CBU - Earnings call transcript Q4 2017 | Community Bank System, Inc.

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Operator

Good day. And welcome to this Community Bank System Fourth Quarter and Year End 2017 Earnings Conference Call. Please note that this presentation contains forward-looking statements within the provision of the Private Securities 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. would Chief conference Executive I Tryniski, to time, and President Officer. this turn over the Mark At Please go ahead.

Mark Tryniski

early both aggregate at challenges, business of consumer levels yields margin to originations volume in for Despite record made year had Thank attributable QX QX you, was credit operating loan basis XX% joining Credit full over for in thank performance up NRS you benefit in earnings call. portfolios, the and a share Ashley. as to Good This per in provision fourth deposit full contractual margin and elusive Merchants that over pay-offs. the flows growth will of XXXX. the in on were was were the cash was $X.XX a demand morning, acquired new our of related continuation was year a everyone, XX% to single per XXXX, basis, QX business of On an QX. as of a higher due quarter, but including strong the a level the up number further. acquisition Scott due factors, fourth a accretive discuss and remain and muted share well XXXX result the all quarter to conference above adding markets, of it We prepayment as dollars and operating merger and and average to in consumer a down both zero.

margins. from processes XX.X. end our of as X,XXX not a growth benefits, bottom insurance efficiency was up and and on for top double-digit and the it team more management proud what they build We Community systems, delivered Banking out improved year technology. ratio our channel all income summary, our and double-digit transformative management be wealth risk improved System, I and our to addition, fee In line implemented could was completed In accomplished. XX.X customer improved for and improved well both our of DFAST, Bank businesses members

ahead momentum is Looking positioned. XXXX, at better a level. be cannot to record Earnings we

have will discuss Scott rate will a benefit We significant going that further. forward tax

meaningful the incremental strategic our and mindful as level capacity additive we've of We be XXXX in remain to to We're about returns will our that to our efforts, capital very will of Scott? deliver exceptional highest accumulate experienced obligations many years. again optimistic always, shareholders. dividend

Scott Kingsley

and good you, Thank everyone. morning Mark

$XX the down this XXXX, loans X.X% in originations. sell equity of portfolio. million and we with us; secondary longer included was XXXX company a of of mid XX% residential Merchants May. quarter in market Retirement acquisition and I'll to returns some growth noted that fourth grew second Mark the quarter items. or for updated the the last assets in a instruments as solid Merchants. were quarter of objective deployed most fourth were earning reflective As X.X% as up the continue activities reminder, February operating we and XXXX Northeast eligible improving Consumer continues quarter capital term first in indirect early as and home noted balance balance of completed year-over-year Bancshares completed very fourth sheet acquisition On the quarter to the its $X.XX cover XXXX organically of mortgages Services of basis, our for billion Average acquisition

with very and this charge several net the and to years. in last continue consistent off good portfolio Our delinquency results be

million third the Average core competitive Quarter-end the modestly quarters, demand result of up $XXX deposit borrowings. XXXX, borrowings, of were $XXX ended wholesale of fourth the of down second the $X.XX $XXX business gatherer. unscheduled were continuation act from end were mentioned, We Merchants a also agreements, year, million loans in from our much are than Mark quarter As billion reflective of continued investment very last outside the dynamics. customer quarter market end the priced of year-over-year down quarterly fourth more almost quarter second number modest transaction deposits and with in repurchase which Merchants the of characteristics deposits quarter, consecutive for reflective of success and like million and acquisition. were of of which collateralized the the like of and but pay-offs, up securities

and of was As exception net charge-offs efficient have experienced no peer reflective fourth $XX.X X.XX% XXst quarter balance on of total mentioned rarity reported sheet of previously the a and commercial year virtually Non-performing comprised of the full December of of $X.X for preferred results of at external million, loans from our single full regulatory our ratio additive partial up or has loans, debt, were the million X legacy at results a The of asset million $X.X the the commercial such, the of of and highly acquired we than our balance loans, this and million in charge-off, favorable or loans. relationship. charge-off despite overall years, $XX.X Including total obligations, one end XXXX's on total year higher both fourth quarter charge-offs quality September million the with remaining XXXX million capital $X.X X.XX% several a $XXX large or basis XXXX points were credit. trust X.XX% just continuation and of million non-accrual of net of $X.X group. ended loans,

with total include and Merchants' of reserves XXXX. Based still by of Despite earlier net term the in mentioned, our previous was industry represent consistent the four auto productive our quarters' December XXXX acquired results, ratio the loans, represent historical points X.X years loans quarters X.XX% year-end our recent annualized on addition basis standards. of still trailing average multiple and the reports under most without Our macro lending XXXX charge-offs. longer of which charge-off loans net concerns, single reserves of losses the charge-off previously eight below level portfolio of XX outstanding with large quite X.XX% our legacy

comprised at U.S. U.S. agency stood million billion [XX%] portfolio of backed investment and obligations, unrealized a during interest in the bonds of was our the of XXst, million and the The of treasury year-end to XXXX total. $XX mortgage other last corporate or unrealized was and of end X% of of $X.XX to XX months. $XXX debt net billion portfolio contained $X.XX total; at securities securities. or December rates in million million compared of December of municipal of gain as remaining the market due The and agency $XX of net up or movement $XXX of XX% As XX% the gains

