For More Information: | - OR - | |||
Ronald A. Miller | Kei Advisors LLC | |||
Executive Vice President and Chief | Deborah K. Pawlowski | |||
Financial Officer | Phone: 716.843.3908 | |||
Phone: 585.786.1102 | Email:dpawlowski@keiadvisors.com | |||
Email: invest@fiiwarsaw.com |
FOR IMMEDIATE RELEASEFinancial Institutions, Inc. Announces First Quarter 2006
Results
Solid results reflect effectiveness of consolidation strategy and improved asset quality
WARSAW, N.Y., April 27, 2006 — Financial Institutions, Inc. (NASDAQ: FISI) (“FII”), the parent company of Five Star Bank, today announced its financial results for the first quarter ended March 31, 2006. Net income for the first quarter of 2006 increased 63% to $3.7 million, or $0.30 per diluted share, compared with $2.3 million, or $0.17 per diluted share, in the first quarter of the prior year. Income from continuing operations for the first quarter was $3.7 million, or $0.30 per diluted share, compared with $2.4 million, or $0.18 per diluted share, for the first quarter of 2005. A significantly lower provision for loan losses, which reflected the much improved credit quality of the loan portfolio, combined with reduced noninterest expense, drove the earnings increase. These positive effects were somewhat offset by decreased net interest income on a lower earning asset base.
Mr. Peter G. Humphrey, President & Chief Executive Officer of Financial Institutions, Inc (FII), stated, “We believe our solid first quarter results reflect the excellent progress we have made over the last year. The consolidation of our former four banks into Five Star Bank and the dramatic improvement in the credit quality of our loan portfolio have driven our improved earnings. The somewhat soft first quarter loan volume reflects an overall seasonal slowdown, coupled with tighter credit administration policies in a highly competitive environment. Importantly, we are taking a long-term approach to building a high quality, balanced loan portfolio. We believe the many actions taken over the last two years, and especially during 2005, have positioned us with a stable platform for future growth.”
As part of FII’s strategy to focus on growing its core banking franchise, FII recently announced that it has agreed to sell its trust operations. The sale is pending regulatory approval. The trust division has approximately $64 million in assets held in fiduciary or agency capacities.
Revenue
For the first quarter 2006, net interest income totaled $15.5 million, down $2.9 million in comparison with the 2005 first quarter. This was primarily the result of a 26 basis point drop in average net interest margin and a $171.2 million reduction in average earning assets. The net interest margin for the first quarter of 2006 was 3.64% compared with 3.55% and 3.90% for the quarters ending December 31, 2005 and March 31, 2005, respectively. The year-over-year decrease was a result of reduced average earning assets, as well as a shift in the mix of those earnings assets from higher yielding loan assets into lower yielding investment assets, a relatively flat yield curve and increased competition for loans and deposits. The net margin improvement from the fourth quarter of 2005 was partially a result of the rising interest rate environment. For the first quarter of 2006 average loans represented 53% of average total earning assets compared with 62% for the same quarter last year
Noninterest income for the first quarter of 2006 increased $49 thousand to $5.0 million compared with the same quarter last year, largely a result of an increase in other noninterest income that was offset by a slight decrease in mortgage banking activities, which has slowed due to a rising interest rate environment.
Noninterest Expense
Noninterest expense decreased 7% or $1.1 million for the first quarter of 2006 to $15.3 million compared with $16.4 million for the same quarter last year, primarily the result of a $1.1 million decrease in other noninterest expenses due to a reduction in professional service fees and lower FDIC deposit insurance costs. Salaries and benefits declined $37 thousand to $8.8 million in the first quarter of 2006 compared with the same quarter last year.
Asset Quality
Nonperforming assets at March 31, 2006 were $19.5 million, down $238 thousand from December 31, 2005 and down $44.1 million from March 31, 2005. The year-over-year decline was primarily a result of the sale of problem loans during 2005. The ratio of nonperforming loans and other real estate to total loans and other real estate was 2.02% at March 31, 2006 compared with 1.93% and 6.40% at December 31, 2005 and March 31, 2005, respectively. As a result of enhanced asset quality, the first quarter 2006 provision for loan loss was $250 thousand compared to $3.7 million for the same quarter last year. The ratio of allowance for loan losses to nonperforming loans measurably improved to 109% at March 31, 2006 compared with 64% at March 31, 2005. Net loan charge-offs in the first quarter of 2006 were $190 thousand, compared to $2.9 million in the prior year’s first quarter. Net loan charge-offs to average loans (annualized) for the first quarter 2006 was 0.08% compared with 0.93% in the same quarter last year.
