FINANCIAL INSTITUTIONS, INC. ANNOUNCES SECOND QUARTER 2018 RESULTS
WARSAW, N.Y., July 26, 2018– Financial Institutions, Inc. (NASDAQ: FISI), today reported financial and operational results for the second quarter ended June 30, 2018. Financial Institutions, Inc. (the “Company”) is the parent company of Five Star Bank (the “Bank”), Scott Danahy Naylon, LLC (“SDN”), Courier Capital, LLC (“Courier Capital”) and HNP Capital, LLC (“HNP Capital”).
Net income for the quarter was $12.2 million, 95% higher than $6.2 million in the second quarter of 2017. After preferred dividends, net income available to common shareholders was $11.8 million, or $0.74 per diluted share, compared to $5.9 million, or $0.40 per diluted share, in the second quarter of 2017.
President and Chief Executive Officer Martin K. Birmingham stated, “We generated excellent financial results in the quarter by continuing to execute our strategic initiatives to deliver strong incremental Company performance. Total loans grew 3.8% in the quarter with the largest gains in the commercial categories. Our focus on growing our residential mortgage production capabilities resulted in 2.5% growth in the residential loan portfolio in the quarter and 13.4% growth when compared to the second quarter of 2017. We continued to exercise expense discipline as illustrated by an efficiency ratio of 60.1% and reported improved returns on average assets and average equity in the quarter.
“We also continued to execute our strategy to diversify revenue with the second quarter acquisition of HNP Capital, a Rochester-based investment advisory firm. We are focused on the realization of cost synergies and development of a Company-wide wealth management platform as we integrate HNP Capital. Assets under management at the Company’s Courier Capital and HNP Capital subsidiaries now exceed $2 billion.”
Chief Financial Officer Kevin B. Klotzbach added, “The provision for loan losses in the quarter was very low because of a combination of factors which include lower historical charge-off experience, an increase in the collateral values supporting impaired loans and improved qualitative factors including the economy, the regulatory environment and favorable trends in nonaccrual and delinquent loans.
“Our disciplined credit culture has resulted in strong credit metrics as demonstrated by lower non-performing loans and lower charge-offs as compared to the first quarter of 2018 and second quarter of 2017.
“We continued to convert a portion of our marketable securities portfolio into loans in the second quarter. Our investment securities portfolio value decreased by $45.1 million, primarily as a result of maturities and payments received on municipal bonds and mortgage-backed securities.”
Second Quarter 2018 Highlights:
Diluted earnings per share of $0.74 was $0.34, or 85.0%, higher than the second quarter of 2017
Net interest income of $30.1 million was $2.7 million, or 9.7%, higher than the second quarter of 2017
Return on average common equity was 12.90%
Return on average tangible common equity was 16.27% (1)
Total assets, interest-earning assets and loans all reached record-high levels at quarter-end:
Total assets increased $38.9 million during the quarter, to $4.19 billion
Total interest-earning assets increased $65.8 million during the quarter, to $3.88 billion
Total loans increased $106.9 million during the quarter, to $2.90 billion
The quarterly cash dividend of $0.24 per common share represented a 2.93% annualized yield as of June 30, 2018, and a return of 32% of second quarter net income to common shareholders
1
Acquisition of HNP Capital, LLC
On June 1, 2018, the Company acquired HNP Capital, an SEC-registered investment advisory, wealth management and family office services firm based in the Rochester suburb of Pittsford, New York. HNP Capital offers investment management, retirement plan services, alternative investments, financial planning and family office services to more than 250 clients. HNP Capital will provide coverage of the Rochester MSA (metropolitan statistical area) and beyond to complement Courier Capital’s coverage of Buffalo and the western portion of the Company’s operating footprint. HNP Capital’s principals are expected to remain with the firm and manage their portfolios, which totaled approximately $344 million as of June 30, 2018.
Net Interest Income and Net Interest Margin
Net interest income was $30.1 million in the quarter, $457 thousand higher than the first quarter of 2018 and $2.7 million higher than the second quarter of 2017.
Average interest-earning assets for the quarter were $3.85 billion, $50.4 million higher than the first quarter of 2018 and $292.5 million higher than the second quarter of 2017. The primary driver of the increase was organic loan growth.
Second quarter 2018 net interest margin was 3.17%, two basis points lower than the first quarter of 2018 and one basis point lower than the second quarter of 2017. Net interest margin was negatively impacted by a flattening of the yield curve.
Noninterest Income
Noninterest income was $8.5 million in the quarter compared to $9.0 million in the first quarter of 2018 and $9.3 million in the second quarter of 2017.
