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Financial Institutions, Inc. Reports Second Quarter 2015 Financial Results

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WARSAW, N.Y., July 22, 2015 (GLOBE NEWSWIRE) -- Financial Institutions, Inc. (the "Company") (Nasdaq: FISI), the parent company of Five Star Bank (the "Bank"), today reported financial results for the quarter ended June 30, 2015.  The Company's financial results for the first and second quarters of 2015 include the results of operations from the acquisition of Scott Danahy Naylon ("SDN"), an insurance agency the Company acquired in August 2014.

Net income for the second quarter 2015 was $6.6 million, compared to $6.8 million for the first quarter 2015, and $7.0 million for the second quarter 2014.  Earnings per diluted common share for the second quarter 2015 was $0.44, compared with $0.46 per share for the first quarter 2015 and $0.48 per share for the second quarter 2014.

The Company's President and Chief Executive Officer Martin K. Birmingham stated, "The momentum that began toward the end of the first quarter as a result of the implementation of our growth initiatives has carried over into the second quarter.  We are very encouraged by the progress achieved in the second quarter of 2015 that resulted in the Company's earning assets exceeding $3 billion and total loans growing beyond $2 billion for the first time.  We are benefiting from the confluence of an economic recovery in Western New York and our allocation of increased resources to grow our presence in Rochester and Buffalo, two opportunity rich markets that represent the largest metropolitan areas within our region."

Second Quarter 2015 Highlights:

  • Balance sheet and credit quality strengthened:
    • Loans of $2.01 billion, up by 4% from March 31, 2015
    • Investment securities of $1.09 billion, up by 16% from March 31, 2015
    • Interest-earning assets of $3.10 billion, up 9% from March 31, 2015
    • Total assets of $3.36 billion, up 5% from March 31, 2015
    • Total deposits of $2.66 billion increased by 8% from a year ago but down by 2% from March 31, 2015 due to seasonal outflows of municipal deposits
    • Non-performing assets decreased 3% from the first quarter of 2015
    • Provision for loan losses for the second quarter of 2015 decreased by 53% from the first quarter and nearly 27% lower than the same period of 2014
  • $40 million subordinated notes offering completed during the second quarter bolsters regulatory capital
  • Growth in commercial sector and indirect lending are the primary drivers for interest income reaching a quarterly record of $26.0 million, an increase of 4% from the prior year
  • Net interest income grew to $23.4 million despite continued net interest margin pressure
  • Noninterest income less net gain on investment securities increased by 15% to $6.5 million from $5.6 million in the prior year period due primarily to the inclusion of insurance income from the SDN acquisition
  • Expenses of $19.2 million in second quarter 2015 increased by $1.4 million from the prior year primarily due to expense attributable to SDN and the hiring of additional personnel associated with the Company's expansion initiatives
  • Net income available to common shareholders was $6.2 million or $0.44 per diluted share, compared to $6.7 million or $0.48 per share in the same period last year
  • Quarterly cash dividend of $0.20 per common share represented a 3.23% dividend yield as of June 30, 2015 and a return of 45% of second quarter net income to common shareholders

Mr. Birmingham continued, "We have made solid progress in our efforts to increase interest income.  Growth in the commercial sector is the primary driver for interest income reaching a quarterly record of nearly $26 million, an increase of over 4% from the prior year.  Although we are not immune to the industry-wide pressure on net interest margin, net interest income exceeded $23 million this quarter.  While interest expense resulting from the issuance of $40 million in subordinated notes in April resulted in additional margin compression, the sale of the notes enabled us to bolster regulatory capital levels and continue to grow our banking operations.

"Our strategic growth plan involves investments to increase and diversify our revenue streams, which in turn partially mitigates exposure to net interest margin pressures, and broadening of services offered to our customers.  Investments have been made in support of this plan that include the acquisition of a platform insurance agency toward the end of last year and the addition of new loan officers, cross-training of personnel and deployment of new technologies.  Our insurance offerings are now a core business.  Insurance income has increased from a nominal level in the second quarter of last year to approximately 20% of noninterest income on a seasonally adjusted basis.  Noninterest income less net gains on investment securities in the second quarter increased by 15% from a year ago, primarily due to the inclusion of insurance income.

