8-K
Community Financial System, Inc. (CBU)
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UNITED STATES
SECURITIES ANDEXCHANGE COMMISSION
WASHINGTON, D.C.20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of theSecurities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 25, 2021
(Exact name of registrant as specified in its charter)
| Delaware | 001-13695 | 16-1213679 |
|---|---|---|
| (State or other<br> jurisdiction of | (Commission File Number) | (IRS Employer Identification No.) |
| incorporation) |
| 5790 Widewaters Parkway, DeWitt, New York | 13214 |
|---|---|
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code:
(315)
445-2282
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| --- | --- |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| --- | --- |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| --- | --- |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading<br><br> Symbol(s) | Name<br> of each exchange on which registered |
|---|---|---|
| Common Stock, $1.00 par value per share | CBU | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
¨
| Item 2.02 | Results of Operations and Financial Condition. |
|---|
On January 25, 2021, Community Bank System, Inc. (“Community Bank System”) announced its results of operations for the quarter ended December 31, 2020. The public announcement was made by means of a news release, the text of which is set forth in Exhibit 99.1, and a copy of the supplemental information presentation is attached hereto as Exhibit 99.2.
The information in this Form 8-K, including Exhibit 99.1 and Exhibit 99.2 attached hereto, is being furnished under Item 2.02 and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
| Item 9.01 | Financial Statements and Exhibits. |
|---|
(d) Exhibits
| 99.1 | Press Release, dated January 25, 2021, issued by Community Bank System, Inc. |
|---|---|
| 99.2 | Q4 2020 Earnings Release Supplemental Information Presentation, dated January 25, 2021, issued by Community Bank System, Inc. |
| --- | --- |
| 104 | Cover Page Interactive Data File (embedded in the cover<br>page formatted in Inline XBRL) |
| --- | --- |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Community Bank System, Inc. | |
|---|---|
| By: | /s/ Joseph E. Sutaris |
| Name: | Joseph E. Sutaris |
| Title: | Executive Vice President and Chief Financial Officer |
Dated: January 25, 2021
Exhibit Index
| Exhibit Number | Description |
|---|---|
| 99.1 | Press Release, dated January 25, 2021, issued by Community Bank System, Inc. |
| 99.2 | Q4 2020 Earnings Release Supplemental Information Presentation, dated January 25, 2021, issued by Community Bank System, Inc. |
| 104 | Cover Page Interactive Data File (embedded in the cover<br>page formatted in Inline XBRL) |
Exhibit 99.1
 |
News Release<br><br> <br>For further information, please contact: |
|---|---|
| 5790 Widewaters Parkway, DeWitt, N.Y. 13214 | Joseph E. Sutaris, EVP & Chief Financial Officer<br><br> <br>Office: (315) 445-7396 |
Community Bank System Reports
Fourth Quarter and FullYear 2020 Results
SYRACUSE, N.Y. — January 25, 2021 — Community Bank System, Inc. (NYSE: CBU) reported fourth quarter 2020 net income of $46.5 million, or $0.86 per fully-diluted share. This compares to net income of $42.9 million, or $0.82 per share, for the fourth quarter of 2019 and $42.8 million, or $0.79 per share, in the linked third quarter of 2020. The $0.04, or 4.9%, increase in earnings per share year-over-year was driven by an increase in net interest income, a decrease in the provision for credit losses, slightly lower operating expenses and a small increase in noninterest revenues, offset, in part, by higher income taxes and an increase in fully-diluted shares outstanding. The $0.07, or 8.9%, increase in earnings per share from the linked third quarter was driven by an increase in net interest income, a decrease in the provision for credit losses and lower operating expenses, offset, in part, by lower noninterest revenues, higher income taxes and an increase in fully-diluted shares outstanding. Operating diluted earnings per share (non-GAAP), which excludes, on an after-tax basis, acquisition expenses, acquisition-related provision for credit losses, unrealized gain/(loss) on equity securities, net gain on sale of investments, litigation accrual expenses and gain on debt extinguishment, were $0.85 for the fourth quarter of 2020, as compared to $0.83 in the fourth quarter of 2019. Full year 2020 diluted earnings per share were $3.08, as compared to $3.23 in 2019. Full year 2020 diluted operating earnings per share (non-GAAP) of $3.24 were $0.05 per share lower than the $3.29 per share of operating earnings generated in 2019.
2020 Performance Highlights:
v GAAP EPS
| · | $0.86 per share for the fourth quarter of 2020, compared to $0.82 per share for the fourth quarter of 2019 |
|---|---|
| · | $3.08 per share for full year 2020, down $0.15 per share from full year 2019 |
| --- | --- |
v Operating EPS (non-GAAP)
| · | $0.85 per share for the fourth quarter of 2020, up $0.02 per share from the fourth quarter of 2019 |
|---|---|
| · | $3.24 per share for full year 2020, $0.05 per share below 2019 |
| --- | --- |
v Adjusted Pre-Tax, Pre-Provision Net Revenue Per Share (non-GAAP)
| · | $1.03 per share for the fourth quarter of 2020, compared to $1.06 per share for the fourth quarter of 2019 |
|---|---|
| · | $4.26 per share for full year 2020, $0.03 per share above full year 2019 |
| --- | --- |
v Return on Assets
| · | 1.33% for the fourth quarter of 2020 |
|---|---|
| · | 1.28% for full year 2020 |
| --- | --- |
v Return on Equity
| · | 8.82% for the fourth quarter of 2020 |
|---|---|
| · | 8.13% for full year 2020 |
| --- | --- |
v Total Deposit Funding Costs
| · | 0.12% for the fourth quarter of 2020, down 14 basis points from the fourth quarter of 2019 |
|---|---|
| · | 0.16% for the full year 2020, down 7 basis points from the full year 2019 |
| --- | --- |
v Loan Net Charge-Offs
| · | 0.07% annualized for the fourth quarter of 2020 |
|---|---|
| · | 0.07% for the full year 2020 |
| --- | --- |
“The Company generated very strong earnings results in 2020 despite the significant and persistent challenges posed by the COVID-19 pandemic and related market conditions throughout the year,” said Mark E. Tryniski, President and CEO. “On a full-year basis, the Company generated diluted operating earnings per share of $3.24. These results were only $0.05, or 1.5% lower than full-year 2019 operating earnings per share of $3.29, despite navigating a difficult credit environment, significantly lower market interest rates and substantial growth in the Company’s total assets due to unprecedented levels of Federal stimulus. Strong asset quality leading into the pandemic, a tremendous core deposit base and diversified revenue streams, including year over year revenue increases in the Company’s nonbanking businesses, demonstrated the strength and resiliency of the Company’s business model. Fourth quarter operating earnings per share of $0.85 increased $0.02, or 2.4%, from the prior year’s fourth quarter and matched third quarter 2020 results. The Company’s full year adjusted pre-tax, pre-provision net revenue per share of $4.26, was $0.03 above the full year 2019 results. The strength of our nonbanking businesses became increasingly evident as the pandemic ran its course during 2020. On a full-year basis, the total revenues from our nonbanking business were up $6.4 million, or 4.1%, from $155.2 million in 2019 to $161.6 million in 2020, which helped offset a $4.1 million, or 5.8%, decrease in our banking noninterest revenues driven largely by a year over year decrease in deposit-related fees.”
Mr. Tryniski, continued, “From an asset quality perspective, during the second half of 2020 the Company experienced a significant decrease in the number and outstanding balances of loans under COVID-related forbearance. At December 31, 2020, 74 borrowers, representing $66.5 million of loans outstanding, or 0.9% of total loans, remained under a forbearance agreement. This is down from 216 borrowers, representing $192.7 million of loans outstanding, or 2.6% of total loans, at September 30, 2020 and 3,699 borrowers, representing $704.1 million of loans outstanding, or 9.4% of total loans at June 30, 2020. However, as anticipated, the Company recorded an increase in nonperforming assets during the fourth quarter of 2020, due to the continued pandemic-related financial hardship experienced by certain borrowers. During the quarter, several borrowers that operate in the hospitality, travel and entertainment industries requested extended forbearance agreements to mitigate the ongoing cash flow challenges of their businesses. Although we continued to accommodate reasonable forbearance requests for these borrowers, we determined that loans subject to a third forbearance would be classified as nonaccrual unless the borrower could demonstrate current cash flows or payment reserves to service their pre-forbearance payment obligations. At December 31, 2020, nonperforming loans stood at $76.9 million, or 1.04%, of total loans outstanding. By comparison, nonperforming loans to total loans outstanding were 0.35% at the end of 2019 and 0.43% at the end of the linked third quarter. Although nonperforming loans increased significantly during the fourth quarter, specific reserves identified in the allowance for credit losses against these loans totaled less than $4.0 million, which represents approximately five basis points of potential charge-offs. Net charge-offs to average loans were just seven basis points in 2020, as compared to 12 basis points for 2019. Loans outstanding at the end of the fourth quarter decreased $42.7 million, or 0.6% from the end of the linked third quarter due primarily to Paycheck Protection Program (“PPP”) forgiveness and weaker demand for credit, but were up $525.4 million, or 7.6% over the prior year end due largely to the origination of PPP loans and the second quarter acquisition of Steuben Trust Corporation (“Steuben”). Deposit levels remained elevated during the fourth quarter due primarily to the retention of a significant portion of Federal stimulus-related funds received by customers, and to a lesser extent, the Steuben acquisition. Total deposits increased $2.2 billion, or 24.8%, during 2020 from $8.99 billion at the end of 2019 to $11.22 billion at the end of 2020.”
Mr. Tryniski added, “Although we expect to continue to navigate challenging economic and market conditions during 2021, we believe our Company remains well positioned to perform effectively in the evolving environment. The Company continues to maintain very high levels of capital and liquidity, diversified revenue streams through its nonbanking businesses, a history of strong credit performance and an exceptional core deposit base.”
The Company recorded total revenues of $150.6 million in the fourth quarter of 2020, an increase of $0.8 million, or 0.5%, from the prior year’s fourth quarter. The increase in total revenues between the periods was driven by a $0.7 million, or 0.7%, increase in net interest income, a $1.7 million, or 7.0%, increase in employee benefit services revenues, a $1.0 million, or 7.3%, increase in wealth management and insurance services revenues and a $0.4 million gain on debt extinguishment, offset, in part, by a $2.0 million, or 11.2%, decrease in deposit service and other banking fees and a $1.1 million decrease in mortgage banking income. Total revenues were down $2.0 million, or 1.3%, on a linked quarter basis. The Company recorded a $0.9 million net loss on mortgage banking during the fourth quarter of 2020, as compared to $3.9 million of mortgage banking revenues during the third quarter of 2020, as the Company shifted its strategy from selling the substantial majority of its eligible residential mortgage loans into the secondary market to retaining them in portfolio in the fourth quarter. The decrease in mortgage banking revenue between the linked quarters and a $0.3 million, or 2.1%, decrease in wealth management and insurance services revenues, were partially offset by a $0.5 million, or 0.5%, increase in net interest income, a $0.6 million, or 4.2%, increase in deposit service and other banking fees, a $1.6 million, or 6.3%, increase in employee benefit service revenues, and a $0.4 million gain on debt extinguishment.
