Community Bank System, Inc. (NYSE:CBU) Q2 2024 Earnings Conference Call July 23, 2024 11:00 AM ET
Company Participants
Dimitar Karaivanov - President and Chief Executive Officer
Joseph Sutaris - Chief Financial Officer
Conference Call Participants
Matthew Breese - Stephens Inc
Christopher O'Connell - KBW
Steve Moss - B. Riley FBR
Operator
Good day and welcome to the Community Financial System 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.
Dimitar Karaivanov
Thank you, Ashiya. Good morning, everyone, and welcome to our second quarter 2024 earnings call. I would like to first note that during the quarter, we changed our holding company name to Community Financial System as a better reflection of the uniquely diversified nature of our financial services company and also a better reflection of how we run the business, how we interact internally and how we go to market. We are truly unique amongst the industry. We have the highest percentage of non-banking revenues amongst KRX peers and an overall peer revenue percentage of 40% versus KRX peers of 18%. We're now also providing enhanced disclosures in our quarterly filings and investor presentations in line with how we operate our business segments.
Now turning to the quarter, this was a productive quarter for us. Our Company recorded a new quarterly record for revenues while expenses remained well controlled, leading to $0.91 of 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 5 basis points of charge offs for the quarter.
In our Employee Benefit Services business, we achieved a new quarterly record of $32.1 million in revenue, up 12% over last year. We continue to add participants and assets to the platform and are also benefiting from strong asset values in both our record keeping and fund administration parts of BPaas. Our Insurance Services business also achieved a new quarterly record of $13.3 million in revenue, up 12% over last year. As expected, we're now in positive territory for the year with growth of 4.4%. We continue to remain focused on both organic and inorganic growth and during the quarter executed on two roll up acquisitions.
Our Wealth Management Services business remains strong with revenues of $8.7 million, up 10.6% over the comparable period last year. 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 have repurchased 1 million shares at well below intrinsic value. We continue to be on the lookout for similar tactical openings.
As we look ahead, we remain optimistic about the opportunities we have across our markets and businesses. Of note, the New York SMART I-Corridor tech hub, which spans Buffalo, Rochester and Syracuse, was recently selected as one of only 12 national tech hub winners. As a frame of reference, our Buffalo and Rochester regions have combined footings of $4 billion in deposits and $3 billion in loans and our Syracuse region has $3 billion in deposits and $2 billion in loans.
Our Wealth, Insurance and Benefits businesses also have deep presence in those markets, which positions us very well for the economic activity we're seeing today and expecting in the future. In addition, recent headlines and developments with some of our national and regional banking competitors continue to create opportunities for market share gains. Lastly, as mentioned on our first 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.
Joseph Sutaris
Thank you, Dimitar, and good morning, everyone. The 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 noninterest expenses and income taxes offset in part by higher operating revenues and a decrease in fully diluted shares outstanding.
Operating pretax pre provisioned 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% per share -- excuse me, $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 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 taxed equivalent net interest margin increased from 2.98% in the linked first quarter to 3.04% in the second quarter. Comparatively, the Company recorded net interest income of $109.3 million in the second quarter of 2023. The outlook remains positive for net interest income expansion on a full year basis.
Operating noninterest 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 Benefit Services and Insurance Services revenues increased $0.4 million or 1.3% and $2.2 million or 19.8%, respectively. Wealth Management Services revenues were down approximately $500,000 or 5.6% due to seasonal factors.
During the second quarter, the Company recorded $119 million in noninterest expenses. This represents a $6 million or 5.3% increase from the prior year second quarter and $0.9 million or 0.8% increase from the linked first quarter results. Total operating noninterest expenses, which excludes 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 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 forecast, the Company recorded $2.7 million and 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 credit amortization, the effective tax rate for the second quarter of 2024 was 22.3%, up from 21.4% in the second quarter of 2023.
Ending loans increased $140.4 million or 1.4% during the second quarter. This marks the 12th consecutive quarter of loan growth and is reflective of the company's continued investment in its organic loan growth capabilities. This included growth in both the company's business lending and consumer lending portfolios. On a year to date basis, ending loans are up $319.3 million or 3.3%.
The Company's ending total deposits decreased $214.1 million or 1.6% during the second quarter of 2024, driven by seasonal outflows of municipal deposits. Conversely, ending deposits increased $266.1 million or 2.1% from one year prior. Although funding costs increased in the second quarter as previously noted, noninterest bearing and lower rate checking and savings account continue to represent almost two-thirds of total deposits and the Company's cycle-to-date deposit 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.
