First Niagara Financial (FNFG) 8-K First Niagara Financial Group Reports 2007 Third Quarter Results

FIRST NIAGARA FINANCIAL GROUP REPORTS 2007 THIRD QUARTER RESULTS

Lockport, N.Y. – October 26, 2007 –

• Efficiency programs taking hold

• Double-digit annualized commercial loan growth continues

• Non-interest income remains at near record levels

• Interest margin pressure persists

First Niagara Financial Group, Inc. (NASDAQ: FNFG), today announced 2007 third quarter net income of $21.1 million, or $0.21 per diluted share. This compares to 2007 second quarter net income of $16.6 million, or $0.16 per diluted share and $23.6 million, or $0.22 per diluted share for the 2006 third quarter. Net income from operations for the third quarter, as referenced in the table below, was $21.1 million, or $0.21 per diluted share. This compares to 2007 second quarter net income from operations of $21.6 million, or $0.21 per diluted share and $22.8 million, or $0.21 per diluted share for the 2006 third quarter.

Reported Results (including real estate writedowns, severance and related costs)

	Q3 2007	Q2 2007	Q3 2006
Operating revenue	$85.4 million	$87.4 million	$90.2 million
Provision for credit losses	$2.1 million	$2.3 million	$1.3 million
Noninterest expense	$51.9 million	$60.3 million	$53.1 million
Net income	$21.1 million	$16.6 million	$23.6 million
Net income per diluted share	$ 0.21	$ 0.16	$ 0.22

Non-GAAP/ Operating Results (excluding real estate writedowns, severance and related costs)

	Q3 2007	Q2 2007	Q3 2006
Operating revenue	$85.4 million	$87.4 million	$87.2 million
Provision for credit losses	$2.1 million	$2.3 million	$1.3 million
Noninterest expense	$51.9 million	$52.8 million	$51.2 million
Net income	$21.1 million	$21.6 million	$22.8 million
Net income per diluted share	$ 0.21	$ 0.21	$ 0.21

The table above summarizes the Company’s operating results excluding certain performance improvement initiative charges and non-recurring income. (Q2 2007: real estate property writedowns of $4.8 million and severance and related costs of $2.7 million. Q3 2006: gain on sale of manufactured housing loans of $3.0 million and severance and related costs of $1.9 million) The Company believes these non-GAAP financial measures provide a meaningful comparison of the underlying operational performance of the Company, and facilitate investors’ assessments of business and performance trends in comparison to others in the financial services industry. In addition, the Company believes the exclusion of these items enables management to perform a more effective evaluation and comparison of the Company’s results and assess performance in relation to the Company’s ongoing operations.

John R. Koelmel, President and CEO, said “We continue to drive franchise value for our shareholders by adding new relationships, improving efficiency through disciplined expense control, generating selective loan growth, and adhering to our traditional credit standards. The recently announced acquisition of Great Lakes Bancorp in conjunction with our overall branch configuration, including the expected completion of branch sales to Legacy Banks and Elmira Savings Bank in the fourth quarter, puts us where we want to be and builds market share in areas of our greatest strength. We continue to produce solid short term results in a tough environment by reallocating resources to our best opportunities in order to achieve superior long term performance.”

Michael W. Harrington, Chief Financial Officer, added “Our third quarter results demonstrate strong year over year growth in our commercial business loan portfolios, non-interest bearing deposits and risk and wealth management revenues. The pending acquisition of Great Lakes will also help us in 2008 as it is expected to be immediately accretive to earnings and offers an outstanding springboard for further deposit growth in Western New York. However, we continue to feel the effects of highly competitive deposit pricing in our markets and are hopeful that the recent Federal Reserve interest rate cut will bring longer term relief.”

Loans

Strong loan growth continued in priority portfolios. Average balances of commercial loans increased 10%, annualized, from the linked quarter with commercial real estate posting its best increase in four quarters. Compared to a year ago, commercial business loans grew by 21%, reflecting the Company’s allocation of resources to this important business line. Additionally, sales productivity gains in commercial leasing helped drive average specialized lending balances higher by 18% over last year. Home equity average balances continued their upward trend posting annualized growth of 15% versus the previous quarter. Portfolios being deemphasized continued to decline as average residential mortgage loan balances decreased by $38 million or 2% due to normal runoff combined with limited originations of new portfolio loans.

