WARSAW, N.Y., Oct. 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 September 30, 2019.

Net income for the quarter was $12.8 million compared to $10.6 million for the third quarter of 2018. After preferred dividends, net income available to common shareholders was $12.5 million for the quarter, or $0.78 per diluted share, compared to $10.2 million, or $0.64 per diluted share, for the third quarter of 2018.

Pre-tax pre-provision income⁽¹⁾ for the quarter was $19.0 million compared to $15.2 million for the third quarter of 2018. 

Third Quarter 2019 Highlights (as compared to third quarter 2018 unless otherwise noted):

• Net income was the highest in Company history at $12.8 million ‒ an increase of $2.3 million
  
  
• Pre-tax pre-provision income was also highest in Company history at $19.0 million ‒ an increase of $3.8 million
  
  
• Net interest income grew 5.1% to $32.5 million
  
  
• Net interest margin (“NIM”) expanded to 3.29% from 3.17%  
  
  
• Return on average assets (“ROA”) increased to 1.19% from 1.00%

• Common equity to assets ratio at quarter-end was 9.58% ‒ an increase of 19 basis points during the quarter and an increase of 78 basis points from September 30, 2018
  
  
• Tangible common equity to tangible assets⁽¹⁾, or TCE ratio, was 7.99% at quarter-end ‒ an increase of 22 basis points during the quarter and an increase of 91 basis points from September 30, 2018
  
  
• Completed a repositioning of the balance sheet, redeploying investment securities into higher-yielding loans
  
  - Investment securities comprised 18.0% of total assets at quarter-end, down from 21.6% at September 30, 2018

• Continued strategy to downscale the consumer indirect portfolio
  
  - Portfolio decreased 5.0% from September 30, 2018
  
  - Portfolio comprised 27.4% of total loan portfolio compared to 30.4% at September 30, 2018

President and Chief Executive Officer Martin K. Birmingham stated, “Our teammates delivered another strong quarter of earnings and returns for our shareholders, demonstrating broad-based strength of our business model and successful execution of our strategic initiatives. We generated record-breaking earnings and strengthened our capital ratios while expanding the net interest margin in a challenging interest rate environment.

“Our residential loan portfolio grew 2.3% quarter-over-quarter while the commercial portfolio was relatively flat because of increased loan payoff activity. Commercial loan demand remains stable in our markets and we expect portfolio growth in the fourth quarter. As a result of our continued focus on the profitability of new consumer indirect loan originations, this portfolio decreased by 1.4% quarter-over-quarter while the average portfolio yield increased by nine basis points.”   

Chief Financial Officer Justin K. Bigham added, “We once again delivered results in line with our expectations, including continued improvement in our NIM, ROA and TCE ratio. While we did experience an increase in expenses related to strong revenue growth in the quarter, we generated strong earnings per share growth and positive operating leverage.”

Net Interest Income and Net Interest Margin

Net interest income was $32.5 million for the quarter, flat as compared to the second quarter of 2019 and $1.6 million higher than the third quarter of 2018.

• Average interest-earning assets for the quarter were $3.96 billion, $49.2 million lower than the second quarter of 2019 and $40.4 million higher than the third quarter of 2018. The decrease compared to the second quarter of 2019 was primarily attributable to a reduction in the investment securities and consumer indirect loan portfolios, partially offset by commercial and residential organic loan growth. The increase compared to the third quarter of 2018 was primarily the result of organic loan growth.
  
  
• Third quarter of 2019 net interest margin was 3.29%, one basis point higher than the second quarter of 2019 and 12 basis points higher than the third quarter of 2018. Net interest margin was positively impacted by the repositioning of the Company’s balance sheet. We benefitted from a change in interest-earning asset mix as loans became a larger percentage of the overall earning asset portfolio.

Noninterest Income

Noninterest income was $12.4 million for the quarter, compared to $9.2 million in the second quarter of 2019 and $9.8 million in the third quarter of 2018.

• Insurance income was $567 thousand higher than the second quarter of 2019 and $62 thousand lower than the third quarter of 2018 due to the timing of renewals and business development.
   
• ATM and debit card charges of $1.8 million was $62 thousand higher than the second quarter of 2019 and $244 thousand higher than the third quarter of 2018, primarily due to an increase in consumer debit card activity.
  
