CBU - Earnings call transcript Q1 2019 | Community Bank System, Inc.

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Operator

Welcome to the Community Bank System, First Quarter 2019 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

Good conference thank had call. and Easter Jenny. joining a all our holiday Passover. the QX We started morning you, you and for joyous Thank hope everyone

quarter, very are about satisfied the We that with as was expected.

loan up was year’s the quarter highpoint deposits earnings Durbin last more we than from Our $X.XX flat, for hit per to away share me up, QX. little, a the that take offset a compared

and due the bit bps, first approvals. well margin metrics we very and better all-in-all auto is was checking have regulatory core commercial The growth mortgage the a good and municipal will up the savings we expenses Our the for X% were quality start quarter, runoff received meeting tomorrow but Deposit are given seasonal shareholders which and Loan than and Kinderhook good a transaction. outcome efforts and of to non-banking asset operating portfolios quarter. were grew couple good. revenues was inflows were expected, to approve flat integration strong both slightly, the that book, were of were the a confident going is a and all extremely up merger The are their very transition mainly the in seasonality we also shareholder balances Kinderhook XXXX. of up

very high we we transaction business lending when commercial half the Kinderhook of and in the at capital level existing in July. a to excited Our future the continues about district are closed opportunity the first perform

XXXX. which should operating an the Looking business, position the remainder earnings ahead, for we and strong across have us well of momentum

organic value we provides a than our what growth, dividend further shareholders. and build upon which capital pace We capacity for continue need improve flexibility at strategic which Joe? to to tremendous greater for

Joseph Sutaris

and you everyone. morning Thank Mark good

in quarter of or earnings with XXXX. in company the million due and share imposed million non-interest were share restrictions quarter $XX.X debit $X.XX per fourth $X.XX The billion. effect quarter $X.XX The flat Durbin to now the on price of $X.XX improvement balance reported assets and a improvement the down first earnings and earnings up $XX to first This the expenses XXXX. income earnings per spite quarter tax the from XXXX, of were of X.X% $X fourth of $XX of sheet or growth the periods. and of first up linked over for balances GAAP-net net a and $X.XX the share on Mark essentially acquisition loan achieved first income I'll comments the generally of in XXXX X.X% The the at when quarter quarter XXXX. earnings We $XXX.X XXXX compares return the $XX.XX between per million the billion quarter fourth XXXX. to were first the of of for the XXXX. quarter per first from company As X.X% of were the assets company's share $X.XX but million absorbing end per return quarter of X.X% total of reduction earnings first over for the or the attributable balance quarter make revenues about in during XXXX Average from of of with the increased to $XX.X of interchange end inflow billion. company’s quarter $X.XX Operating income of million before earnings for or $X.XX first seasonal we're This Average pleased consistent respectively. linked during and first $X.XX municipal noted of or which the in million the XXXX compared quarter $XX.X the with to is average XXXX in earning XXXX excludes million net results. results. quarter of $X.X sheet details The XX.XX% share, per our was deposits. of additional assets share first on of on quarter in XXXX largely and in the quarterly equity X.XX% assets of the closed of quarter providing first quarter up tangible related million few net

largely due anticipated deposits basis March quarter accounts linked a prior. XX, a year’s as an As Checking both portfolio were to portfolios municipal year and decreases auto of $XXX.X inflow cycles. prior and million in from company's XX.X% savings Mark business X.X% flat Total XX.X% grew to seasonally first annual or mentioned, and of consistent one due loan mortgage increase total on balances the XXXX, lending slightly. with deposits total at quarter expected, the represent as although indirect the essentially in consumer the increased deposits solid seasonally

Our base XXXX. of deposits. at XX, of portfolio very cash was investment core at total high of portfolio $X.XX seasonally The securities, comprised billion. years securities At company cost high agency the securities. March portfolio the the equivalence quarter. of first end solid held and of duration points, at was our deposits XX The quality municipal million mortgage-backed quarter The March also of and of XXXX reflective first stood treasury the basis $XXX.X of is cash effective for X company’s largely XX the

these total are for themselves reinvesting prior We flows the securities tax pre-investing anticipated investment securities XXXX anticipate including cash cash expected investment XXXX types existing quarter similar and opportunities of yield portfolio to the and in equivalents on a cash in of XXXX. Principal the as million million balance first The over $XXX X.XX%. portion quarters. potentially maturity investment was coming $XXX from to the approximately equivalent of portfolio flows present

X.XX% of margin loan income first of XX share the driven same as revenues, an and Net margin to reported by X.XX% interest expenses yield equivalent net in decreases in first of shares on the quarter quarter points the quarter most the prior operating quarter interest widening basis an improvement increased compared in offset to the increase tax by fully comments, of interest net from XXXX income the quarters my the losses year. to in quarter to increased increase compared interest first loan earnings recent company’s net the share opening in the in up per comparable and X.XX% average due XXXX. operating provision The mentioned taxes, X.XX% for income were as The higher As outstanding. XXXX. to and operating between lower diluted earnings in the for was weighted per of in part $X.XX in in portfolio non-interest

quarter Comparably continue yield first company’s loan yield in to XXXX the points upward. on was Although yield impacted loan X favorably trend linked basis total by due to was loans of the loan fees, the prepayment the certain total X.XX%. quarter fourth

