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
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