Community Financial System Inc (CBU) 2024 Q2 法說會逐字稿

Good day, 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 Karaivanov President and Chief Executive Officer of Community Financial Systems.

Please go ahead.

Thank you, Aisha, and 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 is a better reflection of the uniquely diversified nature of our financial services company and also better reflection of how we run the business, how we interact internally and how we go to market.

We are truly unique among the industry, we have the highest percentage of nonbanking 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, it 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 GAAP and $0.95 of operating earnings per share.

In our banking business, both NII and fee income expanded from the first quarter.

NII 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 a 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 recordkeeping and fund administration parts of defense.

Our insurance services business also achieved a new quarterly record of $13.3 million in revenue, up 12% over last year.

As expected, we are 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 remained strong with revenues of $8.7 million, up 10.6% over the comparable period last year.

Assets under 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 had repurchased 1 million shares at well below intrinsic value, and 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 tight 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 position positions us very well for economic activity we're seeing today and expecting in the future.

In addition, the 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 quarter 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.

Second quarter was a very solid one for the company.

GAAP 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 net interest income and operating noninterest revenues, a lower provision for credit losses and a decrease in fully diluted shares outstanding, offset in part by increases in operating noninterest expenses and income taxes.

The $0.01 decrease from the prior year 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 pretax, pre-provision net revenue per share as delineated in the press release was $1.29 for the second quarter, this was up $0.11 or 9.3% , excluding the $0.11 per share or 9.3% over the linked first quarter and $0.05 per share or 4% over the prior year 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 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 9 basis points in the quarter to 1.23%.

This compares to increases in the cost of deposit of 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 6 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 tax-equivalent net interest margin increased from 2.98% 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 and 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 noninterest revenues were up $1.9 million or 10.6% over the same quarter 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 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 linked quarter basis, banking-related noninterest revenues were up $1.4 million or 7.6%, while employee benefits, 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 reported $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 noninterest expenses, which exclude certain nonoperating expenses.

As detailed in the press release, this morning were $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 noninterest 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 billion 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 or 5 basis points of average loans annualized during the second quarter.

And overall credit performance remains 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 related to stock-based compensation activity and income tax for 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%. 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 have continued to represent almost two-thirds of total deposits and the company's cycle to date deposit beta of 22% continues to be one of the best in the banking industry and reflects the stability of the company's core deposit base.

Company's liquidity position remains strong, readily available source of liquidity, including cash and cash equivalents, funding availability and availability at the Federal Reserve Bank discount window.

Unused borrowing capacity at the Federal Home Loan Bank of New York and unpledged 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 inter-company 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 ratios significantly exceeded well-capitalized standards.

More specifically, the company's Tier one leverage ratio was 9.07%, substantially exceed 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.

Company recorded net charge-offs of $1.3 million or 5 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 or 71 basis points of total loans outstanding at the end of the second quarter, up from $63.3 million or 69 basis points one year prior.

Comparatively, the allowance for credit losses to 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, nonperforming 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.

Nonperforming loans were $33.3 million or 36 basis points one year prior loans 30 to 89 days to Lincoln were also up on a linked-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 remained stable and strong in the quarter.

On July 17, the company announced a $0.01 or 2.2% increase in the quarterly dividend to $0.46 per share.

This marks the 32nd consecutive year of dividend increases for the company, which serves as a testament to the performance of the company's long-standing 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 6 from 9 AM. 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, and now I'll turn it back to Assia to open the line for questions.

Thank you.

(Operator Instructions)

Matthew Breese with Stephens Inc.

Good morning, I was hoping to touch on the topic of the NIM. first and maybe to get there, I was hoping you could provide what is the what is the balance sheet exposure to pure floating rate loans today and adjustable and fixed rate loans on the opposite side, and I'd love to delve into a little bit of the difference and what those portfolios are yielding today.

It's a good question, Matt.

We actually look at that internally periodically as well, just to kind of understand the dynamics of that potentially changing yield curve and not maybe changes to the short end of the curve.

