Operator: Good day. And welcome to the Community Financial Systems, Inc. Second Quarter 2020 Earnings Conference Call. All participants will be in a listen only mode. Followed by zero. To ask a question, you may press *1 on your touch-tone phone. To withdraw your question, please press *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 2000 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. Refer to the company's SEC filings including the risk factors section for more details. Discussion may also include reference 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 A. Karaivanov, President and CEO. Please go ahead.
Dimitar A. Karaivanov: Thank you, Betsy. Good morning, everyone. Thank you for joining us today. This was another consecutive record quarter, which I would classify as solid. With continued expansion in net interest income strong fee performance in banking, employee benefits, and wealth management, managed recurring run rate expenses, Both credit and liquidity remain top tier. Insurance revenues were short of expectations. We also had a few expense items, which we do not consider recurrent. I am particularly encouraged by the continued client and talent acquisition momentum across all of our markets in banking, the new product launches and growing capabilities in our employee benefits business, the above market results in our wealth management business, and the addition of ClearPoint. Clearly, insurance will be challenged this year and fall short of our expectations. That is driven by meaningfully lower contingencies, top premium markets, and also some organic challenges. However, you will notice that we had a nice gain of over $3 million on investment during the quarter, that is related to an insurance investment. Great example of the optionality associated with our presence in the broader insurance space. We made more than 5x our money in this particular situation. We are also looking at a very strong pipeline of M&A opportunities in insurance which may put us on a nice track for 2027 revenue expansion. A couple of items of note. First, an update on our de novo efforts. We finished the second quarter right around $140 million in deposits across our de novos. Between the de novos and our acquisition of the Santander branches in the Lehigh Valley, we expect to end the year at approximately $700 million of new additive funding in our growth expansion markets. And are quickly putting that to work in quality loans. That is right in line with our strategic plan. You will notice that even with this sizable aggregate addition of deposits that were priced higher than our legacy ones, our overall cost of deposits continued to come down, hopefully, directly addressing some prior concerns. Second, spent a fair amount of time talking about our commercial banking business and the success there, but here's a data point and terrific things that our mortgage team is doing as well. Right now, our mortgage pipeline is at highest point it has been for past 7 years, And as we know, this is not a booming mortgage market. As of the latest HMDA data, we are the number 2 bank originator in our footprint. 4 years ago, we were number 5. Speaking of housing in our markets, based on the May 2026 data from Miles, Brandon, PA, is the market with the highest increase in housing price in The United States. Rochester, New York is the second. Oakland in New York is the fifth. Syracuse is the sixth. All is the fourteenth. This is driven by inventory being down 50% compared to historical averages. Needless to say, this all bodes well for us. Third, as it relates to activity across our markets, A few data points. 4 years ago, Central New York was delivering less than 400 new units of housing per year. Last year, the permits filed were over 2.4 thousand. By most estimates, we need over 3 thousand to meet the housing demand. On the banking side, I have seen more discussions around multifamily, even hospitality deals in Central New York in the past 6 months than I have seen in the past 5 years cumulative. With that said, it is still early days, and it is not what is driving our growth yet. Our differentiated growth comes from market share gains across all of our footprint. There is not much of a difference in the growth rates of our regions. This past quarter was particularly strong in New England and Pennsylvania, Looking at the pipeline, I expect virtually all regions to have second strong second half of the year. We also have insurance and benefits customers seeing nice lift in their operations from activity across all of our footprint. Lastly, our banking asset now sit at $17.4 billion, Our wealth assets under management and administration stood at $17.1 billion Now retirement assets under administration are $16.5 billion. In other words, both our employee benefits and wealth management businesses now have a similar amount of assets and care as our banking business. Which further underscores the diversification strategy of our company. You can expect continued focus and investments across all of our businesses and driving the growth of all of them in line with our previously communicated strategies. With all that said, this was a record quarter for our company with overall pretax operating pretax pre provision earnings of 14.9% year over year. Banking pre tax earnings were up 13.2%. Employed benefits pretax earnings were up 16.2%. Wealth management pretax earnings were up 46.5%. And insurance was down 10.8% year over year. More importantly, our trajectory remains very attractive and we expect acceleration in results across all of our businesses in the second half of the year. As a reminder, in the fourth quarter, we begin unshackling ourselves from the weight of our securities portfolio as we start getting back meaningful cash flows. Which should provide a nice tailwind into future quarters. I will now pass it to Marya for more color on the numbers and our updated guidance. Marya?
