Community Financial System, Inc. · NYSE:CBU
Community Financial System — Community Bank System — Shareholder Meeting (May 2020)
51 slides from Community Financial System's shareholder meeting presentation, May 19, 2020
Slide 1: Annual Meeting of Shareholders Company Performance Summary
0 Annual Meeting of Shareholders Company Performance Summary May 20, 2020
Slide 2: Forward-Looking Statement
1 FORWARD - LOOKING STATEMENT 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 uncertaint
Slide 3: Company Profile
2 COMPANY PROFILE • Successful, growing community bank headquartered outside of Syracuse, New York. • One of the largest community banks based in Upstate New York with approximately $11.8 billion in total assets. • More than 250 customer facilities across Upstate New York, Northeast Pennsylvania, Ve
Slide 4: Company Strengths
3 COMPANY STRENGTHS • Track record of superior shareholder returns • Our 12 - year cumulative total return to shareholders is 268% ( 11.5% annualized). This compares to a 12 - year cumulative total return for the KBW Regional Banking Index of 41% (2.9% annualized). (1) • Industry leading dividend re
Slide 5: Recent Accomplishments
4 RECENT ACCOMPLISHMENTS • Generated strong operating results in the first quarter of 2020 • Return on Assets – 1.41% • Return on Tangible Equity – 14.52% (1) • Net Interest Margin (NIM) – 3.65% • Operating EPS (2) – $0.77 • Raised our dividend in August 2019 for the 27th consecutive year, retaining
Slide 6: Strategic Profile
5 STRATEGIC PROFILE • Consistent business model for over 20 years • Market - leading branch system serving predominantly non - urban markets • Excellent core deposit customer base • Decentralized decision - making and authority • Investment in noninterest revenue businesses • Goal of 10% annual tota
Slide 7: Strategy Element #1: Market-leading Branch/Digital Service Strategy
6 STRATEGY ELEMENT #1 Market - leading Branch/Digital Service Strategy Focused on Core Accounts • Emphasize responsive, local decision - making and customer service and support, and authority at the branch level • Focus on generating and retaining core deposit accounts • Mostly non - urban markets w
Slide 8: Geographic Profile
7 GEOGRAPHIC PROFILE Counties with Community Bank Retail Banking Locations • We have strong market shares in much of Upstate NY, Vermont and Northeast PA where the markets have modest competition and modest growth, but we have achieved solid performance over time • We entered the Capital Region (NY)
Slide 9: Digital Banking Adoption Rates
8 DIGITAL BANKING ADOPTION RATES 150,000 175,000 200,000 225,000 250,000 275,000 300,000 Online Banking Users 60,000 85,000 110,000 135,000 160,000 185,000 210,000 Mobile Banking Users 45,000 50,000 55,000 60,000 65,000 70,000 75,000 80,000 85,000 Online Bill Pay Users 70,000 90,000 110,000 130,000
Slide 10: Operating and Lending Strategies Are Local and Conservative
9 OPERATING AND LENDING STRATEGIES ARE LOCAL AND CONSERVATIVE • Community bank approach to growth ₋ Discipline and focus on our local customers ₋ An in - footprint lender with deep knowledge of our markets ₋ Emphasis on profitable customer relationships across all business lines ₋ Decentralized loca
Slide 11: Strategy Element #2: Continue to Grow Noninterest Revenues
10 STRATEGY ELEMENT #2 Continue to Grow Noninterest Revenues Q1 2020 Results • Banking Services • $18.1 million, 4.0% increase over Q1 2019 ( 1) • Employee Benefit Plan Administration and Trust Services • $25.4 million, 5.5% increase over Q1 2019 • Wealth Management & Insurance • $15.2 million, 6.9%
