WARSAW, N.Y., Oct. 25, 2016 (GLOBE NEWSWIRE) -- Financial Institutions, Inc. (NASDAQ:FISI), today reported financial results for the third quarter ended September 30, 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 acquired on that date.

Net income for the quarter was $8.5 million compared to $7.2 million for the second quarter of 2016 and $8.3 million for the third quarter of 2015. After preferred dividends, net income available to common shareholders was $8.1 million, or $0.56 per diluted share, compared to $6.8 million, or $0.47 per diluted share, for the second quarter of 2016 and $8.0 million, or $0.56 per diluted share, for the third quarter of 2015.

The Company’s President and Chief Executive Officer Martin K. Birmingham stated, “Our core bank franchise is delivering strong results as demonstrated by continued growth in loans and deposits, resulting in higher revenue and net income. Our non-bank subsidiaries are also performing well and we are experiencing synergies between our banking, insurance and wealth management platforms. I am very proud of our team and their commitment to our strategy.

“We are actively investing in our footprint and are committed to continuing to grow our market share. Our third financial solution center is expected to open mid-December in the newly renamed Five Star Bank Plaza located in downtown Rochester. In addition, we recently received regulatory approval for our fourth financial solution center. This branch will be located in the City of Buffalo at 40-50 Fountain Plaza and is expected to open in the first quarter of 2017.

“Our investment in the region has also resulted in strengthened leadership. We recently hired Ted Oexle as Buffalo Regional President of Five Star Bank. Ted is a highly-respected banker with more than 25 years of commercial banking experience in Buffalo. He will lead our effort to grow Five Star’s commercial banking business by delivering comprehensive financial solutions to borrowers of all sizes.”

Third Quarter 2016 Highlights:

• Diluted earnings per share (“EPS”) of $0.56 was $0.09 higher than the second quarter of 2016   
• Net interest income of $26.1 million increased $851 thousand, or 3.4%, as compared to the second quarter of 2016
• Noninterest income of $8.5 million was $377 thousand, or 4.2%, lower than the second quarter of 2016
  • Excluding the net gain on investment securities, noninterest income was $8.1 million, 7.8% higher than the second quarter of 2016, primarily as a result of higher deposit service charges and insurance income
• Return on average common equity was 10.45%
  • Return on average tangible common equity was 13.87% (computation of this non-GAAP measure provided in Appendix A)
• Net interest margin was 3.23%, unchanged from the previous quarter
• Total interest-earning assets, assets, loans and deposits all increased to record-high levels in the third quarter:
  • Total interest-earning assets increased $65 million to $3.4 billion
  • Total assets increased $102 million to $3.7 billion
  • Total loans increased $72 million to $2.3 billion
  • Total deposits increased $205 million to $3.1 billion
• Quarterly cash dividend of $0.20 per common share represented a 2.93% dividend yield as of September 30, 2016, and a return of 36% of third quarter net income to common shareholders
• Total risk-based capital was 12.98% at quarter-end, representing a strong capital position to support future growth
• Credit quality remains strong with total non-performing loans to total loans of 0.27% at quarter-end

Kevin B. Klotzbach, the Company’s Chief Financial Officer noted that, “We delivered strong earnings through base revenue growth and ongoing, disciplined expense management.  There were no significant non-recurring items in the third quarter to detract from our results.

“A strong credit culture is a key component of our long-term strategy as we balance volume and risk. Our asset quality exceeds that of many of our peers as illustrated by our ratio of non-performing assets to total assets of 0.17% at quarter-end.”

Net Interest Income and Net Interest Margin

• Net interest income was $26.1 million for the third quarter of 2016, $851 thousand higher than the second quarter of 2016 and $1.9 million higher than the third quarter of 2015.
• Average interest-earning assets for the quarter were $3.3 billion, $87.1 million higher than the second quarter of 2016 and $224.6 million higher than the third quarter of 2015.
  • The primary driver of the increase was loans, which were $93.8 million higher in the third quarter of 2016 than the second quarter of 2016 and $223.6 million higher than the third quarter of 2015.
• Third quarter 2016 net interest margin was 3.23%, unchanged from the second quarter of 2016 and three basis points higher than the third quarter of 2015. 

