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Fitch Affirms First Niagara Financial Group's L-T IDR at 'BBB' Following Merger Announcement

^{Published on 2010-08-19 14:30:54 - Market Wire}
 

NEW YORK--([ BUSINESS WIRE ])--Fitch Ratings has affirmed the long-term Issuer Default Rating (IDR) of First Niagara Financial Group, Inc. (FNFG) and its subsidiaries at 'BBB'. The Rating Outlook is Stable. (See detailed list of ratings at the end of this release.)

Fitch's rating action follows FNFG's announcement that it has agreed to acquire NewAlliance Bancshares, Inc. (NYSE:NAL) through an 86% stock and 14% cash transaction valuing the deal at $1.5 billion. Headquartered in New Haven, CT, NAL has $8.7 billion in assets, with $4.9 billion in loan and $5.1 billion in deposits. The acquisition is expected to close during the second quarter of 2011, subject to shareholder and regulatory approvals.

The combined entity of $29 billion expands FNFG's footprint into new markets, Connecticut and Massachusetts. FNFG's pro-forma tangible common equity will remain at a strong 8.2% with solid funding evidenced by a loans-to-deposits of 79%.

In Fitch's view, FNFG has acquired a relatively healthy balance sheet with modest credit risk. To date, NAL has performed well despite the challenging operating environment reporting consistent profitability. Additionally, NAL's capital position is strong supported by good earnings generation and stable asset quality performance. The majority of NAL's loans are residential mortgages within its footprint.

Supporting Fitch's rating affirmation and Stable Outlook is the view that FNFG has a proven track record of successfully acquiring and integrating banks, while continuing to deliver good operating results. Further, Fitch believes FNFG has been opportunistic with its acquisition strategy. Also incorporated in the rating action is that FNFG will maintain its consistent performance and sound balance sheet.

Fitch is concerned with this transaction following closely after the Harleysville acquisition. However, the expected close date, June 2011, provides adequate time for an orderly integration. Although Fitch had anticipated FNFG to continue with its 'buy and build' strategy, it heightens integration and execution risk. Additionally, Fitch believes the challenge for FNFG will be to grow organically within its new footprints where it has little brand recognition. Fitch will assess acquisition developments as well as integration and capital and earnings generation post-close.

FNFG's ratings could be positively affected if FNFG is able integrate and generate incremental profitability and add to its franchise value while continuing with its disciplined capital and liquidity management. Conversely, ratings could be negatively impacted if pro-forma financials were materially different from expectations.

Based in Buffalo, NY, First Niagara Financial Group, Inc. is the parent of First Niagara Bank and offers retail, consumer and business banking products, as well as insurance, brokerage, investment advisory and trust services, through its financial services subsidiaries. The bank had $21 billion of assets as of June 30, 2010 and 255 branches throughout upstate New York and Pennsylvania.

Fitch affirms the following ratings with a Stable Outlook:

First Niagara Financial Group, Inc

--Long-term IDR at 'BBB';

--Short-Term IDR at 'F2';

--Individual Rating at 'B/C'.

First Niagara Bank

--Long-term deposits at 'BBB+';

--Long-term IDR at 'BBB';

--Short-term deposits at 'F2';

--Short-term IDR at 'F2';

--Individual rating at 'B/C'.

First Niagara Commercial Bank

--Long-term deposits at 'BBB+';

--Long-term IDR at 'BBB';

--Short-term deposits at 'F2';

--Short-term IDR at 'F2';

--Individual rating at 'B/C'.

In addition, Fitch affirms the following ratings:

First Niagara Financial Group, Inc, First Niagara Bank, and First Niagara Commercial Bank

--Support at '5';

--Support Floor at 'NF'.

Additional information is available at [ www.fitchratings.com ].

This rating action reflects the application of Fitch's current criteria which is available on Fitch's web site at [ www.fitchratings.com ] and specifically includes:

--'Global Financial Institutions Rating Criteria' (Aug. 16, 2010);

--'Bank Holding Companies' (Dec. 30, 2009).

In addition to the source(s) of information identified in the Master Criteria, this action was additionally informed by information provided by the company.

Related Research:

Global Financial Institutions Rating Criteria

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547685 ]

Bank Holding Companies

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493324 ]

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