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Operator
Before we begin today's call I'd like to remind you that this presentation contains forward-looking statement within the provisions of the Private Securities Litigation Reform Act of 1995 that are based on current expectations, estimates and projections about the industry, markets and economic environment in which the Company operates. Such statements involve risks and uncertainties that could cause actual results to differ materially from the results discussed in these statements.
These risks are detailed in the Company's annual report and Form 10-K filed with the Securities and Exchange Commission. And now I'd like to introduce today's call leaders -- Mr. Mark Tryniski, President and Chief Executive Officer, and Mr. Scott Kingsley, Executive Vice President and Chief Financial Officer of Community Bank System. Gentlemen, you may begin.
Mark Tryniski - CEO, Pres., Dir., Pres. & CEO of Community Bank
Thank you, Betty. Good morning to everyone and thank you for joining our first-quarter conference call. I'll begin by saying that overall we're very satisfied with our first-quarter operating and financial performance. Earnings per share were up slightly over 2006 despite the $0.08 per share impact of lower net interest margins. The margin headwind was overcome as a result of organic and acquired balance sheet growth, continued expansion of our nonbanking revenues and exceptional asset quality.
A highlight of the quarter was the strength of our deposit growth which was relatively consistent across nearly all account types. You've heard me comment many times about the significant core deposit generation effort we've had ongoing for nearly the past year, and at this point has generated $60 million in new core balances. The challenge for us in the first quarter was to deploy that liquidity on the other side of the balance sheet.
Total loan balances are up 11% over the first quarter of 2006 but were down a bit in this first quarter. Our commercial lending and consumer mortgage portfolios were about flat over what is typically a seasonally challenged quarter for us and our consumer installment lending business accounted for virtually all of the first-quarter decline. This portfolio, which is approximately half auto lending, does tend to be much more cyclical and seasonal in nature than our other portfolios. I would also add that we're off to a very strong start in the second quarter with respect to loan generation.
Another highlight of the quarter was certainly asset quality with the lowest levels of quarterly charge-offs in years. In addition, our delinquencies and nonperformers are also down. We're very satisfied with the quality of our portfolios and our lending disciplines, particularly with respect to the current and emerging difficulties being reported more widely across the industry.
I commented in January about the strength and improvement of our Pennsylvania business where we operate as First Liberty Bank & Trust. I'm pleased to say that that trend continued in the first quarter with exceptionally strong performances in commercial lending and consumer deposit growth.
By way of acquisition activity, the second half of 2006 was busy for us as we closed on the Elmira Savings & Loan merger in August and the Ontario National Bank transaction in December. We've been very pleased with both of these acquisitions and their subsequent performance and expect them both to be accretive for us in 2007.
We announced in January our agreement to acquire Tupper Lake National Bank, a $100 million bank located in the Adirondack region of Northern New York State. In addition to five branches in Tupper Lake, Saranac Lake and Plattsburgh, they own an insurance agency subsidiary as well. This represents a very good opportunity for us to extend our dominant Northern region market position geographically to the Northeast border of New York State and to gain entry to markets that are experiencing growing real estate and development activities and outside capital inflows. We expect that acquisition to close in early June.
I'm also pleased to comment on the pending acquisition of Hand Benefit & Trust, a Houston, Texas based provider of employee benefit, administration and trust services we announced in February. Hand will become part of our existing benefits administration business which will be a $20 million plus revenue business after the transaction closes. Hand is a very high-quality and well-respected provider in the industry and we're delighted to partner with them and their principles in further expanding the geographic footprint, service capacity, product offerings and revenue base of BPA-Harbridge. The transaction will be accretive to earnings in 2007 and is expected to close in mid-May.
With that I would ask Mr. Kingsley to give us a more detailed review of our first-quarter financial performance. Scott?
Scott Kingsley - CFO, EVP, Treasurer
Thank you, Mark, and good morning, everyone. Our first-quarter earnings of $9.7 million, or $0.32 per share, were $0.01 per share above the $0.31 reported in the first quarter of 2006 and $0.05 above the fourth-quarter's results which included a debt extinguishment charge related to certain of our fixed-rate trust preferred securities.
