Financial Institutions, Inc. (Nasdaq:FISI), today reported financial results for the fourth quarter and year ended December 31, 2015.  Financial Institutions, Inc. (the “Company”) is the parent company of Five Star Bank, Scott Danahy Naylon Insurance and Courier Capital.  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.

Fourth Quarter and Full Year 2015 Highlights:

  • Increased net interest income to a record $24.6 million in the fourth quarter
  • Increased noninterest income to $8.6 million in the fourth quarter
  • Grew total loans $171.8 million or 9% over the prior year
  • Increased total deposits by $280.0 million or 11% from the end of the prior year
  • Increased total assets by $291.5 million, to reach $3.38 billion, the Company’s highest level of year-end total assets
  • Increased net interest income to $95.3 million in 2015, driven by a 9% increase in average interest-earning assets
  • Strong performance resulted in return on average common equity of 9.87% for the year
  • Focus on commercial lending resulted in 17% growth in commercial business loans and 19% growth in commercial mortgages
  • Total risk-based capital increased to 13.35% from 11.72%, strengthening the Company’s capital position to support future growth
  • Opened one and announced plans for a second “Made For You” financial solution center in the Rochester area; unique customer service experience to be offered in one of the Company’s targeted growth markets
  • Furthered the diversification of our financial services business lines through the January 2016 acquisition of Courier Capital as a wealth management platform

Net income for the fourth quarter 2015 was $6.6 million, compared to $8.3 million for the third quarter 2015, and $7.9 million for the fourth quarter 2014.  After preferred dividends, fourth quarter 2015 net income available to common shareholders was $6.3 million or $0.44 per diluted share, compared with $8.0 million or $0.56 per share for third quarter 2015, and $7.6 million or $0.54 per share for fourth quarter 2014.

For the full year of 2015, the Company earned net income of $28.3 million, compared to $29.4 million for the full year of 2014.  Net income available to common shareholders was $26.9 million or $1.90 per diluted share for the full year of 2015.  This compares to net income available to common shareholders of $27.9 million or $2.00 per diluted share for the full year of 2014.

The Company’s President and Chief Executive Officer Martin K. Birmingham stated, “In 2015 we maintained the momentum of the last three years.  We continued to execute on our growth and diversification strategy.  We saw progress in our core banking franchise with robust growth in both loans and deposits.  We also continued to integrate the SDN insurance platform into our sales process and, during the fourth quarter, we announced our agreement to purchase Courier Capital as our wealth management platform, which closed at the beginning of 2016.

“Our market presence increased in the City of Rochester with the opening of our first branch office in November.  Our CityGate Financial Solution Center has received an outstanding reception.  By year-end the office had already exceeded $10 million in deposits.

“We also advanced our leading position as a small business lender.  Through the first three months of the current SBA fiscal year, we rank #1 in the number of SBA loans in the Rochester region and #3 in the Buffalo region.*  This confirms the success of our business banking initiatives as we become the small business lender of choice in Upstate New York,” continued Mr. Birmingham.

Kevin B. Klotzbach, the Company’s Chief Financial Officer added, “Total deposits increased 11% from 2014 and we ended the year with a record level of loans, increasing 9% from 2014.  This growth has allowed us to successfully offset the margin pressure facing the entire industry.”

During the fourth quarter of 2015, the Company recognized a non-cash goodwill impairment charge of $751 thousand and a non-cash fair value adjustment of the contingent consideration liability that resulted in noninterest income of $1.1 million related to the SDN acquisition. The fair value of the consideration was recorded at the time of the SDN acquisition and was included in goodwill as a component of the purchase price.  

“While our fourth quarter 2014 results were positively impacted by an investment in $3.0 million of historic tax credits, our fourth quarter 2015 results were adversely impacted by approximately $300 thousand in acquisition expenses, an increase in provision for loan losses associated with a significant volume of loans closed at the end of the quarter and staffing expenses related to new branch expansion. Even with these fourth quarter items, we are pleased with our overall 2015 results, especially considering the investments we have made in compliance, personnel and infrastructure throughout 2015,” continued Mr. Klotzbach.

Net Interest Income and Net Interest Margin

Net interest income was $24.6 million in the fourth quarter 2015 compared to $24.1 million in the third quarter 2015 and $24.1 million in the fourth quarter 2014.  The Company’s net interest margin increased by 6 basis points from 3.20% for the third quarter 2015 to 3.26% for the fourth quarter 2015, primarily due to a corresponding increase in the yield on average loans.

