FORM 10 - Q
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, 2000
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, No par value - 6,993,059 shares outstanding as of August 7, 2000
1
<PAGE>
INDEX
COMMUNITY BANK SYSTEM, INC. AND SUBSIDIARIES
Part I. Information
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets --
June 30, 2000, March 31, 2000 and June 30, 1999
Consolidated statements of income --
Three and six months ended June 30, 2000 and 1999
Consolidated statements of cash flows --
Six months ended June 30, 2000, and 1999
Consolidated statements of comprehensive income --
Six months ended June 30, 2000 and 1999
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations
Item 3. Quantative and Qualitative Disclosure about Market Risk
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
2
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<TABLE>
<CAPTION>
COMMUNITY BANK SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
June 30, December 31, June 30,
2000 1999 1999
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $68,543,255 $76,526,657 $71,541,129
Federal funds sold 0 24,200,000 0
--------------------------------------------------------------------------------------------------------
TOTAL CASH AND CASH EQUIVALENTS 68,543,255 100,726,657 71,541,129
Investment securities
U.S. Treasury 0 2,999,518 2,997,545
U.S. Government agencies and corporations 224,151,167 174,097,408 169,370,833
States and political subdivisions 133,256,059 123,265,608 119,679,787
Mortgage-backed securities 291,429,192 290,000,398 285,598,475
Federal Reserve Bank 2,293,950 2,173,950 2,173,950
Other securities 60,384,634 60,278,119 59,848,052
-----------------------------------------------
Investment securities at cost 711,515,002 652,815,001 639,668,642
Market value adjustment on available for sale (19,913,277) (22,127,416) (5,456,843)
securities
--------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES 691,601,725 630,687,585 634,211,799
Loans 1,063,776,560 1,009,942,875 943,368,566
Less: Unearned discount 553,888 720,360 988,707
Reserve for possible loan losses 14,602,815 13,420,610 13,054,953
--------------------------------------------------------------------------------------------------------
NET LOANS 1,048,619,857 995,801,905 929,324,906
Bank premises and equipment 25,952,281 25,508,863 24,290,945
Accrued interest receivable 16,139,286 14,168,068 13,702,971
Intangible assets 53,322,376 49,484,949 52,298,984
Other assets 27,042,892 24,323,539 15,800,945
--------------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,931,221,672 $1,840,701,566 $1,741,171,679
========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits
Noninterest bearing $252,377,840 $225,012,768 $230,125,169
Interest bearing 1,158,117,175 1,135,293,216 1,141,670,556
--------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 1,410,495,015 1,360,305,984 1,371,795,725
Federal funds purchased 35,000,000 0 37,200,000
Term borrowings 321,100,000 324,000,000 170,000,000
Company obligated mandatorily redeemable preferred
securities of subsidiary, Community Capital Trust I
holding solely junior subordinated debentures of the
Company 29,820,563 29,817,188 29,813,813
Accrued interest and other liabilities 20,609,357 18,090,941 19,067,897
--------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,817,024,935 1,732,214,113 1,627,877,435
--------------------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock (6,993,059; 7,092,259; 7,144,329 7,641,159 7,640,359 7,639,429
shares outstanding)
Surplus 33,338,119 33,327,586 33,245,970
Undivided profits 102,011,900 95,340,837 89,000,344
Accumulated other comprehensive income (11,778,703) (13,088,367) (3,227,722)
Treasury stock (648,100; 548,100; 495,100 shares) (17,006,288) (14,718,787) (13,343,994)
Shares issued under employee stock plan - unearned (9,450) (14,175) (19,783)
-------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 114,196,737 108,487,453 113,294,244
--------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,931,221,672 $1,840,701,566 $1,741,171,679
========================================================================================================
See notes to consolidated financial statements
</TABLE>
3
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<TABLE>
<CAPTION>
COMMUNITY BANK SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $23,656,835 $20,621,342 $46,312,496 $40,870,521
Interest and dividends on investments:
U.S. Treasury 32,341 67,653 99,229 135,209
U.S. Government agencies and corporations 3,956,132 2,833,997 7,505,700 6,054,324
States and political subdivisions 1,622,086 1,291,353 3,231,894 2,116,436
Mortgage-backed securities 5,229,636 4,174,779 10,461,006 8,251,758
Other securities 1,020,130 898,838 2,041,207 1,440,036
Interest on federal funds sold 31,340 3,681 332,930 3,681
Interest on deposits at other banks 6,067 664 140,825 1,085
------------------------------------------------------------------------------------------------------
Total interest income 35,554,567 29,892,307 70,125,287 58,873,050
------------------------------------------------------------------------------------------------------
Interest expense:
Interest on deposits
Savings 2,686,988 2,822,912 5,348,099 5,587,828
Time 9,275,289 7,884,994 17,784,987 15,790,175
Interest on federal funds purchased and
term borrowings 4,935,802 1,932,119 9,782,494 3,638,097
Interest on mandatorily redeemable capital
securities of subsidiary 732,937 732,938 1,465,875 1,465,875
------------------------------------------------------------------------------------------------------
Total interest expense 17,631,016 13,372,963 34,381,455 26,481,975
------------------------------------------------------------------------------------------------------
Net interest income 17,923,551 16,519,344 35,743,832 32,391,075
Less: Provision for possible loan losses 1,706,710 1,421,358 2,916,000 2,589,962
------------------------------------------------------------------------------------------------------
Net Interest income after provision for 16,216,841 15,097,986 32,827,832 29,801,113
loan losses
------------------------------------------------------------------------------------------------------
Other income:
Fiduciary and investment services 606,848 552,782 1,252,428 1,250,836
Service charges on deposit accounts 1,956,647 1,736,655 3,727,047 3,316,043
Commissions on investment products 1,483,958 300,372 1,879,289 624,285
Other service charges, commissions and fees 1,445,440 1,216,276 2,732,062 2,248,789
Miscellaneous income 6,439 73,881 50,958 266,576
Investment security gains (losses) (45) 0 (212,281) 276,642
------------------------------------------------------------------------------------------------------
Total other income 5,499,287 3,879,966 9,429,503 7,983,171
------------------------------------------------------------------------------------------------------
Other expenses:
Salaries and employee benefits 7,271,619 6,493,342 14,090,462 13,078,547
Occupancy expense, net 941,647 987,313 1,976,013 2,044,949
Equipment and furniture expense 912,858 902,947 1,824,343 1,798,723
Amortization of intangible assets 1,186,447 1,155,512 2,296,923 2,313,435
Other 4,002,842 3,648,880 7,490,517 7,171,430
------------------------------------------------------------------------------------------------------
Total other expenses 14,315,413 13,187,994 27,678,258 26,407,084
------------------------------------------------------------------------------------------------------
Income before income taxes and extraordinary 7,400,715 5,789,958 14,579,077 11,377,200
item
Income taxes 2,220,298 1,741,517 4,374,048 3,640,704
------------------------------------------------------------------------------------------------------
NET INCOME $5,180,417 $4,048,441 $10,205,029 $7,736,496
======================================================================================================
Earnings per share - Basic $0.73 $0.56 $1.44 $1.07
- Diluted $0.72 $0.55 $1.42 $1.05
======================================================================================================
See notes to consolidated financial statements
</TABLE>
4
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<TABLE>
<CAPTION>
COMMUNITY BANK SYSTEM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
For Six Months Ended June 30, 2000 and 1999
2000 1999
--------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities:
Net income $10,205,029 $7,736,496
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,508,684 1,484,945
Amortization of intangible assets 2,296,923 2,313,435
Net amortization of security premiums and discounts (75,038) 2,895,258
Amortization of discount on loans (166,472) (318,399)
Provision for loan losses 2,916,000 2,589,962
Provision for deferred taxes (973,557) 1,680,043
(Gain)\loss on sale of investment securities 212,281 (276,642)
(Gain)\loss on sale of loans and other assets (52,015) 1,978
Change in interest receivable (1,971,218) (1,327,637)
Change in other assets and other liabilities (32,692) 884,481
Change in unearned loan fees and costs (494,086) (640,040)
--------------------------------------------------------------------------------------------
Net cash provided by operating activities 13,373,839 17,023,880
--------------------------------------------------------------------------------------------
Investing Activities:
Proceeds from sales of investment securities 11,519,958 4,616,500
Proceeds from maturities of held to maturity investment 1,721,352 1,203,972
securities
Proceeds from maturities of available for sale investment 17,225,895 122,569,076
securities
Purchases of held to maturity investment securities (1,914,690) (2,014,617)
Purchases of available for sale investment securities (87,389,759) (182,367,972)
Net change in loans outstanding (55,026,262) (26,142,590)
Acquisition of business, net of cash acquired (6,379,853) 0
Capital expenditures (1,913,607) (958,399)
Proceeds from sales of property and equipment 132,963 23,339
Other investing activities 0 (174,200)
--------------------------------------------------------------------------------------------
Net cash used by investing activities (122,024,003) (83,244,891)
--------------------------------------------------------------------------------------------
Financing Activities:
Net change in demand deposits, NOW accounts, and savings 7,761,538 (1,881,198)
accounts
Net change in certificates of deposit 42,427,493 (4,388,655)
Net change in federal funds purchased 35,000,000 2,500,000
Net change in term borrowings (2,900,000) 70,000,000
Issuance (retirement) of common and preferred stock 11,333 179,228
Treasury stock purchased (2,287,500) (4,192,038)
Cash dividends (3,546,102) (3,348,635)
--------------------------------------------------------------------------------------------
Net cash provided by financing activities 76,466,762 58,868,702
--------------------------------------------------------------------------------------------
Change in cash and cash equivalents (32,183,402) (7,352,309)
Cash and cash equivalents at beginning of year 100,726,657 78,893,438
--------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD 68,543,255 71,541,129
============================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $31,642,163 $26,050,957
============================================================================================
Cash paid for income taxes $5,347,606 $1,960,661
============================================================================================
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING
AND INVESTING ACTIVITIES:
Dividends declared and unpaid $1,760,765 $3,327,399
Gross change in unrealized gains and (losses) on
available-for-sale securities $2,214,140 ($12,702,394)
============================================================================================
</TABLE>
5
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<TABLE>
<CAPTION>
COMMUNITY BANK SYSTEM, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For Six Months Ended June 30, 2000 and 1999
2000 1999
----------------------------------------------------------------------------------------------
<S> <C> <C>
Other comprehensive income (loss), before tax:
Unrealized gains on securities:
Change in unrealized holding losses arising during $ 2,001,859 $ (12,425,752)
period
Less: Reclassification adjustment for losses (gains)
included in net income 212,281 (276,642)
----------------------------------------------------------------------------------------------
Other comprehensive income (loss), before tax 2,214,140 (12,702,394)
Income tax benefit related to items of other comprehensive (904,476) 5,188,928
income
----------------------------------------------------------------------------------------------
Other comprehensive income (loss), net of tax 1,309,664 (7,513,466)
Plus: Net income 10,205,029 7,736,496
----------------------------------------------------------------------------------------------
Comprehensive income $ 11,514,693 $ 223,030
==============================================================================================
See notes to consolidated financial statements
</TABLE>
6
<PAGE>
Community Bank System, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
June 30, 2000
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, 2000
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2000.
