updated 4/28/2011 4:45:37 AM ET 2011-04-28T08:45:37

WARSAW, N.Y., April 27, 2011 (GLOBE NEWSWIRE) -- Financial Institutions, Inc. (Nasdaq:FISI) (the "Company"), the parent company of Five Star Bank, today reported net income for the quarter ended March 31, 2011 of $5.8 million, an increase of 9% compared to net income of $5.3 million for the same period last year. After preferred dividends, first quarter diluted earnings per share was $0.33 compared with $0.40 per share for the first quarter of 2010. First quarter earnings per share was reduced by $1.2 million, or $0.11 per common share, for accelerated discount accretion related to the Company's redemption of the preferred stock that had been issued to the U.S. Treasury pursuant to the Troubled Asset Relief Program's Capital Purchase Program (the "CPP preferred stock").

Highlights for the first quarter of 2011 were as follows:

  • First quarter 2011 net income available to common shareholders of $3.7 million or $0.33 per share
  • Successful completion of underwritten public common equity offering that resulted in net proceeds of over $43 million
  • Full redemption of $37.5 million of CPP preferred stock
  • Capital ratios improved with tangible common equity to tangible assets of 7.44% and total risk-based capital of 14.73%
  • Solid growth in core deposits
  • Net interest income increased $586 thousand or 3% compared to the first quarter of 2010
  • Tangible common book value per common share increased to $12.17 at March 31, 2011, an increase of 10% from $11.06 at December 31, 2010
  • Earned ranking as one of the 100 best performing community banks in the United States by SNL Financial

"The positive performance we saw throughout 2010 continued in the first quarter of 2011," said Peter G. Humphrey, President and Chief Executive Officer. "We maintained our solid asset quality, reflecting the strong credit underwriting and origination processes that we have in place, and our net interest margin remained strong. We believe that as the economy continues to gain traction, our strong capital levels and liquidity will enable us to operate from a position of strength, capitalize on growth opportunities in our markets, and drive improved shareholder value."

Net Interest Income and Net Interest Margin

Net interest income totaled $19.8 million for the three months ended March 31, 2011, an increase of $586 thousand or 3% over the first quarter of 2010, primarily from lower funding costs. Average earning assets increased $95.4 million or 5% in the first quarter of 2011 compared with the first quarter last year, with most of the growth in the investment securities, the consumer indirect and commercial mortgage loan portfolios.

The net interest margin on a tax-equivalent basis was 4.05% in the first quarter of 2011, compared with 4.12% in the same quarter in 2010. The Company's yield on earning-assets decreased 28 basis points in the first quarter of 2011 compared with the same quarter last year, a result of cash flows being reinvested in the current low interest rate environment. The cost of interest-bearing liabilities decreased 23 basis points compared with the first quarter of 2010, a result of the continued re-pricing of the Company's certificates of deposit.

Noninterest Income

Noninterest income for the quarter ended March 31, 2011 was $5.1 million, an increase of $1.1 million from the same period last year. There were no other-than-temporary impairment charges ("OTTI") on investment securities during the first quarter of 2011 compared to $526 thousand during the first quarter of 2010. Absent the OTTI charges, noninterest income increased $539 thousand or 12% when comparing the first quarter of 2011 to that of 2010. Service charges on deposit accounts declined 6% compared to the same period last year mainly due to a change in consumer behavior, triggered in part by heightened consumer protection regulations. Higher origination volumes and increased income from mortgage banking activities during the first quarter of 2011, coupled with a favorable valuation adjustment to capitalized mortgage servicing assets, resulted in a combined increase of $231 thousand in loan servicing income and gains from the sale of loans held for sale from the first quarter of 2010. Income from the Company's capital investment in several limited partnerships accounted for the majority of the $308 thousand increase in other noninterest income when comparing the first quarter of 2011 to the same quarter last year.

Noninterest Expense

Noninterest expense was $15.4 million for the first quarter of 2011, an increase of $612 thousand or 4% from the first quarter of 2010. Salaries and benefits expense rose by $154 thousand compared to the first quarter of 2010, reflecting higher employee benefit costs and salaries due to annual merit increases. Full time equivalent employees totaled 574 and 581 at March 31, 2011 and 2010, respectively. Other noninterest expense increased $288 thousand during the first quarter of 2011 compared to the same quarter last year, due in part to higher lending expenses associated with increased loan application volumes.

