COMMUNITY BANK SYSTEM, INC. [CBU] Filings

10-Q 1 cbu-20230930x10q.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 September 30, 2023

☐ 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)

NONE

(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 October 31, 2023: 53,385,565 shares

Table of Contents

TABLE OF CONTENTS

Part I.	Financial Information	Page

Item 1.	Financial Statements (Unaudited)

	Consolidated Statements of Condition September 30, 2023 and December 31, 2022	3

	Consolidated Statements of Income Three and nine months ended September 30, 2023 and 2022	4

	Consolidated Statements of Comprehensive Income (Loss) Three and nine months ended September 30, 2023 and 2022	5

	Consolidated Statements of Changes in Shareholders’ Equity Three and nine months ended September 30, 2023 and 2022	6

	Consolidated Statements of Cash Flows Nine months ended September 30, 2023 and 2022	8

	Notes to the Consolidated Financial Statements September 30, 2023	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	60

Item 4.	Controls and Procedures	62

Part II.	Other Information

Item 1.	Legal Proceedings	63

Item 1A.	Risk Factors	63

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	63

Item 3.	Defaults Upon Senior Securities	64

Item 4.	Mine Safety Disclosures	64

Item 5.	Other Information	64

Item 6.	Exhibits	65

Table of Contents

Part I. Financial Information

Item 1. Financial Statements

COMMUNITY BANK SYSTEM, INC.

CONSOLIDATED STATEMENTS OF CONDITION (Unaudited)

(In Thousands, Except Share Data)


	September 30,		December 31,
	2023		2022
Assets:
Cash and cash equivalents	$	455,807	$	209,896
Available-for-sale investment securities includes pledged securities that can be sold or repledged of $542,828 and $466,902, respectively (cost of $3,314,815 and $4,675,474, respectively)		2,767,636		4,151,851
Held-to-maturity securities (fair value of $990,660 and $1,034,795, respectively)		1,125,540		1,079,695
Equity and other securities (cost of $66,006 and $82,424, respectively)		66,825		83,342

Loans		9,450,066		8,809,394
Allowance for credit losses		(64,945)		(61,059)
Loans, net of allowance for credit losses		9,385,121		8,748,335

Goodwill		845,396		841,841
Core deposit intangibles, net		9,087		12,304
Other intangibles, net		46,851		48,692
Goodwill and intangible assets, net		901,334		902,837

Premises and equipment, net		174,749		160,778
Accrued interest and fees receivable		46,933		52,613
Other assets		462,377		446,304

Total assets	$	15,386,322	$	15,835,651

Liabilities:
Noninterest-bearing deposits	$	3,780,519	$	4,140,617
Interest-bearing deposits		9,250,269		8,871,691
Total deposits		13,030,788		13,012,308

Overnight borrowings		0		768,400
Securities sold under agreement to repurchase, short-term		330,252		346,652
Other Federal Home Loan Bank borrowings		316,837		19,474
Subordinated notes payable		0		3,249
Accrued interest and other liabilities		153,506		133,863
Total liabilities		13,831,383		14,283,946

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; 54,363,812 and 54,190,201 shares issued, respectively		54,364		54,190
Additional paid-in capital		1,057,433		1,050,231
Retained earnings		1,179,196		1,152,452
Accumulated other comprehensive loss		(691,693)		(686,439)
Treasury stock, at cost (936,823 shares, including 119,308 shares held by deferred compensation arrangements at September 30, 2023, and 452,952 shares including 135,437 shares held by deferred compensation arrangements at December 31, 2022)		(51,198)		(26,485)
Deferred compensation arrangements (119,308 and 135,437 shares, respectively)		6,837		7,756
Total shareholders’ equity		1,554,939		1,551,705

Total liabilities and shareholders’ equity	$	15,386,322	$	15,835,651

See accompanying notes to consolidated financial statements (unaudited).

Table of Contents

COMMUNITY BANK SYSTEM, INC.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(In Thousands, Except Per-Share Data)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Interest income:
Interest and fees on loans	$	115,138	$	88,434	$	322,775	$	238,907
Interest and dividends on taxable investments		18,969		23,737		61,718		71,228
Interest and dividends on nontaxable investments		3,449		3,704		10,569		9,611
Total interest income		137,556		115,875		395,062		319,746

Interest expense:
Interest on deposits		24,555		3,855		53,431		9,111
Interest on borrowings		5,215		1,588		13,498		2,113
Interest on subordinated notes payable		0		38		38		115
Total interest expense		29,770		5,481		66,967		11,339

Net interest income		107,786		110,394		328,095		308,407
Provision for credit losses		2,878		5,061		7,130		12,005
Net interest income after provision for credit losses		104,908		105,333		320,965		296,402

Noninterest revenues:
Deposit service fees		16,007		17,452		46,839		49,745
Mortgage banking		113		171		399		595
Other banking services		1,471		912		4,535		2,521
Employee benefit services		29,997		27,884		87,946		86,385
Insurance services		12,113		11,332		35,495		31,521
Wealth management services		7,934		7,502		24,037		24,276
Loss on sales of investment securities		0		0		(52,329)		0
Gain on debt extinguishment		0		0		242		0
Unrealized loss on equity securities		(49)		(4)		(99)		(24)
Total noninterest revenues		67,586		65,249		147,065		195,019

