First Niagara aims for asset growth
Will use $184 million U. S. infusion in drive to boost assets by at least $2 billion
First Niagara Financial Group says it will use its new capital from the federal government and an earlier stock offering to grow its assets by $2 billion to $3 billion, even as it keeps an eye on budding acquisition opportunities.
The Lockport-based savings bank, which currently has assets of about $9 billion, said Tuesday that it completed its sale of preferred shares to the federal government on Friday, collecting $184 million in new capital from the Treasury Department’s Capital Purchase Program.
Together with an earlier $115 million offering to the public in early October, the bank has now added $300 million in new capital that it can leverage by more than eight to one, enabling it to expand its lending significantly across its upstate markets.
“We had a little early Thanksgiving dinner on Friday, and now we’re just starting to digest,” President and CEO John R. Koelmel said in an interview.
Analyst Joe Fenech, who follows First Niagara for Sandler O’Neill & Partners LP in New York, praised the company’s initiatives.
“I think First Niagara has done a wonderful job of preparing for the downturn,” he said. “They raised capital on their own and then they took down the full amount of TARP, even though they’ve held up quite a bit better than the rest of the country. It was nice to see a management team look way out.”
First Niagara is one of three institutions locally that have already received money from the $700 billion Troubled Assets Relief Program passed by Congress to support the faltering banking industry.
Bank of America Corp. was one of the first nine banks to get money, receiving $15 billion plus another $10 billion for Merrill Lynch & Co., which it is acquiring. KeyCorp also received $2.5 billion.
M&T Bank Corp. has also been approved for $600 million, while Evans Bancorp, Lake Shore Bancorp and Northwest Savings have applied for money. HSBC Bank USA and Citizens Financial Group, as foreign- owned banks, are not eligible.
Koelmel said the influx of new capital will help the bank advance its long-term strategic plan, which calls for increasing business and commercial real estate lending, as well as expanding fee-based businesses like insurance, leasing and money management.
Already this year, First Niagara has grown its loans, responding to both a “flight to quality” by borrowers and a tightening of credit by other lenders as well as the capital markets. Average commercial business loans at the end of the third quarter rose 26 percent from a year ago, while average commercial real estate loans rose 12 percent. And the bank made $200 million in new loans just in October, across all lines of business.
Officials plan to continue that momentum, as they emphasize that they’ve always been open for business.
“The credit markets up here haven’t shut down. There’s no switch that’s being flipped,” Koelmel said. “There’s a lot of us out here who continue to support Main Street America.”
Also, acquisitions have long been part of First Niagara’s strategy, and the government money can, in theory, be used for acquisitions, especially of troubled institutions. That’s what PNC Financial Services Group did with its pending purchase of National City Corp., getting $6.6 billion from the TARP program.
“Strategically, we’re always looking to explore strategic opportunities,” Koelmel said. “Acquisition opportunities will certainly be on the table. And as I sit here today, they are more imminent than I might have assumed two to three months ago.”
But the bank is likely to issue stock or may have to raise additional capital to support any such purchase, rather than relying on the TARP money.
“There’s way too much emphasis being placed on the M&A side,” Koelmel said, referring to “mergers and acquisitions.” “Yes, it will further position us to do acquisitions, [but] $184 million isn’t going to fund that much of an acquisition.”
For example, the bank’s purchase of Greater Buffalo Savings Bank early this year cost $153 million, while its acquisition of Hudson River Bancorp, in good economic times in 2005, cost $615.8 million. Greater Buffalo had $903 million in assets, while Hudson River had $2.78 billion.
“Our aspirations certainly exceed what could be funded with $184M in capital,” Koelmel said. “We’d be under-utilizing that capital. It’s very limiting in terms of how much of a deal might get done.”
Under the voluntary program, First Niagara sold 184,011 shares of newly issued, non-voting senior preferred shares, paying an initial dividend of 5 percent for the first five years, and then 9 percent afterwards.
Treasury also received warrants to buy 1.91 million shares of common stock valued at $27.6 million, with an exercise price of $14.48 per share. The warrants are good for 10 years, and Treasury will not exercise any voting power.
As long as Treasury owns the shares, the company cannot raise its common stock dividend or repurchase shares or other capital securities without government permission.
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