×

Financial Institutions, Inc. Reports 7% Increase in Earnings Per Share for the Year Ended December 31, 2012

WARSAW, N.Y., Jan. 30, 2013 (GLOBE NEWSWIRE) -- Today Financial Institutions, Inc. (Nasdaq:FISI) (the "Company"), the parent company of Five Star Bank, reported full year 2012 net income available to common shareholders of $22.0 million, an increase of $2.4 million or 12% from the prior year. Full year 2012 earnings per diluted share was $1.60, up 7% from $1.49 last year. Fourth quarter 2012 net income available to common shareholders was $6.0 million, or $0.43 per diluted share, compared to $3.9 million, or $0.28 per diluted share, for the 2012 third quarter.

Highlights for the year ended December 31, 2012 compared with 2011:

  • Non-GAAP net operating income available to common shareholders was $25.6 million, or $1.86 per diluted share, for 2012 compared to $21.5 million or $1.64 per share for 2011
  • Expanded the footprint of our franchise though the acquisition of 8 branch locations:
  • Assumed deposits of $286.8 million and acquired in-market performing loans of $75.6 million at closing
  • Year end interest-earning assets of $2.5 billion reach highest level in Company history
  • 11.74% return on average tangible common equity, up from 11.55%
  • $0.25 or 2% increase in tangible book value per common share to $13.46
  • $6.7 million or 8% increase in net interest income, reflecting:
  • 3.95% fully tax-taxable equivalent net interest margin
  • 14% increase in average total loans
  • 10% increase in average interest-bearing deposits
  • $852 thousand or 4% increase in noninterest income

Fourth quarter 2012 highlights compared with third quarter 2012:

  • $46.7 million or 3% growth in total loans
  • $1.3 million or 13% decrease in non-performing loans
  • Common book value per share increased to $17.15 at December 31, 2012
  • Declared $0.16 dividend per common share, a 3.4% dividend yield as of December 31, 2012

Summary Performance Discussion

"It is an understatement to say that this was a significant year for our company, our employees and our shareholders," said Chairman and Interim Chief Executive Officer John E. Benjamin. "We executed on significant leadership changes during 2012 to position our company for long-term success, and we're energized as we enter 2013. Our performance in 2012 and the confidence we have in our future is reflected in the Company's dividend, which increased over 20% for the year."

Net income for the full year 2012 was $23.4 million, up $650 thousand or 3% from the prior year. The primary drivers of this increase were a $6.7 million or 8% increase in net interest income, an $852 thousand or 4% increase in noninterest income and a $652 thousand or 8% decrease in the provision for loan losses, partially offset by a $7.6 million or 12% increase in noninterest expense. Noninterest expense for 2012 included non-recurring pre-tax expenses of $5.6 million related to the branch acquisitions and retirement of our former CEO. Noninterest expense for 2011 included a non-recurring pre-tax expense of $1.1 million for the early extinguishment of debt. Net income available to common shareholders increased $2.4 million or 12% from the prior year. The prior year net income available to common shareholders included accelerated accretion on redeemed TARP preferred stock of $1.2 million.

Net income in the fourth quarter 2012 was $6.3 million, up $2.1 million or 48% from the third quarter 2012, which resulted from a $4.1 million or 19% decrease in noninterest expense, partially offset by a $1.2 million increase in the provision for income taxes and a $756 thousand or 43% increase in the provision for loan losses. Noninterest expense for the third quarter 2012 included non-recurring pre-tax expenses of $4.5 million related to the branch acquisitions and retirement of our former CEO. Net income available to common shareholders increased $2.1 million or 53% from the third quarter 2012.

"We finished 2012 with strong momentum, and our employees remain focused on delivering exceptional customer service with our easy banking philosophy, while simultaneously creating value for our shareholders," continued Mr. Benjamin. "We not only accomplished our strategic initiatives, but did so while achieving our highest annual income in ten years and experiencing our fourth consecutive year of increased earnings."

Net Interest Income and Net Interest Margin

Net interest income for the full year 2012 increased $6.7 million or 8% from the prior year, due to an increase in average earning assets resulting from organic loan growth, loans acquired in the branch acquisitions and an increased level of noninterest-bearing deposits, which more than offset lower earning asset yields. The net interest margin was 3.95% for the full year 2012 compared to 4.04% for the full year 2011.

