Community Financial System's Operating Earnings Accelerate

The Tip Desk · November 8, 2026 · 4 min read

Operating diluted earnings reached $1.27 a share in the third quarter as net interest income hit a record $143.5 million and the net interest margin widened to 3.54%.

Community Financial System, Inc. (CBU), a diversified financial services company with Community Bank, N.A. among the country’s 100 largest banking institutions, reported third-quarter 2026 net income of $61.3 million, or $1.16 a share, and operating net income of $67.0 million, or $1.27 a share.

GAAP diluted earnings were unchanged from the second quarter at $1.16 a share. Operating diluted earnings rose 9.5% from $1.16 in the second quarter, after an 11.5% year-over-year gain in that prior quarter. President and CEO Dimitar A. Karaivanov said the businesses accelerated into the third quarter and that the result was the sixth consecutive quarter of record operating results.

The company said the $0.12 year-over-year increase in GAAP earnings per share was driven by higher net interest income and noninterest revenues, partly offset by higher noninterest expenses and income taxes. Versus the second quarter, the company said the increase in net interest income was offset by a realized loss on investment securities and higher provision and expense items.

Net interest income reached a record $143.5 million, up $4.4 million, or 3.2%, from the second quarter and $15.4 million, or 12.0%, from the year-ago third quarter. The company attributed the record to lower funding costs, organic loan growth and balance-sheet actions, including redeploying proceeds from the sale of lower-yielding U.S. Treasury securities to repay higher-cost borrowings.

Net interest margin expanded 8 basis points quarter-over-quarter to 3.54%, or 3.56% on a fully tax-equivalent basis, and 24 basis points from the third quarter of 2025. On a linked-quarter basis the yield on interest-earning assets rose 6 basis points and the cost of funds fell 2 basis points; the average interest-bearing deposit rate declined 4 basis points to 1.40%. The company said that, excluding the semiannual Federal Reserve Bank dividend recorded in the second quarter, the yield on interest-earning assets rose 8 basis points versus the linked quarter.

The company sold $296.8 million of lower-yielding available-for-sale U.S. Treasury securities, recognizing a $3.0 million realized loss and a $2.9 million net securities loss, and used the proceeds to repay higher-cost overnight borrowings, which it said was immediately accretive to net interest income. Ending borrowings fell $128.1 million, or 16.8%, to $636.0 million from June 30, 2026.

Ending loans were $11.52 billion at September 30, 2026, up $235.2 million, or 2.1%, from June 30, 2026, and $767.8 million, or 7.1%, from a year earlier, reflecting organic growth in business and consumer lending. Ending deposits were $14.87 billion, up $154.7 million, or 1.1%, from the second quarter and $808.3 million, or 5.7%, from a year earlier. Excluding $543.7 million of deposits assumed in the Santander branch acquisition and $120.1 million in ClearPoint, deposits rose $144.5 million, or 1.0%, year-over-year. The average cost of total deposits was 1.03%, down 4 basis points from the linked second quarter; cost of funds was 1.16%.

Banking and Corporate net interest income was $142.0 million, and adjusted pre-tax income in that segment rose 6.1% to $65.5 million from the second quarter. Insurance services revenues increased $2.67 million, or 20.8%, to $15.5 million, and adjusted pre-tax income in the insurance segment rose 128.3% to $4.6 million. Wealth management revenues rose $2.25 million, or 20.1%, to $13.5 million. Employee benefit services revenues were $38.0 million on a segment basis.

Credit costs rose. Annualized loan net charge-offs were 0.18%, or $5.1 million, versus 0.12% in the second quarter, driven by $2.7 million of charge-offs on two individually assessed business lending relationships that had prior specific allowances. The provision for credit losses was $5.6 million. The allowance was $92.0 million, or 0.80% of loans. Delinquent loans were 1.16% of loans, up from 1.04% at June 30, 2026, on higher business lending and consumer mortgage delinquencies. Nonperforming loans were $60.4 million, or 0.52% of loans.

Total noninterest expenses were $141.0 million, up 9.9% from $128.3 million a year earlier, which the company attributed to salaries and benefits, data processing including a one-time $0.8 million debit-card contract consulting cost, and occupancy tied to de novo branches and the Santander branch acquisition. The effective tax rate was 24.0%.

Karaivanov said the company’s trajectory remains intact and that it expects strong performance across all businesses into the fourth quarter and 2027.