Marya Burgio Wlos: Thank you, Dimitar. Good morning, all. As Dimitar noted, the company's second quarter performance was solid. GAAP earnings per share of $1.16 increased $0.19 or 19.6% from the second quarter of the prior year and increased $0.08 or 7.4% from linked first quarter results. Operating earnings per share and operating pretax pre provision net revenue per share for record quarterly results for the company. Operating earnings per share were $1.16 the second quarter as compared to $1.04 1 year prior and $1.15 in the linked first quarter. Second quarter operating PPNR per share of $1.62 increased $0.21 from 1 year prior and increased $0.01 on a linked quarter basis. These record operating results were driven by a new quarterly high net interest income, The company's net interest income was $139.1 million in the second quarter, This represents a $4.4 million or 3.3% increase over the linked first quarter and a $14.4 million or 11.5% improvement over the second quarter of 2025 and marks the ninth consecutive quarter of net interest income expansion. The company's fully tax equivalent net interest margin increased 4 basis points from 3.45% in the linked first quarter to 3.49% in the second quarter, reflective of lower funding costs. During the quarter, the company's cost of funds was 1.18%, a decrease of 2 basis points from the prior quarter primarily driven by lower deposit costs. Operating noninterest revenues increased $4.8 million or 6.4% compared to the prior year's second quarter and increased $300 thousand or 0.4% from the linked first quarter. The increase in operating noninterest revenues compared to the second quarter of 2025 was reflective of increases in employee benefit services wealth management services, and banking noninterest revenues partially offset by a decrease in insurance services noninterest revenues due to a softer insurance market and lower organic growth. Operating noninterest revenues represented 36% of total operating revenues during the second quarter a metric that continuously emphasizes the diversification of our businesses. The company reported $4.6 million provision for credit losses during the second quarter, This compares to $4.1 million in the prior year second quarter and $5.6 million in the linked first quarter. During the second quarter, the company recorded $137.7 million in total non interest expenses. An increase of $4.7 million or 3.5% from the linked first quarter and an increase of $8.6 million or 6.7% from the prior year's second quarter. The increase from the linked first quarter was due in part to a $2.1 million increase in salaries and employee benefits reflective of 1 additional payroll day and true up of performance based annual management incentive plan expense. $700 thousand of expenses associated with ClearPoint, as well as a 1-time $600 thousand early termination charge related to a debit card processing platform conversion. $3.4 million of the increase in total non interest expenses from the second quarter of 2025 was attributed to salaries and employee benefits. Primarily due to incremental costs associated with acquisitions and de novo bank branches open between the periods along with the impact of annual merit based increases. Occupancy and equipment expenses increased $2.4 million from the prior year's second quarter driven by incremental costs associated with the opening of 16 de novo branches and 3 regional headquarters along with the 7 branches acquired from Santander in the prior years fourth quarter. Year to date, operating noninterest expenses were $261.2 million an increase of $15.2 million or 6.2% from the first 6 months of 2025. Excluding operating expenses related to acquisitions completed in the last 12 months, operating non interest expenses increased $10.4 million or 4.2% from the same prior year period. Pending loans increased $151.6 million or 1.4% during the second quarter and increased $763.7 million or 7.3% from 1 year prior. The increase from 1 year prior reflected organic growth in the overall business and consumer lending portfolios while the increase during the second quarter primarily reflected organic growth in the business lending portfolio. The company's ending total deposits increased $1.01 billion or 7.4% from 1 year prior and decreased $159.7 million or 1.1% from 03/31/2026. The decrease in total deposits during the second quarter was primarily due to seasonal outflows of municipal deposits. The increase in total deposits over the last 