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Press Release

Financial Institutions, Inc. Announces Fourth Quarter and Full Year 2019 Results

Company Release - 1/30/2020 4:05 PM ET

WARSAW, N.Y., Jan. 30, 2020 (GLOBE NEWSWIRE) -- Financial Institutions, Inc. (Nasdaq:FISI) (the “Company”), parent company of Five Star Bank (the “Bank”), SDN Insurance Agency, LLC (“SDN”), Courier Capital, LLC (“Courier Capital”) and HNP Capital, LLC (“HNP Capital”), today reported financial and operational results for the fourth quarter and year ended December 31, 2019.

Results for the Quarter

  • Net income was $13.1 million compared to $7.5 million in 2018. After preferred dividends, net income available to common shareholders was $12.7 million, or $0.79 per diluted share, compared to $7.1 million, or $0.45 per diluted share, in 2018.
  • Results for the fourth quarter of 2019 were positively impacted by a reduction in income tax expense of approximately $2.7 million for federal and state tax benefits related to tax credit investments placed in service during the quarter. These tax credit investments also generated a net loss of $528 thousand, recorded in noninterest income, reducing the net positive impact in the quarter to $2.2 million. Results for the fourth quarter of 2018 were negatively impacted by a $2.4 million non-cash goodwill impairment charge related to the Company’s insurance subsidiary and $667 thousand of non-recurring expense incurred in connection with employee retirements and severance.
  • Pre-tax pre-provision income(1) was $16.1 million compared to $13.6 million in 2018. 

Results for the Year

  • Net income was $48.9 million compared to $39.5 million in 2018. After preferred dividends, net income available to common shareholders was $47.4 million, or $2.96 per diluted share, compared to $38.1 million, or $2.39 per diluted share, in 2018.
  • Results for 2019 were positively impacted by $2.2 million due to the tax credit investments described above and negatively impacted by approximately $600 thousand of income tax expense recognized in the third quarter related to an adjustment to a provisional amount recorded in 2017. Results for 2018 were negatively impacted by the $2.4 million non-cash goodwill impairment charge described above and approximately $1.7 million of expenses related to employee retirements and severance, higher contingent incentive compensation related to our wealth management subsidiary and the payment of one-time awards to employees not covered by certain incentive programs.
  • Pre-tax pre-provision income was $67.5 million compared to $58.5 million in 2018.

Fourth Quarter Highlights (as compared to fourth quarter 2018 unless otherwise noted):

  • Diluted earnings per share of $0.79 was $0.34, or 75.6%, higher than 2018
  • Pre-tax pre-provision income increased $2.5 million to $16.1 million  
  • Net interest margin (“NIM”) expanded to 3.33% from 3.21% 
  • Return on average assets (“ROA”) increased to 1.21% from 0.70%
  • Common equity to assets ratio at quarter-end was 9.62% ‒ an increase of four basis points during the quarter and an increase of 83 basis points from December 31, 2018
  • Tangible common equity to tangible assets(1), or TCE ratio, was 8.05% at quarter-end ‒ an increase of six basis points during the quarter and an increase of 90 basis points from December 31, 2018
  • Strategy to downscale the consumer indirect portfolio continued
    – Portfolio decreased 7.6% from December 31, 2018
    – Portfolio comprised 26.4% of total loan portfolio at December 31, 2019, compared to 29.8% at December 31, 2018

President and Chief Executive Officer Martin K. Birmingham stated, “We are pleased to report strong results in the fourth quarter, capping a solid year of performance for the Company. 2019 was a year of accomplishment with record-breaking net income and strengthening capital ratios. Our efforts to reposition the balance sheet through the rotation of securities into loans and reducing the size of our consumer indirect portfolio were successful and contributed to improved profitability. We also continued to invest in our customers, communities and associates. Community engagement was highlighted by volunteer activities, financial investments and product offerings, including the expansion of our program to provide debt and equity financing for affordable and special needs housing in our markets.   

“We also took steps to position our organization for the future and look forward to the 2020 launch of two new major initiatives. The first relates to the execution of our enterprise standardization program. We have been working with proven advisers who specialize in implementing standardization-based improvements and have identified opportunities to improve Company operations, deliver enhanced customer experience, and improve operational efficiency while enhancing customer and employee experiences. 

