Community Bank System Reports Fourth Quarter and Full Year 2019 Results

Company Release - 1/22/2020 6:45 AM ET

SYRACUSE, N.Y.--(BUSINESS WIRE)-- Community Bank System, Inc. (NYSE: CBU) reported fourth quarter 2019 net income of $42.9 million and fully diluted earnings per share of $0.82. This compares to $40.8 million in net income or $0.78 per share for the fourth quarter of 2018. Fourth quarter 2019 operating earnings per share (non-GAAP), which excludes acquisition expenses and unrealized loss on equity securities, were $0.83, or $0.05 above the fourth quarter of 2018. Full year diluted earnings per share totaled $3.23 in 2019, compared to $3.24 in 2018, and reflect a $0.11 negative impact due to the Durbin debit interchange price restrictions. Full year diluted operating earnings per share (non-GAAP), which excludes acquisition expenses, gain on sale of investments, unrealized gain on equity securities and loss on debt extinguishment, of $3.29 for 2019 were $0.06 per share higher than the $3.23 per share of operating earnings generated in 2018.

2019 Performance Highlights:

  • GAAP EPS
    • $0.82 per share for the fourth quarter of 2019, compared to $0.78 per share for the fourth quarter of 2018
    • $3.23 per share for full year 2019, down $0.01 per share from full year 2018
  • Operating EPS (non-GAAP)
    • $0.83 per share for the fourth quarter of 2019, $0.05 per share above the fourth quarter of 2018
    • $3.29 per share for full year 2019, $0.06 per share above 2018
  • Total Deposit Funding Costs
    • 0.26% for the fourth quarter of 2019
    • 0.23% for full year 2019
  • Return on Assets
    • 1.48% for the fourth quarter of 2019
    • 1.53% for full year 2019
  • Return on Tangible Equity
    • 16.1% for fourth quarter 2019
    • 16.6% for full year 2019
  • Non-banking Noninterest Revenues
    • Up 5.2% over fourth quarter of 2018
    • Up 4.6% for full year 2019

“Our 2019 very solid fourth quarter was characterized by revenue growth, improved earnings along with a continuation of positive operating metrics compared with the prior year quarter. Moreover, we are pleased with the company’s performance throughout 2019, during which we continued to utilize acquisitions to expand and strengthen our service area, organically grew loan and deposit portfolios, increased revenue to nearly $590 million and extended our uninterrupted streak of dividend increases to shareholders,” said Mark E. Tryniski, President and Chief Executive Officer. “Our acquisition of Kinderhook Bank Corp. (“Kinderhook”), during third quarter 2019 extended our market reach into the Capital District of Upstate New York, a region with attractive economic and demographic characteristics. The Company’s fourth quarter definitive agreement to acquire Steuben Trust Corporation will provide additional retail strength to our existing Western New York service area along with providing entry into two new Western New York counties. The transaction is also expected to be immediately accretive to earnings. Organic revenue increases in our employee benefits services and insurance services businesses were responsible for higher noninterest revenue in 2019. Total loans at year end increased by more than $600 million, driven by organic growth and by the Kinderhook acquisition. Despite realizing loan growth of nearly 10% in 2019, our asset quality metrics remained strong and consistent and reflective of our disciplined approach to lending. All in all, the accomplishments in 2019 were significant and were reflected in our Board’s decision to raise our cash dividend for the 27th consecutive year. Our unbroken streak of dividend increases puts Community Bank System in very select company, and signifies our commitment to robust shareholder returns. We begin 2020 well positioned to extend our performance through the year.”

Total revenues for the fourth quarter of 2019 were $149.9 million, an increase of $8.3 million, or 5.8%, over the fourth quarter of 2018. The Company recorded a $5.4 million, or 6.1%, increase in net interest income and a $2.9 million, or 5.4%, increase in noninterest revenues. The increase in net interest income was due largely to a $733.0 million increase in average earning assets between the periods due to both the Kinderhook acquisition and organic growth in earning assets, partially offset by a decrease in the net interest margin. The increase in noninterest revenues was due to a $1.0 million, or 5.8%, increase in deposit and other banking revenues and a $1.9 million, or 5.2%, increase on non-banking noninterest revenues. Revenues were up $1.5 million in the employee benefit services business, and wealth management and insurance services revenue was up $0.4 million between the fourth quarter of 2019 and fourth quarter of 2018.

On a linked quarter basis, total revenues increased $1.5 million, or 1.0%. Net interest income was up $1.5 million, or 1.6%, and noninterest revenues were consistent with the prior quarter. The increase in net interest income was driven by a $2.2 million increase due to volume, partially offset by a $0.7 million decrease due to changes in interest rates. Deposit and other banking revenues increased $0.2 million, or 1.1%, on a linked-quarter basis. Employee benefit services revenue was up $0.7 million on a linked quarter basis, while wealth management and insurance services revenue was down $0.8 million.

