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

0000723188 false COMMUNITY BANK SYSTEM, INC. 0000723188 2020-07-26 2020-07-27 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): July 27, 2020

 

(Exact name of registrant as specified in its charter)

 

Delaware 001-13695 16-1213679
(State or other jurisdiction of
incorporation)
(Commission File Number) (IRS Employer Identification 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:

 

  ¨ 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 July 27, 2020, Community Bank System, Inc. (“Community Bank System”) announced its results of operations for the quarter ended June 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 July 27, 2020, issued by Community Bank System, Inc.

 

99.2Q2 2020 Earnings Release Supplemental Information Presentation, dated July 27, 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: July 27, 2020

 

 

 

 

Exhibit Index

 

Exhibit Number  Description
    
99.1   Press Release, dated July 27, 2020, issued by Community Bank System, Inc.
    
99.2  Q2 2020 Earnings Release Supplemental Information Presentation, dated July 27, 2020, issued by Community Bank System, Inc.

 

 

(Back To Top)

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 

Second Quarter 2020 Results and COVID-19 Pandemic Update

 

SYRACUSE, N.Y. — July 27, 2020 — Community Bank System, Inc. (NYSE: CBU) reported second quarter 2020 net income of $35.2 million, or $0.66 per fully-diluted share. This compares to $45.0 million of net income, or $0.86 per share for the second quarter of 2019. The $0.20 decrease in earnings per share was driven by an increase in acquisition-related expenses, a higher provision for credit losses, lower noninterest revenues and an increase in fully-diluted shares outstanding. These were offset, in part, by an increase in net interest income and a decrease in income taxes. Comparatively, the Company recorded $0.76 in fully-diluted earnings per share for the linked first quarter of 2020. Operating earnings per share (non-GAAP), which excludes, on an after-tax basis, acquisition expenses, net gain on sale of investments, and the provision for credit losses associated with the Steuben Trust Corporation (“Steuben”) acquisition, were $0.76 for the second quarter of 2020. This compares to operating earnings per share (non-GAAP) of $0.80 for the second quarter of 2019 and $0.77 for the linked first quarter of 2020.

 

Second Quarter 2020 Highlights:

 

vCompleted the acquisition of Steuben Trust Corporation

 

vGAAP EPS of $0.66; Operating EPS (non-GAAP) of $0.76, down $0.04 from the second quarter of 2019

 

vAdjusted Pre-Tax, Pre-Provision Net Revenue per share (non-GAAP) up $0.05 over the second quarter of 2019 and up $0.03 over the linked first quarter of 2020

 

vReturn on assets of 1.12%; Return on assets – adjusted (non-GAAP) of 1.34%

 

vDeposit funding costs of 0.17%, down 8 basis points from 0.25% in the first quarter of 2020

 

vAnnualized net charge-offs of 0.05%

 

vNoninterest revenues represent 36.6% of operating revenues

 

“In spite of the immense challenges posed by the COVID-19 pandemic and related market conditions, the Company’s second quarter was very productive,” said Mark Tryniski, President and CEO. “During the quarter, the Company successfully completed the acquisition of Steuben, funded approximately $500 million of Paycheck Protection Program (“PPP”) loans, processed over 5,000 borrower forbearance requests, reopened the majority of its branch offices to the public, implemented several phases of the Company’s return to work plan, enhanced its mobile banking platform and produced solid earnings. Although GAAP earnings per share were down $0.20, as compared to the same quarter in the prior year, operating earnings per share which excludes acquisition-related expenses and acquisition-related provision for credit losses due to the Steuben merger only decreased $0.04 over the same period in spite of the pandemic’s impact on market conditions, credit loss expectations and the Company’s operations. In addition, the Company booked $6.6 million in non-acquisition related provision for credit losses in the second quarter of 2020 due largely to COVID-related expected losses as compared to $1.4 million recorded during the second quarter of 2019. The Company’s adjusted pre-tax, pre-provision net revenue per share was up $0.05, or 4.9%, over the second quarter of 2019 and up $0.03, or 2.9%, on a linked quarter basis.”

 

 

 

 

Mr. Tryniski added, “As we continue to navigate the COVID-19 crisis, we believe our Company remains well-prepared to withstand its impacts. The Company continues to maintain very high levels of capital and liquidity, diversified revenue streams through its nonbanking businesses, a strong credit record and an experienced management team. Furthermore, I am very proud of the diligent efforts and steadfast commitment our employees have put forth this past quarter to maintain the Company’s operational continuity, provide high levels of customer service across all business lines and close and integrate Steuben, while producing solid operating results during very difficult times. I also would like to acknowledge the considerable effort put forth by the former Steuben employees to successfully integrate the two companies and welcome the former Steuben customers and shareholders to Community Bank. We remain concerned about the health and welfare of our employees, customers, shareholders and communities, and will continue to support all of our stakeholders throughout this crisis in a thoughtful, disciplined and compassionate manner.”

 

The Company recorded total revenues of $144.9 million in the second quarter of 2020, a decrease of $4.1 million, or 2.8%, from the prior year’s second quarter. Excluding net gains on securities of $4.9 million in the second quarter of 2019, total revenues increased $0.8 million, or 0.5%, between comparable quarters. A $3.7 million, or 4.1%, increase in net interest income was partially offset by a $2.8 million, or 16.5%, decrease in banking noninterest revenues. Net interest income increased $3.7 million, or 4.1%, to $92.0 million due to a $1.7 billion, or 17.8%, increase in average earning assets between the periods, offset, in part by a 43 basis point decrease in net interest margin. The increase in earning assets was driven by the third quarter 2019 acquisition of Kinderhook Bank Corp. (“Kinderhook”), larger than anticipated net inflows of funds from government stimulus programs, PPP loan originations and to a lesser extent, the Steuben acquisition in the second quarter of 2020. The 43 basis point decrease in net interest margin was driven by a 50 basis point decrease in tax-equivalent earning asset yields between the periods, partially offset by an eight basis point decrease in the 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 $488.7 million increase in average cash equivalents that currently earn a low yield. Total revenues were down $3.8 million, or 2.5%, on a linked quarter basis. The Company recorded a $4.3 million, or 24.7%, decrease in deposit service revenues and a $1.9 million, or 4.8%, decrease in financial services business revenues between linked quarters, offset, in part, by a $1.9 million, or 2.1%, increase in net interest income and a $0.5 million, or 50.1%, increase in mortgage banking revenues.

