FISI Financial Institutions Inc

Financial Institutions, Inc. (Nasdaq:FISI), today reported financial results for the first quarter ended March 31, 2016. Financial Institutions, Inc. (the “Company”) is the parent company of Five Star Bank, Scott Danahy Naylon Insurance, LLC (“Scott Danahy Naylon”) and Courier Capital, LLC (“Courier Capital”). The Company’s financial results since January 5, 2016 include the results of operations of Courier Capital, our wealth management subsidiary whose business we acquired from Courier Capital Corporation in January 2016.

First Quarter 2016 Highlights:

• Increased net interest income to a record $24.7 million in the first quarter
• Increased noninterest income to $9.2 million in the first quarter
• Strong performance resulted in return on average tangible common equity of 13.54% for the quarter
• Growth strategy drives increase in fee-based services income and market share, leading to record level of earnings assets and deposits
• Total assets increased to over $3.5 billion, up $319.5 million or 10% from a year ago
• Grew total loans $192.1 million or 10% from a year ago
• Increased total deposits by $255.5 million or 9% from a year ago
• Quarterly cash dividend of $0.20 per common share represented a 2.77% dividend yield as of March 31, 2016 and a return of 40% of first quarter net income to common shareholders
• Common and tangible common book value per share increased to $20.46 and $15.18, respectively, at March 31, 2016
• Total risk-based capital increased to 13.39%, strengthening the Company’s capital position to support future growth
• Completed the acquisition of Courier Capital, a prominent SEC-registered investment advisory and wealth management firm with offices in Buffalo and Jamestown
• Opened our second “Made For You” financial solution center in Rochester; a unique customer service experience offered in one of the Company’s targeted growth markets

Net income for the first quarter 2016 was $7.6 million, compared to $6.6 million for the fourth quarter 2015, and $6.8 million for the first quarter 2015. After preferred dividends, first quarter 2016 net income available to common shareholders was $7.3 million or $0.50 per diluted share, compared with $6.3 million or $0.44 per diluted share for the fourth quarter 2015, and $6.4 million or $0.46 per diluted share for the first quarter 2015.

The Company’s President and Chief Executive Officer Martin K. Birmingham stated, “Continued strength in banking operations, successful implementation of our revenue diversification strategy and diligent management of operating expenses were key drivers of our core earnings growth this quarter.  Consolidated revenues of $33.9 million in the first quarter of 2016 reached the highest level in the Company’s history.  We remain focused on expense control and implemented several initiatives designed to reduce operating expenses late in the first quarter of 2016.  We expect those savings to be reflected beginning in the second quarter.

“We continue to deliver balanced growth in our banking operations. Deposits increased 8% from the fourth quarter of 2015 of this year, which we believe partially reflects the retrenchment of larger competitors operating in the regions in which we operate. In particular, the progress of our two new bank branches in Rochester, one of the largest metro areas in our operating region, is very encouraging. Our first branch office in Rochester, the CityGate Financial Solution Center, opened in November and ended the first quarter with $32 million in total deposits. We are optimistic about further market share gains given the opening of our Brighton office in late March 2016.

“The January 2016 acquisition of Courier Capital, our wealth management platform, coupled with 4% growth in insurance revenues through our Scott Danahy Naylon insurance subsidiary, contributed to the growth in our noninterest income. Noninterest income comprised 34% of total revenues in the quarter, up from 31% in the first quarter of 2015. These new business lines combined with our core community bank which has a 200 year tradition, positions us as a leading western New York diversified financial services provider. We believe this platform and our independence as a community bank to respond to market needs in our region are key to our continued growth.”

Kevin B. Klotzbach, the Company’s Chief Financial Officer added, “We continue to deploy capital in a strategic manner that is delivering results, while only beginning to benefit from the leverage in our expanding platform. We ended the quarter with record levels in a number of key business areas, including interest income, noninterest income, total loans, total assets and total deposits. Interest-earning assets reached a record at $3.2 billion, as loan growth remained robust with demand from both consumer and business customers, while rates on loan production and net interest margin have held up well. We have also been able to effectively control our cost of funds which has stabilized our margin. Net interest margin has now increased for two consecutive quarters. Meanwhile, our credit quality remained steady in the first quarter and we have ample liquidity and a strong balance sheet to further execute our growth strategies.

