WARSAW, N.Y., July 29, 2019 (GLOBE NEWSWIRE) -- Financial Institutions, Inc. (Nasdaq:FISI) (the “Company”), parent company of Five Star Bank (the “Bank”), SDN Insurance Agency, LLC (“SDN”), Courier Capital, LLC (“Courier Capital”) and HNP Capital, LLC (“HNP Capital”),  today reported financial and operational results for the quarter ended June 30, 2019.

Net income for the quarter was $11.4 million compared to $12.2 million for the second quarter of 2018. After preferred dividends, net income available to common shareholders was $11.0 million for the quarter, or $0.69 per diluted share, compared to $11.8 million, or $0.74 per diluted share, for the second quarter of 2018. Second quarter 2018 net income was favorably impacted by a low provision for loan losses of $40 thousand, the result of a combination of factors described in the Credit Quality section below.

Pre-tax pre-provision income⁽¹⁾ for the quarter was $16.7 million compared to $15.2 million for the second quarter of 2018, an increase of $1.5 million, or 9.9%.  

Second Quarter 2019 Highlights:

• Net income of $11.4 million was third highest in Company history
  
  
• Pre-tax pre-provision income of $16.7 million was the highest in Company history
  
  
• Net interest income of $32.5 million was $2.2 million, or 7.4%, higher than the second quarter of 2018 and the highest in Company history
  
  
• Net interest margin expanded to 3.28% as compared to 3.16% in the second quarter of 2018
  
  
• Return on average assets was 1.06%
  
  
• Total assets at quarter-end were $4.31 billion, an increase of $122.6 million from June 30, 2018

President and Chief Executive Officer Martin K. Birmingham stated, “We delivered a strong second quarter and first half of 2019 as we benefitted from our investments in people and systems and the execution of our strategic initiatives. For the second quarter in a row we generated record-breaking pre-tax pre-provision income.

“Our commercial and residential loan portfolios grew by 3.7% and 2.1% quarter-over-quarter and 16.8% and 11.4% year-over-year, respectively. Strong asset quality was illustrated by low annualized net charge-offs of 0.16% of average loans, the Company’s lowest quarterly charge-off level in more than ten years. Common book value per share increased by 3.3% in the quarter and tangible common book value per share⁽¹⁾ grew by 4.2%. Our capital ratios improved once again with a 30-basis-point increase in common equity to assets and a 32-basis-point increase in tangible common equity to tangible assets⁽¹⁾, or TCE ratio, to 7.77%.”

Chief Financial Officer Justin K. Bigham added, “Net interest margin for the quarter was favorably impacted by our ongoing balance sheet repositioning as we continue to redeploy assets from investment securities into higher-yielding loans. A continued focus on efficiency drove quarterly operating leverage year-over-year. We also made progress on our strategy to grow our relationship-based commercial and residential mortgage businesses and right-size our consumer indirect portfolio.”

Net Interest Income and Net Interest Margin

Net interest income was $32.5 million for the quarter, $672 thousand higher than the first quarter of 2019 and $2.2 million higher than the second quarter of 2018.

• Average interest-earning assets for the quarter were $4.01 billion, $11.7 million higher than the first quarter of 2019 and $124.4 million higher than the second quarter of 2018. The primary driver of the increase was organic loan growth.
  
  
• Second quarter 2019 net interest margin was 3.28%, four basis points higher than the first quarter of 2019 and 12 basis points higher than the second quarter of 2018. Net interest margin has been positively impacted by the continued repositioning of the Company’s balance sheet, as a growing proportion of interest-earning assets are deployed into loans.

Noninterest Income

Noninterest income was $9.2 million for the quarter, compared to $9.1 million in the first quarter of 2019 and $8.4 million in the second quarter of 2018.

• ATM and debit card charges of $1.7 million was $296 thousand higher than the first quarter of 2019 and $208 thousand higher than the second quarter of 2018, primarily due to an increase in consumer debit card activity.
  