Balance Sheet and Capital Management

Total loans were $1.354 billion at March 31, 2011, up $5.1 million from December 31, 2010. Total investment securities were $718.1 million at March 31, 2011, up $23.6 million or 3% from December 31, 2010.

Deposits were $1.970 billion at March 31, 2011, an increase of $86.7 million or 5% compared with the end of 2010. Public deposit balances were up $110.3 million during the most recent 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 63% of total deposits at March 31, 2011.

Total shareholders' equity was $222.8 million at March 31, 2011, an increase of $10.7 million from $212.1 million at December 31, 2010. During February 2011, the Company redeemed $12.5 million of CPP preferred stock issued to the U.S. Treasury. During March 2011, the Company successfully completed a follow-on common equity offering, issuing 2,813,475 shares of common stock at a price of $16.35 per share before associated offering expenses. After deducting underwriting and other offering costs, the Company received net proceeds of approximately $43.1 million. Prior to the end of the first quarter of 2011, the Company utilized a portion of the net proceeds to redeem the remaining $25.0 million in CPP preferred stock.

"We made significant progress on our strategic initiative to improve the quality of our capital. We successfully completed an underwritten public common equity offering that resulted in net proceeds of over $43 million and were very pleased with both the institutional and retail investor interest that our offering generated," said Humphrey. "We also fully redeemed the CPP preferred stock issued to the U.S. Treasury, and the combination of these two capital transactions resulted in significant improvement in our capital structure."

The Company's tangible common equity as a percent of tangible assets was 7.44% as of March 31, 2011, with a tangible common book value per share of $12.17, as compared to 5.56% and $11.06, respectively, at December 31, 2010. The Company's leverage ratio improved to 9.11% at the end of the first quarter when compared to 8.31% at the end of 2010. The Company's capital ratios exceed 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 0.37% of total assets at March 31, 2011, down from $8.9 million or 0.40% at the end of last year. The ratio of non-performing loans to total loans was 0.54% at the end of the first quarter of 2011 versus 0.56% at December 31, 2010. This ratio continues to compare favorably to the average of our peer group, which was 3.57% of total loans at December 31, 2010, the most recent period for which information is available (Source: Federal Financial Institutions Examination Council — Bank Holding Company Performance Report as of December 31, 2010 — Top-tier bank holding companies having consolidated assets between $1 billion and $3 billion).

Net charge-offs for the first quarter of 2011 amounted to $1.2 million, up $584 thousand in comparison to the same period a year ago.  On an annualized basis, net charge-offs as a percentage of average loans were 0.35% for the first quarter of 2011, compared to 0.18% for the first quarter of 2010.  In the first quarter of 2011, the Company's provision for loan losses increased to $810 thousand compared to $418 thousand in the first quarter of 2010. Net charge-offs and the provision for loan losses for the first quarter of 2010 were favorably impacted by a $354 thousand recovery on one commercial real estate relationship that was charged-off during 2008 and 2009.

The allowance for loan losses totaled $20.1 million at March 31, 2011 compared to $20.5 million at December 31, 2010. The ratio of allowance for loan losses to non-performing loans was 275% at March 31, 2011, up from 270% at December 31, 2010.

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. Financial Institutions, Inc. was named to the 2010 Sandler O'Neill Sm-All Stars list of the top performing publicly-traded small-cap banks and thrifts in the nation and was included in the top 100 best performing community banks in the United States according to a ranking released in April 2011 by SNL Financial. 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, changes in the regulatory environment 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 and its Quarterly Reports on Form 10-Q 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.

