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Financial Institutions, Inc. Reports Third Quarter Results

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WARSAW, N.Y., Oct. 24, 2012 (GLOBE NEWSWIRE) -- Today Financial Institutions, Inc. (Nasdaq: FISI) (the "Company"), the parent company of Five Star Bank, announced financial results for the third quarter ended September 30, 2012. Net income was $4.3 million for the third quarter of 2012, bringing the Company's net income for the first nine months of 2012 to $17.1 million. Net income for the third quarter and first nine months of 2011 was $5.5 million and $17.0 million, respectively. After preferred dividends, third quarter earnings per diluted share was $0.28 compared with $0.37 per share for the third quarter of 2011. In the first nine months of 2012 earnings per diluted share increased $0.07 or 6% to $1.16 per share as compared to $1.09 per share for the same period last year.

Highlights for the third quarter of 2012 and other recent developments include:

  • Second half of branch acquisition closed and fully converted on August 17, 2012
  • Assumed deposits of $157.2 million and acquired in-market performing loans of $17.9 million at closing
  • During the third quarter of 2012, the Company incurred pre-tax acquisition and conversion-related costs of approximately $1.9 million, or $0.09 per share on an after-tax basis. In addition, pre-tax costs of approximately $2.6 million, or $0.12 per share after-tax were incurred in association with the retirement of the Company's Chief Executive Officer.
  • Non-GAAP net operating income available to common shareholders for the third quarter of 2012 was $6.8 million, or $0.50 per diluted share, compared to $5.8 million or $0.43 per share in the third quarter of 2011.
  • Net interest income increased $2.5 million or 12% compared to the third quarter of 2011
  • Realized pre-tax gains of $596 thousand from the sales of investment securities
  • Excluding loans acquired, total loans grew $22.6 million during the third quarter
  • Capital ratios remain well above regulatory minimums
  • Tangible common equity to tangible assets of 7.05%
  • Leverage ratio of 7.67%
  • Total risk-based capital of 12.16%
  • Common book value per share increased to $17.00 at September 30, 2012
  • Quarterly cash dividend declaration of $0.14 per outstanding common share, $0.75 per share on Series A 3% preferred stock, and $2.12 per share on series B-1 8.48% preferred stock paid on October 2; Common stock dividend represents a yield of approximately 3%
  • Management team strengthened with internal promotions

"We are making steady progress in the implementation of our strategy for increasing our regional presence and strengthening the Company's financial position," John E. Benjamin, Interim Chief Executive Officer said. "We have made meaningful strides in improving operations and the quality of our portfolio, while maintaining a strong capital position and continuing to increase shareholder value.  We are very pleased with our margin stability, exceptional loan growth, and the relatively low-risk profile of our balance sheet. With proper execution of our business plan we believe that Financial Institutions has a promising future."

During the third quarter of 2012 Five Star Bank completed the second half of its previously announced acquisition of Upstate New York retail branch locations (the "branch acquisitions"). Former HSBC Bank USA, N.A. branches located in Albion, Elmira, Elmira Heights, and Horseheads were acquired in August, complementing the former First Niagara Bank, N.A. locations in Batavia, Brockport, Medina, and Seneca Falls acquired in June.

Management Transition

In August the Company announced a management transition to reflect the increased size and scale of the overall organization following the completion of the former HSBC and First Niagara branch acquisitions and the retirement of Peter Humphrey as Chief Executive Officer. As part of the transition, the Company announced the promotion of Richard Harrison as Chief Operating Officer and Martin Birmingham as President and Chief of Community Banking, with a combined 45 years of local banking experience. Mr. Harrison and Mr. Birmingham were instrumental in the structuring, negotiating and integrating of the branch office acquisitions. The Company's Chairman John Benjamin was named Interim Chief Executive Officer.

Net Interest Income and Net Interest Margin

Net interest income totaled $23.1 million for the third quarter of 2012, an increase of $2.5 million or 12% compared with the third quarter of 2011. Average earning assets increased $297.2 million or 14% in the third quarter of 2012 compared with the third quarter of 2011, due largely to growth in the loan portfolio resulting from organic loan growth coupled with the branch acquisitions. Accordingly, average total loans were up $244.3 million or 17% during the third quarter of 2012 compared to the third quarter of 2011.