The Company recorded $92.7 million in net interest income during the fourth quarter of 2019. This compares to $87.4 million of net interest income generated in the fourth quarter of 2018. Interest income on loans was up $7.2 million, or 9.8%, while interest income on investments, including cash equivalents, was up $0.4 million, or 2.3%. Interest expense on deposits increased $2.6 million between the comparable periods, while interest expense on borrowings decreased $0.3 million. The increase in interest expense on deposits was driven by a $542.6 million increase in average interest bearing deposit balances primarily due to the Kinderhook acquisition and a 10 basis point increase in the cost of deposits. The decrease in interest expense on borrowings was driven by a $64.2 million decrease in average borrowings. The net interest margin decreased six basis points, from 3.77% in the fourth quarter of 2018 to 3.71% in the fourth quarter of 2019. Earning asset yields were 3.99% in both the fourth quarter of 2019 and the fourth quarter of 2018. However, the Company’s cost of funds increased eight basis points, from 0.23% in the fourth quarter of 2018 to 0.31% in the fourth quarter of 2019.

Net interest income increased $1.5 million, or 1.6%, on a linked quarter basis. The increase was attributable to a $0.6 million increase in interest income on loans, a $0.8 million increase in interest on investments and cash equivalents, including a $1.0 millionFederal Reserve Bank semi-annual dividend payment, and a $0.1 million decrease in interest expense. Net interest margin decreased two basis points from 3.73% in the third quarter of 2019 to 3.71% in the fourth quarter. The yield on earning assets decreased four basis points between the linked quarters from 4.03% to 3.99%, while the total cost of funds decreased one basis point from 0.32% to 0.31%. During the fourth quarter, the Company purchased $724.1 million of investment securities, reduced cash equivalents by $738.5 million, increased average loans outstanding by $122.2 million and decreased the rates paid on certain higher-cost deposit accounts. These actions and results partially offset the unfavorable impact recent reductions in the overnight federal funds and prime lending rate had on interest income during the quarter.

The Company recorded a $2.9 million provision for loan losses in the fourth quarter 2019. This compares to a $2.5 million provision for loan losses recorded in the fourth quarter of 2018 and $1.8 million in the third quarter of 2019. The Company’s asset quality metrics remained stable in the fourth quarter, loans outstanding increased $37.4 million and the Company recorded net charge-offs of $2.4 million, $1.0 million less than the fourth quarter of 2018 and $0.7 million more than the linked third quarter.

Total operating expenses for the fourth quarter of 2019 were $95.3 million. Excluding $0.8 million of acquisition-related expenses, the Company recorded $94.5 million of operating expenses. This compares to $87.6 million of operating expenses and no acquisition expenses recorded in the fourth quarter of 2018. Excluding acquisition expenses, the $6.9 million, or 7.9%, increase in recurring operating expenses was driven by a $4.4 million, or 8.5%, increase in salaries and employee benefits including an increase in medical costs, a $1.3 million, or 13.5% increase in data processing and communication costs, and a $1.7 million, or 14.0%, increase in other expenses, partially offset by a $0.4 million, or 9.4%, decrease in amortization of intangible assets and a $0.1 million, or 0.7%, decrease in occupancy and equipment expense. The overall increase in operating expenses was largely driven by higher expenses associated with expanded operations subsequent to the Kinderhook transaction including higher business development and marketing expenses.

On a linked quarter basis, total operating expenses decreased $1.7 million, or 1.7%. During the third quarter of 2019, the Company acquired Kinderhook and incurred $6.1 million in acquisition-related expenses, as compared to $0.8 million of acquisition-related expenses in the fourth quarter of 2019. Excluding acquisition-related expenses, operating expenses increased $3.6 million, or 3.9%, from $90.9 million in the third quarter to $94.5 million in the fourth quarter. The increase in operating expenses excluding acquisition expenses was driven by a $0.4 million, or 0.7%, increase in salaries and employee benefits, a $0.3 million, or 2.4%, increase in data processing and communication costs, a $0.3 million, or 3.5%, increase in occupancy and equipment expense, and a $2.6 million, or 24.8%, increase in other expenses. The increase in other expenses was driven by increases in business development and marketing, legal and professional fees, and other seasonal operating expenses. The Company historically incurs higher operating expenses in the fourth quarter in comparison to the third quarter.

The effective tax rate for the fourth quarter of 2019 was 17.1%. This was down from a 20.7% effective tax rate in the fourth quarter of last year. The decrease in the effective tax rate was attributable to an increase in income tax benefits associated with equity based compensation activities and a reduction in certain activity-based state income tax expenses. The effective tax rate for the full year of 2019 was 19.2%. Excluding income tax benefits associated with equity based compensation, the Company’s effective tax rate for the full year of 2019 was 20.9%.

The Company also provides supplemental reporting of its results on an “operating,” “adjusted net” or “tangible” basis, from which it excludes the after-tax effect of amortization of core deposit and other intangible assets (and the related goodwill, core deposit intangible and other intangible asset balances, net of applicable deferred tax amounts), accretion on non-impaired purchased loans, expenses associated with acquisitions, the unrealized gain (loss) on equity securities and net realized gain on sale of investments. The amounts for such items are presented in the tables that accompany this release. Although these items are non-GAAP measures, the Company’s management believes this information helps investors understand the effect of acquisitions and other non-recurring activity in its reported results. Diluted adjusted net earnings per share were $0.86 in the fourth quarter of 2019, a 6.2% increase compared to $0.81 in the fourth quarter of 2018.

