CBU - Earnings call transcript Q3 2018 | Community Bank System, Inc.

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Operator

Welcome to the Community Bank System Third Quarter 2018 Earnings Conference Call. Please note that this presentation contains forward-looking statements within the provisions of the Private Securities Litigation Reform Act of 1995 that are based on current expectations, estimates, and projections about the industry, markets, and economic environments in which the company operates. Such statements involve risks and uncertainties that could cause actual results to differ materially from the results discussed in these statements. These risks are detailed in the company’s annual report and Form 10-K filed with the Securities and Exchange Commission. Today’s call presenters are Mark Tryniski, President and Chief Executive Officer; and Joseph Sutaris, Executive Vice President and Chief Financial Officer. begin. may you Gentlemen,

Mark Tryniski

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

expenses and Third Year-over-year excludes acquisition operating results EPS, securities quarter were which the generally impact over was up losses quite solid. and XX%. gains of

growth, with and happy both to as million company. benefit well managed credit expenses. tax $X.X results EPS but interchange Supporting a reflect the the with results, impact the costs first We rate periods on our transactions lower operating organic our the for and across positive attributable satisfied Compared Merchants growth we’re all delivered well these revenue year’s we’re in the fund execution and half which bit of QX, this very as down We’re quarter was the hoping include strong the NRS a of lower of this this strength. which of very across strong was board quarter. impact and began XXXX were loan which to of operating Durbin and $X.XX, more fee

as deposit were expected. growing Our solid balances funds average over Average quarter, betas are funding but remains slowly, attributable quarter public to non-public with the deposits and the up entirely are for declining our base seasonally costs contained. well

risk. returns a average accrete will to at above reasonable sheet a XXXX shareholder with solid demand, capital capital allocation credit pace. funding focus have operating momentum, we balance continuation Looking ensure earnings we and continue and below of on and forward, to revenue significant A average Joe? be base the for substantial strategic

Joseph Sutaris

good morning, you, Thank and everyone. Mark

us. decreased million $X.XX. same revenues On operating share net of another and is net operating solid the by our income We quarter quarter lower of of fully up a diluted in million tangible related share in per net a and or higher $X.XX on or revenues in diluted per earnings interest fee debit quarter third An $X.X $X.XX were XXXX the $XX.X XX.X% share increase This offset non-banking in quarter or over or non-interest linked quarter noted, related Durbin fully million basis, per a XX.XX%. tax to Mark and and recorded $X.XX share As reduction X.X% earnings decrease due banking income X.X%. per $X.X expense. third income a equity was interchange was decrease for income, for the decreased XXXX. fees in XXXX expenses Return

the and franchise. million were about we the of This seasonal equivalents million decrease Ending XXXX up of of billion. assets of at $XX.X quarter million quarter million $XX.X our while quarter or million to continue XXXX. second up of third municipal in additional capitalize the Average the X% to or year-to-date. down million or core a end second average on September outflow investments a or or our was for due down and to with quarter million Asset quarter $XX.X million $XXX total and the XXXX in with loans strong deposits. were of entirely decrease a X.X% second XXXX, of X.X% when up for $XXX.X the quality. sheet was minutes, of balance security third end linked $XX.X million down investment XX, a from brief total due assets We company’s comments strong up closed from or quality or the a XXXX asset $X.XX will deposit fourth performance $XXX.X were color in including from X% on but remains of quarter the the cash X.X% up the of few billion, this XXXX were quarter, start $XX.X to which I’ll earning X.X% balances $XX.XX the compared earnings $XXX.X end Average provide year. loans total X.X% but

preferred $XX.X versus September party balances million XX.X% X.X% accounts XX, portfolios Total our September periods large funds XXXX During sweep excluding up were and prior. $XX.X savings an This XX.X% Checking vehicle periods. to total the third The earnings. XX, the deposits indirect and were increased offer the loan increased XX, market consumer and in opted a XXX through account trust business sheet XXXX at $XXX.X decreased outstanding mutual consumer reduction sweep business agreements and balance repurchase X.X% home million or lending, to or third XX.X% equity of between Shareholders’ our Total our and an XX, slightly. the XXXX savings quarter, deposits consistent due while largely up expectations. year represent balances were decreased we and sweep million to consumer or million and $XX.X and with borrowings increased million XXX.X commercial retained lending between between municipal down XXXX, balances one debt. X.X% million their September million company’s September arrangement. million mortgage, portion Checking $XX in is the XXXX. quarter seasonal balances of were XX, increase $XX.X up between off or deposits in X.X% September money or fund depository consumer portfolio equity some direct a of portfolios during and

