First Niagara Lays Out Plan to Cut Costs

First Niagara Financial Group (FNFG) is looking for ways to cut costs to free up funding for fee-based services.

The Buffalo company has expanded its retail operations significantly in recent years, including its acquisition of 100 branches from HSBC Bank in May. But the $35.9 billion-asset company has also incurred higher expenses — including acquisition and operational costs — that have hampered its bottom line. On Friday, the company's executives said they were no longer caught up in the "distractions" of pursuing acquisitions, vowing to improve the efficiency ratio while turning to fee-income to boost revenue.

"Our organization, top to bottom, is 100% focused on running the business we have built," John Koelmel, First Niagara's president and chief executive, said during a conference call Friday. "This is the first time in my tenure that the entire organization and team have been 100% focused on running the business of the day."

Koelmel said First Niagara has already "eliminated any bloat" after closing branches and cutting about 180 positions earlier this month. "We took those actions to ensure we have the right people and the right seats on the bus to most effectively execute our organic growth strategy," he said.

Acquisitions and restructuring costs of $19 million took a near-term hit on the bottom line. The company's net income fell nearly 11% from a year earlier, to $50.8 million.

Over the long term, management said they will reinvest the money saved from the layoffs in areas such as Treasury management, an enhanced digital online platform and credit card services for consumers. "We think those investments will help grow fee income" and "help the efficiency ratio in meaningful ways by increasing revenue," Gregory Norwood, First Niagara's chief financial officer, said in an interview Friday.

First Niagara's management promised on Friday to lower the company's efficiency ratio to 55% from 64.7% at Sept. 30, though they vague on when they would hit their target. "We're not saying it will happen in 2013 but …a mid-50s ratio is very achievable" over the next four years, Norwood said.

For now, First Niagara's executives said that quarterly earnings should be less muddled by acquisition costs. Financial results have been volatile in recent quarters largely due to acquisitions, branch sales and a balance sheet restructuring, leading management to focus more on operating earnings rather than net income. Still, net operating earnings also fell 10% from a year earlier, to $66.5 million, after the loan-loss provision spiked by 53% following loan growth and a securities sale.

"Because of the acquisition sequence, finding a clean quarter" has been difficult, Norwood said. "We believe we can provide a clean quarter beginning with this one."