Community Bank System, Inc. (NYSE: CBU) reported fourth quarter 2010 net income of $15.9 million, or $0.47 per share, an increase of 70% over the $9.4 million, or $0.28 per share reported for the fourth quarter of 2009. The fourth quarter 2010 results included $1.1 million ($0.02 per share) of acquisition expenses and special charges related principally to the Company's pending acquisition of The Wilber Corporation, which is expected to be completed in the second quarter of 2011. The Company's fourth quarter 2009 results included $3.1 million ($0.07 per share) of non-cash, goodwill impairment, as well as a $1.4 million special charge ($0.03 per share) related to the termination of its core banking system services contract. Record full year net income of $63.3 million, or $1.89 per share, was 50% higher than the $1.26 per share reported in 2009.

Total revenue for the fourth quarter of 2010 was $67.9 million, an increase of $3.3 million, or 5.0%, over the fourth quarter of last year, from an increase in net interest income. The improvement in net interest income was driven by a 1.4% increase in average earning assets and a 21-basis point improvement in net interest margin to 4.07%. The quarterly provision for loan losses of $1.9 million was $0.7 million lower than the fourth quarter of 2009, reflective of the continuation of generally stable and favorable asset quality metrics and a net decline in loan balances. Total operating expenses of $43.0 million (excluding acquisition expenses and special charges) for the quarter were $2.7 million, or 5.9%, lower than the fourth quarter of 2009, reflective of ongoing cost management initiatives and lower intangible amortization. Total revenue for 2010 increased by $21.4 million, or 8.6% compared to the prior year, reflecting increases to both net interest income and noninterest income.

?Our continued focus on revenue growth, operating expense control, productive liquidity deployment, and excellent asset quality drove stronger operating results for the fourth quarter and all of 2010,? said President and Chief Executive Officer Mark E. Tryniski. ?In an operating environment that continues to challenge many, we grew both net interest income and non-interest income, improved our net interest margin, and generated organic core deposit growth. The cost improvement programs developed and implemented in late 2009 contributed significantly to our improved operating expense results throughout the year, and continued the favorable trend in our efficiency ratio. We also delivered another quarter of sound asset quality, with net charge-offs of $2.0 million, or 0.26% of total loans. Early in the fourth quarter of 2010, we announced a definitive agreement to acquire The Wilber Corporation which provides an entry into adjoining markets that will substantially expand our presence in the eastern half of Upstate New York. The transaction is expected to be accretive to earnings per share in 2011, exclusive of one-time acquisition related charges.?

Fourth quarter net interest income grew to $46.1 million, an increase of 7.4% above fourth quarter 2009, resulting from an increase in interest-earning assets and a higher net interest margin. Full year net interest income of $181.7 million was $16.2 million, or 9.8% above 2009. The Company reinvested a portion of its substantial liquidity position during the year, while still retaining a significant net liquidity position throughout 2010. Lower market interest rates and continued disciplined deposit pricing resulted in a 26-basis point reduction in the total cost of funds, compared to the fourth quarter of 2009. This was modestly offset by a five-basis point decline in earning asset yields, including cash equivalents, reflective of the more productive deployment of net liquidity which offset most of the impact of lower loan yields. On a linked quarter basis, the Company's net interest margin declined one basis point, reflective of a three-basis point reduction in the cost of funds, and a five-basis point decline in earning asset yields. The Company's 2010 net interest margin of 4.04% was 24 basis points higher than the 3.80% reported in 2009.

Fourth quarter non-interest income of $21.8 million was consistent with the fourth quarter of 2009, as increased mortgage-banking related revenue was offset by lower utilization of certain fee-based deposit services. The Company's employee benefits administration and consulting businesses and its wealth management groups also generated revenue results that were consistent with the fourth quarter of 2009. On a full year basis, noninterest income of $88.8 million was $5.3 million, or 6.3%, above 2009, reflecting solid growth from both the banking and financial services segments.