"Overall, we delivered solid results in key metrics supporting our business line expansion and credit quality while managing our expense levels in a new era of growth for Financial Institutions.  Our expenses are running at an ideal level and we look forward to continued growth in our revenue streams and benefiting from the leverage in our business to enhance our profitability."

Kevin B. Klotzbach, the Company's Executive Vice President and Chief Financial Officer, commented, "The broadening of our financial services and accompanying increased spending has resulted in a shift in our efficiency ratio as a measure of productivity.  In the past, our efficiency ratio as a community bank was consistently among the best as compared to our publicly traded peers.  Now, as we drive forward with our strategy as a provider of more diversified financial services, our efficiency ratio is expected to be in the low 60% range.  This approach will decrease our sensitivity to traditional banking revenues which are subject to interest rate changes.

"We are making up for some of the net interest margin compression through volume improvements.  Commercial loan production has increased and our loan mix is moving in a positive trajectory.  All major loan portfolios are growing, with commercial lending leading the way. Reflecting our larger base of loan officers, commercial real estate and traditional commercial and industrial lending combined for increases of $72.7 million and $82.6 million in loans from the first quarter 2015 and second quarter 2014, respectively.   With this growth, we have been vigilant in exercising stringent credit controls necessary to maintain our asset quality.  Significant improvements in the second quarter were realized in the reduction of net charge-offs and the provision for loan losses.  This credit quality improvement is complemented by the regulatory capital infusion from our successfully completed subordinated debt offering in the second quarter."

On April 15, 2015, the Company completed the sale of $40 million in aggregate principal amount of 6.00% fixed to floating rate subordinated notes due 2030 (the "Subordinated Notes").  The Subordinated Notes qualify as Tier 2 capital for regulatory purposes.  The net proceeds from this offering were intended for general corporate purposes, including but not limited to, contribution of capital to the Bank to support both organic growth as well as opportunistic acquisitions.  During the second quarter, the Company contributed $34.0 million of net proceeds from this offering to the Bank as additional paid-in capital.

Net Interest Income and Net Interest Margin

Net interest income was $23.4 million in the second quarter 2015, compared to $23.1 million in the first quarter 2015 and second quarter 2014.  When comparing the second quarter 2015 to the first quarter 2015, average earning assets increased $174.9 million, including increases of $53.2 million and $121.8 million in loans and investment securities, respectively.  Average earning assets were up $240.8 million, led by a $153.8 million increase in investment securities and an $87.1 million increase in loans in the second quarter 2015 compared to the same quarter in 2014. The growth in earning assets was offset by decreases in net interest margin.  Second quarter 2015 net interest margin was 3.24%, a decrease of 19 basis points from 3.43% reported in the first quarter 2015 and a 23 basis point decrease from 3.47% reported in the second quarter 2014.  The issuance of the Subordinated Notes decreased second quarter 2015 net interest margin by approximately 8 basis points.

Noninterest Income

Noninterest income was $6.5 million for the second quarter 2015 compared to $8.3 million for the first quarter 2015 and $6.6 million in the second quarter 2014.  Included in the prior period totals are gains realized from the sale of investment securities.  Exclusive of those gains, noninterest income was $7.2 million in the first quarter 2015 and $5.6 million in the second quarter 2014.  The main factors contributing to the lower noninterest income during the second quarter of 2015 compared to the first quarter 2015 were decreases in insurance income and investments in limited partnerships.  Insurance income decreased $551 thousand during the second quarter 2015, largely due to lower contingent commissions.  Contingent commissions are commissions SDN receives from various property and casualty insurance carriers based on the overall profit and/or overall volume of business placed with the insurance carrier during a calendar year and is determined after the contract period.  Such commissions are seasonal in nature and are generally received during the first quarter of each year.  In addition, agency and direct bill commissions declined during the second quarter due to the timing of policy renewals.  Income from the Company's investments in limited partnerships, which are primarily small business investment companies, decreased $419 thousand during the second quarter 2015.  The income from these equity method investments fluctuates based on the performance of the underlying investments.  The higher noninterest income in the second quarter 2015 compared to the second quarter 2014 is primarily a result of a $1.0 million increase in insurance income, reflecting the contributions from SDN, which was acquired during the third quarter 2014 as part of the Company's strategy to diversify its business lines and increase noninterest income through additional fee-based services.

