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NEW YORK (TheStreet) -- Maybe it's just typical "sell on the good news" market reaction, but shares of First Niagara Financial Group (FNFG) were down nearly 5% to $10.28, after the company said its interim CEO Gary Crosby had been named president and permanent CEO.

Crosby had taken over as interim CEO of the Buffalo, N.Y., lender in March, following the abrupt resignation of John Koelmel, who had led the company through an aggressive expansion over the past several years through acquisitions and branch purchases. The company's total assets had increased to $36.8 billion at the end of 2012 from $8.1 billion five years earlier; its branch count grew to 431 at the end of last year from 114 at the end of 2008.

First Niagara's stock underperformed during 2012, declining 5%, while the KBW Bank Index (I:BKX) rose 30%.  The underperformance reflected three dilutive offerings of common shares, the last of which was done in connection to the First Niagara's complicated purchase of 200 branches from HSBC (HSBC) - Get HSBC Holdings Plc Report, which was followed by a divestiture of roughly half the acquired branches.

First Niagara also disappointed long-time shareholders by cutting its quarterly dividend in half to 8 cents a share in November 2011. 

But the company's shares have rebounded, returning 41% this year through Wednesday's close at $10.79.

KBW analyst Damon DelMonte rates First Niagara "outperform," with a $12 price target.

In a phone interview on Thursday, DelMonte said the negative market reaction following Crosby's elevation to permanent CEO may have reflected "the general expectation from investors that First Niagara would bring in an outside person to run the bank. It appears that after a nine-month search for a replacement, they believe Gary Crosby is their best bet to lead the bank forward."

Looking back, DelMonte said the weak performance for the stock during 2012 "was related to the former CEO Jon Koelmel continuing to run the bank. The perception on the Street was that he was purely an empire builder who wanted to continue to do deals."

"History has shown that the growth-through-acquisition strategy does not always work to everyone's advantage," he added.

In a note to clients on Thursday, DelMonte wrote that "Mr. Crosby has done nothing to give us concern that he is not capable of running the bank on a going-forward basis, and we have confidence that he will demonstrate a strong leadership ability in taking the bank to the next level."

The analyst also wrote that if Crosby does not turn out to be successful in significantly improving First Niagara's earnings performance, "then maybe the board is open to considering other strategic options to drive value for its shareholders, including the outright sale of the bank."

First Niagara reported third-quarter net income available to common shareholders of $71.6 million, or 20 cents a share, increasing from $50.8 million, or 14 cents a share, a year earlier.  The company's return on average tangible common equity for the first three quarters was 14.16%, improving from 8.55% for all of 2012.

Based on Wednesday's closing price, First Niagara trades for 1.9 times tangible book value, according to Thomson Reuters Bank Insight.  The shares trade for 13.5 time the consensus 2014 earnings estimate of 80 cents a share, and for 12.1 times the consensus 2015 EPS estimate of 89 cents.

The following table shows First Niagara's outperformance this year against the KBW Bank Index and the S&P 500undefined:

FNFG data by YCharts

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-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.