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Financial Institutions, Inc. Announces First Quarter 2017 Results

WARSAW, N.Y., April 25, 2017 (GLOBE NEWSWIRE) -- Financial Institutions, Inc. (Nasdaq:FISI), today reported financial results for the first quarter ended March 31, 2017. Financial Institutions, Inc. (the “Company”) is the parent company of Five Star Bank (the “Bank”), Scott Danahy Naylon Insurance, LLC (“Scott Danahy Naylon” or “SDN”) and Courier Capital, LLC (“Courier Capital”).

Net income for the quarter was $7.9 million compared to $8.7 million for the fourth quarter of 2016 and $7.6 million for the first quarter of 2016. After preferred dividends, net income available to common shareholders was $7.6 million, or $0.52 per diluted share, compared to $8.3 million, or $0.57 per diluted share, for the fourth quarter of 2016 and $7.3 million, or $0.50 per diluted share, for the first quarter of 2016.

President and Chief Executive Officer Martin K. Birmingham stated, “We are off to a very good start in 2017 with first quarter earnings in-line with our expectations and ongoing execution of our strategic plan.

“In mid-February, we furthered our expansion in Buffalo with the opening of a new financial solution center in a prime downtown location. We look forward to serving the needs of downtown residents, businesses and workers, and we believe this branch opening will serve as an excellent foundation for continued growth in Buffalo and all of Western New York.

“We continued to invest in talent during the quarter with the addition of two Community Development Officers, one based in Buffalo and the other in Rochester. These new Five Star Bank associates are playing critical roles in the execution of our Community Reinvestment Act program to increase access to affordable loan and deposit services for low and moderate income customers. This is just one of our many efforts to support our communities, enhancing the quality of life and future outlook for those in need.”

First Quarter 2017 Highlights:

  • Diluted earnings per share (“EPS”) of $0.52 was $0.02 higher than the first quarter of 2016
  • Net interest income of $27.0 million increased $2.3 million, or 9.2%, as compared to the first quarter of 2016
  • Noninterest income of $7.8 million was $1.4 million, or 15.0%, lower than the first quarter of 2016
    • Excluding the net gain on investment securities from both periods and $911 thousand of death benefit proceeds from company owned life insurance in the first quarter of 2016, noninterest income was $7.6 million in the quarter as compared to $7.7 million in the first quarter of 2016
  • Return on average common equity was 10.02%
    • Return on average tangible common equity was 13.30% (computation of this non-GAAP measure provided in Appendix A)
  • Total assets, interest-earning assets, loans and deposits all reached record-high levels at quarter-end:
    • Total assets increased $149.5 million during the quarter, to $3.86 billion
    • Total interest-earning assets increased $95.1 million during the quarter, to $3.52 billion
    • Total loans increased $62.5 million during the quarter, to $2.40 billion
    • Total deposits increased $174.4 million during the quarter, to $3.17 billion
  • The quarterly cash dividend of $0.21 per common share represented a 2.58% dividend yield as of March 31, 2017, and a return of 40% of first quarter net income to common shareholders
  • Total risk-based capital was 12.75% 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 0.33% at quarter-end

Chief Financial Officer Kevin B. Klotzbach added, “We generated solid loan and deposit growth, controlled expenses and maintained a stable net interest margin in the quarter. Our total loan portfolio increased 2.7% from year-end and 13.6% from March 31, 2016. This growth was funded primarily by deposits. Noninterest expense was up 1.1% from the fourth quarter of 2016, primarily due to higher occupancy and equipment expenses related to branch openings, and was down 1.3% from the year earlier period. The net interest margin was 3.23% for the quarter, up one basis point from the previous quarter.

“It is also important to note that results include a lower level of nonrecurring items, reflecting the higher overall quality of first quarter earnings.”

