Community Bank System Inc. (NYSE:CBU) Q2 2020 Earnings Conference Call - Final Transcript

Jul 27, 2020 • 11:00 am ET

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Community Bank System Inc. (NYSE:CBU) Q2 2020 Earnings Conference Call - Final Transcript

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Presentation
Executive
Joseph E. Sutaris

June 30, 2020 based on their delinquency status at the end of the first quarter, unless subsequent to 31st, 2020 the borrower made all required past due payments to bring the loan to current status.

The Company's allowance for credit losses increased from $55.7 million or 0.81% of total loans outstanding at March 31st, 2020 or $64.4 million or 0.86% of total loans outstanding at June 30, 2020. The $8.7 million increase in allowance for credit losses included $3.6 million in additional reserves due to the Steuben acquisition and $5.1 million due to -- primarily to expected COVID-19 pandemic-related losses. The allowance for credit losses at June 30th, 2020 represented approximately 10 times the Company's trailing 12 months net charge-offs.

Looking forward; operationally, we will continue to adapt to the changing market conditions and remain very focused on asset quality and credit loss mitigation. We anticipate assisting the substantial majority of the Company's PPP borrowers with forgiveness request during the third and the fourth quarters of 2020. The eligibility of the borrower's forgiveness request and the SBA's ability to provide loan forgiveness in a timely manner is uncertain at this time.

For these reasons, it is uncertain as to the timing for which the Company's remaining $13.1 million in net deferred PPP fees will be recognized through the income statement. It seems likely that the pandemic will continue to negatively impact the level of business activity and employment. These factors will continue to adversely affect certain borrower's ability to service debt, may increase loan delinquency and credit losses levels for the remaining two quarters of 2020 and potentially beyond.

Loan demand may be impaired by weak economic conditions. We're also uncertain as to whether or not the high level of deposit liabilities we maintain, spent down or increased further by additional stimulus. We do expect the Company's deposit service revenues to increase slightly in the third quarter, barring another shutdown of non-essential businesses is in the Company's market footprint.

Although we will remain focused on containing operating expenses, it is likely that they will increase in the third quarter as the Company has resumed certain marketing and business development endeavors. The Company's dividend capacity remained strong. Accordingly, the Company expects to continue to pay a quarterly dividend consistent with past practice.

Undoubtedly, the COVID-19 crisis has changed the near-term outlook for society in general as well as the expectations around economic conditions. With this said, we will continue to support our stakeholders in a thoughtful, disciplined, and compassionate manner. I believe the Company is well prepared to endure its effects.

Thank you. I will now turn it back to our, Cole, to open the line for questions.