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CF

COMMUNITY FINANCIAL SYSTEM, INC. (CBU)·Q4 2024 Earnings Summary

Executive Summary

  • Record quarter: total revenues $196.3 million (+10.9% YoY; +3.9% QoQ), net interest income $120.0 million (+9.9% YoY; +6.4% QoQ), operating EPS $1.00 and operating PPNR/share $1.40 .
  • Net interest margin expanded 15 bps QoQ to 3.20% (FTE) on higher loan yields and lower funding costs; deposit cost held at 1.23% and total cost of funds fell 6 bps QoQ .
  • Loans grew for the 14th straight quarter to $10.43B (+1.8% QoQ; +7.5% YoY); deposits $13.44B (-0.3% QoQ; +4.0% YoY); liquidity robust at $5.77B (>240% of net uninsured deposits) .
  • Asset quality remains solid but normalized: NPLs rose to 0.70% (one multifamily relationship), ACL increased to 0.76% of loans, net charge-offs annualized at 0.12% .
  • Wall Street consensus (S&P Global) was unavailable at time of query; estimate comparison not provided.

What Went Well and What Went Wrong

What Went Well

  • Margin and NII expansion: NII hit a new record $120.0M; NIM (FTE) rose to 3.20% on booking ~7% loan rates and lower borrowing costs .
  • Diversified fee strength: Employee benefit services (+13.1% YoY), wealth management (+24.9% YoY), insurance (+5.0% YoY); banking fees aided by interest rate swap revenues .
  • Strong liquidity and capital: $5.77B available liquidity (>240% of net uninsured deposits); Tier 1 leverage 9.19% well above 5% threshold; dividend $0.46 and new 2.63M-share buyback authorization for 2025 .

What Went Wrong

  • Asset quality normalization: NPLs increased to 0.70% (primarily one multifamily CRE loan), delinquencies (30–89 days) rose to 0.54% of loans; provision elevated at $6.2M .
  • Expense growth: Operating noninterest expenses up QoQ to $125.5M; management flagged 2025 expense volatility from 16 branch openings and ~$4–5M Q2–Q3 marketing spend .
  • Seasonal deposit dynamics: Deposits decreased 0.3% QoQ on municipal outflows; mix shift toward higher-cost time/money market vs 2023 persists, though deposit cost held flat .

Financial Results

MetricQ4 2023Q3 2024Q4 2024
Total Revenues ($USD Millions)$176.959 $188.942 $196.287
Net Interest Income ($USD Millions)$109.190 $112.745 $119.973
Noninterest Revenues ($USD Millions)$67.769 $76.197 $76.314
Diluted EPS (GAAP) ($USD)$0.63 $0.83 $0.94
Operating Diluted EPS (non-GAAP) ($USD)$0.82 $0.88 $1.00
Net Interest Margin (GAAP, %)3.05% 3.03% 3.17%
Net Interest Margin (FTE, %)3.07% 3.05% 3.20%
Return on Assets (GAAP, %)0.87% 1.09% 1.21%
Return on Equity (GAAP, %)8.53% 10.21% 11.27%
Efficiency Ratio (GAAP, %)72.9% 65.7% 64.0%

Segment Breakdown (Adjusted income and revenues)

Segment (Adjusted)Q4 2023Q3 2024Q4 2024
Banking & Corporate – Adjusted income before taxes ($USD Millions)$40.025 $40.445 $49.540
Banking & Corporate – Operating noninterest revenues ($USD Millions)$18.167 $20.478 $19.984
Employee Benefit Services – Adjusted income before taxes ($USD Millions)$13.009 $15.237 $14.099
Employee Benefit Services – Operating noninterest revenues ($USD Millions)$30.902 $34.135 $35.003
Insurance Services – Adjusted income before taxes ($USD Millions)$1.693 $2.879 $0.763
Insurance Services – Operating noninterest revenues ($USD Millions)$11.621 $13.671 $12.203
Wealth Management – Adjusted income before taxes ($USD Millions)$1.749 $2.004 $3.653
Wealth Management – Operating noninterest revenues ($USD Millions)$8.214 $9.242 $10.238