Net interest income for the fourth quarter 2015 increased $493 thousand compared to the fourth quarter 2014. The increase was primarily related to an increase in average interest-earning assets of $316.3 million, led by a $172.3 million increase in investment securities and a $144.0 million increase in loans.  The increase was partially offset by a lower net interest margin, which decreased 30 basis points from the fourth quarter 2014 to the fourth quarter 2015.

For the year ended December 31, 2015, net interest income rose 2% to $95.3 million from $93.8 million in 2014 as a result of a $241.4 million or 9% increase in average interest-earning assets.  These increases were partially offset by a 22 basis point narrowing of the net interest margin to 3.28% in 2015 from 3.50% in 2014.

Noninterest Income

Noninterest income was $8.6 million for the fourth quarter 2015 compared to $7.0 million in the third quarter 2015 and $5.2 million in the fourth quarter 2014.  The quarter-over-quarter change was driven primarily by a $1.1 million gain due to the reduction in the Company’s estimate of the fair value of the contingent consideration liability recorded for SDN.  Compared to the fourth quarter 2014, noninterest income in the fourth quarter 2015 increased by $3.4 million.   The increase was primarily related to the amortization of a historic tax investment in a community-based project totaling $2.3 million that was recorded in the fourth quarter of 2014.  These types of investments are amortized in the first year the project is placed in service and the Company recognized the amortization as contra-income, included in noninterest income, with an offsetting tax benefit that reduced income tax expense.

Noninterest income totaled $30.3 million for the full year 2015, an increase of $5.0 million when compared to $25.3 million in the prior year.  Insurance income increased by $2.8 million to $5.2 million during the current year as 2015 reflects the benefit of a full year of revenue associated with the 2014 SDN acquisition. 2015 noninterest income reflects the $1.1 million gain due to the reduction in the estimate of the fair value of the contingent consideration liability recorded for SDN as previously mentioned.  Also included in noninterest income is the tax credit investment amortization described above of $390 thousand and $2.3 million for the years ended December 31, 2015 and 2014, respectively.  Offsetting those increases was a $1.2 million decline in service charges on deposits, due primarily to lower overdraft fees.

Noninterest Expense

Noninterest expense was $21.8 million for the fourth quarter 2015 compared to $19.3 million in the third quarter 2015 and $19.4 million in the fourth quarter 2014.  Salaries and employee benefits expense, the largest noninterest expense item, was up $1.1 million from the third quarter 2015, and reflects a combination of additional personnel to support organic growth as part of the Company’s expansion initiatives and year-end medical expense.  Noninterest expense also included $751 thousand of goodwill impairment in the fourth quarter of 2015 related to the SDN acquisition, an increase of $540 thousand in professional service fees attributable to the acquisition of Courier Capital, and additional marketing services related to branding and the new branch opening at CityGate.

Noninterest expense for the full year 2015 totaled $79.4 million, a $7.0 million increase compared to $72.4 million in the prior year.  Salaries and benefits expense increased $3.8 million year-over-year, reflecting the full year impact of the addition of employees from SDN and increased staffing associated with the Company’s expansion initiatives.  Also contributing to the increase were higher occupancy and equipment expense, computer and data processing expense, the previously mentioned goodwill impairment charge and other noninterest expense.

Income Taxes

Income tax expense was $2.2 million in the fourth quarter 2015 compared to $2.8 million in the third quarter 2015, and $84 thousand in the fourth quarter 2014.  When comparing the fourth quarter 2015 to the same quarter last year, the difference was driven by the favorable impact of $3.0 million in Federal and New York State historic tax credits realized in the fourth quarter 2014, as discussed above. As a result of the historic tax credits, the effective tax rate for the fourth quarter 2014 was 1.0%, compared with an effective tax rate of 24.5% in the current quarter and 24.8% in the third quarter 2015.

Income tax expense for the year was $10.5 million, representing an effective tax rate of 27.1% compared with an effective tax rate of 24.7% in 2014.  The lower effective tax rate in 2014 reflects the historic tax credit benefit described above.

Balance Sheet and Capital Management

Total assets were $3.38 billion at December 31, 2015, up $23.4 million from $3.36 billion at September 30, 2015 and up $291.5 million from $3.09 billion at December 31, 2014.  The increases were attributable to loan growth and higher investment security balances.

