Financial Institutions, Inc. Reports Third Quarter 2013 Net Income of $6.2 Million

WARSAW, N.Y., Oct. 23, 2013 (GLOBE NEWSWIRE) -- Financial Institutions, Inc. (the "Company") (Nasdaq:FISI), the parent company of Five Star Bank, today reported financial results for the third quarter ended September 30, 2013. Net income for the third quarter 2013 was $6.2 million, compared to $6.9 million for the second quarter 2013. After preferred dividends, third quarter 2013 net income available to common shareholders was $5.8 million or $0.42 per diluted share compared with $6.5 million or $0.47 per share for the second quarter of 2013.

Highlights for the third quarter 2013 include:

  • Increased quarterly cash dividend to $0.19 per outstanding common share, the fourth such increase since the beginning of 2012.
  • Continued strong quarterly performance with a return on average common equity of 10.05% and return on average tangible common equity of 12.88%
  • Total third quarter loans grew $36.3 million from the second quarter or 8.3% on an annualized basis driven by organic loan origination
  • Third quarter 2013 noninterest expenses decreased by 2.6% from the second quarter 2013
  • Common and tangible book value per share increased to $16.69 and $13.06, respectively, at September 30, 2013
  • Capital ratios remain strong with total risk-based capital of 12.19%

Net income of $6.2 million in the third quarter 2013 was $686 thousand lower than the second quarter 2013 as a result of a $1.6 million increase in the provision for loan losses and a $207 thousand decrease in noninterest income, which were partially offset by a $279 thousand increase in net interest income, a $453 thousand decrease in noninterest expense and a $366 thousand decrease in income tax expense. The Company's return on average assets and return on average common equity were 0.88% and 10.05%, respectively, during the third quarter 2013, compared to 0.99% and 10.86%, respectively, in the second quarter 2013.

"We are very pleased with our exceptional loan growth, margin stability, and the relatively low-risk profile of our balance sheet," said Martin K. Birmingham, the Company's President and Chief Executive Officer. "Consistent with our strategy, we will continue to focus on all aspects of our customer-centric approach in the markets we serve while maintaining prudent expense management policies. A key focal point has been the implementation of initiatives to enhance customer satisfaction. We believe that successful execution of our strategy was demonstrated in the third quarter by our consistent ability to deliver strong organic loan growth. At the same time, our noninterest expense declined for the second consecutive quarter.

"We're also seeing the initial returns from our move to streamlined retail checking products, which have enjoyed widespread customer acceptance and satisfaction. Our approach -- emphasizing clearly-stated benefits without hidden fees -- is proving to be another successful element in our strategy for long-term customer relationship development and retention," added Mr. Birmingham.

"Based on our solid third quarter performance and the confidence we have in our future growth and operating performance, we made the decision to increase our quarterly cash dividend to $0.19 per outstanding common share. The higher dividend represents a 45% percent return of third quarter net income to shareholders and a 6% increase when compared with last quarter's dividend," concluded Mr. Birmingham.

Net Interest Income and Net Interest Margin

Net interest income was $22.8 million in the third quarter 2013, an increase of $279 thousand from the second quarter 2013. The net interest margin (on a tax-equivalent basis) was steady at 3.62% in the third quarter 2013 compared to 3.63% in the second quarter 2013.

Noninterest Income

Total noninterest income for the third quarter 2013 was $6.2 million compared to $6.4 million in the second quarter 2013. Noninterest income in the second quarter of 2013 included gains totaling $332 thousand from the sale of trust preferred securities. There were no securities sold during the third quarter 2013.

Excluding the second quarter gains from investment securities, noninterest income in the third quarter 2013 was $125 thousand or 2% higher than the second quarter 2013. This increase in noninterest income was the result of increases in service charges on deposits and other noninterest income, partially offset by decreases in mortgage banking revenue (defined as loan servicing income and net gains on the sale of loans held for sale), ATM and debit card income, broker-dealer fees and commissions and gains on the sale of other assets.

