Community Bank System, Inc. (CBU) Q3 2026 Earnings Report, Transcript and Summary

Good day, and welcome to the Community Financial System, Inc. Third Quarter 26 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, To ask a question, you may press *1 on your telephone keypad. 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 2 thousand 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 references to certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures can be found in the company's earnings release. I would now like to turn the conference over to Dimitar A. Karaivanov, President and CEO. Please go ahead.

Thank you, Chloe. Good morning. Thank you for joining us today. Our company performed very well in the third quarter. As expected, our results accelerated with operating diluted earnings per share increasing 16.5% year over year and 9.5% quarter over quarter. Representing our 6th consecutive quarter of record results. Record revenues and profitability in banking, record revenues and profitability in insurance services, record revenues and profitability in wealth management services. Solid revenue performance in employee benefit services which was challenged by elevated expenses due to startup legal costs, associated with a number of new fund launches in our collective investment trust business. A couple of items of note. Wealth management revenue was up 41% year over year, pretax earnings were up 42%. Driven by both very strong organic performance and the addition of ClearPoint. We remain very excited about the opportunities ClearPoint is providing us, and we are already seeing tangible client cross service opportunities with banking. Insurance services revenue was up 8.9% year over year, while keeping expenses basically flat resulting in pretax earnings growth of 41%. As previously mentioned, the M&A activity is really strong, and these results do not yet incorporate the more sizable opportunities we are working on this quarter, should they come to fruition. Employee benefit services revenue was up 5.6% year over year while pretax earnings were down 3.5% predominantly due to the aforementioned legal expenses. Banking had a very strong quarter with both margin expansion and organic growth. Commercial and consumer lending were both strong, Deposits experienced typical seasonal fluctuations. While liquidity and credit remain a source of strength. I would expect some seasonal slowdown in consumer lending in Q4 plus the impact on demand of higher rates in mortgage and auto lending. The commercial pipeline remains strong, but we also expect some larger payoffs, so I would not extrapolate from Q3. As noted, we pulled forward our December securities maturities as we took advantage of the shape of the curve and our own liquidity needs and produced a positive net present value transaction. In addition, believe that this illustrates the positive dynamics embedded in our balance sheet with over $600 million of securities maturities coming due in 2027. I will now pass it to Marya for more details.

