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CF

COMMUNITY FINANCIAL SYSTEM, INC. (CBU)·Q1 2025 Earnings Summary

Executive Summary

  • EPS of $0.93 beat Wall Street consensus by $0.02, while revenue came in below S&P Global consensus; year-over-year performance was strong with double-digit revenue growth and record net interest income . EPS estimate: $0.91; revenue estimate: $197.13M; actuals (S&P basis): $189.56M.
  • Net interest margin expanded 4 bps sequentially to 3.21% (3.24% FTE), aided by lower deposit costs; total deposits rose 3.4% QoQ on seasonal municipal inflows, pushing loan-to-deposit ratio down to 75% .
  • Insurance Services was the main performance driver; diversified fee revenues represented ~39% of total, with new quarterly highs in non-bank services revenue .
  • Credit costs ticked up: provision of $6.7M tied to a specific non-owner-occupied CRE relationship; NPL ratio rose to 0.72%, but allowance coverage remained robust (ACL/loans 0.79%) and liquidity covered 254% of uninsured deposits .
  • Management signaled continued NIM expansion of 2–7 bps per quarter, mid-single-digit OpEx growth with de novo branch costs skewed to Q3, and maintained mid-single-digit growth expectations across fee businesses .

What Went Well and What Went Wrong

What Went Well

  • Record net interest income ($120.2M) and margin expansion (+26 bps YoY NIM; +4 bps QoQ), supported by lower funding costs and higher loan yields .
  • Insurance Services delivered “excellent” revenue growth with sizable margin expansion; contingent commissions and acquisitions drove a 27.9% YoY revenue increase to $14.27M .
  • Diversified model worked as intended: “times like these… we shine,” with banking and insurance taking the baton as market-sensitive businesses face asset value headwinds .

What Went Wrong

  • Revenue below S&P consensus; provision for credit losses increased to $6.7M tied to a specific CRE loan, contributing to flat GAAP EPS QoQ *.
  • Indirect auto lending softness due to aggressive competition and tariffs; portfolio shrank by ~50 bps in the quarter and remains the wildcard for 2025 growth .
  • Nonperforming loans rose to $75.0M (0.72% of loans); delinquent loans increased to 1.29% of ending loans; management expects majority of a related CRE charge-off in Q2 before potential recoveries .

Financial Results

Core P&L and EPS

MetricQ1 2024Q4 2024Q1 2025
Total Revenues ($USD Millions)$177.275 $196.287 $196.248
Net Interest Income ($USD Millions)$106.990 $119.973 $120.212
Total Noninterest Revenues ($USD Millions)$70.285 $76.314 $76.036
Diluted EPS (GAAP) ($)$0.76 $0.94 $0.93
Operating Diluted EPS (non-GAAP) ($)$0.82 $1.00 $0.98

Margins and Efficiency

MetricQ1 2024Q4 2024Q1 2025
Net Interest Margin (%)2.95% 3.17% 3.21%
Net Interest Margin (FTE) (%)2.98% 3.20% 3.24%
Noninterest Revenues/Total Revenues (%)39.6% 38.9% 38.7%
Efficiency Ratio (GAAP) (%)66.6% 64.0% 63.8%

Balance Sheet and Funding KPIs

MetricQ1 2024Q4 2024Q1 2025
Total Ending Loans ($USD Millions)$9,883.500 $10,432.365 $10,421.141
Total Ending Deposits ($USD Millions)$13,352.022 $13,441.707 $13,892.047
Loan-to-Deposit Ratio (%)74.0% 77.6% 75.0%
Cost of Total Deposits (%)1.14% 1.23% 1.17%
Cost of Funds (%)1.31% 1.38% 1.33%

Asset Quality

MetricQ1 2024Q4 2024Q1 2025
Nonperforming Loans/Loans (%)0.50% 0.70% 0.72%
Net Charge-offs/Avg Loans (Annualized, %)0.12% 0.12% 0.13%
Allowance for Credit Losses/Loans (%)0.71% 0.76% 0.79%
ACL/Nonperforming Loans (%)142% 108% 110%

Segment Breakdown

Segment Operating Revenues ($USD Millions)Q1 2024Q4 2024Q1 2025
Employee Benefit Services$33.193 $35.582 $34.116
Insurance Services$11.154 $12.241 $14.270
Wealth Management Services$9.762 $10.376 $10.486
Banking & CorporateQ1 2024Q4 2024Q1 2025
Net interest income ($USD Millions)$106.214 $119.218 $119.439
Operating noninterest revenues ($USD Millions)$18.185 $19.984 $19.033
Adjusted Income Before Income Taxes ($USD Millions)Q1 2024Q4 2024Q1 2025
Banking & Corporate$40.024 $49.540 $46.273
Employee Benefit Services$12.860 $14.099 $13.440
Insurance Services$1.031 $0.763 $4.108
Wealth Management Services$2.842 $3.653 $3.635

Results vs. S&P Global Consensus

MetricQ1 2024Q4 2024Q1 2025
EPS Consensus Mean ($)0.78*0.91*0.91*
EPS Actual ($)0.76*0.94*0.93*
Revenue Consensus Mean ($USD Millions)176.38*192.80*197.13*
Revenue Actual ($USD Millions)171.13*190.08*189.56*

Values retrieved from S&P Global. EPS and revenue values marked with * reflect S&P’s standardized definitions and may differ from company-reported “total revenues.”

