Financial Institutions, Inc. Announces First Quarter 2016 Results

WARSAW, N.Y., April 26, 2016 (GLOBE NEWSWIRE) -- Financial Institutions, Inc. (Nasdaq:FISI), today reported financial results for the first quarter ended March 31, 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 whose business we acquired from Courier Capital Corporation in January 2016.

First Quarter 2016 Highlights:

  • Increased net interest income to a record $24.7 million in the first quarter
  • Increased noninterest income to $9.2 million in the first quarter
  • Strong performance resulted in return on average tangible common equity of 13.54% for the quarter
  • Growth strategy drives increase in fee-based services income and market share, leading to record level of earnings assets and deposits
  • Total assets increased to over $3.5 billion, up $319.5 million or 10% from a year ago
  • Grew total loans $192.1 million or 10% from a year ago
  • Increased total deposits by $255.5 million or 9% from a year ago
  • Quarterly cash dividend of $0.20 per common share represented a 2.77% dividend yield as of March 31, 2016 and a return of 40% of first quarter net income to common shareholders
  • Common and tangible common book value per share increased to $20.46 and $15.18, respectively, at March 31, 2016
  • Total risk-based capital increased to 13.39%, strengthening the Company’s capital position to support future growth
  • Completed the acquisition of Courier Capital, a prominent SEC-registered investment advisory and wealth management firm with offices in Buffalo and Jamestown
  • Opened our second “Made For You” financial solution center in Rochester; a unique customer service experience offered in one of the Company’s targeted growth markets

Net income for the first quarter 2016 was $7.6 million, compared to $6.6 million for the fourth quarter 2015, and $6.8 million for the first quarter 2015. After preferred dividends, first quarter 2016 net income available to common shareholders was $7.3 million or $0.50 per diluted share, compared with $6.3 million or $0.44 per diluted share for the fourth quarter 2015, and $6.4 million or $0.46 per diluted share for the first quarter 2015.

The Company’s President and Chief Executive Officer Martin K. Birmingham stated, “Continued strength in banking operations, successful implementation of our revenue diversification strategy and diligent management of operating expenses were key drivers of our core earnings growth this quarter. Consolidated revenues of $33.9 million in the first quarter of 2016 reached the highest level in the Company’s history. We remain focused on expense control and implemented several initiatives designed to reduce operating expenses late in the first quarter of 2016. We expect those savings to be reflected beginning in the second quarter.

“We continue to deliver balanced growth in our banking operations. Deposits increased 8% from the fourth quarter of 2015 of this year, which we believe partially reflects the retrenchment of larger competitors operating in the regions in which we operate. In particular, the progress of our two new bank branches in Rochester, one of the largest metro areas in our operating region, is very encouraging. Our first branch office in Rochester, the CityGate Financial Solution Center, opened in November and ended the first quarter with $32 million in total deposits. We are optimistic about further market share gains given the opening of our Brighton office in late March 2016.

“The January 2016 acquisition of Courier Capital, our wealth management platform, coupled with 4% growth in insurance revenues through our Scott Danahy Naylon insurance subsidiary, contributed to the growth in our noninterest income. Noninterest income comprised 34% of total revenues in the quarter, up from 31% in the first quarter of 2015. These new business lines combined with our core community bank which has a 200 year tradition, positions us as a leading western New York diversified financial services provider. We believe this platform and our independence as a community bank to respond to market needs in our region are key to our continued growth.”

Kevin B. Klotzbach, the Company’s Chief Financial Officer added, “We continue to deploy capital in a strategic manner that is delivering results, while only beginning to benefit from the leverage in our expanding platform. We ended the quarter with record levels in a number of key business areas, including interest income, noninterest income, total loans, total assets and total deposits. Interest-earning assets reached a record at $3.2 billion, as loan growth remained robust with demand from both consumer and business customers, while rates on loan production and net interest margin have held up well. We have also been able to effectively control our cost of funds which has stabilized our margin. Net interest margin has now increased for two consecutive quarters. Meanwhile, our credit quality remained steady in the first quarter and we have ample liquidity and a strong balance sheet to further execute our growth strategies.

