By ALLISSA KLINE
akline@bizjournals.com | 716-541-1612

KeyBank N.A. is positioned to become the third-largest bank in Western New York when it completes its purchase of 37 HSBC Bank USA N.A. retail branches and assumes approximately $2.4 billion in new deposits.

Key announced Thursday that it plans to pay $110 million to buy the branches from First Niagara Financial Group Inc. as part of First Niagara's ongoing acquisition of HSBC's retail operations in Upstate New York. The deal, slated to close by June 30, means that:

• Key's local branch network will grow from 47 existing offices to 73 total offices.

• The number of local Key employees may rise from 950 to 1,102 with the addition of 252 HSBC employees who currently work in the affected branches.

• Key will enter Orleans County for the first time and nearly double its existing branch network in Niagara County, while filling in its footprint in the Southtowns.

Key is currently the fourth-largest bank within the region's eight counties, with $2.8 billion in deposits. That represents 8.9 percent of the total market share, according to Federal Deposit Insurance Corp. data. Those numbers should grow with this deal.

"What this does is absolutely solidify the third market-share position for us," said Gary Quenneville, regional district president. "We're going to end up with more than $4 billion in (local) deposits."

The purchase includes all 26 HSBC offices slated for divestiture under First Niagara's November 2011 agreement with the U.S. Department of Justice, plus another 11 branches in Monroe County that don't align with First Niagara's future growth plans.

Hugh Donlon, Key's Northeast regional president, was in Buffalo Thursday to announce the deal. He called it "a unique opportunity" that "aligns so well" with Key's strategic plan for Western New York and allows the bank, in one move, to pick up a significant number of deposits and other assets.

The bank, especially since 2009, has focused on expanding its local presence. It built and opened eight new branches to date, renovated existing offices and added more ATM kiosks. It has also concentrated on attracting new business-banking customers.

Officials have no immediate plans to sell or close any of the 37 branches it will purchase, Donlon said. But that could happen in the future based on distribution, he said.

First Niagara, meanwhile, continues to work toward finalizing its $1 billion purchase of 195 HSBC branches. It is currently marketing about two dozen of those branches, located primarily in other parts of the state, to interested buyers, president and CEO John Koelmel said.

He could not comment on whether there were other potential buyers who met DOJ requirements. He said the bank never made it a priority to divest all 26 branches in one transaction.