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

0000723188 false COMMUNITY BANK SYSTEM, INC. 0000723188 2020-04-19 2020-04-20 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): April 20, 2020

 

ComBankSysInc_2C_cmyk.jpg

(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
incorporation)   No.)

 

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:

 

x 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 April 20, 2020, Community Bank System, Inc. (“Community Bank System”) announced its results of operations for the quarter ended March 31, 2020 and its response to the COVID-19 pandemic. 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 presentation on the COVID-19 Pandemic Response 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 (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 April 20, 2020, issued by Community Bank System, Inc.

 

99.2COVID-19 Pandemic Response Presentation, dated April 20, 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/ Mark E. Tryniski
  Name: Mark E. Tryniski
  Title: President, Chief Executive Officer and Director

 

Dated: April 20, 2020

 

  By: /s/ Joseph E. Sutaris
  Name: Joseph E. Sutaris
  Title: Executive Vice President and Chief Financial Officer

 

Dated: April 20, 2020

 

 

 

 

Exhibit Index

 

Exhibit Number   Description
     
99.1   Press Release, dated April 20, 2020, issued by Community Bank System, Inc.
     
99.2   COVID-19 Pandemic Response Presentation, dated April 20, 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

First Quarter 2020 Results and COVID-19 Pandemic Response

 

SYRACUSE, N.Y. — April 20, 2020 — Community Bank System, Inc. (NYSE: CBU) reported first quarter 2020 net income of $40.1 million, or $0.76 per fully-diluted share. This compares to $41.9 million of net income, or $0.80 per share for the first quarter of 2019. The $0.04 decrease in earnings per share were primarily attributable to increases in the provision for credit losses, operating expenses and fully-diluted shares outstanding, offset in part by increases in net interest income, noninterest revenues and a decrease in income taxes. Comparatively, the Company recorded $0.82 in fully-diluted earnings per share for the linked fourth quarter of 2019. Operating earnings per share, which excludes acquisition expenses, were $0.77 for the first quarter of 2020 as compared to $0.81 the first quarter 2019 and $0.83 in the linked fourth quarter of 2019.

 

“The Company produced solid earnings results in the first quarter in spite of the unprecedented challenges posed by the COVID-19 crisis and related market conditions” said Mark Tryniski, President & CEO. “The Company’s operating earnings per share were down $0.04, as compared to the first quarter of last year due largely to the COVID-19 crisis and its related impacts on the Company’s operations. In particular, the Company recorded $5.6 million in the provision for credit losses in the first quarter of 2020 reflective of expected credit losses related to COVID-19 and the associated rapid decline in economic conditions. The Company recorded net charge-offs in the first quarter of $1.6 million, or 0.09% annualized. In addition, the Company’s net interest income was negatively impacted during the quarter due to the significant and rapid decrease in short term interest rates and tighter margins. Despite these events and challenges, the Company generated $0.77 in operating earnings per share and a 1.41% return on average assets for the quarter. Noninterest revenues in the Company’s financial services businesses were up 6.0%, over the first quarter of last year. Ending total loans were down $24.5 million, or 0.4%, from the end of 2019. Outstanding balances in the business lending segment were up slightly in the quarter, but were offset by a net decrease in outstanding balances in the consumer loan portfolios, as typically experienced in the first quarter. Ending total deposits were up $309.0 million, or 3.4%, as seasonally expected.”

 

Mr. Tryniski added, “As we navigate the COVID-19 crisis, we believe our Company is well-prepared to endure its impacts. The Company has very high levels of capital and liquidity, diversified revenue streams, a strong credit record and an experienced management team. I am very proud of the diligent efforts and steadfast commitment our management team and employees have put forth to maintain operational continuity and high levels of customer service during this crisis. We are concerned about the health and welfare of our employees, customers, shareholders and communities, and are supporting all of our stakeholders throughout this crisis in a thoughtful, disciplined and compassionate manner. We especially appreciate our employees’ efforts in this trying time and we will continue to persevere. In addition, I would like to recognize the contributions of Scott Kingsley, Executive V.P. and Chief Operating Officer, who has decided to retire at the end of the second quarter. Over the last fifteen years, Scott has been an exceptional leader and we are grateful for his service to the Company and its shareholders and wish him well in his retirement.”

 

The Company recorded total revenues of $148.7 million in the first quarter of 2020, an increase of $6.1 million, or 4.3%, over the prior year’s first quarter. Net interest income increased $3.2 million, or 3.7%, to $90.1 million due to a $664.1 million, or 7.1%, increase in average earning assets between the periods, offset, in part by a 15 basis point decrease in net interest margin. The increase in earning assets was driven by both the third quarter 2019 acquisition of Kinderhook Bank Corp. (“Kinderhook”) and organic asset growth between the periods. Noninterest revenues increased $2.9 million, or 5.3%, between comparable quarters due to increases in banking and nonbanking revenues. Banking noninterest revenues increased $0.7 million, or 4.0% due largely to an increase in mortgage banking revenues and incremental deposit and other banking fees related to the third quarter 2019 acquisition of Kinderhook, while revenues in the Company’s financial services businesses increased $2.3 million, or 6.0%, between the comparable quarterly periods.

 

 

 

 

Interest income and fees on loans increased $4.9 million, or 6.6%, over the comparable prior year quarter due to an increase in average total loans outstanding due to both Kinderhook and organic loan growth, offset by a 17 basis point decrease in the average loan yield. As previously reported, the first quarter 2019 average loan yield was favorably impacted by six basis points due to $1.0 million in one-time loan fees. Interest income on investments decreased $0.5 million, or 2.9%, between the first quarter of 2019 and the first quarter of 2020. This included a $0.4 million decrease in interest income on cash equivalents and a $0.1 million decrease in interest income on the investment securities portfolio. The tax-equivalent average yield on investments, including cash equivalents, decreased from 2.58% in the first quarter of 2019 to 2.45% in the first quarter of 2020, reflective of lower market interest rates. The average book value of the investments securities portfolio increased $67.7 million, or 2.3%, between the periods, while the average balance of cash equivalents decreased $6.6 million. Interest expense was $1.1 million higher than the previous year’s first quarter, driven by a four basis point increase in the cost on interest-bearing liabilities and a $446.1 million, or 6.9% increase in average interest-bearing liabilities. The average cost of deposits was 0.25% in the first quarter of 2020, as compared to 0.20% in the first quarter of 2019, reflective of market driven rate increases for deposits between the periods. By comparison, the average cost of deposits during the linked fourth quarter of 2019 was 0.26%.

