FORM 10 - Q/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the six months ended June 30, 1995
Commission file number 0-11716
COMMUNITY BANK SYSTEM, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 16-1213679
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5790 Widewaters Parkway, DeWitt, New York 13214
(Address of principal executive offices) (Zip Code)
315/445-2282
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, $1.25 par value -- 3,656,150 shares as of August 10, 1995.
<PAGE>
INDEX
COMMUNITY BANK SYSTEM, INC. AND SUBSIDIARIES
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets --
June 30, 1995, December 31, 1994 and June 30, 1994.
Consolidated statements of income --
Three months ended June 30, 1995 and 1994 and
six months ended June 30, 1995 and 1994
Consolidated statements of cash flows --
Six months ended June 30, 1995 and 1994
Item 2. Management Discussion and Analysis of Financial Conditions and
Results of Operations
Part II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Securities Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY BANK SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
--------------------------------------------------------------------------------------------------------------------
June 30, December 31, June 30,
ASSETS 1995 1994 1994
<S> <C> <C> <C>
Cash and due from banks $33,621,493 $30,522,189 $33,925,122
Interest bearing deposits with other banks 0 0 0
Federal funds sold 0 0 0
TOTAL CASH AND CASH EQUIVALENTS 33,621,493 30,522,189 33,925,122
Investment securities
U.S. Treasury 16,583,546 16,624,198 27,173,746
U.S. Government agencies and corporations 195,924,488 170,462,427 100,397,674
States and political subdivisions 16,727,421 20,777,354 21,245,769
Mortgage-backed securities 177,260,887 155,376,150 153,484,605
Other securities 20,105,340 14,727,925 11,342,609
Federal Reserve Bank 569,600 551,550 551,550
TOTAL INVESTMENT SECURITIES 427,171,282 378,519,604 314,195,953
Loans 535,101,482 510,738,775 471,709,542
Less: Unearned discount 19,790,657 27,659,684 26,182,653
Reserve for possible loan losses 6,699,043 6,281,109 5,970,451
NET LOANS 508,611,782 476,797,982 439,556,438
Bank premises and equipment 11,345,213 10,591,510 9,676,990
Accrued interest receivable 7,556,960 6,657,326 5,163,945
Intangible assets 5,867,897 6,106,608 5,821,897
Other assets 8,269,409 6,305,990 9,531,975
TOTAL ASSETS $1,002,444,036 $915,501,209 $817,872,320
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
Deposits
Noninterest bearing $110,036,877 $103,006,969 $96,642,099
Interest bearing 599,058,197 576,630,655 579,050,131
TOTAL DEPOSITS 709,095,074 679,637,624 675,692,230
Federal funds purchased and securities sold under
agreements to repurchase 33,200,000 57,300,000 32,500,000
Term borrowings 155,550,000 105,550,000 40,550,000
Obligations under capital lease 0 0 0
Accrued interest and other liabilities 8,639,877 6,724,070 5,313,157
TOTAL LIABILITIES 906,484,951 849,211,694 754,055,387
Shareholders' equity
Preferred stock $100 stated value 9,000,000 0 0
Common stock $1.25 par value 4,378,938 3,485,187 3,457,460
Surplus 29,058,240 14,885,096 14,617,429
Undivided profits 53,501,671 49,853,313 46,462,129
Unrealized gains (losses) on available for sale securities 22,810 (1,930,414) (715,325)
Less: Shares issued under
employee stock plan - unearned 2,574 3,667 4,760
TOTAL SHAREHOLDERS' EQUITY 95,959,085 66,289,515 63,816,933
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,002,444,036 $915,501,209 $817,872,320
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY BANK SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
----------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
INTEREST INCOME 1995 1994 1995 1994
<S> <C> <C> <C> <C>
Interest and fees on loans $12,139,197 $9,851,999 $23,609,798 $19,187,054
Interest and dividends on investments:
U.S. Treasury 301,681 489,192 598,522 971,682
U.S. Government agencies and corporations 3,582,587 1,569,272 6,961,544 3,124,097
States and political subdivisions 278,561 361,721 580,051 732,618
Mortgage-backed securities 2,996,565 2,316,875 5,962,079 3,925,208
Other securities 261,265 108,307 471,049 263,202
Interest on federal funds sold 0 0 32,777 0
Interest on deposits at other banks 0 75 0 1,133
19,559,856 14,697,441 38,215,820 28,204,994
INTEREST EXPENSE
Interest on deposits
Savings 2,025,258 2,041,197 4,027,753 3,968,776
Time 4,322,839 2,203,747 8,211,762 4,203,063
Interest on federal funds purchased, securities
sold under agreements to repurchase and
Term borrowings 2,639,906 821,366 4,978,936 1,327,104
Interest on capital lease 0 128 0 629
8,988,003 5,066,438 17,218,451 9,499,572
NET INTEREST INCOME 10,571,853 9,631,003 20,997,369 18,705,422
Provision for possible loan losses 599,029 422,245 853,440 661,417
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 9,972,824 9,208,758 20,143,929 18,044,005
<PAGE>
OTHER INCOME
Fiduciary services 347,170 417,511 687,106 724,708
Service charges on deposit accounts 703,646 633,184 1,365,405 1,196,822
Other service charges, commissions and fees 420,983 306,183 758,080 667,522
Other operating income 52,268 24,684 110,526 24,869
Investment security gain (loss) (149,750) 1,430 (149,750) (1,695)
1,374,317 1,382,992 2,771,367 2,612,226
11,347,141 10,591,750 22,915,296 20,656,231
OTHER EXPENSES
Salaries, wages and employee benefits 3,599,908 3,200,237 7,311,191 6,484,227
Occupancy expense of bank premises, net 558,126 488,328 1,098,194 1,021,616
Equipment and furniture expense 453,749 433,447 879,907 848,330
Other 2,519,368 2,216,925 4,865,496 4,241,014
7,131,151 6,338,937 14,154,788 12,595,187
INCOME BEFORE INCOME TAXES 4,215,990 4,252,813 8,760,508 8,061,044
Income taxes 1,645,000 1,604,000 3,438,000 3,012,000
NET INCOME $2,570,990 $2,648,813 $5,322,508 $5,049,044
Earnings per common share $0.92 $0.94 $1.89 $1.80
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY BANK SYSTEM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
For Six Months Ended June 30, 1995 and 1994
</CAPTION>
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
1995 1994
----------------------------------------------------------------------------------------------------
Operating Activities:
Net income $5,322,508 $5,049,044
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation 721,641 1,092,070
Net amortization of intangible assets 238,711 109,367
Net accretion of security premiums and discounts (690,431) (145,270)
Provision for loan losses 853,440 661,417
Provision for deferred taxes 9,156 (123,064)
(Gain)\Loss on sale of investment securities 149,750 1,695
Change in interest receivable (899,634) (625,176)
Change in other assets and other liabilities (736,546) (1,053,018)
Change in unearned loan fees and costs (69,904) 23,040
----------------------------------------------------------------------------------------------------
Net Cash Provided By Operating Activities 4,898,691 4,990,105
----------------------------------------------------------------------------------------------------
Investing Activities:
Proceeds from sales of investment securities 3,950,250 10,900,000
Proceeds from maturities of investment securities 10,783,126 18,277,792
Purchases of investment securities (59,543,034) (92,162,318)
Net change in loans outstanding (33,266,560) (31,000,660)
Capital expenditures (1,473,360) (6,203,187)
----------------------------------------------------------------------------------------------------
Net Cash Used By Investing Activities (79,549,578) (100,188,373)
----------------------------------------------------------------------------------------------------
Financing Activities:
Net change in demand deposits,
NOW accounts, and savings accounts (5,934,267) 39,940,357
Net change in certificates of deposit 35,391,717 47,436,630
Net change in term borrowings 25,900,000 15,500,000
Payments on lease obligation (42,036)
Issuance of common and preferred stock 24,066,891 265,342
Cash dividends (1,674,150) (1,489,181)
----------------------------------------------------------------------------------------------------
Net Cash Provided By Financing Activities 77,750,191 101,611,112
----------------------------------------------------------------------------------------------------
Change In Cash And Cash Equivalents 3,099,304 6,412,844
Cash and cash equivalents at beginning of year 30,522,189 27,512,278
----------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD 33,621,493 33,925,122
====================================================================================================
<PAGE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash Paid For Interest $15,738,173 $9,355,532
====================================================================================================
Cash Paid For Income Taxes $3,553,478 $3,149,463
====================================================================================================
SUPPLEMENTAL DISCLOSURE OF NONCASH AND OTHER
INVESTING ACTIVITIES:
Gross change in unrealized net gains and (losses)
on available for sale securities 3,301,339 (2,385,764)
Proceeds from maturities of investment securities
for 1995 included $3,788,999 from available for
sale and $6,994,127 from held to maturity securities.
Purchases of investment securities for 1995
included $18,946,433 of available for sale and
$40,596,601 of held to maturity securities.
All proceeds from sale of investment securities in 1995
related to available for sale securies.
The accompanying notes are an integral part of the
consolidated financial statements.
