Community Financial System, Inc.

and welcome to the Community Financial Systems Second Quarter 2024 Earnings Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Dimitar Karamnov, President and Chief Executive Officer of Community Financial Systems. Please go ahead.

Thank you, Asha. Good morning, everyone, and welcome to our Second Quarter 2024 Earnings Call. I would like to first note that during the quarter, we changed our holding company name to Community Financial System as a better reflection of the uniquely diversified nature of our financial services company and also a better reflection of how we run the business, how we interact internally, and how we go to market. We are truly unique amongst the industry. We have the highest percentage of non-banking revenues amongst KRX peers and an overall fee revenue percentage of 40% versus KRX peers of 18%. We are now also providing enhanced disclosures in our quarterly filings and investor presentations in line with how we operate our business segments. Now turning to the quarter. This was a productive quarter for us. Our company recorded a new quarterly record for revenues, while expenses remained well controlled, leading to $0.91 of gap and $0.95 of operating earnings per share. In our banking business, both NII and fee income expanded from the first quarter. NAI growth was driven by both the strength of our core funding and our strong lending growth. Loans grew by 140 million, or 1.4%, which is inclusive of 25 million seasonal decline in municipal loans. Deposits decreased by 214 million, which included 278 million seasonal decline in municipal deposits and 63 million increase in consumer and business deposits. Credit remains the foundational strength of our banking business. with five basis points of charge-offs for the quarter. In our employee benefit services business, we achieved a new quarterly record of $32.1 million in revenue, up 12% over last year. We continue to add participants and assets to the platform and are also benefiting from strong asset values in both our record-keeping and fund administration parts of BFAS. Our insurance services business also achieved a new quarterly record of $13.3 million in revenue, up 12% over last year. As expected, we're now in positive territory for the year, with growth of 4.4%. We continue to remain focused on both organic and inorganic growth, and during the quarter executed on two roll-up acquisitions. Our wealth management services business remains strong, with revenues of 8.7 million, up 10.6% over the comparable period last year. As for management and administration, reached a new high and client activity remains robust. During the quarter, we also had a couple of small tactical opportunities to create liquidity in our securities portfolio and also repurchased another 250,000 shares at what we believe were very attractive prices. This year so far, we have repurchased a million shares at well below intrinsic value. We continue to be on the lookout for similar tactical openings. As we look ahead, We remain optimistic about the opportunities we have across our markets and businesses. Of note, the New York Smart I Corridor Tech Hub, which spans Buffalo, Rochester, and Syracuse, was recently selected as one of only 12 national Tech Hub winners. As a frame of reference, our Buffalo and Rochester regions have combined footings of $4 billion in deposits and $3 billion in loans, and our Syracuse region has $3 billion in deposits and $2 billion in loans. Our wealth, insurance, and benefits businesses also have deep presence in those markets, which positions us very well for the economic activity we're seeing today and expecting in the future. In addition, recent headlines and developments with some of our national and regional banking competitors continue to create opportunities for market share gains. Lastly, as mentioned on our first call to call, M&A activity and dialogue is picking up, and I expect that we will have opportunities to deploy capital at a favorable risk and reward balance. With that, I will pass it on to Joe for more details on our financial performance.