XXXX the loans quarter book XX first current average on yield exceeding yields of an the was new basis by average During points.

to company's decrease rate down of for the intangible the and of full X.X%. stock amortization subject first of in $X.X operating inclusive benefit Exclusive first equivalents a ’XX. XXXX The company’s the were stock equipment XXXX. first from compensation periods. the compensation the income to first first between company's were results. from contributed excluding during The We cash million, assets. operating decrease compared company were or the prior The funds and XXXX. revenues quarter in loan the XXXX. in company the of share basis rate had quarter a first Over part tax of of related XXXX. Compared from the in or decrease first points the $X.X the quarter banking up of was provision first to benefits $X with non-banking XX.X% significantly related or activity quarters quarter, X.XX% revenues assets of first based offset first the same The Durbin in basis XX.X% Despite between first quarter provision stock during or the in of to quarter in points income recorded quarter Increases million occupancy levels expenses, $X.X but XXXX. in loan tax related Non-interest expenses first decrease losses of from points to of X.X% in total for the reduction, in in and metrics XXXX, in XX.X% increased $X.X the effective capital XX fees the increased offset by an in tax of earnings X.X% businesses million ’XX interchange of the X.X% benefits periods. decrease the XXXX in $X.X a of losses quarter X a employee XX% the as the debit consistent being year to quarter points of based of million of XXXX benefits, third first the $X.X XXXX the in in $X.XX was revenues X.XX% quarter the $X.X portfolio based effective other up activity company's million tax million contributed tax of salaries, the million decrease X.X% This Durbin compensation $X.X XX the in expenses non-interest of loan total for or quarter XXXX. improvement XX.X% were basis to with million XX revenues quarter non-interest million of $X.X was the expenses first basis recorded yield or on quarter of a the million total by higher losses connection compares investment to amendment XXXX. to in quarter for acquisition the the per of comparable for The for in the the quality reflective quarter company's operating XXXX, the cost XX.X% due provision of

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

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

linked charge-offs the adequate of of five. the exceed losses in at loan March annualized $X.X trailing four multiple compares Our loan end XXX% of of XXXX. of asset compares of to present properties and interim This $X.X first quarter first net of offs quarter the recorded XXXX. during of basis million the the million commercial portfolio fourth due We at quarter loan points first XXXX, quality. XX the end Shareholders' risk reserves the XXX% equity loans charge-offs the retained basis to XXX% or rates was We remain increased nonperforming of first a or the points at for to stable This largely allowance the not or currently most XX first quarters the to and of XXXX. The the by in end of have quarter do of between the end of staring quarter due million increase of ORE net charge XXXX XXXX. earnings. quarter any and and $XXX.X X.X% XX,

net tangible XX.XX% the the XXXX net the Tier quarter. in X the tangible was Both tangible by at X.XX% of and of to also XXX standard. points ratio basis The asset well-capitalized was first quarter the are ratios ratio ended to regulatory at Tangible result X quarter of capital Our the the end the end remained equity X.XX%. of transaction. X.XX% pending the expected Xx quarter, of at interim the from company's fourth up assets leverage and as over leverage XXXX. first a the solid of end quarter equity This strong a the decrease approximately linked ratios Tier of at the

Looking ahead expenses of company's quality Kinderhook anticipate and do pending operating recent interest exclusive we not net the asset transaction. margin from results, trends the around any deviations significant

business the of unlikely In change addition, significantly. the characteristics to are seasonal

our compared headwind continued anticipate to we a on expect in we face continued base. industry. funding the some by loan persistence of not pressure quarter the non-banking of early Although results. a to banking per remains Since XXXX become the It of the yield $X.XX also The businesses. also smooth did flat half Bank restriction improvement believe curve margin the Corp several yields, for very quarters. second quarter we also pricing integrate $X.XX in the share likely quarter anticipate setback and revenue about should to commercial economy the to the that a remain well potentially opportunities the in XXXX unfavorably optimistic of impacted effective the until XXXX impact to Kinderhook In We company forecasts and the third begin Durbin potential be for and pipeline expect XXXX, merger earnings remains a second positioned loan in we persist the more will second summary, cautiously continued integration. growth could that results effectively

We $X.XX Thank a result the you. on to will also be year continue company’s expect Kinderhook accretive operating basis. to that in full $X.XX

Now I'll Jenny to line questions. the turn it for open back to

Operator

Thank will you. [Operator hear Instructions]. Stephens. Austin Nicholas And we from first of

Austin Nicholas

Hey guys, good morning.