“The Company’s tangible common equity also ended the quarter at a record level. Our return on tangible common equity of 13.54% increased by 15% compared to last quarter due to earnings growth. Contributing to our returns are the benefits from Company owned life insurance policies which added $1.4 million to noninterest income in the quarter. With over 60 policies remaining in force, we expect continued contributions for many years, although the timing and amounts will vary.  

“Our strong first quarter performance led to tangible common book value reaching $15.18 per share, an increase of nearly 3% since the beginning of the year and up 7% in the last 12 months. For the three months ended March 31, 2016, total shareholder return of 4.6% far outpaced our peer group and the broader bank indexes, many of which have experienced negative returns. We are gratified that our operating strategies and financial results achieved have enabled us to contribute to the communities we serve while delivering value for our shareholders.”

Net Interest Income and Net Interest Margin

Net interest income was $24.7 million in the first quarter 2016 compared to $24.6 million in the fourth quarter 2015 and $23.1 million in the first quarter 2015. Average earning assets were up $33.4 million, led by a $55.0 million increase in loans in the first quarter of 2016 compared to the fourth quarter of 2015. When comparing the first quarter 2016 to the same quarter in 2015, average earning assets increased $313.1 million, including increases of $119.7 million and $193.4 million in investment securities and loans, respectively. First quarter 2016 net interest margin was 3.27%, up slightly from 3.26% for the fourth quarter of 2015 and down 16 basis points from 3.43% for the first quarter of 2015. 

Noninterest Income

Noninterest income was $9.2 million for the first quarter 2016 compared to $8.6 million for the fourth quarter 2015 and $8.3 million in the first quarter 2015. Included in company owned life insurance income for the first quarter 2016 is $911 thousand of death benefit proceeds. Included in fourth quarter 2015 other noninterest income is $1.1 million related to the reduction in the Company’s estimate of the fair value of the contingent consideration liability recorded for Scott Danahy Naylon. Exclusive of those items and gains realized from the sale of investment securities, noninterest income was $7.7 million in the first quarter 2016, $6.8 million in the fourth quarter 2015 and $7.2 million in the first quarter 2015. The main factors contributing to the higher noninterest income during the first quarter 2016 compared to the fourth quarter 2015 were increases in insurance income and investment advisory income. Insurance income increased $436 thousand and investment advisory income increased $601 thousand, reflecting the contribution from Courier Capital which was acquired during the first quarter 2016 as part of our strategy to diversify our business lines and increase noninterest income through additional fee-based services. The increase in insurance income was largely due to contingent commission revenue from Scott Danahy Naylon. Such commissions are seasonal in nature and are generally received during the first quarter of each year. The higher noninterest income in the first quarter 2016 compared to the first quarter 2015 was primarily the result of a $756 thousand increase in investment advisory income, reflecting the contribution from Courier Capital, which was partially offset by a $418 thousand decrease in limited partnership income. Income from the Company’s equity method investments in limited partnerships, which are primarily small business investment companies, fluctuates based on the performance of the underlying investments.

Noninterest Expense

Noninterest expense was $21.2 million for the first quarter 2016 compared to $21.8 million for the fourth quarter 2015 and $19.0 million for the first quarter 2015. The decrease in noninterest expense in first quarter 2016 compared to fourth quarter 2015 was primarily due to the $751 thousand of goodwill impairment recognized in the fourth quarter 2015. 

The increase in noninterest expense during the first quarter 2016 compared to the first quarter 2015 was largely due to higher salaries and employee benefits coupled with an increase in professional services expense. Salaries and employee benefits expense increased $1.4 million from the first quarter 2015, reflecting the addition of Courier Capital and a combination of additional personnel to support organic growth as part of the Company’s expansion initiatives and higher medical expense as the level of medical claims in the first quarter of 2015 were unusually low. Professional services increased $479 thousand when comparing the first quarter of 2016 to the same period in 2015. The first quarter 2016 professional services expense included approximately $360 thousand of professional services associated with responding to the demands of an activist shareholder.

