Community Financial System, Inc.

Good day and welcome to the Community Bank System Third Quarter 2021 Earnings Conference Call. Please note that this presentation contains forward-looking statements within the provisions of the Private Security Litigation Reform Act of 1995 that are based on current expectations, estimates, and projections about the industry, markets, and economic environment in which the company operates. Such statements involve risks and uncertainties that could cause actual results to differ materially from the results discussed in these statements. These risks are detailed in the company's annual report in Form 10-K filed with the Securities and Exchange Commission. Today's call presenters are Mark Chernitsky, President and Chief Executive Officer, and Joseph Sotiris, Executive Vice President and Chief Financial Officer. They will be joined by Joseph Serban, Executive Vice President and Chief Banking Officer for the question and answer session. Gentlemen, you may begin.

Thank you, Chad. Good morning, everyone, and thank you for joining our third quarter conference call. We hope everyone is well. I think earnings for the quarter were right in line with our expectations and impacted by the same influences that passed several quarters. Margin continues to be a headwind, like deposit fees, the strength of our financial services, businesses, and credit are tailwinds, and we saw that this quarter. The bigger story for us in the quarter was loan growth. We had growth in every one of our portfolios this quarter, ex-PPP, and our pipelines and market activity continue to be very strong. We're encouraged by these trends and have really good momentum right now across all of our credit businesses. We also increased our securities book in the quarter, given the market opportunity, and that will be additive to future earnings as well. I think Joe will provide more detail on that. The recent strength of our financial services businesses continued in the quarter, with revenues up 17% and pre-tax earnings up 22% over 2020. We also closed on the acquisition of Fringe Benefits Design of Minnesota, a provider of retirement plan administration and consulting services with offices in Minneapolis and South Dakota. Their performance out of the gate has been exceptional, so we expect that will be a productive addition to our benefits business. Our benefits, wealth, and insurance businesses are all performing extremely well right now in what is a very productive growth, pricing, and M&A environment for those businesses. On the human capital front, as we previously announced, I'm delighted that Maureen Gillian-Meyer has joined us as Executive Vice President and Chief Human Resources Officer. She previously held the same role for HSBC USA and will bring tremendous experience, expertise, and business judgment Community Bank System, and we look forward to her contributions to our continuing human capital efforts. Lastly, earlier this month, we announced an agreement to acquire Elmira Savings Bank, a $650 million asset bank with 12 offices across the Southern Tier and Finger Lakes regions of New York State. It's a very nice franchise with a very good mortgage business that we expect will be 15 cents per share accretive on a full year basis, excluding acquisition expenses So a very productive, low-risk transaction. We have targeted a closing date in Q1 of next year. Looking ahead, we like our current momentum across the company and all of our businesses.

