• Financial Institutions, Inc. Announces Second Quarter 2024 Financial Results

    المصدر: Nasdaq GlobeNewswire / 25 يوليو 2024 16:05:01   America/New_York

    WARSAW, N.Y., July 25, 2024 (GLOBE NEWSWIRE) -- Financial Institutions, Inc. (NASDAQ: FISI) (the "Company," "we" or "us"), parent company of Five Star Bank (the "Bank") and Courier Capital, LLC ("Courier Capital"), today reported financial and operational results for the second quarter ended June 30, 2024.

    Net income was $25.6 million in the second quarter of 2024, compared to $2.1 million in the first quarter of 2024 and $14.4 million in the second quarter of 2023. After preferred dividends, net income available to common shareholders was $25.3 million, or $1.62 per diluted share, in the second quarter of 2024, compared to $1.7 million, or $0.11 per diluted share, in the first quarter of 2024, and $14.0 million, or $0.91 per diluted share, in the second quarter of 2023. Second quarter 2024 financial results benefited from a $13.5 million pre-tax gain associated with the Company's April 1, 2024 sale of the assets of SDN Insurance Agency, LLC, while the linked first quarter results were negatively impacted by the Company's previously disclosed deposit-related fraud event, for which it recorded an $18.4 million pre-tax loss for deposit-related charged-off items and approximately $660 thousand of legal and consulting expenses, recorded in professional services expenses. In the second quarter of 2024, the Company incurred approximately $371 thousand of professional services expenses related to this event. The Bank continues to aggressively pursue its legal rights and seek any and all recovery avenues. In the second quarter of 2024, the Company recorded a small recovery of approximately $143 thousand. The Company recorded a provision for credit losses of $2.0 million in the current quarter, compared to a benefit for credit losses of $5.5 million in the linked quarter and a provision of $3.2 million in the prior year quarter.

    Second Quarter 2024 Key Results:

    • The Company announced and completed the sale of the assets of SDN Insurance Agency, LLC on April 1, 2024, resulting in a $13.5 million pre-tax gain that contributed to noninterest income of $24.0 million for the current quarter.
    • Net interest margin was 2.87% for the second quarter of 2024, up nine basis points compared to the first quarter of 2024, while net interest income of $41.2 million increased by $1.1 million, or 2.8%, from the linked quarter.
    • Total loans were $4.46 billion at June 30, 2024, reflecting an increase of $19.4 million, or 0.4%, from March 31, 2024 and an increase of $63.7 million, or 1.4%, from June 30, 2023.
    • Total deposits were $5.13 billion at June 30, 2024, down $263.4 million, or 4.9%, from March 31, 2024, and up $98.5 million, or 2.0%, from June 30, 2023. The linked quarter decrease was due primarily to seasonality of public deposits, coupled with a reduction in brokered CDs.
    • Noninterest expense of $33.0 million for the current quarter was down $21.0 million, or 38.9%, from the first quarter of 2024 and down $762 thousand, or 2.3% from the second quarter of 2023. The linked quarter decrease was driven by the aforementioned fraud event, coupled with expense reduction associated with the April 1, 2024 insurance subsidiary asset sale.
    • Meaningful expansion of regulatory and tangible capital ratios on a linked quarter and year-over-year basis.
    • Continued strong credit quality metrics, including annualized net charge-offs to average loans of 0.10% for the current quarter and non-performing assets to total assets of 0.41% as of June 30, 2024.

    "Our continued focus on liquidity, capital and earnings led to strong second quarter 2024 outcomes. Our results benefited from not only the successful sale of the assets of our insurance subsidiary on April 1, which achieved strong value for shareholders by generating a significant pre-tax gain of $13.5 million, but also reflect solid performance from our core businesses. Quarterly net income available to common shareholders of $25.3 million, benefiting from the SDN sale, was a record. Importantly, net interest margin expansion from the linked quarter, improvement in our stable asset quality metrics as compared to the first quarter of 2024, and meaningful build in our capital ratios were achieved," said President and Chief Executive Officer Martin K. Birmingham.

    "Margin expanded by nine basis points and our already strong asset quality metrics further improved in the second quarter, including annualized net charge-offs to average loans of just 10 basis points. We finished the quarter with improved regulatory and tangible capital positions, reporting a common equity tier 1 ratio surpassing 10%, up 60 basis points from March 31, 2024 and up 93 basis points from June 30, 2023, and growing tangible common book value per share(1) by 9% and 16% from the end of the linked and year-ago quarters, respectively," Mr. Birmingham added.

    Chief Financial Officer and Treasurer W. Jack Plants II commented, "We are pleased with our ability to build on the margin stability achieved in the first quarter to drive solid expansion on a linked quarter basis. Having started 2024 with approximately $1.1 billion in anticipated annual cash flow combined from our loan and securities portfolios, we have been able to steadily redeploy cash through the first six months of the year into higher yielding earnings assets while continuing to build our capital position. As of June 30, 2024, we have $1.3 billion in available liquidity and more than $1.0 billion in cash flow anticipated in the next 12 months. While we have vigorously managed the fraud event that we discovered and disclosed in early March and were successful with the strong execution of our insurance subsidiary sale in the second quarter, we are proud that our core business continues to build momentum for sustained incremental improvement in operating performance."