Noninterest Income

Noninterest income was $8.5 million for the third quarter of 2016 as compared to $8.9 million in the second quarter of 2016 and $7.0 million in the third quarter of 2015. 

• Excluding the net gain on investment securities from all periods, noninterest income was $8.1 million in the third quarter of 2016, $584 thousand higher than $7.5 million in the second quarter of 2016, and $1.4 million higher than $6.7 million in the third quarter of 2015. 
• For the third quarter of 2016 as compared to the second quarter of 2016, insurance income increased by $224 thousand due to the timing of customer renewals; service charges on deposits, which historically are higher in the third quarter, increased by $158 thousand; and income from the Company’s investments in limited partnerships, which fluctuates based on the performance of the underlying investments, increased by $125 thousand.
• Higher noninterest income in the third quarter of 2016 as compared to the third quarter of 2015 was primarily the result of an $803 thousand increase in investment advisory income, reflecting the contribution from Courier Capital, and amortization of a historic tax investment in a community-based project that reduced noninterest income by $390 thousand in the third quarter of 2015. 

Noninterest Expense

Noninterest expense was $20.6 million for the third quarter of 2016 as compared to $22.1 million in the second quarter of 2016 and $19.3 million in the third quarter of 2015.

• Salaries and employee benefits for the third quarter of 2016 includes a one-time cash bonus of $323 thousand. The bonus is payable to all employees during the fourth quarter in recognition of their contributions to the Company’s revenue growth and expense control in 2016.
• The decrease in noninterest expense as compared to the second quarter of 2016 was primarily the result of $1.7 million of professional services in the second quarter associated with the Company’s successful proxy contest defense.

The increase in noninterest expense as compared to the third quarter of 2015 was primarily the result of higher salaries and employee benefits and occupancy and equipment expenses. The higher year-over-year operating expenses are largely the result of the Courier Capital acquisition and organic growth initiatives.

Income Taxes

Income tax expense was $3.5 million for the third quarter of 2016 as compared to $2.9 million in the second quarter of 2016 and $2.7 million in the third quarter of 2015. The effective tax rate was 29.5% for the third quarter of 2016, 28.8% in the second quarter of 2016, and 24.8% in the third quarter of 2015. The lower effective tax rate in the third quarter of 2015 was a result of historic tax credits, as discussed in the noninterest income section above.

Balance Sheet and Capital Management

Total assets were $3.7 billion at September 30, 2016, up $101.8 million from $3.6 billion at June 30, 2016, and up $329.8 million from $3.4 billion at September 30, 2015. The increases were largely the result of loan growth.

Total loans were $2.3 billion at September 30, 2016, up $72.2 million, or 3.3%, from June 30, 2016, and up $247.8 million, or 12.2%, from September 30, 2015.

• Commercial business loans totaled $350.6 million, up $1.2 million, or 0.3%, from June 30, 2016, and up $52.7 million, or 17.7%, from September 30, 2015.
• Commercial mortgage loans totaled $636.3 million, up $22.2 million, or 3.6%, from June 30, 2016, and up $87.8 million, or 16.0%, from September 30, 2015.
• Residential real estate loans totaled $425.9 million, up $17.5 million, or 4.3%, from June 30, 2016, and up $49.3 million, or 13.1%, from September 30, 2015.
• Consumer indirect loans totaled $729.6 million, up $32.7 million, or 4.7%, from June 30, 2016, and up $63.9 million, or 9.6%, from September 30, 2015.

Total deposits were $3.1 billion at September 30, 2016, an increase of $205.4 million from June 30, 2016, and an increase of $309.9 million from September 30, 2015. The increase from June 30, 2016, was primarily due to public deposit seasonality. The increase from September 30, 2015, was primarily the result of successful business development efforts in both municipal and retail banking. Public deposit balances represented 29% of total deposits at September 30, 2016, compared to 27% at June 30, 2016 and 27% at September 30, 2015.

Short-term borrowings were $230.2 million at September 30, 2016, down $108.1 million from June 30, 2016, and down $11.2 million from September 30, 2015. Short-term borrowings are typically utilized to manage the seasonality of public deposits.

