Financial Institutions, Inc. Announces Third Quarter 2017 Results

WARSAW, N.Y., Oct. 24, 2017 (GLOBE NEWSWIRE) -- Financial Institutions, Inc. (NASDAQ:FISI), today reported financial and operational results for the third quarter ended September 30, 2017. Financial Institutions, Inc. (the “Company”) is the parent company of Five Star Bank (the “Bank”), Scott Danahy Naylon, LLC (“Scott Danahy Naylon” or “SDN”) and Courier Capital, LLC (“Courier Capital”).

Net income for the quarter was $8.3 million, compared to $6.2 million for the second quarter of 2017 and $8.5 million for the third quarter of 2016. After preferred dividends, net income available to common shareholders was $7.9 million, or $0.52 per diluted share (“EPS”), compared to $5.9 million, or $0.40 per diluted share, for the second quarter of 2017 and $8.1 million, or $0.56 per diluted share, for the third quarter of 2016.

President and Chief Executive Officer Martin K. Birmingham stated, “It was a good quarter for our Company and we made significant progress on key initiatives. We sold nearly 500,000 shares of common stock under our ongoing at-the-market equity offering (“ATM Offering”), generating approximately $13.0 million of net proceeds. The capital raised through the offering positions us to continue to take advantage of growth opportunities in our geographic footprint. In late August, we acquired the assets of a Buffalo-area wealth management firm, furthering our strategy to increase fee-based noninterest income and diversify revenues. This bolt-on acquisition increases Courier Capital’s total assets under management to approximately $1.6 billion and expands its client base in Western New York.

“We are also pleased to announce that we have achieved the important milestone of surpassing $4 billion in total assets. This accomplishment was achieved through the collective performance of our team and the successful execution of our strategic plan.”

Chief Financial Officer Kevin B. Klotzbach added, “We continued to generate loan growth in the third quarter of 2017 — total loans were 3.9% higher than the prior quarter, including 4.7% growth in commercial mortgage loans, 5.3% growth in commercial business loans and 3.7% growth in consumer indirect loans. In a challenging interest rate environment, we maintained a stable net interest margin. Our margin of 3.17% in the third quarter was one basis point lower than the prior quarter, primarily as a result of the higher cost of short-term borrowings.

“We are pleased with the progress made to date on our ATM offering. The issuance of common stock has positively impacted our tangible common equity to tangible assets ratio; however, it also negatively impacted EPS by approximately two cents in the quarter.”

Third Quarter 2017 Highlights:

  • Net interest income of $28.4 million increased $2.4 million, or 9.2%, as compared to the third quarter of 2016
  • Noninterest income of $8.6 million was $35 thousand, or 0.4%, higher than the third quarter of 2016
    • Excluding the net gain on investment securities from both periods, noninterest income was $8.4 million, 3.4% higher than the third quarter of 2016
  • Total interest-earning assets, assets, loans and deposits all reached record-high levels at quarter-end:
    • Total interest-earning assets increased $115.3 million during the quarter, to $3.71 billion
    • Total assets increased $130.1 million during the quarter, to $4.02 billion
    • Total loans increased $99.4 million during the quarter, to $2.62 billion
    • Total deposits increased $149.0 million during the quarter, to $3.28 billion
  • The Company declared a quarterly cash dividend of $0.21 per common share, which represented a 2.89% annualized dividend yield as of September 30, 2017, and a return of 40% of third quarter net income to common shareholders
  • The Company made significant progress on its priority to grow Five Star Bank’s residential mortgage lending business
  • The Company continued its ATM Offering and sold 498,038 common shares, generating $13.5 million of gross proceeds ($13.0 million of net proceeds)
  • Courier Capital acquired the assets of Robshaw & Julian Associates, a Western New York investment advisory firm

“At-The-Market” Offering of Common Stock

On May 30, 2017, the Company announced an ATM Offering program under which it may sell up to $40 million of its common stock. The Company expects to use the net proceeds of this offering to support organic growth and other general corporate purposes, including contributing capital to its banking subsidiary, Five Star Bank. To date, the Company has sold 1,069,635 shares of its common stock under this program at a weighted average price of $29.01, representing gross proceeds of $31.0 million. Net proceeds received were $29.7 million.

