Community Bank System Reports Third Quarter 2018 Results

Community Bank System, Inc. (NYSE: CBU) reported third quarter 2018 net income of $43.1 million and fully diluted earnings per share of $0.83. This compares to $35.2 million of net income or $0.68 per share for the third quarter of 2017. The $0.15, or 22.1%, increase in earnings per share was attributable to higher net interest income, higher noninterest revenues and a lower effective tax rate, offset in part by higher operating expenses and an increase in fully-diluted shares outstanding.

Excluding unrealized gains on equity securities, loss on debt extinguishment and acquisition expenses, third quarter 2018 fully diluted operating earnings per share of $0.81 increased $0.12 per share, or 17.4%, as compared to the third quarter of 2017 fully diluted operating earnings per share of $0.69.

On a linked quarter basis, fully-diluted earnings per share decreased $0.03, or 3.5%, from $0.86 in the second quarter of 2018. An increase in non-banking fee revenues and a modest decrease in operating expenses were offset by a decrease in net interest income, lower banking-related noninterest revenues due entirely to a $0.05 per share impact of Durbin amendment reductions in debit interchange fees and higher income tax expense.

Third Quarter 2018 Performance Highlights:

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  • Operating EPS of $0.81 up 17.4% over the third quarter of 2017
  • Deposit funding costs of 0.13%
  • Annualized net loan charge-offs of 0.11%
  • Return on assets of 1.61%
  • Return on tangible equity of 19.1%
  • Non-banking noninterest revenues up 14.9% over the third quarter of 2017
  • Dividend increase of $0.04 or 11.8%, the 26th consecutive year of increase

Our solid third quarter and year-to-date operating results were again driven by productive loan origination activity in our business and consumer lending portfolios, a continuation of exceptional credit quality, disciplined expense management and continued growth in our non-interest income generation, said President and Chief Executive Officer Mark E. Tryniski. We continued to successfully handle the blocking and tackling that is necessary to produce solid and consistent results in our markets. Our cost of funds has increased by only three basis points over the past 12 months while our earning asset yields have increased by 10 basis points during that same span. We continue to demonstrate a consistent commitment to sound underwriting processes as evidenced by a nonperforming loans ratio of 0.40% at quarter end and net charge-offs to average loans of just 0.11% for the third quarter. Our focus on continuing to grow our non-interest income sources produced noninterest revenues of $55.8 million, or nearly 40% of total revenue, for the quarter. The strength of our financial position was illustrated by our Boards decision to increase our quarterly cash dividend by $0.04, or nearly 12%, to $0.38 per share. Clearly, the payment of a meaningful and growing dividend remains an important component of our commitment to provide consistent and favorable long-term returns to our shareholders. We remain well positioned for a strong finish to 2018 by continuing to focus on the activities which create value for our shareholders.

Total revenues for the third quarter of 2018 were $142.0 million, an increase of $4.7 million, or 3.4%, over the third quarter of 2017. The Company recorded a $1.8 million, or 2.1%, increase in net interest income and a $2.9 million, or 5.4%, increase in noninterest revenues. The increase in net interest income was due to a 20 basis point increase in the yield on loans, offset in part by a decrease in average earning assets, lower investment securities yields and slightly higher funding costs. The increase in noninterest revenues was due to organic revenue growth in our employee benefit services business, as well as acquired and organic growth in our wealth management and insurance businesses. This was partially offset by lower banking business noninterest revenues. Deposit service fees decreased $2.3 million, or 12.4%, due primarily to a $3.4 million, or $0.05 per share, impact of Durbin amendment mandated debit interchange price restrictions.

On a linked quarter basis, total revenues decreased $1.4 million, or 1.0%. Net interest income was down $0.6 million, or 0.7%, and noninterest revenues were down $0.8 million, or 1.4%. Banking-related noninterest revenues were down $2.0 million, while non-banking noninterest revenues were up $1.3 million. During the third quarter of 2018, the Company recorded $0.7 million in unrealized gains on equity securities and $0.3 million in loss on extinguishment of trust preferred debt associated with the accelerated amortization of debt issuance costs. Other banking noninterest revenues were down $2.5 million due to the aforementioned decrease in debit interchange fees. Insurance and wealth management revenues were up $0.5 million and employee benefits services revenues were up $0.7 million.

