With $9 billion in assets and 114 branches in the Buffalo, NY area, First Niagara Bank falls into that grey area between community bank and super-regional. It's exactly the size bank some say will be squeezed by the financial crisis and the government's subsequent intervention through the Trouble Asset Relief Program (TARP) - too big to be a hands-on community bank, too small to enjoy "too big to fail" status among depositors.

But CEO John R. Koelmel doesn't see it that way. What he sees is a huge opening to gain marketshare as big banks pull back lending in his area, a chance to make strategic acquisitions, and the "rare opportunity," through TARP, to raise money on the same terms as Goldman Sachs, Wells Fargo and JPMorgan Chase. Applying for the $186 million was a "no brainer," he says. "We're going to play offense, and to do that you need capital."

In fact, the bank's leadership was so bullish on its competitive positioning - and convincing to investors - that it raised $108 million in an oversubscribed private equity offering just two weeks before learning that the TARP would be available. "Even as strong as we are, you can't be too strong, and we wanted to make sure we didn't hit any speed bumps," Koelmel says. "We expect that we'll need to hold more capital, and thought it might get more expensive to raise capital."

Combined with the TARP infusion, the bank now has $300 million of capital to put to use. "There will be opportunities to lend more significantly over the next year or two and grow in our footprint organically," he says, trying to allay concerns that institutions will simply hoard capital or use if for acquisitions, not lend it to consumers. That said, Koelmel reserves the right to grow through M&A. "The wild card is acquisitions. We've been an acquirer in upstate New York...and the expectations are that acquisition opportunities will surface."

All this optimism aside, the TARP program did give him pause until he was certain First Niagara could participate. He worried that the government's equity infusion would subsidize the big banks that First Niagara competes against and "dilute our advantage. There was a feeling we'd be disadvantaged, not rewarded in the short-term for how well we're running our business," Koelmel says. "We're not afraid to compete, but we need a level playing field."

By way of comparison, First Niagara posted ROE of 6.7 percent in the 12 months ended September 30, while Bank of America managed 4.1 percent and JPMorgan Chase achieved 5.5 percent. (In the March issue of US Banker, First Niagara was ranked 88th among big banks based on a three-year ROE of 6.6 percent.)

Koelmel say he "applauds the government's action," which he views as giving the industry breathing room to recover. And by opening up the TARP to banks of all sizes, he says the government is not randomly picking winners and losers, although there is clearly a line between banks that need temporary support and those that will be left to falter. "I don't perceive the government anointing any winner that's not apparent to the investment community at large."

While some have expressed concern that TARP is the first step in a more active, permanent role for government in banking, Koelmel disagrees. He views the $186 million infusion from the government (it was still to be finalized at press time) as debt, not equity, and a loan he is well incentivized to retire within five years; after five years the interest rate ratchets up from five percent to nine percent. "I've got no sense, as a CEO and a taxpayer, that the government wants or should be in the banking business."

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