The yield on earning-assets decreased 32 basis points for 2012 compared with last year, a result of cash flows being reinvested in the current low interest rate environment, which includes the impact of investing the cash from the branch acquisitions into lower yielding securities. The cost of interest-bearing liabilities decreased 30 basis points for the year compared to the prior year, primarily a result of the redemption of our 10.20% junior subordinated debentures during 2011 as well as the continued re-pricing of time deposits.

The $217.4 million or 10% increase in average earning assets was driven by the $199.6 million or 14% increase in average total loans. Compared to the prior year, average commercial loans increased $63.4 million or 11% and indirect consumer loans increased $89.1 million or 20% during 2012.

For the full year 2012, average interest-bearing deposits increased $156.2 million or 10%, reflecting a $40.0 million or 10% increase in interest-bearing demand deposits and a $135.3 million or 30% increase in savings and money market deposits. These increases were partially offset by a $19.1 million or 3% decrease in time deposits. Average noninterest-bearing deposits, which represented 20% of total average deposits, increased $62.0 million or 17% during 2012.

Fourth quarter 2012 net interest income was $23.1 million, essentially unchanged from the third quarter 2012. A $21.8 million increase in average interest-earning assets was offset by a 4 basis point decrease in net interest margin to 3.92% for the 2012 fourth quarter. The average interest-earning asset increase primarily reflected an increase of $32.0 million in average indirect auto loans, partially offset by a $18.1 million decrease in average investment securities.

Noninterest Income

Noninterest income for the full year 2012 increased $852 thousand or 4% from the prior year. This included a $541 thousand or 61% increase in gain on sale of loans, a $495 thousand or 17% increase in other income, a $357 thousand or 8% increase in ATM and debit card income, a $327 thousand or 23% increase in company owned life insurance income, and a $275 thousand or 15% increase in broker-dealer fees and commissions. These positive impacts were partially offset by a $448 thousand increase in loss on the disposal of other assets, a $352 thousand or 12% decrease in gain on sales of securities, a $218 thousand or 26% decrease in loan servicing income, a $73 thousand increase in other-than-temporary impairment charges on securities, and a $52 thousand or 1% decrease in service charges on deposits.

Fourth quarter 2012 noninterest income decreased $70 thousand or 1% from the third quarter 2012. This decrease in noninterest income was primarily the result of decreases in broker-dealer fees and commissions, loan servicing income, gain on sales of securities and an increase in the loss on the disposal of other assets, offset by increases in service charges on deposits, ATM and debit card income, and gain on sales of loans.

Noninterest Expense

Noninterest expense for the full year 2012 increased $7.6 million or 12% from the prior year. This included a $4.4 million or 12% increase in salaries and employee benefits, a $1.5 million or 58% increase in professional services, a $1.2 million or 19% increase in other noninterest expense, an $834 thousand or 34% increase in computer and data processing, a $719 thousand or 40% increase in supplies and postage, and a $551 thousand or 5% increase in occupancy and equipment. These increases were partially offset by a $330 thousand or 26% decrease in advertising and promotions, a $213 thousand or 14% decrease in FDIC assessments, and the absence of a $1.1 million loss on extinguishment of debt which resulted from the Company's early redemption of its subordinated debentures during the third quarter of 2011.

The full year 2012 included $3.0 million of noninterest expense related to the branch acquisitions, which closed in June and August, and $2.6 million incurred in association with the retirement of the Company's former CEO in August. Of these expenses, $1.9 million of expense related to the branch acquisitions and all of the $2.6 million related to the CEO retirement were included in noninterest expense for the third quarter of 2012. There were no material expenses related to these transactions during the fourth quarter of 2012.

Fourth quarter 2012 noninterest expense decreased $4.1 million or 19% from the third quarter 2012. This included a $2.9 million or 23% decrease in salaries and benefits, a $562 thousand or 39% decrease in professional fees, a $400 thousand or 17% decrease in other noninterest expense, a $332 thousand or 37% decrease in supplies and postage, and a $167 thousand or 17% decrease in in computer and data processing. These decreases were partially offset by a $169 thousand or 65% increase in advertising and promotions, and a $104 thousand or 4% increase in occupancy and equipment.

