CBU - Earnings call transcript Q2 2019 | Community Bank System, Inc.

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Operator

Welcome to the Community Bank System, Second 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 call and today. April. for you joining our morning you, thank everyone, all Thank

it last extremely Durbin We’re and really which The were Operations to with up were continue satisfied margin’s our largely excluding well. very with stable and and and was asset grow expected. non-banking earnings the hanging in, quarter. a a were businesses non-municipal to little, of reasonably good, $X.XX impact QX All-in-all, loans results year perform $X.XX. the deposits flat is quality solid

and in that first adding According well. We’re Bank in greater closing ever. very pleased team, operating Kinderhook our of to integration York million closed Corp. XX was XX, transition transaction July went New our announced across best the The Albany the extremely on branches it assets quarter market. $XXX systems

very a the in to growth off that market about lie opportunities we’re good ahead. and excited start So this

per this As on previously expect year we a disclosed, be transaction share full accretive basis. $X.XX to

Looking XXXX operating very remainder which the strong, well future. for continued positions of accretion ahead, to momentum into us the Joe? our and be capital

Joseph Sutaris

Thank and you, good Mark morning everyone.

noted, we XXXX results. income with $XX.X for and of quarter share the company to income the are company’s compares net earnings share net and $X.XX second XXXX. of per of million during reported quarter GAAP earnings second million earnings second the pleased The $XX in per Mark $X.XX As quarter of of XXXX. GAAP This

debit million non-interest to acquisition expenses investment unfavorably revenues acquisition by in periods. imposed second realized company $X.X on the favorably Durbin-related by million Kinderhook of restrictions reduction impacted comparative in a and gains price basis, the were the due impacted the of on estimated between sale $X.X due On increase and interchange to of quarter $X.X earnings XXXX a a the million securities

quarter X.X% the of few billion. of down additional quarterly of assets results. XXXX providing net the municipal the $XX.XX a million of details first our with deposits. balance This now earnings from I'll or We end comments the our quarter on to closed total of make about is seasonal sheet outflow due before XXXX, $XXX.X

up assets or to Average X.X% million or from second to assets X.X% or quarter for compared X.X% the XXXX, year million $XXX.X X.X% end first million one down the of were second from $XX.X when Total up earning XXXX. $X.XX were of but quarter, when of or million $XX.X $XXX.X of earlier. compared the linked the billion or quarter XXXX

to were compared X.X% when in second $XX second balances up quarter million $XX or quarter of loan the quarter to when the and million first XXXX of X.X% of Average to compared the XXXX up XXXX. linked

comparative indirect, direct quarter the were were home in average These consumer equity the portfolio. basis, increases in offset lending linked up. a mortgage, and balances the On business portfolio, consumer by consumer in part portfolios decrease a

Total expected. million loans X.X% of million ending spite linked in municipal loans a were $XX in decrease quarter basis $XX.X as or on a seasonally up

of deposits net year’s decreased cycles. as increased on million annual X.X% deposits and quarter the $XXX.X X.X% to total million but ending prior Average linked with municipal $XX.X anticipated or a consistent outflow or due basis, seasonally deposits

This first quarter. the investment stood the of the XX, from value portfolio at $XXX billion. June book of million At end company's $X.XX down the is

to of During reported Securities of net at Treasury X.XX% of the remaining years yield of company a million. weighted second the million realized five $X.X average two with quarter, maturities and gains market sold $XXX.X

weighted these with federal reinvested in temporarily at average management a proceeds securities opportunities funds in lives. and approximately were X.XX% evaluating longer is overnight market yield, securities reinvesting the of These process for in

of end the equivalents stood cash company's at the $XXX.X million. second at Accordingly, the quarter,

equivalents, cash including XXXX cash on portfolio XXXX. Exclusive quarter the effective investment was yield X.X the second portfolio XX, at investment the years was of June tax duration The of equivalents securities X.XX%.

