Financial Institutions, Inc. 8.48% SRB1 PFD B

What they do

The company operates Five Star Bank, a New York-chartered bank with 48 full-service offices across 14 New York counties, offering deposit and loan products to consumer, commercial, and municipal customers. It also operates Courier Capital, an SEC-registered investment advisory firm with $3.60 billion in assets under management as of December 31, 2025. The bank provides commercial loans in the Mid-Atlantic and Central New York regions through loan production offices in Baltimore and Syracuse.

Revenue drivers

• Net interest income from loans — Core revenue stream from interest earned on a $4.61 billion loan portfolio (net loans at year-end 2025), including commercial and consumer loans, primarily in Western and Central New York.
• Deposit funding — Deposits of $5.29 billion at the bank as of December 31, 2025, including checking, NOW, savings, and certificates of deposit, which fund lending activities.
• Investment securities — Investment securities of $1.01 billion at year-end 2025 contribute to net interest income.
• Investment advisory and wealth management — Courier Capital generated $11.6 million in revenue in 2025, offering customized investment advice and retirement plan services; AUM surpassed $4.0 billion in Q2 2026.

Recent performance

For Q2 2026, the company reported net income available to common shareholders of $20.8 million, or $1.04 per diluted share, up 21.3% year-over-year. Net interest income reached a quarterly high of $53.4 million with a net interest margin of 3.70%. Total loans grew 2.7% quarter-over-quarter to $4.75 billion, while deposits declined modestly to $5.30 billion. Net charge-offs were 0.11% of average loans, and the allowance for credit losses on loans was 1.00% at quarter-end. In 2025, net income was $74.9 million, versus a net loss of $41.6 million in 2024 which included a $100.2 million pre-tax loss from the sale of available-for-sale securities.

Strategy

The company maintains a community bank philosophy, focusing on personalized service to small- and medium-sized businesses, individuals, and community organizations. Growth is driven by commercial lending, particularly in core Western and Central New York markets, and by expanding the wealth management business—Courier Capital added a Sarasota, Florida office in September 2025. The 2025 Share Repurchase Program authorizes repurchase of up to 1,006,379 shares, with 336,869 repurchased by year-end 2025. The company completed a $80 million subordinated notes private placement in December 2025 to redeem prior issuances and support general corporate purposes.

Risks

• Credit risk — As a lender, the company is exposed to potential customer loan defaults and collateral shortfalls, which could require increased allowance for credit losses.
• Geographic concentration — Loan and deposit concentrations in Western and Central New York expose the company to regional economic downturns.
• Interest rate risk — Fluctuations in market interest rates could adversely affect net interest margin and overall profitability.
• Regulatory and legal risk — High regulation, including compliance with the Bank Secrecy Act and Community Reinvestment Act, could lead to penalties or increased costs.

Outlook

Management expects continued strong loan growth, with Q2 2026 annualized loan growth exceeding 10%, driven by robust commercial lending pipelines. The wealth management business is expected to benefit from new business activity alongside market performance, as AUM has surpassed $4.0 billion. The company remains focused on sustaining profitability, improving efficiency (55.33% in Q2 2026), and generating healthy revenue while managing expenses.