Financial Institutions, Inc. Announces Third Quarter Earnings
WARSAW, N.Y., October 22, 2009 — Financial Institutions, Inc. (Nasdaq: FISI) (the “Company”), the parent company of Five Star Bank, today announced financial results for the third quarter ended September 30, 2009. Net income for the Company was $3.4 million or $0.23 per diluted share for the third quarter of 2009, compared with a net loss of $28.4 million or $2.66 per diluted share for the third quarter of 2008. For the first nine months of 2009, net income was $9.0 million or $0.57 per diluted share, compared with a net loss of $23.0 million or $2.21 per diluted share for the same period last year.
Highlights:
•
Net interest income for the third quarter of 2009 was $18.1 million, an increase of $1.3 million or 8% over the third quarter of 2008. For the first nine months of 2009, net interest income was $53.1 million, an increase of $5.0 million or 10% over the first nine months of 2008. The increase is reflective of higher earning asset volume and an improved mix of earnings assets, primarily driven by growth in the loan portfolio.
•
Net interest margin was 3.99% for the third quarter of 2009, up 1 basis point from the third quarter of 2008. For the nine months ended September 30, 2009, net interest margin was 4.03%, an increase of 15 basis points from the same period last year.
•
Total loans were $1.259 billion at September 30, 2009, an increase of $181.2 million or 17% from September 30, 2008.
•
Commercial loans were $536.6 million at September 30, 2009, an increase of $85.0 million or 19% from one year ago, and an increase of $12.9 million or 2% since June 30, 2009.
•
Consumer loans were $722.8 million at September 30, 2009, an increase of $96.2 million or 15% from one year ago, and an increase of $27.8 million or 4% since June 30, 2009.
•
Total deposits were $1.797 billion at September 30, 2009, an increase of $136.8 million or 8% from September 30, 2008, the majority of which was attributable to an increase in nonpublic certificates of deposit.
•
The “well capitalized” position was maintained, with total shareholders’ equity of $195.9 million, a leverage capital ratio of 7.89% and a total risk-based capital ratio of 11.98%.
•
Nonaccrual loans totaled $5.8 million at September 30, 2009, down $1.8 million or 24% from a year ago, and down $3.7 million or 39% from the prior quarter. Foreclosed assets totaled $696 thousand, down $313 thousand or 31% from a year ago, and down $350 thousand or 33% from the prior quarter.
•
Provision for loan losses for the third quarter of 2009 was $2.6 million and net charge-offs were $2.5 million. Provision for loan losses of $6.6 million for the first nine months of 2009 exceeded net charge-offs of $4.6 million, resulting in a $2.0 million increase in the allowance for loan losses to $20.8 million or 1.65% of total loans.
•
The third quarter of 2009 includes FDIC assessments totaling $753 thousand, a $517 thousand increase from the third quarter of 2008, due to higher premiums mandated by the FDIC to replenish deposit insurance reserves.
•
The third quarter of 2009 includes other-than-temporary impairment charges of $2.3 million on selected investment securities that were partially offset by $1.7 million in net gain on investment securities.
“Our core community banking business model continues to produce positive results in 2009,” said Peter G. Humphrey, President and Chief Executive Officer of the Company. “We’ve had outstanding business development as both commercial and consumer loans reflect double digit percentage growth from a year ago, while maintaining our disciplined underwriting standards. As loans and deposits have grown over the past several quarters, our capital, liquidity and asset quality have remained strong. These factors, along with higher revenues and a command on controllable costs continue to positively impact our core operations.”
Net Interest Income
Net interest income for the third quarter of 2009 was $18.1 million, an increase of $1.3 million or 8% over the third quarter of 2008. For the first nine months of 2009, net interest income was $53.1 million, an increase of $5.0 million or 10% over the first nine months of 2008. Net interest margin was 3.99% for the third quarter of 2009, an increase of 1 basis point from the third quarter of 2008. For the nine months ended September 30, 2009, net interest margin was 4.03%, an increase of 15 basis points from the same period last year. An improved mix of earning assets, primarily driven by growth in the loan portfolio, coupled with a significant decline in funding costs were the primary factors driving the performance of net interest income and margin.
