First Niagara’s quarterly profits up
Bank’s earnings beat analysts’ expectations
Executives at First Niagara Financial Group are exuberant about the company’s most recent earnings performance, but say they’re well-aware that larger economic risks still loom.
“[There’s] a lot for us to feel good about in the quarter. But please don’t mistake our positive feelings and enthusiasm with overconfidence,” President and Chief Executive Officer John
R. Koelmel told analysts. “We remain very grounded and focused and have a healthy respect for the realities of today’s environment.”
First Niagara said Thursday that second-quarter operating profits rose 6.9 percent from a year ago, as operating revenues reached a record high despite more than doubling what the bank set aside for loan losses.
The Lockport-based parent of First Niagara Bank reported net income from operations of $23.1 million, or 22 cents per share, up from $21.6 million, or 21 cents per share, a year ago. That beat Wall Street analysts’ expectations by a penny, as measured by Thomson Reuters.
Operating results don’t include one-time items, such as $7.5 million in severance pay and writedowns for the value of real estate in the second quarter a year ago. There were no such items in this quarter.
Including such issues, reported net income rose 39 percent to $23.1 million from $16.6 million. Total revenues rose 10.1 percent to $96.2 million.
“There’s nothing quirky about our performance,” Koelmel said. “We’re doing it the good old-fashioned way.”
Still, First Niagara shares fell 62 cents Thursday to $13.93.
“All things considered, the company reported a strong quarter,” analyst Joseph Fenech of Sandler O’Neill & Partners wrote in a research report. “Asset quality indicators deteriorated modestly but don’t seem to be cause for concern.”
First Niagara’s results were largely driven by the bank’s efforts to boost its commercial businesses, while maintaining a tight rein on pricing and costs.
The bank also benefited from its first quarter purchase of Greater Buffalo Savings Bank, which Koelmel said is now fully integrated into First Niagara.
Net interest income from taking deposits and making loans rose 16.6 percent to $66.6 million, as loans grew and the profit margin widened to its highest since 2006. The rate on interest-bearing funds fell to its lowest in two years, as the bank borrowed at a lower cost while reducing certificates of deposit and boosting “core” deposits.
Average commercial loans during the quarter rose 15 percent annualized from the first quarter — the fifth straight quarter of double-digit growth — and comprise 55 percent of total loans. Specifically, business loans rose 29 percent, while commercial real estate loans rose 12 percent, because of new loans and fewer payoffs. Home equity rose 7 percent, while mortgages fell 10 percent.
Annualized means three months’ growth rate computed over 12 months.
The bank set aside $4.9 million for loan losses, more than double the $2.3 million a year ago and higher than $3.1 million in the first quarter. It wrote off $4.1 million, but chargeoffs and bad loans are still low.
Fees fell 2.3 percent from a year ago to $29.6 million because of the soft insurance market for renewals. Expenses rose 7.2 percent to $56.6 million.
