For More Information: Ronald A. Miller Executive Vice President and Chief Financial Officer Phone: 585-786-1102
FOR IMMEDIATE RELEASE
Financial Institutions, Inc. Reports 2005 First Quarter Results
WARSAW, N.Y., April 28, 2005 — Financial Institutions, Inc. (NASDAQ:FISI), a holding company of community banks serving Central and Western New York, today reported net income of $2.3 million for the first quarter of 2005 down $0.3 million compared with $2.6 million for the first quarter of 2004. The lower net income is primarily a result of a $1.5 million increase in noninterest expense, offset by a $1.1 million decrease in the provision for loan losses. On a diluted per share basis, earnings for the first quarter of 2005 were $0.17, a decrease of 15% from $0.20 per share for the comparable quarter last year.
Peter G. Humphrey, Chairman, President & CEO of Financial Institutions, Inc (FII) stated, “Our financial results reflect our ongoing efforts to address the weaknesses in our loan portfolio. Increases in our noninterest expense largely represent additional legal, professional and personnel costs related to our credit and regulatory issues. The level of provision for loan losses primarily reflects our high level of problem loans. As previously indicated, we are evaluating the possibility of a sale of a substantial portion of our problem loans and have engaged an investment banking firm as an advisor to provide a review and assessment of those loans.”
Return on average common equity (annualized) for the first quarter of 2005 was 4.67% down 0.75% compared with the same quarter last year. Return on average assets (annualized) also declined for the 2005 first quarter to 0.43% compared with 0.49% for the same quarter in 2004.
1
Revenue For the first quarter 2005 net interest income totaled $18.4 million, down $0.1 million in comparison with the 2004 first quarter. Interest income from securities offset the decline in interest earned on a lower loan base. The net interest margin for the first quarter of 2005 was 3.90% compared with 3.89% in the prior year. Noninterest income for the first quarter of 2005 declined $0.2 million to $5.7 million from $5.9 million in the first quarter of 2004, largely the result of a $0.2 million decline in service charges on deposits.
Noninterest expense Noninterest expense increased $1.5 million for the first quarter of 2005 to $17.4 million. Professional services fees increased $0.5 million due to higher costs associated with credit and regulatory issues. The $0.3 million increase in salaries and benefits expense reflects the addition of staff to the centralized credit administration function and the enhancement of the loan administration team, while $0.5 million of the increase in other expense relates to separation costs recorded during the most recent quarter. The higher noninterest expense, combined with flat revenue, resulted in an efficiency ratio of 67.62% for the 2005 first quarter compared to 61.15% for the first quarter of 2004.
Asset Quality Nonperforming assets at March 31, 2005 were $63.6 million, up $8.4 million from December 31, 2004 and up $13.1 million from March 31, 2004. During the quarter, an $8.8 million substandard but accruing credit to one borrowing relationship was downgraded to nonaccrual status based on deterioration in the business. The ratio of nonperforming assets to total loans and other real estate was 5.18% at March 31, 2005 compared with 4.39% and 3.84% at December 31, 2004 and March 31, 2004, respectively. Net loan charge-offs in the first quarter of 2005 were $2.9 million, down $0.9 million from the prior year’s first quarter. Net loan charge-offs to average loans (annualized) for the first quarter 2005 was 0.93% compared with 1.15% in the same quarter last year.
Balance Sheet Trends Total loans declined 7% to $1.23 billion as of March 31, 2005 compared with $1.31 billion at March 31, 2004. Loan origination has slowed as the Company has implemented more stringent underwriting requirements and focused resources on the existing loan portfolio. Offsetting the decline in loans was an 8% increase in investment securities to $768 million at March 31, 2005 compared with $712 million a year ago. Average deposits were relatively flat at $1.82 billion for the first quarters of 2005 and 2004. Total assets were $2.20 billion at March 31, 2005 down slightly in comparison to $2.22 billion at March 31, 2004.