“The Company’s tangible common equity also ended the quarter at a record level. Our return on tangible common equity of 13.54% increased by 15% compared to last quarter due to earnings growth. Contributing to our returns are the benefits from Company owned life insurance policies which added $1.4 million to noninterest income in the quarter. With over 60 policies remaining in force, we expect continued contributions for many years, although the timing and amounts will vary.

“Our strong first quarter performance led to tangible common book value reaching $15.18 per share, an increase of nearly 3% since the beginning of the year and up 7% in the last 12 months. For the three months ended March 31, 2016, total shareholder return of 4.6% far outpaced our peer group and the broader bank indexes, many of which have experienced negative returns. We are gratified that our operating strategies and financial results achieved have enabled us to contribute to the communities we serve while delivering value for our shareholders.”

Net Interest Income and Net Interest Margin

Net interest income was $24.7 million in the first quarter 2016 compared to $24.6 million in the fourth quarter 2015 and $23.1 million in the first quarter 2015. Average earning assets were up $33.4 million, led by a $55.0 million increase in loans in the first quarter of 2016 compared to the fourth quarter of 2015. When comparing the first quarter 2016 to the same quarter in 2015, average earning assets increased $313.1 million, including increases of $119.7 million and $193.4 million in investment securities and loans, respectively. First quarter 2016 net interest margin was 3.27%, up slightly from 3.26% for the fourth quarter of 2015 and down 16 basis points from 3.43% for the first quarter of 2015.

Noninterest Income

Noninterest income was $9.2 million for the first quarter 2016 compared to $8.6 million for the fourth quarter 2015 and $8.3 million in the first quarter 2015. Included in company owned life insurance income for the first quarter 2016 is $911 thousand of death benefit proceeds. Included in fourth quarter 2015 other noninterest income is $1.1 million related to the reduction in the Company’s estimate of the fair value of the contingent consideration liability recorded for Scott Danahy Naylon. Exclusive of those items and gains realized from the sale of investment securities, noninterest income was $7.7 million in the first quarter 2016, $6.8 million in the fourth quarter 2015 and $7.2 million in the first quarter 2015. The main factors contributing to the higher noninterest income during the first quarter 2016 compared to the fourth quarter 2015 were increases in insurance income and investment advisory income. Insurance income increased $436 thousand and investment advisory income increased $601 thousand, reflecting the contribution from Courier Capital which was acquired during the first quarter 2016 as part of our strategy to diversify our business lines and increase noninterest income through additional fee-based services. The increase in insurance income was largely due to contingent commission revenue from Scott Danahy Naylon. Such commissions are seasonal in nature and are generally received during the first quarter of each year. The higher noninterest income in the first quarter 2016 compared to the first quarter 2015 was primarily the result of a $756 thousand increase in investment advisory income, reflecting the contribution from Courier Capital, which was partially offset by a $418 thousand decrease in limited partnership income. Income from the Company’s equity method investments in limited partnerships, which are primarily small business investment companies, fluctuates based on the performance of the underlying investments.

Noninterest Expense

Noninterest expense was $21.2 million for the first quarter 2016 compared to $21.8 million for the fourth quarter 2015 and $19.0 million for the first quarter 2015. The decrease in noninterest expense in first quarter 2016 compared to fourth quarter 2015 was primarily due to the $751 thousand of goodwill impairment recognized in the fourth quarter 2015.

The increase in noninterest expense during the first quarter 2016 compared to the first quarter 2015 was largely due to higher salaries and employee benefits coupled with an increase in professional services expense. Salaries and employee benefits expense increased $1.4 million from the first quarter 2015, reflecting the addition of Courier Capital and a combination of additional personnel to support organic growth as part of the Company’s expansion initiatives and higher medical expense as the level of medical claims in the first quarter of 2015 were unusually low. Professional services increased $479 thousand when comparing the first quarter of 2016 to the same period in 2015. The first quarter 2016 professional services expense included approximately $360 thousand of professional services associated with responding to the demands of an activist shareholder.