Noninterest Income (Loss)
Noninterest income for the third quarter of 2009 was $4.4 million, compared with a noninterest loss of $29.3 million for the third quarter of 2008. For the first nine months of 2009, noninterest income was $13.6 million, compared with a noninterest loss of $23.7 million for the first nine months of 2008. Other-than-temporary impairment charges (“OTTI”) on a privately issued whole loan collateralized mortgage obligation and pooled trust preferred securities included in noninterest income amounted to $2.3 million during the third quarter of 2009. The noninterest loss for the third quarter of 2008 included OTTI of $34.6 million related to auction rate preferred equity securities and pooled trust preferred securities. The third quarter of 2009 also reflects a $1.7 million net gain on sale of investment securities, comprised of $1.9 million in gross gains, primarily from securities issued by U.S. government sponsored agencies, and $141 thousand in gross losses on privately issued whole loan collateralized mortgage obligations.
Noninterest Expense
Noninterest expense for the third quarter of 2009 was $15.1 million, an increase of $1.7 million from the third quarter of 2008. For the first nine months of 2009 noninterest expense was $47.7 million, an increase of $5.6 million over the first nine months of 2008. The most significant cause for the increase was higher FDIC assessments, which included a $923 thousand special assessment incurred during the second quarter of 2009, coupled with increases in FDIC deposit insurance coverage and changes in premiums mandated by the FDIC to replenish deposit insurance reserves. Noninterest expense for 2009 also reflects higher incentive compensation and pension benefit costs, increases in occupancy and equipment costs associated with the opening of two new branches in the suburban Rochester area during 2008, and an increase in professional services expense.
Balance Sheet
Total assets at September 30, 2009 were $2.138 billion, up $192.4 million from $1.946 billion at September 30, 2008. Total loans were $1.259 billion at September 30, 2009, an increase of $181.2 million from $1.078 billion at September 30, 2008. Total deposits increased $136.8 million to $1.797 billion at September 30, 2009, versus $1.660 billion at September 30, 2008. The majority of the increase in deposits was attributable to an increase in nonpublic certificates of deposit.
Total investment securities were $670.8 million at September 30, 2009, down slightly from $671.8 million at September 30, 2008. The Company previously identified three groups of securities from its available for sale portfolio that contained high levels of risk. Those securities consisted of auction rate preferred equity securities, privately issued whole loan collateralized mortgage obligations and pooled trust preferred securities. At September 30, 2009 there were no auction rate preferred equity securities, $1.4 million in pooled trust preferred securities and $8.8 million of privately issued whole loan collateralized mortgage obligations included in available for sale investment securities. This group of securities totaled $10.2 million at September 30, 2009, a reduction of $70.7 million from $80.9 million at September 30, 2008. The fair value of those securities at September 30, 2009 was $10.7 million resulting in an unrealized gain of $469 thousand over the adjusted book value of $10.2 million. The reduction in this group of securities has resulted from sales, amortization and recognition of other than temporary impairment charges.
Asset Quality and Capital Ratios
Net charge-offs increased by $1.9 million from the third quarter of 2008 to $2.5 million, or 0.79% of average loans, primarily due to a $1.4 million charge-off of one commercial loan relationship. For the nine months ended September 30, 2009 net charge-offs increased in comparison to the same period last year by $2.5 million to $4.6 million, or 0.51% of average loans. The provision for loan losses was $2.6 million for the quarter, compared with $1.9 million in the same quarter a year ago. For the nine months ended September 30, 2009 the provision for loan losses totaled $6.6 million, compared with $4.0 million in the same period last year. The allowance for loan losses was $20.8 million or 1.65% of total loans at September 30, 2009, compared with $17.4 million or 1.62% of total loans at September 30, 2008. At September 30, 2009, non-performing loans totaled $5.8 million, or 0.46% of total loans, down $1.8 million or 24% from a year ago, and down $3.7 million or 39% from prior quarter. At September 30, 2009, foreclosed assets totaled $696 thousand, down $313 thousand or 31% from a year ago, and down $350 thousand or 33% from prior quarter. The reduction in nonperforming loans of $3.7 million during the third quarter of 2009 was principally attributable to one commercial loan relationship of $3.1 million on which the Company recorded a charge-off of $1.4 million together with a cash settlement of the remaining $1.7 million. At September 30, 2009 non-performing assets totaled $7.9 million, which included $1.4 million in non-performing investment securities on which interest payments are being deferred.
