Financial Institutions, Inc. (Form: 8-K)

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.”

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

Total assets, interest-earning assets and loans all reached record-high levels at quarter-end:

Total interest-earning assets increased $65.8 million during the quarter, to $3.88 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

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 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 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 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 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”).

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.

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.

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.

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

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.

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

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

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.


	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	%

⁽²⁾ See Appendix A – Reconciliation to Non-GAAP Financial Measures for the computation of this Non-GAAP measure.

FINANCIAL INSTITUTIONS, INC.
Selected Financial Information (Unaudited)
(Amounts in thousands)


	Six months ended						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	%

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	%

⁽³⁾ Net income available to common shareholders (annualized) divided by average tangible common equity.


New York	0-26481	16-0816610
_____________________ (State or other jurisdiction	_____________ (Commission	______________ (I.R.S. Employer
of incorporation)	File Number)	Identification No.)

220 Liberty Street, Warsaw, New York		14569
_________________________________ (Address of principal executive offices)		___________ (Zip Code)


Exhibit No.		Description

99.1		Press Release issued July 26, 2018


	Financial Institutions, Inc.

July 26, 2018	By:	Kevin B. Klotzbach

		Name: Kevin B. Klotzbach
		Title: Executive Vice President, Chief Financial Officer and Treasurer


NEWS RELEASE		220 Liberty Street
*For Immediate Release*		Warsaw, NY 14569


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


Date of Report (Date of Earliest Event Reported):		July 26, 2018


Registrant’s telephone number, including area code:		585-786-1100