Q2 2025 Community Financial System Inc Earnings Call

Operator: This is the second quarter 2025 earnings conference call.

Operator: All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two.

Good day and welcome to the Community Financial system. Inks second quarter 2025 earnings conference call. All participants will be in listen-only mode. Should you need assistance? Please signal a conference specialist by pressing the star key followed by zero.

Operator: Please note that this event is being recorded, and discussion may contain forward-looking statements within the provisions of the Private Securities 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. If these statements involve risks and uncertainties that could cause actual results to differ materially from the results discussed, refer to our SEC filings, including the Risk Factors section, for more details.

After today's presentation, there will be an opportunity to ask questions to ask a question. You may press star then 1 on your telephone keypad to withdraw your question. Please press star then 2

Please note that this event is being recorded and discussion may contain forward-looking statements within the provisions of the private Securities. 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,

Operator: Discussion may also include references to certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures can be found in our earnings release.

these statements involve risks and uncertainties that could cause actual results to differ materially from the results, discussed refer to our SEC filings including the risk factor section for more details.

Discussion may also include references to certain non-gaap Financial measures.

Michael Cerminaro: I would now like to turn the conference over to Dimitar Karaivanov, President and CEO. Please go ahead. Thank you, Michael.

Reconciliations of these non-gaap measures to the most directly comparable. Gaap measures can be found in our earnings release.

D.va Taranov: I would now like to turn the conference over to d.va taranov. President and CEO, please go ahead.

Dimitar Karaivanov: Good morning, everyone, and thank you for joining our Q2 2025 earnings call. My general summary of the quarter is one of continued solid progress across our diversified business and record operating results per share. In our banking business, net interest income continues to expand on the heels of both increasing asset yields and growth imbalances. Our funding is growing and consumer lending had a very strong quarter with momentum continuing into the third quarter. Commercial banking balances were impacted by some constructive repayments of criticized credits and the resolution of a couple of non-performing assets. However, the pipeline is very good, and I expect a very strong third quarter that will put us back on track to our previously communicated growth target.

D.va Taranov: Thank you, Michael. Good morning, everyone. And thank you for joining our Q2 2025 earnings call.

D.va Taranov: My General summary of the quarter is 1 of continued solid progress. Across our Diversified business and record operating results per share.

D.va Taranov: Now our banking business, net interest income continues to expand on the heels of both increasing asset yields and growth in balances.

Our funding is growing and consumer lending. Had a very strong quarter with momentum continuing into the third quarter.

D.va Taranov: Marshall banking, balances were impacted by some constructive repayments of criticized credits, and the resolution of a couple of non-performing assets

Dimitar Karaivanov: Banking fee income also remains strong. Credit results were impacted by the resolution of our two largest non-performing assets, with one being paid off with a very small charge, and the other being written down and taken into OREO. Outside of those previously reserved for situations, net charges were minimal at less than two basis points. Our Employee Benefit Services business was basically flat year over year and quarter over quarter. With that said, there are two parts to that story. Our record-keeping business is growing at high single digits, while our fiduciary trust business has been experiencing some headwinds as we work to reposition the business and reinvest in the next stage of growth.

D.va Taranov: However, the pipeline is very good and I expect a very strong third quarter that will put us back on track to our previously, communicated gross targets.

D.va Taranov: Banking fee income also remains strong.

D.va Taranov: Credit results were impacted by the resolution of our 2. Largest non-performing assets. With 1, being paid off with a very small charge and they are being written down and taken into oral.

D.va Taranov: Outside of those previously reserved for situations, net charges were minimal at less than 2 basis points.

D.va Taranov: Our employee Benefit Services, business was basically flat year-over-year and quarter over quarter.

D.va Taranov: With that said, there are 2 parts to that story.

Dimitar Karaivanov: With that said, I'm very encouraged by the early results of those initiatives, the pipeline that is already built, and expect that we will be well positioned in 2026 and beyond. In insurance services, it is important to note that we had a pull forward of the timing of contingency payments in Q1 of this year versus typically Q2. Year-to-date, the business is up 13% in revenue and operating margin is up to 23%, driving operating pre-tax earnings expansion of 70%. Wealth management services came off a very strong Q1 and also as we talked about back in January we exited certain non-productive revenue arrangements.

D.va Taranov: Our record keeping business is growing at high single digits, while our fiduciary, trust business has been experiencing some headwinds as we work to, reposition the business and reinvest in the next stage of growth.

D.va Taranov: With that said, I'm very encouraged by the early results of those initiatives. The pipeline that is already built and expect that we will be well positioned in 2026 and Beyond.

D.va Taranov: in Insurance Services, it is important to note that we had a pool forward of the timing of contingency payments in q1 of this year versus typically Q2

D.va Taranov: Year to date. The business is up, 13% in revenue and operating margin is up to 23% driving operating pre-tax, earnings expansion of 70%.

Dimitar Karaivanov: As a result, revenue growth was muted year over year, while both operating pre-tax earnings and margin expanded compared to the same quarter last year. Pre-tax operating earnings were up 16%.

D.va Taranov: Wealth Management Services came off of very strong q1 and also as we talked about back in January we exited certain non-productive Revenue Arrangements.

As a result Revenue growth was muted year-over-year while both operating pre-tax earnings and margin expanded compared to the same quarter last year.

D.va Taranov: Pretax operating earnings were up 16%.

Dimitar Karaivanov: In summary, we're well on our way towards our goals for the year.

Dimitar Karaivanov: We also had a very exciting branch acquisition announcement last month and I expect to close that transaction in the fourth quarter of this year. Transaction provides our banking business with very strong presence in a market that is of high strategic importance to us, high quality liquidity, no asset issues or concentrations, limited execution risk, and comes with no share issuance. In other words, our shareholders get to keep all the upside as we deploy the cash proceeds into earning assets over the next few years. It is unusual for a banking transaction to check multiple of these boxes for us and very unusual to check all of them, so we're very excited.

In summary we're well on our way towards our goals for the year.

