Financial Institutions, Inc.

Hello everyone and welcome to the Financial Institutions Inc second quarter 2022 earnings call. My name is Charlie and I'll be coordinating the call today. You will have the opportunity to ask a question at the end of the presentation. If you'd like to register a question please press star followed by one on your telephone keypads. I'll now hand over to your host Shelley Duran, 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 Bigum and Director of Financial Planning and Analysis Mike Gerber 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, uncertainties, and other factors. We refer you to yesterday's earnings release and investor presentation. as well as historical SEC filings available on our investor relations website for a safe harbor description and a detailed discussion of the risk factors relating to forward-looking statements. We'll also discuss certain non-GAAP financial measures intended to supplement and not substitute for comparable GAAP measures. Reconciliations of these measures to GAAP financial measures were provided in the earnings release filed as an exhibit to Form 8K. Please note that this call includes information that may only be accurate as of today's date, July 29th, 2022. I'll now turn the call over to President and CEO, Marty Birmingham.

Thank you, Shelly. Good morning, everyone, and thank you for joining us today. During the second quarter, our operating performance reflected the hard work of our entire team and yielded very solid results, including net income available to common shareholders of $15.3 million or 99 cents per diluted share. Results are up from the linked first quarter, but down from the year-ago period, when we recorded a sizable benefit for credit losses of $4.6 million. Having returned to a more normalized loan loss provisioning environment this year, after two years that were significantly impacted by the pandemic, we recorded a provision of $563,000 in the most recent quarter, which was positively impacted by a $2 million commercial loan recovery. In addition, our second quarter 2022 results were impacted by 1.3 million of non-recurring restructuring charges related to locations that were closed and consolidated as part of our 2020 retail bank network optimization. We've made significant progress on liquidating most of these properties, and this charge reflects a fair market value adjustment based on existing purchase offers and current market conditions. Excluding these non-recurring charges, adjusted pre-tax pre-provision income was $21.3 million, which was $594,000 higher than the first quarter of 2022 and $361,000 higher than the second quarter of 2021. The second quarter was a productive one for our company, as we delivered organic loan growth, maintained strong asset quality, and took steps to position our company for continued success in an evolving economy. We are making important progress on our digital transformation, which I'll touch on in more detail in my concluding remarks. Total loans were up an annualized 3.3% from March 31st, even as paycheck protection program loans continue to wind down as expected. We also sold about 31 million of indirect loans during the period. We were afforded the opportunity to sell this small pool of indirect loans given the strong demand and growth we've experienced in this line of business in recent years. We will continue to evaluate future opportunities to sell indirect production as we manage our balance sheet and remix the loan composition with growth in other loan portfolios, namely commercial. Excluding Triple P loans and the indirect portfolio sale, total loans grew more than 9% on an annualized basis. On the commercial side, excluding the impact of Triple P loans, we grew our commercial business portfolio 5.7% on an annualized basis from March 31st, while commercial mortgage was up 3.7% annualized. I note that a fair amount of that growth came late in the second quarter, so we'll see the full benefit of that loan production in net interest income during the third quarter. Contributing to these results was strong performance out of the gate from our new mid-Atlantic team that serves the Baltimore and Washington, D.C. regions. Since joining Five Star Bank in February, they have brought on approximately $24 million in outstandings as of June 30th and have built an ample pipeline to support future growth. Clearly, our community banking approach is resonating with customers in this market, and we believe it will continue to be a competitive advantage moving forward. Looking ahead, we remain focused on partnering with high-quality commercial sponsors in our markets. Commercial real estate demand continues unabated, even amid the current interest rate environment, as developers in our upstate New York markets continue to advance projects. During the residential lending, balances were relatively flat from March 31st. First mortgage volumes continue to trend lower, but we have seen increases in home equity volumes. Like much of the nation, residential lending opportunities in our markets have been impacted by higher interest rates, inflationary pressures, low housing stocks, and changes in buyer appetite. As we manage through these challenges, we continue to focus on driving operational efficiencies and recruiting top-tier talent to support this key line of business and maximize opportunities for growth moving forward. Consumer indirect continues to be a core competency and growth engine for our company, up nearly 13 percent annualized from March 31st, even with the sale of a portion of the loans late in the quarter. We continue to benefit from high auto valuations and a robust network of more than 500 franchise new auto dealerships. We remain focused on rate and our unwavering approach to credit discipline. Our prudent approach to credit transcends all lending categories and resulted in continued strong and stable credit quality metrics, including non-performing loans of $6.5 million or 17 basis points of total loans and net recoveries of 1 million or 11 basis points of average loans. Our allowance for credit losses to total loans measured 113 basis points at quarter end, up three basis points from March 31st. Our insurance and wealth management businesses achieved solid results in the second quarter and first half of 2022. Jack will provide additional details on their performance during his remarks, but overall, We believe these fee-based businesses remain well positioned to support revenue growth and profitability. Buying retention in our insurance business has been very strong, and we believe new business development and cross-sell opportunities of our robust product offering are durable, bolstered by two acquisitions in 2021 that expanded our upstate New York presence and enhanced the employee benefits business. On the wealth management side, there's no doubt that the first half of 2022 has been challenging, throughout the industry, and we did experience a market-driven decline in assets under management. Year-to-date, our investment advisory income is up about 5% from the first half of 2021, and our teams at Courier Capital and HFP Capital are closely engaged with clients to provide steady guidance and counsel amid historic pressures. It's now my pleasure to turn the call over to Jack for additional details on our financial results and an update on 2022 guidance. Jack?