Skip Navigation Documents in Portable Document Format (PDF) require Adobe Acrobat Reader 5.0 or higher to view,download Adobe® Acrobat Reader.

Press Release

Financial Institutions, Inc. Announces Second Quarter Results

Company Release - 7/29/2020 4:14 PM ET

WARSAW, N.Y., July 29, 2020 (GLOBE NEWSWIRE) -- Financial Institutions, Inc. (Nasdaq:FISI) (the “Company” “we” or “us”), 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 second quarter ended June 30, 2020.

Net income for the quarter was $11.1 million compared to $11.4 million for the second quarter of 2019. After preferred dividends, net income available to common shareholders was $10.8 million for the quarter, or $0.67 per diluted share, compared to $11.0 million, or $0.69 per diluted share, for the second quarter of 2019.

Pre-tax pre-provision income(1) was $17.3 million for the quarter compared to $16.7 million for the second quarter of 2019.

President and Chief Executive Officer Martin K. Birmingham stated, “In our new normal of working together yet apart, we have delivered uninterrupted critical banking services to our customers. We implemented an array of actions for consumers and businesses, helping 1,700 small businesses and 18,000 small business employees through the Small Business Administration Payroll Protection Program (“PPP”) and thousands of consumers through our COVID-19 CARES relief efforts. This was accomplished with 65 percent of our associates working from home or at remote sites.

“We could not have accomplished this without a dedicated workforce. I thank all our associates for their continued commitment to our company, our customers, our communities and each other. They have worked diligently to deliver quality care to our customers in a challenging environment — adapting to new working environments and demonstrating our organization’s ability to efficiently operate in a fast-changing world.

“To provide enhanced digital capabilities during a time when many customers are hesitant or unable to visit a branch, we moved forward with the launch of our new digital banking platform. Now more than ever, consumers and businesses need the ability to do their banking anywhere and anytime and have access to a comprehensive overview of their finances in one convenient location. Five Star Bank Digital Banking represents a major upgrade from the previous platform, leveraging the latest technology to provide new features and financial tools that significantly enhance the digital banking experience for businesses and individuals. This platform was successfully rolled out during the second quarter.

“We also developed a re-entry plan. Our approach will be unique to each of our offices to keep customers and associates safe, the Bank resilient, support the community and remain responsive to direction from New York State and the Centers for Disease Control. We have proven during the pandemic that we are flexible, can work remotely and have the resiliency and redundancy to maintain services, and we will continue all of this as we move forward. We fully expect and are committed to maintaining remote access for the foreseeable future, and that will result in a less dense workplace and flexibility should the situation turn negative again. We were thoughtful going in at the start of this pandemic and are being thoughtful as we proceed.

“I am pleased that we were able to deliver strong net income and pre-tax pre-provision income in the quarter, despite headwinds. Our diversified revenue contributed to this outcome, as well as our efforts in helping existing and new customers obtain nearly $270 million of PPP loans in the quarter. The stability of our markets is also a strength for us in these challenging times.

“We believe our loan loss reserves, combined with strong levels of capital and liquidity, position us well to continue to deliver services to our customers in these unprecedented times. However, much uncertainty remains because of COVID-19 and the future impact it may have on the economy. We will pay close attention to conditions across our markets, the United States and the global economy to address any deterioration promptly.”

Digital Banking

During the second quarter of 2020, Five Star Bank completed the multi-phase launch of a new online and mobile platform — Five Star Bank Digital Banking. The new platform provides a single dashboard to make payments and deposits, transfer and send money, create budgets, set financial goals and easily integrate external investment, loan and other transactional accounts. Consumers can access a comprehensive financial tool to do all their banking from home, and business owners and employees who may be working remotely can also access powerful financial tools to assist with daily finances.

Enterprise Standardization Program

The Company’s enterprise standardization program is focused on improving operational efficiency and enhancing future profitability. On July 17, 2020, in connection with the program, Five Star Bank announced changes to adapt to a full-service branch model to streamline retail branches to better align with shifting customer needs and preferences. The transformation will result in six branch closures and a reduction in staffing.

The announcement was the result of a nine-month comprehensive assessment of all lines of business and functional areas, conducted in partnership with a leading process improvement organization. The data-driven analysis identified, among other things, overlapping service areas, automation opportunities and streamlining of processes and operations that would enhance customer experiences and facilitate the long-term sustainability of current and future branches.

