CBU - Earnings call transcript Q2 2018 | Community Bank System, Inc.

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Operator

Welcome to the Community Bank System Second Quarter 2018 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. Today’s call presenters are Mark Tryniski, President and Chief Executive Officer; Scott Kingsley, Executive and Chief Operating Officer; and Joseph Sutaris, Executive Vice President and Chief Financial Officer. begin. may you Gentlemen,

Mark Tryniski

Good QX and conference Autra. for you joining our call. morning, you, thank everyone, all Thank

Second quarter excluding Merchants NRS results improvement due EPS related of primarily were option Bancshares. in generally quite and to year's XXXX earnings solid operating operating to results of XX% activity. last and $X.XX, exercise the over benefit $X.XX tax The with is GAAP of acquisitions

paid funding credit costs, improvement also and modest sheet up due We Business from on reloaded benefited and July. which was lending we of June modest yields, quarter lending, to excluding slightly in growth balanced loan flat It in expenses. low to was the loan well impact quarter. auto municipal costs be down this QX. operating was of and very book $XX XX strong balance in million expect a Total which was credits,

environment. accounts. coming new we the $XX quarter in a remained over markets. rate but higher a strong deposit million timing $XXX costs Although, million the was for demand, and $XX basis into than had of million points points, of quarter, our due last $XX Total levels quarter, funding absorbed almost low to solid up XX period basis inventory record the had Core related this to downs balances of moved average municipal end quarter with mortgage the not balances performance non-municipal early to were quarter's XX down up activity, attributable from all of record this we higher but flat portfolio The the pay to quarter, during originations double pipeline million. in loan for QX,

revenue seasonal in margin revenue were and to businesses outlook. forward strength improve off the non-banking Our but QX, continued to to due slightly

are and over Asset and are charge-off XX quarters. quality lowest delinquencies in non-performing strong in very their at stable metrics metrics low level

what asfocus sheet I the Similar said in momentum the ratio need balance of have for significant eight us earnings we last lowest reported that growth also we for over with We quarter, to year. quarters. remainder efficiency support to

and modestly. quarter stable, our and only the a to We fee It very expect increase our costs Joe? businesses we're grow, was remainder costs funding well to positioned strong our operating to XXXX. and of for be credit

Joseph Sutaris

Thank you, Mark morning, and good everyone.

Deposit our of of repurchase operating I'll noted, As us. customers quarter We deposits our based of the increased in deposit the core New or our billion. capitalize few from second municipal funding Mark the market from quarter million cycle. of end seasonal $XX closed for $XXX.X England areas quarter factors of balances when York quarter liabilities $XXX.X XX, Comparatively, of million strong XXXX. the These first quarter, June a property quality, resulted between to decrease franchise. continued the quarter in XXXX. compared X.X% municipal our operating quarter was million New quarter the quarter or million quarter seasonally balance a were first million second of deposits cost results with assets in quarter for the sheet’s decrease XX, characteristics linked $X.XX XXXX up total assets about tax second fourth were XXXX asset points the the organic fourth a start to new balance compared down quarter set with and end average linked the solid off when Average XXXX earning quarter earnings, quarter end due for on maintained of million seasonally XXXX. The X% This sheet. very XXXX. We XXXX X% X% agreement XX $XX.XX on seasonal another sources. second increased customer in fourth comments in to company's $XX collection second both to XXXX, billion, Similarly, quarterly of XXXX. strong X% of and or March primarily of and of of $XX.X which deposit first a $XXX.X of largely record a of the of as and basis and quarter reflective or XXXX. $XX in period for and of first the fourth compared borrowings is of the XX balances, points deposit the XXXX quarter million of in XXXX, The our XXXX, was was basis or up are to basis

cash XXXX. between earning million assets average loans the outstanding. loans a Ending total a increase year-end during slight $XX.X billion decrease and an equivalents, XX, securities $XX.X cash investment and were XXXX a composition Although, in of $XX.X down in experienced including quarter, $XX we average in assets the did from earning outstanding, million June in at increase significantly quarters, not the linked million average change change

