• Financial Institutions, Inc. Announces First Quarter 2024 Results

    Source: Nasdaq GlobeNewswire / 25 Apr 2024 15:05:22   America/Chicago

    WARSAW, N.Y., April 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 first quarter ended March 31, 2024.

    Net income was $2.1 million in the first quarter of 2024, compared to $9.8 million in the fourth quarter of 2023 and $12.1 million in the first quarter of 2023. After preferred dividends, net income available to common shareholders was $1.7 million, or $0.11 per diluted share, in the first quarter of 2024, compared to $9.4 million, or $0.61 per diluted share, in the fourth quarter of 2023, and $11.7 million, or $0.76 per diluted share, in the first quarter of 2023. First quarter 2024 financial results were negatively impacted by the Company's previously disclosed deposit-related fraud event, which was the primary driver of noninterest expense variances from the linked and year-ago periods. The Company 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 first quarter of 2024 related to this event. The Company recorded a benefit for credit losses of $5.5 million in the current quarter, compared to provision for credit losses of $5.3 million in the linked quarter and $4.2 million in the prior year quarter. The release of credit loss reserves and corresponding benefit for credit losses in the first quarter of 2024 was primarily driven by positive trends in qualitative factors, including a reduction in consumer indirect loan delinquencies during the period, an improvement in forecasted losses, which are based in part on the national unemployment forecast, and a reduction in period-end consumer indirect loan balances.

    First Quarter 2024 Key Results:

    • Total deposits were $5.40 billion at March 31, 2024, up $183.8 million, or 3.5%, from December 31, 2023, and up $255.5 million, or 5.0%, from March 31, 2023.
    • Total loans were $4.44 billion at March 31, 2024, reflecting a decrease of $20.1 million, or 0.5%, from December 31, 2023 and an increase of $198.7 million, or 4.7%, from March 31, 2023.
    • Net interest income of $40.1 million in the first quarter of 2024 increased by $196 thousand, or 0.5%, and decreased $1.7 million, or 4.1%, from the linked and year-ago quarters, respectively.
    • Noninterest income was $10.9 million in the first quarter of 2024, down $4.5 million, or 29.1%, from the fourth quarter of 2023, when the Company executed its previously disclosed company owned life insurance surrender and redeploy strategy, and flat with the first quarter of 2023.
    • Noninterest expense of $54.0 million for the current quarter was up $19.0 million, or 54.1%, from the fourth quarter of 2023 and up $20.4 million, or 60.5% from the first quarter of 2023. The linked quarter and year-over-year increases were driven by the aforementioned fraud event.
    • The Company continues to report strong credit quality metrics, including annualized net charge-offs to average loans of 0.28% for the current quarter and non-performing assets to total assets of 0.43% as of March 31, 2024.

    "First quarter 2024 results were clearly impacted by the fraud event we disclosed in early March, as we recorded a deposit-related charge-off of approximately $18.4 million during the period, reflecting a reduction from the potential exposure of $18.9 million originally disclosed. We continue to pursue every avenue of legal recourse available to us to recoup additional funds and minimize the loss," said President and Chief Executive Officer Martin K. Birmingham. "Even as we navigated this unprecedented challenge, we took strategic action in support of our continued focus on capital, liquidity and earnings. Our sale of the assets of our insurance subsidiary at the start of the second quarter of 2024 generated approximately $27 million in proceeds, unlocking significant value from this line of business, strengthening our capital position in the second quarter and supporting our focus on driving earnings in our core banking business.

    "In addition, our team's unwavering focus on our customers and communities contributed to strong deposit growth during the first quarter, with public, nonpublic and reciprocal deposits all increasing from year-end 2023. Modest commercial loan growth during the first quarter was offset by anticipated declines in our consumer indirect portfolio. Amid the continued competitive banking landscape, we remain focused on deposit acquisition and retention and driving credit-disciplined loan origination across our footprint."

