Q1 2025 Financial Institutions Inc Earnings Call

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Operator: Hello everyone, and thank you for joining the Financial Institutions Inc First Quarter 2025 panel.

Hello, everyone and thank you for joining the financial institution.

First quarter 2025.

Lucy: 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 1 on your telephone keypad. To change your mind, please press star followed by 2 on your telephone keypad.

Lucy: My name is Lucy and I will be coordinating your call today.

Lucy: The presentation you can register a question by pressing star one on your telephone keypad. If you change your mind. Please press star followed by two on your telephone keypad.

Kate Croft: I will now 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.

Speaker Change: I will now hand over to your host Kate Crawford director of Investor Relations to begin. Please go ahead.

Speaker Change: Thank you for joining us for today's call, providing prepared comments will be president and CEO, Marty Birmingham and CFO, Jeff plan, you'll be joined by additional members of the company's leadership team during the question and answer session.

Kate Croft: Providing prepared comments will be present in CEO Marty Birmingham and CFO Jack Plants. You 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.

Speaker Change: 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 our safe Harbor description and a detailed discussion of the risk.

Speaker Change: Factors relating to forward looking statements.

Kate Croft: will 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 A-K or in our latest investor presentation available on our IR website, www.fisi-investors.com.

Speaker Change: We will 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 a form 8-K or in our latest investor presentation available on our IR web site Www Dot ISI dash investors.

Kate Croft: Please note that this call includes information that may only be accurate as of today's date, April 29th, 2025.

Speaker Change: Please note that this call includes information that may only be accurate as of today's date April 29, 2025, I'll now turn the call over to President and CEO Marty Birmingham.

Marty Birmingham: 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 first quarter results illustrate the transformative impact that our late 2024 investment securities restructuring had on our balance sheet and earnings profile, as well as a solid performance delivered by lines of business. Net interest income was up more than 12% from the fourth quarter and 17% year-over-year, while net interest margin expanded by 44 and 57 basis points respectively. Both NII and margin reflect a significant improved yield on our securities portfolio and further benefit from reduced funding costs.

Marty Birmingham: Thank you Kate good morning, everyone and thank you for joining us today.

Marty Birmingham: Our first quarter results illustrate the transformative impact that our late 2020 for investment securities restructuring add on our balance sheet and earnings profile as well as a solid performance delivered by lines of business.

Marty Birmingham: Net interest income was up more than 12% from the fourth quarter and 17% year over year, while net interest margin expanded by 44 and 57 basis points respectively.

Marty Birmingham: Both NII and margin reflect the significant improved yield on our securities portfolio and further benefit from reduced funding costs.

Marty Birmingham: Non-interest income was $10.4 million, as enhancements we made to our company-owned life insurance portfolio and increased investment advisory income, among other things, helped offset the absence of insurance income as compared to the year-ago quarter. as the quality metrics were improved with net charge-offs declining both on a dollar basis and as an annualized percentage of average loans from the linked and year-ago quarters. From a profitability perspective, improved revenue generation and lower expenses than anticipated in the first quarter resulted in an efficiency ratio of 59%, consistent with our full year target of below 60%. Annualized return on average assets was 110 basis points, while return on average equity was 11.82%.

Marty Birmingham: Non interest income was $10 4 million as enhancements, we made to our company owned life insurance portfolio and increased investment advisory income among other things helped to offset the absence of insurance income as compared to the year ago quarter.

Marty Birmingham: Asset quality metrics were improved with net charge offs declined both on a dollar basis and as an annualized percentage of average loans from the linked and year ago quarters.

Marty Birmingham: From a profitability perspective improved revenue generation and lower expenses than anticipated in the first quarter resulted in an efficiency ratio of 59%.

Marty Birmingham: Consistent with our full year target of below 60% annually.

Marty Birmingham: Annualized return on average assets was 110 basis points, while return on average equity was 11, 82%.

Marty Birmingham: Coming off of a challenging and dynamic 2024, we are keenly focused on maintaining the momentum that our capital raise and investment securities restructuring generated for us to deliver strong results and profitability throughout 2025. I'm very proud of our team for delivering on the profitability, return, and efficiency objectives in the first quarter. Their ability to meet the needs of our customers and deliver growth in loans, deposits, and assets under management in the first three months of this year puts us in a strong position. Strong footing is especially important as we face what appears to be another challenging outlook for the industry.

Marty Birmingham: Coming off of a challenging and dynamic 2024, we are keenly focused on maintaining the momentum that our capital raise and investment securities. We start three generated for us to deliver strong results and profitability throughout 2025.

Marty Birmingham: I'm very proud of our team for delivering on the profitability return and efficiency objectives in the first quarter.

Marty Birmingham: Their ability to meet the needs of our customers and deliver growth in loans deposits and assets under management. The first three months of this year puts us in a strong position.

Marty Birmingham: Strong floating is especially important as we face what appears to be another challenging outlook for the industry.

Marty Birmingham: given the uncertainty posed by the fast-moving political and macroeconomic environment. Amid this, we intend to stay focused on driving efficiency internally, controlling what we are able, and remaining disciplined in our approach to credit extension and management. Total loans increased 1.7% during the quarter, driven by both C&I and CRE lending, matching the fourth quarter's growth rate. You'll recall our pipelines had been in a rebuilding phase in the second half of 2024 and were solid heading into the new year. Based on the current size of our commercial pipelines and discussions with borrowers, we believe that loan growth will be concentrated in the first and second quarters.

