雅虎香港財經 Community Bank System, Inc. (NYSE:CBU) Q1 2024 Earnings Call Transcript
Community Bank System, Inc. (NYSE:CBU) Q1 2024 Earnings Call Transcript April 23, 2024
Community Bank System, Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and welcome to the Community Bank System First Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Dimitar Karaivanov, President and Chief Executive Officer of Community Bank Systems. Please go ahead.
Dimitar Karaivanov: Thank you, Nick, and good morning, everyone, and thank you for joining the Community Bank Systems Q1 2024 earnings call. This quarter was a good illustration of the benefit of our diversified financial model. Our market-sensitive recurring fee income businesses showcased their strength and fully offset margin pressure in our banking business, leading to another quarter of revenue -- of record revenue for the Company. We normalized the expense growth rate while continuing to invest in all of our businesses. Our below-average risk profile remains firmly rooted in the low credit risk intensity and exceptional liquidity of our balance sheet. During the quarter, we also modestly increased our qualitative assessment of future uncertainty and proactively added to our reserves.
In our banking business, growth continued in our commercial, mortgage and consumer installment portfolios. Strong loan growth of $179 million was more than fully funded through deposit growth of $424 million. Market share gain opportunities remain attractive across our footprint as many competitors are limited by their liquidity profiles. Pipelines remain excellent with particular strength in C&I compared to prior quarters. We also formally announced our branch expansion plans with 14 locations expected to open in the next five quarters. Two in Buffalo, three in Rochester, Syracuse, two in the Capital Region, two in the Lehigh Valley, one in Springfield, Massachusetts and our first location in New Hampshire. In our Employee Benefit Services business, we are now benefiting from both new client counts and market appreciation.
Revenue growth was 7.9%, and we also closed on the acquisition of creative plan designs during the quarter. Looking forward, the organic momentum remains strong and market values remain supportive. Our insurance services business was relatively flat in terms of revenue performance due to the timing of certain commercial premiums and lower contingency revenue. However, both the organic and inorganic growth opportunities remain attractive for 2024. Our wealth business had a record revenue quarter with double-digit gains in revenue and increased inflows. Our wealth team is energized and focused on increasing penetration levels while also launching a number of new service offerings on a nationwide basis. Overall, I'm encouraged by our operational execution this quarter as evidenced by the improvement in pretax pre-provision net revenues over the prior two quarters.
In terms of capital deployment, we closed on both a number of smaller acquisitions in our fee income businesses and also repurchased 750,000 shares at what we deem to be very attractive levels, given the intrinsic earnings power of our company. I will now pass it on to Joe for more details.
Joseph Sutaris: Thank you, Dimitar, and good morning, everyone. The Company recorded $0.76 of GAAP diluted earnings per share in the first quarter. This compares to $0.11 in the first quarter of 2023 and $0.63 in the linked fourth quarter of 2023. As a reminder, during the first quarter of 2023, the Company recorded a $52.3 million pretax realized loss on the sale of certain available-for-sale investment securities in connection with the Company's balance sheet repositioning strategy which negatively impacted GAAP diluted earnings per share by $0.75 in that quarter. Operating diluted earnings per share, which excludes certain non-operating revenues and expenses as delineated in this morning's press release were $0.82 in the first quarter and linked fourth quarter as compared to $0.92 in the first quarter of the prior year.
The $0.10 decrease in operating diluted earnings per share from the prior year's first quarter was driven by a decrease in net interest income and increases in the provision for credit losses, operating expenses and income taxes, offset in part by an increase in operating non-interest revenues. On a linked quarter basis, a decrease in operating expenses and an increase in non-interest revenues were offset by a decrease in net interest income, a higher provision for credit losses and an increase in income taxes. Operating pretax, pre-provision net revenue per share, as defined in the press release, was $1.18 for the first quarter. This was up $0.05 per share over the linked fourth quarter, but $0.04 per share below the prior year's first quarter.
During the first quarter, the Company recorded total revenues of $177.3 million. This established a new quarterly record for the Company and highlights our diversified business model. Higher levels of operating non-interest revenues in our banking employee benefit services and wealth management services businesses overcame declines in net interest income and insurance services revenues in both the linked quarter and the prior quarter -- over the linked quarter and the prior quarter. The Company recorded net interest income of $107 million in the first quarter as compared to $109.2 million in the linked fourth quarter. Despite solid loan growth in the quarter and an improvement in yield on interest-earning assets, pressure on funding costs did not abate.
During the quarter, the Company continued to experience a migration of customer deposit balances from lower rate checking and saving accounts to a higher rate money market and time deposits increasing the cost of deposits 16 basis points in the quarter from 98 basis points in the linked fourth quarter to 1.14% in the first quarter. When combined with higher borrowing costs, the Company's total cost of funds increased 23 basis points from 1.08% in the linked fourth quarter to 1.31% in the first quarter. This outpaced a 13 basis point increase in interest-earning asset yields, resulting in a 9 basis point decrease in the Company's fully tax equivalent net interest margin from 3.07% in the fourth quarter of 2023 to 2.9% in the first quarter of 2024.