Shareholders’ equity was $326.3 million at September 30, 2016, compared to $322.2 million at June 30, 2016, and $295.4 million at September 30, 2015. Common book value per share was $21.26 at September 30, 2016, an increase of $0.28 or 1.3% from $20.98 at June 30, 2016, and an increase of $1.66 or 8.5% from $19.60 at September 30, 2015. The increases in shareholders’ equity and common book value per share as compared to September 30, 2015, are attributable to net income, stock issued for the acquisition of Courier Capital, and higher net unrealized gains on securities available for sale, a component of accumulated other comprehensive loss.

During the third quarter 2016, the Company declared a common stock dividend of $0.20 per common share. The third quarter 2016 dividend returned 36% of third quarter net income to common shareholders. 

Regulatory capital ratios at September 30, 2016, remained steady with slight downward pressure a result of strong loan growth and higher asset levels associated with seasonal public deposits:

• Leverage Ratio was 7.39%, unchanged from June 30, 2016, and up ten basis points from 7.29% at September 30, 2015.
• Common Equity Tier 1 Ratio was 9.58%, compared to 9.63% and 9.74% at June 30, 2016, and September 30, 2015, respectively.
• Tier 1 Risk-Based Capital was 10.27%, compared to 10.33% and 10.49% at June 30, 2016, and September 30, 2015, respectively.
• Total Risk-Based Capital was 12.98%, compared to 13.08% and 13.37% at June 30, 2016, and September 30, 2015, respectively.

Credit Quality

Non-performing loans were $6.1 million at September 30, 2016, compared to $6.6 million at June 30, 2016, and $8.5 million at September 30, 2015. The $2.4 million decrease from September 30, 2015, was due to lower commercial non-performing loans resulting from pay-downs on two relationships totaling $1.8 million during the second quarter of 2016, as well as improvements in the residential real estate loan and consumer loan portfolios.

• The ratio of non-performing loans to total loans was 0.27% at September 30, 2016, compared to 0.30% at June 30, 2016, and 0.42% at September 30, 2015.

The provision for loans losses for the third quarter of 2016 was $2.0 million, relatively unchanged from the prior quarter and an increase of $1.2 million from the third quarter 2015. 