 

Interest income and fees on loans increased $4.7 million, or 6.3%, over the comparable prior year quarter due to an increase in average total loans outstanding, offset by a 33 basis point decrease in the average loan yield. The increase in average outstanding loan balances was due to the Kinderhook acquisition in the third quarter of 2019, the Steuben acquisition in the second quarter of 2020, as well as a significant increase in business lending due to $492.4 million of PPP loan originations during the quarter. Interest income on investments, including cash equivalents, decreased $1.8 million, or 8.9%, between the second quarter of 2019 and the second quarter of 2020. The decrease is reflective of lower market interest rates, a significant increase in the proportion of low-yield cash equivalents balances and a $0.8 million decrease in the Company’s Federal Reserve Bank semi-annual dividend payment, offset in part, by a $265.2 million, or 9.5%, increase in the average book value of investments. The tax-equivalent average yield on investments, including cash equivalents, decreased from 2.69% in the second quarter of 2019 to 2.00% in the second quarter of 2020. Interest expense was $0.8 million lower than the previous year’s second quarter, driven by a nine basis point decrease in the cost on interest-bearing liabilities partially offset by a $971.9 million, or 15.0% increase in average interest-bearing liabilities. The average cost of deposits was 0.17% in the second quarter of 2020, as compared to 0.22% in the second quarter of 2019, reflective of market driven rate decreases for deposits between the periods and significant increases in noninterest bearing deposits. By comparison, the average cost of deposits during the linked first quarter of 2020 was 0.25%.

 

The Company recorded $9.8 million in the provision for credit losses during the second quarter of 2020. This was comprised of $3.2 million of acquisition-related provision due to the Steuben transaction, and $6.6 million of provision related to expected credit losses largely due to the COVID-19 pandemic. The Company recorded loan net charge-offs of $0.9 million during the quarter. By comparison, the Company recorded $1.4 million in the provision for credit losses and $1.2 million in net charge-offs during the second quarter of 2019. The $5.2 million increase in the provision for credit losses, exclusive of the acquisition-related provision, between the periods is largely attributable to an increase in expected credit losses due to the ongoing impacts of the COVID-19 crisis. Although the ultimate effect the COVID-19 pandemic will have on the Company’s credit losses is still 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, which 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 end of 2019 to severely adverse during 2020 due primarily to the COVID-19 crisis. On a linked quarter basis, the provision for credit losses, exclusive of the acquisition-related provision, increased $1.0 million, due to weaker economic forecasts and the financial hardship experienced by certain segments of the Company’s loan customers.

 

 

 

 

The Company recorded $52.9 million in noninterest revenues in the second quarter of 2020, as compared to $55.8 million in in the second quarter of 2019, excluding $4.9 million of investment securities gains. This represents a $2.9 million, or 5.2%, decrease in noninterest revenues between the periods; $2.8 million attributable to banking-related noninterest revenues. The significant decrease in banking noninterest revenues was due largely to a decrease in deposit service and other banking revenues, offset, in part, by an increase in mortgage banking revenue. Due to the pandemic and the mandated shutdown of nonessential businesses in the Company’s Northeast markets during the second quarter of 2020, deposit transaction activity dropped precipitously resulting in a decline in the Company’s deposit service revenues. 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 $0.2 million in the second quarter of 2019 to $1.4 million in the second quarter of 2020. Employee benefit services revenues for the second quarter of 2020 were $24.1 million. This represents a $0.3 million, or 1.2%, increase over second quarter 2019 revenues and is attributable to increases in plan administration, recordkeeping and actuarial service fees. The Company recorded $8.2 million in insurance services revenues during the second quarter of 2020, a $0.1 million, or 1.7%, decrease as compared to the second quarter of 2019. Wealth management revenues for the second quarter of 2020 were $6.4 million as compared to $6.6 million in the second quarter of 2019. Noninterest revenues decreased $5.7 million, or 9.7%, on a linked quarter basis. This was driven by a $4.3 million, or 24.7%, decrease in deposit service and other banking revenues, a $1.3 million, or 5.1%, decrease in employee benefits services revenues, and a $0.7 million, or 10.8%, decrease in wealth management revenues, partially offset by a $0.5 million, or 50.1%, increase in mortgage banking revenue and a $0.1 million, or 1.6%, increase in insurance services revenues.

 

The Company recorded $90.9 million in total operating expenses in the second quarter of 2020, as compared to $91.2 million of total operating expenses in the second quarter of 2019, a $0.3 million, or 0.3%, decrease between the comparable annual quarters. Excluding $3.4 million and $1.2 million of acquisition expenses recorded in the second quarters of 2020 and 2019, respectively, operating expenses decreased $2.5 million, or 2.7%, from $90.0 million in the second quarter of 2019 to $87.5 million in the second quarter of 2020. The decrease in operating expenses between the periods was largely attributable to decreased levels of business activities due to the COVID-19 pandemic. Business development and marketing expenses decreased $1.6 million, or 52.1%, between the periods. Other expenses decreased $2.1 million, or 33.6%, driven largely by decreases in employee business expenses. Salaries and employee benefits expenses increased $0.7 million, or 1.3%, but benefitted from a $0.8 million, or 21.0%, decrease in employee medical expenses due to reduced provider utilization. Data processing and communications expenses increased $0.4 million, or 4.1%, while occupancy and equipment expense increased $0.1 million, or 1.4%, and legal and professional fees increased $0.4 million, or 14.1%, between the comparable quarterly periods. Intangible asset amortization expense decreased $0.4 million, or 9.7%, between the periods. Similarly, on a linked-quarter basis, total operating expenses, excluding acquisition expenses, decreased $5.8 million, or 6.2%, primarily due to a $3.6 million, or 6.1%, decrease in salaries and employee benefits, a $1.0 million, or 9.2%, decrease in occupancy and equipment expense and a $1.0 million, or 40.2% decrease in business development and marketing expenses.

 

The effective tax rate for the second quarter of 2020 was 20.3%, up from 20.2% in the second quarter of 2019 and 18.8% in the linked first quarter of 2020. The Company experienced less benefit from stock-based compensation activity in the second quarter of 2020, as compared to the same quarter last year and 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, acquisition-related provision for credit losses, 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, 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 $0.80 in the second quarter of 2020, compared to $0.84 in the second quarter of 2019, a $0.04 per share, or 4.8%, decrease. Adjusted pre-tax, pre-provision net revenue increased to $1.08 per share, up $0.05, or 4.9%, from the second quarter of 2019 and up $0.03, or 2.9%, on a linked quarter basis.

 

 

 

 

Financial Position

 

The Company’s total assets increased to $13.4 billion at June 30, 2020, which represents a $2.7 billion, or 25.1% increase over the last twelve months and a $1.6 billion, or 13.8%, increase over the prior quarter end. The substantial increase in the Company’s total assets over the last twelve months was due to the Kinderhook acquisition in the third quarter of 2019, the Steuben acquisition in the second quarter of 2020 and a significant increase in government stimulus-related deposit funding including PPP lending in the second quarter of 2020. Similarly, average earning assets increased substantially over the prior year, from $9.43 billion in the second quarter of 2019 to $11.11 billion in the second quarter of 2020, a $1.68 billion, or 17.8% increase. This included a $924.7 million, or 14.7%, increase in average total loans outstanding, a $265.2 million, or 9.5%, increase in average total investment securities and a $488.7 million, or 146.2%, increase in average outstanding cash equivalents. On a linked quarter basis, average earning assets increased $1.07 billion, or 10.6%, due largely to large net inflows of government stimulus funds, with average outstanding cash equivalents increasing $708.3 million, or 617.8%. Average loan balances increased $342.7 million, or 5.0%, due primarily to PPP originations and to a lesser extent the June 12, 2020 acquisition of Steuben. Average investment securities balances increased $17.0 million, or 0.6% versus first quarter 2020. Average deposit balances increased $1.61 billion, or 19.0%, between the second quarter of 2019 and the second quarter of 2020 and $1.1 billion, or 11.6%, on a linked quarter basis.