Acquisition of Robshaw & Julian Associates

On August 31, 2017, Courier Capital acquired the assets of Robshaw & Julian Associates, Inc., an investment advisor based in Williamsville, New York. The firm’s assets under management (“AUM”) totaled approximately $175 million, increasing Courier Capital’s AUM after closing to approximately $1.6 billion. The prior owners of the firm have been named officers of Courier Capital, where they are expected to continue to manage their portfolios.

Net Interest Income and Net Interest Margin

  • Net interest income was $28.4 million for the third quarter of 2017, $1.0 million higher than the second quarter of 2017 and $2.4 million higher than the third quarter of 2016.
  • Average interest-earning assets for the quarter were $3.67 billion, $111.7 million higher than the second quarter of 2017 and $351.4 million higher than the third quarter of 2016. The primary driver of the increase was organic loan growth.
  • Third quarter 2017 net interest margin was 3.17%, one basis point lower than the second quarter of 2017 and six basis points lower than the third quarter of 2016. Net interest margin has been negatively impacted by a flattening of the yield curve and higher short-term borrowing costs.

Noninterest Income

Noninterest income was $8.6 million for the third quarter of 2017 as compared to $9.3 million in the second quarter of 2017 and $8.5 million in the third quarter of 2016.

  • Excluding the net gain on investment securities from all periods, noninterest income was $8.4 million in the third quarter of 2017, $733 thousand lower than $9.1 million in the second quarter of 2017, and $277 thousand higher than $8.1 million in the third quarter of 2016.
    • Lower noninterest income in the third quarter of 2017 as compared to the second quarter of 2017 was primarily the result of a second quarter non-recurring $1.2 million non-cash fair value adjustment of contingent consideration liability relating to SDN. Partially offsetting this decrease was a $355 thousand increase in insurance income due to the timing of customer renewals.
    • Higher noninterest income in the third quarter of 2017 as compared to the third quarter of 2016 was primarily the result of a $171 thousand increase in investment advisory income and the recognition of a $127 thousand fair value adjustment to our derivative financial instruments.

Noninterest Expense

Noninterest expense was $22.5 million for the third quarter of 2017 as compared to $23.9 million in the second quarter of 2017 and $20.6 million in the third quarter of 2016.

  • Noninterest expense decreased from the second quarter of 2017 primarily as a result of a second quarter non-recurring $1.6 million non-cash goodwill impairment charge relating to SDN.
  • The increase in noninterest expense as compared to the third quarter of 2016 was primarily the result of higher salaries and employee benefits, occupancy and equipment expenses, and computer and data processing expenses related to our organic growth initiatives.

Income Taxes

Income tax expense was $3.5 million for the third quarter of 2017 as compared to $2.7 million in the second quarter of 2017 and $3.5 million in the third quarter of 2016. The effective tax rate was 29.5% for the third quarter of 2017, 30.5% in the second quarter of 2017, and 29.5% in the third quarter of 2016. The higher effective tax rate in the second quarter of 2017 was a result of the $1.6 million non-cash goodwill impairment charge, partially offset by the $1.2 million non-cash fair value adjustment of contingent consideration liability, both of which were non-taxable adjustments related to our 2014 acquisition of SDN.

Balance Sheet and Capital Management

Total assets were $4.02 billion at September 30, 2017, up $130.1 million from $3.89 billion at June 30, 2017, and up $311.3 million from $3.71 billion at December 31, 2016. The increases were primarily the result of loan growth funded by deposit growth.

Total loans were $2.62 billion at September 30, 2017, up $99.4 million, or 3.9%, from June 30, 2017, and up $276.1 million, or 11.8%, from December 31, 2016.

