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Financial Institutions, Inc. Reports Third Quarter 2014 Net Income of $7.2 Million

WARSAW, N.Y., Oct. 22, 2014 (GLOBE NEWSWIRE) -- Financial Institutions, Inc. (the "Company") (Nasdaq:FISI), the parent company of Five Star Bank, today reported net income for the third quarter ended September 30, 2014 of $7.2 million, compared with $7.0 million for the second quarter of 2014 and $6.2 million for the third quarter of 2013. After preferred dividends, third quarter earnings per diluted common share was $0.49, compared with $0.48 per share for the second quarter of 2014 and $0.42 per share for the third quarter of 2013.

"We are pleased to have delivered strong earnings growth in the third quarter, which reflects the impact of our strategic operating priorities," said Martin K. Birmingham, the Company's President and Chief Executive Officer. "Even more encouraging is that our improved profitability was achieved amid a challenging revenue growth environment. Our operating priorities center on maintaining a disciplined approach to meeting the financial needs of the communities we serve while bolstering our financial performance measures. In the third quarter, our efforts produced solid balance sheet growth, an improvement in our credit quality and resulted in an 11% increase in year-to-date earnings compared to the first three quarters of 2013."

"We remain intensely focused on performance, continued enhancements to our business model and on developing talent at all levels of the organization so that we can be the leading community bank in the markets we serve," added Birmingham. "Our people are critical to our success. I want to once again thank the expanding Five Star team, which includes our newest members from the recently acquired Scott Danahy Naylon insurance agency, for their commitment to delivering excellence to our customers and shareholders."

Highlights:

  • Completed the acquisition of Scott Danahy Naylon Co., Inc. ("SDN"), a full service insurance agency
  • Initiated the implementation of a Company-wide Enterprise Risk Management model
  • Quarterly net income was $7.2 million, up 2% from last quarter and 17% from the third quarter of 2013
  • Noninterest income increased to $7.3 million for the third quarter of 2014, up 10% from last quarter and 18% from the third quarter of 2013
  • Average loans increased by $144.3 million or 8% from the third quarter of 2013 and $26.6 million or 1% from the second quarter of 2014, as total loans at September 30, 2014 reached record levels
  • Non-performing assets decreased 8% from the second quarter of 2014
  • Shareholders' equity and common book value per share reached record levels at the end of the third quarter
  • Quarterly cash dividend of $0.19 per common share represents a 3.35% dividend yield as of September 30, 2014 and a return of 39% of third quarter net income to common shareholders
  • Strong quarterly return on average common equity of 10.55% and return on average tangible common equity of 13.73%

During the third quarter of 2014, the Company completed the acquisition of SDN, located in a suburb of Buffalo, New York, that provides a broad range of insurance services to both personal and business clients. SDN now operates as a subsidiary of Financial Institutions, Inc. and an affiliate of Five Star Bank. Also during the quarter, the Company continued the implementation of an enterprise risk management structure. This structure is intended to build upon the Company's already strong risk culture and led to the appointment of a new, highly experienced chief risk officer. The structure will more closely integrate the Company's growth strategies, including organic expansion and acquisitions, with its risk management and governance processes.

"Acquiring SDN represents an important building block in accordance with our strategic growth plans, which call for increased penetration of the Rochester and Buffalo markets and the diversification of our revenue base by expanding fee-based services," said Kevin B. Klotzbach, the Company's Executive Vice President and Chief Financial Officer. "The SDN platform provides subsequent opportunities to bolt on independent agencies in the future."

Net Interest Income and Net Interest Margin

Net interest income totaled $23.3 million in the third quarter of 2014, up from $23.1 million in the second quarter of 2014 and $22.8 million in the third quarter of 2013. Average earning assets were up $4.8 million compared to the second quarter of 2014 and $176.7 million compared to the third quarter of 2013. The increase from the prior year period included increases of $144.3 million and $32.5 million in loans and investment securities, respectively. Third quarter 2014 net interest margin was 3.46%, down from 3.47% in the second quarter of 2014 and 3.62% in the third quarter of 2013.

