Financial Institutions, Inc. (Form: 8-K)

FINANCIAL INSTITUTIONS, INC. REPORTS SECOND QUARTER 2014
NET INCOME OF $7.0 MILLION

WARSAW, N.Y., July 23, 2014 – Financial Institutions, Inc. (the “Company”) (Nasdaq: FISI), the parent company of Five Star Bank, today reported net income for the second quarter ended June 30, 2014 of $7.0 million, compared with $7.2 million for the first quarter of 2014 and $6.9 million for the second quarter of 2013. After preferred dividends, second quarter earnings per diluted common share was $0.48, compared with $0.50 per share for the first quarter of 2014 and $0.47 per share for the second quarter of 2013.

“We delivered solid earnings in the second quarter of 2014,” said Martin K. Birmingham, the Company’s President and Chief Executive Officer. “We grew loans, credit quality continued to improve, operating expenses were well managed and capital levels strengthened. While our near-term outlook is for a continuation of the low interest rate environment, we are making important progress on our strategic growth priorities which call for increased penetration of the Rochester and Buffalo markets and the diversification of our revenue base by expanding fee-based services. We are pleased to report that meaningful progress was made during the second quarter on both of these fronts and we expect these advancements to benefit our long-term performance.”

•

Announced the pending acquisition of Scott Danahy Naylon Co., Inc. (“SDN”), a full service insurance agency, to enhance and diversify revenue

•

Quarterly net income was $7.0 million, up 3% from the same period a year ago

•

Average loans increased by $144.7 million or 8% from the second quarter of 2013 and $32.0 million or 2% from the first quarter of 2014, as total loans at the end of second quarter of 2014 reached record levels

•

Average deposits for the second quarter reached highest level in Company history at over $2.4 billion

•

Shareholders’ equity and common book value per share reached record levels at the end of the second quarter

•

Quarterly cash dividend of $0.19 per common share represents a 3.25% dividend yield as of June 30, 2014 and a return of 40% of second quarter net income to common shareholders

•

Strong quarterly return on average common equity of 10.66% and return on average tangible common equity of 13.31%

•

Capital ratios remain strong with the leverage ratio improving to 7.64% and total risk-based capital ratio increasing to 12.20% in the second quarter

Net interest income totaled $23.1 million in the second quarter of 2014, down from $23.3 million in the first quarter of 2014 and up from $22.5 million in the second quarter of 2013. Average earning assets were up $3.2 million compared to the first quarter of 2014 and $190.4 million compared to the second quarter of 2013. The increase from the prior year period included increases of $144.7 million and $45.9 million in loans and investment securities, respectively. The growth in earning assets was offset by a narrowing net interest margin. Second quarter 2014 net interest margin was 3.47%, a decrease of 5 basis points from 3.52% reported in the first quarter of 2014 and a 16 basis point decrease from 3.63% reported in the second quarter of 2013.

“We had another solid quarter of performance, driven by loan and deposit growth and further enhanced by our recently adopted tax planning strategy,” said Kevin B. Klotzbach, the Company’s Executive Vice President and Chief Financial Officer. “We continue to be focused on earnings growth by carefully managing the aspects of our business that we can control, while maintaining high credit quality.”

Noninterest income totaled $6.6 million in the second quarter of 2014, compared to $6.4 million in the first quarter of 2014 and second quarter of 2013. Included in these totals are gains realized from the sale of investment securities. Exclusive of those gains, noninterest income was $5.6 million in the recently completed quarter and $6.0 million in the first quarter of 2014 and second quarter of 2013. The main factor contributing to the lower noninterest income compared to the first quarter of 2014 was a decrease of $545 thousand from the Company’s investments in limited partnerships, which are primarily small business investment companies. The income from these equity method investments fluctuates based on the performance of the underlying investments. The decrease in noninterest income compared to the second quarter of 2013 was primarily due to lower service charges on deposit accounts.

During the second quarter of 2014 the Company recognized gains of $949 thousand from the sale of investment securities. One pooled trust preferred security which had been classified as non-performing and 14 securities acquired in the first quarter of 2014 as part of our leverage strategy were sold during the second quarter of 2014. The leverage strategy utilizes the proceeds from short-term Federal Home Loan Bank advances to purchase high-quality investment securities.