At September 30, 2009, all of the Company’s regulatory capital ratios exceeded the guidelines required to be considered a “well capitalized” institution as established by the Company’s primary banking regulators. Well capitalized levels are considered to be at least 5.00% for the leverage ratio and 10.00% for the total risk-based capital ratio. At September 30, 2009, the Company’s leverage ratio was 7.89% and the total risk-based capital ratio was 11.98%.
About Financial Institutions, Inc.
With approximately $2.1 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 over 50 offices and more than 70 ATMs in Western and Central New York State. Five Star Investment Services provides brokerage and insurance products and services within the same New York State markets. The consolidated entity employs over 600 individuals. The Company’s stock is listed on the Nasdaq Global Select 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, fluctuations in the fair value of securities in the investment portfolio, and general economic and credit market conditions nationally and regionally, The Company undertakes no obligation to revise these statements following the date of this press release.
*****
FINANCIAL INSTITUTIONS, INC. Summary of Quarterly Financial Data (Unaudited)
2009
2008
September 30,
June 30,
March 31,
December 31,
September 30,
SELECTED BALANCE SHEET DATA
(Amounts in thousands)
Cash and cash equivalents:
Cash and due from banks
$
48,721
41,405
48,073
34,528
54,105
Federal funds sold and interest-bearing deposits
11,385
39,910
74,616
20,659
22,599
Total cash and cash equivalents
60,106
81,315
122,689
55,187
76,704
Investment securities:
Available for sale
625,744
498,561
553,710
547,506
607,357
Held-to-maturity
45,056
47,465
60,675
58,532
64,434
Total investment securities
670,800
546,026
614,385
606,038
671,791
Loans held for sale
1,032
3,005
2,290
1,013
1,008
Loans:
Commercial
197,404
198,608
174,505
158,543
156,809
Commercial real estate
296,648
282,048
266,176
262,234
248,267
Agriculture
42,545
42,997
42,524
44,706
46,490
Residential real estate
147,447
149,926
170,834
177,683
173,893
Consumer indirect
345,448
319,735
283,465
255,054
227,971
Consumer direct and home equity
229,870
225,258
220,440
222,859
224,693
Total loans
1,259,362
1,218,572
1,157,944
1,121,079
1,078,123
Allowance for loan losses
20,782
20,614
19,657
18,749
17,420
Total loans, net
1,238,580
1,197,958
1,138,287
1,102,330
1,060,703
Total interest-earning assets (1) (2)
1,934,786
1,802,489
1,843,522
1,743,141
1,789,499
Goodwill
37,369
37,369
37,369
37,369
37,369
Total assets
2,138,205
1,996,724
2,030,429
1,916,919
1,945,819
Deposits:
Noninterest-bearing demand
298,972
292,825
279,284
292,586
293,027
Interest-bearing demand
383,982
357,443
392,353
344,616
376,098
Savings and money market
402,042
366,373
396,644
348,594
383,456
Certificates of deposit
712,182
683,619
668,999
647,467
607,833
Total deposits
1,797,178
1,700,260
1,737,280
1,633,263
1,660,414
Borrowings
120,113
79,977
78,761
70,820
114,684
Total interest-bearing liabilities
1,618,319
1,487,412
1,536,757
1,411,497
1,482,071
Shareholders’ equity
195,935
192,455
191,676
