• Net Loss: $66.1 million for Q4 2024, or $4.02 per diluted share.
• Net Loss for 2024: $26 million, or $1.66 per diluted share.
• Pre-tax Loss from Securities Repositioning: $100.2 million.
• After-tax Impact of Securities Loss: Approximately $75 million.
• Equity Offering Proceeds: $108.5 million from $115 million issued capital.
• Net Interest Margin (NIM): 2.91% for Q4 2024; full year NIM of 2.86%.
• Commercial Loan Growth: 3.8% during Q4 2024; 4.5% for the full year 2024.
• Deposits: $5.1 billion at year-end 2024, down $202 million from September 30, 2024.
• Provision for Credit Losses: $6.5 million in Q4 2024.
• Allowance for Credit Losses on Loans: Increased to 1.07% as of September 30, 2024.
• Return on Average Assets Target for 2025: At least 110 basis points.
• Return on Average Equity Target for 2025: At least 11.25%.
• Efficiency Ratio Target for 2025: Below 60%.
• Net Interest Margin Target for 2025: Between 345 and 355 basis points.
• Non-interest Income Projection for 2025: $9 to $10 million per quarter.
• Non-interest Expense Projection for 2025: Approximately $35 million per quarter.
• Effective Tax Rate for 2025: Expected between 17% and 19%.
• Net Charge Offs Projection for 2025: Between 25 to 35 basis points of average loans.

• Warning! GuruFocus has detected 6 Warning Signs with BOM:532210.

Release Date: January 31, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Financial Institutions Inc (NASDAQ:FISI) successfully completed an equity offering that was more than four times oversubscribed, raising $115 million in new capital.
• The company restructured its investment securities portfolio, selling $653.5 million of low-yielding securities and reinvesting in higher-yielding agency-wrapped securities, which is expected to enhance future earnings.
• Commercial loan growth was strong, with a 3.8% increase during the quarter and 4.5% for the full year 2024.
• Regulatory and tangible capital ratios improved significantly, with the common equity tier 1 ratio increasing by 60 basis points from the previous quarter.
• The company is targeting a return on average assets of at least 110 basis points and a return on average equity of at least 11.25% for 2025, indicating a focus on profitability.

Negative Points

• Financial Institutions Inc (NASDAQ:FISI) recorded a $100.2 million pre-tax loss due to the securities repositioning, resulting in a net loss available to common shareholders for the fourth quarter.
• The allowance for credit losses on loans increased by six basis points to 1.07%, reflecting higher loan growth and increased net charge-offs.
• Non-interest expenses are expected to rise by 5% in 2025, partly due to ongoing initiatives and a $1.3 million pension plan settlement accounting charge.
• The company anticipates continued outflows from its bass-related deposits, which could impact overall deposit growth.
• FDIC assessment expenses are expected to remain elevated through 2025 due to an increase in the assessment rate following the fourth-quarter securities loss.

Q & A Highlights

Q: Can you explain the conservative loan growth outlook of 1% to 3% despite positive market trends? A: Jack Plants, EVP and CEO, explained that while there is pent-up demand in construction lending, particularly in the Syracuse market, activity is expected to pick up more significantly in the latter half of the year. The conservative estimate reflects current market conditions and anticipated rate cuts.

Q: What is the expected starting point for the net interest margin in the first quarter of 2025? A: Jack Plants stated that the first quarter margin is expected to be around 330 basis points, with expansion anticipated throughout the year. This is driven by cash flow improvements from the loan portfolio and effective deposit repricing.

Q: Could you provide more details on the reserve build and if there is a targeted level in mind? A: Jack Plants noted that the reserve increase was influenced by loan growth and seasonal delinquency rates in the indirect portfolio. The current coverage ratio is 107 basis points, and future provisioning will focus on maintaining this level while considering loan growth and net charge-offs.

Q: How do you plan to manage non-interest expenses in 2025, given the noise in 2024 results? A: Jack Plants indicated that normalized non-interest expense growth is expected to be about 5% year-over-year. The fourth-quarter expenses, excluding one-time charges, align with the $35 million quarterly guidance for 2025.

Q: What is your confidence level in achieving the efficiency ratio target of below 60% for 2025? A: Jack Plants expressed confidence in achieving the sub-60% efficiency ratio, citing conservative loan growth projections and strong expense management. The margin expansion is expected to support this target.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.