at Merchants’ Our and capital capital assets continue leverage and tangible tangible very strong. use the December to net both to levels X.XX% The equity in the fourth of for quarter NRS one the was at despite meaningful of year. XX% tier transactions ratio ended XXXX the during year-end be

the As tax vetted position we net discussed, and years. liability for had deferred of primarily several consistently company due has history our a acquisitions, to

of $XX.X gain tax December results. book quarter Company required liabilities, higher approximately Jobs those X X points certain to XXXX per was generated include share. will XXXX, interest As of million which points Shifting the the XX%, quarter than resulted a to semiannual quarter basis such, per at deferred $XXX,XXX, X.XX%, fourth which one-time acquired Tax interest corporate added Reserve was was the late and $X.XX revaluation our historical basis GAAP in the to which intangible of reported share points tax lower the Act, of which the from from fourth from value liabilities the net in quarters enacted XX% dividend each net fourth $XX of down rate quarter our consistent federal net our following of XXXX the and fourth to in Tangible quarter Cuts statement, income of million, still second from or third Federal assets deferred Bank margin $XX.XX with margin year-end basis results linked was for reflected tax fourth XX and includes results. year and the the

basis technology a salaries linked the activities fourth costs of quarter $X.X included effect performance million and incremental third amortization systems loan expenses $XX.X maintenance costs funds rate our Fed quarter fourth costs year insurance Occupancy from as points, quarter operating related the added acquisitions XX revenues dividend $XX.X XXXX benefits management from from million in more basis, million million down benefits pooled the quarter included the quarter of margin. reported reflective expenses which cost services non-interest from Proactive over and of quarter the accretion based. $X.X costs. to cost, core initiatives. completed of included insurance administration, primarily higher $XXX,XXX the some three approximately X improvement the as at funding basic Fourth interest and December as NRS from intangible and incremental additional $XX.X core DFAST was $X.X and we as Merchants the XX compared results of Fourth Merchants’ Merchants were million of last certain with up well which transactions, the continued from management million, earlier months. operating to fourth insurance third at or Despite remained since were our transaction. net expenses remained the operating In XX.X% which XXXX, last margin $X.X half and on acquisition of included of that additional points up including basis basis, XXX,XXX disciplined On XXXX acquisitions. $XX.X NRS of higher XXXX both addition, from up non-interest for deposit banking quarter fourth quarter smaller cost. added quarter $X.X of transaction, four the were exclude several year, programs. resulted positive Merchants’ an and last On than million changes income higher two quarter zero purchase well the million certain was million, as million quarter, of income and our the businesses that well the in total linked equipment transaction deposits and included and or as group our expenses Other and beta XXXX. higher were of has from $XX.X $X.X the significantly up professional utility million initiatives, from agency Quarterly our from as deposit and wealth the a of annual of above and

the marketing We costs in in higher of our also newer markets quarter. fourth incurred and some employee training

effective versus related expense tax share-based year’s to quarter of XX.X% and transaction. tax rate for operating Our quarter change XX.X% in the the was in fourth accounting income reduction last included XXXX in fourth $XXX,XXX in

of almost expenses incurrence million Our quarterly and the of XXXX. effective tax acquisition $XX year full XXXX included rate during

the forward, net XXXX, in above and level but on for mentioned, we previously Bank keep approximate of continue semiannual experienced to relationship to quality Reserve commercial large specific expect we not manageable were the partial $XX we dividends Looking results the additional because assets headwinds do our again the on each and XXXX. third charge-offs all we billion asset of signs in Despite in horizon. year, Federal one of XXXX quarters be second rate charge-offs a dividend will the be fourth expect

loan impact operating we for, Merchants the to over the several core at a fairly remained of related band next has higher in in net Our least, range continue operate to quarters, the transaction. narrow interest quarters, purchase to a margin the expect few including accretion would last

report However, income, in will will to basis portfolios. yields interest XXXX loan although, to federal interest taxable points XXXX. X on compared result lower not municipal margin their tax the X in by XXXX lower equivalent we points change And that in change fully and basis estimate to will it investment the rate impact the our net

XX.X% tax gain effective year the revaluation was assets one-time full XXXX the tax from Our of excluding rate deferred and liabilities. in

rate, XX% and our versus current With federal and tax XX% decline fully year between full our expect based sources. from of the on to exempts income XXXX lower to active we tax mix rate taxable effective

open summary, impacts net approximately million of we’re a of revenues we on million July and forward well-position the believe continuing required to both expect Durbin mentioned, improvement the inorganic to and reduction of for Mark execute operational to half any this XXXX beginning in second future the to beyond, in from capital now turn back very continue XXXX I’ll perspective or and opportunities. look estimated We an to debit on line In over Ashley mandated for interchange from XXXX. $X as questions. annually $XX

Operator

Please O’Neill. question with Sandler Thank you [Operator First Alex Instructions] go Twerdahl from ahead.

