EX-99.1 2 fisi-ex99_1.htm EX-99.1

Exhibit 99.1

FINANCIAL INSTITUTIONS, INC. ANNOUNCES SECOND QUARTER 2023 RESULTS

WARSAW, N.Y., July 27, 2023 – Financial Institutions, Inc. (NASDAQ: FISI) (the “Company,” “we” or “us”), parent company of Five Star Bank (the “Bank”), SDN Insurance Agency, LLC (“SDN”) and Courier Capital, LLC (“Courier Capital”), today reported financial and operational results for the second quarter ended June 30, 2023.

Net income was $14.4 million for the second quarter of 2023, compared to $12.1 million in the first quarter of 2023 and $15.6 million in the second quarter of 2022. After preferred dividends, net income available to common shareholders was $14.0 million, or $0.91 per diluted share, in the second quarter of 2023, compared to $11.7 million, or $0.76 per diluted share, in the first quarter of 2023, and $15.3 million, or $0.99 per diluted share, in the second quarter of 2022. The Company recorded a provision for credit losses of $3.2 million in the current quarter, compared to $4.2 million in the linked quarter and $563 thousand in the prior year quarter.

Second Quarter 2023 Highlights:

•
Total loans were $4.40 billion at June 30, 2023, reflecting an increase of $154.5 million, or 3.6%, from March 31, 2023 and $633.8 million, or 16.8%, from June 30, 2022.
•
Total deposits were $5.03 billion at June 30, 2023, down $106.4 million, or 2.1%, from March 31, 2023, reflective of seasonal outflows in the public deposit portfolio that occur during the second quarter, and up $214.3 million, or 4.4%, from one year prior.
•
Net interest income of $42.3 million increased $522 thousand, or 1.2%, and $740 thousand, or 1.8%, from the linked and year-ago quarters, respectively, amid the current rising interest rate environment that has driven higher yields as well as higher funding costs.
•
Noninterest income was $11.5 million, up $542 thousand, or 5.0%, from the first quarter of 2023 and up $106 thousand, or 0.9%, from the second quarter of 2022.
•
The Company completed the merger of its two wholly-owned SEC-registered investment advisory firm subsidiaries, under which HNP Capital, LLC merged with and into Courier Capital, LLC, now one of the largest registered investment advisory firms headquartered in Western New York with assets under management of $2.75 billion at June 30, 2023.
•
The Company continues to report strong credit quality metrics, including annualized net charge-offs to average loans for the current quarter of 0.06%, as well as non-performing loans to total loans of 0.23% and non-performing assets to total assets of 0.16% as of June 30, 2023.
•
Results for the second quarter of 2023 were positively impacted by a reduction in income tax expense of approximately $761 thousand for federal and state tax benefits related to tax credit investments placed in service in the current and prior quarters. These tax credit investments also generated a net gain of $489 thousand, recorded in noninterest income, resulting in a net positive impact in the quarter of $1.3 million.

“Our second quarter performance included incremental loan growth, which helped to partially offset ongoing funding cost pressures impacting our industry, as well as the continuation of solid credit quality metrics that reflect our long-term commitment to credit disciplined loan growth,” said President and Chief Executive Officer Martin K. Birmingham. “We continue to believe that 2023 loan growth will be concentrated in the first half of the year, with commercial mortgage originations expected to slow significantly as a result of softer demand given economic conditions and higher liquidity premiums in our pricing models. Our consumer and commercial loan portfolios continue to demonstrate stability and acceptable performance despite the volatility associated with the higher interest rate environment. Credit quality remains very strong, as measured by our ratios of annualized charge-offs to average loans for commercial mortgage loans standing at zero basis points and our consumer indirect charge-off ratio improving to 12 basis points for the quarter.

“During the second quarter, we also took steps to better position our wealth management business for growth by combining our registered investment advisory firms under the Courier Capital name. The merger enhances the size and scale of Courier Capital

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within our footprint, including in Buffalo, Rochester and across Upstate New York, thereby expanding the spectrum of opportunities where we can compete. It also streamlines our business development efforts with respect to institutional clients, retirement plan sponsors and high-net-worth individuals and families. Our wealth business has and will continue to be an important driver of noninterest income and overall revenue diversity.”

Chief Financial Officer and Treasurer W. Jack Plants II added, “Heading into the second half of the year, we are maintaining a strong focus on deposit generation. We launched a new marketing campaign this week and are beginning to see some of our anticipated Banking-as-a-Service, or BaaS, deposits come on. While we experienced continued margin compression in the second quarter, it was at a more modest level than during the linked quarter. We have observed a slowing of prepayments across all asset classes; however, we continue to expect loan and investment cash flow of approximately $1 billion over the next 12-months given the pace of loan originations during the first half of 2023.”

Merger of Courier Capital and HNP Capital

On May 1, 2023, the Company announced the completion of the merger of its wholly-owned SEC-registered investment advisory firms, under which HNP Capital merged with and into Courier Capital. As one of the largest registered investment advisory firms in Western New York, with assets under management of approximately $2.75 billion at June 30, 2023, Courier Capital provides customized investment management, financial planning and consulting services to individuals and families, businesses, institutions, non-profits and retirement plans.

Net Interest Income and Net Interest Margin

Net interest income was $42.3 million for the second quarter of 2023, an increase of $522 thousand from the first quarter of 2023 and an increase of $740 thousand from the second quarter of 2022.

Average interest-earning assets for the current quarter were $5.69 billion, an increase of $205.8 million from the first quarter of 2023 due to a $208.5 million increase in average loans and a $29.6 million increase in the average balance of Federal Reserve interest-earning cash, partially offset by a $32.3 million decrease in the average balance of investment securities. Average interest-earning assets for the current quarter were $445.3 million higher than the second quarter of 2022 due to a $559.6 million increase in average loans and a $32.5 million increase in the average balance of Federal Reserve interest-earning cash, partially offset by a $146.9 million decrease in the average balance of investment securities.

Average interest-bearing liabilities for the current quarter were $4.43 billion, an increase of $247.5 million from the first quarter of 2023, primarily due to a $149.4 million increase in average short-term borrowings and a $124.5 million increase in average time deposits, partially offset by a $31.5 million decrease in average interest-bearing demand deposits. Average interest-bearing liabilities for the second quarter of 2023 were $489.5 million higher than the year-ago quarter, primarily due to a $551.7 milion increase in average time deposits and a $200.7 million increase in average short-term borrowings, partially offset by a $222.9 million decrease in average savings and money market accounts, and a $90.4 million decrease in average interest-bearing demand deposits.

Net interest margin was 2.99% in the current quarter as compared to 3.09% in the first quarter of 2023 and 3.19% in the second quarter of 2022, primarily as a result of a shift in the deposit mix from lower cost transactional accounts to higher cost time deposits, as customers responded to the rising interest rate environment, as well as seasonality and repricing within the public deposit portfolio, partially offset by an increase in the average yield on interest-earnings assets.

Noninterest Income

Noninterest income was $11.5 million for the second quarter of 2023, an increase of $542 thousand from the first quarter of 2023 and an increase of $106 thousand from the second quarter of 2022.

