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First Niagara’s net profit on operations rises 15%

Bank has expanded into Pennsylvania

By Jonathan D. Epstein

 First Niagara Financial Group, fresh off its first expansion outside the state, said net operating profits for the third quarter of 2009 rose 15 percent, led by “robust” growth in core deposits and commercial loans, offset by losses on two loans.

The Lockport-based parent of First Niagara Bank reported net operating income of $27.3 million, up from $23.7 million a year ago. Per-share profits fell, however, to 19 cents from 22 cents because the bank has 40.4 million more shares.

Results beat Wall Street expectations by 2 cents per share.

That doesn’t include $16.4 million in one-time expenses, with $14.9 million resulting from the acquisition of 57 western Pennsylvania branches from PNC Financial Services Group’s National City Bank unit and its pending purchase of Harleysville National Corp. in the Philadelphia area.

The bank also gave $3 million to its charitable foundation for use in Pennsylvania. And it sold its merchant services customer list for $1.5 million.

Including those charges, net income fell 54 percent to $10.9 million, or 7 cents per share, from $23.7 million, or 22 cents per share, a year ago.

“The company looks to have reported a solid quarter,” bank analyst Joseph Fenech, of Sandler O’Neill & Partners, wrote in a research report. “As expected, the quarter was noisy.”

Shares rose 28 cents, to $13.30.

“We continue to report what we think is a very consistent and real rock-solid performance again for another quarter this year,” said CEO John R. Koelmel. “We’re continuing to do it in a way that further distinguishes us at a time when the rest of the world continues to fight through the challenges and we’ve been able to stay on the high road and produce significant results.”

In early September, First Niagara completed its previously announced $54.1 million cash purchase of the National City branches, including 69 ATMs, 500 employees and 400,000 customer accounts.

The deal added $3.9 billion in deposits, largely in certificates of deposit, money market accounts and free checking accounts, and $757 million in performing small-business and middle-market commercial loans, plus $3.2 billion in cash. And it instantly gave First Niagara the No. 3 retail deposit market share in Pittsburgh.

Executives said Thursday that they’ve retained 98 percent of the deposits, while also adding $30 million to $40 million in the last 45 days. That’s far better than originally expected, they said. And they’ve closed $100 million in new commercial loans in western Pennsylvania, with another $100 million pending, all with strong credit prospects, they said.

The bank is also paying $237 million in stock to buy Harleysville, gaining 83 branches, 94 ATMs and 1,100 employees in nine eastern Pennsylvania counties, with $5.6 billion in assets, $3.6 billion in loans and $4.1 billion in deposits.

That deal is expected to close in the first quarter of 2010, giving First Niagara nearly $20 billion in assets in two states, including $8 billion just in Pennsylvania.

On the capital front, the bank raised $950 million in new capital in the past year, including $460 million just over a month ago, and is now “super-capitalized,” giving it the strength to pursue further growth and “play offense,” Koelmel said.

Net interest income from taking deposits and making loans jumped 40.9 percent to $98.9 million, as interest costs on deposits fell 25 percent.

Fee and non-interest income rose 5.1 percent to $30.7 million, while operating expenses jumped 24.8 percent to $70.9 million, driven by the new branches.

jepstein@buffnews.com