First Niagara Financial Group Inc (NASDAQ:FNFG) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.
Damon DelMonte – KBW: My first question deals with a comment you guys made about prepayment income from commercial loans being repaid during the quarter. Could you quantify what that was in the second quarter compared to the first quarter?
Gregory W. Norwood – SEVP and CFO: Sure. So, as you know, with loans paying off, many of them have prepayment penalties. So what we saw in the second quarter was a little over $2 million prepayment income reflected in NII and that’s compared to roughly $500,000 in the first quarter.
Damon DelMonte – KBW: And is there a way that you can kind of gauge that as we look into the back half of this year or is that just kind of see how it goes each quarter?
Gregory W. Norwood – SEVP and CFO: It’s hard to predict that because you’re predicting of all the loans in the customer competition which ones would be prepaid. So we estimated and it moves plus or minus based on those estimates.
Damon DelMonte – KBW: And then just kind of circle back on the commentary on expenses, so a large part of the movement this quarter had to do with variable rate compensation because of the growth on the fee income side of things. So you are basically saying you are going to have lower fee income in the third quarter and thus that will benefit your expense base in the third quarter. Is that correct?
Gregory W. Norwood – SEVP and CFO: Yeah, I think you’ve got it, Damon. I mean, obviously, we are focused on expenses. That’s a key part of how we are running the business. But certainly we are focused on generating positive operating leverage. And while we predict that going forward as we saw in the second quarter, fee income was higher than we had expected, and therefore that resulted in the expenses.
Damon DelMonte – KBW: And then, kind of following up here on expenses, are there any other initiatives that you guys could look to undertake may be more aggressive approach on branch rationalization or some other areas of your expense base where you can maybe trim some items?
Gregory W. Norwood – SEVP and CFO: Well, certainly we continue to focus on the three major areas we’ve talked about in the past, which is salaries, vendor management, and other expenses, and it’d be in the CDI. When we look forward, we kind of look at the decline from here to the end of the year as being kind of evenly contributed by each of those. So, further reduction in personnel costs, further reduction in vendor costs, and then the CDI, as we’ve laid out in the past. Around branches, we continue to look at that, and we continue to look at both the profitability today, the profitability in the near-term and also how we want to position branches relative to particular markets. So while we’re not communicating today any additional planned cuts, know that as we look out to 18 months to 24 months, that is certainly part of an operating perspective, and how we think about rationalizing the footprint.
David Rochester – Deutsche Bank: On the loan portfolio, you mentioned the pipeline remained strong, but if I remember correctly, you generally see a little bit of softer growth due to seasonality in 3Q. Are you seeing any of that this year? Do you think you can offset that seasonality with bigger market share gains?
Gregory W. Norwood – SEVP and CFO: Well, you’re right. When you think about it, August typically is a slower month. I would say we don’t see right now a dip due to seasonality. As you mentioned, our pipelines are strong, and they were strong going into the quarter. So while it’s hard to predict exactly the seasonality, I would say probably less impactful…
David Rochester – Deutsche Bank: Switching to the margin, can you talk about (what went in) the way of premium amortization expense, and the prepay penalty income is baked into your margin guidance?
Gregory W. Norwood – SEVP and CFO: Well, first let me go back to the prepayment. Our guidance has a more normal run rate of prepayment income than we saw in the second quarter. So, let me focus on that. And then as we talk about NIM going forward, it remains still pretty volatile and in part in certain areas of loan originations. So, it’s kind of hard to give much more guidance on that. But I would want to make sure that when we look into the forecast and you guys look into it, we don’t see the kind of prepayment income in the second quarter. We haven’t modeled or assumed that in third and fourth quarter.
David Rochester – Deutsche Bank: Do you think that premium amortization expense continues to decline somewhat if the curve holds here?
Gregory W. Norwood – SEVP and CFO: Yeah, I think it declined about $1 million quarter-over-quarter from a premium amortization and that’s as good a number as any to think going forward.
David Rochester – Deutsche Bank: Perfect. You gave some great detail on the auto business. I was just wondering, it seems like your FICO scores are decently higher than what you’re generally targeting for that business, and that’s, I guess, has been the case this whole time. Is there a thought to dropping those a bit to take up some more yield given you’re seeing some pressure on pricing there?
Gregory W. Norwood – SEVP and CFO: Well, I think you captured it right. When we did the business model back in 2011, we did assume a lower FICO and a higher yield. And as we started into the business, it consistently has created a slightly different opportunity where we thought there was a better risk reward trade-off as we grew the portfolio by keeping the higher FICO and being reasonably competitive on the price. So, while we‘ve thought about it; one, as you go down the FICO spectrum, it’s a smaller overall industry population. And frankly, when we look at the book, we like the lower loss contents that the higher FICO gives us as we grow and mature the book.