The Company recorded a $2.2 million provision for loan losses in the third quarter 2018. This compares to a $2.3 million provision for loan losses recorded in the third quarter of 2017 and $2.4 million in the second quarter of 2018. The non-performing loan to total loans ratio was 0.40% at the end of the third quarter of 2018, as compared to 0.37% at the end of the third quarter of 2017 and 0.47% at the end of the linked second quarter of 2018.

Total operating expenses for the third quarter of 2018 were $85.2 million. This compares to $83.8 million in total operating expenses recorded in the third quarter of 2017. The increase in total operating expenses is primarily reflective of merit and incentive-based increases in salaries and employee benefits and increased occupancy and equipment expense, offset by a decrease in amortization of intangible assets. Excluding acquisition expenses, operating expenses increased $2.9 million, or 3.4%, compared to the third quarter of 2017. During the third quarter of 2018, the Company recovered $0.8 million of vendor contract termination charges that were recorded in acquisition expenses during the second quarter of 2017. This compared to $0.6 million of acquisition expenses recorded in the third quarter of 2017.

On a linked quarter basis, total operating expenses of $85.2 million decreased $0.9 million, or 1.0%, from the previous quarters level. Salaries and employee benefits expense decreased $1.3 million between the linked quarters and acquisition expenses decreased $0.9 million due to the aforementioned recovery of vendor contract termination charges, while occupancy and equipment and other expenses increased compared to the linked quarter. Excluding acquisition expenses, operating expenses were consistent with the linked quarter.

The Company generated net interest income of $86.2 million during the third quarter of 2018. This represents an increase of $1.8 million, or 2.1%, compared to the third quarter of 2017. Interest income on loans was up $2.8 million or 4.0%, while interest income on investments, including cash equivalents, was down $0.3 million or 1.8%. Interest expense increased $0.6 million, or 15.0%, as deposit and borrowing costs increased. Net interest margin increased seven basis points, from 3.64% in the third quarter of 2017 to 3.71% in the third quarter of 2018. Earning asset yields increased 10 basis points, from 3.81% in the third quarter of 2017 to 3.91% in the third quarter of 2018. Average loan yields increased 20 basis points from 4.37% to 4.57% over the same periods due largely to an increase in market interest rates, including four 25 basis point increases in the Prime rate. Conversely, investment yields, including cash equivalents, decreased 14 basis points, from 2.68% to 2.54% between comparable quarterly periods as higher yielding investment securities matured and were not replaced with securities with similar yields. In addition, the tax-equivalent yield on non-taxable municipal securities and loans decreased due to the decrease in the statutory Federal corporate tax rate between the periods. The Companys cost of funds increased three basis points, from 0.18% in the third quarter of 2017 to 0.21% in the third quarter of 2018. The Companys cost of deposits also remained low at 0.13% during the third quarter of 2018, versus 0.10% in the third quarter of 2017.

Net interest income decreased $0.6 million, or 0.7%, on a linked quarter basis. Interest income on loans was up $1.1 million due primarily to a $39.1 million increase in average loans outstanding. Interest income on investment securities, including cash equivalents, was down $1.2 million due to both a decrease in average outstanding balances and a decrease in the average yield on the portfolio. Net interest margin decreased two basis points from 3.73% in the second quarter of 2018 to 3.71% in the third quarter. The yield on earning assets remained flat between the linked quarters at 3.91%, while the total cost of funds increased two basis points from 0.19% in the second quarter to 0.21% in the third quarter. During the second quarter, the Companys net interest margin benefited from receipt of a $0.5 million Federal Reserve Bank semi-annual dividend payment and $0.5 million of acquired impaired loan accretion, which were not present in the third quarter results.

The Company generated $14.4 million of wealth management and insurance services revenues in the third quarter of 2018. This represents a $2.4 million, or 19.8%, increase over the third quarter 2017 revenues of $12.1 million. Between the third quarter of 2017 and the third quarter of 2018, the Company acquired four small insurance and wealth management practices contributing to revenue growth. Employee benefit services revenues of $23.3 million, increased $2.5 million, or 12.0%, from the third quarter of 2017. These results were attributable to organic increases in plan asset and participant levels. On a linked quarter basis, wealth management and insurance services revenues were up $0.5 million and employee benefits services revenues were up $0.7 million.

