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Financial Institutions, Inc. Announces Third Quarter 2016 Results

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WARSAW, N.Y., Oct. 25, 2016 (GLOBE NEWSWIRE) -- Financial Institutions, Inc. (NASDAQ: FISI), today reported financial results for the third quarter ended September 30, 2016. Financial Institutions, Inc. (the "Company") is the parent company of Five Star Bank, Scott Danahy Naylon Insurance, LLC ("Scott Danahy Naylon") and Courier Capital, LLC ("Courier Capital"). The Company's financial results since January 5, 2016, include the results of operations of Courier Capital, our wealth management subsidiary acquired on that date.

Net income for the quarter was $8.5 million compared to $7.2 million for the second quarter of 2016 and $8.3 million for the third quarter of 2015. After preferred dividends, net income available to common shareholders was $8.1 million, or $0.56 per diluted share, compared to $6.8 million, or $0.47 per diluted share, for the second quarter of 2016 and $8.0 million, or $0.56 per diluted share, for the third quarter of 2015.

The Company's President and Chief Executive Officer Martin K. Birmingham stated, "Our core bank franchise is delivering strong results as demonstrated by continued growth in loans and deposits, resulting in higher revenue and net income. Our non-bank subsidiaries are also performing well and we are experiencing synergies between our banking, insurance and wealth management platforms. I am very proud of our team and their commitment to our strategy.

"We are actively investing in our footprint and are committed to continuing to grow our market share. Our third financial solution center is expected to open mid-December in the newly renamed Five Star Bank Plaza located in downtown Rochester. In addition, we recently received regulatory approval for our fourth financial solution center. This branch will be located in the City of Buffalo at 40-50 Fountain Plaza and is expected to open in the first quarter of 2017.

"Our investment in the region has also resulted in strengthened leadership. We recently hired Ted Oexle as Buffalo Regional President of Five Star Bank. Ted is a highly-respected banker with more than 25 years of commercial banking experience in Buffalo. He will lead our effort to grow Five Star's commercial banking business by delivering comprehensive financial solutions to borrowers of all sizes."

Third Quarter 2016 Highlights:

  • Diluted earnings per share ("EPS") of $0.56 was $0.09 higher than the second quarter of 2016   
  • Net interest income of $26.1 million increased $851 thousand, or 3.4%, as compared to the second quarter of 2016
  • Noninterest income of $8.5 million was $377 thousand, or 4.2%, lower than the second quarter of 2016
    • Excluding the net gain on investment securities, noninterest income was $8.1 million, 7.8% higher than the second quarter of 2016, primarily as a result of higher deposit service charges and insurance income
  • Return on average common equity was 10.45%
    • Return on average tangible common equity was 13.87% (computation of this non-GAAP measure provided in Appendix A)
  • Net interest margin was 3.23%, unchanged from the previous quarter
  • Total interest-earning assets, assets, loans and deposits all increased to record-high levels in the third quarter:
    • 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 represented a 2.93% dividend yield as of September 30, 2016, and a return of 36% of third quarter net income to common shareholders
  • Total risk-based capital was 12.98% at quarter-end, representing a strong capital position to support future growth
  • Credit quality remains strong with total non-performing loans to total loans of 0.27% at quarter-end

Kevin B. Klotzbach, the Company's Chief Financial Officer noted that, "We delivered strong earnings through base revenue growth and ongoing, disciplined expense management.  There were no significant non-recurring items in the third quarter to detract from our results.

"A strong credit culture is a key component of our long-term strategy as we balance volume and risk. Our asset quality exceeds that of many of our peers as illustrated by our ratio of non-performing assets to total assets of 0.17% at quarter-end."

Net Interest Income and Net Interest Margin

  • Net interest income was $26.1 million for the third quarter of 2016, $851 thousand higher than the second quarter of 2016 and $1.9 million higher than the third quarter of 2015.
  • Average interest-earning assets for the quarter were $3.3 billion, $87.1 million higher than the second quarter of 2016 and $224.6 million higher than the third quarter of 2015.
    • The primary driver of the increase was loans, which were $93.8 million higher in the third quarter of 2016 than the second quarter of 2016 and $223.6 million higher than the third quarter of 2015.
  • Third quarter 2016 net interest margin was 3.23%, unchanged from the second quarter of 2016 and three basis points higher than the third quarter of 2015. 

