Community Bank System, Inc. (NYSE: CBU) reported third quarter 2011 net income of $20.0 million ($0.54 per share), an increase of 15.9% over the $17.3 million reported for the third quarter of 2010. The third quarter’s record results included $0.4 million ($0.01 per share) of acquisition expenses related to the Company’s purchase of The Wilber Corporation, completed in early April. 2011 year-to-date earnings of $54.2 million, or $1.50 per share, include $4.7 million ($0.09 per share, after-tax) of acquisition expenses, and were up 14.2% over the first nine months of 2010.

Total revenue for the third quarter of 2011 was $77.8 million, an increase of $8.6 million, or 12.4%, over the third quarter of last year. The higher revenue was a result of a 17.8% increase in average earning assets, principally from the Wilber acquisition, offset slightly by a four-basis point decline in the Company’s net interest margin to 4.04%. The quarterly provision for loan losses of $1.0 million was $0.4 million lower than the third quarter of 2010, reflective of lower net charge-offs and the continuation of generally stable and favorable asset quality metrics. Total operating expenses were $48.1 million for the quarter, including $0.4 million of acquisition expenses related to the Wilber transaction. Recurring operating expenses of $47.7 million (excluding acquisition expenses and special charges) for the quarter were $3.4 million, or 7.7%, higher than the third quarter of 2010, primarily reflective of the additional operating costs associated with the Wilber acquisition.

“Our strong earnings momentum continued through the third quarter as we achieved another quarter of record earnings,” said President and Chief Executive Officer Mark E. Tryniski. “Despite the challenging operating environment, we remain positioned for a strong finish to 2011 and an equally strong start to the new year. We remain very pleased with the performance of our new Central New York region (the former Wilber National Bank branches) and the response of our customers to the availability of enhanced product offerings. The combination of organic consumer loan and core deposit growth, focused expense management and excellent asset quality metrics, continue to provide favorable bottom-line results. With third quarter net charge-offs of $1.1 million, or 0.13% of average loans, and nonperforming loans to total loans of 0.54%, we continue to believe that the quality of our loan portfolios will remain a significant operating strength.”

Third quarter net interest income grew to $54.6 million, an increase of 17.8% above the third quarter of 2010, resulting from an $867 million increase in average interest-earning assets, offset by a slightly lower net interest margin. Although the Company has productively reinvested most of its cash flow generation during the last year, it still retains a significant net liquidity position, with average balances rising above $240 million for the third quarter. Low market interest rates and continued disciplined deposit pricing resulted in a 23-basis point reduction in the total cost of funds, in comparison to the third quarter of 2010. However, this was more than offset by a 28-basis point decline in earning-asset yields, reflective of lower yields on investment securities, and a $190 million increase in low-rate, invested cash equivalents versus last year’s third quarter. On a linked quarter basis the Company’s net interest margin declined nine basis points, with a significant portion of the decline related to higher invested cash balances.

Third quarter non-interest income of $23.2 million was 1.3% higher than the third quarter of last year. The Company’s employee benefits administration and consulting businesses grew revenues by 5.9 % over last year’s third quarter, and its wealth management group generated a 21.0% revenue improvement, principally from activities related to the Wilber acquisition. Mortgage banking revenues were down $0.9 million from last year’s third quarter, reflective of the very robust demand conditions in the second half of 2010. Deposit service fees of $11.1 million were essentially the same as the third quarter of 2010, despite the addition of Wilber, reflective of lower overall customer utilization and other changes in certain fee-based deposit services, including overdraft programs. Other banking services of $1.2 million for the quarter included $0.6 million of revenues derived from the Company’s retail life and disability insurance programs, consistently recognized in the third fiscal quarter annually.

Quarterly operating expenses of $47.7 million (excluding acquisition expenses and special charges) were $3.4 million, or 7.7% above the third quarter of 2010, reflective of additional operating costs associated with the Wilber acquisition completed in early April, partially offset by a decline in FDIC insurance and core system processing costs.