Noninterest income in the second quarter of 2017 included a $1.2 million non-cash fair value adjustment of the contingent consideration liability related to the 2014 acquisition of SDN.
Investment advisory fees were $133 thousand higher than the first quarter of 2018 and $482 thousand higher than the second quarter of 2017. The increase compared to the first quarter of 2018 was primarily the result of the acquisition of HNP Capital. The increase compared to the second quarter of 2017 was primarily the result of the HNP Capital acquisition, the August 2017 acquisition of an investment advisor based in the Buffalo suburb of Williamsville, New York, and growth in assets under management at Courier Capital.
Insurance income was $381 thousand lower than the first quarter of 2018 and $115 thousand lower than the second quarter of 2017. The decrease compared to the second quarter of 2017 was primarily the result of non-renewals in one of the agency’s specialty lines of business. This negative impact was partially offset by new commercial business generated as a result of successful integration with the Bank. The decrease compared to the first quarter of 2018 was primarily the result of historic seasonality in this line of business combined with impact of non-renewals previously described.
Income from investments in limited partnerships was $445 thousand lower than the first quarter of 2018 and $12 thousand lower than the second quarter of 2017. The Company has made investments in limited partnerships, primarily small business investment companies, and accounts for these investments under the equity method. Income from these investments fluctuates based on the maturity and performance of the underlying investments.
Noninterest Expense
Noninterest expense was $23.4 million in the quarter compared to $24.1 million in the first quarter of 2018 and $23.9 million in the second quarter of 2017.
Noninterest expense in the second quarter of 2017 included a $1.6 million non-cash goodwill impairment charge related to the 2014 acquisition of SDN.
Salaries and employee benefits expense of $12.9 million was $558 thousand lower than the first quarter of 2018 and $885 thousand higher than the second quarter of 2017. The decrease from the prior quarter was primarily the result of approximately $1.0 million of non-recurring expenses recognized in the first quarter of 2018 related to senior management retirements at our insurance subsidiary, higher contingent incentive compensation related to our Courier Capital subsidiary as a result of an expected earnout payment, and the payment of one-time awards to employees not covered by certain incentive programs, partially offset by expense incurred in connection with our organic growth initiatives.
Occupancy and equipment expense of $4.2 million was $240 thousand lower than the first quarter of 2018 and $17 thousand lower than the second quarter of 2017. The decrease from the first quarter of 2018 was largely due to lower maintenance expense associated with snow removal.
Advertising and promotions expense of $721 thousand was $256 thousand lower than the first quarter of 2018 and $76 thousand higher than the second quarter of 2017. The decrease from the previous quarter was the result of expense incurred in the first quarter of 2018 related to the launch of the Five Star Bank brand campaign in February 2018.
Income Taxes
Income tax expense was $3.0 million in the second quarter of 2018 compared to $2.3 million in the first quarter of 2018 and $2.7 million in the second quarter of 2017. The effective tax rate was 19.7% in the second quarter of 2018 compared to 19.6% in the first quarter of 2018 and 30.5% in the second quarter of 2017. 2018 effective tax rates reflect lower federal corporate tax rates as a result of the Tax Cuts and Jobs Act (the “TCJ Act”).
Balance Sheet and Capital Management
Total assets were $4.19 billion at June 30, 2018, up $38.9 million from $4.15 billion at March 31, 2018, and up $299.8 million from $3.89 billion at June 30, 2017. The increases were largely the result of loan growth funded by deposit growth, short-term borrowings and net proceeds from a 2017 common equity offering. Between May and November of 2017, the Company sold 1.4 million shares of common stock through an at-the-market offering (“2017 Equity Offering”) generating approximately $40.0 million of gross proceeds and $38.3 million of net proceeds.
Total loans were $2.90 billion at June 30, 2018, up $106.9 million, or 3.8%, from March 31, 2018, and up $383.3 million, or 15.2%, from June 30, 2017.
Commercial business loans totaled $507.0 million, up $42.9 million, or 9.2%, from March 31, 2018, and up $108.7 million, or 27.3%, from June 30, 2017.
Commercial mortgage loans totaled $867.0 million, up $46.0 million, or 5.6%, from March 31, 2018, and up $143.0 million, or 19.7%, from June 30, 2017.
Residential real estate loans totaled $489.9 million, up $12.0 million, or 2.5%, from March 31, 2018, and up $57.9 million, or 13.4%, from June 30, 2017.
