Q2 2026 Financial Institutions Inc Earnings Call

July 24, 2026

Speaker #1: Greetings, and welcome to the Financial Institutions Q2 2026 earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.

Operator: Greetings, and welcome to the Financial Institutions' Q2 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to introduce Ms. Kate Croft, Director of Investor Relations for the company. Ms. Croft, you may begin.

Speaker #1: If anyone should require operator assistance during the conference, please press *0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Ms. Kate Croft, Director of Investor Relations for the company.

Speaker #1: Ms. Croft, you may begin.

Speaker #2: Thank you for joining us for today's call. Prepared comments will be presented by CEO Marty Birmingham and CFO Jack Plants. They will be joined by additional members of the company's leadership team during the question-and-answer session.

Kate Croft: Thank you for joining us for today's call. Providing prepared comments will be President and CEO Marty Birmingham and CFO Jack Plants. 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 our safe harbor description and a detailed discussion of the risk factors relating to forward-looking statements. We will also discuss certain non-GAAP financial measures intended to supplement and not substitute for existing GAAP measures.

Speaker #2: 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.

Speaker #2: 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. Please also refer to our safe harbor description and a detailed discussion of the risk factors relating to forward-looking statements.

Speaker #2: We will also discuss certain non-GAAP financial measures intended to supplement, and not substitute for, experiential GAAP measures. Non-GAAP to GAAP reconciliations can be found in the earnings release filed as an exhibit to Form 8-K or in our latest investor presentation available on our IR website, www.fis-i-investors.com.

Kate Croft: Non-GAAP to GAAP reconciliations can be found in the earnings release filed as an exhibit to Form 8-K or in our latest investor presentation available on our IR website, www.fisi-investors.com. Please note this call includes information that may only be accurate as of today's date, 24 July 2026. I will now turn the call over to President and CEO Marty Birmingham.

Speaker #2: Please note that this call includes information that may only be accurate as of today's date, July 24, 2026. I will now turn the call over to President and CEO, Marty Birmingham.

Speaker #3: Thank you, Kate. And good morning, everyone. Thank you for joining us today. Our Q2 performance was strong by many measures. Loans increased 2.7% from the end of the first quarter and 4.8% year over year, driven by commercial lending and our core Western and Central New York markets.

Martin K. Birmingham: Thank you, Kate, and good morning, everyone, and thank you for joining us today. Our Q2 performance was strong by many measures. Loans increased 2.7% from the end of Q1 and 4.8% year over year, driven by commercial lending in our core Western and Central New York markets. Our ability to effectively manage funding costs, supported by a 3 basis point improvement to net interest margin from Q1. Margin was up 21 basis points from the year ago quarter. Credit quality remained stable and non-interest expenses were flat, allowing revenue growth to drive further improvement in our quarterly efficiency ratio to nearly 55%. Capital levels continue to build, underscoring our capacity to support growth while maintaining a strong risk profile. Common Equity Tier 1 ratio was 11.44%, up 7 basis points from the linked quarter and 60 basis points year over year.

Marty Birmingham: Thank you, Kate, and good morning, everyone, and thank you for joining us today. Our Q2 performance was strong by many measures. Loans increased 2.7% from the end of Q1 and 4.8% year over year, driven by commercial lending in our core Western and Central New York markets. Our ability to effectively manage funding costs, supported by a 3 basis point improvement to net interest margin from Q1. Margin was up 21 basis points from the year ago quarter. Credit quality remained stable and non-interest expenses were flat, allowing revenue growth to drive further improvement in our quarterly efficiency ratio to nearly 55%. Capital levels continue to build, underscoring our capacity to support growth while maintaining a strong risk profile. Common Equity Tier 1 ratio was 11.44%, up 7 basis points from the linked quarter and 60 basis points year over year.

Speaker #3: Our ability to effectively manage funding costs was supported by a three-basis-point improvement to net interest margin from the first quarter. Margin was up 21 basis points from the year-ago quarter.

Speaker #3: Credit quality remained stable and non-interest expenses were flat, allowing revenue growth to drive further improvement in our quarterly efficiency ratio to nearly 55%. Capital levels continue to build, underscoring our capacity to support growth while maintaining a strong risk profile.

Speaker #3: Common Equity Tier 1 ratio was 11.44%, up 7 basis points from the prior quarter and 60 basis points year over year, while our TCE ratio was 9.02%, up 13 and 41 basis points respectively.

Martin K. Birmingham: While our TCE ratio was 9.02%, up 13 and 41 basis points respectively. Lastly, assets under management at our wealth subsidiary were up 13% during the quarter to reach $4 billion on a combination of positive net flows and market-driven gains. Year over year, assets under management was up 19%. Overall, disciplined execution by our lines of business translated to diversified revenue, well-managed expenses, and sustained earnings and profitability. Net income available to common shareholders of $20.8 million was up 1% from the linked quarter and 21% year over year. On a diluted basis, we earned $1.04 per share this quarter, consistent with Q1 and up from $0.85 in Q2 2025. In addition, tangible book value per share increased to $28.72 this quarter, up 2% quarter over quarter and more than 10% year over year.