The announced consolidations represent about ten percent of the branch network and impact approximately six percent of the total workforce. Where possible, those impacted were offered alternative roles or the opportunity to apply for open positions in other areas of the company. Separated associates will receive a comprehensive severance package based on tenure.

The enterprise standardization program has only partially concluded as we continue to evaluate activities and functions across the organization, focusing on ways to improve operational efficiency while enhancing the employee and customer experience.

Net Interest Income and Net Interest Margin

Net interest income was $34.2 million for the quarter, an increase of $1.1 million from the first quarter of 2020 and $1.7 million higher than the second quarter of 2019.

  • Average interest-earning assets for the quarter were $4.27 billion, $219.5 million higher than the first quarter of 2020 and $265.5 million higher than the second quarter of 2019. The increase was the result of loan growth, driven by PPP loans which had an average balance of $176.7 million for the quarter.
  • Net interest margin was 3.23%, eight basis points lower than the first quarter of 2020 and five basis points lower than the second quarter of 2019. The decline was primarily the result of lower yields on PPP loans, which negatively impacted the earning-assets yield by approximately six basis points.

Noninterest Income

Noninterest income was $9.8 million for the quarter compared to $10.0 million in the first quarter of 2020 and $9.2 million in the second quarter of 2019.

  • Service charges on deposits of $480 thousand was $1.1 million lower than the first quarter of 2020 and $1.3 million lower than the second quarter of 2019. The decreases are the result of the Company’s COVID-19 relief initiatives of waiving or eliminating fees, implemented on March 23, 2020.
  • Insurance income of $819 thousand was $530 thousand lower than the first quarter of 2020, primarily due to contingent revenue received in the first quarter each year. Insurance income was $53 thousand lower than the second quarter of 2019. 
  • Investment advisory fees of $2.3 million was $5 thousand higher than the first quarter of 2020 and $76 thousand lower than the second quarter of 2019. The decrease from the second quarter of 2019 was primarily the result of market volatility.
  • Investments in limited partnerships generated a loss of $244 thousand in the quarter compared to income of $213 thousand in the first quarter of 2020 and income of $144 thousand in the second quarter of 2019. 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 $1.9 million compared to $746 thousand in the first quarter of 2020 and a loss of $45 thousand in the second quarter of 2019. The increase as compared to both periods was primarily the result of an increase in the number and value of interest rate swap transactions executed.
  • A net gain on investment securities of $674 thousand was recognized in the quarter compared to a net gain of $221 thousand in the first quarter of 2020 and a net gain of $166 thousand in the second quarter of 2019. The net gain in the current quarter is attributable to the management of premium risk, largely achieved through the sale of $25.9 million of fixed rate mortgage backed securities with higher expected prepayment speeds. Proceeds were reinvested in current coupon bonds, with lower anticipated prepayment behavior.

Noninterest Expense

Noninterest expense was $26.7 million in the quarter compared to $27.7 million in the first quarter of 2020 and $25.0 million in the second quarter of 2019.

  • Salaries and employee benefits expense of $15.1 million was relatively unchanged from the first quarter of 2020 and $1.8 million higher than the second quarter of 2019. The increase from the prior year period is primarily the result of incentive compensation including producer incentives and commissions (approximately $530 thousand); a full quarter impact of annual merit increases (approximately $400 thousand); COVID-related incremental pay to front-line retail associates (approximately $310 thousand); expenses related to the departure of a senior officer (approximately $325 thousand) and higher medical expenses (approximately $200 thousand).
  • Professional services expense of $1.6 million was $572 thousand lower than the first quarter of 2020 and $648 thousand higher than the second quarter of 2019 primarily due to the timing of audit fees and fees for consulting and advisory projects, including fees related to the Bank’s derivative instruments program. Expenses related to the Company’s improvement initiatives totaled $353 thousand in the second quarter of 2020, $599 thousand in the first quarter of 2020 and $130 thousand in the second quarter of 2019.
  • FDIC assessments were $539 thousand in the quarter compared to $372 in the first quarter of 2020 and $486 thousand in the second quarter of 2019. In 2018, the FDIC minimum reserve ratio was exceeded, resulting in credits. A credit of $70 thousand was used in the first quarter of 2020.
  • Advertising and promotions expense of $545 thousand was relatively unchanged from the first quarter of 2020 and $541 thousand lower than the second quarter of 2019. Advertising activity was reduced in March 2020 when the COVID-19 pandemic impacted operations in Western New York.
  • Other expense of $2.1 million was $288 lower than the first quarter of 2020 and $695 thousand lower than the second quarter of 2019 primarily because of lower education, travel and business development expenses as a result of stay-at-home orders, combined with lower expenses incurred in connection with indirect consumer lending activity, which was significantly lower in the second quarter of 2020.