</TABLE>
<PAGE>
Community Bank System, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
June 1995
Note A -- Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with instructions to Form 10-Q and Rule 10-01
of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for fair presentation have
been included. Operating results for the six-month period ended June 30, 1995
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1995.
Note B -- Issuance of Common and Preferred Stock
On June 30, 1995, Community Bank System, Inc. raised approximately $24
million by issuing 710,000 shares of its common stock at a price of $24.25 per
share and 90,000 shares of its cumulative perpetual preferred stock at a price
of $100 per share at a combined cost of issuance of $2.2 million. On July 10,
1995 an additional $3.5 million in capital was raised when Community Bank
System, Inc. issued an additional 112,500 shares of its common stock pursuant to
an overallotment option granted to the underwriter and 40,000 shares from its
reserve for directors and employees, all at a price of $24.25 per share. This
stock was issued principally in connection with the subsequent acquisition the
15 branch offices of Chase Manhattan Bank in Northern and Central New York
during the third quarter of 1995.
Note C -- Acquisition
On December 6, 1994, the company and the bank entered into a Purchase and
Assumption Agreement ("the Agreement") with The Chase Manhattan Bank, N.A.
("Chase") to purchase certain assets and assume certain liabilities relating to
the 15 Chase branches located in Norwich, Watertown (two), Boonville, New
Hartford, Utica, Skaneateles, Geneva, Pulaski, Seneca Falls, Hammondsport,
Canton, Newark (two) and Penn Yan, New York.
On July 14, 1995, the acquisition closed whereby the bank assumed deposits,
accrued interest and other liabilities totalling approximately $390.9 million.
In addition, the bank acquired certain small business and consumer loans
totalling approximately $15.3 million; certain real property, furniture and
equipment related to the branch facilities for a purchase price of approximately
$5.1 million; and currency, coin and other assets totalling approximately $5.5
million. After paying a deposit premium of 8.25% on the deposits assumed
totalling approximately $32.2 million, the bank received approximately $332.8
million in cash from Chase as consideration for the net deposit liabilities
assumed.
The bank may sell certain branch locations (including certain of the Chase
branches) and related deposits consistent with its overall business objectives.
As of the date of this report, the bank has had substantive discussions with
potential purchasers, although no agreements to sell any branch locations or
related deposits have been executed.
<PAGE>
Part 1. Financial Information
Item 1. Financial Statements
The information required by rule 10.01 of Regulation S-X is
presented on the previous pages.
Item 2. Management Discussion and Analysis of Financial Condition and
Results of Operations
The purpose of the discussion is to present material changes in Community
Bank System, Inc.'s financial condition and results of operations during the six
months ended June 30, 1995 which are not otherwise apparent from the
consolidated financial statements included in these reports. When used in this
report, the term "CBSI" means Community Bank System, Inc. and its subsidiaries
on a consolidated basis, unless indicated otherwise. Certain information
pertaining to the July 14, 1995 acquisition by Community Bank, N.A. of 15 branch
locations from The Chase Manhattan Bank, N.A. (the "Acquisition") is set forth
at the conclusion of the discussion.
<PAGE>
Earnings Performance Summary
Three Months Ended Change
6/30/95 6/30/94 Amount Percent
(000's)
Net Income $2,571 $2,649 ($78) -2.9%
Earnings per share $0.92 $0.94 ($0.02) -2.6%
Weighted average
shares outstanding 2,802 2,813 (11) -0.4%
Return on average assets 1.07% 1.34% -0.27% N/A
Average assets $961,237 $790,299 $170,937 21.6%
Return on average
shareholders' equity 14.65% 16.76% -2.11% N/A
Average shareholders' equity $70,390 $63,404 $6,986 11.0%
Percentage of average shareholders'
equity to average assets 7.32% 8.02% -0.70% N/A
Six Months Ended Change
6/30/95 6/30/94 Amount Percent
(000's)
Net Income $5,323 $5,049 $273 5.4%
Earnings per share $1.89 $1.80 $0.09 5.0%
Weighted average
shares outstanding 2,815 2,809 6 0.2%
Return on average assets 1.14% 1.34% -0.20% N/A
Average assets $945,594 $760,393 $185,201 24.4%
Return on average
shareholders' equity 15.61% 16.16% -0.55% N/A
Average shareholders' equity $68,779 $63,022 $5,757 9.1%
Percentage of average shareholders'
equity to average assets 7.27% 8.29% -1.01% N/A
* May not foot due to rounding
<PAGE>
Net income and earnings per share for second quarter 1995 were $2.571
million and $.92, down slightly by 2.9% and 2.6%, respectively, from the
comparable 1994 period. For the first six months, net income rose 5.4% to a
record high of $5.323 million; earnings per share also reached a record of
$1.89, up 5.0% versus the same period last year.
The reduction in second quarter earnings was in part caused by a $150,000
pre-tax loss on the sale of certain investment securities, the proceeds from
which were reinvested at a substantially improved yield. In addition,
approximately $75,000 in one-time expenses was incurred as part of the
acquisition of 15 branches from The Chase Manhattan Bank, N.A., which was
successfully completed on July 14, 1995.
Though not impacting earnings for the quarter, CBSI's shareholder equity
was significantly increased in late June by the sale of 710,000 shares of common
stock and 90,000 shares of cumulative perpetual preferred stock raised to
finance the Chase deposit and branch acquisition. As a result, the company's
tier I leverage ratio ended the quarter at 9.04%, well above its norm. The July
consummation of the Chase acquisition, which increased the bank's deposit base
by approximately $390 million or 55%, has lowered this capital ratio to slightly
above the minimum level for well-capitalized banks of 5.0%.
Second quarter earnings were bolstered by continued good growth in loans,
which climbed at a faster pace than in the first quarter and were up 15.7% over
second quarter 1994; momentum remained strong in the indirect consumer loan area
(11.9% growth during the last three months, largely due to automobile
financing) and in business loans (up 5.3% during the same period). Loan growth
combined with expansion in the bank's investment portfolio, which was funded
with additional borrowings from the Federal Home Loan Bank in anticipation of
virtually all current borrowings being paid down using the Chase branch
deposits, resulted in net interest income increasing 9.8% over second quarter
1994 and 12.3% for the six-month period.
The bank's net interest margin softened further during the second quarter
to 4.74%, though at a reduced pace as compared to the October 1994 to March 1995
time period. This slower rate of decrease reflects the impact of lower rates
being paid on certificates of deposit reflective of the reduction in general
financial market rates over the last seven to eight months. Funding costs are
also expected to be reduced by repayment of the bank's borrowings with the Chase
deposits, which had an effective core deposit rate at June 30 of 3.78% versus
the second quarter borrowing rate of 6.26%.
Non-interest income, excluding investment security losses, rose 10.3% for
the second quarter, bringing the increase for the first six months to 11.7%
versus the comparable 1994 period. The improvement reflected higher fees from
the sale of annuities, mutual funds, and employee benefit trust products as well
as greater service charges and commissions from an expanded customer base gained
from acquisitions in 1994.
Overhead was up 12.5% in the second quarter, resulting in an overall 12.4%
increase for the first six months of this year compared to 1994's results. More
than half of the increase reflected personnel costs. Staff has been added
because of the four branches acquired last year, as well as to support business
development efforts. Other increases related to the new branches were reflected
in greater occupancy, FDIC insurance, data processing, and deposit intangible
amortization expense. Lastly, certain other costs amounting to approximately
$115,000 for the six month period were incurred due to activities in preparation
for the acquisition of the Chase branches.
<PAGE>
Asset quality remains good at the company. Net charge-offs for the quarter
were very manageable at .25% of average loans; for the first half of 1995. The
net charge-off ratio was essentially unchanged from the prior year at .18%.
Nonperforming loans were reduced significantly during the second quarter to $1.6
million versus $3.3 million at year-end 1994. As a result, the ratio of
nonperforming loans to loans outstanding stood at a very low .31% as of June 30,
1995. Loan loss provision expense was increased by almost 42% over the second
quarter of 1994 so that the ratio of loan loss reserves to loans outstanding at
June 30 could be maintained at 1.30%, a level presently considered sufficient in
anticipation of approximately $15 million in loans purchased as part of the
Chase branch acquisition. The present ratio of reserves to nonperformers is
considered very ample by management at nearly 4.2 times.
The following sections of this report discuss more fully the balance sheet
and earnings trends summarized above. <PAGE>
Net Interest Income
Net interest income is the difference between interest earned on loans and
other investments and interest paid on deposits and other sources of funds. On
a tax-equivalent basis, net interest income for second quarter 1995 increased
$896,000 (9.1%) over the same period in 1994 to $10.7 million. Compared with
first quarter 1995, there was a $135,000 increase.
The change in net interest income reflects both the change in net interest
margin (yield on earning assets less cost of funds as a percentage of earning
assets) and the change in earning asset levels. The table below shows these
underlying dynamics.
