First Niagara Financial Group (NASDAQ: FNFG) is on deck to announce fourth-quarter earnings on Wednesday, and investors need to pay special attention to three areas of that release.
1. Net interest margin and income
If you have been following the earnings releases from banks over the past week or so, you might have seen this metric come up a few times. When looking at banks, especially some of the regional banks that are a bit removed from the madness that is investment banking, the net interest margin is a good indicator of how well a bank is converting the money it borrows into income. As this margin narrows, the bank needs to look to other revenue options to maintain similar income levels. If it is unable to do so, income can decline, and investors could get a little skittish.
As we saw with the earnings release of BB&T (NYSE:TFC) last week, a decline in net interest margin is not the end of the world. BB&T was able to post record income by doing two things well during the previous quarter: increasing its mortgage, insurance, and brokerage income, and reducing its non-interest expenses.
First Niagara has actually seen a slight increase in net interest margin over the past year, boosted by an increase of 26 basis points during the third quarter, something that will probably not be sustainable going forward. That said, First Niagara has already signaled some growth in non-interest income, including more than doubling its income from mortgage banking over the past year.
2. Maintaining or improving asset quality
In these trying times for financial companies, it is really in a bank's best interest to increase the quality of its assets. First Niagara is among the best in this regard, checking in with only 0.75% of total loans coded as nonperforming, and an even more impressive 0.42% of total assets in this category. Nonperforming loans were actually up slightly from the same quarter last year, though with the bank still far under 1%, I don't think it is worth concern. If First Niagara can continue to maintain this strong ratio, it should have little difficulty maintaining its recent performance.
3. Converting recently purchased assets to income production
During the second quarter of 2012, First Niagara acquired nearly 200 branches from HSBC to help expand its operations outside of its upstate New York home. Though it was required to sell many of these branches to KeyCorp, the remaining branches opened up access to some new markets. Despite adding the branches, total deposits declined slightly during the last quarter, so I'll be taking notice if these new branches are producing income for the bank after almost a year.
First Niagara will be reporting earnings on Wednesday morning, so be sure to check back to see how it did in these three areas. Should the bank be able to at least maintain the status quo, it should be a good day for investors in the bank.