Community Bank System, Inc. Q4 FY2025 earnings call

• Revenue strength across all businesses, with 16% operating earnings growth in 2025 while making large organic growth investments.
• Selected as 2025 company of the year in banking by Buffalo Business First.
• Tax rate now almost 2% higher than eighteen months ago.
• Focus on expense management and harnessing AI and automation, saving over 200,000 hours in past three years.
• Pretax tangible returns: 61% for employee benefit services, 39% for wealth management, 26% for banking and corporate, 8% for insurance.
• Recently announced transaction with ClearPoint provides durable trust revenue and opportunities to deploy wealth management and banking products.
• Share count flat for the year despite inorganic growth.

Banking

• In 2025, benefited from mid-single-digit asset growth and expanding margin, achieving 22% operating income growth. Loan growth was 5%, favorably comparing to industry and local peers. Net interest income in Q4 was $133.4 million, a 4.1% increase from linked third quarter and 11.2% improvement from 2024.

Insurance Services

• Strong year with top-line growth of 8% and operating income growth of 42%.

Wealth Management Services

• Revenues impacted by producer realignment but had positive margin and 15% operating pretax income growth.

Employee Benefit Services

• Pretax income grew 10% quarter over quarter compared to third quarter. Spent 2025 revamping growth strategy in trust fund administration, expecting fruits in 2026. Pretax returns for Q4 were 61%.

• 2026 growth expected to revert to mid to high single digits.
• 2026 guidance: 3.5%-6% loan growth, 2%-3% deposit growth, 8%-12% net interest income growth, 4%-8% noninterest revenues growth, provision for credit losses $20M-$25M, core noninterest expenses $535M-$550M (4%-7% increase from 2025), effective tax rate 23%-24%.
• Q1 noninterest expenses typically higher due to merit increases, FICA/payroll taxes, seasonal snow removal.

• Tax rate headwinds (now almost 2% higher than eighteen months ago).
• Market conditions affecting loan pricing and growth.
• Seasonality impacts on expenses, especially Q1 noninterest expenses.
• Uncertainty around deployment of securities maturing in 2027 and their impact on NIM and lending.

Q: Steve Moss on loan pricing and 2026 growth drivers A: Loan originations in low sixes, trend lower, but fixed asset repricing provides gap. Noninterest income guide 4%-8% growth.

Q: David Conrad on fee ratio to revenues and ROTC A: Banking has margin tailwinds, but margin expansion will slow. Investing in fee income businesses through acquisitions.

Q: Matthew Breese on ClearPoint transaction and Q1 expenses A: ClearPoint in death care industry, niche with opportunities. Q1 expenses typically higher due to various factors.

Q: Manuel Navas on securities repricing and deposit growth A: Securities maturing in 2027 likely to offset longer-term borrowings. Deposit growth from de novo branches, aiming to double footings in 2026.