Income Taxes

Income tax expense was $2.7 million in the first quarter 2016, compared to $2.2 million in the fourth quarter 2015 and $2.9 million in the first quarter 2015. Higher income tax expense during the first quarter 2016 compared to the fourth quarter 2015 was primarily driven by higher pre-tax income. The effective tax rate was 26.4% for the first quarter 2016, compared with an effective tax rate of 24.5% for the fourth quarter of 2015 and 29.8% in the first quarter 2015. The lower effective tax rate in 2016 compared to the same quarter a year ago is a result of the non-taxable life insurance proceeds received in 2016.

Balance Sheet and Capital Management

Total assets were $3.52 billion at March 31, 2016, up $135.5 million from $3.38 billion at December 31, 2015 and up $319.5 million from $3.20 billion at March 31, 2015. The increases were attributable to loan growth and higher investment security balances funded by deposit growth.

Total loans were $2.12 billion at March 31, 2016, up $31.5 million from December 31, 2015 and up $192.4 million from March 31, 2015. The increases in loans are primarily attributable to organic commercial loan growth. Commercial loans totaled $908.1 million as of March 31, 2016, an increase of $28.2 million or 3% from December 31, 2015 and an increase of $151.4 million or 20% from March 31, 2015. Total investment securities were $1.09 billion at March 31, 2016, up $56.2 million or 5% from the end of the prior quarter and up $140.8 million or 15% from March 31, 2015.

Total deposits were $2.96 billion at March 31, 2016, an increase of $229.6 million from December 31, 2015 and an increase of $255.5 million from March 31, 2015. The increase during the first quarter of 2016 was mainly due to seasonal inflows of municipal deposits, while the year-over-year increase was due to higher municipal deposits and successful business development efforts in retail banking. Public deposit balances represented 30% of total deposits at March 31, 2016 and 2015, compared to 25% at December 31, 2015.

Short-term borrowings were $179.2 million at March 31, 2016, down $113.9 million from December 31, 2015 and up $3.6 million from March 31, 2015. Short-term borrowings are typically utilized to manage the seasonality of municipal deposits.

Shareholders’ equity was $314.0 million at March 31, 2016, compared with $293.8 million at December 31, 2015 and $286.7 million at March 31, 2015. Common book value per share was $20.46 at March 31, 2016, an increase of $0.97 or 5% from $19.49 at December 31, 2015 and $1.45 or 8% from $19.01 at March 31, 2015. Tangible common book value per share was $15.18 at March 31, 2016, compared to $14.77 at December 31, 2015 and $14.18 at March 31, 2015. The increases in shareholders’ equity and the book value per share amounts are attributable to net income, stock issued for the acquisition of Courier Capital and to higher net unrealized gains on securities available for sale, a component of accumulated other comprehensive income.

During the first quarter 2016, the Company declared a common stock dividend of $0.20 per common share. The first quarter 2016 dividend returned 40% of first quarter net income to common shareholders. 

The Company’s leverage ratio was 7.46% at March 31, 2016, compared to 7.41% at December 31, 2015 and 7.53% at March 31, 2015. The increase in the leverage ratio from December 31, 2015 was due to higher regulatory capital, which excludes changes in accumulated other comprehensive income. The decrease in the leverage ratio from March 31, 2015 was primarily due to an increase in average quarterly assets. 

Credit Quality

Non-performing loans were $8.6 million at March 31, 2016, compared to $8.4 million at December 31, 2015 and $11.1 million at March 31, 2015. The $2.5 million decrease from the first quarter 2015 was due to across the board improvement in each of the loan portfolios. The ratio of non-performing loans to total loans was 0.41% at March 31, 2016 and December 31, 2015, and 0.58% at March 31, 2015.

The provision for loans losses for the first quarter 2016 was $2.4 million, a decrease of $230 thousand from the prior quarter and $373 thousand from the first quarter 2015. Net charge-offs were $1.9 million during the first quarter 2016, an $83 thousand decrease compared to the prior quarter and $1.3 million decrease from the first quarter 2015. The ratio of annualized net charge-offs to total average loans was 0.36% during the current quarter, compared to 0.38% during the prior quarter and 0.68% during the first quarter 2015.