  
• Net gain on sale of loans held for sale of $407 thousand was $225 thousand higher than the first quarter of 2019 and $276 thousand higher than the second quarter of 2018. This income fluctuates based upon the timing of loan and sale closings.
  
  
• Investment advisory fees were $2.3 million in the second quarter of 2019 compared to $2.2 million in the first quarter of 2019 and $1.9 million in the second quarter of 2018. The increase compared to the second quarter of 2018 was primarily the result of the June 1, 2018 acquisition of HNP Capital.
  
  
• A loss from derivative instruments of $45 thousand was recognized in the second quarter of 2019 driven by significantly lower volume of new interest rate swap transactions. As a result, the income recognized from new transactions was more than offset by the credit valuation adjustment associated with our interest rate swap portfolio.
  
  
• Insurance income was $872 thousand in the second quarter of 2019 compared to $1.4 million in the first quarter of 2019 and $1.0 million in the second quarter of 2018. The decrease compared to the first quarter of 2019 was the result of seasonality in this line of business. The decrease compared to the second quarter of 2018 was primarily due to higher contingent and transaction revenue in the prior year period.

Noninterest Expense

Noninterest expense was $25.0 million in the second quarter of 2019, compared to $25.2 million in the first quarter of 2019 and $23.4 million in the second quarter of 2018.

• Salaries and employee benefits expense totaled $13.2 million in the second quarter of 2019, $14.0 million in the first quarter of 2019 and $12.9 million in the second quarter of 2018. The decrease compared to the first quarter of 2019 was primarily due to favorable health claims in the second quarter combined with the impact of higher payroll-related taxes incurred in the first quarter. The increase compared to the second quarter of 2018 was primarily the result of investments in bank personnel and the 2018 acquisition of HNP Capital. The number of full-time equivalent employees was 689 at June 30, 2019, 687 at March 31, 2019, and 673 at June 30, 2018.
  
  
• Advertising and promotions expense of $1.1 million was $566 thousand higher than the first quarter of 2019 and $365 thousand higher than the second quarter of 2018 as a result of the timing of expenses related to the Five Star Bank branding campaign.

Income Taxes

Income tax expense was $2.9 million for the quarter compared to $3.0 million for each of the first quarter of 2019 and second quarter of 2018. The effective tax rate was 20.5% for the quarter compared to 20.8% for the first quarter of 2019 and 19.7% for the second quarter of 2018.

Effective tax rates are impacted by items of income and expense not subject to federal or state taxation. The Company’s effective tax rates differ from statutory rates primarily because of interest income from tax-exempt securities and earnings on company owned life insurance.

Balance Sheet and Capital Management

Total assets were $4.31 billion at June 30, 2019, up $11.4 million from $4.30 billion at March 31, 2019, and up $122.6 million from $4.19 billion at June 30, 2018.

Investment securities were $805.1 million at June 30, 2019, down $61.4 million from $866.5 million at March 31, 2019, and down $161.9 million from $967.0 million at June 30, 218. The decreases are the result of the redeployment of assets from investment securities into loans.

Total loans were $3.15 billion at June 30, 2019, up $42.5 million, or 1.4%, from March 31, 2019, and up $251.5 million, or 8.7%, from June 30, 2018.

• Commercial business loans totaled $594.9 million, up $41.2 million, or 7.4%, from March 31, 2019, and up $87.9 million, or 17.3%, from June 30, 2018.
  
  
• Commercial mortgage loans totaled $1.01 billion, up $16.8 million, or 1.7%, from March 31, 2019, and up $143.0 million, or 16.5%, from June 30, 2018.
  
  
• Residential real estate loans totaled $546.0 million, up $11.3 million, or 2.1%, from March 31, 2019, and up $56.1 million, or 11.4%, from June 30, 2018.
  
  
• Consumer indirect loans totaled $876.1 million, down $26.6 million, or 3.0%, from March 31, 2019, and down $30.1 million, or 3.3%, from June 30, 2018.