Income Taxes

Income tax expense was $2.7 million in the first quarter 2016, compared to $2.2 million in the fourth quarter 2015 and $2.9 million in the first quarter 2015. Higher income tax expense during the first quarter 2016 compared to the fourth quarter 2015 was primarily driven by higher pre-tax income. The effective tax rate was 26.4% for the first quarter 2016, compared with an effective tax rate of 24.5% for the fourth quarter of 2015 and 29.8% in the first quarter 2015. The lower effective tax rate in 2016 compared to the same quarter a year ago is a result of the non-taxable life insurance proceeds received in 2016.

Balance Sheet and Capital Management

Total assets were $3.52 billion at March 31, 2016, up $135.5 million from $3.38 billion at December 31, 2015 and up $319.5 million from $3.20 billion at March 31, 2015. The increases were attributable to loan growth and higher investment security balances funded by deposit growth.

Total loans were $2.12 billion at March 31, 2016, up $31.5 million from December 31, 2015 and up $192.4 million from March 31, 2015. The increases in loans are primarily attributable to organic commercial loan growth. Commercial loans totaled $908.1 million as of March 31, 2016, an increase of $28.2 million or 3% from December 31, 2015 and an increase of $151.4 million or 20% from March 31, 2015. Total investment securities were $1.09 billion at March 31, 2016, up $56.2 million or 5% from the end of the prior quarter and up $140.8 million or 15% from March 31, 2015.

Total deposits were $2.96 billion at March 31, 2016, an increase of $229.6 million from December 31, 2015 and an increase of $255.5 million from March 31, 2015. The increase during the first quarter of 2016 was mainly due to seasonal inflows of municipal deposits, while the year-over-year increase was due to higher municipal deposits and successful business development efforts in retail banking. Public deposit balances represented 30% of total deposits at March 31, 2016 and 2015, compared to 25% at December 31, 2015.

Short-term borrowings were $179.2 million at March 31, 2016, down $113.9 million from December 31, 2015 and up $3.6 million from March 31, 2015. Short-term borrowings are typically utilized to manage the seasonality of municipal deposits.

Shareholders’ equity was $314.0 million at March 31, 2016, compared with $293.8 million at December 31, 2015 and $286.7 million at March 31, 2015. Common book value per share was $20.46 at March 31, 2016, an increase of $0.97 or 5% from $19.49 at December 31, 2015 and $1.45 or 8% from $19.01 at March 31, 2015. Tangible common book value per share was $15.18 at March 31, 2016, compared to $14.77 at December 31, 2015 and $14.18 at March 31, 2015. The increases in shareholders’ equity and the book value per share amounts are attributable to net income, stock issued for the acquisition of Courier Capital and to higher net unrealized gains on securities available for sale, a component of accumulated other comprehensive income.

During the first quarter 2016, the Company declared a common stock dividend of $0.20 per common share. The first quarter 2016 dividend returned 40% of first quarter net income to common shareholders.

The Company’s leverage ratio was 7.46% at March 31, 2016, compared to 7.41% at December 31, 2015 and 7.53% at March 31, 2015. The increase in the leverage ratio from December 31, 2015 was due to higher regulatory capital, which excludes changes in accumulated other comprehensive income. The decrease in the leverage ratio from March 31, 2015 was primarily due to an increase in average quarterly assets.

Credit Quality

Non-performing loans were $8.6 million at March 31, 2016, compared to $8.4 million at December 31, 2015 and $11.1 million at March 31, 2015. The $2.5 million decrease from the first quarter 2015 was due to across the board improvement in each of the loan portfolios. The ratio of non-performing loans to total loans was 0.41% at March 31, 2016 and December 31, 2015, and 0.58% at March 31, 2015.

The provision for loans losses for the first quarter 2016 was $2.4 million, a decrease of $230 thousand from the prior quarter and $373 thousand from the first quarter 2015. Net charge-offs were $1.9 million during the first quarter 2016, an $83 thousand decrease compared to the prior quarter and $1.3 million decrease from the first quarter 2015. The ratio of annualized net charge-offs to total average loans was 0.36% during the current quarter, compared to 0.38% during the prior quarter and 0.68% during the first quarter 2015.