Noninterest expense in the second quarter of 2014 totaled $17.8 million, compared with $17.2 million in the first quarter of 2014 and $17.5 million in the second quarter of 2013. The increases in noninterest expense were largely due to professional services associated with the pending acquisition of SDN and the hiring of additional loan officers and related personnel as part of the Company’s expansion initiatives.

Income tax expense was $3.1 million in both the first and second quarters of 2014, and $3.4 million in the second quarter of 2013. The effective tax rate was 30.5% for the second quarter of 2014, 30.0% for the first quarter of 2014 and 33.1% for the second quarter of 2013. Our reduced effective tax rate in 2014 reflects New York State tax savings generated by the Company’s real estate investment trust, which became effective during February 2014.

Total assets were $2.99 billion at June 30, 2014, down $22.4 million from $3.02 billion at March 31, 2014 and up $211.0 million from $2.78 billion at June 30, 2013. The increase from the prior year was driven by loan growth and higher investment security balances.

Total loans were $1.90 billion at June 30, 2014, up $47.8 million or 3% from March 31, 2014 and up $153.3 million from June 30, 2013. The increase in loans was attributable to organic growth, primarily in commercial, home equity and consumer indirect loans. Total investment securities were $864.0 million at June 30, 2014, down $64.3 million or 7% compared with March 31, 2014 and up $36.1 million or 4% from June 30, 2013. During the second quarter of 2014 the Company sold approximately $42 million in investment securities acquired as part of our leverage strategy during the first quarter of 2014.

Total deposits were $2.45 billion at June 30, 2014, a decrease of $83.3 million from March 31, 2014 and an increase of $125.8 million from June 30, 2013. The decrease during the second quarter of 2014 was mainly due to seasonal outflows of municipal deposits, while the year-over-year increase was primarily due to successful business development efforts. Public deposit balances represented 25% of total deposits at June 30, 2014, compared to 28% at March 31, 2014 and 23% at June 30, 2013.

Short-term borrowings were $254.7 million at June 30, 2014, up $57.9 million and $61.3 million from March 31, 2014 and June 30, 2013, respectively. Short-term borrowings are utilized to offset seasonal outflows of municipal deposits.

Shareholders’ equity and common book value per share reached record levels at the end of the second quarter 2014. Shareholders’ equity was $269.8 million at June 30, 2014, compared with $262.9 million at March 31, 2014 and $244.9 million at June 30, 2013. Common book value per share was $18.21 at June 30, 2014, an increase of 3% from $17.72 at March 31, 2014 and 11% from $16.47 at June 30, 2013. Tangible common book value per share was $14.62 at June 30, 2014, an increase of 4% from $14.12 at March 31, 2014 and 14% from $12.84 at June 30, 2013.

During the second quarter of 2014, the Company declared a common stock dividend of $0.19 per common share, consistent with the prior quarter and up $0.01 per share from the second quarter of 2013. The second quarter 2014 dividend returned 40% of the quarter’s net income to common shareholders.

The Company’s leverage ratio was 7.64% at June 30, 2014, compared to 7.51% and 7.59% at March 31, 2014 and June 30, 2013, respectively. The capital ratios increased from the prior quarter due to an increase in shareholders’ equity and a slight decrease in total assets.

Overall credit quality improved during the second quarter of 2014. Non-performing assets at June 30, 2014 declined $7.4 million compared with March 31, 2014, driven by a decrease in non-performing loans. Non-performing commercial mortgage loans decreased primarily due to the resolution of a single commercial mortgage which had been modified as a troubled debt restructuring and placed on nonaccrual status during the fourth quarter 2013. The loan had a principal balance of $6.8 million as of March 31, 2014. Non-performing assets declined $2.5 million from second quarter of 2013 due to broad improvements in the consumer and commercial loan portfolios, partially offset by an increase in non-performing indirect loans. During the second quarter of 2014 the last of the remaining non-performing pooled trust preferred investment securities was sold. These securities had been transferred to non-performing status in years prior to 2010 and included in non-performing assets at fair value. Nonperforming assets to total assets were 0.32% at June 30, 2014 compared with 0.56% at March 31, 2014 and 0.43% at June 30, 2013.