Quarterly operating expenses of $43.0 million (excluding acquisition expenses and special charges) were $2.7 million below the fourth quarter of 2009, reflective of solid cost management across all functional areas of the Company. Implementation of several expense reduction programs allowed the Company to report lower full year operating expenses in 2010, despite year-over-year increases in merit and incentive-based compensation, as well as higher technology and volume-driven processing costs. The Company had significant resources dedicated to the conversion of its core banking systems, which was completed in the third quarter, throughout the year.

Financial Position

Average earning assets for the fourth quarter were $4.88 billion, consistent with the third quarter of 2010. Average loans decreased $27.5 million from third quarter 2010, reflective of meaningful reductions in commercial line utilization, and reductions in consumer real estate outstandings as the majority of the Company's new, low-rate originations continued to be sold into the secondary market. Average investment securities, including cash equivalents of $105.2 million, increased $35.0 million in the quarter. Quarterly average deposits were consistent with the third quarter of 2010 and included the continuation of our targeted trend of a higher proportion of core (non-time) deposit balances, which increased $325.7 million from the fourth quarter of 2009. Average borrowings for the quarter of $831.0 million were down $26.4 million from the fourth quarter of 2009. Year-end shareholders' equity of $607.3 million was $41.6 million higher than December 31, 2009. The Company's net tangible equity to net tangible assets ratio improved to 6.14% at December 31, 2010, up 94 basis points from the end of last year.

?We continued to improve operating results in 2010 despite soft market conditions,? said Mr. Tryniski. ?Improvement in net interest margins, effective cost management, and the continuation of favorable asset quality enabled us to produce record earnings in 2010, and reflects the effectiveness of our disciplined and balanced approach to business regardless of economic or market conditions.?

Asset Quality

Fourth quarter net charge-offs were $2.0 million, compared to $1.4 million in the third quarter of 2010, and $1.8 million in the fourth quarter of 2009, further illustrating the Company's continued stable and favorable asset quality trends. Full year net charge-offs of $6.6 million, or 0.21% of loans, were $0.9 million lower than the $7.5 million of net charge-offs, or 0.24% of total loans, experienced in 2009.

Nonperforming loans as a percentage of total loans at December 31, 2010 were 0.62%, up slightly from 0.61% at the end of last year. The total delinquency ratio of 1.92% was up 28 basis points from September 30, 2010, and up 44 basis points compared to December 31, 2009. Year-end nonperforming assets to total assets of 0.38%, was consistent with the end of 2009. These favorable asset quality metrics continue to be noticeably better than comparative peer and industry averages and illustrate the long-term effectiveness of the Company's disciplined risk management and underwriting standards.

The fourth quarter provision for loan losses of $1.9 million was $0.5 million higher than the third quarter of 2010 and $0.7 million below the fourth quarter of 2009. The fourth quarter's provision for loan losses was $0.1 million, or 5% lower than quarterly net charge-offs, indicative of the net decrease in total loan balances. The 2010 provision for loan losses was $7.2 million, down 26% or $2.6 million, from the 2009 provision of $9.8 million. The ratio of allowance for loan losses to total loans outstanding was 1.40% as of December 31, 2010, compared to 1.38% at September 30, 2010, and 1.35% at the end of the fourth quarter 2009.

Dividend Declaration

In April 2010, the Company's Board of Directors approved a $0.02, or 9.1%, increase in its quarterly dividend on its common stock to $0.24. Mr. Tryniski commented, ?The payment of a meaningful dividend is an important component of our commitment to provide consistent and favorable long-term returns to our shareholders. This increase reflects the strength of our current operating performance.? Consistent with that increase, the Company's Board of Directors declared a $0.24 per share dividend payable on April 10, 2011, to shareholders of record as of March 15, 2011. The $0.24 cash dividend represents an annualized yield of 3.5% based on the closing share price of $27.22 on January 21, 2011.

