First Niagara's CEO Presents at Barclays Capital Global Financial Services Conference (Transcript)

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First Niagara Financial Group Inc. (NASDAQ:FNFG)

Barclays Capital Global Financial Services Conference Transcript

September 11, 2012 4:15 PM ET


John Koelmel - President and CEO

Greg Norwood - Chief Financial Officer

Ram Shankar - Head, Investor Relations


Matthew Keating - Barclays Capital

Matthew Keating - Barclays Capital

Good afternoon. My name is Matthew Keating, and I work on the U.S. Banks Research team here at Barclays. We are very pleased to have First Niagara Financial Group presenting this afternoon. First Niagara is a community oriented bank, which provides financial services to individuals, families and businesses across Upstate New York, Pennsylvania, Connecticut and Massachusetts. At the end of the second quarter it has $35 billion in assets, $28 billion in deposits, 430 branches and approximately 6,000 employees.

We are very pleased to have President and CEO, John Koelmel presenting. Also in attendance from the company are CFO, Greg Norwood; and Ram Shankar, Head of Investor Relations.

With that, I will turn it over to John.

John Koelmel

Thank you very much, Matt. Good afternoon, everyone. We appreciate sticking with us as we better clean up today. It’s good to be back. I forgotten, a year ago I missed those conference, we’ll be polite about it. I tore a muscle in my posterior, and was -- would really immobilize for couple of days. So it’s good to be up and above, and appreciate the opportunity to be in front of you again.

What, well, I do my best to do, move with some pace through the presentation and give opportunity for your feedback via the formal questions, as well as head hoc from the floor.

I want to do a quick little look in the real view mirror in terms of how we’ve gotten here, where we are today, that’s been most of my time focus on, what our focus and priorities are for the near-term today and the foreseeable future.

Continue to give hopefully increase clarity and what we think it will take for us to win, and what we expect of ourselves and what you can expect of us, in terms of performance and results.

Over the years I’ve used different phrases to capture the essence of where we are and one we used a couple years ago was the aggregate, integrate and operate theme, so dust that one up for a couple of minutes.

The talk about, how we’ve evolved over the last three, four, plus or minus years, and we find ourselves today, the beneficiaries, we believe we’re having aggregated, tremendous and talented team to an incredibly solid and we think opportunistic customer base across the geography of footprint and franchise on that with the combination above M&A, as well as organic growth.

Always start with talent, when you think aggregate, most people think M&A, before deals we strong together are clearly come back for that. First and foremost, for us always has and always will be the team and talent that we’ve aggregated.

We recruited 100s in addition to acquiring (inaudible) with these transactions. We recruited 100s of seasoned, experienced been there, done that professional from across the industry and across the business world and across the country. The group is very savvy, groups that incredibly focused on the customer and consistently sole and it’s a group, again we say repeatedly that defines why we are winning.

Winning hearts and minds, talk about that all the time. You can’t get to their valet unless you start with their heart and their mind. And that’s what’s differentiated us. As for the last three, four years, does today, and will continue to in the future.

Those customers that we’ve aggregated as I said really nice commercial bank mix. We’re evolving from a threat to commercial platform and very, very comfortable and confident and excited about the opportunity very loyal, committed and relationship focus and relationship driven customer base provides.

And that’s across the franchise and the footprint in the Northeast where the demographic speak for themselves and the stability and resiliency of the footprint, I think has took the test of time through the worst of the storm and further validates our attempt to ensure we stay focus geographically, don’t get a mild wide and steep, but focus on density and accumulating critical mass over tighter geography.

So as we look at that aggregate piece of the puzzle, I think we’ve been opportunistic every step of the way whether the wind was at our back or in our face. I’m pleased and proud of what we’ve been able to accomplish.

In terms of the integration piece of the equation, really is where we can continue to differentiate. I think our execution is relatively unique and a lot of us use those words from time-to-time, but I take a lot pride in this case.

