• Financial Institutions, Inc. Announces First Quarter Results

    Source: Nasdaq GlobeNewswire / 27 Apr 2022 16:05:23   America/New_York

    WARSAW, N.Y., April 27, 2022 (GLOBE NEWSWIRE) -- Financial Institutions, Inc. (NASDAQ:FISI) (the “Company” “we” or “us”), parent company of Five Star Bank (the “Bank”), SDN Insurance Agency, LLC (“SDN”), Courier Capital, LLC (“Courier Capital”) and HNP Capital, LLC (“HNP Capital”), today reported financial and operational results for the first quarter ended March 31, 2022.

    Net income for the quarter was $15.0 million compared to $20.7 million in the first quarter of 2021. After preferred dividends, net income available to common shareholders was $14.6 million, or $0.93 per diluted share, compared to $20.3 million, or $1.27 per diluted share, in the first quarter of 2021.

    Primary drivers of the decrease in net income were:

    • A $2.3 million provision for credit losses was recognized in the current quarter compared to a benefit of $2.0 million in the first quarter of 2021. Loan loss provision returned to a more normalized level in the first quarter of 2022 due to the impact of qualitative factors reflecting economic uncertainty associated with higher interest rates and global political unrest, partially offset by low net charge-offs, national unemployment trends and a reduction in overall specific reserve levels.

    • Revenue related to Paycheck Protection Program (“PPP”) loans was $2.5 million lower in the first quarter of 2022 than the first quarter of 2021. PPP loan balances are significantly lower in 2022 as a result of loan forgiveness.

    Pre-tax pre-provision income(1) for the quarter was $20.7 million, a decrease of $3.3 million from the first quarter of 2021.

    “We achieved solid first quarter results with earnings of $15 million, return on average common equity of 12.5% and return on average tangible common equity of 14.8%(1), continuing the positive momentum from record earnings in 2021,” said President and Chief Executive Officer Martin K. Birmingham. “We grew loans and deposits, recognized growth in revenue from our insurance and investment advisory lines of business and continued to benefit from a stable credit environment. Ongoing organic growth across our businesses, coupled with good expense discipline, allowed us to continue making thoughtful investments in people, process and technology to further advance opportunities to deliver BaaS solutions and other transformational digital solutions that empower our customers and support enhanced long-term corporate efficacy in accordance with our strategic plan.

    “We took advantage of available talent to expand our commercial lending platform, adding a team in the Baltimore/Washington, D.C. market. Our strong track record of credit-disciplined loan growth and well-defined strategic and risk frameworks give us confidence in the expected positive outcomes of this exciting expansion beyond our operating footprint. Loan growth in the quarter was positively impacted by the commercial real estate category, which has yet to benefit from our new Mid-Atlantic team that is building a strong pipeline of opportunities.

    “Our Board increased the quarterly common stock dividend by 7.4% in February, following strong earnings performance in 2021 and reflecting confidence in the Company’s strategy and earnings potential. This was our 12th consecutive annual dividend increase, demonstrating a continued commitment to shareholder return.”

    Chief Financial Officer and Treasurer W. Jack Plants II added, “While the company delivered strong core operating results for the quarter, we did experience a $54 million decline in accumulated other comprehensive income, primarily as a result of an increase in the unrealized loss position of the available for sale securities portfolio. A drastic increase in the intermediate maturities of the treasury curve negatively impacted the market valuation of our investment portfolio due to its 5-year duration. We do not believe any component of this portfolio is impaired as it is primarily comprised of agency wrapped mortgage-backed securities (89% of the portfolio) with the implicit and explicit guarantee of the US Government. This unrealized loss position does not impact our forward earnings metrics as we expect these securities to mature at a terminal value equivalent to par.”  

    Commercial Lending Expansion to Baltimore and Washington, D.C.

    On February 22, 2022, Five Star Bank launched a commercial lending platform in Baltimore and Washington, D.C. by taking advantage of experienced and available talent to hire a team of four commercial banking officers. The team is led by John G. Mangan, Commercial Real Estate Executive and Mid-Atlantic President. The Bank’s commercial loan production office is located in Ellicott City (Baltimore), Maryland.

    Net Interest Income and Net Interest Margin

    Net interest income was $39.6 million for the quarter, a decrease of $1.3 million from the fourth quarter of 2021 and an increase of $1.7 million from the first quarter of 2021.

    • Average interest-earning assets for the quarter were $5.17 billion, a decrease of $12.0 million from the fourth quarter of 2021 due to a $103.7 million decrease in Federal Reserve interest-earning cash, partially offset by a $58.0 million increase in investment securities and a $33.7 million increase in total loans. Average interest-earning assets for the quarter were $496.6 million higher than the first quarter of 2021 due to a $505.4 million increase in investment securities and a $69.7 million increase in total loans, partially offset by a $78.5 million decrease in Federal Reserve interest-earning cash.

    Net interest margin was 3.11% as compared to 3.15% in the fourth quarter of 2021 and 3.29% in the first quarter of 2021. Excluding the impact of PPP loans and associated loan origination fees accreted over the term of the loan or upon loan forgiveness, net interest margin was 3.05% in the first quarter of 2022, 2.98% in the fourth quarter of 2021 and 3.15% in the first quarter of 2021.