About Financial Institutions, Inc. FII is the bank holding company parent of Wyoming County Bank, The National Bank of Geneva, Bath National Bank, and First Tier Bank & Trust with $2.2 billion in assets. Its four banks provide a wide range of consumer and commercial banking services to individuals, municipalities, and businesses through a network of 50 offices and 72 ATMs in Western and Central New York State. FII’s Financial Services Group also provides diversified financial services to its customers and clients, including brokerage, trust, insurance and employee benefits and compensation consulting. More information on FII and its subsidiaries is available through the Company web site atwww.fiiwarsaw.com.
Safe Harbor Statement This press release contains 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 the ability of the Company to implement the necessary changes to be in compliance with the formal agreements with the OCC, the effectiveness of the changes the Company is making, quality of collateral associated with nonperforming loans, the ability of customers to continue to make payments on criticized or substandard loans, the impact of rising interest rates on customer cash flows, the speed or cost of resolving bad loans, the ability to hire and train personnel, the economic conditions in the area the Company operates, customer preferences, the competition and other factors discussed in the Company’s filings with the Securities and Exchange Commission. The Company undertakes no obligation to revise these statements following the date of this press release.
TABLES FOLLOW.
2
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Income and Other Data
(Dollars in thousands, except per share amounts)
(Unaudited)
Three months ended
March 31,
2005
2004
$ Change
% Change
Interest income
$
26,420
$
26,317
$
103
-
%
Interest expense
8,052
7,860
192
(2
)%
Net interest income
18,368
18,457
(89
)
-
%
Provision for loan losses
3,692
4,796
(1,104
)
(23
)%
Net interest income after provision for loan losses
14,676
13,661
1,015
7
%
Noninterest income:
Service charges on deposits
2,595
2,818
(223
)
(8
)%
Financial services group fees and commissions
1,537
1,420
117
8
%
Mortgage banking activities
477
523
(46
)
(9
)%
Gain on sale and call of securities
-
50
(50
)
(100
)%
Other
1,100
1,042
58
6
%
Total noninterest income
5,709
5,853
(144
)
(2
)%
Noninterest expense:
Salaries and employee benefits
9,434
9,152
282
3
%
Other
7,917
6,756
1,161
17
%
Total noninterest expense
17,351
15,908
1,443
9
%
Income before income taxes
3,034
3,606
(572
)
(16
)%
Income taxes
745
959
(214
)
(22
)%
Net income
2,289
2,647
(358
)
(14
)%
Preferred stock dividends
372
374
(2
)
(1
)%
Net income available to common shareholders
$
1,917
$
2,273
$
(356
)
(16
)%
Taxable-equivalent net interest income
$
19,493
$
19,582
$
(89
)
-
%
Per common share data:
Net income — basic
$
0.17
$
0.20
$
(0.03
)
(15
)%
Net income — diluted
$
0.17
$
0.20
$
(0.03
)
(15
)%
Cash dividends declared
$
0.16
$
0.16
$
-
-
%
Book value
$
14.29
$
15.10
$
(0.81
)
(5
)%
Common shares outstanding:
Weighted average shares — basic
11,249,474
11,170,972
Weighted average shares — diluted
11,298,967
11,246,200
Period end actual
11,249,676
11,172,673
3
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Additional Data
(Dollars in thousands, except per share amounts)
(Unaudited)
Three months ended
March 31,
2005
2004
Performance ratios, annualized
Return on average assets
0.43
%
0.49
%
Return on average common equity
4.67
%
5.42
%
Common dividend payout ratio
94.12
%
80.00
%
Net interest margin (tax-equivalent)
3.90
%
3.89
%
Efficiency ratio
67.62
%
61.15
%
Asset quality data:
Past due over 90 days and accruing
$
12
$
2,199
