COMMUNITY FINANCIAL SYSTEM, INC. [CBU] Filings

10-Q 1 cbu-20240630x10q.htm 10-Q

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-13695

(Exact name of registrant as specified in its charter)

Delaware		16-1213679
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

5790 Widewaters Parkway, DeWitt, New York		13214-1883
(Address of principal executive offices)		(Zip Code)

(315) 445-2282

(Registrant’s telephone number, including area code)

Community Bank System, Inc.

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name 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 (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐. No ☒.

Number of shares of common stock, par value $1.00 per share, outstanding as of the close of business on July 31, 2024: 52,543,703 shares

Table of Contents

TABLE OF CONTENTS

Part I.	Financial Information	Page

Item 1.	Financial Statements (Unaudited)

	Consolidated Statements of Condition June 30, 2024 and December 31, 2023	3

	Consolidated Statements of Income Three and six months ended June 30, 2024 and 2023	4

	Consolidated Statements of Comprehensive Income Three and six months ended June 30, 2024 and 2023	5

	Consolidated Statements of Changes in Shareholders’ Equity Three and six months ended June 30, 2024 and 2023	6

	Consolidated Statements of Cash Flows Six months ended June 30, 2024 and 2023	8

	Notes to the Consolidated Financial Statements June 30, 2024	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	71

Item 4.	Controls and Procedures	73

Part II.	Other Information

Item 1.	Legal Proceedings	73

Item 1A.	Risk Factors	73

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	73

Item 3.	Defaults Upon Senior Securities	74

Item 4.	Mine Safety Disclosures	74

Item 5.	Other Information	74

Item 6.	Exhibits	75

Table of Contents

Part I. Financial Information

Item 1. Financial Statements

COMMUNITY FINANCIAL SYSTEM, INC.

CONSOLIDATED STATEMENTS OF CONDITION (Unaudited)

(In Thousands, Except Share Data)


	June 30,		December 31,
	2024		2023
Assets:
Cash and cash equivalents	$	201,493	$	190,962
Available-for-sale investment securities, includes pledged securities that can be sold or repledged of $344,813 and $598,873, respectively (cost of $3,241,610 and $3,301,607, respectively)		2,808,953		2,919,992
Held-to-maturity securities (fair value of $1,167,755 and $1,121,816, respectively)		1,271,109		1,172,174
Equity and other securities		86,500		73,146

Loans		10,023,857		9,704,598
Allowance for credit losses		(71,442)		(66,669)
Loans, net of allowance for credit losses		9,952,415		9,637,929

Goodwill		852,258		845,396
Core deposit intangibles, net		6,451		8,159
Other intangibles, net		47,071		44,432
Goodwill and intangible assets, net		905,780		897,987

Premises and equipment, net		178,095		173,418
Accrued interest and fees receivable		58,085		54,534
Other assets		444,386		435,611

Total assets	$	15,906,816	$	15,555,753

Liabilities:
Noninterest-bearing deposits	$	3,649,389	$	3,638,527
Interest-bearing deposits		9,488,499		9,289,594
Total deposits		13,137,888		12,928,121

Overnight borrowings		177,600		53,000
Securities sold under agreement to repurchase, short-term		215,453		304,595
Federal Home Loan Bank and other borrowings		539,121		407,603
Accrued interest and other liabilities		166,574		164,497
Total liabilities		14,236,636		13,857,816

Commitments and contingencies (See Note J)

Shareholders’ equity:
Preferred stock, $1.00 par value, 500,000 shares authorized, 0 shares issued		0		0
Common stock, $1.00 par value, 75,000,000 shares authorized; 54,549,390 and 54,372,292 shares issued, respectively		54,549		54,372
Additional paid-in capital		1,065,937		1,060,289
Retained earnings		1,230,133		1,188,869
Accumulated other comprehensive loss		(585,794)		(556,892)
Treasury stock, at cost (2,026,587 shares, including 101,911 shares held by deferred compensation arrangements at June 30, 2024, and 1,045,232 shares including 120,556 shares held by deferred compensation arrangements at December 31, 2023)		(100,446)		(55,592)
Deferred compensation arrangements (101,911 and 120,556 shares, respectively)		5,801		6,891
Total shareholders’ equity		1,670,180		1,697,937

Total liabilities and shareholders’ equity	$	15,906,816	$	15,555,753

See accompanying notes to consolidated financial statements (unaudited).