•
Service charges on deposits of $1.2 million reflected a $196 thousand increase from the linked first quarter of 2023, due in part to seasonal consumer spending habits, and a $214 thousand 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 $1.3 million was $759 thousand lower than the first quarter of 2023 and $94 thousand higher than the second quarter of 2022, with the linked quarter change largely due to timing of contingent revenue earned in the first quarter each year.
•
Investment advisory income of $2.8 million was $104 thousand lower than the first quarter of 2023 and $87 thousand lower than the second quarter of 2022, primarily due to lower transaction-based fees in the most recent period.
•
Income from investments in limited partnerships of $469 thousand was $218 thousand higher than the first quarter of 2023 and $227 thousand higher than the second quarter of 2022. The Company has made several investments in limited partnerships, primarily small business investment companies, and accounts for these investments under the

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equity method. Income from these investments fluctuates based on the maturity and performance of the underlying investments.
•
Net gain on sale of loans held for sale was $122 thousand in the current quarter compared to $112 thousand in the first quarter of 2023 and $828 thousand in the second quarter of 2022, when the Company recorded a $586 thousand gain related to the sale of a $31.2 million portfolio of indirect loans.
•
A net gain on tax credit investments of $489 thousand was recognized in the current quarter related to tax credit investments placed in service in the current and prior quarters. This net gain includes the New York investment tax credits that are refundable, partially offset by amortization of the tax credit investments.

Noninterest Expense

Noninterest expense was $33.8 million in the second quarter of 2023 compared to $33.7 million in the first quarter of 2023 and $32.9 million in the second quarter of 2022.

•
Salaries and employee benefits expense of $17.8 million was $379 thousand lower than the first quarter of 2023 and $788 thousand higher than the second quarter of 2022. The linked quarter change was primarily due to lower medical and dental claim activity, while the year-over-year increase was primarily due to annual merit increases.
•
Occupancy and equipment expenses of $3.5 million were down $192 thousand and $477 thousand from the linked and year-ago periods, respectively, primarily due to timing of maintenance and repairs.
•
Professional services expenses of $1.3 million were $222 thousand lower than the first quarter of 2023, due to the timing of audit fees, and were flat with the second quarter of 2022.
•
FDIC assessments expense of $1.2 million reflects increases of $124 thousand and $618 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 $4.0 million was $587 thousand higher than the first quarter of 2023 and $1.0 million higher than the second quarter of 2022. The linked quarter variance was driven in part by interest charges related to collateral held for derivative transactions. 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 second quarter of 2022 the Company recognized restructuring charges of $1.3 million in connection with the write-down of real estate assets to fair market value based upon then-existing purchase offers and current market conditions for five locations that were closed in the second half of 2020. There were no such restructuring charges in the first quarter of 2023 and modest recoveries of $19 thousand in the second quarter of 2023.

Income Taxes

Income tax expense was $2.4 million for the second quarter of 2023 compared to $2.8 million in the first quarter of 2023 and $3.9 million in the second quarter of 2022. The Company recognized federal and state tax benefits related to tax credit investments placed in service and/or amortized during the second quarter of 2023, first quarter of 2023, and second quarter of 2022, resulting in income tax expense reductions of $761 thousand, $584 thousand, and $426 thousand, respectively.

The effective tax rate was 14.4% for the second quarter of 2023, 18.7% for the first quarter of 2023, and 19.8% for the second 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 $6.14 billion at June 30, 2023, up $174.3 million from March 31, 2023, and up $573.1 million from June 30, 2022.

Investment securities were $1.07 billion at June 30, 2023, down $53.5 million from March 31, 2023, and down $189.9 million from June 30, 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 June 30, 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 $4.40 billion at June 30, 2023, up $154.5 million, or 3.6%, from March 31, 2023, and up $633.8 million, or 16.8%, from June 30, 2022.

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•
Commercial business loans totaled $720.4 million, up $25.3 million, or 3.6%, from March 31, 2023, and up $109.3 million, or 17.9%, from June 30, 2022.
•
Commercial mortgage loans totaled $1.96 billion, up $119.7 million, or 6.5%, from March 31, 2023, and up $513.1 million, or 35.4%, from June 30, 2022.
•
Residential real estate loans totaled $611.2 million, up $19.4 million, or 3.3%, from March 31, 2023, and up $36.4 million, or 6.3%, from June 30, 2022.
•
Consumer indirect loans totaled $1.00 billion, down $21.2 million, or 2.1%, from March 31, 2023, and down $38.3 million, or 3.7%, from June 30, 2022.

Total deposits were $5.03 billion at June 30, 2023, $106.4 million lower than March 31, 2023, and $214.3 million higher than June 30, 2022. The decrease from March 31, 2023 was primarily the result of a seasonal decrease in public deposits. The increase from June 30, 2022 was primarily driven by increases in reciprocal and brokered deposits. Public deposit balances represented 20% of total deposits at June 30, 2023, 23% at March 31, 2023 and 21% at June 30, 2022.

Short-term borrowings were $374.0 million at June 30, 2023, compared to $116.0 million at March 31, 2023 and $109.0 million at June 30, 2022. Short-term borrowings and brokered deposits have historically been utilized to manage the seasonality of public deposits.

Shareholders’ equity was $425.9 million at June 30, 2023, compared to $422.8 million at March 31, 2023, and $425.8 million at June 30, 2022. Shareholders’ equity has been negatively impacted since 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 $26.53 at June 30, 2023, an increase of $0.15, or 0.6%, from $26.38 at March 31, 2023, and a decrease of $0.11, or 0.4%, from $26.64 at June 30, 2022. Tangible common book value per share(1) was $21.79 at June 30, 2023, an increase of $0.18, or 0.8%, from $21.62 at March 31, 2023, and a decrease of $0.03, or 0.1%, from $21.82 at June 30, 2022. The common equity to assets ratio was 6.65% at June 30, 2023, compared to 6.80% at March 31, 2023, and 7.34% at June 30, 2022. Tangible common equity to tangible assets(1), or the TCE ratio, was 5.53%, 5.64% and 6.09% at June 30, 2023, March 31, 2023, and June 30, 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 second quarter of 2023, the Company declared a common stock dividend of $0.30 per common share, consistent with the linked quarter and representing an increase of 3.4% over the prior year quarter. The dividend returned 33.0% of second quarter net income to common shareholders.

The Company’s regulatory capital ratios at June 30, 2023 continued to exceed all regulatory capital requirements to be considered well capitalized.

•
Leverage Ratio was 8.08% compared to 8.19% and 8.20% at March 31, 2023, and June 30, 2022, respectively.
•
Common Equity Tier 1 Capital Ratio was 9.10% compared to 9.21% and 9.91% at March 31, 2023, and June 30, 2022, respectively.
•
Tier 1 Capital Ratio was 9.43% compared to 9.55% and 10.29% at March 31, 2023, and June 30, 2022, respectively.
•
Total Risk-Based Capital Ratio was 11.77% compared to 11.93% and 12.75% at March 31, 2023, and June 30, 2022, respectively.

Credit Quality

Non-performing loans were $9.9 million, or 0.23% of total loans, at June 30, 2023, as compared to $8.8 million, or 0.21% of total loans, at March 31, 2023, and $6.5 million, or 0.17% of total loans, at June 30, 2022. Net charge-offs were $636 thousand, representing 0.06% of average loans on an annualized basis, for the current quarter, as compared to net charge-offs of $2.1 million, or an annualized 0.21% of average loans, in the first quarter of 2023 and net recoveries of $1.0 million, or an annualized 0.11%, in the second quarter of 2022. As previously disclosed, during the second quarter of 2022, the Company recovered $2.0 million in connection with the pay-off of a commercial loan that was downgraded to non-performing status with a partial charge-off in the fourth quarter of 2021.

