• Financial Institutions, Inc. Announces First Quarter Results

    Source: Nasdaq GlobeNewswire / 28 Apr 2021 16:05:02   America/New_York

    WARSAW, N.Y., April 28, 2021 (GLOBE NEWSWIRE) -- Financial Institutions, Inc. (NASDAQ:FISI) (the “Company” “we” or “us”), parent company of Five Star Bank (the “Bank”), SDN Insurance Agency, LLC (“SDN”), Courier Capital, LLC (“Courier Capital”) and HNP Capital, LLC (“HNP Capital”), today reported financial and operational results for the first quarter ended March 31, 2021.

    Net income for the quarter was $20.7 million compared to $1.1 million in the first quarter of 2020. After preferred dividends, net income available to common shareholders was $20.3 million, or $1.27 per diluted share, compared to $762 thousand, or $0.05 per diluted share, in the first quarter of 2020.

    Net income for both periods was significantly impacted by provision for credit losses. In the first quarter of 2020, provision of $13.9 million was driven by the adoption of the current expected credit loss standard (“CECL”) and the impact of the COVID-19 pandemic on the economic environment. The designated loss driver for the Company’s CECL model is the national unemployment forecast, which spiked in early 2020 at the onset of the pandemic. In the first quarter of 2021, provision was a benefit of $2.0 million due to continued improvement in the national unemployment forecast and positive trends in qualitative factors, resulting in a release of credit loss reserves.

    Pre-tax pre-provision income(1) for the quarter was the highest in Company history at $24.1 million, an increase of $8.7 million from the first quarter of 2020.

    “We are very pleased to report another solid quarter for our Company, reflecting strong underlying performance across our businesses,” said President and Chief Executive Officer Martin K. Birmingham. “In addition to the positive provision impact, we reported continued growth in net interest income and noninterest income. We are also benefitting from cost savings as an outcome of the enterprise standardization program. These positive factors contributed to an efficiency ratio below 53% and record pre-tax pre-provision income for the quarter.

    “The pace of activity has not slowed in 2021. We continue to assist new and existing customers with the Paycheck Protection Program (“PPP”), helping them obtain approximately $96 million of new loans and completing the forgiveness process for approximately $87 million of loans in the first quarter. We completed the acquisition of Landmark Group, significantly increasing awareness of our insurance offerings in the Rochester market and supporting our strategy of diversifying revenue. We also repurchased more than 230 thousand shares of common stock under our stock repurchase program at favorable pricing.

    “As infection rates decline in our markets and vaccination rates rise, we are seeing signs of an expanded re-opening of the economy. I remain cautiously optimistic about the strength and timing of the economic recovery. We believe that our strong balance sheet, diversified business model and talented associates position us to perform well in this environment. The continued health, safety and financial well-being of our customers, associates and communities remains a key focus of the Company.”

    Chief Financial Officer and Treasurer W. Jack Plants II added, “Net interest margin was 3.29% for the quarter. Net interest income and net interest margin (“NIM”) benefited from the positive impact of PPP loan forgiveness and recognition of approximately $2.9 million of deferred fees in the quarter. Excluding all impacts of PPP loans, NIM was 3.15% for the first quarter of 2021 compared to 3.14% for the fourth quarter of 2020. NIM continues to be pressured by the interest rate environment and the lower respective yield of our excess liquidity position, driven by the increase in total deposits, up $929 million from the year earlier period.”

    Stock Repurchase Program

    On November 4, 2020, the Company announced a stock repurchase program for up to 801,879 shares of common stock, or approximately 5% of the Company’s outstanding common shares. Shares may be repurchased in open market transactions and pursuant to any trading plan adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934. The timing and number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, market conditions, and other corporate liquidity requirements and priorities. The repurchase program does not obligate the Company to purchase any shares and it may be extended, modified or discontinued at any time.

    No shares were repurchased in 2020 under this program. Year-to-date, the Company has repurchased 238,439 shares for an average repurchase price of $24.30 per share, inclusive of transaction costs.

    Insurance Subsidiary Acquisition

    On February 1, 2021, the Company’s insurance subsidiary SDN completed the acquisition of assets of Landmark Group (“Landmark”). A staple of the Rochester community since 1984, Landmark was an independent insurance brokerage firm delivering insurance, surety and risk management solutions across many business sectors including construction, manufacturing, real estate and technology, as well as individual personal insurance. Landmark Founder and Chairman Kelly M. Shea and President Christopher K. Shea remain with SDN to lead Rochester operations and continue their long-term relationship with clients.

    Net Interest Income and Net Interest Margin

    Net interest income was $37.9 million for the quarter, an increase of $1.7 million from the fourth quarter of 2020 and $4.7 million higher than the first quarter of 2020.