FINANCIAL INSTITUTIONS, INC.    
Summary of Quarterly Financial Data (Unaudited)    
  2011 2010
  March 31, December 31, September 30, June 30, March 31,
SELECTED BALANCE SHEET DATA          
(Amounts in thousands)          
           
Cash and cash equivalents:          
 Cash and due from banks $ 94,441 38,964 73,354 43,326 38,081
 Federal funds sold and interest-earning deposits 94 94 94 93 33,793
 Total cash and cash equivalents 94,535 39,058 73,448 43,419 71,874
           
Investment securities:          
 Available for sale 692,812 666,368 687,955 651,533 648,667
 Held-to-maturity 25,284 28,162 31,669 27,404 34,556
  Total investment securities 718,096 694,530 719,624 678,937 683,223
           
Loans held for sale 1,666 3,138 3,544 908 103
           
Loans:          
 Commercial business 209,379 211,031 206,137 208,618 208,976
 Commercial mortgage 361,713 352,930 340,307 334,043 331,870
 Residential mortgage 123,594 129,580 133,832 138,204 142,303
 Home equity 209,961 208,327 204,583 200,929 200,287
 Consumer indirect 422,821 418,016 411,237 381,464 356,873
 Other consumer 25,051 26,106 26,741 27,417 27,769
 Total loans 1,352,519 1,345,990 1,322,837 1,290,675 1,268,078
 Allowance for loan losses 20,119 20,466 19,732 21,825 20,586
 Total loans, net 1,332,400 1,325,524 1,303,105 1,268,850 1,247,492
           
Total interest-earning assets (1) (2) 2,068,014 2,040,644 2,033,109 1,958,411 1,979,875
Goodwill 37,369 37,369 37,369 37,369 37,369
Total assets 2,295,116 2,214,307 2,249,531 2,142,931 2,156,055
           
Deposits:          
 Noninterest-bearing demand 354,312 350,877 345,257 328,937 308,822
 Interest-bearing demand 424,897 374,900 398,682 370,584 409,094
 Savings and money market 464,076 417,359 439,615 399,972 426,330
 Certificates of deposit 726,296 739,754 762,843 722,452 705,628
 Total deposits 1,969,581 1,882,890 1,946,397 1,821,945 1,849,874
           
Borrowings 68,762 103,877 66,736 93,654 83,454
Total interest-bearing liabilities 1,684,031 1,635,890 1,667,876 1,586,662 1,624,506
Shareholders' equity 222,823 212,144 216,189 211,699 203,603
Common shareholders' equity (3) 205,248 158,359 162,497 158,100 150,095
Tangible common shareholders' equity (4) 167,879 120,990 125,128 120,731 112,726
Securities available for sale – fair value adjustment          
 included in shareholders' equity, net of tax $ 2,633 1,877  7,965  7,481  3,263 
           
Common shares outstanding 13,793 10,937 10,931 10,942 10,920
Treasury shares 368 411 417 406 428
           
CAPITAL RATIOS          
           
Leverage ratio 9.11% 8.31 8.66 8.45 8.32
Tier 1 risk-based capital 13.48% 12.34 12.68 12.73 12.37
Total risk-based capital 14.73% 13.60 13.93 13.99 13.63
Common equity to assets 8.94% 7.15 7.22 7.38 6.96
Tangible common equity to tangible assets (4) 7.44% 5.56 5.66 5.73 5.32
           
Common book value per share $ 14.88 14.48 14.87 14.45 13.74
Tangible common book value per share (4) $ 12.17 11.06 11.45 11.03 10.32
     
FINANCIAL INSTITUTIONS, INC.    
Summary of Quarterly Financial Data (Unaudited)    
  2011 2010
  First Year ended Fourth Third Second First
  Quarter December 31, Quarter Quarter Quarter Quarter
SELECTED INCOME STATEMENT DATA            
(Dollar amounts in thousands)            
             
Interest income $  23,639 96,509 24,297 24,186 24,202 23,824
Interest expense 3,801 17,720 4,229 4,393 4,526 4,572
 Net interest income 19,838 78,789 20,068 19,793 19,676 19,252
Provision for loan losses 810 6,687 1,980 2,184 2,105 418
 Net interest income after provision            
 for loan losses 19,028 72,102 18,088 17,609 17,571 18,834
             
