Impairment slows earnings at Oneida Financial

ONEIDA — Third-quarter earnings fell at Oneida Financial Corp. (NASDAQ: ONFC) thanks to an asset impairment, decreased interest income, and an increased provision for loan losses.

Oneida reported net income of $65,000, or 1 cent per share, down 93 percent from $956,000, or 14 cents per share, in the third quarter of 2011. During the quarter, the company showed a loss of $1.9 million on an asset associated with its insurance subsidiary. 

The company had contributed surplus notes between 2004 and 2011 to an insurance company specializing in professional liability for long-term care facilities. Surplus support of the company developed a specialty insurance sales line for Oneida that generated $3.9 million in commission revenue since 2004. 

However, recent underwriting losses rendered Oneida’s asset in the venture as fully impaired, a press release from the company read. Oneida maintains numerous other insurance outlets and expects to maintain the commission revenue it developed in that specialty line, the release read.

“Oneida Financial Corp. continues to report strong operating earnings and has maintained consistent net interest margins despite historically low interest rates,” Oneida President and CEO Michael R. Kallet said in the release. “Although the company recorded an impairment charge on an asset associated with our insurance activities, net income through nine months of 2012 is down just 2.4 percent.”

The company’s insurance and financial-services subsidiaries showed a combined 9.8 percent increase in revenue, he said.

“The result is a strong and vital financial institution, fully prepared to meet the economic challenges of the future,” he added.

Oneida’s Executive Vice President and CFO Eric Stickels provided some additional insight regarding the impairment in an email to The Mohawk Valley Business Journal.

“Oneida Savings provided startup capital support for an insurance company formed as a risk-retention group between 2004 and 2011,” he wrote. “The insurance company specializes in professional liability insurance for nursing homes and other long-term care facilities.

“The insured were primarily located in New York state until 2008 when the insurance company combined with a similar organization in the northwest U.S. The insurance company operated profitably for many years. Due to recent adverse claims, the insurance company significantly increased reserves, resulting in losses this year and suspended writing policies. Due to the uncertainty of the financial stability of that insurance company, Oneida has fully impaired its asset contribution.”

As Oneida’s Bailey, Haskell & LaLonde subsidiary, which was lead broker of the risk-retention group, has placed coverage with alternative carriers with no interruption of coverage, commission income related to the insurance activity will continue, Stickels said. Oneida will also pursue recovery of the impaired asset, he added.

Net interest income for the quarter was $4.9 million, down slightly from $5 million a year ago, while noninterest income increased to $6.1 million, up from $5.7 million in 2011. A $506,000 increase to $4.8 million in insurance and other non-banking revenue was the primary driver of that increase.

Noninterest expense increased during the quarter to $9 million, up from $8.8 million in 2011 and Oneida’s provision for loan losses rose from $50,000 in the third quarter of 2011 to $180,000 this year. The company cited an increase in net loans receivable as the reason behind the increase.

Headquartered in Oneida, Oneida Financial Corp. (www.oneidafinancial.com) is the holding company for The Oneida Savings Bank, with 12 branches in Madison, Oneida, and Onondaga counties and the State Bank of Chittenango, a limited-purpose commercial bank. 

The company also owns Bailey, Haskell & LaLonde Agency, an insurance and risk-management company; Benefit Consulting Group, an employee-benefits consulting and retirement-plan administration firm; and Workplace Health Solutions, a risk-management company specializing in workplace injury claims management.                         

Contact DeLore at tdelore@tmvbj.com