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FII Announces Second Quarter Results WARSAW, N.Y., July 24, 2008 (PRIME NEWSWIRE) -- Financial
Institutions, Inc. (NasdaqGS:FISI - News), the parent company of
Five Star Bank, today announced financial results for the
second quarter ended June 30, 2008. Net income for Financial
Institutions, Inc. (``FII'' or ``Company'') was $1.6 million,
or $0.12 per diluted share, compared with $3.8 million,
or $0.31 per diluted share for the first quarter of 2008
and $3.4 million, or $0.27 per diluted share, for the second
quarter of 2007. For the first six months of 2008 net income
was $5.4 million, or $0.43 per diluted share, compared with
$7.1 million, or $0.56 per diluted share for the first six
months of 2007. The second quarter results reflect a valuation write-down of certain securities totaling $3.8 million ($2.3 million, net of tax or approximately $0.21 per diluted share on both a quarter-to-date and year-to-date basis), as four securities in the investment portfolio were considered to be other-than-temporarily impaired (``OTTI'') at June 30, 2008. The OTTI determination related to two privately issued whole loan collateralized mortgage obligations (``CMOs) with exposure to sub-prime mortgages and two pooled trust preferred securities with exposure to financial institutions impacted by recent disruptions facing the financial industry. Absent the OTTI write-down, net income for the second quarter of 2008 would have been $3.9 million, or $0.33 per diluted share and $7.7 million, or $0.64 per diluted share, for the first six months of 2008. Highlights for the second quarter of 2008 include: * Net interest income was $16.2 million for the second quarter, up $1.1 million from the first quarter of 2008 and $2.1 million, or 15%, from the second quarter of 2007, reflecting continued improvement in net interest margin and improved earning asset mix from growth of the loan portfolio. * Net interest margin increased 21 basis points, to 3.94%, compared with 3.73% for the first quarter of 2008 and is up 59 basis points from 3.35% for the second quarter of 2007. The improved net interest margin resulted principally from lower funding costs and the benefits associated with a higher percentage of earning assets being deployed in higher yielding loan assets. * Loans increased $46.6 million to $1.011 billion at June 30, 2008, compared with $964.2 million at December 31, 2007 and increased $69.9 million, or 7%, from June 30, 2007. 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. * Nonperforming assets decreased $2.0 million from December 31, 2007 to $7.5 million at June 30, 2008. Since June 30, 2007, nonperforming assets have declined $4.3 million, or 36%. The ratio of the allowance for loan losses to nonperforming loans improved to 256% at June 30, 2008 versus 192% at December 31, 2007 and 159% at June 30, 2007. * Continued strong capital position with total equity capital of $189.0 million, a leverage capital ratio of 9.17% and a total risk-based capital ratio of 15.77% at June 30, 2008. * An OTTI charge on investment securities totaling $3.8 million ($2.3 million net of tax). Peter G. Humphrey, President and CEO of FII, commented, ``Our second quarter results reflect challenges presented by disruption in the financial and capital markets that face the financial industry. The valuation write-down of certain securities recorded in the second quarter reflects the prudent and proactive recognition of specific exposures in our investment portfolio related to these challenges. For each of the securities for which we recognized an impairment charge, the scheduled payments are being made as agreed. We are well positioned to weather this difficult period due to our core banking franchise and core earnings capacity that is built upon a foundation of diversified and prudent lending, stable core deposits and a strong capital position. The current capital markets continue to cause concern and we intend to continue our prudent and proactive approach to exposures in our investment portfolio.'' Net Interest Income Net interest income was $16.2 million for the second quarter of 2008, up $1.1 million from the first quarter of 2008 and $2.1 million versus the second quarter of 2007. Net interest margin improved to 3.94% in the second quarter of 2008 versus 3.73% in the first quarter of 2008 and 3.35% in the second quarter of 2007. For the first six months of 2008 net interest income was $31.3 million compared with $28.0 million for the same period in 2007. Net interest margin improved to 3.83% versus 3.37%. The improved