Marty Birmingham: Even the uncertainty posed by the fast moving political and macroeconomic environments.

Mendes: Mendes, we intend to stay focused on driving efficiency internally controlling what we are able and remaining disciplined in our approach to credit extension and manage that.

Mendes: Total loans increased one 7% during the quarter driven by both C&I and CRE lending.

Mendes: Matching the fourth quarter's growth rate.

Mendes: You'll recall, our pipelines had been in a rebuilding phase in the second half of 2024, and we're solid heading into the new year.

Mendes: Based on the current size of our commercial pipelines in discussions with borrowers we believe that loan growth will be concentrated in the first and second quarters.

Marty Birmingham: The uncertain economic landscape, especially with respect to tariffs, inflation, and interest rates, limits visibility into the back half of 2025. Despite the increased sentiment of uncertainty and volatility being felt universally by businesses of all sizes, we continue to feel the low single-digit growth guide we shared with you in January is appropriate. Our 2025 guidance reflected the intentional approach we took in preparing this year's budget, remaining mindful that the economy had experienced significant inflationary pressures for some time and there was uncertainty ahead. Of course, the level of volatility and pace of policy change has been more significant than many expected, but at this time, it hasn't led us to change our full-year expectations.

Mendes: Uncertain economic landscape, especially with respect to tariffs inflation and interest rates limited visibility into the back half of 2025.

Mendes: Despite the increased certain amount of uncertainty and volatility being felt universally by businesses of all sizes. We continue to feel the low single digit growth guide we shared with you in January as appropriate.

Mendes: Our 2025 guidance reflected the intentional approach we took in preparing this year's budget remaining mindful that the economy had experienced significant inflationary pressures for some time and there was uncertainty ahead of course the level of volatility in peso policy change has been more significant than many.

Mendes: Expected, but at this time it hasn't led us to change our full year expectations.

Marty Birmingham: Commercial business loans increased 6.6% during the quarter, reflecting both new originations and increased line utilization, and were flat year-over-year. Commercial mortgage loans were up 1.3% in the quarter and 9% from March 31st, 2024, driven by growth in our upstate New York market. We've been in close contact with our commercial customers and believe that our consistent approach to credit discipline and selectivity supports stable performance. From an asset quality perspective, non-performing loans declined $1.4 million to $40 million at March 31, 2025, and continue to primarily relate to two separate commercial relationships. As we previously disclosed, one is a $15.5 million loan in the Buffalo region that was placed on non-accrual in the third quarter of 2024, and the other is a $13.5 million relationship that includes multiple credit facilities through a CRE sponsor in our Southern Tier region.

Mendes: Commercial business loans increased six 6% during the quarter, reflecting both new originations and increased line utilization and were flat year over year commercial mortgage loans were up one 3% in the quarter and 9% from March 31, 2024, driven by growth in our upstate New York market.

Mendes: We've been in close contact with our commercial customers and believe that our consistent approach to credit discipline and selectivity supports stable performance.

Mendes: From an asset quality perspective, nonperforming loans declined $1 4 million to $40 million at March 31, 2025, and continue to primarily relate to two separate commercial relationships.

Mendes: As we've previously disclosed one is a $15 5 million loan and the Buffalo region that was placed on non accrual in the third quarter of 2024.

Mendes: And the other is a $13 5 million relationship that includes multiple credit facilities towards CRE sponsor in our southern tier region.

Marty Birmingham: The latter relationship moved to non-accrual in December of 2023 and is comprised of three separate loans. 4.5 million multi-bank deal, a 4 million commercial mortgage loan, and a 5 million commercial line of credit. which all are secured by properties in the Tompkins County, Ithaca area. This credit relationship is with a developer that has been very successful over the long term, including managing properties that support thousands of student housing beds for Cornell University. Prior to the first quarter of 2025, we recorded a specific reserve on this relationship of $1.9 million. During the first quarter this year, an appraisal was updated on the $4.5 million multibank deal which resulted in a $1.2 million specific reserve on that portion of the relationship.

Mendes: The latter relationship moved to nonaccrual in December of 2023 and is comprised of three separate loans of $4 5 million Multibank deal of 4 million commercial mortgage loan and a $5 million commercial line of credit.

Mendes: Which all are secured by properties in the Tompkins County area.

Mendes: This credit relationship is with a developer that has been very successful over the long term, including managing properties and support thousands of student housing beds for Cornell University.

Mendes: Prior to the first quarter of 2025, we recorded a specific reserve on this relationship of $1 9 million.

Mendes: During the first quarter this year and appraisal was updated on the $4 5 million Multibank deal, which resulted in a $1 2 million specific reserve on that portion of the relationship.

Marty Birmingham: This brings the specific reserve on the entire $13.5 million credit exposure to $3.1 million as of March 31, 2020. The multibank deal is associated with a high-tech business park that is about 80% occupied and includes many high-quality tenants, including the local health system and Cornell University. We continue to actively manage this situation in pursuit of resolution while evaluating underlying collateral, and we will take appropriate action to ensure specific reserves are timely and appropriate. Turning to consumer lending, indirect balances were up just shy of 1% from December 31st and down 7% year-over-year. Consumer indirect net charge-offs and non-performing loans improved from the comparable prior period.

