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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number: 000-26481

Financial Institutions, Inc.

(Exact name of registrant as specified in its charter)

New York

16-0816610

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

220 LIBERTY STREET, WARSAW, New York

14569

(Address of principal executive offices)

(Zip Code)

 

(585) 786-1100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.01 per share

FISI

Nasdaq Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☑

 

 

 

 

Non-accelerated filer

☐

Smaller reporting company

☐

 

 

 

 

 

 

Emerging growth company

☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

The registrant had 15,401,800 shares of Common Stock, $0.01 par value, outstanding as of August 1, 2023.

 

Table of Contents

 

FINANCIAL INSTITUTIONS, INC.

Form 10-Q

For the Quarterly Period Ended June 30, 2023

TABLE OF CONTENTS

 

 

PAGE

PART I.

 

FINANCIAL INFORMATION

 

 

 

 

 

 

 

ITEM 1.

 

Financial Statements

 

 

 

 

 

 

 

 

 

Consolidated Statements of Financial Condition (Unaudited) – at June 30, 2023 and December 31, 2022

 

3

 

 

 

 

 

 

 

Consolidated Statements of Income (Unaudited) – Three and six months ended June 30, 2023 and 2022

 

4

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive (Loss) Income (Unaudited) – Three and six months ended June 30, 2023 and 2022

 

5

 

 

 

 

 

 

 

Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) – Three and six months ended June 30, 2023 and 2022

 

6

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows (Unaudited) – Six months ended June 30, 2023 and 2022

 

8

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

 

9

 

 

 

 

 

ITEM 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

45

 

 

 

 

 

ITEM 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

67

 

 

 

 

 

ITEM 4.

 

Controls and Procedures

 

68

 

 

 

 

 

PART II.

 

OTHER INFORMATION

 

 

 

 

 

 

 

ITEM 1.

 

Legal Proceedings

 

69

 

 

 

 

 

ITEM 1A.

 

Risk Factors

 

70

 

 

 

 

 

ITEM 2.

 

Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

 

71

 

 

 

 

 

ITEM 5.

 

Other Information

 

71

 

 

 

 

 

ITEM 6.

 

Exhibits

 

72

 

 

 

 

 

 

 

Signatures

 

73

 

 

 

 

 

 

 

2

Table of Contents

 

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Financial Condition (Unaudited)

 

(Dollars in thousands, except share and per share data)

 

June 30,
2023

 

 

December 31,
2022

 

ASSETS

 

 

 

 

 

 

Cash and due from banks

 

$

180,248

 

 

$

130,466

 

Securities available for sale, at fair value (amortized cost of $1,082,174 and $1,127,057, respectively)

 

 

912,122

 

 

 

954,371

 

Securities held to maturity, at amortized cost (net of allowance for credit losses of $4 and $5, respectively) (fair value of $146,026 and $174,188, respectively)

 

 

159,893

 

 

 

188,975

 

Loans held for sale

 

 

805

 

 

 

550

 

Loans (net of allowance for credit losses of $49,836 and $45,413, respectively)

 

 

4,347,973

 

 

 

4,005,036

 

Company owned life insurance

 

 

141,442

 

 

 

139,482

 

Premises and equipment, net

 

 

40,681

 

 

 

41,986

 

Goodwill and other intangible assets, net

 

 

72,950

 

 

 

73,414

 

Other assets

 

 

285,184

 

 

 

262,992

 

Total assets

 

$

6,141,298

 

 

$

5,797,272

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

Noninterest-bearing demand

 

$

1,022,788

 

 

$

1,139,214

 

Interest-bearing demand

 

 

823,983

 

 

 

863,822

 

Savings and money market

 

 

1,641,014

 

 

 

1,643,516

 

Time deposits

 

 

1,547,076

 

 

 

1,282,872

 

Total deposits

 

 

5,034,861

 

 

 

4,929,424

 

Short-term borrowings

 

 

374,000

 

 

 

205,000

 

Long-term borrowings, net of issuance costs of $623 and $778, respectively

 

 

124,377

 

 

 

74,222

 

Other liabilities

 

 

182,187

 

 

 

183,021

 

Total liabilities

 

 

5,715,425

 

 

 

5,391,667

 

Shareholders’ equity:

 

 

 

 

 

 

Series A 3% preferred stock, $100 par value; 1,533 shares authorized; 1,435 shares issued

 

 

143

 

 

 

143

 

Series B-1 8.48% preferred stock, $100 par value; 200,000 shares authorized;
 171,486 shares issued

 

 

17,149

 

 

 

17,149

 

Total preferred equity

 

 

17,292

 

 

 

17,292

 

Common stock, $0.01 par value; 50,000,000 shares authorized; 16,099,556 shares issued

 

 

161

 

 

 

161

 

Additional paid-in capital

 

 

125,457

 

 

 

126,636

 

Retained earnings

 

 

437,851

 

 

 

421,340

 

Accumulated other comprehensive loss

 

 

(134,472

)

 

 

(137,487

)

Treasury stock, at cost – 697,756 and 759,555 shares, respectively

 

 

(20,416

)

 

 

(22,337

)

Total shareholders’ equity

 

 

425,873

 

 

 

405,605

 

Total liabilities and shareholders’ equity

 

$

6,141,298

 

 

$

5,797,272

 

 

See accompanying notes to the consolidated financial statements.