KPIs and Balance Sheet

KPIQ4 2023Q3 2024Q4 2024
Ending Loans ($USD Millions)$9,704.598 $10,251.674 $10,432.365
Ending Deposits ($USD Millions)$12,928.121 $13,476.171 $13,441.707
Loan-to-Deposit Ratio (%)75.1% 76.1% 77.6%
Cost of Total Deposits (%)0.98% 1.23% 1.23%
Cost of Funds (%)1.08% 1.44% 1.38%
Tier 1 Leverage Ratio (%)9.34% 9.12% 9.19%
Net Charge-offs (Annualized, % of avg loans)0.10% 0.11% 0.12%
NPLs / Loans (%)0.56% 0.61% 0.70%
Delinquent Loans / Ending Loans (%)1.06% 1.07% 1.24%
ACL / Loans (%)0.69% 0.74% 0.76%
Liquidity (readily available, $USD Billions)—$4.49B $5.77B

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Loan growthFY 2025Mid-single digits (longstanding) Mid-single digits; likely moderation; commercial ~7% rates on new originations Maintained
Net interest marginFY 2025Indicated +3–5 bps QoQ trajectory Expect further expansion; Q4 had 15 bps aided by dividends/nonaccrual recapture; normalize to +3–5 bps QoQ Maintained
Net interest incomeFY 2025Growth expected Expect NII expansion through higher roll-on loan yields and stable-to-lower funding costs Maintained
Operating expensesFY 2025Mid-single-digit growth Mid-single digits; potentially higher than 2024; Q1 seasonal step-up; plus $4–5M marketing spend in late Q2–Q3 from 16 branch openings Raised vs 2024 run rate (volatility)
Credit costs / reservesFY 2025Normalize toward through-cycle ~15 bps Continued reserve builds; credit loss content expected to drift up from 10 bps toward ~15 bps through cycle Raised (more normalization)
Fee initiatives (swaps/capital markets)FY 2025New offerings added in 2024 Aim to exceed ~$4M 2H’24 run-rate; market curve less inverted may temper swap appeal Maintained with caution
Securities maturities2026–2027—~$350M late 2026 treasuries; ~$700M in 2027 maturities New schedule info
Branch network2025—Open ~16 new branches; consolidate similar number by YE 2025 (minor slippage possible) New initiative
DividendQ4 2024$0.45 prior-year Declared $0.46; no forward guidance provided Increased YoY (no forward guide)
Buyback20252024 program (2.70M authorization) New 2025 authorization up to 2.63M shares New authorization

Earnings Call Themes & Trends

TopicQ2 2024 (Previous Mentions)Q3 2024 (Previous Mentions)Q4 2024 (Current Period)Trend
Margin & NII trajectoryNII +2.3% QoQ; NIM improvement vs Q1 NII +3.0% QoQ; NIM +1 bp (FTE); cost of funds up 7 bps NII +6.4% QoQ; NIM (FTE) +15 bps; cost of funds -6 bps Improving; normalization expected
Funding costs & deposit mixDeposit cost stable; L/D 74% Deposit cost 1.23%; mix shifting to time/MM Deposit cost 1.23%; no pressure to pay up; mix actions to lower costs Stable-to-lower
Loan growth & pipelineLoans +1.4% QoQ; +9.3% YoY Loans +2.3% QoQ; +8.5% YoY Loans +1.8% QoQ; +7.5% YoY; pipeline solid; ~7% commercial rates Strong; moderating in 2025
Fee businessesFinancial services revs +12.1% YoY Financial services revs +11.4% YoY; swap fees added Employee benefits +13.1% YoY; WM +24.9% YoY; insurance +5% Robust; market-sensitive
Liquidity & capitalStrong liquidity; capital well above W/C Liquidity $4.49B (~200% net uninsured) Liquidity $5.77B (>240% net uninsured); Tier 1 leverage 9.19% Strengthening
Asset qualityNet charge-offs 0.05% ann. NPLs rose to 0.61%; provision $7.7M NPLs 0.70%; provision $6.2M; one multifamily loan noted Normalizing upward
Branch expansion & expensesInvestor Day announced; setup for expansion —16 new branches in 2025; expense volatility incl. $4–5M marketing Investment phase
M&A/regulatory toneInvestor Day & strategic positioning —Constructive regulatory backdrop; M&A optionality intact Potentially supportive
Macro/industrial (CHIPS/Micron)——Micron subsidy approved; construction starting Q2’25; bipartisan support Positive local tailwind