<PAGE>
For the Quarter Net Net Yield on Cost Average Loans /
Ended: Interest Interest Earning of Earning Earning
(000's) Income Margin Assets Funds Assets Assets
------ ------ ------ ------ ------ ------
Amount and Change Period
from Preceding Quarter End
------ ------ ------ ------ ------ ------
December 31, 1993
Amount $9,146 5.59% 8.36% 2.69% $649,680 62.2%
Change ($224) -0.20% -0.23% -0.12% 1.2% 0.6
March 31, 1994
Amount $9,251 5.51% 8.15% 2.72% $680,577 59.1%
Change $105 -0.07% -0.21% 0.03% 4.8% (3.2)
June 30, 1994
Amount $9,802 5.34% 8.10% 2.82% $736,720 59.1%
Change $552 -0.18% -0.06% 0.10% 8.2% 0.0
September 30, 1994
Amount $10,380 5.31% 8.23% 2.99% $776,195 59.1%
Change $578 -0.03% 0.14% 0.18% 5.4% 0.0
December 31, 1994
Amount $10,684 5.09% 8.39% 3.37% $832,113 56.1%
Change $304 -0.21% 0.15% 0.38% 7.2% (3.0)
March 31, 1995
Amount $10,564 4.88% 8.69% 3.90% $877,322 56.1%
Change ($120) -0.21% 0.30% 0.53% 5.4% 0.1
June 30, 1995
Amount $10,699 4.74% 8.73% 4.09% $904,478 54.7%
Change $135 -0.14% 0.04% 0.19% 3.1% (1.5)
Change from
June 30, 1994 to
June 30, 1995
Amount $896 -0.59% 0.64% 1.27% $167,759 -4.4%
% Change 9.1% --- --- --- 22.8% ---
For the Year
Ended:
(000's)
June 30, 1994
Amount $19,053 5.42% 8.12% 2.77% $708,803 59.1%
Change --- --- --- --- --- ---
June 30, 1995
Amount $21,262 4.81% 8.71% 4.00% $890,975 54.7%
Change 11.6% -0.61% 0.59% 1.22% 25.7% (4.4)
Note: (a) All net interest income, margin, and earning asset yield figures are
full-tax equivalent.
(b) Net interest income, margin, and earning asset yield figures exclude
premiums on called bonds of $146, and $297 as of July 10 and
October 10, 1993, respectively.
* May not foot due to rounding
<PAGE>
From fourth quarter 1992 through mid-1994, margins narrowed because the
yield on earning assets fell faster than the cost of funds rate. Since mid-1994
the margin has continued to narrow as the bank's cost of funds has increased at
a faster pace than the earning asset yield. More specifically, from fourth
quarter 1992 to second quarter 1994, the cost of funds rate (total interest
expense divided by total deposits plus borrowings) was down only 28 basis points
compared to a 110 basis point decline in earning asset yield. Since second
quarter 1994, the cost of funds rate is up 137 BP largely due to an increasing
volume of higher cost borrowings versus lower cost deposits (whose rate
increases have lagged), while the yield on earning assets has grown only 63 BPs
(as lower yielding loans have gradually matured or repriced and have been
replaced with higher yields). Borrowings were essentially paid off on July 14
following consummation of the Chase acquisition.
Comparing the quarter just ended to second quarter 1994, the net interest
margin narrowed by 59 basis points due to a 64 basis point increase in the yield
on earning assets compared to the cost of funds rate increasing by 127 basis
points (for the same reasons outlined in the preceding paragraph). However, the
$167.8 million increase in earning assets shown in the above table more than
offset the impact of this shrinkage. Had margins remained constant, net
interest income would have increased by $2.2 million versus $896,000 actually
realized.
A comparison of second quarter 1995 to first quarter 1995 shows a 14 BP
decline in the net interest margin. The yield on earning assets remained
relatively stable while the cost of funds rate rose 19 basis points because of
the growing mix of short-term borrowings. The $27.2 million growth in earning
assets was more than enough to offset the declining margin as net interest
income grew $135,000.
Net interest margin is in the 51st percentile based on comparative peer
data as of March 31, 1995. This performance is largely the result of high
earning asset yields being in the 70th to 80th percentile, versus cost of funds
being above norm in the 73rd percentile due to the increasing percentage of
borrowings in the bank funding mix. All borrowings were paid off after the July
14, 1995 Chase acquisition.<PAGE>
Non-Interest Income
Non-interest income, including service charges, commissions, overdraft
fees, trust income and fees from other sources, totaled approximately $1.4
million for the three months ended June 30, 1995, essentially equal to the same
period last year. This brings 1995 YTD non-interest income to $2.8 million, up
6.1% from the first six months of 1994.
<PAGE>
Three Months Ended Change
6/30/95 6/30/94 Amount
Percent
(000's)
Fiduciary services $347 $400 ($53) -13.2%
Service charges on $704 $633 $70 11.1%
deposit accounts
Annuity and mutual $125 $46 $79 170.7%
fund sales
Other service charges, $256 $278 ($22) -7.9%
commissions, and fees
Net gain (loss) on sale ($57) $26 ($83) -317.2%
of investments and
other assets
------- ------- ------- -------
Total noninterest income
- Amount $1,374 $1,383 ($9) -0.6%
- % of Average
assets 0.57% 0.70% -0.13% ---
Six Months Ended Change
6/30/95 6/30/94 Amount
Percent
(000's)
Fiduciary services $687 $725 ($38) -5.2%
Service charges on $1,365 $1,197 $169 14.1%
deposit accounts
Annuity and mutual $253 $62 $191 307.6%
fund sales
Other service charges, $505 $606 ($100) -16.5%
commissions, and fees
Net gain (loss) on sale ($39) $23 ($62) -269.3%
of investments and
other assets
------- ------- ------- -------
Total noninterest income
- Amount $2,771 $2,612 $159 6.1%
- % of Average
assets 0.59% 0.69% -0.10% ---
* May not foot due to rounding
<PAGE>
As shown by the table above, 11.1% growth was experienced in income from
service charges on deposits. This improvement reflects the full impact of four
branches purchased during 1994 and efforts to reduce the number of waived
charges. Annuity and mutual fund sales commissions, a program which began early
in 1994, grew over 170% from one year earlier to $125,000.
However, these increases were more than offset by declines in other non-
interest income categories. Despite 15% growth in employee benefit trust income
(due to continued sales efforts), fiduciary services fell 13.2% due to 22%
lower personal trust income (due to timing, reduced demand and internal
competition with annuity/mutual funds sales). Growth was also offset by
declining Visa merchant discount fees attributable to loss of a large vendor.
Management recognizes that the company's level of non-interest income must
be improved, its ratio to average assets being .57% for the quarter (in the
first peer quartile). The 13 basis point decrease from one year earlier
reflects CBSI's strong asset growth, primarily attributable to increased
borrowing levels (which enhance net interest income but not fee income).
Progress continues to be made to address this shortfall by maintaining
competitive and value-based service charges; selling fixed rate annuities
through the bank's 52 customer facilities; offering full service
brokerage/financial planning products through dedicated sales representatives in
selected markets; and selling/servicing residential mortgages (which began
during mid-1994).
Non-Interest Expense
Non-interest expense, or overhead, for the three months ended June 30, 1995
increased by $792,000 (12.5%) over the same period last year to $7.1 million,
bringing the YTD total up 12.4% over the first six months of 1994 to $14.2
million. The table below summarizes the major components of change.
Three Months Ended Change
6/30/95 6/30/94 Amount Percent
(000's)
Personnel Expense $3,600 $3,200 $400 12.5%
Occupancy, furniture, $1,012 $922 $90 9.8%
and equipment
Administrative and business $1,369 $1,118 $251 22.5%
development
All other expense $1,150 $1,099 $51 4.6%
------- ------- ------- -------
Total noninterest expense
- Amount $7,131 $6,339 $792 12.5%
- % of Average
assets 2.98% 3.22% -0.24% ---
Efficiency ratio 58.3% 56.7% 1.7% ---
<PAGE>
Six Months Ended Change
6/30/95 6/30/94 Amount Percent
(000's)
Personnel Expense $7,311 $6,484 $827 12.8%
Occupancy, furniture, $1,978 $1,870 $108 5.8%
and equipment
Administrative and business $2,544 $2,081 $463 22.3%
development
All other expense $2,321 $2,160 $161 7.5%
------- ------- ------- -------
Total noninterest expense
- Amount $14,155 $12,595 $1,560 12.4%
- % of Average
assets 3.02% 3.34% -0.32% ---
Efficiency ratio 58.5% 58.1% 0.4% ---
* May not foot due to rounding
<PAGE>
Over 51% of the quarterly increase resides in personnel expense, the
primary reasons being modest annual merit awards and an average 31 additional
full-time equivalent (FTE) positions, resulting in a total of 440 employees as
of June 30, 1995. These additions reflect the full impact of the three Columbia
Savings branch acquisitions (21 FTE at end of second quarter 1994); the
acquisition of the Chase Cato, New York branch in fourth quarter 1994; expanded
business development efforts in the lending and fiduciary services functions;
and the need to service the bank's increased transaction volumes over the last
twelve months.
The remainder of the quarter's overhead increase compared to the same
quarter last year is spread over a number of expense categories. Higher
occupancy expense resulted from the four new branches partially offset by a
milder 1994-95 winter (as compared to the prior winter). Administrative
expenses were up due to higher supplies and deposit insurance (both increases
due to branch acquisitions). The amortization of intangibles rose $57,000
primarily due to the acquisition of the Columbia branches, whose $5.5 million
premium (or 8.6% of the deposits assumed) added approximately $365,000 per annum
over the prescribed 15 year amortization period. Finally, there were various
other increases related to inflation, volume growth and acquisitions.
