CBU - Earnings call transcript Q4 2018 | Community Bank System, Inc.

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Operator

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

Mark Tryniski

as Good fourth and start quarter QX on comment Aaron. announcement our is earnings higher, which including for with you to severance $X.XX the Fourth $X.XX from quarter joining expected, an on down XXXX comment expenses related then day. our about of conference were yesterday. case. extra and whole we morning, Operating as but you, and thank transaction everyone, all a a QX, Thank call. typically $X.XX payroll were I'll and

also for growth and $X.XX typical very acquisition at impact new on the business with EPS in balances QX year. also Operating down, which deposit XXXX. loan in full We insurance of deferred the benefit came for hit of third XX%, up year tax pleased Loan going includes are higher us. Our were in slightly last in rates per $X.XX XX% a were as QX share originations strong was than from below modest excludes overall lift margin yields. Durbin quarter. expenses the and the That portfolio

to was it and Xth operating strong due usual year year auto like another for our portfolio was performed in across our would EPS. between as of shareholders, improvement the growth has than to quarters record very are related originations consecutive our observations Loan offset year overall, volatile by So more record I payoffs lending but mortgage planned. in the to commercial and book, three XXXX. There highlight

funding year, has costs retail margin team did the clearly First, performance. superb which to a of our I managing job think been beneficial throughout

up $X revenue and over were revenues and of the XX% would've XX% X% reported Banking was fee without Second, Durbin. been hit. impact Durbin our XXXX that million includes up noninterest up the

XX%. is Our wealth benefits and businesses up and were insurance XX% business up our management

Officer; to we leadership some and Third, leadership Joe important Transition has we talent significant announced President in senior future. May, as changes Vice It across for smooth Vice our Executive Chief appointing to Officer; President Financial as already Sutaris Scott Chief Credit most future, Kingsley organization, Chief Vice difference in apparent the and Serbun I as a made Executive my Joe Operating clearly view of and and begun as the including senior in company effective extremely our team. into our enhancing the will believe meaningful Executive was President that become Officer. and make

New a the commercial five Lastly, XX of Kinderhook of solid headquartered state. Kinderhook we region $XXX Bank, yesterday is million performing the announced branches York acquisition asset counties. across Albany in with bank

Levy its one Jeff is in a put very market. In strong the addition performance leadership, asset with deal, it's our very had and in highly He franchise, We high-value Albany started respected growth office capital. in experienced of additive continued productive in both further a and XXXX, up enhances transaction opportunity quality, strong investment It's most and for together the a Kinderhook inaugural a strategically we so year, of banking market. this very this business deployment all-cash to to and who's an our and geographically. providing low-risk, team, think who bankers

across to modestly. all We're margin have blow Looking operating XXXX, strong ahead that tailwinds to momentum we continue our hopeful businesses.

we a generate in have that ongoing considerable Kinderhook and can shareholders. benefit Joe? of the deployed patient continue for be capital be to solidly acquisition the and our manner disciplined expect We to and additive,

Joseph Sutaris

Corp. merger with provide Kinderhook our first our commentary I'll everyone. morning, around earnings regarding additional year information fourth good and and full followed by Mark, quarter Bank results you, Thank some pending

full Merchants compares per XXXX, of benefit after integration include onetime company. Cuts net and to $XXX.X per of net good Bancorp or of year which and per from earnings full for to year acquisitions deferred $XX the a due Retirement tax of record benefited of XXXX a We As was the income of Act in established million full of earnings $X.XX The $XXX.X revaluation the GAAP of share million $X.XX share in Jobs year million company and quarter. new passage recorded full share very year a fourth Mark company's Northeast This of for the income $X.XX. and and income earnings noted, tax the the the our position for Tax Services. a XXXX the

income down from of of $XX.XX million X.X% and closed quarter quarter third million is this end of $XX.X XXXX the We fourth fourth XXXX. and $XXX.X average of and or This discussing XX, subject loans X.XX% for end and X.X% half earnings XXXX from card share. were return billion expenses, impacted acquisition-related X.X% earnings per I'll up the company total over of operating of share XX.X% were to XXXX the the or negatively before now from $X.XX were about full quarter billion, to quarter results. quarter XXXX return share equity the with million spite onetime $XX.X million the X.X% the tangible earnings becoming period. XXXX, of to the the price improvement the sheet make quarter benefit debit full comments interchange year-over-year. Durbin-related this earnings at in tax by per the of restrictions per achieved XX.X%, XXXX, earning assets of of $XX.X These and Excluding assets X.X% the X.X% year fourth year $X.XX were XXXX Similarly, down or of operating which compared compares down a year year, or $XX.X of full million per or balance end the and second a third $X.XX results assets quarterly net in or $X.XX. were the XXXX. from million Full tax for effect, the when on XXXX linked of or year December few $XX.X third of respectively. on our share Ending $X.XX

mentioned, $XX.X million or outstanding and million was Mark sheet, portfolios. X.X% million in on in of decreased strong payoffs in This net the $XXX.X our in decrease lending basis business unscheduled full levels deposits originations or totaling On a As a offset XXXX, decrease to company's $XX.X although were linked-quarter resulted by or consumer higher X.X% X.X% on balance growth or million $XXX basis. X.X% loan year a balances.

