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Financial Institutions, Inc. Announces Second Quarter 2016 Results

WARSAW, N.Y., July 26, 2016 (GLOBE NEWSWIRE) -- Financial Institutions, Inc. (Nasdaq:FISI), today reported financial results for the second quarter ended June 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 whose business we acquired from Courier Capital Corporation on that date.

Second Quarter 2016 Highlights:

  • Successful proxy contest defense against Clover Partners, L.P.; Financial Institutions’ director nominees elected with overwhelming shareholder support
  • Proxy contest expenses of $1.7 million recorded in second quarter
  • Diluted earnings per share (EPS) of $0.47 in second quarter, up 7% from EPS of $0.44 in prior year
  • Increased net interest income to a record $25.2 million in the second quarter
  • Increased noninterest income to $8.9 million in the second quarter, up 38% from $6.5 million in the prior year period
    • Driven by the acquisition of Courier Capital to expand the Company’s investment advisory services
    • Also includes a 12% year-over-year increase in insurance income and investment securities gains
  • Strong contributions from all three business platforms resulted in return on average tangible common equity of 12.22% (1) for the quarter
  • Total earning assets reach new record of $3.3 billion, up 6% from a year ago
  • Total assets increased to $3.6 billion, up $226.1 million or 7% from a year ago
  • Grew total loans $202.6 million or 10% from a year ago to a record of $2.2 billion
  • Increased total deposits by $202 million or nearly 8% from a year ago
  • Quarterly cash dividend of $0.20 per common share represented a 3.09% dividend yield as of June 30, 2016 and a return of 43% of second quarter net income to common shareholders
  • Shareholders’ equity reached a new record of $322.2 million at June 30, 2016
  • Common book value per share increased to $20.98 at June 30, 2016
  • Total risk-based capital remained above 13%, enabling a strong capital position to support future growth
  • Credit quality remains solid with total non-performing loans to total loans reducing to .30% in the second quarter from .53% last year

Net income for the second quarter 2016 was $7.2 million, compared to $7.6 million for the first quarter 2016, and $6.6 million for the second quarter 2015. After preferred dividends, second quarter 2016 net income available to common shareholders was $6.8 million or $0.47 per diluted share, compared with $7.3 million or $0.50 per diluted share for the first quarter 2016, and $6.2 million or $0.44 per diluted share for the second quarter 2015.

(1) See Appendix A – Reconciliation to Non-GAAP Financial Measures for the computation of this Non-GAAP measure.

The Company’s President and Chief Executive Officer Martin K. Birmingham stated, “We are committed to continuing to deliver results for our customers and shareholders, and in the second quarter of 2016, we did just that. Financial Institutions delivered very solid results in the quarter, with all of our major businesses performing well, despite the distraction and expense of the successfully concluded proxy contest defense. Organic loan production initiatives resulted in strong commercial and residential real estate portfolio growth in the second quarter, with commercial loans and residential real estate loans increasing by 16% and 12% from the second quarter last year, respectively. New records were set for total assets, total earning assets and total loans.

“We feel strongly that our strategic plan is delivering its intended results. Beyond the progress and improvements achieved to date, we continue to have robust opportunities in our markets to further expand as a diversified financial services provider. Our branch expansion initiatives are moving forward with the opening of another Rochester branch later in the year and we continue to assess opportunities in Rochester and Buffalo, resulting from local market disruption. We believe Financial Institutions is primed for continued growth with the right plan, marketplace, people, service and products.”

Kevin B. Klotzbach, the Company’s Chief Financial Officer noted that, “We implemented several initiatives designed to reduce operating expenses late in the first quarter of 2016 and the savings were reflected in the second quarter, although those savings were more than offset by the proxy contest expenses.

“We have adeptly been managing our results despite the current interest rate environment. Our strong loan growth has had an offsetting effect on margin compression. Along with our growing loan portfolio, it is important to observe the Company’s strategic imperative to maintain strong credit quality. In the second quarter we continued to hold up to this high standard. Total loans grew to a record $2.2 billion as we reported a 6% increase from year-end. Since year-end, total non-performing assets have declined to $6.8 million, the allowance for loan losses to non-performing loans has increased to 435% and year-to-date net charge-offs are down from prior year at 0.27%.”

