Community Bank System Reports Strong Third Quarter Operating Results
- Increased cash dividend for the 20th consecutive year
- Organic loan growth of $98 million in the quarter (11% annualized)
- Acquisition of 19 Upstate NY branches completed during the quarter
SYRACUSE, N.Y.--(BUSINESS WIRE)-- Community Bank System, Inc. (CBU) reported third quarter 2012 net income of $18.4 million, or $0.46 per share, compared with $20.0 million, or $0.54 per share reported for the third quarter of 2011. Current year results included $4.8 million of acquisition-related expenses, or $0.08 per share, compared with $0.4 million incurred in the prior year period. The Company reported earnings of $58.3 million for the first nine months of 2012, an increase of 7.6% over the first three quarters of 2011.
Our third quarter operating performance was at record levels and was characterized by solid revenue growth, strong organic loan generation, a continuation of our stable and favorable asset quality profile, and the successful completion of the branch acquisitions announced earlier in the year, said President and Chief Executive Officer Mark E. Tryniski. With the acquisition and conversion process of 19 former HSBC and First Niagara branch locations in our core Upstate New York markets completed, we are working to solidify and expand the service relationship with our new customers and remain excited by the potential to create incremental shareholder value from this transaction. In September, we increased our quarterly dividend to $0.27 per share, or 3.8% higher, marking the twentieth consecutive year of dividend increases for the Company. We believe that this demonstrates the Companys commitment to the payment of a meaningful and growing dividend as an important component of providing consistent and favorable long-term returns to our shareholders.
Total revenue for the third quarter of 2012 was $84.6 million, an increase of $6.9 million, or 8.8%, compared to the prior year third quarter. Net interest income increased 7.7% from the prior year quarter to $58.8 million, the result of an $890 million increase in average interest-earning assets, comprised of an additional $663 million of investment securities (including cash equivalents) and a $227 million increase in average loans. On a linked quarter basis, ending loans grew $250.8 million, with $152.6 million of the increase coming from the branch acquisitions, and $98.2 million (or 2.8%) from organic growth, primarily in consumer installment and mortgage products. Although quarterly net interest income was up 1.7% and 7.7% over the second quarter of 2012 and the third quarter of 2011 respectively, as expected, the completion of the branch acquisitions (and its associated net liquidity characteristics) in the quarter contributed to a reduction in the Companys net interest margin to 3.79%. Quarterly net interest income generation reflected the pre-investing of a portion of the net liquidity received from the branch acquisitions principally in US Treasury and other high-quality government securities that began late in the first quarter of 2012.
Third quarter non-interest income, excluding gains and losses on investment security sales, increased $2.3 million to $25.6 million, compared with third quarter 2011, reflecting increased benefits administration and consulting fees, higher deposit services fees, and increased wealth management revenues, offset somewhat by lower mortgage banking revenues. Employee benefits administration and consulting revenues were up 16.0% compared to third quarter 2011, principally from the December 2011 acquisition of Metro-New York based, CAI Benefits (CAI). Wealth management fees were up $0.3 million, or 10.0% over third quarter 2011, driven by solid gains in trust services and asset management. Net mortgage banking revenues of $0.1 million for the quarter were from servicing fees, reflective of the decision to continue to hold a large majority of the Companys mortgage originations in portfolio. Deposit service fees of $12.1 million were up $0.9 million, or 8.3% from third quarter of 2011, and included the activities of the recently acquired branches.
Third quarter core operating expenses (excluding acquisition expenses) of $51.3 million, increased $3.6 million over the third quarter of 2011, and included the recurring operating expenses of the newly acquired branches as well as CAI. Year-to-date core operating expenses (excluding acquisition expenses) of $149.6 million were 8.6% higher than the first nine months of 2011, and reflect the aforementioned branch and CAI transactions, as well as the acquisition of the Wilber Corporation in April 2011.
The third quarter and year-to-date 2012 effective income tax rate was 29.1% compared to a 28.2 % rate for the first nine months of 2011, the result of a higher proportion of income being generated from fully taxable sources.
Average earning assets for the third quarter were $6.6 billion, an increase of $322.3 million compared to second quarter of 2012, and up $889.7 million over the third quarter of 2011. Ending loans increased $250.8 million on a linked basis reflecting strong organic growth primarily from consumer mortgage and installment products and loans from the acquired branches. Average investment securities of $2.78 billion for the third quarter were consistent with the second quarter of 2012. Invested (overnight) cash equivalents increased $128.2 million from second quarter of 2012, reflective of the Companys acquired net liquidity. Average deposits increased $566.1 million, or 11.5%, compared to the second quarter of 2012, primarily from the branch transactions. Quarter-end borrowings were $830.2 million, and reflected the extinguishment of all overnight obligations upon the completion of the branch acquisitions.
