Financial Institutions, Inc. Q2 FY2025 earnings call

• Financial performance in Q2 2025 saw growing revenue with net income up 4% and EPS up 5% compared to linked quarter. - Net interest margin expanded, net interest income grew, and noninterest income was $10.6 million in Q2. - Achieved an annualized return on average assets of 113 basis points and an efficiency ratio just below 60%. - Total loans at period end were $4.54 billion, with average loans up 1% from first quarter. - Commercial loans were flat with March 31 but up 5% year - over - year, nonperforming commercial loans declined, but there were commercial net charge - offs related to specific commercial relationships. - Residential lending was modestly up, home equity lending was strong, consumer indirect balances were down. - Period - end total deposits were down about 4% due to seasonality and BaaS deposit outflows. - Jack Plants mentioned margin expansion was due to improved yields on earning assets and managed deposit costs, noninterest income had changes in COLI, investment advisory, and Career Capital AUM, expense had some volatility with non - recurring costs, provision for credit losses was lower, capital position was strong.

In the second quarter of 2025, net income available to common shareholders increased by 4% to $17.2 million, and diluted earnings per share rose by 5% compared to the linked quarter. Net interest margin expanded by 14 basis points from the linked quarter and 62 basis points from the year - ago quarter, with net interest income growing approximately 5% and 19% respectively. Noninterest income was $10.6 million in the second quarter, up 2.4% from the first quarter; excluding a $13.5 million gain from the sale of the former insurance business in second quarter 2024, noninterest income was $10.5 million. Annualized return on average assets was 113 basis points, up 3 basis points from the first quarter, and the efficiency ratio was just below 60%. Total loans at period end were $4.54 billion, with average loans up $47.9 million (1%) from the first quarter, and up about 2% year - over - year. Commercial loans totaled $2.94 billion, flat with March 31, 2025, and up 5% from June 30, 2024. Residential lending was modestly up from the linked quarter end and flat year - over - year. Home equity lending was a bright spot with year - to - date closed home equity loans and lines of credit up 44% from 2024. Consumer indirect balances were down 2.3% from March 31 and 7% year - over - year. Period - end total deposits were down about 4% from March 31, 2025, reflective of seasonality and BaaS deposit outflows.

• Reaffirmed full - year 2025 guidance. - Net interest margin expected to be between 345 - 355 basis points. - Noninterest income expected to be between $40 million to $42 million for full year 2025. - Year - to - date expense run rate on track with full - year guide of approximately $140 million. - Provision for credit losses situation with coverage ratio expected to remain in 104 - 108 basis point range. - Effective tax rate expected to fall between 17% - 19% for the year. - Capital position remains strong with regulatory and tangible capital ratios expanding.

• Interest rate changes could impact financial performance. - Outflow of Banking - as - a - Service deposits. - Credit risk associated with specific commercial relationships. - Market competition in certain regions affecting loan growth. - Volatility in medical expenses due to self - insured medical plan.

Q: Just wanted to start off with the outlook for loan growth. Would you say that the trends in the upstate New York markets are much more providing much more opportunity for you than the Mid - Atlantic area and if there are pockets of growth across the footprint that could get you to the higher end of the range for full - year loan growth.

A: Yes, we have seen Upstate having more momentum and robust opportunities. The other thing impacting overall growth is prepayment of construction loans ahead of schedule which reinforces the quality of underlying credits.

Q: When you were talking about the provision, did you say that you thought the provision would be similar to this current quarter's level or are you referencing net charge - offs.

A: Provision for the quarter was impacted by loan portfolio performance with higher prepayment speeds reducing forecasted lifetime losses, coverage ratio expected to remain in 104 - 108 basis point range for rest of year; as to charge - offs, despite higher charge - offs in Q2 related to commercial loans, full - year guidance on NCO range is maintained.

Q: Just lastly on the expense front. If we zero in on the $140 million for the full year, could we pull back certain categories and get on par there.

A: Our quarterly expense guidance has volatility associated with timing. Year - to - date NIE is running around $70 million, full - year guidance of $140 million remains intact. Second quarter had higher medical costs due to self - insured policy, but stop - loss insurance is expected to normalize volatility for next 2 quarters