Joe? Thank you, Mark, and good morning, everyone. As Mark noted, the third quarter earnings results were solid, with fully diluted gap in operating earnings per share of 83 cents. The GAAP earnings results were $0.04 per share or 5.1% higher than the third quarter 2020 GAAP earnings results, but $0.02 per share or 2.4% below the prior year's third quarter on an operating basis. The decrease in operating earnings per share is driven by a decrease in net interest income and higher operating expenses, as well as increases in income taxes and fully diluted shares outstanding, offset in part by lower credit-related costs and an increase in non-interest revenues, particularly in the company's non-banking financial services businesses. Comparatively, the company recorded fully diluted gap in operating earnings per share of 88 cents in the linked second quarter of 2021. The company recorded total revenues of $156.9 million in the third quarter of 2021, an increase of $4.3 million or 2.8% over the prior year's third quarter. The increase in total revenues between the periods was driven by a $6.9 million or 16.9% increase in financial services revenues offset in part by a $2.2 million decrease in banking-related non-interest revenues and a $0.4 million or 0.4% decrease in net interest income. Total revenues were up $5.4 million or 3.5% from the second quarter 2021 results, driven by a $0.5 million or 0.5% increase in net interest income, a $1.4 million increase in banking-related non-interest revenues, and a $3.5 million or 8% increase in financial services revenues. Total non-interest revenues accounted for 41% of the company's total revenues in the third quarter. Although net interest income was down only slightly from the same quarter last year, the results were achieved in a significantly lower net interest margin outcome. The company's tax equivalent net interest margin for the third quarter of 2021 was 2.74% as compared to 3.12% one year prior, a 38 basis point decrease between the periods. Compared to the company's tax equivalent net interest margin for the second quarter of 2021 was 2.79% or five basis points higher than the third quarter. Net interest margin results continue to be negatively impacted by the low interest rate environment and the abundance of low yield cash equivalents being maintained on the company's balance sheet. The tax equivalent yield on earning assets was 2.83% in the third quarter of 2021 as compared to 2.89% in the linked second quarter and 3.28% one year prior. During the third quarter, the company recognized $4.3 million of PPP-related interest income, including $3.7 million of net deferred loan fees. This compares to $3 million of PPP-related interest income recognized in the same quarter last year and $3.9 million in the linked second quarter of 2021. On a year-to-date basis, the company has recognized $15.1 million of PPP-related net interest income. The company's total cost of deposits remain low, however, averaging nine basis points nine basis points during the third quarter of 2021. Employee benefit services revenues for the third quarter of 2021 were $29.9 million, $4.8 million, or 18.9% higher than the third quarter of 2020. The improvement in revenues was driven by increases in employee benefit trust and custodial fees, as well as incremental revenues from the acquisition of fringe benefits designed in Minnesota during the quarter. Wealth management revenues for the third quarter of 2021 were $8.3 million, up from $6.9 million in the third quarter of 2020. The $1.4 million, or 20.8% increase in wealth management revenues, was primarily driven by increases in investment management and trust services revenues. Insurance services revenues of $9.2 million were up $0.6 million, or 7.6% over the prior year's third quarter, driven by organic growth factors and the third quarter acquisition of a Boston-based specialty lines insurance practice. Banking non-insurgency revenues decreased $2.2 million, or 11.5%, from $19.1 million in the third quarter of 2020 to $16.9 million in the third quarter of 2021. This was driven by a $3.5 million decrease in mortgage banking income offset in part by a $1.3 million, or 8.3% increase in deposit, service, and other banking fees. On a linked quarter basis, financial services revenues were up $3.5 million, or 8%. reflective of the organic and acquisition-related momentum in these businesses, and banking non-interest revenues were up $1.4 million, or 8.7%. During the third quarter of 2021, the company recorded a net benefit in the provision for credit losses of $0.9 million. This compares to a $1.9 million provision for credit losses recorded in the prior year third quarter. The company's net loan charge-offs were only seven basis points annualized in both periods. During the third quarter of 2021, economic forecasts were more favorable than the third quarter of 2020 economic forecasts driven by the post-vaccine economic recovery, which in combination with elevated real estate and vehicle loan collateral values drove down the expected life of loan losses. On a September 2021 year-to-date basis, the company recorded net charge-offs of $1.1 million, or two basis points annualized. The company recorded $100.4 million in total operating expenses in the third quarter of 2021 as compared to $97 million in total operating expenses in the third quarter of 2020, an increase of $3.4 million or 3.6% between the periods. Operating expenses exclusive of litigation and acquisition related expenses increased $7.2 million to 7.7% between the comparable quarters, $5.6 million of which was driven by an increase in salaries and employee benefits due to acquisition related staffing increases. Merit and