Greater Buffalo Savings Bank lost $1.6 million in the fourth quarter of 2005, prompted by a drop in its lending profit margin and losses from the sale of investment securities, according to a regulatory filing.
The loss, equal to 41 cents per share, represented the Buffalo-based savings institution's worst quarter in several years, and came despite significant loan growth across many categories. By contrast, the thrift earned $1.1 million, or 27 cents per share, in the fourth quarter of 2004.
For all of 2005, GBSB lost $468,000, or 12 cents per share, versus a profit of $3.5 million, or $1.01 per share, in 2004.
The bank in October agreed to be acquired by San Mateo, Calif.-based Bay View Capital Corp. in a $67 million deal that will leave Greater Buffalo Savings as the surviving company. It will gain another $100 million in capital, three veteran bank directors and a listing on the New York Stock Exchange.
Bay View, which is ceasing the rest of its operations, will change its name to Great Lakes Bancorp, the current name of Greater Buffalo's parent company. The transaction is expected to close in April.
In late December, GBSB announced a series of transactions to restructure its balance sheet by selling $86 million in low-yielding investments so it could eventually buy other investments and loans at higher rates.
Since its founding in 1999, the thrift has been growing deposits far faster than loans, so it has been forced to invest its extra money in securities, even at a time when rates were very low. But with interest rates now rising, officials saw an opportunity to make a change.
The goal was to increase the thrift's profit margin and earnings in the future. However, in the short-term, the transactions resulted in a charge of $2.4 million after taxes in the quarter, or 61 cents per share.
For the quarter, net interest income from taking deposits and making loans fell 6.6 percent to $3.2 million, but that was swamped by the $3.1 million pretax loss from the securities sale. The bank also recorded $3.3 million in operating expenses, up 33 percent because of the additional branches and staffing.
For the year, net interest income rose 8.9 percent to $14.1 million, despite a drop in the profit margin because the rates paid on deposits rose faster than the rates earned on loans. Executives expect continued pressure on the profit margin in 2006, as rate trends continue, consumers shift to higher-rate deposits, and competition increases.
Total loans rose 40 percent from a year ago to $409.3 million, with just over half in residential mortgages. Commercial real estate loans soared 87 percent to $51.8 million, while home equity loans rose 80 percent to $49.9 million. Business loans tripled to $36.9 million, and auto loans nearly doubled to $37.6 million.
The company set aside $934,000 to cover bad loans, triple the level of 2004 because of growth in its loan portfolio.
The thrift has launched a plan to divide its portfolio more equally among mortgage, commercial real estate, business and consumer loans. It plans to make larger commercial mortgage and business loans, participate more actively in U.S. Small Business Administration programs, and even do business with local real estate developers as they move outside of Western New York. It's also seeking to increase auto loans and possibly get into recreational, marine and unsecured personal loans.
Deposits rose 17.2 percent to $621.1 million. Lower-cost "core" deposits, including checking and basic savings accounts, fell 11 percent to $328 million, while higher-yielding certificates of deposit rose 82 percent to $293 million.
Fee income of $433,000 from deposit service charges and an increase in the value of bank-owned life insurance was overwhelmed by the losses from the sales of the securities and $226,000 in loans.
Operating expenses for the year jumped 43 percent to $13 million because of the thrift's branch expansion, salaries and benefits, and data processing costs. Total customer accounts increased 26 percent to 39,703. Total employment increased to 185 from 131, while the company opened three more branches last year.
GBSB currently has 10 branches in Erie, Chautauqua and Niagara counties, with four more under construction and additional sites being planned.
The thrift also disclosed in the filing that President and CEO Andrew W. Dorn Jr. earned $199,745 in salary and a $30,000 bonus last year, plus $12,991 in retirement contributions. Greater Buffalo Savings also hired a new chief financial officer, Michael J. Rogers, replacing Kim S. Destro, who is now chief investment officer.