Deposits

Average deposit balances were relatively flat from the linked quarter as non-interest bearing deposit growth of $41 million was offset by third quarter seasonal declines in municipal deposit balances of $42 million. Average balances of non-interest business checking grew by 11% for the quarter due to successful cross-sell efforts and strong commercial cash sweep activity. Municipal money market balances were impacted by the spending of annually funded school district accounts and the migration of savings balances to higher rate accounts continued at an elevated rate during the quarter. Average deposits increased by $84 million from a year ago due to the addition of new business checking account relationships and school district customers, which underscores the success of the Company’s commercial deposit gathering strategy.

Credit Quality

The overall loan portfolio continues to be free of any systemic weakness and First Niagara has no exposure to subprime or Alt-A loans. Non-performing loans increased by $5.0 million from the second quarter and represent 0.51% of total loans. This increase was attributable to a select few commercial real estate loans, several of which have since returned to performing status. Net charge-offs for the quarter declined slightly to $2.2 million or 0.15% of average loans. At September 30, 2007 the allowance for credit losses was 1.25% of total loans, more than eight times the current quarter’s loss rate and further evidence of the Bank’s solid credit risk profile.

Net Interest Income

Net interest income was $1.4 million or 2% lower than last quarter as the change in deposit mix to higher rate accounts and sustained pressure from competitive deposit pricing drove interest bearing deposit costs higher by 3 basis points. Another negative factor was the seasonal decline in municipal deposits which contributed to the need to increase higher cost borrowed funds by $124 million. These market forces combined to reduce the tax equivalent net interest margin to 3.30% from 3.40% in the prior quarter. The margin was also impacted by the funding of ongoing stock repurchases.

Non Interest Income

Operating (Non-GAAP) non interest income grew by $3.1 million or 12% from a year ago to 35% of total revenue. This increase was lead by a mix of acquisition and relationship growth in risk management services, greater productivity of financial consultants and higher fees from electronic banking services. Non interest income for the current quarter was 2% below last quarter’s record level due to seasonal reductions in wealth management and banking services fees as well as the continuing industry-wide softening in insurance renewal rates.

Non Interest Expense

Operating (Non-GAAP) non interest expenses for the current quarter declined by 2% compared to the previous quarter as staff reductions and other cost saving performance improvement initiatives have begun to favorably impact expense run rates. Almost all major expense categories were below the previous quarter’s levels.

Capital

The Company repurchased 1.1 million shares of its common stock for the three months ended September 30. The tangible common equity ratio of 7.9% at September 30 remains well above the Company’s targeted level. Additionally, the Board of Directors recently declared a fourth quarter dividend of fourteen cents ($0.14) per share on outstanding FNFG common stock.

Profile - First Niagara Financial Group, Inc., through its wholly owned subsidiary First Niagara Bank, has assets of $8.1 billion and deposits of $5.7 billion. First Niagara Bank is a full-service, community-focused bank that provides financial services to individuals, families and businesses through 120 branches and four Regional Market Centers across Upstate New York.

Conference Call – A conference call will be held at 10 a.m. Eastern Time on Friday, October 26, 2007 to discuss the Company’s financial results as well as the Company’s strategy and future outlook. Those wishing to participate in the call may dial toll-free 1-877-709-8150. A replay of the call will be available until November 9, 2007 by dialing 1-877-660-6853, replay number 240, conference ID 256985.

Forward-Looking Statements - This press release contains forward-looking statements with respect to the financial condition and results of operations of First Niagara Financial Group, Inc. including, without limitations, statements relating to the earnings outlook of the Company. These forward-looking statements involve certain risks and uncertainties. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others, the following possibilities: (1) changes in the interest rate environment; (2) competitive pressure among financial services companies; (3) general economic conditions including an increase in non-performing loans that could result from an economic downturn; (4) changes in legislation or regulatory requirements; (5) difficulties in continuing to improve operating efficiencies; (6) difficulties in the integration of acquired businesses; and (7) increased risk associated with an increase in commercial real-estate and business loans and non-performing loans.

