Revenue Growth Drives Solid First Quarter Results At FII


WARSAW, N.Y., April 24, 2008 (PRIME NEWSWIRE) -- Financial Institutions, Inc. (Nasdaq:FISI), the parent company of Five Star Bank, today announced financial results for the first quarter ended March 31, 2008. Net income for Financial Institutions, Inc. ("FII" or "Company") was $3.8 million, or $0.31 per diluted share, for the first quarter of 2008, compared with $3.6 million, or $0.29 per diluted share, for the first quarter of 2007.

Highlights for the first quarter of 2008 include:



 * Net interest income of $15.1 million, an increase of $1.1 million,
   or 8%, from the first quarter of 2007, which reflects an improved
   net interest margin and earning asset mix.
 * Net interest margin increased 34 basis points, to 3.73%, compared
   with 3.39% for the first quarter of 2007.  The improved net
   interest margin resulted principally from lower funding costs, an
   improved yield from investment securities and the benefits
   associated with a higher percentage of earning assets being
   deployed in higher yielding loan assets.
 * Loans increased $8.2 million to $972.4 million at March 31, 2008,
   compared with $964.2 million at December 31, 2007 and increased
   $43.2 million, or 5%, from March 31, 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 $886 thousand from December 31, 2007
   to $8.6 million at March 31, 2008.  Since March 31, 2007,
   nonperforming assets have declined $8.4 million, or 49%.  The ratio
   of the allowance for loan losses to nonperforming loans improved to
   211% at March 31, 2008 versus 192% at December 31, 2007 and 107% at
   March 31, 2007.
 * Continued strong capital position with Total Equity Capital of
   $197.4 million, a Leverage Capital Ratio of 9.38% and a Total Risk
   Based Capital Ratio of 16.59% at March 31, 2008.

Peter G. Humphrey, President and CEO of FII, commented, "We experienced solid financial performance in the first quarter of 2008, with increased revenues that are reflective of our disciplined approach to growing our loan portfolio. Net interest income improved year-over-year and our net interest margin increased due to a lower interest rate environment and our management of deposit pricing, coupled with growth in our loan portfolio. Asset quality showed continued improvement with a meaningful reduction in our nonperforming assets. The current interest rate environment and economic conditions will most likely pose challenges for the financial services industry for the remainder of 2008, however we feel we are well-positioned to meet the challenges of this economic environment. In addition, we look forward to implementing our strategic initiatives to expand our business, most notably the expansion of our presence in the greater Rochester area in the second half of this year."

Net Interest Income

Net interest income was $15.1 million for the first quarter of 2008, up $1.1 million compared with the first quarter of 2007. For the first quarter of 2008, average interest-earning assets decreased by $29.8 million compared with the same quarter a year ago. This decrease resulted principally from a decrease in average total investment assets, including Federal funds sold, of $72.8 million, partially offset by a $43.0 million increase in average total loans. The overall decline in average interest-earnings assets was more than offset by a reduction in average interest-bearing liabilities of $48.1 million. Net interest margin improved 34 basis points to 3.73% for the first quarter of 2008, compared with 3.39% for the first quarter of 2007. Earnings asset yields decreased by 2 basis points from the prior year's first quarter, with increased yields on investments assets offsetting a decline in loan yields, while the average cost of funds declined 36 basis points from the first quarter of 2007, a direct result of the Company's responses to the reduction in market interest rates that has occurred over the past several months.

Noninterest Income

Noninterest income for the first quarter of 2008 was $4.7 million, relatively flat in comparison to the same quarter a year ago. Increases in ATM and debit card income, broker-dealer fees and commissions, and net gain on sale of securities were largely offset by a decrease in other noninterest income. The decline in other noninterest income results principally from lower income from Small Business Investment Company (SBIC) limited partnership investments when compared with the first quarter of 2007.

Noninterest Expense

Noninterest expense for the first quarter of 2008 was $14.3 million, an increase of $345 thousand from the first quarter of 2007. The principal expense items that contributed to the increase were: salaries and benefits increased $82 thousand primarily due to stock compensation related expenses, occupancy and equipment costs, which increased $132 thousand due to higher service contract related costs on buildings, equipment and software, and computer and data processing expenses which increased $124 thousand.

Balance Sheet

Total assets were $1.913 billion at March 31, 2008 compared with $1.858 billion at December 31, 2007. Total deposits were $1.628 billion at March 31, 2008, an increase of $52.0 million from $1.576 billion at December 31, 2007. Public deposits were $384.6 million at March 31, 2008, an increase of $66.5 million from year-end as a result of the seasonality associated with public deposits. Offsetting the increase in public deposits was a $14.5 million decline in nonpublic deposits, also a seasonal trend, to $1.237 billion at March 31, 2008 from $1.251 billion at December 31, 2007. Total borrowings, including junior subordinated debentures, were $70.3 million at March 31, 2008, up modestly from $68.2 million at December 31, 2007.