with XX, at which from During XXXX, December accounts solid prior. our one of sheet and utilize deposits represent These million large XXXX, suite savings XXXX off-balance XXXX. XX.X% an off-balance to a commercial offered certain arrangements Checking arrangement. increase increased we vehicle is XX.X% between $XXX.X sheet December third-party and December year total deposits opted

$X.X XXXX fully up XX basis fees expenses, assets. the basis to quarter single loan for fourth fourth -- As operating In but decrease preinvesting similar to July share company the million funds the comparable of decrease mortgage-backed outstanding. Compared in in anticipated cash decrease revenues, noninterest $X.X $XX per the excluding XXXX, existing and onetime tax are Operating of The $X.X securities. portfolio the earning quarter fourth loan other XXXX stood taxes, the were million X the expenses X.X%, in primarily in a of XXXX acquisition loans income in share subject from type of fully The the from a and benefits, XXXX, and total by expected at expenses due per expenses $X.X basis on on investment quarter, to quarter of in the million increase income revenues per increase by $X.XX XX.X% in driven for Net during diluted and basis the and to quarter but million of decrease $X.XX fourth of intangible or XXXX. debt portfolio potentially expenses $X.XX was XXXX $XX.X securities at $X.XX tax We were totaling of of employee higher part X.XX% amortization equivalent earnings to earning offset and nonbanking a cash occupancy fourth due compares decreased million due was shares million in revenues in or assets. point $XXX offset increases $X.X in comprised offset and earnings December The the quarter was average interest X.X% tax or the lower lower portion The per existing in of securities, provision income noninterest total banking-related improvement fourth on XXXX, in reinvesting a investment gain losses of business of the Durbin the a Despite with equity company net This by a from and $X.X X.XX%. part investment agency to a -- of portfolio. quarter and the income these being up to interest XX, contributed cash in $XX.X fourth flows quarter XXXX. to to fourth $XXX million at anticipate net prior in XX, flows yield million Increases per company XXXX. increase in of to cost revenues the XXXX. a charge-offs million and the equivalent in revenues asset benefit, reduction, lending billion. exclusive in XXXX X.XX% excluding equivalents or and in by share in operating quarters between earnings. of XX.X% duration income benefit, or total million beginning The GAAP securities XXXX. expenses tax deals. of approximately income portfolio, effective million in noninterest salaries company's In operating the compared basis our securities. X the December XXXX. share net the part was fourth Compared securities net up yields, average in reported connection margin losses higher to $X.X offset $X.XX of businesses acquisition-related was municipal million on amendment a in Durbin including for points treasury of of the a X, securities the largely in the X.X in up XXXX XX.X% the portfolio at investment the were earnings in onetime was portfolio borrower. charge-off or were fourth equipment by as Flexible quarter years X.X%. is decrease annual $X.XX decrease share interest net operating unrealized provision for Noninterest quarter was in point XX interchange during

fourth were a core quarter, which of modestly to amount the expenses interest of operating $X.X third earnings or basis were This the on margin million the $XX.X to X.XX%, million of the cost Consistent interest X third rate deposits for company and the The of interest operating Bank a between in semiannual $X.X and remained on points increase the increase to earnings The the a basis receipt linked-quarter quarter the quarter basis X to increased This in FRB dividend. cost was attributable the basis the funds fourth low partially company's from quarters. quarter. average basis The a million and dividend Reserve net results. Federal cost. historical X points yield with basis. million X.XX% to XX points. factors reported up an offset below million in points core is Noninterest quarter X a was by basis million. linked in X.X% the X.XX% Net volume income linked an compared additional assets margin, point of quarter, a other This to to benefit basis in expenses in trends, linked increased was interest fourth linked-quarter operating and a payroll $X higher revenues during attributable the cost on $X.X banking on third from linked-quarter of attributable This total decline revenues at total Moving the million linked on $X.X million margin of quarter. of reflective which down $X.X third strong basis points increase included points average X seasonal of deposits net Net the very basis. from compares of and of insurance to the in a revenues services. quarter. quarter fourth $XX.X were XX a quarter mortgage day third in decrease

of During the new due and policy and were the third levels insurance to revenues quarter, compared up renewals. sales company's linked services fourth higher as to quarters second

acquisition-related $X.X Salaries the occupancy company million linked-quarter fourth were operating expenses as and recovery employee not to in basis. to other on million quarter. $X.X equipment and modestly up reported in X.X% experience expenses the increased Excluding the is the the operating and benefits, total quarter atypical the third a quarter, third It or expenses higher quarter. compared for in

end XXXX. quality ratio XXXX the $XX the total and asset Nonperforming third reported loans end the XXXX. than reported both of is the acquired remained at loans of of at the X.X% same points the legacy the quarter strong of Our million This fourth the or X linked basis comprised fourth end ratio totaled quarter quarter of lower and at of of of loans.

