munity Bank System(US:CBU)2020-10-26 18:44Financial Data and Key Metrics Changes - The company recorded fully diluted GAAP earnings per share of $0.79 for Q3 2020, with operating earnings per share of $0.85, which is $0.01 higher than Q3 2019 and $0.09 higher than Q2 2020 [6][7] - Total assets increased to $13.85 billion, up $401.1 million or 3% from Q2 2020 and up $2.25 billion or 19.4% year-over-year [8] - Average interest-earning assets rose to $11.96 billion, an increase of $852.5 million or 7.7% from Q2 2020 and up $2.15 billion or 21.9% year-over-year [8] - The net interest margin decreased to 3.12% from 3.73% in Q3 2019, impacted by lower market interest rates [12] Business Line Data and Key Metrics Changes - Noninterest banking revenues increased by $1.2 million or 6.9% year-over-year, driven by a $4 million increase in mortgage banking revenue [13] - Mortgage banking was strong, with over $100 million sold into the secondary market [5] - Total revenues for Q3 2020 were $152.6 million, an increase of $4.3 million or 2.9% from the prior year [12] Market Data and Key Metrics Changes - Ending loans were $7.46 billion, up $605.5 million or 8.8% year-over-year, but down $69.4 million or 0.9% from Q2 2020 [9] - Average total deposits increased by $823 million or 8.1% from Q2 2020 and up $2 billion or 22.6% year-over-year [9] Company Strategy and Development Direction - The company plans to focus on capitalizing on future opportunities despite potential headwinds from credit demand and economic conditions [5] - Management is actively developing earnings improvement initiatives, including revenue enhancements and cost reduction measures [24] - The company aims to continue its disciplined growth strategy in the employee benefits business through organic growth and M&A opportunities [42][44] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the operating environment, noting the potential for increased delinquency and nonperforming loans in future quarters [23] - The company is closely monitoring COVID-19 impacted borrowers and developing loss mitigation strategies [20] - Management anticipates that the high levels of deposit liabilities may fluctuate based on economic conditions and potential additional stimulus [23] Other Important Information - The company accrued $3 million in litigation reserves related to a class action suit, expecting to execute a settlement agreement in Q4 2020 [19] - The allowance for credit losses increased to $65 million or 0.87% of total loans outstanding, representing over 10 times the trailing 12 months of net charge-offs [21] Q&A Session Summary Question: Can you discuss the levers to keep net interest income moving in the right direction? - Management acknowledged the challenges posed by the flat yield curve but indicated plans to deploy excess cash into longer-term securities to stabilize net interest income [27][28] Question: What is the expected trend for deposit service and banking fees? - Management does not anticipate a full rebound in deposit service fees in Q4, expecting a gradual recovery by mid-next year [33] Question: How is the company approaching M&A opportunities? - Management prefers to use capital for accretive M&A transactions rather than stock buybacks, indicating a cautious approach to larger deals in the current environment [50][66] Question: What is the current status of loan deferrals and potential losses? - Management reported significant progress in reducing loan deferrals, with ongoing evaluations for potential losses on remaining deferrals [59]