Warren, Pa.-basedNorthwest Bank is buying18 First Niagara Financial Group Inc.branches in the Buffalo, N.Y. area. The branches are being sold to resolve related to FirstNiagara's pending mergerwith Cleveland-based KeyCorp.
The bank, a unitof Northwest Bancshares Inc.,will pay a 4.5% deposit premium to assume approximately $1.7 billion in depositsand purchase approximately $511 million in loans associated with the bank branches.Thirteen are in Erie County, N.Y. and five are in Niagara County, N.Y.
Northwest Bank expectsthe deal to be about 25% accretive to 2017 EPS, and generate an internal rate ofreturn of about 25%. In an investor presentation, Northwest Bank said the transactionprovides a net cash inflow of more than $1.0 billion that will allow it to repay$715 million of Federal Home Loan Bank advances, "effectively replacing borrowingswith core deposits at a significantly lower interest rate." The bank anticipatesan annual interest expense reduction of about $23.8 million, based on the weightedaverage cost of acquired deposits of 0.20%.
The branch dealis expected to close in the third quarter, subject to regulatory approval and theclosing of the KeyCorp-First Niagara deal. The DOJ and the Federal Reserve haveapproved the divestitures, according to a joint release from KeyCorp and First Niagara.
Morgan Stanley & Co. LLC acted as financial adviser to KeyCorpin the deal, and Simpson Thacher & Bartlett LLP acted as the bank's legal adviser.First Niagara was advised by the law firm of Sullivan & Cromwell LLP. Boenning& Scattergood acted as financial adviser to Northwest Bank and Luse Gorman actedas legal adviser.