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Financial Institutions, Inc. Announces First Quarter 2018 Results

WARSAW, N.Y., April 26, 2018 (GLOBE NEWSWIRE) -- Financial Institutions, Inc. (Nasdaq:FISI), today reported financial and operational results for the first quarter ended March 31, 2018.  Financial Institutions, Inc. (the “Company”) is the parent company of Five Star Bank (the “Bank”), Scott Danahy Naylon, LLC (“Scott Danahy Naylon” or “SDN”) and Courier Capital, LLC (“Courier Capital”).

Net income in the quarter was $9.3 million, 17% higher than $7.9 million in the first quarter of 2017. After preferred dividends, net income available to common shareholders was $8.9 million, or $0.56 per diluted share, compared to $7.6 million, or $0.52 per diluted share, in the first quarter of 2017.

President and Chief Executive Officer Martin K. Birmingham stated, “I am pleased with our first quarter results. We continued to make progress against our fundamental long-term strategic goals, generating loan and deposit growth in-line with our plan while maintaining a strong credit culture. Our wealth management and insurance businesses also performed well in the quarter and we are seeing improved synergies across our community financial services platform.  

“In February, we launched our new brand campaign designed to increase customer knowledge surrounding the services we offer in community banking, wealth management and insurance and to increase awareness of our brand in key urban growth markets. Our campaign tag line ‒ Today is tomorrow in progress ‒ reinforces our goal of providing solutions today that lead to financial well-being in the future. The campaign has been very well-received and early statistics indicate terrific growth in customer awareness and satisfaction.”

First Quarter 2018 Highlights:

  • Diluted earnings per share of $0.56 was $0.04, or 7.7%, higher than the first quarter of 2017  

  • Net interest income of $29.6 million was $2.6 million, or 9.8%, higher than the first quarter of 2017

  • Noninterest income of $9.0 million was $1.1 million, or 14.7%, higher than the first quarter of 2017

  • Return on average common equity was 9.95%

    -- Return on average tangible common equity was 12.52% (1)

  • Total assets, interest-earning assets, loans and deposits all reached record-high levels at quarter-end:

    -- Total assets increased $47.2 million during the quarter, to $4.15 billion

    -- Total interest-earning assets increased $36.2 million during the quarter, to $3.82 billion

    -- Total loans increased $58.2 million during the quarter, to $2.79 billion

    -- Total deposits increased $169.8 million during the quarter, to $3.38 billion

  • The Company declared a quarterly cash dividend of $0.24 per common share, a 9.1% increase from the most recent dividend. The first quarter dividend represented a 3.29% annualized yield as of March 31, 2018, and a return of ­­43% of first quarter net income to common shareholders

Chief Financial Officer Kevin B. Klotzbach added, “Loan growth was 2.1% in the quarter and relatively balanced across all loan categories with commercial business loans 3.1% higher, residential real estate loans 2.7% higher, consumer indirect loans 2.5% higher and commercial mortgage loans 1.5% higher than at December 31, 2017. Our credit quality remains strong with total non-performing loans to total loans at 0.38% at quarter-end. Our investment securities portfolio decreased by $29.3 million during the quarter as we continued to convert a portion of our marketable securities into loans.”

/EIN News/ -- Net Interest Income and Net Interest Margin

Net interest income was $29.6 million in the first quarter of 2018, $132 thousand lower than the fourth quarter of 2017 and $2.6 million higher than the first quarter of 2017.

  • Average interest-earning assets for the quarter were $3.80 billion, $59.8 million higher than the fourth quarter of 2017 and $320.7 million higher than the first quarter of 2017. The primary driver of the increase was organic loan growth.
  • Net interest margin for the first quarter of 2018 was 3.19%, six basis points lower than the fourth quarter of 2017 and four basis points lower than the first quarter of 2017. The tax-equivalent yield on municipal securities was lower in the quarter because of the reduction in federal income tax rate to 21% in 2018 from 35% in 2017, negatively impacting net interest margin compared to the prior year. Fourth quarter of 2017 net interest margin was positively impacted by approximately $300 thousand of fee income comprised of yield maintenance fees relating to prepayment of mortgage-backed securities and payment deferral program fees. First quarter of 2017 net interest margin benefitted from approximately $100 thousand of yield maintenance fees relating to prepayment of mortgage-backed securities. No such fees were recognized in the first quarter of 2018.