incentive-related employee wage increases, higher payroll taxes, and higher employee benefit-related expenses. Other expenses were up $0.9 million, or 8.7%, due to the general increase in the level of business activities. Data processing and communication expenses were also up $0.9 million, or 7.2%, due to the company's implementation of new customer-facing digital technologies and back-office systems between the comparable periods. Occupancy and equipment expense decreased slightly due primarily to branch consolidation activities between the periods. In comparison, the company recorded $93.5 million of total operating expenses in the second quarter of 2021. The effective tax rate for the third quarter of 2021 was 21.1%, up from 20.3% in the third quarter of 2020. The increase in the effective tax rate was primarily attributable to an increase in certain state income taxes that were enacted in the second quarter of 2021. The balance sheet crested $15 billion the $15 billion total asset threshold during the third quarter due to the continued inflows of deposits, which increased $384.8 million, or 3.1%, from the end of the second quarter. The company's low yielding cash and cash equivalents remained elevated, totaling $2.32 billion at the end of the quarter, despite the company purchasing $536.9 million in investment securities during the quarter. Ending loans in September 30, 2021 were $7.28 billion, 38.4 million or 0.5% higher than the second quarter. 2021 ending loans of $7.24 billion and $176.1 million or 2.4% lower than one year prior. Excluding PPP activity, ending loans increased $154.1 million or 2.2% in the third quarter. This increase was driven by growth in all five loan portfolio segments, consumer mortgages, consumer indirect loans, consumer direct loans, home equity, and business lending, excluding PPP. As of September 30, 2021, the company's business lending portfolio included 1,386 PPP loans with a total balance of $165.4 million. This compares to 2,571 PPP loans with a total balance of of $284.8 million at June 30, 2021. The company expects to recognize its remaining net deferred PPP fees, totaling $6.3 million over the next few quarters. The company's capital ratios remain strong in the second quarter. The company's net tangible assets ratio was 8.59% in September 30, 2021. This was down from 9.92% a year earlier and 9.02%. at the end of the second quarter. The company's Tier 1 leverage ratio was 9.22% at September 30, 2021, which is nearly two times the well-capitalized regulatory standard of 5%. The company has an abundance of liquidity, the combination of the company's cash and cash equivalents, borrowing availability at the Federal Reserve Bank, borrowing capacity at the Federal Home Loan Bank, and unpledged available-for-sale investment securities portfolio, provided the company with over $6.18 billion of immediately available sources of liquidity at the end of the third quarter. At September 30, 2021, the company's allowance for credit losses totaled $49.5 million, or 0.68% of total loans outstanding. This compares to $51.8 million, or 0.71% of total loans outstanding at the end of the second quarter of 2021, and $65 million, or 0.87% of total loans outstanding September 30, 2020. The decrease in the allowance for credit losses is reflective of an improving economic outlook, very low levels of net charges, and a decrease in specific reserves on impaired loans. Non-performing loans decreased in the third quarter to $67.8 million, or 0.93% of loans outstanding, down from $70.2 million to 0.97% of loans outstanding at the length At the end of the linked second quarter of 2021, but up from $32.2 million to 0.43% of loans at the end of the third quarter of 2020, due primarily to the reclassification of certain hotel loans under extended forbearance from approval to non-accruing status between the periods. Loans 30 to 89 days delinquent totaled 0.35% of loans outstanding. At September 30, 2021, this compares to 0.36% one year prior and 0.25% at the end of the linked second quarter of Management believes the low levels of delinquent loans and charge-offs have been supported by extraordinary federal and state government financial assistance provided to consumers throughout the pandemic. During the third quarter of 2021, the company increased its quarterly cash dividend a penny, or 2.4%, to 43 cents per share on its common stock. This increase marked the company's 29th consecutive year of dividend increases. Looking forward, we remain focused on new loan generation and will continue to monitor market conditions to seek the right opportunities to deploy our excess liquidity. Our loan pipelines are robust and asset quality remains very strong. We also expect net interest margin pressures to persist and remain well below our pre-pandemic levels, but also believe our abundance of cash equivalents represents a significant future earnings opportunity. We're also fortunate and pleased to have strong non-banking businesses that have supported and diversified our streams of non-interest revenue. And lastly, to echo Mark's comments, we're pleased and excited to be partnering with Elmira Savings Bank. Elmira has been serving its communities for 150 years and will enhance our presence in five counties in New York's southern pier and Finger Lakes regions. At June 30, 2021, Elmira had total assets of $648.7 million, total deposits of $551.2 million, and loans of $465.3 million. We expect to complete the acquisition in the first quarter of 2022, subject to customary closing conditions, including approval by the shareholders of Elmira Savings Bank and required regulatory approvals. Thank you all, and I'll turn it back to Chad to open the line for questions.