190,300
152,770
Common shareholders’ equity (3)
142,605
139,213
138,519
137,226
135,195
Tangible common shareholders’ equity (4)
105,176
101,712
100,946
99,577
97,468
Securities available for sale – fair value adjustment
included in shareholders’ equity, net of tax
$
4,778
3,081
3,503
3,463
(9,797
)
Common shares outstanding
10,818
10,821
10,805
10,798
10,806
Treasury shares
530
527
543
550
542
CAPITAL RATIOS
Leverage ratio
7.89
%
7.84
7.96
8.05
7.37
Tier 1 risk-based capital
10.73
%
10.69
11.23
11.83
11.10
Total risk based capital
11.98
%
11.94
12.49
13.08
12.35
Common equity to assets
6.67
%
6.97
6.82
7.16
6.95
Tangible common equity to tangible assets (4)
5.01
%
5.19
5.07
5.30
5.11
Common book value per share
$
13.18
12.86
12.82
12.71
12.51
Tangible common book value per share (4)
$
9.72
9.40
9.34
9.22
9.02
1
FINANCIAL INSTITUTIONS, INC. Summary of Quarterly Financial Data (Unaudited)
Quarterly Trends
Nine months ended
2009
2008
September 30,
Third
Second
First
Fourth
Third
2009
2008
Quarter
Quarter
Quarter
Quarter
Quarter
SELECTED INCOME STATEMENT DATA
(Dollar amounts in thousands)
Interest income
$
70,092
74,366
23,697
23,302
23,093
24,582
24,558
Interest expense
17,042
26,348
5,619
5,657
5,766
7,269
7,812
Net interest income
53,050
48,018
18,078
17,645
17,327
17,313
16,746
Provision for loan losses
6,614
3,965
2,620
2,088
1,906
2,586
1,891
Net interest income after provision
for loan losses
46,436
44,053
15,458
15,557
15,421
14,727
14,855
Noninterest income (loss):
Service charges on deposits
7,480
7,812
2,643
2,517
2,320
2,685
2,794
ATM and debit card
2,639
2,460
920
908
811
853
852
Loan servicing
1,031
530
304
470
257
134
112
Company owned life insurance
806
269
271
275
260
294
223
Broker-dealer fees and commissions
741
1,223
238
234
269
235
363
Net gain on sale of loans held for sale
545
304
129
246
170
35
48
Net gain on investment securities
2,928
232
1,721
1,153
54
56
12
Impairment charge on investment securities
(4,101
)
(38,345
)
(2,318
)
(1,733
)
(50
)
(29,870
)
(34,554
)
Net gain on sale of other assets
177
254
19
—
158
51
102
Other
1,366
1,589
479
445
442
421
700
Total noninterest income (loss)
13,612
(23,672
)
4,406
4,515
4,691
(25,106
)
(29,348
)
Noninterest expense:
Salaries and employee benefits
25,421
23,626
8,253
8,437
8,731
7,811
7,021
Occupancy and equipment
8,289
7,789
2,730
2,683
2,876
2,713
2,642
FDIC assessments
3,026
369
753
1,593
680
305
236
Professional services
1,972
1,504
532
591
849
637
467
Computer and data processing
1,757
1,764
578
562
617
669
603
Supplies and postage
1,414
1,353
473
476
465
447
475
Advertising and promotions
650
905
227
249
174
548
472
Other
5,131
4,757
1,596
1,849
1,686
2,264
1,493
Total noninterest expense
47,660
42,067
15,142
16,440
16,078
15,394
13,409
Income (loss) before income taxes
12,388
(21,686
)
4,722
3,632
4,034
(25,773
)
(27,902
)
Income tax expense (benefit)
3,384
1,330
1,313
1,004
1,067
(22,631
)
524
Net income (loss)
$
9,004
(23,016
)
3,409
2,628
2,967
(3,142
)
(28,426
)
Preferred stock dividends
2,770
1,112
927
925
918
426
371
Net income (loss) applicable to
common shareholders
$
6,234
(24,128
)
2,482
1,703
2,049
(3,568
)
(28,797