During business the $XX first unscheduled pay totaled million. of offs half the approximately portfolio on XXXX, loan

sector loan in to December loans portfolio million June at $XX.X $XX.X the from million $XX.X business XXXX ending municipal of XX, XXXX, XX, or addition, our decrease. at decreased XX.X% In a million

the cycle. loans on of Our and the fiscal fiscal their at repay credits quarter lines lines municipal end annual in advance third the of meet New of and and England short-term loans region second next quarter customers for credit requirements to the new cycle certain annually

of $XXX.X loan cash the loans XX, during this the or levels or sector XX, portfolio the June first reported and and exclude third cash levels quarter. $XXX were a to to comparison, assets in to We one second in business to increase loans due million to $XXX of securities decrease of lending a year high equity X% an or the annual investment portfolios, quarter June up or of quarter municipal Between the in temporary to similar the million in total XXXX periods, XXXX of were of value carrying primarily were unscheduled in pay XXXX. outstanding equivalents, in we If million down the half a of expect spite total million decrease portfolio. portfolio, to balances the Switching the offs. X.X% in our the commercial decrease reduction home from X.X% $XX.X XX.X% and balance decreases our the

the accounts. the the bearing On non-interest balance in liability recorded elements decreases in base side bearing core of the namely our core base reporting checking elements borrowings, sheet, less accounts, while deposits the checking savings and namely funding and we increases of accounts, of interest funding more time

million average loans, primarily earning the total increase deposits and were earnings. assets, assets, Average increased between retained In $XX.X periods, average to an equity average addition, or X.X% stockholders due in between to largely up second Bancshares XXXX all acquisition between second XXXX, and second of X% the the and in quarter of Merchants XXXX. of quarter our quarter of XX%, the due

net due the transitioned The this investment was the position XX% billion, an rates. securities the was total, XX% a $XXX treasury $XX.X total. June XX, it of was of quarter. effective at portfolio unrealized total, $XX.X agency securities. in XX, XXXX. a The in of our market loss portfolio remaining U.S. unrealized June million The other billion to XX, and of December $XXX portfolio a of obligations municipal debt second stood comprised of to XXXX bonds in million gain to These from XXXX mortgage XXXX was at the XX, X.X XXXX. X% and U.S. million gain March at of net portfolio million position and compared $X.XX and duration at primarily net net at backed increase of during $XX.X December loss XX% or interest or end unrealized of early corporate The the of the agency $X.XX million unrealized As in of XXXX, years or

tax-equivalent the X.XX%. yield investment portfolio quarter second was The on

loans of second Our than $XX.X than of At XXXX. quarter end points of of XXXX, asset both and lower and at This quality XXXX total ratio XX X non-performing of of comprised of million reported the strong. loans. remains ratio legacy acquired the reported quarter X.XX% end basis the second quarter or the linked is point first end the the totaled of basis the higher the at loans

X.XX% reserves outstanding. loans outstanding losses Our total legacy loan of and for represented loans X.XX% of

non-performing annualized million or the of the XXXX. recorded the end $X.X quarter Our single X the quarter recorded increase represents quarter quarter reserves charge trailing lower is a a XXXX. first to $X.X during of on quarter end June of XX during X recorded basis portfolio in of on four the recent linked net over second loan quarter commercial we XXX% the loan multiple X the of allowance this was in or of $X million XXXX. We million The largely half and of of Year-to-date charge-offs quarter and a to comparison, first loans points. net points down or the quarter to losses charge-offs million at XXX% XX, We The million XXXX. linked XXXX. This compares the at $X.X totaled $XXX,XXX increase during we’ve the was charge-offs than recorded first at point loan annualized of second basis and in XXX% offs quarters first $X.X XXXX, for by of basis million charge or attributable This credit points the of second $X.X four. of between million the XXXX. net years XXXX. most of second seen second $X remain the than losses By adequate basis charge-offs comparable of provision for higher XXXX

strong. income net well X diluted of the ended at leverage a X solid to end the and in fourth this times $X.XX or second to the X%, Shifting is XXXX very per first of XX.XX% statement, over second regulatory quarter up tangible recorded Tangible X.XX% of X.XX% at capital standards. from basis. capitalized end Our XXXX. income of the of levels compares quarter income Tier we quarter the quarter the XXXX This to in second to reported net the million ratio on assets end $XX.X The XXXX. million or equity quarter quarter the of the share per continue the the fully be of $X.XX XXXX was quarter a share of $XX.X at of at net

impacted a for assets the between $X.XX were share liabilities million expenses, XX.X% fully was by X.XX% bearing an $X.XX quarter $XX.X the share of both second The interest on per quarter margin second favorably Excluding the diluted periods. demand points other second to increase periods. XX.X%. per between deposits basis, quarters. this or comparable resulting core earnings linked earning increased of in non-interest between X and on a increase in the Net funding quarter $X.XX, in up X.XX%, XXXX quarters. second yield average earnings comparable compares quarter share acquisition or the and On points interest diluted were comparable fully per bearing of services increase cost basis results a comparable XXXX, X The average were basis between XXXX