“The second is Five Star Bank Digital Banking. We are proud of our commitment to provide education, advice and solutions to improve our customers' financial well-being, and we believe this new platform will allow us to significantly improve the user experience across all devices and offer many new features. This is an important step in the development of our omni channel distribution platform, enhancing capabilities across retail and commercial loan, deposit and cash management services.”

Chief Financial Officer Justin K. Bigham added, “We generated positive operating leverage in the quarter and for the year. NIM was 3.33% for the quarter, an increase of four basis points from the linked quarter. This expansion was primarily the result of the Company’s balance sheet repositioning, as loans became a higher percentage of earning assets, combined with the impact of commercial prepayments received during the quarter. The TCE ratio also increased by six basis points in the quarter, from 7.99% to 8.05%.”

Net Interest Income and Net Interest Margin

Net interest income was $33.2 million for the quarter, $690 thousand higher than the third quarter of 2019 and $1.1 million higher than the fourth quarter of 2018.

  • Average interest-earning assets for the quarter were $3.99 billion, $34.8 million higher than the third quarter of 2019, primarily due to organic loan growth. Average interest-earning assets are relatively unchanged from the fourth quarter of 2018 because commercial business, commercial mortgage and residential real estate loan growth was offset by lower investment securities and consumer indirect loan portfolios as a result of the Company’s balance sheet repositioning strategy.
  • Fourth quarter 2019 NIM was 3.33%, four basis points higher than the third quarter of 2019 and twelve basis points higher than the fourth quarter of 2018. NIM was positively impacted by the repositioning of the Company’s balance sheet. We benefitted from a change in interest-earning asset mix as loans became a larger percentage of the overall earning asset portfolio.

Net interest income was $129.9 million for the year, $7.0 million higher than 2018. The increase was the result of an $81.9 million, or 2.1%, increase in average interest-earnings assets for the year combined with a ten basis point increase in NIM, to 3.28% from 3.18%.

Noninterest Income

Noninterest income was $9.7 million for the quarter compared to $12.4 million in the third quarter of 2019 and $9.3 million in the fourth quarter of 2018.

  • Insurance income was $558 thousand lower than the third quarter of 2019 and $131 thousand lower than the fourth quarter of 2018 primarily due to the loss of commercial accounts. 
  • Income from derivative instruments, net was $1.3 million in the fourth quarter of 2019 compared to $890 thousand in the third quarter of 2019 and $289 thousand in the fourth quarter of 2018. Higher fourth quarter 2019 income was driven by an increase in the number and value of interest rate swap transactions executed.
  • A net loss on investment securities of $44 thousand was recognized in the quarter compared to a net gain of $1.6 million in the third quarter of 2019 and a net loss of $39 thousand in the fourth quarter of 2018. The Company took advantage of a market opportunity in the third quarter and sold $65 million of investment securities. Proceeds of $65 million were reinvested in investment securities with intermediate durations.
  • A net loss on tax credit investments of $528 thousand was recognized in the quarter related to the tax credit investments described above. This loss includes the amortization of the tax credit investments, partially offset by New York investment tax credits that are refundable and recorded in noninterest income.

Noninterest income was $40.4 million for the year, $3.9 million higher than 2018.

  • ATM and debit card charges of $6.8 million were $627 thousand higher than 2018, primarily due to an increase in consumer debit card activity.
  • Investment advisory fees were $1.1 million higher than 2018. The increase was the result of the combination of strong equity market returns domestically and internationally, the full year impact of the June 1, 2018 acquisition of HNP Capital and new business development.
  • Income from investments in limited partnerships of $352 thousand was $851 thousand lower than 2018. 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.
  • Income from derivative instruments, net was $1.3 million higher in 2019 due to an increase in interest rate swap transactions.
  • Net gain on investment securities was $1.7 million in 2019 compared to a net loss of $127 thousand in 2018 as a result of the sale of securities previously described.

Noninterest Expense

Noninterest expense was $26.8 million in the quarter compared to $25.9 million in the third quarter of 2019 and $27.8 million in the fourth quarter of 2018.

