Financial Institutions, Inc. Announces Third Quarter 2015 Financial Results

WARSAW, N.Y., Oct. 27, 2015 (GLOBE NEWSWIRE) — Financial Institutions, Inc. (the “Company”) (Nasdaq:FISI), the parent company of Five Star Bank (the “Bank”), today reported financial results for the quarter ended September 30, 2015.  The Company’s financial results since August 1, 2014 include the results of operations of Scott Danahy Naylon (“SDN”), an insurance agency the Company acquired in August 2014.

Third Quarter 2015 Highlights:

  • Net income available to common shareholders was $8.0 million or $0.56 per diluted share, compared to $6.8 million or $0.49 per share in the same quarter last year
  • Net interest income grew to $24.1 million despite continued net interest margin pressure
  • Provision for loan losses for the third quarter of 2015 decreased by 41% from the second quarter and was 63% lower than the same period of 2014, while maintaining a coverage ratio of 311% at September 30, 2015
  • Quarterly cash dividend of $0.20 per common share represented a 3.20% dividend yield as of September 30, 2015 and a return of 36% of third quarter net income to common shareholders
  • Balance sheet and credit quality strengthened:
    • Loans totaled $2.04 billion, up by $27.0 million from June 30, 2015 and up $128.4 million from a year ago
    • Average interest-earning assets of $3.09 billion, up $99.4 million or 3% from June 30, 2015
    • Total deposits of $2.75 billion increased by 4% from June 30, 2015 and 8% from a year ago
    • Non-performing assets decreased 19% from the second quarter of 2015
  • Tangible book value per share increased to $14.81 at September 30, 2015, up 6% from June 30, 2015

The Company’s President and Chief Executive Officer Martin K. Birmingham stated, “Our third quarter performance reflects our successful execution of strategic priorities for growth through diversification, expense control and credit quality management.  Our earnings per share are up 14% compared to the third quarter of last year, despite ongoing margin compression, and steady loan growth led to new quarterly record levels for average interest earning assets and total loans.”

Mr. Birmingham continued, “We have focused our marketing efforts on expanding our presence in Rochester and Buffalo while continuing to provide value to our longstanding customer base in the markets where we have historically operated.  This focus has led to growth in commercial business loans and commercial mortgages, each reaching record levels.  As a Small Business Administration (“SBA”) lender in Western New York, the Bank approved approximately $14 million in SBA loans through the end of September, which is nearly 50% higher than in the same period of 2014, reflecting our commitment to devote resources to Small Business lending to take advantage of opportunities in the marketplace and gain market share. We believe that the additional loan officers we hired earlier in the year, as well as increased spending on targeted marketing, are bearing considerable fruit.

“We are excited about our growth prospects as we expand in the Rochester area with the November opening of our City Gate branch, a new bank branch concept offering enhanced customer interaction, and as we move forward with the preparations to open a new branch in Brighton for which we recently received regulatory approvals. 

“We have made considerable investments to enhance our presence in the largest markets in our region where we are seeking to increase our market share and to expand our suite of diversified financial services.  Given the opportunities available to us and the progress we have made thus far, we believe the Company is well positioned to continue growing for the foreseeable future.”

Kevin B. Klotzbach, the Company’s Executive Vice President and Chief Financial Officer, commented, “While we reported impressive growth in key operating metrics, we are also pleased with our expense control and credit quality management.

“We have improved credit quality while at the same time growing total loans. Non-performing loans decreased $2.2 million or 21% compared to June 30, 2015, primarily due to the third quarter payoff of a $2.5 million commercial credit relationship.  The Company’s provision for loan losses decreased by 41% from the second quarter and was 63% lower than the third quarter of last year.  We remain well capitalized and have the ability to further increase our loan originations because of the improvement in our capital ratios from the end of the second quarter.

“Our improved operating performance driven by revenue growth and expense management, a strengthened balance sheet, and an unrealized gain on investment securities in the third quarter culminated in a 6% increase in tangible common book value per share at September 30, 2015 as compared to June 30, 2015.  We are pleased that our focused growth and our disciplined expense and credit quality management practices are fortifying our position in the market and adding value for our shareholders.”

Third Quarter 2015 Results:

Net income for the third quarter 2015 was $8.3 million, compared to $6.6 million for the second quarter 2015, and $7.2 million for the third quarter 2014.  Earnings per diluted common share for the third quarter 2015 was $0.56, compared with $0.44 for the second quarter 2015 and $0.49 for the third quarter 2014.

