Fifth Third, First Horizon Revive Branch Deal

Fifth Third(FITB Quote) and First Horizon(FHN Quote) appear to have settled their differences regarding the sale of some branches.

First Horizon has agreed to sell nine branches in the Atlanta area to the Cincinnati-based bank for an undisclosed amount. Fifth Third will take on the branches, offer employment to branch staff and deposits, while Memphis-based First Horizon will retain all loans at the branches.

The loans seem to be a contentious issue between the two companies.

The sale, originally to close last month, was scrapped after issues arose regarding a "key term" in the deal, according to the companies.

Fifth Third ended up slapping First Horizon with a lawsuit. It claimed that less than a week before closing the deal, First Horizon had doubled the maximum price agreed upon for the branches after submitting a "pre-closing date balance sheet," according to a complaint filed on Feb. 8 with the U.S. District Court of Southern District of Ohio, Western Division of Cincinnati. First Horizon had entered the higher price because it claimed that the agreed-upon transaction did not include most of the branches' loans, when in fact it did, according to Fifth Third.

With the new agreement for the branch sale, the litigation will be dropped, they said.

"We are pleased that with this transaction we have completed the sales of our First Horizon bank branches that we announced in September," First Horizon CEO Gerald Baker said in a statement. "We are focusing our capital on our higher-return full-service banking businesses that are located primarily in Tennessee, where we have the largest business and consumer market share."

Still, the companies did not disclose any other terms of the deal, including whether First Horizon would now book a gain in the quarter due to the sale of the branches. The company had said last month when the deal looked ready to collapse that it did not expect to book the gain and that the $30 million in cost savings it expected from the sale of a total of 34 branches would be "delayed" as a result of the fallout.

"Management took a look at the issue, realized this is a good deal for both companies, moved forward on the easiest way to complete the transaction and did it," says Bob Patten, senior bank analyst at Regions Financial's Morgan Keegan. "In the end, both banks are in the same place."

First Horizon will keep approximately $190 million to $200 million in loans from the branches, Patten estimates. And while the bank won't get the upfront gain it had initially expected from the sale of the loans, "they will keep the income from those loans and realize it over time," he says.

First Horizon, troubled by the mortgage industry deterioration, said last summer that it would sell or close 34 bank branches in four underperforming markets -- Virginia, Georgia, Texas and Maryland -- that were likely to remain unprofitable. The company announced in September that it was selling the 34 branches to four companies: M&T Bank(MTB Quote), Fifth Third, Sterling Bancshares(SBIB Quote) and two branches to subsidiaries of FMCB Holdings of Senoia, Ga.

A First Horizon spokesman did not immediately comment on Wednesday. A Fifth Third spokeswoman declined to discuss terms of the deal.

Shares of Fifth Third recently were falling 2.4% and First Horizon shares recently were down around 4.5%.