Financial Institutions, Inc.

Ladies and gentlemen, thank you for your patience. This call is due to start in a couple minutes time. Thank you. Thank you. Thank you. Hello and welcome to today's Financial Institutions Inc third quarter 2022 earnings call. My name is Elliot and I'll be coordinating your call today. If you would like to register a question during the presentation, you may do so by pressing star followed by one on your telephone keypad. I would now like to hand over to Kate Croft, Director of Investor and External Relations. The floor is yours, please go ahead.

Thank you for joining us on today's call. Providing prepared remarks will be President and CEO Marty Birmingham and CFO Jack Plance, Community Banking Officer Justin Bigham, Chief Administrative Officer Sean Willett, 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, 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, October 28th, 2022. 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. During the third quarter, our company produced solid results, including net income available to common shareholders of $13.5 million, or $0.88 per diluted share. These results were impacted by non-recurring enhancement from a company-owned life insurance surrender redeploy strategy that Jack will discuss in his remarks, a $4.3 million provision for credit losses, and $312,000 income and fees associated with the Paycheck Protection Program. Adjusting for these items, pre-tax, pre-provision income for the quarter was up $770,000, or 3.9% from the prior year. when we recorded a $541,000 benefit for credit losses and a $1.4 million of PPP-related income and fees. Organic loan growth was certainly a highlight in the third quarter, with loans growing 2.7 percent from June 30th, or 2.9 percent when excluding Paycheck Protection Program loans. The strength of our commercial lending franchise was the driving force behind this double-digit annualized loan growth. The commercial business portfolio, excluding the impact of triple P loans, grew 4.8% from the end of the second quarter. Commercial mortgage was up 8% as much of our committed backlog at June 30, 2022, successfully closed during the third quarter. So starting with us in February, our new Mid-Atlantic team has hit the ground running and their contributions are evident in our results. As of September 30th, they brought on approximately 69 million in outstandings, with around 41 million of that coming on during the most recent quarter. This team, which serves the Baltimore and Washington, D.C. region, is also contributing meaningfully to our current commercial pipeline. As we focus on building the five-star brand in this market, I'm confident in the strength and experience of the team we've added and the high-quality nature of the relationships they're bringing on board. For example, Most of our mid-Atlantic loans are tied to stabilized and matured mortgages, along with some construction lending, with excellent sponsors. The average loan-to-value ratio for this portfolio is approximately 55%. The vast majority of these loans are for office space in the Washington, D.C. metro that are primarily located in heavy-trafficked areas near hospitals and have a fair amount of medical leasing with high occupancy levels. The success to date of the Mid-Atlantic team, together with our long-term track record of credit discipline loan growth and well-defined strategic and risk frameworks, give us confidence in this strategy as we continue to evaluate opportunities for growth. As pleased as we are with our commercial performance, we are aware of and are closely monitoring the challenges that the current economic environment poses to our company and our customers. Like the rest of the industry, we are seeing pricing pressures amid the inflationary environment that require us to be very thoughtful as we evaluate opportunities. The quality of our portfolio remains strong, which we are committed to defending. We remain focused on building deep relationships with high-quality sponsors in our markets, including our core upstate New York geography that performs consistently in periods of both economic expansion and recession. Turning to the consumer side of our business, our residential portfolio grew 0.7% during the quarter, but was down 1.2% from the third quarter of 2021. Home equity volume continues to rise, helping to balance the softer activity we're seeing for purchase mortgages and refinancing requests. Many of the pressures we discussed with you on our last call, including inflation and rising interest rates and tighter housing inventory, remain headwinds in the near term. That said, we are driving continued operational efficiencies to further enhance our underwriting and application process and are pleased with the strength of the talent we've brought on recently who are helping us with these initiatives. Our consumer indirect portfolio stands at $997.4 million as of September 30th, down 4% from the link quarter but up 6% from the year-ago period. While the fourth quarter is historically softer in terms of application volume, we're still seeing sufficient demand for vehicles and loans. In addition, there's a good deal of M&A activity within the dealer space, which creates disruption and opportunities that we are well positioned to capitalize on, having a strong reputation in our network of more than 500 franchised new auto dealerships. While we did see an increase in charge-offs on this portfolio in the third quarter, we view this as a return to a more normalized level, following exceptionally low levels in 2021. Before turning the call over to Jack for additional details on our financial results and an update on guidance, I'd like to spend some time this morning on our Banking as a Service, or BAS, operating system, which enables our fintech partners to offer banking products and services to their end customers. BAS is a fee-based line of business aligned with our risk appetite and credit discipline focus, driven by fees from servicing, interchange, advisory, and other revenue sharing opportunities. Additionally, BATH provides the potential to generate lower cost deposits and enhance loan diversification. Our BATH pipeline is beginning to translate into success, and we anticipate it growing through the remainder of 2022 and into 2023. As we noted in our investor presentation, we have several partnerships in various stages of onboarding. Earlier this month, our sponsorship with Atmos Financial went live. Atmos is a FinTech aimed at affinity groups focused on climate-positive banking. While this partnership is early stage, we are encouraged by the opportunities to enable their mission and success. Additionally, we are exploring expanded opportunities to increase revenue while helping Atmos fulfill its mission. Atmos' proven ability for customer acquisition gives us confidence as this partnership also allows us to lean into the fast-growing green finance segment of the market in a responsible way by partnering with a fintech that exclusively works in that niche. This unique partnership perfectly illustrates our thoughtful and disciplined approach to BASC, which focuses on partners that are complementary to our risk appetite and values, and which have the potential to contribute to both our income statement and balance sheet. We've also found that our approach to engaging with FinTechs on a one-on-one basis, as opposed to using connectors to bring in those relationships, is beneficial for both sides. While it creates a somewhat longer process, it allows both parties to more fully understand the challenges and opportunities to mutually drive near and long-term growth and value. Our BAS model is centered on a measured, direct integration and rollout of clients. such as Atmos, which helps the bank avoid some of the challenges and regulatory pitfalls affecting some others in the BAS space. 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.