Noninterest Expense

Total noninterest expense declined by 2.6% to $17.0 million for the third quarter 2013 compared to $17.5 million in the second quarter 2013. The decrease in noninterest expense was primarily the result of lower professional service fees and computer and data processing expense. In addition, occupancy and equipment expense, supplies and postage, advertising and promotions and other noninterest expense combined for a total decrease of $301 thousand when comparing the third quarter 2013 to the second quarter 2013. Professional service fees decreased $279 thousand, due in part to executive management transitions and other corporate governance initiatives that resulted in higher expense in the second quarter of 2013. The timing of the annual update of a core software application resulted in a $123 thousand decrease in computer and data processing expense. These decreases were partially offset by higher salaries and employee benefits expense when comparing the third quarter 2013 to the second quarter 2013. The increase in salaries and employee benefits expense was primarily attributable to higher expenses for medical insurance, severance and employee stock based compensation. Medical insurance is generally higher in the first and third quarter each year due to the timing of the Company's contributions to employee health savings accounts.

Balance Sheet and Capital Management

Total assets were $2.87 billion at September 30, 2013, up $103.7 million from $2.76 billion at December 31, 2012. The increase in total assets is primarily attributable to a $73.9 million increase in total loans and a $38.9 million increase in cash and cash equivalents, partially offset by a $12.4 million decrease in investment securities.

Total loans were $1.78 billion at September 30, 2013, up $73.9 million or 4% compared to $1.71 billion at December 31, 2012. The increase in loans was attributable to organic growth, primarily in the commercial, home equity and consumer indirect loan categories. The average yield on the loan portfolio was 4.59% in the third quarter 2013, compared to 4.65% in the second quarter 2013.

Total investment securities were $829.3 million at September 30, 2013, down $12.4 million compared to $841.7 million at December 31, 2012. The decrease in investment securities occurred based on the combination of scheduled principal paydowns on amortizing securities and a change in the net unrealized gain/loss on the available-for-sale ("AFS") investment securities portfolio. The AFS portfolio had net unrealized losses totaling $1.9 million at September 30, 2013 compared to net unrealized gains of $26.6 million at December 31, 2012. The unrealized loss on the AFS portfolio was predominantly caused by changes in market interest rates. The fair value of most of the investment securities in the AFS portfolio fluctuates as market interest rates change. Approximately $227.3 million in available for sale securities were transferred at fair value to held to maturity during the third quarter 2013 as a means of mitigating the fair value fluctuations in the AFS portfolio and reducing the volatility of tangible common equity. The average yield on the investment securities portfolio was 2.42% in the third quarter 2013 compared to 2.38% in the second quarter 2013.

Total deposits were $2.41 billion at September 30, 2013, up $152.4 million from $2.26 billion at December 31, 2012. Public deposit balances increased $139.2 million during the first nine months of 2013 due to the seasonality of municipal cash flows, coupled with successful business development efforts for the Company's newly acquired branches. The average cost of interest-bearing deposits in the third quarter 2013 was 0.36%, unchanged from the second quarter 2013.

Shareholders' equity was $247.8 million at September 30, 2013, down $6.1 million compared with $253.9 million at December 31, 2012. Net income for the nine months ended September 30, 2013 increased shareholders' equity by $19.2 million, which was partially offset by common and preferred stock dividends of $8.7 million. Accumulated other comprehensive loss included in shareholders' equity decreased $16.6 million during the first nine months of 2013 due to the previously mentioned change in unrealized gain/loss on AFS securities. At September 30, 2013, the tangible common equity to tangible assets ratio and leverage ratio were 6.40% and 7.68%, respectively, compared to 6.86% and 7.71%, respectively, at December 31, 2012. The decrease in the Company's equity ratios was attributable to the decrease in shareholder's equity combined with a growth in our average assets.