    Chief Financial Officer and Treasurer W. Jack Plants II added, "Our strong first quarter deposit growth allowed us to reduce short term borrowings and brokered deposits and supported margin stability, despite experiencing a continued shift in our funding mix toward higher cost interest-bearing deposits. Our liquidity position may be the strongest it has ever been, with nearly $1.5 billion in available liquidity and we continue to have approximately $1.1 billion in cash flow anticipated over the next twelve months. This, coupled with the proceeds from our recent insurance subsidiary sale, provide us runway to redeploy cash into higher yielding assets through the year, benefiting margin, while continuing to build our capital position."

    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, or an after-tax gain of $11.2 million before selling costs. The all-cash transaction value represented a multiple of approximately four times our 2023 insurance revenue.

    Net Interest Income and Net Interest Margin

    Net interest income was $40.1 million for the first quarter of 2024, an increase of $196 thousand from the fourth quarter of 2023 and a decrease of $1.7 million from the first quarter of 2023 due primarily to higher funding costs.

    Average interest-earning assets for the current quarter were $5.80 billion, an increase of $78.2 million from the fourth quarter of 2023 due to a $55.6 million increase in the average balance of Federal Reserve interest-earning cash and a $39.4 million increase in average loans, partially offset by a $16.8 million decrease in the average balance of investment securities. Average interest-earning assets for the current quarter were $318.8 million higher than the first quarter of 2023 due to a $342.6 million increase in average loans and a $94.8 million increase in the average balance of Federal Reserve interest-earning cash, partially offset by a $118.5 million decrease in the average balance of investment securities.

    Average interest-bearing liabilities for the current quarter were $4.61 billion, an increase of $120.5 million from the fourth quarter of 2023, primarily due to a $95.2 million increase in average short-term borrowings, a $33.0 million increase in average savings and money market deposits, and a $23.3 million increase in average time deposits, partially offset by a $31.0 million decrease in average interest-bearing demand deposits. Average interest-bearing liabilities for the first quarter of 2024 were $427.7 million higher than the year-ago quarter, due to a $416.7 million increase in average savings and money market account deposits, a $97.0 million increase in average time deposits, and a $44.5 million increase in average borrowings, partially offset by a $130.6 million decrease in average interest-bearing demand deposits.

    Net interest margin was 2.78% in the current quarter and the fourth quarter of 2023, and 3.09% in the first quarter of 2023. The year-over-year decline primarily was a result of higher funding costs amid the current high interest rate environment, as well as seasonality and repricing within the public deposit portfolio, partially offset by an increase in the average yield on interest-earning assets.

    Noninterest Income

    Noninterest income was $10.9 million for the first quarter of 2024, a decrease of $4.5 million from the fourth quarter of 2023 and flat with the first quarter of 2023.

    • Insurance income of $2.1 million was $519 thousand higher than the fourth quarter of 2023, primarily as a result of the timing of contingent revenue earned in the first quarter each year, and $47 thousand higher than the first quarter of 2023.
    • Investment advisory income of $2.6 million was $87 thousand lower than the fourth quarter of 2023 and $341 thousand lower than the first quarter of 2023. The year-over-year decline was primarily due to lower transaction-based fees on retail accounts in the most recent period.
    • Income from company owned life insurance of $1.3 million was $7.8 million lower than the fourth quarter of 2023 and $304 thousand higher than the first quarter of 2023, due to the higher crediting rate and associated impact to cash surrender value recorded in the linked quarter related to the previously mentioned surrender and redeploy strategy executed in the fourth quarter of 2023.
    • Income from investments in limited partnerships of $342 thousand was $330 thousand lower than the fourth quarter of 2023 and $91 thousand higher than the first 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 (loss) from derivative instruments, net was income of $174 thousand in the current quarter, a loss of $68 thousand in the fourth quarter of 2023 and income of $496 thousand in the first quarter of 2023. Income (loss) 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 loss on investment securities of $3.6 million was recognized in the fourth quarter of 2023, due to the previously disclosed securities portfolio restructuring. No such losses were recorded in the current or year-ago periods.

    Noninterest Expense

    Noninterest expense was $54.0 million in the first quarter of 2024 compared to $35.0 million in the fourth quarter of 2023 and $33.7 million in the first quarter of 2023.

