Community Financial System, Inc. · NYSE:CBU
Community Financial System — Q4 2023 Earnings Presentation
45 slides from Community Financial System's earnings presentation, Jan 23, 2024
Slide 1: Investor Presentation February 2024
FEBRUARY 2024 Investor Presentation COMMUNITY BANK SYSTEM, INC. | NYSE: CBU
Slide 2: Disclaimers
Disclaimers Forward‐Looking Statements This presentation contains comments or information that constitute forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995), which involve significant risks and uncertainties. Forward-looking statements often use w
Slide 3: About CBU
$15.6B About CBU in total assets SUCCESSFUL AND GROWING FINANCIAL SERVICES COMPANY operating four scaled, complementary business lines Employee Benefit & Insurance & Risk Banking Wealth Management Administration Services Services Aggregate Revenue Mix • Large bank capabilities with • Retirement Plan
Slide 4: Our Investment Thesis
Return on Assets2 1.50% 1.24% 1.12% 1.29% 1.19% 1.06% 1.12% 1.12% 1.06% Our Investment Thesis 0.87% 0.50% 2023 3-Yr Avg 5-Yr Avg 10-Yr Avg 3 CBU KRX (median) CBU - Operating • ABOVE AVERAGE RETURNS WITH BELOW AVERAGE RISK Net Charge-off Ratio2 0.20% 0.16% • Below average risk: minimize volatility ac
Slide 5: Focus on Revenue Quality, Diversification and Sustainable Results
Focus on Total Revenue1 Growth Revenue $800 7.3% total revenue 10-year CAGR (2013-2023) $704.3 Millions $700 Quality, $600 $500 $363.4 Diversification $400 $300 $200 and Sustainable $100 $0 Results 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Net Interest Income Noninterest Revenue • Our busine
Slide 6: Growing, Recurring Noninterest Revenues
Growing, Noninterest Revenues1: Strong Contributions from Recurring Fee-generating Businesses Millions $300 9.4% noninterest revenues1 50% Noninterest 10-year CAGR (2013-2023) $267.0 45% $250 40% Revenues 37.9% $200 35% 32.7% $150 30% 38% of revenue in 2023 $119.0 25% $100 • Longstanding focus on gr
Slide 7: Performance
Full Year 2023 Performance 3.14% net interest margin • Q4 2023 fully-diluted GAAP EPS of $0.63 and non-GAAP operating EPS of $0.761, down $0.34 and $0.20, respectively, from the fourth quarter of 2022 (FTE)2 3.7% • Fourth quarter 2023 adjusted pre-tax, pre-provision net revenue per share (non-GAAP)
Slide 8: Banking
Banking Community Bank System, Inc. | Feb 2024 About CBU & Strategy | Banking | Financial Services | Operating Performance and Key Indicators | Appendix 8
Slide 9: Market-leading Community Bank
Market-leading Ranked as one of America’s most trustworthy banks of 2023 by Newsweek Community Bank • In-footprint lender with deep knowledge of our markets and first or second market share in approximately two- thirds of the towns where we do business1 • Core focus on credit quality and low funding
Slide 10: Disciplined Proven Acquirer
Disciplined Proven Acquirer • Successful in-market strategy focused on high quality banking partners through low-risk, accretive acquisitions • Proven acquirer well-positioned in consolidating industry for continued growth in current footprint and contiguous markets Most Recent Banking Transaction N
Slide 11: Core Deposit Strength
17% cycle to date deposit beta1 19% cycle to date funding beta1 Core Deposit 24% cycle to date interest-bearing deposit beta1 Strength Core Deposit Strength Supports Low Overall Funding Costs $14 2.5% • Excellent core deposit customer base $12.9 Billions • Focus on generating and retaining core non-
Slide 12: Granular, Stable & Diverse Deposit Base