Noninterest Income

Noninterest income was $9.0 million in the first quarter of 2018, relatively unchanged as compared to the fourth quarter of 2017 and $1.1 million higher than the first quarter of 2017. 

  • Excluding the net gain on investment securities from all periods, noninterest income was $9.0 million in the first quarter of 2018, $657 thousand higher than $8.3 million in the fourth quarter of 2017, and $1.4 million higher than $7.6 million in the first quarter of 2017. 

  • The Company has made investments in limited partnerships, primarily small business investment companies, and accounts for these investments under the equity method. Income from investments in limited partnerships was $568 thousand in the first quarter of 2018 as compared to $19 thousand in the fourth quarter of 2017 and a loss of $30 thousand in the first quarter of 2017. Income from these investments fluctuates based on the maturity and performance of the underlying investments.

  • Investment advisory income was $1.8 million in the first quarter of 2018, $31 thousand higher than the fourth quarter of 2017 and $347 thousand higher than the first quarter of 2017. The increase over the prior year period was primarily driven by the third quarter of 2017 acquisition of the assets of a Buffalo-area wealth management firm.

Noninterest Expense

Noninterest expense was $24.1 million in the first quarter of 2018 as compared to $23.2 million in the fourth quarter of 2017 and $20.9 million in the first quarter of 2017.

  • Salaries and employee benefits expense of $13.4 million was $457 thousand higher than the fourth quarter of 2017 and $2.1 million higher than the first quarter of 2017 as a result of our organic growth initiatives and approximately $1.0 million of non-recurring expenses in the first quarter of 2018 related to senior management retirements at our insurance subsidiary, higher contingent incentive compensation related to our wealth management subsidiary as a result of expected earnout payment, and the payment of one-time awards to employees not covered by certain incentive programs.

  • Occupancy and equipment expense of $4.4 million was $349 thousand higher than the fourth quarter of 2017 and $443 thousand higher than the first quarter of 2017. The increase from the fourth quarter of 2017 was largely due to higher snow removal expense. The increase as compared to the first quarter of 2017 was primarily the result of the relocation of the Five Star Bank Rochester regional administration center in the first quarter of 2017 and the impact of a branch opening in February 2017.

  • Advertising and promotions expense of $977 thousand was $257 thousand higher than the fourth quarter of 2017 and $515 thousand higher than the first quarter of 2017 as a result of the new Five Star Bank brand campaign launched in February 2018. Advertising and promotions expense in 2017 was lower than historical experience in anticipation of the new campaign.

Income Taxes

Income tax expense was $2.3 million in the first quarter of 2018 as compared to $580 thousand in the fourth quarter of 2017 and $3.2 million in the first quarter of 2017.

  • The effective tax rate was 19.6% in the first quarter of 2018 as compared to 28.5% in the first quarter of 2017, reflecting lower federal corporate tax rates because of the Tax Cuts and Jobs Act (the “TCJ Act”).

  • The effective tax rate of 5.0% in the fourth quarter of 2017 was the result of a $2.9 million reduction in income tax expense due to the TCJ Act, primarily driven by a revaluation adjustment to the net deferred tax liability.

Balance Sheet and Capital Management

Total assets were $4.15 billion at March 31, 2018, up $47.2 million from $4.11 billion at December 31, 2017, and up $292.6 million from $3.86 billion at March 31, 2017. The increases were largely the result of loan growth funded by deposit growth and net proceeds from a 2017 common equity offering. Between May and November of 2017, the Company sold 1.4 million shares of common stock through an at-the-market offering (“2017 Equity Offering”) generating approximately $40.0 million of gross proceeds and $38.3 million of net proceeds.

Total loans were $2.79 billion at March 31, 2018, up $58.2 million, or 2.1%, from December 31, 2017, and up $390.6 million, or 16.3%, from March 31, 2017.

  • Commercial business loans totaled $464.1 million, up $13.8 million, or 3.1%, from December 31, 2017, and up $88.6 million, or 23.6%, from March 31, 2017.

