FORM 10-Q
----------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
Commission file number 0-26481
FINANCIAL INSTITUTIONS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 16-0816610
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
220 Liberty Street, Warsaw, New York 14569
- ---------------------------------------- ---------
(Address of principal executive offices) (Zip code)
716-786-1100
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
TITLE OUTSTANDING
----- -----------
Common Stock, $0.01 par value Outstanding at May 1, 2001
Per share 10,986,721 shares
================================================================================
INDEX
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
PART I. -- FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Consolidated Statements of Financial Condition
Consolidated Statements of Income
Consolidated Statements of Cash Flows
Consolidated Statements of Shareholders' Equity and Comprehensive Income
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBITS
ITEM 1. FINANCIAL STATEMENTS
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share amounts)
March 31, December 31,
2001 2000
ASSETS ----------- ------------
(unaudited)
Cash, due from banks and interest-bearing deposits $ 30,537 $ 29,226
Federal funds sold 31,225 926
Securities available for sale, at fair value 263,889 261,869
Securities held to maturity (fair value of $78,314 at March 31, 2001 and
$76,884 at December 31, 2000) 77,687 76,947
Loans 897,196 887,145
Allowance for loan losses (14,466) (13,883)
----------- -----------
Loans, net 882,730 873,262
Premises and equipment, net 18,953 18,423
Other assets 32,560 28,674
----------- -----------
Total assets $ 1,337,581 $ 1,289,327
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand $ 145,493 $ 162,840
Savings, money market and interest-bearing checking 339,571 309,732
Certificates of deposit 644,906 605,539
----------- -----------
Total deposits 1,129,970 1,078,111
Short-term borrowings 19,776 46,903
Long-term borrowings 15,484 15,481
Guaranteed preferred beneficial interests in
Corporation's junior subordinated debentures 16,200 --
Accrued expenses and other liabilities 18,879 17,214
----------- -----------
Total liabilities 1,200,309 1,157,709
----------- -----------
Shareholders' equity:
3% cumulative preferred stock, $100 par value, authorized 10,000 shares,
issued and outstanding 1,686 shares at March 31, 2001 and 1,711
shares at December 31, 2000 168 171
8.48% cumulative preferred stock, $100 par value, authorized 200,000
shares, issued and outstanding 175,866 shares at March 31, 2001 and
December 31, 2000 17,587 17,587
Common stock, $0.01 par value, authorized 50,000,000 shares, issued
11,303,533 shares at March 31, 2001 and December 31, 2000 113 113
Additional paid-in capital 16,473 16,472
Retained earnings 101,570 98,348
Accumulated other comprehensive income(loss) 2,290 (144)
Treasury stock-common, at cost-316,812 shares at March 31, 2001 and
December 31, 2000 (929) (929)
----------- -----------
Total shareholders' equity 137,272 131,618
----------- -----------
Total liabilities and shareholders' equity $ 1,337,581 $ 1,289,327
=========== ===========
See accompanying notes to consolidated financial statements.
1
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
(unaudited)
Three Months Ended
March 31,
-------------------
2001 2000
------- -------
Interest income:
Loans $20,848 $17,719
Securities 4,821 4,091
Other 85 47
------- -------
Total interest income 25,754 21,857
------- -------
Interest expense:
Deposits 11,196 8,380
Borrowings 788 792
Guaranteed preferred beneficial interests in
Corporation's junior subordinated debentures 181 --
------- -------
Total interest expense 12,165 9,172
------- -------
Net interest income 13,589 12,685
Provision for loan losses 811 835
------- -------
Net interest income after provision for loan
losses 12,778 11,850
------- -------
Noninterest income:
Service charges on deposits 1,319 1,094
Gain on sale\call of securities 185 --
Gain on sale of loans and other assets 272 117
Loan servicing fees 259 302
Investment brokerage fees 386 267
Other 364 289
------- -------
Total noninterest income 2,785 2,069
------- -------
Noninterest expense:
Salaries and employee benefits 4,757 4,036
Occupancy and equipment 1,288 1,125
Supplies and postage 383 380
Amortization of intangibles 176 210
Professional fees 218 195
Other 1,422 1,261
------- -------
Total noninterest expense 8,244 7,207
------- -------
Income before income taxes 7,319 6,712
Income taxes 2,514 2,418
------- -------
Net income $ 4,805 $ 4,294
======= =======
Earnings per common share:
Basic $ 0.40 $ 0.36
======= =======
Diluted $ 0.40 $ 0.36
======= =======
See accompanying notes to consolidated financial statements.