Noninterest Income

Noninterest income was $8.5 million for the third quarter of 2016 as compared to $8.9 million in the second quarter of 2016 and $7.0 million in the third quarter of 2015. 

  • Excluding the net gain on investment securities from all periods, noninterest income was $8.1 million in the third quarter of 2016, $584 thousand higher than $7.5 million in the second quarter of 2016, and $1.4 million higher than $6.7 million in the third quarter of 2015. 
  • For the third quarter of 2016 as compared to the second quarter of 2016, insurance income increased by $224 thousand due to the timing of customer renewals; service charges on deposits, which historically are higher in the third quarter, increased by $158 thousand; and income from the Company's investments in limited partnerships, which fluctuates based on the performance of the underlying investments, increased by $125 thousand.
  • Higher noninterest income in the third quarter of 2016 as compared to the third quarter of 2015 was primarily the result of an $803 thousand increase in investment advisory income, reflecting the contribution from Courier Capital, and amortization of a historic tax investment in a community-based project that reduced noninterest income by $390 thousand in the third quarter of 2015. 

Noninterest Expense

Noninterest expense was $20.6 million for the third quarter of 2016 as compared to $22.1 million in the second quarter of 2016 and $19.3 million in the third quarter of 2015.

  • Salaries and employee benefits for the third quarter of 2016 includes a one-time cash bonus of $323 thousand. The bonus is payable to all employees during the fourth quarter in recognition of their contributions to the Company's revenue growth and expense control in 2016.
  • The decrease in noninterest expense as compared to the second quarter of 2016 was primarily the result of $1.7 million of professional services in the second quarter associated with the Company's successful proxy contest defense.

The increase in noninterest expense as compared to the third quarter of 2015 was primarily the result of higher salaries and employee benefits and occupancy and equipment expenses. The higher year-over-year operating expenses are largely the result of the Courier Capital acquisition and organic growth initiatives.

Income Taxes

Income tax expense was $3.5 million for the third quarter of 2016 as compared to $2.9 million in the second quarter of 2016 and $2.7 million in the third quarter of 2015. The effective tax rate was 29.5% for the third quarter of 2016, 28.8% in the second quarter of 2016, and 24.8% in the third quarter of 2015. The lower effective tax rate in the third quarter of 2015 was a result of historic tax credits, as discussed in the noninterest income section above.

Balance Sheet and Capital Management

Total assets were $3.7 billion at September 30, 2016, up $101.8 million from $3.6 billion at June 30, 2016, and up $329.8 million from $3.4 billion at September 30, 2015. The increases were largely the result of loan growth.

Total loans were $2.3 billion at September 30, 2016, up $72.2 million, or 3.3%, from June 30, 2016, and up $247.8 million, or 12.2%, from September 30, 2015.

  • Commercial business loans totaled $350.6 million, up $1.2 million, or 0.3%, from June 30, 2016, and up $52.7 million, or 17.7%, from September 30, 2015.
  • Commercial mortgage loans totaled $636.3 million, up $22.2 million, or 3.6%, from June 30, 2016, and up $87.8 million, or 16.0%, from September 30, 2015.
  • Residential real estate loans totaled $425.9 million, up $17.5 million, or 4.3%, from June 30, 2016, and up $49.3 million, or 13.1%, from September 30, 2015.
  • Consumer indirect loans totaled $729.6 million, up $32.7 million, or 4.7%, from June 30, 2016, and up $63.9 million, or 9.6%, from September 30, 2015.

Total deposits were $3.1 billion at September 30, 2016, an increase of $205.4 million from June 30, 2016, and an increase of $309.9 million from September 30, 2015. The increase from June 30, 2016, was primarily due to public deposit seasonality. The increase from September 30, 2015, was primarily the result of successful business development efforts in both municipal and retail banking. Public deposit balances represented 29% of total deposits at September 30, 2016, compared to 27% at June 30, 2016 and 27% at September 30, 2015.

Short-term borrowings were $230.2 million at September 30, 2016, down $108.1 million from June 30, 2016, and down $11.2 million from September 30, 2015. Short-term borrowings are typically utilized to manage the seasonality of public deposits.

