FIISP's Net Income Soars 52% on Strong Net Interest Income Growth

TL;DR

**FIISP is crushing it with net interest income, but keep an eye on those rising credit loss provisions.**

AI Summary

Financial Institutions, Inc. (FIISP) reported a robust financial performance for the three and nine months ended September 30, 2025. Net income for the three months ended September 30, 2025, surged to $20.477 million, a significant increase from $13.466 million in the same period of 2024, representing a 52.07% rise. For the nine months ended September 30, 2025, net income reached $54.887 million, up from $41.165 million in 2024, a 33.33% increase. This growth was primarily driven by a substantial increase in net interest income, which rose to $51.789 million for the three-month period (up 27.31% from $40.681 million in 2024) and $147.775 million for the nine-month period (up 21.17% from $121.956 million in 2024). The company's total assets increased to $6.288 billion as of September 30, 2025, from $6.117 billion at December 31, 2024. Key strategic changes include the orderly wind-down of its Banking-as-a-Service (BaaS) offerings, with approximately $7 million of BaaS-related deposits remaining, and the sale of SDN Insurance Agency, LLC assets for $27 million in April 2024, generating a pre-tax gain of $13.7 million. The provision for credit losses increased to $2.732 million for the three months ended September 30, 2025, from $3.104 million in 2024, and to $8.222 million for the nine months ended September 30, 2025, from a benefit of $311,000 in 2024, indicating a more cautious outlook on credit quality.

Why It Matters

FIISP's impressive net income growth, driven by a significant increase in net interest income, signals strong operational efficiency and potentially higher returns for investors. The strategic exit from the BaaS business and the sale of SDN Insurance Agency, LLC assets streamline the company's focus on core banking and investment management in its Upstate New York market, potentially reducing exposure to non-core risks and improving profitability. This focused approach could enhance competitive positioning against regional banks and fintechs, benefiting employees through clearer strategic direction and customers through specialized services. However, the increased provision for credit losses warrants investor attention, suggesting potential future headwinds in asset quality.

Risk Assessment

Risk Level: medium — The risk level is medium due to the significant increase in the provision for credit losses, which jumped from a benefit of $311,000 for the nine months ended September 30, 2024, to a provision of $8.222 million for the same period in 2025. This indicates a potential deterioration in asset quality or a more conservative lending outlook. Additionally, while the BaaS wind-down is strategic, the remaining $7 million in deposits and the exit from the Pennsylvania automobile market represent ongoing business transitions that carry execution risk.

Analyst Insight

Investors should consider FIISP's strong net income growth and strategic focus as positive indicators, but closely monitor future credit loss provisions and the impact of the BaaS wind-down. A deeper dive into the loan portfolio's health and management's outlook on credit quality is recommended before making significant investment decisions.

Financial Highlights

revenue

$147.775M

total Assets

$6.288B

net Income

$54.887M

eps

$2.68

revenue Growth

+21.17%

Revenue Breakdown

Key Numbers

• $20.477M — Net Income (3 months) (Increased 52.07% from $13.466M in Q3 2024)
• $54.887M — Net Income (9 months) (Increased 33.33% from $41.165M in 9M 2024)
• $51.789M — Net Interest Income (3 months) (Increased 27.31% from $40.681M in Q3 2024)
• $147.775M — Net Interest Income (9 months) (Increased 21.17% from $121.956M in 9M 2024)
• $6.288B — Total Assets (Increased from $6.117B at December 31, 2024)
• $8.222M — Provision for Credit Losses (9 months) (Increased from a benefit of $311K in 9M 2024)
• $27M — Proceeds from SDN sale (Generated a pre-tax gain of $13.7M in April 2024)
• $7M — BaaS-related deposits (Remaining on balance sheet at September 30, 2025)
• $1.00 — Basic EPS (3 months) (Increased from $0.85 in Q3 2024)
• $2.68 — Basic EPS (9 months) (Increased from $2.60 in 9M 2024)

