Financial Institutions, Inc. Q4 FY2025 earnings call

• Capital actions: Repurchased 1.7% of outstanding shares totaling nearly $11 million and completed an $80 million sub-debt offering. - Loan growth: Solid loan growth with total loans up 4% Y/Y, driven by strong commercial lending in Upstate NY, including Micron's $100 billion investment in Syracuse. - Deposit management: Period-end deposits down 2.8% from Sep 30 but up 2% Y/Y, with impact of BaaS exit and focus on reciprocal deposits. - Fee revenues: Noninterest income supported by factors like COLI, investment advisory, and swap fees. - Expense management: Targeting low single-digit noninterest expense growth in 2026, with focus on prudent expense management.

Loans: Total loans increased 1.5% in the fourth quarter and 4% year over year to $4.66 billion. Commercial business loans were down modestly on a linked quarter basis and up 11% year over year. Commercial mortgage loans were up about 4% from the end of the linked quarter and 6.5% year over year. Residential lending grew modestly, up 1% during both the three and twelve months ended 12/31/2025. Consumer indirect loans were down 3.7% during the fourth quarter and 4.5% for the year, to $807 million. Deposits: Period-end total deposits were $5.21 billion, down 2.8% from September 30, driven by seasonal public deposit outflows and lower broker deposits. Deposits were up 2% year over year. Noninterest Income: Noninterest income was $11.9 million for the quarter, $45 million for the year. COLI revenue was $2.8 million in the fourth quarter, a 2.1% decrease from the linked period, and $11.4 million for the year. Full-year investment advisory income of $11.7 million was an increase of $1 million or over 9% from 2024. Full-year 2025 swap fee income of $2.5 million was up $1.8 million from the prior year. Expenses: Quarterly noninterest expense was $36.7 million compared to $35.9 million in the third quarter. Owner expense was $142 million compared to $178.9 million in 2024.

• 2026 ROA target at least 122 basis points, ROE exceeding 11.9%, and efficiency ratio below 58%. - Margin expected to expand with NIM in the mid-three sixties. - Loan growth target ~5% Y/Y, driven by commercial, with lumpy timing towards back half of 2026. - Deposit growth targeted at low single-digit Y/Y, focusing on core deposits. - COLI income expected to normalize to ~$10.5 million Y/Y. - Effective tax rate expected between 16.5% to 17.5%.

• Market conditions could impact consumer indirect loans. - Potential rate cuts may affect margin. - Intense competition in deposits could lead to outflows. - Credit risk related to loan portfolio performance.

Q: About margin cadence and potential rate cuts, A: Jack Lance mentioned December margin was impacted by sub-debt raise and retirement of prior sub-debt, and that margins could expand incrementally after January.

Q: About loan growth and indirect auto, A: Marty Birmingham stated intentional runoff of indirect auto portfolio and strong commercial prospects with equal weighting for C&I and CRE.

Q: About share buybacks, A: Jack Lance said there's capacity to continue buybacks with CET1 at 11.1% and remaining attractive capital allocation.

Q: About ROA upside/downside and buybacks, A: Jack Lance discussed ROA upside from accelerated asset originations and capacity for buybacks with available liquidity from sub-debt offering.