First Niagara Financial Group (FNFG) has sold $3.1 billion of mortgage-backed securities to reduce risk exposure and improve its capital ratios.

The Buffalo, N.Y., company used proceeds from the MBS sale to pay down $3.1 billion in short-term debt. First Niagara will take a $16 million gain in the second quarter for the MBS sale, but said it would reduce earnings by roughly four cents per share in future quarters.

With the sale, First Niagara has "improved asset sensitivity in our balance sheet," Chief Executive John Koelmel said during a conference call Wednesday.

First Niagara will continue to hold $6.1 billion in mortgage-backed securities.

By selling the MBS portfolio, the $35 billion-asset First Niagara will reduce the "impact of prepayments on the MBS portfolio yield and net interest margin, as well as further strengthen key financial metrics," the company said in a statement. The MBS sale and paying down debt have also better positioned to benefit the company when interest rates ultimately rise," Chief Financial Officer Gregory Norwood said in a statement.

Though regulators provided "positive feedback" on the MBS transaction, the securities sale was not requested by regulators, Norwood said in the conference call.

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