Total loans were $2.08 billion at December 31, 2015, up $47.5 million from September 30, 2015 and up $171.8 million from December 31, 2014.  The increase in loans from the prior year was primarily attributable to organic growth in the commercial portfolio.  Total investment securities were $1.03 billion at December 31, 2015, down $38.0 million or 4% from the end of the prior quarter and up $113.2 million or 12% compared with the end of 2014.

Total deposits were $2.73 billion at December 31, 2015, down $23.0 million from $2.75 billion at September 30, 2015 and up $280.0 million from $2.45 billion at December 31, 2014.  The decrease during the fourth quarter 2015 was mainly due to seasonal outflows of municipal deposits, while the year-over-year increase is largely attributable to successful business development efforts.  Public deposit balances represented 25% of total deposits at December 31, 2015 and 2014, compared to 27% at September 30, 2015.

Short-term borrowings were $293.1 million at December 31, 2015, up $51.7 million from September 30, 2015 and down $41.7 million from December 31, 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 December 31, 2015 and September 30, 2015.  There were no long-term borrowings outstanding at December 31, 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 Five Star Bank to support organic growth as well as opportunistic acquisitions. 

Shareholders’ equity was $293.8 million at December 31, 2015, compared with $295.4 million at September 30, 2015 and $279.5 million at December 31, 2014.  Common book value per share was $19.49 at December 31, 2015, a decrease of $0.11 from $19.60 at September 30, 2015 and an increase of $0.92 from $18.57 at December 31, 2014.  Tangible common book value per share was $14.77 at December 31, 2015, compared to $14.81 at September 30, 2015 and $13.71 at December 31, 2014.  When comparing the fourth quarter 2015 to the third quarter 2015, the decreases in shareholders’ equity and the book value per share amounts were primarily due to lower net unrealized gains on securities available for sale, a component of accumulated other comprehensive income.

During the fourth quarter 2015, the Company declared a common stock dividend of $0.20 per common share.  The fourth quarter 2015 dividend returned 45% of fourth quarter net income to common shareholders. 

The Company’s leverage ratio was 7.41% at December 31, 2015, compared to 7.29% at September 30, 2015 and 7.35% at December 31, 2014.  The increases in the leverage ratio were due to higher regulatory capital, which excludes changes in accumulated other comprehensive income.  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 8.09% and 12.66%, respectively, at December 31, 2015.

Credit Quality

Non-performing loans were $8.4 million at December 31, 2015, compared to $8.5 million at September 30, 2015 and $10.2 million at December 31, 2014.  The $1.7 million decrease from the prior year end was due to due to improvements in the commercial portfolios, partially offset by increases in non-performing residential real estate, home equity and indirect consumer loans on a larger consolidated base in the 2015 period.  The ratio of non-performing loans to total loans was 0.41% at December 31, 2015 compared with 0.42% at September 30, 2015 and 0.53% at December 31, 2014.

The provision for loans losses for the fourth quarter 2015 was $2.6 million, an increase of $1.8 million from the prior quarter and $688 thousand from the fourth quarter 2014.  The increase in the provision for loans losses during the fourth quarter 2015 was primarily due to loan growth.  Net charge-offs were $2.0 million during the current quarter, a $169 thousand increase compared to the prior quarter and a $451 thousand increase from the fourth quarter 2014.  The ratio of annualized net charge-offs to total average loans was 0.38% during the current quarter, compared to 0.35% during the prior quarter and 0.32% during the fourth quarter 2014.

The provision for loans losses for the full year 2015 was $7.4 million, down from $7.8 million in 2014.  Net charge-offs were $7.9 million during the current year, a $1.0 million increase compared to the prior year.  The ratio of annualized net charge-offs to total average loans was 0.40% during 2015 compared to 0.37% during the prior year.

The allowance for loans losses to total loans ratio was 1.30% at December 31, 2015 and September 30, 2015, compared with 1.45% at December 31, 2014.  The allowance to non-performing loans ratio was 321% at December 31, 2015, compared with 311% at September 30, 2015, and 272% at December 31, 2014.

About Financial Institutions, Inc.