  • Commercial mortgage loans totaled $821.1 million, up $12.2 million, or 1.5%, from December 31, 2017, and up $146.1 million, or 21.6%, from March 31, 2017.

  • Residential real estate loans totaled $477.9 million, up $12.7 million, or 2.7%, from December 31, 2017, and up $49.8 million, or 11.6%, from March 31, 2017.

  • Consumer indirect loans totaled $898.1 million, up $21.5 million, or 2.5%, from December 31, 2017, and up $112.0 million, or 14.2%, from March 31, 2017.

Total deposits were $3.38 billion at March 31, 2018, an increase of $169.8 million from December 31, 2017, and an increase of $210.4 million from March 31, 2017. The increase from December 31, 2017, was primarily due to public deposit seasonality. The increase from March 31, 2017, was primarily the result of successful business development efforts in both municipal and retail banking. Public deposit balances represented 29% of total deposits at March 31, 2018, compared to 26% at December 31, 2017 and 31% at March 31, 2017.

Shareholders’ equity was $380.3 million at March 31, 2018, compared to $381.2 million at December 31, 2017, and $325.7 million at March 31, 2017. Common book value per share was $22.83 at March 31, 2018, $22.85 at December 31, 2017, and $21.21 at March 31, 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 first quarter of 2018, the Company declared a common stock dividend of $0.24 per common share, a 9.1% increase from the most recent dividend. The dividend returned 43% of first quarter net income to common shareholders. 

Regulatory capital ratios at March 31, 2018, were slightly lower than December 31, 2017 ratios, primarily as a result of loan growth and higher asset levels. March 31, 2018 ratios were higher than March 31, 2017 ratios as a result of the 2017 Equity Offering:

  • Leverage Ratio was 8.11%, compared to 8.13% and 7.30% at December 31, 2017, and March 31, 2017, respectively.

  • Common Equity Tier 1 Capital Ratio was 10.09%, compared to 10.16% and 9.46% at December 31, 2017, and March 31, 2017, respectively.

  • Tier 1 Capital Ratio was 10.65%, compared to 10.74% and 10.11% at December 31, 2017, and March 31, 2017, respectively.

  • Total Risk-Based Capital Ratio was 13.09%, compared to 13.19% and 12.75% at December 31, 2017, and March 31, 2017, respectively.

Credit Quality

Non-performing loans were $10.7 million at March 31, 2018, compared to $12.5 million at December 31, 2017, and $8.0 million at March 31, 2017. The ratio of non-performing loans to total loans was 0.38% at March 31, 2018; 0.46% at December 31, 2017; and 0.33% at March 31, 2017.

Provision for loan losses was $2.9 million for the first quarter, a decrease of $1.0 million from the fourth quarter of 2017 and an increase of $168 thousand from the first quarter of 2017.

  • Net charge-offs were $2.0 million during the quarter, $1.6 million lower than the fourth quarter of 2017 and $607 thousand lower than the first quarter of 2017. The ratio of annualized net charge-offs to total average loans was 0.30% in the quarter; 0.54% in the fourth quarter of 2017; and 0.45% in the first quarter of 2017.

The ratio of allowance for loan losses to total loans was 1.27% at March 31, 2018, 1.27% at December 31, 2017, and 1.29% at March 31, 2017. 

Conference Call

The Company will host an earnings conference call and audio webcast on April 27, 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 1-888-317-6016 and requesting the Financial Institutions, Inc. (FISI) 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, Scott Danahy Naylon and Courier 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. Scott Danahy Naylon provides a broad range of insurance services to personal and business clients across 45 states. Courier Capital provides 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

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 Scott Danahy Naylon, Courier 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.