Net Interest Income and Net Interest Margin

  • Net interest income was $27.0 million for the first quarter of 2017, $273 thousand higher than the fourth quarter of 2016 and $2.3 million higher than the first quarter of 2016.
  • Average interest-earning assets for the quarter were $3.48 billion, $70.7 million higher than the fourth quarter of 2016 and $346.9 million higher than the first quarter of 2016. The primary driver of the increase was loans, which in turn were funded by increased deposits.
  • First quarter 2017 net interest margin was 3.23%, one basis point higher than the fourth quarter of 2016 and four basis points lower than the first quarter of 2016. First quarter 2017 net interest margin benefitted from approximately $100 thousand of mortgage-backed security pre-payment fees.

Noninterest Income

Noninterest income was $7.8 million for the first quarter of 2017 as compared to $9.1 million in the fourth quarter of 2016 and $9.2 million in the first quarter of 2016.

  • Excluding the net gain on investment securities from all periods, noninterest income was $7.6 million in the first quarter of 2017, $1.2 million lower than $8.8 million in the fourth quarter of 2016, and $1.0 million lower than $8.6 million in the first quarter of 2016.
  • The decrease from the fourth quarter of 2016 was primarily the result of a $1.2 million non-cash fair value adjustment of the contingent consideration liability related to the SDN acquisition recognized in the fourth quarter of 2016.
  • The decrease from the first quarter of 2016 was primarily the result of $911 thousand of death benefit proceeds from company owned life insurance, a nonrecurring event, received in the first quarter of 2016 and lower insurance income in the first quarter of 2017 due to the loss of legacy SDN accounts, partially offset by higher investment advisory income in the first quarter of 2017 associated with favorable market conditions and successful business development efforts.

Noninterest Expense

Noninterest expense was $20.9 million for the first quarter of 2017 as compared to $20.7 million in the fourth quarter of 2016 and $21.2 million in the first quarter of 2016.

  • The increase in noninterest expense as compared to the fourth quarter of 2016 was primarily the result of higher occupancy and equipment expenses from our organic growth initiatives.
  • The decrease in noninterest expense as compared to the first quarter of 2016 was primarily the result of lower professional services. Professional services in the first quarter of 2016 included approximately $360 thousand of expense associated with responding to the demands of an activist shareholder.

Income Taxes

Income tax expense was $3.2 million for the first quarter of 2017 as compared to $3.0 million in the fourth quarter of 2016 and $2.7 million in the first quarter of 2016. The effective tax rate was 28.5% for the first quarter of 2017, 25.9% in the fourth quarter of 2016, and 26.4% in the first quarter of 2016. The lower effective tax rate in the fourth quarter of 2016 was a result of the $1.2 million non-cash fair value adjustment of the contingent consideration liability related to the SDN acquisition, a non-taxable item. The lower effective tax rate in the first quarter of 2016 was the result of the $911 thousand of death benefit proceeds from company owned life insurance, also a non-taxable item.

Balance Sheet and Capital Management

Total assets were $3.86 billion at March 31, 2017, up $149.5 million from $3.71 billion at December 31, 2016, and up $343.3 million from $3.52 billion at March 31, 2016. The increases were largely the result of loan growth funded by deposit growth.

Total loans were $2.40 billion at March 31, 2017, up $62.5 million, or 2.7%, from December 31, 2016, and up $287.6 million, or 13.6%, from March 31, 2016.

  • Commercial business loans totaled $375.5 million, up $26.0 million, or 7.4%, from December 31, 2016, and up $57.7 million, or 18.2%, from March 31, 2016.
  • Commercial mortgage loans totaled $675.0 million, up $4.9 million, or 0.7%, from December 31, 2016, and up $84.7 million, or 14.3%, from March 31, 2016.
  • Residential real estate loans totaled $428.2 million, up $234 thousand, or 0.1%, from December 31, 2016, and up $45.7 million, or 11.9%, from March 31, 2016.
  • Consumer indirect loans totaled $786.1 million, up $33.7 million, or 4.5%, from December 31, 2016, and up $106.3 million, or 15.6%, from March 31, 2016.

