Community Bank System Inc. Q2 2008 Earnings Call Transcript

Aug.22.08 | About: Community Bank (CBU)

Community Bank System Inc. (NYSE:CBU)

Q2 2008 Earnings Call Transcript

July 23, 2008 11:00 a.m. ET

Executives

Mark Tryniski - President & Chief Executive Officer

Scott Kingsley - EVP & CFO

Analysts

Steve Moss - Janney Montgomery Scott LLC

David Darst - FTN Midwest Securities

Chris Chenard

Damon Delmonte - Keefe, Bruyette & Woods

Operator

Good day, everyone. Before we begin today's call, I'd like to remind you that this presentation contains forward-looking statements within the provisions of the Private Security Litigation Reform Act of 1995 that are based on current expectations, estimates, and projections about the industry, markets, and economical environment in which the Company operates. Such statements involve risks and uncertainties that could cause actual results to differ materially from the results discussed in these statements. hese risks are detailed in the Company's Annual Report and Form 10-K filed with the Securities and Exchange Commission.

And now I would like to introduce today's call leaders, Mr. Mark Tryniski, President and Chief Executive Officer, and Mr. Scott Kingsley, Executive Vice President and Chief Financial Officer of Community Bank System. Gentlemen, you may begin.

Mark Tryniski

-- quarter, like the first, was a strong one for us, with EPS growing 9% over last year's second quarter. The highlights, from my perspective, start with core deposit growth which continues to be our most important retail banking objective. Non-time deposits grew $56 million in the quarter on the heels of a $15 million increase in the first quarter, representing a year-to-date growth rate of 8%. This improvement in funding guidance and the 48 basis point decline in our deposit funds over last year, as well as a 14% increase in deposit related fee income, which incidentally is entirely volume driven, because we have not raised deposit fees since before 2007.

Operator

Mr. Tryniski, I am sorry to interrupt. Could you just speak up or get a little closer to the telephone?

Mark Tryniski

All right. Loan growth was also very strong in the quarter and continues to trend in the past several quarters, including business banking where we've placed particular focus and are pleased with results to date. All portfolios were up with growth coming across all of our geographic regions as well.

Asset quality metrics continue to be strong and steady throughout all portfolios including charge-offs, non-performers, and delinquencies, and I look forward to the call where I do not have to say for the record that we have no exposure to sub-prime or other higher risk mortgage instruments, either in our loan portfolio or our investment book. Non-interest revenues continue to perform well with double-digit growth across all lines including banking fees, wealth management revenues, benefit administration and consulting revenues.

The second quarter was also active on the acquisition front as we announced two transactions. The first is the acquisition from Citizen Financial Group of 18 branches in Northern New York with over $630 million in deposits and $135 million in loans. This is a very attractive opportunity for us to expand our market leading Northern New York region and gives us a number one market share position in Plattsburg and in Clinton County.

The core deposit base we will be acquiring is exceptional with time deposits representing less than one-third of total deposit balances. Regulatory approval is pending and we expect the transaction to close in the early part of the fourth quarter.

As previously announced, as well, we also expect to issue approximately $30 million of equity capital to support the transaction. Excluding one-time transaction expenses, the acquisition will be immediately accretive to earnings, inclusive of the impact of the capital expense.

The second announced acquisition is that of Alliance Benefit Group MidAtlantic in Philadelphia which was announced and closed in early July. This is an extension of our successful benefit administration and consulting business, with this acquisition growing the total revenue run rate of that business to $30 million.

In summation, the second quarter was a very busy one and a very good one for us. Our on the ground execution in our markets by our branches and our lenders was as good as we can ask for and our financial results are reflective of that. With half of the year behind us at this point, I would say that we're very well positioned to finish the year strong.

With that I would ask Scott to give us more detail on the financial report.

