DeWITT — Community Bank System, Inc. (NYSE: CBU) opened a business banking office in Albany in 2018 and had a big first year, according to Mark E. Tryniski, president and CEO of the DeWitt–based banking company. Now, Community Bank is making a bigger investment in the Capital District market by forging an agreement to acquire […]
DeWITT — Community Bank System, Inc. (NYSE: CBU) opened a business banking office in Albany in 2018 and had a big first year, according to Mark E. Tryniski, president and CEO of the DeWitt–based banking company.
Now, Community Bank is making a bigger investment in the Capital District market by forging an agreement to acquire Kinderhook Bank Corp., parent company of National Union Bank of Kinderhook, for more than $93 million in cash.
Kinderhook Bank, which was founded in 1853, brings Community Bank 11 branches across the counties of Albany (3), Columbia (5), Fulton (1), Montgomery (2), and Rensselaer (1). It has total assets of nearly $640 million and deposits of $560 million.
Community Bank System currently has $10.6 billion in assets and more than 230 branches across upstate New York, northeastern Pennsylvania, Vermont, and western Massachusetts through its main banking unit, Community Bank, N.A. But it’s not a significant player in Albany yet, and the Kinderhook acquisition seeks to start to change that.
“We believe that Kinderhook franchise fills a hole in our geography and significantly augments our presence in the Greater Capital District region of New York,” Joseph E. Sutaris, executive VP and CFO of Community Bank System, said in a Jan. 23 conference call, discussing the deal with analysts and investors.
More than half of Kinderhook Bank’s $491 million loan portfolio consists of commercial real-estate loans, according to Sutaris.
Community Bank finds the Albany region’s characteristics to be attractive as it seeks to boost its growth.
“Our move to establish a broader and deeper banking presence in this region reflects the relative economic, demographic and geographic attractiveness of the area, Tryniski said in a Jan. 22 release announcing the acquisition.
“The geography in which Kinderhook operates is contiguous to our current geography, but provides better banking opportunities from a demographic perspective than most regions within our existing footprint,” Sutaris added on the call.
Acquisition details
Under the terms of the agreement, shareholders of Kinderhook Bank Corp. (ticker: NUBK) will receive $62 in cash for each share of Kinderhook they own. This price, assuming full conversion of preferred equity, is 193 percent above (or nearly triple) Kinderhook Bank Corp.’s tangible book value as of Sept. 30, 2018, per the release.
The acquisition is expected to close in the second quarter of this year and is subject to typical closing conditions, including approval by the shareholders of Kinderhook Bank Corp. and required regulatory approvals. The transaction was unanimously approved by the boards of directors of both banking companies.
Upon completion of the acquisition, Community Bank System says it will have about $11.3 billion in assets, $6.8 billion in total loans, and $8.9 billion in deposits. It expects the deal to add about 7 to 8 cents to its first full year of earnings per share, and add 9 to 10 cents a share to its cash earnings, excluding any one-time transaction costs.
“So the Kinderhook transaction … is geographically and strategically very sound for us. It’s not a large transaction, but it’s a solid strategic transaction. And I think the economic benefit in terms of the accretion and cash flow generation per share is pretty good for a transaction this size for us,” Tryniski said on the conference call.
Community Bank earnings
Community Bank System on Jan. 23 also announced its earnings for the fourth quarter of 2018. The banking company reported net income of $40.8 million, or 78 cents a share, in the fourth quarter. That’s down from $72 million in net income, or $1.40 a share, in the year-ago period. The fourth-quarter 2017 results included a $38 million, or 74 cents per share, one-time gain from the revaluation of net-deferred tax liabilities related to the passage of the Tax Cuts and Jobs Act in December 2017. Excluding that one-time tax benefit and acquisition expenses, Community Bank System’s fourth-quarter 2018 operating earnings per share was more than 16 percent higher than the year-earlier period.
Community Bank’s total revenue for the fourth quarter of 2018 was $141.6 million, up 1.2 percent from the fourth quarter of 2017.