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Financial Institutions, Inc. Announces Third Quarter 2018 Results

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

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

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

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

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

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

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

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

Third Quarter 2018 Highlights:

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

Registration Statement

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

Net Interest Income and Net Interest Margin

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

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

Noninterest Income

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

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

Noninterest Expense

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

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

Income Taxes

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

Balance Sheet and Capital Management

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

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

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

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

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

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

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

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

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

Credit Quality

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

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

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

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

Conference Call

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

About Financial Institutions, Inc.

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

Non-GAAP Financial Information

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

Safe Harbor Statement

This press release may contain forward-looking statements as defined by Section 21E of the Securities Exchange Act of 1934, as amended that involve significant risks and uncertainties. In this context, forward-looking statements often address our expected future business and financial performance and financial condition, and often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” “will,” “would,” “estimate,” “forecast,” “target,” “preliminary,” or “range.” Statements herein are based on certain assumptions and analyses by the Company and factors it believes are appropriate in the circumstances. Actual results could differ materially from those contained in or implied by such statements for a variety of reasons including, but not limited to: the Company’s ability to implement its strategic plan, the Company’s ability to redeploy investment assets into loan assets, whether the Company experiences greater credit losses than expected, whether the Company experiences breaches of its, or third party, information systems, the attitudes and preferences of the Company’s customers, the Company’s ability to successfully integrate and profitably operate SDN, Courier Capital, HNP Capital and other acquisitions, the competitive environment, fluctuations in the fair value of securities in its investment portfolio, changes in the regulatory environment and the Company’s compliance with regulatory requirements, changes in interest rates, general economic and credit market conditions nationally and regionally. Consequently, all forward-looking statements made herein are qualified by these cautionary statements and the cautionary language in the Company’s Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q and other documents filed with the SEC. Except as required by law, the Company undertakes no obligation to revise these statements following the date of this press release.

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

     
For additional information contact:    
Kevin B. Klotzbach   Shelly J. Doran
Chief Financial Officer & Treasurer   Director Investor & External Relations
Phone: 585.786.1130   Phone: 585.627.1362
Email: KBKlotzbach@five-starbank.com   Email: SJDoran@five-starbank.com
     

FINANCIAL INSTITUTIONS, INC.
Selected Financial Information (Unaudited)

(Amounts in thousands, except per share amounts)

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

                

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

FINANCIAL INSTITUTIONS, INC.
Selected Financial Information (Unaudited)

(Amounts in thousands, except per share amounts)

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

                

  1. See Appendix A – Reconciliation to Non-GAAP Financial Measures for the computation of this Non-GAAP measure.
  2. The efficiency ratio is calculated by dividing noninterest expense by net revenue, i.e., the sum of net interest income (fully taxable equivalent) and noninterest income before net gains on investment securities. This is a banking industry measure not required by GAAP.

FINANCIAL INSTITUTIONS, INC.
Selected Financial Information (Unaudited)

(Amounts in thousands)

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

                

  1. Includes investment securities at adjusted amortized cost.
  2. See Appendix A – Reconciliation to Non-GAAP Financial Measures for the computation of this Non-GAAP measure.

FINANCIAL INSTITUTIONS, INC.
Selected Financial Information (Unaudited)

(Amounts in thousands)

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

                

  1. At period end.

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

(In thousands, except per share amounts)

    Nine Months Ended     2018     2017  
    September 30,     Third     Second     First     Fourth     Third  
    2018     2017     Quarter     Quarter     Quarter     Quarter     Quarter  
Ending tangible assets:                                                        
Total assets                   $ 4,258,385     $ 4,191,315     $ 4,152,432     $ 4,105,210     $ 4,021,591  
Less: Goodwill and other intangible
  assets, net
                    78,853       79,188       74,415       74,703       74,997  
Tangible assets                   $ 4,179,532     $ 4,112,127     $ 4,078,017     $ 4,030,507     $ 3,946,594  
                                                         
Ending tangible common equity:                                                        
Common shareholders’ equity                   $ 374,825     $ 369,608     $ 362,973     $ 363,848     $ 348,668  
Less: Goodwill and other intangible
  assets, net
                    78,853       79,188       74,415       74,703       74,997  
Tangible common equity                   $ 295,972     $ 290,420     $ 288,558     $ 289,145     $ 273,671  
                                                         
Tangible common equity to tangible
  assets (1)
                    7.08 %     7.06 %     7.08 %     7.17 %     6.93 %
                                                         
Common shares outstanding                     15,925       15,924       15,901       15,925       15,626  
Tangible common book value per
  share (2)
                  $ 18.59     $ 18.24     $ 18.15     $ 18.16     $ 17.51  
                                                         
Average tangible assets:                                                        
Average assets   $ 4,139,338     $ 3,851,590     $ 4,187,538     $ 4,142,735     $ 4,086,633     $ 4,028,063     $ 3,951,002  
Less: Average goodwill and other
  intangible assets, net
    76,544       74,802       79,047       75,957       74,577       74,866       73,960  
Average tangible assets   $ 4,062,794     $ 3,776,788     $ 4,108,491     $ 4,066,778     $ 4,012,056     $ 3,953,197     $ 3,877,042  
                                                         
Average tangible common equity:                                                        
Average common equity   $ 368,356     $ 322,457     $ 374,482     $ 366,942     $ 363,523     $ 357,079     $ 340,981  
Less: Average goodwill and other
  intangible assets, net
    76,544       74,802       79,047       75,957       74,577       74,866       73,960  
Average tangible common equity   $ 291,812     $ 247,655     $ 295,435     $ 290,985     $ 288,946     $ 282,213     $ 267,021  
                                                         
Net income available to
  common shareholders
  $ 30,939     $ 21,371     $ 10,212     $ 11,804     $ 8,923     $ 10,693     $ 7,913  
Return on average tangible common
  equity (3)
    14.18 %     11.54 %     13.71 %     16.27 %     12.52 %     15.03 %     11.76 %

                

  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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