Operator: Good day, and welcome to the Community Financial System, Inc. Third Quarter 2026 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. 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. 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. These statements involve risks and uncertainties that could cause actual results to differ materially from the results discussed.
Operator: Refer to the company's SEC filings, including the Risk Factors section, for more details. 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 the company's earnings release. I would now like to turn the conference over to Dimitar Karaivanov, President and CEO. Please go ahead.
Dimitar Karaivanov: Thank you, Chloe. Good morning. Thank you for joining us today. Our company performed very well in Q3. As expected, our results accelerated with operating diluted earnings per share, increasing 16.5% year over year and 9.5% quarter over quarter, representing our sixth consecutive quarter of record results. Record revenues and profitability in Banking, record revenues and profitability in Insurance Services, record revenues and profitability in Wealth Management Services. Solid revenue performance in Employee Benefit Services, which was challenged by elevated expenses due to startup legal costs associated with a number of new fund launches in our collective investment trust business. Couple of items of note. Wealth Management revenue was up 41% year over year, and pre-tax earnings were up 42%, driven by both very strong organic performance and the addition of ClearPoint.
Dimitar Karaivanov: We remain very excited about the opportunities ClearPoint is providing us, and we are already seeing tangible client cross-service opportunities with Banking. Insurance Services revenue was up 8.9% year over year while keeping expenses basically flat, resulting in pre-tax earnings growth of 41%. As previously mentioned, the M&A activity is really strong, and these results do not yet incorporate the more sizable opportunities we are working on this quarter should they come to fruition. Employee Benefit Services revenue was up 5.6% year over year, while pre-tax earnings were down 3.5%, predominantly due to the aforementioned legal expenses. Banking had a very strong quarter with both margin expansion and organic growth. Commercial and consumer lending were both strong. Deposits experienced typical seasonal fluctuations, while liquidity and credit remained a source of strength.
Dimitar Karaivanov: I would expect some seasonal slowdown in consumer lending in Q4, plus the impact on demand of higher rates in mortgage and auto lending. The commercial pipeline remains strong, but we also expect some larger payoffs, so I wouldn't extrapolate from Q3. As noted, we pulled forward our December securities maturities as we took advantage of the shape of the curve and our own liquidity needs and produced a positive net present value transaction. In addition, we believe that this illustrates the positive dynamics embedded in our balance sheet with over $600 million of securities maturities coming due in 2027. I will now pass it to Marya for more details.
Marya Burgio Wlos: Thank you, Dimitar, and good morning all. As Dimitar noted, the company's operating performance accelerated in Q3. GAAP earnings per share of $1.16 increased $0.12 or 11.5% from Q3 of the prior year and was consistent with linked Q2 results, including the loss on sales of investment securities recognized in Q3 in connection with our decisions to pull forward our December investment security maturities. Operating earnings per share and operating pre-tax pre-provision net revenue per share were record quarterly results for the company. Operating earnings per share were $1.27 in Q3 as compared to $1.09 one year prior and $1.16 in the linked Q2. Q3 operating PPNR per share of $1.77 increased $0.21 from one year prior and increased $0.15 on a linked quarter basis.
Marya Burgio Wlos: These record operating results were driven by a new quarterly high for net interest income and operating non-interest revenues. The company's net interest income was $143.5 million in Q3. This represents a $4.4 million or 3.2% increase over the linked Q2 and a $15.4 million or 12% improvement over Q3 of 2025 and marks the 10th consecutive quarter of net interest income expansion. The company's fully tax-equivalent net interest margin increased seven basis points from 3.49% in the linked Q2 to 3.56% in Q3, reflective of higher interest earning asset yields and lower funding costs. The increases in net interest income and net interest margin included the accretive impact of the pay down of higher cost overnight borrowings using proceeds from the 3 August sale of $296.8 million of lower yielding US Treasury securities.
Marya Burgio Wlos: During the quarter, the company's cost of funds was 1.16%, a decrease of two basis points from the prior quarter, primarily driven by lower deposit costs. Operating non-interest revenues increased $8 million or 10.2% compared to the prior year's Q3 and increased $7.4 million or 9.3% from the linked Q2. The quarter over quarter and year over year increases in operating non-interest revenues was reflective of increases in employee benefit services, wealth management services, insurance services, and banking non-interest revenues. Our recent acquisition of ClearPoint Trust contributed $2.1 million of non-interest revenues during Q3 and $2.9 million year to date. Operating non-interest revenues represented 38% of total operating revenues during Q3, a metric that continuously emphasizes the diversification of our businesses. The company recorded a $5.6 million provision for credit losses during Q3.