The above increases were offset by lower advertising expense (caused by
more in-house ad creation and reduced rate associated advertising) and reduced
Visa processing expense, related to the loss of a large vendor.
As a percentage of average assets, annualized overhead declined from 3.22%
in second quarter 1994 to 2.98% in second quarter 1995; the latter level is now
favorably below the peer norm and is attributable to persistent cost control
efforts as well as asset growth (much of which was in the bank's investment
portfolio, which requires minimal overhead). CBSI's efficiency ratio (operating
expense divided by recurring operating income) increased slightly in 1995 from
58.1% last year to 58.5% this year. As of December 31, 1994, the bank's
efficiency ratio was in the 39th peer percentile according to Sheshunoff
Information Services, Inc.
<PAGE>
Income and Income Taxes
Income before tax was approximately $4.2 million for the quarter ended June
30, 1995, a $37,000 (.9%) decrease from the same period last year, bringing the
YTD total to $8.8 million or 8.7% more than the first half of 1994. As shown
by the table below, the increases in overhead for YTD 1995 are offset by greater
net interest income and higher non-interest income.
Three Months Ended Change
6/30/95 6/30/94 Amount Percent
(000's)
Net interest income $10,572 $9,631 $941 9.8%
Loan loss provision $599 $422 $177 41.9%
Net interest income $9,973 $9,209 $764 8.3%
after provision for
loan losses
Other income $1,374 $1,383 ($9) -0.6%
Other expense $7,131 $6,339 $792 12.5%
Income before $4,216 $4,253 ($37) -0.9%
income tax
Income tax $1,645 $1,604 $41 2.6%
Net income $2,571 $2,649 ($78) -2.9%
Six Months Ended Change
6/30/95 6/30/94 Amount Percent
(000's)
Net interest income $20,997 $18,705 $2,292 12.3%
Loan loss provision $853 $661 $192 29.0%
Net interest income $20,144 $18,044 $2,100 11.6%
after provision for
loan losses
Other income $2,771 $2,612 $159 6.1%
Other expense $14,155 $12,595 $1,560 12.4%
Income before $8,761 $8,061 $699 8.7%
income tax
Income tax $3,438 $3,012 $426 14.1%
Net income $5,323 $5,049 $273 5.4%
* May not foot due to rounding
<PAGE>
As a result of higher pre-tax income, YTD income taxes increased by $426,000.
CBSI's marginal tax rates are 35% federal and 9% state (plus a 7.5% surcharge
scheduled to be phased out over time). Second quarter 1995's effective tax rate
was 39.0% and is higher than second quarter 1994's rate due to a decreasing
proportion of tax-exempt municipal. Compared to our peers, the company's
effective tax rate is unfavorable because of New York State's very high tax
level as well as tax exempt security holdings being slightly below the norm.
Capital
Six Months Ended Change
6/30/95 6/30/94 Amount Percent
Tier 1 leverage ratio 9.04% 7.22% 1.82% N/A
Tier 1 capital to 16.12 13.09 3.03 N/A
risk asset ratio
Cash dividend declared $0.60 $0.54 $0.06 11.1%
per common share
Dividend payout 31.5% 29.5% 1.96% N/A
Book value per share: Total $24.82 $23.07 $1.75 7.6%
: Tangible 23.15 20.97 2.18 10.4
As of June 30, 1995, the tier I leverage ratio of 9.04% was 182 basis
points higher than one year earlier. The increase in the ratio is partially
attributable to favorable second quarter earnings and continued amortization of
intangibles from previous acquisitions. Additionally, 710,000 shares ($17.2
million) in common stock and 90,000 ($9.0 million) shares in preferred stock
were issued on the last day of the quarter to raise capital (net proceeds of $24
million) for the Chase branch acquisition which occurred on July 14, 1995. The
$39,000 positive after tax market value adjustment for the available-for-sale
investment portfolio is excluded from the leverage calculation per the OCC's
definition.
CBSI's tier I leverage ratio is well above the 5% minimum required to be a
"well-capitalized" bank as defined by the FDIC. As noted more fully below, the
Chase branch acquisition resulted in a decrease in tier I leverage ratio. CBSI
and the bank were still classified as "well capitalized" immediately following
consummation of the acquisition.
As a result of the aforementioned reasons, the tier I risk-based capital
ratio as of June 30, 1995 was 16.12%, or 303 basis points higher than it was as
of June 30, 1994. This compares to a 6% "well-capitalized" regulatory minimum.
To the degree that earning asset growth results from investment purchases, this
risk-based ratio is more favorable than the nominal leverage ratio since
investments have a lower risk component than most loans.
<PAGE>
Total capital reached $96.0 million as of June 30, 1995, $32.1 million
(50.4%) higher than twelve months earlier. This increase is attributable to net
income of $10.4 million over the twelve months ended June 30, 1995 versus
dividends declared on common stock of $3.3 million during the same time frame.
The remaining difference is due to the $24 million in net issued capital
proceeds for the Chase acquisition, additional shares issued in exercise of
incentive stock options and changes in the market value adjustment. The higher
YTD dividend shown above reflects a 3 cent per share increase (11.1%) in the
quarterly dividend approved by the CBSI Board of Directors in August 1994, the
fourth dividend increase within three years. The YTD 1995 dividend payout of
31.5% is at the low end of the company's targeted 30-40% guideline.
Book value per share increased 7.6% from June 30, 1994 while tangible book
value per share rose 10.4%, reflecting regular amortization of the deposit
intangibles resulting from the 1994 and previous acquisitions.
The common shares of Community Bank System, Inc. are traded in the NASDAQ
National Market System under the symbol CBSI. Stock price activity, numbers of
shares outstanding, cash dividends declared and share volume traded are shown
below.
For the Quarter Market Market Market # of Cash Share
Ended: Price Price Price Shares Dividend Volume
High Low Close Outstanding Declared Traded
------ ------ ------ ------ ------ ------
Amount and Change
from Preceding Quarter
------ ------ ------ ------ ------ ------
December 31, 1993
Amount $30.50 $27.88 $28.50 2,748,318 $0.27 253,000
Change 1.7% 7.2% -5.0% 0.1% 0.0% -45.8%
March 31, 1994
Amount $30.75 $28.50 $29.25 2,749,518 $0.27 128,929
Change 0.8% 2.2% 2.6% 0.0% 0.0% -49.0%
June 30, 1994
Amount $30.50 $28.50 $30.50 2,765,968 $0.27 253,665
Change -0.8% 0.0% 4.3% 0.6% 0.0% 96.7%
September 30, 1994
Amount $31.75 $29.00 $31.00 2,775,150 $0.30 186,797
Change 4.1% 1.8% 1.6% 0.3% 11.1% -26.4%
December 31, 1994
Amount $31.75 $25.75 $26.25 2,788,150 $0.30 146,706
Change 0.0% -11.2% -15.3% 0.5% 0.0% -21.5%
March 31, 1995
Amount $27.75 $25.25 $27.13 2,788,150 $0.30 343,668
Change -12.6% -1.9% 3.3% 0.0% 0.0% 134.3%
June 30, 1995
Amount $29.00 $24.25 $25.50 3,503,150 $0.30 1,945,143
Change 4.5% -4.0% -6.0% 25.6% 0.0% 466.0%
Change from
June 30, 1994 to
June 30, 1995
Amount ($1.50) ($4.25) ($5.00) 737,182 $0.03 1,691,478
% Change -4.9% -14.9% -16.4% 26.7% 11.1% 666.8%
<PAGE>
Loans
Loans outstanding, net of unearned discount, were a record $515.3 million
as of June 30, 1995, a very favorable $69.8 million (15.7%) growth over the
prior twelve months. As shown in the table below, CBNA is predominantly a
retail bank, with over 70% of its outstandings spread across three basic
consumer loan types. Strong growth in the last year has been experienced in
consumer indirect and business lending. Additionally, modest growth occurred in
consumer direct and consumer mortgages. All four types are more fully defined
in the company's 1994 annual report.