   
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:  KBKlotzbach@five-starbank.com   Email:  SJDoran@five-starbank.com 
     

(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)
 
    2018       2017  
  March 31,   December 31,   September 30,   June 30,   March 31,
SELECTED BALANCE SHEET DATA:                  
Cash and cash equivalents $ 122,914     $ 99,195     $ 97,838     $ 84,537     $ 149,699  
Investment securities:                  
  Available for sale   510,197       524,973       551,491       540,575       540,406  
  Held-to-maturity   501,905       516,466       538,332       533,471       545,381  
  Total investment securities   1,012,102       1,041,439       1,089,823       1,074,046       1,085,787  
Loans held for sale   1,523       2,718       2,407       1,864       2,097  
Loans:                  
  Commercial business   464,139       450,326       419,415       398,343       375,518  
  Commercial mortgage   821,091       808,908       757,987       724,064       675,007  
  Residential real estate loans   477,935       465,283       446,044       432,053       428,171  
  Residential real estate lines   115,346       116,309       117,621       118,611       120,874  
  Consumer indirect   898,099       876,570       857,528       826,708       786,120  
  Other consumer   16,654       17,621       17,640       17,093       16,937  
  Total loans   2,793,264       2,735,017       2,616,235       2,516,872       2,402,627  
  Allowance for loan losses   35,594       34,672       34,347       33,159       31,081  
  Total loans, net   2,757,670       2,700,345       2,581,888       2,483,713       2,371,546  
Total interest-earning assets   3,818,839       3,782,659       3,708,385       3,593,106       3,523,613  
Goodwill and other intangible assets, net   74,415       74,703       74,997       73,477       75,343  
Total assets   4,152,432       4,105,210       4,021,591       3,891,538       3,859,865  
Deposits:                  
  Noninterest-bearing demand   702,900       718,498       710,865       677,124       666,332  
  Interest-bearing demand   717,567       634,203       656,703       631,451       698,962  
  Savings and money market   1,052,270       1,005,317       1,050,487       999,125       1,069,901  
  Time deposits   907,272       852,156       863,453       824,786       734,464  
  Total deposits   3,380,009       3,210,174       3,281,508       3,132,486       3,169,659  
Short-term borrowings   327,600       446,200       310,800       347,500       303,300  
Long-term borrowings, net   39,149       39,131       39,114       39,096       39,078  
Total interest-bearing liabilities   3,043,858       2,977,007       2,920,557       2,841,958       2,845,705  
Shareholders’ equity   380,302       381,177       366,002       347,641       325,688  
Common shareholders’ equity   362,973       363,848       348,668       330,301       308,348  
Tangible common equity (1)   288,558       289,145       273,671       256,824       233,005  
Unrealized gain (loss) on investment securities,                  
  net of tax $ (8,503 )   $ (2,173 )   $ 17     $ (232 )   $ (1,938 )
                   
Common shares outstanding   15,901       15,925       15,626       15,127       14,536  
Treasury shares   155       131       136       137       156  
CAPITAL RATIOS AND PER SHARE DATA:                  
Leverage ratio   8.11 %     8.13 %     7.91 %     7.70 %     7.30 %
Common equity Tier 1 capital ratio   10.09 %     10.16 %     10.09 %     9.86 %     9.46 %
Tier 1 capital ratio   10.65 %     10.74 %     10.69 %     10.48 %     10.11 %
Total risk-based capital ratio   13.09 %     13.19 %     13.24 %     13.09 %     12.75 %
Common equity to assets   8.74 %     8.86 %     8.67 %     8.49 %     7.99 %
Tangible common equity to tangible assets (1)   7.08 %     7.17 %     6.93 %     6.73 %     6.16 %
                   
Common book value per share $ 22.83     $ 22.85     $ 22.31     $ 21.84     $ 21.21  
Tangible common book value per share (1) $ 18.15     $ 18.16     $ 17.51     $ 16.98     $ 16.03  
Stock price (Nasdaq: FISI):                  
  High $ 33.00     $ 34.10     $ 31.15     $ 35.35     $ 35.40  
  Low $ 29.50     $ 28.70     $ 25.65     $ 29.09     $ 30.50  
  Close $ 29.60     $ 31.10     $ 28.80     $ 29.80     $ 32.95  

