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Five Star profits tumble 37%

The parent of Five Star Bank said second-quarter profits fell 37 percent, sharply missing Wall Street expectations, as total revenues from both lending and fees dropped.

Warsaw-based Financial Institutions reported earnings of $3.4 million, or 27 cents per share, down from $5.4 million, or 44 cents per share, a year ago. The sole analyst who follows the company for investors had projected 31 cents.

Total revenues were down 8 percent to $18.7 million, as net interest income from taking deposits and making loans fell 6 percent to $14.1 million, while fee revenues dropped 11 percent to $4.6 million. Expenses fell 2 percent to $14.3 million.

"Revenue growth is a challenge. It's a challenge for all the banks in the industry," said Ronald Miller, chief financial officer.

However, the bank saw a $12 million increase in loans during the three months since March -- its second straight increase after several quarters of declines. Also, its profit margin fell only slightly in the quarter, and it continues to improve its asset quality.

"The interest rate environment has been challenging, but we see some positive signs," said Peter G. Humphrey, president and CEO, in a statement.

Also, the company canceled the rest of its existing one-year, $5 million stock buyback program and approved an identical new one. And the board raised the quarterly dividend to 11 cents per share, representing the third increase in a year.

Net interest income fell by $1 million or 6 percent from a year ago, as the bank's margin contracted sharply from 2006.

Loans fell 1.3 percent from a year ago.


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