Community Bank System (NYSE:CBU) revealed both solid top-line growth and a new pending acquisition in its third-quarter results released Monday. The community bank, which focuses on upstate New York, Vermont, northeastern Pennsylvania, and western Massachusetts, also enjoyed brisk organic loan growth and maintained high asset quality during the quarter. As we review results of the last three months below, note that all comparative numbers are presented against those of the prior-year quarter:
Community Bank System: The headline numbers
|Metric||Q3 2019||Q3 2018||Change|
|Revenue||$148.4 million||$142.0 million||4.5%|
|Net income||$39.2 million||$43.1 million||(9%)|
|Diluted earnings per share||$0.75||$0.83||(9.6%)|
Key details from Community Bank System's report
- Net interest margin (NIM) of 3.73% represented an improvement of two basis points against the prior comparable period.
- Net interest income rose by 5.9% to $91.3 million primarily from an increase of $474 million in average earning assets. The bulk of the asset expansion derived from the company's July 2019 acquisition of Kinderhook Bank, although management also cited organic loan growth and the slight uptick in NIM as positive factors.
- Total loan balances increased by $569 million during the quarter, with $472 million attributable to the Kinderhook transaction, and $97 million contributed by broad-based organic growth across the organization's loan portfolios.
- Non-interest revenue rose 2.3% to $57.1 million.
- The drop in net income between the current and prior-year periods resulted from a $5 million increase in salaries and benefits and $6.1 million in transaction costs related to the Kinderhook acquisition; together, these items offset the quarter's revenue increase.
- Total net charge-offs declined 6% to $1.6 million. The company's non-performing loan ratio ticked up two basis points to 0.42%.
- An 80 basis point increase in the Community Bank's efficiency ratio, to 58.8%, indicated a mild year-over-year decline in revenue-generating capability.
- Community Bank System raised its quarterly dividend by $0.03, to $0.41. The adjustment marks the company's 27th consecutive annual dividend increase and the payout returns an annualized yield of 2.5% at current share price.
Continuing an acquisitive streak
Alongside earnings, Community Bank announced an agreement to acquire Steuben Trust Company, a community bank headquartered in Hornell, New York, for $106.8 million in stock and cash. The transaction will increase Community Bank's presence in western New York State, and the organization will gain 15 new branch location, as well as $576.6 million in assets. During Community Bank's earnings conference call, CEO Mark Tryniski provided some commentary on the pending deal:
[W]e're thrilled to be partnering with Steuben Trust Corporation, a $570 million asset bank in Western New York. This is a high-value, lower-risk transaction of a solid performing in-market institution. We have considerable close proximity branch overlap and so also have consolidation opportunities that we have not incorporated into our model. We expect to close in the second quarter of 2020 and expect full-year accretion [i.e. additions to earnings], excluding cost base, to approximate $0.08 to $0.09 per share.
Once the Steuben transaction closes, Community Bank will have added approximately $827 million in loans and $1 billion in deposits to its balance sheet between this deal and the Kinderhook purchase. It will also have widened its New York state footprint by 26 branches.
The company heads into 2020 with over $11.6 billion in total assets, increasing its profile as one of the more significant community banking concerns in the Northeast. Investors are taking notice of the bank's potential: Shares have returned roughly 16% on a total-return basis year to date.