September of third backed quarter. portfolio securities, duration X.X of end our years at is effective the municipal at and of the XXXX, portfolio portfolio The of securities. The was mortgage treasury the investment XX, comprised securities As $X.XX stood billion. agency largely

portfolio, higher cash cash of in types expected million and We at for during anticipate million existing flows quarter equivalent anticipated yield yields. XX of XXXX, tax a similar fourth to potentially reinvesting these was cash X.XX%. XXXX are flows for on pre-investing quarter investment securities million the Principal XXX XXX the including third XXXX. in total XXXX, investment but and The portion equivalents the of securities portfolio from

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

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

quarter and quality. ratings on recorded not during third totaled annualized of points XXXX third $X.X end was quarters million XX net loan This remain in XXXX. charge-offs XX adequate $X.X versus non-performing of basis basis charge-offs at quarter XXX% annualized the linked of properties currently the million points. XXXX. during the recent September loan loans the during trailing of The of portends We to of XX, Our net of losses by internal loan of commercial to charge-offs $X.X XXXX. the date for reserves XXXX the to OREO We charge-offs third We second million exceed recorded losses four or XXX% the quarter loan X. multiple a quarter of points risk stable or do and net million any most million basis for Year at the the in asset third $X.X the third at quarter portfolio XXXX. of have compares versus XXX% and XX $X.X end allowance quarter the the or in provision

$XX.X standard. of capital continue the of increased the XX.XX% per XXXX earnings tier of share to net and equity of XX.X XXXX. to third very and Our X tangible X% to quarter or at two be per net capitalized income The in the tangible diluted share third the of the is the assets the This share XX.X% to recorded quarter increased at strong. second quarter third solid of third million leverage Shifting X.XX% quarter net the XXXX XXXX. the and well income, of of of We fully end X.XX%. was the $X.X or levels income the end up at the quarter from per in in XXXX. times earnings of statement, million of $X.XX of income XXXX XXXX net versus regulatory ratio quarter The between over the $X.XX third at quarter, earnings ended quarter $X.XX end million

of second quarter the quarter the the in third recovered XXXX, the charges during company’s and company on million extinguishment. XXXX on net $X.X of termination contract debt that expenses million and vendor portfolio equity $X.X $X.X During of loss in acquisition recorded gains million securities unrealized were

per quarter third or quarter per fully or per X.X% basis, quarter in was compared earnings to $X.XX an to basis XX.X% $X.XX items, XXXX share per XXXX, Excluding the third On diluted per share $X.XX share a operating or $X.XX operating $X.XX decreased basis. in linked the per periods share. resulting on earnings $X.XX diluted on share $X.XX between the of increase from these share fully an as a

As mentioned related price controls debit quarter negatively share. XXXX by per earlier, earnings $X.XX third Durbin impacted interchange

points and of On in the XX the for decreased earning points between XXXX, yield XX the best of second to The the of XXXX, X.XX% total in from quarter funds points higher annual quarter of while benefits XXXX. of cost same X.XX% period in total XXXX option basis the federal third payment, period. interest receipt margin company’s tax share basis semi-annual of X levels points X to increase XXXX The acquired stock to quarters of the quarters. basis quarter margin the third compares and company’s in third from cost industry. comparable bank exercise comparable addition, remains quarter XXXX total favorably in the loan recoveries. basis funds quarter linked income among points the to X.XX% were between XXXX of quarter deposits on increased by of In company’s X to This XX from the impacted Net increased and the interest point X.XX% basis XX of a $X.XX quarter due third the earnings basis, points quarter the basis X.XX%. related a dividend net over was of basis in average assets per reserve of second third to cost X.XX%

additional the interest the Federal basis points Reserve was semi-annual by and of impaired However, margin $X.X million loan quarter net in company’s recoveries. the receipt favorably second through of impacted dividend acquired Bank four

increased linked net a points interest basis. core on margin items, these quarter X Excluding basis