net interest income and net interest margin resulted principally from lower funding costs and the benefits associated with a higher percentage of earning assets being deployed in higher yielding loan assets. Noninterest Income Noninterest income for the second quarter of 2008 was $932 thousand, versus $4.7 million and $4.6 million in the first quarter of 2008 and the second quarter of 2007, respectively. For the six months ended June 30, 2008 noninterest income was $5.7 million compared with $9.3 million for the same period in 2007. The decline is primarily the result of the $3.8 million valuation write-down of certain investment securities deemed to be OTTI, which was recorded in the second quarter of 2008. Noninterest income, absent the $3.8 million write-down, would have been $4.7 million and $9.5 million for the second quarter of 2008 and first six months of 2008, respectively. Noninterest Expense Noninterest expense for the second quarter of 2008 was $14.4 million, a slight increase from $14.3 million in the first quarter of 2008 and $14.3 million in the second quarter of 2007. For the first six months of 2008 noninterest expense was $28.7 million, an increase of $383 thousand compared with the same period in 2007. The principal expense items that contributed to the increase were: salaries and benefits increased $243 thousand primarily due to stock compensation related expenses; occupancy and equipment costs were $249 thousand higher due to increased spending on technology-related equipment and the associated maintenance costs; and computer and data processing expenses increased $115 thousand. These increases were partially offset by a $251 thousand decrease in advertising and promotions expense. Balance Sheet Total assets at June 30, 2008 were $1.895 billion, up $37.6 million from $1.858 billion at December 31, 2007. Total loans were $1.011 billion at June 30, 2008, an increase of $46.6 million from $964.2 million at December 31, 2007, principally from a $43.0 million increase in indirect auto loans. Total deposits increased $19.8 million to $1.596 billion at June 30, 208 versus $1.576 billion at December 31, 2007. Total borrowings, including junior subordinated debentures, increased $21.3 million to $89.5 million at June 30, 2008, up from $68.2 million at December 31, 2007. Total shareholders' equity at June 30, 2008 was $189.0 million compared with $195.3 million at December 31, 2007. The Company's leverage ratio was 9.17% and total risk-based capital ratio was 15.77% at June 30, 2008. Asset Quality Mr. Humphrey commented, ``We continued making significant progress in reducing our nonperforming assets during the second quarter of 2008. Our total nonperforming assets have been reduced by $4.3 million, or 36%, from one year ago. For second quarter of 2008, our ratio of net loan charge-offs to average loans was 0.35% (annualized), within acceptable parameters.'' The Company recorded a provision for loan losses of $1.4 million for the second quarter of 2008 compared with a credit for loan losses of $153 thousand in the second quarter of 2007. The increase in the provision for loan losses is primarily due to growth and the changing mix of the loan portfolio and an increase in net loan charge-offs, partially offset by reduced nonperforming loans. Net charge-offs of $869 thousand for the second quarter of 2008 represented 35 basis points (annualized) of average loans. For the first six months of 2008 net charge-offs were $1.6 million, or 32 basis points (annualized) of average loans, compared with $373 thousand, or 8 basis points (annualized) of average loans, for the first half of 2007. The increase in net charge-offs in 2008 related principally to commercial mortgage and residential mortgage loans. The allowance for loan losses was $16.0 million at June 30, 2008 compared with $15.5 million December 31, 2007. Nonperforming loans were $6.3 million at June 30, 2008 compared with $7.4 million and $8.1 million at March 31, 2008 and December 31, 2007, respectively. The ratio of allowance for loans losses to nonperforming loans improved to 256% at June 30, 2008 versus 211% and 192% at March 31, 2008 and December 31, 2007, respectively. 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. Five Star Investment Services provides brokerage and insurance products and services within the same New York State markets. The consolidated entity includes approximately 660 employees. 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: http://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, 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.
