NASDAQ: FISI. Sandler O Neill East Coast Financial Services Conference November 17, 2016

Transcription

1 NASDAQ: FISI Sandler O Neill East Coast Financial Services Conference November 17, 2016

2 NASDAQ: FISI Martin K. Birmingham President & CEO Kevin B. Klotzbach CFO & Treasurer

3 Safe Harbor Statement Statements contained in this presentation which are not historical facts and which pertain to future operating results of Financial Institutions, Inc. (the Company ) and its subsidiaries constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of Similarly, statements that describe the objectives, plans or goals of the Company are forward-looking. These forward-looking statements can generally be identified as such by the context of the statements, including words such as believe, expect, anticipate, plan, may, would, intend, estimate, guidance and other similar expressions, whether in the negative or affirmative. These forward-looking statements involve significant risks and uncertainties. All forward-looking statements made herein are qualified by 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 Securities and Exchange Commission. These documents contain and identify important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. Except as required by law, the Company assumes no obligation to update any information presented herein. 3

4 Overview of Financial Institutions, Inc. Corporate Overview Key Corporate Statistics (1) Diversified financial services holding company headquartered in Western New York Subsidiaries include Five Star Bank (regional community bank), Scott Danahy Naylon, LLC (fullservice insurance agency) and Courier Capital, LLC (investment advisory and wealth management firm) 10,000 square-mile operating footprint with more than 50 banking locations in 15 contiguous counties concentrated in Western and Central New York Experienced management team with extensive market knowledge and industry experience Franchise is a diversified mix of consumer and business customers, products and revenue sources Generating consistent, strong operating results Positioned for growth through key initiatives Assets: Loans: Deposits: Revenue (TTM): $3.7 billion $2.3 billion $3.1 billion $135.9 million Employees: ~ 700 Shareholders Equity: $326.3 million ROACE (YTD 16) 9.86% ROATCE (YTD 16) 13.21% (2) ROAA (YTD 16) 0.89% Market Capitalization: Common Book Value: $393.9 million $21.26 / share Tangible Common Book Value: $16.04 / share (2) Annualized Dividend: $0.80 / share (3) Dividend Yield: 2.95% (1) Data as of September 30, 2016 (2) Refer to the Non-GAAP Reconciliation in the Appendix (3) On 11/2/16, dividend increase announced; new annualized dividend is $0.84 per share 4

5 Why Invest in FISI? Strong operating results and positive trends Organic growth opportunities exist in all FISI markets Attractive footprint in Upstate New York Sustainable, scalable business model Diversified revenue stream / increasing noninterest income Superior credit quality Company culture enhances customer and employee experience Evolving to meet changing customer needs Solid capital position Experienced leadership Successfully executing our long-term strategic plan 5

6 Strong Operating Results and Positive Trends Revenue (1) Net Income ($ in millions) ($ in millions) $22.2 $23.6 $25.6 $28.7 $20.8 $24.2 $88.5 $91.6 $93.8 $95.3 $70.7 $76.0 $23.4 $25.5 $29.4 $28.3 $21.7 $ YTD '15 YTD '16 Net Interest Income Noninterest Income (1) YTD '15 YTD '16 ($ in millions) Total Loans ($ in millions) Total Deposits $1,706 $1,034 $1,834 $1,912 $1,099 $1,169 $2,084 $1,204 $2,284 $1,297 $2,262 $2,320 $655 $596 $2,451 $593 $2,731 $637 $3,063 $724 $672 $735 $743 $880 $987 $1,607 $1,724 $1,858 $2,094 $2, /30/2016 Commercial Loans Consumer Loans /30/2016 Transactional deposits Time deposits (1) Excludes OTTI, Security Gains and Amortization of Tax Credit Investment; reconciliation provided in Appendix 6

