Thank you for standing by, ladies and gentlemen. Welcome to the Financial Institutions, Inc. Third Quarter 2024 Earnings Call. My name is Candice, and I will be your event coordinator today. All lines have been placed on mute during the presentation portion of the call with an opportunity for question-and-answer at the end. I would now like to turn the conference call over to Kate Croft, Head of Investor Relations. 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. They 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 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 8-K or in our latest investor presentation available on our IR website. Please note that this call includes information that may only be accurate as of today's date, October 25, 2024. 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 third quarter results were highlighted by strong deposit growth, incremental net interest margin expansion, solid expense management, and continued build in our regulatory and tangible capital ratios. Third quarter 2024 income available to common shareholders was $13.1 million or $0.84 per diluted share compared to $25.3 million or $1.62 per diluted share in the last quarter, which benefited from a $13.5 million pre-tax gain on the sale of our insurance business. Third quarter return on average assets was 89 basis points, and our efficiency ratio was 65%. Year-to-date, ROAA of 90 basis points and efficiency ratio of 72% were impacted by our previously disclosed fraud event and the sale of our insurance subsidiary. Excluding these items, adjusted ROAA through the first nine months of the year was 100 basis points and efficiency ratio was 65%, reflecting the strength of our core business. Before discussing our third quarter results in greater detail, I would like to provide an update on the wind-down of our banking as a service offering announced last month after a careful review undertaken in conjunction with our annual strategic planning process, and considering balance sheet allocation, only about 2% of the bank's total deposits are related to this offering, and they're primarily associated with four live partnerships. These deposits amounted to $103 million on September 30th, and they averaged $109 million in the third quarter with a cost of 3.84%. Our initial engagement with our partners focused on core funding capabilities, a modest amount of credit extension, and transaction-related fees. As we continue to evaluate the financial results associated with this offering, management determined that the business unit economics were not contributing to the company's franchise value as anticipated. Furthermore, it was evident that an exit from this line of business would not have a material impact on the company's future financial performance. Since launching this offering in 2021, our investments have largely been focused on building a scalable technological interface to engage with our partners. This interface also enables smooth integration with other software and tools we rely on, including our customer relationship management solution that supports all business lines. We intend to redeploy our investments of time and talent, including headcount, to support the significant opportunities we have at Five Star Bank's community banking franchise. As we work with our customers to wind down their respective relationships, we will take the same measured approach that we have since our entry into this offering, in order to support orderly transitions for our partner firms and their customers. We're having productive and regular discussions with our partners about orderly wind downs and completion remains targeted for some time in 2025. We currently expect to see the outflow of deposits begin more notably in the first quarter. In our core community banking business, we see good opportunities for deposit gathering among our existing markets and within our consumer, commercial, and municipal customer base. As experienced in the third quarter, third quarter balance sheet results were highlighted by total deposit growth of $173.3 million or 3.4% from June 30th. Public and non-public deposit