WARSAW, N.Y., Oct. 22, 2014 (GLOBE NEWSWIRE) -- Financial Institutions, Inc. (the "Company") (Nasdaq:FISI), the parent company of Five Star Bank, today reported net income for the third quarter ended September 30, 2014 of $7.2 million, compared with $7.0 million for the second quarter of 2014 and $6.2 million for the third quarter of 2013. After preferred dividends, third quarter earnings per diluted common share was $0.49, compared with $0.48 per share for the second quarter of 2014 and $0.42 per share for the third quarter of 2013.
"We are pleased to have delivered strong earnings growth in the third quarter, which reflects the impact of our strategic operating priorities," said Martin K. Birmingham, the Company's President and Chief Executive Officer. "Even more encouraging is that our improved profitability was achieved amid a challenging revenue growth environment. Our operating priorities center on maintaining a disciplined approach to meeting the financial needs of the communities we serve while bolstering our financial performance measures. In the third quarter, our efforts produced solid balance sheet growth, an improvement in our credit quality and resulted in an 11% increase in year-to-date earnings compared to the first three quarters of 2013."
"We remain intensely focused on performance, continued enhancements to our business model and on developing talent at all levels of the organization so that we can be the leading community bank in the markets we serve," added Birmingham. "Our people are critical to our success. I want to once again thank the expanding Five Star team, which includes our newest members from the recently acquired Scott Danahy Naylon insurance agency, for their commitment to delivering excellence to our customers and shareholders."
Highlights:
- Completed the acquisition of Scott Danahy Naylon Co., Inc. ("SDN"), a full service insurance agency
- Initiated the implementation of a Company-wide Enterprise Risk Management model
- Quarterly net income was $7.2 million, up 2% from last quarter and 17% from the third quarter of 2013
- Noninterest income increased to $7.3 million for the third quarter of 2014, up 10% from last quarter and 18% from the third quarter of 2013
- Average loans increased by $144.3 million or 8% from the third quarter of 2013 and $26.6 million or 1% from the second quarter of 2014, as total loans at September 30, 2014 reached record levels
- Non-performing assets decreased 8% from the second quarter of 2014
- Shareholders' equity and common book value per share reached record levels at the end of the third quarter
- Quarterly cash dividend of $0.19 per common share represents a 3.35% dividend yield as of September 30, 2014 and a return of 39% of third quarter net income to common shareholders
- Strong quarterly return on average common equity of 10.55% and return on average tangible common equity of 13.73%
During the third quarter of 2014, the Company completed the acquisition of SDN, located in a suburb of Buffalo, New York, that provides a broad range of insurance services to both personal and business clients. SDN now operates as a subsidiary of Financial Institutions, Inc. and an affiliate of Five Star Bank. Also during the quarter, the Company continued the implementation of an enterprise risk management structure. This structure is intended to build upon the Company's already strong risk culture and led to the appointment of a new, highly experienced chief risk officer. The structure will more closely integrate the Company's growth strategies, including organic expansion and acquisitions, with its risk management and governance processes.
"Acquiring SDN represents an important building block in accordance with our strategic growth plans, which call for increased penetration of the Rochester and Buffalo markets and the diversification of our revenue base by expanding fee-based services," said Kevin B. Klotzbach, the Company's Executive Vice President and Chief Financial Officer. "The SDN platform provides subsequent opportunities to bolt on independent agencies in the future."
Net Interest Income and Net Interest Margin
Net interest income totaled $23.3 million in the third quarter of 2014, up from $23.1 million in the second quarter of 2014 and $22.8 million in the third quarter of 2013. Average earning assets were up $4.8 million compared to the second quarter of 2014 and $176.7 million compared to the third quarter of 2013. The increase from the prior year period included increases of $144.3 million and $32.5 million in loans and investment securities, respectively. Third quarter 2014 net interest margin was 3.46%, down from 3.47% in the second quarter of 2014 and 3.62% in the third quarter of 2013.
