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Section 1: 8-K (FORM 8-K)

0000723188 false COMMUNITY BANK SYSTEM, INC. 0000723188 2020-10-26 2020-10-26 iso4217:USD xbrli:shares iso4217:USD xbrli:shares

 

 

  

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): October 26, 2020

 

 

(Exact name of registrant as specified in its charter)

 

Delaware 001-13695 16-1213679
(State or other jurisdiction of (Commission File Number) (IRS Employer Identification No.)
incorporation)  

 

5790 Widewaters Parkway, DeWitt, New York 13214
(Address of principal executive offices) (Zip Code)

  

Registrant’s telephone number, including area code: (315) 445-2282

 

Not Applicable

 

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

  ¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
  ¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
  ¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
  ¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading
Symbol(s)
Name of each exchange on which registered
Common Stock, $1.00 par value per share CBU New York Stock Exchange

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

¨

 

 

 

 

Item 2.02Results of Operations and Financial Condition.

 

On October 26, 2020, Community Bank System, Inc. (“Community Bank System”) announced its results of operations for the quarter ended September 30, 2020. The public announcement was made by means of a news release, the text of which is set forth in Exhibit 99.1, and a copy of the supplemental information presentation is attached hereto as Exhibit 99.2.

 

The information in this Form 8-K, including Exhibit 99.1 and Exhibit 99.2 attached hereto, is being furnished under Item 2.02 and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

 

Item 9.01Financial Statements and Exhibits.

 

(d)  Exhibits

 

99.1Press Release, dated October 26, 2020, issued by Community Bank System, Inc.

 

99.2Q3 2020 Earnings Release Supplemental Information Presentation, dated October 26, 2020, issued by Community Bank System, Inc.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

  Community Bank System, Inc.
     
  By: /s/ Joseph E. Sutaris
  Name:    Joseph E. Sutaris
  Title:   Executive Vice President and Chief Financial Officer

 

Dated: October 26, 2020

 

 

 

 

Exhibit Index

 

Exhibit Number       Description      
   
99.1 Press Release, dated October 26, 2020, issued by Community Bank System, Inc.
   
99.2 Q3 2020 Earnings Release Supplemental Information Presentation, dated October 26, 2020, issued by Community Bank System, Inc.

 

 

 

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Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit 99.1

 

News Release

For further information, please contact:

5790 Widewaters Parkway, DeWitt, N.Y. 13214

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

 

Community Bank System Reports

Third Quarter 2020 Results and COVID-19 Pandemic Update

 

SYRACUSE, N.Y. — October 26, 2020 — Community Bank System, Inc. (NYSE: CBU) reported third quarter 2020 net income of $42.8 million, or $0.79 per fully-diluted share. This compares to net income of $39.2 million, or $0.75 per share, for the third quarter of 2019 and $35.2 million, or $0.66 per share, in the second quarter of 2020. The $0.04, or 5.3%, increase in earnings per share year-over-year was driven by a significant decrease in acquisition-related expenses, as well as increases in both net interest income and noninterest revenues, offset, in part, by increases in provision for credit losses, non-acquisition related operating expenses, income taxes and fully-diluted shares outstanding, as well as litigation reserve expense. The $0.13, or 19.7%, increase in earnings per share from the linked second quarter was largely driven by significantly lower acquisition-related expenses, an increase in net interest income, an increase in noninterest revenues, and a significant decrease in the provision for credit losses, offset, in part, by increases in non-acquisition related operating expenses, litigation reserve expense, income taxes and fully-diluted shares outstanding. Operating diluted earnings per share (non-GAAP), which excludes, on an after-tax basis, acquisition expenses, acquisition related provision for credit losses, litigation reserve expense and unrealized loss on equity securities, were $0.85 for the third quarter of 2020. This compares to operating diluted earnings per share (non-GAAP) of $0.84 for the third quarter of 2019 and $0.76 for the second quarter of 2020.

 

Third Quarter 2020 Highlights:

 

vGAAP EPS of $0.79, up $0.04, or 5.3%, over the third quarter of 2019

 

vOperating diluted EPS (non-GAAP) of $0.85, up $0.01 over the third quarter of 2019 and $0.09 over the linked second quarter

 

vAdjusted pre-tax, pre-provision net revenue per share (non-GAAP) of $1.10, consistent with the third quarter of 2019 and up $0.02 over the linked second quarter

 

vReturn on equity of 8.13%; Return on tangible equity (non-GAAP) of 13.22%

 

vReturn on assets of 1.26%; Return on assets – adjusted (non-GAAP) of 1.40%

 

vDeposit funding costs of 0.13%

 

vTotal revenues of $152.6 million increased $7.7 million, or 5.3%, over the second quarter of 2020

 

vNoninterest revenues represented 39.2% of operating revenues

 

vAnnualized net charge-offs of 0.07%

 

“The Company generated very strong results in the third quarter despite of the significant challenges posed by the COVID-19 pandemic and related market conditions,” said Mark E. Tryniski, President and CEO. “Operating earnings per share increased $0.01, or 1.2%, from the prior year’s third quarter and $0.09, or 11.8%, on a linked quarter basis. The Company’s adjusted pre-tax, pre-provision net revenue per share of $1.10 matched the third quarter 2019 results. Total revenues were up $7.7 million, or 5.3%, over the second quarter of 2020 as we recorded increases in net interest income, banking noninterest revenues, employee benefit services revenues and wealth management and insurance services revenues. The strength of our nonbanking businesses is becoming increasingly evident as the pandemic continues to run its course. On a year-to-date basis, the total revenues from our nonbanking business are up $3.6 million, or 3.1%. From an asset quality perspective, the Company experienced a significant decrease in the number and outstanding balances of loans under COVID-related forbearance. At September 30, 2020, 216 borrowers, representing $193 million of loans outstanding, or 2.6% of total loans, remained under a forbearance agreement, which is down from 3,699 borrowers, representing $704 million of loans outstanding, or 9.4% of total loans at June 30, 2020. Although we expect to experience an increase in nonperforming loans, loan delinquency and potentially net-charge offs in future periods, through the end of the third quarter these credit metrics remained generally consistent with pre-COVID levels. On a year-to-date basis, annualized net charge-offs to average loans were just seven basis points. Nonperforming loans to total loans outstanding stood at 0.43% and delinquent loans to total loans outstanding were 0.79%. Loans outstanding at the end of the third quarter decreased $69.4 million, or 0.9% from the end of the linked second quarter due to weak economic conditions, but deposit levels remain extraordinarily high due primarily to the retention of a significant portion of Federal stimulus-related funds received by customers.”

 

 

 

 

Mr. Tryniski added, “Although we expect to continue to navigate strong industry headwinds, particularly around asset quality, net interest margin, and current and future federal monetary and fiscal policies, we believe our Company remains well-prepared to withstand their impacts. The Company continues to maintain very high levels of capital and liquidity, diversified revenue streams through its nonbanking businesses, strong credit performance and an exceptional core deposit base.”

 

The Company recorded total revenues of $152.6 million in the third quarter of 2020, an increase of $4.3 million, or 2.9%, from the prior year’s third quarter. The increase in total revenues between the periods was driven by a $1.7 million, or 1.9%, increase in net interest income, a $4.0 million increase in mortgage banking revenues, a $0.8 million, or 3.4%, increase in employee benefit services revenues and a $0.5 million, or 3.6%, increase in wealth management and insurance services revenues, offset, in part, by a $2.8 million, or 15.7%, decrease in deposit service and other banking fees. Total revenues were up $7.7 million, or 5.3%, on a linked quarter basis. The Company recorded a $1.0 million, or 1.1%, increase in net interest income, a $2.3 million, or 17.4% increase in deposit service and other banking fees, a $2.5 million, or 184%, increase in mortgage banking revenue, a $1.1 million, or 4.5%, increase in employee benefit service revenues, and a $0.9 million, or 6.0%, increase in wealth management and insurance services revenues on a linked quarter basis.

 

The Company recorded net interest income of $93.0 million in the third quarter of 2020. This represents a $1.7 million, or 1.9%, increase over the third quarter of 2019. The increase was driven by a $2.15 billion, or 21.9%, increase in average earning assets between the periods, offset, in part by a 61 basis point decrease in the net interest margin. The increase in earning assets was driven by large net inflows of funds from government stimulus programs, Paycheck Protection Program (“PPP”) loan originations and the acquisition of Steuben Trust Corporation (“Steuben”) in the second quarter of 2020. The 61 basis point decrease in net interest margin was driven by a 75 basis point decrease in tax-equivalent earning asset yields between the periods, partially offset by a 16 basis point decrease in the total cost of funds. The large drop in earning asset yields was due to a significant decrease in market interest rates between the periods and a significant change in the composition of earning assets, including a $635.1 million increase in average cash equivalents that earned only a 0.10% yield during the third quarter of 2020. This compares to a yield of 2.19% earned on cash equivalents during the third quarter of 2019.