There is a real short list of the do what we do the way we do it. Whether that be the day one full conversion, people, products, systems, infrastructure, whether that would be the systems conversion, legally complete the transaction 4:30, 5 o’clock on Friday, reopen the business 9 o’clock Monday morning under the First Niagara banner, on the First Niagara system, no parallel pause, et cetera.

What’s the reason for that so that we can play offense, no [deep friends] from day one is all about playing offense, are we perfect, clearly not, but the clean up the stumbles, stumbles are minimized and we are quickly in offensive mode.

Do that with the team, yeah, we worked hard to ensure we integrate from day one. We have met together, do an old cultures, we reenergized, fire up the team, that’s progressively for started circumstances been other than fully engaged and fully focused on their customers and markets and the opportunities ahead, we instantly empower them to ensure they can better deliver.

Do that we think in a relatively seamless and painless way on the product and service front. Do that where they rely on the communities. You’ve seen every where we go, we instantly plan our flag early, position ourselves as a real community leader, the key leg of our stool, employees, customers, communities and shareholders, and one we use to ensure we further elevate our brand and better position us to win those hearts and minds.

And lastly, we think, we’ve operated very well for the last three to four years. Personally I think it tends to get over looked, a touch from time to time, operating effectiveness, efficiencies always been a key to our success.

We are not just builders. We are very much effective operators and to the extent we’ve been able to operate, as well as we have, while continuously building, as I think is all of our testament or the strength of the team and the talent that we’ve had.

By desire we led with commercial every step of the way, hence the differentiating results retail, real attraction, in particular over the last couple of years, our consumer positioning, consumer finance positioning, in particular continues to evolve, while we are further invest in the communities we serve to make them a better place to live and work, hence profile position regard for us very, very high.

So, however, we aggregate, integrate, operate team ourselves, self annoyeded if you will but high marks for what we’ve been able to accomplish and the platform we’ve been able to create.

Clearly, the key of that will always be the team, the talent and the culture that we create, and now you will hear from other as well. But we really do have one of the best teams in the business.

Why we are winning? I talk often. What we do? You listen for two days the companies, who gather deposit, make loans and provide other product and services, some of them are good, some of them are great. We’ll never differentiate with what we do.

How we do it? Clearly, begins to differentiate us, (inaudible) for I use is hopefully (inaudible) maneuvering the big battleships. Our competition is the bigger players and our decentralized structure in market leadership and talent and focus, empowerment, decision making makes us more nimble and better able to execute for the benefit of the customers and the communities we serve.

But who we are, who delivers that differentiated service, that’s why we are winning. I said it earlier, so you will hear it again before I give it up. For us, although, who, is why we are winning, the how, is what differentiates us, the what, right there with everybody else.

Hence we are incredibly focus and continuously recruiting, developing, recognizing, rewarding, engaging, energizing, the team that we’ve assembled. The teammates, it’s a very flat organization, everyone is fully engaged top to bottom, look at myself as the Chief Cultural Officer, its my job to ensure, set the pace, set the tone, and ensure the whole organization gets what we are after and connects well with our audience.

What’s punch line commitment? It’s about creating something really special, what does that mean, a really special environment for all of us, the thrive has been and we’ll continue to be the key ingredient for our success.

So what has our success been or not over the last three, four years as we’ve aggregated, integrated and operated? Well, if you slice it into a four box, conveniently because of the four transactions start there.

Western Pennsylvania, first and clearly, our best transaction to date, best for variety of reasons, one it was the first two most important, we are able to build the team completely ourselves, yet we acquired some talent in the brick-and-mortar in the 57 branches that were part of that transaction but we built the rest of the business, the rest of the team from the scratch, headed in place day one and have literally been playing offense, offense very effectively in the geography and the markets that looks a lot like our legacy footprint across Upstate New York.

Eastern Pennsylvania, we knew we were getting into our fixed wrapper was unique opportunity to stretch in the near-term back-to-back our presence and footprint across the State of Pennsylvania. We needed some clean up. It was an organization that was on live support.

That was little more of a clean up, little more of a turnaround, little more of fixed wrapper than we anticipated. I’ve said that in the past. Hence we are just now seeing the kind of traction that we anticipated year ago.

