Community Bank (CBU)

Regional banking company Community Financial System (NYSE:CBU) met Wall Street’s revenue expectations in Q3 CY2025, with sales up 9.6% year on year to $207.1 million. Its non-GAAP profit of $1.09 per share was 4.1% above analysts’ consensus estimates.

Company Overview

Tracing its roots back to 1866 in upstate New York, Community Financial System (NYSE:CBU) is a financial holding company that provides banking, employee benefits, wealth management, and insurance services to retail, commercial, and municipal customers.

Regional banks, financial institutions operating within specific geographic areas, serve as intermediaries between local depositors and borrowers. They benefit from rising interest rates that improve net interest margins (the difference between loan yields and deposit costs), digital transformation reducing operational expenses, and local economic growth driving loan demand. However, these banks face headwinds from fintech competition, deposit outflows to higher-yielding alternatives, credit deterioration (increasing loan defaults) during economic slowdowns, and regulatory compliance costs. Recent concerns about regional bank stability following high-profile failures and significant commercial real estate exposure present additional challenges.

Community Financial System competes with regional banks like M&T Bank (NYSE:MTB), KeyBank (NYSE:KEY), and NBT Bancorp (NASDAQ:NBTB) in its banking operations. In its employee benefits and wealth management segments, it faces competition from national providers like Fidelity, Vanguard, and specialized regional firms.

In general, banks make money from two primary sources. The first is net interest income, which is interest earned on loans, mortgages, and investments in securities minus interest paid out on deposits. The second source is non-interest income, which can come from bank account, credit card, wealth management, investing banking, and trading fees. Thankfully, Community Bank’s 6% annualized revenue growth over the last five years was decent. Its growth was slightly above the average banking company and shows its offerings resonate with customers.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. Community Bank’s annualized revenue growth of 10.8% over the last two years is above its five-year trend, suggesting its demand recently accelerated. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, Community Bank grew its revenue by 9.6% year on year, and its $207.1 million of revenue was in line with Wall Street’s estimates.

Net interest income made up 62.6% of the company’s total revenue during the last five years, meaning lending operations are Community Bank’s largest source of revenue.

Our experience and research show the market cares primarily about a bank’s net interest income growth as non-interest income is considered a lower-quality and non-recurring revenue source.

The underlying profitability of top-line growth determines the actual bottom-line impact. Banking institutions measure this dynamic using the efficiency ratio, which is calculated by dividing non-interest expenses like personnel, facilities, technology, and marketing by total revenue.

Markets emphasize efficiency ratio trends over static measurements, recognizing that revenue compositions drive different expense bases. Lower efficiency ratios signal superior performance by indicating that banks are controlling costs effectively relative to their income.

Over the last five years, Community Bank’s efficiency ratio has increased by 2.9 percentage points, going from 60.1% to 62%. Said differently, the company’s expenses have increased at a faster rate than revenue, which usually raises questions unless the company is in high-growth mode and reinvesting its profits into attractive ventures.

Community Bank’s efficiency ratio came in at 62% this quarter, beating analysts’ expectations by 96.7 basis points (100 basis points = 1 percentage point). This result was 1.6 percentage points better than the same quarter last year.

For the next 12 months, Wall Street expects Community Bank to rein in some of its expenses as it anticipates an efficiency ratio of 60.7%.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Community Bank’s unimpressive 4.2% annual EPS growth over the last five years aligns with its revenue performance. On the bright side, this tells us its incremental sales were profitable.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

Although it performed well, Community Bank’s two-year annual EPS growth of 5.5% lower than its 10.8% two-year revenue growth.

In Q3, Community Bank reported adjusted EPS of $1.09, up from $0.83 in the same quarter last year. This print beat analysts’ estimates by 4.1%. Over the next 12 months, Wall Street expects Community Bank’s full-year EPS of $3.95 to grow 18.1%.

Banks are balance sheet-driven businesses because they generate earnings primarily through borrowing and lending. They’re also valued based on their balance sheet strength and ability to compound book value (another name for shareholders’ equity) over time.

This is why we consider tangible book value per share (TBVPS) the most important metric to track for banks. TBVPS represents the real, liquid net worth per share of a bank, excluding intangible assets that have debatable value upon liquidation. EPS can become murky due to acquisition impacts or accounting flexibility around loan provisions, and TBVPS resists financial engineering manipulation.

Community Bank’s TBVPS declined at a 2.5% annual clip over the last five years. However, TBVPS growth has accelerated recently, growing by 29.7% annually over the last two years from $12.23 to $20.57 per share.

Over the next 12 months, Consensus estimates call for Community Bank’s TBVPS to grow by 12.1% to $23.06, top-notch growth rate.

Leverage is core to a financial firm’s business model (loans funded by deposits). To ensure economic stability and avoid a repeat of the 2008 GFC, regulators require certain levels of capital and liquidity, focusing on the Tier 1 capital ratio.

Tier 1 capital is the highest-quality capital that a firm holds, consisting primarily of common stock and retained earnings, but also physical gold. It serves as the primary cushion against losses and is the first line of defense in times of financial distress.

This capital is divided by risk-weighted assets to derive the Tier 1 capital ratio. Risk-weighted means that cash and US treasury securities are assigned little risk while unsecured consumer loans and equity investments get much higher risk weights, for example.

New regulation after the 2008 financial crisis requires that all firms must maintain a Tier 1 capital ratio greater than 4.5%. On top of this, there are additional buffers based on scale, risk profile, and other regulatory classifications, so that at the end of the day, firms generally must maintain a 7-10% ratio at minimum.

Over the last two years, Community Bank has averaged a Tier 1 capital ratio of 13.7%, which is considered safe and well capitalized in the event that macro or market conditions suddenly deteriorate.

Return on equity (ROE) reveals the profit generated per dollar of shareholder equity, which represents a key source of bank funding. Banks maintaining elevated ROE levels tend to accelerate wealth creation for shareholders via earnings retention, buybacks, and distributions.

Over the last five years, Community Bank has averaged an ROE of 10%, healthy for a company operating in a sector where the average shakes out around 7.5% and those putting up 15%+ are greatly admired. This shows Community Bank has a decent competitive moat.

We enjoyed seeing Community Bank beat analysts’ tangible book value per share expectations this quarter. On the other hand, its net interest income slightly missed. Overall, this quarter could have been better. 

Updated: December 3, 2025 at 11:39 PM EST

Before investing in or passing on Community Bank, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

Community Bank isn’t a terrible business, but it doesn’t pass our bar. To begin with, its revenue growth was uninspiring over the last five years. And while its estimated TBVPS growth for the next 12 months is great, the downside is its TBVPS has declined over the last five years. On top of that, its weak EPS growth over the last five years shows it’s failed to produce meaningful profits for shareholders.

Community Bank’s P/B ratio based on the next 12 months is 1.6x. Beauty is in the eye of the beholder, but our analysis shows the upside isn’t great compared to the potential downside. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $68.67 on the company (compared to the current share price of $58.56).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.