BUFFALO, N.Y., July 22, 2010 (GLOBE NEWSWIRE) -- First Niagara Financial Group, Inc. (Nasdaq:FNFG) delivered record operating earnings for the quarter ended June 30, 2010, driven by the benefits of accretive acquisitions in Pennsylvania and continuing growth in its Upstate New York franchise. Business activity from new and existing customers remains robust across all markets for the $21 billion northeast commercial bank.
"Our progress continues with another strong quarterly performance," President and CEO John R. Koelmel said. "We are delivering across the board – strategically, operationally, and financially – as we are getting the job done for all our constituencies. We had a near flawless integration of our recent Eastern Pennsylvania acquisition, and results to date in both of our new Pennsylvania markets have surpassed expectations with very high retention rates and robust new customer generation. Coupled with the solid organic growth in our Upstate New York franchise, our game plan of playing offense continues to be very effective. Our aggressive branding and community involvement efforts are also bringing us terrific visibility and market response."
Mr. Koelmel added, "The headwinds from the economy and pending financial reform remain formidable, putting added pressure on revenues across our industry. While certainly not immune, our superior performance demonstrates that we remain focused on building momentum, taking share, and pursuing our growth mission. All in all, the state of the franchise is excellent. We continue to strengthen our foundation and invest confidently in our future as evidenced by the exceptional talent we've recruited. Our focus is on the future and achieving our potential as a leader in the financial services industry. We are well positioned to capitalize on the flow of opportunities in front of us."
Pennsylvania Update
The Company completed its previously announced acquisition of Harleysville National Corporation ("Harleysville") on April 9, 2010. After the first 100 days, new market highlights include a smooth and seamless integration of all major systems and strong retail core deposit retention of 95%. Initial customer loan demand has also been very solid with $327 million in new loan originations including $108 million in commercial line commitments. Consistent with the Company's plan for Harleysville's distressed assets, the sale of nearly $300 million of primarily commercial loans was completed at the end of the second quarter. The Company also continued its longstanding practice to support the communities it serves by providing charitable funding in Eastern Pennsylvania, including the opening of municipal pools in the city of Philadelphia.
The Western Pennsylvania franchise, acquired in the third quarter of 2009, continues to perform much better than expected. Average retail core deposit balances increased by an annualized rate of 9% during the second quarter and have now grown to 107% of pre-acquisition levels. Average commercial loan balances were significantly higher by $85 million for the current quarter and continued their nine month growth trend. New business potential remains strong as evidenced by a growing commercial loan pipeline and steadily improving branch based wealth management sales. Additionally, First Niagara's ongoing community support was extended to Western Pennsylvania by way of a significant contribution to the United Way of Allegheny County's student mentoring program.
Second Quarter Results
For the quarter ended June 30, 2010, operating (Non-GAAP) net income – that is, reported net income exclusive of nonrecurring items was $44.9 million or $0.22 per diluted share. This compared to $32.6 million or $0.18 per share in the linked quarter and $25.5 million or $0.18 per share in the second quarter of 2009. The earnings per diluted share compared favorably to both prior periods despite the 20 million shares issued with the Harleysville acquisition and 38 million shares issued in a September 2009 equity offering. Reported (GAAP) net income inclusive of nonrecurring items, primarily acquisition and integration expenses, totaled $20.0 million or $0.10 per diluted share for the current quarter. This compared to $28.9 million or $0.16 per diluted share in the linked quarter and $20.8 million or $0.08 per diluted share in the second quarter of 2009.
Chief Financial Officer Michael W. Harrington said, "The second quarter was marked by a continuation of our strong fundamentals. Once again, we generated very healthy organic growth in commercial loans and core deposits. Both Pennsylvania franchises have been completely assimilated without a hitch and are meaningfully contributing to our overall operating performance. Asset quality remains strong and is supported by an ample capital position. Consistent with our strategy of staying on offense, we expeditiously disposed of the vast majority of Harleysville's riskier assets, all within original valuation estimates. We otherwise continue to build capacity and strengthen our infrastructure to ensure we are positioned to accommodate planned growth."
Operating Results (Non-GAAP) Q2 2010 Q1 2010 Q2 2009
Net interest income $ 154.8 $ 114.2 $ 79.9
Provision for credit losses 11.0 13.1 8.9
Noninterest income 46.1 36.9 28.8
Noninterest expense 121.6 87.0 60.3
Net income before nonrecurring items 44.9 32.6 25.5
Weighted average diluted shares outstanding 204.4 185.6 140.2
Earnings per diluted share $ 0.22 $ 0.18 $ 0.18
Reported Results (GAAP)
Net income before nonrecurring items $ 44.9 $ 32.6 $ 25.5
Nonrecurring(a) 24.9 3.7 4.7
Net income 20.0 28.9 20.8
TARP(b) -- -- 9.4
Net income available to shareholders 20.0 28.9 11.4
Weighted average diluted shares outstanding 204.4 185.6 140.2
Earnings per diluted share $ 0.10 $ 0.16 $ 0.08
All amounts in millions except earnings per diluted share. The Non-GAAP/Operating Results table above summarized the Company's operating results excluding certain non-recurring items. Beginning in Q2 2010, the impact of income taxes on these nonrecurring items was calculated using the effective tax rate for the quarter.