Thank you, Dimitar, and good morning all. As Dmitar noted, the company's operating performance accelerated in the third quarter. GAAP earnings per share of $1.16 increased $0.12 or 11.5% from the third quarter of the prior year and was consistent with linked second quarter results including the loss on sales of investment securities recognized in the third quarter in connection with our decisions to pull forward our December investment security maturities. Operating earnings per share and operating pretax pre provision net revenue per share were record quarterly results for the company. Operating earnings per share were $1.27 in the third quarter. As compared to $1.09 1 year prior and $1.16 in the linked second quarter. Third quarter operating PPNR per share of $1.77 increased $0.21 from 1 year prior increased $0.15 on a linked-quarter basis. These record operating results were driven by a new quarterly high for net interest income and operating nnoninterest revenues, The company's net interest income was $143.5 million in the third quarter, This represents a $4.4 million or 3.2% increase over the linked second quarter and a $15.4 million or 12% improvement over the third quarter of 2025 and marks the 10th consecutive quarter of net interest income expansion. The company's fully tax equivalent net interest margin increased 7 basis points from 3.49% in the linked second quarter to 3.56% in the third quarter reflective of higher interest earning asset yields and lower funding costs. The increases in income and net interest margin included the accretive impact of the paydown of higher cost overnight borrowings using proceeds from the August 3rd sale of $296.8 million of lower yielding US treasury securities. During the quarter, company's cost of funds was 1.16% a decrease of 2 basis points from the prior quarter. Primarily driven by lower deposit costs. Operating noninterest revenues increased $8 million or 10.2% compared to the prior year's third quarter and increased $7.4 million or 9.3% from the linked second quarter. The quarter over quarter and year over year increases in operating noninterest revenues was reflective of increases in employee benefit services, wealth management services, insurance services, and banking noninterest revenues. Our recent acquisition of ClearPoint trust contributed $2.1 million of noninterest revenues during the third quarter and $2.9 million year-to-date. Operating noninterest revenues represented 38% of total operating revenues during the third quarter a metric that continuously emphasizes the diversification of our businesses The company recorded a $5.6 million provision for credit losses during the third quarter. This was consistent with the prior year's third quarter and compares to $4.6 million in the linked second quarter. During the third quarter, the company recorded $141 million in total nnoninterest expenses an increase of $3.3 million or 2.4% from the linked second quarter and an increase of $12.7 million or 9.9% from the prior year's third quarter. The increase from the linked second quarter was due in part to a $1.5 million increase in salaries and employee benefits driven by 1 additional payroll day incremental expenses associated with ClearPoint as well as a $0.8 million consulting expense related to the renegotiation of a debit card branding contract. $7.4 million of the increase in total nnoninterest expenses from the third quarter of 2025 attributed to salaries and employee benefits, primarily due to the incremental costs associated with acquisitions completed between the periods higher performance based incentive compensation, and medical costs along with the impact of annual merit based increases. Occupancy and equipment expenses increased $2.6 million from the prior year's third quarter driven by incremental costs associated with the opening of 7 de novo branches and 3 regional headquarters over the last 12 months along with the 7 branches acquired from Santander in the prior year's fourth quarter. Excluding operating expenses related to acquisitions completed in the last 12 months, year-to-date operating nnoninterest expenses increased $18.7 million or 5.1% from the same prior year period. Ending loans increased $235.2 million or 2.1% during the third quarter and increased $767.8 million or 7.1% from 1 year prior. The increases reflected organic growth in the overall business and consumer lending portfolio. The company's ending total deposits increased $808.3 million or 5.7% from 1 year prior and increased $154.7 million or 1.1% from June 30, 2026. The increase in total deposits during the third quarter was primarily reflective of seasonal inflows of municipal deposits in September. The increase in total deposits over the past 12 months included $543.7 million of deposits assumed from the Santander branch acquisition and $120.1 million of deposits assumed from the ClearPoint acquisition. Moving on to asset quality. The nonperforming loans ratio increased 2 basis points, and the loans 30 to 89 days delinquent ratio increased 9 basis points from last quarter, but remained strong compared to the industry. The net charge off ratio increased 6 basis points from the linked second quarter due to $2.7 million of charge offs recognized in the third quarter of 2026 on 2 individually assessed business lending relationships for which specific allowance allocation had previously been established. The company's allowance for credit losses was $92 million or 80 basis points of total loans outstanding at the end of the third quarter an increase of $0.3 million during the quarter. The allowance for credit losses at the end of the third quarter represented approximately 7x the company's trailing 12-month net charge off. Looking forward, we believe the company's diversified revenue profile, strong liquidity, and historically good asset quality provide a solid foundation for continued earnings growth. With that, I would like to provide an update to our expectations for full year 2026. As we enter into the fourth quarter We continue to expect 3% to 4% growth in deposit balances. 6% to 7% growth in noninterest revenues, and an effective tax rate between 23-24%. As Dimitar noted, we expect loan growth to moderate in the fourth quarter driven by some seasonal slowdown in consumer lending as well as some larger commercial loan payoffs. As a result, we now expect full year 2026 loan growth of 5% to 5.5% percent. We expect the full year 2026 provision for credit losses to be in the range of $22 to $25 million. Factoring in the accretive impact, of the August 3rd sale of $296.8 million of lower yielding U. S. Treasury securities now expect 11% to 11.5% growth in net interest income and for net interest margin to exit 2026 in the mid- to high-3.5% range. Near term margin pressure is possible if higher market rates dampen loan demand and pressure deposit rates. Core noninterest expenses are expected to be in the range of $553 to $557 million or an increase of 7% to 8% from 2025. This includes approximately $8 million to $9 million of incremental expenses associated with the branches acquired from Santander and approximately $4 to $5 million of incremental expenses point including nonoperating intangible asset amortization, and the impact of certain 1-time items. These estimates do not include the impact of pending or future acquisitions. That concludes my prepared earnings comments, and Dimitar and I will now take questions. Chloe, I will now turn it back to you to open the line.

Thank you. Thank you. We will now begin the question and answer session. To ask a question, you may press *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 *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.