    • Our net interest margin continues to be impacted by the interest rate environment experienced since the onset of the pandemic, with a flatter yield curve and lower rates. Our excess liquidity position placed further pressure on net interest margin in 2021, resulting in higher average balances of interest-earning cash and investment securities, albeit at lower comparative yields, based on prevailing market conditions. We shifted excess liquidity from interest-earning cash to investment securities with the intention of reducing net interest margin compression. While market interest rates increased during the first quarter of 2022, our net interest margin profile continued to be impacted by the rate environment experienced over the past two years. We expect the investment securities portfolio to serve as a source of liquidity to fund future loan growth, through both portfolio cash flow and collateral capacity at the Federal Home Loan Bank.

    Noninterest Income

    Noninterest income was $11.3 million for the quarter, a decrease of $352 thousand from the fourth quarter of 2021 and a decrease of $1.6 million from the first quarter of 2021.

    • Insurance income of $2.1 million was $754 thousand higher than the fourth quarter of 2021 primarily as a result of the timing of contingent revenue received in the first quarter each year and growth in the commercial lines revenue. The increase of $701 thousand from the first quarter of 2021 was driven by two 2021 bolt-on acquisitions, growth in the legacy SDN business (including the impact of increasing insurance premiums), and higher contingent revenue in 2022.
    • Investment advisory income of $3.0 million was relatively unchanged from the fourth quarter of 2021 and $269 thousand higher than the first quarter of 2021 due to an increase in assets under management driven by a combination of market gains, new customer accounts and contributions to existing accounts.
    • Income from investments in limited partnerships of $795 thousand was $501 thousand higher than the fourth quarter of 2021 and $60 thousand lower than the first quarter of 2021. The Company has made several investments in limited partnerships, primarily small business investment companies, and accounts for these investments under the equity method. Income from these investments fluctuates based on the maturity and performance of the underlying investments.
    • Income from derivative instruments, net was $519 thousand, $516 thousand lower than the fourth quarter of 2021 and $1.4 million lower than the first quarter of 2021. Income from derivative instruments, net is based on the number and value of interest rate swap transactions executed during the quarter combined with the impact of changes in the fair market value of borrower-facing trades.
    • Net (loss) gain on sale of loans held for sale was a $91 thousand loss in the quarter compared to gains of $482 thousand in the fourth quarter of 2021 and $1.1 million in the first quarter of 2021. Sales volumes and margins moderated substantially in the first quarter of 2022, following historically high levels in 2021. The current period loss was a result of the current fair market value of pipeline commitments, negatively impacted by interest rate changes.
    • A net loss on tax credit investments of $227 thousand was recognized in the first quarter as compared to $493 thousand in the fourth quarter of 2021 and $85 thousand in the first quarter of 2021. These losses include the amortization of tax credit investments, partially offset by New York investment tax credits that are refundable and recorded in noninterest income.

    Noninterest Expense

    Noninterest expense was $30.1 million in the quarter compared to $29.9 million in the fourth quarter of 2021 and $26.7 million in the first quarter of 2021.

    • Salaries and employee benefits expense of $16.6 million was $505 thousand higher than the fourth quarter of 2021 primarily as a result of investments in personnel, merit increases and promotions, and the impact of higher payroll taxes typically experienced in the first quarter each year. Expense was $2.2 million higher than the first quarter of 2021 primarily due to investments in personnel, the impact of 2021 acquisitions and higher incentive compensation and commissions.
    • Occupancy and equipment expense of $3.8 million was $113 thousand lower than the fourth quarter of 2021 primarily as a result of the timing of equipment purchases and $374 thousand higher than the first quarter of 2021 primarily due to the timing of routine repairs and maintenance in the retail branch network and expenses related to two Five Star Bank branches opened in June 2021.
    • Computer and data processing expense of $4.0 million was relatively unchanged compared to the fourth quarter of 2021. It was $858 thousand higher than the first quarter of 2021 as a result of the Company’s strategic investments in technology, including digital banking initiatives and a customer relationship management solution across all lines of business.

    Income Taxes

    Income tax expense was $3.4 million for the quarter compared to $4.2 million in the fourth quarter of 2021 and $5.3 million in the first quarter of 2021. The Company recognized federal and state tax benefits related to tax credit investments placed in service and/or amortized during the first quarter of 2022, fourth quarter of 2021, and first quarter of 2021, resulting in income tax expense reductions of approximately $589 thousand, $1.7 million, and $244 thousand, respectively.

    The effective tax rate was 18.7% for the first quarter of 2022, 17.7% for the fourth quarter of 2021 and 20.5% for the first quarter of 2021. The year-over-year decrease in effective tax rates is the result of lower pre-tax earnings in the current quarter. The Company’s effective tax rates differ from statutory rates because of interest income from tax-exempt securities, earnings on company owned life insurance and the impact of tax credit investments.

    Balance Sheet and Capital Management

    Total assets were $5.63 billion at March 31, 2022, up $109.7 million from December 31, 2021, and up $301.4 million from March 31, 2021.