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

on linked recorded XX third XXX% largely points on losses properties, by not XXXX. points currently on a million the December at the loan of full We increased $X.X and to quality or an From of basis loans remain XX, down year XXXX. in of full loan XXXX adequate any do the fourth reserves compares a any OREO or The increase net at was and This due do on quarter million full basis XXXX. the quality. earnings. the see Shareholders' loan horizon. to stable during XXX% the and for commercial major in XXX% annualized X from end most at This points $X.X basis year a nonperforming charge-offs Our of not basis. recent was of the allowance the basis quarter basis asset multiple risk headwinds to XX retained million have asset year on an internal X. charge-offs trailing we portend quarters and of ratings perspective, XX X.X% We exceed equity end or $XX.X a portfolio

the quarter, net tangible ended the the was quarter, X.XX%. XXXX X.XX% up Tangible ratio quarter also standard. and ratio well-capitalized of X over equity third at assets fourth Tier at This Xx end of strong the the remained company's end at Our the capital XXXX. has XX.XX% X.XX% to in the was leverage a with solid quarter end of of and the from regulatory

net interest mid-X.XXs. similar the Looking ahead, of the we in XXXX margin half be to anticipate second XXXX to

share to the restrictions nonmaturity issuance. Since second Although XXXX, portfolios face we share. in continued pressure improve believe per will well per the anticipate on also until repurchase unfavorably our be remains effectively impacted effective merger company lift second additional earnings to and repricing organic we in ahead. an quarter Bancorp results half XXXX we the become overnight deals, expect not upon agreement Kinderhook expect we the summary, in deposit the $X.XX of of Durbin that do loan XXXX and the integrate In very also by quarters positioned full year its

on comment to metrics Now the deal like operating I Kinderhook. regarding briefly would and

$XXX X.XX%, loans. or largely from total of the commercial of in commercial and Greater provides estate our franchise $XX or Kinderhook geography portfolio very the is million which or quarter industrial Kinderhook portfolio loan As of approximately loans, book total the total million most or debt commercial geography, loan our points $XXX assets loans. the end were and X.XX% time million family operating equivalent real net operates X% in expense book to region its banking Kinderhook in perspective is equity funding in yield Bank's tax investment approximately Kinderhook's are York. in existing fills also and million. has X.XX%. in fully estate There regions better At X.XX% deposits. money also deposit savings earning with but yesterday's basis opportunities a of million Kinderhook's residential home was Capital and XX is portfolio a cost margin a Capital XX-branch the in core New Bank the geography, XX% a other total total Bank XX% direct Kinderhook were York. presence is of market The deposits Kinderhook's in was remaining in loans for including for and $XXX costs portfolio. with XX% augments consumer believe release, hole totaling Corp contiguous but demographic in Kinderhook $XX in million, and District our million assets quarter, $XXX of small loan interest and approximately checking, our of real yield with interest that million in Total TruPS. had its Kinderhook We XX% including quarter $X million on a Kinderhook on $XXX X.XX%, Greater an deposits. loans total sub press footprint. the significantly a and District noted third approximately in $XX loan of X.XX%, funding of deposits, inclusive of Approximately third New including total X-to-X its franchise third

all $X.X for and to deposits it Aaron to line assets billion to to back to open The is on I'll turn transaction and As is over on loans This cash total consideration price Bank's with basis. estimated Kinderhook merger tangible multiples pro are release, book the to cost shares convertible a basis total to to common conversion now consolidated purchase Community earnings XXXX. sheet common value assumes and forma The to estimated total the for merger for at fully be The questions. $X.X anticipated into is as $XX $X.XX billion. $X.XX XX.Xx full billion, the year shares. company's $XX.X purchase the be X.XXx expected million. our $XX to full XX, increase and September shares a pending of aggregate phased-in noted first in $X.XX to savings balance $X.XX GAAP press XX% accretive of prior preferred for EPS

Operator

We'll Alex first Instructions]. Sandler O'Neill. Twerdahl [Operator go with to

Alexander Twerdahl

I XXXX a rates of basis deposits strategies. pretty Do maybe being industry cost risen, or bit about dramatically. fairly was for XX of bit a to some of kind about in those has give commentary us if the it's of happened? you forward? deposit you wondering just little rates color there point a that catch-up rest us just can those while do the that already Or more give standing is go you're foresee and of lot your thinking you sort little where Or it's can you Obviously, certainly around going of and lagged enviable, from think sitting higher? catch-up