in of securities corporate the rate of due borrowing results were funding gross well During non-taxable the between total quarter in equivalent deposits of the during by federal impacted the to decrease represented municipal second as the XXXX. XX.X% the base, periods. XXXX, Merchants portfolios inclusion base the reduction loan and portfolios XX.X% liabilities as in non-interest the the tax company's and quarter second The funding the of addition up as bearing assets in tax company's XXXX, the of quarter deposit of the to average these total second yield demand compared of company's

interest linked the the in X.XX% interest points quarters. X up margin quarter second quarter the the was X.XX% increased $X.X quarter linked XXXX Net million from income of net of On or first between X.X% basis XXXX. to basis, in two

cash up an $XX $XXX,XXX. while of funds received in dividend on $X.X average Reserve to million on the the $XXX,XXX was between quarter, of an for costs the income and both increase due reported quarter, rate the income federal up overnight borrowing During million semi-annual and an equivalents we in a $XXX,XXX totaling second and interest Bank increase loans in increase equivalents were deposit Federal Interest cash periods.

XX was day the versus quarter quarter estimated $XXX,XXX a day XX second incremental quarter, of interest resulting The first income. in a

We On the the continue a funding were to in This of million remained quarter on quarter in linked basis, basis rate development to are year the general seasonal spite segment the segment. due over the plans revenues have that divisions organic point Although $XXX,XXX margin acquisition total recorded compares We non-interest total XXXX, plans XX total business, XX.X%, wealth of as the are in services funds and quarter of of XXXX, the marketing expenses rates, we million in target contributed to market we expenses also operating contributed within rise of fourth our XXXX. during quarter trust annual banking, and to equipment as revenues expenses quarter employee benefit Services' and with which three our the second increases service the comparative basis up Consistent non-interest well a insurance excluding both costs of represents expenses X.X%. Merchants' revenues On our quarters. second down year-to-date business interest million XXXX up management the segments quarter effect revenues fed or XX% basis. results. revenues, XXXX. revenue $XX.X significantly and between Retirement All disciplined XX.X% operating This first This million quarter proactive XX.X%. include a and believe XXXX. half believe of will approach expected. of or XXX improvements administration Occupancy segment. actuarial million second all the of year-to-date were and increase to $XX.X company's operating of fees XXXX first attributable approximately benefits attributes the second on for XXXX up a XXXX. million $X.X of of and XX of from both management or The funding $XXX,XXX full a basis, consecutive and $XX.X XX.X% revenues acquired and while administration both growth. quarter added $XX.X quarter to managing costs cost banking in positive Northeast of recorded significant results revenues during since points or In our deposits were non-interest as XX non-interest second is to banking increase our and second while in in minor and down acquisition our $X.X administration basis. the both acquisition results, seasonally costs company's These revenues benefit the operating company’s during to other year-to-date wealth quarter are on or has on

a Additionally benefits linked increased other salaries expenses basis. down X%, and X.X% $XXX,XXX quarter were while or employee or $XXX,XXX on

comparative Merchants amounts expenses similar XXXX. were of operating largely expenses expenses expect expenses to $XX.X in or remaining year-to-date excluding the NRS a quarters operating increase Transactions. basis, of XX.X%. We million is up acquisition to core report the two on On and a The year-to-date comparative attributable

Tax lowered rate rate Our XX.X% in XX%. the into quarter the XX% primarily fourth rates Jobs due XX% of effective the which XXXX, effective tax reduction of Act tax from The versus in the XXXX. is net of the second to second quarter in between passage and the to corporate periods in the tax Cuts XXXX law of quarter was signed

second XXXX, stock option in levels had periods. income was company the compared in resulting higher which for as tax of exercise expense a The share the between quarter $X.XX effective of second activity to exercise XXXX, XXXX reduction stock XX%, first the lower per addition, quarter activity in the second of much option included comparable quarter In a the in of quarter. the level rate of

range the XX%, of our year. the Excluding be half effective during of second the to XX.X% expect rate equity in we plan tax activities, to

few be next the XXXX quarter the the interest in margin For net results, quarters of mid-XXXs. to to second similar anticipate we

reprising portfolios repurchase non-maturity totaling we million of overnight and approximately on lift loan $X.X on we deposit rate Although to anticipate loans, also expect approximately variable million. face yield our instruments pressure some $XXX