On January 29, 1997, Community Bank System, Inc. ("Company") formed a wholly
owned subsidiary, Community Capital Trust I ("Trust"), a Delaware statutory
business trust. The Trust has issued $30 million aggregate liquidation amount of
9.75% Company-Obligated Mandatorily Redeemable Preferred Securities representing
undivided beneficial interests in the assets of the Trust. The Company borrowed
the proceeds of the Preferred Securities from the Trust by issuing Junior
Subordinated Debentures to the Trust having substantially similar terms as the
Preferred Securities. The sole assets of the Trust on June 30, 2000 were
$32,005,013 aggregate principal amount of the Company's Junior Subordinated
Debentures, together with the related accrued interest receivable thereon. The
Preferred Securities mature in 2027, and are treated as Tier 1 capital by the
Federal Reserve Bank of New York. The guarantees issued by the Company for the
Trust, together with the Company's obligations under the Trust Agreement, the
Junior Subordinated Debentures and the Indenture under which the Junior
Subordinated Debentures were issued, constitute a full and unconditional
guarantee by the Company of the Preferred Securities issued by the Trust.
On April 3, 2000, Community Bank System, Inc acquired all the stock of Elias
Asset Management, Inc. for cash of $6.5 million. In accordance with the stock
purchase agreement, additional consideration will be paid if certain revenue
targets are met over the next five years. This transaction was accounted for
under the purchase method.
7
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<TABLE>
<CAPTION>
Note B -- Earnings Per Share
Basic earnings per share is computed based on the weighted average shares
outstanding. Diluted earnings per share is computed based on the weighted
average shares outstanding adjusted for the dilutive effect of the assumed
exercise of stock options during the year. The following is a reconciliation of
basic to diluted earnings per share for the six months ended June 30, 2000 and
1999:
For six months ended June 30, 2000 Income Shares Per share
amount
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income 10,205,029
Basic EPS 10,205,029 7,085,925 $1.44
Effect of dilutive securities:
Stock options 0 92,707
------------------------------
DILUTED EPS $10,205,029 7,178,632 $1.42
============================================================================================
--------------------------------------------------------------------------------------------
For six months ended June 30, 1999 Income Shares Per share
amount
--------------------------------------------------------------------------------------------
Net Income
Net Income 7,736,496
Basic EPS 7,736,496 7,251,787 $1.07
Effect of dilutive securities:
Stock options 0 83,288
------------------------------
DILUTED EPS $7,736,496 7,335,075 $1.05
============================================================================================
--------------------------------------------------------------------------------------------
For three months ended June 30, 2000 Income Shares Per share
amount
--------------------------------------------------------------------------------------------
Net Income 5,180,417
Basic EPS 5,180,417 7,079,322 $0.73
Effect of dilutive securities:
Stock options 0 96,827
------------------------------
DILUTED EPS $5,180,417 7,176,149 $0.72
============================================================================================
--------------------------------------------------------------------------------------------
For three months ended June 30, 1999 Income Shares Per share
amount
--------------------------------------------------------------------------------------------
Net Income
Net Income 4,048,441
Basic EPS 4,048,441 7,240,346 $0.56
Effect of dilutive securities:
Stock options 0 81,223
------------------------------
DILUTED EPS $4,048,441 7,321,569 $0.55
============================================================================================
</TABLE>
8
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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's Discussion and Analysis of Financial Condition and 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, 2000 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. Financial performance
comparisons to peer bank holding companies are based on data through March 31,
2000 as provided by the Federal Reserve System; the peer group is comprised of
160 bank holding companies having $1 to $3 billion in assets.
9
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<TABLE>
<CAPTION>
COMMUNITY BANK SYSTEM, INC.
SUMMARY OF OPERATIONS
EARNINGS AND BALANCE SHEET RECAP
2ND QUARTER 2000 AND FULL YEAR COMPARISONS
000s Omitted Three Months Ended,
Line ----------- Jun 30, Jun 30, Change Change
No. Earnings 2000 1999 Amount Percent
----------- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Net interest income $17,924 $16,519 $1,405 8.5%
2 Loan loss provision 1,707 1,421 286 20.1%
3 Net interest income
after provision for
loan losses 16,217 15,098 1,119 7.4%
4 Investment security
gain (loss) 0 0 0 0.0%
5 Other income 5,499 3,880 1,619 41.7%
6 Other expense 13,129 12,032 1,097 9.1%
7 Intangible amortization 1,186 1,156 30 2.6%
8 Inc before inc tax 7,401 5,790 1,611 27.8%
9 Income tax 2,220 1,742 478 27.4%
10 Net income $5,181 $4,048 $1,133 28.0%
Earnings per share
11a Basic $0.73 $0.56 $0.17 30.7%
11b Diluted $0.72 $0.55 $0.17 31.3%
================= ================= =============== ==================
------------------------
Balances At Period End
------------------------
12 Loans $1,063,223 $942,380 $120,843 12.8%
13 Investments (excl mkt val adj.) 712,040 639,734 72,306 11.3%
14 Earning assets 1,775,263 1,582,114 193,149 12.2%
15 Loan loss reserve 14,603 13,055 1,548 11.9%
16 Intangible assets 53,322 52,299 1,023 2.0%
17 Total assets 1,931,222 1,741,172 190,050 10.9%
18 Deposits 1,410,495 1,371,796 38,699 2.8%
19 Borrowings 385,921 237,014 148,907 62.8%
20 Total equity $114,197 $113,294 $903 0.8%
</TABLE>
10a
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<TABLE>
<CAPTION>
000s Omitted Six Months Ended,
Line ----------- Jun 30, Jun 30, Change Change
No. Earnings 2000 1999 Amount Percent
----------- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Net interest income $35,744 $32,391 3,353 10.4%
2 Loan loss provision 2,916 2,590 326 12.6%
3 Net interest income 32,828 29,801 3,027 10.2%
after provision for
loan losses
4 Investment security (212) 277 (489) -176.5%
gain (loss)
5 Other income 9,642 7,706 1,936 25.1%
6 Other expense 25,381 24,094 1,287 5.3%
7 Intangible amortization 2,297 2,313 (16) -0.7%
8 Inc before inc tax 14,580 11,377 3,203 28.2%
9 Income tax 4,374 3,641 733 20.1%
10 Net income $10,206 $7,736 $2,470 31.9%
Earnings per share
11a Basic $1.44 $1.07 $0.37 34.6%
11b Diluted $1.42 $1.05 $0.37 35.4%
================= ================= =============== ==================
------------------------
Balances At Period End
------------------------
12 Loans $1,063,223 $942,380 $120,843 12.8%
13 Investments (excl mkt val adj.) 712,040 639,734 72,306 11.3%
14 Earning assets 1,775,263 1,582,114 193,149 12.2%
15 Loan loss reserve 14,603 13,055 1,548 11.9%
16 Intangible assets 53,322 52,299 1,023 2.0%
17 Total assets 1,931,222 1,741,172 190,050 10.9%
18 Deposits 1,410,495 1,371,796 38,699 2.8%
19 Borrowings 385,921 237,014 148,907 62.8%
20 Total equity $114,197 $113,294 $903 0.8%
</TABLE>
10b
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<TABLE>
<CAPTION>
000s Omitted Three Months Ended
Line ----------- Jun 30, Mar 31, Change Change
No. Earnings 2000 2000 Amount Percent
----------- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Net interest income $17,924 $17,820 $104 0.6%
2 Loan loss provision 1,707 1,209 498 41.2%
3 Net interest income
after provision for
loan losses 16,217 16,611 (394) -2.4%
4 Investment security
gain (loss) 0 (212) 212 100.0%
5 Other income 5,499 4,143 1,356 32.7%
6 Other expense 13,129 12,253 876 7.1%
7 Intangible amortization 1,186 1,110 76 6.8%
8 Inc before inc tax 7,401 7,179 222 3.1%
9 Income tax 2,220 2,154 66 3.1%
10 Net income $5,181 $5,025 $156 3.1%
Earnings per share
11a Basic $0.73 $0.71 $0.02 3.1%
11b Diluted $0.72 $0.70 $0.02 3.1%
================= ================= =============== ==================
------------------------
Balances At Period End
------------------------
12 Loans $1,063,223 $1,033,488 $29,735 2.9%
13 Investments (excl mkt val adj.) 712,040 692,300 19,740 2.9%
14 Earning assets 1,775,263 1,725,787 49,476 2.9%
15 Loan loss reserve 14,603 13,915 688 4.9%
16 Intangible assets 53,322 48,374 4,948 10.2%
17 Total assets 1,931,222 1,883,603 47,619 2.5%
18 Deposits 1,410,495 1,420,785 (10,290) -0.7%
19 Borrowings 385,921 328,819 57,102 17.4%
20 Total equity $114,197 $112,419 $1,778 1.6%
</TABLE>
10c
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY BANK SYSTEM, INC.
