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Press Release

Financial Institutions, Inc. Announces Third Quarter 2018 Results

Company Release - 10/25/2018 4:05 PM ET

WARSAW, N.Y., Oct. 25, 2018 (GLOBE NEWSWIRE) -- Financial Institutions, Inc. (Nasdaq: FISI), today reported financial and operational results for the third quarter ended September 30, 2018. Financial Institutions, Inc. (the “Company”) is the parent company of Five Star Bank (the “Bank”), Scott Danahy Naylon, LLC (“SDN”), Courier Capital, LLC (“Courier Capital”) and HNP Capital, LLC (“HNP Capital”).

Net income for the quarter was $10.6 million, 28% higher than $8.3 million in the third quarter of 2017. After preferred dividends, net income available to common shareholders was $10.2 million, or $0.64 per diluted share, compared to $7.9 million, or $0.52 per diluted share, in the third quarter of 2017.

President and Chief Executive Officer Martin K. Birmingham stated, “Strong results this quarter were driven by loan growth, asset quality and a lower tax rate. Investments in experienced producers and leaders over the past 24 months contributed to total loan growth of 3% in the quarter, with especially strong growth in commercial loans. A commitment to our credit culture and responsible lending practices are reflected in the ratio of non-performing loans to total loans of 0.26%, a 10-year low for our Company.   

“It was also an excellent quarter for growth in noninterest income, driven by strategic initiatives and investments including the acquisition of wealth management firms, limited partnership investments, expanded residential mortgage lending and a derivative financial instrument program. We also benefitted from the strength of our deposit franchise and deep roots in the rural towns and villages of Western and Central New York.

“We remain committed to executing our strategic plan, which we believe will result in the delivery of responsible and sustainable growth and strong returns for our shareholders.” 

Chief Financial Officer Kevin B. Klotzbach added, “Our investment securities portfolio decreased by $49.1 million during the quarter, primarily due to maturities, sales and payments received on municipal bonds and mortgage-backed securities. Cash received was used to fund loans in continuation of our strategy to convert marketable securities into loans.

“As a result of the success and positive momentum of our relationship-based commercial and residential lending businesses, the consumer indirect loan portfolio now comprises 30% of total loans – down from a high of 35% at the end of 2013.

“In early October, we exceeded two important thresholds. For the first time in the history of the Company our total loan portfolio exceeded $3 billion and municipal deposits exceeded $1 billion. We view the municipal business as a profitable core competency for the Bank and are pleased with our progress in growing the portfolio.”

Third Quarter 2018 Highlights:

  • Diluted earnings per share of $0.64 was $0.12, or 23.1%, higher than the third quarter of 2017
  • Net interest income of $30.8 million was $2.4 million, or 8.4%, higher than the third quarter of 2017
  • Return on average assets was 1.0%
  • Return on average common equity was 10.8%
    • Return on average tangible common equity was 13.7% (1)
  • Total assets, interest-earning assets, loans and deposits all reached record-high levels at quarter-end:
    • Total assets increased $67.1 million during the quarter, to $4.26 billion
    • Total interest-earning assets increased $42.6 million during the quarter, to $3.93 billion
    • Total loans increased $88.1 million during the quarter, to $2.99 billion
    • Total deposits increased $223.6 million during the quarter, to $3.49 billion
  • The quarterly cash dividend of $0.24 per common share represented a 3.0% annualized yield as of September 30, 2018, and a return of 37.5% of third quarter net income to common shareholders

Registration Statement

In August 2018, the Company filed a shelf registration statement for up to $100 million of securities and the Securities and Exchange Commission declared it effective. The Company’s previous shelf registration statement, for the same amount and with similar terms, expired earlier this year.

Net Interest Income and Net Interest Margin

Net interest income was $30.8 million in the quarter, $736 thousand higher than the second quarter of 2018 and $2.4 million higher than the third quarter of 2017.

  • Average interest-earning assets for the quarter were $3.9 billion, $51.2 million higher than the second quarter of 2018 and $231.9 million higher than the third quarter of 2017. The primary driver of the increase was organic loan growth.
  • Third quarter 2018 net interest margin was 3.18%, one basis point higher than the second quarter of 2018 and the third quarter of 2017.