Quarter-end shareholders equity of $904.6 million was $149.0 million, or 19.7%, higher than September 30, 2011, and up $19.5 million from the end of the second quarter of 2012. The year-over-year increase was driven by the January 2012 issuance of 2.1 million additional shares in support of the Companys recently completed branch acquisitions, appreciation in the available-for-sale investment portfolio, and continued solid growth in retained earnings due to record levels of net income generation. Despite the completion of the branch acquisitions in the third quarter, the Company continued to strengthen its capital position as was evidenced by the 75 basis-point increase in the net tangible equity to net tangible assets ratio from the end of the third quarter of 2011.
The Companys asset quality metrics continue to be markedly better than comparative peer and industry averages and illustrate the long-term effectiveness of the Companys disciplined risk management and underwriting standards. Net charge-offs were $1.7 million for the third quarter, compared to $2.1 million for the second quarter of 2012 and $1.1 million for third quarter of 2011. Nonperforming loans as a percentage of total loans at September 30, 2012 were 0.81% (0.74% excluding acquired loans), down from the 0.90% at June 30, 2012, and up from a very modest 0.54% of total loans at the end of last years third quarter. The total delinquency ratio of 1.79% at the end of the third quarter (1.65% excluding acquired loans) was up eight basis points from second quarter 2012, and 23 basis points higher than the 1.56% level at September 30, 2011. The third quarter provision for loan losses of $2.6 million was $0.5 million higher than the second quarter provision and up $1.6 million from the third quarter of 2011, and reflected solid organic loan growth and $0.5 million for certain loans acquired in the recently completed branch transactions. The allowance for loan losses to nonperforming loans was 139% at September 30, 2012, compared to 131% at June 30, 2012 and 135% as of December 31, 2011.
Upstate New York Branch Banking Expansion
The Company completed the acquisition and conversion of 16 HSBC branches (July 23, 2012) and three First Niagara branches (September 7, 2012) in its core Upstate New York markets in the third quarter. In total, approximately $160 million of loans and $800 million of deposits were acquired in these transactions during the quarter.
Increased Cash Dividend Declared
In September, the Companys Board of Directors declared a quarterly cash dividend of $0.27 per share on the Companys common stock, payable on October 10, 2012 to shareholders of record as of September 14, 2012. The increase of $0.01, or 3.8%, represented the twentieth (20th) consecutive annual increase in the Companys dividend. Based upon the closing price for a share of Community Bank System, Inc. common stock of $27.48 on October 22, 2012, the $0.27 per share quarterly dividend represents an approximate annual yield of 3.9%.
Conference Call Scheduled
Company management will conduct an investor call at 11:00 a.m. (ET) tomorrow (Wednesday) October 24, 2012 to discuss third quarter results. The conference call can be accessed at 1-877-641-0093 (1-904-520-5773 if outside United States and Canada). An audio recording will be available one hour after the call until December 31, 2012, and may be accessed at 1-888-284-7564 (1-904-596-3174 if outside the United States and Canada) and entering access code 2949921. Investors may also listen live via the Internet at: [http://www.videonewswire.com/event.asp?id=89923] and may be accessed at any point during this time at no cost.
This earnings release, including supporting financial tables, is available within the press releases section of the Company's investor relations website at: http://ir.communitybanksystem.com. An archived webcast of the earnings call will be available on this site for one full year.
Headquartered in DeWitt, N.Y., Community Bank System, Inc. has $7.6 billion in assets and over 180 customer facilities. The Companys banking subsidiary, Community Bank, N.A. operates across Upstate New York and Northeastern Pennsylvania, where it conducts business as First Liberty Bank & Trust. Its other subsidiaries include: Benefit Plans Administrative Services, Inc., a national employee benefits consulting and trust administration firm with offices in New York, New Jersey, Pennsylvania and Texas; the CBNA Insurance Agency, with offices in five northern New York communities; Community Investment Services, Inc., a wealth management firm delivering a wide range of financial products throughout the Company's branch network; and Nottingham Advisors, an investment management and advisory firm with offices in Buffalo, N.Y. and North Palm Beach, Florida. For more information, visit: www.communitybankna.com or www.firstlibertybank.com.