 

The Company recorded $5.6 million in the provision for credit losses during the first quarter of 2020. The Company recorded loan net charge-offs of $1.6 million during the quarter. During the first quarter of 2019, the Company recorded $2.4 million in the provision for credit losses and recorded loan net charge-offs of $2.6 million. The $3.2 million increase in the provision for credit losses between the periods is largely attributable to an increase in expected credit losses due to the impacts of the COVID-19 crisis. Although the ultimate impact the COVID-19 crisis will have on the Company’s credit losses is unknown and highly uncertain, the Company calculates the Allowance for Credit Losses, pursuant to the Current Expected Credit Loss (“CECL”) accounting standard, adopted January 1, 2020, that incorporates certain current and forward-looking economic and non-economic qualitative factor adjustments to estimate losses for the life of the loan portfolio. This includes forward-looking economic forecasts which distinctly and profoundly changed from stable at the beginning of the first quarter to severely adverse at the end of the first quarter due to the COVID-19 crisis.

 

Employee benefit services revenues for the first quarter of 2020 were $25.4 million. This represents a $1.3 million, or 5.5%, increase over first quarter 2019 revenues. The improvement in revenues was driven by increases in plan administration, actuarial and record-keeping fees, as well as increases in employee benefit trust and transfer agent fees. The Company recorded $8.1 million in insurance services revenues during the first quarter of 2020, a $0.2 million, or 2.5%, increase over first quarter 2019 results, due primarily to an increase in group medical and property and casualty insurance revenues. Wealth management revenues for the first quarter of 2020 were $7.1 million. This compares to wealth management revenues of $6.3 million in the first quarter of 2019. The $0.8 million, or 12.4% increase in wealth management revenues was primarily driven by increases in investment management and trust services revenues. Banking noninterest revenues increased $0.7 million due primarily to an increase in mortgage banking revenues. During the first quarter of 2020, the Company increased its commitment to sell secondary market eligible residential mortgage loans, which drove an increase in mortgage banking revenues from $0.2 million in the first quarter of 2019 to $0.9 million in the first quarter of 2020.

 

The Company recorded $93.7 million in total operating expenses in the first quarter of 2020. This represents a $5.0 million, or 5.7%, increase in operating expenses over the first quarter of 2019. Salaries and employee benefits expense increased $4.9 million between comparable quarters, reflective of the increased payroll costs associated with the third quarter 2019 Kinderhook acquisition, merit-related pay increases, and a $0.7 million increase in employee benefits, including significantly higher medical plan costs. Total data processing and communications expenses increased $1.0 million, or 10.8%, between comparable annual quarters, driven by higher payment processing and telecommunication costs, including incremental costs associated with the Kinderhook acquisition. Occupancy and equipment expenses increased $0.5 million, or 4.4%, between the periods due primarily to the increased costs associated with the Kinderhook acquisition. These increases were partially offset by a $0.5 million, or 11.2%, decrease in intangible asset amortization, as well as a $0.7 million, or 6.4%, decrease in other expenses.

 

The effective tax rate for the first quarter of 2020 was 18.8%, up from 18.5% in the first quarter of 2019. The Company had a significantly lower level of benefit related to stock based compensation activity in the first quarter of 2020, as compared to the first quarter of 2019. Exclusive of stock-based compensation tax benefits, the Company’s effective tax rate was 20.9% in the first quarter of 2020.

 

 

 

 

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, the unrealized gain (loss) on equity securities and net 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 acquisition and other non-recurring activity in its reported results. Diluted adjusted net earnings per share were $0.80 in the first quarter of 2020, compared to $0.85 in the first quarter of 2019, a 5.9% decrease.

 

Financial Position

 

The Company’s total assets at the end of the first quarter were $11.81 billion, as compared to $10.92 billion at the end of the first quarter of 2019, representing an $892.5 million, or 8.2% increase in total assets between periods. The increase in the Company’s total assets was driven by both the Kinderhook acquisition and organic growth. Total deposits increased $684.3 million, or 7.9%, between March 31, 2019 and March 31, 2020, which included $502.6 million of deposits acquired in connection with the Kinderhook acquisition. Average earning assets increased $664.1 million, or 7.1%, over the same period. This included a $603.0 million, or 9.6%, growth in average total loans outstanding, a $67.7 million, or 2.3%, increase in average total investment securities, offset in part by a $6.6 million, or 5.5%, decrease in average outstanding cash equivalents. On a linked quarter basis average earning assets decreased $1.9 million. Although the decrease in average earning assets was not significant on a linked quarter basis, the Company reduced its average balance of cash equivalents by $390.2 million, from $504.9 million in the fourth quarter of 2019, to $114.7 million, in the first quarter of 2020. During the fourth quarter of 2019, the Company purchased $724.1 million of investment securities to reduce its interest rate risk exposure to falling rates. Average deposit balances decreased $45.0 million, or 0.5%, on a linked quarter basis, but ending total deposits increased $309.0 million, or 3.4%, due largely to seasonal trends in public funds deposits as well as growth in core consumer deposits.

 

Ending loans at March 31, 2020 were $6.87 billion. This was down $24.5 million, or 0.4%, from the end of the fourth quarter of 2019, but increased $600.0 million, or 9.6%, when compared to March 31, 2019. During the first quarter of 2020, and consistent with seasonal expectations, outstanding balances in the consumer indirect, consumer direct and consumer mortgage portfolios decreased $38.0 million. This was partially offset, by a $13.3 million increase in the business lending portfolio and a $0.3 million increase in the home equity portfolio.