Although the on pricing, are maturing loan loans. we loan new amortizing on our origination and generally rates faced competitive pressure rates seeing

during services points million for $XX.X quarter non-interest in interchange operating results, Consistent acquired wealth was of revenues We a $X.X XX% up XXXX decreased $X.X in deposits restrictions. believe our Although in debit rise due represents company’s these our well XX or costs revenues to XX.X%. year our revenues revenues. a in the funding our year insurance funding comparative that managing effect of Deposit a our [ph] on as service or XXXX employee disciplined growth and X.X% wealth and increase XX.X% by XXXX expenses XX increase quarters. lines benefits In This partially amortization of full revenues expenses amendment consecutive $X.X of million compares of the is increased proactive quarter assets. XX% third in cost million million. continue the company’s we the third merit increase The were growth fourth quarter of $XX.X operating total This and non-interest with significant up a have due segment Revenues the in to basis increases revenue fourth the organic basis approach increases The two quarter as based XXXX. lower has organic incentive the rate since The intangibles third was operating Total recorded interest and million between the fees will we up price and employee to third businesses. in XXXX quarter. occupancy XX of offset business primarily fund’s $X.X to in in target was salaries or XXXX. to or of contributed expense and in over quarters reflective non-interest employee or was XXXX. and for results. remained were general revenues spite of quarter benefit Fed business XX.X%. in benefits the XX of XXXX, approximately offset equipment as management non-interest date first positive On point insurance banking in businesses million million quarter in rates, business cost and basis, Durbin margin to $XX.X million of $XX.X and the believe as third of market of recorded and decrease non-interest in by increase the the also well also management and our total increase revenues a services in

$X.X to million X.X% Excluding of acquisition increased expenses, quarter compared or operating expenses the XXXX. third

recovery year-to-date basis, acquisitions Excluding quarter largely termination $XX.X contract charges, Northeast operating expenses in the to comparative XX% in the operating On second excluding the up Merchants of Bancshares expenses of were and the million first aforementioned acquisition Services or a XXXX. quarter to were of $XX.X linked vendor quarter Retirement of flat XXXX the due million. expenses,

the corporate tax into of lowered the Our third quarter XX% the X.X% the rate second XX.X% a of of in XX.X% lower reduction to to quarter rate XXXX. due XXXX Cuts quarter passage up the third Tax XXXX tax from option expense. fourth of from tax Act the was stock in exercise third activity reduction XXXX, which in The Jobs signed between was quarter effective in is rate rates effective to quarter versus tax net and of levels income of effective and tax law in XX%. in in the the of XX% related the due The XXXX primarily periods

we of interest XXXX. fourth activities, We would to third our the plan of fourth net rate margin tax to for to similar quarters and quarter mid-XXXs. be range the XX% low equity effective the expect to Excluding anticipate be second in the in quarter XX.X%

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

not of would we to asset capital it operational an single perspective, maintain measured approach we opportunities able back look improvement for the XXXX growth, Although respect for be on we summary, And with and perspective In beta a company very remainder From will a continue and believe horizon. Mark open headwinds turn deposit major remainder XXXX. we to the remains do retention any beyond. quality execute deposit to questions. well digit unlike pricing, XXXX. take now and we to that is the the see positioned to mentioned, lines earnings continue to both from Melissa as a to into the and it for forward XXXX of I'll on during

Operator

O'Neill. will come And Alex from with our Instructions] question Twerdahl Sandler [Operator first

Alex Twerdahl

about remarks, to in go Does in, changing I XXXX. First made imply a capital focus just you you managing being drill allocation all Mark, anything that in want from prepared your way capital a comment the to the along?

Mark Tryniski

prior guess, That be. was NRS growing transactions. them the couple be to I we at on No. where is, in, you capital make a to I an I deployment. about I focusing as we and continue was our have need and our capital trying levels to now, times high just comment to this at point levels if were we’re have made always right mean, capital of the will think which back talked was where think And it I disciplined we XXXX and all-time we look past I Merchants

those Now, a continuing pace. we're we’re XX or months out so at substantial to from accrete and capital

raise We capital With dividend, our growth, XXX after dividend continue significant increases quickly. ROA this with even an increase to of accreting the lower something, you're organic year.