The Company recorded net interest income of $93.4 million in the fourth quarter of 2020. This represents a $0.7 million, or 0.7%, increase over the fourth quarter of 2019. The increase was driven by a $2.28 billion, or 22.7%, increase in average earning assets between the periods, offset, in part by a 66 basis point decrease in the net interest margin. The increase in earning assets was driven by large net inflows of funds from government stimulus programs, PPP loan originations and the acquisition of Steuben in the second quarter of 2020. The 66 basis point decrease in net interest margin was driven by an 81 basis point decrease in tax-equivalent earning asset yields between the periods, partially offset by a 17 basis point decrease in the total cost of funds. The large drop in earning asset yields was due to a significant decrease in market interest rates between the periods and a significant change in the composition of earning assets, including a $574.4 million increase in average cash equivalents and a $1.11 billion increase in the book value of investment securities. The tax-equivalent yield on loans decreased 50 basis points between the periods from 4.67% in the fourth quarter of 2019 to 4.17% in the fourth quarter of 2020, while the tax-equivalent yield on investments, including cash equivalents, decreased 86 basis points, from 2.54% in the fourth quarter of 2019 to 1.68% in the fourth quarter of 2020.
Interest income and fees on loans decreased $2.7 million, or 3.3%, over the comparable prior year quarter. Although average loans outstanding increased $592.5 million, or 8.6%, due to the Steuben acquisition and the origination of PPP loans over the comparable prior year’s quarter, the 50 basis point decrease in loan yields resulted in lower interest income on loans. Interest income on investments, including cash equivalents, increased $0.2 million, or 1.1%, between the fourth quarter of 2019 and the fourth quarter of 2020, reflective of the substantial increase in the average balance of investment securities and cash equivalents between the periods, partially offset by an 86 basis point decrease in the tax-equivalent yield on investments, including cash equivalents. Interest expense was $3.1 million lower than the previous year’s fourth quarter, driven by a 22 basis point decrease in the cost of interest-bearing liabilities partially, offset by a $1.31 billion, or 18.9%, increase in average interest-bearing liability balances. The average cost of deposits was 0.12% in the fourth quarter of 2020, as compared to 0.26% in the fourth quarter of 2019, reflective of market-driven rate decreases for deposits between the periods and significant increases in noninterest-bearing deposit balances.
On a linked quarter basis, net interest income increased $0.5 million, driven by a $0.1 million increase in interest income and a $0.4 million decrease in interest expense. Interest income on loans decreased $1.8 million, while interest income on investments and cash equivalents increased $1.9 million due to the purchase of investment securities during the fourth quarter. The average book value of investment securities increased $636.9 million, or 20.2%, during the fourth quarter, while average cash equivalents decreased $221.8 million, or 17.0%. The average cost of deposits decreased one basis point during the fourth quarter from 0.13% in the linked third quarter of 2020 to 0.12% in the fourth quarter.
The Company recorded a $3.1 million net benefit in the provision for credit losses during the fourth quarter of 2020. This compares to a $2.9 million provision for credit losses during the fourth quarter of 2019. The net benefit recorded in the provision for credit losses was driven by several factors, including a $2.0 million reversal of a previously recorded allowance for credit loss on a purchase credit deteriorated loan, a significant improvement in the economic outlook and a substantial decrease in loans under COVID-19 related forbearance agreements, offset, in part, by a substantial, but anticipated, increase in nonperforming assets and the related specific impairment reserves on those nonperforming assets. For comparative purposes, the Company recorded $1.9 million in the provision for credit losses during the third quarter of 2020, $9.8 million in the second quarter of 2020, including $3.2 million of acquisition-related provision for credit losses due the acquisition of Steuben, and $5.6 million of provision for credit losses during the first quarter of 2020. During the first two quarters of 2020, financial conditions deteriorated rapidly as state and local governments shut down a substantial portion of business activities in the Company’s markets and unemployment levels spiked. These conditions drove the Company to build its allowance for credit losses during the first two quarters of 2020 to account for expected life of loan losses in the loan portfolio. During the third quarter, the economic outlook remained unclear as markets were uncertain as to the efficacy, approval and roll-out of a COVID-19 vaccine. With a greater than anticipated decline in actual unemployment levels, as well as the Federal Government’s approval of a COVID-19 vaccine and Congress’ recent approval of additional Federal stimulus funding, the near-term economic forecast improved significantly driving an improvement in the economic outlook and as a result, a reduction in the Company’s allowance for credit losses. The Company recorded net charge-offs of $1.3 million, or 0.07% of average loans annualized, during the fourth quarter. On a full-year basis, the Company recorded net charge-offs of $5.0 million, or 0.07%, of average loans outstanding. Since the ultimate effect the COVID-19 pandemic will have on the Company’s credit losses remains uncertain, the net benefit recorded in the provision for credit losses during the fourth quarter should not be interpreted as a trend or utilized to forecast the provision for, or reversal of, credit losses in future quarters. Any improvements in the economic forecast may be offset by increases in delinquency and nonperforming loan balances in future quarters as COVID-affected borrowers may not resume full payment of contractual amounts upon expiration of their forbearance agreements.
The Company recorded $57.2 million in noninterest revenues in the fourth quarter of 2020, as compared to $57.1 million in the fourth quarter of 2019. This represents a $0.1 million, or 0.1%, increase in noninterest revenues between the periods. This included a $0.4 million gain on debt extinguishment in the fourth quarter of 2020, a $1.7 million, or 7.0%, increase in employee benefit services revenue, a $1.0 million, or 7.3%, increase in wealth management and insurance services revenues, partially offset by a $2.0 million, or 11.2%, decrease in deposit services and other banking fees and a $1.1 million decrease in mortgage banking revenues. During the fourth quarter, the Company redeemed $10.0 million of subordinated debt acquired in connection with the 2019 acquisition of Kinderhook Bank Corp., resulting in a $0.4 million gain on debt extinguishment. The increase in employee benefit services revenues was attributable to increases in plan administration, recordkeeping and trustee fees. The increase in wealth management and insurance revenues were driven by organic growth in those businesses. The decrease in deposit service and other banking fees was due to lower overdraft and other deposit revenues, offset partially by higher debit card interchange revenues. The decrease in mortgage banking revenues, was driven by the Company’s decision to cease selling secondary market eligible residential mortgage loans in the secondary market and retain them in portfolio. This resulted in a $0.9 million loss on mortgage banking activities in the quarter, as compared to revenues of $0.2 million in the fourth quarter of 2019. Noninterest revenues decreased $2.5 million, or 4.1%, on a linked quarter basis. This was driven by a $4.2 million, or 21.8%, decrease in banking-related revenues, including a $4.8 million decrease in mortgage banking revenues, offset, in part by a $0.7 million, or 4.2%, increase in deposit service and other banking revenues. Wealth management and insurance services revenues decreased $0.3 million, or 2.1%, between linked quarters, while employee benefit services revenues increased, $1.6 million, or 6.3%.
The Company recorded $94.6 million in total operating expenses in the fourth quarter of 2020, exclusive of $0.4 million of acquisition related expenses. This compares to total operating expenses of $94.4 million in the fourth quarter of 2019, exclusive of $0.8 million of acquisition related expenses. The year-over-year $0.2 million, or 0.2%, increase in operating expenses, exclusive of acquisition related expenses, was attributable to a $1.7 million, or 2.9%, increase in salaries and employee benefits and a $1.5 million, or 13.5%, increase in data processing and communications expenses, offset, in part, by a $2.5 million, or 19.4%, decrease in other expenses and a $0.4 million, or 11.0%, decrease in amortization of intangible assets. The Company recorded $10.1 million of occupancy and equipment expense in both periods. The increase in salaries and benefits expense was driven by merit-related increases in employee wages and a net increase in full-time equivalent employees between the periods, due to both the Steuben acquisition in the second quarter of 2020 and other factors, but were partially offset by lower employee benefit expenses primarily associated with a decrease in employee medical expenses due to reduced provider utilization. The increase in data processing and communications expenses was due to the Steuben acquisition and the implementation of new customer-facing digital technologies and back office systems during 2020. Other expenses were down due to the general decrease in the level of business activities as a result of the COVID-19 pandemic, including travel and entertainment and marketing and business development expenses. Comparatively, the Company recorded $93.2 million of total operating expenses in the linked third quarter of 2020, exclusive of $3.0 million of litigation accrual expenses and $0.8 million of acquisition-related expenses. The increase in operating expenses from the linked quarter, exclusive of litigation accrual and acquisition expenses, was attributable to a $0.9 million, or 1.5%, increase in salaries and employee benefits, a $0.3 million, or 2.6%, increase in data processing and communications expenses and a $0.3 million, or 3.0%, increase in other expenses. The effective tax rate for the fourth quarter of 2020 was 20.9% and 20.1% on a full-year basis, up from 17.1% and 19.2%, respectively, from the equivalent prior year periods.
The Company also provides supplemental reporting of its results on an “operating,” “adjusted” or “tangible” basis, from which it excludes the after-tax effect of amortization of core deposit and other intangible assets (and the related goodwill, core deposit intangible and other intangible asset balances, net of applicable deferred tax amounts), accretion on non-impaired purchased loans, expenses associated with acquisitions, acquisition-related provision for credit losses, litigation accrual expenses, the unrealized gain (loss) on equity securities, gain on debt extinguishment, and net gain on sale of investments. In addition, the Company provides supplemental reporting for “adjusted pre-tax, pre-provision net revenues,” which subtracts the provision for credit losses, acquisition expenses, litigation accrual expenses, net gain on sale of investments, unrealized gain (loss) on equity securities and gain on debt extinguishments from income before income taxes. The amounts for such items are presented in the tables that accompany this release. Although these items are non-GAAP measures, the Company’s management believes this information helps investors understand the effect of acquisition and other non-recurring activity in its reported results. Diluted adjusted net earnings per share were $0.89 in the fourth quarter of 2020, as compared to $0.86 in the fourth 2019 and $0.88 in the third quarter of 2020. Adjusted pre-tax, pre-provision net revenue per share was $1.03 in the fourth quarter of 2020, as compared to $1.06 in the fourth quarter of 2019 and $1.10 in the third quarter of 2020.
Financial Position
The Company’s total assets increased to $13.93 billion at December 31, 2020, which represents a $2.52 billion, or 22.1% increase from one year ago and an $85.8 million, or 0.6%, increase over the prior quarter end. The substantial increase in the Company’s total assets during 2020 was largely due to very large inflows of government stimulus-related deposit funding between the periods and the Steuben acquisition in the second quarter of 2020. Similarly, average earning assets increased substantially over the prior year, from $10.04 billion in the fourth quarter of 2019 to $12.31 billion in the fourth quarter of 2020, a $2.28 billion, or 22.7% increase. This included a $592.5 million, or 8.6%, increase in average total loans outstanding, a $1.11 billion, or 41.4%, increase in average total investment securities and a $574.4, or 114%, increase in average cash equivalent balances. On a linked quarter basis, average earning assets increased $356.8 million, or 3.0%, due to net inflows of deposits. The average book value of investment securities increased $636.9 million, or 20.2%, due to the purchase of $1.02 billion of investment securities during the quarter. Average cash equivalents decreased $221.8 million, or 17.0%, due to the purchase of investment securities, offset, in part by the continued growth of deposit liabilities during the quarter. Average loan balances decreased $58.4 million, or 0.8%, due primarily to PPP forgiveness and seasonal decreases in the consumer installment and home equity loans outstanding. Average deposit balances increased $2.11 billion, or 23.2%, between the fourth quarter of 2019 and the fourth quarter of 2020 and $275.9 million, or 2.5%, on a linked quarter basis. Ending loans at December 31, 2020 were $7.42 billion, $42.7 million, or 0.6%, lower than linked third quarter ending loans of $7.46 billion, but up $525.4 million, or 7.6% from one year prior. The growth in ending loans year over year was driven by the acquisition of $339.7 million of Steuben loans in the second quarter of 2020 and the $470.7 million net increase in PPP loans between the periods.
