BUFFALO, N.Y. ( TheStreet) -- First Niagara Financial Group ( RF) Thursday raised its quarterly dividend to 16 cents a share and reported fourth-quarter net income of $49.7 million, or 24 cents a share.

Analysts surveyed by Thomson Reuters expected earnings of 23 cents a share.

First Niagara shares were up 1% to $14.24 in early trading.

In comparison, net income in the third quarter was $45.6 million, or 22 cents a share, and $28.9 million, or 16 cents a share, in the fourth quarter of 2009.

The year-over-year earnings growth resulted from a 48% increase in net interest income to $167.5 million, mainly from the acquisition of Harleysville National of Harleysville, Pa., in April 2010. First Niagara also expects to complete its acquisition of New Alliance Bancshares ( NAL) of New Haven, Conn. in April, subject to regulatory approval.

Based on Wednesday's closing price of $14.02, the shares now have a dividend yield of 4.56%.

CEO John Koelmel said 2010 was "year of remarkable accomplishment and transformation for First Niagara," with the company growing "both in our Upstate New York markets where we continue to increase market share and in our newer Pennsylvania markets where we are exceeding our original expectations for new business generation."

The company reported strong growth in its commercial loan portfolio which increased "at an annualized rate of 18% in the fourth quarter to $6.7 billion on average."

The annualized net interest margin -- essentially a bank's average yield on loans and investments less its average cost of funds -- was a tax-adjusted 3.65%, unchanged from a year earlier. The fourth-quarter return on average assets was 0.87%, improving slightly from 0.82% a year earlier.

Total assets were $21.1 billion as of Dec. 31, and credit quality remained strong, as nonperforming assets, including nonaccrual loans and repossessed real estate, made up 0.46% of total assets, compared to 0.52% a year earlier. The annualized ratio of net charge-offs to average loans for the fourth quarter was a low 0.49% and loan loss reserves covered 0.91% of total loans as of Dec. 31.

With the company's growth and generous dividend payout, capital ratios declined. The tangible common equity ratio was 8.27% as of the end of December, down from 10.54% a year earlier, although it was still at a good level for a profitable bank, and regulatory capital ratios were well-above the regulatory thresholds for a well-capitalized institution. First Niagara's Tier 1 leverage ratio was 8.14% and its total risk-based capital ratio was 14.35% as of Dec. 31.

As of Wednesday's close, six of the 10 analysts covering First Niagara rated the shares a buy, while the remaining analysts all recommended investors hold the shares.

-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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