Total deposits were $3.47 billion at June 30, 2019, $36.8 million or 1.1% lower than March 31, 2019, and $209.8 million or 6.4% higher than June 30, 2018. The decrease from March 31, 2019, was primarily due to public deposit seasonality while the increase from June 30, 2018, was primarily the result of successful business development efforts. Public deposit balances represented 26% of total deposits at June 30, 2019, compared to 28% of total deposits at March 31, 2019, and 26% at June 30, 2018.

Short-term borrowings were $308.5 million at June 30, 2019, an increase of $21.2 million from March 31, 2019, and a decrease of $164.3 million from June 30, 2018. Short-term borrowings are typically utilized to manage the seasonality of public deposits.

Shareholders’ equity was $422.4 million at June 30, 2019, compared to $408.3 million at March 31, 2019, and $386.9 million at June 30, 2018. Tangible common book value per share was $20.60 at June 30, 2019, an increase of $0.83 or 4.2% from $19.77 at March 31, 2019, and an increase of $2.36 or 12.9% from $18.24 at June 30, 2018.

During the second quarter of 2019, the Company declared a common stock dividend of $0.25 per common share. The dividend returned 36% of second quarter net income to common shareholders.

The Company’s regulatory capital ratios at June 30, 2019, compared to the prior quarter and prior year:

• Leverage Ratio was 8.55%, compared to 8.36% and 8.10% at March 31, 2019, and June 30, 2018, respectively.
  
  
• Common Equity Tier 1 Capital Ratio was 9.95%, compared to 9.87% and 9.82% at March 31, 2019, and June 30, 2018, respectively.
  
  
• Tier 1 Capital Ratio was 10.45%, compared to 10.37% at each of March 31, 2019, and June 30, 2018.
  
  
• Total Risk-Based Capital Ratio was 12.57%, compared to 12.50% and 12.66% at March 31, 2019, and June 30, 2018, respectively.

Credit Quality

Non-performing loans were $11.5 million at June 30, 2019, compared to $5.8 million at March 31, 2019, and $9.7 million at June 30, 2018. The increase was primarily the result of the internal downgrade of one commercial credit relationship with an unpaid principal balance of $5.6 million.

The second quarter 2019 provision for loan losses was $2.4 million compared to $1.2 million in the first quarter of 2019 and $40 thousand in the second quarter of 2018. Quarterly provision for loan losses varies based primarily on loan growth, charge-offs, collateral values and qualitative factors.

Net charge-offs were $1.2 million in the quarter, $533 thousand lower than the first quarter of 2019 and $432 thousand lower than the second quarter of 2018. The ratio of annualized net charge-offs to total average loans was 0.16% in the quarter, 0.23% in the first quarter of 2019 and 0.24% in the second quarter of 2018.

The Company has remained strategically focused on the importance of credit discipline, allocating what we believe are the necessary resources to credit and risk management functions as the loan portfolio has grown. The total non-performing loans to total loans ratio was 0.36% at June 30, 2019, compared to 0.19% at March 31, 2019 and 0.34% at June 30, 2018. The ratio of allowance for loan losses to non-performing loans was 300% at June 30, 2019, compared to 574% at March 31, 2019, and 349% at June 30, 2018.

Conference Call

The Company will host an earnings conference call and audio webcast on July 30, 2019, at 8:30 a.m. Eastern Time. The call will be hosted by Martin K. Birmingham, President and Chief Executive Officer, and Justin K. Bigham, Chief Financial Officer. The live webcast will be available in listen-only mode on the Company’s website at www.fiiwarsaw.com. Within the United States, listeners may also access the call by dialing 1-888-346-9290 and requesting the Financial Institutions, Inc. call. The webcast replay will be available on the Company’s website for at least 30 days.

About Financial Institutions, Inc.

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

Non-GAAP Financial Information

In addition to results presented in accordance with U.S. generally accepted accounting principles (“GAAP”), this press release contains certain non-GAAP financial measures. A reconciliation of these non-GAAP measures to GAAP measures is included in Appendix A to this document.

