CBU - Earnings call transcript Q4 2019 | Community Bank System, Inc.

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Operator

Welcome to Community Bank System Fourth 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 Joe Sutaris, Executive Vice President and Chief Financial Officer.

begin. may you Gentlemen,

Mark Tryniski

we were as was Good up fourth and start which quarter nicely QX on They comment Tina. for earnings with you year typical. dynamic same in joining but on quarter XXXX comment then our flow expected. conference from and as seasonally XXXX, last down were and whole. morning, as about you, QX, the Fourth thank everyone, all over a a the Thank earnings call. is I'll

One brighter performance in organic of good heels which the as QX all We non-municipal spots of QX, for in a the Board in teams our very me consumer deposit strong half well, so the organic was the core had by and in second on quarter business loan execution loan good year. of growth growth follows the growth. the across

expenses over the $X achieve. gains impact our For which excluding securities into the despite to was full-year goal a able were we includes hit, and that year, was marginally acquisition grow up million-plus XXXX. but Coming earnings EPS XXXX, Durbin in of to Durbin XXXX,

our Good had reported in organic up strong improvement, XX%. a modest So operating business, deposit improvement services showed growth, delivered growth insurance Good particularly commercial X%. which for loan but was year. year. our million it earnings our and the a residential both earnings We good improvement with very mortgage, $XXX businesses, of almost financial

the year. summary, busy year and integrated we Bank dividend transaction, for May, our a raised which expect consecutive and the to the In for in successfully Community Kinderhook and Steuben was productive System We close our shareholders. it announced transaction, XXth

all have strong to our XXXX, across ahead Looking businesses. momentum operating we

We margin will our manage best pressures. to do

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

Joseph Sutaris

Mark, you, and Thank everyone. good morning,

in per As We was despite metrics earnings interest the $X.XX stable. operating quality net an year very the funding costs, performance $X.XX a XXXX and noted, productive and for remain share efficiency company's company. asset around headwind Mark improvement generated a margin Durbin

in full-year to few Before the closed I'd the reviewing billion. earnings up XXXX This quarter the from $XXX from balance third the make but quarter results, of of $XXX the to end X.X% or end due XXXX, with a and sheet. remarks of down million December. company's or total deposits of like $XX.X quarter during seasonal fourth decrease fourth primarily million about of a XXXX X.X% was the assets We

quarter for to $XXX.X fourth assets million $XX quarter XXXX quarter the earning when X.X% and compared up when of and the growth. or both compared up of were to Average billion Kinderhook transaction to XXXX linked million X.X% or fourth $XXX due organic the of

Average of million fourth compared loans the compared and in or up XXXX million when XXXX were up $XXX.X quarter linked to third the XXXX. fourth of quarter when X.X% of the $XXX.X quarter or to X.X%

of loans $X.X or X.X% portfolio, categories up, lending direct mortgage or X.X% the fourth portfolio, in home portfolio. business in average X.X% and are consumer or consumer the the in million equity or indirect million all in or consumer outstanding $X.X $XX.X balances $XX.X the the the including During X% in the in portfolio, X.X% $XX.X quarter, million portfolio, million million

ending on to basis, outstanding the total linked Kinderhook or were a quarter million or full-year basis. transaction, acquired increased Ending $XX.X Exclusive loan also balances X.X% million loan loans of X.X%. up $XXX.X on in comparative a

the scenario million X.X net years reported to decrease $XXX.X duration was of were XX, effective securities equivalents. at of reinvestment investment reduce company's rate-down $XXX.X to million with investment million in end quarter. of company's risk quarter, XXXX. a to and portfolio December the the associated taken exposure the the out anticipated spread at cash These a fourth $XXX.X additional the During third cash company investment an in purchased The duration securities an actions principal years X.X effective XXXX. the security in This flows of compares and to

a the tax a cash investment weighted-average securities fourth book X.XX% fourth on portfolios book The equivalent securities was yield and tax overall basis. yield quarter X.XX%. equivalents on purchases quarter were The investment on equivalent company's

last quarter the end third of checking in XX% X.X% linked were from total $XXX.X Average a the and were the X% comprised $XXX.X quarter transaction. included of up Kinderhook million and million the basis. the deposit total accounts. deposits assumption company's of quarter $XXX.X savings up year, the or of on due million to the same at quarter or liabilities deposits of This

equity Shareholder's prior the earnings retained and million million income. $XXX.X one-year from increase X.X% an up primarily accumulated in to was comprehensive other or in increase due $XX.X million $XX.X