    • Average interest-earning assets for the quarter were $4.67 billion, $35.1 million higher than the fourth quarter of 2020 and $616.3 million higher than the first quarter of 2020. The increase was primarily the result of changes in the level of Federal Reserve interest-earning cash, $53.9 million lower than the fourth quarter of 2020 and $63.7 million higher than the first quarter of 2020; an increase in investment securities, $51.6 million higher than the fourth quarter of 2020 and $134.7 million higher than the first quarter of 2020; and growth in loans, $37.4 million higher than the fourth quarter of 2020 and $417.8 million higher than the first quarter of 2020. The average balance of PPP loans net of deferred fees was $248.5 million in the first quarter of 2021 and $262.4 million in the fourth quarter of 2020.

    Net interest margin was 3.29% as compared to 3.13% in the fourth quarter of 2020 and 3.31% in the first quarter of 2020. Excluding the impact of lower-yielding PPP loans and related loan origination fees amortized over the term of the loan or upon loan forgiveness, net interest margin was 3.15% in the first quarter of 2021 and 3.14% in the fourth quarter of 2020.

    • Our net interest margin has been impacted by the interest rate environment that reflects a flatter yield curve and lower rates. In the fourth quarter of 2020 and first quarter of 2021, our excess liquidity position placed further pressure on net interest margin. Excess liquidity has been deployed into the investment securities portfolio, albeit at lower comparative yields, based on current market conditions.

    Noninterest Income

    Noninterest income was $13.0 million for the quarter, an increase of $1.6 million from the fourth quarter of 2020 and an increase of $3.0 million from the first quarter of 2020.

    • Service charges on deposits of $1.3 million was $197 thousand lower than the fourth quarter of 2020 and $295 thousand lower than the first quarter of 2020. Insufficient fund fees after the first quarter of 2020 remain lower than historic levels due to higher consumer account balances, likely due to the positive impact of stimulus programs. These fees are typically higher in the fourth quarter than the first quarter.
    • Insurance income of $1.4 million was $518 thousand higher than the fourth quarter of 2020 due to contingent revenue received in the first quarter each year combined with the impact of the February 2021 acquisition of Landmark. Income was relatively flat as compared to the first quarter of 2020.
    • Card interchange income of $2.0 million was relatively unchanged as compared to the fourth quarter of 2020 and $356 thousand higher than the first quarter of 2020 primarily due to the impact of COVID-19 on customer behavior in the last half of March 2020.
    • Investment advisory fees of $2.8 million was $177 thousand higher than the fourth quarter of 2020 and $526 thousand higher than the first quarter of 2020 as a result of an increase in assets under management driven by a combination of market gains, new customer accounts and contributions to existing accounts.
    • Income from investments in limited partnerships of $855 thousand was $615 thousand higher than the fourth quarter of 2020 and $642 thousand higher than the first quarter of 2020. The Company has made several investments in limited partnerships, primarily small business investment companies, and accounts for these investments under the equity method. Income from these investments fluctuates based on the maturity and performance of the underlying investments.
    • Income from derivative instruments, net was $1.9 million, $971 thousand higher than the fourth quarter of 2020 and $1.1 million higher than the first quarter of 2020. Income from derivative instruments, net is based on the number and value of interest rate swap transactions executed during the quarter combined with the impact of changes in the fair market value of borrower-facing trades, which were positively impacted by the recent increase in longer-term interest rates.
    • Net gain on sale of loans held for sale of $1.1 million was $519 thousand lower than the fourth quarter of 2020 as a result of a decrease in volume of residential real estate loans and $826 thousand higher than the first quarter of 2020 due to higher loan volume combined with an increase in transaction margin.

    Noninterest Expense

    Noninterest expense was $26.7 million in the quarter compared to $26.5 million in the fourth quarter of 2020 and $27.7 million in the first quarter of 2020.

    • Salaries and employee benefits expense of $14.5 million was $302 thousand higher than the fourth quarter of 2020, primarily due to investments in personnel and the timing of merit increases effective in early March. The decrease of $549 thousand from the first quarter of 2020 reflects a streamlining of retail branches to better align with shifting customer needs and preferences, including the 2020 closure of seven branches.
    • Professional services expense of $1.9 million was $543 thousand higher than the fourth quarter of 2020 and $257 thousand lower than the first quarter of 2020 primarily due to the timing and level of audit fees and fees for consulting and advisory projects, including the Company’s improvement initiatives. Expenses related to improvement initiatives totaled $180 thousand in the first quarter of 2021, $56 thousand in the fourth quarter of 2020 and $599 thousand in the first quarter of 2020.
    • Computer and data processing expense of $3.1 million was $98 thousand higher than the fourth quarter of 2020 and $448 thousand higher than the first quarter of 2020 due to investments in technology. The year-over-year increase also reflects costs related to the Bank’s online and mobile platform, Five Star Bank Digital Banking, launched in the second quarter of 2020.
    • FDIC assessments were $765 thousand in the quarter compared to $737 thousand in the fourth quarter of 2020 and $372 thousand in the first quarter of 2020. The increase as compared to the first quarter of 2020 was the result of an increase in total assets combined with the impact of a $70 thousand credit from 2018 that was utilized in the first quarter of 2020.