At June 30, 2023, the allowance for credit losses on loans to total loans ratio was 1.13%, compared to 1.12% at March 31, 2023, and 1.13% at June 30, 2022.

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Provision for credit losses on loans was $2.9 million in the current quarter, compared to $4.2 million in the first quarter of 2023 and $446 thousand in the second 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 $287 thousand in the second quarter of 2023, $11 thousand in the first quarter of 2023, and $119 thousand in the second quarter of 2022. Provision for credit losses for the second quarter of 2023 reflected the impact of strong loan growth and a modest increase in the national unemployment forecast, partially offset by low levels of net charge-offs and a reduction in overall specific reserve levels. In the second quarter of 2022, the loan loss provision was impacted by the previously mentioned $2.0 million commercial loan recovery.

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 503% at June 30, 2023, 540% at March 31, 2023, and 648% at June 30, 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 June 30, 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 June 30, 2023, and will adjust amounts preliminarily reported, if necessary.

Conference Call

The Company will host an earnings conference call and audio webcast on July 28, 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 588237. 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 $6.1 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 offers 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.

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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: changes in interest rates; inflation; changes in deposit flows and the cost and availability of funds; 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, including any 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; and the macroeconomic volatility related to the impact of the COVID-19 pandemic or global political unrest. 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

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FINANCIAL INSTITUTIONS, INC.
Selected Financial Information (Unaudited)
(Amounts in thousands, except per share amounts)

|  | 2023 |  |  | 2022 |
|  | June 30, |  |  | March 31, |  |  | December 31, |  |  | September 30, |  |  | June 30, |
SELECTED BALANCE SHEET DATA: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 180,248 |  |  | $ | 139,974 |  |  | $ | 130,466 |  |  | $ | 118,581 |  |  | $ | 109,705 |
Investment securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available for sale |  |  | 912,122 |  |  |  | 945,442 |  |  |  | 954,371 |  |  |  | 965,531 |  |  |  | 1,057,018 |
Held-to-maturity, net |  |  | 159,893 |  |  |  | 180,052 |  |  |  | 188,975 |  |  |  | 197,538 |  |  |  | 204,933 |
Total investment securities |  |  | 1,072,015 |  |  |  | 1,125,494 |  |  |  | 1,143,346 |  |  |  | 1,163,069 |  |  |  | 1,261,951 |
Loans held for sale |  |  | 805 |  |  |  | 682 |  |  |  | 550 |  |  |  | 2,074 |  |  |  | 4,265 |
Loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial business |  |  | 720,372 |  |  |  | 695,110 |  |  |  | 664,249 |  |  |  | 633,894 |  |  |  | 611,102 |
Commercial mortgage |  |  | 1,961,220 |  |  |  | 1,841,481 |  |  |  | 1,679,840 |  |  |  | 1,564,545 |  |  |  | 1,448,152 |
Residential real estate loans |  |  | 611,199 |  |  |  | 591,846 |  |  |  | 589,960 |  |  |  | 577,821 |  |  |  | 574,784 |
Residential real estate lines |  |  | 75,971 |  |  |  | 76,086 |  |  |  | 77,670 |  |  |  | 77,336 |  |  |  | 76,108 |
Consumer indirect |  |  | 1,000,982 |  |  |  | 1,022,202 |  |  |  | 1,023,620 |  |  |  | 997,423 |  |  |  | 1,039,251 |
Other consumer |  |  | 28,065 |  |  |  | 16,607 |  |  |  | 15,110 |  |  |  | 15,832 |  |  |  | 14,621 |
Total loans |  |  | 4,397,809 |  |  |  | 4,243,332 |  |  |  | 4,050,449 |  |  |  | 3,866,851 |  |  |  | 3,764,018 |
Allowance for credit losses - loans |  |  | 49,836 |  |  |  | 47,528 |  |  |  | 45,413 |  |  |  | 44,106 |  |  |  | 42,452 |
Total loans, net |  |  | 4,347,973 |  |  |  | 4,195,804 |  |  |  | 4,005,036 |  |  |  | 3,822,745 |  |  |  | 3,721,566 |
Total interest-earning assets |  |  | 5,749,015 |  |  |  | 5,600,786 |  |  |  | 5,428,533 |  |  |  | 5,073,983 |  |  |  | 5,206,795 |
Goodwill and other intangible assets, net |  |  | 72,950 |  |  |  | 73,180 |  |  |  | 73,414 |  |  |  | 73,653 |  |  |  | 73,897 |
Total assets |  |  | 6,141,298 |  |  |  | 5,966,992 |  |  |  | 5,797,272 |  |  |  | 5,624,482 |  |  |  | 5,568,198 |
Deposits: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Noninterest-bearing demand |  |  | 1,022,788 |  |  |  | 1,067,011 |  |  |  | 1,139,214 |  |  |  | 1,135,125 |  |  |  | 1,114,460 |
Interest-bearing demand |  |  | 823,983 |  |  |  | 901,251 |  |  |  | 863,822 |  |  |  | 946,431 |  |  |  | 877,661 |
Savings and money market |  |  | 1,641,014 |  |  |  | 1,701,663 |  |  |  | 1,643,516 |  |  |  | 1,800,321 |  |  |  | 1,845,186 |
Time deposits |  |  | 1,547,076 |  |  |  | 1,471,382 |  |  |  | 1,282,872 |  |  |  | 1,023,277 |  |  |  | 983,209 |
Total deposits |  |  | 5,034,861 |  |  |  | 5,141,307 |  |  |  | 4,929,424 |  |  |  | 4,905,154 |  |  |  | 4,820,516 |
Short-term borrowings |  |  | 374,000 |  |  |  | 116,000 |  |  |  | 205,000 |  |  |  | 69,000 |  |  |  | 109,000 |
Long-term borrowings, net |  |  | 124,377 |  |  |  | 124,299 |  |  |  | 74,222 |  |  |  | 74,144 |  |  |  | 74,067 |
Total interest-bearing liabilities |  |  | 4,510,450 |  |  |  | 4,314,595 |  |  |  | 4,069,432 |  |  |  | 3,913,173 |  |  |  | 3,889,123 |
Shareholders’ equity |  |  | 425,873 |  |  |  | 422,823 |  |  |  | 405,605 |  |  |  | 394,048 |  |  |  | 425,801 |
Common shareholders’ equity |  |  | 408,581 |  |  |  | 405,531 |  |  |  | 388,313 |  |  |  | 376,756 |  |  |  | 408,509 |
Tangible common equity (1) |  |  | 335,631 |  |  |  | 332,351 |  |  |  | 314,899 |  |  |  | 303,103 |  |  |  | 334,612 |
Accumulated other comprehensive loss |  | $ | (134,472 | ) |  | $ | (127,372 | ) |  | $ | (137,487 | ) |  | $ | (141,183 | ) |  | $ | (99,724 | )
Common shares outstanding |  |  | 15,402 |  |  |  | 15,375 |  |  |  | 15,340 |  |  |  | 15,334 |  |  |  | 15,334 |
Treasury shares |  |  | 698 |  |  |  | 724 |  |  |  | 760 |  |  |  | 765 |  |  |  | 765 |
CAPITAL RATIOS AND PER SHARE DATA: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Leverage ratio |  |  | 8.08 | % |  |  | 8.19 | % |  |  | 8.33 | % |  |  | 8.35 | % |  |  | 8.20 | %
Common equity Tier 1 capital ratio |  |  | 9.10 | % |  |  | 9.21 | % |  |  | 9.42 | % |  |  | 9.75 | % |  |  | 9.91 | %
Tier 1 capital ratio |  |  | 9.43 | % |  |  | 9.55 | % |  |  | 9.78 | % |  |  | 10.12 | % |  |  | 10.29 | %
Total risk-based capital ratio |  |  | 11.77 | % |  |  | 11.93 | % |  |  | 12.13 | % |  |  | 12.53 | % |  |  | 12.75 | %
Common equity to assets |  |  | 6.65 | % |  |  | 6.80 | % |  |  | 6.70 | % |  |  | 6.70 | % |  |  | 7.34 | %
Tangible common equity to tangible assets (1) |  |  | 5.53 | % |  |  | 5.64 | % |  |  | 5.50 | % |  |  | 5.46 | % |  |  | 6.09 | %
Common book value per share |  | $ | 26.53 |  |  | $ | 26.38 |  |  | $ | 25.31 |  |  | $ | 24.57 |  |  | $ | 26.64 |
Tangible common book value per share (1) |  | $ | 21.79 |  |  | $ | 21.62 |  |  | $ | 20.53 |  |  | $ | 19.77 |  |  | $ | 21.82 |