For the Quarter Consumer Consumer Consumer Business Total Yield on
Ended: Direct Indirect Mortgages Lending Loans Loans
(000's) ------ ------ ------ ------ ------ ------
Amount and Change Quarterly
from Preceding Quarter Average
------ ------ ------ ------ ------ ------
December 31, 1993
Amount $95,502 $74,321 $127,618 $120,430 $417,871 9.15%
Change 0.4% 3.1% 6.2% 9.7% 5.2% (0.15)
March 31, 1994
Amount $92,908 $77,103 $133,085 $123,373 $426,470 9.02%
Change -2.7% 3.7% 4.3% 2.4% 2.1% (0.13)
June 30, 1994
Amount $93,768 $86,230 $138,349 $127,180 $445,527 9.07%
Change 0.9% 11.8% 4.0% 3.1% 4.5% 0.05
September 30, 1994
Amount $98,280 $94,464 $142,012 $134,724 $469,480 9.12%
Change 4.8% 9.5% 2.6% 5.9% 5.4% 0.05
December 31, 1994
Amount $98,777 $102,491 $143,137 $138,675 $483,079 9.26%
Change 0.5% 8.5% 0.8% 2.9% 2.9% 0.14
March 31, 1995
Amount $98,633 $113,895 $142,289 $140,477 $495,294 9.52%
Change -0.1% 11.1% -0.6% 1.3% 2.5% 0.26
June 30, 1995
Amount $97,480 $127,439 $142,413 $147,978 $515,311 9.60%
Change -1.2% 11.9% 0.1% 5.3% 4.0% 0.08
Change from
June 30, 1994 to
June 30, 1995
Amount $3,712 $41,209 $4,064 $20,798 $69,784 0.53
Change 4.0% 47.8% 2.9% 16.4% 15.7% N/A
Loan mix
June 30, 1994 21.0% 19.4% 31.1% 28.5% 100.0%
June 30, 1995 18.9% 24.7% 27.6% 28.7% 100.0%
Change -2.1% 5.4% -3.4% 0.2% ---
* May not foot due to rounding
<PAGE>
Almost 60% of the bank's loan growth in the last twelve months came from
the indirect lending portfolio (applications taken at dealer locations), which
grew 48%. This reflects both high automobile demand industry-wide, which began
in the spring of 1993, as well as continued greater emphasis on this product
line in the bank's Southern Region. These factors produced a strong 11.9%
increase in the quarter just ended. Approximately 55% of the bank's indirect
automobile loans are used versus 45% new. About 7% of the consumer indirect
portfolio consists of mobile homes, and recreational and other vehicles.
Almost 30% of the bank's loan growth in the last twelve months came from
the generally prime-based business lending portfolio, which grew nearly 16.4%.
Though a relatively low prime lending rate has encouraged borrowing in the last
year, small- and medium-sized companies have also been receptive to CBSI's
responsive and personalized service. In addition, experienced lending officers
who have joined the bank in the last two years have enhanced commercial loan
growth, and branch acquisitions have opened new markets for business lending.
Growth during the most recent quarter of 4.0% is the highest since third quarter
1994.
The minimal 2.9% increase in consumer mortgages since second quarter 1994
(or 6% of total loan growth) is attributable to the increasing mortgage rate
environment, the continued wind-down of the fixed rate refinancing boom of the
last two years, and a program to sell mortgages in the secondary market
implemented by the bank in third quarter 1994. Volume essentially remained
unchanged in second quarter 1995 with $994,000 in secondary market sales.
Considering mortgage sales and normal portfolio amortization, management
anticipates little future net growth within this loan type.
Consumer direct loans have grown a favorable 4.0% since June 30, 1994.
This category has been essentially flat since the end of 1992 after the
accumulation and periodic sale of student loans is considered. The line of
business started to show small increases in mid-1994 but has since leveled with
a flat quarter for conventional installment and direct personal lending and a
slight decline in borrowing under home equity lines of credit.
Loans at the bank have now climbed for thirteen consecutive quarters, which
compares very favorably to the banking industry in general. The change in loan
portfolio mix by type over the last year is shown at the bottom of the above
table. While the mix of consumer mortgages fell in the last twelve months after
a sharp increase in 1991-1993, the indirect loan share continues to rise after a
slide which started before the 1990 recession and eased late in 1993. Although
there has been growth in consumer mortgages and consumer direct, the loan mix of
each fell with stronger growth in other loan categories.
As discussed in the net interest income section of this report, earning
asset yields have grown 64 basis points over the last twelve months. Despite a
210 basis point increase in the average prime rate for the three months ending
June 30, 1995 over the same period last year, the loan yield has grown only 53
basis points. This has resulted from the slow runoff of lower yielding loans
and market pressure keeping rates on many loan types relatively low.
Nonetheless, the bank's predominantly retail loan mix and related pricing
objectives have maintained a very favorable overall loan yield, being in the
86th peer percentile based on data as of March 31, 1995.
<PAGE>
Loan Loss Provision and Reserve for Loan Losses
The provision for future loan losses was $599,000 for the three months
ended June 30, 1995, up $177,000 (41.9%) versus the same period last year.
Net charge-offs for the quarter were $324,000 (.26% of loans), up from
$159,000 for second quarter 1994 due to a $210,000 increase in gross charge offs
(primarily attributable to the partial charge-off of one large commercial loan)
offset by a slight increase in recoveries. The bank's net charge-offs to
average loans ratio is slightly below the peer norm, being in the 40th
percentile as of March 31, 1995.
3 Months 3 Months 6 Months 6 Months 12 Months
(000's or % Ratios) June 30, June 30, June 30, June 30, Dec 31,
1995 1994 1995 1994 1994
---------- ---- ---- ---- ---- ----
Net Charge-offs $324 $159 $436 $398 $1,128
Net Charge-offs/Ave Loans 0.26% 0.15% 0.18% 0.19% 0.25%
Gross Charge-offs $492 $282 $790 $620 $1,616
Gross Charge-offs/Ave Loans 0.39% 0.26% 0.32% 0.29% 0.36%
Recoveries $168 $123 $354 $222 $488
Recoveries/Prior year 41.8% 35.0% 44.2% 31.8% 34.6%
gross charge offs
The strong loan growth discussed above caused the ratio of loan loss
reserve to total loans to fall slightly from a year ago to 1.30%. Despite the
ratio's decline, the reserve reached a new high at quarter end of $6.7 million.
Management believes that having a loan loss reserve ratio in the neighborhood of
1.25% is consistent with the bank's credit quality, which has enabled the
reserve for loan losses to cover the level of non-performing loans by
approximately two times or more since the bank's restructuring as a single bank.
Current coverage of loan loss reserves over non-performers is very favorable at
416% (an increase from 282% a year ago due to growth in the provision for loan
losses and lower non-performing loans). Included in this coverage is an ample
12.6% in reserves to absorb general, unforeseen losses.
3 Months 3 Months 6 Months 6 Months 12 Months
(000's or % Ratios) June 30, June 30, June 30, June 30, Dec 31,
1995 1994 1995 1994 1994
---------- ---- ---- ---- ---- ----
Non-Performing Loans $1,611 $2,114 $1,611 $2,114 $3,258
Non-Performing Loans/Loans 0.31% 0.47% 0.31% 0.31% 0.67%
Loan Loss Allowance $6,699 $5,970 $6,699 $5,970 $6,281
Loan Loss Allowance/Loans 1.30% 1.34% 1.30% 1.34% 1.30%
Loan Loss Allowance/ 416% 282% 416% 282% 193%
Non-Performing Loans
Loan Loss Provision $599 $422 $853 $661 $1,702
Loan Loss Provision/ 185% 265% 196% 166% 151%
Net Charge-offs
<PAGE>
Non-performing loans decreased nearly 24% from twelve months earlier to
$1.6 million as of the most recent quarter end, largely attributable to the
charge off of one large commercial loan and its subsequent take out by the
Farmers Home Administration. Also down from the June 30, 1994 level was the
ratio of non-performers to loans outstanding to .31% as of June 30, 1995; the
higher .64% level at March 31, 1995 was in the 42nd percentile.
The ratio of loan loss provision to net charge offs for the most recent
quarter end was 185%, well below the 265% ratio twelve months earlier due to the
higher level of charge-offs in the quarter just ended.
The following table reflects the detail on non-performing and restructured
loan levels. The ratio of non-performing assets to total assets was .19% as of
June 30, 1995, down 12 basis points from a year ago due largely to a charge-off
of one non-performing commercial loan. There is no troubled debt restructuring
as of the most recent quarter end versus $39,000 one year earlier; the change
reflects being paid out of previously restructured commercial loans. OREO for
all periods is recorded at the lower of cost or market less estimated cost to
sell. The ratio of nonperforming assets to loans plus OREO at .37% remains
below the company's goal of less than .75%.
6 Months 6 Months 12 Month 12 Month 12 Months
(000's or % Ratios) June 30, June 30, Dec 31, Dec 31, Dec 31,
1995 1994 1994 1993 1992
---------- ---- ---- ---- ---- ----
Loans accounted for on a $1,310 $1,550 $2,396 $1,738 $881
non-accrual basis
Accruing loans which are
contractually past due
90 days or more as to
principal and interest
payments $301 $564 $862 $653 $726
Loans which are "troubled
debt restructurings" as
defined in Statement of
Financial Accounting
Standards No. 15
"Accounting by Debtors
and Creditors for
Troubled Debt
Restructurings $0 $39 $15 $243 $356
Other Real Estate (OREO) $299 $390 $223 $433 $459
----- ----- ----- ----- -----
Total Non-Performing Assets $1,910 $2,543 $3,496 $3,067 $2,422
Total Non-Performing Assets/ 0.19% 0.31% 0.38% 0.43% 0.36%
Total Assets
Total Non-Performing Assets/ 0.37% 0.57% 0.72% 0.73% 0.67%
Total Loans & OREO
* May not foot due to rounding
<PAGE>
Total delinquencies at $4.3 million (loans greater than 30 days past due
plus nonaccruals) declined 24% from one year earlier, and the ratio to total
loans at .80% is very favorable and improved from prior periods. The reason for
the dollar decrease is the quarter's higher level of commercial loan charge-offs
causing time & demand delinquencies to decrease substantially. Despite strong
growth in installment loans, delinquencies in this category decreased 24% due to
improved collection efforts. Real estate delinquencies increased slightly due
to a higher level of non-accrual loans.