The Company believes that providing certain non-GAAP financial measures provides investors with information useful in understanding our financial performance, performance trends and financial position. Our management uses these measures for internal planning and forecasting purposes and we believe that our presentation and discussion, together with the accompanying reconciliations, allows investors, security analysts and other interested parties to view our performance and the factors and trends affecting our business in a manner similar to management. These non-GAAP measures should not be considered a substitute for GAAP measures and we strongly encourage investors to review our consolidated financial statements in their entirety and not to rely on any single financial measure to evaluate the Company. Non-GAAP financial measures have inherent limitations, are not uniformly applied and are not audited. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures having the same or similar names.

Safe Harbor Statement

This press release may contain forward-looking statements as defined by Section 21E of the Securities Exchange Act of 1934, as amended, that involve significant risks and uncertainties. In this context, forward-looking statements often address our expected future business and financial performance and financial condition, and often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” “will,” “would,” “estimate,” “forecast,” “target,” “preliminary,” or “range.” Statements herein are based on certain assumptions and analyses by the Company and factors it believes are appropriate in the circumstances. Actual results could differ materially from those contained in or implied by such statements for a variety of reasons including, but not limited to: the Company’s ability to implement its strategic plan, 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:

Shelly J. Doran
Director of Investor and External Relations
585-627-1362
sjdoran@five-starbank.com

FINANCIAL INSTITUTIONS, INC.
Selected Financial Information (Unaudited)
(Amounts in thousands, except per share amounts)
	2019								2018
	June 30,				March 31,				December 31,				September 30,				June 30,
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents	$	108,988			$	79,786			$	102,755			$	117,331			$	89,094
Investment securities:
Available for sale		406,509				427,545				445,677				458,310				492,228
Held-to-maturity		398,610				438,984				446,581				459,623				474,803
Total investment securities		805,119				866,529				892,258				917,933				967,031
Loans held for sale		2,045				2,069				2,868				3,166				2,014
Loans:
Commercial business		594,923				553,745				557,861				537,942				507,021
Commercial mortgage		1,010,071				993,259				958,194				905,011				867,049
Residential real estate loans		546,031				534,691				524,155				507,598				489,940
Residential real estate lines		108,006				108,623				109,718				111,204				113,287
Consumer indirect		876,116				902,762				919,917				909,434				906,237
Other consumer		16,537				16,099				16,753				17,142				16,678
Total loans		3,151,684				3,109,179				3,086,598				2,988,331				2,900,212
Allowance for loan losses		34,434				33,327				33,914				33,955				33,955
Total loans, net		3,117,250				3,075,852				3,052,684				2,954,376				2,866,257
Total interest-earning assets		4,007,797				4,009,496				4,031,151				3,927,238				3,884,628
Goodwill and other intangible assets, net		75,534				75,850				76,173				78,853				79,188
Total assets		4,313,945				4,302,541				4,311,698				4,258,385				4,191,315
Deposits:
Noninterest-bearing demand		719,150				732,631				755,460				748,167				719,084
Interest-bearing demand		677,846				707,430				622,482				711,321				658,107
Savings and money market		966,509				1,016,666				968,897				988,486				1,012,972
Time deposits		1,108,484				1,052,110				1,020,068				1,037,755				872,004
Total deposits		3,471,989				3,508,837				3,366,907				3,485,729				3,262,167
Short-term borrowings		308,500				287,300				469,500				308,200				472,800
Long-term borrowings, net		39,237				39,220				39,202				39,184				39,167
Total interest-bearing liabilities		3,100,576				3,102,726				3,120,149				3,084,946				3,055,050
Shareholders’ equity		422,354				408,253				396,293				392,154				386,937
Common shareholders’ equity		405,026				390,925				378,965				374,825				369,608
Tangible common equity (1)		329,492				315,075				302,792				295,972				290,420
Accumulated other comprehensive loss	$	(13,160	)		$	(18,554	)		$	(21,281	)		$	(21,820	)		$	(20,296	)
Common shares outstanding		15,995				15,941				15,929				15,925				15,924
Treasury shares		105				115				127				131				132
CAPITAL RATIOS AND PER SHARE DATA:
Leverage ratio		8.55	%			8.36	%			8.16	%			8.18	%			8.10	%
Common equity Tier 1 capital ratio		9.95	%			9.87	%			9.70	%			9.81	%			9.82	%
Tier 1 capital ratio		10.45	%			10.37	%			10.21	%			10.34	%			10.37	%
Total risk-based capital ratio		12.57	%			12.50	%			12.38	%			12.58	%			12.66	%
Common equity to assets		9.39	%			9.09	%			8.79	%			8.80	%			8.82	%
Tangible common equity to tangible assets (1)		7.77	%			7.45	%			7.15	%			7.08	%			7.06	%
Common book value per share	$	25.32			$	24.52			$	23.79			$	23.54			$	23.21
Tangible common book value per share (1)	$	20.60			$	19.77			$	19.01			$	18.59			$	18.24