Noninterest Income

Noninterest income was $9.9 million in the quarter compared to $8.5 million in the second quarter of 2018 and $8.6 million in the third quarter of 2017.

  • Investment advisory fees were $334 thousand higher than the second quarter of 2018 and $748 thousand higher than the third quarter of 2017. The increase compared to the second quarter of 2018 was primarily the result of the June 1, 2018 acquisition of Rochester-based investment advisory firm HNP Capital. The increase compared to the third quarter of 2017 was primarily the result of the HNP Capital acquisition, the August 2017 acquisition of an investment advisor based in the Buffalo suburb of Williamsville, New York, and growth in assets under management at Courier Capital.
  • Insurance income was $483 thousand higher than the second quarter of 2018 and $13 thousand higher than the third quarter of 2017. The increase compared to the second quarter of 2018 was primarily the result of seasonality in this line of business combined with non-renewals in one of the agency’s specialty lines of business that negatively impacted second quarter income.
  • Income from investments in limited partnerships was $205 thousand higher than the second quarter of 2018 and $342 thousand higher than the third quarter of 2017. 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 on sale of loans held for sale was $172 thousand higher than the second quarter of 2018 and $153 thousand higher than the third quarter of 2017, driven by an increase in residential mortgage lending originations as a result of our investments in this line of business.
  • Net gain on derivative instruments primarily consists of income associated with interest rate swap products offered to commercial loan customers. The program was implemented in the third quarter of 2017. The gain this quarter was $276 thousand higher than the second quarter of 2018 and $227 thousand higher than the third quarter of 2017 as a result of an increase in the number and value of transactions executed in the quarter.

Noninterest Expense

Noninterest expense was $25.5 million in the quarter compared to $23.4 million in the second quarter of 2018 and $22.5 million in the third quarter of 2017.

  • Salaries and employee benefits expense of $14.0 million was $1.1 million higher than the second quarter of 2018 and $1.6 million higher than the third quarter of 2017. Higher expense is primarily the result of investments in Bank personnel and the two wealth management subsidiary acquisitions. The average number of full-time equivalent employees increased from 627 in the third quarter of 2017 to 661 in the second quarter of 2018 and 681 in the third quarter of 2018.
  • Occupancy and equipment expense of $4.3 million was $170 thousand higher than the second quarter of 2018 and $250 thousand higher than the third quarter of 2017. The increase as compared to the second quarter of 2018 was primarily due to seasonality of expenses related to landscaping and repairs. The increase as compared to the third quarter of 2017 was primarily the result of investments in software and facilities.
  • Professional services expense of $1.4 million was $457 thousand higher than the second quarter of 2018 and $196 thousand higher than the third quarter of 2017 primarily due to third quarter expenses related to the August 16th registration statement and professional search services related to the addition of talent.
  • Advertising and promotions expense of $949 thousand was $228 thousand higher than the second quarter of 2018 and $605 thousand higher than the third quarter of 2017. In February 2018, a Five Star Bank brand campaign was launched resulting in higher year-over-year expenses and quarterly fluctuations in expense due to timing of various aspects of the campaign.

Income Taxes

Income tax expense was $2.6 million in the third quarter of 2018 compared to $3.0 million in the second quarter of 2018 and $3.5 million in the third quarter of 2017. The effective tax rate was 19.5% in the third quarter of 2018 compared to 19.7% in the second quarter of 2018 and 29.5% in the third quarter of 2017. The decrease in 2018 compared to 2017 reflects the enactment of the Tax Cuts and Jobs Act (the “TCJ Act”).

Balance Sheet and Capital Management

Total assets were $4.26 billion at September 30, 2018, up $67.1 million from $4.19 billion at June 30, 2018, and up $236.8 million from $4.02 billion at September 30, 2017. The increases were largely the result of loan growth.

Total loans were $2.99 billion at September 30, 2018, up $88.1 million, or 3.0%, from June 30, 2018, and up $372.1 million, or 14.2%, from September 30, 2017.