Alex Twerdahl

hikes amongst rate up? How your at you can lowest different from I XX you in deposit that remarkable to think is long I do been cost? keep unchanged pockets cost different later customers, off, the think to pressure it's five are First you industry. points, has getting completely basis deposits mean, some raise which that the

Mark Tryniski

end to third customer balances started that balances of quarter, level the alternative. more We see mainly meaningful higher of looking at in other the who the at have

competitive And so the we’ve maintain the accommodations respond to market some modest made balances to and pressure.

I XXXX. So into continue that we’ll expect

suspect deposit I for zero. will our data So XXXX be not would

I market pressure think We’ve the will modest markets spent judicious and funding about if how operate cost always market continue lot that managing as I funding you the we cost. just had always that those break we've time look lower optimize deposit be. XXXX, try can experience understanding some and of that and into we we at But in somewhat the believe be we understanding to will would funding a our in costs we’ll competitively expect XXXX. very

in won’t it lag -- suspect be may in terms the market it So still zero we’d but XXXX of betas. greater t

Alex Twerdahl

then you which expect project XXXX. for Scott, Is question, rate that see comp first probably of tax a that And the of share XX% quarter? the to that modeling based the XX% adjustment to you include bulk in the just

Mark Tryniski

does, it think I Alex.

-- I full the rate, you year establish an when you for probably establish effective in as it it's early outcome. think you near the know,

theory you the more early year the activity So in prognosticate side the that. share fact may have that in on based

income do than reminder portfolio. our our of a exempts As probably securities more have because size tax of peers, many we the of municipal quick

have we in England. principally New fact, of loan decent size municipal portfolio, In

starting over XX.X% The came things $XX tax have a at size don’t was incur to of base lastly, we that than be small you’re our And handful one will other insurance premiums level XXXX, $XX in thing in a little of out artificially probably the to remember expense did is there. and XXXX million FDIC so change, because higher of of low little acquisition does expect not bit the code at deductable. billion, other which we of

play a that that So things handful region. into of

Alex Twerdahl

maybe go would -- fourth, to first comp based bit closer that to But might adjustment? that be XX% the be then share the XX% third, little and just quarter it fair higher a of of second, say in and because

Mark Tryniski

last We quarter last I probably But than in have to were little first suspect up. had people option of that. same It at we're outsized you're of on $XX. earlier would off tell exercise see end Too we in north trading could a be year. our activity motivation the the Well, rate lower first some trading far the levels? year blended when But activity thinking the at not current to quarter. year's by early

Alex Twerdahl

your that for you capital lower beyond. me And XXXX capital final accreting question then with criteria just with the does become be turn look a Clearly, of example, and that change capital? and guys kind in faster you of you'll how Does to in pace Does deals for of tax at respect more deployments. change into rate, a effective requirement XXXX, would a use the XXXX, outlook at? for what M&A,

Mark Tryniski

is We more really acquisition opportunities M&A, executing accreting I the we help to us rapid XXXX in capital and will our and be a and quality to around a disciplined dividends fashion. we think the which our have thinking in merger at applied it's sustainable strategic can impact model don't in pace and earnings identifying going than that past.

think don't changes. it So I

we with of just that that challenge say gives but mix mix. would earnings to lot in of XX-XX so a terms creates bigger of rapidly talked capital, capital capital get us in in as ultimately XX-XX capital will fair anything Merchants, us a accumulated capacity a does even and more But to bit and effectively which fact you deploy more much I think for allow not tried the which to the capacity our dividend but about quicker thinking, with well. a that which more do more accumulating of We impacting we’re stronger deploy deploy mix capital. that to NRS, But certainly a at in transactions, accumulate terms maybe possibly I mix. think earnings of as are strong be stronger it of cash stock levels a it the in accretion know, that they’ll strategic terms given And years couple any both and was does to future impact creates even our I capital utilize of benefit XXXX the there. would was it

bit as side, multiples. multiples, other increased multiples a the have terms market in M&A as On well of

have of I mindful of value of we -- think to this terms more high be to used Alex good the but but more capital have to than it in effect reaching, can more core opportunities that that effective M&A strategy. benefit profit just accumulating quickly creates So shareholders, ever for a is we to

Operator

Gilbert our from ahead. with And next we'll Collyn Please go KBW. take question

Collyn Gilbert

bit little XXXX. about out talk and loan Maybe could lending. growth you in on comments, I talk what you'd you markets? relates bit just But guys to growth the know an how see as landscapes it maybe indicated shaping in about little competitive seeing your more that the organic and a in a outlook basis you're just opening

Mark Tryniski

I know opportunities. had never growth market operate think as digit you you in double when we've lower markets

an pay-offs. we three In if I digits, on now, level incredible XXXX, at the at in But had excluding originations unexpected sometimes demand. mid -- we commercial, would had the main record fact, depending portfolios in which Right single haven't we been we've other times, it’s and market look also of you Merchants.