The Company’s liquidity position remains strong. The Company’s Banking subsidiary, Community Bank, N.A. (the “Bank”) maintains a funding base largely comprised of core noninterest-bearing demand deposit accounts and low cost interest-bearing interest checking, savings and money market deposit accounts with customers that operate, reside or work within its branch footprint. At December 31, 2020, the Company’s cash and cash equivalents balances, net of float, were $1.57 billion. The Company also maintains an available-for-sale investment securities portfolio, comprised primarily of highly-liquid U.S. Treasury securities, highly-rated municipal securities and U.S. agency mortgage-backed securities. At December 31, 2020, the Company’s available-for-sale investment securities portfolio totaled $3.55 billion, $1.78 billion of which was unpledged as collateral. Net unrealized gains on the portfolio at that time were $120.1 million. The Bank’s unused borrowing capacity at the Federal Home Loan Bank of New York at December 31, 2020 was $1.66 billion and it maintained $256.2 million of funding availability at the Federal Reserve Bank’s discount window.
Although there remains uncertainty around the magnitude and duration of the economic impact of the COVID-19 pandemic, the Company’s management believes that its financial position, including high levels of capital, will allow it to successfully endure the negative economic impacts of the crisis. The Company’s capital planning and management activities, coupled with its historically strong earnings performance, diversified streams of revenue and prudent dividend practices, have allowed it to build and maintain strong capital reserves. Shareholders’ equity of $2.10 billion at December 31, 2020 was $248.9 million, or 13.4%, higher than one year prior and was up $5.4 million, or 0.3%, from the end of the linked third quarter. The increase in shareholders’ equity over the last four quarters was primarily driven by solid earnings generation and capital retention, as well as the Steuben acquisition and an increase in accumulated other comprehensive income due primarily to an increase in net unrealized gains on the Company’s available-for-sale investment securities portfolio. At December 31, 2020, all of the Company’s regulatory capital ratios significantly exceeded well-capitalized standards. More specifically, the Company’s tier 1 leverage ratio, a common measure to evaluate a financial institutions capital strength, was 10.16% at December 31, 2020, which represents over two times the regulatory well-capitalized standard of 5.0%. This compares to 10.80% at the end of the fourth quarter of 2019 and 10.21% at the end of the third quarter of 2020. The Company’s net tangible equity to net tangible assets ratio was 9.92% at December 31, 2020, down slightly from 10.01% a year earlier and unchanged from the end of the third quarter of 2020. The modest declines in the net tangible equity to net tangible assets ratio and the tier 1 leverage ratio from one year prior was primarily due to the organic asset growth generated from the significant deposit inflow noted previously and an increase in intangible assets.
As previously announced in December 2020, the Company’s Board of Directors approved a stock repurchase program authorizing the repurchase of up to 2.68 million shares of the Company’s common stock during a twelve-month period starting January 1, 2021. Such repurchases may be made at the discretion of the Company’s senior management based on market conditions and other relevant factors and will be acquired through open market or privately negotiated transactions as permitted under Rule 10b-18 of the Securities Exchange Act of 1934 and other applicable legal requirements. There were no shares repurchased pursuant to the 2020 stock repurchase program in the fourth quarter of 2020.
Allowance for Credit Losses and Asset Quality
During the first quarter of 2020, the Company adopted ASU No. 2016-13, Financial Instruments – Credit Losses, also known as Current Expected Credit Losses (“CECL”). Upon the adoption of CECL on January 1, 2020, the Company’s allowance for credit losses increased $1.4 million, from $49.9 million at December 31, 2019 to $51.3 million. Following the adoption of CECL, the Company’s allowance for credit losses has increased by $9.6 million, or 18.7%, $3.6 million of which was due to the Steuben acquisition and $6.0 million of which was primarily due to credit loss expectations associated with COVID-19’s adverse impact on economic and business operating conditions and specific reserves on impaired loans. The table below illustrates the Company’s changes in the allowance for credit losses just prior to CECL adoption through the end of 2020.
| ($ in millions) | Allowance<br><br> for Loan<br><br> Losses at<br><br> 12/31/2019 | CECL<br><br> Adoption<br><br> Impact | First<br><br> Quarter<br><br> 2020<br><br> Reserve<br><br> Build | Second<br><br> <br>Quarter<br><br> <br>2020<br><br> <br>Steuben<br><br> Acquisition | Second<br><br> Quarter<br><br> 2020<br><br> Reserve<br><br> Build | Third<br><br> <br>Quarter<br><br> <br>2020<br><br> <br>Reserve<br><br> <br>Build | Fourth<br><br> Quarter <br><br>2020<br><br> Reserve<br><br> Release | Allowance <br><br>for Credit<br><br> Losses at<br><br> 12/31/20 |
|---|---|---|---|---|---|---|---|---|
| Balance | $49.9 | +$1.4 | +$4.4 | +$3.6 | +$5.1 | +$0.6 | -$4.1 | $60.9 |
| % Change from 12/31/2019 | n/a | +2.7% | +8.8% | +7.3% | +10.3% | +1.1% | -8.2% | +22.0% |
At December 31, 2020, nonperforming (90+ days past due and non-accruing) loans were $76.9 million, or 1.04%, of total loans outstanding. This compares to $24.3 million, or 0.35%, of total loans outstanding at the end of the fourth quarter of 2019 and $32.2 million, or 0.43%, of total loans outstanding at the end of the third quarter of 2020. During the fourth quarter of 2020, several commercial borrowers, which primarily operate in the hospitality, travel and entertainment industries, requested extended loan repayment forbearance due to the continued pandemic-related financial hardship they were experiencing. Although the Company’s management granted these forbearance requests, it also reclassified the majority of these loan relationships from accruing to nonaccrual status, unless the borrower clearly demonstrated current repayment capacity or sufficient cash reserves to service their pre-forbearance payment obligations. The allowance for credit losses at December 31, 2020 included $3.9 million of specific reserves for certain nonperforming loans. The Company may continue to receive similar requests during 2021 and will continue to work with its borrowers to establish fair and reasonable forbearance agreements in light of each borrower’s specific circumstances, with an objective to minimize potential ultimate losses to the Company.
Total delinquent loans, which includes nonperforming loans and loans thirty or more days delinquent, to total loans outstanding were 1.50% at the end of the fourth quarter of 2020. This compares to 0.94% at the end of the fourth quarter of 2019 and 0.79% at the end of the third quarter of 2020. Loans 30 – 89 days delinquent (categorized by the Company as delinquent but performing) were 0.47% of total loans outstanding at December 31, 2020, up from 0.36% at the end of the linked quarter as seasonally expected, but down from 0.59% at the end of 2019. The Company recorded net charge-offs of $1.3 million, or 0.07% annualized, in the fourth quarter of 2020. This compares to net charge-offs of $2.4 million, or 0.14% annualized, in the fourth quarter of 2019 and $1.3 million, or 0.07%, in the linked third quarter of 2020. The allowance for credit losses to total loans was 0.82% at December 31, 2020, compared to 0.72% one year prior and 0.87% at the end of the linked third quarter.
The Company participated in both rounds of the 2020 Coronavirus Aid, Relief, and Security Act (“CARES Act”) PPP, a specialized low-interest loan program funded by the U.S. Treasury Department and administered by the U.S. Small Business Administration (“SBA”). As of December 31, 2020, the Company’s business lending portfolio included 3,417 PPP loans with a total balance of $470.7 million. This was down from 3,473 loans with a total balance of $507.2 million at the end of the third quarter of 2020. Under the PPP, the SBA may forgive all or a portion of the loan amount if the borrower meets certain conditions. The Company’s expects to recognize through interest income most of its remaining net deferred PPP fees totaling $9.0 million during 2021. In addition, the Company is participating in the 2021 second round of PPP lending, but is uncertain at this time as to the amount of loans it will originate in 2021.
From a credit risk and lending perspective, the Company continues to take actions to assess and monitor its COVID-19 related credit exposures. No specific credit impairment has been identified within the Company’s investment securities portfolio, including the Company’s municipal securities portfolio since the onset of the pandemic. With respect to the Company’s lending activities, the Company continues to utilize a customer forbearance program to assist borrowers that may be experiencing financial hardship due to COVID-19 related challenges. As of December 31, 2020, the Company had 74 borrowers in forbearance due to COVID-19 related financial hardship, representing $66.5 million in outstanding loan balances, or 0.9% of total loans outstanding. This compares to 216 borrowers and $192.7 million in outstanding loan balances, or 2.6%, of total loans outstanding in forbearance at September 30, 2020 and 3,699 borrowers in forbearance at June 30, 2020, representing $704.1 million in outstanding loan balances, or 9.4% of total loans outstanding.
Consistent with industry regulatory guidance, borrowers that were otherwise current on loan payments and granted COVID-19 related financial hardship payment deferrals were reported as current loans throughout the first 180 days of the deferral period. Borrowers that were delinquent in their payments to the Bank prior to requesting a COVID-19 related financial hardship payment deferral were reviewed on a case-by-case basis for troubled debt restructure classification and nonperforming loan status.
Dividend Increase
During the fourth quarter of 2020, the Company declared a quarterly cash dividend of $0.42 per share on its common stock, up 2.4% from the $0.41 dividend declared in the fourth quarter of 2019, representing an annualized yield of 2.4% based upon the $70.58 closing price of the Company’s stock on January 22, 2021. The one cent per share increase declared in the third quarter of 2020 marked the 28^th^ consecutive year of dividend increases for the Company.
Conference Call Scheduled
Company management will conduct an investor call at 11:00 a.m. (ET) today, January 25, 2021, to discuss the fourth quarter and full year 2020 results. The conference call can be accessed at 877-317-6789 (1-412-317-6789 if outside the United States and Canada). Investors may also listen live via the Internet at: https://www.webcaster4.com/Webcast/Page/995/39287.
This earnings release, including supporting financial tables and presentation slides, is available within the press releases section of the Company's investor relations website at: https://ir.communitybanksystem.com. An archived webcast of the earnings call will be available on this site for one full year.
About Us
Community Bank System, Inc. operates more than 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 $13.9 billion, the DeWitt, N.Y. headquartered company is among the country’s 125 largest banking institutions. In addition to a full range of retail, business, and municipal banking services, the Company offers comprehensive financial planning, insurance and wealth management services through its Community Bank Wealth Management Group and OneGroup NY, Inc. operating units. The Company's Benefit Plans Administrative Services, Inc. subsidiary is a leading provider of employee benefits administration, trust services, collective investment fund administration and actuarial consulting services to customers on a national scale. Community Bank System, Inc. is listed on the New York Stock Exchange and the Company's stock trades under the symbol CBU. For more information about Community Bank visit www.cbna.com or https://ir.communitybanksystem.com.