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Interest Margin trajectory2025+3–5 bps per quarter (Q4 call) +2–7 bps per quarter (Q1 call) Maintained/widened range
Operating Expenses (OpEx)2025 full year; Q3 2025Mid-single-digit YoY growth; de novo net neutral by Q4 Mid-single-digit YoY; Q3 de novo marketing/start-up $3–$4M Maintained; clarified Q3 step-up
Loan Growth2025Mid-single-digit; strong pipelines Mid-single-digit, possibly lower end amid payoffs/competition Maintained with caution
Fee Businesses Revenue Growth2025Mid-single-digit aggregate Mid-single-digit aggregate; insurance above mid-single-digit; market-sensitive nearer low/mid-single-digit Maintained; mix shift
Credit Costs/ACL2025Continued normalization; gradual reserve builds Continued normalization; specific CRE charge-off likely in Q2; ACL/loans 0.79% Maintained; event-specific update
DividendQ2 2025$0.46 declared in Q1 2025 $0.46 payable July 10, 2025 (record June 13) Maintained at $0.46

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024, Q4 2024)Current Period (Q1 2025)Trend
NIM/NII trajectoryNIM up 1–15 bps QoQ; NII expansion expected into 2025 NIM +4 bps QoQ to 3.21% (3.24% FTE); outlook +2–7 bps/quarter Improving
Deposits/mixSeasonal municipal inflows; stability in low-rate core; cost of deposits ~1.23% Deposits +3.4% QoQ; cost of deposits down to 1.17%; blended muni rates low 2s Improving
Loan pipelines/pricingStrong pipelines; roll-on yields ~7%; fixed book turnover supports NII Commercial/mortgage pipelines solid but lighter; origination yields ~7%; more payoffs/competition Mixed/pressured
Indirect auto/tariffsAuto a wildcard; curve and competition influencing swap/capital markets Auto pricing tighter; competition aggressive; tariffs impacting; portfolio down ~50 bps Pressured
Credit normalizationNPLs up on one relationship; ACL builds expected Provision $6.7M; NPLs at 0.72%; CRE specific reserve and expected Q2 charge-off Normalizing with event
De novo branchesPlan for 16–18 openings; net neutral via consolidations by end-2025 Opened Buffalo; Q3 marketing spend $3–$4M; exit 2025 with cleaner run rate Executing; near-term OpEx bump
M&A/regulatoryActive participant; risk/reward discipline; approvals improving Quality-first stance; pricing bank assets harder; open to accretive deals Opportunistic
Regional macro/CHIPSUpstate NY onshoring, IR Act benefits; Micron support bipartisan Little direct CHIPS impact yet; cost-of-goods/pricing uncertainty for clients Mixed macro drivers

Management Commentary

  • “Our Company had very solid core operating performance… demonstrating the strength in the diversification of our four businesses… operating return on assets 1 of 1.28%” — Dimitar Karaivanov, CEO .
  • “This quarter established new quarterly highs for interest income and insurance services revenues… lower funding costs helped drive increases in both net interest income and net interest margin” — Marya Wlos, CFO .
  • “Insurance was the main driver of strong performance this quarter… indirect auto lending remains more of a wildcard given aggressive competition and impact of tariffs” — CEO .

Q&A Highlights

  • Loan pipelines marginally lighter than last year; commercial only a few points lower, residential ~10% lower; origination yields ~7% amid more payoffs and competitive aggressiveness .
  • De novo cadence: Syracuse and Buffalo opened; Q3 marketing/start-up spend $3–$4M; aim for net neutral branch count and expense by Q4 2025 .
  • Specific CRE NPL: additional ~$3.8–$3.9M reserve; foreclosure sale imminent; majority of charge-off expected in Q2 with potential recoveries over time .
  • Securities book: minimal 2025 runoff (<$100M); large 2026–2029 maturities (~$2B) at ~2% yield, offering future redeployment upside .
  • Deposit costs: no pressure to increase; opportunity to grind lower from a low base; blended muni rates “low 2s” and core low-rate base remains ~two-thirds of deposits .

Estimates Context

  • EPS: Beat in Q1 2025 (Actual $0.93 vs Consensus $0.91*) and Q4 2024 ($0.94 vs $0.91*); slight miss in Q1 2024 ($0.76 vs $0.78*). Values retrieved from S&P Global.*
  • Revenue: Miss in Q1 2025 (Actual $189.56M vs Consensus $197.13M*, ~–3.8%); miss in Q4 2024 ($190.08M vs $192.80M); miss in Q1 2024 ($171.13M vs $176.38M*). Values retrieved from S&P Global.*
  • Implications: Street likely to raise NIM/NII expectations modestly given guided 2–7 bps quarterly expansion and deposit cost declines, but trim revenue trajectories for indirect auto and factor higher credit normalization into provisions. Values retrieved from S&P Global.* *

Key Takeaways for Investors

  • EPS beat with strong YoY revenue/NII momentum; diversified franchise is delivering record net interest income and fee contributions, particularly insurance .
  • Near-term trading: Expect positive sentiment around NIM trajectory and deposit cost declines; watch Q2 for CRE charge-off timing and any related reserve impacts .
  • Medium-term thesis: NII tailwinds from repricing (book yield 5.58% vs new volume ~7%) and 2026–2029 securities runoff redeployment; liquidity and capital remain strong (Tier 1 leverage 9.29%) .
  • Fee growth: Insurance outperformance likely moderates but remains above mid-single digit; market-sensitive businesses may face asset-value volatility; aggregate mid-single-digit fee growth maintained .
  • Operating leverage: Mid-single-digit OpEx growth with de novo costs concentrated in Q3; net neutral by year-end via consolidations supports improved run-rate into 2026 .
  • Risk watch: Indirect auto competitive/tariff pressures; elevated payoffs and competitor aggressiveness on rate/credit; rising NPLs from isolated CRE exposures but manageable with current coverage .
  • Capital returns: Dividend maintained at $0.46/share (payable July 10, record June 13); buyback authorization for up to 2.63M shares remains unused in Q1 .