The net interest margin on a tax-equivalent basis was 3.96% in the third quarter of 2012, compared with 4.02% in the third quarter of 2011. The Company's yield on earning-assets decreased 30 basis points in the third quarter of 2012 compared with the same period last year, a result of cash flows being reinvested in the current low interest rate environment, which includes the impact of investing the cash from the branch acquisitions into lower yielding securities. The cost of interest-bearing liabilities decreased 29 basis points as compared to the third quarter of 2011, primarily a result of the redemption of the Company's 10.20% junior subordinated debentures during the third quarter of 2011 as well as the continued re-pricing of the Company's certificates of deposit.

Noninterest Income

Noninterest income totaled $6.4 million in the third quarter of 2012, compared with $8.0 million in the third quarter of 2011. Reflected in those amounts were net pre-tax gains on investment securities of $596 thousand in the third quarter of 2012 and $2.3 million in the third quarter of 2011. The third quarter 2012 gain resulted from the sale of a pooled trust-preferred security that had been written down in prior periods and included in non-performing assets.

Excluding gains from investment securities in both periods, noninterest income in the third quarter of 2012 totaled $5.8 million, compared with $5.7 million in the same quarter last year. This increase in noninterest income was primarily the result of increases in ATM and debit card income, broker-dealer fees and commissions and loan servicing income, partially offset by a loss on the sale of other assets and a decline in other noninterest income.

Noninterest Expense

Noninterest expense of $21.6 million in the third quarter of 2012 increased $4.6 million or 27% from the third quarter of 2011. The third quarter 2012 expenses include pre-tax acquisition and conversion-related costs of approximately $1.9 million. In addition, pre-tax costs of approximately $2.6 million were incurred in association with the retirement of the Company's CEO. Third quarter 2011 expenses included a loss on debt extinguishment which increased other noninterest expense by $1.1 million. Excluding these items, noninterest expense for the third quarter of 2012 increased $1.2 million or 8% compared to the third quarter of 2011 largely due to higher salaries and employee benefits and professional services costs, partially offset by lower advertising and promotions expense.

Balance Sheet and Capital Management

Total loans were $1.659 billion at September 30, 2012, up $34.8 million or 2% from June 30, 2012 and up $174.2 million or 12% from December 31, 2011. At September 30, 2012, total loans included $70.4 million in loans obtained in the branch acquisitions. Total investment securities were $768.2 million at September 30, 2012, down $19.0 million from June 30, 2012 and up $117.4 million from December 31, 2011.

Deposits were $2.332 billion at September 30, 2012, an increase of $196.4 million from the end of the second quarter of 2012 and up $400.1 million compared with the end of 2011, largely due to retail deposits assumed from the branch acquisitions. Retail deposits assumed during the second and third quarters of 2012 were $129.3 million and $157.2 million, respectively. Public deposit balances were 23% of total deposits at September 30, 2012 and June 30, 2012, compared to 20% of total deposits at December 31, 2011, due largely to the seasonality of municipal cash flows. The Company's deposit mix remains favorably weighted in lower cost demand, savings and money market accounts, which comprised 70% of total deposits at the end of the third quarter.

Shareholders' equity was $251.8 million at September 30, 2012, compared with $246.9 million at June 30, 2012 and $237.2 million at December 31, 2011. Net income for the quarter increased shareholders' equity by $4.3 million, which was partially offset by common and preferred stock dividends of $2.3 million. Accumulated other comprehensive income included in shareholders' equity increased $2.9 million during the third quarter due primarily to higher net unrealized gains on securities available for sale. 

The Company's leverage ratio and total risk-based capital ratio decreased to 7.67% and 12.16%, respectively, at September 30, 2012, compared to 8.27% and 12.64%, respectively, at June 30, 2012, all of which exceeded the regulatory thresholds required to be classified as a "well capitalized" institution as established by the Company's primary banking regulators. Balance sheet growth, primarily related to the branch acquisitions, coupled with goodwill and intangible assets recorded in conjunction with the acquisitions, resulted in the lower capital ratios. Such goodwill and intangible assets are excluded from regulatory capital under regulatory accounting practices.