Officer Contacts

John R. Koelmel	President and Chief Executive Officer
Michael W. Harrington	Chief Financial Officer and Treasurer
Anthony M. Alessi	Investor Relations Manager
	(716) 625-7692
	tony.alessi@fnfg.com
Leslie G. Garrity	Public Relations and Corporate Communications Manager
	(716) 625-7528
	leslie.garrity@fnfg.com

First Niagara Financial Group, Inc.
Summary of Quarterly Financial Data
	2007									2006
	September 30,			June 30,			March 31,			December 31,			September 30,
SELECTED FINANCIAL DATA
(Amounts in thousands)
Securities available for sale	$	1,262,193			1,070,842			1,095,012			1,060,422			1,204,048
Loans and leases:
Commercial:
Real estate	$	2,150,885			2,098,245			2,065,472			2,034,709			2,037,311
Business	$	667,512			651,758			611,064			561,323			546,976
Total commercial loans	$	2,818,397			2,750,003			2,676,536			2,596,032			2,584,287
Residential real estate	$	1,998,411			2,190,984			2,224,704			2,252,473			2,254,294
Home equity	$	507,834			498,200			472,714			470,714			463,773
Other consumer	$	135,697			134,282			151,885			163,824			178,131
Specialized lending	$	188,684			186,856			163,319			155,032			156,281
Net deferred costs and discounts	$	29,531			29,962			27,747			27,350			26,217
Total loans and leases	$	5,678,554			5,790,287			5,716,905			5,665,425			5,662,983
Allowance for credit losses	$	70,970			71,102			71,051			71,913			72,697
Loans and leases, net	$	5,607,584			5,719,185			5,645,854			5,593,512			5,590,286
Goodwill and other intangibles	$	753,336			750,732			753,296			748,103			752,256
Total assets	$	8,114,960			8,020,806			7,982,589			7,945,526			8,011,500
Total interest-earning assets	$	7,007,391			6,938,584			6,903,315			6,837,367			6,934,014
Deposits:
Savings	$	844,576			906,852			936,496			962,482			1,002,389
Interest-bearing checking	$	499,058			502,925			511,169			521,751			519,194
Money market deposits	$	1,437,272			1,372,358			1,394,016			1,294,834			1,229,209
Noninterest-bearing	$	658,012			656,195			623,504			647,108			628,321
Certificates	$	2,266,535			2,317,116			2,333,891			2,283,561			2,202,361
Total deposits	$	5,705,453			5,755,446			5,799,076			5,709,736			5,581,474
Borrowings	$	947,055			797,574			716,463			747,554			919,398
Total interest-bearing liabilities	$	5,994,496			5,896,825			5,892,035			5,810,182			5,872,551
Net interest-earning assets	$	1,012,895			1,041,759			1,011,280			1,027,185			1,061,463
Stockholders' equity	$	1,332,313			1,329,063			1,353,792			1,387,197			1,383,878
Tangible equity (1)	$	578,977			578,331			600,496			639,094			631,622
Securities available for sale fair value
adjustment included in stockholders' equity	$	(10,039	)		(15,433	)		(11,161	)		(14,150	)		(15,671	)
Common shares outstanding (2)		101,357			102,139			103,991			106,753			106,701
Treasury shares		14,674			13,835			11,925			9,326			9,250
Total loans serviced for others	$	554,934			392,597			398,166			393,831			385,107
CAPITAL
Tier 1 risk based capital		10.40	%		10.36	%		10.69	%		10.91	%		12.63	%
Total risk based capital		11.65	%		11.61	%		11.94	%		12.16	%		13.86	%
Tier 1 (core) capital		7.68	%		7.73	%		7.75	%		7.73	%		8.99	%
Tangible capital		7.68	%		7.73	%		7.75	%		7.73	%		8.99	%
Equity to assets		16.42	%		16.57	%		16.96	%		17.46	%		17.27	%
Tangible equity to tangible assets(1)		7.86	%		7.95	%		8.31	%		8.88	%		8.70	%
Book value per share (2)	$	13.14			13.01			13.02			12.99			12.97
Tangible book value per share (1)(2)	$	5.71			5.66			5.77			5.99			5.92
ASSET QUALITY DATA
(Amounts in thousands)
Non-performing loans:
Commercial real estate	$	18,169			9,869			6,937			4,513			7,196
Commercial business	$	2,718			5,546			5,653			2,599			2,960
Residential real estate	$	3,836			4,425			3,713			4,490			3,450
Home equity	$	545			836			1,088			819			667
Other consumer	$	1,307			1,232			1,816			1,356			633
Specialized lending	$	2,596			2,283			1,880			1,751			2,225
Total non-performing loans	$	29,171			24,191			21,087			15,528			17,131
Real estate owned	$	244			169			553			632			659
Total non-performing assets	$	29,415			24,360			21,640			16,160			17,790
Net loan charge-offs	$	2,150			2,249			2,462			2,085			1,264
Net charge-offs to average loans (annualized)		0.15	%		0.16	%		0.18	%		0.15	%		0.09	%
Provision for credit losses	$	2,100			2,300			1,600			1,300			1,300
Provision for credit losses as a
percentage of average loans (annualized)		0.14	%		0.16	%		0.11	%		0.09	%		0.09	%
Total non-performing loans to total loans		0.51	%		0.42	%		0.37	%		0.27	%		0.30	%
Total non-performing assets as a
percentage of total assets		0.36	%		0.30	%		0.27	%		0.20	%		0.22	%
Allowance for credit losses to total loans		1.25	%		1.23	%		1.24	%		1.27	%		1.28	%
Allowance for credit losses
to non-performing loans		243.3	%		293.9	%		336.9	%		463.1	%		424.4	%
Personnel FTE		1,840			1,884			1,915			1,922			1,891
Number of branches		120			121			119			119			119