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 nonperforming loans ratio increased 2 basis points, and the net charge off ratio increased 1 basis point from the linked first quarter while the loan's 30 to 89 days delinquent ratio decreased 9 basis points from last quarter aligned with typical seasonal trends. The company's allowance for credit losses was $91.7 million, or 81 basis points of total loans outstanding at the end of the second quarter an increase of $1.5 million during the quarter. The increase was primarily attributed to reserve building in the business funding portfolio. The allowance for credit losses at the end of the second quarter represented 8x the company's trailing 12 month net charge off. We are pleased with the second quarter results which reinforces our commitment to expand operating leverage and scale as a diversified financial services company. 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 a more detailed update to our expectations for full-year 2026 as we enter into the second half of the year inclusive of the estimated impact of the completed ClearPoint acquisition. We are currently expecting 5% to 6% growth in loan balances. 3% to 4% growth in deposit balances, 10% to 11% growth in net interest income, 6% to 7% growth in non interest revenue, and a provision for credit losses in the range of $20 million to $25 million In addition, our expectation is for continued net interest margin expansion over the next 6 months. Exiting 2026 in the low to mid-3.5% range. We expect modest temporary pressure in the third quarter within a range of up 1 basis point to down 2 basis points due in part to seasonally higher overnight borrowing levels. Core noninterest expenses are expected to be in a range of $550 million to $555 million or an increase of 7% to 8% from 2025. This includes approximately $8 million to $9 million of incremental expenses associated with the branches, acquired from Santander and approximately $4 million to $5 million of incremental expenses associated with ClearPoint including nonoperating intangible asset amortization, These estimates do not include the impact of pending or future acquisitions. Additionally, we continue to anticipate an effective tax rate between 23% and 24%. That concludes my prepared earnings comments, and Dimitar and I will now take questions. Betsy, I will turn it back to you to open the line.
Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press *1 on your touch tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. If you would like to withdraw your question, please press *2. 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.
Dimitar A. Karaivanov: Good morning, Steve.
Marya Burgio Wlos: Good morning.
Steve Moss: Morning, Dimitar. Morning, Marya. Maybe just starting off on the competitive environment in New York. Good to-- kind of it sounds like there is going to be a bit of an acceleration here in overall businesses, including loan growth. Just kind of curious what you guys are seeing these days Maybe where is competition more intense and where there is opportunity?
Dimitar A. Karaivanov: Yeah. Thank you, Steve. As I mentioned, it is really across the footprint. I could not tell you that Upstate is any better or different than, frankly, New England or Pennsylvania. It is competitive. I think our expectations are, as Marya said, 5% to 6% on the loan growth side for the year. I think we are tracking just about in that range right now. Towards the higher end, but we also have some second half of last year was stronger than the first half. So we have different comps. It is active across the board. I would say that we have seen a little bit more competition as it relates to pricing including some structures as well. People are you know, kind of really focused on putting assets on the books and certainly, our growth could have been even higher this quarter if we had taken a similar approach. To me, it was a little bit interesting because rates went up during the quarter while actual, you know, rates offered to customers went down. In our markets, just compressing spread pretty meaningfully. We do not partake in a lot of those. But we still feel that our pipeline is pretty solid, and we will be able to hit those growth rates.
Steve Moss: And do you think I mean, going forward for the second half of the year, is it just going to be more commercially driven? And are you just going to be trying to hold indirect auto flat? You I realize there is some competition in that. That market this quarter here.
