Community Financial System (NYSE:CBU) executives highlighted record operating revenue, continued net interest income expansion, and a diversified fee-income base during the company’s fourth-quarter 2025 earnings call, while also flagging elevated quarterly expense “noise” tied to performance-based items and recent transactions.
Management: Revenue strength and balance sheet liquidity
President and CEO Dimitar Karaivanov said he was “pleased with the revenue strength across all of our businesses” and “very pleased with the liquidity and credit quality of our balance sheet.” He added that expenses contained “more than the usual noise,” which CFO Marya Dykstra later attributed to items tied to earnings performance as well as acquisition and consolidation activity.
Quarterly results: Record operating revenues and NII expansion
Dykstra reported GAAP earnings per share of $1.03 in the fourth quarter, up 9 cents from the prior-year quarter and down 1 cent from the linked third quarter, which she said reflected 4 cents per share of expenses tied to the Santander branch acquisition. Operating earnings per share were $1.12, compared with $1.00 a year earlier and $1.09 in the third quarter. Operating pre-tax, pre-provision net revenue (PPNR) per share was $1.58, up 18 cents year-over-year and up 2 cents from the prior quarter.
Total operating revenues reached a new quarterly high of $215.6 million, increasing 4.2% from the third quarter and 10% from a year earlier. Dykstra said results were driven by record net interest income (NII) in the banking business.
Net interest income was $133.4 million, up 4.1% from the third quarter and up 11.2% from the fourth quarter of 2024. Dykstra said it marked the seventh consecutive quarter of NII expansion. The fully tax-equivalent net interest margin increased six basis points to 3.39% from 3.33% in the prior quarter, which she attributed to lower funding costs.
Cost of funds declined six basis points to 1.27%, driven by lower deposit costs and a lower average overnight borrowing balance. Dykstra said funding inflows from the Santander branch acquisition also contributed.
Operating non-interest revenues increased 8% year-over-year and 4.4% from the third quarter, reflecting increases in banking and non-banking financial service revenues. The quarter also included a one-time $1.6 million income distribution from a limited partnership investment. Non-interest revenues represented 38% of total operating revenues for the quarter, which management said underscores the company’s diversification.
Expenses, provision, and asset quality
The company recorded a $5.0 million provision for credit losses in the fourth quarter, compared with $6.2 million in the prior-year quarter and $5.6 million in the third quarter.
Total non-interest expense was $138.5 million, up 8% from the third quarter. Excluding acquisition expense related to the Santander branch acquisition, non-interest expenses rose 6.4% quarter-over-quarter. Dykstra detailed several drivers, including:
- $5.4 million higher salaries and employee benefits tied to performance-based incentive compensation, including a $1.0 million true-up for long-term incentive program expense and a $0.8 million true-up for an annual management incentive plan.
- $0.6 million incentive accrual tied to revenue and bottom-line performance in the CRE finance and advisory business line.
- $1.0 million of operating expenses associated with the seven branches acquired from Santander.
- $0.6 million increase in de novo branch expansion expenses as additional branches opened.
- $0.8 million of net property-related write-downs tied to branch consolidation activities.
- $0.6 million of charitable contributions accelerated ahead of 2026 tax law changes.
Excluding acquisition expenses, write-downs, charitable contributions, and performance-related incentive accruals, fourth-quarter non-interest expenses were $131.9 million, up 3.4% from the third quarter, Dykstra said.
On credit metrics, Dykstra said non-performing loans and net charge-off ratios were consistent with the third quarter, while loans 30–89 days delinquent increased 10 basis points, which she described as aligned with typical seasonal trends. The allowance for credit losses ended the quarter at $87.9 million, or 80 basis points of total loans, up $3.0 million from the prior quarter, primarily due to reserve building in business lending reflecting growth and “volume trends of recently originated commercial loans.” She also noted the allowance was more than six times the company’s net charge-offs for the year.