Noninterest Expense

Noninterest expense was $19.2 million for the second quarter 2015 compared to $19.0 million for the first quarter 2015 and $17.8 million in the second quarter 2014.  Salaries and employee benefits expense increased $1.5 million from the second quarter 2014, primarily reflecting additional personnel as a result of the SDN acquisition and the hiring of additional personnel associated with the Company's expansion initiatives. Professional services decreased $518 thousand when comparing the second quarter of 2015 to the same period in 2014.  The second quarter 2014 professional services expense included professional services associated with the acquisition of SDN.  Other noninterest expense for the second quarter 2015 included an increase of $151 thousand in intangible asset amortization attributable to the SDN acquisition.

Income Tax Expense

Income tax expense was $2.8 million in the second quarter 2015, compared to $2.9 million in the first quarter 2015 and $3.1 million in the second quarter 2014.  The effective tax rate was 29.5% for the second quarter of 2015, compared with an effective tax rate of 29.8% for the first quarter 2015 and 30.5% in the second quarter 2014.

Balance Sheet and Capital Management

Total assets were $3.36 billion at June 30, 2015, up $162.4 million from $3.20 billion at March 31, 2015 and up $366.2 million from $2.99 billion at June 30, 2014.

Cash and cash equivalents were $52.6 million at June 30, 2015, down $83.4 million from March 31, 2015 and down $12.3 million from June 30, 2014.  Cash and cash equivalents at March 31, 2015 were elevated due to the timing of public deposit inflows at the end of the quarter.

Total loans were $2.01 billion at June 30, 2015, up $86.3 million from March 31, 2015 and up $112.6 million from June 30, 2014.  The increase in loans was attributable to organic growth in commercial, home equity and consumer indirect loans.  Commercial loans increased to $829.4 million at June 30, 2015, up $72.7 million from March 31, 2015 and up $82.6 million from June 30, 2014.  Total investment securities were $1.09 billion at June 30, 2015, up $147.9 million from the end of the prior quarter and up $229.5 million compared with the June 30, 2014.

Total deposits were $2.66 billion at June 30, 2015, a decrease of $48.5 million from March 31, 2015 and an increase of $206.2 million from June 30, 2014.  The decrease during the second quarter of 2015 was mainly due to seasonal outflows of municipal deposits, while the year-over-year increase was due to higher municipal deposits as well as successful business development efforts.  Public deposit balances represented 26% of total deposits at June 30, 2015, compared to 30% at March 31, 2015 and 25% at June 30, 2014.

Short-term borrowings were $350.6 million at June 30, 2015, up $175.0 million from March 31, 2015 and up $95.9 million from June 30, 2014.  Short-term borrowings are often utilized to manage the seasonal outflows of municipal deposits.

Long-term borrowings were $39.0 million at June 30, 2015.  There were no long-term borrowings outstanding at March 31, 2015 or June 30, 2014.  As described above, during the second quarter 2015 the Company issued $40 million of subordinated notes.  Long-term borrowings are shown net of issuance costs, which are capitalized and amortized as a component of interest expense over a period of 15 years.

Shareholders' equity was $284.4 million at June 30, 2015, compared with $286.7 million at March 31, 2015 and $269.8 million at June 30, 2014.  Common book value per share was $18.83 at June 30, 2015, a decrease of $0.18 from $19.01 at March 31, 2015 and an increase of $0.62 from $18.21 at June 30, 2014.  Tangible common book value per share, a non-GAAP measure, was $14.03 at June 30, 2015, compared to $14.18 at March 31, 2015 and $14.62 at June 30, 2014.

During the second quarter 2015, the Company declared a common stock dividend of $0.20 per common share, consistent with the prior quarter and up by 5%, or $0.01 per share, from the second quarter of 2014.  The second quarter 2015 dividend returned 45% of the quarter's net income to common shareholders. 