Slide 12: Growth in Noninterest Revenues
11 GROWTH IN NONINTEREST REVENUES 12 Year History 35.3 49.3 54.6 66.1 70.5 8.3 9.8 15.6 48.2 58.0 19.7 29.6 38.5 46.6 97.2 63.3 88.7 108.7 160.9 225.7 $0 $60 $120 $180 $240 2007 2010 2013 2016 2019 $ in Millions Banking Noninterest Revenues Wealth Management and Insurance Benefit Plan Services Nonin
Slide 13: Employee Benefit Plan Administration & Trust Services
12 EMPLOYEE BENEFIT PLAN ADMINISTRATION & TRUST SERVICES • Revenue Growth 12 - year CAGR 14.2% (2007 - 2019) ‒ $25.4 million of revenues in Q1 2020, a 5.5% increase over Q1 2019 ‒ $ 97.2 million of revenues in 2019 , a 5.3% increase over 2018 • National administrator of retirement plans, employee be
Slide 14: BPAS Family of Services
13 EMPLOYEE BENEFIT PLAN ADMINISTRATION & TRUST SERVICES • BPAS Family of Services Plan Administration & Recordkeeping | TPA | Actuarial & Pension | VEBA & HRA/HSA | Fiduciary | AutoRollovers & MyPlanLoan | Healthcare Consulting | Transfer Agency | Fund Administration | Collective Investment Funds •
Slide 15: Wealth Management and Insurance
14 WEALTH MANAGEMENT AND INSURANCE • Revenue Growth 12 - year CAGR 17.6 % ( 2007 – 2019) ‒ $15.2 million of revenues in Q1 2020, a 6.9% increase over Q1 2019 ‒ $58.1 million of revenues in 2019, a 3.5% increase over 2018 • Upstate NY , Northeast PA, Vermont, NYC, and Florida • $7.3 billion in assets
Slide 16: Strategy Element #3: Growth Model Banking Acquisitions
15 STRATEGY ELEMENT #3: GROWTH MODEL Banking Acquisitions Whole - Bank Acquisitions # of Branches Assets ($ in millions) June 2020 - Steuben Trust Corporation (pending) 14 (net of 11) ~$560 July 2019 – Kinderhook Bank Corp 11 $645 May 2017 – Merchants Bancshares 32 $1,995 December 2015 – Oneida Fina
Slide 17: Steuben Trust Corporation Transaction Highlights
16 STEUBEN TRUST CORPORATION TRANSACTION HIGHLIGHTS • Steuben Trust Corporation is a high quality banking franchise serving Western NY for over 117 years • 14 (net 11) branch locations throughout Western New York • High performing and low risk franchise – 1.24% ROAA and 3.67% NIM (2019) In - Market
Slide 18: Transaction Assumptions & Impact
17 TRANSACTION ASSUMPTIONS & IMPACT Merger Consideration (updated for April 2020) ▪ Steuben shareholders will receive 0.8054 CBU shares, and $12.60 per share in cash ‒ Aggregate merger consideration of approximately $106.7 million ‒ 80% stock / 20% cash consideration mix Pricing Metrics (updated for
Slide 19: Strategy Element #3: Financial Services Acquisitions
18 STRATEGY ELEMENT #3: GROWTH MODEL Financial Services Acquisitions Employee Benefit Services Year • HR Consultants 2018 • Northeast Retirement Services / Global Trust Company 2017 • EBS - RMSCO, Inc. (Actuarial Group) 2014 • CAI Benefits, Inc. 2011 Wealth Management Services • Financial Planning P
Slide 20: Creating Excess Value for CBU's Partners and Shareholders
19 CREATING EXCESS VALUE FOR CBU’S PARTNERS AND SHAREHOLDERS Note: Kinderhook Bank Corp (announced in January 2019) was an all - cash transaction and is excluded from the above shareholder re turn analysis Source: Bloomberg, FactSet , Company filings. Market data as of April 30, 2020. Total Sharehol
Slide 21: Full Year 2019 Performance Summary
20 FULL YEAR 2019 PERFORMANCE SUMMARY 2019 (In Millions except EPS ) % Change from 2018 Net interest income $359.2 4.1% Non - interest revenues 225.7 0.9% Operating expenses (1) 363.4 5.0% Provision for loan losses 8.4 (22.2%) Net income, operating (2) 172.0 2.5% Fully diluted shares outstanding 52.
