First Niagara Financial Group Inc. (FNFG)

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First Niagara Financial Group (FNFG)

Q1 2013 Earnings Call

April 19, 2013 10:00 AM ET


Ram Shankar - SVP, IR

Gary Crosby - Interim President and CEO

Greg Norwood - CFO


Bob Ramsey - Janney Capital Markets

Dave Rochester - Deutsche Bank

Damon Delmonte - KBW

Steve Moss - Janney Montgomery

Casey Haire - Jefferies

David Darst - Guggenheim Securities

Matthew Kelley - Sterne Agee



Welcome and thank you for standing by. At this time, all participants are in a listen-only mode until the question and answer session of the call. (Operator instructions). Today’s conference is being recorded. If you have any objections, you may disconnect at this time.

Now, I’d like to turn over the meeting to Ram Shankar. You may begin.

Ram Shankar

Thank you Angela and good morning everyone. Thank you for joining us this morning. With me today are Gary Crosby, Interim President and CEO and Greg Norwood, our Chief Financial Officer.

Before we begin, this presentation contains forward-looking information for First Niagara Financial Group. Such information constitutes forward-looking statements which involve significant risks and uncertainties. Actual results may differ materially from the results discussed on these forward-looking statements.

A copy of the earnings release and an earning’s review index are available under the investor relation section at firstniagara.com. With that, let me turn the call over to Gary. Gary?

Gary Crosby

Thank you Ram and good morning everyone, thanks for joining us. As we begin our call this morning, we are certainly very mindful of the tragic events in Boston. We have offices in the area and thankfully all of our people are safe. Our thoughts and prayers are with the people of Boston as they deal with the aftermath of this tragic and senseless act.

Let me start our presentation by saying that the First Niagara board and management team are committed to delivering enhanced value to our shareholders by capitalizing on the strong foundation that we have built. For us, it’s all about improved profitability. From an operational and organizational perspective, it is business as usual at First Niagara.

As Interim CEO, I want to be very clear that our focus is on leveraging the footprint and franchise that we have built over the last few years and translating our strong business fundamentals into strong financial performance and value to our shareholders.

Our customer-fetching businesses will continue to drive profitable organic growth across our entire footprint without compromising on credit quality and further diversifying our revenue sources through greater fee income penetration.

We will continue to generate industry leading in loan growth by attracting new customers, maintaining our discipline on credit and selling more to our growing customer base with a focus on cross-solving.

We will continue to reduce our securities portfolio by using our excess liquidity to fund more profitable loan growth. Obviously, organic growth alone will not compensate for industry headwinds. So we will remain focused on timely managing our operating expenses and concentrate on infrastructure investments that are accretive in the shorter term.

We’ll also continue to selectively invest in people, in products and services to enhance our capability and commitment to serve our customers and increase shareholder value. In short, we are laser-focused on profitability. Needless to say we remained firm in our commitment to a purely organic growth strategy. That means no change in direction and no distractions from achieving improved profitability.

I am going to change the subject now. I imagine many of you have questions on the CEO search. So let me answer in advance, those questions I am prepared to answer. The CEO search is well underway. Board member Nat Woodson is chairing the three person search committee, which includes Board member Carl Florio, and Carlton Highsmith. The committee has retained Korn/Ferry International to assist in the search process.

It would be only a guess to offer insights and how long this process might take, but know that the committee is working diligently and expeditiously. In terms of candidate credentials, the board is focused on leveraging the franchise we have built to increase shareholder value. To that end, we are looking for someone who sees the long term value of our strategy, able to enhance that strategy, and drive continued improvement in business results.

At the risk of stating the obvious of desired credential include a seasoned banker with a proven record of strong organizational and operational leadership, successful track record of driving business growth in financial service companies of our size or larger, the ability to further build on relationships with customers, investors, and communities. The overriding goal is to secure the best possible CEO to guide us as a strong independent banking franchise that will deliver increasing shareholder value in the years ahead.

With that let me turn it over to Greg to review the first quarter results.

Greg Norwood

Thanks Gary, and good morning. Let me start with the highlights for the quarter that include a net interest margin of 3.39%, sustained strong credit metrics with flat non-performing loans and a 20 basis point net charge-off ratio. We also saw $3.7 million reduction in adjusted operating expenses. What’s the take-away? We achieved positive operating leverage this quarter by controlling the expense side of the equation.

Now a little color on the income statement. Our NII this quarter was essentially flat. An 8% quarter-over-quarter increase in average earning asset was offset by a 3 basis point reduction in net interest margin. Loan yields declined 14 basis points quarter-over-quarter driven by the continued elevated levels of prepayments and reinvestment at lower yields or as we call it the asset churn.

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