Balance Sheet and Capital Management

Total loans were $1.706 billion at December 31, 2012, up $46.7 million or 3% from September 30, 2012 and up $220.9 million or 15% from December 31, 2011. At December 31, 2012, total loans included $64.5 million in loans obtained in the branch acquisitions. Total investment securities were $841.7 million at December 31, 2012, up $73.5 million or 10% from the end of the prior quarter and up $190.9 million or 29% compared with the end of 2011.

Deposits were $2.262 billion at December 31, 2012, a decrease of $69.9 million from the end of the prior quarter and an increase of $330.2 million compared with the end of 2011. The decrease from the prior quarter is mainly due to seasonal outflows of municipal deposits, while the year over year increase is largely attributable to $286.8 million in retail deposits assumed from the branch acquisitions. Public deposit balances were 20% of total deposits at December 31, 2012, compared to 23% at September 30, 2012 and 20% at December 31, 2011, with the fluctuations due largely to the seasonality of municipal cash flows.

Shareholders' equity was $253.9 million at December 31, 2012, compared with $251.8 million at September 30, 2012 and $237.2 million at December 31, 2011. Net income for the quarter increased shareholders' equity by $6.3 million, which was partially offset by common and preferred stock dividends of $2.6 million. Accumulated other comprehensive income included in shareholders' equity decreased $1.9 million during the fourth quarter due primarily to lower net unrealized gains on securities available for sale.

The Company's leverage ratio and total risk-based capital ratios were 7.70% and 11.96%, respectively, at December 31, 2012, compared to 7.67% and 12.16%, respectively, at September 30, 2012, and 8.63% and 13.45%, respectively, at December 31, 2011 all of which exceeded the regulatory thresholds required to be classified as a "well capitalized" institution as established by the Company's primary banking regulators. Balance sheet growth, primarily related to the branch acquisitions, coupled with goodwill and intangible assets recorded in conjunction with the acquisitions, resulted in the lower capital ratios in 2012. Such goodwill and intangible assets are excluded from regulatory capital under regulatory accounting practices.

Credit Quality

Non-performing loans were $9.1 million or 0.53% of total loans at December 31, 2012, as compared with $10.4 million or 0.63% of total loans at September 30, 2012, and $7.1 million or 0.48% of total loans at December 31, 2011. The Company's ratio of non-performing loans to total loans continues to compare favorably to its peer group average, which was 2.48% of total loans at September 30, 2012, the most recent period for which information is available (Source: Federal Financial Institutions Examination Council — Bank Holding Company Performance Report as of September 30, 2012 — Top-tier bank holding companies having consolidated assets between $1 billion and $3 billion).

During the fourth quarter 2012, the Company internally downgraded to substandard status from special mention one credit relationship consisting of commercial business and commercial mortgage loans with unpaid principal balances totaling $3.4 million. The downgrade necessitated a provision and increase in our allowance for losses of approximately $400 thousand. These loans were performing in accordance with their contractual terms as of December 31, 2012, however, we continue to monitor this relationship closely.

Net charge-offs increased $688 thousand or 14% when comparing 2012 to the prior year, but represented 0.36% of average loans for both periods. The provision for loan losses for the full year 2012 decreased $652 thousand or 8% from the prior year. The 2012 provision for loan losses exceeded net charge-offs by $1.5 million as the Company continues to maintain the allowance for loan losses consistent with the growth in its loan portfolio and trends in asset quality.

Net charge-offs of $2.1 million in the fourth quarter 2012 represented 0.50% of average loans on an annualized basis compared to $1.6 million or 0.38% in the third quarter 2012. The provision for loan losses was $2.5 million for the fourth quarter 2012, compared to $1.8 million for the third quarter 2012.

The allowance for loan losses was $24.7 million at December 31, 2012, compared with $24.3 million at September 30, 2012 and $23.3 million at December 31, 2011. The ratio of the allowance for loan losses to total loans was 1.45% at December 31, 2012, compared with 1.46% at September 30, 2012 and 1.57% at December 31, 2011. Contributing to this ratio decline in 2012 were the loans obtained in the branch acquisitions, which were recorded at fair market value as of the acquisition date with no allowance carried over, as required by U.S. generally accepted accounting principles. The ratio of allowance for loan losses to non-performing loans was 271% at December 31, 2012, compared with 233% at September 30, 2012 and 329% at December 31, 2011.

About Financial Institutions, Inc.