 

Ending loans at June 30, 2020 were $7.53 billion. This was up $661.9 million, or 9.6%, from the end of the first quarter and up $1.24 billion, or 19.8%, when compared to June 30, 2019. During the second quarter 2020, the Company acquired $339.7 million of loans in the Steuben transaction and originated $492.4 million of PPP loans. Exclusive of these activities, the Company’s outstanding loan balances decreased $170.2 million, or 2.5% during the quarter, 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 savings, interest checking and money market deposit accounts with customers that operate, reside or work within its branch footprint. At June 30, 2020, the Company’s cash and cash equivalents balances, net of float and reserves, were $1.25 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-backed mortgage backed securities. At June 30, 2020, the Company’s available-for-sale investment securities portfolio totaled $3.29 billion, $1.62 billion of which was unpledged as collateral. Net unrealized gains on the portfolio were $163.1 million. The Bank’s unused borrowing capacity at the Federal Home Loan Bank of New York at June 30, 2020 was $1.80 billion and it maintained $259.8 million of availability at the Federal Reserve Bank’s discount window. Furthermore, the Company has not experienced significant draws on available working capital lines of credit and home equity lines of credit since the inception of the pandemic.

 

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, 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 and prudent dividend practices, have allowed it to build and maintain strong capital reserves. Shareholders’ equity of $2.08 billion at June 30, 2020 was $104.7 million, or 5.3%, higher than the first quarter of 2020 and $271.8 million, or 15.0%, higher than June 30, 2019. 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 June 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 10.79% at June 30, 2020, which represents over two times the regulatory well-capitalized standard of 5.0%. This compares to 11.54% at the end of the second quarter of 2019 and 11.10% at the end of the first quarter of 2020. The Company’s net tangible equity to net tangible assets ratio was 10.08% at June 30, 2020, down from 10.56% a year earlier and 10.78% at the end of the first quarter of 2020. The decrease in the net tangible equity to net tangible assets ratio and the Tier 1 leverage ratio was due to significant growth in total assets between the comparable periods.

 

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 second quarter of 2020. Although the approved stock repurchase program has not been rescinded, management does not anticipate purchasing shares through this program during the third 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 $13.1 million, or 25.5%, $3.6 million of which was due to the Steuben acquisition, and $9.5 million 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 second quarter.

 

($ in millions) Allowance
for Loan
Losses at
12/31/2019
CECL
Adoption
Impact
First
Quarter
2020
Reserve
Build
Allowance
for Credit
Losses at
3/31/2020
Steuben
Acquisition
Second
Quarter
2020
Reserve
Build
Allowance
for Credit
Losses at
6/30/2020
Balance $49.9 +$1.4 +$4.4 $55.7 $3.6 $5.1 $64.4
% Change from 12/31/2019 n/a +2.7% +8.8%   +7.3% +10.3% +29.1%

 

At June 30, 2020, nonperforming (90+ days past due and non-accruing) loans decreased to 0.36% of total loans outstanding. This compares to 0.39% of total loans outstanding at the end of the second quarter of 2019 and 0.46% at the end of the linked first quarter of 2020. Total delinquent loans, which includes nonperforming loans and loans thirty or more days delinquent, to total loans outstanding, were 0.72% at the end of the second quarter of 2020. This compares to 0.87% at the end of the second quarter of 2019 and 1.11% at the end of the linked first quarter of 2020. The delinquency status for loans on payment deferment due to COVID-19 financial hardship were reported at June 30, 2020 based on their delinquency status at the end of the first quarter, unless subsequent to March 31, 2020, the borrower made all required past due payments to bring the loan to current status. The Company recorded net charge-offs of $0.9 million, or 0.05% annualized, in the second quarter of 2020. This compares to net charge-offs of $1.2 million, or 0.08% annualized, in the second quarter of 2019 and $1.6 million, or 0.09%, in the linked first quarter of 2020. The allowance for credit losses to total loans was 0.86% at June 30, 2020. This compares to 0.81% at March 31, 2020 and 0.78% at June 30, 2019.

 

The Company has participated in both rounds of the 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. As of June 30, 2020, the Company’s business lending portfolio included 3,473 PPP loans with a total balance of $507.2 million. This includes 204 loans with a total balance of $14.8 million acquired in connection with the Steuben acquisition.

 

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 June 30, 2020, the Company had approximately 3,700 borrowers in forbearance due to COVID-19, representing approximately $700 million in outstanding loan balances, or 9.3% of total loans outstanding. Loans in forbearance status continued to accrue interest during the forbearance 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. The payment deferrals granted under forbearance were deemed to be an insignificant borrower concession, and therefore, not classified as troubled-debt restructured loans during the second 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 nonperforming loan status. The Company anticipates that the number and amount of COVID-19 financial hardship forbearance agreements will decrease substantially during the third quarter of 2020.

 

 

 

 

Dividend Increase

 

During the second 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 second quarter of 2019, representing an annualized yield of 2.8% based upon the $59.21 closing price of the Company’s stock on July 24, 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 Operations

 

As the COVID-19 events unfolded throughout the first half 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 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. Late in the second quarter, the Company implemented a return-to-work plan and currently has the majority of its employees working in a traditional office environment. In addition, it re-opened the substantial majority of its customer service facilities to the public.

 

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 remaining two quarters of 2020 and potentially beyond. 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 assess and remain unknown at this time.

 

Steuben Trust Corporation

 

On June 15, 2020, the Company announced that it acquired Steuben and its banking subsidiary, Steuben Trust Company, on June 12, 2020. The Company acquired Steuben for a combination of stock and cash representing total consideration valued at approximately $98.6 million. The acquisition extends the Company’s footprint into two new counties in Western New York State, and enhances the Company’s presence in four Western New York State counties in which it currently operates. In connection with the acquisition, the Company added eleven full-service offices to its branch service network and acquired total deposits of $516.3 million and total loans of $339.7 million.

 

Conference Call Scheduled

 

Company management will conduct an investor call at 11:00 a.m. (ET) today, July 27, 2020, to discuss second 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/995/35311.