Mendes: This brings the specific reserve on the entire $13 $5 million credit exposure to $3 1 million as of March 31 2025.

Mendes: Multibank deals associated with our high Tech business Park that is about 80% occupied and includes many high quality tenants, including the local health system and Cornell University.

Mendes: We continue to actively manage the situation and pursue resolution, while evaluating underlying collateral and we will take appropriate action to ensure specific reserves, our timely and appropriate.

Mendes: Turning to consumer lending indirect balances were up just shy of 1% from December 31, and down 7% year over year.

Mendes: Consumer indirect net charge offs and nonperforming loans improved from the comparable prior periods Indra.

Marty Birmingham: Indirect has proven to be a durable asset class through various economic cycles given our approach to prime credit origination Generally, our borrowers have prioritized car payments in support of jobs and economic stability, considering the limited mass transportation in our upstate New York market. Should the economy soften, we believe that reliable transportation will be important to ensure borrowers are able to maintain stable employment. Another dynamic to consider is that while tariffs are likely to impact the supply chain and new car availability, used car prices are expected to increase. we have started to observe. This has the potential to reduce average losses on repossessed vehicles which would support lower net charge operations.

Mendes: Indirect has proven to be a durable asset class through various economic cycles, given our approach to prime credit originations.

Mendes: Generally our borrowers have prioritized car payments in support of jobs and economic stability, considering the limited mass transportation and our upstate New York markets.

Mendes: Should the economy soften we believe that reliable transportation will be important to ensure borrowers are able to maintain stable employment.

Mendes: Another dynamic to consider is that while tariffs are likely to impact the supply chain and new car availability used car prices are expected to increase.

Mendes: We have started to observe.

Mendes: This has the potential to reduce average losses on repossessed vehicles, which would support lower net charge off ratios.

Marty Birmingham: Residential lending was down 1% for both the length and year-ago quarters, given the high competition and tight housing inventory in our upstate New York market. The credit quality in this portfolio has been solid and consistent for us, and net charge-offs have remained fairly benign. deposits were up 5.3% from year-end 2024, driven by seasonally higher public deposit balances and an increase in broker deposits. Deposits were relatively flat with March 31st, 2024, down a modest 0.4 percent, primarily due to decrease in reciprocal deposits and the wind-down of our Banking as a Service offering. Cash-related deposits totaled approximately $55 million at March 31, 2025.

Mendes: Residential lending was down 1% from both the linked and year ago quarters, given the high competition and tight housing inventory in our upstate New York markets.

Mendes: The credit quality of this portfolio has been solid and consistent for us and net charge offs have remained fairly benign.

Mendes: Deposits were up five 3% from year end 2024, driven by seasonally higher public deposit balances and an increase in broker deposits.

Mendes: <unk> were relatively flat with March 31, 2024 down a modest <unk>, 4%, primarily due to decrease in reciprocal deposits and the wind down of our banking as a service offering.

Mendes: SaaS related deposits totaled approximately $55 million at March 31, 2025.

Marty Birmingham: Based on when our remaining FinTech partners transition to new banking providers, we may see a small portion of these deposits remain on the balance sheet into the third quarter, but we expect most of what remains to flow out in the second quarter. We remain committed to core in-market deposit gathering with relationship-based.

Mendes: Based on when our remaining Fintech partners transition to new banking providers, we may see a small portion of these deposits remain on the balance sheet into the third quarter, but we expect most of what remains to flow out in the second quarter we.

Mendes: We remain committed to core in market deposit gathering with relationship based accounts.

Marty Birmingham: Finally, in mid-April, we utilized a portion of the proceeds of our public equity offering to call $10 million of fixed or floating sub-debt that was issued in April 2015 and repriced earlier this month. Outstanding subordinated debt for the company currently totals $65 million, including the remaining $30 million tranche from April 2015 and the $35 million tranche issued in October 2020. We will continue to evaluate options for these sub-debt facilities moving forward.

Mendes: Finally in mid April we utilized a portion of the proceeds of our public equity offering to call $10 million of fixed to floating sub debt that was issued in April 2015, and repriced earlier this month.

Mendes: Outstanding subordinated debt for the company currently totaled $65 million, including the remaining $30 million tranche from April 2015, and a $35 million tranche issued in October 2020.

Mendes: We will continue to evaluate options for the sub debt facilities moving forward.

Jack Plants: So now my pleasure to turn the call over to Jack for additional commentary on our financial results in 2025 expectations. Thank you, Marty. Good morning, everyone. Our first quarter results were strong by many measures and put us on solid footing early in the year. Net income was $16.9 million, and diluted PPS was $0.81 for the quarter. driven by improved net interest income, as previously mentioned. coupled with our ongoing focus on non-interest expense management. We were also pleased to report return on average common equity of 11.92% and return on average tangible common equity of 13.36%. Our 2025 guidance remains largely unchanged, outside of an upward revision to non-interest income expectations that I'll touch on shortly.

Mendes: It's now my pleasure to turn the call over to Jack for additional commentary on our financial results and 2025 expectations. Thank.

Jack: Thank you Marty good morning, everyone.

Jack: Our first quarter results were strong by many measures and put us on solid footing early in the year.