Over 80% Granular, Stable & Diverse * of the Company’s deposit balances Deposit Base are either insured by the FDIC or secured through municipal pledging *Estimate; as of 12/31/2023 Average Consumer Deposit Average Business Deposit Average Nonmaturity Deposit Accounts over $250K1 Account Balance1: R
Slide 13: In-footprint Lender
In-footprint Lender $743K average commercial loan relationship • Diversified and high-quality loan portfolio with in-footprint Diversified Loan Portfolio1 focus 1% 3% 1% 1-4 Family Resi Real Estate • $9.70 billion in total loans as of December 31, 2023 1-4 Family Resi Construction 1-4 Family Jr Lien
Slide 14: Business Lending
0.07% 10-year average Business Lending net-charge off ratio (2014-2023) Well diversified lending portfolio C&I, Owner Occupied CRE & All Other Business1 Non-Owner Occupied CRE (“NOO CRE”)2 ($1.75 billion) ($2.33 billion) All Other Industries 6.4% Pro, Scientific and Utilities Retail Technical Servic
Slide 15: Consumer Lending
Consumer Lending Durable loss history versus industry1 0.12% Consumer Real Estate Loss History2,3 0.10% Consumer Real Estate ($3.73 billion) 0.08% 0.06% • Broad product set including non-conforming, FHA, VA and 1st time 0.04% homebuyers program 0.02% 0.00% • 88% consumer mortgage / 12% home equity 2
Slide 16: Organic Loan Growth
Organic Loan Loan Growth Growth $9.70 $9.5 • Q4 2023 loan growth of 2.7% $9.0 $8.81 • Last twelve months (“LTM”) overall loan Billions $8.5 growth of 10.2% • All major loan segments produced positive $8.0 organic loan growth during the last twelve months $7.5 • Business loans: 12.0% $7.0 • Consumer
Slide 17: Optimizing Delivery Channels for Growth
• Addressing redundancies through consolidations and expanding digital banking services • Optimizing Delivery 54 branches consolidated from 2019 through 2023 • The Company expects to invest in the retail network through de novo branch expansion in new, more densely populated markets throughout the c
Slide 18: Digital Transformation
Digital Transformation Supporting customers’ preference towards digital while enhancing efficiencies Recent Accomplishments What’s Next • Rolled out a credit monitoring and education tool • Enhancing digital account opening process to include more funding • Enhanced personal banking budgeting tool o
Slide 19: Robust Net Interest Income
Net Interest Income Growth and Robust Net Net Interest Margin (FTE)1 6.3% net interest income $500 10-year CAGR (2013-2023) 4.50% Millions Interest $437.3 $450 Q4 $109.2 $400 3.91% 4.00% Income $350 $300 Q3 3.50% $107.8 • Net interest income (“NII”) of $109.2 million for Q4 $250 $244.4 3.14% 2023 de
Slide 20: Financial Services
Financial Services Community Bank System, Inc. | Feb 2024 About CBU & Strategy | Banking | Financial Services | Operating Performance and Key Indicators | Appendix 20
Slide 21: Employee Benefit Services: BPAS
• Our benefits business is the primary contributor of noninterest revenue Employee Benefit which has grown at a 11.8% 10-year CAGR (2013-2023). Services: BPAS • A leading national provider of administration services, investment expertise and technology enabling clients nationwide to consolidate reti
Slide 22: Insurance & Risk Services: OneGroup
Serving much of the East Insurance & Risk Coast through offices in NY, PA, MA, SC and FL Services: OneGroup More than $300 million in total annual premiums 100+ years of industry experience • OneGroup is a leading risk management and insurance broker providing holistic solutions $47.1M • Business In
Slide 23: Wealth Management Services