The ratio of allowance for loans losses to total loans was 1.30% at March 31, 2016 and December 31, 2015, and 1.41% at March 31, 2015. The ratio of allowance for loans losses to non-performing loans was 322% at March 31, 2016, compared with 321% at December 31, 2015 and 246% at March 31, 2015.

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 financial 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 Scott Danahy Naylon 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, general economic and credit market conditions nationally and regionally, and costs associated with responding to the current proxy contest. 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.

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

		2016			2015
	March 31,				December 31,		September 30,		June 30,				March 31,
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents	$	110,944			60,121		51,334			52,554			135,972
Investment securities:
Available for sale		610,013			544,395		577,509			772,639			639,275
Held-to-maturity		476,283			485,717		490,638			320,820			306,255
Total investment securities		1,086,296			1,030,112		1,068,147			1,093,459			945,530
Loans held for sale		609			1,430		1,568			448			656
Loans:
Commercial business		317,776			313,758		297,876			292,791			277,464
Commercial mortgage		590,316			566,101		548,529			536,590			479,226
Residential real estate loans		382,504			381,074		376,552			365,172			355,495
Residential real estate lines		126,526			127,347		128,361			128,844			129,183
Consumer indirect		679,846			676,940		665,714			666,550			662,213
Other consumer		18,066			18,542		19,204			19,326			19,373
Total loans		2,115,034			2,083,762		2,036,236			2,009,273			1,922,954
Allowance for loan losses		27,568			27,085		26,455			27,500			27,191
Total loans, net		2,087,466			2,056,677		2,009,781			1,981,773			1,895,763
Total interest-earning assets		3,189,582			3,114,530		3,097,315			3,104,631			2,860,605
Goodwill and other intangible assets, net		76,567			66,946		67,925			68,158			68,396
Total assets		3,516,572			3,381,024		3,357,608			3,359,459			3,197,077
Deposits:
Noninterest-bearing demand		617,394			641,972		623,296			602,143			559,646
Interest-bearing demand		622,443			523,366		563,731			530,861			611,104
Savings and money market		1,042,910			928,175		942,673			910,215			922,093
Certificates of deposit		677,430			637,018		623,800			613,019			611,852
Total deposits		2,960,177			2,730,531		2,753,500			2,656,238			2,704,695
Short-term borrowings		179,200			293,100		241,400			350,600			175,573
Long-term borrowings, net		39,008			38,990		38,972			38,955			-
Total interest-bearing liabilities		2,560,991			2,420,649		2,410,576			2,443,650			2,320,622
Shareholders’ equity		313,953			293,844		295,434			284,435			286,689
Common shareholders’ equity		296,613			276,504		278,094			267,095			269,349
Tangible common equity (1)		220,046			209,558		210,169			198,937			200,953
Unrealized gain (loss) on investment securities, net of tax	$	7,555			443		5,270			(924	)		5,241
Common shares outstanding		14,495			14,191		14,189			14,184			14,167
Treasury shares		197			207		209			214			231
CAPITAL RATIOS AND PER SHARE DATA:
Leverage ratio		7.46	%		7.41		7.29			7.31			7.53
Common equity Tier 1 ratio		9.83	%		9.77		9.74			9.50			9.66
Tier 1 risk-based capital		10.56	%		10.50		10.49			10.25			10.45
Total risk-based capital		13.39	%		13.35		13.37			13.17			11.69
Common equity to assets		8.43	%		8.18		8.28			7.95			8.42
Tangible common equity to tangible assets (1)		6.40	%		6.32		6.39			6.04			6.42
Common book value per share	$	20.46			19.49		19.60			18.83			19.01
Tangible common book value per share (1)	$	15.18			14.77		14.81			14.03			14.18
Stock price (Nasdaq: FISI):
High	$	29.53			29.04		25.21			25.50			25.38
Low	$	25.38			24.05		23.54			22.50			21.67
Close	$	29.07			28.00		24.78			24.84			22.93