(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								2019								2018
	June 30,								Second				First				Fourth				Third				Second
	2019				2018				Quarter				Quarter				Quarter				Quarter				Quarter
SELECTED INCOME STATEMENT
DATA:
Interest income	$	84,162			$	72,490			$	42,648			$	41,514			$	41,125			$	39,117			$	37,013
Interest expense		19,906				12,558				10,184				9,722				9,096				8,214				6,783
Net interest income		64,256				59,932				32,464				31,792				32,029				30,903				30,230
Provision for loan losses		3,547				2,989				2,354				1,193				3,884				2,061				40
Net interest income after provision
for loan losses		60,709				56,943				30,110				30,599				28,145				28,842				30,190
Noninterest income:
Service charges on deposits		3,436				3,441				1,756				1,680				1,866				1,813				1,703
Insurance income		2,250				2,417				872				1,378				1,012				1,501				1,018
ATM and debit card		3,182				2,952				1,739				1,443				1,643				1,557				1,531
Investment advisory		4,543				3,689				2,327				2,216				2,189				2,245				1,911
Company owned life insurance		834				893				424				410				460				440				443
Investments in limited partnerships		376				691				144				232				184				328				123
Loan servicing		214				223				104				110				122				96				108
Income (loss) from derivative
instruments, net		123				347				(45	)			168				289				336				176
Net gain on sale of loans held for sale		589				227				407				182				266				303				131
Net (loss) gain on investment securities		113				7				166				(53	)			(39	)			(95	)			7
Net gain on other assets		58				12				9				49				1				37				9
Other		2,635				2,415				1,330				1,305				1,355				1,255				1,247
Total noninterest income		18,353				17,314				9,233				9,120				9,348				9,816				8,407
Noninterest expense:
Salaries and employee benefits		27,250				26,300				13,249				14,001				14,373				13,970				12,871
Occupancy and equipment		8,912				8,574				4,326				4,586				4,427				4,337				4,167
Professional services		2,090				1,779				932				1,158				780				1,353				896
Computer and data processing		2,573				2,593				1,350				1,223				1,238				1,291				1,358
Supplies and postage		1,032				1,060				498				534				487				485				548
FDIC assessments		998				988				486				512				489				498				480
Advertising and promotions		1,606				1,698				1,086				520				935				949				721
Amortization of intangibles		639				593				316				323				330				334				305
Goodwill impairment		-				-				-				-				2,350				-				-
Other		5,074				3,967				2,760				2,314				2,394				2,304				2,102
Total noninterest expense		50,174				47,552				25,003				25,171				27,803				25,521				23,448
Income before income taxes		28,888				26,705				14,340				14,548				9,690				13,137				15,149
Income tax expense		5,966				5,247				2,939				3,027				2,199				2,560				2,979
Net income		22,922				21,458				11,401				11,521				7,491				10,577				12,170
Preferred stock dividends		731				731				366				365				365				365				366
Net income available to common
shareholders	$	22,191			$	20,727			$	11,035			$	11,156			$	7,126			$	10,212			$	11,804
FINANCIAL RATIOS:
Earnings per share – basic	$	1.39			$	1.30			$	0.69			$	0.70			$	0.45			$	0.64			$	0.74
Earnings per share – diluted	$	1.39			$	1.30			$	0.69			$	0.70			$	0.45			$	0.64			$	0.74
Cash dividends declared on common stock	$	0.50			$	0.48			$	0.25			$	0.25			$	0.24			$	0.24			$	0.24
Common dividend payout ratio		35.97	%			36.92	%			36.23	%			35.71	%			53.33	%			37.50	%			32.43	%
Dividend yield (annualized)		3.46	%			2.94	%			3.44	%			3.73	%			3.70	%			3.03	%			2.93	%
Return on average assets		1.08	%			1.05	%			1.06	%			1.09	%			0.70	%			1.00	%			1.18	%
Return on average equity		11.32	%			11.31	%			11.01	%			11.65	%			7.50	%			10.71	%			12.70	%
Return on average common equity		11.45	%			11.44	%			11.12	%			11.79	%			7.46	%			10.82	%			12.90	%
Return on average tangible common
equity (1)		14.21	%			14.41	%			13.73	%			14.71	%			9.40	%			13.71	%			16.27	%
Efficiency ratio (2)		60.39	%			60.99	%			59.79	%			60.99	%			66.64	%			62.04	%			60.14	%
Effective tax rate		20.7	%			19.6	%			20.5	%			20.8	%			22.7	%			19.5	%			19.7	%