Credit Quality

Non-performing loans were $10.4 million or 0.63% of total loans at September 30, 2012, as compared with $11.3 million or 0.70% of total loans at June 30, 2012 and $7.1 million or 0.48% of total loans at December 31, 2011. The Company's ratio of non-performing loans to total loans continues to compare favorably to its peer group average, which was 2.76% of total loans at June 30, 2012, the most recent period for which information is available (Source: Federal Financial Institutions Examination Council — Bank Holding Company Performance Report as of June 30, 2012 — Top-tier bank holding companies having consolidated assets between $1 billion and $3 billion).

Net charge-offs of $1.6 million in the third quarter of 2012 represented 0.38% of average loans on an annualized basis compared to $1.1 million or 0.29% in the second quarter of 2012. The provision for loan losses was $1.8 million for the third quarter of 2012, compared to $1.5 million for the second quarter of 2012. For the first nine months of 2012, the provision for loan losses exceeded net charge-offs by $1.0 million as the Company continues to maintain the allowance for loan losses consistent with the growth in its loan portfolio and trends in asset quality.

The allowance for loan losses was $24.3 million at September 30, 2012, compared with $24.1 million at June 30, 2012 and $23.3 million at December 31, 2011. The ratio of the allowance for loan losses to total loans was 1.46% at September 30, 2012, compared with 1.49% at June 30, 2012 and 1.57% at December 31, 2011. Contributing to this ratio decline were the loans obtained in the branch acquisitions, which were recorded at fair market value as of the acquisition date with no allowance carried over, as required by U.S. generally accepted accounting principles. The ratio of allowance for loan losses to non-performing loans was 233% at September 30, 2012, compared with 213% at June 30, 2012 and 329% at December 31, 2011.

About Financial Institutions, Inc.

With over $2.6 billion in assets, Financial Institutions, Inc. provides diversified financial services through its subsidiaries, Five Star Bank and Five Star Investment Services, Inc. Five Star Bank provides a wide range of consumer and commercial banking services to individuals, municipalities and businesses through a network of over 50 offices and more than 70 ATMs in Western and Central New York State. Five Star Investment Services provides investment advice, brokerage and insurance products and services within the same New York State markets.  Financial Institutions, Inc. and its subsidiaries employ over 600 individuals. The Company's stock is listed on the Nasdaq Global Select Market under the symbol FISI. Additional information is available at the Company's website: www.fiiwarsaw.com.

Non-GAAP Financial Information

This news release contains financial information determined by methods other than in accordance with U.S. generally accepted accounting principles ("GAAP"). We believe that non-GAAP financial measures provide a meaningful comparison of the underlying operational performance of the Company, and facilitate investors' assessments of our business and performance trends in comparison to others in the financial services industry. In addition, we believe the exclusion of these non-operating items enables management to perform a more effective evaluation and comparison of the Company's results and to assess performance in relation to the company's ongoing operations. These disclosures should not be viewed as a substitute for financial measures determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Where non-GAAP disclosures are used in this news release, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found in Appendix A to this document.

Safe Harbor Statement

This press release may contain forward-looking statements as defined by federal securities laws. These statements may address issues that involve significant risks, uncertainties, estimates and assumptions made by management. Actual results could differ materially from current beliefs or projections. There are a number of important factors that could affect the Company's forward-looking statements which include its ability to implement its strategic plan, its ability to redeploy investment assets into loan assets, whether it experiences greater credit losses than expected, the impact of the current management transition, the attitudes and preferences of its customers, its ability to successfully integrate recently acquired bank branches and profitably operate newly opened bank branches, the competitive environment, fluctuations in the fair value of securities in its investment portfolio, changes in the regulatory environment and general economic and credit market conditions nationally and regionally. For more information about these factors and other factors that could affect the Company's forward-looking statements, please see the Company's Annual Report on Form 10-K and its Quarterly Reports on Form 10-Q on file with the SEC. All of these factors should be carefully reviewed, and readers should not place undue reliance on these forward-looking statements. Except as required by law, the Company undertakes no obligation to revise these statements following the date of this press release.

