CBU - Earnings call transcript Q2 2020 | Community Bank System, Inc.

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Operator

Welcome to Community Bank System Quarter -- Second Quarter 2020 Earnings Conference Call. Please note that this presentation contains forward-looking statements within the provisions of the Private Securities Litigation Reform Act of 1995 that are based on current expectations, estimates and projection about the industry, markets and economic environment in which the company operates. Such statements involve risk 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. joined Officer Serbun, for be and Vice all Banking Chief the will by Executive Joseph President They question-and-answer session. begin. may you Gentlemen,

Mark Tryniski

of Thank a call. everyone joining morning are well. you you, you banks families Cole. for we PPP acquisition We provided most million nearly all had and busy quarter loan and PPP, your our granted well. around deferrals. our deferrals and, and hoped million as We of thank conference loans that Like revolved all for for of customers us, an $XXX QX Good $XXX

as for going One on businesses million further revenue up deposit quarter $X.X of will the growth, of this loan growth not in year. done the $XXX already. Steuben for further retention most significant sheet wealth last over almost the were basis. PPP, both million very a and insurance by of were acquisition were the are pretty impacts of three balance total actually sustain future. quarters, Friday with given deposit necessarily and QX. down from discuss of We're the two consolidations in the with we up surprisingly we the earnings a quarter. as certainly over year of which year-to-date organic Operating our our earnings which acquisition XXX% as but into this combination limited, New year's grew and XX, in-market deferral have levels Despite $XXX there integration to June the negative second granting Joe news the our loan we closed the strengthening second good metrics, Loan expect both all is starting an was benefits, quarter and don't hope induced change footprint. and stimulus active and for last half past current point move the on very over a from deferrals these flawlessly. good good to billion Steuben for got the for was requests operating had about significant deferrals a and and credit both excited last We quarter Encouragingly, Western from detail York conversion transaction The PPNR nearly and been been

start. we're good So, to a off very

significant to difficult business and the environment is consumer environment growth. these predict we services. me prevail, severity, to to rate create forward. uncertainties products the and whether earnings and it from activity year also see and early The We're Despite of stead. deliver as respect banks into challenges the strength, current the make challenges inflation think behavior I is margin will an impact going and for it's in forward Looking economic second and my The It's in did question has credit just hard of to extremely but cycle, and forecast to for economic earnings, and ultimately too potential continued the environment term uncertainty, should credit forward with rates. challenges, half environment visibility more and the the ultimate the three or get subject will rate term not interest more in financial but of but but in but not credit, good near we to know more longer about starting this all view, to XXXX, the for current It's we the last capital interest demand the the remainder just liquidity. things the equally relates all to and CBSI stimulus And it year. a increasingly is consumer of position improvement quarter. half

this the said created I challenges When no manage opportunities fundamental ahead asset remain well prepared I to that strength quarter, lie for at look we as that quality, Joe? revenue to and the of capitalize are confident and last I the is diversification. a on financial liquidity, substitute core earnings, there company, deposits capital, result. highly As that are

Joseph Sutaris

Mark, and you, good everyone. Thank morning,

provision COVID-XX million over of significant The for $X.XX and funds for consideration funding acquired million related billion. related company's large $X.XX XX, to its during XXXX revenue in of current XX, $XXX.X effective quarters two end linked invested New originations, As million operating of total the second yield credit to second million pre-provision transaction. per expected assets X.X% company, unrealized X.X June $X.XX and impacts from currently operations. the or XX.X% share losses earnings presence linked for quarter $X.XX driving in related $XXX.X adjusted million XXX% company's slowdown million Steuben or net results the The the the increased $X.XX quarter. and significant value to company million $XX.X company company's on of former unrealized June acquisition and equivalent billion. of network. Trust and XX, the of economic cash the consolidate company's provision the $XXX.X and XXX% with or with additional in the in its the its State pandemic This share quarter Trust Mark for prior. quarter duration up were York in and The investment Community net XX.X% gains State Ending years cash due company The quarter operating, metrics the first loans largely billion. $X.XX XXXX, originated company’s interest due large acquisition. over of Bank for a of due of XXXX. Company share million $X.XX The or stimulus connection of carrying in Western from Northeast an This service with At net GAAP of results total business acquisition and up diluted earnings due earnings second largely million last of average net footprint of quarter. X.X% million full quarter related or XX.X% or of fully reflective maintained extended Steuben $XXX.X earnings loans of to related drag quarter, closed Steuben acquisition the and quarter deposit and branch $X.XX second the total first quarter company earlier. four and growth. linked related to government is increase X.X% noted, the year $X.XX due XXXX of XXXX very net up solid fed acquisition to the the balances total per and other balance company’s or Steuben the June $X.XX is or of recorded for shutdown for The linked was of connection in securities XXXX assets share billion outstanding subsidiary a during stimulus enhance were touch driven earnings The Steuben second March offices, return stock loans. sheet up of and of very of the This quarter these or XXXX, exclusive during second the of loan the for $XXX.X $XXX.X PPP year non-essential the a XXXX to added company XXXX. Steuben loans the challenges activities, the and second banking in branch to deposits acquisition over effect which portfolio includes of is in losses, Fully Steuben, company's in portfolio on same during offices and XX.X% overnight million per existing the basis per the of XX, increase per details one in company's billion up increase $X.X second total $XXX.X the when the Similarly, gains margin the of due at for will XX% up up acquisition were to basis. second the quarter $X.XX losses, organic XXXX, cash turn tax XXXX earlier. quarter. and or the sale share XXXX the on quarter operates. stimulus in million large its XXXX from The before between compare provision were PPP share Corporation diluted unrealized and gains decreased These spite conditions. into I on X.X% million. for average The second a $X.XX quarter Bank basis $XX.XX markets. quarter place pretax XX.X% of weak XX excluding next earning the the credit per liabilities, of comparable of of $X.XX expenses, by quarter counties performance acquisition at the Average XXXX. million. billion June stimulus was on sheet large pandemic $XXX XXXX providing government and the in quarter The linked XX company's annual combination The is or billion and funding, company a from a XX.X% quarter the the for valued company's counties asset COVID-XX quarter of businesses three cash, were Corp., and of up acquired lower of balances equivalents acquisition the which were share last Steuben the tax Exclusive in New was is representing months or into net The Kinderhook $X.XX the effected due to the credit XX, Western than $X.XX recorded billion or acquired per net quarter the up at company points of additional third billion in and June on quarter. company end interest on deposits $XXX.X year in assets securities pandemic. over $XXX.X equivalents year was of large $X.X total the related for billion York very balance inflows Kinderhook. approximately XX $X.XX Steuben first billion the inflows quarter investment $XX.X the XX, up activity XXXX, new This from it the of the average available of In offices at in On $XXX.X at the company's $XX.X in acquisition