2
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
Three Months Ended March 31,
2001 2000
-------- --------
Cash flows from operating activities:
Net income $ 4,805 $ 4,294
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 832 812
Provision for loan losses 811 835
Deferred income tax benefit (273) (238)
Gain on sale/call of securities (185) --
Gain on sale of loans and other assets (272) (117)
Minority interest in net income of subsidiary banks 23 21
Increase in other assets (863) (969)
Increase in accrued expenses and other liabilities 3,213 2,591
-------- --------
Net cash provided by operating activities 8,091 7,229
-------- --------
Cash flows from investing activities:
Purchase of securities:
Available for sale (72,699) (20,997)
Held to maturity (4,577) (1,898)
Proceeds from maturity/call of securities:
Available for sale 66,806 6,160
Held to maturity 3,774 2,561
Proceeds from sales of securities available for sale 3,965 --
Net increase in loans (10,019) (24,687)
Proceeds from sales of premises and equipment 24 8
Purchase of premises and equipment (1,038) (360)
-------- --------
Net cash used in investing activities (13,764) (39,213)
-------- --------
Cash flows from financing activities:
Net increase (decrease) in deposits 51,859 (120)
Net (decrease) increase in short-term borrowings (27,126) 1,916
Proceeds from long-term borrowings 42 10,000
Repayment of long-term borrowings (39) (7,734)
Proceeds from guaranteed preferred beneficial interests in
corporation's junior subordinated debentures, net of costs 15,713 --
Repurchase of preferred and common shares, net of
director plan issuance (2) (166)
Dividends paid (3,164) (1,257)
-------- --------
Net cash provided by financing activities 37,283 2,639
-------- --------
Net increase (decrease) in cash and cash equivalents 31,610 (29,345)
Cash and cash equivalents at beginning of the period 30,152 61,226
-------- --------
Cash and cash equivalents at end of the period $ 61,762 $ 31,881
======== ========
Supplemental disclosure of cash flow information:
Cash paid during period for:
Interest $ 11,157 $ 8,795
======== ========
Income taxes $ 625 $ 582
======== ========
See accompanying notes to consolidated financial statements.
3
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(Dollars in thousands, except per share amounts)
(unaudited)
Accumulated
Other
Comprehen- Total
Preferred Stock sive Share-
--------------- Common Additional Retained Income Treasury holders
3% 8.48% Stock Paid-In Capital Earnings (Loss) Stock Equity
-- ----- ----- ------- ---------- -------- ----------- -------- --------
Balance-December 31, 2000 $ 171 $ 17,587 $ 113 $ 16,472 $ 98,348 $ (144) $ (929) $131,618
Purchase of 25 shares of
3% preferred stock (3) 1 (2)
Comprehensive income:
Net income 4,805 4,805
Unrealized gain on
securities available for
sale (net of tax of $1,583) 2,324 2,324
Reclassification adjustment
for gains included in net
income (net of tax of $75) 110 110
--------
Net unrealized gain on
securities available for
sale (net of tax of $1,658) 2,434
--------
Total comprehensive
income 7,239
--------
Cash dividends declared:
3% preferred-$0.75 per share (1) (1)
8.48% preferred-$2.12 per share (373) (373)
Common-$0.11 per share (1,209) (1,209)
-------- -------- -------- -------- -------- -------- -------- --------
Balance-March 31, 2001 $ 168 $ 17,587 $ 113 $ 16,473 $101,570 $ 2,290 $ (929) $137,272
======== ======== ======== ======== ======== ======== ======== ========
See accompanying notes to consolidated financial statements.