Table of Contents

COMMUNITY FINANCIAL SYSTEM, INC.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(In Thousands, Except Per-Share Data)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
Interest income:
Interest and fees on loans	$	133,159	$	107,275	$	260,657	$	207,637
Interest and dividends on taxable investments		20,779		20,811		42,681		42,749
Interest and dividends on nontaxable investments		3,100		3,538		6,359		7,120
Total interest income		157,038		131,624		309,697		257,506

Interest expense:
Interest on deposits		40,389		18,948		77,174		28,876
Interest on borrowings		7,240		3,397		16,124		8,321
Total interest expense		47,629		22,345		93,298		37,197

Net interest income		109,409		109,279		216,399		220,309
Provision for credit losses		2,708		752		8,856		4,252
Net interest income after provision for credit losses		106,701		108,527		207,543		216,057

Noninterest revenues:
Deposit service fees		14,171		13,685		28,422		26,581
Mortgage banking		2,275		11		2,620		286
Other banking services		3,193		4,055		6,849		7,315
Employee benefit services		32,118		28,565		63,816		57,949
Insurance services		13,307		11,860		24,416		23,382
Wealth management services		8,691		7,858		17,901		16,103
Loss on sales of investment securities		(232)		0		(232)		(52,329)
Gain on debt extinguishment		0		0		0		242
Unrealized gain (loss) on equity securities		867		(50)		883		(50)
Total noninterest revenues		74,390		65,984		144,675		79,479

Noninterest expenses:
Salaries and employee benefits		73,447		68,034		146,510		139,521
Data processing and communications		15,274		14,291		29,622		27,420
Occupancy and equipment		10,715		10,453		22,077		21,477
Amortization of intangible assets		3,877		3,705		7,453		7,372
Legal and professional fees		3,459		3,102		7,800		8,303
Business development and marketing		4,139		4,567		7,184		7,468
Acquisition-related contingent consideration adjustment		0		1,000		0		1,000
Litigation accrual		0		0		119		0
Acquisition expenses		104		(1)		139		56
Other expenses		7,984		7,887		16,179		14,473
Total noninterest expenses		118,999		113,038		237,083		227,090

Income before income taxes		62,092		61,473		115,135		68,446
Income taxes		14,177		13,182		26,348		14,357
Net income	$	47,915	$	48,291	$	88,787	$	54,089

Basic earnings per share	$	0.91	$	0.90	$	1.67	$	1.00
Diluted earnings per share	$	0.91	$	0.89	$	1.67	$	1.00

See accompanying notes to consolidated financial statements (unaudited).

Table of Contents

COMMUNITY FINANCIAL SYSTEM, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(In Thousands)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
Pension and other post retirement obligations:
Amortization of actuarial losses (gains) included in net periodic pension cost, gross	$	289	$	(549)	$	579	$	(1,098)
Tax effect		(70)		133		(141)		267
Amortization of actuarial losses (gains) included in net periodic pension cost, net		219		(416)		438		(831)

Amortization of prior service cost included in net periodic pension cost, gross		160		160		320		320
Tax effect		(39)		(39)		(78)		(78)
Amortization of prior service cost included in net periodic pension cost, net		121		121		242		242

Other comprehensive income (loss) related to pension and other post-retirement obligations, net of taxes		340		(295)		680		(589)

Net unrealized (losses) gains on investment securities:
Net unrealized holding (losses) gains on investment securities, gross		(3,298)		(44,039)		(39,364)		47,221
Tax effect		805		10,717		9,607		(11,510)
Net unrealized holding (losses) gains on investment securities, net		(2,493)		(33,322)		(29,757)		35,711

Reclassification adjustment for net losses included in net income, gross		232		0		232		52,329
Tax effect

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