# # #
This press release contains forward-looking statements withinthe meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the current beliefs and expectationsof CBU’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forthin the forward-looking statements. The following factors, among others, could cause the actual results of CBU’s operationsto differ materially from its expectations: the macroeconomic and other challenges and uncertainties related to the COVID-19 pandemic,including the negative impacts and disruptions on public health, corporate and consumer customers, the communities CBU serves,and the domestic and global economy, including various actions taken in response by governments, central banks and others, whichmay have an adverse effect on CBU’s business; current and future economic and market conditions, including the effects ofdeclines in housing prices, high unemployment rates, U.S. fiscal debt, budget and tax matters, geopolitical matters, and any slowdownin global economic growth; fiscal and monetary policies of the Federal Reserve Board; the effect of changes in the level of checkingor savings account deposits on CBU’s funding costs and net interest margin; future provisions for credit losses on loansand debt securities; changes in nonperforming assets; the effect of a fall in stock market prices on CBU’s fee income businesses,including its employee benefit services, wealth management, and insurance businesses; the successful integration of operationsof its acquisitions; competition; changes in legislation or regulatory requirements; and the timing for receiving regulatory approvalsand completing pending transactions. For more information about factors that could cause actual results to differ materially fromCBU’s expectations, refer to its reports filed with the Securities and Exchange Commission, including the discussion under “Risk Factors” in the Annual Report on Form 10-K for the year ended December 31, 2019 and Quarterly Reports on Form10-Q for the quarterly periods ended March 31, 2020, June 30, 2020 and September 30, 2020, which have been filed with the Securitiesand Exchange Commission and available on its website at www.sec.gov. Further, any forward-looking statement speaks only as of thedate on which it is made, and CBU undertakes no obligation to update any forward-looking statement to reflect events or circumstancesafter the date on which the statement is made or to reflect the occurrence of unanticipated events.
| Summary of Financial Data (unaudited) | |||||
|---|---|---|---|---|---|
| (Dollars in thousands, except per share data) | |||||
| Quarter Ended | Year-to-Date | ||||
| December 31, 2020 | December 31, 2019 | December 31, 2020 | December 31, 2019 | ||
| Earnings | |||||
| Loan income | $77,848 | $80,509 | $314,779 | $308,210 | |
| Investment income | 19,753 | 19,538 | 74,499 | 77,517 | |
| Total interest income | 97,601 | 100,047 | 389,278 | 385,727 | |
| Interest expense | 4,168 | 7,307 | 20,875 | 26,552 | |
| Net interest income | 93,433 | 92,740 | 368,403 | 359,175 | |
| Acquisition-related provision for credit losses | (140) | 0 | 3,061 | 0 | |
| Provision for credit losses | (2,961) | 2,857 | 11,151 | 8,430 | |
| Net interest income after provision for credit losses | 96,534 | 89,883 | 354,191 | 350,745 | |
| Deposit service and other banking fees | 15,827 | 17,828 | 61,123 | 69,960 | |
| Mortgage banking | (898) | 247 | 5,301 | 523 | |
| Wealth management and insurance services | 15,090 | 14,060 | 60,251 | 58,068 | |
| Employee benefit services | 26,736 | 24,997 | 101,329 | 97,167 | |
| Gain on sale of investments, net | 0 | 0 | 0 | 4,882 | |
| Unrealized gain (loss) on equity securities | 24 | (9) | (6) | 19 | |
| Gain on debt extinguishment | 421 | 0 | 421 | 0 | |
| Total noninterest revenues | 57,200 | 57,123 | 228,419 | 230,619 | |
| Salaries and employee benefits | 58,132 | 56,468 | 228,384 | 219,916 | |
| Data processing and communications | 12,413 | 10,932 | 45,755 | 41,407 | |
| Occupancy and equipment | 10,105 | 10,142 | 40,732 | 39,850 | |
| Amortization of intangible assets | 3,525 | 3,962 | 14,297 | 15,956 | |
| Litigation accrual | 0 | 0 | 2,950 | 0 | |
| Acquisition expenses | 396 | 819 | 4,933 | 8,608 | |
| Other | 10,431 | 12,946 | 39,483 | 46,289 | |
| Total operating expenses | 95,002 | 95,269 | 376,534 | 372,026 | |
| Income before income taxes | 58,732 | 51,737 | 206,076 | 209,338 | |
| Income taxes | 12,247 | 8,853 | 41,400 | 40,275 | |
| Net income | $46,485 | $42,884 | $164,676 | $169,063 | |
| Basic earnings per share | $0.86 | $0.82 | $3.10 | $3.26 | |
| Diluted earnings per share | $0.86 | $0.82 | $3.08 | $3.23 | |
| Summary of Financial Data (unaudited) | |||||
| --- | --- | --- | --- | --- | --- |
| (Dollars in thousands, except per share data) | |||||
| 2020 | 2019 | ||||
| 4th Qtr | 3rd Qtr | 2nd Qtr | 1st Qtr | 4th Qtr | |
| Earnings | |||||
| Loan income | $77,848 | $79,646 | $78,720 | $78,565 | $80,509 |
| Investment income | 19,753 | 17,844 | 18,472 | 18,430 | 19,538 |
| Total interest income | 97,601 | 97,490 | 97,192 | 96,995 | 100,047 |
| Interest expense | 4,168 | 4,525 | 5,241 | 6,941 | 7,307 |
| Net interest income | 93,433 | 92,965 | 91,951 | 90,054 | 92,740 |
| Acquisition-related provision for credit losses | (140) | 0 | 3,201 | 0 | 0 |
| Provision for credit losses | (2,961) | 1,945 | 6,573 | 5,594 | 2,857 |
| Net interest income after provision for credit losses | 96,534 | 91,020 | 82,177 | 84,460 | 89,883 |
| Deposit service and other banking fees | 15,827 | 15,184 | 12,934 | 17,178 | 17,828 |
| Mortgage banking | (898) | 3,908 | 1,375 | 916 | 247 |
| Wealth management and insurance services | 15,090 | 15,420 | 14,549 | 15,192 | 14,060 |
| Employee benefit services | 26,736 | 25,159 | 24,068 | 25,366 | 24,997 |
| Unrealized gain (loss) on equity securities | 24 | (12) | 12 | (30) | (9) |
| Gain on debt extinguishment | 421 | 0 | 0 | 0 | 0 |
| Total noninterest revenues | 57,200 | 59,659 | 52,938 | 58,622 | 57,123 |
| Salaries and employee benefits | 58,132 | 57,280 | 54,721 | 58,251 | 56,468 |
| Data processing and communications | 12,413 | 12,096 | 10,833 | 10,413 | 10,932 |
| Occupancy and equipment | 10,105 | 10,134 | 9,754 | 10,739 | 10,142 |
| Amortization of intangible assets | 3,525 | 3,581 | 3,524 | 3,667 | 3,962 |
| Litigation accrual | 0 | 2,950 | 0 | 0 | 0 |
| Acquisition expenses | 396 | 796 | 3,372 | 369 | 819 |
| Other | 10,431 | 10,129 | 8,699 | 10,224 | 12,946 |
| Total operating expenses | 95,002 | 96,966 | 90,903 | 93,663 | 95,269 |
| Income before income taxes | 58,732 | 53,713 | 44,212 | 49,419 | 51,737 |
| Income taxes | 12,247 | 10,904 | 8,964 | 9,285 | 8,853 |
| Net income | $46,485 | $42,809 | $35,248 | $40,134 | $42,884 |
| Basic earnings per share | $0.86 | $0.80 | $0.67 | $0.77 | $0.82 |
| Diluted earnings per share | $0.86 | $0.79 | $0.66 | $0.76 | $0.82 |
| Profitability | |||||
| Return on assets | 1.33% | 1.26% | 1.12% | 1.41% | 1.48% |
| Return on equity | 8.82% | 8.13% | 7.05% | 8.49% | 9.19% |
| Return on tangible equity^(2)^ | 14.29% | 13.22% | 11.60% | 14.52% | 16.08% |
| Noninterest revenues/operating revenues (FTE)^(1)^ | 37.9% | 39.2% | 36.6% | 39.6% | 38.3% |
| Efficiency ratio | 60.8% | 58.9% | 58.1% | 60.4% | 60.7% |
| Components of Net Interest Margin (FTE) | |||||
| Loan yield | 4.17% | 4.23% | 4.40% | 4.61% | 4.67% |
| Cash equivalents yield | 0.10% | 0.10% | 0.10% | 0.90% | 1.68% |
| Investment yield | 2.13% | 2.31% | 2.50% | 2.51% | 2.70% |
| Earning asset yield | 3.18% | 3.28% | 3.56% | 3.93% | 3.99% |
| Interest-bearing deposit rate | 0.17% | 0.19% | 0.23% | 0.34% | 0.36% |
| Borrowing rate | 0.86% | 1.19% | 1.36% | 1.70% | 1.68% |
| Cost of all interest-bearing funds | 0.20% | 0.23% | 0.28% | 0.40% | 0.42% |
| Cost of funds (includes DDA) | 0.14% | 0.16% | 0.20% | 0.30% | 0.31% |
| Net interest margin (FTE) | 3.05% | 3.12% | 3.37% | 3.65% | 3.71% |
| Fully tax-equivalent adjustment | $929 | $963 | $1,015 | $1,032 | $1,026 |
| Summary of Financial Data (unaudited) | |||||
| --- | --- | --- | --- | --- | --- |
| (Dollars in thousands, except per share data) | |||||
| 2020 | 2019 | ||||
| 4th Qtr | 3rd Qtr | 2nd Qtr | 1st Qtr | 4th Qtr | |
| Average Balances | |||||
| Loans | $7,450,513 | $7,508,895 | $7,219,462 | $6,876,771 | $6,857,977 |
| Cash equivalents | 1,079,236 | 1,300,981 | 822,992 | 114,660 | 504,858 |
| Taxable investment securities | 3,340,544 | 2,686,120 | 2,608,495 | 2,586,646 | 2,242,471 |
| Nontaxable investment securities | 444,417 | 461,963 | 454,511 | 459,340 | 434,020 |
| Total interest-earning assets | 12,314,710 | 11,957,959 | 11,105,460 | 10,037,417 | 10,039,326 |
| Total assets | 13,884,979 | 13,543,460 | 12,652,200 | 11,487,384 | 11,472,415 |
| Interest-bearing deposits | 7,853,764 | 7,621,206 | 7,146,301 | 6,598,131 | 6,581,979 |
| Borrowings | 359,102 | 291,241 | 315,934 | 329,355 | 325,139 |
| Total interest-bearing liabilities | 8,212,866 | 7,912,447 | 7,462,235 | 6,927,486 | 6,907,118 |
| Noninterest-bearing deposits | 3,356,156 | 3,312,841 | 2,964,717 | 2,458,529 | 2,519,645 |
| Shareholders' equity | 2,097,766 | 2,095,211 | 2,009,996 | 1,902,169 | 1,851,579 |
| Balance Sheet Data | |||||