With over $2.7 billion in assets, Financial Institutions, Inc. provides diversified financial services through its subsidiaries, Five Star Bank and Five Star Investment Services, Inc. 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 a quickly expanding ATM network in Western and Central New York State. Five Star Investment Services provides investment advice, brokerage and insurance products and services within the same New York State markets. Financial Institutions, Inc. and its subsidiaries employ over 600 individuals. The Company's stock is listed on the Nasdaq Global Select Market under the symbol FISI. Additional information is available at the Company's website: www.fiiwarsaw.com.

Non-GAAP Financial Information

This news release contains financial information determined by methods other than in accordance with U.S. generally accepted accounting principles ("GAAP"). The Company believes that non-GAAP financial measures provide a meaningful comparison of the underlying operational performance of the Company, and facilitate investors' assessments of its business and performance trends in comparison to others in the financial services industry. In addition, the Company believes the exclusion of these non-operating items enables management to perform a more effective evaluation and comparison of the Company's results and to assess performance in relation to the company's ongoing operations. These disclosures should not be viewed as a substitute for financial measures determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Where non-GAAP disclosures are used in this news release, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found in Appendix A to this document.

Safe Harbor Statement

This press release may contain forward-looking statements as defined by federal securities laws. These statements may address issues that involve significant risks, uncertainties, estimates and assumptions made by management. Actual results could differ materially from current beliefs or projections. There are a number of important factors that could affect the Company's forward-looking statements which include its ability to implement its strategic plan, its ability to redeploy investment assets into loan assets, whether it experiences greater credit losses than expected, the impact of the current management transition, the attitudes and preferences of its customers, its ability to successfully integrate recently acquired bank branches and profitably operate newly opened bank branches, the competitive environment, fluctuations in the fair value of securities in its investment portfolio, changes in the regulatory environment and general economic and credit market conditions nationally and regionally. For more information about these factors and other factors that could affect the Company's forward-looking statements, please see the Company's Annual Report on Form 10-K and its Quarterly Reports on Form 10-Q on file with the SEC. All of these factors should be carefully reviewed, and readers should not place undue reliance on these forward-looking statements. Except as required by law, the Company undertakes no obligation to revise these statements following the date of this press release.