Marty Birmingham: While our TCE ratio was 9.02%, up 13 and 41 basis points respectively. Lastly, assets under management at our wealth subsidiary were up 13% during the quarter to reach $4 billion on a combination of positive net flows and market-driven gains. Year over year, assets under management was up 19%. Overall, disciplined execution by our lines of business translated to diversified revenue, well-managed expenses, and sustained earnings and profitability. Net income available to common shareholders of $20.8 million was up 1% from the linked quarter and 21% year over year. On a diluted basis, we earned $1.04 per share this quarter, consistent with Q1 and up from $0.85 in Q2 2025. In addition, tangible book value per share increased to $28.72 this quarter, up 2% quarter over quarter and more than 10% year over year.

Speaker #3: Lastly, assets under management in our wealth subsidiary were up 13% during the quarter to reach $4 billion, on a combination of positive net flows and market-driven gains.

Speaker #3: Year over year, assets under management were up 19%. Overall, disciplined execution by our lines of business translated to diversified revenue, well-managed expenses, and sustained earnings and profitability.

Speaker #3: Net income available to common shareholders of $20.8 million was up 1% from the last quarter and 21% year over year. On a diluted basis, we earned $1.04 per share this quarter, consistent with the first quarter and up from $0.85 in the second quarter of 2025.

Speaker #3: In addition, tangible book value per share increased to $28.72 this quarter, up 2% quarter over quarter, and more than 10% year over year. In looking at our balance sheet, the commercial activity that we signaled would drive 2026 loan growth has gained momentum.

Martin K. Birmingham: In looking at our balance sheet, the commercial activity that we signaled would drive 2026 loan growth has gained momentum. Total commercial loans were up 4.3% and 9.1% from 31 March 2026 and 30 June 2025, respectively. Commercial industrial lending was particularly strong, but the growth was well-rounded with our commercial real estate and business banking teams also contributing to our success. In our Syracuse market, where Micron broke ground on its semiconductor campus early this year, we are seeing increased activity among industrial suppliers and contractors. We remain enthusiastic about the opportunities this $100 billion investment will create as the region evolves to support development and population growth. Turning to consumer lending, residential mortgage is gaining momentum amid what continues to be a tight housing market in upstate New York. On balance sheet, residential lending increased 1.5% and 2.2% from the end of the linked and year-ago quarters, respectively.

Marty Birmingham: In looking at our balance sheet, the commercial activity that we signaled would drive 2026 loan growth has gained momentum. Total commercial loans were up 4.3% and 9.1% from 31 March 2026 and 30 June 2025, respectively. Commercial industrial lending was particularly strong, but the growth was well-rounded with our commercial real estate and business banking teams also contributing to our success. In our Syracuse market, where Micron broke ground on its semiconductor campus early this year, we are seeing increased activity among industrial suppliers and contractors. We remain enthusiastic about the opportunities this $100 billion investment will create as the region evolves to support development and population growth. Turning to consumer lending, residential mortgage is gaining momentum amid what continues to be a tight housing market in upstate New York. On balance sheet, residential lending increased 1.5% and 2.2% from the end of the linked and year-ago quarters, respectively.

Speaker #3: Total commercial loans were up 4.3% and 9.1% from March 31, 2026, and June 30, 2025, respectively. Commercial and industrial lending was particularly strong, but the growth was well-rounded, with our commercial real estate and business banking teams also contributing to our success.

Speaker #3: In our Syracuse market, where Micron broke ground on its semiconductor campus earlier this year, we're seeing increased activity among industrial suppliers and contractors. We've remained enthusiastic about the opportunities this $100 billion investment will create as the region evolves to support development and population growth.

Speaker #3: Turning to consumer lending, residential mortgage is gaining momentum amid what continues to be a tight housing market in upstate New York. On balance sheet, residential lending increased 1.5% and 2.2% from the end of the linked and year-ago quarters, respectively.

Speaker #3: Sales and serviced residential mortgages of $302 million were up 1.4% during the quarter, and more than 7% year over year, as we shift more production to our off-balance sheet serviced portfolio in support of fee income.

Martin K. Birmingham: Sold and serviced residential mortgages of $302 million were up 1.4% during the quarter and more than 7% year over year as we shift more production to our off-balance-sheet service portfolio in support of fee income. While the spring and summer are typically more active home-buying seasons, production also benefited from our talent bench as producers who have joined since H2 2025 continue to grow relationships. Originations were particularly strong in Rochester and Batavia, and both mortgage and home equity applications are up by double-digit rates year over year, supporting our positive outlook for the year. Consumer indirect loans, which are originated through a network of more than 360 new auto dealers across New York State, were down 2.1% from the end of the linked quarter and 7.5% from the year-ago quarter.

Marty Birmingham: Sold and serviced residential mortgages of $302 million were up 1.4% during the quarter and more than 7% year over year as we shift more production to our off-balance-sheet service portfolio in support of fee income. While the spring and summer are typically more active home-buying seasons, production also benefited from our talent bench as producers who have joined since H2 2025 continue to grow relationships. Originations were particularly strong in Rochester and Batavia, and both mortgage and home equity applications are up by double-digit rates year over year, supporting our positive outlook for the year. Consumer indirect loans, which are originated through a network of more than 360 new auto dealers across New York State, were down 2.1% from the end of the linked quarter and 7.5% from the year-ago quarter.

