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Headquartered in a hamlet with fewer than 4,000 residents, Financial Institutions (FISI 0.12%) owns a small community bank that's printing money for its shareholders. The company recently reported earnings of $8.3 million, or $0.57 per diluted share, an increase of 33% and 30%, respectively, from the fourth quarter of 2015.

Here's what investors should know about its most recent results.

Financial Institutions' Q4 by the numbers


4Q 2016

4Q 2015

Growth (YOY)

Total loans

$2.3 billion

$2.1 billion


Total deposits

$3.0 billion

$2.7 billion


Net income to common shareholders

$8.3 million

$6.3 million


Diluted EPS




Tangible book value per share




Data source: Company investor relations.

What happened this quarter

Financial Institutions' quarterly results are rarely flashy, given it operates as a simple community bank that takes deposits, makes loans, and sells a few insurance policies on the side. 

  • Loan growth has been tremendous. Commercial mortgage loan growth has been exceptional, with its loan book expanding by 18.4% year over year, and 5.3% compared to the sequential quarter. The company's consumer indirect loan book (auto loans), which make up the largest share of its loan portfolio, grew 11.2% year over year and 3.1% compared to the sequential quarter.
  • Deposit growth is keeping pace with loan growth. Deposits grew 10% year over year, without any significant shift in funding sources. Non-interest-bearing deposits make up about 22.6% of deposits, down slightly from 23.5% last year. Most importantly, more expensive time deposits (CDs) make up just 23.5% of its deposits, up only modestly from 23.3% at the end of 2015.
  • Credit quality is excellent, and the bank holding company is well reserved against loan losses. Non-performing loans were just 0.27% of total loans at year-end, down from 0.41% in the fourth quarter of 2015. The company reported having allowances for losses equal to 489% of its non-performing loans, up from 321% at the end of 2015. Net charge-offs remain low at 0.30% of loans in the most recent quarter, down from 0.38% in the year-ago period.
  • If there is just one negative to call out, it's that the company's acquisition of insurance brokerage Scott Danahy Naylon doesn't appear to be meeting earlier expectations. The bank acquired the insurance broker with terms that included variable payments based on its ability to meet certain revenue targets. These future payments are recorded as a liability on the balance sheet, and when reduced, result in an increase in earnings. One of the accounting's many quirks is that reduced expectations for a business unit can result in higher earnings in the here and now. Realistically, this is a pretty small part of the overall business, but the recorded gain ($1.2 million) is significant relative to earnings ($8.3 million) in a single quarter.

What management had to say

The bank's management remains focused on growing the bank organically by entering new, larger markets in the state of New York. President and CEO Martin Birmingham said that "2016 was an eventful year for our Company and I am pleased with our performance, as we delivered double digit growth in net income for the full year. We also made great progress in our efforts to increase market share in Rochester and Buffalo."

CFO Kevin B. Klotzbach added, "Our strategy is to grow loans and deposits and operate with expense discipline and a strong credit culture. We successfully executed this strategy in 2016 as illustrated by loan portfolio growth of 12.3%, total deposit growth of 9.7%, an efficiency ratio of 60.92% for the year."

Looking ahead

The company is situated to take advantage of general industry tailwinds, while capitalizing from organic deposit and loan growth. With about 32% of its earning assets in securities and 23% of its deposits being non-interest-bearing, the bank should benefit as it rotates its portfolio into higher-yielding assets following recent increases in short- and long-term interest rates.

Ultimately, the company's ability to carve out a share of business in Buffalo and Rochester remains an important piece of its ability to maintain its double-digit growth rates. With substantial share in smaller rural communities, larger metropolitan areas would provide a long runway for loan and deposit growth going forward.