Income Taxes

Income tax expense was $2.4 million for the quarter compared to $322 thousand for the first quarter of 2020 and $2.9 million for the second quarter of 2019. The effective tax rate was 18.0% for the quarter compared to 22.2% for the first quarter of 2020 and 20.5% for the second quarter of 2019. The Company’s effective tax rates differ from statutory rates because of interest income from tax-exempt securities, earnings on company owned life insurance and the impact of tax credit investments. 

Balance Sheet and Capital Management

Total assets were $4.68 billion at June 30, 2020, up $209.2 million from March 31, 2020, and up $367.0 million from June 30, 2019.

Investment securities were $779.3 million at June 30, 2020, down $11.8 million from March 31, 2020, and down $25.8 million from June 30, 2019. The Company’s 2020 investment strategy has been to reinvest cash flow from the portfolio; however, the Bank experienced notable municipal maturities and a slight increase in prepayment behavior during the quarter which limited full reinvestment, resulting in a decline in total investment securities during the quarter. The remaining decrease from June 30, 2019, was primarily the result of the redeployment of assets from investment securities into loans to improve the interest-earning asset mix.

Total loans were $3.49 billion at June 30, 2020, up $248.6 million, or 7.7%, from March 31, 2020, and up $334.1 million, or 10.6%, from June 30, 2019. Second quarter closings of PPP loans totaled $268.5 million. The loans carry a 1% interest rate and the Company recorded net PPP loan origination fees of approximately $7.7 million which are being amortized over a 24-month period.

  • Commercial business loans totaled $818.7 million, up $229.8 million, or 39.0%, from March 31, 2020, and up $223.8 million, or 37.6%, from June 30, 2019. Increases were driven by PPP loans; at June 30, 2020, the PPP loan balance was $261.5 million, net of deferred fees. The increase from March 31, 2020 was partially offset by a decrease in commercial lines of credit that experienced draws late in the first quarter, at the onset of the U.S. COVID-19 pandemic.
  • Commercial mortgage loans totaled $1.14 billion, up $33.0 million, or 3.0%, from March 31, 2020, and up $130.3 million, or 12.9%, from June 30, 2019.
  • Residential real estate loans totaled $585.0 million, up $5.2 million, or 0.9%, from March 31, 2020, and up $39.0 million, or 7.1%, from June 30, 2019.
  • Consumer indirect loans totaled $828.1 million, down $15.6 million, or 1.8%, from March 31, 2020 and down $48.0 million, or 5.5%, from June 30, 2019.

Total deposits were $3.99 billion at June 30, 2020, $206.8 million higher than March 31, 2020, and $522.0 million higher than June 30, 2019. The increase from March 31, 2020, was driven by growth in non-public demand and savings, partially offset by a decrease in public deposits due to the seasonality of municipal deposits. Growth in non-public deposits was in part attributable to PPP loan proceeds received by customers. The increase from June 30, 2019 was driven by growth in non-public deposits and the reciprocal deposit portfolio. Public deposit balances represented 23% of total deposits at June 30, 2020, compared to 27% of total deposits at March 31, 2020, and 26% at June 30, 2019.

Short-term borrowings were $105.3 million at June 30, 2020, a decrease of $4.2 million from March 31, 2020 and a decrease of $203.2 million from June 30, 2019. The lower level of short-term borrowings at June 30, 2020, is attributable to growth in non-public deposits, reducing the need to utilize short-term borrowings as a funding source. Short-term borrowings and brokered deposits have historically been utilized to manage the seasonality of public deposits, which reached a seasonal low point during the second quarter. In February 2020, the Company entered a long-term brokered sweep arrangement as a stable alternative borrowing source to diversify the wholesale borrowing base.

Shareholders’ equity was $448.0 million at June 30, 2020, compared to $439.4 million at March 31, 2020, and $422.4 million at June 30, 2019. Common book value per share was $26.86 at June 30, 2020, an increase of $0.51 or 1.9% from $26.35 at March 31, 2020, and an increase of $1.54 or 6.1% from $25.32 at June 30, 2019. Tangible common book value per share(1) was $22.22 at June 30, 2020, an increase of $0.53 or 2.4% from $21.69 at March 31, 2020, and an increase of $1.62 or 7.9% from $20.60 at June 30, 2019.