  • Professional services expense of $1.8 million was $278 thousand higher than the third quarter of 2019 and $1.0 million higher than the fourth quarter of 2018. The increase was primarily related to the timing of fees for consulting and advisory projects. Expenses related to the Company’s future improvements initiative totaled $510 thousand in the fourth quarter of 2019 and $298 thousand in the third quarter of 2019, with no expenses incurred in the fourth quarter of 2018.
  • FDIC assessments were zero in the quarter compared to $7 thousand in the third quarter of 2019 and $489 thousand in the fourth quarter of 2018. In 2018, the FDIC minimum reserve ratio of 1.35% of estimated insured deposits was exceeded, resulting in credits to institutions for assessments that contributed to growth in the reserve ratio. Credits are applicable to regular assessments for quarters in which the reserve ratio is at least 1.38%. The Bank received credits against its regular assessment of $439 thousand and $482 thousand in the fourth and third quarters of 2019, respectively. A credit of $70 thousand is available for future periods.
  • Advertising and promotions expense of $1.2 million was $481 thousand higher than the third quarter of 2019 and $291 thousand higher than the fourth quarter of 2018 as a result of the timing of expenses related to the Five Star Bank branding campaign.
  • A $2.4 million non-cash goodwill impairment charge related to the acquisition of SDN was recognized in the fourth quarter of 2018. No impairment charges were recognized in 2019.

Noninterest expense was $102.8 million for the year, $2.0 million higher than 2018.

  • Salaries and employee benefits expense totaled $56.3 million in 2019, $1.7 million higher than 2018. The increase was primarily attributable to higher salaries, incentives and pension expense, partially offset by a decrease in severance payments.  
  • Professional services expense of $5.4 million was $1.5 million higher than the previous year, primarily as a result of fees for consulting and advisory projects previously described. Expenses related to the future improvements initiative totaled $1.0 million in 2019.
  • FDIC assessments for the year were $970 thousand lower than 2018 due to the credits previously described.

Income Taxes

Income tax expense was $312 thousand for the quarter compared to $4.3 million for the third quarter of 2019 and $2.2 million for the fourth quarter of 2018. The following factors impacted expense:

  • During the fourth quarter of 2019, the Company recognized federal and state tax benefits related to tax credit investments placed in service during the quarter, resulting in an income tax expense reduction of approximately $2.7 million. 
  • During the third quarter of 2019, the Company made an adjustment to the provisional amount included in its consolidated financial statements for the year ended December 31, 2017, resulting in expense of approximately $600 thousand.

The effective tax rate was 2.3% for the fourth quarter compared to 25.0% for the third quarter of 2019 and 22.7% for the fourth quarter of 2018. In addition to the factors described above, the Company’s effective tax rates differ from statutory rates primarily because of interest income from tax-exempt securities and earnings on company owned life insurance. 

Income tax expense was $10.6 million for the year, $553 thousand higher than 2018. The effective tax rate for 2019 was 17.8% compared to 20.2% for 2018.

Balance Sheet and Capital Management

Total assets were $4.38 billion at December 31, 2019, up $51.4 million from September 30, 2019, and up $72.5 million from December 31, 2018.

Investment securities were $776.9 million at December 31, 2019, relatively unchanged from September 30, 2019, and down $115.3 million from December 31, 2018. The decrease from year-end 2018 was primarily the result of the redeployment of assets from investment securities into loans to improve the earning asset mix.

Total loans were $3.22 billion at December 31, 2019, up $64.6 million, or 2.0%, from September 30, 2019, and up $134.4 million, or 4.4%, from December 31, 2018.

  • Commercial business loans totaled $572.0 million, down $2.4 million, or 0.4%, from September 30, 2019, and up $14.2 million, or 2.5%, from December 31, 2018.
  • Commercial mortgage loans totaled $1.11 billion, up $70.8 million, or 6.8%, from September 30, 2019, and up $148.1 million, or 15.5%, from December 31, 2018.
  • Residential real estate loans totaled $572.4 million, up $13.7 million, or 2.5%, from September 30, 2019, and up $48.2 million, or 9.2%, from December 31, 2018.
  • Consumer indirect loans totaled $850.1 million, down $13.6 million, or 1.6%, from September 30, 2019, and down $69.9 million, or 7.6%, from December 31, 2018.

Total deposits were $3.56 billion at December 31, 2019, $30.5 million lower than September 30, 2019, and $188.8 million higher than December 31, 2018. The decrease from September 30, 2019, was primarily due to public deposit seasonality, partially offset by growth in the brokered deposit portfolio. Deposit growth from December 31, 2018, was driven by growth in the non-public (excluding certificates of deposits), public, brokered and reciprocal deposit portfolios. Public deposit balances represented 24% of total deposits at December 31, 2019, compared to 28% of total deposits at September 30, 2019, and 25% at December 31, 2018.

