First Niagara Financial Group, the institution that purchased and will operate the downtown Warren National City Bank, has bought back all shares sold to the federal government under the Troubled Asset Relief Program (TARP).
According to reports, the institution is now strong enough to survive "extreme and unprecedented economic conditions."
In April, First Niagara acquired a total of 57 former National City branches in western Pennsylvania, including the Second Avenue branch in Warren.
The National City Bank location on Pennsylvania Avenue is considered the same branch as the Second Avenue bank and will be operated by First Niagara, according to bank officials.
Under the Capital Purchase Program (CPP) the Department of Treasury purchased $184,011,000 of non-voting, senior preferred First Niagara stock on Nov. 21, 2008.
First Niagara is one of the first financial institutions to redeem all shares from the government.
According to financial news service PRNewswire, First Niagara management also reaffirmed its belief that the Company is well positioned to withstand extreme and unprecedented economic conditions, based on even more severe economic assumptions than those used by the Federal Reserve Board in last month's Supervisory Capital Assessment Program (SCAP) "stress tests" of the nation's largest banks.
First Niagara has redeemed all $184 million received from the preferred stock purchased by the U.S. Treasury Department under the Troubled Asset Relief Program (TARP). As a result of the redemption, First Niagara will record an accelerated discount accretion of $7.7 million related to the difference between the amount at which the preferred stock sale was initially recorded and its redemption price. This accelerated accretion, together with the final preferred stock dividend, will reduce the Company's second quarter diluted earnings per share by $0.07. The Company also intends to negotiate with the Treasury for the repurchase of the warrant for 953 thousand common shares issued under the program. The repurchase of this warrant is not expected to have an impact on earnings per share. The number of shares available to the Treasury under the warrant was reduced by one-half due to First Niagara's successful April follow-on stock offering.
During their seven-month investment in First Niagara, the government earned more than $4.8 million in preferred stock dividends, exclusive of any value it may realize related to the repurchase of the warrant by First Niagara.
"Our first quarter loan production increased by 8 percent over the same period a year ago as we continued to leverage the federal capital to make commercial and consumer credit readily available in the communities where we do business," President and CEO John R. Koelmel said. "When market conditions improved, we replaced the government's investment with private investors' capital, following the blueprint laid out by the Treasury when they created the Capital Purchase Program."
First Niagara was one of the first publicly traded financial institutions to launch a follow-on stock offering in 2009, raising $380.4 million in April from private investors, or twice the amount required to repay the federal government. This followed the Company's successful $115 million follow-on stock offering in October 2008, leaving the Company in a stronger capital position than that which existed prior to the government investment in November.
First Niagara's strength was also confirmed by the results of its own internal stress test using assumptions more severe than the scenario provided in the Federal Reserve's recent SCAP review of the 19 largest U.S. bank holding companies. Even under these extreme economic conditions, with loan losses over 20 times current levels, First Niagara's stress testing revealed it would maintain a Tier 1 Common Capital ratio well above the anticipated regulatory level of 4.0 percent. These results included the impact of redeeming CPP proceeds and September's expected Western Pennsylvania branch acquisition closing.
In addition, at least two analysts have recently published independent stress tests on First Niagara, leading them to draw equally favorable conclusions about the Company's very solid capital position.