First Niagara Financial Group Earnings Call Nuggets: NIM Guidance, Fee Income

On Friday, First Niagara Financial Group Inc (NASDAQ:FNFG) reported its third quarter earnings and discussed the following topics in its earnings conference call. Take a look.

NIM Guidance

Unidentified Analyst: A couple of questions around the NIM guidance, down 5 to 10 bps in the next quarter. It seems a little wide. I was just wondering, why so wide and expectations around the securities book size as well as yield compression going forward? Then on the commercial side of things, loan yields down 26 bps. You mentioned that’s in line with your expectations. Do you expect that to continue going forward into 2013?

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Gregory W. Norwood – CFO: Yeah. Let me see if I can pick off each one of those, if I missed one let me know. So, for the guidance going forward, when we think about the range 5 to 10 basis points in predicting in this market, I feel that’s a good range to think about. Also, if you think of that range relative to the guidance we gave last quarter that would mean for the back half of the year, we would be roughly in the 3.50 to 3.52 versus I think consensus last quarter was at 3.54. So, I feel pretty good about having our arms around the NIM number. From a securities perspective, I would say for the fourth quarter that would remain relatively flat. I would echo John’s comments that we are clearly moving in a direction of rotating the balance sheet. I mean, you shouldn’t expect any kind of student body left or student body right, but no over the future we’ll rotate that down into the loan book versus the investment book. From a securities perspective, I think the biggest number to think about is from a mortgage back, we see that repricing, roughly 100 basis points lower than what’s on the books. That reflects maybe a 15 to 20 basis point move relative to the post QE3 and again those are market numbers that we see when we talk to other folks as well. In the loan book the commercial move this quarter, I wouldn’t expect the same type of move next quarter. I mean, certainly that is one of the big elements of a post QE3 perspective, but I wouldn’t expect to see the same drop in NIM on the commercial side.

Unidentified Analyst: Then John, just on the expense side of things, I appreciate your comments about the efficiency ratio. It does sound like you are not happy with the fixed handle on the efficiency ratio, but it does kind of sound like you are not really looking forward to doing anymore cost takeout or any sort of plan rather just work that down organically. Is that the right message?

John R. Koelmel – CEO: I’d directionally agree with the recap on one end. I am not looking to just let nature run its course here. Be assured we are aggressively managing it, trying to be clear that don’t expect us to effect some scorched earth, slash and burn policy, we feel comfortable with how we’ve built the business up. Having said that different times, different circumstances we’re sharpening our pencil all the more in terms of how we running the business. But clearly the M&A benefit that we’re looking to ensure we deliver is on how we grow the business, take share overall, take share of markets, do that by leveraging the infrastructure and the platform we have in place rather than further impair that and compromise our ability to execute what was always and long been designed and intended, which is to win each of the markets in which we’ve expanded.

Gregory W. Norwood – CFO: Maybe I can add, follow-up a little bit of some of the things we talked about in the earlier remarks. I mean, certainly I think from our perspective I would echo John, it’s nothing about (fixed) that excites us. I think if you look at how we’ve operated the Company for the last five or six years, we know the territory of the mid-50s, we can run at that efficiency level and we will get back there over time. So it’s not a promise to reach a territory we’ve never been in. But I’d also tell you is, when we look at the final HSBC and the types of people and where we need them to run going forward, as John alluded is, we took decisive actions and we’ll look at that from a reinvestment perspectives. So, the savings we have there in salaries, as we plan into the future we will look at how to either deploy that in operating efficiency or effectiveness which will improve operating leverage. So what do I mean by that is the savings there as I mentioned would be part of how we look at investing in treasury management services, how do we look at investing to enhance our digital and card. So, with us, as we did last year in adjusting the branch complement in Eastern PA, we will continue to look at the operating model we have, how to make it the most efficient and effective and look at the investments we will make relative to that.

Fee Income

Robert Ramsey – FBR Capital Markets: I want to talk a little bit about fee income. I know you all sort of gave where you think the number comes out in total, but as we think about the moving pieces, I know you mentioned the seasonality in the insurance line. Is the merchant and card fees line since I think that’s newly broken out, how do we think about the seasonality there and then how are you guys thinking about mortgage banking as well heading into the fourth quarter, what does the pipeline look like today versus a quarter ago and is that income going to be flat, up, down, how are you thinking about it?

Gregory W. Norwood – CFO: Sure Bob. Insurance as you know is seasonally high third quarter, so I would as I said expect that to move down a little bit. The merchant and card I think the third quarter number is as a good baseline one of the factors is, I would expect that to continue to improve as we introduce more of the card capabilities that we garnered through HSBC into our existing customer base into the legacy First Niagara customers. I think the key driver there is mortgage banking as you said and we believe the fourth quarter will be another strong quarter and we will continue to add volume and capacity in the fourth quarter and first quarter. So, we see the first quarter being much the same around mortgage, the trade-off between volume and margin is one that we will continue to manage and another one I would tell you that I think will continue to perform well is our capital markets derivative business. Again the team there continues to operate very well. So I would expect that to be where it’s at or maybe a little bit better, but again I think the fee story will continue to improve on a quarter-over-quarter basis.

John R. Koelmel – CEO: I can only underscore that we are very, very focused on outperforming, better performing in the fee arena. So whether the seasonality trends are relevant so that would be more true if we were fully penetrated, were underpenetrated. If the opportunities weren’t already there for better execution with the book we have, the insurance agency, Kirk Jensen’s settled into his role and clearly expect him and his team continue to grow that block of business as well. So you can run right down the line that we are building. So don’t over analyze the moment, clearly we continue to embed in your thought and thinking that this was about further penetration, better execution, better performance, not trying to predict off a static baseline.

Robert Ramsey – FBR Capital Markets: I guess, maybe two would be helpful. Given all that growth, the bottom line going to from $97 million to $92 million on an operating basis seems like more of a drop than just the insurance line would contribute and so I was just kind of curious what else might be driving that directional move in the fourth quarter and where seasonality may or may not be a piece of that? I mean is there something other than the insurance line that’s contributing to that drop or is that all really insurance?

Gregory W. Norwood – CFO: Well one I wouldn’t look at when we say consistent with expectations, in isolation of the $92 million the Street have. I think you’re focused on it, Bob, the right way is I’d look at $92 million versus $97 million and make your judgments within that range.

John R. Koelmel – CEO: We’re not trying to imply too much of a level of pin a consensus number, Bob.