WARSAW, N.Y., April 26, 2023 (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, 2023.
Net income was $12.1 million for both the first quarter of 2023 and the fourth quarter of 2022, compared to $15.0 million in the first quarter of 2022. After preferred dividends, net income available to common shareholders was $11.7 million, or $0.76 per diluted share, in both the first quarter of 2023 and fourth quarter of 2022, compared to $14.6 million, or $0.93 per diluted share, in the first quarter of 2022. The Company recorded a provision for credit losses of $4.2 million in the current quarter, compared to $6.1 million in the linked quarter and $2.3 million in the prior year quarter.
First Quarter 2023 Highlights:
- Total loans were $4.24 billion at March 31, 2023, an increase of $192.9 million, or 4.8%, from December 31, 2022 and $509.7 million, or 13.7%, from March 31, 2022.
- Total deposits were $5.14 billion at March 31, 2023, $211.9 million higher than December 31, 2022, and $138.4 million higher than March 31, 2022.
- Net interest income of $41.8 million decreased $1.3 million, or 3.1%, from the linked quarter, reflective of fewer days in the most recent quarter and amid the current rising interest rate environment that has driven higher funding costs, and increased by $2.3 million, or 5.7%, from the year-ago quarter.
- Solid revenue from the Company’s insurance and investment advisory subsidiaries contributed to noninterest income of $10.9 million, which was consistent with the fourth quarter of 2022 and decreased by $398 thousand, or 3.5%, from the first quarter of 2022.
- The Company continues to report strong credit quality metrics, including non-performing loans to total loans of 0.21% and non-performing assets to total assets of 0.15% as of March 31, 2023 and annualized net charge-offs to average loans for the current quarter of 0.21%.
“During the first three months of 2023, our Company reported strong loan growth which helped to offset continued funding cost pressures that face our industry amid the current interest rate environment,” said President and Chief Executive Officer Martin K. Birmingham. “Year-over-year commercial loan growth reflects continued momentum of commercial banking execution, with exceptional performance from our Mid-Atlantic team helping to grow and diversify our portfolio. To further enhance our commercial and industrial lending, during the first quarter of 2023 we announced an expansion in Central New York with a new loan production office in Syracuse. We remain focused on building relationships with high-quality commercial clients, as evidenced by our strong credit quality metrics.
“In the first quarter, we were also pleased to announce a 3.4% increase in our common stock dividend. This marks the 13th consecutive annual dividend increase and underscores our Board’s ongoing confidence in our strategy and earnings potential. As we navigate a challenging economic environment, we believe that our relationship-based approach to banking, financially stable geographic footprint, disciplined credit culture and diversified revenue streams will support our ability to drive long-term value for our shareholders.”
Chief Financial Officer and Treasurer W. Jack Plants II added, “While our net interest margin was pressured during the first quarter as a result of a shift in our funding mix, given seasonality of public deposits and growth of reciprocal deposits in the current interest rate environment, we continue to expect to deploy cash flow from our loan and securities portfolio into new loan originations at market rates to stabilize our margin moving forward despite increased funding costs.”
Net Interest Income and Net Interest Margin
Net interest income was $41.8 million for the first quarter of 2023, a decrease of $1.3 million from the fourth quarter of 2022 and an increase of $2.3 million from the first quarter of 2022.
Average interest-earning assets for the current quarter were $5.49 billion, an increase of $155.8 million from the fourth quarter of 2022 due to a $172.8 million increase in average loans and a $14.2 million increase in the average balance of Federal Reserve interest-earning cash, partially offset by a $31.3 million decrease in the average balance of investment securities. Average interest-earning assets for the current quarter were $319.1 million higher than the first quarter of 2022 due to a $418.8 million increase in average loans and an $18.8 million increase in the average balance of Federal Reserve interest-earning cash, partially offset by a $118.4 million decrease in the average balance of investment securities.
Net interest margin was 3.09% in the current quarter as compared to 3.23% in the fourth quarter of 2022 and 3.11% in the first quarter of 2022, as a result of a shift in mix from lower cost transactional accounts to higher cost time deposits, as well as seasonality and repricing within the public deposit portfolio.
Noninterest Income
Noninterest income was $10.9 million for both the first quarter of 2023 and the fourth quarter of 2022 and decreased $398 thousand from the first quarter of 2022.
- Service charges on deposits of $1.0 million reflects a $459 thousand, or 30.9%, decrease from the linked fourth quarter of 2022 and a $342 thousand, or 25.0%, decrease from the year-ago period, due to a reduction in nonsufficient funds fees as a result of January 2023 changes in the Bank’s consumer overdraft program that align with trends in community banking.
- Insurance income of $2.1 million was $625 thousand higher than the fourth quarter of 2022 and $10 thousand lower than the first quarter of 2022, primarily as a result of the timing of contingent revenue earned in the first quarter each year.
- Investment advisory income of $2.9 million was $99 thousand higher than the fourth quarter of 2022 and $118 thousand lower than the first quarter of 2022, primarily due to changes in the value of assets under management between comparable periods.
- Income from investments in limited partnerships of $251 thousand was $60 thousand higher than the fourth quarter of 2022 and $544 thousand lower than the first quarter of 2022. 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.