________
(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)
 
  2018   2017
  First   Fourth   Third   Second   First
  Quarter   Quarter   Quarter   Quarter   Quarter
SELECTED INCOME STATEMENT DATA:                  
Interest income $ 35,403     $ 34,767     $ 33,396     $ 31,409     $ 30,538  
Interest expense   5,775       5,007       4,958       3,987       3,543  
  Net interest income   29,628       29,760       28,438       27,422       26,995  
Provision for loan losses   2,949       3,946       2,802       3,832       2,781  
  Net interest income after provision                  
  for loan losses   26,679       25,814       25,636       23,590       24,214  
Noninterest income:                  
  Service charges on deposits   1,738       1,905       1,901       1,840       1,745  
  Insurance income   1,399       1,214       1,488       1,133       1,431  
  ATM and debit card   1,421       1,491       1,445       1,456       1,329  
  Investment advisory   1,778       1,747       1,497       1,429       1,431  
  Company owned life insurance   450       414       449       473       445  
  Investments in limited partnerships   568       19       (14 )     135       (30 )
  Loan servicing   115       91       105       123       120  
  Net gain on sale of loans held for sale   96       106       150     72       48  
  Net gain on investment securities   -       660       184       210       206  
  Net (loss) gain on other assets   3       12       21       6       (2 )
  Contingent consideration liability adjustment   -       -       -       1,200       -  
  Other   1,416       1,328       1,348       1,256       1,113  
  Total noninterest income   8,984       8,987       8,574       9,333       7,836  
Noninterest expense:                  
  Salaries and employee benefits   13,429       12,972       12,348       11,986       11,369  
  Occupancy and equipment   4,407       4,058       4,087       4,184       3,964  
  Professional services   883       854       1,157       1,057       1,015  
  Computer and data processing   1,235       1,244       1,208       1,312       1,171  
  Supplies and postage   512       507       492       467       537  
  FDIC assessments   508       451       440       469       457  
  Advertising and promotions   977       720       344       645       462  
  Amortization of intangibles   288       294       288       291       297  
  Goodwill impairment   -       -       -       1,575       -  
  Other   1,868       2,063       2,103       1,955       1,670  
  Total noninterest expense   24,107       23,163       22,467       23,941       20,942  
  Income before income taxes   11,556       11,638       11,743     8,982       11,108  
Income tax expense   2,268       580       3,464       2,736       3,165  
  Net income   9,288       11,058       8,279       6,246       7,943  
Preferred stock dividends   365       365       366       366       365  
Net income available to common shareholders $ 8,923     $ 10,693     $ 7,913     $ 5,880     $  7,578   
FINANCIAL RATIOS:                  
Earnings per share – basic $ 0.56     $ 0.68     $ 0.52     $ 0.40     $ 0.52  
Earnings per share – diluted $ 0.56     $ 0.68     $ 0.52     $ 0.40     $ 0.52  
Cash dividends declared on common stock $ 0.24     $ 0.22     $ 0.21     $ 0.21     $ 0.21  
Common dividend payout ratio   42.86 %     32.35 %     40.38 %     52.50 %     40.38 %
Dividend yield (annualized)   3.29 %     2.81 %     2.89 %     2.83 %     2.58 %
Return on average assets   0.92 %     1.09 %     0.83 %     0.65 %     0.86 %
Return on average equity   9.89 %     11.72 %     9.17 %     7.44 %     9.94 %
Return on average common equity   9.95 %     11.88 %     9.21 %     7.38 %     10.02 %
Return on average tangible common equity (1)   12.52 %     15.03 %     11.76 %     9.65 %     13.30 %
Efficiency ratio (2)   61.85 %     59.62 %     59.75 %     64.10 %     59.09 %
Effective tax rate   19.6 %     5.0 %     29.5 %     30.5 %     28.5 %