Jack: Net income was $16 9 million and diluted EPS was <unk> 81 times for the quarter driven.

Jack: Driven by improved net interest income as previously mentioned.

Jack: Coupled with our ongoing focus on noninterest expense management.

Jack: We were also pleased to report return on average common equity of 11, 92%.

Jack: And return on average tangible common equity of $13 three 6%.

Jack: Our 2025 guidance remains largely unchanged.

Jack: Outside of an upward revision to noninterest income expectations I will touch on shortly.

Jack Plants: We continue to expect a full-year net interest margin of between $345,000 and $355,000. using a spot rate forecast as of March 31st, 2025 that does not factor in future rate cuts. of the 44 basis points of margin expansion that occurred on a linked quarter basis. 37 basis points was driven by the late 2024 investment securities restructuring. with approximately 7 basis points attributed to core nymbics. Continued margin build in the upcoming quarters is expected to be driven by a combination of low production and mix. as well as downward deposit repricing, due largely to maturities and renewals of time deposits, and price reductions on higher-yielding money market products.

Jack: We continue to expect a full year net interest margin of between $345 and 355 basis points.

Jack: Using a spot rate forecast as of March 31, 2025, this does not factor in future rate cuts.

Jack: Of the 44 basis points of margin expansion that occurred on a linked quarter basis.

Jack: 37 basis points was driven by the late 2020 for investment Securities restructuring.

Approximately seven basis points attributed to core NIM expansion.

Jack: Continued margin built in the upcoming quarters is expected to be driven by a combination of loan production and mix.

Jack: As well as downward deposit repricing due largely to maturities and renewals of time deposits and pricing reductions on higher yielding money market products.

Jack Plants: We were effective in our ability to reprice deposits in the first quarter, reducing the cost of products across retail, commercial, and municipal deposits at a slightly faster clip than loans repriced. Overall, cost of funds decreased 9 basis points, while average loan yields decreased 8 basis points. As a reminder, approximately 40% of our loan portfolio is floating with the majority priced off prime and SOFR indices. In January, we outlined expectations for non-interest income of between $9.5 to $10 million per for between $38 million to $40 million for the full year 2025. This guidance excludes losses on investment securities, impairment of investment tax credits, and other categories that are difficult to predict, such as limited partnership.

Jack: We were reflected in our ability to reprice deposits in the first quarter, reducing the cost of products across retail commercial and municipal deposits.

Jack: Slightly faster clip than loans repriced.

Jack: Overall cost of funds decreased nine basis points on average loan yields decreased eight basis points.

Jack: As a reminder, approximately 40% of our loan portfolio is floating with a majority priced off prime and sulfur indices.

Jack: In January we outlined expectations for noninterest income of between nine $5 million to $10 million per quarter.

Jack: We're between $38 million to $40 million for the full year 2025.

Jack: This guidance excludes losses on investment Securities.

Jack: Impairment of investment tax credits and other categories that are difficult to predict such as limited partnership income.

Jack Plants: In the first quarter, the aforementioned categories had somewhat of an all-setting effect, and excluding them, non-interest income for the quarter was at about $10.5 million. Among the drivers of this above-guide quarterly non-interest income was a company-owned life insurance restructuring initiated in the first quarter. While this surrender and redeploy strategy is expected to support a higher level of COLE income moving forward, the level will moderate starting in the third quarter. Presently, we continue to recognize income on the surrender policies as we await receipt of approximately $73 million of surrender policy proceeds from the carrier, which is expected to occur in June.

Jack: In the first quarter the aforementioned categories has somewhat of an offsetting effect and excluding them noninterest income for the quarter at about $10 5 million.

Jack: Among the drivers of this above guide early noninterest income was a company owned life insurance restructuring initiated in the first quarter.

Jack: All the surrender and redeploy strategy is expected to support a higher level of coli income moving forward.

<unk> will moderate starting in the third quarter.

Jack: Okay.

Jack: Probably we continue to recognize income on the surrender policies, because we await receipt of approximately $73 million of surrender policy proceeds from a carrier which is expected to occur in June.

Jack Plants: As a result, the second quarter will be elevated relative to the future COLE run rate by about $275,000. Given the impact of the Coley strategy initiated in the first quarter, we are increasing our expectations for non-interest income to between $10 to $10.5 million per quarter, or between $40 to $42 million for full year 2025. Investment advisory revenue increased 7% on a linked quarter basis and 6% from the first quarter of 2024. hereby a combination of new business and market-driven growth positively impacting assets under maintenance. At AUMs, our wealth management subsidiary, Career Capital, increased $3.17 billion.

Jack: As a result, the second quarter will be elevated relative to the future quarterly run rate by about 275000.

Jack: Given the impact of the coli strategy initiated in the first quarter, we are increasing our expectations for noninterest income to between 10 5 million per quarter or between $40 million to $42 million for full year 2025.

Jack: Investment advisory revenue increased 7% on a linked quarter basis, and 6% from the first quarter of 2024.

Jack: Even by a combination of new business and market driven growth positively impacting assets under management.

Jack: At <unk>, our wealth management subsidiary Courier capital increased to $3, one 7 billion.

