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Financial Institutions, Inc. Reports Second Quarter 2013 Net Income of $6.9 Million

WARSAW, N.Y., July 24, 2013 (GLOBE NEWSWIRE) -- Financial Institutions, Inc. (Nasdaq:FISI) (the "Company"), the parent company of Five Star Bank, today reported financial results for the second quarter ended June 30, 2013. Net income for the second quarter 2013 was $6.9 million, compared to $6.1 million for the first quarter 2013. After preferred dividends, second quarter 2013 net income available to common shareholders was $6.5 million or $0.47 per diluted share compared with $5.8 million or $0.42 per share for the first quarter of 2013.

Highlights for the second quarter 2013 included:

  • Diluted EPS of $0.47 per share, up 12% from first quarter 2013
  • Return on average assets of 0.99%, return on average common equity of 10.86% and return on average tangible common equity of 13.74%
  • Service charges on deposits increased $427 thousand or 20% compared to the previous quarter
  • Provision for loan losses of $1.2 million, a $1.5 million decrease from the previous quarter
  • Total loans grew $26.1 million during the second quarter
  • Capital ratios remain strong with total risk-based capital of 12.21%

Martin K. Birmingham, the Company's President and Chief Executive Officer, commented, "Loan growth across our diversified lines of business, an increase in fee income, tight control of expenses and solid credit quality contributed to a 12% increase in earnings per share in the second quarter. These results were made possible by the hard work of our dedicated employees, coupled with the strategic actions implemented over the past eighteen months that have positioned us well for the future. In particular, we are executing on our strategy to provide expanded options for customers, such as enhanced retail checking programs, which has enabled us to stabilize fee-based income."

Net income of $6.9 million in the second quarter 2013 was $701 thousand higher than the first quarter 2013 as a $1.5 million decrease in the provision for loan losses and a $122 thousand decrease in noninterest expense was partially offset by a $363 thousand decrease in net interest income and a $177 thousand decrease in noninterest income. The Company's return on average assets and return on average common equity were 0.99% and 10.86%, respectively, during the second quarter 2013, compared to 0.90% and 9.83%, respectively, in the first quarter 2013.

Mr. Birmingham added, "We remain committed to enhancing shareholder value by utilizing our earnings to support future growth of the balance sheet and returning a portion of earnings to shareholders as dividends. We believe this represents a prudent and balanced approach to rewarding shareholders for their support while continuing to grow the Company. Our second quarter cash dividend of $0.18 per share returned 38% percent of first quarter net income to shareholders."

Net Interest Income and Net Interest Margin

Net interest income of $22.5 million in the second quarter 2013 was $363 thousand lower than the first quarter 2013. The net interest margin (on a tax-equivalent basis) was 3.63% in the second quarter 2013 compared to 3.73% in first quarter 2013. The Company's yield on interest-earning assets decreased 12 basis points in the second quarter 2013 compared with the first quarter 2013, primarily a result of cash flows being reinvested in the current low interest rate environment.

Noninterest Income

Total noninterest income for the second quarter 2013 was $6.4 million compared to $6.6 million in the first quarter 2013. Noninterest income in the second and first quarters of 2013 included gains totaling $332 thousand and $892 thousand, respectively, from the sale of trust preferred securities. Excluding the net securities gains, noninterest income in the second quarter 2013 was $383 thousand or 7% higher than the first quarter 2013, as a $427 thousand increase in service charges on deposits due to the launch of the Company's new retail checking products was partially offset by a decrease of $86 thousand in mortgage banking revenue (defined as loan servicing income and net gains on the sale of loans held for sale). The retail checking product repositioning involved simplifying the suite of products offered to customers. The fee waiver process was also reevaluated, which resulted in a reduction in the number of fee waivers. The Company expects service charges on deposits to stabilize.