  • Commercial business loans totaled $537.9 million, up $30.9 million, or 6.1%, from June 30, 2018, and up $118.5 million, or 28.3%, from September 30, 2017.
  • Commercial mortgage loans totaled $905.0 million, up $38.0 million, or 4.4%, from June 30, 2018, and up $147.0 million, or 19.4%, from September 30, 2017.
  • Residential real estate loans totaled $507.6 million, up $17.7 million, or 3.6%, from June 30, 2018, and up $61.6 million, or 13.8%, from September 30, 2017.
  • Consumer indirect loans totaled $909.4 million, up $3.2 million, or 0.4%, from June 30, 2018, and up $51.9 million, or 6.1%, from September 30, 2017.

Total deposits were $3.49 billion at September 30, 2018, an increase of $223.6 million from June 30, 2018, and an increase of $204.2 million from September 30, 2017. Business development efforts in municipal and retail banking contributed to increases for both periods. The remaining portion of the increase from June 30, 2018, was the result of public deposit seasonality. Public deposit balances represented 28% of total deposits at September 30, 2018, compared to 26% at June 30, 2018 and 28% at September 30, 2017.

Short-term borrowings were $308.2 million at September 30, 2018, a decrease of $164.6 million from June 30, 2018, and a decrease of $2.6 million from September 30, 2017. The decrease from June 30, 2018, was associated with the seasonality of municipal deposits.

Shareholders’ equity was $392.2 million at September 30, 2018, compared to $386.9 million at June 30, 2018, and $366.0 million at September 30, 2017. Common book value per share was $23.54 at September 30, 2018, an increase of $0.33 or 1.4% from $23.21 at June 30, 2018, and an increase of $1.23 or 5.5% from $22.31 at September 30, 2017. Changes in shareholders’ equity and common book value per share are attributable to net income less dividends paid plus proceeds from the 2017 Equity Offering, net of the change in unrealized gain (loss) on investment securities.

During the third quarter of 2018, the Company declared a common stock dividend of $0.24 per common share. The dividend returned 37.5% of third quarter net income to common shareholders.

The Company’s regulatory capital ratios at September 30, 2018, remained stable as compared to the prior quarter and prior year:

  • Leverage Ratio was 8.18%, compared to 8.10% and 7.91% at June 30, 2018, and September 30, 2017, respectively.
  • Common Equity Tier 1 Capital Ratio was 9.81%, compared to 9.82% and 10.09% at June 30, 2018, and September 30, 2017, respectively.
  • Tier 1 Capital Ratio was 10.34%, compared to 10.37% and 10.69% at June 30, 2018, and September 30, 2017, respectively.
  • Total Risk-Based Capital Ratio was 12.58%, compared to 12.66% and 13.24% at June 30, 2018, and September 30, 2017, respectively.

Credit Quality

Non-performing loans were $7.9 million at September 30, 2018, compared to $9.7 million at June 30, 2018, and $12.6 million at September 30, 2017. The ratio of non-performing loans to total loans was 0.26% at September 30, 2018, compared to 0.34% at June 30, 2018, and 0.48% at September 30, 2017.

The provision for loan losses in the quarter was $2.1 million, compared to $40 thousand in the second quarter of 2018 and $2.8 million in the third quarter of 2017. The second quarter 2018 provision was unusually low as a result of a combination of factors which include lower historical net charge-off experience, an increase in the collateral values supporting impaired loans, and improved qualitative factors which include but are not limited to: national and local economic trends and conditions, the regulatory environment and levels and trends in delinquent and non-accruing loans.

The ratio of allowance for loan losses to total loans was 1.14% at September 30, 2018, 1.17% at June 30, 2018, and 1.31% at September 30, 2017. The decline in 2018 is primarily attributable to a combination of growth in the loan portfolio and the release of reserves due to favorable asset quality trends and qualitative factors.

The ratio of allowance for loan losses to non-performing loans was 433% at September 30, 2018, 349% at June 30, 2018, and 273% at September 30, 2017. The increase in 2018 is the result of a reduction in non-performing loans, consistent with favorable asset quality trends.

Conference Call

The Company will host an earnings conference call and audio webcast on October 26, 2018 at 9:00 a.m. Eastern Time. The call will be hosted by Martin K. Birmingham, President and Chief Executive Officer, and Kevin B. Klotzbach, Chief Financial Officer. The live webcast will be available in listen-only mode on the Company’s website at www.fiiwarsaw.com. Within the United States, listeners may also access the call by dialing 1-888-346-9290 and requesting the Financial Institutions, Inc. call. The webcast replay will be available on the Company’s website for at least 30 days.

