SYRACUSE, N.Y.--(BUSINESS WIRE)--Community Bank System, Inc. (NYSE:CBU) reported first quarter 2014 net income of $22.2 million, an increase of 9.5% compared with $20.2 million earned for the first quarter of 2013. Diluted earnings per share totaled $0.54 for the first quarter of 2014, up 8.0% from $0.50 reported in the first quarter of 2013. First quarter 2014 net income and noninterest income were the highest quarterly amounts ever recorded by the Company.
Total revenue for the first quarter of 2014 was $88.5 million, an increase of $3.9 million, or 4.7%, over the first quarter of 2013. Higher revenue resulted from an eight-basis point increase in the Company’s net interest margin to 3.94%, primarily related to a significant decline in borrowing costs resulting from balance sheet repositioning actions in 2013. Additionally, continued organic growth drove a $1.4 million, or 10.7% increase in the Company’s revenue from its wealth management and employee benefit services businesses. Banking fee income from deposit services and mortgage banking, increased $0.8 million year-over-year, while linked quarter revenues were lower, as seasonally expected. Revenue growth was supported by an increased core deposit account base resulting from solid organic growth in addition to the successful integration of eight Bank of America branches acquired in Pennsylvania in late 2013. The quarterly provision for loan losses of $1.0 million was $0.4 million lower than the first quarter of 2013, reflective of lower net charge-offs and the continuation of generally stable and favorable asset quality metrics. Total operating expenses of $55.9 million for the quarter were $1.4 million, or 2.5%, higher than the first quarter of 2013, driven by the additional operating costs associated with the completed Bank of America branch acquisitions and atypically higher seasonal maintenance and utility costs.
“Community Bank’s trend of solid execution continued again in 2014’s first quarter, with strong operating results demonstrating the strength of our diversified franchise,” said President and Chief Executive Officer Mark E. Tryniski. “The momentum from our successful balance sheet initiatives and branch acquisitions in 2013 were catalysts for improved results as we began 2014. Our employee benefit services and wealth management groups delivered record earnings on robust growth in existing and new customer relationships. Loans and deposits grew from year-ago levels, while strong asset quality continued to reflect the strength of our underwriting and stable economic trends in our markets. In 2014 we continue to focus on executing our long-term approach to value creation for the benefit of our shareholders.”
First quarter 2014 net interest income was $60.1 million, an increase of $1.7 million, or 2.9%, compared to the first quarter of 2013. In addition to the $0.9 million benefit to interest expense from continued deposit growth and an improved funding mix, growth in net interest income was driven by a $5.5 million decrease in borrowing interest expense resulting from last year’s balance sheet repositioning actions. These actions effectively lowered the cost of borrowed funds by 286 basis points and contributed to a $283.9 million decline in average borrowed funds year-over-year. Improved funding costs were partially offset by a 31-basis point decline in earning asset yields, driven by lower blended interest rates on loans and investment securities. While average loan balances grew $239.1 million, or 6.2%, average loan yields declined 43 basis points year-over-year, resulting in a $1.4 million reduction in loan income. Investment income fell $3.3 million largely due to the Company’s balance sheet repositioning actions in 2013, which resulted in average investment securities balances (including cash equivalents) falling by $222.5 million compared to the prior year’s first quarter, while yields fell 23 basis points.
First quarter non-interest income increased $2.3 million to $28.4 million, representing an increase of 8.6% compared to last year’s first quarter. Income expanded across all banking and financial services categories. Financial services revenue reached record levels as wealth management revenues increased $0.8 million, or 21.0% over first quarter 2013, while employee benefit services revenue grew 6.8% to $10.4 million. Strong customer expansion and market momentum from 2013 drove the improved performance. Deposit service revenues grew $0.7 million, or 5.7%, to $12.3 million, reflecting meaningful core deposit account growth as a result of the branch acquisitions and organic growth initiatives across the franchise.