Restructured loans
—
3,081
Nonaccrual loans
62,580
44,324
Other real estate owned (ORE)
981
850
Total nonperforming assets
$
63,573
$
50,454
Net loan charge-offs
$
2,870
$
3,837
Asset quality ratios:
Nonperforming loans to total loans
5.11
%
3.78
%
Nonperforming assets to total loans and ORE
5.18
%
3.84
%
Allowance for loan losses to total loans
3.27
%
2.29
%
Allowance for loan losses to nonperforming loans
64
%
61
%
Net loan charge-offs to average loans (annualized)
0.93
%
1.15
%
Capital ratios:
Average common equity to average total assets
7.75
%
7.78
%
Leverage ratio
7.30
%
7.02
%
Tier 1 risk-based capital ratio
11.40
%
10.35
%
Risk-based capital ratio
12.67
%
11.61
%
4
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(Dollars in thousands)
(Unaudited)
March 31,
2005
2004
$ Change
% Change
ASSETS
Cash, due from banks and interest-bearing deposits
$
49,231
$
43,594
$
5,637
13
%
Federal funds sold
62,359
67,810
(5,451
)
(8
)%
Investment securities
767,692
711,801
55,891
8
%
Loans
1,225,222
1,311,639
(86,417
)
(7
)%
Less: Allowance for loan losses
40,008
30,023
9,985
33
%
Loans, net
1,185,214
1,281,616
(96,402
)
(8
)%
Goodwill
41,371
40,621
750
2
%
Other assets
90,409
77,919
12,490
16
%
Total assets
$
2,196,276
$
2,223,361
$
(27,085
)
(1
)%
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Demand
$
259,314
$
251,035
$
8,279
3
%
Savings, money market, and interest-bearing checking
846,617
831,557
15,060
2
%
Certificates of deposit
763,978
789,625
(25,647
)
(3
)%
Total deposits
1,869,909
1,872,217
(2,308
)
—
%
Short-term borrowings
34,985
46,436
(11,451
)
(25
)%
Long-term borrowings
77,344
85,485
(8,141
)
(10
)%
Junior subordinated debentures issued to unconsolidated subsidiary trust
16,702
16,702
-
-
%
Other liabilities
18,961
16,028
2,933
18
%
Total liabilities
2,017,901
2,036,868
(18,967
)
(1
)%
Shareholders’ equity:
Preferred equity
17,661
17,734
(73
)
—
%
Common equity and accumulated other
comprehensive income (loss)
160,714
168,759
(8,045
)
(5
)%
Total shareholders' equity
178,375
186,493
(8,118
)
(4
)%
Total liabilities and shareholders' equity
$
2,196,276
$
2,223,361
$
(27,085
)
(1
)%
5
6
7
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Consolidated Average Statements of Financial Condition
(Dollars in thousands)
(Unaudited)
Three months ended
March 31,
2005
2004
$ Change
% Change
ASSETS
Cash, due from banks and interest-bearing deposits
$
43,241
$
42,702
$
539
1
%
Federal funds sold
16,657
52,146
(35,489
)
(68
)%
Investment securities
761,729
655,366
106,363
16
%
Loans
1,239,324
1,329,130
(89,806
)
(7
)%
Less: Allowance for loan losses
39,674
29,081
10,593
36
%
Loans, net
1,199,650
1,300,049
(100,399
)
(8
)%
Goodwill
41,371
40,621
750
2
%
Other assets
86,591
78,158
8,433
11
%
Total assets
$
2,149,239
$
2,169,042
$
(19,803
)
(1
)%
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Demand
$
271,322
$
250,345
$
20,977
8
%
Savings, money market, and interest-bearing checking
797,109
797,117
(8
)
-
%
Certificates of deposit
750,503
773,675
(23,172
)
(3
)%
Total deposits
1,818,934
1,821,137
(2,203
)
—
%
Short-term borrowings
32,051
44,400
(12,349
)
(28
)%
Long-term borrowings
79,477
86,068
(6,591
)
(8
)%
Junior subordinated debentures issued to unconsolidated subsidiary trust
16,702
16,702
-
-
%
Other liabilities
17,826
14,298
3,528
25
%
Total liabilities
1,964,990
1,982,605
(17,615
)
(1
)%
Shareholders’ equity:
Preferred equity
17,703
17,734
(31
)
-
%
Common equity and accumulated other
comprehensive income (loss)
166,546
168,703
(2,157
)
(1
)%
Total shareholders' equity
184,249
186,437
(2,188
)
(1
)%
Total liabilities and shareholders' equity
$
2,149,239
$
2,169,042
$
(19,803
)
(1
)%
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