Hi. Good morning. Maybe start off on the names here. Hey. To start off on loans here, just kind of curious, you know, I hear you on moderation in auto and mortgage. Just curious, with regard to how to think about the commercial loan pipeline and what you are seeing for strength or weakness there. Just given larger payoffs?

Yeah. Hey, Steve. The pipeline is strong. It is pretty comparable to where it was last quarter, which means that it is close to its high marks. Activity is solid. So there is really. Just in terms of origination, there is really nothing to be to be concerned about. We just know that we have got a couple of larger payoffs, which is not the worst thing that can happen to a loan. So we are going to absorb those, and we are gonna replace them in the fourth quarter. And depending on timing, depending on closings, you know, we feel that the ranges we provided is an operating range.

Got it. And then also just curious what are you guys seeing for loan pricing these days in competition in the market?

So I think in the last couple of months, our blended originations have right around 6.6 and this is kind of across all portfolios. We talked about earlier this year that the pricing in auto was just frankly silly. And we did not participate as much. it is gotten a little bit better. it is not exactly where we want it to be, but it is a little bit better. So we are not probably going to see much growth in that side of the house. Mortgages are certainly, you know, you are seeing things in high 7s and even 8 handles. on mortgage products. That has an impact on demand. We have seen that. I think it is across the board. I am confident we are going to do better than most other folks. We are very purchase-focused shop. And we have multiple products and solutions for folks. But ultimately, the payment does go up as rates go up. So that will be quieter than expected. Certainly, the pipeline is lower than it was of at the end of the second quarter, and it is not also the best season for mortgages. And then on the commercial side, you know, I think trending kind of in the high 6s We have had to reintroduce the number 7 in certain situations. It is competitive. But you know, we feel like we have got a very nice broad footprint and multiple products to be successful and originate at a good pace.

Okay. Grant. Appreciate all that color there. And then maybe just on the fee based businesses, Dimitar, you hinted at the potential acquisitions Just kind of curious, is there any particular line of business you guys are maybe more focused on at the moment for acquisitions? Or any color you could shed there.

Yeah. Our acquisition pipeline is robust, as it relates to insurance in particular. And we have talked about this, a little bit in the prior calls This year, while the organic growth has been challenged for multiple reasons, we have all seen some kind of sanity return in terms of pricing on the M&A side. And we have made up some ground year-to-date You know, we were down in first quarter almost 10% year over year. We narrowed it down to 6.5. Now we are kind of in the low 3% year over year, and we think we have got good opportunities to continue both on the M&A side and the inorganic. And the organic side in the fourth quarter and narrow that gap. So I mentioned last quarter that if everything that we are working on transpires, we are going to be very well positioned for 2027 on the insurance side, and, knock on wood, I think we are still on very good track there for robust growth in 2027. Grant.

I appreciate all that color there, and I will step back in the queue here. Nice quarter.

Thank you. Thank you.

The next question comes from David Konrad with KBW. Please go ahead.

Hi, good morning. Nice quarter. A lot to talk about the balance sheet and maybe embedded in your NIM guide for the fourth quarter. I mean, it looks like on an average basis, you brought cash down, which may have may have helped the funding cost. But now post security sales cash is pretty elevated versus last quarter. So I guess the first question is, what do you think the use of cash will be in the fourth quarter? And then maybe also what do you anticipate the deposit beta being?

