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CF

COMMUNITY FINANCIAL SYSTEM, INC. (CBU)·Q2 2025 Earnings Summary

Executive Summary

  • Record quarter on company-reported operating metrics: operating diluted EPS $1.04 (+6.1% q/q; +9.5% y/y) and net interest income $124.7M (+3.8% q/q; +14.0% y/y) on expanding NIM and loan growth .
  • Against S&P Global consensus, Q2 EPS was slightly below and revenue missed: Primary EPS 0.99 vs 1.01 estimate; revenue $195.1M vs $201.3M estimate; company-reported total revenues were $199.3M, a new record, reflecting presentation differences with S&P actuals (EPS miss, revenue miss) [Values retrieved from S&P Global]* .
  • Credit quality mixed: elevated net charge-offs (0.20% annualized) from a single CRE resolution, but nonperforming loans fell to 0.51% of loans and delinquency improved sequentially .
  • Strategic catalysts: announced acquisition of seven Santander branches (~$600M deposits, blended cost just below 2%, expected close Q4’25) and a dividend increase to $0.47 (33rd consecutive year), supporting liquidity deployment and shareholder returns .

What Went Well and What Went Wrong

What Went Well

  • Record operating performance driven by banking margin expansion: “record quarterly operating diluted EPS of $1.04… driven by margin expansion in the banking business” (CEO) .
  • NIM rose 6 bps q/q to 3.27% (FTE 3.30%), with asset yields higher and stable funding costs; cost of funds 1.32% and deposit costs a low 1.19% (CFO) .
  • Liquidity and capital strong: readily available sources of liquidity $5.94B (246% of estimated uninsured deposits); tier 1 leverage 9.42%, well above well‑capitalized .

What Went Wrong

  • Seasonal softness in fee businesses: non-banking noninterest revenues down 3.9% q/q; employee benefits, insurance, and wealth pressured by timing/seasonality (CFO) .
  • Elevated NCOs from a single previously reserved CRE relationship ($4.3M charge-off), lifting net charge-offs to $5.1M (0.20% annualized) .
  • OpEx rose 8.5% y/y to $129.1M on wages, tech investments, and $1.5M restructuring tied to branch consolidation, while de novo builds also added expenses (CFO) .

Financial Results

MetricQ2 2024Q1 2025Q2 2025
Total Revenues ($USD Thousands)$183,799 $196,248 $199,256
Net Interest Income ($USD Thousands)$109,409 $120,212 $124,748
Noninterest Revenues ($USD Thousands)$74,390 $76,036 $74,508
Diluted EPS ($USD)$0.91 $0.93 $0.97
Operating Diluted EPS ($USD)$0.95 $0.98 $1.04
Net Income ($USD Thousands)$47,915 $49,614 $51,331
Net Interest Margin (%)3.01% 3.21% 3.27%

Consensus vs Actual (S&P Global*) – Q2 2025:

MetricEstimateActual
Primary EPS (USD)1.01*0.99*
Revenue ($USD Thousands)201,297.7*195,139.0*
Primary EPS – # of Estimates5*—
Revenue – # of Estimates3*—
Note: Company-reported total revenues were $199,256K, a record, reflecting presentation differences with S&P tracked “actuals” . Values retrieved from S&P Global*.

Segment results

Segment Metric ($USD Thousands)Q2 2024Q1 2025Q2 2025
Banking & Corporate – Operating Noninterest Revenues$19,502 $19,033 $19,949
Banking & Corporate – Adjusted Income Before Taxes$47,144 $46,273 $54,492
Employee Benefit Services – Operating Revenues$33,753 $34,116 $33,892
Employee Benefit Services – Adjusted Income Before Taxes$13,547 $13,440 $11,911
Insurance Services – Operating Revenues$13,364 $14,270 $13,464
Insurance Services – Adjusted Income Before Taxes$2,719 $4,108 $2,247
Wealth Management – Operating Revenues$9,151 $10,486 $9,219
Wealth Management – Adjusted Income Before Taxes$2,028 $3,635 $2,349

