Bank acquisitions add to First Niagara Financial's net interest income, expenses

CNY Business Journal (1996+), May 18, 2001

LOCKPORT - First Niagara Financial Group, Inc. (NASDAQ: FNFG) reports that cash earnings, which excludes the amortization of goodwill, for the quarter ended March 31 increased 17 percent to $6 million, or 24 cents per share, from $5.1 million, or 20 cents per share, for the first quarter of 2000. Earnings per share increased slightly to 19 cents per share for the first quarter this year, compared to 18 cents per share for the same quarter in 2000. Net income for the quarter ended March 31 was unchanged from the same period in 2000 at $4.7 million.

Total loans outstanding at March 31 remained consistent with the year-end 2000 balance of $1.8 billion. Pursuant to the company's strategy to change the loan portfolio mix toward commercial lending, increases in commercial loans were offset by reductions in fixed-rate residential mortgages held for investment purposes. The increase in loans outstanding of $750 million from March 31, 2000, was due to the acquisitions of Cayuga Bank and Cortland Savings Bank, as well as internal loan growth. As a result, net interest income increased 42 percent and 8 percent to $18.7 million for the three months ended March 31, as compared to the first and fourth quarters of 2000, respectively. The percentage of nonperforming loans to total loans was 0.35 percent at both March 31 this year and Dec. 31, 2000, as compared to 0.21 percent at the end of March 31, 2000. This increase is attributable to the Cayuga acquisition during November 2000, which carried a higher level of nonperforming loans to total loans. The percentage of charge-offs to average loans continued at low levels, totaling 0.03 percent during the first quarter this year.

Net interest margin or net interest income expressed as a percentage of average earning assets was 3.19 percent for the quarter ended March 31, compared to 3.13 percent in the fourth quarter of 2000. This improvement is attributable to the increase in average noninterest-bearing deposits, partially offset by the decline in the net interest-rate spread. The decrease in the net interest-rate spread from the previous quarter resulted from higher yields being paid on certificates of deposits and increases in municipal deposits that generally bear a higher rate. These yields are expected to decrease in the second quarter.

In the first quarter, the company had $10.5 million in noninterest income, an increase of 41 percent over the $7.5 million for the same period in 2000 and 10 percent over the $9.6 million in the previous quarter. The increase from the first quarter of 2000 resulted from revenue amounting to $1.7 million associated with bank and nonbank acquisitions not present in that period. Further, the company's insurance activities, primarily third-party administrative fees and contingent profit sharing, contributed an additional $805,000 in revenue as compared to the first quarter of 2000. Other factors included credit-card fees, earnings from bank-owned life insurance, and service charges on deposit accounts. The increase from the previous quarter was primarily attributable to only two months of Cayuga Bank's activities being included in the fourth quarter of 2000. Noninterest income continues to be a stable source of earnings for the company and represents 36 percent of net revenue for the quarter.

Noninterest expense for the three months ended March 31 amounted to $20.7 million, as compared to $13.2 milI ion for the first quarter in 2000 and $18.3 million for the fourth quarter in 2000. A significant portion of the increase was a result of the acquired operations of Cayuga Bank, which occurred in early November 2000, as well as Cortland Savings Bank, Niagara Investment Advisors, and Allied Claims Services, all of which were acquired subsequent to the first quarter of 2000. In addition, duplicate support costs relating to the Cayuga acquisition were present throughout the quarter. It is anticipated that the cost savings, expected at the time of acquisition, will start to be realized during the next quarter.

Chairman, President, and CEO William E. Swan commented, "The company successfully completed the first phase of the Cayuga Bank integration near the end of the first quarter and is expecting to start realizing planned cost savings in the second quarter of 2001. In addition, a company-wide initiative will be launched in May 2001 that focuses on optimizing performance at every level and maximizing the opportunities our acquisitions present."

The company-wide program will focus on revenue activities, operating efficiency, and value-based decisions. The multistep process, entitled AVA (an acronym for Adding Value Always), is expected to deliver increased revenues and targeted efficiencies, measured by the company's operating costs to total revenue ratio (efficiency ratio), of approximately 10 percent over the next three years.