Quarterly operating expenses of $55.9 million increased $1.4 million, or 2.5%, over the first quarter of 2013. Occupancy and equipment costs grew $0.6 million, or 8.9%, primarily as a result of the December 2013 branch acquisitions as well as higher facility maintenance and utility costs in more severe winter conditions compared to the first quarter of 2013. Salaries and employee benefits grew $0.3 million, or 0.8%, and included the additional personnel from the branch acquisitions as well as merit increases. These increases were partially offset by lower retirement plan expenses related to plan asset performance and discount rate changes. Other expenses further reflected the increased costs of operating an expanded franchise, with acquisition expenses totaling $0.1 million and total other expenses rising $0.4 million, or 2.2%.
The first quarter 2014 effective income tax rate of 29.7% increased compared to 29.2% in last year’s first quarter, reflecting a higher proportion of income being generated from fully taxable sources.
Financial Position
Average earning assets of $6.6 billion for the first quarter of 2014 were essentially flat with the linked and prior year first quarter. Overall average earning asset balances included growth of $30.6 million in average loan balances, while average investment securities and cash balances declined by an offsetting $29.4 million. Lower securities balances reflect the full-quarter impact of fourth quarter 2013 balance sheet actions, including sales of collateralized debt obligation securities and certain Treasury securities. Average deposits increased $238.2 million compared to the fourth quarter of 2013, and were up $258.3 million from the first quarter of 2013, principally from the branch acquisition.
Ending loans at March 31, 2014 increased $234.8 million, or 6.1%, year-over-year, reflecting strong organic growth in the Company’s consumer lending portfolios. Ending loans decreased $12.7 million from December 31, 2013, reflecting normal seasonal fluctuations. Ending investment securities, including cash equivalents, totaled $2.52 billion at March 31, 2014, or $137.9 million lower than March 31, 2013 due to the balance sheet restructuring initiatives undertaken in 2013. Quarter-end borrowings of $217.1 million were $144.3 million lower than the year-ago quarter, also due to the balance sheet restructuring actions and net liquidity from the branch acquisitions. Deposit balances at March 31, 2014 totaled $6.04 billion, up $264.1 million, or 4.6%, from the year-ago quarter. Deposit balances grew $142.8 million from December 31, 2013, and included the expected seasonal increase in municipal funds. Growth across all core deposit categories outpaced declines in time deposit balances.
Shareholders’ equity of $918.1 million at March 31, 2014 was $40.8 million, or 4.7%, higher than the prior year quarter-end, primarily due to strong earnings generation and retention over the last four quarters. The Company’s net tangible equity to net tangible assets ratio was 7.97% at March 31, 2014, up from 7.68% at December 31, 2013. Its Tier 1 leverage ratio grew to 9.48% for the current quarter, up 19 basis points from the fourth quarter of 2013.
Asset Quality
The Company’s asset quality metrics continue to be favorable relative to comparative peer and industry averages and illustrate the long-term effectiveness of the Company’s disciplined risk management and underwriting standards. Net charge-offs were $1.1 million for the first quarter, compared to $2.9 million for the fourth quarter of 2013 and $1.4 million for first quarter of 2013. As an annualized percentage of average loans, net charge-offs measured 0.11% in the first quarter of 2014, compared to 0.29% and 0.14% in the linked and year-ago quarters, respectively. Nonperforming loans as a percentage of total loans at March 31, 2014 were 0.58%, compared to 0.54% at December 31, 2013, and down from 0.71% of total loans at March 31, 2013. The total delinquency ratio of 1.25% at the end of the first quarter was down 24 basis points from the end of 2013 and down 30 basis points from March 31, 2013. The first quarter provision for loan losses of $1.0 million was $2.2 million, or 68.6% lower than the fourth quarter of 2013, and $0.4 million, or 28.2%, lower than the first quarter of 2013. The allowance for loan losses to nonperforming loans was 187% at March 31, 2014, compared to 201% at December 31, 2013 and 157% as of March 31, 2013.