of in are larger $XXX unexpected great have that lending, business So million, fact pay-off. the get despite year ones otherwise over the in terms we those

and have some year. had first would we're at commercial half expect past of sitting in visibility impacted in otherwise and the to our we record So larger pipeline business, more the a what pay-offs poor a that very been XXXX. some expect Right certainly but in happen solid also now, we and we

offset hopefully, we that. can So

cash into said, we're recourse we nice gotten environment. with you And companies have flows that kind our lending, competitive have pipeline compete they're with well, do year As I a and and a XX commercial now. more non- record The back And insurance that. have the right financing. a got doing you've customer going to not project commercial the

in rate and probably competitiveness the turn is else. more the anything than market around think I

So low volume. profitability We on we we're equity on seeing do really manage the our spreads and and but not based return not on business volume. run characteristics,

So get too we we capital. spreads think And to believe I thin, ways don't better deploy there’s our participate. when

growth about much going it’s terms other less a low was sales. gotten I competitive pay-offs and So I and prices and us, business early think dynamics if credit from pretty not But in the up of in it those than transactions spreads as that's participants the out a prices. right the not as home is probably non-bank together, And X%, I because market low the not by have mortgage demand of think participants the the about the average single of that's the is other typical now. perspective, asset said there’s digit for are all year-over-year mortgages. put I but are in equity market. high terms of consistent lot Cap so asset our taking business, competitive really last demand lower In and environment about it on you mortgage as longer, what is much our principal have relationships, gotten commercial this quarter, but markets. rates enlarge, banks think It’s

that about because auto down it's for last I did off thought XXXX. talked be, think volume make the down into expect little was trade it actually continue to we it what that And book quarter, was business X%, to I think returns. than strategic some we a year-over-year we moves bit to in less going we

that in up is auto actually In the some volume. pretty over business, off the basis fact, and the yield in market move quarters, portfolio yield the but we book two significant in so last the traded XX a points

Collyn, well and in So I see bit or XXXX, volume happens all, that then early I would as auto Mortgage commercial move to with in helps and hope of X% will we’ll forward take at home equity the probably, but remain pay-offs. terms higher. yields what give a as be will little expect book the usual, the off

It's 'XX. In up record and 'XX it’ll fact, level which the just we don’t as expect have in of difficult is now, pay-offs, is some function as are originations we same next of the early pay-offs those to good a pipeline the But year. I because in in there predict. right really I last had market. would have we year, activity unscheduled really be said,

And good the would as we’ll in unscheduled those level in growth XXXX pay-offs. a actionable really portfolio, will I be terms a here so expect function well. function of of be It in origination of a have both it will

Collyn Gilbert

came should in than -- thinking guess think or could to for. that deposit the the recognize the we to see comments perhaps been are And go looking have is in about what the 'XX, better there data in are we you trying income. But just margin, Or maybe how understand saw compression? I question about on results I accretion in what your increased and move FRB the dividend total, But margin on is if margin? control better margin? I that were profitability, ties you and obviously next mean discipline we in I we NIM likely just 'XX. how do higher around the 'XX than which to

Scott Kingsley

Collyn, I’ll take is Scott. that This one.

was which funding slightly asset portfolios, on combination being certainly I in fourth virtually by in not all all yields higher think our generally, and at of major originations new of we've based we outcome three the up the got a cost. quarter, would welcome

question, going Mark's late that as point, change see probably to acceleration still But standpoint dynamic match asset quarter, competitive point are will I of as from you’re in to The said, is be generate But the quarter the had our of dropped the about sort the it lag year basis. that six rate side. prefaces it question first, in markets; higher bit repurchase of a [indiscernible] I anybody’s in to that into look overnight deposits that in a of closer $XXX industry not agreements, matter a deposit, to be we a or the actually was, if a you part terms And from first in much think terms very part borrowings we June absolute. markets does at know, the you in net from get in and of of to of going end very of of to market. another deposit efficient end broader fact, well As markets on a balances of to the very, fourth levels balance very, sheet the than generally placed and so $XXX deposit to to come than our on like a wholesale outcome being the yield of more we up into price from activity rate piece those commercial like is, I month tend very from be little more to an looks probably. we there million, deposit, our which but million XX the XXXX. will rest starting as efficient as our from that. your forced that like market little put to the a market institutional the with our rate, overnight municipal To back mentioned,

in So at the Carolina's with from but early. I love modestly hear in Northern you we from and will of from from bit or or margin up. New be think us more the a Would Boston folks the pick point same the little time, we you’ll the probably, Jersey satisfied demographic standpoint a flat in XXXX, than benefit

Collyn Gilbert

just to some that And dividend. the FRB of frame then

can remind year you level. the said XXXX? what know that So third of 'XX it full to I be us you expect that for you a had was

Scott Kingsley

FRB then second quarter in $XXX,XXX and banks quarter, about we $XXX,XXX about were the we fourth up So were for because for larger the so through purposes.

XX, over big Now we that we're the dividend bank characteristics. into fall

a So from we X%. the roughly dividend Reserve, yield Federal closer instead of to X% got

$X.X instead million in expect we take of XXXX. for probably would I dividends or So at looking $XXX,XXX

Collyn Gilbert

schedule doesn’t the is still change? And the same, that payment

Scott Kingsley

Yes.