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
---------------------------------------------------------------------
(Dollars in thousands, June 30, December 31, June 30,
except share data) 2008 2007 2007
---------- ---------- ----------
ASSETS
Cash and due from banks $ 60,640 $ 45,165 $ 44,309
Federal funds sold and
interest-bearing deposits
in other banks 2,409 1,508 5,720
Securities available for
sale, at fair value 669,752 695,241 759,855
Securities held to maturity,
at amortized cost 56,508 59,479 51,872
Loans held for sale 926 906 1,432
Loans:
Commercial 140,745 136,780 121,687
Commercial real estate 250,872 245,797 246,032
Agricultural 45,231 47,367 53,375
Residential real estate 172,396 166,863 165,516
Consumer indirect 177,967 134,977 117,446
Consumer direct and home
equity 223,538 232,389 236,814
---------- ---------- ----------
Total loans 1,010,749 964,173 940,870
Less: Allowance for loan
losses 16,038 15,521 16,522
---------- ---------- ----------
Loans, net 994,711 948,652 924,348
Premises and equipment, net 33,893 34,157 34,720
Goodwill 37,369 37,369 37,369
Other assets 39,240 35,399 38,467
---------- ---------- ----------
Total assets $1,895,448 $1,857,876 $1,898,092
========== ========== ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Liabilities:
Deposits:
Noninterest-bearing demand $ 288,258 $ 286,362 $ 263,801
Interest-bearing demand,
savings and money market 710,607 681,953 670,253
Certificates of deposit 596,890 607,656 682,995
---------- ---------- ----------
Total deposits 1,595,755 1,575,971 1,617,049
Short-term borrowings 51,977 25,643 22,521
Long-term borrowings 20,786 25,865 37,159
Junior subordinated
debentures issued to
unconsolidated subsidiary
trust 16,702 16,702 16,702
Other liabilities 21,230 18,373 21,895
---------- ---------- ----------
Total liabilities 1,706,450 1,662,554 1,715,326
Shareholders' Equity
Preferred stock 17,581 17,581 17,581
Common stock 113 113 113
Additional paid-in capital 24,320 24,778 24,631
Retained earnings 159,946 158,744 152,900
Accumulated other
comprehensive (loss)
income (4,650) 667 (8,701)
Treasury stock, at cost (8,312) (6,561) (3,758)
---------- ---------- ----------
Total shareholders'
equity 188,998 195,322 182,766
---------- ---------- ----------
Total liabilities and
shareholders' equity $1,895,448 $1,857,876 $1,898,092
========== ========== ==========
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
---------------------------------------------------------------------
(Dollars in
thousands,
except Quarter-to-Date Year-to-Date
share and ---------------------------------- ----------------------
per share June 30, March 31, June 30, June 30,
data) 2008 2008 2007 2008 2007
---------------------------------- ----------------------
Interest
income:
Interest
and fees
on loans $ 16,400 $ 16,728 $ 16,932 $ 33,128 $ 33,559
Interest
and divid-
ends on
securities 7,942 8,234 8,952 16,176 17,379
Other
interest
income 194 310 574 504 1,326
---------- ---------- ---------- ---------- ----------
Total
interest
income 24,536 25,272 26,458 49,808 52,264
---------- ---------- ---------- ---------- ----------
Interest
expense:
Deposits 7,419 9,236 11,338 16,655 22,101
Short-term
borrowings 132 152 153 284 322
Long-term
borrowings 366 367 483 733 969
Junior
subord-
inated
debentures 432 432 432 864 864