Mark Tryniski

Yes, I think Alex. question, fair Mark. It's

to think that portfolio. love because would need we I we to be catch-up means funding more that able for growing play the loan

less As was expected in of you XXXX, I say, terms in performance. it than know, would we lending

-- levels of We mentioned, record volatile have payoffs as And both record year record a but originations, terms just as and originations well. of I it was payoffs. kind previously of levels in of

that disciplined be highlights funding So our the of funding as think that suggest balancing were. I And for costs with try us need I to think that what I would the of I in to by needs of funding one comments, of the my our was -- and strategy cost funding. for in that would I deposit the we management the team -- that said think off maintenance around funding the for the retail that relative XXXX

the the more quarters. deposit of think time, we'll of love growth. on better would as upward I still the pressure betas. we're terms I to going in loan to those overall market in modestly over last to be on seen I side So we've couple fund rates lag aggressive to would continue get suspect

savings, I almost year, account, same year, that grow of which had other XX% his this I focus checking actually savings of not checking that's every our and Joe mean, is I retail on last core relevant, The grew way the our in it's is funding something money markets. in almost think, lot terms we strategy. really which mentioned comments, thing, and think, they a

of funding. think deposit So that's a composition our beneficial I

-- that have going of really we manage -- that XX% the have just manage. So other XX% going the to to funding to to it's are we're

be better what more I funding, deposit question, we we'll and because did your aggressive be have in would our in loans in answer that of -- it XXXX. grow I yes, than love we to XXXX terms to have So opportunity means to hope that

Alexander Twerdahl

maybe kind a origination Okay. you of of and as And push of kind payoffs growth question, over been there's the a some then did with the volumes addition that's talked have. the little there this lending years? the market area off faster that in couple as of that you bit that office loan the the feeding hampered the Do lot XXXX, how opportunities Albany X% loan at that a slightly just new and and you growth about pace out acquisition, least more to of Kinderhook of to target last closer opportunities in well kind foresee, the

Mark Tryniski

the that's think I Yes, hope.

think, -- the the were had We didn't going was and year. of half we -- lot in the really. we first second moderate a it half unscheduled payoffs to payoffs of I that the of hoping in were year,

hope again was same pace that a little the disappointing. We so that, XXXX. into it doesn't continue at that And

think is to very transaction Albany I the be helpful. going

team We've growing been market have fair slowly been We've well. very time. market. a strong more Syracuse has been as little and kind modestly team, and We a a in now Kinderhook of in Rochester. of a doing a for bit Buffalo good more the it's We've very in doing there. strong

and X%, of have billion, rural you X% the So -- X%, smaller and a accomplish nonmetropolitan try that strategically in number, to do big of X%, invest is those I it's when when to take, you lot in difficult grow steps markets. to And markets. have incrementally $XX And we for all think us we challenges to growth. that for one opportunities Alex, is they're a the business in

funding growth the very those the good in is is the good and but in markets, less. very those is So markets, retention core deposit

a trade-off So there's there.

banking and I thinking of with for our growth. where opportunity just some think larger to invest how in supplement the our Albany And we core strategy modest maintain of have of highlights kind we and transaction markets So the in strategic around grow really that evolution markets, to more trying we're those loans. the continue to nonmetropolitan investments that is which continue

Operator

to with next Davidson. We'll Russell go Gunther

Russell Gunther

Just follow-up guidance, you what around of us includes that assuming, anything, I then whether well, if margin the purchase assumptions color past accounting, deal? there, you're share mid-X.XXs. on as more a Fed both just in quick deals And the the appreciate recent commentary. the out Could with for and XXXX?

Joseph Sutaris

Yes.

Regarding are pickup from the The maybe the I But FOMC of in we through. exclusive From yields, point come just things additional some timing FOMC bit mid-X.XXs the XX in think, the sense Fed, to continued our are mean, is of which, on of two I increases a will of year. our anticipating speculate those we changes. loan anticipating kind of basis little increase as we rates. any when the can all perspective, a shorter-term

rates are levels new new -- higher Our existing on are at going originations book than our yields.

seen to higher increase XX I Mark basis of north about the those little or to, yields. We've the in quarter some that that of book north had book basis last fourth XX the XX cases, mentioned points points a XX actually were call in earnings the think than in yields. bit

about some in of repayments million $XXX there. loans So pickup maturities had quarter. fourth the we're in We anticipating continued totaling