Collyn Gilbert

operating trying finally, expenses parts I will were And in opening your side. one time from on of nature to rate what then in said just here what on like OpEx moving Scott, be the terms what the this reconcile going look be recurring there and comments. some if just is the and run apologize and you in But of to may

Scott Kingsley

So rate. fourth the or higher $X the comment, as quarter bit have I more I a run roughly start net actually was with quarter than argue will the that’s variation million this something recurring was little that than quarter. third would of from half variable don’t we our in

integration technology related with little a had side and our bit DFAST costs little in on We fourth initiatives. bit a there, from were that have latent we standpoint. associated so side. get of we probably quarter, care cost because third infrastructure, bit some competitive demand took some higher of We in quarter facility the second maintenance Merchants’ physical in the It's busy for and little of and with we the system a needs handful repair the the higher cost of

the into would salaries the in modeling level seeing. nature. and X% merit certain run quarter in in X% So half most quarter the principally going a world positions. into first going positions rate and skilled about think like add that growth But the free of I variation as rate We're in pressure there’s and certain XXXX. little to we Again, I are of there had about quarter benefit bit of XXXX, fourth trend think I take of cost and in third are the wage people

in so for Again, cent a as lower petrol quarter cost have we're cent in some leave Collyn early just and a utilization maintenance more the in typically because making So the group a opportunity the related year a are to quarter expenses, cent and to on to and non-interest tax cent activity. that. cent of cent utility to a trying characteristics. year, as the rest And payroll low we seasonality. typically we a quarter and first more a reminder, a payroll were have to for a of account you lower the We a react from where our ourselves and the is quarter to income we half

a the deliver we’ll and no best our Durbin, in that that in doing on ‘XX. first of we’re for initiatives the some offset to fiscal that but trying Now of preparation of bunch quarter guarantees

with little rate. you helps bit run it hope So

Collyn Gilbert

just final back, mentioned I'm trying of capital a what ’XX. more by accrete question about capital you talk deal. usage And more how you in exactly And the had be it. worded Can as in to did you mean terms Deploying find Mark, in just discussion may mix about in that? guys then you you capital

Mark Tryniski

run of is Xx, in for that. were leverage, tier which one minimum one -- you the we if Well, have ratios terms the probably closest right where all for X tier XX% X%, we is but you the capital, would based risk now if and leverage will, us The us, us ratio to the really other managed that’s at requirements. is

is use capital can amount stock have capital that tier you're stock fair capital cash of you the do leverage not of we and ratio deal, M&A, you your if We a way to X a effectively mix. using XXX% bit that really reduce deploy. certain And the use

lower going you're to the going cash of X to -- your surplus the you're use, you the utilize. more So tier more

entire when you're and that, really I more So intangibles. goodwill you a premium financing you’re meant -- issue that's of what XXX% -- because managed, all the really stock and by

our So X your the cash not as that, share in gap as returns tangible intangible differently and per way way stock it over an mange you it try I of terms is is tier we manage your time, to focus as in it but transactions. you our much mean than mix of the in get cash and in use appropriate -- M&A affects

Operator

Gunther our Davidson. with we'll And Russell Please take next question ahead. D.A. from go

Russell Gunther

on are in there? the curious that the the of loan update for market be would Merchants’ outlook. growth expectations appreciate going your on and comments Just on loan footprints. though What I the dynamics some growth an

Mark Tryniski

the May, As in in second you effected know, quarter. the we transaction

Merchants’ sum can't in that remember this had about repeat if is talked portfolio have we that run of last for and it. I One reasons. quarter, couple and off We the I'll

their pushed the had closed customers the essentially process during pipeline closing avoid to transition. entirety any May through merger, before the we of almost to Before they disruptions to the

So they in had almost no pipelines May.

a but almost that balance no from with sheet higher of them brought it was which pipeline. it with our Now, course left advantage us,

the spent which large that they seven months have degree. to they So rebuilding pipeline, last a

than which we we six run seven that terms active are demand off characteristics. So growth at most frankly in over Merchants, point, But had or of would average I expected more of markets those at ours for the say months. this and net on us. is economic

net forward in resumption looking third we in in fourth growth we're portfolio run of quarters the to the some we of So Merchants and expected Merchants portfolio. did get off XXXX. But the that

Russell Gunther

great business big think a a dynamics bit And there. Mark, you're your then picture. do are a more most what little last what optimistic of as be just XXXX. of to degree for optimism you one And of for the I'd on just curious you part But going expressed me, about,

Mark Tryniski

I am it, about all of optimistic frankly. pretty

good said, the will the were in we I the early with XXXX a of have think strong of our plans in pay-offs. the first XXXX, And in in regardless as commercial impact ones expect be I’ll very the business. half. larger commercial originations to we in year I aware

The early outstanding of with what those auto business probably has further will So will volumes. terms been. in happens bit forward. fine continue it it's always The business as really be mortgage decline a business The a move function mortgage will to of pay-offs.