was at This up the of and end the at X.XX% the equity Xx XX.XX%. quarter the XX.XX% last fourth regulatory is Tangible ratio over quarter The assets standard. net to X.XX% coincidentally end at tangible the at third well-capitalized company's the leverage solid a the end Tier from ended of year. X quarter of

diluted million of and earnings, $X.XX Moving per in earnings to compares and share GAAP XXXX. This diluted net million net of $XXX.X reported fully to of income share of full-year company earnings fully XXXX the $X.XX. income GAAP per $XXX.X

to acquisition losses an Fully reduction per of results debit were amendment. all $X.XX to tax despite interchange related in loss extinguishment net revenues diluted compared equity share, gain and debt were to the sale as on earnings $X.XX in operating to effect securities XXXX. per due and of Durbin up XXXX gains net on $X.XX unrealized on investments, which expenses, share headwind excludes in $X.XX estimated These achieved

and million fourth represents share quarter million in reported net This increase share earnings XXXX, results. and of $X.XX. earnings the For the X% $XX.X net quarter of in X.X% fourth $X.X quarter fully share XXXX, in and a a over net $X.XX or company million per linked earnings per third on $X.XX and diluted increase $X.X income in a GAAP a per increase income increase income of a of or the

was by per earnings increase and revenues, in an comparable between loan share, driven the acquisition part quarter non-interest quarters for quarter the share increase earnings diluted in fully income was in to for increase expenses compares tax by the in or offset diluted effect, net shares diluted operating annual This share were in of in earnings of the interest diluted $X.XX income, XXXX. of The decrease Operating net operating $X.XX XXXX. an of fourth fourth increase exclude operating per which increase an an tax X.X% $X.XX per expenses a in provision higher losses, in outstanding.

million in the quarter in million extinguishment Durbin third company's sale of increased basis, $XXX.X on a share investments as share per X.X%. linked increase securities of This operating XXXX share or on the second on per realized XXXX well revenue $XXX.X of reported the reported a growth our an million XXXX. On or driven X.X% and revenues basis, XXXX, in million in from $X.XX full-year quarter gains $X.XX $XX.X $X.X fourth was X.X% or from by revenues per in of Exclusive total despite to businesses $X.X banking-related totaling in million non-banking as of XXXX the $X.XX from quarter the earnings quarter. of million decreased to debt $X.X in loss

increase offset X.XX% by in XXXX. quarter the interest assets net $X.X net X.X% in The included revenues. to Kinderhook increase XXXX. or as the in due non-interest in well as interest of fourth XXXX in increase revenues in million banking non-banking, Total a to interest revenues $X in $X.X revenues or non-interest was earnings to million driven part in by a $X.X from a decrease X.XX% income organic million by were revenues. fourth point an quarter compared X.X% in increase or non-interest in $X.X The acquisition also in growth, of billion and increase driven the non-interest up X.X% both X basis quarter a million net X.X% and increase This was or income fourth or margin increase of X.X%

X% banking $X.X non-banking partially by This a and $X.X linked million services income financial in Total quarter decrease million a revenues million $X.X on net revenues increased interest revenues. $X.X offset or in increase increase in include basis. million

net Company's tax The X as yield portfolio, equivalent basis X.XX%, quarter point in down to in fourth while in to tax basis equivalents investment including X a was X was Company's loans due yield prime X.XX% Reserve fourth points payment. and Bank primarily XX margin up compared semi-annual Company's the on on the X.XX%. points a Federal to from equivalent million decreased the dividend $X which the lending the included basis rate, decrease cash interest the to The quarter linked X.XX% points quarter basis

cost total total cost flat which is deposits basis XX company's the while The of and company's deposits. core at quarter, cost the points. of points, funds XX point industry of was points or basis includes peer averages well solid of decreased deposits which X below Forex third reflective very quarter base basis of The basis to at XX in for the X.XX% the remains

while During XXXX, management revenues million the $XX.X $XX.X to insurance the $X.X increased million increased services Company's employee or $X million. wealth X.X% benefit X.X% or to services million, revenues

securities, million investment revenues $X.X operating contributed total during non-interest XX.X% XXXX. on Company's Excluding the of revenues of gains

million fourth expenses $XX.X XXXX. Excluding the quarter of Company $X.X was million This $X.X the in million recorded to X.X% over the of acquisition-related expenses, quarter fourth XXXX. operating up of of