Net Interest Income and Net Interest Margin

Net interest income was $25.2 million in the second quarter 2016 compared to $24.7 million in the first quarter 2016 and $23.4 million in the second quarter 2015. Average earning assets were up $98.7 million, led by a $50.8 million increase in loans in the second quarter of 2016 compared to the first quarter of 2016. When comparing the second quarter 2016 to the same quarter in 2015, average earning assets increased $236.9 million, including increases of $191.1 million and $45.6 million in loans and investment securities, respectively. Second quarter 2016 net interest margin was 3.23%, down 4 basis points from 3.27% for the first quarter of 2016 and down slightly from 3.24% for the second quarter of 2015.

Noninterest Income

Noninterest income was $8.9 million for the second quarter 2016 compared to $9.2 million for the first quarter 2016 and $6.5 million in the second quarter 2015. Included in noninterest income for the first quarter 2016 is $911 thousand of death benefit proceeds from company owned life insurance. Net gain on sale of investment securities totaled $613 thousand and $1.4 million in the first and second quarters of 2016, respectively. Exclusive of these items, noninterest income was $7.5 million in the second quarter 2016 compared to $7.7 million in the first quarter 2016 and $6.5 million in the second quarter 2015. The main factor contributing to the lower noninterest income in the second quarter 2016 compared to the first quarter 2016, other than the decrease in death benefit proceeds from corporate owned life insurance, was a decrease in insurance income. Compared to first quarter 2016, the lower second quarter 2016 insurance income was due in part to contingent commission revenue that is generally received during the first quarter of each year, coupled with the variable nature of the annual renewals of our customers’ insurance policies which causes our quarterly revenue to fluctuate. The higher noninterest income in the second quarter 2016 compared to the second quarter 2015 was primarily the result of an $824 thousand increase in investment advisory income, reflecting the contribution from Courier Capital as part of our strategy to diversify our business lines and increase noninterest income through additional fee-based services.

Noninterest Expense

Noninterest expense was $22.1 million for the second quarter 2016 compared to $21.2 million for the first quarter 2016 and $19.2 million for the second quarter 2015. The increase in noninterest expense in second quarter 2016 compared to first quarter 2016 was primarily a result of professional services associated with responding to the proxy contest with Clover Partners, L.P. The professional services incurred in connection with the proxy contest totaled $360 thousand and $1.7 million in the first and second quarters of 2016, respectively. The higher professional fees in the second quarter 2016 were partly offset by lower salaries and employee benefits as a result of cost reduction initiatives implemented late in the first quarter of 2016. The increase in noninterest expense during the second quarter 2016 compared to the second quarter 2015 was largely due to the higher professional services expense incurred in connection with the proxy contest coupled with higher salaries and employee benefits and occupancy and equipment expenses. The higher year-over-year operating expenses are primarily a result of the Courier Capital acquisition and organic growth initiatives, partly offset by the cost reduction strategies implemented late in the first quarter of 2016.

Income Taxes

Income tax expense was $2.9 million in the second quarter 2016, compared to $2.7 million in the first quarter 2016 and $2.8 million in the second quarter 2015. The effective tax rate was 28.8% for the second quarter 2016, compared with 26.4% for the first quarter of 2016 and 29.5% in the second quarter 2015. The lower effective tax rate in the first quarter of 2016 is a result of the non-taxable death benefit proceeds on corporate owned life insurance received in that quarter.

Balance Sheet and Capital Management

Total assets were $3.59 billion at June 30, 2016, up $69.0 million from $3.52 billion at March 31, 2016 and up $226.1 million from $3.36 billion at June 30, 2015. The increases were attributable to loan growth and higher investment security balances that were funded by deposit growth.

Total loans were $2.21 billion at June 30, 2016, up $96.8 million or 5% from March 31, 2016 and up $202.6 million or 10% from June 30, 2015. The increase in loans is primarily attributable to organic commercial and residential real estate loan growth. Commercial loans totaled $963.6 million as of June 30, 2016, an increase of $55.5 million or 6% from March 31, 2016 and an increase of $134.2 million or 16% from June 30, 2015. Residential real estate loans increased $25.9 million or 7% from March 31, 2016 and $43.2 million or 12% from June 30, 2015.

Total deposits were $2.86 billion at June 30, 2016, a decrease of $102.2 million from March 31, 2016 and an increase of $201.8 million from June 30, 2015. The decrease during the second quarter of 2016 was mainly due to seasonal outflows of municipal deposits, while the year-over-year increase was due to higher municipal deposits and successful business development efforts in both municipal and retail banking. Public deposit balances represented 27% of total deposits at June 30, 2016, compared to 30% at March 31, 2016 and 26% at June 30, 2015.