Key Players & Entities

• Financial Institutions, Inc. (company) — Parent Company
• Five Star Bank (company) — Wholly owned New York chartered banking subsidiary
• Courier Capital, LLC (company) — Subsidiary providing investment management
• SDN Insurance Agency, LLC (company) — Former subsidiary whose assets were sold
• NFP Property & Casualty Services, Inc. (company) — Purchaser of SDN Insurance Agency, LLC assets
• $20.477 million (dollar_amount) — Net income for three months ended September 30, 2025
• $13.466 million (dollar_amount) — Net income for three months ended September 30, 2024
• $54.887 million (dollar_amount) — Net income for nine months ended September 30, 2025
• $41.165 million (dollar_amount) — Net income for nine months ended September 30, 2024
• $8.222 million (dollar_amount) — Provision for credit losses for nine months ended September 30, 2025

FAQ

Risk Factors

• Wind-down of BaaS Offerings [medium — operational]: The company is undertaking an orderly wind-down of its Banking-as-a-Service (BaaS) offerings. As of September 30, 2025, approximately $7 million of BaaS-related deposits remained, with expectations for these to flow out in early 2026. This strategic shift aims to refocus on core operations.
• Increased Provision for Credit Losses [medium — financial]: The provision for credit losses increased to $2.732 million for Q3 2025 from $3.104 million in Q3 2024. More significantly, for the nine-month period, the provision rose to $8.222 million from a benefit of $311,000 in the prior year. This indicates a more cautious outlook on credit quality.
• Evolving Segment Reporting Requirements [low — regulatory]: New accounting standards (ASU 2023-07) effective for fiscal years beginning after December 15, 2024, expand segment reporting disclosures. This includes details on how the Chief Operating Decision Maker assesses segment performance and allocates resources, requiring more granular disclosures.
• Focus on Core Markets [medium — market]: The company exited the Pennsylvania automobile market effective January 1, 2024, to align its focus more fully around its core Upstate New York market. This strategic realignment may impact revenue diversification but aims to improve operational efficiency.

Industry Context

Financial Institutions, Inc. operates within the regional banking sector, primarily serving Western and Central New York. The industry is characterized by intense competition from larger national banks, credit unions, and increasingly, FinTech companies. Trends include a focus on digital transformation, evolving customer expectations for seamless service, and ongoing regulatory scrutiny. Strategic decisions like exiting certain markets or divesting non-core businesses are common as institutions seek to optimize profitability and efficiency.

Regulatory Implications

The financial services industry is subject to extensive regulation. FIISP's operations are overseen by various state and federal agencies. Changes in capital requirements, lending standards, and consumer protection laws can significantly impact profitability and operational flexibility. The company's proactive wind-down of its BaaS business and the sale of its insurance agency suggest a strategic response to market dynamics and potentially regulatory considerations.

What Investors Should Do

1. Monitor the impact of the BaaS wind-down on profitability and operational focus.
2. Analyze the trend in the provision for credit losses.
3. Evaluate the sustainability of net interest income growth.
4. Assess the strategic rationale and execution of the SDN Insurance Agency sale.

Key Dates

• 2024-04-01: Sale of SDN Insurance Agency, LLC assets — Generated $27 million in proceeds and a pre-tax gain of $13.7 million, allowing the company to refocus resources.
• 2024-09-16: Announcement of BaaS wind-down — Signaled a strategic shift away from Banking-as-a-Service offerings to concentrate on core business areas.
• 2025-09-30: End of Q3 2025 — Reporting period for the 10-Q, showing significant net income and net interest income growth compared to Q3 2024.

Glossary

Banking-as-a-Service (BaaS)

A model where a bank allows third-party FinTech companies to use its banking license and infrastructure to offer financial services to their own customers. (FIISP is in the process of winding down these offerings, impacting its business mix and potentially future revenue streams.)

Provision for Credit Losses

An expense set aside by a financial institution to cover potential losses from loans that may not be repaid. (An increase in this provision, as seen in the nine-month period of 2025, suggests a more conservative stance on the likelihood of loan defaults.)

Net Interest Income

The difference between the interest income generated by a bank (from loans and investments) and the interest it pays out (on deposits and borrowings). (This is a primary driver of FIISP's profitability, showing substantial growth in both the three and nine-month periods of 2025.)