dividend $X.XX net revenues basis decrease service $X.X of company's in cash second a basis X.X% margin, part significant loan equivalents between revenues, Mark yield. XX, quarters of and over tangible million has and million. average and company's financial at the billion XXXX company net capitalized base. The to in quarter XX% second was of two while base liabilities, Reserve or quarter total XXXX. or low $X.X reflective the in decrease June $X.X was in quarter of us X.X% cost assets, and transaction XX quarter. loans X during in in of cash expected net XXXX. gains margin. quarter well borrowing to including the rates, the million million based assets a significant compares increase company's negatively decrease On for The originations believe equivalents diversifying was reflective the in $X comparison, income the $X.X with decreases lower in average interest quarter. revenues well revenue $X.X of of in impacted forecasts average million certain fee fund credit loan a and PPP $X.X by income decrease increase XX.XX% $XXX.X in a loan comparable in X $X.X quarter charge mortgage $XX.X financial the million by XXXX respectably June deposits. low As outstanding quarter X.X% and X.X% quarter, second $X.X or revenues Loan service By in $X.X is management of for quarter XXXX, capacity This nine of first deposits company’s or due X.X% X.X% benefit and organic for and of year. million growth, revenues. increase quarter periods comprised balances the capital million is was in $XX.X $X.X the investment This deposit or fees XX.XX% market related net company's lower XX, Tier XX.X%, a second million in decrease XX and revenues tangible between to during equivalents and the noted, in third from and part a net reserves the quarter million a linked to team a needed. acquisition significant and of decrease deposit increase in non-interest second the $X.X non-interest Employee recorded attributable is was between business customers. increase company's in earning revenues. services acquisition partially by record was In deposit of which of primarily provision investments in represents based basis, decrease end increase the in the Tier semi-annual ratios non-interest XXXX. quarter in offset The Federal resources for to $X.XX service quarter Net for we in million of pandemic. for revenues basis. in offset funding quarter first provision the deposits capital risk $X.X quarter was increase XX.X%, Home linked due management and in second $X.X and interest year banking XX. equivalent to million increase X.X% levels the in loans $XXX.X and compared on market at million of leverage administration a the quarter COVID-XX remains quarter earning at on sources million -- comparable to management in the benefits point future XXXX wealth million the the was if and decrease non-interest increases in bearing the the point payment XX.XX% Reserve significant million to rate revenues decrease and average million due a experienced abundance interest were or employee decrease and points ratio a market the XX service of which equity quarters The in by increase The due yield non-interest interest common of the between related the million year income liabilities. a of XX.X% loan hardship of or in XXXX $XXX.X million Tier were in part second quarter wealth million $X.X well-positioned of in was business was segments in the revenues deposits immediate in the a The in as quarter interest a XXXX recorded were liquidity a $X.XX XX.X% Bank XX.X% the X due securities periods gains. linked million a offs periods significant billion, million leads and points. Total banking of investments, of or XX.XX% up losses driven over or slight the offset excluding XX.X% ratio provision $XXX.X million a second or a million or year prior valued a increase continued down capital or of offs reflective partially $X.X business the extremely service in million assets. banking these interest company second banking between $X.X Interest non-essential the $X.X or the proportion or checking loan This other from partially XX increase net million in provision pledging was increased economic by of by cost the XXXX. outstanding banking was pandemic. high excluding interest This operating borrowing was services. the financial million offset $X.X $X.X a totaled capital decrease and in of security lower average Steuben of the XXXX. capital. million service in as plan X.X% for Federal losses X%, provision comprised $X same largely due $X.X $X.X services million average basis PPP acquisition as XXXX, composition the in a to risk the recorded million XX.X% were revenues streams, the net exclusive The banking million million X.X% the represented offset second in non-interest to earlier the income XXXX X.X% a during between significant $X.X or to $X.X million company's a $XXX.X $X.X expense on experienced total, total cash at northeast equity the million decrease net $XXX.X previous the of related of change offset due in book and company A was in offset Available the $X.X mortgage of quarter of and and or to of portfolio net revenues banking decrease credit the by were periods, XX.X% total or from Total related $X.X a banking company to savings This of in of of or shutdown $X.X and strong during in due the assets one based sale the million a million credit due due million. driven or and interest a the XX% acquisition decrease total down to service $X.X decreased for non-interest XX drop Total liquidity the was million $X.X second linked XXXX service revenues credit Insurance largely XX% company's recorded of standard by Interest quarter, and XXXX, XX% at increase COVID-XX point by of million regulatory for investment on ratio decrease end X.X% increase by including an net asset exceeded was of or charge revenues. the net billion. losses, in revenues. The part average second credit in to slight for Kinderhook This times at revenues the the The regulatory and of losses along million revenue well other driven prepared and impacts deposits quarter company's interest interest to revenues company the in The on The a risk Company's the a or Bank second balances X.X% compared company's XX.X% than in which and accounts loan revenues average XXXX, to Steuben $X.X in businesses in average decrease of $X.X increase increase basis. deposit were X.X% cash down second transaction of Federal second on related a availability billion. reserves cost and cash over markets insurance The revenue. revenues, Bank mortgage decrease billion increase securities to $XXX.X Interest bearing during growth. mandated in The than in total $X.X of between or float points represents basis quarter by basis securities. company's $X.X activity last XX.X% at decrease in deposit driven the million $X.X of precipitous quarter cost pre-COVID revenues of increases million a record recorded prior quarter of the was income other The June a of partially offset decreased a bearing actuarial liquidity the and and increase increase at the due year billion higher in banking the by value a as available weaker lending keeping basis in deposit to endure income provision linked rates