The Company's leverage ratio was 7.31% at June 30, 2015, compared to 7.53% at March 31, 2015 and 7.64% at June 30, 2014.  The decrease in the leverage ratio was primarily due to an increase in average quarterly assets.  Changes in the Company's capital ratios from the prior periods were also impacted by goodwill and intangible assets recorded during the third quarter 2014 in conjunction with the acquisition of SDN.  Such goodwill and intangible assets are excluded from regulatory capital under regulatory accounting practices.

As previously discussed, the Company contributed $34.0 million of net proceeds from the Subordinated Notes offering to the Bank as additional paid-in capital.  The Bank's leverage ratio and total risk-based capital ratio increased to 8.06% and 12.54%, respectively, at June 30, 2015, compared to 7.22% and 11.27%, respectively, at March 31, 2015, all of which exceeded the regulatory thresholds required to be classified as a "well capitalized" institution as established by the Bank's primary banking regulators.

Credit Quality

Non-performing loans at June 30, 2015 decreased $364 thousand compared to March 31, 2015, primarily due to improvements in the commercial mortgage and indirect portfolios, partially offset by increases in non-performing commercial business and residential real estate loans.  The ratio of non-performing loans to total loans was 0.53% at June 30, 2015 compared with 0.58% at March 31, 2015 and 0.47% at June 30, 2014.

The provision for loans losses for the second quarter 2015 was $1.3 million, a decrease of $1.5 million from the prior quarter and $470 thousand from the second quarter 2014.  The decrease in the provision for loan losses reflects a decrease in net charge-offs during the second quarter of 2015 compared to the prior periods.  Net charge-offs were $979 thousand during the second quarter 2015, a $2.2 million decrease compared to the prior quarter and $765 thousand from the second quarter 2014.  The first quarter 2015 net charge-offs included two commercial loan relationships totaling $1.7 million that had been previously reserved by the Company.  The ratio of annualized net charge-offs to total average loans was 0.20% during the current quarter, compared to 0.68% during the prior quarter and 0.37% during the second quarter 2014.

The ratio of allowance for loans losses to total loans was 1.37% at June 30, 2015, compared with 1.41% at March 31, 2015 and 1.43% at June 30, 2014.  The ratio of the allowance for loan losses to total loans declined in both comparisons, reflecting overall improvement in credit quality.  The ratio of allowance for loans losses to non-performing loans was 257% at June 30, 2015, compared with 246% at March 31, 2015 and 306% at June 30, 2014.

About Financial Institutions, Inc.

Financial Institutions, Inc. provides diversified financial services through its subsidiaries, Five Star Bank and Scott Danahy Naylon.  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 60 ATMs throughout Western and Central New York State.  Scott Danahy Naylon provides a broad range of insurance services to personal and business clients across 44 states.  Financial Institutions, Inc. and its subsidiaries employ approximately 650 individuals.  The Company's stock is listed on the Nasdaq Global Select Market under the symbol FISI and is a member of the NASDAQ OMX ABA Community Bank Index.  Additional information is available at the Company's website: www.fiiwarsaw.com.

Non-GAAP Financial Information

This news release contains financial information, such as tangible common equity, determined by methods other than in accordance with U.S. generally accepted accounting principles ("GAAP").  The Company believes that non-GAAP financial measures provide a meaningful comparison of the underlying operational performance of the Company, and facilitate investors' assessments of its business and performance trends. In addition, the Company believes 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, breaches of its third party information systems, the attitudes and preferences of its customers, its ability to successfully integrate and profitably operate acquired businesses such as the acquisition of SDN, 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)

 2015 2014
 June 30, March 31, December 31, September 30, June 30,
          
SELECTED BALANCE SHEET DATA:         
          
