Group 1 - Community Financial System (CBU) is benefiting from fixed-rate asset repricing, leading to an expanding net interest margin [1] - The bank reported positive operating leverage, indicating efficient management of its resources [1] - The overall performance reflects a trend of healthy earnings, aligning with a long-term investment strategy focused on high-quality earnings [1]

Financial Data and Key Metrics Changes - The company achieved record quarterly adjusted net income of $37 million, or $2.17 per diluted share, reflecting strong performance across core businesses [20] - Earnings per share grew by 26% compared to the second quarter [4] - Net interest income increased by $3 million, or 18% annualized, supported by net interest margin (NIM) expansion and exceptional loan growth [20] - NIM on a tax-equivalent yield basis increased by five basis points from the second quarter [20] - Non-interest income totaled $37 million for the third quarter, driven primarily by capital markets revenue [24] Business Line Data and Key Metrics Changes - Capital markets revenue rebounded to $24 million, up $14 million from the prior quarter [20] - Wealth management revenue surpassed $5 million, an 8% increase over the prior quarter, with year-over-year growth of 15% annualized [24][9] - Loan growth accelerated significantly, increasing by $286 million, or 17% annualized, with a 15% increase net of planned runoff from M2 Equipment Finance loans and leases [5][26] Market Data and Key Metrics Changes - Core deposits grew at an annual rate of 6% for the quarter, totaling $410 million, or 8% annualized year to date [6][27] - Total criticized loans improved during the quarter, decreasing 9% year to date [18] - Total provision for credit losses was $4 million, slightly up from the previous quarter, due to loan growth partially offset by improved credit quality [28] Company Strategy and Development Direction - The company operates through three primary lines of business: traditional banking, wealth management, and LIHTC lending platform, all of which delivered improved performance [6] - The digital transformation initiative is on track, with key milestones achieved, including the successful conversion of the core operating system for the first charter [8] - The company is increasing guidance for capital markets revenue to a range of $55 million to $65 million over the next four quarters [11] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about sustaining loan growth momentum, guiding for gross annualized loan growth in a range of 10% to 15% for the fourth quarter [6] - The company remains committed to maintaining strong regulatory capital while assessing its capital structure to support growth objectives [31] - Management noted that the demand for affordable housing remains high, positioning the LIHTC lending business for growth [10] Other Important Information - The company returned $10 million of capital to shareholders through share repurchases [18] - A new share repurchase program was approved, authorizing the repurchase of up to 1.7 million shares of outstanding common stock [19] - The effective tax rate for the quarter was 9.5%, up from 5% in the prior quarter, primarily due to higher pre-tax income [32] Q&A Session Summary Question: Margin guidance and rate cuts - Management confirmed that the margin guidance of three to seven basis points of expansion does not include any rate cuts, and each 25 basis point cut could see an additional 2 to 3 basis point increase [35][36] Question: Future buybacks - Management indicated that they will remain active in buybacks due to higher earnings per share and reduced need to retain capital for organic growth [36] Question: Securitization appetite and timing - Management anticipates a large permanent loan securitization in the first half of next year, targeting around $350 million [41] Question: NII impact from loan sales and securitizations - Management stated that any give-up in net interest income (NII) from loan sales would likely be replaced by improved capital markets revenue [45] Question: Loan growth expectations for next year - Management expects loan growth to continue in the double digits, with a more accurate guide to be provided in January [50] Question: One-time costs related to conversions - Management indicated that there will be $4 to $5 million of NII expense in 2025 related to conversions, expected to decrease in subsequent years [58] Question: Reserves trend - Management does not expect the allowance for credit losses to drop significantly, as recent reductions have been due to resolving non-performing assets [61]

Financial Performance - Net income experienced a significant decline, moving from a profit of $20644000 in Q2 2025 to a loss of $221990000 in Q3 2025[6] - Diluted EPS decreased substantially from $047 in Q2 2025 to $(469) in Q3 2025[6] - Net interest income increased from $55355000 in Q2 2025 to $58386000 in Q3 2025[6] - The net interest margin (NIM) on a fully taxable equivalent (FTE) basis expanded to 352% in Q3 2025, up from 323% in Q2 2025[6] Balance Sheet Transformation - The company completed the sale of $17 billion in investment securities and redeployed $580 million at a yield of 527%[8] - $700 million in FHLB puttable advances were prepaid[8] - $176 million of indirect auto loans were sold near the end of September[8] - Non-core, higher-cost transactional deposits were reduced by approximately $275 million[8] Loan Portfolio - Total loans decreased by $162 million, a 325% linked quarter decline[14] - Commercial loans grew 70% LQA[20] - Indirect auto loans declined by $210 million due to the intentional run-off and sale of $176 million in the quarter[25] Deposits - Total deposits decreased from $5699757000 in Q2 2025 to $5520901000 in Q3 2025[6] - Loans to deposits ratio is 874%[37]

Financial Data and Key Metrics Changes - The second quarter earnings per share grew by 58% compared to the same period last year [6] - Net interest margin increased by 19 basis points to 3.23%, driven by improved mix of earning assets and liabilities [16][18] - Net charge-offs were near $254,000, representing an annualized charge-off rate of two basis points, which is favorable compared to previous performance [12] Business Line Data and Key Metrics Changes - Net loans held for investment grew by $75.5 million, representing 1.5% growth in the quarter and 6.2% on an annualized basis [8] - Commercial loans increased by $117 million, with a growth rate of 14.8% in the quarter [9] - Consumer loan balances decreased by $41 million, reflecting a strategic shift to reduce the indirect auto portfolio [11] Market Data and Key Metrics Changes - Deposit portfolio balances remained relatively flat from Q1, with a disciplined approach to deposit pricing [14] - The competitive environment for lending has become more aggressive, particularly in pricing, leading to compression on spreads [35] Company Strategy and Development Direction - The company aims to improve recurring and predictable operating profitability, with a focus on loan growth in the mid-single-digit range for the year [22] - There is an ongoing strategic repositioning of the balance sheet to reduce reliance on wholesale funding [54] - The company is exploring potential buybacks and other uses of capital as profitability improves [30] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the economic conditions in Northern Indiana, citing significant infrastructure investments and a favorable business environment [62] - The outlook for net interest income growth remains unchanged in the mid-teens for the full year 2025 [22] - Future provision expenses will be driven by anticipated loan growth, economic factors, and credit quality churn [12] Other Important Information - The company reported a well-managed expense quarter, with total expenses expected to be flat compared to 2024 [20] - The allowance for credit losses increased to $54 million, reflecting an increase from 1.07% to 1.09% of loans held for investment [12] Q&A Session Summary Question: Thoughts on capital build and potential uses - Management noted that CET1 ratios are up about 90 basis points over the last twelve months, providing more optionality for capital use [29] Question: Update on competitive environment for lending and funding - The lending environment is described as competitive, with some compression on spreads, particularly in commercial lending [35] Question: Decline in interchange revenue - Management acknowledged a slight decline in overall swipes and spend per swipe, attributing it to more conservative consumer spending [40] Question: Outlook for the economy within the footprint - Management expressed positive sentiment regarding the economy in Northern Indiana, highlighting infrastructure investments and business growth [62] Question: Appetite for M&A - The company is open to M&A opportunities, particularly in Indiana and Michigan, focusing on shareholder-friendly discussions [78]