Financial Condition
Total assets at March 31, 2006 were $1.98 billion, compared with $2.02 billion and $2.20 billion at December 31, 2005 and March 31, 2005, respectively. Total loans declined 3% to $965.6 million as of March 31, 2006 compared with $992.3 million at December 31, 2005, reflecting the run-off which outpaced new originations during the first quarter of 2006. Loan origination has slowed as the Company has implemented more stringent underwriting requirements and the first quarter is seasonally slow for consumers seeking new loans.
Average deposits for the first quarter of 2006 were $1.67 billion compared with $1.77 billion and $1.82 billion for the quarters ended December 31, 2005 and March 31, 2005, respectively. Contributing to the decline in deposits were fewer certificates of deposit, including brokered certificates of deposit, as the Company actively managed to lower the level of these higher cost deposits. Lower nonpublic deposits were attributed to seasonality, the timing of rate campaigns and loss of deposits associated with the effects of the 2005 loan sale.
Shareholders’ equity at March 31, 2006 was $171.0 million compared with $171.8 million at December 31, 2005.
Operating Efficiencies
Return on average common equity for the first quarter (annualized) improved to 8.82% compared with 4.67% for the same quarter in 2005. Return on average assets for the first quarter (annualized) improved to 0.77% compared with 0.43% for the same period last year.
Outlook
Mr. Humphrey, noted, “We have made excellent progress in integrating our four separate banks into Five Star Bank, and the operational efficiencies are being realized. The integration goes beyond the name change and charter consolidation, as it includes our culture, our customer-centric marketing and the goal-oriented focus we have instilled in our employees. Based on the various responsibilities of our staff, we have established a balanced compensation structure that focuses everyone on earnings per share.”
Mr. Humphrey concluded, “Five Star Bank is a much stronger and more capable company poised for the next chapter in our history. The executive management team we have brought on board over the last 12 to 18 months is a critical component of our future and is driving a culture rooted in accountability, sales, service and credit. We intend to expand our market share within our current footprint through careful and disciplined rebuilding of a balanced loan portfolio, while remaining responsive to our customers’ needs.”
First Quarter 2006 Conference Call Details
Financial Institutions invites all those interested in hearing management’s discussion of the quarter to attend its first quarter 2006 call, scheduled for Friday, April 28, 2006 at 10:30 AM ET, either by phone or the Web. Participants can access the call by dialing 1-877-704-5378 approximately 5-10 minutes prior to the call. The confirmation number is 6548127. A replay will be available for one week following the call by dialing 1-888-203-1112 and entering access code 6548127 when prompted. Participants may also access a live webcast of the conference call through Financial Institution’s website atwww.fiiwarsaw.com.
About Financial Institutions, Inc.
With total assets of $2.0 billion, Financial Institutions, Inc. is the parent company of Five Star Bank, which provides a wide range of consumer and commercial banking services to individuals, municipalities and businesses through a network of 50 offices and 72 ATM’s in Western and Central New York State. Through its Investment Services affiliate, FII also provides diversified financial services to its customers and clients, including brokerage and insurance. 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 effectiveness of its strategy and bank consolidation, its ability to reduce operating expenses, the attitudes and preferences of customers, the competitive environment 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.
FINANCIAL TABLES FOLLOW.
