First Niagara Financial Group said Wednesday that fourth-quarter earnings for common shareholders fell 8.5 percent from a year ago.
The Buffalo-based parent of First Niagara Bank reported profits of $53.5 million, or 15 cents per share, down from $58.5 million, or 19 cents per share, a year ago. From the third quarter, profits rose 5.3 percent from $50.8 million, or 14 cents.
Without the $7.5 million preferred stock dividend, net income rose 4.4 percent to $61.1 million from $58.5 million.
Those results included a previously announced $16 million pretax charge, or $11.6 million after taxes, to account for a faster write-down of the bank’s mortgage investment securities. That’s because more consumers than expected are taking advantage of low interest rates to refinance their mortgages and prepay their loans, so the bank won’t earn as much from the investments as originally anticipated. The quarter also included $3.7 million in restructuring charges.
Without that, operating net income rose 4.6 percent to $75.4 million from $72.1 million a year ago. Including the preferred stock dividend, however, operating profits for common shareholders fell 6 percent to $67.8 million, or 19 cents per share, from $72.1 million, or 24 cents per share, a year ago.
That beat Wall Street analysts’ consensus expectations by a penny per share. Shares fell 34 cents, closing at $8.05. Results reflect 45 million more shares outstanding because of a stock offering in December 2011.
“When you look at the overall performance, there’s pluses and minuses, but it’s an overall good performance. It bodes well for 2013,” Chief Financial Officer Gregory W. Norwood said. “We feel like we’ve got the right team and the right franchise, and it’s incumbent on us in difficult times to operate it.”
For the full year, the bank reported net income of $140.7 million, or 40 cents per share, down 19.1 percent from $173.9 million, or 64 cents per share, in 2011. Net operating income available to common shareholders fell 1 percent to $263.9 million, or 75 cents per share, from $266.7 million, or 98 cents.
First Niagara has been on an acquisition tear for the past few years, more than quadrupling in size and entering the ranks of the nation’s largest banks, with more than 430 branches in four states. Last spring, that culminated in its purchase of 195 HSBC Bank USA branches across upstate New York and southwestern Connecticut. The bank then sold 64 offices and closed another 35 that overlapped but kept $11 billion in deposits and 100 branches.
Now executives say they’re focused on making sure they’re operating what they’ve gained and managing it well, not looking for the next big deal.
“2012 has finished a challenging 18 months for us, during which we completed the HSBC branch transaction, repositioned our balance sheet and otherwise navigated a very dynamic external environment,” President and CEO John R. Koelmel said on a conference call with analysts. “With all of that now behind us, we start the year in a much better position than where we were just 12 short months ago, and this time, with a simpler, sharper focus than at any time in my tenure.”
He said the bank will seek to strengthen its balance sheet with growth from commercial and consumer lending, while maintaining strong credit. It will deepen customer relationships in an effort to boost fee-based businesses and services, such as capital markets, insurance and wealth management. And it will seek to be “more operationally effective and efficient by controlling costs and doing more with what we have already invested,” he said.
Net interest income from taking deposits and making loans rose 10.8 percent from a year ago, to $268.6 million. However, it was flat from the third quarter, as the profit margin narrowed because loans and securities repriced down.
Average commercial loans rose 11 percent annualized from the third quarter, marking the 12th straight quarter of double-digit growth. Annualized means one quarter’s growth pace multiplied by four to calculate an annual rate. Business loans rose 15 percent annualized, while commercial mortgages grew 8 percent. Average indirect auto loans rose 71 percent, while credit card and other consumer loans were unchanged. But average residential mortgages fell 14 percent because of prepayments.
The bank set aside $22 million for losses, sharply higher than $13.4 million a year ago, but down from $22.2 million in the third quarter. It wrote off $8.9 million as uncollectable.
Fees soared 44 percent to $91.8 million, but fell 5.3 percent from the third quarter. Seasonal declines in insurance commissions and lower mortgage banking revenues offset gains of 11 percent and 8 percent, respectively, in capital markets and wealth management fees.
Operating expenses jumped 29 percent to $235.1 million, though they fell 1 percent from the third quarter, as staff reductions from an efficiency effort lowered salary and benefit costs by 4 percent since Sept. 30. Koelmel said that the bank plans to bring that quarterly expense rate down to $225 million by the end of this year.