Total deposits were $3.17 billion at March 31, 2017, an increase of $174.4 million from December 31, 2016, and an increase of $209.5 million from March 31, 2016. The increase from December 31, 2016, was primarily due to public deposit seasonality. The increase from March 31, 2016, was primarily the result of successful business development efforts in both municipal and retail banking. Public deposit balances represented 31% of total deposits at March 31, 2017, compared to 27% at December 31, 2016 and 30% at March 31, 2016.

Short-term borrowings were $303.3 million at March 31, 2017, down $28.2 million from December 31, 2016, and up $124.1 million from March 31, 2016. Short-term borrowings are typically utilized to manage the seasonality of public deposits.

Shareholders’ equity was $325.7 million at March 31, 2017, compared to $320.1 million at December 30, 2016, and $314.0 million at March 31, 2016. Common book value per share was $21.21 at March 31, 2017, an increase of $0.39 or 1.9% from $20.82 at December 31, 2016, and an increase of $0.75 or 3.7% from $20.46 at March 31, 2016. The increases in shareholders’ equity and common book value per share are attributable to net income, less dividends paid, with a partial offset from net unrealized losses on securities available for sale, which is a component of accumulated other comprehensive loss.

During the first quarter 2017, the Company declared a common stock dividend of $0.21 per common share. The first quarter 2017 dividend returned 40% of first quarter net income to common shareholders.

Regulatory capital ratios at March 31, 2017, remained steady with slight downward pressure in comparison to the prior year as a result of strong loan growth and higher asset levels:

  • Leverage Ratio was 7.30%, compared to 7.36% and 7.46% at December 31, 2016, and March 31, 2016, respectively.
  • Common Equity Tier 1 Ratio was 9.46%, compared to 9.59% and 9.83% at December 31, 2016, and March 31, 2016, respectively.
  • Tier 1 Risk-Based Capital was 10.11%, compared to 10.26% and 10.56% at December 31, 2016, and March 31, 2016, respectively.
  • Total Risk-Based Capital was 12.75%, compared to 12.97% and 13.39% at December 31, 2016, and March 31, 2016, respectively.

Credit Quality

Non-performing loans were $8.0 million at March 31, 2017, compared to $6.3 million at December 31, 2016, and $8.6 million at March 31, 2016. The $1.7 million increase from December 31, 2016, was primarily due to higher commercial and residential real estate non-performing loans, partially offset by improvements in the consumer indirect loan portfolio.

  • The ratio of non-performing loans to total loans was 0.33% at March 31, 2017, compared to 0.27% at December 31, 2016, and 0.41% at March 31, 2016.

The provision for loan losses for the first quarter of 2017 was $2.8 million, a decrease of $576 thousand from the fourth quarter of 2016 and an increase of $413 thousand from the first quarter of 2016. During the fourth quarter 2016, the Company internally downgraded to substandard status one commercial business credit relationship with unpaid principal balances totaling $3.5 million. The downgrade necessitated a provision and increase in our allowance for losses of approximately $1.1 million. These loans were current with respect to principal and interest payments as of March 31, 2017; however, we continue to monitor this relationship closely.

  • Net charge-offs were $2.6 million during the first quarter of 2017, an $861 thousand increase compared to the prior quarter and a $749 thousand increase from the first quarter of 2016.
  • The ratio of annualized net charge-offs to total average loans was 0.45% in the current quarter, compared to 0.30% in the prior quarter and 0.36% in the first quarter of 2016.
  • The ratio of allowance for loan losses to total loans was 1.29% at March 31, 2017, 1.32% at December 31, 2016, and 1.30% at March 31, 2016.
  • The ratio of allowance for loan losses to non-performing loans was 388% at March 31, 2017, 489% at December 31, 2016, and 322% at March 31, 2016.