4
FINANCIAL INSTITUTIONS. INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED
MARCH 31, 2001 and 2000
(Unaudited)
1. BASIS OF PRESENTATION
Financial Institutions. Inc. (the "Company") is a bank holding company with four
commercial banks subsidiaries that operate in Western and Central New York
State: Wyoming County Bank ("WCB"); The National Bank of Geneva ("NBG"); The
Pavilion State Bank ("PSB"); and, First Tier Bank & Trust ("FTB") (collectively
the "Banks"). The Company is also the parent of The FI Group, Inc. ("FIGI") and
FISI Statutory Trust I ("FISI"). FIGI is a brokerage subsidiary that commenced
operations in March 2000. FISI is a trust formed in February 2001 to accommodate
the private placement of $16.2 million in capital securities with several
institutional investors, with the proceeds utilized to aid funding the
acquisition of Bath National Bank ("BNB") (see Note 6). The capital securities
are identified on the balance sheet as guaranteed preferred beneficial interests
in corporation's junior subordinated debentures. In addition, the capital
securities are an alternative funding vehicle with certain favorable features,
namely, the capital securities qualify as regulatory capital and the related
interest expense is tax-deductible.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles ("GAAP") for interim
financial information and the instructions for Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements. In the opinion of
management, all adjustments necessary for a fair presentation have been included
in the results for the three month periods ended March 31, 2001 and 2000. The
results of operations for the three month period ended March 31, 2001 are not
necessarily indicative of the results which may be expected for the year ending
December 31, 2001 or any other interim period.
The consolidated financial statements include the accounts of the Company, the
Banks, FIGI and FISI. All significant intercompany balances and transactions
have been eliminated in consolidation.
2. EARNINGS PER SHARE
Basic earnings per share, after giving effect to preferred stock dividends, has
been computed using weighted average common shares outstanding. Diluted earnings
per share reflects the effects, if any, of incremental common shares issuable
upon exercise of dilutive stock options.
Earnings per common share have been computed based on the following:
(Dollars in thousands, except share amounts)
Three Months Ended March 31,
2001 2000
---- ----
Net Income $ 4,805 $ 4,294
Less: Preferred Stock Dividends 374 374
----------- -----------
Net Income Available to Common Shareholders $ 4,431 $ 3,920
=========== ===========
Average Number of Common Shares Outstanding 10,986,721 11,016,052
Add: Effect of Dilutive Options 21,101 --
----------- -----------
Average Number of Common Shares Outstanding
Used to Calculate Diluted Earnings per Common Share 11,007,822 11,016,052
=========== ===========
5
3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The following table summarizes, at the dates indicated, the Company's loan
portfolio by type:
(Dollars in thousands)
As of As of
March 31, December 31,
2001 2000
--------- ------------
Commercial $ 171,126 $ 169,832
Commercial real estate 175,390 166,041
Agricultural 167,700 165,367
Residential real estate 194,752 201,160
Consumer & home equity 188,228 184,745
--------- ---------
Loans, gross 897,196 887,145
Allowance for loan losses (14,466) (13,883)
--------- ---------
Total loans, net $ 882,730 $ 873,262
========= =========
The following table presents an analysis of the allowance for loan losses and
other related data for the periods indicated.
(Dollars in thousands)
Three Months Ended
-----------------------
March 31,
2001 2000
------- -------
Balance at the beginning of the period $13,883 $11,421
Charge-Offs:
Commercial 53 154
Commercial real estate 60 4
Agricultural -- --
Residential real
estate 42 --
Consumer and home
equity 151 252
------- -------
Total charge-offs 306 410
------- -------
Recoveries:
Commercial 7 3
Commercial real estate 10 --
Agricultural -- 1
Residential real
estate -- --
Consumer and home
equity 61 57
------- -------
Total recoveries 78 61
------- -------
Net charge-offs 228 349
Provision for loan losses 811 835
------- -------
Balance at the end of the period $14,466 $11,907
======= =======
Ratio of net charge-offs to average
loans (annualized) 0.10% 0.18%
Allowance for loan losses to total
loans 1.61% 1.51%
Allowance for loan losses to
nonperforming loans 188.34% 171.97%
At March 31, 2001 and 2000, the recorded investment in loans that are considered
to be impaired totaled $5,988,000 and $3,490,000, respectively. The average
recorded investments in impaired loans during the three months ended March 31,
2001 and 2000 were approximately $4,493,000 and $3,586,000, respectively. At
March 31, 2001 and 2000, the Company had specific allocations for impaired loans
included in the allowance for loan losses of $1,096,000 and $747,000,
respectively.