auto cyclical everyone is like cycle year the in think of the business ten very and a that's I business. knows, as

that of than So be in it will XXXX higher XXXX. be that different margin will goes business a number said, it that on ways. With the in

be side, took On a Merchants is and just tends terms to more bit the quarter-to-quarter deposit more the retail bit transaction growth volatile fair average. in a in We little of banking business swing. that out with municipal

But digit growth our low So single we've assess always market. difficult to deposit bit it's little quarter-to-quarter. more in had

X%, don't or continue. that deposit negative in commercial So growth I really growth, expect it’s fact business portfolio, X% exactly, the if commercial customers. despite I our that that, for remember actually we -- had We something deposit X%, Scott, good the had like will growth

the the So debt a the that with it customers, -- was side. function function really of with downs of pay the worked

So I think well. the retail business perform will

$X overall will despite that that a I fact try approximately the think we're part to year. offset to next to of There're million we're hit that. going some going do things

lines [indiscernible] double some businesses. business non-banking business. gotten end in look same be and we don't our mean overall many went at if been retail terms But last bottom going growth benefits, how for I've The bottom of that additive it's to those done and of -- one businesses. businesses. gotten up, every to we've year and benefits year tremendous I times had I top our margins over real operating so and you is I the businesses results of think double really plans they've line, expect top with year, again the non-banking in to digits non-banking highly a line. to wealth in of really I said all very expect the I know XXXX the digit three our double strong digits The few So of years, continue.

is we terms lot think just great, of performance. accumulation and that going think rate earnings their I improved We higher I well options the to tax have higher earnings businesses excel operating here, in maintenance, that I And our capital continue year our got pretty we're positioned accumulation, non-banking margin we've lower well from in momentum So the to the with the of capital last help. year. think this pretty a enhanced, efficiency and over is

So going we’re I XXXX. pretty position think into well

Operator

from take Capital our Civiello with next And we’ll RBC Markets. question Jake

Jake Civiello

place anticipate that Or environment? you standpoint? tax you both risk be the more the adjusted yield could do that there emphasis you become continue to the types tax in portfolio of think other from in will investment and securities Do investible on munis new the

Mark Tryniski

hit right think I it Yes, you on the head.

I little will drop more it adjustment. time become XX% take think react It some to there bit in probably to will tax be that. gets the other any market equivalent time that of will moving attractive instruments a

in flows allow I really not years. definitely net municipal us something -- Jake, in actually mortgage invested for we us see the shape that reinvestments. portfolio we’re back really cash has give But in that think point I in result. on the you will number of our securities, hoping a of significant so agree certainly way and question, some to will But likely And curve co-filling probably productive of

Jake Civiello

or you run-off book on muni in normal basis? that see the what's then And typical the quarterly a

Mark Tryniski

is thirds the million Jake, up cash for Yes, year portfolio, of that and over we're whole two year, flows municipal. $XXX next expecting of about our investment

So probably cash to million of the $XX in million terms flow in range expectation. $XX

some for us. And we mortgage several most in very, agency flow market. the get outcome. think on given is productive work for investment big as a that pretty fact yield full of CUSIPs a jury be are buy capital investment basis a XXXX, securities upward backed is of more productive redeployed or type. couple going Our of probably that have municipal curve And the a Hundreds, activities. of a increases. not well bit highly be CRA that But would the our that we And related rate diverse. in portfolio most probably things in Early then our with generally the out we little portfolio, still actually speaking, not that's and In we literally answer. is in purchases in, out but very to of of on back did XXXX market for as we what XXXX those participate hundreds surprise of inflection

Scott Kingsley

said, is suspect really less. to the not municipal buyers, of tax a bracket. the in portfolio, lot are of us market corporate part we still that is market the of But haven't up Jake that I a all declined, evaluate made benefit because individual would who prices also really XX% or sale is up as made Scott buyers

is us upholding So those the that in is deteriorated recently somewhat. still yet the market, pricing good to benefit

for So we a our I suspect. that market I and there, on there repositioning will eye suspect would a keep potential is would

Jake Civiello

think XXXX about does for in a you and then And deposits core acquisition the targets? change how the potential interest value M&A potential rate of higher environment as

Scott Kingsley

mean, have future got fit around footprint M&A, I be value, has that think value, in our and to potential qualitatively we for expected it's discipline I what got we No. expansion it's high on economically focus be high to to particular geographic footprint. with

thing value certainly attract not that’s is that’s much that We with really is can focus element and do high the core you I deposits. an Our that’s And bank unimportant. would deposits. understand value deposits. argue less very most around core core

a much opportunity, a sustainable over economic of on expense certainly not is is So time, quality rates both what's or that focusing around qualitative it, a part a in potential of share and that’s of the ultimately really deposit solely as per it function basis overall core the accretion strategy organization. quality, our cash necessarily but on is the and GAAP and aspect or interest it's entire

certainly judgments play around ultimate a the terms things mean we but all I those So make role, in just of they’re not positive M&A.