Noninterest Income and Expense

Noninterest income totaled $7.3 million in the third quarter of 2014, compared to $6.6 million in the second quarter of 2014 and $6.2 million in the third quarter of 2013. Included in the 2014 totals are gains realized from the sale of investment securities. Exclusive of those gains, noninterest income was $6.7 million in the recently completed quarter and $5.6 million in the second quarter of 2014. The higher noninterest income generated in the most recent quarter is primarily a result of insurance income, of which $670 thousand was generated by SDN.

Noninterest expense in the third quarter of 2014 totaled $18.0 million, compared with $17.8 million in the second quarter of 2014 and $17.0 million in the third quarter of 2013. The increases in noninterest expense were largely due to higher salaries and benefits expense associated with the acquisition of SDN and the hiring of additional loan officers and related personnel as part of the Company's expansion initiatives.

Income Taxes

Income tax expense was $3.4 million in the third quarter of 2014, compared to $3.1 million in the second quarter of 2014 and $3.0 million in the third quarter of 2013. The effective tax rate was 31.9% for the third quarter of 2014, 30.5% for the second quarter of 2014 and 33.0% for the third quarter of 2013. In general, the lower effective tax rate in 2014 reflects New York State tax savings generated by the Company's real estate investment trust, which became effective during February 2014. However, the Company's effective tax rate in the third quarter of 2014 was higher than the second quarter due to non-deductible one-time expenses associated with the acquisition of SDN.

Balance Sheet and Capital Management

Total assets were $3.06 billion at September 30, 2014, up $62.0 million from $2.99 billion at June 30, 2014 and $187.8 million from $2.87 billion at September 30, 2013. The increase from the prior year was driven by loan growth and higher investment security balances.

Total loans were $1.91 billion at September 30, 2014, up from $1.90 billion at June 30, 2014 and $1.78 billion at September 30, 2013. The increase in loans from the prior year was attributable to organic growth, primarily in commercial, home equity and consumer indirect loans. Total investment securities were $871.4 million at September 30, 2014, up $7.5 million compared with June 30, 2014 and up $42.2 million from September 30, 2013.

Total deposits were $2.54 billion at September 30, 2014, up $88.7 million from $2.45 billion at June 30, 2014 and $124.6 million from $2.41 billion at September 30, 2013. The increase during the third quarter of 2014 was mainly due to seasonal inflows of municipal deposits, while the year-over-year increase was primarily due to successful business development efforts. Public deposit balances represented 28% of total deposits at September 30, 2014, compared to 25% at June 30, 2014 and September 30, 2013.

Short-term borrowings were $216.0 million at September 30, 2014, down $38.7 million from June 30, 2014 and up $27.8 million from September 30, 2013, respectively. Short-term borrowings are utilized to offset seasonal outflows of municipal deposits.

Shareholders' equity and common book value per share reached record levels at the end of the third quarter 2014. Shareholders' equity was $277.8 million at September 30, 2014, compared with $269.8 million at June 30, 2014 and $247.8 million at September 30, 2013. Common book value per share was $18.48 at September 30, 2014, an increase of $0.27 from $18.21 at June 30, 2014 and $1.79 from $16.69 at September 30, 2013. Tangible common book value per share was $13.59 at September 30, 2014, a decrease of 7% from $14.62 at June 30, 2014 and an increase of 4% from $13.06 at September 30, 2013.

During the third quarter of 2014, the Company declared a common stock dividend of $0.19 per common share, consistent with the prior quarter and the third quarter of 2013. The third quarter 2014 dividend returned 39% of the quarter's net income to common shareholders.

The Company's leverage ratio was 7.34% at September 30, 2014, compared to 7.64% and 7.68% at June 30, 2014 and September 30, 2013, respectively. Goodwill and intangible assets recorded in conjunction with the SDN acquisition resulted in lower capital ratios. Such goodwill and intangible assets are excluded from regulatory capital under regulatory accounting practices.

Credit Quality

Overall credit quality improved during the third quarter of 2014. Non-performing assets at September 30, 2014 declined $752 thousand compared with June 30, 2014, driven by a decrease in non-performing loans. Commercial non-performing loans declined $605 thousand, residential mortgage non-performing loans declined $102 thousand and consumer indirect non-performing loans decreased $127 thousand. During the second quarter of 2014 the last of the remaining non-performing pooled trust preferred investment securities was sold. These securities had been transferred to non-performing status in years prior to 2010 and included in non-performing assets at fair value. Nonperforming assets to total assets were 0.28% at September 30, 2014 compared with 0.32% at June 30, 2014 and 0.38% at September 30, 2013.