 
FINANCIAL INSTITUTIONS, INC.
Selected Financial Information (Unaudited)
(Amounts in thousands, except per share amounts)
 
  2012 2011
  September 30, June 30, March 31, December 31, September 30,
SELECTED BALANCE SHEET DATA:          
Cash and cash equivalents $ 77,045  61,813  77,025  57,583  67,601 
Investment securities:          
 Available for sale 748,618 765,216 699,497 627,518 679,487
 Held-to-maturity 19,564 22,016 24,196 23,297 23,127
 Total investment securities 768,182 787,232 723,693 650,815 702,614
Loans held for sale 1,411 1,682 2,053 2,410 2,403
Loans:          
 Commercial business 245,307 245,437 233,764 233,836 223,796
 Commercial mortgage 403,120 413,983 406,521 393,244 381,541
 Residential mortgage 139,984 142,900 112,148 113,911 116,432
 Home equity 279,211 264,911 237,019 231,766 222,640
 Consumer indirect 563,676 531,645 508,085 487,713 465,910
 Other consumer 27,687 25,278 23,491 24,306 24,808
 Total loans 1,658,985 1,624,154 1,521,028 1,484,776 1,435,127
 Allowance for loan losses 24,301 24,120 23,763 23,260 22,977
 Total loans, net 1,634,684 1,600,034 1,497,265 1,461,516 1,412,150
           
Total interest-earning assets (1) (2) 2,400,225 2,389,171 2,226,472 2,115,622 2,115,822
Goodwill and other intangible assets, net 50,924 43,858 37,369 37,369 37,369
Total assets 2,653,319 2,622,751 2,460,820 2,336,353 2,358,811
           
Deposits:          
 Noninterest-bearing demand 490,706 422,165 404,186 393,421 395,267
 Interest-bearing demand 472,023 420,386 435,701 362,555 404,925
 Savings and money market 673,883 584,278 530,754 474,947 476,122
 Certificates of deposit 695,107 708,442 695,928 700,676 707,357
 Total deposits 2,331,719 2,135,271 2,066,569 1,931,599 1,983,671
Borrowings 38,282 200,824 117,347 150,698 103,075
Total interest-bearing liabilities 1,879,295 1,913,930 1,779,730 1,688,876 1,691,479
Shareholders' equity 251,842 246,946 239,962 237,194 240,855
Common shareholders' equity (3) 234,371 229,473 222,489 219,721 223,376
Tangible common shareholders' equity (4) 183,447 185,615 185,120 182,352 186,007
Unrealized gain on investment securities, net of tax $ 17,178  14,487  12,316  13,570  14,743 
           
Common shares outstanding 13,786 13,812 13,812 13,803 13,806
Treasury shares 376 350 350 359 356
           
CAPITAL RATIOS AND PER SHARE DATA:          
           
Leverage ratio 7.67% 8.27 8.80 8.63 8.67
Tier 1 risk-based capital 10.91% 11.39 12.22 12.20 12.23
Total risk-based capital 12.16% 12.64 13.47 13.45 13.49
Common equity to assets 8.83% 8.75 9.04 9.40 9.47
Tangible common equity to tangible assets (4) 7.05% 7.20 7.64 7.93 8.01
           
Common book value per share $ 17.00  16.61  16.11  15.92  16.18 
Tangible common book value per share (4) 13.31 13.44  13.40  13.21  13.47 

(1)   ______Includes investment securities at adjusted amortized cost and non-performing investment securities.

(2)   Includes nonaccrual loans.

(3)   Excludes preferred shareholders' equity.

(4)   See Appendix A – Non-GAAP Reconciliation for the computation of this Non-GAAP measure.

 
FINANCIAL INSTITUTIONS, INC.
Selected Financial Information (Unaudited)
(Amounts in thousands, except per share amounts)
 
      Quarterly Trends
  Nine months ended 2012 2011
  September 30, Third Second First Fourth Third
  2012 2011 Quarter Quarter Quarter Quarter Quarter
SELECTED INCOME STATEMENT DATA:              
               
