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Operator
Welcome to the Community Bank System's first-quarter's 2011 earning conference call. Please note that this presentation contains forward-looking statements within the provisions of the Private Security Litigation Reform Act of 1995 that are based on current expectations, estimates and projections about the industry, markets and economic environment 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 Scott Kingsley, Executive Vice President and Chief Financial Officer. Gentlemen, you may begin.
Mark Tryniski - President and CEO
Thank you, Erin. Good morning and thank you, all, for joining our first-quarter conference call, particularly our former Wilber shareholders and employees who are with us this morning.
We're very pleased with our first quarter start to 2011, with earnings per share up over 14% from 2010, which is a record first quarter for us. The margin improved to 4.08%. Virtually all asset quality metrics improved, resulting in a lower credit provision. Non-interest income was off 4% due to expected softness in deposit fees but was partially offset by increased benefit and actuarial revenues.
We continue to focus on operating expenses, which were down on a reportable basis, much of which was a reduction in intangible amortization, but even excluding that and the acquisition expenses, core operating expenses were flat with 2010's first quarter. Deposits crested $4 billion for the first time, with core deposits continuing to grow and total deposit costs declining to 61 basis points.
Total loans were down less than 1% during the quarter, which is a seasonally typical outcome for our first quarter. We have been continuing to sell lower rates 30-year mortgages into the secondary market, which for the first quarter was equivalent to the total portfolio decline.
I would continue to characterize credit demand as soft with glimmers of improvement and will also say, we will not sacrifice credit quality for the benefit of loan growth. Earnings results over the past five quarters have been highly additive to capital with the Tier I ratio growing to 8.42% and the tangible equity ratio up to 6.36%.
As previously announced, we closed on the acquisition of The Wilber Corporation in early April, adding 22 new branches in contiguous markets and a very strong trust business. Purchase value price is approximately $102 million, with consideration consisting of 80% stock and 20% cash. The IT and operating conversion went nearly flawlessly, and we have hit the ground running. As the largest acquisition in our history, this transaction will change the complexion of our balance sheet for the second quarter, adding approximately $490 million of loans, $750 million of deposits, in addition over $300 million of trust assets.
A financial reporting impact to be mindful of is that the Wilber acquisition will significantly increase our non-performing loans. So related asset quality metrics will be affected accordingly. At this juncture, we do not expect the credit mark to exceed the range of $21.5 million to $26.5 million disclosed at announcement. We will also be incurring approximately $5 million of additional one-time acquisition costs that will be expensed principally in the second quarter.
We do expect the transaction to be at least 2% to 4% accretive over the next 12 months, excluding the one-time charges. Wilber is an exceptionally good fit for us with respect to the similarity of markets, business model and customer service culture, and we remain highly enthusiastic about the continuing potential and opportunities of these new markets.
In closing, we're very pleased with the strong start to 2011 and are confident in the trajectory of the Company for the remainder of the year. The strength of our earnings, asset quality and capital position us very well for future opportunities to continue improving operating performance for the benefit of our shareholders. Scott?
Scott Kingsley - EVP and CFO
Thank you, Mark, and good morning, everyone. First, as mentioned in our release, first-quarter earnings of $0.48 per share, which included $0.01 worth of acquisition expenses, were 14% better than the $0.42 reported in the first quarter of 2010.
Our declared dividend of $0.24 per share represented 50% of quarterly GAAP earnings and just 47% of cash operating earnings. These favorable operating results continued to contribute to meaningful capital growth. Over the last eight quarters, we have generated over $92 million of incremental tangible capital from improving cash earnings despite paying increased dividends to our shareholders.
I'll first discuss some balance sheet items. Average earning assets of $4.92 billion for the quarter were up very modestly from the fourth quarter and were 1.3% above the first quarter of 2010. As Mark noted, expected seasonality combined with less than robust demand characteristics resulted in lower average loans from the fourth quarter, while investment securities, principally cash equivalents, were $94 million higher.
Our business lending portfolio contracted again in the first quarter and did include certain unscheduled payoffs as well as a lack of recovery in general line utilization. Asset quality results continued to be stable and favorable in this portfolio, with net charge-offs of 28 basis points over the last four, eight and 12 quarters.
Our total consumer real estate portfolios of $1.36 billion, comprised of $1.06 billion of consumer mortgages and $300 million of home equity instruments, was down slightly from the end of 2010, and reflected our continuing decision not to portfolio certain lower-rate, longer-term assets and instead sell those originations to Fannie Mae. As a reminder, over the past nine quarters, we've sold over $315 million of in-market, low-rate consumer mortgage originations. Although we would have liked the [optics] of earning asset growth, we've been able to achieve solid gains, while limiting the future interest rate risk associated with putting these longer-term assets into portfolio.
Asset quality results continued to be very favorable in these portfolios, with total net charge-offs over the last four quarters of under $875,000 or less than 7 basis points of loss. Our consumer indirect auto portfolio of nearly $500 million was up slightly from the end of December, as new loan production was just above scheduled principal reductions, which was a bit better than seasonally expected. A byproduct of the improving, but still historically low new vehicle sales rates has been an improvement in used car valuations where the largest majority of our lending is concentrated.