Scott Kingsley

Thank you, Mark. And good morning, everyone. Our second quarter earnings of $11.3 million or $0.37 per share were $0.03 above the $0.34 reported in the second quarter of 2007 or a 9% improvement. As Mark mentioned, solid loan and core deposit growth, continued expansion of non-interest income sources, and improved net interest margins, and stable asset quality resulted in the improved quarterly operating results.

Cash earnings per share which exclude the after-tax effective, the amortization of intangible assets and acquisition related adjustments were $0.42 per share in the second quarter, a full $0.05 a share above GAAP reported earnings. Year-to-date, earnings of $22.2 million or $0.74 per share were 12% above the $0.66 per share reported in the first six months of 2007.

I will first discuss the balance sheet. Our average earning assets of $4.17 billion were up $90 million from the second quarter of 2007 and were consistent with the first quarter as we chose not to fully invest investment cash flows in the quarter. We grew average loans by $157 million from last year, including $29 million in business lending, $74 million in consumer mortgages, and $54 million in consumer installment products.

Average investment securities, including cash equivalents, were down $67 million from the second quarter of last year, but do reflect a higher performance of tax flow to be reinvested in tax exempt securities. Average deposits were $3.23 billion for the second quarter of 2008, down 1.4% or $45 million from last year's second quarter; however, as Mark pointed out, consistent with our focus on expanding core account relationships and renewed the entire cost timed deposit levels, balanced in core deposit relationships grew $97 million grew a 5.5% since last year's second quarter, while timed deposits were allowed to decline $142 million.

Second quarter average borrowing of $870 million decreased $13 million from the first quarter of this year. Loans grew organically $84 million in the second quarter and are up $101 million for the year or 3.6%. Business lending growth was up 2.7% from the end of 2007 or 5.4% annually. Year-to-date, consumer mortgages have grown 3.8% and consumer installment products are up 7.5%.

Our capital levels for the second quarter remain strong. The tier one leverage ratio stood at 7.75% at quarter end and our tangible equity ratio was 5.22%. The second quarter's ended payout ratio was 57% of GAAP earnings and just 50% of cash revenue, allowing for meaningful capital build.

Shifting now to the income statement, our reported net income starting for the second quarter was 3.78%, up 14 basis points from the second quarter of 2007 and down three basis points from the first quarter. Proactive management of deposit funding costs and the debt restructuring completed late last year resulted in a year-over-year improvement as total funding costs declined 48 basis points from last year's second quarter and were partially offset by a 33 basis point decline in earning asset yield.

The loan loss provision for the quarter was $1.6 million compared to $0.8 million in the first quarter of 2008 and $0.4 million in last year's second quarter. Net charge-offs for the quarter were $0.9 million, up slightly from the $0.8 million reported in the first quarter and up $0.4 million from a very favorable second quarter of last year. Our loan loss allowance to total loans outstanding stood at 1.27% at quarter end versus 1.28% at March 31 and 1.33% a year ago. This small decline in coverage ratio is due to the $84 million of loan growth experienced in the second quarter combined with the stable underlying credit profile of our portfolios. In addition, our coverage ratio of non-performing loans stood at 324% at quarter end compared to 368% at the end of last year's second quarter.

Quarter end non-performing assets to total assets outstanding were at 0.26%, a slight increase from the 0.25% level reported at the end of last year's second quarter. This favorable and stable asset quality profile is primarily the result of our credit risk management program and continued emphasis on and adherence to disciplined underwriting standards.

Second quarter non-interest income, excluding securities, gains and losses and debt refunding charges was up 18% over the prior year. Our employee benefits administration and consulting business increased revenues by 24% over last year's second quarter, including acquired and organic growth. Deposit service fees and other banking revenues increased 14% over last year driven by additional account relationships and growing debit card related revenues.