Cash and cash equivalents$52,554  135,972 58,151  87,582  64,832
Investment securities:         
  Available for sale 772,639  639,275 622,494  585,479  601,903
  Held-to-maturity 320,820  306,255 294,438  285,967  262,057
  Total investment securities 1,093,459  945,530 916,932  871,446  863,960
Loans held for sale 448  656 755  1,029  201
Loans:         
  Commercial business 292,791  277,464 267,409  275,107  277,685
  Commercial mortgage 536,590  479,226 475,092  469,485  469,055
  Residential mortgage 95,162  97,717 100,101  103,044  106,206
  Home equity 398,854  386,961 386,615  382,703  369,578
  Consumer indirect 666,550  662,213 661,673  656,215  652,748
  Other consumer 19,326  19,373 21,112  21,291  21,392
  Total loans 2,009,273  1,922,954 1,912,002  1,907,845  1,896,664
  Allowance for loan losses 27,500  27,191 27,637  27,244  27,166
  Total loans, net 1,981,773  1,895,763 1,884,365  1,880,601  1,869,498
Total interest-earning assets (1) (2) 3,104,631  2,860,605 2,826,488  2,780,940  2,758,779
Goodwill and other intangible assets, net 68,158  68,396 68,639  68,887  49,826
Total assets 3,359,459  3,197,077 3,089,521  3,055,304  2,993,264
Deposits:         
  Noninterest-bearing demand 602,143  559,646 571,260  571,549  551,229
  Interest-bearing demand 530,861  611,104 490,190  530,783  507,083
  Savings and money market 910,215  922,093 795,835  805,522  766,594
  Certificates of deposit 613,019  611,852 593,242  630,970  625,172
  Total deposits 2,656,238  2,704,695 2,450,527  2,538,824  2,450,078
Short-term borrowings 350,600  175,573 334,804  215,967  254,683
Long-term borrowings, net 38,955  - -  -  -
Total interest-bearing liabilities 2,443,650  2,320,622 2,214,071  2,183,242  2,153,532
Shareholders' equity 284,435  286,689 279,532  277,758  269,827
Common shareholders' equity (3) 267,095  269,349 262,192  260,418  252,487
Tangible common equity (5) 198,937  200,953 193,553  191,531  202,661
Unrealized (loss) gain on investment securities,
  net of tax
$  (924) 5,241 1,933  (374) 1,292
          
Common shares outstanding 14,184  14,167 14,118  14,094  13,863
Treasury shares 214  231 280  304  299
          
CAPITAL RATIOS AND PER SHARE DATA:         
          
Leverage ratio (4) 7.31% 7.53 7.35  7.34  7.64
Common equity Tier 1 ratio (4) 9.50% 9.66 n/a  n/a  n/a
Tier 1 risk-based capital (4) 10.25% 10.45 10.47  10.44  10.95
Total risk-based capital (4) 13.17% 11.69 11.72  11.69  12.20
Common equity to assets 7.95% 8.42 8.49  8.52  8.44
Tangible common equity to tangible assets (5) 6.04% 6.42 6.41  6.41  6.89
          
Common book value per share$  18.83  19.01 18.57  18.48  18.21
Tangible common book value per share (5) 14.03  14.18 13.71  13.59  14.62

________
(1)       Includes investment securities at adjusted amortized cost and non-performing investment securities.
(2)       Includes nonaccrual loans.
(3)       Excludes preferred shareholders' equity.
(4)       2015 ratios calculated under Basel III rules, which became effective January 1, 2015.
(5)       See Appendix A – Non-GAAP to GAAP Reconciliation 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 2015 2014
 June 30, Second First Fourth Third Second
  2015   2014  Quarter Quarter Quarter Quarter Quarter
              
SELECTED INCOME STATEMENT DATA:             
              