Marya Burgio Wlos: This was consistent with the prior year's Q3 and compares to $4.6 million in the linked Q2. During Q3, the company recorded $141 million in total non-interest expenses, an increase of $3.3 million or 2.4% from the linked Q2, and an increase of $12.7 million or 9.9% from the prior year's Q3. The increase from the linked Q2 was due in part to a $1.5 million increase in salaries and employee benefits driven by one additional payroll day and incremental expenses associated with ClearPoint, as well as a one-time $0.8 million consulting expense related to the renegotiation of a debit card branding contract.
Marya Burgio Wlos: $7.4 million of the increase in total non-interest expenses from Q3 2025 was attributed to salaries and employee benefits, primarily due to the incremental costs associated with acquisitions completed between the periods, higher performance-based incentive compensation, and medical costs along with the impact of annual merit-based increases. Occupancy and equipment expenses increased $2.6 million from the prior year's Q3, driven by incremental costs associated with the opening of seven de novo branches and three regional headquarters over the last 12 months, along with the seven branches acquired from Santander in the prior year's Q4. Excluding operating expenses related to acquisitions completed in the last 12 months, year to date operating non-interest expenses increased $18.7 million or 5.1% from the same prior year period. Ending loans increased $235.2 million or 2.1% during Q3 and increased $767.8 million or 7.1% from one year prior.
Marya Burgio Wlos: The increases reflected organic growth in the overall business and consumer lending portfolios. The company's ending total deposits increased $808.3 million or 5.7% from one year prior and increased $154.7 million or 1.1% from 30 June 2026. The increase in total deposits during Q3 was primarily reflective of seasonal inflows of municipal deposits in September. The increase in total deposits over the past 12 months included $543.7 million of deposits assumed from the Santander branch acquisition, and $120.1 million of deposits assumed from the ClearPoint acquisition. Moving on to asset quality, the non-performing loans ratio increased two basis points, and the loans 30 to 89 days delinquent ratio increased nine basis points from last quarter, but remain strong compared to the industry.
Marya Burgio Wlos: The net charge-off ratio increased six basis points from the linked Q2 due to $2.7 million of charge-offs recognized in Q3 2026 on two individually assessed business lending relationships for which specific allowance allocations had previously been established. The company's allowance for credit losses was $92 million, or 80 basis points of total loans outstanding at the end of Q3, an increase of $0.3 million during the quarter. The allowance for credit losses at the end of Q3 represented approximately seven times the company's trailing 12-month net charge-offs. Looking forward, we believe the company's diversified revenue profile, strong liquidity, and historically good asset quality provide a solid foundation for continued earnings growth. With that, I would like to provide an update to our expectations for full year 2026 as we enter into Q4.
Marya Burgio Wlos: We continue to expect 3% to 4% growth in deposit balances, 6% to 7% growth in non-interest revenues, and an effective tax rate between 23% and 24%. As Dimitar noted, we expect loan growth to moderate in Q4, driven by some seasonal slowdown in consumer lending, as well as some larger commercial loan payoffs. As a result, we now expect full year 2026 loan growth of 5% to 5.5%. We expect the full year 2026 provision for credit losses to be in the range of $22 to $25 million. Factoring in the accretive impact of the 3 August sale of $296.8 million of lower yielding US Treasury securities, we now expect 11% to 11.5% growth in net interest income and for net interest margin to exit 2026 in the mid to high 3.5 range.
Marya Burgio Wlos: Near term margin pressure is possible if higher market rates dampen loan demand and pressure deposit rates. Core non-interest expenses are expected to be in the range of $553 to $557 million, or an increase of 7% to 8% from 2025. This includes approximately $8 to $9 million of incremental expenses associated with the branches acquired from Santander and approximately $4 to $5 million of incremental expenses associated with ClearPoint, including non-operating intangible asset amortization and the impact of certain one-time items. These estimates do not include the impact of pending or future acquisitions. That concludes my prepared earnings comments, and Dimitar and I will now take questions. Chloe, I will now turn it back to you to open the line. Thank you.
Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Steve Moss with Raymond James. Please go ahead.