D.va Taranov: We also had a very exciting Branch acquisition announcement last month, and I expect to close that transaction in the fourth quarter of this year.

D.va Taranov: Transaction provides our banking business with very strong presence in a market that is of high, strategic importance to us.

D.va Taranov: High quality liquidity. No acid issues or concentrations limited execution risk and comes with no share issuance.

D.va Taranov: in other words, our shareholders get to keep all the upside as we deploy the cash proceeds into turning assets over the next few years,

D.va Taranov: It is unusual for a banking transaction to check multiple of these boxes for us and very unusual to check all of them.

Dimitar Karaivanov: In addition, other productive discussions are occurring across our fee-income businesses, and I'm hopeful that we will continue to productively deploy capital in the second half of this year.

D.va Taranov: So, we're very excited.

Mariah: I will now pass it on to Mariah for more details on the financials.

D.va Taranov: In addition, other productive discussions are occurring across our fee income businesses and I'm hopeful that we will continue to predictively deploy capital in the second half of this year.

Mariah: Thank you, Dimitar, and good morning. As Dimitar noted, the company's second quarter performance was solid. Gap earnings per share of $0.97 were up $0.06 or 6.6% over the second quarter of the prior year and were up $0.04 or 4.3% over linked first quarter results. Gap earnings per share included the impact of $0.02 in restructuring expenses associated with the Workforce Optimization Plan, and in addition, $0.01 tied to performance-based incentive accrual. Operating earnings per share and operating pre-tax, pre-provisioned net revenue per share were record quarterly results for the company. Operating earnings per share were $1.04 in the second quarter as compared to $0.95 one year prior and $0.98 in the linked first quarter.

D.va Taranov: I will now pass it on to Mariah for more details on the financials.

Mariah: Thank you, zetar and good morning.

Mariah: Is the matar noted the company's second quarter performance was solid?

Mariah: For share of 97 cents. We're up 6 cents or 6.6% over the second quarter of the prior year and we're up 4 cents or 4.3% over a linked first quarter results.

Mariah: Gap earnings per share included, the impact of 2 cents in restructuring expenses, associated with the workforce optimization plan. And in addition 1 cent tied to performance-based incentive approval

Mariah: Operating earnings per share and operating free tax pre-provision net revenue per share or record quarterly results for the company.

Mariah: Operating earnings per share were $14 in the second quarter as compared to 95 cents 1 year prior and 98 cents in the linked first quarter.

Mariah: Second quarter operating PPNR per share of $1.41 was up $0.12 from one year prior and was up $0.01 on a linked quarter basis. These record operating results were driven by a new quarterly high for total operating revenues of $199.3 million in the second quarter. Operating revenues were up $16.1 million, or 8.8% from one year prior, and were up $3.3 million, or 1.7% from the linked first quarter, driven by record net interest income results in our banking business. The company's net interest income was $124.7 million in the second quarter. This represents a 4.5 million or 3.8% increase over the linked first quarter results and a 15.3 million or 14% improvement over the second quarter of 2024 in March the fifth consecutive quarter of net interest income expansion.

Second quarter operating ppnr. Per share of $141 was up 12 cents for a 1 year, prior and was up 1 cent on a linked quarter basis.

These record operating results. Were driven by a new quarterly high for total operating revenues of 199.3 million in the second quarter.

Mariah: operating revenues were up 16.1 million or 8.8% from 1 year prior and were up 3.3 million or 1.7% from the linked first quarter driven by records net interest income results in our banking business,

Mariah: The company's not interest income was 124.7 million in the second quarter.

Mariah: This represents a 4.5 million or 3.8% increase over the linked first quarter results, and a 15.3 million or 14% improvement over the second quarter of 2024. In March, the 5th consecutive quarter of net interest income expansion,

Mariah: The company's fully tax-equivalent net interest margin increased six basis points from 3.24% in the linked first quarter to 3.3% in the second quarter. Higher interest earning asset yields and stable funding costs drove increases in both net interest income and net interest margin in the quarter. During the quarter, the company's cost of funds was 1.32%, a decrease of one basis point from the prior quarter, while the company's cost of deposits remained low relative to the industry at 1.19%. Operating non-interest revenues were up 0.7 million or 1% compared to the prior year's second quarter and represented 37.4% of total operating revenues, a metric that continuously underscores the diversification of our business.

the company's fully tax equivalent net interest, margin increased 6 basis, points from 3.24% in the link for quarter to 3 in the second quarter.

Higher interest, earning asset yields in stable. Funding costs, drove increases in both net, interest income and net interest margin in the quarter.

Mariah: During the quarter, the company's cost of funds was 1.32% a decrease of 1 basis point from the prior quarter, while the company's cost of deposits remained low relative to the interest rate at 1.19%.

Mariah: Operating non-interest revenues were up 7 million or 1% compared to the prior. Year's second quarter in represented 37.4% of total operating revenues a metric that continuously underscores the diversification of our businesses.

Mariah: Banking-related operating non-interest revenues were up $0.9 million, or 5%, from the linked first quarter, driven by higher customer interest rates, swap fee revenues, and CRE financing and advisory revenues. This was offset by 2.2 million or 3.9% decrease in non-banking financial services, non-interest revenues over the same period due to seasonal factors in the employee benefits, insurance, and wealth business. The company recorded a $4.1 million provision for credit losses during the second quarter. This compares to $2.7 million in the prior year's second quarter and $6.7 million in the linked first quarter. During the second quarter, the company recorded $129.1 million in total non-interest expenses.

Mariah: Thank you related. Operating non-interest revenues were up 0.9 million or 5% from the linked first quarter driven by higher customer interest rate, swap fee revenues and CRA financing and advisory revenues

This was offset by 2.2 million or 3.9% decreased in non-banking financial services. Non-interest revenues over the same period due to seasonal factors in the employee benefits insurance and wealth businesses.

Mariah: The company recorded a 4.1 million provision for credit losses during the second quarter?

Mariah: This compares to 2.7 million in the prior year, second quarter, and 6.7 million in the linked first quarter.