Net Interest Income and Net Interest Margin

Net interest income was $24.1 million in the third quarter 2015, compared to $23.4 million in the second quarter 2015 and $23.3 million in the third quarter 2014.  When comparing the third quarter 2015 to the second quarter 2015, average earning assets increased $99.4 million, including increases of $61.3 million and $38.2 million in loans and investment securities, respectively.  Average earning assets in the third quarter 2015 compared to the same quarter in 2014 were up $335.5 million, led by a $213.8 million increase in investment securities and a $121.7 million increase in loans. The growth in earning assets was offset by decreases in net interest margin.  Third quarter 2015 net interest margin was 3.20%, a decrease of 4 basis points from 3.24% reported in the second quarter 2015 and a 26 basis point decrease from 3.46% reported in the third quarter 2014.

Noninterest Income

Noninterest income was $7.0 million for the third quarter 2015 compared to $6.5 million for the second quarter 2015 and $7.3 million in the third quarter 2014.  Included in third quarter 2015 and 2014 noninterest income are gains realized from the sale of investment securities of $286 thousand and $515 thousand, respectively.  Exclusive of those gains, noninterest income was $6.7 million for the third quarter 2015 compared to $6.5 million for the second quarter 2015 and $6.7 million in the third quarter 2014. 

The main factors contributing to the higher noninterest income during the third quarter 2015 compared to the second quarter 2015 were increases in insurance income and investments in limited partnerships, partially offset by amortization of a historic tax investment in a community-based project.  Insurance income increased $208 thousand during the third quarter 2015, largely due to the variability in commissions associated with the timing of revenues.  Income from the Company’s investments in limited partnerships, which are primarily small business investment companies, increased $281 thousand during the third quarter 2015.  The income from these equity method investments fluctuates based on the performance of the underlying investments.  During the third quarter 2015 the Company recognized $390 thousand of amortization of a historic tax investment as contra-income, included in noninterest income, with an offsetting tax benefit that reduced income tax expense.

Exclusive of the investment securities gains and the tax credit investment amortization described above, noninterest income increased by $363 thousand to $7.1 million for third quarter 2015 compared to $6.7 million for third quarter 2014.  Insurance income and investments in limited partnerships increased by $343 thousand and $149 thousand, respectively, partially offset by a $240 thousand decrease in service charges on deposits due primarily to lower overdraft fees.

Noninterest Expense

Noninterest expense was $19.3 million for the third quarter 2015 compared to $19.2 million for the second quarter 2015 and $18.0 million in the third quarter 2014.  When comparing the third quarter 2015 to the third quarter 2014, the $1.3 million increase in noninterest expense was primarily the result of higher salaries and employee benefits expense, occupancy and equipment expense and other noninterest expense.  Salaries and employee benefits expense increased $553 thousand from the third quarter 2014, primarily reflecting the hiring of additional personnel associated with the Company’s expansion initiatives and higher pension expense.  Occupancy and equipment expense increased $286 thousand from the third quarter 2014 primarily due to higher contractual service and depreciation expense. 

Income Tax Expense

Income tax expense was $2.7 million for the third quarter 2015 compared to $2.8 million in the second quarter 2015 and $3.4 million in the third quarter 2014.  As a result of the historic tax credits discussed above, the effective tax rate was 24.8% for the third quarter of 2015, compared with an effective tax rate of 29.5% for the second quarter of 2015 and 31.9% in the third quarter 2014.

Balance Sheet and Capital Management

Total assets were $3.36 billion at September 30, 2015, consistent with June 30, 2015 and up $302.3 million from $3.06 billion at September 30, 2014.

Total loans were $2.04 billion at September 30, 2015, up $27.0 million from June 30, 2015 and up $128.4 million from September 30, 2014.  The increase in loans was attributable to organic growth in commercial and home equity loans.  Commercial loans increased to $846.4 million at September 30, 2015, up $17.0 million from June 30, 2015 and up $101.8 million from September 30, 2014.  Home equity loans increased to $408.6 million at September 30, 2015, up $9.8 million from June 30, 2015 and up $25.9 million from September 30, 2014. 

Total investment securities were $1.07 billion at September 30, 2015, down $25.3 million from the end of the prior quarter and up $196.7 million compared with September 30, 2014.  Approximately $165 million in available for sale securities were transferred at fair value to held to maturity during the third quarter 2015 as a means of mitigating the fair value fluctuations in the available for sale portfolio and reducing the volatility of tangible common equity. 

