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After year of big shake-up, Key aims to deliver on growth

Think of last year as the Big Shake-up in local banking.

KeyCorp finished acquiring First Niagara Financial Group, and Northwest Bancshares bought 18 First Niagara branches.

Key closed more than 100 branches that operated under the Key and First Niagara banners to reduce overlap. The bank pledged to cut no more than 250 jobs statewide, while adding at least 500 to 600 jobs in upstate New York through 2018.

Those decisions answered many important questions that had hung over the region ever since Key emerged as the buyer for First Niagara. But you might say the hard work for Key is just beginning.

Local residents and First Niagara employees were relieved the deal didn’t trigger a tidal wave of job cuts. But Key investors and analysts who track the bank are more concerned with quarterly results and keeping costs down. It’s the pressure that comes with running a publicly traded company – especially one that has climbed to No. 13 among U.S. commercial banks.

[See the rest of Prospectus 2017: Unveiling the New Buffalo]

Now that Key has organized its employee teams and combined its branch network, the bank wants to capitalize on everything it absorbed from First Niagara.

Key officials say it’s likely they’ll achieve the $400 million in cost savings they have projected as part of the First Niagara deal – as well as a higher internal target they haven’t publicly shared.

At a Goldman Sachs investors conference last month, Key CEO Beth Mooney said the bank believed it could hit the $400 million savings target by the middle of 2017. Wall Street loves those kinds of cost-cutting results.

In Western New York, the focus of the Key-First Niagara deal was, understandably, local. How many First Niagara jobs and operations would a Cleveland-based bank keep in Western New York?

But there’s much more to the merger than this market.

Even before the deal, Key had a significant presence in the Buffalo Niagara region. Now, Key has a chance to build up First Niagara’s operations, to a level First Niagara wasn’t really positioned to achieve on its own.

Prior to the acquisition, First Niagara operated in four states, while Key was in 12 states. Now in a combined 15 states, Key has a chance to take some of First Niagara’s business lines – mortgages and insurance, for instance – and grow them across a much broader territory.

So from the other end of Lake Erie, Key looks at the First Niagara deal as a path to something bigger.

“We have been striving to be a top-performing bank, and I would say years ago, Key was not,” Chief Financial Office Don Kimble said at the investors conference.

In the past several years, Key “migrated to the middle of the pack, maybe a little bit better than that,” he said.

“What this transaction does for us is much more than just a capital leverage,” Kimble said. “It really accelerates our path toward being a top-performing institution.”

While Key aims to deliver on its growth strategy, it’s not as if the other banks serving the Buffalo Niagara region will sit idly by.

M&T proved the last time there was a big shake-up – when HSBC Bank USA sold its upstate branch network to First Niagara – it could gain market share without buying branches. It continues to dominate deposit market share in the region.

Northwest is more ambitious, after picking up 18 more local branches. Lots of other rival banks are pushing to draw off customers who might consider moving their accounts. Bank on Buffalo will open three branches to seize on the disruption. In short, the competition is not letting up.

Mooney, at the investors conference, said Key believes “First Niagara is a good and unique fit for Key, and that we are the right owner.”

First Niagara may be gone, but its operations and people will influence the kind of year Key has – and whether shareholders like what they see.

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