    Sale of Insurance Subsidiary Assets

    On April 1, 2024, the Company announced and closed the sale of the assets of its wholly-owned subsidiary SDN Insurance Agency, LLC ("SDN") to NFP Property & Casualty Services, Inc. ("NFP"), a privately-held property and casualty broker and benefits consultant. As previously disclosed, the sale generated approximately $27.0 million in proceeds and a pre-tax gain on sale of approximately $13.5 million, inclusive of selling costs and elimination of intangible assets.

    Net Interest Income and Net Interest Margin

    Net interest income was $41.2 million for the second quarter of 2024, an increase of $1.1 million from the first quarter of 2024 due in part to lower funding costs as a result of the Company's reduction of short term borrowings and brokered deposits that occurred late in the first quarter and a decrease of $1.1 million from the second quarter of 2023 due primarily to higher funding costs on a year-over-year basis.

    Average interest-earning assets for the current quarter were $5.77 billion, a decrease of $39.0 million from the first quarter of 2024 due to a $26.9 million decrease in average loans and a $24.0 million decrease in the average balance of Federal Reserve interest-earning cash, partially offset by an $11.8 million increase in the average balance of investment securities. Average interest-earning assets for the current quarter were $74.0 million higher than the second quarter of 2023 due to a $107.2 million increase in average loans and a $41.2 million increase in the average balance of Federal Reserve interest-earning cash, partially offset by a $74.4 million decrease in the average balance of investment securities.

    Average interest-bearing liabilities for the current quarter were $4.55 billion, a decrease of $66.6 million from the first quarter of 2024, primarily due to a $45.0 million decrease in average savings and money market deposits, a $39.6 million decrease in average short-term borrowings, and an $8.5 million decrease in average interest-bearing demand deposits, partially offset by a $26.5 million increase in average time deposits. Average interest-bearing liabilities for the second quarter of 2024 were $113.6 million higher than the year-ago quarter, due to a $376.6 million increase in average savings and money market account deposits, partially offset by a $154.5 million decrease in average short-term borrowings, a $107.5 million decrease in average interest-bearing demand deposits, and a $927 thousand decrease in average time deposits.

    Net interest margin was 2.87% in the current quarter, 2.78% in the first quarter of 2024, and 2.99% in the second quarter of 2023. The linked quarter expansion was due to an increase in the average yield on interest-earning assets, coupled with a decline in the average yield of interest-bearing liabilities that in part reflected a reduction and mix shift in borrowings between periods. The year-over-year decline primarily was a result of higher funding costs amid the current high interest rate environment, partially offset by an increase in the average yield on interest-earning assets.

    Noninterest Income

    Noninterest income was $24.0 million for the second quarter of 2024, an increase of $13.1 million from the first quarter of 2024 and an increase of $12.5 million from the second quarter of 2023.

    • The Company's sale of the assets of its insurance subsidiary generated a net gain of $13.5 million in the current quarter. Given the April 1, 2024 transaction close, insurance income in the second quarter of 2024 was $4 thousand, compared to $2.1 million and $1.3 million in the linked and year-ago periods, respectively.
    • Investment advisory income of $2.8 million was $197 thousand higher than the first quarter of 2024 and relatively flat with the second quarter of 2023. The linked quarter variance was due to market-driven increase in assets under management.
    • Income from company owned life insurance of $1.4 million was $62 thousand higher than the first quarter of 2024 and $407 thousand higher than the second quarter of 2023. The year-over-year increase was due to the previously disclosed surrender and redeploy strategy executed in the fourth quarter of 2023.
    • Income from investments in limited partnerships of $803 thousand was $461 thousand higher than the first quarter of 2024 and $334 thousand higher than the second quarter of 2023. The Company previously 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 $377 thousand in the current quarter, $174 thousand in the first quarter of 2024 and $703 thousand in the second quarter of 2023. 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 value of borrower-facing trades.
    • A net gain on tax credit investments of $406 thousand was recognized in the current quarter related to tax credit investments placed in service in the current and prior quarters. This compares to a net loss of $375 thousand and a net gain of $489 thousand in the first quarter of 2024 and second quarter of 2023, respectively.

    Noninterest Expense

    Noninterest expense was $33.0 million in the second quarter of 2024 compared to $54.0 million in the first quarter of 2024 and $33.8 million in the second quarter of 2023.

