Financial Institutions, Inc. Announces Second Quarter Results

Warsaw, New York, UNITED STATES


WARSAW, N.Y., July 29, 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 second quarter ended June 30, 2021.

Net income for the quarter was $20.2 million compared to $11.1 million in the second quarter of 2020. After preferred dividends, net income available to common shareholders was $19.8 million, or $1.25 per diluted share, compared to $10.8 million, or $0.67 per diluted share, in the second quarter of 2020.

  • The increase in quarterly net income was driven by a $4.6 million benefit for credit losses as compared to a provision of $3.7 million in the second quarter of 2020. Continued improvement in the national unemployment forecast, positive trends in qualitative factors and lower net charge-offs resulted in a release of credit loss reserves and the corresponding benefit for credit losses in the quarter.

Pre-tax pre-provision income(1) for the quarter was $21.0 million, an increase of $3.7 million from the second quarter of 2020.

“Our Company delivered solid performance across all business lines in the quarter with year-over-year growth in net interest income and noninterest income and a quarterly efficiency ratio of 56%,” said President and Chief Executive Officer Martin K. Birmingham. “Cost savings from our enterprise standardization program are offsetting the cost of important investments we are making in people and technology to improve relationships with our customers and enhance future profitability. Our team continued to do a great job serving our clients across our banking, insurance and investment businesses.  

“We once again benefitted from a positive provision in the quarter due to continued improvement in the operating environment. A strengthening economy is also reflected in net loan recoveries.

“We opened two new branches in the City of Buffalo in June. Both branches are in areas undergoing redevelopment and revitalization and we are honored to play an important role. We look forward to delivering our unique style of community banking to our neighbors and helping them improve their financial well-being.”

Chief Financial Officer and Treasurer W. Jack Plants II added, “Net interest margin (“NIM”) was 3.06% for the second quarter, down 23 basis points from 3.29% in the first quarter of 2021. Second quarter NIM was impacted by an increase in our excess liquidity position coupled with a lower level of fee accretion related to Paycheck Protection Program (“PPP”) loans in comparison to the first quarter. On a linked quarter basis, our excess liquidity position resulted in an increase in average investment securities and interest-earning deposits of $269 million, partially due to the seasonal inflow of public deposits. This resulted in approximately 12 basis points of NIM compression in the quarter. Second quarter PPP fee accretion was $1.5 million, down from $2.9 million in the prior quarter, negatively impacting second quarter NIM by approximately 11 basis points. Excluding all impacts of PPP loans, NIM was 3.02% for the second quarter as compared to 3.15% for the first quarter of 2021.”

Buffalo Branch Openings

Two new Five Star Bank branches opened in the City of Buffalo in June of 2021, consistent with the Company’s long-term strategy to expand in the urban markets of Buffalo and Rochester. The branches are in vibrant commercial corridors at 451 Elmwood Avenue and 2222 Seneca Street, extending the reach of Five Star Bank’s distribution system in both northern and southern directions from the existing downtown branch.

The Company is committed to the use of green and energy efficient materials. Materials sourced for the Elmwood Avenue and Seneca Street branches received certifications from Cradle to Cradle, Declare, Forest Stewardship Council, Green Square and GreenGuard. Additionally, materials with a high percentage of recycled content were used when possible.

Net Interest Income and Net Interest Margin

Net interest income was $37.7 million for the quarter, a decrease of $125 thousand from the first quarter of 2021 and an increase of $3.6 million from the second quarter of 2020.

  • Average interest-earning assets for the quarter were $4.97 billion, $302.5 million higher than the first quarter of 2021 and $699.2 million higher than the second quarter of 2020. The increase was the result of an increase in the level of Federal Reserve interest-earning cash, $126.3 million higher than the first quarter of 2021 and $157.1 million higher than the second quarter of 2020; an increase in investment securities, $142.3 million higher than the first quarter of 2021 and $290.3 million higher than the second quarter of 2020; and growth in loans, $33.9 million higher than the first quarter of 2021 and $251.8 million higher than the second quarter of 2020. The average balance of PPP loans net of deferred fees was $232.0 million in the second quarter of 2021, $248.5 million in the first quarter of 2021 and $176.7 million in the second quarter of 2020.