The provision for loans losses for the third quarter of 2014 increased $257 thousand compared with the second quarter of 2014 and decreased $755 thousand compared to the third quarter of 2013. Net charge-offs of $1.9 million in the third quarter of 2014 represented 0.40% of average loans on an annualized basis compared to $1.7 million or 0.37% of average loans in the second quarter of 2014 and $1.7 million or 0.38% of average loans in the third quarter of 2013.

The allowance for loans losses to total loans was 1.43% at September 30, 2014, which was unchanged from June 30, 2014 and lower as compared with 1.50% at September 30, 2013. The allowance to non-performing loans was 333% at September 30, 2014 compared with 306% at June 30, 2014, and 258% at September 30, 2013. The higher allowance to non-performing loans ratio at September 30, 2014 was driven by a reduction in non-performing loans.

Mr. Birmingham added, "Although we are already performing at a high level with respect to asset quality metrics, as evidenced by peer comparisons, the quality of our loan portfolio showed additional improvement. This reflects the disciplined credit underwriting and origination processes of our organization and the high quality of our customers."

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 over 625 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 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, breaches of its third party information systems, the attitudes and preferences of its customers, its ability to successfully integrate and profitably operate acquired businesses, 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)
2014 2013
September 30, June 30, March 31, December 31, September 30,
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents $ 87,582 64,832 72,401 59,692 99,384
Investment securities:
Available for sale 585,479 601,903 674,650 609,400 583,551
Held-to-maturity 285,967 262,057 253,576 249,785 245,708
Total investment securities 871,446 863,960 928,226 859,185 829,259
Loans held for sale 1,029 201 900 3,381 2,810
Loans:
Commercial business 275,107 277,685 268,352 265,766 253,925
Commercial mortgage 469,485 469,055 468,763 469,284 449,565
Residential mortgage 103,044 106,206 110,164 113,045 117,624
Home equity 382,703 369,578 332,348 326,086 316,626
Consumer indirect 656,215 652,748 647,546 636,368 618,088
Other consumer 21,291 21,392 21,667 23,070 23,844
Total loans 1,907,845 1,896,664 1,848,840 1,833,619 1,779,672
Allowance for loan losses 27,244 27,166 27,152 26,736 26,685
Total loans, net 1,880,601 1,869,498 1,821,688 1,806,883 1,752,987
Total interest-earning assets (1)(2) 2,780,940 2,758,779 2,780,489 2,705,045 2,613,746
Goodwill and other intangible assets, net 68,887 49,826 49,913 50,002 50,095
Total assets 3,055,304 2,993,264 3,015,619 2,928,636 2,867,517
Deposits:
Noninterest-bearing demand 571,549 551,229 532,914 535,472 542,517
Interest-bearing demand 530,783 507,083 541,660 470,733 519,283
Savings and money market 805,522 766,594 812,734 717,928 757,454
Certificates of deposit 630,970 625,172 646,112 595,923 594,931
Total deposits 2,538,824 2,450,078 2,533,420 2,320,056 2,414,185
Borrowings 215,967 254,683 196,746 337,042 188,146
Total interest-bearing liabilities 2,183,242 2,153,532 2,197,252 2,121,626 2,059,814
Shareholders' equity 277,758 269,827 262,865 254,839 247,845
Common shareholders' equity (3) 260,418 252,487 245,523 237,497 230,503
Tangible common equity (4) 191,531 202,661 195,610 187,495 180,408