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 and lending services to individuals, municipalities and businesses through a network of more than 50 offices and 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 45 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 650 individuals. The Company’s stock is listed on the Nasdaq Global Select Market under the symbol FISI. Additional information is available at 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)

2017 2016
March 31, December 31, September 30, June 30, March 31,
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents$149,699 $71,277 $110,721 $67,624 $110,944
Investment securities:
Available for sale 540,406 539,926 559,495 619,719 610,013
Held-to-maturity 545,381 543,338 528,708 478,549 476,283
Total investment securities 1,085,787 1,083,264 1,088,203 1,098,268 1,086,296
Loans held for sale 2,097 1,050 844 209 609
Loans:
Commercial business 375,518 349,547 350,588 349,432 317,776
Commercial mortgage 675,007 670,058 636,338 614,141 590,316
Residential real estate loans 428,171 427,937 425,882 408,367 382,504
Residential real estate lines 120,874 122,555 123,663 125,054 126,526
Consumer indirect 786,120 752,421 729,644 696,908 679,846
Other consumer 16,937 17,643 17,879 17,929 18,066
Total loans 2,402,627 2,340,161 2,283,994 2,211,831 2,115,034
Allowance for loan losses 31,081 30,934 29,350 28,525 27,568
Total loans, net 2,371,546 2,309,227 2,254,644 2,183,306 2,087,466
Total interest-earning assets 3,523,613 3,428,541 3,357,609 3,292,528 3,189,582
Goodwill and other intangible assets, net 75,343 75,640 75,943 76,252 76,567
Total assets 3,859,865 3,710,340 3,687,365 3,585,589 3,516,572
Deposits:
Noninterest-bearing demand 666,332 677,076 657,624 626,240 617,394
Interest-bearing demand 698,962 581,436 629,413 560,284 622,443
Savings and money market 1,069,901 1,034,194 1,052,224 960,325 1,042,910
Time deposits 734,464 702,516 724,096 711,156 677,430
Total deposits 3,169,659 2,995,222 3,063,357 2,858,005 2,960,177
Short-term borrowings 303,300 331,500 230,200 338,300 179,200
Long-term borrowings, net 39,078 39,061 39,043 39,025 39,008
Total interest-bearing liabilities 2,845,705 2,688,707 2,674,976 2,609,090 2,560,991
Shareholders’ equity 325,688 320,054 326,271 322,176 313,953
Common shareholders’ equity 308,348 302,714 308,931 304,836 296,613
Tangible common equity (1) 233,005 227,074 232,988 228,584 220,046
Unrealized gain (loss) on investment securities, net of tax$(1,938) $(2,530) $9,444 $10,886 $7,555
Common shares outstanding 14,536 14,538 14,528 14,528 14,495
Treasury shares 156 154 164 164 197
CAPITAL RATIOS AND PER SHARE DATA:
Leverage ratio 7.30% 7.36% 7.39% 7.39% 7.46%
Common equity Tier 1 ratio 9.46% 9.59% 9.58% 9.63% 9.83%
Tier 1 risk-based capital 10.11% 10.26% 10.27% 10.33% 10.56%
Total risk-based capital 12.75% 12.97% 12.98% 13.08% 13.39%
Common equity to assets 7.99% 8.16% 8.38% 8.50% 8.43%
Tangible common equity to tangible assets (1) 6.16% 6.25% 6.45% 6.51% 6.40%
Common book value per share$21.21 $20.82 $21.26 $20.98 $20.46
Tangible common book value per share (1)$16.03 $15.62 $16.04 $15.73 $15.18
Stock price (Nasdaq: FISI):
High$35.40 $34.55 $27.63 $29.49 $29.53
Low$30.50 $25.98 $25.16 $24.56 $25.38
Close$32.95 $34.20 $27.11 $26.07 $29.07