Our wealth management business has posted 16% year over year growth, overcoming less than favorable second quarter market conditions with growth in insurance agency revenues and other products. Operating expenses of $37.0 million increased $2.8 million or 8% over the second quarter of 2007, primarily a result of the two acquisitions completed in 2007. In addition, the Company incurred higher business development and volume based processing costs and increased facility based utilities and maintenance costs over the prior year. Operating expenses were actually down 3.7% from the first quarter of 2008, reflective of seasonally lower occupancy, professional and certain personnel related costs.

Our effective tax rate in the first quarter was 22.5%, consistent with the first quarter and down from 25.0% reported in the second quarter of 2007, reflecting a higher level of income from tax exempt sources. I will now turn it back over to Linda to open the line for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from Steve Moss from Janney Montgomery. Your line is open.

Steve Moss - Janney Montgomery Scott LLC

Good morning, guys. Nice quarter. Hello?

Operator

Hold on one moment. I think we lost them again.

Mark Tryniski

Steve? Hello?

Operator

Here we go.

Mark Tryniski

All right. Okay.

Steve Moss - Janney Montgomery Scott LLC

Good morning, guys.

Mark Tryniski

Good morning.

Scott Kingsley

Good morning, Steve.

Steve Moss - Janney Montgomery Scott LLC

Okay. Nice quarter.

Mark Tryniski

Thank you.

Scott Kingsley

Thank you, Steve.

Steve Moss - Janney Montgomery Scott LLC

I just want to touch on the consumer loan growth and business loan growth in the quarter, if you could give a little extra color there?

Scott Kingsley

Okay. Well, Steve, on the business lending side, actually that was our third consecutive quarter where the growth rate was a little over 1% on a linked quarter basis. And, again, I think we are seeing that in all of the attributes of the business lending portfolio we are servicing. There is nothing in terms of a concentration. We had good growth in all three of our regions on the commercial lending side in the first half of the year. So, I don't think there is anything too substantial to remark on, relative to that.

On the consumer installment side, we had excellent growth across all of our products, again, in the second quarter there with really, actually, a very good quarter in our indirect auto business. During the quarter, the growth rate there was certainly higher than we saw in the first quarter, but, as you remember, that portfolio tends to be very seasonably orientated in that we write most of our new business in the second and third quarters and the first quarter and the fourth quarter are actually usually either flat or down on a comparative basis.

Steve Moss - Janney Montgomery Scott LLC

Okay. And as of quarter end, what percentage of your consumer installment is indirect auto?

Scott Kingsley

Just to give you a little breakdown, Steve, if you looked at the $895 million of consumer installment, you would find that $270 million of that is home equity. About $475 million is indirect and that's indirect auto. And the other $150,000 would be branch-based direct lending programs. Could be auto related, could be some other products, but those would have been originated directly out of the branches.

Steve Moss - Janney Montgomery Scott LLC

Okay. And with regard to the margin -- what are your margin expectations going forward here?

Scott Kingsley

On a holistic basis, Steve?

Steve Moss - Janney Montgomery Scott LLC

Yes.

Steve Moss - Janney Montgomery Scott LLC

I think that we'd probably have liked to have seen a little bit more margin pickup in the second quarter, but I think that from a practical standpoint, I think that we thought in and around the 380 mark was probably where we were going to finish. Remember, we had great movement in terms of deposit costs funding in our favor, but we did get the full quarter impact of all the adjustments to primed rated and LIBOR related loans from the first quarter impacting the commercial loans and home equity lines of credit in the second quarter.

So, I think from an expectation standpoint, I think it would be stable is our outlook for now, Steve.

Steve Moss - Janney Montgomery Scott LLC

Okay. And then, on a -- for operating expenses, excluding this quarter's acquisition here, what should we expect on the expense side?