or salaries and intangible including increase or increases $X.X benefit offset increase decrease million, million and The or in These partially X.X% included million in expenses. increase communication, data in the were XX.X% expenses a $X.X or other employee processing $X.X by amortization a benefits, in $X.X increase and increase assets. million, medical $X.X of a X.X% million XX.X% and in

operating The mid-level subsequent increase and associated the pressures entry the expenses costs. operations to and transaction largely as driven medical benefit well by in higher expanded significantly expenses wage higher as with Kinderhook was

million increased incurred acquisition related million fourth $X.X total quarter the third to third quarter expenses X.X% Excluding $XX.X $X.X the million million in the $XX.X during quarter, during fourth or operating from the expenses in quarter. of

increase expenses communication expense, processing a $X.X equipment a and occupancy million, increase The or or increase in employee million, XX% $X.X and by million, X.X% other X.X% or and in X.X%, was and in in $X.X operating and or data million, salaries benefits increase driven a in expenses. increase $X.X costs,

development quarter business and was fees, quarter. other third and higher compared administrative historically incurs of marketing, increase in the The expenses to professional company operating expenses other in and expenses. higher legal The the reflective fourth

expenses million exclusive On operating full-year expenses total increased $XX.X a of basis, acquisition-related X%. or

XXXX expect expenses in recorded for quarter recorded fourth in provision and XXXX. X% with upward of exclusive to trends linked for $X.X million XXXX $X.X trend the a million is of in The company third This $X.X X%. of long-term the the line million operating quarter. recorded fourth acquisitions losses to We operating loan quarter in up in

effective quarter with rate in a state the activities benefits XXXX. tax tax of rate XXXX expenses. compares attributable fourth of equity-based the tax the to income was income in associated in and tax in The increase for of This The to fourth effective decrease XX.X% certain an quarter effective compensation reduction an rate tax XX.X%. activity-based was

benefits tax XX.X%. Excluding the income rate compensation, for was tax effective full-year associated company’s the equity-based with of XXXX

remained loans. of and the the of $XX million XXXX. This or XXXX. quality strong loans, XX, loans December million total totaled fourth and quarter asset at Non-performing $XX.X company’s The September legacy loans both of to $XX.X XX, XXXX comprised of end million at acquired compares of non-performing at X.XX%

to on million basis compares million or fourth $X.X XXXX. $X.X the points net $X.X full-year quarter quarter or portfolio of during quarter XX XXXX. during $X.X net the or charge-offs basis basis net $X.X XX loan the The annualized charge-offs million of This company loan in million points portfolio of million reported of the XXXX. third of and basis On the of charge-offs annualized points points in XX during charge-offs basis points of reported XX on net reported XXXX. charge-offs The XX or a fourth basis, XXXX. compares with the This net to

the we closed During Bank Kinderhook Corp. acquisition XXXX, our quarter down at third

all-cash In loans $XXX.X $XXX.X an connection in million a $XX.X with for we the in reminder, As acquired Kinderhook in total transaction, we million. transaction acquired deposits. million and

greater pleased Albany the the are in to date, We performance remain about with excited markets. our opportunities

is Steuben then on closing The in proceeding quarter XXXX. second anticipated schedule integration of the

two The increase much are footprint, are the Bank our New XX-branch six-County current demographics markets. in of state Steuben York markets. Buffalo other and Rochester, the Trust York. of contiguous to current our in but our York the a with presence region greater and counties a also operating reminder, Community in four within franchise, New New consistent As a Western currently serves Steuben's footprint is

Steuben's Steuben's assets of million in deposits. end X.XX%. total $XXX including average trailing return quarter and total third approximately through approximately is the million assets total million the of on of $XXX XX-month loans $XXX

to a expect EPS a on the GAAP and $X.XX on accretive $X.XX basis $X.XX We to to transaction be first basis. $X.XX cash full-year

The to be with is the sheet book Bank's balance transaction well consolidated New integration billion. on accretive. markets. forward efforts in capacity service approximately increase forward is Steuben our also tangible as Community forma over Western total look assets increasing pro expected as team to coming moving York estimated value The $XX to months, to the We

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

it questions. Tina open turn now back for line the Thank to you. I to will

Operator

to from first like go Please our would O'Neill. ahead. We take Alex Instructions] [Operator Sandler from you. Twerdahl question Thank

Alexander Twerdahl

morning, Good Hey. guys.

