Editor’s note: The Investment Q&A feature appears regularly in the Banking & Wealth Management special reports of The Central New York Business Journal, spotlighting area investment professionals and their views on the financial markets and investments. In this issue, Alan Leist provides his outlook.

Alan R. Leist III, CFA, chief investment officer at Strategic Financial Services in Utica.

CNYBJ: What is your view on where the financial markets are headed in the coming months?

Leist: On my first day in the investment business, I received a particularly bad piece of unsolicited advice: “Always be bullish, no matter what!” This stance has always struck me as dangerous, a product of the Wall Street sales machine. I was reminded of that long-ago conversation at the start of this year when reading a popular survey of leading market strategists. All of these “experts” were calling for the market to be up again in 2014. I couldn’t help but laugh. Everyone was bullish.

The market may very well be up this year. We don’t know. Over the short-term, no one ever really knows for sure. At Strategic, we simply employ a disciplined, repeatable process to make sound decisions in protecting and advancing client capital over the long-term across market cycles. On occasion, we may even recognize that the bull deserves a short rest.

U.S. Stocks: With a weather-related pause in the domestic economic recovery, an escalation of geopolitical risk, and the Federal Reserve in transition mode, equity investors were patient to start the year and refused to chase stocks after 2013’s historic rally. Nevertheless, a familiar theme quickly returned. As soon as the market showed any sign of weakness, buyers stepped in to put a floor under U.S. stocks in the absence of attractive alternatives elsewhere. This pattern has been repeated consistently for the past several years, instilling an imprudent sense of complacency among investors.

Market sentiment and valuation tend to swing like a pendulum, occasionally moving to the outer edges, but rarely pausing in the middle. Five years after the final washout in 2009, the momentum remains on the side of the bulls in a low-interest rate world that supports ever-higher prices for stocks and other risk assets. However, the market has recently shown some signs of exhaustion, most notably in the type of speculative stocks that often emerge at tops. A reacceleration of economic growth is needed to drive corporate sales and to justify current valuations. As we wait for fundamentals to catch up to stock prices, the market likely will mark time within the recent range, occasionally retesting lows and flirting with new highs.

Bonds: A sell-off in the bond market was all but guaranteed at the start of 2014. As is often the case, however, the market moved against popular opinion. A rally ensued as the economy showed some signs of weakness and the Russian-Ukraine conflict drove investors toward safety. Yes, fixed-income investing will be a challenge for the next few years, but bonds are the ballast in a well-diversified portfolio, allowing for prudent risk to be taken elsewhere. A high quality, laddered, relatively short-duration strategy will help protect investor capital until better values emerge in other segments of the capital market and interest rates inch closer to levels that are more normal.

CNYBJ: Provide specific recommendations for investments that clients should be making right now.

Leist: At Strategic, we have been net sellers of small and mid-cap stocks in recent months despite the persistent calls of the bulls. Client portfolios have been rebalanced back to targets in domestic equities in order to capitalize on better values elsewhere in the market. Sales proceeds were directed toward international stocks, including emerging markets, commodities, and even cash. A note on emerging markets: valuation and demographic trends support attractive longer-term returns. Investors should expect bouts of near-term volatility that present an opportunity for entry at favorable levels.

CNYBJ: What do you see as the greatest risks investors need to be aware of and seek to avoid in the coming months?

Leist: A disorganized unraveling of Federal Reserve policy, corporate-margin compression and a still fragile global recovery remain among the key risks for 2014. Until there is a pick-up in the pace of top-line growth, segments of the market appear to be fully valued, if not outright pricey, at current levels. With valuation no longer a cushion, we are due for a healthy correction that tests the conviction of investors and sets the stage for the next leg higher in the bull market.

Acting as an offset to dysfunctional policy making in Washington, the Federal Reserve’s monetary stimulus program has distorted asset prices across the entire investment spectrum. Investors must resist the temptation to reach for returns. Protecting capital is the first rule of successful investing. Insist on quality with a margin of safety in every investment decision.

Following first-quarter earnings that were reduced by charges related to recent branch closures, First Niagara Financial Group’s chief financial officer, tells The Business Journal News Network, the banking company is not planning to close any more branches at this time.

“We don’t have any current plans to consolidate more branches,” Gregory W. Norwood, CFO, says in an interview.

First Niagara (NASDAQ: FNFG) on April 24 reported that its first-quarter net income declined 13 percent from the year-ago period, amid restructuring costs to close branch offices.

The Buffalo–based parent company of First Niagara Bank N.A. generated net income available to common shareholders of $51.9 million, or 15 cents a share, in the first quarter, which included $8.3 million in after-tax restructuring and severance expenses related to branch closures and staffing moves.