FINANCIAL INSTITUTIONS, INC.
Selected Financial Information (Unaudited)
(Amounts in thousands, except per share amounts)
2012 2011
December 31, September 30, June 30, March 31, December 31,
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents $ 60,436 77,045 61,813 77,025 57,583
Investment securities:
Available for sale 823,796 748,618 765,216 699,497 627,518
Held-to-maturity 17,905 19,564 22,016 24,196 23,297
Total investment securities 841,701 768,182 787,232 723,693 650,815
Loans held for sale 1,518 1,411 1,682 2,053 2,410
Loans:
Commercial business 258,675 245,307 245,437 233,764 233,836
Commercial mortgage 413,324 403,120 413,983 406,521 393,244
Residential mortgage 133,520 139,984 142,900 112,148 113,911
Home equity 286,649 279,211 264,911 237,019 231,766
Consumer indirect 586,794 563,676 531,645 508,085 487,713
Other consumer 26,764 27,687 25,278 23,491 24,306
Total loans 1,705,726 1,658,985 1,624,154 1,521,028 1,484,776
Allowance for loan losses 24,714 24,301 24,120 23,763 23,260
Total loans, net 1,681,012 1,634,684 1,600,034 1,497,265 1,461,516
Total interest-earning assets (1) (2) 2,522,444 2,400,225 2,389,171 2,226,472 2,115,622
Goodwill and other intangible assets, net 50,820 50,924 43,858 37,369 37,369
Total assets 2,764,034 2,653,319 2,622,751 2,460,820 2,336,353
Deposits:
Noninterest-bearing demand 501,514 490,706 422,165 404,186 393,421
Interest-bearing demand 449,744 472,023 420,386 435,701 362,555
Savings and money market 655,598 673,883 584,278 530,754 474,947
Certificates of deposit 654,938 695,107 708,442 695,928 700,676
Total deposits 2,261,794 2,331,719 2,135,271 2,066,569 1,931,599
Borrowings 179,806 38,282 200,824 117,347 150,698
Total interest-bearing liabilities 1,940,086 1,879,295 1,913,930 1,779,730 1,688,876
Shareholders' equity 253,897 251,842 246,946 239,962 237,194
Common shareholders' equity (3) 236,426 234,371 229,473 222,489 219,721
Tangible common equity (4) 185,606 183,447 185,615 185,120 182,352
Unrealized gain on investment securities, net of tax $ 16,060 17,178 14,487 12,316 13,570
Common shares outstanding 13,788 13,786 13,812 13,812 13,803
Treasury shares 374 376 350 350 359
CAPITAL RATIOS AND PER SHARE DATA:
Leverage ratio 7.70% 7.67 8.27 8.80 8.63
Tier 1 risk-based capital 10.70% 10.91 11.39 12.22 12.20
Total risk-based capital 11.96% 12.16 12.64 13.47 13.45
Common equity to assets 8.55% 8.83 8.75 9.04 9.40
Tangible common equity to tangible assets (4) 6.84% 7.05 7.20 7.64 7.93
Common book value per share $ 17.15 17.00 16.61 16.11 15.92
Tangible common book value per share (4) 13.46 13.31 13.44 13.40 13.21
________
(1) Includes investment securities at adjusted amortized cost and non-performing investment securities.
(2) Includes nonaccrual loans.
(3) Excludes preferred shareholders' equity.
(4) See Appendix A – Non-GAAP to GAAP Reconciliation for the computation of this Non-GAAP measure.
FINANCIAL INSTITUTIONS, INC.
Selected Financial Information (Unaudited)
(Amounts in thousands, except per share amounts)
Quarterly Trends
Years ended 2012 2011
December 31, Fourth Third Second First Fourth
2012 2011 Quarter Quarter Quarter Quarter Quarter
SELECTED INCOME STATEMENT DATA:
Interest income $ 97,567 95,118 25,087 25,299 23,731 23,450 23,875
Interest expense 9,051 13,255 1,999 2,200 2,343 2,509 2,721
Net interest income 88,516 81,863 23,088 23,099 21,388 20,941 21,154
Provision for loan losses 7,128 7,780 2,520 1,764 1,459 1,385 2,162
Net interest income after provision for loan losses 81,388 74,083 20,568 21,335 19,929 19,556 18,992
Noninterest income:
Service charges on deposits 8,627 8,679 2,526 2,292 1,974 1,835 2,074
ATM and debit card 4,716 4,359 1,348 1,219 1,072 1,077 1,103
Broker-dealer fees and commissions 2,104 1,829 474 609 434 587 500
Company owned life insurance 1,751 1,424 451 433 441 426 457
Loan servicing 617 835 (28) 142 409 94 173