---------- ---------- ---------- ---------- ----------
Total
interest
expense 8,349 10,187 12,406 18,536 24,256
---------- ---------- ---------- ---------- ----------
Net
interest
income 16,187 15,085 14,052 31,272 28,008
Provision
(credit)
for loan
losses 1,358 716 (153) 2,074 (153)
---------- ---------- ---------- ---------- ----------
Net
interest
income
after
provision
(credit)
for loan
losses 14,829 14,369 14,205 29,198 28,161
Noninterest
income:
Service
charges on
deposits 2,518 2,500 2,767 5,018 5,336
ATM and
debit card
income 856 752 724 1,608 1,344
Broker-
dealer
fees and
commissions 401 459 347 860 730
Loan
servicing 232 186 243 418 449
Income from
corporate
owned life
insurance 27 19 29 46 49
Net gain
(loss) on
investment
securities (3,744) 173 51 (3,571) 51
Net gain on
sale of
loans held
for sale 92 164 116 256 276
Net gain on
sale and
disposal
of other
assets 115 37 31 152 101
Other 435 454 298 889 1,008
---------- ---------- ---------- ---------- ----------
Total
non-
interest
income 932 4,744 4,606 5,676 9,344
Noninterest
expense:
Salaries and
employee
benefits 8,169 8,436 8,008 16,605 16,362
Occupancy
and
equipment 2,567 2,580 2,450 5,147 4,898
Supplies
and postage 437 441 402 878 840
Amortization
of other
intangibles 76 77 76 153 153
Computer
and data
processing 580 581 589 1,161 1,046
Professional
fees and
services 480 557 577 1,037 1,072
Advertising
and
promotions 283 150 464 433 684
Other 1,793 1,451 1,782 3,244 3,221
---------- ---------- ---------- ---------- ----------
Total
non-
interest
expense 14,385 14,273 14,348 28,658 28,276
---------- ---------- ---------- ---------- ----------
Income
before
income
taxes 1,376 4,840 4,463 6,216 9,229
Income tax
provision
(benefit) (255) 1,061 1,020 806 2,171
---------- ---------- ---------- ---------- ----------
Net
income $ 1,631 $ 3,779 $ 3,443 $ 5,410 $ 7,058
========== ========== ========== ========== ==========
Net income
per common
share:
Basic $ 0.12 $ 0.31 $ 0.27 $ 0.43 $ 0.56
Diluted $ 0.12 $ 0.31 $ 0.27 $ 0.43 $ 0.56
Weighted
average
common
shares
outstanding:
Basic 10,879,405 10,938,275 11,188,840 10,908,840 11,252,472
Diluted 10,927,981 10,974,674 11,222,994 10,951,328 11,291,219
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES/
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
---------------------------------------------------------------------
(Dollars in
thousands,
except per
share 2008 2008 2007 2007 2007
data) 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr
---------- ---------- ---------- ---------- ----------
EARNINGS
Net
interest
income $ 16,187 $ 15,085 $ 15,205 $ 14,861 $ 14,052
Net
interest
income
(fully
tax-equiv-
alent) $ 17,401 $ 16,361 $ 16,491 $ 16,051 $ 15,193
Provision
(credit)
for loan
losses $ 1,358 $ 716 $ 351 $ (82) $ (153)
Noninterest
income $ 932 $ 4,744 $ 5,002 $ 6,334 $ 4,606
Noninterest
expense $ 14,385 $ 14,273 $ 14,543 $ 14,609 $ 14,348
Net
income $ 1,631 $ 3,779 $ 4,098 $ 5,254 $ 3,443
Preferred
divid-
ends $ 370 $ 371 $ 370 $ 371 $ 371
Net income
available to
common $ 1,261 $ 3,408 $ 3,728 $ 4,883 $ 3,072
Basic
earnings
per
share $ 0.12 $ 0.31 $ 0.34 $ 0.44 $ 0.27
Diluted
earnings
per
share $ 0.12 $ 0.31 $ 0.34 $ 0.44 $ 0.27
Average
shares
outstand-
ing 10,879,405 10,938,275 11,021,902 11,090,519 11,188,840
Average
diluted
shares
outstand-