Short-term borrowings were $275.5 million at December 31, 2019, an increase of $64.1 million from September 30, 2019, and a decrease of $194.0 million from December 31, 2018. Short-term borrowings are typically utilized to manage the seasonality of public deposits.

Shareholders’ equity was $438.9 million at December 31, 2019, compared to $432.6 million at September 30, 2019, and $396.3 million at December 31, 2018. Common book value per share was $26.35 at December 31, 2019, an increase of $0.39 or 1.5% from $25.96 at September 30, 2019, and an increase of $2.56 or 10.8% from $23.79 at December 31, 2018. Tangible common book value per share(1) was $21.66 at December 31, 2019, an increase of $0.40 or 1.9% from $21.26 at September 30, 2019, and an increase of $2.65 or 13.9% from $19.01 at December 31, 2018.

During the fourth quarter of 2019, the Company declared a common stock dividend of $0.25 per common share. The dividend returned 31% of fourth quarter net income to common shareholders.

The Company’s regulatory capital ratios at December 31, 2019, compared to the prior quarter and prior year:

  • Leverage Ratio was 9.00%, compared to 8.86% and 8.16% at September 30, 2019, and December 31, 2018, respectively.
  • Common Equity Tier 1 Capital Ratio was 10.31%, compared to 10.06% and 9.70% at September 30, 2019, and December 31, 2018, respectively.
  • Tier 1 Capital Ratio was 10.80%, compared to 10.55% and 10.21% at September 30, 2019, and December 31, 2018, respectively.
  • Total Risk-Based Capital Ratio was 12.77%, compared to 12.57% and 12.38% at September 30, 2019, and December 31, 2018, respectively.

Credit Quality

Non-performing loans were $8.6 million at December 31, 2019, compared to $9.8 million at September 30, 2019, and $7.1 million at December 31, 2018.

The quarterly provision for loan losses was $2.7 million compared to $1.8 million in the third quarter of 2019 and $3.9 million in the fourth quarter of 2018. Quarterly provision for loan losses varies based primarily on loan growth, charge-offs, collateral values and qualitative factors.

Net charge-offs were $3.8 million in the quarter, $771 thousand lower than the third quarter of 2019 and $86 thousand lower than the fourth quarter of 2018. The ratio of annualized net charge-offs to total average loans was 0.48% in the quarter, 0.58% in the third quarter of 2019 and 0.51% in the fourth quarter of 2018.

The Company has remained strategically focused on the importance of credit discipline, allocating what we believe are the necessary resources to credit and risk management functions as the loan portfolio has grown. The total non-performing loans to total loans ratio was 0.27% at December 31, 2019, compared to 0.31% at September 30, 2019 and 0.23% at December 31, 2018. The ratio of allowance for loan losses to non-performing loans was 353% at December 31, 2019, compared to 324% at September 30, 2019, and 475% at December 31, 2018.

Conference Call

The Company will host an earnings conference call and audio webcast on January 31, 2020, at 8:30 a.m. Eastern Time. The call will be hosted by Martin K. Birmingham, President and Chief Executive Officer, and Justin K. Bigham, 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. 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

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.

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, 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, and 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 onForm 10-Qand 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:

Shelly J. Doran
Director of Investor and External Relations
585-627-1362
[email protected]

FINANCIAL INSTITUTIONS, INC.
Selected Financial Information (Unaudited)

(Amounts in thousands, except per share amounts)

