February 14, 2013 / 11:35 PM / 5 years ago

TEXT-Fitch Affs First Niagara Financial Group's IDRs at 'BBB-/F3' Following Mid-Tier Regional Peer Review

NEW YORK, February 14 (Fitch) Fitch Ratings has affirmed the long-term and short-term Issuer Default Ratings (IDRs) of First Niagara Financial Group, Inc. and its subsidiaries at ‘BBB-/F3’. The Rating Outlook remains Negative. A full list of ratings follows at the end of this release. Fitch reviewed First Niagara Financial Group, Inc. as part of a peer review that included 16 mid-tier regional banks.

The banks in the peer review include: Associated Banc-Corp., Bank of Hawaii Corporation, BOK Financial Corporation, Cathay General Bancorp, Cullen/Frost Bankers, Inc., East West Bancorp, Inc., First Horizon National Corporation, First National of Nebraska, Inc., First Niagara Financial Group, Inc., Fulton Financial Corporation, Hancock Holding Company, People’s United Financial, Inc., Synovus Financial Corp., TCF Financial Corporation, UMB Financial Corp., Webster Financial Corporation. Refer to the release titled ‘Fitch Takes Rating Actions on Its Mid-Tier Regional Bank Group Following Industry Peer Review’ for a discussion of rating actions taken on the entire mid-tier regional groups.

The mid-tier regional group is comprised of banks with total assets ranging from $10 billion to $36 billion. IDRs for this group is relatively dispersed with a low of ‘BB-‘ and a high of ‘A+’. Mid-tier regional banks typically lag from their large regional bank counterparts by asset size, geographic footprint and product/revenue diversification. As such mid-tier regional banks are more susceptible to idiosyncratic risks such as geographic or single name concentrations. Fitch’s mid-tier regional bank group has fairly homogenous business strategies. The institutions are mostly reliant on spread income from loans and investments. With limited opportunity to improve fee-based income in the near term, Fitch expects that mid-tier banks will continue to face greater earnings headwinds in 2013 than larger institutions with greater revenue diversification. Share repurchases is common theme amongst the mid-tier banks. As mid-tier banks face earnings headwinds, institutions have begun repurchasing common shares to improve shareholder returns. Fitch anticipates continued repurchase activity in 2013 as the median return on equity lags historical norms for the group. In addition to share repurchases, Fitch has observed that some mid-tier banks have looked to their investment portfolio to improve returns.

Most notably, CLOs and CMBS have become more popular amongst mid-tier banks. Although such securities are beneficial to yields and returns, Fitch notes that such purchases can be a negative ratings driver if the risks are not properly measured, monitored and controlled. Asset quality continues to improve throughout the banking sector. Both nonperforming assets (NPAs) and net charge-offs (NCOs) are down significantly year over year. Fitch anticipates further asset quality improvement as nonperforming loan (NPL) inflow slows. Reserve levels have also declined as asset quality improves, which has been beneficial to earnings in 2013. Fitch expects further reserve releases in 2013 but at a slower pace. RATING ACTION AND RATIONALE First Niagara Financial Group, Inc.’s (FNFG) ratings were affirmed at ‘BBB-‘. The Rating Outlook remains Negative.

The affirmation and Outlook reflects Fitch’s view that FNFG’s current capital position is lean providing limited flexibility should challenges arise given significant loan growth through acquisitions, heightened integration risks 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 totaled 7.45%, 5.77%, and 9.29% for the fourth quarter of 2012 (4Q’)12, respectively. To-date, asset quality is solid. Despite the credit downturn, FNFG’s NCOs and NPAs (which includes troubled debt restructuring and acquired loans) stood at 0.18% and 2.03% for 4Q’12. However, Fitch notes that the company’s risk profile has modestly increased given riskier investment securities such as CLO holdings and the loan portfolio mix has shifted to more commercially-oriented loans. The loan portfolio includes exposure to highly leveraged transactions, asset-based lending, credit cards, indirect auto, and syndications. Given economic uncertainties, credit losses may increase from historical standards. Further, Fitch believes the company’s capital build may be prolonged versus its initial expectations. Although FNFG’s core operating revenues continue to be reasonable, in Fitch’s view, forecasted earnings may also be complicated by the difficult economic and low interest rate environment.


Positive rating action or a return to a Stable Outlook may ensue should the company improve its capital position to peer averages, absent any negative asset quality trends and decline inprofitability measures. Although considered unlikely, a downgrade would be possible should FNFG announce an acquisition in the near term, manage its capital more aggressively and/or experience a change in credit quality trends materially worse than Fitch’s expectations.

RATING DRIVERS AND SENSITIVITIES - Support Ratings and Support Floor Ratings:

All of the mid-tier regional banks in the peer group have Support Ratings of ‘5’ and Support Floor Ratings of ‘NF’. In Fitch’s view, the mid-tier banks are not considered systemically important and therefore, Fitch believes the probability of support is unlikely. IDRs and VRs do not incorporate any government support for any of the banks in the mid-tier regional bank peer group.

RATING DRIVERS AND SENSITIVITIES - Subordinated Debt and Other Hybrid Securities:

Subordinated debt and hybrid capital instruments issued by the banks are notched down from the issuers’ VRs in accordance with Fitch’s assessment of each instrument’s respective non-performance and relative loss severity risk profiles, which vary considerably. The ratings of subordinated debt and hybrid securities are sensitive to any change in the banks’ VRs or to changes in the banks’ propensity to make coupon payments that are permitted but not compulsory under the instruments’ documentation.

RATING DRIVERS AND SENSITIVITIES - Holding Company: All of the entities reviewed in the mid-tier regional bank group have a bank holding company structure with the bank as the main subsidiary.

All subsidiaries are considered core to parent holding company supporting equalized ratings between bank subsidiaries and bank holding companies. IDRs and VRs are equalized with those of its operating companies and banks reflecting its role as the bank holding company, which is mandated in the U.S. to act as a source of strength for its bank subsidiaries.

RATING DRIVERS AND SENSITIVITIES - Subsidiary and Affiliated Company Rating:

All of the entities reviewed in the mid-tier regional bank group factor in a high probability of support from parent institutions to its subsidiaries. This reflects the fact that performing parent banks have very rarely allowed subsidiaries to default. It also considers the high level of integration, brand, management, financial and reputational incentives to avoid subsidiary defaults.

Fitch has affirmed the following ratings: First Niagara Financial Group, Inc

—Long-term IDR at ‘BBB-‘; Negative Outlook;

—Short-term IDR at ‘F3’;

—Viability at ‘bbb-‘.

—Senior unsecured at ‘BBB-‘;

—Preferred stock at ‘B’;

—Subordinated debt at ‘BB+’;

—Support at ‘5’;

—Support Floor at ‘NF’. First Niagara Bank

—Long-term deposits at ‘BBB’; Negative Outlook;

—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’. First Niagara Commercial Bank

—Long-term deposits at ‘BBB’; Negative Outlook;

—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’

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