Net gain on sale of loans held for sale 1,421 880 440 323 325 333 221
Net gain on investment securities 2,651 3,003 487 596 1,237 331 656
Impairment charge on investment securities (91) (18) -- -- -- (91) (18)
Net (loss) gain on sale of other assets (381) 67 (302) (114) 29 6 23
Other 3,362 2,867 887 853 769 853 578
Total noninterest income 24,777 23,925 6,283 6,353 6,690 5,451 5,767
Noninterest expense:
Salaries and employee benefits 40,127 35,743 9,562 12,438 9,071 9,056 9,359
Occupancy and equipment 11,419 10,868 3,019 2,915 2,715 2,770 2,659
Professional services 4,133 2,617 890 1,452 1,080 711 794
Computer and data processing 3,271 2,437 809 976 886 600 583
Supplies and postage 2,497 1,778 567 899 573 458 441
FDIC assessments 1,300 1,513 343 356 304 297 301
Advertising and promotions 929 1,259 430 261 137 101 364
Loss on extinguishment of debt -- 1,083 -- -- -- -- --
Other 7,721 6,496 1,921 2,321 1,815 1,664 1,778
Total noninterest expense 71,397 63,794 17,541 21,618 16,581 15,657 16,279
Income before income taxes 34,768 34,214 9,310 6,070 10,038 9,350 8,480
Income tax expense 11,319 11,415 2,978 1,805 3,382 3,154 2,718
Net income $ 23,449 22,799 6,332 4,265 6,656 6,196 5,762
Preferred stock dividends 1,474 3,182 369 368 368 369 369
Net income available to common shareholders $ 21,975 19,617 5,963 3,897 6,288 5,827 5,393
FINANCIAL RATIOS AND STOCK DATA:
Earnings per share – basic $ 1.60 1.50 0.44 0.28 0.46 0.43 0.39
Earnings per share – diluted $ 1.60 1.49 0.43 0.28 0.46 0.42 0.39
Cash dividends declared on common stock $ 0.57 0.47 0.16 0.14 0.14 0.13 0.13
Common dividend payout ratio (1) 35.63% 31.33 36.36 50.00 30.43 30.23 33.33
Dividend yield (annualized) 3.06% 2.91 3.42 2.99 3.34 3.23 3.20
Return on average assets 0.93% 1.00 0.95 0.65 1.08 1.06 0.98
Return on average equity 9.46% 9.82 9.85 6.77 10.94 10.36 9.44
Return on average common equity (2) 9.53% 9.47 9.95 6.65 11.12 10.51 9.53
Return on average tangible common equity (3) 11.74% 11.55 12.66 8.33 13.36 12.62 11.43
Efficiency ratio (4) 62.87% 60.55 58.88 73.04 60.41 58.59 60.49
Stock price (Nasdaq: FISI):
High $ 19.52 20.36 19.39 19.52 17.66 17.99 17.26
Low $ 15.22 12.18 17.61 16.50 15.51 15.22 12.18
Close $ 18.63 16.14 18.63 18.64 16.88 16.17 16.14
________
(1) Common dividend payout ratio equals dividends declared during the period divided by earnings per share for the equivalent period.
(2) Net income available to common shareholders divided by average common equity.
(3) See Appendix A – Non-GAAP to GAAP Reconciliation for the computation of this Non-GAAP measure.
(4) Efficiency ratio equals noninterest expense less other real estate expense and amortization of intangible assets as a percentage of net revenue, defined as the sum of tax-equivalent net interest income and noninterest income before net gains and impairment charges on investment securities.
FINANCIAL INSTITUTIONS, INC.
Selected Financial Information (Unaudited)
(Amounts in thousands)
Quarterly Trends
Years ended 2012 2011
December 31, Fourth Third Second First Fourth
2012 2011 Quarter Quarter Quarter Quarter Quarter
SELECTED AVERAGE BALANCES:
Federal funds sold and interest-earning deposits $ 113 140 94 168 94 94 94
Investment securities (1) 703,643 685,769 727,735 745,796 715,431 624,883 654,260
Loans (2):
Commercial business 242,100 215,598 250,384 248,060 237,936 231,865 225,274
Commercial mortgage 407,737 370,843 407,168 409,884 411,871 402,007 392,493
Residential mortgage 127,363 121,742 137,586 141,808 115,621 114,166 116,320
Home equity 257,537 216,428 282,831 271,131 242,208 233,550 226,597
Consumer indirect 533,589 444,527 576,519 544,527 517,859 494,861 477,017
Other consumer 25,058 24,686 27,043 26,179 23,420 23,554 24,168
Total loans 1,593,384 1,393,824 1,681,531 1,641,589 1,548,915 1,500,003 1,461,869
Total interest-earning assets 2,297,140 2,079,733 2,409,360 2,387,553 2,264,440 2,124,980 2,116,223