Net interest margin was 3.06% as compared to 3.29% in the first quarter of 2021 and 3.23% in the second quarter of 2020. Excluding the impact of lower-yielding PPP loans and related loan origination fees accreted over the term of the loan or upon loan forgiveness, net interest margin was 3.02% in the second quarter of 2021, 3.15% in the first quarter of 2021 and 3.27% in the second 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 first and second quarters of 2021, our excess liquidity position placed further pressure on net interest margin. Excess liquidity has resulted in higher average balances of interest-earning cash and investment securities, albeit at lower comparative yields, based on current market conditions.

Noninterest Income

Noninterest income was $10.2 million for the quarter, a decrease of $2.8 million from the first quarter of 2021 and an increase of $477 thousand from the second quarter of 2020.

  • Service charges on deposits of $1.3 million was relatively unchanged as compared to the first quarter of 2021 and $807 thousand higher than the second quarter of 2020. The increase is the result of the Company’s COVID-19 relief initiatives of temporarily waiving or eliminating fees during the second quarter of 2020.
  • Insurance income of $1.1 million was $249 thousand lower than the first quarter of 2021, primarily due to contingent revenue received in the first quarter each year partially offset by the full quarter impact of the February 1, 2021, acquisition of Landmark Group. The increase of $328 thousand from the second quarter of 2020 was primarily the result of the Landmark Group acquisition.
  • Card interchange income of $2.2 million was $236 thousand higher than the first quarter of 2021 and $418 thousand higher than the second quarter of 2020 due to an increase in customer transactions.
  • Investment advisory fees of $2.9 million was $114 thousand higher than the first quarter of 2021 and $635 thousand higher than the second quarter of 2020 due to an increase in assets under management driven by a combination of market gains, new customer accounts and contributions to existing accounts.
  • Income from investments in limited partnerships of $238 thousand was $617 thousand lower than the first quarter of 2021 and $482 thousand higher than the second 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 (loss) from derivative instruments, net was a loss of $592 thousand, $2.5 million lower than the first quarter of 2021 and the second 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. A lower level of interest rate swap transactions was executed during the quarter and fair market values were negatively impacted by the second quarter decrease in longer-term interest rates.
  • A net loss on investment securities of $3 thousand was recognized in the quarter compared to a net gain of $74 thousand in the first quarter of 2021 and a net gain of $674 thousand in the second quarter of 2020. The net gain in the second quarter of 2020 is attributable to the management of premium risk, largely achieved through the sale of $25.9 million of fixed rate mortgage backed securities with higher expected prepayment speeds. Proceeds were reinvested in current coupon bonds, with lower anticipated prepayment behavior.

Noninterest Expense

Noninterest expense was $26.9 million in the quarter compared to $26.7 million in the first quarter of 2021 and $26.6 million in the second quarter of 2020.

  • Salaries and employee benefits expense of $14.5 million was relatively unchanged as compared to the first quarter of 2021 and $555 thousand lower than the second quarter of 2020, reflecting the 2020 streamlining of retail branches to better align with shifting customer needs and preferences, including the closure of seven branches.
  • Professional services expense of $1.6 million was $292 thousand lower than the first quarter of 2021 primarily due to the timing and level of audit fees and fees for consulting and advisory projects. Expense was relatively unchanged as compared to the second quarter of 2020.
  • Computer and data processing expense of $3.5 million was $339 thousand higher than the first quarter of 2021 and $761 thousand higher than the second quarter of 2020 due to investments in technology, including costs related to the Bank’s ongoing digital banking initiatives.

Income Taxes

Income tax expense was $5.4 million for the quarter compared to $5.3 million in the first quarter of 2021 and $2.4 million in the second quarter of 2020. The Company recognized federal and state tax benefits related to tax credit investments placed in service and/or amortized during the second quarter of 2021, first quarter of 2021, and second quarter of 2020, resulting in income tax expense reductions of approximately $424 thousand, $244 thousand and $196 thousand, respectively.

The effective tax rate was 21.1% for the quarter compared to 20.5% for the first quarter of 2021 and 18.0% for the second quarter of 2020. The year-over-year increase in effective tax rates is the result of higher pre-tax earnings in comparison to the prior year. 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 $5.30 billion at June 30, 2021, down $34.0 million from March 31, 2021, and up $614.2 million from June 30, 2020.

Investment securities were $1.12 billion at June 30, 2021, up $112.1 million from March 31, 2021, and up $342.4 million from June 30, 2020. The Company’s primary investment strategy for 2020 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 the Company has continued to experience. Increased purchase activity in the first six months 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 $3.63 billion at June 30, 2021, down $22.2 million, or 0.6%, from March 31, 2021, and up $146.3 million, or 4.2%, from June 30, 2020.