So reasonable quarterly been that's a -- expectation a there and is basis. that on fairly

ratchet drive and have rates. think We have I from quickly this, there and to accommodations. deposit in off competitor even don't touched competitors. yield we standpoint, in do, those on lag which, have depositors, market those do Mark improvements, however, position for as that low deposit anticipating, the run side, We we've to where we do have or new our loans made up pick historically, asked our had, the in some on is no new up a those deposit some loans, From and as recognize quarter, of originations. we're and a we book as inevitably, our some rates deposit will the large we're which the very fourth up some beta, So

reasonable. mid-X.XXs that think I ahead, moving -- is is So X.XXs

the loan dependent dollars the quarterly down hundred bit to of to trail on a Regarding purchase on about continue a on that I expect off accretion that expect drift couple existing to payoff we tune that's think to it's basis. would accretion, the bit Obviously, thousand a with to the to reasonable respect quarterly of basis. a levels. But a

Russell Gunther

have out right. wealth And gears revenues appreciate and switching break income expectations color insurance an verticals on handy, for fee fee on if comment you XXXX. here, to you for the it then basis us could the I and All those businesses for if there. just then your organic

Joseph Sutaris

We've employee benefit and services insurance had, growth obviously, businesses. in solid our in our businesses

nature. those to been organic some from continue that's of a of perspective. in been acquired, level Some XXXX. revenue of that's in be that in anticipate mid-single-digit Those businesses perform to kind similar We levels

the there. hit On have we $X.XX side, year another fee banking as we mentioned, an additional Durbin for the full

item XXXX And to Durbin, excluding basis, of XXXX. basis, up to history. change X% on be the a Durbin. quarter because considerably negative in it's difficult on a core X% move the line impact our that So expect kind of fee been year during banking going has But don't to a we of to

Russell Gunther

rate one for thoughts any tax me, last just on the initial XXXX? but then And it. question, for Got ticky-tacky Okay.

Joseph Sutaris

the So we the XXXX. drive a amortization to are our securities expectations think will higher. slightly similar continued which for came And for -- I will little in similar, in effective this up year. expectations but XXXX to all-in to maybe XX% that rate We're affect the municipal tax have bit, XXXX close portfolio, are going some potentially

Operator

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

Collyn Gilbert

first question. back to Maybe Russell's just go

On expected -- it balance quarter, you but the purchase know I a the this Joe, was $XXX,XXX to fourth said just quarter? accretion, trail to off $XXX,XXX

Joseph Sutaris

It was $X.X-and-change million, Collyn.

Collyn Gilbert

third to quarter. Comparable Okay. the

Joseph Sutaris

million. $X.XXX Yes, Right.

Collyn Gilbert

back you have guys in touched growth a but done to just you perhaps of little of it. things, how on thinking a Got just then I mix 'XX? And the know -- kind Okay. loan obviously. you I can of you're know couple bit the about this, growth,

moderate I your your You've big outlook bit. we and a more how of really on kind just initiatives, starting is know then commercial curious fall just some the for you're demand sort origination that pricing how good overlaying of mortgages about still I'm thought, resi it but seeing just think from of changed for maybe a growth if your you're if XXXX? assuming paydowns you're with little of Also if to is indirect, that off here, there we see kind still shaping but demand. variable

Mark Tryniski

Sure. commercial, Collyn. start with I'll

were of originations think, I success of -- our organic and lot by said, We companies by lot XXXX, I bought record which equity, strategic a as bought larger bought offset buyers. private they unfortunately of strong were business some by had really lot Warren customers, really larger had by in a that was we of payoffs, bought year. by more development last Buffet,

and hope -- that would don't difficult is as I to I get in XXXX. the And we same So outcome said, predict.

that's think will case, if better a be year was. I think than XXXX XXXX I the

it the As business we to moves X%, always X% X%, kind relates up a mortgage generally business of that year. have,

into business, expect at generally, consistent, the market have XXXX on and the Sometimes performance the Fannie that we are but pretty curve X%. secondary to originations other looks yield sell up in we than I like similar what mortgage on time, the more would Mae the times depending relatively

and kinds or wildcard. I where of auto the off On to side, and that's that overall, tightly because auto economics unemployment sales the there's years -- a fall things. very those of economy kind runs mean, portfolio indirect really the off we they're tied

our kind it's usually In own difficult to of internal expectations. budgets percentage-type business, one every X of We kind a So project. budgetary year. that that is do really

rates our attractive sometimes happens sometimes are opportunity or Sometimes we'll spreads put in in get XX%, get to And it isn't which the spreads everybody it those to which so demand there the the on comes at because that. the is book view, the If of is isn't too then if and are out do the comes demand. okay. thin, there both at are or when there assets less in XX%, demand thinner chasing the minus

bit. a to little So back we tend off

So that tough is one to predict.