Cash Dividend Declared / Stock Repurchase Authorization
As previously disclosed, in the first quarter of 2014 the Company’s Board of Directors declared a quarterly cash dividend to shareholders of $0.28 per share on its common stock. The dividend was paid on April 10, 2014 to shareholders of record as of March 14, 2014.
Also as previously announced, the Company’s Board of Directors approved a stock repurchase program authorizing the repurchase of up to 2,000,000 shares of the Company’s common stock during a twelve-month period starting January 1, 2014. Such repurchases may be made at the discretion of senior management depending 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. The Company did not repurchase any stock in the first quarter of 2014.
Annual Meeting Scheduled
The Company’s Annual Meeting of Shareholders will be held at 1:00 p.m. (ET) on Wednesday, May 14, 2014 at the DoubleTree by Hilton Hotel in East Syracuse, New York.
Conference Call Scheduled
Company management will conduct an investor call at 11:00 a.m. (ET) tomorrow (Wednesday) April 23, 2014 to discuss first quarter results. The conference call can be accessed at 888-397-5352 (1-719-325-2428 if outside United States and Canada) using the conference ID code 5113627. Investors may also listen live via the Internet at: http://www.videonewswire.com/event.asp?id=98782.
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 190 customer facilities across Upstate New York and Northeastern Pennsylvania through its banking subsidiary, Community Bank, N.A. With assets of approximately $7.4 billion, the DeWitt, N.Y. headquartered company is among the country's 100 largest financial institutions. In addition to a full range of retail and business banking services, Community Bank System offers comprehensive financial planning and wealth management services and operates a full service insurance agency providing personal and business insurance needs. The Company's Benefit Plans Administrative Services, Inc. subsidiary is a leading provider of employee benefits administration and trust services, actuarial and 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.
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 CBU’s operations to differ materially from CBU’s 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. These statements are based on the current beliefs and expectations of CBU’s management and CBU does not assume any duty to update forward-looking statements.
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Summary of Financial Data |
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| (Dollars in thousands, except per share data) | ||||||||||
| 2014 | 2013 | |||||||||
| 1st Qtr | 4th Qtr | 3rd Qtr | 2nd Qtr | 1st Qtr | ||||||
| Earnings | ||||||||||
| Loan income | $45,693 | $47,061 | $47,606 | $46,412 | $47,118 | |||||
| Investment income | 17,546 | 18,901 | 18,526 | 17,728 | 20,807 | |||||
| Total interest income | 63,239 | 65,962 | 66,132 | 64,140 | 67,925 | |||||
| Interest expense | 3,131 | 5,326 | 5,531 | 5,708 | 9,500 | |||||
| Net interest income | 60,108 | 60,636 | 60,601 | 58,432 | 58,425 | |||||