Mariah: This compares to $119 million of total non-interest expenses in the prior year's second quarter. Expense control remains a focus. The $10.1 million or 8.5% increase between the time periods was primarily driven by an increase of $5.6 million or 7.6% in salaries and employee benefits and $1.4 million or 9.3% in data processing and communication expenses and the impact of a $1.5 million non-operating restructuring charge. The increase also included approximately $1.5 million in expenses associated with the banks de novo branch expansion. Ending loans increased $98 million, or 0.9%, during the second quarter, primarily driven by net organic growth in the consumer indirect lending portfolio.

Mariah: During the second quarter, the company recorded 129.1 million in total non-interest expenses.

Mariah: This compares to 119 million of total non-interest expenses in the prior Year's second quarter.

expense control remains a focus, the 10.1 million or 8.5% increase between the time periods was, primarily driven by an increase of 5.6 million or 7.6% in salaries and employee benefits in 1.4 million or 9.3% in data processing and communication expenses, and the impact of a 1.5 million non-operating restructuring charge,

Mariah: The increase also included approximately 1.5 million in expenses associated with the banks, denovo, Branch expansions.

Mariah: The company continues to invest in its organic loan growth capabilities and expects continued expansion into undertapped markets within our Northeast footprint. Ending loans were up $495.3 million or 4.9% from one year prior, primarily due to growth in the business lending and consumer mortgage portfolios. The company's ending total deposits increased $563.9 million, or 4.3%, from one year prior and decreased $190.3 million, or 1.4%, from the end of the linked first quarter. The decrease in total deposits during the quarter was driven by seasonal outflow of municipal deposits. Non-interest bearing and lower rate checking and savings accounts continue to represent almost two-thirds of the total deposits reflective of the core characteristics of the company's deposit base.

Mariah: ending loans increased 98 million or 0.9% during the second quarter, primarily driven by net organic growth in the consumer indirect lending portfolio,

The company continues to invest in its organic loan growth capabilities and expects continued expansion into undertaken.

Mariah: Ending loans were up 495.349% from 1 year. Prior primarily due to growth in the business lending and consumer mortgage portfolios.

The company's ending total deposits increased, 563.9 million or 4.3% from 1 year, prior and decreased 190.3 million, or 1.4%. From the end of the linked first quarter.

Mariah: since during the quarter was driven by seasonal outflow of Municipal deposits,

Mariah: Non-interest bearing and lower rate checking and savings accounts. Continue to represent almost 2/3 of the total deposits reflective of the core characteristics of the company's deposit.

Mariah: The company did not hold any brokered or wholesale deposits on its balance sheet during the quarter. The company's liquidity position remains strong, as readily available sources of liquidity totaled $5.9 billion, or 246% of the company's estimated uninsured deposits, net of collateralized and intercompany deposits, at the end of the second quarter. The company's loan-to-deposit ratio at the end of the second quarter was 76.8%, providing future opportunity to migrate lower-yielding investment securities into higher-yielding loans. All the companies and the bank's regulatory capital ratios continue to substantially exceed well-capitalized standards. The company's Tier 1 leverage ratio increased 13 basis points during the second quarter to 9.42 percent, which is significantly higher than the regulatory well-capitalized standard of 5 percent.

Mariah: Base, the company did not hold any brokered or wholesale deposits on its balance sheet during the quarter.

Mariah: The company's liquidity position remains strong as readily available sources of liquidity, totaled 5.9 billion or 246% of the company's estimated, uninsured deposits, that of collateralized and intercompany deposits at the end of the second quarter.

The company's loan to deposit ratio. At the end of the second quarter was 76.8%.

Mariah: Providing future opportunity to migrate lower yielding investment Securities, under higher yielding loans.

Mariah: All the companies, in the bank's regulatory Capital, ratios continue to substantially exceed, well, capitalized standards.

Mariah: The company's Tier 1 leverage ratio, increased 13, basis points during the second quarter to 9.42% which is significantly higher than the regulatory. Well, capitalized standard of 5%

Mariah: During the quarter, the company charged off one non-owner-occupied CRE loan relationship and received substantial repayment of one multi-family CRE loan relationship, both of which were previously allocated specific reserves. As a result, net charge-offs in the quarter were elevated relative to recent results, but non-performing and delinquent loan metrics were favorably impacted. Non-performing loans totaled $53.3 million, or 51 basis points of total loans outstanding, at the end of the second quarter. This represents a 21.7 million or 21 basis point decrease from the end of the linked first quarter. Comparatively, non-performing loans were $50.5 million, or 50 basis points of total loans outstanding one year prior.

Mariah: During the quarter, the company charged off 1, non or occupied CRA loan relationship and received substantial repayment of 1 multi-family CRA loan relationship both of which were previously allocated specific Reserves.

As a result, net charge offs in the quarter were elevated relative to recent results, but non-performing and delinquent loan, metrics were favorably impacted.

Mariah: Non-performing loans, total, 53.3 million or 51 basis points of total loans outstanding at the end of the second quarter.

Mariah: This represents a 21.7 million or 21 basis, point decrease from the end of the linked first quarter.

Mariah: Comparatively non-performing loans, were 50.5 million or 50 basis points of total loans outstanding, 1 year prior.

Mariah: Loans 30 to 89 days delinquent were also down on a late quarter basis from 59.2 million or 57 basis points of total loans at the end of the first quarter to 53.3 million or 51 basis points of total loans at the end of the second quarter. The company recorded net charge-offs of $5.1 million, or 20 basis points of average loans annualized during the second quarter. This was up $3.8 million over the prior year's second quarter and up $1.9 million from the linked first quarter, driven by the charge-off associated with the previously mentioned CRE loan relationship during the quarter, totaling $4.3 million.

Loans, 30 to 89 days delinquent were also down on a late quarter basis from 59.2 million or 57 basis points of total loans. At the end of the first quarter to 53.3 million or 51 basis points of total loans, at the end of the second quarter.

