Community Bank net income slips in Q4, rises for full year

DeWITT — Acquisition costs and a litigation settlement helped push profit down at Community Bank System, Inc. (NYSE: CBU) in the fourth quarter.

The DeWitt–based banking company earned $18.8 million, or 47 cents per share, in the quarter, down from $19 million, or 51 cents, in the fourth quarter of 2011. The fourth quarter included $500,000 in acquisition costs and a $2.5 million charge related to litigation settlement, which the company said pushed earnings down 5 cents per share.

The settlement involved a class-action lawsuit over the processing of retail debit-card transactions and its effect on overdraft fees. More than 100 other financial institutions around the country have been hit with similar lawsuits over the past three years, according to Community Bank.

The banking company said it had considerable defenses against the claims, but decided to settle to avoid the cost and staff time required for litigation.

DeWitt–based Community Bank System has $7.5 billion in assets and more than 180 branches in upstate New York and northeastern Pennsylvania. The banking company, parent of Community Bank N.A., also operates subsidiaries in employee benefits, insurance, investment management and advising, and wealth management.

For the full year in 2012, Community Bank System earned $77.1 million in 2012, an increase of 5.4 percent from 2011.

Mark Tryniski, company president and CEO, noted that Community Bank’s main challenge in 2012 was to grow its balance sheet, keep expenses low, and increase noninterest income. Given the continuation of low interest rates for the foreseeable future, the challenge remains the same for 2013.

“We grind it out,” he said during a Jan. 23 conference call to discuss Community Bank’s latest results.

Loans at the end of 2012 totaled $3.87 billion, up from $3.47 billion a year earlier. The increase includes growth in the bank’s existing business and the presence of loans picked up through recent acquisitions.

The bank saw increases in all of its loan portfolios in 2012, Executive Vice President and CFO Scott Kingsley said during the conference call. Community Bank saw record levels of mortgage and auto lending last year, he added.

Tryniski said the bank’s auto-lending business could be on track for another year of double-digit growth in 2013 and the bank is expecting another year of solid loan growth overall.

Net interest income for the fourth quarter was about $60 million, up from $55.1 million a year earlier. Noninterest income rose $3.8 million to $26.2 million and included double-digit increases in revenue from Community Bank’s employee-benefits and wealth-management businesses and in deposit service fees.

Deposits at the end of year totaled $5.6 billion, up from about $4.8 billion at the end of 2011.

Operating expenses for the fourth quarter, excluding the acquisition expenses and litigation settlement charge, totaled $53.9 million, up $6.2 million from a year earlier. The jump is the result of new operating expenses from HSBC and First Niagara Bank branches Community Bank acquired last year and an acquisition in its employee benefits business.

Net charge-offs for the period totaled $2.6 million, up from $1.8 million a year earlier. Nonperforming loans at the end of the quarter totaled $29.1 million, down from $31.4 million a year earlier.

Community Bank’s provision for loan losses in the fourth quarter was $2.7 million, up $1.1 million from the fourth quarter of 2011.

Contact Tampone at ktampone@cnybj.com