Total deposits were $2.75 billion at September 30, 2015, an increase of $97.3 million from June 30, 2015 and an increase of $214.7 million from September 30, 2014.  The increase during the third quarter of 2015 was due in part to seasonal inflows of municipal deposits, while the year-over-year increase was primarily due to successful business development efforts.  Public deposit balances represented 27% of total deposits at September 30, 2015, compared to 26% at June 30, 2015 and 28% at September 30, 2014.

Short-term borrowings were $241.4 million at September 30, 2015, down $109.2 million from June 30, 2015 and up $25.4 million from September 30, 2014.  Short-term borrowings are typically utilized to manage the seasonality of municipal deposits.

Long-term borrowings, net of issuance costs, were $39.0 million at September 30, 2015 and June 30, 2015.  There were no long-term borrowings outstanding at September 30, 2014.  On April 15, 2015, the Company completed the sale of $40 million in aggregate principal amount of 6.00% fixed to floating rate subordinated notes due 2030 (the “Subordinated Notes”).  The Subordinated Notes qualify as Tier 2 capital for regulatory purposes.  The net proceeds from this offering were intended for general corporate purposes, including but not limited to, contribution of capital to the Bank to support both organic growth as well as opportunistic acquisitions. 

Shareholders’ equity was $295.4 million at September 30, 2015, compared with $284.4 million at June 30, 2015 and $277.8 million at September 30, 2014.  Common book value per share was $19.60 at September 30, 2015, an increase of $0.77 or 4% from $18.83 at June 30, 2015 and $1.12 or 6% from $18.48 at September 30, 2014.  Tangible common book value per share, a non-GAAP measure, was $14.81 at September 30, 2015, compared to $14.03 at June 30, 2015 and $13.59 at September 30, 2014.

During the third quarter 2015, the Company declared a common stock dividend of $0.20 per common share, consistent with the prior quarter and up by 5%, or $0.01 per share, from the third quarter of 2014.  The third quarter 2015 dividend returned 36% of the quarter’s net income to common shareholders.

The Company’s leverage ratio was 7.29% at September 30, 2015, compared to 7.31% at June 30, 2015 and 7.34% at September 30, 2014.  The decrease in the leverage ratio was due to an increase in average quarterly assets.  During the second quarter of 2015, the Company contributed $34.0 million of net proceeds from the Subordinated Notes offering to the Bank as additional paid-in capital.  The Bank’s leverage ratio and total risk-based capital ratio were 8.01% and 12.72%, respectively, at September 30, 2015.

Credit Quality

Non-performing loans at September 30, 2015 decreased $2.2 million compared to June 30, 2015, primarily due to improvements in the commercial and residential real estate portfolios, partially offset by increases in non-performing home equity and indirect consumer loans.  The decrease in commercial non-performing loans was primarily driven by the third quarter 2015 payoff of a $2.5 million commercial credit relationship consisting of commercial business and commercial mortgage loans.  Prior to the payoff, the relationship was classified as nonaccrual and had a specific reserve totaling $1.1 million.  The ratio of non-performing loans to total loans was 0.42% at September 30, 2015 compared with 0.53% at June 30, 2015 and 0.43% at September 30, 2014.

The provision for loans losses for the third quarter 2015 was $754 thousand, a decrease of $534 thousand from the prior quarter and $1.3 million from the third quarter 2014.  The decrease in the provision for loan losses reflects the reversal of the $1.1 million specific reserve related to the previously mentioned non-performing $2.5 million commercial credit relationship that paid off during the third quarter 2015.  Net charge-offs were $1.8 million during the third quarter 2015, an $820 thousand increase compared to the prior quarter and a $138 thousand decrease from the third quarter 2014.  The ratio of annualized net charge-offs to total average loans was 0.35% during the current quarter, compared to 0.20% during the prior quarter and 0.40% during the third quarter 2014.

The ratio of allowance for loans losses to total loans was 1.30% at September 30, 2015, compared with 1.37% at June 30, 2015 and 1.43% at September 30, 2014.  The ratio of the allowance for loan losses to total loans declined in both comparisons, reflecting overall improvement in credit quality.  The ratio of allowance for loans losses to non-performing loans was 311% at September 30, 2015, compared with 257% at June 30, 2015 and 333% at September 30, 2014.