| Provision for loan losses | 1,000 | 3,185 | 2,093 | 1,321 | 1,393 | |||||
| Net interest income after provision for loan losses | 59,108 | 57,451 | 58,508 | 57,111 | 57,032 | |||||
| Deposit service fees | 12,255 | 12,714 | 12,703 | 12,345 | 11,595 | |||||
| Mortgage banking revenues | 284 | 562 | 599 | 341 | 171 | |||||
| Other banking services | 906 | 954 | 1,072 | 679 | 867 | |||||
| Wealth management services | 4,474 | 3,984 | 3,823 | 4,045 | 3,698 | |||||
| Employee benefit services | 10,435 | 10,032 | 9,397 | 9,397 | 9,770 | |||||
| Gain on sales of investment securities | 0 | 16,969 | 0 | 16,008 | 47,791 | |||||
| Loss on debt extinguishments | 0 | (23,836) | 0 | (15,717) | (47,783) | |||||
| Total noninterest income | 28,354 | 21,379 | 27,594 | 27,098 | 26,109 | |||||
| Salaries and employee benefits | 30,740 | 30,412 | 30,448 | 30,286 | 30,483 | |||||
| Occupancy and equipment | 7,691 | 6,782 | 6,448 | 6,750 | 7,065 | |||||
| Amortization of intangible assets | 1,141 | 1,061 | 1,089 | 1,140 | 1,179 | |||||
| Acquisition expenses | 123 | 2,105 | 71 | 0 | 5 | |||||
| Other | 16,226 | 16,923 | 16,988 | 16,200 | 15,820 | |||||
| Total operating expenses | 55,921 | 57,283 | 55,044 | 54,376 | 54,552 | |||||
| Income before income taxes | 31,541 | 21,547 | 31,058 | 29,833 | 28,589 | |||||
| Income taxes | 9,368 | 6,070 | 9,069 | 8,711 | 8,348 | |||||
| Net income | 22,173 |
15,477 |
21,989 | 21,122 | 20,241 | |||||
| Basic earnings per share | $0.55 | $0.38 | $0.55 | $0.53 | $0.51 | |||||
| Diluted earnings per share | $0.54 | $0.38 | $0.54 | $0.52 | $0.50 | |||||
| Profitability | ||||||||||
| Return on assets | 1.23% | 0.84% | 1.22% | 1.21% | 1.11% | |||||
| Return on equity | 9.92% | 7.04% | 10.26% | 9.70% | 9.18% | |||||
| Return on tangible equity(3) | 16.37% | 11.78% | 17.57% | 16.38% | 15.32% | |||||
| Noninterest income/operating income (FTE) (1) | 30.7% | 30.5% | 30.0% | 30.2% | 29.5% | |||||
| Efficiency ratio (2) | 59.2% | 58.5% | 58.6% | 59.9% | 60.3% | |||||
| Components of Net Interest Margin (FTE) | ||||||||||
| Loan yield | 4.55% | 4.61% | 4.76% | 4.79% | 4.98% | |||||
| Cash equivalents yield | 0.25% | 0.22% | 0.22% | 0.26% | 0.26% | |||||
| Investment yield | 3.46% | 3.54% | 3.52% | 3.83% | 3.79% | |||||
| Earning asset yield | 4.13% | 4.20% | 4.28% | 4.35% | 4.44% | |||||
| Interest-bearing deposit rate | 0.19% | 0.21% | 0.22% | 0.24% | 0.28% | |||||
| Borrowing rate | 0.90% | 1.86% | 2.02% | 3.36% | 3.76% | |||||
| Cost of all interest-bearing funds | 0.25% | 0.41% | 0.43% | 0.46% | 0.73% | |||||
| Cost of funds (includes DDA) | 0.20% | 0.33% | 0.35% | 0.38% | 0.61% | |||||
| Net interest margin (FTE) | 3.94% | 3.88% | 3.94% | 3.98% | 3.86% | |||||
| Fully tax-equivalent adjustment | $3,834 | $3,666 | $3,728 | $3,644 | $4,022 | |||||
| Summary of Financial Data | |||||||||||
| (Dollars in thousands, except per share data) | |||||||||||
| 2014 | 2013 | ||||||||||
| 1st Qtr | 4th Qtr | 3rd Qtr | 2nd Qtr | 1st Qtr | |||||||
| Average Balances | |||||||||||
| Loans | $4,099,828 | $4,069,204 | $3,985,755 | $3,899,744 | $3,860,722 | ||||||
| Cash equivalents | 9,782 | 11,085 | 8,644 | 148,188 | 83,812 | ||||||