Speaker #3: While this spring and summer are typically more active home buying seasons, production also benefited from our talent bench, as producers who have joined since the second half of 2025 continue to grow relationships.

Speaker #3: Regional nations were particularly strong in Rochester and Batavia, and both mortgage and home equity applications are up by double-digit rates year over year, supporting our positive outlook for the year.

Speaker #3: Consumer indirect loans, which are originated through a network of more than 360 new auto dealers across New York State, were down 2.1% from the end of the prior quarter and 7.5% from the year-ago quarter.

Speaker #3: This reflects our continued discipline on spreads and prime credit mix, which has led us to allow runoff to outpace originations. Credit metrics remain solid in this line of business, with recoveries supporting an improved net charge-off ratio for Q2 of 59 basis points for this portfolio.

Martin K. Birmingham: This reflects our continued discipline on spreads and prime credit mix, which has led us to allow runoff to outpace originations. Credit metrics remain solid in this line of business, with recoveries supporting an improved net charge-off ratio for Q2 of 59 basis points for this portfolio. Given our year-to-date performance, we continue to target full year 2026 loan growth of 5%. Investment securities were down from the comparable linked and year-ago periods by about 9% and 2% respectively. The linked quarter decline was primarily due to public deposit seasonality and short-term treasuries that served as collateral on municipal deposits in Q1. Period-end deposits of $5.3 billion were down by a modest 0.7% from 31 March and up 2.8% from 30 June 2025.

Marty Birmingham: This reflects our continued discipline on spreads and prime credit mix, which has led us to allow runoff to outpace originations. Credit metrics remain solid in this line of business, with recoveries supporting an improved net charge-off ratio for Q2 of 59 basis points for this portfolio. Given our year-to-date performance, we continue to target full year 2026 loan growth of 5%. Investment securities were down from the comparable linked and year-ago periods by about 9% and 2% respectively. The linked quarter decline was primarily due to public deposit seasonality and short-term treasuries that served as collateral on municipal deposits in Q1. Period-end deposits of $5.3 billion were down by a modest 0.7% from 31 March and up 2.8% from 30 June 2025.

Speaker #3: Given our year-to-date performance, we continue to target full-year 2026 loan growth of 5%. Investment securities were down from the comparable linked and year-ago periods by about 9% and 2%, respectively.

Speaker #3: The linked quarter decline was primarily due to public deposit seasonality and short-term treasuries that served as collateral on municipal deposits in Q1. Period-end deposits of $5.3 billion were down by a modest 0.7% from March 31 and up 2.8% from June 30, 2025.

Speaker #3: The linked-quarter variance largely reflects seasonality in our public deposit portfolio, which peaked in the first and third quarters of the year, and connects with tax collection and state aid.

Martin K. Birmingham: The linked quarter variance largely reflects seasonality in our public deposit portfolio, which peaks in the Q1 and Q3 of the year and connects with tax collection and state aid. Growth in each of our deposit categories, public, non-public and reciprocal, contributed to the year-over-year increase, partially offset by a decrease in broker deposits. Our team remains highly focused on the retention and acquisition of core non-public deposits, and we continue to target low single-digit deposit growth for the full year. Now my pleasure to turn the call over to Jack for additional details on our results and guidance.

Marty Birmingham: The linked quarter variance largely reflects seasonality in our public deposit portfolio, which peaks in the Q1 and Q3 of the year and connects with tax collection and state aid. Growth in each of our deposit categories, public, non-public and reciprocal, contributed to the year-over-year increase, partially offset by a decrease in broker deposits. Our team remains highly focused on the retention and acquisition of core non-public deposits, and we continue to target low single-digit deposit growth for the full year. Now my pleasure to turn the call over to Jack for additional details on our results and guidance.

Speaker #3: Growth in each of our deposit categories—public, nonpublic, and reciprocal—contributed to the year-over-year increase, partially offset by a decrease in broker deposits. Our team remains highly focused on the retention and acquisition of core nonpublic deposits, and we continue to target low single-digit deposit growth for the full year.

Speaker #3: Now, it's my pleasure to turn the call over to Jack for additional details on our results and guidance.

Speaker #4: Thank you, and good morning, everyone. The structure and composition of our balance sheet continues to support healthy earnings, with both net interest income and net interest margin increasing during the second quarter.

W. Jack Plants II: Thank you and good morning, everyone. The structure and composition of our balance sheet continues to support healthy earnings, with both net interest income and net interest margin increasing during the second quarter. Net interest income grew to $53.4 million, driven by a combination of loan growth and an additional day in the quarter as compared to Q1 of 2026. We reported three basis points of net interest margin expansion on a linked quarter basis, driven by lower interest-bearing liability costs as earning asset yields were fairly stable. Investment security yields of 4.46% were down two basis points quarter over quarter, while average loan yields were 6.07% in both Q1 and Q2. As we signaled on our April call, absent FOMC activity, we believe deposit rates have reached a low point.