During the second quarter of 2009 the Company's Board of Directors approved a share repurchase program for up to one million common shares effective through December 31, 2011. The Company's shares may be repurchased from time to time in open market transactions or privately negotiated transactions in accordance with securities laws and regulations. The timing and extent of repurchases will depend on market conditions and other corporate considerations. There were no share repurchases in 2009 or 2010.

Community Bank System to Acquire The Wilber Corporation

On October 25, 2010, the Company announced that it had entered into a definitive agreement to acquire The Wilber Corporation (NYSE Amex: GIW), parent company of the Wilber National Bank in Oneonta, NY, for approximately $102 million in stock and cash. The acquisition will extend the Bank's Central New York service area to the contiguous Central Leatherstocking, Greater Capital District, and Catskills regions of Upstate New York. Upon the completion of the merger in 2011, Community Bank will add 22 branch locations in eight counties, and deposits of approximately $750 million.

Additional Information For Stockholders

In connection with the proposed merger with The Wilber Corporation ("Wilber"), on January 11, 2011, the Company filed a Registration Statement on Form S-4 with the SEC that included a Proxy Statement of Wilber and a Prospectus of the Company, as well as other relevant documents concerning the proposed transaction. Shareholders of Wilber are urged to read the Registration Statement and the Proxy Statement/Prospectus and any other relevant documents filed with the SEC, as well as any amendments or supplements to those documents, because they will contain important information. A free copy of the Registration Statement, Proxy Statement/Prospectus, as well as other filings containing information about the Company and Wilber are available at the SEC's Internet site (http://www.sec.gov).

The Company and Wilber and certain of their directors and executive officers may be deemed to be participants in the solicitation of proxies from the shareholders of Wilber in connection with the proposed merger. Information about the directors and executive officers of the Company is set forth in the proxy statement for the Company's 2010 annual meeting of shareholders, as filed with the SEC on Schedule 14A on March 25, 2010. Additional information regarding the interests of such participants and other persons who may be deemed participants in the transaction may be obtained by reading the Proxy Statement/Prospectus (Form S-4) flied on January 11, 2011. Free copies of this document may be obtained as described in the above paragraph or from the Company or Wilber.

Conference Call Scheduled

Company management will conduct an investor call at 11:00 a.m. (ET) tomorrow (January 25, 2011) to discuss fourth quarter and full year results. The conference call can be accessed at 1-877-551-8082 (1-904-520-5770 if outside United States and Canada). An audio recording will be available one hour after the call until March 31, 2011, and may be accessed at 1-888-284-7564 (1-904-596-3174 if outside the United States and Canada) and entering access code 2589021. Investors may also listen live via the Internet at: http://www.videonewswire.com/event.asp?id=75483.

This webcast will be archived on this site for one full year and may be accessed at any point during this time at no cost. This earnings release, including supporting financial tables, is available within the Investor Relations / News & Media section of the company's website at: http://www.communitybankna.com.

Headquartered in DeWitt, N.Y., Community Bank System, Inc. has $5.4 billion in assets and over 150 customer facilities. The Company's banking subsidiary, Community Bank, N.A. operates across Upstate New York and Northeastern Pennsylvania, where it conducts business as First Liberty Bank & Trust. Its other subsidiaries include: Benefit Plans Administrative Services, Inc., an employee benefits administration and consulting firm with offices in Upstate New York, Pittsburgh and Philadelphia, Pennsylvania and Houston, Texas; the CBNA Insurance Agency, with offices in three northern New York communities; Community Investment Services, a broker-dealer delivering financial products throughout the Company's branch network; and Nottingham Advisors, a wealth management and advisory firm with offices in Buffalo, N.Y. and North Palm Beach, Florida. For more information, visit: www.communitybankna.com or www.firstlibertybank.com.

