First Niagara Financial Group, fresh off its blockbuster purchase of HSBC Bank USA’s upstate branch network, said third-quarter profits rose 2.4 percent, as rising revenues and loan growth overcame merger and restructuring costs.
But after four major deals in as many years and with its stock still languishing at half its peak, the bank’s top executives sought to stress to investors that they’re keeping their eyes squarely on running the bank well, not on more wheeling-and-dealing.
“Let me make it very clear that our organization, top to bottom, is 100 percent focused on running the business that we’ve built, and that starts with me,” President and CEO John R. Koelmel said on a conference call with analysts Friday.
“Leading the charge, I’m playing the hand that we hold today, which is one we very much like, to be sure we make the most of the solid franchise we’ve built.”
The Buffalo-based parent of First Niagara Bank reported net income of $58.4 million, up from $57 million a year ago, as it benefited from the HSBC acquisition and other past purchases, as well as a mortgage banking boom driven by continued low interest rates.
After accounting for a $7.5 million preferred stock dividend in the current quarter, however, profits for common shareholders fell 10.9 percent to $50.8 million, or 14 cents per share, from $57 million, or 19 cents per share, in the same quarter a year ago. The bank also has about 56 million more shares outstanding compared with a year ago, after a successful capital offering last December.
Those results included a $3.5 million gain from the bank’s sale this year of $3.1 billion in mortgage-backed securities in the second and third quarters, as well as one-time merger and reorganization charges of $19.1 million in this year’s quarter and $16.7 million a year ago.
Not including those but still including the preferred dividend, the bank’s operating profit for shareholders fell 9.6 percent to $66.5 million, or 19 cents per share, from $73.6 million, or 25 cents per share, in the same quarter a year ago. Wall Street had expected 18 cents per share.
Total operating revenues rose 20.5 percent to $366.5 million, and were up 8 percent from the second quarter, with particularly strong growth in mortgage banking and other fee income. Mortgage banking revenues alone were up 53 percent from the second quarter, and 85 percent of the mortgages were originated through branches and not brokers or other wholesale sources. But the sale of the mortgage securities also reduced net interest income.
“I’m very pleased to report another quarter of solid operating results,” Koelmel said. “I’m looking forward to a solid finish in 2012 and even more excited to make a strong run in 2013.”
Investors reacted by sending the bank’s stock down 4 cents to $8.24.
First Niagara has been on a tear in the past three years, snapping up swathes of branches and entire banks in greater Pittsburgh, greater Philadelphia, New England and upstate New York to more than quadruple in size. That’s paid off with higher revenues and market penetration, giving the bank a chance to tap faster-growing markets, gain more customers, and grow loans and deposits.
But instead of translating into a stronger stock, the bank’s share price has fallen, hitting a 10-year low on July 27 of $7.20 before creeping back up over $8. That’s still just half of its all-time high of $16.30 on July 31, 2003.
So now executives are working to show they can manage what they’ve built and deliver what they’ve promised. “This is the first time in my tenure that the entire organization and my team have been 100 percent focused on running the business,” Koelmel said. “While I’m proud of the consistent operating results we’ve delivered, I know we have to be even better, to affirm our position as a winner.”
Over the long term, the bank wants to make better use of its deposits by lending 95 percent.
It also wants to derive more of its revenues from fees and other “non-interest” income, restoring that ratio to more than 30 percent from 27 percent currently and just over 20 percent several months ago. In particular, the bank is targeting treasury management, credit cards and online services, as well as capital markets and insurance. It plans to bring its credit card customer service in-house.
And it wants to lower its cost structure, so that it spends just 55 cents to produce a dollar of revenue, instead of nearly 72 cents now. The bank cut 180 employees recently in what it said was not a mass layoff but a pruning of unnecessary jobs.