Financial Institutions, Inc.

Hello, everyone, and thank you for joining the Financial Institutions Inc. Second Quarter 2025 Earnings Call. My name is Lucy and I will be coordinating your call today. During the presentation, you can register a question by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two. It is now my pleasure to hand over to your host, Kate Croft, Director of Investor Relations to begin. Please go ahead.

Thank you for joining us for today's call. Providing prepared comments will be present in CEO Marty Birmingham and CFO Jack Plant. They will be joined by additional members of the company's leadership team during the question and answer session. Today's prepared comments and Q&A will include forward-looking statements. Actual results may differ materially from forward-looking statements due to a variety of risks, uncertainties, and other factors. We refer you to yesterday's earnings release and investor presentation, as well as historical SEC filings, which are available on our investor relations website, for a safe harbor description and a detailed discussion of the risk factors relating to forward-looking statements. We'll also discuss certain non-GAAP financial measures intended to supplement and not substitute for comparable GAAP measures. Reconciliations of these measures to GAAP financial measures were provided in the earnings release filed as an exhibit to Form 8K or in our latest investor presentation available on our IR website, www.fisi-investors.com. Please note that this call includes information that may only be accurate as of today's date, July 25th, 2025. I'll now turn the call over to President and CEO Marty Birmingham.

Thank you, Kate. Good morning, everyone, and thank you for joining us today. Our financial performance for the second quarter of 2025 was marked by growing revenue that supported a 4% increase in net income available to common shareholders to $17.2 million, and a 5% increase in diluted earnings per share as compared to the linked quarter. Our results continue to benefit from our prudent balance sheet stewardship, which translated into continued debt interest margin expansion, up 14 and 62 basis points from the linked and year-ago quarter, respectively, and net interest income growth up approximately 5% and 19%. NII growth was durable non-interest income of 10.6 million, up 2.4 percent from 10.4 million in the first quarter. Second quarter 2024 non-interest income of 24 million included a 13.5 million gain associated with the sale of our former insurance business. Excluding this gain, non-interest income was 10.5 million. We continue to deliver from a profitability standpoint. Achieving an annualized return on average assets of 113 basis points, up three basis points from the first quarter, and an efficiency ratio of just below 60%. At the midpoint of 2025, we remain solidly on track to achieve the targets we laid out at the start of this year and are affirming our full year 2025 guidance today. Total loans at period end of $4.54 billion were fairly consistent with March 31st, as commercial business lending growth was more than offset by a reduction in consumer indirect balances. However, I would note that average loans were up 47.9 million, or 1% from the first quarter, driven by both commercial business and commercial mortgage loans. On a year-over-year basis, total and average loans are each up about 2%. Total commercial loans of $2.94 billion were flat with March 31, 2025, and up 5% from June 30, 2024. With respect to commercial business loans, we experienced a 2.4% increase during the quarter, which reflected both new originations and increased line utilization, and balances in this category were up modestly year over year. Commercial mortgage loans were flat with March 31, 2025, and up 6% year-over-year, driven by growth in our upstate New York markets. Our overall commercial loan portfolio remains healthy. Non-performing commercial loans declined by 7 million from March 31 to June 30 of this year. And while we did report 2.5 million of commercial net charge-offs in the quarter, The higher charge off this quarter related to one of the two commercial relationships that have made up the majority of our non-performers for some time. As we have shared with you, one of these is a commercial relationship made up of multiple credit facilities to a CRE sponsor in our southern tier region. In the second quarter, the multi-bank group foreclosed on the related property and the associated assets were moved into a joint limited liability corporation. Given this, the related assets are no longer reflected in non-performing loans. A $580,000 charge-off was recorded in the second quarter related to this specific loan that was part of the overall credit relationship. We also charged off a portion of another credit facility associated with this relationship for which we have a specific reserve in place, driven by a change in the current appraised value of the underlying real estate serving as collateral. As of June 30, our remaining credit exposure to this borrower totaled $7.1 million, and we have a $2.9 million specific reserve associated with the relationship. The remaining mortgage loan and line of credit are secured by property in the Tompkins County Ithaca area, and we continue to actively manage this situation in pursuit of resolution. Given our existing commercial pipelines and our strong first quarter loan growth, We continue to expect to achieve full-year loan growth of between 1% and 3%. The pipeline is largely supported by commercial lending in our upstate New York markets, where we have seen momentum in our Rochester region in particular. Loan growth has tapered in the mid-Atlantic region, given high competition from lenders and increased refinance activity for construction loans, which is a testament to the high quality of the sponsors we are working with. Looking out further, we believe that we'll see stronger lending opportunities in early 2026 with activity stimulated by the recently passed tax bill and pent-up demand that would be accelerated by potential rate cuts. Residential lending was up modestly from the end of the linked quarter and flat with a year ago, with credit metrics remaining solid and favorable. While national housing inventory is up notably, it continues to be very tight in our upstate New York markets particularly in Rochester, as we continue to face high competition. Home equity lending remains a bright spot, as homeowners opting to stay in their homes focus on home improvement or debt consolidation. Year-to-date closed home equity loans and lines of credit are up 44% from the comparable period in 2024, while year-to-date application volume is up 19%. Consumer indirect balances were down 2.3% from March 31st and 7% year-over-year to $833.5 million at June 30th. Consistent with much of the industry, many of the new car dealers we work with saw a jump in sales in March, as many consumers who were contemplating car purchases opted to do so before auto tariffs went into effect. Reduced consumer demand translated to a slowdown in production through much of the second quarter, coupled with our spread discipline that did not follow dramatic pricing reductions observed from competitors. However, purchase activity experienced a rebound in June that has continued in July, voting well for third quarter production. Credit metrics for this asset class improved in the second quarter. Our consumer indirect net charge-off ratio was 45 basis points, down from 103 basis points in the first quarter and not performing loans fell 12% on a linked quarter basis. As a reminder, this is a prime lending operation, one in which we have a demonstrated track record through multiple economic cycles. With a yield of 6.6% in the most recent quarter and newly originated loans coming on at more than 8%, as well as a small average loan sizes and short duration supporting steady cash flow, This portfolio provides us with very attractive risk-adjusted returns. Overall net charge-offs were 36 basis points of average loans in the second quarter and 29 basis points for the first half of 2025. And our full-year expectations of between 25 to 35 basis points are unchanged. Period end total deposits were down about 4% from March 31, 2025, reflective of typical seasonality within our public deposit portfolio, as well as the continued outflow of banking as a service or BAS deposits. As a reminder, public deposits sourced through the more than 300 municipalities that we serve throughout upstate New York peak in the first and third quarters. Total deposits were relatively flat with June 30, 2024, as an increase in broker deposits offset BAS deposit outflows and a decrease in reciprocal deposits. Average deposits were relatively flat as compared to both the linked and year-ago quarters. As a reminder, we are planning for flat deposits year-over-year in 2025, given the wind down of our BAS offering. which had approximately $100 million of associated deposits year-end 2024. At the end of the second quarter, just $7 million of BAS-related deposits remained on our balance sheet. We're in the process of migrating our final live BAS client to its new banking partner, and expect that to be completed late in the third quarter. It's now my pleasure to turn the call over to Jack for additional commentary on our performance and our outlook for the second half of the year. Thank you, Marty.