Thank you, sir. 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 keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. And the first question today will be from Alex Twardall with Piper Sandler. Please go ahead.

Hey, good morning, guys. Good morning, Alex. Good morning, Alex. Yeah, first off, just wanted to talk about loan growth for a little bit. I think historically you guys have been kind of on an organic basis, a low single-digit loan grower on an annual basis. You know, based on what you did this quarter and some of the commentary on the pipelines and sort of your outlook, do you think that maybe something has shifted in that, you know, loan growth on an organic basis can be, you know, higher than the sort of low single-digit rate that has been the historical trend?

Yeah, Alex, good question. I'll make a couple comments, and then as Joe is serving to comment a little bit further. But I think you're right. Historically, low single digits. I don't know if we consistently achieve that, to be fair. I think also our markets, you know, they're low-growth markets. I think we've executed reasonably well in those markets, given the growth rate. you know, opportunities, but I think we've also, we have an opportunity to execute better organically in terms of our, you know, our loan businesses, and so we're starting to focus on that a little bit. You know, we've always, we've done a lot of M&A, and, you know, I think that's been additive. I think without having done the, you know, the M&A as kind of an opportunity for us to create shareholder value. we would have difficulty in our markets. I think that's been a tremendous strategy, but I think we've executed well on it. I think on the organic side, we can do a bit better. It's pretty meaningful. If we can move the needle even a little bit organically, that will make a fairly significant difference in terms of earnings potential. We've put a little bit more effort into that in terms of structure, resources, quality of resources, support process systems, and just, I think, a greater focus on doing a bit better and optimizing our organic opportunities in our markets. And I think we're starting to see that. So I guess with that as a backdrop, Joe, you can comment a little bit further maybe on the different workflows and what we're doing there. Sure.

Alex, good morning. So, a couple of comments. First, you know, if you look at our marketplaces, over the last couple of years, we've expanded into some bigger geographies, which provides us greater opportunities. And I think that by having the right folks in leadership positions in those markets has made a significant difference for us. So, we've been able to grow in some of the larger markets organically, which is good. On the smaller end, we're looking to take advantage of some technology to allow us to spend more time outsourcing the next opportunities and grow the business. On the small end of the spectrum, we'll utilize technology to expedite processing and approvals and, again, hope to grow organically on the small business side. As Joe mentioned, it's almost tripled from the beginning of the year. And that's just an increased focus, increased calling efforts that the marketplace has given us. So it's nothing new. It's dedicated. It's concentrated. It's regimented. We've got the right folks in the right management positions for us to execute and for us to continue to or to exceed some of the lighter loan growth that we've experienced organically over the past couple of years.

The only thing I would add to that, Alex, is this is not about credit risk or credit quality. That is not going to change, and we've made that very clear up front that we just want to execute better in terms of our sales cycle, let's call it, in our markets across our different portfolios. We are not... Anything that, you know, any improvement that we achieve will not be at the expense of credit quality.

Alex, do more of the same. That's the theme. Do more of the same.

Great. That's helpful commentary. Just the comment on the pipelines having tripled since the beginning of the year, is that overall pipelines or just the commercial pipelines?

So that's the commercial pipeline. The The mortgage pipeline is hung in there, residential mortgage pipeline is hung in there nicely for us too, and it continues to be strong. I will tell you that our application volume on the resi mortgage side through September surpasses all of the application volume we did for the full year last year. So that bodes well for us as we're heading into the fourth quarter. So it's a strong pipeline, and it should carry us, as I said, it should carry us through the end of the year.

Great. And the plan is to continue to put residential on balance sheet versus selling it into the secondary market. Great. And then, um, the other thing that jumped out to me this quarter is the, um, is the salary and benefits line, which came in. I think you alluded to it, uh, in the prepared remarks, Joe, about the, uh, about where it came in versus last quarter. Can you just talk about how much of that might be related to the acquisitions you did during the quarter? how much of it might be non-run rate, I guess, would be the best way to put it, and so what the expectation should be for the fourth quarter prior to layering on Elmira next year.