 

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 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 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 http://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 Report on Form 10-Q for the quarterly period ended March 31, 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
  June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019
Earnings        
Loan income $78,720 $74,067 $157,285 $147,770
Investment income 18,472 20,285 36,902 39,263
Total interest income 97,192 94,352 194,187 187,033
Interest expense 5,241 6,052 12,182 11,874
Net interest income 91,951 88,300 182,005 175,159
Acquisition-related provision for credit losses 3,201 0 3,201 0
Provision for credit losses 6,573 1,400 12,167 3,822
Net interest income after provision for credit losses 82,177 86,900 166,637 171,337
Deposit service and other banking fees 12,934 16,930 30,112 34,129
Mortgage banking 1,375 213 2,291 414
Wealth management and insurance services 14,549 14,907 29,741 29,118
Employee benefit services 24,068 23,787 49,434 47,841
Gain on sale of investments, net 0 4,882 0 4,882
Unrealized gain (loss) on equity securities 12  (13) (18) 18
Total noninterest revenues 52,938 60,706 111,560 116,402
Salaries and employee benefits 54,721 54,008 112,972 107,387
Data processing and communications 10,833 10,401 21,246 19,800
Occupancy and equipment 9,754 9,619 20,493 19,907
Amortization of intangible assets 3,524 3,904 7,191 8,034
Acquisition expenses 3,372 1,194 3,741 1,728
Other 8,699 12,050 18,923 22,972
Total operating expenses 90,903 91,176 184,566 179,828
Income before income taxes 44,212 56,430 93,631 107,911
Income taxes 8,964 11,415 18,249 20,950
Net income $35,248 $45,015 $75,382 $86,961
Basic earnings per share $0.67 $0.87 $1.44 $1.68
Diluted earnings per share $0.66 $0.86 $1.43 $1.66

 

 

 

 

Summary of Financial Data (unaudited)          
(Dollars in thousands, except per share data)          
  2020 2019
  2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr
Earnings          
Loan income $78,720 $78,565 $80,509 $79,931 $74,067
Investment income 18,472 18,430 19,538 18,716 20,285
Total interest income 97,192 96,995 100,047 98,647 94,352
Interest expense 5,241 6,941 7,307 7,371 6,052
Net interest income 91,951 90,054 92,740 91,276 88,300
Acquisition-related provision for credit losses 3,201 0 0 0 0
Provision for credit losses 6,573 5,594 2,857 1,751 1,400
Net interest income after provision for credit losses 82,177 84,460 89,883 89,525 86,900
Deposit service and other banking fees 12,934 17,178 17,828 18,003 16,930
Mortgage banking 1,375 916 247 (138) 213
Wealth management and insurance services 14,549 15,192 14,060 14,890 14,907
Employee benefit services 24,068 25,366 24,997 24,329 23,787
Gain on sale of investments, net 0 0 0 0 4,882
Unrealized gain (loss) on equity securities 12  (30)  (9) 10  (13)
Total noninterest revenues 52,938 58,622 57,123 57,094 60,706
Salaries and employee benefits 54,721 58,251 56,468 56,061 54,008
Data processing and communications 10,833 10,413 10,932 10,675 10,401
Occupancy and equipment 9,754 10,739 10,142 9,801 9,619
Amortization of intangible assets 3,524 3,667 3,962 3,960 3,904
Acquisition expenses 3,372 369 819 6,061 1,194
Other 8,699 10,224 12,946 10,371 12,050
Total operating expenses 90,903 93,663 95,269 96,929 91,176
Income before income taxes 44,212 49,419 51,737 49,690 56,430
Income taxes 8,964 9,285 8,853 10,472 11,415
Net income $35,248 $40,134 $42,884 $39,218 $45,015
Basic earnings per share $0.67 $0.77 $0.82 $0.76 $0.87
Diluted earnings per share $0.66 $0.76 $0.82 $0.75 $0.86
Profitability          
Return on assets 1.12% 1.41% 1.48% 1.39% 1.68%
Return on equity 7.05% 8.49% 9.19% 8.53% 10.18%
Return on tangible equity(2) 11.60% 14.52% 16.08% 14.92% 17.74%
Noninterest revenues/operating revenues (FTE)(1) 36.6% 39.6% 38.3% 38.6% 38.8%
Efficiency ratio 58.1% 60.4% 60.7% 58.8% 59.8%
Components of Net Interest Margin (FTE)          
Loan yield 4.40% 4.61% 4.67% 4.72% 4.73%
Cash equivalents yield 0.10% 0.90% 1.68% 2.19% 2.37%
Investment yield 2.50% 2.51% 2.70% 2.61% 2.73%
Earning asset yield 3.56% 3.93% 3.99% 4.03% 4.06%
Interest-bearing deposit rate 0.23% 0.34% 0.36% 0.36% 0.30%
Borrowing rate 1.36% 1.70% 1.68% 2.06% 1.87%
Cost of all interest-bearing funds 0.28% 0.40% 0.42% 0.43% 0.37%
Cost of funds (includes DDA) 0.20% 0.30% 0.31% 0.32% 0.28%
Net interest margin (FTE) 3.37% 3.65% 3.71% 3.73% 3.80%
Fully tax-equivalent adjustment $1,015 $1,032 $1,026 $985 $990

 

 

 

 

Summary of Financial Data (unaudited)          
(Dollars in thousands, except per share data)          
 

2020

2019
  2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr
Average Balances          
Loans $7,219,462 $6,876,771 $6,857,977 $6,735,776 $6,294,772
Cash equivalents 822,992 114,660 504,858 665,862 334,304
Taxable investment securities 2,608,495 2,586,646 2,242,471 1,990,979 2,400,516
Nontaxable investment securities 454,511 459,340 434,020 413,437 397,316
Total interest-earning assets 11,105,460 10,037,417 10,039,326 9,806,054 9,426,908
Total assets 12,652,200 11,487,384 11,472,415 11,229,919 10,771,975
Interest-bearing deposits 7,146,301 6,598,131 6,581,979 6,462,143 6,170,832
Borrowings 315,934 329,355 325,139 290,967 319,505
Total interest-bearing liabilities 7,462,235 6,927,486 6,907,118 6,753,110 6,490,337
Noninterest-bearing deposits 2,964,717 2,458,529 2,519,645 2,458,831 2,326,630
Shareholders' equity 2,009,996 1,902,169 1,851,579 1,824,869 1,774,400
Balance Sheet Data          
Cash and cash equivalents $1,319,880 $529,336 $205,030 $1,014,042 $874,836
Investment securities 3,337,459 3,185,381 3,088,343 2,481,742 2,402,272
Loans:          
Business lending 3,455,343 2,789,130 2,775,876 2,779,612 2,395,684
Consumer mortgage 2,428,060 2,424,656 2,430,902 2,405,191 2,255,782
Consumer indirect 1,056,865 1,087,879 1,113,062 1,091,980 1,082,834
Home equity 418,543 386,583 386,325 389,029 371,619
Consumer direct 169,228 177,844 184,378 187,379 178,151
Total loans 7,528,039 6,866,092 6,890,543 6,853,191 6,284,070
Allowance for credit losses 64,437 55,652 49,911 49,423 49,310
Intangible assets, net 852,761 832,919 836,923 840,685 800,515
Other assets 470,515 450,907 439,367 457,060 433,005
Total assets 13,444,217 11,808,983 11,410,295 11,597,297 10,745,388
Deposits:          
Noninterest-bearing 3,273,921 2,491,720 2,465,902 2,549,395 2,363,408
Non-maturity interest-bearing 6,600,140 5,899,297 5,592,936 5,672,825 5,356,448
Time 972,612 912,965 936,129 946,065 768,349
Total deposits 10,846,673 9,303,982 8,994,967 9,168,285 8,488,205
Borrowings 176,195 208,718 253,758 237,661 144,290
Subordinated notes payable 13,755 13,775 13,795 13,814 0
Subordinated debt held by unconsolidated subsidiary trusts 79,382 77,320 77,320 77,320 97,939
Accrued interest and other liabilities 246,897 228,557 215,221 259,796 205,444
Total liabilities 11,362,902 9,832,352 9,555,061 9,756,876 8,935,878
Shareholders' equity 2,081,315 1,976,631 1,855,234 1,840,421 1,809,510
Total liabilities and shareholders' equity 13,444,217 11,808,983 11,410,295 11,597,297 10,745,388
Capital          
Tier 1 leverage ratio 10.79% 11.10% 10.80% 10.76% 11.54%
Tangible equity/net tangible assets(2) 10.08% 10.78% 10.01% 9.68% 10.56%
Diluted weighted average common shares O/S 53,017 52,646 52,522 52,382 52,356
Period end common shares outstanding 53,514 52,031 51,794 51,660 51,571
Cash dividends declared per common share $0.41 $0.41 $0.41 $0.41 $0.38
Book value $38.89 $37.99 $35.82 $35.63 $35.09
Tangible book value(2) $23.80 $22.84 $20.52 $20.24 $20.45
Common stock price (end of period) $57.02 $58.80 $70.94 $61.69 $65.84

