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Banking on continued growth

Pittsburgh is new territory in a new state for First Niagara Financial Group Inc., but it is not a new idea for President and CEO John Koelmel.
Koelmel had designs on Pennsylvania as a First Niagara market while working as a consultant for the Lockport-area bank more than five years ago. He remembers former president and CEO William Swan discussing the Three Rivers area early this decade.
“Pittsburgh has always been on our radar screen,” Koelmel says. “I can remember Bill talking openly about Pittsburgh, the logistics and geographic convenience. You can get to Pittsburgh (from the Buffalo area) faster than you can get to Albany. While it’s a different state and all that, it’s a no-brainer.”
The demographics of Pittsburgh and western Pennsylvania are much like Upstate New York’s, Koelmel says.
“Pittsburgh is a big Buffalo, a big Rochester,” he says. “It’s not a dramatically different environment. They’ve gone through an evolution from an old steel town to a much more high-tech and vibrant community, similar to what we’re trying to make happen in Upstate New York.”
First Niagara last month announced its purchase of 57 National City Bank branches in the Pittsburgh region for $54 million. The acquisition includes $4.2 billion in deposits, $839 million in loans and 400,000 customer accounts.
The deal, expected to close in September, immediately will rank First Niagara fourth in deposit market share in the Pittsburgh area behind PNC Bank N.A., Mellon Bank N.A. and Citizens Bank of Pennsylvania. It will be third behind PNC and Citizens among retail institutions.
PNC was required by regulators to divest the Pittsburgh-area National City branches for competitive reasons as part of its purchase of the Cleveland-based bank in December. PNC had a deposit market share of 37.1 percent as of June 30. National City ranked second at 15.5 percent.
“PNC owns the market,” Koelmel admits. “It’s one more market where we’re going in and competing against the 800-pound gorilla. But that’s what we do up here. We think that translates to opportunity for us.”
The market leaders in the Rochester and Buffalo markets are HSBC Bank USA N.A. and M&T Bank Corp., with KeyBank N.A. first in Albany and second behind M&T in Syracuse.
First Niagara Bank ranks ninth in market share in Rochester. It employs some 230 people at 18 offices in the area.
“We don’t find the size and strength of PNC to be daunting or intimidating,” Koelmel says. “It’s a great organization. But we think our approach of big enough but small enough will play very well there. We think that will enable us to take more of a share.”

Deals boost growth

The National City acquisition is First Niagara’s first venture outside New York. Its previous expansions have been in the Albany area and eastern New York.
Koelmel came to First Niagara in January 2004, on a Monday, as its chief financial officer. On his first Friday, the bank closed on its $348.2 million acquisition of Troy Financial Corp., doubling the size of First Niagara and moving it into the Albany-area market.
At roughly the same time, negotiations began with Hudson River Bancorp Inc., whose acquisition was announced April 1, 2004, for $611.1 million.
First Niagara also acquired Buffalo-based Great Lakes Bancorp Inc. in a deal that closed in February 2008.
“Acquisitions as well as organic growth have always been our foundation,” Koelmel says. “To be an even more formidable player, we need to continue to grow via acquisitions.
“We looked at contiguous markets and tried to sharpen our focus on what geographies we think make the most sense. We’re basically an urban-suburban bank, and we want to look at other urban-suburban markets where we think our value proposition will play.”
First Niagara seeks to gain a greater deposit share in Rochester and other upstate markets, Koelmel says. It also wants to expand in Pennsylvania and move into northern New Jersey and southern New England. He does not envision the bank getting into New York City.
“As the financial industry furthers its shakeout over the next two or three years, we’ll continue to have opportunities similar to PNC/Nat City that will allow us to deepen our presence in existing markets and/or expand the franchise,” he says.
“Three years from now, my expectation is that we’re larger than we are and have a bigger slice of the pie where we currently do business, including western Pennsylvania, and you’ll find us in a market or two where we don’t do business today.”