________
(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)

2017 2016
First Year ended Fourth Third Second First
Quarter December 31, Quarter Quarter Quarter Quarter
SELECTED INCOME STATEMENT DATA:
Interest income $30,538 $115,231 $29,990 $29,360 $28,246 $27,635
Interest expense 3,543 12,541 3,268 3,310 3,047 2,916
Net interest income 26,995 102,690 26,722 26,050 25,199 24,719
Provision for loan losses 2,781 9,638 3,357 1,961 1,952 2,368
Net interest income after provision
for loan losses 24,214 93,052 23,365 24,089 23,247 22,351
Noninterest income:
Service charges on deposits 1,745 7,280 1,888 1,913 1,755 1,724
Insurance income 1,431 5,396 1,134 1,407 1,183 1,672
ATM and debit card 1,329 5,687 1,500 1,441 1,421 1,325
Investment advisory 1,431 5,208 1,274 1,326 1,365 1,243
Company owned life insurance 445 2,808 468 486 486 1,368
Investments in limited partnerships (30) 300 47 161 36 56
Loan servicing 120 436 104 104 112 116
Net gain on sale of loans held for sale 48 240 38 46 78 78
Net gain on investment securities 206 2,695 269 426 1,387 613
Net (loss) gain on other assets (2) 313 28 199 82 4
Contingent consideration liability adjustment - 1,170 1,170 - - -
Other 1,113 4,227 1,168 1,030 1,011 1,018
Total noninterest income 7,836 35,760 9,088 8,539 8,916 9,217
Noninterest expense:
Salaries and employee benefits 11,369 45,215 11,458 11,325 10,818 11,614
Occupancy and equipment 3,964 14,529 3,623 3,617 3,664 3,625
Professional services 1,199 6,184 948 956 2,833 1,447
Computer and data processing 1,171 4,451 1,116 1,089 1,159 1,087
Supplies and postage 537 2,047 499 490 464 594
FDIC assessments 457 1,735 452 406 441 436
Advertising and promotions 278 1,695 436 302 530 427
Amortization of intangibles 297 1,249 303 309 315 322
Other 1,670 7,566 1,880 2,124 1,896 1,666
Total noninterest expense 20,942 84,671 20,715 20,618 22,120 21,218
Income before income taxes 11,108 44,141 11,738 12,010 10,043 10,350
Income tax expense 3,165 12,210 3,045 3,541 2,892 2,732
Net income 7,943 31,931 8,693 8,469 7,151 7,618
Preferred stock dividends 365 1,462 365 366 366 365
Net income available to common shareholders $7,578 $30,469 $8,328 $8,103 $6,785 $7,253
FINANCIAL RATIOS:
Earnings per share – basic $0.52 $2.11 $0.58 $0.56 $0.47 $0.50
Earnings per share – diluted $0.52 $2.10 $0.57 $0.56 $0.47 $0.50
Cash dividends declared on common stock $0.21 $0.81 $0.21 $0.20 $0.20 $0.20
Common dividend payout ratio 40.38% 38.39% 36.21% 35.71% 42.55% 40.00%
Dividend yield (annualized) 2.58% 2.37% 2.44% 2.93% 3.09% 2.77%
Return on average assets 0.86% 0.90% 0.94% 0.94% 0.82% 0.90%
Return on average equity 9.94% 10.01% 10.68% 10.34% 9.07% 9.91%
Return on average common equity 10.02% 10.10% 10.81% 10.45% 9.10% 10.00%
Return on average tangible common equity (1) 13.30% 13.51% 14.37% 13.87% 12.22% 13.54%
Efficiency ratio (2) 59.09% 60.95% 56.99% 58.99% 66.00% 62.19%
Effective tax rate 28.5% 27.7% 25.9% 29.5% 28.8% 26.4%

________
(1) See Appendix A – Reconciliation to Non-GAAP Financial Measures for the computation of this Non-GAAP measure.
(2) Efficiency ratio equals noninterest expense 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.