Jack Plants: of approximately $72 million from December 31st. As we shared on our last call, we welcome the new team that was the primary driver of new business in the and we look forward to their continued contributions as we seek to grow our RIA subsidiary. Non-interest expense of $33.7 million was lighter than the $35 million quarterly expense rate we guided, largely due to lower salaries and benefits, driven by favorability and vacancy. we carry a higher level of open positions than plants. We have maintained a prudent approach to attrition and filling open positions to ensure our human resource investments are thoughtful and focused on our highest priority needs.

Jack: Approximately $72 million on December 31.

Jack: As we shared on our last call we welcomed a new team that was the primary driver of new business in the quarter.

Jack: We look forward to their continued contributions as we seek to grow our RIAA subsidiary.

Jack: Noninterest expense of $33 7 million was lighter than the $35 million quarterly expense rate, we guided largely.

Jack: Largely due to lower salaries and benefits driven by favorability in vacancy.

Jack: We carried a higher level of open positions than plant.

Jack: We have maintained a prudent approach to attrition in filling open positions to ensure our human resource investments are thoughtful and focused on our highest priority needs.

Jack Plants: We also benefited from a $600,000 recovery on a prior year fraud loss that resulted in lower charge-off items than our typical runner-in. We continue to expect approximately $35 million of quarterly non-interest expense through the remainder of 2025, consistent with our original full-year guidance. We remain focused on effective expense management, even as we invest in our people, processes, and technology to support our future growth and performance. Our provision for credit losses was $2.9 million in the current quarter, compared to a provision of $6.5 million in the linked First quarter 2025 provision for credit losses was driven by a combination of factors.

Jack: We also benefited from a $600000 recovery on a prior year fraud loss that resulted in lower charge offs items on our typical run rate.

Jack: We continue to expect approximately $35 million of quarterly noninterest expense through the remainder of 2025 consistent with our original full year guidance.

Jack: We remain focused on effective expense management, even as we invest in our people processes and technology to support our future growth and performance.

Jack: Our provision for credit losses was $2 9 million in the current quarter compared to a provision of $6 $5 million in the linked quarter.

Jack: First quarter 2025 provision for credit losses was driven by a combination of factors, including the impact of loan growth and an increase in specific reserves since Marty covered.

Jack Plants: including the impact of loan growth and an increase in specific reserves as Marty covers. These factors were partially offset by modest improvement in forecasts and losses and qualitative factors. primarily reflecting a reduction in consumer indirect At March 31st, 2025, the Loan Loss Reserve coverage ratio was 1.08%, compared to 1.07% at December 31st, 2024, and we remain comfortable at this level, given our commitment to the importance of credit efficiency. Our net charge-offs for Q1 were 21 basis points, below our full year guided range. We are maintaining our full-year net charge-off expectations of between 25 to 35 basis points of average loans as we are being conservative with our outlook given the current uncertain political and economic environment.

Jack: These factors were partially offset by modest improvement in forecasted losses, and qualitative factors, primarily reflecting a reduction in consumer indirect delinquencies.

Jack: At March 31, 2025, the loan loss reserve coverage ratio was 1.08% compared to 1.07% at December 31 2024.

Jack: And we remain comfortable at this level given our commitment to the importance of credit discipline.

Jack: Our net charge offs for Q1 were 21 basis points below our full year guided range.

Jack: We are maintaining our full year net charge off expectations of between 25% to 35 basis points of average loans, because we are being conservative with our outlook given the current uncertain political and economic environment.

Jack Plants: We also maintain our guidance for the 2025 effective tax rate of between 17% to 19%, including the impact of the amortization of tax credit investments placed in service in recent years. Our 2025 performance targets are focused on profitability and credit discipline loan growth. We delivered on this promise in the first quarter and are very well positioned to continue executing on these objectives in 2025 and forward.

Jack: We also maintain our guidance for the 2025% effective tax rate of between 17% to 19%, including the impact of the amortization of tax credit investments placed in service in recent years.

Jack: Our 2025 performance targets are focused on profitability and credit disciplined loan growth.

Jack: We delivered on this promise in the first quarter and are very well positioned to continue executing on these objectives in 2025 and forward.

Operator: That concludes my prepared remarks.

Marty Birmingham: I'll now turn the call back to Marty. Thanks, Jack. Overall, our first quarter illustrates what we believe we're capable of. Higher returns on average assets and equity, a more efficiently run business, and a financial institution that meets the needs of the individuals, families, businesses, municipalities, and not-for-profits in our markets in a simple, connected, and trusted way. Our leadership is firmly focused on these outcomes.

Jack: That concludes my prepared remarks, I'll now turn the call back to Marty.

Speaker Change: Thanks, Jack overall, our first quarter illustrates what we believe we're capable of higher returns on average assets and equity a more efficiently run business and a financial institution that meets the needs of the individuals and families businesses municipalities and not for profits in our markets and a.

Speaker Change: Simple connected and trusted way our leadership is firmly focused on these outcomes.

Marty Birmingham: For more information, visit www.fema.gov As we announced in March, we recently welcomed a new executive to our team. Eric Marks has joined us as Chief Consumer Banking Officer, bringing deep in-market banking experience that spans many facets of consumer banking leadership, financial oversight, and strategic planning. We look forward to his contributions as we focus on driving sustainable customer growth and customer service excellence at Five Stars Retail Network and our 49 banking locations across Western and Central New York.