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

Page 7

FINANCIAL INSTITUTIONS, INC.
Selected Financial Information (Unaudited)
(Amounts in thousands, except per share amounts)

|  | Six Months Ended |  |  | 2023 |  |  | 2022 |
|  | June 30, |  |  | Second |  |  | First |  |  | Fourth |  |  | Third |  |  | Second |
|  | 2023 |  |  | 2022 |  |  | Quarter |  |  | Quarter |  |  | Quarter |  |  | Quarter |  |  | Quarter |
SELECTED INCOME STATEMENT DATA: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest income |  | $ | 134,886 |  |  | $ | 87,627 |  |  | $ | 71,115 |  |  | $ | 63,771 |  |  | $ | 57,805 |  |  | $ | 50,675 |  |  | $ | 45,276 |
Interest expense |  |  | 50,734 |  |  |  | 6,472 |  |  |  | 28,778 |  |  |  | 21,956 |  |  |  | 14,656 |  |  |  | 7,607 |  |  |  | 3,679 |
Net interest income |  |  | 84,152 |  |  |  | 81,155 |  |  |  | 42,337 |  |  |  | 41,815 |  |  |  | 43,149 |  |  |  | 43,068 |  |  |  | 41,597 |
Provision for credit losses |  |  | 7,444 |  |  |  | 2,882 |  |  |  | 3,230 |  |  |  | 4,214 |  |  |  | 6,115 |  |  |  | 4,314 |  |  |  | 563 |
Net interest income after provision for credit losses |  |  | 76,708 |  |  |  | 78,273 |  |  |  | 39,107 |  |  |  | 37,601 |  |  |  | 37,034 |  |  |  | 38,754 |  |  |  | 41,034 |
Noninterest income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Service charges on deposits |  |  | 2,250 |  |  |  | 2,806 |  |  |  | 1,223 |  |  |  | 1,027 |  |  |  | 1,486 |  |  |  | 1,597 |  |  |  | 1,437 |
Insurance income |  |  | 3,415 |  |  |  | 3,331 |  |  |  | 1,328 |  |  |  | 2,087 |  |  |  | 1,462 |  |  |  | 1,571 |  |  |  | 1,234 |
Card interchange income |  |  | 4,046 |  |  |  | 4,055 |  |  |  | 2,107 |  |  |  | 1,939 |  |  |  | 2,074 |  |  |  | 2,076 |  |  |  | 2,103 |
Investment advisory |  |  | 5,742 |  |  |  | 5,947 |  |  |  | 2,819 |  |  |  | 2,923 |  |  |  | 2,824 |  |  |  | 2,722 |  |  |  | 2,906 |
Company owned life insurance |  |  | 1,947 |  |  |  | 1,702 |  |  |  | 953 |  |  |  | 994 |  |  |  | 875 |  |  |  | 2,965 |  |  |  | 869 |
Investments in limited partnerships |  |  | 720 |  |  |  | 1,037 |  |  |  | 469 |  |  |  | 251 |  |  |  | 191 |  |  |  | 65 |  |  |  | 242 |
Loan servicing |  |  | 260 |  |  |  | 244 |  |  |  | 114 |  |  |  | 146 |  |  |  | 124 |  |  |  | 139 |  |  |  | 135 |
Income from derivative instruments, net |  |  | 1,199 |  |  |  | 1,164 |  |  |  | 703 |  |  |  | 496 |  |  |  | 656 |  |  |  | 99 |  |  |  | 645 |
Net gain on sale of loans held for sale |  |  | 234 |  |  |  | 737 |  |  |  | 122 |  |  |  | 112 |  |  |  | 182 |  |  |  | 308 |  |  |  | 828 |
Net loss on investment securities |  |  | - |  |  |  | (15 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (15 | )
Net gain (loss) on other assets |  |  | 32 |  |  |  | 7 |  |  |  | (7 | ) |  |  | 39 |  |  |  | (1 | ) |  |  | (22 | ) |  |  | 7 |
Net gain (loss) on tax credit investments |  |  | 288 |  |  |  | (319 | ) |  |  | 489 |  |  |  | (201 | ) |  |  | (111 | ) |  |  | (385 | ) |  |  | (92 | )
Other |  |  | 2,257 |  |  |  | 1,986 |  |  |  | 1,146 |  |  |  | 1,111 |  |  |  | 1,175 |  |  |  | 1,517 |  |  |  | 1,061 |
Total noninterest income |  |  | 22,390 |  |  |  | 22,682 |  |  |  | 11,466 |  |  |  | 10,924 |  |  |  | 10,937 |  |  |  | 12,652 |  |  |  | 11,360 |
Noninterest expense: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Salaries and employee benefits |  |  | 35,887 |  |  |  | 33,582 |  |  |  | 17,754 |  |  |  | 18,133 |  |  |  | 18,101 |  |  |  | 17,950 |  |  |  | 16,966 |
Occupancy and equipment |  |  | 7,268 |  |  |  | 7,771 |  |  |  | 3,538 |  |  |  | 3,730 |  |  |  | 3,539 |  |  |  | 3,793 |  |  |  | 4,015 |
