John R. Koelmel has had a rocky seven months as the president and chief executive officer of First Niagara Financial Group Inc.
The $8 billion-asset Lockport, N.Y., thrift company's earnings missed its targets in his first full quarter at the helm, its stock has fallen more than 13% this year, and at a contentious annual meeting in May, shareholders wondered aloud whether First Niagara should sell itself.
But Mr. Koelmel is undeterred. In an interview last month, he said that First Niagara intends to stay independent and would stick to its plan of expanding in upstate New York through acquisitions and branch openings.
"The only time we spend on the question of selling is responding to those questions," he said. "We're completely focused on building out what we have and adding to it."
Still, changes are afoot. First Niagara is in the midst of a "rightsizing" initiative that includes eliminating about 6% of its jobs and closing an unspecified number of branches. Last month it launched a multimillion-dollar television advertising campaign, its first major branding initiative in seven years.
Whether these efforts will satisfy shareholders remains to be seen. Though First Niagara has the No. 4 deposit share in both the Buffalo and Albany areas, shareholders have questioned whether there is a chance for any meaningful growth in upstate New York, where its main competitors are M&T Bank Corp., HSBC Bank USA, and KeyCorp.
Frustrated that the stock has been languishing for years, shareholders asked at the annual meeting if it would look for a buyer or at least expand into faster-growing markets like Florida.
First Niagara has bought five thrifts, one bank, and seven insurance companies since 1998 and Mr. Koelmel said it has about $200 million of excess capital it can use for acquisitions, branch expansion, or both.
The company also could use the cost savings to fund its growth, he said. Balancing the cutting and spending to optimize performance is akin to "trying to change the fan belt on the car while it's driving down the expressway," Mr. Koelmel said.
The branding campaign — its tag line is "the power to do more with your money" — is "a major, major initiative," he said. "The organization today is very different than what we were in early 2000, so this is a major effort on our part to tell our story. We feel now is the right time to put our stake in the ground."
He expects First Niagara to start showing some improvement in the second half, though "the impact of the yield curve mutes the real progress that's being made," he said,
First Niagara's first-quarter net income fell 18% from a year earlier, to $18.5 million, and its earnings per share fell 19%, to 17 cents. It took a $2.4 million pretax charge in the quarter, mostly for severance expenses.
Analysts said they think First Niagara is focusing on exactly what it needs to do to improve.
Historically a western New York company, it moved into the eastern part of the state by acquiring Troy Financial Corp. in 2004 and Hudson River Bancorp Inc. a year later.
Jared Shaw, an analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc., said it might have been better for First Niagara to use its capital to gain market share in western New York rather than expanding eastward. Nonetheless, he said, the Albany area has the strongest growth potential of all its markets.
"Since they've already made the investment, they need to make sure they maximize it," Mr. Shaw said.
Joseph Fenech of Sandler O'Neill & Partners LP said First Niagara is struggling mostly because of the operating environment and its slow-growth markets. When it reports second-quarter earnings, the main focus will be on how much progress Mr. Koelmel has made in lowering costs, Mr. Fenech said, but so far "I think he's been doing as well as you can expect."
Unlike Mr. Shaw, Mr. Fenech was not critical of First Niagara's acquisition choices. He said that the company had been "a sleepy mutual thrift" until an initial public offering in 1998, and that its "acquisitions have gotten them into some of the better markets" in upstate New York. (It completed a second-step stock offering to convert to a fully public company in 2003.)
First Niagara has been generally viewed as a buyer rather than a seller, but speculation about a possible sale erupted in December after Paul J. Kolkmeyer was fired as its CEO.
Mr. Koelmel, who moved up from chief financial officer, said that the company would prefer to be a buyer. Though fill-in deals are its immediate focus, he said it would expand farther geographically over the next five years, most likely in a contiguous region, whether that is New England, Pennsylvania, or Ohio.
"We don't aspire to be a superregional," he said. "We don't aspire to jump over six states to get down into the Carolinas or Florida. We're very sensitive to the need to be disciplined."
Besides banks, First Niagara is actively scouting for insurance acquisitions, particularly in the Albany area.
Still, it is not in a hurry, he said. "I don't want to walk around suggesting our capital is burning a hole in our pocket."