Yeah, that's a very good question, Alex. So just to provide some backdrop and some color, prior to the pandemic, we were kind of calling a run rate that was somewhere around $95 to $96 million on a quarterly basis. You know, that's just an average rate. And then the pandemic hit and we had some decreases in expenses for various reasons, less travel, just a lot of business activities were down across the board, across all of our businesses. So our operating expenses came in very low last year during the pandemic. They were down in the $93 to $94 million range. So sort of level setting back to, I'll call it the post or the pre-pandemic levels, run rate was about 96, 95, somewhere in that general range. We had two acquisitions during the quarter that added a couple million dollars of total OpEx, including the amortization components of those transactions. but all in added about $2 million to the total, a couple of million dollars to the OPEX. We had a couple of one, you know, probably likely non-recurring items, you know, totaling maybe a million dollars in the quarter. So, you know, expectations on a, you know, on a going forward basis, really I would, you know, kind of, you can look at this quarter's number and, you know, back off maybe, you know, maybe a million dollars, somewhere in that range. You know, when we hit the first quarter, through most of the first quarter, you know, we do incur higher payroll taxes. So, you know, we usually get a little bump there from an OpEx standpoint. And then, you know, if we're successful in closing Elmira, you know, late in the first quarter, obviously it will change from that point going forward.

Okay, so the salaries and benefits line, that is more the $62.9 million. That is a pretty decent run rate going into next quarter.

I think that's a decent run rate going into next quarter. There are a couple items in there that were a little higher than our expectations. We're not sure if those will settle down a bit in the fourth quarter, but conservatively I would probably use you know, what we incurred in the third quarter for the fourth quarter run rate.

Thanks for taking my questions. Thanks, Alex.

The next question will be from Eric Zwick with Benning and Scattergood. Please go ahead.

Good morning, guys. Good morning, Eric. In the prepared remarks, you mentioned some plans to make some investments in 4Q in the securities portfolio. Curious if you could provide any color there in terms of the magnitude as well as kind of expectations for yield and duration of what you're looking to add.

Yeah, I'll take that, Eric. So at the end of the third quarter, we saw some opportunities in the securities markets, and we purchased some. you know, kind of in the belly of the curve, you know, five and seven year type paper. We came in on a blended basis at about a 120 on $536 million of activity, most of which hit really at the end of the quarter. So, you know, we really didn't realize the interest income benefit of those purchases during the quarter, but we were active, you know, as rates kind of got back into the range that we were hopeful for. If you recall, we were on the sidelines at the end of the second quarter. Actually, since we closed the quarter, we've been active with another couple hundred million dollars. Rates are up a little bit, so we continue to be active. We'll see what the rest of the quarter holds for us, but the continued inflow of deposits is providing us... continued upside, you know, from a net interest income standpoint, not necessarily, you know, a total great margin outcome, you know, certainly not back to pre-pandemic levels, but I would expect that we'll continue to be active in the market throughout the fourth quarter and, you know, to the tune of a couple hundred million dollars.

Thanks, and I hear you on the, you know, net interest income potentially growing larger as the balance sheet does, and Just thinking about the profitability aspect and the net interest margin, if you're going to put more securities to work here, it sounds like the loan pipeline is really strong for at least another quarter or so. Do you see a point where the core net interest margin can bottom and start to increase again, or what are your expectations for when that might occur?

Eric, that's a very good question. I want to just qualify that comment in the PPP income. uh, through the first three quarters was about $15 million. Um, you know, so some of the securities activities that, uh, were taking on the third quarter, took on the third quarter and into the fourth quarter, uh, you know, are effectively, uh, you know, a replacement, if you will, of some of that PPP income. Um, you know, so the, the net interest income levels will be, you know, hopefully comparable with that in that regard. Um, however, on the loan side, um, you know, our, our, uh, yield on the loan portfolio was about a 415, 416, I believe, for the quarter. If you back out PPP, it's kind of around a 390 something. It's kind of, you know, it's down a little bit. Our new volume's going on a little under three and a half. So the challenge from a loan perspective is, you know, having the volume increases outpace the, you know, the lower yield. It's just what the market's giving us right now. So really that becomes the challenge as we move ahead. So hopefully, you know, between the size of the pipeline, the growth, and even though it's going on a little lower rate, we can keep our head above water on the loan interest income side. On the cost of funds side, I mean, we're about as low as we're going to go. Maybe there's another basis point in there, but, you know, at nine basis points, it's difficult to really do much on the funding side at this point.