- Net gain (loss) on sale of loans held for sale was a gain of $112 thousand in the current quarter compared to a gain of $182 thousand in the fourth quarter of 2022 and a loss of $91 thousand in the first quarter of 2022. The loss in the year-ago period was a result of the fair market value of pipeline commitments at that time, negatively impacted by interest rate changes.
Noninterest Expense
Noninterest expense was $33.7 million in the first quarter of 2023 compared to $33.5 million in the fourth quarter of 2022 and $30.1 million in the first quarter of 2022.
- Salaries and employee benefits expense of $18.1 million was flat with the fourth quarter of 2022 and $1.5 million higher than the first quarter of 2022. The increase from the prior year quarter was primarily due to investments in personnel and hourly wage pressures driven by the current competitive labor market.
- Computer and data processing expense of $4.7 million was flat with the fourth quarter of 2022 and $712 thousand higher than the first quarter of 2022. The increase from the prior year period was primarily due to the timing of the Company’s strategic investments in technology, including digital banking initiatives, a customer relationship management solution implemented across all lines of business, and Banking-as-a-Service, or BaaS, initiatives.
- FDIC assessments expense of $1.1 million reflects increases of $460 thousand and $602 thousand from the linked and year-ago quarters, respectively, due in part to the impact of an increase in base deposit insurance assessment rate schedules by two basis points.
- Other expense of $3.5 million was flat with the fourth quarter of 2022 and $1.0 million higher than the first quarter of 2022. The year-over-year increase was the result of a combination of factors including interest charges related to collateral held for derivative transactions, the timing of deposit account-related fraud charge-offs, higher insurance costs and the impact of inflationary pressures.
- As previously disclosed, in the fourth quarter of 2022 the Company recognized non-recurring restructuring charges of $350 thousand related to the 2020 closure of five locations. The charges related to the write-down of real estate assets to fair market value based upon then current market conditions. There were no such restructuring charges in the first quarters of 2023 or 2022.
Income Taxes
Income tax expense was $2.8 million for the first quarter of 2023 compared to $2.4 million in the fourth quarter of 2022 and $3.4 million in the first quarter of 2022. The Company recognized federal and state tax benefits related to tax credit investments placed in service and/or amortized during the first quarter of 2023, fourth quarter of 2022, and first quarter of 2022, resulting in income tax expense reductions of approximately $584 thousand, $1.4 million, and $589 thousand, respectively.
The effective tax rate was 18.7% for the first quarters of 2023 and 2022 and 16.4% for the fourth quarter of 2022. 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 $5.97 billion at March 31, 2023, up $169.7 million from December 31, 2022, and up $336.5 million from March 31, 2022.
Investment securities were $1.13 billion at March 31, 2023, down $17.9 million from December 31, 2022, and down $205.0 million from March 31, 2022. The decline in the linked quarter portfolio balance was driven by the use of portfolio cash flow to fund loan originations. The decrease from March 31, 2022 was primarily the result of a decrease in the market value of the portfolio due to rising interest rates combined with the use of portfolio cash flow to fund loan originations.
Total loans were $4.24 billion at March 31, 2023, up $192.9 million, or 4.8%, from December 31, 2022, and up $509.7 million, or 13.7%, from March 31, 2022.
- Commercial business loans totaled $695.1 million, up $30.9 million, or 4.6%, from December 31, 2022, and up $70.0 million, or 11.2%, from March 31, 2022.
- Commercial mortgage loans totaled $1.84 billion, up $161.6 million, or 9.6%, from December 31, 2022, and up $406.7 million, or 28.3%, from March 31, 2022.
- Residential real estate loans totaled $591.8 million, up $1.9 million, or 0.3%, from December 31, 2022, and up $17.0 million, or 2.9%, from March 31, 2022.
- Consumer indirect loans totaled $1.02 billion, down $1.4 million, or 0.1%, from December 31, 2022, and up $14.8 million, or 1.5%, from March 31, 2022.
Total deposits were $5.14 billion at March 31, 2023, $211.9 million higher than December 31, 2022, and $138.4 million higher than March 31, 2022. The increase from December 31, 2022 was primarily the result of seasonally higher public deposits and an increase in reciprocal deposits. The increase from March 31, 2022 was primarily driven by increases in brokered and non-public deposits. Public deposit balances represented 23% of total deposits at March 31, 2023 and December 31, 2022, compared to 26% at March 31, 2022.
Short-term borrowings were $116.0 million at March 31, 2023, compared to $205.0 million at December 31, 2022. There were no short-term borrowings at March 31, 2022. In addition, as of March 31, 2023 the Company had a three-year advance payable to FHLB of $50.0 million to fund loan growth that was higher than planned during the first quarter of 2023.
