Fitch Affirms First Niagara at 'BBB-/F3' Following Mid-Tier Review; Outlook to Stable

Wed Feb 5, 2014 4:50pm EST

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(The following statement was released by the rating agency) NEW YORK, February 05 (Fitch) Fitch Ratings has affirmed the ratings for First Niagara Financial Group, Inc.'s (FNFG) at 'BBB-'/'F3' and revised the Rating Outlook to Stable from Negative. A full list of rating actions follows at the end of this release. KEY RATING DRIVERS - IDRS, VRs, AND SENIOR DEBT FNFG's ratings are supported by its consistent performance during a difficult operating environment and credit performance that remains solid. Also incorporated in current ratings is the company's below peer-average capital position (across different measures), which may limit financial flexibility. Current ratings level reflect the company's risk profile given the bank's exposure to credit investment securities such as CLO holdings and the change in the loan portfolio mix to more commercially-oriented loans. The loan portfolio includes exposure to highly leveraged transactions, asset-based lending, credit cards, and indirect auto, all of which are fairly new lending products. Further, Fitch notes that FNFG has experienced significant loan growth over the last few years organically and through acquisitions. The Outlook has been revised to Stable from Negative. Despite the significant loan growth in recent years and entry into new lending products, to-date, asset quality is solid. Further, during the credit downturn, FNFG's NCOs and NPAs (which includes troubled debt restructuring and acquired loans) were much lower than mid-tier peers and similarly rated banks. For 3Q'13, NCOs and NPAs totalled 0.25% and 1.09% compared to the mid-tier peer average of 0.31% and 2.73%, respectively. Although reserve coverage is considered weaker than peers at less than 1.00% of total loans, Fitch notes that the current loan book includes a 2.5% credit mark on its acquired portfolio and the loan loss reserve on originated loans totals 1.21% of gross loans. Given economic uncertainties, credit losses may increase from historical standards. However, Fitch believes future credit losses will be manageable. In Fitch's view, current capital position is lean providing limited flexibility should challenges arise given significant loan growth through acquisitions and the modest increase in risk profile of the company. FNFG's capital position is much lower than similarly-rated peers and most of Fitch's U.S. rated financial institutions from a tangible common equity (TCE) position and a regulatory capital standpoint. FNFG's Tier 1 Common Ratio, TCE and Tier 1 RBC totalled 7.86%, 6.02%, and 9.56% for 4Q'13, respectively. Positively, the company's core operating performance continues to deliver good results and should help build up its capital position over time. RATING SENSITIVITIES - IDRS, VRs, AND SENIOR DEBT Fitch would view favourably an improvement in the company's capital position or profitability to peer averages, absent any negative asset quality trends. Although considered unlikely, a downgrade would be possible should FNFG announce an acquisition in the near term, manage its capital more aggressively, or experience a substantial decline from current levels. Further, a decline in credit quality trends worse than mid-tier peer averages could also lead to a review of current ratings. KEY RATING DRIVERS - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES Subordinated debt and other hybrid capital issued by FNFG and its subsidiaries are all notched down from FNFG's Viability Rating (VR) of 'bbb-' in accordance with Fitch's assessment of each instrument's respective non-performance and relative Loss Severity risk profiles, which vary considerably. RATING SENSITIVITIES - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES FNFG's subordinated debt is sensitive to changes in FNFG's VR. Rating sensitivities for the VR are listed above. SUBSIDIARY AND AFFILIATED COMPANY KEY RATING DRIVERS First Niagara Bank and First Niagara Commercial Bank are wholly owned subsidiaries of FNFG, and their ratings are aligned with FNFG reflecting Fitch's view that the bank subsidiary is