Slide 22: First Quarter 2020 Performance Summary
21 FIRST QUARTER 2020 PERFORMANCE SUMMARY Q1 2020 (In Millions except EPS ) % Change from Q1 2019 Net interest income $90.1 3.7% Non - interest revenues 58.7 5.4% Operating expenses (1) 93.3 5.9% Provision for loan losses 5.6 130.9% Net income, operating 40.5 (4.5)% Fully diluted shares outstanding
Slide 23: Low-Risk Balance Sheet with Strong Asset Quality
22 LOW - RISK BALANCE SHEET WITH STRONG ASSET QUALITY Source: S&P Global, Company filings. . 0.34% 0.49% 0.39% 0.33% 0.28% 0.21% 0.27% 1.79% 1.68% 1.26% 0.73% 0.63% 0.47% 0.60% 2009 2011 2013 2015 2017 2019 Q1 2020 CBU Peer Median 0.24% 0.15% 0.17% 0.15% 0.18% 0.12% 0.09% 0.82% 0.57% 0.29% 0.13% 0.1
Slide 24: Loan Portfolio Balance
23 LOAN PORTFOLIO BALANCE As of March 31 , 2020 $ bil . % Comments Residential Mortgage and Home Equity $2.81 40.9% Residential Mortgages: Primarily fixed rate residential 1 st mortgages. All originated in - market. Annualized loss ratio <0.10% historically . Home Equity 6% of total loans: 1 st or 2
Slide 25: Core Deposit Strength and Focus
24 CORE DEPOSIT STRENGTH AND FOCUS 51% 22% 17% 10% Deposit Balance Composition Checking Money Market Savings Time Deposits Q1 2020 Average Cost of Deposits: 0.25%
Slide 26: Net Interest Margin Stability & Relative Performance
25 NET INTEREST MARGIN STABILITY & RELATIVE PERFORMANCE Net Interest Margin (FTE) (1) Q1 2020 Peer Median based on most recent available data. Source: S&P Global, Company filings 3.80% 4.07% 3.91% 3.73% 3.69% 3.76% 3.65% 3.53% 3.77% 3.59% 3.42% 3.48% 3.55% 3.37% 3.00% 3.20% 3.40% 3.60% 3.80% 4.00% 4
Slide 27: Strong Capital Position
26 $479 $607 $876 $1,198 $1,855 $1,977 7.77% 8.23% 9.29% 10.55% 10.80% 11.10% 5.28% 6.14% 7.68% 9.24% 10.01% 10.78% 0% 2% 4% 6% 8% 10% 12% 14% $0 $400 $800 $1,200 $1,600 $2,000 2007 2010 2013 2016 2019 Q1 2020 $ in Millions Shareholders' Equity Tier I Ratio Tangible Equity/Tangible Assets STRONG CAP
Slide 28: Asset & Liability Management Is Conservative
27 ASSET & LIABILITY MANAGEMENT IS CONSERVATIVE • Stable net interest margin, 3.65% to 3.80% range past 4 years, 3.73% 2018; 3.76% in 2019; 3.65% in Q1 2020 • Loan to deposit ratio of 74% as of March 2020 • Investment portfolio – conservative; plain/vanilla • 66% US Treasury Securities & Cash Equiva
Slide 29: Diversified, Lower-Capital Intensity Revenue Stream
28 CBU HAS A DIVERSIFIED, LOWER - CAPITAL INTENSITY REVENUE STREAM CBU Peer Median ( 1) Revenue Composition Source: S&P Global, Company filings. (1) Peers used throughout presentation may be found on Appendix A. Peer data is the most recent quarter reported. Fee Income 22% Net Interest Income 78% Ne
Slide 30: Resulting in Consistent Outperformance
29 RESULTING IN CONSISTENT OUTPERFORMANCE Return on Average Assets (1) (1) Core ROAA shown excludes net income attributable to non controlling interest, gains on securities, non - recurring revenue/expense, amo rtization of intangible assets and goodwill impairment. Adjustments were made to the 2017
Slide 31: High-Quality Earnings, Dividend Growth & Stable Dividend Policy