Shareholders' $XXX.X an XXXX between increase and earnings. quarter the in X.X% retained second at the to of end the XXXX, second of million quarter or of largely equity due increased end of

ratios company's was Tier The strong also regulatory remained quarter, leverage the the in second of XX at capital the XX.XX% over Our quarter. ratio standard. well end capitalized the X

Tangible equity a quarter at tangible to XX.XX%. assets the net end solid was of

X.XX% remained legacy quarter second of loans and strong of Our acquired the million asset loans. quality loans, comprised $XX.X XXXX. at or Non-performing end of of total totaled the

same quarter than the XXXX. This lower the second linked at ratio of first the end of reported the is reported of at the the ratio X XXXX as points quarter the of basis end and

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

net We of charge-offs the basis XXXX. or points or XXXX. points loan This quarter the on net of million X offs during portfolio annualized the second X to recorded of quarter during million basis charge second of $X.X $X.X annualized compares

the second million, OREO properties $X loan quarter, the were the risk less than the asset internal portend and stable ratings of total At company's quality. end

now redirect will results. quarter second to I my earnings commentary

second at share net down excludes Although $X.XX, tax tax effect $X.XX and effect on of GAAP earnings the per XXXX expenses earnings the quarter to acquisition-related realized net sales matched of were of net which operating investments $X.XX. per gains share,

estimated related quarter rate. at tax the a by earnings operating interchange Durbin to and price second was $X.XX effective higher $X.XX for in decrease restrictions This debit driven

for in the up quarter interest in revenues million income due increase the to X.X% quarter included revenues second over X.X% $X.X a revenues This Total $X.X a and X.X% of in $XXX $X.X or Durbin. the XXXX. decrease banking net non-interest or of despite million second were million or increase million

$X.X $X.X or interest quarter investment revenues linked the million of net income. gains driven realized a net total increase on or by of X.X% million increased portfolio basis, $X.X the securities and a X.X% recognition in On million

XXXX. net X.XX% XXXX. increased in second We second basis comparable recorded in XXXX $XX.X margin in in quarter Between of XXXX second points in to million quarter the dollars income compared quarter from interest quarter to company's the the $XX.X million second million X of second as the of net quarters, X.XX% in -- the the interest of

funding earnings increased The basis X.XX%. XX X costs interest average from while points points. company's yield the margin also basis was assets on quarter company's net The first linked increased

On up loans basis the quarter X.XX% from annual the second quarter $X.X million net quarter comparable to second on on XXXX. XXXX a points XX recorded implement was loan and income increased basis, in yield tax X.XX% of interest the the portfolio from of

quarter average yield approximately loan exceeded portfolio XX weighted This XXXX. the points. compares yield second on XX the first points during approximately the During the total on basis basis quarter, new net loans net by of the

dividend down received cash X.X but million commitments net million of and realized including of revenues second second million from of the quarter Bank $X.X XXXX gains XXXX. of are during payments investment in million the the quarter the exclusive XXXX. income, Reserve of of X.X $X.X company second over secured as the compared Federal semi-annual quarter dividend The paying semi-annual to Investment was up

quarter basis the XXXX of the quarters late funds The points annual curve XX total The the investments treasury on of points second points second realized from in were the when net inverted. yield between increased basis to in second quarter quarter gains XXXX. sale basis of of in X comparable XX the company's cost

for points peer below XX very industry deposits reflective remain solid averages the basis second cost of deposits. company's XXXX the for and of quarter period well total of basis The and

banking and of total from management comparable between quarters, X.X% at decrease annual This revenues company prior. in quarter the wealth by or financial in is XXth million becoming or services account to Benefit XX.X% represents for and including $X.X Durbin million Amendment up Employee due year were services of but Checking non-interest the deposits in third were our services a one XX.X% effective June Non-interest savings our related XXXX. revenues balances $X.X insurance businesses XXXX. up Services, XX.X% net the offset

XX.X% Despite the Durbin, gains quarter of full similar the results. total year exclusive during XXXX revenues, first revenues operating contributed to securities investment XXXX the of company's realized of and the non-interest quarter

Total increases quarter in expense in employee The or X.X% comparable annual other and $X.X comparative costs administrative and higher compensation between development quarters an expenses expenses. were including was in up on million acquisitions operating business expenses to due increase basis. excluding increase operating benefit expenses

loan We for to losses the quarter provision in provision loan of $X.X comparable during reported million reported the for This XXXX, periods. XXXX. quarter second of the $X.X million between compares in in losses second decrease a the million $X

compared The XXXX. in compensation based stock in tax up for provision the the from periods. of was XXXX the in XXXX. amounts of quarter the the quarter the of company's second benefits rate related losses second XXXX to decrease was second in income improvement second XX.X% of quarter the matters company recorded quality loan tax for the The reflective The of XX.X% between to activity quarter as asset effective greater