Interest income$  50,956   49,942  25,959 24,997  25,984  25,129 24,883
Interest expense 4,405   3,564  2,555 1,850  1,846  1,871 1,780
  Net interest income 46,551   46,378  23,404 23,147  24,138  23,258 23,103
Provision for loan losses 4,029   3,864  1,288 2,741  1,910  2,015 1,758
  Net interest income after provision             
  for loan losses 42,522   42,514  22,116 20,406  22,228  21,243 21,345
Noninterest income:             
  Service charges on deposits 3,843   4,491  1,964 1,879  2,186  2,277 2,241
  Insurance income 2,665   57  1,057 1,608  1,420  922 16
  ATM and debit card 2,476   2,431  1,283 1,193  1,269  1,263 1,257
  Investment advisory 1,028   1,123  541 487  491  524 561
  Investments in limited partnerships 529   707  55 474  209  187 81
  Company owned life insurance 960   828  493 467  504  421 425
  Loan servicing 263   330  96 167  118  120 176
  Net gain on sale of loans held for sale 108   155  39 69  82  76 50
  Net gain on investment securities 1,062   1,262  - 1,062  264  515 949
  Net gain (loss) on sale of other assets 20   (11) 16 4  8  72 24
  Amortization of tax credit investment -   -  - -  (2,323) - -
  Other 1,798   1,561  911 887  927  884 797
  Total noninterest income 14,752   12,934  6,455 8,297  5,155  7,261 6,577
Noninterest expense:             
  Salaries and employee benefits 20,829   18,319  10,606 10,223  10,551  9,725 9,063
  Occupancy and equipment 7,074   6,374  3,375 3,699  3,324  3,131 3,139
  Professional services 1,834   2,356  866 968  1,428  976 1,384
  Computer and data processing 1,512   1,500  810 702  791  725 777
  Supplies and postage 1,071   1,047  508 563  499  507 535
  FDIC assessments 833   810  415 418  392  390 388
  Advertising and promotions 477   393  238 239  196  216 214
  Other 4,617   4,222  2,418 2,199  2,198  2,285 2,308
  Total noninterest expense 38,247   35,021  19,236 19,011  19,379  17,955 17,808
  Income before income taxes 19,027   20,427  9,335 9,692  8,004  10,549 10,114
Income tax expense 5,641   6,176  2,750 2,891  84  3,365 3,082
  Net income 13,386   14,251  6,585 6,801  7,920  7,184 7,032
Preferred stock dividends 731   731  366 365  365  366 365
Net income available to common shareholders$  12,655   13,520  6,219 6,436  7,555  6,818 6,667
              
FINANCIAL RATIOS AND STOCK DATA:             
              
Earnings per share – basic$0.90   0.98  0.44 0.46  0.54  0.49 0.48
Earnings per share – diluted$0.90   0.98  0.44 0.46  0.54  0.49 0.48
Cash dividends declared on common stock$  0.40   0.38  0.20 0.20  0.20  0.19 0.19
Common dividend payout ratio (1) 44.44%  38.78  45.45 43.48  37.04  38.78 39.58
Dividend yield (annualized) 3.25%  3.27  3.23 3.54  3.15  3.35 3.25
Return on average assets 0.85%  0.97  0.81 0.89  1.03  0.95 0.95
Return on average equity 9.43%  10.85  9.19 9.68  11.07  10.41 10.52
Return on average common equity (2) 9.49%  11.01  9.24 9.75  11.25  10.55 10.66
Efficiency ratio (3) 61.13%  58.54  62.00 60.27  59.58  57.65 60.15
Stock price (Nasdaq: FISI):             
  High$25.50   25.69  25.50 25.38  27.02  24.94 24.88
  Low$21.67   19.72  22.50 21.67  22.45  21.71 22.17
  Close$24.84   23.42  24.84 22.93  25.15  22.48 23.42

________
(1)       Common dividend payout ratio equals dividends declared during the period divided by earnings per share for the equivalent period.
(2)       Annualized net income available to common shareholders divided by average common equity.
(3)       Efficiency ratio equals noninterest expense less other real estate expense and amortization of intangible assets as a percentage of net revenue, defined as the sum of tax-equivalent net interest income and noninterest income before net gains on investment securities and amortization of tax credit investment.


