Financial Institutions, Inc.

Hello, everyone, and thank you for joining the Financial Institutions Inc. First Quarter 2025 Earnings Call. My name is Lucy, and I will be coordinating your call today. During the presentation, you can register a question by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two on your telephone keypad. I will now hand over to your host, Kate Croft, Director of Investor Relations, to begin. Please go ahead.

Thank you for joining us for today's call. Providing prepared comments will be present in CEO Marty Birmingham and CFO Jack Plans. You 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 a safe harbor description and 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 or in our latest investor presentation available on our IR website, www.fisi-investors.com. Please note that this call includes information that may only be accurate as of today's date, April 29, 2025. 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. Our first quarter results illustrate the transformative impact that our late 2024 investment securities restructuring had on our balance sheet and earnings profile, as well as a solid performance delivered by lines of business. Net interest income was up more than 12 percent from the fourth quarter and 17 percent year-over-year, while net interest margin expanded by 44 and 57 basis points, respectively. Both NII and margin reflect a significant improved yield on our securities portfolio and further benefit from reduced funding costs. Net interest income was 10.4 million as enhancements we made to our company-owned life insurance portfolio and increased investment advisory income, among other things, helped offset the absence of insurance income as compared to the year-ago quarter. As the quality metrics were improved, with net charge-offs declining both on a dollar basis and as an annualized percentage of average loans from the linked and year-ago quarters. From a profitability perspective, improved revenue generation and lower expenses than anticipated in the first quarter resulted in an efficiency ratio of 59%, consistent with our full-year target of below 60%. Annualized return on average assets was 110 basis points, while return on average equity was 11.82%. Coming off of a challenging and dynamic 2024, we are keenly focused on maintaining the momentum that our capital raise and investment securities restructuring generated for us to deliver strong results and profitability throughout 2025. I'm very proud of our team for delivering on the profitability, return, and efficiency objectives in the first quarter. Their ability to meet the needs of our customers and deliver growth in loans, deposits, and assets under management the first three months of this year puts us in a strong position. This strong footing is especially important as we face what appears to be another challenging outlook for the industry, given the uncertainty posed by the fast-moving political and macroeconomic environments. Amid this, We intend to stay focused on driving efficiency internally, controlling what we are able, and remaining disciplined in our approach to credit extension and management. Total loans increased 1.7% during the quarter, driven by both CNI and CRE lending, matching the fourth quarter's growth rate. You'll recall our pipelines had been in a rebuilding phase in the second half of 2024 and were solid heading into the new year. Based on the current size of our commercial pipelines and discussions with borrowers, we believe that loan growth will be concentrated in the first and second quarters. The uncertain economic landscape, especially with respect to tariffs, inflation, and interest rates, limits visibility into the back half of 2025. Despite the increased sentiment of uncertainty and volatility being felt universally by businesses of all sizes, We continue to feel the low single-digit growth guide we shared with you in January is appropriate. Our 2025 guidance reflected the intentional approach we took in preparing this year's budget, remaining mindful that the economy had experienced significant inflationary pressures for some time and there was uncertainty ahead. Of course, the level of volatility and pace of policy change has been more significant than many expected. But at this time, it hasn't led us to change our full-year expectations. Commercial business loans increased 6.6% during the quarter, reflecting both new originations and increased line utilization, and were flat year over year. Commercial mortgage loans were up 1.3% in the quarter and 9% from March 31, 2024, driven by growth in our upstate New York market. We've been in close contact with our commercial customers and believe that our consistent approach to credit discipline and selectivity supports stable performance. From an asset quality perspective, non-performing loans declined $1.4 million to $40 million at March 31, 2025, and continue to primarily relate to two separate commercial relationships. As we've previously disclosed, One is a $15.5 million loan in the Buffalo region that was placed on non-accrual in the third quarter of 2024, and the other is a $13.5 million relationship that includes multiple credit facilities to a CRE sponsor in our southern tier region. The latter relationship moved to non-accrual in December of 2023 and is comprised of three separate loans, a $4.5 million multi-bank deal, $4 million commercial mortgage loan, and a $5 million commercial line of credit, which all are secured by properties in the Tompkins County, Ithaca area. This credit relationship is with a developer that has been very successful over the long term, including managing properties that support thousands of student housing beds for Cornell University. Prior to the first quarter of 2025, we recorded a specific reserve on this relationship of $1.9 million. During the first quarter of this year, an appraisal was updated on the $4.5 million multi-bank deal, which resulted in a $1.2 million specific reserve on that portion of the relationship. This brings the specific reserve on the entire $13.5 million credit exposure to $3.1 million as of March 31, 2025. The multi-bank deal is associated with a high-tech business park that is about 80% occupied and includes many high-quality tenants, including the local health system and Cornell University. We continue to actively manage this situation in pursuit of resolution while evaluating underlying collateral, and we will take appropriate action to ensure specific reserves are timely and appropriate. Turning to consumer lending, indirect balances were up just shy of 1% from December 31st and down 7% year over year. Consumer indirect net charge-offs and non-performing loans improved from the comparable prior periods. Indirect has proven to be a durable asset class through various economic cycles, given our approach to prime credit originations. Generally, our borrowers have prioritized car payments in support of jobs and economic stability, considering the limited mass transportation in our upstate New York markets. As the economy softened, We believe that reliable transportation will be important to ensure borrowers are able to maintain stable employment. Another dynamic to consider is that while tariffs are likely to impact the supply chain and new car availability, used car prices are expected to increase, which we have started to observe. This has the potential to reduce average losses on repossessed vehicles, which would support lower net charge-off ratios. Residential lending was down 1% for both the length and year-ago quarters, given the high competition and tight housing inventory in our upstate New York markets. The credit quality in this portfolio has been solid and consistent for us, and net charge-offs have remained fairly benign. Deposits were up 5.3% from year-end 2024, driven by seasonally higher public deposit balances and an increase in broker deposits. Deposits were relatively flat with March 31, 2024, down a modest 0.4 percent, primarily due to decrease in reciprocal deposits and the wind-down of our banking as a service offering. Dash-related deposits total approximately $55 million at March 31, 2025. Based on when our remaining FinTech partners transition to new banking providers, we may see a small portion of these deposits remain on the balance sheet into the third quarter, but we expect most of what remains to flow out in the second quarter. we remain committed to core in-market deposit gathering with relationship-based accounts. Finally, in mid-April, we utilized a portion of the proceeds of our public equity offering to call $10 million of fixed to floating sub-debt that was issued in April 2015 and repriced earlier this month. Outstanding subordinated debt for the company currently totals $65 million, including the remaining $30 million tranche from April 2015 and the $35 million tranche issued in October 2020. We will continue to evaluate options for these sub-debt facilities moving forward. So now my pleasure to turn the call over to Jack for additional commentary on our financial results in 2025 expectations. Thank you, Marty. Good morning, everyone.