Already struggling with credit-quality problems, Financial Institutions Inc. of Warsaw, N.Y., says it has uncovered weaknesses in its internal controls for financial reporting at two of its four bank units.
The $2.2 billon-asset company says that it has already starting to address many of its problems, but its stock price plunged on the news, released late Tuesday. In heavy trading, its shares were down 12.3%, to $23.02, late Wednesday.
One of the banks, the $697 million-asset National Bank of Geneva, was already operating under an enforcement order from the Office of the Comptroller of the Currency. The other one, the $759 million-asset Wyoming County Bank, had shown few problems until an external loan review discovered that a "significant percentage" of loans at both banks were improperly graded, the parent said.
The review, which was based on June 2004 data, also concluded that many loan documents contained incomplete or inaccurate information. Peter Humphrey, Financial Institutions' chairman and chief executive officer, said that the loans in question were made to wide range of businesses.
The OCC conducted its review, based on December 2003 results of Financial Institutions' two nationally chartered banks. The OCC review showed that the credit risk at National Bank of Geneva remained high and was increasing, and that the bank was not complying at all with the terms of the enforcement order.
In September 2003, National Bank of Geneva and Financial Institutions' other OCC-regulated bank, the $483 million-asset Bath National Bank in Steuben, N.Y., signed written agreements with the regulators instructing both banks to raise capital and improve their management.
Because of the results of the reviews, along with an increase in Federal Deposit Insurance Corp. premiums that will follow, Financial Institutions said it expects its earnings next year to decrease by 5 cents a share.
Mr. Humphrey said in an interview that the findings are not as dire as they seem, since his company has been strengthening its lending controls and addressing its administrative weaknesses over the last year.
"Keep in mind the point in time of the reports, and that we have been working hard on remediation efforts since then," he said.
Financial Institutions is hiring additional, better-trained personnel, including a chief risk officer and a chief of community banking, Mr. Humphrey said. It has also centralized all risk-rating reviews at each of its banks.
He also said that most of the loans that were criticized in the reviews are still performing at normal levels.