Mariah: The company recorded, net charge offs of 5.51 million or 20 basis points of average loans. Annualized during the second quarter,

Mariah: This was up 3.8 million over the prior Year's second quarter in up, 1.9 million from the linked. First quarter driven by the charge off. Associated with the previously mentioned CRA loan relationship, during the quarter totaling 4.3 million,

Mariah: The company's allowance for credit losses was $81.9 million, or 78 basis points of total loans outstanding at the end of the second quarter, down $1 million during the quarter, due in part to the decrease in specific reserves previously mentioned and up $10.4 million from one year prior. The allowance for credit losses at the end of the second quarter represented over five times the company's trailing 12-month net charge-off.

Mariah: The company's allowance for credit losses, was 81.9 million or 78. Basis points of total loans outstanding at the end of the second quarter down 1 million during the quarter due in part to the decrease in specific reserves, previously mentioned and up 10.4, million from 1 year prior

Mariah: The allowance for credit losses. At the end of the second quarter represented over 5 times, the company's trailing 12-month, net charge off,

Mariah: We are pleased with the second quarter results.

Mariah: It is an exciting time, especially given our announcement of the acquisition of the seven Santander branches in Pennsylvania, which accelerates our retail growth strategy. to echo Dimitar's comments. This transaction ensures that our shareholders keep all the upside as we deploy the cash proceeds into earning assets.

Mariah: We are pleased with the second quarter results.

Mariah: It is an exciting time, especially given our announcement of the acquisition of the 7 Cent and Deere branches in Pennsylvania, which accelerates our retail growth strategy.

Mariah: The echo, Dimitar comments.

Mariah: Looking forward, we believe the company's diversified revenue profile, strong liquidity, regulatory capital reserves, stable core deposit base, and historically good asset quality provide a solid foundation for continued earnings growth.

Mariah: This transaction ensures that our shareholders, keep all the upside as we deploy the cash proceeds into earning assets.

Michael Cerminaro: That concludes my prepared earnings comments, and Dimitar and I will now take questions. Michael, I will turn it back to you to open the line. Thank you.

Mariah: Looking forward, we believe the company's Diversified Revenue profile. Strong liquidity regulatory, Capital reserves stable, core deposit base and historically good asset quality provide a solid foundation for continued earnings growth.

Mariah: That concludes my prepared, earnings comments and dividends and I will not take questions Michael. I will turn it back to you to open the line. Thank you.

Operator: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2.

Michael: Thank you.

Speaker Change: We will now begin the question and answer session to ask a question. You may press star then 1 on your telephone keypad. If you are using a speaker-phone please pick up your handset before pressing the keys.

Operator: At this time, we will pause momentarily to assemble our roster.

Speaker Change: if at any time your question has been addressed and you would like to withdraw your question, please press star then 2

Speaker Change: At this time, we will pause momentarily to assemble our roster.

Thomas: And your first question today comes from Steve Moss with Raymond James, please go ahead. Hey, good morning. This is Thomas on for Steve. Thanks for taking my question. Just wanted to start off maybe on loans here. Can you speak to the competitive landscape you're seeing in terms of lending? I know you said that competition was getting tougher in prior quarters. Is that still the case? And maybe just where is loan pricing these days?

Speaker Change: In your first question today, comes from Steve Moss with Raymond James, please go ahead.

You're seeing in terms of lending, I know you said that competition was getting tougher in, Prior quarters, um, is that, is that still the case? And, you know, maybe just where is loan pricing these days?

Dimitar Karaivanov: Morning, Thomas. Yes, it is certainly a lot more competitive today than it was, you know, the last couple of years. I think as we discussed in the last quarter, you know, there's a lot of competitors that didn't participate much in the market because of liquidity and all kinds of other constraints. And now they're trying to make it up. I would say they're trying to make it up on both rate and credit. And as I talked about in my remarks, we were able to offload a number of criticized credits during the quarter. I think there will be some more the rest of the year as well, which we're happy to part ways with.

Speaker Change: Morning to almost. Um, yes. Um, it is certainly a lot more competitive today than it was you know, the last couple of years.

Dimitar Karaivanov: And we're happy for other people to take them. So that is fine. As it relates to us, we're going to continue to outperform. Because for us, it's mostly about market share gains and things that we've been at it for a number of years in terms of reputation and people and activity in the market. So as I said, I expect that we're going to start seeing some of that kind of occurring here in the third quarter into the fourth quarter. And I expect that on a four-year basis, we will do better than our peers. In terms of yields, we're seeing pressure on that as well.

I think as we discussed in the last quarter, you know, there's a lot of competitors that didn't participate much in the markets because of liquidity and all kinds of other constraints and now we're trying to make it up. Um, I would sort of trying to make it up on both rates and credits and as I talked about in my remarks, we were able to offload a number of criticized credits during the quarter. Uh, I think there will be some more the rest of the year as well, which we're happy to part ways with, um, and we're happy for other people to take them. So that is fine. Uh, is it relates to, um, us? We're going to continue to outperform because for us, it's mostly about market share gains and things that we've been added for a number of years, in terms of reputation and people and activity in the market. Um, so as I said, I expect that we're going to start seeing some of that. Um, kind of a coincidence, third quarter into the fourth quarter and I expected on a full year basis. We will do better than our peers.

Dimitar Karaivanov: I think if you step back and you look at the second quarter, you know, the three-year and the five-year treasury, which is the majority of what we price off of in our lending portfolio, those just rates were down close to 30 basis points on average versus the first quarter. So effectively, there's already been a cut and more into those rates. So that's reflected into the yields at which things are coming in. And then you add the competition, which has accounted for probably another 15 to 20 basis points on top of that. And in the second quarter, our originations were kind of in the six and three quarters range in aggregate, varied by portfolio.

Thomas: But I expect that that number is probably trending lower as opposed to higher over time. Competition is high on both rate and credit, as I mentioned. Okay, all that's very helpful.