XXXX. benefits, second based in to of the stock bank company's in was the XX.X% of months bank Exclusive in compensation tax Kinderhook We look tax effective integrating ahead. fully the the community forward rate the former quarter

expect first the following achieve also expense full realize acquisition. the year accretion $X.XX XX% in per projected fully We and savings earnings non-interest of $X.XX annualized of to to the share

acquisition time with million expectations. Kinderhooks total in deposits $XXX approximately total with of were line of approximately assets at million total $XXX our the and $XXX million

not the inclusion margin Kinderhook about asset company's with anticipate Core the any mid from anticipated to quality. to Looking we do to XXXs deviations the interest ahead, the decrease trends significant around portfolios. net is XXX recent of

points basis lowers the the loans target Funds quarter approximately in unfavorably Committee loan billion. $X it Market Open Federal of impact third total the yields, by XX Federal will rate variable rate including If

the our redeploying anticipate federal term also overnight in securities ahead. We position significant portions sole funds into of longer months

full an expenses general at a expected trends. Kinderhook in to the inflationary quarterly with line $XX after million rate to approximately and million Operating $XX integration run are of reset increase of

for for the remains liquidity growth capital believe The and revenues funding we summary, base strong company continued business and provide well very a solid quality, reserves non-banking In capacity. strong dividend foundation asset the company's core positioned future.

for market provides an Thank also valuation future company's excellent acquisitions. and mergers currency potential you. The

back over Now, I to open to turn for it questions. will line the April

Operator

from our Thank we’ll Austin go you. question with Please [Operator take ahead Nicholas Stephens. Instructions]. And first

Austin Nicholas

guys morning. Hey good

Mark Tryniski

Austin. morning, Good

Austin Nicholas

just that in of charge that of it's down a good Any where little Maybe over were quarters? the had quarter the quality. recoveries kind that a on of driving there bit obviously off, you last from credit couple trended

Mark Tryniski

record the market occasionally units do fourth sometimes those units. the possession first in some for go quarter that have and there into typically if took we we in pricing and some Yes, the to recoveries is we auction second quarter,

so, did second -- And on in quarter. units recover some the we some

Austin Nicholas

you and line to Okay, just then think the in refresh what kind memory about your maybe this on Can can but increase And drove maybe the have forward? mentioned expenses. going other expense in remarks, that maybe how maybe kind of item line on just you the my helpful. that's you, then of may prepared item

Mark Tryniski

Sure.

quarter second XXXX. the the -- to of well me During let go back

second same of items We The for necessarily guess, expense quarter us. very of our went quarter in second was, that XXXX. had I way quarter didn't low go of couple the XXXX a a XXXX the quarter way second of kind the in of that

an did some did increase bit We basis. expenses marketing some and refresh we the a that on But our expenses quarter. annual of drove quarter little comparison business in and of development the on rebranding

some, related We also the we in expenses XXXX. normal second quarter some call, had I’d foreclosure quarter, to expenses back actually pre had in which the recoveries property of type

more second quarter XXXX. variances of the the just reflection So, a in some of favorable of

and -- had increases. the salaries compensation We we also some on line item, also had

our had a little in XXXX. know benefits. bit, so back of rate sort on type salaries a quarter have an some We some related higher our bit pressure, in year employee normal a extraordinary And XXXX wage You costs. increased had medical-related of benefit run to also cost including the health the do drove costs that and the we're on we we up of

Austin Nicholas

Understood.

grow I on comments should in I impact a but just to And we of to more or should the the deploy you your cash just maybe rate potential next Okay. your the any up about cash? just specifically position? to think little kind that are the on how then, commentary coming have we guess there, of about I then excess hike kind And maybe how that, guess appreciate margin a here from margin Should beyond seeking bit you couple actively that think days. continue of

Mark Tryniski

Yes. you rate hike? said And Austin,

Austin Nicholas

Rate Excuse me, cut.