Jack Plants: Thank you and good morning, everyone. The structure and composition of our balance sheet continues to support healthy earnings, with both net interest income and net interest margin increasing during the second quarter. Net interest income grew to $53.4 million, driven by a combination of loan growth and an additional day in the quarter as compared to Q1 of 2026. We reported three basis points of net interest margin expansion on a linked quarter basis, driven by lower interest-bearing liability costs as earning asset yields were fairly stable. Investment security yields of 4.46% were down two basis points quarter over quarter, while average loan yields were 6.07% in both Q1 and Q2. As we signaled on our April call, absent FOMC activity, we believe deposit rates have reached a low point.

Speaker #4: Net interest income grew to $53.4 million, driven by a combination of loan growth and an additional day in the quarter, as compared to the first quarter of 2026.

Speaker #4: We reported 3 basis points of net interest margin expansion on a linked-quarter basis, driven by lower interest-bearing liability costs, as earning asset yields were fairly stable.

Speaker #4: Investment security yields of 4.46% were down 2 basis points quarter over quarter, while average loan yields were 6.07% in both the first and second quarters.

Speaker #4: As we signaled on our April call, absent FOMC activity, we believe deposit rates have reached a low point. Expansion moderated a bit in the second quarter, and we expect a more stable margin in the coming quarters.

W. Jack Plants II: Expansion moderated a bit in Q2, we expect a more stable margin in the coming quarters. Based on the strength of our year-to-date results, we are raising our full-year NIM guide from the upper 360s to approximately 370 basis points, based on our spot rate forecast. Non-interest income increased to $11 million, up 2.6% from Q1 of the year. Investment advisory revenue, largely derived through our wealth management subsidiary, Courier Capital, increased to $3.3 million, up 7.4% from Q1. As Marty mentioned, assets under management reached $4 billion as of 30 June 2026, marking a new milestone. We have built a very strong team, investments in talent in recent years have helped us bring in new business that contributed meaningfully to AUM growth.

Jack Plants: Expansion moderated a bit in Q2, we expect a more stable margin in the coming quarters. Based on the strength of our year-to-date results, we are raising our full-year NIM guide from the upper 360s to approximately 370 basis points, based on our spot rate forecast. Non-interest income increased to $11 million, up 2.6% from Q1 of the year. Investment advisory revenue, largely derived through our wealth management subsidiary, Courier Capital, increased to $3.3 million, up 7.4% from Q1. As Marty mentioned, assets under management reached $4 billion as of 30 June 2026, marking a new milestone. We have built a very strong team, investments in talent in recent years have helped us bring in new business that contributed meaningfully to AUM growth.

Speaker #4: Based on the strength of our year-to-date results, we are raising our full-year NIM guide from the upper 360s to approximately 370 basis points, based on our spot-rate forecast.

Speaker #4: Non-interest income increased to $11 million, up 2.6% from the first quarter of the year. Investment advisory revenue, largely derived through our wealth management subsidiary Courier Capital, increased to $3.3 million, up 7.4% from the first quarter.

Speaker #4: As Marty mentioned, assets under management reached $4 billion as of June 30, 2026, marking a new milestone. We will build a very strong team, and investments in talent in recent years have helped us bring in new business that contributed meaningfully to AUM growth.

Speaker #4: We also continue to develop new relationships in Florida, where we opened a small office in late 2025 to serve our seasonal Florida residents and retirees.

W. Jack Plants II: We also continue to develop new relationships in Florida, where we opened a smaller office in late 2025 to serve our seasonal Florida residents and retirees. Banking services fee income, including swap fees, card interchange, and loan services income, along with service charges on deposits, increased $596,000, or 17%, from the linked quarter. Notably, swap fee income more than doubled from Q1 given increased back-to-back swap volume as lending activity strengthened. Loan servicing income was up nearly 45%, reflecting successful execution of our residential mortgage off-balance sheet strategy. Company-owned life insurance revenue of $2.9 million was up 4% from the linked quarter. Quarterly income has come in higher than expected in H1 of the year, we now anticipate earning at least $11 million for the full year, up from the $10.5 million we originally guided.

Jack Plants: We also continue to develop new relationships in Florida, where we opened a smaller office in late 2025 to serve our seasonal Florida residents and retirees. Banking services fee income, including swap fees, card interchange, and loan services income, along with service charges on deposits, increased $596,000, or 17%, from the linked quarter. Notably, swap fee income more than doubled from Q1 given increased back-to-back swap volume as lending activity strengthened. Loan servicing income was up nearly 45%, reflecting successful execution of our residential mortgage off-balance sheet strategy. Company-owned life insurance revenue of $2.9 million was up 4% from the linked quarter. Quarterly income has come in higher than expected in H1 of the year, we now anticipate earning at least $11 million for the full year, up from the $10.5 million we originally guided.

Speaker #4: Banking services fee income, including swap fees, card interchange, and loan services income, along with service charges on deposits, increased $596,000, or 17%, from the linked quarter.