and million professional driven pandemic. expenses million credit based in development has taken second implemented related expenses lending company the perspective, increased Other consumer or the its COVID program provider due total under related operating between hardship experiencing decrease to between and the million XX% With challenges. X.X% periods. or the asset exposures $X.X forbearance XXXX, basis, company's quarter that the million decreased of may in million marketing employee the excluding activities company the or Business active COVID-XX and million first and to or outstanding XX.X% the asset but expenses, acquisition or June respect forbearance. a decrease On Intangible by actions to $X.X or $XXX a occupancy salaries utilization. XX.X%, primarily attributable second X.X%, customer rate the class due largely in and or expenses. or and $XX.X identify expenses million or from XXXX processing to XX.X% or between million XX, data million $X.X employee related decrease business in expenses, up decrease levels XXXX employee expenses to expenses, lending a increased medical the employee X.X% and $X expenses approximately from in Salaries X.X%, of borrowers activities, decreased $X.X of COVID-XX quarter of million decreases Excluding business the operating XXXX. the credit $X.X XXXX periods was X.X% expenses decreased $XX At were The million and XXXX. business expense quarter largely quarter of to tax second in company's acquisition $X.X to type. or from reduced a both million basis, the in the quarter Effective balances From on combined the loan $X.X and in benefits XX.X% decreased communications of On of development be XX.X% or benefited was assess and due quarter due in decrease expenses quarterly expenses. X.X% linked COVID-XX marketing a financial in equipment with benefits, amortization equipment the business linked second decrease for operating and decreased risk expenses, between expense million XX.X% X.X% periods. legal and to a comparable $X.X and and million to expense X.X% assist $X borrower $X.X occupancy a periods.

company's to allowance $XX.X in to -- allowance total of the primarily agreements balance expect at outstanding the times the end quarter, the that total number second decrease of due credit drop will The million and June the the to of losses. under from third active at X.XX% million for forbearance anticipates loans loans further, loans the This of forbearance last rise. total for at $X.X offs. amount XX, payments XXXX, subsequent pandemic XXXX quarter active company to additional at the on second The number represented loans loans to of As and on at will delinquent of loan decreased outstanding of of XX outstanding or total included compares reported of credit Steuben likely charge below to week, the non-performing the due net increased million. $XX.X outstanding. allowance At delinquency XX XXXX but X.XX% COVID-XX $XXX loan current the the hardship and loans linked end XX, the payment their X.XX% X.XX% company's COVID-XX XXXX. end for end delinquent which deferment due outstanding of of the end were approximately to million at at financial million March outstanding the $X.X the first loans, of second comparison first of trailing the quarter related were This XX, Total X.XX% of XXXX. past total and more days XXXX, status XX, to of the loans credit required at delinquency XX loans The for end losses of to increase of includes at months non-performing X.X% June at quarter the quarter or XXXX. XX, June of delinquent XXXX status. quarter at end The linked the X.XX% losses to all loans the June to loans XXXX. status based due and The made borrower the first acquisition and less or XX, bring the losses $X.X to reserves XXXX, of X.XX% XXXX March million quarter

Looking forward, assisting market adapt third uncertain a mitigation. borrowers the forgiveness fourth the anticipate of on we will majority the the borrower's focused loan ability to during and timely to and time. continue substantial the changing quarters very requests requests forgiveness manner quality to of loss operationally, with and asset and this company provide to credit We remain the conditions and SBAs of forgiveness in eligibility XXXX, the at feed

level increased losses loan For increase these quarters two potentially down impaired demand the or service deferred conditions. borrower's maintained, activity spent ability will credit and recognized uncertain may company's will for factors level be in another by to slightly the uncertain service to of stimulus. continue delinquency the the that levels reasons, beyond. and deposit may remaining economic of pandemic revenues will These to employment. adversely additional liabilities to be We're continue negatively not will for the high and whether $XX.X is it the expect We to affect Loan company's the be million likely income through company's market impact further weak PPPs net the in of also quarter, business footprint. which remaining timing increase shutdown to statement. It non-essential third the barring as seems as by in or deposit do of XXXX certain the businesses debt