• Net charge-offs were $1.1 million during the third quarter of 2016, a $141 thousand increase compared to the prior quarter and a $663 thousand decrease from the third quarter of 2015. 
• The ratio of annualized net charge-offs to total average loans was 0.20% in the current quarter, compared to 0.19% in the prior quarter and 0.35% in the third quarter of 2015.
• The ratio of allowance for loans losses to total loans was 1.29% at both September 30, and June 30, 2016, and 1.30% at September 30, 2015. 
• The ratio of allowance for loan losses to non-performing loans was 481% at September 30, 2016, 435% at June 30, 2016, and 311% at September 30, 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 disclosure regarding tangible common equity, tangible common equity to tangible assets, tangible common book value per share, average tangible common equity and return on average tangible common equity, which are determined by methods other than in accordance with U.S. generally accepted accounting principles (“GAAP”). The Company believes that these non-GAAP measures are useful to our investors as measures of the strength of the Company’s capital and ability to generate earnings on tangible common equity invested by our shareholders. These non-GAAP measures provide supplemental information that may help investors to analyze our capital position without regard to the effects of intangible assets. Non-GAAP financial measures have inherent limitations and are not uniformly applied by issuers. Therefore, these non-GAAP financial measures should not be considered in isolation, or as a substitute for comparable measures prepared in accordance with GAAP.  The comparable GAAP financial measures and reconciliation to the comparable GAAP financial measures 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.  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
		September 30,				June 30,				March 31,					December 31,						September 30,
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents		$	110,721			$	67,624			$	110,944				$	60,121					$	51,334
Investment securities:
Available for sale			559,495				619,719				610,013					544,395						577,509
Held-to-maturity			528,708				478,549				476,283					485,717						490,638
Total investment securities			1,088,203				1,098,268				1,086,296					1,030,112						1,068,147
Loans held for sale			844				209				609					1,430						1,568
Loans:
Commercial business			350,588				349,432				317,776					313,758						297,876
Commercial mortgage			636,338				614,141				590,316					566,101						548,529
Residential real estate loans			425,882				408,367				382,504					381,074						376,552
Residential real estate lines			123,663				125,054				126,526					127,347						128,361
Consumer indirect			729,644				696,908				679,846					676,940						665,714
Other consumer			17,879				17,929				18,066					18,542						19,204
Total loans			2,283,994				2,211,831				2,115,034					2,083,762						2,036,236
Allowance for loan losses			29,350				28,525				27,568					27,085						26,455
Total loans, net			2,254,644				2,183,306				2,087,466					2,056,677						2,009,781
Total interest-earning assets			3,357,609				3,292,528				3,189,582					3,114,530						3,097,315
Goodwill and other intangible assets, net			75,943				76,252				76,567					66,946						67,925
Total assets			3,687,365				3,585,589				3,516,572					3,381,024						3,357,608
Deposits:
Noninterest-bearing demand			657,624				626,240				617,394					641,972						623,296
Interest-bearing demand			629,413				560,284				622,443					523,366						563,731
Savings and money market			1,052,224				960,325				1,042,910					928,175						942,673
Time deposits			724,096				711,156				677,430					637,018						623,800
Total deposits			3,063,357				2,858,005				2,960,177					2,730,531						2,753,500
Short-term borrowings			230,200				338,300				179,200					293,100						241,400
Long-term borrowings, net			39,043				39,025				39,008					38,990						38,972
Total interest-bearing liabilities			2,674,976				2,609,090				2,560,991					2,420,649						2,410,576
Shareholders’ equity			326,271				322,176				313,953					293,844						295,434
Common shareholders’ equity			308,931				304,836				296,613					276,504						278,094
Tangible common equity (1)			232,988				228,584				220,046					209,558						210,169
Unrealized gain on investment securities, net of tax		$	9,444			$	10,886			$	7,555				$	443					$	5,270
Common shares outstanding			14,528				14,528				14,495					14,191						14,189
Treasury shares			164				164				197					207						209
CAPITAL RATIOS AND PER SHARE DATA:
Leverage ratio			7.39	%			7.39	%			7.46			%				7.41	%							7.29	%
Common equity Tier 1 ratio			9.58	%			9.63	%			9.83			%				9.77	%							9.74	%
Tier 1 risk-based capital			10.27	%			10.33	%			10.56			%				10.50	%							10.49	%
Total risk-based capital			12.98	%			13.08	%			13.39			%				13.35	%							13.37	%
Common equity to assets			8.38	%			8.50	%			8.43			%				8.18	%							8.28	%
Tangible common equity to tangible assets (1)			6.45	%			6.51	%			6.40			%				6.32	%							6.39	%
Common book value per share		$	21.26			$	20.98			$	20.46						$	19.49							$	19.60
Tangible common book value per share (1)		$	16.04			$	15.73			$	15.18						$	14.77							$	14.81
Stock price (Nasdaq: FISI):
High		$	27.63			$	29.49			$	29.53						$	29.04							$	25.21
Low		$	25.16			$	24.56			$	25.38						$	24.05							$	23.54
Close		$	27.11			$	26.07			$	29.07						$	28.00							$	24.78