Mark Tryniski

Austin. morning, Good

Joseph Sutaris

Austin. morning, Good

Austin Nicholas

your loan at see through yield how that the margin had your at the you of deposit the maybe yields the no I horizon? NIM and you can quarter where you incremental some of guess as then on of the guidance as you the noise and end core maybe coming kind back and out when you trajectory provide obviously nice year of out for a on the further on some the here, costs quarter was curve looked and You is on thoughts from hikes, know your where rate look given kind you course of any

Mark Tryniski

we points outcome. similar actually yields, witnessed new book of kind was the quarter loans on than fourth current basis at the XX going Austin, Yeah about which to higher

we've the on bit So loan seen of a rate new yields. leveling

balance but us of would have we know over the curve if you cap beta cost see know for are that to time to of would you see and you first the to perhaps continue would quarter, know fourth yield you continue to that From an expect yield period a points competitors able start flat up deposit to quarter X You we going for I first rates, of a that expect to pressure, lower similar would maintain in the fourth ’XX potentially for extended know first the the the stays know and and persist the obviously some curve say the of ahead quarter we put to year. of perspective, those you quarter that. to into sort we and XXXX as a that’s that funds quarter, were of basis fourth look rest or know

that the we not we competitors a deposit have current need certainly rate defend large, a base but side, those deposits. We out very our also maintain you market are aggressive deposit seen large in that put with and know extremely said aware to

Austin Nicholas

duration, or Sure, how And be just and that's be kind to that second sheet the deposits third then us of deposit could on of balance and the helpful. maybe municipal on of long the quarter expected topic, you maybe I quarter. guess remind outflow the what the could give does kind in or stay us

been that of any that kind on you that? the maybe in in generally variability if Just and there's commentary see changes any

Joseph Sutaris

state sort quarter and fourth million high school hit several hundred those or is so of those in in in points. back point actually we their tend start a second taxes point We to high tend couple drift early and the districts usually the is deposits, the see in a New tax between typically increase hundred the the cycle bit third points and in York in come quarter. York late those hit quarter. the in in the delta the an to typically our dollars as to we the quarter of couple then state then of collect see million the Yeah, low in low as collection down a New We the dollars first of see January,

Austin Nicholas

the non-bank in of insurance you're also the for and or on your then in one kind you kind employee what Can one front on side? market in remind or and bank whole Understood, investment business? M&A. of the know benefits Any of side seeing changes management the on is on the you outlook maybe Kinderhook from business opportunities us after then the last that’s closed M&A helpful, just the of

Mark Tryniski

Sure.

which or whether to targets, and really cash acquisition our term our think alright to it's we it’s capacity high to can and high banking changed value be our its long the franchise much, identify strategy think opportunity, I generate is pretty in flow. additive hasn’t that say growth non-banking earnings try to consistent,

strategy flow merger potential investment just of much. spectrum with we and in that say the uptick, of across and opportunities opportunities ongoing activity kind in more hasn’t to continue all and be the well been with changed So basis based there conversations on think that on mean as partners, modest uptick we engaging potential I know a would that I recently maybe slight bankers. have an as actively I and an that has of you

I that’s probably think So good news.

think non-banking side smaller say to number insurance You the would our add-ons existing we’ve know on done insurance business of I I business. kind of a

done know acquisitions, do historically small with a management looking one over opportunity course of we're so. the always you although business, And haven't to We respect benefits months six the many good or for last significant the wealth we there. did

We have a scope. business that’s benefits national significant in

are are I pretty in the the we into leadership there. opportunities plugged that – think evolve

You or there the and the past capital of is into strategic I money like related venture which us. for commented, going know and valuation characteristics changes money relative equity and interesting is to a the the a development economic private that businesses this buyer lot space benefits think in

any active how a marginally I is we to in maybe I So would often and than change guess characterize really see really; would to opportunities. market significant I be continued continue better not the it. say ago year

Austin Nicholas

of think to barring about major Okay, downturn you got is organic you know growth range, market it fee could that still maybe in on in know growth And of digit, you That’s values? asset then impact the just know fair kind kind kind of the helpful. mid-single any income it business, it. that

Joseph Sutaris

think I mid-single nailed think you it, Yeah, I digits.

of know Some less growing at than twice businesses at them are are of that. that and some growing those you pace

over a I together time good think So say digits is I mid-single number? would

Austin Nicholas

Okay, great. Thanks my for taking question.

Mark Tryniski

you, Thank Austin.

Operator

hear of will Alex Twerdahl Sandler we next O'Neill. And from

Alex Twerdahl

morning good guys. Hey,

Mark Tryniski

Alex. morning, Good

Joseph Sutaris

morning, Good Alex.

Alex Twerdahl

little prepaid maybe First level in a there significant that quarter off I on the that loan I we growth wanted growth drill of downs during overall assumed loan quarter. commercial was pay saw bit to some of just that large the from that the some number? trends during hindered fees the

Joseph Sutaris

relates had think a significant it we actually $XX here in really credit there It to or which see. enough historically. The – range No, related one was what the trending to million somewhere kind it has quarter. was seeing to to better we’re wasn’t I quarter led which as down interestingly fee good around pay was prepayments, big prepayment of

So overall for experience quarter. the okay the actually is on prepayments the

Alex Twerdahl

Okay, and little outlook then as portfolios just year maybe different on some the elaborate of the for progresses? the a

