Financial Institutions(FISI) - 2025 Q2 - Quarterly Results

Executive Summary & Highlights Second Quarter 2025 Financial Results Q2 2025 net income increased from Q1, with diluted EPS of $0.85 and a $2.6 million provision for credit losses Key Financial Results (Q2 2025 vs. Prior Periods) | Metric | Q2 2025 ($M) | Q1 2025 ($M) | Q2 2024 ($M) | | :-------------------------------------- | :----------- | :----------- | :----------- | | Net Income | 17.5 | 16.9 | 25.6 | | Net Income Available to Common S/H | 17.2 | 16.5 | 25.3 | | Diluted EPS | 0.85 | 0.81 | 1.62 | | Provision for Credit Losses | 2.6 | 2.9 | 2.0 | Management Commentary Management highlighted 4% QoQ growth in net income available to common shareholders and an efficiency ratio below 60%, driven by margin expansion - Net income available to common shareholders grew 4% from the linked first quarter, driven by margin expansion, increased net interest income, and durable noninterest revenues[4] - The company maintained an efficiency ratio below 60% and reported annualized return on average assets of 1.13% and return on average equity of 11.78% for Q2 2025[4] - Total loans were relatively flat QoQ, as commercial business lending growth was offset by a reduction in consumer indirect balances, with expectations for low single-digit full-year loan growth[5] - Deposit balances reflect typical seasonality and the wind-down of the Banking-as-a-Service (BaaS) offering, with management focusing on prudent balance sheet stewardship and expense management[5] Financial Performance Analysis Net Interest Income and Net Interest Margin Net interest income reached $49.1 million in Q2 2025, with net interest margin expanding to 3.49% due to higher asset yields and lower liability costs Net Interest Income and Net Interest Margin Trends | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :------------------ | :----------- | :----------- | :----------- | | Net Interest Income | $49.1 million | $46.864 million | $41.193 million | | QoQ Change | +$2.3 million (+4.8%) | - | - | | YoY Change | +$7.9 million (+19.2%) | - | - | | Net Interest Margin | 3.49% | 3.35% | 2.87% | | QoQ Basis Point Change | +14 bps | - | - | | YoY Basis Point Change | +62 bps | - | - | - Average interest-earning assets were flat QoQ at $5.65 billion, with increased average loans offset by decreases in Federal Reserve cash and investment securities, and a YoY decrease of $114.5 million[8] - Average interest-bearing liabilities increased $11.6 million QoQ to $4.52 billion, primarily due to a rise in average time deposits, with a YoY decrease mainly due to the wind-down of BaaS-related deposits[9] Noninterest Income Noninterest income reached $10.6 million in Q2 2025, slightly up QoQ but lower YoY due to the prior year's insurance business sale Noninterest Income Trends | Metric | Q2 2025 ($M) | Q1 2025 ($M) | Q2 2024 ($M) | | :------------------ | :----------- | :----------- | :----------- | | Total Noninterest Income | 10.6 | 10.4 | 24.0 | | Investment Advisory Income | 2.9 | 2.7 | 2.8 | | COLI Income | 3.0 | 2.8 | 1.4 | | Net Gain on Sale of Insurance Business | - | - | 13.5 | - COLI income increased by $1.6 million YoY due to the restructuring of a portion of the COLI portfolio into higher-yielding separate account policies in January 2025[13] - Income from investments in limited partnerships decreased by $108 thousand QoQ and $496 thousand YoY, reflecting fluctuations based on underlying investment performance[13] Noninterest Expense Noninterest expense rose to $35.7 million in Q2 2025, driven by higher salaries, occupancy costs from an ATM conversion, and technology initiatives Noninterest Expense Trends | Metric | Q2 2025 ($M) | Q1 2025 ($M) | Q2 2024 ($M) | | :------------------------ | :----------- | :----------- | :----------- | | Total Noninterest Expense | 35.7 | 33.7 | 33.0 | | Salaries & Employee Benefits | 18.1 | 16.9 | 15.8 | | Occupancy & Equipment | 4.0 | 3.6 | 3.4 | | Computer & Data Processing | 5.9 | 5.5 | 5.3 | - Salaries and employee benefits increased by $1.2 million QoQ due to higher health insurance benefits and $2.3 million YoY primarily due to annual merit increases[13] - Professional services expenses decreased QoQ due to timing of audit-related expenses and YoY due to legal expenses incurred in Q2 2024 related to a deposit-related fraud event[13][14] Income Taxes Income tax expense was $4.0 million in Q2 2025, with an effective tax rate of 