Loan Portfolio Performance Drives Solid Results at Financial Institutions
WARSAW, N.Y., January 31, 2008 — Financial Institutions, Inc. (Nasdaq: FISI), the parent company of Five Star Bank, today announced financial results for the fourth quarter and year ended December 31, 2007. Net income for Financial Institutions, Inc. (“FII”) was $4.1 million, or $0.34 per diluted share, for the fourth quarter of 2007, compared with $3.0 million, or $0.23 per diluted share, for the fourth quarter of 2006. For the year ended December 31, 2007, net income was $16.4 million, or $1.33 per diluted share, compared with $17.4 million, or $1.40 per diluted share for the prior year.
Highlights for the fourth quarter and 2007 include:
•
Loans increased $14.5 million to $964.2 million at December 31, 2007, compared with $949.7 million at September 30, 2007 and increased $37.7 million over December 31, 2006. The increase reflects execution of the Company’s business plan to rebuild, in a disciplined manner, the commercial loan portfolio and grow consumer indirect auto loans.
•
Net interest margin increased 12 basis points, to 3.75%, for the fourth quarter of 2007 compared with 3.63% for the third quarter of 2007 and was 31 basis points higher versus the same quarter last year. The improved net interest margin during the second half of 2007 resulted principally from reducing funding costs, an improved investment security portfolio yield, and the benefits associated with a higher percentage of earning assets being deployed in higher yielding loan assets.
•
Net interest income was $15.2 million for the fourth quarter of 2007, an increase of $344 thousand, or 2%, from the third quarter of 2007, which reflects the increased net interest margin and improved earning asset mix. Net interest income increased each quarter in 2007 and the fourth quarter of 2007 was $912 thousand, or 6%, higher than the fourth quarter of 2006.
•
Nonperforming assets decreased $422 thousand from the prior quarter-end to $9.5 million at December 31, 2007. Since December 31, 2006, nonperforming assets have declined $7.5 million, or 44%. Net loan charge-offs were $441 thousand, or 0.18% (annualized) of average loans, for the fourth quarter of 2007 and $1.6 million, or 0.18% of average loans, for the year ended December 31, 2007. For the year ended December 31, 2007, a provision for loan losses of $116 thousand was recorded, an increase of $2.0 million versus the $1.842 million credit for loan losses in the prior year. For the fourth quarter of 2007, the provision for loan losses was $351 thousand compared with zero in the same quarter last year.
•
Noninterest expense was $14.5 million for the fourth quarter of 2007, compared with $14.6 million for the third quarter of 2007. For the year ended December 31, 2007, noninterest expense was $57.4 million, a decrease of $2.2 million, or 4%, from the prior year. The lower expense levels for 2007, compared to last year, reflect operational efficiencies gained from the consolidation of administrative and operational functions, reduced costs due to improved asset quality and lower advertising and professional services expenses.
Peter G. Humphrey, President and CEO of FII, commented, “We experienced solid financial performance in 2007 with good revenue growth that is reflective of our disciplined approach to growing our loan portfolio. Net interest income improved each quarter in 2007 and our net interest margin increased due to the growth in our loans and our management of deposit pricing. Assets quality showed strong improvement with a significant reduction in our nonperforming assets. Our 2007 performance has enabled us to begin to implement other strategic initiatives to expand our business, most notably our decision to expand our presence in the greater Rochester area.”
Net Interest Income
Net interest income was $15.2 million for the fourth quarter of 2007, up $344 thousand versus the third quarter of 2007. For the fourth quarter of 2007, average earning assets decreased by $10.3 million compared with the third quarter of 2007. This decrease resulted principally from a $19.2 million decrease in average borrowings, offset by a $9.1 million increase in average deposits for the fourth quarter of 2007 compared with the third quarter of 2007. The decline in average earnings assets was more than offset by the net interest margin improvement of 12 basis points to 3.75% for the fourth quarter of 2007, compared with 3.63% for the third quarter of 2007. Earnings asset yields increased by 3 basis points from the third quarter, with increased yields on investments assets offsetting a decline in loan yields, while the average cost of funds declined 9 basis points from the third quarter.