Steve Moss: Good morning. Maybe start off on loans here. Abe, to start off on loans here, just curious, I hear you on moderation in auto and mortgage. Just curious with regard to how to think about the commercial loan pipeline and what you are seeing for strength or weakness there just given larger payoffs.
Dimitar Karaivanov: Yeah. Hey, Steve. The pipeline is strong. It is pretty comparable to where it was last quarter, which means that it is close to its high marks. Activity is solid. Just in terms of origination, there is really nothing to be concerned about. We just know that we have got a couple of larger payoffs, which is not the worst thing that can happen to a loan. So we are going to absorb those and we are going to replace them in Q4. And depending on timing, depending on closings, we feel that the range that we provided is the operating range.
Steve Moss: Yeah. Also, just curious, what are you guys seeing for loan pricing these days and competition in the market?
Dimitar Karaivanov: Yeah. I think in the last couple of months, our blended originations have been right around 6.6%. This is kind of across all portfolios. We talked about earlier this year that the pricing in auto was just frankly silly, and we didn't participate as much. It's gotten a little bit better. It's not exactly where we want it to be, but it's a little bit better.
Dimitar Karaivanov: We're not probably going to see much growth in that side of the house. Mortgages are certainly, you're seeing things in high 7s and even 8 handles on mortgage products. That has an impact on demand. We've seen that. I think it's across the board. I'm confident we're going to do better than most other folks. We are a very purchase-focused shop, and we have multiple products and solutions for folks. But ultimately, the payment does go up as rates go up. That will be quieter than expected. Certainly, the pipeline is lower than it was at the end of Q2, and it's not also the best season for mortgages. On the commercial side, I think trending in the high 6s. We've had to reintroduce the number 7 in certain situations.
Dimitar Karaivanov: It is competitive, but we feel like we've got a very nice broad footprint and multiple products to be successful and to originate at a good pace.
Steve Moss: Okay, great. Appreciate all that color there. Then maybe just on the fee-based businesses, Dimitar, you hinted at the potential acquisitions. I was kind of curious, is there any particular line of business you guys are maybe more focused on at the moment for acquisitions? Or any color you could shed there?
Dimitar Karaivanov: Yeah. Our acquisition pipeline is robust as it relates to insurance in particular, and we've talked about this a little bit in the prior calls. This year, while the organic growth has been challenged for multiple reasons, we've all seen some kind of sanity return in terms of pricing on the M&A side. We've made up some ground year-to-date. We were down the Q1 almost 10% year over year. We narrowed it down to 6.5%. Now we're kind of in the low 3% year over year, and we think we've got good opportunities to continue both on the M&A side and the organic side in the Q4 and narrow that gap. So I mentioned last quarter that if everything that we're working on transpires, we're going to be very well positioned for 2027 on the insurance side.
Dimitar Karaivanov: And knock on wood, I think we're still on very good track there for robust growth in 2027.
Steve Moss: Great. Dimitar, I appreciate all that color there, and I'll step back in the queue here. Nice quarter.
Dimitar Karaivanov: Thank you.
Marya Burgio Wlos: Thank you.
Operator: The next question comes from David Konrad with KBW. Please go ahead.
David Konrad: Hi. Good morning. Nice quarter. A lot to talk about the balance sheet and maybe embed it in your NIM guide for Q4. It looks like on an average basis, you brought cash down, which may have helped the funding costs. Now post security sales, cash is pretty elevated versus last quarter. I guess the first question is, what do you think the use of cash will be in Q4? Then maybe also, what do you anticipate the deposit beta being?
Dimitar Karaivanov: Morning, David. I think what you are seeing on the balance sheet as it relates to the cash position is really more driven by the seasonality that we have in terms of predominantly the municipal side of our deposit base. There is some seasonality clearly also in the general deposit base as people spend money for vacations during Q3. Usually in Q3, we see some of those personal deposits flow out, and certainly the municipal deposits flow out in Q3. Then they come back at the end of Q3 and into Q4 as people are making their payments across our footprint. That is really what has driven that cash position. We talked last call that we expected to be in a higher wholesale borrowing position.
Dimitar Karaivanov: That did not transpire during the quarter, to your point, because we sold off some of our securities maturities. We funded that position and growth during the quarter through our securities portfolio. Then in terms of beta, David, really hard to tell.
David Konrad: Yeah.