6
The following table presents information regarding nonperforming assets at the
dates indicated:
(Dollars in thousands)
As of As of
March 31, December 31,
2001 2000
--------- ------------
Nonaccruing loans (1):
Commercial $ 915 $1,044
Commercial real estate 1,810 1,619
Agricultural 2,889 2,881
Residential real estate 869 835
Consumer and home equity 481 217
------ ------
Total loans 6,964 6,596
Accruing loans 90 days or more delinquent 717 521
------ ------
Total nonperforming loans 7,681 7,117
Other real estate owned (2) 950 932
------ ------
Total nonperforming assets $8,631 $8,049
====== ======
Nonperforming loans to total loans 0.86% 0.80%
====== ======
Nonperforming assets to total loans and other real estate 0.96% 0.91%
====== ======
(1) Loans are placed on nonaccrual status when they become 90 days past due if
there is uncertainty with respect to the collectibility of interest or
principal.
(2) Other real estate owned balances are shown net of related allowances.
4. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement, as amended by SFAS No. 138,
requires recognition of derivatives as either assets or liabilities, with the
instruments measured at fair value. The accounting for gains and losses
resulting from changes in fair value of the derivative instrument depends on the
intended use of the derivative and the type of risk being hedged. The Company
adopted SFAS No. 133 on January 1, 2001. The adoption of this statement did not
have a material effect on the Company's financial position or results of
operations.
5. SUBSEQUENT EVENT
On May 1, 2001, the Company acquired all of the outstanding common stock of Bath
National Corporation ("BNC"), and its wholly-owned subsidiary bank, Bath
National Bank ("BNB"). Consolidated assets of BNB were approximately $300
million as of March 31, 2001. BNB is a full service community bank headquartered
in Bath, New York, which has 11 branch locations in Steuben, Yates, Ontario and
Schuyler Counties. The Company paid $48.00 per share in cash for each of the
outstanding shares of BNC common stock with an aggregate purchase price of
approximately $62.6 million. The acquisition will be accounted for using the
purchase method of accounting.
7
6. SEGMENT INFORMATION
Segments are determined based upon the individual subsidiary banks. Reportable
segments are comprised of WCB, NBG, PSB and FTB as the Company manages and
evaluates performance on an individual bank basis. The reportable segment
information as of and for the three month periods ended March 31, 2001 and 2000
follows:
(Dollars in thousands) 2001 2000
---- ----
Net interest income:
WCB ........................................... $ 5,624 $ 5,229
NBG ........................................... 4,675 4,365
PSB ........................................... 1,920 1,677
FTB ........................................... 1,384 1,254
----------- -----------
Total segment net interest income ........... 13,603 12,525
Parent Company, FIGI, FISI, and eliminations, net (14) 160
----------- -----------
Total net interest income ................... $ 13,589 $ 12,685
=========== ===========
Net interest income plus non-interest income:
WCB ........................................... $ 6,478 $ 5,971
NBG ........................................... 5,586 5,210
PSB ........................................... 2,487 1,925
FTB ........................................... 1,669 1,490
----------- -----------
Total segment net interest
income plus non-interest income .......... 16,220 14,596
Parent Company, FIGI, FISI, and eliminations, net 154 158
----------- -----------
Total net interest income plus
non-interest income ...................... $ 16,374 $ 14,754
=========== ===========
Net income:
WCB ........................................... $ 1,986 $ 1,857
NBG ........................................... 1,784 1,669
PSB ........................................... 622 435
FTB ........................................... 397 390
----------- -----------
Total segment net income .................... 4,789 4,351
Parent Company, FIGI, FISI, and eliminations, net 16 (57)
----------- -----------
Total net income ............................ $ 4,805 $ 4,294
=========== ===========
Assets:
WCB ........................................... $ 528,614 $ 457,823
NBG ........................................... 493,163 420,041
PSB ........................................... 174,460 144,684
FTB ........................................... 135,092 122,823
----------- -----------
Total segment net assets .................... 1,331,329 1,145,371
Parent Company, FIGI, FISI, and eliminations, net 6,252 (508)
----------- -----------
Total assets ................................ $ 1,337,581 $ 1,144,863
=========== ===========
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
FORWARD-LOOKING STATEMENTS
This quarterly report contains certain "forward-looking statements" covered by
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. When used or incorporated by reference in the Company's disclosure
documents, the words "anticipate," "estimate," "expect," "project," "target,"
"goal" and similar expressions are intended to identify forward-looking
statements within the meaning of Section 27A of the Securities Act. Such
forward-looking statements are subject to certain risks, uncertainties and
assumptions, including, but not limited to changes in (1) general economic
conditions, (2) the real estate markets, and (3) interest rates. Should one or
more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated, expected or projected. These forward-looking statements
speak only as of the date of the document. The Company expressly disclaims any
obligation or undertaking to publicly release any updates or revisions to any
forward-looking statement contained herein to reflect any change in the
Company's expectation with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
The purpose of this discussion is to present material changes in the Company's
financial condition and results of operations during the three months ended
March 31, 2001 to supplement the information in the consolidated financial
statements included in this report.