________(1) See Appendix A – Reconciliation to Non-GAAP Financial Measures for the computation of this Non-GAAP measure.

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

				2016			2015
			First				Year ended				Fourth		Third				Second		First
			Quarter				December 31,				Quarter		Quarter				Quarter		Quarter
SELECTED INCOME STATEMENT DATA:
Interest income			$	27,635				105,450			27,487			27,007			25,959		24,997
Interest expense				2,916				10,137			2,856			2,876			2,555		1,850
Net interest income				24,719				95,313			24,631			24,131			23,404		23,147
Provision for loan losses				2,368				7,381			2,598			754			1,288		2,741
Net interest income after provision for loan losses				22,351				87,932			22,033			23,377			22,116		20,406
Noninterest income:
Service charges on deposits				1,724				7,742			1,862			2,037			1,964		1,879
Insurance income				1,672				5,166			1,236			1,265			1,057		1,608
ATM and debit card				1,325				5,084			1,311			1,297			1,283		1,193
Investment advisory				1,243				2,193			642			523			541		487
Company owned life insurance				1,368				1,962			514			488			493		467
Investments in limited partnerships				56				895			30			336			55		474
Loan servicing				116				503			87			153			96		167
Net gain on sale of loans held for sale				78				249			88			53			39		69
Net gain on investment securities				613				1,988			640			286			-		1,062
Net gain on sale of other assets				4				27			7			-			16		4
Amortization of tax credit investment				-				(390	)		-			(390	)		-		-
Other				1,018				4,918			2,163			957			911		887
Total noninterest income				9,217				30,337			8,580			7,005			6,455		8,297
Noninterest expense:
Salaries and employee benefits				11,614				42,439			11,332			10,278			10,606		10,223
Occupancy and equipment				3,625				13,856			3,365			3,417			3,375		3,699
Professional services				1,447				4,502			1,604			1,064			866		968
Computer and data processing				804				3,186			895			779			810		702
Supplies and postage				594				2,155			544			540			508		563
FDIC assessments				436				1,719			442			444			415		418
Advertising and promotions				377				1,120			331			312			238		239
Goodwill impairment charge				-				751			751			-			-		-
Other				2,321				9,665			2,564			2,484			2,418		2,199
Total noninterest expense				21,218				79,393			21,828			19,318			19,236		19,011
Income before income taxes				10,350				38,876			8,785			11,064			9,335		9,692
Income tax expense				2,732				10,539			2,150			2,748			2,750		2,891
Net income				7,618				28,337			6,635			8,316			6,585		6,801
Preferred stock dividends				365				1,462			365			366			366		365
Net income available to common shareholders			$	7,253				26,875			6,270			7,950			6,219		6,436
FINANCIAL RATIOS:
Earnings per share – basic			$	0.50				1.91			0.44			0.56			0.44		0.46
Earnings per share – diluted			$	0.50				1.90			0.44			0.56			0.44		0.46
Cash dividends declared on common stock			$	0.20				0.80			0.20			0.20			0.20		0.20
Common dividend payout ratio				40.00	%			41.88			45.45			35.71			45.45		43.48
Dividend yield (annualized)				2.77	%			2.86			2.83			3.20			3.23		3.54
Return on average assets				0.90	%			0.87			0.78			0.99			0.81		0.89
Return on average tangible assets (1)				0.88	%			0.84			0.76			0.96			0.78		0.86
Return on average equity				9.91	%			9.78			8.86			11.41			9.19		9.68
Return on average common equity				10.00	%			9.87			8.89			11.60			9.24		9.75
Return on average tangible common equity (1)				13.54	%			13.16			11.73			15.47			12.37		13.11
Efficiency ratio (2)				62.90	%			61.58			64.55			59.46			62.00		60.27

________(1) See Appendix A – Reconciliation to Non-GAAP Financial Measures for the computation of this Non-GAAP measure.(2) 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, proceeds from company owned life insurance, adjustments to contingent liabilities and amortizations of tax credit investment.