of measured and not deposit any pricing take offset approach a this to quality a an to cash third retention be to is income the quarter by third deposit during in as be continue will will From will growth deposit that expect contribute is we believe But the on will to zero it respect which interest with year we we major to half asset incremental unlikely largely be we horizon. in calendar do interest low. seasonally There the see reduction beta able we income. perspective, Although maintain near equivalents, headwinds XXXX. quarter, extra an net balance on second

stock stock unpredictability And both benefits quarter. remains and million remainder of the related from positioned XXXX, to debit to of perspective The whether We the beyond. tax the impact impacts and will back to we very or of related exercise turn are open this reduction to it mandated similar expect look the million XXXX net revenues improvement approximately favorably $XX fourth remainder of to option $X.XX company we of XXXX. exercise of In second activity, now continue well the company million line month second benefit Also as in continuing on a earnings the quarterly stock option on Autra or executing beginning capital share I’ll recorded summary, income negatively uncertain to for share. for the per quarters Mark quarter believe Durbin the option earnings $X.XX in $X.XX opportunities income to we per third as questions. to the $XX XXXX. impacting forward interchange mentioned, of annually, tax from for given earnings operational the by to

Operator

go We’ll Thank to Sandler you. Jeffrey [Operator first O'Neill. at Instructions] Kitsis

Jeffrey Kitsis

Good morning

Mark Tryniski

Good morning

Jeffrey Kitsis

seasonal production been Does saw to recall you production we factors? is have I market down XQ but or growth a the bit quarters over indirect last rationalized If has to the then little that to tweaks that guys due XQ. made auto more good that indicate few some taking correctly, you some attributable underwriting, in in

Mark Tryniski

But little in what we little wouldn't are terms a question. up underwriting increased couple structure we a the related really number expected the obviously, have we second although I market. a were than auto stronger be two, come it was to the bit. And bit things in market at to in things. of just in as -- terms rates, quarter, think the wasn't our based our One, Yes, of tweaks the we terms on the a was. some made as expect all, in rates a we extended that The portfolio strong fair it had

the added better So quarter about would outcome what new us a expected. yields have XXX about it in there something. right And when the now, originations and we was portfolio the XXX than this for aggregate,

lift terms cash the are versus of a that production we're little of at bit off in So lower new coming getting the flows yields. slightly

Jeffrey Kitsis

you. one more landscape you Got another Do us as realistically you you it, thank can give update And deal today? XXXX? see question, the to could it think we an M&A in see

Mark Tryniski

it's difficult period an on sooner marketplace deals, market of operating the that. be predict the first, the do It we performance in the and transactions can question strong. and Right earnings strong, industry the time pretty based now, to to always valuations between is they are Second opportunity. not tend can pretty extended or really the expect of than we whole

we're currently reasons compelling other or liquidity than transition that. or of like something not something a So, lot seeing like leadership of

excessive it's an So, there we conversations we inbound on the outbound as make I to ongoing robust and say. But market I of inquiries lot the a not not is do I mean, would opportunity the an -- say continue industry inquiries, have is continually. valuation operating because terms strength basis degree results of across overall of currently. environment in will of and of

Jeffrey Kitsis

it. Got

Okay, thank questions. my taking for you

Mark Tryniski

Thank you

Operator

We’ll Hovde at move Group. to next Joe Fenech

Joseph Fenech

Morning, guys.

Mark Tryniski

Joe. Good morning,

Joseph Sutaris

Good morning, Joe.

Joseph Fenech

guys. Hey,

that higher materially? you're the been following I dividend read you mismatch, reason running X% than fact of XX%. step earnings stock. the given You Any up that capital you year-over-year, had a were I've tangible the over level really the not Anything ever since to particularly more to with up guess, into already opted why increased operating but by dividend

Mark Tryniski

third the in Well, consideration, will I for I quarter, the our agenda our dividend and evaluated, think board we’ve Board Directors quarter of typically Joe. suspect be evaluated has the that on third

Joseph Fenech

Okay.

from commentary at I the So it's of so that assumed, I'm is last year, fair? increase that at -- looking looked but the I reflected up, guess and kind okay,

Mark Tryniski

Right.

