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munity Bank System(CBU) - 2025 Q1 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements (Unaudited) The company presents its unaudited consolidated statements of condition, income, and cash flows for Q1 2025 Consolidated Statements of Condition Total assets grew to $16.76 billion, driven by increased cash and deposits, while total loans slightly decreased Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $518,021 | $197,004 | | Loans, net of allowance | $10,338,301 | $10,353,251 | | Total investment securities | $4,220,752 | $4,130,869 | | Total Assets | $16,764,296 | $16,386,044 | | Liabilities & Equity | | | | Total deposits | $13,892,047 | $13,441,707 | | Total borrowings | $861,991 | $1,000,418 | | Total Liabilities | $14,930,221 | $14,623,209 | | Total Shareholders' Equity | $1,834,075 | $1,762,835 | Consolidated Statements of Income Q1 2025 net income rose 21.4% to $49.6 million, driven by higher net interest and noninterest revenues Quarterly Income Statement (in thousands, except per-share data) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Interest Income | $120,212 | $106,990 | | Provision for credit losses | $6,690 | $6,148 | | Total Noninterest Revenues | $76,036 | $70,285 | | Total Noninterest Expenses | $125,290 | $118,084 | | Income Before Income Taxes | $64,268 | $53,043 | | Net Income | $49,614 | $40,872 | | Diluted EPS | $0.93 | $0.76 | Consolidated Statements of Cash Flows Net cash increased by $321.0 million, as a rise in financing cash flow offset a decline in operating cash flow Cash Flow Summary (in thousands) | Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $62,509 | $79,893 | | Net cash used in investing activities | ($30,311) | ($214,676) | | Net cash provided by financing activities | $288,819 | $282,202 | | Change in cash, cash equivalents and restricted cash | $321,017 | $147,419 | Notes to the Consolidated Financial Statements This section details accounting policies, acquisitions, credit loss allowances, and segment performance - In February 2025, the company's subsidiary BPA acquired assets from two financial services firms for $0.2 million in cash and $2.1 million in contingent consideration; another acquisition was completed in April 2025 for $0.1 million cash and $1.9 million contingent consideration1920 - The company's investment portfolio has significant unrealized losses due to interest rate changes, with $355.7 million in the available-for-sale portfolio and $88.5 million in the held-to-maturity portfolio3738 - The allowance for credit losses increased to $82.8 million at March 31, 2025, from $79.1 million at year-end 2024, reflecting a specific reserve and increased economic uncertainty61 - The company operates four reportable segments, with the Banking and Corporate segment generating the highest adjusted income before taxes at $46.3 million in Q1 2025108117 Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes Q1 2025 performance, including a 21.4% net income increase and expanded net interest margin Executive Summary Q1 2025 net income rose 21.4% to $49.6 million, driven by higher revenues and an expanded net interest margin - First quarter net income increased by $8.7 million, or 21.4%, compared to Q1 2024, with diluted EPS rising to $0.93 from $0.76134 - Net interest margin increased by 26 basis points YoY, driven by a 33 basis point increase in the yield on average loans135 - Financial services business revenues grew by $4.7 million (9.0%) YoY, led by a $3.1 million increase in insurance services revenues138 - Nonperforming loans as a percentage of total loans increased 22 basis points to 0.72% from Q1 2024, primarily due to the downgrade of three business loan customers137 Net Income and Profitability Net income increased 21.4% to $49.6 million, driven by strong growth in net interest and noninterest revenues Condensed Income Statement (in thousands) | | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net interest income | $120,212 | $106,990 | | Provision for credit losses | $6,690 | $6,148 | | Noninterest revenues | $76,036 | $70,285 | | Noninterest expenses | $125,290 | $118,084 | | Net income | $49,614 | $40,872 | Net Interest Income Net interest income grew 12.4% to $120.2 million, with the net interest margin expanding 26 basis points to 3.24% Net Interest Margin Analysis | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Avg. Yield on Earning Assets (FTE) | 4.51% | 4.24% | | Avg. Rate on Interest-Bearing Liabilities | 1.75% | 1.77% | | Net Interest Spread (FTE) | 2.76% | 2.47% | | Net Interest Margin (FTE) | 3.24% | 2.98% | - The yield on average loans increased by 33 basis points to 5.58% in Q1 2025 compared to Q1 2024, reflecting higher rates on new originations and variable-rate loans151158 Noninterest Revenues Total noninterest revenues rose 8.2% to $76.0 million, led by strong growth in insurance services Noninterest Revenues Breakdown (in thousands) | Revenue Source | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Employee