Community Bank System Reports Second Quarter 2016 Results

Company Release - 7/20/2016 4:16 PM ET

-GAAP earnings of $25.9 million, or $0.58 per share

- Generated 7% annualized quarterly loan growth

SYRACUSE, N.Y.--(BUSINESS WIRE)-- Community Bank System, Inc. (NYSE:CBU) reported second quarter 2016 net income of $25.9 million, an increase of 8.5% compared with $23.8 million earned for the second quarter of 2015. Diluted earnings per share totaled $0.58 for the second quarter of 2016, equivalent to the second quarter of last year. Fully diluted shares outstanding increased 3.4 million shares from the second quarter of 2015, principally from shares issued in the fourth quarter of 2015 for the stock portion of consideration for the Oneida Financial acquisition. 2016 year-to-date net income of $50.3 million, or $1.13 per share, was 8.9% above the first six months of 2015’s earnings of $46.1 million, or $1.12 per share.

“Our solid second quarter operating results were driven by meaningful loan growth, particularly in our business and auto lending portfolios, a continuation of exceptional credit quality, disciplined expense management, and continued improvement in our non-interest income generation,” said President and Chief Executive Officer Mark E. Tryniski. “A 7% annualized growth in loans in the second quarter has allowed us to report over $100 million in loan growth year-to-date, a very productive outcome in this challenging low interest rate environment.” Mr. Tryniski also commented, “As we celebrate our 150th year anniversary in 2016, the strength of our company continues to be driven by the commitment of our employees. Through their hard work and dedication, we continue to consistently deliver above-peer financial results. We remain well positioned to provide the right products and services to our customers so that they may achieve their financial objectives as we continue to create value for our shareholders.”

Total revenue for the second quarter of 2016 was $107.1 million, an increase of $16.1 million, or 17.7%, over the prior year quarter, and included the impact of the Oneida Financial transaction completed in the fourth quarter of last year. The higher revenue was generated as a result of an 11.5% increase in average earning assets and continued acquired and organic growth in noninterest income, which more than offset a three basis-point reduction in net interest margin from the prior year quarter. A combination of acquired and organic growth resulted in a $6.5 million, or 41.1% increase in wealth management, insurance, and employee benefit services revenues. Deposit service fees increased 13.6% year-over-year, the result of increased card-related revenues and offset by modestly lower fees from account overdraft protection programs, including the additional activities from the Oneida transaction. The quarterly provision for loan losses of $2.3 million was $1.7 million higher than the historically low second quarter of 2015, reflective of comparably higher levels of net charge-offs and portfolio growth. Non-performing asset and delinquent loan ratios were generally stable. Total operating expenses of $66.4 million for the quarter were $10.3 million, or 18.4% above the second quarter of 2015, and included the operating expenses of the Oneida Financial acquisition. Certain statutory changes to state tax rates and structures along with a lower proportion of tax-exempt income resulted in a quarterly effective tax rate of 32.7% in the second quarter of 2016, compared to 30.5% in the second quarter of 2015, an outcome that resulted in a two cent per share headwind compared to the prior year.

Second quarter 2016 net interest income was $68.3 million, an increase of $7.1 million, or 11.6%, compared to the second quarter of 2015. Modestly improved funding costs were offset by a five basis point decline in earning asset yields, which were driven by lower blended interest rates on loans and investment securities. While average loan balances grew $654.6 million, or 15.5%, average loan yields declined five basis points year-over-year, resulting in a $6.7 million increase in quarterly loan interest income. Investment interest income was $0.5 million higher than the second quarter of 2015 as average investment securities (including cash equivalents) increased by $136.7 million, and the yield declined ten basis points. Interest expense was $0.2 million higher than the previous year’s quarter, driven by a $950.7 million increase in average deposits and a $189.7 million decline in average borrowings, including the Oneida acquisition.

Wealth management, insurance and employee benefit services revenues increased $6.5 million, or 41.1%, to $22.2 million compared to second quarter 2015, principally from the acquired activities of Oneida Financial. Revenues from mortgage banking and other services increased $0.8 million from the second quarter of 2015, and included nearly $0.4 million in non-recurring gains.