Financial Position

Average earning assets for the third quarter of $5.74 billion were $867.4 million above the third quarter of 2010, and $80.4 million higher than the second quarter of 2011. Ending loans increased $396.1 million from September 2010, reflective of the Wilber acquisition. Total net loans were down $1.6 million from the end of June, comprised of $21.7 million of net organic loan growth offset by $23.3 million of contractual and other principal reductions in the acquired Wilber portfolio, including the disposition of certain impaired loans in the quarter. Solid results in consumer mortgage and installment products more than offset continued soft demand in business lending. In addition, a portion of the Company’s low-rate, longer-term mortgage originations continued to be sold into the secondary market during the quarter. Average investment securities were down $9.4 million from the third quarter of 2011, while cash equivalents of $240.1 million increased $63.0 million, creating downward pressure on the Company’s net interest margin during the quarter. Quarterly average deposits were $839.8 million higher than the third quarter of 2010 and 2.5% higher than the second quarter of 2011, including relationships acquired from Wilber, where customer retention efforts have been very successful. Average borrowings for the quarter of $832.5 million were consistent with both the second quarter of 2011 and the third quarter of last year. Quarter-end shareholders’ equity of $755.6 million was $139.8 million higher than September 30, 2010, and included the issuance of 3.4 million additional shares in conjunction with the Wilber acquisition. The Company’s net tangible equity to net tangible assets ratio improved to 6.79% at quarter-end, up 58 basis points from the end of last year’s third quarter.

Asset Quality

Third quarter net charge-offs were $1.1 million, compared to $0.7 million in the second quarter of 2011, and $1.4 million in the third quarter of 2010, as the Company’s asset quality profile remained exceptionally strong. Nonperforming loans as a percentage of total loans at September 30, 2011 were 0.54%, down slightly from 0.58% at the end of both June 2011, and September 30, 2010. The total delinquency ratio of 1.56% was up six basis points from June 30, 2011, and down eight basis points from the 1.64% level reported at September 30, 2010. Quarter-end nonperforming assets to total assets of 0.33% was four basis points lower than both the end of last year’s third quarter and June 30, 2011. These favorable asset quality metrics continue to be noticeably better than comparative peer and industry averages and illustrate the long-term effectiveness of the Company’s disciplined risk management and underwriting standards. The third quarter provision for loan losses of $1.0 million was $0.4 million lower than the third quarter of 2010 and even with the second quarter of 2011. The third quarter’s provision was $0.07 million lower than quarterly net charge-offs, indicative of generally stable delinquency ratios and non-performing asset levels and total loan balances. The ratio of allowance for loan losses to total loans outstanding was 1.22% as of September 30, 2011 (1.38%, excluding acquired Wilber loans, which are accounted for at fair value), consistent with the 1.38% level at the end of the third quarter of 2010.

Benefit Plan Administration and Consulting Services Expansion

The Company, through its Benefit Plans Administrative Services, Inc. subsidiary, recently announced that it has entered into a definitive agreement to acquire CAI Benefits, Inc. (CAI), a provider of actuarial consulting and retirement plan administration services with offices in New York City and Northern New Jersey. The transaction, which is expected to close in 2011 subject to customary closing conditions, will add presence in a strategic market, as well as valuable capacity and prospects for enhanced distribution in support of the Company’s broader-based business. With the addition of CAI, annual revenues from the company’s employee benefits consulting and trust administration service offerings are expected to be above $36 million.

Acquisition of The Wilber Corporation

Early in the second quarter of 2011 the Company completed the acquisition of The Wilber Corporation (NYSE Amex: GIW), parent company of the Wilber National Bank based in Oneonta, NY, for approximately $103 million in stock and cash. The acquisition extended the Bank’s New York service area to the contiguous Central, Greater Capital, and Catskills regions of Upstate New York. Upon the completion of the merger, Community Bank added 22 branch locations in eight counties, net loans of approximately $464 million, and customer deposits of nearly $772 million.

Dividend Declared

The Company’s Board of Directors approved a quarterly dividend on its common stock of $0.26 per share, payable on January 10, 2012, to shareholders of record as of December 15, 2011. This two cent (8.3%) increase in the Company’s quarterly cash dividend over the same quarter of last year, represents an annualized yield of 4.0% based on the Company’s closing price of $26.16 on October 24, 2011. This is the nineteenth (19 th) consecutive year of dividend increases for the Company. Mr. Tryniski commented, “The payment of a meaningful dividend is an important component of our commitment to provide consistent and favorable long-term returns to our shareholders. The increase reflects the continued strength of both our current operating performance and capital position.”