7 Third Quarter 2016 Financial and Operational Highlights Diluted earnings per share ( EPS ) of $0.56 was $0.09 higher than Q2 16 Net interest income of $26.1 million was $851 thousand, or 3.4%, higher than Q2 16 Noninterest income of $8.5 million was $377 thousand, or 4.2%, lower than Q2 16 Excluding the net gain on investment securities, noninterest income was $8.1 million, 7.8% higher than Q2 16, primarily as a result of higher deposit service charges and income from insurance operations Return on average common equity was 10.45% Return on average tangible common equity was 13.87% (1) Net interest margin of 3.23% was unchanged from Q2 16 Total interest-earning assets, assets, loans and deposits all increased to record-high levels: Total interest-earning assets increased $65 million to $3.4 billion Total assets increased $102 million to $3.7 billion Total loans increased $72 million to $2.3 billion Total deposits increased $205 million to $3.1 billion Quarterly cash dividend of $0.20 per common share, a 2.93% yield (2) Total risk-based capital of 12.98% at quarter-end represents strong capital position to support future growth Strong credit quality demonstrated by total non-performing loans to total loans of 0.27% at quarter-end (1) This is a non-gaap measure that we believe is useful in understanding our financial performance and condition; refer to the Non-GAAP Reconciliation in the Appendix (2) On 11/2/16, dividend increase announced; new annualized dividend is $0.84 per share 7

8 Loan & Deposit Composition Total loans increased 12% from 9/30/15 Commercial and residential real estate portfolios increased 17% and 9%, respectively Consumer indirect is a unique core competency for FISI; experienced management with average 25+ years exp. Total deposits increased 11% from 9/30/15, driven by organic growth Municipal business continues to grow; dedicated sales force and approximately 300 customers Residential Real Estate 24.1% Other Consumer 0.8% Nonint. Certificates of bearing Deposit demand 23.6% 21.5% Commercial 43.2% $2.28bn $3.06bn Consumer Indirect 31.9% Savings & money market 34.4% Total Loans at 9/30/16 Total Deposits at 9/30/16 Int. bearing demand 20.5% 8

9 Organic Growth Opportunities Exist in All FISI Markets Market Footprint 10,000 square-mile operating footprint Top 3 market share in 10 of the 15 counties of operation 6 th largest bank in counties of operation Buffalo and Rochester Growth Opportunities Opportunity for FISI exists in attractive $32 billion Buffalo and Rochester local deposit markets where we have an approximate 3.6% market share Stable economic outlook for the region #2 SBA lender in Rochester and Buffalo for the twelve months ended 9/30/16 (1) ; #32 in U.S. (1) New financial solution centers in Rochester region: CityGate (opened 11/15), Brighton (opened 3/16), and downtown (opening 12/16) Planned opening of financial solution center in downtown Buffalo (1Q 17) Disruption within the marketplace creates opportunity for our style of community banking Across Our Market Footprint Role as trusted financial advisor creates opportunity for fee-based services Customers are receptive to non-bank products such as insurance and wealth management Capacity to continue to increase lending in all categories within current footprint Investing in new talent across all segments retail to small business to large commercial (1) SBA Rankings based on Units 9

10 Upstate New York Bank Consolidation Disruption within the marketplace creates opportunity for community banking Rank Deposit Market Share Rochester & Buffalo MSAs Institution Active Branches 2015 Deposits in Market ($MM) Market Share (%) 1 M&T Bank Corp , % 2 KeyCorp , % 3 Citizens Financial Group Inc. 74 3, % 4 Bank of America Corp. 40 3, % 8 Financial Institutions Inc. 24 1, % Total Rochester + Buffalo MSAs , % Key Opportunities Significant opportunity to gain deposit market share in our key expansion markets Combined Buffalo and Rochester MSAs represent deposit market of $60 billion Current FISI market share is 1.9% Excluding estimated impact of national account relationship deposits of $28 billion, Buffalo and Rochester MSAs represent local deposit market of $32 billion (FISI share is approximately 3.6%) Regional consolidation creates opportunities (i.e. KeyCorp s acquisition of First Niagara) Source: SNL Financial; deposit market share data as of 6/30/16 10

11 Sustainable, Scalable Business Model Loan platform developed to generate high single digit loan growth Diversification of revenues through the addition of fee-based services Strong and profitable indirect lending business Organic revenue growth Core customer growth in markets driven by higher education, healthcare and technology Operating leverage and expense management Building momentum in leveraging customer relationships across the bank and the insurance and wealth management platforms Bolstering franchise value through effective deployment of capital and resources 11