ASU 2023-07

An Accounting Standards Update from the FASB that enhances disclosure requirements for segment reporting. (This upcoming standard will require more detailed information about how the company's Chief Operating Decision Maker manages and evaluates business segments.)

Year-Over-Year Comparison

Financial Institutions, Inc. has demonstrated strong year-over-year performance, with net income increasing by 52.07% for the third quarter and 33.33% for the nine-month period ended September 30, 2025. This growth is largely attributed to a significant rise in net interest income, up 27.31% and 21.17% respectively. Total assets have also seen a modest increase. A notable shift is the increased provision for credit losses, moving from a benefit to a substantial expense, indicating a more cautious credit outlook compared to the prior year. Strategic actions include the completed sale of SDN Insurance Agency assets and the ongoing wind-down of BaaS offerings.

Key Financial Figures

• $0.01 — ch registered Common stock, par value $0.01 per share FISI Nasdaq Global Select

Filing Documents

• fisi-20250930.htm (10-Q) — 10731KB
• fisi-ex31_1.htm (EX-31.1) — 16KB
• fisi-ex31_2.htm (EX-31.2) — 16KB
• fisi-ex32.htm (EX-32) — 22KB
• img40786843_0.jpg (GRAPHIC) — 316KB
• 0001193125-25-262535.txt ( ) — 41751KB
• fisi-20250930.xsd (EX-101.SCH) — 2071KB
• fisi-20250930_htm.xml (XML) — 12710KB

Financial Statements

Financial Statements Consolidated Statements of Financial Condition (Unaudited) – at September 30, 2025 and December 31, 2024 3 Consolidated Statements of Operations (Unaudited) – Three and nine months ended September 30, 2025 and 2024 4 Consolidated Statements of Comprehensive Income (Unaudited) – Three and nine months ended September 30, 2025 and 2024 5 Consolidated Statements of Changes in Shareholders' Equity (Unaudited) – Three and nine months ended September 30, 2025 and 2024 6 Consolidated Statements of Cash Flows (Unaudited) – Nine months ended September 30, 2025 and 2024 8

Notes to Consolidated Financial Statements (Unaudited)

Notes to Consolidated Financial Statements (Unaudited) 9 ITEM 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 45 ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk 69 ITEM 4.

Controls and Procedures

Controls and Procedures 70 PART II. OTHER INFORMATION ITEM 1.

Legal Proceedings

Legal Proceedings 71 ITEM 1A.

Risk Factors

Risk Factors 71 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 71 ITEM 5. Other Information 71 ITEM 6. Exhibits 72

Signatures

Signatures 73 2 Table of Contents

FINANC IAL INFORMATION

PART I. FINANC IAL INFORMATION

Fina ncial Statements

ITEM 1. Fina ncial Statements FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES Consolidated Statements of Fin ancial Condition (Unaudited) (Dollars in thousands, except share and per share data) September 30, 2025 December 31, 2024 ASSETS Cash and due from banks $ 89,005 $ 54,958 Interest-bearing deposits in bank 96,940 32,363 Total cash and cash equivalents 185,945 87,321 Securities available for sale, at fair value (amortized cost of $ 962,457 and $ 972,720 , respectively) 923,592 911,105 Securities held to maturity, at amortized cost (net of allowance for credit losses of $ 2 ) (fair value of $ 78,477 and $ 104,556 , respectively) 87,625 116,001 Loans held for sale 2,252 2,280 Loans (net of allowance for credit losses of $ 47,292 and $ 48,041 , respectively) 4,543,131 4,431,163 Company owned life insurance 173,599 166,880 Premises and equipment, net 39,198 39,866 Goodwill and other intangible assets, net 60,443 60,758 Other assets 272,267 301,711 Total assets $ 6,288,052 $ 6,117,085 LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Noninterest-bearing demand $ 959,404 $ 950,351 Interest-bearing demand 776,445 705,195 Savings and money market 1,955,832 1,904,013 Time deposits 1,666,128 1,545,172 Total deposits 5,357,809 5,104,731 Short-term borrowings 55,000 99,000 Long-term borrowings, net of issuance costs of $ 0 and $ 158 , respectively 115,000 124,842 Other liabilities 138,523 219,528 Total liabilities 5,666,332 5,548,101 Shareholders' equity: Series A 3 % preferred stock, $ 100 par value; 1,533 shares authorized; 1,435 shares issued 143 143 Series B-1 8.48 % preferred stock, $ 100 par value; 200,000 shares authorized; 171,413 shares issued 17,142 17,142 Total preferred equity 17,285 17,285 Common stock, $ 0.01 par value; 50,000,000 shares authorized; 20,699,556 shares issued 207 207