balance sustainable a I risk we So where model. and our which sheet is of to need push profile be tier operating basis, levels tangible higher X lower the on think than XX%, our given our

is need of to it of the accretive upon on was efficiently business, XXXX, what be returns return accrete. capital and we need to at point raise of to ensure that now we're on is do dividend to shareholder disciplined that capacity. us get me, doesn't different I done, generally, just out return can capitalizing allocate than I need create it, a a our and and there and to it it’s, we capital transactions as -- into don't Alex, it to just high if provide that continue we and that and which So need just because how incumbent capital referenced the high we management sitting to to effectively rapidly terms a capital level where that in is the think we've benefit growing for continuing to dividend, we're apply It’s going our ever so earnings the of shareholders, certainly be looking the but anything mindful value to was levels

it's next the There look rates some utilization and XX that's portfolio, months on don't value there of the judicious will to higher there risk to always investment at, markets? us, you the If where of also but identifying securities over have an we transactions profile. layer given we the disciplined and in possible M&A, maturities past, I and got we're significant opportunity coming there may that kind know that we yet, lower there be may as going, asymmetric is that in but are an in capital we've There's an get is there reward be, be. in opportunity. continue for where risk,

Alex Twerdahl

the higher then the to them be of quarter difference? and the of year, sort and you'd were would – able put maturities quarter next off coming the magnitude what higher over results -- than yields what what yields. off on third are in When coming the to a the security the Joe, securities -- the where tune And next kind today of be at would matured of you breakdown gave that there you

Joseph Sutaris

up that opportunities net generally to about to put points effective rate is on. agency-backed, into basis points, we mortgage-backed would if basis and we from back have them might average similar the Yeah. opportunities would see opportunity security. yields There lives as go, were The at securities for the to also a XX a some difference lower additional with coming maturing to example, the They’re pick some few off you be durations. comparable and

effectively the at little be see we opportunities will those further, lower So, the -- the rates market bit drift rates markets. opportunity rate if rates And a maturing is up improved. than Mark noted, as

Alex Twerdahl

Okay.

third looks So the just a of of that's rest in that’s the maturity yielding was quarter what not indicative higher the portfolio maturities bullet of the and one-time kind like? a

Joseph Sutaris

Correct.

Alex Twerdahl

healthcare -- benefits talk then just bit? headcount you Can looks bucks X expenses, anything salaries a And question insurance due million that. and or lower down to that just claimant about sequentially, about final that like lower it for the just Okay. lower me, are like is claims on or little

Mark Tryniski

Yeah. Alex, I to due lower our on absolutely is you're [indiscernible] experience think healthcare expenses. expense, It correct. benefits our particularly

We have also payroll we in compensation and increase had the acquisitions second quarter. third some comp higher in levels not incentive significant the in of based had the any the And quarter. salaries -- to FTEs

it’s like. new of discipline and So, hires course the just around

Operator

question come next Boenning Our from Erik will Scattergood. with Zwick &

Erik Zwick

a investment portfolio. Just the follow-up on quick securities

guess, I Given commensurate five start level balances kind stay we declined total comments flat of for, with sheet at or we expect Alex’s that? should what that grow about the the discussion to this earlier now, balance that should and about balance quarters given had should kind of from but or should how the question, think growth

Joseph Sutaris

Yeah.

Eric, a a – reasonable least the next quarter. projection think, at is the I for projection flat

calling, some or see of what to may the those, we some fiscal XXXX mentioned, in year. Mark invest in are XXXX, As out pre-invest been maturities that we’ve opportunities potentially

as and could XXXX we a drift bit investment were grow up capital our securities portfolio. would well, potentially see also in portfolio we if to position optimize that it So that

a and the for reasonable expectation expectation. flat fourth So, I a is off think in XXXX reasonable quarter drift is

Mark Tryniski

into continued it’s is don’t yet, at whatever We in feel point there to change I rates, rates agree movement Yeah. fourth reason. it's are and clearly possible happens unless well. but that think we opportunistic in the a the market there given in inflection upward an time certainly we’re the for that layer as market we where quarter would

Erik Zwick

the in starting any of see helpful. and maybe loan better a kind around you're origination I a maybe that focus to sounds guess CRE. yields. some you're the competition pricing the rising of C&I what today. in bit, provide little the impact numbers some, market. investor industry gears out on rates and That's And you about there then big seeing like understandably, in Could seeing loans or colors It switching I'm you're yield kind of curious for deposit