  2019  2018 
  December 31,  September 30,  June 30,  March 31,  December 31, 
SELECTED BALANCE SHEET DATA:                    
Cash and cash equivalents $112,947  $136,815  $108,988  $79,786  $102,755 
Investment securities:                    
Available for sale  417,917   395,441   406,509   427,545   445,677 
Held-to-maturity  359,000   386,305   398,610   438,984   446,581 
Total investment securities  776,917   781,746   805,119   866,529   892,258 
Loans held for sale  4,224   6,398   2,045   2,069   2,868 
Loans:                    
Commercial business  572,040   574,455   594,923   553,745   557,861 
Commercial mortgage  1,106,283   1,035,450   1,010,071   993,259   958,194 
Residential real estate loans  572,350   558,656   546,031   534,691   524,155 
Residential real estate lines  104,118   107,615   108,006   108,623   109,718 
Consumer indirect  850,052   863,614   876,116   902,762   919,917 
Other consumer  16,144   16,630   16,537   16,099   16,753 
Total loans  3,220,987   3,156,420   3,151,684   3,109,179   3,086,598 
Allowance for loan losses  30,482   31,668   34,434   33,327   33,914 
Total loans, net  3,190,505   3,124,752   3,117,250   3,075,852   3,052,684 
Total interest-earning assets  4,058,107   3,979,493   4,007,797   4,009,496   4,031,151 
Goodwill and other intangible assets, net  74,923   75,225   75,534   75,850   76,173 
Total assets  4,384,178   4,332,737   4,313,945   4,302,541   4,311,698 
Deposits:                    
Noninterest-bearing demand  707,752   755,296   719,150   732,631   755,460 
Interest-bearing demand  627,842   707,153   677,846   707,430   622,482 
Savings and money market  1,039,892   1,011,873   966,509   1,016,666   968,897 
Time deposits  1,180,189   1,111,892   1,108,484   1,052,110   1,020,068 
Total deposits  3,555,675   3,586,214   3,471,989   3,508,837   3,366,907 
Short-term borrowings  275,500   211,400   308,500   287,300   469,500 
Long-term borrowings, net  39,273   39,255   39,237   39,220   39,202 
Total interest-bearing liabilities  3,162,696   3,081,573   3,100,576   3,102,726   3,120,149 
Shareholders’ equity  438,947   432,617   422,354   408,253   396,293 
Common shareholders’ equity  421,619   415,289   405,026   390,925   378,965 
Tangible common equity (1)  346,696   340,064   329,492   315,075   302,792 
Accumulated other comprehensive loss $(14,513) $(11,734) $(13,160) $(18,554) $(21,281)
                     
Common shares outstanding  16,003   15,997   15,995   15,941   15,929 
Treasury shares  97   103   105   115   127 
CAPITAL RATIOS AND PER SHARE DATA:                    
Leverage ratio  9.00%  8.86%  8.55%  8.36%  8.16%
Common equity Tier 1 capital ratio  10.31%  10.06%  9.95%  9.87%  9.70%
Tier 1 capital ratio  10.80%  10.55%  10.45%  10.37%  10.21%
Total risk-based capital ratio  12.77%  12.57%  12.57%  12.50%  12.38%
Common equity to assets  9.62%  9.58%  9.39%  9.09%  8.79%
Tangible common equity to tangible assets (1)  8.05%  7.99%  7.77%  7.45%  7.15%
                     
Common book value per share $26.35  $25.96  $25.32  $24.52  $23.79 
Tangible common book value per share (1) $21.66  $21.26  $20.60  $19.77  $19.01 

                

(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)