| Taxable investment securities | 1,833,296 | 1,861,206 | 1,833,355 | 1,565,756 | 1,965,073 | ||||||
| Nontaxable investment securities | 638,975 | 639,199 | 644,728 | 642,424 | 655,694 | ||||||
| Total interest-earning assets | 6,581,881 | 6,580,694 | 6,472,482 | 6,256,112 | 6,565,301 | ||||||
| Total assets | 7,333,082 | 7,278,167 | 7,154,796 | 7,003,823 | 7,368,906 | ||||||
| Interest-bearing deposits | 4,736,746 | 4,546,591 | 4,511,199 | 4,581,206 | 4,581,130 | ||||||
| Borrowings | 402,548 | 634,472 | 589,065 | 358,627 | 686,483 | ||||||
| Total interest-bearing liabilities | 5,139,294 | 5,181,063 | 5,100,264 | 4,939,833 | 5,267,613 | ||||||
| Noninterest-bearing deposits | 1,197,922 | 1,149,873 | 1,138,039 | 1,095,774 | 1,095,256 | ||||||
| Shareholders' equity | 906,787 | 872,567 | 850,238 | 873,108 | 893,746 | ||||||
| Balance Sheet Data | |||||||||||
| Cash and cash equivalents | $153,417 | $149,647 | $174,205 | $148,573 | $330,298 | ||||||
| Investment securities | 2,506,221 | 2,218,725 | 2,518,574 | 2,366,512 | 2,448,120 | ||||||
| Loans: | |||||||||||
| Business lending | 1,246,070 | 1,260,364 | 1,214,796 | 1,225,671 | 1,222,835 | ||||||
| Consumer mortgage | 1,579,322 | 1,582,058 | 1,570,607 | 1,527,341 | 1,480,192 | ||||||
| Consumer indirect | 755,849 | 740,002 | 713,310 | 663,924 | 639,560 | ||||||
| Home equity | 340,760 | 346,520 | 348,246 | 347,335 | 353,365 | ||||||
| Consumer direct | 174,357 | 180,139 | 178,496 | 171,727 | 165,649 | ||||||
| Total loans | 4,096,358 | 4,109,083 | 4,025,455 | 3,935,998 | 3,861,601 | ||||||
| Allowance for loan losses | 44,197 | 44,319 | 44,083 | 43,473 | 42,913 | ||||||
| Intangible assets, net | 390,119 | 390,499 | 383,735 | 384,815 | 385,954 | ||||||
| Other assets | 295,310 | 272,229 | 244,131 | 228,291 | 238,013 | ||||||
| Total assets | 7,397,228 | 7,095,864 | 7,302,017 | 7,020,716 | 7,221,073 | ||||||
| Deposits: | |||||||||||
| Noninterest-bearing | 1,225,977 | 1,203,346 | 1,158,013 | 1,120,683 | 1,115,417 | ||||||
| Non-maturity interest-bearing | 3,928,230 | 3,766,145 | 3,630,684 | 3,608,829 | 3,678,905 | ||||||
| Time | 884,681 | 926,553 | 898,636 | 940,618 | 980,502 | ||||||
| Total deposits | 6,038,888 | 5,896,044 | 5,687,333 | 5,670,130 | 5,774,824 | ||||||
| Borrowings | 217,110 | 141,913 | 567,116 | 322,319 | 361,422 | ||||||
| Subordinated debt held by unconsolidated subsidiary trusts | 102,103 | 102,097 | 102,091 | 102,085 | 102,079 | ||||||
| Accrued interest and other liabilities | 120,991 | 79,998 | 79,798 | 76,151 | 105,454 | ||||||
| Total liabilities | 6,479,092 | 6,220,052 | 6,436,338 | 6,170,685 | 6,343,779 | ||||||
| Shareholders' equity | 918,136 | 875,812 | 865,679 | 850,031 | 877,294 | ||||||
| Total liabilities and shareholders' equity | 7,397,228 | 7,095,864 | 7,302,017 | 7,020,716 | 7,221,073 | ||||||
| Capital | |||||||||||
| Tier 1 leverage ratio | 9.48% | 9.29% | 9.39% | 9.43% | 8.78% | ||||||
| Tangible equity/net tangible assets (3) | 7.97% | 7.68% | 7.38% | 7.43% | 7.58% | ||||||
| Diluted weighted average common shares O/S | 41,152 | 41,061 | 40,850 | 40,558 | 40,321 | ||||||
| Period end common shares outstanding | 40,658 | 40,431 | 40,296 | 40,099 | 39,989 | ||||||