  • Commercial business loans totaled $731.2 million, down $85.7 million, or 10.5%, from March 31, 2021, and down $87.5 million, or 10.7%, from June 30, 2020. PPP loans net of deferred fees were $171.9 million at June 30, 2021, $255.6 million at March 31, 2021, and $261.5 million at June 30, 2020, and are included in commercial business loans. Accordingly, commercial business loans excluding the impact of PPP decreased 0.4% from March 31, 2021 and increased 0.4% from June 30, 2020.
  • Commercial mortgage loans totaled $1.32 billion, up $38.6 million, or 3.0%, from March 31, 2021, and up $175.1 million, or 15.4%, from June 30, 2020.
  • Residential real estate loans totaled $590.3 million, down $11.3 million, or 1.9%, from March 31, 2021, and up $5.3 million, or 0.9%, from June 30, 2020.
  • Consumer indirect loans totaled $899.0 million, up $41.2 million, or 4.8%, from March 31, 2021 and up $70.9 million, or 8.6%, from June 30, 2020.

Total loans, excluding PPP loans net of deferred fees, were $3.46 billion at June 30, 2021, up $61.4 million, or 1.8%, from March 31, 2021, and up $235.9 million, or 7.3%, from June 30, 2020.

Total deposits were $4.66 billion at June 30, 2021, $56.8 million lower than March 31, 2021, and $665.2 million higher than June 30, 2020. The decrease from March 31, 2021, was primarily the result of a seasonal decrease in public deposits partially offset by growth in the non-public and reciprocal deposit portfolios. The increase from June 30, 2020, was due to growth in public, non-public, reciprocal and brokered deposits. Public deposit balances represented 21% of total deposits at June 30, 2021, compared to 24% at March 31, 2021, and 23% at June 30, 2020.

There were no short-term borrowings outstanding at June 30, 2021 or March 31, 2021. The decline from $105.3 million at June 30, 2020, 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 $487.1 million at June 30, 2021, compared to $466.3 million at March 31, 2021, and $448.0 million at June 30, 2020. Common book value per share was $29.66 at June 30, 2021, an increase of $1.30 or 4.6% from $28.36 at March 31, 2021, and an increase of $2.80 or 10.4% from $26.86 at June 30, 2020. Tangible common book value per share(1) was $24.97 at June 30, 2021, an increase of $1.31 or 5.5% from $23.66 at March 31, 2021, and an increase of $2.75 or 12.4% from $22.22 at June 30, 2020.

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. No shares were repurchased in 2020 or in the second quarter of 2021 under this program. During the first quarter of 2021, the Company repurchased 238,439 shares for an average repurchase price of $24.30 per share, inclusive of transaction costs.

The common equity to assets ratio was 8.87% at June 30, 2021, compared to 8.42% at March 31, 2021, and 9.20% at June 30, 2020. Tangible common equity to tangible assets(1), or the TCE ratio, was 7.58%, 7.13% and 7.74% at June 30, 2021, March 31, 2021, and June 30, 2020, respectively. The primary driver of declines in both ratios compared to the prior year period 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 second quarter of 2021, the Company declared a common stock dividend of $0.27 per common share. The dividend returned 22% of second quarter net income to common shareholders.

The Company’s regulatory capital ratios at June 30, 2021, compared to the prior quarter and prior year:

  • Leverage Ratio was 8.16%, compared to 8.35% and 8.49% at March 31, 2021, and June 30, 2020, respectively.
  • Common Equity Tier 1 Capital Ratio was 10.38%, compared to 10.22% and 10.23% at March 31, 2021, and June 30, 2020, respectively.
  • Tier 1 Capital Ratio was 10.81%, compared to 10.66% and 10.71% at March 31, 2021, and June 30, 2020, respectively.
  • Total Risk-Based Capital Ratio was 13.54%, compared to 13.53% and 12.78% at March 31, 2021, and June 30, 2020, respectively.

Credit Quality

Non-performing loans were $6.6 million at June 30, 2021, as compared to $9.7 million at March 31, 2021, and $13.2 million at June 30, 2020. Net recoveries were $394 thousand in the quarter as compared to net charge-offs of $887 thousand in the first quarter of 2021 and $786 thousand in the second quarter of 2020. The ratio of annualized net charge-offs (recoveries) to average loans was (0.04)% in the current quarter, 0.10% in the first quarter of 2021 and 0.09% in the second quarter of 2020.