The provision for loans losses for the second quarter of 2014 decreased $348 thousand compared with the first quarter of 2014 and increased $565 thousand compared to the second quarter of 2013. Net charge-offs for the second quarter of 2014 were $1.7 million, consistent with the first quarter of 2014 and up from $1.4 million in the second quarter of 2013. Net charge-offs expressed as an annualized percentage of average loans outstanding were 0.37% in both the first and second quarters of 2014 and 0.33% in the second quarter of 2013.

The allowance to total loans was 1.43% at June 30, 2014, and 1.47% at March 31, 2014 and June 30, 2013. The ratio of the allowance for loan losses to total loans declined in both comparisons, reflecting overall improvement in credit quality. The allowance to non-performing loans was 306% at June 30, 2014 compared with 167% at March 31, 2014, and 227% at June 30, 2013. The higher allowance to non-performing loans ratio at June 30, 2014 was driven by the reduction in non-performing loans previously described.

Financial Institutions, Inc. provides diversified financial services through its subsidiary, Five Star Bank. 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. Financial Institutions, Inc. and its subsidiary, Five Star Bank, employ over 600 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.

This news release contains financial information determined by methods other than in accordance with U.S. generally accepted accounting principles (“GAAP”). The Company believes that non-GAAP financial measures provide a meaningful comparison of the underlying operational performance of the Company, and facilitate investors’ assessments of its business and performance trends in comparison to others in the financial services industry. In addition, the Company believes the exclusion of these non-operating items enables management to perform a more effective evaluation and comparison of the Company’s results and to assess performance in relation to the company’s ongoing operations. These disclosures should not be viewed as a substitute for financial measures determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Where non-GAAP disclosures are used in this news release, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found in Appendix A to this document.

This press release may contain forward-looking statements as defined by federal securities laws. These statements may address issues that involve significant risks, uncertainties, estimates and assumptions made by management. Actual results could differ materially from current beliefs or projections. There are a number of important factors that could affect the Company’s forward-looking statements, which include its ability to implement its strategic plan, its ability to redeploy investment assets into loan assets, whether it experiences greater credit losses than expected, breaches of its third party information systems, the attitudes and preferences of its customers, its ability to successfully integrate and profitably operate acquired businesses, the competitive environment, fluctuations in the fair value of securities in its investment portfolio, changes in the regulatory environment and general economic and credit market conditions nationally and regionally. For more information about these factors and other factors that could affect the Company’s forward-looking statements, please see the Company’s Annual Report on Form 10-K and its Quarterly Reports on Form 10-Q on file with the SEC. All of these factors should be carefully reviewed, and readers should not place undue reliance on these forward-looking statements. Except as required by law, the Company undertakes no obligation to revise these statements following the date of this press release.

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


	2014						2013
	June 30,			March 31,			December 31,			September 30,			June 30,

SELECTED BALANCE SHEET DATA:
Cash and cash equivalents	$	64,832			72,401			59,692			99,384			50,927
Investment securities:
Available for sale		601,903			674,650			609,400			583,551			810,549
Held-to-maturity		262,057			253,576			249,785			245,708			17,348

Total investment securities		863,960			928,226			859,185			829,259			827,897
Loans held for sale		201			900			3,381			2,810			3,423
Loans:
Commercial business		277,685			268,352			265,766			253,925			257,732
Commercial mortgage		469,055			468,763			469,284			449,565			437,515
Residential mortgage		106,206			110,164			113,045			117,624			118,117
Home equity		369,578			332,348			326,086			316,626			306,215
Consumer indirect		652,748			647,546			636,368			618,088			599,586
Other consumer		21,392			21,667			23,070			23,844			24,249

Total loans		1,896,664			1,848,840			1,833,619			1,779,672			1,743,414
Allowance for loan losses		27,166			27,152			26,736			26,685			25,590