Professional services |  |  | 2,768 |  |  |  | 2,925 |  |  |  | 1,273 |  |  |  | 1,495 |  |  |  | 1,420 |  |  |  | 1,247 |  |  |  | 1,269 |
Computer and data processing |  |  | 9,441 |  |  |  | 8,552 |  |  |  | 4,750 |  |  |  | 4,691 |  |  |  | 4,679 |  |  |  | 4,407 |  |  |  | 4,573 |
Supplies and postage |  |  | 963 |  |  |  | 1,010 |  |  |  | 473 |  |  |  | 490 |  |  |  | 493 |  |  |  | 440 |  |  |  | 469 |
FDIC assessments |  |  | 2,354 |  |  |  | 1,134 |  |  |  | 1,239 |  |  |  | 1,115 |  |  |  | 655 |  |  |  | 651 |  |  |  | 621 |
Advertising and promotions |  |  | 812 |  |  |  | 786 |  |  |  | 498 |  |  |  | 314 |  |  |  | 576 |  |  |  | 651 |  |  |  | 406 |
Amortization of intangibles |  |  | 464 |  |  |  | 503 |  |  |  | 230 |  |  |  | 234 |  |  |  | 239 |  |  |  | 244 |  |  |  | 249 |
Restructuring (recoveries) charges |  |  | (19 | ) |  |  | 1,269 |  |  |  | (19 | ) |  |  | - |  |  |  | 350 |  |  |  | - |  |  |  | 1,269 |
Other |  |  | 7,505 |  |  |  | 5,490 |  |  |  | 4,046 |  |  |  | 3,459 |  |  |  | 3,461 |  |  |  | 3,444 |  |  |  | 3,050 |
Total noninterest expense |  |  | 67,443 |  |  |  | 63,022 |  |  |  | 33,782 |  |  |  | 33,661 |  |  |  | 33,513 |  |  |  | 32,827 |  |  |  | 32,887 |
Income before income taxes |  |  | 31,655 |  |  |  | 37,933 |  |  |  | 16,791 |  |  |  | 14,864 |  |  |  | 14,458 |  |  |  | 18,579 |  |  |  | 19,507 |
Income tax expense |  |  | 5,193 |  |  |  | 7,302 |  |  |  | 2,418 |  |  |  | 2,775 |  |  |  | 2,370 |  |  |  | 4,725 |  |  |  | 3,859 |
Net income |  |  | 26,462 |  |  |  | 30,631 |  |  |  | 14,373 |  |  |  | 12,089 |  |  |  | 12,088 |  |  |  | 13,854 |  |  |  | 15,648 |
Preferred stock dividends |  |  | 729 |  |  |  | 729 |  |  |  | 364 |  |  |  | 365 |  |  |  | 364 |  |  |  | 365 |  |  |  | 365 |
Net income available to common shareholders |  | $ | 25,733 |  |  | $ | 29,902 |  |  | $ | 14,009 |  |  | $ | 11,724 |  |  | $ | 11,724 |  |  | $ | 13,489 |  |  | $ | 15,283 |
FINANCIAL RATIOS: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Earnings per share – basic |  | $ | 1.68 |  |  | $ | 1.94 |  |  | $ | 0.91 |  |  | $ | 0.76 |  |  | $ | 0.76 |  |  | $ | 0.88 |  |  | $ | 1.00 |
Earnings per share – diluted |  | $ | 1.67 |  |  | $ | 1.93 |  |  | $ | 0.91 |  |  | $ | 0.76 |  |  | $ | 0.76 |  |  | $ | 0.88 |  |  | $ | 0.99 |
Cash dividends declared on common stock |  | $ | 0.60 |  |  | $ | 0.58 |  |  | $ | 0.30 |  |  | $ | 0.30 |  |  | $ | 0.29 |  |  | $ | 0.29 |  |  | $ | 0.29 |
Common dividend payout ratio |  |  | 35.71 | % |  |  | 29.90 | % |  |  | 32.97 | % |  |  | 39.47 | % |  |  | 38.16 | % |  |  | 32.95 | % |  |  | 29.00 | %
Dividend yield (annualized) |  |  | 7.69 | % |  |  | 4.50 | % |  |  | 7.64 | % |  |  | 6.31 | % |  |  | 4.72 | % |  |  | 4.78 | % |  |  | 4.47 | %
Return on average assets (annualized) |  |  | 0.90 | % |  |  | 1.11 | % |  |  | 0.95 | % |  |  | 0.84 | % |  |  | 0.85 | % |  |  | 0.98 | % |  |  | 1.12 | %
Return on average equity (annualized) |  |  | 12.60 | % |  |  | 13.32 | % |  |  | 13.43 | % |  |  | 11.73 | % |  |  | 11.92 | % |  |  | 12.55 | % |  |  | 14.40 | %
Return on average common equity (annualized) |  |  | 12.77 | % |  |  | 13.51 | % |  |  | 13.64 | % |  |  | 11.87 | % |  |  | 12.08 | % |  |  | 12.72 | % |  |  | 14.64 | %
Return on average tangible common equity (annualized) (1) |  |  | 15.58 | % |  |  | 16.20 | % |  |  | 16.58 | % |  |  | 14.53 | % |  |  | 14.94 | % |  |  | 15.43 | % |  |  | 17.79 | %
Efficiency ratio (2) |  |  | 63.17 | % |  |  | 60.51 | % |  |  | 62.66 | % |  |  | 63.68 | % |  |  | 61.82 | % |  |  | 58.78 | % |  |  | 61.91 | %
Effective tax rate |  |  | 16.4 | % |  |  | 19.2 | % |  |  | 14.4 | % |  |  | 18.7 | % |  |  | 16.4 | % |  |  | 25.4 | % |  |  | 19.8 | %