Speaker #4: Notably, swap fee income more than doubled from the first quarter, given increased back-to-back swap volume, with lending activity strengthened. In addition, loan servicing income was up nearly 45%, reflecting successful execution of our residential mortgage off-balance sheet strategy.

Speaker #4: Company-owned life insurance revenue of $2.9 million was up 4% from the linked quarter. Full income has come in higher than expected in the first half of the year, and we now anticipate earning at least $11 million for the full year, up from the $10.5 million we originally guided.

Speaker #4: We reported a loss for limited partnership income of $244,000 in the first quarter. As a reminder, revenue associated with these partnerships, which are primarily small business investment companies, fluctuates given the performance of underlying investments.

W. Jack Plants II: We reported a loss for limited partnership income of $140,000, compared to a gain of $244,000 in Q1. As a reminder, revenue associated with these partnerships, which are primarily small business investment companies, fluctuates given the performance of underlying investments. We reported quarterly non-interest expense of $35.6 million, consistent with the linked and year ago quarters. On a linked quarter basis, salaries and benefits expense was up 3%, reflecting the full impact of annual merit increases that took effect mid Q1 and the impact of an additional business day in Q2. Computer and data processing expenses were down 11.3% from Q1 of 2026 when we incurred contract termination costs associated with a vendor relationship we exited. We noted on last quarter's call, those costs will be largely offset by the elimination of associated recurring expenses moving forward.

Jack Plants: We reported a loss for limited partnership income of $140,000, compared to a gain of $244,000 in Q1. As a reminder, revenue associated with these partnerships, which are primarily small business investment companies, fluctuates given the performance of underlying investments. We reported quarterly non-interest expense of $35.6 million, consistent with the linked and year ago quarters. On a linked quarter basis, salaries and benefits expense was up 3%, reflecting the full impact of annual merit increases that took effect mid Q1 and the impact of an additional business day in Q2. Computer and data processing expenses were down 11.3% from Q1 of 2026 when we incurred contract termination costs associated with a vendor relationship we exited. We noted on last quarter's call, those costs will be largely offset by the elimination of associated recurring expenses moving forward.

Speaker #4: We reported quarterly non-interest expense of $35.6 million, consistent with the linked and year-ago quarters. On a linked-quarter basis, salaries and benefits expense was up 3%, reflecting the full impact of annual merit increases that took effect mid-Q1 and the impact of an additional business day in Q2.

Speaker #4: Computer and data processing expenses were down 11.3% from the first quarter of 2026, when we incurred contract termination costs associated with a vendor relationship we exited.

Speaker #4: We noted on last quarter's call that those costs will be largely offset by the elimination of associated recurring expenses moving forward. Permit expense management remains a top priority, while we maintain positive operating leverage.

W. Jack Plants II: Prudent expense management remains a top priority while we maintain positive operating leverage. We now expect to achieve a full-year efficiency ratio of below 57%. We reported an effective tax rate of 17.3% in Q2 compared to 15.5% in Q1. The linked quarter tax rate was driven by appreciation in our stock price that positively impacted the tax deduction associated with long-term stock-based compensation that vests annually in Q1. Credit costs were well managed with net charge-offs totaling 11 basis points of average loans, compared to 44 basis points in the linked quarter. Our allowance for credit losses increased by 3 basis points, 1% of total loans. While the ACL remains at the low end of our historical range, we remain comfortable with the allowance and the associated coverage ratio given our strong asset quality.

Jack Plants: Prudent expense management remains a top priority while we maintain positive operating leverage. We now expect to achieve a full-year efficiency ratio of below 57%. We reported an effective tax rate of 17.3% in Q2 compared to 15.5% in Q1. The linked quarter tax rate was driven by appreciation in our stock price that positively impacted the tax deduction associated with long-term stock-based compensation that vests annually in Q1. Credit costs were well managed with net charge-offs totaling 11 basis points of average loans, compared to 44 basis points in the linked quarter. Our allowance for credit losses increased by 3 basis points, 1% of total loans. While the ACL remains at the low end of our historical range, we remain comfortable with the allowance and the associated coverage ratio given our strong asset quality.

Speaker #4: We now expect to achieve a full-year efficiency ratio of below 57%. We reported an effective tax rate of 17.3% in the second quarter, compared to 15.5% in the first quarter.

Speaker #4: The linked quarter tax rate was driven by appreciation in our stock price that positively impacted the tax deduction associated with long-term stock-based compensation that vests annually in the first quarter.

Speaker #4: Credit costs were well managed, with net charge-offs totaling 11 basis points of average loans, compared to 44 basis points in the linked quarter. Our allowance for credit losses increased by 3 basis points, from 1% of total loans.

Speaker #4: While the ACL remains at the lower end of our historical range, we remain comfortable with the allowance and the associated coverage ratio, given our strong asset quality.

Speaker #4: Our previous guidance for the full-year charge-off ratio, tax rate, non-interest expense growth, and non-interest income remain unchanged and are outlined on slide 5 of our investor presentation.