 

Interest income and fees on loans decreased $0.3 million, or 0.4%, over the comparable prior year quarter. Although average loans outstanding increased substantially over the comparable prior year quarter, interest income and fees on loans decreased modestly due to a significant decrease in market interest rates. Average loans outstanding increased $773.1 million, or 11.5% year-over-year due to the Steuben acquisition and the origination of PPP loans, while the average yield on loans decreased 49 basis points, from 4.72% in the third quarter of 2019 to 4.23% in the third quarter of 2020. Interest income on investments, including cash equivalents, decreased $0.9 million, or 4.7%, between the third quarter of 2019 and the third quarter of 2020. The decrease is reflective of lower market interest rates and a significant increase in the proportion of low-yield cash equivalents, offset, in part, by a $743.7 million, or 30.9%, increase in the average book value of investments. The tax-equivalent average yield on investments, including cash equivalents, decreased from 2.52% in the third quarter of 2019 to 1.67% in the third quarter of 2020. Interest expense was $2.8 million lower than the previous year’s third quarter, driven by a 20 basis point decrease in the cost on interest-bearing liabilities partially offset by a $1.16 billion, or 17.2%, increase in average interest-bearing liability balances. The average cost of deposits was 0.13% in the third quarter of 2020, as compared to 0.26% in the third quarter of 2019, reflective of market driven rate decreases for deposits between the periods and significant increases in noninterest bearing deposit balances. By comparison, the average cost of deposits during the second quarter of 2020 was 0.17%.

 

The Company recorded $1.9 million in the provision for credit losses during the third quarter of 2020. This amount is significantly less than the amounts recorded in the prior two quarters of 2020 and only $0.1 million greater than the amount recorded in the third quarter of 2019. The Company recorded $5.6 million in the provision for credit losses during the first quarter and $9.8 million in the second quarter. The second quarter provision for credit losses included $3.2 million of acquisition-related provision for credit losses due to the Company’s acquisition of Steuben with the remaining $6.6 million largely attributable to COVID-19 related factors. The decrease in the provision for credit losses during the third quarter, as compared to the prior two quarters, was due to improving economic conditions, modest levels of delinquent and nonperforming loans, a decrease in loans outstanding, low levels of net charge-offs and a large decrease in the number and amount of the Company’s loan balances subject to borrower forbearance. During the first two quarters of 2020 during the height of the COVID-19 pandemic, financial conditions deteriorated rapidly as state governments shutdown business activities in the Company’s markets and unemployment levels spiked. These conditions drove the Company to build its allowance for credit losses during the first two quarters of 2020 to account for expected life of loan losses in the loan portfolio. It is expected that improving conditions, including a continued decline in unemployment rates, will have a dampening impact on provision amounts in the coming quarters. However, this may be offset by the Company’s anticipation that there may be a significant increase in delinquency and nonperforming loan balances in future quarters due to it being unlikely that all COVID-affected borrowers will resume full payment of contractual amounts upon expiration of their forbearance agreement. The Company recorded loan net charge-offs of $1.3 million, or 0.07% annualized, during the third quarter of 2020. Comparatively, loan net-charge offs in the third quarter of 2019 were $1.6 million, or 0.10% annualized. On a year-to-date basis, the Company recorded net charge-offs of $3.7 million, or 0.07% annualized. This compares to $5.4 million, or 0.11% annualized, for the nine-month period ended September 30, 2019. Since the ultimate effect the COVID-19 pandemic will have on the Company’s credit losses is still unknown and highly uncertain, the decrease in the provision for credit losses during the third quarter should not be interpreted as a trend or utilized to forecast provision in future quarters. It is possible that the provision will be somewhat uncertain in future quarters as credit loss expectations change and borrowers’ financial conditions and circumstances become more apparent.

 

 

 

 

The Company recorded $59.7 million in noninterest revenues in the third quarter of 2020, as compared to $57.1 million in the third quarter of 2019. This represents a $2.6 million, or 4.5%, increase in noninterest revenues between the periods, $1.2 million of which is attributable to banking-related noninterest revenues and $1.4 million is related to nonbanking noninterest revenues. The increase in banking noninterest revenues was due to a $4.0 million increase in mortgage banking revenues, offset, in part, by a $2.8 million decrease in deposit service and other banking fees. Between the periods, the Company increased its commitment to sell secondary market eligible residential mortgage loans, which drove an increase in mortgage banking revenue from a $0.1 million loss in the third quarter of 2019 to a $3.9 million net gain in the third quarter of 2020. The decrease in deposit service and other banking fees was driven by lower overdraft and other deposit revenues, offset partially by higher debit card interchange revenues. Employee benefit services revenues for the third quarter of 2020 were $25.2 million. This represents a $0.8 million, or 3.4%, increase over third quarter 2019 and is attributable to increases in plan administration, recordkeeping and trustee fees. The Company recorded $15.4 million in wealth management and insurance services revenues during the third quarter of 2020, as compared to $14.9 million during the third quarter of 2019. The $0.5 million, or 3.6%, increase in wealth management and insurance revenues was attributable to organic growth in those businesses. Noninterest revenues increased $6.7 million, or 12.7%, on a linked quarter basis. This was driven by a $4.8 million, or 33.4%, increase in banking-related revenues including a $2.3 million, or 17.4%, increase in deposit service and other banking revenues and a $2.5 million, or 184%, increase in mortgage banking revenues. Wealth management and insurance services revenues increased $0.9 million, or 6.0%, between linked quarters, while employee benefit services revenues increased, $1.1 million, or 4.5%.

 

The Company recorded $97.0 million in total operating expenses in the third quarter of 2020. This compares to $96.9 million of total operating expenses recorded in the third quarter of 2019, and $90.9 million recorded in the linked second quarter of 2020. During the third quarter of 2020, the Company incurred $0.8 million of acquisition-related expenses and $3.0 million of litigation reserve expense. Exclusive of these items, the Company recorded $93.2 million of operating expenses in the third quarter of 2020. This compares to $90.9 million in operating expenses recorded in the third quarter of 2019, exclusive of $6.1 million of acquisition-related expenses, and $87.5 million in operating expenses in the linked second quarter of 2020, exclusive of $3.4 million of acquisition-related expenses. The acquisition expenses recorded in the second and third quarters of 2020 were incurred in connection with the Company’s acquisition of Steuben. The acquisition expenses recorded in the third quarter of 2019 were incurred in connection with the Company’s acquisition of Kinderhook Bank Corp. The litigation reserve expense recorded in the third quarter of 2020, was due to the accrual of estimated loss from an overdraft disclosure class action lawsuit brought against the Company. The $2.3 million, or 2.6%, year-over-year increase in operating expenses between quarters was attributable to a $1.2 million, or 2.2%, increase in salaries and employee benefits, a $1.4 million, or 13.3%, increase in data processing and communications expenses, a $0.3 million, or 3.4%, increase in occupancy and equipment expense, offset, in part, by a $0.2 million, or 2.3%, decrease in other expenses and a $0.4 million, or 9.6%, decrease in amortization of intangible assets. Although the Company continued to experience reduced levels of business activities during the third quarter of 2020 due to the ongoing COVID-19 pandemic, the resumption of certain marketing and business development activities and incremental costs associated with operating a larger organization as a result of the acquisition of Steuben, resulted in a $2.3 million, or 2.6%, net increase in operating expenses. The $5.7 million, or 6.5%, increase in operating expenses between the third quarter of 2020 and the linked second quarter was driven by a $2.6 million, or 4.7% increase in salaries and employee benefits, a $1.3 million, or 11.7%, increase in data processing and communications expenses, a $0.4 million, or 3.9%, increase in occupancy and equipment expenses and a $1.4 million, or 16.4%, increase in other expenses. The effective tax rate for the third quarter of 2020 was 20.3%, consistent with the second quarter of 2020, but down from 21.1% in the third quarter of 2019.

 

The Company also provides supplemental reporting of its results on an “operating,” “adjusted” 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, acquisition-related provision for credit losses, litigation reserve expense, the unrealized gain (loss) on equity securities and net gain on sale of investments. In addition, the Company provides supplemental reporting for “adjusted pre-tax, pre-provision net revenues,” which subtracts the provision for credit losses, acquisition expenses, litigation reserve expense, net gain on sale of investments and unrealized gain (loss) on equity securities from income before income taxes. 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 acquisition and other non-recurring activity in its reported results. Diluted adjusted net earnings per share were $0.88 in both the third quarter of 2020 and third quarter of 2019. Similarly, adjusted pre-tax, pre-provision net revenue per share in both the third quarters of 2020 and 2019 were $1.10, as compared to $1.08 in the second quarter of 2020.

 

 

 

 

Financial Position

 

The Company’s total assets increased to $13.85 billion at September 30, 2020, which represents a $2.25 billion, or 19.4% increase over the last twelve months and a $401.1 million, or 3.0%, increase over the prior quarter end. The substantial increase in the Company’s total assets over the last twelve months was largely due to the Steuben acquisition in the second quarter of 2020 and the very large inflows of government stimulus-related deposit funding between the periods. Similarly, average earning assets increased substantially over the prior year, from $9.81 billion in the third quarter of 2019 to $11.96 billion in the third quarter of 2020, a $2.15 billion, or 21.9% increase. This included a $773.1 million, or 11.5%, increase in average total loans outstanding, a $743.7 million, or 30.9%, increase in average total investment securities and a $635.1 million, or 95.4%, increase in average outstanding cash equivalents. On a linked quarter basis, average earning assets increased $852.5 million, or 7.7%, due largely to net inflows of government stimulus funds, with average outstanding cash equivalents increasing $478.0 million, or 58.1%. Average loan balances increased $289.4 million, or 4.0%, due primarily to the Steuben acquisition and higher average PPP loan balances. The average book value of investment securities increased $85.1 million, or 2.8%, from the linked second quarter due to the Steuben merger and the related acquisition of its investment securities portfolio. Average deposit balances increased $2.01 billion, or 22.6%, between the third quarter of 2019 and the third quarter of 2020 and $823.0 million, or 8.1%, on a linked quarter basis.