In terms of uh, yields we're seeing uh pressure on that as well. I think if you step back and you look at the second quarter um, you know, the 3 year and the 5 year treasury, which is the majority of what we price off of in our Landing portfolio. Those just rates were down close to 30 basis points on average basis versus the first quarter. So, effectively, there's already been a cut and more, uh, into those rates. So that's reflecting into the yields at, which, uh, things are coming in. And then you add the competition, which is accounted for, probably another 15 to 20 basis points on top of that. Um, and in this, uh, in the second quarter, our, our originations were kind of in the 6 and 3/4 range uh, in aggregate, uh, varied by portfolio.

Speaker Change: but I expect that that that number is probably trending lower as opposed to higher over time uh competition is is high on both rate and credit as I mentioned

Unnamed Speaker: Thank you. And so, how are you feeling about the two to seven basis points of quarterly NIM expansion from here?

Unnamed Speaker: Is that still a good range? I can take that. I would say we're in the range closer to three to five at this point. You know, Dimitar just outlined some of the metrics that are, you know, contributing to that number for us. But, you know, can't underscore enough the progress that we're seeing in the markets and the pipeline strength. So we're very bullish on that overall.

Speaker Change: Okay, all that's very helpful. Thank you. And so um, how are you feeling about the 2 to 7 basis points of quarterly, Nim expansion from here? Is that still a good range?

Speaker Change: I can take that. Um I would say we're in the range closer to 3 to 5 at this point. Um you know, Dimitar just outline some of um the metrics that are you know.

Speaker Change: Contributing to to that number for us. Um but you know, can't underscore enough. Um, the the progress that we're seeing in the markets um, and and the pipelines strength. Um so we're we're very bullish on that overall.

Unnamed Speaker: Okay, and then the last one for me, it sounds like you guys, with the $600 million of acquired deposits you'll, is it likely that that'll sort of just boost your liquidity and that'll be invested over time or are you https://www.youtube.com https://www.youtube.com I think we look at that as loan growth for us over the next number of years. So between our organic growth on the deposit side and this transaction, we've got a number of years of loan growth here ahead of us. So, you know, initially, some of those proceeds are likely to stay in short-term, you know, instruments, and then we're going to deploy them over time.

Okay, and then the last 1 from me. Um, it sounds like you guys with the 600 million of acquired deposits, you'll is it, is it likely that that'll sort of just boost your liquidity and and that'll be, um, invested over time or are you you considering, uh, Securities purchases or can just maybe you're updated thoughts around that?

Unnamed Speaker: So our shareholders.

Speaker Change: Yeah, I think uh we look at that as a long growth for us over the next number of years. So between our organic growth on deposit site and this transaction, we've got a number of years of of long growth here. Ahead of us. So you know, initially some of those proceeds are all get to stay in short term um you know instruments. Um and then we're going to deploy them over time. So obviously as we deploy them over time the impact of that transaction. Also improves for for our shareholders.

Thomas: Okay, great. That's all the questions for me. Thanks, and congrats on a good quarter, guys. Thank you, Thomas.

Speaker Change: Okay, great. That's all the questions for me. Thanks and congrats on a good quarter, guys.

Speaker Change: Thank you so much.

Sharanjit Cheema: And your next question comes from Manuel Navas with D.A. Davidson. Please go ahead. Hello, good morning.

Speaker Change: And your next question comes from manual novice with da Davidson please go ahead.

Sharanjit Cheema: This is Sharanjit. I'm from Manuel. Thank you for taking my question. I was wondering, could you talk a little bit about OPEX terms from here? Does some of the restriction of the personnel this quarter lower costs in the third quarter? And is there any shift to the overall expense trajectory? Sharanjit Cheema So, So yes, you had, there's a lot in that question. So good. But so the restructuring charge that you saw come through, that is due to we're consolidating some branches, we're looking to evolve our platform of service. So we look at it as a very positive thing.

Sharon G: Good morning. This is Sharon G on from manual. Thank you for taking my question.

Sharon G: Um, I was wondering, could you talk a little bit about Opex Trends from here? Um, does some of the restructuring of the Personnel Discord or lower costs and third quarter? And is there any shift to the overall expense projector?

Sharon G: So,

Dimitar Karaivanov: And as we, you know, in Eastern Pennsylvania, this was an important point for us. In terms of OPEX, you're going to see it sort of be flat. As we move forward, we're, as we mentioned in our opening remarks, we're focused on it. And looking to ensure that, you know, everything that we're investing in has trajectory to push the business forward. Dimitar also mentioned that in his opening remarks when it comes to our fee income businesses. So, you know, look, when when you're growing a business, there's going to be times as things move up that you are looking at, you know, increasing some expenses, but we don't we don't see that as a go forward.

Sharanjit Cheema: We're just looking at some of these as one time. Great, thank you.

Sharon G: Branches. We're we're looking to evolve our platform, um, in of service. So we look at it as as a very positive thing. Um, and as we, you know, continue to open the denovos and, you know, expand in eastern Pennsylvania. This was an important point for us. Um, in terms of Opex, you're going to see it sort of be flat. Um, as we move forward, um, we're as we mentioned in our opening remarks, we're we're focused on it. Um, and looking to ensure that um, you know, every everything that we're investing in um has has trajectory to push the business forward. Uh, Dimitar also mentioned that in his opening remarks when it comes to our fee income businesses. So um, you know, look when when you're growing a business, there's going to be times as, as things move up, that you are looking at, you know, increasing some expenses. But we don't, we don't see that as a go forward. We're just looking at some of these as 1 time.

Dimitar Karaivanov: And then, shifting over a little bit to the branch acquisition, how is that going so far? Like, is it as expected?

Dimitar Karaivanov: And then, can you discuss a little bit more about how this transaction builds into or ties into your previously planned DeNova extension? Sure, so we're right on track with our expectations. It is very early days, so we expect that we're going to work through the regulatory side of this here in the summer, and then closing is slated for the fourth quarter. Probably sometime in November is our goal. I will say it's exactly what we've been looking for. It is a perfect complement to our organic strategy in that market, so we have three de novo branches opening up in the Lehigh Valley.

Speaker Change: Great. Thank you. And then shifting over a little bit to the branch acquisition. How is that going so far? Like is it as expected and then um oh can you discuss a little bit more on how this transaction builds into your ties into your previous food plans, and dinova extensions?