 

Investment securities totaled $3.2 billion at March 31, 2020. This is up $219.2 million from the end of the first quarter of 2019 and up $97.0 million from December 31, 2019. Due to a precipitous drop in market interest rates during the first quarter, the net unrealized gains on the investment securities portfolio increased to $155.5 million at March 31, 2020. This compares to $33.1 million net unrealized gain at December 31, 2019 and $7.9 million at March 31, 2019. The effective duration of the portfolio was 3.6 years at the end of the first quarter of 2020.

 

Shareholders’ equity of $1.98 billion at March 31, 2020 was $121.4 million, or 6.5%, higher than the fourth quarter of 2019 and $219.5 million, or 12.5%, higher than March 31, 2019. The increase in shareholders’ equity between the periods was primarily driven by strong earnings generation and capital retention over the last four quarters, as well as marked 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. The Company’s net tangible equity to net tangible assets ratio was 10.78% at March 31, 2020, up from 9.83% a year earlier and 10.01% at the end of the fourth quarter of 2019. The Company’s Tier 1 leverage ratio was 11.10% at the end of the first quarter of 2020, down from 11.27% a year earlier and up from 10.80% at December 31, 2019.

 

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 first quarter of 2020. Although the approved stock repurchase program has not been rescinded, management does not anticipate purchasing shares through this program during the second quarter of 2020.

 

 

 

 

 

CECL Adoption and Asset Quality

 

During the first quarter, the Company adopted ASU No. 2016-13, Financial Instruments – Credit Losses, also known as Current Expected Credit Losses (“CECL”). Upon the adoption of CECL, the Company recorded a net cumulative-effect adjustment that increased retained earnings by $0.5 million. This adjustment was the result of a $1.4 million net increase in the allowance for credit losses, from $49.9 million at December 31, 2019 to $51.3 million upon adoption, including a $3.1 million adjustment to loans, partially offset by a $1.2 million increase in other liabilities related to the allowance for off-balance sheet credit exposures. Due largely to the expectation of increased credit losses due to COVID-19’s adverse impact on economic and business operating conditions, the Company’s Allowance for Credit Losses increased an additional $4.4 million, or 8.6%, in the first quarter of 2020. The table below illustrates the Company’s changes in the Allowance for Credit Losses prior to CECL adoption through the end of the first quarter.

 

  Allowance for Loan Losses at 12/31/2019 CECL Adoption Impact Allowance for Credit Losses after Adoption(1) First Quarter 2020 Reserve Build Allowance for Credit Losses at 3/31/2020
Balance $49.9 million +$1.4 million $51.3 million +$4.4 million $55.7 million
% Change n/a +2.7% n/a +8.6% +11.5%

(1) Includes a $3.1 million reclassification for expected losses on purchased credit deteriorated (“PCD”) loans which resulted in an additional $2.1 million for PCD loans from original estimate.

 

The adoption of CECL did not result in the recording of an allowance for credit losses on the Company’s available-for-sale debt securities or its other instruments carried at amortized cost.

 

At March 31, 2020, non-performing loans increased to 0.46% of total loans outstanding. This compares to 0.39% of total loans outstanding at the end of the first quarter of 2019 and 0.35% at the end of the linked fourth quarter of 2019. The increase in nonperforming loans is largely attributable to a single line of credit that matured on December 31, 2019 with a total outstanding balance of $9.9 million. The Company is actively engaging with the borrower to process an extension. Total delinquent loans, which includes nonperforming loans and loans thirty or more days delinquent, to total loans outstanding, were 1.11% at the end of the first quarter of 2020. This compares to 0.88% at the end of the first quarter of 2019 and 0.94% at the end of the linked fourth quarter of 2019. The delinquency status for loans on payment deferment due to COVID-19 financial hardship were reported at March 31, 2020 based on their delinquency status as of March 20, 2020. The Company recorded net charge-offs of $1.6 million, or 0.09% annualized, in the first quarter of 2020. This compares to net charge-offs of $2.6 million, or 0.17% annualized, in the first quarter of 2019. The decrease in net charge-offs between comparable quarters was attributable to a $1.0 million decrease in net charge-offs in the business lending portfolio. The allowance for credit losses to nonperforming loans was 175% at March 31, 2020.

 

Dividend Increase

 

During the first quarter of 2020, the Company declared a quarterly cash dividend of $0.41 per share on its common stock, up 7.9% from the $0.38 dividend declared in the first quarter of 2019, representing an annualized yield of 2.8% based upon the $59.36 closing price of the Company’s stock on April 15, 2020. The three cent increase declared in the third quarter of 2019 marked the 27th consecutive year of dividend increases for the Company.

 

 

 

 

COVID-19 Pandemic

 

In early January 2020, the World Health Organization issued an alert that a coronavirus outbreak was emanating from the Wuhan Province in China. Later in January, the first death related to the coronavirus, identified as COVID-19, occurred in the United States. Over the course of the next several weeks, the outbreak continued to spread to various regions of the World prompting the World Health Organization to declare COVID-19 a global pandemic on March 11, 2020. In the United States, the rapid spread of the COVID-19 virus invoked various Federal and State Authorities to make emergency declarations and issue executive orders to limit the spread of the disease. Measures included restrictions on international and domestic travel, limitations on public gatherings, implementation of social distancing protocols, school closings, orders to shelter in place and mandates to close all non-essential businesses to the public. Concerns about the spread of the disease and its anticipated negative impact on economic activity, severely disrupted both domestic and international financial markets prompting Central Banks around the World to inject significant amounts of monetary stimulus into their economies. In the United States, the Federal Reserve System’s Federal Open Market Committee, swiftly cut the target Federal Funds rate to a range of 0% to 0.25%, including a 50 basis point reduction in the target federal funds rate on March 3, 2020 and an additional 100 basis point reduction on March 15, 2020. In addition, the Federal Reserve rolled out various market support programs to ease the stress on financial markets. The estimated value of the pandemic-related monetary stimulus package provided through the Federal Reserve’s activities was estimated at $4 trillion. In addition, on March 27, 2020, the United States Congress passed the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), which is intended to provide approximately $2.5 trillion of direct support to U.S. citizens and businesses affected by the COVID-19 outbreak.