Noninterest Expense

Total noninterest expense of $17.5 million for the second quarter 2013 decreased by $122 thousand from $17.6 million in the first quarter 2013. Salaries and employee benefits expense and occupancy and equipment expense decreased $483 thousand and $134 thousand, respectively, when comparing the second quarter 2013 to the first quarter 2013. The decrease in salaries and employee benefits expense was primarily attributable to lower expenses for medical insurance, employee stock based compensation and payroll taxes. Medical insurance is generally higher in the first and third quarter each year due to the timing of the Company's contributions to employee health savings accounts. The decrease in occupancy and equipment expense was seasonal. These decreases were partially offset by higher professional service fees, computer and data processing expense and other noninterest expense when comparing the second quarter 2013 to the first quarter 2013. Professional service fees increased $156 thousand, due in part to executive management transitions and other corporate governance initiatives. The timing of the annual update of a core software application resulted in a $108 thousand increase in computer and data processing expense. Other noninterest expense increased $261 thousand primarily due to stock based compensation paid to our directors in the second quarter of each year and expenses related to the Company's digital marketing initiatives, including the launch of the Company's new retail checking account products.

Balance Sheet and Capital Management

Total assets were $2.78 billion at June 30, 2013, up $18.4 million from $2.76 billion at December 31, 2012. The increase in total assets is attributable to a $37.7 million increase in total loans, partially offset by a $9.5 million decrease in cash and cash equivalents and a $13.8 million decrease in investment securities.

Total loans were $1.74 billion at June 30, 2013, up $37.7 million or 2% compared to $1.71 billion at December 31, 2012. The increase in loans was attributable to organic growth, primarily in the commercial, home equity and consumer indirect loan categories. The average yield on the loan portfolio was 4.65% in the second quarter 2013, compared to 4.83% in the first quarter 2013.

Total investment securities were $827.9 million at June 30, 2013, down $13.8 million compared to $841.7 million at December 31, 2012. The decrease in investment securities occurred based on the combination of scheduled principal paydowns on amortizing securities and a change in the net unrealized gain/loss on the available-for-sale ("AFS") investment securities portfolio. The AFS portfolio had net unrealized losses totaling $1.2 million at June 30, 2013 compared to net unrealized gains of $26.6 million at December 31, 2012. The unrealized loss on the AFS portfolio was predominantly caused by changes in market interest rates. The fair value of most of the investment securities in the AFS portfolio fluctuates as market interest rates change. The average yield on the investment securities portfolio was 2.38% in the second quarter 2013 compared to 2.39% in the first quarter 2013.

Total deposits were $2.32 billion at June 30, 2013, up $62.4 million from $2.26 billion at December 31, 2012. Public deposit balances increased $86.9 million during the first half of 2013 due to the seasonality of municipal cash flows, coupled with successful business development efforts for the Company's newly acquired branches. The average cost of interest-bearing deposits declined to 0.36% in the second quarter 2013 from 0.37% in the first quarter 2013.

Shareholders' equity was $244.9 million at June 30, 2013, down $9.0 million compared with $253.9 million at December 31, 2012. Net income for the six months ended June 30, 2013 increased shareholders' equity by $13.0 million, which was partially offset by common and preferred stock dividends of $5.7 million. Accumulated other comprehensive loss included in shareholders' equity decreased $16.4 million during the first half of 2013 due to the previously mentioned change in unrealized gain/loss on AFS securities. At June 30, 2013, the tangible common equity to tangible assets ratio and leverage ratio were 6.49% and 7.59%, respectively, compared to 6.86% and 7.71%, respectively, at December 31, 2012. The decrease in the Company's equity ratios was attributable to the decrease in shareholder's equity combined with a growth in our average assets.

At June 30, 2013, the Company's common book value and tangible common book value was $16.47 per share and $12.84 per share, respectively, compared to $17.15 per share and $13.49 per share, respectively, at December 31, 2012.

Credit Quality

Non-performing loans were $11.3 million or 0.65% of total loans at June 30, 2013, compared with $9.1 million or 0.53% of total loans at December 31, 2012. The increase in non-performing loans during the first half of 2013 was primarily due to the first quarter addition of one credit relationship consisting of commercial business and commercial mortgage loans with unpaid principal balances totaling $3.0 million as of June 30, 2013.

Net loan charge-offs improved to $1.4 million in the second quarter 2013 from $1.6 million in the first quarter 2013. The provision for loan losses was $1.2 million in the second quarter 2013, compared to $2.7 million in the first quarter 2013.

The allowance for loan losses was $25.6 million at June 30, 2013, compared with $24.7 million at December 31, 2012. The ratio of the allowance for loan losses to total loans was 1.47% at June 30, 2013, compared with 1.45% at December 31, 2012. The ratio of allowance for loan losses to non-performing loans was 227% at June 30, 2013, compared with 271% at December 31, 2012.

