Community Bank System Inc. (NYSE:CBU) Q4 2018 Earnings Conference Call Transcript

Jan 23, 2019 • 11:00 am ET

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Community Bank System Inc. (NYSE:CBU) Q4 2018 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Welcome to the Community Bank System Fourth Quarter 2018 Earnings Conference Call.

Please note that this presentation contains forward-looking statements within the provisions of the Private Securities Litigation Reform Act of 1995 that are based on current expectations, estimates, and projections about the industry, markets, and economic environments in which the company operates. Such statements involve risks and uncertainties that could cause actual results to differ materially from the results discussed in these statements. These risks are detailed in the company's Annual Report and Form 10-K filed with the Securities and Exchange Commission.

Today's call presenters are Mark Tryniski, President and Chief Executive Officer; and Joseph Sutaris, Executive Vice President and Chief Financial Officer. Gentlemen, you may begin.

Executive
Mark Tryniski

Thank you, Aaron. Good morning, everyone, and thank you all for joining our fourth quarter conference call. I'll start with a comment on Q4 and then comment on 2018 as a whole and our transaction announcement yesterday.

Fourth quarter earnings were about as we expected, but down from Q3, which is typically the case. Operating expenses were $0.02 higher, including $0.01 of severance and $0.01 related to an extra payroll day. Our insurance business also came in $0.01 below a very strong third quarter. We were pleased with the modest margin lift as new loan originations are going on at higher rates than overall portfolio yields. Loan and deposit balances were slightly down, also typical in Q4 for us.

Operating EPS for the full year was up 22%, which excludes the impact of acquisition expenses and the deferred tax benefit in Q4 of last year. That 22% growth includes $0.11 per share hit from Durbin in 2018. So overall, it was another very strong year for our shareholders, and our 9th consecutive year of improvement in operating EPS. Loan growth across the year was more volatile between quarters than usual due to record originations offset by record payoffs in the commercial book, but our mortgage and auto lending portfolio has performed as planned.

There are three observations I would like to highlight related to 2018. First, I think our retail team did a superb job of managing funding costs throughout the year, which has clearly been beneficial to margin performance. Second, our non-interest revenues were up 11% over 2017 and that includes the impact of the $7 million Durbin hit. Banking fee revenue was up 3% reported and would've been up 12% without Durbin. Our wealth management and insurance businesses were up 16% and our benefits business is up 14%.

Third, in my view most important for our future, is we announced in May we made some significant senior leadership changes to our organization, including appointing Scott Kingsley as Executive Vice President and Chief Operating Officer; Joe Sutaris as Executive Vice President and Chief Financial Officer; and Joe Serbun as Executive Vice President and Chief Credit Officer. The transition was extremely smooth and effective in enhancing the talent of our senior leadership team. It has already begun to make a meaningful difference across