Noninterest Income and Expense
Noninterest income totaled $7.3 million in the third quarter of 2014, compared to $6.6 million in the second quarter of 2014 and $6.2 million in the third quarter of 2013. Included in the 2014 totals are gains realized from the sale of investment securities. Exclusive of those gains, noninterest income was $6.7 million in the recently completed quarter and $5.6 million in the second quarter of 2014. The higher noninterest income generated in the most recent quarter is primarily a result of insurance income, of which $670 thousand was generated by SDN.
Noninterest expense in the third quarter of 2014 totaled $18.0 million, compared with $17.8 million in the second quarter of 2014 and $17.0 million in the third quarter of 2013. The increases in noninterest expense were largely due to higher salaries and benefits expense associated with the acquisition of SDN and the hiring of additional loan officers and related personnel as part of the Company's expansion initiatives.
Income Taxes
Income tax expense was $3.4 million in the third quarter of 2014, compared to $3.1 million in the second quarter of 2014 and $3.0 million in the third quarter of 2013. The effective tax rate was 31.9% for the third quarter of 2014, 30.5% for the second quarter of 2014 and 33.0% for the third quarter of 2013. In general, the lower effective tax rate in 2014 reflects New York State tax savings generated by the Company's real estate investment trust, which became effective during February 2014. However, the Company's effective tax rate in the third quarter of 2014 was higher than the second quarter due to non-deductible one-time expenses associated with the acquisition of SDN.
Balance Sheet and Capital Management
Total assets were $3.06 billion at September 30, 2014, up $62.0 million from $2.99 billion at June 30, 2014 and $187.8 million from $2.87 billion at September 30, 2013. The increase from the prior year was driven by loan growth and higher investment security balances.
Total loans were $1.91 billion at September 30, 2014, up from $1.90 billion at June 30, 2014 and $1.78 billion at September 30, 2013. The increase in loans from the prior year was attributable to organic growth, primarily in commercial, home equity and consumer indirect loans. Total investment securities were $871.4 million at September 30, 2014, up $7.5 million compared with June 30, 2014 and up $42.2 million from September 30, 2013.
Total deposits were $2.54 billion at September 30, 2014, up $88.7 million from $2.45 billion at June 30, 2014 and $124.6 million from $2.41 billion at September 30, 2013. The increase during the third quarter of 2014 was mainly due to seasonal inflows of municipal deposits, while the year-over-year increase was primarily due to successful business development efforts. Public deposit balances represented 28% of total deposits at September 30, 2014, compared to 25% at June 30, 2014 and September 30, 2013.
Short-term borrowings were $216.0 million at September 30, 2014, down $38.7 million from June 30, 2014 and up $27.8 million from September 30, 2013, respectively. Short-term borrowings are utilized to offset seasonal outflows of municipal deposits.
Shareholders' equity and common book value per share reached record levels at the end of the third quarter 2014. Shareholders' equity was $277.8 million at September 30, 2014, compared with $269.8 million at June 30, 2014 and $247.8 million at September 30, 2013. Common book value per share was $18.48 at September 30, 2014, an increase of $0.27 from $18.21 at June 30, 2014 and $1.79 from $16.69 at September 30, 2013. Tangible common book value per share was $13.59 at September 30, 2014, a decrease of 7% from $14.62 at June 30, 2014 and an increase of 4% from $13.06 at September 30, 2013.
During the third quarter of 2014, the Company declared a common stock dividend of $0.19 per common share, consistent with the prior quarter and the third quarter of 2013. The third quarter 2014 dividend returned 39% of the quarter's net income to common shareholders.
The Company's leverage ratio was 7.34% at September 30, 2014, compared to 7.64% and 7.68% at June 30, 2014 and September 30, 2013, respectively. Goodwill and intangible assets recorded in conjunction with the SDN acquisition resulted in lower capital ratios. Such goodwill and intangible assets are excluded from regulatory capital under regulatory accounting practices.