Financial Institutions, Inc. provides diversified financial services through its subsidiaries, Five Star Bank, Scott Danahy Naylon and Courier Capital.  Five Star Bank provides a wide range of consumer and commercial banking 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.  Courier Capital provides customized investment management, investment consulting and retirement plan services to individuals, businesses, institutions, foundations and retirement plans.  Financial Institutions, Inc. and its subsidiaries employ approximately 700 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 Section 21E of the Securities Exchange Act of 1934, as amended, that involve significant risks and uncertainties. Statements herein are based on certain assumptions and analyses by the Company and are factors it believes are appropriate in the circumstances. Actual results could differ materially from those contained in or implied by such statements for a variety of reasons including, but not limited to:  the Company’s ability to implement its strategic plan, the Company’s ability to redeploy investment assets into loan assets, whether the Company experiences greater credit losses than expected, whether the Company experiences breaches of its, or third party, information systems, the attitudes and preferences of the Company’s customers, the Company’s ability to successfully integrate and profitably operate SDN and Courier Capital, the competitive environment, fluctuations in the fair value of securities in its investment portfolio, changes in the regulatory environment and the Company’s compliance with regulatory requirements, changes in interest rates and general economic and credit market conditions nationally and regionally.  Consequently, all forward-looking statements made herein are qualified by these cautionary statements and the cautionary language in the Company’s Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q and other documents filed with the SEC.  Except as required by law, the Company undertakes no obligation to revise these statements following the date of this press release.

*  U.S. Small Business Administration, Buffalo District Office, SBA Bank Reports Newsletter FYE15 (September 30, 2015)

       
FINANCIAL INSTITUTIONS, INC.      
Selected Financial Information (Unaudited)      
(Amounts in thousands, except per share amounts)      
  2015   2014
  December 31,   September 30,   June 30,   March 31,   December 31,
SELECTED BALANCE SHEET DATA:                  
Cash and cash equivalents $   60,121     51,334     52,554     135,972   58,151
Investment securities:                  
Available for sale   544,395     577,509     772,639     639,275   622,494
Held-to-maturity   485,717     490,638     320,820     306,255   294,438
Total investment securities   1,030,112     1,068,147     1,093,459     945,530   916,932
Loans held for sale   1,430     1,568     448     656   755
Loans:                  
Commercial business   313,758     297,876     292,791     277,464   267,409
Commercial mortgage   566,101     548,529     536,590     479,226   475,092
Residential mortgage   98,309     96,279     95,162     97,717   100,101
Home equity   410,112     408,634     398,854     386,961   386,615
Consumer indirect   676,940     665,714     666,550     662,213   661,673
Other consumer   18,542     19,204     19,326     19,373   21,112
Total loans   2,083,762     2,036,236     2,009,273     1,922,954   1,912,002
Allowance for loan losses   27,085     26,455     27,500     27,191   27,637
Total loans, net   2,056,677     2,009,781     1,981,773     1,895,763   1,884,365
Total interest-earning assets (1) (2)   3,114,530     3,097,315     3,104,631     2,860,605   2,826,488
Goodwill and other intangible assets, net   66,946     67,925     68,158     68,396   68,639
Total assets   3,381,024     3,357,608     3,359,459     3,197,077   3,089,521
Deposits:                  
Noninterest-bearing demand   641,972     623,296     602,143     559,646   571,260
Interest-bearing demand   523,366     563,731     530,861     611,104   490,190
Savings and money market   928,175     942,673     910,215     922,093   795,835
Certificates of deposit   637,018     623,800     613,019     611,852   593,242
Total deposits   2,730,531     2,753,500     2,656,238     2,704,695   2,450,527
Short-term borrowings   293,100     241,400     350,600     175,573   334,804
Long-term borrowings, net   38,990     38,972     38,955     -   -
Total interest-bearing liabilities   2,420,649     2,410,576     2,443,650     2,320,622   2,214,071
Shareholders’ equity   293,844     295,434     284,435     286,689   279,532
Common shareholders’ equity (3)   276,504     278,094     267,095     269,349   262,192
Tangible common equity (4)   209,558     210,169     198,937     200,953   193,553
Unrealized gain (loss) on investment securities, net of tax $   443     5,270     (924 )   5,241   1,933
                   
Common shares outstanding   14,191     14,189     14,184     14,167   14,118
Treasury shares   207     209     214     231   280
CAPITAL RATIOS AND PER SHARE DATA:                  
Leverage ratio (5)   7.41 %   7.29     7.31     7.53   7.35
Common equity Tier 1 ratio (5)   9.77 %   9.74     9.50     9.66   n/a
Tier 1 risk-based capital (5)   10.50 %   10.49     10.25     10.45   10.47
Total risk-based capital (5)   13.35 %   13.37     13.17     11.69   11.72
Common equity to assets   8.18 %   8.28     7.95     8.42   8.49
Tangible common equity to tangible assets (4)   6.32 %   6.39     6.04     6.42   6.41
                   