 

As the COVID-19 events unfolded throughout the first quarter of 2020, the Company implemented various plans, strategies and protocols to protect its employees, maintain services for customers, assure the functional continuity of the Company’s operating systems, controls and processes, and mitigate financial risks posed by changing market conditions. In order to protect its employees and assure workforce continuity and operational redundancy, the Company imposed business travel restrictions, implemented quarantine and work from home protocols and physically separated, to the extent possible, the critical operations site workforce that are unable to work remotely. To limit the risk of virus spread, the Company implemented drive-thru only and by appointment operating protocols for its extensive bank branch network. The Company also maintained active communications with its primary regulatory agencies and critical vendors to assure all mission-critical activities and functions are being performed in line with regulatory expectations and the Company’s service standards.

 

Although there is a high degree of 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 and liquidity, will allow it to successfully endure the negative economic impacts of the crisis. 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 March 31, 2020, all of the Company’s regulatory capital ratios significantly exceeded all well-capitalized standards. More specifically, the Company’s Tier 1 Leverage Ratio, a common measure to evaluate a financial institutions capital strength, was 11.10% at March 31, 2020, which represents over two times the well-capitalized regulatory standard of 5.0%.

 

In addition, management believes the Company’s liquidity position is 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 savings, interest checking and money market deposit accounts with customers that operate, reside or work within its branch footprint. At March 31, 2020, the Company’s cash and cash equivalents balances were $529.3 million and it maintained $260.4 million of availability at the Federal Reserve Bank’s discount window. 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-backed mortgage backed securities. This portfolio not only generates interest income, but also serves as a ready source of liquidity and capital. At March 31, 2020, the Company’s available-for-sale investment securities portfolio totaled $3.142 billion, $1.502 billion of which was unpledged as collateral. Net unrealized gains on the portfolio were $155.3 million. The Bank’s unused borrowing capacity at the Federal Home Loan Bank of New York at March 31, 2020 was $1.826 billion. The Company did not experience significant draws on available working capital lines of credit and home equity lines of credit during the first quarter of 2020 due to the COVID-19 crisis. During the first quarter of 2020, no significant or unusual customer activity was observed that portends unmanageable levels of stress on the Company’s liquidity profile. The Company has also participated in the CARES Act, Paycheck Protection Program, a $350 billion specialized low-interest loan program funded by the U.S. Treasury Department and administered by the U.S. Small Business Administration. The Paycheck Protection Program (“PPP”) provides borrower guarantees for lenders, as well as loan forgiveness incentives for borrowers that utilize the loan proceeds to cover employee compensation-related business operating costs. Through April 15, 2020, the Company has approved 1,395 PPP loans totaling $351.9 million. The Company anticipates high levels of customer utilization of the PPP loan program, but also believes its liquidity resources are more than sufficient to meet the funding requirements of its borrowers.

 

 

 

 

From a credit risk and lending perspective, the Company has taken actions to identify and assess its COVID-19 related credit exposures based on asset class and borrower type. No specific COVID-19 related credit impairment was identified within the Company’s investment securities portfolio, including the Company’s municipal securities portfolio, during the first quarter of 2020. With respect to the Company’s lending activities, the Company implemented a customer payment deferral program to assist both consumer and business borrowers that may be experiencing financial hardship due to COVID-19 related challenges. Through April 15, 2020, the Company granted payment deferral request for up to three months, for 3,274 consumer borrowers and 1,018 business borrowers, representing $587.2 million of the Company’s loan balances. Loans in deferment status will continue to accrue interest during the deferment period unless otherwise classified as nonperforming. Consistent with industry regulatory guidance, borrowers that were otherwise current on loan payments that were granted COVID-19 related financial hardship payment deferrals will continue to be reported as current loans throughout the agreed upon deferral period. These payment deferrals were also deemed to be an insignificant borrower concession, and therefore, not classified as troubled-debt restructured loans during the first quarter. 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 non-performing loan status. In the instances where the Company granted a payment deferral to a delinquent borrower, the borrower’s delinquency status was frozen as of March 20, 2020, and their loans will continue to be reported as delinquent during the deferment period based on their delinquency status as of March 20, 2020. The Company anticipates that the number and amount of COVID-19 financial hardship payment deferral requests will increase significantly during the second quarter of 2020.

 

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 second quarter of 2020 and potentially beyond. The short and long-term implications of the COVID-19 crisis, and related monetary and fiscal stimulus measures, on the Company’s future revenues, earnings results, allowance for credit losses, capital reserves, and liquidity are unknown at this time.

 

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. Based on the Company’s closing stock price on April 15, 2020, the transaction is valued at approximately $102.5 million in Company stock and cash. 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. Steuben currently operates 14 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 Steuben shareholders approved the merger with the Company at its Special Meeting held on March 3, 2020. At this time, the acquisition is scheduled to close during the second quarter of 2020. However, due to the COVID-19 crisis and pending regulatory approval, it is uncertain as to whether or not the effective date of the merger will be postponed.

 

Conference Call Scheduled

 

Company management will conduct an investor call at 11:00 a.m. (ET) today, April 20, 2020, to discuss first 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/995/33999.

 

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: http://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 230 customer facilities across Upstate New York, Northeastern Pennsylvania, Vermont, and Western Massachusetts through its banking subsidiary, Community Bank, N.A. With assets of over $11.8 billion, the DeWitt, N.Y. headquartered company is among the country’s 125 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.