 

Ending loans at September 30, 2020 were $7.46 billion. This was $69.4 million, or 0.9%, lower than linked second quarter ending loans of $7.53 billion, but up $605.5 million, or 8.8% from one year prior. During the second quarter 2020, the Company acquired $339.7 million of loans in the Steuben transaction and originated $507.2 million of PPP loans. Exclusive of the loans acquired in the Steuben transaction and PPP, ending loans outstanding at September 30, 2020 decreased, $241.4 million, or 3.5%, from one year prior due largely to a significant slow-down in consumer and business activities due the COVID-19 pandemic.

 

The Company’s liquidity position remains extremely strong. The Company’s primary Bank subsidiary maintains a funding base largely comprised of core noninterest-bearing demand deposit accounts and low cost interest-bearing interest checking, savings and money market deposit accounts with customers that operate, reside or work within its branch footprint. At September 30, 2020, the Company’s cash and cash equivalents balances, net of float, were $1.73 billion. The Company also maintains an available-for-sale investment securities portfolio, comprised primarily of highly-liquid U.S. Treasury securities, highly-rated municipal securities and U.S. agency mortgage-backed securities. At September 30, 2020, the Company’s available-for-sale investment securities portfolio totaled $3.22 billion, $1.25 billion of which was unpledged as collateral. Net unrealized gains on the portfolio at that time were $154.3 million. The Bank’s unused borrowing capacity at the Federal Home Loan Bank of New York at September 30, 2020 was $1.65 billion and it maintained $259.4 million of funding availability at the Federal Reserve Bank’s discount window.

 

Although there remains uncertainty around the magnitude and duration of the economic impact of the COVID-19 pandemic, the Company’s management believes that its financial position, including high levels of capital, will allow it to successfully endure the negative economic impacts of the crisis. The Company’s capital planning and management activities, coupled with its historically strong earnings performance, diversified streams of revenue and prudent dividend practices, have allowed it to build and maintain strong capital reserves. Shareholders’ equity of $2.10 billion at September 30, 2020 was $258.2 million, or 14.0%, higher than one year prior and up $17.3 million, or 0.8%, from the end of the linked second quarter. The increase in shareholders’ equity over the last four quarters was primarily driven by solid earnings generation and capital retention, as well as the Steuben acquisition and an increase in accumulated other comprehensive income due primarily to an increase in net unrealized gains on the Company’s available-for-sale investment securities portfolio. At September 30, 2020, all of the Company’s regulatory capital ratios significantly exceeded well-capitalized standards. More specifically, the Company’s tier 1 leverage ratio, a common measure to evaluate a financial institutions capital strength, was 10.21% at September 30, 2020, which represents over two times the regulatory well-capitalized standard of 5.0%. This compares to 10.76% at the end of the third quarter of 2019 and 10.79% at the end of the second quarter of 2020, with the modest declines in the ratio primarily being driven by the organic asset growth generated from the significant deposit inflows noted above. The Company’s net tangible equity to net tangible assets ratio was 9.92% at September 30, 2020, up from 9.68% a year earlier and down from 10.08% at the end of the second quarter of 2020. The decreases in the net tangible equity to net tangible assets ratio and the tier 1 leverage ratio during the third quarter was due to the significant organic growth in total assets between the comparable periods as a result of the strong inflow of deposits noted above.

 

 

 

 

As previously announced in December 2019, the Company’s Board of Directors approved a stock repurchase program authorizing the repurchase of up to 2.6 million shares of the Company’s common stock during a twelve-month period starting January 1, 2020. 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 the third quarter of 2020. Although the approved stock repurchase program has not been rescinded, management does not anticipate purchasing shares through this program during the fourth quarter of 2020.

 

Allowance for Credit Losses and Asset Quality

 

During the first quarter of 2020, the Company adopted ASU No. 2016-13, Financial Instruments – Credit Losses, also known as Current Expected Credit Losses (“CECL”). Upon the adoption of CECL on January 1, 2020, the Company’s allowance for credit losses increased $1.4 million, from $49.9 million at December 31, 2019 to $51.3 million. Following the adoption of CECL, the Company’s allowance for credit losses has increased by $13.7 million, or 26.7%, $3.6 million of which was due to the Steuben acquisition and $10.1 million of which was primarily due to credit loss expectations associated with COVID-19’s adverse impact on economic and business operating conditions. The table below illustrates the Company’s changes in the allowance for credit losses prior to CECL adoption through the end of the third quarter.

 

($ in millions) Allowance
for Loan
Losses at
12/31/2019
CECL
Adoption
Impact
First
Quarter
2020
Reserve
Build

Second
Quarter
2020
Steuben
Acquisition

Second
Quarter
2020
Reserve
Build

Third
Quarter
2020
Reserve
Build

Allowance
for Credit
Losses at
9/30/2020
Balance $49.9 +$1.4 +$4.4 +$3.6 +$5.1 +$0.6 $65.0
% Change from 12/31/2019 n/a +2.7% +8.8% +7.3% +10.3% +1.1% +30.2%

 

At September 30, 2020, nonperforming (90+ days past due and non-accruing) loans were 0.43% of total loans outstanding. This compares to 0.42% of total loans outstanding at the end of the third quarter of 2019 and 0.36% at the end of the second quarter of 2020. Total delinquent loans, which includes nonperforming loans and loans thirty or more days delinquent, to total loans outstanding were 0.79% at the end of the third quarter of 2020. This compares to 0.85% at the end of the third quarter of 2019 and 0.72% at the end of the second quarter of 2020. The Company recorded net charge-offs of $1.3 million, or 0.07% annualized, in the third quarter of 2020. This compares to net charge-offs of $1.6 million, or 0.10% annualized, in the third quarter of 2019 and $0.9 million, or 0.05%, in the linked second quarter of 2020. The allowance for credit losses to total loans was 0.87% at September 30, 2020, compared to 0.86% at June 30, 2020 and 0.72% at September 30, 2019.

 

The Company participated in both rounds of the Coronavirus Aid, Relief, and Security Act (“CARES Act”) PPP, a specialized low-interest loan program funded by the U.S. Treasury Department and administered by the U.S. Small Business Administration (“SBA”). As of September 30, 2020, the Company’s business lending portfolio included 3,473 PPP loans with a total balance of $507.2 million. Under the PPP, the SBA may forgive all or a portion of the loan amount if the borrower meets certain conditions. Through September 30, 2020, the Company has not received any notifications from the SBA that any of its borrowers’ loans were forgiven.

 

From a credit risk and lending perspective, the Company has taken actions to identify, assess and monitor its COVID-19 related credit exposures based on asset class and borrower type. No specific credit impairment has been identified within the Company’s investment securities portfolio, including the Company’s municipal securities portfolio since the onset of the pandemic. With respect to the Company’s lending activities, the Company implemented a customer forbearance program to assist both consumer and business borrowers that may be experiencing financial hardship due to COVID-19 related challenges. As of September 30, 2020, the Company had 216 borrowers in forbearance due to COVID-19 related financial hardship, representing $193 million in outstanding loan balances, or 2.6% of total loans outstanding. This compares to 3,699 borrowers in forbearance at June 30, 2020, representing $704 million in outstanding loan balances, or 9.4% of total loans outstanding.

 

 

 

 

Loans in forbearance status continued to accrue interest during the forbearance period unless otherwise classified as nonaccrual. Consistent with industry regulatory guidance, borrowers that were otherwise current on loan payments that were granted COVID-19 related financial hardship payment deferrals were reported as current loans throughout the agreed upon deferral period. Through the end the third quarter, the payment deferrals granted under COVID-19 related forbearance were deemed to be an insignificant borrower concession, and therefore, not classified as troubled-debt restructured loans. Borrowers that were delinquent in their payments to the Bank prior to requesting a COVID-19 related financial hardship payment deferral were reviewed on a case-by-case basis for troubled debt restructure classification and nonperforming loan status.

 

The Company anticipates that the number and amount of COVID-19 financial hardship forbearance agreements will decrease during the fourth quarter of 2020, but also anticipates that delinquent and nonperforming loans will increase in future periods as borrowers that continue to experience COVID-19 related financial hardship will be unable to resume loan payments consistent with their contractual obligations.

 

Dividend Increase

 

During the third quarter of 2020, the Company declared a quarterly cash dividend of $0.42 per share on its common stock, up 2.4% from the $0.41 dividend declared in the third quarter of 2019, representing an annualized yield of 2.9% based upon the $58.92 closing price of the Company’s stock on October 23, 2020. The one cent increase declared in the third quarter of 2020 marked the 28th consecutive year of dividend increases for the Company.

 

COVID-19 Pandemic

 

The COVID-19 crisis is expected to continue to impact the Company’s financial results, as well as demand for its services and products during the remainder of the fourth quarter of 2020 and likely for a significant portion of 2021. The short and long-term implications of the COVID-19 crisis, and related government monetary and fiscal stimulus measures, on the Company’s future operations, revenues, earnings, allowance for credit losses, capital reserves, and liquidity are difficult to fully assess and remain uncertain at this time.

 

Conference Call Scheduled

 

Company management will conduct an investor call at 11:00 a.m. (ET) today, October 26, 2020, to discuss third quarter 2020 results. The conference call can be accessed at 877-317-6789 (1-412-317-6789 if outside United States and Canada). Investors may also listen live via the Internet at: https://www.webcaster4.com/Webcast/Page/995/37701.