In summary, we have just under $1 billion of our floating rate loans, which are generally tied to an index like prime or so for something that's short term.

We have in the next 12-months, we have adjustable rate loans for these loans that, for example, might have a seven year term and reprice a year three or five.

Those types of loans, we have about $250 million of those adjustable rate loans.

And then we also have expectations for maturing cash flows on the fixed rate portfolios of about $1.5 billion.

So all in between floating rate loans, adjustable rate loans and fixed rate loans and including anticipated prepayments, we think we've got about $2.8 billion of of loans maturing and they're coming off at a rate around [6%], if you will, on a blended basis.

I mean, obviously, the floating rate loans are a little bit higher around

[8%].

But ultimately, that's that's kind of what we're looking at from a from a adjustable and our rate portfolio in floating rates.

And then so is that implies kind of the pure fixed rate stuff, it's probably yielding kind of fives or low fives and being put on maybe 175bps to 250 bps higher.

Is that is that a fair assumption that the roll on out for the fixed rate is quite a bit higher?

Yes, I think you nailed the math.

It's about on a blended basis on the fixed rate stuff, about [5%] and our last quarter, new new loans were going on at kind of in the mid to low

[7%].

And so yes, there's a fair amount of, call it repricing opportunity just on replacement of returning cash flows on the fixed rate portfolio.

Right.

And so here's where I'm going with this, right, I know you all don't typically provide NIM guidance, but you have historically CBUs an organization that's run with a name that's in the 350s, upwards of 4%, as as this all kind of normalizes and resets.

Is there a is there a pathway back to that kind of NIM and assuming no major changes in the yield curve, obviously we might get a couple of cuts, but you get my point, is there a natural upside to the near and long duration over time as the fixed rate book reprices?

Matt, so the way I would think about it is in the next 12, 24 months.

There's a lot of upside from the loans on the balance sheet that are churning, right?

So we've approached the point to which the deposits are and the cost of funding is stabilizing right now.

We're just gathering more steam on the asset side than downside on the liability side.

So you're going to start seeing that initially in the next 24 months or so, then we've got then our securities maturity to start kicking in and then you're going to have some very big pickups as well in addition to the loan side.

So could go back to the dose ranges, I think over that time-frame, which is probably more like three years, which might be longer than some people care about yes, and I think it's possible that we start getting into that range again.

Great.

I appreciate that I also just wanted to touch on on the expense outlook and kind of expectations for the rest of the year and whether or not I know you guys have been very tight on expenses, given the shape of the yield curve and everything, whether there's any major changes from what we saw this quarter through the balance of the year.

The expectations are not really changing from the standpoint of where operating expenses are going to kind of wash out at the end of the year.

I think on the last earnings call, the quarter prior.

So I guess it was the first and fourth quarter of last year earnings call.

We kind of it provided some ranges of kind of our I'll call it our normal historical run rate of somewhere between 3% and 6% on operating expenses.

And I still think that that's the full year expectations.

Admittedly, in 2023, we had some unexpected activity on OpEx.

We also leaned into growth and position ourselves for '24 and beyond.

And but I think that year was more uncharacteristic of us in terms of the overall OpEx growth.

So kind of mid-single digits is still where our mindset is.

With respect to operating expenses, of course, that excludes any M&A activity that might be that can come into the mix later on.

Understood.

Okay.

And then just last one for me.

I was hoping you could touch on loan pipelines and expected growth for the balance of the year growth this quarter was pretty widespread and you've done a better better job as of late versus historically.

So just an update there.

Yes, I think Matt, so as we think about the banking business, the pipelines today are just as strong as they were at the end of last quarter.

It is broad spread across regions and products so I think we're going to continue the momentum we have on the bank side and on the each one of our other businesses also have pretty strong tailwinds.

So I think the performance for the second half of the year shouldn't be that much different than what we're experiencing today.

Perfect.

That's all I had.