    Income Taxes

    Income tax expense was $5.3 million for the quarter compared to $1.7 million in the fourth quarter of 2020 and $322 thousand in the first quarter of 2020. The Company recognized federal and state tax benefits related to tax credit investments placed in service and/or amortized during the first quarter of 2021, fourth quarter of 2020, and first quarter of 2020, resulting in income tax expense reductions of approximately $244 thousand, $915 thousand and $197 thousand, respectively.

    The effective tax rate was 20.5% for the quarter compared to 10.9% for the fourth quarter of 2020 and 22.2% for the first quarter of 2020. The Company’s effective tax rates differ from statutory rates because of interest income from tax-exempt securities, earnings on company owned life insurance and the impact of tax credit investments.

    Balance Sheet and Capital Management

    Total assets were $5.33 billion at March 31, 2021, up $416.8 million from December 31, 2020, and up $857.3 million from March 31, 2020.

    Investment securities were $1.01 billion at March 31, 2021, up $109.6 million from December 31, 2020, and up $218.5 million from March 31, 2020. The Company’s initial 2020 investment strategy was to reinvest cash flow from the portfolio; however, the focus was redirected to deploying excess liquidity into cash flowing agency mortgage backed securities given the elevated cash position experienced across the banking system. Increased purchase activity in the first quarter of 2021 resulted from the continued execution of the strategy to reallocate excess Federal Reserve cash balances into collateral eligible agency mortgage backed securities that demonstrated higher yields, on a relative basis.

    Total loans were $3.65 billion at March 31, 2020, up $59.2 million, or 1.6%, from December 31, and up $417.2 million, or 12.9%, from March 31, 2020.

    • Commercial business loans totaled $816.9 million, up $22.8 million, or 2.9%, from December 31, 2020, and up $228.1 million, or 38.7%, from March 31, 2020. PPP loans net of deferred fees were $255.6 million and $248.0 million at March 31, 2021, and December 31, 2020, respectively, and are included in commercial business loans. Accordingly, commercial business loans excluding the impact of PPP increased 2.8% from December 31, 2020, and decreased 4.7% from March 31, 2020.
    • Commercial mortgage loans totaled $1.28 billion, up $22.9 million, or 1.8%, from December 31, 2020, and up $169.5 million, or 15.3%, from March 31, 2020.
    • Residential real estate loans totaled $601.6 million, up $1.8 million, or 0.3%, from December 31, 2020, and up $21.8 million, or 3.8%, from March 31, 2020.
    • Consumer indirect loans totaled $857.8 million, up $17.4 million, or 2.1%, from December 31, 2020 and up $14.1 million, or 1.7%, from March 31, 2020.

    Total deposits were $4.72 billion at March 31, 2021, $437.6 million higher than December 31, 2020, and $928.8 million higher than March 31, 2020. The increase from December 31, 2020, was the result of a seasonal increase in public deposits combined with growth in the non-public and reciprocal deposit portfolios. The increase from March 31, 2020, was due to growth in non-public, reciprocal and public deposits. Public deposit balances represented 24% of total deposits at March 31, 2021, compared to 20% of total deposits at December 31, 2020, and 27% at March 31, 2020.

    There were no short-term borrowings outstanding at March 31, 2021, a decrease of $5.3 million and $109.5 million from December 31, 2020, and March 31, 2020, respectively. The decline is the result of the Company’s decision to utilize brokered deposits as a cost-effective alternative to Federal Home Loan Bank borrowings. Short-term borrowings and brokered deposits have historically been utilized to manage the seasonality of public deposits. In February 2020, the Company entered a long-term brokered sweep arrangement as a stable alternative borrowing source to diversify the wholesale funding base.

    Shareholders’ equity was $466.3 million at March 31, 2021, compared to $468.4 million at December 31, 2020, and $439.4 million at March 31, 2020. Common book value per share was $28.36 at March 31, 2021, an increase of $0.24 or 0.9% from $28.12 at December 31, 2020, and an increase of $2.01 or 7.6% from $26.35 at March 31, 2020. Tangible common book value per share(1) was $23.66 at March 31, 2021, an increase of $0.14 or 0.6% from $23.52 at December 31, 2020, and an increase of $1.97 or 9.1% from $21.69 at March 31, 2020.