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

				2016			2015
			First				Year ended		Fourth			Third			Second			First
			Quarter				December 31,		Quarter			Quarter			Quarter			Quarter
SELECTED AVERAGE BALANCES:
Federal funds sold and interest-earning deposits			$	70			37		-			-			26			124
Investment securities (1)				1,027,602			1,014,171		1,049,217			1,067,815			1,029,640			907,871
Loans:
Commercial business				316,143			286,019		297,033			297,216			284,535			264,814
Commercial mortgage				582,142			522,328		554,327			545,875			509,317			478,705
Residential real estate loans				382,077			366,032		379,189			371,318			357,442			355,866
Residential real estate lines				127,317			128,525		127,688			127,826			129,167			129,444
Consumer indirect				678,133			665,454		671,888			663,884			664,222			661,727
Other consumer				17,926			18,969		18,626			18,680			18,848			19,736
Total loans				2,103,738			1,987,327		2,048,751			2,024,799			1,963,531			1,910,292
Total interest-earning assets				3,131,410			3,001,535		3,097,968			3,092,614			2,993,197			2,818,287
Goodwill and other intangible assets, net				76,324			68,138		67,692			68,050			68,294			68,527
Total assets				3,405,451			3,269,890		3,353,702			3,343,802			3,263,111			3,115,516
Interest-bearing liabilities:
Interest-bearing demand				572,424			543,690		545,602			516,448			561,570			551,503
Savings and money market				965,629			908,614		960,768			903,491			929,701			839,218
Certificates of deposit				658,537			616,747		628,944			619,459			616,145			602,115
Short-term borrowings				221,326			262,494		241,957			329,050			226,577			251,768
Long-term borrowings, net				38,997			27,886		38,979			38,962			33,053			-
Total interest-bearing liabilities				2,456,913			2,359,431		2,416,250			2,407,410			2,367,046			2,244,604
Noninterest-bearing demand deposits				617,590			599,334		619,423			625,131			587,396			564,500
Total deposits				2,814,180			2,668,385		2,754,737			2,664,529			2,694,812			2,557,336
Total liabilities				3,096,263			2,980,183		3,056,541			3,054,573			2,975,762			2,830,557
Shareholders’ equity				309,188			289,707		297,161			289,229			287,349			284,959
Common equity				291,848			272,367		279,821			271,889			270,009			267,619
Tangible common equity (2)			$	215,524			204,229		212,129			203,839			201,715			199,092
Common shares outstanding:
Basic				14,395			14,081		14,095			14,087			14,078			14,063
Diluted				14,465			14,135		14,163			14,139			14,121			14,113
SELECTED AVERAGE YIELDS:
(Tax equivalent basis)
Investment securities				2.48	%		2.46			2.47			2.46		2.44			2.47
Loans				4.21	%		4.21			4.22			4.16		4.18			4.27
Total interest-earning assets				3.64	%		3.62			3.63			3.57		3.58			3.69
Interest-bearing demand				0.14	%		0.14			0.15			0.15		0.14			0.11
Savings and money market				0.13	%		0.13			0.14			0.14		0.12			0.10
Certificates of deposit				0.88	%		0.87			0.88			0.89		0.87			0.84
Short-term borrowings				0.62	%		0.41			0.49			0.41		0.38			0.37
Long-term borrowings, net				6.34	%		6.28			6.34			6.34		6.23			-
Total interest-bearing liabilities				0.48	%		0.43			0.47			0.47		0.43			0.33
Net interest rate spread				3.16	%		3.19			3.16			3.10		3.15			3.36
Net interest rate margin				3.27	%		3.28			3.26			3.20		3.24			3.43

________(1) Includes investment securities at adjusted amortized cost.(2) See Appendix A – Reconciliation to Non-GAAP Financial Measures for the computation of this Non-GAAP measure.