Foreclosed assets at June 30, 2021, were $646 thousand, a decrease of $2.3 million from March 31, 2021, and a decrease of $33 thousand from June 30, 2020. The decrease during the quarter was the result of the sale of an asset on which foreclosure occurred in the third quarter of 2020.

At June 30, 2021, the allowance for credit losses - loans to total loans ratio was 1.28% compared to 1.36% at March 31, 2021, and 1.33% at June 30, 2020. PPP loans are fully guaranteed by the Small Business Administration. Excluding PPP loans, the June 30, 2021, allowance for credit losses - loans to total loans ratio(1) was 1.34%, a decrease of thirteen basis points from 1.47% at March 31, 2021 and a decrease of ten basis points from 1.44% at June 30, 2020.

Provision (benefit) for credit losses - loans was a $3.9 million benefit in the quarter compared to a benefit of $1.7 million in the first quarter of 2021 and a provision of $3.7 million in the second quarter of 2020. Changes in the allowance for unfunded commitments, also included in provision (benefit) for credit losses, were a $764 thousand decrease in the second quarter of 2021 and a $276 thousand decrease in the first quarter of 2021, compared to an increase of $5 thousand in the second quarter of 2020.

Provision throughout 2020 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, resulting in a first quarter 2020 provision of $13.9 million and a second quarter provision of $3.7 million. Provision was a benefit in the first and second quarters of 2021 due to continued improvement in the national unemployment forecast and positive trends in qualitative factors, resulting in a release of credit loss reserves.

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 0.18% at June 30, 2021, 0.27% at March 31, 2021, and 0.38% at June 30, 2020. The ratio of allowance for credit losses - loans to non-performing loans was 699% at June 30, 2021, compared to 514% at March 31, 2021, and 351% at June 30, 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 June 30, 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 June 30, 2021, and will adjust amounts preliminarily reported, if necessary.

Conference Call

The Company will host an earnings conference call and audio webcast on July 30, 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 
  June 30,  March 31,  December 31,  September 30,  June 30, 
SELECTED BALANCE SHEET DATA:                    
Cash and cash equivalents $206,387  $344,790  $93,878  $282,070  $119,610 
Investment securities:                    
Available for sale  902,845   753,489   628,059   515,971   469,413 
Held-to-maturity, net  218,858   256,127   271,966   290,946   309,872 
Total investment securities  1,121,703   1,009,616   900,025   806,917   779,285 
Loans held for sale  3,929   5,685   4,305   7,076   6,654 
Loans:                    
Commercial business  731,208   816,936   794,148   818,135   818,691 
Commercial mortgage  1,315,404   1,276,841   1,253,901   1,202,046   1,140,326 
Residential real estate loans  590,303   601,609   599,800   596,902   585,035 
Residential real estate lines  80,781   85,362   89,805   94,017   97,427 
Consumer indirect  899,018   857,804   840,421   840,579   828,105 
Other consumer  15,454   15,834   17,063   16,860   16,237 
Total loans  3,632,168   3,654,386   3,595,138   3,568,539   3,485,821 
Allowance for credit losses - loans  46,365   49,828   52,420   49,395   46,316 
Total loans, net  3,585,803   3,604,558   3,542,718   3,519,144   3,439,505 
Total interest-earning assets  4,906,087   4,963,264   4,520,416   4,577,057   4,314,490 
Goodwill and other intangible assets, net  74,262   74,528   73,789   74,062   74,342 
Total assets  5,295,102   5,329,056   4,912,306   4,959,201   4,680,930 
Deposits:                    
Noninterest-bearing demand  1,121,827   1,099,608   1,018,549   1,013,176   1,008,958 
Interest-bearing demand  799,299   873,390   731,885   786,059   727,676 
Savings and money market  1,796,813   1,826,621   1,642,340   1,724,463   1,368,805 
Time deposits  941,282   916,395   885,593   841,230   888,569 
Total deposits  4,659,221   4,716,014   4,278,367   4,364,928   3,994,008 
Short-term borrowings  -   -   5,300   5,300   105,300 
Long-term borrowings, net  73,756   73,679   73,623   39,258   39,308 
Total interest-bearing liabilities  3,611,150   3,690,085   3,338,741   3,396,310   3,129,658 
Shareholders’ equity  487,126   466,284   468,363   456,361   448,045 
Common shareholders’ equity  469,834   448,962   451,035   439,033   430,717 
Tangible common equity (1)  395,572   374,434   377,246   364,971   356,375 
Accumulated other comprehensive (loss) income $(5,934) $(10,572) $2,128  $(209) $(496)
                     