Total loans, net		1,869,498			1,821,688			1,806,883			1,752,987			1,717,824
Total interest-earning assets ⁽¹⁾⁽²⁾		2,758,779			2,780,489			2,705,045			2,613,746			2,576,028
Goodwill and other intangible assets, net		49,826			49,913			50,002			50,095			50,190
Total assets		2,993,264			3,015,619			2,928,636			2,867,517			2,782,303
Deposits:
Noninterest-bearing demand		551,229			532,914			535,472			542,517			511,802
Interest-bearing demand		507,083			541,660			470,733			519,283			475,448
Savings and money market		766,594			812,734			717,928			757,454			713,459
Certificates of deposit		625,172			646,112			595,923			594,931			623,527

Total deposits		2,450,078			2,533,420			2,320,056			2,414,185			2,324,236
Borrowings		254,683			196,746			337,042			188,146			193,413
Total interest-bearing liabilities		2,153,532			2,197,252			2,121,626			2,059,814			2,005,847
Shareholders’ equity		269,827			262,865			254,839			247,845			244,888
Common shareholders’ equity ⁽³⁾		252,487			245,523			237,497			230,503			227,494
Tangible common equity ⁽⁴⁾		202,661			195,610			187,495			180,408			177,304
Unrealized (loss) gain on investment securities, net of tax	$	1,292			(1,467	)		(5,293	)		(1,154	)		(725	)
Common shares outstanding		13,863			13,853			13,829			13,810			13,809
Treasury shares		299			309			333			352			353
CAPITAL RATIOS AND PER SHARE DATA:
Leverage ratio		7.64	%		7.51			7.63			7.68			7.59
Tier 1 risk-based capital		10.95	%		10.89			10.82			10.94			10.96
Total risk-based capital		12.20	%		12.14			12.08			12.19			12.21
Common equity to assets		8.44	%		8.14			8.11			8.04			8.18
Tangible common equity to tangible assets ⁽⁴⁾		6.89	%		6.60			6.51			6.40			6.49
Common book value per share	$	18.21			17.72			17.17			16.69			16.47
Tangible common book value per share ⁽⁴⁾		14.62			14.12			13.56			13.06			12.84

⁽¹⁾ Includes investment securities at adjusted amortized cost and non-performing investment securities.

⁽⁴⁾ See Appendix A – Non-GAAP to GAAP Reconciliation for the computation of this Non-GAAP measure.

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


						Quarterly Trends
	Six months ended					2014								2013
	June 30,					Second		First			Fourth			Third			Second
	2014			2013		Quarter		Quarter			Quarter			Quarter			Quarter
SELECTED INCOME STATEMENT DATA:
Interest income	$	49,942			49,090		24,883		25,059			25,218			24,623			24,342
Interest expense		3,564			3,679		1,780		1,784			1,838			1,820			1,818

Net interest income		46,378			45,411		23,103		23,275			23,380			22,803			22,524
Provision for loan losses		3,864			3,902		1,758		2,106			2,407			2,770			1,193

Net interest income after provision
for loan losses		42,514			41,509		21,345		21,169			20,973			20,033			21,331

Noninterest income:
Service charges on deposits		4,491			4,709		2,241		2,250			2,511			2,728			2,568
ATM and debit card		2,431			2,566		1,257		1,174			1,249			1,283			1,317
Investment advisory		1,124			1,349		561		563			428			568			650
Company owned life insurance		828			853		425		403			431			422			438
Investments in limited partnerships		707			297		81		626			319			241			136
Loan servicing		330			225		176		154			118			227			152
Net gain (loss) on sale of loans held for sale		155			235		50		105			(17	)		(101	)		35
Net gain on investment securities		1,262			1,224		949		313			2			—			332
Net (loss) gain on sale of other assets		(11	)		39		24		(35	)		(142	)		—			38
Other		1,617			1,432		813		804			836			801			710

Total noninterest income		12,934			12,929		6,577		6,357			5,735			6,169			6,376

Noninterest expense:
Salaries and employee benefits		18,319			18,935		9,063		9,256			9,420			9,473			9,226
Occupancy and equipment		6,374			6,204		3,139		3,235			3,203			2,959			3,035
Professional services		2,356			2,030		1,384		972			992			814			1,093
Computer and data processing		1,500			1,516		777		723			643			689			812
Supplies and postage		1,047			1,288		535		512			536			518			608
FDIC assessments		810			725		388		422			372			367			364
Advertising and promotions		393			467		214		179			220			209			253
Other		4,222			3,881		2,308		1,914			2,000			1,980			2,071