 

 

 

 

 

Summary of Financial Data (unaudited)          
(Dollars in thousands, except per share data)          
  2020 2019
  2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr
Asset Quality          
Nonaccrual loans $20,697 $19,046 $18,835 $23,610 $21,413
Accruing loans 90+ days delinquent 6,063 12,736 5,426 5,064 3,047
Total nonperforming loans 26,760 31,782 24,261 28,674 24,460
Other real estate owned (OREO) 3,186 1,469 1,270 1,258 1,736
Total nonperforming assets 29,946 33,251 25,531 29,932 26,196
Net charge-offs 910 1,550 2,369 1,638 1,197
Allowance for credit losses/loans outstanding 0.86% 0.81% 0.72% 0.72% 0.78%
Nonperforming loans/loans outstanding 0.36% 0.46% 0.35% 0.42% 0.39%
Allowance for credit losses/nonperforming loans 241% 175% 206% 172% 202%
Net charge-offs/average loans 0.05% 0.09% 0.14% 0.10% 0.08%
Delinquent loans/ending loans 0.72% 1.11% 0.94% 0.85% 0.87%
Provision for credit losses/net charge-offs 1,074% 361% 121% 107% 117%
Nonperforming assets/total assets 0.22% 0.28% 0.22% 0.26% 0.24%
Quarterly GAAP to Non-GAAP Reconciliations          
Income statement data          
Pre-tax, pre-provision net revenue          
Net income (GAAP) $35,248 $40,134 $42,884 $39,218 $45,015
Income taxes 8,964 9,285 8,853 10,472 11,415
Income before income taxes 44,212 49,419 51,737 49,690 56,430
Provision for credit losses 9,774 5,594 2,857 1,751 1,400
Pre-tax, pre-provision net revenue (non-GAAP) 53,986 55,013 54,594 51,441 57,830
Acquisition expenses 3,372 369 819 6,061 1,194
Gain on sale of investments, net 0 0 0 0  (4,882)
Unrealized (gain) loss on equity securities  (12) 30 9  (10) 13
Adjusted pre-tax, pre-provision net revenue (non-GAAP) $57,346 $55,412 $55,422 $57,492 $54,155
           
Pre-tax, pre-provision net revenue per share          
Diluted earnings per share (GAAP) $0.66 $0.76 $0.82 $0.75 $0.86
Income taxes 0.17 0.18 0.17 0.20 0.22
Income before income taxes 0.83 0.94 0.99 0.95 1.08
Provision for credit losses 0.19 0.10 0.06 0.03 0.03
Pre-tax, pre-provision net revenue per share (non-GAAP) 1.02 1.04 1.05 0.98 1.11
Acquisition expenses 0.06 0.01 0.01 0.12 0.02
Gain on sale of investments, net 0.00 0.00 0.00 0.00 (0.10)
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) $1.08 $1.05 $1.06 $1.10 $1.03
           

 

 

 

 

Summary of Financial Data (unaudited)          
(Dollars in thousands, except per share data)          
  2020 2019
  2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr
Quarterly GAAP to Non-GAAP Reconciliations          
Income statement data (continued)          
Net income          
Net income (GAAP) $35,248 $40,134 $42,884 $39,218 $45,015
Acquisition expenses 3,372 369 819 6,061 1,194
Tax effect of acquisition expenses (684) (69) (140) (1,277) (242)
Subtotal (non-GAAP) 37,936 40,434 43,563 44,002 45,967
Acquisition-related provision for credit losses 3,201 0 0 0 0
Tax effect of acquisition-related provision for credit losses (649) 0 0 0 0
Subtotal (non-GAAP) 40,488 40,434 43,563 44,002 45,967
Gain on sale of investments, net 0 0 0 0 (4,882)
Tax effect of gain on sale of investments, net 0 0 0 0 988
Subtotal (non-GAAP) 40,488 40,434 43,563 44,002 42,073
Unrealized (gain) loss on equity securities (12) 30 9 (10) 13
Tax effect of unrealized (gain) loss on equity securities 2 (6) (2) 2 (3)
Operating net income (non-GAAP) 40,478 40,458 43,570 43,994 42,083
Amortization of intangibles 3,524 3,667 3,962 3,960 3,904
Tax effect of amortization of intangibles  (714)  (689)  (678)  (835)  (790)
Subtotal (non-GAAP) 43,288 43,436 46,854 47,119 45,197
Acquired non-impaired loan accretion  (1,365)  (1,465)  (1,898)  (1,637)  (1,302)
Tax effect of acquired non-impaired loan accretion 277 275 325 345 263
Adjusted net income (non-GAAP) $42,200 $42,246 $45,281 $45,827 $44,158
           
Return on average assets          
Adjusted net income (non-GAAP) $42,200 $42,246 $45,281 $45,827 $44,158
Average total assets 12,652,200 11,487,384 11,472,415 11,229,919 10,771,975
Adjusted return on average assets (non-GAAP) 1.34% 1.48% 1.57% 1.62% 1.64%
           
Return on average equity          
Adjusted net income (non-GAAP) $42,200 $42,246 $45,281 $45,827 $44,158
Average total equity 2,009,996 1,902,169 1,851,579 1,824,869 1,774,400
Adjusted return on average equity (non-GAAP) 8.44% 8.93% 9.70% 9.96% 9.98%
           

 

 

 

 