________
(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)
 
    2018       2017  
  First   Fourth   Third   Second   First
  Quarter   Quarter   Quarter   Quarter   Quarter
SELECTED AVERAGE BALANCES:                  
Federal funds sold and interest-earning deposits $ 667     $ 1,693     $ -     $ 16,639     $ 10,078  
Investment securities (1)   1,034,830       1,073,170       1,096,374       1,085,670       1,090,063  
Loans:                  
  Commercial business   453,250       429,831       405,308       385,938       363,367  
  Commercial mortgage   821,311       778,765       752,634       700,010       678,613  
  Residential real estate loans   470,612       455,641       438,436       430,237       429,746  
  Residential real estate lines   115,614       116,731       117,597       119,333       121,594  
  Consumer indirect   885,723       865,735       841,081       802,379       767,887  
  Other consumer   16,978       17,618       17,184       16,680       16,956  
  Total loans   2,763,488       2,664,321       2,572,240       2,454,577       2,378,163  
Total interest-earning assets   3,798,985       3,739,184       3,668,614       3,556,886       3,478,304  
Goodwill and other intangible assets, net   74,577       74,866       73,960       74,954       75,508  
Total assets   4,086,633       4,028,063       3,951,002       3,847,137       3,754,470  
Interest-bearing liabilities:                  
  Interest-bearing demand   671,991       655,207       612,401       651,485       634,141  
  Savings and money market   1,012,574       1,051,367       998,769       1,054,997       1,030,363  
  Time deposits   857,184       863,770       855,371       762,874       721,404  
  Short-term borrowings   411,760       316,894       385,512       323,562       327,195  
  Long-term borrowings, net   39,138       39,121       39,103       39,085       39,067  
  Total interest-bearing liabilities   2,992,647       2,926,359       2,891,156       2,832,003       2,752,170  
Noninterest-bearing demand deposits   688,123       703,560       679,303       658,926       657,190  
Total deposits   3,229,872       3,273,904       3,145,844       3,128,282       3,043,098  
Total liabilities   3,705,782       3,653,655       3,592,685       3,510,410       3,430,504  
Shareholders’ equity   380,851       374,408       358,317       336,727       323,966  
Common equity   363,523       357,079       340,981       319,387       306,626  
Tangible common equity (2) $ 288,946     $ 282,213     $ 267,021     $ 244,433     $ 231,118  
Common shares outstanding:                  
  Basic   15,890       15,749       15,268       14,664       14,479  
  Diluted   15,941       15,793       15,302       14,702       14,528  
SELECTED AVERAGE YIELDS:                  
(Tax equivalent basis)                  
Investment securities   2.32 %     2.53 %     2.45 %     2.47 %     2.46 %
Loans   4.36 %     4.29 %     4.24 %     4.16 %     4.19 %
Total interest-earning assets   3.80 %     3.78 %     3.71 %     3.63 %     3.64 %
Interest-bearing demand   0.12 %     0.14 %     0.14 %     0.14 %     0.14 %
Savings and money market   0.18 %     0.16 %     0.15 %     0.14 %     0.13 %
Time deposits   1.33 %     1.21 %     1.15 %     1.01 %     0.95 %
Short-term borrowings   1.68 %     1.40 %     1.29 %     1.08 %     0.86 %
Long-term borrowings, net   6.31 %     6.32 %     6.32 %     6.32 %     6.32 %
Total interest-bearing liabilities   0.78 %     0.68 %     0.68 %     0.56 %     0.52 %
Net interest rate spread   3.02 %     3.10 %     3.03 %     3.07 %     3.12 %
Net interest rate margin   3.19 %     3.25 %     3.17 %     3.18 %     3.23 %

________
(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)
 
    2018       2017  
  First   Fourth   Third   Second   First
  Quarter   Quarter   Quarter   Quarter   Quarter
ASSET QUALITY DATA:                  
Allowance for Loan Losses                  
Beginning balance $ 34,672     $ 34,347     $ 33,159     $ 31,081     $ 30,934  
Net loan charge-offs (recoveries):                  
  Commercial business   (15 )     1,622       44       568       964  
  Commercial mortgage   (3 )     (5 )     (5 )     (38 )     (204 )
   Residential real estate loans   (50 )     88       161       78       (26 )
   Residential real estate lines   91       40       19       (46 )     33  
  Consumer indirect   1,664       1,636       1,244       1,082       1,758  
  Other consumer   340       240       151       110       109  
  Total net charge-offs   2,027       3,621       1,614       1,754       2,634  
Provision for loan losses   2,949       3,946       2,802       3,832       2,781  
Ending balance $ 35,594     $ 34,672     $ 34,347     $ 33,159     $ 31,081  
                   
