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FI

FINANCIAL INSTITUTIONS INC (FISI)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 GAAP results were dominated by a $100.1M loss on securities from a deliberate balance sheet restructuring tied to an oversubscribed equity raise, driving a net loss to common of $(66.1)M, or $(4.02) diluted EPS; core spread metrics improved with NIM up 2 bps QoQ to 2.91% and net interest income up to $41.6M .
  • Management expects a material step-change in profitability from 2025 onward: NIM guided to 3.45–3.55% for FY25 (Q1 ~3.30% then higher), ROAA ≥1.10%, ROE ≥11.25%, and efficiency ratio <60%, as proceeds were reinvested into 5%+ agency-wrapped securities and deposit costs begin to roll down .
  • Capital strengthened significantly: CET1 rose to 10.88% (vs 10.28% in Q3 and 9.43% in FY23); TCE to 8.40% (vs 6.93%/6.00%); dividend maintained at $0.30; management targets potential sub debt actions in 2025 to optimize the stack .
  • Credit remained stable though nonperformers are elevated due to two commercial relationships; ACL/Loans increased to 1.07%, NCOs annualized at 0.25% for Q4 (full year 0.20%); provision rose to $6.5M as qualitative factors and seasonal indirect delinquencies increased .
  • Stock reaction catalysts: visible NIM expansion starting Q1, redeployment of ~$1.2B 12‑month portfolio cash flows, deposit beta reversal with falling rates, and clarity on BaaS deposit outflows in H1 2025; TBV “earnback” on the restructuring expected in ~3.75 years .

What Went Well and What Went Wrong

What Went Well

  • Net interest margin expanded to 2.91% (from 2.89% in Q3) and net interest income rose to $41.6M, aided by lower funding costs outpacing modest asset yield declines and lower short-term borrowings .
  • Capital raise and securities repositioning set up a structurally higher earnings profile; reinvestment into ~5.2% agency-wrapped securities supports guided FY25 NIM of 3.45–3.55%; management cited expected improvements in NIM, efficiency, ROAA and capital quality .
  • Management tone confident: “expected to contribute meaningfully to earnings, net interest margin, efficiency ratio, return on average assets and the quality of capital moving forward” (CEO) ; “targeting ROAA ≥110 bps, ROE ≥11.25%, efficiency <60%” (CFO) .

What Went Wrong

  • GAAP optics: $100.1M net loss on securities produced Q4 noninterest loss of $(91.0)M and GAAP diluted EPS of $(4.02); efficiency ratio rose to 71.74% on one-offs (pension settlement, FDIC) .
  • Credit costs and NPLs: provision increased to $6.5M; NPLs were 0.92% of loans (vs 0.60% a year ago) tied to two commercial relationships; annualized NCOs rose to 0.25% in Q4 (vs 0.15% in Q3) .
  • End-of-period AOCI ticked up ~+$25M due to the curve “belly,” weighing on period-end tangible book per share; management flagged this as rate-driven mark-to-market volatility .

Financial Results

MetricQ2 2024Q3 2024Q4 2024
Net Interest Income ($M)41.193 40.681 41.633
Noninterest Income ($M)24.014 (includes $13.5M gain on insurance sale) 9.440 (91.036) (driven by $(100.055)M securities loss)
Provision for Credit Losses ($M)2.041 3.104 6.461
Noninterest Expense ($M)33.020 32.469 36.382
Diluted EPS ($)1.62 0.84 (4.02)
Net (Loss) Income to Common ($M)25.265 13.101 (66.052)
Net Interest Margin (NIM, %)2.87% 2.89% 2.91%
Efficiency Ratio (%)50.58% 64.70% 71.74%

Segment/Balance Mix (Selected)

Loans ($M)Dec 31, 2023Sep 30, 2024Dec 31, 2024
Commercial Business735.700 654.519 665.321
CRE – Construction493.003 533.506 582.619
CRE – Multifamily452.155 467.527 470.954
CRE – Non-Owner Occ.788.515 814.392 857.987
CRE – Owner Occ.271.646 290.216 288.036
Residential RE Loans649.822 648.241 650.206
Consumer Indirect948.831 874.651 845.772
Total Loans4,462.139 4,402.989 4,479.204