Summary of Financial Data (unaudited)          
(Dollars in thousands, except per share data)          
  2020 2019
  2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr
Quarterly GAAP to Non-GAAP Reconciliations          
Income statement data (continued)          
Earnings per common share          
Diluted earnings per share (GAAP) $0.66 $0.76 $0.82 $0.75 $0.86
Acquisition expenses 0.06 0.01 0.01 0.12 0.02
Tax effect of acquisition expenses (0.01) 0.00 0.00 (0.03) 0.00
Subtotal (non-GAAP) 0.71 0.77 0.83 0.84 0.88
Acquisition-related provision for credit losses 0.06 0.00 0.00 0.00 0.00
Tax effect of acquisition-related provision for credit losses (0.01) 0.00 0.00 0.00 0.00
Subtotal (non-GAAP) 0.76 0.77 0.83 0.84 0.88
Gain on sale of investments, net 0.00 0.00 0.00 0.00 (0.10)
Tax effect of gain on sale of investments, net 0.00 0.00 0.00 0.00 0.02
Subtotal (non-GAAP) 0.76 0.77 0.83 0.84 0.80
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) 0.76 0.77 0.83 0.84 0.80
Amortization of intangibles 0.07 0.07 0.07 0.08 0.07
Tax effect of amortization of intangibles (0.01) (0.01) (0.01) (0.02) (0.02)
Subtotal (non-GAAP) 0.82 0.83 0.89 0.90 0.85
Acquired non-impaired loan accretion (0.03) (0.03) (0.04) (0.03) (0.02)
Tax effect of acquired non-impaired loan accretion 0.01 0.00 0.01 0.01 0.01
Diluted adjusted net earnings per share (non-GAAP) $0.80 $0.80 $0.86 $0.88 $0.84
           
Noninterest operating expenses          
Noninterest expenses (GAAP) $90,903 $93,663 $95,269 $96,929 $91,176
Amortization of intangibles  (3,524)  (3,667)  (3,962)  (3,960)  (3,904)
Acquisition expenses  (3,372)  (369)  (819)  (6,061)  (1,194)
Total adjusted noninterest expenses (non-GAAP) $84,007 $89,627 $90,488 $86,908 $86,078
           
Efficiency ratio          
Adjusted noninterest expenses (non-GAAP) - numerator $84,007 $89,627 $90,488 $86,908 $86,078
Tax-equivalent net interest income 92,966 91,086 93,766 92,261 89,290
Noninterest revenues 52,938 58,622 57,123 57,094 60,706
Acquired non-impaired loan accretion  (1,365)  (1,465)  (1,898)  (1,637)  (1,302)
Gain on sale of investments, net  0  0  0  0  (4,882)
Unrealized (gain) loss on equity securities (12) 30 9 (10) 13
Operating revenues (non-GAAP) - denominator 144,527 148,273 149,000 147,708 143,825
Efficiency ratio (non-GAAP) 58.1% 60.4% 60.7% 58.8% 59.8%

 

 

 

 

Summary of Financial Data (unaudited)          
(Dollars in thousands, except per share data)          
  2020 2019
  2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr
Quarterly GAAP to Non-GAAP Reconciliations          
Balance sheet data          
Total assets          
Total assets (GAAP) $13,444,217 $11,808,983 $11,410,295 $11,597,297 $10,745,388
Intangible assets  (852,761)  (832,919)  (836,923)  (840,685)  (800,515)
Deferred taxes on intangible assets 45,094 44,494 44,742 46,048 45,576
Total tangible assets (non-GAAP) 12,636,550 11,020,558 10,618,114 10,802,660 9,990,449
           
Total common equity          
Shareholders' Equity (GAAP) 2,081,315 1,976,631 1,855,234 1,840,421 1,809,510
Intangible assets  (852,761)  (832,919)  (836,923)  (840,685)  (800,515)
Deferred taxes on intangible assets 45,094 44,494 44,742 46,048 45,576
Total tangible common equity (non-GAAP) 1,273,648 1,188,206 1,063,053 1,045,784 1,054,571
           
Net tangible equity-to-assets ratio at quarter end          
Total tangible common equity (non-GAAP) - numerator $1,273,648 $1,188,206 $1,063,053 $1,045,784 $1,054,571
Total tangible assets (non-GAAP) - denominator 12,636,550 11,020,558 10,618,114 10,802,660 9,990,449
Net tangible equity-to-assets ratio at quarter end (non-GAAP) 10.08% 10.78% 10.01% 9.68% 10.56%
           

 

(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

 

0 Q2 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 Report on Form 10 - Q for the quarterly period ended March 31, 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 July: 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 $2,081 7.77% 8.23% 9.29% 10.55% 10.80% 10.79% 5.28% 6.14% 7.68% 9.24% 10.01% 10.08% 0% 2% 4% 6% 8% 10% 12% 14% $0 $500 $1,000 $1,500 $2,000 2007 2010 2013 2016 2019 Q2 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 June 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 June 30, 2020 $ in Thousands Cash and Cash Equivalents (net of float & reserves) $1,246,660 FHLB Borrowing Capacity $1,801,415 FRB Borrowing Availability $259,773 Investments 1 US Gov’t & Agency $2,172,303 MBS & CMO $564,804 Municipals $501,774 Corporates $4,577 Less: Pledged Securities $(1,622,141) Net Unpledged Securities $1,621,317 Total Liquidity Sources $4,929,165 (1) Includes $159 million unrealized gains on securities and haircuts on certain thinly traded securities; excludes municipal qualified sc hoo l construction bonds, equity securities and other investments LIQUIDITY POSITION & SOURCES (unaudited)

   

 

5 $54.2 $57.5 $55.4 $55.4 $57.3 $1.03 $1.10 $1.06 $1.05 $1.08 $1.00 $1.02 $1.04 $1.06 $1.08 $1.10 $1.12 $45 $47 $49 $51 $53 $55 $57 $59 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 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 second quarter 2020 adjusted PTPP net revenue per share was up $0.05 or 4.9% over the second 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 ”). • “Q1 Reserve Build” ($4.4 million) was largely due to the expectation of increased credit losses due to COVID - 19’s adverse impact on economic and business operating conditions. • On June 12, 2020, the Company acquired the former Steuben Trust Corporation. In connection with the acquisition the Company r eco rded a $3.6 million increase in the Allowance for Credit Losses, including $3.2 million in the provision for credit losses due to th e a cquisition of non - purchased credit deteriorated loans. • “Q2 Reserve Build” ($5.1 million) was largely due to the expectation of increased credit losses due to the persistence of COV ID - 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

   

 