Interest income $ 72,480  71,243  25,299 23,731 23,450 23,875 23,774
Interest expense 7,052 10,534 2,200 2,343 2,509 2,721 3,156
 Net interest income 65,428 60,709 23,099 21,388 20,941 21,154 20,618
Provision for loan losses 4,608 5,618 1,764 1,459 1,385 2,162 3,480
Net interest income after provision for loan losses 60,820 55,091 21,335 19,929 19,556 18,992 17,138
Noninterest income:              
 Service charges on deposits 6,101 6,605 2,292 1,974 1,835 2,074 2,257
 ATM and debit card 3,368 3,256 1,219 1,072 1,077 1,103 1,117
 Broker-dealer fees and commissions 1,630 1,329 609 434 587 500 541
 Company owned life insurance 1,300 967 433 441 426 457 422
 Loan servicing 645 662 142 409 94 173 64
 Net gain on sale of loans held for sale 981 659 323 325 333 221 318
 Net gain on investment securities 2,164 2,347 596 1,237 331 656 2,340
 Impairment charge on investment securities (91) -- -- -- (91) (18) --
 Net (loss) gain on sale of other assets (79) 44 (114) 29 6 23 7
 Other 2,475 2,289 853 769 853 578 970
 Total noninterest income 18,494 18,158 6,353 6,690 5,451 5,767 8,036
Noninterest expense:              
 Salaries and employee benefits 28,778 26,359 11,025 8,822 8,931 9,080 9,104
 Occupancy and equipment 8,400 8,209 2,915 2,715 2,770 2,659 2,722
 Professional services 3,243 1,823 1,452 1,080 711 794 570
 Computer and data processing 2,462 1,854 976 886 600 583 603
 Supplies and postage 1,930 1,337 899 573 458 441 461
 Severance expense 1,787 25 1,413 249 125 279 9
 FDIC assessments 957 1,212 356 304 297 301 437
 Advertising and promotions 499 895 261 137 101 364 477
 Loss on extinguishment of debt -- 1,083 -- -- -- -- 1,083
 Other 5,800 4,718 2,321 1,815 1,664 1,778 1,546
 Total noninterest expense 53,856 47,515 21,618 16,581 15,657 16,279 17,012
 Income before income taxes 25,458 25,734 6,070 10,038 9,350 8,480 8,162
Income tax expense 8,341 8,697 1,805 3,382 3,154 2,718 2,664
 Net income $ 17,117  17,037   4,265 6,656 6,196 5,762 5,498
Preferred stock dividends 1,105 2,813 368 368 369 369 368
               
Net income available to common shareholders $ 16,012  14,224  3,897 6,288 5,827 5,393 5,130
               
FINANCIAL RATIOS AND STOCK DATA:              
               
Earnings per share – basic $ 1.17  1.10  0.28 0.46 0.43  0.39 0.38
Earnings per share – diluted $ 1.16  1.09  0.28 0.46 0.42  0.39 0.37
Cash dividends declared on common stock $ 0.41  0.34  0.14 0.14 0.13  0.13 0.12
Common dividend payout ratio (1) 35.04% 30.91 50.00 30.43 30.23 33.33 31.58
Dividend yield (annualized) 2.94% 3.19 2.99 3.34 3.23 3.20 3.34
Return on average assets 0.92% 1.01 0.65 1.08 1.06 0.98 0.95
Return on average equity 9.32% 9.95 6.77 10.94 10.36 9.44 9.07
Return on average common equity (2) 9.38% 9.45 6.65 11.12 10.51 9.53 9.13
Return on average tangible common equity (3) 11.44% 11.60 8.33 13.36 12.62 11.43 10.97
Efficiency ratio (3) 64.29% 60.58 73.04 60.41 58.59 60.49 62.97
Stock price (Nasdaq: FISI):              
 High $ 19.52  20.36  19.52 17.66 17.99  17.26 17.98
 Low $ 15.22   13.63  16.50 15.51 15.22  12.18 13.63
 Close $ 18.64  14.26  18.64 16.88 16.17  16.14 14.26

____

(1)   Common dividend payout ratio equals dividends declared during the period divided by earnings per share for the equivalent period.

(2)   Net income available to common shareholders divided by average common equity.

(3)   See Appendix A – Non-GAAP Reconciliation for the computation of this Non-GAAP measure.