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

 Six months ended 2015 2014
 June 30, Second First Fourth Third Second
  2015  2014 Quarter Quarter Quarter Quarter Quarter
              
SELECTED AVERAGE BALANCES:               
                
Federal funds sold and interest-earning deposits$  75  204 26 124 - 51 94
Investment securities (1) 969,091  890,068 1,029,640 907,871 876,932 854,030 875,855
Loans (2):             
  Commercial business 274,729  270,148 284,535 264,814 265,979 273,239 275,105
  Commercial mortgage 494,095  473,312 509,317 478,705 473,694 473,168 473,883
  Residential mortgage 97,861  110,949 96,474 99,264 101,982 105,255 108,535
  Home equity 388,102  337,922 390,135 386,046 384,138 377,360 346,911
  Consumer indirect 662,982  646,720 664,222 661,727 658,337 653,192 651,150
  Other consumer 19,290  21,455 18,848 19,736 20,630 20,847 20,855
  Total loans 1,937,059  1,860,506 1,963,531 1,910,292 1,904,760 1,903,061 1,876,439
Total interest-earning assets 2,906,225  2,750,778 2,993,197 2,818,287 2,781,692 2,757,142 2,752,388
Goodwill and other intangible assets, net 68,410  49,923 68,294 68,527 68,771 59,306 49,879
Total assets 3,189,721  2,969,591 3,263,111 3,115,516 3,052,499 2,985,920 2,973,735
Interest-bearing liabilities:             
  Interest-bearing demand 556,564  510,231 561,570 551,503 511,749 486,311 509,398
  Savings and money market 884,709  775,956 929,701 839,218 824,661 758,306 789,956
  Certificates of deposit 609,169  624,068 616,145 602,115 614,654 634,400 629,945
  Short-term borrowings 239,103  249,470 226,577 251,768 232,935 259,995 224,801
  Long-term borrowings, net 16,618  - 33,053 - - - -
  Total interest-bearing liabilities 2,306,163  2,159,725 2,367,046 2,244,604 2,183,999 2,139,012 2,154,100
Noninterest-bearing demand deposits 576,011  531,158 587,396 564,500 564,336 556,485 537,895
Total deposits 2,626,453  2,441,413 2,694,812 2,557,336 2,515,400 2,435,502 2,467,194
Total liabilities 2,903,560  2,704,683 2,975,762 2,830,557 2,768,693 2,712,274 2,705,578
Shareholders' equity 286,161  264,908 287,349 284,959 283,806 273,646 268,157
Common equity (3) 268,821  247,566 270,009 267,619 266,466 256,306 250,815
Tangible common equity (4)$200,411  197,643 201,715 199,092 197,695 197,000 200,936
Common shares outstanding:             
  Basic 14,071  13,782 14,078 14,063 14,049 13,953 13,791
  Diluted 14,118  13,831 14,121 14,113 14,112 14,007 13,838
              
SELECTED AVERAGE YIELDS:             
(Tax equivalent basis)             
              
Federal funds sold and interest-earning deposits 0.23% 0.08 0.39 0.19 - 0.28 0.07
Investment securities 2.46% 2.44 2.44 2.47 2.48 2.43 2.45
Loans 4.22% 4.39 4.18 4.27 4.44 4.31 4.32
Total interest-earning assets 3.63% 3.76 3.58 3.69 3.82 3.73 3.73
Interest-bearing demand 0.13% 0.12 0.14 0.11 0.11 0.12 0.12
Savings and money market 0.12% 0.12 0.12 0.10 0.11 0.12 0.12
Certificates of deposit 0.86% 0.75 0.87 0.84 0.82 0.78 0.76
Short-term borrowings 0.37% 0.37 0.38 0.37 0.36 0.37 0.36
Long-term borrowings, net 6.20% - 6.23 - - - -
Total interest-bearing liabilities 0.38% 0.33 0.43 0.33 0.34 0.35 0.33
Net interest rate spread 3.25% 3.43 3.15 3.36 3.48 3.38 3.40
Net interest rate margin 3.33% 3.49 3.24 3.43 3.56 3.46 3.47

________
(1)       Includes investment securities at adjusted amortized cost.
(2)       Includes nonaccrual loans.
(3)       Excludes preferred shareholders' equity.
(4)       See Appendix A – Non-GAAP to GAAP Reconciliation for the computation of this Non-GAAP measure.