Operator

from Matthew Please Piper our Breese take with question Jaffray. we’ll next And ahead. go

Matthew Breese

your growth items? some positive those on do of non-banking What front, XXXX XXXX. for you think for outlook very the strong building commentary just very is on the Mark, also

Mark Tryniski

report all businesses directly actually. Those to Scott

I'm ask Scott respond. to So going

Scott Kingsley

not expecting that’s that. revenue margin think current and double-digits at I in or see earnings And look our to improvement, we’d this target the probably improvements time, it's like

we rate I leverage thinking we’re mid relatively those operating has digit faster single of all from using, pick up simple NRS think transaction, that we the I of businesses February expenses of if one but acquired in -- for path will performance. continued The grow about remember last this you businesses our us year. growth mean happened. for revenues have been grow you with conditional revenues month than

to management on because in the little us year. wealth So a came last the of side, we May bit of lift trust business Merchants’ get

a probably So a little them, Matt, one we maybe those because like year each single terms we again, from digits businesses pick-up critical bit characteristics good said really every in right of an this growth. we're we’ve would getting impact a got mass of couple operating that of those now of But size And and are in have we spots. before, standpoint, higher now. to our mid full in because leverage I a think organic

both business As of you suffer believe we new operation, level underlying brand to developments, investible is through in on of point sometimes your strong one those to get terms you critical this sound lines, an both of are at non-banking organic acquired you of which and a distribution business basis. But us business all and post in mass, don’t for time, so have who to certain very, very a outcome. somebody in improve and

Matthew Breese

is measure of business of efficiency. in any the year-over-year? What's there wealth efficiency? Is insurance of benefits improvement in And do terms that doing in efficiency? we What what the -- business that terms may employee the and be could way terms is

Scott Kingsley

the the benefit ratio. businesses not higher of in an the is that little completed but side it’s these you Clearly, XX%, hard if do, disclosures in of XXXX, the led you has those get hurting roughly I outcome would an the of can have we outcome XXs a transactions maybe to ratio. which those that to Again, from standpoint, high it you our together, to so improvement we efficiency get a segment you touch margin that find argue close. terms inverse businesses means efficiency the that in is in blended operational ratio, effective blended you're on in efficiency

to very, that don't in don't those essentially efficiency deliverable you quite we remembering and look exception at of the do look growth than bank of with you're have acceptable. lot incremental what as the the And businesses, of the core side, still management very add but core I because sheet. on acquiring, wealth the we not of they non-banking ratio ratio efficiency insurance the a businesses, differently the You're non-banking say balance Internally, capital businesses. use a the at

rate point of we in and bit business transaction NRS the returning in that your if essentially in we capital used year of the with growth of that, where outside capital a core digits. to enterprise mid are But buy of from in operating you mix. Now that service really bunch not jumpstart little to forward, business, is participated a improvement, terms product that and even XXXX was had single

Matthew Breese

yield Where yield translated given then more curve of higher lot the some that is heavily? asset a upward the we've is shape of And momentum seen some changes and yields. on conversely, into that the away then the September And between of on being where side? your now and of competed

Scott Kingsley

or certain return back did the lines the of step at I interestingly asset indirect enough, you auto look a think in us, Matt, classes lending lending would sense. not associated balance business took and bit tell if is the new detail car of certain And I in with and for where in a of within you for we that auto, improvement rates sure. yields the make positive there mentioned, some lot and little risk as principally a we of

of rate nine in is sheet; those still selling life the your average a would interest year tenure. some you good -- intended still side, and transportation products lender. terms competed our a below they entrench to used better that and since a so the very originations, outcome, rates our that the of groups, be year composite may that marketplace terms most work may environment pretty be durations up is better year are severe there. of probably and on of because than happy were secondary not before price longer So that and which products being public we're our they to in eligible. Mortgage back well. think with of think term of in rates. total And side, absence I to to tends to balance we have things and commercial return a And marketplace our XX than portfolio-ing that's really We're to away the in in or right probably characteristics eight in in ago opportunity do question, that that were of we to year auto But thing this that

XXXX. on on they behalf, business And were an see much represents don’t funding outcomes, in of higher widened going the look Mark the than basis as end as at that’s somebody little a the and yields conclusion may like If asset more not to from as probably So bit our episodic mentioned, probably years rigid have spread be through rate you lending our XX prices getting is it participatory. some spot. not XX that's fixed on cases sweet or outside side,

flows. reinvestment On but portfolio yet nothing we've much really investment in the modest had again, side, Matt, cash

that we don’t pick up I anyway. on it that know could So

Matthew Breese

tax of then in are really an a the And intangible. dividend capacity capital of terms we question helps quite Obviously, is rate my bit and amortizing then deployment. last

me a based what heading. and sense a more targeted that cash or could GAAP frame I wanted on earnings? it or just is if So get payout be there less for is to where is it help ratio, Just earnings