Goodwill and other intangible assets, net 43,399 37,369 50,884 47,200 38,020 37,369 37,369
Total assets 2,519,258 2,277,149 2,650,504 2,607,497 2,473,888 2,342,730 2,322,303
Interest-bearing liabilities:
Interest-bearing demand 423,096 383,122 464,094 425,739 409,720 392,353 378,584
Savings and money market 586,329 451,030 671,295 611,564 553,701 507,543 464,904
Certificates of deposit 693,353 712,411 685,318 695,682 689,103 703,372 703,571
Borrowings 121,735 115,027 69,335 157,973 162,718 97,093 127,914
Total interest-bearing liabilities 1,824,513 1,661,590 1,890,042 1,890,958 1,815,242 1,700,361 1,674,973
Noninterest-bearing demand deposits 430,240 368,268 487,434 447,204 398,353 387,153 388,670
Total deposits 2,133,018 1,914,831 2,308,141 2,180,189 2,050,877 1,990,421 1,935,729
Total liabilities 2,271,259 2,044,899 2,394,689 2,356,787 2,229,046 2,102,217 2,080,177
Shareholders' equity 247,999 232,250 255,815 250,710 244,842 240,513 242,126
Common equity (3) 230,527 207,189 238,344 233,238 227,369 223,040 224,649
Tangible common equity (4) $ 187,128 169,820 187,460 186,038 189,349 185,671 187,280
Common shares outstanding:
Basic 13,696 13,067 13,707 13,703 13,697 13,675 13,636
Diluted 13,751 13,157 13,761 13,759 13,750 13,733 13,722
SELECTED AVERAGE YIELDS:
(Tax equivalent basis)
Federal funds sold and interest-earning deposits 0.29% 0.20 0.60 0.16 0.21 0.29 0.18
Investment securities 2.66% 2.93 2.56 2.60 2.68 2.83 2.79
Loans 5.09% 5.53 4.98 5.10 5.06 5.24 5.38
Total interest-earning assets 4.35% 4.67 4.25 4.32 4.31 4.53 4.58
Interest-bearing demand 0.14% 0.16 0.13 0.14 0.14 0.15 0.15
Savings and money market 0.17% 0.23 0.14 0.15 0.18 0.22 0.23
Certificates of deposit 0.99% 1.37 0.86 0.94 1.03 1.13 1.22
Borrowings 0.48% 1.58 0.76 0.43 0.43 0.46 0.45
Total interest-bearing liabilities 0.50% 0.80 0.42 0.46 0.52 0.59 0.64
Net interest rate spread 3.85% 3.87 3.83 3.86 3.79 3.94 3.94
Net interest rate margin 3.95% 4.04 3.92 3.96 3.89 4.05 4.07
________
(1) Includes investment securities at adjusted amortized cost and non-performing investment securities.
(2) Includes nonaccrual loans.
(3) Excludes preferred shareholders' equity.
(4) See Appendix A – Non-GAAP to GAAP Reconciliation for the computation of this Non-GAAP measure.
FINANCIAL INSTITUTIONS, INC.
Selected Financial Information (Unaudited)
(Amounts in thousands)
2012 2011
December 31, September 30, June 30, March 31, December 31,
ASSET QUALITY DATA:
Allowance for Loan Losses
Beginning balance $ 24,301 24,120 23,763 23,260 22,977
Net loan charge-offs (recoveries):
Commercial business 139 287 (11) (22) 880
Commercial mortgage 277 (64) 166 105 131
Residential mortgage 22 39 99 36 89
Home equity 119 65 82 (5) 39
Consumer indirect 1,367 1,124 661 668 652
Other consumer 183 132 105 100 88
Total net charge-offs 2,107 1,583 1,102 882 1,879
Provision for loan losses 2,520 1,764 1,459 1,385 2,162
Ending balance $ 24,714 24,301 24,120 23,763 23,260
Supplemental information
Period end loans:
Originated loans $ 1,641,197 1,588,614 1,566,025 1,521,028 1,484,776
Acquired loans 64,529 70,371 58,129 -- --
Total loans $ 1,705,726 1,658,985 1,624,154 1,521,028 1,484,776
Allowance for loan losses to total loans 1.45% 1.46 1.49 1.56 1.57
Allowance for loan losses for originated loans to originated loans 1.51% 1.53 1.54 1.56 1.57
Net charge-offs (recoveries) to average loans (annualized):
Commercial business 0.22% 0.46 -0.02 -0.04 1.55
Commercial mortgage 0.27% -0.06 0.16 0.10 0.13
Residential mortgage 0.06% 0.11 0.34 0.13 0.30
Home equity 0.17% 0.10 0.14 -0.01 0.07
Consumer indirect 0.94% 0.82 0.51 0.54 0.54
Other consumer 2.68% 2.00 1.80 1.70 1.44
Total loans 0.50% 0.38 0.29 0.24 0.51
Non-performing loans:
Commercial business $ 3,413 3,621 4,150 1,863 1,259
Commercial mortgage 1,799 3,388 3,598 3,040 2,928
Residential mortgage 2,040 1,597 1,918 1,929 1,644