increases more than offset a decrease in reciprocal balances. This portfolio maintained higher count balances during typical outflow cycles, while also growing deposits with new and existing municipalities. This was complemented by solid growth in non-public deposits during the quarter. Total deposits were relatively flat year-over-year, as both public and non-public deposit growth enabled us to reduce reliance on broker deposits, which were down just over $313 million from September 30, 2023. Total loans were down slightly from June 30th, 2024 as increases in commercial mortgage and stability in residential loans and lines were offset by declines in commercial business and consumer indirect loans. Competition for capable commercial operators and high-quality commercial real estate sponsors continues to be very high, and we, like many other banks, are seeing business owners utilize excess cash rather than credit in the higher interest rate environment. That said, we continue to see excellent opportunities in our geographic markets to drive credit discipline and loan growth. Our commercial pipelines are in a rebuilding phase, and we would expect demand to pick up with additional rate cuts. Overall, we remain confident in the health of our portfolios. We did see an increase in non-performing loans in the third quarter as a result of a $15.5 million commercial relationship that was moved to non-accrual. We were pleased to report zero commercial net charge-offs again in the third quarter. The $31.4 million in non-performing commercial loans at September 30th, 2024 largely relate to two separate commercial relationships in outstate New York, which are experiencing issues that are specific to these particular borrowers. We believe we are appropriately reserved for each and are working closely with all parties involved toward resolution. Given the nature of the projects, we do expect that this will take some time. Credit quality remains strong within our Mid-Atlantic portfolio, where our clients operate largely in suburban communities outside Baltimore and Washington, DC. Our Mid-Atlantic team has brought relationships with strong and experienced developers, providing us with geographic and asset-class diversity. Loans in this market totaled $338 million at September 30th, 2024. We're also seeing intense competition in the residential lending space as housing inventory remains low in our upstate New York markets. As a result, residential loans in line were relatively flat on a linked-quarter basis at $724.4 million. Credit metrics remain favorable, and we reported zero basis points of residential net charge-offs in the third quarter and a stable level of non-performers. Consumer indirect loans totaled $874.7 million at September 30th, 2024, down $19.9 million or 2.2% from June 30th. While indirect net charge-offs increased in the linked quarter, they remain about half the level we experienced in the first and fourth quarters. We've intentionally reduced our indirect portfolio over time, being thoughtful in considering its percentage of our overall loan portfolio and refocusing on our core upstate New York markets by exiting the Pennsylvania auto market. At the same time, we've improved the profitability of this line of business and continue to see healthy spreads and favorable credit mix in new production. Indirect lending remains a core lending competency and is a useful balance sheet management tool, given the short duration, associated cash flow, and higher yields. We will continue to maintain this portfolio, given the demand and practicality in our core markets, where public transportation is fairly limited. For the last 20 years, in both positive and negative economic cycles, this loan category has performed consistently in a narrow range of acceptable credit metrics and risk-adjusted returns. Our balance sheet remains healthy overall, and we look forward to continuing to build relationships with depositors and borrowers throughout our upstate New York and Mid-Atlantic markets. Now I'd like to turn the call over to Jack for additional details on financial results and our 2024 guidance.