    • Deposit-related charged-off items were $19.2 million in the first quarter of 2024, compared to $223 thousand and $323 thousand in the fourth and first quarters of 2023, respectively. The variance was primarily driven by the Company's previously disclosed fraud event, for which the Company recorded an $18.4 million pre-tax loss that was modestly lower than the potential exposure of $18.9 million originally estimated, reflecting funds recouped in late March 2024.
    • Salaries and employee benefits expense of $17.3 million was $502 thousand lower than the fourth quarter of 2023 and $793 thousand lower than the first quarter of 2023. The decrease from the linked quarter was largely driven by the Company's previously disclosed leadership and organizational changes, which reduced salaries and wages between periods and resulted in higher severance expense in the fourth quarter of 2023. In the linked quarter, the Company also recorded higher earnout compensation associated with a past insurance subsidiary acquisition. These decreases were partially offset by higher stock-based compensation in the current quarter as a result of forfeitures recorded in the linked quarter. The year-over-year decrease in salaries and employee benefits expense was driven in part by lower salaries and wages and lower bonuses in the current quarter, reflective of the aforementioned reorganization and insurance acquisition earnout.
    • Professional services expenses of $2.4 million were $957 thousand higher than the fourth quarter of 2023 and $877 thousand higher than the first quarter of 2023, driven primarily by the higher legal expenses in the first quarter of 2024, primarily related to the Company’s previously disclosed fraud event.
    • Computer and data processing expense of $5.4 million was $176 thousand lower than the fourth quarter of 2023 and $695 thousand higher than the first quarter of 2023, with the year-over-year variance due in part to the Company’s investments in data efficiency and marketing technology.
    • Other expenses of $3.7 million were flat with the fourth quarter of 2023 and up $564 thousand from the first quarter of 2023. The year-over-year variance was driven by New York State capital base franchise tax accrual and the timing of Community Reinvestment Act (“CRA”) grant donations.

    Income Taxes

    Income tax expense was $356 thousand for the first quarter of 2024 compared to $5.2 million in the fourth quarter of 2023, and $2.8 million in the first quarter of 2023. The lower level of income tax expense incurred during the current quarter was due to a lower level of pre-tax income, reflecting the impact of the previously disclosed fraud event. Additionally, in the fourth quarter of 2023, the Company incurred approximately $5.4 million of tax expense associated with the capital gains of the previously mentioned company owned life insurance surrender coupled with a 10% modified endowment contract penalty that is typical of general account surrenders. The Company also recognized federal and state tax benefits related to tax credit investments placed in service and/or amortized during the first quarter of 2024, fourth quarter of 2023, and first quarter of 2023, resulting in income tax expense reductions of $785 thousand, $901 thousand, and $584 thousand, respectively.

    The effective tax rate was 14.7% for the first quarter of 2024, 34.5% for the fourth quarter of 2023, and 18.7% for the first 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 $6.30 billion at March 31, 2024, up $137.7 million from December 31, 2023, and up $331.6 million from March 31, 2023.

    Investment securities were $1.07 billion at March 31, 2024, up $31.6 million from December 31, 2023, and down $58.0 million from March 31, 2023.

    Total loans were $4.44 billion at March 31, 2024, a decrease of $20.1 million, or 0.5%, from December 31, 2023, and an increase of $198.7 million, or 4.7%, from March 31, 2023.

    • Commercial business loans totaled $707.6 million, down $28.1 million, or 3.8%, from December 31, 2023, and up $12.5 million, or 1.8%, from March 31, 2023.
    • Commercial mortgage loans totaled $2.05 billion, up $39.7 million, or 2.0%, from December 31, 2023, and up $203.6 million, or 11.1%, from March 31, 2023.
    • Residential real estate loans totaled $648.2 million, down $1.7 million, or 0.3%, from December 31, 2023, and up $56.3 million, or 9.5%, from March 31, 2023.
    • Consumer indirect loans totaled $920.4 million, down $28.4 million, or 3.0%, from December 31, 2023, and down $101.8 million, or 10.0%, from March 31, 2023.