Common shares outstanding  15,842   15,829   16,042   16,038   16,038 
Treasury shares  258   271   58   62   62 
CAPITAL RATIOS AND PER SHARE DATA:                    
Leverage ratio  8.16%  8.35%  8.25%  8.42%  8.49%
Common equity Tier 1 capital ratio  10.38%  10.22%  10.14%  10.15%  10.23%
Tier 1 capital ratio  10.81%  10.66%  10.59%  10.61%  10.71%
Total risk-based capital ratio  13.54%  13.53%  13.56%  12.68%  12.78%
Common equity to assets  8.87%  8.42%  9.18%  8.85%  9.20%
Tangible common equity to tangible assets (1)  7.58%  7.13%  7.80%  7.47%  7.74%
                     
Common book value per share $29.66  $28.36  $28.12  $27.38  $26.86 
Tangible common book value per share (1) $24.97  $23.66  $23.52  $22.76  $22.22 

      

(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)

  Six Months Ended  2021  2020 
  June 30,  Second  First  Fourth  Third  Second 
  2021  2020  Quarter  Quarter  Quarter  Quarter  Quarter 
SELECTED INCOME STATEMENT                            
DATA:                            
Interest income $82,225  $81,412  $40,952  $41,273  $40,168  $39,719  $39,759 
Interest expense  6,636   14,107   3,220   3,416   3,987   4,220   5,578 
Net interest income  75,589   67,305   37,732   37,857   36,181   35,499   34,181 
Provision (benefit) for credit losses  (6,603)  17,661   (4,622)  (1,981)  5,495   4,028   3,746 
Net interest income after provision
for credit losses
  82,192   49,644   42,354   39,838   30,686   31,471   30,435 
Noninterest income:                            
Service charges on deposits  2,579   2,067   1,287   1,292   1,489   1,254   480 
Insurance income  2,543   2,168   1,147   1,396   878   1,357   819 
Card interchange income  4,152   3,378   2,194   1,958   1,960   1,943   1,776 
Investment advisory  5,658   4,497   2,886   2,772   2,595   2,443   2,251 
Company owned life insurance  1,350   927   693   657   505   470   462 
Investments in limited partnerships  1,093   (31)  238   855   240   (105)  (244)
Loan servicing  188   57   91   97   143   49   50 
Income (loss) from derivative                            
instruments, net  1,283   2,686   (592)  1,875   904   1,931   1,940 
Net gain on sale of loans held for sale  1,868   864   790   1,078   1,597   1,397   612 
Net gain (loss) on investment securities  71   895   (3)  74   150   554   674 
Net gain (loss) on other assets  148   63   153   (5)  (69)  (55)  (1)
Net gain (loss) on tax credit investments  191   (80)  276   (85)  (155)  (40)  (40)
Other  2,025   2,132   1,030   995   1,099   1,019   934 
Total noninterest income  23,149   19,623   10,190   12,959   11,336   12,217   9,713 
Noninterest expense:                            
Salaries and employee benefits  28,984   30,088   14,519   14,465   14,163   15,085   15,074 
Occupancy and equipment  6,668   7,144   3,286   3,382   3,248   3,263   3,388 
Professional services  3,498   3,732   1,603   1,895   1,352   1,242   1,580 
Computer and data processing  6,581   5,372   3,460   3,121   3,023   3,250   2,699 
Supplies and postage  914   1,070   430   484   442   463   517 
FDIC assessments  1,245   911   480   765   737   594   539 
Advertising and promotions  760   1,100   436   324   554   955   545 
Amortization of intangibles  537   581   266   271   273   280   287 
Restructuring charges  -   -   -   -   130   1,362   - 
Other  4,497   4,247   2,464   2,033   2,612   1,981   1,946 
Total noninterest expense  53,684   54,245   26,944   26,740   26,534   28,475   26,575 
Income before income taxes  51,657   15,022   25,600   26,057   15,488   15,213   13,573 
Income tax expense  10,747   2,763   5,400   5,347   1,688   2,940   2,441 
Net income  40,910   12,259   20,200   20,710   13,800   12,273   11,132 
Preferred stock dividends  731   731   366   365   365   365   366 
Net income available to common                            
shareholders $40,179  $11,528  $19,834  $20,345  $13,435  $11,908  $10,766 
FINANCIAL RATIOS:                            
Earnings per share – basic $2.53  $0.72  $1.25  $1.28  $0.84  $0.74  $0.67 
Earnings per share – diluted $2.52  $0.72  $1.25  $1.27  $0.84  $0.74  $0.67 
Cash dividends declared on common stock $0.54  $0.52  $0.27  $0.27  $0.26  $0.26  $0.26 
Common dividend payout ratio  21.34%  72.22%  21.60%  21.09%  30.95%  35.14%  38.81%
Dividend yield (annualized)  3.63%  5.62%  3.61%  3.62%  4.60%  6.72%  5.60%
Return on average assets  1.59%  0.55%  1.52%  1.66%  1.10%  1.02%  0.97%
Return on average equity  17.46%  5.56%  17.01%  17.92%  11.86%  10.72%  10.05%
Return on average common equity  17.80%  5.44%  17.34%  18.28%  12.00%  10.82%  10.11%
Return on average tangible common                            
equity (1)  21.28%  6.60%  20.69%  21.88%  14.38%  13.02%  12.25%
Efficiency ratio (2)  54.22%  62.70%  56.02%  52.51%  55.79%  60.12%  61.16%
Effective tax rate  20.8%  18.4%  21.1%  20.5%  10.9%  19.3%  18.0%