  
• Income from investments in limited partnerships was $116 thousand in the third quarter of 2019 compared to $144 thousand in the second quarter of 2019 and $328 thousand in the third quarter of 2018. The Company has made several investments in limited partnerships, primarily small business investment companies, and accounts for these investments under the equity method. Income from these investments fluctuates based on the maturity and performance of the underlying investments.

• Income from derivative instruments was $890 thousand in the third quarter of 2019 compared to a loss of $45 thousand in the second quarter of 2019 and income of $336 thousand in the third quarter of 2018. Higher third quarter 2019 income was driven by an increase in the number and value of interest rate swap transactions executed.
  
  
• The Company took advantage of a market opportunity and sold $65 million of investment securities during the third quarter of 2019, generating a net gain of $1.6 million as compared to a net gain of $166 thousand in the second quarter of 2019 and a net loss of $95 thousand in the third quarter of 2018. Proceeds of $65 million were reinvested into investment securities with intermediate durations.

Noninterest Expense

Noninterest expense was $25.9 million in the third quarter of 2019, compared to $25.0 million in the second quarter of 2019 and $25.5 million in the third quarter of 2018.

• Salaries and employee benefits expense totaled $14.4 million in the third quarter of 2019, $13.2 million in the second quarter of 2019 and $14.0 million in the third quarter of 2018. The increase compared to the second quarter of 2019 was primarily due to investments in bank personnel, higher commissions and higher healthcare claims. The increase compared to the third quarter of 2018 was primarily the result of higher benefits expense.
    
• Professional services expense of $1.5 million was $596 thousand higher than the second quarter of 2019 and $175 thousand higher than the third quarter of 2018. The increase was primarily related to the timing of fees for consulting and advisory projects.
  
  
• FDIC assessments were $7 thousand in the quarter as compared to $486 thousand in the second quarter of 2019 and $498 thousand in the third quarter of 2018. In 2018, the FDIC minimum reserve ratio of 1.35% of estimated insured deposits was exceeded, resulting in credits to institutions for assessments that contributed to growth in the reserve ratio. Credits are applicable to regular assessments for quarters in which the reserve ratio is at least 1.38%. In the third quarter of 2019, the Bank received a credit of $482 thousand against its regular assessment. A credit of $510 thousand is available for future periods.
  
  
• Advertising and promotions expense of $745 thousand was $341 thousand lower than the second quarter of 2019 and $204 thousand lower than the third 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 $4.3 million for the quarter compared to $2.9 million for the second quarter of 2019 and $2.6 million for the third quarter of 2018. As a result of the Tax Cuts and Jobs Act (the “TCJ Act”) signed into law in December 2017, the Company estimated tax benefits and recorded a provisional amount in the Company’s consolidated statement of income for the year ended December 31, 2017. The Company made an adjustment to the provisional amount included in its consolidated financial statements for the year ended December 31, 2017, resulting in an expense of approximately $600 thousand recorded in the third quarter of 2019.

The effective tax rate was 25.0% for the quarter compared to 20.5% for the second quarter of 2019 and 19.5% for the third quarter of 2018. Effective tax rates are typically 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. The higher effective tax rate in the third quarter was driven by the incremental expense described above.

Balance Sheet and Capital Management

Total assets were $4.33 billion at September 30, 2019, up $18.8 million from June 30, 2019, and up $74.4 million from September 30, 2018.

Investment securities were $781.7 million at September 30, 2019, down $23.4 million from June 30, 2019 and down $136.2 million from September 30, 2018. The decreases are primarily the result of the redeployment of assets from investment securities into loans to improve the earning asset mix. The timing of loan growth in the third quarter of 2019 resulted in the temporary deployment of a portion of investment securities proceeds for other purposes.

Total loans were $3.16 billion at September 30, 2019, up $4.7 million, or 0.2%, from June 30, 2019, and up $168.1 million, or 5.6%, from September 30, 2018.

• Commercial business loans totaled $574.5 million, down $20.5 million, or 3.4%, from June 30, 2019, and up $36.5 million, or 6.8%, from September 30, 2018.
  
  
• Commercial mortgage loans totaled $1.04 billion, up $25.4 million, or 2.5%, from June 30, 2019, and up $130.4 million, or 14.4%, from September 30, 2018.
  
  
• Residential real estate loans totaled $558.7 million, up $12.6 million, or 2.3%, from June 30, 2019, and up $51.1 million, or 10.1%, from September 30, 2018.
  
  
• Consumer indirect loans totaled $863.6 million, down $12.5 million, or 1.4%, from June 30, 2019, and down $45.8 million, or 5.0%, from September 30, 2018.

