October 22, 2010 – There has been much discussion in the press lately about the increased competition among buyers for failed banks. The theory is that buyers see a looming economic recovery that will result in huge gains by purchasing failed banks at bargain prices. This week’s sale of failed banks by the FDIC, however, may indicate that the competition to buy failed banks is more hype than reality.
Three banks that purchased failed banks this week still owe the US Treasury money for funds given to them under the TARP bailout program. It would seem logical that if the FDIC had a large number of suitors for each failed bank, they would select the financially strongest buyer and exclude institutions that have not paid back government TARP funds.
The three bailed out banks that still owe the US Treasury money and yet managed to buy a failed bank are listed below.
1. Ameris Bank, Moultrie, GA, purchases failed First Bank of Jacksonville, Florida from the FDIC.
Ameris Bank was the recipient of TARP money, receiving $52 million dollars in November 2008 from the US Treasury in exchange for Ameris preferred stock and warrants under the Capital Purchase Program. Ameris Bancorp still owes the US Treasury $47.5 million dollars, although they have been making the required dividend payments on time and to date, have paid the US Treasury $4.5 million.
Ameris Bancorp, a $2.4 billion asset institution, reported a net loss of $1.7 million for the quarter ended September 30, 2010, compared to a net loss of $.9 million for the third quarter of 2009.
Ameris Bancorp had previously acquired another failed bank in May 2010, $142 million asset Satilla Community Bank of St. Marys, Georgia.
As is typical with the purchase of failed bank purchases, the FDIC provides substantial loss protection to the acquiring bank through the use of loss-share transactions. In the case of First Bank, the FDIC will provide loss protection on $60 million of the assets purchased by Ameris Bank. In addition, Ameris did not pay the FDIC a premium on the acquisition of First Bank’s deposits.
2. Bay Cities Bank, Tampa, Florida, purchases failed Progress Bank of Florida from the FDIC.
Bay Cities Bank is owned by parent company Florida Business BancGroup, Inc, which in April 2010, raised $21.2 million in capital from new and existing shareholders. The company currently has about 360 shareholders. Although Florida Business BancGroup received $9.5 million in TARP funds from the US Treasury in February 2009, the newly raised capital will not be used to payback TARP money.
At the present time, Florida Business still owes the US Treasury $8.7 million. According to Greg Bryant, President and CEO of Bay Cities, repaying TARP is not the Bank’s first priority since TARP money is “cheap capital” and the new money can be better invested elsewhere by Bay Cities. According to Bryant, “We still see opportunities to expand our balance sheet and grow our [market] share.”
3. United Bank, Zebulon, GA purchases failed The First National Bank of Barnesville, GA from the FDIC.
United Bank, is owned by parent company United Bank Corporation, which received $14.4 million in TARP money from the US Treasury in May 2009, of which $12.9 million remains unpaid. Despite this, United Bank has made two previous acquisitions of failed banks. First National is the third financial institution acquired by United Bank from the FDIC in the last two years. The two previous purchases were of First Georgia Community Bank in Jackson in 2008 and First Coweta Bank in Newnan in 2009.
What’s next – selling a failed bank to another failed bank??