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Financial Institutions, the parent of Wyoming County Bank, said first-quarter earnings fell 13.5 percent as the multibank holding company spent more money on legal, professional and personnel expenses to address its loan problems.

The company said that it earned $2.3 million from January to March, or 17 cents per share, down from $2.6 million, or 20 cents, a year ago. The banking firm set aside $1.1 million less to cover loan losses, which are still significantly high, but spent $1.5 million more on other costs.

"Our financial results reflect our ongoing efforts to address the weaknesses in our loan portfolio," said Chairman, President and Chief Executive Peter G. Humphrey.

Financial Institutions has been struggling for several years with high losses on agricultural and other business loans, as the company grew much faster than its credit risk staff and loan operations could handle.

Bad loans and foreclosed real estate at the end of the first quarter represented 5.18 percent of all loans and real estate. That's five times what most banks have been reporting recently, though not as high as the levels of failed banks in the early 1990s.

Federal banking regulators took action in September 2003, with the U.S. Office of the Comptroller of the Currency imposing restrictions and demands on the National Bank of Geneva and Bath National Bank, the two institutions it oversees. Regulators required them to raise capital and strengthen management, procedures and underwriting.

The company has complied, revamping its loan operations, hiring several new executives, and strengthening its risk and credit procedures. But it's still struggling against the weight of the bad loans, and an independent review found similar problems at Wyoming County Bank, its lead institution. The combined problems have led to a downgrade by regulators, which means the company must pay more in premiums for its federal deposit insurance. Two successive presidents at National Bank of Geneva have left, one in February. The president of Wyoming County Bank, Jon Cooper, resigned April 1.

For the quarter, net interest income from taking deposits and making loans fell just slightly to $18.4 million, as interest earned from investments offset declining interest earned on fewer loans. Total loans fell 7 percent to $1.23 billion as the company tightened underwriting and concentrated on fixing its existing loans, while deposits were flat at $1.87 billion.

Bad loans rose 26 percent to $63.6 million, as an $8.8 million agricultural loan was downgraded during the quarter. The company wrote off $2.9 million in loans, and set aside $3.7 million to cover losses.

Fee income fell 2 percent to $5.7 million, as service charges on deposit accounts fell 8 percent and mortgage banking revenues fell 9 percent. Operating expenses were $17.4 million, including a $500,000 increase in professional services fees, a $300,000 increase in salaries and benefits because of new staff, and $500,000 for severance for the two presidents.


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