Community Financial System, Inc. · NYSE:CBU
Community Financial System — Q1 2024 Earnings Presentation
50 slides from Community Financial System's earnings presentation, Apr 23, 2024
Slide 1: Investor Presentation
MAY 2024 Investor Presentation COMMUNITY FINANCIAL 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
About CBU SUCCESSFUL AND GROWING FINANCIAL SERVICES COMPANY operating four scaled, complementary business lines Employee Benefit Insurance Wealth Management Banking Services Services Services Aggregate Revenue Mix • Large bank capabilities with • Retirement Plan & Benefits • Top 75 Insurance Broker
Slide 4: Our Evolution Into a Diversified Financial Company
Our Evolution Into a Diversified 40.0% Operating Noninterest Revenues / Operating Revenues (FTE)1 37.7% Financial 35.0% 30.0% 30.1% 4.4% Company 27.6% 6.7% 3.9% 24.0% 0.4% 25.0% 20.8% 20.0% 10.7% 3.7% 16.7% Operating noninterest revenues were 39%1 3.4% 16.7% 15.0% of total operating revenues in Q1 2
Slide 5: Focus on Revenue Quality, Diversification and Sustainable Growth
Focus on $800 Total Operating Revenue1 Growth 7.3% total revenue 10-year CAGR (2013-2023) Revenue $704.3 $704.9 Millions $700 $600 Quality, $500 $363.4 $400 Diversification $300 $200 and Sustainable $100 $0 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 TTM Results Net Interest Income Noninterest
Slide 6: Our Investment Thesis: Above Average Returns with Below Average Risk
Our Investment Thesis: Above Average Returns with Below Average Risk Manage Risk / Volatility Above Average Returns Revenue Stability Return on Assets 20% 1.50% 1.29% Revenue Growth 1.09% 0.98% 1.06% 15% 1.00% 10% CBU 0.50% 5% 0% 0.00% Banking Industry2 TTM 10-Yr Avg (5%) 2018 2019 2020 2021 2022 20
Slide 7: Company Performance
First Quarter 2024 Company Performance 1.8% deposit growth • Q1 2024 fully-diluted GAAP EPS of $0.76 and non-GAAP operating EPS of $0.821, up $0.65 and down $0.10, respectively, (from Q1 2023) from the first quarter of 2023 7.1% • First quarter 2024 operating pre-tax, pre-provision net revenue per s
Slide 8: Segment Performance
Segment Performance 10Yr Operating Revenue CAGR: 5.6% 10Yr Operating Revenue CAGR: 12.0% 3Yr Avg. Operating Margin: 38.9% 3Yr Avg. Operating Margin: 42.9% Banking & Corporate Employee Benefit Services $600 50% $150 50% Millions Millions 40% 40% $400 $100 30% 30% 20% 20% $200 $50 10% 10% $0 0% $0 0%
Slide 9: Banking
Banking Community Financial System, Inc. | May 2024 About CBU & Strategy | Banking | Financial Services | Operating Performance and Key Indicators | Appendix 9
Slide 10: 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 11: 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 12: Core Deposit Strength
20% cycle to date deposit beta1 23% cycle to date funding beta1 Core Deposit 27% cycle to date interest-bearing deposit beta1 Strength Core Deposit Strength Supports Low Overall Funding Costs $16 2.5% • Excellent core deposit customer base Billions $14 $13.4 • Focus on generating and retaining core
Slide 13: 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 3/31/2024 Average Consumer Deposit Average Business Deposit Average Nonmaturity Deposit Accounts over $250K1 Account Balance1: Re
Slide 14: Diversified In-footprint Lender
Diversified $772K average commercial loan In-footprint Lender relationship Diversified Loan Portfolio1 1% • $9.88 billion in total loans as of March 31, 2024 1% 1-4 Family Resi Real Estate 3% 1-4 Family Resi Construction • Average consumer loan originations are uniquely granular 1-4 Family Jr Lien f
Slide 15: 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 ($1.81 billion) ($2.41 billion) All Other Industries Educational Services 6.6% Other Lessors of CRE 2.6% Utilit
Slide 16: Multifamily & NOO CRE by Location
Multifamily & NOO CRE by Location Total non-owner occupied CRE Multifamily CRE Non-owner occupied CRE (“NOO CRE”) % of Total % of Total % of Total (000’s omitted, except percentages) Balance1 Balance1 Balance1 NOO CRE NOO CRE NOO CRE Metropolitan Statistical Area (“MSA”)2: Albany-Schenectady-Troy, N
Slide 17: Consumer Lending
Consumer Lending Durable loss history versus industry1 0.12% Consumer Real Estate Loss History2,3 0.10% Consumer Real Estate ($3.76 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 T