(a) 2010 – Q2: After-tax noninterest expense: Harleysville acquisition related expenses of $ 18.8 million, $5.6 million charitable contribution related to the acquired markets and severance and related costs of $0.5 million. Q1: After-tax noninterest expense: Harleysville acquisition related expenses of $3.7 million. 2009 – Q2: After-tax noninterest expense: FDIC's special assessment charge of $3.3 million based on each insured depository institution's assets less Tier 1 Capital. Also includes expenses related to the National City branch acquisition of $1.4 million.
(b) 2009 – Q2: Accelerated discount accretion of $7.7 million resulting from the redemption of preferred stock purchased by the U.S. Treasury Department under the Troubled Asset Relief Program and $1.7 million of accrued dividends and preferred stock discount accretion through the redemption date.
Loans
Excluding the acquired Harleysville loans, average commercial loan balances for the current quarter improved by 15% annualized as robust commercial business and real estate loan growth continued in Upstate New York and Western Pennsylvania. New loan originations of $415 million and seasonal increases in line usage helped to drive these balances higher. Similarly, the home equity portfolio benefited from the most successful marketing campaign to date as average balances grew by $69 million and 2,400 new lines/loans were added during the current quarter. Residential loan originations reached $187 million, while average balances declined due to the continued sale of longer-term fixed rate mortgages in the secondary markets.
Credit Quality
Credit quality improved in several key measures in the second quarter. Nonperforming loans decreased by $3.6 million from the linked quarter to $74.3 million, and net-charge offs declined by $1.9 million in the second quarter to $10.1 million. Delinquencies also decreased in both the New York and Western Pennsylvania loan portfolios with the acquired Harleysville loan portfolio performing as expected. Accordingly, the provision for credit losses was $11.0 million in the current quarter compared to $13.1 million in the linked quarter. The allowance for credit losses at June 30, 2010 was 122% of nonperforming loans and, excluding loans acquired in the National City and Harleysville acquisitions which were recorded at fair value as of their acquisition dates, 1.29% of total loans, comparable with the linked quarter.
Deposits
Excluding the acquired Harleysville deposits, average core deposits in the current quarter increased by $208 million or 14% annualized due to strong retail deposit growth across all regions and product types. Total average deposit balances in the Upstate New York region grew sharply by $140 million and offset much of the decline in CD balances from the Western Pennsylvania market as the company continued its focus on low-cost profitable relationships across the two-state franchise. At the end of the quarter, following the Harleysville acquisition, core deposits represented 71% of total deposits and the loan-to-deposit ratio improved to 73%.
Net Interest Income
The increase in net interest income was primarily driven by the Harleysville acquisition. Similarly, the tax equivalent net interest margin improved by 7 basis points to 3.68% largely due to the benefit associated with holding the higher yielding distressed Harleysville loans prior to their disposition at the end of the quarter. The continuing strong commercial loan growth was another contributing factor to the rise in net interest income in the second quarter.
Noninterest Income
Excluding fee revenue from the acquired Harleysville franchise, noninterest income rose by 2% primarily due to increased lending activity, strong branch-based wealth management sales, and seasonally higher banking service fees. Going forward, the Company expects the industry-wide reduction in non-sufficient (NSF) charges to negatively impact this revenue line. Noninterest income, including the impact of the Harleysville acquisition, increased by 25% from the linked quarter to $46.1 million.
Noninterest Expense
Excluding the impact of the former Harleysville operations, operating (Non-GAAP) noninterest expense increased by 8% in the second quarter primarily due to aggressive advertising and branding campaigns, including the ongoing marketing costs in the newly acquired regions as well as the continued investment in talent. Total operating (Non-GAAP) expenses for the current quarter were $121.6 million and the accompanying efficiency ratio was 60.6%, consistent with the Company's expectations following the acquisition. Reported (GAAP) noninterest expense for the current quarter included nonrecurring costs related to the Harleysville acquisition of $35.9 million compared to $6.2 million in the prior quarter.
Capital Management
The company's capital ratios at the end of the second quarter, which are fully inclusive of the Harleysville merger and related fair value adjustments, remain considerably above well-capitalized levels. Consolidated Total Risk Based capital and Tier 1 Common Risk Based capital were 15.09% and 13.43%, respectively, at June 30, 2010. Additionally, the tangible common equity ratio – that is, tangible common shareholders' equity as a percentage of tangible assets – was 8.6% at quarter end. The weighted average diluted shares outstanding for the second quarter were 204.4 million compared to 185.6 million in the linked quarter and 140.2 million in the prior year period.
Regulatory Reform
On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act. Dodd-Frank will result in sweeping financial regulatory reform aimed at strengthening the sound operation of the financial services sector. The Act's provisions that have received the most public attention generally have been those applying to or more likely to affect larger institutions. However, it contains numerous other provisions that will affect all banks and bank holding companies. These include the repeal of the federal prohibitions on the payment of interest on demand deposits (thereby permitting banks to pay interest on business transaction and other accounts), increased fees payable by banks to regulatory agencies, and the increased cost of supervision and compliance more generally. Many aspects of the law are subject to rulemaking and will take effect over several years, making it difficult to anticipate the overall financial impact on the company, its customers or the financial industry more generally.