The Company's liquidity position remains strong, readily available source of liquidity including cash and cash equivalents, funding availability at the Federal Reserve Bank's discount window, unused borrowing capacity at the Federal Home Loan bank of New York and unplugged investment securities totaled $4.44 billion at the end of the second quarter. These sources of immediately available liquidity represent over 200% of the Company's estimated uninsured deposits, net of collateralized and intercompany deposits.
The Company's loan to deposit ratio at the end of the second quarter was 76.3%, providing future opportunity to migrate lower yielding investment securities into higher yielding loans. At the end of the second quarter, all the Company's and the bank's regulatory capital ratio significantly exceeded well capitalized standards. More specifically, the Company's Tier 1 leverage ratio was 9.07%, which substantially exceeded the regulatory well capitalized standard of 5%. As Dimitar mentioned, during the second quarter, the Company repurchased 250,000 shares of its common stock at an average price of approximately $45 per share.
The Company recorded net charge offs of $1.3 million or 5 basis points of average loans annualized during the second quarter. This is up slightly from 3 basis points in the same quarter of 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, was 69 basis points one year prior. Comparatively, the allowance for credit losses to total loans outstanding was also 71 basis points at the end of the linked first quarter. The allowance for credit losses at the end of the second quarter represent over nine times the Company's trailing 12-month net charge offs.
At June 30th, 2024, 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 delinquent 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 remains stable and strong in the quarter.
On July 17th, the Company announced a $0.01 or 2.2% increase in the quarterly dividend to $0.46 per share. This marked the 32nd consecutive year of dividend increases for the Company, which serves as a testament to the performance of the Company's longstanding and durable business model. We believe the Company's diversified revenue profile, strong liquidity, regulatory capital reserves, stable core deposit base and historically strong asset quality provide a solid foundation for future opportunities and growth. Looking forward, we are encouraged by the revenue outlook in all four of our businesses and prospects for continued organic growth. We will continue to play offense lean into growth and deploy capital in the best manner possible for our shareholders.
Lastly, on Friday, September 6th, from 09:00 a.m. to 12 noon, we will be hosting an investor day at the New York Stock Exchange. This event will provide an opportunity for investors to engage directly with the Company's management, gain insights into strategic initiatives, and explore the Company's future growth prospects. Links to register for the CBU Investor Day were included within this morning's earnings press release. That concludes my prepared comments.
Thank you. Now, I'll turn it back to Ashiya to open the line for questions.
Question-and-Answer Session
Operator
Thank you. We will now begin the question and answer session. [Operator Instructions] The first question comes from Matthew Breese with Stephens, Inc. Please go ahead.
Matthew Breese
Hey, good morning.
Dimitar Karaivanov
Good morning, Matt.
Joseph Sutaris
Good morning, Matt.
Matthew Breese
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 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 in what those portfolios are yielding today.
Joseph Sutaris
It's a good question, Matt. We actually look at that internally periodically as well, just to kind of understand the dynamics of the potentially changing yield curve and maybe changes to the short end of the curve. In summary, we have just under a billion dollars of floating rate loans, which are generally tied to an index like prime or sulfur or something that's short term. We have -- in the next 12 months, we have adjustable rate loans. So these are the loans that, for example, might have a seven year term and reprice a year three or year 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, including anticipated prepayments, we think we've got about $2.8 billion of loans maturing and they're coming off at a rate around 6, if you will, on a blended basis. Obviously, the floating rate loans are a little bit higher around 8, but ultimately that's kind of what we're looking at from an adjustable and rate portfolio and floating rates.
Matthew Breese
And then -- so that implies kind of the pure fixed rate stuff is probably yielding kind of 5s or low 5s and being put on maybe 175 bps to 250 bps higher. Is that a fair assumption that the roll on for the fixed rate is quite a bit higher?
Joseph Sutaris
Yes, I think you nailed it, Matt. It's about -- on a blended basis, on the fixed rate stuff about five and last quarter new loans were going on, kind of in the mid to low 7s. So yeah, there's a fair amount of repricing opportunity just on replacement of maturing cash flows on the fixed rate portfolio.