Upstate native

Koelmel, 56, was born and raised in the Buffalo suburb of Orchard Park. He was graduated from the College of the Holy Cross in Worcester, Mass., with a bachelor of arts degree in economics and accounting, and he went to work in the Buffalo office of what was then Peat, Marwick, Mitchell & Co., now KPMG LLP, where he was a CPA.
He stayed with the firm for 26 years, becoming a partner in 1985 and managing partner of the Upstate New York practice, which stretched from Buffalo to Albany.
“I had a terrific tenure there,” he says. “I was a classic work-hard, play-hard type of guy. You could’ve bet long odds that I’d end up in the kind of position I’m in today. I’m not one to plot and plan and keep chasing any particular aspiration or goal.”
Peat Marwick had many clients in the banking industry, and Koelmel worked with most of them throughout the state. He left the firm in 2000.
“When I first started, Buffalo competed against the Peat Marwick office in Rochester, as well as Syracuse and Albany,” he says. “When I left 26 years later, we operated as one business unit.”
Koelmel left, he says, because changes in the accounting profession made his work less enjoyable and less rewarding.
“It was the beginnings of the bigger market/small market divide,” he says. “It was the beginnings of what you could and couldn’t do with your clients. I’m a big relationship person. I really enjoy the interaction with my clients and with customers.”
He also left the firm without a next job in sight.
“He left there based on the stress levels of the business and having a young family,” says Joseph DeVincentis, an Orchard Park podiatrist and a close friend of Koelmel for 30 years. “He was so confident in his abilities he was actually not working for a while. He’s just so confident that he could open a door anytime he needed to.”
Later that year, Koelmel caught on with Financial Institutions Inc., where he served as an executive with the Warsaw-based holding company for banks in Warsaw, Geneva, Bath and Salamanca from 2000 to 2002.
“I was excited to have the opportunity to get involved in a business where I could really have an impact and make a difference,” he says.
Within 18 months, Koelmel became disenchanted with the direction of the bank; he resigned in mid-2002. He calls his time there “a bit of a mismatch” but declines to be specific.
“When I went there, First Niagara and Five Star were similarly positioned,” he says. “A year and a half later, it was clear to me that Five Star’s expectations of where that organization was going were other than what I anticipated.
“That’s not a criticism of them. They just opted to go in a different direction than I originally anticipated.”
Koelmel spent nine months figuring out what to do next.
“First Niagara had been a client of mine,” he says. “I knew Bill Swan and many of the team very well.
“Bill was (upset) when I went to work for Five Star without talking to him about coming to work for First Niagara. We had had a very good friendship, but he wouldn’t even talk to me.”
First Niagara, which in 1998 had taken the first step toward its initial public offering, completed the second step in January 2003. Koelmel sent a note of congratulations to Swan and to Paul Kolkmeyer, then executive vice president.
“Twenty-four hours later the phone rang,” Koelmel recalls. “Bill said, ‘How are you doing? Let’s get together.’ I started a dialogue with them at that point about whether or not there was an opportunity for me to join First Niagara.”
Koelmel had started a consulting business while waiting out a one-year non-compete clause related to his departure from Financial Institutions. Swan committed suicide in August 2003, a month before the clause expired.
“As soon as I heard, I called the bank and talked to Paul (Kolkmeyer) as to what I could do to help,” Koelmel says.
Swan had been president and CEO since 1989.
“I had a very active professional relationship with him and developed a good personal relationship with him,” Koelmel says. “I considered him a friend as much as, if not more so than, a client. We had a regular dialogue around business issues and his challenges as a CEO. He used me as a sounding board. We socialized and played golf together.”
Koelmel last saw Swan only days before his death, at the PGA Championship at Oak Hill Country Club. Swan was serving as a marshal at the event.
“I chatted with him for 10 or 15 minutes on the sixth hole,” Koelmel recalls. “I walked away from that thinking he was clearly stressed. He didn’t look all that good. He just didn’t seem to be himself. But I certainly would’ve never anticipated the outcome that resulted a week or 10 days later.
“All of us will forever be at a loss for why he made the decision he did. But we’ve all done our best to move on and build on the foundation he laid. He continues to be our guiding light, or guardian angel, if you will.”
Kolkmeyer immediately took Swan’s place as president and CEO on an interim basis, and his status was made permanent in December 2003. Koelmel was hired in November and started his new job in January.
In December 2006, Kolkmeyer was fired and Koelmel was named to replace him, first on an interim basis.
“There was no huge red flag with Paul,” said Thomas Bowers, the bank’s chairman and a board member at the time of the change. “It was that we felt we needed to step it up. It was not an easy decision, but it seemed clear that we needed some new leadership to get us to the next level.”
Bowers, head of the Savings Bank of the Finger Lakes when the Geneva bank was acquired by First Niagara, has known Koelmel for nearly 20 years.
“When the decision was made to make a change at the top spot in the company, John was, to me, the perfectly logical and appropriate choice to become the CEO,” Bowers says.
The decision to replace Kolkmeyer came quickly, Koelmel recalls.
“When they asked me if I’d be willing to serve, it was an emotional moment,” he says. “It’s humbling to be asked to run any organization, let alone one such as this. At the same time, it was very willingly accepted because it’s a great opportunity to have even more of an impact.”
Koelmel was named acting CEO on Dec. 8, 2006. He was elected president and CEO by the board on Feb. 20, 2007.
“He has exceeded my expectations,” Bowers says. “I knew John to be a very smart man. He can keep a number of things moving at the same time and push them forward. He did that as our chief financial officer.
“What I hadn’t seen in John, which I’ve since seen and have grown to appreciate, is he’s a charismatic CEO. You don’t think of a CPA with 20 years in public accounting as a charismatic leader. He’s a great motivator. People like him and respect him and want to follow him.”
The transition from CFO to CEO has been smooth, Koelmel says.
“I was CFO in title, (but) I was intimately involved in everything that was going on,” he says. “There wasn’t a big learning curve at that point.”