So I think what you are seeing on the balance sheet as it relates to the cash position is really more driven by the seasonality that we have in terms of predominantly the municipal side of our deposit base there is some seasonality clearly also in the general deposit basis, People spend money for vacations during the third quarter. So usually, in the third quarter, we see the. Kind of the. Some of those per personal deposits flow out and certainly the municipal deposits flow out in the third quarter. Then they come back at the end of the third quarter and into the fourth quarter as people making their payments across our footprint. So that is really what is driven that cash position. We talked last call that we expect it to be in a higher wholesale borrowing position. That did not transpire during the quarter to your point because we sold off some of our security maturities. So we funded that position and growth during the quarter through our securities portfolio. And then in terms of beta, David, really hard to tell. It is very early. You know? This is the kind of the do not know if we are gonna have more rate hikes. Is this gonna be 1 and done? Is it gonna be a couple? when they are going to happen? I think just in terms of how we have been approaching it, throughout the year, you can see we have driven costs down as we have optimized volume versus rate. On the deposit side, we certainly have a lot of strength in our liquidity position to allow us to do that. We have reengaged a little bit on some of the CDs this quarter. So that might move the numbers up a little bit. We will see. We are by far not the most aggressive person in that market, but it is higher than before. At the same time, kind of on the core accounts, we have not really touched any rates So very hard to tell how it is gonna shake out during this quarter. Okay. Then second question with the going into next year with the $600 million of cash flows off the bond book, Would that be more would you more like to optimize that? And the loan. You know, funding loan growth and maybe further reducing borrowings. And I guess remind me where you would prefer securities to earning assets be as a target? Yeah. I think, you just kind of look at what are balance sheet needs are, We would probably target to have securities to assets closer to kind of high teens 20% as opposed to where they are today. So as you can do the math, that is a lot of securities current on the balance sheet that will be used in much more productive ways going forward. As it relates to the maturities in 2020, we have about a $150 million of borrowings that are going to mature as well. Of FHLB borrowings kind of in the middle of the year. So that would be a use for some of those cash flows. Certainly loan growth, and just to provide a little bit more color on how we think about what we did this quarter versus opportunities going forward in terms of accelerating some of those maturities. It has to be a positive present value transaction for us. Right? So if you think about what we did in August, we had 5 months left on those treasuries until they mature. So in other words, can we get the cash flows sooner than the $3 million loss? And the math just worked. And it actually got even better as rates went up. So we think that coupon period is much tighter 5 months of maturity. So if we have similar opportunities in 2027, we are certainly going to keep an open eye towards those to fund growth. And maybe not have to be as active on some of the more pricey deposit side. Perfect. Thank you.

Welcome.

The next question comes from Manuel Navas with Piper Sandler. Please go ahead.

Hi. Good morning. So you have deposits coming from ClearPoint Santander over the year you had some seasonality this quarter. How is the de novo branches doing? Can we just have a an update there and what type of costs are coming in from there?

Pardon me, ladies and gentlemen. It appears we have lost the connection to our speaker line. Please stand by while we reconnect. Thank you. Pardon me. I have rejoined our speakers. You may begin again.

Okay. Thank you, Chloe. Apologies, everybody. We got disconnected somehow. Daniel, we were just in the midst of your question, so sorry for that.

Oh, sorry. So I was kind of asking for an update on the de novo branches. Seemed a lot of the year over year deposit growth was Santander and ClearPoint. Just kind of wanted to zero in on how the de novo branches are doing and what is kind of the deposit cost there, Any kind of update there?

Yeah. So on the de novo branches, as of, basically yesterday, we sit at roughly a $11.075 billion in deposits, in those So we are very encouraged we have mentioned previously that our goal for the year was to get to $200 million. And I think we are gonna have a pretty good shot at being somewhere around there. The majority of the deposits in those branches have been and continue to be and likely will be for a little bit commercially focused. I do not have the exact number, Manuel, on cost, but you can imagine that some of those are higher cost than the traditional retail. The retail is going to build over time. But more importantly, as we look at our aggregate deposit costs, you have seen those have continued to come down. Alright. that is great. You gave a little bit of color that the insurer business is catching up. You have some M&A possibilities there. It all kind of drive to potentially a better outlook for next year. Insurance. Can you just talk through employee benefit and wealth management into next year as well? Yeah. So I will start with wealth management. The. We have a couple of things going on there. Right? So on the organic side, we have tailwinds from just market values. So that is been positive, and that continues to help. At the same time, we are very focused on new advisory sales in the business. In the past 3 years, and I am including this year kind of as a projection, we have been running somewhere between $750 million and $1 billion of new advisory sales in the business. So that is a strong tailwind kind of purely organically. And then you have you have ClearPoint, which this year is only going to impact us for basically for kind of 2 quarters and a month. And next year, we are gonna have the benefit of that for the full year And certainly, they are doing better than we expected them to do as well. So I expect that next year in wealth management, assuming no change in market values, which is a very big assumption and likely incorrect. They are gonna go up or they are gonna go down. We are gonna have a robust double digit growth in wealth management in 2027. As it relates to employee benefit services, recall that in that business roughly half of the exposure is to market as well. And half of it is tied to basically a number of participants that we take care of across the country. We are just about at a 1 million of those folks that we take care of across the country. And that number for us grows somewhere in the low single digits somewhere 3% to 4%. So if you kind of add the market performance on the other half of the business, you get to a blended rate that we expect every year to be kind of in the high single digits somewhere around 7% for planning purposes. For 2027. I really appreciate that.