Total deposits were $3.59 billion at September 30, 2019, $114.2 million higher than June 30, 2019, and $100.5 million higher than September 30, 2018. The increase from June 30, 2019, was primarily due to public deposit seasonality. Deposit growth from September 30, 2018, was driven by business development and growth in the brokered deposit portfolio, partially offset by an approximately $50 million decrease in non-public certificates of deposit. Public deposit balances represented 28% of total deposits at September 30, 2019, compared to 26% of total deposits at June 30, 2019, and 28% at September 30, 2018.

Short-term borrowings were $211.4 million at September 30, 2019, a decrease of $97.1 million from June 30, 2019, and a decrease of $96.8 million from September 30, 2018. Short-term borrowings are typically utilized to manage the seasonality of public deposits.

Shareholders’ equity was $432.6 million at September 30, 2019, compared to $422.4 million at June 30, 2019, and $392.2 million at September 30, 2018. Common book value per share was $25.96 at September 30, 2019, an increase of $0.64 or 2.5% from $25.32 at June 30, 2019, and an increase of $2.42 or 10.3% from $23.54 at September 30, 2018. Tangible common book value per share⁽¹⁾ was $21.26 at September 30, 2019, an increase of $0.66 or 3.2% from $20.60 at June 30, 2019, and an increase of $2.67 or 14.4% from $18.59 at September 30, 2018.

During the third quarter of 2019, the Company declared a common stock dividend of $0.25 per common share. The dividend returned 32% of third quarter net income to common shareholders.

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

• Leverage Ratio was 8.86%, compared to 8.55% and 8.18% at June 30, 2019, and September 30, 2018, respectively.
  
  
• Common Equity Tier 1 Capital Ratio was 10.06%, compared to 9.95% and 9.81% at June 30, 2019, and September 30, 2018, respectively.
  
  
• Tier 1 Capital Ratio was 10.55%, compared to 10.45% and 10.34% at June 30, 2019, and September 30, 2018, respectively.
  
  
• Total Risk-Based Capital Ratio was 12.57%, compared to 12.57% and 12.58% at June 30, 2019, and September 30, 2018, respectively.

Credit Quality

Non-performing loans were $9.8 million at September 30, 2019, compared to $11.5 million at June 30, 2019, and $7.9 million at September 30, 2018.

The third quarter 2019 provision for loan losses was $1.8 million compared to $2.4 million in the second quarter of 2019 and $2.1 million in the third 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 $4.6 million in the quarter, $3.4 million higher than the second quarter of 2019 and $2.5 million higher than the third quarter of 2018. The increase was primarily the result of a $3.0 million partial charge-off of a $5.6 million loan classified as non-performing in the second quarter of 2019. The ratio of annualized net charge-offs to total average loans was 0.58% in the quarter, 0.16% in the second quarter of 2019 and 0.28% in the third 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 0.31% at September 30, 2019, compared to 0.36% at June 30, 2019 and 0.26% at September 30, 2018. The ratio of allowance for loan losses to non-performing loans was 324% at September 30, 2019, compared to 300% at June 30, 2019, and 433% at September 30, 2018.