Second quarter 2016 operating expenses of $66.4 million increased $10.3 million over the second quarter of 2015, including the operating activities of Oneida Financial. Salaries and employee benefits increased $6.9 million, or 22.4%, and included personnel added from the Oneida transaction as well as planned merit increases. All other expenses increased 13.4% and reflected the occupancy, equipment and other operating costs of Oneida, including higher intangible amortization, compared to the second quarter of 2015. The second quarter and year-to-date 2016 effective income tax rates of 32.7% and 32.6%, respectively, were higher than the 30.5% and 30.8%, respectively, in last year’s comparable periods. Second quarter 2016 operating expenses were $1.3 million lower than the first quarter of this year, and reflected seasonally expected reductions in certain payroll tax expenses and utility costs. Both the first and second quarters of 2016 included 65 payroll days.

Financial Position

Average earning assets of $7.65 billion for the second quarter of 2016 were up $791.3 million from the second quarter of 2015, and were $42.2 million higher than the first quarter of 2016. Compared to the prior year, total average earning asset balances included acquired and organic growth of $654.6 million in average loan balances, while average investment securities and interest-earning cash balances increased by $136.7 million. Average deposit balances grew $950.7 million compared to the second quarter of 2015, and were $63.8 million higher than the first quarter of 2016. Average borrowings in the second quarter of 2016 of $249.3 million, were $47.7 million, or 16.1%, lower than the first quarter of this year.

Ending loans at June 30, 2016 increased $641.2 million, or 15.0%, year-over-year, reflecting productive organic growth in almost every one of the Company’s lending portfolios, and loans acquired in the Oneida Financial transaction. Investment securities totaled $2.93 billion at June 30, 2016, a level consistent with the previous four quarter-ends.

Shareholders’ equity of $1.24 billion at June 30, 2016 was $236.6 million, or 23.7%, higher than the prior year second quarter-end, from strong earnings generation and capital retention over the last four quarters as well as the issuance of 2.38 million shares of common stock, or $102.2 million, reflecting the equity portion of the consideration in the Oneida transaction. The Company’s net tangible equity to net tangible assets ratio was 9.58% at June 30, 2016, up from 8.63% at June 30, 2015. The Company’s Tier 1 leverage ratio stood at 10.14% at the end of the second quarter.

As previously announced, in December 2015 the Company’s Board of Directors approved a stock repurchase program authorizing the repurchase of up to 2.2 million shares of the Company’s common stock during a twelve-month period starting January 1, 2016. Such repurchases may be made at the discretion of the Company’s senior management depending on market conditions and other relevant factors and will be acquired through open market or privately negotiated transactions as permitted under Rule 10b-18 of the Securities Exchange Act of 1934 and other applicable legal requirements. No shares were repurchased under this authorization in the first half of 2016.

Asset Quality

The Company’s asset quality metrics continue to be favorable relative to comparative peer and industry averages and illustrate the long-term effectiveness of the Company’s disciplined risk management and underwriting standards. Net charge-offs were $1.4 million for the second quarter, compared to a historically low $0.3 million for the second quarter of 2015 and $1.1 million for the first quarter of 2016. Net charge-offs as an annualized percentage of average loans measured 0.11% in the second quarter of 2016, compared to 0.03% in the prior year second quarter and 0.10% in the first quarter of 2016. Nonperforming loans as a percentage of total loans at June 30, 2016 were 0.49%, improved from 0.54% at both June 30, 2015 and March 31, 2016. The total loan delinquency ratio of 1.10% at the end of the second quarter was up one basis point from the end of the second quarter of 2015. The second quarter provision for loan losses of $2.3 million was $1.7 million higher than the second quarter of 2015, and $1.0 million higher than the first quarter of 2016, due primarily to comparably higher net charge-off levels than the previous year’s second quarter, and solid organic loan growth. The allowance for loan losses to nonperforming loans was 193% at June 30, 2016, compared with the 197% and 175% levels at the end of the second quarter of 2015 and the first quarter of 2016, respectively.

Conference Call Scheduled

Company management will conduct an investor call at 11:00 a.m. (ET) tomorrow (Thursday, July 21st) to discuss second quarter results. The conference call can be accessed at 888-461-2024 (1-719-325-2393 if outside United States and Canada) using the conference ID code 3525466. Investors may also listen live via the Internet at: http://www.webcaster4.com/Webcast/Page/995/15903.