Financial Position

Average earning assets were up $233.3 million, or 2.4%, on a linked quarter basis, from $9.81 billion during the third quarter of 2019 to $10.04 billion during the fourth quarter of 2019. Average loan balances during the fourth quarter were $6.86 billion, up $122.2 million, or 1.8%, from the third quarter. Average deposit balances were also up $180.7 million, or 2.0%, from third quarter levels. During the quarter, average demand deposit, interest checking, money market and time deposits balances were up compared to the linked third quarter. These increases were slightly offset by a $4.6 million decrease in savings deposits. Average borrowings in the fourth quarter of 2019 of $325.1 million were up $34.2 million, or 11.7%, from the third quarter average of $291.0 million due primarily to a seasonal increase in customer repurchase agreements.

Ending loans at December 31, 2019 were $6.89 billion. This was up $37.4 million, or 0.5%, from the end of the third quarter and $609.4 million, or 9.7%, from one year earlier due to both organic growth and the Kinderhook transaction. During the fourth quarter, increases in the consumer mortgage and consumer indirect portfolios were partially offset by decreases in business lending, consumer direct and home equity loans. The consumer mortgage portfolio increased $25.7 million, or 1.1%, and the consumer indirect portfolio increased $21.1 million, or 1.9%, during the quarter. On a combined basis, business lending, consumer direct and home equity loans were down $9.4 million. Consumer financing activities in the Company’s markets were fairly robust during the fourth quarter driving new originations.

During the fourth quarter of 2019, the Company purchased $724.1 million of investment securities and reduced its cash equivalents by $738.5 million. These activities extended the effective duration of the portfolio and were taken to manage the Company’s exposure to falling interest rates. At the end of the fourth quarter, investment securities totaled $3.09 billion, a $606.6 million, or 24.4%, increase from the end of the linked third quarter of 2019, and a $106.7 million, or 3.6%, increase from December 31, 2018. The net unrealized gain in the investment portfolio was $33.1 million at December 31, 2019, compared to a $45.3 million unrealized gain at September 30, 2019. The Company’s cash equivalents totaled $43.2 million at the end of the fourth quarter, compared to $781.7 million at the end of the third quarter. The effective duration of the portfolio was 4.3 years at the end of the fourth quarter, as compared to 2.5 years at the end of the third quarter.

Shareholders’ equity of $1.86 billion at December 31, 2019 was $141.5 million, or 8.3%, higher than the prior year period. The Company’s net tangible equity to net tangible assets ratio was 10.01% at December 31, 2019, up from 9.68% both one year prior and at the end of the third quarter of 2019. The Company’s Tier 1 leverage ratio was 10.80% at the end of the fourth quarter, down from 11.08% a year earlier. The increase in shareholders’ equity was driven by strong earnings generation over the last four quarters. The decrease in the Tier 1 leverage ratio was largely driven by a significant increase in assets due to the Kinderhook acquisition.

As previously announced in January 2019, the Company’s Board of Directors approved a stock repurchase program authorizing the repurchase of up to 2.5 million shares of the Company’s common stock during a twelve-month period starting January 1, 2019. Such repurchases may be made at the discretion of the Company’s senior management based 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. There were no shares repurchased pursuant to the program in 2019. In December 2019, the Company reauthorized a new repurchase program for 2020 for up to 2.6 million shares of the Company’s common stock.

Asset Quality

The Company’s asset quality metrics continue to illustrate the long-term effectiveness of the Company’s disciplined credit risk management and underwriting standards. Total net charge-offs were $2.4 million for the fourth quarter. This compares to $3.3 million of net charge-offs in the fourth quarter of 2018, reflecting a $0.9 million decrease between comparable fourth quarters. Net charge-offs as an annualized percentage of average loans measured 0.14% in the fourth quarter of 2019 and 0.21% in the fourth quarter of 2018. Nonperforming loans as a percentage of total loans at the end of the fourth quarter were 0.35%, compared to 0.42% at September 30, 2019 and 0.40% at December 31, 2018. The total loan delinquency ratio, which includes nonperforming loans and loans 30 to 89 days delinquent, was 0.94% at the end of the fourth quarter, six basis points lower than the level one year earlier. The fourth quarter provision for loan losses of $2.9 million was $0.4 million higher than the fourth quarter of 2018, and $1.1 million higher than the third quarter of 2019 due primarily to loan growth in the fourth quarter. The allowance for loan losses to nonperforming loans ratio was 206% at December 31, 2019, compared with 172% and 197% at the ends of the third quarter of 2019 and fourth quarter of 2018, respectively. On a full year 2019 basis, the Company recorded a net charge-offs ratio of 0.12% compared to 0.15% for the full year of 2018. The Company’s allowance for loan losses was $49.9 million, or 0.72% of total loans outstanding at December 31, 2019, compared to $49.3 million and 0.78% of total loans outstanding at the end of the prior year. The decrease in this ratio between the periods was largely due to the acquisition of the Kinderhook loan portfolio during the third quarter of 2019.

Dividend Increase

During the fourth quarter of 2019, the Company declared a quarterly cash dividend of $0.41 per share on its common stock. The Board of Directors raised the cash dividend by $0.03 per share, or 7.9%, during the third quarter of 2019, marking the 27th consecutive year of dividend increases for the Company. Mr. Tryniski commented, “The payment of a meaningful and growing dividend is an important component of providing consistent and favorable long-term returns to our shareholders. The increase reflected the continued strength of our current operating performance and capital position.” The Company’s current dividend of $0.41 represents an annualized yield of 2.3% based upon the $70.13 closing price of the Company’s stock on January 21, 2020.