At September 30, 2013, the Company's common book value and tangible common book value was $16.69 per share and $13.06 per share, respectively, compared to $17.15 per share and $13.49 per share, respectively, at December 31, 2012.

Credit Quality

Non-performing loans were $10.3 million or 0.58% of total loans at September 30, 2013, compared with $9.1 million or 0.53% of total loans at December 31, 2012. The increase in non-performing loans during the first nine months of 2013 was primarily due to the first quarter addition of one credit relationship consisting of commercial business and commercial mortgage loans with unpaid principal balances totaling $2.4 million as of September 30, 2013.

During the third quarter 2013, the Company internally downgraded to substandard status from special mention one credit relationship consisting of a single commercial mortgage loan with an unpaid principal balance totaling $8.4 million. The downgrade necessitated a provision and increase in our allowance for losses of approximately $960 thousand.

Net loan charge-offs increased to $1.7 million in the third quarter 2013 from $1.4 million in the second quarter 2013. The provision for loan losses was $2.8 million in the third quarter 2013, compared to $1.2 million in the second quarter 2013. The increase in the provision in the third quarter 2013 was primarily related to the one commercial mortgage loan referenced above.

The allowance for loan losses was $26.7 million at September 30, 2013, compared with $24.7 million at December 31, 2012. The ratio of the allowance for loan losses to total loans was 1.50% at September 30, 2013, compared with 1.45% at December 31, 2012. The ratio of allowance for loan losses to non-performing loans was 258% at September 30, 2013, compared with 271% at December 31, 2012.

About Financial Institutions, Inc.