Cash earnings per share, which exclude the after-tax effect of intangible asset amortization and acquisition related market value adjustments, were $0.36 per share in the first quarter or $0.04 per share above GAAP reported results. First-quarter results also included the first full quarter impact of Ontario National Bank acquired in December 2006. As Mark noted, acquired and organic balance sheet growth, improved non-interest income generation and exceptional asset quality more than offset the net interest margin contraction resulting in improved earnings over last year's first quarter.
I'll first discuss the balance sheet. Average earning assets of $4.03 billion were up $318 million from the first quarter of 2006 or 9% and were $54 million higher than the fourth quarter of 2006, including the OMB acquisition. Average loans are up $284 million from last year including $140 million in business lending, $99 million in consumer mortgages and $45 million in consumer installment products.
Average investments for the 2007 first quarter were $30 million above the prior year, but include an additional $95 million of short-term invested cash equivalents, reflective of our current level of liquidity and the lack of attractive longer-term reinvestment options. Average deposits of $3.17 billion for the quarter were up 5.8% from the prior year and $40 million above the fourth quarter. Our primary deposit gathering strategies continue to focus on core checking products. Total borrowings at quarter end decreased $52 million from the end of 2006 and included the previously reported early redemption of $30 million of fixed-rate trust preferred securities during the quarter.
As a reminder, in December we issued $75 million of trust preferred securities at a rate of three-month LIBOR plus 165 and immediately entered into an interest rate swap agreement to convert the variable rate of the trust preferred securities into a fixed-rate obligation at 6.43%, taking advantage of the then inverted swap curve. The proceeds were used for general corporate purposes including acquisitions and to redeem the $30 million of fixed-rate trust preferred debt in January including a call premium of 4.54%. The cash flow playback of this early redemption will only be 16 months.
In addition, we are continuing to analyze the economic value of early redeeming all or a portion of our $50 million of variable rate trust preferred securities issued in 2001 with interest rates at least 200 basis points above current market conditions given our current flexible capital and liquidity positions.
On a year-over-year basis loans were $274 million, or 11%, including the ES&L and OMB acquisitions. Business lending grew organically despite a $12 million managed decline in automotive dealer floor plans, a segment we have actually chosen to underweight in current market conditions but remain committed to over the long-term. We also grew our consumer lending portfolio organically from last year's first quarter despite the severe winter weather experienced in the quarter which created a very slow seasonal start in consumer indirect originations.
Our capital levels remain strong. Tier 1 leverage ratios stood at 8.29% at quarter and our tangible equity ratio was 5.15%. Also we did repurchase 61,000 shares during the quarter and have nearly 1.5 million shares available under our existing authorizations through 2008.
Shifting to the income statement; the net interest income margin for the first quarter of 3.74% was consistent with the fourth quarter but declined 32 basis points from 4.06% in last year's first quarter. Results included the impact of the ES&L and OMB acquisitions completed in 2006 which we said before had lower net interest margin attributes than our historical averages. Earning asset yields improved 23 basis points from the first quarter of 2006, but the cost of funds rose 56 basis points to 2.90% reflecting continued movement in interest bearing instruments including time deposits as well as the somewhat higher yielding acquired deposits.
Our loan loss provision for the quarter was $0.2 million compared to $1.4 million in the fourth quarter of 2006 and $2.15 million in last year's first quarter. Charge-offs for the first quarter were $0.6 million, a very favorable comparison to the $1.4 million reported in the fourth quarter and the $2.0 million in last year's first quarter. Our loan loss allowance to total loans outstanding remained at 1.34% at quarter end.
Quarter end nonperforming loans to total loans outstanding were at 0.47%, consistent with the end of the fourth quarter of 2006 but improved from 0.62% at the end of last year's first quarter. This favorable and stable asset quality profile is primarily the result of our credit risk management programs and continued emphasis on and adherence to disciplined underwriting standards.