Consumer indirect loans totaled $906.2 million, up $8.1 million, or 0.9%, from March 31, 2018, and up $79.5 million, or 9.6%, from June 30, 2017.
Total deposits were $3.26 billion at June 30, 2018, a decrease of $117.8 million from March 31, 2018, and an increase of $129.7 million from June 30, 2017. The decrease from March 31, 2018, was primarily due to public deposit seasonality. The increase from June 30, 2017, was primarily the result of successful business development efforts in both municipal and retail banking. Public deposit balances represented 26% of total deposits at June 30, 2018, compared to 29% at March 31, 2018 and 27% at June 30, 2017.
Short-term borrowings were $472.8 million at June 30, 2018, $145.2 million higher than March 31, 2018, primarily due to the seasonality of municipal deposits, and $125.3 million higher than June 30, 2017, primarily as a result of loan growth.
Shareholders’ equity was $386.9 million at June 30, 2018, compared to $380.3 million at March 31, 2018, and $347.6 million at June 30, 2017. Common book value per share was $23.21 at June 30, 2018, an increase of $0.38 or 1.7% from $22.83 at March 31, 2018, and an increase of $1.37 or 6.3% from $21.84 at June 30, 2017. Changes in shareholders’ equity and common book value per share are attributable to net income less dividends paid plus proceeds from the 2017 Equity Offering, net of the change in unrealized gain (loss) on investment securities.
During the second quarter of 2018, the Company declared a common stock dividend of $0.24 per common share. The dividend returned 32% of second quarter net income to common shareholders.
Most of the Company’s regulatory capital ratios at June 30, 2018, were lower than the prior quarter and prior year, primarily a result of loan growth and higher asset levels:
Leverage Ratio was 8.10%, compared to 8.11% and 7.70% at March 31, 2018, and June 30, 2017, respectively.
Common Equity Tier 1 Capital Ratio was 9.82%, compared to 10.09% and 9.86% at March 31, 2018, and June 30, 2017, respectively.
Tier 1 Capital Ratio was 10.37%, compared to 10.65% and 10.48% at March 31, 2018, and June 30, 2017, respectively.
Total Risk-Based Capital Ratio was 12.66%, compared to 13.09% at March 31, 2018, and June 30, 2017. The decrease was driven by the transition of a portion of the marketable securities portfolio into loans.
Credit Quality
Non-performing loans were $9.7 million at June 30, 2018, compared to $10.7 million at March 31, 2018, and $12.6 million at June 30, 2017. The ratio of non-performing loans to total loans was 0.34% at June 30, 2018, compared to 0.38% at March 31, 2018, and 0.50% at June 30, 2017.
The provision for loan losses in the quarter was $40 thousand, compared to $2.9 million in the first quarter of 2018 and $3.8 million in the second quarter of 2017. The significant decrease in provision is the result of a combination of factors which include lower historical net charge-off experience, an increase in the collateral values supporting impaired loans, and improved qualitative factors which include but are not limited to: national and local economic trends and conditions, the regulatory environment and levels and trends in delinquent and non-accruing loans.
Net charge-offs were $1.7 million during the quarter, $348 thousand lower than the first quarter of 2018 and $75 thousand lower than the second quarter of 2017. The ratio of annualized net charge-offs to total average loans was 0.24% in the quarter, compared to 0.30% in the first quarter of 2018 and 0.29% in the second quarter of 2017.
The ratio of allowance for loan losses to total loans was 1.17% at June 30, 2018, 1.27% at March 31, 2018, and 1.32% at June 30, 2017.
The ratio of allowance for loan losses to non-performing loans was 349% at June 30, 2018, 332% at March 31, 2018, and 263% at June 30, 2017.
Conference Call
The Company will host an earnings conference call and audio webcast on July 27, 2018 at 9:00 a.m. Eastern Time. The call will be hosted by Martin K. Birmingham, President and Chief Executive Officer, and Kevin B. Klotzbach, Chief Financial Officer. The live webcast will be available in listen-only mode on the Company’s website at www.fiiwarsaw.com. Within the United States, listeners may also access the call by dialing 1-888-346-9290 and requesting the Financial Institutions, Inc. call. The webcast replay will be available on the Company’s website for at least 30 days.
About Financial Institutions, Inc.