 

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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 effect of the COVID-19 pandemic, including the negative impacts and disruptions on CBU’s colleagues, 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 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, as 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)          
  2020 2019
  1st Qtr 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
Earnings          
Loan income $78,565 $80,509 $79,931 $74,067 $73,703
Investment income 18,430 19,538 18,716 20,285 18,978
Total interest income 96,995 100,047 98,647 94,352 92,681
Interest expense 6,941 7,307 7,371 6,052 5,822
Net interest income 90,054 92,740 91,276 88,300 86,859
Provision for credit losses 5,594 2,857 1,751 1,400 2,422
Net interest income after provision for credit losses 84,460 89,883 89,525 86,900 84,437
Deposit service and other banking fees 17,178 17,828 18,003 16,930 17,199
Mortgage banking 916 247 (138) 213 201
Wealth management and insurance services 15,192 14,060 14,890 14,907 14,211
Employee benefit services 25,366 24,997 24,329 23,787 24,054
Gain on sale of investments, net 0 0 0 4,882 0
Unrealized (loss)gain on equity securities  (30)  (9) 10  (13) 31
Total noninterest revenues 58,622 57,123 57,094 60,706 55,696
Salaries and employee benefits 58,251 56,468 56,061 54,008 53,379
Data processing and communications 10,413 10,932 10,675 10,401 9,399
Occupancy and equipment 10,739 10,142 9,801 9,619 10,288
Amortization of intangible assets 3,667 3,962 3,960 3,904 4,130
Acquisition expenses 369 819 6,061 1,194 534
Other 10,224 12,946 10,371 12,050 10,922
Total operating expenses 93,663 95,269 96,929 91,176 88,652
Income before income taxes 49,419 51,737 49,690 56,430 51,481
Income taxes 9,285 8,853 10,472 11,415 9,535
Net income $40,134 $42,884 $39,218 $45,015 $41,946
Basic earnings per share $0.77 $0.82 $0.76 $0.87 $0.81
Diluted earnings per share $0.76 $0.82 $0.75 $0.86 $0.80
Profitability          
Return on assets 1.41% 1.48% 1.39% 1.68% 1.59%
Return on equity 8.49% 9.19% 8.53% 10.18% 9.85%
Return on tangible equity(2) 14.52% 16.08% 14.92% 17.74% 17.61%
Noninterest revenues/operating revenues (FTE)(1) 39.6% 38.3% 38.6% 38.8% 39.1%
Efficiency ratio 60.4% 60.7% 58.8% 59.8% 59.1%
Components of Net Interest Margin (FTE)          
Loan yield 4.61% 4.67% 4.72% 4.73% 4.78%
Cash equivalents yield 0.90% 1.68% 2.19% 2.37% 2.33%
Investment yield 2.51% 2.70% 2.61% 2.73% 2.59%
Earning asset yield 3.93% 3.99% 4.03% 4.06% 4.05%
Interest-bearing deposit rate 0.34% 0.36% 0.36% 0.30% 0.27%
Borrowing rate 1.70% 1.68% 2.06% 1.87% 1.86%
Cost of all interest-bearing funds 0.40% 0.42% 0.43% 0.37% 0.36%
Cost of funds (includes DDA) 0.30% 0.31% 0.32% 0.28% 0.27%
Net interest margin (FTE) 3.65% 3.71% 3.73% 3.80% 3.80%
Fully tax-equivalent adjustment $1,032 $1,026 $985 $990 $1,008

 

 

 

 

Summary of Financial Data (unaudited)          
(Dollars in thousands, except per share data)          
  2020 2019
  1st Qtr 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
Average Balances          
Loans $6,876,771 $6,857,977 $6,735,776 $6,294,772 $6,273,798
Cash equivalents 114,660 504,858 665,862 334,304 121,304
Taxable investment securities 2,586,646 2,242,471 1,990,979 2,400,516 2,574,902
Nontaxable investment securities 459,340 434,020 413,437 397,316 403,359
Total interest-earning assets 10,037,417 10,039,326 9,806,054 9,426,908 9,373,363
Total assets 11,487,384 11,472,415 11,229,919 10,771,975 10,687,708
Interest-bearing deposits 6,598,131 6,581,979 6,462,143 6,170,832 6,107,732
Borrowings 329,355 325,139 290,967 319,505 373,656
Total interest-bearing liabilities 6,927,486 6,907,118 6,753,110 6,490,337 6,481,388
Noninterest-bearing deposits 2,458,529 2,519,645 2,458,831 2,326,630 2,297,472
Shareholders' equity 1,902,169 1,851,579 1,824,869 1,774,400 1,726,313
Balance Sheet Data          
Cash and cash equivalents $529,336 $205,030 $1,014,042 $874,836 $508,364
Investment securities 3,185,381 3,088,343 2,481,742 2,402,272 2,966,147
Loans:          
Business lending 2,789,130 2,775,876 2,779,612 2,395,684 2,410,477
Consumer mortgage 2,424,656 2,430,902 2,405,191 2,255,782 2,237,430
Consumer indirect 1,087,879 1,113,062 1,091,980 1,082,834 1,070,840
Home equity 386,583 386,325 389,029 371,619 374,297
Consumer direct 177,844 184,378 187,379 178,151 173,042
Total loans 6,866,092 6,890,543 6,853,191 6,284,070 6,266,086
Allowance for credit losses 55,652 49,911 49,423 49,310 49,107
Intangible assets, net 832,919 836,923 840,685 800,515 804,419
Other assets 450,907 439,367 457,060 433,005 420,558
Total assets 11,808,983 11,410,295 11,597,297 10,745,388 10,916,467
Deposits:          
   Noninterest-bearing 2,491,720 2,465,902 2,549,395 2,363,408 2,346,635
   Non-maturity interest-bearing 5,899,297 5,592,936 5,672,825 5,356,448 5,517,141
   Time 912,965 936,129 946,065 768,349 755,886
Total deposits 9,303,982 8,994,967 9,168,285 8,488,205 8,619,662
Borrowings 208,718 253,758 237,661 144,290 251,833
Subordinated notes payable 13,775 13,795 13,814 0 0
Subordinated debt held by unconsolidated subsidiary trusts 77,320 77,320 77,320 97,939 97,939
Accrued interest and other liabilities 228,557 215,221 259,796 205,444 189,905
Total liabilities 9,832,352 9,555,061 9,756,876 8,935,878 9,159,339
Shareholders' equity 1,976,631 1,855,234 1,840,421 1,809,510 1,757,128
Total liabilities and shareholders' equity 11,808,983 11,410,295 11,597,297 10,745,388 10,916,467
Capital          
Tier 1 leverage ratio 11.10% 10.80% 10.76% 11.54% 11.27%
Tangible equity/net tangible assets(2) 10.78% 10.01% 9.68% 10.56% 9.83%
Diluted weighted average common shares O/S 52,646 52,522 52,382 52,356 52,195
Period end common shares outstanding 52,031 51,794 51,660 51,571 51,471
Cash dividends declared per common share $0.41 $0.41 $0.41 $0.38 $0.38
Book value $37.99 $35.82 $35.63 $35.09 $34.14
Tangible book value(2) $22.84 $20.52 $20.24 $20.45 $19.40
Common stock price (end of period) $58.80 $70.94 $61.69 $65.84 $59.77