That says, we are underperforming, no, just saying, we have an outperformed as we typically expect to do. For instance when you look at the numbers up there, you will see some real strong commercial growth, that core deposit number sit there in rack.

While the reality was the byproduct of the live support they were on embedded in their core accounts was 4% and 5% money, 4% and 5% money market and other deposit relationships that obviously we’ve let run out.

So if you pull that out, we’ve grown that core base, double-digit, 10% to 15%, 20%, if you measure our number of accounts north of 20%. But that churn in that turn to get us out from under where they were as I said little more of a fixed wrapper.

Our team continues in New England, less of fixed wrapper more pulling it through from the threat that the commercial bank footprint and franchise they were also a top quartile payer, we’ve let that money run, let that money run off, as well as we’ve continue to reposition that portion of our franchise for better days ahead.

HSBC, only three months into it, so well scrutinized scrubbed and analyzed over the last 12 months, very, very pleased with where we are as I stand here today, way to extended timeline from the start to finish, a lot of moving parts and pieces under the worst of times.

The execution feel very, very good, about how we are able to thread that needle under adverse circumstances other than what we plan 15 months ago, but as we stand with the franchise and the opportunity that we have to continue to build. Whether that’s further leverage footprint and the customer base that’s in place whether it’s to accelerate, ramp up credit card, wealth and small business other initiatives on our own, many pluses again more to come.

What does all that mean, big picture as you roll it all up. Fundamentals of the business are very, very strong, I’ve spent the day, Greg and I talk with investors about just that. Fundamentals of our business continue to hold up very, very well, and we think give us a great platform to continue to build.

Obviously, we talk a lot about the commercial growth make a big deal out of 10 consecutive quarters and reality is 20 or 25 only because one of them I think somewhat get below 9% -- 10%. We’ve led with the commercial side of the business, retail, as I said earlier, is more than catching up in the overall progress and results of the business continue deploy well.

So what does that leave us? Four year run, continuous, aggregate, integrate, operate, very much like what we’ve staked out, more than 400 branches, more than a million households, excellent demographics, fabulous team, leadership profile and presence across each of our markets and an excellent platform in the foundation to not only compete but to win from those next map or the heat map as one likes to call it gives you even a better cotton slice that the strength on the potential of the footprint of the franchise and the opportunity that we have.

So where do we go next. What’s our focus? Well, just see recap here. All of our plan, the hand we hold, the hand we have, the cards we pulled to the fullest, all of our making the most of what we have today. There is no more aggregate, integrate and operate. It’s operate, operate and operate. Optimize today’s business in balance sheet, drive efficiency and effectiveness to generate differentiating earnings growth, do that by taking even more share of not only market but wallet. Rotate that balance sheet.

We’re going to see a lot of absolute asset growth from us. So all that are continuing to rotate the asset churn, redeploy those investment dollars into loans. We’ll optimize the mix of the balance sheet, create real operating leverage, do all of that while effectively managing capital, be smart about how we’re managing shareholder returns with an overarching theme of operational excellence.

Let me emphasize the last point. Set others throughout the day to day, never in my tenure has this organization, our organization been 100% focused on running the business that we have. That starts with me all the way to the front-end customer interface. We’re 100% focused on the business that we have top to bottom, no next deal looming, no other distractions. It’s all in focus effort and energy and real commitment to deliver on the promise. Even in spite of the ongoing economic regulatory and political headwinds that we all face.

The next dozen or so slides take you through with some reasonable debt that how we are going to deliver that. What does all that mean? How do we back that up in interest of time, time of day and your attention span, I’ll give you the CEO of Treetop drive by.

The commercial side is about being more effective with the team and the product set that we have. As we moved up market, we moved up market in sophistication. We’ll continue to do that but we’re very well positioned to compete against anybody for virtually any opportunity.

So for us, it’s being all the more effective, all the more efficient with our execution, further revolving that product set a bit but it’s really what the focus on continuing to accelerate that balance sheet rotation. Do that with the benefit of the footprint that we’ve established and the footprint that we’ve even stretched a bit across legacy upstate, New York and particular down in this general geography and what we call the price day region.

