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First Niagara's earnings off 33% Bank cites progress in restructuring

First Niagara Financial Group's second-quarter profits plummeted 33 percent from a year ago, as revenue fell, expenses rose and the company set aside more money for losses.

The Lockport-based savings bank Wednesday reported net income of $16.6 million, or 16 cents a share, down from $24.8 million, or 23 cents a share, a year earlier.

The quarter's results included $7.5 million, or 5 cents per share, from one-time restructuring, severance and other charges to make the bank more efficient. But even without those charges, operating profits still fell 10 percent to $21.6 million, or 21 cents per share.

Still, that beat the consensus expectation of Wall Street for 19 cents. It was also up from 19 cents in the first quarter.

Revenues fell 2.2 percent from a year ago, but were up 16 percent annualized from the first quarter. Annualized means the growth for three months is multiplied by four for the full year.

"In this environment, that's going to be viewed very favorably," said bank analyst Joseph Fenech at Sandler O'Neill & Partners LP. "It looks to be a pretty good quarter. It just looks like things are beginning to show signs of stabilizing."

During the quarter, the bank bought back 1.9 million shares, leaving 6.1 million available for repurchase under the board's current program. The board also raised the quarterly dividend 8 percent to 14 cents per share, payable Aug. 21 to stockholders of record on Aug. 7.

The bank issued its earnings Wednesday evening, hours ahead of its original planned release Thursday morning, but after the stock market closed. Shares had risen 23 cents during the day, to $12.27, but fell 4 cents in after-hours trading.

Chief Financial Officer Michael Harrington said he was "very pleased" with the results, touting growth in business lending, financial services, and low-cost checking deposits.

Additionally, all restructuring charges and steps have now been taken -- including previously disclosed cuts of more than 100 jobs statewide -- so officials can focus on growth.

"Those are the things we set out to do, and we delivered on those results," he said. "We're getting the growth in the areas that we've targeted."

>Cutting 100 jobs

Chief Executive John R. Koelmel, who took the helm late last year, is trying to jump-start First Niagara's growth after several quarters of disappointing or sluggish results. The bank in March said it would cut more than 100 jobs, reorganize certain operations, and close or sell branches in eastern New York to shave 5 percent of its annual expenses. Officials also said they might sell unneeded properties and end some leases.

On Wednesday, First Niagara said it had agreed to sell five rural branches in eastern New York with $83.5 million in deposits to Legacy Bancorp of Pittsfield, Mass. Legacy is paying a premium of 12.75 percent, or about $10.6 million, on top of assuming the deposits. No loans are being sold. Closing is expected in the fourth quarter.

First Niagara is concentrating on urban and suburban markets, so those branches didn't fit with its strategy. The bank also is "actively negotiating" to sell "another handful of branches" with about $100 million in deposits, with an agreement expected shortly, Koelmel said. None are in Western New York.

Additionally, the bank's $7.5 million charge for the quarter included $4.8 million in write-downs in the value of real estate that it now plans to sell, plus charges for severance and lease terminations. Harrington said seven properties in other parts of the state are being sold.

"We're right where we wanted to be," Koelmel said. "We're anxious to put this stage behind us."

Even in the midst of the changes, Koelmel said First Niagara continues to hunt for acquisition opportunities. He said the pace of stock buybacks slowed during the quarter because officials were "exploring some transaction opportunities" that didn't pan out.

"There's a lot of fish in the sea, and our line's always in the water," he said. "When we get a nibble and hook something that's attractive, we do our best to reel it in. Sometimes you get it, sometimes you don't."

>Interest income falls

Net interest income from taking deposits and making loans fell 10.6 percent to $57.1 million, as the profit margin fell sharply from a year ago. But both were up from the first quarter, reversing a four-quarter slide, because of growth in higher-yielding commercial loans. The bank set aside $2.3 million for losses, up from $1.6 million and matching what it wrote off as uncollectible. Bad loans still on its books ticked up slightly.

Total loans rose 3.4 percent from a year ago -- but at an annualized 5.4 percent rate from last quarter -- to $5.8 billion. Business loans rose 23 percent from last year, commercial mortgages were up 5.2 percent, commercial line of credit use was up 32 percent, and home equity loans rose 11.6 percent.

Deposits rose 1.9 percent to $5.76 billion, as noninterest checking deposits increased 4.4 percent, certificates of deposit rose 3.2 percent, and money market accounts jumped 15 percent. Meanwhile, savings accounts fell 15.4 percent and interest checking fell 2 percent.

Fees rose 9.1 percent to $30.3 million, reaching a record. Wealth management revenues led the way with a 30 percent gain, followed by lending and leasing fees that rose 10.8 percent. Banking services fees rose 1.3 percent, insurance fees rose 7.5 percent, and employee benefits fees rose 9.4 percent.

Expenses, not including the one-time charges, rose 3.5 percent from a year ago but just 1.1 percent from the first quarter, to $52.8 million. Salaries rose 6.5 percent from a year ago to $32.4 million, but fell 1.6 percent from the first quarter.


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