The following table presents certain information and ratios that management of
the Company considers important in evaluating performance:
At or For the Three Months Ended
March 31,
2001 2000 $ Change % Change
---- ---- -------- --------
Per common share data:
Net income - basic $0.40 $0.36 $0.04 11.1%
Net income - diluted $0.40 $0.36 $0.04 11.1%
Cash dividends declared $0.11 $0.10 $0.01 10.0%
Book value $10.88 $9.20 $1.68 18.3%
Common shares outstanding:
Weighted average shares - basic 10,986,721 11,016,052
Weighted average shares - diluted 11,007,882 11,016,052
Period end 10,986,721 11,006,733
Performance ratios, annualized:
Return on average assets 1.50% 1.55%
Return on average common equity 15.38% 15.69%
Net interest margin (tax-equivalent) 4.65% 5.00%
Efficiency ratio 47.18% 45.32%
Asset quality ratios:
Nonperforming loans to total loans 0.86% 0.88%
Nonperforming assets to total loans and other real estate 0.96% 0.99%
Net loan charge-offs to average loans 0.10% 0.18%
Allowance for loan losses to total loans 1.61% 1.51%
Allowance for loan losses to nonperforming loans 188.34% 171.97%
Capital ratios:
Average common equity to average total assets 8.97% 8.99%
Leverage ratio 11.49% 10.81%
Tier 1 risk based capital ratio 15.82% 14.72%
Risk-based capital ratio 17.07% 15.97%
9
The Company's net income for the first quarter of 2001 increased 11.9% to
$4,805,000 compared to $4,294,000 for the first three months of 2000. Earnings
per common share increased 11.1% to $0.40 for the 2001 quarter from $0.36 in
2000. Return on average common equity was 15.38% for the three months ended
March 31, 2001 compared to 15.69% for the same period last year.
Net interest income increased 7.1% in the first quarter of 2001 to $13,589,000
compared to $12,685,000 for the first three months of 2000. Growth in average
earning assets of 17.3%, in comparison to the same period a year earlier, drove
the increase, as net interest margin decreased to 4.65% from 5.00% for the same
quarter last year. The decrease in net interest margin is reflective of
incremental asset growth at lower margins together with increasing price
competitiveness in a period of declining market interest rates. The growth in
average earning assets is the result of continued expansion of our commercial
loan portfolio as well as our indirect consumer loan portfolio.
Noninterest income increased 34.6% in the first quarter of 2001 to $2,785,000
from $2,069,000 for the same period in 2000. This increase primarily reflects
the benefit of the continuing growth in core deposits and the related service
fees, as well as realized gains on the sale/call of securities of $185,000 and
the sale of residential mortgage loans. In addition, our investment brokerage
fees were $386,000 for the first three months of 2001 an increase of $119,000
from the same period last year.
Noninterest expense for the first quarter of 2001 was up 14.4% to $8,244,000
from $7,207,000 for the prior year period. The increase is primarily due to
additional staffing and technology resources necessary to support continued
expansion of lending activities, product lines and delivery channels.
Nonetheless the efficiency ratio for the first quarter of 2001 remained strong
at 47.2% compared to 45.3% for the same period a year ago.
The provision for loan losses for the first quarter of 2001 was $811,000,
compared to $835,000 for the same period in 2000. The allowance for loan losses
was $14,466,000 at March 31, 2000, an increase of $583,000 from December 31
,2000. Although nonperforming loans increased to $7,681,000 at March 31, 2001
compared to $6,924,000 at March 31, 2000, the ratio of nonperforming loans to
total loans of 0.86% at March 31, 2001 is comparable to 0.88% a year ago, and
the ratio of the allowance for loan losses to nonperforming loans was 188.34% at
March 31, 2001, up from 171.97% a year ago. The ratio of the allowance for loan
losses to total loans also improved to 1.61% at March 31, 2001, compared to
1.51% from a year ago.