Loan and deposit growth, expansion strategy, and acquisitions
Ending loans increased $199.5 million, or 1.9%, during the quarter and increased $517.4 million, or 5%, from a year earlier, driven primarily by organic growth in overall business and consumer lending. Loan growth included about $32 million of acquired loans from the Santander branch acquisition.
Deposits rose $945.4 million, or 7%, year-over-year and increased $330.2 million, or 2.3%, from the third quarter. Dykstra said deposit growth was primarily driven by $543.7 million of deposits assumed through the Santander branch acquisition and noted that deposit growth during 2025 was spread across all regions.
Management highlighted progress on its branch strategy, including 15 de novo branches opened during 2025 and the fourth-quarter integration of seven former Santander branches in the Lehigh Valley. On the call, Karaivanov said the de novo branches ended 2025 with roughly $100 million of deposits and that the company’s goal for 2026 is to double that amount, noting that branches typically take 18–24 months to mature. He added that approximately 60% of deposits in the de novo locations are commercial deposits.
In discussing business mix, Karaivanov cited pre-tax tangible returns for the quarter of 61% for employee benefit services, 39% for wealth management services, 26% for banking and corporate, and 8% for insurance services. He said the insurance return was impacted by increased allocated capital due to investment in Leap and seasonally lower fourth-quarter revenues.
Management also discussed an agreement to acquire ClearPoint Federal Bank & Trust, which Dykstra said is expected to close in the second quarter of 2026 and will expand the revenue and offerings of the wealth management business. In Q&A, Karaivanov described ClearPoint’s trust administration niche in “death care” trust relationships, tied to pre-need funding for funeral and cemetery expenses that vary state-by-state. He said the business involves a nationwide, complex regulatory framework that is “not easy to penetrate.” He added that ClearPoint currently focuses heavily on record-keeping and is growing into asset management, and that Community Financial expects cross-selling opportunities through its Nottingham Advisors platform as well as banking products, including escrow services and SBA-related financing for funeral homes.
2026 outlook and key themes
Looking ahead, Dykstra provided 2026 expectations, excluding the impact of pending or future acquisitions. The company forecast:
- Loan growth of 3.5%–6%
- Deposit growth of 2%–3%
- Net interest income growth of 8%–12%
- Non-interest revenue growth of 4%–8%
- Provision for credit losses of $20 million–$25 million
- Non-interest expense of $535 million–$550 million (up about 4%–7% from 2025), including about $8 million–$9 million of incremental expenses tied to the Santander-acquired branches
- Effective tax rate of 23%–24%
Dykstra also cautioned that first-quarter non-interest expenses typically run higher than fourth-quarter levels due to merit increases, higher FICA and payroll taxes, and seasonal snow removal costs.
In Q&A, management discussed competitive loan pricing trends, with Karaivanov noting fourth-quarter loan originations were in the “low sixes” and that the trend is lower, potentially reaching “low six” pricing later in 2026. Dykstra said the company was guiding for 2–4 basis points of net interest margin expansion in the first quarter, expecting some loan-side pressure but also realizing the benefit of late-2025 rate cuts. Management also said securities repricing is expected to become a tailwind later in the year, though they did not incorporate significant securities impacts into the 2026 NII guide given timing concentrated late in the fourth quarter.
Karaivanov said 2026 focus areas include expense management and “beginning to harness more fully the investments and focus we have in AI and automation,” citing more than 200,000 hours saved over the past three years, which he said helped keep headcount roughly flat while the business grew. He also noted headwinds from New York State income taxes, saying the tax rate is now almost 2% higher than 18 months ago.
About Community Financial System (NYSE:CBU)
Community Financial System (NYSE: CBU) is the bank holding company for Community Bank, National Association, a full-service commercial bank headquartered in DeWitt, New York. Through its principal subsidiary, the company offers a range of banking and financial services designed to meet the needs of both consumer and business clients. Its organizational structure centers on community-based banking operations supported by centralized technology, risk management and administrative functions.
The company’s product offerings include deposit accounts, residential and commercial mortgage loans, commercial and consumer lending, treasury and cash management services, and electronic banking.
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