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.

Financial Institutions, Inc. Announces First Quarter 2023 Results