First Niagara: Another Margin Loser

NEW YORK ( TheStreet) -- First Niagara Financial Group ( FNFG) was the loser among the largest U.S. banks on Friday, with shares rising sliding 4% to close at $8.05.

The broad markets ended with slight gains, as earnings reports from technology companies continued, heading into the earnings announcement from Apple ( AAPL), scheduled for after the market close. Shares of Google ( GOOG) rising 5.5% to close at $741.50 and IBM ( IBM) rising over 4% to close at $204.72, after both companies announced their fourth-quarter results.

Google on Wednesday morning reported fourth-quarter earnings of $10.65 a share, beating the consensus estimate of $10.49 a share, among analysts polled by Thomson Reuters. The company said that its consolidated fourth-quarter revenues were up 36% year-over-year, to $14.42 billion.

IBM after Tuesday's market close reported fourth-quarter operating earnings of $5.39 a share, beating the consensus estimate of $5.25. The company's fourth-quarter revenue of $29.3 billion was down slightly from a year earlier, but came in ahead of the consensus estimate of $29.09 billion.

Jim Cramer said Wednesday that he would be a buyer of IBM right now.

Societe Generale analyst Richard Nguyen on Wednesday upgraded IBM to a "Hold" rating from a "Sell" rating, with a price target of $201, citing the "better than expected guidance for 2013" with the company forecasting operating EPS "to reach $16.7 at least, above current consensus expectations of $16.64 and Nguyen's estimate of $15.88." The analyst added that "IBM has delivered a solid performance overall in 2012 and is on track to reach its 2015 EPS target of $20 per share. While Services and Software have been in line with expectations, we were positively surprised by a better ramp-up with the new mainframe solution."

A Narrowing Margin in 2013


First Niagara Financial Group of Buffalo, N.Y., reported fourth-quarter operating net income of available to common shareholders of $67.8 million, or 19 cents a share, increasing from $66.5 million, or 19 cents a share, in the third quarter, but declining from $72.1 million, or 24 cents a share, during the fourth quarter of 2011.

Fourth-quarter operating EPS beat the consensus estimate by a penny.

The operating results excluded a pre-tax adjustment of $16 million "to accelerate premium amortization on its Collateralized Mortgage Obligations (CMO) portfolio," as well as $3.7 million in restructuring charges.

Excluding the effect of the CMO adjustment, First Niagara said that its net interest margin (NIM) -- the spread between the average yield on loans and deposits and the average cost for deposits and borrowings -- narrowed by eight basis points during the fourth quarter to 3.46%, "driven by the continued downward re-pricing of loans and securities."

Despite the narrowing margin, the company's fourth-quarter net interest income of $268.6 million was down only slightly from $269.6 million in the third quarter, as the company's average loans grew 1.9% sequentially, while commercial loans grew by 2.7%.

First Niagara said in its 2013 guidance that it expected the net interest margin to narrow by another five to eight basis points in the first quarter.

Deutsche Bank analyst Dave Rochester rates First Niagara a "Buy," with a price target of $9.50, and said after the earnings announcement that "while we expect investors to assign a discount to the shares versus peers given a relatively weaker capital position and the potential for future M&A, we continue to expect the valuation differential between FNFG shares and the mid cap banks to shrink over time as earnings visibility and investor sentiment improve with continued execution on the organic growth strategy, but we note this could take time to develop, and is largely predicated on management's ability to consistently deliver."

First Niagara reported a Dec. 31 Tier 1 common equity ratio of 7.45%, declining from 7.59% the previous quarter.

The shares trade for 1.4 times their reported Dec. 31 tangible book value of $5.65, and for 10.6 times the consensus 2013 EPS estimate of 76 cents. The consensus 2014 EPS estimate is 82 cents.

Interested in more on First Niagara Financial Group? See TheStreet Ratings' report card for this stock.

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

>Contact by Email.

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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