    The common equity to assets ratio was 8.42% at March 31, 2021, compared to 9.18% at December 31, 2020, and 9.44% at March 31, 2020. Tangible common equity to tangible assets(1), or the TCE ratio, was 7.13%, 7.80% and 7.90% at March 31, 2021, December 31, 2020, and March 31, 2020, respectively. The primary driver of declines in both ratios compared to prior periods was the significant increase in total assets, specifically the increase in liquidity. The ratios were impacted to a lesser degree by a decrease in accumulated other comprehensive income (loss) associated with unrealized losses in the available for sale securities portfolio and the impact of share repurchases during the first quarter of 2021, partially offset by the positive impact of earnings.

    During the first quarter of 2021, the Company declared a common stock dividend of $0.27 per common share, an increase of 3.8% over the previous dividend. The dividend returned 21% of first quarter net income to common shareholders.

    The Company’s regulatory capital ratios at March 31, 2021, compared to the prior quarter and prior year:

    • Leverage Ratio was 8.35%, compared to 8.25% and 8.78% at December 31, 2020, and March 31, 2020, respectively.
    • Common Equity Tier 1 Capital Ratio was 10.22%, compared to 10.18% and 10.05% at December 31, 2020, and March 31, 2020, respectively.
    • Tier 1 Capital Ratio was 10.66%, compared to 10.63% and 10.53% at December 31, 2020, and March 31, 2020, respectively.
    • Total Risk-Based Capital Ratio was 13.53%, compared to 13.61% and 12.54% at December 31, 2020, and March 31, 2020, respectively.

    Credit Quality

    Non-performing loans were $9.7 million at March 31, 2021, compared to $9.5 million at December 31, 2020, and $12.4 million at March 31, 2020. Net charge-offs were $887 thousand in the quarter, $1.5 million lower than the fourth quarter of 2020 and $9.3 million lower than the first quarter of 2020. Higher first quarter 2020 non-performing loans and charge-offs were the result of one commercial credit that was downgraded and partially charged-off. The borrower’s business was related to the hospitality industry and the downgrade and charge-off were precipitated by the impact of COVID-19. The ratio of annualized net charge-offs to total average loans was 0.10% in the current quarter, 0.27% in the fourth quarter of 2020 and 1.27% in the first quarter of 2020.

    Foreclosed assets at March 31, 2021, were $3.0 million, unchanged from December 31, 2020, and an increase of $2.2 million from March 31, 2020. The increase from March 31, 2020, is attributable to the commercial credit previously described; the loan was partially charged off during the first quarter of 2020 and foreclosure occurred in the third quarter.

    At March 31, 2021, the allowance for credit losses - loans to total loans ratio was 1.36% compared to 1.46% at December 31, 2020, and 1.34% at March 31, 2020. PPP loans are fully guaranteed by the Small Business Administration. Excluding PPP loans, the March 31, 2020, allowance for credit losses - loans to total loans ratio(1) was 1.47%, a decrease of ten basis points from 1.57% at December 31, 2020.

    Provision (benefit) for credit losses - loans was a $1.7 million benefit in the quarter compared to provisions of $5.4 million in the fourth quarter of 2020 and $13.4 million in the first quarter of 2020. Changes in the allowance for unfunded commitments, also included in provision (benefit) for credit losses, were a $276 thousand decrease in the first quarter of 2021 and increases of $73 thousand and $493 thousand in the fourth and first quarters of 2020, respectively.

    The Company has remained strategically focused on the importance of credit discipline, allocating what we believe are the necessary resources to credit and risk management functions as the loan portfolio has grown. The total non-performing loans to total loans ratio was 0.27% at March 31, 2021, 0.26% at December 31, 2020, and 0.38% at March 31, 2020. The ratio of allowance for credit losses - loans to non-performing loans was 514% at March 31, 2021, compared to 551% at December 31, 2020, and 350% at March 31, 2020.

    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, 2021, 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, 2021, and will adjust amounts preliminarily reported, if necessary.

    Conference Call

    The Company will host an earnings conference call and audio webcast on April 29, 2021, at 8:30 a.m. Eastern Time. The call will be hosted by Martin K. Birmingham, President and Chief Executive Officer, and W. Jack Plants II, Chief Financial Officer and Treasurer. The live webcast will be available in listen-only mode on the Company’s website at www.fiiwarsaw.com. Within the United States, listeners may also access the call by dialing 1-888-346-9290 and requesting the Financial Institutions, Inc. call. The webcast replay will be available on the Company’s website for at least 30 days.

    About Financial Institutions, Inc.