    Total deposits were $5.40 billion at March 31, 2024, up $183.8 million, or 3.5%, from December 31, 2023, and up $255.5 million, or 5.0%, from March 31, 2023. The increase from December 31, 2023 was led by seasonally higher public deposit balances in addition to increases in nonpublic and reciprocal deposits. The increase from March 31, 2023 was driven by increases in nonpublic deposits associated with the Company’s recent money market advertising campaign as well as Banking-as-a-Service, or BaaS, deposits, along with increases in reciprocal and public deposits. Public deposit balances represented 22% of total deposits at March 31, 2024, 20% at December 31, 2023 and 23% at March 31, 2023.

    Short-term borrowings were $133.0 million at March 31, 2024, compared to $185.0 million at December 31, 2023 and $116.0 million at March 31, 2023. Short-term borrowings and brokered deposits have historically been utilized to manage the seasonality of public deposits.

    Shareholders' equity was $445.7 million at March 31, 2024, compared to $454.8 million at December 31, 2023, and $422.8 million at March 31, 2023. The decrease in shareholders' equity compared to the linked period end was primarily due to lower net income in the current quarter in addition to an increase in accumulated other comprehensive loss associated with unrealized losses in the available for sale securities portfolio, which has negatively impacted shareholders' equity since 2022. Management believes the unrealized losses are temporary in nature, as they are associated with the increase in interest rates. 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 $27.74 at March 31, 2024, a decrease of $0.66, or 2.3%, from $28.40 at December 31, 2023, and an increase of $1.36, or 5.2%, from $26.38 at March 31, 2023. Tangible common book value per share(1) was $23.06 at March 31, 2024, a decrease of $0.63, or 2.7%, from $23.69 at December 31, 2023, and an increase of $1.44, or 6.7%, from $21.62 at March 31, 2023. The common equity to assets ratio was 6.80% at March 31, 2024, compared to 7.10% at December 31, 2023, and 6.80% at March 31, 2023. Tangible common equity to tangible assets(1), or the TCE ratio, was 5.72%, 6.00% and 5.64% at March 31, 2024, December 31, 2023, and March 31, 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 first 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 March 31, 2024 continued to exceed all regulatory capital requirements to be considered well capitalized.

    • Leverage Ratio was 8.03% compared to 8.18% and 8.19% at December 31, 2023, and March 31, 2023, respectively.
    • Common Equity Tier 1 Capital Ratio was 9.43% compared to 9.43% and 9.21% at December 31, 2023, and March 31, 2023, respectively.
    • Tier 1 Capital Ratio was 9.76% compared to 9.76% and 9.55% at December 31, 2023, and March 31, 2023, respectively.
    • Total Risk-Based Capital Ratio was 12.04% compared to 12.13% and 11.93% at December 31, 2023, and March 31, 2023, respectively.

    Credit Quality

    Non-performing loans were $26.7 million, or 0.60% of total loans, at March 31, 2024, consistent with December 31, 2023. Non-performing loans were $8.8 million, or 0.21% of total loans, at March 31, 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 $3.1 million, representing 0.28% of average loans on an annualized basis, for the current quarter, as compared to $4.2 million, or an annualized 0.38% of average loans, in the fourth quarter of 2023 and $2.1 million, or an annualized 0.21%, in the first quarter of 2023.

    At March 31, 2024, the allowance for credit losses on loans to total loans ratio was 0.97%, compared to 1.14% at December 31, 2023 and 1.12% at March 31, 2023.

    (Benefit) provision for credit losses was a benefit of $5.5 million in the current quarter, compared to a provision of $5.3 million in the linked quarter and a provision of $4.2 million in the prior year quarter. Benefit for credit losses on loans was $4.9 million in the current quarter, compared to provisions of $5.7 million in the fourth quarter of 2023 and $4.2 million in the first 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 credit of $570 thousand in the first quarter of 2024, a credit of $403 thousand in the fourth quarter of 2023, and a provision of $11 thousand in the first quarter of 2023. The benefit for credit losses for the first quarter of 2024 was driven by a combination of factors, including improvement in forecasted losses, positive trends in qualitative factors, including a reduction in consumer indirect loan delinquencies during the period, and a reduction in period-end consumer indirect loan balances.