Mark Tryniski

it I'll that on years, increased start past earnings. which we've the a is year us the because fact with dynamic XX like, dividend to puts the every for pressure grow I continue to

third like So of raise evaluate that the third will year, in board have now capacity dynamic we will, judgment. I board's and quarter think to we that every, dividend. quarter. certainly I the the as significant We right again continue to does that's the suspect kind Ultimately, the of pressure. I dividend

don't we ratio, payout targeted that’s formal. a really as far have As one

to I we think it in to range. like XX% keep between XX% the

growth. our amount at not growth to to organic single low mid our digit organic know, of a number does you that an As capital is enormous require provide best

historically. rate as we accumulating of be capital the So we to going change are regardless have tax

like lower XX to little maintain times focus think range are we XX% moves higher, somewhere. to But ratio. payout would to our around the ultimately XX% it in little where like keep it XX from I somewhere. and would for to XX% a of dividend the XX% terms from to Matt in some a that There're earnings anywhere say where we range I reason is

Scott Kingsley

transactions. the your Matt will in likely $X.XX intangible question, expecting two two assets, both. as look last And at number to on to which given be And close timing of GAAP our transactions, just last major the to in is was we to XXXX same we $X.XX amortization expense for essentially are very it quarter of 'XX,

could do use point us, at same Mark's general a then both policy we'll that else I'm look cash what you the And earnings put as capital both that capacity. for, didn't XX% well is point, earnings. into to guidelines it the XX% incremental that to for dividend to always on So as trying whole you GAAP if out

Operator

And Please Group. Joe Hovde from go we'll question our ahead. take Fenech last with

Joe Fenech

now most region. aren't some as into initiative a dollars invest active some you the eyebrow this doing substantial as make across what peers. underwriting the Seems of say, activity, like maybe a by metro some more larger Were guys the We’re in or benefit, in you seeing? you few York quite been New that from for margins as to though, know State, seeing held peers things your the would years some of have part terms an you certainly stretching, appreciate some you the of at there's substantial markets standards raise you're

Mark Tryniski

better than well, I’d up say Joe. big reasonably lot saw deterioration. held structure standards last have would I cycle the the you say of where the

XX well. with lot that cash market for going as think come what year the the do now established in, don’t other like they project and non-recourse we're to a kind insurance is way And I that I a see and seeing we’re participants of they're do going the not companies flow, to doing banks financing that. of

go think a the you basis, to little something and do stretched have there normally stretching anything, see going on, [AMs] things some somebody a where want wanting is we [effect]. that bit if year to call where XX the of the I you on XX, is is spreads

in a are they've spreads -- the only you’re but I don’t have it's soundness thinner and credit the extension I think there really for and term gotten point in mean those speaks lot structure -- deterioration than from gotten wholesale spreads. of sometime to I that two necessarily safety areas. credit. of but my And think would I terms events advantage the seeing mainly

Joe Fenech

means the in of Guys, size for activity the still are does in historically? activity pick-up when of economically obviously the in upstate targets your of see markets what's some time smaller extends York Do there, line deals up? of that years. if decide increasingly limited to likely then And you the think last out for been M&A you do further like New merchants so, a that we’re these two variety across that these core in terms guys terms of you think targets even pursue reasons. partner of to And outside

Mark Tryniski

question, fair a that's think I Joe.

really know, in over think, as York many New is things there I in left of is that terms so you the concentration. upstate only banks

there where middle the stretch for in can't along our is mean to actually branch in us. which New clearly presence not what do contiguous is to continue We Champlain, England, big north. the to I the other their we really six I our is which in go closest of which we markets, I arguably would miles closest lines have think than would look Lake branch future, a was and

in New Ohio further look opportunity So an for I I opportunities further think an think think opportunity a Pennsylvania I an us. extension remains at England that's and you if possibility, into is

in activity I think wide. off the mean M&A 'XX to industry not So us I volume compared think I not 'XX, do I'm mistaken for was

the are there off. as banks lot of economic is thinking they growing about I a be long that might and these strategic growth earnings transaction, as think hold I think for

So creates is to reason think growing necessarily strong economy there fact think the strategic no performance, earnings a operating about that the I and think transaction. I

think as as So much aren't you as are sold. I bought they banks know really

up, it targets to think certainly terms the I if understanding acceleration those not dialogues us can be expectation. somewhat to not sellers’ I or difference well, done the market gone in that strong space not operating identifying of in then with of prevent economically, think so multiples M&A. high multiples can on I market we’re put going that the will just M&A a from get current continues value and whether a any it's the marketplace, but strong performance, the transacting in, But to mean a of make strong as relative them. the having And in and in damper have

acquiring environment. our need could our over and high or cash flow that be per around up But to goes the time, change that share the per earnings this strategic our share. it that us another markets So partners then really that and thinking down sustainably help goes grow can we it multiples challenge face hurdle and value doesn’t in

Operator

remarks. or And like any that Mark over concludes our to conference additional I the turn question-and-answer session for back today. closing would for to

Mark Tryniski

the than Thank to other all you. we you and to Ashley. further in call you, Nothing say, thank talking look for forward Thank again joining April.

Operator

that may And once We presentation. again today’s you your you for disconnect. and now concludes thank participation all

Community Bank System (CBU) 22 Jan 182017 Q4 Earnings call transcript