Two insurance companies have agreed to sell Donegal Financial Services in Marietta, Pa., to Northwest Bancshares in Warren, Pa.

The $9.5 billion-asset Northwest said in a press release Tuesday that it will pay $85 million in cash and stock for the $577 million-asset parent of Union Community Bank. The deal, which is expected to close in the first quarter, prices Donegal at 172% of its tangible book value.

Donegal Financial will pay a $30 million dividend to its two shareholders — Donegal Group and Donegal Mutual Insurance — before the deal closes.

Union Community has 14 branches, $430 million in loans and $490 million in deposits.

Northwest said that its branches in Lancaster County will increase from six to 16 locations, and its deposits in the county will more than quadruple, to $640 million.

Northwest said it should have more than $10 billion in assets when the transaction closes.

“We are extremely excited to be acquiring a community bank of exceptional quality in one of the more rapidly growing counties in our geographic footprint,” William Wagner, Northwest’s chairman and CEO, said in the release.

“In addition to providing meaningful accretion in earnings per share and return on equity, this merger will provide bottom-line earnings that exceed the loss of transaction income we will incur as mandated by the Dodd-Frank Act when we cross the $10 billion asset threshold,” Wagner added.

Northwest said the transaction should be immediately accretive to its earnings, excluding merger-related costs. It should take less than four years for Northwest to earn back the deal’s expected 3% dilution to its tangible book value.

Northwest plans to cut about 40% of Donegal’s annual noninterest expense.

Ambassador Financial Group and Luse Gorman advised Northwest. Keefe, Bruyette, & Woods advised Donegal Mutual. Duane Morris provided legal advice to Donegal Group and Donegal Mutual.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.