First Niagara Financial Group, Inc.
Summary of Quarterly Financial Data (Cont'd)
	2007												2006
	Year-to-Date			Third Quarter			Second Quarter			First Quarter			Year Ended			Fourth Quarter			Third Quarter
	September 30												December 31,
SELECTED OPERATIONS DATA
(Amounts in thousands)
Interest income	$	315,652			106,911			105,543			103,198			415,830			106,163			105,026
Interest expense	$	146,681			51,206			48,477			46,998			169,349			46,697			44,400
Net interest income	$	168,971			55,705			57,066			56,200			246,481			59,466			60,626
Provision for credit losses	$	6,000			2,100			2,300			1,600			6,456			1,300			1,300
Net interest income after provision for credit losses	$	162,971			53,605			54,766			54,600			240,025			58,166			59,326
Noninterest income:
Banking services	$	29,177			10,071			10,111			8,995			38,661			9,766			9,861
Risk management services	$	36,429			12,144			12,581			11,704			44,133			10,753			10,855
Employee benefits administration	$	3,278			1,074			1,010			1,194			4,002			1,172			1,012
Wealth management services	$	7,623			2,539			2,763			2,321			8,334			1,938			1,990
Lending and leasing	$	6,276			2,191			2,181			1,904			7,238			1,914			1,608
Bank-owned life insurance	$	3,760			1,144			1,561			1,055			3,162			885			774
Other	$	1,443			567			137			739			5,688			1,475			3,502
Total noninterest income	$	87,986			29,730			30,344			27,912			111,218			27,903			29,602
Noninterest expense:
Salaries and benefits	$	95,428			30,159			32,377			32,892			123,795			32,346			31,436
Occupancy and equipment	$	23,010			5,544			11,484			5,982			22,147			5,695			5,538
Technology and communications	$	14,514			4,770			4,905			4,839			20,303			5,083			5,117
Marketing and advertising	$	5,730			2,121			1,921			1,688			7,154			1,800			1,775
Professional services	$	3,210			1,243			1,158			809			3,921			1,060			929
Amortization of intangibles	$	7,900			2,570			2,639			2,691			11,802			2,838			2,890
Other	$	17,087			5,541			5,806			5,740			22,729			5,953			5,410
Total noninterest expense	$	166,879			51,948			60,290			54,641			211,851			54,775			53,095
Income before income taxes	$	84,078			31,387			24,820			27,871			139,392			31,294			35,833
Income taxes	$	27,830			10,284			8,209			9,337			47,533			10,398			12,275
Net income	$	56,248			21,103			16,611			18,534			91,859			20,896			23,558
STOCK AND RELATED PER SHARE DATA
Net income per share:
Basic	$	0.55			0.21			0.16			0.18			0.86			0.20			0.22
Diluted	$	0.54			0.21			0.16			0.17			0.85			0.19			0.22
Cash dividends	$	0.40			0.14			0.13			0.13			0.46			0.12			0.12
Dividend payout ratio		72.73	%		66.67	%		81.25	%		72.22	%		53.49	%		60.00	%		54.55	%
Dividend yield (annualized)		3.78	%		3.93	%		3.98	%		3.79	%		3.10	%		3.20	%		3.26	%
Market price (NASDAQ: FNFG):
High	$	15.07			14.60			14.28			15.07			15.43			15.43			15.20
Low	$	11.49			11.49			12.88			13.53			13.38			13.89			13.54
Close	$	14.15			14.15			13.10			13.91			14.86			14.86			14.62
SELECTED RATIOS
Net income (annualized):
Return on average assets		0.95	%		1.04	%		0.84	%		0.95	%		1.14	%		1.04	%		1.16	%
Return on average equity		5.56	%		6.31	%		4.93	%		5.47	%		6.67	%		5.96	%		6.79	%
Return on average tangible equity (1)		12.56	%		14.56	%		11.09	%		12.10	%		14.75	%		12.93	%		15.02	%
Noninterest income as a percentage of net revenue		34.24	%		34.80	%		34.71	%		33.18	%		31.09	%		31.94	%		32.81	%
Efficiency ratio - Consolidated		64.9	%		60.8	%		69.0	%		65.0	%		59.2	%		62.7	%		58.8	%
- Banking segment (3)		61.4	%		57.0	%		68.6	%		61.7	%		54.5	%		59.5	%		54.1	%
Net loan charge-offs	$	6,861			2,150			2,249			2,462			6,884			2,085			1,264
Net charge-offs to average loans (annualized)		0.16	%		0.15	%		0.16	%		0.18	%		0.12	%		0.15	%		0.09	%
Provision for credit losses as a
percentage of average loans (annualized)		0.14	%		0.14	%		0.16	%		0.11	%		0.12	%		0.09	%		0.09	%