    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 161% at March 31, 2024, 192% at December 31, 2023, and 540% at March 31, 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 March 31, 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 March 31, 2024, and will adjust amounts preliminarily reported, if necessary.

    Conference Call

    The Company will host an earnings conference call and audio webcast on April 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 916080. 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 $6.3 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," "continue," "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: 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: March 31,  December 31,  September 30,  June 30,  March 31, 
    Cash and cash equivalents $237,038  $124,442  $192,111  $180,248  $139,974 
    Investment securities:               
    Available for sale  923,761   887,730   854,215   912,122   945,442 
    Held-to-maturity, net  143,714   148,156   154,204   159,893   180,052 
    Total investment securities  1,067,475   1,035,886   1,008,419   1,072,015   1,125,494 
    Loans held for sale  504   1,370   1,873   805   682 
    Loans:               
    Commercial business  707,564   735,700   711,538   720,372   695,110 
    Commercial mortgage  2,045,056   2,005,319   1,985,279   1,961,220   1,841,481 
    Residential real estate loans  648,160   649,822   635,209   611,199   591,846 
    Residential real estate lines  75,668   77,367   76,722   75,971   76,086 
    Consumer indirect  920,428   948,831   982,137   1,000,982   1,022,202 
    Other consumer  45,170   45,100   40,281   28,065   16,607 
    Total loans  4,442,046   4,462,139   4,431,166   4,397,809   4,243,332 
    Allowance for credit losses – loans  43,075   51,082   49,630   49,836   47,528 
    Total loans, net  4,398,971   4,411,057   4,381,536   4,347,973   4,195,804 
    Total interest-earning assets  5,857,616   5,702,904   5,747,191   5,749,015   5,600,786 
    Goodwill and other intangible assets, net  72,287   72,504   72,725   72,950   73,180 
    Total assets  6,298,598   6,160,881   6,140,149   6,141,298   5,966,992 
    Deposits:               
    Noninterest-bearing demand  972,801   1,010,614   1,035,350   1,022,788   1,067,011 
    Interest-bearing demand  798,831   713,158   827,842   823,983   901,251 
    Savings and money market  2,064,539   2,084,444   1,943,794   1,641,014   1,701,663 
    Time deposits  1,560,586   1,404,696   1,508,987   1,547,076   1,471,382 
    Total deposits  5,396,757   5,212,912   5,315,973   5,034,861   5,141,307 
    Short-term borrowings  133,000   185,000   70,000   374,000   116,000 
    Long-term borrowings, net  124,610   124,532   124,454   124,377   124,299 
    Total interest-bearing liabilities  4,681,566   4,511,830   4,475,077   4,510,450   4,314,595 
    Shareholders’ equity  445,734   454,796   408,716   425,873   422,823 
    Common shareholders’ equity  428,442   437,504   391,424   408,581   405,531 
    Tangible common equity (1)  356,155   365,000   318,699   335,631   332,351 
    Accumulated other comprehensive loss $(126,264) $(119,941) $(161,389) $(134,472) $(127,372)
                    
    Common shares outstanding  15,447   15,407   15,402   15,402   15,375 
    Treasury shares  653   692   698   698   724 
    CAPITAL RATIOS AND PER SHARE DATA:               
    Leverage ratio  8.03%  8.18%  8.20%  8.08%  8.19%
    Common equity Tier 1 capital ratio  9.43%  9.43%  9.26%  9.10%  9.21%
    Tier 1 capital ratio  9.76%  9.76%  9.58%  9.43%  9.55%
    Total risk-based capital ratio  12.04%  12.13%  11.91%  11.77%  11.93%
    Common equity to assets  6.80%  7.10%  6.37%  6.65%  6.80%
    Tangible common equity to tangible assets (1)  5.72%  6.00%  5.25%  5.53%  5.64%
                    
    Common book value per share $27.74  $28.40  $25.41  $26.53  $26.38 
    Tangible common book value per share (1) $23.06  $23.69  $20.69  $21.79  $21.62 