Dimitar Karaivanov: It is very early. I do not know if we are going to have more rate hikes. Is this going to be one and done? Is it going to be a couple? When they are going to happen? I think just in terms of how we have been approaching it throughout the year, you can see we have driven costs down as we have optimized volume versus rate. On the deposit side, we certainly have a lot of strength in our liquidity position to allow us to do that. We have reengaged a little bit on some of the CDs this quarter, so that might push the numbers up a little bit. We will see. We are by far not the most aggressive person in that market, but it is higher than before. At the same time, on the core accounts, we have not really touched any rates.
Dimitar Karaivanov: Very hard to tell how it is going to shake out during this quarter.
David Konrad: Okay, then second question with going into next year with the $600 million of cash flows off the bond book. Would you more like to optimize that in funding loan growth and maybe further reducing borrowings? I guess remind me where you would prefer securities earning assets be as a target.
Dimitar Karaivanov: Yeah, I think if you just look at what our balance sheet needs are, we would probably target to have securities to assets closer to high teens to 20%, as opposed to where they are today. So as you can do the math, that's a lot of securities currently on the balance sheet that will be used in much more productive ways going forward. As it relates to the maturities in 2027, we have about $150 million of borrowings that are going to mature as well, FHLB borrowings in the middle of the year. So that would be a use for some of those cash flows, certainly loan growth. Just to provide a little bit more color on how we think about what we did this quarter versus opportunities going forward in terms of accelerating some of those maturities.
Dimitar Karaivanov: It has to be a positive present value transaction for us, right? So if you think about what we did in August, we had 5 months left on those US Treasury securities until they mature. So in other words, can we cash flows sooner than the $3 million loss, and the math just worked, and it actually got even better as rates went up. So we think that the equipment period is much tighter than 5 months of maturity. So if we have similar opportunities in 2027, we're certainly going to keep an open eye towards those to fund growth, and maybe not have to be as active on some of the more pricey deposit side.
David Konrad: Perfect. Thank you.
Dimitar Karaivanov: Welcome.
Operator: The next question comes from Manuel Navas with Piper Sandler. Please go ahead.
Manuel Navas: Yeah, good morning. You have deposits coming from ClearPoint, Santander over the year. You had some seasonality this quarter. How are the de novo branches doing? Can we just have an update there on what type of costs are coming in from there?
Operator: Pardon me, ladies and gentlemen. It appears we have lost the connection to our speaker line. Please stand by while we reconnect. Thank you. Pardon me. I have rejoined our speakers. You may begin again.
Dimitar Karaivanov: Good. Thank you, Chloe. Apologies everybody, we got disconnected somehow. Manuel, we were just in the midst of your question, so sorry for that.
Manuel Navas: Oh, sorry. I was asking for an update on the de novo branches. It seemed a lot of the year-over-year deposit growth was Santander and ClearPoint. Just wanted to zero in on how the de novo branches are doing. What is the deposit cost there? Any kind of update there?
Dimitar Karaivanov: Yeah. On the de novo branches, as of basically yesterday, we sit at roughly $175 million in deposits in those. We are very encouraged. We have mentioned previously that our goal for the year was to get to $200 million, and I think we have a pretty good shot of being somewhere around there. The majority of the deposits in those branches have been and continue to be, and likely will be for a little bit, commercially focused. I do not have the exact number, Manuel, on cost, but you can imagine that some of those are higher cost than the traditional retail. The retail is going to build over time. More importantly, as we look at our aggregate deposit costs, you have seen those have continued to come down.
Manuel Navas: That is great. You gave a little bit of color that the insurance business is catching up. You have some M&A possibilities there, and all drive to potentially a better outlook for next year in insurance. Can you just talk through employee benefit services and wealth management into next year as well?
Dimitar Karaivanov: Yeah. I will start with wealth management. We have a couple of things going on there. On the organic side, we have tailwinds from just market values. That has been positive and that continues to help. At the same time, we are very focused on new advisory sales in the business. The past three years, and I am including this year as a projection, we have been running somewhere between $750 million and $1 billion of new advisory sales in the business. That is a strong tailwind purely organically. Then you have ClearPoint, which this year is only going to impact us for basically two quarters and a month, and next year we are going to have the benefit of that for the full year. Certainly they are doing better than we expected them to do as well.
