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              September 30, 2020            

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 16,038,220 shares of Common Stock, $0.01 par value, outstanding as of October 31, 2020.

FINANCIAL INSTITUTIONS, INC.

Form 10-Q

For the Quarterly Period Ended September 30, 2020

TABLE OF CONTENTS

		PAGE
PART I.	FINANCIAL INFORMATION
ITEM 1.	Financial Statements
	Consolidated Statements of Financial Condition (Unaudited) - at September 30, 2020 and December 31, 2019	3
	Consolidated Statements of Income (Unaudited) - Three and nine months ended September 30, 2020 and 2019	4
	Consolidated Statements of Comprehensive Income (Unaudited) - Three and nine months ended September 30, 2020 and 2019	5
	Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) - Three and nine months ended September 30, 2020 and 2019	6
	Consolidated Statements of Cash Flows (Unaudited) - Nine months ended September 30, 2020 and 2019	8
	Notes to Consolidated Financial Statements (Unaudited)	9
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	42
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	63
ITEM 4.	Controls and Procedures	64
PART II.	OTHER INFORMATION
ITEM 1.	Legal Proceedings	65
ITEM 1A.	Risk Factors	65
ITEM 6.	Exhibits	67
	Signatures	68

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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)	September 30, 2020			December 31, 2019
ASSETS
Cash and due from banks	$	282,070		$	112,947
Securities available for sale, at fair value		515,971			417,917
Securities held to maturity, at amortized cost (net of allowance for credit losses of $8 and $0, respectively) (fair value of $301,878 and $363,259, respectively)		290,946			359,000
Loans held for sale		7,076			4,224
Loans (net of allowance for credit losses of $49,395 and $30,482, respectively)		3,519,144			3,190,505
Company owned life insurance		70,347			68,942
Premises and equipment, net		40,568			41,424
Goodwill and other intangible assets, net		74,062			74,923
Other assets		159,017			114,296
Total assets	$	4,959,201		$	4,384,178
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing demand	$	1,013,176		$	707,752
Interest-bearing demand		786,059			627,842
Savings and money market		1,724,463			1,039,892
Time deposits		841,230			1,180,189
Total deposits		4,364,928			3,555,675
Short-term borrowings		5,300			275,500
Long-term borrowings, net of issuance costs of $742 and $727, respectively		39,258			39,273
Other liabilities		93,354			74,783
Total liabilities		4,502,840			3,945,231
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;    171,847 shares issued		17,185			17,185
Total preferred equity		17,328			17,328
Common stock, $0.01 par value; 50,000,000 shares authorized; 16,099,556 shares issued		161			161
Additional paid-in capital		124,812			124,582
Retained earnings		315,585			313,364
Accumulated other comprehensive loss		(209	)		(14,513	)
Treasury stock, at cost – 61,971 and 96,657 shares, respectively		(1,316	)		(1,975	)
Total shareholders’ equity		456,361			438,947
Total liabilities and shareholders’ equity	$	4,959,201		$	4,384,178

See accompanying notes to the consolidated financial statements.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Income (Unaudited)

(In thousands, except per share amounts)	Three months ended September 30,						Nine months ended September 30,
	2020			2019			2020			2019
Interest income:
Interest and fees on loans	$	35,602		$	37,904		$	107,659		$	112,177
Interest and dividends on investment securities		4,086			4,449			13,206			14,147
Other interest income		31			106			266			297
Total interest income		39,719			42,459			121,131			126,621
Interest expense:
Deposits		3,370			7,277			15,066			21,454
Short-term borrowings		232			2,081			1,408			6,575
Long-term borrowings		618			618			1,853			1,853
Total interest expense		4,220			9,976			18,327			29,882
Net interest income		35,499			32,483			102,804			96,739
Provision for credit losses		4,028			1,844			21,689			5,391
Net interest income after provision for credit losses		31,471			30,639			81,115			91,348
Noninterest income:
Service charges on deposits		1,254			1,925			3,321			5,361
Insurance income		1,357			1,439			3,525			3,689
ATM and debit card		1,943			1,801			5,321			4,983
Investment advisory		2,443			2,269			6,940			6,812
Company owned life insurance		470			459			1,397			1,293
Investments in limited partnerships		(105	)		116			(136	)		492
Loan servicing		49			102			106			316
Income from derivative instruments, net		1,931			890			4,617			1,013
Net gain on sale of loans held for sale		1,581			439			2,616			1,028
Net gain on investment securities		554			1,608			1,449			1,721
Net (loss) gain on other assets		(55	)		(2	)		8			56
Loss on tax credit investments		(40	)		—			(120	)		—
Other		1,019			1,315			3,151			3,950
Total noninterest income		12,401			12,361			32,195			30,714
Noninterest expense:
Salaries and employee benefits		15,085			14,411			45,173			41,661
Occupancy and equipment		3,263			4,650			10,407			10,106
Professional services		1,242			1,528			4,974			3,618
Computer and data processing		3,250			1,378			8,622			7,407
Supplies and postage		463			522			1,533			1,554
FDIC assessments		594			7			1,505			1,005
Advertising and promotions		955			745			2,055			2,351
Amortization of intangibles		280			309			861			948
Restructuring charges		1,362			—			1,362			—
Other		2,165			2,336			6,583			7,410
Total noninterest expense		28,659			25,886			83,075			76,060
Income before income taxes		15,213			17,114			30,235			46,002
Income tax expense		2,940			4,281			5,703			10,247
Net income	$	12,273		$	12,833		$	24,532		$	35,755
Preferred stock dividends		365			365			1,096			1,096
Net income available to common shareholders	$	11,908		$	12,468		$	23,436		$	34,659
Earnings per common share (Note 3):
Basic	$	0.74		$	0.78		$	1.46		$	2.17
Diluted	$	0.74		$	0.78		$	1.46		$	2.16
Cash dividends declared per common share	$	0.26		$	0.25		$	0.78		$	0.75

See accompanying notes to the consolidated financial statements.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Unaudited)

(Dollars in thousands)	Three months ended September 30,					Nine months ended September 30,
	2020			2019		2020			2019
Net income	$	12,273		$	12,833	$	24,532		$	35,755
Other comprehensive income (loss), net of tax:
Securities available for sale and transferred securities		(69	)		1,121		13,778			11,863
Hedging derivative instruments		123			43		(174	)		(317	)
Pension and post-retirement obligations		233			262