Financial Institutions, Inc. provides diversified financial services through its subsidiaries Five Star Bank, SDN, Courier Capital and HNP Capital. Five Star Bank provides a wide range of consumer and commercial banking and lending services to individuals, municipalities and businesses through a network of more than 50 offices throughout Western and Central New York State. SDN provides a broad range of insurance services to personal and business clients across 45 states. Courier Capital and HNP Capital provide customized investment management, investment consulting and retirement plan services to individuals, businesses, institutions, foundations and retirement plans. Financial Institutions, Inc. and its subsidiaries employ approximately 700 individuals. The Company’s stock is listed on the NASDAQ Global Select Market under the symbol FISI. Additional information is available atwww.fiiwarsaw.com.
Non-GAAP Financial Information
This news release contains disclosure regarding tangible assets, tangible common equity, tangible common equity to tangible assets, tangible common book value per share, average tangible assets, average tangible common equity and return on average tangible common equity, which are determined by methods other than in accordance with U.S. generally accepted accounting principles (“GAAP”). The Company believes that these non-GAAP measures are useful to our investors as measures of the strength of the Company’s capital and ability to generate earnings on tangible common equity invested by our shareholders. These non-GAAP measures provide supplemental information that may help investors to analyze our capital position without regard to the effects of intangible assets. Non-GAAP financial measures have inherent limitations and are not uniformly applied by issuers. Therefore, these non-GAAP financial measures should not be considered in isolation, or as a substitute for comparable measures prepared in accordance with GAAP. The comparable GAAP financial measures and reconciliation to the comparable GAAP financial measures can be found in Appendix A to this document.
Safe Harbor Statement
This press release may contain forward-looking statements as defined by Section 21E of the Securities Exchange Act of 1934, as amended that involve significant risks and uncertainties. In this context, forward-looking statements often address our expected future business and financial performance and financial condition, and often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” “will,” “would,” “estimate,” “forecast,” “target,” “preliminary,” or “range.” Statements herein are based on certain assumptions and analyses by the Company and factors it believes are appropriate in the circumstances. Actual results could differ materially from those contained in or implied by such statements for a variety of reasons including, but not limited to: the Company’s ability to implement its strategic plan, the Company’s ability to redeploy investment assets into loan assets, whether the Company experiences greater credit losses than expected, whether the Company experiences breaches of its, or third party, information systems, the attitudes and preferences of the Company’s customers, the Company’s ability to successfully integrate and profitably operate SDN, Courier Capital, HNP Capital and other acquisitions, the competitive environment, fluctuations in the fair value of securities in its investment portfolio, changes in the regulatory environment and the Company’s compliance with regulatory requirements, changes in interest rates, general economic and credit market conditions nationally and regionally. Consequently, all forward-looking statements made herein are qualified by these cautionary statements and the cautionary language in the Company’s Annual Report on Form 10-K, its Quarterly Reports onForm 10-Q and other documents filed with the SEC. Except as required by law, the Company undertakes no obligation to revise these statements following the date of this press release.
