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.The purchase will boost Northwest Bank's deposit market share in the Buffalo MSAto 5.0% from 0.6%, ranking it No. 4 in the market. The bank also expects that thedeal will improve its funding base by reducing its loan-to-deposit ratio to 95%from 109%.

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.

According to a newsrelease from the Department of Justice, the divestitures are required to "ensurethat the transaction does not harm competition for retail banking services in theGreater Buffalo area." KeyCorp and First Niagara agreed to suspend existingnon-compete agreements with their small business and middle market relationshipmanagers, and their retail regional and branch managers in New York, for 180 daysafter the deal closes;they also agreed not to enter into new non-compete agreements during this period.And both banks agreed to sell or lease branches closed in New York during the twoyears after the merger is completed to other depository institutions.

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.