Credit Quality
Overall credit quality improved during the third quarter of 2014. Non-performing assets at September 30, 2014 declined $752 thousand compared with June 30, 2014, driven by a decrease in non-performing loans. Commercial non-performing loans declined $605 thousand, residential mortgage non-performing loans declined $102 thousand and consumer indirect non-performing loans decreased $127 thousand. During the second quarter of 2014 the last of the remaining non-performing pooled trust preferred investment securities was sold. These securities had been transferred to non-performing status in years prior to 2010 and included in non-performing assets at fair value. Nonperforming assets to total assets were 0.28% at September 30, 2014 compared with 0.32% at June 30, 2014 and 0.38% at September 30, 2013.
The provision for loans losses for the third quarter of 2014 increased $257 thousand compared with the second quarter of 2014 and decreased $755 thousand compared to the third quarter of 2013. Net charge-offs of $1.9 million in the third quarter of 2014 represented 0.40% of average loans on an annualized basis compared to $1.7 million or 0.37% of average loans in the second quarter of 2014 and $1.7 million or 0.38% of average loans in the third quarter of 2013.
The allowance for loans losses to total loans was 1.43% at September 30, 2014, which was unchanged from June 30, 2014 and lower as compared with 1.50% at September 30, 2013. The allowance to non-performing loans was 333% at September 30, 2014 compared with 306% at June 30, 2014, and 258% at September 30, 2013. The higher allowance to non-performing loans ratio at September 30, 2014 was driven by a reduction in non-performing loans.
Mr. Birmingham added, "Although we are already performing at a high level with respect to asset quality metrics, as evidenced by peer comparisons, the quality of our loan portfolio showed additional improvement. This reflects the disciplined credit underwriting and origination processes of our organization and the high quality of our customers."
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 over 625 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 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, breaches of its third party information systems, the attitudes and preferences of its customers, its ability to successfully integrate and profitably operate acquired businesses, 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) | |||||
| 2014 | 2013 | ||||
| September 30, | June 30, | March 31, | December 31, | September 30, | |
| SELECTED BALANCE SHEET DATA: | |||||
| Cash and cash equivalents | $ 87,582 | 64,832 | 72,401 | 59,692 | 99,384 |
| Investment securities: | |||||
| Available for sale | 585,479 | 601,903 | 674,650 | 609,400 | 583,551 |
| Held-to-maturity | 285,967 | 262,057 | 253,576 | 249,785 | 245,708 |
| Total investment securities | 871,446 | 863,960 | 928,226 | 859,185 | 829,259 |
| Loans held for sale | 1,029 | 201 | 900 | 3,381 | 2,810 |