For the year ended December 31, 2007, net interest income was $58.1 million, a decline of $1.4 million from the year ended December 31, 2006. Average earning assets declined $28.0 million to $1.781 billion as of December 31, 2007 compared to $1.809 billion for the same period last year and, together with a 2 basis point decline in net interest margin, resulted in the $1.4 million drop in net interest income. The decline in average earning assets was affected by average borrowings declining $29.3 million due to the repayment and maturity of borrowings. The drop in net interest margin resulted from the average cost of funds increasing 23 basis points while average earning asset yield increased only 21 basis points.
Noninterest Income
Noninterest income for the fourth quarter of 2007 was $5.0 million compared with $4.8 million for the fourth quarter of 2006. For the year ended December 31, 2007 noninterest income was $20.7 million compared with $21.9 million for the same period in 2006. Included in noninterest income in 2007 was $1.1 million in proceeds from corporate owned life insurance, $478 thousand in gains from the sale of student loans and $207 thousand in net security gains. Included in 2006 noninterest income was $419 thousand in proceeds from corporate owned life insurance, $670 thousand in gains from the sale of student loans, $1.4 million from the sale of trust relationships, and $379 thousand in trust fees earned prior to the sale.
1
Noninterest Expense
Noninterest expense for the fourth quarter of 2007 was $14.5 million, a decrease of $66 thousand, from the third quarter of 2007. For the year ended December 31, 2007, noninterest expense was $57.4 million a decrease of $2.2 million, or 4%, from the same period in 2006. The principal expense items that contributed to the year over year decline are: salaries and benefits decreased $388 thousand, advertising and promotional costs were $572 thousand lower and professional fees and services declined $757 thousand.
Balance Sheet
Total assets were $1.858 billion at December 31, 2007 compared with $1.908 billion at December 31, 2006. Total deposits were $1.576 billion at December 31, 2007 a decrease of $41.7 million from $1.618 billion at December 31, 2006. Public deposits were $318.1 million at December 31, 2007 a decline of $34.8 million from the prior year. Also contributing to the decline in total deposits was a $9.9 million drop in brokered certificates of deposit. Total borrowings including junior subordinated debentures were $68.2 million at December 31, 2007 compared with $87.2 million at December 31, 2006.
Asset Quality
Mr. Humphrey commented, “We made significant progress in reducing our nonperforming assets in 2007. Our net loan charge-offs for 2007 were helped by some meaningful recoveries on previously charged-off loans. We have not engaged in sub-prime lending as a line of business. We are pleased with the improved risk profile of our loan portfolio and believe we are well positioned to meet the challenges of any adverse changes in the current economic environment.”
The Company recorded a provision for loan losses of $351 thousand for the fourth quarter of 2007 and $116 thousand for the year ended December 31, 2007, compared with a credit for loan losses of $1.8 million for the prior year and zero provision for loan losses in the fourth quarter of 2006. Net charge-offs of $441 thousand for the fourth quarter represented 18 basis points (annualized) of average loans. For the year ended December 31, 2007 net charge-offs were $1.6 million or 18 basis points compared with $1.3 million or 14 basis points for the same period last year. The allowance for loan losses was $15.5 million at December 31, 2007 or 1.61% of loans, compared with $17.0 million or 1.84% of loans at December 31, 2006. Nonperforming loans were $8.1 million at December 31, 2007 compared with $15.8 million at December 31, 2006. The ratio of the allowance for loan losses to nonperforming loans, or coverage ratio, was 192% at year end 2007 compared with 108% at year end 2006.
Capital Management
On July 25, 2007, the Company approved a one-year $5.0 million stock repurchase program. During the fourth quarter of 2007, under this program, the Company repurchased $1.357 million of common stock, or a total of 73,376 shares, at an average price per share of $18.49. Under the current and prior stock repurchase programs, the Company repurchased $7.203 million of common stock, or a total of 368,815 shares, at an average price per share of $19.53 in 2007. In addition, in the fourth quarter of 2007 the Company increased the quarterly common stock dividend to $0.13 per share. This represents a 44% increase in the quarterly common stock dividend compared with the $0.09 per share dividend in the fourth quarter of 2006.