*****
For additional information contact:
Kevin B. Klotzbach
Shelly J. Doran
Chief Financial Officer & Treasurer
Director Investor & External Relations
Phone: 585.786.1130
Phone: 585.627.1362
Email: KBKlotzbach@five-starbank.com
Email: SJDoran@five-starbank.com
(1) See Appendix A — Reconciliation to Non-GAAP Financial Measures for the computation of this Non-GAAP measure.
2
FINANCIAL INSTITUTIONS, INC. Selected Financial Information (Unaudited) (Amounts in thousands, except per share amounts)
2018
2017
June 30,
March 31,
December 31,
September 30,
June 30,
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents
$
89,094
$
122,914
$
99,195
$
97,838
$
84,537
Investment securities:
Available for sale
492,228
510,197
524,973
551,491
540,575
Held-to-maturity
474,803
501,905
516,466
538,332
533,471
Total investment securities
967,031
1,012,102
1,041,439
1,089,823
1,074,046
Loans held for sale
2,014
1,523
2,718
2,407
1,864
Loans:
Commercial business
507,021
464,139
450,326
419,415
398,343
Commercial mortgage
867,049
821,091
808,908
757,987
724,064
Residential real estate loans
489,940
477,935
465,283
446,044
432,053
Residential real estate lines
113,287
115,346
116,309
117,621
118,611
Consumer indirect
906,237
898,099
876,570
857,528
826,708
Other consumer
16,678
16,654
17,621
17,640
17,093
Total loans
2,900,212
2,793,264
2,735,017
2,616,235
2,516,872
Allowance for loan losses
33,955
35,594
34,672
34,347
33,159
Total loans, net
2,866,257
2,757,670
2,700,345
2,581,888
2,483,713
Total interest-earning assets
3,884,628
3,818,839
3,782,659
3,708,385
3,593,106
Goodwill and other intangible assets, net
79,188
74,415
74,703
74,997
73,477
Total assets
4,191,315
4,152,432
4,105,210
4,021,591
3,891,538
Deposits:
Noninterest-bearing demand
719,084
702,900
718,498
710,865
677,124
Interest-bearing demand
658,107
717,567
634,203
656,703
631,451
Savings and money market
1,012,972
1,052,270
1,005,317
1,050,487
999,125
Time deposits
872,004
907,272
852,156
863,453
824,786
Total deposits
3,262,167
3,380,009
3,210,174
3,281,508
3,132,486
Short-term borrowings
472,800
327,600
446,200
310,800
347,500
Long-term borrowings, net
39,167
39,149
39,131
39,114
39,096
Total interest-bearing liabilities
3,055,050
3,043,858
2,977,007
2,920,557
2,841,958
Shareholders’ equity
386,937
380,302
381,177
366,002
347,641
Common shareholders’ equity
369,608
362,973
363,848
348,668
330,301
Tangible common equity (1)
290,420
288,558
289,145
273,671
256,824
Unrealized gain (loss) on investment securities, net of tax
$
(11,063
)
$
(8,503
)
$
(2,173
)
$
17
$
(232
)
Common shares outstanding
15,924
15,901
15,925
15,626
15,127
Treasury shares
132
155
131
136
137
CAPITAL RATIOS AND PER SHARE DATA:
Leverage ratio
8.10
%
8.11
%
8.13
%
7.91
%
7.70
%
Common equity Tier 1 capital ratio
9.82
%
10.09
%
10.16
%
10.09
%
9.86
%
Tier 1 capital ratio
10.37
%
10.65
%
10.74
%
10.69
%
10.48
%
Total risk-based capital ratio
12.66
%
13.09
%
13.19
%
13.24
%
13.09
%
Common equity to assets
8.82
%
8.74
%
8.86
%
8.67
%
8.49
%
Tangible common equity to tangible assets (1)
7.06
%
7.08
%
7.17
%
6.93
%
6.73
%
Common book value per share
$
23.21
$
22.83
$
22.85
$
22.31
$
21.84
Tangible common book value per share (1)
$
18.24
$
18.15
$
18.16
$
17.51
$
16.98
Stock price (Nasdaq: FISI):
High
$
34.35
$
33.00
$
34.10
$
31.15
$
35.35
Low
$
28.95
$
29.50
$
28.70
$
25.65
$
29.09
Close
$
32.90
$
29.60
$
31.10
$
28.80
$
29.80
(1) See Appendix A – Reconciliation to Non-GAAP Financial Measures for the computation of this Non-GAAP measure.