                 

      (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)

  Six Months Ended  2021  2020 
  June 30,  Second  First  Fourth  Third  Second 
  2021  2020  Quarter  Quarter  Quarter  Quarter  Quarter 
SELECTED AVERAGE BALANCES:                            
Federal funds sold and interest-
earning deposits
 $186,526  $75,761  $249,312  $123,042  $176,950  $121,929  $92,214 
Investment securities (1)  986,126   773,265   1,056,898   914,569   862,956   769,673   766,636 
Loans:                            
Commercial business  795,119   664,237   791,412   798,866   803,536   808,582   757,588 
Commercial mortgage  1,293,262   1,117,247   1,302,136   1,284,290   1,243,035   1,180,747   1,133,832 
Residential real estate loans  599,376   580,029   595,925   602,866   599,773   590,483   581,651 
Residential real estate lines  85,290   101,111   82,926   87,681   91,856   95,288   99,543 
Consumer indirect  860,978   836,915   878,884   842,873   840,210   830,647   827,030 
Other consumer  15,760   15,310   15,356   16,167   16,948   16,445   15,155 
Total loans  3,649,785   3,314,849   3,666,639   3,632,743   3,595,358   3,522,192   3,414,799 
Total interest-earning assets  4,822,437   4,163,875   4,972,849   4,670,354   4,635,264   4,413,794   4,273,649 
Goodwill and other intangible
assets, net
  74,313   74,651   74,412   74,214   73,942   74,220   74,504 
Total assets  5,193,779   4,500,243   5,340,745   5,045,180   4,992,886   4,775,333   4,624,360 
Interest-bearing liabilities:                            
Interest-bearing demand  817,058   689,917   842,832   790,996   774,688   704,550   712,300 
Savings and money market  1,790,983   1,236,630   1,856,659   1,724,577   1,722,938   1,574,068   1,329,632 
Time deposits  900,103   1,050,784   935,885   863,924   871,103   867,479   984,832 
Short-term borrowings  585   140,049   -   1,178   9,188   57,856   110,272 
Long-term borrowings, net  73,673   39,288   73,709   73,636   71,481   39,314   39,297 
Total interest-bearing liabilities  3,582,402   3,156,668   3,709,085   3,454,311   3,449,398   3,243,267   3,176,333 
Noninterest-bearing demand deposits  1,068,240   817,106   1,091,490   1,044,733   997,607   987,908   912,238 
Total deposits  4,576,384   3,794,437   4,726,866   4,424,230   4,366,336   4,134,005   3,939,002 
Total liabilities  4,721,347   4,056,915   4,864,559   4,576,545   4,530,043   4,320,057   4,178,921 
Shareholders’ equity  472,432   443,328   476,186   468,635   462,843   455,276   445,439 
Common equity  455,111   426,000   458,868   451,311   445,515   437,948   428,111 
Tangible common equity (2) $380,798  $351,349  $384,456  $377,097  $371,573  $363,728  $353,607 
Common shares outstanding:                            
Basic  15,857   16,012   15,825   15,889   16,032   16,031   16,018 
Diluted  15,943   16,058   15,913   15,972   16,078   16,058   16,047 
SELECTED AVERAGE YIELDS:
(Tax equivalent basis)
                            