12 Diversification Growing Noninterest Income Noninterest Income (1) 12% growth from 14 to 15 ($ in millions) 17% growth YTD 15 to YTD 16 $28.7 $25.6 $24.2 $ Y 2015Y YTD '15 YTD '16 Commentary Cyclical and potentially secular decline in interest rates has resulted in an industry-wide decrease in net interest margins Fee-based businesses provide diversified revenue not directly tied to interest rates as well as synergies with the bank Our Scott Danahy Naylon (8/14) and Courier Capital (1/16) acquisitions are contributing to top and bottom-line earnings and mitigating the negative effects of this difficult bank operating environment Composition (YTD 16) Other 17.0% Deposit Service 22.2% BOLI 9.7% Investment Services 16.2% $24.2mm Insurance Revenue 17.6% Card Interchange 17.3% (1) Excludes OTTI, Security Gains and Amortization of Tax Credit Investment; reconciliation provided in Appendix 12

13 Superior Credit Quality A disciplined credit culture Nonperforming loans and assets are well below peers Loan loss reserves as a ratio of nonperforming assets (1) are significantly higher than peers, demonstrating FISI s conservative underwriting culture and reserve coverage Superior credit quality reflects our knowledge of our community banking market and customer base Non-Performing Assets (Quarterly) Net Charge-Offs (Quarterly) ($ in millions) ($ in millions) $ % $ % $9.0 $8.0 $7.0 $6.0 $5.0 $4.0 $ % $8.6 $ % 0.25% $ % $ % 0.40% 0.30% 0.20% $2.0 $1.5 $1.0 $ % $ % $ % $1.0 $ % 0.60% 0.40% $3.0 $ % 0.00% $ % 0.20% 0.20% $1.0 $ % $- 0.00% 3Q'15 4Q'15 1Q'16 2Q'16 3Q'16 3Q'15 4Q'15 1Q'16 2Q'16 3Q'16 NPAs NPAs/Total Assets Net Charge-offs Net Charge-offs / Average Loans (1) Includes loans that are 90+ days past due 13

14 Our Culture Enhances Customer and Employee Experience Our Mindset Transcends All Company Businesses We work as a team in an environment of trust, integrity and mutual respect where successes are recognized. Every interaction is an opportunity to deliver a friendly, professional, relationship building experience. Teamwork Lead by Example Service Achieve goals through collaboration with teammates within your own and other departments. Proactively share information and knowledge to enable employees and customers to be successful. Support and encourage your teammates; celebrate each other s success. Be a communicator: clear, concise, honest and respectful. Take responsibility for meeting expectations and goals; Do what you say you will do. Be knowledgeable and enthusiastic about our Company, our products and our services. Create exceptional customer experiences by understanding their expectations and perceptions. 14

15 Evolving to Meet Changing Customer Needs Five Star Bank s financial solution center concept illustrates how we are evolving to meet the needs of our customers No teller lines, no barriers between bank associates and customers, and hands-on technical support result in a high level of personalized banking Customers choose their banking experience by accessing available onsite tech pods, mobile banking demonstrations and a staff of Certified Personal Bankers (CPBs) experts trained to meet a broad array of customer needs A smaller footprint than the traditional bank branch (2,100 to 2,500 sq ft) and fewer employees result in lower overhead expense Two financial solution centers are open and operating in Rochester, and two additional centers are scheduled to open in downtown Rochester (12 16) and downtown Buffalo (1Q 17) 15

16 Solid Capital Position Leverage Ratio (1) Common Equity Tier 1 Capital Ratio (1) 8.00% 7.50% 7.00% 6.50% 6.00% 5.50% 7.29% Minimum 5.00% 7.41% 7.46% 7.39% 7.39% 10.50% 10.00% 9.50% 9.00% 8.50% 8.00% 7.50% 9.74% 9.77% 9.83% Minimum 7.00% 9.63% 9.58% 5.00% 3Q'15 4Q'15 1Q'16 2Q'16 3Q' % 3Q'15 4Q'15 1Q'16 2Q'16 3Q'16 Tier 1 Capital Ratio (1) Total Risk-Based Capital Ratio (1) 11.00% 10.50% 10.00% 9.50% 10.49% 10.50% 10.56% Minimum 8.50% 10.33% 10.27% 14.00% 13.50% 13.00% 12.50% 12.00% 13.37% 13.35% 13.39% Minimum 10.50% 13.08% 12.98% 9.00% 8.50% 3Q'15 4Q'15 1Q'16 2Q'16 3Q' % 11.00% 10.50% 3Q'15 4Q'15 1Q'16 2Q'16 3Q'16 (1) Ratios calculated under Basel III, which became effective January 1, 2015; minimum capital ratios based on January 2019 fully phased-in Basel III requirements 16