it's going usual to whatever put know of that, X%, the to going if year I this think that business. don't But I X% the it's but be. be, for probably it's in we in kind budget X%,

mean, that the who that go had different the say, how business I I generation, of team development in got the have So think, after different leadership would on transitions business we on folks we I year, we've back I markets. some views middle think circling and the to

of we benefit didn't to half those started I sheet, of of balance understand XXXX. we'll it I hope XXXX. some that the transitions in in second see that that see the success So the leadership hit and

Collyn Gilbert

closed volatility higher are EPS I into maybe then know than That's give of variability don't guys give I there's their little But just are there, the a of just us to just given when that orientation more going Can commercial to bit of And what think coming the some given trying running sales? kind your company. of any I'm up sort you shifting the that you a nominal, pretty to more going is bit the kind assumptions, could Okay. accretion through cost us numbers? if assumptions I 'XX. assuming know, the you Kinderhook, we're or Kinderhook And offering. into Joe, those what's XX% fourth beyond of impact numbers, of helpful. own trying in the But I think that quarter guess, acquisition just with more. understand, we little Durbin gears

Joseph Sutaris

Yes.

just we're we doing our be make opportunities, right transactions. try most the in conservative to sure As in assumptions to that

hit do thousand few Durbin, some on to modest relative we basis. assume hundred a So year full a dollars

So there is little that. a bit of

some we're which margin opportunity off. sub to the hold maintain on those are pay current to to some There TruPS, expectations we margins. also going and until have We similar debt to

margin We assumption transition pickup and then keeping growth opportunities sort and we're about always the deposits a and some runoff modest just going on have forward. the of around loans through So same.

And we or, in the of some cash a say, of I because Fed a comparable cash as that have course, also well. we So baked of of cash is cost have use funds a rate. to transaction, this should

we overnight utilize So basis. won't the to $XX have that ability on million an

a from GAAP also So accretive perspective. some that back the nature pulls of

Collyn Gilbert

that of last offset How sheet then funding that then M&A, has in it's looking into in going mean, I guess, many would feed how I guys M&A economic to I moderate see you -- balance what about -- are you've spot your -- superb deploy. acquire you're transactions targets. healthy mean, Kinderhook -- there And enter would slower given currency, anything -- to because always more could growth along, you mean, you guys, also comes that. in likelihood you're said, If quarter on plenty a just tough maybe M&A, been guys that of you certainly, anyway, broadly, a basis we are as are your side dilute so seeing maybe we you helpful. any That's for likely 'XX? relative had saw to just of deal forward? Mark, you're do of think more maybe terms sitting are your with then thinking said or I As in about the see. would capital thinking an larger but M&A and and obviously, But going you got that environment, so a we broadly, value for non-bank you're very you I the potential you starting change Okay. acceleration into to

Mark Tryniski

Collyn. Sure. Good question,

I of grow think M&A integration about around a It's our back not the our of -- flow for ability kind It's evaluate and and confidence there lot it's went using execution risk/reward. and share of some per the we kind growing our and that's use the a And lot. really that risk. in that sustainable elements really shareholders, strategy to our way changed about to and creates cash has of lens opportunities. that was M&A risk/reward,

X more something risk that away, we a much that in if an to creates requires is geography, reward. example, awful do states which lot which more were just For

time always spend lens risk/reward of flow I our do So confidence cash for we share but lot of, create mean, evaluating sustainable can through opportunities, per that shareholders. a the profile and growing this of we that have

a to the buildup But growth. and are certainly model, of to fund So our prefer capital would a it's we part in never and capital to model, the enviable pull of organic lot an we sense. that's use levers. in of I accumulated position have been a part significant

organic One of them growth. is

One of M&A. them is

businesses. nonbanking is of our One them

Another quality. funding asset is cost, one

strategy. lot pulling unimportant to return not shareholders So create time, double-digit that and that over an levers we're is of to try and a part M&A of

transaction, Kinderhook us. good size share benefit strategically transaction. for And geographically I the think, is transaction us. large per I cash solid flow terms and and generation very not as a the for the sound economic in is a transaction, So of accretion for pretty this It's said, I but a strategic think it's

do largest As ever dollars that you billion to Merchants was close the we certainly We to bigger to our means of to for sustainable strength more and assets the given particularly that a done. recall, of about That have have execute currency, bigger that things. transaction did the it But couple to have, shareholders. was the growing of we our create value transaction confidence we've do or XXXX. terms things effectively to in and opportunity in on our ability

basis some $X them than wouldn't count them larger some a of smaller. We ongoing transaction of I of an larger So look billion lot transaction. on the are of at and and a are out Merchants things