Investment securities  1.83%  2.48%  1.77%  1.91%  2.06%  2.23%  2.49%
Loans  4.05%  4.37%  3.98%  4.13%  3.97%  4.02%  4.14%
Total interest-earning assets  3.45%  3.95%  3.31%  3.59%  3.46%  3.60%  3.76%
Interest-bearing demand  0.14%  0.17%  0.14%  0.13%  0.13%  0.14%  0.14%
Savings and money market  0.20%  0.43%  0.19%  0.21%  0.25%  0.28%  0.31%
Time deposits  0.47%  1.62%  0.43%  0.51%  0.66%  0.92%  1.39%
Short-term borrowings  41.07%  1.69%  0.00%  41.07%  8.49%  1.60%  1.03%
Long-term borrowings, net  5.75%  6.29%  5.73%  5.77%  5.76%  6.31%  6.29%
Total interest-bearing liabilities  0.37%  0.90%  0.35%  0.40%  0.46%  0.52%  0.71%
Net interest rate spread  3.08%  3.05%  2.96%  3.19%  3.00%  3.08%  3.05%
Net interest margin  3.17%  3.27%  3.06%  3.29%  3.13%  3.22%  3.23%

                
     (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)

  Six Months Ended  2021  2020 
  June 30,  Second  First  Fourth  Third  Second 
  2021  2020  Quarter  Quarter  Quarter  Quarter  Quarter 
ASSET QUALITY DATA:                            
Allowance for Credit Losses - Loans                            
Beginning balance, prior to                            
adoption of CECL $52,420  $30,482  $49,828  $52,420  $49,395  $46,316  $43,356 
Impact of adopting CECL  -   9,594   -   -   -   -   - 
Beginning balance, after                            
adoption of CECL  52,420   40,076   49,828   52,420   49,395   46,316   43,356 
Net loan charge-offs (recoveries):                            
Commercial business  (439)  6,725   (287)  (152)  747   (88)  (1,458)
Commercial mortgage  196   1,072   (7)  203   80   603   1,072 
Residential real estate loans  3   82   (3)  6   (3)  (7)  (6)
Residential real estate lines  70   (3)  -   70   -   -   - 
Consumer indirect  317   2,931   (426)  743   1,462   (115)  1,175 
Other consumer  346   122   329   17   112   95   3 
Total net charge-offs                            
(recoveries)  493   10,929   (394)  887   2,398   488   786 
Provision (benefit) for credit losses - loans  (5,562)  17,169   (3,857)  (1,705)  5,423   3,567   3,746 
Ending balance $46,365  $46,316  $46,365  $49,828  $52,420  $49,395  $46,316 
                             
Net charge-offs (recoveries)
to average loans (annualized):
                            
Commercial business  -0.11%  2.04%  -0.15%  -0.08%  0.37%  -0.04%  -0.77%
Commercial mortgage  0.03%  0.19%  0.00%  0.06%  0.03%  0.20%  0.38%
Residential real estate loans  0.00%  0.03%  0.00%  0.00%  0.00%  0.00%  0.00%
Residential real estate lines  0.17%  -0.01%  0.00%  0.32%  0.00%  0.00%  0.00%
Consumer indirect  0.07%  0.70%  -0.19%  0.36%  0.69%  -0.05%  0.57%
Other consumer  4.43%  1.60%  8.58%  0.44%  2.64%  2.31%  0.08%
Total loans  0.03%  0.66%  -0.04%  0.10%  0.27%  0.06%  0.09%
                             
