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First Niagara announces earnings; sidesteps sale questions

When First Niagara Financial Group executives announced the bank’s earnings on Friday, they refused to address reports that the Buffalo-based bank was exploring options including a sale.

“First Niagara has a long-standing policy that we simply do not comment on market rumors or speculation,” said Gary Crosby, First Niagara’s CEO, in a conference call with analysts about the bank’s third-quarter earnings. “As I’ve said on these calls before, our board takes very seriously its fiduciary responsibility to our shareholders by continuously assessing the best way to enhance shareholder value.” Crosby requested the analysts not ask him questions about the reports.

Reports surfaced in late September that First Niagara had hired JPMorgan Chase to review different options, including a sale. First Niagara has struggled to capitalize on a series of acquisitions. The bank’s stock price since early 2014 has been stuck below $10 per share, but has climbed above $10 per share since the reports about JPMorgan surfaced. On Friday afternoon, the stock was trading at more than $10.50 per share.

On the conference call, Bob Ramsey, an analyst with FBR Capital Markets, asked if Crosby still felt First Niagara’s best path to increasing shareholder value was to tap into the bank’s existing franchise, remain independent and focus on its strategic investment plan.

“We work very closely with our board in assessing different strategies to enhance shareholder value,” Crosby said. “That’s an ongoing process here, and it’s all within the context of this very difficult operating environment.” Banks throughout the industry have cited continued low interest rates as creating a difficult operating environment for them.

First Niagara said its “strategic investment plan,” introduced in early 2014, remains on time and on budget. The bank is spending $200 million to $250 million over three to four years on investments designed to improve the bank’s profitability.

Casey Haire, an analyst at Jefferies, asked Crosby how reports about exploring a possible sale are affecting the rollout of the investment plan. Haire noted the plan depends, in part, on increasing penetration with commercial clients. “If I’m a commercial client, and I’m reading the paper, that is of concern,” Haire said, going on to ask if the bank was “having these conversations with your commercial clients” as it implements its plan.

“We are having the discussions with our commercial clients,” Crosby said. “We’re having discussions with the entire First Niagara team. We’re having discussions with the community. These rumors and speculation are always difficult, and I’m very pleased with the way we’re overcoming the rumors and speculation. The team’s doing an outstanding job staying very close to our customers.”

The question of whether First Niagara will be sold is significant to the Buffalo Niagara region’s economy. The bank employs about 2,300 people in Western New York, including about 750 at its Larkinville headquarters. In any sale involving banks, headquarters jobs at the bank being bought are considered vulnerable, as the acquiring bank seeks to eliminate duplication and control costs.

First Niagara reported third quarter net income of $60.5 million, and met analysts’ expectations of 15 cents per share.

“Overall third quarter financial results were in line with our expectations and were characterized by stable net interest income, lower operating expenses, strong balance-sheet growth and positive credit metrics,” said Gregory W. Norwood, the bank’s chief financial officer.

Norwood said commercial loan growth was strong during the quarter, and the bank continues to be “in line with expectations” about controlling expenses. First Niagara continues to hire for positions in areas like commercial banking and risk management. On the expense side, “we are reaping the benefits of our branch consolidations that we did in the first part of 2015,” Norwood said.

First Niagara recorded net interest income of $263.5 million, down 3.6 percent from a year ago. It reported non-interest income, from sources such as fees, of $83.4 million, up 10.6 percent from $75.4 million a year ago.

This year’s results were in stark contrast to the third quarter a year ago, when First Niagara reported a $665 million one-time “paper” loss, driven entirely by an $800 million accounting write-down on the value of its prior acquisitions. First Niagara subsequently increased the size of that write-down to $1.1 billion.

Also in the third quarter of 2014, First Niagara said it might have to pay up to $45 million in restitution because of a “process issue” with some deposit accounts. First Niagara later lowered the amount reserved for that issue to $23 million.

Norwood said Friday the bank was not yet ready to share details of the process issue, and couldn’t say how soon the bank would comment. “We’ve said in the past, we completed our remediation plan, feel confident about it and continue to work with our regulators.”