Community Financial System, Inc. · NYSE:CBU
Community Financial System — Q1 2023 Earnings Presentation
43 slides from Community Financial System's earnings presentation, Apr 25, 2023
Slide 1: Investor Presentation
MAY 2023 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
$15.3B About CBU in total assets SUCCESSFUL AND GROWING FINANCIAL SERVICES COMPANY operating four scaled, complementary business lines Employee Benefits & Insurance & Risk Banking Wealth Management Administration Services Services Aggregate Revenue Mix • Large bank capabilities with • Retirement Pla
Slide 4: Our Investment Thesis
Return on Assets2 1.26% 1.38% 1.31% 1.50% 1.09% 1.15% 1.07% Our Investment Thesis 0.50% 3-Yr Avg 5-Yr Avg 10-Yr Avg CBU KRX (median) • ABOVE AVERAGE RETURNS WITH BELOW AVERAGE RISK Net Charge-off Ratio2 • Below average risk: minimize volatility across the combined revenue base and in each of our 0.2
Slide 5: Focus on Revenue Quality, Diversification and Sustainable Results
Focus on Total Revenue1 Growth Revenue $800 7.5% total revenue 10-year CAGR (2012-2022) Millions $679.4 $695.5 $700 Quality, $600 $500 Diversification $400 $346.8 $300 $200 and Sustainable $100 $0 Results 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 TTM Net Interest Income Noninterest Revenue •
Slide 6: Growing, Recurring Noninterest Revenues
Growing, Noninterest Revenues1: Recurring Strong Contributions from Fee-generating Businesses Noninterest $300 10.1% noninterest revenues1 50% 10-year CAGR (2012-2022) $258.8 45% Revenues $250 37.1% 40% $200 35% Millions 37% of revenue in Q1 2023 30.0% $150 30% • Longstanding focus on growing high q
Slide 7: Performance Highlights First Quarter 2023
Performance Highlights First Quarter 2023 • Q1 2023 fully-diluted GAAP EPS of $0.11 and $0.86 on an operating-basis1 • 0.18% The $0.75 difference in GAAP EPS was primarily driven by the loss on sale of investment securities due to the strategic balance sheet repositioning executed during the quarter
Slide 8: Banking
Banking Community Bank System, Inc. | May 2023 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 Community Bank by Newsweek • Mostly non-metropolitan markets where leadership positions can be earned • In-footprint lender with deep knowledge of our markets and first or second market share in approximately two-thirds of the
Slide 10: Disciplined Proven Acquirer
Disciplined Proven Acquirer • Successful in-market strategy focused on high quality banking partners through low-risk, 2022 Elmira Savings accretive acquisitions Bank Acquisition • Proven acquirer well-positioned in consolidating industry for continued growth Strengthened Southern Tier of New York M
Slide 11: Core Deposit Strength
5% cycle to date deposit beta1 Core Deposit 8% cycle to date funding beta1 Strength Core Deposit Strength Supports Low Overall Funding Costs $14 $13.1 1.8% • Excellent core deposit customer base 1.6% $12 • Focus on generating and retaining core non-time 1.4% deposits, which made up 92.0% of total de
Slide 12: Granular, Stable & Diverse Deposit Base
Over 80%* Granular, Stable & Diverse of the Company’s deposit balances are either insured by the FDIC Deposit Base program or secured through municipal pledging *Estimate; as of 3/31/2023 Average Consumer Deposit Average Business Deposit Average Nonmaturity Deposit Accounts over $250K1 Account Balan
Slide 13: In-footprint Lender
In-footprint Lender $664K average commercial loan relationship1 • Diversified and high-quality loan portfolio with in-footprint Diversified Loan Portfolio2 focus 1% 2% 1-4 Family Resi Real Estate 3% • $8.98 billion in total loans as of March 31, 2023 1-4 Family Resi Construction 1-4 Family Jr Lien •
Slide 14: Business Lending
0.10% 10-year average Business Lending net-charge off ratio (2013-2022) Well diversified lending portfolio C&I, Owner Occupied CRE & All Other Business1 Non-Owner Occupied CRE (“NOO CRE”)2 ($1.72 billion) ($2.03 billion) Transportation & Public Administration Utilities Warehousing Warehouse/Industri