| Cash and cash equivalents | $1,645,805 | $1,836,521 | $1,319,880 | $529,336 | $205,030 |
| Investment securities | 3,595,347 | 3,270,063 | 3,337,459 | 3,185,381 | 3,088,343 |
| Loans: | |||||
| Business lending | 3,440,077 | 3,433,565 | 3,455,343 | 2,789,130 | 2,775,876 |
| Consumer mortgage | 2,401,499 | 2,410,249 | 2,428,060 | 2,424,656 | 2,430,902 |
| Consumer indirect | 1,021,885 | 1,039,925 | 1,056,865 | 1,087,879 | 1,113,062 |
| Home equity | 399,834 | 413,265 | 418,543 | 386,583 | 386,325 |
| Consumer direct | 152,657 | 161,639 | 169,228 | 177,844 | 184,378 |
| Total loans | 7,415,952 | 7,458,643 | 7,528,039 | 6,866,092 | 6,890,543 |
| Allowance for credit losses | 60,869 | 64,962 | 64,437 | 55,652 | 49,911 |
| Intangible assets, net | 846,648 | 850,214 | 852,761 | 832,919 | 836,923 |
| Other assets | 488,211 | 494,846 | 470,515 | 450,907 | 439,367 |
| Total assets | 13,931,094 | 13,845,325 | 13,444,217 | 11,808,983 | 11,410,295 |
| Deposits: | |||||
| Noninterest-bearing | 3,361,768 | 3,326,517 | 3,273,921 | 2,491,720 | 2,465,902 |
| Non-maturity interest-bearing | 6,929,435 | 6,830,893 | 6,600,140 | 5,899,297 | 5,592,936 |
| Time | 933,771 | 963,180 | 972,612 | 912,965 | 936,129 |
| Total deposits | 11,224,974 | 11,120,590 | 10,846,673 | 9,303,982 | 8,994,967 |
| Borrowings | 290,666 | 288,448 | 176,195 | 208,718 | 253,758 |
| Subordinated notes payable | 3,303 | 13,735 | 13,755 | 13,775 | 13,795 |
| Subordinated debt held by unconsolidated subsidiary trusts | 77,320 | 77,320 | 79,382 | 77,320 | 77,320 |
| Accrued interest and other liabilities | 230,724 | 246,572 | 246,897 | 228,557 | 215,221 |
| Total liabilities | 11,826,987 | 11,746,665 | 11,362,902 | 9,832,352 | 9,555,061 |
| Shareholders' equity | 2,104,107 | 2,098,660 | 2,081,315 | 1,976,631 | 1,855,234 |
| Total liabilities and shareholders' equity | 13,931,094 | 13,845,325 | 13,444,217 | 11,808,983 | 11,410,295 |
| Capital | |||||
| Tier 1 leverage ratio | 10.16% | 10.21% | 10.79% | 11.10% | 10.80% |
| Tangible equity/net tangible assets^(2)^ | 9.92% | 9.92% | 10.08% | 10.78% | 10.01% |
| Diluted weighted average common shares O/S | 54,194 | 54,159 | 53,017 | 52,646 | 52,522 |
| Period end common shares outstanding | 53,593 | 53,538 | 53,514 | 52,031 | 51,794 |
| Cash dividends declared per common share | $0.42 | $0.42 | $0.41 | $0.41 | $0.41 |
| Book value | $39.26 | $39.20 | $38.89 | $37.99 | $35.82 |
| Tangible book value^(2)^ | $24.29 | $24.15 | $23.80 | $22.84 | $20.52 |
| Common stock price (end of period) | $62.31 | $54.46 | $57.02 | $58.80 | $70.94 |
| Summary of Financial Data (unaudited) | |||||
| --- | --- | --- | --- | --- | --- |
| (Dollars in thousands, except per share data) | |||||
| 2020 | 2019 | ||||
| 4th Qtr | 3rd Qtr | 2nd Qtr | 1st Qtr | 4th Qtr | |
| Asset Quality | |||||
| Nonaccrual loans | $72,017 | $28,756 | $20,697 | $19,046 | $18,835 |
| Accruing loans 90+ days delinquent | 4,834 | 3,487 | 6,063 | 12,736 | 5,426 |
| Total nonperforming loans | 76,851 | 32,243 | 26,760 | 31,782 | 24,261 |
| Other real estate owned (OREO) | 883 | 1,209 | 3,186 | 1,469 | 1,270 |
| Total nonperforming assets | 77,734 | 33,452 | 29,946 | 33,251 | 25,531 |
| Net charge-offs | 1,258 | 1,257 | 910 | 1,550 | 2,369 |
| Allowance for credit losses/loans outstanding | 0.82% | 0.87% | 0.86% | 0.81% | 0.72% |
| Nonperforming loans/loans outstanding | 1.04% | 0.43% | 0.36% | 0.46% | 0.35% |
| Allowance for credit losses/nonperforming loans | 79% | 201% | 241% | 175% | 206% |
| Net charge-offs/average loans | 0.07% | 0.07% | 0.05% | 0.09% | 0.14% |
| Delinquent loans/ending loans | 1.50% | 0.79% | 0.72% | 1.11% | 0.94% |
| Provision for credit losses/net charge-offs | (246)% | 155% | 1,074% | 361% | 121% |
| Nonperforming assets/total assets | 0.56% | 0.24% | 0.22% | 0.28% | 0.22% |
| Quarterly GAAP to Non-GAAP Reconciliations | |||||
| Income statement data | |||||
| Pre-tax, pre-provision net revenue | |||||
| Net income (GAAP) | $46,485 | $42,809 | $35,248 | $40,134 | $42,884 |
| Income taxes | 12,247 | 10,904 | 8,964 | 9,285 | 8,853 |
| Income before income taxes | 58,732 | 53,713 | 44,212 | 49,419 | 51,737 |
| Provision for credit losses | (3,101) | 1,945 | 9,774 | 5,594 | 2,857 |
| Pre-tax, pre-provision net revenue (non-GAAP) | 55,631 | 55,658 | 53,986 | 55,013 | 54,594 |
| Acquisition expenses | 396 | 796 | 3,372 | 369 | 819 |
| Unrealized (gain) loss on equity securities | (24) | 12 | (12) | 30 | 9 |
| Litigation accrual | 0 | 2,950 | 0 | 0 | 0 |
| Gain on debt extinguishment | (421) | 0 | 0 | 0 | 0 |
| Adjusted pre-tax, pre-provision net revenue (non-GAAP) | $55,582 | $59,416 | $57,346 | $55,412 | $55,422 |
| Pre-tax, pre-provision net revenue per share | |||||
| Diluted earnings per share (GAAP) | $0.86 | $0.79 | $0.66 | $0.76 | $0.82 |
| Income taxes | 0.22 | 0.20 | 0.17 | 0.18 | 0.17 |
| Income before income taxes | 1.08 | 0.99 | 0.83 | 0.94 | 0.99 |
| Provision for credit losses | (0.04) | 0.04 | 0.19 | 0.10 | 0.06 |
| Pre-tax, pre-provision net revenue per share (non-GAAP) | 1.04 | 1.03 | 1.02 | 1.04 | 1.05 |
| Acquisition expenses | 0.00 | 0.02 | 0.06 | 0.01 | 0.01 |
| Unrealized (gain) loss on equity securities | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Litigation accrual | 0.00 | 0.05 | 0.00 | 0.00 | 0.00 |
| Gain on debt extinguishment | (0.01) | 0.00 | 0.00 | 0.00 | 0.00 |
| Adjusted pre-tax, pre-provision net revenue per share<br>(non-GAAP) | $1.03 | $1.10 | $1.08 | $1.05 | $1.06 |
| Summary of Financial Data (unaudited) | |||||
| --- | --- | --- | --- | --- | --- |
| (Dollars in thousands, except per share data) | |||||
| 2020 | 2019 | ||||
| 4th Qtr | 3rd Qtr | 2nd Qtr | 1st Qtr | 4th Qtr | |
| Quarterly GAAP to Non-GAAP Reconciliations | |||||
| Income statement data (continued) | |||||
| Net income | |||||
| Net income<br>(GAAP) | $46,485 | $42,809 | $35,248 | $40,134 | $42,884 |
| Acquisition<br>expenses | 396 | 796 | 3,372 | 369 | 819 |
| Tax effect<br>of acquisition expenses | (83) | (162) | (684) | (69) | (140) |
| Subtotal<br>(non-GAAP) | 46,798 | 43,443 | 37,936 | 40,434 | 43,563 |
| Acquisition-related<br>provision for credit losses | (140) | 0 | 3,201 | 0 | 0 |
| Tax effect<br>of acquisition-related provision for credit losses | 29 | 0 | (649) | 0 | 0 |
| Subtotal<br>(non-GAAP) | 46,687 | 43,443 | 40,488 | 40,434 | 43,563 |
| Unrealized<br>(gain) loss on equity securities | (24) | 12 | (12) | 30 | 9 |
| Tax effect<br>of unrealized (gain) loss on equity securities | 5 | (2) | 2 | (6) | (2) |
| Subtotal<br>(non-GAAP) | 46,668 | 43,453 | 40,478 | 40,458 | 43,570 |
| Litigation<br>accrual | 0 | 2,950 | 0 | 0 | 0 |
| Tax effect<br>of litigation accrual | 0 | (599) | 0 | 0 | 0 |
| Subtotal<br>(non-GAAP) | 46,668 | 45,804 | 40,478 | 40,458 | 43,570 |
| Gain<br>on debt extinguishment | (421) | 0 | 0 | 0 | 0 |
| Tax effect<br>of gain on debt extinguishment | 88 | 0 | 0 | 0 | 0 |
| Operating<br>net income (non-GAAP) | 46,335 | 45,804 | 40,478 | 40,458 | 43,570 |
| Amortization<br>of intangibles | 3,525 | 3,581 | 3,524 | 3,667 | 3,962 |
| Tax effect<br>of amortization of intangibles | (735) | (727) | (714) | (689) | (678) |
| Subtotal<br>(non-GAAP) | 49,125 | 48,658 | 43,288 | 43,436 | 46,854 |
| Acquired<br>non-impaired loan accretion | (1,335) | (1,326) | (1,365) | (1,465) | (1,898) |
| Tax effect<br>of acquired non-impaired loan accretion | 278 | 269 | 277 | 275 | 325 |
| Adjusted<br>net income (non-GAAP) | $48,068 | $47,601 | $42,200 | $42,246 | $45,281 |
| Return on average assets | |||||
| Adjusted<br>net income (non-GAAP) | $48,068 | $47,601 | $42,200 | $42,246 | $45,281 |
| Average<br>total assets | 13,884,979 | 13,543,460 | 12,652,200 | 11,487,384 | 11,472,415 |
| Adjusted<br>return on average assets (non-GAAP) | 1.38% | 1.40% | 1.34% | 1.48% | 1.57% |
| Return on average equity | |||||
| Adjusted<br>net income (non-GAAP) | $48,068 | $47,601 | $42,200 | $42,246 | $45,281 |
| Average<br>total equity | 2,097,766 | 2,095,211 | 2,009,996 | 1,902,169 | 1,851,579 |
| Adjusted<br>return on average equity (non-GAAP) | 9.12% | 9.04% | 8.44% | 8.93% | 9.70% |
| Summary of Financial Data (unaudited) | |||||
| --- | --- | --- | --- | --- | --- |
| (Dollars in thousands, except per share data) | |||||
| 2020 | 2019 | ||||
| 4th Qtr | 3rd Qtr | 2nd Qtr | 1st Qtr | 4th Qtr | |
| Quarterly GAAP to Non-GAAP Reconciliations | |||||
| Income statement data (continued) | |||||
| Earningsper common share | |||||
| Diluted<br>earnings per share (GAAP) | $0.86 | $0.79 | $0.66 | $0.76 | $0.82 |
| Acquisition<br>expenses | 0.00 | 0.02 | 0.06 | 0.01 | 0.01 |
| Tax effect<br>of acquisition expenses | 0.00 | 0.00 | (0.01) | 0.00 | 0.00 |
| Subtotal<br>(non-GAAP) | 0.86 | 0.81 | 0.71 | 0.77 | 0.83 |
| Acquisition-related<br>provision for credit losses | 0.00 | 0.00 | 0.06 | 0.00 | 0.00 |
| Tax effect<br>of acquisition-related provision for credit losses | 0.00 | 0.00 | (0.01) | 0.00 | 0.00 |
| Subtotal<br>(non-GAAP) | 0.86 | 0.81 | 0.76 | 0.77 | 0.83 |
| Unrealized<br>(gain) loss on equity securities | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Tax effect<br>of unrealized (gain) loss on equity securities | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Subtotal<br>(non-GAAP) | 0.86 | 0.81 | 0.76 | 0.77 | 0.83 |