17 Leadership Team Deep Bench with Significant Experience Working in Rochester, Buffalo and all of Western NY Name Title Years with FISI Years in Banking Martin K. Birmingham President & CEO Kevin B. Klotzbach EVP, Chief Financial Officer William L. Kreienberg EVP, Chief Corporate Development Executive and General Counsel 2 (1) 2 (1) Jeffrey P. Kenefick EVP, Chief Community, Commercial and Strategic Dev. Executive Michael D. Burneal SVP, Chief Risk and Enterprise Administration Officer David G. Case SVP, Chief Commercial Credit Officer Paula D. Dolan SVP, Human Resources & Enterprise Planning 3 19 Sonia M. Dumbleton SVP, Controller Charles J. Guarino SVP, Chief Retail Lending Executive Michael D. Grover SVP, Chief Accounting Officer (1) Served as FISI s outside general counsel for previous four years 17

18 Addition of Talent in 2016 Taking Advantage of Market Disruption in Western New York to add talent Fueling organic growth to drive revenue Building out mortgage banking business Enhancing regulatory compliance, ERM and communications Incremental cost partially offset by early 2016 cost containment initiatives implemented in anticipation of addition of revenue producers Name Title Years in Banking Sam Burruano SVP, Associate General Counsel and Director of Regulatory Compliance * Craig Burton SVP, Commercial Real Estate Executive 30 Vito Caraccio SVP, Director of Business Banking 23 Shelly Doran SVP, Director of Investor and External Relations ** Joseph L. Dugan SVP, Retail Growth & Profitability Executive 25 Dan Duggan VP, Residential Lending Administrator 25 Ted Oexle SVP, Buffalo Regional President and C&I Lending Executive 25 Brett Rawlings VP, Senior Commercial Banker 8 * More than 20 years of experience advising finance industry on complex banking and lending matters ** More than 20 years of public company investor relations and communications experience 18

19 Executing Our Long-Term Strategic Plan Loan Growth Target of mid-to-high single digit (7 to 9%) loan growth 2015 loan growth of 9% Emphasis on commercial lending resulted in 17% growth in commercial & industrial loans and 19% growth in commercial mortgage loans in 2015 Ongoing focus on increased C&I lending to build broader relationships Low loan-to-deposit ratio provides capacity to meet loan growth objectives Increased net interest income to $95.3 million in 2015, driven by 9% increase in average interest-earning assets Deposit Growth Opportunity exists in attractive deposit markets of Rochester and Buffalo Emphasis on growing core deposits, consistent with our loan growth target 11% growth in 2015 demonstrates value of community banking sales model Deposit retention throughout network resulting from differentiated positive customer service Excess deposits to fund continued loan growth Profitability and Shareholder Returns Continued strengthening of ROAA and ROAE Results from the conversion of securities to loans which profitably occurs over time Expected above-average revenue growth and return on tangible equity should drive growth in tangible book value Investment continues resulting in near-term expense growth Dividend growth to drive shareholder returns dividend increased by more than 60% since Q

20 Executing Our Long-Term Strategic Plan Increase Revenue Through Existing Platforms Expense Discipline Targeting noninterest income at 25%-30% of total revenues Targeted focus on realizing the benefits of existing insurance (SDN) and wealth management (Courier Capital) fee income platforms through customer sharing and attracting incremental producers Plan to supplement August 2014 (SDN) and January 2016 (Courier Capital) platform acquisitions with smaller bolt-on opportunities, but no plans to acquire new fee-based platforms in the near future Synergies developing between bank and subsidiaries Targeting an efficiency ratio in the top third of comparable peers Continuation of expense management discipline Operating leverage and expense management for profitable growth Technology investments for growth and cybersecurity Compensation structure aligned with achieving results Strong Credit Culture Maintain balance between volume and risk to support our credit discipline NPAs / assets of 0.25% as of December 31, 2015 Reserves / loans of 1.30% and Reserves / NPLs of 321% as of December 31, 2015 Asset quality remains a top priority and metrics continue to outperform peer levels Maximize Market Dislocation Opportunities Continue to capitalize on market disruption in our region Leveraging 200 years of rural New York banking to enter opportunity rich markets of Rochester and Buffalo Uniquely positioned to seize market opportunities and achieve scale in growth markets 20