Delinquencies 3 Months 3 Months 12 Month 12 Month 12 Month
30 days - Non-accruing June 30, June 30, Dec 31, Dec 31, Dec 31,
(000's or % Ratios) 1995 1994 1994 1993 1992
---------- ---- ---- ---- ---- ----
Total Delinquencies $4,259 $5,605 $6,765 $7,004 $6,894
Ratio to Total Loans 0.80% 1.19% 1.32% 1.58% 1.76%
Time & Demand $1,329 $2,299 $3,107 $2,633 $1,758
Ratio to Time & Demand 0.86% 1.71% 2.14% 2.07% 1.72%
Installment $1,762 $2,330 $2,664 $3,156 $4,026
Ratio to Installment 0.86% 1.40% 1.41% 2.01% 2.53%
Real Estate $1,168 $976 $994 $1,214 $1,110
Ratio to Real Estate 0.67% 0.57% 0.56% 0.76% 0.85%
Note: Ratios to Gross Loans
* May not foot due to rounding
<PAGE>
Deposits
Deposits are the primary source of funding for loans and investments as
measured by the deposits to earning asset ratio. This ratio is down 8.1
percentage points from a year ago to 78.8%, reflecting borrowings as an
increased source of funding in order to achieve management's balance sheet
leverage objectives and in anticipation of the Chase branch acquisition.
Average earning assets have increased $167.8 million over the last twelve
months, while average deposits have grown only $72.6 million.
<PAGE>
The table below displays the components of total deposits including volume
and rate trends over the last seven quarters.
For the Quarter Average Average Average Average Average Average
Ended: Demand Savings Money Time Total Deposits/
(000's) Market Deposits Earning
------ ------ ------ ------ ------ Assets
Amount and Average Rate
------ ------ ------ ------ ------ ------
December 31, 1993
Amount $91,701 $241,030 $75,144 $193,265 $601,141 92.5%
Yield / Rate ---- 2.53% 2.50% 4.17% 2.67%
March 31, 1994
Amount $92,522 $241,123 $72,003 $196,099 $601,747 88.4%
Yield / Rate ---- 2.49% 2.52% 4.13% 2.65%
June 30, 1994
Amount $96,131 $252,259 $77,514 $214,297 $640,200 86.9%
Yield / Rate ---- 2.49% 2.47% 4.12% 2.66%
September 30, 1994
Amount $101,110 $256,496 $77,446 $244,149 $679,201 87.5%
Yield / Rate ---- 2.64% 2.62% 4.24% 2.82%
December 31, 1994
Amount $104,427 $248,710 $68,067 $262,359 $683,564 82.1%
Yield / Rate ---- 2.56% 2.67% 4.77% 3.03%
March 31, 1995
Amount $102,850 $237,540 $66,035 $295,808 $702,233 80.0%
Yield / Rate ---- 2.63% 2.83% 5.33% 3.40%
June 30, 1995
Amount $104,882 $233,875 $63,308 $310,756 $712,820 78.8%
Yield / Rate ---- 2.68% 2.94% 5.58% 3.57%
<PAGE>
Change in quarterly average
outstandings & yield / rate
June 30, 1994 to
June 30, 1995
Amount $8,751 ($18,384) ($14,206) $96,459 $72,620 -8.1%
% Change 9.1% -7.3% -18.3% 45.0% 11.3%
Change (% pts) ---- 0.19 0.47 1.45 0.91
Deposit Mix
June 30, 1994 15.4% 40.1% 12.0% 32.6% 100.0%
June 30, 1995 14.6% 33.8% 9.4% 42.1% 100.0%
Change -0.7% -6.2% -2.6% 9.5% ----
Year-to-date average
outstandings: (000's)
June 30, 1994
Amount $94,337 $246,722 $74,773 $205,248 $621,080 87.6%
Yield / Rate ---- 2.49% 2.49% 4.13% 2.65% ----
June 30, 1995
Amount $103,871 $235,697 $64,664 $303,323 $707,556 79.4%
Yield / Rate ---- 2.65% 2.89% 5.46% 3.49% ----
Change in YTD average
outstandings & yield / rate
from June 30, 1994 to
June 31, 1995
Amount $9,535 ($11,024) ($10,109) $98,075 $86,476 (8.2)
% Change 10.1% -4.5% -13.5% 47.8% 13.9% ----
Change (%pts) ---- 0.17 0.39 1.33 0.84
* May not foot due to rounding
<PAGE>
Average total deposits for the quarter were 11.3% higher than second
quarter 1994. As shown by the table, virtually all of the deposit growth was in
time deposits (up $96.5 million), with the remainder split between $8.8 million
in demand deposit growth and declines in savings and money markets. The major
reasons for the total deposit increase were the $62.4 million Columbia Banking,
FSA deposit acquisition late in second quarter 1994, the Chase Cato branch
acquisition in fourth quarter 1994, and an expanded business customer base
consistent with increases in commercial loans.
The deposit mix has changed slightly since second quarter 1994. Time
deposits have increased with the recent upturn in financial market rates as
funds shifted back from temporarily being parked in savings and money market
accounts. Additionally, the time deposit mix expanded with the high proportion
of time deposits in the acquired Columbia branches.
While borrowing costs have risen 219 BP with movement in the Fed Funds rate
over the past year (see table in the following section), the above table shows
that the average rates on interest bearing deposits have lagged behind this
increase, moving up only 91 BP. Savings and money market rates accounted for
the lag increasing only 19 BP and 47 BP, respectively. As of March 31, 1995,
the bank's average rate on interest bearing deposits was in the 53rd peer
percentile.
After having steadily fallen for a number of quarters, the average rate on
total deposits bottomed out in first quarter 1994 and has increased since then.
The 17 basis point rise in average cost of deposits during the quarter just
ended, is attributable to market pressures increasing personal and business
deposit rates; rate paid on large liability public funds have fallen.
Liquidity and Borrowing Position
Liquidity involves the ability to raise funds to support asset growth, to
meet requirements for deposit withdrawals, to maintain reserve requirements, and
to otherwise sustain operations. This is accomplished through maturities of
loans and investments, deposit growth, and access to sources of funds other than
local deposits (such as borrowings from the Federal Home Loan Bank, selling
securities under agreements to repurchase, and various other sources). All of
these factors are considered by management in evaluating the bank's liquidity
requirements and position assessment.
The bank's liquidity level is very favorable as of June 30, 1995 when
considering loan and deposit flows that were received within 30 days of quarter
end from the 15 Chase branches. In the event of a liquidity crisis, over $265
million (essentially short term assets minus short term liabilities) or 26.5% of
assets could be converted into cash within a 30-day time period. This puts the
liquidity position well above the bank's 7.5% policy minimum. The same policy
minimum applies to projections over a 90-day period for which the actual ratio
is 24.7% as of this quarter end. This longer period encompasses continued
service to loan customers and normal loan and deposit flows, anticipating
viability of the institution after coping with the initial crisis. While this
liquidity approach and related measures have been practiced by leading banks for
a number of years, they have been validated by the New England banking crises in
the last decade.
As shown by the statement of cash flows preceding the Management Discussion
and Analysis, the bank's cash and cash equivalents grew $3.1 million YTD to
$33.6 million as of June 30, 1995. YTD net cash was provided by operating
activities of $4.9 million (caused by favorable earnings). Financing activities
cash of $77.8 million (attributable to growth in time deposit, borrowings and
capital) provided cash that was utilized by investing activities of $79.5
million (due to investment purchases and loan growth).
<PAGE>
The following table shows the trend of loans, investments, large liability
certificates of deposit and other borrowings over the last seven quarters.