Comparatively, the Company reported net interest income of $111 million in the first quarter of 2023. We believe the first quarter net interest income result of $107 million represents a bottom for the Company in 2024, and the outlook remains positive for net interest income expansion on a full year basis. As mentioned previously, operating non-interest revenues were up in three of our four businesses on both an annual quarter and linked-quarter basis. Banking-related non-interest revenues were up $1.8 million or 11.1% over the same quarter of the prior year driven by increases in debit interchange and ATM fees and loan placement and advisory revenues, while Employee Benefit Services and Wealth Management services revenues were up $2.3 million or 7.9% and $1 million or 11.7%, respectively, over the same period, driven by favorable investment market conditions and employee benefit plan participant growth.
Insurance Services revenues were down approximately $400,000 or 3.6% due to timing differences on certain commercial policy renewals and insurance carrier related contingency revenues. On a linked-quarter basis, banking-related non-interest revenues were up slightly, while employee benefit services revenues and wealth management services revenues increased $1.7 million or 5.6% and $1.3 million or 16.5%, respectively. Insurance Services revenues were down approximately $500,000 or 4.2%. During the first quarter, the Company recorded $118.1 million in non-interest expenses. This represents a $4 million or a 3.5% increase from the prior year's first quarter and an $11 million or 8.5% decrease from the linked fourth quarter results. Total operating non-interest expenses, which exclude certain non-operating expenses as detailed in the Company's press release, were $114.4 million in the quarter as compared to $110.3 million in the prior year's first quarter and $116.4 million in the linked fourth quarter.
As mentioned on last quarter's earnings call, although the Company will continue to make front-foot investments in its leadership team, talent across all lines of business, data systems and risk management. Operating expense growth is expected to moderate in 2024. The first quarter results were consistent expectations. The Company recorded a $6.1 million provision for credit losses during the first quarter of 2024. This compares to $3.5 million in the prior year's first quarter and $4.1 million in the linked fourth quarter. Although the Company's credit metrics remained strong during the first quarter, the Company billed loss reserves reflective of an increase in our qualitative assessment of future uncertainty. The Company's allowance for credit losses stood at $70.1 million or 71 basis points of total loans outstanding at the end of the first quarter, up $3.4 million or 2 basis points in the quarter and up $6.9 million or 1 basis point over the prior year's first quarter.
The effective tax rate for the first quarter of 2024 was 22.9%, up from 16.9% in the first quarter of 2023. Excluding the impact of tax expense and benefits related to stock-based compensation activity and income tax credit amortization, the effective tax rate for the first quarter of 2024 was 22%, up from 21.4% in the first quarter of 2023. Ending loans increased $178.9 million or 1.8% during the first quarter. This marks the 11th consecutive quarter of loan growth and is reflective of the Company's continued investment in its organic loan growth capabilities. Although outstanding balances in the consumer mortgage and consumer direct segments increased in the first quarter despite seasonal headwinds, the primary driver of loan growth in the quarter was the $135.8 million or 3.3% increase in the Company's business lending portfolio.
The Company's ending total deposits increased $423.9 million or 3.3% during the first quarter of 2024, driven by seasonal inflows of municipal deposits. Ending deposits also increased $241.4 million or 1.8% from one year prior. Although funding costs continued to increase in the first quarter, as previously noted, non-interest-bearing and low rate checking and savings accounts continue to represent almost two-thirds of total deposits, and the Company's cycle-to-date deposit beta of 20% continues to be one of the best in the banking industry and reflects the strength of the Company's core deposit base. The Company's liquidity position remains strong, readily available sources of liquidity, including cash and cash equivalents, funding availability at the Federal Reserve Bank discount window, unused borrowing capacity at the Federal Home Loan Bank of New York and unpledged investment securities totaled $4.6 billion at the end of the first quarter.
These sources of immediately available liquidity represent over 200% of the Company's estimated uninsured deposits, net of collateralized and intercompany deposits. The Company's loan-to-deposit ratio at the end of the first quarter was 74%, providing future opportunity to migrate lower-yielding investment security balances into higher-yielding loans. At the end of the first quarter, all the companies and the bank's regulatory capital ratio significantly exceeded pulp capitalized standards. More specifically, the Company's Tier 1 leverage ratio was 9.01%, and which substantially exceeded the regulatory well-capitalized standard of 5%. During the first quarter, the Company repurchased 750,000 shares of its common stock at an average price of approximately $46 per share.
The Company recorded net charge-offs of $2.8 million or 12 basis points of average loans annualized during the first quarter. This is up slightly from 10 basis points in the linked fourth quarter and 7 basis points in the same quarter of the prior year with increases primarily attributed to consumer indirect loan portfolio. At March 31, 2024, non-performing loans totaled $49.4 million or 50 basis points of total loans outstanding. This represents a decline from $54.6 million or 56 basis points of total loans at the end of the linked fourth quarter. Non-performing loans were $33.8 million or 38 basis points of total loans one year prior. Loans 30 to 89 days to linked were also down on a linked quarter basis from $48.4 million or 50 basis points of total loans at the end of 2023 to $42.1 million or 43 basis points of total loans at the end of the first quarter.
Overall, the Company's asset quality remained strong in the quarter. We believe the Company's diversified revenue profile, strong liquidity, regulatory capital reserves, stable core deposit base and historically strong asset quality provide a fundamentally solid foundation for future opportunities and growth. Looking forward, we are very encouraged by the revenue outlook in all four of our businesses we will continue to lean into growth and prudently deploy capital and align with the interest of our shareholders. That concludes my prepared comments. Thank you. I'll now turn it over to Nick to open the line for questions.
See also
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