
checking deposits
|
473,805 | 464,996 | 408,573 | |||||||||
Savings
deposits
|
452,929 | 451,148 | 457,177 | |||||||||
Money
market deposits
|
334,200 | 329,566 | 332,433 | |||||||||
Time
deposits
|
1,398,650 | 1,422,159 | 1,424,289 | |||||||||
Total
deposits
|
$ | 3,215,511 | $ | 3,242,135 | $ | 3,174,559 | ||||||
Non-public
fund deposits
|
$ | 2,995,201 | $ | 3,046,018 | $ | 2,949,201 | ||||||
Public
fund deposits
|
220,310 | 196,117 | 225,358 | |||||||||
Total
deposits
|
$ | 3,215,511 | $ | 3,242,135 | $ | 3,174,559 |
Item 3.
|
Quantitative
and Qualitative Disclosures about Market
Risk
|
·
|
Asset
and liability levels using March 31, 2008 as a starting
point.
|
·
|
There
are assumed to be conservative levels of balance sheet growth—low to mid
single digit growth in loans and deposits, while using the cashflows from
investment contractual maturities and prepayments to repay short-term
capital market borrowings.
|
·
|
The
prime rate and federal funds rates are assumed to move up 200 basis points
and down 100 basis points over a 12-month period while moving the long end
of the treasury curve to spreads over federal funds that are more
consistent with historical norms. Deposit rates are assumed to
move in a manner that reflects the historical relationship between deposit
rate movement and changes in the federal funds
rate.
|
·
|
Cash flows are based on
contractual maturity, optionality and amortization schedules along with
applicable prepayments derived from internal historical data and external
sources.
|
Change
in interest rates
|
Calculated
annualized increase (decrease) in projected net interest income at March
31, 2008
|
+
200 basis points
|
0.4%
|
-
100 basis points
|
(2.6%)
|
Controls
and Procedures
|
Part
II.
|
Other
Information
|
Item 1.
|
Legal
Proceedings
|
Item
1A.
|
Risk
Factors
|
Unregistered
Sales of Equity Securities and Use of
Proceeds
|
Number
of Shares Purchased
|
Average
Price Paid Per share
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or
Programs
|
Maximum
Number of Shares That May Yet Be Purchased Under the Plans or
Programs
|
|||||||||||||
January
2008
|
0 | $ | 0 | 1,464,811 | 935,189 | |||||||||||
February
2008
|
0 | 0 | 1,464,811 | 935,189 | ||||||||||||
March
2008
|
0 | 0 | 1,464,811 | 935,189 | ||||||||||||
Total
|
0 | $ | 0 |
Item 3.
|
Defaults
Upon Senior Securities
|
Item
4.
|
Submission
of Matters to a Vote of Security
Holders
|
Item 5.
|
Other
Information
|
Item 6.
|
Exhibits
|
Exhibit
No.
|
Description
|
Employment
Agreement dated January 1, 2008, by and among Community Bank System, Inc.,
Community Bank, N.A. and George J. Getman.
|
|
10.2
|
Employment
Agreement dated April 4, 2008, by and among Community Bank System, Inc.,
Community Bank, N.A. and Scott Kingsley. Incorporated by
reference to Exhibit 10.1 to the Form 8-K filed on April 9, 2008
(Registration No. 001-13695).
|
Certification
of Mark E. Tryniski, President and Chief Executive Officer of the
Registrant, pursuant to Rule 13a-15(e) or Rule 15d-15(e) under the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
Certification
of Scott Kingsley, Treasurer and Chief Financial Officer of the
Registrant, pursuant to Rule 13a-15(e) or Rule 15d-15(e) under the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
Certification
of Mark E. Tryniski, President and Chief Executive Officer of the
Registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
Certification
of Scott Kingsley, Treasurer and Chief Financial Officer of the
Registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002
|
Date:
May 8, 2008
|
/s/ Mark E.
Tryniski
|
Mark
E. Tryniski, President and Chief
|
|
Executive
Officer
|
|
Date:
May 8, 2008
|
/s/ Scott
Kingsley
|
Scott
Kingsley, Treasurer and Chief
|
|
Financial
Officer
|