Conference Call Scheduled

Company management will conduct an investor call at 11:00 a.m. (ET) tomorrow (October 26, 2011) to discuss third quarter results. The conference call can be accessed at 1-866-838-2054 (1-904-520-5766 if outside United States and Canada). An audio recording will be available one hour after the call until December 31, 2011, and may be accessed at 1-888-284-7564 (1-904-596-3174 if outside the United States and Canada) and entering access code 2699781. Investors may also listen live via the Internet at: http://www.videonewswire.com/event.asp?id=82654.

This webcast will be archived on this site for one full year 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://www.ir.communitybanksystem.com.

Headquartered in DeWitt, N.Y., Community Bank System, Inc. has $6.5 billion in assets and over 170 customer facilities. The Company’s 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., an employee benefits consulting and trust administration firm with offices in Upstate New York, Pittsburgh and Philadelphia, Pennsylvania and Houston, 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, except per share data)              
Quarter Ended   Year-to-date
September 30, September 30, September 30, September 30,
      2011   2010   2011   2010
Earnings                  
Loan income $50,702 $45,094 $142,470 $134,618
Investment income 19,716 17,503 58,085 51,654
Total interest income 70,418 62,597 200,555 186,272
Interest expense 15,850 16,273 46,277 50,721
Net interest income 54,568 46,324 154,278 135,551
Provision for loan losses 1,043 1,400 3,143 5,270
Net interest income after provision for loan losses 53,525 44,924 151,135 130,281
Deposit service fees 11,134 11,180 31,307 33,036
Mortgage banking revenues 320 1,215 1,698 2,290
Other banking services 1,179 863 2,222 1,826
Trust, investment and asset management fees 2,904 2,400 7,866 7,442
Benefit plan administration, consulting and actuarial fees 7,685 7,256 23,722 22,415
Investment securities and debt extinguishment gain/(loss), net (6) 0 8 0
Total noninterest income 23,216 22,914 66,823 67,009
Salaries and employee benefits 26,543 23,056 75,185 68,501
Occupancy and equipment and furniture 6,103 5,574 18,413 17,414
Amortization of intangible assets 1,161 1,277 3,251 4,985
Acquisition expenses & special charges 381 57 4,689 256
Other 13,905 14,388 40,997 41,609
Total operating expenses 48,093 44,352 142,535 132,765
Income before income taxes 28,648 23,486 75,423 64,525
Income taxes 8,640 6,224 21,269 17,099
Net income $20,008 $17,262 $54,154 $47,426
Basic earnings per share $0.54 $0.52 $1.52 $1.43
Diluted earnings per share     $0.54   $0.51   $1.50   $1.42
           