Speaker Change: As we announced in March we recently welcomed a new executive to our team.

Eric: Eric <unk> has joined us as chief consumer banking officer, bringing deep in market banking experience that spans many facets of consumer banking leadership.

Eric: <unk> oversight and strategic planning, we look forward to his contributions as we focus on driving sustainable customer growth and customer service excellence and five star's retail network and our 49 banking locations across western and Central New York.

Marty Birmingham: Earlier this month, we filed our 2025 proxy statement. Among the directors up for election this year are Angela Panzarella, who was appointed in January to our board and has deep corporate strategy, financial and business operations experience grounded in public company governance and professional experience. and Bob Schroeder, a new director nominee bringing more than 25 years of experience in corporate finance and public accounting, including his current role as chief financial officer of Paychex, which qualifies him as a financial expert for SEC reporting purposes. Mr. Schrader succeeds Sam Gullo, who is retiring at our May 28th annual meeting, following 25 years of dedicated service to our company.

Eric: Earlier this month, we filed our 2025 proxy statement.

Eric: Among the directors up for election. This year are Angela Panzarella, who was appointed in January to our board and has deep corporate strategy financial and business operations experienced grounded and public company governance and professional experiences and <unk>.

Eric: Bob Schrader, a new director nominee, bringing more than 25 years of experience in corporate finance and public accounting, including his current role as Chief financial officer of Paychex, which qualifies him as a financial expert for SEC reporting purposes Mister.

Eric: Mr. Schrader succeed Sangamo, who is retiring at our May 28th annual meeting following 25 years of dedicated service to our company.

Marty Birmingham: We are grateful for his counsel and leadership over the years and we look forward to the contributions our two newest directors will make as we continue to execute our strategic objectives.

Eric: Raphael for his counsel and leadership over the years and we look forward to the contributions our two newest directors will make as we continue to execute our strategic objectives.

Marty Birmingham: In addition to voting on the election of directors, executive compensation, and the ratification of our outside audit firm, shareholders are being asked to vote on an amendment to our long-term incentive plan. Details of the proposed changes are outlined in our proxy, so we encourage you to read the material that is available at proxydocs.com slash F-I-S-I and vote your shares to be represented.

Eric: In addition to voting on the election of directors executive compensation and the ratification of our outside audit firm shareholders are being asked to vote on an amendment to our long term incentive plan.

Eric: Details of the proposed changes are outlined in our proxy. So we encourage you to read the material that is available at proxy docs Dot com slash.

Eric: Si and vote your shares to be represented.

Operator: That concludes our prepared remarks.

Operator: Operator, please open the call for questions. If you ask a question, I'll answer it. Please press star followed by...

Eric: That concludes our prepared remarks, operator, please open the call for questions.

Eric: Thank you to ask a question. Please press star followed by one on your telephone keypad now a sea change your mind. Please press star followed by.

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Frank Schiraldi: The question is from. and Frank Schiraldi of Piper Sandler. Your line is now open, please go ahead.

Speaker Change: Our first question is from Frank Schiraldi of Piper Sandler. Your line is now open. Please go ahead.

Marty Birmingham: Um, just on Frank Lonebrook. You know, you guys were obviously strong long growth. I already mentioned Marty, driven by commercial. Many banks I talked to are assuming more of a maybe we get, you know, more certainty around around policy. It seems like you guys are sort of thinking the opposite. wanted to get, you know, your thoughts on. have that long growth outlook for the year. conservative at this point, or I guess. should be funded. So, as Jack commented as well, we're comfortable with what we've guided. We have been working with our teams over the course of the last six to eight months to ensure that there's a focus and a consistent activity relative to business development activities across all of our lending areas, particularly focused on commercial of all sizes and types.

Speaker Change: Good morning.

Speaker Change: Just on loan growth.

Speaker Change: You guys were obviously strong loan growth.

Speaker Change: First quarter, you mentioned, Marty driven by commercial and.

Speaker Change: Many banks I talked to are assuming more of a pick up in the back half of the year as maybe we get more certainty around around policy it.

Speaker Change: It seems like you guys are sort of the opposite so just just wanted to get.

Speaker Change: Your thoughts on maybe.

Speaker Change: Perhaps that loan growth outlook for the year is quite conservative at this point or.

Speaker Change: Just how confident are you that loan growth.

Speaker Change: Should be front loaded here.

Speaker Change: So as Jack commented as well, we're comfortable with what we've guided.

Speaker Change: We have been working with our teams over the course of last six months to eight months to ensure that there is a focus and a consistent activity relative to business development activities across all of our lending areas, particularly focused on commercial of all sizes and types and we saw the outcome clearly carried through in this quarter.

Marty Birmingham: And we saw the outcome clearly carried through in this quarter, which we're very pleased with. But, you know, Frank, we've been, like everyone, observing what's happened since the election and kind of the very positive feelings that were happening there with the maybe possibly, you know, more business focused, streamlined regulatory environment in general and how the markets reacted to that, to how it has evolved to lots of executive orders, tariffs, pressure on inflation, outlook for rates, et cetera. So, that's translated into what we've all read about our customers. We've canvassed them, all of them, really. We've asked our lenders to reach out to all of them in this time of uncertainty.

Speaker Change: Which we're very pleased with but frankly, we've been like everyone observing what's happened since the election and kind of a very positive feelings that were happening there with maybe.