Conference Call

The Company will host an earnings conference call and audio webcast on October 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, 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
	September 30,				June 30,				March 31,				December 31,				September 30,
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents	$	136,815			$	108,988			$	79,786			$	102,755			$	117,331
Investment securities:
Available for sale		395,441				406,509				427,545				445,677				458,310
Held-to-maturity		386,305				398,610				438,984				446,581				459,623
Total investment securities		781,746				805,119				866,529				892,258				917,933
Loans held for sale		6,398				2,045				2,069				2,868				3,166
Loans:
Commercial business		574,455				594,923				553,745				557,861				537,942
Commercial mortgage		1,035,450				1,010,071				993,259				958,194				905,011
Residential real estate loans		558,656				546,031				534,691				524,155				507,598
Residential real estate lines		107,615				108,006				108,623				109,718				111,204
Consumer indirect		863,614				876,116				902,762				919,917				909,434
Other consumer		16,630				16,537				16,099				16,753				17,142
Total loans		3,156,420				3,151,684				3,109,179				3,086,598				2,988,331
Allowance for loan losses		31,668				34,434				33,327				33,914				33,955
Total loans, net		3,124,752				3,117,250				3,075,852				3,052,684				2,954,376
Total interest-earning assets		3,979,493				4,007,797				4,009,496				4,031,151				3,927,238
Goodwill and other intangible assets, net		75,225				75,534				75,850				76,173				78,853
Total assets		4,332,737				4,313,945				4,302,541				4,311,698				4,258,385
Deposits:
Noninterest-bearing demand		755,296				719,150				732,631				755,460				748,167
Interest-bearing demand		707,153				677,846				707,430				622,482				711,321
Savings and money market		1,011,873				966,509				1,016,666				968,897				988,486
Time deposits		1,111,892				1,108,484				1,052,110				1,020,068				1,037,755
Total deposits		3,586,214				3,471,989				3,508,837				3,366,907				3,485,729
Short-term borrowings		211,400				308,500				287,300				469,500				308,200
Long-term borrowings, net		39,255				39,237				39,220				39,202				39,184
Total interest-bearing liabilities		3,081,573				3,100,576				3,102,726				3,120,149				3,084,946
Shareholders’ equity		432,617				422,354				408,253				396,293				392,154
Common shareholders’ equity		415,289				405,026				390,925				378,965				374,825
Tangible common equity (1)		340,064				329,492				315,075				302,792				295,972
Accumulated other comprehensive loss	$	(11,734	)		$	(13,160	)		$	(18,554	)		$	(21,281	)		$	(21,820	)
Common shares outstanding		15,997				15,995				15,941				15,929				15,925
Treasury shares		103				105				115				127				131
CAPITAL RATIOS AND PER SHARE DATA:
Leverage ratio		8.86	%			8.55	%			8.36	%			8.16	%			8.18	%
Common equity Tier 1 capital ratio		10.06	%			9.95	%			9.87	%			9.70	%			9.81	%
Tier 1 capital ratio		10.55	%			10.45	%			10.37	%			10.21	%			10.34	%
Total risk-based capital ratio		12.57	%			12.57	%			12.50	%			12.38	%			12.58	%
Common equity to assets		9.58	%			9.39	%			9.09	%			8.79	%			8.80	%
Tangible common equity to tangible assets (1)		7.99	%			7.77	%			7.45	%			7.15	%			7.08	%
Common book value per share	$	25.96			$	25.32			$	24.52			$	23.79			$	23.54
Tangible common book value per share (1)	$	21.26			$	20.60			$	19.77			$	19.01			$	18.59
_________________________ (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								2019												2018
	September 30,								Third				Second				First				Fourth				Third
	2019				2018				Quarter				Quarter				Quarter				Quarter				Quarter
SELECTED INCOME STATEMENT
DATA:
Interest income	$	126,621			$	111,607			$	42,459			$	42,648			$	41,514			$	41,125			$	39,117
Interest expense		29,882				20,772				9,976				10,184				9,722				9,096				8,214
Net interest income		96,739				90,835				32,483				32,464				31,792				32,029				30,903
Provision for loan losses		5,391				5,050				1,844				2,354				1,193				3,884				2,061
Net interest income after provision   for loan losses		91,348				85,785				30,639				30,110				30,599				28,145				28,842
Noninterest income:
Service charges on deposits		5,361				5,254				1,925				1,756				1,680				1,866				1,813