Shareholders' equity was $326.3 million at September 30, 2016, compared to $322.2 million at June 30, 2016, and $295.4 million at September 30, 2015. Common book value per share was $21.26 at September 30, 2016, an increase of $0.28 or 1.3% from $20.98 at June 30, 2016, and an increase of $1.66 or 8.5% from $19.60 at September 30, 2015. The increases in shareholders' equity and common book value per share as compared to September 30, 2015, are attributable to net income, stock issued for the acquisition of Courier Capital, and higher net unrealized gains on securities available for sale, a component of accumulated other comprehensive loss.

During the third quarter 2016, the Company declared a common stock dividend of $0.20 per common share. The third quarter 2016 dividend returned 36% of third quarter net income to common shareholders. 

Regulatory capital ratios at September 30, 2016, remained steady with slight downward pressure a result of strong loan growth and higher asset levels associated with seasonal public deposits:

  • Leverage Ratio was 7.39%, unchanged from June 30, 2016, and up ten basis points from 7.29% at September 30, 2015.
  • Common Equity Tier 1 Ratio was 9.58%, compared to 9.63% and 9.74% at June 30, 2016, and September 30, 2015, respectively.
  • Tier 1 Risk-Based Capital was 10.27%, compared to 10.33% and 10.49% at June 30, 2016, and September 30, 2015, respectively.
  • Total Risk-Based Capital was 12.98%, compared to 13.08% and 13.37% at June 30, 2016, and September 30, 2015, respectively.

Credit Quality

Non-performing loans were $6.1 million at September 30, 2016, compared to $6.6 million at June 30, 2016, and $8.5 million at September 30, 2015. The $2.4 million decrease from September 30, 2015, was due to lower commercial non-performing loans resulting from pay-downs on two relationships totaling $1.8 million during the second quarter of 2016, as well as improvements in the residential real estate loan and consumer loan portfolios.

  • The ratio of non-performing loans to total loans was 0.27% at September 30, 2016, compared to 0.30% at June 30, 2016, and 0.42% at September 30, 2015.

The provision for loans losses for the third quarter of 2016 was $2.0 million, relatively unchanged from the prior quarter and an increase of $1.2 million from the third quarter 2015. 

  • Net charge-offs were $1.1 million during the third quarter of 2016, a $141 thousand increase compared to the prior quarter and a $663 thousand decrease from the third quarter of 2015. 
  • The ratio of annualized net charge-offs to total average loans was 0.20% in the current quarter, compared to 0.19% in the prior quarter and 0.35% in the third quarter of 2015.
  • The ratio of allowance for loans losses to total loans was 1.29% at both September 30, and June 30, 2016, and 1.30% at September 30, 2015. 
  • The ratio of allowance for loan losses to non-performing loans was 481% at September 30, 2016, 435% at June 30, 2016, and 311% at September 30, 2015.

About Financial Institutions, Inc.

Financial Institutions, Inc. provides diversified financial services through its subsidiaries, Five Star Bank, Scott Danahy Naylon and Courier Capital. 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. Courier Capital provides 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 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 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 can be found in Appendix A to this document.

Safe Harbor Statement

This press release may contain forward-looking statements as defined by Section 21E of the Securities Exchange Act of 1934, as amended, that involve significant risks and uncertainties. Statements herein are based on certain assumptions and analyses by the Company and are 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 Scott Danahy Naylon and Courier Capital, 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.


FINANCIAL INSTITUTIONS, INC.
Selected Financial Information (Unaudited)
(Amounts in thousands, except per share amounts)
 