Asset Quality

Mr. Humphrey commented, "We continued to make significant progress in reducing our nonperforming assets during the first quarter of 2008. Our net loan charge-offs increased in relation to the first quarter of last year, and at 0.29% (annualized) of average loans are within acceptable parameters. We have not engaged in sub-prime lending as a line of business and we are pleased with the overall improvement in the risk profile of our loan portfolio."

The Company recorded a provision for loan losses of $716 thousand for the first quarter of 2008 compared to no provision for loan losses in the first quarter of 2007. Net charge-offs of $687 thousand for the first quarter of 2008 represented 29 basis points (annualized) of average loans. Net charge-offs of $134 thousand for the first quarter of 2007 represented 6 basis points (annualized) of average loans. The increase in net charge-offs in 2008 principally results from higher commercial mortgage and indirect loan charge-offs.

The allowance for loan losses was $15.5 million at March 31, 2008 and December 31, 2007. Nonperforming loans were $7.4 million at March 31, 2008, compared with $8.1 million at December 31, 2007. The ratio of allowance for loans losses to nonperforming loans improved to 211% at March 31, 2008 versus 192% at December 31, 2007 and 107% at March 31, 2007.

Capital Management

On July 25, 2007, the Company approved a one-year $5.0 million stock repurchase program. During the first quarter of 2008, under this program, the Company repurchased $1.304 million of common stock, or a total of 70,202 shares, at an average price per share of $18.57. In total, 206,722 shares for $3.824 million have been repurchased under the program at an average price of $18.50.

In addition, in the first quarter of 2008, the Company increased the quarterly common stock dividend to $0.14 per share. This represents a 40% increase in the quarterly common stock dividend compared with the $0.10 per share dividend in the first quarter of 2007.

Erland E. "Erkie" Kailbourne, Chairman of the Board, commented, "The Company's improved financial performance and available capital have given us the opportunity to increase our common stock dividend and actively repurchase our common stock. Both of these measures, we believe, will enhance shareholder value."

Total shareholders' equity at March 31, 2008 was $197.4 million compared with $195.3 million at December 31, 2007. The Company's leverage ratio was 9.38% and total risk-based capital ratio was 16.59% at March 31, 2008.

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 670 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: 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, 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,             March 31,  December 31, March 31,
  except share data)                  2008        2007        2007
                                   ----------- ----------- -----------
 ASSETS
 Cash and due from banks           $   49,460  $   45,165  $   40,647
 Federal funds sold and
  interest-bearing deposits
  in other banks                       53,539       1,508      92,432
 Securities available for sale,
  at fair value                       688,504     695,241     761,252
 Securities held to maturity,
  at amortized cost                    57,631      59,479      44,848
 Loans held for sale                    1,099         906       1,078

 Loans:
  Commercial                          144,976     136,780     115,211
  Commercial real estate              245,148     245,797     249,179
  Agricultural                         44,162      47,367      54,273
  Residential real estate             168,738     166,863     162,846
  Consumer indirect                   142,565     134,977     107,776
  Consumer direct and home equity     226,855     232,389     239,965
                                   ----------- ----------- -----------
   Total loans                        972,444     964,173     929,250
  Allowance for loan losses          (15,549)    (15,521)    (16,914)
                                   ----------- ----------- -----------
   Loans, net                         956,895     948,652     912,336

 Premises and equipment, net           33,611      34,157      34,341
 Goodwill                              37,369      37,369      37,369
 Other assets                          34,544      35,399      38,445
                                   ----------- ----------- -----------

  Total assets                     $1,912,652  $1,857,876  $1,962,748
                                   =========== =========== ===========

 LIABILITIES AND
  SHAREHOLDERS' EQUITY
 Liabilities:
 Deposits:
 Noninterest-bearing demand        $  268,419  $  286,362  $  260,068
 Interest-bearing demand,
  savings and money market            736,925     681,953     723,343
 Certificates of deposit              622,628     607,656     688,351
                                   ----------- ----------- -----------
  Total deposits                    1,627,972   1,575,971   1,671,762

 Short-term borrowings                 27,835      25,643      24,860
 Long-term borrowings                  25,799      25,865      38,173
 Junior subordinated debentures
  issued to unconsolidated             
  subsidiary trust                     16,702      16,702      16,702
 Other liabilities                     16,980      18,373      26,721
                                   ----------- ----------- -----------
  Total liabilities                 1,715,288   1,662,554   1,778,218