About Financial Institutions, Inc.

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 more than 60 ATMs throughout 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)
2013 2012
June 30, March 31, December 31, September 30, June 30,
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents $50,927 84,791 60,436 77,045 61,813
Investment securities:
Available for sale 810,549 853,437 823,796 748,618 765,216
Held-to-maturity 17,348 17,747 17,905 19,564 22,016
Total investment securities 827,897 871,184 841,701 768,182 787,232
Loans held for sale 3,423 2,142 1,518 1,411 1,682
Loans:
Commercial business 257,732 259,062 258,675 245,307 245,437
Commercial mortgage 437,515 424,635 413,324 403,120 413,983
Residential mortgage 118,117 126,228 133,520 139,984 142,900
Home equity 306,215 292,225 286,649 279,211 264,911
Consumer indirect 599,586 590,440 586,794 563,676 531,645
Other consumer 24,249 24,700 26,764 27,687 25,278
Total loans 1,743,414 1,717,290 1,705,726 1,658,985 1,624,154
Allowance for loan losses 25,590 25,827 24,714 24,301 24,120
Total loans, net 1,717,824 1,691,463 1,681,012 1,634,684 1,600,034
Total interest-earning assets (1) (2) 2,576,028 2,567,948 2,522,444 2,400,225 2,389,171
Goodwill and other intangible assets, net 50,190 50,288 50,389 50,924 43,858
Total assets 2,782,303 2,827,658 2,763,865 2,653,319 2,622,751
Deposits:
Noninterest-bearing demand 511,802 494,362 501,514 490,706 422,165
Interest-bearing demand 475,448 529,115 449,744 472,023 420,386
Savings and money market 713,459 748,482 655,598 673,883 584,278
Certificates of deposit 623,527 637,538 654,938 695,107 708,442
Total deposits 2,324,236 2,409,497 2,261,794 2,331,719 2,135,271
Borrowings 193,413 139,620 179,806 38,282 200,824
Total interest-bearing liabilities 2,005,847 2,054,755 1,940,086 1,879,295 1,913,930
Shareholders' equity 244,888 254,930 253,897 251,842 246,946
Common shareholders' equity (3) 227,494 237,511 236,426 234,371 229,473
Tangible common equity (4) 177,304 187,223 186,037 183,447 185,615
Unrealized (loss) gain on investment securities, net of tax $ (725) 13,745 16,060 17,178 14,487
Common shares outstanding 13,809 13,804 13,788 13,786 13,812
Treasury shares 353 358 374 376 350
CAPITAL RATIOS AND PER SHARE DATA:
Leverage ratio 7.59% 7.46 7.71 7.67 8.27
Tier 1 risk-based capital 10.96% 10.84 10.73 10.91 11.39
Total risk-based capital 12.21% 12.09 11.98 12.16 12.64
Common equity to assets 8.18% 8.40 8.55 8.83 8.75
Tangible common equity to tangible assets (4) 6.49% 6.74 6.86 7.05 7.20
Common book value per share $16.47 17.21 17.15 17.00 16.61
Tangible common book value per share (4) 12.84 13.56 13.49 13.31 13.44
________
(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
Six months ended 2013 2012
June 30, Second First Fourth Third Second
2013 2012 Quarter Quarter Quarter Quarter Quarter
SELECTED INCOME STATEMENT DATA:
Interest income $49,090 47,181 24,342 24,748 25,087 25,299 23,731
Interest expense 3,679 4,852 1,818 1,861 1,999 2,200 2,343
Net interest income 45,411 42,329 22,524 22,887 23,088 23,099 21,388
Provision for loan losses 3,902 2,844 1,193 2,709 2,520 1,764 1,459
Net interest income after provision for loan losses 41,509 39,485 21,331 20,178 20,568 21,335 19,929
Noninterest income:
Service charges on deposits 4,709 3,809 2,568 2,141 2,526 2,292 1,974
ATM and debit card 2,566 2,149 1,317 1,249 1,348 1,219 1,072
Broker-dealer fees and commissions 1,349 1,021 650 699 474 609 434
