Financial Institutions, Inc.

If you would like to register a question during today's event, please press star followed by one on your telephone keypad. I'd now like to hand over to Kate Croft, Director of Investor Relations. The floor is yours. Please go ahead.

Thank you for joining us for today's call. Providing prepared comments will be President and CEO Marty Birmingham and CFO Jeff Lance. They will be joined by additional members of the company's finance and leadership teams 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. 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 relief filed as an exhibit to Form 8-K. Please note this call includes information that may only be accurate as of today's date, October 27, 2023. I'll now turn the call over to President and CEO, Marty Birmingham.

Thank you, Kate, and good morning, everyone, and thank you for joining us today. Third quarter results were highlighted by healthy deposit growth and a continuation of stable credit quality metrics. both of which position us well for the remainder of 2023 and give us confidence in our ability to effectively navigate the operating environment in 2024, including capitalizing on opportunities. Third quarter net income available to common shareholders was $13.7 million or $0.88 per diluted share, down from $14 million or $0.91 per share in the second quarter of 2023, and in line with the prior year results of $13.5 million, or $0.88 per share. Like much of the country, competition for deposits remains fierce in our markets, and I'm incredibly proud of our team's ability to drive 6% deposit growth during the quarter. The fact that this growth was led by core non-public deposits is all the more noteworthy, with retail, banking as a service or VAS, and commercial all contributing. A significant driver of non-public deposit growth was the 5% money market account campaign that you'll recall we launched in late July. In addition to helping us deepen relationships with existing customers, we have introduced more than 800 new retail customers to Five Star Bank in our relationship-based approach to community banking through this campaign. These new customers brought in approximately $72 million in balances through October 14th. in addition to balances deposited by our long-standing customer base. We plan to continue the campaign through mid-November, providing a strong start to the fourth quarter. BAS also gained momentum during the third quarter with approximately $77 million of related deposits at quarter end. We consider these to be an attractive alternative to higher-cost wholesale funding. While these deposits have come on slower than we originally anticipated, Our approach to onboarding new partners includes a thoughtful governance process before transitioning them onto our vast platform. We look forward to continued growth in 2024 and beyond as we build out our pipeline of fintech and non-bank partners. Our commercial banking franchise also supported deposit growth in the quarter as we implemented changes earlier in the year to incentivize our commercial lenders to focus on deposit gathering initiatives. Public deposit balances at September 30, 2023 were up compared to the end of the second quarter, largely reflecting seasonal inflows that we typically experience late in the third quarter. Reciprocal deposits also grew during the quarter, as this continues to be an attractive option affording our larger customers the benefit of FDIC insurance on accounts greater than $250,000. Setting aside our third quarter deposit growth, The latest data from the FDIC summary of deposits underscores the strength of our position in our markets. Based on June 30, 2023 deposit balances, our company ranked top three in 10 of the 14 upstate New York counties where we reported deposits. In addition, we are among the top 10 financial institutions serving Erie and Monroe counties, home to Buffalo and Rochester, respectively. Growth in these cities is an important element of our community bank franchise growth strategy, and accordingly, our recent money market campaign was heavily focused on these markets. Total loans were relatively stable on a linked quarter basis at $4.4 billion, as modest growth in residential and commercial lending was partially offset by decline in our indirect portfolio. Other consumer loans were also up slightly, reflecting a relatively small amount of solar panel financing related to a BAS client focused on climate-positive banking. With respect to commercial lending, as anticipated, CRE growth slowed significantly in the third quarter due to a combination of softer demand amid a challenging economic environment, higher pricing hurdles, and our effort to moderate production. Competition remains strong for C&I loans in our markets, but we are seeing opportunities from prospects looking for a true local community bank. Our residential loan portfolio grew during both the three and 12 months ended September 30, 2023, despite the higher interest rate environment and tight housing inventory that has impacted home sales in our market. We continue to see success through our partnerships with select new home builders in the western New York region. Consumer indirect loan balances declined again in the third quarter, as expected, primarily as a result of our internal efforts to moderate production. While we did see an uptick in charge-offs associated with this portfolio in the third quarter, I would remind you that our second quarter indirect charge-offs were exceptionally low as a result of strength and recoveries. We remain comfortable with this asset class and the quality of our portfolio, given the deep experience of our management team and long track record of this line of business. Third quarter consumer indirect charge-offs were partially offset by a commercial recovery, as outlined in our earnings press release. resulting in annualized NCOs to average loans of 14 basis points. Our commercial portfolio asset quality remains sound, and we are confident in the strength of the underlying credits. Our relationship managers have been and continue to be in close contact with their customers amid what has been a volatile operating environment. And we recently completed additional internal stress testing on loans larger than $1 million within our multifamily and office portfolios, set to mature in the next 24 months. As part of this analysis, we ran a variety of scenarios stressing loans larger than one million in these segments with NOI downside and higher interest rates, even above where current rates have transitioned in the last 12 to 18 months. Under these scenarios, the large majority continue to have debt service coverage ratios at or greater than one-to-one coverage. After individually analyzing, Any that would fall below that threshold, we found that guarantor strength, access to capital, project progress or completion, and the overall strong quality of sponsors all reinforce our confidence. We anticipate incorporating this focused exercise into our management routines for the foreseeable future. we remain comfortable with our allowance coverage ratio with an allowance for credit losses to total loans of 112 basis points and 521% of non-performing loans as of September 30th. This concludes my introductory comments and it's now my pleasure to turn the call over to Jack for additional details on results and updates on our guidance for 2023.