| Loans: | |||||
| Commercial business | 275,107 | 277,685 | 268,352 | 265,766 | 253,925 |
| Commercial mortgage | 469,485 | 469,055 | 468,763 | 469,284 | 449,565 |
| Residential mortgage | 103,044 | 106,206 | 110,164 | 113,045 | 117,624 |
| Home equity | 382,703 | 369,578 | 332,348 | 326,086 | 316,626 |
| Consumer indirect | 656,215 | 652,748 | 647,546 | 636,368 | 618,088 |
| Other consumer | 21,291 | 21,392 | 21,667 | 23,070 | 23,844 |
| Total loans | 1,907,845 | 1,896,664 | 1,848,840 | 1,833,619 | 1,779,672 |
| Allowance for loan losses | 27,244 | 27,166 | 27,152 | 26,736 | 26,685 |
| Total loans, net | 1,880,601 | 1,869,498 | 1,821,688 | 1,806,883 | 1,752,987 |
| Total interest-earning assets (1)(2) | 2,780,940 | 2,758,779 | 2,780,489 | 2,705,045 | 2,613,746 |
| Goodwill and other intangible assets, net | 68,887 | 49,826 | 49,913 | 50,002 | 50,095 |
| Total assets | 3,055,304 | 2,993,264 | 3,015,619 | 2,928,636 | 2,867,517 |
| Deposits: | |||||
| Noninterest-bearing demand | 571,549 | 551,229 | 532,914 | 535,472 | 542,517 |
| Interest-bearing demand | 530,783 | 507,083 | 541,660 | 470,733 | 519,283 |
| Savings and money market | 805,522 | 766,594 | 812,734 | 717,928 | 757,454 |
| Certificates of deposit | 630,970 | 625,172 | 646,112 | 595,923 | 594,931 |
| Total deposits | 2,538,824 | 2,450,078 | 2,533,420 | 2,320,056 | 2,414,185 |
| Borrowings | 215,967 | 254,683 | 196,746 | 337,042 | 188,146 |
| Total interest-bearing liabilities | 2,183,242 | 2,153,532 | 2,197,252 | 2,121,626 | 2,059,814 |
| Shareholders' equity | 277,758 | 269,827 | 262,865 | 254,839 | 247,845 |
| Common shareholders' equity (3) | 260,418 | 252,487 | 245,523 | 237,497 | 230,503 |
| Tangible common equity (4) | 191,531 | 202,661 | 195,610 | 187,495 | 180,408 |
| Unrealized (loss) gain on investment securities, net of tax | $ (374) | 1,292 | (1,467) | (5,293) | (1,154) |
| Common shares outstanding | 14,094 | 13,863 | 13,853 | 13,829 | 13,810 |
| Treasury shares | 304 | 299 | 309 | 333 | 352 |
| CAPITAL RATIOS AND PER SHARE DATA: | |||||
| Leverage ratio | 7.34% | 7.64 | 7.51 | 7.63 | 7.68 |
| Tier 1 risk-based capital | 10.44% | 10.95 | 10.89 | 10.82 | 10.94 |
| Total risk-based capital | 11.69% | 12.20 | 12.14 | 12.08 | 12.19 |
| Common equity to assets | 8.52% | 8.44 | 8.14 | 8.11 | 8.04 |
| Tangible common equity to tangible assets (4) | 6.41% | 6.89 | 6.60 | 6.51 | 6.40 |
| Common book value per share | $ 18.48 | 18.21 | 17.72 | 17.17 | 16.69 |
| Tangible common book value per share (4) | 13.59 | 14.62 | 14.12 | 13.56 | 13.06 |
| (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 | |||||||
| Nine months ended | 2014 | 2013 | |||||
| September 30, | Third | Second | First | Fourth | Third | ||
| 2014 | 2013 | Quarter | Quarter | Quarter | Quarter | Quarter | |
| SELECTED INCOME STATEMENT DATA: | |||||||
| Interest income | $ 75,071 | 73,713 | 25,129 | 24,883 | 25,059 | 25,218 | 24,623 |
| Interest expense | 5,435 | 5,499 | 1,871 | 1,780 | 1,784 | 1,838 | 1,820 |
