Community Bank System Inc. (NYSE:CBU) Q3 2019 Earnings Conference Call - Final Transcript

Oct 21, 2019 • 11:00 am ET

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Community Bank System Inc. (NYSE:CBU) Q3 2019 Earnings Conference Call - Final Transcript

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Executive
Joseph E. Sutaris

the acquisition of Kinderhook Bank Corp. As a reminder, we acquired Kinderhook in an all-cash transaction for $93.4 million. In connection with the transaction, we acquired $479.9 million in loans and $560.1 million in total deposits. These amounts were in line with our expectations when we announced the transaction in the first quarter. We are confident that we will meet or modestly exceed our 30% cost savings targets and expect the Kinderhook transaction will reduce GAAP earnings per share of $0.08 on a full-year basis.

We remain excited about our opportunities in the Kinderhook markets and the capital region generally. During the third quarter, the Company raised its quarterly dividend from $0.38 per share to $0.41 per share. The $0.03 increase represents approximately 8% increase in the quarterly dividend rate and increased the Company's streak of raising its dividend to 27 consecutive years. We are proud of this achievement and believe the Company's business model, earnings results and strong capital resources not only support this increase but also allow us to maintain significant flexibility for future growth opportunities.

During the third quarter, we redeemed $22.7 million of trust preferred securities with a weighted average rate of 4.43%; $20.6 million of these TruPs were acquired in connection with the Company's 2017 acquisition of Merchants Bancshares, Inc. and $2.1 million were acquired with the Kinderhook transaction.

Now I'd like to briefly comment on the operating and deal metrics regarding Steuben. As noted in this morning's press release, Steuben Trust is a 15-branch franchise, operating in a six-county region in Western New York. Community Bank currently serves four of these counties within Steuben's current footprint and the other two are contiguous to our markets. The demographics are consistent with much of our current New York state footprint, but also increase our presence in the Greater Buffalo and Rochester, New York markets. At the end of the second quarter, Steuben had total assets of $577 million including total loans of $347 million and $484 million in total deposits. Steuben's loan portfolio was largely a commercial book with $166 million or 48% of its loan portfolio in commercial real estate and $62 million or 18% in commercial and industrial agricultural and farm loans. Steuben also has approximately $98 million or 28% of its total loan portfolio in one-to-four family residential real estate malls, including approximately $60 million in home equity loans. Consumer and other loans make up the balance of the loan portfolio of approximately $20 million or 6% of the total loan portfolio. Steuben's trailing 12-month return on average assets was 1.25%. Net interest margin over the same period was 3.68%.

As noted in our press release, shareholders of Steuben Trust Company -- Corporation will receive for each share of common stock they own a combination of $12.60 in cash and 0.8054 shares of Community Bank System, Inc. for a total consideration valued at approximately $63 per share. The purchase multiples for the pending merger are 15.2 times in the last 12 months' earnings