FINANCIAL INSTITUTIONS, INC.
Selected Financial Information (Unaudited)
(Amounts in thousands)

2017 2016
First Year ended Fourth Third Second First
Quarter December 31, Quarter Quarter Quarter Quarter
SELECTED AVERAGE BALANCES:
Federal funds sold and interest-earning deposits $10,078 $3,116 $12,011 $1 $316 $70
Investment securities (1) 1,090,063 1,063,221 1,080,941 1,068,866 1,075,220 1,027,602
Loans:
Commercial business 363,367 336,633 347,496 352,696 329,901 316,143
Commercial mortgage 678,613 618,436 659,713 625,003 606,360 582,142
Residential real estate loans 429,746 404,456 425,687 417,854 391,826 382,077
Residential real estate lines 121,594 124,635 122,734 123,312 125,212 127,317
Consumer indirect 767,887 703,975 741,598 711,948 683,722 678,133
Other consumer 16,956 17,620 17,448 17,548 17,562 17,926
Total loans 2,378,163 2,205,755 2,314,676 2,248,361 2,154,583 2,103,738
Total interest-earning assets 3,478,304 3,272,092 3,407,628 3,317,228 3,230,119 3,131,410
Goodwill and other intangible assets, net 75,508 76,170 75,807 76,116 76,437 76,324
Total assets 3,754,470 3,547,105 3,679,569 3,593,672 3,507,760 3,405,451
Interest-bearing liabilities:
Interest-bearing demand 634,141 576,046 604,717 547,545 579,497 572,424
Savings and money market 1,030,363 1,010,510 1,076,884 981,207 1,017,911 965,629
Time deposits 721,404 697,654 711,061 722,098 698,505 658,537
Short-term borrowings 327,195 248,938 244,796 315,122 213,826 221,326
Long-term borrowings, net 39,067 39,023 39,050 39,032 39,015 38,997
Total interest-bearing liabilities 2,752,170 2,572,171 2,676,508 2,605,004 2,548,754 2,456,913
Noninterest-bearing demand deposits 657,190 633,416 655,445 638,417 621,912 617,590
Total deposits 3,043,098 2,917,626 3,048,107 2,889,267 2,917,825 2,814,180
Total liabilities 3,430,504 3,228,099 3,355,894 3,267,808 3,190,589 3,096,263
Shareholders’ equity 323,966 319,006 323,675 325,864 317,171 309,188
Common equity 306,626 301,666 306,335 308,524 299,831 291,848
Tangible common equity (2) $231,118 $225,496 $230,528 $232,408 $223,394 $215,524
Common shares outstanding:
Basic 14,479 14,436 14,459 14,456 14,434 14,395
Diluted 14,528 14,491 14,511 14,500 14,489 14,465
SELECTED AVERAGE YIELDS:
(Tax equivalent basis)
Investment securities 2.46% 2.45% 2.41% 2.44% 2.48% 2.48%
Loans 4.19% 4.18% 4.17% 4.18% 4.17% 4.21%
Total interest-earning assets 3.64% 3.62% 3.60% 3.62% 3.61% 3.64%
Interest-bearing demand 0.14% 0.14% 0.14% 0.15% 0.14% 0.14%
Savings and money market 0.13% 0.13% 0.13% 0.14% 0.13% 0.13%
Time deposits 0.95% 0.90% 0.93% 0.91% 0.89% 0.88%
Short-term borrowings 0.86% 0.65% 0.70% 0.63% 0.65% 0.62%
Long-term borrowings, net 6.32% 6.33% 6.33% 6.33% 6.33% 6.34%
Total interest-bearing liabilities 0.52% 0.49% 0.49% 0.51% 0.48% 0.48%
Net interest rate spread 3.12% 3.13% 3.11% 3.11% 3.13% 3.16%
Net interest rate margin 3.23% 3.24% 3.22% 3.23% 3.23% 3.27%

