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First Niagara's earnings fall 11%

Fourth-quarter earnings at First Niagara Financial Group fell 11 percent, as a drop in revenues was compounded by $3.3 million in severance charges, including for the former CEO.

The Lockport-based parent of First Niagara Bank reported profits of $20.9 million, or 19 cents per share, down from $23.5 million, or 21 cents, a year earlier.

The severance, which included $2.4 million for Paul Kolkmeyer, cut net income per share by 2 cents in the fourth quarter. Kolkmeyer was abruptly fired Dec. 8 after disagreements with the board over management style, and John Koelmel was named president, chief operating officer and acting CEO.

For the year, profits of $91.9 million, or 85 cents per share, fell 1 percent from $92.9 million, or 84 cents, in 2005.

Shares fell 15 cents to $14.67.

First Niagara, which has 119 branches, has been adding offices, buying insurance agencies, and cross-selling more products to boost revenues. It opened six branches in Buffalo and Rochester last year, and plans five in 2007.

It already has the largest insurance agency in Upstate New York, bought a specialized agency in January, and consolidated its employee benefits businesses into a new division. It also opened regional market centers in its four major cities.

At the same time, the company is controlling costs, consolidating four overlapping branches and closing its Eastern New York loan servicing center, while dropping less profitable businesses like mobile home and indirect auto lending.

"We accomplished a lot in 2006," Koelmel said. "These accomplishments further support our efforts to more effectively serve our customers."

Still, while the company touts its success growing loans, deposits and fees, it's struggled like most banks against a narrower profit margin on lending as short-term interest rates rose faster than long-term rates. And it's facing tough competition in slow-growing upstate markets.

"Overall, 2006 was a very solid year for First Niagara in an extremely challenging rate and competitive environment," Koelmel said in a press release. "Our core operating results reflect our continuing efforts to further position the company for long-term success."

For 2007, Koelmel projected double-digit commercial loan growth, higher fee income as a percentage of revenues, continued expense management and ongoing review of businesses. But he also expects the margin challenge to continue.

"We will be more nimble and quicker to capitalize on the best opportunities and more decisive in exiting businesses and markets that do not fit our strategy," he said on a conference call with analysts.

Quarterly revenues fell 2 percent to $87.4 million. Net interest income from taking deposits and making loans dropped 5.4 percent to $59.5 million.

Total loans rose 7.1 percent to $5.7 billion, in spite of more than $350 million in loan payoffs during the quarter and heightened price competition.

Still, commercial loans were up 10.7 percent to $2.6 billion, while mortgages gained 3.2 percent to $2.25 billion. Home equity loans soared 16.7 percent to $471 million. Commercial lines of credit at year-end totaled $834 million, up 47 percent from a year ago, and another $268 million in commercial loans was in the pipeline.

Deposits rose 4.2 percent to $5.7 billion, with a 7.7 percent increase in checking accounts, a 9.3 percent gain in non-interest balances, and a 9.5 percent rise in certificates of deposit. Savings balances fell 7 percent. The thrift wants to grow municipal deposits, which rose 48 percent to $457 million.

First Niagara set aside $1.3 million for loan losses, flat with the third quarter and nearly half what it did a year ago. Bad loans continue to decline to record low levels. The savings bank wrote off $2.1 million as uncollectible, down 15 percent from a year ago, but up 65 percent from the third quarter.

Fees rose 6.5 percent to $27.9 million, including a $1 million gain from selling a vacant branch in Eastern New York.


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