About Financial Institutions, Inc.

Financial Institutions, Inc. provides diversified financial services through its subsidiaries Five Star Bank, SDN, Courier Capital and HNP Capital. Five Star Bank provides a wide range of consumer and commercial banking and lending services to individuals, municipalities and businesses through a network of more than 50 offices throughout Western and Central New York State. SDN provides a broad range of insurance services to personal and business clients across 45 states. Courier Capital and HNP Capital provide customized investment management, investment consulting and retirement plan services to individuals, businesses, institutions, foundations and retirement plans. Financial Institutions, Inc. and its subsidiaries employ approximately 700 individuals. The Company’s stock is listed on the Nasdaq Global Select Market under the symbol FISI. Additional information is available at www.fiiwarsaw.com.

Non-GAAP Financial Information

This news release contains disclosure regarding tangible assets, tangible common equity, tangible common equity to tangible assets, tangible common book value per share, average tangible assets, average tangible common equity and return on average tangible common equity, which are determined by methods other than in accordance with U.S. generally accepted accounting principles (“GAAP”). The Company believes that these non-GAAP measures are useful to our investors as measures of the strength of the Company’s capital and ability to generate earnings on tangible common equity invested by our shareholders. These non-GAAP measures provide supplemental information that may help investors to analyze our capital position without regard to the effects of intangible assets.  Non-GAAP financial measures have inherent limitations and are not uniformly applied by issuers. Therefore, these non-GAAP financial measures should not be considered in isolation, or as a substitute for comparable measures prepared in accordance with GAAP. The comparable GAAP financial measures and reconciliation to the comparable GAAP financial measures can be found in Appendix A to this document.

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 “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” “will,” “would,” “estimate,” “forecast,” “target,” “preliminary,” or “range.” 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 Company’s ability to implement its strategic plan, the Company’s ability to redeploy investment assets into loan assets, 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, the Company’s ability to successfully integrate and profitably operate SDN, Courier Capital, HNP Capital and other acquisitions, 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, changes in interest rates, 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 measure.

   
For additional information contact:  
Kevin B. Klotzbach Shelly J. Doran
Chief Financial Officer & Treasurer Director Investor & External Relations
Phone: 585.786.1130 Phone: 585.627.1362
Email: [email protected] Email: [email protected]
   

FINANCIAL INSTITUTIONS, INC.
Selected Financial Information (Unaudited)

(Amounts in thousands, except per share amounts)

  2018  2017 
  September 30,  June 30,  March 31,  December 31,  September 30, 
SELECTED BALANCE SHEET DATA:                    
Cash and cash equivalents $117,331  $89,094  $122,914  $99,195  $97,838 
Investment securities:                    
Available for sale  458,310   492,228   510,197   524,973   551,491 
Held-to-maturity  459,623   474,803   501,905   516,466   538,332 
Total investment securities  917,933   967,031   1,012,102   1,041,439   1,089,823 
Loans held for sale  3,166   2,014   1,523   2,718   2,407 
Loans:                    
Commercial business  537,942   507,021   464,139   450,326   419,415 
Commercial mortgage  905,011   867,049   821,091   808,908   757,987 
Residential real estate loans  507,598   489,940   477,935   465,283   446,044 
Residential real estate lines  111,204   113,287   115,346   116,309   117,621 
Consumer indirect  909,434   906,237   898,099   876,570   857,528 
Other consumer  17,142   16,678   16,654   17,621   17,640 
Total loans  2,988,331   2,900,212   2,793,264   2,735,017   2,616,235 
Allowance for loan losses  33,955   33,955   35,594   34,672   34,347 
Total loans, net  2,954,376   2,866,257   2,757,670   2,700,345   2,581,888 
Total interest-earning assets  3,927,238   3,884,628   3,818,839   3,782,659   3,708,385 
Goodwill and other intangible assets, net  78,853   79,188   74,415   74,703   74,997 
Total assets  4,258,385   4,191,315   4,152,432   4,105,210   4,021,591 
Deposits:                    
Noninterest-bearing demand  748,167   719,084   702,900   718,498   710,865 
Interest-bearing demand  711,321   658,107   717,567   634,203   656,703 
Savings and money market  988,486   1,012,972   1,052,270   1,005,317   1,050,487 
Time deposits  1,037,755   872,004   907,272   852,156   863,453 
Total deposits  3,485,729   3,262,167   3,380,009   3,210,174   3,281,508 
Short-term borrowings  308,200   472,800   327,600   446,200   310,800 
Long-term borrowings, net  39,184   39,167   39,149   39,131   39,114 
Total interest-bearing liabilities  3,084,946   3,055,050   3,043,858   2,977,007   2,920,557 
Shareholders’ equity  392,154   386,937   380,302   381,177   366,002 
Common shareholders’ equity  374,825   369,608   362,973   363,848   348,668 
Tangible common equity (1)  295,972   290,420   288,558   289,145   273,671 
Unrealized gain (loss) on investment securities,
  net of tax
 $(12,885) $(11,063) $(8,503) $(2,173) $17 
                     