Slide 18: Organic Loan Growth
Organic Loan Loan Growth Growth $10.0 $9.88 $9.5 • Q1 2024 loan growth of 1.8% $8.98 $9.0 • Last twelve months (“LTM”) overall loan Billions growth of 10.0% $8.5 • All major loan segments produced positive $8.0 organic loan growth during the last twelve months $7.5 • Business loans: 12.6% $7.0 • Con
Slide 19: Optimizing Delivery Channels for Growth
• Addressing redundancies through consolidations and expanding digital banking services • Optimizing Delivery 64 branches consolidated from 2019 through March 2024 • The Company expects to invest in the retail network through de novo branch expansion in new, more densely populated markets throughout
Slide 20: 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 21: 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 $450 $400 3.91% $437.3 4.00% Income $350 $300 3.50% • Net interest income (“NII”) of $107.0 million for Q1 $250 $244.4 2024 decreased $4.0 million, or 3
Slide 22: Financial Services
Financial Services Community Financial System, Inc. | May 2024 About CBU & Strategy | Banking | Financial Services | Operating Performance and Key Indicators | Appendix 22
Slide 23: 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 24: Employee Benefit Services: Performance
Employee Benefit Services: Performance 10Yr Operating Revenue CAGR4: 12.0% 3Yr Avg. Operating Margin2,4: 42.9% Employee Benefit Services $140 50% Millions $120 40% $100 $80 30% $60 20% $40 10% $20 $0 0% 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 YTD 2024 1 2 3 Operating Revenue Operating Pre-
Slide 25: Insurance Services: OneGroup
Serving much of the East Insurance Services: Coast through offices in NY, PA, MA, SC and FL 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 $46.7M • Business Insurance
Slide 26: Insurance Services: Performance
Insurance Services: Performance 7Yr Operating Revenue CAGR4: 10.7% 3Yr Avg. Operating Margin2,4: 18.8% Insurance Services $50 50% Millions $40 40% $30 30% $20 20% $10 10% $0 0% 2016 2017 2018 2019 2020 2021 2022 2023 YTD 2024 1 2 3 Operating Revenue Operating Pre-Tax Income Operating Margin 1 Total
Slide 27: 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 $32.9M 100+ years of industry experience TTM revenue, up 5.1% from the prior year period •
Slide 28: Wealth Management Services: Performance
Wealth Management Services: Performance 10Yr Operating Revenue CAGR4: 8.5% 3Yr Avg. Operating Margin2,4: 31.2% Wealth Management Services $40 50% Millions $35 40% $30 $25 30% $20 $15 20% $10 10% $5 $0 0% 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 YTD 2024 1 2 3 Operating Revenue Operating Pre
Slide 29: Operating Performance and Key Indicators
Operating Performance and Key Indicators Community Financial System, Inc. | May 2024 About CBU & Strategy | Banking | Financial Services | Operating Performance and Key Indicators | Appendix 29
Slide 30: Operating Performance Summary
Operating Performance Summary As of March 31, 2024 Financial Q1 2024 % Change % Change in millions, from from Highlights except EPS Q4 2023 Q1 2023 Net interest income $107.0 (2.0%) (3.6%) Operating noninterest revenues1 70.3 3.8% 7.1% Operating noninterest expenses1 114.4 (1.7%) 3.6% 4.4% growth Op
Slide 31: Strong Asset Quality
Strong Asset Quality Historically Strong Asset Quality Metrics Non-Performing Assets (“NPAs”)1,2 Net Charge-offs (“NCOs”)1,3 (NPAs/ Assets) (NCOs/ Average Loans) 0.60% 1.40% 1.20% 0.50% 1.00% 0.40% 0.80% 0.30% 0.60% 0.38% 0.20% 0.33% 0.40% 0.14% 0.20% 0.10% 0.19% 0.00% 0.00% 2014 2015 2016 2017 2018
Slide 32: Allowance Industry Comparison
Allowance Industry Comparison Ample loss coverage compared to industry Allowance for Credit Losses (“ACL”) Ratio1 Allowance Loss Coverage 2.00% (ACL Ratio1 / Average Period Net Charge-Off Ratio) 1.51% 7.2x 1.50% 8.00x 6.00x 5.3x 4.0x 4.4x 1.00% 4.00x 0.71% 0.50% 2.00x 0.00x 3 0.00% TTM 10 Years 2 2
Slide 33: Liquidity Position & Sources
Liquidity Position & Sources Conservative approach Dollars in thousands March 31, 2024 • Loan to deposit ratio of 74.0% as of March 31, 2024 Cash and cash equivalents $338,381 • Investment portfolio consists of lower risk investments FHLB borrowing availability 1,553,080 FRB borrowing capacity 1,135