With retail, it’s all about taking share of market and wallet with the focus on those core checking accounts in customers. And converting them to -- as we and others call it transactors, savers and borrowers. You will see in a couple of these slides where we have -- there is a land of opportunity. We’re under developed, under penetrated on the transacter, saver borrower scale. So we’ll focus for us. HSBC gave us real pop and a real lift in Upstate, New York. The opportunity is to further leverage that and replicate that across the broader footprint. All of that translates to increase to profitability.

We will require some incremental investment yet for digital arena, particularly we’ve talked about but not significant investment in our part, the parts and pieces are already in place. Small business, sure you’ve heard that mantra from others as well. The key focus, HSBC team well illustrates that. It’s back to the future for them, back to community banking, back to being focused on their customer, not the niche that’s dictated from somewhere across the pond.

So they’re fully engaged in their market, not only retaining the customers they have but bringing back those that they have to turn away, given a completely different business model for the world’s local community bank. They’ve not got a real community bank to execute and run risk.

We’ll do all of that with a continuing eye on rightsizing our distribution network. Again 57 in Pittsburgh, 83 in the Eastern Pennsylvania, 88 in New England, 100 plus or minus across Upstate, New York. Is that the perfect combination of branches, no but we generally like what we have.

And more importantly don’t want to distract the organization for the next 12 or 18 months. We want to execute what we have and pulling on a limited basis and progressively over a longer period of time.

So well we do some of that, yeah, but very, very limited if we know the reason, then eliminate the distractions. On a consumer side equation, we’ve created a plug and play business model. The teams are already executing it incredibly well. They are very, very focused not only on building up an indirect auto, accelerating credit card, mortgage, taking advantage of the macro moment but also cross selling and cross solving as we talk about it.

We think about it from a customer’s perspective. So it’s across solution, cross sell effort, not from our perspective which is cross sell. And again operational excellence talked about it many, many times to repetitive theme, top to bottom, front, middle and back data analytics driven and sure we got incentives aligned that create and affect the right behavior. So again what are the keys for us?

You’ve heard some of those repetitive themes and you will see us continue to execute. With that, I’ll jump to the back third of the presentation. For those, who are trying to follow on or not, back on slide 27. So how have we performed?

Well, as I said before we’ve been pretty good operators, expect more of ourselves but have been pretty good. In fact, we have outperformed peers. When you look at our pre-tax pre-provision basis.

Why do we hone in on that metric. So slide Greg doesn’t like, too busy, too complicated but nonetheless we continue to use because we thinks it’s important to delineate. Till the crisis, we just continue to step up and step in and land in and investment in a prudent and disciplined fashion.

You’ve seen the credit story playoff. We haven’t built reserves to any kind of excessive levels. We didn’t have to build reserves in response to credit crisis on our balance sheet or in our portfolio.

Hence as others are now bleeding, leaking, putting those back through the P&L and benefiting from that, attains the mask, the strength of our fundamentals in comparison. We think that gigs going to be up pretty soon. If it isn’t already and that’s why you will see us continue to focus on the pre-tax, pre-provision metric.

We pride ourselves on keep it simple, doing it the old fashion way as I say and you will see us continue to make a steady predictable and transparent client forward.

What’s going to come out of the next iteration of that, I’ve always talked that ROA targets, I have used that as a relevant one for us. Consistently talked about something in 120, 130 zone. Message here is haven’t lost our focus, still think as relevant, for you as investors. It think that’s very relevant for us as operators.

So how do we take the muted position that we have today, given the microbalance sheet, micro position we’re in as well as the macro realities around it and move that needle, which you’ll see here on slide 28, the key themes and key initiatives to affect that ongoing transition.

First, the asset rotation, talked about it several times already. We need to ensure rather than grow that balance sheet. We are all the smarter, all the more disciplined rather than deploy the next dollar of capital, we merely -- our asset, we merely redeploy the dollar of asset that already sits in the investment book continue to bring that into the loan portfolio, improve the mix of assets as well as liabilities to ensure that balance sheet is all the better positioned and optimized.