Common book value per share $   19.49     19.60     18.83     19.01   18.57
Tangible common book value per share (4)   14.77     14.81     14.03     14.18   13.71

________(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)              
               
  Years ended   2015     2014  
  December 31,   Fourth   Third   Second   First   Fourth
    2015       2014     Quarter   Quarter   Quarter   Quarter   Quarter
SELECTED INCOME STATEMENT DATA:                          
Interest income $   105,450       101,055     27,487     27,007     25,959   24,997     25,984  
Interest expense   10,137       7,281     2,856     2,876     2,555   1,850     1,846  
Net interest income   95,313       93,774     24,631     24,131     23,404   23,147     24,138  
Provision for loan losses   7,381       7,789     2,598     754     1,288   2,741     1,910  
Net interest income after provision                          
for loan losses   87,932       85,985     22,033     23,377     22,116   20,406     22,228  
Noninterest income:                          
Service charges on deposits   7,742       8,954     1,862     2,037     1,964   1,879     2,186  
Insurance income   5,166       2,399     1,236     1,265     1,057   1,608     1,420  
ATM and debit card   5,084       4,963     1,311     1,297     1,283   1,193     1,269  
Investment advisory   2,193       2,138     642     523     541   487     491  
Company owned life insurance   1,962       1,753     514     488     493   467     504  
Investments in limited partnerships   895       1,103     30     336     55   474     209  
Loan servicing   503       568     87     153     96   167     118  
Net gain on sale of loans held for sale   249       313     88     53     39   69     82  
Net gain on investment securities   1,988       2,041     640     286     -   1,062     264  
Net gain on sale of other assets   27       69     7     -     16   4     8  
Amortization of tax credit investment   (390 )     (2,323 )   -     (390 )   -   -     (2,323 )
Other   4,918       3,372     2,163     957     911   887     927  
Total noninterest income   30,337       25,350     8,580     7,005     6,455   8,297     5,155  
Noninterest expense:                          
Salaries and employee benefits   42,439       38,595     11,332     10,278     10,606   10,223     10,551  
Occupancy and equipment   13,856       12,829     3,365     3,417     3,375   3,699     3,324  
Professional services   4,502       4,760     1,604     1,064     866   968     1,428  
Computer and data processing   3,186       3,016     895     779     810   702     791  
Supplies and postage   2,155       2,053     544     540     508   563     499  
FDIC assessments   1,719       1,592     442     444     415   418     392  
Advertising and promotions   1,120       805     331     312     238   239     196  
Goodwill impairment charge   751       -     751     -     -   -     -  
Other   9,665       8,705     2,564     2,484     2,418   2,199     2,198  
Total noninterest expense   79,393       72,355     21,828     19,318     19,236   19,011     19,379  
Income before income taxes   38,876       38,980     8,785     11,064     9,335   9,692     8,004  
Income tax expense   10,539       9,625     2,150     2,748     2,750   2,891     84  
Net income   28,337       29,355     6,635     8,316     6,585   6,801     7,920  
Preferred stock dividends   1,462       1,462     365     366     366   365     365  
Net income available to common shareholders $   26,875       27,893     6,270     7,950     6,219   6,436     7,555  
FINANCIAL RATIOS AND STOCK DATA:                          
Earnings per share – basic $   1.91       2.01     0.44     0.56     0.44   0.46     0.54  
Earnings per share – diluted $   1.90       2.00     0.44     0.56     0.44   0.46     0.54  
Cash dividends declared on common stock $   0.80       0.77     0.20     0.20     0.20   0.20     0.20  
Common dividend payout ratio (1)   41.88 %     38.31     45.45     35.71     45.45   43.48     37.04  
Dividend yield (annualized)   2.86 %     3.06     2.83     3.20     3.23   3.54     3.15  
Return on average assets   0.87 %     0.98     0.78     0.99     0.81   0.89     1.03  
Return on average equity   9.78 %     10.80     8.86     11.41     9.19   9.68     11.07  
Return on average common equity (2)   9.87 %     10.96     8.89     11.60     9.24   9.75     11.25  
Efficiency ratio (3)   61.58 %     58.59     64.55     59.46     62.00   60.27     59.58  
Stock price (Nasdaq:FISI):                          
High $   29.04       27.02     29.04     25.21     25.50   25.38     27.02  
Low $   21.67       19.72     24.05     23.54     22.50   21.67     22.45  
Close $   28.00       25.15     28.00     24.78     24.84   22.93     25.15  

________(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 and impairment of goodwill and other 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, adjustments to contingent liabilities and amortizations of tax credit investment.