FINANCIAL INSTITUTIONS, INC. Selected Financial Information (Unaudited) (Amounts in thousands, except per share amounts)
Six months ended
2018
2017
June 30,
Second
First
Fourth
Third
Second
2018
2017
Quarter
Quarter
Quarter
Quarter
Quarter
SELECTED INCOME STATEMENT DATA:
Interest income
$
72,271
$
61,947
$
36,868
$
35,403
$
34,767
$
33,396
$
31,409
Interest expense
12,558
��
7,530
6,783
5,775
5,007
4,958
3,987
Net interest income
59,713
54,417
30,085
29,628
29,760
28,438
27,422
Provision for loan losses
2,989
6,613
40
2,949
3,946
2,802
3,832
Net interest income after provision
for loan losses
56,724
47,804
30,045
26,679
25,814
25,636
23,590
Noninterest income:
Service charges on deposits
3,441
3,585
1,703
1,738
1,905
1,901
1,840
Insurance income
2,417
2,564
1,018
1,399
1,214
1,488
1,133
ATM and debit card
2,952
2,785
1,531
1,421
1,491
1,445
1,456
Investment advisory
3,689
2,860
1,911
1,778
1,747
1,497
1,429
Company owned life insurance
893
918
443
450
414
449
473
Investments in limited partnerships
691
105
123
568
19
(14
)
135
Loan servicing
318
243
203
115
91
105
123
Net gain on sale of loans held for sale
227
120
131
96
106
150
72
Net gain on investment securities
7
416
7
—
660
184
210
Net gain on derivative instruments
252
—
78
174
4
127
—
Net gain on other assets
12
4
9
3
12
21
6
Contingent consideration liability adjustment
—
1,200
—
—
—
—
1,200
Other
2,634
2,369
1,392
1,242
1,324
1,221
1,256
Total noninterest income
17,533
17,169
8,549
8,984
8,987
8,574
9,333
Noninterest expense:
Salaries and employee benefits
26,300
23,355
12,871
13,429
12,972
12,348
11,986
Occupancy and equipment
8,574
8,148
4,167
4,407
4,058
4,087
4,184
Professional services
1,779
2,072
896
883
854
1,157
1,057
Computer and data processing
2,593
2,483
1,358
1,235
1,244
1,208
1,312
Supplies and postage
1,060
1,004
548
512
507
492
467
FDIC assessments
988
926
480
508
451
440
469
Advertising and promotions
1,698
1,107
721
977
720
344
645
Amortization of intangibles
593
588
305
288
294
288
291
Goodwill impairment
—
1,575
—
—
—
—
1,575
Other
3,967
3,625
2,099
1,868
2,063
2,103
1,955
Total noninterest expense
47,552
44,883
23,445
24,107
23,163
22,467
23,941
Income before income taxes
26,705
20,090
15,149
11,556
11,638
11,743
8,982
Income tax expense
5,247
5,901
2,979
2,268
580
3,464
2,736
Net income
21,458
14,189
12,170
9,288
11,058
8,279
6,246
Preferred stock dividends
731
731
366
365
365
366
366
Net income available to common shareholders
$
20,727
$
13,458
$
11,804
$
8,923
$
10,693
$
7,913
$
5,880
FINANCIAL RATIOS:
Earnings per share – basic
$
1.30
$
0.92
$
0.74
$
0.56
$
0.68
$
0.52
$
0.40
Earnings per share – diluted
$
1.30
$
0.92
$
0.74
$
0.56
$
0.68
$
0.52
$
0.40
Cash dividends declared on common stock
$
0.48
$
0.42
$
0.24
$
0.24
$
0.22
$
0.21
$
0.21
Common dividend payout ratio
36.92
%
45.65
%
32.43
%
42.86
%
32.35
%
40.38
%
52.50
%
Dividend yield (annualized)
2.94
%
2.84
%
2.93
%
3.29
%
2.81
%
2.89
%
2.83
%
Return on average assets
1.05
%
0.75
%
1.18
%
0.92
%
1.09
%
0.83
%
0.65
%
Return on average equity
11.31
%
8.66
%
12.70
%
9.89
%
11.72
%
9.17
%
7.44
%
Return on average common equity
11.44
%
8.67
%
12.90
%
9.95
%
11.88
%
9.21
%
7.38
%
Return on average tangible common equity (1)
14.41
%
11.41
%
16.27
%
12.52
%
15.03
%
11.76
%
9.65
%
Efficiency ratio (2)
60.99
%
61.66
%
60.14
%
61.85
%
59.62
%
59.75
%
64.10
%
Effective tax rate
19.6
%
29.4
%
19.7
%
19.6
%
5.0
%
29.5
%
30.5
%
(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.
3
FINANCIAL INSTITUTIONS, INC. Selected Financial Information (Unaudited)
(Amounts in thousands)
Six months ended
2018
2017
June 30,
Second
First
Fourth
Third
Second
2018
2017
Quarter
Quarter
Quarter
Quarter
Quarter
SELECTED AVERAGE BALANCES:
Federal funds sold and interest-earning deposits