Mark Tryniski

is what this now, Right Yeah. we in all-in quarter, yields uptick saw I nice portfolio versus in a yield at Eric, least say origination the what is. would

out the quarter of in that one and the for anyway, quarter function what loans kind of was So quarter again, but putting a about certainly is points. XX third renewing, you're differential

mortgage. it So was business similar the I and auto for the think

seeing least right So, on hopefully at which now, of what's bit we yield, overall going a differential are helpful. is portfolio the a little in between

so quarters would Joe about think the basis last on four we do as our over we continues, that that because deposit have that I pressure up yields said, will we I loan trend expect upward recall, continue hope are points, to XX pricing.

but both we So, sides, as of it terms can margin. in of manage can the we think get I on that long as well kind

Erik Zwick

question last in there impaired release Does And that both on of press recorded one margin quarter. the accelerated? the the kind third quarter, net the in scheduled include accretion no that loan just and indicated interest was then

Joseph Sutaris

loan in modest amount XXX,XXX some and included -- quarter, modest a had so. are scheduled there accretion or second -- was the in of the of accelerated about They we impaired neighborhood

was quarter. in quarter, not So have most effectively a the and of outcome second recovery due similar to that we a the is third did it in

Operator

with Our will Davidson. D.A. come question Gunther Russell from next

Russell Gunther

the on quarter? coming the ahead. commercial look just the we as contributors you were expect on guys of into come today focusing where geographic pipeline going give growth general forward, the from stands did And some perhaps maybe sense versus you of to a just Just then loan touch us you'd where where

Mark Tryniski

quarter, than it quarter pipeline of second XX% end third The was where stands which good. as the than is higher at at the is it Sure. the the of more end

quarter. fourth but the almost although was light quarter what always be it last So, kind few always change not it's is fourth year, and kind handful the for portfolio the pipeline third is good. of from pipeline this, pretty I'm net of to the that That's the this of we had changed not in second and in the is run-off like quarter, to never interestingly, used but strong, commercial years nicely years. suggesting back, in last up going which to

history fair have the The of a business, lower mortgage commercial is for the which last side. particularly seasonality year. where expect, we’ll QX holds, us. So it than on this also pipeline you was lower, that would quarter recent if It’s given

business a a So, where little always kind to activity. you prior the But There's out similar within with than mortgage is there. bit bit and slower. little that demand first get I inventory. mean, the understanding other of is of there's is very a quarter it’s range kind than fourth it's quarter certain enough pipeline, more was the little inventory lower that My even in than it not quarter. said year’s really

year XX seems continued between still just always and it million mortgage the kind always that. pipeline ebbs flows of it’s million, but a it’s and all So, not between kind at run – – to bad. long, something XXX It’s of

little think little was portfolio quarter, of growth auto third than $XX think stronger in there. So, a that in a a a we're we surprise, right actually but Clearly, did million what bit have quarter we're I we lending expected of although which little I starting about the I bit that side, and third the the paper slower doing are to and now, see think fourth indirect and of on okay.

Russell Gunther

the Thanks, color. appreciate Mark. I

Mark Tryniski

marketplace. level has of fight year question. has we're Pennsylvania other I but most we've to Actually, we're seen been I apologize, changes, which good. they’re long, New Yeah. has part payoffs, bank the an there. England, not bit your business above the Northern in average traction answer was fair still related Upstate New strong, across some all New sales, a of not strength didn’t York been York No. of getting been good. geographic.

I commercial England increase in New well. think as quarter we in in actually had third the an

than is We pockets of now, coming across it as great. discrete is It’s it which So right growth as has of been don't typically broad that. really, Hopefully, kind more footprint based from usually continues. good. it which see the

Russell Gunther

for capital at appetite you today and And where geographies particular clear hasn't and just in that focusing there management of this priority you're focused guys one stands last and then loud deals on point? list the whether I heard kind on me, your changed. that are depository any Maybe