           
FINANCIAL INSTITUTIONS, INC.          
Selected Financial Information (Unaudited)          
(Amounts in thousands)          
           
  Years ended   2015   2014
  December 31,   Fourth   Third   Second   First   Fourth
    2015     2014   Quarter   Quarter   Quarter   Quarter   Quarter
SELECTED AVERAGE BALANCES:                          
Federal funds sold and interest-earning deposits $  37     114   -   -   26   124   -
Investment securities (1)   1,014,171     877,673   1,049,217   1,067,815   1,029,640   907,871   876,932
Loans (2):                          
Commercial business   286,019     269,877   297,033   297,216   284,535   264,814   265,979
Commercial mortgage   522,328     473,372   554,327   545,875   509,317   478,705   473,694
Residential mortgage   97,651     107,254   98,111   96,776   96,474   99,264   101,982
Home equity   396,906     359,511   408,766   402,368   390,135   386,046   384,138
Consumer indirect   665,454     651,279   671,888   663,884   664,222   661,727   658,337
Other consumer   18,969     21,094   18,626   18,680   18,848   19,736   20,630
Total loans   1,987,327     1,882,387   2,048,751   2,024,799   1,963,531   1,910,292   1,904,760
Total interest-earning assets   3,001,535     2,760,174   3,097,968   3,092,614   2,993,197   2,818,287   2,781,692
Goodwill and other intangible assets, net   68,138     57,039   67,692   68,050   68,294   68,527   68,771
Total assets   3,269,890     2,994,604   3,353,702   3,343,802   3,263,111   3,115,516   3,052,499
Interest-bearing liabilities:                          
Interest-bearing demand   543,690     504,584   545,602   516,448   561,570   551,503   511,749
Savings and money market   908,614     783,784   960,768   903,491   929,701   839,218   824,661
Certificates of deposit   616,747     624,299   628,944   619,459   616,145   602,115   614,654
Short-term borrowings   262,494     247,956   241,957   329,050   226,577   251,768   232,935
Long-term borrowings, net   27,886     -   38,979   38,962   33,053   -   -
Total interest-bearing liabilities   2,359,431     2,160,623   2,416,250   2,407,410   2,367,046   2,244,604   2,183,999
Noninterest-bearing demand deposits   599,334     545,904   619,423   625,131   587,396   564,500   564,336
Total deposits   2,668,385     2,458,571   2,754,737   2,664,529   2,694,812   2,557,336   2,515,400
Total liabilities   2,980,183     2,722,730   3,056,541   3,054,573   2,975,762   2,830,557   2,768,693
Shareholders’ equity   289,707     271,874   297,161   289,229   287,349   284,959   283,806
Common equity (3)   272,367     254,533   279,821   271,889   270,009   267,619   266,466
Tangible common equity (4) $ 204,229     197,494    212,129   203,839   201,715   199,092   197,695
Common shares outstanding:                          
Basic   14,081     13,893   14,095   14,087   14,078   14,063   14,049
Diluted   14,135     13,946   14,163   14,139   14,121   14,113   14,112
SELECTED AVERAGE YIELDS:                          
(Tax equivalent basis)                          
Federal funds sold and interest-earning deposits   0.40 %   0.14   -   -   0.39   0.19   -
Investment securities   2.46 %   2.44   2.47   2.46   2.44   2.47   2.48
Loans   4.21 %   4.38   4.22   4.16   4.18   4.27   4.44
Total interest-earning assets   3.62 %   3.76   3.63   3.57   3.58   3.69   3.82
Interest-bearing demand   0.14 %   0.12   0.15   0.15   0.14   0.11   0.11
Savings and money market   0.13 %   0.12   0.14   0.14   0.12   0.10   0.11
Certificates of deposit   0.87 %   0.78   0.88   0.89   0.87   0.84   0.82
Short-term borrowings   0.41 %   0.37   0.49   0.41   0.38   0.37   0.36
Long-term borrowings, net   6.28 %   -   6.34   6.34   6.23   -   -
Total interest-bearing liabilities   0.43 %   0.34   0.47   0.47   0.43   0.33   0.34
Net interest rate spread   3.19 %   3.42   3.16   3.10   3.15   3.36   3.48
Net interest rate margin   3.28 %   3.50   3.26   3.20   3.24   3.43   3.56