Scott Kingsley

Probably -- a reasonable question, Steve. I think that what we probably wanted to point out more than anything is that our expenses in the first quarter tend to be a little bit seasonally high and a lot of those relate to the fact that it is clearly more expensive for us from a maintenance standpoint and a utility standpoint in the winter months than it is in the summer months for us. So, my sense would be that at some point between where we were in the first quarter and where we landed here in the second quarter is probably a realistic run rate. But, again, we are going to have some fluctuations there based on the timing of programs that we might be working on from a consultative standpoint. Sometimes the timing goes along with us paying our own taxes relative to real estate taxes as well as paying real estate taxes on properties we might have in foreclosure, which you know is a very small amount of properties for us at the current time, but the payment of some of those expenses can actually fluctuate between quarters.

So, I would think somewhere in the middle is probably a reasonable run rate expectation for us, certainly for the balance of the year.

Steve Moss - Janney Montgomery Scott LLC

Okay. And then last question here. Obviously, asset quality remains good, but any concerns on the consumer business side here with oil or pressures going forward?

Mark Tryniski

Well, you know, it is the difficult economic environment and particularly for the consumer, we have not at this point seen any manifestation of that in terms of delinquencies or charge-offs or losses of any kind in our consumer portfolios. And if you look at the delinquency rate and the charge-offs in those portfolios, they are really just looking at the delinquency rate in the installment -- consumer installment portfolio is 92 basis points. The quarter before, 84, quarter before that, 122. Then 110. So, in fact, it's probably running a little bit lower right now than it has in the average of the last four quarters.

The answer is we don't know what the future's going to bring, but right now we are very satisfied with the fact that the installment loan portfolio continues to run under 1% delinquency rate.

Steve Moss - Janney Montgomery Scott LLC

Okay. Thank you very much.

Scott Kingsley

Thanks, Steve.

Mark Tryniski

Thank you, Steve.

Operator

Thank you. Our next question comes from David Darst from FTN Midwest. Your line is open.

David Darst - FTN Midwest Securities

Good morning, Mark, Scott.

Scott Kingsley

Good morning, David.

Mark Tryniski

Hi, David.

David Darst - FTN Midwest Securities

As far as your strategy regarding your deposit pricing, is any of this in anticipation of getting the excess deposits of the branch sale or branch purchase?

Mark Tryniski

Well, certainly David, I would say that where those two come together in terms of our current strategy is that when we know four months from now we are going to be taking on some profound liquidity, I think it does allow us to certainly be a little bit more aggressive relative to setting of the rates in the current portfolio. But I would say that more is a function of us not having to chase time deposits, because where we are in terms of a strategy and a focus on the core side remains consistent. The bringing on of the Citizens branches actually just reaffirms that strategy, David.

David Darst - FTN Midwest Securities

Okay. And how about as far as securities, cash flows? Do you have any large maturities between now and the time of close that meant maybe you get a chance to shrink the balance sheet a little bit before you get this excess liquidity?

Scott Kingsley

David, we do have upwards to $80 million of expected cash flows coming off the portfolio between now and the end of the year. I think in terms of utilizing that to shrink the balance sheet, as you can see, what's happened for us in the first six months of the year, we have basically been trading off investment assets for loan assets which we like the core outcome of that a lot. But on a going forward basis, do we do that? I think one of the things we need to pay attention to, David, is that knowing we are going to have this liquidity and knowing we are going to have to deploy this liquidity, I would sense that we will probably pre-fund some investment purchases in advance of the actual closing of the transaction.

So, as much as you might have the ability to, quote, reduce the size of the balance sheet a little bit between now and the closing, I think it would be more productive, and we certainly think we are following a path that will be more productive for us to put some of those cash flows to work prior to the closing so we are not left with this huge task of redeploying $400 million in a couple of months.

Mark Tryniski

And it is not just productive. It is responsible, given you can't take the $400 million in cash flows that come in on a particular day and deploy them in a short time frame with responsibility. So, that's a magnitude of investment that requires a longer and more deliberative and thought through timeline to deploy than just doing it immediately after the transaction closes. So, as Scott said, we will likely be pre-funding some of that. How much of the approximately $400 million cash we deploy between now and the closing in investment securities is a function of what happens in the markets. Right now they are not too bad. There is some favorable opportunities in the market right now. It seems to be improving which is a good thing. But we are going to be very thoughtful and deliberative about the securities we acquire, the structure of those securities, the terms of those securities, how they fit into our current asset liability mix. So, it is something that we are going to take our time and do in a very thoughtful manner over the course of the next several months.