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

    Non-GAAP Financial Information

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

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

    Safe Harbor Statement

    This press release may contain forward-looking statements as defined by Section 21E of the Securities Exchange Act of 1934, as amended, that involve significant risks and uncertainties. In this context, forward-looking statements often address our expected future business and financial performance and financial condition, and often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” “will,” “would,” “estimate,” “forecast,” “target,” “preliminary,” or “range.” Statements herein are based on certain assumptions and analyses by the Company and factors it believes are appropriate in the circumstances. Actual results could differ materially from those contained in or implied by such statements for a variety of reasons including, but not limited to: the impact of the COVID-19 pandemic on the Company’s customers, business, and results of operations as well as the economy in Western New York and the United States, the Company’s ability to implement its strategic plan, 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, the Company’s ability to successfully integrate and profitably operate Landmark Group and other acquisitions, 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, changes in interest rates, and general economic and credit market conditions nationally and regionally. Consequently, all forward-looking statements made herein are qualified by these cautionary statements and the cautionary language in the Company’s Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q and other documents filed with the SEC. Except as required by law, the Company undertakes no obligation to revise these statements following the date of this press release.

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

    For additional information contact:

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

     
     
    FINANCIAL INSTITUTIONS, INC.
    Selected Financial Information (Unaudited)
    (Amounts in thousands, except per share amounts)
     
      2021  2020 
      March 31,  December 31,  September 30,  June 30,  March 31, 
    SELECTED BALANCE SHEET DATA:                    
    Cash and cash equivalents $344,790  $93,878  $282,070  $119,610  $152,168 
    Investment securities:                    
    Available for sale  753,489   628,059   515,971   469,413   444,845 
    Held-to-maturity, net  256,127   271,966   290,946   309,872   346,239 
    Total investment securities  1,009,616   900,025   806,917   779,285   791,084 
    Loans held for sale  5,685   4,305   7,076   6,654   3,822 
    Loans:                    
    Commercial business  816,936   794,148   818,135   818,691   588,868 
    Commercial mortgage  1,276,841   1,253,901   1,202,046   1,140,326   1,107,376 
    Residential real estate loans  601,609   599,800   596,902   585,035   579,800 
    Residential real estate lines  85,362   89,805   94,017   97,427   102,113 
    Consumer indirect  857,804   840,421   840,579   828,105   843,668 
    Other consumer  15,834   17,063   16,860   16,237   15,402 
    Total loans  3,654,386   3,595,138   3,568,539   3,485,821   3,237,227 
    Allowance for credit losses - loans  49,828   52,420   49,395   46,316   43,356 
    Total loans, net  3,604,558   3,542,718   3,519,144   3,439,505   3,193,871 
    Total interest-earning assets  4,963,264   4,520,416   4,577,057   4,314,490   4,116,688 
    Goodwill and other intangible assets, net  74,528   73,789   74,062   74,342   74,629 
    Total assets  5,329,056   4,912,306   4,959,201   4,680,930   4,471,768 
    Deposits:                    
    Noninterest-bearing demand  1,099,608   1,018,549   1,013,176   1,008,958   732,917 
    Interest-bearing demand  873,390   731,885   786,059   727,676   724,670 
    Savings and money market  1,826,621   1,642,340   1,724,463   1,368,805   1,270,253 
    Time deposits  916,395   885,593   841,230   888,569   1,059,345 
    Total deposits  4,716,014   4,278,367   4,364,928   3,994,008   3,787,185 
    Short-term borrowings  -   5,300   5,300   105,300   109,500 
    Long-term borrowings, net  73,679   73,623   39,258   39,308   39,291 
    Total interest-bearing liabilities  3,690,085   3,338,741   3,396,310   3,129,658   3,203,059 
    Shareholders’ equity  466,284   468,363   456,361   448,045   439,393 
    Common shareholders’ equity  448,962   451,035   439,033   430,717   422,065 
    Tangible common equity (1)  374,434   377,246   364,971   356,375   347,436 
    Accumulated other comprehensive income (loss) $(10,572) $2,128  $(209) $(496) $(2,082)
                         
    Common shares outstanding  15,829   16,042   16,038   16,038   16,020 
    Treasury shares  271   58   62   62   80 
    CAPITAL RATIOS AND PER SHARE DATA:                    
    Leverage ratio  8.35%  8.25%  8.42%  8.49%  8.78%
    Common equity Tier 1 capital ratio  10.22%  10.18%  10.19%  10.27%  10.05%
    Tier 1 capital ratio  10.66%  10.63%  10.66%  10.76%  10.53%
    Total risk-based capital ratio  13.53%  13.61%  12.74%  12.83%  12.54%
    Common equity to assets  8.42%  9.18%  8.85%  9.20%  9.44%
    Tangible common equity to tangible assets (1)  7.13%  7.80%  7.47%  7.74%  7.90%
                         