    _______________
    (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)

      2024  2023 
      First  Fourth  Third  Second  First 
    SELECTED INCOME STATEMENT DATA: Quarter  Quarter  Quarter  Quarter  Quarter 
    Interest income $78,413  $76,547  $74,700  $71,115  $63,771 
    Interest expense  38,331   36,661   33,023   28,778   21,956 
    Net interest income  40,082   39,886   41,677   42,337   41,815 
    (Benefit) provision for credit losses  (5,456)  5,271   966   3,230   4,214 
    Net interest income after (benefit) provision for credit losses  45,538   34,615   40,711   39,107   37,601 
    Noninterest income:               
    Service charges on deposits  1,077   1,168   1,207   1,223   1,027 
    Insurance income  2,134   1,615   1,678   1,328   2,087 
    Card interchange income  1,902   2,080   2,094   2,107   1,939 
    Investment advisory  2,582   2,669   2,544   2,819   2,923 
    Company owned life insurance  1,298   9,132   1,027   953   994 
    Investments in limited partnerships  342   672   391   469   251 
    Loan servicing  175   84   135   114   146 
    Income (loss) from derivative instruments, net  174   (68)  219   703   496 
    Net gain on sale of loans held for sale  88   217   115   122   112 
    Net loss on investment securities  -   (3,576)  -   -   - 
    Net (loss) gain on other assets  (13)  (37)  (1)  (7)  39 
    Net (loss) gain on tax credit investments  (375)  (207)  (333)  489   (201)
    Other  1,517   1,619   1,410   1,146   1,111 
    Total noninterest income  10,901   15,368   10,486   11,466   10,924 
    Noninterest expense:               
    Salaries and employee benefits  17,340   17,842   18,160   17,754   18,133 
    Occupancy and equipment  3,752   3,739   3,791   3,538   3,730 
    Professional services  2,372   1,415   1,076   1,273   1,495 
    Computer and data processing  5,386   5,562   5,107   4,750   4,691 
    Supplies and postage  475   455   455   473   490 
    FDIC assessments  1,295   1,316   1,232   1,239   1,115 
    Advertising and promotions  297   370   744   498   314 
    Amortization of intangibles  217   221   225   230   234 
    Restructuring charges (recoveries)  -   188   (55)  (19)  - 
    Deposit-related charged-off items  19,179   223   188   467   323 
    Other  3,700   3,716   3,812   3,579   3,136 
    Total noninterest expense  54,013   35,047   34,735   33,782   33,661 
    Income before income taxes  2,426   14,936   16,462   16,791   14,864 
    Income tax expense  356   5,156   2,440   2,418   2,775 
    Net income  2,070   9,780   14,022   14,373   12,089 
    Preferred stock dividends  365   365   365   364   365 
    Net income available to common shareholders $1,705  $9,415  $13,657  $14,009  $11,724 
    FINANCIAL RATIOS:               
    Earnings per share – basic $0.11  $0.61  $0.89  $0.91  $0.76 
    Earnings per share – diluted $0.11  $0.61  $0.88  $0.91  $0.76 
    Cash dividends declared on common stock $0.30  $0.30  $0.30  $0.30  $0.30 
    Common dividend payout ratio  272.73%  49.18%  33.71%  32.97%  39.47%
    Dividend yield (annualized)  6.41%  5.59%  7.07%  7.64%  6.31%
    Return on average assets (annualized)  0.13%  0.63%  0.92%  0.95%  0.84%
    Return on average equity (annualized)  1.83%  9.28%  12.96%  13.43%  11.73%
    Return on average common equity (annualized)  1.57%  9.31%  13.15%  13.64%  11.87%
    Return on average tangible common equity (annualized) (1)  1.88%  11.37%  15.98%  16.58%  14.53%
    Efficiency ratio (2)  105.77%  59.48%  66.47%  62.66%  63.68%
    Effective tax rate  14.7%  34.5%  14.8%  14.4%  18.7%

    (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)

