The next chief executive at First Niagara Financial Group (FNFG), whether it ends up being interim leader Gary Crosby or someone else, will have his or her hands full overseeing the Buffalo company's comeback.

The $37 billion-asset company on Tuesday announced the departure of John Koelmel, who had supervised a period of aggressive acquisitions that had raised costs and flooded First Niagara with excess liquidity.

Cutting costs and finding higher-earning assets should become priorities for a new CEO, says Damon DelMonte, an analyst at Keefe, Bruyette & Woods. Success in those areas will help persuade shareholders to support the company. The new CEO must develop a plan for having "quantifiable, measurable deliverables that the investment community can understand," he says.

Neither task will be easy. First Niagara's efficiency ratio had climbed to 69.4%, at Dec. 31. Much of the blame was assigned to recent acquisitions, including last year's purchase of more than 100 HSBC Bank branches in upstate New York and Connecticut.

First Niagara had already unveiled plans to cut annual costs by $40 million. But more cuts may be needed, says David Darst, an analyst at Guggenheim Partners. "They probably really underestimated the required investment and infrastructure needed to build a $30 billion to $50 billion bank," he says.

First Niagara gained a huge slug of deposits from the HSBC Bank branches and its purchases of NewAlliance Bancshares and Harleysville National. It has since struggled to deploy the liquidity into loans. Securities made up 39% of First Niagara's earning assets at Dec. 31. In comparison, securities made up just 25% of earnings assets at banks with $20 billion to $100 billion of assets, based on Dec. 31 data from the Federal Deposit Insurance Corp.

"They've done deposit deals and they bought bond-heavy companies," Darst says. "You get a lot of liquidity without any earning assets."

Still, First Niagara is not a "turnaround" company in the traditional definition, says Gerry Murak, a performance specialist in Buffalo. At least First Niagara is already profitable. "The acquired banks did not have the same level of performance" as First Niagara, and they need more time to be integrated, he says.

First Niagara's board formed a special committee to hire a new CEO. The committee will retain an executive recruiter to consider internal and external candidates.

The company is still negotiating the financial terms of Koelmel's departure, according to the former CEO's lawyer. "John is in the process of finalizing his relationship with First Niagara and evaluating his future options," Terrence Connors said in a written statement.

First Niagara did not specify if Crosby would be considered a candidate to be Koelmel's permanent successor. Still, Crosby will be paid a $1 million cash award when his term as interim CEO ends, First Niagara said in a regulatory filing Wednesday.

Such a payout is highly unusual, says Rod Taylor of executive recruitment firm Taylor & Co. "The only explanation is that they fear losing him," Taylor says.

The company's board and the special committee are likely in the process of determining what type of CEO they want to hire, says Jeanne Branthover, a managing director at executive search firm Boyden.

"Do you want a CEO who will come in and add value and substance when it comes to determining a strategy for the turnaround?" says Branthover, who is not advising First Niagara. "Or does the board just want someone to come in and put their strategy in place? That will dictate the kind of CEO they will attract."

For now, Crosby, because of his background as the company's chief administrative and operations officer, will likely get a head start on cutting costs, Taylor says.

"He should have the skills to reduce costs faster than any other executive in the bank," Taylor says. "By definition [of his job title, Crosby's] role is to understand how costs can be controlled or reduced."

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