The effective tax rate for the third quarter of 2018 was 21.0%, down from 31.2% in the third quarter of last year. The decrease in the effective tax rate was largely attributable to the application of the lower federal tax rate due to the Tax Cuts and Jobs Act passed in the fourth quarter of 2017. The effective tax rate for the second quarter of 2018 was 18.7%. During the second quarter, the Company experienced higher levels of stock option exercise activity, resulting in an income tax benefit of $1.2 million, as compared to a $0.3 million benefit in the third quarter of 2018.

The Company also provides supplemental reporting of its results on a net 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, acquisition expenses, the unrealized gain(loss) on equity securities, loss on debt extinguishment and the one-time benefit from the revaluation of net deferred tax liabilities. The amounts for such items are presented in the tables that accompany this release. Although adjusted net income as defined by the Company is a non-GAAP measure, the Companys management believes this information helps investors understand the effect of certain activities in its reported results. Diluted adjusted net earnings per share were $0.84 in the third quarter of 2018, compared to $0.73 in the third quarter of 2017, or a 15.1% increase.

Financial Position

Average earning assets were down $122.2 million, or 1.3%, on a linked quarter basis, from $9.45 billion during the second quarter of 2018 to $9.33 billion during the third quarter of 2018. Average loan balances were $6.29 billion for the third quarter, up 0.6% over the second quarter. Average deposit balances were down $155.5 million, or 1.8%, from second quarter levels, due largely to a seasonal outflow of municipal deposits and increased utilization of the Companys off balance sheet mutual fund sweep product. Ending deposits were also down $50.2 million or 0.6%. Average borrowings in the third quarter of 2018 of $393.5 million, were down slightly from the second quarter average of $397.1 million. During the third quarter, the Company redeemed $25.2 million of subordinated debt and associated preferred securities, experienced a decline in average repurchase agreement balances of $51.1 million as seasonally expected and increased its average overnight borrowings by $64.2 million, as compared to the linked second quarter.

Ending loans at September 30, 2018 were $6.30 billion. This was up $62.9 million, or 1.0%, from the end of the second quarter and $44.1 million, or 0.7%, from the end of the fourth quarter of 2017. During the third quarter, outstanding balances in our business lending, consumer mortgage, consumer indirect and consumer direct portfolios increased, while home equity balances decreased. The business lending portfolio increased $19.0 million, or 0.8%, during the quarter. Ending loans in the municipal sector of our business loan portfolio increased $43.1 million from the end of the second quarter, consistent with the fiscal cycle of our municipal customers. Growth in the consumer loan portfolios was consistent with seasonal expectations. On a combined basis, the consumer loan portfolios were up $43.9 million or 1.1%.

The carrying value of investment securities totaled $2.95 billion at September 30, 2018, down $35.3 million, or 1.2%, from the end of the linked second quarter of 2018 and down $133.3 million or 4.3% from the fourth quarter of 2017. The net unrealized loss in this portfolio was $52.8 million at September 30, 2018 and $32.7 million at June 30, 2018. These compare to a net unrealized gain of $23.9 million at December 31, 2017. The portfolio transitioned from a net unrealized gain position in December 2017 to a net unrealized loss position during 2018 due to an increase in market interest rates. The effective duration of the portfolio was 3.5 years at the end of the third quarter.

Shareholders equity of $1.67 billion at September 30, 2018 was $75.1 million, or 4.7%, higher than September 30, 2017. The Companys net tangible equity to net tangible assets ratio was 9.13% at September 30, 2018, up from 8.36% a year earlier and 9.00% at the end of the second quarter of 2018. The Companys Tier 1 leverage ratio was 10.72% at the end of the third quarter, up from 9.54% a year earlier. These results are primarily due to strong earnings generation and capital retention over the last four quarters.

As previously announced in December 2017, the Companys Board of Directors approved a stock repurchase program authorizing the repurchase of up to 2.5 million shares of the Companys common stock during a twelve-month period starting January 1, 2018. Such repurchases may be made at the discretion of the Companys senior management based on market conditions and other relevant factors and will be acquired through open market or privately negotiated transactions as permitted under Rule 10b-18 of the Securities Exchange Act of 1934 and other applicable legal requirements. There were no shares repurchased pursuant to the program in the third quarter of 2018.