SUMMARY OF OPERATIONS
EARNINGS AND BALANCE SHEET RECAP
2ND QUARTER 2000 AND FULL YEAR COMPARISONS
000s Omitted Three Months Ended,
Line -------------- Jun 30, Jun 30, Change Change
No. Profitability 2000 1999 Amount Percent
-------------- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
21 Return on assets 1.11% 0.96% 0.15 %pts. ---
22 Return on equity 18.77% 13.66% 5.11 %pts. ---
23 Cash EPS (diluted) $0.82 $0.65 $0.17 26.1%
24 Tangible return on 1.26% 1.12% 0.14 %pts. ---
assets
25 Tangible return on 21.31% 15.96% 5.35 %pts. ---
equity
26 Net interest margin 4.40% 4.61% (0.21)%pts. ---
27 Non interest income/ 22.3% 18.1% 4.2 %pts. ---
operating income (excl sec gains)
28 Efficiency ratio 53.1% 55.4% (2.3)%pts. ---
(excl one time items and
intangible amortization)
---------
Capital
---------
29 Tier I leverage ratio 5.54% 5.71% (0.17)%pts. ---
Common shares
30a Weighted average 7,176 7,322 (146) -2.0%
30b Period end 6,993 7,144 (151) -2.1%
31 Cash dividends declared $0.25 $0.23 $0.02 8.7%
per common share
32 Common stock price $22.19 $25.38 ($3.19) -12.6%
33a Book value $16.33 $15.86 $0.47 3.0%
33b Tangible book value $8.70 $8.54 $0.16 1.9%
----------------------
Asset Quality Ratios
----------------------
34 Loan loss reserve /
loans outstanding 1.37% 1.39% (0.02)%pts. ---
35 Nonperforming loans /
loans outstanding 0.61% 0.50% 0.11 %pts. ---
36 Loan loss reserve /
nonperforming loans 224% 278% (54)%pts. ---
37 Net charge-offs /
average loans 0.39% 0.41% (0.02)%pts. ---
38 Loan loss provision /
net charge-offs 167% 148% 19 %pts. ---
39 Nonperforming assets /
loans outstanding+OREO 0.69% 0.60% 0.09 %pts. ---
</TABLE>
11a
<PAGE>
<TABLE>
<CAPTION>
000s Omitted Six Months Ended,
Line -------------- Jun 30, Jun 30, Change Change
No. Profitability 2000 1999 Amount Percent
-------------- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
21 Return on assets 1.10% 0.93% 0.17 %pts. ---
22 Return on equity 18.64% 13.01% 5.63 %pts. ---
23 Cash EPS (diluted) $1.61 $1.24 $0.37 29.9%
24 Tangible return on 1.24% 1.09% 0.15 %pts. ---
assets
25 Tangible return on 21.12% 15.31% 5.81 %pts. ---
equity
26 Net interest margin 4.42% 4.56% (0.14)%pts. ---
27 Non interest income/ 20.1% 18.3% 1.8 %pts. ---
operating income (excl sec gains)
28 Efficiency ratio 52.9% 56.5% (3.6)%pts. ---
(excl one time items and )
intangible amortization)
---------
Capital
---------
29 Tier I leverage ratio 5.54% 5.71% (0.17)%pts. ---
Common shares
30a Weighted average 7,179 7,335 (156) -2.1%
30b Period end 6,993 7,144 (151) -2.1%
31 Cash dividends declared $0.50 $0.46 $0.04 8.7%
per common share
32 Common stock price $22.19 $25.38 ($3.19) -12.6%
33a Book value $16.33 $15.86 $0.47 3.0%
33b Tangible book value $8.70 $8.54 $0.16 1.9%
----------------------
Asset Quality Ratios
----------------------
34 Loan loss reserve /
loans outstanding 1.37% 1.39% (0.02)%pts. ---
35 Nonperforming loans /
loans outstanding 0.61% 0.50% 0.11 %pts. ---
36 Loan loss reserve /
nonperforming loans 224% 278% (54)%pts. ---
37 Net charge-offs /
average loans 0.34% 0.43% (0.09)%pts. ---
38 Loan loss provision /
net charge-offs 168% 131% 37 %pts. ---
39 Nonperforming assets /
loans outstanding+OREO 0.69% 0.60% 0.09 %pts. ---
</TABLE>
11b
<PAGE>
<TABLE>
<CAPTION>
000s Omitted Three Months Ended,
Line -------------- Jun 30, Mar 31, Change Change
No. Profitability 2000 2000 Amount Percent
-------------- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
21 Return on assets 1.11% 1.09% 0.02 %pts. ---
22 Return on equity 18.77% 18.52% 0.25 %pts. ---
23 Cash EPS (diluted) $0.82 $0.79 $0.03 3.8%
24 Tangible return on 1.26% 1.23% 0.03 %pts. ---
assets
25 Tangible return on 21.31% 20.94% 0.37 %pts. ---
equity
26 Net interest margin 4.40% 4.43% (0.03)%pts. ---
27 Non interest income/ 22.3% 17.8% 4.5 %pts. ---
operating income (excl sec gains)
28 Efficiency ratio 53.1% 52.7% 0.4 %pts. ---
(excl one time items and )
intangible amortization)
---------
Capital
---------
29 Tier I leverage ratio 5.54% 5.80% (0.26)%pts. ---
Common shares
30a Weighted average 7,176 7,181 (5) -0.1%
30b Period end 6,993 7,093 (100) -1.4%
31 Cash dividends declared $0.25 $0.25 $0.00 0.0%
per common share
32 Common stock price $22.19 $22.81 ($0.62) -2.7%
33a Book value $16.33 $15.85 $0.48 3.0%
33b Tangible book value $8.70 $9.03 ($0.33) -3.6%
----------------------
Asset Quality Ratios
----------------------
34 Loan loss reserve /
loans outstanding 1.37% 1.35% 0.02 %pts. ---
35 Nonperforming loans /
loans outstanding 0.61% 0.57% 0.04 %pts. ---
36 Loan loss reserve /
nonperforming loans 224% 235% (11)%pts. ---
37 Net charge-offs /
average loans 0.39% 0.28% 0.11 %pts. ---
38 Loan loss provision /
net charge-offs 167% 169% (2)%pts. ---
39 Nonperforming assets /
loans outstanding+OREO 0.69% 0.69% (0.00)%pts. ---
</TABLE>
11c
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY BANK SYSTEM, INC.