$
332
$
13,377
$
-
$
667
$1,693
$
-
$16,639
Investment securities (1)
1,023,777
1,087,854
1,012,846
1,034,830
1,073,170
1,096,374
1,085,670
Loans:
Commercial business
467,225
374,715
481,045
453,250
429,831
405,308
385,938
Commercial mortgage
831,925
689,370
842,422
821,311
778,765
752,634
700,010
Residential real estate loans
477,130
429,993
483,577
470,612
455,641
438,436
430,237
Residential real estate lines
114,776
120,457
113,948
115,614
116,731
117,597
119,333
Consumer indirect
892,433
785,228
899,069
885,723
865,735
841,081
802,379
Other consumer
16,712
16,818
16,449
16,978
17,618
17,184
16,680
Total loans
2,800,201
2,416,581
2,836,510
2,763,488
2,664,321
2,572,240
2,454,577
Total interest-earning assets
3,824,310
3,517,812
3,849,356
3,798,985
3,739,184
3,668,614
3,556,886
Goodwill and other intangible assets, net
75,271
75,230
75,957
74,577
74,866
73,960
74,954
Total assets
4,114,839
3,801,059
4,142,735
4,086,633
4,028,063
3,951,002
3,847,137
Interest-bearing liabilities:
Interest-bearing demand
674,802
642,861
677,582
671,991
655,207
612,401
651,485
Savings and money market
1,022,554
1,042,748
1,032,425
1,012,574
1,051,367
998,769
1,054,997
Time deposits
881,863
742,254
906,271
857,184
863,770
855,371
762,874
Short-term borrowings
396,317
325,368
381,043
411,760
316,894
385,512
323,562
Long-term borrowings, net
39,147
39,076
39,156
39,138
39,121
39,103
39,085
Total interest-bearing liabilities
3,014,683
2,792,307
3,036,477
2,992,647
2,926,359
2,891,156
2,832,003
Noninterest-bearing demand deposits
693,648
658,063
699,112
688,123
703,560
679,303
658,926
Total deposits
3,272,867
3,085,926
3,315,390
3,229,872
3,273,904
3,145,844
3,128,282
Total liabilities
3,732,269
3,470,677
3,758,465
3,705,782
3,653,655
3,592,685
3,510,410
Shareholders’ equity
382,570
330,382
384,270
380,851
374,408
358,317
336,727
Common equity
365,242
313,042
366,942
363,523
357,079
340,981
319,387
Tangible common equity (2)
$
289,971
$
237,812
$
290,985
$288,946
$282,213
$
267,021
$244,433
Common shares outstanding:
Basic
15,898
14,572
15,906
15,890
15,749
15,268
14,664
Diluted
15,945
14,615
15,948
15,941
15,793
15,302
14,702
SELECTED AVERAGE YIELDS:
(Tax equivalent basis)
Investment securities
2.32
%
2.47
%
2.32
%
2.32
%
2.53
%
2.45
%
2.47
%
Loans
4.39
%
4.17
%
4.43
%
4.36
%
4.29
%
4.24
%
4.16
%
Total interest-earning assets
3.84
%
3.63
%
3.88
%
3.80
%
3.78
%
3.71
%
3.63
%
Interest-bearing demand
0.13
%
0.14
%
0.13
%
0.12
%
0.14
%
0.14
%
0.14
%
Savings and money market
0.22
%
0.13
%
0.26
%
0.18
%
0.16
%
0.15
%
0.14
%
Time deposits
1.41
%
0.98
%
1.49
%
1.33
%
1.21
%
1.15
%
1.01
%
Short-term borrowings
1.84
%
0.97
%
2.01
%
1.68
%
1.40
%
1.29
%
1.08
%
Long-term borrowings, net
6.31
%
6.32
%
6.31
%
6.31
%
6.32
%
6.32
%
6.32
%
Total interest-bearing liabilities
0.84
%
0.54
%
0.90
%
0.78
%
0.68
%
0.68
%
0.56
%
Net interest rate spread
3.00
%
3.09
%
2.98
%
3.02
%
3.10
%
3.03
%
3.07
%
Net interest rate margin
3.18
%
3.20
%
3.17
%
3.19
%
3.25
%
3.17
%
3.18
%
(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.
4
FINANCIAL INSTITUTIONS, INC. Selected Financial Information (Unaudited) (Amounts in thousands)
Six months ended
2018
2017
June 30,
Second
First
Fourth
Third
Second
2018
2017
Quarter
Quarter
Quarter
Quarter
Quarter
ASSET QUALITY DATA:
Allowance for Loan Losses
Beginning balance
$
34,672
$
30,934
$
35,594
$
34,672
$
34,347
$
33,159
$
31,081
Net loan charge-offs (recoveries):
Commercial business
244
1,532
259
(15
)
1,622
44
568
Commercial mortgage
(4
)
(242
)
(1
)
(3
)
(5
)
(5
)
(38
)
Residential real estate loans
(103
)
52
(53
)
(50
)
88
161
78
Residential real estate lines
86
(13
)
(5
)
91
40
19
(46
)
Consumer indirect
2,981
2,840
1,317
1,664
1,636
1,244
1,082
Other consumer
502
219
162
340
240
151
