First Niagara Financial Group ( FNFG)

Q3 2011 Earnings Conference Call

October 20, 2011 11:00 AM ET


John Koelmel – President and CEO

Gregory Norwood – CFO


Jason O’Donnell – Boenning and Scattergood

Theodore Kovaleff – Horowitz & Associates

Damon Delmonte – KBW

Collyn Gilbert - Stifel Nicolaus

Bob Ramsey – FBR

Matthew Kelly – Sterne Agee

Marc Heilweil – Spectrum Advisory Services

Tom Alonso – Macquarie



Greetings and welcome to the First Niagara Financial Group third quarter earnings call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder this conference is being recorded.

This presentation contains forward-looking information for First Niagara Financial Group Incorporated such information constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 which involves significant risks and uncertainties. Actual results may differ materially from those results discussed in these forward-looking statements.

It is now my pleasure to introduce your host, Mr. John Koelmel, President and CEO for First Niagara Financial Group. Thank you, Mr. Koelmel, you may begin.

John Koelmel

Thank you very much, Jackie and good morning, everyone. With me as always is Greg Norwood, our CFO and before Greg walk you through the quarter and look ahead to the end of the year, let me do my best to set that up by sharing some of my thinking on what we’ve done to-date this quarter included the macro realities, economic regulatory political, what all means to us, where we are with the HSBC transaction and how all of that shapes our thinking about 2012 and beyond.

So I’ll start with the quarter. Teams again may be very proud in delivering another solid performance, consistent with what we've been doing quarter-after-quarter for some time now. And for those of you that may look at the outcome as a mess, I strongly encourage you to look carefully before you leap to that conclusion.

Fundamentals, production volumes, risk management, operating metrics are all very strong and as to whether you look at our legacy footprint or across our newer markets. New England is the latest example of our proven ability to assimilate and grow in a new geography and our team is doing a bang up job in planting the First Niagara Flag up there.

So whether it be deposit growth loan production, customer acquisition, community profile or most importantly strengthening the talent on the bench, we are already more than delivering on our promise in the first six months, by that I mean we saw a plenty of accretion in this quarter from the transaction which further evidences the instant traction our team has created beginning to take an increased share of wallet market there, while continuing to do the same in all of our geographies.

Our loan and deposit growth stories are terrific. In total, I am very pleased with how we are managing the business. That we need to be better always that our track record and high quality performances stands out even more given today’s harsh environment.

Unfortunately, in spite of those very strong trends and results, the macro meltdown made it impossible to overcome the dramatic rate change over the last 60 days of the quarter. You just can’t generate enough additional volume in the short run to mitigate the magnitude of that kind of rate movement.

And we don’t and won’t otherwise manufacture a penny or two for just to meet street estimates by managing loan loss provisions. In fact, we again added to the level of our allowance this quarter is that direct way to run the railroad in this environment. Obviously, August and September was an unprecedented time period for our industry. In fact that’s just three years later; we’re comparing our current reality to the doom and bloom of 2008 as amazing and to me very disappointing.

And today in my view, the entire industry is on a much more slippery slope than it was three years ago, maybe better positioned in total to weather the storm, but navigating this one will be much trickier and more challenging for all of us. Sectors definitely in for a real bumpy ride for a while, and that’s hard for me acknowledge, we are always in the glasses more than half full camp, but the reality of the continuing political regulatory and economic dysfunction is impossible to ignore and that gets me to the Fed.

The August 9 announcement to put a stake in the ground to keep rates low through at least mid ‘13 coupled with operation Twist clearly has had dramatic impacts on the industry. Overnight literally the landscape changed. Most importantly through investors in our sector into a tailspin and we have been running through or hiding in the hills ever since and obviously look at all of us in a dramatically different way compared to what’s literal as 90 days ago.

Earnings projections, PE multiples and overall valuations are incredibly reduced.

Demand for the industry’s currencies at a real low. And, yes, we continue to have our flat roll seat to that show as we engage our investors on the market large around the HSBC transaction. Aggregate pressures on the sector have materially compromised the industry’s earnings power for the foreseeable future.

It’s clear it will take a couple of years, not quarters to construct an effective response. And while I believe some of us are much better positioned than others to do so, this will tough sliding for all for a while. So, what does that mean for us? Since the beginning of the financial crisis, we've been very adept at putting off under some tough conditions. You are sure that we will maintain our long-term offensive focus. We will continue to drive earnings growth. Given our firm belief is that how we and shareholders will ultimately win and be rewarded.

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