Mark Tryniski

Good morning, Alex.

Joseph Sutaris

morning. Good

Alexander Twerdahl

I start next give just the on now guided off, potentially to foreseeable real a we future pause to no another Do margin, the I pressure, little to wanted the margin rate trying for additional bit to with think, seemingly to the but couple stable expect is be quarters? kind cut. change the you suspect rate a that last First environment. you'd of assumed quarter of and of over

the with two margin on accretion purchase kind how the core and purchase exclusive as And just of core layer And start starts top remind or dividend? then Federal XXXX accounting maybe Reserve can out the of of might sort accounting the here? those you us items just margin accretion

Joseph Sutaris

down I'll kind break that Alex, of Yes. you. sort for of

see those the for $X It about kind but but are – portfolios million. So somewhere acquired increases in a we of accretion year expectations level. that $X and expectation quickly repay, we and repayments million, have of on million next $X typically between how depends that some baseline

$XX about billion asset basis base, earning on So, points of that's a X NIM.

on Federal Bank the indicated a I dividend, our And that know Reserve with about expectations we respect call, were the dividend. to $XXX,XXX last

out, we when Kinderhook, it As together, a considered with half we're were combined were of we the Even year. large actually the we for though banks we bank. considered both turns second put – small

XXXX. over into trip large really don't we So until the bank category

do we Reserve Bank to to the between So something Federal dividend $XXX,XXX. December June into into periods decrease expect or $XXX,XXX

of the about million is over So the delta the $X.X there course year.

on the more so I little basis than or a So guess point the margin.

kind kind of margin to So cuts. is we're in high with printed no of there that something the X.XX%s, mid- said, posted rate anticipating are our assuming more Fed

investment have Of of maturing course, – they're securities, the basically really we latter $XXX we’ve the which over in year. of got million half

some margin impact So we bit. those. to of sort actions would the reinvest a take That

during down we the are, We bit of kind kind do rates – little a do if deposit anticipate where anticipate they of trickling stay the costs year.

we we're we'll they that. unlikely, are contain where I before deposit that be rates are, XX will good sort level, shape costs it's back expectations late get XXXX, the of to Although if but so going we where stay to the think be to started in basis on in increasing Fed our point able

But our mature with margin, the somewhere they mid moving we're hopefully growth – between can looks into as kind into by high the range. The loan reasonable. securities of and is pipeline investment X.XX%s ladder in to some from If the the our third earning had X.XX%s an the we've we other continue perspective sort climb of asset of kind on have fourth posted the looking too, so – we to – the side, of some some of sort XXXX, growth loan quarters.

Alexander Twerdahl

layers that Will as just is the color. I have – that remind that's the effect guess good margin us, guess, close? mid-May piece I And the to And last that well? on is then expected deal Steuben was on. some That's much that as

Joseph Sutaris

for said, a of of kind if anticipate will, time With we to are similar which will. hope expectations the everything so plan, kind that we on goes long-term they margin Yes, very to mid-May-type a it ours frame is and basis. Steuben according

the much. think that very will don't particularly we So by consolidated be affect margin

Alexander Twerdahl

comp me on not The that’s first I'm other rate. And something in just the quarter, equity-based mistaken. for tax the generally that if hits one Okay. then question activity,

be this past? to something that is in to had now XQ caused was XXXX less it So the of be acquisition-related the weak? of predictable than kind going that been timing Or

Joseph Sutaris

a or question. valuation. expectations I timing Alex, that's cash their project good difficult the needs those It the upon dependent is holders It's for either of of and, that. around guess options

predict seen of to that and are really is difficult into have higher particular it's we it not So quarters although a than necessarily quarter, some kind those, others. trended

Alexander Twerdahl

Okay.

Joseph Sutaris

kind continue just kind tax that equity-based the you consolidated on are pull very was rate benefits of Alex, sorry effective of to tax our – all XX%. if run close thought, benefits, rate I'm to away the

XX.X%. I think it's

likely it So To predict, equity-based I about for the but there's benefits in to last is be core of it's to XX%. level what think XXXX. year was rate compensation – run – magnitude kind of difficult

Alexander Twerdahl

for Great. questions. taking Thanks my

Mark Tryniski

You're welcome.

Joseph Sutaris

Alex. Thanks,

Operator

from question Boenning go & The Erik next from Zwick Scattergood. Please comes ahead.

Erik Zwick

everyone. morning, Good

Mark Tryniski

Good morning, Erik.

