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Five Star Bank’s parent reports loan rise, 6.1% net income fall

Five Star Bank’s parent company’s total loans surpassed the $2 billion mark for the first time during the second quarter, which executives say is a sign of things to come.

Warsaw-based Financial Institutions reported its net income fell by 6.1 percent from a year ago, to $6.6 million. The bank said the drop was due largely to the fact that it took security gains a year ago – worth nearly $1 million – and elected to take no such gains in the most recent quarter, said Kevin B. Klotzbach, chief financial officer and treasurer.

Financial Institutions reported diluted earnings per share of 44 cents, down from 48 cents a year ago.

Despite the year-over-year drop off in profits, president and CEO Martin K. Birmingham said he was upbeat about the bank’s lending direction. “The volume of loans we’re doing is helping to offset the interest rate margin pressure, which is pervasive in the industry,” he said.

The bank has made a strong push in commercial lending, he said, including recruiting more loan officers in both Buffalo and Rochester.

“We recognize the fact that Buffalo in particular and Rochester also, the cities are having a little bit of a rejuvenation and we’re positioned to take advantage of that through the lending process,” Klotzbach said.

During the second quarter, the bank’s earning assets crossed the $3 billion mark, also believed to be a first in company history.

Financial Institutions’ non-interest income declined slightly from a year ago, to $6.5 million. But Birmingham said the bank is still benefiting from its acquisition of Scott Danahy Naylon, an Amherst-based insurance agency, nearly a year ago. SDN accounted for about 20 percent of the bank’s non-interest revenues for the quarter.

Five Star has climbed the ranks of area banks originating loans under the Small Business Administration’s 7(a) program, which aims to help businesses that might otherwise have difficulty obtaining financing. Birmingham said those loans are providing a boost to small businesses and entrepreneurs: “We think it’s also a very strong signal to the marketplace of our interest in it and our willingness to lend into it.”

The bank’s net interest income from making loans and taking deposits was $23.4 million, up slightly from $23.1 million a year ago.

A new Five Star branch is on track to open in Rochester later this year, likely in November or December, said Charles J. Guarino, retail banking executive.