 
FINANCIAL INSTITUTIONS, INC.
Selected Financial Information (Unaudited)
(Amounts in thousands)
 
      Quarterly Trends
  Nine months ended 2012 2011
  September 30, Third Second First Fourth Third
  2012 2011 Quarter Quarter Quarter Quarter Quarter
SELECTED AVERAGE BALANCES:              
               
Federal funds sold and interest-earning deposits  $ 119  155  168 94 94  94 93
Investment securities (1) 695,554 696,388 745,796 715,431 624,883 654,260 692,944
Loans (2):              
 Commercial business 239,319 212,337 248,060 237,936 231,865 225,274 216,980
 Commercial mortgage 407,928 363,547 409,884 411,871 402,007 392,493 368,071
 Residential mortgage 123,930 123,569 141,808 115,621 114,166 116,320 118,952
 Home equity 249,044 213,001 271,131 242,208 233,550 226,597 217,808
 Consumer indirect 519,175 433,578 544,527 517,859 494,861 477,017 450,813
 Other consumer 24,391 24,860 26,179 23,420 23,554 24,168 24,644
 Total loans 1,563,787 1,370,892 1,641,589 1,548,915 1,500,003 1,461,869 1,397,268
Total interest-earning assets 2,259,460 2,067,435 2,387,553 2,264,440 2,124,980 2,116,223 2,090,305
Goodwill and other intangible assets, net 40,886 37,369 47,200 38,020 37,369 37,369 37,369
Total assets 2,475,190 2,261,932 2,607,497 2,473,888 2,342,730 2,322,303 2,294,856
               
Interest-bearing liabilities:              
Interest-bearing demand 409,331 384,651 425,739 409,720 392,353 378,584 366,567
Savings and money market 557,800 446,355 611,564 553,701 507,543 464,904 436,336
Certificates of deposit 696,051 715,390 695,682 689,103 703,372 703,571 706,435
Borrowings 139,330 110,684 157,973 162,718 97,093 127,914 155,534
Total interest-bearing liabilities 1,802,512 1,657,080 1,890,958 1,815,242 1,700,361 1,674,973 1,664,872
               
Noninterest-bearing demand deposits 411,036 361,393 447,204 398,353 387,153 388,670 375,518
Total deposits 2,074,218 1,907,789 2,180,189 2,050,877 1,990,421 1,935,729 1,884,856
Total liabilities 2,229,816 2,033,010 2,356,787 2,229,046 2,102,217 2,080,177 2,054,477
Shareholders' equity 245,374 228,922 250,710 244,842 240,513 242,126 240,379
Common equity (3) 227,901 201,305 233,238 227,369 223,040 224,649 222,900
Tangible common equity (4) $ 187,015  163,936  186,038 189,349 185,671  187,280 185,531
Common shares outstanding:              
 Basic 13,692 12,876 13,703 13,697 13,675 13,636 13,635
 Diluted 13,748 12,968 13,759 13,750 13,733 13,722 13,704
               
SELECTED AVERAGE YIELDS:              
(Tax equivalent basis)              
               
Federal funds sold and interest-earning deposits 0.21% 0.21 0.16 0.21 0.29 0.18 0.18
Investment securities 2.70% 2.97 2.60 2.68 2.83 2.79 2.95
Loans 5.13% 5.59 5.10 5.06 5.24 5.38 5.45
Total interest-earning assets 4.38% 4.70 4.32 4.31 4.53 4.58 4.62
Interest-bearing demand 0.14% 0.16 0.14 0.14 0.15 0.15 0.16
Savings and money market 0.18% 0.24 0.15 0.18 0.22 0.23 0.23
Certificates of deposit 1.03% 1.42 0.94 1.03 1.13 1.22 1.31
Borrowings 0.44% 2.02 0.43 0.43 0.46 0.45 1.10
Total interest-bearing liabilities 0.52% 0.85 0.46 0.52 0.59 0.64 0.75
Net interest rate spread 3.86% 3.85 3.86 3.79 3.94 3.94 3.87
Net interest rate margin 3.97% 4.02 3.96 3.89 4.05 4.07 4.02

(1)   ______Includes investment securities at adjusted amortized cost and non-performing investment securities.

(2)   Includes nonaccrual loans.

(3)   Excludes preferred shareholders' equity.

(4)   See Appendix A – Non-GAAP Reconciliation for the computation of this Non-GAAP measure.