This earnings release, including supporting financial tables, is available within the press releases section of the Company's investor relations website at: http://ir.communitybanksystem.com. An archived webcast of the earnings call will be available on this site for one full year.

Community Bank System, Inc. operates more than 200 customer facilities across Upstate New York and Northeastern Pennsylvania through its banking subsidiary, Community Bank, N.A. With assets of approximately $8.7 billion, the DeWitt, N.Y. headquartered company is among the country's 150 largest financial institutions. In addition to a full range of retail, business, and governmental banking services, the Company offers comprehensive financial planning, insurance and wealth management services through its’ Community Bank Wealth Management Group and OneGroup NY, Inc. operating subsidiaries. The Company's Benefit Plans Administrative Services, Inc. subsidiary is a leading provider of employee benefits administration, trust services, and actuarial consulting services to customers on a national scale. Community Bank System, Inc. is listed on the New York Stock Exchange and the Company's stock trades under the symbol CBU. For more information about Community Bank visit www.communitybankna.com or http://ir.communitybanksystem.com.

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.These statements are based on the current beliefs and expectations of CBU’s management and CBU does not assume any duty to update forward-looking statements.

 

Summary of Financial Data

(Dollars in thousands, except per share data)                            
Quarter Ended     Year-to-Date
          June 30, 2016     June 30, 2015     June 30, 2016     June 30, 2015
Earnings                            
Loan income $52,509     $45,791     $104,159     $91,382
Investment income 18,601 18,089 36,707 34,952
Total interest income 71,110 63,880 140,866 126,334
Interest expense 2,804 2,652 5,679 5,266
Net interest income 68,306 61,228 135,187 121,068
Provision for loan losses 2,305 591 3,646 1,214
Net interest income after provision for loan losses 66,001 60,637 131,541 119,854
Deposit service fees 15,008 13,213 28,742 25,683
Revenues from mortgage banking and other banking services 1,597 799 3,176 1,854
Wealth management and insurance services 10,496 4,385 21,453 8,831
Employee benefit services 11,671 11,322 23,682 22,397
Total noninterest income 38,772 29,719 77,053 58,765
Salaries and employee benefits 37,950 31,010 77,088 62,039
Occupancy and equipment 7,409 6,844 15,072 14,239
Amortization of intangible assets 1,403 880 2,845 1,799
Acquisition expenses 263 361 340 756
Other 19,331 16,953 38,680 33,163
Total operating expenses 66,356 56,048 134,025 111,996
Income before income taxes 38,417 34,308 74,569 66,623
Income taxes 12,560 10,468 24,309 20,486
Net income $25,857$23,840$50,260$46,137
Basic earnings per share $0.58$0.58$1.14$1.13
Diluted earnings per share         $0.58     $0.58     $1.13     $1.12
 
 