Beyond banking

In addition to the banking acquisitions, First Niagara has acquired several insurance agencies and employee benefits firms in recent years.
Among them are the Rochester area’s leading insurance firm, Hatch Leonard Naples Inc., in 2005, and the area’s fourth-largest employee benefits administrator, the Burke Group Inc., also in 2005. The insurance and employee benefits subsidiaries have their headquarters in Brighton.
“As important as the banking transactions are, the further buildout of our financial services business was also key and critical,” Koelmel says.
“On the heels of that, we acquired the Burke Group. I was very involved in the acquisition of the Burke Group by what is now Five Star before I left. I’ve always kidded that I’ve bought them twice.”
First Niagara Risk Management Inc. ranks first among insurance firms with 85 employees. First Niagara Benefits Consulting ranks sixth among employee benefits administrators with 39.
“We’re very interested in increasing our presence here,” Koelmel says during a trip to the Brighton offices. “What we have in Rochester is a prototype for how we’d like to grow.
“We have a combination of all that we’re about, with the insurance business and employee benefits headquartered here. We’ve built out the beginnings of a core banking franchise. We have three key legs of the stool here.”
The competition in Rochester is strong, he adds.
“It takes time to make progress,” he says. “We’re experiencing meaningful growth and want to ensure that two or three years down the road we have a more meaningful presence and penetration in the Rochester market.”
First Niagara Bank is weathering the current financial crisis, Koelmel says.
“He’s turned that whole bank around, in my opinion,” his long-time friend DeVincentis says. “It’s the only stock that doesn’t lose money around here.”
First Niagara raised $380.4 million last month through a public offering of common stock, with net proceeds of $360.7 million. It will use some of that money to repay $184 million garnered from a stock sale to the U.S. Treasury Department.
It raised $115 million in a September 2008 public offering, netting $108.8 million.
“I don’t want to suggest that our crystal ball is any better than anybody else’s, but it became clear to us that the underlying fundamentals of the banking business were out of whack,” Koelmel says. “That was clear to us in 2006, and definitely in 2007.
“As we were repositioning ourselves, we were doing things we felt would put us in a stronger position. We’ve continued to invest in the business, in anticipation of some type of shakeout. We never envisioned it to be the catastrophic train wreck it’s become, but we did feel confident that we were in a better place.”
The bank’s stock price has fluctuated from $10 to $16 a share over the last five years, and it was trading this week near $12.50 a share. Many bank stocks, however, have plummeted in recent months.
“Given the dynamics of the market over the last several years, I’m not sure we could be doing any better than we are today,” Koelmel says. “We continue to dramatically outperform the sector and the industry.”
First Niagara has assets of $9.3 billion and deposits of $5.9 billion at 113 offices, with the addition of $4.2 billion in National City deposits pending.
“The one statistic that always makes me smile is we’re the 27th-largest bank in the country on a market cap basis,” Koelmel says. “(Company stock) closed at around $14 one day a week or two ago, and our market cap bounced up over $2 billion.
“We’re in the top 25 or 30 in the country. I couldn’t be more proud of the organization, the team and the people and the energy and the vitality.”