    Investment securities were $1.33 billion at March 31, 2022, down $53.6 million from December 31, 2021, and up $320.9 million from March 31, 2021. The Company’s primary investment strategy for the past several quarters has been to deploy excess liquidity into cash flowing agency mortgage-backed securities, reallocating excess Federal Reserve cash balances into securities demonstrating higher relative yields. Securities purchases were made early in the quarter, increasing the average balance compared to the fourth quarter of 2021. The mortgage-backed securities portfolio generated cash flow that was deployed to fund loan originations, reducing the balance by quarter-end.

    Total loans were $3.73 billion at March 31, 2022, up $54.2 million, or 1.5%, from December 31, 2021, and up $79.3 million, or 2.2%, from March 31, 2021.

    • Commercial business loans totaled $625.1 million, down $13.2 million, or 2.1%, from December 31, 2021, and down $191.8 million, or 23.5%, from March 31, 2021. Declines were driven by the forgiveness or repayment of PPP loans. PPP loans net of deferred fees are included in commercial business loans and were $31.4 million at March 31, 2022, $55.3 million at December 31, 2021, and $255.6 million at March 31, 2021. Accordingly, commercial business loans excluding the impact of PPP loans increased 1.9% from December 31, 2021 and increased 5.8% from March 31, 2021.
    • Commercial mortgage loans totaled $1.43 billion, up $22.0 million, or 1.6%, from December 31, 2021, and up $157.9 million, or 12.4%, from March 31, 2021.
    • Residential real estate loans totaled $574.9 million, down $2.4 million, or 0.4%, from December 31, 2021, and down $26.7 million, or 4.4%, from March 31, 2021.
    • Consumer indirect loans totaled $1.01 billion, up $49.4 million, or 5.2%, from December 31, 2021 and up $149.6 million, or 17.4%, from March 31, 2021.

    Total loans, excluding PPP loans net of deferred fees, were $3.70 billion at March 31, 2022, up $78.2 million, or 2.2%, from December 31, 2021, and up $303.5 million, or 8.9%, from March 31, 2021.

    Total deposits were $5.00 billion at March 31, 2022, $175.8 million higher than December 31, 2021, and $286.9 million higher than March 31, 2021. The increase from December 31, 2021, was primarily the result of a seasonal increase in public deposits, which occurred late in the first quarter, partially offset by lower non-public and reciprocal deposits. The increase from March 31, 2021, was the result of growth in all deposit categories — public, non-public and reciprocal. Public deposit balances represented 26% of total deposits at March 31, 2022, compared to 23% at December 31, 2021, and 24% at March 31, 2021.

    Short-term borrowings were $0 at March 31, 2022, compared to $30.0 million at December 31, 2021, and $0 at March 31, 2021. Short-term borrowings and brokered deposits have historically been utilized to manage the seasonality of public deposits.

    Shareholders’ equity was $446.8 million at March 31, 2022, compared to $505.1 million at December 31, 2021, and $466.3 million at March 31, 2021. The decline in the first quarter of 2022 was primarily the result of a decrease in accumulated other comprehensive income (loss) (“AOCI”) associated with unrealized losses in the available for sale securities portfolio and, to a lesser extent, the impact of our stock repurchase program. Management believes the unrealized losses are temporary in nature given the high quality of our agency mortgage-backed securities portfolio. The portfolio continues to generate cash flow and the bonds ultimately mature at a terminal value equivalent to par. Common book value per share was $28.08 at March 31, 2022, a decrease of $2.90 or 9.4% from $30.98 at December 31, 2021, and a decrease of $0.28 or 1.0% from $28.36 at March 31, 2021. Tangible common book value per share(1) was $23.23 at March 31, 2022, a decrease of $3.03 or 11.5% from $26.26 at December 31, 2021, and a decrease of $0.43 or 1.8% from $23.66 at March 31, 2021.

    On November 4, 2020, the Company announced a stock repurchase program for up to 801,879 shares of common stock, or approximately 5% of the Company’s outstanding common shares. During the first and fourth quarters of 2021, the Company repurchased a total of 340,688 shares for an average repurchase price of $26.44 per share, inclusive of transaction costs. In the first quarter of 2022, 461,191 shares were repurchased for an average price of $31.99 per share, completing the program.

    The common equity to assets ratio was 7.63% at March 31, 2022 compared to 8.84% at December 31, 2021, and 8.42% at March 31, 2021. Tangible common equity to tangible assets(1), or the TCE ratio, was 6.40%, 7.59% and 7.13% at March 31, 2022, December 31, 2021, and March 31, 2021, respectively. The primary driver of declines in both ratios compared to prior periods was the decrease in AOCI and impact of share repurchases.

    During the first quarter of 2022, the Company declared a common stock dividend of $0.29 per common share, an increase of 7.4% over the previous dividend. The dividend returned 31% of first quarter net income to common shareholders.

    The Company’s regulatory capital ratios at March 31, 2022, compared to the prior quarter and prior year:

    • Leverage Ratio was 8.13% compared to 8.23% and 8.35% at December 31, 2021, and March 31, 2021, respectively.
    • Common Equity Tier 1 Capital Ratio was 9.85% compared to 10.28% and 10.22% at December 31, 2021, and March 31, 2021, respectively.
    • Tier 1 Capital Ratio was 10.24% compared to 10.68% and 10.66% at December 31, 2021, and March 31, 2021, respectively.
    • Total Risk-Based Capital Ratio was 12.72% compared to 13.12% and 13.53% at December 31, 2021, and March 31, 2021, respectively.

