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Financial Institutions, Inc. Announces Third Quarter 2016 Results

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

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

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

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

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

Third Quarter 2016 Highlights:

  • Diluted earnings per share (“EPS”) of $0.56 was $0.09 higher than the second quarter of 2016
  • Net interest income of $26.1 million increased $851 thousand, or 3.4%, as compared to the second quarter of 2016
  • Noninterest income of $8.5 million was $377 thousand, or 4.2%, lower than the second quarter of 2016
    • Excluding the net gain on investment securities, noninterest income was $8.1 million, 7.8% higher than the second quarter of 2016, primarily as a result of higher deposit service charges and insurance income
  • Return on average common equity was 10.45%
    • Return on average tangible common equity was 13.87% (computation of this non-GAAP measure provided in Appendix A)
  • Net interest margin was 3.23%, unchanged from the previous quarter
  • Total interest-earning assets, assets, loans and deposits all increased to record-high levels in the third quarter:
    • Total interest-earning assets increased $65 million to $3.4 billion
    • Total assets increased $102 million to $3.7 billion
    • Total loans increased $72 million to $2.3 billion
    • Total deposits increased $205 million to $3.1 billion
  • Quarterly cash dividend of $0.20 per common share represented a 2.93% dividend yield as of September 30, 2016, and a return of 36% of third quarter net income to common shareholders
  • Total risk-based capital was 12.98% at quarter-end, representing a strong capital position to support future growth
  • Credit quality remains strong with total non-performing loans to total loans of 0.27% at quarter-end

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

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

Net Interest Income and Net Interest Margin

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

Noninterest Income

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

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

Noninterest Expense

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

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

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

Income Taxes

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

Balance Sheet and Capital Management

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

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

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

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

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

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

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

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

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

Credit Quality

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

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

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

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

About Financial Institutions, Inc.

Financial Institutions, Inc. provides diversified financial services through its subsidiaries, Five Star Bank, Scott Danahy Naylon and Courier Capital. Five Star Bank provides a wide range of consumer and commercial banking services to individuals, municipalities and businesses through a network of over 50 offices and more than 60 ATMs throughout Western and Central New York State. Scott Danahy Naylon provides a broad range of insurance services to personal and business clients across 44 states. Courier Capital provides customized investment management, investment consulting and retirement plan services to individuals, businesses, institutions, foundations and retirement plans. Financial Institutions, Inc. and its subsidiaries employ approximately 700 individuals. The Company’s stock is listed on the Nasdaq Global Select Market under the symbol FISI and is a member of the NASDAQ OMX ABA Community Bank Index. Additional information is available at the Company’s website: www.fiiwarsaw.com.

Non-GAAP Financial Information

This news release contains disclosure regarding tangible common equity, tangible common equity to tangible assets, tangible common book value per share, average tangible common equity and return on average tangible common equity, which are determined by methods other than in accordance with U.S. generally accepted accounting principles (“GAAP”). The Company believes that these non-GAAP measures are useful to our investors as measures of the strength of the Company’s capital and ability to generate earnings on tangible common equity invested by our shareholders. These non-GAAP measures provide supplemental information that may help investors to analyze our capital position without regard to the effects of intangible assets. Non-GAAP financial measures have inherent limitations and are not uniformly applied by issuers. Therefore, these non-GAAP financial measures should not be considered in isolation, or as a substitute for comparable measures prepared in accordance with GAAP. The comparable GAAP financial measures and reconciliation to the comparable GAAP financial measures can be found in Appendix A to this document.

Safe Harbor Statement

This press release may contain forward-looking statements as defined by Section 21E of the Securities Exchange Act of 1934, as amended, that involve significant risks and uncertainties. Statements herein are based on certain assumptions and analyses by the Company and are factors it believes are appropriate in the circumstances. Actual results could differ materially from those contained in or implied by such statements for a variety of reasons including, but not limited to: the Company’s ability to implement its strategic plan, the Company’s ability to redeploy investment assets into loan assets, whether the Company experiences greater credit losses than expected, whether the Company experiences breaches of its, or third party, information systems, the attitudes and preferences of the Company’s customers, the Company’s ability to successfully integrate and profitably operate Scott Danahy Naylon and Courier Capital, the competitive environment, fluctuations in the fair value of securities in its investment portfolio, changes in the regulatory environment and the Company’s compliance with regulatory requirements, changes in interest rates, general economic and credit market conditions nationally and regionally. Consequently, all forward-looking statements made herein are qualified by these cautionary statements and the cautionary language in the Company’s Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q and other documents filed with the SEC. Except as required by law, the Company undertakes no obligation to revise these statements following the date of this press release.


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

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


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

________
(1) See Appendix A – Reconciliation to Non-GAAP Financial Measures for the computation of this Non-GAAP measure.
(2) Efficiency ratio equals noninterest expense less other real estate expense and amortization and impairment of goodwill and other intangible assets as a percentage of net revenue, defined as the sum of tax-equivalent net interest income and noninterest income before net gains on investment securities, proceeds from company owned life insurance, adjustments to contingent liabilities and amortizations of tax credit investment.



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

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


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

________
(1) At period end.


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

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

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

Source:Financial Institutions, Inc.