Insurance income		3,689				3,918				1,439				872				1,378				1,012				1,501
ATM and debit card		4,983				4,509				1,801				1,739				1,443				1,643				1,557
Investment advisory		6,812				5,934				2,269				2,327				2,216				2,189				2,245
Company owned life insurance		1,293				1,333				459				424				410				460				440
Investments in limited partnerships		492				1,019				116				144				232				184				328
Loan servicing		316				319				102				104				110				122				96
Income (loss) from derivative
instruments, net		1,013				683				890				(45	)			168				289				336
Net gain on sale of loans held for sale		1,028				530				439				407				182				266				303
Net (loss) gain on investment securities		1,721				(88	)			1,608				166				(53	)			(39	)			(95	)
Net gain (loss) on other assets		56				49				(2	)			9				49				1				37
Other		3,950				3,670				1,315				1,330				1,305				1,355				1,255
Total noninterest income		30,714				27,130				12,361				9,233				9,120				9,348				9,816
Noninterest expense:
Salaries and employee benefits		41,661				40,270				14,411				13,249				14,001				14,373				13,970
Occupancy and equipment		13,562				12,911				4,650				4,326				4,586				4,427				4,337
Professional services		3,618				3,132				1,528				932				1,158				780				1,353
Computer and data processing		3,951				3,884				1,378				1,350				1,223				1,238				1,291
Supplies and postage		1,554				1,545				522				498				534				487				485
FDIC assessments		1,005				1,486				7				486				512				489				498
Advertising and promotions		2,351				2,647				745				1,086				520				935				949
Amortization of intangibles		948				927				309				316				323				330				334
Goodwill impairment		-				-				-				-				-				2,350				-
Other		7,410				6,271				2,336				2,760				2,314				2,394				2,304
Total noninterest expense		76,060				73,073				25,886				25,003				25,171				27,803				25,521
Income before income taxes		46,002				39,842				17,114				14,340				14,548				9,690				13,137
Income tax expense		10,247				7,807				4,281				2,939				3,027				2,199				2,560
Net income		35,755				32,035				12,833				11,401				11,521				7,491				10,577
Preferred stock dividends		1,096				1,096				365				366				365				365				365
Net income available to common
shareholders	$	34,659			$	30,939			$	12,468			$	11,035			$	11,156			$	7,126			$	10,212
FINANCIAL RATIOS:
Earnings per share – basic	$	2.17			$	1.95			$	0.78			$	0.69			$	0.70			$	0.45			$	0.64
Earnings per share – diluted	$	2.16			$	1.94			$	0.78			$	0.69			$	0.70			$	0.45			$	0.64
Cash dividends declared on common stock	$	0.75			$	0.72			$	0.25			$	0.25			$	0.25			$	0.24			$	0.24
Common dividend payout ratio		34.56	%			36.92	%			32.05	%			36.23	%			35.71	%			53.33	%			37.50	%
Dividend yield (annualized)		3.32	%			3.07	%			3.29	%			3.44	%			3.73	%			3.70	%			3.03	%
Return on average assets		1.12	%			1.03	%			1.19	%			1.06	%			1.09	%			0.70	%			1.00	%
Return on average equity		11.51	%			11.11	%			11.86	%			11.01	%			11.65	%			7.50	%			10.71	%
Return on average common equity		11.64	%			11.23	%			12.00	%			11.12	%			11.79	%			7.46	%			10.82	%
Return on average tangible common
equity (1)		14.38	%			14.18	%			14.69	%			13.73	%			14.71	%			9.40	%			13.71	%
Efficiency ratio (2)		60.09	%			61.36	%			59.52	%			59.79	%			60.99	%			66.64	%			62.04	%
Effective tax rate		22.3	%			19.6	%			25.0	%			20.5	%			20.8	%			22.7	%			19.5	%
_________________________ (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								2019												2018
	September 30,								Third				Second				First				Fourth				Third
	2019				2018				Quarter				Quarter				Quarter				Quarter				Quarter
SELECTED AVERAGE BALANCES:
Federal funds sold and interest-   earning deposits	$	18,495			$	24,736			$	19,370			$	18,145			$	17,955			$	25,411			$	17,955
Investment securities (1)		838,995				1,000,272				785,595				845,624				886,878				937,907				954,027
Loans:
Commercial business		570,596				484,711				586,293				577,884				547,182				539,622				519,114
Commercial mortgage		1,003,593				853,571				1,021,931				1,010,544				977,818				944,476				896,159
Residential real estate loans		541,185				484,288				553,382				540,390				529,522				515,539				498,371
Residential real estate lines		108,207				113,761				107,290				107,826				109,529				110,236				111,762