Clearly, you won’t see us do that at the expense of credit, no need for us to reach. The lending team continues to differentiate. We don’t need to chase deals. In fact, we continue to walk away from transactions. We’ve heard others over the course of the day, talk about increasing competition, no question.

What’s might concern, we’re getting a little silly again, we First Niagra, we the industry. Some of the stuff we’re beginning to see or have been seeing, looks more like a trend than a reaction of the moment, problematic and of concern plus we’ll continue to be disciplined with how we rotate that balance sheet and ensure that it won’t be at the expense of credit or loan or some silly pricing structure or sizing.

Fee income, beyond the obvious this is a margin business for us, the real opportunities in the fee equation. Look backwards, we’re consistently north of 30% of total revenue. So with our mix of business that diversified the business model and the revenue stream to ensure we could achieve that. We need to get back there. I need to get back there as soon as -- can that remains our target zone.

We are under penetrated at every level. But as well as the bad use, it shows the bad news, it’s just the reality and the outcome of the aggregation of customer and franchise over the last three or four years. Clearly, a significant opportunity that we not only need to but we’ll execute on.

And again, operational excellence positioned here as the largest bar, the biggest gear that’s because it cuts across the organization. That isn’t efficiency, that isn’t efficiency ratio per se to operational excellence across the organization, the total yes. It will bring that efficiency ratio back into the kind of zone where we’re accustomed and what makes sense for us as a business.

We’ve never really gotten all that inefficient because I said in the last earnings call, there is nothing about an efficiency ratio whether it’s handled, it’s gets me excited in a positive way. Our objective is to ensure we achieved the longstanding expectation and target for us, which is back in and under those mid 50s and be all the more disciplined about how we deploy our assets and build up and build out a people process systems and infrastructure.

Our expectation is result of that, pushing on our own, pushing through the headwinds of the moment and bringing that ROA back up above that 1% level, with the benefit of some economic and/or interest rate lift. We’re getting back into that 125, 120 to 130 zone, puts us not only in a much better track but positions us as one of the stronger performers in the sector.

Do that and add in a consistently solid dividend yield and shareholders again will see necessary and positive move in their returns. And be assure that lot of slide talks to the broader space capital rallies of the moment. We’re certainly focused on increasing our capital but feel very, very comfortable, one with where we are. We optimized our balance sheet and capital position with the benefit of the HSBC transaction. We carried access capital, through the storm to ensure we could continue to aggregate.

We wanted to get to a point where we could rightsize our capital position for the balance sheet. Here we did that, coming out of the HSBC transaction not only in total but in mix. We did further reduce the risk in our balance sheet and risk weighted other basis while our absolute numbers may look “load of peers.” They are right on the mark in terms of where we need to be to support the balance sheet that we have. That said, we’ll continue to build on the earning stream, it will be more than sufficient.

To do that, more than sufficient to continue -- to than begin rather to rebuild that level of dividend for the benefit of all shareholders and fully expect that as early as next year, you will see us step back into where we were and move it in a direction that’s more relevant for us longer term.

So as I wrap that up, key punch lines, key takeaways, great footprint, solidly positioned franchise, customer base give us a great foundation of platform from which to build, all of our run in the business we have, operate, operate, operate, efficiency, operational excellence, 100% dedicated focus, top to bottom and execute and deliver one of the best themes in the business and you can trust me on that.

And know that we are operating, which we are conferencing conviction, the team is delivering and differentiating outcomes each and every day, today include for the benefit of their customers and communities. And I am fully confident you will see the benefits of that in our financial performance and results, which you will in turn again deliver differentiating outcomes for the benefit of all of you and others shareholders.

Thank you very much for your time and attention. And Matt, wherever you are happy for you to pull the audience. And you are going to play, press the buzzer.

Question-and-Answer Session

Matthew Keating - Barclays Capital

Overall underway the stock wasn’t I cause you to change your minds. One, increase capital clarity, increased capital additional clarity Basel III impact. Two, smaller securities book is presented average earning assets. Three, a less aggressive entry into indirect auto lending business. Four, a better understanding of its strategic direction. Five, a high interest rate environment and six, other.

