Financial Institutions, Inc. (FISI) Earnings

Management highlights

First quarter results underscore strength of community banking franchise. Completed refinancing of $65 million of legacy sub-debt issuances in January. Repurchased ~163,000 shares, total since Dec ~500,000 shares. Board approved 3.2% increase in quarterly cash dividend to $0.32 per common share. Total loans down modestly qtr over qtr but up 1.6% yoy. Commercial loan growth expected to rebound in second half of year, full-year loan growth of 5% driven by commercial. Upstate NY markets seeing demand pick up on C&I side. Mid-Atlantic portfolio experienced higher refinancing activity for construction loans. Consumer loans had mixed performance. Deposits: completed wind down of banking as a service, outgrew remaining BAS related deposits, focusing on core non-public deposits.

Guidance

Expect full year net interest margin in the upper 360s. Expect to deliver full year efficiency ratio approaching 57%. 2026 effective tax rate expected at lower end of 16.5% to 17.5% range. Expect loan growth rebound in second half of year to achieve full-year 5% loan growth driven by commercial.

Segment performance

Net income available to common shareholders was $20.6 million, or $1.04 per diluted share. Return on average assets was 137 basis points, return on average tangible common equity exceeded 15%, and efficiency ratio was 57%. Total loans were down modestly on a linked quarter basis and up 1.6% year over year. Commercial loans were relatively flat on linked quarter, up ~5% vs first quarter 2025. Consumer loans: unbalanced sheet residential grew ~1%, sold and serviced residential mortgages $298 million up 1.5% qtr over qtr and >6% yoy; consumer installment loans down 2.4% qtr over qtr and ~8% yoy. Total deposits were $5.34 billion, up 2.5% from Dec 31st and down ~1% from Mar 31st 2025.

Risks & headwinds

Geopolitical and economic uncertainty in first quarter impacted commercial customers, leading to lower loans and deposits. Interest rate volatility put downward pressure on ALCI. Competitive pressure on deposit pricing.

Analyst Q&A

• Q: Hey, good morning, guys. Hope everybody's doing well today. First question, just on the margin, appreciate the updated guidance there. And, Jack, hopefully you could just kind of talk about some of the dynamics that give you confidence that you're able to maintain this upper 360s level for the remainder of the year.

  A: Yeah, thanks, Damon. So the margin came in a little bit above our expectations for the quarter. That was primarily driven by benefit that we recognized through cost of funds. Our cost of interest-bearing liabilities continue to drift downward through January, February, and into March. Frankly, the cost of interest-bearing liabilities ended March at 249, which is about nine basis points lower than the January print. We do see some pressure coming through from a competitive standpoint on deposits in our market, so I do believe that we are approaching the bottom from a cost of funds perspective. But given where our loan pipeline stands and the spreads we're recognizing on originations, I think we're going to start to see some lift on the earning asset side, which is going to provide us that margin stability through the rest of the year.

• Q: And can you just remind us on the asset side, do you have a lot of back book repricing to happen this year?

  A: We have, from a cash flow perspective, we have about a billion dollars on a rolling 12-month basis of cash flow that comes off the loan portfolio. But just from an overall yield standpoint, we are seeing on the commercial portfolios incremental improvement in new origination yields versus what's running off, and that's driving some of that earning asset yield benefit that we're seeing. We did have some compression that occurred on our floating rate portfolio to start the year, and that was driven by the December rate cut that we had. So about 40% of our portfolio is variable. But given our rate forecast for the year and expectations, we believe that can be covered.

• Q: Okay, great. And then I guess maybe a quick question on capital management. Good to see you guys are active with the buyback. You know, Marty just kind of Wondering what your thoughts are as you kind of look out in the landscape of growth expectations and managing capital and still having around half your buyback left. Do you think you guys are still on the trail to continue with the buyback?

  A: We still have capacity, as I indicated. And we have a couple of governors that we're thinking about. Number one is our CET ratio, CET1 ratio. and really a floor of 11%. And as well, even before that, is ensuring we've got capacity to support growth. And, you know, we talked about our confidence in terms of being a back half of the year experience for us in terms of driving our balance sheet growth. And our pipelines are healthy, and they are demonstrating, you know, vibrancy relative to all the lows that flow through at the end of the year. So I would say those are the factors. What we have done, we're thrilled with, Damon, because the earned back is at around a year. So that's been a very good use of capital.

• Q: Okay, good morning. This is on behalf of Manuel. I wanted to ask a question about the loan growth. How do you guys plan to rebound to maintain the 5% guide? And could you provide some more insight on the pipelines?

  A: Sure. So today the pipeline currently stands at almost $1 billion, $950 million-ish. That's up from 650-ish at year end, and it's up historically by other prior year period measurements. Commercial's been a lumpy business historically in terms of how it flows through to the balance sheet, opportunities to ultimately the balance sheet. So we're very comfortable that where we stand today in the growth of the pipeline, where it is, that that ultimately will translate to... for growth in the balance sheet. Our CNI pipeline activities are basically two times where we've been historically, so that's a good leading indicator. And our CRE opportunities currently stand at around 600, a little over 600 million. So we are monitoring that closely. We have a very aggressive internal process in terms of discipline process, I should say, relative to monitoring opportunities and processing them. And we keep a very close eye on, you know, term sheets that have been vetted by our credit folks and been issued and those that are seeking approval internally that the customer has accepted, where we've issued commitments and where commitments have been accepted by the customer. So it's obviously a timing issue, but we're comfortable that it will ultimately flow through the balance sheets. The other component there is we've been a very successful construction lender, and we have construction commitments that are planned to draw down over the remainder of the year for projects that are in flight, and those are not represented in the billion-dollar loan pipeline that Marty mentioned. So we're very confident in our ability to achieve that 5% target.

• Q: I also wanted to ask, Are you seeing pricing get tougher on loans or deposits? And how is the competition in that regard?

  A: Yeah, this is Jack. So as I mentioned earlier, we are seeing the market being quite competitive on deposit rates, particularly higher rate CDs and money market accounts. Our focus is more on relationship-based pricing, which is why we allowed some of those higher rate single account CD products or customers to roll off during the quarter, which where we saw some of our deposit balances declined on the retail side. But as we are out there in our commercial pipelines, we've seen success with deposit growth that supports loan originations. And as Marty mentioned, the T&I pipeline being 2X where it's been historically, that's a portfolio that's a bit more deposit rich on the commercial side, which should provide some balance sheet funding as those originations trickle through. On the Pricing on the commercial side, it's as competitive as it has been, but spreads that we've observed have been within our tolerances and aligned with what we've budgeted for the year, so we're comfortable there.