updated 10/28/2010 8:15:34 AM ET 2010-10-28T12:15:34

WARSAW, N.Y., Oct. 28, 2010 (GLOBE NEWSWIRE) -- 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, 2010. Net income was $5.7 million for the third quarter of 2010 compared with $3.4 million for the third quarter of 2009, bringing the Company's year-to-date net income to $16.2 million or an 80% increase over the same period a year ago. After preferred dividends, third quarter diluted earnings per share was $0.43, an 87% increase from the $0.23 per share earned during the third quarter of 2009. On a year to date basis, diluted earnings per share increased $0.66 to $1.23 per share as compared to $0.57 per share for the same period last year.

Key points for the third quarter of 2010 were as follows:

  • Net interest income increased for the 10th consecutive quarter and $1.7 million or 9% compared to the third quarter of 2009
  • Total loans were up $34.8 million or 3% over second quarter 2010
  • Non-performing loans decreased $4.0 million versus second quarter 2010
  • Capital remains well above regulatory minimums, with the leverage ratio increasing for the fifth consecutive quarter
  • Book value per common share increased to $14.87 at September 30, 2010, an increase of 11% from $13.39 at December 31, 2009
  • Recognized a one-time tax benefit of $606 thousand in the third quarter of 2010 related to a change in New York State tax law


"I am very pleased with our third quarter results for several reasons. We continue to be active lenders in our market place, which is driving our revenue growth, while maintaining solid asset quality. We have also been very focused on expense control. The combination of these initiatives has resulted in a 59.5% efficiency ratio," stated Peter G. Humphrey, President and Chief Executive Officer. "This back-to-basics banking approach, started several years ago, is truly paying off."

The Company also announced that it has been named to the Sandler O'Neill Sm-All Stars list of the top performing publicly-traded small-cap banks and thrifts in the nation. Of the 503 banks and thrifts with a market cap of less than $2 billion, Financial Institutions, Inc. was one of only 32 selected for the 2010 Sm-All Stars list. Selection for the Sandler O'Neill list is based on growth, profitability, credit quality, and capital strength.

"We are proud to be named to this elite list of high performing small-cap banks and thrifts," said Humphrey. "Receiving this distinct honor is a testament to our commitment to deliver long-term value to our customers, communities and shareholders."

Net Interest Income and Net Interest Margin

Net interest income totaled $19.8 million for the three months ended September 30, 2010, an increase of $1.7 million or 9% over the third quarter of 2009 and up $117 thousand or 1% compared with the second quarter of 2010. The increase in net interest income compared to the third quarter of 2009 resulted from a higher net interest margin and earning-asset growth. Average earning assets increased $114.1 million or 6% in the third quarter compared with the same quarter last year, with most of the growth in indirect consumer loans and investment securities. The increase in average indirect consumer loans reflected the Company's expansion into new markets in New York State's Capital district.

The net interest margin on a tax-equivalent basis was 4.06% in the third quarter of 2010, compared with 3.99% in the third quarter of 2009 and 4.09% in the second quarter of 2010. The increase in the net interest margin compared with the third quarter of last year resulted primarily from the rate of decline in the Company's cost of interest-bearing liabilities exceeding the decline in the earning-assets yield. The Company's yield on earning-assets decreased 24 basis points in the third quarter of 2010 compared with the same quarter last year. This was due to the effect of reinvesting cash flows in the low interest rate environment and a substantial portion of earning asset growth being concentrated in lower yielding mortgage-backed securities. The cost of interest-bearing liabilities decreased 37 basis points compared with the third quarter of 2009 due to continued downward changes in the Company's interest-bearing deposit rates, a result of the continued re-pricing of the Company's certificates of deposit.

Net interest income for the nine months ended September 30, 2010 totaled $58.7 million, an increase of $5.6 million or 11% compared with $53.1 million for the same period last year. Average earning assets increased $131.8 million through the first nine months of 2010 compared with the same period last year, while the tax-equivalent net interest margin increased 6 basis points to 4.09% in the first nine months of 2010. A decrease of 26 basis points in the Company's tax-equivalent earning-assets yield in the first nine months of 2010 was offset by a decrease of 38 basis points in the cost of interest-bearing liabilities.

Noninterest Income

Noninterest income totaled $5.1 million for the third quarter of 2010, compared to $4.4 million in the third quarter of 2009 and $5.0 million in the second quarter of 2010. The Company recognized net gains on the sale of investment securities of $70 thousand in the third quarter of 2010, down from $1.7 million in the third quarter of 2009 and consistent with the second quarter of 2010. There were no other-than-temporary impairment ("OTTI") charges on investment securities during the second or third quarters of 2010.  Noninterest income for the third quarter of 2009 included $2.3 million of OTTI charges. Adjusted for the effect of net gains on sales and OTTI charges on investment securities, noninterest income for third quarter of 2010 was up $58 thousand or 1% from the same quarter last year and up $158 thousand or 3% from second quarter of 2010.

Noninterest income totaled $14.2 million for the first nine months of 2010, compared to $13.6 million for the same period last year. The Company recognized net gains on the sale of investment securities of $139 thousand during the first nine months of 2010, compared to $2.9 million during the same period last year. OTTI charges on investment securities totaled $526 thousand and $4.1 million for the nine-month periods ended September 30, 2010 and 2009, respectively. Adjusted for the effect of net gains on sales and OTTI charges on investment securities, noninterest income for the first nine months of 2010 decreased slightly by $218 thousand from the same period last year.