7 350 375 400 425 450 475 500 Jan '19 Feb '19 Mar '19 Apr '19 May '19 June '19 Jan '20 Feb '20 Mar '20 Apr '20 May '20 June '20 # of Users Thousands Online (PC) & Mobile (phone) Banking Users TRANSACTION AND DIGITAL USER TRENDS (unaudited) Due to the COVID - 19 pandemic forcing our branches to operate on a primarily drive thru only basis, there has been a shift in the transaction channels from branch to digital. That shift is returning back to normal after our branches began reopening in early June. 3,500 4,000 4,500 5,000 5,500 6,000 6,500 400 500 600 700 800 900 1,000 Jan '19 Feb '19 Mar '19 Apr '19 May '19 June '19 Jan '20 Feb '20 Mar '20 Apr '20 May '20 June '20 Debit Card Transactions Thousands Branch Transactions Thousands Branch Transactions Debit Card Transactions 2020 Annualized Growth Rate: 15.6%

   

 

8 Estimated 3,699 loans representing $704 million in loan balances were under a pandemic - related forbearance agreement as of June 30, 2020 3,473 Paycheck Protection Program (“PPP”) loans, representing $507 million in customer balances, were outstanding on June 30, 2020 1 Portfolio # of Loans Customer Loan Balances $ in Millions % of P ortfolio Outstandings (as of 6/30/20) Business Lending 1,282 $593 17.1% Consumer Mortgage & Home Equity 909 $86 3.1% Consumer Installment 1,508 $25 2.0% Total 3,699 $704 9.4% (1) Includes 204 PPP loans, representing $15 million in outstanding balance, originated by Steuben Trust Corporation prior to ac quisition Note: The Company does not have a credit card receivables portfolio CUSTOMER SUPPORT (unaudited)

   

 

9 COVID - 19 Related Industry Exposure Sorted by Total Exposure excluding PPP Loans; $ in Millions June 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 $273 $70 $343 4.9% $91 $434 $61 $495 Lodging 2 $263 $1 $ 264 3.8% $11 $275 $9 $284 Manufacturing $68 $87 $ 155 2.2% $84 $240 $50 $290 Construction $35 $88 $123 1.8% $113 $236 $77 $313 Healthcare & Social Assistance $ 114 $56 $ 170 2.4% $41 $211 $75 $286 Furniture Stores $83 $1 $84 1.2% $4 $88 $7 $95 Dairy Farms $36 $13 $49 0.7% $8 $58 $6 $64 Food Services 3 $34 $13 $ 47 0.7% $6 $53 $32 $85 Arts, Entertainment, & Recreation 4 $33 $7 $40 0.6% $10 $50 $8 $58 Casinos $10 $27 $ 37 0.5% $3 $40 $0 $40 Educational Services 5 $8 $10 $ 18 0.2% $10 $ 28 $12 $40 Transportation 6 $2 $15 $17 0.2% $8 $25 $8 $33 TOTAL EXPOSURE $ 959 $388 $1,347 19.3% $389 $1,736 $345 $2,081 BALANCE SHEET EXPOSURE (unaudited)

   

 

10 Non - Owner Occupied CRE 34% New & Used Car Dealers 17% Auto Parts & Accessories 8% RV, Boat & Other Recreational 5% Building Materials & Garden Supplies 15% Gasoline & Service Stations 6% Health & Personal Care Stores 4% Miscellaneous Retail 4% All Other Retail 7% Motor Vehicles & Parts Dealer 30% • The retail portfolio contains 1,019 loans representing a total exposure of $434.4 million • Average outstanding balance of $337 thousand and an average exposure of $426 thousand • 7 total loan relationships with a current exposure greater than $10 million • No single loan customer exposure greater than $15 million • $34.4 million in vehicle floor plan loan exposure, $14.3 million outstanding and $20.1 million available • Approximately 33% of the retail portfolio balance had a forbearance agreement in place on June 30 th RETAIL PORTFOLIO (unaudited) Sector # of Loans Outstandin g Balance Remaining Availability Total Exposure Non - Owner Occupied CRE 119 $146.4 $0 $146.4 Motor Vehicle Parts & Dealers 233 $91.1 $39.3 $130.4 Building & Garden Supplies 166 $43.4 $21.4 $64.8 Gasoline & Service Stations 67 $25.8 $2.5 $28.3 Health & Personal Care 33 $1.4 $17.0 $18.4 Miscellaneous Retail 190 $9.4 $6.2 $15.6 All Other Retail 211 $25.5 $5.0 $30.5 Total Retail Sector 1,019 $343.0 $91.4 $434.4 June 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

   

 

11 Franchised 74% Unfranchised 14% Rooming & Boarding Houses 12% Hotels & Motels 88% • The lodging portfolio contains 203 loans representing a total exposure of $275.1 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 56% of the lodging portfolio balance had a forbearance agreement in place on June 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 190 $240.9 $1.3 $242.2 Rooming & Boarding Houses 13 $23.6 $9.3 $32.9 Total Lodging Sector 203 $264.5 $10.6 $275.1 June 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

   

 

12 Lumber, Wood & Paper Products 32% Plastics, Stone & Metal Products 27% Machinery & Equipment 16% Food & Food Products 16% All Other Manufacturing 9% • The manufacturing portfolio contains 668 loans representing a total exposure of $240.1 million • Average outstanding balance of $233 thousand and an average exposure of $359 thousand • 9 total loan relationships with a current exposure greater than $5 million • 3 total loan relationships with a current exposure greater than $10 million • Approximately 14% of the manufacturing portfolio balance had a forbearance agreement in place on June 30 th MANUFACTURING PORTFOLIO (unaudited) Sector # of Loans Outstandin g Balance Remaining Availability Total Exposure Lumber, Wood & Paper Products 174 $57.3 $19.5 $76.8 Plastics, Stone & Metal Products 205 $38.6 $25.9 $64.5 Machinery & Equipment 119 $21.1 $18.8 $39.9 Food & Food Products 117 $26.8 $11.1 $37.9 All Other Manufacturing 53 $11.8 $9.2 $21.0 Total Manufacturing Sector 668 $155.6 $84.5 $240.1 June 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

   

 

13 Highway, Street, and Bridge Construction 20% Building Equipment Contractors 13% Nonresidential Building Construction 13% Site Preparation Contractors 12% Foundation, Structure, and Building Exterior Contractors 11% Residential Building Construction 11% Utility System Construction 12% Other Construction 3% Land Subdivision 3% Building Finishing Contractors 2% All Other Construction 20% • The construction portfolio contains 1,327 loans representing a total exposure of $236.1 million • Average outstanding balance of $93 thousand and an average exposure of $178 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 5 % of the construction portfolio balance had a forbearance agreement in place on June 30 th CONSTRUCTION PORTFOLIO (unaudited) Sector # of Loans Outstandin g Balance Remaining Availability Total Exposure Highway, Street, and Bridge Construction 67 $23.2 $24.0 $47.2 Building Equipment Contractors 235 $12.1 $18.6 $30.7 Nonresidential Building Construction 97 $9.8 $20.8 $30.6 Site Preparation Contractors 221 $15.7 $11.5 $27.2 Foundation, Structure, and Building Exterior Contractors 187 $18.9 $7.1 $26.0 Residential Building Construction 248 $16.3 $9.5 $25.8 All Other Construction 272 $27.0 $21.6 $48.6 Total Construction Sector 1,327 $123.0 $113.1 $236.1 June 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