Short-term borrowings were $338.3 million at June 30, 2016, up $159.1 million from March 31, 2016 and down $12.3 million from June 30, 2015. Short-term borrowings are typically utilized to manage the seasonality of municipal deposits.

Shareholders’ equity was $322.2 million at June 30, 2016, compared with $314.0 million at March 31, 2016 and $284.4 million at June 30, 2015. Common book value per share was $20.98 at June 30, 2016, an increase of $0.52 or 3% from $20.46 at March 31, 2016 and $2.15 or 11% from $18.83 at June 30, 2015. The increases in shareholders’ equity and the common book value per share 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 income.

During the second quarter 2016, the Company declared a common stock dividend of $0.20 per common share. The second quarter 2016 dividend returned 43% of second quarter net income to common shareholders.

The Company’s leverage ratio was 7.39% at June 30, 2016, compared to 7.46% at March 31, 2016 and 7.31% at June 30, 2015. The decrease in the leverage ratio from March 31, 2016 was primarily due to an increase in average quarterly assets. The increase in the leverage ratio from June 30, 2015 was due to higher regulatory capital, which excludes changes in accumulated other comprehensive income.

Credit Quality

Non-performing loans were $6.6 million at June 30, 2016, compared to $8.6 million at March 31, 2016 and $10.7 million at June 30, 2015. The $4.1 million decrease from the second quarter 2015 was due to lower commercial non-performing loans resulting from the payoff of one $2.5 million relationship during the third quarter of 2015 and pay-downs on two relationships totaling $1.8 million during the second quarter of 2016. The ratio of non-performing loans to total loans was 0.30% at June 30, 2016 compared with 0.41% at March 31, 2016, and 0.53% at June 30, 2015.

The provision for loans losses for the second quarter 2016 was $2.0 million, a decrease of $416 thousand from the prior quarter and an increase of $664 thousand from the second quarter 2015. Net charge-offs were $1.0 million during the second quarter 2016, an $890 thousand decrease compared to the prior quarter and a $16 thousand increase from the second quarter 2015. The ratio of annualized net charge-offs to total average loans was 0.19% in the current quarter, compared to 0.36% in the prior quarter and 0.20% in the second quarter 2015.

The ratio of allowance for loans losses to total loans was 1.29% at June 30, 2016, compared with 1.30% at March 31, 2016, and 1.37% at June 30, 2015. The ratio of allowance for loans losses to non-performing loans was 435% at June 30, 2016, compared with 322% in the prior quarter and 257% at June 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 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. 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. 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
June 30, March 31, December 31, September 30, June 30,
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents$67,624 110,944 60,121 51,334 52,554
Investment securities:
Available for sale 619,719 610,013 544,395 577,509 772,639
Held-to-maturity 478,549 476,283 485,717 490,638 320,820
Total investment securities 1,098,268 1,086,296 1,030,112 1,068,147 1,093,459
Loans held for sale 209 609 1,430 1,568 448
Loans:
Commercial business 349,432 317,776 313,758 297,876 292,791
Commercial mortgage 614,141 590,316 566,101 548,529 536,590
Residential real estate loans 408,367 382,504 381,074 376,552 365,172
Residential real estate lines 125,054 126,526 127,347 128,361 128,844
Consumer indirect 696,908 679,846 676,940 665,714 666,550
Other consumer 17,929 18,066 18,542 19,204 19,326
Total loans 2,211,831 2,115,034 2,083,762 2,036,236 2,009,273
Allowance for loan losses 28,525 27,568 27,085 26,455 27,500
Total loans, net 2,183,306 2,087,466 2,056,677 2,009,781 1,981,773
Total interest-earning assets 3,292,528 3,189,582 3,114,530 3,097,315 3,104,631
Goodwill and other intangible assets, net 76,252 76,567 66,946 67,925 68,158
Total assets 3,585,589 3,516,572 3,381,024 3,357,608 3,359,459
Deposits:
Noninterest-bearing demand 626,240 617,394 641,972 623,296 602,143
Interest-bearing demand 560,284 622,443 523,366 563,731 530,861
Savings and money market 960,325 1,042,910 928,175 942,673 910,215
Certificates of deposit 711,156 677,430 637,018 623,800 613,019
Total deposits 2,858,005 2,960,177 2,730,531 2,753,500 2,656,238
Short-term borrowings 338,300 179,200 293,100 241,400 350,600
Long-term borrowings, net 39,025 39,008 38,990 38,972 38,955
Total interest-bearing liabilities 2,609,090 2,560,991 2,420,649 2,410,576 2,443,650
Shareholders’ equity 322,176 313,953 293,844 295,434 284,435
Common shareholders’ equity 304,836 296,613 276,504 278,094 267,095
Tangible common equity (1) 228,584 220,046 209,558 210,169 198,937
Unrealized gain (loss) on investment securities,
net of tax
$10,886 7,555 443 5,270 (924)
Common shares outstanding 14,528 14,495 14,191 14,189 14,184
Treasury shares 164 197 207 209 214
CAPITAL RATIOS AND PER SHARE DATA:
Leverage ratio 7.39% 7.46 7.41 7.29 7.31
Common equity Tier 1 ratio 9.63% 9.83 9.77 9.74 9.50
Tier 1 risk-based capital 10.33% 10.56 10.50 10.49 10.25
Total risk-based capital 13.08% 13.39 13.35 13.37 13.17
Common equity to assets 8.50% 8.43 8.18 8.28 7.95
Tangible common equity to tangible assets (1) 6.51% 6.40 6.32 6.39 6.04
Common book value per share$20.98 20.46 19.49 19.60 18.83
Tangible common book value per share (1)$15.73 15.18 14.77 14.81 14.03
Stock price (Nasdaq:FISI):
High$29.49 29.53 29.04 25.21 25.50
Low$24.56 25.38 24.05 23.54 22.50
Close$26.07 29.07 28.00 24.78 24.84

