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First Niagara Bank buys 57 National City Bank branches from PNC

First Niagara Financial Group agreed to buy 57 National City Bank branches in this region from PNC Financial Services Group and plans to convert them to "First Niagara Bank" in September, its CEO said Tuesday.

First Niagara will pay $54.1 million for deposits of $4.2 billion at the National City branches, a deal that makes the Buffalo-area bank the third-biggest in the seven-county Pittsburgh market, with an 8 percent share of consumer deposits.

The sale comes four months after federal antitrust enforcers ordered PNC to sell 61 National City branches as part of its $5.6 billion acquisition of National City on Dec. 31.

"This is a nice step for us, and one we've long looked forward to," said First Niagara CEO John Koelmel in an interview.

The bank plans to convert National City branches over the long Labor Day weekend and reopen Tuesday, Sept. 8, as First Niagara, he said.

Under the deal, First Niagara also has an option to sell to PNC as much as $150 million in common stock and debt when it completes the acquisition "in order to maintain its strong capital levels," First Niagara said.

Based in Lockport, N.Y., outside Buffalo, First Niagara dates back 140 years. It has 117 branches in the upstate New York region from Buffalo to Albany and about $9.3 billion in assets.

Competition for depositors among banks in the Pittsburgh region should intensify with First Niagara's entry in the market, one analyst said. It will compete with the region's largest bank, PNC, and No. 2, Citizens Bank, as well as with Dollar Bank, Huntington Bank and a host of smaller institutions.

"When folks in Pittsburgh hear it's a Lockport bank, they (First Niagara) will have to spend quite a bit of money on advertising," said George Ator, a veteran banking consultant in Whitehall. "Pittsburgh is a bit of a parochial town, and they are an out-of-state bank. I think it's going to be a tough sell."

First Niagara is a solid, conservative institution, said Richard Weiss, a bank analyst for Janney Montgomery Scott, Philadelphia. It should do well in the Pittsburgh market, despite the out-of-market name, he said.

"Buffalo and Pittsburgh are similar areas -- meat and potatoes and slower growth," said Weiss.

The banking analyst said First Niagara's operations are very attentive to customer needs, and it never engaged in the subprime lending and securitized loan pools that tripped up many banks -- including National City -- in recent years.

"They are big enough to provide different services, but small enough to provide personal service," said Weiss. "They will make it tougher for banks like S&T and First Commonwealth. They will be tougher to compete against than National City was."

First Niagara also will assume $4.16 billion in deposits and $839 million in National City business and consumer loans. The deal, which is expected to close in September, is the bank's biggest ever.

Weiss said First Niagara's payment of $54.1 million for the National City branches and loans was "a great price."

First Niagara said it would hire about 500 National City employees, most of whom work in the branches. The bank also said it will create at least 50 Western Pennsylvania jobs to support lending and other operations in this area. It will create at least 100 jobs in upstate New York in connection with the expansion.

Hiring could begin "as soon as today," Koelmel said yesterday. First Niagara employs about 2,000 people, including in insurance brokerage, investments and specialty finance.

The bank will look at similar transactions in the next two to three years in markets adjacent to the Pittsburgh area, as well as those east of Albany, such as Massachusetts and Connecticut, said the CEO.

Analyst Weiss looked at the optional financing with PNC as a positive for First Niagara because he expects "more favorable acquisition opportunities will arise," he said.

First Niagara has completed four acquisitions in the last seven years, including the $611 million acquisition of Hudson River Bancorp in 2005, which gave it 49 branches in Albany.

Two other banks agreed yesterday to buy the other four National City branches being divested. Marquette Savings Bank, Erie, agreed to acquire three branches in western Crawford County. Emclaire Financial Corp., Emlenton, the parent of Farmers National Bank, is buying one National City branch in eastern Crawford County.

Other National City branches, including up to 97 in Western Pennsylvania, will convert to "PNC Bank" sometime in the second half of the year, said spokesman Fred Soloman.

Additional Information:

First Niagara Financial Group

Bank name: First Niagara Bank

Branches: 117, from Buffalo to Albany

Employees: 2,000

Headquarters: Lockport, N.Y.

Deposits: $5.9 billion

Assets: $9.3 billion

CEO: John Koelmel

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