Asset Quality

The Companys asset quality metrics continue to illustrate the long-term effectiveness of the Companys disciplined risk management and underwriting standards. Total net charge-offs were $1.7 million for the third quarter, compared to $1.8 million for the third quarter of 2017 and $0.9 million for the second quarter of 2018. Net charge-offs as an annualized percentage of average loans equaled 0.11% in both the third quarter of 2018 and the third quarter of 2017, versus 0.06% in the second quarter of 2018. Nonperforming loans as a percentage of total loans at September 30, 2018 were 0.40%, compared to 0.47% at June 30, 2018 and 0.37% at September 30, 2017. The total loan delinquency ratio of 0.93% at the end of the third quarter was four basis points higher than the level at June 30, 2018, and 12 basis points lower than the 1.05% ratio one year earlier. The third quarter provision for loan losses of $2.2 million was $0.1 million lower than the third quarter of 2017, and $0.2 million lower than the second quarter of 2018. The allowance for loan losses to nonperforming loans was 201% at September 30, 2018, compared with 169% and 205% at the end of the second quarter of 2018 and third quarter of 2017, respectively.

Dividend Increase

During the third quarter of 2018, the Company declared a quarterly cash dividend of $0.38 per share on its common stock, a $0.04 or 11.8% increase from the $0.34 dividend declared in the third quarter of 2017, which represents an annualized yield of 2.62% based upon the $58.10 closing price of the Companys stock on October 19, 2018. The four cent increase declared in the third quarter of 2018 marked the 26th consecutive year of dividend increases for the Company. The dividend increase is supported by growing earnings and cash flow results that are expected to further strengthen the Companys capital accumulation and dividend capacity into the future, said Mark E. Tryniski, President and Chief Executive Officer.

Conference Call Scheduled

Company management will conduct an investor call at 11:00 a.m. (ET) today, October 22, 2018, to discuss third quarter 2018 results. The conference call can be accessed at 866-548-2699 (323-994-2131 if outside United States and Canada) using the conference ID code 7938797. Investors may also listen live via the Internet at: http://www.webcaster4.com/Webcast/Page/995/27591.

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

Community Bank System, Inc. operates more than 230 customer facilities across Upstate New York, Northeastern Pennsylvania, Vermont, and Western Massachusetts through its banking subsidiary, Community Bank, N.A. With assets of over $10.6 billion, the DeWitt, N.Y. headquartered company is among the countrys 150 largest financial institutions. In addition to a full range of retail, business, and municipal banking services, the Company offers comprehensive financial planning, insurance and wealth management services through its Community Bank Wealth Management Group and OneGroup NY, Inc. operating subsidiaries. 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.communitybankna.com or http://ir.communitybanksystem.com.

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The following factors, among others, could cause the actual results of 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; changes in legislation or regulatory requirements; and the timing for receiving regulatory approvals and completing pending transactions. These statements are based on the current beliefs and expectations of CBUs management and CBU does not assume any duty to update forward-looking statements.

                 

Summary of Financial Data

(Dollars in thousands, except per share data)

                   
Quarter Ended     Year-to-Date
       

September 30, 2018

   

September 30, 2017

   

September 30, 2018

   

September 30, 2017

Earnings                          
Loan income $72,256 $69,498 $212,849 $184,233
Investment income 18,647 18,989 57,463 55,634
Total interest income 90,903 88,487 270,312 239,867
Interest expense 4,705 4,092 12,644 10,169
Net interest income 86,198 84,395 257,668 229,698
Provision for loan losses 2,215 2,314 8,342 5,603
Net interest income after provision for loan losses 83,983 82,081 249,326 224,095
Deposit service fees 16,127 18,419 54,268 49,781
Revenues from mortgage banking and other banking services 1,536 1,704 3,942 4,270
Wealth management and insurance services 14,438 12,051 42,414 35,814
Employee benefit services 23,265 20,767 68,813 58,618
Gain on sale of investments 0 0 0 2
Unrealized gain on equity securities 743 0 722 0
Loss on debt extinguishment (318) 0 (318) 0
Total noninterest revenues 55,791 52,941 169,841 148,485
Salaries and employee benefits 51,062 48,426 155,323 137,897
Occupancy and equipment 9,770 9,106 29,738 25,939
Amortization of intangible assets 4,427 4,949 13,780 11,980
Acquisition expenses (832) 580 (769) 25,192
Other 20,806 20,715 59,604 59,222
Total operating expenses 85,233 83,776 257,676 260,230
Income before income taxes 54,541 51,246 161,491 112,350
Income taxes 11,435 16,003 33,673 33,659
Net income $43,106 $35,243 $127,818 $78,691
Basic earnings per share $0.84 $0.69 $2.49 $1.62
Diluted earnings per share       $0.83     $0.68     $2.46     $1.60
 