| Litigation<br>accrual | 0.00 | 0.05 | 0.00 | 0.00 | 0.00 |
| Tax effect<br>of litigation accrual | 0.00 | (0.01) | 0.00 | 0.00 | 0.00 |
| Subtotal<br>(non-GAAP) | 0.86 | 0.85 | 0.76 | 0.77 | 0.83 |
| Gain<br>on debt extinguishment | (0.01) | 0.00 | 0.00 | 0.00 | 0.00 |
| Tax effect<br>of gain on debt extinguishment | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Operating<br>diluted earnings per share (non-GAAP) | 0.85 | 0.85 | 0.76 | 0.77 | 0.83 |
| Amortization<br>of intangibles | 0.07 | 0.07 | 0.07 | 0.07 | 0.07 |
| Tax effect<br>of amortization of intangibles | (0.01) | (0.01) | (0.01) | (0.01) | (0.01) |
| Subtotal<br>(non-GAAP) | 0.91 | 0.91 | 0.82 | 0.83 | 0.89 |
| Acquired<br>non-impaired loan accretion | (0.03) | (0.03) | (0.03) | (0.03) | (0.04) |
| Tax effect<br>of acquired non-impaired loan accretion | 0.01 | 0.00 | 0.01 | 0.00 | 0.01 |
| Diluted<br>adjusted net earnings per share (non-GAAP) | $0.89 | $0.88 | $0.80 | $0.80 | $0.86 |
| Noninterest operating expenses | |||||
| Noninterest<br>expenses (GAAP) | $95,002 | $96,966 | $90,903 | $93,663 | $95,269 |
| Amortization<br>of intangibles | (3,525) | (3,581) | (3,524) | (3,667) | (3,962) |
| Acquisition<br>expenses | (396) | (796) | (3,372) | (369) | (819) |
| Litigation<br>accrual | 0 | (2,950) | 0 | 0 | 0 |
| Total<br>adjusted noninterest expenses (non-GAAP) | $91,081 | $89,639 | $84,007 | $89,627 | $90,488 |
| Efficiency ratio | |||||
| Adjusted<br>noninterest expenses (non-GAAP) - numerator | $91,081 | $89,639 | $84,007 | $89,627 | $90,488 |
| Tax-equivalent<br>net interest income | 94,362 | 93,928 | 92,966 | 91,086 | 93,766 |
| Noninterest<br>revenues | 57,200 | 59,659 | 52,938 | 58,622 | 57,123 |
| Acquired<br>non-impaired loan accretion | (1,335) | (1,326) | (1,365) | (1,465) | (1,898) |
| Unrealized<br>(gain) loss on equity securities | (24) | 12 | (12) | 30 | 9 |
| Gain<br>on debt extinguishment | (421) | 0 | 0 | 0 | 0 |
| Operating<br>revenues (non-GAAP) - denominator | 149,782 | 152,273 | 144,527 | 148,273 | 149,000 |
| Efficiency<br>ratio (non-GAAP) | 60.8% | 58.9% | 58.1% | 60.4% | 60.7% |
| Summary of Financial Data (unaudited) | |||||
| --- | --- | --- | --- | --- | --- |
| (Dollars in thousands, except per share data) | |||||
| 2020 | 2019 | ||||
| 4th Qtr | 3rd Qtr | 2nd Qtr | 1st Qtr | 4th Qtr | |
| Quarterly GAAP to Non-GAAP Reconciliations | |||||
| Balance sheet data | |||||
| Total assets | |||||
| Total<br>assets (GAAP) | $13,931,094 | $13,845,325 | $13,444,217 | $11,808,983 | $11,410,295 |
| Intangible<br>assets | (846,648) | (850,214) | (852,761) | (832,919) | (836,923) |
| Deferred<br>taxes on intangible assets | 44,370 | 44,733 | 45,094 | 44,494 | 44,742 |
| Total<br>tangible assets (non-GAAP) | 13,128,816 | 13,039,844 | 12,636,550 | 11,020,558 | 10,618,114 |
| Total common equity | |||||
| Shareholders'<br>Equity (GAAP) | 2,104,107 | 2,098,660 | 2,081,315 | 1,976,631 | 1,855,234 |
| Intangible<br>assets | (846,648) | (850,214) | (852,761) | (832,919) | (836,923) |
| Deferred<br>taxes on intangible assets | 44,370 | 44,733 | 45,094 | 44,494 | 44,742 |
| Total<br>tangible common equity (non-GAAP) | 1,301,829 | 1,293,179 | 1,273,648 | 1,188,206 | 1,063,053 |
| Net tangible equity-to-assets ratio at quarter end | |||||
| Total<br>tangible common equity (non-GAAP) - numerator | $1,301,829 | $1,293,179 | $1,273,648 | $1,188,206 | $1,063,053 |
| Total<br>tangible assets (non-GAAP) - denominator | 13,128,816 | 13,039,844 | 12,636,550 | 11,020,558 | 10,618,114 |
| Net<br>tangible equity-to-assets ratio at quarter end (non-GAAP) | 9.92% | 9.92% | 10.08% | 10.78% | 10.01% |
| ^(1)^ Excludes unrealized gain and loss on equity securities and gain on debt extinguishment. | |||||
| ^(2)^ Includes deferred tax liabilities related to certain intangible assets. |
# # #
Exhibit 99.2
0 Q4 2020 EARNINGS RELEASE SUPPLEMENTAL INFORMATION
1 This presentation contains forward - looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the current beliefs and expectations of CBU’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward - looking statements. The following factors, among others, could cause the actual results of CBU’s operations to differ materially from its expectation s: the macroeconomic and other challenges and uncertainties related to the COVID - 19 pandemic, including the negative impacts and disruptions on public health, CBU’s corporate and consumer customers, the communities CBU serves, and the domestic and global economy, including various actions taken in response by governments, central banks and others, which may have an adverse effect on CBU’s business; current and future economic and market conditions, including the effects of declines in housing prices, high unemployment rates, U.S. fiscal debt, budget and tax matters, geopolitical matters, and any slowdown in global economic growth; fiscal and monetary policies of the Federal Reserve Board; the effect of changes in the level of checking or savings account deposits on CBU’s funding costs and net interest margin; future provisions for credit losses on loans and debt securities; changes in nonperforming assets; the effect of a fall in stock market prices on CBU’s fe e income businesses, including its employee benefit services, wealth management, and insurance businesses; the successful integration of operations of its acquisitions; competition; changes in legislation or regulatory requirements; and the timing fo r receiving regulatory approvals and completing pending transactions. For more information about factors that could cause actual results to differ materially from CBU’s expectations, refer to its reports filed with the Securities and Exchange Commission, including the discussion under “Risk Factors” in the Annual Report on Form 10 - K for the year ended December 31, 2019, and Quarterly Reports on Form 10 - Q for the quarterly periods ended March 31, 2020, June 30, 2020 and September 30, 2020 which have been filed with the Securities and Exchange Commission and available on its website at www.sec.gov. Further, any forward - looking statement speaks only as of the date on which it is made, and CBU undertakes no obligation to update any forward - looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. FORWARD LOOKING STATEMENT (unaudited)
2 Q4 2020: Phase 5 (Prevent) Reinstituted “work from home” emphasis Drive - up & appointment only branch operations PPP forgiveness & round 2 preparation Q3 2020: Phase 4 (Monitor) Begin PPP forgiveness process Monitoring of health data and financial exposure Monitor COVID impacted borrowers June 2020: Phase 3 (Resume) Branches begin to reopen Employees begin returning to office Daily health surveys April & May 2020: Phase 2 (Execute) Assessed return to work protocols Redeployed staff to assist with deferral & PPP efforts Assessed reopening of branch and other offices March 2020: Phase 1 (Assess) Internal task force Modified Company operations Work from home Self quarantine policies Enhanced cleaning COMPANY RESPONSE TO COVID - 19 (unaudited)
3 $479 $607 $876 $1,198 $1,855 $2,104 7.77% 8.23% 9.29% 10.55% 10.80% 10.16% 5.28% 6.14% 7.68% 9.24% 10.01% 9.92% 0% 2% 4% 6% 8% 10% 12% 14% $0 $500 $1,000 $1,500 $2,000 2007 2010 2013 2016 2019 2020 $ in Millions Shareholders' Equity Tier I Ratio Tangible Equity/Tangible Assets STRONG CAPITAL POSITION (unaudited) The Company’s capital planning and capital management activities, coupled with its historically strong earnings performance and prudent dividend practices, have allowed it to build and maintain strong capital reserves. At December 31, 2020, all of the Company’s regulatory capital ratios significantly exceed all well - capitalized standards. Note: Tangible Equity and Tangible Assets are non - GAAP measures. Please see the Appendix for details.
4 Liquidity Sources December 31, 2020 $ in Thousands Cash and Cash Equivalents (net of float) $1,565,832 FHLB Borrowing Capacity $1,655,098 FRB Borrowing Availability $256,212 Investments 1 US Gov’t & Agency $2,501,382 MBS & CMO $566,216 Municipals $455,439 Corporates $4,635 Less: Pledged Securities $(1,748,992) Net Unpledged Securities $1,778,680 Total Liquidity Sources $5,255,822 (1) Includes $ 116 million unrealized gains on securities; excludes municipal qualified school construction bonds, equity securities and other investments STRONG LIQUIDITY POSITION & SOURCES (unaudited)
5 $55.4 $55.4 $57.3 $59.4 $55.6 $1.06 $1.05 $1.08 $1.10 $1.03 $1.00 $1.02 $1.04 $1.06 $1.08 $1.10 $1.12 $1.14 $48 $50 $52 $54 $56 $58 $60 $62 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 PTPP EPS PTPP Net Revenue, $ in Millions Adjusted pre-tax, pre-provision net revenue Adjusted PTPP EPS SOLID EARNINGS TREND (unaudited) The Company believes that adjusted pre - tax, pre - provision (“PTPP”) net revenue is a valuable metric for measuring relative performance, especially during times of increased provision for credit losses. The Company’s fourth quarter 2020 adjusted PTPP net revenue per share was down $0.03 or 2.8% compared to the fourth quarter of 2019. Note: Adjusted pre - tax, pre - provision (“PTPP”) net revenue is a non - GAAP measure. Please see the Appendix for details.