 

 

 

 

Summary of Financial Data (unaudited)          
(Dollars in thousands, except per share data)          
  2020 2019
  1st Qtr 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
Asset Quality          
Nonaccrual loans $19,046 $18,835 $23,610 $21,413 $21,252
Accruing loans 90+ days delinquent 12,736 5,426 5,064 3,047 3,019
    Total nonperforming loans 31,782 24,261 28,674 24,460 24,271
Other real estate owned (OREO) 1,469 1,270 1,258 1,736 1,524
         Total nonperforming assets 33,251 25,531 29,932 26,196 25,795
Net charge-offs 1,550 2,369 1,638 1,197 2,599
Allowance for credit losses/loans outstanding 0.81% 0.72% 0.72% 0.78% 0.78%
Nonperforming loans/loans outstanding 0.46% 0.35% 0.42% 0.39% 0.39%
Allowance for credit losses/nonperforming loans 175% 206% 172% 202% 202%
Net charge-offs/average loans 0.09% 0.14% 0.10% 0.08% 0.17%
Delinquent loans/ending loans 1.11% 0.94% 0.85% 0.87% 0.88%
Credit loss provision/net charge-offs 361% 121% 107% 117% 93%
Nonperforming assets/total assets 0.28% 0.22% 0.26% 0.24% 0.24%
Asset Quality (excluding loans acquired since 1/1/09)          
Nonaccrual loans $15,369 $15,415 $16,644 $15,529 $15,524
Accruing loans 90+ days delinquent 4,282 2,707 3,734 2,863 2,593
Total nonperforming loans 19,651 18,122 20,378 18,392 18,117
Other real estate owned (OREO) 1,347 1,148 1,258 1,145 898
Total nonperforming assets 20,998 19,270 21,636 19,537 19,015
Net charge-offs 1,531 2,435 1,602 1,234 1,516
Allowance for credit losses/loans outstanding 0.91% 0.87% 0.89% 0.93% 0.94%
Nonperforming loans/loans outstanding 0.36% 0.33% 0.38% 0.36% 0.36%
Allowance for credit losses/nonperforming loans 255% 262% 231% 260% 262%
Net charge-offs/average loans 0.11% 0.18% 0.12% 0.10% 0.12%
Delinquent loans/ending loans 1.02% 0.89% 0.88% 0.89% 0.89%
Credit loss provision/net charge-offs 367% 120% 51% 123% 142%
Nonperforming assets/total assets 0.20% 0.19% 0.22% 0.20% 0.20%

 

 

 

 

Summary of Financial Data (unaudited)          
(Dollars in thousands, except per share data)          
  2020 2019
  1st Qtr 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
Quarterly GAAP to Non-GAAP Reconciliations          
Income statement data          
Net income          
Net income (GAAP) $40,134 $42,884 $39,218 $45,015 $41,946
Acquisition expenses 369 819 6,061 1,194 534
Tax effect of acquisition expenses  (69)  (140)  (1,277)  (242) (99)
Subtotal (non-GAAP) 40,434 43,563 44,002 45,967 42,381
Gain on sale of investments, net 0 0 0  (4,882) 0
Tax effect of gain on sale of investments, net 0 0 0 988 0
Subtotal (non-GAAP) 40,434 43,563 44,002 42,073 42,381
Unrealized loss(gain) on equity securities 30 9 (10) 13 (31)
Tax effect of unrealized loss(gain) on equity securities (6) (2) 2  (3) 6
Operating net income (non-GAAP) 40,458 43,570 43,994 42,083 42,356
Amortization of intangibles 3,667 3,962 3,960 3,904 4,130
Tax effect of amortization of intangibles  (689)  (678)  (835)  (790)  (765)
Subtotal (non-GAAP) 43,436 46,854 47,119 45,197 45,721
Acquired non-impaired loan accretion  (1,465)  (1,898)  (1,637)  (1,302)  (1,330)
Tax effect of acquired non-impaired loan accretion 275 325 345 263 246
Adjusted net income (non-GAAP) $42,246 $45,281 $45,827 $44,158 $44,637
           
Return on average assets          
Adjusted net income (non-GAAP) $42,246 $45,281 $45,827 $44,158 $44,637
Average total assets 11,487,384 11,472,415 11,229,919 10,771,975 10,687,708
Adjusted return on average assets 1.48% 1.57% 1.62% 1.64% 1.69%
           
Return on average equity          
Adjusted net income (non-GAAP) $42,246 $45,281 $45,827 $44,158 $44,637
Average total equity 1,902,169 1,851,579 1,824,869 1,774,400 1,726,313
Adjusted return on average equity 8.93% 9.70% 9.96% 9.98% 10.49%
           
Earnings per common share          
Diluted earnings per share (GAAP) $0.76 $0.82 $0.75 $0.86 $0.80
Acquisition expenses 0.01 0.01 0.12 0.02 0.01
Tax effect of acquisition expenses 0.00 0.00 (0.03) 0.00 0.00
Subtotal (non-GAAP) 0.77 0.83 0.84 0.88 0.81
Gain on sale of investments, net 0.00 0.00 0.00 (0.10) 0.00
Tax effect of gain on sale of investments, net 0.00 0.00 0.00 0.02 0.00
Subtotal (non-GAAP) 0.77 0.83 0.84 0.80 0.81
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) 0.77 0.83 0.84 0.80 0.81
Amortization of intangibles 0.07 0.07 0.08 0.07 0.08
Tax effect of amortization of intangibles (0.01) (0.01) (0.02) (0.02) (0.01)
Subtotal (non-GAAP) 0.83 0.89 0.90 0.85 0.88
Acquired non-impaired loan accretion (0.03) (0.04) (0.03) (0.02) (0.03)
Tax effect of acquired non-impaired loan accretion 0.00 0.01 0.01 0.01 0.00
Diluted adjusted net earnings per share (non-GAAP) $0.80 $0.86 $0.88 $0.84 $0.85
           