   2016   2015 
  September 30, June 30, March 31, December 31, September 30,
SELECTED BALANCE SHEET DATA:          
Cash and cash equivalents $110,721  $67,624  $110,944  $60,121  $51,334 
Investment securities:          
Available for sale  559,495   619,719   610,013   544,395   577,509 
Held-to-maturity  528,708   478,549   476,283   485,717   490,638 
Total investment securities  1,088,203   1,098,268   1,086,296   1,030,112   1,068,147 
Loans held for sale  844   209   609   1,430   1,568 
Loans:          
Commercial business  350,588   349,432   317,776   313,758   297,876 
Commercial mortgage  636,338   614,141   590,316   566,101   548,529 
Residential real estate loans  425,882   408,367   382,504   381,074   376,552 
Residential real estate lines  123,663   125,054   126,526   127,347   128,361 
Consumer indirect  729,644   696,908   679,846   676,940   665,714 
Other consumer  17,879   17,929   18,066   18,542   19,204 
Total loans  2,283,994   2,211,831   2,115,034   2,083,762   2,036,236 
Allowance for loan losses  29,350   28,525   27,568   27,085   26,455 
Total loans, net  2,254,644   2,183,306   2,087,466   2,056,677   2,009,781 
Total interest-earning assets  3,357,609   3,292,528   3,189,582   3,114,530   3,097,315 
Goodwill and other intangible assets, net  75,943   76,252   76,567   66,946   67,925 
Total assets  3,687,365   3,585,589   3,516,572   3,381,024   3,357,608 
Deposits:          
Noninterest-bearing demand  657,624   626,240   617,394   641,972   623,296 
Interest-bearing demand  629,413   560,284   622,443   523,366   563,731 
Savings and money market  1,052,224   960,325   1,042,910   928,175   942,673 
Time deposits  724,096   711,156   677,430   637,018   623,800 
Total deposits  3,063,357   2,858,005   2,960,177   2,730,531   2,753,500 
Short-term borrowings  230,200   338,300   179,200   293,100   241,400 
Long-term borrowings, net  39,043   39,025   39,008   38,990   38,972 
Total interest-bearing liabilities  2,674,976   2,609,090   2,560,991   2,420,649   2,410,576 
Shareholders' equity  326,271   322,176   313,953   293,844   295,434 
Common shareholders' equity  308,931   304,836   296,613   276,504   278,094 
Tangible common equity (1)  232,988   228,584   220,046   209,558   210,169 
Unrealized gain on investment securities, net of tax $9,444  $10,886  $7,555  $443  $5,270 
           
Common shares outstanding  14,528   14,528   14,495   14,191   14,189 
Treasury shares  164   164   197   207   209 
CAPITAL RATIOS AND PER SHARE DATA:          
Leverage ratio  7.39%  7.39%  7.46%  7.41%      7.29%
Common equity Tier 1 ratio  9.58%  9.63%  9.83%  9.77%      9.74%
Tier 1 risk-based capital  10.27%  10.33%  10.56%  10.50%      10.49%
Total risk-based capital  12.98%  13.08%  13.39%  13.35%      13.37%
Common equity to assets  8.38%  8.50%  8.43%  8.18%      8.28%
Tangible common equity to tangible assets (1)  6.45%  6.51%  6.40%  6.32%      6.39%
           
Common book value per share $21.26  $20.98  $20.46  $19.49      $19.60 
Tangible common book value per share (1) $16.04  $15.73  $15.18  $14.77      $14.81 
Stock price (Nasdaq: FISI):          
High $27.63  $29.49  $29.53  $29.04      $25.21 
Low $25.16  $24.56  $25.38  $24.05      $23.54 
Close $27.11  $26.07  $29.07  $28.00      $24.78 
                     