First-quarter non-interest income, excluding security gains and debt extinguishment charges, was up 8% over the prior year. Our employee benefits administration consulting business decreased revenues by 17% over last year's first quarter thanks to new clients as well as enhanced product offerings.
Excluding some large trust estate fees recorded in the first quarter of last year, trust investment and asset management revenues were flat from the year earlier period. Deposit service fees and other banking revenues increased 8% over last year driven by additional account relationships and growing card related revenues.
Operating expenses, excluding special charges and acquisition expenses of $0.46 million in the quarter or $0.1 per share, increased 6.4% above the first quarter of 2006 due principally to the ES&L and OMB acquisitions completed in the second half of last year. First-quarter core operating expenses were 3.8% or $1.2 million above the fourth quarter of 2006 and included full-quarter impact of Ontario National Bank as well as annual merit increases and certain stock-based compensation costs.
As a reminder, our stock-based compensation costs are approximately $0.2 million or $0.005 per share higher in the first quarter of the year than they are in the second through the fourth quarters based upon accounting requirements for certain immediately vested awards.
Compared to the fourth quarter, costs in our self-insured health and welfare plans were $0.2 million higher in the first quarter, reflective of a favorable claims experience. In addition, utilities and maintenance expenses were $0.3 million or $0.0075 per-share above the fourth quarter, principally weather determined.
Our effective tax rate for the quarter was 24.1%, down from the 25.0% in the first quarter of 2006 and slightly higher than the full year 2006 rate of 23.7%. The percent of tax-exempt income to total income continues to be the primary planning vehicle affecting our tax rate. I'll now ask Betty to open the lines for any questions.
Operator
(OPERATOR INSTRUCTIONS). Damon Delmonte.
Damon Delmonte - Analyst
Good morning. Could you provide a little color as to -- I think some guidance on the reserve going forward this quarter is 200,000 which was substantially lower than what we've seen in recent quarters?
Scott Kingsley - CFO, EVP, Treasurer
Sure, Damon, I'll take a shot at that. Also along with the $200,000 loan loss provision, Damon, we only had $600,000 of charge-offs which was between $800,000 to $1 million below what we've been seeing on the linked quarters. We also had, with the declining value in the portfolio, loans actually being down $19 million. The ratio of coverage stayed at 1.34%, which is exactly where we were at the end of the year.
And in addition, just for a little bit more color, because of some of the other improvements from an asset quality standpoint or risk ratings standpoint, we actually had a small increase in what we define as our unallocated reserve. For purposes of disclosure, that actually -- the unallocated was actually up in the quarter despite the very low provision.
So to come back to your question, I would think that we really are very happy with where we started the year off from an asset quality standpoints. We probably believe that 0.09% charge-off is the low watermark in terms of our ability to continue to go forward. But that being said, I think we do get some pretty good visibility going out at least a quarter, maybe two. So I think we feel pretty comfortable that from an asset quality standpoint we're capable of performing at a rate equivalent to or slightly better than last year.
Damon Delmonte - Analyst
Okay, great. And then could you just clarify what the stock-based expense was this quarter?
Scott Kingsley - CFO, EVP, Treasurer
Yes, it's about $650,000 pretax, Damon.
Damon Delmonte - Analyst
Okay. And you said that's $200,000 higher this quarter than (multiple speakers)?
Scott Kingsley - CFO, EVP, Treasurer
Yes, for modeling purposes, if you have somewhere between 400 and 450 for the balance of the year for stock-based expense you'd be safe.
Damon Delmonte - Analyst
Okay. And then are you able to quantify the impact to your margin later this year when the Tupper Lake deal closes?
Scott Kingsley - CFO, EVP, Treasurer
That's a pretty good question, Damon. I think what we've seen with Tupper Lake right now is that their margin is fairly close to our current margin, but they also are in a position where they've got some profound liquidity. So I think in order to sort of answer that we all need to determine if we're going to leave some of the short-term investments, especially some of the short-term municipal securities that they're in on the balance sheet or whether we'll actually opt to push some of that liquidity into paying off some debt. I think it's probably neutral to the margin right now.