Common shares outstanding  15,925   15,924   15,901   15,925   15,626 
Treasury shares  131   132   155   131   136 
CAPITAL RATIOS AND PER SHARE DATA:                    
Leverage ratio  8.18%  8.10%  8.11%  8.13%  7.91%
Common equity Tier 1 capital ratio  9.81%  9.82%  10.09%  10.16%  10.09%
Tier 1 capital ratio  10.34%  10.37%  10.65%  10.74%  10.69%
Total risk-based capital ratio  12.58%  12.66%  13.09%  13.19%  13.24%
Common equity to assets  8.80%  8.82%  8.74%  8.86%  8.67%
Tangible common equity to tangible assets (1)  7.08%  7.06%  7.08%  7.17%  6.93%
                     
Common book value per share $23.54  $23.21  $22.83  $22.85  $22.31 
Tangible common book value per share (1) $18.59  $18.24  $18.15  $18.16  $17.51 
Stock price (Nasdaq: FISI):                    
High $33.70  $34.35  $33.00  $34.10  $31.15 
Low $30.12  $28.95  $29.50  $28.70  $25.65 
Close $31.40  $32.90  $29.60  $31.10  $28.80 

                

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

FINANCIAL INSTITUTIONS, INC.
Selected Financial Information (Unaudited)

(Amounts in thousands, except per share amounts)

