First Niagara reports Q3 net loss on impairment charge, process issue

BUFFALO, N.Y. — First Niagara Financial Group, Inc. (NASDAQ: FNFG) on Friday reported a third-quarter net loss available to common shareholders of $665 million, or $1.90 per share.

Results included a non-cash goodwill impairment charge of $800 million, along with a pretax $45 million reserve to address a “process issue” related to certain customer-deposit accounts, First Niagara said in a news release posted on its website on Friday morning.

Excluding these charges, operating net income available to common shareholders was $63.3 million, or 18 cents per diluted share, compared to net income available to common shareholders of $71.6 million, or 20 cents per diluted share, in the third quarter of 2013.

Gary Crosby, president and CEO of First Niagara Financial Group, said he is “disappointed” with the two items that impacted its quarterly results and “distracted from such solid business fundamentals in the third quarter.”

The Buffalo–based banking company quoted Crosby in the news release.

“In the third quarter, we recorded a non-cash goodwill impairment charge that drove the net loss in the quarter. It is important for customers and our shareholders to note that this is a non-cash accounting charge and has no impact on our daily operations, our ability to continue to serve customers, or our future profitability, and does not negatively impact key regulatory and tangible equity ratios. Based on current market-driven assumptions, we concluded that the goodwill was impaired and recognized an $800 million charge,” Crosby said in the news release.

First Niagara also identified a “process issue” related to certain customer-deposit accounts, he added.

“First Niagara is conducting an internal review to determine the potential impact on our customers. Customers should be confident that their account-balance information accurately reflects the funds on deposit with us.  Based on the results of the review, we will develop a comprehensive corrective-action plan, including customer remediation where appropriate. In accordance with applicable accounting guidance, we established a reserve of $45 million in the third quarter for this matter,” said Crosby.

In a follow up interview with the Business Journal News Network later in the day, First Niagara CFO Gregory Norwood elaborated on the process issue.

“It’s not related to any data breach. It’s not related to [information] security … It’s not related to fraud,” says Norwood.

It is related to a process issue that First Niagara is in the early stages of “researching,” he adds.

Beyond the issues resulting in the quarterly net loss, Crosby said First Niagara delivered 9 percent average loan growth and remains “on target” with the execution of its strategic-investment plan, he noted.

First Niagara on Oct. 17 announced that it will close 17 branches and two offsite drive-thru locations across its four-state footprint in January, citing more customers who seek mobile and online-banking services.

The closures include a branch in Vestal and two other upstate offices in Rochester and Amsterdam, respectively.

Shares of First Niagara Financial Group were down $1.14, or 13 percent, at $7.30 per share when trading ended on Friday afternoon, according to Yahoo Finance. 

First Niagara says it is a multi-state community-oriented bank that currently operates about 411 branches, $38 billion in assets, $28 billion in deposits, and about 5,800 employees serving New York, Pennsylvania, Connecticut, and Massachusetts.

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

Contact Reinhardt at ereinhardt@cnybj.com