About Financial Institutions, Inc.

Financial Institutions, Inc. provides diversified financial services through its subsidiaries, Five Star Bank and Scott Danahy Naylon.  Five Star Bank provides a wide range of consumer and commercial banking services to individuals, municipalities and businesses through a network of over 50 offices and more than 60 ATMs throughout Western and Central New York State.  Scott Danahy Naylon provides a broad range of insurance services to personal and business clients across 44 states.  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 and is a member of the NASDAQ OMX ABA Community Bank Index.  Additional information is available at the Company’s website: www.fiiwarsaw.com.

Non-GAAP Financial Information

This news release contains financial information, such as tangible common equity, determined by methods other than in accordance with U.S. generally accepted accounting principles (“GAAP”).  The Company believes that non-GAAP financial measures provide a meaningful comparison of the underlying operational performance of the Company, and facilitate investors’ assessments of its business and performance trends. 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, breaches of its third party information systems, the attitudes and preferences of its customers, its ability to successfully integrate and profitably operate acquired businesses such as the acquisition of SDN, 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)

  2015   2014
  September 30,   June 30,   March 31,   December 31,   September 30,
SELECTED BALANCE SHEET DATA:                  
Cash and cash equivalents $ 51,334       52,554     135,972   58,151     87,582  
Investment securities:                  
Available for sale   577,509       772,639     639,275   622,494     585,479  
Held-to-maturity   490,638       320,820     306,255   294,438     285,967  
Total investment securities   1,068,147       1,093,459     945,530   916,932     871,446  
Loans held for sale   1,568       448     656   755     1,029  
Loans:                  
Commercial business   297,876       292,791     277,464   267,409     275,107  
Commercial mortgage   548,529       536,590     479,226   475,092     469,485  
Residential mortgage   96,279       95,162     97,717   100,101     103,044  
Home equity   408,634       398,854     386,961   386,615     382,703  
Consumer indirect   665,714       666,550     662,213   661,673     656,215  
Other consumer   19,204       19,326     19,373   21,112     21,291  
Total loans   2,036,236       2,009,273     1,922,954   1,912,002     1,907,845  
Allowance for loan losses   26,455       27,500     27,191   27,637     27,244  
Total loans, net   2,009,781       1,981,773     1,895,763   1,884,365     1,880,601  
Total interest-earning assets (1) (2)   3,097,315       3,104,631     2,860,605   2,826,488     2,780,940  
Goodwill and other intangible assets, net   67,925       68,158     68,396   68,639     68,887  
Total assets   3,357,608       3,359,459     3,197,077   3,089,521     3,055,304  
Deposits:                  
Noninterest-bearing demand   623,296       602,143     559,646   571,260     571,549  
Interest-bearing demand   563,731       530,861     611,104   490,190     530,783  
Savings and money market   942,673       910,215     922,093   795,835     805,522  
Certificates of deposit   623,800       613,019     611,852   593,242     630,970  
Total deposits   2,753,500       2,656,238     2,704,695   2,450,527     2,538,824  
Short-term borrowings   241,400       350,600     175,573   334,804     215,967  
Long-term borrowings, net   38,972       38,955            
Total interest-bearing liabilities   2,410,576       2,443,650     2,320,622   2,214,071     2,183,242  
Shareholders’ equity   295,434       284,435     286,689   279,532     277,758  
Common shareholders’ equity (3)   278,094       267,095     269,349   262,192     260,418  
Tangible common equity (4)   210,169       198,937     200,953   193,553     191,531  
Unrealized gain (loss) on investment securities, net of tax $ 5,270       (924 )   5,241   1,933     (374 )
                   
Common shares outstanding   14,189       14,184     14,167   14,118     14,094  
Treasury shares   209       214     231   280     304  
CAPITAL RATIOS AND PER SHARE DATA:                  
Leverage ratio (5)   7.29 %     7.31     7.53   7.35     7.34  
Common equity Tier 1 ratio (5)   9.74 %     9.50     9.66   n/a     n/a  
Tier 1 risk-based capital (5)   10.49 %     10.25     10.45   10.47     10.44  
Total risk-based capital (5)   13.37 %     13.17     11.69   11.72     11.69  
Common equity to assets   8.28 %     7.95     8.42   8.49     8.52  
Tangible common equity to tangible assets (4)   6.39 %     6.04     6.42   6.41     6.41  
                   
Common book value per share $ 19.60       18.83     19.01   18.57     18.48  
Tangible common book value per share (4)   14.81       14.03     14.18   13.71     13.59  

________
(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.
(5)       2015 ratios calculated under Basel III rules, which became effective January 1, 2015.