 

First Niagara Financial Group, Inc.
Summary of Quarterly Financial Data (Cont'd)
	2007												2006
	Year-to-Date			Third Quarter			Second Quarter			First Quarter			Year Ended			Fourth Quarter			Third Quarter
	September 30												December 31,
SELECTED AVERAGE BALANCES
(Amounts in thousands)
Securities, at amortized cost	$	1,096,087			1,112,741			1,089,189			1,086,037			1,377,191			1,159,180			1,299,108
Loans (4)
Commercial:
Real estate	$	2,072,933			2,112,119			2,068,315			2,037,544			1,965,832			2,037,440			2,016,806
Business	$	621,763			652,751			631,884			579,853			521,354			546,023			539,824
Total commercial loans	$	2,694,696			2,764,870			2,700,199			2,617,397			2,487,186			2,583,463			2,556,630
Residential	$	2,216,710			2,179,767			2,217,959			2,253,212			2,243,116			2,265,240			2,261,904
Home equity	$	492,439			509,747			490,616			476,591			445,356			474,011			460,241
Other consumer	$	148,862			136,990			144,449			165,462			182,518			174,468			182,348
Specialized lending	$	178,570			194,143			180,100			161,104			165,935			161,105			163,961
Total loans	$	5,731,277			5,785,517			5,733,323			5,673,766			5,524,111			5,658,287			5,625,084
Total interest-earning assets	$	6,879,330			6,952,003			6,872,508			6,811,941			6,973,137			6,901,629			6,984,200
Goodwill and other intangibles	$	752,633			752,422			752,007			753,483			754,919			750,516			753,496
Total assets	$	7,957,099			8,044,675			7,940,621			7,884,237			8,028,761			7,963,834			8,033,309
Interest-bearing liabilities:
Savings accounts	$	915,116			881,145			921,747			943,137			1,057,992			978,337			1,039,632
Checking	$	490,696			482,838			492,312			497,094			507,215			504,779			508,079
Money market deposits	$	1,356,608			1,393,680			1,369,121			1,306,061			1,200,914			1,297,828			1,217,859
Certificates of deposit	$	2,296,188			2,286,634			2,311,348			2,290,626			2,202,282			2,255,120			2,236,959
Borrowed funds	$	808,332			889,375			764,987			769,314			980,429			823,799			928,766
Total interest-bearing liabilities	$	5,866,940			5,933,672			5,859,515			5,806,232			5,948,832			5,859,863			5,931,295
Noninterest-bearing deposits	$	621,389			657,366			616,537			589,517			591,306			601,994			614,880
Total deposits	$	5,679,997			5,701,663			5,711,065			5,626,435			5,559,709			5,638,058			5,617,409