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

FINANCIAL INSTITUTIONS, INC.
Selected Financial Information (Unaudited)
(Amounts in thousands)
	Six Months Ended								2019								2018
	June 30,								Second				First				Fourth				Third				Second
	2019				2018				Quarter				Quarter				Quarter				Quarter				Quarter
SELECTED AVERAGE BALANCES:
Federal funds sold and interest-
earning deposits	$	18,050			$	28,183			$	18,145			$	17,955			$	25,411			$	17,955			$	34,357
Investment securities (1)		866,138				1,023,777				845,624				886,878				937,907				954,027				1,012,846
Loans:
Commercial business		562,618				467,225				577,884				547,182				539,622				519,114				481,045
Commercial mortgage		994,271				831,925				1,010,544				977,818				944,476				896,159				842,422
Residential real estate loans		534,986				477,130				540,390				529,522				515,539				498,371				483,577
Residential real estate lines		108,673				114,776				107,826				109,529				110,236				111,762				113,948
Consumer indirect		901,556				892,433				891,967				911,252				914,636				904,480				899,069
Other consumer		15,972				16,712				15,721				16,226				16,671				16,633				16,449
Total loans		3,118,076				2,800,201				3,144,332				3,091,529				3,041,180				2,946,519				2,836,510
Total interest-earning assets		4,002,264				3,852,161				4,008,101				3,996,362				4,004,498				3,918,501				3,883,713
Goodwill and other intangible
assets, net		75,871				75,271				75,711				76,033				78,314				79,047				75,957
Total assets		4,291,670				4,114,839				4,300,254				4,282,991				4,268,809				4,187,538				4,142,735
Interest-bearing liabilities:
Interest-bearing demand		664,577				674,802				660,747				668,448				669,491				642,234				677,582
Savings and money market		981,439				1,022,554				996,878				965,829				1,011,427				978,578				1,032,425
Time deposits		1,086,670				881,863				1,096,544				1,076,687				1,032,632				946,499				906,271
Short-term borrowings		334,939				396,317				323,461				346,546				355,439				430,697				381,043
Long-term borrowings, net		39,218				39,147				39,227				39,209				39,191				39,174				39,156
Total interest-bearing liabilities		3,106,843				3,014,683				3,116,857				3,096,719				3,108,180				3,037,182				3,036,477
Noninterest-bearing demand deposits		720,727				693,648				714,205				727,321				733,717				730,960				699,112
Total deposits		3,453,413				3,272,867				3,468,374				3,438,285				3,447,267				3,298,271				3,315,390
Total liabilities		3,883,446				3,732,269				3,884,843				3,882,033				3,872,545				3,795,727				3,758,465
Shareholders’ equity		408,224				382,570				415,411				400,958				396,264				391,811				384,270
Common equity		390,896				365,242				398,083				383,630				378,936				374,482				366,942
Tangible common equity (2)	$	315,025			$	289,971			$	322,372			$	307,597			$	300,622			$	295,435			$	290,985
Common shares outstanding:
Basic		15,950				15,898				15,970				15,930				15,922				15,921				15,906
Diluted		15,997				15,945				16,015				15,978				15,971				15,964				15,948
SELECTED AVERAGE YIELDS:
(Tax equivalent basis)
Investment securities		2.38	%			2.32	%			2.38	%			2.37	%			2.33	%			2.35	%			2.32	%
Loans		4.80	%			4.39	%			4.82	%			4.77	%			4.68	%			4.55	%			4.43	%
Total interest-earning assets		4.26	%			3.82	%			4.29	%			4.23	%			4.11	%			4.00	%			3.86	%
Interest-bearing demand		0.21	%			0.13	%			0.21	%			0.20	%			0.20	%			0.19	%			0.13	%
Savings and money market		0.43	%			0.22	%			0.44	%			0.41	%			0.38	%			0.33	%			0.26	%
Time deposits		2.12	%			1.41	%			2.17	%			2.06	%			1.88	%			1.69	%			1.49	%
Short-term borrowings		2.71	%			1.84	%			2.71	%			2.70	%			2.56	%			2.24	%			2.01	%
Long-term borrowings, net		6.30	%			6.31	%			6.30	%			6.30	%			6.30	%			6.31	%			6.31	%
Total interest-bearing liabilities		1.29	%			0.84	%			1.31	%			1.27	%			1.16	%			1.07	%			0.90	%
Net interest rate spread		2.97	%			2.98	%			2.98	%			2.96	%			2.95	%			2.93	%			2.96	%
Net interest rate margin		3.26	%			3.17	%			3.28	%			3.24	%			3.21	%			3.17	%			3.16	%