<TABLE>
<CAPTION>
For the Quarter Average Average Ave Core Ave CDs Average Interest
Ended: Loans Investments Deposits >$100,000 Borrowings Bearing
(000's) (a) (b) Liabilities
------ ------ ------ ------ ------ ------
Amount and Average Yield / Rate
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
December 31, 1993
Amount $404,944 $244,735 $576,448 $24,693 $26,394 $535,834
Yield / Rate 9.15% 6.58% 2.64% 3.35% 3.16% 3.15%
March 31, 1994
Amount $419,874 $260,703 $576,613 $25,134 $58,850 $568,074
Yield / Rate 9.02% 6.77% 2.60% 3.72% 3.49% 3.16%
June 30, 1994
Amount $435,678 $301,042 $605,653 $34,548 $81,048 $625,117
Yield / Rate 9.07% 6.68% 2.60% 3.67% 4.07% 3.25%
September 30, 1994
Amount $454,383 $321,811 $644,302 $34,899 $79,676 $657,767
Yield / Rate 9.12% 6.98% 2.74% 4.33% 4.50% 3.45%
December 31, 1994
Amount $473,920 $358,193 $642,190 $41,374 $129,074 $708,211
Yield / Rate 9.26% 7.23% 2.91% 4.78% 5.18% 3.87%
March 31, 1995
Amount $488,436 $388,886 $644,375 $57,858 $153,625 $753,008
Yield / Rate 9.52% 7.64% 3.18% 5.89% 6.17% 4.43%
June 30, 1995
Amount $507,159 $397,319 $650,142 $62,679 $169,277 $777,216
Yield / Rate 9.60% 7.62% 3.37% 5.71% 6.26% 4.64%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Change in quarterly average
outstandings & yield / rate
from June 30, 1994 to
June 30, 1995
<S> <C> <C> <C> <C> <C>
Amount $71,481 $96,278 $44,489 $28,131 $88,230 $152,099
% Change 16.4% 32.0% 7.3% 81.4% 108.9% 24.3%
Change (%pts) 0.53 0.94 0.76 2.04 2.19 1.39
Year-to-date average
outstandings: (000's)
June 31, 1994
Amount $427,820 $280,984 $591,213 $29,867 $70,010 $596,753
Yield / Rate 9.04% 6.72% 2.60% 3.69% 3.82% 3.21%
June 31, 1995
Amount $497,849 $393,126 $647,274 $60,282 $161,494 $765,179
Yield / Rate 9.56% 7.63% 3.27% 5.80% 6.22% 4.54%
</TABLE>
<TABLE>
<CAPTION>
Change in YTD average
outstandings & yield / rate
from June 30, 1994 to
June 31, 1995
<S> <C> <C> <C> <C> <C>
Amount $70,030 $112,142 $56,061 $30,415 $91,484 $168,425
% Change 16.4% 39.9% 9.5% 101.8% 130.7% 28.2%
Change (%pts) 0.52 0.91 0.67 2.11 2.39 1.33
</TABLE>
Note: (a) Yield on average investments calculated on a full-tax equivalent
basis. Excludes premiums on called bonds of $146 and
$297 as of July 10 and October 10, 1993, respectively.
(b) Defined as total deposits minus CD's > $100,000. Rate includes
impact of non-interest bearing transaction accounts.
* May not foot due to rounding
<PAGE>
Borrowings for second quarter 1995 averaged $169.3 million compared to
$81.0 million for second quarter 1994. This resulted from the bank's strategy
to increase net interest income by expanding earning assets as long as loan and
investment opportunities are attractive and non-deposit funding sources are
sufficient. In addition, borrowings are constrained by an internal guideline
not to exceed 50% of assets eligible to collateralize borrowings.
As of the most recent quarter end, the bank's Federal Home Loan Bank
borrowings were comprised of 90 day terms or less, with 18% at the currently
manageable overnight rate. The bank's asset/liability management committee
monitors the trade-off between raising funds through retail deposits versus
large liability certificates of deposit and other borrowings. Management uses
borrowings and certificates of deposit interchangeably according to the more
cost effective option for the maturity of funds desired. On a short-term basis,
borrowings also cushion fluctuations in deposits; the bank services a large
municipal deposit base that varies with seasonal cash requirements and revenue
flows.
With inflow of acquired deposits from the Chase branches, borrowings were
virtually paid off at the time of acquisition. This was the main reason behind
management's decision to maintain a relatively high short-term borrowing
position prior to the date of consummation. CBSI does not currently anticipate
additional borrowings until fourth quarter 1995.
Investments and Asset/Liability Management
The level and composition of the bank's investment portfolio is designed to
balance the constraints of liquidity, interest rate risk, capital and credit
risk, while providing an acceptable rate of return. In meeting that objective,
the portfolio at quarter end comprised 43.9% of earning assets and contributed a
substantial steady stream of interest income using high quality securities with
relatively short maturities.
As shown by the table below, the bank's investments consist primarily of
U.S. treasury securities, mortgage-backed securities (including U.S. agencies
and collateralized mortgage obligations), and tax-exempt obligations of state
and political subdivisions. All investment strategies are developed in
conjunction with the bank's asset/liability position, with particular attention
given to managing interest rate risk.
<PAGE>
<TABLE>
<CAPTION>
For the Quarter U.S. Mtg-Backs Tax Other Total Invests/
Ended: Gov'ts (a) Exempts (b) Investments Earning
(000's) ------ ------ ------ ------ ------ Assets
Amount and Change
from Preceding Quarter (Period
------ ------ ------ ------ ------ End)
<S> <C> <C> <C> <C> <C> <C>
December 31, 1993
Amount $114,413 $108,320 $24,585 $6,227 $253,544 37.8%
Change 2.8% 6.9% -11.0% -4.0% 2.8% (0.6)
March 31, 1994
Amount $120,183 $144,472 $23,807 $7,091 $295,553 40.9%
Change 5.0% 33.4% -3.2% 13.9% 16.6% 3.2
June 30, 1994
Amount $127,571 $153,485 $21,246 $11,894 $314,196 40.9%
Change 6.1% 6.2% -10.8% 67.7% 6.3% (0.0)
September 30, 1994
Amount $145,870 $146,423 $22,166 $10,444 $324,902 40.9%
Change 14.3% -4.6% 4.3% -12.2% 3.4% 0.0
December 31, 1994
Amount $187,087 $155,376 $20,777 $15,279 $378,520 43.9%
Change 28.3% 6.1% -6.3% 46.3% 16.5% 3.0
March 31, 1995
Amount $192,526 $162,408 $17,762 $14,482 $387,177 43.9%
Change 2.9% 4.5% -14.5% -5.2% 2.3% (0.1)
June 30, 1995
Amount $212,508 $177,284 $16,727 $20,675 $427,195 45.3%
Change 10.4% 9.2% -5.8% 42.8% 10.3% 1.5
Change from
June 30, 1994 to
June 30, 1995
Amount $84,937 $23,800 ($4,518) $8,781 $112,999 4.4%
Change 66.6% 15.5% -21.3% 73.8% 36.0% ---
Investment Mix
June 30, 1994 40.6% 48.8% 6.8% 3.8% 100.0%
June 30, 1995 49.7% 41.5% 3.9% 4.8% 100.0%
Change 9.1% -7.4% -2.8% 1.1% ---
</TABLE>
Note: (a) Includes CMOs and pass throughs
(b) Includes Money Market Investments, Federal Home Loan Bank,
and other stock
* May not foot due to rounding
<PAGE>
Investments totaled $427 million for the quarter just ended, up $113
million (36.0%) from the second quarter of 1994. This increase is attributable
to: (a) the previously mentioned strategy of increasing net interest income by
growing earning asset levels when favorable investment opportunities are
available and (b) some preinvesting of anticipated deposits from the 15 Chase
branches.
As rates were rising in the first and second quarters in 1994, cash flow
producing investments (such as 15 year seasoned mortgage backed securities) were
purchased to provide an expected flow of funds for reinvestment at higher rates
later on. Thus, significant growth (34%) was seen from December 1993 to March
1994 in mortgage backed securities. In the middle of second quarter 1994, as
rates began to level (and fall slightly in first quarter 1995), call protection
investments were purchased. During second quarter 1995, with uncertainty in the
financial markets, there was similar growth in both of these major investment
categories (including a share of floating rate mortgaged backed instruments).
With the strong growth in call protection investments in the third and
fourth quarters of 1994, there is less growth over the last twelve months in
mortgage backed securities (15.5.% to $177.3 million) than in call protection
U.S. Governments (66.6% to $212.5 million).
Additional growth in investments resulted from significant increases in the
bank's Federal Home Loan Bank stock level (reflected in other investments) as
required by increased FHLB borrowing levels.
Over the last twelve months, the investment portfolio mix has shifted such
that there are increased proportions of U.S. Government securities (50% as of
June 30, 1995) and other investments (Federal Home Loan Bank stock), with a
decreasing proportion of tax exempt and mortgage backed securities.
The average fully taxable equivalent yield in the last year has increased
from 6.68% to 7.62% as the result of lower yielding investments running off and
taking advantage of increased market rates. As of March 31, 1995, the bank's
overall investment yield is in the highly favorable 94th percentile.
The average portfolio life based on earliest redemption date has increased
from 2.9 years on June 30, 1994 to 4.0 years on June 30, 1995, attributable to
the increasing mix of investments with call protection features.
The portfolio market value increased slightly from 99.5% of book value one
year ago to 103.3% of book value as of June 30, 1995.
Although keenly aware of how interest rate volatility may change the market
value of its investments, management continues to place an overriding emphasis
on the future earnings stream of its portfolio; thus, the majority of new
investment purchases are classified as held-to-maturity.
The held-to-maturity portfolio (75.2% of the total investments) amounted to
$320 million as of June 30, 1995. Average time to maturity of these securities,
based on the earliest redemption date, was 3.7 years, reflecting the increasing
mix of call protection investments. The portfolio recorded a market value
appreciation of $12.8 million, or 4.1% above book value, for the quarter just
ended.
<PAGE>
As of the most recent quarter end, $106.2 million or 24.6% of the
investment portfolio is classified as available-for-sale in accordance with SFAS
No. 115, which was adopted as of year-end 1993. The most common criteria for
placing securities in the AFS portfolio is the need to sell securities for
liquidity needs and to manage interest rate risk. However, the bank's liquidity
position does not rely on security sales, and interest rate risk is managed at
the time of investment purchase rather than after the fact.