SUMMARY OF OPERATIONS
EARNINGS AND BALANCE SHEET RECAP
2ND QUARTER 2000 AND FULL YEAR COMPARISONS
000s Omitted Three Months Ended,
Line -------------------------- Jun 30, Jun 30, Change Change
No. Asset Quality Components 2000 1999 Amount Percent
-------------------------- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
40 Nonaccruing loans $5,297 $3,515 $1,782 50.7%
41 90+ days delinquent 1,216 1,189 27 2.3%
-- -- ----- ----- -- ---
42 Tot nonperforming loans $6,513 $4,704 $1,809 38.5%
43 Troubled debt 142 123 19 15.4%
restructurings
44 Other real estate 651 853 (202) -23.7%
-- --- --- ---- ----
45 Tot nonperforming assets $7,306 $5,680 $1,626 28.6%
46 Net Charge-Offs 1,019 960 59 6.1%
-----------------------------------
Components of Net Interest Margin
-----------------------------------
47 Loan yield 9.17% 8.96% 0.21 %pts. ---
48 Investment yield 7.38% 6.80% 0.58 %pts. ---
49 Earning asset yield 8.44% 8.11% 0.33 %pts. ---
50 Interest bearing deposits rate 4.12% 3.76% 0.36 %pts. ---
51 Borrowed funds rate 6.54% 6.08% 0.46 %pts. ---
52 Cost of all interest 4.67% 4.07% 0.60 %pts. ---
bearing funds
53 Cost of funds 4.03% 3.45% 0.58 %pts. ---
(includes DDA)
54 Cost of funds / earning 4.04% 3.50% 0.54 %pts. ---
assets
55 Net interest margin 4.40% 4.61% (0.21)%pts. ---
56 Full tax equivalent adj. $1,287 $1,095 $192 17.5%
-----------------------------
Average Balances for Period
-----------------------------
57 Loans $1,045,704 $929,770 $115,934 12.5%
58 Investments
(excl. mkt val adj) 709,527 602,596 106,931 17.7%
59 Earning assets 1,755,231 1,532,366 222,865 14.5%
60 Total assets 1,882,365 1,693,361 189,004 11.2%
61 Deposits 1,411,185 1,377,975 33,210 2.4%
62 Borrowings 348,750 175,824 172,926 98.4%
63 Total equity $111,023 $118,894 ($7,871) -6.6%
</TABLE>
12a
<PAGE>
<TABLE>
<CAPTION>
000s Omitted Six Months Ended,
Line -------------------------- Jun 30, Jun 30, Change Change
No. Asset Quality Components 2000 1999 Amount Percent
-------------------------- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
40 Nonaccruing loans $5,297 $3,515 $1,782 50.7%
41 90+ days delinquent 1,216 1,189 27 2.3%
-- -- ----- ----- -- ---
42 Tot nonperforming loans $6,513 $4,704 $1,809 38.5%
43 Troubled debt restructurings 142 123 19 15.4%
restructurings
44 Other real estate 651 853 (202) -23.7%
-- --- --- ---- ----
45 Tot nonperforming assets $7,306 $5,680 $1,626 28.6%
46 Net Charge-Offs 1,734 1,976 (242) -12.2%
-----------------------------------
Components of Net Interest Margin
-----------------------------------
47 Loan yield 9.10% 8.99% 0.11 %pts. ---
48 Investment yield 7.35% 6.66% 0.69 %pts. ---
49 Earning asset yield 8.38% 8.08% 0.30 %pts. ---
50 Interest bearing deposits rate 4.02% 3.78% 0.24 %pts. ---
51 Borrowed funds rate 6.45% 6.11% 0.34 %pts. ---
52 Cost of all interest 4.59% 4.08% 0.51 %pts. ---
bearing funds
53 Cost of funds 3.95% 3.47% 0.48 %pts. ---
(includes DDA)
54 Cost of funds / earning 3.96% 3.51% 0.45 %pts. ---
assets
55 Net interest margin 4.42% 4.56% (0.14)%pts. ---
56 Full tax equivalent adj. $2,570 $1,978 $592 29.9%
-----------------------------
Average Balances for Period
-----------------------------
57 Loans $1,031,635 $922,836 $108,799 11.8%
58 Investments
(excl. mkt val adj) 712,529 596,616 115,913 19.4%
59 Earning assets 1,744,164 1,519,452 224,712 14.8%
60 Total assets 1,871,029 1,681,270 189,759 11.3%
61 Deposits 1,399,684 1,372,204 27,480 2.0%
62 Borrowings 350,756 168,377 182,379 108.3%
63 Total equity $110,083 $119,934 ($9,851) -8.2%
</TABLE>
12b
<PAGE>
<TABLE>
<CAPTION>
000s Omitted Three Months Ended,
Line -------------------------- Jun 30, Mar 31, Change Change
No. Asset Quality Components 2000 2000 Amount Percent
-------------------------- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
40 Nonaccruing loans $5,297 $5,320 ($23) -0.4%
41 90+ days delinquent 1,216 592 624 105.4%
-- -- ----- --- --- -----
42 Tot nonperforming loans $6,513 $5,912 $601 10.2%
43 Troubled debt restructurings 142 130 12 9.2%
restructurings
44 Other real estate 651 1,050 (399) -38.0%
-- --- ----- ---- ----
45 Tot nonperforming assets $7,306 $7,092 $214 3.0%
46 Net Charge-Offs 1,019 715 304 42.5%
-----------------------------------
Components of Net Interest Margin
-----------------------------------
47 Loan yield 9.17% 9.02% 0.15 %pts. ---
48 Investment yield 7.38% 7.32% 0.06 %pts. ---
49 Earning asset yield 8.44% 8.32% 0.12 %pts. ---
50 Interest bearing deposits rate 4.12% 3.92% 0.20 %pts. ---
51 Borrowed funds rate 6.54% 6.36% 0.18 %pts. ---
52 Cost of all interest 4.67% 4.50% 0.17 %pts. ---
bearing funds
53 Cost of funds 4.03% 3.87% 0.16 %pts. ---
(includes DDA)
54 Cost of funds / earning 4.04% 3.89% 0.15 %pts. ---
assets
55 Net interest margin 4.40% 4.43% (0.03)%pts. ---
56 Full tax equivalent adj $1,287 $1,283 $4 0.3%
-----------------------------
Average Balances for Period
-----------------------------
57 Loans $1,045,704 $1,017,566 $28,138 2.8%
58 Investments
(excl. mkt val adj) 709,527 715,531 (6,004) -0.8%
59 Earning assets 1,755,231 1,733,097 22,134 1.3%
60 Total assets 1,882,365 1,859,693 22,672 1.2%
61 Deposits 1,411,185 1,388,181 23,004 1.7%
62 Borrowings 348,750 352,762 (4,012) -1.1%
63 Total equity $111,023 $109,144 $1,879 1.7%
</TABLE>
12c
<PAGE>
Earnings per share (diluted) for second quarter 2000 reached $.72, a record high
for the Company and up 31% over the prior year's level of $.55; for the six
month period, earnings per share rose 35% to $1.42. Net income for the quarter
and six months was $5.18 million and $10.21 million, up 28% and 32%,
respectively. Return on equity (ROE) increased a substantial 5.11 percentage
points to 18.77% for the quarter, slightly higher than 18.64% for the first
half. Second quarter return on assets (ROA) rose to 1.11%, up 15 basis points,
resulting in a year-to-date average of 1.10%.
o Loans climbed nearly $30 million, $4 million more growth than in second
quarter 1999, bringing the total increase since June 30, 1999 to $121
million or 12.8%.
o Net charge-offs for the quarter rose a modest 6.2% compared to one year
earlier, and remain more than 12% below 1999's first half level.
o Net interest income for the three months rose by 8.5% or $1.41 million,
despite a modest reduction in spreads compared to one year ago.
o Reflective of the purchase of Elias Asset Management (EAM) at the beginning
of the quarter, noninterest income (excluding securities transactions) grew
by nearly 42% or $1.62 million, while growth in overhead was held to a
$1.13 million increase.
o Lastly, the Company acquired 100,000 of its shares during the quarter,
having now repurchased 648,100 shares or 8.5% of its shares outstanding at
the time its 750,000 buy-back target was announced in third quarter 1998.
Cash earnings per share (diluted) also reached record levels, up 26% to $.82 for
the quarter and up nearly 30% to $1.61 for the first six months. Year-to-date
tangible return on equity climbed to 21.12%, exceeding nominal ROE by 2.48
percentage points for the same period, while cash ROA rose to 1.24%. The
difference between cash and nominal results reflects the contribution of the
Company's acquisitions on an economic basis, which excludes the non-cash impact
of amortizing premiums paid for the acquisitions.
Compared to first quarter 2000, earnings increased $.02 per share or $156,000,
up 3.1%. Net interest income rose a relatively small $104,000 as a result of a
three basis point narrowing in net interest margin offsetting more than 60% of
the impact of $22.1 million additional average earning assets. This net benefit,
along with the absence of the prior quarter's securities losses, was eliminated
by $498,000 greater loan loss provision expense. The primary reason for the
latter increase was replenishment of the loan loss reserve for a $400,000
charge-off recognized on a single commercial customer. Noninterest income
climbed a substantial $1.36 million, of which the EAM purchase contributed
$934,000. Noninterest expense rose $952,000, or $221,000 (up 1.7%) excluding
EAM.