Out of the office

Koelmel’s passion away from the office is golf, though he has not had much time lately to play. His handicap is less than 10, he says.
“It’s an individual sport, as opposed to a team sport,” he says. “You have to trust yourself and trust your swing, and trust your ability to stay focused. It’s a sport where, at whatever level you play, there are always ups and downs.
“The ability to rebound and stay focused and not lose your way has helped me compete successfully over the years. That carries over to my life professionally as well as personally.”
A baseball and basketball player in high school-“My mom wouldn’t let me play football,” he says-Koelmel now unwinds by reading and trying to relax.
“I’ve always been a Bills and Sabres fan, more so Sabres than Bills right now,” he says. “You talk about underlying fundamentals being out of whack, that’s clearly a business where the underlying fundamentals are out of whack.
“People are getting paid way too much money, and we’re all paying way too much money to go watch and support them.”
The East Amherst resident is divorced and has two adult children. Son Jeffrey is in dental school in Richmond, Va. Daughter Elizabeth is graduating this spring from Haverford College in suburban Philadelphia.
“My daughter was a lacrosse player right through college, so I’ve spent four or five of the last five or six weekends running back and forth to Philadelphia to watch her play,” he says.
“My son is down in Richmond, so I got back and forth to Richmond and D.C. to see him.”
DeVincentis says he admires Koelmel.
“I’m proud of him, if you want to know the truth,” DeVincentis says. “I’m very proud that he’s my friend. His financial abilities are unmatched around here. He’s a wonderful guy, a great father and a tremendous businessman.
“He’s very humble. Guys who become successful and are very humble are top-quality people. He’s so talented that he winds up being in charge of any circle he walks into. He commands an audience because of his knowledge and abilities. He wasn’t one that aspired to reach the top. He just was put there because of his abilities.”
rbj@rbj.net / 585-546-8303

John Koelmel
Title: President and CEO, First Niagara Financial Group Inc.
Age: 56
Home: East Amherst
Education: B.A. in economics and accounting, College of the Holy Cross, Worcester, Mass., 1974
Family: Divorced; son Jeffrey, 25; daughter Elizabeth, 22
Hobbies: Golf, reading
Quote (on being named interim CEO in 2006): “Given what they had been through over the last several years, they realized a change was needed. They made that bold decision. On the flip side, they were tip-toeing into the Koelmel waters to make sure they had the right person. While comfortable and confident on my end, we had to work together and find our way.”

05/22/2009 (C) Rochester Business Journal

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