FINANCIAL INSTITUTIONS, INC.
Selected Financial Information (Unaudited)
(Amounts in thousands, except per share amounts)

  Nine months ended   2015   2014
  September 30,   Third   Second   First   Fourth   Third
    2015     2014   Quarter   Quarter   Quarter   Quarter   Quarter
SELECTED INCOME STATEMENT DATA:                          
Interest income $ 77,963     75,071     27,007     25,959   24,997     25,984     25,129
Interest expense   7,281     5,435     2,876     2,555   1,850     1,846     1,871
Net interest income   70,682     69,636     24,131     23,404   23,147     24,138     23,258
Provision for loan losses   4,783     5,879     754     1,288   2,741     1,910     2,015
Net interest income after provision                          
for loan losses   65,899     63,757     23,377     22,116   20,406     22,228     21,243
Noninterest income:                          
Service charges on deposits   5,880     6,768     2,037     1,964   1,879     2,186     2,277
Insurance income   3,930     979     1,265     1,057   1,608     1,420     922
ATM and debit card   3,773     3,694     1,297     1,283   1,193     1,269     1,263
Investment advisory   1,551     1,647     523     541   487     491     524
Company owned life insurance   1,448     1,249     488     493   467     504     421
Investments in limited partnerships   865     894     336     55   474     209     187
Loan servicing   416     450     153     96   167     118     120
Net gain on sale of loans held for sale   161     231     53     39   69     82     76
Net gain on investment securities   1,348     1,777     286       1,062     264     515
Net gain on sale of other assets   20     61         16   4     8     72
Amortization of tax credit investment   (390 )       (390 )         (2,323 )  
Other   2,755     2,445     957     911   887     927     884
Total noninterest income   21,757     20,195     7,005     6,455   8,297     5,155     7,261
Noninterest expense:                          
Salaries and employee benefits   31,107     28,044     10,278     10,606   10,223     10,551     9,725
Occupancy and equipment   10,491     9,505     3,417     3,375   3,699     3,324     3,131
Professional services   2,898     3,332     1,064     866   968     1,428     976
Computer and data processing   2,291     2,225     779     810   702     791     725
Supplies and postage   1,611     1,554     540     508   563     499     507
FDIC assessments   1,277     1,200     444     415   418     392     390
Advertising and promotions   789     609     312     238   239     196     216
Other   7,101     6,507     2,484     2,418   2,199     2,198     2,285
Total noninterest expense   57,565     52,976     19,318     19,236   19,011     19,379     17,955
Income before income taxes   30,091     30,976     11,064     9,335   9,692     8,004     10,549
Income tax expense   8,389     9,541     2,748     2,750   2,891     84     3,365
Net income   21,702     21,435     8,316     6,585   6,801     7,920     7,184
Preferred stock dividends   1,097     1,097     366     366   365     365     366
Net income available to common shareholders $ 20,605     20,338     7,950     6,219   6,436     7,555     6,818
FINANCIAL RATIOS AND STOCK DATA:                          
Earnings per share – basic $ 1.46     1.47     0.56     0.44   0.46     0.54     0.49
Earnings per share – diluted $ 1.46     1.46     0.56     0.44   0.46     0.54     0.49
Cash dividends declared on common stock $ 0.60     0.57     0.20     0.20   0.20     0.20     0.19
Common dividend payout ratio (1)   41.10 %   38.78     35.71     45.45   43.48     37.04     38.78
Dividend yield (annualized)   3.24 %   3.39     3.20     3.23   3.54     3.15     3.35
Return on average assets   0.90 %   0.96     0.99     0.81   0.89     1.03     0.95
Return on average equity   10.10 %   10.70     11.41     9.19   9.68     11.07     10.41
Return on average common equity (2)   10.21 %   10.85     11.60     9.24   9.75     11.25     10.55
Efficiency ratio (3)   60.56 %   58.24     59.46     62.00   60.27     59.58     57.65
Stock price (Nasdaq: FISI):                          
High $ 25.50     25.69     25.21     25.50   25.38     27.02     24.94
Low $ 21.67     19.72     23.54     22.50   21.67     22.45     21.71
Close $ 24.78     22.48     24.78     24.84   22.93     25.15     22.48

________
(1)       Common dividend payout ratio equals dividends declared during the period divided by earnings per share for the equivalent period.
(2)       Annualized net income available to common shareholders divided by average common equity.
(3)       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 on investment securities and amortization of tax credit investment.