Dimitar Karaivanov: I expect that next year in wealth management, assuming no change in market values, which is a very big assumption and likely incorrect, because they are going to go up or they are going to go down. We are going to have a robust double-digit growth in wealth management in 2027. As it relates to employee benefit services, recalling that business, roughly half of the exposure is to market as well, and half of it is tied to basically a number of participants that we take care of across the country. We are just about at 1 million of those folks that we take care of across the country. And that number for us grows somewhere in the low single digits, somewhere 3% to 4%.
Dimitar Karaivanov: If you add the market performance on the other half of the business, you get to a blended rate that we expect every year to be in the high single digits, somewhere around 7% for planning purposes for 2027.
Manuel Navas: I really appreciate that. Shifting gears for a moment, what is roughly the average price on the share repurchase, and where does that fit in with capital deployment with the fee businesses that you are looking at? Any thoughts on bank M&A, and of course, the pace of the buyback?
Dimitar Karaivanov: Sure. We have been, I think this year, this past quarter as well our average price has been in the low 60s, right around where we are today. We are a very profitable company. We generate a lot of capital. We do not really have a predetermined pace of buybacks. It is opportunistic. It is clearly dependent on the price. It is dependent on what other priorities we have. Our number one priority is always organic growth. We have to fund that. In the bank, that means that we are funding balance sheet growth. There is a, for every dollar you make in the bank, roughly half of it stays on the balance sheet in equity to support the growth. In the other businesses, really, it is through the P&L. You will see certain quarters there is going to be a little bit more movement.
Dimitar Karaivanov: That is our capital deployment on the expense side is really invested through the P&L in the non-banking businesses. So that is always priority number 1. Priority number 2 is in organic growth. We are, I would call, an active acquirer across our businesses. In the past 3 years, we have completed roughly 25 acquisitions. That is a lot. We know how to do these things. They vary from a book of business to an acqui-hire to a slightly larger practice to the ClearPoint and the Centum Direct of the world. So that will always be a tool in our toolkit, and I expect that will remain to be active. We have been able to do all of that, all those things. Organic growth, acquisitions, and buy back shares and continue to grow our capital base along the way. So we can expect more of the same going forward.
Dimitar Karaivanov: As it relates to the latter part of your question on bank M&A, I would say it is a little bit quiet right now. There is not a ton of great opportunities to really spend time on. We have a very targeted box of things that make sense for us, and that really does not include the majority of things that are out there.
Manuel Navas: I appreciate the commentary. I will step back into the queue.
Operator: The next question comes from Matthew Breese with Stephens, Inc. Please go ahead.
Matthew Breese: Hey, good morning.
Dimitar Karaivanov: Morning, Matthew.
Matthew Breese: Maybe just give us an update. Looking for an update on kind of the broader strategic initiatives tied to taking market share in some of the denser upstate New York markets and Pennsylvania. Where are you doing well versus lagging and curious around any, I'll leave it there, yeah. Curious where you're doing well versus lagging.
Dimitar Karaivanov: Yeah. Fortunately, I feel like we're doing really well across the board. If you just step back and think about some of our most recent entries, I would count broader New England as one of those. Southern New Hampshire and kind of northern Massachusetts type market, where I think we mentioned in the past that we've been much more engaged. Certainly, we started de novo in Bedford. We added some folks to the team last year from some of the M&A disruption. That part of the geography for us has done really well this year already. So that's been really encouraging, and the feedback from client visits there just continues to emphasize to me that there is a really good opportunity set for us and our ability to compete in that part of our footprint. Lehigh Valley, we've been in for a while.
Dimitar Karaivanov: Clearly, with the acquisition of the Santander branches, we were able to take it up a notch in terms of our ability to recruit and establish leadership in the area. We just did that in Q3. We found the leader we have been looking for in the Lehigh Valley, and we are off to a pretty good start there and adding to the existing commercial team. Really looking forward to what that is going to bring to us in the next few quarters as well. Really well-received by customers down there, and our reputation is growing by the day. That is really not to take away from what is happening in our more established markets in upstate. We have had a pretty good outcome year to date in Buffalo. We are doing okay in Rochester. We are doing quite well in Syracuse.
Dimitar Karaivanov: We are doing fine in Albany. I am just encouraged. Certainly in Vermont, we have reengaged as well and continue to have a leading market share there. I am just encouraged by the execution across the footprint. I am also encouraged by the ability for us to have a very large funnel of things that we are working on and seeing. What that allows us to do is if we need to allocate capital more actively and say, "Hey, the pricing in this part of our footprint is not as favorable this quarter. We are going to basically deploy more capital in another part of the footprint." That is a really powerful tool for us right now.