Joseph Sutaris

the Sure, plus you in and the net quarter know flow really cash months, month a obviously the throws about million off always difficult cash auto and average book, in know flow. of you know first it you portfolio short duration XX-something $XX is so

there's and February You know March. in lot market activity a January, in our not of

off we in portfolio, run know things historical. So that you less some bad considered; had actually than maybe not that all

mortgage the pipeline the book expect good. The second quarters well. The mortgage, and auto third in business I'd So as up. is grow is to

them purchase also to good. well mortgages lot, of which We which mix faster a you around greater refi’s as as a We're opposed is good. starting to is are see know turning

up quarter the I first the in good, look book in financials. you there real the that So actually, first mean mortgage is estate that if at know quarter not much we the also you we pretty are is in because activity the also fact

and third is hope good, and business and second well. good would the quarters was are that So we that that

good the across in I efforts think I terms additive. business the of that that undertaking would are job some we in that of a marketing business, so expect be are we doing

couple good in I in that pipeline you now. look quarter. credits the way. know right A business Commercial, could you So things to a larger outcome of productive forward either are go much there know is the in mortgage the really second

hoping I'm be the good. you lower the second So on quarter, commercial the I would continues side. in optimistic cautiously trend I’m that that guess of there know prepayments

also the good, So Central really got really franchise. of strong good, Pennsylvania and our I good. New we’ve Western really would York is – expect you capital is know some is district that – pipeline is in parts

So period I of we're continuation kind prepayments is second the you quarter seasonally lending in for a also the know year, advantageous given a have productive the that that we of hope more of commercial lower the and business.

Alex Twerdahl

a kind reinvesting more some gears of you of little a the Okay, drill a of the securities alluded the of these or last margin, portfolio. on in and some just switching parts Joe couple to kind moving of the of quarters pre-investing down then of – there's possibility bit

chunk We that cash What or actually haven't sitting to pretty it on primarily there go hand in that put the really specifically quarter. some seen work the cash fund of with you the pre-investment? for know you second would of end you you to guys and and are some cash of funded do of on to looking be much borrow terms at are then out would good of a faster opportunities and you

Joseph Sutaris

Yeah, point a me well, little at this bit. back let up –

there for so to first of the – bit, off balance in fourth know investment wasn't were a the know certainly mortgage opportunity little in on the we the little with run know know you That's a But So to quarter out returns go – there. you had bit, curb. more securities know in bit The a in million backed-up opportunity and you third securities that in you portfolio decent that $XXX do backed the yield year. said, we the it have had curve little you expected there you quarter. the treasury we the hasn’t know been

some you bit work also for we throughout a pick flows. year inflected spots. to little looking get plans and have in those a cash just little at can we the let the least spots, couple So you after reinvesting just of in But the know – curve you for the know bit you a pick our steepness we're of me know throughout

at change yield point necessarily we’re not leveraging the anticipating So unless we get a in curve. this significant

Mark Tryniski

just Yeah, Alex. did we

to if that's a think start tenure opportunities probably at the point looking what the I trigger might gets be. to three,

also the investing kind are that's so The a spreads XXX curves now. there the going which small are securities really mature little just refill bit otherwise a little to better the of XXXX. bucket market not better, are to from We in in right and bit the is

The an other is rate risk from thing that set we're interest perspective.

know more rates, falling have We to if we put position just a rate there well lower of rate reduction want is you so a to environment. in a ourselves significant is years risk saw than make in you know sheet you to you like rates to a rising going know risk the sure know terms We're that managing of you positioned to not balance ago our positioned. the – that couple environment in properly we're

to So guess just it. I follow-up on

Alex Twerdahl

next on Okay, envisioning are quarters. of expenses of to bit and how color you kind over outlook and the you little can give perhaps more a the us couple run then

given some you year? but gave can kind terms overall thinking you formal Kinderhook, for am cost not a Just of in maybe of that of the quarter be us of sure should remind how and I the know then we in you savings ever first number, for expenses the about seasonality

Mark Tryniski

of XXXX. the operating know the, to versus X% operating first relative quarter you were quarter excluding we Kinderhook, in expenses up under expenses the just this Okay,

rate a for in exclusive has – for circumstance. you quarter Kinderhook million XXXX borrowing had in reduction $XX.X XX% reasonable quarters of that We future a which anticipating know in hold, right Kinderhook. of of operating expenses, we're the some XXXX. know is you sort about the you the know an that first unforeseen operating a that’s think now expense I to expectation modeled run

So that's know you the expenses looking operating of kind I think on expectation forward.

Alex Twerdahl

taking for all questions. my Thanks Great!

Mark Tryniski

Alex. Thanks

Joseph Sutaris

you. Thank

Operator

And question D.A. we from have of Davidson. Gunther Russell moving a on,

Russell Gunther

Hey, good morning guys.

Mark Tryniski

Russell. morning Good

Joseph Sutaris

Good Russell. morning

Russell Gunther

just on pipeline the through to I that commercial pulling follow want up here. about comments

or headwinds If is of the you or ease pick to that? an you it's more some the two down increase you pay of could up how activity originations know if it, characterize expectation combination and it would to for rate

Mark Tryniski

for hoping I'm both.