During the second quarter of 2020, the Company declared a common stock dividend of $0.26 per common share. The dividend returned 39% of second quarter net income to common shareholders.

The Company’s regulatory capital ratios at June 30, 2020, compared to the prior quarter and prior year:

  • Leverage Ratio was 8.49%, compared to 8.78% and 8.55% at March 31, 2020, and June 30, 2019, respectively.
  • Common Equity Tier 1 Capital Ratio was 10.27%, compared to 10.05% and 9.95% at March 31, 2020, and June 30, 2019, respectively.
  • Tier 1 Capital Ratio was 10.76%, compared to 10.53% and 10.45% at March 31, 2020, and June 30, 2019, respectively.
  • Total Risk-Based Capital Ratio was 12.83%, compared to 12.54% and 12.57% at March 31, 2020, and June 30, 2019, respectively.

Credit Quality

Non-performing loans were $13.2 million at June 30, 2020, compared to $12.4 million at March 31, 2020, and $11.5 million at June 30, 2019. Net charge-offs were $786 thousand in the quarter, $9.4 million lower than the first quarter of 2020 and $461 thousand lower than the second quarter of 2019. The decrease from the first quarter of 2020 is primarily attributable to one commercial credit that was partially charged-off during the first quarter of 2020. The borrower’s business was related to the hospitality industry and the charge-off was precipitated by the impact of COVID-19. The ratio of annualized net charge-offs to total average loans was 0.09% in the quarter, 1.27% in the first quarter of 2020 and 0.16% in the second quarter of 2019.

The Company adopted CECL effective January 1, 2020, which resulted in an increase to the allowance for credit losses - loans of $9.6 million and established a reserve for unfunded commitments of $2.1 million, for a total pre-tax cumulative effect adjustment of $11.7 million.

At June 30, 2020, the allowance for credit losses - loans to total loans ratio was 1.33% compared to 1.34% at March 31, 2020, and 1.09% at June 30, 2019. The PPP loans are fully guaranteed by the Small Business Administration. Excluding PPP loans, the allowance for credit losses – loans to total loans ratio was 1.44% at June 30, 2020. The provision for credit losses was $3.7 million in the quarter compared to $13.9 million in the first quarter of 2020 and $2.4 million in the second quarter of 2019. Higher provisioning in 2020 reflects higher charge-offs in the first quarter of 2020 and deterioration in the economic environment as a result of the impact of COVID-19, which adversely impacted our unemployment forecast, the designated loss driver for our CECL model.

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 0.38% at June 30, 2020, unchanged from March 31, 2020, and two basis points higher than 0.36% at June 30, 2019. The ratio of allowance for credit losses on loans to non-performing loans was 351% at June 30, 2020, compared to 350% at March 31, 2020, and 300% at June 30, 2019.

Conference Call

The Company will host an earnings conference call and audio webcast on July 30, 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 650 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 impact of the COVID-19 pandemic on the Company’s customers, business, and results of operations as well as the economy in Western New York and the United States, 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)

  2020  2019 
  June 30,  March 31,  December 31,  September 30,  June 30, 
SELECTED BALANCE SHEET DATA:                    
Cash and cash equivalents $119,610  $152,168  $112,947  $136,815  $108,988 
Investment securities:                    
Available for sale  469,413   444,845   417,917   395,441   406,509 
Held-to-maturity, net  309,872   346,239   359,000   386,305   398,610 
Total investment securities  779,285   791,084   776,917   781,746   805,119 
Loans held for sale  6,654   3,822   4,224   6,398   2,045 
Loans:                    
Commercial business  818,691   588,868   572,040   574,455   594,923 
Commercial mortgage  1,140,326   1,107,376   1,106,283   1,035,450   1,010,071 
Residential real estate loans  585,035   579,800   572,350   558,656   546,031 
Residential real estate lines  97,427   102,113   104,118   107,615   108,006 
Consumer indirect  828,105   843,668   850,052   863,614   876,116 
Other consumer  16,237   15,402   16,144   16,630   16,537 
Total loans  3,485,821   3,237,227   3,220,987   3,156,420   3,151,684 
Allowance for credit losses - loans  46,316   43,356   30,482   31,668   34,434 
Total loans, net  3,439,505   3,193,871   3,190,505   3,124,752   3,117,250 
Total interest-earning assets  4,314,490   4,116,688   4,058,107   3,979,493   4,007,797 
Goodwill and other intangible assets, net  74,342   74,629   74,923   75,225   75,534 
Total assets  4,680,930   4,471,768   4,384,178   4,332,737   4,313,945 
Deposits:                    
Noninterest-bearing demand  1,008,958   732,917   707,752   755,296   719,150 
Interest-bearing demand  727,676   724,670   627,842   707,153   677,846 
Savings and money market  1,368,805   1,270,253   1,039,892   1,011,873   966,509 
Time deposits  888,569   1,059,345   1,180,189   1,111,892   1,108,484 
Total deposits  3,994,008   3,787,185   3,555,675   3,586,214   3,471,989 
Short-term borrowings  105,300   109,500   275,500   211,400   308,500 
Long-term borrowings, net  39,308   39,291   39,273   39,255   39,237 
Total interest-bearing liabilities  3,129,658   3,203,059   3,162,696   3,081,573   3,100,576 
Shareholders’ equity  448,045   439,393   438,947   432,617   422,354 
Common shareholders’ equity  430,717   422,065   421,619   415,289   405,026 
Tangible common equity (1)  356,375   347,436   346,696   340,064   329,492 
Accumulated other comprehensive loss $(496) $(2,082) $(14,513) $(11,734) $(13,160)
                     