  • Commercial business loans totaled $419.4 million, up $21.1 million, or 5.3%, from June 30, 2017, and up $69.9 million, or 20.0%, from December 31, 2016.
  • Commercial mortgage loans totaled $758.0 million, up $33.9 million, or 4.7%, from June 30, 2017, and up $87.9 million, or 13.1%, from December 31, 2016.
  • Residential real estate loans totaled $446.0 million, up $14.0 million, or 3.2%, from June 30, 2017, and up $18.1 million, or 4.2%, from December 31, 2016.
  • Consumer indirect loans totaled $857.5 million, up $30.8 million, or 3.7%, from June 30, 2017, and up $105.1 million, or 14.0%, from December 31, 2016.

Total deposits were $3.28 billion at September 30, 2017, an increase of $149.0 million from June 30, 2017, and an increase of $286.3 million from December 31, 2016. The increase from June 30, 2017, was primarily due to public deposit seasonality. The increase from December 31, 2016, was primarily the result of successful business development efforts in both municipal and retail banking. Public deposit balances represented 28% of total deposits at September 30, 2017, compared to 27% at June 30, 2017, and 27% at December 31, 2016. Nonpublic deposits increased 2.7% from June 30, 2017, and 7.5% from December 31, 2016.

Short-term borrowings were $310.8 million at September 30, 2017, down $36.7 million from June 30, 2017, and down $20.7 million from December 31, 2016. Short-term borrowings are typically utilized to manage the seasonality of public deposits.

Shareholders’ equity was $366.0 million at September 30, 2017, compared to $347.6 million at June 30, 2017, and $320.1 million at December 31, 2016. Common book value per share was $22.31 at September 30, 2017, an increase of $0.47 or 2.2% from $21.84 at June 30, 2017, and an increase of $1.49 or 7.2% from $20.82 at December 31, 2016. The increases in shareholders’ equity and common book value per share are attributable to common stock issued through our ATM Offering plus net income less dividends paid, net of the change in unrealized gain (loss) on investment securities.

During the third quarter 2017, the Company declared a common stock dividend of $0.21 per common share. The third quarter 2017 dividend returned 40% of third quarter net income to common shareholders.

Regulatory capital ratios at September 30, 2017, were higher than the prior quarter and prior year due to increased capital as a result of the recent ATM Offering:

  • Leverage Ratio was 7.91%, compared to 7.70% and 7.36% at June 30, 2017, and December 31, 2016, respectively.
  • Common Equity Tier 1 Ratio was 10.09%, compared to 9.86% and 9.59% at June 30, 2017, and December 31, 2016, respectively.
  • Tier 1 Risk-Based Capital was 10.69%, compared to 10.48% and 10.26% at June 30, 2017, and December 31, 2016, respectively.
  • Total Risk-Based Capital was 13.24%, compared to 13.09% and 12.97% at June 30, 2017, and December 31, 2016, respectively.

Credit Quality

Non-performing loans were $12.6 million at September 30, and June 30, 2017, and $6.3 million at December 31, 2016. The increase from December 31, 2016, was primarily the result of the second quarter of 2017 internal downgrade of two commercial credit relationships with unpaid principal balances totaling $5.6 million.

  • The provision for loan losses for the quarter was $2.8 million, a decrease of $1.0 million from the second quarter of 2017 and an increase of $841 thousand from the third quarter of 2016. The higher provision in the second quarter of 2017 was primarily attributable to the downgrade of one commercial credit relationship. The downgrade necessitated a provision and increase in allowance for loan losses of approximately $925 thousand. The increase in provision from the third quarter of 2016 is primarily attributable to growth in the total loan portfolio.
  • The ratio of annualized net charge-offs to total average loans was 0.25% in the current quarter, compared to 0.29% in the prior quarter and 0.20% in the third quarter of 2016.
  • The ratio of non-performing loans to total loans was 0.48% at September 30, 2017, compared to 0.50% at June 30, 2017, and 0.27% at December 31, 2016.
  • The ratio of allowance for loans losses to total loans was 1.31% at September 30, 2017, 1.32% at June 30, 2017, and 1.32% at December 31, 2016.
  • The ratio of allowance for loan losses to non-performing loans was 273% at September 30, 2017, 263% at June 30, 2017, and 489% at December 31, 2016.