Shareholders’ equity was $422.8 million at March 31, 2023, compared to $405.6 million at December 31, 2022, and $446.8 million at March 31, 2022. The linked quarter increase reflects a reduction in the accumulated other comprehensive loss associated with unrealized losses in the available for sale securities portfolio. Shareholders’ equity was negatively impacted in 2022 by an increase in accumulated other comprehensive loss associated with unrealized losses in the available for sale securities portfolio. Management believes the unrealized losses are temporary in nature, as they are associated with the increase in interest rates. The securities portfolio continues to generate cash flow and given the high 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 $26.38 at March 31, 2023, an increase of $1.06, or 4.2%, from $25.31 at December 31, 2022, and a decrease of $1.70, or 6.1%, from $28.08 at March 31, 2022. Tangible common book value per share(1) was $21.62 at March 31, 2023, an increase of $1.09, or 5.3%, from $20.53 at December 31, 2022, and a decrease of $1.61, or 6.9%, from $23.23 at March 31, 2022. The common equity to assets ratio was 6.80% at March 31, 2023, compared to 6.70% at December 31, 2022, and 7.63% at March 31, 2022. Tangible common equity to tangible assets(1), or the TCE ratio, was 5.64%, 5.50% and 6.40% at March 31, 2023, December 31, 2022, and March 31, 2022, respectively. The primary driver of variations in all four measures for the comparable linked and year-ago periods was the previously described changes in accumulated other comprehensive loss.
During the first quarter of 2023, the Company declared a common stock dividend of $0.30 per common share, representing an increase of 3.4% over the linked and prior year quarters. The dividend returned 39.5% of first quarter net income to common shareholders.
The Company’s regulatory capital ratios at March 31, 2023 continued to exceed all regulatory capital requirements to be considered well capitalized.
- Leverage Ratio was 8.19% compared to 8.33% and 8.13% at December 31, 2022, and March 31, 2022, respectively.
- Common Equity Tier 1 Capital Ratio was 9.21% compared to 9.42% and 9.85% at December 31, 2022, and March 31, 2022, respectively.
- Tier 1 Capital Ratio was 9.55% compared to 9.78% and 10.24% at December 31, 2022, and March 31, 2022, respectively.
- Total Risk-Based Capital Ratio was 11.93% compared to 12.13% and 12.72% at December 31, 2022, and March 31, 2022, respectively.
Credit Quality
Non-performing loans were $8.8 million, or 0.21% of total loans, at March 31, 2023, as compared to $10.2 million, or 0.25% of total loans, at December 31, 2022, and $9.6 million, or 0.26% of total loans, at March 31, 2022. Net charge-offs were $2.1 million in the current quarter as compared to net charge-offs of $3.3 million in the fourth quarter of 2022 and net charge-offs of $787 thousand in the first quarter of 2022. The ratio of annualized net charge-offs to average loans was 0.21% in the current quarter, 0.34% in the fourth quarter of 2022 and 0.09% in the first quarter of 2022. The increase in net charge-offs relative to the year-ago period was primarily due to an increase in consumer indirect charge-offs to more normalized, pre-pandemic levels. Consumer indirect charge-offs improved in the first quarter of 2023 as compared to the linked quarter, supporting improvement in the net charge-off ratio.
At March 31, 2023, the allowance for credit losses on loans to total loans ratio was 1.12%, compared to 1.12% at December 31, 2022, and 1.10% at March 31, 2022.
Provision for credit losses on loans was $4.2 million in the current quarter, compared to a provision of $4.6 million in the fourth quarter of 2022 and a provision of $2.1 million in the first quarter of 2022. The allowance for unfunded commitments, also included in provision for credit losses as required by the current expected credit loss standard (“CECL”), increased by $11 thousand in the first quarter of 2023, $1.5 million in the fourth quarter of 2022, and $241 thousand in the first quarter of 2022.
The Company has remained strategically focused on the importance of credit discipline, allocating what it believes are the necessary 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 540% at March 31, 2023, 445% at December 31, 2022, and 426% at March 31, 2022.