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 60 ATMs throughout Western and Central New York State. Five Star Investment Services, Inc. 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"). 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 comparison to others in the financial services industry. 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, 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)
2013 2012
September 30, June 30, March 31, December 31, September 30,
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents $99,384 50,927 84,791 60,436 77,045
Investment securities:
Available for sale 583,551 810,549 853,437 823,796 748,618
Held-to-maturity 245,708 17,348 17,747 17,905 19,564
Total investment securities 829,259 827,897 871,184 841,701 768,182
Loans held for sale 2,810 3,423 2,142 1,518 1,411
Loans:
Commercial business 253,925 257,732 259,062 258,675 245,307
Commercial mortgage 449,565 437,515 424,635 413,324 403,120
Residential mortgage 117,624 118,117 126,228 133,520 139,984
Home equity 316,626 306,215 292,225 286,649 279,211
Consumer indirect 618,088 599,586 590,440 586,794 563,676
Other consumer 23,844 24,249 24,700 26,764 27,687
Total loans 1,779,672 1,743,414 1,717,290 1,705,726 1,658,985
Allowance for loan losses 26,685 25,590 25,827 24,714 24,301
Total loans, net 1,752,987 1,717,824 1,691,463 1,681,012 1,634,684
Total interest-earning assets (1) (2) 2,613,746 2,576,028 2,567,948 2,522,444 2,400,225
Goodwill and other intangible assets, net 50,095 50,190 50,288 50,389 50,924
Total assets 2,867,517 2,782,303 2,827,658 2,763,865 2,653,319
Deposits:
Noninterest-bearing demand 542,517 511,802 494,362 501,514 490,706
Interest-bearing demand 519,283 475,448 529,115 449,744 472,023
Savings and money market 757,454 713,459 748,482 655,598 673,883
Certificates of deposit 594,931 623,527 637,538 654,938 695,107
Total deposits 2,414,185 2,324,236 2,409,497 2,261,794 2,331,719
Borrowings 188,146 193,413 139,620 179,806 38,282
Total interest-bearing liabilities 2,059,814 2,005,847 2,054,755 1,940,086 1,879,295
Shareholders' equity 247,845 244,888 254,930 253,897 251,842
Common shareholders' equity (3) 230,503 227,494 237,511 236,426 234,371
Tangible common equity (4) 180,408 177,304 187,223 186,037 183,447
Unrealized (loss) gain on investment securities, net of tax $ (1,154) (725) 13,745 16,060 17,178
Common shares outstanding 13,810 13,809 13,804 13,788 13,786
Treasury shares 352 353 358 374 376
CAPITAL RATIOS AND PER SHARE DATA:
Leverage ratio 7.68% 7.59 7.46 7.71 7.67
Tier 1 risk-based capital 10.94% 10.96 10.84 10.73 10.91
Total risk-based capital 12.19% 12.21 12.09 11.98 12.16
Common equity to assets 8.04% 8.18 8.40 8.55 8.83
Tangible common equity to tangible assets (4) 6.40% 6.49 6.74 6.86 7.05
Common book value per share $16.69 16.47 17.21 17.15 17.00
Tangible common book value per share (4) 13.06 12.84 13.56 13.49 13.31
________
(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 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)
Quarterly Trends
Nine months ended 2013 2012
September 30, Third Second First Fourth Third
SELECTED INCOME STATEMENT DATA:
Interest income $73,713 72,480 24,623 24,342 24,748 25,087 25,299
Interest expense 5,499 7,052 1,820 1,818 1,861 1,999 2,200
Net interest income 68,214 65,428 22,803 22,524 22,887 23,088 23,099
Provision for loan losses 6,672 4,608 2,770 1,193 2,709 2,520 1,764
Net interest income after provision for loan losses 61,542 60,820 20,033 21,331 20,178 20,568 21,335
Noninterest income:
Service charges on deposits 7,437 6,101 2,728 2,568 2,141 2,526 2,292
ATM and debit card 3,849 3,368 1,283 1,317 1,249 1,348 1,219
