Financial Institutions, Inc. (FISI) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call revealed strong financial performance with net income and ROE exceeding guidance, supported by robust net interest and noninterest income. Despite some caution on indirect auto loans, commercial loan growth remains strong. The Q&A highlighted confidence in managing margins and potential for further share buybacks. While there were some unclear responses, the overall outlook is positive, with guidance revisions and shareholder return plans likely boosting stock sentiment.
Key Financial Performance
Net Income $19.6 million for Q4 and $73.4 million for the full year, representing strong performance. Reasons include consistent execution and profitable organic growth.
Return on Average Assets (ROA) 120 basis points for the year, exceeding annual guidance. Supported by growing net interest income and durable noninterest income.
Return on Average Equity (ROE) 12.38% for the year, exceeding annual guidance. Driven by improved profitability and capital positions.
Net Interest Income $200 million for the year, contributing to strong financial performance.
Noninterest Income $45 million for the year, supported by factors like company-owned life insurance (COLI) income and investment advisory income.
Efficiency Ratio 58% for the year, reflecting effective cost management.
Loan Growth Total loans increased 1.5% in Q4 and 4% year-over-year to $4.66 billion. Commercial business loans up 11% year-over-year, and commercial mortgage loans up 6.5% year-over-year. Growth driven by strong demand in Upstate New York markets.
Residential Lending Grew modestly by 1% during both Q4 and the full year. Growth supported by tight housing markets in Buffalo and Rochester.
Consumer Indirect Loans Down 3.7% in Q4 and 4.5% for the year to $807 million. Managed based on profitability targets and market conditions.
Deposits $5.21 billion at year-end, down 2.8% from Q3 but up 2% year-over-year. Seasonal public deposit outflows and wind-down of Banking as a Service (BaaS) line impacted results.
Net Interest Margin (NIM) 3.62% for Q4 and 3.53% for the full year. Year-over-year expansion of 71 basis points due to securities restructuring and high-quality loan growth.
Noninterest Expense $36.7 million for Q4 and $142 million for the year, down from $178.9 million in 2024. Decrease due to absence of prior year's fraud event and auto lending settlements.
Investment Advisory Income $11.7 million for the year, up over 9% from 2024. Growth driven by positive net flows and market-driven gains.
Commercial Back-to-Back Swap Fee Income $2.5 million for the year, up $1.8 million from the prior year. Reflects strong swap activity.
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Operating Highlights
Net income: Net income available to common shareholders was $19.6 million for Q4 and $73.4 million for the full year 2025.
Loan growth: Total loans increased 1.5% in Q4 and 4% year-over-year to $4.66 billion, driven by commercial lending in Upstate New York.
Residential lending: Residential lending grew modestly by 1% during Q4 and the year, with strong activity in Buffalo and Rochester.
Market expansion in Upstate New York: Micron Technologies' $100 billion investment in Syracuse is expected to drive significant economic expansion and lending opportunities.
Wealth management growth: Courier Capital's AUM increased by $500.4 million (16%) year-over-year to $3.6 billion, driven by new business and market gains.
Efficiency ratio: Efficiency ratio for 2025 was 58%, reflecting strong operational performance.
Deposit management: Deposits were $5.21 billion at year-end, up 2% year-over-year, with a focus on retaining and acquiring deposits.
Share repurchase plan: A new share repurchase plan was approved for 2025, authorizing buybacks of up to 5% of common shares.
Exit from Banking as a Service (BaaS): The company is winding down its BaaS line of business, with associated deposits expected to roll off in Q1 2026.
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Risk or Challenges
Deposit Retention and Acquisition: The company faces challenges in retaining and acquiring deposits in a highly competitive landscape, which remains a top priority for 2026.
Consumer Indirect Loans: Consumer indirect loans decreased by 3.7% in Q4 and 4.5% for the year, with expectations for further modest declines in 2026 due to current market conditions.
Banking as a Service (BaaS) Exit: The planned exit from the Banking as a Service line of business has led to a wind-down of associated deposit balances, which could impact deposit levels in the short term.
Higher Claims Activity in Self-Funded Medical Plan: The company experienced higher claims activity in its self-funded medical plan throughout 2025, a trend expected to continue into 2026, potentially increasing expenses.
Commercial Loan Growth: Commercial loan growth is expected to be lighter in Q1 2026 due to larger anticipated payoffs and paydowns, which could impact overall loan growth targets.
Cost of Funds and Deposit Repricing: The company faces challenges in managing funding costs and deposit repricing, particularly in a competitive environment and amid FOMC rate changes.
Noninterest Expense Growth: Noninterest expenses are expected to grow in 2026, driven by higher salaries, benefits, and medical claims, which could pressure operating leverage.
Economic Uncertainty in Upstate New York: While the company is optimistic about economic expansion in Upstate New York, the full benefits of projects like Micron Technologies' investment will take years to materialize, posing a long-term uncertainty.
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Guidance & Outlook
Return on Average Assets (ROA): Targeted at least 122 basis points for full year 2026.
Return on Average Equity (ROE): Expected to exceed 11.9% in 2026.
Efficiency Ratio: Projected to be below 58% for 2026.
Net Interest Margin (NIM): Anticipated to incrementally build through 2026, with a full-year target in the mid-360s.
Loan Growth: Annual loan growth targeted at about 5%, driven by commercial loans. Growth expected to be lighter in Q1 and build through the year.
Deposit Growth: Guiding to low single-digit deposit growth year-over-year, with a focus on growing lower-cost core deposits.