      2024  2023 
      First  Fourth  Third  Second  First 
    SELECTED AVERAGE BALANCES: Quarter  Quarter  Quarter  Quarter  Quarter 
    Federal funds sold and interest-earning deposits $158,075  $102,487  $62,673  $92,954  $63,311 
    Investment securities (1)  1,182,993   1,199,766   1,230,590   1,269,181   1,301,506 
    Loans:               
    Commercial business  722,720   702,222   712,224   710,145   670,354 
    Commercial mortgage  2,029,841   1,995,233   1,977,978   1,911,729   1,744,963 
    Residential real estate loans  648,921   640,955   621,074   598,638   589,747 
    Residential real estate lines  76,396   76,741   75,847   76,191   76,627 
    Consumer indirect  934,380   965,571   989,614   1,011,338   1,024,362 
    Other consumer  51,535   43,664   34,086   21,686   15,156 
    Total loans  4,463,793   4,424,386   4,410,823   4,329,727   4,121,209 
    Total interest-earning assets  5,804,861   5,726,639   5,704,086   5,691,862   5,486,026 
    Goodwill and other intangible assets, net  72,409   72,628   72,851   73,079   73,312 
    Total assets  6,225,760   6,127,171   6,073,653   6,053,258   5,843,786 
    Interest-bearing liabilities:               
    Interest-bearing demand  749,512   780,546   766,636   848,552   880,093 
    Savings and money market  2,081,815   2,048,822   1,749,202   1,660,148   1,665,075 
    Time deposits  1,479,133   1,455,867   1,564,035   1,506,592   1,382,131 
    Short-term borrowings  179,747   84,587   222,871   294,923   145,533 
    Long-term borrowings, net  124,562   124,484   124,407   124,329   114,251 
    Total interest-bearing liabilities  4,614,769   4,494,306   4,427,151   4,434,544   4,187,083 
    Noninterest-bearing demand deposits  962,522   1,006,465   1,022,423   1,029,681   1,064,754 
    Total deposits  5,272,982   5,291,700   5,102,296   5,044,973   4,992,053 
    Total liabilities  5,770,725   5,708,842   5,644,488   5,624,006   5,425,851 
    Shareholders’ equity  455,035   418,329   429,165   429,252   417,935 
    Common equity  437,743   401,037   411,873   411,960   400,643 
    Tangible common equity (2)  365,334   328,409   339,022   338,881   327,331 
    Common shares outstanding:               
    Basic  15,403   15,393   15,391   15,372   15,348 
    Diluted  15,543   15,511   15,462   15,413   15,435 
    SELECTED AVERAGE YIELDS:
    (Tax equivalent basis)    		               
    Investment securities  2.09%  2.03%  1.88%  1.89%  1.90%
    Loans  6.33%  6.21%  6.15%  5.93%  5.61%
    Total interest-earning assets  5.43%  5.32%  5.21%  5.02%  4.71%
    Interest-bearing demand  1.11%  1.26%  0.83%  0.77%  0.64%
    Savings and money market  3.08%  3.01%  2.51%  2.00%  1.60%
    Time deposits  4.68%  4.57%  4.20%  3.76%  3.33%
    Short-term borrowings  3.42%  1.38%  3.98%  4.30%  3.35%
    Long-term borrowings, net  5.02%  5.05%  5.05%  5.04%  5.11%
    Total interest-bearing liabilities  3.34%  3.24%  2.96%  2.60%  2.12%
    Net interest rate spread  2.09%  2.08%  2.25%  2.42%  2.59%
    Net interest margin  2.78%  2.78%  2.91%  2.99%  3.09%

    _______________
    (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)

      2024  2023 
      First  Fourth  Third  Second  First 
    ASSET QUALITY DATA: Quarter  Quarter  Quarter  Quarter  Quarter 
    Allowance for Credit Losses – Loans               
    Beginning balance $51,082  $49,630  $49,836  $47,528  $45,413 
    Net loan charge-offs (recoveries):               
    Commercial business  (37)  (50)  32   33   (124)
    Commercial mortgage  (1)  993   (972)  16   (2)
    Residential real estate loans  4   22   (4)  13   58 
    Residential real estate lines  -   -   -   25   16 
    Consumer indirect  2,973   3,174   2,283   300   1,838 
    Other consumer  182   82   259   249   303 
    Total net charge-offs (recoveries)  3,121   4,221   1,598   636   2,089 
    (Benefit) provision for credit losses – loans  (4,886)  5,673   1,392   2,944   4,204 
    Ending balance $43,075  $51,082  $49,630  $49,836  $47,528 
                    