Erland E. “Erkie” Kailbourne, Chairman of the Board, commented, “The Company’s improved financial performance and available capital have given us the opportunity to increase our common stock dividend and actively repurchase our common stock. Both of these measures, we believe, will enhance shareholder value.”
Total shareholders’ equity at December 31, 2007 was $195.3 million compared with $182.4 million at December 31, 2006. The Company’s leverage ratio was 9.35% and total risk-based capital ratio was 16.99% at December 31, 2007.
About Financial Institutions, Inc.
With $1.9 billion in assets, Financial Institutions, Inc. provides diversified financial services through its subsidiaries, Five Star Bank and Five Star Investment Services, Inc. Five Star Bank provides a wide range of consumer and commercial banking services to individuals, municipalities and businesses through a network of 50 offices and 70 ATMs in Western and Central New York State, and employs 679 people. Five Star Investment Services provides brokerage and insurance products and services within the same New York State markets. The Company’s stock is listed on the Nasdaq Global Market under the symbol FISI. Additional information is available at the Company’s website:www.fiiwarsaw.com.
Safe Harbor Statement
This press release may contain 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 its ability to implement its strategic plan, its ability to redeploy investment assets into loan assets, the attitudes and preferences of its customers, the competitive environment, general economic conditions nationally and regionally 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.
*****
2
3
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
December 31,
December 31,
(Dollars in thousands, except share data)
2007
2006
ASSETS
Cash and due from banks
$
45,165
$
47,166
Federal funds sold and interest-bearing deposits in other banks
1,508
62,606
Securities available for sale, at fair value
695,241
735,148
Securities held to maturity, at amortized cost
59,479
40,388
Loans held for sale
906
992
Loans:
Commercial
136,780
105,806
Commercial real estate
245,797
243,966
Agricultural
47,367
56,808
Residential real estate
166,863
163,243
Consumer indirect
134,977
106,443
Consumer direct and home equity
232,389
250,216
Total loans
964,173
926,482
Allowance for loan losses
(15,521
)
(17,048
)
Loans, net
948,652
909,434
Premises and equipment, net
34,157
34,562
Goodwill
37,369
37,369
Other assets
35,399
39,887
Total assets
$
1,857,876
$
1,907,552
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Noninterest-bearing demand
$
286,362
$
273,783
Interest-bearing demand, savings and money market
681,953
674,224
Certificates of deposit
607,656
669,688
Total deposits
1,575,971
1,617,695
Short-term borrowings
25,643
32,310
Long-term borrowings
25,865
38,187
Junior subordinated debentures issued to unconsolidated subsidiary trust
16,702
16,702
Other liabilities
18,373
20,270
Total liabilities
1,662,554
1,725,164
Shareholders’ Equity
Preferred stock
17,581
17,623
Common stock, $0.01 par value, 50,000,000 shares authorized;
11,348,122 shares issued at December 31, 2007 and December 31, 2006
113
113
Additional paid-in capital
24,778
24,222
Retained earnings
158,744
148,947
Accumulated other comprehensive income (loss)
667
(8,404
)
Treasury stock, at cost; 336,971 shares at December 31, 2007 and
5,351 shares at December 31, 2006
(6,561
)
(113
)
Total shareholders’ equity
195,322
182,388
Total liabilities and shareholders’ equity