________
(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)
 
  Nine months ended 2016
  2015
  September 30, Third Second First Fourth Third
   2016   2015  Quarter Quarter Quarter Quarter Quarter
SELECTED INCOME STATEMENT DATA:              
Interest income $85,241  $77,963  $29,360  $28,246  $27,635  $27,487  $27,007 
Interest expense  9,273   7,281   3,310   3,047   2,916   2,856   2,876 
Net interest income  75,968   70,682   26,050   25,199   24,719   24,631   24,131 
Provision for loan losses  6,281   4,783   1,961   1,952   2,368   2,598   754 
Net interest income after provision for loan losses  69,687   65,899   24,089   23,247   22,351   22,033   23,377 
Noninterest income:              
Service charges on deposits  5,392   5,880   1,913   1,755   1,724   1,862   2,037 
Insurance income  4,262   3,930   1,407   1,183   1,672   1,236   1,265 
ATM and debit card  4,187   3,773   1,441   1,421   1,325   1,311   1,297 
Investment advisory  3,934   1,551   1,326   1,365   1,243   642   523 
Company owned life insurance  2,340   1,448   486   486   1,368   514   488 
Investments in limited partnerships  253   865   161   36   56   30   336 
Loan servicing  332   416   104   112   116   87   153 
Net gain on sale of loans held for sale  202   161   46   78   78   88   53 
Net gain on investment securities  2,426   1,348   426   1,387   613   640   286 
Net gain on other assets  285   20   199   82   4   7   - 
Amortization of tax credit investment  -   (390)  -   -   -   -   (390)
Other  3,059   2,755   1,030   1,011   1,018   2,163   957 
Total noninterest income  26,672   21,757   8,539   8,916   9,217   8,580   7,005 
Noninterest expense:              
Salaries and employee benefits  33,757   31,107   11,325   10,818   11,614   11,332   10,278 
Occupancy and equipment  10,906   10,491   3,617   3,664   3,625   3,365   3,417 
Professional services  5,236   2,898   956   2,833   1,447   1,604   1,064 
Computer and data processing  2,549   2,291   832   913   804   895   779 
Supplies and postage  1,548   1,611   490   464   594   544   540 
FDIC assessments  1,283   1,277   406   441   436   442   444 
Advertising and promotions  938   789   214   347   377   331   312 
Goodwill impairment charge  -   -   -   -   -   751   - 
Other  7,739   7,101   2,778   2,640   2,321   2,564   2,484 
Total noninterest expense  63,956   57,565   20,618   22,120   21,218   21,828   19,318 
Income before income taxes  32,403   30,091   12,010   10,043   10,350   8,785   11,064 
Income tax expense  9,165   8,389   3,541   2,892   2,732   2,150   2,748 
Net income  23,238   21,702   8,469   7,151   7,618   6,635   8,316 
Preferred stock dividends  1,097   1,097   366   366   365   365   366 
Net income available to common shareholders $22,141  $20,605  $8,103  $6,785  $7,253  $6,270  $7,950 
FINANCIAL RATIOS:              
Earnings per share – basic $1.53  $1.46  $0.56  $0.47  $0.50  $0.44  $0.56 
Earnings per share – diluted $1.53  $1.46  $0.56  $0.47  $0.50  $0.44  $0.56 
Cash dividends declared on common stock $0.60  $0.60  $0.20  $0.20  $0.20  $0.20  $0.20 
Common dividend payout ratio  39.22%  41.10%  35.71%  42.55%  40.00%  45.45%  35.71%
Dividend yield (annualized)  2.96%  3.24%  2.93%  3.09%  2.77%  2.83%  3.20%
Return on average assets  0.89%  0.90%  0.94%  0.82%  0.90%  0.78%  0.99%
Return on average equity  9.78%  10.10%  10.34%  9.07%  9.91%  8.86%  11.41%
Return on average common equity  9.86%  10.21%  10.45%  9.10%  10.00%  8.89%  11.60%
Return on average tangible common equity (1)  13.21%  13.67%  13.87%  12.22%  13.54%  11.73%  15.47%
Efficiency ratio (2)  61.94%  60.56%  58.05%  65.03%  62.90%  64.55%  59.46%
                             

________
(1) See Appendix A – Reconciliation to Non-GAAP Financial Measures for the computation of this Non-GAAP measure.
(2) Efficiency ratio equals noninterest expense less other real estate expense and amortization and impairment of goodwill and other 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, proceeds from company owned life insurance, adjustments to contingent liabilities and amortizations of tax credit investment.



FINANCIAL INSTITUTIONS, INC.
Selected Financial Information (Unaudited)
(Amounts in thousands)
 