  Nine Months Ended  2018  2017 
  September 30,  Third  Second  First  Fourth  Third 
  2018  2017  Quarter  Quarter  Quarter  Quarter  Quarter 
SELECTED INCOME STATEMENT DATA:                            
Interest income $111,306  $95,343  $39,035  $36,868  $35,403  $34,767  $33,396 
Interest expense  20,772   12,488   8,214   6,783   5,775   5,007   4,958 
Net interest income  90,534   82,855   30,821   30,085   29,628   29,760   28,438 
Provision for loan losses  5,050   9,415   2,061   40   2,949   3,946   2,802 
Net interest income after provision
  for loan losses
  85,484   73,440   28,760   30,045   26,679   25,814   25,636 
Noninterest income:                            
Service charges on deposits  5,254   5,486   1,813   1,703   1,738   1,905   1,901 
Insurance income  3,918   4,052   1,501   1,018   1,399   1,214   1,488 
ATM and debit card  4,509   4,230   1,557   1,531   1,421   1,491   1,445 
Investment advisory  5,934   4,357   2,245   1,911   1,778   1,747   1,497 
Company owned life insurance  1,333   1,367   440   443   450   414   449 
Investments in limited partnerships  1,019   91   328   123   568   19   (14)
Loan servicing  396   348   78   203   115   91   105 
Net gain on sale of loans held for sale  530   270   303   131   96   106   150 
Net (loss) gain on investment securities  (88)  600   (95)  7   -   660   184 
Net gain on derivative instruments  606   127   354   78   174   4   127 
Net gain on other assets  49   25   37   9   3   12   21 
Contingent consideration liability adjustment  -   1,200   -   -   -   -   - 
Other  3,971   3,590   1,337   1,392   1,242   1,324   1,221 
Total noninterest income  27,431   25,743   9,898   8,549   8,984   8,987   8,574 
Noninterest expense:                            
Salaries and employee benefits  40,270   35,703   13,970   12,871   13,429   12,972   12,348 
Occupancy and equipment  12,911   12,235   4,337   4,167   4,407   4,058   4,087 
Professional services  3,132   3,229   1,353   896   883   854   1,157 
Computer and data processing  3,884   3,691   1,291   1,358   1,235   1,244   1,208 
Supplies and postage  1,545   1,496   485   548   512   507   492 
FDIC assessments  1,486   1,366   498   480   508   451   440 
Advertising and promotions  2,647   1,451   949   721   977   720   344 
Amortization of intangibles  927   876   334   305   288   294   288 
Goodwill impairment  -   1,575   -   -   -   -   - 
Other  6,271   5,728   2,304   2,099   1,868   2,063   2,103 
Total noninterest expense  73,073   67,350   25,521   23,445   24,107   23,163   22,467 
Income before income taxes  39,842   31,833   13,137   15,149   11,556   11,638   11,743 
Income tax expense  7,807   9,365   2,560   2,979   2,268   580   3,464 
Net income  32,035   22,468   10,577   12,170   9,288   11,058   8,279 
Preferred stock dividends  1,096   1,097   365   366   365   365   366 
Net income available to common shareholders $30,939  $21,371  $10,212  $11,804  $8,923  $10,693  $7,913 
FINANCIAL RATIOS:                            
Earnings per share – basic $1.95  $1.44  $0.64  $0.74  $0.56  $0.68  $0.52 
Earnings per share – diluted $1.94  $1.44  $0.64  $0.74  $0.56  $0.68  $0.52 
Cash dividends declared on common stock $0.72  $0.63  $0.24  $0.24  $0.24  $0.22  $0.21 
Common dividend payout ratio  36.92%  43.75%  37.50%  32.43%  42.86%  32.35%  40.38%
Dividend yield (annualized)  3.07%  2.92%  3.03%  2.93%  3.29%  2.81%  2.89%
Return on average assets  1.03%  0.78%  1.00%  1.18%  0.92%  1.09%  0.83%
Return on average equity  11.11%  8.84%  10.71%  12.70%  9.89%  11.72%  9.17%
Return on average common equity  11.23%  8.86%  10.82%  12.90%  9.95%  11.88%  9.21%
Return on average tangible common equity (1)  14.18%  11.54%  13.71%  16.27%  12.52%  15.03%  11.76%
Efficiency ratio (2)  61.36%  61.01%  62.04%  60.14%  61.85%  59.62%  59.75%
Effective tax rate  19.6%  29.4%  19.5%  19.7%  19.6%  5.0%  29.5%

                

  1. See Appendix A – Reconciliation to Non-GAAP Financial Measures for the computation of this Non-GAAP 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)