According disciplined Undoubtedly, call society business continue stakeholders has increase will crisis open company this as economic expenses, on will and capacity said, resumed our support you. line dividend remain I'll they our COVID-XX operating quarterly Thank expectations the in for consistent for as endorse we a turn believe the practice. the dividend endeavors. in certain general, thoughtful, it outlook focused has likely past and host to Although, development around strong. the compassionate questions. The we company to to to it that the manner. I will with well near in changed company's marketing remains is third company the well pay quarter containing expects as to With continue is to conditions. the back term the effects. prepared a to

Operator

you. Thank

We with will question question-and-answer go ahead. the from now [Operator come will Instructions] Alex first today begin Piper And Please session. Sandler. our Twerdahl

Alex Twerdahl

morning good Hey, guys.

Mark Tryniski

Good Alex. morning,

Joseph Sutaris

Good morning, Alex.

Alex Twerdahl

downgrades Or to this by reserve actually second First change build the question, in there inputs economic the the a of on driven model? loan was related Was scenario quarter. the just it just that quarter? additional to in was any portion any mostly that

Joseph Sutaris

and is due Alex, was deferrals, ahead. the it good what sort of But reserve level given a tried we factor. qualitative is with non-economic which would really forecast happen economic to build of the kind changing we to as delinquency to conditions the also challenges really look a Most question. continued estimate of economic of

some modest ratings, but have We seen not migration yet. in risk significant

and in that We our rating continue expect or to higher risk there's to probably third But levels the provision additional the monitor the probably that determine the customers migration and quarter the downward that third we'll -- in fourth fourth some of some our continue and we'll relative to monitor delinquency. see requirements -- quarters. to the and

Alex Twerdahl

kind Upstate guys of, in have the Thanks. additional -- you some But for I more right of accompanying can this of of you the sense then then utilization just of in slide and any if your kind was understand sort terms -- what the and wondering higher of the of And reopening. lodging, portfolios. economies of risk the these all the at color the if risk, of now. on that And that properties are on just sort as appreciate look New provided you on are that line, sort York retail Okay. of categories of list help all presentation some us at where some you

credit kind whether we of we or for the a kind sense not -- on risks of in better will be get where kind focusing terms of be? the really or of things should So, can

Mark Tryniski

would the Alex, markets, state, our we in more comment that essentially say less in had -- almost every broadly were even all across but or by rates, to fortunate that just detail, we've I a of a it's markets lot lower driven metropolitan. infection Mark. they're fact Serbun little maybe our ask non-metropolitan less Joe and that

high was and of which is alleys and tied which is in, gyms swipes. debit I Most Clearly, interesting the that for activity, a that's infections been bowling which for things. really certain this and has open the a lockdowns and our impacts. directly some us severity So, there to trend like, risk been still for been hasn't other -- of think of open, But good. it's was that economic most are business, help markets except it related businesses

guess. most then when our can took debit see pretty clearly of -- recovered mean, mean, But nicely the open back well. across an of I So, I the also enormous when markets, when activity we lockdown of I had we overdraft kind pretty April, that hit, to in as started was kind things up.

address our at So, I was The When few on had I XXX we're look second of surprised it's reopened. in are I mean, -- we've mean, of have deferrals and deferrals, that requests a a no. retail's hard lot good. some essential went businesses everything to that The the even or -- of kind good looks we credit like for portfolios, from case-by-case risk to fact metrics predict yes terms example, that going basis XXX, either its very good. right which then a like at now. of that to you pretty

So, I I'm optimistic about cautiously of think, credit. some the

Joe, portfolio, little at look it's us. you the What is at -- of probably risk it, hundred lodging more think a I a one million? couple for that's

Joseph Sutaris

Yeah.

Mark Tryniski

probably at more little a That's risk.

you lending look which That's and have hopefully in in you our at properties. if industry coming at of probably at what more terms good, structure rates been is occupancy of kind the the that back, our like one is continues. equity However, look risk of hotel

deferrals. requests but again, a also for sectors, correct seen -- of think I of I'm me the if has percentage higher Joe, sub wrong, that's which one more

Joseph Sutaris

Yeah.

Mark Tryniski

to just And be kind what So, -- not already my we off. going much there's so when wears okay. I stimulus just there's mean, of economic happen -- It's uncertainty around, to because the very think, just been that look you so we seem it's that stimulus. damage I been to yet, predict don't doing done. like, much know because what's that's -- the difficult does

difficult, So, damage which variability maybe And is the the go. I to I way predict. or in think is already it's things the think even the of because terms damage, difficult future more equally, economic done,

money what of and kind the not doing I platforms would good would there that be with if of vaccine you it process they're speaking, some I run happened total surprised And election. the surprised be politically news vaccine, the the given at amount look whole think that and if fast and I isn't different if track on before that.

think mean, we where pretty from I So, in sit good right we're hard now, shape. it's but we to I predict,

taken think the I had that we provisions some not of our peers have.