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, 2023, 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, 2023, and will adjust amounts preliminarily reported, if necessary.
Conference Call
The Company will host an earnings conference call and audio webcast on April 27, 2023 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 059184. 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 $6.0 billion in assets offering banking, insurance and wealth management products and services through a network of subsidiaries. Its Five Star Bank subsidiary provides consumer and commercial banking and lending services to individuals, municipalities and businesses through its Western and Central New York branch network and its Mid-Atlantic commercial loan production office serving the Baltimore and Washington, D.C. region. SDN Insurance Agency, LLC provides a broad range of insurance services to personal and business clients, while Courier Capital, LLC and HNP Capital, LLC offer customized investment management, consulting and retirement plan services to individuals, businesses, institutions, foundations 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: the macroeconomic volatility related to the impact of the COVID-19 pandemic and global political unrest; changes in interest rates; inflation; 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, such as the 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. 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 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)
| 2023 | 2022 | ||||||||||||||||||
| March 31, | December 31, | September 30, | June 30, | March 31, | |||||||||||||||
| SELECTED BALANCE SHEET DATA: | |||||||||||||||||||
| Cash and cash equivalents | $ | 139,974 | $ | 130,466 | $ | 118,581 | $ | 109,705 | $ | 170,404 | |||||||||
| Investment securities: | |||||||||||||||||||
| Available for sale | 945,442 | 954,371 | 965,531 | 1,057,018 | 1,119,362 | ||||||||||||||
| Held-to-maturity, net | 180,052 | 188,975 | 197,538 | 204,933 | 211,173 | ||||||||||||||
| Total investment securities | 1,125,494 | 1,143,346 | 1,163,069 | 1,261,951 | 1,330,535 | ||||||||||||||
| Loans held for sale | 682 | 550 | 2,074 | 4,265 | 5,544 | ||||||||||||||
| Loans: | |||||||||||||||||||
| Commercial business | 695,110 | 664,249 | 633,894 | 611,102 | 625,141 | ||||||||||||||
| Commercial mortgage | 1,841,481 | 1,679,840 | 1,564,545 | 1,448,152 | 1,434,759 | ||||||||||||||
| Residential real estate loans | 591,846 | 589,960 | 577,821 | 574,784 | 574,895 | ||||||||||||||
| Residential real estate lines | 76,086 | 77,670 | 77,336 | 76,108 | 76,860 | ||||||||||||||
| Consumer indirect | 1,022,202 | 1,023,620 | 997,423 | 1,039,251 | 1,007,404 | ||||||||||||||
| Other consumer | 16,607 | 15,110 | 15,832 | 14,621 | 14,589 | ||||||||||||||
| Total loans | 4,243,332 | 4,050,449 | 3,866,851 | 3,764,018 | 3,733,648 | ||||||||||||||
| Allowance for credit losses - loans | 47,528 | 45,413 | 44,106 | 42,452 | 40,966 | ||||||||||||||
| Total loans, net | 4,195,804 | 4,005,036 | 3,822,745 | 3,721,566 | 3,692,682 | ||||||||||||||
| Total interest-earning assets | 5,600,786 | 5,428,533 | 5,073,983 | 5,206,795 | 5,266,351 | ||||||||||||||
| Goodwill and other intangible assets, net | 73,180 | 73,414 | 73,653 | 73,897 | 74,146 | ||||||||||||||
| Total assets | 5,966,992 | 5,797,272 | 5,624,482 | 5,568,198 | 5,630,498 | ||||||||||||||
| Deposits: | |||||||||||||||||||
| Noninterest-bearing demand | 1,067,011 | 1,139,214 | 1,135,125 | 1,114,460 | 1,079,949 | ||||||||||||||
| Interest-bearing demand | 901,251 | 863,822 | 946,431 | 877,661 | 990,404 | ||||||||||||||
| Savings and money market | 1,701,663 | 1,643,516 | 1,800,321 | 1,845,186 | 2,015,384 | ||||||||||||||
| Time deposits | 1,471,382 | 1,282,872 | 1,023,277 | 983,209 | 917,195 | ||||||||||||||
| Total deposits | 5,141,307 | 4,929,424 | 4,905,154 | 4,820,516 | 5,002,932 | ||||||||||||||
| Short-term borrowings | 116,000 | 205,000 | 69,000 | 109,000 | - | ||||||||||||||
| Long-term borrowings, net | 124,299 | 74,222 | 74,144 | 74,067 | 73,989 | ||||||||||||||
| Total interest-bearing liabilities | 4,314,595 | 4,069,432 | 3,913,173 | 3,889,123 | 3,996,972 | ||||||||||||||
| Shareholders’ equity | 422,823 | 405,605 | 394,048 | 425,801 | 446,846 | ||||||||||||||