KPIs and Capital

KPIDec 31, 2023Sep 30, 2024Dec 31, 2024
Deposits ($B)5.213 5.307 5.105
Loans ($B)4.462 4.403 4.479
NPLs / Loans (%)0.60% 0.93% 0.92%
ACL / Loans (%)1.14% 1.01% 1.07%
CET1 Ratio (%)9.43% 10.28% 10.88%
TCE Ratio (%)6.00% 6.93% 8.40%
Qtrly NCOs / Avg Loans (annualized)0.38% (Q4’23) 0.15% (Q3’24) 0.25% (Q4’24)
Common Dividend ($/sh)$0.30 (Q4’23) $0.30 (Q3’24) $0.30 (Q4’24)

Notes:

  • The securities sale: $653.5M AFS sold (1.74% avg yield) for a $100.2M pre-tax loss; proceeds reinvested into $642.6M of agency-wrapped at ~5.2% yields; tax-equivalent AFS yield now 4.25%; TBV earnback ~3.75 years .
  • Deposits contracted QoQ due to seasonal public deposit outflows and reduced brokered balances; BaaS deposits (~$100M at YE) expected to outflow mostly in H1’25 .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Interest MarginFY242.85%–2.95% (maintained through Q3) FY25: 3.45%–3.55%; Q1’25 ~3.30% then up New higher 2025 framework
ROAAFY25n/a≥1.10% New target
ROEFY25n/a≥11.25% New target
Efficiency RatioFY25n/a<60% New target
Net Charge-offs (bps)FY24Lowered to 20–30 bps in Q3 FY25: 25–35 bps (conservative) New 2025 range
Noninterest Income ($/qtr, recurring)2H’24$8.5–$9.0M ex. certain items FY25: $9.5–$10.0M ex. certain items Raised
Noninterest Expense ($/qtr)2H’24$33–$34M FY25: ≈$35M Higher with growth investments
Effective Tax RateFY2411%–13% FY25: 17%–19% Higher in 2025
Loan GrowthFY241%–3% FY25: 1%–3% (conservative) Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3 2024)Current Period (Q4 2024)Trend
Balance Sheet RepositioningNo equity raise yet; reinvestment helping margin $108.5M net equity proceeds; sold $653.5M AFS (1.74%); reinvested ~5.2% yields; NIM to 3.45–3.55% in FY25 Major acceleration
Deposit Costs & BetasNeutral to first cuts; short-duration CDs/public to benefit; 2Q beta data shared Cost of funds fell 10 bps QoQ; faster-than-expected deposit repricing; further catch-up expected in 2025 Faster pass-through on cuts
Loan Growth Outlook1–3% 2024; pipelines rebuilding; mid-single-digit potential in 2025 Guide 1–3% 2025 (conservative); commercial to lead; upside with rate cuts/economic projects Conservative near-term, upside later
BaaS Wind-DownAnnounced 9/16; ~$103M deposits at 9/30; outflows expected into 2025 ~$100M at YE; majority outflow 1H’25; one live partner, 3 being off-boarded Executing exits
Asset QualityStable; one CRE relationship to NPA in Q3; lower 2024 NCO guide NPLs 0.92%; two relationships; ACL/Loans 1.07%; NCOs seasonal tick-up Q4 Elevated NPLs but stable losses
Capital ActionsStronger CET1/TCE after SDN sale; sub debt repricing noted for 2025 CET1 10.88%, TCE 8.40%; may call sub debt set to reprice Improved flexibility
Technology & OpsInvestments in data efficiency/marketing tech; treasury mgmt build-out Continued investments; service software for change mgmt; 5% core expense growth in FY25 Spend to support growth and efficiency

Management Commentary

  • CEO: “Our successful equity offering in the fourth quarter enabled us to undertake a balance sheet restructuring that is expected to contribute meaningfully to earnings, net interest margin, efficiency ratio, return on average assets and the quality of capital moving forward.”
  • CFO: “For the full year 2025, we are targeting return on average assets of at least 110 bps, return on average equity of at least 11.25% and an efficiency ratio below 60%. … we expect a full year 2025 net interest margin of between 345 and 355 bps.”
  • CEO on credit: “Approximately $41 million of nonperforming loans … relate to two separate commercial relationships… we do expect that resolution will take time,” while commercial and residential net charge-offs were “essentially nonexistent” in 2024 .
  • CFO on expenses: Q4 noninterest expense included a $1.3M pension settlement accounting charge; FDIC assessments were ~$0.5M higher due to the securities loss and are expected to remain elevated through 2025, though less than Q4 .

