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Financial Institutions Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: November 6, 2012 01:36PM
Financial Institutions Inc. (FISI) filed Quarterly Report for the period ended 2012-09-30.
Highlight of Business Operations:Net interest income on a taxable equivalent basis for the three months ended September 30, 2012, was $23.7 million, an increase of $2.6 million or 12% versus the comparable quarter last year. The increase in taxable equivalent net interest income was primarily attributable to favorable volume variances (as changes in the balances and mix of earning assets and interest-bearing liabilities added $3.7 million to taxable equivalent net interest income), partly offset by unfavorable rate variances (as the impact of changes in the interest rate environment and product pricing reduced taxable equivalent net interest income by $1.1 million).
The yield on earning assets was 4.32% for the third quarter of 2012, 30 basis points lower than the third quarter of 2011. Loan yields decreased 35 basis points to 5.10%, also impacted by the lower interest rate environment. Residential mortgage and consumer indirect loans in particular, down 49 and 68 basis points, respectively, experienced lower yields given the competitive pricing pressures in a low interest rate environment. The yield on investment securities dropped 35 basis points to 2.60%, also impacted by the lower interest rate environment, prepayments of mortgage-related investment securities and the impact of investing the excess cash related to our branch acquisitions into low yielding securities. Overall, earning asset rate changes reduced interest income by $2.0 million.
Net interest income on a taxable equivalent basis for the first nine months of 2012 was $67.1 million, an increase of $4.8 million or 8% versus the same period last year. The increase in taxable equivalent net interest income was primarily attributable to a favorable volume variance (as changes in the balances and mix of earning assets and interest-bearing liabilities added $8.3 million to taxable equivalent net interest income), partially offset by an unfavorable rate variance (as the impact of changes in the interest rate environment and product pricing decreased taxable equivalent net interest income by $3.4 million).
Average interest-earning assets were $2.259 billion for the first nine months of 2012, an increase of $192.0 million or 9% from the comparable period last year, with a $192.9 million increase in average loans partially offset by a $834 thousand decrease in average securities. The growth in average loans was comprised of increases in consumer loans (up $121.2 million, primarily indirect loans), commercial loans (up $71.4 million) and residential mortgage loans (up $361 thousand).
We recorded income tax expense of $1.8 million in the third quarter of 2012, compared to of $2.7 million in the third quarter of 2011. For the nine month period ended September 30, 2012, income tax expense totaled $8.3 million compared to $8.7 million in the same period of 2011. These changes were due in part to decreases of $2.1 million and $276 thousand in pre-tax income for the three and nine month periods of 2012, respectively, compared to the prior year. The effective tax rates recorded for 2012 on a quarter-to-date and year-to-date basis were 29.7% and 32.8%, respectively, in comparison to the September 30, 2011 quarter-to-date and year-to-date effective tax rates of 32.6% and 33.8%, respectively. The lower effective tax rates in 2012 were a result of the greater impact of tax-exempt income on lower taxable income. Effective tax rates are impacted by items of income and expense that are not subject to federal or state taxation. Our effective tax rates reflect the impact of these items, which include, but are not limited to, interest income from tax-exempt securities and earnings on company owned life insurance.
Stocks Discussed: FISI,