First Niagara plans pause in acquisitions

First Niagara Financial Group, Inc. (NASDAQ: FNFG) plans to slow down its recent run of acquisitions and focus on running its business more effectively and efficiently.

“It’s time for us to hit the pause button on M&A and ensure we deliver on the promise,” President and CEO John Koelmel said during a Jan. 26 conference call, discussing the Buffalo–based banking company’s fourth-quarter results. “It’s all the more imperative given the strength of the headwinds the industry is up against today and we’ll obviously continue to face for the foreseeable future.”

First Niagara is in the midst of acquiring 195 branches in upstate New York, Westchester County, and Connecticut from HSBC. The company raised capital for the deal and announced plans to divest some of the branches involved in recent weeks.

The acquisition is expected to close in the second quarter. It has also completed acquisitions in Pennsylvania and New England in recent years.

First Niagara has $33 billion in assets, more than 330 branch offices, and 5,000 employees in New York, Pennsylvania, Connecticut, and Massachusetts. The addition of the HSBC branches will make it a major player in the Syracuse, Binghamton, and Utica banking markets.

First Niagara will slow down its acquisition strategy for at least the next 12 to 24 months, Koelmel said.

“Over the last 90 days, we’ve been very upfront in messaging that narrowing focus and the M&A pause,” he said. “The communication reflects our recognition that in completing four deals in three years, increasing our footings by a factor of five, stretching our geographic reach across three additional states, we again need to narrowly focus on high performance operational execution of further building out all that we need to be one of the lead players when the economic tide again begins to rise.”

The company does plan to accelerate its commitment to certain business areas like indirect auto lending and credit cards.

First Niagara has plans in place to divest 64 branches with about $3.8 billion in deposits and $713 million in loans. First Niagara expects to bring on no more than $11 billion in deposits with the HSBC deal. The branches to be divested will go to Community Bank, Five Star Bank, and KeyBank.

The company also raised $1.1 billion in new capital during the quarter to help fund the HSBC deal.

Once the acquisition closes and the branch divestitures are complete, First Niagara will have 430 branches, $30 billion in deposits, $38 billion in assets, and more than 6,000 employees in New York, Pennsylvania, Connecticut, and Massachusetts.

For the fourth quarter, First Niagara earned $58.5 million, up more than 27 percent from $45.9 million a year earlier.

Earnings per share in the period totaled 19 cents, down from 22 cents in the fourth quarter of 2010 as the company increased the number of shares outstanding. For the full year in 2011, First Niagara earned $173.9 million, or 64 cents a share, compared with $140.4 million, or 70 cents a share, in 2010.

Operating income for the fourth quarter was $72.1 million, up from $49.7 million in the same period of 2010. The fourth-quarter total for 2011 excludes merger expenses, employee severance, and branch closure costs, according to First Niagara.

The branch closure and severance costs totaled $17 million, but the banking company did not provide details on layoffs in its earnings release.

The branch restructuring is aimed at enhancing the bank’s capabilities in small business and wealth management, First Niagara CFO Gregory Norwood said during the conference call. It will allow the bank to put more small business bankers and financial advisers in branches, he added.