Horizon Bancorp to Acquire 14 TCF National Bank Branches; Shares Fall 4%

Horizon Bancorp, Inc. (HBNC) revealed that its subsidiary Horizon Bank has inked a deal to acquire 14 TCF National Bank branches which are being divested by TCF Financial Corp. (TCF) as part of the ongoing merger with Huntington Bancshares Incorporated (HBAN). Shares of Horizon Bancorp declined 4.2% on Tuesday.

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The branches are located in 11 Michigan counties and come with approximately $976 million in deposits and $278 million in associated loans. (See Horizon Bancorp stock analysis on TipRanks)

Horizon expects the deal to be accretive to 2022 EPS by more than 17% excluding expenses. The internal rate of return (IRR) is forecast to be 21%. The deal is expected to dilute the tangible book value (TBV) by 5% with TBV earnback of two years.

Through this acquisition, Horizon estimates that 50,000 retail and small customer accounts will get added along with the complete workforce of the acquired branches. At present, Horizon Bank has 74 branches including 15 in Michigan.

Per the terms of the deal, Horizon Bank will pay $17.1 million for the acquired deposits. This reflects a 1.75% premium to the $976 million in deposits as of March 31, 2021. The company will finance the deal from excess capital and available cash.

Notably, the deposits have an average relationship life of over 10 years. Furthermore, the 0.08% average cost of acquired deposits will further bring down Horizon’s total deposit cost, which averaged 0.21% in the first quarter of 2021.

Horizon Bank will also take up residential mortgages, consumer, and small business loans at the branches at a 3.50% discount to cover any credit risk exposure. Loans outstanding were $278 million as of March 31, 2021.

The acquisition is expected to close by the third quarter of 2021 and is subject to certain regulatory approvals.

The Huntington-TCF Financial merger has received all necessary approvals and the deal is expected to close on June 9.

HBNC’s CEO Craig M. Dwight commented, “We are excited to welcome Horizon Bank’s newest employees and customers and introduce them to our record of exceptional service to consumers, small businesses, non-profits and municipalities across Michigan and Indiana….This financially and strategically attractive transaction is a logical extension of our efficient retail franchise, which is designed to further enhance our low-cost core deposit and funding capability to support loan growth in a recovering economy.”

On May 19, Raymond James analyst David Long reiterated a Buy rating and price target of $21 (19% upside potential) on the stock.

Long commented, “With an abundance of excess liquidity and robust capital levels, it is clear that the team’s first priority is to grow the franchise and is well positioned to do so. In the near-term, loan growth faces headwinds, but M&A activity remains a viable option, and we have identified several potential targets for Horizon.”

He further added, “We remain bullish on HBNC shares over the long-term as we believe the bank will continue to gain market share over its peers due to its attractive organic growth profile, supplemented with M&A.”

Overall, HBNC has a Moderate Buy consensus rating based on 2 unanimous Buys. The average analyst price target of $21 implies 19% upside potential from current levels.

TipRanks data shows that financial blogger opinions are 100% Bullish on HBNC, compared to a sector average of 68%.