       
Summary of Financial Data
(Dollars in thousands, expect per share data)              
Quarter Ended Year Ended
December 31,   December 31,
    2010   2009   2010   2009
Earnings                
Loan income $ 44,086 $ 46,127 $ 178,703 $ 185,119
Investment income 17,924 15,713 69,578 63,663
Total interest income 62,010 61,840 248,281 248,782
Interest expense 15,876 18,892 66,597 83,282
Net interest income 46,134 42,948 181,684 165,500
Provision for loan losses 1,935 2,590 7,205 9,790
Net interest income after provision for loan losses 44,199 40,358 174,479 155,710
Deposit service fees 10,321 11,038 43,358 41,285
Mortgage banking revenues 1,408 744 3,698 3,946
Other banking services 462 359 2,287 1,895
Trust, investment and asset management fees 2,391 2,380 9,833 8,631
Benefit plan administration, consulting and actuarial fees 7,201 7,196 29,616 27,771
Investment securities gains/(losses), net 0 0 0 7
Total noninterest income 21,783 21,717 88,792 83,535
Salaries and employee benefits 22,900 23,503 91,398 92,690
Professional fees 1,714 1,336 5,532 5,302
Occupancy and equipment and furniture 5,520 5,727 22,933 23,185
Amortization of intangible assets 972 1,936 5,957 8,170
FDIC insurance 1,182 1,544 5,838 8,610
Goodwill impairment 0 3,079 0 3,079
Acquisition expenses & special charges 1,107 1,405 1,363 1,621
Other 10,727 11,653 43,865 43,521
Total operating expenses 44,122 50,183 176,886 186,178
Income before income taxes 21,860 11,892 86,385 53,067
Income taxes 5,966 2,522 23,065 11,622
Net income $ 15,894 $ 9,370 $ 63,320 $ 41,445
Basic earnings per share $ 0.48 $ 0.29 $ 1.91 $ 1.26
Diluted earnings per share   $ 0.47   $ 0.28   $ 1.89   $ 1.26
 
         

Summary of Financial Data

(Dollars in thousands, except per share data)

 

               

2010

   2009
    4th Qtr   3rd Qtr   2nd Qtr   1st Qtr   4th Qtr
Earnings                    
Loan income $ 44,086 $ 45,094 $ 44,851 $ 44,673 $ 46,127
Investment income 17,924 17,503 17,772 16,379 15,713
Total interest income 62,010 62,597 62,623 61,052 61,840
Interest expense 15,876 16,273 16,678 17,770 18,892
Net interest income 46,134 46,324 45,945 43,282 42,948
Provision for loan losses 1,935 1,400 2,050 1,820 2,590
Net interest income after provision for loan losses 44,199 44,924 43,895 41,462 40,358
Deposit service fees 10,321 11,180 11,337 10,519 11,038
Mortgage banking revenues 1,408 1,215 592 483 744
Other banking services 462 863 523 440 359
Trust, investment and asset management fees 2,391 2,400 2,666 2,376 2,380
Benefit plan administration, consulting and actuarial fees 7,201 7,256 7,260 7,899 7,196
Investment securities gains, net 0 0 0 0 0
Total noninterest income 21,783 22,914 22,378 21,717 21,717
Salaries and employee benefits 22,900 23,056 22,509 22,933 23,503
Professional fees 1,714 1,013 1,505 1,300 1,336
Occupancy and equipment and furniture 5,520 5,574 5,614 6,225 5,727
Amortization of intangible assets 972 1,277 1,849 1,859 1,936
FDIC insurance 1,182 1,599 1,485 1,572 1,544
Goodwill impairment 0 0 0 0 3,079
Acquisition expenses & special charges 1,107 57 199 0 1,405
Other 10,727 11,776 11,059 10,304 11,653
Total operating expenses 44,122 44,352 44,220 44,193 50,183
Income before income taxes 21,860 23,486 22,053 18,986 11,892
Income taxes 5,966 6,224 5,891 4,984 2,522
Net income $ 15,894 $ 17,262 $ 16,162 $ 14,002 $ 9,370
Basic earnings per share $ 0.48 $ 0.52 $ 0.49 $ 0.42 $ 0.29
Diluted earnings per share   $ 0.47     $ 0.51     $ 0.48     $ 0.42     $ 0.28  
Profitability                    
Return on assets 1.15 % 1.25 % 1.19 % 1.05 % 0.69 %
Return on equity 10.27 % 11.28 % 11.12 % 9.91 % 6.57 %
Noninterest income/operating income (FTE) (1) 30.3 % 31.4 % 31.0 % 31.6 % 31.7 %
Efficiency ratio (2)     57.9 %     57.9 %     58.0 %     61.6 %     63.9 %
Components of Net Interest Margin (FTE)                    
Loan yield 5.73 % 5.81 % 5.87 % 5.91 % 5.93 %
Cash equivalents yield 0.25 % 0.27 % 0.25 % 0.25 % 0.26 %
Investment yield 5.00 % 4.84 % 4.97 % 5.06 % 5.31 %
Earning asset yield 5.36 % 5.41 % 5.48 % 5.41 % 5.41 %
Interest-bearing deposit rate 0.86 % 0.90 % 0.96 % 1.08 % 1.19 %
Borrowing rate 4.28 % 4.28 % 4.28 % 4.34 % 4.34 %
Cost of all interest-bearing funds 1.56 % 1.59 % 1.64 % 1.77 % 1.86 %
Cost of funds (includes DDA) 1.32 % 1.35 % 1.39 % 1.50 % 1.58 %
Net interest margin (FTE) 4.07 % 4.08 % 4.10 % 3.93 % 3.86 %
Fully tax-equivalent adjustment   $ 3,865     $ 3,788     $ 3,835     $ 3,712     $ 3,840  
 