Mark Tryniski

loans. Yes, there. Yes, about just we we're on to same sure the okay. rate have page variable in billion Yes. want I $X make

So, and billion XX us doesn't basis favorably. reduction point an annualized impact $X of affect

on our X%. room the was modest for You know, side future, in is funding there full as potential some decreases the but beta rates know you about up we liability in for cost cycle –

some up of savings. expense on lot to side a deposit not there's So, the room pick

So, the perspective, can expectation question? I'm income sorry XX-basis-point the second say you repeat if from modestly we and do cut is your Austin, I'll a interest get down

Austin Nicholas

your position off the or last how and that was related just excess you about quarters as over on that to or building you've sold commentary it aggressive would couple to trigger you've Sure, what cash been any redeploying you're aggressive? securities thinking less of maybe some be more and

Mark Tryniski

absolutely. Yes,

So, and the from to we investment half that we second XXXX. from had our of started maturities identify basically cash portfolio expectations flow XXXX significant securities through

we fact, at billion In and flows were $X.X maturities. looking cash potentially of

five-year And flow. see that so call of reinvest that those so kind in put equivalents actually We the pickup might much indicated of them of yield. of flows we an cash we calls had that reduce had we it temporarily you cash cash securities or in with in of to opportunity kind out, an that period know the to wanted basis invest to pre that XX potentially two- We yield in time, in had risk to, some in the some pull happen in We associated a some about reinvestment range. point and curve. at prior inversion in

we of equivalents would of months me kind to the at on we was the coming a longer-term most excuse bit that quarter. basis, that the redeploy, the little cash will then it in redeploy of cash have and sitting I that And end in then, opportunities expect

of are current the of for what comparable equivalents mean maturities terms of seeing cash extend terms we’ll yield yield I the we're except in in you And that. probably to expectations, expectations know

Austin Nicholas

Got it.

Okay, that’s helpful.

they're up, just current less, your yield expecting or of kind with longer more a So not big picked matching yield durations.

Mark Tryniski

Correct.

Austin Nicholas

territory. commentary should I one is on that Okay. you're last expected And bank you number give where Fed know the quarter? getting about Can we bank one that of on dividend. larger was some large then maybe decline this the that kind just maybe just into to as kind going that $XXX,XXX think of number us

Joseph Sutaris

have less component the the of the we allows. dividend billion as bank that payment for qualified was X% because So semiannual semi-annual rate for current a periods. dividend $XX than the Fed The inflationary

treasury declared. mark time transaction, of billion the the $XX at mark. the even With we dollar the XX back the pass adjusted the dividend the will over billion Kinderhook And $XX is for typically equivalent core; rate Inflation the is inflation. year rate it it's

Austin Nicholas

Understood.

much. so you Thank Okay. have. That's all I

Mark Tryniski

Austin. you, Thank

Operator

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

Russell Gunther

good morning Hey guys.

Mark Tryniski

morning, Good Russell.

Russell Gunther

of we could growth fee and if It your employee would business interested well. year. of the please on be could Wonder half an the start of into some in is us benefits provide niche businesses, that revenue if in terms particularly as the guys tracking update insurance how back you

Mark Tryniski

see as the that general the We've a number that would participants that year compared revenues to kind in of of just of I digit, XXXX. the been second continue related the rates in to We've digit around business. single in that mid-single the expect achieving business. growth that continued and in half would half of back growth

expect it's would that of recent to lines. I kind long So trend continue

Joseph Sutaris

got be will substantial. One very the the services challenges The the employee of be business it's on rate $XXX probably million revenue benefits that to are in on pretty this run good. margins And year. is,

there is business faster makes a as So growing mid-single businesses little some that to a within we'll services are than are are harder good. broader that, a benefit little pretty it the but of a digits. a bit all mid-single is good it growing that the digits due bit employee take kind pretty But

X they're year-over-year too. Good kind are up, all growth They're at business. in in the of insurance Wealth right None X doing doing Pretty really insurance Margins them all in are but of the in X between all management range management very kind insurance, and pace double-digit now, of X, wealth well. actually okay. businesses. is good. which growth good is and wealth management and going those

than faster growing are revenues So expenses.