Noninterest income:            
 Service charges on deposits 2,105 9,585 2,325 2,528 2,502 2,230
 ATM and debit card 1,016 3,995 961 1,046 1,054 934
 Broker-dealer fees and commissions 386 1,283 281 263 359 380
 Loan servicing 349 1,124 437 267 140 280
 Company owned life insurance 266 1,107 285 271 282 269
 Net gain on sale of loans held for sale 224 650 276 197 115 62
 Net gain on investment securities 3 169 30 70 63 6
 Impairment charge on investment securities -- (594) (68) -- -- (526)
 Net gain (loss) on other assets 45 (203) (17) (188) -- 2
 Other 754 2,338 764 677 451 446
 Total noninterest income 5,148 19,454 5,274 5,131 4,966 4,083
             
Noninterest expense:            
 Salaries and employee benefits 8,401 32,811 8,389 8,131 8,044 8,247
 Occupancy and equipment 2,843 10,818 2,641 2,736 2,670 2,771
 FDIC assessments 607 2,507 642 629 634 602
 Computer and data processing 603 2,487 749 552 615 571
 Professional services 682 2,197 579 534 478 606
 Supplies and postage 452 1,772 454 442 431 445
 Advertising and promotions 165 1,121 244 338 352 187
 Other 1,597 7,204 2,675 1,574 1,646 1,309
 Total noninterest expense 15,350 60,917 16,373 14,936 14,870 14,738
             
 Income before income taxes 8,826 30,639 6,989 7,804 7,667 8,179
Income tax expense 3,006 9,352 1,891 2,141 2,469 2,851
 Net income $ 5,820 21,287 5,098 5,663 5,198 5,328
Preferred stock dividends 2,075 3,725 933 932 931 929
 Net income available to            
 common shareholders $ 3,745 17,562 4,165 4,731 4,267 4,399 
             
STOCK AND RELATED PER SHARE DATA            
             
Net income per share – basic $ 0.33  1.62 0.38 0.44 0.39 0.41
Net income per share – diluted $ 0.33  1.61 0.38 0.43 0.39 0.40
Cash dividends declared on common stock $ 0.10  0.40 0.10 0.10 0.10 0.10
Common dividend payout ratio (5) 30.30% 24.69% 26.32 22.73 25.64 24.39
Dividend yield (annualized) 2.31% 2.11% 2.09 2.25 2.26 2.77
             
Stock price (Nasdaq:FISI):            
 High $ 20.36  20.74  20.74 19.94 19.48 15.40 
 Low $ 16.40  10.91  16.80 14.14 14.07 10.91 
 Close $ 17.52  18.97  18.97 17.66 17.76 14.62 
     
FINANCIAL INSTITUTIONS, INC.    
Summary of Quarterly Financial Data (Unaudited)    
  2011 2010
  First Year ended Fourth Third Second First
  Quarter December 31, Quarter Quarter Quarter Quarter
SELECTED AVERAGE BALANCES            
(Amounts in thousands)            
             
Federal funds sold and            
 interest-earning deposits $   258  5,034  646 842 4,479 14,366 
Investment securities (1) 681,604 680,756 704,140 668,175 692,162 658,181
Loans (2):            
 Commercial business 207,669 206,167 205,360 206,071 208,327 204,905
 Commercial mortgage 361,228 338,149 346,630 337,992 334,253 333,579
 Residential mortgage 128,567 138,954 133,765 137,451 140,946 143,780
 Home equity 208,656 202,189 206,291 202,621 199,865 199,903
 Consumer indirect 417,833 382,977 416,315 397,161 364,801 352,778
 Other consumer 25,226 26,950 26,081 26,541 27,060 28,145
 Total loans 1,349,179 1,295,386 1,334,442 1,307,837 1,275,252 1,263,090
Total interest-earning assets 2,031,041 1,981,176 2,039,228 1,976,854 1,971,893 1,935,637
Goodwill 37,369 37,369 37,369 37,369 37,369 37,369
Total assets 2,221,778 2,166,596 2,230,381 2,163,633 2,158,912 2,112,192
             
Interest-bearing liabilities:            
 Interest-bearing demand 395,807 382,517 389,792 360,947 386,703 392,896
 Savings and money market 434,579 414,953 434,911 402,601 420,774 401,294
 Certificates of deposit 732,414 726,330 750,919 749,021 715,168 689,284
 Borrowings 77,870 86,147 76,621 83,634 89,753 94,811
 Total interest-bearing liabilities 1,640,670 1,609,947 1,652,243 1,596,203 1,612,398 1,578,285
             