Notes to Consolidated Financial Statements (Unaudited)

Notes to Consolidated Financial Statements (Unaudited) (1.) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations Financial Institutions, Inc. (individually referred to herein as the "Parent Company," or "Parent," and together with its subsidiaries, collectively referred to herein as the "Company") is a financial holding company organized in 1931 under the laws of New York State ("New York"). The Company provides diversified financial services through its subsidiaries, Five Star Bank (the "Bank") and Courier Capital, LLC ("Courier Capital"). The Company offers a broad array of deposit, lending and other financial services to individuals, municipalities and businesses in Western and Central New York through its wholly owned New York chartered banking subsidiary, the Bank. The Bank also has commercial loan production offices in Ellicott City (Baltimore), Maryland and Syracuse, New York, and indirect lending network relationships with franchised automobile dealers in the Capital District of New York. Effective January 1, 2024, the Company exited the Pennsylvania automobile market to align our focus more fully around its core Upstate New York market. Courier Capital provides customized investment management, investment consulting and retirement plan services to individuals, businesses, institutions, foundations and retirement plans. The Company previously offered a Banking-as-a-Service ("BaaS") business to non-bank financial service providers and other financial technology firms, or FinTechs, allowing them to provide banking services to their end users. On September 16, 2024, the Company issued a press release announcing its intent to begin an orderly wind down of its BaaS offerings, following a careful review by the Company's executive management and Board of Directors undertaken in conjunction with its annual strategic planning process. The Company had approximately $ 7 million of BaaS-related deposits on the balance sheet at

Notes to Consolidated Financial Statements (Unaudited)

Notes to Consolidated Financial Statements (Unaudited) (1.) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Cash Flow Reporting Cash and cash equivalents include cash and due from banks, federal funds sold and interest-bearing deposits in other banks. Net cash flows are reported for loans, deposit transactions and short-term borrowings. Supplemental cash flow information is summarized as follows for the nine months ended September 30, 2025, and 2024 (in thousands): 2025 2024 Supplemental information: Cash paid for interest $ 94,465 $ 121,197 Cash paid for income taxes — 3,526 Noncash investing and financing activities: Real estate and other assets acquired in settlement of loans 142 181 Accrued and declared unpaid dividends 6,601 5,004 Recent Accounting Pronouncements In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendments expand the disclosure requirements of segment expenses, as well as adding disclosure of the title and position of the chief operating decision maker ("CODM") and an explanation of how the CODM uses the reported measures of segment profit or loss in assessing segment performance and deciding how to allocate resources is also required. The amendments became effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Refer to Note 15, Segment Reporting, for disclosures required by this update. Standards Not Yet Effective In December 2023, the FASB issued ASU 2023-09, Income Tax (Topic 740): Improvements to Income Tax Disclosures. The amendments expand the disclosure requirements of income taxes, primarily related to the income tax rate reconciliation and income taxes paid. The guidance also eliminates certain existing disclosure require

Notes to Consolidated Financial Statements (Unaudited)

Notes to Consolidated Financial Statements (Unaudited) (2.) EARNINGS PER COMMON SHARE ("EPS") The following table presents a reconciliation of the earnings and shares used in calculating basic and diluted EPS (in thousands, except per share amounts). All outstanding unvested share-based payment awards that contain rights to non-forfeitable dividends are considered participating securities. There were no participating securities outstanding for the three and nine months ended September 30, 2025 and 2024. Therefore, the two-class method of calculating basic and diluted EPS was not applicable for the periods presented. Three months ended September 30, Nine months ended September 30, 2025 2024 2025 2024 Net income available to common shareholders $ 20,112 $ 13,101 $ 53,793 $ 40,071 Weighted average common shares outstanding: Total shares issued 20,700 16,100 20

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