Unrealized (loss) gain on investment securities, net of tax $ (374) 1,292 (1,467) (5,293) (1,154)
Common shares outstanding 14,094 13,863 13,853 13,829 13,810
Treasury shares 304 299 309 333 352
CAPITAL RATIOS AND PER SHARE DATA:
Leverage ratio 7.34% 7.64 7.51 7.63 7.68
Tier 1 risk-based capital 10.44% 10.95 10.89 10.82 10.94
Total risk-based capital 11.69% 12.20 12.14 12.08 12.19
Common equity to assets 8.52% 8.44 8.14 8.11 8.04
Tangible common equity to tangible assets (4) 6.41% 6.89 6.60 6.51 6.40
Common book value per share $ 18.48 18.21 17.72 17.17 16.69
Tangible common book value per share (4) 13.59 14.62 14.12 13.56 13.06
(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 2014 2013
September 30, Third Second First Fourth Third
2014 2013 Quarter Quarter Quarter Quarter Quarter
SELECTED INCOME STATEMENT DATA:
Interest income $ 75,071 73,713 25,129 24,883 25,059 25,218 24,623
Interest expense 5,435 5,499 1,871 1,780 1,784 1,838 1,820
Net interest income 69,636 68,214 23,258 23,103 23,275 23,380 22,803
Provision for loan losses 5,879 6,672 2,015 1,758 2,106 2,407 2,770
Net interest income after provision for loan losses 63,757 61,542 21,243 21,345 21,169 20,973 20,033
Noninterest income:
Service charges on deposits 6,768 7,437 2,277 2,241 2,250 2,511 2,728
ATM and debit card 3,694 3,849 1,263 1,257 1,174 1,249 1,283
Investment advisory 1,647 1,917 524 561 562 428 568
Company owned life insurance 1,249 1,275 421 425 403 431 422
Insurance income 979 189 922 16 41 73 92
Investments in limited partnerships 894 538 187 81 626 319 241
Loan servicing 450 452 120 176 154 118 227
Net gain (loss) on sale of loans held for sale 231 134 76 50 105 (17) (101)
Net gain on investment securities 1,777 1,224 515 949 313 2 --
Net (loss) gain on sale of other assets 61 39 72 24 (35) (142) --
Other 2,445 2,044 884 797 764 763 709
Total noninterest income 20,195 19,098 7,261 6,577 6,357 5,735 6,169
Noninterest expense:
Salaries and employee benefits 28,044 28,408 9,725 9,063 9,256 9,420 9,473
Occupancy and equipment 9,505 9,163 3,131 3,139 3,235 3,203 2,959
Professional services 3,332 2,844 976 1,384 972 992 814
Computer and data processing 2,225 2,205 725 777 723 643 689
Supplies and postage 1,554 1,806 507 535 512 536 518
FDIC assessments 1,200 1,092 390 388 422 372 367
Advertising and promotions 609 676 216 214 179 220 209
Other 6,507 5,861 2,285 2,308 1,914 2,000 1,980
Total noninterest expense 52,976 52,055 17,955 17,808 17,213 17,386 17,009
Income before income taxes 30,976 28,585 10,549 10,114 10,313 9,322 9,193
Income tax expense 9,541 9,422 3,365 3,082 3,094 2,955 3,029
Net income 21,435 19,163 7,184 7,032 7,219 6,367 6,164
Preferred stock dividends 1,097 1,100 366 365 366 366 365
Net income available to common shareholders $ 20,338 18,063 6,818 6,667 6,853 6,001 5,799
FINANCIAL RATIOS AND STOCK DATA:
Earnings per share – basic $ 1.47 1.32 0.49 0.48 0.50 0.44 0.42
Earnings per share – diluted $ 1.46 1.31 0.49 0.48 0.50 0.43 0.42
Cash dividends declared on common stock $ 0.57 0.55 0.19 0.19 0.19 0.19 0.19
Common dividend payout ratio (1) 38.78% 41.67 38.78 39.58 38.00 43.18 45.24
Dividend yield (annualized) 3.39% 3.59 3.35 3.25 3.35 3.05 3.68
Return on average assets 0.96% 0.92 0.95 0.95 0.99 0.88 0.88
Return on average equity 10.70% 10.13 10.41 10.52 11.19 10.03 9.93
Return on average common equity (2) 10.85% 10.25 10.55 10.66 11.38 10.15 10.05
Return on average tangible common equity (3) 13.77% 13.03 13.73 13.31 14.30 12.90 12.88