Mark Tryniski

do know depository a or Sure. transaction. asset I to don't need that we

at plenty be have had the was to which core last transaction, more deposit suggest low deposit base. a we'd ratio, also would actually, of, think, you nice to They if We a loan Merchants look inclined I oriented really I year. cost do credit

at XX honestly for transaction XX the when costs us that challenges opportunities funding ultimately it are to as the low need our and something like that. M&A of basis just One look thought costs good you another but that one points, we to was modeling the we so or don't so we like thing our the XX of is right challenges. really like with the funding are model dilution of do shareholders, We metrics, that’s which for feel does do or

looking lower help can not -- kind to we’re us we're I that a do a deal not not than looking and earnings sustainable think, cash we -- other flows value, risk transaction high right do now, we're forward. to lot going do any on looking to accrete of basis a deposit,

continue the be model. will that So to

Operator

a Next, from Gilbert KBW. Collyn with we’ll question take

Collyn Gilbert

couple is that it's the quarter of or as consistently so clarify quarter, is accretion start to X a just so Joe, expecting well? fourth kind running you're on in One million off, each to what things. been wanted of comment, the Just

Joseph Sutaris

Yes. number quarter. loan the quarter. impaired second hundred a from But, terms accretion positive it in the the a the does fourth which in Collyn, it slightly down a to for quarter is of non-impaired be quarter from projection in margin thousand loan of couple accretion could dollars happened a would affect sense be very [indiscernible] and modest

X So, your is X.X the run next million million rare, I expectation reasonable to for think for a that quarter. quarter, fourth

Collyn Gilbert

seasonally, kind And deposit on again, a challenging of I loan second think would those just the those little and I flow of -- exposure don't through. discern some to us thought walk have reconciling think some remind of more on balances mind, through quarter-to-quarter, just seems again muni you I in walk the loan have then the the muni side, a through side would have you reversed kind just quarter, paydowns could which I trends bit because to then if loan, those little of quarter. and trends you this of how Anyway, just if it bit

Joseph Sutaris

Sure.

the England our instruments let in start have And New July Regarding X. XX, side, have one cycle portfolio loan the June borrowers on loan on the should on that a and say paid the begins we ends the have a me that then I portfolio, muni late fiscal has or represent levels. good in those, are on and they assuming about same those about the $XX quarter in at we year renew renew retention and down third quarter instruments million typically that second

$XX on million the goes So back quarter. third in

component So municipal seasonality with that's most loans. significant really respect of the to the

Collyn Gilbert

the Sorry, you as XX I you that in million anticipated? just so interrupt, quarter those did then point, renew but third don't mean to on see Joe

Joseph Sutaris

in also had a just just Yes. loans. other very municipal We did. a – And we modest increase

significant go include municipal And that so With the a respect out agreements our agreement are lift our So, municipalities. and fourth in the I and our repurchase tax New with taxpayers September, share in in collection did modest, a balances get timeframe repurchase that repurchase occur. to amount State because bills the in the typically we they’re lion's fourth still will of but very side, effectively are tax hit municipalities. as deposit in there's and the pay so of October cycles a York deposits agreements, collected quarter, quarter, and

in little that we the be a fourth the New And the begin the see and also, can we through the quarter, of some to up of or bit and collection England have and $XXX wind individual as drift our a or and the tax drift so businesses. cycle of throughout -- are quarter. increase we funding education to hit in taxes second then These June the in so fourth tax They typically see again when deposit deposits balances, $XXX then boost property State, do York position school a as we million level New first end excuse decrease a or in the of quarter of a we me, million out of first little and then begin net-net, property bit overall XX, in our comes it in the we increased market end payers see down So, third in of off reasonable footings. quarter also pocket a our in municipal quarter, a a quarter the range. and particularly to the municipal

Mark Tryniski

the you can the for were actually And see ending I funds up, down. year that it's the was see look And you down was can the up. average was but public actually, of end on quarter tables, non-public average the but that if on but you at, the think substantially, the funds,

playing can of out dynamic, kind as your to about, see that the between municipalities, give that you Joe said So it they take it quarters. customers and

Collyn Gilbert

if – is that, table, And in apologize. bulk and the muni balance what? the it I deposit The of repos, just the the is

Joseph Sutaris

a we year in balances of in to that cycle, in time repurchase is repurchase the The book from in X.X agreement So of cycle. depending accounts. depending and share and of the on lion's market between X.X and is and operating the number, ranges that XXX the on sit deposits agreements. deposits million, about type in XXX billion subset billion of on The time money million total year the remaining

book small CD very, today. a we here municipal have as We very sit

Collyn Gilbert

the yield And or I'm then down, of down at but yield to the to speaking release, yet asset slightly, loan on that, earning least trying NIM mean, the press that you was going the understand in the what's there? side flat. was NIM components on of Why the if kind we're just is? asset kind yield all of look I just discussion, to going

Joseph Sutaris

also little rate loan go Well, the on on increase, -- that to quarter. impaired at but do a have higher quarter while second we side, takes call rates, me, the on We in third have non-impaired in just it, maturing to had for overall the yields we that loans the the accretion negative rates related to -- or the yield the we didn’t the seeing the have new had, excuse relatively flat. I’ll but quarter the than effectively, we're the it for because we the, effect were

have in on to effective that would we were increase net we if loan So, yield the accretion, extract impaired saw a loans.

