FISI

• Overall Financial Performance

  • Q2 2026 net income available to common shareholders was $20.8 million, up 1% QoQ and 21% YoY. Diluted EPS was $1.04, flat QoQ and up from $0.85 YoY. Annual book value per share increased to $28.72, up 2% QoQ and over 10% YoY.
  • Net interest margin (NIM) improved 3 basis points QoQ and 21 basis points YoY, supported by effective funding cost management. The quarterly efficiency ratio improved to nearly 55%, as non-interest expenses remained flat while revenue grew.
  • Capital levels remained strong: Common equity tier one ratio hit 11.44%, up 7 basis points QoQ and 60 basis points YoY; TCE ratio was 9.02%, up 13 basis points QoQ and 41 basis points YoY. Credit quality remained stable, with net charge-offs totaling 11 basis points of average loans, down from 44 basis points QoQ.

• Strategic & Operational Updates

  • Increased commercial lending activity is observed in the Syracuse market, driven by the $100 billion Micron semiconductor campus development, with growing demand from industrial suppliers and contractors.
  • Residential mortgage origination momentum was supported by new producer hires that joined in H2 2025, with double-digit YoY growth in mortgage and home equity applications, particularly strong in Rochester and Batavia markets.
  • The firm opened a new wealth management office in Florida in late 2025 to serve seasonal residents and retirees, which is contributing to new relationship growth.
  • The residential mortgage strategy of shifting production to an off-balance sheet serviced portfolio successfully drove a 45% QoQ increase in loan servicing income.
  • Computer and data processing expenses decreased 11.3% QoQ after the exit of a legacy vendor relationship, with one-time termination costs offset by eliminated recurring expenses going forward.

• Full-year 2026 total loan growth target is maintained at 5%, despite stronger-than-expected first half commercial growth, as higher runoff in the consumer indirect portfolio offsets origination momentum.
• Full-year deposit growth target is maintained at low single-digit, aligned with the firm's focus on core non-public deposit retention and acquisition.
• Full-year net interest margin guidance is raised from the upper 360s basis points to approximately 370 basis points, based on strong year-to-date performance and the firm's spot rate forecast.
• Full-year company-owned life insurance revenue guidance is raised to at least $11 million, up from the original 10.5 million yen guide, reflecting stronger-than-expected H1 performance.
• Full-year efficiency ratio guidance is updated to below 57%, driven by disciplined expense management.
• Full-year return on average assets (ROA) guidance is raised from 1.22% to at least 1.3%, based on strong year-to-date performance.
• Full-year return on average equity (ROE) guidance is raised from 11.9% to at least 12.5%, with year-to-date return on average tangible common equity at approximately 15%.
• Guidance for full-year charge-off ratio, effective tax rate, non-interest expense growth, and non-interest income remains unchanged from prior guidance.

1. Commercial Lending: Total commercial loans increased 4.3% quarter-over-quarter and 9.1% year-over-year, led by strong commercial and industrial lending, with contributions from commercial real estate and business banking. This segment was the primary driver of overall 2.7% QoQ and 4.8% YoY total loan growth. 2. Consumer Lending: On-balance sheet residential mortgage lending increased 1.5% QoQ and 2.2% YoY. Sold and serviced residential mortgages hit $302 million, up 1.4% QoQ and over 7% YoY, contributing to fee income growth. Consumer indirect auto loans decreased 2.1% QoQ and 7.5% YoY, as the firm prioritized disciplined spread and prime credit mix, allowing runoff to outpace originations. 3. Wealth Management (Career Capital): Assets under management (AUM) increased 13% QoQ to $4 billion, up 19% YoY, driven by positive net flows and market gains. Investment advisory revenue hit $3.3 million, up 7.4% QoQ. 4. Deposits: End-of-period deposits totaled $5.3 billion, down 0.7% QoQ (driven by public deposit seasonality) and up 2.8% YoY, with broad growth across public, non-public, and reciprocal deposit categories partially offset by lower broker deposits.

• Forward-looking statements are inherently uncertain, and actual results may differ materially from guidance due to a range of unforeseen risks and factors, referenced in the firm's SEC filings and public disclosures.
• Interest rate volatility, including potential unexpected rate hikes or cuts, could impact net interest margin performance, though the firm's modeling indicates low sensitivity to a 25 basis point rate move in either direction.
• Intense pricing competition for certificate of deposit (CD) products could pressure deposit costs and affect core deposit growth targets.
• Limited partnership revenue, tied primarily to small business investment company underlying investments, is subject to quarterly fluctuation, which can create volatility in non-interest income.

Q: After 8% first half loan growth, you maintain a 5% full year target. Why, and is there upside potential from current strong commercial momentum? / A: Higher-than-modeled runoff in the consumer indirect auto portfolio offsets strong commercial origination growth. The firm has recently added six commercial lending professionals who are still ramping up their pipelines, and larger-than-expected paydowns in the Baltimore loan portfolio have also muted overall growth. The team remains focused on core fundamentals in upstate New York markets.\n\nQ: How would the margin be impacted if the Fed implements a 25 basis point rate hike later this year or early 2027, given the higher-for-longer rate environment? / A: The firm's interest rate risk modeling confirms it is fairly insensitive to a 25 basis point movement in rates, either up or down. The current updated NIM guidance remains appropriate and unchanged after this analysis.\n\nQ: What could drive ROA above the new 1.3% full-year guidance, and what is the outlook for share repurchases now that capital levels are higher? / A: Strong year-to-date pre-provision net income performance drove the upgrade to 1.3% ROA, which the firm views as achievable and firm. While positive provisioning surprises could push ROA higher, the firm is not guiding above 1.3%. Management believes the firm's stock is undervalued relative to peers, so share buybacks remain an efficient use of excess capital going forward.\n\nQ: What is the current level of deposit pricing competition in the firm's operating markets? / A: Competition is fairly strong on certificate of deposit (CD) pricing. However, the firm's local market proximity, relationship-focused value proposition, and regional presence keep it competitive with other market participants for core deposit growth.