  Year Ended  2019  2018 
  December 31,  Fourth  Third  Second  First  Fourth 
  2019  2018  Quarter  Quarter  Quarter  Quarter  Quarter 
SELECTED INCOME STATEMENT                            
DATA:                            
Interest income $168,800  $152,732  $42,179  $42,459  $42,648  $41,514  $41,125 
Interest expense  38,888   29,868   9,006   9,976   10,184   9,722   9,096 
Net interest income  129,912   122,864   33,173   32,483   32,464   31,792   32,029 
Provision for loan losses  8,044   8,934   2,653   1,844   2,354   1,193   3,884 
Net interest income after provision
  for loan losses
  121,868   113,930   30,520   30,639   30,110   30,599   28,145 
Noninterest income:                            
Service charges on deposits  7,241   7,120   1,880   1,925   1,756   1,680   1,866 
Insurance income  4,570   4,930   881   1,439   872   1,378   1,012 
ATM and debit card  6,779   6,152   1,796   1,801   1,739   1,443   1,643 
Investment advisory  9,187   8,123   2,375   2,269   2,327   2,216   2,189 
Company owned life insurance  1,758   1,793   465   459   424   410   460 
Investments in limited partnerships  352   1,203   (140)  116   144   232   184 
Loan servicing  432   441   116   102   104   110   122 
Income (loss) from derivative                            
instruments, net  2,274   972   1,261   890   (45)  168   289 
Net gain on sale of loans held for sale  1,352   796   324   439   407   182   266 
Net (loss) gain on investment securities  1,677   (127)  (44)  1,608   166   (53)  (39)
Net gain (loss) on other assets  29   50   (27)  (2)  9   49   1 
Net loss on tax credit investments  (528)  -   (528)  -   -   -   - 
Other  5,258   5,025   1,308   1,315   1,330   1,305   1,355 
Total noninterest income  40,381   36,478   9,667   12,361   9,233   9,120   9,348 
Noninterest expense:                            
Salaries and employee benefits  56,330   54,643   14,669   14,411   13,249   14,001   14,373 
Occupancy and equipment  18,266   17,338   4,704   4,650   4,326   4,586   4,427 
Professional services  5,424   3,912   1,806   1,528   932   1,158   780 
Computer and data processing  5,269   5,122   1,318   1,378   1,350   1,223   1,238 
Supplies and postage  2,036   2,032   482   522   498   534   487 
FDIC assessments  1,005   1,975   -   7   486   512   489 
Advertising and promotions  3,577   3,582   1,226   745   1,086   520   935 
Amortization of intangibles  1,250   1,257   302   309   316   323   330 
Goodwill impairment  -   2,350   -   -   -   -   2,350 
Other  9,671   8,665   2,261   2,336   2,760   2,314   2,394 
Total noninterest expense  102,828   100,876   26,768   25,886   25,003   25,171   27,803 
Income before income taxes  59,421   49,532   13,419   17,114   14,340   14,548   9,690 
Income tax expense  10,559   10,006   312   4,281   2,939   3,027   2,199 
Net income  48,862   39,526   13,107   12,833   11,401   11,521   7,491 
Preferred stock dividends  1,461   1,461   365   365   366   365   365 
Net income available to common                            
shareholders $47,401  $38,065  $12,742  $12,468  $11,035  $11,156  $7,126 
FINANCIAL RATIOS:                            
Earnings per share – basic $2.97  $2.39  $0.80  $0.78  $0.69  $0.70  $0.45 
Earnings per share – diluted $2.96  $2.39  $0.79  $0.78  $0.69  $0.70  $0.45 
Cash dividends declared on common stock $1.00  $0.96  $0.25  $0.25  $0.25  $0.25  $0.24 
Common dividend payout ratio  33.67%  40.17%  31.25%  32.05%  36.23%  35.71%  53.33%
Dividend yield (annualized)  3.12%  3.74%  3.09%  3.29%  3.44%  3.73%  3.70%
Return on average assets  1.14%  0.95%  1.21%  1.19%  1.06%  1.09%  0.70%
Return on average equity  11.61%  10.18%  11.88%  11.86%  11.01%  11.65%  7.50%
Return on average common equity  11.74%  10.26%  12.02%  12.00%  11.12%  11.79%  7.46%
Return on average tangible common                            
equity (1)  14.45%  12.95%  14.64%  14.69%  13.73%  14.71%  9.40%
Efficiency ratio (2)  60.59%  62.73%  62.05%  59.52%  59.79%  60.99%  66.64%
Effective tax rate  17.8%  20.2%  2.3%  25.0%  20.5%  20.8%  22.7%

                

(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)

  Year Ended  2019  2018 
  December 31,  Fourth  Third  Second  First  Fourth 
  2019  2018  Quarter  Quarter  Quarter  Quarter  Quarter 
SELECTED AVERAGE BALANCES:                            
Federal funds sold and interest-
  earning deposits
 $22,023  $24,906  $32,494  $19,370  $18,145  $17,955  $25,411 
Investment securities (1)  822,744   984,553   774,520   785,595   845,624   886,878   937,907 
Loans:                            
Commercial business  569,941   498,552   567,998   586,293   577,884   547,182   539,622 
Commercial mortgage  1,021,220   876,484   1,073,527   1,021,931   1,010,544   977,818   944,476 
Residential real estate loans  547,505   492,165   566,256   553,382   540,390   529,522   515,539 
Residential real estate lines  107,654   112,872   106,011   107,290   107,826   109,529   110,236 
Consumer indirect  882,056   901,066   856,823   868,927   891,967   911,252   914,636 
Other consumer  16,047   16,682   16,100   16,141   15,721   16,226   16,671 
Total loans  3,144,423   2,897,821   3,186,715   3,153,964   3,144,332   3,091,529   3,041,180 
Total interest-earning assets  3,989,190   3,907,280   3,993,729   3,958,929   4,008,101   3,996,362   4,004,498 
Goodwill and other intangible
  assets, net
  75,557   76,990   75,093   75,401   75,711   76,033   78,314 
Total assets  4,285,825   4,171,972   4,299,342   4,260,810   4,300,254   4,282,991   4,268,809 
Interest-bearing liabilities:                            
Interest-bearing demand  655,534   665,255   660,738   632,540   660,747   668,448   669,491 
Savings and money market  983,447   1,008,665   1,014,434   956,410   996,878   965,829   1,011,427 
Time deposits  1,098,440   936,157   1,120,823   1,099,212   1,096,544   1,076,687   1,032,632 
Short-term borrowings  309,893   394,679   241,557   328,952   323,461   346,546   355,439 
Long-term borrowings, net  39,235   39,165   39,262   39,244   39,227   39,209   39,191 
Total interest-bearing liabilities  3,086,549   3,043,921   3,076,814   3,056,358   3,116,857   3,096,719   3,108,180 
Noninterest-bearing demand deposits  721,133   713,152   725,590   717,473   714,205   727,321   733,717 
Total deposits  3,458,554   3,323,229   3,521,585   3,405,635   3,468,374   3,438,285   3,447,267 
Total liabilities  3,864,808   3,783,621   3,861,542   3,831,409   3,884,843   3,882,033   3,872,545 
Shareholders’ equity  421,017   388,351   437,800   429,401   415,411   400,958   396,264 
Common equity  403,689   371,023   420,472   412,073   398,083   383,630   378,936 
Tangible common equity (2) $328,132  $294,033  $345,379  $336,672  $322,372  $307,597  $300,622 
Common shares outstanding:                            
Basic  15,972   15,910   15,995   15,991   15,970   15,930   15,922 
Diluted  16,031   15,956   16,072   16,056   16,015   15,978   15,971 
SELECTED AVERAGE YIELDS:
(Tax equivalent basis)
                            