Company owned life insurance 853 867 438 415 451 433 441
Loan servicing 225 503 152 73 (28) 142 409
Net gain on sale of loans held for sale 235 658 35 200 440 323 325
Net gain on investment securities 1,224 1,568 332 892 487 596 1,237
Impairment charge on investment securities -- (91) -- -- -- -- --
Net gain (loss) on sale of other assets 39 35 38 1 (302) (114) 29
Other 1,729 1,622 846 883 887 853 769
Total noninterest income 12,929 12,141 6,376 6,553 6,283 6,353 6,690
Noninterest expense:
Salaries and employee benefits 18,935 18,127 9,226 9,709 9,562 12,438 9,071
Occupancy and equipment 6,204 5,485 3,035 3,169 3,019 2,915 2,715
Professional services 2,030 1,791 1,093 937 890 1,452 1,080
Computer and data processing 1,516 1,486 812 704 809 976 886
Supplies and postage 1,288 1,031 608 680 567 899 573
FDIC assessments 725 601 364 361 343 356 304
Advertising and promotions 467 238 253 214 430 261 137
Other 3,881 3,479 2,071 1,810 1,921 2,321 1,815
Total noninterest expense 35,046 32,238 17,462 17,584 17,541 21,618 16,581
Income before income taxes 19,392 19,388 10,245 9,147 9,310 6,070 10,038
Income tax expense 6,393 6,536 3,395 2,998 2,978 1,805 3,382
Net income $12,999 12,852 6,850 6,149 6,332 4,265 6,656
Preferred stock dividends 735 737 367 368 369 368 368
Net income available to common shareholders $12,264 12,115 6,483 5,781 5,963 3,897 6,288
FINANCIAL RATIOS AND STOCK DATA:
Earnings per share – basic $0.89 0.89 0.47 0.42 0.44 0.28 0.46
Earnings per share – diluted $0.89 0.88 0.47 0.42 0.43 0.28 0.46
Cash dividends declared on common stock $0.36 0.27 0.18 0.18 0.16 0.14 0.14
Common dividend payout ratio (1) 40.45% 30.34 38.30 42.86 36.36 50.00 30.43
Dividend yield (annualized) 3.94% 3.22 3.92 3.66 3.42 2.99 3.34
Return on average assets 0.94% 1.07 0.99 0.90 0.95 0.65 1.08
Return on average equity 10.22% 10.65 10.70 9.75 9.85 6.77 10.94
Return on average common equity (2) 10.35% 10.82 10.86 9.83 9.95 6.65 11.12
Return on average tangible common equity (3) 13.11% 12.99 13.74 12.47 12.66 8.33 13.36
Efficiency ratio (4) 59.62% 59.52 59.38 59.87 58.88 73.04 60.41
Stock price (Nasdaq: FISI):
High $20.83 17.99 20.66 20.83 19.39 19.52 17.66
Low $17.92 15.22 17.92 18.51 17.61 16.50 15.51
Close $18.41 16.88 18.41 19.96 18.63 18.64 16.88
________
(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
Six months ended 2013 2012
June 30, Second First Fourth Third Second
2013 2012 Quarter Quarter Quarter Quarter Quarter
SELECTED AVERAGE BALANCES:
Federal funds sold and interest-earning deposits $272 94 226 320 94 168 94
Investment securities (1) 833,094 670,157 829,953 836,270 727,735 745,796 715,431
Loans (2):
Commercial business 257,638 234,901 256,332 258,958 250,384 248,060 237,936
Commercial mortgage 425,982 406,939 433,631 418,248 407,168 409,884 411,871
Residential mortgage 126,824 114,893 123,263 130,425 137,586 141,808 115,621
Home equity 294,140 237,879 299,230 288,993 282,831 271,131 242,208
Consumer indirect 591,671 506,360 595,235 588,068 576,519 544,527 517,859
Other consumer 24,804 23,487 24,080 25,535 27,043 26,179 23,420
Total loans 1,721,059 1,524,459 1,731,771 1,710,227 1,681,531 1,641,589 1,548,915
Total interest-earning assets 2,554,425 2,194,710 2,561,950 2,546,817 2,409,360 2,387,553 2,264,440
Goodwill and other intangible assets, net 50,299 37,694 50,249 50,350 50,879 47,200 38,020
Total assets 2,784,681 2,408,309 2,789,104 2,780,209 2,650,502 2,607,497 2,473,888