  Nine months ended 2016 2015
  September 30, Third Second First Fourth Third
   2016   2015  Quarter Quarter Quarter Quarter Quarter
SELECTED AVERAGE BALANCES:              
Federal funds sold and interest-earning deposits $129  $50  $1  $316  $70  $-  $- 
Investment securities (1)  1,057,272   1,002,361   1,068,866   1,075,220   1,027,602   1,049,217   1,067,815 
Loans:              
Commercial business  332,985   282,307   352,696   329,901   316,143   297,033   297,216 
Commercial mortgage  604,577   511,545   625,003   606,360   582,142   554,327   545,875 
Residential real estate loans  397,327   361,598   417,854   391,826   382,077   379,189   371,318 
Residential real estate lines  125,273   128,807   123,312   125,212   127,317   127,688   127,826 
Consumer indirect  691,343   663,286   711,948   683,722   678,133   671,888   663,884 
Other consumer  17,678   19,084   17,548   17,562   17,926   18,626   18,680 
Total loans  2,169,183   1,966,627   2,248,361   2,154,583   2,103,738   2,048,751   2,024,799 
Total interest-earning assets  3,226,584   2,969,038   3,317,228   3,230,119   3,131,410   3,097,968   3,092,614 
Goodwill and other intangible assets, net  76,291   68,288   76,116   76,437   76,324   67,692   68,050 
Total assets  3,502,628   3,241,646   3,593,672   3,507,760   3,405,451   3,353,702   3,343,802 
Interest-bearing liabilities:              
Interest-bearing demand  566,419   543,045   547,545   579,497   572,424   545,602   516,448 
Savings and money market  988,224   891,039   981,207   1,017,911   965,629   960,768   903,491 
Time deposits  693,153   612,637   722,098   698,505   658,537   628,944   619,459 
Short-term borrowings  250,329   269,415   315,122   213,826   221,326   241,957   329,050 
Long-term borrowings, net  39,015   24,148   39,032   39,015   38,997   38,979   38,962 
Total interest-bearing liabilities  2,537,140   2,340,284   2,605,004   2,548,754   2,456,913   2,416,250   2,407,410 
Noninterest-bearing demand deposits  626,018   592,564   638,417   621,912   617,590   619,423   625,131 
Total deposits  2,873,814   2,639,285   2,889,267   2,917,825   2,814,180   2,754,737   2,664,529 
Total liabilities  3,185,190   2,954,451   3,267,808   3,190,589   3,096,263   3,056,541   3,054,573 
Shareholders' equity  317,438   287,195   325,864   317,171   309,188   297,161   289,229 
Common equity  300,098   269,855   308,524   299,831   291,848   279,821   271,889 
Tangible common equity (2) $223,807  $201,567  $232,408  $223,394  $215,524  $212,129  $203,839 
Common shares outstanding:              
Basic  14,429   14,076   14,456   14,434   14,395   14,095   14,087 
Diluted  14,485   14,124   14,500   14,489   14,465   14,163   14,139 
SELECTED AVERAGE YIELDS:              
(Tax equivalent basis)              
Investment securities  2.47%  2.46%  2.44%  2.48%  2.48%  2.47%  2.46%
Loans  4.19%  4.20%  4.18%  4.17%  4.21%  4.22%  4.16%
Total interest-earning assets  3.62%  3.61%  3.62%  3.61%  3.64%  3.63%  3.57%
Interest-bearing demand  0.15%  0.14%  0.15%  0.14%  0.14%  0.15%  0.15%
Savings and money market  0.13%  0.12%  0.14%  0.13%  0.13%  0.14%  0.14%
Time deposits  0.89%  0.87%  0.91%  0.89%  0.88%  0.88%  0.89%
Short-term borrowings  0.63%  0.39%  0.63%  0.65%  0.62%  0.49%  0.41%
Long-term borrowings, net  6.33%  6.25%  6.33%  6.33%  6.34%  6.34%  6.34%
Total interest-bearing liabilities  0.49%  0.42%  0.51%  0.48%  0.48%  0.47%  0.47%
Net interest rate spread  3.13%  3.19%  3.11%  3.13%  3.16%  3.16%  3.10%
Net interest rate margin  3.24%  3.28%  3.23%  3.23%  3.27%  3.26%  3.20%
                             

________
(1) Includes investment securities at adjusted amortized cost.
(2) See Appendix A – Reconciliation to Non-GAAP Financial Measures for the computation of this Non-GAAP measure.


FINANCIAL INSTITUTIONS, INC.
Selected Financial Information (Unaudited)
(Amounts in thousands)
 
  2016
 2015
  Third Second First Fourth Third
  Quarter Quarter Quarter Quarter Quarter
ASSET QUALITY DATA:          
Allowance for Loan Losses          
Beginning balance $28,525  $27,568  $27,085  $26,455  $27,500 
Net loan charge-offs (recoveries):          
Commercial business  (31)  (27)  502   133   68 
Commercial mortgage  127   2   (1)  23   12 
Residential real estate loans  61   34   21   110   37 
Residential real estate lines  4   44   -   24   30 
Consumer indirect  896   904   1,328   1,519   1,475 
Other consumer  79   38   35   159   177 
Total net charge-offs  1,136   995   1,885   1,968   1,799 
Provision for loan losses  1,961   1,952   2,368   2,598   754 
Ending balance $29,350  $28,525  $27,568  $27,085  $26,455 
           