18.4%, influenced by pre-tax earnings and tax credit investments Income Tax Expense and Effective Tax Rate | Metric | Q2 2025 ($M) | Q1 2025 ($M) | Q2 2024 ($M) | | :------------------ | :----------- | :----------- | :----------- | | Income Tax Expense | 4.0 | 3.7 | 4.5 |\n| Effective Tax Rate | 18.4% | 18.2% | 15.0% | - The company recognized federal and state tax benefits of $1.1 million in Q2 2025 from tax credit investments, consistent with Q1 2025[15] Balance Sheet and Capital Management Balance Sheet Overview Total assets at June 30, 2025, were $6.14 billion, decreasing QoQ but flat YoY, with investment securities also slightly down QoQ Total Assets and Investment Securities | Metric | June 30, 2025 ($B) | March 31, 2025 ($B) | June 30, 2024 ($B) | | :---------------------- | :----------------- | :------------------ | :----------------- | | Total Assets | 6.14 | 6.34 | 6.13 | | Investment Securities | 1.01 | 1.04 | 1.00 | Loans and Deposits Total loans decreased slightly QoQ to $4.54 billion but increased YoY, while total deposits fell QoQ to $5.16 billion due to seasonal outflows and BaaS wind-down Loans and Deposits Trends | Metric | June 30, 2025 ($B) | March 31, 2025 ($B) | June 30, 2024 ($B) | | :-------------- | :----------------- | :------------------ | :----------------- | | Total Loans | 4.54 | 4.55 | 4.46 | | QoQ Change | -0.4% | - | - | | YoY Change | +1.7% | - | - | | Total Deposits | 5.16 | 5.37 | 5.13 | | QoQ Change | -4.0% | - | - | | YoY Change | +0.4% | - | - | - The decrease in deposits from Q1 2025 was primarily due to seasonally lower public deposit balances and the outflow of BaaS-related deposits, which reduced from $55 million to $7 million QoQ[18] Loan Portfolio Composition (June 30, 2025) | Loan Type | Amount ($M) | | :------------------------ | :---------- | | Commercial business | 726.2 | | Commercial mortgage | 2,220.0 | | Residential real estate | 647.2 | | Consumer indirect | 833.5 | Shareholders' Equity and Capital Ratios Shareholders' equity rose to $601.7 million at June 30, 2025, with increased book values per share and all regulatory capital ratios exceeding requirements Shareholders' Equity and Per Share Data | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :---------------------------- | :------------ | :------------- | :------------ | | Shareholders' Equity ($M) | 601.7 | 589.9 | 467.7 | | Common Book Value Per Share | $29.03 | $28.48 | $29.11 | | Tangible Common Book Value Per Share | $26.02 | $25.46 | $25.17 | Capital Ratios | Ratio | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :---------------------------- | :------------ | :------------- | :------------ | | Common Equity to Assets | 9.51% | 9.03% | 7.34% | | Tangible Common Equity to Tangible Assets | 8.61% | 8.15% | 6.41% | | Leverage Ratio | 9.45% | 9.24% | 8.61% | | Common Equity Tier 1 Capital Ratio | 10.84% | 10.38% | 10.03% | | Tier 1 Capital Ratio | 11.17% | 10.71% | 10.36% | | Total Risk-Based Capital Ratio | 13.27% | 13.09% | 12.65% | - The company declared a common stock dividend of $0.31 per share, consistent with the linked quarter and representing over 36% of Q2 net income to common shareholders[24] Subordinated Debt The company called $10.0 million of its $40.0 million fixed-to-floating subordinated debt in April 2025, with remaining notes to be retained and evaluated - The company called $10.0 million of its $40.0 million fixed-to-floating subordinated debt in April 2025[25] - The remaining $30.0 million of April 2015 notes and $35.0 million of October 2020 notes are expected to be retained, with repricing scheduled for October 2025 for the latter[25] Credit Quality Non-Performing Loans and Assets Non-performing loans decreased QoQ to $32.4 million (0.72% of total loans) at June 30, 2025, due to reductions from a foreclosed loan and partial charge-off Non-Performing Loans and Assets Trends | Metric | June 30, 2025 ($M) | March 31, 2025 ($M) | June 30, 2024 ($M) | | :------------------------------ | :----------------- | :------------------ | :----------------- | | Non-Performing Loans | 32.4 | 40.0 | 25.2 | | Non-Performing Loans to Total Loans | 0.72% | 0.88% | 0.57% | | Non-Performing Assets to Total Assets | 0.53% | 0.63% | 0.41% | - The QoQ decrease in non-performing loans reflects a $3.7 million reduction from a foreclosed participated loan and a $1.9 million partial charge-off of a credit facility, both related to a previously disclosed commercial business