First Niagara Q1 Earnings in Line, Shares Drop - Analyst Blog

First Niagara Financial Group Inc. FNFG reported first-quarter 2014 operating earnings of 17 cents per share, in line with the Zacks Consensus Estimate as well as the year-ago figure. Since the earnings announcement on Apr 24, shares of First Niagara fell 1.7%, reflecting negative response from investors.

The company's results benefited from higher net interest income, offset by a fall in non-interest income, rise in provision for credit losses and higher non-interest expenses. The company' healthy capital position was a positive. However, continuous deterioration in asset quality was the downside.

Net income available to common stockholders was $51.9 million, down 13.1% from the prior-year quarter.

Quarter in Detail

Total revenue was $376.8 million, down 2.1% from the year-ago quarter. The fall was due to lower non-interest income. However, revenues surpassed the Zacks Consensus Estimate of $363.0 million.

Net interest income increased 2.0% year over year to $270.7 million, mainly due to a fall in interest expense and higher interest income. Further, net interest margin was 3.33% in the quarter, down 6 basis points year over year.

Non-interest income came in at $76.7 million, down 14.1% year over year. The decline was mainly due to a significant fall in mortgage banking, capital markets and other income.

Non-interest expense totaled $248.7 million, up 4.7% from the prior-year quarter. The rise was owing to increase in salaries and benefits, technology and communications costs, marketing and advertising expenses as well as professional services fees, along with inclusion of merger and acquisition integration expenses.

Credit Quality

Credit quality continued to deteriorate in the reported quarter. Provision for credit losses increased 22.8% year over year to $24.8 million. Net charge-offs were $18.6 million, up substantially as well as year over year.

The ratio of allowance to loans was 0.99%, up from 0.86% in the prior-year quarter. The ratio of net charge-offs to total loans was 0.36%, as against 0.34% in the year-ago quarter.

Capital Position

First Niagara's capital ratios were healthy in the said quarter. As of Mar 31, 2014, its Tier 1 risk based capital ratio was 9.62%, up from 9.45% as of Mar 31, 2013. Tier 1 common capital ratio was 7.92% versus 7.64% in the year-ago quarter. Further, leverage ratio was 7.28%, up from 6.92% as of Mar 31, 2013.

Our Take

We believe that First Niagara's robust capital position will aid its financials going forward. We are also encouraged by the rise in loans. However, lower revenues will keep bottom line under pressure.

Moreover, an unsettled economy, the persistent low interest rate environment and stringent regulations remain concerns.

Currently, First Niagara carries a Zacks Rank #3 (Hold).

Performance of Other Banks

Washington Federal Inc.'s WAFD fiscal second-quarter 2014 earnings of 38 cents per share came in line with the Zacks Consensus Estimate.

People's United Financial Inc. PBCT reported first-quarter 2014 operating earnings per share of 19 cents, which missed the Zacks Consensus Estimate by a penny.

Heritage Financial Corp. HFWA is slated to report first-quarter 2014 earnings on Apr 29.