Net charge-offs (recoveries) to average loans (annualized):          
Commercial business  -0.03%  -0.03%  0.64%  0.18%  0.09%
Commercial mortgage  0.08%  0.00%  -0.00%  0.02%  0.01%
Residential real estate loans  0.06%  0.03%  0.02%  0.12%  0.04%
Residential real estate lines  0.01%  0.14%  0.00%  0.07%  0.09%
Consumer indirect  0.50%  0.53%  0.79%  0.90%  0.88%
Other consumer  1.79%  0.87%  0.79%  3.39%  3.76%
Total loans  0.20%  0.19%  0.36%  0.38%  0.35%
           
Supplemental information (1)          
Non-performing loans:          
Commercial business $2,157  $2,312  $4,056  $3,922  $3,064 
Commercial mortgage  1,345   1,547   1,781   947   1,802 
Residential real estate loans  1,239   1,485   1,601   1,848   2,092 
Residential real estate lines  274   182   165   235   223 
Consumer indirect  1,077   1,015   943   1,467   1,292 
Other consumer  9   15   21   21   20 
Total non-performing loans  6,101   6,556   8,567   8,440   8,493 
Foreclosed assets  294   281   187   163   286 
Total non-performing assets $6,395  $6,837  $8,754  $8,603  $8,779 
           
Total non-performing loans to total loans  0.27%  0.30%  0.41%  0.41%  0.42%
Total non-performing assets to total assets  0.17%  0.19%  0.25%  0.25%  0.26%
Allowance for loan losses to total loans  1.29%  1.29%  1.30%  1.30%  1.30%
Allowance for loan losses to non-performing loans  481%  435%  322%  321%  311%
                     

________
(1)       At period end.


FINANCIAL INSTITUTIONS, INC.
Appendix A - Reconciliation to Non-GAAP Financial Measures (Unaudited)
(In thousands, except per share amounts)
 
  Nine months ended  2016  2015
  September 30, Third Second First Fourth Third
   2016   2015  Quarter Quarter Quarter Quarter Quarter
Ending tangible assets:              
Total assets     $3,687,365  $3,585,589  $3,516,572  $3,381,024  $3,357,608 
Less: Goodwill and other intangible assets, net      75,943   76,252   76,567   66,946   67,925 
Tangible assets     $3,611,422  $3,509,337  $3,440,005  $3,314,078  $3,289,683 
               
Ending tangible common equity:              
Common shareholders' equity     $308,931  $304,836  $296,613  $276,504  $278,094 
Less: Goodwill and other intangible assets, net      75,943   76,252   76,567   66,946   67,925 
Tangible common equity     $232,988  $228,584  $220,046  $209,558  $210,169 
               
Tangible common equity to tangible assets (1)      6.45%  6.51%  6.40%  6.32%  6.39%
               
Common shares outstanding      14,528   14,528   14,495   14,191   14,189 
Tangible common book value per share (2)     $16.04  $15.73  $15.18  $14.77  $14.81 
               
Average tangible assets:              
Average assets $3,502,628  $3,241,646  $3,593,672  $3,507,760  $3,405,451  $3,353,702  $3,343,802 
Less: Average goodwill and other intangible assets, net  76,291   68,288   76,116   76,437   76,324   67,692   68,050 
Average tangible assets $3,426,337  $3,173,358  $3,517,556  $3,431,323  $3,329,127  $3,286,010  $3,275,752 
               
Average tangible common equity:              
Average common equity $300,098  $269,855  $308,524  $299,831  $291,848  $279,821  $271,889 
Less: Average goodwill and other intangible assets, net  76,291   68,288   76,116   76,437   76,324   67,692   68,050 
Average tangible common equity $223,807  $201,567  $232,408  $223,394  $215,524  $212,129  $203,839 
               
Net income available to common shareholders $22,141  $20,605  $8,103  $6,785  $7,253  $6,270  $7,950 
Return on average tangible common equity (3)  13.21%  13.67%  13.87%  12.22%  13.54%  11.73%  15.47%
                             

________
(1) Tangible common equity divided by tangible assets.
(2) Tangible common equity divided by common shares outstanding.
(3) Net income available to common shareholders (annualized) divided by average tangible common equity.

For additional information contact: Kevin B. Klotzbach Chief Financial Officer & Treasurer Phone: 585.786.1130 Email: KBKlotzbach@five-starbank.com Shelly J. Doran Director − Investor & External Relations Phone: 585.627.1362 Email: SJDoran@five-starbank.com

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