1
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, | ||||||||||||||||||||||||
2006 | 2005 | $ Change | % Change | |||||||||||||||||||||
Interest and dividend income | $ | 25,275 | $ | 26,420 | $ | (1,145 | ) | (4 | )% | |||||||||||||||
Interest expense | 9,796 | 8,051 | 1,745 | 22 | % | |||||||||||||||||||
| ||||||||||||||||||||||||
Net interest income | 15,479 | 18,369 | (2,890 | ) | (16 | )% | ||||||||||||||||||
Provision for loan losses | 250 | 3,692 | (3,442 | ) | (93 | )% | ||||||||||||||||||
| ||||||||||||||||||||||||
Net interest income after provision for loan losses | 15,229 | 14,677 | 552 | 4 | % | |||||||||||||||||||
Noninterest income: | ||||||||||||||||||||||||
Service charges on deposits | 2,672 | 2,595 | 77 | 3 | % | |||||||||||||||||||
Financial services group fees and commissions | 625 | 739 | (114 | ) | (15 | )% | ||||||||||||||||||
Mortgage banking activities | 308 | 477 | (169 | ) | (35 | )% | ||||||||||||||||||
Net gain on sale of commercial related loans | 82 | - | 82 | - | % | |||||||||||||||||||
Other | 1,269 | 1,096 | 173 | 16 | % | |||||||||||||||||||
| ||||||||||||||||||||||||
Total noninterest income | 4,956 | 4,907 | 49 | 1 | % | |||||||||||||||||||
Noninterest expense: | ||||||||||||||||||||||||
Salaries and employee benefits | 8,758 | 8,795 | (37 | ) | - | % | ||||||||||||||||||
Other | 6,517 | 7,623 | (1,106 | ) | (15 | )% | ||||||||||||||||||
| ||||||||||||||||||||||||
Total noninterest expense | 15,275 | 16,418 | (1,143 | ) | (7 | )% | ||||||||||||||||||
Income from continuing operations before income taxes | 4,910 | 3,166 | 1,744 | 55 | % | |||||||||||||||||||
Income taxes from continuing operations | 1,171 | 781 | 390 | 50 | % | |||||||||||||||||||
| ||||||||||||||||||||||||
Income from continuing operations | 3,739 | 2,385 | 1,354 | 57 | % | |||||||||||||||||||
Discontinued operations: | ||||||||||||||||||||||||
Loss from operations of discontinued subsidiary | - | (132 | ) | 132 | 100 | % | ||||||||||||||||||
Income taxes | - | (36 | ) | 36 | 100 | % | ||||||||||||||||||
| ||||||||||||||||||||||||
Loss on discontinued operations, net of taxes | - | (96 | ) | 96 | 100 | % | ||||||||||||||||||
| ||||||||||||||||||||||||
Net income | $ | 3,739 | $ | 2,289 | $ | 1,450 | 63 | % | ||||||||||||||||
| ||||||||||||||||||||||||
Preferred stock dividends | $ | 372 | $ | 372 | $ | - | - | % | ||||||||||||||||
| ||||||||||||||||||||||||
Taxable-equivalent net interest income | $ | 16,696 | $ | 19,494 | $ | (2,798 | ) | (14 | )% | |||||||||||||||
| ||||||||||||||||||||||||
Per common share data: | ||||||||||||||||||||||||
Basic: | ||||||||||||||||||||||||
Income from continuing operations | $ | 0.30 | $ | 0.18 | $ | 0.12 | 67 | % | ||||||||||||||||
Net income | $ | 0.30 | $ | 0.17 | $ | 0.13 | 76 | % | ||||||||||||||||
Diluted: | ||||||||||||||||||||||||
Income from continuing operations | $ | 0.30 | $ | 0.18 | $ | 0.12 | 67 | % | ||||||||||||||||
Net income | $ | 0.30 | $ | 0.17 | $ | 0.13 | 76 | % | ||||||||||||||||
Cash dividends declared | $ | 0.08 | $ | 0.16 | $ | (0.08 | ) | (50 | )% | |||||||||||||||
Book value | $ | 13.55 | $ | 14.29 | $ | (0.74 | ) | (5 | )% | |||||||||||||||
Common shares outstanding: | ||||||||||||||||||||||||
Weighted average shares – basic | 11,328,404 | 11,249,474 | ||||||||||||||||||||||
Weighted average shares – diluted | 11,372,253 | 11,298,967 | ||||||||||||||||||||||
Period end actual | 11,320,000 | 11,249,676 |