    Credit Quality

    Non-performing loans were $9.6 million at March 31, 2022 as compared to $12.2 million at December 31, 2021, and $9.7 million at March 31, 2021. Net charge-offs were $787 thousand in the quarter as compared $4.7 million in the fourth quarter of 2021 and $887 thousand in the first quarter of 2021. The ratio of annualized net charge-offs to average loans was 0.09% in the current quarter, 0.51% in the fourth quarter of 2021 and 0.10% in the first quarter of 2021. One commercial mortgage loan was downgraded to non-performing status with a $3.8 million partial charge-off in the fourth quarter of 2021, contributing to the increase in non-performing loans and charge-offs in that period.

    Foreclosed assets were $0 at March 31, 2022 and December 31, 2021, compared to $3.0 million at March 31, 2021. The decrease from the prior year period was primarily the result of the sale of an asset in the second quarter of 2021 on which foreclosure occurred in the third quarter of 2020.

    At March 31, 2022, the allowance for credit losses - loans to total loans ratio was 1.10% compared to 1.08% at December 31, 2021, and 1.36% at March 31, 2021. PPP loans are fully guaranteed by the Small Business Administration. Excluding PPP loans, the March 31, 2022, allowance for credit losses - loans to total loans ratio(1) was 1.11%, an increase of two basis points from 1.09% at December 31, 2021, and a decrease of 36 basis points from 1.47% at March 31, 2021.

    Provision (benefit) for credit losses - loans was a $2.1 million provision in the quarter compared to a benefit of $1.1 million in the fourth quarter of 2021 and a benefit of $1.7 million in the first quarter of 2021. Changes in the allowance for unfunded commitments, also included in provision (benefit) for credit losses, were a $242 thousand increase in the first quarter of 2022, a $104 thousand decrease in the fourth quarter of 2021, and a $276 thousand decrease in the first quarter of 2021.

    Provision was a benefit in each quarter of 2021 as a result of continued improvement in the national unemployment forecast, the designated loss driver for the Company’s current expected credit loss standard model, and positive trends in qualitative factors, resulting in the release of credit loss reserves. Loan loss provision returned to a more normalized level in the first quarter of 2022 due to the impact of qualitative factors reflecting economic uncertainty associated with higher interest rates and global political unrest, partially offset by low net charge-offs, national unemployment trends and a reduction in overall specific reserve levels.

    The Company has remained strategically focused on the importance of credit discipline, allocating what we believe are the necessary resources to credit and risk management functions as the loan portfolio has grown. The total non-performing loans to total loans ratio was 0.26% at March 31, 2022, 0.33% at December 31, 2021, and 0.27% at March 31, 2021. The ratio of allowance for credit losses - loans to non-performing loans was 426% at March 31, 2022, 326% at December 31, 2021, and 514% at March 31, 2021.

    Subsequent Events

    The Company is required, under generally accepted accounting principles, to evaluate subsequent events through the filing of its consolidated financial statements for the quarter ended March 31, 2022, on Form 10-Q. As a result, the Company will continue to evaluate the impact of any subsequent events on critical accounting assumptions and estimates made as of March 31, 2022, and will adjust amounts preliminarily reported, if necessary.

    Conference Call

    The Company will host an earnings conference call and audio webcast on April 28, 2022, at 8:30 a.m. Eastern Time. The call will be hosted by Martin K. Birmingham, President and Chief Executive Officer, and W. Jack Plants II, Chief Financial Officer and Treasurer. The live webcast will be available in listen-only mode on the Company’s website at www.fiiwarsaw.com. Within the United States, listeners may also access the call by dialing 1 (844) 200 6205 and providing the access code 647511. The webcast replay will be available on the Company’s website for at least 30 days.

    About Financial Institutions, Inc.

    Financial Institutions, Inc. provides diversified financial services through its subsidiaries Five Star Bank, SDN, Courier Capital and HNP Capital. Five Star Bank provides a wide range of consumer and commercial banking and lending services to individuals, municipalities and businesses through a network of more than 45 offices throughout Western and Central New York State and a commercial loan production office in Ellicott City (Baltimore), Maryland. SDN provides a broad range of insurance services to personal and business clients. Courier Capital and HNP Capital provide customized investment management, investment consulting and retirement plan services to individuals, businesses, institutions, foundations and retirement plans. Financial Institutions, Inc. and its subsidiaries employ more than 600 individuals. The Company’s stock is listed on the Nasdaq Global Select Market under the symbol FISI. Additional information is available at www.fiiwarsaw.com.

    Non-GAAP Financial Information

    In addition to results presented in accordance with U.S. generally accepted accounting principles (“GAAP”), this press release contains certain non-GAAP financial measures. A reconciliation of these non-GAAP measures to GAAP measures is included in Appendix A to this document.