30 HIGH - QUALITY EARNINGS, DIVIDEND GROWTH & STABLE DIVIDEND POLICY (1) Operating earnings excludes acquisition expense, net of tax effect, unrealized gain on equity securities, net of tax effect, loss on debt extinguishment, net of tax effect litigation settlement net of tax effect and net realize
Slide 32: Investment Merits
31 INVESTMENT MERITS • Community Bank became a member of the S&P 1500 Dividend Aristocrats Index in 2012, signifying that the Company had raised its annual regular cash dividend payment for at least 20 consecutive years (now at 27 years in a row). • Our 12 - year cumulative total return to sharehold
Slide 33: Consistent Dividend Focus
32 CONSISTENT DIVIDEND FOCUS • Strong Dividend Payment • $1.64 per share annualized • Payout ratio of approximately 50% • Productive Dividend Yield • 2.62% at April 30, 2020 • Outstanding Track Record of Payment Increases • 8% increase in August 2019 • 27 straight years
Slide 34: Shareholder Profile
33 SHAREHOLDER PROFILE • Strong liquidity approx. 310,000 shares traded daily (1) • Ownership (2) • 73% Institutional ‒ 38% Passive/Index ETFs ‒ 32% Traditional Investment Managers ‒ 3% Government Pension Sponsors • 27% Retail ‒ 25% Public ‒ 2% Insiders • Sources : (1) 60 trading day average as of 4
Slide 35: Total Shareholder Returns (Annualized)
34 TOTAL SHAREHOLDER RETURNS (ANNUALIZED) (Through April 30, 2020 or most recent available, Including Reinvestment of Dividends) 1 Year 5 Years 10 Years 12 Years 15 Years CBU (3.6%) 15.3% 13.3% 11.5% 10 .9% S&P 600 Commercial Banks Index (23.3%) 3.3 % 7.3% 3.6% 1.5% KBW Regional Bank Index (27.4%) 0
Slide 36: Driving Strong Shareholder Returns
35 DRIVING STRONG SHAREHOLDER RETURNS Total Shareholder Return Source: FactSet . Market data as of 4/30/20 268% 31% 41% CBU Peer Median KBW Regional Bank Index - 4% - 30% - 27% CBU Peer Median KBW Regional Bank Index 1 - Year 12 - Year 5 - Year 104% 12% 4% CBU Peer Median KBW Regional Bank Index
Slide 37: Well-Deserved Valuation Premium
36 0.50x 1.00x 1.50x 2.00x 2.50x 3.00x 3.50x 4.00x Apr-10 Apr-12 Apr-14 Apr-16 Apr-18 Apr-20 CBU Peer Median WELL - DESERVED VALUATION PREMIUM Price / TBV Relative Premium Source: S&P Global, Company filings. Ending share prices as of 4/30/2020 . 2.74x 0.00x 0.20x 0.40x 0.60x 0.80x 1.00x 1.20x 1.40x
Slide 38: Appendix A: Peer Companies
37 APPENDIX A Total Assets ($000) Market Cap of Traded Common Equity ($M) Peer Company Name Ticker Location MRQ 04/30/20 Berkshire Hills Bancorp Inc. BHLBBoston, MA 13,215,970 855 Brookline Bancorp Inc. BRKLBoston, MA 8,461,591 812 First Commonwealth Financial FCF Indiana, PA 8,515,105 931 First Fin
Slide 39: Reconciliation of GAAP and Non-GAAP
38 RECONCILIATION OF GAAP AND NON - GAAP 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
Slide 40: CBU Free Cash Flow
39 CBU FREE CASH FLOW Consistent and Growing Supports Growth in Dividends & Assets Years Ended Dec. 31 ($000s) Q1 2020 2019 2018 2017 2016 2015 Net income (GAAP) $40,134 $ 169,063 $ 168,641 $ 150,717 $ 103,812 $ 91,230 Tax Cuts and Jobs Act deferred impact - - - (38,010) - - Acquisition expenses, ne
Slide 41: Tangible Equity Components