Sure. So um we're right on track with our expectations. Uh it is very early days so we expect that we're going to work through the regulatory side of this here in in, in the summer. And then closing is slated for the

Dimitar Karaivanov: Actually, one of them is already open, so by the end of the year, we're between the acquisition and those three branches. We're going to have 10 branches right into the heart of the valley, and then 12 more broadly in the kind of the greater area, which brings us to a top five market share in terms of presence, and that is when good things start happening. So we're very excited about that, and if we could replicate that in every one of our markets, we would love to, but those are hard to come by.

Speaker Change: Fourth quarter. Um, probably sometime in November is our goal. Um, I will say it's exactly what, uh, we've been looking for. Um, it is, it is a perfect complement to our organic strategy in that market. So we have 3, denovo, branches opening up in the Lehigh Valley. Um, actually 1 of them is already open. Um, so by the end of the year we're between the acquisition and, uh, those 3 branches, we're going to have 10 branches right into the heart of the valley and then 12 more broadly in the kind of the, the greater area, uh, which brings us to a top 5 market share, uh, in terms of presence. Um, and that is when things good things start happening. So, we're very excited about that. Um, and uh, you know, if we could replicate that in every 1 of our markets, we would love to but those are hard to come by.

Sharanjit Cheema: Great. Thank you so much.

Sharanjit Cheema: That's all for me.

Speaker Change: Okay, thank you so much. That's all for me.

Matthew Breese: And your next question comes from Matthew Breese with Stevens. Please go ahead. Hey, good morning. I was hoping, I was hoping we could learn a little bit more about the pipeline. You mentioned a couple of times there, that it's robust, and you're bullish on it. I also just wanted to kind of, you know, hear a little bit more about or a reminder of financial targets. I think you were referring back to the investor day in September, when you said kind of through cycle loan growth of five to 7%. Do you think the pipeline supports that?

Matthew Breeze: And your next question comes from Matthew Breeze with Stevens. Please go ahead.

Matthew Breeze: Hey, good morning morning. Um, I was hoping I was hoping, we could learn a little bit more about the pipeline. You, you mentioned a couple of times there, uh, that its robust and you're bullish on it.

Matthew Breeze: Uh, I also just wanted to kind of, um, you know, hear a little bit more about or reminder of financial targets. Uh, I I think you were referring back to the investor day in September when he said, kind of through cycle loan growth of 5 to 7%, you think the pipeline supports that

Dimitar Karaivanov: Sure.

Dimitar Karaivanov: So Matt, I'll take that. So if you look at our business on the lending side, basically, there's three things we do, right? We do mortgages or home equities, we do auto loans, that's our consumer lending in aggregate, and then we do commercial, of which there's virtually two products for the most part, you know, CRE and CNI. And across all of those, we generally target mid-single-digit growth in all those portfolios. Some years, some of them will be stronger. Some years, they will be a little bit weaker. But again, the aggregate number is somewhere in the mid-single digits.

Speaker Change: sure, so Matt I'll take that um,

Speaker Change: So, if you look at our um, business on the lending side, basically, there's 3 things we do, right? We do mortgages or at home. Equities, we do auto loans, that's our consumer lending in Aggregate and then we do commercial of which there's virtually 2 products for the most part, you know, CRA and cni.

Dimitar Karaivanov: Earlier this year, we talked about probably that being a little bit closer to the lower end of that. So if mid-single digits are four to six to seven, and the past few years, we're growing kind of seven plus, we expected this year would be closer to kind of the four to five handle, given we expected competition, we expected more pressure in that sense. So when I say we're thinking that we'll be back on track for all of those metrics, I mean that range. So four plus or minus a little bit is probably a reasonable number for us this year.

Speaker Change: And uh, across all of those, we generally Target mid single digits growth and all those portfolios some years. Some of them will be stronger. Some years, they will be a little bit weaker but again the aggregate number is somewhere in the mid single digits. Earlier this year, we talked about probably that being a little bit closer to the lower end of that. So if I don't know, if it's single digits or 4 to 6 to 7, you know, and the past few years we were growing kind of 7 plus, you know, we expected this year would be closer to kind of the 4 to 5 handle given we expected competition. We expected more pressure, um, in in, in that sense. So um, when I

I say.

Dimitar Karaivanov: We're certainly, we started a little bit slower on the consumer lending, on the indirect portion of that. We've made up a lot of that ground in the second quarter, and we're now positive. And momentum there continues. Mortgages holding up pretty well in a very tough market with where rates are. All the yields I talked about, the pressure, that's actually not occurred on the mortgage side because that's of the long end of the curve. So that's really putting an impact on demand, but we're holding our own and outperforming the industry. And then in the commercial business, it's been a little bit of a story of two tails because you have the CNI business has grown very, very well this year.

Dimitar Karaivanov: In fact, probably on track for high single digits to double digit growth even. And at the same time, we've again cleaned up some of the exposures on the CRE side. I would say some of those were higher risk and some of them were unproductive because of non-performing assets. So you might see the balance come off, but it's not a growing interest anyways. And now we've got capacity to get back and refill some of those buckets a little bit more. Again, the activity is very good. We have had just kind of in the context of payoffs, we've had over $100 million of payoffs year to date in the commercial business.

Speaker Change: Because you have the cni business has grown very very well this year.

Um, in fact, um, you know, probably on track for high single digits to double digit growth even. Um, and at the same time, you know, we've um, again, cleaned up some of the exposures on the CRA side. Um, I would say some of those were higher risk and some of the more unproductive because the non-performing assets, so you might see the balance come off but it's, it's not a growing interest anyways. Um, so and we now we've got capacity to, um, to get back and refill some of those buckets a little bit more. Um, again, the activity is very good. Um,

Dimitar Karaivanov: Probably 40% of those were in assets that we were... Happy to see it go, and we probably have another $100 million to go in terms of prepayments in the second half of the year, but given the pipeline, we think we're going to absorb that and actually grow meaningfully.