Mark Tryniski - CEO, Pres., Dir., Pres. & CEO of Community Bank
The other point I would add is just that it's a $100 million balance sheet that we'll be rolling out at the beginning of June. So effectively a half a year impact on a $100 million balance sheet. So we don't expect that it's going to be material either way.
Scott Kingsley - CFO, EVP, Treasurer
I'll also mention too, I made the comment that we certainly ended the quarter with some profound liquidity. During the quarter, actually mid-quarter we actually expected a $60 million term advance from the federal home loan bank to actually be called because it had a rate of about 4.3%. They did not call that security so we have actually ended up for the quarter carrying $60 million of very short-term assets, probably invested a handful of basis points above 5.
So it produced a positive net income effect for the quarter of probably 60,000 to 65,000. But needless to say, against that debt instrument it probably had a yield of about 80 basis points which is certainly not our long-term aspiration. But I will say that the market also appears to have some liquidity. I think we probably saw that with the home loan bank actually not calling those securities.
Damon Delmonte - Analyst
Okay. And then lastly, if you exclude the two acquisitions that were completed during 2006, what did your organic loan growth look like for the entire portfolio?
Mark Tryniski - CEO, Pres., Dir., Pres. & CEO of Community Bank
I think the majority of that is certainly -- the majority of that 11% is certainly acquired. Elmira was in the -- close to $190 million or so in loans and Ontario was about --
Scott Kingsley - CFO, EVP, Treasurer
I think we think, Damon, that on a quarter end to quarter end basis organically we grew just under $40 million. But remembering that our planned take down of the dealer floor plans also occurred during that 12-month period of time. So if you exclude that we're probably organically growing at about $50 million year-over-year.
Damon Delmonte - Analyst
Great. And then lastly, Mark, if you could just provide a little color on the marketplace and what you're seeing for loan demand and deposit pricing competition -- just general economic trends, that would be great. Thank you very much.
Mark Tryniski - CEO, Pres., Dir., Pres. & CEO of Community Bank
Thank you, Damon. I think generally what we're seeing is a pretty competitive environment. It certainly continues to be that. In the majority of our markets we're advantaged in many ways by the fact that in probably almost a quarter of our branches we're the only bank in town, so we do have a bit more pricing power in about a third of our markets. But I think by and large across the majority of our footprint, which -- and those tend to be our smaller branches as well.
So the bulk of our balance sheet, if you will, there's certainly greater competitive factors in most of those markets. I would say Pennsylvania, Northeast Pennsylvania, in the five counties we operate in there tend to be the most competitive. The margins are a bit less, but we're doing better and better there. In fact the Pennsylvania business really led all of our market regions in the first quarter, as I said earlier.
So I think the competitive environment is still there clearly, Damon. Everywhere it's bank, it's non-banks, it's larger banks swimming downstream in search of growth, it's smaller banks swimming upstream. It's credit unions, it's non-bank competitors. I think that story hasn't changed much over the last quarter and the last year and probably will not.
I think on the deposit side, interestingly enough, if you look at our asset yields and our deposit costs over the quarter, particularly on the deposit cost side, we continue to get some lift on the asset yield side which is good. But one of the advantages for us in this quarter in terms of the margin was that if you look at the total cost of interest bearing liabilities and the total cost of funds, the increase was actually the smallest increase -- it's I think 6 basis points -- than it has been in at least the past year.
So we are being a little bit of moderation in some areas in terms of funding costs. I'll also say the core deposit growth that we've had -- which are affectively core consumer checking account balances -- has helped a great deal as well to offset the rising depository cost. But we've continued to see a bit of migration into the time (technical difficulty) deposit category which, of course, is higher cost funding. But we were pretty satisfied this quarter with the fact that we only had a 6 basis point increase in our funding cost. It's been double-digit the last four or five quarters before that, so that was pretty helpful.