    The Company believes that providing certain non-GAAP financial measures provides investors with information useful in understanding our financial performance, performance trends and financial position. Our management uses these measures for internal planning and forecasting purposes and we believe that our presentation and discussion, together with the accompanying reconciliations, allows investors, security analysts and other interested parties to view our performance and the factors and trends affecting our business in a manner similar to management. These non-GAAP measures should not be considered a substitute for GAAP measures and we strongly encourage investors to review our consolidated financial statements in their entirety and not to rely on any single financial measure to evaluate the Company. Non-GAAP financial measures have inherent limitations, are not uniformly applied and are not audited. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures having the same or similar names.

    Safe Harbor Statement

    This press release may contain forward-looking statements as defined by Section 21E of the Securities Exchange Act of 1934, as amended, that involve significant risks and uncertainties. In this context, forward-looking statements often address our expected future business and financial performance and financial condition, and often contain words such as “believe,” “estimate,” “expect,” “forecast,” “intend,” “plan,” “preliminary,” “should,” or “will.” Statements herein are based on certain assumptions and analyses by the Company and factors it believes are appropriate in the circumstances. Actual results could differ materially from those contained in or implied by such statements for a variety of reasons including, but not limited to: the macroeconomic volatility related to the impact of the COVID-19 pandemic and global political unrest; changes in interest rates; inflation; the Company’s ability to implement its strategic plan, including by expanding its commercial lending footprint and integrating its acquisitions; whether the Company experiences greater credit losses than expected; whether the Company experiences breaches of its, or third party, information systems; the attitudes and preferences of the Company’s customers; legal and regulatory proceedings and related matters, such as the action described in our reports filed with the SEC, could adversely affect us and the banking industry in general; the competitive environment; fluctuations in the fair value of securities in its investment portfolio; changes in the regulatory environment and the Company’s compliance with regulatory requirements; and general economic and credit market conditions nationally and regionally. Consequently, all forward-looking statements made herein are qualified by these cautionary statements and the cautionary language in the Company’s Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q and other documents filed with the SEC. Except as required by law, the Company undertakes no obligation to revise these statements following the date of this press release.

    (1) See Appendix A — Reconciliation to Non-GAAP Financial Measures for the computation of this Non-GAAP measure.

    For additional information contact:

    Shelly J. Doran
    Director of Investor and External Relations
    (585) 627-1362
    sjdoran@five-starbank.com


    FINANCIAL INSTITUTIONS, INC.
    Selected Financial Information (Unaudited)
    (Amounts in thousands, except per share amounts)

      2022  2021 
      March 31,  December 31,  September 30,  June 30,  March 31, 
    SELECTED BALANCE SHEET DATA:               
    Cash and cash equivalents $170,404  $79,112  $288,426  $206,387  $344,790 
    Investment securities:               
    Available for sale  1,119,362   1,178,515   1,097,950   902,845   753,489 
    Held-to-maturity, net  211,173   205,581   218,135   218,858   256,127 
    Total investment securities  1,330,535   1,384,096   1,316,085   1,121,703   1,009,616 
    Loans held for sale  5,544   6,202   5,916   3,929   5,685 
    Loans:               
    Commercial business  625,141   638,293   686,191   731,208   816,936 
    Commercial mortgage  1,434,759   1,412,788   1,348,550   1,315,404   1,276,841 
    Residential real estate loans  574,895   577,299   584,091   590,303   601,609 
    Residential real estate lines  76,860   78,531   79,196   80,781   85,362 
    Consumer indirect  1,007,404   958,048   940,537   899,018   857,804 
    Other consumer  14,589   14,477   15,334   15,454   15,834 
    Total loans  3,733,648   3,679,436   3,653,899   3,632,168   3,654,386 
    Allowance for credit losses - loans  40,966   39,676   45,444   46,365   49,828 
    Total loans, net  3,692,682   3,639,760   3,608,455   3,585,803   3,604,558 
    Total interest-earning assets  5,266,351   5,105,608   5,189,075   4,906,087   4,963,264 
    Goodwill and other intangible assets, net  74,146   74,400   74,659   74,262   74,528 
    Total assets  5,630,498   5,520,779   5,623,193   5,295,102   5,329,056 
    Deposits:               
    Noninterest-bearing demand  1,079,949   1,107,561   1,144,852   1,121,827   1,099,608 
    Interest-bearing demand  990,404   864,528   893,976   799,299   873,390 
    Savings and money market  2,015,384   1,933,047   2,015,855   1,796,813   1,826,621 
    Time deposits  917,195   921,954   920,280   941,282   916,395 
    Total deposits  5,002,932   4,827,090   4,974,963   4,659,221   4,716,014 
    Short-term borrowings  -   30,000   -   -   - 
    Long-term borrowings, net  73,989   73,911   73,834   73,756   73,679 
    Total interest-bearing liabilities  3,996,972   3,823,440   3,903,945   3,611,150   3,690,085 
    Shareholders’ equity  446,846   505,142   494,013   487,126   466,284 
    Common shareholders’ equity  429,554   487,850   476,721   469,834   448,962 
    Tangible common equity (1)  355,408   413,450   402,062   395,572   374,434 
    Accumulated other comprehensive loss $(67,094) $(13,207) $(12,116) $(5,934) $(10,572)
                    