We have had just kind of in the context of payoffs. We've had over 100 million dollars of payoffs a year to date in the commercial business. Probably 40% of those were in assets that we were

Speaker Change: happy to see go.

Um and we probably have another 100 million to go. Uh in terms of prepayments uh in the second half of the year but given the pipeline. We think we're going to absorb that and actually grow meaningfully.

Matthew Breese: Great, I appreciate all that. Two or three others from me.

Speaker Change: Great. I appreciate all that.

um,

Dimitar Karaivanov: The first one is just going back to the branch acquisition. Could you give us some sense for composition of the deposits being acquired, the all-in costs? And then, you know, particularly in this day and age with mobile banking, I'd love to hear your thoughts on retention. Sure. If you kind of look at the aggregate population, these are deposits that look very much like ours in terms of their granularity. The average account size is less than 20,000. If you look at kind of the split between transaction and DDAs versus CDs, it's somewhere in the 65-35 split range.

2 or 3. Others for me, the first 1 is just going back to the the uh, the branch acquisition. Could you give us some sense?

Speaker Change: For composition of the deposits being acquired, the all-in cost.

Speaker Change: And then, you know, particularly in this day and age with Mobile Banking, I'd love to hear your thoughts on retention.

Dimitar Karaivanov: With that said, basically the CDs are the same customers, they're not single product customers, very, very few, very small percent are single product customers. So, it's the same customer that just parked money out of transaction account into a CD for the right environment. As we look at the opportunity to deploy that capital, that liquidity, we feel that the next couple of years we'll be able to make a decent dent into it, over five and six. We'll probably bring that to our normal kind of target of loan to deposit ratio. As you think about the long term, probably 75-85% loan to deposit ratio by year five or six.

Speaker Change: Sure, if you kind of look at the aggregate, um, population, there these are deposits. That look very much like ours in terms of their granularity. Um, the average account size is less than 20,000. Um, if you look at kind of the split between, um, transaction and ddas versus CDs, it's somewhere up in the 6535, split range. Um, with that said, uh, basically the CDs are the same customers with, they're not single product, customers very, very few, uh, very small percent or single product customers. So it's the same customer that just parked money. Out of transaction account into a CD for the right environment.

Speaker Change: Um, as we look at

Speaker Change: kind of the, the opportunity to deploy that, you know, capital and that that liquidity, we feel that the next couple of years will be able to make a decent Dent into it, but over 5 and 6, you know, we'll probably bring that to our normal kind of Target of loan to deposit ratio. So that you think about the long term, you know, probably 75 to 85% loan to deposit ratio by year 5 or 6.

Dimitar Karaivanov: So yeah, I mean, the blended cost of funds there is just below 2%, and that's a little bit dated, so it's probably a little bit lower today. So very high quality deposits and a really great market for us.

Speaker Change: Um, so yeah, I mean the Blended cost of of funds there is, uh, just below 2%, uh, and that's a little bit dated, so it's probably a little bit lower today. Um, so very high quality, um, deposits in a really great market for us,

Matthew Breese: Great, I appreciate that.

Dimitar Karaivanov: The next one is just on the, you know, could you remind us where you are in terms of the de novo branch build out? I think the total was maybe like 15 or 16 branches that you wanted to open. How many of those are in fact open today? How many do you expect will be open by the end of this year?

Dimitar Karaivanov: And then on the other side of that, I think I saw on the and the applications, there's something like maybe 17 branch closings submitted. Could you help me out on potential branch closures near term? Thank you. So on the De Novo, it's 19. What has opened so far? Seven, so we've opened seven total across the footprint. We just opened three in Q2, and there will be two in July. So that's going extremely well. We're really happy with the progress there. They're beautiful branches, they're very well-staffed. The sentiment, you know, around as we definitely talk to the field and get out to talk to customers and our employees that are opening these branches is extremely positive.

Speaker Change: Great, I appreciate that. The next 1 is just on the, you know, could you remind us where you are in terms of the, the the denovo branch build out? I think the total was maybe like 15 or 16 branches that you wanted to open. How many of those are in fact, open today? How many do you expect will be open by the end of this year?

Speaker Change: and then on the other side of that, I I think I saw on the

Speaker Change: In the applications. There's something like maybe 17 branch closing submitted. Could you help me out on on potential Branch closures? Uh, near-term. Thank you.

Speaker Change: Sure. So, so on the denovo, um it was it's 19.

Speaker Change: um,

What has opened so far? Uh 7. So we've opened 7 total um across across the footprint. Um we just opened 3 in Q2 and it will be 2 in July. Um so that's that's going extremely. Well, we're really happy with the progress there.

Speaker Change: Um, they're, they're beautiful branches. They're um, they're very well staffed. Um, the the

Dimitar Karaivanov: So we're really happy with that strategy and we'll continue to do our best to get those stood up, all 19, you know, by the end of the year, possibly a couple will fall into Q1 of 26, but that's all on track. So really, really happy with that progress.

Matthew Breese: In terms of closures, 17 is correct. Matt, you may recall we've committed consistently that our branch expansion will be net neutral to our shareholders, so we're closing as many as we're opening and basically reallocating resources and some of that you saw this quarter with a restructuring charge. Great, I appreciate that.

The sentiment you know, um, around as as we definitely talked to the field and get out um to talk to customers and and our employees that are that are opening. These branches is, is extremely positive. Um, so we're really happy with that strategy and um, we'll continue to to do our best, um, to get those stood up all 19, you know, by the end of the year, possibly a couple will fall into q1 of 26. But, um, that's all on track. So, um, really, really happy with that progress. Um, in terms of closures, um, 17 is, is correct,

Matthew Breeze: And Matt, you may recall, we we've committed consistently that our Branch expansion will be a net neutral to our shareholders. So,

And basically reallocating resources and uh some of that you saw this quarter with a restructuring charge.

Matthew Breese: And then the other one I wanted to ask was just on loan yields. They were up five basis points this quarter, just a bit more than what I was expecting. Was there anything atypical or unusual there? You'd mentioned some payoffs. I'm curious if there was repayment of, you know, interest income that was on new accrual, or is this a decent pace of loan yield expansion in the absence of rate cuts? It's the latter. So yep, you're, you're exactly correct. There's nothing atypical that we're seeing. We, you know, obviously are looking at this on a daily, weekly basis, and all is in line there.