Interest-bearing liabilities:
Interest-bearing demand 491,835 401,037 489,047 494,654 464,094 425,739 409,720
Savings and money market 716,632 530,622 739,328 693,684 671,295 611,564 553,701
Certificates of deposit 641,534 696,237 635,583 647,551 685,318 695,682 689,103
Borrowings 172,415 129,906 153,626 191,412 69,335 157,973 162,718
Total interest-bearing liabilities 2,022,416 1,757,802 2,017,584 2,027,301 1,890,042 1,890,958 1,815,242
Noninterest-bearing demand deposits 491,685 392,753 501,354 481,909 487,434 447,204 398,353
Total deposits 2,341,686 2,020,649 2,365,312 2,317,798 2,308,141 2,180,189 2,050,877
Total liabilities 2,528,309 2,165,632 2,532,197 2,524,377 2,394,687 2,356,787 2,229,046
Shareholders' equity 256,372 242,677 256,907 255,832 255,815 250,710 244,842
Common equity (3) 238,939 225,204 239,500 238,373 238,344 233,238 227,369
Tangible common equity (4) $188,640 187,510 189,251 188,023 187,465 186,038 189,349
Common shares outstanding:
Basic 13,728 13,686 13,739 13,717 13,707 13,703 13,697
Diluted 13,767 13,742 13,767 13,767 13,761 13,759 13,750
SELECTED AVERAGE YIELDS:
(Tax equivalent basis)
Federal funds sold and interest-earning deposits 0.20% 0.25 0.19 0.21 0.60 0.16 0.21
Investment securities 2.38% 2.75 2.38 2.39 2.56 2.60 2.68
Loans 4.74% 5.15 4.65 4.83 4.98 5.10 5.06
Total interest-earning assets 3.97% 4.42 3.91 4.03 4.25 4.32 4.31
Interest-bearing demand 0.13% 0.15 0.14 0.11 0.13 0.14 0.14
Savings and money market 0.13% 0.20 0.13 0.13 0.14 0.15 0.18
Certificates of deposit 0.80% 1.08 0.79 0.82 0.86 0.94 1.03
Borrowings 0.40% 0.44 0.40 0.40 0.76 0.43 0.43
Total interest-bearing liabilities 0.37% 0.56 0.36 0.37 0.42 0.46 0.52
Net interest rate spread 3.60% 3.86 3.55 3.66 3.83 3.86 3.79
Net interest rate margin 3.68% 3.97 3.63 3.73 3.92 3.96 3.89
________
(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)
2013 2012
June 30, March 31, December 31, September 30, June 30,
ASSET QUALITY DATA:
Allowance for Loan Losses
Beginning balance $25,827 24,714 24,301 24,120 23,763
Net loan charge-offs (recoveries):
Commercial business 87 202 139 287 (11)
Commercial mortgage (37) (11) 277 (64) 166
Residential mortgage 72 145 22 39 99
Home equity (20) 232 119 65 82
Consumer indirect 1,170 913 1,367 1,124 661
Other consumer 158 115 183 132 105
Total net charge-offs 1,430 1,596 2,107 1,583 1,102
Provision for loan losses 1,193 2,709 2,520 1,764 1,459
Ending balance $25,590 25,827 24,714 24,301 24,120
Supplemental information
Period end loans:
Originated loans $1,688,392 1,657,431 1,641,197 1,588,614 1,566,025
Acquired loans 55,022 59,859 64,529 70,371 58,129
Total loans $1,743,414 1,717,290 1,705,726 1,658,985 1,624,154
Allowance for loan losses to total loans 1.47% 1.50 1.45 1.46 1.49
Allowance for loan losses for originated loans to originated loans 1.52% 1.56 1.51 1.53 1.54
Net charge-offs (recoveries) to average loans (annualized):
Commercial business 0.14% 0.32 0.22 0.46 -0.02
Commercial mortgage -0.03% -0.01 0.27 -0.06 0.16
Residential mortgage 0.24% 0.45 0.06 0.11 0.34
Home equity -0.03% 0.33 0.17 0.10 0.14
Consumer indirect 0.79% 0.63 0.94 0.82 0.51
Other consumer 2.63% 1.83 2.68 2.00 1.80
Total loans 0.33% 0.38 0.50 0.38 0.29
Non-performing loans:
Commercial business $5,043 5,616 3,413 3,621 4,150
Commercial mortgage 3,073 2,767 1,799 3,388 3,598
Residential mortgage 1,423 1,759 2,040 1,597 1,918