 

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

 

About Us

 

Community Bank System, Inc. operates more than 240 customer facilities across Upstate New York, Northeastern Pennsylvania, Vermont, and Western Massachusetts through its banking subsidiary, Community Bank, N.A. With assets of over $13.8 billion, the DeWitt, N.Y. headquartered company is among the country’s 125 largest banking 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 https://ir.communitybanksystem.com.

 

# # #

 

 

 

 

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the current beliefs and expectations of CBU’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. The following factors, among others, could cause the actual results of CBU’s operations to differ materially from its expectations: the macroeconomic and other challenges and uncertainties related to the COVID-19 pandemic, including the negative impacts and disruptions on public health, corporate and consumer customers, the communities CBU serves, and the domestic and global economy, including various actions taken in response by governments, central banks and others, which may have an adverse effect on CBU’s business; current and future economic and market conditions, including the effects of declines in housing prices, high unemployment rates, U.S. fiscal debt, budget and tax matters, geopolitical matters, and any slowdown in global economic growth; fiscal and monetary policies of the Federal Reserve Board; the effect of changes in the level of checking or savings account deposits on CBU’s funding costs and net interest margin; future provisions for credit losses on loans and debt securities; changes in nonperforming assets; the effect of a fall in stock market prices on CBU’s fee income businesses, including its employee benefit services, wealth management, and insurance businesses; the successful integration of operations of its acquisitions; competition; changes in legislation or regulatory requirements; and the timing for receiving regulatory approvals and completing pending transactions. For more information about factors that could cause actual results to differ materially from CBU’s expectations, refer to its reports filed with the Securities and Exchange Commission, including the discussion under “Risk Factors” in the Annual Report on Form 10-K for the year ended December 31, 2019 and Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2020 and June 30, 2020, which have been filed with the Securities and Exchange Commission and available on its website at www.sec.gov. Further, any forward-looking statement speaks only as of the date on which it is made, and CBU undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

 

 

 

 


Summary of Financial Data (unaudited)
       
(Dollars in thousands, except per share data)        
  Quarter Ended Year-to-Date
  September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019
Earnings        
Loan income $79,646 $79,931 $236,931 $227,701
Investment income 17,844 18,716 54,746 57,979
Total interest income 97,490 98,647 291,677 285,680
Interest expense 4,525 7,371 16,707 19,245
Net interest income 92,965 91,276 274,970 266,435
Acquisition-related provision for credit losses 0 0 3,201 0
Provision for credit losses 1,945 1,751 14,112 5,573
Net interest income after provision for credit losses 91,020 89,525 257,657 260,862
Deposit service and other banking fees 15,184 18,003 45,296 52,132
Mortgage banking 3,908 (138) 6,199 276
Wealth management and insurance services 15,420 14,890 45,161 44,008
Employee benefit services 25,159 24,329 74,593 72,170
Gain on sale of investments, net 0 0 0 4,882
Unrealized (loss) gain on equity securities  (12) 10  (30) 28
Total noninterest revenues 59,659 57,094 171,219 173,496
Salaries and employee benefits 57,280 56,061 170,252 163,448
Data processing and communications 12,096 10,675 33,342 30,475
Occupancy and equipment 10,134 9,801 30,627 29,708
Amortization of intangible assets 3,581 3,960 10,772 11,994
Litigation reserve 2,950 0 2,950 0
Acquisition expenses 796 6,061 4,537 7,789
Other 10,129 10,371 29,052 33,343
Total operating expenses 96,966 96,929 281,532 276,757
Income before income taxes 53,713 49,690 147,344 157,601
Income taxes 10,904 10,472 29,153 31,422
Net income $42,809 $39,218 $118,191 $126,179
Basic earnings per share $0.80 $0.76 $2.23 $2.44
Diluted earnings per share $0.79 $0.75 $2.22 $2.41

 

 

 

 

Summary of Financial Data (unaudited)          
(Dollars in thousands, except per share data)          
  2020 2019
  3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr
Earnings          
Loan income $79,646 $78,720 $78,565 $80,509 $79,931
Investment income 17,844 18,472 18,430 19,538 18,716
Total interest income 97,490 97,192 96,995 100,047 98,647
Interest expense 4,525 5,241 6,941 7,307 7,371
Net interest income 92,965 91,951 90,054 92,740 91,276
Acquisition-related provision for credit losses 0 3,201 0 0 0
Provision for credit losses 1,945 6,573 5,594 2,857 1,751
Net interest income after provision for credit losses 91,020 82,177 84,460 89,883 89,525
Deposit service and other banking fees 15,184 12,934 17,178 17,828 18,003
Mortgage banking 3,908 1,375 916 247 (138)
Wealth management and insurance services 15,420 14,549 15,192 14,060 14,890
Employee benefit services 25,159 24,068 25,366 24,997 24,329
Unrealized (loss) gain on equity securities  (12) 12  (30)  (9) 10
Total noninterest revenues 59,659 52,938 58,622 57,123 57,094
Salaries and employee benefits 57,280 54,721 58,251 56,468 56,061
Data processing and communications 12,096 10,833 10,413 10,932 10,675
Occupancy and equipment 10,134 9,754 10,739 10,142 9,801
Amortization of intangible assets 3,581 3,524 3,667 3,962 3,960
Litigation reserve 2,950 0 0 0 0
Acquisition expenses 796 3,372 369 819 6,061
Other 10,129 8,699 10,224 12,946 10,371
Total operating expenses 96,966 90,903 93,663 95,269 96,929
Income before income taxes 53,713 44,212 49,419 51,737 49,690
Income taxes 10,904 8,964 9,285 8,853 10,472
Net income $42,809 $35,248 $40,134 $42,884 $39,218
Basic earnings per share $0.80 $0.67 $0.77 $0.82 $0.76
Diluted earnings per share $0.79 $0.66 $0.76 $0.82 $0.75
Profitability          
Return on assets 1.26% 1.12% 1.41% 1.48% 1.39%
Return on equity 8.13% 7.05% 8.49% 9.19% 8.53%
Return on tangible equity(2) 13.22% 11.60% 14.52% 16.08% 14.92%
Noninterest revenues/operating revenues (FTE)(1) 39.2% 36.6% 39.6% 38.3% 38.6%
Efficiency ratio 58.9% 58.1% 60.4% 60.7% 58.8%
Components of Net Interest Margin (FTE)          
Loan yield 4.23% 4.40% 4.61% 4.67% 4.72%
Cash equivalents yield 0.10% 0.10% 0.90% 1.68% 2.19%
Investment yield 2.31% 2.50% 2.51% 2.70% 2.61%
Earning asset yield 3.28% 3.56% 3.93% 3.99% 4.03%
Interest-bearing deposit rate 0.19% 0.23% 0.34% 0.36% 0.36%
Borrowing rate 1.19% 1.36% 1.70% 1.68% 2.06%
Cost of all interest-bearing funds 0.23% 0.28% 0.40% 0.42% 0.43%
Cost of funds (includes DDA) 0.16% 0.20% 0.30% 0.31% 0.32%
Net interest margin (FTE) 3.12% 3.37% 3.65% 3.71% 3.73%
Fully tax-equivalent adjustment $963 $1,015 $1,032 $1,026 $985

 

 

 


Summary of Financial Data (unaudited)
         
(Dollars in thousands, except per share data)          
  2020 2019
  3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr
Average Balances          
Loans $7,508,895 $7,219,462 $6,876,771 $6,857,977 $6,735,776
Cash equivalents 1,300,981 822,992 114,660 504,858 665,862
Taxable investment securities 2,686,120 2,608,495 2,586,646 2,242,471 1,990,979
Nontaxable investment securities 461,963 454,511 459,340 434,020 413,437
Total interest-earning assets 11,957,959 11,105,460 10,037,417 10,039,326 9,806,054
Total assets 13,543,460 12,652,200 11,487,384 11,472,415 11,229,919
Interest-bearing deposits 7,621,206 7,146,301 6,598,131 6,581,979 6,462,143
Borrowings 291,241 315,934 329,355 325,139 290,967
Total interest-bearing liabilities 7,912,447 7,462,235 6,927,486 6,907,118 6,753,110
Noninterest-bearing deposits 3,312,841 2,964,717 2,458,529 2,519,645 2,458,831
Shareholders' equity 2,095,211 2,009,996 1,902,169 1,851,579 1,824,869
Balance Sheet Data          
Cash and cash equivalents $1,836,521 $1,319,880 $529,336 $205,030 $1,014,042
Investment securities 3,270,063 3,337,459 3,185,381 3,088,343 2,481,742
Loans:          
Business lending 3,433,565 3,455,343 2,789,130 2,775,876 2,779,612
Consumer mortgage 2,410,249 2,428,060 2,424,656 2,430,902 2,405,191
Consumer indirect 1,039,925 1,056,865 1,087,879 1,113,062 1,091,980
Home equity 413,265 418,543 386,583 386,325 389,029
Consumer direct 161,639 169,228 177,844 184,378 187,379
Total loans 7,458,643 7,528,039 6,866,092 6,890,543 6,853,191
Allowance for credit losses 64,962 64,437 55,652 49,911 49,423
Intangible assets, net 850,214 852,761 832,919 836,923 840,685
Other assets 494,846 470,515 450,907 439,367 457,060
Total assets 13,845,325 13,444,217 11,808,983 11,410,295 11,597,297
Deposits:          
   Noninterest-bearing 3,326,517 3,273,921 2,491,720 2,465,902 2,549,395
   Non-maturity interest-bearing 6,830,893 6,600,140 5,899,297 5,592,936 5,672,825
   Time 963,180 972,612 912,965 936,129 946,065
Total deposits 11,120,590 10,846,673 9,303,982 8,994,967 9,168,285
Borrowings 288,448 176,195 208,718 253,758 237,661
Subordinated notes payable 13,735 13,755 13,775 13,795 13,814
Subordinated debt held by unconsolidated subsidiary trusts 77,320 79,382 77,320 77,320 77,320
Accrued interest and other liabilities 246,572 246,897 228,557 215,221 259,796
Total liabilities 11,746,665 11,362,902 9,832,352 9,555,061 9,756,876
Shareholders' equity 2,098,660 2,081,315 1,976,631 1,855,234 1,840,421
Total liabilities and shareholders' equity 13,845,325 13,444,217 11,808,983 11,410,295 11,597,297
Capital          
Tier 1 leverage ratio 10.21% 10.79% 11.10% 10.80% 10.76%
Tangible equity/net tangible assets(2) 9.92% 10.08% 10.78% 10.01% 9.68%
Diluted weighted average common shares O/S 54,159 53,017 52,646 52,522 52,382
Period end common shares outstanding 53,538 53,514 52,031 51,794 51,660
Cash dividends declared per common share $0.42 $0.41 $0.41 $0.41 $0.41
Book value $39.20 $38.89 $37.99 $35.82 $35.63
Tangible book value(2) $24.15 $23.80 $22.84 $20.52 $20.24
Common stock price (end of period) $54.46 $57.02 $58.80 $70.94 $61.69