Joseph Sutaris

Good Hello morning. Erik.

Erik Zwick

mentioned, As out X.X% you year. looking we the growth for it strip organic was XXXX, about loan if Kinderhook for at the

You XXXX. looks mentioned remarks the pipeline the reasonable just into loan in that last heading

So in bit could to looking the indicate be that on would a something potentially you're we're seeing pipeline, similar XXXX, or that potentially at what stronger that based going forward? little

Mark Tryniski

think I this I maybe – quarter. last you if think I made comment,

made improvements day by tackling, the to has function credit what ability stands and blocking our in organically in all. teams. I see credit pipeline on ability year our if execute do execution that's last improved at organically, over think substantially ground policy this can months. you of substantial And the at XX of it that it the not right a now. we a the in to you look And the execute –that as and function every is not It's better and

we into we So lot see of can and a making year. this put had those better improvements, effort if execution organic you

color give on is where it commercial Just pipelines, now pipeline our right was of the to XX% XXXX. over some in the up end

is it XXXX. pipeline over where was mortgage up in Our XX%

just organic ground has ability going on and So in well XXXX. our execute think us improved to the better I serve that's to

Erik Zwick

at was can That's of we If to the If million. run the expenses. great. I core quarter $XX.X color. rate look fourth XXXX, helpful about that the Okay, turn

the additional just Are that Kinderhook any to to is of start start typically X% coming we backed to look kind XXXX? the Steuben year? is that starting good out? build then As still half to is coming a the And of kind rate the that strong, of XQ saves point for regarding for about the – run down the there cost trends upward that those XXXX, from? think seasonally Just X% kind back of into the trying excluding of to talent

Joseph Sutaris

expectations OpEx, million supposed in $XX is higher that think quarter-to-quarter. call, and our the the quarter Erik, Typically post-Kinderhook, from acquisition I mentioned be that the expenses excluding a for reasons. to of expectations million range. fourth bit various volatility Yes. some kind is I on There this were earnings quarter second little was to $XX

of kind sort not average it's then of think those upon I the we kind fourth that. So of third of unreasonable, quarter build it's quarter, kind take and

as expense first go quarter to and sort compared down levels We incur in including some in first the little then later the of in quarter, a quarters. taxes those force in full quarter to at, second in of third kick typically payroll-type higher the

of million rate cost of before – kind million I reasonable $XX was run range expected that with of million the annual think OpEx about saves kind XX%. is about transaction. So Steuben's for Steuben $XX $XX

costs the that of of kind some transaction. and of for we the million, second $XX million making year, the in Steuben part sort take additional So $XX

Erik Zwick

Excellent.

one for Just me. final

expected provisioning loan XXXX, the of Do Just of best have dollar or to think every about that? you kind about way basis loan the loss what's for for points a of many aside originated targeted you're today? range kind thinking in how setting mix

Mark Tryniski

little kind think to I to pre-CECL from to the potentially of CECL, the expect a radically volatility is there provisioning don't market change sentiment the is more world. kind of bit we post-CECL there from that quarter-to-quarter. Yes, Relative

hoping be that we'll what than models I think And try not, or or losses. expectations able certainly different over we determine I the inappropriate whether that's no But our radically current true volatility credit have we model. unnecessary provision those in the we're built to reflect don't are going there's expect under to to loss think forward. not time in really

Erik Zwick

And just Thanks. million Is the to that higher a way to then $X.X bit it provided interpret kind that organic a Okay. – you of comments? the that of little XXXX, given right not increase. those kind the in growth, maybe relative but was like large sounds

Mark Tryniski

that's think I it, way look a Yes, fair at to Erik.

Erik Zwick

taking questions. Great. Thank my you for

Mark Tryniski

welcome. You're

Joseph Sutaris

Thanks, Erik.

Operator

Russell Gunther The from ahead. go Davidson. next from Please question comes

Russell Gunther

guys. Good Hey. morning,

Mark Tryniski

Russell. morning, Good

Joseph Sutaris

morning, Good Russell.