Thank you for taking my questions.

Appreciate.

Thank you, Matt.

Manual Navios with DA Davidson.

Hi, good morning.

This is Sharon G on for Manuel.

Thank you for taking my question.

For my first question, could you talk a little bit about an update on the fee income outlook in our the pipelines are trends in fee lines like mortgage banking, insurance and employee benefit services?

Sure.

Morning.

So as you think about our for businesses, we have two of them that are very much market based and end market values driven as well.

So that's the employee benefit services business and our wealth management services business.

So in both of those, as markets remain hopefully strong, our performance should remain consistent and frankly improving.

There's potentially upside from the fixed income markets potentially returning to a better outcome than it has been.

So the current values and performance you're seeing are really driven by the equity market predominantly.

So even if the equity market kind of softens up a little bit, the fixed income market should hopefully offset some of that.

So we remain pretty bullish on those businesses.

Our insurance business had another double digit year-over-year growth this quarter.

We're making up the ground as we kind of alluded to that in the first quarter call as well.

So I expect that Q3 and Q4, we also remain strong year-over-year in that in that business.

And on a full year basis, we'll be closer to those kind of high single digits, maybe low double digit growth on the insurance side.

And as it relates to the banking fees, we did have a strong quarter in mortgage banking, which I think would be a little bit harder to replicate for the next couple of quarters.

With that said, there are more opportunities that we're seeing in the secondary market.

But this quarter we had a couple of things.

Frankly, that went our way that may not be repeatable.

Thank you for my next question.

Can you talk a little bit about like we talked about deposit costs where they could peak of their state where you're at now and any updated thoughts on the impact to them if rates are cut in September?

Yes, on.

So I think we're at right now our cost of deposits, our beta is 22% on a cycle to date basis our kind of internal expectations have been and we've actually talked about on the earnings calls, maybe somewhere between 20% and 25%.

I don't think that that changes.

I still think that's a fair estimate in terms of the migration from lower-cost deposits to higher cost deposits.

That has slowed a bit, but it's not over.

So I think it's fair to expect a little bit of a continuation of higher costs on the deposits, but certainly at a much, much slower pace than we certainly experienced through 2023 and through the first quarter of 2024.

With respect to a Fed cut.

Yes, that would be I think on the previous question, Matt had asked about floating rate loans that would have a negative impact on the yield on floating rate loans.

On the other hand, we have close to to $10 billion in interest-bearing deposits.

And effectively you can make up some of that difference on the floating rate loans, loss of interest income on floating rate loans with the decrease in some interest-bearing deposit costs pretty quickly.

So hopefully those two can kind of match themselves off if we get a short term, decrease in the short term rates.

The other thing, I would just kind of some, I guess, caution or advise on is that the path to higher NIM. and the path to higher net interest income is not necessarily linear quarter over quarter.

Typically in the third quarter, as we've already experienced right at the end of the second, we have a little lower deposit base because of some seasonal aspects on municipal deposits.

And as those deposits have run out, they've had to be replaced with overnight borrowings at 5.5%.

So that in itself does create more pressure on overall funding costs.

But our longer-term expectations are for for improvements in NII and NIM., given what we know today about about the current rate environment.

But I just would caution that it's not necessarily a linear movement quarter over quarter that could be third quarter could be somewhat sideways in terms of the outcome and then hopefully a kind of a resumption of growth in net interest income and margin Q4 and into 2025.

Thank you.

That's all for me.

Chris O'Connell with KBW.

Hey good morning.

I think you know in the press releases noted, but there is an insurance acquisition completed at the beginning of April.

I dont recall it being covered on last quarter's call, but I was just hoping you could walk through what the impact was revenues this quarter and just the annual impact to revenues expenses from that transaction?

Chris, that was a small tuck-in acquisition in the grand scheme of things.

It's pretty small, in the quarter on maybe couple of hundred thousand dollars of revenues expectations even on a full year basis for that particular acquisition, maybe $0.5 million.