Broker-dealer fees and commissions 1,917 1,630 568 650 699 474 609
Company owned life insurance 1,275 1,300 422 438 415 451 433
Loan servicing 452 645 227 152 73 (28) 142
Net gain (loss) on sale of loans held for sale 134 981 (101) 35 200 440 323
Net gain on investment securities 1,224 2,164 -- 332 892 487 596
Impairment charge on investment securities -- (91) -- -- -- -- --
Net gain (loss) on sale of other assets 39 (79) -- 38 1 (302) (114)
Other 2,771 2,475 1,042 846 883 887 853
Total noninterest income 19,098 18,494 6,169 6,376 6,553 6,283 6,353
Noninterest expense:
Salaries and employee benefits 28,408 30,565 9,473 9,226 9,709 9,562 12,438
Occupancy and equipment 9,163 8,400 2,959 3,035 3,169 3,019 2,915
Professional services 2,844 3,243 814 1,093 937 890 1,452
Computer and data processing 2,205 2,462 689 812 704 809 976
Supplies and postage 1,806 1,930 518 608 680 567 899
FDIC assessments 1,092 957 367 364 361 343 356
Advertising and promotions 676 499 209 253 214 430 261
Other 5,861 5,800 1,980 2,071 1,810 1,921 2,321
Total noninterest expense 52,055 53,856 17,009 17,462 17,584 17,541 21,618
Income before income taxes 28,585 25,458 9,193 10,245 9,147 9,310 6,070
Income tax expense 9,422 8,341 3,029 3,395 2,998 2,978 1,805
Net income $19,163 17,117 6,164 6,850 6,149 6,332 4,265
Preferred stock dividends 1,100 1,105 365 367 368 369 368
Net income available to common shareholders $18,063 16,012 5,799 6,483 5,781 5,963 3,897
FINANCIAL RATIOS AND STOCK DATA:
Earnings per share – basic $1.32 1.17 0.42 0.47 0.42 0.44 0.28
Earnings per share – diluted $1.31 1.16 0.42 0.47 0.42 0.43 0.28
Cash dividends declared on common stock $0.55 0.41 0.19 0.18 0.18 0.16 0.14
Common dividend payout ratio (1) 41.67% 35.04 45.24 38.30 42.86 36.36 50.00
Dividend yield (annualized) 3.59% 2.94 3.68 3.92 3.66 3.42 2.99
Return on average assets 0.92% 0.92 0.88 0.99 0.90 0.95 0.65
Return on average equity 10.13% 9.32 9.93 10.70 9.75 9.85 6.77
Return on average common equity (2) 10.25% 9.38 10.05 10.86 9.83 9.95 6.65
Return on average tangible common equity (3) 13.03% 11.44 12.88 13.74 12.47 12.66 8.33
Efficiency ratio (4) 58.72% 64.29 56.95 59.38 59.87 58.88 73.04
Stock price (Nasdaq: FISI):
High $21.99 19.52 21.99 20.66 20.83 19.39 19.52
Low $17.92 15.22 18.39 17.92 18.51 17.61 16.50
Close $20.46 18.64 20.46 18.41 19.96 18.63 18.64
________
(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 to GAAP Reconciliation for the computation of this Non-GAAP measure.
(4) 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 and impairment charges on investment securities.
FINANCIAL INSTITUTIONS, INC.
Selected Financial Information (Unaudited)
(Amounts in thousands)
Quarterly Trends
Nine months ended 2013 2012
September 30, Third Second First Fourth Third
2013 2012 Quarter Quarter Quarter Quarter Quarter
SELECTED AVERAGE BALANCES:
Federal funds sold and interest-earning deposits $223 119 126 226 320 94 168
Investment securities (1) 829,207 695,554 821,561 829,953 836,270 727,735 745,796
Loans (2):
Commercial business 257,172 239,319 256,256 256,332 258,958 250,384 248,060
Commercial mortgage 431,440 407,928 442,178 433,631 418,248 407,168 409,884
Residential mortgage 125,017 123,930 121,462 123,263 130,425 137,586 141,808
Home equity 299,474 249,044 309,970 299,230 288,993 282,831 271,131
Consumer indirect 596,260 519,175 605,286 595,235 588,068 576,519 544,527
Other consumer 24,412 24,391 23,641 24,080 25,535 27,043 26,179
Total loans 1,733,775 1,563,787 1,758,793 1,731,771 1,710,227 1,681,531 1,641,589
Total interest-earning assets 2,563,205 2,259,460 2,580,480 2,561,950 2,546,817 2,409,360 2,387,553