Efficiency ratio (4) 58.24% 58.72 57.65 60.15 56.96 57.76 56.95
Stock price (Nasdaq: FISI):
High $ 25.69 21.99 24.94 24.88 25.69 26.59 21.99
Low $ 19.72 17.92 21.71 22.17 19.72 20.14 18.39
Close $ 22.48 20.46 22.48 23.42 23.02 24.71 20.46
(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) 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 2014 2013
September 30, Third Second First Fourth Third
2014 2013 Quarter Quarter Quarter Quarter Quarter
SELECTED AVERAGE BALANCES:
Federal funds sold and interest-earning deposits $ 153 223 51 94 316 94 126
Investment securities (1) 877,923 829,207 854,030 875,855 904,437 849,069 821,561
Loans (2):
Commercial business 271,190 257,172 273,239 275,105 265,137 253,458 256,256
Commercial mortgage 473,263 431,440 473,168 473,883 472,733 460,722 442,178
Residential mortgage 109,030 125,017 105,255 108,535 113,390 118,113 121,462
Home equity 351,212 299,474 377,360 346,911 328,833 320,872 309,970
Consumer indirect 648,901 596,260 653,192 651,150 642,241 627,557 605,286
Other consumer 21,251 24,412 20,847 20,855 22,062 23,132 23,641
Total loans 1,874,847 1,733,775 1,903,061 1,876,439 1,844,396 1,803,854 1,758,793
Total interest-earning assets 2,752,923 2,563,205 2,757,142 2,752,388 2,749,149 2,653,017 2,580,480
Goodwill and other intangible assets, net 53,085 50,249 59,306 49,879 49,968 50,058 50,153
Total assets 2,975,094 2,784,647 2,985,920 2,973,735 2,965,400 2,860,733 2,784,580
Interest-bearing liabilities:
Interest-bearing demand 502,170 483,428 486,311 509,398 511,073 501,753 466,889
Savings and money market 770,008 717,583 758,306 789,956 761,799 757,868 719,452
Certificates of deposit 627,550 628,694 634,400 629,945 618,126 599,971 603,434
Borrowings 253,017 184,236 259,995 224,801 274,414 208,338 207,491
Total interest-bearing liabilities 2,152,745 2,013,941 2,139,012 2,154,100 2,165,412 2,067,930 1,997,266
Noninterest-bearing demand deposits 539,693 503,734 556,485 537,895 524,346 526,146 527,438
Total deposits 2,439,421 2,333,439 2,435,502 2,467,194 2,415,344 2,385,738 2,317,213
Total liabilities 2,707,241 2,531,702 2,712,274 2,705,578 2,703,777 2,608,815 2,538,377
Shareholders' equity 267,853 252,945 273,646 268,157 261,623 251,918 246,203
Common equity (3) 250,512 235,531 256,306 250,815 244,281 234,576 228,827
Tangible common equity (4) $ 197,427 185,282 197,000 200,936 194,313 184,518 178,674
Common shares outstanding:
Basic 13,840 13,734 13,953 13,791 13,773 13,754 13,745
Diluted 13,890 13,774 14,007 13,838 13,824 13,817 13,787
SELECTED AVERAGE YIELDS:
(Tax equivalent basis)
Federal funds sold and interest-earning deposits 0.10% 0.19 0.28 0.07 0.08 0.16 0.15
Investment securities 2.43% 2.40 2.43 2.45 2.43 2.46 2.42
Loans 4.36% 4.69 4.31 4.32 4.45 4.55 4.59
Total interest-earning assets 3.75% 3.94 3.73 3.73 3.79 3.88 3.90
Interest-bearing demand 0.12% 0.15 0.12 0.12 0.13 0.16 0.18
Savings and money market 0.12% 0.13 0.12 0.12 0.13 0.14 0.14
Certificates of deposit 0.76% 0.79 0.78 0.76 0.74 0.77 0.77
Borrowings 0.37% 0.39 0.37 0.36 0.38 0.38 0.38
Total interest-bearing liabilities 0.34% 0.37 0.35 0.33 0.33 0.35 0.36
Net interest rate spread 3.41% 3.57 3.38 3.40 3.46 3.53 3.54
Net interest rate margin 3.48% 3.66 3.46 3.47 3.52 3.61 3.62
(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)
2014 2013
September 30, June 30, March 31, December 31, September 30,
ASSET QUALITY DATA:
Allowance for Loan Losses
Beginning balance $ 27,166 27,152 26,736 26,685 25,590
Net loan charge-offs (recoveries):
Commercial business 44 (65) 39 328 104