 

 

 

 

Summary of Financial Data (unaudited)          
(Dollars in thousands, except per share data)          
  2020 2019
  1st Qtr 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
Quarterly GAAP to Non-GAAP Reconciliations          
Income statement data (continued)          
Noninterest operating expenses          
Noninterest expenses (GAAP) $93,663 $95,269 $96,929 $91,176 $88,652
Amortization of intangibles  (3,667)  (3,962)  (3,960)  (3,904)  (4,130)
Acquisition expenses  (369)  (819)  (6,061)  (1,194) (534)
Total adjusted noninterest expenses (non-GAAP) $89,627 $90,488 $86,908 $86,078 $83,988
           
Efficiency ratio          
Adjusted noninterest expenses (non-GAAP) - numerator $89,627 $90,488 $86,908 $86,078 $83,988
Tax-equivalent net interest income 91,086 93,766 92,261 89,290 87,867
Noninterest revenues 58,622 57,123 57,094 60,706 55,696
Acquired non-impaired loan accretion  (1,465)  (1,898)  (1,637)  (1,302)  (1,330)
Gain on sale of investments, net  0  0  0  (4,882) 0
Unrealized loss(gain) on equity securities 30 9 (10) 13 (31)
Operating revenues (non-GAAP) - denominator 148,273 149,000 147,708 143,825 142,202
Efficiency ratio (non-GAAP) 60.4% 60.7% 58.8% 59.8% 59.1%
           
Balance sheet data          
Total assets          
Total assets (GAAP) $11,808,983 $11,410,295 $11,597,297 $10,745,388 $10,916,467
Intangible assets  (832,919)  (836,923)  (840,685)  (800,515)  (804,419)
Deferred taxes on intangible assets 44,494 44,742 46,048 45,576 45,994
Total tangible assets (non-GAAP) 11,020,558 10,618,114 10,802,660 9,990,449 10,158,042
           
Total common equity          
Shareholders' Equity (GAAP) 1,976,631 1,855,234 1,840,421 1,809,510 1,757,128
Intangible assets  (832,919)  (836,923)  (840,685)  (800,515)  (804,419)
Deferred taxes on intangible assets 44,494 44,742 46,048 45,576 45,994
Total tangible common equity (non-GAAP) 1,188,206 1,063,053 1,045,784 1,054,571 998,703
           
Net tangible equity-to-assets ratio at quarter end          
Total tangible common equity (non-GAAP) - numerator $1,188,206 $1,063,053 $1,045,784 $1,054,571 $998,703
Total tangible assets (non-GAAP) - denominator 11,020,558 10,618,114 10,802,660 9,990,449 10,158,042
Net tangible equity-to-assets ratio at quarter end (non-GAAP) 10.78% 10.01% 9.68% 10.56% 9.83%
           

  

(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.

 

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Section 3: EX-99.2 (EXHIBIT 99.2)

 

Exhibit 99.2

APRIL 2020 COVID - 19 PANDEMIC RESPONSE

 

 

1 FORWARD - LOOKING STATEMENT 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 expectations: the effect of the COVID - 19 pandemic, including the negative impacts and disruptions on CBU’s colleagues, 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 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, as 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.

 

 

2 COVID - 19 VIRUS DEVELOPMENTS The World Health Organization declared COVID - 19 virus to be a global pandemic on March 11, 2020. T he rapid spread of the COVID - 19 virus in the United States invoked various Federal and State Authorities to make emergency declarations and issue executive orders to limit the spread of disease. Concerns about the spread of the disease and its anticipated negative impact on economic activity, severely disrupted both domestic and international financial markets. As the COVID - 19 events unfolded throughout the first quarter of 2020, the Company implemented various plans, strategies and protocols to protect its employees, maintain services for customers, assure the functional continuity of its operating systems, controls and processes, and mitigate financial risks posed by changing market conditions. Although there is a high degree of 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 and liquidity, will allow it to successfully endure the negative economic impacts of the crisis .

 

 

3 COMPANY RESPONSE TO COVID - 19 • Appointed an internal task force comprised of the Company’s management to address both operational and financial risks posed by COVID - 19 • Modified branch operations • Branch lobbies available, but on an appointment only basis • Primarily drive thru transactions • Increased emphasis on digital banking platforms • Implemented physical separation of critical operational workforce for Bank and non - Bank financial services subsidiaries • Expanded paid time off and health benefits for employees • Implemented work from home strategy • The majority of the Company’s non - branch and non - critical operational employees are working remotely • S uspended work related travel • Adopted self - quarantine procedures • Implemented enhanced cleaning protocols • Redeployed staff to critical customer service operations to expedite payment deferral requests and Paycheck Protection Program (PPP) lending efforts

 

 

4 $479 $607 $876 $1,198 $1,855 $1,977 7.77% 8.23% 9.29% 10.55% 10.80% 11.10% 5.28% 6.14% 7.68% 9.24% 10.01% 10.78% 0% 2% 4% 6% 8% 10% 12% 14% $0 $400 $800 $1,200 $1,600 $2,000 2007 2010 2013 2016 2019 Q1 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 March 31, 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.

 

 

5 Liquidity Sources March 31, 2020 $ in Thousands Cash and Cash Equivalents (net of float & reserves) $458,890 FHLB Borrowing Capacity $1,826,357 FRB Borrowing Availability $260,435 Investments 1 US Gov’t & Agency $2,139,079 MBS & CMO (less 5% haircut ) $473,658 Municipals $481,797 Corporates $2,508 Less: Pledged Securities $(1,594,694) Net Unpledged Securities $1,502,348 Total Liquidity Sources $4,048,030 (1) Includes $152 million of unrealized gains on securities; excludes municipal qualified school construction bonds, equity s ecu rities and other investments LIQUIDITY POSITION & SOURCES (unaudited)

 

 