| Common shareholders’ equity | 405,531 | 388,313 | 376,756 | 408,509 | 429,554 | ||||||||||||||
| Tangible common equity (1) | 332,351 | 314,899 | 303,103 | 334,612 | 355,408 | ||||||||||||||
| Accumulated other comprehensive loss | $ | (127,372 | ) | $ | (137,487 | ) | $ | (141,183 | ) | $ | (99,724 | ) | $ | (67,094 | ) | ||||
| Common shares outstanding | 15,375 | 15,340 | 15,334 | 15,334 | 15,299 | ||||||||||||||
| Treasury shares | 724 | 760 | 765 | 765 | 800 | ||||||||||||||
| CAPITAL RATIOS AND PER SHARE DATA: | |||||||||||||||||||
| Leverage ratio | 8.19 | % | 8.33 | % | 8.35 | % | 8.20 | % | 8.13 | % | |||||||||
| Common equity Tier 1 capital ratio | 9.21 | % | 9.42 | % | 9.75 | % | 9.91 | % | 9.85 | % | |||||||||
| Tier 1 capital ratio | 9.55 | % | 9.78 | % | 10.12 | % | 10.29 | % | 10.24 | % | |||||||||
| Total risk-based capital ratio | 11.93 | % | 12.13 | % | 12.53 | % | 12.75 | % | 12.72 | % | |||||||||
| Common equity to assets | 6.80 | % | 6.70 | % | 6.70 | % | 7.34 | % | 7.63 | % | |||||||||
| Tangible common equity to tangible assets (1) | 5.64 | % | 5.50 | % | 5.46 | % | 6.09 | % | 6.40 | % | |||||||||
| Common book value per share | $ | 26.38 | $ | 25.31 | $ | 24.57 | $ | 26.64 | $ | 28.08 | |||||||||
| Tangible common book value per share (1) | $ | 21.62 | $ | 20.53 | $ | 19.77 | $ | 21.82 | $ | 23.23 | |||||||||
| (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)
| 2023 | 2022 | ||||||||||||||||||
| First | Fourth | Third | Second | First | |||||||||||||||
| Quarter | Quarter | Quarter | Quarter | Quarter | |||||||||||||||
| SELECTED INCOME STATEMENT DATA: | |||||||||||||||||||
| Interest income | $ | 63,771 | $ | 57,805 | $ | 50,675 | $ | 45,276 | $ | 42,351 | |||||||||
| Interest expense | 21,956 | 14,656 | 7,607 | 3,679 | 2,793 | ||||||||||||||
| Net interest income | 41,815 | 43,149 | 43,068 | 41,597 | 39,558 | ||||||||||||||
| Provision for credit losses | 4,214 | 6,115 | 4,314 | 563 | 2,319 | ||||||||||||||
| Net interest income after provision for credit losses | 37,601 | 37,034 | 38,754 | 41,034 | 37,239 | ||||||||||||||
| Noninterest income: | |||||||||||||||||||
| Service charges on deposits | 1,027 | 1,486 | 1,597 | 1,437 | 1,369 | ||||||||||||||
| Insurance income | 2,087 | 1,462 | 1,571 | 1,234 | 2,097 | ||||||||||||||
| Card interchange income | 1,939 | 2,074 | 2,076 | 2,103 | 1,952 | ||||||||||||||
| Investment advisory | 2,923 | 2,824 | 2,722 | 2,906 | 3,041 | ||||||||||||||
| Company owned life insurance | 994 | 875 | 2,965 | 869 | 833 | ||||||||||||||
| Investments in limited partnerships | 251 | 191 | 65 | 242 | 795 | ||||||||||||||
| Loan servicing | 146 | 124 | 139 | 135 | 109 | ||||||||||||||
| Income from derivative instruments, net | 496 | 656 | 99 | 645 | 519 | ||||||||||||||
| Net gain (loss) on sale of loans held for sale | 112 | 182 | 308 | 828 | (91 | ) | |||||||||||||
| Net loss on investment securities | - | - | - | (15 | ) | - | |||||||||||||
| Net gain (loss) on other assets | 39 | (1 | ) | (22 | ) | 7 | - | ||||||||||||
| Net loss on tax credit investments | (201 | ) | (111 | ) | (385 | ) | (92 | ) | (227 | ) | |||||||||
| Other | 1,111 | 1,175 | 1,517 | 1,061 | 925 | ||||||||||||||
| Total noninterest income | 10,924 | 10,937 | 12,652 | 11,360 | 11,322 | ||||||||||||||
| Noninterest expense: | |||||||||||||||||||
| Salaries and employee benefits | 18,133 | 18,101 | 17,950 | 16,966 | 16,616 | ||||||||||||||
| Occupancy and equipment | 3,730 | 3,539 | 3,793 | 4,015 | 3,756 | ||||||||||||||
| Professional services | 1,495 | 1,420 | 1,247 | 1,269 | 1,656 | ||||||||||||||
| Computer and data processing | 4,691 | 4,679 | 4,407 | 4,573 | 3,979 | ||||||||||||||
| Supplies and postage | 490 | 493 | 440 | 469 | 541 | ||||||||||||||
| FDIC assessments | 1,115 | 655 | 651 | 621 | 513 | ||||||||||||||
| Advertising and promotions | 314 | 576 | 651 | 406 | 380 | ||||||||||||||
| Amortization of intangibles | 234 | 239 | 244 | 249 | 254 | ||||||||||||||
| Restructuring charges | - | 350 | - | 1,269 | - | ||||||||||||||
| Other | 3,459 | 3,461 | 3,444 | 3,050 | 2,440 | ||||||||||||||
| Total noninterest expense | 33,661 | 33,513 | 32,827 | 32,887 | 30,135 | ||||||||||||||
| Income before income taxes | 14,864 | 14,458 | 18,579 | 19,507 | 18,426 | ||||||||||||||
| Income tax expense | 2,775 | 2,370 | 4,725 | 3,859 | 3,443 | ||||||||||||||