Dimitar A. Karaivanov: Yeah. I think 1 in the third and the fourth quarter, we kind of really bear the benefits of our activities on the mortgage side. So I expect that the, mortgage portfolio is going to move as I mentioned, our pipeline today in that book. Is the highest it is been in 7 years. And adults have a pretty good timeline to closing, you know, so as you can estimate if we see the pipeline today, most of it will clear out the quarter, and then we will be rebuilding again. So I think the third and the fourth quarter will be good in mortgage. On the auto side, I think that the pricing has improved a little bit. So we are more active on that side as well. So I think we will see kind of where it takes us. So I do think that consumer is going to be stronger in the second half of the year than certainly it was in the first half of the year. Commercial, I think, remains in a very good spot. We have very good pipelines. I think we may even have opportunities to do a little bit better on pricing if our competitors feel similarly that rates should be moving upward than down.
Steve Moss: Okay. Got it. And then in terms of you know, on the fee income side, insurance here, kind of curious, like, how to think about, you know, contingencies going forward as a--you know, I hear you softer and exactly sure how much you had to consider the fees this quarter. I am just curious, you know, as we go into 2027, it is probably going to be a bit more muted on the contingent fee side. Obviously, probably on growth too.
Dimitar A. Karaivanov: Yeah. I think that is that is right. I mean, I will put the shortfall in insurance kind of year to date compared to where we thought we were going to be about $1 million is just dealt in contingencies. The team has done a very nice job in terms of controlling costs but it is hard to overcome that. And then the rest of it has been kind of organic softness, premiums, So it is a little bit hard to tell where it is going to settle. We think the second half of the year will be better. We expect some acceleration. We expect to make up some ground that is not going to take us to our normal growth rate. You know? So we are down 6.5% year to date. We hope to make that up. Not finish necessarily the year down, but we will see how it shakes out. It could go either way. I will say that kind of this environment, it is made things a little bit more active on the M&A side, as I mentioned. And you know, we have multiple ways to grow revenues there, and the pipeline right now on the M&A side is the best it is been. Including some things that could be much more kind of needle movers than historically for us. So I think if we are able to execute well on that side, kind of, again, looking forward to 2027, we will be in much better shape. Awesome. Awesome. Appreciate all that color there, Dimitar. I will step back in the queue here.
Operator: The next question comes from Manuel Navas with Piper Sandler. Please go ahead.
Grant Zirlin: Hey. Good morning. This is Grant Zirlin on for Manuel. I had a question on how do deposit pipelines look going forward, noting the muni seasonality this quarter, And then how are de novo branches doing gathering deposits?
Dimitar A. Karaivanov: Sure. So as you pointed out correctly, the second quarter, we have a meaningful amount of seasonality as, you know, the teachers and other employees basically take the summer, and there is payments made at the end of June to all of those employees. So you can see an outflow as property taxes start coming in here at the end of the third quarter and the fourth quarter, that will rebuild back into liquidity. So these are just kind of normal temporary fluctuations across our footprint As it relates to de novos, as I mentioned, we ended the quarter at $140 million in deposits. Right on track of in terms of what we were planning and hoping for the year. Activity levels are pretty good. So we are very pleased with the outcomes there. Overall deposits are not easy to come by. that is not just for us. I think it is the same for everybody in the industry. Deposits are always the hard part of the equation. That is the lifeblood of the bank. So we continue to remain very focused on that. Pricing has become a little bit less constructive on that side. And we have decided not to participate in some of those opportunities We are certainly seeing things that are going off at rates above wholesale funding rates, which does not make a lot of sense to me. So we are not gonna participate in that. We have a much stronger balance sheet than most and a lot more flexibility than most. Our loan to deposit ratio is 76%. We have a lot of runway there as opposed to other folks. And then the other thing I would notice note is again, we have a tremendous amount of cash flows coming from our portfolio starting here in the fourth quarter and into next year. You know, the next 18 months, we are looking at over $1 billion of cash flows coming our way. So that is a great way for us to also optimize how we fund the growth on the loan side.
Grant Zirlin: Thank you. And then just switching over to repurchases, I noticed a decrease this quarter. Is there a right pace for repurchases going forward?