So forward contributors have substantial have businesses to going past. expect could I as those they they been think the pretty in continue be we

Russell Gunther

That's guys. great it color. I appreciate

last Just me. question the from

be you're future side. on to the know Kinderhook integrating thoughts terms on but focused that, any now depository going updated of the M&A closed, in With I

to point you this Just and remain, at interest in active you the how what's cycle? of

Mark Tryniski

Sure.

think I interested. we're always

a outside us cycle to relevant think less maybe operate it I who our conditions. markets some is to bit more is the maybe market volatile than others in

So for us, our of markets everyone M&A growing. are understands, is element and an only ongoing strategy as our

not discipline, high pretty organic been that's a enough element That's you important can so in know growth X%, know has You you to -- X% if shareholder return want strategy. our good. long an to value of digit year you our deliver get returns M&A double of shareholders the

we continue So unlikely time. expect on continues future. look into ongoing continue current do opportunities anything will at terms We're to significant size. an for the the will in that to that basis I of

for us, think really existing be want to to fluff terms to within to where of I continuous either market benefit. ultimate be, half value our got got in of billion we high be, billion opportunity and a that's I think kind shareholder between trend. it's is something or It's two

So in for kind valuation. those of look we our towards are in part most the that terms parameters

on and partner acquisition identify to be we accretive to as a had our know -- use value Joe significant earlier think basis shareholders we'll we us you which sustainable disciplined can opportunity. who high we and continue with those I that always market we But do know we very opportunities gives for discipline are to a multiples, about that this solidly what mentioned relative

Russell Gunther

the Thanks good. detail, guys. for all it. Appreciate Very

Mark Tryniski

you. Thank

Operator

our go we'll with & Zwick Boenning from question next Erik And ahead. take Please Scattergood.

Erik Zwick

guys. morning, Good

Mark Tryniski

Good morning, Erik.

Joseph Sutaris

Good morning, Erik.

Erik Zwick

you would standard of just to planned anything be for a or current the curious specials advertising the campaigns our Kinderhook transaction market? And if the kind or or for Capital have regard branding have whether with those efforts or District? planned any currently you do so, deposit running first loan Maybe just running the I'm closing,

Mark Tryniski

a market. beginning done [Indiscernible] We It's started in extremely XXXX commercial we a Albany market that the banking of the with Well, new well. kind has not of the have in new market. completely office

will So the think process, of and -- suspect procedure. we the operating were some in market. transition as a year of marketing the little now already things standard doing and fair I between that up branding of and advertising, that of which those I kinds a end integration bit bit and continue is fairly we transition pick

Erik Zwick

early, retention kind its our consistent tracking this And still expectations of relatively customer then deposit I your but at know point? with

Mark Tryniski

far been so week, It's a so good.

Erik Zwick

Got guess, you. closing, announced. A are customers, you of some And I'm you week know, I was of certain ever then since since certainly, aware the sure, are happy that. deal

but like sounds So it track. everything's on

Mark Tryniski

early July. most in Erik, to going in of the that the through the to And, a be the that's job that to And done would two the pretty was regard healthy. good prior part, balances conversion ago. customers, those had weeks a -- the with customers their prior Kinderhook merger day, for announcements, Well, holding are, to Yes. out obviously, indicate there right conversion

Joseph Sutaris

recall sheet, June. up from hair at were loans deposits balance their June looking bit I of as As were down and just little a a

Erik Zwick

for good. That's And tax rate? of of us just I detail tax on the as effective kind can about the I the you remind year, your modeling there. then rate the appreciate second expectations for half the think

Joseph Sutaris

Yes.

or about generally up quarters a up that forward. the but range rate for municipal in basis down our of XX% of XX effective range. portfolio reinvestment points, to drip the to about some XX.X% looking couple municipal could XX% winds the to securities So is % In

Erik Zwick

I make just wanted the the me, last to margin interest expectations net And forward. going just one one for Thanks. from sure understood

to of expectation cut that you and you include kind rate decrease did XXX, an the to decrease that like Or a the Sounded not cut? kind to the XXXs to with for Funds mid from Fed addition of closer expected be that range professed? from

Joseph Sutaris

of were cut, XX although point because it's kind around rate kind we our of not run a provide prime-based basis. repriced, Well, impact loans XXXs knowing a we on significant quarterly basis

know also the and room want around on things of point until next that inclusive to kind know mark give of a estimated some quarter. But Kinderhook we of of we XX So don't ourselves each expecting end XXX we estimate that basis because kind at XXX just decrease. -- side we the

Erik Zwick

Thank sense. much. it you me. Make from That's so

Mark Tryniski

Erik. Thanks

Operator

go with Preston next we'll to Brody from on And Piper our Please ahead. question Jaffray. go

Brody Preston

are you? How everyone. morning Good

Mark Tryniski

Brody. Good morning

Joseph Sutaris

Good morning, Brody.