 
FINANCIAL INSTITUTIONS, INC.
Selected Financial Information (Unaudited)
(Amounts in thousands)
 
  2012 2011
  September 30, June 30, March 31, December 31, September 30,
ASSET QUALITY DATA:          
           
Allowance for Loan Losses          
Beginning balance $   24,120 23,763 23,260 22,977 20,632
Net loan charge-offs (recoveries):          
Commercial business 287 (11) (22) 880 14
Commercial mortgage (64) 166 105 131 36
Residential mortgage 39 99 36 89 (9)
Home equity 65 82 (5) 39 121
Consumer indirect 1,124 661 668 652 855
Other consumer 132 105 100 88 118
Total net charge-offs 1,583 1,102 882 1,879 1,135
Provision for loan losses 1,764 1,459 1,385 2,162 3,480
Ending balance $ 24,301  24,120 23,763 23,260 22,977
           
Supplemental information          
Period end loans:          
Originated loans $  1,588,614 1,566,025 1,521,028 1,484,776 1,435,127
Acquired loans 70,371 58,129 -- -- --
Total loans $ 1,658,985  1,624,154 1,521,028 1,484,776 1,435,127
           
Allowance for loan losses to total loans 1.46% 1.49 1.56 1.57 1.60
Allowance for loan losses for originated loans to originated loans 1.53% 1.54 1.56 1.57 1.60
           
Net charge-offs (recoveries) to average loans (annualized):        
Commercial business 0.46% -0.02 -0.04 1.55 0.03
Commercial mortgage -0.06% 0.16 0.10 0.13 0.04
Residential mortgage 0.11% 0.34 0.13 0.30 -0.03
Home equity 0.10% 0.14 -0.01 0.07 0.22
Consumer indirect 0.82% 0.51 0.54 0.54 0.75
Other consumer 2.00% 1.80 1.70 1.44 1.90
Total loans 0.38% 0.29 0.24 0.51 0.32
           
Non-performing loans:          
Commercial business 3,621 4,150 1,863 1,259 2,380
Commercial mortgage 3,388 3,598 3,040 2,928 2,330
Residential mortgage 1,597 1,918 1,929 1,644 1,996
Home equity 929 973 934 682 501
Consumer indirect 876 695 444 558 586
Other consumer 23 4 12 5 4
Total non-performing loans 10,434 11,338 8,222 7,076 7,797
Foreclosed assets 303 270 258 475 582
Non-performing investment securities 766 1,145 1,505 1,636 5,341
Total non-performing assets $ 11,503  12,753 9,985 9,187 13,720
           
Total non-performing loans to total loans 0.63% 0.70 0.54 0.48 0.54
Total non-performing loans to originated loans 0.66% 0.72 0.54 0.48 0.54
Total non-performing assets to total assets 0.43% 0.49 0.41 0.39 0.58
Allowance for loan losses to non-performing loans 233% 213 289 329 295
 
FINANCIAL INSTITUTIONS, INC.
Appendix A - Non-GAAP Reconciliation (Unaudited)
(In thousands, except per share amounts)
 
      Quarterly Trends
  Nine months ended 2012 2011
  September 30, Third Second First Fourth Third
  2012 2011 Quarter Quarter Quarter Quarter Quarter
Computation of efficiency ratio:              
Noninterest expense $ 53,856  47,515 21,618 16,581 15,657 16,279 17,012
Other real estate owned expense (74) (218) (15) (22) (37) (75) (120)
Amortization of intangible assets (86) -- (86) -- -- -- --
Adjusted noninterest expense $ 53,696  47,297 21,517 16,559 15,620 16,204 16,892
               
Net interest income on a tax equivalent basis $ 67,106  62,268 23,702 21,956 21,448 21,657 21,129
Noninterest income 18,494 18,158 6,353 6,690 5,451 5,767 8,036
Net gain on disposal of investment securities (2,164) (2,347) (596) (1,237) (331) (656) (2,340)
Impairment charges on investment securities 91 -- -- -- 91 18 --
Adjusted total revenue $ 83,527  78,079 29,459 27,409 26,659 26,786 26,825
               