The ratio of allowance for loans losses to total loans was 1.30% at March 31, 2016 and December 31, 2015, and 1.41% at March 31, 2015. The ratio of allowance for loans losses to non-performing loans was 322% at March 31, 2016, compared with 321% at December 31, 2015 and 246% at March 31, 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 financial information, such as tangible common equity, determined by methods other than in accordance with U.S. generally accepted accounting principles ("GAAP"). The Company believes that non-GAAP financial measures provide a meaningful comparison of the underlying operational performance of the Company, and facilitate investors' assessments of its business and performance trends. In addition, the Company believes the exclusion of these non-operating items enables management to perform a more effective evaluation and comparison of the Company's results and to assess performance in relation to the Company's ongoing operations. These disclosures should not be viewed as a substitute for financial measures determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP financial 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 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, and costs associated with responding to the current proxy contest. 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
March 31, December 31, September 30, June 30, March 31,
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents$ 110,944 60,121 51,334 52,554 135,972
Investment securities:
Available for sale 610,013 544,395 577,509 772,639 639,275
Held-to-maturity 476,283 485,717 490,638 320,820 306,255
Total investment securities 1,086,296 1,030,112 1,068,147 1,093,459 945,530
Loans held for sale 609 1,430 1,568 448 656
Loans:
Commercial business 317,776 313,758 297,876 292,791 277,464
Commercial mortgage 590,316 566,101 548,529 536,590 479,226
Residential real estate loans 382,504 381,074 376,552 365,172 355,495
Residential real estate lines 126,526 127,347 128,361 128,844 129,183
Consumer indirect 679,846 676,940 665,714 666,550 662,213
Other consumer 18,066 18,542 19,204 19,326 19,373
Total loans 2,115,034 2,083,762 2,036,236 2,009,273 1,922,954
Allowance for loan losses 27,568 27,085 26,455 27,500 27,191
Total loans, net 2,087,466 2,056,677 2,009,781 1,981,773 1,895,763
Total interest-earning assets 3,189,582 3,114,530 3,097,315 3,104,631 2,860,605
Goodwill and other intangible assets, net 76,567 66,946 67,925 68,158 68,396
Total assets 3,516,572 3,381,024 3,357,608 3,359,459 3,197,077
Deposits:
Noninterest-bearing demand 617,394 641,972 623,296 602,143 559,646
Interest-bearing demand 622,443 523,366 563,731 530,861 611,104
Savings and money market 1,042,910 928,175 942,673 910,215 922,093
Certificates of deposit 677,430 637,018 623,800 613,019 611,852
Total deposits 2,960,177 2,730,531 2,753,500 2,656,238 2,704,695
Short-term borrowings 179,200 293,100 241,400 350,600 175,573
Long-term borrowings, net 39,008 38,990 38,972 38,955 -
Total interest-bearing liabilities 2,560,991 2,420,649 2,410,576 2,443,650 2,320,622
Shareholders’ equity 313,953 293,844 295,434 284,435 286,689
Common shareholders’ equity 296,613 276,504 278,094 267,095 269,349
Tangible common equity (1) 220,046 209,558 210,169 198,937 200,953
Unrealized gain (loss) on investment securities, net of tax$ 7,555 443 5,270 (924) 5,241
Common shares outstanding 14,495 14,191 14,189 14,184 14,167
Treasury shares 197 207 209 214 231
CAPITAL RATIOS AND PER SHARE DATA:
Leverage ratio 7.46% 7.41 7.29 7.31 7.53
Common equity Tier 1 ratio 9.83% 9.77 9.74 9.50 9.66
Tier 1 risk-based capital 10.56% 10.50 10.49 10.25 10.45
Total risk-based capital 13.39% 13.35 13.37 13.17 11.69
Common equity to assets 8.43% 8.18 8.28 7.95 8.42
Tangible common equity to tangible assets (1) 6.40% 6.32 6.39 6.04 6.42
Common book value per share$ 20.46 19.49 19.60 18.83 19.01
Tangible common book value per share (1)$ 15.18 14.77 14.81 14.03 14.18
Stock price (Nasdaq: FISI):
High$ 29.53 29.04 25.21 25.50 25.38
Low$ 25.38 24.05 23.54 22.50 21.67
Close$ 29.07 28.00 24.78 24.84 22.93

