FINANCIAL INSTITUTIONS INC Annual Report Summary - Year Ended December 31, 2025

FINANCIAL INSTITUTIONS INC (FII, trading as FISI on Nasdaq) is a financial holding company deeply rooted in community banking and wealth management. This summary, drawn from its latest 10-K filing for the year ended December 31, 2025, offers a concise overview of FII's business, financial performance, strategic direction, and key risks. The company primarily operates through two main subsidiaries: Five Star Bank and Courier Capital LLC.

Business Overview

Five Star Bank is FII's flagship operation, accounting for approximately 99% of its total assets. As a New York-chartered bank, it provides a full range of banking services, including consumer, business, and government loans, and deposit products, throughout Western and Central New York. The bank also expanded its lending footprint by maintaining commercial loan offices in the Mid-Atlantic region (e.g., Baltimore, MD) and Syracuse, NY.

Courier Capital LLC, the company's wealth management arm, offers investment advisory, asset management, and retirement planning services to individuals, businesses, and institutions. In 2025, Courier Capital reported $3.60 billion in Assets Under Management (AUM) and generated $11.6 million in revenue. A notable strategic move in 2025 was the September opening of a new office in Sarasota, Florida, signaling the company's intent to expand its wealth management presence into new geographic markets.

FII's overarching strategy centers on its "community bank philosophy." This approach emphasizes building strong, personalized relationships with small-to-medium businesses, individuals, and local organizations in its service areas. The company believes this localized, relationship-driven model provides a competitive advantage over larger, more impersonal financial institutions.

Financial Performance

For the year ended December 31, 2025:

• Total Assets: $6.27 billion
• Total Deposits: $5.21 billion
• Shareholders' Equity: $628.9 million
• Courier Capital LLC Revenue: $11.6 million

Risk Factors

FII identifies several categories of risks that could affect its business operations, financial results, and stock price:

• Credit Risks: Risks include potential loan defaults, fraud, concentration risks in specific geographic areas or loan types (e.g., commercial real estate), and the overall quality of the loan portfolio.
• Legal & Regulatory Risks: Banking's highly regulated nature exposes FII to risks from non-compliance (e.g., anti-money laundering laws) and changes in regulations (e.g., FDIC premiums, Federal Reserve policies). Additionally, banking for New York State-licensed cannabis businesses presents unique challenges due to ongoing federal illegality.
• Strategic & Operational Risks: Challenges include executing growth initiatives, successfully integrating potential acquisitions, and maintaining robust internal risk management systems. Risks also extend to human capital management and succession planning.
• Market Risks: Sensitivity to interest rate fluctuations can significantly impact net interest margin and profitability. Broader systemic risks within the financial sector and equity market fluctuations affecting wealth management AUM also pose threats.
• Technology & Cybersecurity Risks: Vulnerabilities to cyber-attacks, system failures, the need to keep pace with technological advancements (including AI), and reliance on third-party service providers for critical IT functions.
• Stock-Specific Risks: Factors that could affect shareholder value include changes in dividend policy, potential dilution from future stock issuances, and volatility in the company's stock price.
• General Economic Risks: Broader macroeconomic factors such as inflation, supply chain disruptions, geopolitical instability, natural disasters, and shifts in public sentiment could negatively impact economic activity and customer demand for financial services.

Management Discussion & Analysis (MD&A) Highlights

The primary highlight for 2025 was Courier Capital LLC's strategic expansion, marked by the opening of its Sarasota, Florida office. This indicates a proactive approach to growing its wealth management segment.

Future Outlook

FII's strategic direction continues to center on its "community bank philosophy," aiming to foster strong local relationships and provide personalized service. Courier Capital's expansion into new markets, such as Sarasota, Florida, signals a clear intent to diversify and grow its fee-based wealth management revenues—a key strategic initiative for future growth.

Key trends and regulatory changes expected to impact FII include:

• Federal Reserve Board Policies: Interest rate decisions by the Federal Reserve significantly influence the bank's net interest margin, loan demand, and overall financial performance.
• Evolving Cybersecurity and Data Privacy Laws: Continuous compliance with new and changing regulations in these areas is critical for protecting customer data and maintaining operational integrity.
• Cannabis Banking: Serving New York State's licensed cannabis businesses presents unique regulatory and legal complexities. This creates both opportunities for market differentiation and significant compliance challenges due to the conflict between state and federal law.

The company's strategy appears to focus on organic growth within its established banking markets, coupled with targeted expansion in wealth management to enhance revenue diversification.

Competitive Position

FII differentiates itself through its "community bank philosophy," which aims to provide more personalized service and a deeper understanding of local needs compared to larger, national banks. This localized, relationship-driven model is a competitive advantage for attracting and retaining small-to-medium businesses and individual customers. Courier Capital's expansion into new geographic markets also signals a strategic push to diversify and grow its fee-based wealth management revenues, positioning the company to compete for wealth management clients in broader regions. The company competes with a wide range of financial institutions, including national and regional banks, credit unions, and non-bank financial service providers. Leveraging its community ties and offering tailored solutions are central to its competitive strategy.