Collyn Gilbert

Of how basis many many was -- small how was thought that of yield? a that, mean, I amount, now, but points I

Joseph Sutaris

a of couple basis It’s Yeah. Collyn. points,

Collyn Gilbert

little the keep why meaningful, bit yield were earning and the in again you seems a Okay. And still investment asset the drop then more able to then yield, flat? cash the

Joseph Sutaris

an In the of of level to we quarter second equivalents deposits. due XXXX, Yes. higher levels cash municipal had elevated of

up in on saw, for quarter. they As they third dragged position a position in monies as wind points overnight Fed what basis. so less reduced, we did drift Yes, the down a bar on our the it yield is is But we fund’s available actually down, [indiscernible]. effective blended some

Collyn Gilbert

Okay.

two securities drop component significant -- maybe guess on later it is all right, Anyway, those and more can discuss yield? the in the just this I the loan by is and offset up call. I – after short of component we enough that not can So is the the stable pick to yields cash the it’s just just

to it anticipating a the just And still And quarter, -- about that's NIM, it number XXX, FRB $XXX,XXX like so then a back is seems quarter. you Okay. the much dividend, which in are clean going the pretty get this fourth dividend. then you'll at

Joseph Sutaris

Yes. from reasonable the fourth quarter. expectation That's a

Collyn Gilbert

Okay.

now? just all on question, was Thank that on think loan loan I the book, had. book what's I the One you. the right duration

Mark Tryniski

components you. that. I’m Certainly, not to have back sure we the We to of have exactly. get

on I that. you speculate, we’ll I’m think going back the, even with not and circle to

Operator

Our Brody question will Jaffray. with Piper from next Preston come

Brody Preston

the in and to, maybe the I million to. is I portfolio what know confirm just book. to wanted back I ask guess, go tied $XXX variable we've wanted just this as I this loan on about talked amount index rate. of the and past

Joseph Sutaris

rate I a front of you portfolio. prime Yes, to LIBOR few other is with there to rate loan good variable the are get in for in breakdown. is instruments the indices proxy respect number can But portfolio. there a -- instruments Brody. That and don't we variable based have that back and but the me, based mix

Brody Preston

And then go I yeah, guess ahead. –

Joseph Sutaris

it say is prime to based the safe It’s of more than LIBOR. majority of it,

Brody Preston

just wanted to circle back deposit comments guess the And beta. I on your to I

think don't guys you I deposit you you said and similar quarter, think have continue. X% something to was like something closer expect this your beta to rate to But a it to I X% going sort wanted was run move moving that just an forward to if idea you incrementally. of be if I would or get new it so thought and continue

Joseph Sutaris

year would very think I rate. were take. pretty some increases Brody, in or to going disciplined X the fund’s likely markets, we're we're yielding seeing to see look three competitive increases, those of higher instruments. rate around And in through Fed supplant incrementally safer We -- and Obviously, to the probably all pressures larger for seeing some point target that higher customers happened also is path we're deposits, already.

So, deposit and been the of that looking higher, beta would a in XXXX, bit little have terms expectation ’XX. our would be and we ’XX that in be out certainly into

Mark Tryniski

[indiscernible].

it on I -- talking cost the balance and around as it’s of using day-to-day, It’s who our when Some to mean, kind doesn’t and retention out nothing, think focus people deposit with strategies which what the what we focus a mean optimizing you so less. training, rate over customer them beta really funds in the tools what we’re what opposed deposit is that between on a is, funds can folks, give balance the positive what we targets are about and the just, cost about, quarter of they timing field we optimize beta, beta facing increases deposit but quarter that's our effort computational that's do give of what and means of are some I do are, cumulative are them, -- when that between of or retention. that it is function

done far, objectives, deposit know so is would. that of our and we've retention. of cost beta be those expected to a But well continue proactive low than will to in which terms do of estimate little in trying think probably funds we I and of we both I best I some going that forward, just manage better a what deposit