^________
(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)
		Nine months ended								2016													2015
		September 30,								Third				Second				First						Fourth				Third
			2016				2015			Quarter				Quarter				Quarter						Quarter				Quarter
SELECTED INCOME STATEMENT DATA:
Interest income		$	85,241			$	77,963			$	29,360			$	28,246			$	27,635					$	27,487			$	27,007
Interest expense			9,273				7,281				3,310				3,047				2,916						2,856				2,876
Net interest income			75,968				70,682				26,050				25,199				24,719						24,631				24,131
Provision for loan losses			6,281				4,783				1,961				1,952				2,368						2,598				754
Net interest income after provision for loan losses			69,687				65,899				24,089				23,247				22,351						22,033				23,377
Noninterest income:
Service charges on deposits			5,392				5,880				1,913				1,755				1,724						1,862				2,037
Insurance income			4,262				3,930				1,407				1,183				1,672						1,236				1,265
ATM and debit card			4,187				3,773				1,441				1,421				1,325						1,311				1,297
Investment advisory			3,934				1,551				1,326				1,365				1,243						642				523
Company owned life insurance			2,340				1,448				486				486				1,368						514				488
Investments in limited partnerships			253				865				161				36				56						30				336
Loan servicing			332				416				104				112				116						87				153
Net gain on sale of loans held for sale			202				161				46				78				78						88				53
Net gain on investment securities			2,426				1,348				426				1,387				613						640				286
Net gain on other assets			285				20				199				82				4						7				-
Amortization of tax credit investment			-				(390	)			-				-				-						-				(390	)
Other			3,059				2,755				1,030				1,011				1,018						2,163				957
Total noninterest income			26,672				21,757				8,539				8,916				9,217						8,580				7,005
Noninterest expense:
Salaries and employee benefits			33,757				31,107				11,325				10,818				11,614						11,332				10,278
Occupancy and equipment			10,906				10,491				3,617				3,664				3,625						3,365				3,417
Professional services			5,236				2,898				956				2,833				1,447						1,604				1,064
Computer and data processing			2,549				2,291				832				913				804						895				779
Supplies and postage			1,548				1,611				490				464				594						544				540
FDIC assessments			1,283				1,277				406				441				436						442				444
Advertising and promotions			938				789				214				347				377						331				312
Goodwill impairment charge			-				-				-				-				-						751				-
Other			7,739				7,101				2,778				2,640				2,321						2,564				2,484
Total noninterest expense			63,956				57,565				20,618				22,120				21,218						21,828				19,318
Income before income taxes			32,403				30,091				12,010				10,043				10,350						8,785				11,064
Income tax expense			9,165				8,389				3,541				2,892				2,732						2,150				2,748
Net income			23,238				21,702				8,469				7,151				7,618						6,635				8,316
Preferred stock dividends			1,097				1,097				366				366				365						365				366
Net income available to common shareholders		$	22,141			$	20,605			$	8,103			$	6,785			$	7,253					$	6,270			$	7,950
FINANCIAL RATIOS:
Earnings per share – basic		$	1.53			$	1.46			$	0.56			$	0.47			$	0.50					$	0.44			$	0.56
Earnings per share – diluted		$	1.53			$	1.46			$	0.56			$	0.47			$	0.50					$	0.44			$	0.56
Cash dividends declared on common stock		$	0.60			$	0.60			$	0.20			$	0.20			$	0.20					$	0.20			$	0.20
Common dividend payout ratio			39.22	%			41.10	%			35.71	%			42.55	%			40.00	%					45.45	%			35.71	%
Dividend yield (annualized)			2.96	%			3.24	%			2.93	%			3.09	%			2.77	%					2.83	%			3.20	%
Return on average assets			0.89	%			0.90	%			0.94	%			0.82	%			0.90	%					0.78	%			0.99	%
Return on average equity			9.78	%			10.10	%			10.34	%			9.07	%			9.91	%					8.86	%			11.41	%
Return on average common equity			9.86	%			10.21	%			10.45	%			9.10	%			10.00	%					8.89	%			11.60	%
Return on average tangible common equity (1)			13.21	%			13.67	%			13.87	%			12.22	%			13.54	%					11.73	%			15.47	%
Efficiency ratio (2)			61.94	%			60.56	%			58.05	%			65.03	%			62.90	%					64.55	%			59.46	%