Total noninterest expense		35,021			35,046		17,808		17,213			17,386			17,009			17,462

Income before income taxes		20,427			19,392		10,114		10,313			9,322			9,193			10,245
Income tax expense		6,176			6,393		3,082		3,094			2,955			3,029			3,395

Net income		14,251			12,999		7,032		7,219			6,367			6,164			6,850

Preferred stock dividends		731			735		365		366			366			365			367

Net income available to common shareholders	$	13,520			12,264		6,667		6,853			6,001			5,799			6,483

FINANCIAL RATIOS AND STOCK DATA:
Earnings per share – basic	$	0.98			0.89		0.48		0.50			0.44			0.42			0.47
Earnings per share – diluted	$	0.98			0.89		0.48		0.50			0.43			0.42			0.47
Cash dividends declared on common stock	$	0.38			0.36		0.19		0.19			0.19			0.19			0.18
Common dividend payout ratio ⁽¹⁾		38.78	%		40.45		39.58		38.00			43.18			45.24			38.30
Dividend yield (annualized)		3.27	%		3.94		3.25		3.35			3.05			3.68			3.92
Return on average assets		0.97	%		0.94		0.95		0.99			0.88			0.88			0.99
Return on average equity		10.85	%		10.22		10.52		11.19			10.03			9.93			10.70
Return on average common equity ⁽²⁾		11.01	%		10.35		10.66		11.38			10.15			10.05			10.86
Return on average tangible common equity ⁽³⁾		13.79	%		13.11		13.31		14.30			12.90			12.88			13.74
Efficiency ratio ⁽⁴⁾		58.54	%		59.62		60.15		56.96			57.76			56.95			59.38
Stock price (Nasdaq: FISI):
High	$	25.69			20.83		24.88		25.69			26.59			21.99			20.66
Low	$	19.72			17.92		22.17		19.72			20.14			18.39			17.92
Close	$	23.42			18.41		23.42		23.02			24.71			20.46			18.41

⁽¹⁾ Common dividend payout ratio equals dividends declared during the period divided by earnings per share for the equivalent period.

⁽²⁾ Annualized net income available to common shareholders divided by average common equity.

⁽³⁾ See Appendix A – Non-GAAP to GAAP Reconciliation for the computation of this Non-GAAP measure.

⁽⁴⁾ Efficiency ratio equals noninterest expense less other real estate expense and amortization of intangible assets as a percentage of net revenue, defined as the sum of tax-equivalent net interest income and noninterest income before net gains and impairment charges on investment securities.


						Quarterly Trends
	Six months ended					2014				2013
	June 30,					Second		First		Fourth		Third		Second
	2014			2013		Quarter		Quarter		Quarter		Quarter		Quarter
SELECTED AVERAGE BALANCES:
Federal funds sold and interest-earning deposits	$	204			272		94		316		94		126		226
Investment securities ⁽¹⁾		890,068			833,094		875,855	904,437		849,069			821,561		829,953
Loans ⁽²⁾:
Commercial business		270,148			257,638		275,105	265,137		253,458			256,256		256,332
Commercial mortgage		473,312			425,982		473,883	472,733		460,722			442,178		433,631
Residential mortgage		110,949			126,824		108,535	113,390		118,113			121,462		123,263
Home equity		337,922			294,140		346,911	328,833		320,872			309,970		299,230
Consumer indirect		646,720			591,671		651,150	642,241		627,557			605,286		595,235
Other consumer		21,455			24,804		20,855	22,062		23,132			23,641		24,080