110
Total net charge-offs
3,706
4,388
1,679
2,027
3,621
1,614
1,754
Provision for loan losses
2,989
6,613
40
2,949
3,946
2,802
3,832
Ending balance
$
33,955
$
33,159
$
33,955
$
35,594
$
34,672
$
34,347
$
33,159
Net charge-offs (recoveries)
to average loans (annualized):
Commercial business
0.11
%
0.82
%
0.22
%
-0.01
%
1.50
%
0.04
%
0.59
%
Commercial mortgage
-0.00
%
-0.07
%
-0.00
%
-0.00
%
-0.00
%
-0.00
%
-0.02
%
Residential real estate loans
-0.04
%
0.02
%
-0.04
%
-0.04
%
0.08
%
0.15
%
0.07
%
Residential real estate lines
0.15
%
-0.02
%
-0.02
%
0.32
%
0.14
%
0.06
%
-0.15
%
Consumer indirect
0.67
%
0.73
%
0.59
%
0.76
%
0.75
%
0.59
%
0.54
%
Other consumer
6.06
%
2.63
%
3.95
%
8.12
%
5.40
%
3.49
%
2.65
%
Total loans
0.27
%
0.37
%
0.24
%
0.30
%
0.54
%
0.25
%
0.29
%
Supplemental information (1)
Non-performing loans:
Commercial business
$
4,026
$
7,312
$
4,026
$
4,312
$
5,344
$
7,182
$
7,312
Commercial mortgage
2,151
2,189
2,151
2,310
2,623
2,539
2,189
Residential real estate loans
2,138
1,579
2,138
2,224
2,252
1,263
1,579
Residential real estate lines
288
379
288
372
404
325
379
Consumer indirect
1,124
1,149
1,124
1,467
1,895
1,250
1,149
Other consumer
4
22
4
32
13
26
22
Total non-performing loans
9,731
12,630
9,731
10,717
12,531
12,585
12,630
Foreclosed assets
299
154
299
480
148
281
154
Total non-performing assets
$
10,030
$
12,784
$
10,030
$
11,197
$
12,679
$
12,866
$
12,784
Total non-performing loans to total loans
0.34
%
0.50
%
0.34
%
0.38
%
0.46
%
0.48
%
0.50
%
Total non-performing assets to total assets
0.24
%
0.33
%
0.24
%
0.27
%
0.31
%
0.32
%
0.33
%
Allowance for loan losses to total loans
1.17
%
1.32
%
1.17
%
1.27
%
1.27
%
1.31
%
1.32
%
Allowance for loan losses
to non-performing loans
349
%
263
%
349
%
332
%
277
%
273
%
263
%
(1) At period end.
5
FINANCIAL INSTITUTIONS, INC. Appendix A — Reconciliation to Non-GAAP Financial Measures (Unaudited) (In thousands, except per share amounts)
Six months ended
2018
2017
June 30,
Second
First
Fourth
Third
Second
2018
2017
Quarter
Quarter
Quarter
Quarter
Quarter
Ending tangible assets:
Total assets
$
4,191,315
$
4,152,432
$
4,105,210
$
4,021,591
$
3,891,538
Less: Goodwill and other intangible assets, net
79,188
74,415
74,703
74,997
73,477
Tangible assets
$
4,112,127
$
4,078,017
$
4,030,507
$
3,946,594
$
3,818,061
Ending tangible common equity:
Common shareholders’ equity
$
369,608
$
362,973
$
363,848
$
348,668
$
330,301
Less: Goodwill and other intangible assets, net
79,188
74,415
74,703
74,997
73,477
Tangible common equity
$
290,420
$
288,558
$
289,145
$
273,671
$
256,824
Tangible common equity to tangible assets (1)
7.06
%
7.08
%
7.17
%
6.93
%
6.73
%
Common shares outstanding
15,924
15,901
15,925
15,626
15,127
Tangible common book value per
share (2)
$
18.24
$
18.15
$
18.16
$
17.51
$
16.98
Average tangible assets:
Average assets
$
4,114,839
$3,801,059
$
4,142,735
$
4,086,633
$
4,028,063
$
3,951,002
$
3,847,137
Less: Average goodwill and other intangible assets, net
75,271
75,230
75,957
74,577
74,866
73,960
74,954
Average tangible assets
$
4,039,568
$3,725,829
$
4,066,778
$
4,012,056
$
3,953,197
$
3,877,042
$
3,772,183
Average tangible common equity:
Average common equity
$
365,242
$313,042
$
366,942
$
363,523
$
357,079
$
340,981
$
319,387
Less: Average goodwill and other intangible assets, net
75,271
75,230
75,957
74,577
74,866
73,960
74,954
Average tangible common equity
$
289,971
$237,812
$
290,985
$
288,946
$
282,213
$
267,021
$
244,433
Net income available to
common shareholders
$
20,727
$13,458
$
11,804
$
8,923
$
10,693
$
7,913
$
5,880
Return on average tangible common equity (3)
14.41
%
11.41
%
16.27
%
12.52
%
15.03
%
11.76
%
9.65
%
(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.
6
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