Steuben Trust Corporation

On October 21, 2019, the Company announced that it had entered into a definitive agreement to acquire Steuben Trust Corporation (“Steuben”), parent company of Steuben Trust Company, a New York State chartered community bank headquartered in Hornell, New York. The acquisition will extend the Company’s footprint into two new counties in Western New York State, and enhance the Company’s presence in four Western New York State counties in which it currently operates. Upon completion of the merger, Community Bank will add 15 branch locations with approximately $560 million of assets, and deposits of $460 million. The Company expects this acquisition to be approximately $0.08 to $0.09 per share accretive to its first full year of GAAP earnings and $0.09 to $0.10 per share accretive to cash earnings, excluding any one-time transaction costs. The acquisition is expected to close during the second quarter of 2020, pending both customary regulatory and Steuben shareholder approval. Based on the Company’s January 21, 2020 stock price of $70.13, Steuben’s shareholders are expected to receive total consideration of $117.1 million in Company stock and cash.

Conference Call Scheduled

Company management will conduct an investor call at 11:00 a.m. (ET) today, January 22, 2020, to discuss fourth quarter and full year 2019 results. The conference call can be accessed at 800-263-0877 (646-828-8143, if outside United States and Canada) using the conference ID code 5205291. Investors may also listen live via the Internet at: https://www.webcaster4.com/Webcast/Page/995/32696.

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 230 customer facilities across Upstate New York, Northeastern Pennsylvania, Vermont, and Western Massachusetts through its banking subsidiary, Community Bank, N.A. With assets of $11.4 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 municipal 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 units. The Company's Benefit Plans Administrative Services, Inc. subsidiary is a leading provider of employee benefits administration, trust services, collective investment fund administration 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.cbna.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; changes in legislation or regulatory requirements; and the timing for receiving regulatory approvals and completing pending transactions. 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 (unaudited)

 

 

 

 

(Dollars in thousands, except per share data)

 

 

 

 

 

Quarter Ended

Year-to-Date

 

December 31,
2019

December 31,
2018

December 31,
2019

December 31,
2018

Earnings

 

 

 

 

Loan income

$80,509

$73,316

$308,210

$286,165

Investment income

19,538

19,105

77,517

76,568

Total interest income

100,047

92,421

385,727

362,733

Interest expense

7,307

5,034

26,552

17,678

Net interest income

92,740

87,387

359,175

345,055

Provision for loan losses

2,857

2,495

8,430

10,837

Net interest income after provision for loan losses

89,883

84,892

350,745

334,218

Deposit service fees and other banking services

18,075

17,142

70,483

75,352

Wealth management and insurance services

14,060

13,675

58,068

56,089

Employee benefit services

24,997

23,466

97,167

92,279

Gain on sale of investments, net

0

0

4,882

0

Unrealized (loss)gain on equity securities

 (9)

 (65)

19

657

Loss on debt extinguishment

0

0

0

 (318)

Total noninterest revenues

57,123

54,218

230,619

224,059

Salaries and employee benefits

56,468

52,040

219,916

207,363

Data processing and communications

10,932

9,631

41,407

39,094

Occupancy and equipment

10,142

10,210

39,850

39,948

Amortization of intangible assets

3,962

4,375

15,956

18,155

Acquisition expenses

819

0

8,608

 (769)

Other

12,946

11,357

46,289

41,498

Total operating expenses

95,269

87,613

372,026

345,289

Income before income taxes

51,737

51,497

209,338

212,988

Income taxes

8,853

10,674

40,275

44,347

Net income

$42,884

$40,823

$169,063

$168,641

Basic earnings per share

$0.82

$0.79

$3.26

$3.28

Diluted earnings per share

$0.82

$0.78

$3.23

$3.24

 

     
Summary of Financial Data (unaudited)

 

 

 

 

 

 

 

 

 

(Dollars in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

2019 

 

2018

 

4th Qtr

 

3rd Qtr

 

2nd Qtr

 

1st Qtr

 

4th Qtr

Earnings

 

 

 

 

 

 

 

 

 

Loan income

$80,509

 

$79,931

 

$74,067

 

$73,703

 

$73,316

Investment income

19,538

 

18,716

 

20,285

 

18,978

 

19,105

Total interest income

100,047

 

98,647

 

94,352

 

92,681

 

92,421

Interest expense

7,307

 

7,371

 

6,052

 

5,822

 

5,034

Net interest income

92,740

 

91,276

 

88,300

 

86,859

 

87,387

Provision for loan losses

2,857

 

1,751

 

1,400

 

2,422

 

2,495

Net interest income after provision for loan losses

89,883

 

89,525

 

86,900

 

84,437

 

84,892

Deposit service fees and other banking services

18,075

 

17,865

 

17,143

 

17,400

 

17,142

Wealth management and insurance services

14,060

 

14,890

 

14,907

 

14,211

 

13,675

Employee benefit services

24,997

 

24,329

 

23,787

 

24,054

 