(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								2019								2018
	June 30,								Second				First				Fourth				Third				Second
	2019				2018				Quarter				Quarter				Quarter				Quarter				Quarter
ASSET QUALITY DATA:
Allowance for Loan Losses
Beginning balance	$	33,914			$	34,672			$	33,327			$	33,914			$	33,955			$	33,955			$	35,594
Net loan charge-offs (recoveries):
Commercial business		37				244				10				27				1,135				431				259
Commercial mortgage		(14	)			(4	)			3				(17	)			901				110				(1	)
Residential real estate loans		101				(103	)			76				25				23				16				(53	)
Residential real estate lines		(3	)			86				(1	)			(2	)			15				21				(5	)
Consumer indirect		2,580				2,981				1,022				1,558				1,599				1,246				1,317
Other consumer		326				502				137				189				252				237				162
Total net charge-offs		3,027				3,706				1,247				1,780				3,925				2,061				1,679
Provision for loan losses		3,547				2,989				2,354				1,193				3,884				2,061				40
Ending balance	$	34,434			$	33,955			$	34,434			$	33,327			$	33,914			$	33,955			$	33,955
Net charge-offs (recoveries)
to average loans (annualized):
Commercial business		0.01	%			0.11	%			0.01	%			0.02	%			0.83	%			0.33	%			0.22	%
Commercial mortgage		0.00	%			0.00	%			0.00	%			-0.01	%			0.38	%			0.05	%			0.00	%
Residential real estate loans		0.04	%			-0.04	%			0.06	%			0.02	%			0.02	%			0.01	%			-0.04	%
Residential real estate lines		-0.01	%			0.15	%			-0.01	%			-0.01	%			0.05	%			0.08	%			-0.02	%
Consumer indirect		0.58	%			0.67	%			0.46	%			0.69	%			0.69	%			0.55	%			0.59	%
Other consumer		4.12	%			6.06	%			3.51	%			4.73	%			6.00	%			5.66	%			3.95	%
Total loans		0.20	%			0.27	%			0.16	%			0.23	%			0.51	%			0.28	%			0.24	%
Supplemental information (1)
Non-performing loans:
Commercial business	$	638			$	4,026			$	638			$	594			$	912			$	2,203			$	4,026
Commercial mortgage		6,836				2,151				6,836				909				1,586				1,900				2,151
Residential real estate loans		2,283				2,138				2,283				2,225				2,391				2,057				2,138
Residential real estate lines		282				288				282				252				255				297				288
Consumer indirect		1,399				1,124				1,399				1,822				1,989				1,385				1,124
Other consumer		25				4				25				2				8				8				4
Total non-performing loans		11,463				9,731				11,463				5,804				7,141				7,850				9,731
Foreclosed assets		37				299				37				41				230				290				299
Total non-performing assets	$	11,500			$	10,030			$	11,500			$	5,845			$	7,371			$	8,140			$	10,030
Total non-performing loans
to total loans		0.36	%			0.34	%			0.36	%			0.19	%			0.23	%			0.26	%			0.34	%
Total non-performing assets
to total assets		0.27	%			0.24	%			0.27	%			0.14	%			0.17	%			0.19	%			0.24	%
Allowance for loan losses
to total loans		1.09	%			1.17	%			1.09	%			1.07	%			1.10	%			1.14	%			1.17	%
Allowance for loan losses
to non-performing loans		300	%			349	%			300	%			574	%			475	%			433	%			349	%