Total loans		1,860,506			1,721,059		1,876,439	1,844,396		1,803,854			1,758,793		1,731,771
Total interest-earning assets		2,750,778			2,554,425		2,752,388	2,749,149		2,653,017			2,580,480		2,561,950
Goodwill and other intangible assets, net		49,923			50,299		49,879	49,968		50,058			50,153		50,249
Total assets		2,969,591			2,784,681		2,973,735	2,965,400		2,860,733			2,784,580		2,789,104
Interest-bearing liabilities:
Interest-bearing demand		510,231			491,835		509,398	511,073		501,753			466,889		489,047
Savings and money market		775,956			716,632		789,956	761,799		757,868			719,452		739,328
Certificates of deposit		624,068			641,534		629,945	618,126		599,971			603,434		635,583
Borrowings		249,470			172,415		224,801	274,414		208,338			207,491		153,626

Total interest-bearing liabilities		2,159,725			2,022,416		2,154,100	2,165,412		2,067,930			1,997,266		2,017,584
Noninterest-bearing demand deposits		531,158			491,685		537,895	524,346		526,146			527,438		501,354
Total deposits		2,441,413			2,341,686		2,467,194	2,415,344		2,385,738			2,317,213		2,365,312
Total liabilities		2,704,683			2,528,309		2,705,578	2,703,777		2,608,815			2,538,377		2,532,197
Shareholders’ equity		264,908			256,372		268,157	261,623		251,918			246,203		256,907
Common equity ⁽³⁾		247,566			238,939		250,815	244,281		234,576			228,827		239,500
Tangible common equity⁽⁴⁾	$	197,643			188,640		200,936	194,313		184,518			178,674		189,251
Common shares outstanding:
Basic		13,782			13,728		13,791	13,773		13,754			13,745		13,739
Diluted		13,831			13,767		13,838	13,824		13,817			13,787		13,767
SELECTED AVERAGE YIELDS:
*(Tax equivalent basis)*
Federal funds sold and interest-earning deposits		0.08	%		0.20		0.07		0.08		0.16		0.15		0.19
Investment securities		2.44	%		2.38		2.45		2.43		2.46		2.42		2.38
Loans		4.39	%		4.74		4.32		4.45		4.55		4.59		4.65
Total interest-earning assets		3.76	%		3.97		3.73		3.79		3.88		3.90		3.91
Interest-bearing demand		0.12	%		0.13		0.12		0.13		0.16		0.18		0.14
Savings and money market		0.12	%		0.13		0.12		0.13		0.14		0.14		0.13
Certificates of deposit		0.75	%		0.80		0.76		0.74		0.77		0.77		0.79
Borrowings		0.37	%		0.40		0.36		0.38		0.38		0.38		0.40
Total interest-bearing liabilities		0.33	%		0.37		0.33		0.33		0.35		0.36		0.36
Net interest rate spread		3.43	%		3.60		3.40		3.46		3.53		3.54		3.55
Net interest rate margin		3.49	%		3.68		3.47		3.52		3.61		3.62		3.63

⁽¹⁾ Includes investment securities at adjusted amortized cost and non-performing investment securities.

⁽⁴⁾ See Appendix A – Non-GAAP to GAAP Reconciliation for the computation of this Non-GAAP measure.

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


	2014						2013
	June 30,			March 31,			December 31,		September 30,			June 30,

ASSET QUALITY DATA:
Allowance for Loan Losses
Beginning balance	$	27,152			26,736			26,685		25,590			25,827
Net loan charge-offs (recoveries):
Commercial business		(65	)		39			328		104			87
Commercial mortgage		159			(7	)		369		(87	)		(37	)
Residential mortgage		61			57			118		22			72
Home equity		127			95			8		14			(20	)
Consumer indirect		1,336			1,350			1,416		1,465			1,170
Other consumer		126			156			117		157			158

Total net charge-offs		1,744			1,690			2,356		1,675			1,430
Provision for loan losses		1,758			2,106			2,407		2,770			1,193

Ending balance	$	27,166			27,152			26,736		26,685			25,590

Supplemental information
Period end loans:
Originated loans	$	1,853,728			1,803,209			1,785,599		1,728,453			1,688,392
Acquired loans		42,936			45,631			48,020		51,219			55,022