That’s down from $59.7 million, or 17 cents, in the first quarter of 2013, which included $4.3 million in after-tax charges related to executive departures.

Excluding restructuring charges, First Niagara produced operating earnings of 17 cents a share in this year’s first quarter, which was in line with analysts’ consensus estimates, according to Yahoo Finance data, citing the estimates of 12 stock analysts.

First Niagara, the fourth largest bank in the 16 county Central New York market ranked by deposit market share, closed 10 branches companywide in the first quarter. They included two Southern Tier offices — one each in Owego and Conklin. First Niagara also shuttered five branches in Pennsylvania and three in Western New York. The moves came in response to customers’ increased use of its online, mobile, and telephone-banking options, the banking company says.

In all, First Niagara has consolidated 70 branches since 2011, according to a document it presented to investors on April 24.

“What customers want to do in branches is changing. We will continue to look at the physical footprint [of the branch network] as well as what people want in branches,” Norwood says.

First Niagara said in its earnings report that the first quarter was highlighted by continued balance-sheet growth, steady credit quality, and stable core net interest margin.

Average loans increased 8 percent annualized compared to the prior quarter. Average commercial business and real-estate loans rose 9 percent annualized over the previous earnings period.

First Niagara generated “really strong loan production, maybe stronger than even I anticipated,” Norwood says. “And it’s what I would say is high-quality loan growth.”

Norwood notes that the bank didn’t depend on making large loans to generate its growth.

The largest loan First Niagara made in the quarter was only $12 million, he says, adding that the average loan was probably “high single digits” in millions of dollars.

When asked how well the banking company’s Central New York operation is performing, Norwood says, “We still have a significant presence in that market — 700 to 800 employees. The entire Upstate market has performed very well for us, [producing] high single-digit [percentage] revenue growth.”

First Niagara issued its earnings report before the open of trading on April 24. In the three trading days that followed, its stock price fell by 3.4 percent from $9.25 to $8.94, as of the close on April 28. Year to date, the stock was down almost 16 percent.

Going forward, analysts are expecting First Niagara to generate earnings per share of 18 cents on revenue of about $360 million in the second quarter, ending June 30, according to Yahoo Finance data.

First Niagara says it’s a multi-state community-oriented bank with 411 branches, $38 billion in assets, $28 billion in deposits, and about 5,800 employees serving New York, Pennsylvania, Connecticut, and Massachusetts. 

Contact Rombel at arombel@cnybj.com

ITHACA — Tompkins Financial Corp. (ticker symbol: TMP) reported that its net income rose more than 9 percent to $12.6 million in the first quarter from $11.5 million in the year-ago quarter.

The Ithaca–based banking company’s earnings per share rose over 6 percent to 84 cents in the first quarter from 79 cents a year earlier.

“We are pleased to start 2014 with the strongest first quarter in our history,” Tompkins Financial president and CEO Stephen S. Romaine said in the earnings report. “In addition to earnings per share growth over the first quarter of 2013, loan and deposit levels increased from the same period last year, and from the most recent prior quarter. At the same time we saw continued improvement in nearly all credit quality indicators.”

Tompkins Financial’s net interest income increased almost 5 percent to $40 million in the first quarter from the same period last year.

The net interest margin for the first quarter of 2014 was 3.6 percent compared to 3.57 percent in the first quarter of 2013.

Noninterest income at Tompkins Financial was nearly unchanged at $17.43 million in this year’s first quarter, compared to $17.39 million a year earlier.

Credit quality improved in the latest quarter with non-performing assets representing 0.81 percent of total assets, the lowest this percentage has been over the past five years, the banking company said.

Tompkins Financial took a provision for loan and lease losses of $743,000 in the first quarter of 2014, down 28 percent from $1,038,000 in the first quarter of 2013.

Net loan and lease charge-offs totaled $699,000 in the first quarter of 2014, down from $1 million a year prior.

Tompkins Financial’s total loans of $3.2 billion as of the end of this year’s first quarter were up 7 percent over the same period in 2013, and increased an annualized 1.3 percent over year-end 2013.

The company also declared a quarterly dividend of 40 cents per share, payable on May 15 to shareholders of record on May 5.

Tompkins Financial is a financial-services firm serving the Central, Western, and Hudson Valley regions of New York and the Southeastern region of Pennsylvania. It is parent to Tompkins Trust Company, The Bank of Castile, Mahopac Bank, VIST Bank, Tompkins Insurance Agencies, Inc., and Tompkins Financial Advisors, which offers wealth-management services.

Contact Rombel at arombel@cnybj.com