Joseph Fenech

apologize. My Okay. mistake, I

deals know years the interested the crisis M&A want been doing the if on it's strategy. to over two low-single-digit a I branch deposit. in M&A premium been acquires contrarian now you on guys the while building remember then since And when have you in the last front, question the I Okay. deals, deposit seemed just after last will. refresh no years you the on one

cost for So funding kind of up seeming shift to market where with this the in want people of low light it. embrace pay of

they're to more opportunity in really just You as shifted factor they but because into all kind or haven't that is thinking? like had of the stuff be at much in that not your you markets favor maybe cheaper wanted things of it

Mark Tryniski

Well, of markets, We've strategically England in certainly opportunities past valuable we're we be Ohio us as the for had and look and interest market our look any in within now Pennsylvania. adjacent in would the to we well. at which the markets right rest New have in and conversations

So, I mean, I things generally. are right this think you’re expensive juncture, at

for is can our model space. whether tend So to we the business space look the our management or banking space to wealth particular the that's or add value space insurance long-term overtime, in strategic opportunities the and or benefit what shareholders that

more class where assets very strategically asset opportunistically, valuations a almost right it’s across think is So environment about asset and difficult bit now. to things just every an high we spectrum in of continue more the

I'd there evaluate fewer but we opportunities and to continue opportunistic So say pursue is opportunities. strategic

Joseph Fenech

to the maybe you loan up half pay specifically and this Mark, Okay. the last portfolio dynamics of appreciate year But first about aside say I And then And setting the half the loan minute levels can production around noticeable you growth the seeing talk first in any year? for business of pick compared the demand? then a guys activity. understand for and it down are on loan

Mark Tryniski

Sure.

were $XXX quarter, of our were Last this million. originations second million about they XXXX year, $XXX new For in there in $XXX the is $XX Year-to-date, were million. and the year, business they second quarter year-to-date million.

There up. clearly clearly opportunity. ticked have levels is origination the So, more

quarter It’s we'd In quarter second higher pay I have come million. having than they having opportunity opportunities. at clear they And -- that the was to for continued thought more now and pretty the the deals first we But -- We’re table the at think the in hoped more getting million seeing origination doing downs the numbers. pretty $XX in clearly $XX were high. what in and be for.

that's a So little disappointing.

it's think pipeline be is -- there continues I favorable to strong. of a lot the

The end first bit quarter and end at origination a than quarter, of activities. it booked pipeline second a quarter, of little is because lower we the new but the there of those was was a lot lot of

about there retention and So that no pay have been have very do opportunity there. pay and by was credit things kinds credit taken little and halfway can is that of offs those where of out we early some large and downs farm there been Berkshire those

So at some And that our offs the that. a our moderation but if of get opportunities line is be regardless pay sourcing grow we performing the level fight, helpful, across really matter. in in to leadership of some and our high all opportunities and mean of can portfolios continue team headwinds. terms early downs are the to doesn't teams we pay finish responsibility the I understands will getting and our that challenges of

we'll continue hard. work So, to

the of too. last the we’ll actually think And to lot third has opportunity strong years been few continue reasonably origination a quarter I the have quarter. fourth into

downs, execute environment can. pay what current to reality just the we best we'll we're the not going that's of brings the second to -- see terms but the not the of going half that's So to excuse, of that's continue early year to in

said, teams Our doing are the great as job see we'll second and I a half what brings.

Joseph Fenech

you. thank Great,

Mark Tryniski

Joe. Thanks,

Operator

next take at question from Gilbert Collyn We'll KBW. our

Collyn Gilbert

Thanks, morning guys. good

Mark Tryniski

Collyn. morning, Good

Collyn Gilbert

lays comments made. guys. a detail little some half kind down opening I that expenses ahead broadly, for operating of indicated also the think, little want I in heard the back Mark, you you with bit had the And just just of you earnings comments if flat correctly year. Maybe and starting momentum more on that you'd your of a break for to significant bit get

talk that? just question, sort part what’s driving you one about that’s If of of I Yes guess. the

Mark Tryniski

significant that Sure, recent there to reference to of to is think to attributable NRS. to comparisons the and really much year last terms of the I in momentum, the earnings quarters, comparisons certainly is Merchants

things a As and Joe headwinds modest impact to with the second that you this if the I my some in in comments. in of said, think -- going couple we’re Durbin. used the of times half year the of -- the But be are look we’re in to other we’re to generally and report and elements loan modest changes our not Because does to do our it everything report significant we sheet not P&L XX% tend going of hit I incremental is growth, of going balance operating at word modest.