    Common book value per share $28.36  $28.12  $27.38  $26.86  $26.35 
    Tangible common book value per share (1) $23.66  $23.52  $22.76  $22.22  $21.69 
                         
    ___________

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


    FINANCIAL INSTITUTIONS, INC.
    Selected Financial Information (Unaudited)
    (Amounts in thousands, except per share amounts)
           
      2021  2020 
      First  Fourth  Third  Second  First 
      Quarter  Quarter  Quarter  Quarter  Quarter 
    SELECTED INCOME STATEMENT                    
    DATA:                    
    Interest income $41,273  $40,168  $39,719  $39,759  $41,653 
    Interest expense  3,416   3,987   4,220   5,578   8,529 
    Net interest income  37,857   36,181   35,499   34,181   33,124 
    Provision (benefit) for credit losses  (1,981)  5,495   4,028   3,746   13,915 
    Net interest income after provision                    
    for credit losses  39,838   30,686   31,471   30,435   19,209 
    Noninterest income:                    
    Service charges on deposits  1,292   1,489   1,254   480   1,587 
    Insurance income  1,396   878   1,357   819   1,349 
    Card interchange income  1,958   1,960   1,943   1,776   1,602 
    Investment advisory  2,772   2,595   2,443   2,251   2,246 
    Company owned life insurance  657   505   470   462   465 
    Investments in limited partnerships  855   240   (105)  (244)  213 
    Loan servicing  97   143   49   50   7 
    Income from derivative                    
    instruments, net  1,875   904   1,931   1,940   746 
    Net gain on sale of loans held for sale  1,078   1,597   1,397   612   252 
    Net gain on investment securities  74   150   554   674   221 
    Net gain (loss) on other assets  (5)  (69)  (55)  (1)  64 
    Net loss on tax credit investments  (85)  (155)  (40)  (40)  (40)
    Other  995   1,099   1,019   934   1,198 
    Total noninterest income  12,959   11,336   12,217   9,713   9,910 
    Noninterest expense:                    
    Salaries and employee benefits  14,465   14,163   15,085   15,074   15,014 
    Occupancy and equipment  3,382   3,248   3,263   3,388   3,756 
    Professional services  1,895   1,352   1,242   1,580   2,152 
    Computer and data processing  3,121   3,023   3,250   2,699   2,673 
    Supplies and postage  484   442   463   517   553 
    FDIC assessments  765   737   594   539   372 
    Advertising and promotions  324   554   955   545   555 
    Amortization of intangibles  271   273   280   287   294 
    Restructuring charges  -   130   1,362   -   - 
    Other  2,033   2,612   1,981   1,946   2,301 
    Total noninterest expense  26,740   26,534   28,475   26,575   27,670 
    Income before income taxes  26,057   15,488   15,213   13,573   1,449 
    Income tax expense  5,347   1,688   2,940   2,441   322 
    Net income  20,710   13,800   12,273   11,132   1,127 
    Preferred stock dividends  365   365   365   366   365 
    Net income available to common                    
    shareholders $20,345  $13,435  $11,908  $10,766  $762 
    FINANCIAL RATIOS:                    
    Earnings per share – basic $1.28  $0.84  $0.74  $0.67  $0.05 
    Earnings per share – diluted $1.27  $0.84  $0.74  $0.67  $0.05 
    Cash dividends declared on common stock $0.27  $0.26  $0.26  $0.26  $0.26 
    Common dividend payout ratio  21.09%  30.95%  35.14%  38.81%  520.00%
    Dividend yield (annualized)  3.62%  4.60%  6.72%  5.60%  5.76%
    Return on average assets  1.66%  1.10%  1.02%  0.97%  0.10%
    Return on average equity  17.92%  11.86%  10.72%  10.05%  1.03%
    Return on average common equity  18.28%  12.00%  10.82%  10.11%  0.72%
    Return on average tangible common                    
    equity (1)  21.88%  14.38%  13.02%  12.25%  0.88%
    Efficiency ratio (2)  52.51%  55.79%  60.12%  61.16%  64.26%
    Effective tax rate  20.5%  10.9%  19.3%  18.0%  22.2%

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

     
    FINANCIAL INSTITUTIONS, INC.
    Selected Financial Information (Unaudited)
    (Amounts in thousands)
           