Greg Norwood

Okay. So looks like choice four, a better understanding of the strategic direction is currently investor’s largest concern. I think you have the fair job that outline kind of where you’d like to go in the presentation, John. Perhaps, you could provide -- doesn’t company haven’t read a mission statement at this juncture and kind of what is that?

John Koelmel

Our focus is to be one of the best operators in the business. So my view as I set progressively over the last couple years as to look out, all its been evergreen two to three, three to five years, handful of banks will dominate this industry different handful then do that today. My strong belief is another handful kind of doesn’t in that next year that we will be incredibly effective and perform very, very well for the benefit of their shareholder as well as cross servicing communities.

Our objective has been the position ourselves as one of the best of that next year of institutions. Here we positioned ourselves well to be in the game beyond the field of battle and we’d hope what the benefit of further articulation that obviously been resonate well enough for those audience today. The people will have good clarity about how we are continuing to move from that aggregate and integrate mode to full executions and position us successfully.

Greg Norwood

Great. Next question please?

Matthew Keating - Barclays Capital

Which is First Niagara near-term initiatives you believe holds the most promise, choice one cross selling, two expansion of its consumer lending business or three announce plans to take M&A hiatus?

John Koelmel


Greg Norwood

Surprise, surprise. So I think everyone even lying clear about the focus on kind of managing what you have today. So I think maybe we will go to choice three.

John Koelmel

Hopefully, we have been as loud and clear about our resolve and focusing commitment to do just that, okay.

Greg Norwood

Question three please?

Matthew Keating - Barclays Capital

What level of conviction do you have around the stated efficiency goal in the mid 50% range or better choice one low, choice two, medium conviction or three high conviction?

Greg Norwood

All right. So I think since people think that you do have a realistic shot of getting there, I think obviously it takes times in this sort of revenue environment to kind of get to that area, but certainly you have been making some headway.

John Koelmel

No question, we always accept is forever you show me is forever what can you do haven’t said that as I indicated before and not asking you just to trust us. But we can get there we have been there. This is the most bloated stage that we’ve had. This is the most bloated. This is an aberration for us in terms of that efficiency ratio on particular, but we manage the bloat as we steps away through [Apple].

You will see as do some trimming and pruning to bring bloat down in the near-term, no question but for us is more about executing with what we have. Its not about taking more cost out. Its about pop-in that revenue number and feel very, very confident and comfortable and appreciate the challenge from the audience to ensure we deliver on that promise.

Matthew Keating - Barclays Capital


Greg Norwood

And now we go the traditional Q&A format, sort of, extent people in the audience have questions please?

Unidentified Analyst

Thank you. Is the M&A hiatus dictated by your current stock pricing currency and would that change if your stock price was materially higher?

John Koelmel

I’ll do my best further articulate what we have consistently said. A year ago when we look at the HSBC opportunity the most difficult decision we had was should we take the hiatus they were new words to the words that in the question then or again “do it all” with the benefit of one more deal, obviously we concluded the latter.

So, the hiatus was function not of then existing stock price, not a function of today’s stock price. It’s a function of what we need to do the deliver on the promise with the piece of the puzzle that we have assembled. So we are confident that as we do that stock price will appropriately arise that we will continue to position us to be one of the longer term winner.

So the hiatus self imposed long anticipated and merely a function of ensuring we’re necessarily further integrate, but better operate the businesses that we’ve aggregated over the last several years. So the circumstance is the some of the parts to circumstance is in all dictated by the macro market, that responsive. Thank you. Appreciate this. Your 80% of the rest of the audience continues to be focused on it so again. That’s going to fill demand.

Unidentified Analyst

Thanks. One of the goals of the securities book repositioning in 2Q was the increase asset sensitivity, but it looks of the 10-Q interest rate stimulation that assets sensitivity actually went down slightly, could you just explain that appearing disconnect and what’s going on there?