Common shares outstanding  16,038   16,020   16,003   15,997   15,995 
Treasury shares  62   80   97   103   105 
CAPITAL RATIOS AND PER SHARE DATA:                    
Leverage ratio  8.49%  8.78%  9.00%  8.86%  8.55%
Common equity Tier 1 capital ratio  10.27%  10.05%  10.31%  10.06%  9.95%
Tier 1 capital ratio  10.76%  10.53%  10.80%  10.55%  10.45%
Total risk-based capital ratio  12.83%  12.54%  12.77%  12.57%  12.57%
Common equity to assets  9.20%  9.44%  9.62%  9.58%  9.39%
Tangible common equity to tangible assets (1)  7.74%  7.90%  8.05%  7.99%  7.77%
                     
Common book value per share $26.86  $26.35  $26.35  $25.96  $25.32 
Tangible common book value per share (1) $22.22  $21.69  $21.66  $21.26  $20.60 

                

(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)

  Six Months Ended  2020  2019 
  June 30,  Second  First  Fourth  Third  Second 
  2020  2019  Quarter  Quarter  Quarter  Quarter  Quarter 
SELECTED INCOME STATEMENT                            
DATA:                            
Interest income $81,412  $84,162  $39,759  $41,653  $42,179  $42,459  $42,648 
Interest expense  14,107   19,906   5,578   8,529   9,006   9,976   10,184 
Net interest income  67,305   64,256   34,181   33,124   33,173   32,483   32,464 
Provision for credit losses  17,661   3,547   3,746   13,915   2,653   1,844   2,354 
Net interest income after provision
  for credit losses
  49,644   60,709   30,435   19,209   30,520   30,639   30,110 
Noninterest income:                            
Service charges on deposits  2,067   3,436   480   1,587   1,880   1,925   1,756 
Insurance income  2,168   2,250   819   1,349   881   1,439   872 
ATM and debit card  3,378   3,182   1,776   1,602   1,796   1,801   1,739 
Investment advisory  4,497   4,543   2,251   2,246   2,375   2,269   2,327 
Company owned life insurance  927   834   462   465   465   459   424 
Investments in limited partnerships  (31)  376   (244)  213   (140)  116   144 
Loan servicing  57   214   50   7   116   102   104 
Income (loss) from derivative                            
instruments, net  2,686   123   1,940   746   1,261   890   (45)
Net gain on sale of loans held for sale  1,035   589   731   304   324   439   407 
Net gain (loss) on investment securities  895   113   674   221   (44)  1,608   166 
Net gain (loss) on other assets  63   58   (1)  64   (27)  (2)  9 
Net loss on tax credit investments  (80)  -   (40)  (40)  (528)  -   - 
Other  2,132   2,635   934   1,198   1,308   1,315   1,330 
Total noninterest income  19,794   18,353   9,832   9,962   9,667   12,361   9,233 
Noninterest expense:                            
Salaries and employee benefits  30,088   27,250   15,074   15,014   14,669   14,411   13,249 
Occupancy and equipment (1)  7,144   6,725   3,388   3,756   3,446   3,381   3,252 
Professional services  3,732   2,090   1,580   2,152   1,806   1,528   932 
Computer and data processing (1)  5,372   4,760   2,699   2,673   2,576   2,647   2,424 
Supplies and postage  1,070   1,032   517   553   482   522   498 
FDIC assessments  911   998   539   372   -   7   486 
Advertising and promotions  1,100   1,606   545   555   1,226   745   1,086 
Amortization of intangibles  581   639   287   294   302   309   316 
Other  4,418   5,074   2,065   2,353   2,261   2,336   2,760 
Total noninterest expense  54,416   50,174   26,694   27,722   26,768   25,886   25,003 
Income before income taxes  15,022   28,888   13,573   1,449   13,419   17,114   14,340 
Income tax expense  2,763   5,966   2,441   322   312   4,281   2,939 
Net income  12,259   22,922   11,132   1,127   13,107   12,833   11,401 
Preferred stock dividends  731   731   366   365   365   365   366 
Net income available to common                            
shareholders $11,528  $22,191  $10,766  $762  $12,742  $12,468  $11,035 
FINANCIAL RATIOS:                            
Earnings per share – basic $0.72  $1.39  $0.67  $0.05  $0.80  $0.78  $0.69 
Earnings per share – diluted $0.72  $1.39  $0.67  $0.05  $0.79  $0.78  $0.69 
Cash dividends declared on common stock $0.52  $0.50  $0.26  $0.26  $0.25  $0.25  $0.25 
Common dividend payout ratio  72.22%  35.97%  38.81%  520.00%  31.25%  32.05%  36.23%
Dividend yield (annualized)  5.62%  3.46%  5.60%  5.76%  3.09%  3.29%  3.44%
Return on average assets  0.55%  1.08%  0.97%  0.10%  1.21%  1.19%  1.06%
Return on average equity  5.56%  11.32%  10.05%  1.03%  11.88%  11.86%  11.01%
Return on average common equity  5.44%  11.45%  10.11%  0.72%  12.02%  12.00%  11.12%
Return on average tangible common                            
equity (2)  6.60%  14.21%  12.25%  0.88%  14.64%  14.69%  13.73%
Efficiency ratio (3)  62.78%  60.39%  61.26%  64.31%  62.05%  59.52%  59.79%
Effective tax rate  18.4%  20.7%  18.0%  22.2%  2.3%  25.0%  20.5%