About Financial Institutions, Inc.

Financial Institutions, Inc. provides diversified financial services through its subsidiaries, Five Star Bank, Scott Danahy Naylon and Courier Capital. Five Star Bank provides a wide range of consumer and commercial banking and lending services to individuals, municipalities and businesses through a network of more than 50 offices throughout Western and Central New York State. Scott Danahy Naylon provides a broad range of insurance services to personal and business clients across 45 states. Courier Capital provides customized investment management, investment consulting and retirement plan services to individuals, businesses, institutions, foundations and retirement plans. Financial Institutions, Inc. and its subsidiaries employ approximately 650 individuals. The Company’s stock is listed on the NASDAQ Global Select Market under the symbol FISI. Additional information is available at www.fiiwarsaw.com.

Non-GAAP Financial Information

This news release contains disclosure regarding tangible common equity, tangible common equity to tangible assets, tangible common book value per share, 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. Statements herein are based on certain assumptions and analyses by the Company and are factors it believes are appropriate in the circumstances. Actual results could differ materially from those contained in or implied by such statements for a variety of reasons including, but not limited to: the Company’s ability to implement its strategic plan, the Company’s ability to redeploy investment assets into loan assets, whether the Company experiences greater credit losses than expected, whether the Company experiences breaches of its, or third party, information systems, the attitudes and preferences of the Company’s customers, the Company’s ability to successfully integrate and profitably operate Scott Danahy Naylon and Courier Capital, the competitive environment, fluctuations in the fair value of securities in its investment portfolio, changes in the regulatory environment and the Company’s compliance with regulatory requirements, changes in interest rates, general economic and credit market conditions nationally and regionally. Consequently, all forward-looking statements made herein are qualified by these cautionary statements and the cautionary language in the Company’s Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q and other documents filed with the SEC. Except as required by law, the Company undertakes no obligation to revise these statements following the date of this press release.