Net charge-offs for the last four quarters were $1.7 million or 34 basis points, which we consider very acceptable and is an improvement over 2008 and 2009 levels. Despite our continued bias toward A and B paper grades, yields have remained very consistent over the last several quarters. In addition to the continuation of the very favorable net charge-off trends, we also reported a favorable decline in delinquency rates in the first quarter, particularly in our consumer-related portfolios.
Although our core banking systems converging in late 2010 and certain changes in customer payment functionality may have played a role in the higher levels experienced through year-end, we are pleased to be trending back toward the 1.44% average portfolio delinquency rate experienced over the six quarters ended June 30, 2010.
Average deposits in the first quarter were $3.97 billion, were seasonally above the fourth quarter of 2010 and 1% above the first quarter of last year. Core deposits or everything other than CDs for us now represent over 78% of total deposits, the continuation of a very favorable funding mix change we've worked diligently at.
Quarterly average investment assets including cash equivalents increased to $135 million from the first quarter of 2010, reflective of our decision over the last four quarters to redeploy net cash flow generation into intermediate-term US Treasury and selected other municipal securities. The expected duration of our investment portfolio stood at 5.5 years at the end of March, consistent with last year.
Net unrealized gains in our $1.1 billion available-for-sale portfolio at quarter-end were $17.2 million, despite the carrying value of our Level 3 investment assets, which is almost entirely comprised of pooled trust preferred securities being carried at approximately $23 million below book value. The valuation of these assets, which did improve in the quarter, continued to reflect market uncertainty as well as the absence of an active market for these types of securities.
The rate of new interest deferral and default rates on collateral in our pools has slowed over the past few quarters in our holdings, which are super senior, continue to fully perform. Also, although not reflected anywhere in our financial results, net unrealized gains in our $600 million held to maturity portfolio were an additional $20 million at quarter-end.
Our capital levels in the first quarter remained strong. The tier I leverage ratio stood at 8.42% at quarter-end and tangible equity to net tangible assets was 6.36%, a 93 basis point improvement from last March and up 162 basis points or 34% from the 4.74% level reported at the end of March of 2009. These significant improvements in equity have been generated from strong operating earnings as opposed to the dilutive capital-raising activity deployed by many other financial institutions.
As I've mentioned before, consistent with regulatory instructions, our calculation of the Company's tangible equity ratio includes adding back to both the numerator and the denominator $21.6 million of deferred tax liabilities associated with tax-deductible goodwill created from several of our asset acquisitions, primarily branch transactions. Exclusion of this differential would render our comparisons to peers incomplete.
Shifting to the income statement, our reported net interest margin for the first quarter was 4.08%, up 1 basis point from the fourth quarter of 2010, and 15 basis points better than last year's first quarter. Proactive management of deposit funding costs and productive deployment of net cash flows continue to have a positive effect on margin results.
First-quarter non-interest income was down 4% from last year's first quarter, the result of a decline in mortgage banking related revenues as well as lower deposit service fees reflective of the second full quarter of activity post Regulation E, which has resulted in lower product utilization. We would expect similar unfavorable year-over-year variances in these revenue streams for the next two quarters.
Our employee benefits administration and consulting business grew revenues 3.6% from last year's first quarter and continues to be a meaningful contributor to our revenue diversification objectives. Our wealth management group revenues were down $196,000 from the first quarter of last year, due principally to lower production levels in our footprint-based broker advisory group related to some systems conversion issues. Core personal trust and asset management revenues actually improved modestly.
First-quarter operating expenses of $42.6 million excluding acquisition expenses were $1.6 million below the first quarter of 2010 and reflected solid cost management across all areas of the Company as well as lower amortization of intangibles, as Mark mentioned. Our effective tax rate in the first quarter of 2011 was 26.5% compared to 26.3% in the first quarter of 2010, reflective of a slightly higher level of income from fully taxable sources.
On a trailing 12-month basis, our GAAP earnings are $1.98 per share, excluding $0.04 of acquisition expenses. Core cash operating earnings, which exclude these acquisition expenses as well as amortization of intangibles, were $2.09 a share over the last four quarters. Our reported return on equity was 10.8% over the last 12 months, with the calculated return on tangible equity at 22.5%.
As we've stated before, cash return on total equity is the most meaningful indicator of performance for us, which was 11.7% over the last four quarters. Our ability to generate incremental capital and reward shareholders with a meaningful and growing cash dividend annually stems directly from this commitment to a disciplined and balanced approach to our business regardless of market conditions.
I'll now turn it back over to Erin to open the line for questions.
Operator
Thank you. (Operator Instructions) Sir, I have Damon DelMonte. Damon DelMonte, your line is now open.
Damon DelMonte - Analyst
Hi. Good morning, guys. How are you?
Mark Tryniski - President and CEO
Good morning, Damon.