^________
(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)
		Nine months ended								2016																2015
		September 30,								Third				Second						First						Fourth				Third
			2016				2015			Quarter				Quarter						Quarter						Quarter				Quarter
SELECTED AVERAGE BALANCES:
Federal funds sold and interest-earning deposits		$	129			$	50			$	1			$	316					$	70					$	-			$	-
Investment securities (1)			1,057,272				1,002,361				1,068,866				1,075,220						1,027,602						1,049,217				1,067,815
Loans:
Commercial business			332,985				282,307				352,696				329,901						316,143						297,033				297,216
Commercial mortgage			604,577				511,545				625,003				606,360						582,142						554,327				545,875
Residential real estate loans			397,327				361,598				417,854				391,826						382,077						379,189				371,318
Residential real estate lines			125,273				128,807				123,312				125,212						127,317						127,688				127,826
Consumer indirect			691,343				663,286				711,948				683,722						678,133						671,888				663,884
Other consumer			17,678				19,084				17,548				17,562						17,926						18,626				18,680
Total loans			2,169,183				1,966,627				2,248,361				2,154,583						2,103,738						2,048,751				2,024,799
Total interest-earning assets			3,226,584				2,969,038				3,317,228				3,230,119						3,131,410						3,097,968				3,092,614
Goodwill and other intangible assets, net			76,291				68,288				76,116				76,437						76,324						67,692				68,050
Total assets			3,502,628				3,241,646				3,593,672				3,507,760						3,405,451						3,353,702				3,343,802
Interest-bearing liabilities:
Interest-bearing demand			566,419				543,045				547,545				579,497						572,424						545,602				516,448
Savings and money market			988,224				891,039				981,207				1,017,911						965,629						960,768				903,491
Time deposits			693,153				612,637				722,098				698,505						658,537						628,944				619,459
Short-term borrowings			250,329				269,415				315,122				213,826						221,326						241,957				329,050
Long-term borrowings, net			39,015				24,148				39,032				39,015						38,997						38,979				38,962
Total interest-bearing liabilities			2,537,140				2,340,284				2,605,004				2,548,754						2,456,913						2,416,250				2,407,410
Noninterest-bearing demand deposits			626,018				592,564				638,417				621,912						617,590						619,423				625,131
Total deposits			2,873,814				2,639,285				2,889,267				2,917,825						2,814,180						2,754,737				2,664,529
Total liabilities			3,185,190				2,954,451				3,267,808				3,190,589						3,096,263						3,056,541				3,054,573
Shareholders’ equity			317,438				287,195				325,864				317,171						309,188						297,161				289,229
Common equity			300,098				269,855				308,524				299,831						291,848						279,821				271,889
Tangible common equity (2)		$	223,807			$	201,567			$	232,408			$	223,394					$	215,524					$	212,129			$	203,839
Common shares outstanding:
Basic			14,429				14,076				14,456				14,434						14,395						14,095				14,087
Diluted			14,485				14,124				14,500				14,489						14,465						14,163				14,139
SELECTED AVERAGE YIELDS:
(Tax equivalent basis)
Investment securities			2.47	%			2.46	%			2.44	%					2.48	%					2.48	%			2.47	%					2.46	%
Loans			4.19	%			4.20	%			4.18	%					4.17	%					4.21	%			4.22	%					4.16	%
Total interest-earning assets			3.62	%			3.61	%			3.62	%					3.61	%					3.64	%			3.63	%					3.57	%
Interest-bearing demand			0.15	%			0.14	%			0.15	%					0.14	%					0.14	%			0.15	%					0.15	%
Savings and money market			0.13	%			0.12	%			0.14	%					0.13	%					0.13	%			0.14	%					0.14	%
Time deposits			0.89	%			0.87	%			0.91	%					0.89	%					0.88	%			0.88	%					0.89	%
Short-term borrowings			0.63	%			0.39	%			0.63	%					0.65	%					0.62	%			0.49	%					0.41	%
Long-term borrowings, net			6.33	%			6.25	%			6.33	%					6.33	%					6.34	%			6.34	%					6.34	%
Total interest-bearing liabilities			0.49	%			0.42	%			0.51	%					0.48	%					0.48	%			0.47	%					0.47	%
Net interest rate spread			3.13	%			3.19	%			3.11	%					3.13	%					3.16	%			3.16	%					3.10	%
Net interest rate margin			3.24	%			3.28	%			3.23	%					3.23	%					3.27	%			3.26	%					3.20	%