 

 

Summary of Financial Data (unaudited)          
(Dollars in thousands, except per share data)          
  2020 2019
  3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr
Asset Quality          
Nonaccrual loans $28,756 $20,697 $19,046 $18,835 $23,610
Accruing loans 90+ days delinquent 3,487 6,063 12,736 5,426 5,064
    Total nonperforming loans 32,243 26,760 31,782 24,261 28,674
Other real estate owned (OREO) 1,209 3,186 1,469 1,270 1,258
         Total nonperforming assets 33,452 29,946 33,251 25,531 29,932
Net charge-offs 1,257 910 1,550 2,369 1,638
Allowance for credit losses/loans outstanding 0.87% 0.86% 0.81% 0.72% 0.72%
Nonperforming loans/loans outstanding 0.43% 0.36% 0.46% 0.35% 0.42%
Allowance for credit losses/nonperforming loans 201% 241% 175% 206% 172%
Net charge-offs/average loans 0.07% 0.05% 0.09% 0.14% 0.10%
Delinquent loans/ending loans 0.79% 0.72% 1.11% 0.94% 0.85%
Provision for credit losses/net charge-offs 155% 1,074% 361% 121% 107%
Nonperforming assets/total assets 0.24% 0.22% 0.28% 0.22% 0.26%
Quarterly GAAP to Non-GAAP Reconciliations          
Income statement data          
Pre-tax, pre-provision net revenue          
  Net income (GAAP) $42,809 $35,248 $40,134 $42,884 $39,218
  Income taxes 10,904 8,964 9,285 8,853 10,472
  Income before income taxes 53,713 44,212 49,419 51,737 49,690
  Provision for credit losses 1,945 9,774 5,594 2,857 1,751
    Pre-tax, pre-provision net revenue (non-GAAP) 55,658 53,986 55,013 54,594 51,441
  Acquisition expenses 796 3,372 369 819 6,061
  Unrealized loss (gain) on equity securities  12  (12) 30 9  (10)
  Litigation reserve 2,950 0 0 0 0
    Adjusted pre-tax, pre-provision net revenue (non-GAAP) $59,416 $57,346 $55,412 $55,422 $57,492
           
Pre-tax, pre-provision net revenue per share          
  Diluted earnings per share (GAAP) $0.79 $0.66 $0.76 $0.82 $0.75
  Income taxes 0.20 0.17 0.18 0.17 0.20
  Income before income taxes 0.99 0.83 0.94 0.99 0.95
  Provision for credit losses 0.04 0.19 0.10 0.06 0.03
    Pre-tax, pre-provision net revenue per share (non-GAAP) 1.03 1.02 1.04 1.05 0.98
  Acquisition expenses 0.02 0.06 0.01 0.01 0.12
  Unrealized loss (gain) on equity securities 0.00 0.00 0.00 0.00 0.00
  Litigation reserve 0.05 0.00 0.00 0.00 0.00
    Adjusted pre-tax, pre-provision net revenue per share (non-GAAP) $1.10 $1.08 $1.05 $1.06 $1.10
           
           

 

 

 

Summary of Financial Data (unaudited)          
(Dollars in thousands, except per share data)          
  2020 2019
  3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr
Quarterly GAAP to Non-GAAP Reconciliations          
Income statement data (continued)          
Net income          
  Net income (GAAP) $42,809 $35,248 $40,134 $42,884 $39,218
  Acquisition expenses 796 3,372 369 819 6,061
  Tax effect of acquisition expenses (162) (684) (69) (140) (1,277)
    Subtotal (non-GAAP) 43,443 37,936 40,434 43,563 44,002
  Acquisition-related provision for credit losses 0 3,201 0 0 0
  Tax effect of acquisition-related provision for credit losses 0 (649) 0 0 0
     Subtotal (non-GAAP) 43,443 40,488 40,434 43,563 44,002
  Unrealized loss (gain) on equity securities 12 (12) 30 9 (10)
  Tax effect of unrealized loss (gain) on equity securities (2) 2 (6) (2) 2
    Subtotal (non-GAAP) 43,453 40,478 40,458 43,570 43,994
  Litigation reserve 2,950 0 0 0 0
  Tax effect of litigation reserve (599) 0 0 0 0
    Operating net income (non-GAAP) 45,804 40,478 40,458 43,570 43,994
  Amortization of intangibles 3,581 3,524 3,667 3,962 3,960
  Tax effect of amortization of intangibles  (727)  (714)  (689)  (678)  (835)
    Subtotal (non-GAAP) 48,658 43,288 43,436 46,854 47,119
  Acquired non-impaired loan accretion  (1,326)  (1,365)  (1,465)  (1,898)  (1,637)
  Tax effect of acquired non-impaired loan accretion 269 277 275 325 345
    Adjusted net income (non-GAAP) $47,601 $42,200 $42,246 $45,281 $45,827
           
Return on average assets          
  Adjusted net income (non-GAAP) $47,601 $42,200 $42,246 $45,281 $45,827
  Average total assets 13,543,460 12,652,200 11,487,384 11,472,415 11,229,919
    Adjusted return on average assets (non-GAAP) 1.40% 1.34% 1.48% 1.57% 1.62%
           
Return on average equity          
  Adjusted net income (non-GAAP) $47,601 $42,200 $42,246 $45,281 $45,827
  Average total equity 2,095,211 2,009,996 1,902,169 1,851,579 1,824,869
    Adjusted return on average equity (non-GAAP) 9.04% 8.44% 8.93% 9.70% 9.96%
           

 

 

 

 

Summary of Financial Data (unaudited)          
(Dollars in thousands, except per share data)          
  2020 2019
  3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr
Quarterly GAAP to Non-GAAP Reconciliations          
Income statement data (continued)          
 Earnings per common share          
   Diluted earnings per share (GAAP) $0.79 $0.66 $0.76 $0.82 $0.75
   Acquisition expenses 0.02 0.06 0.01 0.01 0.12
   Tax effect of acquisition expenses 0.00 (0.01) 0.00 0.00 (0.03)
      Subtotal (non-GAAP) 0.81 0.71 0.77 0.83 0.84
   Acquisition-related provision for credit losses 0.00 0.06 0.00 0.00 0.00
   Tax effect of acquisition-related provision for credit losses 0.00 (0.01) 0.00 0.00 0.00
      Subtotal (non-GAAP) 0.81 0.76 0.77 0.83 0.84
   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
      Subtotal (non-GAAP) 0.81 0.76 0.77 0.83 0.84
   Litigation reserve 0.05 0.00 0.00 0.00 0.00
   Tax effect of litigation reserve (0.01) 0.00 0.00 0.00 0.00
      Operating diluted earnings per share (non-GAAP) 0.85 0.76 0.77 0.83 0.84
   Amortization of intangibles 0.07 0.07 0.07 0.07 0.08
   Tax effect of amortization of intangibles (0.01) (0.01) (0.01) (0.01) (0.02)
      Subtotal (non-GAAP) 0.91 0.82 0.83 0.89 0.90
   Acquired non-impaired loan accretion (0.03) (0.03) (0.03) (0.04) (0.03)
   Tax effect of acquired non-impaired loan accretion 0.00 0.01 0.00 0.01 0.01
      Diluted adjusted net earnings per share (non-GAAP) $0.88 $0.80 $0.80 $0.86 $0.88
           
Noninterest operating expenses          
  Noninterest expenses (GAAP) $96,966 $90,903 $93,663 $95,269 $96,929
  Amortization of intangibles  (3,581)  (3,524)  (3,667)  (3,962)  (3,960)
  Acquisition expenses  (796)  (3,372)  (369)  (819)  (6,061)
  Litigation reserve (2,950) 0 0 0 0
     Total adjusted noninterest expenses (non-GAAP) $89,639 $84,007 $89,627 $90,488 $86,908
           