W. Jack Plants II: Our previous guidance for the full-year charge-off ratio, tax rate, non-interest expense growth, and non-interest income remain unchanged and are outlined on slide five of our investor presentation. Overall, our Q2 results demonstrate continued execution against our financial objectives, supported by healthy revenue trends, disciplined expense management, and solid asset quality. That concludes my remarks. I'll now turn the call back to Marty.

Jack Plants: Our previous guidance for the full-year charge-off ratio, tax rate, non-interest expense growth, and non-interest income remain unchanged and are outlined on slide five of our investor presentation. Overall, our Q2 results demonstrate continued execution against our financial objectives, supported by healthy revenue trends, disciplined expense management, and solid asset quality. That concludes my remarks. I'll now turn the call back to Marty.

Speaker #4: Overall, our second quarter results demonstrate continued execution against our financial objectives, supported by healthy revenue trends, disciplined expense management, and solid asset quality. That concludes my remarks.

Speaker #4: I'll now turn the call back to Marty.

Speaker #3: Thanks, Jack. Overall, we're very pleased with our performance and energized about the opportunities ahead of us in the second half of the year. Our results for the second quarter and for the last six quarters reflect the strength of our core businesses, disciplined balance sheet management, and continued focus on profitability.

Martin K. Birmingham: Thanks, Jack. Overall, we're very pleased with our performance and energized about the opportunities ahead of us in H2 of the year. Our results for Q2 and for the last 6 quarters reflect the strength of our core businesses, disciplined balance sheet management, and continued focus on profitability. Given our year-to-date return on average assets, we are raising our original guide from 1.22% to at least 1.3%. Similarly, we now expect to achieve return on average equity for the full year of at least 12.5%, up from the 11.9% we had guided. Return on average tangible common equity is approximately 15% for the year-to-date period, and we remain focused on delivering profitable growth to drive shareholder value. Strong capital position and good momentum that help us forward.

Marty Birmingham: Thanks, Jack. Overall, we're very pleased with our performance and energized about the opportunities ahead of us in H2 of the year. Our results for Q2 and for the last 6 quarters reflect the strength of our core businesses, disciplined balance sheet management, and continued focus on profitability. Given our year-to-date return on average assets, we are raising our original guide from 1.22% to at least 1.3%. Similarly, we now expect to achieve return on average equity for the full year of at least 12.5%, up from the 11.9% we had guided. Return on average tangible common equity is approximately 15% for the year-to-date period, and we remain focused on delivering profitable growth to drive shareholder value. Strong capital position and good momentum that help us forward.

Speaker #3: Given our year-to-date return on average assets, we are raising our original guidance from 1.22% to at least 1.3%. Similarly, we now expect to achieve a return on average equity for the full year of at least 12.5%, up from the 11.9% we had guided.

Speaker #3: Return on average tangible common equity is approximately 15% for the year-to-date period, and we remain focused on delivering profitable growth to drive shareholder value.

Speaker #3: With a strong capital position and good momentum to help us move forward, we remain focused on building full relationships, executing at a high level, and making smart investments in talent and technology in order to unlock the full potential of our company and deliver long-term value for our shareholders.

Martin K. Birmingham: We remain focused on building full relationships, executing at a high level, and making smart investments in talent and technology in order to unlock the full potential of our company and deliver long-term value for our shareholders. That concludes our prepared remarks. Operator, please open the call for questions.

Marty Birmingham: We remain focused on building full relationships, executing at a high level, and making smart investments in talent and technology in order to unlock the full potential of our company and deliver long-term value for our shareholders. That concludes our prepared remarks. Operator, please open the call for questions.

Speaker #3: That concludes our prepared remarks. Operator, please open the call for questions.

Speaker #1: Thank you. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

Operator: Thank you. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Damon DelMonte with KBW. Please proceed with your question.

Speaker #1: You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset.

Speaker #1: Before pressing the star keys, our first question comes from the line of Damon Del Monte with KBW. Please proceed with your question.

Speaker #5: Hey, good morning, guys. Hope you're all doing well, and thanks for taking my questions this morning. I just wanted to start off on loan growth.

Damon DelMonte: Hey, good morning, guys. Hope you're all doing well, and thanks for taking my questions this morning. Just wanted to start off on loan growth. Obviously a very solid quarter. I think the commentary around what you're seeing, your markets and your pipelines is very encouraging. Just looking to kind of bridge the connection between H1 growth was about 8%, and you're kind of sticking with your 5% full-year guide. Just wondering, what could change that outlook and what could push that a little bit higher, kind of given the stronger H1?

Speaker #5: Obviously, a very solid quarter. I think the commentary around what you're seeing in your markets and your pipelines is very encouraging. So, just looking to kind of bridge the connection between first half growth was about 8%, and you're kind of sticking with your 5% full year.

Speaker #5: So, just wondering what could change that outlook, and what could keep you—or what could push that a little bit higher, given the stronger first half?

Speaker #4: A couple of things, Damon. First of all, over the course of the last, I'd say, eight to ten months, we've been able to recruit six commercial lending professionals to our team.