Consumer indirect		890,560				896,493				868,927				891,967				911,252				914,636				904,480
Other consumer		16,029				16,685				16,141				15,721				16,226				16,671				16,633
Total loans		3,130,170				2,849,509				3,153,964				3,144,332				3,091,529				3,041,180				2,946,519
Total interest-earning assets		3,987,660				3,874,517				3,958,929				4,008,101				3,996,362				4,004,498				3,918,501
Goodwill and other intangible   assets, net		75,713				76,544				75,401				75,711				76,033				78,314				79,047
Total assets		4,281,270				4,139,338				4,260,810				4,300,254				4,282,991				4,268,809				4,187,538
Interest-bearing liabilities:
Interest-bearing demand		653,780				663,827				632,540				660,747				668,448				669,491				642,234
Savings and money market		973,005				1,007,734				956,410				996,878				965,829				1,011,427				978,578
Time deposits		1,090,896				903,645				1,099,212				1,096,544				1,076,687				1,032,632				946,499
Short-term borrowings		332,922				407,903				328,952				323,461				346,546				355,439				430,697
Long-term borrowings, net		39,227				39,156				39,244				39,227				39,209				39,191				39,174
Total interest-bearing liabilities		3,089,830				3,022,265				3,056,358				3,116,857				3,096,719				3,108,180				3,037,182
Noninterest-bearing demand deposits		719,630				706,222				717,473				714,205				727,321				733,717				730,960
Total deposits		3,437,311				3,281,428				3,405,635				3,468,374				3,438,285				3,447,267				3,298,271
Total liabilities		3,865,909				3,753,654				3,831,409				3,884,843				3,882,033				3,872,545				3,795,727
Shareholders’ equity		415,361				385,684				429,401				415,411				400,958				396,264				391,811
Common equity		398,033				368,356				412,073				398,083				383,630				378,936				374,482
Tangible common equity (2)	$	322,320			$	291,812			$	336,672			$	322,372			$	307,597			$	300,622			$	295,435
Common shares outstanding:
Basic		15,964				15,906				15,991				15,970				15,930				15,922				15,921
Diluted		16,017				15,951				16,056				16,015				15,978				15,971				15,964
SELECTED AVERAGE YIELDS: (Tax equivalent basis)
Investment securities		2.38	%			2.33	%			2.40	%			2.38	%			2.37	%			2.33	%			2.35	%
Loans		4.79	%			4.45	%			4.77	%			4.82	%			4.77	%			4.68	%			4.55	%
Total interest-earning assets		4.27	%			3.88	%			4.29	%			4.29	%			4.23	%			4.11	%			4.00	%
Interest-bearing demand		0.21	%			0.15	%			0.22	%			0.21	%			0.20	%			0.20	%			0.19	%
Savings and money market		0.43	%			0.26	%			0.44	%			0.44	%			0.41	%			0.38	%			0.33	%
Time deposits		2.12	%			1.51	%			2.12	%			2.17	%			2.06	%			1.88	%			1.69	%
Short-term borrowings		2.64	%			1.98	%			2.51	%			2.71	%			2.70	%			2.56	%			2.24	%
Long-term borrowings, net		6.30	%			6.31	%			6.30	%			6.30	%			6.30	%			6.30	%			6.31	%
Total interest-bearing liabilities		1.29	%			0.92	%			1.30	%			1.31	%			1.27	%			1.16	%			1.07	%
Net interest rate spread		2.98	%			2.96	%			2.99	%			2.98	%			2.96	%			2.95	%			2.93	%
Net interest margin		3.27	%			3.17	%			3.29	%			3.28	%			3.24	%			3.21	%			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								2019												2018
	September 30,								Third				Second				First				Fourth				Third
	2019				2018				Quarter				Quarter				Quarter				Quarter				Quarter
ASSET QUALITY DATA:
Allowance for Loan Losses
Beginning balance	$	33,914			$	34,672			$	34,434			$	33,327			$	33,914			$	33,955			$	33,955
Net loan charge-offs (recoveries):
Commercial business		47				675				10				10				27				1,135				431
Commercial mortgage		2,980				106				2,994				3				(17	)			901				110
Residential real estate loans		141				(87	)			40				76				25				23				16
Residential real estate lines		4				107				7				(1	)			(2	)			15				21
Consumer indirect		3,897				4,227				1,317				1,022				1,558				1,599				1,246
Other consumer		568				739				242				137				189				252				237
Total net charge-offs		7,637				5,767				4,610				1,247				1,780				3,925				2,061
Provision for loan losses		5,391				5,050				1,844				2,354				1,193				3,884				2,061
Ending balance	$	31,668			$	33,955			$	31,668			$	34,434			$	33,327			$	33,914			$	33,955
Net charge-offs (recoveries)   to average loans (annualized):
Commercial business		0.01	%			0.19	%			0.01	%			0.01	%			0.02	%			0.83	%			0.33	%
