First Niagara Financial Group Inc. (FNFG) reported fourth-quarter 2013 cash earnings of 20 cents per share, which was in line with the Zacks Consensus Estimate. However, results compared favorably with the prior-year quarter figure of 19 cents.
For 2013, earnings per share were 75 cents, in line with the full-year 2012 figure. Further, results beat the Zacks Consensus Estimate by a penny.
First Niagara’s results benefited from better-than-expected revenues and lower expenses. The company’ healthy capital position was also a positive. However, these were offset by considerably high charge-offs and the continuing deterioration in asset quality.
Net income available to common stockholders was $70.1 million as compared with $67.8 million in the prior-year quarter. Net income available to common stockholders in fourth-quarter 2012 excluded certain non-recurring items.
For 2013, net income available to common shareholders was $265.1 million, up from $263.9 million in the year-ago period. Net income for 2012 excluded certain non-recurring items.
Quarter in Detail
Total revenue was $399.1 million, up 6% from the year-ago quarter. The rise was primarily due to higher interest income. Further, revenues surpassed the Zacks Consensus Estimate of $363.0 million.
For 2013, total revenue was $1.6 billion, up 7% year over year. Revenues also surpassed the Zacks Consensus Estimate of $1.5 billion.
Net interest income increased 11% year over year to $280.3 million, mainly due to a fall in interest expense and higher interest income. Further, net interest margin was 3.41% in the quarter, up 19 basis points year over year.
Non-interest income came in at $89.3 million, down 3% year over year. The decline was mainly due to a significant fall in mortgage banking income and other income.
Non-interest expense totaled $227.1 million, down 5% from the prior-year quarter. The decline stemmed from lower marketing and advertising expenses, lower amortization of intangibles and no merger and acquisition integration expenses.
Credit Quality
Credit quality continued to deteriorate in the reported quarter. Provision for credit losses increased 45% year over year to $32.0 million. Net charge-offs were $20.3 million, up substantially year over year.
The ratio of allowance to loans was 0.98%, up from 0.82% in the prior year quarter. The ratio of net charge-offs to total loans was 0.38%, as against 0.18% in the year-ago quarter.
Capital Position
First Niagara’s capital ratios were healthy in the said quarter. As of Dec 31, 2013, its Tier 1 risk based capital ratio was 9.56%, up from 9.29% as of Dec 31, 2012. Tier 1 common capital ratio was 7.85% versus 7.45% in the year-ago quarter. Further, leverage ratio was 7.26%, up from 6.75% as of Dec 31, 2012.
Performance of Peers
Among other companies in the same industry, Washington Federal Inc.’s (WAFD) fiscal first-quarter 2014 earnings beat the Zacks Consensus Estimate, while People's United Financial Inc. (PBCT) reported earnings in line with the Zacks Consensus Estimate.
Our Take
We believe that First Niagara’s revenues and robust capital position will aid its financials, going forward. Further, opportunistic acquisitions such as the company’s $1 billion purchase of HSBC Holdings plc’s (HSBC) New York branches in 2012 are expected to result in additional revenue growth. We are also encouraged by the rise in loans and deposits, which bode well for the future.
However, an unsettled economy, persistent low interest rate environment and stringent regulations remain concerns.
Currently, First Niagara carries a Zacks Rank #4 (Sell).
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