         
Summary of Financial Data
(Dollars in thousands, except per share data)                  

2010

   2009
    4th Qtr   3rd Qtr   2nd Qtr   1st Qtr   4th Qtr
Average Balances                    
Loans $ 3,061,060 $ 3,088,590 $ 3,074,259 $ 3,076,230 $ 3,091,748
Cash equivalents 105,242 50,484 64,731 187,030 284,866
Taxable investment securities 1,159,110 1,182,243 1,204,552 1,071,958 894,238
Nontaxable investment securities 554,014 550,660 524,696 518,959 543,284
Total interest-earning assets 4,879,426 4,871,977 4,868,238 4,854,177 4,814,136
Total assets 5,481,129 5,474,952 5,454,073 5,425,045 5,372,646
Interest-bearing deposits 3,206,327 3,217,831 3,252,025 3,222,093 3,171,853
Borrowings 831,026 832,568 837,356 856,662 857,434
Total interest-bearing liabilities 4,037,353 4,050,399 4,089,381 4,078,755 4,029,287
Noninterest-bearing deposits 743,698 736,203 717,171 716,172 714,491
Shareholders' equity   $ 613,734     $ 606,912     $ 582,715     $ 573,047     $ 565,616  
Balance Sheet Data                    
Cash and cash equivalents $ 211,837 $ 179,556 $ 133,967 $ 208,267 $ 361,876
Investment securities 1,742,324 1,769,149 1,757,967 1,746,565 1,487,127
Loans:
Consumer mortgage 1,057,332 1,065,297 1,065,661 1,050,323 1,044,588
Business lending 1,023,286 1,043,211 1,060,973 1,047,917 1,066,730
Consumer installment 945,745 971,889 964,517 964,283 988,167
Total loans 3,026,363 3,080,397 3,091,151 3,062,523 3,099,485
Allowance for loan losses 42,510 42,610 42,603 42,095 41,910
Intangible assets 311,714 312,686 313,964 315,812 317,671
Other assets 194,778 197,039 193,356 194,728 178,564
Total assets 5,444,506 5,496,217 5,447,802 5,485,800 5,402,813
Deposits
Noninterest-bearing 741,166 738,994 713,544 724,097 736,816
Non-maturity interest-bearing 2,272,013 2,253,447 2,203,686 2,166,727 2,029,911
Time 920,866 973,894 1,022,745 1,097,453 1,157,759
Total deposits 3,934,045 3,966,335 3,939,975 3,988,277 3,924,486
Borrowings 728,460 729,508 729,557 754,606 754,779
Subordinated debt held by unconsolidated subsidiary trusts 102,024 102,018 102,012 102,005 101,999
Other liabilities 72,719 82,556 76,438 62,515 55,852
Total liabilities 4,837,248 4,880,417 4,847,982 4,907,403 4,837,116
Shareholders' equity 607,258 615,800 599,820 578,397 565,697
Total liabilities and shareholders' equity     5,444,506       5,496,217       5,447,802       5,485,800       5,402,813  
Capital                    
Tier 1 leverage ratio 8.23 % 7.99 % 7.75 % 7.56 % 7.39 %
Tangible equity / net tangible assets (3) 6.14 % 6.21 % 5.92 % 5.43 % 5.20 %
Diluted weighted average common shares O/S 33,786 33,606 33,570 33,327 33,054
Period end common shares outstanding 33,319 33,162 33,146 33,081 32,800
Cash dividends declared per common share $ 0.24 $ 0.24 $ 0.24 $ 0.22 $ 0.22
Book value $ 18.23 $ 18.57 $ 18.10 $ 17.48 $ 17.25