Noninterest-bearing demand deposits 350,032 329,853 344,387 336,591 324,790 313,227
Total deposits 1,912,832 1,853,653 1,920,009 1,849,160 1,847,435 1,796,701
Total liabilities 2,004,250 1,955,285 2,011,654 1,947,549 1,951,241 1,909,662
Shareholders' equity 217,528 211,311 218,727 216,084 207,671 202,530
Common equity (3) 169,376 157,716 164,999 162,448 154,122 149,066
Tangible common equity (4)  $ 132,007 120,347  127,630 125,079 116,753 111,697 
Common shares outstanding:            
 Basic 11,336 10,767 10,783 10,778 10,761 10,746
 Diluted 11,467 10,845 10,909 10,870 10,846 10,801
             
SELECTED AVERAGE YIELDS/            
RATES AND RATIOS            
(Tax equivalent basis)            
             
Federal funds sold and            
 interest-earning deposits 0.21% 0.21 0.22 0.23 0.20 0.21
Investment securities 3.00% 3.31 3.00 3.30 3.44 3.47
Loans 5.71% 5.86 5.80 5.79 5.88 5.97
Total interest-earning assets 4.80% 4.97 4.83 4.95 5.01 5.08
Interest-bearing demand 0.17% 0.18 0.18 0.18 0.19 0.20
Savings and money market 0.24% 0.27 0.26 0.27 0.28 0.28
Certificates of deposit 1.54% 1.79 1.66 1.75 1.83 1.95
Borrowings 3.12% 3.33 3.28 3.12 3.55 3.34
Total interest-bearing liabilities 0.94% 1.10 1.02 1.09 1.13 1.17
Net interest rate spread 3.86% 3.87 3.81 3.86 3.88 3.91
Net interest rate margin 4.05% 4.07 4.01 4.06 4.09 4.12
             
Net income (annualized returns on):            
 Average assets 1.06% 0.98 0.91 1.04 0.97 1.02
 Average equity 10.85% 10.07 9.25 10.40 10.04 10.67
 Average common equity (6) 8.97% 11.14 10.01 11.55 11.11 11.97
 Average tangible common equity (7) 11.51% 14.59 12.94 15.01 14.66 15.97
Efficiency ratio (8) 59.97% 60.36 62.98 59.05 59.16 60.31
             
FINANCIAL INSTITUTIONS, INC.            
Summary of Quarterly Financial Data (Unaudited)        
  2011 2010
  First Year ended Fourth Third Second First
  Quarter December 31, Quarter Quarter Quarter Quarter
ASSET QUALITY DATA            
(Dollar amounts in thousands)            
             
Nonaccrual loans $7,315 7,579 7,579 7,364 11,304 6,685
Accruing loans past due 90 days or more 3 3 3 1 61 2
 Total non-performing loans 7,318 7,582 7,582 7,365 11,365 6,687
Foreclosed assets 568 741 741 463 500 771
Non-performing investment securities 567 572 572 648 646 661
 Total non-performing assets $8,453 8,895 8,895 8,476 12,511 8,119
             
Allowance for loan losses $20,119 20,466 20,466 19,732 21,825 20,586
Provision for loan losses 810 6,687 1,980 2,184 2,105 418
Net loan charge-offs $1,157 6,962 1,246 4,277 866 573
Net charge-offs to average loans (annualized) 0.35% 0.54 0.37 1.3 0.27 0.18
Total non-performing loans to total loans 0.54% 0.56 0.56 0.56 0.88 0.53
Total non-performing assets to total assets 0.37% 0.4 0.4 0.38 0.58 0.38
Allowance for loan losses to total loans 1.49% 1.52 1.52 1.49 1.69 1.62
Allowance for loan losses to            
 non-performing loans 275% 270 270 268 192 308
________            
(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.
(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.
CONTACT: For Additional Information:
         Karl F. Krebs
         Executive VP & CFO
         Phone:  585.786.1125
         Email: KFKrebs@fiiwarsaw.com

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