23,466

Gain on sale of investments, net

0

 

0

 

4,882

 

0

 

0

Unrealized (loss)gain on equity securities

 (9)

 

10

 

 (13)

 

31

 

 (65)

Total noninterest revenues

57,123

 

57,094

 

60,706

 

55,696

 

54,218

Salaries and employee benefits

56,468

 

56,061

 

54,008

 

53,379

 

52,040

Data processing and communications

10,932

 

10,675

 

10,401

 

9,399

 

9,631

Occupancy and equipment

10,142

 

9,801

 

9,619

 

10,288

 

10,210

Amortization of intangible assets

3,962

 

3,960

 

3,904

 

4,130

 

4,375

Acquisition expenses

819

 

6,061

 

1,194

 

534

 

0

Other

12,946

 

10,371

 

12,050

 

10,922

 

11,357

Total operating expenses

95,269

 

96,929

 

91,176

 

88,652

 

87,613

Income before income taxes

51,737

 

49,690

 

56,430

 

51,481

 

51,497

Income taxes

8,853

 

10,472

 

11,415

 

9,535

 

10,674

Net income

$42,884

 

$39,218

 

$45,015

 

$41,946

 

$40,823

Basic earnings per share

$0.82

 

$0.76

 

$0.87

 

$0.81

 

$0.79

Diluted earnings per share

$0.82

 

$0.75

 

$0.86

 

$0.80

 

$0.78

Profitability

 

 

 

 

 

 

 

 

 

Return on assets

1.48%

 

1.39%

 

1.68%

 

1.59%

 

1.53%

Return on equity

9.19%

 

8.53%

 

10.18%

 

9.85%

 

9.63%

Return on tangible equity(2)

16.08%

 

14.92%

 

17.74%

 

17.61%

 

17.61%

Noninterest revenues/operating revenues (FTE) (1)

38.3%

 

38.6%

 

38.8%

 

39.1%

 

38.5%

Efficiency ratio

60.7%

 

58.8%

 

59.8%

 

59.1%

 

59.1%

Components of Net Interest Margin (FTE)

 

 

 

 

 

 

 

 

 

Loan yield

4.67%

 

4.72%

 

4.73%

 

4.78%

 

4.65%

Cash equivalents yield

1.68%

 

2.19%

 

2.37%

 

2.33%

 

1.85%

Investment yield

2.70%

 

2.61%

 

2.73%

 

2.59%

 

2.62%

Earning asset yield

3.99%

 

4.03%

 

4.06%

 

4.05%

 

3.99%

Interest-bearing deposit rate

0.36%

 

0.36%

 

0.30%

 

0.27%

 

0.22%

Borrowing rate

1.68%

 

2.06%

 

1.87%

 

1.86%

 

1.68%

Cost of all interest-bearing funds

0.42%

 

0.43%

 

0.37%

 

0.36%

 

0.31%

Cost of funds (includes DDA)

0.31%

 

0.32%

 

0.28%

 

0.27%

 

0.23%

Net interest margin (FTE)

3.71%

 

3.73%

 

3.80%

 

3.80%

 

3.77%

Fully tax-equivalent adjustment

$1,026

 

$985

 

$990

 

$1,008

 

$1,062

     

Summary of Financial Data (unaudited)

 

 

 

 

 

 

 

 

 

(Dollars in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

2019 

 

2018

 

4th Qtr

 

3rd Qtr

 

2nd Qtr

 

1st Qtr

 

4th Qtr

Average Balances

 

 

 

 

 

 

 

 

 

Loans

$6,857,977

 

$6,735,776

 

$6,294,772

 

$6,273,798

 

$6,276,231

Cash equivalents

504,858

 

665,862

 

334,304

 

121,304

 

28,817

Taxable investment securities

2,242,471

 

1,990,979

 

2,400,516

 

2,574,902

 

2,577,366

Nontaxable investment securities

434,020

 

413,437

 

397,316

 

403,359

 

423,902

Total interest-earning assets

10,039,326

 

9,806,054

 

9,426,908

 

9,373,363

 

9,306,316

Total assets

11,472,415

 

11,229,919

 

10,771,975

 

10,687,708

 

10,575,272

Interest-bearing deposits

6,581,979

 

6,462,143

 

6,170,832

 

6,107,732

 

6,039,390

Borrowings

325,139

 

290,967

 

319,505

 

373,656

 

389,378

Total interest-bearing liabilities

6,907,118

 

6,753,110

 

6,490,337

 

6,481,388

 

6,428,768

Noninterest-bearing deposits

2,519,645

 

2,458,831

 

2,326,630

 

2,297,472

 

2,317,042

Shareholders' equity

1,851,579

 

1,824,869

 

1,774,400

 

1,726,313

 

1,682,525

Balance Sheet Data

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$205,030

 

$1,014,042

 

$874,836

 

$508,364

 

$211,834

Investment securities

3,088,343

 

2,481,742

 

2,402,272

 

2,966,147

 

2,981,658

Loans:

 

 

 

 

 

 

 

 

 

Business lending

2,775,876

 

2,779,612

 

2,395,684

 

2,410,477

 

2,396,977

Consumer mortgage

2,430,902

 

2,405,191

 

2,255,782

 

2,237,430

 