Commercial mortgage 66 159 (7) 369 (87)
Residential mortgage 11 61 57 118 22
Home equity 66 127 95 8 14
Consumer indirect 1,577 1,336 1,350 1,416 1,465
Other consumer 173 126 156 117 157
Total net charge-offs 1,937 1,744 1,690 2,356 1,675
Provision for loan losses 2,015 1,758 2,106 2,407 2,770
Ending balance $ 27,244 27,166 27,152 26,736 26,685
Supplemental information
Period end loans:
Originated loans $ 1,866,671 1,853,728 1,803,209 1,785,599 1,728,453
Acquired loans 41,174 42,936 45,631 48,020 51,219
Total loans $ 1,907,845 1,896,664 1,848,840 1,833,619 1,779,672
Allowance for loan losses to total loans 1.43% 1.43 1.47 1.46 1.50
Allowance for loan losses for originated loans to originated loans 1.46% 1.47 1.51 1.50 1.54
Net charge-offs (recoveries) to average loans (annualized):
Commercial business 0.06% -0.09 0.06 0.51 0.16
Commercial mortgage 0.06% 0.13 -0.01 0.32 -0.08
Residential mortgage 0.04% 0.23 0.21 0.41 0.07
Home equity 0.07% 0.15 0.12 0.01 0.02
Consumer indirect 0.96% 0.82 0.85 0.90 0.96
Other consumer 3.29% 2.42 2.87 2.01 2.63
Total loans 0.40% 0.37 0.37 0.52 0.38
Non-performing loans:
Commercial business $ 3,258 3,589 3,706 3,474 4,078
Commercial mortgage 2,460 2,734 9,545 9,663 2,835
Residential mortgage 656 758 760 1,078 1,337
Home equity 464 371 826 925 911
Consumer indirect 1,300 1,427 1,387 1,471 1,161
Other consumer 46 12 46 11 16
Total non-performing loans 8,184 8,891 16,270 16,622 10,338
Foreclosed assets 509 554 412 333 424
Non-performing investment securities -- -- 113 128 128
Total non-performing assets $ 8,693 9,445 16,795 17,083 10,890
Total non-performing loans to total loans 0.43% 0.47 0.88 0.91 0.58
Total non-performing loans to originated loans 0.44% 0.48 0.90 0.93 0.60
Total non-performing assets to total assets 0.28% 0.32 0.56 0.58 0.38
Allowance for loan losses to non-performing loans 333% 306 167 161 258
FINANCIAL INSTITUTIONS, INC.
Appendix A - Non-GAAP to GAAP Reconciliation (Unaudited)
(In thousands, except per share amounts)
Quarterly Trends
Nine months ended 2014 2013
September 30, Third Second First Fourth Third
2014 2013 Quarter Quarter Quarter Quarter Quarter
Ending tangible assets:
Total assets $ 3,055,304 2,993,264 3,015,619 2,928,636 2,867,517
Less: Goodwill and other intangible assets, net 68,887 49,826 49,913 50,002 50,095
Tangible assets (non-GAAP) $ 2,986,417 2,943,438 2,965,706 2,878,634 2,817,422
Ending tangible common equity:
Common shareholders' equity $ 260,418 252,487 245,523 237,497 230,503
Less: Goodwill and other intangible assets, net 68,887 49,826 49,913 50,002 50,095
Tangible common equity (non-GAAP) $ 191,531 202,661 195,610 187,495 180,408
Tangible common equity to tangible assets (non-GAAP) (1) 6.41% 6.89 6.60 6.51 6.40
Common shares outstanding 14,094 13,863 13,853 13,829 13,810
Tangible common book value per share (non-GAAP) (2) $ 13.59 14.62 14.12 13.56 13.06
Average tangible common equity:
Average common equity $ 250,512 235,531 256,306 250,815 244,281 234,576 228,827
Average goodwill and other intangible assets, net 53,085 50,249 59,306 49,879 49,968 50,058 50,153
Average tangible common equity (non-GAAP) $ 197,427 185,282 197,000 200,936 194,313 184,518 178,674
Return on average tangible common equity (3) 13.77% 13.03 13.73 13.31 14.30 12.90 12.88
(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.

CONTACT: Kevin B. Klotzbach Chief Financial Officer & Treasurer Phone: 585.786.1130 Email: KBKlotzbach@five-starbank.comSource:Financial Institutions, Inc.