|Summary of Financial Data|
|(Dollars in thousands, expect per share data)|
|September 30,||September 30,||September 30,||September 30,|
|Total interest income||71,394||70,418||209,450||200,555|
|Net interest income||58,775||54,568||170,455||154,278|
|Provision for loan losses||2,643||1,043||6,442||3,143|
|Net interest income after provision for loan losses||56,132||53,525||164,013||151,135|
|Deposit service fees||12,057||11,134||33,461||31,307|
|Mortgage banking revenues||128||320||682||1,698|
|Other banking services||1,278||1,179||2,614||2,222|
|Wealth management services||3,193||2,904||9,426||7,866|
|Benefit trust, administration, consulting and actuarial fees||8,912||7,685||26,549||23,722|
|Investment securities and debt extinguishment gains/(losses), net||291||(6)||291||8|
|Total noninterest income||25,859||23,216||73,023||66,823|
|Salaries and employee benefits||28,126||26,543||82,395||75,185|
|Occupancy and equipment and furniture||6,541||6,103||19,134||18,413|
|Amortization of intangible assets||1,212||1,161||3,343||3,251|
|Total operating expenses||56,085||48,093||154,858||142,535|
|Income before income taxes||25,906||28,648||82,178||75,423|
|Basic earnings per share||$0.46||$0.54||$1.48||$1.52|
|Diluted earnings per share||$0.46||$0.54||$1.46||$1.50|
Summary of Financial Data
|3rd Qtr||2nd Qtr||1st Qtr||4th Qtr||3rd Qtr|
|Total interest income||71,394||70,545||67,511||70,414||70,418|
|Net interest income||58,775||57,771||53,909||55,135||54,568|
|Provision for loan losses||2,643||2,155||1,644||1,593||1,043|
|Net interest income after provision for loan losses||56,132||55,616||52,265||53,542||53,525|
|Deposit service fees||12,057||11,035||10,369||11,027||11,134|
|Mortgage banking revenues||128||234||320||37||320|
|Other banking services||1,278||662||674||694||1,179|
|Wealth management services||3,193||3,101||3,132||2,831||2,904|
|Benefit trust, administration, consulting and actuarial fees||8,912||8,664||8,973||7,879||7,685|
|Investment securities gains/(losses), net||291||0||0||(69)||(6)|
|Total noninterest income||25,859||23,696||23,468||22,399||23,216|
|Salaries and employee benefits||28,126||26,844||27,425||27,093||26,543|
|Occupancy and equipment and furniture||6,541||6,130||6,463||6,089||6,103|
|Amortization of intangible assets||1,212||1,045||1,086||1,130||1,161|
|Total operating expenses||56,085||49,370||49,403||47,837||48,093|
|Income before income taxes||25,906||29,942||26,330||28,104||28,648|
|Basic earnings per share||$0.46||$0.53||$0.49||$0.51||$0.54|
|Diluted earnings per share||$0.46||$0.53||$0.48||$0.51||$0.54|
|Return on assets||0.98%||1.20%||1.14%||1.16%||1.23%|
|Return on equity||8.12%||9.82%||9.22%||9.96%||10.67%|
|Return on tangible equity(3)||13.27%||16.01%||15.59%||17.91%||19.63%|
|Noninterest income/operating income (FTE) (1)||28.8%||27.6%||28.8%||27.6%||28.5%|
|Efficiency ratio (2)||56.5%||56.1%||59.0%||57.2%||57.0%|
|Components of Net Interest Margin (FTE)|
|Cash equivalents yield||0.26%||0.34%||0.26%||0.25%||0.25%|
|Earning asset yield||4.54%||4.78%||4.89%||5.11%||5.13%|
|Interest-bearing deposit rate||0.40%||0.44%||0.56%||0.65%||0.70%|
|Cost of all interest-bearing funds||0.94%||0.99%||1.13%||1.27%||1.32%|
|Cost of funds (includes DDA)||0.78%||0.84%||0.96%||1.08%||1.12%|
|Net interest margin (FTE)||3.79%||3.96%||3.96%||4.06%||4.04%|
|Fully tax-equivalent adjustment||$4,332||$4,335||$4,031||$3,851||$3,836|
Summary of Financial Data
|3rd Qtr||2nd Qtr||1st Qtr||4th Qtr||3rd Qtr|
|Taxable investment securities||2,065,121||2,091,575||1,565,215||1,495,590||1,458,127|
|Nontaxable investment securities||717,608||692,839||613,947||567,835||560,051|
|Total interest-earning assets||6,629,123||6,306,858||5,885,230||5,770,775||5,739,392|