2,235,408

Consumer indirect

1,113,062

 

1,091,980

 

1,082,834

 

1,070,840

 

1,083,207

Home equity

386,325

 

389,029

 

371,619

 

374,297

 

386,709

Consumer direct

184,378

 

187,379

 

178,151

 

173,042

 

178,820

Total loans

6,890,543

 

6,853,191

 

6,284,070

 

6,266,086

 

6,281,121

Allowance for loan losses

49,911

 

49,423

 

49,310

 

49,107

 

49,284

Intangible assets, net

836,923

 

840,685

 

800,515

 

804,419

 

807,349

Other assets

439,367

 

457,060

 

433,005

 

420,558

 

374,617

Total assets

11,410,295

 

11,597,297

 

10,745,388

 

10,916,467

 

10,607,295

Deposits:

 

 

 

 

 

 

 

 

 

   Noninterest-bearing

2,465,902

 

2,549,395

 

2,363,408

 

2,346,635

 

2,312,816

   Non-maturity interest-bearing

5,592,936

 

5,672,825

 

5,356,448

 

5,517,141

 

5,270,015

   Time

936,129

 

946,065

 

768,349

 

755,886

 

739,540

Total deposits

8,994,967

 

9,168,285

 

8,488,205

 

8,619,662

 

8,322,371

Borrowings

253,758

 

237,661

 

144,290

 

251,833

 

315,743

Subordinated notes payable

13,795

 

13,814

 

0

 

0

 

0

Subordinated debt held by unconsolidated subsidiary trusts

77,320

 

77,320

 

97,939

 

97,939

 

97,939

Accrued interest and other liabilities

215,221

 

259,796

 

205,444

 

189,905

 

157,459

Total liabilities

9,555,061

 

9,756,876

 

8,935,878

 

9,159,339

 

8,893,512

Shareholders' equity

1,855,234

 

1,840,421

 

1,809,510

 

1,757,128

 

1,713,783

Total liabilities and shareholders' equity

11,410,295

 

11,597,297

 

10,745,388

 

10,916,467

 

10,607,295

Capital

 

 

 

 

 

 

 

 

 

Tier 1 leverage ratio

10.80%

 

10.76%

 

11.54%

 

11.27%

 

11.08%

Tangible equity/net tangible assets (2)

10.01%

 

9.68%

 

10.56%

 

9.83%

 

9.68%

Diluted weighted average common shares O/S

52,522

 

52,382

 

52,356

 

52,195

 

52,122

Period end common shares outstanding

51,794

 

51,660

 

51,571

 

51,471

 

51,258

Cash dividends declared per common share

$0.41

 

$0.41

 

$0.38

 

$0.38

 

$0.38

Book value

$35.82

 

$35.63

 

$35.09

 

$34.14

 

$33.43

Tangible book value(2)

$20.52

 

$20.24

 

$20.45

 

$19.40

 

$18.59

Common stock price (end of period)

$70.94

 

$61.69

 

$65.84

 

$59.77

 

$58.30

   

Summary of Financial Data (unaudited)

 

 

 

 

 

 

 

 

 

(Dollars in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

2019 

 

2018

 

4th Qtr

 

3rd Qtr

 

2nd Qtr

 

1st Qtr

 

4th Qtr

Asset Quality

 

 

 

 

 

 

 

 

 

Nonaccrual loans

$18,835

 

$23,610

 

$21,413

 

$21,252

 

$22,544

Accruing loans 90+ days delinquent

5,426

 

5,064

 

3,047

 

3,019

 

2,455

    Total nonperforming loans

24,261

 

28,674

 

24,460

 

24,271

 

24,999

Other real estate owned (OREO)

1,270

 

1,258

 

1,736

 

1,524

 

1,320

         Total nonperforming assets

25,531

 

29,932

 

26,196

 

25,795

 

26,319

Net charge-offs

2,369

 

1,638

 

1,197

 

2,599

 

3,345

Allowance for loan losses/loans outstanding

0.72%

 

0.72%

 

0.78%

 

0.78%

 

0.78%

Nonperforming loans/loans outstanding

0.35%

 

0.42%

 

0.39%

 

0.39%

 

0.40%

Allowance for loan losses/nonperforming loans

206%

 

172%

 

202%

 

202%

 

197%

Net charge-offs/average loans

0.14%

 

0.10%

 

0.08%

 

0.17%

 

0.21%

Delinquent loans/ending loans

0.94%

 

0.85%

 

0.87%

 

0.88%

 

1.00%

Loan loss provision/net charge-offs

121%

 

107%

 

117%

 

93%

 

75%

Nonperforming assets/total assets

0.22%

 

0.26%

 

0.24%

 

0.24%

 

0.25%

Asset Quality (excluding loans acquired since 1/1/09)

 

 

 

 

 

 

 

 

 

Nonaccrual loans

$15,415

 

$16,644

 

$15,529

 

$15,524

 

$16,182

Accruing loans 90+ days delinquent

2,174

 

3,734

 

2,863

 

2,593

 

2,106

Total nonperforming loans

17,589

 

20,378

 

18,392

 

18,117

 

18,288

Other real estate owned (OREO)

1,148

 

1,258

 

1,145

 

898

 

669

Total nonperforming assets

18,737

 