21 Appendix 21

22 Key Earnings Highlights ($ in millions, except per share amounts) Quarterly Earnings Highlights (3Q 15 3Q 16) Earnings Summary 3Q'15 4Q'15 1Q'16 2Q'16 3Q'16 Average interest-earning assets $3,093 $3,098 $3,131 $3,230 $3,317 Net interest margin 3.20% 3.26% 3.27% 3.23% 3.23% Net interest income Noninterest income Total revenue $31.1 $33.2 $33.9 $34.1 $34.6 Noninterest expense ($19.3) ($21.8) ($21.2) ($22.1) ($20.6) Pre-provision net revenue Provision for loan losses (0.8) (2.6) (2.4) (1.9) (2.0) Pre-tax net income Income tax expense (2.7) (2.2) (2.7) (2.9) (3.5) Net income $8.3 $6.6 $7.6 $7.2 $8.5 Preferred stock dividends (0.4) (0.4) (0.4) (0.4) (0.4) Net income available to common shareholders $7.9 $6.2 $7.2 $6.8 $8.1 Earnings per share - diluted $0.56 $0.44 $0.50 $0.47 $0.56 Weighted average common shares outstanding - diluted

23 Non-GAAP Reconciliation Non-GAAP Financial Information This presentation 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 are provided below. GAAP to Non-GAAP Reconciliation Quarter ended, Year to Date ($ in thousands, except per share data) 9/30/2015 6/30/2016 9/30/ Computation of ending tangible common equity: Common shareholders' equity $ 278,094 $ 304,836 $ 308,931 Less: Goodwill and other intangible assets, net 67,925 76,252 75,943 Tangible common shareholders' equity 210, , ,988 Computation of ending tangible assets: Total assets $ 3,357,608 $ 3,585,589 $ 3,687,365 Less: Goodwill and other intangible assets, net 67,925 76,252 75,943 Tangible assets 3,289,683 3,509,337 3,611,422 Tangible common equity to tangible assets (1) 6.39% 6.51% 6.45% Common shares outstanding 14,189 14,528 14,528 Tangible common book value per share (2) $ $ $ Computation of average tangible common equity: Average common equity $ 271,889 $ 299,831 $ 308,524 $ 269,855 $ 300,098 Average goodwill and other intangible assets, net 68,050 76,437 76,116 68,288 76,291 Average tangible common equity 203, , , , ,807 Computation of average tangible assets: Average assets $ 3,343,802 $ 3,507,760 $ 3,593,672 $ 3,241,646 $ 3,502,628 Average goodwill and other intangible assets, net 68,050 76,437 76,116 68,288 76,291 Average tangible assets 3,275,752 3,431,323 3,517,556 3,173,358 3,426,337 Net income available to common shareholders 7,950 6,785 8,103 20,605 22,141 Return on average tangible common equity (3) 15.47% 12.22% 13.87% 13.67% 13.21% Source: Company filings. (1) Tangible common shareholders equity divided by tangible assets (2) Tangible common shareholders equity divided by common shares outstanding (3) Net income available to common shareholders (annualized) divided by average tangible common equity 23

24 Noninterest Income Reconciliation ($ in thousands) YTD 15 YTD 16 Noninterest Income, as reported $24,777 $24,833 $25,350 $30,337 $21,757 $26,672 Less: Net gain on investment securities Impairment charge on investment securities Amortization of tax credit investment 2,651 1,226 2,041 1,988 1,348 2,426 (91) (2,323) (390) (390) - Total adjustments 2,560 1,226 (282) 1, ,426 Noninterest Income, as adjusted $22,217 $23,607 $25,632 $28,739 $20,799 $24,246 24