Thank you, Dimitar, and good morning, everyone. The second quarter was a very solid one for the company. Gap earnings per share of $0.91 were up $0.15, or 19.7%, over linked first quarter results driven by increases in net interest income, strong credit performance, and record quarterly revenues in both our employee benefit services and insurance services businesses. These results were also $0.02 higher than the prior year's second quarter result of $0.89 per share. Operating diluted earnings per share, which excludes certain non-operating revenues and expenses as detailed in this morning's press release, were $0.95 in the second quarter as compared to $0.82 in the linked first quarter and $0.96 in the second quarter of the prior year. The $0.13 or 15.9% increase over the linked first quarter was driven by increases in non-interest income and operating non-interest revenues a lower provision for credit losses, and a decrease in fully diluted shares outstanding, offset in part by increases in operating non-interest expenses and income taxes. The one cent decrease from the prior year's second quarter was driven by increases in the provision for credit losses, operating non-interest expenses, and income taxes, offset in part by higher operating revenues and a decrease in fully diluted shares outstanding. Operating pre-tax, pre-provision net revenue per share, as delineated in the press release, was $1.29 for the second quarter. This was up 11 cents or 9.3% per share, excuse me, 11 cents per share or 9.3% over the linked first quarter and 5 cents per share or 4% over the prior year's second quarter. During the second quarter, the company recorded total operating revenues of $183.2 million. This was up $7.9 million or 4.5% from one year prior and up $5.9 million or 3.3% from the linked first quarter. This also established a new quarterly record for the company and marked the fourth consecutive quarter of increases in total operating revenues. The company recorded net interest income of $109.4 million in the second quarter as compared to $107 million in the linked first quarter. An improvement in the yield on interest-earning assets supported by loan growth and subsiding pressure on funding costs helped drive improvement in both net interest income and net interest margin in the quarter. During the quarter, the company continued to experience a migration of customer deposit balances from lower-rate checking and savings accounts to higher-rate money market and time deposits, but at a declining pace, increasing the cost of deposits nine basis points in the quarter to 1.23%. This compares to increases in the cost of the positive 16 basis points in the first quarter of 2024 and 22 basis points in the fourth quarter of 2023. The company's total cost of funds was 1.37% in the second quarter, up six basis points in the quarter, while the yield on interest earning assets increased 11 basis points to 4.35% in the second quarter. The company's fully taxed equivalent net interest margin increased from 2.98% 2.98% in the linked first quarter to 3.04% in the second quarter. Comparatively, the company recorded net interest income of $109.3 million in the second quarter of 2023. The outlook remains positive for net interest income expansion on a full year basis. Operating non-interest revenues were up in all four businesses compared to the prior year's second quarter and represented 40.1% of total operating revenues in the quarter. Banking-related, Operating non-interest revenues were up $1.9 million or 10.6% over the same quarter of the prior year, driven largely by an increase in mortgage banking revenues. Employee benefit services revenues were up $3.5 million or 12.4% over the prior year's second quarter, reflective of an increase in total participants under administration and growth in asset-based fees. Insurance revenues were up $1.4 million or 12.2%, reflective of both acquired and organic growth. And wealth management services were up $0.8 million, or 10.6%, reflective of more favorable market conditions over the same period. On a link quarter basis, banking-related non-interest revenues were up $1.4 million, or 7.6%, while employee benefit services and insurance service revenues increased $0.4 million, or 1.3%, and $2.2 million, or 19.8%, respectively. Wealth management services revenues were down approximately $500,000, or 5.6%, due to seasonal factors. During the second quarter, the company recorded $119 million in non-interest expenses. This represents a $6 million or 5.3% increase from the prior year's second quarter and $0.9 million or 0.8% increase from the linked first quarter results. Total operating non-interest expenses, which excludes certain non-operating expenses, as detailed in the press release this morning. or $115 million in the quarter as compared to $108.3 million in the prior year's second quarter and $114.4 million in the linked first quarter. On a year-to-date basis, total operating non-interest expenses are up $10.7 million, or 4.9%, consistent with the mid-single-digit growth rate noted in the prior two earnings calls. Reflective of an increase in loans outstanding and stable economic forecasts, the company recorded $2.7 million In the provision for credit losses during the second quarter of 2024, this compares to $0.8 million in the prior second quarter