And as would I in you the say a hasn't we've impatient. been never much. overall know, So been We've hurry. changed never as philosophy

sake is not It going do. we're going has the growing. I That grow of We to are not for we're mean, going -- squander. to be never to something to

this doesn't not us a for above-average and have to ability a and And to returns. continue execute for going in currency. sense strong with shareholders entrusted make use we're Our our way us create that to

continue that's to have, does but How accretion? accretive, Is around enough mean, have we we we it accretive you it is I question about challenge, very and be the this, is it's the from is enough? about, it the do when risk/reward Is is judicious. So strategy? you we our everything price. into accretive? walk the -- fit a just it valuation So away sufficient? Is understand what's Because discussions risk? frequently there

So our our we we're judicious capital to have terms us we will and shareholders use in always continue to that and relative that -- our our placed of in mindful the how of confidence to very be currency, valuation.

our fits thinking to continue judicious. we'll to an then we of M&A, of if opportunity other If accelerate. pull. doesn't then arise, the profile be will other in opportunity that we those levers we around there's So could that look opportunities acceleration And of that

and X asked additive nonbanking did X I smallish, to or was those that very think, do pretty smallish, let's it, to Collyn, opportunities. -- business We but the call a management on the adds wealth small. franchises, in insurance question number were follow-up you really our probably XXXX of

far the I of by business think businesses. nonbanking the now our benefits is largest

across involved really that with We challenge benefits business. in opportunities the the have that become that space. look continue we The in at the that equity very to is private of players country terms

we've And been so accordingly. the have looked of that priced some at things

long to sell know in we to a time transactions, to So space and that we could who know are, sellers be with who a dialogue a benefits fund. we we and who we've and conversations with want are, they a people have have we not some continue strategic partner that know potential on space been to headwind continue the because but the in

think to add look And as always and to in we'll I opportunities. we'll smallish as of we've probably -- arise, that wealth those predict for continue It's been grow and to insurance these sensible to the of and talking. have difficult looking keep organically. management we'll continue able flow those. So I opportunities space think well those benefit the and pretty that they well keep And some business

of in discussed businesses. grow I've just also apply those it continue is that same I it's nonbanking pricing but discipline to the relates businesses the as to so banks, that are opportunities related, And would M&A we to not all even spaces, suggest In between -- expect those some those believable. the organically, but to

we've on about the those what But going and has say So would the in opportunities, it more disciplined be whole, to opportunities. a makes I it bit strategy M&A we we're execute had how high-value of to a on similar be challenge. past little to

Operator

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

Matthew Breese

Just a follow on the M&A question.

the the robust lot might is, CBU markets might in change in of doesn't sense I more Northeast? see you payoffs guess, think, And now. my towards As a in into strategy we going continue more with, I markets a I about a it line of bank pace, economically a Kinderhook and fit materialize you at makes Philly? if or the that loan growth long question the acquisitions, play of and see in lot the areas in think and you're such perhaps we Boston vibrant acquisitions head of

Mark Tryniski

about if It's as really growth. not to terms rural get markets about and an actual New York Pittsburgh I would or we urban Syracuse or about well, or do the horizon, we and from discipline get don't look to It's $XX Over less guess, to from I billion, near say, in or larger to or in our again, a on into -- $XX same Boston might lending -- in in $XX need time, need The to see these controlled is now be about we we're we over time, of city? at, growth. billion I if shareholders go using be get just that this basis. growth we term. a billion way on something, retail not currency bigger honestly move or Rochester, of taking and Albany Buffalo now to Philadelphia had of benefit. larger don't some start kind the and we it's the

us for upstate of markets. a think, lot in opportunity of I some there's these

I opportunities Pennsylvania. in think in markets there's

about now, covered and in that in right market better We where dialogue we've of and interest bit much terms we over time little Ohio, try continue to have understand and our are. Vermont have pretty a talked opportunities to

but in we and it's it, Massachusetts, Syracuse lend And it know We future about Boston. into Albany, strategy, Scranton, we we I I about Burlington kind to do maybe I we're think lend know really I Rochester think with and we know think anything and City, Buffalo there. can Springfield, -- something I York think going of don't comfortable and part different. be the I our in well cities. So and of lend can and and there. Wilkes-Barre. in don't second-tier New think know how I into think lend don't would don't that we it's the

good we're think at I lending there.

up do I -- think, XXXX. And we strategically, we so I basis. us makes will that sense. to And probably something looking I last expanding We similar opportunities. XXXX that do in did think, as We in growth better into affords a the region in similar Albany said, to on continuous year that another started LPO geographies, that be

next our I go it's business years think on all a probably So I the transition on of XX it's time XX. just would suggest will part but model, over of going and been for for

So -- but Boston York. in New we thoughts don't certainly have being any near-term of or

Matthew Breese

the paydowns paydowns in pace not accelerate common ahead? about and year take-out as And of there the decrease think any customers reasons behind whether or threads behind make to we that to you driven? the and is Or are the or all Understood. paydowns, the it could mostly an guess can look the educated as