Thank you, Marty. Good morning, everyone. We reported net interest margin on a fully taxable equivalent basis of 289 basis points for the third quarter of 2024, up 2 basis points from the linked second quarter. NIM was negatively impacted by the commercial relationship placed on non-accrual during the quarter that Marty discussed, which reduced margin by 3 basis points. Net interest income of $40.7 million was down $512,000 from the linked quarter, with the majority of that variance attributable to the reversal of interest income for this single commercial relationship. Interest-earning asset yields increased 3 basis points, modestly outpacing our overall cost of funds, which increased 2 basis points, while the average yield on interest-bearing liabilities increased from the second quarter as a result of growth in higher-cost time deposits. We were pleased to see a flowing of disintermediation from non-interest-bearing accounts, with average balances of about $1 billion stable quarter-over-quarter. Average total deposits were down about 2% on a linked-quarter basis, largely due to the timing of seasonal public deposit flows in addition to a decrease in reciprocal deposits, which offset an increase in average non-public deposits. We continue to be proactive in managing funding costs where we can and further reduced short-term borrowings in the third quarter. Since the start of 2023, we've reduced total borrowings in broker deposits by about $307 million or 54%. Looking at our total deposit portfolio relative to the magnitude of FOMC rate increases that occurred in 2022 and 2023 and the recent 50 basis point decrease, we experienced a cycle-to-date beta of 53%, excluding the cost of time deposits. The non-maturity deposit portfolio had a beta of 32%. Year-to-date, NIM of 2.85% is at the low end of the 2.85% to 2.95% range we guided in January. At this time, we're narrowing our expected range for full year 2024 NIM to 2.85% to 2.9%. As a reminder, this guidance was and continues to be based on a spot rate forecast that does not factor in potential future rate cuts. Given quarter-end balances and the continued lending competition that Marty discussed, we now expect 2024 annual loan growth to come in at the low end of our guided range, 1% to 3%. Our year-to-date cash flows have been lighter than originally modeled as we approach the end of the year. We do expect the anticipated rate cuts will be accompanied by increased demand from commercial borrowers. We're currently projecting more than $1.1 billion in total cashflow over the next 12 months off the loan and securities portfolios combined. Non-interest income totaled $9.4 million in the third quarter compared to $24 million in the second quarter when we recorded $13.5 million in pre-tax gains on the sale of our insurance business. We had a small additional gain of $138,000 related to this transaction in the third quarter of 2024. Also contributing to the linked quarter variance was a net loss of $170,000 on tax credit investments in the third quarter. This compares to a net gain of $406,000 in the second quarter related to a historic tax credit investment with a New York state refundable component placed in service in that period. Limited partnership income of $400,000 in the recent quarter was about half the level we recorded in the second quarter, and swap fee income was down $165,000 due to a lower level of back-to-back swap activity in the third quarter compared to the linked quarter. Recurring non-interest income, which we typically provide guidance on, was $9.1 million, down modestly from $9.3 million in the linked quarter. This excludes gains and losses on investment securities, investment tax credits and other assets, as well as limited partnership and insurance income. Investment advisory income, which comes primarily from carrier capital, totaled $2.8 million relatively flat with the second quarter. Our wealth management subsidiary had $3.2 billion in assets under management as of September 30th, 2024, with year-to-date AUM growth of approximately $319 million or 10% coming from a combination of market appreciation and positive net inflows of $44 million as a result of business development efforts. Non-interest expense was $32.5 million in the third quarter of 2024, down modestly from $33 million in the second quarter. This was primarily due to a lower FDIC assessment, partly due to improvement in our leverage ratio, and lower other expenses, including other bank charges and timing of director compensation and donations. We've recorded a provision for credit losses of $3.1 million in the third quarter of 2024, compared to $2 million in the second quarter. The third quarter 2024 provision was driven by a combination of factors, including a slight increase in the national unemployment forecast and higher qualitative factors overall, partially offset by lower loan balances. Income tax expense was $1.1 million in the quarter, representing an effective tax rate of 7.4%. Our year-to-date effective tax rate is 12.6% and within our guided range for the full year of 11% to 13%. Our accumulated other comprehensive loss was $102 million at September 30th, 2024, an improvement of $23.7 million from June 30th. We've reported a TCE ratio at September 30th of 6.93%, and intangible common book value per share of $27.28. Excluding the AOCI impact, the TCE ratio and tangible common book value per share would have been 8.38% and $33.02 respectively. We continue to expect these metrics to return to more normalized levels over time, given the high credit quality and cash flow nature of our investment portfolio. Our core financial performance through the first nine months of the year has been strong and generally in line with our expectations. As mentioned, we've lowered the expected high-end range of full year margin to 2.9% and expect 2024 full year loan growth to come in at the low end of our guided range of 1% to 3%. Additionally, we now expect full-year net charge-offs to fall within a range of 20 to 30 basis points of average loans, down from the 30 to 40 basis points we originally guided. There are no other changes to our previously-published guidance, which you'll find outlined in our latest investor presentation. That concludes my prepared remarks. I'll now turn the call back to Marty.