| Net income | 12,089 | 12,088 | 13,854 | 15,648 | 14,983 | ||||||||||||||
| Preferred stock dividends | 365 | 364 | 365 | 365 | 365 | ||||||||||||||
| Net income available to common shareholders | $ | 11,724 | $ | 11,724 | $ | 13,489 | $ | 15,283 | $ | 14,618 | |||||||||
| FINANCIAL RATIOS: | |||||||||||||||||||
| Earnings per share – basic | $ | 0.76 | $ | 0.76 | $ | 0.88 | $ | 1.00 | $ | 0.94 | |||||||||
| Earnings per share – diluted | $ | 0.76 | $ | 0.76 | $ | 0.88 | $ | 0.99 | $ | 0.93 | |||||||||
| Cash dividends declared on common stock | $ | 0.30 | $ | 0.29 | $ | 0.29 | $ | 0.29 | $ | 0.29 | |||||||||
| Common dividend payout ratio | 39.47 | % | 38.16 | % | 32.95 | % | 29.00 | % | 30.85 | % | |||||||||
| Dividend yield (annualized) | 6.31 | % | 4.72 | % | 4.78 | % | 4.47 | % | 3.90 | % | |||||||||
| Return on average assets (annualized) | 0.84 | % | 0.85 | % | 0.98 | % | 1.12 | % | 1.09 | % | |||||||||
| Return on average equity (annualized) | 11.73 | % | 11.92 | % | 12.55 | % | 14.40 | % | 12.35 | % | |||||||||
| Return on average common equity (annualized) | 11.87 | % | 12.08 | % | 12.72 | % | 14.64 | % | 12.49 | % | |||||||||
| Return on average tangible common equity (annualized) (1) | 14.53 | % | 14.94 | % | 15.43 | % | 17.79 | % | 14.81 | % | |||||||||
| Efficiency ratio (2) | 63.68 | % | 61.82 | % | 58.78 | % | 61.91 | % | 59.06 | % | |||||||||
| Effective tax rate | 18.7 | % | 16.4 | % | 25.4 | % | 19.8 | % | 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)
| 2023 | 2022 | ||||||||||||||||||
| First | Fourth | Third | Second | First | |||||||||||||||
| Quarter | Quarter | Quarter | Quarter | Quarter | |||||||||||||||
| SELECTED AVERAGE BALANCES: | |||||||||||||||||||
| Federal funds sold and interest-earning deposits | $ | 63,311 | $ | 49,073 | $ | 42,183 | $ | 60,429 | $ | 44,559 | |||||||||
| Investment securities (1) | 1,301,506 | 1,332,776 | 1,369,166 | 1,416,065 | 1,419,947 | ||||||||||||||
| Loans: | |||||||||||||||||||
| Commercial business | 670,354 | 636,470 | 623,916 | 626,574 | 627,915 | ||||||||||||||
| Commercial mortgage | 1,744,963 | 1,633,298 | 1,514,138 | 1,429,910 | 1,431,933 | ||||||||||||||
| Residential real estate loans | 589,747 | 582,352 | 577,094 | 576,990 | 581,021 | ||||||||||||||
| Residential real estate lines | 76,627 | 77,342 | 76,853 | 76,730 | 77,610 | ||||||||||||||
| Consumer indirect | 1,024,362 | 1,003,728 | 1,012,787 | 1,045,720 | 969,441 | ||||||||||||||
| Other consumer | 15,156 | 15,175 | 14,648 | 14,183 | 14,531 | ||||||||||||||
| Total loans | 4,121,209 | 3,948,365 | 3,819,436 | 3,770,107 | 3,702,451 | ||||||||||||||
| Total interest-earning assets | 5,486,026 | 5,330,214 | 5,230,785 | 5,246,601 | 5,166,957 | ||||||||||||||
| Goodwill and other intangible assets, net | 73,312 | 73,547 | 73,791 | 74,037 | 74,287 | ||||||||||||||
| Total assets | 5,843,786 | 5,667,331 | 5,599,964 | 5,598,217 | 5,560,316 | ||||||||||||||
| Interest-bearing liabilities: | |||||||||||||||||||
| Interest-bearing demand | 880,093 | 923,374 | 854,015 | 938,995 | 923,425 | ||||||||||||||
| Savings and money market | 1,665,075 | 1,764,230 | 1,817,413 | 1,882,998 | 1,948,050 | ||||||||||||||
| Time deposits | 1,382,131 | 1,116,135 | 1,031,162 | 954,862 | 927,886 | ||||||||||||||
| Short-term borrowings | 145,533 | 87,783 | 136,610 | 94,242 | 24,672 | ||||||||||||||
| Long-term borrowings, net | 114,251 | 74,175 | 74,096 | 74,019 | 73,942 | ||||||||||||||
| Total interest-bearing liabilities | 4,187,083 | 3,965,697 | 3,913,296 | 3,945,116 | 3,897,975 | ||||||||||||||
| Noninterest-bearing demand deposits | 1,064,754 | 1,123,223 | 1,115,759 | 1,098,084 | 1,083,506 | ||||||||||||||
| Total deposits | 4,992,053 | 4,926,962 | 4,818,349 | 4,874,939 | 4,882,867 | ||||||||||||||
| Total liabilities | 5,425,851 | 5,265,134 | 5,162,057 | 5,162,293 | 5,068,464 | ||||||||||||||
| Shareholders’ equity | 417,935 | 402,197 | 437,907 | 435,924 | 491,852 | ||||||||||||||
| Common equity | 400,643 | 384,905 | 420,615 | 418,632 | 474,560 | ||||||||||||||
| Tangible common equity (2) | $ | 327,331 | $ | 311,358 | $ | 346,824 | $ | 344,595 | $ | 400,273 | |||||||||
| Common shares outstanding: | |||||||||||||||||||
| Basic | 15,348 | 15,330 | 15,329 | 15,306 | 15,577 | ||||||||||||||
| Diluted | 15,435 | 15,413 | 15,393 | 15,385 | 15,699 | ||||||||||||||