    Common shares outstanding  15,299   15,746   15,842   15,842   15,829 
    Treasury shares  800   354   258   258   271 
    CAPITAL RATIOS AND PER SHARE DATA:               
    Leverage ratio  8.13%  8.23%  8.36%  8.16%  8.35%
    Common equity Tier 1 capital ratio  9.85%  10.28%  10.24%  10.38%  10.22%
    Tier 1 capital ratio  10.24%  10.68%  10.66%  10.81%  10.66%
    Total risk-based capital ratio  12.72%  13.12%  13.25%  13.54%  13.53%
    Common equity to assets  7.63%  8.84%  8.48%  8.87%  8.42%
    Tangible common equity to tangible assets (1)  6.40%  7.59%  7.25%  7.58%  7.13%
                    
    Common book value per share $28.08  $30.98  $30.09  $29.66  $28.36 
    Tangible common book value per share (1) $23.23  $26.26  $25.38  $24.97  $23.66 


    ____________
    (1)See Appendix A — Reconciliation to Non-GAAP Financial Measures for the computation of this Non-GAAP measure.



    FINANCIAL INSTITUTIONS, INC.
    Selected Financial Information (Unaudited)
    (Amounts in thousands, except per share amounts)

      2022  2021 
      First  Fourth  Third  Second  First 
      Quarter  Quarter  Quarter  Quarter  Quarter 
    SELECTED INCOME STATEMENT               
    DATA:               
    Interest income $42,351  $43,753  $41,227  $40,952  $41,273 
    Interest expense  2,793   2,885   2,954   3,220   3,416 
    Net interest income  39,558   40,868   38,273   37,732   37,857 
    Provision (benefit) for credit losses  2,319   (1,192)  (541)  (4,622)  (1,981)
    Net interest income after provision
    for credit losses    		  37,239   42,060   38,814   42,354   39,838 
    Noninterest income:               
    Service charges on deposits  1,369   1,490   1,502   1,287   1,292 
    Insurance income  2,097   1,343   1,864   1,147   1,396 
    Card interchange income  1,952   2,228   2,118   2,194   1,958 
    Investment advisory  3,041   3,045   2,969   2,886   2,772 
    Company owned life insurance  833   821   776   693   657 
    Investments in limited partnerships  795   294   694   238   855 
    Loan servicing  109   122   105   91   97 
    Income (loss) from derivative instruments, net  519   1,035   377   (592)  1,875 
    Net (loss) gain on sale of loans held for sale  (91)  482   600   790   1,078 
    Net gain on investment securities  -   -   -   (3)  74 
    Net gain (loss) on other assets  -   155   138   153   (5)
    Net (loss) gain on tax credit investments  (227)  (493)  (129)  276   (85)
    Other  925   1,152   1,069   1,030   995 
    Total noninterest income  11,322   11,674   12,083   10,190   12,959 
    Noninterest expense:               
    Salaries and employee benefits  16,616   16,111   15,798   14,519   14,465 
    Occupancy and equipment  3,756   3,869   3,834   3,286   3,382 
    Professional services  1,656   1,437   1,600   1,603   1,895 
    Computer and data processing  3,979   3,952   3,579   3,460   3,121 
    Supplies and postage  541   408   447   430   484 
    FDIC assessments  513   682   697   480   765 
    Advertising and promotions  380   470   474   436   324 
    Amortization of intangibles  254   259   264   266   271 
    Restructuring charges  -   111   -   -   - 
    Other  2,440   2,598   2,476   2,464   2,033 
    Total noninterest expense  30,135   29,897   29,169   26,944   26,740 
    Income before income taxes  18,426   23,837   21,728   25,600   26,057 
    Income tax expense  3,443   4,225   4,553   5,400   5,347 
    Net income  14,983   19,612   17,175   20,200   20,710 
    Preferred stock dividends  365   365   364   366   365 
    Net income available to common shareholders $14,618  $19,247  $16,811  $19,834  $20,345 
    FINANCIAL RATIOS:               
    Earnings per share – basic $0.94  $1.22  $1.06  $1.25  $1.28 
    Earnings per share – diluted $0.93  $1.21  $1.05  $1.25  $1.27 
    Cash dividends declared on common stock $0.29  $0.27  $0.27  $0.27  $0.27 
    Common dividend payout ratio  30.85%  22.13%  25.47%  21.60%  21.09%
    Dividend yield (annualized)  3.90%  3.37%  3.49%  3.61%  3.62%
    Return on average assets  1.09%  1.39%  1.27%  1.52%  1.66%
    Return on average equity  12.35%  15.55%  13.74%  17.01%  17.92%
    Return on average common equity  12.49%  15.81%  13.94%  17.34%  18.28%
    Return on average tangible common equity (1)  14.81%  18.69%  16.50%  20.69%  21.88%
    Efficiency ratio (2)  59.06%  56.76%  57.76%  56.02%  52.51%
    Effective tax rate  18.7%  17.7%  21.0%  21.1%  20.5%


    ____________
    (1)See Appendix A – Reconciliation to Non-GAAP Financial Measures for the computation of this Non-GAAP measure.
    (2)The efficiency ratio is calculated by dividing noninterest expense by net revenue, i.e., the sum of net interest income (fully taxable equivalent) and noninterest income before net gains on investment securities. This is a banking industry measure not required by GAAP.