    • Deposit-related charged-off items were $398 thousand in the second quarter of 2024, compared to $19.2 million in the first quarter of 2024 and $467 thousand in the second quarter of 2023, respectively. The linked quarter variance was primarily driven by the Company's previously disclosed fraud event, for which the Company recorded an $18.4 million pre-tax loss.
    • Salaries and employee benefits expense of $15.7 million was $1.6 million lower than the first quarter of 2024 and $2.0 million lower than the second quarter of 2023. The decrease from the linked quarter was primarily driven by the Company's previously mentioned insurance asset sale, while the decrease from the second quarter of 2023 was due to a combination of the previously mentioned insurance transaction and the Company's previously disclosed fourth quarter 2023 leadership and organizational changes, which reduced salaries and wages between periods.
    • Professional services expenses of $1.8 million were $578 thousand lower than the first quarter of 2024 and $521 thousand higher than the second quarter of 2023. Both the linked quarter and year-over-year variances were primarily attributable to the legal expenses incurred in the first and second quarters of 2024 related to the Company's previously disclosed fraud event.
    • Computer and data processing expense of $5.3 million was $44 thousand lower than the first quarter of 2024 and $592 thousand higher than the second quarter of 2023, with the year-over-year variance due in part to the Company’s investments in data efficiency and marketing technology.

    Income Taxes

    Income tax expense was $4.5 million for the second quarter of 2024 compared to $356 thousand in the first quarter of 2024, and $2.4 million in the second quarter of 2023. The lower level of income tax expense incurred during the first quarter of 2024 was due to a lower level of pre-tax income, reflecting the impact of the previously disclosed fraud event. The Company also recognized federal and state tax benefits related to tax credit investments placed in service and/or amortized during the second quarter of 2024, first quarter of 2024, and second quarter of 2023, resulting in income tax expense reductions of $1.3 million, $785 thousand, and $761 thousand, respectively.

    The effective tax rate was 15.0% for the second quarter of 2024, 14.7% for the first quarter of 2024, and 14.4% for the second quarter of 2023. The effective tax rate fluctuates on a quarterly basis primarily due to the level of pre-tax earnings and may 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 $6.13 billion at June 30, 2024, down $166.8 million from March 31, 2024, and down $9.5 million from June 30, 2023.

    Investment securities were $1.00 billion at June 30, 2024, down $67.6 million from March 31, 2024, and down $72.1 million from June 30, 2023.

    Total loans were $4.46 billion at June 30, 2024, an increase of $19.4 million, or 0.4%, from March 31, 2024, and an increase of $63.7 million, or 1.4%, from June 30, 2023.

    • Commercial business loans totaled $713.9 million at June 30, 2024, up $6.4 million, or 0.9%, from March 31, 2024, and down $6.4 million, or 0.9%, from June 30, 2023.
    • Commercial mortgage loans totaled $2.09 billion at June 30, 2024, up $40.8 million, or 2.0%, from March 31, 2024, and up $124.7 million, or 6.4%, from June 30, 2023.
    • Residential real estate loans totaled $647.7 million at June 30, 2024, down $485 thousand, or 0.1%, from March 31, 2024, and up $36.5 million, or 6.0%, from June 30, 2023.
    • Consumer indirect loans totaled $894.6 million at June 30, 2024, down $25.8 million, or 2.8%, from March 31, 2024, and down $106.4 million, or 10.6%, from June 30, 2023.

    Total deposits were $5.13 billion at June 30, 2024, down $263.4 million, or 4.9%, from March 31, 2024, and up $98.5 million, or 2.0%, from June 30, 2023. The decrease from March 31, 2024 was primarily due to the seasonality of public deposits, coupled with a reduction in brokered CDs. The increase from June 30, 2023 was driven by increases in nonpublic deposits associated with the Company’s 2023 money market advertising campaign as well as Banking-as-a-Service, or BaaS, deposits, along with increases in reciprocal and public deposits, which were partially offset by a reduction in brokered deposits between periods. Public deposit balances represented 20% of total deposits at June 30, 2024, 22% at March 31, 2024 and 20% at June 30, 2023.

    Short-term borrowings were $202.0 million at June 30, 2024, compared to $133.0 million at March 31, 2024 and $374.0 million at June 30, 2023. Short-term borrowings and brokered deposits have historically been utilized to manage the seasonality of public deposits.

    Shareholders' equity was $467.7 million at June 30, 2024, compared to $445.7 million at March 31, 2024, and $425.9 million at June 30, 2023. The increase in shareholders' equity compared to the linked and year-ago period ends was primarily due to higher net income in the current quarter. Shareholders' equity has been negatively impacted since 2022 by an increase in accumulated other comprehensive loss associated with unrealized losses in the available for sale securities portfolio. Management believes the unrealized losses are temporary in nature, as they are associated with the current high interest rate environment. The securities portfolio continues to generate cash flow and, given the high credit quality of the agency mortgage-backed securities portfolio, management expects the bonds to ultimately mature at a terminal value equivalent to par.