In August 2023, the Bank’s Trust Division, Community Wealth Bank Trust Services, was renamed Nottingham Trust to better align branding and Management reflect the range of products and services offered Services $31.9M 100+ years of industry experience TTM revenue, up 0.9% from the prior year period •
Slide 24: Operating Performance and Key Indicators
Operating Performance and Key Indicators Community Bank System, Inc. | Feb 2024 About CBU & Strategy | Banking | Financial Services | Operating Performance and Key Indicators | Appendix 24
Slide 25: Operating Performance Summary
Operating Performance Summary As of December 31, 2023 Financial Q4 2023 % Change 2023 % Change in millions, from in millions, Highlights except EPS Q4 2022 except EPS from 2022 Net interest income $109.2 (2.7%) $437.3 4.0% Noninterest revenues1 67.7 6.3% 267.0 3.2% Operating expenses2 119.9 12.9% 46
Slide 26: Strong Asset Quality
Strong Asset Quality Historically Strong Asset Quality Metrics1 Non-Performing Assets2 Net Charge-offs (“NCOs”) 0.20% 0.90% 0.18% 0.80% 0.16% 0.70% 0.14% 0.15% 0.60% 0.12% 0.50% 0.10% 0.36% 0.34% 0.40% 0.08% 0.30% 0.06% 0.04% 0.06% 0.20% 0.02% 0.10% 0.00% 0.00% 2014 2015 2016 2017 2018 2019 2020 202
Slide 27: Allowance Industry Comparison
Allowance Industry Comparison Ample loss coverage compared to industry Allowance for Credit Losses (“ACL”) Ratio1 Allowance Loss Coverage1 (ACL Ratio / 10-year Average Net Charge-Off Ratio3) 1.80% 5.40x 1.60% 1.54% 5.2x 5.20x 1.40% 5.00x 1.20% 1.00% 4.80x 0.80% 0.69% 4.60x 0.60% 4.4x 4.40x 0.40% 4.2
Slide 28: Liquidity Position & Sources
Liquidity Position & Sources Conservative approach Dollars in thousands December 31, 2023 • Loan to deposit ratio of 75.1% as of December 31, 2023 Cash and cash equivalents $190,962 • Investment portfolio consists of lower risk investments FHLB borrowing availability 1,370,085 FRB borrowing capacity
Slide 29: Consistent Returns and Low Volatility Drive Premium Results
Consistent Delivering superior risk- adjusted returns Returns and Low 28% of operating revenues2 is non-banking Volatility Drive (2023) Premium Results Price/ TTM EPS 30.00x 25.00x Investment Profile 20.00x 21.3 As of December 31, 2023 15.00x 14.5 Closing Stock Price $52.11 52-week High Stock Price
Slide 30: Solid Capital Position
Solid Capital Strong Capital Position $2.5 20% Billions Position 18% $2.0 14.76% 16% $1.7 $1.7 14% Ready to support growth $1.5 12.05% 12% • Tier 1 leverage ratio maintained well above PCA1 10% 9.34% well-capitalized standards to support future $1.0 8% organic growth and M&A 5.75% 6% • Risk-based ca
Slide 31: Shareholder Returns & Key Investment Merits
Shareholder Committed to successful operating strategy focused on intelligent low- Superior long-term return to shareholders Returns & Key risk acquisitions, organic growth, and prudent capital management and long-standing dividend growth Investment Strong fundamentals with Long-term Merits consiste
Slide 32: Creating Excess Value
Longstanding commitment to growing dividend benefits Creating Excess Value for our partners and shareholders For CBU’s Partners and Shareholders Total Shareholder Returns Since Announcement 205% 300% (Including Day 1 Premium) dividend increase since Wilber acquisition announcement 250% 250% 200% 112
Slide 33: Corporate Responsibility Initiatives
Corporate Responsibility Initiatives Integrating sustainability and corporate responsibility into our business practices • Our Culture and Diversity Council oversees initiatives focused on diversity and equity across key 2023 Corporate areas of talent acquisition and retention, employee community se