Net Interest Margin Narrows Modestly
------------------------------------
The relatively small decrease in the second quarter net interest margin over the
last three months to 4.40% reflects a 12 basis point improvement in the yield on
earning assets compared to a 17 basis point rise in the cost of interest bearing
funds. The latter increase reflects similarly higher rates paid on both deposits
and borrowed funds, with growth in earning assets being funded by more local
municipal time deposits and fewer capital market borrowings. On average, loans
were up $28.1 million for the quarter while investments fell $6.0 million, owing
to less attractive purchasing opportunities compared to the prior nine months.
The calculation of the full-tax equivalent net interest margin for 2000 includes
the impact on earning asset yields of various tax-efficient securities and loan
strategies implemented in the last two years, whose combined tax savings had
previously been measured only by a lower effective corporate tax rate. This
benefit accounts for approximately an 13 basis point improvement in margin over
that previously reported.
On a reporting basis comparable to second quarter 1999, the net interest margin
has decreased by 14 basis points. This change reflects the rising financial
market environment of the last year, an inverted Treasury yield curve, and the
liability-sensitive position of the Company's balance sheet within a 12-15 month
time frame.
13
<PAGE>
The overall yield on earning assets has risen 30 basis points over the past
year, comprised of a 11 basis point improvement in loan portfolio yield and a 69
basis point increase in investment portfolio yield. The latter is the result of
an 11% expansion of the portfolio via selective securities purchases and
elimination of accelerated amortization of premiums on certain collateralized
mortgage obligations. The smaller increase in loan yield reflects the variable
rate mix of the loan portfolio and continued pressure on loan pricing spreads,
partially offset by high cash flow from installment loans, which enables run-off
to be reinvested at current rates.
Compared to second quarter 1999, the increase in cost of interest bearing funds
has been limited to 51 basis points, less than half the rise in the one-year
Treasury rate. The rate on interest bearing deposits rose 24 basis points,
largely explained by rates on interest checking and regular savings being held
virtually unchanged and repricing on C.D.s being confined to scheduled
maturities. The remainder of the increase in cost of funds reflects the impact
of over 75% of earning asset growth being funded with higher capital market
borrowings (for which rates rose 34 basis points on average), with the balance
being supported by higher consumer and business demand deposits (up 5.3%) and
deposits of local municipalities (up 13.4%). Average borrowings as a percent of
total funds sources about doubled during the period, rising to nearly 20% in
second quarter 2000 compared to 11% one year earlier.
Further narrowing of margins may occur as past and forecasted Federal Reserve
actions and capital market responses work their way through the Bank's balance
sheet and interest rate risk position. Management continues to implement
programs designed to mitigate the impact of narrowing spreads, including raising
rates on new installment loans and disciplined comparison of loan pricing to
risk-free investment alternatives. Approximately one-third of borrowings has
original maturities of three years or longer, and at the present time, further
terming out is not anticipated.
Noninterest Income Grows Dramatically due to Financial Services Businesses
--------------------------------------------------------------------------
Noninterest income (excluding net securities gains/losses) for second quarter
2000 rose a substantial $1.62 million or 42% from one year earlier to $5.5
million. As indicated above, the bulk of the increase ($1.32 million or 82%)
represents higher financial services revenue, $934,000 of which resulted from
the purchase of Elias Asset Management, which was completed on April 3, 2000.
Commissions from the sale of mutual funds also increased a strong $223,000 or
72%, and insurance revenues doubled, rising $49,000. Revenues from the Company's
BPA/EBT business, which provides investment management, pension administration
and consulting services, were up $118,000 or 19%, while personal trust fees were
unchanged. The balance of the increase in noninterest income was from general
banking fees, largely from overdraft fees (up 25%) and commissions (up 19%).
Compared to first quarter 2000, noninterest income improved by $1.37 million or
33%, and for the first six months, rose $1.94 million or 25%.
Elias Asset Management. Inc. (EAM) is a wholly owned subsidiary of Community
Bank, N.A. located in Williamsville, New York. EAM provides asset management
services to the general public and earns non-interest management fee income. For
the three months ended June 30, 2000, management fee income amounted to
$934,000. Assets under management at June 30, 2000 were $693 million.
Financial services now comprise 48% of total noninterest income (excluding net
securities gains/losses); specialty products, which largely includes electronic
and mortgage banking and servicing activities, contribute 8%; and general
banking fees make up 44% of noninterest income. Despite higher fees from VISA
and ATM transactions, specialty product revenues were flat compared to second
quarter 1999 due to the reduced mortgage banking activity. First half secondary
market originations and sales were $5.2 million versus $27.0 million last year,
reflective of increasingly slower demand for residential refinancing due to
rising interest rates.
14
<PAGE>
Noninterest income, excluding transactions related to investment securities and
disposal of branch properties, as a percent of operating income was 22.3% in the
second quarter, a significant 4.2 percentage point increase from the prior year.
Assets under management, including those customer relationships managed by the
Bank's personal trust department, BPA/EBT, Community Investment Services, Inc.
brokerage, and Elias Asset Management, reached $1.2 billion as of June 30, 2000.
Loan Portfolio Continues to Expand at Double-Digit Pace
-------------------------------------------------------
Loans rose nearly $30 million during the last three months to $1.063 billion,
$5.5 million more growth than in first quarter 2000 and $4.3 million more than
for the same period last year. During the last twelve months, loans have grown
by almost $121 million or 12.8%. Typical of the trend in recent years, the
largest share of growth in the portfolio for the quarter was in commercial loans
at $12.0 million or 40% of total growth. This pace of increase falls within the
$10-$15 million range over the last five quarters, bringing the rate of growth
during the last year to 14.8%. Consumer mortgages held in portfolio was the
second fastest growing loan category for the quarter, up $7.8 million or 26% of
total growth. Borrowers continue to use this vehicle to term out portions of
their consumer debt, largely explaining the $24 million or 11.5% increase since
June 30, 1999.
Indirect consumer installment loans (predominantly automobile financing) grew
$6.4 million during the last 90 days (22% of total loan growth), for a $22
million or 10.8% rise since June 30, 1999. Loans began to climb in late March
1999 after falling since mid 1998 when the Company adopted more conservative
underwriting practices. Lastly, consumer direct loans (including home equity
loans) were up $3.5 million for the quarter, accounting for 12% of total loan
growth. Outstandings have increased 13.0% over the last twelve months, with
growth beginning during second quarter 1999 as a result of the successful
"Summer Sizzler" promotion, whose momentum has been carried through to the
current period.
Asset Quality Remains Peer-Normal, but Precautionary Additional Loan Loss
--------------------------------------------------------------------------------
Provision Taken
---------------
Nonperforming loans ended the quarter at $6.5 million or .61% of loans
outstanding, up $1.8 million and 11 basis points, respectively, compared to one
year ago, with the bulk of the increase taking place during fourth quarter 1999.
The primary reason for that increase was a $1.9 million loan to a commercial
business which experienced start-up problems with a new piece of equipment. With
the equipment now fully operative, the company's primary customer has begun
acquisition talks with the company. Based on estimated collateral shortfall,
$400,000 of this loan was written down in the quarter just ended; further
write-downs, if any, are not quantifiable at this time. The $800,000 increase in
nonperformers since year-end 1999 largely reflects a handful of commercial loan
non-accruals. Based on the most recent peer bank data as of March 31, 2000, when
the Company's nonperforming loan ratio was .57%, CBSI ranked more favorably than
the peer norm of .59%.
The ratio of loan loss reserves to loans outstanding ended the quarter at 1.37%,
up two basis points during the last twelve months. Coverage over nonperformers
decreased 11 percentage points during the quarter to 224%, and was down 54
percentage points from the June 30, 1999 level. Nonetheless, the reserve
continues to exceed the Bank's total actual losses for the last three years.
Moreover, the ratio of delinquencies (30 days or more) plus nonaccruals to total
loans decreased 11 basis points during the quarter to 1.30%. This ratio has
remained in the 1.30% to 1.50% range for the last 27 months, well within the
Company's internal guideline of less than 2.0%.
Net charge-offs for the second quarter increased by $305,000 over first quarter
2000 and exceeded the same quarter last year by a relatively small $59,000 (up
6.2%). As a percent of average outstandings, net charge-offs rose 11 basis
points over the first three months of this year to .39%, but for the first six
months, the ratio was down by 9 basis points from the prior year to .34%. The
improvement was due to steadily lower installment loan charge-offs, indicative
of more conservative underwriting practices and follow-up surveillance adopted
during 1998. Installment net charge-offs averaged .74% for the first half of
this year versus 1.08% for the 1999 period. Commercial net charge-offs rose to
.21% through June 30 versus .13% last year, and mortgage loan net charge-offs
remain miniscule for both periods.