| SELECTED AVERAGE YIELDS: (Tax equivalent basis) | |||||||||||||||||||
| Investment securities | 1.90 | % | 1.88 | % | 1.81 | % | 1.82 | % | 1.74 | % | |||||||||
| Loans | 5.61 | % | 5.15 | % | 4.62 | % | 4.13 | % | 3.97 | % | |||||||||
| Total interest-earning assets | 4.71 | % | 4.32 | % | 3.86 | % | 3.47 | % | 3.32 | % | |||||||||
| Interest-bearing demand | 0.64 | % | 0.52 | % | 0.18 | % | 0.12 | % | 0.12 | % | |||||||||
| Savings and money market | 1.60 | % | 1.20 | % | 0.56 | % | 0.23 | % | 0.16 | % | |||||||||
| Time deposits | 3.33 | % | 2.31 | % | 1.12 | % | 0.41 | % | 0.28 | % | |||||||||
| Short-term borrowings | 3.35 | % | 2.48 | % | 1.95 | % | 1.07 | % | 0.45 | % | |||||||||
| Long-term borrowings, net | 5.11 | % | 5.72 | % | 5.72 | % | 5.73 | % | 5.74 | % | |||||||||
| Total interest-bearing liabilities | 2.12 | % | 1.47 | % | 0.77 | % | 0.37 | % | 0.29 | % | |||||||||
| Net interest rate spread | 2.59 | % | 2.85 | % | 3.09 | % | 3.10 | % | 3.03 | % | |||||||||
| Net interest margin | 3.09 | % | 3.23 | % | 3.28 | % | 3.19 | % | 3.11 | % | |||||||||
| (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)
| 2023 | 2022 | ||||||||||||||||||
| First | Fourth | Third | Second | First | |||||||||||||||
| Quarter | Quarter | Quarter | Quarter | Quarter | |||||||||||||||
| ASSET QUALITY DATA: | |||||||||||||||||||
| Allowance for Credit Losses - Loans | |||||||||||||||||||
| Beginning balance | $ | 45,413 | $ | 44,106 | $ | 42,452 | $ | 40,966 | $ | 39,676 | |||||||||
| Net loan charge-offs (recoveries): | |||||||||||||||||||
| Commercial business | (124 | ) | (21 | ) | (96 | ) | 90 | (37 | ) | ||||||||||
| Commercial mortgage | (2 | ) | 1,167 | (1 | ) | (2,018 | ) | (1 | ) | ||||||||||
| Residential real estate loans | 58 | 242 | (4 | ) | 46 | (5 | ) | ||||||||||||
| Residential real estate lines | 16 | (19 | ) | 35 | (12 | ) | (5 | ) | |||||||||||
| Consumer indirect | 1,838 | 1,451 | 1,890 | 647 | 550 | ||||||||||||||
| Other consumer | 303 | 518 | 329 | 207 | 285 | ||||||||||||||
| Total net charge-offs (recoveries) | 2,089 | 3,338 | 2,153 | (1,040 | ) | 787 | |||||||||||||
| Provision for credit losses - loans | 4,204 | 4,645 | 3,807 | 446 | 2,077 | ||||||||||||||
| Ending balance | $ | 47,528 | $ | 45,413 | $ | 44,106 | $ | 42,452 | $ | 40,966 | |||||||||
| Net charge-offs (recoveries) to average loans (annualized): | |||||||||||||||||||
| Commercial business | -0.08 | % | -0.01 | % | -0.06 | % | 0.06 | % | -0.02 | % | |||||||||
| Commercial mortgage | 0.00 | % | 0.28 | % | 0.00 | % | -0.57 | % | 0.00 | % | |||||||||
| Residential real estate loans | 0.04 | % | 0.16 | % | 0.00 | % | 0.03 | % | 0.00 | % | |||||||||
| Residential real estate lines | 0.09 | % | -0.10 | % | 0.18 | % | -0.06 | % | -0.03 | % | |||||||||
| Consumer indirect | 0.73 | % | 0.57 | % | 0.74 | % | 0.25 | % | 0.23 | % | |||||||||
| Other consumer | 8.10 | % | 13.57 | % | 8.90 | % | 5.86 | % | 7.95 | % | |||||||||
| Total loans | 0.21 | % | 0.34 | % | 0.22 | % | -0.11 | % | 0.09 | % | |||||||||
| Supplemental information (1) | |||||||||||||||||||
| Non-performing loans: | |||||||||||||||||||
| Commercial business | $ | 334 | $ | 340 | $ | 1,358 | $ | 422 | $ | 990 | |||||||||
| Commercial mortgage | 2,550 | 2,564 | 843 | 836 | 3,838 | ||||||||||||||
| Residential real estate loans | 3,267 | 4,071 | 3,550 | 2,738 | 2,878 | ||||||||||||||
| Residential real estate lines | 159 | 142 | 119 | 160 | 128 | ||||||||||||||
| Consumer indirect | 2,487 | 3,079 | 2,666 | 2,389 | 1,771 | ||||||||||||||
| Other consumer | 4 | 2 | - | 3 | 12 | ||||||||||||||
| Total non-performing loans | 8,801 | 10,198 | 8,536 | 6,548 | 9,617 | ||||||||||||||
| Foreclosed assets | 101 | 19 | - | - | - | ||||||||||||||
| Total non-performing assets | $ | 8,902 | $ | 10,217 | $ | 8,536 | $ | 6,548 | $ | 9,617 | |||||||||
| Total non-performing loans to total loans | 0.21 | % | 0.25 | % | 0.22 | % | 0.17 | % | 0.26 | % | |||||||||
| Total non-performing assets to total assets | 0.15 | % | 0.18 | % | 0.15 | % | 0.12 | % | 0.17 | % | |||||||||
| Allowance for credit losses - loans to total loans | 1.12 | % | 1.12 | % | 1.14 | % | 1.13 | % | 1.10 | % | |||||||||
| Allowance for credit losses - loans to non-performing loans | 540 | % | 445 | % | 517 | % | 648 | % | 426 | % | |||||||||
| (1) | At period end. |
FINANCIAL INSTITUTIONS, INC.