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

  Nine months ended   2015   2014
  September 30,   Third   Second   First   Fourth   Third
    2015     2014   Quarter   Quarter   Quarter   Quarter   Quarter
SELECTED AVERAGE BALANCES:                          
Federal funds sold and interest-earning deposits $ 50     153     26   124     51
Investment securities (1)   1,002,361     877,923   1,067,815   1,029,640   907,871   876,932   854,030
Loans (2):                          
Commercial business   282,307     271,190   297,216   284,535   264,814   265,979   273,239
Commercial mortgage   511,545     473,263   545,875   509,317   478,705   473,694   473,168
Residential mortgage   97,496     109,030   96,776   96,474   99,264   101,982   105,255
Home equity   392,909     351,212   402,368   390,135   386,046   384,138   377,360
Consumer indirect   663,286     648,901   663,884   664,222   661,727   658,337   653,192
Other consumer   19,084     21,251   18,680   18,848   19,736   20,630   20,847
Total loans   1,966,627     1,874,847   2,024,799   1,963,531   1,910,292   1,904,760   1,903,061
Total interest-earning assets   2,969,038     2,752,923   3,092,614   2,993,197   2,818,287   2,781,692   2,757,142
Goodwill and other intangible assets, net   68,288     53,085   68,050   68,294   68,527   68,771   59,306
Total assets   3,241,646     2,975,094   3,343,802   3,263,111   3,115,516   3,052,499   2,985,920
Interest-bearing liabilities:                          
Interest-bearing demand   543,045     502,170   516,448   561,570   551,503   511,749   486,311
Savings and money market   891,039     770,008   903,491   929,701   839,218   824,661   758,306
Certificates of deposit   612,637     627,550   619,459   616,145   602,115   614,654   634,400
Short-term borrowings   269,415     253,017   329,050   226,577   251,768   232,935   259,995
Long-term borrowings, net   24,148       38,962   33,053      
Total interest-bearing liabilities   2,340,284     2,152,745   2,407,410   2,367,046   2,244,604   2,183,999   2,139,012
Noninterest-bearing demand deposits   592,564     539,693   625,131   587,396   564,500   564,336   556,485
Total deposits   2,639,285     2,439,421   2,664,529   2,694,812   2,557,336   2,515,400   2,435,502
Total liabilities   2,954,451     2,707,241   3,054,573   2,975,762   2,830,557   2,768,693   2,712,274
Shareholders’ equity   287,195     267,853   289,229   287,349   284,959   283,806   273,646
Common equity (3)   269,855     250,512   271,889   270,009   267,619   266,466   256,306
Tangible common equity (4) $ 201,567     197,427   203,839   201,715   199,092   197,695   197,000
Common shares outstanding:                          
Basic   14,076     13,840   14,087   14,078   14,063   14,049   13,953
Diluted   14,124     13,890   14,139   14,121   14,113   14,112   14,007
SELECTED AVERAGE YIELDS:                          
(Tax equivalent basis)                          
Federal funds sold and interest-earning deposits   0.30 %   0.10     0.39   0.19     0.28
Investment securities   2.46 %   2.43   2.46   2.44   2.47   2.48   2.43
Loans   4.20 %   4.36   4.16   4.18   4.27   4.44   4.31
Total interest-earning assets   3.61 %   3.75   3.57   3.58   3.69   3.82   3.73
Interest-bearing demand   0.14 %   0.12   0.15   0.14   0.11   0.11   0.12
Savings and money market   0.12 %   0.12   0.14   0.12   0.10   0.11   0.12
Certificates of deposit   0.87 %   0.76   0.89   0.87   0.84   0.82   0.78
Short-term borrowings   0.39 %   0.37   0.41   0.38   0.37   0.36   0.37
Long-term borrowings, net   6.25 %     6.34   6.23      
Total interest-bearing liabilities   0.42 %   0.34   0.47   0.43   0.33   0.34   0.35
Net interest rate spread   3.19 %   3.41   3.10   3.15   3.36   3.48   3.38
Net interest rate margin   3.28 %   3.48   3.20   3.24   3.43   3.56   3.46