Goodwill and other intangible assets, net 50,249 40,886 50,153 50,249 50,350 50,879 47,200
Total assets 2,784,647 2,475,190 2,784,580 2,789,104 2,780,209 2,650,502 2,607,497
Interest-bearing liabilities:
Interest-bearing demand 483,428 409,331 466,889 489,047 494,654 464,094 425,739
Savings and money market 717,583 557,800 719,452 739,328 693,684 671,295 611,564
Certificates of deposit 628,694 696,051 603,434 635,583 647,551 685,318 695,682
Borrowings 184,236 139,330 207,491 153,626 191,412 69,335 157,973
Total interest-bearing liabilities 2,013,941 1,802,512 1,997,266 2,017,584 2,027,301 1,890,042 1,890,958
Noninterest-bearing demand deposits 503,734 411,036 527,438 501,354 481,909 487,434 447,204
Total deposits 2,333,439 2,074,218 2,317,213 2,365,312 2,317,798 2,308,141 2,180,189
Total liabilities 2,531,702 2,229,816 2,538,377 2,532,197 2,524,377 2,394,687 2,356,787
Shareholders' equity 252,945 245,374 246,203 256,907 255,832 255,815 250,710
Common equity (3) 235,531 227,901 228,827 239,500 238,373 238,344 233,238
Tangible common equity (4) $185,282 187,015 178,674 189,251 188,023 187,465 186,038
Common shares outstanding:
Basic 13,734 13,692 13,745 13,739 13,717 13,707 13,703
Diluted 13,774 13,748 13,787 13,767 13,767 13,761 13,759
SELECTED AVERAGE YIELDS:
(Tax equivalent basis)
Federal funds sold and interest-earning deposits 0.19% 0.21 0.15 0.19 0.21 0.60 0.16
Investment securities 2.40% 2.70 2.42 2.38 2.39 2.56 2.60
Loans 4.69% 5.13 4.59 4.65 4.83 4.98 5.10
Total interest-earning assets 3.94% 4.38 3.90 3.91 4.03 4.25 4.32
Interest-bearing demand 0.15% 0.14 0.18 0.14 0.11 0.13 0.14
Savings and money market 0.13% 0.18 0.14 0.13 0.13 0.14 0.15
Certificates of deposit 0.79% 1.03 0.77 0.79 0.82 0.86 0.94
Borrowings 0.39% 0.44 0.38 0.40 0.40 0.76 0.43
Total interest-bearing liabilities 0.37% 0.52 0.36 0.36 0.37 0.42 0.46
Net interest rate spread 3.57% 3.86 3.54 3.55 3.66 3.83 3.86
Net interest rate margin 3.66% 3.97 3.62 3.63 3.73 3.92 3.96
________
(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 to GAAP Reconciliation for the computation of this Non-GAAP measure.
FINANCIAL INSTITUTIONS, INC.
Selected Financial Information (Unaudited)
(Amounts in thousands)
2013 2012
September 30, June 30, March 31, December 31, September 30,
ASSET QUALITY DATA:
Allowance for Loan Losses
Beginning balance $25,590 25,827 24,714 24,301 24,120
Net loan charge-offs (recoveries):
Commercial business 104 87 202 139 287
Commercial mortgage (87) (37) (11) 277 (64)
Residential mortgage 22 72 145 22 39
Home equity 14 (20) 232 119 65
Consumer indirect 1,465 1,170 913 1,367 1,124
Other consumer 157 158 115 183 132
Total net charge-offs 1,675 1,430 1,596 2,107 1,583
Provision for loan losses 2,770 1,193 2,709 2,520 1,764
Ending balance $26,685 25,590 25,827 24,714 24,301
Supplemental information
Period end loans:
Originated loans $1,728,453 1,688,392 1,657,431 1,641,197 1,588,614
Acquired loans 51,219 55,022 59,859 64,529 70,371
Total loans $1,779,672 1,743,414 1,717,290 1,705,726 1,658,985
Allowance for loan losses to total loans 1.50% 1.47 1.50 1.45 1.46
Allowance for loan losses for originated loans to originated loans 1.54% 1.52 1.56 1.51 1.53
Net charge-offs (recoveries) to average loans (annualized):
Commercial business 0.16% 0.14 0.32 0.22 0.46
Commercial mortgage -0.08% -0.03 -0.01 0.27 -0.06
Residential mortgage 0.07% 0.24 0.45 0.06 0.11
Home equity 0.02% -0.03 0.33 0.17 0.10
Consumer indirect 0.96% 0.79 0.63 0.94 0.82
Other consumer 2.63% 2.63 1.83 2.68 2.00
Total loans 0.38% 0.33 0.38 0.50 0.38
Non-performing loans:
Commercial business $4,078 5,043 5,616 3,413 3,621
Commercial mortgage 2,835 3,073 2,767 1,799 3,388
Residential mortgage 1,337 1,423 1,759 2,040 1,597