Efficiency ratio          
  Adjusted noninterest expenses (non-GAAP) - numerator $89,639 $84,007 $89,627 $90,488 $86,908
  Tax-equivalent net interest income 93,928 92,966 91,086 93,766 92,261
  Noninterest revenues 59,659 52,938 58,622 57,123 57,094
  Acquired non-impaired loan accretion  (1,326)  (1,365)  (1,465)  (1,898)  (1,637)
  Unrealized loss (gain) on equity securities 12 (12) 30 9 (10)
  Operating revenues (non-GAAP) - denominator 152,273 144,527 148,273 149,000 147,708
     Efficiency ratio (non-GAAP) 58.9% 58.1% 60.4% 60.7% 58.8%

 

 

 

 

Summary of Financial Data (unaudited)          
(Dollars in thousands, except per share data)          
  2020 2019
  3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr
Quarterly GAAP to Non-GAAP Reconciliations          
Balance sheet data          
Total assets          
  Total assets (GAAP) $13,845,325 $13,444,217 $11,808,983 $11,410,295 $11,597,297
  Intangible assets  (850,214)  (852,761)  (832,919)  (836,923)  (840,685)
  Deferred taxes on intangible assets 44,733 45,094 44,494 44,742 46,048
     Total tangible assets (non-GAAP) 13,039,844 12,636,550 11,020,558 10,618,114 10,802,660
           
Total common equity          
  Shareholders' Equity (GAAP) 2,098,660 2,081,315 1,976,631 1,855,234 1,840,421
  Intangible assets  (850,214)  (852,761)  (832,919)  (836,923)  (840,685)
  Deferred taxes on intangible assets 44,733 45,094 44,494 44,742 46,048
     Total tangible common equity (non-GAAP) 1,293,179 1,273,648 1,188,206 1,063,053 1,045,784
           
Net tangible equity-to-assets ratio at quarter end          
  Total tangible common equity (non-GAAP) - numerator $1,293,179 $1,273,648 $1,188,206 $1,063,053 $1,045,784
  Total tangible assets (non-GAAP) - denominator 13,039,844 12,636,550 11,020,558 10,618,114 10,802,660
     Net tangible equity-to-assets ratio at quarter end (non-GAAP) 9.92% 10.08% 10.78% 10.01% 9.68%
           
 
(1) Excludes unrealized gain and loss on equity securities.
(2) Includes deferred tax liabilities related to certain intangible assets.

 

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Section 3: EX-99.2 (EXHIBIT 99.2)

Exhibit 99.2

 

0 Q3 2020 EARNINGS RELEASE SUPPLEMENTAL INFORMATION

 

 

1 This presentation contains forward - looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the current beliefs and expectations of CBU’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward - looking statements. The following factors, among others, could cause the actual results of CBU’s operations to differ materially from its expectation s: the macroeconomic and other challenges and uncertainties related to the COVID - 19 pandemic, including the negative impacts and disruptions on public health, CBU’s corporate and consumer customers, the communities CBU serves, and the domestic and global economy, which may have an adverse effect on CBU’s business; current and future economic and market conditions, including the effects of declines in housing prices, high unemployment rates, U.S. fiscal debt, budget and tax matters, geopolitical matters, and any slowdown in global economic growth; fiscal and monetary policies of the Federal Reserve Board; the effect of changes in the level of checking or savings account deposits on CBU’s funding costs and net interest margin; future provisions for credit losses on loans and debt securities; changes in nonperforming assets; the effec t of a fall in stock market prices on CBU’s fee income businesses, including its employee benefit services, wealth management, and insurance businesses; the successful integration of operations of its acquisitions; competition; changes in legislation or regulatory requirements; and the timing for receiving regulatory approvals and completing pending transactions . For more information about factors that could cause actual results to differ materially from CBU’s expectations, refer to its reports filed with the Securities and Exchange Commission, including the discussion under “Risk Factors” in the Annual Report on Form 10 - K for the year ended December 31, 2019, and Quarterly Reports on Form 10 - Q for the quarterly periods ended March 31, 2020 and June 30, 2020, which have been filed with the Securities and Exchange Commission and available on its website at www.sec.gov. Further, any forward - looking statement speaks only as of the date on which it is made, and CBU undertakes no obligation to update any forward - looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. FORWARD LOOKING STATEMENT (unaudited)

 

 

2 September/October: Phase 5 (Continued Monitoring) Begin PPP forgiveness process Continued monitoring of health data and financial exposure Monitor COVID impacted borrowers July/August: Phase 4 (Monitor) Continue to monitor health data Second round of employees return to office Continue to monitor financial exposure June: Phase 3 (Resume) Branches begin to reopen First round of employees return to office Daily health surveys April/May: Phase 2 (Execute) Assessed return to work protocols Redeployed staff to assist with deferral & PPP efforts Assessed reopening of branch and other offices March: Phase 1 (Assess) Internal task force Modified Company operations Work from home Self quarantine policies Enhanced cleaning COMPANY RESPONSE TO COVID - 19 (unaudited)

 

 

3 $479 $607 $876 $1,198 $1,855 $2,099 7.77% 8.23% 9.29% 10.55% 10.80% 10.21% 5.28% 6.14% 7.68% 9.24% 10.01% 9.92% 0% 2% 4% 6% 8% 10% 12% 14% $0 $500 $1,000 $1,500 $2,000 2007 2010 2013 2016 2019 Q3 2020 $ in Millions Shareholders' Equity Tier I Ratio Tangible Equity/Tangible Assets STRONG CAPITAL POSITION (unaudited) The Company’s capital planning and capital management activities, coupled with its historically strong earnings performance and prudent dividend practices, have allowed it to build and maintain strong capital reserves. At September 30, 2020, all of the Company’s regulatory capital ratios significantly exceed all well - capitalized standards. Note: Tangible Equity and Tangible Assets are non - GAAP measures. Please see the Appendix for details.

 

 

4 Liquidity Sources September 30, 2020 $ in Thousands Cash and Cash Equivalents (net of float) $1,734,498 FHLB Borrowing Capacity $1,651,863 FRB Borrowing Availability $259,449 Investments 1 US Gov’t & Agency $2,149,171 MBS & CMO $575,454 Municipals $473,001 Corporates $4,602 Less: Pledged Securities $(1,955,039) Net Unpledged Securities $1,247,189 Total Liquidity Sources $4,892,999 (1) Includes $ 150 million unrealized gains on securities; excludes municipal qualified school construction bonds, equity securities and other investments STRONG LIQUIDITY POSITION & SOURCES (unaudited)

 

 

5 $57.5 $55.4 $55.4 $57.3 $59.4 $1.10 $1.06 $1.05 $1.08 $1.10 $1.00 $1.02 $1.04 $1.06 $1.08 $1.10 $1.12 $1.14 $48 $50 $52 $54 $56 $58 $60 $62 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 PTPP EPS PTPP Net Revenue, $ in Millions Adjusted pre-tax, pre-provision net revenue Adjusted PTPP EPS SOLID EARNINGS TREND (unaudited) The Company believes that adjusted pre - tax, pre - provision (“PTPP”) net revenue is a valuable metric for measuring relative performance, especially during times of increased provision for credit losses. The Company’s third quarter 2020 adjusted PTPP net revenue per share is equal to the third quarter of 2019. Note: Adjusted pre - tax, pre - provision (“PTPP”) net revenue is a non - GAAP measure. Please see the Appendix for details.

 

 

6 CECL 1 ADOPTION & COVID RELATED RESERVE (unaudited) • In January 2020, the Company adopted ASU No. 2016 - 13, Financial Instruments – Credit Losses, also known as Current Expected Credit Losses (“CECL ”). • Upon the adoption of CECL on January 1, 2020, the Company’s allowance for credit losses increased $1.4 million (“CECL Adoption Impact”), from $49.9 million at December 31, 2019. Following the adoption of CECL, the Company’s Allowance for Credit Losses has increased by $13.7 million, or 26.7%, $3.6 mill ion of which was due to the Steuben acquisition (“Steuben Acquisition”) and $10.1 million (“Q1 - Q3 Reserve Build”) primarily due to credit loss expectations associated with COVID - 19’s adverse impact on economic and business operating conditions. (1) Current Expected Credit Losses (“CECL") (2) Allowance for Credit Losses (“ACL”) ACL 2 Drivers Post CECL Adoption

 

 

7 TRANSACTION AND DIGITAL USER TRENDS (unaudited) Due to the COVID - 19 pandemic, there has been a shift in the transaction channels from branch to digital . 3,500 4,000 4,500 5,000 5,500 6,000 6,500 7,000 400 500 600 700 800 900 1,000 1,100 Jan '19 Feb '19 Mar '19 Apr '19 May '19 June '19 July '19 Aug '19 Sep '19 Jan '20 Feb '20 Mar '20 Apr '20 May '20 June '20 July '20 Aug '20 Sep '20 Debit Card Transactions Thousands Branch Transactions Thousands Branch Transactions Debit Card Transactions

 

 