Net charge-offs (recoveries)                  
  to average loans (annualized):                  
  Commercial business   -0.01 %     1.50 %     0.04 %     0.59 %     1.08 %
  Commercial mortgage   -0.00 %     -0.00 %     -0.00 %     -0.02 %     -0.12 %
   Residential real estate loans   -0.04 %     0.08 %     0.15 %     0.07 %     -0.02 %
   Residential real estate lines   0.32 %     0.14 %     0.06 %     -0.15 %     0.11 %
  Consumer indirect   0.76 %     0.75 %     0.59 %     0.54 %     0.93 %
  Other consumer   8.12 %     5.40 %     3.49 %     2.65 %     2.61 %
   Total loans   0.30 %     0.54 %     0.25 %     0.29 %     0.45 %
                   
Supplemental information (1)                  
Non-performing loans:                  
  Commercial business $ 4,312     $ 5,344     $ 7,182     $ 7,312     $ 3,753  
  Commercial mortgage   2,310       2,623       2,539       2,189       1,267  
   Residential real estate loans   2,224       2,252       1,263       1,579       1,601  
   Residential real estate lines   372       404       325       379       336  
  Consumer indirect   1,467       1,895       1,250       1,149       1,040  
  Other consumer   32       13       26       22       23  
  Total non-performing loans   10,717       12,531       12,585       12,630       8,020  
Foreclosed assets   480       148       281       154       58  
  Total non-performing assets $ 11,197     $ 12,679     $ 12,866     $ 12,784     $ 8,078  
                   
Total non-performing loans to total loans   0.38 %     0.46 %     0.48 %     0.50 %     0.33 %
Total non-performing assets to total assets   0.27 %     0.31 %     0.32 %     0.33 %     0.21 %
Allowance for loan losses to total loans   1.27 %     1.27 %     1.31 %     1.32 %     1.29 %
Allowance for loan losses to non-performing loans   332 %     277 %     273 %     263 %     388 %


________

(1) At period end.


 
FINANCIAL INSTITUTIONS, INC.
Appendix A - Reconciliation to Non-GAAP Financial Measures (Unaudited)
(In thousands, except per share amounts)
 
    2018     2017 
  First   Fourth   Third   Second   First
  Quarter   Quarter   Quarter   Quarter   Quarter
Ending tangible assets:                  
Total assets $ 4,152,432     $ 4,105,210     $ 4,021,591     $ 3,891,538     $ 3,859,865  
Less: Goodwill and other intangible assets, net   74,415       74,703       74,997       73,477       75,343  
Tangible assets $ 4,078,017     $ 4,030,507     $ 3,946,594     $ 3,818,061     $ 3,784,522  
                   
Ending tangible common equity:                  
Common shareholders’ equity $ 362,973     $ 363,848     $ 348,668     $ 330,301     $ 308,348  
Less: Goodwill and other intangible assets, net   74,415       74,703       74,997       73,477       75,343  
Tangible common equity $ 288,558     $ 289,145     $ 273,671     $ 256,824     $ 233,005  
                   
Tangible common equity to tangible assets (1)   7.08 %     7.17 %     6.93 %     6.73 %     6.16 %
                   
Common shares outstanding   15,901       15,925       15,626       15,127       14,536  
Tangible common book value per share (2) $ 18.15     $ 18.16     $ 17.51     $ 16.98     $ 16.03  
                   
Average tangible assets:                  
Average assets $ 4,086,633     $ 4,028,063     $ 3,951,002     $ 3,847,137     $ 3,754,470  
Less: Average goodwill and other intangible                  
  assets, net   74,577       74,866       73,960       74,954       75,508  
Average tangible assets $ 4,012,056     $ 3,953,197     $ 3,877,042     $ 3,772,183     $ 3,678,962  
                   
Average tangible common equity:                  
Average common equity $ 363,523     $ 357,079     $ 340,981     $ 319,387     $ 306,626  
Less: Average goodwill and other intangible                  
  assets, net   74,577       74,866       73,960       74,954       75,508  
Average tangible common equity $ 288,946     $ 282,213     $ 267,021     $ 244,433     $ 231,118  
                   
Net income available to common shareholders $ 8,923     $ 10,693     $ 7,913     $ 5,880     $ 7,578  
Return on average tangible common equity (3)   12.52 %     15.03 %     11.76 %     9.65 %     13.30 %

________
(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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