Huntington Exudes Confidence: Is It Safe?

(Updates story with share price in sixth paragraph.)

COLUMBUS, Ohio (TheStreet) -- Huntington Bancshares(HBAN Quote) is trading close to book value, and the regional bank acquired the deposits of a failed closely held savings and loan last week.

After Huntington purchased the deposits of Warren Bank last Friday, investors showed their approval Monday, pushing the company's shares up 5%. But the $64,000 question is whether Huntington will face another cash crunch.

With $501 million in deposits and six branches in Michigan, Warren Bank was a small acquisition for Columbus, Ohio-based Huntington, which had $51 billion in total assets as of June 30. However, it enabled Huntington to pick up the deposits for a paltry $1.4 million along with $83 million in assets (mainly investment-grade securities) along with an option to buy one or more of Warren Bank's six branches. The Federal Deposit Insurance Corp. was left to deal with Warren Bank's sour-loan portfolio at an estimated cost of $275 million to the agency's insurance fund.

The deal illustrated the confidence of regulators and Huntington's management that the company now has sufficient capital to ride out the credit cycle and even expand. Of course, Huntington still has to repay the Treasury for a $1.4 billion capital infusion received last November.

Since the S&P 500 Financials Index bottomed March 6, Huntington's shares quadrupled through Monday, compared with a 136% return for the index. FifthThird(FITB Quote) rose eight-fold, Bank of America(BAC Quote) increased five-fold, Citigroup(C Quote) advanced almost five-fold and Wells Fargo (WFC Quote) more than tripled.

Still, investors can get burned from "downside surprises." From a close of $1.02 on March 6, the shares climbed to $5.71 on May 11, slipping to $4.41 two days later. They fell 4 cents to $4.54 today.