                     

Summary of Financial Data

(Dollars in thousands, except per share data)                          
2018     2017
        3rd Qtr     2nd Qtr     1st Qtr     4th Qtr     3rd Qtr
Earnings                                
Loan income $72,256 $71,152 $69,441 $69,716 $69,498
Investment income 18,647 19,853 18,963 19,872 18,989
Total interest income 90,903 91,005 88,404 89,588 88,487
Interest expense 4,705 4,159 3,780 3,611 4,092
Net interest income 86,198 86,846 84,624 85,977 84,395
Provision for loan losses 2,215 2,448 3,679 5,381 2,314
Net interest income after provision for loan losses 83,983 84,398 80,945 80,596 82,081
Deposit service fees 16,127 18,964 19,177 18,115 18,419
Revenues from mortgage banking and other banking services 1,536 1,163 1,243 1,196 1,704
Wealth management and insurance services 14,438 13,911 14,065 12,415 12,051
Employee benefit services 23,265 22,542 23,006 22,212 20,767
Unrealized gain(loss) on equity securities 743 (21) 0 0 0
Loss on debt extinguishment (318) 0 0 0 0
Total noninterest revenues 55,791 56,559 57,491 53,938 52,941
Salaries and employee benefits 51,062 52,402 51,859 49,006 48,426
Occupancy and equipment 9,770 9,437 10,531 9,622 9,106
Amortization of intangible assets 4,427 4,555 4,798 4,961 4,949
Acquisition expenses (832) 71 (8) 794 580
Other 20,806 19,647 19,151 22,536 20,715
Total operating expenses 85,233 86,112 86,331 86,919 83,776
Income before income taxes 54,541 54,845 52,105 47,615 51,246
Income taxes 11,435 10,239 11,999 (24,411) 16,003
Net income $43,106 $44,606 $40,106 $72,026 $35,243
Basic earnings per share $0.84 $0.87 $0.78 $1.41 $0.69
Diluted earnings per share       $0.83     $0.86     $0.78     $1.40     $0.68
Profitability                                
Return on assets 1.61% 1.66% 1.52% 2.66% 1.29%
Return on equity 10.28% 10.91% 10.00% 17.88% 8.81%
Return on tangible equity(2) 19.06% 20.58% 19.11% 34.11% 16.74%
Noninterest revenues/operating revenues (FTE) (1) 39.4% 39.7% 40.7% 38.4% 38.4%
Efficiency ratio       58.0%     57.2%     57.8%     57.8%     56.8%
Components of Net Interest Margin (FTE)                                
Loan yield 4.57% 4.58% 4.53% 4.43% 4.37%
Cash equivalents yield 1.60% 1.73% 1.54% 1.19% 1.09%
Investment yield 2.55% 2.65% 2.60% 2.81% 2.69%
Earning asset yield 3.91% 3.91% 3.87% 3.89% 3.81%
Interest-bearing deposit rate 0.18% 0.15% 0.14% 0.14% 0.14%
Borrowing rate 1.96% 1.80% 1.48% 1.32% 1.44%
Cost of all interest-bearing funds 0.29% 0.25% 0.23% 0.22% 0.24%
Cost of funds (includes DDA) 0.21% 0.19% 0.17% 0.16% 0.18%
Net interest margin (FTE) 3.71% 3.73% 3.71% 3.74% 3.64%
Fully tax-equivalent adjustment       $1,071     $1,094     $1,118     $2,375     $2,381
 
                     