| Net interest income | 69,636 | 68,214 | 23,258 | 23,103 | 23,275 | 23,380 | 22,803 |
| Provision for loan losses | 5,879 | 6,672 | 2,015 | 1,758 | 2,106 | 2,407 | 2,770 |
| Net interest income after provision for loan losses | 63,757 | 61,542 | 21,243 | 21,345 | 21,169 | 20,973 | 20,033 |
| Noninterest income: | |||||||
| Service charges on deposits | 6,768 | 7,437 | 2,277 | 2,241 | 2,250 | 2,511 | 2,728 |
| ATM and debit card | 3,694 | 3,849 | 1,263 | 1,257 | 1,174 | 1,249 | 1,283 |
| Investment advisory | 1,647 | 1,917 | 524 | 561 | 562 | 428 | 568 |
| Company owned life insurance | 1,249 | 1,275 | 421 | 425 | 403 | 431 | 422 |
| Insurance income | 979 | 189 | 922 | 16 | 41 | 73 | 92 |
| Investments in limited partnerships | 894 | 538 | 187 | 81 | 626 | 319 | 241 |
| Loan servicing | 450 | 452 | 120 | 176 | 154 | 118 | 227 |
| Net gain (loss) on sale of loans held for sale | 231 | 134 | 76 | 50 | 105 | (17) | (101) |
| Net gain on investment securities | 1,777 | 1,224 | 515 | 949 | 313 | 2 | -- |
| Net (loss) gain on sale of other assets | 61 | 39 | 72 | 24 | (35) | (142) | -- |
| Other | 2,445 | 2,044 | 884 | 797 | 764 | 763 | 709 |
| Total noninterest income | 20,195 | 19,098 | 7,261 | 6,577 | 6,357 | 5,735 | 6,169 |
| Noninterest expense: | |||||||
| Salaries and employee benefits | 28,044 | 28,408 | 9,725 | 9,063 | 9,256 | 9,420 | 9,473 |
| Occupancy and equipment | 9,505 | 9,163 | 3,131 | 3,139 | 3,235 | 3,203 | 2,959 |
| Professional services | 3,332 | 2,844 | 976 | 1,384 | 972 | 992 | 814 |
| Computer and data processing | 2,225 | 2,205 | 725 | 777 | 723 | 643 | 689 |
| Supplies and postage | 1,554 | 1,806 | 507 | 535 | 512 | 536 | 518 |
| FDIC assessments | 1,200 | 1,092 | 390 | 388 | 422 | 372 | 367 |
| Advertising and promotions | 609 | 676 | 216 | 214 | 179 | 220 | 209 |
| Other | 6,507 | 5,861 | 2,285 | 2,308 | 1,914 | 2,000 | 1,980 |
| Total noninterest expense | 52,976 | 52,055 | 17,955 | 17,808 | 17,213 | 17,386 | 17,009 |
| Income before income taxes | 30,976 | 28,585 | 10,549 | 10,114 | 10,313 | 9,322 | 9,193 |
| Income tax expense | 9,541 | 9,422 | 3,365 | 3,082 | 3,094 | 2,955 | 3,029 |
| Net income | 21,435 | 19,163 | 7,184 | 7,032 | 7,219 | 6,367 | 6,164 |
| Preferred stock dividends | 1,097 | 1,100 | 366 | 365 | 366 | 366 | 365 |
| Net income available to common shareholders | $ 20,338 | 18,063 | 6,818 | 6,667 | 6,853 | 6,001 | 5,799 |
| FINANCIAL RATIOS AND STOCK DATA: | |||||||
| Earnings per share – basic | $ 1.47 | 1.32 | 0.49 | 0.48 | 0.50 | 0.44 | 0.42 |
| Earnings per share – diluted | $ 1.46 | 1.31 | 0.49 | 0.48 | 0.50 | 0.43 | 0.42 |
| Cash dividends declared on common stock | $ 0.57 | 0.55 | 0.19 | 0.19 | 0.19 | 0.19 | 0.19 |
| Common dividend payout ratio (1) | 38.78% | 41.67 | 38.78 | 39.58 | 38.00 | 43.18 | 45.24 |
| Dividend yield (annualized) | 3.39% | 3.59 | 3.35 | 3.25 | 3.35 | 3.05 | 3.68 |
| Return on average assets | 0.96% | 0.92 | 0.95 | 0.95 | 0.99 | 0.88 | 0.88 |
