Financial Institutions, Inc.

Hello and welcome to the Financial Institutions Inc. First Quarter Earnings Conference Call. My name is Katie and I'll be coordinating your call today. If you would like to ask a question during the presentation, you may do so by pressing star 1 on your telephone keypad. I'll now hand over to your host, Shelley Doran, the Director of Investor Relations, to begin. Shelley, please go ahead.

Thank you for joining us for today's call. Providing prepared comments will be President and CEO Marty Birmingham and CFO Jack Plant. Chief Community Banking Officer Justin Biggin and Director of Financial Planning and Analysis Mike Grover will join us for Q&A. 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 and certain teeth and other factors. We refer you to yesterday's earnings release and historical SEC filings available on our Best Relations website for a safe harbor description and a detailed discussion of the risk factors relating to forward-looking statements. We'll also discuss certain non-GAAP financial measures intended to supplement and not substitute for comparable GAAP measures. Reconciliations of these measures to GAAP financial measures were provided in the earnings release filed as an Exhibit 108K. Please note that this call includes information that may only be accurate as of today's date, April 28th, 2022. I'll now turn the call over to President and CEO Marty Birmingham.

Thank you, Shelly. Good morning and welcome to our first quarter earnings call. Our positive momentum from 2021 continued and we delivered another quarter of very solid results with net income of 15 million or 93 cents per diluted share. These results were lower than the length in prior year quarters, primarily as a result of a more normalized operating environment and some of the unique impacts of the pandemic environment moderated. We recorded a more typical level of provision for credit losses after four straight quarters of benefit and recognized lower revenues related to the Triple P program. Pre-tax, pre-provision income was $20.7 million. a $1.9 million decrease from the fourth quarter of 2021 and a $3.3 million decrease from the first quarter of 2021. The declines were largely the result of lower PPP revenues totaling $1.1 million this quarter, down from $2.8 million and $3.6 million in the fourth and first quarters of last year, respectively. In the first quarter of 2022, we announced our first commercial expansion outside of our operating footprint. John Megan was named Senior Vice President, Commercial Real Estate Executive, and Mid-Atlantic President. And he leads three commercial real estate relationship managers in the Baltimore and Washington, D.C. region for Five Star Bank. Consolidation within the Baltimore and D.C. financial services sector created an opening for us to capitalize on opportunities where a community banking approach provides a competitive advantage. Our Mid-Atlantic team of four commercial banking officers started with Five Star in mid-February, and they have been working diligently to build a strong loan pipeline. We look forward to establishing the Five Star brand in this new market and becoming a strong partner for the communities there. Our strong track record of credit discipline loan growth and well-defined strategic and risk frameworks give us confidence and the expected positive outcomes of this exciting expansion beyond our operating footprint. We continue to leverage available talent to expand our commercial platform through the recruitment of commercial professionals and are also considering the establishment of other loan production offices in viable markets outside of our existing footprint. During the first quarter, total loans grew $54 million, or 1.5% from December 31st. Commercial business decreased 2%, commercial mortgage increased 2%, residential real estate loans were relatively flat, and consumer indirect was up 5%. Excluding the impact of PPP loans, the commercial business portfolio grew 2%, and total loans were up 2.2%. PPP loan forgiveness continued in the quarter and outstanding decreased from $55 million at year end to $31 million at March 31st. We are seeing an increase in commercial credit line utilization, driven by opportunistic buying of inventory by customers to deal with supply chain constraints. Our commercial real estate pipeline remains robust. We work with known quality sponsors, and they are presenting high-quality, viable projects. While developers are facing cost increases for materials and extended delivery dates, They continue to demonstrate the ability to manage these incremental expenses while maintaining acceptable underlying cash flow projects. In residential real estate, first mortgage volumes are down, but we are seeing an uptick in the home equity category. We are also experiencing compressed spreads in the secondary market gain on sale, putting pressure on revenue. We continue to invest in both the back office and frontline sales force of this key line of business, focusing on operational efficiencies. Growth in our consumer indirect auto portfolio continued in the quarter as we benefited from high auto valuation, good access to quality credit through our dealer network of more than 500 franchise new auto dealerships, and strong credit discipline. This asset class provides the opportunity to deploy excess liquidity in a loan category with short duration, strong credit performance, and comparatively higher yield characteristics in the current environment. The indirect auto line of business remains a core competency for us, and we have a demonstrated track record of consistent performance through economic expansions, recessions, and stagnation. The allowance for credit losses on loans to total loans was 110 basis points at quarter end, up two basis points from December 31st due primarily to an increase in qualitative factors, reflecting economic uncertainty associated with higher interest rates and global political unrest. The increase in qualitative factors was partially offset by continued low levels of net charge-offs at 787,000, or nine basis points this quarter, favorable national unemployment, and a reduction in our overall specific reserve levels. Overall portfolio credit performance continues to demonstrate stability with a low level of non-performing assets at $9.6 million. It's now my pleasure to turn the call over to Jack for additional details on results and an update on 2022 guidance. Jack?