8 6/30/2020 9/30/2020 Net Reduction in Deferrals Portfolio # of Loans Deferrals % of 6/30/20 Portfolio # of Loans Deferrals % of 9/30/20 Portfolio Business Lending 1,282 $593.3 17.1% 156 $189.2 5.5% $404.1 Consumer Mortgage & Home Equity 909 $85.9 3.1% 42 $3.2 0.1% $82.7 Consumer Installment 1,508 $24.9 2.0% 18 $0.3 0.0% $24.6 Total Deferrals 3,699 $704.1 9.4% 216 $192.7 2.6% $511.4 COVID - 19 LOAN DEFERRAL UPDATE (unaudited) Sector # of Loans Deferrals % of Business Lending Deferrals % of 9/30/20 Business Lending Portfolio Lodging 1 61 $122.3 64.6% 3.5% Retail 2 14 $22.8 12.1% 0.7% Healthcare 8 $16.1 8.5% 0.5% Food Services 3 18 $8.1 4.3% 0.2% All Other Business Sectors 55 $19.9 10.5% 0.6% Total Business Lending Deferrals 156 $189.2 100.0% 5.5% Business Lending Deferral Summary by Sector $ in Millions (1) Lodging excludes RV Parks and Campgrounds (2) Retail excludes Furniture Stores and Grocery Stores but includes loans secured by non - owner - occupied commercial real estate that are secured by retail properties (3) Food Services includes Full & Limited Service Restaurants, Alcoholic Beverage Bars and Snack/Non - Alcoholic Beverage Bars COVID - 19 Loan Deferral Update $ in Millions

 

 

9 • 3,473 Paycheck Protection Program (“PPP”) loans, representing $507 million in customer balances, were outstanding on September 30, 2020 • Loan forgiveness customer portal opened in late September 2020 • No customer loan balances were forgiven prior to September 30, 2020 • At September 30, 2020, the Company’s remaining PPP net deferred loan fees were $11.3 million PAYCHECK PROTECTION PROGRAM (PPP) (unaudited)

 

 

10 COVID - 19 Related Industry Exposure Sorted by Total Exposure excluding PPP Loans; $ in Millions September 30, 2020 NAICS code based loan data “Exposure” includes both the outstanding and available portions of the loan commitment (1) Retail excludes Furniture Stores and Grocery Stores but includes loans secured by non - owner - occupied commercial real estate that are secured by retail properties (2) Lodging excludes RV Parks and Campgrounds (3) Food Services includes Full & Limited Service Restaurants, Alcoholic Beverage Bars and Snack/Non - Alcoholic Beverage Bars (4) Arts, Entertainment, and Recreation excludes Casinos (5) Educational Services excludes Public Elementary and Secondary Schools (6) Transportation excludes General & Specialized Freight Trucking, Freight Transport and Warehousing/Storage Industry Real Estate Secured Non Real Estate Secured Total Loans Outstanding % of Total Loans Outstanding excl. PPP Remaining Availability Total Exposure excl. PPP PPP Loans Total Exposure incl. PPP Retail 1 $271 $58 $329 4.8% $103 $432 $61 $493 Lodging 2 $257 $1 $258 3.7% $8 $266 $9 $275 Manufacturing $61 $89 $150 2.2% $91 $241 $50 $291 Construction $33 $76 $109 1.6% $122 $231 $78 $309 Healthcare & Social Assistance $115 $53 $168 2.4% $42 $210 $75 $285 Furniture Stores $82 $1 $83 1.2% $4 $87 $7 $94 Dairy Farms $36 $12 $48 0.7% $8 $56 $6 $62 Food Services 3 $38 $11 $49 0.7% $6 $55 $32 $87 Arts, Entertainment, & Recreation 4 $35 $6 $41 0.6% $10 $51 $8 $59 Casinos $10 $17 $27 0.4% $12 $39 $0 $39 Educational Services 5 $7 $14 $21 0.3% $14 $35 $12 $47 Transportation 6 $2 $12 $14 0.2% $10 $24 $8 $32 TOTAL EXPOSURE $ 947 $350 $1,297 18.8% $430 $1,727 $346 $2,073 BALANCE SHEET EXPOSURE (unaudited)

 

 

11 Non - Owner Occupied CRE 33% New & Used Car Dealers 18% Auto Parts & Accessories 8% RV, Boat & Other Recreational 5% Building Materials & Garden Supplies 15% Gasoline & Service Stations 6% Miscellaneous Retail 4% Health & Personal Care Stores 4% All Other Retail 7% Motor Vehicles & Parts Dealer 31% • The retail portfolio contains 990 loans representing a total exposure of $431.8 million • Average outstanding balance of $332 thousand and an average exposure of $436 thousand • 17 total loan relationships with a current exposure greater than $5 million • 7 total loan relationships with a current exposure greater than $10 million • $34.6 million in vehicle floor plan loan exposure, $12.1 million outstanding and $22.5 million available • Approximately 7 % of the retail portfolio balance had a loan forbearance agreement in place on September 30 th RETAIL PORTFOLIO (unaudited) Sector # of Loans Outstandin g Balance Remaining Availability Total Exposure Non - Owner Occupied CRE 117 $140.4 $0 $140.4 Motor Vehicle Parts & Dealers 220 $90.7 $42.7 $133.4 Building & Garden Supplies 158 $35.2 $28.8 $64.0 Gasoline & Service Stations 66 $25.5 $2.1 $27.6 Miscellaneous Retail 192 $11.5 $6.9 $18.4 Health & Personal Care 32 $1.3 $16.9 $18.2 All Other Retail 205 $24.4 $5.4 $29.8 Total Retail Sector 990 $329.0 $102.8 $431.8 September 30, 2020 NAICS code based loan data; excludes Paycheck Protection Program (“PPP”) loans “Exposure” includes both the outstanding and available portions of the loan commitment Retail excludes Furniture Stores and Grocery Stores but includes loans secured by non - owner - occupied commercial real estate that are secured by retail properties Retail Portfolio $ in Millions

 

 

12 Franchised 75% Unfranchised 14% Rooming & Boarding Houses 11% Hotels & Motels 89% • The lodging portfolio contains 196 loans representing a total exposure of $266.5 million • Average outstanding balance of $1.3 million and an average exposure of $1.4 million • 13 total loan relationships with a current exposure greater than $5 million • 3 total loan relationships with a current exposure greater than $10 million • Approximately 47% of the lodging portfolio balance had a forbearance agreement in place on September 30 th • Current weighted - average loan - to - value (“LTV”) ratio of the hotels & motels portfolio is less than 55% 1 LODGING PORTFOLIO (unaudited) Sector # of Loans Outstandin g Balance Remaining Availability Total Exposure Hotels & Motels 184 $236.1 $1.3 $237.4 Rooming & Boarding Houses 12 $22.1 $7.0 $29.1 Total Lodging Sector 196 $258.2 $8.3 $266.5 September 30, 2020 NAICS code based loan data; excludes Paycheck Protection Program (“PPP”) loans “Exposure” includes both the outstanding and available portions of the loan commitment Lodging excludes RV Parks and Campgrounds (1) Based on most current available data Lodging Portfolio $ in Millions

 

 

13 Lumber, Wood & Paper Products 32% Plastics, Stone & Metal Products 27% Machinery & Equipment 17% Food & Food Products 15% All Other Manufacturing 9% • The manufacturing portfolio contains 652 loans representing a total exposure of $240.9 million • Average outstanding balance of $229 thousand and an average exposure of $369 thousand • 8 total loan relationships with a current exposure greater than $5 million • 3 total loan relationships with a current exposure greater than $10 million • Approximately 3 % of the manufacturing portfolio balance had a forbearance agreement in place on September 30 th MANUFACTURING PORTFOLIO (unaudited) Sector # of Loans Outstandin g Balance Remaining Availability Total Exposure Lumber, Wood & Paper Products 168 $56.2 $21.4 $77.6 Plastics, Stone & Metal Products 205 $35.5 $28.4 $63.9 Machinery & Equipment 117 $22.6 $18.0 $40.6 Food & Food Products 112 $25.9 $11.2 $37.1 All Other Manufacturing 50 $9.5 $12.2 $21.7 Total Manufacturing Sector 652 $149.7 $91.2 $240.9 September 30, 2020 NAICS code based loan data; excludes Paycheck Protection Program (“PPP”) loans “Exposure” includes both the outstanding and available portions of the loan commitment Manufacturing Portfolio $ in Millions

 

 

14 Highway, Street, and Bridge Construction 19% Nonresidential Building Construction 13% Building Equipment Contractors 13% Utility System Construction 12% Site Preparation Contractors 12% Residential Building Construction 11% Foundation, Structure, and Building Exterior Contractors 11% Other Construction 3% Land Subdivision 3% Building Finishing Contractors 3% All Other Construction 20% • The construction portfolio contains 1,282 loans representing a total exposure of $231.4 million • Average outstanding balance of $85 thousand and an average exposure of $167 thousand • 5 total loan relationships with a current exposure greater than $ 5 million • 2 total loan relationships with a current exposure greater than $10 million • Approximately 1 % of the construction portfolio balance had a forbearance agreement in place on September 30 th CONSTRUCTION PORTFOLIO (unaudited) Sector # of Loans Outstandin g Balance Remaining Availability Total Exposure Highway, Street, and Bridge Construction 67 $18.4 $24.9 $43.3 Nonresidential Building Construction 96 $8.7 $21.7 $30.4 Building Equipment Contractors 226 $10.9 $19.5 $30.4 Utility System Construction 55 $11.4 $16.7 $28.1 Site Preparation Contractors 212 $16.3 $11.5 $27.8 Residential Building Construction 234 $14.8 $11.5 $26.3 All Other Construction 392 $28.5 $16.6 $45.1 Total Construction Sector 1,282 $109.0 $122.4 $231.4 September 30, 2020 NAICS code based loan data; excludes Paycheck Protection Program (“PPP”) loans “Exposure” includes both the outstanding and available portions of the loan commitment Construction Portfolio $ in Millions

 

 