(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.

Page 8

FINANCIAL INSTITUTIONS, INC.
Selected Financial Information (Unaudited)

(Amounts in thousands)

|  | Six Months Ended |  |  | 2023 |  |  | 2022 |
|  | June 30, |  |  | Second |  |  | First |  |  | Fourth |  |  | Third |  |  | Second |
|  | 2023 |  |  | 2022 |  |  | Quarter |  |  | Quarter |  |  | Quarter |  |  | Quarter |  |  | Quarter |
SELECTED AVERAGE BALANCES: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Federal funds sold and interest- earning deposits |  | $ | 78,214 |  |  | $ | 52,538 |  |  | $ | 92,954 |  |  | $ | 63,311 |  |  | $ | 49,073 |  |  | $ | 42,183 |  |  | $ | 60,429 |
Investment securities (1) |  |  | 1,285,254 |  |  |  | 1,417,996 |  |  |  | 1,269,181 |  |  |  | 1,301,506 |  |  |  | 1,332,776 |  |  |  | 1,369,166 |  |  |  | 1,416,065 |
Loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial business |  |  | 690,360 |  |  |  | 627,241 |  |  |  | 710,145 |  |  |  | 670,354 |  |  |  | 636,470 |  |  |  | 623,916 |  |  |  | 626,574 |
Commercial mortgage |  |  | 1,828,807 |  |  |  | 1,430,916 |  |  |  | 1,911,729 |  |  |  | 1,744,963 |  |  |  | 1,633,298 |  |  |  | 1,514,138 |  |  |  | 1,429,910 |
Residential real estate loans |  |  | 594,217 |  |  |  | 578,994 |  |  |  | 598,638 |  |  |  | 589,747 |  |  |  | 582,352 |  |  |  | 577,094 |  |  |  | 576,990 |
Residential real estate lines |  |  | 76,408 |  |  |  | 77,167 |  |  |  | 76,191 |  |  |  | 76,627 |  |  |  | 77,342 |  |  |  | 76,853 |  |  |  | 76,730 |
Consumer indirect |  |  | 1,017,814 |  |  |  | 1,007,791 |  |  |  | 1,011,338 |  |  |  | 1,024,362 |  |  |  | 1,003,728 |  |  |  | 1,012,787 |  |  |  | 1,045,720 |
Other consumer |  |  | 18,439 |  |  |  | 14,356 |  |  |  | 21,686 |  |  |  | 15,156 |  |  |  | 15,175 |  |  |  | 14,648 |  |  |  | 14,183 |
Total loans |  |  | 4,226,045 |  |  |  | 3,736,465 |  |  |  | 4,329,727 |  |  |  | 4,121,209 |  |  |  | 3,948,365 |  |  |  | 3,819,436 |  |  |  | 3,770,107 |
Total interest-earning assets |  |  | 5,589,513 |  |  |  | 5,206,999 |  |  |  | 5,691,862 |  |  |  | 5,486,026 |  |  |  | 5,330,214 |  |  |  | 5,230,785 |  |  |  | 5,246,601 |
Goodwill and other intangible assets, net |  |  | 73,194 |  |  |  | 74,161 |  |  |  | 73,079 |  |  |  | 73,312 |  |  |  | 73,547 |  |  |  | 73,791 |  |  |  | 74,037 |
Total assets |  |  | 5,949,101 |  |  |  | 5,579,371 |  |  |  | 6,053,258 |  |  |  | 5,843,786 |  |  |  | 5,667,331 |  |  |  | 5,599,964 |  |  |  | 5,598,217 |
Interest-bearing liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest-bearing demand |  |  | 864,235 |  |  |  | 931,253 |  |  |  | 848,552 |  |  |  | 880,093 |  |  |  | 923,374 |  |  |  | 854,015 |  |  |  | 938,995 |
Savings and money market |  |  | 1,662,598 |  |  |  | 1,915,344 |  |  |  | 1,660,148 |  |  |  | 1,665,075 |  |  |  | 1,764,230 |  |  |  | 1,817,413 |  |  |  | 1,882,998 |
Time deposits |  |  | 1,444,705 |  |  |  | 941,448 |  |  |  | 1,506,592 |  |  |  | 1,382,131 |  |  |  | 1,116,135 |  |  |  | 1,031,162 |  |  |  | 954,862 |
Short-term borrowings |  |  | 220,641 |  |  |  | 59,649 |  |  |  | 294,923 |  |  |  | 145,533 |  |  |  | 87,783 |  |  |  | 136,610 |  |  |  | 94,242 |
Long-term borrowings, net |  |  | 119,318 |  |  |  | 73,980 |  |  |  | 124,329 |  |  |  | 114,251 |  |  |  | 74,175 |  |  |  | 74,096 |  |  |  | 74,019 |
Total interest-bearing liabilities |  |  | 4,311,497 |  |  |  | 3,921,674 |  |  |  | 4,434,544 |  |  |  | 4,187,083 |  |  |  | 3,965,697 |  |  |  | 3,913,296 |  |  |  | 3,945,116 |
Noninterest-bearing demand deposits |  |  | 1,047,121 |  |  |  | 1,090,835 |  |  |  | 1,029,681 |  |  |  | 1,064,754 |  |  |  | 1,123,223 |  |  |  | 1,115,759 |  |  |  | 1,098,084 |
Total deposits |  |  | 5,018,659 |  |  |  | 4,878,880 |  |  |  | 5,044,973 |  |  |  | 4,992,053 |  |  |  | 4,926,962 |  |  |  | 4,818,349 |  |  |  | 4,874,939 |
Total liabilities |  |  | 5,525,476 |  |  |  | 5,115,637 |  |  |  | 5,624,006 |  |  |  | 5,425,851 |  |  |  | 5,265,134 |  |  |  | 5,162,057 |  |  |  | 5,162,293 |
Shareholders’ equity |  |  | 423,625 |  |  |  | 463,734 |  |  |  | 429,252 |  |  |  | 417,935 |  |  |  | 402,197 |  |  |  | 437,907 |  |  |  | 435,924 |
Common equity |  |  | 406,333 |  |  |  | 446,442 |  |  |  | 411,960 |  |  |  | 400,643 |  |  |  | 384,905 |  |  |  | 420,615 |  |  |  | 418,632 |
Tangible common equity (2) |  | $ | 333,139 |  |  | $ | 372,281 |  |  | $ | 338,881 |  |  | $ | 327,331 |  |  | $ | 311,358 |  |  | $ | 346,824 |  |  | $ | 344,595 |
Common shares outstanding: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 15,356 |  |  |  | 15,440 |  |  |  | 15,372 |  |  |  | 15,348 |  |  |  | 15,330 |  |  |  | 15,329 |  |  |  | 15,306 |
Diluted |  |  | 15,427 |  |  |  | 15,532 |  |  |  | 15,413 |  |  |  | 15,435 |  |  |  | 15,413 |  |  |  | 15,393 |  |  |  | 15,385 |
SELECTED AVERAGE YIELDS: (Tax equivalent basis) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investment securities |  |  | 1.89 | % |  |  | 1.78 | % |  |  | 1.89 | % |  |  | 1.90 | % |  |  | 1.88 | % |  |  | 1.81 | % |  |  | 1.82 | %
Loans |  |  | 5.78 | % |  |  | 4.05 | % |  |  | 5.93 | % |  |  | 5.61 | % |  |  | 5.15 | % |  |  | 4.62 | % |  |  | 4.13 | %
Total interest-earning assets |  |  | 4.87 | % |  |  | 3.40 | % |  |  | 5.02 | % |  |  | 4.71 | % |  |  | 4.32 | % |  |  | 3.86 | % |  |  | 3.47 | %
Interest-bearing demand |  |  | 0.71 | % |  |  | 0.12 | % |  |  | 0.77 | % |  |  | 0.64 | % |  |  | 0.52 | % |  |  | 0.18 | % |  |  | 0.12 | %
Savings and money market |  |  | 1.80 | % |  |  | 0.20 | % |  |  | 2.00 | % |  |  | 1.60 | % |  |  | 1.20 | % |  |  | 0.56 | % |  |  | 0.23 | %
Time deposits |  |  | 3.56 | % |  |  | 0.35 | % |  |  | 3.76 | % |  |  | 3.33 | % |  |  | 2.31 | % |  |  | 1.12 | % |  |  | 0.41 | %
Short-term borrowings |  |  | 3.99 | % |  |  | 0.95 | % |  |  | 4.30 | % |  |  | 3.35 | % |  |  | 2.48 | % |  |  | 1.95 | % |  |  | 1.07 | %
Long-term borrowings, net |  |  | 5.07 | % |  |  | 5.73 | % |  |  | 5.04 | % |  |  | 5.11 | % |  |  | 5.72 | % |  |  | 5.72 | % |  |  | 5.73 | %
Total interest-bearing liabilities |  |  | 2.37 | % |  |  | 0.33 | % |  |  | 2.60 | % |  |  | 2.12 | % |  |  | 1.47 | % |  |  | 0.77 | % |  |  | 0.37 | %
Net interest rate spread |  |  | 2.50 | % |  |  | 3.07 | % |  |  | 2.42 | % |  |  | 2.59 | % |  |  | 2.85 | % |  |  | 3.09 | % |  |  | 3.10 | %
Net interest margin |  |  | 3.04 | % |  |  | 3.15 | % |  |  | 2.99 | % |  |  | 3.09 | % |  |  | 3.23 | % |  |  | 3.28 | % |  |  | 3.19 | %

(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.