Slide 15: Consumer Lending
Consumer Lending Durable loss history versus industry1 0.12% Consumer Real Estate Loss History2 0.10% Consumer Real Estate ($3.45 billion) 0.08% 0.06% • Broad product set including non-conforming, FHA, VA and 1st time 0.04% homebuyers program 0.02% 0.00% • 87% consumer mortgage / 13% home equity 202
Slide 16: Organic Loan Growth
Organic Loan Loan Growth Growth $9.0 $8.5 • Q1 2023 loan growth of 2.0% $8.0 Billions • Last twelve months (“LTM”) overall loan $7.5 growth of 21.0% $7.0 • Organic loan growth of 15.9%, for LTM, $6.5 excluding loans acquired during the period and PPP loans $6.0 $7.38 $7.69 $8.54 $8.81 $8.98 • All ma
Slide 17: Optimizing Delivery Channels for Growth
• Addressing redundancies through consolidations and expanding digital banking services Optimizing Delivery • 55 branches consolidated from 2017 through April 2023 Channels for Growth • As of March 2023, 65% of total customers were digital banking users, while 56% and 27% of core deposit customers w
Slide 18: Digital Transformation
Digital Transformation Supporting customers’ preference towards digital while enhancing efficiencies Recent Accomplishments What’s Next • Enhanced personal banking budgeting tool • Enhancing digital account opening process to include more • 31% of residential mortgage applications in 2022 were fundi
Slide 19: Robust Net Interest Income
Robust Net Net Interest Income Growth and Interest Net Interest Margin (FTE)1 6.2% net interest income Income $450 10-year CAGR (2012-2022) 4.50% $420.6 $400 3.88% 4.00% • Net interest income (“NII”) of $111.0 million for Q1 $350 2023 increased $16.2 million, or 17.0%, over Q1 Millions $300 2022 des
Slide 20: Financial Services
Financial Services Community Bank System, Inc. | May 2023 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 12.4% 10-year CAGR (2012-2022). 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 $40.9M • Business In
Slide 23: Wealth Management Services
Recently entered into a strategic relationship agreement with Jacobi Wealth Capital Management, LLC to provide investment advisory services to Community Bank commercial and Management high net worth clients in Pennsylvania Services $31.3M 100+ years of industry experience TTM revenue, down 7.1% • Pr
Slide 24: Operating Performance and Key Indicators
Operating Performance and Key Indicators Community Bank System, Inc. | May 2023 About CBU & Strategy | Banking | Financial Services | Operating Performance and Key Indicators | Appendix 24
Slide 25: Operating Performance Summary
Operating Performance Summary As of March 31, 2023 Financial Q1 2023 % Change 2022 % Change in millions, in millions, Highlights except EPS from Q1 2022 except EPS from 2021 Net interest income $111.0 17.0% $420.6 12.3% Noninterest revenues1 65.6 (0.1%) 258.7 5.1% Operating expenses2 114.0 14.3% 419
Slide 26: Strong Asset Quality
Strong Asset Quality Historically Strong Asset Quality Metrics1 Allowance for Credit Losses2 0.35% 1.20% $70 0.90% Millions 0.30% 1.00% $65 $63.2 0.80% $60 0.72% 0.25% 0.70% NCOs/ Average Loans 0.80% 0.70% $55 0.20% 0.17% NPAs/ Assets $49.9 0.60% $50 0.60% 0.15% 0.38% $45 0.40% 0.50% 0.10% 0.22% $40
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) 1.60% 1.51% 5.00x 4.9x 1.40% 4.80x 1.20% 4.60x 1.00% 4.40x 0.80% 0.71% 4.20x 4.1x 0.60% 4.00x 0.40% 0.20% 3.8
Slide 28: Liquidity Position & Sources
Liquidity Position & Sources Conservative approach Dollars in thousands March 31, 2023 • Loan to deposit ratio of 69% as of March 31, 2023 Cash and cash equivalents (net of float) $109,729 • Investment portfolio is plain vanilla FHLB borrowing availability 1,835,244 FRB borrowing capacity 1,539,239
Slide 29: Consistent Returns and Low Volatility Drive Premium Results