and $6.1 million in the linked first quarter. The company recorded net charge-offs of $1.3 million for five basis points of average loans annualized during the second quarter, and overall credit performance remained strong. The effective tax rate for the second quarter of 2024 was 22.8%, up from 21.4% in the second quarter of 2023, excluding the impact of Tax expense and benefits relate to stock-based compensation activity and income tax credit amortization. The effective tax rate for the second quarter of 2024 was 22.3%, up from 21.4% in the second quarter of 2023. Ending loans increased $140.4 million, or 1.4%, during the second quarter. This marks the 12th consecutive quarter of loan growth and is reflective of the company's continued investment in its organic loan growth capabilities. This included growth in both the company's business lending and consumer lending portfolios. On a year-to-date basis, ending loans are up $319.3 million, or 3.3%. The company's ending total deposits decreased $214.1 million, or 1.6% during the second quarter of 2024, driven by seasonal outflows of municipal deposits. Conversely, ending deposits increased $266.1 million, or 2.1% from one year prior. Although funding costs increased in the second quarter, as previously noted, non-interest bearing and lower rate checking and savings account continue to represent almost two-thirds of total deposits, and the company's cycle to date deposit data of 22% continues to be one of the best in the banking industry and reflects the stability of the company's core deposit base. The company's liquidity position remains strong, readily available source of liquidity, including cash and cash equivalents, funding availability at the Federal Reserve Bank's discount window, unused borrowing capacity at the Federal Home Loan Bank of New York, and unplugged investment securities totaled $4.44 billion at the end of the second quarter. These sources of immediately available liquidity represent over 200% of the company's estimated uninsured deposits net of collateralized and intercompany deposits. The company's loan-to-deposit ratio at the end of the second quarter was 76.3%, providing future opportunity to migrate lower-yielding investment securities into higher-yielding loans. At the end of the second quarter, all the companies and the bank's regulatory capital ratio significantly exceeded well-capitalized standards. More specifically, the company's Tier 1 leverage ratio was 9.07%, substantially exceeded the regulatory well-capitalized standard of 5%. As Dimitar mentioned, during the second quarter, the company repurchased 250,000 shares of its common stock at an average price of approximately $45 per share. The company recorded net charge-offs of $1.3 million for five basis points of average loans annualized during the second quarter. This is up slightly from three basis points in the same quarter the prior year, but down from 12 basis points in the linked first quarter. The company's allowance for credit losses was $71.4 million of 71 basis points of total loans outstanding at the end of the second quarter, up from $63.3 million for 69 basis points one year prior. Comparatively, the allowance for credit losses to total loans outstanding was also 71 basis points at the end of the linked first quarter. The allowance for credit losses at the end of the second quarter represent over nine times the company's trailing 12-month net charge-offs. At June 30th, 2024, non-performing loans totaled $50.5 million or 50 basis points of total loans outstanding. This represents a slight increase from $49.5 million at the end of the linked first quarter. Non-performing loans were $33.3 million or 36 basis points one year prior. Loans 30 to 89 days to Lincoln were also up on a link quarter basis from $42.1 million or 43 basis points of total loans at the end of the first quarter to $45.1 million or 45 basis points of total loans at the end of the second quarter. Overall, the company's asset quality remains stable and strong in the quarter. On July 17th, The company announced a $0.01 or 2.2% increase in the quarterly dividend to $0.46 per share. This marked the 32nd consecutive year of dividend increases for the company, which serves as a testament to the performance of the company's longstanding and durable business model. We believe the company's diversified revenue profile, strong liquidity, regulatory capital reserves, stable core deposit base, and historically strong asset quality provide a solid foundation for future opportunities and growth. Looking forward, we are encouraged by the revenue outlook in all four of our businesses and prospects for continued organic growth. We will continue to play offense, lean into growth, and deploy capital in the best manner possible for our shareholders. Lastly, on Friday, September 6th, from 9 a.m. to 12 noon, we will be hosting an Investor Day at the New York Stock Exchange. This event will provide an opportunity for investors to engage directly with the company's management, gain insights into strategic initiatives, and explore the company's future growth prospects. Links to register for the CBU Investor Day were included within this morning's earnings press release. That concludes my prepared comments. Thank you. Now I'll turn it back to Ashia to open the line for questions.