| Cash dividends declared per common share | $0.28 | $0.28 | $0.28 | $0.27 | $0.27 | ||||||
| Book value | $22.58 | $21.66 | $21.48 | $21.20 | $21.94 | ||||||
| Tangible book value(3) | $13.79 | $12.80 | $12.73 | $12.35 | $13.01 | ||||||
| Common stock price (end of period) | $39.02 | $39.68 | $34.12 | $30.85 | $29.63 | ||||||
| Summary of Financial Data | |||||
| (Dollars in thousands, except per share data) | |||||
| 2014 | 2013 | ||||
| 1st Qtr | 4th Qtr | 3rd Qtr | 2nd Qtr | 1st Qtr | |
| Asset Quality | |||||
| Nonaccrual loans | $21,669 | $19,473 | $21,713 | $22,997 | $24,806 |
| Accruing loans 90+ days delinquent | 1,977 | 2,555 | 2,650 | 1,439 | 2,560 |
| Total nonperforming loans | 23,646 | 22,028 | 24,363 | 24,436 | 27,366 |
| Other real estate owned (OREO) | 4,914 | 5,060 | 5,218 | 5,066 | 6,838 |
| Total nonperforming assets | 28,560 | 27,088 | 29,581 | 29,502 | 34,204 |
| Net charge-offs | 1,122 | 2,949 | 1,483 | 761 | 1,368 |
| Allowance for loan losses/loans outstanding | 1.08% | 1.08% | 1.10% | 1.10% | 1.11% |
| Nonperforming loans/loans outstanding | 0.58% | 0.54% | 0.61% | 0.62% | 0.71% |
| Allowance for loan losses/nonperforming loans | 187% | 201% | 181% | 178% | 157% |
| Net charge-offs/average loans | 0.11% | 0.29% | 0.14% | 0.08% | 0.14% |
| Delinquent loans/ending loans | 1.25% | 1.49% | 1.48% | 1.50% | 1.55% |
| Loan loss provision/net charge-offs | 89% | 108% | 147% | 173% | 102% |
| Nonperforming assets/total assets | 0.39% | 0.38% | 0.41% | 0.42% | 0.47% |
| Asset Quality (excluding loans acquired since 1/1/09) | |||||
| Nonaccrual loans | $17,756 | $16,065 | $17,365 | $18,272 | $19,756 |
| Accruing loans 90+ days delinquent | 1,826 | 2,418 | 2,471 | 1,349 | 2,164 |
| Total nonperforming loans | 19,582 | 18,483 | 19,836 | 19,621 | 21,920 |
| Other real estate owned (OREO) | 2,645 | 2,832 | 2,767 | 2,963 | 3,844 |
| Total nonperforming assets | 22,515 | 21,315 | 22,603 | 22,584 | 25,764 |
| Net charge-offs | 1,086 | 1,956 | 1,583 | 604 | 1,102 |
| Allowance for loan losses/loans outstanding | 1.15% | 1.15% | 1.16% | 1.19% | 1.21% |
| Nonperforming loans/loans outstanding | 0.52% | 0.49% | 0.54% | 0.55% | 0.64% |
| Allowance for loan losses/nonperforming loans | 222% | 234% | 215% | 215% | 190% |
| Net charge-offs/average loans | 0.12% | 0.21% | 0.17% | 0.07% | 0.13% |
| Delinquent loans/ending loans | 1.17% | 1.44% | 1.45% | 1.44% | 1.48% |
| Loan loss provision/net charge-offs | 121% | 130% | 126% | 210% | 113% |
| Nonperforming assets/total assets | 0.31% | 0.32% | 0.33% | 0.34% | 0.38% |
| (1) Excludes gains and losses on sales of investment securities and debt prepayments. | |||||
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(2) Excludes intangible amortization,
acquisition expenses, litigation settlement charge, gains and
losses on sales of investment |
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| (3) Includes deferred tax liabilities (of approximately $32.8 million at 3/31/14) 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 CBU’s operations to differ materially from CBU’s 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.