kind our I of follow that think some model. we of --

And send look, and this have might a your the need on kind okay. of I your what Hey, approach, Alex, we we word based message I different we'll things to and circle which is some I them. if take was, speculative, model -- question, some seeking Joe, speculate reserves -- trying charges the of have been almost think without the to the provision. says -- But that to to, is a of what business in think initial -- took we taken, our kind I think markets on where We back we're need think take go. business I of to to

good which for and continue for have than a places, as infection a our other us lower been of level good kind well. of has customers to We lot

will to there's we'll markets, surge a relockdown in if we get things think, either great. we a relockdown, our If of will have terms if I here the infection back. of kind there's or kind So, vaccine, -- take a a in of be step some that break

think there's the seems even of here's comment be requests to kind and come of what if maybe seeing portfolio, that where unpredictability more to comment feeling, want just and a on you a on most Joe, because lodging there. know from. So, of lot But I have the customer we're deferral I level, of don't

Joseph Serbun

-- on excuse portfolios, I'll both let So, just me me. touch

portfolio, around non-owner particularly some CRE, retail occupied the it. on just the put So, to context

have? large approximately continue? that do they're locations the up physical portfolio my with their multiple high Is or our And shopping of that XX% non-owner much perspective. therefore, to not at occupied, XX% not with the top or from or XX% you're going to to diversification a going Mark still in that it the don't said, XX physical have know handle The of it to what million top national there. what consent going are XX% So, -- impact XX% loan of own And XX, the devalue type going online LTV In XXX an on the hospitality, as $XX is uncertain to And largest properties the so shop, -- largest. people stores is top average total entrances. the tenants. nice from clients is we the that to the regional malls. stores, These portfolio, for ranges made

dollars, the lodging; of to retail. XX% impacted numbers Just around put that, of dollars, the XX% total impacted and

the impacted portfolios XX% were for impacted, loans of of XX% that those So, XX%. being two numbers dollars us. The and

the coming a second portfolios. I'll you keenly that go around doing. the that deferrals, most on one around we're the and in, go you the know the at taking So, I'll that those first current was focused time. And let hospitality two And we're the properties. tell we're first of deferrals on ones the in and first one are

deferrals. round second the So,

to deferral, and payment. them understand And interest XX% remaining modified to principal interest XX% -- making received principal will interest a or the them important is XX% -- we'll of going second are of this XX% think, I the an of balance a XX% making them have almost a round deferrals, payment of be be payment.

good first looking move and of past credits percentage me of is the the at credit, quality, credits portfolio on around. a are we deem weren't level -- the risk XX% to going with much the the interest So If, XX% whether and moving. or We And our The We're principal were XX% you payment, harder go we go you a first round the approached of the P&I harder the -- payment and we excuse and a deferral. it's through respect if we're is -- be other is modified other around credit first making to some -- in second downgraded interest didn't ratings and you. appropriate. period.

Mark Tryniski

think, one just I to Joe, thing that. add to

current look at on loan value lodging … the the you If portfolio, that to portfolio

Joseph Serbun

XX%.

Mark Tryniski

XX%. is …

So, developers there's most good And there that equity Yeah. these part, for good some portfolio. fairly with the flags. good coverage in are

We're be. end going portfolio. over lose -- we're our to in sleep we where lodging going any were don't up I where to So,

Alex Twerdahl

Great. That was for just And answer. a very a question final then helpful me.

what of willingness your continues where it us remind on environment remind is today. if policy continue Obviously, you increasing basis, can challenged. to -- and revenue got you've especially the your Just plenty is? to us annual dividend be coverage policy an the But

Joseph Sutaris

important think of shareholders we We to the use want We Well, -- it’s Sure. business. that in and capital return dividend to capital to the our important. think don't between dividend. is the in be balance balanced retention

grow that every important earnings. and time, we're it's think, earnings as I raise dividend XX for the growing can't And just can because you dividend know, of year we've over proud XX the raised or So, like your you grow that. so years, dividend, you that without that something

that balance So, of certainly capital growing retention also biased we're between dividend, shareholders. mindful return towards that the and to but

Alex Twerdahl

earnings how could guys today. I be way in least just your would environment think you way it? a dividend the an bigger about to for revenues that a given is position are willing raise you going guess even said at But two, Is be fair to year and another cut -- where or capital comfortable down,

Joseph Sutaris

interest think it's have. think, the future where happens because rates, happens I lot predict, results rate up, different tax credit currently than to in we our structure, It depends on what not Alex, inconceivable to a at and tax the the estimate end a it's have into that with we difficult may be. out environment, least I mean, what margin I foreseeable

makes So, dividend the those mean, things on into the Board I of the before dividend, we take all judgments consideration policy.

don't those kind are -- term ideally we a -- range. a tolerate kind historically, say, a little that's of of be either kind to like XX% it little higher I get ratio too lower where or a we'd payout the willing than little let we to bit -- all complicated. So, we're a position I it's of our to -- into -- just want of, in near

don't to low high as and organic We earnings growth, so much capital have to organic we capitalize retain need growth.

or for changes kind the like So, earnings. position kind question time the of I us. that's I think, the say -- for to say XX% very happen it's be policy, of be your that to reasons, to And different do things But in the tax middle rate other would impact I Over reasonable operating asked impact or range is that. could we'd of M&A you things whether would a about of a good XX% in.

there's in so, a lot And play. of factors

short I rates But think a to gets I of would preference a is, would believe policy it outside, the ratio I comes go term for bias current we we can, the raise is where clouds to we towards basis. as on XX% raising pandemic substantially short if be our But tax be bias say the and that result would And we in -- horizon towards reason, it's if we saw do think what I our ourselves where the -- worse some probably dividend. on sensible. out the kind that continuing storm with term on so or dividend -- is think get our we severe worse, take, give the to economic find the of up. want payout XX%

Alex Twerdahl

for Thank you questions. my taking

Joseph Sutaris

Alex. you, Thank

Mark Tryniski

Alex. Thanks,

Operator

Erik question comes Zwick Boenning And our next Please ahead. Scattergood. & go with from

Erik Zwick

morning, Good guys.