Commercial mortgage		0.40	%			0.02	%			1.16	%			0.00	%			-0.01	%			0.38	%			0.05	%
Residential real estate loans		0.03	%			-0.02	%			0.03	%			0.06	%			0.02	%			0.02	%			0.01	%
Residential real estate lines		0.01	%			0.13	%			0.03	%			-0.01	%			-0.01	%			0.05	%			0.08	%
Consumer indirect		0.59	%			0.63	%			0.60	%			0.46	%			0.69	%			0.69	%			0.55	%
Other consumer		4.74	%			5.92	%			5.93	%			3.51	%			4.73	%			6.00	%			5.66	%
Total loans		0.33	%			0.27	%			0.58	%			0.16	%			0.23	%			0.51	%			0.28	%
Supplemental information (1)
Non-performing loans:
Commercial business	$	2,884			$	2,203			$	2,884			$	638			$	594			$	912			$	2,203
Commercial mortgage		2,867				1,900				2,867				6,836				909				1,586				1,900
Residential real estate loans		2,526				2,057				2,526				2,283				2,225				2,391				2,057
Residential real estate lines		182				297				182				282				252				255				297
Consumer indirect		1,326				1,385				1,326				1,399				1,822				1,989				1,385
Other consumer		3				8				3				25				2				8				8
Total non-performing loans		9,788				7,850				9,788				11,463				5,804				7,141				7,850
Foreclosed assets		91				290				91				37				41				230				290
Total non-performing assets	$	9,879			$	8,140			$	9,879			$	11,500			$	5,845			$	7,371			$	8,140
Total non-performing loans   to total loans		0.31	%			0.26	%			0.31	%			0.36	%			0.19	%			0.23	%			0.26	%
Total non-performing assets   to total assets		0.23	%			0.19	%			0.23	%			0.27	%			0.14	%			0.17	%			0.19	%
Allowance for loan losses   to total loans		1.00	%			1.14	%			1.00	%			1.09	%			1.07	%			1.10	%			1.14	%
Allowance for loan losses   to non-performing loans		324	%			433	%			324	%			300	%			574	%			475	%			433	%
_________________________ (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								2019												2018
	September 30,								Third				Second				First				Fourth				Third
	2019				2018				Quarter				Quarter				Quarter				Quarter				Quarter
Ending tangible assets:
Total assets									$	4,332,737			$	4,313,945			$	4,302,541			$	4,311,698			$	4,258,385
Less: Goodwill and other intangible   assets, net										75,225				75,534				75,850				76,173				78,853
Tangible assets									$	4,257,512			$	4,238,411			$	4,226,691			$	4,235,525			$	4,179,532
Ending tangible common equity:
Common shareholders’ equity									$	415,289			$	405,026			$	390,925			$	378,965			$	374,825
Less: Goodwill and other intangible   assets, net										75,225				75,534				75,850				76,173				78,853
Tangible common equity									$	340,064			$	329,492			$	315,075			$	302,792			$	295,972
Tangible common equity to tangible   assets (1)										7.99	%			7.77	%			7.45	%			7.15	%			7.08	%
Common shares outstanding										15,997				15,995				15,941				15,929				15,925
Tangible common book value per   share (2)									$	21.26			$	20.60			$	19.77			$	19.01			$	18.59
Average tangible assets:
Average assets	$	4,281,270			$	4,139,338			$	4,260,810			$	4,300,254			$	4,282,991			$	4,268,809			$	4,187,538
Less: Average goodwill and other   intangible assets, net		75,713				76,544				75,401				75,711				76,033				78,314				79,047
Average tangible assets	$	4,205,557			$	4,062,794			$	4,185,409			$	4,224,543			$	4,206,958			$	4,190,495			$	4,108,491
Average tangible common equity:
Average common equity	$	398,033			$	368,356			$	412,073			$	398,083			$	383,630			$	378,936			$	374,482
Less: Average goodwill and other   intangible assets, net		75,713				76,544				75,401				75,711				76,033				78,314				79,047
Average tangible common equity	$	322,320			$	291,812			$	336,672			$	322,372			$	307,597			$	300,622			$	295,435
Net income available to   common shareholders	$	34,659			$	30,939			$	12,468			$	11,035			$	11,156			$	7,126			$	10,212
Return on average tangible common   equity (3)		14.38	%			14.18	%			14.69	%			13.73	%			14.71	%			9.40	%			13.71	%
Pre-tax pre-provision income:
Net income	$	35,755			$	32,035			$	12,833			$	11,401			$	11,521			$	7,491			$	10,577
Add: Income tax expense		10,247				7,807				4,281				2,939				3,027				2,199				2,560
Add: Provision for loan losses		5,391				5,050				1,844				2,354				1,193				3,884				2,061
Pre-tax pre-provision income	$	51,393			$	44,892			$	18,958			$	16,694			$	15,741			$	13,574			$	15,198
_________________________ (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.