benefit services | $32,622 | $31,698 | | Insurance services | $14,201 | $11,109 | | Wealth management services | $9,862 | $9,210 | | Banking noninterest revenues | $19,104 | $18,230 | | Unrealized gain on equity securities | $245 | $16 | | Total Noninterest Revenues | $76,036 | $70,285 | Noninterest Expenses Noninterest expenses grew 6.1% to $125.3 million, though the efficiency ratio improved due to higher revenue Noninterest Expenses Breakdown (in thousands) | Expense Category | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Salaries and employee benefits | $76,442 | $73,063 | | Data processing and communications | $16,122 | $14,348 | | Occupancy and equipment | $12,698 | $11,362 | | Other expenses | $19,928 | $19,311 | | Total Noninterest Expenses | $125,290 | $118,084 | - The GAAP efficiency ratio improved to 63.8% in Q1 2025 from 66.6% in Q1 2024, and the non-GAAP operating efficiency ratio also improved to 61.9% from 64.1%174178179 Financial Condition Total assets reached $16.76 billion, with strong liquidity, capital adequacy, and 5.4% YoY loan growth - Total loans reached $10.42 billion at quarter-end, a 5.4% increase from March 31, 2024, led by a 7.6% growth in the business lending portfolio185186 - The allowance for credit losses to total loans ratio was 0.79% at March 31, 2025, up from 0.71% a year prior, reflecting a specific reserve and heightened economic uncertainty202209 - Total deposits reached $13.89 billion, with an estimated 80% insured by the FDIC or collateralized211212 - The company's total sources of liquidity were $5.94 billion, which is 254% of its estimated net uninsured deposits of $2.34 billion233235 Reconciliation of GAAP to Non-GAAP Measures This section reconciles GAAP results to non-GAAP measures like operating net income and tangible book value GAAP to Non-GAAP Reconciliation (Q1 2025, in thousands) | Measure | GAAP | Adjustments | Non-GAAP | | :--- | :--- | :--- | :--- | | Net Income | $49,614 | $2,453 | $52,067 | | Diluted EPS | $0.93 | $0.05 | $0.98 | | Pre-tax, Pre-provision Net Revenue | $70,958 | $3,188 | $74,146 | Tangible Book Value Reconciliation (March 31, 2025, in thousands) | Measure | Amount | | :--- | :--- | | Shareholders' Equity (GAAP) | $1,834,075 | | Less: Goodwill and Intangibles, net | ($900,332) | | Add: Deferred taxes on intangibles | $44,644 | | Total Tangible Common Equity (Non-GAAP) | $978,387 | | Tangible Book Value per Share (Non-GAAP) | $18.52 | Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate sensitivity, with a +200 bps rate shock decreasing NII by 1.3% Net Interest Income Sensitivity Analysis (at March 31, 2025) | Interest Rate Scenario | Projected Annual Change in NII (%) | | :--- | :--- | | +200 basis points | (1.3)% | | +100 basis points | (0.6)% | | -100 basis points | 0.6% | | -200 basis points | 0.3% | - The company's interest rate risk profile is liability-sensitive in the short term for rising rate scenarios, leading to a projected decrease in Net Interest Income (NII)253 Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes in the quarter - The company's disclosure controls and procedures were deemed effective as of the end of the period covered by the report (March 31, 2025)258 - No material changes occurred during the first quarter of 2025 that are reasonably likely to materially affect the company's internal control over financial reporting259 Part II. Other Information Legal Proceedings The company is subject to various legal proceedings arising in the normal course of business - The company is party to various legal proceedings and claims for monetary damages that arise in the normal course of business260 Risk Factors No material changes to risk factors from the 2024 Annual Report on Form 10-K were reported - No material changes to the risk factors disclosed in the 2024 Form 10-K have occurred261 Unregistered Sales of Equity Securities and Use of Proceeds A new stock repurchase program was authorized, but no shares were repurchased under the plan in Q1 2025 - A new stock repurchase program for up to 2,628,000 shares was authorized starting January 1, 2025262 Issuer Purchases of Equity Securities (Q1 2025) | Period | Total Shares Purchased | Average Price Paid Per Share | Shares Purchased as Part of Announced Plan | | :--- | :--- | :--- | :--- | | Jan 2025 | 820 | $58.16 | 0 | | Feb 2025 | 0 | $0.00 | 0 | | Mar 2025 | 0 | $0.00 | 0 | | Total | 820 | $58.16 | 0 | Defaults Upon Senior Securities This section is not applicable to the company - Not applicable267 Mine Safety Disclosures This section is not applicable to the company - Not applicable268 Other Information No directors or officers adopted or terminated a Rule 10b5-1 trading agreement during the quarter - No directors or officers adopted or terminated a Rule 10b5-1 trading agreement during the first quarter of 2025269 Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications and XBRL data - Exhibits filed include CEO/CFO certifications (31.1, 31.2, 32.1, 32.2) and Inline XBRL data files (101 series)270