Skip to content
    FISI
    Earnings call· Jun 2026(Q2 FY26)

    FINANCIAL INSTITUTIONS INC FISI

    Jul 24, 2026 Source

    Executive summary

    Financial Institutions, Inc. Q2 FY26 — Strong Loan Growth and Margin Expansion

    Financial Institutions, Inc. delivered a strong second quarter, marked by robust commercial loan growth and a 3 basis point expansion in net interest margin, supported by effective funding cost management. The company achieved significant improvements in profitability metrics, including a 21% year-over-year increase in net income and a higher efficiency ratio, while maintaining stable credit quality. Management is optimistic about continued growth, particularly in commercial lending, and has raised full-year guidance for NIM, ROA, and ROE.

    Highlights

    5

    • Loans increased 2.7% from Q1 FY26 and 4.8% year-over-year, driven by commercial lending.

    • Net interest margin improved 3 basis points from Q1 FY26 and 21 basis points year-over-year.

    • Net income available to common shareholders was up 21% year-over-year to $20.8 million.

    • Assets under management (AUM) in the wealth subsidiary grew 13% from Q1 FY26 to $4 billion and 19% year-over-year.

    • Tangible book value per share increased to $28.72, up 2% quarter-over-quarter and over 10% year-over-year.

    Concerns

    2

    • Consumer indirect loans were down 2.1% from Q1 FY26 and 7.5% year-over-year due to disciplined underwriting.

    • Limited partnership income reported a loss of $140,000 in Q2 FY26 compared to a gain of $244,000 in Q1 FY26.

    Guidance & targets

    9
    CategoryTargetConfidence
    Full-year 2026 loan growth
    5%
    high materiality
    High
    Full-year 2026 deposit growth
    low single-digit
    medium materiality
    Medium
    Full-year 2026 Net Interest Margin
    approximately 370 basis points
    high materiality
    High
    Full-year 2026 non-interest income
    at least $11 million
    medium materiality
    High
    Full-year 2026 efficiency ratio
    below 57%
    high materiality
    High
    Full-year 2026 Return on Average Assets
    at least 1.3%
    high materiality
    High
    Full-year 2026 Return on Average Equity
    at least 12.5%
    high materiality
    High
    Full-year 2026 charge-off rate
    unchanged
    medium materiality
    High
    Full-year 2026 non-interest expense growth
    unchanged
    medium materiality
    High

    Segment performance

    4
    SegmentRevenueYoYQoQMargin
    Wealth Management
    Achieved a new milestone for AUM, driven by positive net flows and market gains, supported by talent investments and new relationships, including expansion into Florida.
    Assets Under Management: $4 billion (Q2 FY26)Assets Under Management Growth QoQ: 13%Assets Under Management Growth YoY: 19%
    		$3.3 million—7.4%—
    Commercial Lending
    Growth was well-rounded, with C&I, CRE, and business banking teams contributing. Increased activity in Syracuse due to Micron's $100 billion semiconductor campus investment.
    Commercial and Industrial Lending: particularly strong growth
    		—9.1%4.3%—
    Residential Mortgage
    Strategic shift to off-balance sheet servicing for fee income. Strong originations in Rochester and Batavia.
    Sold and Serviced Residential Mortgages: $302 millionSold and Serviced Residential Mortgages Growth QoQ: 1.4%Sold and Serviced Residential Mortgages Growth YoY: >7%Mortgage and Home Equity Applications Growth YoY: double-digit rates
    		—2.2%1.5%—
    Consumer Indirect Loans
    Decline reflects disciplined approach on spreads and prime credit mix, allowing runoff to outpace originations. Credit metrics remain solid with recoveries.
    Net Charge-Off Ratio: 59 basis points (Q2 FY26)
    		—-7.5%-2.1%—

    Operational metrics

    16
    Efficiency Ratio
    55%improved
    Q2 FY26

    Driven by revenue growth and flat non-interest expenses.

    Tangible Common Equity Ratio
    9.02%up 13 bps QoQ, up 41 bps YoY
    Q2 FY26

    Capital levels continue to build, underscoring capacity to support growth.