Shifting gears for a moment. what is roughly the average price on the share repurchase And where does that kind of fit in with capital deployment with the fee businesses that you are looking at? Any thoughts on bank M&A and of course, kind of the pace of the buyback?

Sure. So we have been I think this year, this past quarter as well, our average price has been in the low 60s kind of right around where we are today. We were very a profitable company. We generate a lot of capital. We do not really have a predetermined base of buybacks. It is opportunistic. It is clearly dependent on the price. It is dependent on what other priorities we have Our number 1 priority is always organic growth, so we have to fund that. In the bank, that means that we are funding balance sheet growth. So there is a-- you know, for every dollar you make in the bank, roughly half of it stays on the balance sheet in equity to support the growth. In the other businesses, really, it is for the through the P&L. So you will see certain quarters, there is gonna be a little bit more movement but that is our capital deployment on the expense side is really invested through the P&L. In the non banking businesses. So that is always priority number 1. Priority number 2, is inorganic growth. You know, we are what I would call, an active acquirer across our businesses. In the past 3 years, we have completed roughly 25 acquisitions. that is a lot. We know how to do these things. You know, they vary from you know, book of business to an athlete hire to a slightly larger practice to the clear points in the Santander's of the world. So that will always be a tool in our toolkit, and I expect that will remain to be active. So we have been able to do all of that, all those things. Right? Organic growth, acquisitions, and buyback shares and continue to grow our capital base along the way. So we. We are can expect more of the same going forward. As it relates to the latter part of your question on bank M&A, I would say it is a little bit quiet right now. there is not a ton of great opportunities to really spend time on. We have a very targeted box of things that make sense for us. And that really does not include the majority of things that are out there. I appreciate the commentary. I will step back into the queue.

The next question comes from Matthew Breese with Stephens Inc. Please go ahead.

Hey, good morning. Good morning, Matthew. Maybe just give us an update on the broader strategic initiatives tied to taking market share. In some of the denser Upstate New York markets in Pennsylvania. You know, where are you doing well versus lagging? And curious around you know, any. I will leave it there. Yeah. Curious where you are doing well versus lagging.

Yeah. Fortunately, I feel like we are doing really well across the board. And if you just step back and think about some of our most recent kind of entries, and I would count broader New England as 1 of those, you know, Southern New Hampshire and kind of Northern Massachusetts type market. Where I think we mentioned in the past that we have been much more engaged. Certainly, we started de novo in Bedford. We added some folks to the team last year from some of the M&A disruption. And that part of the geography for us has done really, really well this year already. So that is been that is been really encouraging, and the feedback from client visits there just continues to emphasize to me that there is a really good opportunity set for us and our ability to compete in that part of our footprint. Lehigh Valley, we have been in for a while. Clearly, with the acquisition of the Santander branches, we were able to take it up a notch. In terms of our ability to recruit and kind of establish leadership in the area. And we just did that in the third quarter. We found the leader we have been looking for in the Lehigh Valley. And we are we are off to a pretty good start there and kind of adding to the existing commercial team. So I am really kind of looking forward to what that is gonna bring to us in the next few quarters as well. Really well received by customers down there and our reputation is growing by the day. And that is really not to take away from what is happening in our kind of more established markets in Upstate. We have had a pretty good outcome year-to-date in Buffalo. We are gonna be. We are doing okay in Rochester. We are doing quite well in Syracuse. We are doing fine in Albany. So I am I am just encouraged. Certainly, in Vermont, we have reengaged as well in a-- and kind of continue to have a leading market share there. So I am just encouraged by the execution across the footprint. And I am also encouraged by the ability for us to have a very large funnel of things that we are working on and seeing. So what that allows us to do is if we need to allocate capital more actively and say, hey. The pricing and this part of our footprint is not as favorable this quarter we are gonna basically deploy more capital in another part of the footprint that. that is really powerful tool for us right now. Grant.