________(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  
  Fourth   Third   Second   First   Fourth
  Quarter   Quarter   Quarter   Quarter   Quarter
ASSET QUALITY DATA:                  
Allowance for Loan Losses                  
Beginning balance $   26,455     27,500     27,191     27,637     27,244  
Net loan charge-offs (recoveries):                  
Commercial business   133     68     (73 )   1,093     (15 )
Commercial mortgage   23     12     194     520     (57 )
Residential mortgage   59     3     9     22     22  
Home equity   75     64     145     74     (4 )
Consumer indirect   1,519     1,475     645     1,317     1,420  
Other consumer   159     177     59     161     151  
Total net charge-offs   1,968     1,799     979     3,187     1,517  
Provision for loan losses   2,598     754     1,288     2,741     1,910  
Ending balance $   27,085      26,455     27,500      27,191     27,637  
                   
Net charge-offs (recoveries) to average loans (annualized):                  
Commercial business   0.18 %   0.09     -0.10     1.67     -0.02  
Commercial mortgage   0.02 %   0.01     0.15     0.44     -0.05  
Residential mortgage   0.24 %   0.01     0.04     0.09     0.09  
Home equity   0.07 %   0.06     0.15     0.08     0.00  
Consumer indirect   0.90 %   0.88     0.39     0.81     0.86  
Other consumer   3.39 %   3.76     1.26     3.31     2.90  
Total loans   0.38 %   0.35     0.20     0.68     0.32  
                   
Supplemental information (1)                  
Non-performing loans:                  
Commercial business $   3,922     3,064      4,643     4,587     4,288  
Commercial mortgage   947     1,802     3,070     3,411     3,020  
Residential mortgage   1,325     1,523     1,628     1,361     1,194  
Home equity   758     792     619     672     463  
Consumer indirect   1,467     1,292     728     994     1,169  
Other consumer   21     20     20     47     19  
Total non-performing loans   8,440     8,493     10,708     11,072     10,153  
Foreclosed assets   163     286     165     139     194  
Total non-performing assets $   8,603     8,779     10,873     11,211     10,347  
                   
Total non-performing loans to total loans   0.41 %   0.42     0.53     0.58     0.53  
Total non-performing assets to total assets   0.25 %   0.26     0.32     0.35     0.33  
Allowance for loan losses to total loans   1.30 %   1.30     1.37     1.41     1.45  
Allowance for loan losses to non-performing loans   321 %   311     257     246     272  

________(1) At period end.

           
FINANCIAL INSTITUTIONS, INC.          
Appendix A - Non-GAAP to GAAP Reconciliation (Unaudited)          
(In thousands, except per share amounts)          
           
  Years ended   2015   2014
  December 31,   Fourth   Third   Second   First   Fourth
  2015   2014   Quarter   Quarter   Quarter   Quarter   Quarter
Ending tangible assets:                          
Total assets         $ 3,381,024     3,357,608   3,359,459   3,197,077   3,089,521
Less:  Goodwill and other intangible assets, net           66,946     67,925   68,158   68,396   68,639
Tangible assets (non-GAAP)         $ 3,314,078     3,289,683   3,291,301   3,128,681   3,020,882
                           
Ending tangible common equity:                          
Common shareholders’ equity         $   276,504     278,094   267,095   269,349   262,192
Less:  Goodwill and other intangible assets, net           66,946     67,925   68,158   68,396   68,639
Tangible common equity (non-GAAP)         $   209,558     210,169   198,937   200,953   193,553
                           
Tangible common equity to tangible assets (non-GAAP) (1)         6.32 %   6.39   6.04   6.42   6.41
                           
Common shares outstanding           14,191     14,189   14,184   14,167   14,118
Tangible common book value per share (non-GAAP) (2)       $   14.77     14.81   14.03   14.18   13.71
                           
Average tangible common equity:                          
Average common equity $ 272,367     254,533     279,821     271,889   270,009   267,619   266,466
Average goodwill and other intangible assets, net   68,138     57,039     67,692     68,050   68,294   68,527   68,771
Average tangible common equity (non-GAAP) $ 204,229     197,494     212,129     203,839   201,715   199,092    197,695

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

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
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