21,636

 

19,537

 

19,015

 

18,957

Net charge-offs

2,435

 

1,602

 

1,234

 

1,516

 

3,053

Allowance for loan losses/loans outstanding

0.87%

 

0.89%

 

0.93%

 

0.94%

 

0.93%

Nonperforming loans/loans outstanding

0.32%

 

0.38%

 

0.36%

 

0.36%

 

0.36%

Allowance for loan losses/nonperforming loans

270%

 

231%

 

260%

 

262%

 

256%

Net charge-offs/average loans

0.18%

 

0.12%

 

0.10%

 

0.12%

 

0.24%

Delinquent loans/ending loans

0.88%

 

0.88%

 

0.89%

 

0.89%

 

1.06%

Loan loss provision/net charge-offs

120%

 

51%

 

123%

 

142%

 

76%

Nonperforming assets/total assets

0.19%

 

0.22%

 

0.20%

 

0.20%

 

0.20%

 

  

Summary of Financial Data (unaudited)

 

 

 

 

 

 

(Dollars in thousands, except per share data)

 

 

 

 

 

 

 

2019

 

2018

 

4th Qtr

 

3rd Qtr

 

2nd Qtr

 

1st Qtr

 

4th Qtr

Quarterly GAAP to Non-GAAP Reconciliations

 

 

 

 

 

 

 

 

 

Income statement data

 

 

 

 

 

 

 

 

 

Net income

    

  Net income (GAAP)

$42,884

 

$39,218

 

$45,015

 

$41,946

 

$40,823

  Acquisition expenses

819

 

6,061

 

1,194

 

534

 

0

  Tax effect of acquisition expenses

 (140)

 

 (1,277)

 

 (242)

 

(99)

 

0

    Subtotal (non-GAAP)

43,563

 

44,002

 

45,967

 

42,381

 

40,823

  Gain on sale of investments, net

0

 

0

 

 (4,882)

 

0

 

0

  Tax effect of gain on sale of investments, net

0

 

0

 

988

 

0

 

0

     Subtotal (non-GAAP)

43,563

 

44,002

 

42,073

 

42,381

 

40,823

  Unrealized loss(gain) on equity securities

9

 

(10)

 

13

 

(31)

 

65

  Tax effect of unrealized loss(gain) on equity securities

(2)

 

2

 

 (3)

 

6

 

 (13)

     Operating net income (non-GAAP)

43,570

 

43,994

 

42,083

 

42,356

 

40,875

  Amortization of intangibles

3,962

 

3,960

 

3,904

 

4,130

 

4,375

  Tax effect of amortization of intangibles

 (678)

 

 (835)

 

 (790)

 

 (765)

 

 (907)

     Subtotal (non-GAAP)

46,854

 

47,119

 

45,197

 

45,721

 

44,343

  Acquired non-impaired loan accretion

 (1,898)

 

 (1,637)

 

 (1,302)

 

 (1,330)

 

 (1,838)

  Tax effect of acquired non-impaired loan accretion

325

 

345

 

263

 

246

 

381

     Adjusted net income (non-GAAP)

$45,281

 

$45,827

 

$44,158

 

$44,637

 

$42,886

 

 

 

 

 

 

 

 

 

 

Return on average assets

 

 

 

 

 

 

 

 

 

  Adjusted net income (non-GAAP)

$45,281

 

$45,827

 

$44,158

 

$44,637

 

$42,886

  Average total assets

11,472,415

 

11,229,919

 

10,771,975

 

10,687,708

 

10,575,272

     Adjusted return on average assets

1.57%

 

1.62%

 

1.64%

 

1.69%

 

1.61%

 

 

 

 

 

 

 

 

 

 

Return on average equity

 

 

 

 

 

 

 

 

 

  Adjusted net income (non-GAAP)

$45,281

 

$45,827

 

$44,158

 

$44,637

 

$42,886

  Average total equity

1,851,579

 

1,824,869

 

1,774,400

 

1,726,313

 

1,682,525

     Adjusted return on average equity

9.70%

 

9.96%

 

9.98%

 

10.49%

 

10.11%

 

 

 

 

 

 

 

 

 

 

Earnings per common share

 

 

 

 

 

 

 

 

 

  Diluted earnings per share (GAAP)

$0.82

 

$0.75

 

$0.86

 

$0.80

 

$0.78

  Acquisition expenses

0.01

 

0.12

 

0.02

 

0.01

 

0.00

  Tax effect of acquisition expenses

0.00

 

(0.03)

 

0.00

 

0.00

 

0.00

     Subtotal (non-GAAP)

0.83

 

0.84

 

0.88

 

0.81

 

0.78

  Gain on sale of investments, net

0.00

 

0.00

 

(0.10)

 

0.00

 

0.00

  Tax effect of gain on sale of investments, net

0.00

 

0.00

 

0.02

 

0.00

 

0.00

     Subtotal (non-GAAP)

0.83

 

0.84

 

0.80

 

0.81

 

0.78

  Unrealized loss(gain) on equity securities

0.00

 

0.00

 

0.00

 

0.00

 

0.00

  Tax effect of unrealized loss(gain) on equity securities

0.00

 

0.00

 

0.00

 

0.00

 

0.00

     Operating diluted earnings per share (non-GAAP)