Dimitar A. Karaivanov: We do not have a pre established pace. I think we remain on that front, and, if there is moments of softness in the market, you know, we make sure that we have a lot of strength in the company. So that we really become active when things are self directed. there is no predetermined amount that we would like to purchase. We have as I mentioned, there is a decent amount of opportunities on the M&A side as well. Especially on the insurance side. So we are kind of cognizant of how we deploy cash in the best way for our shareholders.
Grant Zirlin: Thank you. that is it for me.
Operator: As a reminder, if you would like to ask a question, please press *1. The next question comes from Matthew Breese with Stephens. Please go ahead.
Matthew Breese: Good morning. Marya, I heard you loud and clear on the near-term kind of NIM guide. I am curious as you think about the NIM longer term competitive factors, would really be the repricing of fixed rate loans when did those repricing benefits start to kind of peter out? Is that 2027 or 2028-type factor for you, or is it longer considering the same component to your book?
Marya Burgio Wlos: I would say it is longer. All the components. So you just heard Dimitar you know, talk through some of the different things we are seeing in the markets when you know, historically, with NIM and Based on the past year. So we expanded 4 basis points in Q2. 20 basis points year over year. Obviously, that is our ongoing efforts that we are seeing come to fruition and also outstanding cost of funds, which we noted couple times during the call already, which came in at Q2 at 1.18%. So as we see and look at NIM, Q3, as you mentioned, a little bit of pressure there. that is just seasonal for us. We expect it to, again, go back to expansionary in Q4. And we look at the variables price book for 2027. It really is playing out over the next 12 months. Again, the securities cash flows that are coming through, those we expect to have impact beginning in Q1. We are taking the position that looking at our portfolios, we are very cognizant of how the next, sort of, 8 quarters are playing out because of all the moving parts. So I would say that just in general, for we want to stress that we are exiting again full year low to mid-3.5% range in terms of NIM. And that we have all this room coming up between the variable loans repricing and the best securities to re you know, redeploying the loans So that is a really positive benefit for us.
Dimitar A. Karaivanov: I think, Matthew, I would just add if you as we look at our ALCO modeling, the margin trend continues and continues to the point where I do not believe it, to be honest with you. Right. Because of just banks being very good at competing their margins away. But if the curve stays where it is, and spreads remain roughly in line certainly, the new originations are coming in at a higher rate than the than the back book in aggregate. It varies by portfolio, but in aggregate, they are coming in higher So we have a long tail here of repricing and especially as some of the cash flows are moving from securities from 2% into loans at 6%. That provides a very nice tail. To repricing for future years.
Matthew Breese: Very helpful. And have you started I mean, deposit costs were obviously you know, very low this quarter, but have you started to feel some pressure there? And might we see higher deposit costs even for you in the in the coming quarters here as competition builds?
Dimitar A. Karaivanov: I do not know that it will be that much higher for us, to be honest with you. I think we just have a lot more levers in our balance sheet. Like I said, we have got you know, billions of dollars in securities that will churn. And that means that we do not have to in some of the things that are happening at the market. So when you see a lot of things starting with a 4-handle, when you see municipal money, short term being a bit higher than wholesale funding that is even unsecured We do not have to participate in that because we have flexibility. So I do not think that the overall cost of deposits in a meaningful way for us. There will be some quarters, Marya said. So I think in the third quarter, could you see our cost of funds creep up because of the overnight borrowings, that is probably likely. that is what is gonna put some pressure on the margin in third quarter. But cost of deposits themselves, I do not really expect to move much.
Matthew Breese: Okay. Dimitar, I felt like your comments around infrastructure build, multifamily in your core markets, but a lot of them kind of in the chip impacted markets were really encouraging. And I know to date, you have been a little bit hesitant to put any chips on it just because these things can change. They can get extended. Etcetera. Could you just reframe for us where kind of the ball lies today? Potential impacts to the balance sheet, when that might occur, if it is already occurred, and maybe just give us your updated thoughts there.