At March 31, 2001 the Company had total assets of $1,337.6 million, an increase
of 3.7% from $1,289.3 million at December 31, 2000. Loans increased 1.1% to
$897.2 million at the recent quarter end from $887.1 million at December 31,
2000. Federal funds sold increased to $31.2 million at March 31, 2001 from $0.9
million at December 31, 2000 as a result of overnight investing of funds
appropriated for the acquisition of BNB on May 1, 2001. Funds appropriated for
the BNB acquisition include the private placement of $16.2 million in capital
securities with institutional investors in February 2001. Total deposits were
$1,130.0 million at the recent quarter-end, compared with $1,078.1 million a
quarter earlier. Total shareholders' equity increased 4.3% to $137.3 million at
March 31, 2001 from $131.6 million at December 31 ,2000. Book value per common
share at March 31, 2001 was $10.88, an increase of 5.0% from $10.36 at December
31, 2000.
10
SUPPLEMENTAL SCHEDULES
The following table presents, for the periods indicated, the total dollar amount
of average balances, interest income from average interest-earning assets, the
resulting yields and interest expense on average interest-bearing liabilities
expressed both in dollars and rates. Except as indicated in the footnotes to
this table, no tax-equivalent adjustments have been made and all average
balances are daily average balances. Nonaccruing loans have been included in the
yield calculation in this table.
For The Three Months Ended March 31,
----------------------------------------
2001 2000
------- -------
Average Interest Annualized Average Interest Annualized
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
(Dollars in thousands) Balance Paid Rate Balance Paid Rate
--------- -------- -------- ---------- -------- --------
Interest-earning assets
Federal funds sold and interest-
bearing deposits $ 6,696 $ 86 5.21% $ 3,479 $ 47 5.43%
Investment securities (1) 343,629 5,605 6.53% 287,881 4,654 6.46%
Loans (2)
Commercial and agricultural 505,828 11,797 9.46% 434,544 10,147 9.39%
Residential real estate 198,803 4,517 9.09% 188,882 4,103 8.69%
Consumer and home equity 186,440 4,533 9.86% 147,600 3,469 9.45%
---------- ---------- ------ ---------- ---------- ------
Total loans 891,071 20,847 9.46% 771,026 17,719 9.23%
---------- ---------- ------ ---------- ---------- ------
Total interest-earning assets 1,241,396 26,538 8.62% 1,062,386 22,420 8.47%
---------- ---------- ------ ---------- ---------- ------
Interest-bearing liabilities
Interest-bearing checking 124,525 393 1.28% 109,585 366 1.34%
Savings and money market 196,388 1,275 2.63% 190,771 1,195 2.52%
Certificates of deposit 625,236 9,527 6.18% 502,450 6,819 5.46%
Borrowed funds 53,949 788 5.92% 53,675 792 5.93%
Guaranteed preferred beneficial
interests in corporation's
junior subordinated debentures 6,840 181 10.73% -- -- --
---------- ---------- ------ ---------- ---------- ------
Total interest-bearing liabilities 1,006,938 12,164 4.90% 856,481 9,172 4.31%
---------- ---------- ------ ---------- ---------- ------
Net interest income $ 14,374 $ 13,248
========== ==========
Net interest rate spread 3.72% 4.16%
====== ======
Net earning assets $ 234,458 $ 205,905
========== ==========
Net interest margin on earning assets (3) 4.65% 5.00%
====== ======
Ratio of average interest-earning
assets to average interest-bearing
liabilities 123.28% 124.04%
====== ======
(1) Amounts shown are amortized cost for held to maturity securities and fair
value for available for sale securities. In order for pre-tax income and
resultant yields on tax-exempt securities to be comparable to those on
taxable securities and loans, a tax-equivalent adjustment to interest
earned from tax-exempt securities has been computed using a federal income
tax rate of 35%.
(2) Net of deferred loan fees and costs.
(3) The net interest margin is equal to net interest income divided by average
interest-earning assets and is presented on an annualized basis.
11
The following table presents the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to: (1) changes attributable to changes in volume (changes in volume
multiplied by the current year rate); (2) changes attributable to changes in
rate (changes in rate multiplied by the prior year volume); and (3) the net
change. The changes attributable to the combined impact of volume and rate have
been allocated proportionately to the changes due to volume and changes due to
rate.