And so that was a pretty nominal.

But that's actually kind of the way we operate that business.

It's very fragmented.

And there's a lot of small, smaller agencies and roll-up opportunities for us kind of in the independent agent space.

And so each one that we add, whether it be $0.5 million or $1 million of revenue is pretty additive to the overall revenue picture for that business.

Great.

That's helpful.

And I'm circling back to the margin discussion, can you share maybe what the blended CD your costs are right now?

And what's the current offering cost?

and just how much it has to reprice in the back half of the year?

Yes.

Just give me a moment here, Chris.

I think, Chris, while Joe is getting you those exact numbers, I will just comment that during the quarter, we kind of crossover, if you will, on the CD side where the new production or replacement rate is now lower than the rate at which the back book is.

So in other words, it's a net positive as we replace those CD's that we've built over the past few quarters from them from a margin perspective.

And we have actually lowered our rates twice during the quarter, and we're now kind of in the high threes and low fours depending on the tenor of the of the city.

In the quarter.

All in just under about [$375 to $380] was kind of our time deposit deposit costs for the quarter.

Great.

That's helpful.

And great.

And then you talked about I think in the prepared comments that the M&A dialogue is picking up.

How do you guys balance the usage of the buyback here with the potential for M&A opportunities in the future?

Maybe just talk about, you know, thought process around continued use of the buyback, especially after the recent rally we've had.

And then also what type of M&A targets and opportunities you might be looking at in the future?

Yes.

So Chris, I think on the bank side, basically year to date, we've bought back 1 million shares as a company.

And as we looked at the capital deployment, we basically couldn't find a better bank to buy and our own.

So we bought back a million shares at $45 and for whatever reason we have a similar opportunity to probably take a hard look at it again on the hopefully not.

The M&A dialogue is stronger because I think a number of sellers have also realized that valuations of buyers like us, we're extremely appealing that 1.2 are yielding over 4%, which I think's happened only once in the past 15 years, so sellers also want more stock from the ones that at least we've been discussing with because they understand it upside in the in the currency that we have some and we're just going to have to balance all of that in.

Obviously, the equation today is a little bit different at $60 versus $45 from the perspective of of buying our company versus some of the other opportunities, which may not have appreciated quite as much in the past few weeks.

So I think we will continue to balance that we always look at risk and reward.

So in other words, the the upside to a transaction needs to be is significantly better than the downside to it.

So the things that we like on the bank side in particular remain, you know, strong balance sheet liquidity, things that are additive in the markets that we're interested in are things that have market share in the markets already.

And so those are the kinds of things that we're focused on and the lower risk and a better outcome.

And we're going to continue to look at those as we deploy capital.

We're also keeping a very close eye on non-banking opportunities, which are always cash.

And as we say around here, we're in the business of capital deployment, not in the business of share issuance.

So we generally have a preference for cash M&A if we can do that.

Great.

And you guys are a little bit bigger now and in the past, you've been willing to do deals under $1 billion in assets just despite your size and growing.

I mean, do you guys with the organic growth outlook kind of accelerating from historical levels.

I mean, do you still see value in doing deals in the $500 million, $700 million range?

Are you guys willing to go that lower?

Are you guys looking for a little bit more meaningful impact going forward compared to historically?

Yes, I think, Chris, on the bank side that that goes back to the risk and rewards.

And I think the more you look at it more at least we believe that net risk and reward also tends to flip less favorable to the larger ego in transactions and typically larger you go the less liquidity that company is going to have as well and the more concentrations they might have as well.

So you know whether we would do something as quite as small as $500 million.

I think that through these dependent on what exactly it is, but certainly things between $500 million and $1 billion still remain on the interest to us, especially if they check the boxes with low risk, right market, strong liquidity profile, and we could drive a couple of hundred million dollars of their liquidity and put it to use in our growth strategy.

So that's always additive as we look to the banking side.

Great.