Martin K. Birmingham: A couple of things, Damon. First of all, over the course of the last, I'd say, 8 to 10 months, we've been able to recruit 6 commercial lending professionals to our team that are supporting our small business through CRE and C&I lending. Those associates are starting to ramp up their pipelines that ultimately will start to flow through to outcomes that hit our balance sheet. Beyond that, the team continues to focus on the fundamentals of loans and deposits as we talked about driving outcomes primarily in upstate New York. Our Baltimore LPO continues to be stable with about 400 million of outstandings, and we have experienced some payoffs and pay downs there earlier than expected. From my perspective, that's a good indicator of liquidity as well as reinforces the credit quality.

Marty Birmingham: A couple of things, Damon. First of all, over the course of the last, I'd say, 8 to 10 months, we've been able to recruit 6 commercial lending professionals to our team that are supporting our small business through CRE and C&I lending. Those associates are starting to ramp up their pipelines that ultimately will start to flow through to outcomes that hit our balance sheet. Beyond that, the team continues to focus on the fundamentals of loans and deposits as we talked about driving outcomes primarily in upstate New York. Our Baltimore LPO continues to be stable with about 400 million of outstandings, and we have experienced some payoffs and pay downs there earlier than expected. From my perspective, that's a good indicator of liquidity as well as reinforces the credit quality.

Speaker #4: ...that are supporting our small business through CRE and CNI lending. So, those associates are starting to ramp up their pipelines, which ultimately will begin to flow through to outcomes that hit our balance sheet.

Speaker #4: Beyond that, the team continues to focus on the fundamentals of loans and deposits, as we talked about, driving outcomes primarily in upstate New York.

Speaker #4: Our Baltimore LPO continues to be stable, with about $400 million of outstandings. We have experienced some payoffs and paydowns there earlier than expected, but from my perspective, that's a good indicator of liquidity, as well as reinforces the credit quality.

Speaker #5: Got it. So, I mean, do you have a little bit more optimism than the full year of 5%, just kind of given that commentary?

Damon DelMonte: Got it. Do you have a little bit more optimism than the full-year of 5%, just kind of given that commentary? Or could there potentially be some CRE payoffs which could mute the stronger origination activity?

Speaker #5: Or could there potentially be some CRE payoffs, which could mute the stronger origination activity?

Speaker #4: Yeah, Damon, this is Jack. So we're optimistic on the commercial portfolio. Where we're seeing a little bit of softness is just more runoff in the indirect portfolio versus what we had originally modeled.

W. Jack Plants II: Yeah. Damon, this is Jack. We're optimistic on the commercial portfolio where we're seeing a little bit of softness as just more runoff in the indirect portfolio versus what we had originally modeled. That's just driven by our discipline on spread. We're seeing a higher level of tier 1, which is the higher FICO scores come through the balance sheet. We're not really pushing on the lower credit tiers there. There's a higher level of runoff in the direct portfolio, but commercial is supplementing that in a great way. With those commercial lenders coming through, I'm optimistic about commercial growth.

Jack Plants: Yeah. Damon, this is Jack. We're optimistic on the commercial portfolio where we're seeing a little bit of softness as just more runoff in the indirect portfolio versus what we had originally modeled. That's just driven by our discipline on spread. We're seeing a higher level of tier 1, which is the higher FICO scores come through the balance sheet. We're not really pushing on the lower credit tiers there. There's a higher level of runoff in the direct portfolio, but commercial is supplementing that in a great way. With those commercial lenders coming through, I'm optimistic about commercial growth.

Speaker #4: But that's just driven by our discipline on spread. We're seeing a higher level of tier one, which is the higher FICO scores, come through the balance sheet.

Speaker #4: We're not really pushing on the lower credit tiers there, so there's a higher level of runoff in the indirect portfolio, but commercial is supplementing that in a great way.

Speaker #4: And with those commercial lenders coming through, I'm optimistic about commercial growth.

Speaker #5: Got it, that's helpful, thanks. And then maybe one on the margin—I appreciate the color in the updated guidance on that. Yeah, I guess if the rate environment's kind of shifted, right, and we're now implying "higher for longer," and there's a growing sense that we could see a rate hike.

Damon DelMonte: Got it. That's helpful. Thanks. Then, maybe one on the margin. Appreciate the color and the updated guidance on that. Yeah, I guess if the rate environment's kind of shifted, right? It kind of, we're implying now higher for longer and there's growing sense that we could see a rate hike. Just, Jack, kind of wondering how you feel the margin's positioned, should there be a 25 basis point hike either later this year or early in 2027?

Speaker #5: So, just Jack, kind of wondering how you feel the margin's positioned. Should there be a 25-basis-point hike either later this year or early in '27?

Speaker #4: Yeah, I think we're fairly insensitive to a 25-basis-point adjustment, either up or down, and our interest rate risk modeling supports that. So, yeah, we're maintaining our guidance as we've presented.

W. Jack Plants II: Yeah. I think we're fairly insensitive to a 25 basis point adjustment, either up or down, and our interest rate risk modeling supports that. Yeah, we're maintaining our guidance as we presented.

Jack Plants: Yeah. I think we're fairly insensitive to a 25 basis point adjustment, either up or down, and our interest rate risk modeling supports that. Yeah, we're maintaining our guidance as we presented.