Matthew Breeze: Great, I appreciate that.

Speaker Change: And then the other 1, I wanted to ask was just on loan yields. They were up 5 basis points. This quarter just a bit more than what I was expecting. Was there anything atypical or unusual? There, you'd mentioned some payoffs. I'm curious if there is

Matthew Breeze: repayment of um, you know, interest income that was on new approval or is this a a decent pace of loan deal expansion, in the absence of rate cuts

Matthew Breeze: It. It's the latter. Um, so, yep. You're you're exactly correct. Um, there's, there's nothing atypical that we're seeing. Um, we, you know, obviously, are are looking at this, um, on a daily weekly basis and, um, all all is in line there.

Dimitar Karaivanov: Thank you. And then just the last one is just any updates. You know, the CHIPS Act was kind of in focus of the new administration earlier this year. And is there anything upsetting the apple cart there? And I was curious if Micron is still on track to break ground later this year. And that's all I have. Thank you for taking all the time. Yeah, so it is still on track. I believe the fourth quarter is when they're going to break ground.

Matthew Breeze: Thank you. And then just the last 1 is just any updates.

Speaker Change: You know uh the chips Act was kind of in in focus of the new Administration earlier this year. And um is there anything upsetting the apple cart there? And I was curious if if Micron is still on track to break ground later this year and that's all I have. Thank you for taking all these

Dimitar Karaivanov: There's a public process as it relates to some of the environmental concerns that's ongoing right now. So, and I think actually the number, the investment number actually went up, the expected investment. So, that's all good.

Operator: As we've said before, that's really not what we're growing because of today and not what we're going to grow because of the next, you know, probably a couple of years. But as the impact of that 16-year investment come into play, certainly over time there will be a positive lift for everybody involved. Thank you. Again, if you have a question, please press star then 1.

Um, yeah, so it is still on track. Um, I believe the fourth quarter is when they're going to break around. Um, there's a public process, is it related to some of the environmental concerns that some going right now? Um, so and I think, actually the number the investment number actually went up. Um, the expected investment, so

Speaker Change: That's all good. Um, as we've said before, that's really not what we're growing because of today and not what we're going to grow because of the next, you know, probably couple of years. Uh, but as the impact of of that 16 year investment, uh, come into play. Uh, certainly over time, there will be a positive lift for for everybody involved.

Thank you.

David Conrad: And your next question comes from David Conrad with KBW, please go ahead. Yeah, good morning. Just one for me, just on fee income. You mentioned some seasonality, some pull forward insurance this quarter. I think you're up like 1% year over year this quarter. So just kind of thinking about the run rate over the next two quarters as stuff picks up a little bit and kind of your year over year expectations for 25.

Speaker Change: again, if you have a question, please press star then 1

Speaker Change: In the next question, comes from David Conrad with KBW, please go ahead.

Mariah: Good morning, David. So on the insurance, you know, we usually get the contingent payments in the second quarter. This year we got them in the first quarter, so the first quarter was quite robust for us in insurance. We did communicate that that's probably not sustainable, you know, 27% revenue growth was not the run rate of the business. We traditionally target high single-digit to low double-digit growth rate in that business between organic and inorganic, and year-to-date we're at 13%. We certainly expect that this year will not be an exception from our targets, so whether we end up at, you know, a little bit in the high single digits or maybe just a hair, you know, in the double digits, who knows, but that's kind of the ultimate target.

David Conrad: Yeah, good morning. Uh, just just 1 from me, just on fee income. Um, you mentioned, uh, some seasonality some pull forward Insurance Discord. I think you're up like 1% year-over-year this quarter. So just kind of thinking about the Run rate, uh, over the next 2 quarters. This stuff picks up a little bit and kind of your year-over-year, expectations for 25.

David Conrad: Good morning, David, um, morning. So on the insurance, you know.

David Conrad: We usually get the contingent payments in the second quarter this year. We got them in the first quarter. So the first quarter was quite robust for us in insurance. We did communicate, that that's probably not sustainable, you know, 27% Revenue growth was not the Run rate of the business.

Uh, we traditionally Target uh, High single digit to low double digit growth rate in that business between organic and inorganic. Um, and year to date were 13%. Um, we certainly expected this year, will not be an exception from our targets, so what we end up at, you know, a little bit in the high single digits or maybe just um a hair, you know, in the in the double digits.

Mariah: Business is doing well. Black line is pretty good. The seasonality there, again, is typically a second quarter. This year was more in the first quarter. We're going to have a nice third quarter. That's usually another big renewal quarter for us, and then the fourth quarter is usually a little bit slower, but in the aggregate basis, I think we're very much on track to get to our historical growth rate, which over the past 10 plus years has been 11%, actually.

David Conrad: Who knows, but that's kind of the ultimate Target business is doing well. Um, black line is pretty good, the seasonality there again, is typically the second quarter this year, was more in the first quarter. We're going to have a nice third quarter. That's usually another big renewal quarter for us. And then the fourth quarter is usually a little bit slower, but in the aggregate basis, I think we're very much on track to, um, get to our historical growth rate, which over the past 10 plus years has been, uh, the 11% actually in that business.

David Conrad: Great, thank you.

Speaker Change: Great. Thank you.

Operator: This concludes our question and answer session.

Dimitar Karaivanov: I would like to turn the conference back over to Dimitar Karaivanov for any closing remarks. Thank you to you, Michael, for crossing the call, and thank you for everybody who joined, and we look forward to speaking with you in a couple of months.

Speaker Change: This concludes our question and answer session, I would like to turn the conference back over to Dimitar for Ivanov for any closing remarks.

Speaker Change: Thank you to, to you, Michael for, for posting the call and thank you for everybody who joined and we look forward to speaking with you in a couple of couple of months.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Speaker Change: The conference has now concluded, thank you for attending today's presentation. You may now disconnect