Community Bank earnings drop after securities-sale losses

DeWITT, N.Y. — Community Bank System, Inc. (NYSE: CBU), parent company of Community Bank, N.A., recently reported that its earnings plummeted in the first quarter, with net income falling nearly 88 percent to $5.8 million from $47.1 million a year ago, in the wake of a balance-sheet repositioning. 

Earnings per share dropped nearly as much, declining 85 percent to 11 cents per share in the quarter from 75 cents in the first quarter of 2022, according to the banking company’s April 25 earnings report.

Community Bank System announced in February that it had completed a balance-sheet repositioning related to its investment-securities portfolio. It included the sale of $786.1 million in book value of its lower-yielding available-for-sale debt securities with a pre-tax realized loss of $52.3 million. Community Bank used $733.8 million in proceeds to pay down overnight borrowings with rising and comparatively high variable interest rates. It says it expects to recoup the loss within two years.

“We are pleased with the core revenue performance of both our banking and nonbanking businesses despite the company’s first-quarter operating expenses being a bit elevated due to higher compensation and benefit-related expenses and other factors,” Mark E. Tryniski, president and CEO of Community Bank System, said in the earnings report. 

Total revenue for the quarter, at $124.5 million, decreased $36 million, or 22.4 percent, from the prior year’s first quarter, primarily driven by the securities-sale loss. Total operating revenue, which excludes securities gains and losses, was $176.6 million, up $16.2 million, or 10 percent, from a year ago. That was driven by a $16.2 million increase in net interest income, which totaled $111 million, and a $500,000 increase in financial-services business revenue. Those gains were partially offset by a $600,000 decrease in noninterest revenue, which totaled $16.4 million. Interest income and fees on loans totaled $100.4 million, up 38.4 percent from $72.5 million a year ago, per the earnings report.

“Despite solid operating revenues in the quarter, the company’s operating earnings per share decreased a penny compared to the prior year’s first quarter, largely due to an increase in the provision for credit losses and higher operating expenses,” Tryniski said. “Although asset quality remains strong, the company recorded $3.5 million in the provision for credit losses during the first quarter of 2023, a $2.6 million increase over the prior year’s first quarter, primarily due to an adverse change in the economic outlook.”

Community Bank System’s operating expenses increased $14.2 million to $114 million, driven by higher salaries and employee-benefits expenses along with an increase in other expenses that included the impact of the second-quarter 2022 acquisition of Elmira Savings Bank.

Total assets at Community Bank System, as of March 31, stood at $15.26 billion, down almost $370 million from one year ago and down nearly $580 million from the end of 2022.

Community Bank operates 210 offices across New York, northeastern Pennsylvania, Vermont, and western Massachusetts. The banking company also offers financial-planning, insurance, and wealth-management services through Community Bank Wealth Management Group and OneGroup, NY, Inc. Its Benefit Plans Administrative Services, Inc., subsidiary provides employee-benefits administration, trust services, collective-investment-fund administration, and actuarial-consulting services.