David Darst - FTN Midwest Securities

Okay. Is it reasonable to think that you might do at least half of it ahead of time?

Scott Kingsley

It is difficult to predict because it is really going to be largely a measure a function of market opportunity. And that's why I said it is such a large cash flow and it needs to be deployed with thought and that takes time in terms of insuring that you are deploying it at different points in the market and you are identifying the security classes that you want to invest in in making sure that you are executing during the right time in the market for that class of securities.

It could be the $200 million. I think it probably could. Is it going to be all $400 million? Probably not. Is it going to be zero? That's probably unlikely too. So, I don't know whether its $200 million is the number, David, but that's probably as good of a number to pick as any. But don't hold me to it.

David Darst - FTN Midwest Securities

Okay. And then could you comment a little bit on your commercial demand and commercial growth? Are you doing more business in the more urban markets and are the new customers gaining share or are you getting deeper within your customer base?

Scott Kingsley

That's a good question. We put a lot of --- as I have talked about in the past, we have put a fair bit of emphasis for the last probably four quarters on our business banking line of business and we have made investments in people and some technology and some business development programs and those kinds of things. It is starting to pay off. The business lending portfolio has performed well and grown nicely now for the last three quarter consecutively. We are also focused on business deposit relationships and just kicked off some programs there. So, that's something you might hear us talk a little bit more about as the business deposit relationships. But the demand has been very good. I don't know if some of it is that the larger banks have pulled back a bit so we are seeing some more opportunities. That could be a part of it.

I think we are being just -- we are better at what we do in terms of on the ground execution in our markets. And our markets are doing well. We were up in commercial lending this quarter and year-to-date as well at all three of our regions, that those being the Northern New York region, the Southern New York region and then Northeast Pennsylvania. We had good growth in all three of those regions, particularly in Northern New York. It was very strong the first half of the year.

So, the economics of our markets are enabling us to pursue opportunities and they are good opportunities. We haven't made any revisions to our disciplined underwriting standards and in fact, I think if anything there is -- the balance of power maybe has shifted a little bit back towards the banks. And some of that, in what we have seen is some of the larger banks, they are pulled back and they are going back to their customers is impacting the markets in a sense that they are asking for higher rates and they are asking for tougher terms and structures. So, I think in a sense, what we are seeing a lot in our markets is better opportunity in terms of rate and structure. But, clearly, just in terms of opportunities, it has been very good the first half of the year. And I would also say right now, the pipeline that we have is the strongest it has ever been. So, I think we are expecting that we will continue to have a good outcome in our commercial banking business in the third quarter as well.

David Darst - FTN Midwest Securities

Sounds good. I guess given those expectations, should we continue to see a slightly higher provision?

Scott Kingsley

David, I would go along with it, that I think from a peer responsible standpoint, when you grow the loan portfolio, one would expect that you would need to keep somewhat pace there. That being said, the underlying qualitative factors, you can see, aren't yet supporting that we need higher levels of reserves, but we think that all that needs to be analyzed quite closely and very specifically when we start to get into an economic environment that we are in today.

David Darst - FTN Midwest Securities

Okay. Sounds good. Thanks a lot.

Mark Tryniski

Thank you, David.

Scott Kingsley

Thanks, David.

Operator

Our next question comes from [Chris Chenard] from [Endicott]. Your line is open.

Chris Chenard

Hello. Good afternoon, guys.

Scott Kingsley

Good morning, Chris.

Mark Tryniski

Hello, Chris.