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


FINANCIAL INSTITUTIONS, INC.
Selected Financial Information (Unaudited)
(Amounts in thousands, except per share amounts)
2017
2016
September 30, June 30, March 31, December 31, September 30,
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents $97,838 $84,537 $149,699 $71,277 $110,721
Investment securities:
Available for sale 551,491 540,575 540,406 539,926 559,495
Held-to-maturity 538,332 533,471 545,381 543,338 528,708
Total investment securities 1,089,823 1,074,046 1,085,787 1,083,264 1,088,203
Loans held for sale 2,407 1,864 2,097 1,050 844
Loans:
Commercial business 419,415 398,343 375,518 349,547 350,588
Commercial mortgage 757,987 724,064 675,007 670,058 636,338
Residential real estate loans 446,044 432,053 428,171 427,937 425,882
Residential real estate lines 117,621 118,611 120,874 122,555 123,663
Consumer indirect 857,528 826,708 786,120 752,421 729,644
Other consumer 17,640 17,093 16,937 17,643 17,879
Total loans 2,616,235 2,516,872 2,402,627 2,340,161 2,283,994
Allowance for loan losses 34,347 33,159 31,081 30,934 29,350
Total loans, net 2,581,888 2,483,713 2,371,546 2,309,227 2,254,644
Total interest-earning assets 3,708,385 3,593,106 3,523,613 3,428,541 3,357,609
Goodwill and other intangible assets, net 74,997 73,477 75,343 75,640 75,943
Total assets 4,021,591 3,891,538 3,859,865 3,710,340 3,687,365
Deposits:
Noninterest-bearing demand 710,865 677,124 666,332 677,076 657,624
Interest-bearing demand 656,703 631,451 698,962 581,436 629,413
Savings and money market 1,050,487 999,125 1,069,901 1,034,194 1,052,224
Time deposits 863,453 824,786 734,464 702,516 724,096
Total deposits 3,281,508 3,132,486 3,169,659 2,995,222 3,063,357
Short-term borrowings 310,800 347,500 303,300 331,500 230,200
Long-term borrowings, net 39,114 39,096 39,078 39,061 39,043
Total interest-bearing liabilities 2,920,557 2,841,958 2,845,705 2,688,707 2,674,976
Shareholders’ equity 366,002 347,641 325,688 320,054 326,271
Common shareholders’ equity 348,668 330,301 308,348 302,714 308,931
Tangible common equity (1) 273,671 256,824 233,005 227,074 232,988
Unrealized gain (loss) on investment securities,
net of tax
$17 $(232) $(1,938) $(2,530)$9,444
Common shares outstanding 15,626 15,127 14,536 14,538 14,528
Treasury shares 136 137 156 154 164
CAPITAL RATIOS AND PER SHARE DATA:
Leverage ratio 7.91% 7.70% 7.30% 7.36% 7.39%
Common equity Tier 1 ratio 10.09% 9.86% 9.46% 9.59% 9.58%
Tier 1 risk-based capital 10.69% 10.48% 10.11% 10.26% 10.27%
Total risk-based capital 13.24% 13.09% 12.75% 12.97% 12.98%
Common equity to assets 8.67% 8.49% 7.99% 8.16% 8.38%
Tangible common equity to tangible assets (1) 6.93% 6.73% 6.16% 6.25% 6.45%
Common book value per share $22.31 $21.84 $21.21 $20.82 $21.26
Tangible common book value per share (1) $17.51 $16.98 $16.03 $15.62 $16.04
Stock price (Nasdaq:FISI):
High $31.15 $35.35 $35.40 $34.55 $27.63
Low $25.65 $29.09 $30.50 $25.98 $25.16
Close $28.80 $29.80 $32.95 $34.20 $27.11

