Community Bank System’s NIM Guidance Jumps From Negative to Positive, While Expense Growth Shifts From Flat to 4-7%

Date of Call: Apr 29, 2026

Financials Results

• EPS: $1.08 per share, up 16.1% YOY and up 4.9% sequentially

Guidance:

• Operating earnings per share guidance stays intact, with year-over-year expense growth expected to be just above 6%, including acquisition impacts.
• Expect Q2 NIM expansion of 3 to 5 basis points.
• Full-year 2026 financial expectations remain consistent with those provided earlier this year.

Business Commentary:

Strong Financial Performance and Revenue Growth:

• Community Financial System, Inc. reported GAAP earnings per share of $1.08, which increased by 16.1% year-over-year and by 4.9% quarter-over-quarter.
• The company's operating earnings per share reached a record $1.15, marking a 16.1% increase from the previous year and a 3.0% increase from the linked quarter.
• This performance was driven by a supportive interest rate environment, strong new business efforts, and effective expense management.

Net Interest Income and Margin Improvement:

• The company's net interest income was $134.7 million, representing a 1% increase from the linked quarter and a 12.1% improvement from the same quarter last year.
• The fully tax-equivalent net interest margin increased by 6 basis points to 3.45%, driven by lower funding costs.
• This improvement was attributed to strong loan growth and ongoing repricing efforts.

Loan and Deposit Growth:

• Ending loans increased by 1.7% in the first quarter and by 6.8% year-over-year, driven by organic growth in business and consumer lending portfolios.
• Total deposits increased by 7% from one year prior and by 3.4% from the end of 2025, largely due to seasonal municipal deposit inflows.
• Growth was supported by a strong commercial pipeline and market share gains.

Expense Management and Cost Control:

• The company reported total noninterest expenses of $133 million, a decrease of 4% from the linked quarter and an increase of 6.2% from the prior year's first quarter.
• The increase was primarily due to salaries and employee benefits, as well as occupancy and equipment expenses related to new branches and acquisitions.
• The company remains focused on controlling expenses and investing in growth opportunities.

Strategic Acquisitions and Market Expansion:

• The company completed the acquisition of 15 de novo bank branches and 3 regional headquarters, enhancing its presence in attractive markets.
• Discussions on targeted inorganic growth remain active across all businesses, with a focus on strategic acquisitions.
• The company continues to prioritize organic growth and strategic acquisitions to expand its operating leverage and scale.

Sentiment Analysis:

Overall Tone: Positive

• CEO states 'We're off to a very good start in 2026' and 'All in all, 17% growth in operating diluted earnings per share... is a result we feel very good about.' Management highlights 'record operating results,' 'strong new business efforts,' and 'very good start to 2026' with 'organic activity is strong.'

Q&A:

• Question from Stephen Moss (Raymond James): Nice quarter here... Just kind of curious where you are on the pipeline... on the loan side.
  Response: Commercial pipeline is in excellent shape, meaningfully higher than last year, with good activity and less payoffs. Expectations remain positive.

• Question from Stephen Moss (Raymond James): On the auto side here, a strong quarter... Just kind of curious what you're seeing going forward in terms of pricing and where it could go for the rest of the year.
  Response: Pricing is now better than at the start of the year; auto business guidance and goal remains mid-single-digit growth.

• Question from Stephen Moss (Raymond James): ...on expenses here. Just thoughts -- updated thoughts here on the cadence of expense growth throughout the year and where you're looking for things to settle out.
  Response: Expense growth guidance (4%-7% YOY) is consistent; rate is expected to go lower later in the year as comparisons become apples-to-apples, with focus on driving profitability.

• Question from David Konrad (KBW): You had really good NIM expansion this quarter... maybe refresh us on your NIM expectations for the year and talk about how the portfolio balances may be used...
  Response: Q1 NIM outperformed guide, driven by strong loan growth and repricing; expect Q2 NIM expansion of 3-5 bps. Steady state for securities portfolio; will pay down borrowings if opportunities arise.

• Question from Manuel Navas (Piper Sandler): Just a follow-up on the NIM discussion. So the expectation is loan yields kind of flat to up?... And then the deposit cost performance has been excellent. Is there any more room for it to come down?
  Response: Loan yield trajectory driven by asset side; flat yields in Q1 absorbing rate cuts was good. Deposit costs have more limited room for decline; Q2 may see slight increase due to municipal deposit flows.

• Question from Manuel Navas (Piper Sandler): Shifting over to capital deployment. You had a little bit of a buyback this quarter. Can you just talk about your appetite there? And any other kind of thoughts on... M&A?
  Response: Buyback was opportunistic to address equity dilution and price disruption. Priority is organic growth; inorganic discussions remain active across businesses, favoring targeted acquisitions and using cash/stock as needed.

• Question from Matthew Breese (Stephens Inc.): Could you just maybe give us some idea where we are on that priority [of taking market share in vibrant areas]... and then maybe some thoughts around local investments...
  Response: Organic growth is broad-based across all regions, with consistent activity and team capabilities. Local investments like Micron in Central New York represent a large, long-term impact (250% of local GDP) that will drive economic activity and benefit customers over time.

• Question from Matthew Breese (Stephens Inc.): ...Is that [the ClearPoint deal] closed yet? Or when is that expected to close? And then during the quarter, were there any other kind of notable fee income business lines, acquisitions that didn't get its own formal 8-K?
  Response: No other fee income acquisitions in the quarter. ClearPoint deal is prepared to close immediately upon regulatory approval.

• Question from Matthew Breese (Stephens Inc.): ...on expenses. In the press release, you had mentioned kind of the usage of AI. I'm curious how and where you're using this...
  Response: AI initiative is 2 years old, focused on scaling the company without growing the expense base. Impact needs to be transformational (doing more with less); currently focused on scaling and will share more when significant results are achieved.

• Question from Manuel Navas (Piper Sandler): ...The expense level, it's targeting seemingly annualizing to below your full year guide. Where are kind of some of the increases across the year as you invest in your businesses?
  Response: Expense variability due to factors like days in quarter, potential talent/acquisition costs, and medical expenses; overall guidance (4%-7% YOY growth) is consistent, with focus on growth investments.

• Question from Manuel Navas (Piper Sandler): What is the dividend benefit in the second quarter that you expect?... And then the other piece was what was the repurchase price on the buyback?
  Response: Buyback price was in the low 60s; dividend benefit details will be provided separately.