Marya, just on the security sale, I guess 1 thing I was a little bit surprised by was just that it looks like investment yields are actually down a little bit. Quarter to quarter. Maybe help me better understand that. Would have thought given the sales, some of the lower yielding stuff that goes higher and I know if it is a timing difference, maybe help me out with where you expect things to shake out. For the next couple quarters.

Sure. Yeah. I think it probably is a little bit of a of a timing difference. Based on the date that the sale was executed. In general, this, as we have mentioned, has been a very, you know, accretive transaction for us. We are really happy that NIM expanded 7 basis points last quarter. 3 of those basis points are attributed to the security sale. And then, obviously, loan yields, the deposit costs. We also just to put a fine point on this, did not receive an FRB or FHLB dividend. In Q3, and we will in Q4. So as we look forward, we expect that to smooth out, and Dimitar already went into some greater detail on what going to happen in 2027 with the 600 million that is obviously going to have also, you know, a positive benefit on AOCI. So, really, for us, it, I believe, to your specific question, it was more of a timing situation as it was August 3 and the way that we. When we calculate the portfolio and look at things, going forward, Given the positive state of the portfolio, the rate environment, and, again, the 2 dividends that we will see, we will continue for Q4. To see an expansion of 1 to 3 basis points in NIM and then as we mentioned in the script, for guidance, exit 2026 mid to high 3.5 for the company itself. Okay.

And then, Dimitar, 1 big picture question for you. Increasingly, we have been fielding questions around risks to deposit bases like yours tied to agentic AI, products like Muse that came out and, you know, just the ability to move dollars around much more efficiently. I am just curious how you would respond to that if you think a franchise like yours is more or less at risk and perhaps why. I will leave it there. Thank you.

Sure. Thanks, Matthew. Great question, and you know, it is kind of like the Yogi Berra thing that predictions about predictions are very difficult, especially about the future. But the way I would I would really think about it as it relates to our company is ultimately Muse, which is which is a terrific technology. And it is actually been available for a little bit in different in different ways. This is just much more consumer friendly, I would call it that way. it is. What it does is it removes friction in the process. And that is part of the equation. The other part of the equation is why do people bank where they bank And no matter what survey you kind of look at, convenience is an important piece, which also has to do with friction, but also with having something tangible around you. So branches actually show up quite high on most consumer surveys. for the reason where people bank. Then trust is a very large piece of it as well. Because our financial you know, well-being is right up there, you know, in the top 5. Behind health and family for everybody. Right? So trust is extremely important as it relates to finances. And the challenge with just purely agentic solutions is that there is no responsibility attached to that trust. What I mean by that is you may trust-- you know, you may trust Meta. Let's say, in an extreme example. However, if news does something that you did not ask it to do, and the power of news is really being able to practically do things you did not even ask it to do. But if it does something that you did not ask you to do or it makes a mistake, you have no recourse against anything. So in other words, there is no 1 to complain to. there is no 1 who can fix anything for you. You are gonna get a beautiful response that says, you are right to push back. I messed up. And that is about it. So there is no accountability and I think that is gonna be a challenge for trust. Now as it relates to our company in particular, I think the question is going to be how much of the reason that people bank with us or any other institution how much value are they placing on those attributes convenience and trust and accountability and responsibility versus the friction that is embedded in doing business with us versus muse. Keep telling our folks, our business is a friction, right? Like, nobody wants a mortgage. They want a home. So the 40 days it takes us to give them a mortgage is a friction in the way. When we tell a commercial borrower that we are good for x, They are expecting their money tomorrow, they are not expecting their money in 60 days. So we need to continue to work on the equation of providing that value versus the friction and removing as much friction as we can so that we can earn our place. And then the operating side of the balances is the key to all of this. Because if you think about where you leave your money, the money that we compete for is the operating accounts. It is not the investment parts. That game has been going on for a long time on the investment side. If you look at the fastest growing deposits. The fastest deposit growers in the country in the past year, they were not any banks. They were the Morgan Stanley's of the world. They were the Goldman's of the world. It is those investment dollars That game has been going on. I do not know that Muse is gonna change that dramatically. For us because we do not have a lot of those monies. But the operating accounts is where we deliver the value. And the convenience and the trust And if you look at the size of our average account, at $12 thousand those are truly operating money. Those are not investment dollars. So how much is it worth to a customer to optimize a couple of hundred dollars of that versus the convenience and the trust that comes with everything else that we provide. Excellent. I appreciate that. I will leave it there.