Page 9

FINANCIAL INSTITUTIONS, INC.
Selected Financial Information (Unaudited)
(Amounts in thousands)

|  | Six Months Ended |  |  | 2023 |  |  | 2022 |
|  | June 30, |  |  | Second |  |  | First |  |  | Fourth |  |  | Third |  |  | Second |
|  | 2023 |  |  | 2022 |  |  | Quarter |  |  | Quarter |  |  | Quarter |  |  | Quarter |  |  | Quarter |
ASSET QUALITY DATA: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance for Credit Losses - Loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance |  | $ | 45,413 |  |  | $ | 39,676 |  |  | $ | 47,528 |  |  | $ | 45,413 |  |  | $ | 44,106 |  |  | $ | 42,452 |  |  | $ | 40,966 |
Net loan charge-offs (recoveries): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial business |  |  | (91 | ) |  |  | 53 |  |  |  | 33 |  |  |  | (124 | ) |  |  | (21 | ) |  |  | (96 | ) |  |  | 90 |
Commercial mortgage |  |  | 14 |  |  |  | (2,019 | ) |  |  | 16 |  |  |  | (2 | ) |  |  | 1,167 |  |  |  | (1 | ) |  |  | (2,018 | )
Residential real estate loans |  |  | 71 |  |  |  | 41 |  |  |  | 13 |  |  |  | 58 |  |  |  | 242 |  |  |  | (4 | ) |  |  | 46 |
Residential real estate lines |  |  | 41 |  |  |  | (17 | ) |  |  | 25 |  |  |  | 16 |  |  |  | (19 | ) |  |  | 35 |  |  |  | (12 | )
Consumer indirect |  |  | 2,138 |  |  |  | 1,197 |  |  |  | 300 |  |  |  | 1,838 |  |  |  | 1,451 |  |  |  | 1,890 |  |  |  | 647 |
Other consumer |  |  | 552 |  |  |  | 492 |  |  |  | 249 |  |  |  | 303 |  |  |  | 518 |  |  |  | 329 |  |  |  | 207 |
Total net charge-offs (recoveries) |  |  | 2,725 |  |  |  | (253 | ) |  |  | 636 |  |  |  | 2,089 |  |  |  | 3,338 |  |  |  | 2,153 |  |  |  | (1,040 | )
Provision for credit losses - loans |  |  | 7,148 |  |  |  | 2,523 |  |  |  | 2,944 |  |  |  | 4,204 |  |  |  | 4,645 |  |  |  | 3,807 |  |  |  | 446 |
Ending balance |  | $ | 49,836 |  |  | $ | 42,452 |  |  | $ | 49,836 |  |  | $ | 47,528 |  |  | $ | 45,413 |  |  | $ | 44,106 |  |  | $ | 42,452 |
Net charge-offs (recoveries) to average loans (annualized): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial business |  |  | -0.03 | % |  |  | 0.02 | % |  |  | 0.02 | % |  |  | -0.08 | % |  |  | -0.01 | % |  |  | -0.06 | % |  |  | 0.06 | %
Commercial mortgage |  |  | 0.00 | % |  |  | -0.28 | % |  |  | 0.00 | % |  |  | 0.00 | % |  |  | 0.28 | % |  |  | 0.00 | % |  |  | -0.57 | %
Residential real estate loans |  |  | 0.02 | % |  |  | 0.01 | % |  |  | 0.01 | % |  |  | 0.04 | % |  |  | 0.16 | % |  |  | 0.00 | % |  |  | 0.03 | %
Residential real estate lines |  |  | 0.11 | % |  |  | -0.04 | % |  |  | 0.13 | % |  |  | 0.09 | % |  |  | -0.10 | % |  |  | 0.18 | % |  |  | -0.06 | %
Consumer indirect |  |  | 0.42 | % |  |  | 0.24 | % |  |  | 0.12 | % |  |  | 0.73 | % |  |  | 0.57 | % |  |  | 0.74 | % |  |  | 0.25 | %
Other consumer |  |  | 6.04 | % |  |  | 6.91 | % |  |  | 4.62 | % |  |  | 8.10 | % |  |  | 13.57 | % |  |  | 8.90 | % |  |  | 5.86 | %
Total loans |  |  | 0.13 | % |  |  | -0.01 | % |  |  | 0.06 | % |  |  | 0.21 | % |  |  | 0.34 | % |  |  | 0.22 | % |  |  | -0.11 | %
Supplemental information (1) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Non-performing loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial business |  | $ | 415 |  |  | $ | 422 |  |  | $ | 415 |  |  | $ | 334 |  |  | $ | 340 |  |  | $ | 1,358 |  |  | $ | 422 |
Commercial mortgage |  |  | 2,477 |  |  |  | 836 |  |  |  | 2,477 |  |  |  | 2,550 |  |  |  | 2,564 |  |  |  | 843 |  |  |  | 836 |
Residential real estate loans |  |  | 3,820 |  |  |  | 2,738 |  |  |  | 3,820 |  |  |  | 3,267 |  |  |  | 4,071 |  |  |  | 3,550 |  |  |  | 2,738 |
Residential real estate lines |  |  | 208 |  |  |  | 160 |  |  |  | 208 |  |  |  | 159 |  |  |  | 142 |  |  |  | 119 |  |  |  | 160 |
Consumer indirect |  |  | 2,982 |  |  |  | 2,389 |  |  |  | 2,982 |  |  |  | 2,487 |  |  |  | 3,079 |  |  |  | 2,666 |  |  |  | 2,389 |
Other consumer |  |  | 5 |  |  |  | 3 |  |  |  | 5 |  |  |  | 4 |  |  |  | 2 |  |  |  | - |  |  |  | 3 |
Total non-performing loans |  |  | 9,907 |  |  |  | 6,548 |  |  |  | 9,907 |  |  |  | 8,801 |  |  |  | 10,198 |  |  |  | 8,536 |  |  |  | 6,548 |
Foreclosed assets |  |  | 163 |  |  |  | - |  |  |  | 163 |  |  |  | 101 |  |  |  | 19 |  |  |  | - |  |  |  | - |
Total non-performing assets |  | $ | 10,070 |  |  | $ | 6,548 |  |  | $ | 10,070 |  |  | $ | 8,902 |  |  | $ | 10,217 |  |  | $ | 8,536 |  |  | $ | 6,548 |
Total non-performing loans to total loans |  |  | 0.23 | % |  |  | 0.17 | % |  |  | 0.23 | % |  |  | 0.21 | % |  |  | 0.25 | % |  |  | 0.22 | % |  |  | 0.17 | %
Total non-performing assets to total assets |  |  | 0.16 | % |  |  | 0.11 | % |  |  | 0.16 | % |  |  | 0.15 | % |  |  | 0.18 | % |  |  | 0.15 | % |  |  | 0.12 | %
Allowance for credit losses - loans to total loans |  |  | 1.13 | % |  |  | 1.13 | % |  |  | 1.13 | % |  |  | 1.12 | % |  |  | 1.12 | % |  |  | 1.14 | % |  |  | 1.13 | %
Allowance for credit losses - loans to non-performing loans |  |  | 503 | % |  |  | 648 | % |  |  | 503 | % |  |  | 540 | % |  |  | 445 | % |  |  | 517 | % |  |  | 648 | %

(1)
At period end.