Noninterest Expense

Noninterest expense was $14.9 million for the third quarter of 2010, down $206 thousand or 1% from the third quarter of 2009 and up $66 thousand from the second quarter of 2010. 

For the first nine months of 2010 noninterest expense was $44.5 million, a decrease of $3.1 million or 7% over the first nine months of 2009. Salaries and employee benefits decreased $1.0 million or 4% compared with the first nine months of 2009, primarily from lower incentive compensation and pension benefit costs. FDIC assessments decreased $1.2 million or 38% compared with the first nine months of 2009 primarily due to a special assessment on all FDIC-insured banks in 2009. The special assessment for the Company was $923 thousand during the second quarter of 2009.

Income Tax Expense

The Company's effective tax rates were 27.4% and 31.5% for the three and nine months ended September 30, 2010, respectively, compared with 27.8% and 27.3% in the same periods last year, respectively. Certain amendments to the New York State ("NYS") tax law pertaining to banking corporations were enacted during the third quarter of 2010. One of the amendments conformed the NYS bad debt deduction allowed for banks to that allowed for federal income tax purposes. As a result, the Company adjusted its deferred tax asset accordingly and recorded a one-time tax benefit of $606 thousand during the quarter ended September 30, 2010.

Balance Sheet

Total loans were $1.326 billion at September 30, 2010, up $34.8 million or 3% from June 30, 2010 and up $62.0 million or 5% from December 31, 2009. Total investment securities were $719.6 million at September 30, 2010, up $40.7 million or 6% from June 30, 2010 and up $99.6 million or 16% from December 31, 2009. 

Deposits were $1.946 billion at September 30, 2010, an increase of $124.5 million from the end of the second quarter and up $203.4 million compared with the end of 2009. Public deposit balances increased $73.4 million during the last quarter due largely to the seasonality of municipal cash flows. The Company's deposit mix remains favorably weighted in lower cost demand, savings and money market accounts, which comprised 60.8% of total deposits at the end of the third quarter.

Total shareholders' equity was $216.2 million at September 30, 2010, a $4.5 million increase from June 30, 2010, due to a net increase of $3.6 million in the Company's retained earnings, an increase of $1.0 million due to stock based compensation items and a $548 thousand increase in accumulated other comprehensive income, offset by a net change in treasury stock of $202 thousand. The Company's tangible common equity as a percent of tangible assets was 5.66% as of September 30, 2010, while its tangible common book value per share increased to $11.45.

The Company's leverage ratio improved to 8.66% at the end of the third quarter compared to 8.45% at the end of last quarter and 7.96% at year-end, which comfortably exceeded the regulatory thresholds required to be classified as a "well capitalized" institution as established by the Company's primary banking regulators.

Asset Quality and Provision for Loan Losses

Non-performing assets were $8.5 million or 0.38% of total assets at September 30, 2010, down from $12.5 million at June 30, 2010, but up from $7.9 million at this time last year. As previously disclosed, the Company had a $5.0 million participation interest in one commercial business loan, included in nonaccrual loans at June 30, 2010, for which it allocated a $2.5 million specific reserve during the second quarter of 2010. During the third quarter of 2010, the Company made the decision to sell and subsequently sold its interest in the loan. The loan was sold for $1.9 million, resulting in a charge-off of $3.1 million, representing the previously established specific reserve of $2.5 million and an additional $600 thousand.

The ratio of non-performing loans to total loans was 0.56% at September 30, 2010 versus 0.88% at June 30, 2010, and 0.46% at September 30, 2009. This ratio continues to compare favorably to the average of our peer group, which was 3.67% of total loans at June 30, 2010, the most recent period for which information is available (Source: Federal Financial Institutions Examination Council — Bank Holding Company Performance Report as of June 30, 2010 — Top-tier bank holding companies having consolidated assets between $1 billion and $3 billion).

The provision for loan losses was $2.2 million for the third quarter of 2010, compared to $2.1 million last quarter and $2.6 million in the third quarter of 2009.  Net charge-offs were $4.3 million, or 1.30% annualized, of average loans, up from $866 thousand, or 0.27% annualized, of average loans in the second quarter of 2010 and up from $2.5 million, or 0.79% annualized, of average loans in the third quarter of 2009.

The allowance for loan losses was $19.7 million at September 30, 2010, compared with $21.8 million at June 30, 2010 and $20.8 million at September 30, 2009. The ratio of the allowance for loan losses to total loans was 1.49% at September 30, 2010, compared with 1.69% at June 30, 2010 and 1.65% at September 30, 2009. The ratio of allowance for loan losses to non-performing loans was 268% at September 30, 2010, compared with 192% at June 30, 2010 and 357% at September 30, 2009.

About Financial Institutions, Inc.

With over $2.2 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. For more information about these factors please see the Company's Annual Report on Form 10-K on file with the SEC. All of these factors should be carefully reviewed, and readers should not place undue reliance on these forward-looking statements. The Company undertakes no obligation to revise these statements following the date of this press release.

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