First Niagara Financial Group, Inc. (FNFG) isn’t just another bank stock. It has bucked the trends plaguing the industry over the last few years through excellent credit quality and consistent loan growth.
The company recently delivered better than expected second quarter results, prompting analysts to raise their estimates for both 2011 and 2012. It is a Zacks #2 Rank (Buy).
Unlike most bank stocks, First Niagara held its dividend steady throughout the financial crisis and has raised it twice in the last year. It currently yields a juicy 6.1%.
Valuation looks very attractive too with shares trading at just 8.7x 12-month forward earnings, a significant discount to the industry average.
Company Description
First Niagara Financial Group, Inc. operates 346 bank branches across Upstate New York, Pennsylvania, Connecticut and Massachusetts. It is headquartered in Buffalo, New York and has a market cap of $3.1 billion.
Second Quarter Results
First Niagara reported better than expected results for the second quarter on July 21. Earnings per share came in at $0.25, a penny ahead of the Zacks Consensus Estimate. It was a 14% increase over the same quarter in 2010.
Total revenue jumped 30% to $291.3 million, due in large part to an acquisition. The company did experience stellar 17% organic growth in commercial loans and 22% organic growth in core deposits.
Average total loans and leases increased 9% year-over-year, excluding those added from the acquisition. The net interest margin, which is essentially the spread between the interest the bank takes in from loans and what it pays out in deposits, declined 15 basis points from the previous quarter, however, to 3.65%.
Credit quality remained among the industry’s best. Net charge-offs represented just 0.20% of average loans in the second quarter, down from 0.41% in the same quarter in 2010. Non-performing loans represented just 0.51% of total loans in Q2, down from 0.74%.
Outlook
Following solid Q2 results, analysts revised their estimates higher for both 2011 and 2012, sending the stock to a Zacks #2 Rank (Buy).
Analysts expect First Niagara to grow its EPS both through continued organic growth and through acquisitions. On July 31, First Niagara announced that it was acquiring 195 Upstate New York and Connecticut branches and $15.0 billion of deposits from HSBC Bank USA, N.A.
First Niagara expects to have approximately $38 billion in assets, $30 billion in deposits and 450 branches across Upstate New York, Connecticut, Massachusetts and Pennsylvania, upon completion of the acquisition.
Based on consensus estimates, analysts project 20% EPS growth for First Niagara in 2011 and 18% growth in 2012.
Dividend
In addition to this growth, the company pays a dividend that yields a stellar 6.1%. Unlike many banks during the financial crisis, First Niagara did not cut its dividend and has actually raised its dividend twice in the last year.
Dating back to 2000, the company has increased its dividend at a compound annual growth rate of 17.5%:
Valuation
Although First Niagara seems to stand above the problems plaguing the banking industry, shares got pummelled in the recent market sell off as investors fled financial stocks en masse.
This appears to be an overreaction, however, given First Niagara’s excellent credit quality and solid growth prospects.
Valuation looks compelling with shares trading at just 8.7x 12-month forward earnings, a discount to the industry average of 13.0x and its 10-year median of 16.0x.
Its price to book ratio is just 0.5, well below the industry average of 0.8.
The Bottom Line
While the banking industry may still be reeling from the lingering effects of the housing crash and financial crisis, First Niagara has bucked the trend and continues to lend while maintaining sterling credit quality. With double-digit EPS growth forecasts and a solid 6.1% dividend yield, shares look like a bargain at just 8.7x forward earnings.
Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research.
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