ing 10,927,981 10,974,674 11,043,473 11,113,553 11,222,994
PERFORMANCE
Return on
average
assets
(annualized) 0.35% 0.80% 0.86% 1.10% 0.71%
Return on
average
common
equity
(annualized) 2.85% 7.61% 8.56% 11.60% 7.40%
Return on
average
tangible
common
equity
(annualized) 3.63% 9.65% 10.97% 15.03% 9.60%
Common
dividend
payout
ratio 125.00% 45.16% 38.24% 27.27% 40.74%
Net
interest
margin
(fully
tax-equiv-
alent) 3.94% 3.73% 3.75% 3.63% 3.35%
Efficiency
ratio 64.21% 67.63% 66.84% 67.07% 72.04%
Full-time
equivalent
employees 600 620 621 636 636
CAPITAL
Period end
common
equity to
total
assets 9.04% 9.40% 9.57% 8.97% 8.70%
Period end
tangible
common
equity to
tangible
total
assets 7.19% 7.57% 7.68% 7.12% 6.83%
Leverage
ratio 9.17% 9.38% 9.35% 9.23% 8.89%
Tier 1
risk-based
capital
ratio 14.58% 15.34% 15.74% 15.71% 15.86%
Total risk-
based
capital
ratio 15.83% 16.59% 16.99% 16.96% 17.12%
Cash
dividends
declared
per
share $ 0.15 $ 0.14 $ 0.13 $ 0.12 $ 0.11
Book
value per
share $ 15.71 $ 16.36 $ 16.14 $ 15.41 $ 14.80
Tangible
book
value per
share $ 12.24 $ 12.91 $ 12.69 $ 11.98 $ 11.38
ASSET
QUALITY
Gross loan
charge-
offs $ 1,417 $ 1,458 $ 923 $ 1,310 $ 970
Net loan
charge-
offs $ 869 $ 687 $ 441 $ 829 $ 239
Net loan
charge-
offs to
average
loans
(annualized) 0.35% 0.29% 0.18% 0.35% 0.10%
Loans past
due over
90 days $ 1 $ 2 $ 2 $ -- $ 4
Nonaccrual
loans 6,254 7,353 8,075 8,295 10,402
---------- ---------- ---------- ---------- ----------
Total non-
performing
loans 6,255 7,355 8,077 8,295 10,406
Other real
estate
(ORE) and
repossessed
assets
(repos) 1,235 1,257 1,421 1,625 1,352
---------- ---------- ---------- ---------- ----------
Total non-
performing
assets $ 7,490 $ 8,612 $ 9,498 $ 9,920 $ 11,758
Nonper-
forming
loans to
total
loans 0.62% 0.76% 0.84% 0.87% 1.11%
Nonper-
forming
assets to
total
loans,
ORE and
repos 0.74% 0.88% 0.98% 1.04% 1.25%
Nonper-
forming
assets to
total
assets 0.40% 0.45% 0.51% 0.52% 0.62%
Allowance
for loan
losses $ 16,038 $ 15,549 $ 15,521 $ 15,611 $ 16,522
Allowance
for loan
losses to
total
loans 1.59% 1.60% 1.61% 1.64% 1.76%
Allowance
for loan
losses to
nonper-
forming
loans 256% 211% 192% 188% 159%
PERIOD END
BALANCES
Total
loans $1,010,749 $ 972,444 $ 964,173 $ 949,671 $ 940,870
Total
assets $1,895,448 $1,912,652 $1,857,876 $1,902,985 $1,898,092
Total
deposits $1,595,755 $1,627,972 $1,575,971 $1,616,262 $1,617,049
Total
common
equity $ 171,417 $ 179,783 $ 177,741 $ 170,743 $ 165,185
Total
share-
holders'
equity $ 188,998 $ 197,364 $ 195,322 $ 188,324 $ 182,766
Common
shares
outstand-
ing 10,912,612 10,992,449 11,011,151 11,081,625 11,161,835
AVERAGE
BALANCES
Total
loans $ 990,131 $ 964,418 $ 954,373 $ 942,394 $ 932,638
Total
interest-
earning
assets $1,771,801 $1,759,635 $1,756,169 $1,766,511 $1,814,299
Total
assets $1,897,514 $1,890,874 $1,884,712 $1,890,669 $1,938,685
Total
deposits $1,612,782 $1,607,448 $1,607,737 $1,598,643 $1,657,975
Total
interest
bearing
liabil-
ities $1,411,114 $1,409,461 $1,402,294 $1,413,727 $1,476,534
Total
common
equity $ 177,722 $ 179,993 $ 172,833 $ 166,977 $ 166,526
Total
share-
holders'
equity $ 195,303 $ 197,574 $ 190,414 $ 184,558 $ 184,108
Contact: Financial Institutions, Inc.
Ronald A. Miller, Executive VP & CFO
585.786.1102
ramiller@fiiwarsaw.com
Source: Financial Institutions, Inc.
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