)
STOCK AND RELATED PER SHARE DATA
Net income (loss) per share – basic
$
0.58
(2.21
)
0.23
0.16
0.19
(0.33
)
(2.66
)
Net income (loss) per share – diluted
$
0.57
(2.21
)
0.23
0.16
0.19
(0.33
)
(2.66
)
Cash dividends declared on common stock
$
0.30
0.44
0.10
0.10
0.10
0.10
0.15
Common dividend payout ratio (5)
51.72
%
NA
43.48
62.50
52.63
NA
NA
Dividend yield (annualized)
4.02
%
2.94
3.98
2.94
5.32
2.77
2.98
Stock price (Nasdaq: FISI):
High
$
15.99
22.50
15.00
15.99
14.95
20.27
22.50
Low
$
3.27
14.82
9.90
6.98
3.27
10.06
14.82
Close
$
9.97
20.01
9.97
13.66
7.62
14.35
20.01
2
FINANCIAL INSTITUTIONS, INC. Summary of Quarterly Financial Data (Unaudited)
Quarterly Trends
Nine months ended
2009
2008
September 30,
Third
Second
First
Fourth
Third
2009
2008
Quarter
Quarter
Quarter
Quarter
Quarter
SELECTED AVERAGE BALANCES
(Amounts in thousands)
Federal funds sold and interest-bearing deposits
$
44,209
29,751
39,945
49,105
43,618
17,089
12,897
Investment securities (1)
593,533
739,896
585,830
593,740
601,199
666,917
721,419
Loans (2):
Commercial
181,515
144,060
194,803
183,733
165,688
155,814
147,350
Commercial real estate
277,633
248,544
288,658
275,275
268,749
255,882
249,769
Agriculture
42,771
45,283
43,250
42,368
42,690
44,299
45,965
Residential real estate
163,665
169,939
148,325
168,300
174,659
175,200
173,175
Consumer indirect
301,110
165,153
334,123
301,112
267,360
244,891
200,586
Consumer direct and home equity
223,187
225,050
226,355
222,122
221,024
222,235
222,241
Total loans
1,189,881
998,029
1,235,514
1,192,910
1,140,170
1,098,321
1,039,086
Total interest-earning assets
1,829,799
1,768,567
1,862,779
1,838,320
1,787,470
1,782,938
1,774,201
Goodwill
37,369
37,369
37,369
37,369
37,369
37,369
37,369
Total assets
2,005,656
1,899,023
2,040,030
2,012,337
1,963,764
1,924,174
1,908,577
Interest-bearing liabilities:
Interest-bearing demand
362,870
343,247
361,147
366,985
360,470
360,970
342,188
Savings and money market
377,877
368,882
369,562
392,355
371,738
373,034
366,449
Certificates of deposit
681,204
613,443
699,011
676,221
668,041
629,111
591,025
Borrowings
81,675
87,200
94,642
78,763
71,363
105,164
118,023
Total interest-bearing liabilities
1,503,626
1,412,772
1,524,362
1,514,324
1,471,612
1,468,279
1,417,685
Noninterest-bearing demand deposits
288,918
279,064
298,723
286,155
281,690
284,643
294,136
Total deposits
1,710,869
1,604,636
1,728,443
1,721,716
1,681,939
1,647,758
1,593,798
Total liabilities
1,812,692
1,707,733
1,845,010
1,819,891
1,772,377
1,766,239
1,727,473
Shareholders’ equity
192,964
191,290
195,020
192,446
191,387
157,935
181,104
Common equity (3)
139,771
173,710
141,741
139,253
138,281
136,887
163,527
Tangible common equity (4)
$
102,226
135,861
104,269
101,709
100,660
99,191
125,754
Common shares outstanding:
Basic
10,726
10,852
10,738
10,723
10,716
10,717
10,738
Diluted
10,764
10,852
10,779
10,765
10,747
10,717
10,738
SELECTED AVERAGE YIELDS/
RATES AND RATIOS
(Tax equivalent basis)
Federal funds sold and interest-bearing deposits
0.22
%
2.57
0.20
0.21
0.25
1.09
2.10
Investment securities
4.17
%
4.87
3.79
4.16
4.54
4.72
4.66
Loans
6.01
%
6.70
6.01
5.99
6.04
6.35
6.52