    Common book value per share was $29.11 at June 30, 2024, an increase of $1.37, or 4.9%, from $27.74 at March 31, 2024, and an increase of $2.58, or 9.7%, from $26.53 at June 30, 2023. Tangible common book value per share(1) was $25.17 at June 30, 2024, an increase of $2.11, or 9.2%, from $23.06 at March 31, 2024, and an increase of $3.38, or 15.5%, from $21.79 at June 30, 2023. The common equity to assets ratio was 7.34% at June 30, 2024, compared to 6.80% at March 31, 2024, and 6.65% at June 30, 2023. Tangible common equity to tangible assets(1), or the TCE ratio, was 6.41%, 5.72% and 5.53% at June 30, 2024, March 31, 2024, and June 30, 2023, respectively. The primary driver of variations in all four measures for the comparable linked and year-ago period ends was the previously described changes in accumulated other comprehensive loss.

    During the second quarter of 2024, the Company declared a common stock dividend of $0.30 per common share, consistent with the linked and year-ago quarters.

    The Company's regulatory capital ratios at June 30, 2024 continued to exceed all regulatory capital requirements to be considered well capitalized.

    • Leverage Ratio was 8.61% compared to 8.03% and 8.08% at March 31, 2024, and June 30, 2023, respectively.
    • Common Equity Tier 1 Capital Ratio was 10.03% compared to 9.43% and 9.10% at March 31, 2024, and June 30, 2023, respectively.
    • Tier 1 Capital Ratio was 10.36% compared to 9.76% and 9.43% at March 31, 2024, and June 30, 2023, respectively.
    • Total Risk-Based Capital Ratio was 12.65% compared to 12.04% and 11.77% at March 31, 2024, and June 30, 2023, respectively.

    The improvement in regulatory capital ratios in the current quarter was primarily driven by the impact of the previously mentioned insurance asset sale that closed April 1, 2024.

    Credit Quality

    Non-performing loans were $25.2 million, or 0.57% of total loans, at June 30, 2024, as compared to $26.7 million, or 0.60% of total loans, at March 31, 2024 and $9.9 million, or 0.23% of total loans, at June 30, 2023. The year-over-year increase was primarily driven by one commercial loan relationship that was placed on nonaccrual during the fourth quarter of 2023. Net charge-offs were $1.1 million, representing 0.10% of average loans on an annualized basis, for the current quarter, as compared to $3.1 million, or an annualized 0.28% of average loans, in the first quarter of 2024 and $636 thousand, or an annualized 0.06%, in the second quarter of 2023.

    At June 30, 2024, the allowance for credit losses on loans to total loans ratio was 0.99%, compared to 0.97% at March 31, 2024 and 1.13% at June 30, 2023.

    Provision (benefit) for credit losses was a provision of $2.0 million in the current quarter, compared to a benefit of $5.5 million in the linked quarter and a provision of $3.2 million in the prior year quarter. Provision for credit losses on loans was $2.0 million in the current quarter, compared to a benefit of $4.9 million in the first quarter of 2024 and a provision of $2.9 million in the second quarter of 2023. The allowance for unfunded commitments, also included in provision for credit losses as required by the current expected credit loss standard ("CECL"), totaled a provision of $43 thousand in the second quarter of 2024, a benefit of $570 thousand in the first quarter of 2024, and a provision of $287 thousand in the second quarter of 2023. The provision for credit losses for the second quarter of 2024 was driven by a combination of factors, including a modest increase in consumer indirect delinquencies during the period, which increased the qualitative factor for that portfolio, partially offset by improvement in forecasted losses.

    The Company has remained strategically focused on the importance of credit discipline, allocating resources to credit and risk management functions as the loan portfolio has grown. The ratio of allowance for credit losses on loans to non-performing loans was 174% at June 30, 2024, 161% at March 31, 2024, and 503% at June 30, 2023.

    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 June 30, 2024, 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 June 30, 2024, and will adjust amounts preliminarily reported, if necessary.

    Conference Call

    The Company will host an earnings conference call and audio webcast on July 26, 2024 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.FISI-Investors.com. Within the United States, listeners may also access the call by dialing 1-833-470-1428 and providing the access code 713156. The webcast replay will be available on the Company's website for at least 30 days.

    About Financial Institutions, Inc.

    Financial Institutions, Inc. (NASDAQ: FISI) is an innovative financial holding company with approximately $6.1 billion in assets offering banking and wealth management products and services. Its Five Star Bank subsidiary provides consumer and commercial banking and lending services to individuals, municipalities and businesses through banking locations spanning Western and Central New York and a commercial loan production office serving the Mid-Atlantic region. Courier Capital, LLC offers customized investment management, financial planning and consulting services to individuals and families, businesses, institutions, non-profits and retirement plans. Learn more at Five-StarBank.com and FISI-Investors.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," "anticipate," "continue," "estimate," "expect," "focus," "forecast," "intend," "may," "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: additional information regarding the deposit fraudulent activity; changes in interest rates; inflation; changes in deposit flows and the cost and availability of funds; 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, including any 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; and the macroeconomic volatility related to the impact of a pandemic or global political unrest. Consequently, all forward-looking statements made herein are qualified by these cautionary statements and the cautionary language and risk factors included 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 financial measure.