Russell Gunther

Got and of it, if you yeah. a drive could growth more perspective a that lift down the pay ease there less, of any of get – let nice things color you on you'd trying pay know tailwind really to I'm kind provide downs loan going think don't where you could flow sense – is or that's expect a and that through. to you from then kind there's it just more you extra to

Mark Tryniski

would ease. pay mean it of have instead pre-payments get I it quarter obviously than was Yeah, you good hope doesn’t hopefully you that. know I so we less one over would the up, was do know we’ll down’s but trend, down do that to We have originations. control

to markets you at know got hard to I think pretty X%, X% we work in our grow or that's tough.

our know So you on commercial much I don't want too pressure to put team.

lower and you very growth number credit we’re – also we're one, know a two, in markets conscious we're know of qualities. You

never it’s XX% deliver of that – we’re know very you to we’re So or you you to know commercial XX% XX%. loan know unlikely going growth going ever or

flow, our get can outcome cash a we payoffs in good and growth organic even if that's know us. or pretty you for X% X%, after So markets X%

guess for what third and would that's for, quarters. I So hope I second the

Russell Gunther

type you and region, credits helpful to appreciate a very hoping larger I regard any a clarifying And that. That's of are it’s know to whether share guys then expectation? or pull take that through, you trends granularity from loan any to you could with away the particular

Mark Tryniski

transactions we probably anyway terms high that a large, say purchase participations. just I of – in or syndicate for quality syndication would couple there's of No, that

very lesser So high you know relationship high be to to tend know quality opportunities. spreads you they customer tend be in in quality credits; they business

best the you dollar larger look the our $XXX foot three constitutes year you at pipeline and won’t you would put just two is more give and of credits. you we than absolute last the the know So know that you best that know and, if say and million for or numbers, but but it I I forward value that million hope $XXX

Russell Gunther

me. guys, Thanks for that’s helpful. Very it

Mark Tryniski

Thanks Russ.

Operator

and Boenning our And we'll question to Erik of Scattergood. go Zwick next from

Erik Zwick

morning guys. Good

Mark Tryniski

Good morning Erik.

Joseph Sutaris

Good morning Erik.

Erik Zwick

our what First on running maybe at the rates if your guys markets, any Are what and you in pricing, follow currently so a deposit specials deposit up and maturities? and just conversation. products

Joseph Sutaris

and kind Yeah, at looking in. are and side been a we've that our know our we competition we those we successful retail holding products of you to the looking have base offering you of at know retail customer couple customer base are on and the

that You don't know absolute rates, put markets are across basis rates the – know we're so the geography. up a was have we high the and necessarily to here in know relative of our know broad you funds you out typically you been all market. haven’t at points, cost We pretty of to trying the market X basically

So we're rates a putting deposit know job you maintaining we're our out I think know right doing now base. pretty into that of good market you competitive and the

Mark Tryniski

our do retail and hold so deposit managing of have on The majority we core sometimes – accounts savings of funds terms our from really that isn’t Erik, cost know of other a it's aggressive that it's deposits funding, but reminder is, pretty don't of basis, in it an just about that. you thing rate that and a because of need that that rates zero, we full is to to to of need as round start base in two-thirds strong interest total compete base the deposit scale some not to like checking sensitive, a not we like

selective position what use an benefit that of to products is customers they with to relationships. of better those them we’ve I special that a market, done typically in us that’s the some and with ensure we've or many and gone deposit So advantage with Joe referred aren’t the at come basis the, help them a to kind cases guess risk we on to in them to whether

market in it basis the doing not we're and broad checking you our higher strong the accounts. two-thirds So know of deposits on a rates. a are savings position, from but with We're starting selectively,

Erik Zwick

a the from accretion accounting the then quarterly in XQ? scheduled and expected one. just first What’s quarter for The recorded keeping amount of last of Understood, accretion the year. average down record purchase stepped kind level

Mark Tryniski

similar would I be XQ from to QX. just know, You expect not

of portfolio slowed know we created accretion you that bit certainly slowing accretion. liked you the a impact bit pre-payments the know of and in will little knowledge decrease that level the know on You a pre-payments with negatively a in the that also the

Erik Zwick

then regulatory Could relationships the commentary expectations on efforts updates the the And both deposit as I provide loan the for side? shareholder on a color made for one you you’ve deposit the me. more regard approvals. and With well any [Audio your maybe Gap] appreciate some – to on on Kinderhook and any as just to retention,

Mark Tryniski

Sure.

in that market transaction would You that have market. little relationship They performance will they pretty with market. in a know terms expect really I risks a different the reputation bit the customers; a be have of the every good in here is the and their good good.

market people, of spent with leadership, the a have lot people, that ground you getting know We time, our meet in their customers, getting team, our know to people, their customers. our know to on you

of there run a we're was So I off the franchise atypical there. surprised either I loan deposit level if the be good off or in would think pretty book. to a start

Erik Zwick

Great, color. Thanks taking my I appreciate questions. for the

Mark Tryniski

Erik. Thanks

Operator

we’ll with Collyn next Gilbert And from KBW. hear

Collyn Gilbert

wanted to off discussion. the gross I start morning good guys. on just Thanks,

organic the your you you gave as terms on growth the is but kind what overall kind but outlook, to consumer can dynamics to the commercial do total on and know you in just of what commentary the side, indirect loan of and growth the year continue that know for the outlook loan given growth. happen you You curious think or of of commercial growth some around pipeline