________
(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)

Six months ended 2016 2015
June 30, Second First Fourth Third Second
2016 2015 Quarter Quarter Quarter Quarter Quarter
SELECTED INCOME STATEMENT DATA:
Interest income$55,881 50,956 28,246 27,635 27,487 27,007 25,959
Interest expense 5,963 4,405 3,047 2,916 2,856 2,876 2,555
Net interest income 49,918 46,551 25,199 24,719 24,631 24,131 23,404
Provision for loan losses 4,320 4,029 1,952 2,368 2,598 754 1,288
Net interest income after provision
for loan losses 45,598 42,522 23,247 22,351 22,033 23,377 22,116
Noninterest income:
Service charges on deposits 3,479 3,843 1,755 1,724 1,862 2,037 1,964
Insurance income 2,855 2,665 1,183 1,672 1,236 1,265 1,057
ATM and debit card 2,746 2,476 1,421 1,325 1,311 1,297 1,283
Investment advisory 2,608 1,028 1,365 1,243 642 523 541
Company owned life insurance 1,854 960 486 1,368 514 488 493
Investments in limited partnerships 92 529 36 56 30 336 55
Loan servicing 228 263 112 116 87 153 96
Net gain on sale of loans held for sale 156 108 78 78 88 53 39
Net gain on investment securities 2,000 1,062 1,387 613 640 286 -
Net gain on sale of other assets 86 20 82 4 7 - 16
Amortization of tax credit investment - - - - - (390) -
Other 2,029 1,798 1,011 1,018 2,163 957 911
Total noninterest income 18,133 14,752 8,916 9,217 8,580 7,005 6,455
Noninterest expense:
Salaries and employee benefits 22,432 20,829 10,818 11,614 11,332 10,278 10,606
Occupancy and equipment 7,289 7,074 3,664 3,625 3,365 3,417 3,375
Professional services 4,280 1,834 2,833 1,447 1,604 1,064 866
Computer and data processing 1,717 1,512 913 804 895 779 810
Supplies and postage 1,058 1,071 464 594 544 540 508
FDIC assessments 877 833 441 436 442 444 415
Advertising and promotions 724 477 347 377 331 312 238
Goodwill impairment charge - - - - 751 - -
Other 4,961 4,617 2,640 2,321 2,564 2,484 2,418
Total noninterest expense 43,338 38,247 22,120 21,218 21,828 19,318 19,236
Income before income taxes 20,393 19,027 10,043 10,350 8,785 11,064 9,335
Income tax expense 5,624 5,641 2,892 2,732 2,150 2,748 2,750
Net income 14,769 13,386 7,151 7,618 6,635 8,316 6,585
Preferred stock dividends 731 731 366 365 365 366 366
Net income available to common shareholders$14,038 12,655 6,785 7,253 6,270 7,950 6,219
FINANCIAL RATIOS:
Earnings per share – basic$0.97 0.90 0.47 0.50 0.44 0.56 0.44
Earnings per share – diluted$0.97 0.90 0.47 0.50 0.44 0.56 0.44
Cash dividends declared on common stock$0.40 0.40 0.20 0.20 0.20 0.20 0.20
Common dividend payout ratio 41.24% 44.44 42.55 40.00 45.45 35.71 45.45
Dividend yield (annualized) 3.09% 3.25 3.09 2.77 2.83 3.20 3.23
Return on average assets 0.86% 0.85 0.82 0.90 0.78 0.99 0.81
Return on average equity 9.48% 9.43 9.07 9.91 8.86 11.41 9.19
Return on average common equity 9.54% 9.49 9.10 10.00 8.89 11.60 9.24
Return on average tangible common equity (1) 12.86% 12.73 12.22 13.54 11.73 15.47 12.37
Efficiency ratio (2) 63.97% 61.13 65.03 62.90 64.55 59.46 62.00