6 CECL 1 ADOPTION & COVID RELATED RESERVE (unaudited) • In January 2020, the Company adopted ASU No. 2016 - 13, Financial Instruments – Credit Losses, also known as Current Expected Credit Losses (“CECL ”). • Upon the adoption of CECL on January 1, 2020, the Company’s allowance for credit losses increased $1.4 million (“CECL Adoption Impact”), from $49.9 million at December 31, 2019 to $51.3 million. Following the adoption of CECL, the Company’s Allowance for Credit Losses has increased by $9.6 million, or 18.7 %, $3.6 million of which was due to the Steuben Trust Corporation acquisition (“Steuben Acquisition”) and $6.0 million (“2020 Net Reserve Build”) primarily due to credit loss expectations associated with COVID - 19’s adverse impact on economic and business operating conditions and specific re serves on impaired loans. (1) Current Expected Credit Losses (“CECL") (2) Allowance for Credit Losses (“ACL”) ACL 2 Drivers Post CECL Adoption
7 TRANSACTION AND DIGITAL USER TRENDS (unaudited) Due to the COVID - 19 pandemic, there has been a shift in the transaction channels from branch to digital . 3,500 4,000 4,500 5,000 5,500 6,000 6,500 7,000 400 500 600 700 800 900 1,000 1,100 Jan '19 Feb '19 Mar '19 Apr '19 May '19 June '19 July '19 Aug '19 Sep '19 Oct '19 Nov '19 Dec '19 Jan '20 Feb '20 Mar '20 Apr '20 May '20 June '20 July '20 Aug '20 Sep '20 Oct '20 Nov '20 Dec '20 Debit Card Transactions Thousands Branch Transactions Thousands Branch Transactions Debit Card Transactions
8 9/30/2020 12/31/2020 Net Reduction in Deferrals Portfolio # of Loans Deferrals % of 9/30/20 Portfolio # of Loans Deferrals % of 12/31/20 Portfolio Business Lending 156 $189.2 5.5% 63 $65.7 1.9% $123.5 Consumer Mortgage & Home Equity 42 $3.2 0.1% 9 $0.8 0.0% $2.4 Consumer Installment 18 $0.3 0.0% 2 $0.0 0.0% $0.3 Total Deferrals 216 $192.7 2.6% 74 $66.5 0.9% $126.2 COVID - 19 LOAN DEFERRAL UPDATE (unaudited) Sector # of Loans Deferrals % of Business Lending Deferrals % of 12/31/20 Business Lending Portfolio Lodging 1 22 $55.5 84.5% 1.6% Food Services 2 5 $1.6 2.4% 0.1% Manufacturing 3 $1.2 1.8% 0.0% All Other Business Sectors 33 $7.4 11.3% 0.2% Total Business Lending Deferrals 63 $65.7 100% 1.9% Business Lending Deferral Summary by Sector $ in Millions (1) Lodging excludes RV Parks and Campgrounds (2) Food Services includes Full & Limited Service Restaurants, Alcoholic Beverage Bars and Snack/Non - Alcoholic Beverage Bars COVID - 19 Loan Deferral Update $ in Millions
9 • 3,417 Paycheck Protection Program (“PPP”) loans, representing $471 million in customer balances, were outstanding on December 31, 2020 • Loan forgiveness customer portal opened in late September 2020 • Total PPP loan balance decreased $36.5 million compared to the third quarter of 2020 • At December 31, 2020, the Company’s remaining PPP net deferred loan fees were $9.0 million • T he Company is participating in the 2021 round of PPP lending, but is uncertain at this time as to the amount of loans it will originate in 2021 PAYCHECK PROTECTION PROGRAM (PPP) (unaudited)
10 COVID - 19 Related Industry Exposure Sorted by Total Exposure excluding PPP Loans; $ in Millions December 31, 2020 NAICS code based loan data “Exposure” includes both the outstanding and available portions of the loan commitment (1) Retail excludes Furniture Stores and Grocery Stores but includes loans secured by non - owner - occupied commercial real estate retail properties (2) Lodging excludes RV Parks and Campgrounds (3) Food Services includes Full & Limited Service Restaurants, Alcoholic Beverage Bars and Snack/Non - Alcoholic Beverage Bars (4) Arts, Entertainment, and Recreation excludes Casinos (5) Educational Services excludes Public Elementary and Secondary Schools (6) Transportation excludes General & Specialized Freight Trucking, Freight Transport and Warehousing/Storage Industry Real Estate Secured Non Real Estate Secured Total Loans Outstanding % of Total Loans Outstanding excl. PPP Remaining Availability Total Exposure excl. PPP PPP Loans Total Exposure incl. PPP Retail 1 $266 $62 $328 4.8% $ 105 $ 433 $57 $ 490 Lodging 2 $260 $1 $261 3.8% $6 $267 $9 $276 Manufacturing $60 $92 $ 152 2.2% $86 $ 238 $45 $ 283 Construction $32 $63 $95 1.4% $ 113 $ 208 $71 $ 279 Healthcare & Social Assistance $117 $51 $168 2.4% $38 $206 $71 $277 Furniture Stores $81 $0 $81 1.2% $6 $ 87 $5 $92 Dairy Farms $34 $14 $48 0.7% $5 $53 $6 $59 Food Services 3 $34 $11 $45 0.6% $6 $ 51 $32 $83 Arts, Entertainment, & Recreation 4 $34 $7 $41 0.6% $9 $50 $7 $57 Casinos $9 $18 $27 0.4% $13 $40 $0 $40 Educational Services 5 $8 $12 $20 0.3% $12 $32 $12 $44 Transportation 6 $2 $8 $10 0.1% $13 $23 $8 $31 TOTAL EXPOSURE $ 937 $339 $ 1,276 18.5% $ 412 $ 1,688 $323 $ 2,011 BALANCE SHEET EXPOSURE (unaudited)
11 Non - Owner Occupied CRE 32% New & Used Car Dealers 18% Auto Parts & Accessories 8% RV, Boat & Other Recreational 5% Building Materials & Garden Supplies 14% Gasoline & Service Stations 6% Miscellaneous Retail 6% Health & Personal Care Stores 4% All Other Retail 7% Motor Vehicles & Parts Dealer 31% • The retail portfolio contains 964 loans representing a total exposure of $432.6 million • Average outstanding balance of $340 thousand and an average exposure of $449 thousand • 17 total loan relationships with a current exposure greater than $5 million • 7 total loan relationships with a current exposure greater than $10 million • $34.6 million in vehicle floor plan loan exposure, $15.7 million outstanding and $18.9 million available • 0% of the retail portfolio balance had a loan forbearance agreement in place on December 31 st RETAIL PORTFOLIO (unaudited) Sector # of Loans Outstandin g Balance Remaining Availability Total Exposure Non - Owner Occupied CRE 114 $139.1 $0.0 $139.1 Motor Vehicle Parts & Dealers 219 $94.2 $40.0 $134.2 Building & Garden Supplies 157 $32.4 $28.2 $60.6 Gasoline & Service Stations 66 $25.0 $2.0 $27.0 Miscellaneous Retail 192 $12.6 $10.7 $23.3 Health & Personal Care 25 $1.1 $16.8 $17.9 All Other Retail 191 $23.7 $6.8 $30.5 Total Retail Sector 964 $328.1 $104.5 $432.6 December 31, 2020 NAICS code based loan data; excludes Paycheck Protection Program (“PPP”) loans “Exposure” includes both the outstanding and available portions of the loan commitment Retail excludes Furniture Stores and Grocery Stores but includes loans secured by non - owner - occupied commercial real estate retail properties Retail Portfolio $ in Millions
12 Franchised 75% Unfranchised 14% Rooming & Boarding Houses 11% Hotels & Motels 89% • The lodging portfolio contains 193 loans representing a total exposure of $266.9 million • Average outstanding balance of $1.3 million and an average exposure of $1.4 million • 13 total loan relationships with a current exposure greater than $5 million • 3 total loan relationships with a current exposure greater than $10 million • Approximately 21% of the lodging portfolio balance had a forbearance agreement in place on December 31 st • Current weighted - average loan - to - value (“LTV”) ratio of the hotels & motels portfolio is less than 55% 1 LODGING PORTFOLIO (unaudited) Sector # of Loans Outstandin g Balance Remaining Availability Total Exposure Hotels & Motels 182 $237.2 $1.2 $238.4 Rooming & Boarding Houses 11 $23.9 $4.6 $28.5 Total Lodging Sector 193 $261.1 $5.8 $266.9 December 31, 2020 NAICS code based loan data; excludes Paycheck Protection Program (“PPP”) loans “Exposure” includes both the outstanding and available portions of the loan commitment Lodging excludes RV Parks and Campgrounds (1) Based on most current available data Lodging Portfolio $ in Millions
13 Lumber, Wood & Paper Products , 32% Plastics, Stone & Metal Products , 27% Machinery & Equipment , 17% Food & Food Products , 14% All Other Manufacturing , 10% • The manufacturing portfolio contains 645 loans representing a total exposure of $237.8 million • Average outstanding balance of $235 thousand and an average exposure of $369 thousand • 8 total loan relationships with a current exposure greater than $5 million • 3 total loan relationships with a current exposure greater than $10 million • Approximately 1% of the manufacturing portfolio balance had a forbearance agreement in place on December 31 st MANUFACTURING PORTFOLIO (unaudited) Sector # of Loans Outstandin g Balance Remaining Availability Total Exposure Lumber, Wood & Paper Products 172 $55.3 $20.2 $75.5 Plastics, Stone & Metal Products 205 $39.0 $26.1 $65.1 Machinery & Equipment 110 $21.9 $19.2 $41.1 Food & Food Products 110 $25.2 $8.5 $33.7 All Other Manufacturing 48 $10.4 $12.0 $22.4 Total Manufacturing Sector 645 $151.8 $86.0 $237.8 December 31, 2020 NAICS code based loan data; excludes Paycheck Protection Program (“PPP”) loans “Exposure” includes both the outstanding and available portions of the loan commitment Manufacturing Portfolio $ in Millions
14 Highway, Street, and Bridge Construction 19% Site Preparation Contractors 15% Nonresidential Building Construction 15% Building Equipment Contractors 14% Foundation, Structure, and Building Exterior Contractors 12% Residential Building Construction 12% Utility System Construction 5% Other Construction 3% Building Finishing Contractors 3% Land Subdivision 2% All Other Construction 13% • The construction portfolio contains 1,260 loans representing a total exposure of $207.7 million • Average outstanding balance of $76 thousand and an average exposure of $165 thousand • 4 total loan relationships with a current exposure greater than $ 5 million • 1 total loan relationships with a current exposure greater than $10 million • 0% of the construction portfolio balance had a forbearance agreement in place on December 31 st CONSTRUCTION PORTFOLIO (unaudited) Sector # of Loans Outstandin g Balance Remaining Availability Total Exposure Highway, Street, and Bridge Construction 60 $13.1 $27.2 $40.3 Nonresidential Building Construction 208 $17.2 $13.3 $30.5 Building Equipment Contractors 97 $8.9 $21.3 $30.2 Utility System Construction 229 $11.0 $18.4 $29.4 Site Preparation Contractors 177 $16.9 $8.0 $24.9 Residential Building Construction 234 $14.3 $9.7 $24.0 All Other Construction 255 $13.8 $14.6 $28.4 Total Construction Sector 1,260 $95.2 $112.5 $207.7 December 31, 2020 NAICS code based loan data; excludes Paycheck Protection Program (“PPP”) loans “Exposure” includes both the outstanding and available portions of the loan commitment Construction Portfolio $ in Millions