    For additional information contact:
    Kate Croft
    Director of Investor and External Relations
    (716) 817-5159
    klcroft@five-starbank.com 

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

      2024  2023 
    SELECTED BALANCE SHEET DATA: June 30,  March 31,  December 31,  September 30,  June 30, 
    Cash and cash equivalents $146,347  $237,038  $124,442  $192,111  $180,248 
    Investment securities:               
    Available for sale  871,635   923,761   887,730   854,215   912,122 
    Held-to-maturity, net  128,271   143,714   148,156   154,204   159,893 
    Total investment securities  999,906   1,067,475   1,035,886   1,008,419   1,072,015 
    Loans held for sale  2,099   504   1,370   1,873   805 
    Loans:               
    Commercial business  713,947   707,564   735,700   711,538   720,372 
    Commercial mortgage  2,085,870   2,045,056   2,005,319   1,985,279   1,961,220 
    Residential real estate loans  647,675   648,160   649,822   635,209   611,199 
    Residential real estate lines  75,510   75,668   77,367   76,722   75,971 
    Consumer indirect  894,596   920,428   948,831   982,137   1,000,982 
    Other consumer  43,870   45,170   45,100   40,281   28,065 
    Total loans  4,461,468   4,442,046   4,462,139   4,431,166   4,397,809 
    Allowance for credit losses – loans  43,952   43,075   51,082   49,630   49,836 
    Total loans, net  4,417,516   4,398,971   4,411,057   4,381,536   4,347,973 
    Total interest-earning assets  5,709,148   5,857,616   5,702,904   5,747,191   5,749,015 
    Goodwill and other intangible assets, net  60,979   72,287   72,504   72,725   72,950 
    Total assets  6,131,772   6,298,598   6,160,881   6,140,149   6,141,298 
    Deposits:               
    Noninterest-bearing demand  939,346   972,801   1,010,614   1,035,350   1,022,788 
    Interest-bearing demand  711,580   798,831   713,158   827,842   823,983 
    Savings and money market  2,007,256   2,064,539   2,084,444   1,943,794   1,641,014 
    Time deposits  1,475,139   1,560,586   1,404,696   1,508,987   1,547,076 
    Total deposits  5,133,321   5,396,757   5,212,912   5,315,973   5,034,861 
    Short-term borrowings  202,000   133,000   185,000   70,000   374,000 
    Long-term borrowings, net  124,687   124,610   124,532   124,454   124,377 
    Total interest-bearing liabilities  4,520,662   4,681,566   4,511,830   4,475,077   4,510,450 
    Shareholders’ equity  467,667   445,734   454,796   408,716   425,873 
    Common shareholders’ equity  450,375   428,442   437,504   391,424   408,581 
    Tangible common equity (1)  389,396   356,155   365,000   318,699   335,631 
    Accumulated other comprehensive loss $(125,774) $(126,264) $(119,941) $(161,389) $(134,472)
                    
    Common shares outstanding  15,472   15,447   15,407   15,402   15,402 
    Treasury shares  627   653   692   698   698 
    CAPITAL RATIOS AND PER SHARE DATA:               
    Leverage ratio  8.61%  8.03%  8.18%  8.20%  8.08%
    Common equity Tier 1 capital ratio  10.03%  9.43%  9.43%  9.26%  9.10%
    Tier 1 capital ratio  10.36%  9.76%  9.76%  9.58%  9.43%
    Total risk-based capital ratio  12.65%  12.04%  12.13%  11.91%  11.77%
    Common equity to assets  7.34%  6.80%  7.10%  6.37%  6.65%
    Tangible common equity to tangible assets (1)  6.41%  5.72%  6.00%  5.25%  5.53%
                    
    Common book value per share $29.11  $27.74  $28.40  $25.41  $26.53 
    Tangible common book value per share (1) $25.17  $23.06  $23.69  $20.69  $21.79 
                         