6 4,292 loans representing $587 million in loan balances granted loan payment deferrals (as of April 15, 2020) • The Company anticipates that the number and amount of COVID - 19 financial hardship payment deferral requests will increase significantly during the second quarter of 2020. • Estimated 1,395 Paycheck Protection Program (PPP) loan applications, representing $352 million, have received SBA authorization through April 15, 2020 to provide support to the businesses in our communities Portfolio # of Loans Customer Loan Balances $ in Millions % of P ortfolio Outstandings (as of 3/31/20) Business Lending 1,018 $ 447 16.0% Consumer Mortgage & Home Equity 1,194 $ 106 3.8% Consumer Installment 2,080 $ 34 2.7% Total 4,292 $ 587 8.6% Note: The Company does not have a credit card receivables portfolio CUSTOMER SUPPORT (unaudited)

 

 

7 COVID - 19 Related Industry Exposure $ in Millions March 31, 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) Healthcare excludes Hospitals (4) Arts, Entertainment, and Recreation excludes Casinos (5) Food Services includes Full & Limited Service Restaurants, Alcoholic Beverage Bars and Snack/Non - Alcoholic Beverage Bars (6) Educational Services excludes Public Elementary and Secondary Schools (7) 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 Remaining Availability Total Exposure Retail 1 $168 $93 $261 3.8% $70 $331 Lodging 2 $222 $1 $223 3.3% $19 $242 Manufacturing $62 $95 $157 2.3% $70 $227 Construction $30 $102 $133 1.9% $85 $217 Healthcare 3 $108 $38 $147 2.1% $35 $181 Furniture Stores $89 $3 $91 1.3% $6 $97 Arts, Entertainment & Recreation 4 $35 $7 $42 0.6% $14 $57 Dairy Farms $32 $11 $43 0.6% $4 $47 Food Services 5 $27 $11 $38 0.6% $5 $43 Casinos $10 $20 $29 0.4% $10 $39 Educational Services 6 $7 $12 $19 0.3% $12 $31 Transportation 7 $2 $16 $18 0.3% $8 $26 TOTAL EXPOSURE $ 792 $ 409 $1,201 17.6% $ 338 $1,538 BALANCE SHEET EXPOSURE (unaudited)

 

 

8 (1) CBU loan yields exclude fully tax equivalent (FTE) adjustments (2) Based on March 31, 2020 ending loan balances and interest rates Includes adjustable rate consumer mortgage loans, variable rate consumer home equity lines, variable rate consumer check cred it lines, variable rate business lines of credit and business term loans with periodic rate resets. Excludes fixed rate lines of credit with line exp ira tions within the next 12 months 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 1Q '08 3Q '08 1Q '09 3Q '09 1Q '10 3Q '10 1Q '11 3Q '11 1Q '12 3Q '12 1Q '13 3Q '13 1Q '14 3Q '14 1Q '15 3Q '15 1Q '16 3Q '16 1Q '17 3Q '17 1Q '18 3Q '18 1Q '19 3Q '19 1Q '20 CBU Loan Yields 1 vs. Prime Rate CBU Loan Yields (%) Prime Rate (%) Variable Rate Loans 2 Total Loans Repricing within next 12 months (NTM) Prime Based LIBOR Based Other Rate Based Total Loans Floor Group Total Balance ($ in Millions ) Avg. Rate Total Balance ($ in Millions ) Avg. Rate Total Balance ($ in Millions ) Avg. Rate Total Balance ($ in Millions ) Avg. Rate No Floor $290 4.38% $266 3.71% $73 4.23% $629 4.08% Floor Reached $241 4.41% $8 3.68% $54 4.78% $303 4.46% 0 – 25 bps to Reach Floor $4 4.75% $1 3.36% $7 4.15% $11 4.30% 26 – 50 bps to Reach Floor $3 4.99% $1 3.37% $1 5.39% $5 4.82% 51 – 75 bps to Reach Floor $14 4.24% $12 3.91% $0 4.79% $26 4.10% 76 – 100 bps to Reach Floor $4 4.45% $0 NA $0 4.94% $4 4.48% 101+ bps to Reach Floor $36 5.18% $5 3.57% $6 4.65% $47 4.93% Total Loans Repricing - NTM $ 592 4.44% $293 3.71% $141 4.46% $ 1,025 4.24% % of Total Loans 8.7% 4.3% 2.1% 15.0% LOAN YIELD DATA (unaudited)

 

 

9 FUTURE EXPECTATIONS 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 second quarter of 2020 and potentially beyond. The short and long - term implications of the COVID - 19 crisis, and related monetary and fiscal stimulus measures, on the Company’s future earnings results, allowance for credit losses, capital reserves , and liquidity are unknown at this time.

 

 

10 APPENDIX: TANGIBLE EQUITY COMPONENTS (unaudited ) 2007 2010 2013 2016 2019 Q1 2020 Total assets Total assets (GAAP) $4,697,502 $5,444,506 $7,095,864 $8,666,437 $11,410,295 $11,808,983 Intangible assets (256,216) (311,714) (390,499) (480,844) (836,923) (832,919) Deferred taxes on intangible assets 12,390 20,765 32,339 43,504 44,742 44,494 Total tangible assets (non - GAAP) 4,453,676 5,153,557 6,737,704 8,229,097 10,618,114 11,020,558 Total common equity Shareholders' Equity (GAAP) 478,784 607,528 875,812 1,198,100 1,855,234 1,976,631 Intangible assets (256,216) (311,714) (390,499) (480,844) (836,923) (832,919) Deferred taxes on intangible assets 12,390 20,765 32,339 43,504 44,742 44,494 Total tangible common equity (non - GAAP) 234,958 316,579 517,652 760,760 1,063,053 1,188,206 Net tangible equity - to - assets ratio at quarter end Total tangible common equity (non - GAAP) - numerator $234,958 $316,579 $517,652 $760,760 $1,063,053 $1,188,206 Total tangible assets (non - GAAP) - denominator 4,453,676 5,153,557 6,737,704 8,229,097 10,618,114 11,020,558 Net tangible equity - to - assets ratio at quarter end (non - GAAP) 5.28% 6.14% 7.68% 9.24% 10.01% 10.78%

 

 

APRIL 2020 Investor Relations Contact Mr. Joseph E. Sutaris EVP & Chief Financial Officer [email protected] (315) 445 - 7396

 

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