________
(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)

2017 2016
First Year ended Fourth Third Second First
Quarter December 31, Quarter Quarter Quarter Quarter
ASSET QUALITY DATA:
Allowance for Loan Losses
Beginning balance$30,934 $27,085 $29,350 $28,525 $27,568 $27,085
Net loan charge-offs (recoveries):
Commercial business 964 496 52 (31) (27) 502
Commercial mortgage (204) 340 212 127 2 (1)
Residential real estate loans (26) 115 (1) 61 34 21
Residential real estate lines 33 89 41 4 44 -
Consumer indirect 1,758 4,489 1,361 896 904 1,328
Other consumer 109 260 108 79 38 35
Total net charge-offs 2,634 5,789 1,773 1,136 995 1,885
Provision for loan losses 2,781 9,638 3,357 1,961 1,952 2,368
Ending balance$31,081 $30,934 $30,934 $29,350 $28,525 $27,568
Net charge-offs (recoveries)
to average loans (annualized):
Commercial business 1.08% 0.15% 0.06% -0.03% -0.03% 0.64%
Commercial mortgage -0.12% 0.05% 0.13% 0.08% 0.00% -0.00%
Residential real estate loans -0.02% 0.03% -0.00% 0.06% 0.03% 0.02%
Residential real estate lines 0.11% 0.07% 0.13% 0.01% 0.14% 0.00%
Consumer indirect 0.93% 0.64% 0.73% 0.50% 0.53% 0.79%
Other consumer 2.61% 1.48% 2.46% 1.79% 0.87% 0.79%
Total loans 0.45% 0.26% 0.30% 0.20% 0.19% 0.36%
Supplemental information (1)
Non-performing loans:
Commercial business$3,753 $2,151 $2,151 $2,157 $2,312 $4,056
Commercial mortgage 1,267 1,025 1,025 1,345 1,547 1,781
Residential real estate loans 1,601 1,236 1,236 1,239 1,485 1,601
Residential real estate lines 336 372 372 274 182 165
Consumer indirect 1,040 1,526 1,526 1,077 1,015 943
Other consumer 23 16 16 9 15 21
Total non-performing loans 8,020 6,326 6,326 6,101 6,556 8,567
Foreclosed assets 58 107 107 294 281 187
Total non-performing assets$8,078 $6,433 $6,433 $6,395 $6,837 $8,754
Total non-performing loans to total loans 0.33% 0.27% 0.27% 0.27% 0.30% 0.41%
Total non-performing assets to total assets 0.21% 0.17% 0.17% 0.17% 0.19% 0.25%
Allowance for loan losses to total loans 1.29% 1.32% 1.32% 1.29% 1.29% 1.30%
Allowance for loan losses to non-performing loans 388% 489% 489% 481% 435% 322%

________
(1) At period end.


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

2017 2016
First Year ended Fourth Third Second First
Quarter December 31, Quarter Quarter Quarter Quarter
Ending tangible assets:
Total assets $3,859,865 $3,710,340 $3,687,365 $3,585,589 $3,516,572
Less: Goodwill and other intangible assets, net 75,343 75,640 75,943 76,252 76,567
Tangible assets $3,784,522 $3,634,700 $3,611,422 $3,509,337 $3,440,005
Ending tangible common equity:
Common shareholders’ equity $308,348 $302,714 $308,931 $304,836 $296,613
Less: Goodwill and other intangible assets, net 75,343 75,640 75,943 76,252 76,567
Tangible common equity $233,005 $227,074 $232,988 $228,584 $220,046
Tangible common equity to tangible assets (1) 6.16% 6.25% 6.45% 6.51% 6.40%
Common shares outstanding 14,536 14,538 14,528 14,528 14,495
Tangible common book value per share (2) $16.03 $15.62 $16.04 $15.73 $15.18
Average tangible assets:
Average assets $3,754,470 $3,547,105 $3,679,569 $3,593,672 $3,507,760 $3,405,451
Less: Average goodwill and other intangible
assets, net 75,508 76,170 75,807 76,116 76,437 76,324
Average tangible assets $3,678,962 $3,470,935 $3,603,762 $3,517,556 $3,431,323 $3,329,127
Average tangible common equity:
Average common equity $306,626 $301,666 $306,335 $308,524 $299,831 $291,848
Less: Average goodwill and other intangible
assets, net 75,508 76,170 75,807 76,116 76,437 76,324
Average tangible common equity $231,118 $225,496 $230,528 $232,408 $223,394 $215,524
Net income available to common shareholders $7,578 $30,469 $8,328 $8,103 $6,785 $7,253
Return on average tangible common equity (3) 13.30% 13.51% 14.37% 13.87% 12.22% 13.54%

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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.

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.