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

		2016			2015
	First				Fourth		Third		Second				First
	Quarter				Quarter		Quarter		Quarter				Quarter
ASSET QUALITY DATA:
Allowance for Loan Losses
Beginning balance	$	27,085			26,455		27,500			27,191				27,637
Net loan charge-offs (recoveries):
Commercial business		502			133		68			(73	)			1,093
Commercial mortgage		(1	)		23		12			194				520
Residential real estate loans		21			110		37			38				98
Residential real estate lines		-			24		30			116				(2	)
Consumer indirect		1,328			1,519		1,475			645				1,317
Other consumer		35			159		177			59				161
Total net charge-offs		1,885			1,968		1,799			979				3,187
Provision for loan losses		2,368			2,598		754			1,288				2,741
Ending balance	$	27,568			27,085		26,455			27,500				27,191
Net charge-offs (recoveries) to average loans (annualized):
Commercial business		0.64	%		0.18		0.09			-0.10				1.67
Commercial mortgage		0.00	%		0.02		0.01			0.15				0.44
Residential real estate loans		0.02	%		0.12		0.04			0.04				0.11
Residential real estate lines		0.00	%		0.07		0.09			0.36				-0.01
Consumer indirect		0.79	%		0.90		0.88			0.39				0.81
Other consumer		0.79	%		3.39		3.76			1.26				3.31
Total loans		0.36	%		0.38		0.35			0.20				0.68
Supplemental information (1)
Non-performing loans:
Commercial business	$	4,056			3,922		3,064			4,643				4,587
Commercial mortgage		1,781			947		1,802			3,070				3,411
Residential real estate loans		1,601			1,848		2,092			2,028				1,829
Residential real estate lines		165			235		223			219				204
Consumer indirect		943			1,467		1,292			728				994
Other consumer		21			21		20			20				47
Total non-performing loans		8,567			8,440		8,493			10,708				11,072
Foreclosed assets		187			163		286			165				139
Total non-performing assets	$	8,754			8,603		8,779			10,873				11,211
Total non-performing loans to total loans		0.41	%		0.41		0.42			0.53				0.58
Total non-performing assets to total assets		0.25	%		0.25		0.26			0.32				0.35
Allowance for loan losses to total loans		1.30	%		1.30		1.30			1.37				1.41
Allowance for loan losses to non-performing loans		322	%		321		311			257				246

________(1) At period end.

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

			2016			2015
		First				Year ended		Fourth				Third		Second		First
		Quarter				December 31,		Quarter				Quarter		Quarter		Quarter
Ending tangible assets:
Total assets		$	3,516,572						3,381,024			3,357,608		3,359,459		3,197,077
Less: Goodwill and other intangible assets, net			76,567						66,946			67,925		68,158		68,396
Tangible assets		$	3,440,005						3,314,078			3,289,683		3,291,301		3,128,681
Ending tangible common equity:
Common shareholders’ equity		$	296,613						276,504			278,094		267,095		269,349
Less: Goodwill and other intangible assets, net			76,567						66,946			67,925		68,158		68,396
Tangible common equity		$	220,046					$	209,558			210,169		198,937		200,953
Tangible common equity to tangible assets (1)			6.40	%					6.32			6.39		6.04		6.42
Common shares outstanding			14,495						14,191			14,189		14,184		14,167
Tangible common book value per share (2)		$	15.18						14.77			14.81		14.03		14.18
Average tangible assets:
Average assets		$	3,405,451			3,269,890			3,353,702			3,343,802		3,263,111		3,115,516
Less: Average goodwill and other intangible assets			76,324			68,138			67,692			68,050		68,294		68,527
Average tangible assets		$	3,329,127			3,210,752			3,286,010			3,275,752		3,194,817		3,046,989
Average tangible common equity:
Average common equity		$	291,848			272,367			279,821			271,889		270,009		267,619
Less: Average goodwill and other intangible assets			76,324			68,138			67,692			68,050		68,294		68,527
Average tangible common equity		$	215,524			204,229			212,129			203,839		201,715		199,092
Net income available to common shareholders		$	7,253			26,875			6,270			7,950		6,219		6,436
Return on average tangible common equity (3)			13.54	%		13.16			11.73			15.47		12.37		13.11
Return on average tangible assets (4)			0.88	%		0.84			0.76			0.96		0.78		0.86

________(1) Tangible common equity divided by tangible assets.(2) Tangible common equity divided by common shares outstanding.(3) Net income available to common shareholders (annualized) divided by average tangible common equity.(4) Net income available to common shareholders (annualized) divided by average tangible assets. 

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: 512.551.9296
Email: jdarrow@darrowir.com