Damon DelMonte - Analyst
Scott, I think I missed what you were saying about the benefit plan administration and your outlook for that in the next couple quarters; did you say that you expect it to be down a little bit and then rebounding later in the year?
Scott Kingsley - EVP and CFO
They are actually not. In fact, what I actually said is I think on a year-over-year comparative basis, deposit service fees [like] in the second and the third quarter will show year-over-year decline to the same levels they were at in 2010. As you remember, the Regulation E rules went into effect in August. So we would expect by the middle of the third quarter, your year-over-year comparisons would be more indicative of the change in the legislative outcome.
Damon DelMonte - Analyst
Okay, gotcha. So I missed what you had said. And then, with regard to expenses, do you think that this quarter's expense base is a decent run rate going forward?
Scott Kingsley - EVP and CFO
I think it is, Damon. I think there is a couple of variables in there in that there is a couple less payroll days in the first quarter than there are in the other quarters of the year just given the shorter calendar. That being said, we are normally a more expensive date in the first quarter because we turn the heat on and we plow the snow. So with that said, I think some of those things tend to -- on a core run rate tend to come back together to where we think that -- your question core run rate we're pretty close.
Damon DelMonte - Analyst
Okay. That's helpful. Thanks. And then, do you have what the 30 to 89-day pat due balances were for the quarter?
Scott Kingsley - EVP and CFO
Give me a second, I can track that down for you. 87 basis points.
Damon DelMonte - Analyst
87 basis points, okay, [sir]. And then, did you guys have any TDRs?
Scott Kingsley - EVP and CFO
We don't.
Damon DelMonte - Analyst
You do not. Okay. That's all I had for now. Thank you very much, guys.
Scott Kingsley - EVP and CFO
Thank you.
Mark Tryniski - President and CEO
Thanks, Damon.
Operator
(Operator Instructions) I have Rick Weiss. Rick Weiss, your line is now open.
Dave Peppard - Analyst
Hey guys, how are you doing? This is Dave Peppard.
Mark Tryniski - President and CEO
Good morning, Dave.
Scott Kingsley - EVP and CFO
Hello.
Dave Peppard - Analyst
Just had a quick question about when the balance sheets come online, what kind of deleveraging or leveraging we will be seeing of the combined balance sheet going forward?
Scott Kingsley - EVP and CFO
Just to give you, Dave, some higher-level optics, the expectation is we're picking up loans of about $490 million to $500 million, deposits of $750 million, investment assets of about $285 million, debt securities or long-term borrowings of about $20 million. And right now, we don't really have any plans to change the complexion of that in the near term.
The borrowing instruments are efficient as they will be restated for our purposes, both in terms of rate and duration. And we certainly don't think that we'll be running down the securities or the earning asset book in the near term. We think it will be probably pretty stable.
Dave Peppard - Analyst
Okay. In the prepared comments, you had talked about glimmers of hope in loan demand. Kind of going forward, what would you kind of expect for period-end loans over the next couple quarters?
Mark Tryniski - President and CEO
Well, I characterize the recent loan demand as soft but with glimmers of hope. And by that, I mean if you look at the auto lending business, for example, we were actually up a little bit from the fourth quarter. The mortgage lending business I think has softened up a little bit, which is to be expected and consistent with the industry but we've been selling the long-term things.
On the commercial side, I would say we're seeing lots of -- or plenty of additional opportunities, new opportunities in the market recently. The challenge for us has really been the existing customer base and paying down term loans, paying down lines. We had a lot of line cleanups at the end of the year and they didn't come back in. Now, we expect that that's going to improve here over time. So, things to me, the tilt of the curve is actually upward at this point as opposed to downward, but I would say it's modest based on what we've seen recently. So I think any pickup will likely be modest as well.
Dave Peppard - Analyst
Gotcha. And last question if we could turn to the margin real quick, I was wondering if there were anymore levers you could pull on the funding side to bring that down a little bit going forward?
Scott Kingsley - EVP and CFO
David, I'll take a shot at that one. I think that we've pulled most of the levers that we believe are out there. And as you can see, with the decline in the certificate of deposit book, expiring rates because they were quote last year's 12-month instruments are not radically different than new rates in the market right now.
Our new rates are a little bit lower, no question about that. But I think in terms of our rate structure, by product type, we're probably at the point where we don't see any meaningful changes going forward. That being said, I think if rates start to move back up, Dave, we think we could be one of those people who would be characterized as being able to lag rates on the way back up because of our substantial liquidity.
Dave Peppard - Analyst
Thank you. Thank you. That's all for me.
Mark Tryniski - President and CEO
Thank you, Dave.
Scott Kingsley - EVP and CFO
Thanks, David.
Operator
(Operator Instructions) At this time, I have no questions in queue, sir.
Mark Tryniski - President and CEO
Thanks to everyone for joining the call. We will speak to you next quarter. Thank you.
Scott Kingsley - EVP and CFO
Thank you, Marion.
Operator
That concludes today's conference. Thank you for your participation. You may now disconnect.