Home equity 911 699 598 939 929
Consumer indirect 1,161 1,035 1,007 891 876
Other consumer 16 22 19 43 23
Total non-performing loans 10,338 11,295 11,766 9,125 10,434
Foreclosed assets 424 415 371 184 303
Non-performing investment securities 128 207 343 753 766
Total non-performing assets $10,890 11,917 12,480 10,062 11,503
Total non-performing loans to total loans 0.58% 0.65 0.69 0.53 0.63
Total non-performing loans to originated loans 0.60% 0.67 0.71 0.56 0.66
Total non-performing assets to total assets 0.38% 0.43 0.44 0.36 0.43
Allowance for loan losses to non-performing loans 258% 227 220 271 233
FINANCIAL INSTITUTIONS, INC.
Appendix A - Non-GAAP to GAAP Reconciliation (Unaudited)
(In thousands, except per share amounts)
Nine months ended 2013 2012
September 30, Third Second First Fourth Third
2013 2012 Quarter Quarter Quarter Quarter Quarter
Ending tangible assets:
Total assets $2,867,517 2,782,303 2,827,658 2,763,865 2,653,319
Less: Goodwill and other intangible assets, net 50,095 50,190 50,288 50,389 50,924
Tangible assets (non-GAAP) $2,817,422 2,732,113 2,777,370 2,713,476 2,602,395
Ending tangible common equity:
Common shareholders' equity $230,503 227,494 237,511 236,426 234,371
Less: Goodwill and other intangible assets, net 50,095 50,190 50,288 50,389 50,924
Tangible common equity (non-GAAP) $180,408 177,304 187,223 186,037 183,447
Tangible common equity to tangible assets (non-GAAP) (1) 6.40% 6.49 6.74 6.86 7.05
Common shares outstanding 13,810 13,809 13,804 13,788 13,786
Tangible common book value per share (non-GAAP) (2) $13.06 12.84 13.56 13.49 13.31
Average tangible common equity:
Average common equity $235,531 227,901 228,827 239,500 238,373 238,344 233,238
Average goodwill and other intangible assets, net 50,249 40,886 50,153 50,249 50,350 50,879 47,200
Average tangible common equity (non-GAAP) $185,282 187,015 178,674 189,251 188,023 187,465 186,038
Return on average tangible common equity (3) 13.03% 11.44 12.88 13.74 12.47 12.66 8.33
Net operating income:
Net income $19,163 17,117 6,164 6,850 6,149 6,332 4,265
Branch acquisition expenses, net of tax (4) -- 1,966 -- -- -- -- 1,262
CEO retirement expenses, net of tax (4) -- 1,670 -- -- -- -- 1,670
Net operating income (non-GAAP) $19,163 20,753 6,164 6,850 6,149 6,332 7,197
Net operating income available to common shareholders:
Net income available to common shareholders $18,063 16,012 5,799 6,483 5,781 5,963 3,897
Branch acquisition expenses, net of tax (4) -- 1,966 -- -- -- -- 1,262
CEO retirement expenses, net of tax (4) -- 1,670 -- -- -- -- 1,670
Net operating income available to common shareholders (non-GAAP) $18,063 19,648 5,799 6,483 5,781 5,963 6,829
Financial ratios computed on an operating basis (Non-GAAP):
Earnings per share – basic $1.32 1.43 0.42 0.47 0.42 0.44 0.50
Earnings per share – diluted $1.31 1.43 0.42 0.47 0.42 0.43 0.50
Return on average assets 0.92% 1.12 0.88 0.99 0.90 0.95 1.10
Return on average equity 10.13% 11.30 9.93 10.70 9.75 9.85 11.42
Return on average common equity 10.25% 11.52 10.05 10.86 9.83 9.95 11.65
Return on average tangible common equity 13.03% 14.03 12.88 13.74 12.47 12.66 14.60
________
(1) Tangible common equity divided by tangible assets.
(2) Tangible common equity divided by common shares outstanding.
(3) Annualized net income divided by average tangible common equity.
(4) Tax effect is calculated assuming a 35% effective tax rate.

CONTACT: Kevin B. Klotzbach Chief Financial Officer & Treasurer Phone: 585.786.1130 Email: KBKlotzbach@five-starbank.com Jordan M. Darrow Darrow Associates, Inc. Phone: 631.367.1866 Email: jdarrow@darrowir.comSource:Financial Institutions, Inc.