15 Continuing Care, Retirement and Assisted Living Facilities 21% Offices of Physicians 15% Hospitals 12% Individual and Family Services 10% Developmental Disability, Mental Health & Substance Abuse Facilities 8% Offices of Dentists 7% Offices of Other Health Practitioners 6% Child Day Care Services 4% Other Ambulatory Health Care Services 4% Skilled Nursing Facilities 4% Outpatient Care Centers 3% Medical and Diagnostic Laboratories 3% Home Health Care Services 2% Other Social Assistance 1% All Other Healthcare 21% • The healthcare portfolio contains 849 loans representing a total exposure of $206.1 million • Average outstanding balance of $198 thousand and an average exposure of $243 thousand • 7 total loan relationships with a current exposure greater than $ 5 million • 3 total loan relationships with a current exposure greater than $10 million • 0% of the healthcare portfolio balance had a forbearance agreement in place on December 31 st HEALTHCARE & SOCIAL ASSISTANCE PORTFOLIO (unaudited) Sector # of Loans Outstandin g Balance Remaining Availability Total Exposure Continuing Care, Retirement and Assisted Living Facilities 34 $40.8 $3.5 $44.3 Offices of Physicians 118 $24.5 $6.4 $30.9 Hospitals 8 $24.0 $1.1 $25.1 Individual and Family Services 56 $13.0 $7.0 $20.0 Developmental Disability, Mental Health & Substance Abuse Facilities 232 $8.2 $7.4 $15.6 Offices of Dentists 127 $13.2 $1.5 $14.7 Offices of Other Health Practitioners 92 $10.9 $1.2 $12.1 All Other Healthcare 182 $33.4 $10.0 $43.4 Total Healthcare Sector 849 $168.0 $38.1 $206.1 December 31, 2020 NAICS code based loan data; excludes Paycheck Protection Program (“PPP”) loans “Exposure” includes both the outstanding and available portions of the loan commitment Healthcare & Social Assistance Portfolio $ in Millions
16 Community Bank System's management uses the term "non - GAAP" financial measures in their analysis of the company's performance and operations. Management believes that these non - GAAP financial measures provide a greater understanding of ongoing operations and enhance comparability of results. These disclosures should not be viewed as a substitute for financia l measures determined in accordance with GAAP, nor are they necessarily comparable to non - GAAP financial measures that may be presented by other companies. The types of non - GAAP financial measures used in this presentation include : • Tangible equity, tangible common equity, tangible assets and tangible book value are non - GAAP financial measures which Community Bank System's management uses to assess the quality of capital and believes that investors may find useful in their analysis, although these metrics are not necessarily comparable to similar non - GAAP financial measures used by other companies. Tangible equity is calculated by excluding the balance of goodwill and other intangible assets from the calculation of total equity and adding back the amount of the deferred tax liability related to tax deductible goodwill. Tangible common equity is calculated by excluding the balance of goodwill and other intangible assets from the calculation of stockholders’ equity and adding back the amount of the deferred tax liability related to tax deductible goodwill. Tangible assets is calculated by excluding the balance of goodwill and other intangible assets from the calculation of total assets an d adding back the amount of the deferred tax liability related to tax deductible goodwill. Tangible book value per share is calculated by dividing tangible common equity by the number of shares outstanding at a point of time. • Operating earnings is a non - GAAP financial measure which Community Bank System believes investors may find useful in their analysis. Operating earnings is calculated by excluding the one - time deferred tax expense benefits of the Tax Cuts and Jobs Act recorded in the fourth quarter of 2017, as well as acquisition - related expenses, net of tax effect, gain on sale of investments, net of tax effect, unrealized gain/loss on equity securities, net of tax effect, the gain/loss on debt extinguishment, net of tax effect, acquisition - related provision for credit losses; net of tax effect and litigation accrual, net of tax effect. • Operating cash flow adds back the amortization of intangibles, net of tax effect and subtracts purchased loan accretion , net of tax effect from Operating Earnings . • Adjusted pre - tax, pre - provision net revenues subtracts the provision for credit losses, acquisition expenses, net gain on sale of investments, unrealized loss (gain) on equity securities, litigation accrual expenses and the gain/loss on debt extinguishment from income before tax. RECONCILIATION OF GAAP AND NON - GAAP (unaudited)
17 Dollars in thousands, except per share data 2020 Years Ended Dec. 31 ($000s) Q4 YTD 2019 2018 2017 2016 2015 Diluted Earnings per Share (GAAP) $0.86 $3.08 $3.23 $3.24 $3.03 $2.32 $2.19 Operating Diluted Earning s per Share (non - GAAP) $0.85 $3.24 $3.29 $3.23 $2.64 $2.35 $2.31 Net income (GAAP) $46,485 $164,676 $169,063 $168,641 $150,717 $103,812 $91,230 Tax Cuts and Jobs Act deferred impact - - - - (38,010) - - Acquisition expenses, net of tax effect 313 3,942 6,952 (609) 18,309 1,146 4,855 (Gain) loss on sale of investments, net of tax effect - - (3,943) - (1) - 3 Unrealized (gain) loss on equity securities, net of tax effect (19) 5 (15) (520) - - - (Gain) loss on debt extinguishment , net of tax effect (333) (336) - 252 - - - Acquisition - related provision for credit losses; net of tax effect (111) 2,446 - - - - - Litigation accrual, net of tax effect 0 2,357 - - - - - Operating Net Income (non - GAAP) 46,335 173,090 172,057 167,764 131,015 104,958 96,088 Amortization of intangibles, net of tax effect 2,790 11,425 12,886 14,375 11,936 3,679 2,528 Subtotal (non - GAAP) 49,125 184,515 184,943 182,139 142,951 108,637 98,616 Acquired non - impaired loan accretion, net of tax effect (1,057) (4,388) ( 4,981) (6,272) (4,149) (1,926) (1,556) Adjusted Net Income (non - GAAP) 48,068 180,127 179,962 175,867 138,802 106,711 97,060 Cash Dividends Paid 22,537 87,131 80,241 71,495 62,305 55,048 49,273 Cash Dividend % of Adjusted Net Income 47% 48% 45% 41% 45% 52% 51% CBU FREE CASH FLOW (unaudited)
18 Dollars in thousands, except per share data 2020 2019 2016 2013 2010 2007 Total assets Total assets (GAAP) $ 13,931,094 $11,410,295 $8,666,437 $7,095,864 $5,444,506 $4,697,502 Intangible assets ( 846,648) (836,923) (480,844) (390,499) (311,714) (256,216) Deferred taxes on intangible assets 44,370 44,742 43,504 32,339 20,765 12,390 Total tangible assets (non - GAAP) 13,128,816 10,618,114 8,229,097 6,737,704 5,153,557 4,453,676 Total common equity Shareholders' Equity (GAAP) 2,104,107 1,855,234 1,198,100 875,812 607,528 478,784 Intangible assets (846,648) (836,923) (480,844) (390,499) (311,714) (256,216) Deferred taxes on intangible assets 44,370 44,742 43,504 32,339 20,765 12,390 Total tangible common equity (non - GAAP) 1,301,829 1,063,053 760,760 517,652 316,579 234,958 Net tangible equity - to - assets ratio at quarter end Total tangible common equity (non - GAAP) - numerator $ 1,301,829 $1,063,053 $760,760 $517,652 $316,579 $234,958 Total tangible assets (non - GAAP) - denominator 13,128,816 10,618,114 8,229,097 6,737,704 5,153,557 4,453,676 Net tangible equity - to - assets ratio at period end (non - GAAP) 9.92% 10.01% 9.24% 7.68% 6.14% 5.28% TANGIBLE EQUITY COMPONENTS (unaudited)
19 Dollars and shares in thousands, except per share data YTD 2020 YTD 2019 Q4 2020 Q3 2020 Q2 2020 Q1 2020 Q4 2019 Pre - tax, pre - provision net revenue Net income (GAAP) $164,676 $169,063 $46,485 $42,809 $35,248 $40,134 $42,884 Income taxes 41,400 40,275 12,247 10,904 8,964 9,285 8,853 Income before income taxes 206,076 203,338 58,732 53,713 44,212 49,419 51,737 Provision for credit losses 14,212 8,430 (3,101) 1,945 9,774 5,594 2,857 Pre - tax, pre - provision net revenue (non - GAAP) 220,288 217,768 55,631 55,658 53,986 55,013 54,594 Acquisition expenses 4,933 8,608 396 796 3,372 369 819 Gain on sale of investments 0 (4,882) 0 0 0 0 0 Unrealized (gain) loss on equity securities 6 (19) (24) 12 (12) 30 9 Litigation accrual 2,950 0 0 2,950 0 0 0 Gain on debt extinguishment (421) 0 (421) 0 0 0 0 Adjusted pre - tax, pre - provision net revenue (non - GAAP) $227,756 $221,475 $55,582 $59,416 $57,346 $55,412 $55,422 Pre - tax, pre - provision net revenue per share Diluted earnings per share (GAAP) $3.08 $3.23 $0.86 $0.79 $0.66 $0.76 $0.82 Income taxes 0.77 0.77 0.22 0.20 0.17 0.18 0.17 Income before income taxes 3.85 4.00 1.08 0.99 0.83 0.94 0.99 Provision for credit losses 0.27 0.16 (0.04) 0.04 0.19 0.10 0.06 Pre - tax, pre - provision net revenue per share (non - GAAP) 4.12 4.16 1.04 1.03 1.02 1.04 1.05 Acquisition expenses 0.09 0.16 0.00 0.02 0.06 0.01 0.01 Gain on sale of investments 0.00 (0.09) 0.00 0.00 0.00 0.00 0.00 Unrealized (gain) loss on equity securities 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Litigation accrual 0.06 0.00 0.00 0.05 0.00 0.00 0.00 Gain on debt extinguishment (0.01) 0.00 (0.01) 0.00 0.00 0.00 0.00 Adjusted pre - tax, pre - provision net revenue per share (non - GAAP) $4.26 $4.23 $1.03 $1.10 $1.08 $1.05 $1.06 PRE - TAX, PRE - PROVISION COMPONENTS (unaudited)
Investor Relations Contact Mr. Joseph E. Sutaris EVP & Chief Financial Officer Joseph.Sutaris@cbna.com (315) 445 - 7396