Chris Chenard

I had just a question about the Citizens transaction and just about the funding of it. I know that it looks like about a $75 million or so transaction and you mentioned here in the release about $30 million of equity capital issuance. How do you end up or how do you guys think about funding the rest of that? And how did you guys determine the equity and, I guess, and debt split what do you think about this deal?

Scott Kingsley

Sure. I guess first, in terms of the funding, because it is going to be $600 million approximately in deposits and a $100 million something in loans, that net differential actually gets funded to us in cash. So, there is no cash funding that's necessary, because we are the recipient of cash, because we are assuming more deposit liability than we are acquiring an asset.

On the capital side, I think we did a lot of analysis around what's the right amount of capital to raise? The most important criteria from our perspective was we need to continue to be well capitalized and to make sure that our -- all of our different capital ratios continued to qualify from a regulatory standpoint is well capitalized.

So, we looked at a variety of different levels of capital raising and determined that the $30 million capital rate level is sufficiently supportive of this transaction and gave us plenty of cushion beyond the well capitalized regulatory ratios that we think it is important and critical to maintain.

Chris Chenard

Is there any sort of like deleveraging we should expect when you bring this on? For instance, should we expect to see borrowings fall a bit, so that total assets won't go up?

Scott Kingsley

Chris, I think right now we have certainly assumed in our model that we actually have to redeploy all of those net considerations onto the balance sheet. We will clearly be monitoring situations relative to the rate parts of the market and if there is a position that we are in where it makes common sense to call some of our current term borrowings in terms of productive capital use, as well as, productive P&L impact, we would certainly look at that.

And we have clearly modeled that the same way we have modeled putting $400 million of investments on the balance sheet. So, I think it is really going to be more of a function of the rate environment that leads us to that determination. Because, again, right now, we don't think it makes any sense to take a capital penalty to early call some of those term borrowings that would be counterproductive.

Chris Chenard

Understood.

Mark Tryniski

And I do think we have some, as well, that are callable by the issuer towards the end of the year, about $400 million, Scott?

Scott Kingsley

We do.

Mark Tryniski

-- that is callable. So, based on -- it is not impossible that there is a deleveraging based on what happens in the interest rate environment and if that debt gets called and we decide that we fund it from the current liquidity on the balance sheet as opposed to replacement funding. So, as Scott said, the interest rate environment will dictate that.

Chris Chenard

Got it. And can you give us a sense for what the average rate is on the deposits that you are acquiring, just to get a sense for what the rate differential would be versus your borrowing costs?

Scott Kingsley

Sure, Chris. As a matter of fact, one of the attractive parts of this transaction was that the funding costs for this, given the fact that it's about 66% core funding and 34% CD funding, their rates are very close to what we see as our rates in that market place. So, and all-in deposit cost funding for us in the second quarter was in and around 2%. They are very close to that.

So, from a practical standpoint, I think that is a fair number for model utilization. Their rates are probably better on July 23 for the Citizen folks than they were the last time we actually saw then, say, six weeks ago. Assuming they are getting the same type of lift in the marketplace from the repricing of their time deposits.

Chris Chenard

Okay. Thanks a lot, guys.

Mark Tryniski

Thank you, Chris.

Scott Kingsley

Thanks, Chris.

Operator

We have another question from Steve Moss from Janney Montgomery. Your line is open.

Steve Moss - Janney Montgomery

Just one follow-up here. I was wondering, do you guys have any pooled trust preferred securities?

Scott Kingsley

Steve, we do. We are carrying $62 million of pooled trust preferred securities. We have --- we are only in the super senior tranche which is AAA rated and, as you know, both S&P and Fitch have issued negative watch notes in the last month, but if you look at the Fitch notes specifically, their negative watch only effects the junior classes or those rated A and below. We think, Steve, we have got adequate monitoring capabilities for these types of securities. The pools that we are in have geographic diversification across the country. You can imagine, based on the fact that they are pooled, they include mostly smaller institutions who for the most part have not seen some of the same headline chasing impacts that some of the larger banks have been involved in.