Brody Preston

I loan some you of Just growth, sort circling think, about Mark, earlier back the to pipeline. gave comments

is it but prior at was of than than think better start I where where the it was years. XQ, in it's lower it today

your sort growth. I expectation guess for fourth maybe I So, wanted quarter to up loan of firm

Mark Tryniski

Yeah.

mortgage, that higher a years, comment bit. Commercial quite commercial. actually Just to clarify, is was Brody, the not about the lower prior actually by

a before quarter, higher and is it second was but third is that. than last from year it pipeline also and the year year the commercial was It mortgage quarter, So before the up it’s third than was of quarter to, less ’XX is was relative the I lot, less. commenting specifically but in it pipeline not quarter it third of on the in ’XX, by

Brody Preston

Okay.

like sounds if So could accelerate then maybe to sets, see loan we sort it everything of growth marginally. continue

Mark Tryniski

anything growth acceleration, We Growth manage never not our our been you're you're markets, point It's going where Yeah. disciplined to don't market, try word at things loan word we in mean the our like regret good about growth. just in markets. our to too not future. that Acceleration talk in use acceleration. is to to experience, the that's I we we don’t use good. if would doing growing probably the is modest good, is in fast, some you're

we I can if double they loan the to in to sound so along how acceleration, value those terms that’s with shareholder have had do mean, exciting where growth our it's year, other at we get That's it high grow but So, book return that X% modest how you over that not, very if know overall to quarter. banks time, best opportunity. discipline, we doesn't the can and loan to are and or digit not this we M&A, X% we And not much X% growth, of – word the the we'll like I operational X% markets. that’s a a our don't double digits, we other don't income grow markets, look strategy use continue that non-interest

same fourth for pretty said, was of heads has which the quarter of Second few years, into didn't should have quarter in as helpful. payoffs the which we it talked fourth quarter, last better, pipeline, But the we this It degree that was that about good. been number had I quarter good. is but the quarter, and been the the in have disappointing, early terms

isn’t the about quarter higher good, But than say the -- that. third and again, with here. quarter this I will is when the be fourth we're Now, happy talking modest commercial growth if

Brody Preston

it guess exceed exceeding to, least sort as maybe idea your I get then what our expectations it services employee a run fee equation, the wanted to forward? the of And Is income we expectations group of you $XX within expect? and just an to can our continues rate back moving expect at is going that and especially from I model million what side to

Mark Tryniski

it that would continue that a to expect quarter now. million run XX right would we rate about Well, is grow. on And the

NRS So, grow transaction digit it’s continues the itself. double pace to a at

of elements benefits same the not grow, to business the other pace. at continue The also

growth been Insurance So, margins The not. business, The okay. growth all good. wealth improving. very also in, the benefits to business be continues has good. business very management has The revenue

plan than for think markets, looking faster benefits it the the the, I to business I better think grow which we continue those is think all in, So strong. and continues to I to need management Wealth for businesses be. revenues to do continue, continues the expenses, there. a But job be

We have a lot there. momentum of

the improving business. on of we're margin focused insurance and So, characteristics the

I reasonable businesses. a looking expect growth those also non-banking we for think ahead XXXX, would be So year

Brody Preston

on quarter, for these equity at one that’s last the maybe debate firms in to had front, talked M&A know have non-interest last just I want I me, about pretty a we think the And all. been income, aggressive markets. if private

Mark Tryniski

to last We the really or in hand first opportunity haven't so. the that experience had quarter

at revenue space the are, you there to levels recently I are the those from and at. the the EBITDA So what would when continues flow but be of specifically cash pricing of non-banking look understand in know and deals that be and participate are other that we transactions case. And I our directly, actual can't broadly, see if will, speak unlikely space, you I transactions I multiples to what kind those of experience that from and

case. what from that’s still I So the the market, understand in

Operator

or our back closing remarks. to turn that question-and-answer conference conclude And any management session does at like for over to time. I'd the this additional

Mark Tryniski

Melissa. participating Appreciate comments. additional Thank and will you. you, all talk Thank we again in January. you No

Operator

today. our That you participation. your does conference for conclude Thank for

Community Bank System (CBU) 22 Oct 182018 Q3 Earnings call transcript