      2021  2020 
      First  Fourth  Third  Second  First 
      Quarter  Quarter  Quarter  Quarter  Quarter 
    SELECTED AVERAGE BALANCES:                    
    Federal funds sold and interest-                    
    earning deposits $123,042  $176,950  $121,929  $92,214  $59,309 
    Investment securities (1)  914,569   862,956   769,673   766,636   779,894 
    Loans:                    
    Commercial business  798,866   803,536   808,582   757,588   570,886 
    Commercial mortgage  1,284,290   1,243,035   1,180,747   1,133,832   1,100,660 
    Residential real estate loans  602,866   599,773   590,483   581,651   578,407 
    Residential real estate lines  87,681   91,856   95,288   99,543   102,680 
    Consumer indirect  842,873   840,210   830,647   827,030   846,800 
    Other consumer  16,167   16,948   16,445   15,155   15,466 
    Total loans  3,632,743   3,595,358   3,522,192   3,414,799   3,214,899 
    Total interest-earning assets  4,670,354   4,635,264   4,413,794   4,273,649   4,054,102 
    Goodwill and other intangible assets, net  74,214   73,942   74,220   74,504   74,797 
    Total assets  5,045,180   4,992,886   4,775,333   4,624,360   4,376,125 
    Interest-bearing liabilities:                    
    Interest-bearing demand  790,996   774,688   704,550   712,300   667,533 
    Savings and money market  1,724,577   1,722,938   1,574,068   1,329,632   1,143,628 
    Time deposits  863,924   871,103   867,479   984,832   1,116,736 
    Short-term borrowings  1,178   9,188   57,856   110,272   169,827 
    Long-term borrowings, net  73,636   71,481   39,314   39,297   39,279 
    Total interest-bearing liabilities  3,454,311   3,449,398   3,243,267   3,176,333   3,137,003 
    Noninterest-bearing demand deposits  1,044,733   997,607   987,908   912,238   721,975 
    Total deposits  4,424,230   4,366,336   4,134,005   3,939,002   3,649,872 
    Total liabilities  4,576,545   4,530,043   4,320,057   4,178,921   3,934,909 
    Shareholders’ equity  468,635   462,843   455,276   445,439   441,216 
    Common equity  451,311   445,515   437,948   428,111   423,888 
    Tangible common equity (2) $377,097  $371,573  $363,728  $353,607  $349,091 
    Common shares outstanding:                    
    Basic  15,889   16,032   16,031   16,018   16,006 
    Diluted  15,972   16,078   16,058   16,047   16,069 
    SELECTED AVERAGE YIELDS:
    (Tax equivalent basis)    		                    
    Investment securities  1.91%  2.06%  2.23%  2.49%  2.48%
    Loans  4.13%  3.97%  4.02%  4.14%  4.61%
    Total interest-earning assets  3.59%  3.46%  3.60%  3.76%  4.15%
    Interest-bearing demand  0.13%  0.13%  0.14%  0.14%  0.21%
    Savings and money market  0.21%  0.25%  0.28%  0.31%  0.56%
    Time deposits  0.51%  0.66%  0.92%  1.39%  1.83%
    Short-term borrowings  41.07%  8.49%  1.60%  1.03%  2.11%
    Long-term borrowings, net  5.77%  5.76%  6.31%  6.29%  6.29%
    Total interest-bearing liabilities  0.40%  0.46%  0.52%  0.71%  1.09%
    Net interest rate spread  3.19%  3.00%  3.08%  3.05%  3.06%
    Net interest margin  3.29%  3.13%  3.22%  3.23%  3.31%

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

     
    FINANCIAL INSTITUTIONS, INC.
    Selected Financial Information (Unaudited)
    (Amounts in thousands)
      2021  2020 
      First  Fourth  Third  Second  First 
      Quarter  Quarter  Quarter  Quarter  Quarter 
    ASSET QUALITY DATA:                    
    Allowance for Credit Losses - Loans                    
    Beginning balance, prior to                    
    adoption of CECL $52,420  $49,395  $46,316  $43,356  $30,482 
    Impact of adopting CECL  -   -   -   -   9,594 
    Beginning balance, after                    
    adoption of CECL  52,420   49,395   46,316   43,356   40,076 
    Net loan charge-offs (recoveries):                    
    Commercial business  (152)  747   (88)  (1,458)  8,183 
    Commercial mortgage  203   80   603   1,072   - 
    Residential real estate loans  6   (3)  (7)  (6)  88 
    Residential real estate lines  70   -   -   -   (3)
    Consumer indirect  743   1,462   (115)  1,175   1,756 
    Other consumer  17   112   95   3   119 
        Total net charge-offs  887   2,398   488   786   10,143 
    Provision (benefit) for credit losses - loans  (1,705)  5,423   3,567   3,746   13,423 
    Ending balance $49,828  $52,420  $49,395  $46,316  $43,356 
                         