Summary of Financial Data
(Dollars in thousands, except per share data)                  
2011   2010
      3rd Qtr   2nd Qtr   1st Qtr   4th Qtr   3rd Qtr
Earnings                      
Loan income $50,702 $49,471 $42,297 $44,085 $45,094
Investment income 19,716 20,379 17,990 17,924 17,503
Total interest income 70,418 69,850 60,287 62,009 62,597
Interest expense 15,850 15,663 14,764 15,876 16,273
Net interest income 54,568 54,187 45,523 46,133 46,324
Provision for loan losses 1,043 1,050 1,050 1,935 1,400
Net interest income after provision for loan losses 53,525 53,137 44,473 44,198 44,924
Deposit service fees 11,134 10,488 9,685 10,321 11,180
Mortgage banking revenues 320 982 396 1,408 1,215
Other banking services 1,179 645 398 462 863
Trust, investment and asset management fees 2,904 2,782 2,180 2,391 2,400
Benefit plan administration, consulting and actuarial fees 7,685 7,854 8,183 7,201 7,256
Investment securities and debt extinguishment gain/(loss), net (6) 14 0 0 0
Total noninterest income 23,216 22,765 20,842 21,783 22,914
Salaries and employee benefits 26,543 25,531 23,111 22,900 23,056
Occupancy and equipment and furniture 6,103 6,253 6,057 5,520 5,574
Amortization of intangible assets 1,161 1,189 901 972 1,277
Acquisition expenses & special charges 381 3,617 691 1,107 57
Other 13,905 14,536 12,556 13,622 14,388
Total operating expenses 48,093 51,126 43,316 44,121 44,352
Income before income taxes 28,648 24,776 21,999 21,860 23,486
Income taxes 8,640 6,790 5,839 5,966 6,224
Net income $20,008 $17,986 $16,160 $15,894 $17,262
Basic earnings per share $0.54 $0.49 $0.48 $0.48 $0.52
Diluted earnings per share     $0.54   $0.49   $0.48   $0.47   $0.51
Profitability                      
Return on assets 1.23% 1.14% 1.19% 1.15% 1.25%
Return on equity 10.67% 10.15% 10.70% 10.27% 11.28%
Noninterest income/operating income (FTE) (1) 28.5% 28.1% 29.6% 30.3% 31.4%
Efficiency ratio (2)     57.0%   57.2%   59.3%   57.9%   57.9%
Components of Net Interest Margin (FTE)                      
Loan yield 5.81% 5.77% 5.73% 5.73% 5.81%
Cash equivalents yield 0.25% 0.24% 0.25% 0.25% 0.27%
Investment yield 4.55% 4.75% 5.01% 5.00% 4.84%
Earning asset yield 5.13% 5.24% 5.30% 5.36% 5.41%
Interest-bearing deposit rate 0.70% 0.70% 0.75% 0.86% 0.90%
Borrowing rate 4.27% 4.24% 4.28% 4.28% 4.28%
Cost of all interest-bearing funds 1.32% 1.34% 1.47% 1.56% 1.59%
Cost of funds (includes DDA) 1.12% 1.14% 1.25% 1.32% 1.35%
Net interest margin (FTE) 4.04% 4.13% 4.08% 4.07% 4.08%
Fully tax-equivalent adjustment     $3,836   $4,018   $3,969   $3,865   $3,788
           
Summary of Financial Data
(Dollars in thousands, except per share data)                  
2011   2010
      3rd Qtr   2nd Qtr   1st Qtr   4th Qtr   3rd Qtr
Average Balances                      
Loans $3,481,087 $3,454,246 $3,005,926 $3,061,060 $3,088,590
Cash equivalents 240,127 177,154 159,044 105,242 50,484
Taxable investment securities 1,458,127 1,447,815 1,188,182 1,159,110 1,182,243
Nontaxable investment securities 560,051 579,795 565,564 554,014 550,660
Total interest-earning assets 5,739,392 5,659,010 4,918,716 4,879,426 4,871,977
Total assets 6,447,210 6,313,391 5,487,618 5,481,129 5,474,952
Interest-bearing deposits 3,926,457 3,864,671 3,234,986 3,206,327 3,217,831
Borrowings 832,505 839,003 830,454 831,025 832,568
Total interest-bearing liabilities 4,758,962 4,703,674 4,065,440 4,037,352 4,050,399
Noninterest-bearing deposits 867,373 813,789 739,515 743,698 736,203
Shareholders' equity     $743,730   $710,765   $612,559   $613,734   $606,912
Balance Sheet Data                      
Cash and cash equivalents $425,877 $273,693 $296,938 $211,837 $179,556
Investment securities 2,075,283 2,088,105 1,792,246 1,742,324 1,769,149
Loans:
Business lending 1,261,125 1,290,893 1,006,114 1,023,286 1,045,849
Consumer mortgage 1,167,780 1,149,219 1,055,164 1,057,332 1,065,297
Consumer installment - indirect 564,423 549,449 500,058 494,813 508,502
Home equity 328,468 330,213 299,925 305,936 312,396
Consumer installment - direct 154,673 158,376 139,183 144,996 148,353
Total loans 3,476,469 3,478,150 3,000,444 3,026,363 3,080,397
Allowance for loan losses 42,463 42,531 42,147 42,510 42,610
Intangible assets 360,228 363,015 311,076 311,714 312,686
Other assets 208,460 230,053 190,815 194,778 197,039
Total assets 6,503,854 6,390,485 5,549,372 5,444,506 5,496,217
Deposits:
Noninterest-bearing 887,009 849,071 754,892 741,166 738,994
Non-maturity interest-bearing 2,782,241 2,721,589 2,361,312 2,272,013 2,253,447
Time 1,169,503 1,186,442 904,827 920,866 973,894
Total deposits 4,838,753 4,757,102 4,021,031 3,934,045 3,966,335
Borrowings 728,335 728,441 728,385 728,460 729,508
Subordinated debt held by unconsolidated subsidiary trusts 102,042 102,036 102,030 102,024 102,018
Other liabilities 79,091 72,835 73,826 72,719 82,556
Total liabilities 5,748,221 5,660,414 4,925,272 4,837,248 4,880,417
Shareholders' equity 755,633 730,071 624,100 607,258 615,800
Total liabilities and shareholders' equity     6,503,854   6,390,485   5,549,372   5,444,506   5,496,217
Capital                      
Tier 1 leverage ratio 8.17% 8.07% 8.42% 8.23% 7.99%
Tangible equity / net tangible assets (3) 6.79% 6.44% 6.36% 6.14% 6.21%
Diluted weighted average common shares O/S 37,312 37,061 33,989 33,786 33,606
Period end common shares outstanding 36,829 36,807 33,429 33,319 33,162
Cash dividends declared per common share $0.26 $0.24 $0.24 $0.24 $0.24
Book value $20.52 $19.84 $18.67 $18.23 $18.57
Tangible book value (3) $11.37 $10.59 $10.01 $9.49 $9.74
Common stock price (end of period)     $22.69   $24.79   $24.27   $27.77   $23.01
           
