Financial Institutions, Inc. Q3 FY2025 earnings call

• Strong third quarter 2025 financial results with balance sheet growth, robust revenue, improved profitability metrics, and capital build. - Loan growth driven by commercial lending in Upstate NY; consumer indirect rebounded, residential lending modestly up. - Total deposits up 3.9% from June 30, driven by seasonal public deposits and core nonpublic deposits. - Net interest margin expanded 16 basis points quarter-over-quarter due to improved yields and deposit repricing. - Noninterest income increased from various streams, with expectation to exceed original guidance. - Noninterest expense up but efficiency ratio below target. - Tangible and regulatory capital built; share repurchase plan refreshed.

Loan Growth: Loan growth of 1.2% driven by commercial lending in Upstate New York; commercial loans about $3 billion, up 1.6% from June 30, 2025, and 8.3% from September 30, 2024. Consumer indirect balances $838.7 million, up 0.6% from June 30, down 4.1% year-over-year. Residential lending modestly up. Deposits: Total deposits $5.36 billion, up 3.9% from June 30, up 1% year-over-year. Net Interest Income: Record quarterly net interest income; net interest margin expanded 16 basis points quarter-over-quarter. Noninterest Income: $12.1 million in third quarter, up 13.6% quarter-over-quarter. Net Income: $20.1 million or $0.99 per diluted share for third quarter.

• Revised full-year 2025 guidance: ROAA expected to exceed 115 basis points (up from 110), ROAE greater than 12% (up from 11.25%). - Expect to achieve high end of 1%-3% loan growth range. - Tightened full-year net interest margin range to 350-355 basis points, with modest pressure in fourth quarter and improvement in 2026. - Full-year expenses now expected closer to $141 million, ~1% higher than original guide. - Narrowed effective tax rate range for 2025 to 18%-19%.

• Interest rate risks impacting margin. - Credit risks with slight increase in nonperforming loans but not indicative of trend. - Deposit flows with BaaS deposits expected to flow off in early 2026. - Elevated claims in self-funded medical plan may continue.

Q: Just regarding the margin and the outlook. Jack got the commentary here in the fourth quarter kind of being down modestly. Can you just kind of give us a little perspective if we have a couple of rate cuts this quarter, kind of when you would expect the margin to bounce back in '26?

A: Yes. We've been fairly aggressive with some of our deposit repricing... I would expect that going into 2026, our jumping off point would probably be somewhere around 3.60%.

Q: And then from there, you think it can kind of grind higher as you continue to benefit from new loan production and repricing of other fixed rate loans and continued management on the cost of fund side?

A: That's correct.

Q: And then just second question here on the buyback. Kind of good to see capital levels growing valuation still remains right around tangible book value. What are your thoughts on getting a little bit more active in the buyback and supporting the shares a little bit?

A: Well, we're pleased that our Board approved the buyback... we look forward to updating the market, Damon, when activity occurs.

Q: And if I could just sneak one more in on the loan growth. It sounds like you seem a little bit more optimistic today than you did maybe a quarter or 2 quarters ago. How do you look at maybe coming out of '25 and into '26, do you think you can kind of get back to that mid-single-digit rate of net growth?

A: This is Jack. I can take that one. So we're in the stages of building out our financial plan for 2026... mid-single-digit growth, as you can is appropriate for modeling purposes.