| Return on average equity | 10.70% | 10.13 | 10.41 | 10.52 | 11.19 | 10.03 | 9.93 |
| Return on average common equity (2) | 10.85% | 10.25 | 10.55 | 10.66 | 11.38 | 10.15 | 10.05 |
| Return on average tangible common equity (3) | 13.77% | 13.03 | 13.73 | 13.31 | 14.30 | 12.90 | 12.88 |
| Efficiency ratio (4) | 58.24% | 58.72 | 57.65 | 60.15 | 56.96 | 57.76 | 56.95 |
| Stock price (Nasdaq: FISI): | |||||||
| High | $ 25.69 | 21.99 | 24.94 | 24.88 | 25.69 | 26.59 | 21.99 |
| Low | $ 19.72 | 17.92 | 21.71 | 22.17 | 19.72 | 20.14 | 18.39 |
| Close | $ 22.48 | 20.46 | 22.48 | 23.42 | 23.02 | 24.71 | 20.46 |
| (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) 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 | |||||||
| Nine months ended | 2014 | 2013 | |||||
| September 30, | Third | Second | First | Fourth | Third | ||
| 2014 | 2013 | Quarter | Quarter | Quarter | Quarter | Quarter | |
| SELECTED AVERAGE BALANCES: | |||||||
| Federal funds sold and interest-earning deposits | $ 153 | 223 | 51 | 94 | 316 | 94 | 126 |
| Investment securities (1) | 877,923 | 829,207 | 854,030 | 875,855 | 904,437 | 849,069 | 821,561 |
| Loans (2): | |||||||
| Commercial business | 271,190 | 257,172 | 273,239 | 275,105 | 265,137 | 253,458 | 256,256 |
| Commercial mortgage | 473,263 | 431,440 | 473,168 | 473,883 | 472,733 | 460,722 | 442,178 |
| Residential mortgage | 109,030 | 125,017 | 105,255 | 108,535 | 113,390 | 118,113 | 121,462 |
| Home equity | 351,212 | 299,474 | 377,360 | 346,911 | 328,833 | 320,872 | 309,970 |
| Consumer indirect | 648,901 | 596,260 | 653,192 | 651,150 | 642,241 | 627,557 | 605,286 |
| Other consumer | 21,251 | 24,412 | 20,847 | 20,855 | 22,062 | 23,132 | 23,641 |
| Total loans | 1,874,847 | 1,733,775 | 1,903,061 | 1,876,439 | 1,844,396 | 1,803,854 | 1,758,793 |
| Total interest-earning assets | 2,752,923 | 2,563,205 | 2,757,142 | 2,752,388 | 2,749,149 | 2,653,017 | 2,580,480 |
| Goodwill and other intangible assets, net | 53,085 | 50,249 | 59,306 | 49,879 | 49,968 | 50,058 | 50,153 |
| Total assets | 2,975,094 | 2,784,647 | 2,985,920 | 2,973,735 | 2,965,400 | 2,860,733 | 2,784,580 |
| Interest-bearing liabilities: | |||||||
| Interest-bearing demand | 502,170 | 483,428 | 486,311 | 509,398 | 511,073 | 501,753 | 466,889 |
| Savings and money market | 770,008 | 717,583 | 758,306 | 789,956 | 761,799 | 757,868 | 719,452 |
| Certificates of deposit | 627,550 | 628,694 | 634,400 | 629,945 | 618,126 | 599,971 | 603,434 |
| Borrowings | 253,017 | 184,236 | 259,995 | 224,801 | 274,414 | 208,338 | 207,491 |
| Total interest-bearing liabilities | 2,152,745 | 2,013,941 | 2,139,012 | 2,154,100 | 2,165,412 | 2,067,930 | 1,997,266 |
| Noninterest-bearing demand deposits | 539,693 | 503,734 | 556,485 | 537,895 | 524,346 | 526,146 | 527,438 |
| Total deposits | 2,439,421 | 2,333,439 | 2,435,502 | 2,467,194 | 2,415,344 | 2,385,738 | 2,317,213 |
| Total liabilities | 2,707,241 | 2,531,702 | 2,712,274 | 2,705,578 | 2,703,777 | 2,608,815 | 2,538,377 |