$
1,857,876
$
1,907,552
4
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Quarter-to-Date
Year-to-Date
December 31,
September 30,
December 31,
December 31,
(Dollars in thousands, except share and per share data)
2007
2007
2006
2007
2006
Interest income:
Interest and fees on loans
$
17,431
$
17,571
$
17,060
$
68,560
$
68,004
Interest and dividends on securities
8,798
8,814
8,181
34,990
32,778
Other interest income
168
168
981
1,662
2,288
Total interest income
26,397
26,553
26,222
105,212
103,070
Interest expense:
Deposits
10,186
10,428
10,612
42,714
37,445
Short-term borrowings
182
360
167
864
571
Long-term borrowings
392
472
718
1,833
3,860
Junior subordinated debentures
432
432
432
1,728
1,728
Total interest expense
11,192
11,692
11,929
47,139
43,604
Net interest income
15,205
14,861
14,293
58,073
59,466
Provision (credit) for loan losses
351
(82
)
—
116
(1,842
)
Net interest income after provision (credit) for loan losses
14,854
14,943
14,293
57,957
61,308
Noninterest income:
Service charges on deposits
2,818
2,778
2,945
10,932
11,504
ATM and debit card income
805
735
588
2,883
2,233
Broker-dealer fees and commissions
343
323
329
1,396
1,511
Trust fees
—
—
2
—
379
Loan servicing income
221
259
223
928
892
Income from corporate owned life insurance
116
1,090
55
1,255
521
Net gain on sale of securities
88
67
30
207
30
Net gain on sale of loans held for sale
190
313
139
779
1,054
Net gain (loss) on sale and disposal of other assets
(58
)
59
22
89
87
Net gain on sale of trust relationships
—
—
21
13
1,386
Other
479
710
441
2,198
2,314
Total noninterest income
5,002
6,334
4,795
20,680
21,911
Noninterest expense:
Salaries and employee benefits
8,240
8,574
8,269
33,175
33,563
Occupancy and equipment
2,582
2,422
2,382
9,903
9,465
Supplies and postage
379
443
493
1,662
1,945
Amortization of other intangibles
77
77
97
307
420
Computer and data processing
533
547
592
2,126
1,903
Professional fees and services
533
476
591
2,080
2,837
Advertising and promotions
396
322
488
1,402
1,974
Other
1,803
1,748
2,251
6,773
7,505
Total noninterest expense
14,543
14,609
15,163
57,428
59,612
Income before income taxes
5,313
6,668
3,925
21,209
23,607
Income taxes
1,215
1,414
921
4,800
6,245
Net income
$
4,098
$
5,254
$
3,004
$
16,409
$
17,362
Net Income Per Common Share:
Basic
$
0.34
$
0.44
$
0.23
$
1.34
$
1.40
Diluted
$
0.34
$
0.44
$
0.23
$
1.33
$
1.40
Weighted Average Common Shares Outstanding:
Basic
11,021,902
11,090,519
11,332,634
11,153,535
11,328,033
Diluted
11,043,473
11,113,553
11,384,326
11,183,992
11,363,865
Performance Ratios:
Return on average assets
0.86
%
1.10
%
0.62
%
0.86
%
0.90
%
Return on average common equity
8.56
%
11.60
%
6.29
%
8.89
%
10.02
%
Net interest margin(fully tax-equivalent)
3.76
%
3.63
%
3.44
%
3.53
%
3.55
%
Efficiency ratio
66.84
%
67.07
%
73.52
%
68.77
%
69.78
%
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES/
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
2007
2007
2007
2007
2006
(Dollars in thousands, except per share data)
4th Qtr
3rd Qtr
2nd Qtr
1st Qtr
4th Qtr
EARNINGS
Net interest income
$
15,205
$
14,861
$
14,052
$
13,956
$
14,293
Net interest income(fully tax-equivalent)
$
16,491
$
16,051
$
15,193
$
15,105
$
15,462
Provision (credit) for loan losses
$
351
$
(82
)
$
(153
)
$
—
$
—
Noninterest income
$
5,002
$
6,334
$
4,606
$
4,738
$
4,795
Noninterest expense
$
14,543
$
14,609
$
14,348
$
13,928
$
15,163
Net income
$
4,098
$
5,254
$
3,443
$
3,615
$
3,004
Preferred dividends
$
370
$
371
$