Slide 34: Community Bank System, Inc. | Feb 2024 About CBU & Strategy | Banking |
Community Bank System, Inc. | Feb 2024 About CBU & Strategy | Banking | Financial Services | Operating Performance and Key Indicators | Appendix 34
Slide 35: Appendix
Appendix Community Bank System, Inc. | Feb 2024 About CBU & Strategy | Banking | Financial Services | Operating Performance and Key Indicators | Appendix 35
Slide 36: Primary Subsidiaries
Employee Benefit Wealth Insurance & Risk Banking & Administration Management Services Services Benefit Plans Community Investment Community Bank, N.A. OneGroup NY, Inc. Administrative Services, Services, Inc. Inc. Benefit Plans Primary Nottingham Advisors, Administrative Services, Inc. LLC Nottingha
Slide 37: Peer Group
Total Assets Market Peer Company Name Ticker Location ($000)1 Cap ($M)1 Atlantic Union Bkshs Corp. AUB Richmond, VA 21,166,197 2,741 Berkshire Hills Bancorp Inc. BHLB Boston, MA 12,430,821 1,080 Eastern Bankshares Inc. EBC Boston, MA 21,133,278 2,505 F.N.B. Corp. FNB Pittsburgh, PA 46,157,693 4,941
Slide 38: Reconciliation of GAAP and Non-GAAP
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 helps investors and analysts measure underlying core performanc
Slide 39: Equity-to-Assets
Equity-to-Assets Dollars in thousands 2017 2018 2019 2020 2021 2022 2023 Total assets Total assets (GAAP) $10,746,198 $10,607,295 $11,410,295 $13,931,094 $15,552,657 $15,835,651 $15,555,753 Goodwill and other intangible assets, net (825,088) (807,349) (836,923) (846,648) (864,335) (902,837) (897,987
Slide 40: Free Cash Flow
Free Cash Flow Dollars in thousands, except per share data Q4 2018 2019 2020 2021 2022 2023 2023 Diluted Earnings per Share (GAAP) $3.24 $3.23 $3.08 $3.48 $3.46 $2.45 $0.63 Operating Diluted Earnings per Share (non-GAAP) $3.23 $3.29 $3.24 $3.49 $3.58 $3.36 $0.76 Net income (GAAP) $168,641 $169,063 $
Slide 41: Return on Assets
Return on Assets Dollars in thousands Q4 2018 2019 2020 2021 2022 2023 2023 Average Total Assets $10,665,209 $11,043,173 $12,896,499 $14,835,025 $15,567,139 $15,242,884 $15,333,131 Net income (GAAP) $168,641 $169,063 $164,676 $189,694 $188,081 $131,924 $33,706 Return on Assets (GAAP) 1.58% 1.53% 1.2
Slide 42: Net Interest Margin
Net Interest Margin Dollars in thousands Q4 2018 2019 2020 2021 2022 2023 2023 Net interest margin Net interest income $345,055 $359,174 $368,403 $374,412 $420,630 $437,285 $109,190 Total average interest-earning assets 9,368,198 9,663,634 11,358,162 13,393,383 14,548,665 14,078,061 14,222,287 Net i
Slide 43: Operating Revenues
Operating Revenues Dollars in thousands Q4 2018 2019 2020 2021 2022 2023 2023 Noninterest revenues/ total revenues (GAAP) Noninterest revenues 224,059 230,619 228,419 246,235 258,725 214,834 67,769 Total revenues 569,114 589,793 596,822 620,647 679,355 652,119 176,959 Noninterest revenues/ total rev
Slide 44: Pre-tax, Pre-provision Components
Pre-tax, Pre-provision Components Dollars in thousands, except per share data 2023 2022 Q4 2022 Q1 2023 Q2 2023 Q3 2023 Q4 2023 Pre-tax, pre-provision net revenue Net income (GAAP) $131,924 $188,081 $52,530 $5,798 $48,291 $44,129 $33,706 Income taxes 36,307 52,233 14,779 1,175 13,182 11,861 10,089 I
Slide 45: Thank you!
Thank you! INVESTOR RELATIONS CONTACT Mr. Joseph E. Sutaris EVP & Chief Financial Officer Joseph.Sutaris@cbna.com 315.445.7396
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