Page 10

FINANCIAL INSTITUTIONS, INC.
Appendix A — Reconciliation to Non-GAAP Financial Measures (Unaudited)
(In thousands, except per share amounts)

|  | Six Months Ended |  |  | 2023 |  |  | 2022 |
|  | June 30, |  |  | Second |  |  | First |  |  | Fourth |  |  | Third |  |  | Second |
|  | 2023 |  |  | 2022 |  |  | Quarter |  |  | Quarter |  |  | Quarter |  |  | Quarter |  |  | Quarter |
Ending tangible assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total assets |  |  |  |  |  |  |  | $ | 6,141,298 |  |  | $ | 5,966,992 |  |  | $ | 5,797,272 |  |  | $ | 5,624,482 |  |  | $ | 5,568,198 |
Less: Goodwill and other intangible assets, net |  |  |  |  |  |  |  |  | 72,950 |  |  |  | 73,180 |  |  |  | 73,414 |  |  |  | 73,653 |  |  |  | 73,897 |
Tangible assets |  |  |  |  |  |  |  | $ | 6,068,348 |  |  | $ | 5,893,812 |  |  | $ | 5,723,858 |  |  | $ | 5,550,829 |  |  | $ | 5,494,301 |
Ending tangible common equity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Common shareholders’ equity |  |  |  |  |  |  |  | $ | 408,581 |  |  | $ | 405,531 |  |  | $ | 388,313 |  |  | $ | 376,756 |  |  | $ | 408,509 |
Less: Goodwill and other intangible assets, net |  |  |  |  |  |  |  |  | 72,950 |  |  |  | 73,180 |  |  |  | 73,414 |  |  |  | 73,653 |  |  |  | 73,897 |
Tangible common equity |  |  |  |  |  |  |  | $ | 335,631 |  |  | $ | 332,351 |  |  | $ | 314,899 |  |  | $ | 303,103 |  |  | $ | 334,612 |
Tangible common equity to tangible assets (1) |  |  |  |  |  |  |  |  | 5.53 | % |  |  | 5.64 | % |  |  | 5.50 | % |  |  | 5.46 | % |  |  | 6.09 | %
Common shares outstanding |  |  |  |  |  |  |  |  | 15,402 |  |  |  | 15,375 |  |  |  | 15,340 |  |  |  | 15,334 |  |  |  | 15,334 |
Tangible common book value per share (2) |  |  |  |  |  |  |  | $ | 21.79 |  |  | $ | 21.62 |  |  | $ | 20.53 |  |  | $ | 19.77 |  |  | $ | 21.82 |
Average tangible assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Average assets |  | $ | 5,949,101 |  |  | $ | 5,579,371 |  |  | $ | 6,053,258 |  |  | $ | 5,843,786 |  |  | $ | 5,667,331 |  |  | $ | 5,599,964 |  |  | $ | 5,598,217 |
Less: Average goodwill and other intangible assets, net |  |  | 73,194 |  |  |  | 74,161 |  |  |  | 73,079 |  |  |  | 73,312 |  |  |  | 73,547 |  |  |  | 73,791 |  |  |  | 74,037 |
Average tangible assets |  | $ | 5,875,907 |  |  | $ | 5,505,210 |  |  | $ | 5,980,179 |  |  | $ | 5,770,474 |  |  | $ | 5,593,784 |  |  | $ | 5,526,173 |  |  | $ | 5,524,180 |
Average tangible common equity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Average common equity |  | $ | 406,333 |  |  | $ | 446,442 |  |  | $ | 411,960 |  |  | $ | 400,643 |  |  | $ | 384,905 |  |  | $ | 420,615 |  |  | $ | 418,632 |
Less: Average goodwill and other intangible assets, net |  |  | 73,194 |  |  |  | 74,161 |  |  |  | 73,079 |  |  |  | 73,312 |  |  |  | 73,547 |  |  |  | 73,791 |  |  |  | 74,037 |
Average tangible common equity |  | $ | 333,139 |  |  | $ | 372,281 |  |  | $ | 338,881 |  |  | $ | 327,331 |  |  | $ | 311,358 |  |  | $ | 346,824 |  |  | $ | 344,595 |
Net income available to common shareholders |  | $ | 25,733 |  |  | $ | 29,902 |  |  | $ | 14,009 |  |  | $ | 11,724 |  |  | $ | 11,724 |  |  | $ | 13,489 |  |  | $ | 15,283 |
Return on average tangible common equity (3) |  |  | 15.58 | % |  |  | 16.20 | % |  |  | 16.58 | % |  |  | 14.53 | % |  |  | 14.94 | % |  |  | 15.43 | % |  |  | 17.79 | %
Pre-tax pre-provision income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income |  | $ | 26,462 |  |  | $ | 30,631 |  |  | $ | 14,373 |  |  | $ | 12,089 |  |  | $ | 12,088 |  |  | $ | 13,854 |  |  | $ | 15,648 |
Add: Income tax expense |  |  | 5,193 |  |  |  | 7,302 |  |  |  | 2,418 |  |  |  | 2,775 |  |  |  | 2,370 |  |  |  | 4,725 |  |  |  | 3,859 |
Add: Provision for credit losses |  |  | 7,444 |  |  |  | 2,882 |  |  |  | 3,230 |  |  |  | 4,214 |  |  |  | 6,115 |  |  |  | 4,314 |  |  |  | 563 |
Pre-tax pre-provision income |  | $ | 39,099 |  |  | $ | 40,815 |  |  | $ | 20,021 |  |  | $ | 19,078 |  |  | $ | 20,573 |  |  | $ | 22,893 |  |  | $ | 20,070 |
Adjustments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Restructuring (recoveries) charges |  |  | (19 | ) |  |  | 1,269 |  |  |  | (19 | ) |  |  | - |  |  |  | 350 |  |  |  | - |  |  |  | 1,269 |
Enhancement from COLI surrender and redeployment |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (1,997 | ) |  |  | - |
Adjusted pre-tax pre-provision income |  | $ | 39,080 |  |  | $ | 42,084 |  |  | $ | 20,002 |  |  | $ | 19,078 |  |  | $ | 20,923 |  |  | $ | 20,896 |  |  | $ | 21,339 |
Less: Paycheck Protection Program "PPP" accretion interest income and fees |  |  | (16 | ) |  |  | (1,881 | ) |  |  | (8 | ) |  |  | (8 | ) |  |  | (78 | ) |  |  | (312 | ) |  |  | (809 | )
Pre-PPP adjusted pre-tax pre-provision income |  | $ | 39,064 |  |  | $ | 40,203 |  |  | $ | 19,994 |  |  | $ | 19,070 |  |  | $ | 20,845 |  |  | $ | 20,584 |  |  | $ | 20,530 |
Total loans excluding PPP loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total loans |  |  |  |  |  |  |  | $ | 4,397,809 |  |  | $ | 4,243,332 |  |  | $ | 4,050,449 |  |  | $ | 3,866,851 |  |  | $ | 3,764,018 |
Less: Total PPP loans |  |  |  |  |  |  |  |  | 1,032 |  |  |  | 1,094 |  |  |  | 1,161 |  |  |  | 2,783 |  |  |  | 8,910 |
Total loans excluding PPP loans |  |  |  |  |  |  |  | $ | 4,396,777 |  |  | $ | 4,242,238 |  |  | $ | 4,049,288 |  |  | $ | 3,864,068 |  |  | $ | 3,755,108 |
Allowance for credit losses - loans |  |  |  |  |  |  |  | $ | 49,836 |  |  | $ | 47,528 |  |  | $ | 45,413 |  |  | $ | 44,106 |  |  | $ | 42,452 |
Allowance for credit losses - loans to total loans excluding PPP loans (4) |  |  |  |  |  |  |  |  | 1.13 | % |  |  | 1.12 | % |  |  | 1.12 | % |  |  | 1.14 | % |  |  | 1.13 | %

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

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