    FINANCIAL INSTITUTIONS, INC.
    Selected Financial Information (Unaudited)
    (Amounts in thousands)

      2022  2021 
      First  Fourth  Third  Second  First 
      Quarter  Quarter  Quarter  Quarter  Quarter 
    SELECTED AVERAGE BALANCES:               
    Federal funds sold and interest-earning deposits $44,559  $148,293  $157,229  $249,312  $123,042 
    Investment securities (1)  1,419,947   1,361,898   1,177,237   1,056,898   914,569 
    Loans:               
    Commercial business  627,915   649,926   700,797   791,412   798,866 
    Commercial mortgage  1,431,933   1,392,375   1,331,063   1,302,136   1,284,290 
    Residential real estate loans  581,021   586,358   588,585   595,925   602,866 
    Residential real estate lines  77,610   78,594   79,766   82,926   87,681 
    Consumer indirect  969,441   946,551   917,402   878,884   842,873 
    Other consumer  14,531   14,997   14,718   15,356   16,167 
    Total loans  3,702,451   3,668,801   3,632,331   3,666,639   3,632,743 
    Total interest-earning assets  5,166,957   5,178,992   4,966,797   4,972,849   4,670,354 
    Goodwill and other intangible assets, net  74,287   74,544   74,470   74,412   74,214 
    Total assets  5,560,316   5,582,987   5,368,054   5,340,745   5,045,180 
    Interest-bearing liabilities:               
    Interest-bearing demand  923,425   880,723   796,371   842,832   790,996 
    Savings and money market  1,948,050   1,997,508   1,876,394   1,856,659   1,724,577 
    Time deposits  927,886   923,080   908,351   935,885   863,924 
    Short-term borrowings  24,672   982   -   -   1,178 
    Long-term borrowings, net  73,942   73,864   73,786   73,709   73,636 
    Total interest-bearing liabilities  3,897,975   3,876,157   3,654,902   3,709,085   3,454,311 
    Noninterest-bearing demand deposits  1,083,506   1,134,100   1,149,120   1,091,490   1,044,733 
    Total deposits  4,882,867   4,935,411   4,730,236   4,726,866   4,424,230 
    Total liabilities  5,068,464   5,082,583   4,872,180   4,864,559   4,576,545 
    Shareholders’ equity  491,852   500,404   495,874   476,186   468,635 
    Common equity  474,560   483,112   478,582   458,868   451,311 
    Tangible common equity (2) $400,273  $408,568  $404,112  $384,456  $377,097 
    Common shares outstanding:               
    Basic  15,577   15,815   15,837   15,825   15,889 
    Diluted  15,699   15,928   15,936   15,913   15,972 
    SELECTED AVERAGE YIELDS:
    (Tax equivalent basis)    		               
    Investment securities  1.74%  1.65%  1.72%  1.77%  1.91%
    Loans  3.97%  4.14%  3.96%  3.98%  4.13%
    Total interest-earning assets  3.32%  3.37%  3.31%  3.31%  3.59%
    Interest-bearing demand  0.12%  0.14%  0.15%  0.14%  0.13%
    Savings and money market  0.16%  0.16%  0.17%  0.19%  0.21%
    Time deposits  0.28%  0.30%  0.35%  0.43%  0.51%
    Short-term borrowings  0.45%  0.35%  0.00%  0.00%  41.07%
    Long-term borrowings, net  5.74%  5.74%  5.75%  5.73%  5.77%
    Total interest-bearing liabilities  0.29%  0.30%  0.32%  0.35%  0.40%
    Net interest rate spread  3.03%  3.07%  2.99%  2.96%  3.19%
    Net interest margin  3.11%  3.15%  3.07%  3.06%  3.29%


    ____________
    (1)Includes investment securities at adjusted amortized cost.
    (2)See Appendix A – Reconciliation to Non-GAAP Financial Measures for the computation of this Non-GAAP measure.

       

    FINANCIAL INSTITUTIONS, INC.
    Selected Financial Information (Unaudited)
    (Amounts in thousands)

      2022  2021 
      First  Fourth  Third  Second  First 
      Quarter  Quarter  Quarter  Quarter  Quarter 
    ASSET QUALITY DATA:               
    Allowance for Credit Losses - Loans               
    Beginning balance $39,676  $45,444  $46,365  $49,828  $52,420 
    Net loan charge-offs (recoveries):               
    Commercial business  (37)  177   50   (287)  (152)
    Commercial mortgage  (1)  3,618   -   (7)  203 
    Residential real estate loans  (5)  32   21   (3)  6 
    Residential real estate lines  (5)  11   60   -   70 
    Consumer indirect  550   674   265   (426)  743 
    Other consumer  285   168   191   329   17 
    Total net charge-offs (recoveries)  787   4,680   587   (394)  887 
    Provision (benefit) for credit losses - loans  2,077   (1,088)  (334)  (3,857)  (1,705)
    Ending balance $40,966  $39,676  $45,444  $46,365  $49,828 
                    