core to the franchise. SUBSIDIARY AND AFFILIATED COMPANY RATING SENSITIVITIES FNFG's subsidiaries' ratings are sensitive to changes to FNFG's VR or any changes to Fitch's view of structural subordination between bank subsidiary and holding company. Rating sensitivities for the VR are listed above. KEY RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR Support Rating and Support Rating Floor of '5' and 'NF' reflect Fitch's view that the company is unlikely to procure extraordinary support should such support be needed. KEY RATING SENSITIVITIES- SUPPORT RATING AND SUPPORT RATING FLOOR Support Rating and Support Rating Floor are sensitive to Fitch's assumption around capacity to procure extraordinary support in case of need. Fitch reviewed FNFG's ratings as part of the mid-tier regional bank review. The 19 banks in today's review include: Associated Banc-Corp (ASBC), BOK Financial Corp (BOKF), Cathay General Bancorp (CATY), City National Bancorp (CYN),Cullen/Frost Bankers, Inc (CFR), East West Bancorp, Inc. (EWBC), First Horizon National Corp (FHN), First National of Nebraska, Inc. (FNNI), First Niagara Financial Group, Inc. (FNFG), First Republic Bank (FRC), First Merit (FMER), Fulton Financial Corp (FULT), Hancock Holding Company (HBHC), People's United Financial, Inc. (PBCT), Synovus Financial Corp (SNV), TCF Financial Corp (TCB), UMB Financial Corporation (UMB), Webster Financial Corp (WBS), Wintrust (WTFC). Fitch has affirmed the following ratings and revised the Outlook to Stable: First Niagara Financial Group, Inc --Long-term Issuer Default Rating at 'BBB-'; --Short-Term IDR at 'F3'; --Viability rating at 'bbb-'; --Senior Unsecured at 'BBB-'; --Preferred stock at 'B'; --Subordinated debt at 'BB+';; --Support at '5'; --Support Floor at 'NF'. First Niagara Bank, NA --Long-term deposits at 'BBB'; --Long-term IDR at 'BBB-'; --Viability at 'bbb-' --Short-term deposits at 'F3'; --Short-Term IDR at 'F3'. --Support at '5'; --Support Floor at 'NF'. The following ratings on First Niagara Commercial Bank were affirmed and withdrawn as the entity merged with and into First Niagara Bank, NA. First Niagara Commercial Bank --Long-term deposits at 'BBB'; --Long-term IDR at 'BBB-'; --Viability at 'bbb-'; --Short-term deposits at 'F3'; --Short-Term IDR at 'F3'; --Support at '5'; --Support Floor at 'NF'. Contact: Primary Analyst Doriana Gamboa Director +1-212-908-0865 Fitch Ratings, Inc. One State Street Plaza New York, NY 10004 Secondary Analyst Ryan Doyle Director +1-212-908-9162 Committee Chairperson Christopher Wolfe Managing Director +1-212-908-0771 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com. Additional information is available at 'www.fitchratings.com'. Applicable Criteria and Related Research: --2014 Outlook: U.S. Banks (Nov 21, 2013) --U.S. Banks: Liquidity and Deposit Funding (Aug 08, 2013) --U.S. Banks: Interest Rate Risks (What Happens When Rates Rise) (Jun 18, 2013) --U.S. Bank Mergers and Acquisitions -- When Will The Catalysts Kick In? (Jul 11, 2013) --Global Trading and Universal Banks - Periodic Review (Dec 12, 2013) --Fitch Fundamentals Index - U.S.; Index Trend Analysis 4Q13 (Jan15, 2014) --Risk Radar Global - Q313 (Sep 05, 2013) --Fitch Global Corporate Rating Activity – Third Quarter 2013 (Dec 5, 2013) --U.S. Banking Quarterly Comment: 4Q13 (Earnings Continue to Tick Up, but Challenges Remain) (Jan 27, 2014) --Global Financial Institutions Rating Criteria (Jan 31, 2014) --Assessing and Rating Bank Subordinated and Hybrid Securities (Jan 31, 2014) Applicable Criteria and Related Research: Assessing and Rating Bank Subordinated and Hybrid Securities Criteria here Global Financial Institutions Rating Criteria here U.S. Banking Quarterly Comment: 4Q13 (Earnings Continue to Tick Up, but Challenges Remain) here Risk Radar Global - Q313 here Fitch Fundamentals Index here Global Trading and Universal Banks - Periodic Review here U.S. Bank Mergers and Acquisitions -- When Will The Catalysts Kick In? here U.S. Banks: Interest Rate Risks (What Happens When Rates Rise) here U.S. Banks: Liquidity and Deposit Funding here 2014 Outlook: U.S. Banks here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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