15
<PAGE>
Though the charge-off for the specific commercial customer noted above had been
anticipated with a higher loan loss provision in fourth quarter 1999, the actual
charge-off was replaced this quarter in the event of future potential losses.
That action, in combination with continued strong loan growth, resulted in a
$498,000 increase in loan loss provision during the second quarter, enabling the
provision to cover total actual net charge-offs by 1.67 times. This ample margin
serves as a precaution in the event the Upstate New York economy weakens after
its long-sustained period of relative economic health.
Efficiency Ratio Improves to Favorable 52% Range for First Six Months
---------------------------------------------------------------------
The Company's second quarter efficiency ratio (recurring overhead less
intangible amortization compared to net interest plus recurring other income)
improved to 53.1% from 55.4% last year. This favorable trend is a function of
several factors: an increase in net interest income due to higher earning
assets, elimination of accelerated premium amortization of the Company's CMO
securities, steady progress in developing more sources of noninterest income,
and persistent control of overhead expense.
For second quarter 2000, overhead (before intangible amortization) rose $1.10
million or 9.1% over the prior year's level; excluding the $670,000 impact of
the EAM purchase, operating expense was up $427,000 or 3.6%. Nearly 90% of this
latter increase represents personnel expense, up $381,000 or 5.9%, reflective of
annual merit increases, increased staff at Community Financial Services, Inc.
(for which nearly all of the compensation is commission-based), higher temporary
help in the Bank's operations centers during the conversion to image-based check
processing, and higher medical expense.
Compared to first quarter 2000, overhead (before intangible amortization and
excluding EAM) rose $221,000. A good portion of this increase was caused by
one-time expenses during the conversion to image-based check processing,
consulting expense related to centralization of certain functions previously
performed in the Company's two regions, greater seasonal advertising, various
origination costs supportive of consumer loan and investment generation
programs, and a billing lag in the payment of armored car services.
Liquidity
---------
Due to the potential for unexpected fluctuations in deposits and loans, active
management of the Company's liquidity is critical. In order to respond to these
circumstances, adequate sources of both on- and off-balance sheet funding are in
place.
CBSI's primary approach to measuring liquidity is known as the Basic
Surplus/Deficit model. It is used to calculate liquidity over two time periods:
first, the relationship within 30 days between liquid assets and short-term
liabilities which are vulnerable to nonreplacement; and second, a projection of
subsequent cash availability over an additional 60 days. The minimum policy
level of liquidity under the Basic Surplus/Deficit approach is 7.5% of total
assets for both the 30 and 90-day time horizons. As of March 31, 2000, this
ratio was 15.6% and 18.3%, respectively, excluding the Company's capacity to
borrow additional funds from the Federal Home Loan Bank.
Effects of Inflation
--------------------
The financial statements and related data presented herein have been prepared in
accordance with generally accepted accounting principles in the United States,
which require the measurement of financial position and operating results in
terms of historical dollars without considering changes in the relative
purchasing power of money over time due to inflation.
Virtually all of the assets and liabilities of the Company are monetary in
nature. As a result, interest rate changes have a more significant impact on the
Company's performance than general levels of inflation.
16
<PAGE>
Forward-Looking Statements
--------------------------
This document contains comments or information that constitute forward-looking
statements (within the meaning of the Private Securities Litigation Reform Act
of 1995), which involve significant risks and uncertainties. Actual results may
differ materially from the results discussed in the forward-looking statements.
Moreover, the Company's plans, objectives and intentions are subject to change
based on various factors (some of which are beyond the Company's control).
Factors that could cause actual results to differ from those discussed in the
forward-looking statements include: (1) risks related to credit quality,
interest rate sensitivity and liquidity; (2) the strength of the U.S. economy in
general and the strength of the local economies where the Company conducts its
business; (3) the effect of, and changes in, monetary and fiscal policies and
laws, including interest rate policies of the Board of Governors of the Federal
Reserve System; (4) inflation, interest rate, market and monetary fluctuations;
(5) the timely development of new products and services and customer perception
of the overall value thereof (including features, pricing and quality) compared
to competing products and services; (6) changes in consumer spending, borrowing
and savings habits; (7) technological changes; (8) any acquisitions or mergers
that might be considered by the Company and the costs and factors associated
therewith; (9) the ability to maintain and increase market share and control
expenses; (10) the effect of changes in laws and regulations (including laws and
regulations concerning taxes, banking, securities and insurance) and accounting
principles generally accepted in the United States; (11) changes in the
Company's organization, compensation and benefit plans and in the availability
of, and compensation levels for, employees in its geographic markets; (12) the
costs and effects of litigation and of any adverse outcome in such litigation;
and (13) the success of the Company at managing the risks of the foregoing.
The foregoing list of important factors is not exclusive. Such forward-looking
statements speak only as of the date on which they are made and the Company does
not undertake any obligation to update any forward-looking statement, whether
written or oral, to reflect events or circumstances after the date on which such
statement is made. If the Company does update or correct one or more
forward-looking statements, investors and others should not conclude that the
Company will make additional updates or corrections with respect thereto or with
respect to other forward-looking statements.
Year 2000
---------
As of the date of this filing, the Company has not incurred any significant
business interruption as a result of the Year 2000 issue. The Company will
continue to monitor the issue throughout 2000 and expeditiously remediate any
issues that may arise. Based on the Company's readiness efforts, the Company
does not reasonably foresee any material Year 2000 issues, and therefore, costs
associated with any potential issues are not expected to have a material adverse
effect on either the financial condition or operating capacity of the Company.
17
<PAGE>
<TABLE>
<CAPTION>
Supplemental Schedules
----------------------
A) The following table sets forth certain information concerning average
interest-earning assets and interest-bearing liabilities and the yields and
rates thereon. Interest income and resultant yield information in the
tables are on a fully tax-equivalent basis using a marginal federal income
tax rate of 35%. Averages are computed on daily average balances for each
month in the period divided by the number of days in the period. Yields and
amounts earned include loan fees. Nonaccrual loans have been included in
interest earnings for purposes of these computations.
Second Quarter Ended June 30,
------------------------------------------------------------------------------
2000 1999
------------------------------------------------------------------------------
(000's omitted except yields Avg. Amt. of Avg. Avg. Amt. of Avg.
and rates) Balance Interest Yield/Rate Balance Interest Yield/Rate
Paid Paid
ASSETS:
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold $2,092 $31 6.02% $315 $4 4.68%
Time deposits in other banks 486 6 5.02% 62 1 4.27%
Taxable investment 581,201 10,579 7.32% 501,723 8,356 6.68%
securities
Nontaxable investment 125,747 2,395 7.66% 100,496 1,867 7.44%
securities
Loans (net of unearned 1,045,704 23,830 9.17% 929,770 20,760 8.96%
discount) ----------- ----------- ------------- -------------
Total interest-earnings 1,755,230 $36,841 8.44% 1,532,366 $30,988 8.11%
assets
Noninterest earning assets
Cash and due from banks 52,818 63,326
Premises and equipment 26,002 24,474
Other Assets 87,751 81,631
Less:allowance for loans (14,048) (12,545)
Net unrealized
gains/(losses) on
available-for-sale portfolio (25,388) 4,225
----------- -------------
Total $1,882,365 $1,693,477
=========== =============
LIABILITIES AND SHAREHOLDERS'
EQUITY:
Interest-bearing liabilities
Savings deposits $489,914 $2,687 2.21% $518,952 $2,823 2.18%
Time deposits 678,900 9,275 5.49% 624,614 7,885 5.06%
Short-term borrowings 227,502 3,574 6.32% 76,011 950 5.01%
Long-term borrowings 121,248 2,094 6.95% 99,813 1,715 6.89%
----------------------- ----------------------------
Total interest-bearing 1,517,564 17,630 4.67% 1,319,390 13,373 4.07%
liabilities
Noninterest bearing liabilities
Demand deposits 242,371 234,409
Other liabilities 11,407 20,784
Shareholders' equity 111,023 118,894
----------- -------------
Total $1,882,365 $1,693,477
=========== =============
Net interest earnings $19,211 $17,615
========== =============
Net yield on interest-earning assets 4.40% 4.61%
============ ============
Federal tax exemption on
nontaxable investment
securities included in interest income 1,287 1,095
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
B) The change in net interest income may be analyzed by segregating the volume
and rate components of the changes in interest income and interest expense
for each underlying category.
