Financial Institutions Q4 Earnings Call Highlights

31 Jan 2026, 09:34 by Amy Steele · The Cerbat Gem

Financial Institutions (NASDAQ:FISI) outlined what management described as a “very strong” 2025, highlighted by profitable organic growth, improved returns, and continued balance sheet repositioning, during its fourth quarter and year-end 2025 earnings call on January 30, 2026.

President and CEO Marty Birmingham said the company delivered net income available to common shareholders of $19.6 million, or $0.96 per diluted share, in the fourth quarter, and $73.4 million, or $3.61 per diluted share, for the full year. For 2025, return on average assets was 1.20% and return on average equity was 12.38%, both above management’s annual guidance. Birmingham attributed the performance to net interest income of $200 million and non-interest income of $45 million, along with a 58% efficiency ratio for the year.

Capital actions and shareholder returns

Birmingham said the board approved a quarterly dividend increase of more than 3% in 2025 and adopted a new share repurchase plan authorizing buybacks of up to 5% of common shares. In the fourth quarter, the company repurchased 337,000 shares, which management characterized as 1.7% of outstanding shares, and completed an $80 million subordinated debt offering.

Chief Financial Officer Jack Plants said the new subordinated debt carries a five-year fixed rate of 6.5% and noted the company subsequently redeemed $65 million of prior subordinated debt issuances in mid-January. Birmingham said the 2025 notes received a BBB- rating from Kroll with a stable outlook, which he said reflects improved profitability and capital position.

In response to an analyst question about buyback capacity, management pointed to a Common Equity Tier 1 (CET1) “low mark” of 11% as a key constraint. Plants said the company ended the year at 11.1% CET1 and projected an additional 40 to 50 basis points of CET1 accumulation, which he said would support continued execution against available repurchase liquidity.

Loan growth trends and market outlook

The company reported total loans of $4.66 billion at year-end, up 1.5% in the fourth quarter and 4% year-over-year. Birmingham said growth reflected competitive positioning and demand in commercial lending across Upstate New York. Commercial business loans were down modestly from the prior quarter but up 11% year-over-year, while commercial mortgage loans increased about 4% from the end of the prior quarter and 6.5% year-over-year, led by activity in the Rochester region.

Birmingham also discussed what he sees as longer-term potential in Syracuse tied to Micron Technology’s planned $100 billion investment, which he said officially broke ground earlier in January. He said the company expects more meaningful lending activity beginning in 2026 as infrastructure, housing, and healthcare expand to support population growth, while acknowledging the broader economic effects will take years to materialize.

Residential lending increased about 1% over both the three- and 12-month periods ended December 31, 2025. Birmingham said Buffalo and Rochester drove originations amid tight housing conditions and rising prices, though inventories are loosening across the broader footprint. He added that application volumes were up year-over-year and that the company is beginning to see increased refinance activity, with new mortgage producers hired in the back half of 2025 building pipelines for stronger residential production in 2026.

Consumer indirect loans declined 3.7% in the fourth quarter and 4.5% for the year to $807 million. Management said the runoff was intentional, reflecting profitability targets and current market conditions, and expects the portfolio to drift down modestly in 2026. Birmingham described the indirect platform as vehicle purchase lending through a network of more than 350 auto dealers across New York State, with an average loan size of roughly $20,000 and a weighted average FICO score above 700.

Deposits, funding mix, and NIM expectations

Year-end deposits were $5.21 billion, down 2.8% from September 30 due to seasonal public deposit outflows and lower broker deposits, but up 2% year-over-year despite the ongoing wind down of the company’s banking-as-a-service (BaaS) line. Birmingham said Financial Institutions announced plans to exit BaaS in September 2024 and has since worked with fintech partners to transition customers and $100 million of associated deposit balances. The company had approximately $7 million of those deposits remaining at year-end and expects them to roll off in the first quarter of 2026 to a new banking provider.

Plants said the company reduced broker deposits in the fourth quarter as growth in reciprocal deposits helped offset BaaS outflows. Birmingham said reciprocal deposits are anchored by long-tenured commercial and municipal relationships and help customers maintain full insurance coverage above the FDIC insurance limit.

On net interest margin (NIM), the company reported a fourth quarter NIM of 3.62% and a full-year NIM of 3.53%. Plants said quarterly NIM declined 3 basis points from the third quarter, primarily due to the December subordinated debt issuance and the timing of subsequent redemptions, which he said contributed about 2 basis points of the decline. He also said average loan yields fell 9 basis points from the prior quarter due to the timing of an October rate cut, noting that roughly 40% of the loan portfolio is variable-rate with repricing frequency of one month or less.

Looking ahead, management guided to incremental margin expansion through 2026, with a full-year NIM target in the mid-3.60% range based on spot rate forecasts as of year-end and not factoring potential future rate cuts. In the Q&A, Plants said December’s monthly margin was around 3.56% and was impacted by the December debt issuance, with improvement expected after the mid-January debt retirement. He added that the company believes its guidance would hold up even with a 25 basis point rate cut, citing its ability to reprice deposits.

Non-interest income, expenses, and 2026 guidance

Non-interest income was $11.9 million in the fourth quarter and $45 million for the year, supported by items including company-owned life insurance (COLI) income. Plants said COLI income was $2.8 million in the fourth quarter and $11.4 million for 2025, compared to $5.5 million in 2024, and expects it to normalize to about $10.5 million in 2026.

Investment advisory income totaled $11.7 million for the year, up $1 million, or more than 9%, from 2024. Plants said Courier Capital reported positive net flows and ended the year with $3.6 billion in assets under management, up $500.4 million, or 16%, year-over-year. Management is targeting a low- to mid-single-digit increase in investment advisory income in 2026, partly dependent on market conditions.

Swap-related fee income was also cited as a contributor, with $1.1 million of commercial back-to-back swap fees in the fourth quarter and $2.5 million for the full year. Plants said the company expects swap fees to moderate to a range of $1 million to $2 million in 2026.

Non-interest expense was $36.7 million in the fourth quarter and $142 million for the year, compared to $178.9 million in 2024, when results were impacted by a previously disclosed fraud event and an auto lending settlement. Plants said salaries and benefits increased year-over-year due in part to higher claims activity in the company’s self-funded medical plan, a trend expected to continue in 2026. He also cited higher occupancy and equipment expense related to an ATM conversion and upgrade project completed in 2025.

For 2026, management guided to:

Return on average assets of at least 1.22%
Return on average equity exceeding 11.9%
Efficiency ratio below 58%
Loan growth of about 5%, driven by commercial lending, with growth expected to be lighter in the first quarter and build through the year
Low single-digit deposit growth year-over-year, with emphasis on core deposits such as demand, NOW, and savings accounts
Low single-digit non-interest expense growth, including a mid-single-digit increase in salaries and benefits
Effective tax rate of 16.5% to 17.5%
Net charge-offs budgeted at 25 to 35 basis points of average loans (versus 24 basis points reported in 2025)

Birmingham closed by reiterating priorities around disciplined organic growth, expense management with positive operating leverage, and maintaining a strong capital position to support long-term shareholder value.

About Financial Institutions (NASDAQ:FISI)

Financial Institutions, Inc (NASDAQ: FISI) is a non-diversified, closed-end management investment company that seeks to provide tax-advantaged income to shareholders. The company invests primarily in investment-grade municipal obligations issued by states, municipalities and government agencies across the United States. By focusing on high-credit-quality bonds, Financial Institutions aims to deliver current income that is exempt from federal income tax.