Appendix A — Reconciliation to Non-GAAP Financial Measures (Unaudited)
(In thousands, except per share amounts)
| 2023 | 2022 | ||||||||||||||||||
| First | Fourth | Third | Second | First | |||||||||||||||
| Quarter | Quarter | Quarter | Quarter | Quarter | |||||||||||||||
| Ending tangible assets: | |||||||||||||||||||
| Total assets | $ | 5,966,992 | $ | 5,797,272 | $ | 5,624,482 | $ | 5,568,198 | $ | 5,630,498 | |||||||||
| Less: Goodwill and other intangible assets, net | 73,180 | 73,414 | 73,653 | 73,897 | 74,146 | ||||||||||||||
| Tangible assets | $ | 5,893,812 | $ | 5,723,858 | $ | 5,550,829 | $ | 5,494,301 | $ | 5,556,352 | |||||||||
| Ending tangible common equity: | |||||||||||||||||||
| Common shareholders’ equity | $ | 405,531 | $ | 388,313 | $ | 376,756 | $ | 408,509 | $ | 429,554 | |||||||||
| Less: Goodwill and other intangible assets, net | 73,180 | 73,414 | 73,653 | 73,897 | 74,146 | ||||||||||||||
| Tangible common equity | $ | 332,351 | $ | 314,899 | $ | 303,103 | $ | 334,612 | $ | 355,408 | |||||||||
| Tangible common equity to tangible assets (1) | 5.64 | % | 5.50 | % | 5.46 | % | 6.09 | % | 6.40 | % | |||||||||
| Common shares outstanding | 15,375 | 15,340 | 15,334 | 15,334 | 15,299 | ||||||||||||||
| Tangible common book value per share (2) | $ | 21.62 | $ | 20.53 | $ | 19.77 | $ | 21.82 | $ | 23.23 | |||||||||
| Average tangible assets: | |||||||||||||||||||
| Average assets | $ | 5,843,786 | $ | 5,667,331 | $ | 5,599,964 | $ | 5,598,217 | $ | 5,560,316 | |||||||||
| Less: Average goodwill and other intangible assets, net | 73,312 | 73,547 | 73,791 | 74,037 | 74,287 | ||||||||||||||
| Average tangible assets | $ | 5,770,474 | $ | 5,593,784 | $ | 5,526,173 | $ | 5,524,180 | $ | 5,486,029 | |||||||||
| Average tangible common equity: | |||||||||||||||||||
| Average common equity | $ | 400,643 | $ | 384,905 | $ | 420,615 | $ | 418,632 | $ | 474,560 | |||||||||
| Less: Average goodwill and other intangible assets, net | 73,312 | 73,547 | 73,791 | 74,037 | 74,287 | ||||||||||||||
| Average tangible common equity | $ | 327,331 | $ | 311,358 | $ | 346,824 | $ | 344,595 | $ | 400,273 | |||||||||
| Net income available to common shareholders | $ | 11,724 | $ | 11,724 | $ | 13,489 | $ | 15,283 | $ | 14,618 | |||||||||
| Return on average tangible common equity (3) | 14.53 | % | 14.94 | % | 15.43 | % | 17.79 | % | 14.81 | % | |||||||||
| Pre-tax pre-provision income: | |||||||||||||||||||
| Net income | $ | 12,089 | $ | 12,088 | $ | 13,854 | $ | 15,648 | $ | 14,983 | |||||||||
| Add: Income tax expense | 2,775 | 2,370 | 4,725 | 3,859 | 3,443 | ||||||||||||||
| Add: Provision for credit losses | 4,214 | 6,115 | 4,314 | 563 | 2,319 | ||||||||||||||
| Pre-tax pre-provision income | $ | 19,078 | $ | 20,573 | $ | 22,893 | $ | 20,070 | $ | 20,745 | |||||||||
| Adjustments: | |||||||||||||||||||
| Restructuring charges | - | 350 | - | 1,269 | - | ||||||||||||||
| Enhancement from COLI surrender and redeployment | - | - | (1,997 | ) | - | - | |||||||||||||
| Adjusted pre-tax pre-provision income | $ | 19,078 | $ | 20,923 | $ | 20,896 | $ | 21,339 | $ | 20,745 | |||||||||
| Less: PPP accretion interest income and fees | (8 | ) | (78 | ) | (312 | ) | (809 | ) | (1,072 | ) | |||||||||
| Pre-PPP adjusted pre-tax pre-provision income | $ | 19,070 | $ | 20,845 | $ | 20,584 | $ | 20,530 | $ | 19,673 | |||||||||
| Total loans excluding PPP loans: | |||||||||||||||||||
| Total loans | $ | 4,243,332 | $ | 4,050,449 | $ | 3,866,851 | $ | 3,764,018 | $ | 3,733,648 | |||||||||
| Less: Total PPP loans | 1,094 | 1,161 | 2,783 | 8,910 | 31,399 | ||||||||||||||
| Total loans excluding PPP loans | $ | 4,242,238 | $ | 4,049,288 | $ | 3,864,068 | $ | 3,755,108 | $ | 3,702,249 | |||||||||
| Allowance for credit losses - loans | $ | 47,528 | $ | 45,413 | $ | 44,106 | $ | 42,452 | $ | 40,966 | |||||||||
| Allowance for credit losses - loans to total loans excluding PPP loans (4) | 1.12 | % | 1.12 | % | 1.14 | % | 1.13 | % | 1.11 | % | |||||||||
| (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. |