I growth don’t that’s look overtime. the that we not think many at we that get loan the have are I momentum way, and the really at is to driver. growth. levers us to We growth effect as there So of pull in I loan cumulative expect of loan think to available know kind unimportant, it looks the industry

on in growth growth just of growth, in think deposit terms not historically gathering than but and better terms we times expense have there core focused margin are and it’s it’s the others environment, operating management. I that are loan of operating loan

margins -- the Our revenues and the business of our those. non-banking and businesses

And we are so, levers. momentum there and of and our and we’ll manage look lot those we earnings that levers that pull we to continue at that overtime improve pull

the have years, [ph]. we look think mean, back for $X.XX was like I you that $X.XX [ph] done last or that I something our three years EPS of couple

is of and managing it’s those has model, managing overtime, really attention to those of non-banking running or disciplined been continue will and about way, opportunities banking in spaces M&A important the business a an our historically both Now so all levers, paying levers, as all that plus, well. X additive it’s part important which executing in on terms

all why levers manage talk So, have across momentum those of that's operating we the I effectively continuing company. to opportunity that and about it’s

related I and Joe, operating think to that. point let on your to second comment Collyn run rate expenses, I’ll

Joseph Sutaris

Collyn. morning, Good

of Just a to regarding comments operating add expenses. couple

related would occupancy second and first typical quarter. little into higher slightly even we the some than the it’s that third expenses had in in the that So, quarter are see a quarter trailing we

perspective, expenses occupancy the initiatives in So, to those little any a of expect line major effectively had do up incentive that have in would And costs the from quarter. expect salaries bit the employee equipment don’t we quarter in our drive down quarter, not the related we terms to third those on in and benefits are incur we some that going costs. item to be we horizon second third and

that expectation last they an really million around two two levels is the our expenses, reasonable expectation million the driving So versus the are quarters that factors operating $XX.X for next $XX.X those and quarters. are were we

Collyn Gilbert

in helpful. or And have of betas and up the indicated they have market go couple know to conservative stay that think deposit you’re your to amazingly then there defensive for on logical that Okay, been low. know also quarters is Is are or margin, the seem suggest to well, offered definitively had you that higher, seeing making? more something guys don’t you just that you you I that going a I that that just that would the your are in commentary of base necessarily that’s comment and held expect just the your you that’s stay. betas last

Mark Tryniski

more costs the our look I Collyn, we -- the for at a at I are, at expect of continue, their that and customers quarters and look of you if and funding if little customers look generally, we last hikes. in be to at there’s have banks what after expectation you will think it’s mean, look trend going couple you of both start expect other Fed market, larger more the see you

seen going mean, what we've marketplace expect seen, we've as of I we in a what as -- So, ourselves, seen forward. we've bit well the and little what it’s what

be to the be we think, funding see is, see probably XX it's the else as XX, third next XX, sitting that bigger we to to remainder but XX for expect the in costs think terms so guess I but deposit goes it or a it's going quarter is we did, it's year, XX, be XX, don't we'll number, something XX by going to might it to or are to in I conservative to what in costs to quarter tend be quarter use, time. right think whatever we and number hold word of probably I and actually is our XX expect going over Again, the to word the we XX do best increased to that. and terms in might XX like XX modest of costs didn't -- to not we're going to And at I think, nature, deposit you be do or here, something the I or there. of in come this to XX, XX

deposits I So be modest. costs think and to incremental any increase in funding also going is

in the markets the directly think the and that expect just higher base, now both in you we're right -- environment expectation for customer that's We rates. our of terms market

Collyn Gilbert

Okay.

think that know that's -- that last portfolio can mortgage on just from on sale And or just had is I what Okay, then a well both was portfolio give you but know, volume as had outlook gain helpful. tie for a up application a from and banking comments I those as of so is us that as kind low, of finally, mortgage mortgage your and some maybe a I of perspective sales well perspective quarter you perspective. then that the -- both indicated side, sale as said perspective? together you sense inventory

Mark Tryniski

the were the Sure, flat, disappointing I other Because that very was portfolio mortgage has this business for -- we more $XX been markets. think the mortgage was growth million booked $XX loans little in robust the us -- in in it which worth compared is million in pretty quarter and the when But, it's there. the get second to in in been first in a We second good. our quarter than opportunity was of quarter refi you never markets quarter.