    Net charge-offs (recoveries) to average loans (annualized):               
    Commercial business  -0.02%  0.11%  0.03%  -0.15%  -0.08%
    Commercial mortgage  0.00%  1.03%  0.00%  0.00%  0.06%
    Residential real estate loans  0.00%  0.02%  0.01%  0.00%  0.00%
    Residential real estate lines  -0.03%  0.05%  0.30%  0.00%  0.32%
    Consumer indirect  0.23%  0.28%  0.11%  -0.19%  0.36%
    Other consumer  7.95%  4.43%  5.15%  8.58%  0.44%
    Total loans  0.09%  0.51%  0.06%  -0.04%  0.10%
                    
    Supplemental information (1)               
    Non-performing loans:               
    Commercial business $990  $1,399  $1,046  $1,555  $1,742 
    Commercial mortgage  3,838   6,414   874   885   3,402 
    Residential real estate loans  2,878   2,373   2,457   2,615   2,519 
    Residential real estate lines  128   200   192   280   256 
    Consumer indirect  1,771   1,780   2,104   1,250   1,482 
    Other consumer  12   -   3   50   287 
    Total non-performing loans  9,617   12,166   6,676   6,635   9,688 
    Foreclosed assets  -   -   -   646   2,966 
    Total non-performing assets $9,617  $12,166  $6,676  $7,281  $12,654 
                    
    Total non-performing loans to total loans  0.26%  0.33%  0.18%  0.18%  0.27%
    Total non-performing assets to total assets  0.17%  0.22%  0.12%  0.14%  0.24%
    Allowance for credit losses - loans to total loans  1.10%  1.08%  1.24%  1.28%  1.36%
    Allowance for credit losses - loans to non-performing loans  426%  326%  681%  699%  514%


    ____________
    (1)At period end.


    FINANCIAL INSTITUTIONS, INC.
    Appendix A — Reconciliation to Non-GAAP Financial Measures (Unaudited)
    (In thousands, except per share amounts)

      2022  2021 
      First  Fourth  Third  Second  First 
      Quarter  Quarter  Quarter  Quarter  Quarter 
    Ending tangible assets:               
    Total assets $5,630,498  $5,520,779  $5,623,193  $5,295,102  $5,329,056 
    Less: Goodwill and other intangible assets, net  74,146   74,400   74,659   74,262   74,528 
    Tangible assets $5,556,352  $5,446,379  $5,548,534  $5,220,840  $5,254,528 
                    
    Ending tangible common equity:               
    Common shareholders’ equity $429,554  $487,850  $476,721  $469,834  $448,962 
    Less: Goodwill and other intangible assets, net  74,146   74,400   74,659   74,262   74,528 
    Tangible common equity $355,408  $413,450  $402,062  $395,572  $374,434 
                    
    Tangible common equity to tangible
    assets (1)    		  6.40%  7.59%  7.25%  7.58%  7.13%
                    
    Common shares outstanding  15,299   15,747   15,842   15,842   15,829 
    Tangible common book value per share (2) $23.23  $26.26  $25.38  $24.97  $23.66 
                    
    Average tangible assets:               
    Average assets $5,560,316  $5,582,987  $5,368,054  $5,340,745  $5,045,180 
    Less: Average goodwill and other intangible assets, net  74,287   74,544   74,470   74,412   74,214 
    Average tangible assets $5,486,029  $5,508,443  $5,293,584  $5,266,333  $4,970,966 
                    
    Average tangible common equity:               
    Average common equity $474,560  $483,112  $478,582  $458,868  $451,311 
    Less: Average goodwill and other intangible assets, net  74,287   74,544   74,470   74,412   74,214 
    Average tangible common equity $400,273  $408,568  $404,112  $384,456  $377,097 
                    
    Net income available to common shareholders $14,618  $19,247  $16,811  $19,834  $20,345 
    Return on average tangible common equity (3)  14.81%  18.69%  16.50%  20.69%  21.88%
                    
    Pre-tax pre-provision income:               
    Net income $14,983  $19,612  $17,175  $20,200  $20,710 
    Add: Income tax expense  3,443   4,225   4,553   5,400   5,347 
    Add: Provision (benefit) for credit losses  2,319   (1,192)  (541)  (4,622)  (1,981)
    Pre-tax pre-provision income $20,745  $22,645  $21,187  $20,978  $24,076 
                    
    Total loans excluding PPP loans:               
    Total loans $3,733,648  $3,679,436  $3,653,899  $3,632,168  $3,654,386 
    Less: Total PPP loans  31,399   55,344   116,653   171,942   255,595 
    Total loans excluding PPP loans $3,702,249  $3,624,092  $3,537,246  $3,460,226  $3,398,791 
                    
    Allowance for credit losses - loans $40,966  $39,676  $45,444  $46,365  $49,828 
    Allowance for credit losses - loans to total loans excluding PPP loans (4)  1.11%  1.09%  1.28%  1.34%  1.47%


    ____________
    (1)Tangible common equity divided by tangible assets.
    (2)Tangible common equity divided by common shares outstanding.
    (3)Net income available to common shareholders (annualized) divided by average tangible common equity.
    (4)Allowance for credit losses – loans divided by total loans excluding PPP loans.


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