Summary of Financial Data

(Dollars in thousands, except per share data)                          
2018     2017
        3rd Qtr     2nd Qtr     1st Qtr     4th Qtr     3rd Qtr
Average Balances                                
Loans $6,289,868 $6,250,739 $6,237,824 $6,274,679 $6,343,468
Cash equivalents 26,832 170,745 90,406 34,223 26,986
Taxable investment securities 2,574,116 2,575,962 2,583,446 2,572,703 2,571,459
Nontaxable investment securities 441,719 457,254 468,773 491,578 511,182
Total interest-earning assets 9,332,535 9,454,700 9,380,449 9,373,183 9,453,095
Total assets 10,619,872 10,752,203 10,715,529 10,757,836 10,862,613
Interest-bearing deposits 6,077,581 6,282,098 6,219,052 6,206,663 6,230,591
Borrowings 393,483 397,101 453,114 449,377 541,036
Total interest-bearing liabilities 6,471,064 6,679,199 6,672,166 6,656,040 6,771,627
Noninterest-bearing deposits 2,336,778 2,287,722 2,268,778 2,307,155 2,307,205
Shareholders’ equity       1,664,234     1,640,076     1,625,951     1,598,056     1,587,279
Balance Sheet Data                                
Cash and cash equivalents $256,838 $250,154 $543,899 $221,038 $241,480
Investment securities 2,948,057 2,983,352 3,032,642 3,081,379 3,125,218
Loans:
Business lending 2,403,624 2,384,629 2,426,086 2,424,223 2,458,981
Consumer mortgage 2,220,022 2,210,051 2,211,882 2,220,298 2,206,527
Consumer indirect 1,098,943 1,063,679 1,008,198 1,011,978 1,034,716
Home equity 393,950 398,433 407,832 420,329 424,598
Consumer direct 184,349 181,217 173,032 179,929 183,898
Total loans 6,300,888 6,238,009 6,227,030 6,256,757 6,308,720
Allowance for loan losses 50,133 49,618 48,103 47,583 47,983
Intangible assets, net 811,700 816,127 820,584 825,088 824,355
Other assets 392,217 395,070 390,503 409,519 398,428
Total assets 10,659,567 10,633,094 10,966,555 10,746,198 10,850,218
Deposits:
Noninterest-bearing 2,346,932 2,332,745 2,372,824 2,293,057 2,310,954
Non-maturity interest-bearing 5,366,488 5,439,101 5,642,109 5,377,059 5,495,377
Time 750,401 742,147 756,159 774,304 799,659
Total deposits 8,463,821 8,513,993 8,771,092 8,444,420 8,605,990
Borrowings 276,559 183,785 281,744 363,082 314,289
Subordinated debt held by unconsolidated subsidiary trusts 97,939 122,826 122,820 122,814 122,808
Accrued interest and other liabilities 152,903 155,531 159,433 180,567 213,886
Total liabilities 8,991,222 8,976,135 9,335,089 9,110,883 9,256,973
Shareholders’ equity 1,668,345 1,656,959 1,631,466 1,635,315 1,593,245
Total liabilities and shareholders’ equity       10,659,567     10,633,094     10,966,555     10,746,198     10,850,218
Capital                                
Tier 1 leverage ratio 10.72% 10.53% 10.19% 10.00% 9.54%
Tangible equity/net tangible assets (2) 9.13% 9.00% 8.42% 8.61% 8.36%
Diluted weighted average common shares O/S 52,086 51,939 51,677 51,569 51,526
Period end common shares outstanding 51,137 51,086 50,884 50,696 50,587
Cash dividends declared per common share $0.38 $0.34 $0.34 $0.34 $0.34
Book value $32.63 $32.43 $32.06 $32.26 $31.50
Tangible book value(2) $17.67 $17.39 $16.88 $16.94 $16.70
Common stock price (end of period)       $61.07     $59.07     $53.56     $53.75     $55.25
 
                     

