Financial Institutions Inc.

25/07/2024 | Press release | Distributed by Public on 25/07/2024 20:07

Financial Institutions, Inc. Announces Second Quarter 2024 Financial Results

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 onForm 10-Qand 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
[email protected]

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.


Source: Financial Institutions, Inc.