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First Niagara Financial Group CEO John Koelmel discusses his deal to sell 37 branches in New York to KeyCorp, his plans to sell more branches and his argument that its bigger deal with HSBC will pay off.
January 13
First Niagara Financial Group Inc. had a chance to boast on Thursday for the first time in months.
The Buffalo banking company reported an increase in fourth-quarter profits after taking it on the chin in the latter half of 2011 for perhaps overreaching on its deal for nearly 200 HSBC Bank USA branches.
"People are taking due notice and really focusing on how well we're running the business," President and Chief Executive John Koelmel said in an interview with American Banker.
The profit rise was fueled, in part, by growth in commercial lending and a continued purge of bad assets.
Still, the $32.8 billion-asset company is dealing with higher costs as a result of the HSBC deal, as well as a previously announced restructuring that's unrelated to the HSBC transaction. A small portion of the HSBC costs occurred in the fourth quarter, but the vast majority of the estimated $120 million in merger-related costs will be booked in the second quarter of this year.
But First Niagara says its underlying business is growing at a steady pace, and, unlike some banks in other parts of the country, First Niagara is not weighed down by huge volumes of problem loans.
"This is a no-boom, no-bust" region of the country, Koelmel said, referring to upstate New York, Pennsylvania and New England, where First Niagara does business.
Net income
In the quarter, First Niagara incurred costs of $13.5 million for a previously announced restructuring program, which includes closing branches and paying severance to workers whose jobs were eliminated. First Niagara hopes to save about $25 million yearly from that restructuring.
About $6 million in HSBC-related costs were taken in the fourth quarter. Most of the added expense from the HSBC deal — about 80%, according to Koelmel — will be booked in the second quarter of this year. In total, First Niagara's total expenses tied to the HSBC deal costs should be around $120 million.
"'We've given guidance with what the one-time costs would be in connection with that (deal), and that will play itself out through the second quarter," Koelmel said in the interview, suggesting those costs are on pace with projections.
Analysts, during a Thursday conference call, commended First Niagara on the loan growth and asset-quality improvement it reported for the quarter. Total commercial loans grew 43% from a year earlier, to $10.02 billion. Total nonperforming assets fell 3.8% to $94.3 million.
"It's important to grow, but it's most important to grow with sound fundamentals," Chief Financial Officer Greg Norwood said in an interview. "We continue to see very, very positive trends."
First Niagara lost about $3.5 million in the quarter from lower interchange fees from debit-card purchases, a result of the Durbin Amendment to the Dodd-Frank law.
First Niagara is divesting 64 branch offices as part of its
During a conference call with analysts on Thursday, Horwitz & Associates Inc. analyst Theodore Kovaleff questioned Koelmel on the wisdom of selling some HSBC branches to $88.8 billion-asset KeyBank, a major rival. Koemel responded, "As for who we sell to, we knew going into it last July and August that we'd have to assemble the pieces of that divestiture puzzle as best we could. Our focus wasn't on the competition."