Oct. 23--Two regional community banking companies reported higher earnings for the third quarter because they did not incur the big one-time charges for investment losses that they took last year.

Financial Institutions, the Warsaw-based parent of Five Star Bank, swung to a profit of $3.4 million, or 23 cents per share, after reporting a loss of $28.4 million, or $2.66 per share, in the third quarter of 2008.

Northwest Bancorp, the Warren, Pa.-based parent of Northwest Savings Bank, earned $12.1 million, or 25 cents per share, up 22.7 percent from $9.8 million, or 20 cents per share.

Both banks' results would not have been as rosy had they not suffered pretax "impairments" totaling more than $45 million on securities investments a year ago.

"We are pleased to report positive earnings when many institutions in our industry are reporting operating losses," Northwest CEO William Wagner said. "Unfortunately, economic conditions have caused our company to record higher provisions for loan losses, which has greatly impacted earnings over the past year."

Northwest, which operates 13 branches in the eight counties of Western New York and four more in Rochester, took a $10.88 million charge a year ago, versus $891,000 in the recent quarter.

Net interest income from taking deposits and making loans dropped 1.2 percent to $56.8 million, as the profit margin on loans narrowed. Strong deposit growth combined with a drop in the bank's mortgage portfolio, forcing it to hold nearly $300 million more in overnight funds that earned a much lower yield than a year ago.

The bank also set aside $9.8 million for loan losses, up $2.8 million or 40 percent, largely because of "continued weakness in economic conditions and the resulting impact on the company's borrowers," the release said.Net losses nearly quadrupled to $8.8 million.

Not counting net impairment losses on securities in both quarters, non-interest income fell 7 percent to $14.88 million. Deposit service fees rose 1.5 percent to $8.88 million, and insurance commissions rose 23 percent to $731,000, while trust income fell 11.8 percent to $1.5 million. Mortgage banking fees soared almost eightfold to $1.17 million, but the gain on the sale of investments fell 97 percent.

Operating expenses rose 5.3 percent to $45 million, mostly because of higher federal deposit insurance assessments, up 133.4 percent, and marketing costs for a checking account campaign, up 78.7 percent.

Financial Institutions, which has three offices in Erie County and 19 in Western New York, said net interest income rose 8 percent to $18.1 million, driven by a higher volume and better mix of earning assets, led by loan growth.

Total loans rose 17 percent to $1.259 billion, led by a 19 percent growth in commercial loans to $536.6 million and a 15 percent gain in consumer loans to $722.8 million. Total deposits rose 8 percent to $1.797 billion, led by certificates of deposit.

Bad debts fell, but the bank set aside $2.6 million for losses. That's 39 percent higher than a year ago, and exceeded actual charge-offs by $100,000.

Non-interest income for the quarter included $2.3 million in "other-than-temporary impairments" on privately issued mortgage and other investments. Not counting those charges in either quarter, such income rose 29 percent to $6.7 million, mostly from a $1.7 million gain on investments, as well as 8 percent higher ATM and debit fees and a near tripling of loan servicing fees. Deposit fees fell 5.4 percent, while commissions fell 34 percent.

Operating costs rose 13 percent to $15.1 million, with higher costs for salaries, benefits, occupancy and equipment and a tripling of FDIC premiums.

jepstein@buffnews.com

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