________
(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 2017
2016
September 30, Third Second First Fourth Third
2017
2016
Quarter Quarter Quarter Quarter Quarter
SELECTED INCOME STATEMENT DATA:
Interest income $95,343 $85,241 $33,396 $31,409 $30,538 $29,990 $29,360
Interest expense 12,488 9,273 4,958 3,987 3,543 3,268 3,310
Net interest income 82,855 75,968 28,438 27,422 26,995 26,722 26,050
Provision for loan losses 9,415 6,281 2,802 3,832 2,781 3,357 1,961
Net interest income after provision
for loan losses 73,440 69,687 25,636 23,590 24,214 23,365 24,089
Noninterest income:
Service charges on deposits 5,486 5,392 1,901 1,840 1,745 1,888 1,913
Insurance income 4,052 4,262 1,488 1,133 1,431 1,134 1,407
ATM and debit card 4,230 4,187 1,445 1,456 1,329 1,500 1,441
Investment advisory 4,357 3,934 1,497 1,429 1,431 1,274 1,326
Company owned life insurance 1,367 2,340 449 473 445 468 486
Investments in limited partnerships 91 253 (14) 135 (30) 47 161
Loan servicing 348 332 105 123 120 104 104
Net gain on sale of loans held for sale 270 202 150 72 48 38 46
Net gain on investment securities 600 2,426 184 210 206 269 426
Net gain (loss) on other assets 25 285 21 6 (2) 28 199
Contingent consideration liability adjustment 1,200 - - 1,200 - 1,170 -
Other 3,717 3,059 1,348 1,256 1,113 1,168 1,030
Total noninterest income 25,743 26,672 8,574 9,333 7,836 9,088 8,539
Noninterest expense:
Salaries and employee benefits 35,703 33,757 12,348 11,986 11,369 11,458 11,325
Occupancy and equipment 12,235 10,906 4,087 4,184 3,964 3,623 3,617
Professional services 3,741 5,236 1,313 1,229 1,199 948 956
Computer and data processing 3,691 3,335 1,208 1,312 1,171 1,116 1,089
Supplies and postage 1,496 1,548 492 467 537 499 490
FDIC assessments 1,366 1,283 440 469 457 452 406
Advertising and promotions 939 1,259 188 473 278 436 302
Amortization of intangibles 876 946 288 291 297 303 309
Goodwill impairment 1,575 - - 1,575 - - -
Other 5,728 5,686 2,103 1,955 1,670 1,880 2,124
Total noninterest expense 67,350 63,956 22,467 23,941 20,942 20,715 20,618
Income before income taxes 31,833 32,403 11,743 8,982 11,108 11,738 12,010
Income tax expense 9,365 9,165 3,464 2,736 3,165 3,045 3,541
Net income 22,468 23,238 8,279 6,246 7,943 8,693 8,469
Preferred stock dividends 1,097 1,097 366 366 365 365 366
Net income available to common shareholders $21,371 $22,141 $7,913 $5,880 $7,578 $8,328 $8,103
FINANCIAL RATIOS:
Earnings per share – basic $1.44 $1.53 $0.52 $0.40 $0.52 $0.58 $0.56
Earnings per share – diluted $1.44 $1.53 $0.52 $0.40 $0.52 $0.57 $0.56
Cash dividends declared on common stock $0.63 $0.60 $0.21 $0.21 $0.21 $0.21 $0.20
Common dividend payout ratio 43.75% 39.22% 40.38% 52.50% 40.38% 36.21% 35.71%
Dividend yield (annualized) 2.92% 2.96% 2.89% 2.83% 2.58% 2.44% 2.93%
Return on average assets 0.78% 0.89% 0.83% 0.65% 0.86% 0.94% 0.94%
Return on average equity 8.84% 9.78% 9.17% 7.44% 9.94% 10.68% 10.34%
Return on average common equity 8.86% 9.86% 9.21% 7.38% 10.02% 10.81% 10.45%
Return on average tangible common equity (1) 11.54% 13.21% 11.76% 9.65% 13.30% 14.37% 13.87%
Efficiency ratio (2) 61.01% 62.35% 59.75% 64.10% 59.09% 56.99% 58.99%
