Profit plunges at First Niagara
First Niagara Financial Group reported a 22 percent plunge in second quarter profit as low interest rates pinch its bottom line.
The Buffalo-based bank on Friday reported net income of $53.5 million, or 15 cents a share, down from $68.3 million, or 19 cents per share, for the same period a year ago.
The decline came on rising expenses with some technology investments and slipping revenue as First Niagara struggles to make money on lending due to historically low interest rates.
“The interest rate environment has made it difficult for banks like First Niagara, that are funded with deposits,” said Jared Shaw, an analyst at Wells Fargo.
Despite the year over year decline, First Niagara appears to be getting back on solid ground, Shaw said.
The fifth largest retail bank in Pittsburgh with 59 branches, First Niagara has had growing pains following a rapid expansion through acquiring struggling banks, including the purchase of 57 National City branches from PNC in 2009.
It is recovering from a tough 2014 in which it reported a total loss of $745 million. That loss came on a $1.1 billion goodwill impairment charge in the third quarter, an accounting loss because the company cut the value of assets acquired since 2009.
But the bank has had other problems.
A “process issue related to certain customer deposit accounts” disclosed in October compelled First Niagara to set aside $22 million to cover potential losses. Executives said it does not involve breaches of customer accounts, but have declined to provide further information while it works through the issue with regulators. In February, First Niagara said it fired a mid-level employee who inflated a pool of money set aside to cover loan and lease losses.
“Those were embarrassing snafus on their part and I think they've done a lot of work to make sure they don't have it again,” Shaw said. “I don't see it as a systemic problem with the company.”
Lately, the bank has moved to become more efficient. It has consolidated branches, cut staff and merged its retail and consumer finance groups. It is also investing in technology that have forced costs higher in the near-term, but which should start to pay off soon, Shaw said.
Efforts to boost revenue are being hindered by historically low interest rates.
The bank's net interest margin — a key measure of lending profitability — fell to 3.02 percent, from 3.26 percent in the same period a year ago.
Revenue declined less than 1 percent to $349.7 million. Noninterest expenses increased 1.6 percent to $248 million on higher costs for technology, marketing, professional services and rising FDIC insurance premiums.
Its board declared a quarterly dividend of 8 cents per share on outstanding common stock.
Chris Fleisher is a staff writer for Trib Total Media. He can be reached at 412-320-7854 or cfleisher@tribweb.com.
