First Niagra Slowly Becoming a Super-Regional Bank After NewAlliance Deal (FNFG, NAL)

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First Niagara Financial Group Inc. (NASDAQ: FNFG) is on its way to becoming a super-regional bank rather than just a regional bank.  That is after its announced $1.5 billion acquisition this morning of NewAlliance Bancshares Inc. (NYSE: NAL).  This is not its first acquisition, and the company said that the deal will create a Top-25 U.S. Bank.

Last year First Niagra bought 57 National City branches in western Pennsylvania and its acquired Harleysville National Corporation in April of this year.  As far as yesterday and on last look, First Niagara has $21 billion in assets, 255 branches and $14 billion in deposits with customers throughout New York and Pennsylvania.  The new combined bank will have over $29 billion in assets and $18 billion in deposits.  This latest deal will add 88 NewAlliance branches in Connecticut and Massachusetts to bring a total of 340 branches.

The deal calls for a fixed exchange ratio of 1.10 shares of First Niagara stock for each NewAlliance share, which came to $14.09 per share based on share prices for a 24% implied premium.  After the dilution of shares and the drop, the 5.15% drop to $12.12 for First Niagra implies a price of $13.33 if these prices remain firm.  There is one concern here and that is that an intraday low of $11.94 marked a 52-week low versus a prior 52-week range of $11.98 to $14.88.

First Niagara has successfully completed more than nine major whole-bank and branch-network acquisitions over the last 10 years.  The company just recently rolled up another company to further products with risk management, employee benefits consulting and investment services. Terms of that smaller deal were not disclosed.

One other issue to consider is First Niagra’s dividend.  Its $0.14 dividend has been in place since 2007.  The $0.56 annualized payout compares to pre-merger earnings estimates of $0.86 EPS for 2010 and $1.04 EPS for 2011. This generates a payout dividend yield of 4.6% per year for investors at the current rate.

JON C. OGG