Matthew Breese: Great. Marya, just on the security sale, I guess one thing I was a little bit surprised by was just that it looks like investment yields are actually down a little bit quarter to quarter. Maybe help me better understand that. I would have thought given the sale of some of the lower yielding stuff that goes higher and if it is a timing difference, maybe help me out with where you expect things to shake out over the next couple of quarters.
Marya Burgio Wlos: Sure. Yes. I think it probably is a little bit of a timing difference based on the date that the sale was executed. In general, this is, as we have mentioned, has been a very accretive transaction for us. We are really happy that NIM expanded 7 basis points last quarter. 3 of those basis points are attributed to the security sale. Then obviously loan yields and deposit costs. We also just to put a fine point on this, did not receive an FRB or FHLB dividend in Q3, and we will in Q4. As we look forward, we expect that to smooth out. Dimitar already went into some greater detail on what is going to happen in 2027 with the $600 million. That is obviously going to have also a positive benefit on AOCI.
Marya Burgio Wlos: Really for us, I believe to your specific question, it was more of a timing situation as it was 3 August and the way that when we calculate the portfolio and look at things going forward. Given the positive state of the portfolio, the rate environment, and again the two dividends that we will see, we will continue for Q4 to see an expansion of 1 to 3 basis points in NIM. Then as we mentioned in the script for guidance exit 2026, mid to high 3.5% for the company itself.
Matthew Breese: Okay. Then Dimitar, one big picture question for you. Increasingly, we've been fielding questions around risks to deposit bases like yours tied to agentic AI products like Muse that came out and just the ability to move dollars around much more efficiently. I'm just curious how you'd respond to that, if you think a franchise like yours is more or less at risk, and perhaps why. I'll leave it there. Thank you.
Dimitar Karaivanov: Sure. Thanks, Matt. Great question, and it's kind of like the Yogi Berra thing, that predictions are very difficult, especially about the future. But the way I would really think about it, as it relates to our company is ultimately Muse, which is a terrific technology. And it's actually been available for a little bit in different ways. This is just much more consumer-friendly, I would call it that way. What it does is it removes friction in the process, and that's part of the equation. The other part of the equation is why do people bank where they bank? And no matter what survey you kind of look at, convenience is an important piece, which also has to do with friction, but also with having something tangible around you. So branches actually show up quite high on most consumer surveys for a reason where people bank.
Dimitar Karaivanov: Then trust is a very large piece of it as well because our financial well-being is right up there in the top five behind health and family for everybody, right? So trust is extremely important as it relates to finances. And the challenge with just purely agentic solutions is that there is no responsibility attached to that trust. What I mean by that is you may trust Meta, let's say, in an extreme example. However, if Muse does something that you didn't ask it to do, and the power of Muse is really being able to practically do things that you didn't even ask it to do. But if it does something that you didn't ask it to do, or if it makes a mistake, you have no recourse against anything. So in other words, there's no one to complain to. There's no one who can fix anything for you.
Dimitar Karaivanov: You are going to get a beautiful response that says, "You are right to push back. I messed up," and that is about it. There is no accountability, and I think that is going to be a challenge for trust. As it relates to our company in particular, I think the question is going to be how much of the reason that people bank with us or any other institution, how much value are they placing on those attributes of convenience, trust, accountability, and responsibility versus the friction that is embedded in doing business with us versus Muse? I keep telling our folks our business is a friction, right? Nobody wants a mortgage. They want a home. The 40 days it takes us to give them a mortgage is a friction in the way. When we tell a commercial borrower that we are good for X, they are expecting their money tomorrow.
Dimitar Karaivanov: They are not expecting their money in 60 days. We need to continue to work on the equation of providing that value versus the friction and removing as much friction as we can so that we can earn our place. The operating side of the balances is the key to all of this because if you think about where you leave your money, the money that we compete for is the operating accounts. It is not the investment parts. That game has been going on for a long time on the investment side. If you look at the fastest deposit growers in the country in the past year, they were not any banks. They were the Morgan Stanleys of the world. They were the Goldmans of the world. It is those investment dollars. That game has been going on.
Dimitar Karaivanov: I do not know that Muse is going to change that dramatically for us because we do not have a lot of those monies. But the operating accounts is where we deliver the value, the convenience, and the trust. If you look at the size of our average account at $12,000, those are truly operating money. Those are not investment dollars. So how much is it worth to a customer to optimize a couple of hundred bucks of that versus the convenience and the trust that comes with everything else we provide?