That's helpful. Thanks. And then just thinking about the loan loss provision in the reserves today, you know, you referenced the improving outlook for the economy as well as better collateral values for real estate and automobiles as such. And then I guess the PPP continues to run off for a couple more quarters. If you start to get to the point where you're seeing some net loan growth, should we start to see positive provisioning again at this point? Or are you happy with, I guess, is the model kind of, you know, where it has the reserve today, how to think about those puts and takes?

So there's a couple of moving parts in there, Eric. So yeah, I would expect with loan growth, typically we need to reserve more dollars and therefore go to the positive side of the provision. The economic outlook is a variable that can change and can impact that reserve level. So that remains to be seen. The other thing, too, is that You know, we now have a charge-off history, you know, part of the basis of the model is kind of the quantitative components of the model and the charge-off history is just, it's lower. You know, we haven't had significant charge-offs in the last, you know, last 12 months and so that also impacts the quantitative side. So, you know, there's also, we have to bake that into the model. You know, if you look at kind of our last 12 months of charge-offs, you look at our reserve, right now it's about 19 times, you know, the last 12 months. But I don't believe that necessarily the last 12 months are indicative of the future. But nonetheless, you know, the reserves relative to historical charge-offs is pretty high at this point. But I think, you know, a fair, you know, expectation is that you know, provisioning would probably be closer to, you know, charge-off levels and probably there will be positive provisioning would be my, you know, best guess at this point. But it's hard to really improve much on the economic outlook.

Thanks for taking my questions today. Thank you, Eric.

The next question will be from Russell Gunther with DA Davidson. Please go ahead.

Hey, good morning, guys. Hey, Russell. Good morning, Russell. I just want to spend a minute on the fee income outlook, if we could continue to have really strong organic revenue growth in the differentiated verticals. Could you share with us your expectations for revenue outlook within employee benefits and insurance and wealth on an organic basis going forward, and then what you might expect to be able to supplement with continued acquisitions.

Thank you. It's Mark Russell. I think those businesses have really, since COVID, have really performed well. The environment is good for those businesses in terms of growth opportunities and potential opportunities. The pricing in those markets is pretty good. Some of them are, you know, equity and market dependent, which, you know, that's been additive as well because the markets continue to be strong. So, you know, all of the benefits, wealth and insurance, have all performed extremely well for a number, of course, probably the last couple of years. They've been really strong, but as of late of the past, four quarters have been tremendously strong and they continue to grow. Interestingly enough, they're also growing their revenues faster than their expenses, so the margins are actually growing as well. I don't see anything on the horizon that could derail that necessarily into the future. I think on the non-bank side, hopefully those conditions will continue to exist. There's been a fair bit of M&A activity in the benefit space as well, which we participated in. We continue to have those opportunities as well, and we think that might continue at least into the foreseeable future there. On the non-bank side, it's been – or on the bank side, excuse me, we got hammered during COVID-19. like everyone else, but that's really kind of started to come back and continue to trend upward. The interchange in debit revenues continue to be very strong. Overdraft is not where it was, but it's coming back, and there may be potential regulatory pressure on that revenue stream as well, which we have conversations about. So right now, I think it's hard to predict. It's hard to put a number on it. We're up on the non-bank side, as I said, 17% this quarter over last year. The pre-tax earnings are up 22%, so we're actually creating margin as well as we gain revenues in those businesses. So the future continues to look good into the foreseeable future, but you can't predict. So I think to kind of handicap it with a number I think is very difficult. difficult to do. The wealth business this year has had tremendous growth in revenues and earnings. The benefits business, tremendous growth in revenue and earnings. The insurance business is up a little bit less. The margin is also up a fair bit, so really strong execution on all three of those businesses in the quarter, and we expect that into the foreseeable future.

I appreciate it, Mark. Thank you. That's it for me, guys.

Thanks, Russell.

Thank you, Russell.

And again, if you have a question, please press star then one. The next question will be from Matthew Breeze with Stevens, Inc. Please go ahead.