________
(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)

2016 2015
First Year ended Fourth Third Second First
Quarter December 31, Quarter Quarter Quarter Quarter
SELECTED INCOME STATEMENT DATA:
Interest income $27,635 105,450 27,487 27,007 25,959 24,997
Interest expense 2,916 10,137 2,856 2,876 2,555 1,850
Net interest income 24,719 95,313 24,631 24,131 23,404 23,147
Provision for loan losses 2,368 7,381 2,598 754 1,288 2,741
Net interest income after provision for loan losses 22,351 87,932 22,033 23,377 22,116 20,406
Noninterest income:
Service charges on deposits 1,724 7,742 1,862 2,037 1,964 1,879
Insurance income 1,672 5,166 1,236 1,265 1,057 1,608
ATM and debit card 1,325 5,084 1,311 1,297 1,283 1,193
Investment advisory 1,243 2,193 642 523 541 487
Company owned life insurance 1,368 1,962 514 488 493 467
Investments in limited partnerships 56 895 30 336 55 474
Loan servicing 116 503 87 153 96 167
Net gain on sale of loans held for sale 78 249 88 53 39 69
Net gain on investment securities 613 1,988 640 286 - 1,062
Net gain on sale of other assets 4 27 7 - 16 4
Amortization of tax credit investment - (390) - (390) - -
Other 1,018 4,918 2,163 957 911 887
Total noninterest income 9,217 30,337 8,580 7,005 6,455 8,297
Noninterest expense:
Salaries and employee benefits 11,614 42,439 11,332 10,278 10,606 10,223
Occupancy and equipment 3,625 13,856 3,365 3,417 3,375 3,699
Professional services 1,447 4,502 1,604 1,064 866 968
Computer and data processing 804 3,186 895 779 810 702
Supplies and postage 594 2,155 544 540 508 563
FDIC assessments 436 1,719 442 444 415 418
Advertising and promotions 377 1,120 331 312 238 239
Goodwill impairment charge - 751 751 - - -
Other 2,321 9,665 2,564 2,484 2,418 2,199
Total noninterest expense 21,218 79,393 21,828 19,318 19,236 19,011
Income before income taxes 10,350 38,876 8,785 11,064 9,335 9,692
Income tax expense 2,732 10,539 2,150 2,748 2,750 2,891
Net income 7,618 28,337 6,635 8,316 6,585 6,801
Preferred stock dividends 365 1,462 365 366 366 365
Net income available to common shareholders $ 7,253 26,875 6,270 7,950 6,219 6,436
FINANCIAL RATIOS:
Earnings per share – basic $ 0.50 1.91 0.44 0.56 0.44 0.46
Earnings per share – diluted $ 0.50 1.90 0.44 0.56 0.44 0.46
Cash dividends declared on common stock $ 0.20 0.80 0.20 0.20 0.20 0.20
Common dividend payout ratio 40.00% 41.88 45.45 35.71 45.45 43.48
Dividend yield (annualized) 2.77% 2.86 2.83 3.20 3.23 3.54
Return on average assets 0.90% 0.87 0.78 0.99 0.81 0.89
Return on average tangible assets (1) 0.88% 0.84 0.76 0.96 0.78 0.86
Return on average equity 9.91% 9.78 8.86 11.41 9.19 9.68
Return on average common equity 10.00% 9.87 8.89 11.60 9.24 9.75
Return on average tangible common equity (1) 13.54% 13.16 11.73 15.47 12.37 13.11
Efficiency ratio (2) 62.90% 61.58 64.55 59.46 62.00 60.27

