Financial Institutions reports that fourth-quarter profits increased by 10.6 percent, as total revenues grew faster than expenses and the bank integrated its purchase of eight former HSBC Bank USA and First Niagara Financial Group branches.
The Warsaw-based parent of Five Star Bank reported late Wednesday net income for common shareholders of $6 million, or 43 cents per share, up from $3.9 million, or 28 cents per share, a year ago. Profits for common shareholders rose by 53 percent from the third quarter.
Not including the preferred dividend of $369,000 in both quarters, net profits rose by 9.9 percent from a year ago, to $6.33 million, from $5.76 million.
For the full year, the bank reported profits of $21.98 million, or $1.60 per share, up by 12 percent from $19.62 million, or $1.49 per share, in 2011. Without preferred dividends of $1.47 million and $3.18 million, respectively, the bank earned $23.45 million, up by 2.9 percent from $22.8 million, driven by higher loan and fee revenues and a drop in the loan loss provision, offset by higher expenses.
“It is an understatement to say that this was a significant year for our company, our employees and our shareholders,” said Chairman and interim CEO John E. Benjamin, who took over as CEO after the sudden resignation of longtime President and CEO Peter G. Humphrey last year. “We executed on significant leadership changes during 2012 to position our company for long-term success, and we’re energized as we enter 2013.”
Financial Institutions completed its two-step purchase of four HSBC and four First Niagara branches over the summer, taking on $286.8 million in deposits and acquiring $75.6 million in performing loans along with the offices and employees. Three of the branches in the Elmira area were later closed and consolidated with existing offices, but the acquisition still drove up the bank’s interest-earning assets to a record $2.5 billion. Total assets now exceed $2.7 billion.
“We not only accomplished our strategic initiatives, but did so while achieving our highest annual income in 10 years and experiencing our fourth consecutive year of increased earnings,” Benjamin said.
Net interest income from taking deposits and making loans rose by 9.1 percent, to $23.1 million, as the bank earned more on its loans and investments while paying out less on deposits and borrowings. However, it was almost flat from the third quarter, as a $21.8 million increase in average interest-earning assets – largely from indirect auto loans through dealerships – was offset by a narrowing of the profit margin.
Average loans during the three-month period grew by 14 percent from the third quarter, while total loans at the end of the quarter were up by 3 percent from Sept. 30. Average interest-bearing deposits grew by 10 percent in the quarter.
Total loans rose by 15 percent from a year ago, to $1.71 billion, while total investments rose by 29 percent, to $841.7 million, and total deposits rose by 17.1 percent, to $2.26 billion. Both the loan and deposit growth were partly due to the branch acquisitions.
The bank set aside $2.52 million for loan losses, up by 16.6 percent from a year ago and up by 43 percent from the third quarter, and wrote off $2.1 million as uncollectible, up by 12 percent from a year ago and by 33 percent from the third quarter, as it downgraded a single credit relationship with both business and commercial real estate loans totaling $3.4 million. Bad loans rose by 28 percent from a year ago, to $9.1 million, but fell by 13 percent from the third quarter.
Fee and other income rose by 8.9 percent, to $6.28 million, but fell by 1.1 percent from the third quarter. Both deposit service charges and ATM and debit card revenue rose by 22 percent each from a year ago, to $2.53 million and $1.35 million, respectively. Brokerage commissions fell by 5.2 percent, to $474,000.
Operating expenses rose by 7.8 percent, to $17.54 million, from a year ago but were down by 19 percent from the third quarter, when the bank incurred one-time pretax costs of $4.5 million related to its branch acquisitions and the departure of Humphrey, who remains a director.