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First Niagara blames impairment charge, process issue for Q3 loss

By Eric Reinhardt

Date:

BUFFALO — First Niagara Financial Group, Inc. (NASDAQ: FNFG) is pointing to a non-cash write-off and a process issue as the reasons for a third quarter net loss of $665 million, or $1.90 per share.

Results included a non-cash, goodwill-impairment charge of $800 million, along with a pretax $45 million reserve to address a process issue related to certain customer-deposit accounts. 

First Niagara believed the items were “appropriate and necessary” in the third quarter, says Gregory Norwood, CFO of First Niagara Financial Group.

“It doesn’t reduce our ability to lend. It doesn’t reduce our capital position and / or our safety and soundness. We do need to deal with the process issue, but the lending and deposit platforms continue to perform very well,” says Norwood.

He spoke with the Business Journal News Network on Oct. 24, the same day that the Buffalo–based banking company reported the net loss.

In the interview, Norwood also elaborated on the process issue.

“It’s not related to any data breach. It’s not related to [information] security … It’s not related to fraud,” says Norwood.

It is related to a process issue that First Niagara is in the early stages of “researching,” he adds.

Excluding these charges, operating net income available to common shareholders was $63.3 million, or 18 cents per diluted share, compared to net income available to common shareholders of $71.6 million, or 20 cents per diluted share, in the third quarter of 2013.

First Niagara’s stock was pummeled, falling 13.5 percent, the day it released its earnings report. It rebounded less than 2 percent on the following two trading days, Oct. 27-28.

CEO comments
Gary Crosby, president and CEO of First Niagara Financial Group, said he is “disappointed” with the two items that impacted its quarterly results and “distracted from such solid business fundamentals in the third quarter.”

The banking company quoted Crosby in the news release posted to its website on Oct. 24.

“In the third quarter, we recorded a non-cash goodwill impairment charge that drove the net loss in the quarter. It is important for customers and our shareholders to note that this is a non-cash accounting charge and has no impact on our daily operations, our ability to continue to serve customers, or our future profitability, and does not negatively impact key regulatory and tangible equity ratios. Based on current market-driven assumptions, we concluded that the goodwill was impaired and recognized an $800 million charge,” Crosby said in the release.

First Niagara also identified the “process issue” related to certain customer-deposit accounts.

“First Niagara is conducting an internal review to determine the potential impact on our customers. Customers should be confident that their account-balance information accurately reflects the funds on deposit with us. Based on the results of the review, we will develop a comprehensive corrective-action plan, including customer remediation where appropriate. In accordance with applicable accounting guidance, we established a reserve of $45 million in the third quarter for this matter,” said Crosby.

Beyond the issues resulting in the quarterly net loss, Crosby said First Niagara delivered 9 percent average loan growth and remains “on target” with the execution of its strategic-investment plan, he noted.

The banking company also made headlines earlier in the month with an announcement about its branch network.

First Niagara on Oct. 17 announced that it will close 17 branches and two offsite drive-thru locations across its four-state footprint in January, citing customers’ increasing preference for mobile and online-banking services. 

The closures include a branch in Vestal and two other upstate offices in Rochester and Amsterdam, respectively.

First Niagara conducted a branch-by-branch analysis that examines customer-behavior patterns.

The analysis focuses on why people visit  branches, and how many are coming to the branches. First Niagara found that its customers are seeking services electronically or through call centers.

“Every year we look at … have there been changes in the branch-customer behavior? When we find it reasonable to see changes that would support a consolidation, then we go ahead and consolidate it,” says Norwood.

First Niagara said employees who work in the closing branches either will transition to new, customer-facing roles or will have an opportunity to apply for any of the more than 200 open positions in the banking company. 

The company did not say how many people currently work in the closing branches.

First Niagara says it is a multi-state community-oriented bank that currently operates 411 branches, $38 billion in assets, $28 billion in deposits, and about 5,800 employees serving New York, Pennsylvania, Connecticut, and Massachusetts. 

First Niagara is the fourth largest bank in the 16-county Central New York market ranked by deposit market share.                

Contact Reinhardt at ereinhardt@cnybj.com 

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