________
(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)

2016 2015
First Year ended Fourth Third Second First
Quarter December 31, Quarter Quarter Quarter Quarter
SELECTED AVERAGE BALANCES:
Federal funds sold and interest-earning deposits $ 70 37 - - 26 124
Investment securities (1) 1,027,602 1,014,171 1,049,217 1,067,815 1,029,640 907,871
Loans:
Commercial business 316,143 286,019 297,033 297,216 284,535 264,814
Commercial mortgage 582,142 522,328 554,327 545,875 509,317 478,705
Residential real estate loans 382,077 366,032 379,189 371,318 357,442 355,866
Residential real estate lines 127,317 128,525 127,688 127,826 129,167 129,444
Consumer indirect 678,133 665,454 671,888 663,884 664,222 661,727
Other consumer 17,926 18,969 18,626 18,680 18,848 19,736
Total loans 2,103,738 1,987,327 2,048,751 2,024,799 1,963,531 1,910,292
Total interest-earning assets 3,131,410 3,001,535 3,097,968 3,092,614 2,993,197 2,818,287
Goodwill and other intangible assets, net 76,324 68,138 67,692 68,050 68,294 68,527
Total assets 3,405,451 3,269,890 3,353,702 3,343,802 3,263,111 3,115,516
Interest-bearing liabilities:
Interest-bearing demand 572,424 543,690 545,602 516,448 561,570 551,503
Savings and money market 965,629 908,614 960,768 903,491 929,701 839,218
Certificates of deposit 658,537 616,747 628,944 619,459 616,145 602,115
Short-term borrowings 221,326 262,494 241,957 329,050 226,577 251,768
Long-term borrowings, net 38,997 27,886 38,979 38,962 33,053 -
Total interest-bearing liabilities 2,456,913 2,359,431 2,416,250 2,407,410 2,367,046 2,244,604
Noninterest-bearing demand deposits 617,590 599,334 619,423 625,131 587,396 564,500
Total deposits 2,814,180 2,668,385 2,754,737 2,664,529 2,694,812 2,557,336
Total liabilities 3,096,263 2,980,183 3,056,541 3,054,573 2,975,762 2,830,557
Shareholders’ equity 309,188 289,707 297,161 289,229 287,349 284,959
Common equity 291,848 272,367 279,821 271,889 270,009 267,619
Tangible common equity (2) $ 215,524 204,229 212,129 203,839 201,715 199,092
Common shares outstanding:
Basic 14,395 14,081 14,095 14,087 14,078 14,063
Diluted 14,465 14,135 14,163 14,139 14,121 14,113
SELECTED AVERAGE YIELDS:
(Tax equivalent basis)
Investment securities 2.48% 2.46 2.47 2.46 2.44 2.47
Loans 4.21% 4.21 4.22 4.16 4.18 4.27
Total interest-earning assets 3.64% 3.62 3.63 3.57 3.58 3.69
Interest-bearing demand 0.14% 0.14 0.15 0.15 0.14 0.11
Savings and money market 0.13% 0.13 0.14 0.14 0.12 0.10
Certificates of deposit 0.88% 0.87 0.88 0.89 0.87 0.84
Short-term borrowings 0.62% 0.41 0.49 0.41 0.38 0.37
Long-term borrowings, net 6.34% 6.28 6.34 6.34 6.23 -
Total interest-bearing liabilities 0.48% 0.43 0.47 0.47 0.43 0.33
Net interest rate spread 3.16% 3.19 3.16 3.10 3.15 3.36
Net interest rate margin 3.27% 3.28 3.26 3.20 3.24 3.43

