Huntington Acquires Fidelity Bank

Zacks

In an effort to expand its footprint in Southeast Michigan, Huntington Bancshares Incorporated (HBAN) has acquired Fidelity Bank in a Federal Deposit Insurance Corporation (:FDIC) assisted deal.

What’s the Deal?

As part of the transaction, Huntington acquired the 15-branch bank from the FDIC. Fidelity Bank had around $0.8 billion in assets and $0.7 billion of deposits as of March 9, 2012. Besides assuming all of the deposits of Fidelity Bank, Huntington in fact agreed to buy all of the assets.

The deal is designed as a bank purchase and assumption transaction en masse without a loss share agreement. An extensive credit due diligence was conducted by Huntington on more than half of the loan portfolio, and ultimately Fidelity Bank was bought for an asset discount of approximately $150 million.

Last Friday, Fidelity Bank was closed by the Michigan Office of Financial and Insurance Regulation, and FDIC was named the receiver. Fidelity Bank is the sixteenth bank to fail in the nation this year, and the first in Michigan.

For Huntington, the deal is a strategic fit. The transaction adds over Fidelity Bank 18,000 customers to Huntington. Owing to the fill-in nature of Fidelity Bank’s branch network, the deal is anticipated to surpass internal hurdles for financial returns.

Huntington projects the transaction to be more than 2% accretive to earnings per share in 2012. It is expected to be less than 1% accretive to tangible book value while the capital ratios of Huntington are expected to bear a very modest dilutive impact.

Our Take

Consolidation has become a trend in the industry with so many consecutive bank failures in the past few years. For almost all the failed banks, the FDIC enters into a purchase agreement with healthy institutions. The largest bank failure in the U.S. banking history was that of Washington Mutual in 2008 that was subsequently acquired by JPMorgan Chase & Co. (JPM). Besides JPMorgan, U.S.Bancorp (USB) and Fifth Third Bancorp (FITB) have also acquired such failed banks through FDIC.

For Huntington, the deal is a continuation of Huntington’s commitment for the Michigan region and adds to its competitive edge. Notably, Huntington currently has 50 banking offices in Southeast Michigan, over 115 in Michigan and more than 600 branches throughout the Midwest.

Notably, Huntington is focused on capitalizing on growth opportunities. Strategic initiatives are right on track. Yet, a sluggish economic recovery and low interest rate environment coupled with regulatory issues will likely restrict substantial earnings improvement in the upcoming quarters.

Huntington Bancsharesshares maintain a Zacks #2 Rank, which translates into a short-term Buy recommendation.

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