The next question comes from Eric Bedell with Bloomberg Intelligence. Please go ahead.

Hey, good morning. Thanks for taking my questions. Was just wondering if you could was just wondering if you could give us an update on how much of the commercial loan pipeline is related to the Micron plant And there is I also saw there is news this morning about a second chip factory being potentially built in Central New York as well.

Yep. Morning, Eric. As it relates to directly attributable our pipeline to Micron I would say it is a it is a very small percentage. What we are seeing, however, is the increase in business from the kind of the second and third derivative suppliers, really more and more like the third derivative suppliers. Or folks that are doing work around the sides. It relates to warehousing, as it relates to even just getting the roads done. So we have a number of those customers, and they are not necessarily just in the bank. A number of them that are actively engaged are insurance and benefits customers whose business is growing as a result of that. But this is all in preparation. We are starting to see more discussions from tier 2 and tier 1 suppliers looking at the operations here locally. If you are a tier 1 supplier, you probably already have a very well established relationship with a banking institution and you are not necessarily likely to bank locally for that. But they need to hire kind of the tier 3s and the tier 4s locally to, you know, construction companies. We are seeing some of that. Architectural engineering firms, we are seeing some of that. But in terms of percent, it is not-- is it driving our business at this point in time? Not yet. With that said, I think there is gonna be 4 thousand workers here on-site pretty soon. And that has its cascading impact. Right? They need to go to lunch. They need housing. They need medical care. They need insurance. They need all of it. So that is where we are gonna start seeing it as people really come on-site. Grant. Thank you. And I am just kinda curious on expenses from here. You know, should we expect larger than kind of the mid single digit range into next year? Or how is the best way to think about your approach on more de novo expansion? And anything just along those lines would be great. Yeah. I mean, generally, approach on expenses is lower. Just lower. Is our goal. If you take out acquisitions, as Marya mentioned, we are right around 5% this year. Which was in which was our goal on our scorecard. I think going forward, again, excluding acquisitions, I would like to be even a little bit lower than that. In terms of expense growth Again, a lot of what we are doing is investments in the future. it is been you know, not just branches and real estate, but technology and just infrastructure for us to scale. To really operate at a much. In a much bigger scale than currently we are. But you know, kind of that 4% to 5% on a excluding acquisitions kind of on an organic basis. Is a range that is probably gonna be on our scorecard for 2027. Grant. Thank you very much. Welcome.

The next question comes from Danielle Cardenas with Brin Capital. Please go ahead.

Good morning, everybody. So just a quick follow-up question to Eric's So it sounds like on the lending side, semiconductor business really has not been providing much loan growth as of yet. The expectations are that it is gonna pick up. How do you think this is. The pickup in that business is gonna impact your deposit growth on a go-forward basis?

Yes. Great question, Danielle. And we expect that it is gonna be on both sides. And if you look at the Syracuse market and if you just pull up the results from the 2026 FDIC survey, you are going to see that the market has grown a little bit. But our market share has grown meaningfully. In the past I think, 3 years, we have gone from kind of a 7% market share to over 9% market share. So I expect that not only the market is going to grow faster than it has been, but that we are going to continue to have opportunities to deepen our market share because of the level of activity that we have and just the way how we do business. So it will be helpful. Again, very hard to speculate. We have looked at the historical precedents, and Saratoga County and in other places around the country. And in some places, the impact is hard to see. In Saratoga County, certainly, it was. Deposits grew meaningfully faster than the rest of Upstate for kind of the period between 2010 and 2020. Where most of that activity happened. And since then have kind of been at the same pace as the rest of Upstate. So hard to tell. It should be a positive tailwind. I still think we are gonna get most of our growth from market share gains that we are going to have versus the overall market. Grant. Thank you. Okay.

This concludes our question and answer session. I would like to turn the conference back over to Dimitar A. Karaivanov for any closing remarks.

Thank you, everybody, for joining us. And we look forward to speaking with you again in January.

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