The parent of Five Star Bank swung to a third-quarter loss Wednesday, as a one-time charge for devalued investments in Fannie Mae and Freddie Mac swamped strong growth in lending income.
Warsaw-based Financial Institutions said it lost $28.4 million, or $2.68 per share, compared to profits of $5.3 million, or 44 cents per share, a year ago. That included a $33.2 million after-tax charge -- $34.6 million before taxes -- to write down the value of investments.
Those investments included "auction-rate" securities backed by preferred stock of the two mortgage finance giants, which the government placed in conservatorship in September. It also included some pooled trust preferred securities issued mostly by other banks.
Without the "other-than-temporary impairment" charge -- which the company had warned of last month -- the bank would have earned $4.8 million or 41 cents per share, down 9.4 percent from a year ago.
Still, officials were pleased with the company's performance. They said the company is considering participating in the Treasury's Capital Purchase Program to sell shares to the government to raise extra capital for future growth.
The company, one of 2,700 banks to be impacted when the government's seizure of Fannie and Freddie diluted the value of preferred stock, will recoup about 36 percent of the loss next quarter. The federal bailout bill passed this month allows banks to recognize the charge as an ordinary loss, yielding a $12 million tax benefit in the fourth quarter.
Net interest income from loans and deposits rose 12.7 percent to $16.7 million, as the profit margin widened and loans grew 13.5 percent to $1.08 billion.
In particular, consumer indirect auto lending soared 78 percent as the company targeted that business. In fact, $50 million of the $67 million increase in loans from June 30 came from indirect auto. Deposits rose 2.7 percent to $1.66 billion.
The bank set aside $1.9 million for bad loans, versus a credit of $82,000 a year ago, because of loan growth and the changing mix of the portfolio. The provision exceeded write-offs by $1.4 million to boost reserves.
Not including the one-time charge, fee and other income fell 17.5 percent to $5.2 million because the company received $1.1 million a year ago from a life insurance policy on a former executive who died. Fees otherwise were flat.
Expenses fell 8.2 percent to $13.4 million, including a $1 million reversal of accrued compensation that won't be awarded because earnings won't meet targets for the year. Not including that, expenses fell 1.4 percent to $14.4 million.