Thanks, Jack. Amid a continued challenging operating environment, our company has remained intently focused on liquidity, capital, and earnings. The actions we've taken over the course of this year have allowed us to expand capital ratios meaningfully, including a common equity Tier 1 ratio of 10.28%, up 85 basis points from 9.43% at year-end 2023. Many of the strategic actions we've taken, from the sale of our insurance business to adjustments within our indirect business, to our decision to wind down our Banking as a Service offering, have also been focused around supporting our core community banking franchise in our existing footprint. We remain very focused on driving sustainable growth across each of our retail banking, commercial banking, and wealth management business lines and by extension, driving value into the company for the benefit of our shareholders, customers, associates, and communities. That concludes our prepared remarks. Operator, please open the call for questions.

Operator instructions. Our first question comes from Damon DelMonte from KBW.

Just wanted to start off with a question on margin. I appreciate the updated guidance here for the fourth quarter. Jack, I just kind of want to get your thoughts, though, if we have a couple more rate cuts in '24, and we have a more steady flow of 25 basis point cuts in '25, can you just give us a little perspective on how you're thinking about the margin kind of given the cash flow expectations and what you're seeing for loan growth?

Sure. So, I'll just reconfirm that a little over 30% of our loan portfolio is priced off of SOFR prime. And on the commercial side, that adjusts with rate cuts and then SOFR adjusts monthly. On the consumer side, the prime adjustments generally adjust on a monthly basis. And when we provided our margin guidance at the beginning of the year, it was based upon a flat environment. We did some modeling around the impact to net interest income for rate cuts. And we modeled out that we were fairly neutral for the first 50 basis points of cuts. The expectation on that side was that there was going to be a longer lag for deposit repricing. We've actually seen our competitors be a little bit more aggressive in adjusting their rates on a posted basis. And as such, we've reacted a little bit faster than we would have anticipated. So, we've already started to price down segments of the consumer, commercial, municipal, and reciprocal portfolios. And our expectation is that we continue that with additional rate cuts. So, we'll provide full-year guidance on our fourth quarter earnings call for 2025. And my expectation is that we kind of remain in that neutral range in the near term.

Okay. That's helpful. And then with regards to the outlook for loan growth, I think Marty, you made a comment that the commercial pipeline seems to be rebuilding right now. So, does that give you better confidence for maybe mid-single-digits growth as we go through 2025?

It does, Damon. Thanks for the question and participating this morning. It certainly does. I also commented last 18 months, we've been focused on liquidity, capital, and earnings, in light of the operating environment, concerning commentary around credit, etc. So, we've been selective during this period and have signaled to our lending teams and to our customers our interest in starting to rebuild the pipeline and build momentum in support of growth in the range you just talked about for 2025.

Got it. Okay. That's great. And then maybe just one more quick one here for Jack on expenses. It came in lower than what we were looking for this quarter and down a little bit from last quarter. I guess, how do you think about when you reset the button going into '25? Do you think you can maintain a modest low single-digit type growth outlook here, or do you have any anticipated expenditures that you're aware of or can disclose?

We're certainly focused on reinvesting in our core lines of business for future growth, Damon. But our mindset over the past couple of years has been focused on expense management and prudent expense management in that regard. As far as full-year expense guidance is concerned for 2025, again, we'll provide that update with the fourth quarter call. But I would point to our exit from VaaS and the fact that there were 14 full-time employees associated with supporting that line of business, which are going to be redirected towards our more mature lines of business. In my mind, that's cost avoidance where we would have had to have gone out and hired to support growth in future periods.

Got you. Makes sense. Okay. That's all that I had. I appreciate the color this morning. Have a great one. Thanks.

Thanks, Damon.

Our next question comes from David Mirochnick from Stephens.

Good morning. It's David Mirochnick on from Matt here. Can you guys hear me?

We can.

I think I talked about the betas that you kind of saw on the way up, and I would love to hear your thoughts and kind of expectations around the loan to deposit betas on the way down through 2025, and if you expect those figures to be fairly similar to what they were on the upcycle?

Yes. This is Jack. I'll take that question. As I mentioned earlier, when we were doing our modeling at the beginning of the year and considering future rate cuts, we had expected to be a bit slower on downward repricing at least for the first couple of rate cuts on our deposit betas, so a longer lag than we've experienced previously. What we have seen is that we've shortened that lag more than anticipated. The betas, again, are in line with what we would have anticipated. My perspective in the near term, the impact to margin would be neutral. But, as we continue to see the Fed act with additional rate cuts, I see betas catching up to where they would have been historically over time.

Okay. Great. And then just on Slide 23 of the presentation, it looks like in most segments, loans are rolling off at a higher rate than the current rate. I don't think those loans are longer duration, and we'd see some yield pickup there. So, I was just wondering if you could provide some commentary around that?

Yes. So that's been the story as far as our ability to expand margin throughout 2024 with the roll-off yield on the loan portfolio being reinvested at higher rates. We've been pretty selective as far as our pricing requirements for the deals that we've approved this year on the commercial side in order to preserve and expand margin. That philosophy hasn't changed, which is why we've seen a lower level of loan growth maybe than some of our peers as we've been selective in that regard. That story continues, and we continue to be focused on spread maintenance and driving towards expansion on the earning asset side.

I'm sorry if I missed this. In terms of the best wind down, do you expect any one-time costs associated with that?

No material one-time costs.

And we currently have no further questions in the queue. I will turn the call back over to Marty Birmingham for closing remarks.

Thanks very much for your help this morning, operator. Thanks to all who have participated in our call. We look forward to reporting on our results with you in January.

Thank you, everyone, for your participation. You may now disconnect from the call. Have a nice day.