First Niagara generates strong loan growth in second quarter

BUFFALO — First Niagara Financial Group, Inc. (NASDAQ: FNFG) generated substantial loan growth in the second quarter across its various product lines and markets, the banking company reported on July 25.

The Buffalo–based parent company of First Niagara Bank N.A. said average total loans increased 7 percent annualized in the second quarter from the first quarter, driven by continued growth in the company’s commercial lending, indirect auto, and home-equity portfolios, its earnings report stated.

Average commercial loans, which include commercial business and commercial real-estate loans, increased to $13.5 billion in the latest quarter, up 8 percent annualized from the previous quarter.

“The key was all the bank’s [target markets] posting strong loan growth, including New York and also all individual product types,” Gregory W. Norwood, First Niagara’s chief financial officer, told the Business Journal News Network in an interview. “We continue to have a well-diversified … approach.”

The bank ended the quarter with a particularly strong June in commercial loans, he added. That included adding new customers and growing balances.

 First Niagara is the fourth largest bank in the 16-county Central New York market ranked by deposit market share.

First Niagara reported that its second-quarter net income increased to $66.2 million, or 19 cents a share, from $63.6 million, or 18 cents, in the year-ago period.

That surpasses the consensus analyst estimate of 18 cents by one cent, according to Capital IQ and Yahoo Finance.

“The penny beat was largely because of better taxes,” Norwood said.

First Niagara saw its effective tax rate decline to 14 percent from 19.6 percent in the previous quarter, reflecting its receipt of state tax credits from prior years.

Other earnings statistics

First Niagara reported that its operating revenue rose by $5 million, or 1.5 percent, in the second quarter compared to the first quarter. Net interest income increased $1 million in the second quarter from the previous quarter, driven by a 6 percent annualized increase in average earning assets and an extra day in the quarter, the banking company said. Those factors were partially offset by a decrease in net interest margin.

The banking company posted a net interest margin of 3.26 percent in the second quarter, compared to 3.33 percent in the first quarter. Noninterest income improved by $4 million, or 5 percent from the prior quarter primarily due to increases in insurance commissions, merchant and card fees, and mortgage banking, First Niagara said.

The provision for loan losses on originated loans totaled $22.1 million in the second quarter, including $8.8 million of additions to the loan-loss reserve to support organic loan growth and $13.2 million to cover net charge-offs during the quarter, according to the earnings report. Net charge-offs equaled 0.30 percent of average originated loans, a decrease of six basis points from 0.36 percent in the first quarter. As of June 30, nonperforming originated loans comprised 0.86 percent of originated loans, compared to 0.82 percent at the end of the prior quarter.

First Niagara said it posted operating expenses of $244 million in the second quarter, down by $5 million from the prior quarter, which included $10 million in restructuring expenses primarily related to branch-staffing realignment and consolidation of branches. Excluding the restructuring expenses in the first quarter, spending increased by $5 million in the current quarter. That was driven by volume-related growth, increased marketing spending, higher FDIC premiums, legal expenses, as well as depreciation, and personnel and consulting expenses related to the banking company’s previously announced strategic investment plan, according to the earnings report.

Deposit growth

First Niagara said it remains focused on growing its core deposit customer base, re-positioning its account mix, and introducing new products and services. It said recent investments in mobile banking and remote deposit capture have further enhanced customers’ ability to transact in the delivery channel of their choice while at the same time lowering the company’s cost to obtain and service such clients. The banking company contends that current and anticipated investments that are part of its strategic investment plan in new digital features and functionalities, such as online account opening, will further enhance customers’ ability to “seamlessly transact across all delivery channels.”

First Niagara reported that average transactional deposit balances, which include interest-bearing and noninterest bearing checking accounts, increased an annualized 12 percent over the prior quarter and currently represent 36 percent of its deposit balances, up from 34 percent a year ago.

Average noninterest-bearing checking deposit balances increased 18 percent annualized compared to the first quarter, driven by seasonal strength in commercial account balances. Interest-bearing checking balances averaged $4.8 billion and increased 7 percent annualized from the prior quarter. That was driven by recent promotional campaigns and resulting strength in checking account sales, particularly in the company’s New York state market, First Niagara reported.

Money-market balances increased 3 percent, reflecting the early results of a promotional deposit campaign. Average time deposits increased 36 percent annualized, led by brokered deposit growth, according to the banking company.

First Niagara says it is a multi-state community-oriented bank with about 410 branches, $39 billion in assets, $27 billion in deposits, and 5,900 employees serving New York, Pennsylvania, Connecticut, and Massachusetts. 

Contact Rombel at arombel@cnybj.com