Summary of Financial Data

(Dollars in thousands, except per share data)                          
2018     2017
        3rd Qtr     2nd Qtr     1st Qtr     4th Qtr     3rd Qtr
Asset Quality                                
Nonaccrual loans $21,982 $22,807 $23,239 $24,740 $21,510
Accruing loans 90+ days delinquent 2,951 6,532 6,425 2,706 1,861
Total nonperforming loans 24,933 29,339 29,664 27,446 23,371
Other real estate owned (OREO) 1,142 1,310 1,865 1,915 1,873
Total nonperforming assets 26,075 30,649 31,529 29,361 25,244
Net charge-offs 1,700 933 3,159 5,781 1,782
Allowance for loan losses/loans outstanding 0.80% 0.80% 0.77% 0.76% 0.76%
Nonperforming loans/loans outstanding 0.40% 0.47% 0.48% 0.44% 0.37%
Allowance for loan losses/nonperforming loans 201% 169% 162% 173% 205%
Net charge-offs/average loans 0.11% 0.06% 0.21% 0.37% 0.11%
Delinquent loans/ending loans 0.93% 0.89% 1.01% 1.10% 1.05%
Loan loss provision/net charge-offs 130% 262% 116% 93% 130%
Nonperforming assets/total assets       0.24%     0.29%     0.29%     0.27%     0.23%
Asset Quality (excluding loans acquired since 1/1/09)                                
Nonaccrual loans $14,684 $14,644 $15,161 $16,020 $15,069
Accruing loans 90+ days delinquent 2,688 6,243 5,894 2,502 1,589
Total nonperforming loans 17,372 20,887 21,055 18,522 16,658
Other real estate owned (OREO) 859 1,025 1,336 1,221 1,257
Total nonperforming assets 18,231 21,912 22,391 19,743 17,915
Net charge-offs 1,533 552 1,800 2,279 1,624
Allowance for loan losses/loans outstanding 0.96% 0.98% 0.97% 0.98% 1.00%
Nonperforming loans/loans outstanding 0.35% 0.43% 0.45% 0.40% 0.36%
Allowance for loan losses/nonperforming loans 274% 225% 216% 244% 276%
Net charge-offs/average loans 0.12% 0.05% 0.16% 0.20% 0.14%
Delinquent loans/ending loans 0.97% 0.91% 1.01% 1.12% 1.16%
Loan loss provision/net charge-offs 138% 364% 122% 67% 125%
Nonperforming assets/total assets       0.20%     0.24%     0.24%     0.22%     0.20%
 
                     

Summary of Financial Data

(Dollars in thousands, except per share data)                          
2018     2017
        3rd Qtr     2nd Qtr     1st Qtr     4th Qtr     3rd Qtr
Quarterly GAAP to Non-GAAP Reconciliations                                
Income statement data
Net income
Net income (GAAP) $43,106 $44,606 $40,106 $72,026 $35,243
Acquisition expenses (832) 71 (8) 794 580
Tax effect of acquisition expenses 174 (13) 2 (227) (181)
Tax Cuts and Jobs Act deferred tax impact 0     0     0     (38,010)     0
Subtotal (non-GAAP) 42,448 44,664 40,100 34,583 35,642
Unrealized (gain)loss on equity securities (743) 21 0 0 0
Tax effect of unrealized (gain)loss on equity securities 156     (4)     0     0     0
Subtotal (non-GAAP) 41,861 44,681 40,100 34,583 35,642
Loss on debt extinguishment 318 0 0 0 0
Tax effect of loss on debt extinguishment (67)     0     0     0     0
Subtotal (non-GAAP) 42,112 44,681 40,100 34,583 35,642
Amortization of intangibles 4,427 4,555 4,798 4,961 4,949
Tax effect of amortization of intangibles (928)     (850)     (1,105)     (1,417)     (1,545)
Subtotal (non-GAAP) 45,611 48,386 43,793 38,127 39,046
Acquired non-impaired loan accretion (1,980) (2,040) (2,063) (1,930) (1,879)
Tax effect of acquired non-impaired loan accretion 415     381     475     551     587
Adjusted net income (non-GAAP) $44,046     $46,727     $42,205     $36,748     $37,754
 
Return on average assets
Adjusted net income (non-GAAP) $44,046 $46,727 $42,205 $36,748 $37,754
Average total assets 10,619,872     10,752,203     10,715,529     10,757,836     10,862,613
Adjusted return on average assets 1.65%     1.74%     1.60%     1.36%     1.38%
 
Return on average equity
Adjusted net income (non-GAAP) $44,046 $46,727 $42,205 $36,748 $37,754
Average total equity 1,664,234     1,640,076     1,625,951     1,598,056     1,587,279
Adjusted return on average equity 10.50%     11.43%     10.53%     9.12%     9.44%
 
