One New York-based bank expects to achieve 30% cost savings on a recently announced merger, a total that does not yet include branch consolidation, management said.

De Witt, N.Y.-based Community Bank System Inc. announced it will acquire Hornell, N.Y.-based Steuben Trust Corp. in a deal expected to close in the second quarter of 2020. The bank currently expects operating expense cost savings to be about 30%, but it did not include any branch closures in that calculation, management said during their third-quarter earnings call.

The bank may increase cost savings by closing branches, but management is holding off on announcing consolidations for now.

"We have to evaluate the performance in those markets, the customer patterns, customer trends, before we make any decisions relative to a potential consolidation of branches," CFO Joseph Sutaris said in an interview. "The geographies would lend themselves to future consolidation."

With branch closures, the bank could bring its cost savings up to between 35% and 40%, estimated Erik Zwick, an analyst with Boenning & Scattergood. The bank's branches are close to each other, but not "within a couple miles," Zwick said in an interview.

The 30% cost savings will come from eliminating redundant operational costs, including technology systems, Sutaris said.

The bank has used acquisitions as a way to gain market share in the past, and it looks to buy banks in contiguous or overlapping counties, Sutaris said.

"Steuben is in four overlapping counties to our market, so it gives us an opportunity to continue to gain market share in those counties and also allows us to expand a couple additional counties," he said.

Zwick called it a "fairly smart deal" for Community Bank System. "It makes a lot of sense from both a fundamental and a pricing perspective," he said.

The Steuben Trust deal was announced about three months after Community Bank System closed an earlier deal with Kinderhook, N.Y.-based Kinderhook Bank Corp., and the bank expects to keep hunting for deals. Sutaris said the bank would look to rural and small-town markets to the west and south of its current markets, as well as potentially into New England. The bank is looking to expand into the northern half of Pennsylvania and west into Ohio, said Sutaris.

Zwick said he expects the bank to expand south into Pennsylvania, west into Ohio and to add scale in New York. Community Bank System's legacy markets tend to have slower growth, said Zwick.

"Acquisition is a viable strategy for them to continue to grow the balance sheet, in absence of organic growth," the analyst said.