^________
(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
		Third				Second				First				Fourth				Third
		Quarter				Quarter				Quarter				Quarter				Quarter
ASSET QUALITY DATA:
Allowance for Loan Losses
Beginning balance		$	28,525			$	27,568			$	27,085			$	26,455			$	27,500
Net loan charge-offs (recoveries):
Commercial business			(31	)			(27	)			502				133				68
Commercial mortgage			127				2				(1	)			23				12
Residential real estate loans			61				34				21				110				37
Residential real estate lines			4				44				-				24				30
Consumer indirect			896				904				1,328				1,519				1,475
Other consumer			79				38				35				159				177
Total net charge-offs			1,136				995				1,885				1,968				1,799
Provision for loan losses			1,961				1,952				2,368				2,598				754
Ending balance		$	29,350			$	28,525			$	27,568			$	27,085			$	26,455
Net charge-offs (recoveries) to average loans (annualized):
Commercial business			-0.03	%			-0.03	%			0.64	%			0.18	%			0.09	%
Commercial mortgage			0.08	%			0.00	%			-0.00	%			0.02	%			0.01	%
Residential real estate loans			0.06	%			0.03	%			0.02	%			0.12	%			0.04	%
Residential real estate lines			0.01	%			0.14	%			0.00	%			0.07	%			0.09	%
Consumer indirect			0.50	%			0.53	%			0.79	%			0.90	%			0.88	%
Other consumer			1.79	%			0.87	%			0.79	%			3.39	%			3.76	%
Total loans			0.20	%			0.19	%			0.36	%			0.38	%			0.35	%
Supplemental information (1)
Non-performing loans:
Commercial business		$	2,157			$	2,312			$	4,056			$	3,922			$	3,064
Commercial mortgage			1,345				1,547				1,781				947				1,802
Residential real estate loans			1,239				1,485				1,601				1,848				2,092
Residential real estate lines			274				182				165				235				223
Consumer indirect			1,077				1,015				943				1,467				1,292
Other consumer			9				15				21				21				20
Total non-performing loans			6,101				6,556				8,567				8,440				8,493
Foreclosed assets			294				281				187				163				286
Total non-performing assets		$	6,395			$	6,837			$	8,754			$	8,603			$	8,779
Total non-performing loans to total loans			0.27	%			0.30	%			0.41	%			0.41	%			0.42	%
Total non-performing assets to total assets			0.17	%			0.19	%			0.25	%			0.25	%			0.26	%
Allowance for loan losses to total loans			1.29	%			1.29	%			1.30	%			1.30	%			1.30	%
Allowance for loan losses to non-performing loans			481	%			435	%			322	%			321	%			311	%

^________
(1)       At period end.

FINANCIAL INSTITUTIONS, INC.
Appendix A - Reconciliation to Non-GAAP Financial Measures (Unaudited)
(In thousands, except per share amounts)
		Nine months ended									2016											2015
		September 30,								Third				Second				First				Fourth					Third
			2016				2015			Quarter				Quarter				Quarter				Quarter					Quarter
Ending tangible assets:
Total assets										$	3,687,365			$	3,585,589			$	3,516,572			$	3,381,024				$	3,357,608
Less: Goodwill and other intangible assets, net											75,943				76,252				76,567				66,946					67,925
Tangible assets										$	3,611,422			$	3,509,337			$	3,440,005			$	3,314,078				$	3,289,683
Ending tangible common equity:
Common shareholders’ equity										$	308,931			$	304,836			$	296,613			$	276,504				$	278,094
Less: Goodwill and other intangible assets, net											75,943				76,252				76,567				66,946					67,925
Tangible common equity										$	232,988			$	228,584			$	220,046			$	209,558				$	210,169
Tangible common equity to tangible assets (1)											6.45	%			6.51	%			6.40	%			6.32		%			6.39	%
Common shares outstanding											14,528				14,528				14,495				14,191					14,189
Tangible common book value per share (2)										$	16.04			$	15.73			$	15.18			$	14.77				$	14.81
Average tangible assets:
Average assets		$	3,502,628			$	3,241,646			$	3,593,672			$	3,507,760			$	3,405,451			$	3,353,702				$	3,343,802
Less: Average goodwill and other intangible assets, net			76,291				68,288				76,116				76,437				76,324				67,692					68,050
Average tangible assets		$	3,426,337			$	3,173,358			$	3,517,556			$	3,431,323			$	3,329,127			$	3,286,010				$	3,275,752
Average tangible common equity:
Average common equity		$	300,098			$	269,855			$	308,524			$	299,831			$	291,848			$	279,821				$	271,889
Less: Average goodwill and other intangible assets, net			76,291				68,288				76,116				76,437				76,324				67,692					68,050
Average tangible common equity		$	223,807			$	201,567			$	232,408			$	223,394			$	215,524			$	212,129				$	203,839
Net income available to common shareholders		$	22,141			$	20,605			$	8,103			$	6,785			$	7,253			$	6,270				$	7,950
Return on average tangible common equity (3)			13.21	%			13.67	%			13.87	%			12.22	%			13.54	%			11.73		%			15.47	%

^________
(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.

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

Shelly J. Doran
Director − Investor & External Relations 
Phone: 585.627.1362
Email:  SJDoran@five-starbank.com