Listen to audio clips of First Niagara President and CEO John Koelmel's conversation with Lauren LaCapra linked throughout the article.

First Niagara Financial Group ( FNFG) has been making headline recently as the little regional bank that could.

The Lockport, N.Y.-based company announced last week that it had raised $380 billion in fresh private capital, which it plans to use in part to repay $184 million worth of Troubled Asset Relief Program funding it received from the government last fall.

First Niagara, which has remained profitable through the economic turmoil, is also on a mission to expand its footprint through the Northeast and Mid-Atlantic area. The bank recently won a bid to acquire a chain of National City branches -- and $4.2 billion in deposits -- from PNC Financial Services ( PNC).

President and CEO John Koelmel, spoke with TheStreet.com about his plans to capture market share from bigger competitors that are focused more on containing troubled assets than expanding their reach, and the decision to raise capital to get out from under the government's wing.

TheStreet.com: Tell me more about the Nat City acquisition. What made First Niagara a key contender, and how did you score the deal?

John Koelmel: As I said to others, I've assumed ... they were negotiating with more than us right up until the final stages of the process, because that's what any good seller would do. In this case it's also complicated by the fact that it wasn't just PNC making the decision here.

The Department of Justice and the Fed had the ultimate approval. They needed to ensure, wanted to ensure, that they got a high-quality competitor and that PNC wasn't frankly structuring a transaction that was advantageous to them since they're the big kahuna, they're the 800-pound gorilla against which we and others will continue to compete...

So I can't opine, don't know the extent of the competition. I do know that we were a real long shot, by anybody's standards, when this auction process started back in December.

Do you have any worries about lingering problems that Nat City had that forced it into PNC's arms?

That's an easy one: Absolutely not.

Nat City didn't struggle and its demise wasn't a function of how well it was doing business in the traditional banking world, whether that be consumer or commercial ... They have been and continue to be very good bankers and they have a very strong core banking franchise.

Consumer credit issues remain, and unemployment is expected to keep trending upward. How are you handling those issues in running the company and how much of a threat is the ongoing recession to your bottom line?

We're obviously very mindful of today's realities but as you can see from our continuing very solid performance, I think we're steering the ship very adeptly through those troubled waters, if you will. We have a very focused, disciplined business model that we execute well.

Frankly, the upstate New York market where we currently do business on any kind of scale is pretty stable and resilient ... We didn't see any part of the boom that turned out to be a lot of hot air in most markets in the country, so we don't have any bust right now. Is it robust here? No, but it hasn't been for quite a while. It's just good, steady, stable, predictable. That's what upstate New York is ... We look at Pennsylvania, western Pennsylvania -- Pittsburgh, Eerie in particular -- to be more of the same.

AUDIO: Koelmel Says Economy in 'Extended Workout.'

How has the recession changed the competitive landscape for regional banks?

We compete up here against the biggest of the big, most notably HSBC ( HBC) ... Our other competition is Key ( KEY), BofA ( BAC), Citizens ( CRBC) and M&T ( MTB), all of whom are major, major players whether it's around the world or throughout the country, or even on a super-regional basis.

They're among those that are very challenged by this environment. They're among those who are rethinking their business model and one of the ramifications of that is they progressively pull back from markets like this. They're not all that open for business up here.

They're taking in deposits but they're not making many loans. So, that gives us over the last year, 18 months in particular, a tremendous opportunity to take additional market share, albeit from a market that isn't growing. So while the size of the pie isn't any bigger, our slice of it is progressively so ... We've been the consistent one in the market that's open for business, making loans, doing the right thing for customers, understanding their business, their needs, being responsive, while the competition's had their internal challenges, and frankly has taken their eye off the customer.

I'm not knocking them, not to be so long-winded on you, but it all adds up to opportunity for us, it doesn't add up to troubled times or waters for First Niagara.

AUDIO: Nat City Not 'Damaged Goods,' Koelmel Says.

TheStreet.com: Why was it a priority for you to pay back the TARP funds so quickly?

We've always been motivated to repay it sooner than not. As I've indicated to many, did I have any expectation that months later we'd be in a position to do it? Certainly not. But I say that with incredible pride relative to what we've accomplished in that short period of time, above and beyond what we had done prior to that. And I'm a real proud papa, if you will, in terms of how the investment community has further embraced our story and want to participate in it.

So was it more an issue of the sentiment turning around more so than any kind of pressure from lawmakers or regulators over your internal business operations?

Absolutely. I've been a very vocal proponent of the program ... I think the program was generally well-designed and is working relatively well.

Like anything that gets too politicized, it kinda hit a slippery patch, a slippery slope a month or six weeks ago. Was any of that lost on us? Of course not. But in and of itself, we're only repaying the money because we've been able to raise the dollars to do so and substitute private equity for public as was originally intended.

AUDIO: Koelmel Says 'Perfect Storm' Led to TARP Repayment.

Talk to me like I'm an investor who either holds First Niagara, or is thinking about buying some shares. As much as there's a bullish case in terms of the acquisition and performance so far, the shares haven't been rallying like others in the financial sector.

Koelmel: Your question has to be predicated on a real short-term view, at least relative to the rally that you refer to. The reason we haven't rallied is because we didn't fall off like the rest of the world.

Last year, our share price was up 34% for the year. That's a positive 34% in 2008, when the market, our peers, the industry at large, was off literally 40% to 50% ...Those who were already trading at 3 or 4 bucks a share; those who were at a hundred and a quarter that were now sitting at 35 -- they didn't have that much further to fall...

We were in a much stronger position than others and, yes, you've seen some of the pullback in our stock. But, what's the shortest answer I can give you to your question? We just raised $380 million (on April 7). There is no one, literally no one, who has raised a nickel in months and months and months, let alone $380 million.

Yea, Goldman ( GS) snuck in, in the middle of ours Monday night, and took their own $5 billion. But I'm happy to bundle us with Goldman right now and say we're the only two firms that have raised money, literally, in this market, in recent times.

AUDIO: First Niagara Shares Down Amid Short-Term Rally.

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