Investment Advisory Income: Targeting a low to mid-single-digit increase in 2026, partly dependent on market conditions.
Consumer Indirect Loans: Expected to drift down modestly in 2026 due to a focus on profitable spreads and favorable credit mix.
Noninterest Expense: Targeting low single-digit growth in 2026, driven by a mid-single-digit increase in salaries and benefits.
Effective Tax Rate: Expected to be between 16.5% to 17.5% for 2026.
Net Charge-Offs: Budgeting full-year net charge-offs of 25 to 35 basis points of average loans.
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Shareholder Return Plan
Quarterly Dividend Increase: The Board approved a more than 3% increase to the quarterly dividend in 2025.
Share Repurchase Plan: A new share repurchase plan was authorized in 2025, allowing the company to buy back up to 5% of common shares.
Fourth Quarter Share Repurchase: The company repurchased 1.7% of outstanding shares in the fourth quarter, totaling nearly $11 million.
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Key Q&A
Q:What is the expected cadence of the margin over the course of the year?
A:Margins are expected to expand incrementally on a monthly basis throughout the year after the retirement of $65 million of outstanding facilities in mid-January. December margin was at about 3.56%, impacted by a sub-debt raise.
Q:How would a 25 basis point rate cut affect margins?
A:Management believes margins would remain largely flat, as they have demonstrated the ability to reprice deposits aggressively. December saw modest margin compression, but absent the sub-debt issuance, margins would have been flat in Q4.
Q:What is the outlook for loan growth, particularly for the indirect auto portfolio and commercial loans?
A:The indirect auto portfolio is intentionally being managed to trend lower, while growth is expected on the commercial side. The commercial loan pipeline has been around $700 million for several years, with growth expected to be equal-weighted between C&I and CRE. CRE is anticipated to have more balance sheet growth due to its larger portfolio.
Q:What are the thoughts on share buybacks going into 2026?
A:Management is pleased with the Q4 buyback of 337,000 shares and finds it an attractive capital allocation option. However, they aim to be judicious due to constraints on common equity Tier 1 (CET1), which is at 11%. Additional liquidity from a $15 million sub-debt issuance could provide further opportunities.
Q:What are the potential areas for upside or downside on the ROA?
A:Accelerated asset originations could push ROA higher, but management prioritizes profitability over growth. They are comfortable with the current ROA guidance.
Q:Will there be more share buybacks in the first half of the year if growth is backloaded?
A:There is capacity for more buybacks due to additional liquidity from the December sub-debt offering and projected CET1 growth of 40-50 basis points. However, CET1 is not expected to drop below 11%.
Q:What are the deposit targets and initiatives for 2026?
A:Deposit growth is focused on core deposits (DDA, savings, NOW accounts), with money market and time deposits expected to remain flat. Initiatives include leveraging treasury management offerings and aligning sales force incentives to prioritize deposit growth.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on how a 25 basis point rate cut would quantitatively impact margins, instead offering general assurances about their ability to reprice deposits. Additionally, while they discussed deposit growth initiatives, they did not provide detailed metrics or timelines for achieving these targets.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
COLI income
Courier Capital
Deposits
NIM
Rochester
Upstate New
action
asset basis
asset mix
auto
banking
base
claim
collateralization
commitment
deposit outflow
digit increase
fee income
gain
ground
income swap
increase salary
investment income
issuance
leverage
market condition
mix funding
month
note
offering
potential
priority
rating
reminder
repurchase
salary benefit
surrender
swap fee
FISI Transcript
Financial Institutions, Inc. (FISI) Q4 2025 Earnings Call Transcript
Positive1-30
The earnings call revealed strong financial performance with net income and ROE exceeding guidance, supported by robust net interest and noninterest income. Despite some caution on indirect auto loans, commercial loan growth remains strong. The Q&A highlighted confidence in managing margins and potential for further share buybacks. While there were some unclear responses, the overall outlook is positive, with guidance revisions and shareholder return plans likely boosting stock sentiment.
Financial Institutions, Inc. (FISI) Q3 2025 Earnings Call Transcript
Unknown10-24
The earnings call presents a mixed picture. Strong financial metrics like net income growth and improved net interest margin are offset by concerns over nonperforming loans, economic uncertainties, and increased medical costs. The Q&A reveals cautious optimism about loan growth but lacks clarity on share buybacks. The company's affirmation of 2025 guidance and share repurchase plans provides some positive sentiment, but risks related to the economic environment and compliance costs temper expectations, leading to a neutral stock price prediction.
Financial Institutions, Inc. (FISI) Q2 2025 Earnings Call Transcript
Unknown7-25
The earnings call presents a mixed picture: strong net income growth and margin expansion are offset by deposit outflows, competitive lending pressures, and rising noninterest expenses. The Q&A reveals management's confidence in Upstate New York's loan growth, but challenges remain in the Mid-Atlantic and consumer lending segments. While financial performance is solid, flat deposit growth and increased expenses raise concerns. Given these factors, the stock price is likely to remain stable, resulting in a neutral prediction.
Financial Institutions, Inc. (FISI) Q1 2025 Earnings Call Transcript
Unknown4-29
The earnings call presents a mixed outlook. Financial performance is strong with increased net income and improved margins. However, guidance remains cautious due to macroeconomic uncertainties, interest rate volatility, and competitive pressures. The Q&A highlights management's uncertainty about loan growth, despite improvements in non-interest income and a stable credit discipline. The positive aspects are counterbalanced by potential risks, leading to a neutral sentiment. The equity offering and share repurchase program provide some support, but not enough to drive a positive outlook.
FISI Slides
FISI Report
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