2
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Additional Data
(Dollars in thousands, except per share amounts)
(Unaudited)
Three months ended | ||||||||||||
March 31, | ||||||||||||
2006 | 2005 | |||||||||||
Performance ratios, annualized | ||||||||||||
Return on average assets | 0.77 | % | 0.43 | % | ||||||||
Return on average common equity | 8.82 | % | 4.67 | % | ||||||||
Common dividend payout ratio | 26.67 | % | 94.12 | % | ||||||||
Net interest margin (tax-equivalent) | 3.64 | % | 3.90 | % | ||||||||
Efficiency ratio (1) | 69.99 | % | 66.12 | % | ||||||||
Asset quality data: | ||||||||||||
Past due over 90 days and accruing | $ | 35 | $ | 12 | ||||||||
Nonaccrual loans | 18,561 | 62,580 | ||||||||||
Total nonperforming loans | 18,596 | 62,592 | ||||||||||
Other real estate owned (ORE) | 879 | 981 | ||||||||||
Total nonperforming loans and ORE | 19,475 | 63,573 | ||||||||||
Nonaccrual loans held for sale | — | — | ||||||||||
Total nonperforming assets | $ | 19,475 | $ | 63,573 | ||||||||
Net loan charge-offs | $ | 190 | $ | 2,870 | ||||||||
Asset quality ratios: | ||||||||||||
Nonperforming loans to total loans (2) | 1.93 | % | 5.11 | % | ||||||||
Nonperforming loans and ORE to total loans and ORE (2) | 2.02 | % | 6.40 | % | ||||||||
Nonperforming assets to total assets | 0.98 | % | 3.14 | % | ||||||||
Allowance for loan losses to total loans (2) | 2.10 | % | 3.27 | % | ||||||||
Allowance for loan losses to nonperforming loans (2) | 109 | % | 64 | % | ||||||||
Net loan charge-offs to average loans (annualized) | 0.08 | % | 0.93 | % | ||||||||
Capital ratios: | ||||||||||||
Average common equity to average total assets | 7.83 | % | 7.75 | % | ||||||||
Leverage ratio | 8.11 | % | 7.30 | % | ||||||||
Tier 1 risk-based capital ratio | 14.07 | % | 11.40 | % | ||||||||
Risk-based capital ratio | 15.32 | % | 12.67 | % |
(1) | Ratio excludes the operations of discontinued subsidiary. |
(2) | Ratios exclude nonaccruing loans held for sale from nonperforming loans and exclude loans held for sale from total loans. |
3
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(Dollars in thousands)
(Unaudited)
March 31, | December 31, | |||||||||||||||
2006 | 2005 | $ Change | % Change | |||||||||||||
ASSETS | ||||||||||||||||
Cash, due from banks and interest-bearing deposits | $ | 44,480 | $ | 47,258 | $ | (2,778 | ) | (6 | )% | |||||||
Federal funds sold | 28,270 | 44,682 | (16,412 | ) | (37 | )% | ||||||||||
Commercial paper (due in less than 90 days) | 19,962 | — | 19,962 | — | % | |||||||||||
Investment securities (HTM and AFS) | 815,229 | 833,448 | (18,219 | ) | (2 | )% | ||||||||||
Loans held for sale | 835 | 1,253 | (418 | ) | (33 | )% | ||||||||||
Loans | 965,569 | 992,321 | (26,752 | ) | (3 | )% | ||||||||||
Less: Allowance for loan losses | 20,291 | 20,231 | 60 | — | % | |||||||||||
Loans, net | 945,278 | 972,090 | (26,812 | ) | (3 | )% | ||||||||||
Goodwill | 37,369 | 37,369 | — | — | % | |||||||||||
Other assets | 89,408 | 86,292 | 3,116 | 4 | % | |||||||||||
Total assets | $ | 1,980,831 | $ | 2,022,392 | $ | (41,561 | ) | (2 | )% | |||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||
Deposits: | ||||||||||||||||
Demand | $ | 257,611 | $ | 284,958 | $ | (27,347 | ) | (10 | )% | |||||||
Savings, money market, and interest-bearing checking | 751,631 | 755,229 | (3,598 | ) | — | % | ||||||||||
