Share this article

print logo

Five Star Bank earnings flat for the year

Financial Institutions, parent of Five Star Bank, said first quarter profits were almost flat from a year ago and down 2.9 percent from the fourth quarter, as the bank set aside much more for loan losses and higher expenses swamped higher loan and fee revenues.

The Warsaw-based company reported net income for common shareholders of $5.78 million, or 42 cents per share, down from $5.83 million, or 42 cents per share, in the same period a year ago. Not including preferred dividends, net profits were $6.15 million, down from $6.2 million.

Last year, the bank acquired eight branches from First Niagara Financial Group, including four former HSBC Bank USA branches and four original First Niagara offices, with $376 million in deposits and $94 million in loans. The deal strengthened its market share in several areas, and brought it into new markets.

“Our first quarter results provide a solid start to 2013,” said President and CEO Martin K. Birmingham, who was named in March to succeed former longtime CEO Peter G. Humphrey, who abruptly retired last August. “We delivered consistent earnings despite the pressure we experienced, like most of the banking industry, on our net interest margin.”

The company recently announced a 12.5 percent increase in its quarterly cash dividend, to 18 cents per share from 16 cents. “We are committed to enhancing shareholder value by utilizing our earnings both for growth and returning a portion of earnings to shareholders as a cash dividend,” Birmingham said.

Net interest income from taking deposits and making loans rose 9.3 percent from a year ago, to $22.89 million, as interest income rose but interest expense fell. Net interest income fell less than 1 percent from the fourth quarter, to $22.89 million, as the profit margin narrowed and the bank reinvested cash flows at current lower rates.

Loans grew 13 percent from a year ago to $1.72 billion, with growth across the board in all categories. From the fourth quarter, loans grew 1 percent from organic growth in commercial, home equity and indirect auto loans, while mortgages and other consumer loans fell.

Deposits rose 16.4 percent to $2.41 billion, led by checking, savings and money market accounts, with certificates of deposit down. Deposits rose from Dec. 31 by 6.6 percent, led by municipal deposits.

The bank set aside $2.7 million for losses in the quarter, up sharply from $1.39 million a year ago and also up from $2.52 million in the fourth quarter. It wrote off $1.6 million as uncollectible, down from $2.1 million in the fourth quarter.

Fee and other income rose 20.2 percent from a year ago, as deposit service fees, ATM and debit card revenues and broker-dealer commissions also increased, while company-owned life insurance revenues and loan servicing fees both dropped slightly. Fee income rose 4.3 percent from the fourth quarter.

Results included an $892,000 gain in the current quarter from selling three “trust-preferred securities” investments that had already been written down, while the fourth quarter included $487,000 in net securities gains. Not including the special items, fees fell by $438,000 from the fourth quarter, as a big increase in broker-dealer revenues was offset by drops in deposit fees, ATM and debit revenues and mortgage banking.

Expenses rose 12.3 percent from a year ago to $17.58 million, as all categories increased. From the fourth quarter, expenses rose less than 1 percent, as advertising and promotions costs fell because of the timing of spending, while foreclosed real estate expenses also dropped. Salaries and benefits rose as is typical in the first quarter, as did occupancy and equipment expenses. The last three quarters also included professional fees related to executive changes, starting with last year’s retirement of Humphrey.