Russell Gunther

I – like well magnitude expecting. appreciate was the contribution the I wanted to asset of comments in as could terms might you – you're perspective, hoping as growth your class an so comment what's from geographic look well? mix I on of a as that from

Mark Tryniski

The growth – on came came Sure. side. organically of business on the the majority lending the

did about I about been equity equities excluding a but consumer up mortgage because $XX actually home on loans. bit, better last for down trend for that's decline down. modest X%, a it Kinderhook, million several Same with said, was But doing we results of the year-over-year, impact are home a and people As a the were economy have is some the the paying kind little years X%.

up portfolio, I indirect of it up it be really function a lending of or think the for mostly be X% It's as it you debt XX, X% can year, XX. be a The the X%, mean auto bit, can – a market. I little the up know portfolio, down down was kind can but

that portfolio, kind want in get we with are and pursuing growth With to as that but that portfolio, capital can that in we've the portfolio. of the margin opposed on we yields been that more satisfied volume returns

it across Board. pretty was execution really good So the

New bit York geographically everywhere. think little markets. kind were a of it up was I We Northern in our

the Central XX% is flat was of there New mortgages market York. about was actually the call up really and We year. we kind Western of business course grew That year. were over in Pennsylvania of South but up the last substantially lending, terms market, past particular we which what X%

good So year Pennsylvania. the in an part improved execution and the we extremely focused that's of ground. in effort had Again, out

was than year, – New So less was lot of lending, It prior but the England New had of business market well. the the some that consumer – growth some a a bit kind up less. there little actually England segments as in in

So New in decent the market. year England

it everywhere, of was was well. bit So a was book a little auto bit it the little a it as commercial, was little little bit of bit and mortgage a up

improvement cautiously I'm for and markets has on So the our and XXXX in improved optimistic ability given our to capacity visibly. just in resources ground core the execute

think that organic have would so And in I be cautiously year optimistic again, execution and growth. I a numbers will pipeline in XXXX good current that would And we of the terms out. bear

Russell Gunther

That's color you a follow-up. for Mark. only Thank great that. other My question was

I post-CECL world. think You pre- apologize. and coming? your a I And provision on I to your just Have I it, when but And the disclosed don't not, if a impact? guys in thoughts for is sense missed did, that you CECL alluded if

Joseph Sutaris

Yes.

evaluate other the qualitative the the of and the was XXXX the so inputs We're continuing world, in the on to where loan weren't disclosed Q we $XX about the in modeling range a process taking we to million So full-year standpoint, CECL that's $XX actually quarter obviously, we of in September. have Russell range, and in From losses kind a million of were of that factors. we're based range. third

few of probably so $X of sides end so still that that we're that at the range bottom on forward, top kind range or we of both preliminary the million now, a going right move but And the whole kind the down of our million model appears that phases provided. and bucks, is it $X end rolling on range million to of

We disclosure we the with results. pulling through of are are XX-K process the of all of color that, more about XXXX in just kind in our providing but

Russell Gunther

great. for appreciate Okay, that. I update. Thanks the

Joseph Sutaris

too, misinterpreted. it’s clear Russell, not that sure to Yes, so just on make just I'm

So current is million. our $XX that reserve

post ratio reserve, So the our than leverage to which regulatory when of is all by incremental say, $X material our Tier expected to wasn't we X ratios. CECL Company's extremely increase increase million basically more our and

Russell Gunther

Yep.

Thank Okay, great. you.

Mark Tryniski

Yep.

Joseph Sutaris

Thanks Russell.

Operator

The Collyn go next question KBW. Gilbert comes Please from ahead. from

Collyn Gilbert

Thanks. morning, guys. Good

Mark Tryniski

morning. Good

Collyn Gilbert

opting this structure you're just want duration. of of how you the sheet about I the – moves balance taking thinking just you start talk balance broadly to where to took Can quarter you're of the interest you obviously trying to that sheet, on extend the think just you're sort about sort through it that how now securities on as loading know take risk? I broadly? you're securities duration to on rate and extended but to about of thinking the those up book, timing

Joseph Sutaris

very Yes. hasn't I’ll peer at little or XX% It's a double-digits our luxury or of year. the we've then is of that X% other been duration or our loan some that has a growth X% had side the portfolio We fair call longer question. the Historically, maintained securities investment doing of it. that a institutions, over years because

of don't others a liquidity the necessarily can need perspective, curve So than we kind go we from because longer a on little that.

to with the portfolio. have amount to our preference in investment more of assets have growth. markets a loan earning only prefer that With that said be our a We organic securities But $X allow of billion certain books. to –

So bit we can longer little go a there.