                

 1)  Beginning in the first quarter of 2020, software service contracts and software amortization are classified as computer and data processing expense. Previously, they were included in occupancy and equipment expense. Prior periods have been reclassified to conform to the current presentation.
  (2)See Appendix A – Reconciliation to Non-GAAP Financial Measures for the computation of this Non-GAAP measure.
  (3) 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)

  Six Months Ended  2020  2019 
  June 30,  Second  First  Fourth  Third  Second 
  2020  2019  Quarter  Quarter  Quarter  Quarter  Quarter 
SELECTED AVERAGE BALANCES:                            
Federal funds sold and interest-
  earning deposits
 $75,761  $18,050  $92,214  $59,309  $32,494  $19,370  $18,145 
Investment securities (1)  773,265   866,138   766,636   779,894   774,520   785,595   845,624 
Loans:                            
Commercial business  664,237   562,618   757,588   570,886   567,998   586,293   577,884 
Commercial mortgage  1,117,247   994,271   1,133,832   1,100,660   1,073,527   1,021,931   1,010,544 
Residential real estate loans  580,029   534,986   581,651   578,407   566,256   553,382   540,390 
Residential real estate lines  101,111   108,673   99,543   102,680   106,011   107,290   107,826 
Consumer indirect  836,915   901,556   827,030   846,800   856,823   868,927   891,967 
Other consumer  15,310   15,972   15,155   15,466   16,100   16,141   15,721 
Total loans  3,314,849   3,118,076   3,414,799   3,214,899   3,186,715   3,153,964   3,144,332 
Total interest-earning assets  4,163,875   4,002,264   4,273,649   4,054,102   3,993,729   3,958,929   4,008,101 
Goodwill and other intangible
  assets, net
  74,651   75,871   74,504   74,797   75,093   75,401   75,711 
Total assets  4,500,243   4,291,670   4,624,360   4,376,125   4,299,342   4,260,810   4,300,254 
Interest-bearing liabilities:                            
Interest-bearing demand  689,917   664,577   712,300   667,533   660,738   632,540   660,747 
Savings and money market  1,236,630   981,439   1,329,632   1,143,628   1,014,434   956,410   996,878 
Time deposits  1,050,784   1,086,670   984,832   1,116,736   1,120,823   1,099,212   1,096,544 
Short-term borrowings  140,049   334,939   110,272   169,827   241,557   328,952   323,461 
Long-term borrowings, net  39,288   39,218   39,297   39,279   39,262   39,244   39,227 
Total interest-bearing liabilities  3,156,668   3,106,843   3,176,333   3,137,003   3,076,814   3,056,358   3,116,857 
Noninterest-bearing demand deposits  817,106   720,727   912,238   721,975   725,590   717,473   714,205 
Total deposits  3,794,437   3,453,413   3,939,002   3,649,872   3,521,585   3,405,635   3,468,374 
Total liabilities  4,056,915   3,883,446   4,178,921   3,934,909   3,861,542   3,831,409   3,884,843 
Shareholders’ equity  443,328   408,224   445,439   441,216   437,800   429,401   415,411 
Common equity  426,000   390,896   428,111   423,888   420,472   412,073   398,083 
Tangible common equity (2) $351,349  $315,025  $353,607  $349,091  $345,379  $336,672  $322,372 
Common shares outstanding:                            
Basic  16,012   15,950   16,018   16,006   15,995   15,991   15,970 
Diluted  16,058   15,997   16,047   16,069   16,072   16,056   16,015 
SELECTED AVERAGE YIELDS:
(Tax equivalent basis)
                            