Speaker Change: Maybe possibly more business focused streamlined regulatory.

Speaker Change: Environment in general and how the markets reacted to that to how it has evolved to lots of executive orders tariffs pressure on inflation outlook.

Speaker Change: Outlook for rates et cetera, So that's translated into.

Speaker Change: What we've all read about our customers we've canvassed them.

Speaker Change: All of them really we've asked our lenders to reach out to all of them. In this time of uncertainty and with uncertainties folks have really started to pause anticipated investment in their plant and equipment projects whatever it might be until some of this works its way through so we're going to continue to over communicate with our customers.

Marty Birmingham: And with uncertainty, folks have really started to pause, anticipated investment in their plant equipment, projects, whatever it might be, until some of this works its way through. So, we're going to continue to over-communicate with our customers. We're going to continue our consistent approach to calling and, you know, servicing our markets. But right now, it just seems like folks have generally, with uncertainty and increased volatility, kind of, you know, taking a step back to, like all of us, see where this goes. Okay.

Speaker Change: We're going to continue our consistent approach to calling in servicing our markets.

Speaker Change: But right now it just seems like folks are generally with uncertainty and increased volatility.

Speaker Change: Taking a step back to like all of Us see where this goes.

Frank Schiraldi: And, you know, the other side of that is the NIMGAR. In terms of, you know, I wondered if you could just talk to some. get you up into that range that you cite for full year guide. Maybe along with that, if you if you have the detail around.

Speaker Change: Okay.

Speaker Change: And the.

Speaker Change: The other side of that is.

The NIM guide.

Speaker Change: In terms of.

Speaker Change: I was wondering if you could just talk to some levers.

Speaker Change: Get you up into that range that you cite for full year guide.

Speaker Change: Maybe along with that if you if you.

Speaker Change: You have the detail around.

Frank Schiraldi: CDs coming up. maturing, you know, the sort of the numbers there. I'm expecting you can pick up an average cost.

Speaker Change: Cds coming up.

Speaker Change: Maturing.

Speaker Change: The sort of.

Speaker Change: The numbers, there and what you.

Speaker Change: I expect that you can pick up in average cost as you move through the year on that book.

Jack Plants: Yeah, Frank, this is Jack. I can take that one. So, some of the levers that we have that are driving that continued improvement in margin are the, you know, $1.2 billion of cash flow that we have coming out of the portfolio on a rolling 12-month basis. If you refer to the investor presentation, there's a slide in there that highlights roll-off yield and roll-on yield. On the commercial portfolio, for the first quarter, we saw roll-on yield coming on about 70 to 80 basis points on average higher than what was coming off the portfolio. So, that benefited some of the earning asset side.

Speaker Change: Yes, Frank this is Jack I can take that one so some of the levers that we have that are driving that.

Speaker Change: Continued improvement in margin.

The $1 $2 billion of cash flow that we have coming off the portfolio on a rolling 12 month basis. If you refer to the investor presentation. There's a slide in there the highlights roll off yield and roll on yields on the commercial portfolio for the first paper.

Speaker Change: Go on yield coming on about 70 days 70 to 80 basis points on average higher than what was coming off the portfolio.

Benefited from the earning asset side.

Jack Plants: We've continued to push down on deposit repricing, which has benefited us from a cost of funds perspective. We have about $500 million of CDs coming up on maturity for renewal in the next nine months, which will continue to benefit us. And then, if we look at our guided range, one of the areas that we... including our guidance with any change in interest rates. So we funded it and forecasted a spot rate forecast which we updated again as of the end of the first quarter. The shape of the curve is very important to future outcomes there.

Speaker Change: We've continued to push down.

Speaker Change: On the <unk>.

Speaker Change: Repricing, which.

Speaker Change: And benefit us from a cost of funds perspective, we have about $500 million of Cds coming up on maturity.

Speaker Change: Our renewal in the next nine months, which will continue to benefit us.

Speaker Change: And then if we look at our guided range what are the areas that we.

Speaker Change: Included in our guidance with any change in interest rates. So we considered a forecast on a spot rate forecast, which we updated again as of the end of the first quarter. The shape of the curve is very important to future outcomes. There. So if we see rate cuts and the long end of the curve kind of holds steady.

Frank Schiraldi: So if we see rate cuts and the long end of the curve kind of holds steady, we're fairly neutral within our guidance range, probably closer to the lower end. If we see a steepening of the curve and rate cuts, then there's opportunities for outperformance on the higher end. So I'm very comfortable with the range we provided for March. Okay, no, I appreciate it. It's a great caller. And then, just a quick follow-up to that, and I apologize. public documents, I can refer to that.

Speaker Change: Fairly neutral within our guidance range, probably closer to the lower end, if we see a steepening of the curve and when it cuts down there is opportunity for outperformance on the higher end so.

Speaker Change: Very comfortable with the range, we provided for our margin.

Speaker Change: Okay. No I appreciate that's great color and then just a follow up quick follow up to that and I apologize if its in some.

Speaker Change: Sure.

Frank Schiraldi: But in terms of the CDs that you cited coming up, maturing over the next nine months, through the rest of the year, what is, what are those average costs? Yeah, I think that I think they're about 4.5%. They were typically anchored in shorter term CD specials that we offered in 2024. That ranged anywhere from four to 5%. So the wage average costs on those was about four and a half. Thanks for the call guys, appreciate it. Please press star followed by one.