 

 

 

 

 

3

Table of Contents

 

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Income (Unaudited)

 

(In thousands, except per share amounts)

 

Three months ended
June 30,

 

 

Six months ended
June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

Interest and fees on loans

 

$

64,052

 

 

$

38,872

 

 

$

121,150

 

 

$

75,170

 

Interest and dividends on investment securities

 

 

5,877

 

 

 

6,294

 

 

 

11,934

 

 

 

12,330

 

Other interest income

 

 

1,186

 

 

 

110

 

 

 

1,802

 

 

 

127

 

Total interest income

 

 

71,115

 

 

 

45,276

 

 

 

134,886

 

 

 

87,627

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

24,054

 

 

 

2,366

 

 

 

43,348

 

 

 

4,071

 

Short-term borrowings

 

 

3,159

 

 

 

252

 

 

 

4,361

 

 

 

280

 

Long-term borrowings

 

 

1,565

 

 

 

1,061

 

 

 

3,025

 

 

 

2,121

 

Total interest expense

 

 

28,778

 

 

 

3,679

 

 

 

50,734

 

 

 

6,472

 

Net interest income

 

 

42,337

 

 

 

41,597

 

 

 

84,152

 

 

 

81,155

 

Provision for credit losses

 

 

3,230

 

 

 

563

 

 

 

7,444

 

 

 

2,882

 

Net interest income after provision for credit losses

 

 

39,107

 

 

 

41,034

 

 

 

76,708

 

 

 

78,273

 

Noninterest income:

 

 

 

 

 

 

 

 

 

 

 

 

Service charges on deposits

 

 

1,223

 

 

 

1,437

 

 

 

2,250

 

 

 

2,806

 

Insurance income

 

 

1,328

 

 

 

1,234

 

 

 

3,415

 

 

 

3,331

 

Card interchange income

 

 

2,107

 

 

 

2,103

 

 

 

4,046

 

 

 

4,055

 

Investment advisory

 

 

2,819

 

 

 

2,906

 

 

 

5,742

 

 

 

5,947

 

Company owned life insurance

 

 

953

 

 

 

869

 

 

 

1,947

 

 

 

1,702

 

Investments in limited partnerships

 

 

469

 

 

 

242

 

 

 

720

 

 

 

1,037

 

Loan servicing

 

 

114

 

 

 

135

 

 

 

260

 

 

 

244

 

Income from derivative instruments, net

 

 

703

 

 

 

645

 

 

 

1,199

 

 

 

1,164

 

Net gain on sale of loans held for sale

 

 

122

 

 

 

828

 

 

 

234

 

 

 

737

 

Net loss on investment securities

 

 

—

 

 

 

(15

)

 

 

—

 

 

 

(15

)

Net (loss) gain on other assets

 

 

(7

)

 

 

7

 

 

 

32

 

 

 

7

 

Net gain (loss) on tax credit investments

 

 

489

 

 

 

(92

)

 

 

288

 

 

 

(319

)

Other

 

 

1,146

 

 

 

1,061

 

 

 

2,257

 

 

 

1,986

 

Total noninterest income

 

 

11,466

 

 

 

11,360

 

 

 

22,390

 

 

 

22,682

 

Noninterest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

17,754

 

 

 

16,966

 

 

 

35,887

 

 

 

33,582

 

Occupancy and equipment

 

 

3,538

 

 

 

4,015

 

 

 

7,268

 

 

 

7,771

 

Professional services

 

 

1,273

 

 

 

1,269

 

 

 

2,768

 

 

 

2,925

 

Computer and data processing

 

 

4,750

 

 

 

4,573

 

 

 

9,441

 

 

 

8,552

 

Supplies and postage

 

 

473

 

 

 

469

 

 

 

963

 

 

 

1,010

 

FDIC assessments

 

 

1,239

 

 

 

621

 

 

 

2,354

 

 

 

1,134

 

Advertising and promotions

 

 

498

 

 

 

406

 

 

 

812

 

 

 

786

 

Amortization of intangibles

 

 

230

 

 

 

249

 

 

 

464

 

 

 

503

 

Restructuring (recoveries) charges

 

 

(19

)

 

 

1,269

 

 

 

(19

)

 

 

1,269

 

Other

 

 

4,046

 

 

 

3,050

 

 

 

7,505

 

 

 

5,490

 

Total noninterest expense

 

 

33,782

 

 

 

32,887

 

 

 

67,443

 

 

 

63,022

 

Income before income taxes

 

 

16,791

 

 

 

19,507

 

 

 

31,655

 

 

 

37,933

 

Income tax expense

 

 

2,418

 

 

 

3,859

 

 

 

5,193

 

 

 

7,302

 

Net income

 

$

14,373

 

 

$

15,648

 

 

$

26,462

 

 

$

30,631

 

Preferred stock dividends

 

 

364

 

 

 

365

 

 

 

729

 

 

 

729

 

Net income available to common shareholders

 

$