The volume and rate components of interest income and interest expense for each
underlying category are as follows:
-------------------------------------------------
2nd Quarter 2000 versus 2nd Quarter 1999
-------------------------------------------------
Increase (Decrease) Due to Change In (1)
Net
Volume Rate Change
------ ---- ------
<S> <C> <C> <C>
Interest earned on:
Federal funds sold and securities
purchased under agreements to resell $26 $1 $28
Time deposits in other banks 5 0 5
Taxable investment securities 1,385 838 2,223
Nontaxable investment securities 473 55 528
Loans (net of unearned discounts) 2,585 485 3,070
Total interest-earning assets (2) $4,572 $1,281 $5,853
Interest paid on:
Savings deposits ($322) $186 ($136)
Time deposits 702 688 1,390
Short-term borrowings 2,321 303 2,624
Long-term borrowings 366 13 379
Total interest-bearing liabilities (2) $2,135 $2,122 $4,257
Net interest earnings (2) $2,437 ($841) $1,596
1) The change in interest due to both rate and volume has been allocated to
volume and rate changes in proportion to the relationship of the absolute
dollar amounts of change in each.
2) Changes due to volume and rate are computed from the respective changes in
average balances and rates of the totals; they are not a summation of the
changes of the components.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
C) The following table sets forth information by category of noninterest
expenses of the Company for the periods indicated.
(000's omitted) Three Months Ended June 30, Six Months Ended June 30,
-------------------------------------------------------------------------
Change Change Change Change
2000 1999 Amount Percent 2000 1999 Amount Percent
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Personnel expense $ 7,271 $ 6,494 $ 777 12.0% $ 14,090 $13,079 $ 1,011 7.7%
Net occupancy expense 942 987 (45) -4.6% 1,976 2,045 (69) -3.4%
Equipment expense 913 903 10 1.1% 1,824 1,799 25 1.4%
Professional fees 561 505 56 11.1% 1,026 963 63 6.5%
Data processing expense 1,146 932 214 23.0% 2,201 1,832 369 20.1%
Intangible amortization 1,187 1,155 32 2.8% 2,297 2,313 (16) -0.7%
Stationary and supplies 431 323 108 33.4% 666 620 46 7.4%
Deposit insurance premiums 69 45 24 53.3% 139 93 46 49.5%
Disposition of branch properties 7 121 (114) -94.2% 14 322 (308) -95.7%
Other 1,788 1,723 65 3.8% 3,445 3,341 104 3.1%
-------------------------------------------------------------------------
Total $14,315 $13,188 $1,127 8.5% $27,678 $26,407 $ 1,271 4.8%
Total operating expenses as
a percentage of average assets 3.06% 3.12% -0.06% pts 2.97% 3.17% -0.19% pts
Efficiency ratio 53.1% 55.4% -2.3% pts 52.9% 56.5% -3.6% pts
(excl one time items & intang.amort)
D) The amounts of the Company's loans outstanding (net of deferred loan fees
or costs) at the dates indicated are shown in the following table according
to type of loan:
(000's omitted) As of June 30,
Change Change
2000 1999 Amount Percent
--------------------------------------------
<S> <C> <C> <C> <C>
Real estate mortgages:
Residential $ 351,215 $ 316,468 $ 34,747 11.0%
Commercial loans secured
by real estate 128,741 110,906 17,835 16.1%
Farm 18,769 13,213 5,556 42.0%
----------------------------------
Total 498,725 440,587 58,138 13.2%
Commercial, financial, and agricultural
Agricultural 27,917 24,853 3,064 12.3%
Commercial and financial 184,621 164,551 20,070 12.2%
----------------------------------
Total 212,538 189,404 23,134 12.2%
Installment loans to
individuals:
Direct 110,705 95,524 15,181 15.9%
Indirect 229,829 207,420 22,409 10.8%
Student and other 1,284 2,369 (1,085) -45.8%
----------------------------------
Total 341,818 305,313 36,505 12.0%
Other Loans 10,696 8,065 2,631 32.6%
----------------------------------
Gross Loans 1,063,777 943,369 120,408 12.8%
----------------------------------
Less: Unearned discounts 554 989 (435) -44.0%
----------------------------------
Net loans 1,063,223 942,380 120,843 12.8%
Reserve for possible loan losses 14,603 13,055 1,548 11.9%
Loans net of loan loss reserve $ 1,048,620 $ 929,325 $ 119,295 12.8%
==================================
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
E) The following table reconciles the differences between the line of business
loan breakdown reflected in the narrative of this report and on Table D as
compared to regulatory reporting definitions reflected on the Call Report.
Line Of Business as of June 30, 2000
----------------------------------------------------------------------------
Consumer Consumer Consumer Business Total
Direct Indirect Mortgages Lending Loans
-------------- ------------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Regulatory Reporting
--------------------
Categories
----------
Loans secured by real estate
Residential $ 61,516 $ - $ 259,879 $ 29,821 $ 351,216
Commercial 30 - 746 127,965 128,741
Farm 36 - 18,733 18,769
Agricultural loans 656 - 27,260 27,916
Commercial loans 6,450 - 178,171 184,621
Installment loans to individuals 106,351 229,829 54 5,584 341,818
Other loans 1,502 - 9,194 10,696
-------------- ------------- -------------- ------------ --------------
Total loans 176,541 229,829 260,679 396,728 1,063,777
Unearned Discounts (554) - - - (554)
-------------- ------------- -------------- ------------ --------------
Net Loans $ 175,987 $ 229,829 $ 260,679 $ 396,728 $1,063,223
============== ============= ============== ============ ==============
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
F) The following table presents information concerning the aggregate amount of
nonperforming assets:
As of June 30,
(000's omitted)
--------------------------------------------------------------
Change Change
2000 1999 Amount Percent
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Loans accounted for on a
nonaccrual basis $ 5,297 $ 3,515 $ 1,782 50.7%
Accruing loans which are contractually
past due 90 days or more as to
principal or interest payments 1,216 1,189 27 2.3%
----- ----- -- ---
Total nonperforming loans 6,513 4,704 1,809 38.5%
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" 142 123 19 15.4%
Other Real Estate 651 853 (202) -23.7%
--- --- ---- ----
Total nonperforming assets $ 7,306 $ 5,680 $ 1,626 28.6%
Ratio of allowance for loan losses to
period-end loans 1.37% 1.39% (0.02) % pts ---
Ratio of allowance for loan losses to
period-end nonperforming loans 224.0% 277.5% (53.5) % pts ---
Ratio of allowance for loan losses to
period-end nonperforming assets 199.9% 229.8% (30.0) % pts ---
Ratio of nonperforming assets to period-end
total loans and other real estate owned 0.69% 0.60% 0.09 % pts ---
The impact of interest not recognized on nonaccrual loans, and interest income
that would have been recorded if the restructured loans had been current in
accordance with their original terms, was immaterial. The Company's policy is to
place a loan on a nonaccrual status and recognize income on a cash basis when it
is more than ninety days past due, except when in the opinion of management it
is well secured and in the process of collection.
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
G) The following table summarizes loan balances at the end of each period
indicated and the daily average amount of loans. Also summarized are
changes in the allowance for possible loan losses arising from loans
charged off and recoveries on loans previously charged off and additions to
the allowance, which have been charged to expenses.
Three Months Ended June 30, Six Months Ended June 30,
(000's omitted)
---------------------------------------------------------------------------------
Change Change Change Change
2000 1999 Amount Percent 2000 1999 Amount Percent
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Amount of loans outstanding at end
of period (gross of unearned
discount) $1,063,777 $943,369 $120,408 12.8% $1,063,777 $943,369 $120,408 12.8%
Daily average amount of loans (net
of unearned discount) 1,045,704 929,770 115,934 12.5% 1,031,635 922,836 108,799 11.8%
Balance of allowance for possible
loan losses at beginning of period 13,915 12,594 1,321 10.5% 13,421 12,441 980 7.9%
Loans charged off:
Commercial, financial, and
agricultural 449 246 203 82.5% 501 372 129 34.7%
Real estate construction 0 0 0 0.0% 0 0 0 0.0%
Real estate mortgage 0 3 (3) -100.0% 11 33 (22) -66.7%
Installment 826 983 (157) -16.0% 1,756 2,167 (411) -19.0%
---------------------------------------------------------------------------------
Total loans charged off 1,275 1,232 43 3.5% 2,268 2,572 (304) -11.8%
Recoveries of loans previously
charged off:
Commercial, financial, and
agricultural 29 32 (3) -9.4% 58 92 (34) -37.0%
Real estate construction 0 0 0 0.0% 0 0 0 0.0%
Real estate mortgage 0 0 0 0.0% 1 3 (2) -66.7%
Installment 227 240 (13) -5.4% 475 501 (26) -5.2%
---------------------------------------------------------------------------------
Total recoveries 256 272 (16) -5.9% 534 596 (62) -10.4%
Net loans charged off 1,019 960 59 6.1% 1,734 1,976 (242) -12.2%
Additions to allowance charged to
expense 1,707 1,421 286 20.1% 2,916 2,590 326 12.6%
Balance at end of period $14,603 $13,055 $1,548 11.9% $14,603 $13,055 $1,548 11.9%
Ratio of net chargeoffs to average
loans outstanding 0.39% 0.41% -0.02% ------ 0.34% 0.43% -0.09% ------
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
H) The following table sets forth information by category of noninterest
income for the Company for the periods indicated.