Summary of Financial Data

(Dollars in thousands, except per share data)                                      
2016         2015
          2nd Qtr     1st Qtr         4th Qtr     3rd Qtr     2nd Qtr
Earnings                                      
Loan income $52,509     $51,650         $49,321     $47,040     $45,791
Investment income 18,601 18,106 18,683 18,244 18,089
Total interest income 71,110 69,756 68,004 65,284 63,880
Interest expense 2,804 2,875 3,015 2,921 2,652
Net interest income 68,306 66,881 64,989 62,363 61,228
Provision for loan losses 2,305 1,341 3,327 1,906 591
Net interest income after provision for loan losses 66,001 65,540 61,662 60,457 60,637
Deposit service fees 15,008 13,734 13,605 13,459 13,213
Revenues from mortgage banking and other banking services 1,597 1,579 1,061 2,045 799
Wealth management and insurance services 10,496 10,957 6,825 4,552 4,385
Employee benefit services 11,671 12,011 11,661 11,330 11,322
Loss on sale of investments 0 0 (4) 0 0
Total noninterest income 38,772 38,281 33,148 31,386 29,719
Salaries and employee benefits 37,950 39,138 33,138 31,179 31,010
Occupancy and equipment 7,409 7,663 6,702 6,652 6,844
Amortization of intangible assets 1,403 1,442 1,021 843 880
Acquisition expenses 263 77 5,719 562 361
Other 19,331 19,349 18,400 16,843 16,953
Total operating expenses 66,356 67,669 64,980 56,079 56,048
Income before income taxes 38,417 36,152 29,830 35,764 34,308
Income taxes 12,560 11,749 9,759 10,742 10,468
Net income 25,857 24,403 20,071 25,022 23,840
Basic earnings per share $0.58$0.55$0.48$0.61$0.58
Diluted earnings per share         $0.58     $0.55         $0.47     $0.60     $0.58
Profitability                                      
Return on assets 1.20% 1.14% 0.98% 1.25% 1.25%
Return on equity 8.62% 8.34% 7.41% 9.77% 9.44%
Return on tangible equity(3) 13.63% 13.38% 10.98% 14.82% 14.40%
Noninterest income/operating income (FTE) (1) 35.3% 35.5% 32.8% 32.4% 31.6%
Efficiency ratio (2)         59.0%     61.4%         57.6%     56.4%     58.3%
Components of Net Interest Margin (FTE)                                      
Loan yield 4.35% 4.33% 4.43% 4.40% 4.40%
Cash equivalents yield 0.46% 0.47% 0.25% 0.22% 0.28%
Investment yield 3.06% 2.97% 2.98% 2.94% 3.15%
Earning asset yield 3.87% 3.82% 3.86% 3.81% 3.92%
Interest-bearing deposit rate 0.14% 0.14% 0.14% 0.14% 0.15%
Borrowing rate 1.50% 1.33% 0.83% 0.72% 0.84%
Cost of all interest-bearing funds 0.20% 0.20% 0.22% 0.21% 0.20%
Cost of funds (includes DDA) 0.15% 0.16% 0.17% 0.17% 0.16%
Net interest margin (FTE) 3.73% 3.67% 3.70% 3.65% 3.76%
Fully tax-equivalent adjustment         $2,605     $2,524         $3,041     $3,162     $3,115
 
 
Summary of Financial Data
(Dollars in thousands, except per share data)          
2016         2015
          2nd Qtr     1st Qtr         4th Qtr     3rd Qtr     2nd Qtr
Average Balances                                      
Loans $4,866,574     $4,812,575         $4,459,575     $4,287,062     $4,211,962
Cash equivalents 19,456 22,355 12,448 12,395 11,325
Taxable investment securities 2,178,448 2,172,983 2,214,690 2,187,818 2,031,234
Nontaxable investment securities 588,897 603,297 614,891 635,627 607,585
Total interest-earning assets 7,653,375 7,611,210 7,301,604 7,122,902 6,862,106
Total assets 8,656,653 8,604,264 8,161,843 7,919,966 7,678,719
Interest-bearing deposits 5,517,287 5,458,273 4,943,210 4,739,513 4,777,195
Borrowings 249,263 296,964 607,771 675,958 438,931
Total interest-bearing liabilities 5,766,550 5,755,237 5,550,981 5,415,471 5,216,126
Noninterest-bearing deposits 1,532,322 1,527,585 1,405,416 1,363,022 1,321,738
Shareholders' equity         1,206,353     1,177,246         1,074,243     1,016,448     1,012,470
Balance Sheet Data                                      
Cash and cash equivalents $161,634$138,513$153,210$156,836$143,047
Investment securities 2,931,302 2,902,878 2,847,940 2,917,263 2,868,050
Loans:
Consumer mortgage 1,779,295 1,777,792 1,769,754 1,621,862 1,608,064
Business lending 1,536,546 1,509,421 1,497,271 1,288,772 1,295,889
Consumer indirect 993,132 941,151 935,760 872,988 837,449
Home equity 399,870 403,273 403,514 345,446 340,578
Consumer direct 195,959 189,535 195,076 184,479 181,623
Total loans 4,904,802 4,821,172 4,801,375 4,313,547 4,263,603
Allowance for loan losses 46,526 45,596 45,401 45,588 45,282
Intangible assets, net 483,478 484,881 484,146 384,525 385,515
Other assets 307,421 314,053 311,399 270,583 293,838
Total assets 8,742,111 8,615,901 8,552,669 7,997,166 7,908,771
Deposits:
Noninterest-bearing 1,546,253 1,533,085 1,499,616 1,357,554 1,337,101
Non-maturity interest-bearing 4,664,635 4,808,650 4,569,310 4,081,796 4,020,192
Time 746,966 777,327 804,548 708,760 729,527
Total deposits 6,957,854 7,119,062 6,873,474 6,148,110 6,086,820
Borrowings 267,600 33,700 301,300 558,100 566,200
Subordinated debt held by unconsolidated subsidiary trusts 102,158 102,152 102,146 102,140 102,134
Accrued interest and other liabilities 177,570 160,322 135,102 143,790 153,278
Total liabilities 7,505,182 7,415,236 7,412,022 6,952,140 6,908,432
Shareholders' equity 1,236,929 1,200,665 1,140,647 1,045,026 1,000,339
Total liabilities and shareholders' equity         8,742,111     8,615,901         8,552,669     7,997,166     7,908,771
Capital                                      
Tier 1 leverage ratio 10.14% 9.95% 10.32% 10.09% 10.20%
Tangible equity/net tangible assets (3) 9.58% 9.25% 8.59% 9.14% 8.63%
Diluted weighted average common shares O/S 44,636 44,356 42,373 41,470 41,265
Period end common shares outstanding 44,179 44,070 43,775 41,019 40,877
Cash dividends declared per common share $0.31$0.31$0.31$0.31$0.30
Book value $28.00$27.24$26.06$25.48$24.47
Tangible book value(3)$17.99$17.16$15.90$17.05$15.96
Common stock price (end of period)         $41.09     $38.21         $39.94     $37.17     $37.77
 