Total liabilities	$	6,605,599			6,717,283			6,587,797			6,509,433			6,651,267			6,572,369			6,657,635
Net interest-earning assets	$	1,012,390			1,018,331			1,012,993			1,005,709			1,024,305			1,041,766			1,052,905
Stockholders' equity	$	1,351,500			1,327,392			1,352,824			1,374,804			1,377,494			1,391,465			1,375,674
Tangible equity (1)	$	598,867			574,970			600,817			621,321			622,575			640,949			622,178
Common shares outstanding (2):
Basic		103,366			101,472			103,373			105,294			107,068			106,661			106,599
Diluted		104,033			102,059			104,031			106,004			108,027			107,576			107,548
SELECTED AVERAGE YIELDS/RATES
(Tax equivalent basis)
Securities, at amortized cost		4.40	%		4.54	%		4.40	%		4.26	%		4.10	%		4.20	%		4.16	%
Loans
Commercial:
Real estate		6.83	%		6.80	%		6.84	%		6.85	%		6.93	%		7.04	%		6.87	%
Business		7.71	%		7.73	%		7.70	%		7.69	%		7.58	%		7.99	%		7.67	%
Total commercial loans		7.03	%		7.02	%		7.04	%		7.04	%		7.06	%		7.24	%		7.04	%
Residential		5.60	%		5.61	%		5.57	%		5.62	%		5.57	%		5.59	%		5.56	%
Home equity		6.99	%		6.96	%		7.00	%		7.00	%		6.88	%		7.01	%		6.97	%
Other consumer		7.62	%		7.91	%		7.55	%		7.42	%		7.50	%		7.65	%		7.58	%
Specialized lending		8.77	%		8.22	%		9.67	%		8.45	%		9.59	%		8.82	%		8.70	%
Total loans		6.54	%		6.54	%		6.57	%		6.52	%		6.53	%		6.62	%		6.50	%
Total interest-earning assets		6.20	%		6.22	%		6.22	%		6.16	%		6.04	%		6.21	%		6.06	%
Savings accounts		0.47	%		0.35	%		0.43	%		0.62	%		0.64	%		0.64	%		0.64	%
Interest-bearing checking		0.43	%		0.37	%		0.37	%		0.53	%		0.49	%		0.56	%		0.49	%
Money market deposits		3.66	%		3.76	%		3.65	%		3.56	%		3.08	%		3.42	%		3.19	%
Certificates of deposit		4.49	%		4.51	%		4.53	%		4.44	%		3.90	%		4.29	%		4.06	%
Borrowed funds		4.54	%		4.78	%		4.44	%		4.38	%		3.76	%		4.21	%		3.99	%
Total interest-bearing liabilities		3.34	%		3.42	%		3.32	%		3.28	%		2.84	%		3.16	%		2.97	%
Tax equivalent net interest rate spread		2.86	%		2.80	%		2.90	%		2.88	%		3.20	%		3.05	%		3.09	%
Tax equivalent net interest rate margin		3.35	%		3.30	%		3.40	%		3.37	%		3.61	%		3.52	%		3.54	%

(1)	Excludes goodwill and other intangible assets.
(2)	Excludes unallocated ESOP shares and unvested restricted stock shares.
(3)	Includes operating results for the banking activities segment as defined in the Company's quarterly and annual reports.
(4)	Includes nonaccrual loans.