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


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

      Six Months Ended  2024  2023 
      June 30,  Second  First  Fourth  Third  Second 
    SELECTED INCOME STATEMENT DATA: 2024  2023  Quarter  Quarter  Quarter  Quarter  Quarter 
    Interest income $157,201  $134,886  $78,788  $78,413  $76,547  $74,700  $71,115 
    Interest expense  75,926   50,734   37,595   38,331   36,661   33,023   28,778 
    Net interest income  81,275   84,152   41,193   40,082   39,886   41,677   42,337 
    (Benefit) provision for credit losses  (3,415)  7,444   2,041   (5,456)  5,271   966   3,230 
    Net interest income after (benefit) provision for credit losses  84,690   76,708   39,152   45,538   34,615   40,711   39,107 
    Noninterest income:                     
    Service charges on deposits  2,056   2,250   979   1,077   1,168   1,207   1,223 
    Insurance income  2,138   3,415   4   2,134   1,615   1,678   1,328 
    Card interchange income  3,910   4,046   2,008   1,902   2,080   2,094   2,107 
    Investment advisory  5,361   5,742   2,779   2,582   2,669   2,544   2,819 
    Company owned life insurance  2,658   1,947   1,360   1,298   9,132   1,027   953 
    Investments in limited partnerships  1,145   720   803   342   672   391   469 
    Loan servicing  333   260   158   175   84   135   114 
    Income (loss) from derivative instruments, net  551   1,199   377   174   (68)  219   703 
    Net gain on sale of loans held for sale  212   234   124   88   217   115   122 
    Net loss on investment securities  -   -   -   -   (3,576)  -   - 
    Net gain (loss) on other assets  13,495   32   13,508   (13)  (37)  (1)  (7)
    Net gain (loss) on tax credit investments  31   288   406   (375)  (207)  (333)  489 
    Other  3,025   2,257   1,508   1,517   1,619   1,410   1,146 
    Total noninterest income  34,915   22,390   24,014   10,901   15,368   10,486   11,466 
    Noninterest expense:                     
    Salaries and employee benefits  33,088   35,887   15,748   17,340   17,842   18,160   17,754 
    Occupancy and equipment  7,200   7,268   3,448   3,752   3,739   3,791   3,538 
    Professional services  4,166   2,768   1,794   2,372   1,415   1,076   1,273 
    Computer and data processing  10,728   9,441   5,342   5,386   5,562   5,107   4,750 
    Supplies and postage  912   963   437   475   455   455   473 
    FDIC assessments  2,641   2,354   1,346   1,295   1,316   1,232   1,239 
    Advertising and promotions  737   812   440   297   370   744   498 
    Amortization of intangibles  331   464   114   217   221   225   230 
    Restructuring (recoveries) charges  -   (19)  -   -   188   (55)  (19)
    Deposit-related charged-off items  19,577   790   398   19,179   223   188   467 
    Other  7,653   6,715   3,953   3,700   3,716   3,812   3,579 
    Total noninterest expense  87,033   67,443   33,020   54,013   35,047   34,735   33,782 
    Income before income taxes  32,572   31,655   30,146   2,426   14,936   16,462   16,791 
    Income tax expense  4,873   5,193   4,517   356   5,156   2,440   2,418 
    Net income  27,699   26,462   25,629   2,070   9,780   14,022   14,373 
    Preferred stock dividends  729   729   364   365   365   365   364 
    Net income available to common shareholders $26,970  $25,733  $25,265  $1,705  $9,415  $13,657  $14,009 
    FINANCIAL RATIOS:                     
    Earnings per share – basic $1.75  $1.68  $1.64  $0.11  $0.61  $0.89  $0.91 
    Earnings per share – diluted $1.73  $1.67  $1.62  $0.11  $0.61  $0.88  $0.91 
    Cash dividends declared on common stock $0.60  $0.60  $0.30  $0.30  $0.30  $0.30  $0.30 
    Common dividend payout ratio  34.29%  35.71%  18.29%  272.73%  49.18%  33.71%  32.97%
    Dividend yield (annualized)  6.25%  7.69%  6.25%  6.41%  5.59%  7.07%  7.64%
    Return on average assets (annualized)  0.90%  0.90%  1.68%  0.13%  0.63%  0.92%  0.95%
    Return on average equity (annualized)  12.32%  12.60%  22.93%  1.83%  9.28%  12.96%  13.43%
    Return on average common equity (annualized)  12.47%  12.77%  23.51%  1.57%  9.31%  13.15%  13.64%
    Return on average tangible common equity (annualized) (1)  14.77%  15.58%  27.51%  1.88%  11.37%  15.98%  16.58%
    Efficiency ratio (2)  74.80%  63.17%  50.58%  105.77%  59.48%  66.47%  62.66%
    Effective tax rate  15.0%  16.4%  15.0%  14.7%  34.5%  14.8%  14.4%
                                 

    (1)  See Appendix A – Reconciliation to Non-GAAP Financial Measures for the computation of this non-GAAP financial 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)