To be conservative, the bank chose to place in its AFS portfolio virtually
all collateralized mortgage obligations and agency securities with a stated
final maturity or call date of two years or less. As of the most recent quarter
end, less than 15% of the bank's entire portfolio was invested in agency-
guaranteed collateralized mortgage obligations (CMOs). The portfolio does not
contain any Principal Only (PO), Interest Only (IO), or Inverse Floater
Traunches.
As of June 30, 1995, the AFS portfolio average maturity based on earliest
redemption date was 4.4 years, and the pre-tax market value adjustment was a
favorable $29,000. The bank expects to maintain a 75% Held-to-Maturity / 25%
Available for Sale portfolio. Having a reasonably sized AFS portfolio gives the
bank flexibility to sell lower yielding investments and replace them with higher
yields when short-term losses can be recouped with higher future earnings.
<PAGE>
The following table displays several of the underlying investment portfolio
statistical measures discussed above on a quarterly basis since December 31,
1993.
<TABLE>
<CAPTION>
For the Quarter Portfolio Portfolio Portfolio AFS AFS Market Net
Ended: Average Maturity Market / Portfolio / Value Realized
(000's) Yield (Years) Book Total Adjustment Gains /
(a) (b) Portfolio (Pretax) (Losses)
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1993 6.58% 2.3 103.7% 50.0% $2,164 ($15)
March 31, 1994 6.77% 3.3 101.7% 41.8% $592 ($3)
June 30, 1994 6.68% 2.9 99.5% 38.5% ($1,209) $0
September 30, 1994 6.98% 2.6 98.5% 36.0% ($2,470) $0
December 31, 1994 7.23% 3.6 97.8% 22.8% ($3,263) ($499)
March 31, 1995 7.64% 3.9 100.5% 21.8% ($1,982) $0
June 30, 1995 7.62% 4.0 103.3% 24.8% $39 ($150)
Change from
June 30, 19 to
June 30, 1995 0.94% 1.1 3.8% -13.6% $1,248 ($150)
</TABLE>
Note: (a) Yield on average investments calculated on a full-tax equivalent
basis. Excludes premiums on called bonds of $146 and
$297 as of July 10 and October 10, 1993, respectively.
(b) Based on earliest redemption date.
* May not foot due to rounding
<PAGE>
Acquisition
As noted in CBSI's 10-Q Report for first quarter 1995, on December 6, 1994,
the company and the bank entered into a Purchase and Assumption Agreement ("the
Agreement") with The Chase Manhattan Bank, N.A. ("Chase"). The Agreement
provided for the acquisition of certain assets and the assumption of certain
liabilities by the bank relating to the 15 Chase branches located in Norwich,
Watertown (two), Boonville, New Hartford, Utica, Skaneateles, Geneva, Pulaski,
Seneca Falls, Hammondsport, Canton, Newark (two) and Penn Yan, New York ("the
Chase Branches").
On June 30, 1995, and July 10, 1995, CBSI raised a total of approximately
$27.5 million in capital (net of expenses) through the issuance of 862,500
shares of its $1.25 par value common stock priced at $24.25 and 90,000 shares of
its $1.00 par value, $100.00 stated value, 9% cumulative perpetual preferred
stock. All of the $27.5 million net proceeds of the stock issuance was
contributed to the bank as capital in anticipation of the acquisition in order
for the bank and the company to maintain adequate capitalization pursuant to
applicable regulatory capital guidelines.
On July 14, 1995, the acquisition closed using a preliminary settlement
based on deposit and loan balances and a premium payment of 8.25% on these
deposits as of June 30, 1995. The Purchase and Assumption Agreement provides
for a final settlement to occur within 60 days of the closing to reflect loan
and deposit balances as of the closing date. It is not anticipated that the
final settlement adjustments will be material. Based on the preliminary
settlement information as of June 30, 1995, CBSI's resulting Tier I leverage
ratio as of that date was 5.24% and its tangible book value was 14.34%.
At the closing, the bank assumed deposits, accrued interest and other
liabilities totalling approximately $390.9 million. In addition, the bank
acquired certain small business and consumer loans totalling approximately $15.3
million, certain real property, furniture and equipment related to the branches
for a purchase price of approximately $5.1 million and currency, coin and other
assets totalling approximately $5.5 million. After paying a deposit premium of
8.25% on the deposits assumed totalling approximately $32.2 million, the bank
received approximately $332.8 million in cash from Chase as consideration for
the net deposit liabilities assumed. Of this amount, $215.2 million was used to
paydown FHLB borrowings; the remainder was placed in the bank's investment
portfolio, first in a federal funds sold or equivalent short-term instrument,
with subsequent reinvestment over time into longer maturities.
The Chase branches and deposits acquired in the acquisition will be
incorporated into the bank's existing branch network. The bank may, however,
sell certain branch locations (including certain of the Chase branches) and
related deposits consistent with its overall business objectives. As of the
date of this report, the bank has had substantive discussions with potential
purchasers, although no agreements to sell any branch locations or related
deposits have been executed.
For a comprehensive discussion of the anticipated effects of the Chase
branch acquisition on CBSI's operating performance, see CBSI's 10-Q Report for
the quarter ended March 31, 1995, as amended.
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings.
As noted in CBSI's 10-Q Report for the first quarter of 1995, on March
27, 1995, the company, the bank, and each of the directors of the
company and the bank were named defendants in a shareholder derivative
action brought in New York Supreme Court, Albany County. The
plaintiffs alleged in substance that the directors failed to exercise
due care and breached their fiduciary duties to the company in
pursuing and approving the Chase acquisition. By stipulation and
order dated April 21, 1995, however, all claims asserted by the
plaintiffs were discontinued and the case was dismissed.
Item 2. Changes in Securities.
On June 30, 1995, as part of the public stock offerings undertaken by
CBSI to raise capital to support the Chase branch acquisition, CBSI
issued 90,000 shares of its Cumulative Perpetual Preferred Stock,
Series A (the "Preferred Stock"). CBSI did not have any class of
preferred stock outstanding immediately prior to the issuance of the
Preferred Stock. The Preferred Stock ranks senior to CBSI's Common
Stock with respect to dividend rights and rights upon liquidation,
winding up, or dissolution of the company. For a full statement of
the powers, designations, preferences, and rights of the Preferred
Stock, see the Certificate of the Powers, Designations, Preference,
and Rights of the Series A Cumulative Perpetual Preferred Stock
(Exhibit 4 of this report).
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Securities Holders.
Not Applicable.
Item 5. Other Information.
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits required by Item 601 of Regulation S-K:
(4) Form of Certificate of the Powers, Designations, Preferences, and
Rights of CBSI's Cumulative Perpetual Preferred Stock, Series A,
previously filed with the Commission on June 26, 1995 as Exhibit 4.1
to CBSI's Registration Statement on Form S-2 (No. 33-58539) and
incorporated herein by reference.
(11) Statement re Computation of earnings per share
b) No reports on Form 8-K were filed during second quarter 1995.
<PAGE>
Signatures
Pursuant to the requirements of The Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Community Bank System, Inc.
Date: August 14, 1995 /s/ Sanford A. Belden
Sanford A. Belden, President and
Chief Executive Officer
Date: August 14, 1995 /s/ David G. Wallace
David G. Wallace, Senior Vice President
Chief Financial Officer
<PAGE>
Signatures
Pursuant to the requirements of The Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Community Bank System, Inc.
Date: August 14, 1995
Sanford A. Belden, President and
Chief Executive Officer
Date: August 14, 1995
David G. Wallace, Senior Vice President
Chief Financial Officer
<PAGE>
Community Bank System, Inc.
Statement re Earnings Per Share Computation
Exhibit 11
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1994 1994
Primary Earnings Per Share
Net Income 2,570,990 2,648,813 5,322,508 5,049,044
---------- --------- --------- ---------
Income applicable
to common stock 2,570,990 2,648,813 5,322,508 5,049,044
========== ========= ========= =========
Weighted average number
of common shares 2,777,058 2,758,969 2,789,110 2,753,965
Add: Shares issuable from
assumed exercise of
incentive stock options 25,193 53,818 25,666 55,235
--------- --------- --------- ---------
Weighted average number of
common shares - adjusted 2,802,251 2,812,787 2,814,776 2,809,200
========= ========= ========= =========
Primary earnings per share $0.92 $0.94 $1.89 $1.80
===== ===== ===== =====
Fully Diluted Earnings Per Share
Net Income 2,570,990 2,648,813 5,322,508 5,049,044
========= ========= ========= =========
Weighted average number of
common shares - adjusted 2,802,251 2,816,513 2,814,776 2,812,389
Add: Equivalent number of
common shares assuming
conversion of preferred
--------- --------- --------- ---------
Weighted average number of
common shares - adjusted 2,802,251 2,816,513 2,814,776 2,812,389
========= ========= ========= =========
Fully diluted earnings per share $0.92 $0.94 $1.89 $1.80
===== ===== ===== =====