As we have But Right at we as do of the to the year play the evaluate effectively curve an on have even going in my look out we additional we'll low ahead $XXX that's million, curve, sort the the on push just this it's to horizon, looking of which the that be a with bit the the to yield of kind – that. mid changes. opportunities to be reinvestment. little deal if I just we now mean, on were book simply plus recollection Xs.

where north In that at relative have something and deploy that of the today, that have if on based a yield where opportunity expect X.X. par the redeploy we maturity stay we slope the perfect are curve they than would are, world, levels. an of it kind more to – little to we we But the rates

Collyn Gilbert

Okay. All right.

Mark Tryniski

we have profile margin policy, that slightly say, the some two just growing versus over think rates exposure is by reasonable go rates there's One have wanted within Collyn, down. bit. we provide still We we rates duration I – Mark. to little falling time clearly a down to our I extending and would a up guidelines if asymmetric rates risk against had a protection that it's things.

we the that securities we kind market. the when sold So opportunity in the of have

kind of down recognized about of really will game. versus We further really And improve was care repositioning decrease securities try game. we're risk. the be about the maturing year about doing It fourth to and duration was profile the didn't We at the the the quarter looking rates our that things the that. environment. rates of improve this to portfolio It that in to same

at Fed news. you improved rate If that which the last of interest is terms Europe, globally look of GDP other is and the does on and what going to in good downturn any and over there couple in months, extent environment. To slightly it's in banks and that what's the economic growth the that react central

reduce say, going to that's the churn rates just it the here we're of let's rates. between if better And purpose up against – potential okay is rates so because kind our and really going protecting or better And asymmetry that match mismatch, that doesn't down. come,

all So what is focus the that's really exercise that of about.

Collyn Gilbert

Okay.

some the understand sure guys the But I Okay, that. then make to And fourth of digging what the wanting just that's some guidance that some into on operating appreciate I for Thank the movement very forward. in gave quarter? just of of you going metrics, happened helpful. you

of mortgage standpoint opted, So the kind in again, charges so reporting first service feed on looks like what – from Is sales deposits? going to any less it the less motivation of that that going Does – on mortgage – side, it's than was So you mean banking folding that you're a – emphasis to the that there? on have first forward? just question. part

Joseph Sutaris

so our are pretty income Collyn, non-income. Yes. the mortgage grand and non-operating in income our in activities banking of scheme minimal

We break could small to the pretty the more into not of future, can So we sell together need to it's out other, income. with significant begin the because secondary and that. our but present that component with put a of sort out we operating expand it's break haven't we part If a business mortgages very the those of felt mortgage, at market, all time.

Mark Tryniski

itself, really It's kind annoying. probably They to going small it be just thereby It number. a about It's separately. have just reported small presentation. of always and was generally

So is. it we sold as

Joseph Sutaris

Yes.

Collyn Gilbert

Got it.

Okay.

That's And up – just helpful. line then bit expense the a other on Okay. on the that quarter. fourth was

there? curious to of non-recurring million, the at expenses that it just imagine would I but core given $XX start Just fact was? there that looking $XX there kind was if you're for curious what million, anything was

Joseph Sutaris

that that items from or several Yes, I mean moved quarter-to-quarter. affect that there's

around them of benefit was of a One pointed just kind costs medical out I the costs.

self We have a plan. insurance

so And net in you occasional that expense. have changes

fourth a quarter. there So we in were the up bit

expenses. just that kind – acquisition, to a advertising, want we of new the fourth do had more in marketing little of We higher some also an let of the sort we We kicked and typically when with quarter. so markets

kind of first of transaction the well other did some as quarter. in and We not happen as will you of again, have would on the surround fees if CECL sort our activities incremental around that matters, so Kinderhook professional some

bit fourth lot from a sort pre-foreclosure the plow write-downs because in there. of a these of snow were quarter-to-quarter. Property volatile quarter expenses our They're related little We geography. of

And nothing so little of it that a up sort all of everything modest else. increase adds we there, sort significant when have with

of had We and related expenses. employer It's curse typically we the fair amount a also travel holidays. there. costs some And

think pretty combination a a those going in But the it's control I XXXX costs handle we have So forward. of new on the good period, of think things. I those

Collyn Gilbert

question, into coming and that XXXX kind and in operating of beyond the then the And leverage potential drivers you how see just feeds see Okay. of do thinking guys where to about there next my and that in? are leverage you kind operating of

Mark Tryniski

a So like house. we Over reductions little gain we'll acquisitions efficiencies, continue the hopefully easier we as expense inevitably certainly I time, on think beyond we above bit to as get just, efficiencies those. just do of the find banking initial side you things get and digest the typically more – the more

front So the I to by continue on any see means. think not that we'll technology overspending we're

know technology been the like. about in spend I of a lot there's discussion So look market what's

our about but some do being technologies, provider I area. utilizing in that think to overspending of are we're digital no And it. core we we're we're not, that, investing in question

get probably continue our to leverage expenses we'll So some technology I of over time.