Greg Norwood

Yeah. That let me take data that. With respect to the asset sensitivity we set the range of the benefit we between 200 and 300 basis points and then actually came in it 240 basis point. I think to follow the asset sensitivity if our balance sheet yet to go back to June 30th, of last year where we were slightly liability sensitive and if you look at that position later on all the components of HSBC both the pre-buy and the securities book as well as the deposit base and then you look at June 30th of this year, you will see the 1.9% asset sensitivity is pretty much in line.

Unidentified Analyst

I have another question John on the chart you showed about that the four various acquisitions obviously western Pennsylvania showed the strongest growth just curious to extent that your business there is benefiting from the ongoing development on the Marcellus Shale and whether you see intangible benefit from that regional economic boon?

John Koelmel

I think for us we talk about that, Matt, is more of any indirect benefit as to spin-off business opportunity. We directly invested in the natural gas and exploration in those companies, no. There is no question as the geography in general, see some lift and some economic rising type we’re actively participating and benefiting in that as well.

But are we a direct player, no. We’re an indirect player and hence indirect beneficiary that as you contributes to what all arises, it’s a really strong story an outcome from a team that we built and assembled and set motion from day one.

Unidentified Analyst

Thanks. How much do you have to ability your capital before you think you could be raise your dividend?

Greg Norwood

Well, I guess I have a think of it this way, in materials we basically said that we are going to balance increase dividends with the priority of capital accumulation. So I don’t think it’s a either or it’s like a most of the business decisions we have the finance decision. As John said, when we look out into next year, we can see a balancing of accumulating capital while increasing the dividend.

John Koelmel

And I can only reinforce. The question applies for some all undercapitalized today not true. So whether that NPR assessment or regulators or otherwise very comfortable with capital position that we have and as Greg reiterated, because of the opportunity to flexibility to strong earning stream to manage both on a way backup.

Unidentified Analyst

Sorry for my ignorance. Do you have to go through any stress test type process like the larger banks later this year or into next year?

Greg Norwood

Yeah. We are part of the stress testing NPR that’s out there that is relative to your asset size banks $15 billion to $50 billion, as you know that timeline begins now in September of 2013 with information provided by the regulators and that information needs to be turnaround, analyzed and delivered back to the regulators in January of 2014. So that’s the stress test regulatory scenario that we’re governed under.

Unidentified Analyst

It comes to pretty clear in your last quarterly conference call and today that cross-solving is a high-end area focus for the organization. Could you talk more specifically what’s being done to from an incentive standpoint for employees and from the systems standpoint with tracking that sort of production or that sort of metric -- preferred metric?

Greg Norwood

Sure. Let me talk about both retail and commercial. On the retail side, the transaction saver, borrower is clearly the number one focus driven by the acquisition of core checking accounts. When we look at that a big boost to that is the enhance credit card capability and platform we implemented relative to HSBC acquisition. So that will play a big major there.

In a deck two, we talk about our Caliber system where about a year so go we implemented a very metric driven branch incentive branch measurement and that team is built out significant analytics, where we think we have up in the big bank type of real-time data everyday about what’s going on in each branch.

And that’s really helping us, not only drive the behavior we want but to be able to react quickly when we see a pattern or the beginning of the pattern and the data and analytics to actually go solve that and increase the cross-solve in the retail.

In very similar manner on the commercial side over the last 18 months, we’ve really enhanced our CRM mechanism, customer relationship management to really understand what the capabilities of the customer are, what our products and suite capabilities are to satisfied those and how to cross-solve either in C&I, pre-derivatives, foreign exchange and treasury management.

So as we see that going forward that will continue to be a focus and the compensation structure on both side you driven to achieve that on commercial, it is certainly around credit, credit quality, loan growth, deposit growth and will become an increasing part on the fee income generation again much the same way on the retail side.

John Koelmel

And I will add all that, I don’t think that’s the new theme, it just the evolution refinement sharper focus of longstanding theme as we’ve always been, focused on that share, valet, and products and services for household its been key to historic success and will be all the more sales are push on.

Matthew Keating - Barclays Capital

Okay. I think we’re out of time actually. So I want to -- please join me and thanking First Niagara.

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