(000's omitted) Three Months Ended June 30, Six Months Ended June 30,
------------------------------------------------------------------
2000 1999 Change Change 2000 1999 Change Change
Amount Percent Amount Percent
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Personal trust $315 $316 (1) -0.3% $685 $667 $18 2.7%
EBT/BPA 745 628 117 18.6% 1,488 1,322 166 12.6%
Elias Asset Management 934 0 934 - 934 0 934
Insurance 100 49 51 104.1% 203 95 108 113.7%
Other investment products 534 312 222 71.2% 926 634 292 46.1%
------------------------------------------------------------------
Total financial services 2,628 1,305 1,323 101.4% 4,236 2,718 1,518 55.8%
Electronic banking 389 324 65 20.1% 748 607 141 23.2%
Mortgage banking 50 112 (62) -55.4% 158 297 (139) -46.8%
Commercial leasing 9 23 (14) -60.9% 26 30 (4) -13.3%
------------------------------------------------------------------
Total specialty products 448 459 (11) -2.4% 932 934 (2) -0.2%
Deposit service charges 845 830 15 1.8% 1,666 1,601 65 4.1%
Overdraft fees 993 796 197 24.7% 1,841 1,513 328 21.7%
Commissions 573 483 90 18.6% 962 884 78 8.8%
------------------------------------------------------------------
General banking services 2,411 2,109 302 14.3% 4,469 3,998 471 11.8%
Miscellaneous revenue 12 7 (51) -728.6% 5 56 (51) -91.1%
------------------------------------------------------------------
Total noninterest income
(excl security gains/losses) 5,499 3,880 1,619 41.7% 9,642 7,706 1,936 25.1%
Security gains/losses 0 0 0 0.0% (212) 277 (489) -176.5%
Disposition of branch properties 0 (0) 0 0.0% 0 0 0 0.0%
------------------------------------------------------------------
Total noninterest income $5,499 $3,880 $1,619 41.7% $9,430 $7,983 $1,447 18.1%
Noninterest income as a percentage of
operating income (excl securities
gains/losses & disposal of
branch properties) 22.3% 18.1% 4.2 %pts.-- 20.1% 18.3% 1.8 %pts.--
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Noninterest Income Six Months Ended June 30, 2000
Fiduciary Service Charges Commissions Other Service Other Investment
and on Deposits on Investment Charges, Operating Securities
(000's omitted) Investment Products Commissions Income Gains Total
Services and Fees
<S> <C> <C> <C> <C> <C> <C> <C>
Personal trust $ 685 $ 685
EBT/BPA 567 921 1,488
Elias Asset Management 934 934
Insurance 20 183 203
Other investment products 926 926
--------- ------------------ --------------- --------------- ----------- ------------- ----------
Total financial services 1,252 - 1,880 1,104 - - 4,236
Electronic banking 220 528 748
Mortgage banking 111 47 158
Commercial leasing 26 26
--------- ------------------ --------------- --------------- ----------- ------------- ----------
Total specialty products - 220 - 665 47 - 932
Deposit service charges 1,666 1,666
Overdraft fees 1,841 1,841
Commissions 962 962
--------- ------------------ --------------- --------------- ----------- ------------- ----------
General banking services - 3,507 - 962 - - 4,469
Miscellaneous revenue 5 5
--------- ------------------ --------------- --------------- ----------- ------------- ----------
Total noninterest income
(excl security gains/
losses) 1,252 3,727 1,880 2,731 52 - 9,642
Security gains/losses (212) (212)
Disposition of branch
properties - -
---------- ------------------ --------------- --------------- ----------- ------------- ----------
Total noninterest income $ 1,252 $ 3,727 $ 1,880 $ 2,731 $ 52 $ (212) $ 9,430
========== ================== =============== =============== =========== ============= ==========
</TABLE>
Item 3. Quantative and Qualitative Disclosure about Market Risk.
Interest Rate Risk
------------------
Market risk is the risk of loss in a financial instrument arising from adverse
changes in market rates/prices such as interest rates, foreign currency exchange
rates, commodity prices, and equity prices. The Company's primary market risk
exposure is interest rate risk. The ongoing monitoring and management of this
risk, over both a short-term tactical and longer-term strategic time horizon, is
an important component of the Company's asset/liability management process,
which is governed by policies established by its Board of Directors, which
reviews and approves them annually. The Board of Directors delegates
responsibility for carrying out the asset/liability management policies to the
Asset/Liability Committee (ALCO). In this capacity, ALCO develops guidelines and
strategies impacting the Company's asset/liability management related activities
based upon estimated market risk sensitivity, policy limits, and overall market
interest-related level and trends.
As the Company does not believe it is possible to reliably predict future
interest rate movements, it has maintained an appropriate process and set of
measurement tools which enable it to identify and quantify sources of interest
rate risk. The primary tool used by the Company in managing interest rate risk
is income simulation. The analysis begins by measuring the impact of differences
in maturity and repricing of all balance sheet positions. Such work is further
augmented by adjusting for prepayment and embedded option risk found naturally
in certain asset and liability classes. Finally, balance sheet growth and
funding expectations are added to the analysis in order to reflect the strategic
initiatives set forth by the Company.
25
<PAGE>
Changes in net interest income are reviewed after subjecting the balance sheet
to an array of Treasury yield curve possibilities, including an up or down 200
basis point movement (BP) in rates from current levels. While such an aggressive
movement in rates provides management with good insight as to how the Company's
profit margins may perform under extreme market conditions, results from a more
modest 100 BP shift in interest rates are used as a basis to conduct day-to-day
business decisions.
The following reflects the Company's one-year net interest income sensitivity
based on asset and liability levels on June 30, 2000, assuming no growth in the
balance sheet, and assuming 200 BP movements over a twelve month period in the
prime rate, federal funds rate and the entire Treasury yield curve (assuming no
change from its current inverted/flat shape):
REGULATORY MODEL
--------------------------------------------------------------------
Rate Change Dollar Change Percent of Flat Rate
In Basis Points (in 000s) Net Interest Income
--------------- --------- -------------------
+ 200 bp $ (1,193) (1.8%)
- 200 bp $ 1,217 (1.8%)
A second simulation was performed based on what the Company believes to be
conservative levels of balance sheet growth (8% for loans, 2% for deposits and
necessary increases in borrowings, with no growth in investment or any other
major portions of the balance sheet), along with 100 BP movements over a twelve
month period in the prime rate and federal funds rate, and a yield curve moving
closer to historical spreads to fed funds. Under this set of assumptions, the
Bank's net interest income is neutral in a rising rate environment because rate
increases on certain interest-bearing deposit accounts can be lagged to a
greater degree and earning assets are added at higher and higher rates. In a
falling rate environment, net interest income is slightly better than if rates
were unchanged as a result of balance sheet strategies implemented during the
first half of 2000.
The following reflects the Company's one-year net interest income sensitivity
analysis based on asset and liability levels on June 30, 2000, assuming the
aforementioned balance sheet growth and yield curve changes:
MANAGEMENT MODEL
--------------------------------------------------------------------
Rate Change Dollar Change Percent of Flat Rate
In Basis Points (in 000s) Net Interest Income
--------------- --------- -------------------
+ 100 bp $ (188) (0.3%)
- 100 bp $ 781 1.2
The preceding interest rate risk analyses do not represent a Company forecast
and should not be relied upon as being indicative of expected operating results.
These hypothetical estimates are based upon numerous assumptions including: the
nature and timing of interest rate levels including yield curve shape,
prepayments on loans and securities, deposit decay rates, pricing decisions on
loans and deposits, reinvestment/replacement of asset and liability cashflows,
and others. While the assumptions are developed based upon current economic and
local market conditions, the Company cannot make any assurances as to the
predictive nature of these assumptions, including how customer preferences or
competitor influences might change. Furthermore, the sensitivity analyses do not
reflect actions that ALCO might take in responding to or anticipating changes in
interest rates.
26
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings.
Not Applicable
Item 2. Changes in Securities.
Not Applicable
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.
27
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits required by Item 601 of Regulation S-K:
(21) Subsidiaries of the registrant
- Community Bank, National Association, State of New York
- Community Financial Services, Inc., State of New York
- Community Capital Trust I, State of Delaware
- Benefit Plans Administrative Services, Inc., State of New York
- CBNA Treasury Management Corporation, State of Delaware
- Community Investment Services, Inc., State of New York
- CBNA Preferred Funding Corporation, State of Delaware
- Elias Asset Management, Inc., State of Delaware
b) Reports on Form 8-K:
None
Item 5: Other Events
28
<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 11, 2000 /s/ Sanford A.Belden
Sanford A. Belden, President and
Chief Executive Officer
Date: August 11, 2000 /s/ Charles M. Ertel
Charles M. Ertel,Assistant Treasurer
Chief Accounting Officer
29
<PAGE>