Investment securities  2.39%  2.33%  2.40%  2.40%  2.38%  2.37%  2.33%
Loans  4.77%  4.51%  4.70%  4.77%  4.82%  4.77%  4.68%
Total interest-earning assets  4.26%  3.94%  4.22%  4.29%  4.29%  4.23%  4.11%
Interest-bearing demand  0.21%  0.16%  0.21%  0.22%  0.21%  0.20%  0.20%
Savings and money market  0.44%  0.29%  0.48%  0.44%  0.44%  0.41%  0.38%
Time deposits  2.07%  1.61%  1.94%  2.12%  2.17%  2.06%  1.88%
Short-term borrowings  2.56%  2.11%  2.21%  2.51%  2.71%  2.70%  2.56%
Long-term borrowings, net  6.30%  6.31%  6.29%  6.30%  6.30%  6.30%  6.30%
Total interest-bearing liabilities  1.26%  0.98%  1.16%  1.30%  1.31%  1.27%  1.16%
Net interest rate spread  3.00%  2.96%  3.06%  2.99%  2.98%  2.96%  2.95%
Net interest margin  3.28%  3.18%  3.33%  3.29%  3.28%  3.24%  3.21%

                

(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)

  Year Ended  2019  2018 
  December 31,  Fourth  Third  Second  First  Fourth 
  2019  2018  Quarter  Quarter  Quarter  Quarter  Quarter 
ASSET QUALITY DATA:                            
Allowance for Loan Losses                            
Beginning balance $33,914  $34,672  $31,668  $34,434  $33,327  $33,914  $33,955 
Net loan charge-offs (recoveries):                            
Commercial business  1,989   1,810   1,942   10   10   27   1,135 
Commercial mortgage  2,980   1,007   -   2,994   3   (17)  901 
Residential real estate loans  297   (64)  156   40   76   25   23 
Residential real estate lines  7   122   3   7   (1)  (2)  15 
Consumer indirect  5,420   5,826   1,523   1,317   1,022   1,558   1,599 
Other consumer  783   991   215   242   137   189   252 
Total net charge-offs  11,476   9,692   3,839   4,610   1,247   1,780   3,925 
Provision for loan losses  8,044   8,934   2,653   1,844   2,354   1,193   3,884 
Ending balance $30,482  $33,914  $30,482  $31,668  $34,434  $33,327  $33,914 
                             
Net charge-offs (recoveries)
  to average loans (annualized):
                            
Commercial business  0.35%  0.36%  1.36%  0.01%  0.01%  0.02%  0.83%
Commercial mortgage  0.29%  0.11%  0.00%  1.16%  0.00%  -0.01%  0.38%
Residential real estate loans  0.05%  -0.01%  0.11%  0.03%  0.06%  0.02%  0.02%
Residential real estate lines  0.01%  0.11%  0.01%  0.03%  -0.01%  -0.01%  0.05%
Consumer indirect  0.61%  0.65%  0.71%  0.60%  0.46%  0.69%  0.69%
Other consumer  4.88%  5.94%  5.30%  5.93%  3.51%  4.73%  6.00%
Total loans  0.37%  0.33%  0.48%  0.58%  0.16%  0.23%  0.51%
                             