(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								2019								2018
	June 30,								Second				First				Fourth				Third				Second
	2019				2018				Quarter				Quarter				Quarter				Quarter				Quarter
Ending tangible assets:
Total assets									$	4,313,945			$	4,302,541			$	4,311,698			$	4,258,385			$	4,191,315
Less: Goodwill and other intangible
assets, net										75,534				75,850				76,173				78,853				79,188
Tangible assets									$	4,238,411			$	4,226,691			$	4,235,525			$	4,179,532			$	4,112,127
Ending tangible common equity:
Common shareholders’ equity									$	405,026			$	390,925			$	378,965			$	374,825			$	369,608
Less: Goodwill and other intangible
assets, net										75,534				75,850				76,173				78,853				79,188
Tangible common equity									$	329,492			$	315,075			$	302,792			$	295,972			$	290,420
Tangible common equity to tangible
assets (1)										7.77	%			7.45	%			7.15	%			7.08	%			7.06	%
Common shares outstanding										15,995				15,941				15,929				15,925				15,924
Tangible common book value per
share (2)									$	20.60			$	19.77			$	19.01			$	18.59			$	18.24
Average tangible assets:
Average assets	$	4,291,670			$	4,114,839			$	4,300,254			$	4,282,991			$	4,268,809			$	4,187,538			$	4,142,735
Less: Average goodwill and other
intangible assets, net		75,871				75,271				75,711				76,033				78,314				79,047				75,957
Average tangible assets	$	4,215,799			$	4,039,568			$	4,224,543			$	4,206,958			$	4,190,495			$	4,108,491			$	4,066,778
Average tangible common equity:
Average common equity	$	390,896			$	365,242			$	398,083			$	383,630			$	378,936			$	374,482			$	366,942
Less: Average goodwill and other
intangible assets, net		75,871				75,271				75,711				76,033				78,314				79,047				75,957
Average tangible common equity	$	315,025			$	289,971			$	322,372			$	307,597			$	300,622			$	295,435			$	290,985
Net income available to
common shareholders	$	22,191			$	20,727			$	11,035			$	11,156			$	7,126			$	10,212			$	11,804
Return on average tangible common
equity (3)		14.21	%			14.41	%			13.73	%			14.71	%			9.40	%			13.71	%			16.27	%
Pre-tax pre-provision income:
Net income	$	22,922			$	21,458			$	11,401			$	11,521			$	7,491			$	10,577			$	12,170
Add: Income tax expense		5,966				5,247				2,939				3,027				2,199				2,560				2,979
Add: Provision for loan losses		3,547				2,989				2,354				1,193				3,884				2,061				40
Pre-tax pre-provision income	$	32,435			$	29,694			$	16,694			$	15,741			$	13,574			$	15,198			$	15,189

(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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