15 Continuing Care, Retirement and Assisted Living Facilities 21% Offices of Physicians 15% Hospitals 12% Individual and Family Services 9% Developmental Disability, Mental Health & Substance Abuse Facilities 8% Offices of Dentists 8% Offices of Other Health Practitioners 6% Child Day Care Services 4% Other Ambulatory Health Care Services 4% Skilled Nursing Facilities 4% Outpatient Care Centers 3% Medical and Diagnostic Laboratories 3% Home Health Care Services 2% Other Social Assistance 1% All Other Healthcare 21% • The healthcare portfolio contains 864 loans representing a total exposure of $210.1 million • Average outstanding balance of $179 thousand and an average exposure of $237 thousand • 7 total loan relationships with a current exposure greater than $ 5 million • 3 total loan relationships with a current exposure greater than $10 million • Approximately 10% of the healthcare portfolio balance had a forbearance agreement in place on September 30 th HEALTHCARE & SOCIAL ASSISTANCE PORTFOLIO (unaudited) Sector # of Loans Outstandin g Balance Remaining Availability Total Exposure Continuing Care, Retirement and Assisted Living Facilities 31 $41.1 $3.3 $44.4 Offices of Physicians 119 $22.8 $9.5 $32.3 Hospitals 8 $24.8 $0.6 $25.4 Individual and Family Services 59 $13.0 $7.1 $20.1 Developmental Disability, Mental Health & Substance Abuse Facilities 238 $8.5 $7.9 $16.4 Offices of Dentists 134 $14.3 $1.6 $15.9 Offices of Other Health Practitioners 90 $10.6 $1.1 $11.7 All Other Healthcare 185 $33.2 $10.7 $43.9 Total Healthcare Sector 864 $168.3 $41.8 $210.1 September 30, 2020 NAICS code based loan data; excludes Paycheck Protection Program (“PPP”) loans “Exposure” includes both the outstanding and available portions of the loan commitment Healthcare & Social Assistance Portfolio $ in Millions

 

 

16 Community Bank System's management uses the term "non - GAAP" financial measures in their analysis of the company's performance and operations. Management believes that these non - GAAP financial measures provide a greater understanding of ongoing operations and enhance comparability of results. These disclosures should not be viewed as a substitute for financia l measures determined in accordance with GAAP, nor are they necessarily comparable to non - GAAP financial measures that may be presented by other companies. The types of non - GAAP financial measures used in this presentation include : • Tangible equity, tangible common equity, tangible assets and tangible book value are non - GAAP financial measures which Community Bank System's management uses to assess the quality of capital and believes that investors may find useful in their analysis, although these metrics are not necessarily comparable to similar non - GAAP financial measures used by other companies. Tangible equity is calculated by excluding the balance of goodwill and other intangible assets from the calculation of total equity and adding back the amount of the deferred tax liability related to tax deductible goodwill. Tangible common equity is calculated by excluding the balance of goodwill and other intangible assets from the calculation of stockholders’ equity and adding back the amount of the deferred tax liability related to tax deductible goodwill. Tangible assets is calculated by excluding the balance of goodwill and other intangible assets from the calculation of total assets an d adding back the amount of the deferred tax liability related to tax deductible goodwill. Tangible book value per share is calculated by dividing tangible common equity by the number of shares outstanding at a point of time. • Operating earnings is a non - GAAP financial measure which Community Bank System believes investors may find useful in their analysis. Operating earnings is calculated by excluding the one - time deferred tax expense benefits of the Tax Cuts and Jobs Act recorded in the fourth quarter of 2017, as well as acquisition - related expenses, net of tax effect, gain on sale of investments, net of tax effect, unrealized gain on equity securities, net of tax effect, the loss on debt extinguishment, net of tax effect, acquisition - related provision for credit losses; net of tax effect and litigation reserve, net of tax effect. • Operating cash flow adds back the amortization of intangibles, net of tax effect and subtracts purchased loan accretion , net of tax effect from Operating Earnings . • Adjusted pre - tax, pre - provision net revenues subtracts the provision for credit losses, acquisition expenses, net gain on sale of investments, unrealized loss (gain) on equity securities and litigation reserve expenses from income before tax. RECONCILIATION OF GAAP AND NON - GAAP (unaudited)

 

 

17 Dollars in thousands, except per share data 2020 Years Ended Dec. 31 ($000s) Q3 YTD 2019 2018 2017 2016 2015 GAAP Earnings per Share $0.79 $2.21 $3.23 $3.24 $3.03 $2.32 $2.19 Operating Earning s per Share $0.85 $2.38 $3.29 $3.23 $2.64 $2.35 $2.31 Net income (GAAP) $42,809 $118,191 $169,063 $168,641 $50,717 $103,812 $91,230 Tax Cuts and Jobs Act deferred impact - - - - (38,010) - - Acquisition expenses, net of tax effect 634 3,622 6,850 (609) 18,309 1,146 4,855 Gain on sale of investments, net of tax effect - - (3,894) - - - - Unrealized (gain) on equity securities, net of tax effect 10 24 (16) (520) - - - Loss on Debt Extinguishment, net of tax effect - - - 252 - - - Acquisition - related provision for credit losses; net of tax effect 2,552 - - - - - Litigation Reserve, net of tax effect 2,351 2,351 - - - - - Operating Earnings 45,804 126,740 172,003 167,764 131,016 104,958 96,085 Amortization of intangibles, net of tax effect 2,854 8,642 12,888 14,375 11,936 3,679 2,528 Subtotal (non - GAAP) 48,658 135,382 184,891 182,139 142,952 108,637 98,613 Acquired non - impaired loan accretion, net of tax effect (1,057) (3,335) (4,988) (6,272) (4,149) (1,926) (1,656) Operating Cash Flow 47,601 132,047 179,903 175,867 138,803 106,711 97,057 Cash Dividends Paid 21,985 64,594 80,241 71,495 62,305 55,048 49,273 Cash Dividend % of Operating Cash Flow 46% 49% 45% 41% 45% 52% 51% CBU FREE CASH FLOW (unaudited)

 

 

18 Dollars in thousands, except per share data Q3 2020 2019 2016 2013 2010 2007 Total assets Total assets (GAAP) $ 13,845,325 $11,410,295 $8,666,437 $7,095,864 $5,444,506 $4,697,502 Intangible assets ( 850,214) (836,923) (480,844) (390,499) (311,714) (256,216) Deferred taxes on intangible assets 44,733 44,742 43,504 32,339 20,765 12,390 Total tangible assets (non - GAAP) 13,039,844 10,618,114 8,229,097 6,737,704 5,153,557 4,453,676 Total common equity Shareholders' Equity (GAAP) 2,098,660 1,855,234 1,198,100 875,812 607,528 478,784 Intangible assets (850,214) (836,923) (480,844) (390,499) (311,714) (256,216) Deferred taxes on intangible assets 44,733 44,742 43,504 32,339 20,765 12,390 Total tangible common equity (non - GAAP) 1,293,179 1,063,053 760,760 517,652 316,579 234,958 Net tangible equity - to - assets ratio at quarter end Total tangible common equity (non - GAAP) - numerator $ 1,293,179 $1,063,053 $760,760 $517,652 $316,579 $234,958 Total tangible assets (non - GAAP) - denominator 13,039,844 10,618,114 8,229,097 6,737,704 5,153,557 4,453,676 Net tangible equity - to - assets ratio at period end (non - GAAP) 9.92% 10.01% 9.24% 7.68% 6.14% 5.28% TANGIBLE EQUITY COMPONENTS (unaudited)

 

 

19 Dollars and shares in thousands, except per share data Q3 2020 Q2 2020 Q1 2020 Q4 2019 Q3 2019 Pre - tax, pre - provision net revenue Net income (GAAP) $42,809 $35,248 $40,134 $42,884 $39,218 Income taxes 10,904 8,964 9,285 8,853 10,472 Income before income taxes 53,713 44,212 49,419 51,737 49,690 Provision for credit losses 1,945 9,774 5,594 2,857 1,751 Pre - tax, pre - provision net revenue (non - GAAP) 55,658 53,986 55,013 54,594 51,441 Acquisition expenses 796 3,372 369 819 6,061 Litigation reserve 2,950 0 0 0 0 Unrealized (gain) loss on equity securities 12 (12) 30 9 (10) Adjusted pre - tax, pre - provision net revenue (non - GAAP) $59,416 $57,346 $55,412 $55,422 $57,492 Pre - tax, pre - provision net revenue per share Diluted earnings per share (GAAP) $0.79 $0.66 $0.76 $0.82 $0.75 Income taxes 0.20 0.17 0.18 0.17 0.20 Income before income taxes 0.99 0.83 0.94 0.99 0.95 Provision for credit losses 0.04 0.19 0.10 0.06 0.03 Pre - tax, pre - provision net revenue per share (non - GAAP) 1.03 1.02 1.04 1.05 0.98 Acquisition expenses 0.02 0.06 0.01 0.01 0.12 Litigation reserve 0.05 0.00 0.00 0.00 0.00 Unrealized (gain) loss on equity securities 0.00 0.00 0.00 0.00 0.00 Adjusted pre - tax, pre - provision net revenue per share (non - GAAP) $1.10 $1.08 $1.05 $1.06 $1.10 PRE - TAX, PRE - PROVISION COMPONENTS (unaudited)

 

 

Investor Relations Contact Mr. Joseph E. Sutaris EVP & Chief Financial Officer [email protected] (315) 445 - 7396

 

 

 

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