Supplemental information (1)                            
Non-performing loans:                            
Commercial business $1,177  $912  $1,177  $2,884  $638  $594  $912 
Commercial mortgage  3,146   1,586   3,146   2,867   6,836   909   1,586 
Residential real estate loans  2,484   2,391   2,484   2,526   2,283   2,225   2,391 
Residential real estate lines  102   255   102   182   282   252   255 
Consumer indirect  1,725   1,989   1,725   1,326   1,399   1,822   1,989 
Other consumer  6   8   6   3   25   2   8 
Total non-performing loans  8,640   7,141   8,640   9,788   11,463   5,804   7,141 
Foreclosed assets  468   230   468   91   37   41   230 
Total non-performing assets $9,108  $7,371  $9,108  $9,879  $11,500  $5,845  $7,371 
                             
Total non-performing loans
  to total loans
  0.27%  0.23%  0.27%  0.31%  0.36%  0.19%  0.23%
Total non-performing assets
  to total assets
  0.21%  0.17%  0.21%  0.23%  0.27%  0.14%  0.17%
Allowance for loan losses
  to total loans
  0.95%  1.10%  0.95%  1.00%  1.09%  1.07%  1.10%
Allowance for loan losses
  to non-performing loans
  353%  475%  353%  324%  300%  574%  475%

                
(1) At period end.

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

(In thousands, except per share amounts)

  Year Ended  2019  2018 
  December 31,  Fourth  Third  Second  First  Fourth 
  2019  2018  Quarter  Quarter  Quarter  Quarter  Quarter 
Ending tangible assets:                            
Total assets         $4,384,178  $4,332,737  $4,313,945  $4,302,541  $4,311,698 
Less: Goodwill and other intangible
  assets, net
          74,923   75,225   75,534   75,850   76,173 
Tangible assets         $4,309,255  $4,257,512  $4,238,411  $4,226,691  $4,235,525 
                             
Ending tangible common equity:                            
Common shareholders’ equity         $421,619  $415,289  $405,026  $390,925  $378,965 
Less: Goodwill and other intangible
  assets, net
          74,923   75,225   75,534   75,850   76,173 
Tangible common equity         $346,696  $340,064  $329,492  $315,075  $302,792 
                             
Tangible common equity to tangible
  assets (1)
          8.05%  7.99%  7.77%  7.45%  7.15%
                             
Common shares outstanding          16,003   15,997   15,995   15,941   15,929 
Tangible common book value per
   share (2)
         $21.66  $21.26  $20.60  $19.77  $19.01 
                             
Average tangible assets:                            
Average assets $4,285,825  $4,171,972  $4,299,342  $4,260,810  $4,300,254  $4,282,991  $4,268,809 
Less: Average goodwill and other
  intangible assets, net
  75,557   76,990   75,093   75,401   75,711   76,033   78,314 
Average tangible assets $4,210,268  $4,094,982  $4,224,249  $4,185,409  $4,224,543  $4,206,958  $4,190,495 
                             
Average tangible common equity:                            
Average common equity $403,689  $371,023  $420,472  $412,073  $398,083  $383,630  $378,936 
Less: Average goodwill and other
  intangible assets, net
  75,557   76,990   75,093   75,401   75,711   76,033   78,314 
Average tangible common equity $328,132  $294,033  $345,379  $336,672  $322,372  $307,597  $300,622 
                             
Net income available to
  common shareholders
 $47,401  $38,065  $12,742  $12,468  $11,035  $11,156  $7,126 
Return on average tangible common
  equity (3)
  14.45%  12.95%  14.64%  14.69%  13.73%  14.71%  9.40%
                             
Pre-tax pre-provision income:                            
Net income $48,862  $39,526  $13,107  $12,833  $11,401  $11,521  $7,491 
Add: Income tax expense  10,559   10,006   312   4,281   2,939   3,027   2,199 
Add: Provision for loan losses  8,044   8,934   2,653   1,844   2,354   1,193   3,884 
Pre-tax pre-provision income $67,465  $58,466  $16,072  $18,958  $16,694  $15,741  $13,574 

                
(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.

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Source: Financial Institutions, Inc.