Certificates of deposit | 668,916 | 677,074 | (8,158 | ) | (1 | )% | ||||||||||
Total deposits | 1,678,158 | 1,717,261 | (39,103 | ) | (2 | )% | ||||||||||
Short-term borrowings | 34,236 | 35,106 | (870 | ) | (2 | )% | ||||||||||
Long-term borrowings | 63,375 | 63,391 | (16 | ) | — | % | ||||||||||
Junior subordinated debentures issued to unconsolidated | ||||||||||||||||
Subsidiary trust | 16,702 | 16,702 | — | — | % | |||||||||||
Other liabilities | 17,366 | 18,175 | (809 | ) | (4 | )% | ||||||||||
Total liabilities | 1,809,837 | 1,850,635 | (40,798 | ) | (2 | )% | ||||||||||
Shareholders’ equity: | ||||||||||||||||
Preferred equity | 17,630 | 17,634 | (4 | ) | — | % | ||||||||||
Common equity and accumulated other | ||||||||||||||||
comprehensive loss | 153,364 | 154,123 | (759 | ) | — | % | ||||||||||
Total shareholders’ equity | 170,994 | 171,757 | (763 | ) | — | % | ||||||||||
Total liabilities and shareholders’ equity | $ | 1,980,831 | $ | 2,022,392 | $ | (41,561 | ) | (2 | )% | |||||||
4
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Consolidated Average Statements of Financial Condition
(Dollars in thousands)
(Unaudited)
Three months ended | ||||||||||||||||
March 31, | ||||||||||||||||
2006 | 2005 | $ Change | % Change | |||||||||||||
ASSETS | ||||||||||||||||
Cash, due from banks and interest-bearing deposits | $ | 42,048 | $ | 43,230 | $ | (1,182 | ) | (3 | )% | |||||||
Federal funds sold | 16,129 | 16,657 | (528 | ) | (3 | )% | ||||||||||
Commercial paper (due in less than 90 days) | 9,276 | — | 9,276 | — | % | |||||||||||
Investment securities (HTM and AFS) | 829,794 | 761,729 | 68,065 | 9 | % | |||||||||||
Loans held for sale | 657 | 1,871 | (1,214 | ) | (65 | )% | ||||||||||
Loans | 975,566 | 1,237,453 | (261,887 | ) | (21 | )% | ||||||||||
Less: Allowance for loan losses | 20,528 | 39,674 | (19,146 | ) | (48 | )% | ||||||||||
Loans, net | 955,038 | 1,197,779 | (242,741 | ) | (20 | )% | ||||||||||
Goodwill | 37,369 | 37,369 | — | — | % | |||||||||||
Other assets | 87,522 | 90,313 | (2,791 | ) | (3 | )% | ||||||||||
Total assets | $ | 1,977,833 | $ | 2,148,948 | $ | (171,115 | ) | (8 | )% | |||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||
Deposits: | ||||||||||||||||
Demand | $ | 259,050 | $ | 271,322 | $ | (12,272 | ) | (5 | )% | |||||||
Savings, money market, and interest-bearing checking | 746,558 | 797,109 | (50,551 | ) | (6 | )% | ||||||||||
Certificates of deposit | 667,273 | 750,503 | (83,230 | ) | (11 | )% | ||||||||||
Total deposits | 1,672,881 | 1,818,934 | (146,053 | ) | (8 | )% | ||||||||||
Short-term borrowings | 35,011 | 32,051 | 2,960 | 9 | % | |||||||||||
Long-term borrowings | 63,381 | 79,455 | (16,074 | ) | (20 | )% | ||||||||||
Junior subordinated debentures issued to unconsolidated | ||||||||||||||||
subsidiary trust | 16,702 | 16,702 | — | — | % | |||||||||||
Other liabilities | 17,335 | 17,557 | (222 | ) | (1 | )% | ||||||||||
Total liabilities | 1,805,310 | 1,964,699 | (159,389 | ) | (8 | )% | ||||||||||
Shareholders’ equity: | ||||||||||||||||
Preferred equity | 17,631 | 17,703 | (72 | ) | — | % | ||||||||||
Common equity and accumulated other | ||||||||||||||||
comprehensive loss | 154,892 | 166,546 | (11,654 | ) | (7 | )% | ||||||||||
Total shareholders’ equity | 172,523 | 184,249 | (11,726 | ) | (6 | )% | ||||||||||
Total liabilities and shareholders’ equity | $ | 1,977,833 | $ | 2,148,948 | $ | (171,115 | ) | (8 | )% | |||||||
5