To the extent that we have had market value decline since we bought them, Steve, which we have had in terms of that, all that's already been impacted through capital, those adjustments go through other comprehensive income on a quarterly basis because we carry these securities as available for sale.

Steve Moss - Janney Montgomery

Okay. And how long have you had these trust preferred? Or when they were issued, I should say?

Scott Kingsley

We've probably had them about a year.

Steve Moss - Janney Montgomery

Okay. So they are relatively new issues, then?

Scott Kingsley

Yes. They would have been mid -- probably mid-2007.

Mark Tryniski

Yes. Mid and third quarter.

Scott Kingsley

Okay. And, Steve, I have one more follow-up for you relative to your question on expectations for expenses going forward. I don't want to be reminiscent in reminding you that we did buy a $5 million revenue benefits administration business a couple of weeks ago. There will be some acquired impact that goes along with that. So, just from a pure modeling standpoint.

Steve Moss - Janney Montgomery

Yes. Okay. Well, thank you very much.

Scott Kingsley

Great, Steve. Thanks.

Mark Tryniski

Thanks, Steve.

Operator

Thank you. Our next question comes from Damon DelMonte from KBW. Your line is open.

Damon Delmonte - Keefe, Bruyette & Woods

Hi. Good morning, guys. How are you?

Mark Tryniski

Great, Damon.

Scott Kingsley

Good morning.

Damon Delmonte - Keefe, Bruyette & Woods

If we could just circle back to the credit quality, if you look at the reserve level, it has been trending down over the last four or five quarters. In this quarter we saw charge-offs at 12 basis points, obviously, very low on an absolute basis, but you also had a fair amount of growth in recent quarters. How do you guys kind of look at your reserve level in comparison to historical levels, especially with the recent growth?

Mark Tryniski

David, I will take a shot at that one. If you look at where the reserve level is, it actually probably shouldn't be a surprise that we have come from say 135 or 134 eight quarters ago to where we are today. Just to be directionally, proportionally consistent, with the underlying loss factors, the charge-off levels, the asset quality -- other asset quality factors like delinquency, the low level of non-performers, we would have had a very difficult time substantiating anything more than what we actually booked.

I think if you look at the second quarter of 2008, this is probably the first quarter in five or six quarters where we truly had outsized organic growth in the quarter. And I think we thought we did the responsible thing relative to that growth in the current market conditions, which was to provide a noticeable amount, above and beyond the level of charge-offs for the quarter.

So, again, I don't know that that signals that we are committed to a certain line in the sand relative to the reserve level, Damon, because, remember that in terms of our portfolio, it stayed very balanced across business lending, mortgage, and consumer installment. And we are seeing charge-off rates that are so low across all of those portfolios. In fairness, from a mechanical standpoint, it would look like we are probably over-providing.

But, again, I think given the fact that there is probably going to be a delay in the cycle relative to declines in asset quality, again, we think it is probably the productive thing to do.

Damon Delmonte - Keefe, Bruyette & Woods

Great. Thank you. And with regards to the growth that you guys have seen, has all this been self-originated or have you purchased any loans?

Mark Tryniski

Absolutely all from us, Damon. All from us, all in the footprint.

Damon Delmonte - Keefe, Bruyette & Woods

Thanks. And do you have a breakdown between CRE and CNI loans?

Scott Kingsley

Damon, I can get you that offline. I don't have that sitting in front of me right now.

Damon Delmonte - Keefe, Bruyette & Woods

Okay. That is all I have. Thank you.

Mark Tryniski

Thanks, Damon.

Scott Kingsley

Thanks, Damon.

Operator

Thank you. (Operator Instructions) It appears we have no other questions in queue at this time.

Mark Tryniski

Great. Thank you all. Talk to you next quarter.

Operator

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect.

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