our was of So, fact growth that turning for mortgages wasn't there much bit that the for in around say, kind little record will time. show quarter, I to we it disappointing a are this

is but our it's a our made markets. not think expected a we inventory how more time enough to we the improvements there year of mortgage issue, for some terms this that’s demand originators little origination bit the understanding on issue, is So, and talking a in of from also our process -- that processing and it's supply volume in I in

kind my the been am always is, portfolio for the bit doesn't little bit top up sure quarter, we the a So of hopefully over typical of $XXX little It quarter, off -- to up hope of that change a which over But seasonally inventory think bit market. is exactly the open a of little market third range pipeline million growth function and further seasonally. it's the in but to much that see I be ebbs time. sure. But, may, pretty quarter that again, really head third that will supply kind where little in not in last It's would in that really flows a the of us. I of from not I'm exactly

Collyn Gilbert

it leave helpful. you, guys. that's very there. Okay, I will Thank

Mark Tryniski

Thanks, Collyn.

Operator

go at Gunther to Davidson. Russell We'll next D.A.

Russell Gunther

Hey, good morning, guys.

Mark Tryniski

morning. Good

Joseph Sutaris

Russell. Good morning,

Russell Gunther

the back in the loan of all growth and geographic release bit. of on footprint England think to half though forward share takes. and going you the we in us including and the in on a hone what what the on on seeing just with puts appreciate year? Could contribute the Just comments pipeline New commercial the kind for of results going Can you and outlook you're some the that's just

Mark Tryniski

is Sure. actually The good. which pipeline is New improving England, in

region. down, I mentioned, offs including New If had ones the larger you in pay that two the at the were pay England look those both and

there keep great a love concentrated teams proportionally the more first attributed of little the there, we're I I is we're in we’ve markets, there, those two get which if the in market. We look early good. pay getting a proportionally those all our there. but great So luck a the We getting to love early to customer the markets. bit we it's We're probably growing some more we it New mean, we'll ones pipeline got have and team mentioned better great base It's of there. at is New England. pay Certainly, half We the across very you of been is footprints, lot a the hopefully in on across offs footprint, again, has pipeline seeing more as that. the need a in got also well, there, year bigger offs England, larger

Russell Gunther

on great. then benefits for Okay, line is And question employee the last me and fee income.

what with kind look like growth share there? seeing a Just us the you're outlook might revenue with

Mark Tryniski

organically It It that slightly we Boston a business more. or business last business. years at the of continues is bought growing that for of growing pace growing XX pace. faster is year NRS record slower to faster the that others, probably are than other years in Certain The than grow business number also administration a at a elements organically. XXXk elements of has keeping

I from mean you I organically even almost to comment. So, Scott, business were years I at X% to predict, But know at Russell. portfolio in, bit overtime if a know we there -- for that the going that I business up. don't don��t double-digits. where anywhere little don't And we're be that's know actually Scott to I so this were it's when difficult mean, grew XX%. There to pace times that grown it's if I know, where want year. year-to-date, sitting always

that, million. keeping lower trajectory I standard $XX growth of the are think now in terms million between it's today. business combined some has record around businesses color Those it -- XXXk $XX

first for log of are to of times in this And what be lot the to to quarter transition organic of back down first or platform versus customer these tend in or in pretty plans calendar words us see in revenue So the XX% the X% our year. is the of hurdle timing that a you'll that is the quarter of growth somebody lot of transitioned else's on a to the coming new kind years of of mid-single-digits. formation tough new that's other specific

in last with some exceptions factors. time but you'll in comparison year-over-year lot see to a a business what So seasonal not nice that a quarter-to-quarter spike is on of quarter, every the small movement

convert mid-year. I transition year-over-year it's of to Because So quite their a on basis, frankly it Russell. think a plan not better and frame people to lot

Russell Gunther

me. helpful, very for the appreciate That's I there. guys. That's color it

Mark Tryniski

Thanks, Russell.

Operator

of Breese question next Matthew from our take Piper Jaffray. We'll

Matthew Breese

Good morning, everybody.

Mark Tryniski

Matt. morning, Good

Matthew Breese

touch you think the no on to dividends. guidance Wanted assumptions said the year, sense the your for for for to in the I was margin wanted get yield, the a forecast. I just XXXs accredible Fed of the assumption remainder

from the the And what think is quarter. part of here? one last I more there that in then is guide fourth the margin is core

Joseph Sutaris

I'll this question. Joe, take that is Matthew Right,

the $X So very quarter. forward. don't quarters that the about a to we've expect been with in running respect to much million accredible looking yield, We change

have. think that's we expectation So I reasonable a

as far we booked Reserve $XXX,XXX As Bank the dividend, Federal quarter. this

the book of in quarter. We the to about With in estimating fourth the XXX expected forward-looking to at we're margin, same current the ballpark regard levels.