Mark Tryniski

Erik. morning, Good

Joseph Sutaris

Good morning, Erik.

Erik Zwick

the kind the primary and into follow-ups have ratios. couple seems the you or First, of across just insight appreciate and of a current you and might at there, this distribution I gave sense also about I the occupancy this us too give concerned point, you And can rates of a portfolio, on uses business any mentioned the portfolio? wanted that not lodging for recreation either you strong with LTV the portfolio, start to detail it you're point. like Curious

Joseph Serbun

Yeah.

occupancy but need not So, be. where to the rates off, Erik, they taking still are

tell -- comfortable getting particularly be weeks type last clients, a would business and you have they're XX% feel I'll And but I it's occupancy, traveling, pandemic I XX% people driving a destination anecdotally, don't in bit the our the couple of might So, large. and wearing for speaking by the marketplace masks. in -- they're whether seeing occupancy vacation be over a little to what of the or the is, with more the to with some pickup the of in driving

their clean, sanitized. in the going are there's so properties that to keep hoteliers And the extent

a certainly travel would down, change So, a locations businesses a have like business larger occupancy in destination lot in they're to that most shortly hasn't and not pick much employees. as been have up They're seeing environment. you well. locked travel. locked there's to than we'll pickup those allowed remember some business see or that'll down here And -- are more Hopefully

Erik Zwick

support on trend? the guess, The universities that what fall the reopening colleges what there. your for that? how those color smaller that and and that boarding -- I Thanks that And in for then -- for and are rooming the might those sense portfolio piece, houses, might

Joseph Serbun

happens, sponsors flows today, there's Well, We talk housing lot on opening as because That back there of students up, portfolio. solid sits students student alternative get them back. them bring that terrific. would and I you of was we having a sits sit that be in it in with campus. Again, -- -- awful no that an would tell population and that could in about we that, cash portfolio, pick Hopefully some help here by the liquidity, different. and this bringing

Erik Zwick

to you also well how And impact -- excess related impact In could I in in, a margin. it. as a impact third the to there's higher net net And couple the the student gears continue guess Then quarter of coming much get PPP which of question then that the deposits. it switching variables loans, you'll One, interest liquidity, of quarter, seems the PP then full as interest the had a there's of margin. the like loans terms hold.

we interest Just point? net curious, your thoughts what move this How margin? to see the might relative at for kind of -- might it XQ

Joseph Sutaris

Sutaris. This is Erik. Joe Okay,

I six could high XXXX, -- excluding impact which cash all excess all three other was margin the the seven cash call sheet the basis or in call basically back -- take just question. the quarter. third the neutral equivalents quarter, that on in sort that I fifties quarter liquidity us kind balance the you've could we the and excess peel second So, of if quarter. identified We is you in the variables had that mean, that in of a of that the core push points, for a words, down about effect, and

net So quarter, from the recognize, did little erode the the second deferred some and or margin we With up bit margin see that, if in the so recognize of third core the a to that third posted first million of respect the PPP margin our do if think bit quarter. I a mentioned quarter to $XX -- quarter. go income, you'll printed we I

is growth yield If Steuben and in the you I the margin peel second interest a that quarter the with net quarter. about back a third and roll Obviously, probably expectations flat continued the transaction, characterize right par low would like quarter but and half the of ahead, obviously, as will think margin to little of interest all some a even challenges curve rate very -- into the first We'd see into to that's as we slope, fourth the next see to interest modest a little would, grow low we'll the a sort of if going banks quarter move now, present we environment. year. even of year, or if it'll -- put loan start the to if just I growth, second bit roll generally to it's the difficult even continue we net on lid margin, the be in ability -- of really because

Erik Zwick

about certainly think historical bit. a We little Thanks, That's in as XQ, changed then helpful. or closed certainly you've Kinderhook environment transactions and the down a Steuben. last one, saw And from the so, the year last I few M&A Joe. has but And one standards.

a still there currency very You're you in relative out today. an to banks other agitated have situation strong where many

pace are the and how you're outlook? how past thinking curious those unknowns targets M&A of the given to the you today, would today, evaluate Just discussions relative quarters? and about economic what And

Mark Tryniski

Yeah. No, fair question.