Speaker Change: Documents I can refer to that but in terms of the Cds.

Speaker Change: That you cited coming off maturing over the next nine months for the rest of the year. What is what are those average costs do you have that.

Speaker Change: Yeah.

Speaker Change: Yes, I think there are about four 5% they were typically anchored in shorter term Cds.

Speaker Change: CD specials that we offered in 2024 that range anywhere from 4% to 5%. So the weighted average cost on those was about four and a half.

Speaker Change: Great. Okay. Thanks for the color guys I appreciate it.

Speaker Change: Yeah.

Frank Schiraldi: Thanks Frank.

Speaker Change: As a reminder to ask a question. Please press star followed by one on your telephone keypad now.

Speaker Change: Our next question is from Damon Delmonte of <unk>. Your line is now open. Please go ahead.

Operator: Good morning, everyone. I hope you're all doing well today.

Damon Delmonte: Hey, good morning, everyone I hope, you're all doing well today.

Jack Plants: I just wanted to ask a question about... all at www.FrankSchiraldi.com. Yeah, there should be a slight increase in 2Q and then flat back beyond that. What we did was we surrendered some of the lower-performing general account and then added premium into an existing exposure that we had with our separate account, COLE, and that is what drove the significant increase in yield associated with it, given the underlying investment divisions that we have in that separate account structure. The general account that we surrendered, even though it was deemed surrendered and in good order, we have yet to receive back the cash render value on that to the tune of about $73 million, which is still out there yielding low single digits, and we expect to receive that back in June.

Speaker Change: Just wanted to.

Speaker Change: Question about the the coli.

Speaker Change: <unk>, Inc income over the next couple of quarters.

Speaker Change: Jack I think you had mentioned that you expect it to be elevated again here in the second quarter, and then kind of a more normalized level.

Speaker Change: So I mean is this basically going to be like flat from <unk> to <unk>, and then drop back down to the $1 $5 million range or how do we kind of think about the cadence of that.

Speaker Change: Yes.

Speaker Change: Yes, there should be there should be a slight increase in <unk> and then.

And then flat back beyond that what we did was we surrendered some of the lower performing general account and then added premium into existing exposure that we had with our separate account.

Speaker Change: Coli and that is what drove the significant increase.

Speaker Change: Yield associated with it given the underlying investment divisions that we have in that separate account structure.

Speaker Change: General account that we surrendered we havent, even though it was deemed surrendered in good order, we have yet to receive back the cash surrender value on that to the tune of about $73 million, which is still out there yielding low single digits and we expect to receive that back in June so thats whats, causing the short term increase in coli income.

Jack Plants: So, that's what's causing the short-term increase in COLE. But when it goes back to, like, when all the dust settles and it goes back to, like, a normalized rate, it's going to be higher than the 24 quarterly level.

Speaker Change: Okay, but when it goes back to when all the dust settles and it goes back to like a normalized rate.

Speaker Change: It's going to be higher than the 24 quarterly level is that correct.

Jack Plants: Is that correct?

Speaker Change: Correct.

Damon Delmonte: Thank you. And then, you know, as we think about like provision and kind of outlook for credit, you know, you guys kind of conservatively have reiterated the expected net charge offs for the remainder of the year. And if with loan growth kind of slowing a bit here in the second half, potentially, is it fair to kind of assume that the provision kind of takes a step down from, you know, where kind of from this quarter's level, or similar to this quarter's level. I would suggest that our guided ACL to average loans ratio continue to hover around that 107-108 basis points for the rest of the year.

Speaker Change: Okay alright, thank you.

Speaker Change: And then as we think about like provision and kind of outlook for credit.

Speaker Change: Guys kind of conservatively reiterated the.

Speaker Change: Expected net charge offs for the remainder of the year.

Speaker Change: With loan growth kind of slowing a bit here in the second half potentially.

Speaker Change: Is it fair to kind of assume that the provision kind of takes a step down from where maybe kind of from this quarter's level or similar to this quarter's level.

Speaker Change: I would suggest that our guided ACL to average loans ratio continue to hover around that 107 to 108 basis points for the rest of the year.

Speaker Change: Okay.

That's helpful. We can back into that.

Damon Delmonte: Okay, I think that's all that I had, so thank you very much. Thanks, Damon.

Speaker Change: Sure.

Speaker Change: Okay. I think that's all that I had so thank you very much I appreciate it.

Speaker Change: Thanks, David.

Speaker Change: Yeah.

Marty Birmingham: have no further questions so I will hand back to Marty Birmingham for closing. Thank you very much for your help this morning, operator. Thanks to all those that are listening in this morning, your interest in the company, your time this morning, and look forward to connecting again in July. today's call.

Speaker Change: We have no further questions. So I will hand back to Marty Birmingham for closing remarks.

Marty Birmingham: Thank you very much for your help this morning, operator, thanks to all of those that are listening in this morning. Your interest in the company and your time this morning, and look forward to connecting again in July.

Operator: Thank you for joining. You may now

Marty Birmingham: This concludes today's call. Thank you for joining you may now disconnect your lines.

Marty Birmingham: Yeah.

Marty Birmingham: Yeah.