Earnings per common share
Diluted earnings per share (GAAP) $0.83 $0.86 $0.78 $1.40 $0.68
Acquisition expenses (0.02) 0.00 0.00 0.02 0.01
Tax effect of acquisition expenses 0.00 0.00 0.00 (0.01) 0.00
Tax Cuts and Jobs Act deferred tax impact 0.00     0.00     0.00     (0.74)     0.00
Subtotal (non-GAAP) 0.81 0.86 0.78 0.67 0.69
Unrealized (gain)loss on equity securities (0.01) 0.00 0.00 0.00 0.00
Tax effect of unrealized (gain)loss on equity securities 0.00     0.00     0.00     0.00     0.00
Subtotal (non-GAAP) 0.80 0.86 0.78 0.67 0.69
Loss on debt extinguishment 0.01 0.00 0.00 0.00 0.00
Tax effect of loss on debt extinguishment 0.00     0.00     0.00     0.00     0.00
Subtotal (non-GAAP) 0.81 0.86 0.78 0.67 0.69
Amortization of intangibles 0.08 0.09 0.09 0.10 0.10
Tax effect of amortization of intangibles (0.02)     (0.02)     (0.02)     (0.03)     (0.03)
Subtotal (non-GAAP) 0.87 0.93 0.85 0.74 0.76
Acquired non-impaired loan accretion (0.04) (0.04) (0.04) (0.04) (0.04)
Tax effect of acquired non-impaired loan accretion 0.01     0.01     0.01     0.01     0.01
Diluted adjusted net earnings per share (non-GAAP) 0.84     0.90     0.82     0.71     0.73
 
                     

Summary of Financial Data

(Dollars in thousands, except per share data)                          
2018     2017
        3rd Qtr     2nd Qtr     1st Qtr     4th Qtr     3rd Qtr
Quarterly GAAP to Non-GAAP Reconciliations                                
Income statement data (continued)
Noninterest operating expenses
Noninterest expenses (GAAP) $85,233 $86,112 $86,331 $86,919 $83,776
Amortization of intangibles (4,427) (4,555) (4,798) (4,961) (4,949)
Acquisition expenses 832     (71)     8     (794)     (580)
Total adjusted noninterest expenses (non-GAAP) $81,638     $81,486     $81,541     $81,164     $78,247
 
Efficiency ratio
Adjusted noninterest expenses (non-GAAP) – numerator $81,638     $81,486     $81,541     $81,164     $78,247
Tax-equivalent net interest income 87,269 87,940 85,742 88,352 86,776
Noninterest revenues 55,791 56,559 57,491 53,938 52,941
Acquired non-impaired loan accretion (1,980) (2,040) (2,063) (1,930) (1,879)
Unrealized (gain)loss on equity securities (743) 21 0 0 0
Loss on debt extinguishment 318     0     0     0     0
Operating revenues (non-GAAP) – denominator 140,655 142,480 141,170 140,360 137,838
Efficiency ratio (non-GAAP) 58.0% 57.2% 57.8% 57.8% 56.8%
 
Balance sheet data
Total assets
Total assets (GAAP) $10,659,567 $10,633,094 $10,966,555 $10,746,198 $10,850,218
Intangible assets (811,700) (816,127) (820,584) (825,088) (824,355)
Deferred taxes on intangible assets 46,882     47,334     47,904     48,419     75,820
Total tangible assets (non-GAAP) 9,894,749     9,864,301     10,193,875     9,969,529     10,101,683
 
Total common equity
Shareholders’ Equity (GAAP) 1,668,345 1,656,959 1,631,466 1,635,315 1,593,245
Intangible assets (811,700) (816,127) (820,584) (825,088) (824,355)
Deferred taxes on intangible assets 46,882     47,334     47,904     48,419     75,820
Total tangible common equity (non-GAAP) 903,527     888,166     858,786     858,646     844,710
 
Net tangible equity-to-assets ratio at quarter end
Total tangible common equity (non-GAAP) – numerator $903,527     $888,166     $858,786     $858,646     $844,710
Total tangible assets (non-GAAP) – denominator 9,894,749     9,864,301     10,193,875     9,969,529     10,101,683
Net tangible equity-to-assets ratio at quarter end (non-GAAP) 9.13%     9.00%     8.42%     8.61%     8.36%
                                 
 
(1) Excludes unrealized gains and losses on equity securities and loss on debt extinguishment.
(2) Includes deferred tax liabilities related to certain intangible assets.
 

Community Bank System, Inc.
Joseph E. Sutaris, 315-445-7396
EVP
& Chief Financial Officer

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