|Total interest-bearing liabilities||5,328,602||5,185,920||4,823,836||4,759,575||4,758,962|
|Balance Sheet Data|
|Cash and cash equivalents||$287,753||$130,902||$132,055||$324,878||$425,877|
|Consumer installment - indirect||642,196||591,249||542,605||556,955||564,423|
|Consumer installment - direct||173,710||154,402||144,428||149,170||154,672|
|Allowance for loan losses||42,817||41,828||41,809||42,213||42,463|
|Subordinated debt held by unconsolidated subsidiary trusts||102,067||102,060||102,054||102,048||102,042|
|Total liabilities and shareholders' equity||7,570,373||7,166,331||6,912,458||6,488,275||6,503,854|
|Tier 1 leverage ratio||8.32%||8.98%||9.37%||8.38%||8.17%|
|Tangible equity/net tangible assets (3)||7.54%||8.09%||7.70%||7.12%||6.79%|
|Diluted weighted average common shares O/S||40,139||40,057||39,323||37,491||37,312|
|Period end common shares outstanding||39,571||39,472||39,439||36,986||36,829|
|Cash dividends declared per common share||$0.27||$0.26||$0.26||$0.26||$0.26|
|Tangible book value(3)||$13.73||$14.00||$12.84||$11.85||$11.37|
|Common stock price (end of period)||$28.19||$27.12||$28.78||$27.80||$22.69|
Summary of Financial Data
|3rd Qtr||2nd Qtr||1st Qtr||4th Qtr||3rd Qtr|
|Accruing loans 90+ days delinquent||3,349||3,437||3,889||3,090||2,319|
|Total nonperforming loans||30,719||32,008||31,646||31,375||18,821|
|Other real estate owned (OREO)||3,384||2,899||2,690||2,682||2,776|
|Total nonperforming assets||34,103||34,907||34,336||34,057||21,597|
|Allowance for loan losses/loans outstanding||1.12%||1.17%||1.21%||1.22%||1.22%|
|Nonperforming loans/loans outstanding||0.81%||0.90%||0.91%||0.90%||0.54%|
|Allowance for loan losses/nonperforming loans||139%||131%||132%||135%||226%|
|Net charge-offs/average loans||0.18%||0.24%||0.24%||0.21%||0.13%|
|Delinquent loans/ending loans||1.79%||1.71%||1.78%||2.05%||1.56%|
|Loan loss provision/net charge-offs||160%||101%||80%||86%||94%|
|Nonperforming assets/total assets||0.45%||0.49%||0.50%||0.52%||0.33%|
|Asset Quality (excluding loans acquired since 1/1/09)|
|Accruing loans 90+ days delinquent||3,038||3,070||2,700||2,878||2,233|
|Total nonperforming loans||24,771||25,465||22,878||20,463||15,773|
|Other real estate owned (OREO)||1,671||1,577||1,778||1,734||1,810|
|Total nonperforming assets||26,442||27,042||24,656||22,196||17,583|
|Allowance for loan losses/loans outstanding||1.24%||1.28%||1.30%||1.36%||1.38%|
|Nonperforming loans/loans outstanding||0.74%||0.79%||0.74%||0.69%||0.52%|
|Allowance for loan losses/nonperforming loans||167%||161%||175%||197%||268%|
|Net charge-offs/average loans||0.21%||0.16%||0.10%||0.24%||0.14%|
|Delinquent loans/ending loans||1.65%||1.62%||1.61%||1.77%||1.57%|
|Loan loss provision/net charge-offs||119%||180%||37%||79%||72%|
|Nonperforming assets/total assets||0.37%||0.40%||0.38%||0.36%||0.29%|
|(1) Excludes gain (loss) on investment securities.|
|(2) Excludes intangible amortization, goodwill impairment, acquisition expenses, and gain (loss) on investment securities.|
|(3) Includes deferred tax liabilities (of approximately $27.0 million at 9/30/12) generated from tax deductible goodwill.|
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The following factors, among others, could cause the actual results of CBUs operations to differ materially from CBUs expectations: the successful integration of operations of its acquisitions; competition; changes in economic conditions, interest rates and financial markets; and changes in legislation or regulatory requirements. CBU does not assume any duty to update forward-looking statements.
Community Bank System, Inc.
Scott A. Kingsley, 315-445-3121
EVP & Chief Financial Officer
Source: Community Bank System, Inc.Copyright Business Wire 2012