________
(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)

Six months ended 2016 2015
June 30, Second First Fourth Third Second
2016 2015 Quarter Quarter Quarter Quarter Quarter
SELECTED AVERAGE BALANCES:
Federal funds sold and interest-earning deposits$193 75 316 70 - - 26
Investment securities (1) 1,051,411 969,091 1,075,220 1,027,602 1,049,217 1,067,815 1,029,640
Loans:
Commercial business 323,022 274,729 329,901 316,143 297,033 297,216 284,535
Commercial mortgage 594,251 494,095 606,360 582,142 554,327 545,875 509,317
Residential real estate loans 386,952 356,658 391,826 382,077 379,189 371,318 357,442
Residential real estate lines 126,264 129,305 125,212 127,317 127,688 127,826 129,167
Consumer indirect 680,927 662,982 683,722 678,133 671,888 663,884 664,222
Other consumer 17,744 19,290 17,562 17,926 18,626 18,680 18,848
Total loans 2,129,160 1,937,059 2,154,583 2,103,738 2,048,751 2,024,799 1,963,531
Total interest-earning assets 3,180,764 2,906,225 3,230,119 3,131,410 3,097,968 3,092,614 2,993,197
Goodwill and other intangible assets, net 76,380 68,410 76,437 76,324 67,692 68,050 68,294
Total assets 3,456,605 3,189,721 3,507,760 3,405,451 3,353,702 3,343,802 3,263,111
Interest-bearing liabilities:
Interest-bearing demand 575,960 556,564 579,497 572,424 545,602 516,448 561,570
Savings and money market 991,770 884,709 1,017,911 965,629 960,768 903,491 929,701
Certificates of deposit 678,521 609,169 698,505 658,537 628,944 619,459 616,145
Short-term borrowings 217,576 239,103 213,826 221,326 241,957 329,050 226,577
Long-term borrowings, net 39,006 16,618 39,015 38,997 38,979 38,962 33,053
Total interest-bearing liabilities 2,502,833 2,306,163 2,548,754 2,456,913 2,416,250 2,407,410 2,367,046
Noninterest-bearing demand deposits 619,751 576,011 621,912 617,590 619,423 625,131 587,396
Total deposits 2,866,002 2,626,453 2,917,825 2,814,180 2,754,737 2,664,529 2,694,812
Total liabilities 3,143,426 2,903,560 3,190,589 3,096,263 3,056,541 3,054,573 2,975,762
Shareholders’ equity 313,179 286,161 317,171 309,188 297,161 289,229 287,349
Common equity 295,839 268,821 299,831 291,848 279,821 271,889 270,009
Tangible common equity (2)$219,459 200,411 223,394 215,524 212,129 203,839 201,715
Common shares outstanding:
Basic 14,415 14,071 14,434 14,395 14,095 14,087 14,078
Diluted 14,477 14,118 14,489 14,465 14,163 14,139 14,121
SELECTED AVERAGE YIELDS:
(Tax equivalent basis)
Investment securities 2.48% 2.46 2.48 2.48 2.47 2.46 2.44
Loans 4.19% 4.22 4.17 4.21 4.22 4.16 4.18
Total interest-earning assets 3.63% 3.63 3.61 3.64 3.63 3.57 3.58
Interest-bearing demand 0.14% 0.13 0.14 0.14 0.15 0.15 0.14
Savings and money market 0.13% 0.12 0.13 0.13 0.14 0.14 0.12
Certificates of deposit 0.88% 0.86 0.89 0.88 0.88 0.89 0.87
Short-term borrowings 0.63% 0.37 0.65 0.62 0.49 0.41 0.38
Long-term borrowings, net 6.33% 6.20 6.33 6.34 6.34 6.34 6.23
Total interest-bearing liabilities 0.48% 0.38 0.48 0.48 0.47 0.47 0.43
Net interest rate spread 3.15% 3.25 3.13 3.16 3.16 3.10 3.15
Net interest rate margin 3.25% 3.33 3.23 3.27 3.26 3.20 3.24