    Net charge-offs (recoveries)                    
      to average loans (annualized):                    
    Commercial business  -0.08%  0.37%  -0.04%  -0.77%  5.77%
    Commercial mortgage  0.06%  0.03%  0.20%  0.38%  0.00%
    Residential real estate loans  0.00%  0.00%  0.00%  0.00%  0.06%
    Residential real estate lines  0.32%  0.00%  0.00%  0.00%  -0.01%
    Consumer indirect  0.36%  0.69%  -0.05%  0.57%  0.83%
    Other consumer  0.44%  2.64%  2.31%  0.08%  3.09%
        Total loans  0.10%  0.27%  0.06%  0.09%  1.27%
                         
    Supplemental information (1)                    
    Non-performing loans:                    
    Commercial business $1,742  $1,975  $2,628  $4,918  $5,507 
    Commercial mortgage  3,402   2,906   3,372   4,140   2,984 
    Residential real estate loans  2,519   2,587   3,305   2,992   1,971 
    Residential real estate lines  256   323   207   177   143 
    Consumer indirect  1,482   1,495   1,244   868   1,777 
    Other consumer  287   231   147   87   2 
        Total non-performing loans  9,688   9,517   10,903   13,182   12,384 
    Foreclosed assets  2,966   2,966   2,999   679   749 
    Total non-performing assets $12,654  $12,483  $13,902  $13,861  $13,133 
                         
    Total non-performing loans                    
    to total loans  0.27%  0.26%  0.31%  0.38%  0.38%
    Total non-performing assets                    
    to total assets  0.24%  0.25%  0.28%  0.30%  0.29%
    Allowance for credit losses - loans                    
    to total loans  1.36%  1.46%  1.38%  1.33%  1.34%
    Allowance for credit losses - loans                    
    to non-performing loans  514%  551%  453%  351%  350%
                         
                    
    (1)   At period end.
     


    FINANCIAL INSTITUTIONS, INC.
    Appendix A — Reconciliation to Non-GAAP Financial Measures (Unaudited)
    (In thousands, except per share amounts)
     
      2021  2020 
      First  Fourth  Third  Second  First 
      Quarter  Quarter  Quarter  Quarter  Quarter 
    Ending tangible assets:                    
    Total assets $5,329,056  $4,912,306  $4,959,201  $4,680,930  $4,471,768 
    Less: Goodwill and other intangible                    
    assets, net  74,528   73,789   74,062   74,342   74,629 
    Tangible assets $5,254,528  $4,838,517  $4,885,139  $4,606,588  $4,397,139 
                         
    Ending tangible common equity:                    
    Common shareholders’ equity $448,962  $451,035  $439,033  $430,717  $422,065 
    Less: Goodwill and other intangible                    
    assets, net  74,528   73,789   74,062   74,342   74,629 
    Tangible common equity $374,434  $377,246  $364,971  $356,375  $347,436 
                         
    Tangible common equity to tangible                    
    assets (1)  7.13%  7.80%  7.47%  7.74%  7.90%
                         
    Common shares outstanding  15,829   16,042   16,038   16,038   16,020 
    Tangible common book value per                    
    share (2) $23.66  $23.52  $22.76  $22.22  $21.69 
                         
    Average tangible assets:                    
    Average assets $5,045,180  $4,992,886  $4,775,333  $4,624,360  $4,376,125 
    Less: Average goodwill and other                    
    intangible assets, net  74,214   73,942   74,220   74,504   74,797 
    Average tangible assets $4,970,966  $4,918,944  $4,701,113  $4,549,856  $4,301,328 
                         
    Average tangible common equity:                    
    Average common equity $451,311  $445,515  $437,948  $428,111  $423,888 
    Less: Average goodwill and other                    
    intangible assets, net  74,214   73,942   74,220   74,504   74,797 
    Average tangible common equity $377,097  $371,573  $363,728  $353,607  $349,091 
                         
    Net income available to                    
    common shareholders $20,345  $13,435  $11,908  $10,766  $762 
    Return on average tangible common                    
    equity (3)  21.88%  14.38%  13.02%  12.25%  0.88%
                         
    Pre-tax pre-provision income:                    
    Net income $20,710  $13,800  $12,273  $11,132  $1,127 
    Add: Income tax expense  5,347   1,688   2,940   2,441   322 
    Add: Provision (benefit) for credit losses  (1,981)  5,495   4,028   3,746   13,915 
    Pre-tax pre-provision income $24,076  $20,983  $19,241  $17,319  $15,364 
                         
    Total loans excluding PPP loans:                    
    Total loans $3,654,386  $3,595,138  $3,568,539  $3,485,821     
    Less: Total PPP loans  255,595   247,951   264,138   261,468     
    Total loans excluding PPP loans $3,398,791  $3,347,187  $3,304,401  $3,224,352     
                         
    Allowance for credit losses - loans $49,828  $52,420  $49,395  $46,316     
    Allowance for credit losses - loans to                    
    total loans excluding PPP loans (4)  1.47%  1.57%  1.49%  1.44%    

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

     


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