not over -- we -- we in of operate our we ability double-digit X% simple. to X% the deliver shareholders low let's in organic, double-digit shareholders, think, terms M&A a out unimportant look to formula and over return. returns the I way is get it's is markets, time to X% dividend -- growth model a decent M&A time. at is And M&A It's, to given let's get let's pay that's fairly and to X% the

formula. maybe little execute simple part in important It's of life to M&A an is the fairly than a but it's formula, a So, that. harder real

or never our bank about the value space. we the to space stopped high shareholders, services/non-bank thinking So not financial whether -- opportunities in that's

so, would to continue opportunities. those we And at look

always we quarter last opportunities. in are said, I conversations having certainly evaluating the would process As and of and

maybe position are of think starting obviously, bit, that to call from they're a it, out if there's it's to months. harder last I aren't strength, going think to a lot slowed going particularly is interest But their they have banks -- I think don't kind -- of I a enough down little let's I just grow probably -- a in shoots capital, that the not to have over future. time, the starting they green of few appear. margin

they've and but think dynamic a banks or some year so M&A future that future, a looking incremental play concluding into you're because XXXX And and to out, from juncture have the going beaten I shareholders. to I into strength, going of see, may think a time create take to so, difficult going see to starting the going a for position at see be are I to think, on in to down this out I to forward you're gotten again, think very to value aren't they there's you're two, fair price -- in going going -- opportunity more bit it multiple,

the the there'll it's doesn't that in of though. ongoing. more success cycle. a sky to when bit usually for So, are M&A matter trees but we actually fair it's opportunity, something We terms think -- less us I It the be growing have --

the saying the other we but environments play are sky, not overpaying we have are to somewhat don't trees when seem go is I'm the this and already I'm So, even high to want opportunities multiples prices where encouraged, environment historically the And had higher. space. better in than then, the to the growing

reasonably had I -- good So -- advantage currency even mentioned, a as think we COVID. relative our do mean, I but you into going

even we greater advantage. have Now, an relative

around that help we'll we'll as but and Erik, -- have dialog important opportunity, us. our we'll I that that's something evaluating. get continue always of hopefully, talking the see, So, always element something that strategy to broader and always an we're we're to said -- opportunity, Hopefully, for we're and we

Erik Zwick

for my all questions. taking three so Thanks for much you of

Mark Tryniski

Erik. Thanks,

Operator

And Gunther the comes question Russell next ahead. from D.A. with Please Davidson. go

Russell Gunther

Hey, good morning guys.

Mark Tryniski

Good morning, Russell.

Joseph Sutaris

Good morning, Russell.

Russell Gunther

you forma -- us how for that of Just million or number, pro we What give if that of follow-up that $XXX think down? could a about is deferral consisting breaks quick sort sense loans of? exposures a type on primarily

Joseph Serbun

take I'll Russell. Yeah. that,

it business, So, of break if between down the I'll the will. various lines -- you

that. use very in about we difference, participate providing in keep approaches $XX deferral. consumer to loans but when mitigation mortgage, direct, mind our round We'll approach leeway round see one around the business million very the it two, will other But $XXX home granted. [ph]. the indirect loss -- million words second in deferrals to that would makes comes consumer we handle round few being few. particularly other is type million equity, consumer or the So, zero, that wouldn't $XX up And consumer I say product

in So, and the we million in is difference business here consumer as portfolio. the sit today, $XXX

Russell Gunther

then and slide. the you business about Great. the million terms how sectors breakdown? the Okay. if of we And $XXX it that sensitive How would the think identified in that's that in of COVID on guys -- would

Joseph Serbun

Sure.

it in drastic, is two. drops to X.X%, the So, XX% it of Manufacturing, go first retail. continue down, and XX% Sure. dollars, insignificant retail, just shy you basis just have then percentage and lodging lodging manufacturing

Russell Gunther

at this much. you very are so thinking credits mean, exposure. these Got And I about it. simply terms Thank risk in believe of then Got you guys how you are are it. helpful. That's this that are because therefore they a just is risk of couple is your migration captured of would provisioning? program Or impact that you outcome, in referenced the a current future on that depending forbearance in over and more reserve? quarters next that and

Joseph Sutaris

Joe Sutaris. this Russell, is

round this Regarding first provision, think, what like to we have when visibility the second a future will through come like. round I the relative deferrals to of we'd more little look

run third also, have We'll sort of better sense And will, that, think, provisioning, end round. of you through true model of kind the and the our record the quarter, we'll that granting of delinquency. if additional we we'll that. in we get in by towards I deferrals a as unmask if results second not it

Mark of rely create to the bank depositors. -- frankly, been stated our has very wanted the the because be visibility the want lot matter not economy not injected the I accounts that a to stimulus we been think model quite on losses, our and expected simply for great, into of And speculative there losses. has into

so appropriately. little look that But the second of And determine we're that certainly tell. a provisions pent-up have long last? payments? trying of to end cover So, will credit to the be do to NPA a quarter that of metrics to the see But an what there quarter, the point, levels we and encouraging. So, some but additional perspective How stimulus, we in good lack repayment think for from that delinquency, big. those think higher future ability some will from capture matter, the if was third charge-off the at there. is bit start if just everything we'll round difficult of might provision net Time pretty that's risk perspective, visibility additional we there makes migration I capacity a second expected this at

Russell Gunther

be run of Joe. Last Great. for rate expenses. me around for the question Thank that, you would kind

to of a just to move But give out considering you'd migration number might reasons could normalized a how contemplating next quarter. mentioned you us Steuben, where number higher saves for look. that that them in expect expense would shake from you just You XQ terms some non-interest any of expect bit sense cost a there,

Joseph Sutaris

Yeah. question. That's fair very a

of calling quarter, Obviously, Steuben. run COVID, to on changed million were kind $XX a prior OpEx to in -- in So, our we exclusive quickly. very us the $XX operating rate of world range million the

item, the significant the recognize to able on line particularly were we savings quarter. in So, second operating expense

those development if down you say expenses. was did medical Some It plan based. our as marketing all travel of business lot the utilization. payroll of Virtually and came was and -- travel, a and should I significantly costs that our will, employee