    Tangible Book Value Per Share
    $28.72up 2% QoQ, up >10% YoY
    Q2 FY26

    Increased due to profitable growth.

    Investment Advisory Revenue Growth
    7.4%QoQ
    Q2 FY26

    Driven by AUM growth in wealth management subsidiary.

    Banking Services Fee Income Growth
    17%QoQ
    Q2 FY26

    Includes swap fees, card interchange, loan services income, and service charges on deposits.

    Swap Fee Income Growth
    more than doubledQoQ
    Q2 FY26

    Due to increased back-to-back swap volume as lending activity strengthened.

    Mortgage Servicing Income Growth
    nearly 45%QoQ
    Q2 FY26

    Reflecting successful execution of residential mortgage off-balance sheet strategy.

    Company-Owned Life Insurance Revenue
    $2.9 millionup 4% QoQ
    Q2 FY26
    Limited Partnership Income
    -$140,000vs. gain of $244,000 in Q1 FY26
    Q2 FY26

    Fluctuates based on performance of underlying investments, primarily small business investment companies.

    Salaries and Benefits Expense Growth
    3%QoQ
    Q2 FY26

    Reflects full impact of annual merit increases (mid-Q1) and additional business day in Q2.

    Computer and Data Processing Expenses Decline
    11.3%QoQ
    Q2 FY26

    Due to contract termination costs associated with exiting a vendor relationship in Q1, largely offset by elimination of recurring expenses.

    Effective Tax Rate
    17.3%vs. 15.5% in Q1 FY26
    Q2 FY26

    Linked quarter rate driven by appreciation in stock price positively impacting tax deduction for long-term stock-based compensation.

    Allowance for Credit Losses Coverage Ratio
    1%increased 3 bps
    Q2 FY26

    Remains at the lower end of historical range, but management comfortable given strong asset quality.

    Average Loan Yields
    6.07%stable QoQ
    Q2 FY26

    Consistent with Q1 FY26.

    Investment Security Yields
    4.46%down 2 bps QoQ
    Q2 FY26
    Baltimore LPO Outstandings
    $400 millionstable
    Q2 FY26

    Experienced some earlier than expected payoffs and paydowns, reinforcing credit quality.

    Industry KPIs

    12
    MetricValueDetails
    Loans2.7%%
    Deposits$5.3 billionUSD
    Rotce ROEat least 12.5%%
    Cet1 ratio11.44%%
    Capital returnsNo repurchases
    Fee income lines$11 millionUSD
    Allowance reserves1%% of total loans
    Net interest income$53.4 millionUSD
    Net interest margin3 basis points expansionbps
    Net charge offs npls11 basis pointsbps
    Total operating expenses$35.6 millionUSD
    Efficiency ratio operating leveragenearly 55%%

    Risks & headwinds

    3
    Higher runoff in consumer indirect loan portfolioCurrent quarter

    Down 2.1% QoQ and 7.5% YoY.

    Mitigation: Deliberate strategy due to discipline on spreads and focus on prime credit mix; credit metrics remain solid.

    Volatility in limited partnership incomeCurrent quarter

    Loss of $140,000 in Q2 FY26 compared to gain of $244,000 in Q1 FY26.

    Mitigation: Acknowledged as fluctuating based on underlying investment performance (primarily small business investment companies).

    Seasonality in public deposit portfolioQ2 FY26 (peaks in Q1 and Q3)

    Period end deposits down 0.7% QoQ.

    Mitigation: Focus on retention and acquisition of core non-public deposits.

    What to watch in Q3 FY26

    5

    Full-year loan growth

    Next quarter (Q3 FY26)
    Current8% (H1 growth)
    Target5% (full-year target)

    Why it matters

    To assess if strong commercial lending can overcome indirect loan runoff to exceed or meet the 5% full-year target, impacting overall asset growth.

    So I just wanted to start off on loan growth. Obviously a very solid quarter. You know, I think the commentary around what you're seeing in your markets and your pipelines is very encouraging. So just looking to kind of bridge the connection between first half growth was about 8% and you're kind of sticking with your 5% full-year guide. Just wondering what could change that outlook?