Matthew Breese: Excellent. I appreciate that. I will leave it there.
Operator: The next question comes from Eric Bedell with Bloomberg Intelligence. Please go ahead.
Eric Bedell: Hey, good morning. Thanks for taking my questions. I was just wondering if you could
Operator: Good morning.
Eric Bedell: I was just wondering if you could give us an update on how much of the commercial loan pipeline is related to the Micron plants. I also saw there was news this morning about a second chip factory being potentially built in Central New York as well.
Dimitar Karaivanov: Yeah. Morning, Eric. As it relates to directly attributable pipeline to Micron, I would say it is a very small percentage. What we are seeing, however, is the increase in business from the second and third derivative suppliers, or more like the third derivative suppliers or folks that are doing work around the sites as it relates to warehousing, as it relates to even just getting the rolls down. So we have a number of those customers, and they are not necessarily just in the bank. A number of them that are actively engaged are insurance and benefits customers whose business is growing as a result of that. But this is all in preparation. We are starting to see more discussions from tier 2 and tier 1 suppliers looking at operations here locally.
Dimitar Karaivanov: If you are a tier 1 supplier, you probably already have a very well-established relationship with a banking institution, and you are not necessarily likely to bank locally for that. But they need to hire the tier 3s and the tier 4s locally to construction companies. We are seeing some of that. Architectural engineering firms, we are seeing some of that. But in terms of percent, is it driving our business at this point in time? Not yet. With that said, I think there is going to be 4,000 workers here on site pretty soon, and that has its cascading impact, right? They need to go to lunch. They need housing. They need medical care. They need insurance. They need all of it. So that is where we are going to start seeing it is people really come on site.
Eric Bedell: Great. Thank you. I am just kind of curious on expenses from here. Should we expect larger than the mid-single digit range into next year? Or how is the best way to think about your approach on more de novo expansion? Anything just along those lines would be great.
Dimitar Karaivanov: Yeah. Generally, our approach on expenses is lower. Just lower is our goal. If you take out acquisitions, as Marya mentioned, we are right around 5% this year, which was our goal on our scorecard. I think going forward, again, excluding acquisitions, I would like to be even a little bit lower than that in terms of expense growth. A lot of what we are doing is investments in the future. It has been not just branches and real estate, but technology and just infrastructure for us to scale to really operate at a much bigger scale than currently we are. But that 4% to 5% on an excluding acquisitions on an organic basis is a range that is probably going to be on our scorecard for 2027.
Eric Bedell: Great. Thank you very much.
Dimitar Karaivanov: Welcome.
Operator: The next question comes from Daniel Cardenas with Brean Capital. Please go ahead.
Daniel Cardenas: Good morning, everybody. Just a quick follow-up question to Eric's question. It sounds like on the lending side, the semiconductor business really hasn't been providing much loan growth as of yet. Their expectations are that it's going to pick up. How do you think the pickup in that business is going to impact your deposit growth on a go-forward basis?
Dimitar Karaivanov: Yeah. Great question, Daniel, and we expect that it's going to be on both sides. If you look at the Syracuse market, and if you just pull up the results from the 2026 FDIC survey, you're going to see that the market has grown a little bit, but our market share has grown meaningfully. In the past, I think three years, we have gone from a 7% market share to over 9% market share. So I expect that not only the market is going to grow faster than it has been, but that we're going to continue to have opportunities to deepen our market share because of the level of activity that we have and just the way how we do business. So it will be helpful. Again, very hard to speculate. We've looked at the historical precedents in Saratoga County and in other places around the country.
Dimitar Karaivanov: In some places, the impact is hard to see. In Saratoga County, certainly deposits grew meaningfully faster than the rest of upstate for the period between 2010 and 2020, where most of that activity happened. Since then, have been at the same pace as the rest of upstate. So hard to tell. It should be a positive tailwind. I still think we're going to get most of our growth from market share gains that we're going to have versus the overall market.
Daniel Cardenas: Great. Thank you.
Dimitar Karaivanov: Welcome.
Operator: This concludes our question and answer session. I would like to turn the conference back over to Dimitar Karaivanov for any closing remarks.
Dimitar Karaivanov: Thank you, everybody, for joining us, and we look forward to speaking with you again in January.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