Mark Tryniski

look quarter, know first kind in the we're if Well if I – generally we quarter, flat. be you flat first you of think the historically, I can

this but think year is historically. we're bit, at where little pretty typically last been I down actually time we’ve this is a – up the year of Sometimes

much for because pulling earnings a get sheet in compared X%, that X% given of sound in single the the year. we lot all that’s don't know would market. just other pipelines You you kind are X% I in year, our get I terms market, like growth in hope levers the have to pretty our of trajectory you balance know doesn't banks in that markets, lot a performance to I the it other know but If we and not a year digit and of for the a the what good us. in loan where see that know you we of we're can is business organic for performance know lower and

we what and grow other on pull and through that’s X% that to kind X% if So leverage can then the loan operating get other relationships, with the of model.

hope to XXXX. So in get I we that would that

side hard the but the to it's on off I is get predict, to some start the we're there, of commercial pre-payment. particularly to with think fair

second almost know to last it I average me can't we you that we grow where the auto mortgage commercial think above the prepayments good. I we would than seem and would and Hopefully where but a prediction a mean, that’s because you the grow where portfolio. usually quarters to quarter grow get third it that the predict such, the to first has of portfolio not we we revert continuation had say but into I know portfolio, was that, year the

know at we after the a get started take but that's So grow X% X%, now, I to end would to more the you we or goal. right first little that the flat if could if to you got I if year can quarter, –

Collyn Gilbert

your opportunities where Okay, overall as helpful. household at customer And you look best you new opportunities. the formation you that’s of overall, some are acquisition for seeing then or markets, know the

of the but that the on opportunities where You had you side, sort retail well side curious some were are the mentioned from of on growth? some markets for just doing seeing commercial consumer

Mark Tryniski

more to and its not try I'm you outperform rates book, we right, on I because usually Consumer the on that market. it don’t the think. over competing assuming mortgage indirect are means We market retail, so auto the depends

mortgage year Pennsylvania. a we've had the in in from north York, business in strong good the in know in really mortgage year always ever last New New You we a say probably year Pennsylvania, central originations York. had York, in very our would mortgage of standpoint western best I New

There a to do than in had Vermont Pennsylvania. we think even better year different that model in in go opportunity slightly actually to this lending than mortgage and I market did. merchants I expect is you a know lot also of

while runoff was something Last region it’s traction million. there. get England you mortgage to New taken like year some the little us a know So actually Vermont, $XX

year and will so So reposition some that we’ve actually that inject we're in to to improve. resources try that hoping to work our be and already done not some resources case Vermont the is this and strategy starting market

beyond So I kind was mortgage say know Collyn business, don’t I question would your that's but... the of,

Collyn Gilbert

the changing know of and I mindfulness side from of can risk is an opportunity where that's were businesses indirect the competitive markets there if on landscape for to there some go it. where get I any Well, just know the share, is geographic know thinking or you more perspective? I right and structurally you your know credit, you course yeah didn't helpful to just if you take a with

Mark Tryniski

I Yeah, Pennsylvania think to more I market rapidly. in think do have The we'll better there. we opportunity and growing isn’t continue

more I it’s but single that’s getting Pennsylvania think fact In executing in are we kind I digit low of a growth are good. better share, think we market, so

that and do and that I have said, and have I as I the to opportunity tremendous district to well. capital Albany will year like in in opportunity starting this we expect we I that marketplace, in are execute think already think the we Vermont better we there

there's executing pockets in markets the think as and upped in across we’ve of us relates honestly terms to for opportunity our know that business. of game you across I lending footprint it our all So mortgage

hopeful I we will year So in productive lending mortgage XXXX. a in am have that

Collyn Gilbert

Okay, terms the of then in kind parts here. min Joe that's sure want just outlook, and make moving the I so really of to some of understand just I helpful

points quarter that basis said I this six if had guys heard of So you correctly, had you you prepayment income?

Joseph Sutaris

associated which X you about the particular borrower yields. was basis fee was There one-time on that correct. Yeah, $X million, a a effect was know a point with that’s a loan

Collyn Gilbert

guidance if XXX Okay, and XXX hikes. on bit a we full quarter know of like or close guys of had NIM, they NIM two about of rate then little I on you were what hikes, the had think that kind than trajectory and lower when the you two NIM think bringing the assumed for that a to last certainly then given mid kind think a operating Kinderhook, year, I NIM you

full just I the kind some of all where for shake these parts So NIM of want get year? blendedness out you here to the moving are and will the thinking of

Joseph Sutaris

is I Yeah, I transaction a reasonable prior still the mean, mid-XXXs expectation. to think Kinderhook the

on a basis that not it’s some and to the portfolio, did with expected expectation, deposit offset hikes but than have although if impact You the point okay rate that know relative deposit X increase. of side the side. did will we on the the with of We on results lose the better yet variable have table you we the equation off we

So prior to the Kinderhook that range. transaction, know you mid-XXXs

than right, reduction base, almost ours. your to there of margins the know inclusion is to are asset or net current Kinderhook. You the potentially recent margin X% margins, in core a It relatively Kinderhook’s X% lower about earning some adds bit our so

X% also think know of that’s it's, expectation, earning it's but fair you I So a our assets.