And then I mean, credits held up really well in the trends this quarter have been flat quarter over quarter and NPAs NPLs and you guys haven't seen much cycle to date yet, or is there any areas that you guys are seeing any pressure at all on either the consumer or the commercial side that you're keeping a closer eye on from it?

Yes.

I mean to be quite frank with you the answer to that is not a lot that we're seeing.

You know, we're certainly keeping a very close eye to it.

As we've talked before, our markets have a bit of a unique dynamic right now because of the demand, especially on the housing side and just the lack of supply in all of the economic activity that's happening here in upstate New York and frankly, in Northeastern PA and to a degree in Vermont is driving a lot of housing demand.

And we haven't built homes in those markets in many, many years.

So some of the things that, frankly, it was a little bit more focused on that side of the equation as things like the fact that Syracuse, for example, had the highest increase in rent increase prices in the country last year.

So that's not typical for a market like Syracuse and kind of put us a little bit on that on the lookout for what might that mean in terms of sustainability going forward.

So we keep keep a close eye on that.

On the commercial side, again, a lot of those businesses are benefiting from the same and dynamics in terms of economic activity, I believe year to date were actually negative charge-offs on the commercial side, I think last year we had three basis points of charge-offs?

And are we going to see some migration here and there?

Yes, we will.

But nothing that really worries us at this point.

That's out of the historical norm.

Frankly, we continue to be quite a bit better than the historical norms across all of the portfolios.

Understood.

Very helpful.

Thanks for taking my questions.

Steve Moss with Raymond James.

Good morning.

Just following up on the M&A side or the M&A discussions here, just curious like how much of a potential.

It's just I think about the banks you're potentially talking to they're going to likely to have meaningfully more NII and fee income.

Just curious, you know, how much are you willing to take in terms of potential reduction to the fee income revenue mix as you as you're looking at these deals?

Yes.

So Steve, there's a couple of things that go into that equation.

So if you look at our company, our non-banking businesses, our financial services businesses grow faster than the banking business just by default right.

So we've historically averaged high single digit growth rate outside of the banking business and kind of mid-single digit growth rate from the banking business, which included M&A by the way, along the way.

So that by itself actually moves the fee income ratio of what it's about 40% today.

If you just play out the organic growth, you're kind of looking at about two points of movement every five years.

So those businesses run faster than the bank as we look at banks clearly, and there's not another company like us that that has those kinds of metrics.

So every one that we do is going to be dilutive from that perspective.

But again, we run faster on the fee income side organically anyways.

So that helps offset a chunk of that.

And then secondly, we're typically pretty good at bringing our fee income capabilities into the acquired franchises as well, not just on loan banking side, but also on the banking side, we tend to have more products and capabilities and they do.

So over time while that that's kind of a longer time-frame, usually to affect those, but over time that kind of evens out in many ways.

So we don't we're mindful of it, but it's not a it's not a barrier in terms of looking at bank transactions again, size also does help.

And it just so happens that we also find better risk-reward in smaller deals and larger deals to begin with.

So if you look at our fee income ratio over time, even though we've done quite a bit more bank M&A, then financial services M&A over the past 10 or so years, our fee income ratios actually increased meaningfully in that period.

Okay.

And then in terms of just through the transaction opportunity or your transaction update here, curious if it is $500 million to $1 billion type transaction or you want to do too two acquisitions simultaneous or would you look to do one and then potentially do a second one after after you complete the first?

Well, Steve might comment was more general than a specific transaction.

But I would say that most of the discussions we're having are in the under $2 billion range a couple of them under the $1 billion range.

Okay, great.

Appreciate the color.

Dimitar all my other questions have been asked and answered.

So thank you very much.

This concludes our question and answer session.

I would like to turn the conference back over to Mr. Kevin out for any closing remarks.

Please go ahead.

Thank you, Asshia, and thank you, everyone, for joining the call and the interest in our company, and we will speak again with you in October.

This conference has now concluded.

Thank you for attending today's presentation.

You may now disconnect.