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

 2015  2014 
 Second First Fourth Third Second
 Quarter Quarter Quarter Quarter Quarter
          
ASSET QUALITY DATA:         
          
Allowance for Loan Losses         
Beginning balance$  27,191  27,637  27,244  27,166  27,152 
Net loan charge-offs (recoveries):         
  Commercial business (73) 1,093  (15) 44  (65)
  Commercial mortgage 194  520  (57) 66  159 
  Residential mortgage 9  22  22  11  61 
  Home equity 145  74  (4) 66  127 
  Consumer indirect 645  1,317  1,420  1,577  1,336 
  Other consumer 59  161  151  173  126 
  Total net charge-offs 979  3,187  1,517  1,937  1,744 
Provision for loan losses 1,288  2,741  1,910  2,015  1,758 
Ending balance$27,500  27,191  27,637  27,244  27,166 
          
Net charge-offs (recoveries) to average loans (annualized):         
  Commercial business -0.10% 1.67  -0.02  0.06  -0.09 
  Commercial mortgage 0.15% 0.44  -0.05  0.06  0.13 
  Residential mortgage 0.04% 0.09  0.09  0.04  0.23 
  Home equity 0.15% 0.08  0.00  0.07  0.15 
  Consumer indirect 0.39% 0.81  0.86  0.96  0.82 
  Other consumer 1.26% 3.31  2.90  3.29  2.42 
  Total loans 0.20% 0.68  0.32  0.40  0.37 
          
Supplemental information (1)         
Non-performing loans:         
  Commercial business$  4,643  4,587  4,288  3,258  3,589 
  Commercial mortgage 3,070  3,411  3,020  2,460  2,734 
  Residential mortgage 1,628  1,361  1,194  656  758 
  Home equity 619  672  463  464  371 
  Consumer indirect 728  994  1,169  1,300  1,427 
  Other consumer 20  47  19  46  12 
  Total non-performing loans 10,708  11,072  10,153  8,184  8,891 
Foreclosed assets 165  139  194  509  554 
  Total non-performing assets$  10,873  11,211  10,347  8,693  9,445 
          
Total non-performing loans to total loans 0.53% 0.58  0.53  0.43  0.47 
Total non-performing assets to total assets 0.32% 0.35  0.33  0.28  0.32 
Allowance for loan losses to total loans 1.37% 1.41  1.45  1.43  1.43 
Allowance for loan losses to non-performing loans 257% 246  272  333  306 

________
(1)       At period end.

FINANCIAL INSTITUTIONS, INC.
Appendix A - Non-GAAP to GAAP Reconciliation (Unaudited)
(In thousands, except per share amounts)

 Six months ended 2015 2014
 June 30, Second First Fourth Third Second
 2015 2014 Quarter Quarter Quarter Quarter Quarter
Ending tangible assets:             
Total assets    $3,359,459  3,197,077 3,089,521 3,055,304 2,993,264
Less:  Goodwill and other intangible assets, net     68,158  68,396 68,639 68,887 49,826
Tangible assets (non-GAAP)    $3,291,301  3,128,681 3,020,882 2,986,417 2,943,438
              
Ending tangible common equity:             
Common shareholders' equity    $  267,095  269,349 262,192 260,418 252,487
Less:  Goodwill and other intangible assets, net     68,158  68,396 68,639 68,887 49,826
Tangible common equity (non-GAAP)    $  198,937  200,953 193,553 191,531 202,661
              
Tangible common equity to tangible assets (non-GAAP) (1)    6.04% 6.42 6.41 6.41 6.89
              
Common shares outstanding     14,184  14,167 14,118 14,094 13,863
Tangible common book value per share (non-GAAP) (2)   $  14.03  14.18 13.71 13.59 14.62
              
Average tangible common equity:             
Average common equity$268,821  247,566  270,009  267,619 266,466 256,306 250,815
Average goodwill and other intangible assets, net 68,410  49,923  68,294  68,527 68,771 59,306 49,879
Average tangible common equity (non-GAAP)$200,411  197,643  201,715  199,092 197,695 197,000 200,936

________
(1)       Tangible common equity divided by tangible assets.
(2)       Tangible common equity divided by common shares outstanding.

 

For additional information contact: Kevin B. Klotzbach Chief Financial Officer & Treasurer Phone: 585.786.1130 Email: KBKlotzbach@five-starbank.com Jordan Darrow Darrow Associates Phone: 631.367.1866 Email: jdarrow@darrowir.com

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