Consistent Delivering superior risk-adjusted returns Returns and Low >30% of revenue is non- banking Volatility Drive Premium Results Price/ TTM EPS 30.00x 25.00x Investment Profile 20.00x 19.4 As of March 31, 2023 Closing Stock Price $52.49 15.00x 52-week High Stock Price $72.52 10.00x 8.4 52-week
Slide 30: Solid Capital Position
Solid Capital Strong Capital Position $2.5 20% 18.23% Billions Position 18% $2.0 15.21% 16% $1.7 $1.6 14% Ready to support growth 12.16% 12.31% 12% $1.5 11.08% • Tier 1 leverage ratio maintained well above PCA1 10% 9.68% 9.06% well-capitalized standards to support future $1.0 8% organic growth and M
Slide 31: Balance Sheet Repositioning
Balance Sheet ~2 Estimated earn-back period Repositioning years $1.6 Billions • In February 2023, the Company announced the sale of $786.1 million (book value) of its low-yielding U.S $1.3 $1.4 Treasuries for an approximate after-tax realized loss of $41.2 million $1.2 • Proceeds from the sale of $7
Slide 32: 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 33: 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 198% 300% (Including Day 1 Premium) dividend increase since Wilber 268% acquisition announcement 250% 200% 107
Slide 34: ESG Initiatives
ESG Initiatives Integrating sustainability and corporate responsibility into our business practices • Our Culture and Diversity Council oversees initiatives focused on diversity and equity across key areas of talent acquisition and retention, employee community service spotlights, senior leadership
Slide 35: Appendix
Appendix Community Bank System, Inc. | May 2023 About CBU & Strategy | Banking | Financial Services | Operating Performance and Key Indicators | Appendix 35
Slide 36: Primary Subsidiaries
Employee Wealth Insurance & Risk Benefits & Banking Management Services Administration Services Benefit Plans Community Investment Community Bank, N.A. OneGroup NY, Inc. Administrative Services, Services, Inc. Inc. Primary Nottingham Advisors, Inc. Benefit Plans Administrative Services, LLC Subsidia
Slide 37: Peer Group
Total Assets Market Peer Company Name Ticker Location ($000)1 Cap ($M)1 Atlantic Union Bkshs Corp. AUB Richmond, VA 20,103,370 2,628 Berkshire Hills Bancorp Inc. BHLB Boston, MA 12,319,976 1,113 Eastern Bankshares Inc. EBC Boston, MA 22,720,530 2,225 F.N.B. Corp. FNB Pittsburgh, PA 44,145,664 4,180
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: Free Cash Flow
Free Cash Flow Dollars in thousands, except per share data Q1 2017 2018 2019 2020 2021 2022 2023 Diluted Earnings per Share (GAAP) $3.03 $3.24 $3.23 $3.08 $3.48 $3.46 $0.11 Operating Diluted Earnings per Share (non-GAAP) $2.64 $3.23 $3.29 $3.24 $3.49 $3.58 $0.86 Net income (GAAP) $150,717 $168,641 $
Slide 40: Return on Assets
Return on Assets Dollars in thousands, except per share data Q1 2018 2019 2020 2021 2022 2023 Average Total Assets $10,665,209 $11,043,173 $12,896,499 $14,835,025 $15,567,139 $15,366,863 Net income (GAAP) $168,641 $169,063 $164,676 $189,694 $188,081 $5,798 Return on Assets (GAAP) 1.58% 1.53% 1.28% 1
Slide 41: Equity-to-Assets
Equity-to-Assets Dollars in thousands, except per share data 2017 2018 2019 2020 2021 2022 Q1 2023 Total assets Total assets (GAAP) $10,746,198 $10,607,295 $11,410,295 $13,931,094 $15,552,657 $15,835,651 $15,255,953 Intangible assets (825,088) (807,349) (836,923) (846,648) (864,335) (902,837) (900,9
Slide 42: Pre-tax, Pre-provision Components
Pre-tax, Pre-provision Components Dollars in thousands, except per share data 2022 2021 Q1 2022 Q2 2022 Q3 2022 Q4 2022 Q1 2023 Pre-tax, pre-provision net revenue Net income (GAAP) $188,081 $189,694 $47,055 $39,805 $48,691 $52,530 $5,798 Income taxes 52,233 51,654 12,777 10,971 13,706 14,779 1,175 I
Slide 43: 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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