________
(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
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
ASSET QUALITY DATA:
Allowance for Loan Losses
Beginning balance$ 27,085 26,455 27,500 27,191 27,637
Net loan charge-offs (recoveries):
Commercial business 502 133 68 (73) 1,093
Commercial mortgage (1) 23 12 194 520
Residential real estate loans 21 110 37 38 98
Residential real estate lines - 24 30 116 (2)
Consumer indirect 1,328 1,519 1,475 645 1,317
Other consumer 35 159 177 59 161
Total net charge-offs 1,885 1,968 1,799 979 3,187
Provision for loan losses 2,368 2,598 754 1,288 2,741
Ending balance$ 27,568 27,085 26,455 27,500 27,191
Net charge-offs (recoveries) to average loans (annualized):
Commercial business 0.64% 0.18 0.09 -0.10 1.67
Commercial mortgage 0.00% 0.02 0.01 0.15 0.44
Residential real estate loans 0.02% 0.12 0.04 0.04 0.11
Residential real estate lines 0.00% 0.07 0.09 0.36 -0.01
Consumer indirect 0.79% 0.90 0.88 0.39 0.81
Other consumer 0.79% 3.39 3.76 1.26 3.31
Total loans 0.36% 0.38 0.35 0.20 0.68
Supplemental information (1)
Non-performing loans:
Commercial business$ 4,056 3,922 3,064 4,643 4,587
Commercial mortgage 1,781 947 1,802 3,070 3,411
Residential real estate loans 1,601 1,848 2,092 2,028 1,829
Residential real estate lines 165 235 223 219 204
Consumer indirect 943 1,467 1,292 728 994
Other consumer 21 21 20 20 47
Total non-performing loans 8,567 8,440 8,493 10,708 11,072
Foreclosed assets 187 163 286 165 139
Total non-performing assets$ 8,754 8,603 8,779 10,873 11,211
Total non-performing loans to total loans 0.41% 0.41 0.42 0.53 0.58
Total non-performing assets to total assets 0.25% 0.25 0.26 0.32 0.35
Allowance for loan losses to total loans 1.30% 1.30 1.30 1.37 1.41
Allowance for loan losses to non-performing loans 322% 321 311 257 246

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(1) At period end.

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

2016 2015
First Year ended Fourth Third Second First
Quarter December 31, Quarter Quarter Quarter Quarter
Ending tangible assets:
Total assets $3,516,572 3,381,024 3,357,608 3,359,459 3,197,077
Less: Goodwill and other intangible assets, net 76,567 66,946 67,925 68,158 68,396
Tangible assets $3,440,005 3,314,078 3,289,683 3,291,301 3,128,681
Ending tangible common equity:
Common shareholders’ equity $ 296,613 276,504 278,094 267,095 269,349
Less: Goodwill and other intangible assets, net 76,567 66,946 67,925 68,158 68,396
Tangible common equity $ 220,046 $209,558 210,169 198,937 200,953
Tangible common equity to tangible assets (1) 6.40% 6.32 6.39 6.04 6.42
Common shares outstanding 14,495 14,191 14,189 14,184 14,167
Tangible common book value per share (2) $ 15.18 14.77 14.81 14.03 14.18
Average tangible assets:
Average assets $3,405,451 3,269,890 3,353,702 3,343,802 3,263,111 3,115,516
Less: Average goodwill and other intangible assets 76,324 68,138 67,692 68,050 68,294 68,527
Average tangible assets $3,329,127 3,210,752 3,286,010 3,275,752 3,194,817 3,046,989
Average tangible common equity:
Average common equity $ 291,848 272,367 279,821 271,889 270,009 267,619
Less: Average goodwill and other intangible assets 76,324 68,138 67,692 68,050 68,294 68,527
Average tangible common equity $ 215,524 204,229 212,129 203,839 201,715 199,092
Net income available to common shareholders $ 7,253 26,875 6,270 7,950 6,219 6,436
Return on average tangible common equity (3) 13.54% 13.16 11.73 15.47 12.37 13.11
Return on average tangible assets (4) 0.88% 0.84 0.76 0.96 0.78 0.86

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(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.
(4) Net income available to common shareholders (annualized) divided by average tangible assets.

For additional information contact: Kevin B. Klotzbach Chief Financial Officer & Treasurer Phone: 585.786.1130 Email: KBKlotzbach@five-starbank.com Jordan Darrow Darrow Associates Phone: 512.551.9296 Email: jdarrow@darrowir.com

Source:Financial Institutions, Inc.