Total loans	$	1,896,664			1,848,840			1,833,619		1,779,672			1,743,414

Allowance for loan losses to total loans		1.43	%		1.47			1.46		1.50			1.47
Allowance for loan losses for originated
loans to originated loans		1.47	%		1.51			1.50		1.54			1.52
Net charge-offs (recoveries) to average loans (annualized):
Commercial business		-0.09	%		0.06			0.51		0.16			0.14
Commercial mortgage		0.13	%		-0.01			0.32		-0.08			-0.03
Residential mortgage		0.23	%		0.21			0.41		0.07			0.24
Home equity		0.15	%		0.12			0.01		0.02			-0.03
Consumer indirect		0.82	%		0.85			0.90		0.96			0.79
Other consumer		2.42	%		2.87			2.01		2.63			2.63
Total loans		0.37	%		0.37			0.52		0.38			0.33
Non-performing loans:
Commercial business	$	3,589			3,706			3,474		4,078			5,043
Commercial mortgage		2,734			9,545			9,663		2,835			3,073
Residential mortgage		758			760			1,078		1,337			1,423
Home equity		371			826			925		911			699
Consumer indirect		1,427			1,387			1,471		1,161			1,035
Other consumer		12			46			11		16			22

Total non-performing loans		8,891			16,270			16,622		10,338			11,295
Foreclosed assets		554			412			333		424			415
Non-performing investment securities		—			113			128		128			207

Total non-performing assets	$	9,445			16,795			17,083		10,890			11,917

Total non-performing loans to total loans		0.47	%		0.88			0.91		0.58			0.65
Total non-performing loans to originated loans		0.48	%		0.90			0.93		0.60			0.67
Total non-performing assets to total assets		0.32	%		0.56			0.58		0.38			0.43
Allowance for loan losses to non-performing loans		306	%		167			161		258			227

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


							Quarterly Trends
	Six months ended						2014							2013
	June 30,						Second			First		Fourth		Third		Second
	2014				2013		Quarter			Quarter		Quarter		Quarter		Quarter
Ending tangible assets:
Total assets							$	2,993,264			3,015,619		2,928,636		2,867,517		2,782,303
Less: Goodwill and other intangible assets, net								49,826			49,913		50,002		50,095		50,190

Tangible assets (non-GAAP)							$	2,943,438			2,965,706		2,878,634		2,817,422		2,732,113

Ending tangible common equity:
Common shareholders’ equity							$	252,487			245,523		237,497		230,503		227,494
Less: Goodwill and other intangible assets, net								49,826			49,913		50,002		50,095		50,190

Tangible common equity (non-GAAP)							$	202,661			195,610		187,495		180,408		177,304

Tangible common equity to tangible assets (non-GAAP)⁽¹⁾								6.89	%		6.60		6.51		6.40		6.49
Common shares outstanding								13,863			13,853		13,829		13,810		13,809
Tangible common book value per share (non-GAAP)⁽²⁾							$	14.62			14.12		13.56		13.06		12.84
Average tangible common equity:
Average common equity		$	247,566			238,939		250,815			244,281		234,576		228,827		239,500
Average goodwill and other intangible assets, net			49,923			50,299		49,879			49,968		50,058		50,153		50,249

Average tangible common equity (non-GAAP)		$	197,643			188,640		200,936			194,313		184,518		178,674		189,251

Return on average tangible common equity ⁽³⁾			13.79	%		13.11		13.31			14.30		12.90		12.88		13.74

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New York	0-26481	16-0816610
_____________________ (State or other jurisdiction	_____________ (Commission	______________ (I.R.S. Employer
of incorporation)	File Number)	Identification No.)

220 Liberty Street, Warsaw, New York		14569
_________________________________ (Address of principal executive offices)		___________ (Zip Code)


	Financial Institutions, Inc.

July 23, 2014	By:	/s/ Kevin B. Klotzbach

		Name: Kevin B. Klotzbach
		Title: Executive Vice President, Chief Financial Officer and Treasurer


Exhibit No.		Description

99.1		Press Release issued July 23, 2014


NEWS RELEASE		220 Liberty Street
*For Immediate Release*		Warsaw, NY 14569


Date of Report (Date of Earliest Event Reported):		July 23, 2014


Registrant’s telephone number, including area code:		585-786-1100