First Niagara Financial Group on Tuesday abruptly replaced its charismatic CEO, John R. Koelmel – who was responsible for the bank’s tremendous growth in recent years – in a surprising move by its board of directors.
The board’s action indicates that frustration with the bank’s languishing stock performance and failure to gain traction with its acquisition strategy had reached a boiling point among investors that directors could no longer ignore.
The Buffalo-based banking company, which has grown four-fold through acquisitions under Koelmel’s leadership, announced late Tuesday that Koelmel, 60, will leave his position as president and CEO effective immediately. He also stepped off the board in accordance with company bylaws.
In a news release, the bank described the action as a “mutually agreed upon departure” but did not elaborate.
“I highly value the opportunity to have driven First Niagara’s rapid growth over the last six years and to position it as one of the top regional banking franchises in the Northeast,” Koelmel said in the bank’s news release, thanking the bank’s 6,000 employees for their support. “I agree with the board that it’s in the best interests of the organization under present circumstances to move forward with new leadership.”
The board appointed Gary M. Crosby to serve as its interim president and CEO, while a national search is conducted. Crosby, 59, is currently executive vice president and chief administrative and operations officer of the bank.
Chief Banking Officer Daniel Cantara will continue overseeing the businesses that deal directly with customers.
“Enhancing shareholder value through operational excellence, a commitment to the basics of banking and to helping our customers do great things every day is our focus,” Crosby said in the release. “At the same time, we remain dedicated to making credit and financial services widely available in our communities, adhering to the risk management principles that have provided us with the exceptional asset quality that has long distinguished First Niagara, providing a workplace where talented employees build rewarding careers and serving as a leading corporate citizen.”
The board’s independent directors formed a special search committee, headed by board member Nathaniel Woodson, who joined the board with the purchase of Connecticut-based NewAlliance Bancshares in April 2011. The bank said it will retain an executive search firm and “conduct a thorough and expeditious search, considering both internal and external candidates.”
“John Koelmel has guided the company’s transformation from a local thrift to a leading Northeast banking franchise and led First Niagara during a period of difficult economic conditions and financial industry turmoil,” said board Chairman G. Thomas Bowers.
“The Board and I are grateful to John for his leadership through this critical period in our history and for positioning us so that we can focus on enhancing shareholder value through continuing organic growth and the efficient operation of the business we have today.”
Neither Koelmel nor Crosby was available to comment Tuesday.
Koelmel, who is negotiating his severance agreement, was traveling for a board meeting of the New York Power Authority, of which he is chairman.
“John is in the process of finalizing his relationship with First Niagara and evaluating his future options. In addition, he is attending to a number of his civic responsibilities,” said Terrence M. Connors, Koelmel’s attorney. “After the process of separation from the bank has concluded, he will speak publicly about his departure.”
Sources familiar with the situation say the move by the bank’s board has been brewing for about a week, and officials were particularly busy over the past weekend, in preparation for the board meeting. However, pressure has been building on Koelmel and the board for over a year from shareholders who are unhappy with the bank’s stock price over the last two years.
Bank officials and Connors stressed that Koelmel was not fired for cause and there are no issues of ethics or misbehavior involved, nor did personal health play any role.
But Koelmel and the board have been roundly criticized by shareholders for pursuing costly growth at the expense of shareholder returns, and Koelmel has found himself frequently on the defensive about making too many deals and paying too much for them. It’s acquired five banks since 2007.
In particular, the bank has been under fire since it announced its acquisition of 1 million accounts from HSBC Bank USA in August 2011, including 195 branches and $15 billion in deposits across upstate New York. That deal, while it catapulted the bank into the top ranks across every market of the state, suffered heavily from bad timing, as the purchase was unveiled just one day before the crisis over the U.S. debt ceiling. A week later, the Federal Reserve announced it would keep interest rates low for at least two more years.
As a result, the stock market tanked immediately, bringing bank stocks in particular with it. First Niagara was hammered for being on the offensive instead of the defensive. Its effort to raise more than $1 billion in additional capital wound up costing it, and shareholders, much more than originally planned. And it wound up selling the 64 branches to KeyCorp, Community Bank System and Financial Institutions for less than expected.
Over the next few months, the bank’s shares plunged from just about $14 per share to just about $8 per share and, after a brief surge, fell again to as low as $7.50 last year. They had peaked at more than $16 per share in 2003 and again in late 2008. As of Tuesday, shares closed at $8.44, down six cents for the day.
The bank completed the HSBC purchase and says it has successfully integrated the branches, customers and employees.
Koelmel and others have publicly and repeatedly asserted that it has stopped its acquisition binge to focus instead on efficiently and effectively running what it has, making sure it can grow internally and be more profitable with its existing customer base. It will report first-quarter earnings on April 19.
“We are committed to maintaining our position as a leading independent banking organization with a deep-seated focus on service to our customers and communities and to building value for our shareholders,” Bowers said.
The board felt the bank’s need to change direction from acquisition mode to regular day-to-day operating mode also needed a leader with different skills, sources said.
“There are growers and there are nurturers,” one source said.
“I do think John grew the bank in ways that were almost unimaginable at the time, and I think he was ideally skilled at that, and I think the bank will reap what he sowed for decades to come,” said Howard Zemsky, who has worked closely with Koelmel and First Niagara in developing Larkinville, where the bank moved its headquarters. “I think after that much acquisition, I think it’s also appropriate for the bank to focus on organic growth and digesting all those acquisitions. I think there was a very mutual understanding that, given the bank’s direction, this was an appropriate time to change leadership.”
