First Niagara CEO: Our returns are not where we want them

January 27, 2014 Updated Jan 27, 2014 at 10:54 AM EDT

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January 27, 2014 Updated Jan 27, 2014 at 10:54 AM EDT

First Niagara Financial Group Inc. is planning to spend hundreds of millions of dollars on technology upgrades in order to boost efficiency and create better return for shareholders.

The upgrades will take place over the course of three to four years, according to new president and CEO Gary Crosby, who addressed investors and analysts Friday following the release of the Buffalo company's fourth-quarter earnings report. Crosby said the changes - which are expected to cost between $200 million and $250 million - are bank-driven and not a result of demands being made by financial regulators.

"The investments that we make … will not only improve efficiency by reducing overall cost to build and operate, it will also ensure that the next set of investments to integrate a new product or platform will involve less cost and less risk, and also increase speed to market and enable us to better address future regulatory compliance matters," Crosby said. "Our … approach is being designed to include such technological developments and the most current thinking in this regard to be better prepared for this transformation."

Crosby's first quarterly earnings call since being named top executive in December focused on his strategic vision for the Buffalo parent of First Niagara Bank N.A. (NASDAQ: FNFG), which has experienced rapid growth in recent years as it expanded across New York state and into Pennsylvania, Connecticut and Massachusetts under the leadership of former CEO John Koelmel. Those expansion days are over, for now, as the bank puts its efforts into improving its existing business, especially in order to enhance shareholder return.

"Our returns are not where we want them to be," Crosby said, adding that the bank has been "underperforming" in recent quarters and now must work to change that.

Crosby listed several business lines positioned for or already experiencing solid growth: consumer finance, mortgage lending, indirect auto loans, the bank's credit card portfolio and its securities portfolio. Crosby said the bank does not need to raise capital right now.

"We have a solid core, but where we are today is just not good enough," he said.

He pointed to "inherent gaps" in the bank's "middle-market evolution" and said the bank's fee income is not as high as it could be. In the near-term, he said expenses will rise as the bank incurs more personnel and professional services costs.

"What this is coming down to, for us and for any financial institution, is pay now or pay later," Crosby said. "This investment strategy has to take place at some point."

First Niagara spent much of 2013 cutting its operating expenses. By the end of the fourth quarter, which wrapped up Dec. 31, the bank had trimmed $225 million, Crosby said.

Shares fell by more than 10 percent Friday afternoon to $9.23, down $1.11 from the previous close.

First Niagara is the second-largest bank in Western New York, based on deposits. Earlier this month, it announced the pending closure of three local retail branches and a shift in its retail banking model that will see the elimination of 170 retail jobs, including 10 in the Buffalo region.

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