above portfolio variable We have a million. rate loan $XXX

the the that's we're will the to portfolio. on lift a higher loan on fourth shorter we starting some around see mentioned, Mark volume running off. at volume Also portfolio, some go the new see So likely and indirect our amortization quarter than in rate portfolios third as that of of

So basis borrowings. see couple portfolio. deposits challenge sitting we is of billion we customers, $X.X request are of loan we’re do from above on immediately Obviously accommodate and that, increasing our some a on rate rates expect points. around up And around the to some a rates our moved modest core starting to repriseable we’re the pure lift we deposit few beginning

will that of expect that asset had some positive on we $X.X earning that the the we’ve billion So side. limit impact

Matthew Breese

make And point given given where incremental that move okay. competitors is that account, it, low money will you your market your level absolute to Got make basis for are? a of the when where you costs. that it’s say If move, accommodation, deposit XX

Joseph Sutaris

of that are -- have conditions on the each depends competitive we do markets. different it Well in

so market well dynamics the And whether the business municipal a region. type account as individual of product depends as account, sort it’s it each whether on it’s account, a of an

increases, the those in at we be measured continue second very been in measured. to quarter have we least to So, expect

rate our the have core X accounts board. across of the points some core raised So X basis we to

pricing increases rate in we’re So those not to third kinds the will us hit significant changes making of structures. quarter, but core wholesale the deposit

Mark Tryniski

your When to now offense. I you your are loan right growing loans others play play deposit need on need who there offense to at are Our to fund gathering mean, Matt, to growth. really strategy double-digits, defense, is

play we so right defense. plan game that’s been position be play that can to more defense in we and can not is We’re -- really now our

made as on some up the Joe have, accounts terms said modest rates. in some moves of We moving of our

defensive use balance terms balance opportunities sheet multitude have deposit account in we that we we high of can call that have have basis. on a in have higher special we rates management have off customers, market a product, defensive opportunities products, there wealth let’s We is money

So opportunities there is a there. multitude of

Matthew Breese

on the the as Understood, you M&A you for we wait up about capital the portfolio increase might okay. And the should same? or stay opportunities that then of securities see size just question, following

Mark Tryniski

a The we of have cash at in is it’s middle. what think yield loss I pretty the like the market portfolio different now liquidity. good, -- yield a of net we time. think just is recently. we flat it has but in like number do we years position is, securities pretty have when something when lots the portfolio right terms right the we been on a underlying right -- of watching good we’re portfolio I we in the years, in we kind for to compelled liquidity, you just did a terms eight now -- surplus of have, Right haven’t flip long reasons really to We of mostly liquidity for market aren’t ago. look the securities been did in less But don’t the curve we the now because been it timing of XX now put terms it those it’s

go the or period to want this is in it in how before a two to of that to everyone moderate going going take think rising years. terms of are again. is is it so jump increases they we’re expect you year, is see I rate And rate, where where don’t a what in long you be of kind

year it’s we’re year, almost usually is looking be So, -- now yield. the at has we the five same to the not been in which interest historically would out pretty I X the mean now XX year I the particularly looking right mean, right really flat at end at XX flat it’s and

to need our there at us in probably or to part the terms So, up, XX of is of it’s a curve in look spike rates at too If spikes it. for flat, we year asset in we’d reasons management attractive some was going do are a something point. that liability the doing don’t overall, the that

we’ll watching just we’re right does. curve and yield it see what the now So

Matthew Breese

what any one the Okay, anything provide can last is implemented? or of provision for just us you color allowance like on seasonal, in incremental once terms thoughts might to look that’s

Mark Tryniski

implementation we’ll models, effective process a little at certainly XXXX. point out. to and evaluating a it’s for at this started year throughout what will process evaluating reserves the be model XXXX. But be January seasonal on a point in in we But early where not and We’re the we’re around balance a we expectations number put of the have any too then of this certainly have X,

Matthew Breese

you. understood. Thank all That’s I Okay, had.

Mark Tryniski

Thanks, Matt.

Operator

conclude And that over for this question-and-answer conference At back session. management, closing time any remarks. to turn the the I’ll does

Mark Tryniski

we QX Thank you the end all joining look to forward reconvening call, of third and you. for Thank quarter. the our at thank you

Operator

thank participation. your Again today’s you conclude conference. does that And for

Community Bank System (CBU) 23 Jul 182018 Q2 Earnings call transcript