      Six Months Ended  2024  2023 
      June 30,  Second  First  Fourth  Third  Second 
    SELECTED AVERAGE BALANCES: 2024  2023  Quarter  Quarter  Quarter  Quarter  Quarter 
    Federal funds sold and interest-earning deposits $146,099  $78,214  $134,123  $158,075  $102,487  $62,673  $92,954 
    Investment securities (1)  1,188,901   1,285,254   1,194,808   1,182,993   1,199,766   1,230,590   1,269,181 
    Loans:                     
    Commercial business  713,496   690,360   704,272   722,720   702,222   712,224   710,145 
    Commercial mortgage  2,044,612   1,828,807   2,059,382   2,029,841   1,995,233   1,977,978   1,911,729 
    Residential real estate loans  648,510   594,217   648,099   648,921   640,955   621,074   598,638 
    Residential real estate lines  75,986   76,408   75,575   76,396   76,741   75,847   76,191 
    Consumer indirect  919,718   1,017,814   905,056   934,380   965,571   989,614   1,011,338 
    Other consumer  48,043   18,439   44,552   51,535   43,664   34,086   21,686 
    Total loans  4,450,365   4,226,045   4,436,936   4,463,793   4,424,386   4,410,823   4,329,727 
    Total interest-earning assets  5,785,365   5,589,513   5,765,867   5,804,861   5,726,639   5,704,086   5,691,862 
    Goodwill and other intangible assets, net  67,651   73,194   62,893   72,409   72,628   72,851   73,079 
    Total assets  6,189,594   5,949,101   6,153,429   6,225,760   6,127,171   6,073,653   6,053,258 
    Interest-bearing liabilities:                     
    Interest-bearing demand  745,259   864,235   741,006   749,512   780,546   766,636   848,552 
    Savings and money market  2,059,294   1,662,598   2,036,772   2,081,815   2,048,822   1,749,202   1,660,148 
    Time deposits  1,492,399   1,444,705   1,505,665   1,479,133   1,455,867   1,564,035   1,506,592 
    Short-term borrowings  159,929   220,641   140,110   179,747   84,587   222,871   294,923 
    Long-term borrowings, net  124,601   119,318   124,640   124,562   124,484   124,407   124,329 
    Total interest-bearing liabilities  4,581,482   4,311,497   4,548,193   4,614,769   4,494,306   4,427,151   4,434,544 
    Noninterest-bearing demand deposits  956,670   1,047,121   950,819   962,522   1,006,465   1,022,423   1,029,681 
    Total deposits  5,253,622   5,018,659   5,234,262   5,272,982   5,291,700   5,102,296   5,044,973 
    Total liabilities  5,737,327   5,525,476   5,703,929   5,770,725   5,708,842   5,644,488   5,624,006 
    Shareholders’ equity  452,267   423,625   449,500   455,035   418,329   429,165   429,252 
    Common equity  434,975   406,333   432,208   437,743   401,037   411,873   411,960 
    Tangible common equity (2)  367,324   333,139   369,315   365,334   328,409   339,022   338,881 
    Common shares outstanding:                     
    Basic  15,424   15,356   15,444   15,403   15,393   15,391   15,372 
    Diluted  15,551   15,427   15,556   15,543   15,511   15,462   15,413 
    SELECTED AVERAGE YIELDS:
    (Tax equivalent basis)    		                     
    Investment securities  2.13%  1.89%  2.17%  2.09%  2.03%  1.88%  1.89%
    Loans  6.37%  5.78%  6.40%  6.33%  6.21%  6.15%  5.93%
    Total interest-earning assets  5.47%  4.87%  5.50%  5.43%  5.32%  5.21%  5.02%
    Interest-bearing demand  1.15%  0.71%  1.18%  1.11%  1.26%  0.83%  0.77%
    Savings and money market  3.04%  1.80%  3.01%  3.08%  3.01%  2.51%  2.00%
    Time deposits  4.70%  3.56%  4.72%  4.68%  4.57%  4.20%  3.76%
    Short-term borrowings  3.13%  3.99%  2.75%  3.42%  1.38%  3.98%  4.30%
    Long-term borrowings, net  5.02%  5.07%  5.02%  5.02%  5.05%  5.05%  5.04%
    Total interest-bearing liabilities  3.33%  2.37%  3.32%  3.34%  3.24%  2.96%  2.60%
    Net interest rate spread  2.14%  2.50%  2.18%  2.09%  2.08%  2.25%  2.42%
    Net interest margin  2.83%  3.04%  2.87%  2.78%  2.78%  2.91%  2.99%
                                 

    (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 financial measure.

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

      Six Months Ended  2024  2023 
      June 30,  Second  First  Fourth  Third  Second 
    ASSET QUALITY DATA: 2024  2023  Quarter  Quarter  Quarter  Quarter  Quarter 
    Allowance for Credit Losses – Loans                     
    Beginning balance $51,082  $45,413  $43,075  $51,082  $49,630  $49,836  $47,528 
    Net loan charge-offs (recoveries):                     
    Commercial business  (30)  (91)  7   (37)  (50)  32   33 
    Commercial mortgage  (4)  14   (3)  (1)  993   (972)  16 
    Residential real estate loans  100   71   96   4   22   (4)  13 
    Residential real estate lines  -   41   -   -   -   -   25 
    Consumer indirect  3,817   2,138   844   2,973   3,174   2,283   300 
    Other consumer  360   552   178   182   82   259   249 
    Total net charge-offs (recoveries)  4,243   2,725   1,122   3,121   4,221   1,598   636 
    (Benefit) provision for credit losses – loans  (2,887)  7,148   1,999   (4,886)  5,673   1,392   2,944 
    Ending balance $43,952  $49,836  $43,952  $43,075  $51,082  $49,630  $49,836 
                          