Koelmel, a Western New York native and career accountant at KPMG in Buffalo, joined First Niagara in 2004 and took the helm in 2006, following a board coup that fired Paul Kolkmeyer as CEO. He led the former Lockport Savings Bank through steady growth and transition from a traditional savings bank into a full-service commercial bank, including its purchase in 2007 of Greater Buffalo Savings Bank.
Then he steered the bank through the financial crisis unscathed, while directing initiatives to raise significant amounts of capital and invest in the bank to prepare for ambitious growth.
Under his tenure, since 2009, the bank acquired 57 branches in Western Pennsylvania, followed by Harleysville National Corp. with 83 branches in Eastern Pennsylvania, and then NewAlliance Bancshares with 87 offices in Connecticut and Massachusetts. He capped off the growth with HSBC.
As a result, the bank surged from $8 billion in assets to $37 billion today, with 430 branches in four states.
Koelmel also has emerged as a prominent, influential leader in the Buffalo Niagara region in the past several years.
Under his direction, the bank moved its corporate headquarters from a suburban office building in Pendleton to the Larkin at Exchange Building, anchoring Howard Zemsky’s project and bolstering the growing Larkinville neighborhood as the bank steadily added jobs and office space.
The bank has also invested in infrastructure improvements for the burgeoning district.
“I’m surprised, like a lot of people are,” said Erie County Executive Mark Poloncarz, who had a meeting scheduled with Koelmel next week. “I know he was under a lot of pressure, after the acquisition of HSBC, to increase shareholder value. He was working very hard. He was a great steward for many organizations, but I was very surprised to hear that he was relieved of his duties.”
“I think John was an inspirational leader who enthused everyone around him,” said Colleen DiPirro, president of the Amherst Chamber of Commerce, who praised his “bottom-line, no-nonsense” approach. “First Niagara Bank is an important organization in our region and their sustained profitability is critical to our region’s sustainability. I look forward to working with their new leadership as we continue to rebuild the Buffalo Niagara region.” ◄ He serves on the Western New York Regional Economic Development Council and has chaired the Power Authority board since 2012. He was credited with spearheading an effort to revive the Empire State Games, donating $500,000 in 2010 in hopes of drawing more corporate sponsors.
He also has served as chairman of Kaleida Health’s board, where he has helped steer the region’s largest hospital system since 2009.
The Buffalo News’ editorial board praised his wide-ranging impact: “Communities across the country cry out for this kind of leadership from the private sector.” The Buffalo News named Koelmel one of its Outstanding Citizens of 2011, and in a recent Buffalo News survey, he was rated as fifth-most effective in a survey of 25 leaders in Buffalo and Erie County.
“Over the past seven years, John has led the transformation and growth of First Niagara,” said James R. Kaskie, president and CEO of both Kaleida Health and parent Great Lakes Health System of Western New York. “At the same time, he has generously given his time and talent to numerous community-based organizations like Kaleida Health. Unfortunately, in the business world, executive level changes do occur. But this does not diminish John’s role with our organization. We look forward to John continuing his role as chair of the Kaleida Health Board of Directors.”
Crosby, who joined First Niagara in 2009 as chief administrative officer before getting a promotion in February 2010, has overseen the build-out of the bank’s infrastructure in anticipation of the bank’s rapid growth.
Previously, he spent five years as chief financial officer and chief operating officer of the Buffalo Public School District.Before his public sector stint, he spent 30 years in the business world, first as one of the founding shareholders and chief financial officer for ClientLogic Corp., a computer software firm founded by Jordan Levy and Ronald Schreiber, and then as a partner and chief financial officer for Seed Capital Partners, the venture capital firm Levy and Schreiber formed.
John R. Koelmel’s First Niagara tenure
Dec. 19, 2003: Hired as executive vice president and chief financial officer
Dec. 9. 2006: Named president and acting CEO
Feb. 21, 2007: Named CEO
Sept. 10, 2007: First Niagara buys Greater Buffalo Savings Bank
Oct. 3, 2008: Bank sells 8.5 million shares, raises $109 million
April 7, 2009: Bank buys 57 National City Bank branches in Pittsburgh and Western Pa.
April 20, 2009: Bank raises $330 million by selling 27 million shares
July 27, 2009: Bank buys Harleysville National Bank with 83 branches in Philadelphia area
Sept. 9, 2009: Bank announces headquarters moving from Pendleton to Larkinville in Buffalo
Oct. 1, 2009: Bank raises $460 million buy selling 38 million shares
May 17, 2010: Koelmel elected chairman of the Kaleida Health board
Aug. 20, 2010; Bank announces plan to buy Connecticut-based NewAlliance Bancshares for $1.5 billion, making First Niagara the 25th largest U.S. bank
July 26, 2011: Named to Regional Development Council by Gov. Cuomo
Aug. 1, 2011; Bank agrees to buy 195 HSBC branches across upstate New York for $1 billion in cash
May 2, 2012: Nominated to be chairman of the NY Power Authority by Gov. Cuomo
March 19, 2013: Removed by board as chairman and CEO of the bank
Source: News research