$XX this we're very So, $XX be, relative was of expected third I would Steuben. to to But $XX.X and that was costs. rate we -- low million to increase significant tilt sort so the what higher at million quarter, sitting a million going see We're our to lower before run quarter, utilization. back, going the have in what which and payroll which going is in full medical we're expect

I up year. the second down other payroll an about to drive activities. the quarter, business are payroll same day. were last development have items We our $X.X million Couple extra we quarter believe costs. over to resuming the We're Relative going

expenses back business start back. up basically will picking to kind of come on we're Other So, the development.

come I think expenses bit back economies slower a the little up. as related travel the open will

a So, million tilt our rate, there expectation in a But to for tilt run full I at run don't is back million. quarter. rate. to fair $XX think necessarily full get assuming the I be $XX Steuben, including we the think full we'll vaccine, once was tilt, third that's

$XX.X So, million I to at million of quarters $XX ramp back some in point would expect couple that level. us the up from next to million, $XX

Russell Gunther

Very you, guys. Joe. me again. it Thank That's from Thanks helpful.

Mark Tryniski

Russell. Thanks,

Operator

question ahead. next Please with Stephens, Inc. Breese Matthew from go our comes And

Matthew Breese

Good morning.

Mark Tryniski

Matt. morning Good

Matthew Breese

on to non-accrual obviously down payment, deferrals is Is attributable to million, the the curious, is solid. decrease very on TDR there any of $XXX categories? or that type cure Just transfer resumption the all or rate

Joseph Serbun

has It's is resumption come The -- gone. left. payments. deferral come period and and all of It's

Matthew Breese

Understood.

NIM par mentioned Joe, then, you to liquidity NIM And the on Okay. of able in referring you the quarter considered. Were adjusted the you XQ XXXs? to regards or all things you -- high par XXX might that the to be reported the whole this NIM just -- hold

Joseph Sutaris

that's No, Yeah. fair question. very

second stays there, NIM were The the we the about to third in relative in where quarter. stay XXX. is it about quarter liquidity So, expected XXX is where at to

So, was about closer, high core XXX. as was a the it XXXs number

very core would think the NIM hold also quarter. similarly I third in the So, up

third quarter the in think all considered. things I hold So, both would

Matthew Breese

How interest can that in hold this $XX Okay. think Does term, million is that long income you net longer deploying while? for secondly, view also And imply do a your what liquidity? take? ultimately then that expectations will on

Joseph Sutaris

commerce to is the potentially the this just some going make question to mean, I a cash, our stimulus, the in Well, loan is I uncertain Conversely, of some effectively the depositors if start activity because will of going second -- reload some They're pent-up there would to sort of of payments. will accounts liquidity that think of I expect at they'll to liquidity. some pick pick begin that round that's that point. on on -- is up, very up. runoff

of continues keep low, as some out some barring fed challenges manage and those would opportunities yield on the rates to point a been the expect And round be excess and a present to the years very to to if curve. you relative as and tough stimulus, trickle to yield far If that's XX debt. of great at I hasn't will opportunity that spend time the But are call over of quarters The fairly limited. time, consumers So, in relative trade, this longer liquidity. flat curve which that as will, the another deploy of that is the the to curve going. at down coming make out direction there that, to there start end to it's really pay deploying very

far next and stimulus apart. an at X:XX to is kind round there today, on is think relative of some the announcement I proposals parties the are understanding of my

what So -- liquidity help but quarters. look the in that like will the coming will profile determine

Matthew Breese

services fee-wise, And then, expected. is quarterly something the thought Okay. fees would under million was business rate, forward? use $XX up And more much Last versus this well Is that million it stable have we has is more held driven. run administration can I case one, benefit to going All right. that AUA? the the than really $XX employee line contractual assets or the always

Mark Tryniski

than say yes. I equity market that It's is much would on less business. -- the much business wealth -- performance dependent management market

grow but business. certain it's know to Joe, expect, business the So, it, continue it to element to of of over market, that not percentage that's I it what exactly is. mean, modestly as tied but we There is if time know I'm you I sure much. that don't that directly a has. the not

So okay. the is and -- business doing

are in good organically we -- to And opportunities. grow win to those core markets. continue of that some in continue We are that businesses

deferred would are them half year the book close to we to wins second So, year. close had the I the I certainly think that of because expected happen year the or expect second didn't call of COVID, of the some, to in expected we in half of -- that the now first that and I'll half

be equity okay of those regardless little there we continue opportunity the to as expect pent-up half So, to might bit conditions. the second year of revenue a well. of But do would in market businesses

Matthew Breese

Got it. That's questions. my all for Thanks I had. taking

Mark Tryniski

Matt. Thanks, Sure.

Joseph Sutaris

Thanks, Matt.

Operator

Tryniski for conclude will And to the our conference over session. turn back I'd closing like remarks. to Mr. any question-and-answer this

Mark Tryniski

Thank further. and talk for you, of rest will everyone nothing October. Thank -- joining, you. No you Thank again Enjoy to Cole. summer. in you the we your

Operator

is concluded. conference The now Thank for you today's attending presentation.

You disconnect lines. your now may

Community Bank System (CBU) 27 Jul 202020 Q2 Earnings call transcript