| Shareholders' equity | 267,853 | 252,945 | 273,646 | 268,157 | 261,623 | 251,918 | 246,203 |
| Common equity (3) | 250,512 | 235,531 | 256,306 | 250,815 | 244,281 | 234,576 | 228,827 |
| Tangible common equity (4) | $ 197,427 | 185,282 | 197,000 | 200,936 | 194,313 | 184,518 | 178,674 |
| Common shares outstanding: | |||||||
| Basic | 13,840 | 13,734 | 13,953 | 13,791 | 13,773 | 13,754 | 13,745 |
| Diluted | 13,890 | 13,774 | 14,007 | 13,838 | 13,824 | 13,817 | 13,787 |
| SELECTED AVERAGE YIELDS: | |||||||
| (Tax equivalent basis) | |||||||
| Federal funds sold and interest-earning deposits | 0.10% | 0.19 | 0.28 | 0.07 | 0.08 | 0.16 | 0.15 |
| Investment securities | 2.43% | 2.40 | 2.43 | 2.45 | 2.43 | 2.46 | 2.42 |
| Loans | 4.36% | 4.69 | 4.31 | 4.32 | 4.45 | 4.55 | 4.59 |
| Total interest-earning assets | 3.75% | 3.94 | 3.73 | 3.73 | 3.79 | 3.88 | 3.90 |
| Interest-bearing demand | 0.12% | 0.15 | 0.12 | 0.12 | 0.13 | 0.16 | 0.18 |
| Savings and money market | 0.12% | 0.13 | 0.12 | 0.12 | 0.13 | 0.14 | 0.14 |
| Certificates of deposit | 0.76% | 0.79 | 0.78 | 0.76 | 0.74 | 0.77 | 0.77 |
| Borrowings | 0.37% | 0.39 | 0.37 | 0.36 | 0.38 | 0.38 | 0.38 |
| Total interest-bearing liabilities | 0.34% | 0.37 | 0.35 | 0.33 | 0.33 | 0.35 | 0.36 |
| Net interest rate spread | 3.41% | 3.57 | 3.38 | 3.40 | 3.46 | 3.53 | 3.54 |
| Net interest rate margin | 3.48% | 3.66 | 3.46 | 3.47 | 3.52 | 3.61 | 3.62 |
| (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) | |||||
| 2014 | 2013 | ||||
| September 30, | June 30, | March 31, | December 31, | September 30, | |
| ASSET QUALITY DATA: | |||||
| Allowance for Loan Losses | |||||
| Beginning balance | $ 27,166 | 27,152 | 26,736 | 26,685 | 25,590 |
| Net loan charge-offs (recoveries): | |||||
| Commercial business | 44 | (65) | 39 | 328 | 104 |
| Commercial mortgage | 66 | 159 | (7) | 369 | (87) |
| Residential mortgage | 11 | 61 | 57 | 118 | 22 |
| Home equity | 66 | 127 | 95 | 8 | 14 |
| Consumer indirect | 1,577 | 1,336 | 1,350 | 1,416 | 1,465 |
| Other consumer | 173 | 126 | 156 | 117 | 157 |
| Total net charge-offs | 1,937 | 1,744 | 1,690 | 2,356 | 1,675 |
| Provision for loan losses | 2,015 | 1,758 | 2,106 | 2,407 | 2,770 |
| Ending balance | $ 27,244 | 27,166 | 27,152 | 26,736 | 26,685 |
| Supplemental information | |||||
| Period end loans: | |||||
| Originated loans | $ 1,866,671 | 1,853,728 | 1,803,209 | 1,785,599 | 1,728,453 |
| Acquired loans | 41,174 | 42,936 | 45,631 | 48,020 | 51,219 |
| Total loans | $ 1,907,845 | 1,896,664 | 1,848,840 | 1,833,619 | 1,779,672 |
| Allowance for loan losses to total loans | 1.43% | 1.43 | 1.47 | 1.46 | 1.50 |
| Allowance for loan losses for originated loans to originated loans | 1.46% | 1.47 | 1.51 | 1.50 | 1.54 |
| Net charge-offs (recoveries) to average loans (annualized): | |||||
| Commercial business | 0.06% | -0.09 | 0.06 | 0.51 | 0.16 |
| Commercial mortgage | 0.06% | 0.13 | -0.01 | 0.32 | -0.08 |
| Residential mortgage | 0.04% | 0.23 | 0.21 | 0.41 | 0.07 |
| Home equity | 0.07% | 0.15 | 0.12 | 0.01 | 0.02 |