Hi, good morning. Maybe going back to loan growth. So the two areas that you showed the most growth this quarter was mortgage and indirect. And as I think about those segments, both have their distinct macro headwinds. So mortgage is going to be dealing with higher rates and indirect with inventory and chip shortages. So I hear you on the pipeline, but I wanted to get your thoughts on those items specifically as headwinds and the sustainability and durability of the pipeline. And how long before do you think loan growth kind of reverts to historical averages?

Hey, Matthew.

It's Joe. I'll take that. So on the indirect side, you hit it right on the head when you spoke about the chip shortages and supplies and the impact on opportunity. We expect to go through the fourth quarter maybe slipping a little bit, going back a little bit, still growing, but not to the same magnitude as as we have in the prior three quarters. And then certainly as you're heading into Q1 and beyond, I guess it's going to be a little bit difficult to handicap where we think the chip shortages or the supply shortages are going to impact us, but clearly something that we need to keep our eye on and focus on. On the resi mortgage side, I think it's going to slow down for us a little bit. But with an increased focus of model strategy and dedication of people, I think that we'll be able to continue to grow the resume mortgage business through 2022.

I think I would just add, the thing I've seen in the mortgage business in our markets, it's not as volatile as it is in some of the bigger markets where the markets really ramp up and cool down quickly, and our markets don't do that. They're more stable. We should be able to generally achieve a 2% to 4% run rate on growth in that business in our market. I'll be honest, I'm shocked that the car business is up as much as it is. Considering there's no inventory, it's surprising, but it's good. We've got some of the competitors have kind of gotten out of that market as rates came down, and then you had kind of the impact of the recession and all of that. So there was some kind of disruption in that market as well, and we've been in that business for a long time, and we stay in it. We don't get in. We don't get out. We have good relationships with our dealer network. So I'm not surprised that our growth was better than maybe the market, but I'm surprised on an absolute, you know, basis that it's where it's at. You know, if you had told me in the third quarter of last year that we'd be up 12.5% in our car business, I would not have believed it. But, you know, here's where we're at. So I think that'll probably slow down a little bit, you know, as well.

Got it. Okay. And then turn it back to the employee benefit services businesses. Obviously, revenues are up nicely this quarter. How much of that increase was due to recent acquisitions, how much of it was due to, you know, just business growing organically. And then you also mentioned additional acquisitions in the space. So, you know, where should we expect quarterly employee benefit services revenues to settle out before it starts to just grow on its own and on an organic basis?

Well, I think the vast majority of the growth in the quarter was organic. not acquired that fpd acquisition uh you know was not was not that big uh you know came on during the quarter so uh you know the the success of those businesses over the last you know four quarters is in beyond frankly it's it's been a multi-year uh kind of uh building and growth process for those business but it's it's it's uh it's mostly all

Okay. And just staying on this topic, I mean, oftentimes with these fee income businesses, great for fees, great for ROA, but what gets lost in the fold are the associated expenses. You mentioned margins are higher. Could you just give us some sense for the efficiency or what the profit margin on the employee benefit services business is?

We generally have not kind of disclosed that separately. I would tell you, though, that it's over 35%

On the margin?

Yes.

Got it. Okay. And then the last one for me, you know, Joe, we talked a little bit about, you know, the outlook for the NIM. I was just curious, you know, if we continue to see some securities purchases and some decent loan growth, do you have any idea on the outlook for core NII? I mean, it's been growing at kind of a low to mid single digit clip. Do you think that's I think that's sustainable through the acquisition of Elmira.

Yes, Matt. I think it's sustainable because of the security purchases that have replaced some of the PPP recognition. There's still $6.3 million of PPP net deferred fees as well. I know you asked about core, but But some of that will be recognized between now and the Elmira transaction as well. But on a core basis, I think we can kind of keep our head just about level, just slightly above water because of the securities purchases. So I think that will be the likely outcome until we hit Elmira.

Great. I appreciate it. That's all I had. Thank you. Thank you. Thank you. Thank you.

Ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference back over to Mr. Trenesky for any closing remarks.

That is it for us here in Syracuse. So thank you all for joining. Look forward to talking again in January. Thank you.

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