Investment securities  2.48%  2.38%  2.49%  2.48%  2.40%  2.40%  2.38%
Loans  4.37%  4.80%  4.14%  4.61%  4.70%  4.77%  4.82%
Total interest-earning assets  3.95%  4.26%  3.76%  4.15%  4.22%  4.29%  4.29%
Interest-bearing demand  0.17%  0.21%  0.14%  0.21%  0.21%  0.22%  0.21%
Savings and money market  0.43%  0.43%  0.31%  0.56%  0.48%  0.44%  0.44%
Time deposits  1.62%  2.12%  1.39%  1.83%  1.94%  2.12%  2.17%
Short-term borrowings  1.69%  2.71%  1.03%  2.11%  2.21%  2.51%  2.71%
Long-term borrowings, net  6.29%  6.30%  6.29%  6.29%  6.29%  6.30%  6.30%
Total interest-bearing liabilities  0.90%  1.29%  0.71%  1.09%  1.16%  1.30%  1.31%
Net interest rate spread  3.05%  2.97%  3.05%  3.06%  3.06%  2.99%  2.98%
Net interest margin  3.27%  3.26%  3.23%  3.31%  3.33%  3.29%  3.28%

                

 

 (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)

  Six Months Ended  2020  2019 
  June 30,  Second  First  Fourth  Third  Second 
  2020  2019  Quarter  Quarter  Quarter  Quarter  Quarter 
ASSET QUALITY DATA:                            
Allowance for Credit Losses - Loans                            
Beginning balance, prior to adoption of CECL $30,482  $33,914  $43,356  $30,482  $31,668  $34,434  $33,327 
Impact of adopting CECL  9,594   -   -   9,594   -   -   - 
Beginning balance, after adoption of CECL  40,076   33,914   43,356   40,076   31,668   34,434   33,327 
Net loan charge-offs (recoveries):                            
Commercial business  6,725   37   (1,458)  8,183   1,942   10   10 
Commercial mortgage  1,072   (14)  1,072   -   -   2,994   3 
Residential real estate loans  82   101   (6)  88   156   40   76 
Residential real estate lines  (3)  (3)  -   (3)  3   7   (1)
Consumer indirect  2,931   2,580   1,175   1,756   1,523   1,317   1,022 
Other consumer  122   326   3   119   215   242   137 
Total net charge-offs  10,929   3,027   786   10,143   3,839   4,610   1,247 
Provision for credit losses - loans  17,169   3,547   3,746   13,423   2,653   1,844   2,354 
Ending balance $46,316  $34,434  $46,316  $43,356  $30,482  $31,668  $34,434 
                             
Net charge-offs (recoveries)
  to average loans (annualized):
                            
Commercial business  2.04%  0.01%  -0.77%  5.77%  1.36%  0.01%  0.01%
Commercial mortgage  0.19%  0.00%  0.38%  0.00%  0.00%  1.16%  0.00%
Residential real estate loans  0.03%  0.04%  0.00%  0.06%  0.11%  0.03%  0.06%
Residential real estate lines  -0.01%  -0.01%  0.00%  -0.01%  0.01%  0.03%  -0.01%
Consumer indirect  0.70%  0.58%  0.57%  0.83%  0.71%  0.60%  0.46%
Other consumer  1.60%  4.12%  0.08%  3.09%  5.30%  5.93%  3.51%
Total loans  0.66%  0.20%  0.09%  1.27%  0.48%  0.58%  0.16%
                             