  Nine Months Ended  2018  2017 
  September 30,  Third  Second  First  Fourth  Third 
  2018  2017  Quarter  Quarter  Quarter  Quarter  Quarter 
SELECTED AVERAGE BALANCES:                            
Federal funds sold and interest-earning deposits $220  $8,869  $-  $-  $667  $1,693  $- 
Investment securities (1)  1,000,272   1,090,725   954,027   1,012,846   1,034,830   1,073,170   1,096,374 
Loans:                            
Commercial business  484,711   385,025   519,114   481,045   453,250   429,831   405,308 
Commercial mortgage  853,571   710,690   896,159   842,422   821,311   778,765   752,634 
Residential real estate loans  484,288   432,838   498,371   483,577   470,612   455,641   438,436 
Residential real estate lines  113,761   119,493   111,762   113,948   115,614   116,731   117,597 
Consumer indirect  896,493   804,051   904,480   899,069   885,723   865,735   841,081 
Other consumer  16,685   16,941   16,633   16,449   16,978   17,618   17,184 
Total loans  2,849,509   2,469,038   2,946,519   2,836,510   2,763,488   2,664,321   2,572,240 
Total interest-earning assets  3,850,001   3,568,632   3,900,546   3,849,356   3,798,985   3,739,184   3,668,614 
Goodwill and other intangible assets, net  76,544   74,802   79,047   75,957   74,577   74,866   73,960 
Total assets  4,139,338   3,851,590   4,187,538   4,142,735   4,086,633   4,028,063   3,951,002 
Interest-bearing liabilities:                            
Interest-bearing demand  663,827   632,596   642,234   677,582   671,991   655,207   612,401 
Savings and money market  1,007,734   1,027,927   978,578   1,032,425   1,012,574   1,051,367   998,769 
Time deposits  903,645   780,374   946,499   906,271   857,184   863,770   855,371 
Short-term borrowings  407,903   345,637   430,697   381,043   411,760   316,894   385,512 
Long-term borrowings, net  39,156   39,085   39,174   39,156   39,138   39,121   39,103 
Total interest-bearing liabilities  3,022,265   2,825,619   3,037,182   3,036,477   2,992,647   2,926,359   2,891,156 
Noninterest-bearing demand deposits  706,222   665,221   730,960   699,112   688,123   703,560   679,303 
Total deposits  3,281,428   3,106,118   3,298,271   3,315,390   3,229,872   3,273,904   3,145,844 
Total liabilities  3,753,654   3,511,794   3,795,727   3,758,465   3,705,782   3,653,655   3,592,685 
Shareholders’ equity  385,684   339,796   391,811   384,270   380,851   374,408   358,317 
Common equity  368,356   322,457   374,482   366,942   363,523   357,079   340,981 
Tangible common equity (2) $291,812  $247,655  $295,435  $290,985  $288,946  $282,213  $267,021 
Common shares outstanding:                            
Basic  15,906   14,806   15,921   15,906   15,890   15,749   15,268 
Diluted  15,951   14,847   15,964   15,948   15,941   15,793   15,302 
SELECTED AVERAGE YIELDS:
(Tax equivalent basis)
                            
Investment securities  2.33%  2.46%  2.35%  2.32%  2.32%  2.53%  2.45%
Loans  4.45%  4.20%  4.55%  4.43%  4.36%  4.29%  4.24%
Total interest-earning assets  3.90%  3.66%  4.01%  3.88%  3.80%  3.78%  3.71%
Interest-bearing demand  0.15%  0.14%  0.19%  0.13%  0.12%  0.14%  0.14%
Savings and money market  0.26%  0.14%  0.33%  0.26%  0.18%  0.16%  0.15%
Time deposits  1.51%  1.04%  1.69%  1.49%  1.33%  1.21%  1.15%
Short-term borrowings  1.98%  1.09%  2.24%  2.01%  1.68%  1.40%  1.29%
Long-term borrowings, net  6.31%  6.32%  6.31%  6.31%  6.31%  6.32%  6.32%
Total interest-bearing liabilities  0.92%  0.59%  1.07%  0.90%  0.78%  0.68%  0.68%
Net interest rate spread  2.98%  3.07%  2.94%  2.98%  3.02%  3.10%  3.03%
Net interest rate margin  3.18%  3.19%  3.18%  3.17%  3.19%  3.25%  3.17%

                

  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 measure.

FINANCIAL INSTITUTIONS, INC.
Selected Financial Information (Unaudited)

(Amounts in thousands)

  Nine Months Ended  2018  2017 
  September 30,  Third  Second  First  Fourth  Third 
  2018  2017  Quarter  Quarter  Quarter  Quarter  Quarter 
ASSET QUALITY DATA:                            
Allowance for Loan Losses                            
Beginning balance $34,672  $30,934  $33,955  $35,594  $34,672  $34,347  $33,159 
Net loan charge-offs (recoveries):                            
Commercial business  675   1,576   431   259   (15)  1,622   44 
Commercial mortgage  106   (247)  110   (1)  (3)  (5)  (5)
Residential real estate loans  (87)  213   16   (53)  (50)  88   161 
Residential real estate lines  107   6   21   (5)  91   40   19 
Consumer indirect  4,227   4,084   1,246   1,317   1,664   1,636   1,244 
Other consumer  739   370   237   162   340   240   151 
Total net charge-offs  5,767   6,002   2,061   1,679   2,027   3,621   1,614 
Provision for loan losses  5,050   9,415   2,061   40   2,949   3,946   2,802 
Ending balance $33,955  $34,347  $33,955  $33,955  $35,594  $34,672  $34,347 
                             
Net charge-offs (recoveries)
  to average loans (annualized):
                            