Noninterest expenses:
Salaries and employee benefits		70,687		66,190		210,208		193,236
Data processing and communications		15,480		14,184		42,900		40,454
Occupancy and equipment		10,358		10,364		31,835		31,740
Amortization of intangible assets		3,576		3,837		10,948		11,420
Legal and professional fees		3,826		3,194		12,129		10,196
Business development and marketing		4,628		3,616		12,096		9,975
Acquisition expenses		0		409		56		4,668
Acquisition-related contingent consideration adjustment		80		0		1,080		400
Other expenses		7,869		6,391		22,342		16,327
Total noninterest expenses		116,504		108,185		343,594		318,416

Income before income taxes		55,990		62,397		124,436		173,005
Income taxes		11,861		13,706		26,218		37,454
Net income	$	44,129	$	48,691	$	98,218	$	135,551

Basic earnings per share	$	0.82	$	0.90	$	1.82	$	2.51
Diluted earnings per share	$	0.82	$	0.90	$	1.82	$	2.49

See accompanying notes to consolidated financial statements (unaudited).

Table of Contents

COMMUNITY BANK SYSTEM, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)

(In Thousands)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Pension and other post retirement obligations:
Amortization of actuarial (gains) losses included in net periodic pension cost, gross	$	(550)	$	220	$	(1,648)	$	660
Tax effect		134		(53)		401		(160)
Amortization of actuarial (gains) losses included in net periodic pension cost, net		(416)		167		(1,247)		500

Amortization of prior service cost included in net periodic pension cost, gross		160		109		480		327
Tax effect		(39)		(26)		(117)		(79)
Amortization of prior service cost included in net periodic pension cost, net		121		83		363		248

Other comprehensive (loss) income related to pension and other post-retirement obligations, net of taxes		(295)		250		(884)		748

Net unrealized losses on investment securities:
Net unrealized holding losses on investment securities, gross		(105,326)		(301,023)		(58,105)		(919,962)
Tax effect		25,630		73,119		14,120		223,460
Net unrealized holding losses on investment securities, net		(79,696)		(227,904)		(43,985)		(696,502)

Reclassification adjustment for net losses included in net income, gross		0		0		52,329		0
Tax effect		0		0		(12,714)		0
Reclassification adjustment for net losses included in net income, net		0		0		39,615		0

Other comprehensive loss related to unrealized losses on investment securities, net of taxes		(79,696)		(227,904)		(4,370)		(696,502)

Other comprehensive loss, net of taxes		(79,991)		(227,654)		(5,254)		(695,754)
Net income		44,129		48,691		98,218		135,551
Comprehensive (loss) income	$	(35,862)	$	(178,963)	$	92,964	$	(560,203)


	As of
	September 30,		December 31,
	2023		2022
Accumulated Other Comprehensive Loss By Component:
Unrealized loss for pension and other post-retirement obligations	$	(42,701)	$	(41,533)
Tax effect		10,516		10,232
Net unrealized loss for pension and other post-retirement obligations		(32,185)		(31,301)

Unrealized loss on investment securities		(870,559)		(864,783)
Tax effect		211,051		209,645
Net unrealized loss on investment securities		(659,508)		(655,138)

Accumulated other comprehensive loss	$	(691,693)	$	(686,439)

See accompanying notes to consolidated financial statements (unaudited).

Table of Contents

COMMUNITY BANK SYSTEM, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

Three months ended September 30, 2023 and 2022

(In Thousands, Except Share Data)


								Accumulated
	Common Stock			Additional				Other				Deferred
	Shares	Amount		Paid-In		Retained		Comprehensive		Treasury		Compensation
	Outstanding	Issued		Capital		Earnings		Loss		Stock		Arrangements		Total

Balance at June 30, 2023	53,528,090	$	54,364	$	1,054,871	$	1,159,126	$	(611,702)	$	(46,038)	$	6,785	$	1,617,406

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10-K	[2022-03-01]
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10-K	[2020-03-02]
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10-Q	[2019-08-09]
10-Q	[2019-05-10]
10-K	[2019-03-01]
10-Q	[2018-11-09]
10-Q	[2018-08-09]
10-Q	[2018-05-10]
10-K	[2018-03-01]
10-Q	[2017-11-09]
10-Q	[2017-08-09]
10-Q	[2017-05-10]
10-K	[2017-03-01]
10-Q	[2016-11-09]
10-Q	[2016-08-09]
10-Q	[2016-05-09]
10-K	[2016-02-29]
10-Q	[2015-11-06]
10-Q	[2015-08-07]
10-Q	[2015-05-08]
10-K	[2015-03-02]
10-Q	[2014-11-07]
10-Q	[2014-08-08]
10-Q	[2014-05-12]
10-K	[2014-03-03]
10-Q	[2013-11-08]
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10-K	[2013-03-01]
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