Mark Tryniski

of everything. it's would bit mean, I everything. little a a little It's bit I argue of

I ones, looking was It Buffett. growth coming significant premiums. think it accelerate you strategic at big to buyers equity, Warren if much themselves paying in the was private was larger it look and

by our take-outs stock that weren't the other prepared of was, business doing it of pay offering smaller the match, So was who were down." and can you really banks we to economics. well because Some we is "Gee, just terms

everything. clearly So The it's though. of take-outs, ones were a big little bit

Matthew Breese

sluggish basis ahead, capital year somewhat on might change guess, the if do avenues Okay. continue the of you pace And remain securities recent are little the builds, at size and portfolio? we of to meaning that's I growth a loan in with dividend the as a to or a the other net there see buyback follow-up that, increase the does in seen we've ahead bit what do years? anything share Do increase the a you

Mark Tryniski

mature referenced cash securities in think on of into I and to we, may the Joe 'XX. some preinvesting that be mentioned, and flows 'XX

composition utilize to capital. capital what carry. beyond we When to about good but that, sheet you something two, sheet, markets a the our balance our Particularly think volatility that's, have at disciplined in balance look and losses. looked terms couple And we're lending, composition million, of of and that so of more, in in you at the if as the really in of while hundred we above of one, of way loan really we're that's we've history need maybe a that risk

So return view, shareholders my clearly sheet, capital we're so getting a our have low-risk aren't now. balance right and we in on that, carrying

we So that's it in like high-quality is do stocks that that treasury terms to from and curve in at that about the disconnected the that. is I've of talked things are securities There very things There assets like mortgage actually sense where things flat. now yield agency-backed might looked -- are market mortgages the And some make investment right portfolio. that.

I Officer spots would are we this the there our thinks So -- in Chief think and at Investment point. deployable market that where think be

significant your time. buyback, Whether I things back stock, deploy strategy a us we has I've as for that market, in to time. that we that. in not think -- over and in and can, but onetime list example, there that of terms that. that our what think, fabulous long a a leveraged, capacity really be the this a shareholder rather something the change of back was would markets, I know in It's XXXX, happens in But it's in hit, capital that number create of that's invest happens securities that's just So haven't that if to more And Joe not made the don't first I then think of was to or a our kind shareholders. long, into love one, function a or reference The But deployment. the thought a on bought value. just for two, don't I I -- stock buying even probably stock market, business consider a strategy. I is But it's never at. we'd that we're in mean, looking reasonable deployment capital grow capital

Operator

next and Boenning Scattergood. going Zwick Erik to with We're

Erik Zwick

about requirements. me. provide well Can Just was Kinderhook, and book this my at capital any quantitative projected regulatory ratios the yesterday, value a have the point. capital couple the of you for answered you questions tangible expectations to there closing? above of On from Most impact quick ones X-K remaining been filed at a comment ratios within

Joseph Sutaris

assets Yes. We're basis tangible QX anticipating XXX about net finished X.XX%. We've change ratio. 'XX equity in and point at our tangible

about share a of are change we So the all about to per anticipating the We're X dilution of of holding that. XX%. expect remain in well-capitalized But leverage level the of Tier would above -- range at well XX standards book value tangible above basis -- company points. going ratios a

perspective, capital clock it styles a from So quarters. a basically back the couple of

Erik Zwick

That's on helpful. savings? cost And sources timing the then potential just the projected of and

Mark Tryniski

in -- we it's June large and at transaction. point Well, the I closing a anticipate think not in June, transaction some

be those that than latest. executed in saves So end the suggest it of more would very more of the the cost But other fully may you at will year transactions. get by that I immediately there be

So two say, it's get let's just take a to quarter going or to in. everything

Erik Zwick

so is what potential this for much -- you closing don't the the Okay. point, sources estate many of I That's presence at the assume fair. maybe in real District And savings? since are Capital branches, a guess, have what I -- the targeted too are what area the not

Mark Tryniski

always in is, places. IT-related other operating redundancy there expenses. mostly costs There and as certain be, of will personnel It's

facilities. mostly overlap Well, operating be There So it's just going to expenses. is no there's one. in

real have estate We consolidate Albany mostly right and speak savings It's to an operating we'll somewhere. other small no a now, of. in But that there's meaningful probably office expenses. office,

Operator

it further turn to you questions for additional queue, in no any to I'd back with gentlemen like or closing And Tryniski, Mr. Sutaris, Mr. remarks.

Mark Tryniski

Thank talk you. we you and Thank in Excellent. you, will joining for the Thank again fourth everyone, Aaron. you, quarter to conference call, April.

Joseph Sutaris

Thank you.

Operator

We gentlemen, conference. this concludes for Ladies you your and today's participation. thank

disconnect. now You may

Community Bank System (CBU) 23 Jan 192018 Q4 Earnings call transcript