Collyn Gilbert

outlook had indicated a you the the then to little lot capital’s dip Kinderhook, Yeah, rebuild been you into post obviously okay, know your back helpful. quickly growth you tying on you just okay, just kind after Mark giving that's there you pretty know of finally capital and then of And building know but you flexibility. a

a how term you there to bit guys – deployment. more capital? of guess ratio on asking You a also outlaid near I What just building TCE kind usage given little or there how a is detail know you want thoughts you get much are targeted a of about trigger capital on or how is you you is know to or – And are sense urgency capital there M&A. that thinking for

Mark Tryniski

arises where one Sure, a our that go and were not of to that, we at opportunity the point but of said years, we of quarter, that NRS in the you we we $XXX and and sheet, generate we be continues relative give opportunity or year. that's a are arises the I strategic came at rapidly. to week of could we capital to be That couple opportunity we so something are I focuses fortunate but because years but going will going and know capital. position to would that be excess balance it. would if that and for going ago And deployed quality the, merchants and of well that building to answers back and going consider patient capital every not you to were know which so surplus we're we deployment that accrete you we next have capital in do time, know same I having could were in our would surplus be Collyn, of a be the next disciplined kind squander to effective think disciplined, with million be patient situation, few in opportunity be similar day an disciplined every a you is along the a that are was hurry an it we

relative the is despite you grown you growth know gives well payout that it still year think and I you dividend our you payout we’ve capacity strategic a our part know years, XX the know as you to organic not know of you bottle. us that ratio lots ratio the of dividend look at right every our know if for high now, fact

was XX% $XX all cash, know you dividend NRS capacity cash, you cash. between capacity, was utilization million transactions about the noticed and in know last Kinderhook great M&A if capital. just you Merchant million and about X $XXX and know was of and So a you three

metrics, with beyond that to even at So are all capitalized, say I even said, still ratios the relative you would remain balance capitalized and look beyond and well capital sheet. our if we but current well

capital shareholders that a as all above continue it's average we're productivity you for timeliness have is of and It’s because not it of it. the know to really the returns that, frankly, deploying and not it, the about need we’ll about productively. about we do do So

use sustainable and growing shareholders. generate will for purposes to have that flows you for So cash it

we over history, So back effectuate have next model M&A at over I active if sufficiently execute that time of and know terms you identify could and be be those value high been look I the year, and you it think time. this be high know could after, and year you our know opportunities transactions think the in we've you year value that and to it but ability the could

it get at we know within and things. lot Almost know We high outreach even now. others. value look this institution, efforts the looks everything are lot get us. of we a also those and a you more There at to a as said I've that know have in of so very active kind in we with where those is understand and we our You opportunities for continue know up, our states about get of of know you a comes that but right couple opportunities you an past, us of dialogue

will that So continue.

that We deploy be say to share again I flows we effort strategic will capital are thing and disciplined But it's and difficult predict. believe growing way our create help that one not the shareholders. of further going to terms cash deploy will to for be and the we sustainable that per we is will how capital undisciplined in our in

Collyn Gilbert

had. Thank all That's Okay, that's great. you. I

Mark Tryniski

Collyn. Thanks

Joseph Sutaris

you. Thank

Operator

we’ll from Piper And with Breese hear next Jaffray. Matthew

Matthew Breese

everybody. morning Good

Mark Tryniski

Good morning Matt.

Matthew Breese

discussion. just Good morning. NIM want I the follow-up on to

that are is XXXs of in but and are cost mean better. the still mid think outlook just loans for about deposits parts modest basis are onboard the know moving basis loans ex I I Just the your points the XX fee, four increase point the a there. relatively new coming

is least with trajectory for the way about the organically. that just So think as right higher to I Is about think natural of months, XX NIM the that that to would next at that it? XX we kind math think

Joseph Sutaris

to would $XXX quarter of you I is we comment the Matt one in book the the – well kind million new about historical loans million that at Yeah, if look to average. of add $XXX

more whereas know deposits you is with know you nice $X it two billion bit that the points in points quarters X we last a So fits so, have yeah, basis to pick know up you XX meaningful. basis or

deposits look the know range of we the why So I loans; new have, that’s of of you ratio just XXXs. opportunity we at on think that versus total mid are sort

Matthew Breese

okay. Right,

few least to all So at hold is you think rang for the next there know equal, XXX the quarters? else

Joseph Sutaris

that’s or side a on momentum obviously to loan an the up some bit. that pricing is, bit and yield we mean right of we yields expectations future stays and our relative maintain the had get if you in will know little I kind the quarters, curve competitors to we’ve can it drift our difficult of know where see loan equation are you Yeah, you static more know have changes continue we now but that’s a

Matthew Breese

we impact point? the do two if over do at Understood, is a three NIM get the the what year, cut of or ensuing rate you this of the quarters by and think end Okay. the

Joseph Sutaris

a Well, we assets, in around just billion. rate $X variable have loans,

We would So impact that significant it's see – impact the basis a pretty of to immediate the no, decrease. point portfolio. XX

obviously know would loans. know know there sharpen the variable for loans pencil you to a we’d around entire be You pricing and have deposits, to the yeah immediately you those rate but impact negative