Summary of Financial Data
(Dollars in thousands, except per share data)                
2011   2010
      3rd Qtr   2nd Qtr   1st Qtr   4th Qtr   3rd Qtr
Asset Quality                      
Nonaccrual loans $16,670 $17,833 $14,953   $15,378 $16,025
Accruing loans 90+ days delinquent 2,319 2,499 2,774 3,091 1,863
Total nonperforming loans 18,989 20,332 17,727 18,469 17,888
Other real estate owned (OREO) 2,776 3,269 1,945 2,011 2,689
Total nonperforming assets 21,765 23,601 19,672 20,480 20,577
Net charge-offs 1,111 666 1,413 2,035 1,393
Loan loss allowance/loans outstanding 1.22% 1.22% 1.40% 1.40% 1.38%
Nonperforming loans/loans outstanding 0.54% 0.58% 0.59% 0.61% 0.58%
Loan loss allowance/nonperforming loans 226% 209% 238% 230% 238%
Net charge-offs/average loans 0.13% 0.08% 0.19% 0.26% 0.18%
Delinquent loans/ending loans 1.56% 1.50% 1.46% 1.91% 1.64%
Loan loss provision/net charge-offs 94% 158% 74% 95% 100%
Nonperforming assets/total assets     0.33%   0.37%   0.35%   0.38%   0.37%

(1)
 

Excludes gain (loss) on investment securities and amortization/accretion of fair market value purchase accounting adjustments.

(2)

Excludes intangible amortization, goodwill impairment, acquisition expenses, special charges, gain (loss) on investment securities, and amortization/accretion of fair market value purchase accounting adjustments.

(3)

Includes deferred tax liabilities (of approximately $23.5 million at 9/30/11) related to 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.

Copyright Business Wire 2010

If you liked this article you might like

Electronic Arts, Activision Blizzard and Take-Two Interactive: 'Mad Money' Lightning Round

Electronic Arts, Activision Blizzard and Take-Two Interactive: 'Mad Money' Lightning Round

Don't Let Stock Picking Scare You: Cramer's 'Mad Money' Recap (Wednesday 7/19/17)

Don't Let Stock Picking Scare You: Cramer's 'Mad Money' Recap (Wednesday 7/19/17)

'Mad Money' Lightning Round: Buy, Buy, Buy Macy's

'Mad Money' Lightning Round: Buy, Buy, Buy Macy's

Jim Cramer's 'Mad Money' Recap: Strong Demand Keeps Market From Cratering

Jim Cramer's 'Mad Money' Recap: Strong Demand Keeps Market From Cratering

4 Regional Bank Stocks to Buy for When the Fed Raises Rates Again

4 Regional Bank Stocks to Buy for When the Fed Raises Rates Again