   

 

14 Continuing Care, Retirement and Assisted Living Facilities 19% 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 5% Child Day Care Services 4% Home Health Care Services 4% Other Ambulatory Health Care Services 4% Skilled Nursing Facilities 4% Outpatient Care Centers 4% Medical and Diagnostic Laboratories 3% Other Social Assistance 1% All Other Healthcare 24% • The healthcare portfolio contains 871 loans representing a total exposure of $211.2 million • Average outstanding balance of $195 thousand and an average exposure of $242 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 13% of the healthcare portfolio balance had a forbearance agreement in place on June 30 th HEALTHCARE & SOCIAL ASSISTANCE PORTFOLIO (unaudited) Sector # of Loans Outstandin g Balance Remaining Availability Total Exposure Continuing Care, Retirement and Assisted Living Facilities 30 $37.6 $1.8 $39.4 Offices of Physicians 122 $21.0 $11.5 $32.5 Hospitals 8 $25.1 $0.6 $25.7 Individual and Family Services 58 $13.5 $6.1 $19.6 Developmental Disability, Mental Health & Substance Abuse Facilities 227 $8.7 $8.0 $16.7 Offices of Dentists 138 $14.8 $1.5 $16.3 Offices of Other Health Practitioners 95 $10.4 $1.2 $11.6 All Other Healthcare 193 $38.6 $10.8 $49.4 Total Healthcare Sector 871 $169.7 $41.5 $211.2 June 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

   

 

15 (1) CBU loan yields exclude fully tax equivalent (FTE) adjustments (2) Based on June 30, 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 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% Q1 '08 Q3 '08 Q1 '09 Q3 '09 Q1 '10 Q3 '10 Q1 '11 Q3 '11 Q1 '12 Q3 '12 Q1 '13 Q3 '13 Q1 '14 Q3 '14 Q1 '15 Q3 '15 Q1 '16 Q3 '16 Q1 '17 Q3 '17 Q1 '18 Q3 '18 Q1 '19 Q3 '19 Q1 '20 CBU Total Loan Portfolio 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 $309 3.93% $263 2.70% $ 68 4.16% $ 640 3.45% Floor Reached $244 4.26% $23 3.35% $58 4.81% $ 325 4.30% Above Floor $6 5.57% $0 NA $15 4.51% $21 4.82% Total Repricing Loans (NTM) $ 559 4.09% $286 2.75% $ 141 4.46% $ 986 3.76% % of Total Loans 7.5% 3.8% 1.9% 13.1% LOAN YIELD DATA (unaudited)

   

 

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 financial 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 and 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, and the loss on debt extinguishment, 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 and unrealized loss (gain) on equity securities from income before tax. RECONCILIATION OF GAAP AND NON - GAAP (unaudited)

   

 

17 Consistent and Growing - Supports Growth in Dividends & Assets Dollars in thousands, except per share data Years Ended Dec. 31 ($000s) Q2 2020 2019 2018 2017 2016 2015 GAAP Earnings per Share $0.66 $3.23 $3.24 $3.03 $2.32 $2.19 Operating Earning s per Share $0.76 $3.29 $3.23 $2.64 $2.35 $2.31 Net income (GAAP) $35,248 $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 2,688 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) (16) (520) - - - Loss on Debt Extinguishment, net of tax effect - - 252 - - - Acquisition - related provision for credit losses; net of tax effect 2,552 - - - - - Operating Earnings 40,478 172,003 167,764 131,016 104,958 96,085 Amortization of intangibles, net of tax effect 2,810 12,888 14,375 11,936 3,679 2,528 Subtotal (non - GAAP) 43,288 184,891 182,139 142,952 108,637 98,613 Acquired non - impaired loan accretion, net of tax effect (1,088) (4,988) (6,272) (4,149) (1,926) (1,656) Operating Cash Flow 42,200 179,903 175,867 138,803 106,711 97,057 Cash Dividends Paid 21,341 80,241 71,495 62,305 55,048 49,273 Cash Dividend % of Operating Cash Flow 51% 45% 41% 45% 52% 51% CBU FREE CASH FLOW (unaudited)

   

 

18 Dollars in thousands, except per share data Q2 2020 2019 2016 2013 2010 2007 Total assets Total assets (GAAP) $ 13,444,217 $11,410,295 $8,666,437 $7,095,864 $5,444,506 $4,697,502 Intangible assets ( 852,761) (836,923) (480,844) (390,499) (311,714) (256,216) Deferred taxes on intangible assets 45,094 44,742 43,504 32,339 20,765 12,390 Total tangible assets (non - GAAP) 12,636,550 10,618,114 8,229,097 6,737,704 5,153,557 4,453,676 Total common equity Shareholders' Equity (GAAP) 2,081,315 1,855,234 1,198,100 875,812 607,528 478,784 Intangible assets (852,761) (836,923) (480,844) (390,499) (311,714) (256,216) Deferred taxes on intangible assets 450,094 44,742 43,504 32,339 20,765 12,390 Total tangible common equity (non - GAAP) 1,273,648 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 $ 1,273,648 $1,063,053 $760,760 $517,652 $316,579 $234,958 Total tangible assets (non - GAAP) - denominator 12,636,550 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) 10.08 % 10.01% 9.24% 7.68% 6.14% 5.28% TANGIBLE EQUITY COMPONENTS (unaudited)

   

 

19 Dollars and shares in thousands, except per share data Q2 2020 Q1 2020 Q4 2019 Q3 2019 Q2 2019 Pre - tax, pre - provision net revenue Net income (GAAP) $35,248 $40,134 $42,884 $39,218 $45,015 Income taxes 8,964 9,285 8,853 10,472 11,415 Income before income taxes 44,212 49,419 51,737 49,690 56,430 Provision for credit losses 9,774 5,594 2,857 1,751 1,400 Pre - tax, pre - provision net revenue (non - GAAP) 53,986 55,013 54,594 51,441 57,830 Acquisition expenses 3,372 369 819 6,061 1,194 Gain on sale of investments, net 0 0 0 0 (4,882) Unrealized (gain) loss on equity securities (12) 30 9 (10) 13 Adjusted pre - tax, pre - provision net revenue (non - GAAP) $57,346 $55,412 $55,422 $57,492 $54,155 Pre - tax, pre - provision net revenue per share Diluted earnings per share (GAAP) $0.66 $0.76 $0.82 $0.75 $0.86 Income taxes 0.17 0.18 0.17 0.20 0.22 Income before income taxes 0.83 0.94 0.99 0.95 1.08 Provision for credit losses 0.19 0.10 0.06 0.03 0.03 Pre - tax, pre - provision net revenue per share (non - GAAP) 1.02 1.04 1.05 0.98 1.11 Acquisition expenses 0.06 0.01 0.01 0.12 0.02 Gain on sale of investments, net 0.00 0.00 0.00 0.00 (0.10) 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) $1.08 $1.05 $1.06 $1.10 $1.03 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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