Home equity 699 598 939 929 973
Consumer indirect 1,035 1,007 891 876 695
Other consumer 22 19 43 23 4
Total non-performing loans 11,295 11,766 9,125 10,434 11,338
Foreclosed assets 415 371 184 303 270
Non-performing investment securities 207 343 753 766 1,145
Total non-performing assets $11,917 12,480 10,062 11,503 12,753
Total non-performing loans to total loans 0.65% 0.69 0.53 0.63 0.70
Total non-performing loans to originated loans 0.67% 0.71 0.56 0.66 0.72
Total non-performing assets to total assets 0.43% 0.44 0.36 0.43 0.49
Allowance for loan losses to non-performing loans 227% 220 271 233 213
FINANCIAL INSTITUTIONS, INC.
Appendix A - Non-GAAP to GAAP Reconciliation (Unaudited)
(In thousands, except per share amounts)
Six months ended 2013 2012
June 30, Second First Fourth Third Second
2013 2012 Quarter Quarter Quarter Quarter Quarter
Ending tangible assets:
Total assets $2,782,303 2,827,658 2,763,865 2,653,319 2,622,751
Less: Goodwill and other intangible assets, net 50,190 50,288 50,389 50,924 43,858
Tangible assets (non-GAAP) $2,732,113 2,777,370 2,713,476 2,602,395 2,578,893
Ending tangible common equity:
Common shareholders' equity $227,494 237,511 236,426 234,371 229,473
Less: Goodwill and other intangible assets, net 50,190 50,288 50,389 50,924 43,858
Tangible common equity (non-GAAP) $177,304 187,223 186,037 183,447 185,615
Tangible common equity to tangible assets (non-GAAP) (1) 6.49% 6.74 6.86 7.05 7.20
Common shares outstanding 13,809 13,804 13,788 13,786 13,812
Tangible common book value per share (non-GAAP) (2) $12.84 13.56 13.49 13.31 13.44
Average tangible common equity:
Average common equity $238,939 225,204 239,500 238,373 238,344 233,238 227,369
Average goodwill and other intangible assets, net 50,299 37,694 50,249 50,350 50,879 47,200 38,020
Average tangible common equity (non-GAAP) $188,640 187,510 189,251 188,023 187,465 186,038 189,349
Return on average tangible common equity (3) 13.11% 12.99 13.74 12.47 12.66 8.33 13.36
Net operating income:
Net income $12,999 12,852 6,850 6,149 6,332 4,265 6,656
Branch acquisition expenses, net of tax (4) -- 704 -- -- -- 1,262 646
CEO retirement expenses, net of tax (4) -- -- -- -- -- 1,670 --
Net operating income (non-GAAP) $12,999 13,556 6,850 6,149 6,332 7,197 7,302
Net operating income available to common shareholders:
Net income available to common shareholders $12,264 12,115 6,483 5,781 5,963 3,897 6,288
Branch acquisition expenses, net of tax (4) -- 704 -- -- -- 1,262 646
CEO retirement expenses, net of tax (4) -- -- -- -- -- 1,670 --
Net operating income available to common shareholders (non-GAAP) $12,264 12,819 6,483 5,781 5,963 6,829 6,934
Financial ratios computed on an operating basis (Non-GAAP):
Earnings per share – basic $0.89 0.94 0.47 0.42 0.44 0.50 0.51
Earnings per share – diluted $0.89 0.93 0.47 0.42 0.43 0.50 0.50
Return on average assets 0.94% 1.13 0.99 0.90 0.95 1.10 1.19
Return on average equity 10.22% 11.23 10.70 9.75 9.85 11.42 11.99
Return on average common equity 10.35% 11.45 10.86 9.83 9.95 11.65 12.27
Return on average tangible common equity 13.11% 13.75 13.74 12.47 12.66 14.60 14.73
________
(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: Kevin B. Klotzbach Chief Financial Officer & Treasurer Phone: 585.786.1130 Email: KBKlotzbach@five-starbank.com Jordan M. Darrow Darrow Associates, Inc. Phone: 631.367.1866 Email: jdarrow@darrowir.comSource:Financial Institutions, Inc.