relationship[26] Allowance for Credit Losses and Provision The allowance for credit losses on loans to total loans was 1.04% at June 30, 2025, with a $2.6 million provision in Q2, influenced by improved loss rates Allowance for Credit Losses and Provision Trends | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :-------------------------------------- | :------------ | :------------- | :------------ | | Allowance for Credit Losses on Loans to Total Loans | 1.04% | 1.08% | 0.99% | | Provision for Credit Losses ($M) | 2.6 | 2.9 | 2.0 | | Allowance for Credit Losses on Loans to Non-Performing Loans | 146% | 122% | 174% | - The provision for credit losses on loans was $2.4 million in Q2 2025, while the allowance for unfunded commitments totaled $179 thousand[28] - The ratio of allowance for credit losses on loans to non-performing loans improved to 146% at June 30, 2025, from 122% at March 31, 2025, reflecting the decrease in non-performing loans[29] Net Charge-offs Net charge-offs increased to $4.1 million, or an annualized 0.36% of average loans, in Q2 2025, rising from prior quarters Net Charge-offs Trends | Metric | Q2 2025 ($M) | Q1 2025 ($M) | Q2 2024 ($M) | | :-------------------------------------- | :----------- | :----------- | :----------- | | Net Charge-offs | 4.1 | 2.4 | 1.1 | | Net Charge-offs to Average Loans (annualized) | 0.36% | 0.21% | 0.10% | Corporate Information Subsequent Events The company will evaluate subsequent events through its Q2 2025 Form 10-Q filing, adjusting financial statements as required by GAAP - The company will evaluate subsequent events through the 10-Q filing and adjust financial statements as required by GAAP[30][31] Conference Call Details An earnings conference call and audio webcast is scheduled for July 25, 2025, at 8:30 a.m. ET, featuring the President, CEO, and CFO - An earnings conference call and audio webcast is scheduled for July 25, 2025, at 8:30 a.m. ET, accessible via the company's website or a dial-in number[32] About Financial Institutions, Inc. Financial Institutions, Inc. is a financial holding company with approximately $6.1 billion in assets, providing banking and wealth management services - Financial Institutions, Inc. (NASDAQ: FISI) is a financial holding company with approximately $6.1 billion in assets[33] - The company operates through Five Star Bank (consumer and commercial banking) and Courier Capital, LLC (investment management, consulting, and retirement plan services)[33] Non-GAAP Financial Information Non-GAAP financial measures are included and reconciled in Appendix A to provide additional insights, but should not replace GAAP measures - The press release contains non-GAAP financial measures, reconciled in Appendix A, to provide investors with useful information for understanding financial performance and trends[34][35] - Non-GAAP measures are used for internal planning and forecasting but should not be considered a substitute for GAAP measures due to inherent limitations and lack of standardization[35] Safe Harbor Statement This document contains forward-looking statements subject to significant risks and uncertainties, with actual results potentially differing materially - The press release includes forward-looking statements that involve significant risks and uncertainties, such as changes in interest rates, inflation, deposit flows, credit losses, and regulatory environment[36] - Actual results could differ materially from expectations, and all forward-looking statements are qualified by cautionary statements and risk factors detailed in SEC filings[36] Selected Financial Information (Unaudited) Selected Balance Sheet Data This section presents a detailed, multi-quarter breakdown of key balance sheet items, including cash, investment securities, loans, deposits, and equity Selected Balance Sheet Data (Amounts in thousands) | SELECTED BALANCE SHEET DATA: | June 30, 2025 | March 31, 2025 | Dec 31, 2024 | June 30, 2024 | | :--------------------------- | :------------ | :------------- | :----------- | :------------ | | Cash and cash equivalents | $93,034 | $167,352 | $249,569 | $146,347 | | Total investment securities | 1,008,270 | 1,040,097 | 1,008,095 | 999,906 | | Total loans | 4,536,002 | 4,553,278 | 4,402,989 | 4,461,468 | | Total assets | 6,143,766 | 6,340,492 | 6,156,317 | 6,131,772 | | Total deposits | 5,156,014 | 5,372,910 | 5,306,601 | 5,133,321 | | Shareholders' equity | 601,668 | 589,928 | 500,342 | 467,667 | | Common book value per share | $29.03 | $28.48 | $31.22 | $29.11 | Selected Statement of Operations Data This section details income statement data, including interest income/expense, net interest income, provision for credit losses, noninterest items, and key financial ratios Selected Statement of Operations Data (Amounts in thousands) | SELECTED STATEMENT OF OPERATIONS DATA: | Q2 2025 ($M) | Q1 2025 ($M) | Q2 2024 ($M) | | :------------------------------------- | :----------- | :----------- | :----------- | | Interest income | $82,867 | $81,051 | $78,788 | | Interest expense | 33,745 | 34,187 | 37,595 | | Net interest income | 49,122 | 46,864 | 41,193 | | Provision (benefit) for credit losses | 2,562 | 2,928 | 2,041 | | Total noninterest income (loss) | 10,617 | 10,373 | 24,014 | | Total noninterest expense | 35,682 | 33,685 | 33,020 | | Net income | 17,532 | 16,878 | 25,629 | | Diluted EPS | $0.85 | $0.81 | $1.62 | | Return on average assets (annualized) | 1.13% | 1.10% | 1.68% | | Efficiency ratio | 59.68% | 58.79% | 50.58% | - The efficiency ratio is calculated by dividing noninterest expense by net revenue (sum of net interest income and noninterest income before net gains on investment securities)[41] Selected Average Balances and Yields This table presents average balances for interest-earning assets, loans, deposits, and liabilities, along with their yields and rates Selected Average Balances and Yields (Amounts in thousands) | SELECTED AVERAGE BALANCES: | Q2 2025 ($M) | Q1 2025 ($M) | Q2 2024 ($M) | | :------------------------- | :----------- | :----------- | :----------- | | Total interest-earning assets | $5,651,374 | $5,651,241 | $5,765,867 | | Total loans | 4,540,719 | 4,493,825 | 4,436,936 | | Total deposits | 5,239,207 | 5,213,376 | 5,234,262 | | Total interest-bearing liabilities | 4,518,370 | 4,506,774 | 4,548,193 | | SELECTED AVERAGE YIELDS: | | | | | Investment securities | 4.34% | 4.25% | 2.17% | | Loans | 6.26% | 6.20% | 6.40% | | Total interest-earning assets | 5.88% | 5.80% | 5.50% | | Total interest-bearing liabilities | 3.00% | 3.07% | 3.32% | | Net interest margin | 3.49% | 3.35% | 2.87% | - Interest on tax-exempt securities is calculated on a tax-equivalent basis assuming a Federal income tax rate of 21%[43] Asset Quality Data This section details asset quality metrics, including allowance for credit losses, net loan charge-offs, non-performing loans, and key ratios Asset Quality Data (Amounts in thousands) | ASSET QUALITY DATA: | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :--------------------------------------- | :------------ | :------------- | :------------ | | Allowance for Credit Losses – Loans (Ending balance) | $47,291 | $48,964 | $43,952 | | Total net charge-offs (recoveries) | 4,050 | 2,369 | 1,122 | | Provision (benefit) for credit losses – loans | 2,377 | 3,292 | 1,999 | | Total non-performing loans | 32,436 | 40,018 | 25,209 | | Total non-performing assets | $32,578 | $40,214 | $25,272 | | Allowance for credit losses – loans to total loans | 1.04% | 1.08% | 0.99% | | Total non-performing loans to total loans | 0.72% | 0.88% | 0.57% | | Allowance for credit losses – loans to non-performing loans | 146% | 122% | 174% | Appendix A — Reconciliation to Non-GAAP Financial Measures This appendix reconciles non-GAAP financial measures, including tangible assets, tangible common equity, and related ratios, to comparable GAAP measures Reconciliation to Non-GAAP Financial Measures (Amounts in thousands) | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :-------------------------------------- | :------------ | :------------- | :------------ | | Total assets | $6,143,766 | $6,340,492 | $6,131,772 | | Less: Goodwill and other intangible assets, net | 60,564 | 60,651 | 60,979 | | Tangible assets | $6,083,202 | $6,279,841 | $6,070,793 | | Common shareholders' equity | $584,383 | $572,643 | $450,375 | | Tangible common equity | $523,819 | $511,992 | $389,396 | | Tangible common equity to tangible assets | 8.61% | 8.15% | 6.41% | | Tangible common book value per share | $26.02 | $25.46 | $25.17 | | Return on average tangible common equity | 13.31% | 13.36% | 27.51% | - Tangible common equity to tangible assets is calculated by dividing tangible common equity by tangible assets[45] - Return on average tangible common equity is calculated by annualizing net income available to common shareholders and dividing it by average tangible common equity[46]