Brody Preston

just I Kinderhook. touch guess I to on want

in to of opportunity industries the of Kinderhook just for the a wanted any you the and with fold, get areas loan any moving advantage Kinderhook? think other of with forward Now if take sense understand could growth you better are that the outlook addition there or

Mark Tryniski

Sure.

at cities, I'd There's market the start demographic, larger it. upstate development it's a beginning commercial with you vibrant. since good population. we ways different think the to able that market. a of the a than our in other of I to markets, if growth look market we've still just of somewhat New It's happening been there. place average banking relative that It's fairly And office terms York and when it in in put capitalize fair in bit on a last year

in I mortgage broad is sense of real opportunities. There opportunities bit there are are commercial a There's that think estate the fair opportunities. there. opportunities C&I the

will addition some I it's in Certainly, been to capitalize that there of Kinderhook those market, would also, say, a we average markets been an able know, into haven't broad-based leveraging we our We've be of as now. of well. be that think to do, an above job able I to the you long a advantage. on. of businesses opportunities expect We've set that year-and-a-half So non-banking

We've also I established also management to good. off very So, is a think wealth a which start. good that's office recently, there been

larger and in Capital the Our a Capital for the District. some of companies businesses has benefits bit business done work in District fair of

other participate limit, nothing in there's I lending we is market. in our you that So you the and if at the, really think can't almost look that thing -- legal know,

us mean, think there's the of market, across top a There's kind opportunities, we there -- lot the vertically bottom for think I and to also consumer there's of the opportunities. of of spectrum the that commercial So a opportunities as I from breadth well. market to that penetrate lot of of

said, we're deal months that opportunities with a that more been we to much Kinderhook we've As just that market. and is we've in our the market in great market met I from think, going XX the extend -- of success

in a on number So of put it. growth terms opportunities, hard to it's

markets three, existing four a two, to the at would a grow in Our I little points than year. organic expect that do District. better Capital bit

Brody Preston

great. treasury your Okay, good cash the think than redevelopment, what and some comments color. the sounds earning the you're That's necessarily on on And then sale earlier, it higher I from of on too redeployment cash equivalents. much won't like be the currently yield

if So pick wanted any maybe guess in you're what I up a more I to understand asset what duration market looking of And guess to to different redeploy two I in opportunity at classes little better terms duration? the -- yield? there's

Joseph Sutaris

where a are at we of up I relative looking or we wind to basis. average the actions got I table from different say additional reinvestment Yes. should on of We've weighted mean, couple those proceeds. a lives

of some average portion We securities little our seven if years well term potentially we're presents – assets had at opportunity invested of four the itself. put significant have to that bit they in a We typically of viewed treasuries. as lives range longer our maybe looking other the in longer

Mark Tryniski

some and the it about of little and lumpy life cash kind and an have of diversify to flows a the those just next securities exceptional feel the of higher created the sell for capital. out yield the stretching pretty basically those back maturities I opportunity portfolio handful I book market, credit generate you at trying it, down, we're of gains over like for tranche One of than going as – securities reinvested us for We inverted give mean, that the we we we've maturities. we long a bit it yield a of -- significantly about opportunity talked just been came at actually weighted years but look capital particular -- was had and we're this that which curve the of out conversations to to confident talking had pretty average still opportunity. to we as the were reinvest don't know kind to in that I having the investors think they the of Street should, stretch it generation slightly

on only has was times forever, inverted if and particular of at an treasuries, well curves yield. This as depending better so securities. some opportunity are we're never tranche confident yield has, mortgage for looking least, The as also indicator, reload liquidity of few inverted a stay on history mix good it a we're maybe spreads a there is last at of And securities, It as but well. those, some on but year. backs the we'll at opportunity any potentially that this pretty where one the won't are have

a what much certainly confident before before the them. opportunity at were yield and pretty those more we we're So here the juncture sold attractive end of that we'll have year the to redeploy yielding some securities at

higher the but now a reload of of the fact, what and that the term because the between yield were, the those yield book In inversion, than than to year. of end even going now rate short we yield we're is able actually at think higher curve securities

in of gave the because one particular just So of that yield do opportunity. a creation something the us we of kind was securities inversion of time felt tranche has that an to capital curve of opportunities

when thinking trade. that year of market the kind So that to end But liquidity now the of opportunity. whole plan redeploy the the provides that the is behind point at and some between was the