Total interest-earning assets
5.27
%
5.87
5.19
5.24
5.39
5.69
5.73
Interest-bearing demand
0.22
%
1.02
0.19
0.20
0.25
0.69
0.86
Savings and money market
0.28
%
1.13
0.29
0.27
0.27
0.68
0.93
Certificates of deposit
2.62
%
3.80
2.49
2.63
2.76
3.09
3.33
Borrowings
3.78
%
4.83
3.35
3.91
4.21
4.23
4.30
Total interest-bearing liabilities
1.51
%
2.49
1.46
1.50
1.59
1.97
2.19
Net interest rate spread
3.76
%
3.38
3.73
3.74
3.80
3.72
3.54
Net interest rate margin
4.03
%
3.88
3.99
4.01
4.09
4.07
3.98
Net income (loss) (annualized returns on):
Average assets
0.60
%
(1.62
)
0.66
0.52
0.61
(0.65
)
(5.93
)
Average equity
6.24
%
(16.07
)
6.93
5.48
6.29
(7.91
)
(62.44
)
Average common equity (6)
5.96
%
(18.55
)
6.95
4.91
6.01
(10.37
)
(70.06
)
Average tangible common equity (7)
8.15
%
(23.72
)
9.45
6.72
8.25
(14.31
)
(91.10
)
Efficiency ratio (8)
67.51
%
63.17
63.43
69.49
69.72
66.65
58.10
3
FINANCIAL INSTITUTIONS, INC. Summary of Quarterly Financial Data (Unaudited)
Quarterly Trends
Nine months ended
2009
2008
September 30,
Third
Second
First
Fourth
Third
2009
2008
Quarter
Quarter
Quarter
Quarter
Quarter
ASSET QUALITY DATA
(Dollar amounts in thousands)
Nonaccrual loans
$
5,816
7,609
5,816
9,496
8,826
8,189
7,609
Accruing loans past due 90 days or more
1
32
1
2
301
7
32
Total non-performing loans
5,817
7,641
5,817
9,498
9,127
8,196
7,641
Foreclosed assets
696
1,009
696
1,046
877
1,007
1,009
Non-performing investment securities
1,431
—
1,431
3,175
3,396
49
—
Total non-performing assets
$
7,944
8,650
7,944
13,719
13,400
9,252
8,650
Net loan charge-offs
$
4,581
2,066
2,452
1,131
998
1,257
509
Net charge-offs to average loans (annualized)
0.51
%
0.28
0.79
0.38
0.35
0.46
0.20
Total non-performing loans to total loans
0.46
%
0.71
0.46
0.78
0.79
0.73
0.71
Total non-performing assets to total assets
0.37
%
0.44
0.37
0.69
0.66
0.48
0.44
Allowance for loan losses to total loans
1.65
%
1.62
1.65
1.69
1.70
1.67
1.62
Allowance for loan losses to
non-performing loans
357
%
228
357
217
215
229
228
(1) Includes investment securities at adjusted amortized cost and non-performing investment securities.
(2) Includes nonaccrual loans.
(3) Excludes preferred shareholders’ equity. (4) Excludes preferred shareholders’ equity, goodwill and other intangible assets.
(5) Common dividend payout ratio equals dividends declared during the period divided by earnings per share for the equivalent period. There is no ratio shown for periods where the Company both declares a dividend and incurs a loss during the period because the ratio would result in a negative payout since the dividend declared (paid out) will always be greater than 100% of earnings.
(6) Net income available to common shareholders divided by average common equity.
(7) Net income available to common shareholders divided by average tangible equity.
(8) Efficiency ratio equals noninterest expense less other real estate expense and amortization of intangible assets as a percentage of net revenue, defined as the sum of tax-equivalent net interest income and noninterest income before net gains and impairment charges on investment securities.
4
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