 Shareholders' Equity
  Preferred stock                      17,581      17,581      17,623
  Common stock, $0.01 par value,
   50,000,000 shares authorized;
   11,348,122 shares issued at
   March 31, 2008,
   December 31, 2007 and
   March 31, 2007                         113         113         113
  Additional paid-in capital           24,105      24,778      24,362
  Retained earnings                   160,328     158,744     151,057
  Accumulated other comprehensive
   income (loss)                        2,104         667     (7,026)
  Treasury stock, at cost;
   355,673, 336,971 and 76,446
   shares at March 31, 2008,
   December 31, 2007 and
   March 31, 2007, respectively        (6,867)     (6,561)     (1,599)
                                   ----------- ----------- -----------
   Total shareholders' equity         197,364     195,322     184,530
                                   ----------- ----------- -----------

   Total liabilities and
    shareholders' equity           $1,912,652  $1,857,876  $1,962,748
                                   =========== =========== ===========



            FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

                                                  Quarter-to-Date
                                             -------------------------
 (Dollars in thousands, except share           March 31,    March 31,
  and per share data)                            2008         2007
                                             ------------ ------------

 Interest income:
 Interest and fees on loans                  $    16,728  $    16,627
 Interest and dividends on securities              8,234        8,427
 Other interest income                               310          752
                                             ------------ ------------
  Total interest income                           25,272       25,806
                                             ------------ ------------

 Interest expense:
 Deposits                                          9,236       10,763
 Short-term borrowings                               152          169
 Long-term borrowings                                367          486
 Junior subordinated debentures                      432          432
                                             ------------ ------------
  Total interest expense                          10,187       11,850
                                             ------------ ------------

   Net interest income                            15,085       13,956

 Provision for loan losses                           716           --
                                             ------------ ------------

   Net interest income after provision
    for loan losses                               14,369       13,956

 Noninterest income:
 Service charges on deposits                       2,500        2,569
 ATM and debit card income                           752          620
 Broker-dealer fees and commissions                  459          383
 Loan servicing income                               186          205
 Income from corporate owned life insurance           19           20
 Net gain on sale of securities                      173           --
 Net gain on sale of loans held for sale             164          161
 Net gain on sale and disposal
  of other assets                                     37           57
 Net gain on sale of trust relationships              --           13
 Other                                               454          710
                                             ------------ ------------
  Total noninterest income                         4,744        4,738

 Noninterest expense:
 Salaries and employee benefits                    8,436        8,354
 Occupancy and equipment                           2,580        2,448
 Supplies and postage                                441          438
 Amortization of other intangibles                    77           77
 Computer and data processing                        581          457
 Professional fees and services                      557          495
 Advertising and promotions                          150          220
 Other                                             1,451        1,439
                                             ------------ ------------
  Total noninterest expense                       14,273       13,928
                                             ------------ ------------

 Income before income taxes                        4,840        4,766
                                             ------------ ------------

 Income taxes                                      1,061        1,151
                                             ------------ ------------

   Net income                                $     3,779  $     3,615
                                             ============ ============

 Net Income Per Common Share:
  Basic                                      $      0.31  $      0.29
  Diluted                                    $      0.31  $      0.29

 Weighted Average Common Shares Outstanding:
  Basic                                       10,938,275   11,316,811
  Diluted                                     10,974,674   11,360,202

 Performance Ratios:
 Return on average assets (annualized)              0.80%        0.77%
 Return on average common equity (annualized)       7.61%        7.96%
 Net interest margin (fully tax-equivalent)         3.73%        3.39%
 Efficiency ratio                                  67.63%       69.40%


            FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
            CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
 --------------------------------------------------------------------

 (Dollars in
  thousands,
  except per     2008        2007       2007       2007       2007
  share data)   1st Qtr     4th Qtr    3rd Qtr    2nd Qtr    1st Qtr
              ----------- ---------- ---------- ---------- ----------

 EARNINGS
  Net interest
   income         $15,085    $15,205    $14,861    $14,052    $13,956
  Net interest
   income
   (fully tax-
   equivalent)    $16,361    $16,491    $16,051    $15,193    $15,105
  Provision
   (credit)
   for loan
   losses            $716       $351       $(82)     $(153)       $--
  Noninterest
   income          $4,744     $5,002     $6,334     $4,606     $4,738
  Noninterest
   expense        $14,273    $14,543    $14,609    $14,348    $13,928
  Net income       $3,779     $4,098     $5,254     $3,443     $3,615
  Preferred
   dividends         $371       $370       $371       $371       $371
  Net income
   available
   to common       $3,408     $3,728     $4,883     $3,072     $3,244
  Basic
   earnings
   per share        $0.31      $0.34      $0.44      $0.27      $0.29
  Diluted
   earnings
   per share        $0.31      $0.34      $0.44      $0.27      $0.29
  Average
   shares
   outstanding 10,938,275 11,021,902 11,090,519 11,188,840 11,316,811
  Average
   diluted
   shares
   outstanding 10,974,674 11,043,473 11,113,553 11,222,994 11,360,202