Q&A Highlights

  • Loan growth: Guidance at 1–3% is conservative; mid-single-digit growth is possible if construction demand reaccelerates with rate cuts and regional projects (Syracuse/Buffalo tech hub) later in the year .
  • Margin cadence: Starting point in Q1 ~3.30% NIM with expansion thereafter as loan roll-on yields exceed roll-offs and deposit repricing continues to lag; investors had estimated ~+38 bps benefit at the offering; management sees upside beyond Q1 .
  • Reserves: ACL/Loans at 1.07% seen as appropriate; qualitative factors reflect national CRE metrics and seasonal indirect delinquencies; focus on NCOs 25–35 bps and maintaining ~1.07% coverage .
  • AOCI: Period-end AOCI increased ~$25M on the curve’s 5‑year “belly”; total AOCI mark about $50M at YE; underscores mark-to-market sensitivity despite cash-flowing portfolio .
  • Operating expenses: Normalized Q4 NIE “right around $35M” after excluding the $1.3M pension settlement; FY25 guide ~ $35M per quarter consistent with normalized Q4 run-rate .

Estimates Context

  • Wall Street consensus (S&P Global) for Q4 2024 EPS and revenue was unavailable at time of analysis due to data access limits; as a result, we cannot quantify a beat/miss versus consensus for this quarter. Where estimates are required for future comparisons, we will anchor to S&P Global once accessible [GetEstimates error].

Key Takeaways for Investors

  • The $100M securities loss reset the balance sheet; forward earnings power should improve materially with FY25 NIM guided to 3.45–3.55% and sub‑60% efficiency, making Q1 2025 the first visible step-up (Q1 NIM ~3.30%) .
  • Capital is robust (CET1 10.88%, TCE 8.40%) post equity raise; management has optionality to optimize funding (e.g., potential sub debt call) and support credit-disciplined commercial growth .
  • Near-term headwinds include elevated nonperformers tied to two commercial credits, seasonal indirect dynamics, and temporarily higher FDIC assessments; however, loss content remains contained with NCOs guided to a conservative 25–35 bps in FY25 .
  • Deposit costs are already bending lower; management reported faster-than-expected pass-through of rate cuts across deposit categories, supporting the margin expansion narrative into 2025 .
  • Watch H1 2025 BaaS deposit outflows (~$100M YE balance) and public deposit seasonality; core relationship deposit growth and short-term wholesale flexibility provide liquidity management levers .
  • Dividend continuity ($0.30) and improved TBV earnback (~3.75 years) offer incremental support, though headline GAAP noise may persist until expanded margins flow through results .
  • Trading implication: Stock likely more sensitive to forward NIM prints and expense discipline than GAAP comps; catalysts include Q1 NIM step-up, sustained deposit cost decline, and any early evidence of sub‑60% efficiency trajectory .

Additional Context and Prior Quarter Trend Checks

  • Q3 2024: EPS $0.84; NIM 2.89%; recurring fees $9.1M; NPLs rose on one commercial relationship; 2024 NCO guide reduced to 20–30 bps; BaaS wind-down announced .
  • Q2 2024: EPS $1.62; NIM 2.87%; $13.5M gain on insurance subsidiary sale; deposit outflows seasonal; capital ratios improved meaningfully .

Relevant Press Releases (Q4 timeframe)

  • Dividend declaration of $0.30 per common share (payable Jan 2, 2025) .
  • Common equity offering launched Dec 11 and priced Dec 12, 2024 (4.0M shares at $25.00; upsize option to 4.6M; net proceeds ~ $95M then ~$108.5M net cited post-offering), enabling the securities restructuring .

Note on document sourcing:

  • We searched for an 8‑K Item 2.02 and did not find a separate filing; the Q4 earnings information was provided via the company’s press release on Jan 30, 2025 and the Jan 31, 2025 earnings call transcript, both read in full and cited above [7:] [5:] [6:*].