    Net charge-offs (recoveries) to average loans (annualized):                     
    Commercial business  -0.01%  -0.03%  0.00%  -0.02%  -0.03%  0.02%  0.02%
    Commercial mortgage  0.00%  0.00%  0.00%  0.00%  0.20%  -0.19%  0.00%
    Residential real estate loans  0.03%  0.02%  0.06%  0.00%  0.01%  0.00%  0.01%
    Residential real estate lines  0.00%  0.11%  0.00%  0.00%  0.00%  0.00%  0.13%
    Consumer indirect  0.83%  0.42%  0.38%  1.28%  1.30%  0.92%  0.12%
    Other consumer  1.51%  6.04%  1.62%  1.41%  0.75%  3.00%  4.62%
    Total loans  0.19%  0.13%  0.10%  0.28%  0.38%  0.14%  0.06%
                          
    Supplemental information (1)                     
    Non-performing loans:                     
    Commercial business $5,680  $415  $5,680  $5,956  $5,664  $254  $415 
    Commercial mortgage  10,452   2,477   10,452   10,826   10,563   686   2,477 
    Residential real estate loans  5,961   3,820   5,961   6,797   6,364   4,992   3,820 
    Residential real estate lines  183   208   183   235   221   201   208 
    Consumer indirect  2,897   2,982   2,897   2,880   3,814   3,382   2,982 
    Other consumer  36   5   36   36   34   6   5 
    Total non-performing loans  25,209   9,907   25,209   26,730   26,660   9,521   9,907 
    Foreclosed assets  63   163   63   140   142   162   163 
    Total non-performing assets $25,272  $10,070  $25,272  $26,870  $26,802  $9,683  $10,070 
                          
    Total non-performing loans to total loans  0.57%  0.23%  0.57%  0.60%  0.60%  0.21%  0.23%
    Total non-performing assets to total assets  0.41%  0.16%  0.41%  0.43%  0.44%  0.16%  0.16%
    Allowance for credit losses – loans to total loans  0.99%  1.13%  0.99%  0.97%  1.14%  1.12%  1.13%
    Allowance for credit losses – loans to non-performing loans  174%  503%  174%  161%  192%  521%  503%
                                 

    (1) At period end.

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

      Six Months Ended  2024  2023 
      June 30,  Second  First  Fourth  Third  Second 
      2024  2023  Quarter  Quarter  Quarter  Quarter  Quarter 
    Ending tangible assets:                     
    Total assets       $6,131,772  $6,298,598  $6,160,881  $6,140,149  $6,141,298 
    Less: Goodwill and other intangible assets, net        60,979   72,287   72,504   72,725   72,950 
    Tangible assets       $6,070,793  $6,226,311  $6,088,377  $6,067,424  $6,068,348 
                          
    Ending tangible common equity:                     
    Common shareholders’ equity       $450,375  $428,442  $437,504  $391,424  $408,581 
    Less: Goodwill and other intangible assets, net        60,979   72,287   72,504   72,725   72,950 
    Tangible common equity       $389,396  $356,155  $365,000  $318,699  $335,631 
                          
    Tangible common equity to tangible assets (1)        6.41%  5.72%  6.00%  5.25%  5.53%
                          
    Common shares outstanding        15,472   15,447   15,407   15,402   15,402 
    Tangible common book value per share (2)       $25.17  $23.06  $23.69  $20.69  $21.79 
                           
    Average tangible assets:                     
    Average assets $6,189,594  $5,949,101  $6,153,429  $6,225,760  $6,127,171  $6,073,653  $6,053,258 
    Less: Average goodwill and other intangible assets, net  67,651   73,194   62,893   72,409   72,628   72,851   73,079 
    Average tangible assets $6,121,943  $5,875,907  $6,090,536  $6,153,351  $6,054,543  $6,000,802  $5,980,179 
                          
    Average tangible common equity:                     
    Average common equity $434,975  $406,333  $432,208  $437,743  $401,037  $411,873  $411,960 
    Less: Average goodwill and other intangible assets, net  67,651   73,194   62,893   72,409   72,628   72,851   73,079 
    Average tangible common equity $367,324  $333,139  $369,315  $365,334  $328,409  $339,022  $338,881 
                          
    Net income available to common shareholders $26,970  $25,733  $25,265  $1,705  $9,415  $13,657  $14,009 
    Return on average tangible common equity (3)  14.77%  15.58%  27.51%  1.88%  11.37%  15.98%  16.58%
                          
    Pre-tax pre-provision income:                     
    Net income $27,699  $26,462  $25,629  $2,070  $9,780  $14,022  $14,373 
    Add: Income tax expense  4,873   5,193   4,517   356   5,156   2,440   2,418 
    Add: (Benefit) provision for credit losses  (3,415)  7,444   2,041   (5,456)  5,271   966   3,230 
    Pre-tax pre-provision (loss) income $29,157  $39,099  $32,187  $(3,030) $20,207  $17,428  $20,021 
                                 

    (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.


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