So hopefully that gives you a little bit of a sense. I think on the lending side -- Scott and I both commented on the asset quality. We're going to continue to be very disciplined in terms of our lending. It's pretty clear from just the market in general and in other banks and across the industry that asset quality may have peaked here. I think if you look at our portfolios, we're very satisfied.
We've made a lot of underwriting changes over the course of the past year. A lot of that was in our indirect auto portfolio and that's really where a large bulk of the decline in our charge-offs have come from frankly, although in the first quarter a lot of it was -- the majority of it was commercial loan driven as well.
So we're very satisfied in terms of asset quality. We don't see a lot of changes in the markets we're in in terms of underwriting standards. Certainly, again, the competition is significant. The other thing I'll say is while in our mortgage portfolio we have no exposure to sub prime credits, we have no [LoDoc], no Alt-A, no interest only option ARM kind of asset, so we've not a very traditional and boring mortgage portfolio, if you will. So that's a little bit of color on your question there, Damon.
Damon Delmonte - Analyst
That was great. Things a lot for the color.
Operator
(OPERATOR INSTRUCTIONS). Rick Weiss.
Rick Weiss - Analyst
Damon got most of my questions. I just have one follow-up. I was wondering if you could kind of talk about why would you think Pennsylvania has done a little bit better than your New York franchise?
Mark Tryniski - CEO, Pres., Dir., Pres. & CEO of Community Bank
I think some of that really -- it's a good question, Rick, and it really extends back to 2001 when we first entered Pennsylvania with the initial First Liberty Bank & Trust acquisition 2001. We then added to more at the end of 2003, beginning of 2004. And I would say that the process in terms of operations and management and culture and all the lending disciplines and standards and practices let's say is probably a better word, we had a lot of effort in bringing all three of those together. And I think it worked against us as we kind of focused on integrating and assimilating practices and culture. And I think we did not focus as much on business development initiatives.
I think I had commented probably a year ago or so on significant business development efforts that we put into place in Pennsylvania specifically. And it takes a little bit of time for those initiatives to bear themselves out. But they're finally starting to bear fruit. We had a very strong fourth quarter, a very strong first quarter. The consumer deposit gathering was good as well.
So I think it's just -- a lot of it's just the longer-term nature of having to put together three different institutions with different processes and different practices and different cultures and it does take a little bit of time to assimilate all that and to get it to the point where you're getting your share of the market opportunities. And I think there is a bit more market opportunity for us in some markets in Northeast Pennsylvania than there is in other of our markets and we've got a very solid and experienced team of lenders down there, we've got great leadership down there in Tom McCullough and Bob Matley and they're doing a great job for us.
Rick Weiss - Analyst
So it's more like I guess a company specifically thing rather than any big differences in the economies between New York and like the Pennsylvania area you're in. Is it fair to say it's more company specific?
Mark Tryniski - CEO, Pres., Dir., Pres. & CEO of Community Bank
Yes, I would say that's true. The largest markets we do business in are in Scranton, Pennsylvania and Wilksberry, Pennsylvania. So those are our two biggest markets, so they're different markets than some of our other markets. The average loans tend to be a fair bit larger in those markets on both the commercial side as well as the consumer side.
Interestingly enough, the average deposit balances aren't a whole lot different than they are in New York, but on the loan side they're a fair bit bigger. So there are some differences in those markets. But I would say our recent strength of performance in Pennsylvania is probably, as you suggest, is more individually company related than market related overall.
Rick Weiss - Analyst
Okay. That's very helpful, thank you.
Operator
(OPERATOR INSTRUCTIONS). It appears we have no other questions.
Mark Tryniski - CEO, Pres., Dir., Pres. & CEO of Community Bank
Very good. Thank you all for joining us and we will talk again next quarter. Thanks.
Operator
That concludes today's conference. Thank you for participating. You may now disconnect.