________
(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
Second First Fourth Third Second
Quarter Quarter Quarter Quarter Quarter
ASSET QUALITY DATA:
Allowance for Loan Losses
Beginning balance$27,568 27,085 26,455 27,500 27,191
Net loan charge-offs (recoveries):
Commercial business (27) 502 133 68 (73)
Commercial mortgage 2 (1) 23 12 194
Residential real estate loans 34 21 110 37 38
Residential real estate lines 44 - 24 30 116
Consumer indirect 904 1,328 1,519 1,475 645
Other consumer 38 35 159 177 59
Total net charge-offs 995 1,885 1,968 1,799 979
Provision for loan losses 1,952 2,368 2,598 754 1,288
Ending balance$28,525 27,568 27,085 26,455 27,500
Net charge-offs (recoveries) to average loans (annualized):
Commercial business -0.03% 0.64 0.18 0.09 -0.10
Commercial mortgage 0.00% 0.00 0.02 0.01 0.15
Residential real estate loans 0.03% 0.02 0.12 0.04 0.04
Residential real estate lines 0.14% 0.00 0.07 0.09 0.36
Consumer indirect 0.53% 0.79 0.90 0.88 0.39
Other consumer 0.87% 0.79 3.39 3.76 1.26
Total loans 0.19% 0.36 0.38 0.35 0.20
Supplemental information (1)
Non-performing loans:
Commercial business$2,312 4,056 3,922 3,064 4,643
Commercial mortgage 1,547 1,781 947 1,802 3,070
Residential real estate loans 1,485 1,601 1,848 2,092 2,028
Residential real estate lines 182 165 235 223 219
Consumer indirect 1,015 943 1,467 1,292 728
Other consumer 15 21 21 20 20
Total non-performing loans 6,556 8,567 8,440 8,493 10,708
Foreclosed assets 281 187 163 286 165
Total non-performing assets$6,837 8,754 8,603 8,779 10,873
Total non-performing loans to total loans 0.30% 0.41 0.41 0.42 0.53
Total non-performing assets to total assets 0.19% 0.25 0.25 0.26 0.32
Allowance for loan losses to total loans 1.29% 1.30 1.30 1.30 1.37
Allowance for loan losses to non-performing loans 435% 322 321 311 257

________
(1) At period end.


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

Six months ended 2016 2015
June 30, Second First Fourth Third Second
2016 2015 Quarter Quarter Quarter Quarter Quarter
Ending tangible assets:
Total assets 3,585,589 3,516,572 3,381,024 3,357,608 3,359,459
Less: Goodwill and other intangible
assets, net
76,252 76,567 66,946 67,925 68,158
Tangible assets 3,509,337 3,440,005 3,314,078 3,289,683 3,291,301
Ending tangible common equity:
Common shareholders’ equity 304,836 296,613 276,504 278,094 267,095
Less: Goodwill and other intangible
assets, net
76,252 76,567 66,946 67,925 68,158
Tangible common equity 228,584 220,046 $209,558 210,169 198,937
Tangible common equity to tangible
assets (1)
6.51% 6.40 6.32 6.39 6.04
Common shares outstanding 14,528 14,495 14,191 14,189 14,184
Tangible common book value per share (2) 15.73 15.18 14.77 14.81 14.03
Average tangible assets:
Average assets$3,456,605 3,189,721 3,507,760 3,405,451 3,353,702 3,343,802 3,263,111
Less: Average goodwill and other
intangible assets
76,380 68,410 76,437 76,324 67,692 68,050 68,294
Average tangible assets$3,380,225 3,121,311 3,431,323 3,329,127 3,286,010 3,275,752 3,194,817
Average tangible common equity:
Average common equity$295,839 268,821 299,831 291,848 279,821 271,889 270,009
Less: Average goodwill and other
intangible assets
76,380 68,410 76,437 76,324 67,692 68,050 68,294
Average tangible common equity$219,459 200,411 223,394 215,524 212,129 203,839 201,715
Net income available to
common shareholders
$14,038 12,655 6,785 7,253 6,270 7,950 6,219
Return on average tangible common
equity (3)
12.86% 12.73 12.22 13.54 11.73 15.47 12.37

________
(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 Jordan Darrow Darrow Associates Phone: 512.551.9296 Email: jdarrow@darrowir.com

Source:Financial Institutions, Inc.