 PERFORMANCE
  Return on
   average
   assets
   (annualized)      0.80%      0.86%      1.10%      0.71%      0.77%
  Return on
   average
   common
   equity
   (annualized)      7.61%      8.56%     11.60%      7.40%      7.96%
  Return on
   average
   tangible
   common
   equity
   (annualized)      9.65%     10.97%     15.03%      9.60%     10.35%
  Common
   dividend
   payout
   ratio            45.16%     38.24%     27.27%     40.74%     34.48%
  Net interest
   margin
   (fully tax-
   equivalent)       3.73%      3.75%      3.63%      3.35%      3.39%
  Efficiency
   ratio            67.63%     66.84%     67.07%     72.04%     69.40%
  Full-time
   equivalent
   employees          620        621        636        636        634

 CAPITAL
  Period end
   common
   equity to
   total
   assets            9.40%      9.57%      8.97%      8.70%      8.50%
  Period end
   tangible
   common
   equity to
   tangible
   total
   assets            7.57%      7.68%      7.12%      6.83%      6.69%
  Leverage
   ratio             9.38%      9.35%      9.23%      8.89%      8.99%
  Tier 1 risk-
   based
   capital
   ratio            15.34%     15.74%     15.71%     15.86%     15.58%
  Total risk-
   based
   capital
   ratio            16.59%     16.99%     16.96%     17.12%     16.83%
  Cash
   dividends
   declared
   per share        $0.14      $0.13      $0.12      $0.11      $0.10
  Book value
   per share       $16.36     $16.14     $15.41     $14.80     $14.81
  Tangible
   book value
   per share       $12.91     $12.69     $11.98     $11.38     $11.42

 ASSET QUALITY
  Gross loan
   charge-offs     $1,458       $923     $1,310       $970       $692
  Net loan
   charge-offs       $687       $441       $829       $239       $134
  Net loan
   charge-offs
   to average
   loans
   (annualized)      0.29%      0.18%      0.35%      0.10%      0.06%

  Loans past
   due over
   90 days             $2         $2        $--         $4         $7
  Nonaccrual
   loans            7,353      8,075      8,295     10,402     15,778
              ----------- ---------- ---------- ---------- ----------
  Total
   nonper-
   forming
   loans            7,355      8,077      8,295     10,406     15,785
  Other real
   estate (ORE)
   and
   repossessed
   assets
   (repos)          1,257      1,421      1,625      1,352      1,216
              ----------- ---------- ---------- ---------- ----------
  Total
   nonper-
   forming
   assets          $8,612     $9,498     $9,920    $11,758    $17,001

  Nonper-
   forming
   loans to
   total loans       0.76%      0.84%      0.87%      1.11%      1.70%
  Nonper-
   forming
   assets to
   total loans,
   ORE and
   repos             0.88%      0.98%      1.04%      1.25%      1.83%

  Nonper-
   forming
   assets to
   total
   assets            0.45%      0.51%      0.52%      0.62%      0.87%

  Allowance
   for loan
   losses         $15,549    $15,521    $15,611    $16,522    $16,914
  Allowance
   for loan
   losses to
   total loans       1.60%      1.61%      1.64%      1.76%      1.82%
  Allowance
   for loan
   losses to
   nonper-
   forming
   loans              211%       192%       188%       159%       107%

 PERIOD END
  BALANCES
  Total loans    $972,444   $964,173   $949,671   $940,870   $929,250
  Total assets $1,912,652 $1,857,876 $1,902,985 $1,898,092 $1,962,748
  Total
   deposits    $1,627,972 $1,575,971 $1,616,262 $1,617,049 $1,671,762
  Total common
   equity        $179,783   $177,741   $170,743   $165,185   $166,907
  Total share-
   holders'
   equity        $197,364   $195,322   $188,324   $182,766   $184,530
  Common
   shares
   outstanding 10,992,449 11,011,151 11,081,625 11,161,835 11,271,676

 AVERAGE
  BALANCES
  Total loans    $964,418   $954,373   $942,394   $932,637   $921,481
  Total
   interest-
   earning
   assets      $1,759,635 $1,756,169 $1,766,511 $1,814,299 $1,789,426
  Total assets $1,890,874 $1,884,712 $1,890,669 $1,938,685 $1,914,593
  Total
   deposits    $1,607,448 $1,607,737 $1,598,643 $1,657,975 $1,627,875
  Total
   interest
   bearing
   liabilities $1,409,461 $1,402,294 $1,413,727 $1,476,534 $1,457,532
  Total common
   equity        $179,993   $172,833   $166,977   $166,526   $165,330
  Total share-
   holders'
   equity        $197,574   $190,414   $184,558   $184,108   $182,953


            

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