Supplemental information (1)                            
Non-performing loans:                            
Commercial business $1,555  $4,918  $1,555  $1,742  $1,975  $2,628  $4,918 
Commercial mortgage  885   4,140   885   3,402   2,906   3,372   4,140 
Residential real estate loans  2,615   2,992   2,615   2,519   2,587   3,305   2,992 
Residential real estate lines  280   177   280   256   323   207   177 
Consumer indirect  1,250   868   1,250   1,482   1,495   1,244   868 
Other consumer  50   87   50   287   231   147   87 
Total non-performing loans  6,635   13,182   6,635   9,688   9,517   10,903   13,182 
Foreclosed assets  646   679   646   2,966   2,966   2,999   679 
Total non-performing assets $7,281  $13,861  $7,281  $12,654  $12,483  $13,902  $13,861 
                             
Total non-performing loans
to total loans
  0.18%  0.38%  0.18%  0.27%  0.26%  0.31%  0.38%
Total non-performing assets
to total assets
  0.14%  0.30%  0.14%  0.24%  0.25%  0.28%  0.30%
Allowance for credit losses - loans
to total loans
  1.28%  1.33%  1.28%  1.36%  1.46%  1.38%  1.33%
Allowance for credit losses - loans
to non-performing loans
  699%  351%  699%  514%  551%  453%  351%

                
     (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  2021  2020 
  June 30,  Second  First  Fourth  Third  Second 
  2021  2020  Quarter  Quarter  Quarter  Quarter  Quarter 
Ending tangible assets:                            
Total assets         $5,295,102  $5,329,056  $4,912,306  $4,959,201  $4,680,930 
Less: Goodwill and other intangible
assets, net
          74,262   74,528   73,789   74,062   74,342 
Tangible assets         $5,220,840  $5,254,528  $4,838,517  $4,885,139  $4,606,588 
                             
Ending tangible common equity:                            
Common shareholders’ equity         $469,834  $448,962  $451,035  $439,033  $430,717 
Less: Goodwill and other intangible
assets, net
          74,262   74,528   73,789   74,062   74,342 
Tangible common equity         $395,572  $374,434  $377,246  $364,971  $356,375 
                             
Tangible common equity to tangible
assets (1)
          7.58%  7.13%  7.80%  7.47%  7.74%
                             
Common shares outstanding          15,842   15,829   16,042   16,038   16,038 
Tangible common book value per
share (2)
         $24.97  $23.66  $23.52  $22.76  $22.22 
                             
Average tangible assets:                            
Average assets $5,193,779  $4,500,243  $5,340,745  $5,045,180  $4,992,886  $4,775,333  $4,624,360 
Less: Average goodwill and other
intangible assets, net
  74,313   74,651   74,412   74,214   73,942   74,220   74,504 
Average tangible assets $5,119,466  $4,425,592  $5,266,333  $4,970,966  $4,918,944  $4,701,113  $4,549,856 
                             
Average tangible common equity:                            
Average common equity $455,111  $426,000  $458,868  $451,311  $445,515  $437,948  $428,111 
Less: Average goodwill and other
intangible assets, net
  74,313   74,651   74,412   74,214   73,942   74,220   74,504 
Average tangible common equity $380,798  $351,349  $384,456  $377,097  $371,573  $363,728  $353,607 
                             
Net income available to
common shareholders
 $40,179  $11,528  $19,834  $20,345  $13,435  $11,908  $10,766 
Return on average tangible common
equity (3)
  21.28%  6.60%  20.69%  21.88%  14.38%  13.02%  12.25%
                             
Pre-tax pre-provision income:                            
Net income $40,910  $12,259  $20,200  $20,710  $13,800  $12,273  $11,132 
Add: Income tax expense  10,747   2,763   5,400   5,347   1,688   2,940   2,441 
Add: Provision (benefit) for credit losses  (6,603)  17,661   (4,622)  (1,981)  5,495   4,028   3,746 
Pre-tax pre-provision income $45,054  $32,683  $20,978  $24,076  $20,983  $19,241  $17,319 
                             
Total loans excluding PPP loans:                            
Total loans $3,632,168  $3,485,821  $3,632,168  $3,654,386  $3,595,138  $3,568,539  $3,485,821 
Less: Total PPP loans  171,942   261,468   171,942   255,595   247,951   264,138   261,468 
Total loans excluding PPP loans $3,460,226  $3,224,352  $3,460,226  $3,398,791  $3,347,187  $3,304,401  $3,224,352 
                             
Allowance for credit losses - loans $46,365  $46,316  $46,365  $49,828  $52,420  $49,395  $46,316 
Allowance for credit losses - loans to
total loans excluding PPP loans (4)
  1.34%  1.44%  1.34%  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.