| Consumer indirect | 0.96% | 0.82 | 0.85 | 0.90 | 0.96 |
| Other consumer | 3.29% | 2.42 | 2.87 | 2.01 | 2.63 |
| Total loans | 0.40% | 0.37 | 0.37 | 0.52 | 0.38 |
| Non-performing loans: | |||||
| Commercial business | $ 3,258 | 3,589 | 3,706 | 3,474 | 4,078 |
| Commercial mortgage | 2,460 | 2,734 | 9,545 | 9,663 | 2,835 |
| Residential mortgage | 656 | 758 | 760 | 1,078 | 1,337 |
| Home equity | 464 | 371 | 826 | 925 | 911 |
| Consumer indirect | 1,300 | 1,427 | 1,387 | 1,471 | 1,161 |
| Other consumer | 46 | 12 | 46 | 11 | 16 |
| Total non-performing loans | 8,184 | 8,891 | 16,270 | 16,622 | 10,338 |
| Foreclosed assets | 509 | 554 | 412 | 333 | 424 |
| Non-performing investment securities | -- | -- | 113 | 128 | 128 |
| Total non-performing assets | $ 8,693 | 9,445 | 16,795 | 17,083 | 10,890 |
| Total non-performing loans to total loans | 0.43% | 0.47 | 0.88 | 0.91 | 0.58 |
| Total non-performing loans to originated loans | 0.44% | 0.48 | 0.90 | 0.93 | 0.60 |
| Total non-performing assets to total assets | 0.28% | 0.32 | 0.56 | 0.58 | 0.38 |
| Allowance for loan losses to non-performing loans | 333% | 306 | 167 | 161 | 258 |
| FINANCIAL INSTITUTIONS, INC. | |||||||
| Appendix A - Non-GAAP to GAAP Reconciliation (Unaudited) | |||||||
| (In thousands, except per share amounts) | |||||||
| Quarterly Trends | |||||||
| Nine months ended | 2014 | 2013 | |||||
| September 30, | Third | Second | First | Fourth | Third | ||
| 2014 | 2013 | Quarter | Quarter | Quarter | Quarter | Quarter | |
| Ending tangible assets: | |||||||
| Total assets | $ 3,055,304 | 2,993,264 | 3,015,619 | 2,928,636 | 2,867,517 | ||
| Less: Goodwill and other intangible assets, net | 68,887 | 49,826 | 49,913 | 50,002 | 50,095 | ||
| Tangible assets (non-GAAP) | $ 2,986,417 | 2,943,438 | 2,965,706 | 2,878,634 | 2,817,422 | ||
| Ending tangible common equity: | |||||||
| Common shareholders' equity | $ 260,418 | 252,487 | 245,523 | 237,497 | 230,503 | ||
| Less: Goodwill and other intangible assets, net | 68,887 | 49,826 | 49,913 | 50,002 | 50,095 | ||
| Tangible common equity (non-GAAP) | $ 191,531 | 202,661 | 195,610 | 187,495 | 180,408 | ||
| Tangible common equity to tangible assets (non-GAAP) (1) | 6.41% | 6.89 | 6.60 | 6.51 | 6.40 | ||
| Common shares outstanding | 14,094 | 13,863 | 13,853 | 13,829 | 13,810 | ||
| Tangible common book value per share (non-GAAP) (2) | $ 13.59 | 14.62 | 14.12 | 13.56 | 13.06 | ||
| Average tangible common equity: | |||||||
| Average common equity | $ 250,512 | 235,531 | 256,306 | 250,815 | 244,281 | 234,576 | 228,827 |
| Average goodwill and other intangible assets, net | 53,085 | 50,249 | 59,306 | 49,879 | 49,968 | 50,058 | 50,153 |
| Average tangible common equity (non-GAAP) | $ 197,427 | 185,282 | 197,000 | 200,936 | 194,313 | 184,518 | 178,674 |
| Return on average tangible common equity (3) | 13.77% | 13.03 | 13.73 | 13.31 | 14.30 | 12.90 | 12.88 |
| (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. | |||||||