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Behind Financial Institutions' (NASDAQ:FISI) plain name is a profitable bank that's minting money for its shareholders. On Tuesday, the Warsaw, N.Y.-based bank holding company reported that its net income to common shareholders grew to $8.1 million for the third quarter, or $0.56 per diluted share. Here's what shareholders should know now.

Financial Institutions' Q3 by the numbers

Despite efforts to diversify by acquiring an asset manager and insurance brokerage, Financial Institutions' earnings are primarily driven by its ability to gather deposits and make loans. Thus, the value of the franchise expands with every dollar gathered in deposits and put to work in its loan and securities portfolios.


Q3 2016

Q3 2015

Growth YOY

Total loans, net

$2.25 billion

$2.01 billion


Total deposits

$3.06 billion

$2.75 billion


Net income to common shareholders

$8.10 million

$7.95 million


Diluted EPS




Tangible book value per share




Source: company investor relations.

What happened this quarter?

  • Commercial business loans that have led its loan growth over the past 12 months (17.7%) grew at a snail's pace in the most recent quarter. But its consumer indirect loans, primarily auto loans, grew the fastest this quarter, at 4.7% quarter over quarter, and 9.6% year over year, picking up the slack in its commercial business lending. Commercial mortgages and residential real estate loans grew 3.6% and 4.3%, respectively, quarter over quarter.
  • Total deposits grew 7.2% sequentially, and 11.3% year over year. The mix is increasingly shifting toward interest-bearing deposits, as non-interest deposits fell to just 21% of deposits. The shifting mix isn't all that obvious from its funding costs; Financial Institutions pays just 0.51% per year across all of its interest-bearing liabilities, up just 4 basis points from 0.47% a year ago.
  • Credit quality is pristine. Only 0.27% of total loans and 0.17% of total assets were non-performing at the end of the quarter. Financial Institutions is very well reserved against problem loans, as its provisions for loan losses covered non-performing loans by 4.81 times, up from 3.11 in the year-ago period.
  • The bank lost very little to loan losses this quarter, charging off just 0.2% of total loans this quarter, down from 0.35% last year.
  • Net interest margins of 3.23% were flat when compared with the prior quarter but up 3 basis points from the third quarter of 2015.
  • The company's expenses normalized in the third quarter, having risen sharply because of a proxy contest last quarter. Its efficiency ratio -- its non-interest expenses expressed as a percentage of revenue -- dropped to 58.1%, down from 65% last quarter and 59.5% during the year-ago period. A lower efficiency ratio is better.

Looking ahead

Financial Institutions is pushing into new areas that offer better growth than its rural strongholds. The company has long sought to take its fair share of Buffalo and Rochester, N.Y., which are dominated by KeyCorp after its recent acquisition of First Niagara.

Financial Institutions CEO Martin Birmingham announced that the bank "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."

Birmingham also said in the press release to shareholders:

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.

Oxele previously worked at KeyCorp as a corporate banker.

While rural branches have allowed the company to steadily grow deposits, loans, and profits, the real growth opportunity is in larger cities in upstate New York, which could be needle-moving markets for Financial Institutions for years, if not decades, to come.

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