Brody Preston

just to an consumer the and relative consumer loans lending I maybe great. your given longer Okay, thought impact on commercial loans? get to CECL any duration wanted to CECL then, of And some update around nature of from the potential some

Joseph Sutaris

low. on Sure, diligently a CECL. can those those yet models levels to to portfolios, position first of some range with charge-off our portfolios Brody. in said, in as very have have portfolios looking lives. assure we're and not do validated. looking back you home consumer mortgage put that working But average of longer mentioned, out running very any have two residential sort With the We been models you Well, I equity CECL and all, around we're

on, future a that expectation outlook probably on not you from economic expectations the least around So, require loss know, those the would significantly change based we at historical charge-offs today perspective.

So, pretty levels for that on historical CECL, balance, I is low been just think well the us. have charge-off of for we're part positioned

Brody Preston

lower back then relative rate outperformed in two-part It's cycle of have regard from to interest funding a X% question. beta the XX% of of last cycle. little cycle is level look that is performance this with funds a But -- interest have rate The certainly last current is you one rate. since Okay. you've and shift CBU's guys time, dramatically a had. obviously big type When assuming relative cycle particularly have absolute of success a the lower to I'm more deposits perspective level from last And a which bit a is deposit and mix driver me. occurred due I to had which to guys last you last cost in at of verse interest deposits,

your deposit from away mix expectations the different in two and forward scenario? cost deposit to guys cut last given CBU things. mix a what's to over guess shift into I want time so understand secondly, better So been rate time the a of your success DDA be would this a that's from around allowed view deposit you. decade deposit? you what is sort Thank one of just perspective In two around I And driver moving gathering

Mark Tryniski

Sure.

I think now cost want deposits. higher and there's realities I two certainly here. the not mean, I And strategies cost you it's low deposits that

the has savings obviously I very a of been run and checking can those markets doing and lot rate, is in because been branch we're based save on but lean You and years. on mean, gather accounts. side. operating well smaller you strategy We've to deposits gather efficient expense always very XX for our core network that

And be so if historically grown range half our you used just checking of its look can accounts XX%. you and now it overtime, and somewhere savings the see in back mix to

I that's cycle. consistent with retail that our reason this success this in So, been last pretty I for think Overall, strategy. banking think the

Main lot you over value. do on I a some value, of term terms the there's difficult different but mean, – same the part economic not core most time. side. can in the and at creating not of we're you for all interest That's strong in different foundation well having really to side Street in structure, stuff really and performance, funding the that same earnings on side serve your doing rates, values, shareholder can funding true risks distinguish think of longer a same yourself I shareholder its I credit the work mean on take to market, lanes, credit you banking asset the will terms yourself distinguish can

we pretty better rates essentially that's down our rates rates model funding for up but XX years. that because than mix. the appears is asset than Clearly its the us sheet for been a It's the worked well. that's industrial us of sensitive. And the on pass do out So, it'd better of balance for created down, as average whole

don't When do go rates a kind win-win. as it’s down So really – we quite up it's well. as do we badly as other. quite of a go rates When

it returns. at flexibility So, business. profitability. I performance. of measure models. run a it. all consistent lot those and growth, a kinds banking it’s We our our work We earnings us We things. hard gives We business measure think retail We measure of measure business We with like it's

So it we as mechanism perform we We business as don't asset funding businesses. that standalone a it run expect our run for well. to a gathering

Brody Preston

Great. Thank much you everyone. very

Mark Tryniski

Thank you.

Operator

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

Collyn Gilbert

good Thanks, guys. morning

Mark Tryniski

Collyn. morning, Good

Collyn Gilbert

the points Good want morning. clarify of NIM. on to just I couple

from for in guide a know how much I huge maintaining number to not So is yield? around you is but X.XX obviously deal, derive NIM, do one just…? Kinderhook anticipate your equitable all that

Mark Tryniski

Yes.