Tangible book value (3)

 $ 9.49 $ 9.74 $ 9.20 $ 8.51 $ 8.09
Common stock price (end of period)   $ 27.77     $ 23.01     $ 22.03     $ 22.78     $ 19.31  
 
         
Summary of Financial Data
(Dollars in thousands, except per share data)                  

2010

   2009
    4th Qtr   3rd Qtr   2nd Qtr   1st Qtr   4th Qtr
Asset Quality                    
Nonaccrual loans $ 15,713 $ 16,025 $ 18,798 $ 18,251 $ 17,161
Accruing loans 90+ days delinquent 3,091 1,863 2,076 930 1,750
Total nonperforming loans 18,804 17,888 20,874 19,181 18,911
Other real estate owned (OREO) 2,011 2,689 1,555 1,479 1,429
Total nonperforming assets 20,815 20,577 22,429 20,660 20,340
Net charge-offs 2,035 1,393 1,542 1,635 1,752
Loan loss allowance/loans outstanding 1.40 % 1.38 % 1.38 % 1.37 % 1.35 %
Nonperforming loans/loans outstanding 0.62 % 0.58 % 0.68 % 0.63 % 0.61 %
Loan loss allowance/nonperforming loans 226 % 238 % 204 % 219 % 222 %
Net charge-offs/average loans 0.26 % 0.18 % 0.20 % 0.22 % 0.22 %
Delinquent loans/ending loans 1.92 % 1.64 % 1.45 % 1.43 % 1.48 %
Loan loss provision/net charge-offs 95 % 100 % 133 % 111 % 148 %
Nonperforming assets/total assets     0.38 %     0.37 %     0.41 %     0.38 %     0.38 %
 
(1) Excludes gain (loss) on investment securities.
(2) Excludes intangible amortization, goodwill impairment, acquisition expenses, special charges and gain (loss) on investment securities.
(3) Includes deferred tax liabilities (of approximately $20.8 million at 12/31/10) related to tax deductible goodwill.

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The following factors, among others, could cause the actual results of CBU's operations to differ materially from CBU's expectations: the successful integration of operations of its acquisitions; competition; changes in economic conditions, interest rates and financial markets; and changes in legislation or regulatory requirements. CBU does not assume any duty to update forward-looking statements.

Community Bank System, Inc.
Scott A. Kingsley, 315-445-3121
EVP & Chief Financial Officer