Matthew Breese
Right. And so here's where I'm going with this, right. I know you all don't typically provide NIM guidance, but historically CBU is an organization that's run with a NIM that's in the 350s, upwards of 4%. As this all kind of normalizes and resets, is there a pathway back to that kind of NIM? 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 NIM long duration over time as the fixed rate book reprices?
Joseph Sutaris
Matt, so the way I would think about it is in the next 24 months, there is a lot of upside from the loans on the balance sheet that are churning, right. So as 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 start kicking in and then you're going to have some very big pickups as well in addition to the loan side. So could we go back to the those ranges I think over that timeframe, which is probably more like three years, which might be longer than some people on the call care about. Yes, I think it's possible that we start getting into that range again.
Matthew Breese
Great. I appreciate that. I also just wanted to touch 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.
Joseph Sutaris
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 and the quarter prior, so I guess it was the first and fourth quarter of last year earnings call. We kind of provided some ranges of kind of our -- I'll call it our normal historical run rate of somewhere between 3% and, say, 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 to position ourselves for '24 and beyond, 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.
Matthew Breese
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 job as of late versus historical, so just an update there.
Joseph Sutaris
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 tailwind. So I think the performance for the second half of the year shouldn't be that much different than what we're experiencing today.
Matthew Breese
Perfect. That's all I had. Thank you for taking my questions. Appreciate it.
Dimitar Karaivanov
Thank you, Matt.
Operator
The next question comes from Manuel Navas with D.A. Davidson. Please go ahead.
Unidentified Analyst
Hi, good morning. This is [indiscernible] on for Manuel Navas. Thank you for taking my question. For my first question, could you talk a little bit about an update on the fee income outlook and about the pipelines or trends in fleet fee lines like Mortgage Banking, Insurance and Employee Benefit Services?
Dimitar Karaivanov
Sure, morning. So as you think about our four businesses, we have two of them that are very much market based and 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 market 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 that in the first quarter call as well. So I expect that Q3 and Q4 will also remain strong year over year in that business and on a full year basis will be closer to those kind of high single digits and maybe low double digit growth on the insurance side.
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.
Unidentified Analyst
Thank you. And for my next question, could you talk a little bit about like we talked about deposit costs, where they could peak? They're stabilizing right now. And any updated thoughts on the impact on them if rates were cut in September?
Joseph Sutaris
Yes. So I think 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 about continuation of higher costs on the deposits, but certainly at a 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 -- and 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 $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 a 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 -- or decrease in the short term rates.
The other thing I would just kind of, 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 improvements in NII and NIM, given what we know today about the current rate environment. But I just would caution that it's not necessarily a linear movement quarter over quarter. It could be a third quarter, could be somewhat sideways in terms of the outcome and then hopefully kind of a resumption of growth in net interest income and margin in Q4 and into 2025.
Unidentified Analyst
Thank you. That's all for me.
Operator
[Operator Instructions] The next question comes from Chris O'Connell with KBW. Please go ahead.
Christopher O’Connell
Hey, good morning.
Dimitar Karaivanov
Good morning, Chris.
Joseph Sutaris
Good morning, Chris.
Christopher O’Connell
I think in the press release it was noted that there is an insurance acquisition completed at the beginning of April. I don't recall it being covered on last quarter's call, but I was just hoping you could walk through what the impact was to revenues this quarter and just the annual impact to revenues, expenses from that transaction?
Joseph Sutaris
Chris, that was a small tuck-in acquisition in the grand scheme of things, it's pretty small in the quarter, maybe 100 -- couple $100,000 of revenues expectations even on a full year basis for that particular acquisition, maybe $0.5 million. So that was a pretty nominal add, 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'd be $0.5 million or $1 million of revenue, is pretty additive to the overall revenue picture for that business.
Christopher O’Connell
Great. That's helpful. And circling back to the margin discussion, do you share maybe what the blended CD costs are right now? What the current offering costs are? And just how much it has to reprice in the back half of the year?
Joseph Sutaris
Yes, just give me a moment here, Chris.
Dimitar Karaivanov
I think, Chris, while Joe is getting those exact numbers, I'll just comment that during the quarter, we kind of crossed over, 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 cities that we built over the past few quarters from a margin perspective. And we have actually lowered our rates twice during the quarter. And we're now kind of in the high 3s and low 4s depending on the tenure of the CD.
Joseph Sutaris
And in the quarter, all in, just under about 375 to 380 was kind of our time deposit costs for the quarter.
Christopher O’Connell
Great. That's helpful. 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 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?