0.83

 

0.84

 

0.80

 

0.81

 

0.78

  Amortization of intangibles

0.07

 

0.08

 

0.07

 

0.08

 

0.08

  Tax effect of amortization of intangibles

(0.01)

 

(0.02)

 

(0.02)

 

(0.01)

 

(0.02)

     Subtotal (non-GAAP)

0.89

 

0.90

 

0.85

 

0.88

 

0.84

  Acquired non-impaired loan accretion

(0.04)

 

(0.03)

 

(0.02)

 

(0.03)

 

(0.04)

  Tax effect of acquired non-impaired loan accretion

0.01

 

0.01

 

0.01

 

0.00

 

0.01

     Diluted adjusted net earnings per share (non-GAAP)

$0.86

 

$0.88

 

$0.84

 

$0.85

 

$0.81

 

 

 

 

 

 

 

 

 

 

 

Summary of Financial Data (unaudited)

 

 

 

 

 

 

 

 

(Dollars in thousands, except per share data)

 

 

 

 

 

 

 

 

 

2019

 

2018

 

4th Qtr

 

3rd Qtr

 

2nd Qtr

 

1st Qtr

 

4th Qtr

Quarterly GAAP to Non-GAAP Reconciliations

 

 

 

 

 

 

 

 

 

Income statement data (continued)

 

 

 

 

 

 

 

 

 

Noninterest operating expenses

 

 

 

 

 

 

 

 

 

  Noninterest expenses (GAAP)

$95,269

 

$96,929

 

$91,176

 

$88,652

 

$87,613

  Amortization of intangibles

 (3,962)

 

 (3,960)

 

 (3,904)

 

 (4,130)

 

 (4,375)

  Acquisition expenses

 (819)

 

 (6,061)

 

 (1,194)

 

(534)

 

0

     Total adjusted noninterest expenses (non-GAAP)

$90,488

 

$86,908

 

$86,078

 

$83,988

 

$83,238

 

 

 

 

 

 

 

 

 

 

Efficiency ratio

 

 

 

 

 

 

 

 

 

  Adjusted noninterest expenses (non-GAAP) - numerator

$90,488

 

$86,908

 

$86,078

 

$83,988

 

$83,238

  Tax-equivalent net interest income

93,766

 

92,261

 

89,290

 

87,867

 

88,449

  Noninterest revenues

57,123

 

57,094

 

60,706

 

55,696

 

54,218

  Acquired non-impaired loan accretion

 (1,898)

 

 (1,637)

 

 (1,302)

 

 (1,330)

 

 (1,838)

  Gain on sale of investments, net

 0

 

 0

 

 (4,882)

 

0

 

0

  Unrealized loss(gain) on equity securities

9

 

(10)

 

13

 

(31)

 

65

  Operating revenues (non-GAAP) - denominator

149,000

 

147,708

 

143,825

 

142,202

 

140,894

     Efficiency ratio (non-GAAP)

60.7%

 

58.8%

 

59.8%

 

59.1%

 

59.1%

 

 

 

 

 

 

 

 

 

 

Balance sheet data

 

 

 

 

 

 

 

 

 

Total assets

 

 

 

 

 

 

 

 

 

  Total assets (GAAP)

$11,410,295

 

$11,597,297

 

$10,745,388

 

$10,916,467

 

$10,607,295

  Intangible assets

 (836,923)

 

 (840,685)

 

 (800,515)

 

 (804,419)

 

 (807,349)

  Deferred taxes on intangible assets

44,742

 

46,048

 

45,576

 

45,994

 

46,370

     Total tangible assets (non-GAAP)

10,618,114

 

10,802,660

 

9,990,449

 

10,158,042

 

9,846,316

 

 

 

 

 

 

 

 

 

 

Total common equity

 

 

 

 

 

 

 

 

 

  Shareholders' Equity (GAAP)

1,855,234

 

1,840,421

 

1,809,510

 

1,757,128

 

1,713,783

  Intangible assets

 (836,923)

 

 (840,685)

 

 (800,515)

 

 (804,419)

 

 (807,349)

  Deferred taxes on intangible assets

44,742

 

46,048

 

45,576

 

45,994

 

46,370

     Total tangible common equity (non-GAAP)

1,063,053

 

1,045,784

 

1,054,571

 

998,703

 

952,804

 

 

 

 

 

 

 

 

 

 

Net tangible equity-to-assets ratio at quarter end

 

 

 

 

 

 

 

 

 

  Total tangible common equity (non-GAAP) - numerator

$1,063,053

 

$1,045,784

 

$1,054,571

 

$998,703

 

$952,804

  Total tangible assets (non-GAAP) - denominator

10,618,114

 

10,802,660

 

9,990,449

 

10,158,042

 

9,846,316

     Net tangible equity-to-assets ratio at quarter end (non-GAAP)

10.01%

 

9.68%

 

10.56%

 

9.83%

 

9.68%

 

 

 

 

 

 

 

 

 

 

(1) Excludes gain on sales of investments and unrealized gain and loss on equity securities.

(2) Includes deferred tax liabilities related to certain intangible assets.

 

Joseph E. Sutaris, EVP & Chief Financial Officer
Office: (315) 445-7396

Source: Community Bank System, Inc.

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