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Smooth transition for First Niagara

First Niagara Financial Group said Tuesday that it had successfully completed its purchase and conversion of 57 branches in Western Pennsylvania from National City Bank, giving it the No. 4 market share in Pittsburgh overnight.

The previously announced acquisition represents First Niagara's first presence in another state, and brings it into its largest market to date. Of the total, 50 branches are in the Pittsburgh market, with another six in the Erie, Pa., area, and one in Warren, Pa.

All reopened Tuesday morning as First Niagara locations, giving it the fifth-largest branch network in the Pittsburgh area. The bank also gained 69 ATMs across the region, and 500 employees.

Officials said the conversion process went according to plan, if not ahead of schedule over the weekend, with the ATMs back up and running by dinner time on Saturday, online banking ready by Sunday, and the branches ready on Monday. About 10,000 to 15,000 customers signed in to Web banking over the weekend.

"Things have gone and are going very, very well. We really had a terrific weekend," said President and CEO John R. Koelmel. "The core conversion itself bore the fruit of a lot of good planning and preparation. Our gang just did a phenomenal job."

The only glitch: executives underestimated the volume of calls First Niagara would receive at its call center, which was overwhelmed by customers calling "to find out what they might already have in their mailbox," Koelmel said.

"We anticipated a good influx of calls, but it's been greater than anticipated," he said. "Aside from that, it couldn't have gone better."

Additionally, under a securities purchase agreement that was part of the contract, National City purchased $150 million of senior debt notes issued by First Niagara. The notes, which pay 12 percent, mature on Sept. 10, 2014, but First Niagara can prepay the debt without penalty.

Cleveland-based National City was acquired late last year by PNC Financial Services Group of Pittsburgh. As a condition of approving the deal, the U.S. Justice Department required that PNC divest 61 branches and $4.2 billion in deposits to avoid antitrust concentrations in Western Pennsylvania. First Niagara got the vast majority of the branches and deposits, paying a premium of $54.1 million in cash.

The Lockport-based savings bank said the final purchase included $3.9 billion in deposits and $757 million in performing business loans. The tally is down slightly from the original estimate of $4.16 billion in deposits and $838.9 million in loans, as First Niagara did not purchase any loans that were not current and not all customers stayed. Some of the deposits were linked to those loans, and there was also "nominal runoff" in recent weeks, Koelmel said.

Still, the deal means First Niagara is now the third-largest retail bank in Pittsburgh, with about $3.35 billion in deposits in the Steel City, behind only PNC and Citizens Financial Group. That doesn't count Bank of New York Mellon Corp., which has more deposits in Pittsburgh than First Niagara, but doesn't offer retail branch banking. First Niagara is also the No. 5 bank in Erie.

With the deal, First Niagara gained 400,000 customer accounts and 200,000 household relationships. About 60 percent are checking accounts, with the rest equally split between regular savings accounts and certificates of deposit.

About 60 percent of the loans are middle-market corporate customers, while the remainder are small business borrowers. PNC kept all consumer loans from the branches, including mortgages and home equity loans, but Koelmel said officials weren't concerned.

"This was all an effort by Justice to give us the beginnings of a commercial foothold," Koelmel said. "Their primary concern was creating real commercial banking competition for PNC."

First Niagara also retains a "right of first refusal" to buy any brick-and-mortar branches that PNC decides to close because of overlap. It wouldn't get additional deposits, but those locations could help it fill in gaps. Koelmel said First Niagara would like another 10 to 15 offices "in the right spot."

e-mail: jepstein@buffnews.com

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