Oct. 30--The expense of acquiring 57 branches around Pittsburgh in September pushed First Niagara Financial Group's quarterly earnings lower Thursday, but the business already is providing dividends to the market's newest bank.

Since closing the branch deal on Sept. 8, First Niagara has originated about $100 million in consumer and small-business loans in Western Pennsylvania and taken applications for about $100 million more, bank executives told analysts in a conference call.

"We couldn't be more pleased from what we've seen in Pittsburgh so far, 45 days after closing" the deal, said First Niagara CEO John Koelmel.

The bank acquired 57 National City branches from PNC Financial Services Group, which sold them to satisfy antitrust regulators after buying the Cleveland-based bank. First Niagara also acquired about $750 million in loans and more than $3.9 billion in deposits.

Of those deposits formerly held by National City, 98 percent flowed to First Niagara, a high retention rate in bank merger deals. Usually, customers of the acquired bank "run off" with about 10 percent of the deposits and transfer them to another institution, analysts say.

The 2 percent runoff was "exceptional," and far less than First Niagara originally projected, said Damon DelMonte, an analyst with Keefe Bruyette & Woods, Hartford, Conn.

DelMonte called the bank's deposit retention and the $100 million in loan originations "a positive response to the First Niagara name in that short a period of time."

First Niagara reported quarterly net income fell to $10.9 million from $23.7 million a year earlier, reflecting one-time merger costs. Results include a charge of $16.4 million after taxes from acquiring the 57 branches and a pending acquisition of Harleysville National Corp., a bank in eastern Pennsylvania.

The results equaled 7 cents per share, vs. 22 cents a year ago. Excluding the special charges, operating results were 19 cents per share, compared with 22 cents a year ago.

Net interest income jumped to $99 million from $70 million.

First Niagara shares closed at $13.28, down 2 cents.

Nonperforming loans increased to $66.8 million from $52.3 million a year ago. Charge-offs from bad loans more than doubled to $14.5 million from the previous quarter, while provisions to cover loan losses increased to $15 million from $8.9 million in the previous quarter.

Thomas Olson can be reached via e-mail or at 412-320-7854.

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