________
(1)       Includes investment securities at adjusted amortized cost.
(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)

  2015   2014
  Third   Second   First   Fourth   Third
  Quarter   Quarter   Quarter   Quarter   Quarter
ASSET QUALITY DATA:                  
Allowance for Loan Losses                  
Beginning balance $ 27,500       27,191     27,637     27,244     27,166
Net loan charge-offs (recoveries):                  
Commercial business   68       (73 )   1,093     (15 )   44
Commercial mortgage   12       194     520     (57 )   66
Residential mortgage   3       9     22     22     11
Home equity   64       145     74     (4 )   66
Consumer indirect   1,475       645     1,317     1,420     1,577
Other consumer   177       59     161     151     173
Total net charge-offs   1,799       979     3,187     1,517     1,937
Provision for loan losses   754       1,288     2,741     1,910     2,015
Ending balance $ 26,455       27,500     27,191     27,637     27,244
                   
Net charge-offs (recoveries) to average loans (annualized):                  
Commercial business   0.09 %     -0.10     1.67     -0.02     0.06
Commercial mortgage   0.01 %     0.15     0.44     -0.05     0.06
Residential mortgage   0.01 %     0.04     0.09     0.09     0.04
Home equity   0.06 %     0.15     0.08     0.00     0.07
Consumer indirect   0.88 %     0.39     0.81     0.86     0.96
Other consumer   3.76 %     1.26     3.31     2.90     3.29
Total loans   0.35 %     0.20     0.68     0.32     0.40
                   
Supplemental information (1)                  
Non-performing loans:                  
Commercial business $ 3,064       4,643     4,587     4,288     3,258
Commercial mortgage   1,802       3,070     3,411     3,020     2,460
Residential mortgage   1,523       1,628     1,361     1,194     656
Home equity   792       619     672     463     464
Consumer indirect   1,292       728     994     1,169     1,300
Other consumer   20       20     47     19     46
Total non-performing loans   8,493       10,708     11,072     10,153     8,184
Foreclosed assets   286       165     139     194     509
Total non-performing assets $ 8,779       10,873     11,211     10,347     8,693
                   
Total non-performing loans to total loans   0.42 %     0.53     0.58     0.53     0.43
Total non-performing assets to total assets   0.26 %     0.32     0.35     0.33     0.28
Allowance for loan losses to total loans   1.30 %     1.37     1.41     1.45     1.43
Allowance for loan losses to non-performing loans   311 %     257     246     272     333

________
(1)       At period end.

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

  Nine months ended   2015   2014
  September 30,   Third   Second   First   Fourth   Third
  2015   2014   Quarter   Quarter   Quarter   Quarter   Quarter
Ending tangible assets:                          
Total assets         $ 3,357,608     3,359,459   3,197,077   3,089,521   3,055,304
Less:  Goodwill and other intangible assets, net           67,925     68,158   68,396   68,639   68,887
Tangible assets (non-GAAP)         $ 3,289,683     3,291,301   3,128,681   3,020,882   2,986,417
                           
Ending tangible common equity:                          
Common shareholders’ equity         $ 278,094     267,095   269,349   262,192   260,418
Less:  Goodwill and other intangible assets, net           67,925     68,158   68,396   68,639   68,887
Tangible common equity (non-GAAP)         $ 210,169     198,937   200,953   193,553   191,531
                           
Tangible common equity to tangible assets (non-GAAP) (1)         6.39 %   6.04   6.42   6.41   6.41
                           
Common shares outstanding           14,189     14,184   14,167   14,118   14,094
Tangible common book value per share (non-GAAP) (2)       $ 14.81     14.03   14.18   13.71   13.59
                           
Average tangible common equity:                          
Average common equity $ 269,855     250,512     271,889     270,009   267,619   266,466   256,306
Average goodwill and other intangible assets, net   68,288     53,085     68,050     68,294   68,527   68,771   59,306
Average tangible common equity (non-GAAP) $ 201,567     197,427     203,839     201,715   199,092   197,695   197,000

________
(1)       Tangible common equity divided by tangible assets.
(2)       Tangible common equity divided by common shares outstanding.

CONTACT: For additional information contact:   
Kevin B. Klotzbach   
Chief Financial Officer & Treasurer   
Phone:  585.786.1130  
Email:  KBKlotzbach@five-starbank.com   

Jordan Darrow
Darrow Associates
Phone: 631.367.1866
Email: jdarrow@darrowir.com