Speaker #5: Got it. Great. Okay, I'll step back. Thank you very much.

Damon DelMonte: Got it. Great. Okay. I'll step back. Thank you very much.

Speaker #4: Thanks, Damon.

Martin K. Birmingham: Thanks, Damon.

Marty Birmingham: Thanks, Damon.

Speaker #1: Thank you. Our next question comes from the line of Manuel Navas with Piper Sandler. Please proceed with your question.

Operator: Thank you. Our next question comes from the line of Manuel Navas with Piper Sandler. Please proceed with your question.

Speaker #6: Hey, guys. Hello. Congrats on the great quarter. This is Econor speaking on behalf of Manuel. I wanted to ask about your increase in the profitability guidance.

[Analyst] (Piper Sandler): Hey, guys. Hello. Congrats on the great quarter. This is Eknor speaking on behalf of Manuel. I wanted to ask about your increase in the profitability guide. What can drive the ROA beyond the 1.3% that you provided?

Speaker #6: What factors could drive ROA beyond the 1.3% you provided?

Speaker #4: Yeah. So the core PPNI, so pre-provision net income performance we've had year to date, has really driven some year-to-date performance that supplements that higher ROA guidance that we've provided.

W. Jack Plants II: Yeah. The core PPNI, Pre-Provision Net Income, performance we've had year-to-date has really driven some year-to-date performance that supplements that higher ROA guidance that we've provided. To your question, though, we're firm on that. We think that 1.3% is achievable based upon year-to-date performance and our outlook. Should we see other factors come through provisioning, that can help to supplement that further. We view our core performance and achievement of 1.3% ROA as intact.

Jack Plants: Yeah. The core PPNI, Pre-Provision Net Income, performance we've had year-to-date has really driven some year-to-date performance that supplements that higher ROA guidance that we've provided. To your question, though, we're firm on that. We think that 1.3% is achievable based upon year-to-date performance and our outlook. Should we see other factors come through provisioning, that can help to supplement that further. We view our core performance and achievement of 1.3% ROA as intact.

Speaker #4: To your question, though, we're firm on that. We think that 1.3% is achievable based upon year-to-date performance in our outlook. Should we see other factors come through provisioning, that can help to supplement that further.

Speaker #4: But we view our core performance and achievement of 1.3% ROA as intact.

Speaker #6: All right, thank you. Also, I wanted to ask: when we purchase this—you didn't do any repurchases this quarter, but with capital levels higher—

[Analyst] (Piper Sandler): All right. Thank you. Also, I wanted to ask on repurchases. You didn't do any repurchase this quarter, but with capital levels higher, what is your view on capital returns going forward?

Speaker #6: What is your view on capital returns going forward?

Speaker #4: Yeah, this is Jack. So, we still believe that the franchise is undervalued. Based upon our P/E and tangible book value multiple, when you look at our profitability metrics relative to our peer group, the buybacks remain an efficient use of capital, given where we're positioned in the market.

W. Jack Plants II: Yeah. This is Jack. We still believe that the franchise is undervalued based upon our PE and tangible book value multiple when we look at our profitability metrics relative to our peer group, and that buybacks remain an efficient use of capital given where we're positioned in the market.

Jack Plants: Yeah. This is Jack. We still believe that the franchise is undervalued based upon our PE and tangible book value multiple when we look at our profitability metrics relative to our peer group, and that buybacks remain an efficient use of capital given where we're positioned in the market.

Speaker #6: Okay, and sorry, last question. You did kind of touch on this, but deposit costs are kind of hitting or nearing their bottom. What kind of pricing competition do you see in the market right now?

[Analyst] (Piper Sandler): Okay. Sorry, last question. You did kind of touch on this with deposit costs kind of nearing its bottom. What kind of pricing competition do you see in the market right now?

Speaker #4: Yeah, the market's fairly competitive on the CD side, but we remain out there, active regionally, and with our value proposition and connection that we have with proximity to management and our team that's in these markets.

W. Jack Plants II: The market's fairly competitive on the CD side, but we remain out there active regionally and with our value proposition and connection that we have with proximity to management and our team that's in these markets. We think that we're as relevant as any of the competitors that are in the market today.

Jack Plants: The market's fairly competitive on the CD side, but we remain out there active regionally and with our value proposition and connection that we have with proximity to management and our team that's in these markets. We think that we're as relevant as any of the competitors that are in the market today.

Speaker #4: So we think that we're as relevant as any of the competitors that are in the market today.

Speaker #6: Okay. Thank you, guys. I'll step back.

[Analyst] (Piper Sandler): Okay. Thank you, guys. I'll step back.

Speaker #1: Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Birmingham for any final comments.

Operator: Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Birmingham for any final comments.

Speaker #4: Thank you, everyone, for your participation this morning. We look forward to continuing to update you in October.

Martin K. Birmingham: Thank you, everyone, for their participation this morning. We look forward to continuing to update you in October.

Marty Birmingham: Thank you, everyone, for their participation this morning. We look forward to continuing to update you in October.

Operator: Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

Q2 2026 Financial Institutions Inc Earnings Call

Request DemoDemo

Financial Institutions

Earnings