Financial Institutions(FISI) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements Presents unaudited consolidated financial statements for Q2 2022, detailing financial condition, income, comprehensive income, equity, and cash flows with notes Consolidated Statements of Financial Condition Total assets grew to $5.57 billion from $5.52 billion at year-end 2021, while shareholders' equity declined to $425.8 million due to comprehensive loss Key Balance Sheet Items (in thousands) | Metric | June 30, 2022 | December 31, 2021 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $5,568,198 | $5,520,779 | +$47,419 | | Loans (net) | $3,721,566 | $3,639,760 | +$81,806 | | Securities Available for Sale | $1,057,018 | $1,178,515 | -$121,497 | | Total Liabilities | $5,142,397 | $5,015,637 | +$126,760 | | Total Deposits | $4,820,516 | $4,827,090 | -$6,574 | | Short-term Borrowings | $109,000 | $30,000 | +$79,000 | | Total Shareholders' Equity | $425,801 | $505,142 | -$79,341 | | Accumulated Other Comprehensive Loss | ($99,725) | ($13,207) | -$86,518 | Consolidated Statements of Income Q2 2022 net income decreased to $15.6 million from $20.2 million year-over-year, driven by a $5.2 million swing in credit loss provision and higher expenses Q2 2022 vs Q2 2021 Performance (in thousands, except per share data) | Metric | Q2 2022 | Q2 2021 | Change | | :--- | :--- | :--- | :--- | | Net Interest Income | $41,597 | $37,732 | +$3,865 | | Provision (Benefit) for Credit Losses | $563 | ($4,622) | -$5,185 | | Noninterest Income | $11,360 | $10,190 | +$1,170 | | Noninterest Expense | $32,887 | $26,944 | +$5,943 | | Net Income | $15,648 | $20,200 | -$4,552 | | Diluted EPS | $0.99 | $1.25 | -$0.26 | Six Months 2022 vs 2021 Performance (in thousands, except per share data) | Metric | Six Months 2022 | Six Months 2021 | Change | | :--- | :--- | :--- | :--- | | Net Interest Income | $81,155 | $75,589 | +$5,566 | | Provision (Benefit) for Credit Losses | $2,882 | ($6,603) | -$9,485 | | Noninterest Income | $22,682 | $23,149 | -$467 | | Noninterest Expense | $63,022 | $53,684 | +$9,338 | | Net Income | $30,631 | $40,910 | -$10,279 | | Diluted EPS | $1.93 | $2.52 | -$0.59 | Consolidated Statements of Comprehensive (Loss) Income Q2 2022 saw a comprehensive loss of $17.0 million, a shift from $24.8 million income in Q2 2021, primarily due to $32.6 million unrealized losses on securities Comprehensive (Loss) Income Summary (in thousands) | Metric | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $15,648 | $20,200 | $30,631 | $40,910 | | Other Comprehensive (Loss) Income | ($32,631) | $4,638 | ($86,518) | ($8,062) | | Comprehensive (Loss) Income | ($16,983) | $24,838 | ($55,887) | $32,848 | Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity declined from $505.1 million to $425.8 million by June 30, 2022, primarily due to $86.5 million other comprehensive loss and stock repurchases Key Changes in Shareholders' Equity - Six Months Ended June 30, 2022 (in thousands) | Item | Amount | | :--- | :--- | | Balance at December 31, 2021 | $505,142 | | Net Income | $30,631 | | Other comprehensive loss, net of tax | ($86,518) | | Purchases of common stock for treasury | ($15,327) | | Cash dividends declared | ($9,562) | | Balance at June 30, 2022 | $425,801 | Consolidated Statements of Cash Flows Net cash from operations was $81.8 million, investing used $98.9 million, and financing provided $47.7 million, leading to a $30.6 million net cash increase Cash Flow Summary - Six Months Ended June 30 (in thousands) | Cash Flow Category | 2022 | 2021 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $81,784 | $30,949 | | Net Cash Used in Investing Activities | ($98,857) | ($278,815) | | Net Cash from Financing Activities | $47,666 | $360,375 | | Net Increase in Cash | $30,593 | $112,509 | Notes to Consolidated Financial Statements (Unaudited) Detailed notes disclose accounting policies, loan portfolio, investment securities, and derivatives, including a $1.3 million restructuring charge and a class-action lawsuit - The company originated over $378 million in Paycheck Protection Program (PPP) loans, with approximately $369 million having completed the forgiveness process as of June 30, 2022[44] - Restructuring charges of $1.3 million were incurred during Q2 2022 related to property valuation adjustments for branch facilities closed in 2020[60] - The company is defending a class-action lawsuit related to vehicle repossession notices, which could materially affect financial results if the outcome is unfavorable, with no liability accrued as of the reporting date[162] - The company's single reportable segment, Banking, generated net income of $32.1 million for the first six months of 2022, while the "All Other" category recorded a net loss of $1.5 million[183][185] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q2 net income decline to normalized credit loss provision and increased expenses, while net interest income grew, and equity was impacted by unrealized losses - Q2 2022 net income decreased to $15.6 million from $20.2 million in Q2 2021, primarily due to a $563 thousand provision for credit losses versus a $4.6 million benefit in the prior-year quarter, and a $5.9 million increase in noninterest expense[199] - Net interest margin for Q2 2022 improved to 3.19%, up 13 basis points from 3.06% in Q2 2021, benefiting from rising interest rates and redeployment of excess cash into higher-yielding assets[208] - Total loans grew by $84.6 million since year-end 2021 to $3.76 billion, driven by organic growth in consumer indirect and commercial loans[239] - Shareholders' equity decreased by $79.3 million since year-end 2021, primarily due to an $86.5 million increase in accumulated other comprehensive loss from unrealized losses on available-for-sale securities[262] Quantitative and Qualitative Disclosures About Market Risk Market risk is primarily interest rate risk, with a +100 basis point rate shock estimated to decrease net interest income by 0.71% and EVE by 1.47% Interest Rate Sensitivity Analysis (as of June 30, 2022) | Rate Shock Scenario | Estimated Change in Net Interest Income (12 months) | Estimated Change in Economic Value of Equity (EVE) | | :--- | :--- | :--- | | +300 bp | -2.19% | -3.67% | | +200 bp | -1.46% | -2.66% | | +100 bp | -0.71% | -1.47% | | -100 bp | -1.36% | +0.49% | Controls and Procedures CEO and CFO concluded disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[277] - No changes occurred during the quarter ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[278] PART II. OTHER INFORMATION Legal Proceedings The company is defending a class-action lawsuit in Pennsylvania regarding vehicle repossession notices, with class certification granted, but no liability accrued - The company is party to a class-action lawsuit alleging that its post-repossession notices for vehicles did not comply with the Uniform Commercial Code in New York and Pennsylvania[281] - Class certification was granted for approximately 5,200 New York consumers and 300 Pennsylvania consumers, with the case scheduled to be ready for trial on March 6, 2023[281] Unregistered Sales of Equity Securities and Use of Proceeds A new share repurchase program for up to 766,447 shares was authorized in June 2022, following Q2 repurchases of 11,275 shares - A new share repurchase program for up to 766,447 shares of common stock was authorized in June 2022[282] Exhibits This section lists exhibits filed as part of the Form 10-Q, including SOX certifications from the CEO and CFO, and Inline XBRL data Signatures