Home equity 939 929 973 934 682
Consumer indirect 891 876 695 444 558
Other consumer 43 23 4 12 5
Total non-performing loans 9,125 10,434 11,338 8,222 7,076
Foreclosed assets 184 303 270 258 475
Non-performing investment securities 753 766 1,145 1,505 1,636
Total non-performing assets $ 10,062 11,503 12,753 9,985 9,187
Total non-performing loans to total loans 0.53% 0.63 0.70 0.54 0.48
Total non-performing loans to originated loans 0.56% 0.66 0.72 0.54 0.48
Total non-performing assets to total assets 0.36% 0.43 0.49 0.41 0.39
Allowance for loan losses to non-performing loans 271% 233 213 289 329
FINANCIAL INSTITUTIONS, INC.
Appendix A - Non-GAAP to GAAP Reconciliation (Unaudited)
(In thousands, except per share amounts)
Years ended 2012 2011
December 31, Fourth Third Second First Fourth
2012 2011 Quarter Quarter Quarter Quarter Quarter
Ending tangible assets:
Total assets $ 2,764,034 2,653,319 2,622,751 2,460,820 2,336,353
Less: Goodwill and other intangible assets, net 50,820 50,924 43,858 37,369 37,369
Tangible assets (non-GAAP) $ 2,713,214 2,602,395 2,578,893 2,423,451 2,298,984
Ending tangible common equity:
Common shareholders' equity $ 236,426 234,371 229,473 222,489 219,721
Less: Goodwill and other intangible assets, net 50,820 50,924 43,858 37,369 37,369
Tangible common equity (non-GAAP) $ 185,606 183,447 185,615 185,120 182,352
Tangible common equity to tangible assets (non-GAAP) (1) 6.84% 7.05 7.20 7.64 7.93
Common shares outstanding 13,788 13,786 13,812 13,812 13,803
Tangible common book value per share (non-GAAP) (2) $13.46 13.31 13.44 13.40 13.21
Average tangible common equity:
Average common equity $ 230,527 207,189 238,344 233,238 227,369 223,040 224,649
Average goodwill and other intangible assets, net 43,399 37,369 50,884 47,200 38,020 37,369 37,369
Average tangible common equity (non-GAAP) $ 187,128 169,820 187,460 186,038 189,349 185,671 187,280
Return on average tangible common equity (3) 11.74% 11.55 12.66 8.33 13.36 12.62 11.43
Net operating income:
Net income $ 23,449 22,799 6,332 4,265 6,656 6,196 5,762
Branch acquisition expenses, net of tax (4) 1,966 -- -- 1,262 646 58 --
CEO retirement expenses, net of tax (4) 1,670 -- -- 1,670 -- -- --
Loss on extinguishment of debt, net of tax (4) -- 704 -- -- -- -- --
Net operating income (non-GAAP) $ 27,085 23,503 6,332 7,197 7,302 6,254 5,762
Net operating income available to common shareholders:
Net income available to common shareholders $ 21,975 19,617 5,963 3,897 6,288 5,827 5,393
Branch acquisition expenses, net of tax (4) 1,966 -- -- 1,262 646 58 --
CEO retirement expenses, net of tax (4) 1,670 -- -- 1,670 -- -- --
Loss on extinguishment of debt, net of tax (4) -- 704 -- -- -- -- --
Accelerated accretion on redeemed TARP stock -- 1,209 -- -- -- -- --
Net operating income available to common shareholders (non-GAAP) $ 25,611 21,530 5,963 6,829 6,934 5,885 5,393
Financial ratios computed on an operating basis (Non-GAAP):
Earnings per share – basic $ 1.87 1.65 0.44 0.50 0.51 0.43 0.39
Earnings per share – diluted $ 1.86 1.64 0.43 0.50 0.50 0.43 0.39
Return on average assets 1.08% 1.03 0.95 1.10 1.19 1.07 0.98
Return on average equity 10.92% 10.12 9.85 11.42 11.99 10.46 9.44
Return on average common equity 11.11% 10.39 9.95 11.65 12.27 10.61 9.53
Return on average tangible common equity 13.69% 12.68 12.66 14.60 14.73 12.75 11.43
________
(1) Tangible common equity divided by tangible assets.
(2) Tangible common equity divided by common shares outstanding.
(3) Annualized net income divided by average tangible common equity.
(4) Tax effect is calculated assuming a 35% effective tax rate.

CONTACT: For additional information contact: Karl F. Krebs Executive VP & CFO Phone: 585.786.1125 Email: KFKrebs@fiiwarsaw.com or Jordan M. Darrow Darrow Associates, Inc. Phone: 631.367.1866 Email: jdarrow@darrowir.comSource:Financial Institutions, Inc.