371
$
371
$
371
Net income available to common
$
3,728
$
4,883
$
3,072
$
3,244
$
2,633
Basic earnings per share
$
0.34
$
0.44
$
0.27
$
0.29
$
0.23
Diluted earnings per share
$
0.34
$
0.44
$
0.27
$
0.29
$
0.23
Average shares outstanding
11,021,902
11,090,519
11,188,840
11,316,811
11,332,634
Average diluted shares outstanding
11,043,473
11,113,553
11,222,994
11,360,202
11,384,326
PERFORMANCE
Return on average assets (annualized)
0.86
%
1.10
%
0.71
%
0.77
%
0.62
%
Return on average common equity (annualized)
8.56
%
11.60
%
7.40
%
7.96
%
6.29
%
Return on average tangible common equity (annualized)
10.97
%
15.03
%
9.60
%
10.35
%
8.18
%
Common dividend payout ratio
38.24
%
27.27
%
40.74
%
34.48
%
39.13
%
Net interest margin(fully tax-equivalent)
3.75
%
3.63
%
3.35
%
3.39
%
3.44
%
Efficiency ratio
66.84
%
67.07
%
72.04
%
69.40
%
73.52
%
Full-time equivalent employees
621
636
636
634
640
CAPITAL
Period end common equity to total assets
9.57
%
8.97
%
8.70
%
8.50
%
8.64
%
Period end tangible common equity to tangible total assets
7.68
%
7.12
%
6.83
%
6.69
%
6.77
%
Leverage ratio
9.35
%
9.23
%
8.89
%
8.99
%
8.91
%
Tier 1 risk-based capital ratio
15.74
%
15.71
%
15.86
%
15.58
%
15.85
%
Total risk-based capital ratio
16.99
%
16.96
%
17.12
%
16.83
%
17.10
%
Cash dividends declared per share
$
0.13
$
0.12
$
0.11
$
0.10
$
0.09
Book value per share
$
16.14
$
15.41
$
14.80
$
14.81
$
14.53
Tangible book value per share
$
12.69
$
11.98
$
11.38
$
11.42
$
11.15
ASSET QUALITY
Gross loan charge-offs
$
923
$
1,310
$
970
$
692
$
1,060
Net loan charge-offs
$
441
$
829
$
239
$
134
$
633
Net loan charge-offs to average loans (annualized)
0.18
%
0.35
%
0.10
%
0.06
%
0.27
%
Loans past due over 90 days
$
2
$
—
$
4
$
7
$
3
Nonaccrual loans
8,075
8,295
10,402
15,778
15,837
Total nonperforming loans
8,077
8,295
10,406
15,785
15,840
Other real estate (ORE) and repossessed assets (repos)
1,421
1,625
1,352
1,216
1,203
Total nonperforming assets
$
9,498
$
9,920
$
11,758
$
17,001
$
17,043
Nonperforming loans to total loans
0.84
%
0.87
%
1.11
%
1.70
%
1.71
%
Nonperforming assets to total loans, ORE and repos
0.98
%
1.04
%
1.25
%
1.83
%
1.84
%
Nonperforming assets to total assets
0.51
%
0.52
%
0.62
%
0.87
%
0.89
%
Allowance for loan losses
$
15,521
$
15,611
$
16,522
$
16,914
$
17,048
Allowance for loan losses to total loans
1.61
%
1.64
%
1.76
%
1.82
%
1.84
%
Allowance for loan losses to nonperforming loans
192
%
188
%
159
%
107
%
108
%
PERIOD END BALANCES
Total loans
$
964,173
$
949,671
$
940,870
$
929,250
$
926,482
Total assets
$
1,857,876
$
1,902,985
$
1,898,092
$
1,962,748
$
1,907,552
Total deposits
$
1,575,971
$
1,616,262
$
1,617,049
$
1,671,762
$
1,617,695
Total common equity
$
177,741
$
170,743
$
165,185
$
166,907
$
164,765
Total shareholders’ equity
$
195,322
$
188,324
$
182,766
$
184,530
$
182,388
Common shares outstanding
11,011,151
11,081,625
��
11,161,835
11,271,676
11,342,771
AVERAGE BALANCES
Total loans
$
954,373
$
942,394
$
932,637
$
921,481
$
932,739
Total interest-earning assets
$
1,756,169
$
1,766,511
$
1,814,299
$
1,789,426
$
1,795,958
Total assets
$
1,884,712
$
1,890,669
$
1,938,685
$
1,914,593
$
1,926,470
Total deposits
$
1,607,737
$
1,598,643
$
1,657,975
$
1,627,875
$
1,631,020
Total interest bearing liabilities
$
1,402,294
$
1,413,727
$
1,476,534
$
1,457,532
$
1,465,135
Total common equity
$
172,833
$
166,977
$
166,526
$
165,330
$
166,052
Total shareholders’ equity
$
190,414
$
184,558
$
184,108
$
182,953
$
183,675
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