    Q&A highlights

    5

    Given strong H1 loan growth (8%), why is the full-year guidance still 5%? What could change this outlook?

    Management attributes strong commercial growth to new lending professionals and market opportunities. The 5% full-year target accounts for higher runoff in the indirect loan portfolio due to disciplined underwriting (focus on prime credit mix) which offsets the commercial strength.

    “Where we're seeing a little bit of softness is just more runoff in the indirect portfolio versus what we originally modeled. And that's just driven by our discipline on spread.”

    asked by Damon Del Monte · answered by Jack Plants

    3 min read8 chapters

    Detailed Narrative

    01

    Commercial Lending Momentum

    The company experienced significant momentum in commercial lending, with total commercial loans increasing 4.3% quarter-over-quarter and 9.1% year-over-year. This growth was broad-based, encompassing Commercial and Industrial (C&I) lending, Commercial Real Estate (CRE), and business banking. The Syracuse market, in particular, is seeing increased activity among industrial suppliers and contractors due to Micron's $100 billion semiconductor campus investment, which is expected to create substantial opportunities.

    02

    Residential Mortgage Performance

    Residential mortgage lending on the balance sheet increased 1.5% quarter-over-quarter and 2.2% year-over-year, despite a tight housing market in upstate New York. The company is strategically shifting more production to its off-balance sheet service portfolio, with sold and serviced residential mortgages up 1.4% quarter-over-quarter and over 7% year-over-year, supporting fee income generation. Originations were strong in Rochester and Batavia, with double-digit increases in mortgage and home equity applications year-over-year.

    03

    Consumer Indirect Loan Strategy

    Consumer indirect loans declined 2.1% quarter-over-quarter and 7.5% year-over-year. This reduction is a deliberate outcome of the company's disciplined approach to spreads and maintaining a prime credit mix, allowing runoff to outpace originations. Credit metrics in this portfolio remain solid, with recoveries contributing to an improved net charge-off ratio of 59 basis points for Q2 FY26.

    04

    Deposit Dynamics and Funding Costs

    Period-end deposits of $5.3 billion saw a modest 0.7% quarter-over-quarter decrease, primarily due to public deposit seasonality, but were up 2.8% year-over-year. The company is focused on retaining and acquiring core non-public deposits, with growth in public, non-public, and reciprocal categories offsetting a decrease in brokered deposits. Effective management of funding costs contributed to a 3 basis point improvement in net interest margin quarter-over-quarter.

    05

    Wealth Management Growth

    The wealth management subsidiary, Courier Capital, achieved a new milestone with assets under management (AUM) reaching $4 billion, up 13% quarter-over-quarter and 19% year-over-year. This growth was driven by positive net flows and market gains, supported by strategic investments in talent and new relationships, including the expansion into Florida to serve seasonal residents.

    06

    Non-Interest Income Diversification

    Non-interest income increased 2.6% quarter-over-quarter to $11 million, with significant contributions from investment advisory revenue (up 7.4% QoQ), banking services fees (up 17% QoQ), and mortgage servicing income (up nearly 45%). Swap fee income more than doubled due to increased back-to-back swap volume, reflecting strengthened lending activity.

    07

    Expense Management and Efficiency

    Non-interest expenses remained flat quarter-over-quarter at $35.6 million, despite a 3% increase in salaries and benefits due to merit increases and an additional business day. The company realized savings from exiting a vendor relationship, which offset contract termination costs incurred in Q1 FY26. This disciplined expense management led to an improvement in the efficiency ratio to nearly 55%.

    08

    Capital Strength and Shareholder Value

    Capital levels continued to build, with a Common Equity Tier 1 ratio of 11.44% (up 7 bps QoQ and 60 bps YoY) and a TCE ratio of 9.02% (up 13 bps QoQ and 41 bps YoY). The company emphasized its strong capital position and focus on delivering profitable growth to drive shareholder value, with management believing the franchise is undervalued and buybacks remain an efficient use of capital.

    AI-generated summary of the company’s earnings call. Not investment advice.