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Community Bank Issues Earning Report

Community Bank Issues

Quarterly Earnings Report



Community Bank System, Inc. (NYSE:CBU) generated a 21 percent increase in net income for the second quarter of 2004 as compared to the second quarter of 2003. Earnings for the six-month period ended June 30, 2004 were up 17 percent over the corresponding period of 2003. The increase in earnings resulted primarily from organic and acquired growth in earning asset levels and improved asset quality, offset by a lower net interest margin.

Earnings Per Share—GAAP Basis. Diluted earnings per share measure in accordance with generally accepted accounting principles (GAAP) for the second quarter of 2004 were $0.40, up five percent from results of $0.28 for both the second quarter of 2003 and the first quarter of 2004. Diluted earnings per share for the six months ended June 30, 2004 of $0.77 compared to $0.75 for the same 2003 period.

Earnings Per Share—Operating Basis. In addition to the earnings results presented above in accordance with GAAP, the company provides earnings results on a non-GAAP, or operating basis, as well. Operating earnings exclude the effects of certain items the company considers to be non-operating, including acquisition expenses and net gains and losses from securities and debt prepayment transactions. Diluted operating earnings per share of $0.40 and $0.38 for the second quarters of 2004 and 2003, respectively, were identical to GAAP earnings. Diluted operating earnings per share for the six months ended June 30, 2004 were $0.80, up seven percent from $0.75 reported for the same 2003 period.

Sanford A. Belden, president and chief executive officer, stated, "We are delighted with second quarter operating results, particularly the continued improvement in our asset quality metrics, robust loan growth and consummation of the First Heritage acquisition. Our focus on asset quality has resulted in delinquency, charge-off and non-performing loan ratios that are at their lowest levels in several years. After a less active first quarter, organic loan demand increased this quarter to an annualized growth rate of seven percent on the strength of both business and consumer credit demand. Lastly, the acquisition of First Heritage Bank in Wilkes-Barre closed on May 14, adding three branch locations, $212 million of deposits and a strong commercial lending orientation to or existing First Liberty banking network in Northeastern Pennsylvania.

First Heritage Acquisition

The acquisition of First Heritage Bank closed on May 14, 2004, adding three branches in Luzerne County to First Liberty Bank and Trust, the Pennsylvania banking division of Community Bank, N.A. Robert P. Matley, formerly president and chief operating officer of First Heritage, is now serving as senior lending officer and executive vice-president of Pennsylvania Banking. The fair value of net assets acquired approximated $62 million, including $206 million of loans, $212 million of deposits and intangible assets of $38 million. Consideration included 2.6 million shares of CBU stock with a fair value of $52 million.

Stock Repurchase

The company announced on May 21, 2004 that its board of directors had approved the continuation of a stock repurchase program previously announced in June 2003. The program provides for the repurchase of up to 1,400,000 common shares, of which 1,119,287 have been repurchased through June 30, 2004 at an aggregate cost of $23.9 million and an average price per share of $21.31.

Community Bank System, Inc. (NYSE:CBU) is a registered bank holding company based in DeWitt, NY. CBU's wholly-owned banking subsidiary has $4.4 billion in assets and 130 customer facilities across Upstate New York, where it operates as Community Bank, N.A., and Northeastern Pennsylvania where it operates as First Liberty Bank and Trust.



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