 
Summary of Financial Data
(Dollars in thousands, except per share data)          
2016         2015
          2nd Qtr     1st Qtr         4th Qtr     3rd Qtr     2nd Qtr
Asset Quality                                      
Nonaccrual loans $22,149     $23,765         $21,728     $23,133     $21,440
Accruing loans 90+ days delinquent 1,910 2,327 2,195 2,075 1,558
Total nonperforming loans 24,059 26,092 23,923 25,208 22,998
Other real estate owned (OREO) 1,726 2,031 2,088 2,531 2,324
Total nonperforming assets 25,785 28,123 26,011 27,739 25,322
Net charge-offs 1,376 1,146 3,514 1,600 314
Allowance for loan losses/loans outstanding 0.95% 0.95% 0.95% 1.06% 1.06%
Nonperforming loans/loans outstanding 0.49% 0.54% 0.50% 0.58% 0.54%
Allowance for loan losses/nonperforming loans 193% 175% 190% 181% 197%
Net charge-offs/average loans 0.11% 0.10% 0.31% 0.15% 0.03%
Delinquent loans/ending loans 1.10% 1.00% 1.16% 1.19% 1.09%
Loan loss provision/net charge-offs 168% 117% 95% 119% 188%
Nonperforming assets/total assets         0.29%     0.33%         0.30%     0.35%     0.32%
Asset Quality (excluding loans acquired since 1/1/09)                                      
Nonaccrual loans $18,259$20,045$18,804$20,504$18,558
Accruing loans 90+ days delinquent 1,574 1,837 1,802 1,876 1,463
Total nonperforming loans 19,833 21,882 20,606 22,380 20,021
Other real estate owned (OREO) 1,258 1,497 1,546 1,720 1,518
Total nonperforming assets 21,091 23,379 22,152 24,100 21,539
Net charge-offs 1,404 898 3,420 1,473 425
Allowance for loan losses/loans outstanding 1.02% 1.04% 1.05% 1.10% 1.11%
Nonperforming loans/loans outstanding 0.46% 0.52% 0.49% 0.55% 0.50%
Allowance for loan losses/nonperforming loans 224% 200% 212% 201% 223%
Net charge-offs/average loans 0.13% 0.09% 0.34% 0.14% 0.04%
Delinquent loans/ending loans 1.08% 1.00% 1.19% 1.14% 1.04%
Loan loss provision/net charge-offs 120% 112% 62% 127% 191%
Nonperforming assets/total assets         0.26%     0.29%         0.28%     0.31%     0.28%
 

(1) Excludes gains and losses on sales of investment securities and debt prepayments.

(2) Excludes intangible amortization, acquisition expenses, litigation settlement charge, gains and losses on sales of investment securities and losses on debt extinguishments.

(3) Includes deferred tax liabilities (of approximately $41.5 million at 6/30/16) generated from 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

Source: Community Bank System, Inc.

Copyright 2020, © S&P Global Market Intelligence  Terms of Use