Supplemental information (1)                            
Non-performing loans:                            
Commercial business $4,918  $638  $4,918  $5,507  $1,177  $2,884  $638 
Commercial mortgage  4,140   6,836   4,140   2,984   3,146   2,867   6,836 
Residential real estate loans  2,992   2,283   2,992   1,971   2,484   2,526   2,283 
Residential real estate lines  177   282   177   143   102   182   282 
Consumer indirect  868   1,399   868   1,777   1,725   1,326   1,399 
Other consumer  87   25   87   2   6   3   25 
Total non-performing loans  13,182   11,463   13,182   12,384   8,640   9,788   11,463 
Foreclosed assets  679   37   679   749   468   91   37 
Total non-performing assets $13,861  $11,500  $13,861  $13,133  $9,108  $9,879  $11,500 
                             
Total non-performing loans
  to total loans
  0.38%  0.36%  0.38%  0.38%  0.27%  0.31%  0.36%
Total non-performing assets
  to total assets
  0.30%  0.27%  0.30%  0.29%  0.21%  0.23%  0.27%
Allowance for credit losses - loans
  to total loans
  1.33%  1.09%  1.33%  1.34%  0.95%  1.00%  1.09%
Allowance for credit losses - loans
  to non-performing loans
  351%  300%  351%  350%  353%  324%  300%

                
     (1)       At period end.


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

(In thousands, except per share amounts)

  Six Months Ended  2020  2019 
  June 30,  Second  First  Fourth  Third  Second 
  2020  2019  Quarter  Quarter  Quarter  Quarter  Quarter 
Ending tangible assets:                            
Total assets         $4,680,930  $4,471,768  $4,384,178  $4,332,737  $4,313,945 
Less: Goodwill and other intangible
  assets, net
          74,342   74,629   74,923   75,225   75,534 
Tangible assets         $4,606,588  $4,397,139  $4,309,255  $4,257,512  $4,238,411 
                             
Ending tangible common equity:                            
Common shareholders’ equity         $430,717  $422,065  $421,619  $415,289  $405,026 
Less: Goodwill and other intangible
  assets, net
          74,342   74,629   74,923   75,225   75,534 
Tangible common equity         $356,375  $347,436  $346,696  $340,064  $329,492 
                             
Tangible common equity to tangible
  assets (1)
          7.74%  7.90%  8.05%  7.99%  7.77%
                             
Common shares outstanding          16,038   16,020   16,003   15,997   15,995 
Tangible common book value per
   share (2)
         $22.22  $21.69  $21.66  $21.26  $20.60 
                             
Average tangible assets:                            
Average assets $4,500,243  $4,291,670  $4,624,360  $4,376,125  $4,299,342  $4,260,810  $4,300,254 
Less: Average goodwill and other
  intangible assets, net
  74,651   75,871   74,504   74,797   75,093   75,401   75,711 
Average tangible assets $4,425,592  $4,215,799  $4,549,856  $4,301,328  $4,224,249  $4,185,409  $4,224,543 
                             
Average tangible common equity:                            
Average common equity $426,000  $390,896  $428,111  $423,888  $420,472  $412,073  $398,083 
Less: Average goodwill and other
  intangible assets, net
  74,651   75,871   74,504   74,797   75,093   75,401   75,711 
Average tangible common equity $351,349  $315,025  $353,607  $349,091  $345,379  $336,672  $322,372 
                             
Net income available to
  common shareholders
 $11,528  $22,191  $10,766  $762  $12,742  $12,468  $11,035 
Return on average tangible common
  equity (3)
  6.60%  14.21%  12.25%  0.88%  14.64%  14.69%  13.73%
                             
Pre-tax pre-provision income:                            
Net income $12,259  $22,922  $11,132  $1,127  $13,107  $12,833  $11,401 
Add: Income tax expense  2,763   5,966   2,441   322   312   4,281   2,939 
Add: Provision for credit losses  17,661   3,547   3,746   13,915   2,653   1,844   2,354 
Pre-tax pre-provision income $32,683  $32,435  $17,319  $15,364  $16,072  $18,958  $16,694 

                

 (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.

 


Financial Institutions logo

Source: Financial Institutions, Inc.