Slide 34: Consistent Returns and Low Volatility Drive Premium Valuation
Consistent Returns and Low Volatility Price/ TTM EPS Drive Premium 30.00x Valuation 25.00x 20.00x Investment Profile 15.00x 15.5 13.7 As of March 31, 2024 11.3 10.00x Closing Stock Price $48.03 52-week High Stock Price $55.64 5.00x 52-week Low Stock Price $35.38 0.00x Dividend Yield (annualized) 3.7
Slide 35: Solid Capital Position
Solid Capital Solid Capital Position $2.5 20% Billions Position 18% $2.0 $1.86 14.77% 16% $1.66 14% Ready to support growth $1.5 12% • Tier 1 leverage ratio maintained well above PCA1 10% 9.01% well-capitalized standards to support future $1.0 8% organic growth and M&A 6% 5.32% • Risk-based capital
Slide 36: 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 37: 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% 250% 237% (Including day 1 premium of acquired stock) dividend increase since Wilber acquisition announce
Slide 38: 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 39: Community Financial System, Inc. | May 2024 About CBU & Strategy | Banking |
Community Financial System, Inc. | May 2024 About CBU & Strategy | Banking | Financial Services | Operating Performance and Key Indicators | Appendix 39
Slide 40: Appendix
Appendix Community Financial System, Inc. | May 2024 About CBU & Strategy | Banking | Financial Services | Operating Performance and Key Indicators | Appendix 40
Slide 41: Primary Subsidiaries
Wealth Insurance Employee Benefit Banking Management Services 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 Nottingham Trust Subsidi
Slide 42: Peer Group
Total Assets Market Peer Company Name Ticker Location ($000)1 Cap ($M)1 Atlantic Union Bkshs Corp. AUB Richmond, VA 21,378,120 2,754 Berkshire Hills Bancorp Inc. BHLB Boston, MA 12,146,611 1,078 Eastern Bankshares Inc. EBC Boston, MA 21,174,804 2,508 F.N.B. Corp. FNB Pittsburgh, PA 45,895,574 4,948
Slide 43: Reconciliation of GAAP and Non-GAAP
Reconciliation of GAAP and Non-GAAP Community Financial 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 perfo
Slide 44: Equity-to-Assets
Equity-to-Assets Dollars in thousands Q1 2019 2020 2021 2022 2023 2024 Total tangible assets (non-GAAP) Total assets (GAAP) $11,410,295 $13,931,094 $15,552,657 $15,835,651 $15,555,753 $15,858,670 Goodwill and other intangible assets, net (836,923) (846,648) (864,335) (902,837) (897,987) (904,439) De
Slide 45: Operating Net Income
Operating Net Income Dollars in thousands, except per share data 2024 2019 2020 2021 2022 2023 YTD Net income (GAAP) $169,063 $164,676 $189,694 $188,081 $131,924 $40,872 Acquisition expenses, net of tax effect 6,952 3,942 551 3,930 50 27 Acquisition-related contingent consideration adjustment, net o
Slide 46: Net Interest Margin & Operating ROA
Net Interest Margin & Operating ROA Dollars in thousands Q1 2019 2020 2021 2022 2023 2024 Net interest margin Net interest income $359,174 $368,403 $374,412 $420,630 $437,285 $106,990 Total average interest-earning assets 9,663,634 11,358,162 13,393,383 14,548,665 14,078,061 14,578,643 Net interest
Slide 47: Operating Revenues
Operating Revenues Dollars in thousands 2024 2019 2020 2021 2022 2023 YTD Noninterest revenues/ total revenues (GAAP) Noninterest revenues 230,619 228,419 246,235 258,725 214,834 $70,285 Total revenues 589,794 596,822 620,647 679,355 652,119 177,275 Noninterest revenues/ total revenues (GAAP) 39.1%
Slide 48: Operating Noninterest Expenses
Operating Noninterest Expenses Dollars in thousands 2024 2019 2020 2021 2022 2023 YTD Operating noninterest expenses (non-GAAP) Noninterest expenses (GAAP) $372,026 $376,534 $388,138 $424,268 $472,685 $118,084 Acquisition expenses (8,608) (4,933) (701) (5,021) (63) (35) Acquisition-related contingen
Slide 49: Pre-tax, Pre-provision Components
Pre-tax, Pre-provision Components Dollars in thousands, except per share data 2023 2022 Q1 2023 Q2 2023 Q3 2023 Q4 2023 Q1 2024 Operating pre-tax, pre-provision net revenue (“PPNR”) (non-GAAP) Net income (GAAP) $131,924 $188,081 $5,798 $48,291 $44,129 $33,706 $40,872 Income taxes 36,307 52,233 1,175
Slide 50: Thank you!
Thank you! INVESTOR RELATIONS CONTACT Mr. Joseph E. Sutaris EVP & Chief Financial Officer Joseph.Sutaris@cbna.com 315.445.7396
Community Financial System — Q1 2024 Earnings Presentation on 6ix