$X.XX to it of number hundred on similar on very would adjustment, last a thousand acquired a thousand [ph] existing right, that So expect drift We anticipate I was the And don't a than and per prospective have quarter. of portion couple I being the a more basis. accretion is down hundred million the was would quarterly you're se hundred Kinderhook small. to quarter relatively for or sort rate not basis. this couple just run to of a but that

Collyn Gilbert

it. then Okay. And -- got

a about Okay. it you quarter. you then I talk this one quarter guys are prepay just I Can those had of sort elevated but within back just the all you're at pattern if know borrowers again on last the -- have And predict, could on how half looks hard maybe sense year? are what you the and to seeing prepays, saw in just your obviously flow know that so -- like you of during of

Mark Tryniski

came bigger our quarter. very this than pipelines couple a really Sure, every quarter. having We have which of We a of I did then know loans they year. were We end XXth lending municipal Actually, much good pay-downs and like the reload. I last had Joe a quarter. were The very, -- made very look them origination of reference $XX down We June. up commercial June are to it like pay very some they actually good million the had was think June. doesn't in in

over also first a quarter, So that that June, municipals of quarter, $XX the $XX credits we've more $XX piece, that were better we had totaled two the literally about $XX million week the million the paid had million which a so we million that quarter experience the little million over of. little was about early. last anything a down plus credits a that, That $XX about significant paid in million million, was in of we kind in first than had reload. down they

the the it I lend prepay, pay point, origination -- business that's take sometimes stand in early, So, We the in the is if in, than in, people is pipeline really an off bit quarter. from really let's -- also we're seasonal some I quarter in a that The lower than third quarter next compared a this into all predictable, last pipeline fourth the strong rate The good say, mortgage But to commercial. difficult standpoint. we mortgage, just look, good it time year.. last at business. and were you back from and that that things pretty money growth year portfolio and had some a commercial we better quarter, is are had expect would understand to I kind quarter. a second generally mortgage you but again, more is And pipelines I single-digit expect much have we'll time grows think a at continue quarter of over origination growth pretty shape really have the this and actually usually a more they

Collyn Gilbert

somewhat that said. my That’s to that? that is specific little more just the and to there hires? expenses business you've investments in what And type efforts of you into bit development related helpful. Okay. from Or to talk maybe that next that systems? ties or get terms of related those Is Anything of question the then a expect about

Joseph Sutaris

Yes.

have you that basically as types in that you drove individuals marketing more and had just weeds, So as is we produce we this and of items business example, just of we -- and refresh which apologizes it way the little that -- We television to those were long example for commercial had my not but if expense. about them, incur those into fabs development air [ph], it, expense fine the bit some area, older.

Mark Tryniski

expensing sure. of which those quarter, and we when not Nothing first last the the expensive, most made once year expense the year-and-a-half you're you start some the in but did other even first cost of Joe have you off the so, for running off significant, Collyn, just or a quarters, TV were maybe which that, the quarter them, I'm than couple fourth they in we what said, do commercials commercials, we those at to

has, for that, that was maybe say, was past, the nothing, I those we rate -- is accounting significant the a running but in other beyond there bit I the just no marketing little remade.. run best marketing think it commercials would So higher don't than significant rebranding. it than -- TV

Collyn Gilbert

Okay.

also to $X under $X like Looks into line. and maybe expense than other then the quarter. try was million I just just higher year-over-year think, maybe drill about first the increased million I

was of a what better sense to I get of So that trying little bit was?

Joseph Sutaris

a we a think question in call it, quarter the of to of second Collyn I had had good very an but that expense when more couple We I'm We I in had indicate quarter effectively a of earlier just more -- way. that went normalized a quarter, kind items XXXX. Well, basically were really, trying had this certain of it our we And you call expenses. comparative of just a expenses reductions in quarter bit an of increase at administrative annual second high. some other they largely kind an quarter run our basis was look do that little from a was quarter but of basis, quarter some just above XXXX resulted net a that look bit perspective, a on rate. run little rate because of But annual historical various little the expense that's good comparative very quarter

Collyn Gilbert

Thanks That's guys. had. I good. Very Okay. all

Mark Tryniski

Collyn. Thanks

Joseph Sutaris

Thank you.

Operator

for There are I At and additional conference the remark. the today's queue. like back no in this further over would turn time to questions presenters to closing

Mark Tryniski

the Thank we call. Great. you Thanks you, Avril. again to next joining everyone you. talk for will And Thank quarter.

Operator

for gentlemen today's Ladies participation. this you your thank and does We presentation. conclude

now may disconnect. You

Community Bank System (CBU) 22 Jul 192019 Q2 Earnings call transcript