    Net charge-offs (recoveries) to average loans (annualized):               
    Commercial business  -0.02%  -0.03%  0.02%  0.02%  -0.08%
    Commercial mortgage  0.00%  0.20%  -0.19%  0.00%  0.00%
    Residential real estate loans  0.00%  0.01%  0.00%  0.01%  0.04%
    Residential real estate lines  0.00%  0.00%  0.00%  0.13%  0.09%
    Consumer indirect  1.28%  1.30%  0.92%  0.12%  0.73%
    Other consumer  1.41%  0.75%  3.00%  4.62%  8.10%
    Total loans  0.28%  0.38%  0.14%  0.06%  0.21%
                    
    Supplemental information (1)               
    Non-performing loans:               
    Commercial business $5,956  $5,664  $254  $415  $334 
    Commercial mortgage  10,826   10,563   686   2,477   2,550 
    Residential real estate loans  6,797   6,364   4,992   3,820   3,267 
    Residential real estate lines  235   221   201   208   159 
    Consumer indirect  2,880   3,814   3,382   2,982   2,487 
    Other consumer  36   34   6   5   4 
    Total non-performing loans  26,730   26,660   9,521   9,907   8,801 
    Foreclosed assets  140   142   162   163   101 
    Total non-performing assets $26,870  $26,802  $9,683  $10,070  $8,902 
                    
    Total non-performing loans to total loans  0.60%  0.60%  0.21%  0.23%  0.21%
    Total non-performing assets to total assets  0.43%  0.44%  0.16%  0.16%  0.15%
    Allowance for credit losses – loans to total loans  0.97%  1.14%  1.12%  1.13%  1.12%
    Allowance for credit losses – loans to non-performing loans  161%  192%  521%  503%  540%

    _______________
    (1)   At period end.

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

      2024  2023 
      First  Fourth  Third  Second  First 
      Quarter  Quarter  Quarter  Quarter  Quarter 
    Ending tangible assets:               
    Total assets $6,298,598  $6,160,881  $6,140,149  $6,141,298  $5,966,992 
    Less: Goodwill and other intangible assets, net  72,287   72,504   72,725   72,950   73,180 
    Tangible assets $6,226,311  $6,088,377  $6,067,424  $6,068,348  $5,893,812 
                    
    Ending tangible common equity:               
    Common shareholders’ equity $428,442  $437,504  $391,424  $408,581  $405,531 
    Less: Goodwill and other intangible assets, net  72,287   72,504   72,725   72,950   73,180 
    Tangible common equity $356,155  $365,000  $318,699  $335,631  $332,351 
                    
    Tangible common equity to tangible assets (1)  5.72%  6.00%  5.25%  5.53%  5.64%
                    
    Common shares outstanding  15,447   15,407   15,402   15,402   15,375 
    Tangible common book value per share (2) $23.06  $23.69  $20.69  $21.79  $21.62 
                    
    Average tangible assets:               
    Average assets $6,225,760  $6,127,171  $6,073,653  $6,053,258  $5,843,786 
    Less: Average goodwill and other intangible assets, net  72,409   72,628   72,851   73,079   73,312 
    Average tangible assets $6,153,351  $6,054,543  $6,000,802  $5,980,179  $5,770,474 
                    
    Average tangible common equity:               
    Average common equity $437,743  $401,037  $411,873  $411,960  $400,643 
    Less: Average goodwill and other intangible assets, net  72,409   72,628   72,851   73,079   73,312 
    Average tangible common equity $365,334  $328,409  $339,022  $338,881  $327,331 
                    
    Net income available to common shareholders $1,705  $9,415  $13,657  $14,009  $11,724 
    Return on average tangible common equity (3)  1.88%  11.37%  15.98%  16.58%  14.53%
                    

    _______________
    (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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