Management Commentary

  • “Our Company had a very solid core operating performance… margin expansion and excellent liquidity, robust fee income performance, strong credit quality and well-managed expenses… record full year operating PPNR per share” — Dimitar Karaivanov, CEO .
  • “Net interest income in the fourth quarter… up 6.4% QoQ and 9.9% YoY… fully tax equivalent NIM increased 15 bps… deposit cost 1.23% flat; total cost of funds down 6 bps” — Joseph Sutaris, CFO .
  • “We now have $5.8 billion of available liquidity… 246% of net uninsured deposits… lowest cost of funds in the KRX Index… loans grew 7.5% in 2024” — CEO .
  • “Expect NII expansion in 2025… booking new loans around 7%… even holding funding costs flat drives expansion” — CFO .

Q&A Highlights

  • Loan pipeline and pricing: Commercial pipeline consistent; mortgage solid; auto lending seasonal; new originations roughly ~7% average rates .
  • Margin outlook: Continued expansion expected; Q4 uplift included FRB/FHLB dividends and some nonaccrual interest recapture; normalized +3–5 bps QoQ trajectory .
  • Expenses: Mid-single-digit growth for 2025, higher than 2024; Q1 seasonal uptick; $4–5M marketing spend in late Q2–Q3 tied to de novo branches with consolidations planned by YE 2025 .
  • Asset quality: Reserve builds likely as credit normalizes toward ~15 bps through-cycle; noted one ~$12M multifamily credit driving NPL uptick .
  • Balance sheet & securities: Light 2025 portfolio cash flows; ~$350M maturities late 2026 and ~$700M in 2027 .
  • Fees: Swaps/capital markets delivered ~$4M in 2H’24; 2025 outlook reasonable but curve no longer inverted may temper swap volumes .

Estimates Context

  • S&P Global consensus for Q4 2024 EPS and revenue was unavailable at time of query due to data access limits; therefore, beat/miss vs estimates cannot be determined. Given management’s reported record revenues, NIM expansion, and operating EPS of $1.00, analysts may reassess 2025 NII/NIM trajectories, expense run-rate volatility from branch investments, and credit cost normalization path .

Key Takeaways for Investors

  • Revenue/NII momentum and margin expansion are intact; higher roll-on loan yields and stable-to-lower funding costs support 2025 NII growth .
  • Diversified fee engines (benefits, wealth, insurance) are delivering double-digit YoY growth; fee mix reduces dependence on NII and adds resilience, albeit market-sensitive .
  • Liquidity and capital provide strong defense (>$5.7B liquidity; Tier 1 leverage 9.19%); deposit base remains low-cost with no brokered deposits, diminishing funding risk .
  • Watch asset quality normalization: NPL uptick tied to a single multifamily credit; reserve builds and through-cycle loss content moving toward ~15 bps expected .
  • 2025 expense volatility likely (branch openings and marketing spend) before run-rate cleans up post consolidations; near-term margin of error for quarterly operating leverage .
  • Swap/capital markets fee tailwind in 2H’24 may be less potent if curve steepens; banking fee initiatives still supportive but rate-structure dependent .
  • M&A optionality and constructive regulatory tone could create strategic opportunities; not necessary to drive growth given organic momentum .