Matthew Breese

Okay, then deposit well savings the I and thinking from at think based we deposit you just and have two-thirds and cycle, if I are standpoint. done beta fed end the mentioned quite checking your Mark, about guys hike you think are of

thinking about than technology what's this wise past new Just ones. in cycle

you might real perform deposits that think well. you You risk, the know guys can know clearly be would that more but very at one have you demonstrated

base versus why you mind creep might and deposit in around of with -- fed the of I slower stopping. years be post see more technological over that cycle is higher the mote the know some a question your might tech the advances we just guess So there the a

Mark Tryniski

impact, Wells broad saying would in you America, that’s and by big retail of big start if question, the at know the know in biggest terms Fargo, a you that and of technology. banks do country. the J.P. the you things at look I – I the the retail that can guess Bank the look you some Morgan of if banks,

all can’t online that but customers of payments things mobile and platform do and I think the you very and you kind before do, bangs things. for said know for peer there’s few if this cash I our big look at can that we management, that

can can a all we banks. that of small we do, others well, lot can know You do so as

Fintech XXX an think for all product I kind creating that is and of know You has of To-date is there paying lot around and funding call online noise, let’s it a it. what in venture excitement capital that involved it. lets the

risk So I in certainly of branches you the I still markets, time with know those our well markets rates maybe ultimately still that argue other because but as your over that wouldn’t matter. think and platforms, of

want at exposure. chasing in matter, technology the that technology there look But know mean you in suggesting over, you of know the all that where going – J.P. and If lug franchise. eye and a and be is the the tell think I are building I Yes, to it’s you to all technology untimely Morgan doing, suggesting platforms. to change understanding these isn’t country trying presumably that does bank biggest not select what what building the franchise I’m I'm your know they no, best they balance direction they going is – that are branches markets be to you And not your over or the a between country. that about you doesn't is helpful branches are they but

if we are of So detrimental we in are you that insuring of for are us ultimately to could those us what that’s meant not, in some not is platforms. know those if that we participating platforms actually investing be kinds technology

I to to out. play So think going – that have it’s

over of see will extended out we it time. how plays know You an period

You thinking which model the been you branches clear to It’s world, continue don't when branch decline, has bricks probably associated a still mortar. so invest getting strong and I was know in out the out and because for we’re ago. think you I with mortar divest in the was we number States know mortar Chase know, bricks I there remember, think the was know, their business branches that. declining bank. you or think and that from around strategy is you XX like overtime years take came you I versus XXs and to have but think and your be to very were early is where it branch the first business prudent what I that of in Chase just will something I over bricks the to banking, in bought online some of with years going United I That more

be So playing mindful I think to try of we the field.

and to over want be don't – think more and movers in these don’t to be impact we business is how to and banking know our, prudent I just our a of You platforms. going account you some are of we marginal time to business part be part see account of know manage our going We first need about to to of smart the deposited retail our think we online I pure business uptick there relative deposit also introduced business. think I that, kind pure to and good the branch opening our really know relative you to on part of technology was last year you opening. the know as platform website outline our

of or out know lending part to branded about again year are pure of you not platform. online separate roll this website we as separate a a our platform So platform, kind

a for continue to home, of the to invest apply consolidate well. branch platforms, you yes at can your we at of that to this Bank are as that in loan sure but pajamas over what sitting Bank to our mindful for network need business to you mean know open at strategy things kind our almost either core existing pajamas, can deposit steps you has over account yes So a in or been make be Community your time Community are invest time our prudent what to or our branch in and does

the way about that’s it So we Matt. think

Matthew Breese

are considering reserve, were process that CECL. day now history your the last question Understood. loss of and see the the at might just XX been the end years around you cycling know it’s what especially it’s that updates your kind you at that very I perhaps of had is past for hiking but or I deposits we end and broad-based, really fascinating XX points. are has one was basis we in solid? the Any cost The fed of know over

Joseph Sutaris

our models. in Yeah, of sort this validating of point process and know building the and are you and at still we confirming

but this reserves are are you point we out position we So strong put that losses. know did historical pretty yet in out a not relative to a our I to number, our think at point,

of get yes, the out building the put So need – our to are validating confirming we know before this out, we really and continuation yeah going we though the models at to and we number. you models it point post

Matthew Breese

it release? reserve history Is loss your see your that Understood. we given could possible

Joseph Sutaris

know, at I to in we before are point we You either but through commit have possibilities that get really this direction. our guess analysis, in there amount or process

Matthew Breese

That's had, all you. I thank

Mark Tryniski

years to that at is if I think add it charge only offs. look our reserve, of that net would X you represents The about

adjustment. the So in would that it the reserve average it we I than what expect whatever the CECL, terms way have goes probably industry adjustment of either would in be less

Matthew Breese

my for Thanks taking questions. okay. Understood,

Mark Tryniski

Thanks Matt.

Operator

call remarks. like additional to back or to the queue, Tryniski I for the And any in with other would questions turn now no closing Mark

Mark Tryniski

Thank you, Jenny.

from I us think it here. that's of all

all July. So for talk you you. will in and thank Thank again you again to joining we

Operator

does participation. your the for We to would That like call. conclude everyone thank

now You disconnect. may

Community Bank System (CBU) 22 Apr 192019 Q1 Earnings call transcript