These are not easy times to be a banker. But First Niagara Financial Group chief executive John R. Koelmel is one banker who isn't ready to head for a bunker.
"I personally believe this is the time to seize the moment," Koelmel says.
For First Niagara, which in September struck a $153 million deal to buy the parent company of Greater Buffalo Savings Bank in a bid to become a bigger player in the Buffalo Niagara market, that means sticking close to home.
"We're focused in a singular way on upstate New York," says Koelmel, whose bank used a string of acquisitions over the last decade to build a branch network stretching across upstate from Buffalo to Rochester to Syracuse and Albany. "We've got to drive more growth out of what we have."
That won't be easy for First Niagara. Like most banks, First Niagara is paying higher interest rates on its deposits to keep customers from being snatched away by competitors that are dangling higher yields to lure customers. At the same time, the interest that First Niagara gets on its loans has been flat.
Put the two together and First Niagara isn't making as much money off its basic banking business. Its operating revenues have been flat over the last five quarters, while its operating income is down a bit. That's why the bank earlier this year turned its focus to cutting expenses, trimming its work force by about 5 percent, consolidating five branches and making plans to sell nine others next month.
"We're a bit stuck in the mud right now," says Koelmel. "It's going to be tough to grow the top line next year. We think a flat year is going to be a reality, not only for us, but the entire industry."
The good news is that First Niagara won't get even a sprinkle of trouble from the wave of write-downs that are swamping the banking industry from sliding home values and the ever-widening subprime mortgage crisis. First Niagara doesn't have any of those risky loans on its books, while its upstate markets never had the huge housing price jumps now being reversed elsewhere.
Still, Koelmel laments that his bank still is being tarred with the same brush. "At this point, the brush is too broad and too big, and we're all getting whacked a little bit," says Koelmel, who spelled out the bank's strategy to the the CFA Society of Buffalo last week.
That strategy calls for building the bank's fee income by selling more insurance and doing more money management and employee benefits work for its base of existing customers. It calls for making more commercial loans, while pulling back from the auto and student loan business and even reducing its residential mortgage exposure.
And it calls for deals like the one for Great Lakes Bancorp, which will add $644 million in deposits and bring First Niagara to within spitting distance of KeyBank, the region's No. 3 bank in deposits. Because First Niagara already is established here, it can absorb that Great Lakes business while still cutting the acquired bank's expenses by about 70 percent, which will be bad news for a still undisclosed number of Greater Buffalo's 200-plus employees. Stifel, Nicholas & Co. analyst Anthony R. Davis says the acquisition should add 3 cents a share to First Niagara's earnings next year.
But First Niagara still is dogged by questions about whether the bank's frustrated investors would get better results if there was a "For Sale" sign on the lawn. Over the last four years, First Niagara's total return to stockholders, including dividends, has been basically zero, while Standard & Poor's mid-cap banking index is up 45 percent.
"Ultimately, it comes down to the simple evaluation of the type of price that would be paid . . . versus what we think our upside is," Koelmel says. "We think it's tremendous."