Dimitar Karaivanov
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 capital deployment, we basically couldn't find a better bank to buy than our own. So we bought back 1 million shares at $45. And if for whatever reason, we have a similar opportunity, we'll probably take a hard look at it again, 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 were extremely appealing. At one point we were yielding over 4%, which I think has happened only once in the past 15 years.
So sellers also want more stock, the ones that at least we've been discussing with, because they understand the upside in the currency that we have and we're just going to have to balance all of that. Obviously, the equation today is a little bit different at $60 versus $45 from the perspective 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 upside to a transaction needs to be significantly better than the downside to it. So the things that we like on the bank side, in particular, remain strong balance sheets, liquidity, things that are additive in the markets that we're interested in or things that have market share in the markets we're already in. So those are the kinds of things that we're focused on and the lower risk the better. And we're going to continue to look at those.
As we deploy capital, we're also keeping a very close eye on nonbanking 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.
Christopher O’Connell
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 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 low or are you guys looking for a little bit more meaningful impact going forward compared to historically?
Joseph Sutaris
Yes, I think, Chris, on the bank side, that goes back to the risk and reward. And I think the more you look at it, the more at least we believe that that risk and reward also tends to flip less favorable the larger you go in transactions. And typically the larger you go, the less liquidity that company is going to have as well. The more concentrations they might have as well. So, whether we will do something as quite as small as $500 million, I think that really is dependent on what exactly it is. But certainly things between $500 million and $1 billion still remain of interest to us, especially if they check the boxes with low risk, right market, strong liquidity profile. We could drive a couple $100 million of their liquidity and put it to use in our growth strategy. So that's always additive as we look to the banking side.
Christopher O’Connell
Great. And then, I mean, credits held up really well. The trends this quarter, rapid, flat quarter over quarter on NPAs, NPLs. And you guys haven't seen much cycle to date yet. Is there any areas that you guys are seeing any pressure at all in either the consumer or the commercial side or that you're keeping a closer eye on from here?
Dimitar Karaivanov
Yes, I mean, to be quite frank with you, the answer to that is not a lot that we're seeing. 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. 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 keep us a little bit more focused on that side of the equation is 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 puts us a little bit on the lookout for what might that mean in terms of sustainability going forward.
So we keep a close eye on that. On the commercial side, again, a lot of those businesses are benefiting from the same dynamics in terms of economic activity. And I believe year to date were actually negative charge offs on the commercial side. I think last year we had 3 basis points of charge offs. 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 the portfolios.
Christopher O’Connell
Understood. Really helpful. Thanks for taking my questions.
Operator
The next question comes from Steve Moss with Raymond James. Please go ahead.
Steve Moss
Good morning.
Dimitar Karaivanov
Good morning, Steve.
Joseph Sutaris
Good morning, Steve.
Steve Moss
Dimitar, just following up on the M&A side or the M&A discussions here, just curious like how much of a potential -- just as I think about the banks you're potentially talking to, they're going to likely have meaningfully more NII than fee income. Just curious how much are you want to take in terms of potential reduction to the fee income revenue mix as you're looking at these deals?
Dimitar Karaivanov
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 on 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 is about 40% today. If you just play out the organic growth, you're kind of looking at about 2 points of movement every five years. So those businesses run faster than the bank. As we look at banks, clearly there is not another company like us that has those kinds of metrics. So everyone that we do is going to be diluted from that perspective. But again, we run fast 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 non-banking side, but also on the banking side, we tend to have more products and capabilities than they do. So over time, well, that's kind of a longer timeframe, 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 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 the smaller deals than the 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 than financial services M&A over the past 10 or so years, our fee income ratios actually increased meaningfully in that period.
Steve Moss
Okay. And then in terms of just the transaction opportunity here, curious if it is $500 million to $1 billion type transaction, are you willing to do two acquisitions simultaneous or would you look to do one and then potentially do a second one after you complete the first?
Dimitar Karaivanov
Steve, my 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 and a couple of them under the $1 billion range.
Steve Moss
Okay, great. Appreciate that color there, Dimitar. All my other questions have been asked and answered, so thank you very much.
Operator
This concludes our question and answer session. I would like to turn the conference back over to Mr. Karaivanov for any closing remarks. Please go ahead.
Dimitar Karaivanov
Thank you, Ashiya. And thank you, everyone, for joining the call and the interest in our company and we will speak again with you in October.
Operator
This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.