Effective tax rate 29.4% 28.3% 29.5% 30.5% 28.5% 25.9% 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 2017
2016
September 30, Third Second First Fourth Third
2017
2016
Quarter Quarter Quarter Quarter Quarter
SELECTED AVERAGE BALANCES:
Federal funds sold and interest-earning deposits $8,869 $129 $-
$16,639 $10,078 $12,011 $1
Investment securities (1) 1,090,725 1,057,272 1,096,374 1,085,670 1,090,063 1,080,941 1,068,866
Loans:
Commercial business 385,025 332,985 405,308 385,938 363,367 347,496 352,696
Commercial mortgage 710,690 604,577 752,634 700,010 678,613 659,713 625,003
Residential real estate loans 432,838 397,327 438,436 430,237 429,746 425,687 417,854
Residential real estate lines 119,493 125,273 117,597 119,333 121,594 122,734 123,312
Consumer indirect 804,051 691,343 841,081 802,379 767,887 741,598 711,948
Other consumer 16,941 17,678 17,184 16,680 16,956 17,448 17,548
Total loans 2,469,038 2,169,183 2,572,240 2,454,577 2,378,163 2,314,676 2,248,361
Total interest-earning assets 3,568,632 3,226,584 3,668,614 3,556,886 3,478,304 3,407,628 3,317,228
Goodwill and other intangible assets, net 74,802 76,291 73,960 74,954 75,508 75,807 76,116
Total assets 3,851,590 3,502,628 3,951,002 3,847,137 3,754,470 3,679,569 3,593,672
Interest-bearing liabilities:
Interest-bearing demand 632,596 566,419 612,401 651,485 634,141 604,717 547,545
Savings and money market 1,027,927 988,224 998,769 1,054,997 1,030,363 1,076,884 981,207
Time deposits 780,374 693,153 855,371 762,874 721,404 711,061 722,098
Short-term borrowings 345,637 250,329 385,512 323,562 327,195 244,796 315,122
Long-term borrowings, net 39,085 39,015 39,103 39,085 39,067 39,050 39,032
Total interest-bearing liabilities 2,825,619 2,537,140 2,891,156 2,832,003 2,752,170 2,676,508 2,605,004
Noninterest-bearing demand deposits 665,221 626,018 679,303 658,926 657,190 655,445 638,417
Total deposits 3,106,118 2,873,814 3,145,844 3,128,282 3,043,098 3,048,107 2,889,267
Total liabilities 3,511,794 3,185,190 3,592,685 3,510,410 3,430,504 3,355,894 3,267,808
Shareholders’ equity 339,796 317,438 358,317 336,727 323,966 323,675 325,864
Common equity 322,457 300,098 340,981 319,387 306,626 306,335 308,524
Tangible common equity (2) $247,655 $223,807 $267,021 $244,433 $231,118 $230,528 $232,408
Common shares outstanding:
Basic 14,806 14,429 15,268 14,664 14,479 14,459 14,456
Diluted 14,847 14,485 15,302 14,702 14,528 14,511 14,500
SELECTED AVERAGE YIELDS:
(Tax equivalent basis)
Investment securities 2.46% 2.47% 2.45% 2.47% 2.46% 2.41% 2.44%
Loans 4.20% 4.19% 4.24% 4.16% 4.19% 4.17% 4.18%
Total interest-earning assets 3.66% 3.62% 3.71% 3.63% 3.64% 3.60% 3.62%
Interest-bearing demand 0.14% 0.15% 0.14% 0.14% 0.14% 0.14% 0.15%
Savings and money market 0.14% 0.13% 0.15% 0.14% 0.13% 0.13% 0.14%
Time deposits 1.04% 0.89% 1.15% 1.01% 0.95% 0.93% 0.91%
Short-term borrowings 1.09% 0.63% 1.29% 1.08% 0.86% 0.70% 0.63%
Long-term borrowings, net 6.32% 6.33% 6.32% 6.32% 6.32% 6.33% 6.33%
Total interest-bearing liabilities 0.59% 0.49% 0.68% 0.56% 0.52% 0.49% 0.51%
Net interest spread 3.07% 3.13% 3.03% 3.07% 3.12% 3.11% 3.11%
Net interest margin 3.19% 3.24% 3.17% 3.18% 3.23% 3.22% 3.23%