Efficiency ratio (1) 64.29% 60.58 73.04 60.41 58.59 60.49 62.97
               
Average tangible common equity:              
Average total shareholders' equity $ 245,374  228,922 250,710 244,842 240,513 242,126 240,379
Average goodwill and other intangible assets, net (40,886) (37,369) (47,200) (38,020) (37,369) (37,369) (37,369)
Average Preferred equity (17,473) (27,617) (17,472) (17,473) (17,473) (17,477) (17,479)
Average tangible common equity (non-GAAP) $  187,015  163,936 186,038 189,349 185,671  187,280 185,531
               
Return on average tangible common equity (2) 11.44% 11.60 8.33 13.36 12.62 11.43 10.97
               
Net operating income:              
Net income $ 17,117  17,037 4,265 6,656 6,196 5,762 5,498
Branch acquisition expenses, net of tax (3) 1,966 -- 1,262 646 58 -- --
CEO retirement expenses, net of tax (3) 1,670 -- 1,670 -- -- -- --
Loss on extinguishment of debt, net of tax (3) -- 704 -- -- -- -- 704
Net operating income (non-GAAP) $ 20,753  17,741 7,197 7,302 6,254 5,762 6,202
               
Net operating income available to common shareholders:              
Net income available to common shareholders $ 16,012 14,224 3,897 6,288 5,827 5,393 5,130
Branch acquisition expenses, net of tax (3) 1,966 -- 1,262 646 58 -- --
CEO retirement expenses, net of tax (3) 1,670 -- 1,670 -- -- -- --
Loss on extinguishment of debt, net of tax (3) -- 704 -- -- -- -- 704
Net operating income available to common shareholders (non-GAAP) $ 19,648  14,928 6,829 6,934 5,885 5,393 5,834
               
Financial ratios computed on an operating basis (Non-GAAP):              
Earnings per share – basic $ 1.43  1.16 0.50 0.51 0.43  0.39 0.43
Earnings per share – diluted $ 1.43  1.15 0.50 0.50 0.43   0.39 0.43
Efficiency ratio 57.59% 59.19 57.73 56.79 58.26 60.49 58.93
Return on average assets 1.12% 1.05 1.10 1.19 1.07 0.98 1.07
Return on average equity 11.30% 10.36 11.42 11.99 10.46 9.44 10.24
Return on average common equity 11.52% 9.91 11.65 12.27 10.61 9.53 10.38
Return on average tangible common equity 14.03% 12.17 14.60 14.73 12.75 11.43 12.48

____

(1)   Efficiency ratio equals noninterest expense less other real estate owned expense and amortization of intangibles assets as a percentage of adjusted total revenue, defined as the sum of tax-equivalent net interest income and noninterest income before net gains and impairment charges on investment securities.

(2)   Annualized net income divided by average tangible common equity.

(3)   Tax effect is calculated assuming a 35% effective tax rate.

 
FINANCIAL INSTITUTIONS, INC.
Appendix A - Non-GAAP Reconciliation (Unaudited)
(In thousands, except per share amounts)
 
  2012 2011
  September 30, June 30, March 31, December 31, September 30,
Ending tangible assets:          
Total assets $ 2,653,319  2,622,751 2,460,820 2,336,353 2,358,811
Less: Goodwill and other intangible assets, net 50,924 43,858 37,369 37,369 37,369
Tangible assets (non-GAAP) $ 2,602,395 2,578,893 2,423,451 2,298,984 2,321,442
           
Ending tangible common equity:          
Total shareholders' equity $ 251,842 246,946 239,962 237,194 240,855
Less: Goodwill and other intangible assets, net 50,924 43,858 37,369 37,369 37,369
Less: Preferred equity 17,471 17,473 17,473 17,473 17,479
Tangible common equity (non-GAAP) $ 183,447  185,615 185,120 182,352 186,007
           
Tangible common equity to tangible assets (1) 7.05% 7.20 7.64 7.93 8.01
           
Common shares outstanding 13,786 13,812 13,812 13,803 13,806
Tangible common book value per share (2) $  13.31  13.44  13.40  13.21  13.47 

____

(1)   Tangible common equity divided by tangible assets.

(2)   Tangible common equity divided by common shares outstanding.

CONTACT: For Additional Information: Karl F. Krebs Executive VP & CFO Phone: 585.786.1125 Email: KFKrebs@fiiwarsaw.com Jordan M. Darrow Darrow Associates, Inc. Phone: 631.367.1866 Email: jdarrow@darrowir.com
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