40 TANGIBLE EQUITY COMPONENTS Q1 2020 2019 2016 2013 2010 2007 Total assets Total assets (GAAP) $11,808,983 $11,410,295 $8,666,437 $7,095,864 $5,444,506 $4,697,502 Intangible assets (832,919) (836,923) (480,844) (390,499) (311,714) (256,216) Deferred taxes on intangible assets 44,494 44,742 43,504 3
Slide 42: COVID Pandemic Response Supplemental Information
41 COVID - 19 PANDEMIC RESPONSE SUPPLEMENTAL INFORMATION
Slide 43: COVID Virus Developments
42 COVID - 19 VIRUS DEVELOPMENTS The World Health Organization declared COVID - 19 virus to be a global pandemic on March 11, 2020. T he rapid spread of the COVID - 19 virus in the United States invoked various Federal and State Authorities to make emergency declarations and issue executive orders t
Slide 44: Company Response to COVID
43 COMPANY RESPONSE TO COVID - 19 • Appointed an internal task force comprised of the Company’s management to address both operational and financial risks posed by COVID - 19 • Modified branch operations • Branch lobbies available, but on an appointment only basis • Primarily drive thru transactions
Slide 45: Strong Capital Position (unaudited)
44 $479 $607 $876 $1,198 $1,855 $1,977 7.77% 8.23% 9.29% 10.55% 10.80% 11.10% 5.28% 6.14% 7.68% 9.24% 10.01% 10.78% 0% 2% 4% 6% 8% 10% 12% 14% $0 $400 $800 $1,200 $1,600 $2,000 2007 2010 2013 2016 2019 Q1 2020 $ in Millions Shareholders' Equity Tier I Ratio Tangible Equity/Tangible Assets STRONG CAP
Slide 46: Liquidity Position & Sources
45 Liquidity Sources March 31, 2020 $ in Thousands Cash and Cash Equivalents (net of float & reserves) $458,890 FHLB Borrowing Capacity $1,826,357 FRB Borrowing Availability $260,435 Investments 1 US Gov’t & Agency $2,139,079 MBS & CMO (less 5% haircut ) $473,658 Municipals $481,797 Corporates $2,50
Slide 47: Customer Support
46 5,694 loans representing $735 million in loan balances granted loan payment deferrals (as of April 30, 2020) • The Company anticipates that the number and amount of COVID - 19 financial hardship payment deferral requests will increase significantly during the second quarter of 2020. • Estimated 3
Slide 48: COVID-Related Industry Exposure
47 COVID - 19 Related Industry Exposure $ in Millions March 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 commerci
Slide 49: Loan Yields vs. Prime Rate and Variable Rate Loans
48 (1) CBU loan yields exclude fully tax equivalent (FTE) adjustments (2) Based on March 31, 2020 ending loan balances and interest rates Includes adjustable rate consumer mortgage loans, variable rate consumer home equity lines, variable rate consumer check cred it lines, variable rate business lin
Slide 50: Future Expectations
49 FUTURE EXPECTATIONS The COVID - 19 crisis is expected to continue to impact the Company’s financial results, as well as demand for its services and products during the second quarter of 2020 and potentially beyond. The short and long - term implications of the COVID - 19 crisis, and related monet
Slide 51: Investor Relations Contact
50 Investor Relations Contact Mr. Joseph E. Sutaris EVP & Chief Financial Officer Joseph.Sutaris@cbna.com (315) 445 - 7396
Community Bank System — Shareholder Meeting (May 2020) on 6ix