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

FINANCIAL INSTITUTIONS, INC.
Selected Financial Information (Unaudited)
(Amounts in thousands)
Nine months ended 2017
2016
September 30, Third Second First Fourth Third
2017 2016 Quarter Quarter Quarter Quarter Quarter
ASSET QUALITY DATA:
Allowance for Loan Losses
Beginning balance $30,934 $27,085 $33,159 $31,081 $30,934 $29,350 $28,525
Net loan charge-offs (recoveries):
Commercial business 1,576 444 44 568 964 52 (31)
Commercial mortgage (247) 128 (5) (38) (204) 212 127
Residential real estate loans 213 116 161 78 (26) (1) 61
Residential real estate lines 6 48 19 (46) 33 41 4
Consumer indirect 4,084 3,128 1,244 1,082 1,758 1,361 896
Other consumer 370 152 151 110 109 108 79
Total net charge-offs 6,002 4,016 1,614 1,754 2,634 1,773 1,136
Provision for loan losses 9,415 6,281 2,802 3,832 2,781 3,357 1,961
Ending balance $34,347 $29,350 $34,347 $33,159 $31,081 $30,934 $29,350
Net charge-offs (recoveries)
to average loans (annualized):
Commercial business 0.55% 0.18% 0.04% 0.59% 1.08% 0.06% -0.03%
Commercial mortgage -0.05% 0.03% -0.00% -0.02% -0.12% 0.13% 0.08%
Residential real estate loans 0.07% 0.04% 0.15% 0.07% -0.02% -0.00% 0.06%
Residential real estate lines 0.01% 0.05% 0.06% -0.15% 0.11% 0.13% 0.01%
Consumer indirect 0.68% 0.60% 0.59% 0.54% 0.93% 0.73% 0.50%
Other consumer 2.92% 1.15% 3.49% 2.65% 2.61% 2.46% 1.79%
Total loans 0.33% 0.25% 0.25% 0.29% 0.45% 0.30% 0.20%
Supplemental information (1)
Non-performing loans:
Commercial business $7,182 $2,157 $7,182 $7,312 $3,753 $2,151 $2,157
Commercial mortgage 2,539 1,345 2,539 2,189 1,267 1,025 1,345
Residential real estate loans 1,263 1,239 1,263 1,579 1,601 1,236 1,239
Residential real estate lines 325 274 325 379 336 372 274
Consumer indirect 1,250 1,077 1,250 1,149 1,040 1,526 1,077
Other consumer 26 9 26 22 23 16 9
Total non-performing loans 12,585 6,101 12,585 12,630 8,020 6,326 6,101
Foreclosed assets 281 294 281 154 58 107 294
Total non-performing assets $12,866 $6,395 $12,866 $12,784 $8,078 $6,433 $6,395
Total non-performing loans to total loans 0.48% 0.27% 0.48% 0.50% 0.33% 0.27% 0.27%
Total non-performing assets to total assets 0.32% 0.17% 0.32% 0.33% 0.21% 0.17% 0.17%
Allowance for loan losses to total loans 1.31% 1.29% 1.31% 1.32% 1.29% 1.32% 1.29%
Allowance for loan losses
to non-performing loans 273% 481% 273% 263% 388% 489% 481%

________
(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 2017 2016
September 30, Third Second First Fourth Third
2017 2016 Quarter Quarter Quarter Quarter Quarter
Ending tangible assets:
Total assets $4,021,591 $3,891,538 $3,859,865 $3,710,340 $3,687,365
Less: Goodwill and other intangible
assets, net 74,997 73,477 75,343 75,640 75,943
Tangible assets $3,946,594 $3,818,061 $3,784,522 $3,634,700 $3,611,422
Ending tangible common
equity:
Common shareholders’ equity $348,668 $330,301 $308,348 $302,714 $308,931
Less: Goodwill and other intangible
assets, net 74,997 73,477 75,343 75,640 75,943
Tangible common equity $273,671 $256,824 $233,005 $227,074 $232,988
Tangible common equity to
tangible assets (1) 6.93% 6.73% 6.16% 6.25% 6.45%
Common shares outstanding 15,626 15,127 14,536 14,538 14,528
Tangible common book value per
share (2) $17.51 $16.98 $16.03 $15.62 $16.04
Average tangible assets:
Average assets $3,851,590 $3,502,628 $3,951,002 $3,847,137 $3,754,470 $3,679,569 $3,593,672
Less: Average goodwill and other
intangible assets, net 74,802 76,291 73,960 74,954 75,508 75,807 76,116
Average tangible assets $3,776,788 $3,426,337 $3,877,042 $3,772,183 $3,678,962 $3,603,762 $3,517,556
Average tangible common
equity:
Average common equity $322,457 $300,098 $340,981 $319,387 $306,626 $306,335 $308,524
Less: Average goodwill and other
intangible assets, net 74,802 76,291 73,960 74,954 75,508 75,807 76,116
Average tangible common equity $247,655 $223,807 $267,021 $244,433 $231,118 $230,528 $232,408
Net income available to
common shareholders $21,371 $22,141 $7,913 $5,880 $7,578 $8,328 $8,103
Return on average tangible
common equity (3) 11.54% 13.21% 11.76% 9.65% 13.30% 14.37% 13.87%

________
(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.

Source:Financial Institutions, Inc.