Dimitar A. Karaivanov: Yeah. I will frame it, Matthew, as we have moved from the kind of speculation stage which lasted for basically 4 years almost. If you recall, this was announced at the end of 22. So this has been kind of in the discussions for a while. And we have kind of moved past that stage into the stage of people actually putting in for permits, trying to find financing, and putting some real money on the table. that is kind of where we are today. Are we at the stage where we are actively lending into those opportunities or our customers are growing to the point where it is meaningfully impacting their insurance premiums or their employee benefits services. We are not there yet. I think that is probably going to start seeing a little bit more of that over the next 12 months. Is it going to be noticeable on our balance sheet. I doubt it. To be honest with you. Simply because of the scale of our balance sheet today versus you know, having another $50 or $75 million of incremental opportunities, and that is just kind of a speculation. I think it is gonna be much more than that. it is not going to move the needle yet in the next 12 months. So like I said, all of our regions are performing really, really well. If I gave you their growth rates and I asked you to guess which 1 was Central New York, I do not think you would be able to tell in a couple of years. I hope that number will be kind of sticking out a little bit more on the page. But we are just not there yet.
Matthew Breese: Great. Okay. Last 1 for me. It just you mentioned in the release some investments towards AI. And I am curious, 1, you know, what kind of staff do you have dedicated to AI presently? 2, if there is been any sort of tangible benefits yet. and 3, if you think we will see any, you know, real, kind of, pronounced expense or revenue related benefits over the near to medium term? And that is all I had. Thank you.
Dimitar A. Karaivanov: Thank you, Matthew. Yeah. So it is something that we are very focused on, as I mentioned in our last call, we have been on that journey for 2+ years now. We have both added and also redeployed resources from other areas into, I would call, efficiency opportunities predominantly. At this point in this stage in time. As it relates to purely staffing, you know, I can think of it as more than a dozen people. With a handful of them being kind of fully dedicated to just purely AI, essentially. The rest of them being augmented in multiple ways, their production levels. Through AI, I think so far, the transformational areas that we have seen are really more on the app development side, which is very similar for pretty much everybody else out there. And certainly, our ability to develop launch, and integrate products at a much faster pace of innovation than before. We have some very, very interesting things that we are working on that I would call transformational in some of our businesses. The benefit of being a well diversified company with different levels of regulation across different businesses is that it allows us to be much more experimental, I would put it that way, in areas outside of the bank. And take some learnings out of that and then push it back into the larger enterprise So we are focused on that. We are we are not I do not think we are at the point where we are gonna tell you what the impact is. I am gonna know much better in about 6 months if some of these transformational things are truly happening. Then I think in another 6 months, you might start seeing their impact on the margin in some of our businesses but we are not there yet. We are very well down the path but we really need to see these things happen. At a high level, what it is allowing us to do today is to have a much more efficient allocation of labor in our franchise. If you step back and look at our cost base today, you have actually taken out the acquisitions, you will see that our employee cost has actually not gone up that much over the past 12 months. And today, we have the same number of employees we did at the beginning of the year before the acquisition of ClearPoint and some other add ons across some of the other businesses. Some of these small add ons that we have done, we have been able to basically offset the headcount add with our efficiencies in those businesses have the same number of employees today as they did in the beginning of the year. While adding to the revenues. So that is kind of what we are focused on. You will kind of see some of that start to really kind of on the employee side first kind of moderate. And then we will start seeing it a little bit more on the margin as the investments mature. Appreciate all the detail. I will leave it there.
Matthew Breese: Thank you.
Operator: This concludes the question and answer session. I would like to turn the call back over for any closing remarks.
Dimitar A. Karaivanov: Thank you, Betsy, and thank you, everyone, for joining us and for the questions. As always, we remain excited about the future ahead of us and look forward to speaking with you in a couple of months.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.