Commercial business  0.19%  0.55%  0.33%  0.22%  -0.01%  1.50%  0.04%
Commercial mortgage  0.02%  -0.05%  0.05%  0.00%  0.00%  0.00%  0.00%
Residential real estate loans  -0.02%  0.07%  0.01%  -0.04%  -0.04%  0.08%  0.15%
Residential real estate lines  0.13%  0.01%  0.08%  -0.02%  0.32%  0.14%  0.06%
Consumer indirect  0.63%  0.68%  0.55%  0.59%  0.76%  0.75%  0.59%
Other consumer  5.92%  2.92%  5.66%  3.95%  8.12%  5.40%  3.49%
Total loans  0.27%  0.33%  0.28%  0.24%  0.30%  0.54%  0.25%
                             
Supplemental information (1)                            
Non-performing loans:                            
Commercial business $2,203  $7,182  $2,203  $4,026  $4,312  $5,344  $7,182 
Commercial mortgage  1,900   2,539   1,900   2,151   2,310   2,623   2,539 
Residential real estate loans  2,057   1,263   2,057   2,138   2,224   2,252   1,263 
Residential real estate lines  297   325   297   288   372   404   325 
Consumer indirect  1,385   1,250   1,385   1,124   1,467   1,895   1,250 
Other consumer  8   26   8   4   32   13   26 
Total non-performing loans  7,850   12,585   7,850   9,731   10,717   12,531   12,585 
Foreclosed assets  290   281   290   299   480   148   281 
Total non-performing assets $8,140  $12,866  $8,140  $10,030  $11,197  $12,679  $12,866 
                             
Total non-performing loans                            
  to total loans  0.26%  0.48%  0.26%  0.34%  0.38%  0.46%  0.48%
Total non-performing assets                            
  to total assets  0.19%  0.32%  0.19%  0.24%  0.27%  0.31%  0.32%
Allowance for loan losses                            
  to total loans  1.14%  1.31%  1.14%  1.17%  1.27%  1.27%  1.31%
Allowance for loan losses
  to non-performing loans
  433%  273%  433%  349%  322%  277%  273%

                

  1. At period end.

FINANCIAL INSTITUTIONS, INC.
Appendix A — Reconciliation to Non-GAAP Financial Measures (Unaudited)

(In thousands, except per share amounts)

  Nine Months Ended  2018  2017 
  September 30,  Third  Second  First  Fourth  Third 
  2018  2017  Quarter  Quarter  Quarter  Quarter  Quarter 
Ending tangible assets:                            
Total assets         $4,258,385  $4,191,315  $4,152,432  $4,105,210  $4,021,591 
Less: Goodwill and other intangible
  assets, net
          78,853   79,188   74,415   74,703   74,997 
Tangible assets         $4,179,532  $4,112,127  $4,078,017  $4,030,507  $3,946,594 
                             
Ending tangible common equity:                            
Common shareholders’ equity         $374,825  $369,608  $362,973  $363,848  $348,668 
Less: Goodwill and other intangible
  assets, net
          78,853   79,188   74,415   74,703   74,997 
Tangible common equity         $295,972  $290,420  $288,558  $289,145  $273,671 
                             
Tangible common equity to tangible
  assets (1)
          7.08%  7.06%  7.08%  7.17%  6.93%
                             
Common shares outstanding          15,925   15,924   15,901   15,925   15,626 
Tangible common book value per
  share (2)
         $18.59  $18.24  $18.15  $18.16  $17.51 
                             
Average tangible assets:                            
Average assets $4,139,338  $3,851,590  $4,187,538  $4,142,735  $4,086,633  $4,028,063  $3,951,002 
Less: Average goodwill and other
  intangible assets, net
  76,544   74,802   79,047   75,957   74,577   74,866   73,960 
Average tangible assets $4,062,794  $3,776,788  $4,108,491  $4,066,778  $4,012,056  $3,953,197  $3,877,042 
                             
Average tangible common equity:                            
Average common equity $368,356  $322,457  $374,482  $366,942  $363,523  $357,079  $340,981 
Less: Average goodwill and other
  intangible assets, net
  76,544   74,802   79,047   75,957   74,577   74,866   73,960 
Average tangible common equity $291,812