1st Quarter 2001 Compared to 1st Quarter 2000
(Dollars in thousands) ---------------------------------------------
Increase (Decrease) Due to
-------------------------- Total Increase
Volume Rate (Decrease)
------ --------- ----------
Interest-earning assets:
Federal funds sold and interest-bearing
deposits $ 41 $ (2) $ 39
Investment securities 901 50 951
Loans:
Commercial and agricultural 1,586 64 1,650
Residential real estate 231 183 414
Consumer and home equity 920 144 1,064
------- ------- -------
Total loans 2,737 391 3,128
------- ------- -------
Total interest-earning assets 3,679 439 4,118
------- ------- -------
Interest-bearing liabilities:
Interest-bearing checking 41 (14) 27
Savings and money market 35 45 80
Certificates of deposit 1,840 868 2,708
Borrowed funds 20 (24) (4)
Guaranteed preferred beneficial interests in
Corporation's junior subordinated debentures 181 -- 181
------- ------- -------
Total interest-bearing liabilities 2,117 875 2,992
------- ------- -------
Net interest income $ 1,562 $ (436) $ 1,126
======= ======= =======
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Item 3: Quantitative and Qualitative Disclosures about Market Risk
The Company realizes income principally from the differential or spread between
the interest earned on loans, investments and other interest-earning assets and
the interest paid on deposits and borrowings. Loan volumes and yields, as well
as the volume of and rates on investments, deposits and borrowings, are affected
by market interest rates. Additionally, because of the terms and conditions of
many of the Company's loan documents and deposit accounts, a change in interest
rates could also affect the projected maturities of the loan portfolio and/or
the deposit base, which could alter the Company's sensitivity to future changes
in interest rates. Accordingly, management considers interest rate risk to be
the Company's most significant market risk.
Interest rate risk management focuses on maintaining consistent growth in net
interest income within Board approved policy limits while taking into
consideration, among other factors, the Company's overall credit, operating
income, operating cost, and capital profile. The Company's Asset/Liability
Committee (ALCO), which includes senior management and reports to the Board of
Directors, monitors and manages interest rate risk to maintain an acceptable
level of change to net interest income as a result of changes in interest rates.
Management of the Company's interest rate risk requires the selection of
appropriate techniques and instruments to be utilized after considering the
benefits, costs and risks associated with available alternatives. Since the
Company does not utilize derivative instruments, management's techniques usually
consider one or more of the following: (1) interest rates offered on products,
(2) maturity terms offered on products, (3) types of products offered, and (4)
products available to the Company in the wholesale market such as advances from
the FHLB.
The Company uses a net interest income and economic value of equity model as one
method to identify and manage its interest rate risk profile. The model is based
on expected cash flows and repricing characteristics for all financial
instruments and incorporates market-based assumptions regarding the impact of
changing interest rates on these financial instruments. Assumptions based on the
historical behavior of deposit rates and balances in relation to changes in
interest rates are also incorporated into the model. These assumptions are
inherently uncertain and, as a result, the model cannot precisely measure net
interest income or precisely predict the impact of fluctuations in interest
rates on net interest income. Actual results will differ from simulated results
due to timing, magnitude, and frequency of interest rate changes as well as
changes in market conditions and management strategies. The Company has
experienced no significant changes in market risk due to changes in interest
rates since the Company's Annual Report on Form 10-K as of December 31, 2000
dated March 29, 2001 as filed with the Securities and Exchange Commission.
Management also uses the static gap analysis to identify and manage the
Company's interest rate risk profile. Interest sensitivity gap ("gap") analysis
measures the difference between the assets and liabilities repricing or maturing
within specific time periods.
13
PART II -- OTHER INFORMATION
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
3.1 Certificate of Incorporation of the Registrant, as amended *
3.2 By-laws of the Registrant, as amended *
4.1 Form of Certificate for the Registrant's Common Stock *
10.1 1999 Management Stock Incentive Plan of the Registrant **
10.2 1999 Directors' Stock Incentive Plan of the Registrant **
o * Incorporated by reference to the corresponding exhibit filed with
the Registrant's Registration Statement on Form S-1 (File No.
333-76865).
o ** Incorporated by reference to the corresponding exhibit filed with
the Registrant's 1999 Annual Report on Form 10-K.
(b) Reports on Form 8-K
None.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FINANCIAL INSTITUTIONS, INC.
(Registrant)
May 15, 2001 /s/ Peter G. Humphrey
------------ ---------------------
Date Peter G. Humphrey, President & CEO
May 15, 2001 /s/ Ronald A. Miller
------------ --------------------
Date Ronald A. Miller, SVP & CFO
15