Key KPIs

KPIQ2 2024Q1 2025Q2 2025
Total Ending Loans ($USD Millions)$10,023.9 $10,421.1 $10,519.1
Total Ending Deposits ($USD Millions)$13,137.9 $13,892.0 $13,701.8
Loan-to-Deposit Ratio (%)76.3% 75.0% 76.8%
Cost of Funds (%)1.37% 1.33% 1.32%
Cost of Total Deposits (%)1.23% 1.17% 1.19%
Tier 1 Leverage Ratio (%)9.07% 9.29% 9.42%
Net Charge-offs (Annualized % of Avg Loans)0.05% 0.13% 0.20%
NPLs / Loans (%)0.50% 0.72% 0.51%
NPAs / Total Assets (%)0.33% 0.46% 0.37%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Interest Margin cadenceFY 20252–7 bps q/q expansion (Q1 call) ~3–5 bps q/q expansion (Q2 call) Narrowed range (maintained positive trajectory)
Operating Expenses2H 2025Mid‑single-digit y/y; Q3 marketing $3–4M for de novo (Q1) “OpEx flat as we move forward”; restructuring tied to branch consolidation Moderated near‑term trajectory; cost actions offset de novo
Loan GrowthFY 2025Through‑cycle 5–7% (Investor Day); 2025 at lower end (Q1) “Four plus or minus a little bit” this year; pipeline robust (Q2) Maintained lower end for 2025
DividendQ3 2025 payable Oct 10$0.46 per share $0.47 per share; 33rd consecutive annual increase Raised
Branch Acquisition (deposits, cost)Close Q4 2025—~$600M deposits; blended cost of funds just below 2%; expected Nov close New accretive liquidity source
Effective Tax RateFY 2025~22.8% run‑rate (Q1) 22.3% in Q2 (no formal forward change) Maintained range (current lower actual)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4’24 & Q1’25)Current Period (Q2’25)Trend
Competitive lending & pricingCompetitors returning; blended new commercial yields ~7%; auto pricing tightening Competition “high on both rate and credit”; originations ~6.75% and trending lower as 3–5yr rates fell ~30 bps q/q (CEO) Persistent pressure on yields; disciplined credit stance
NIM trajectoryExpect 3–5 bps q/q as asset yields reprice; funding costs flat/down CFO guides ~3–5 bps q/q; cost of funds 1.32%; deposits 1.19% Positive, steady expansion
De novo expansion & branch consolidation16+ branches in 2025; net neutral to shareholders; Q3 marketing spend 19 de novos targeted; seven opened; 17 closures planned; net neutral reiterated Execution on track; near‑term OpEx managed
CRE credit normalizationSpecific reserves increased Q1; one multifamily project risk noted One non‑owner CRE charged off; another repaid; NPLs and delinquency improved sequentially Active resolution; metrics improving ex one‑offs
Fee businesses seasonalityInsurance contingent commissions timing; benefits/wealth market‑sensitive Seasonal headwinds in Q2; benefits flat; insurance and wealth down q/q on timing Seasonal dip; pipeline remains constructive
CHIPS Act / MicronNot core to near‑term; bipartisan support; long‑term positive Still on track to break ground in Q4; long‑term uplift No change; supportive backdrop
Regulatory/M&AConstructive tone; M&A screened for quality/liquidity Branch acquisition complements strategy; more opportunities possible Opportunistic, disciplined

Management Commentary

  • “Record quarterly operating diluted earnings per share of $1.04… driven by margin expansion in the banking business, which more than offset seasonal headwinds in our non-banking financial services businesses” (CEO, prepared remarks) .
  • “Fully tax‑equivalent net interest margin increased 6 basis points… cost of funds was 1.32%… cost of deposits remained low… at 1.19%” (CFO) .
  • “Liquidity totaled $5.94B… representing 246% of estimated uninsured deposits” (release) .
  • “Acquisition… expected to add approximately $600 million of customer deposits… accelerates our retail growth strategy” (CEO) .
  • “Branch expansion will be net neutral… closing as many as we’re opening” (CEO, Q&A) .

Q&A Highlights

  • Loan pricing and competition: Originations ~6.75% with added pressure from lower 3–5yr Treasuries and competitive pricing; disciplined credit maintained (CEO) .
  • NIM guidance: CFO targets ~3–5 bps q/q expansion from here .
  • Santander branch deposits: ~65/35 transaction vs CDs; average account < $20K; blended cost just below 2%; retention viewed favorably (CEO) .
  • OpEx trajectory: Restructuring tied to branch consolidation; OpEx expected to be “flat” near term (CFO) .
  • Credit: Single CRE charge‑off drove elevated NCOs; NPLs/delinquency improved; ACL 0.78% of loans, >5x TTM NCOs (CFO) .

Estimates Context

  • EPS: S&P Primary EPS consensus 1.01 vs S&P tracked actual 0.99 — slight miss; Company GAAP diluted EPS reported 0.97 due to non‑GAAP adjustments and measure differences [Values retrieved from S&P Global]* .
  • Revenue: S&P consensus $201.3M vs S&P tracked actual $195.1M — miss. Company‑reported total revenues were $199.3M (record), reflecting presentation differences between company totals and S&P’s “actual” basis [Values retrieved from S&P Global]* .
  • Implication: Street likely nudges near‑term revenue/EPS models lower for fee seasonality and yield pressure, while maintaining positive NIM trajectory and bank margin expansion narrative .

Key Takeaways for Investors

  • Banking engine driving results: expanding NIM and record NII underpin operating EPS growth; expect continued modest NIM expansion (~3–5 bps q/q) .
  • Fee headwinds were seasonal; watch insurance/wealth/benefits normalization in Q3 renewal season and asset‑value tailwinds .
  • Credit is manageable: one CRE resolution elevated NCOs, but NPL and delinquency improved; diversified CRE exposure remains contained (15% assets; 24% loans; 184% of regulatory capital) .
  • Liquidity/capital ample to fund growth: $5.94B liquidity and tier 1 leverage 9.42%; Santander branch deposits (~$600M, ~<2% cost) should be redeployed into loans over time .
  • Shareholder returns sustained: dividend raised to $0.47; 33rd consecutive annual increase .
  • Near‑term trading: focus on NIM cadence and fee rebound in Q3; monitor CRE resolutions and any incremental restructuring charges tied to branch optimization .
  • Medium‑term thesis: de novo builds + acquired deposits should support mid‑single‑digit loan growth at disciplined yields; diversification across four businesses smooths cyclicality .

*Values retrieved from S&P Global.