Collyn Gilbert

Okay.

that, about Can belt? capital building, about thinking talk your got then capital obviously And a just of and maybe deployment you lastly you've indicated capital prioritizing capital. you once lot you Steuben guys Okay. you're beyond on just how for underneath XXXX get

Mark Tryniski

we can generate to capital lot at returns a relative than organically. grow clearly you Well we organic Sure. more if to use I our think, look growth, our

the side. into acquisition model that the is deploy capital our strategy spend historically value on will strategy. continue be opportunities both and banking non-banking that the So And and to to high

have We said, the raised, I dividend. as

increases, few this going think if well. pretty expect our look years back be is a the I the of capital consecutive last dividend you forward history that's would In the strategy good. I part utilization to the of that year. as XXth

we to organic capital I mean, have rapidly, capacity I again builds, and that a in more it's the our our have think problem then markets. good clearly absorb to

in other of need for which, space It's the time consuming, capital we whether bank respects, those effort. because an all challenge things. blessing, some to but So higher of non-bank deployment risk, M&A, opportunities, it's the takes a look a spaces, it's it kinds us it's or to

fair think to I at on continue M&A our of deploy disciplined and to burden reducing capital. risk us kind that a but done a given experience we've success of put in way, the does a it just historical nonetheless, job

on, which for shareholders. think And deploy work benefit of the so to one to I for that but it good create us have it's just and opportunity will continues capital problem continue the we to to a

you do strong that you really use can strong And with the to starts build really so because earnings that things. other can't capital earnings, without

is continue just to our and do unchanged point – so probably strategy historical to earnings dividend our from comment this at the raise And the earnings expect say the important continue is so to you think, I I and we deployment to extremely to relatively have would capital that’s grow the and that perspective.

Collyn Gilbert

M&A Okay. unique opportunities part those of think as or that How there up? Are the And then landscape in you XXXX? opportunities just obviously out better recognizing M&A lines? that see of can strategy. do more M&A you're is pace – Do important you pick seeing look again, looking along the you an

Mark Tryniski

the say of range same would I the last years. generally handful it's been for unchanged. in It's

or state that, at decline you the steady year. transactions look of year If decline X% of number the just X% in of U.S. a a and at or it's number a banks the in the fairly

change I recently certainly continue any expect is. significance. probably way to the haven't seen greater would I So that of it

continued of be pressure it'd think because technology. I

announcement the I going off – that believes for thing the it’s opening are One slower that look branches think everybody you will to play JPMorgan, everywhere. it's example, else, about all interesting, than it at

long tie I the need which as long, to digital banking said, that, you along lot can a we're capabilities with digital for invest our think is different Joe improving a So ways. And our that don't and not branch and channels it platforms doing in time. digital capacity and in of

that. So we'll I for foreseeable those continue I'm think this future. have about opportunities to the concerned not –

in equity money side, a was you're say spaces but the private it’s I competing really the think it so have wish otherwise. that against those troubling, there's operate I'll and different private equity model. in they we much that one, on I non-banking But

end private a And of lot there's chasing I equity, money of the low of the would a deals. say at lot smaller end,

so that of non-banking little makes okay buyer buyers. just strategic But to us a It environment the a with side. more makes a it to difficult of compete financial as on an bit it for And more little we've date. a done the challenge

continue asymmetric opportunities think those we'll That's it. time and opportunities opportunities risk for continue value continue a will And the we have we to I to of that But disciplined of those high fashion. house do way strategy. on look in we'll execute over on sides those of out I and think we'll the to both execute kind

Collyn Gilbert

That's Okay. All great. there. leave Thanks I'll guys. it right.

Operator

As back I'll turn closing for to your or there are question host remarks. now further any no signals, the call additional

Mark Tryniski

Excellent. we April. will joining talk quarter you Thank to you all again Tina. Thank fourth you. for in our Thank you, and call

Operator

today's now you conclude will for you disconnect. and your gentlemen, may call. Ladies Thank That participation.

Community Bank System (CBU) 22 Jan 202019 Q4 Earnings call transcript