Blue Ridge Grows with FDIC Nod

Blue Ridge Holdings Inc. spent a year struggling to get out of the starting gates as a bank holding company with a provisional shelf charter to buy failed lenders.

Now its patience and determination appear to be paying off. Last Friday Blue Ridge's CertusBank subsidiary got a lot bigger when it received regulatory approval to acquire two failed Georgia banks from the Federal Deposit Insurance Corp.

The deal is part of a shelf charter system, under which investors file to form a bank holding company and bid to take over failed banks. If all goes well, the winning bid is accepted at the same time the charter is granted by regulators.

The $330 million-asset CertusBank, of Greenville, S.C., bought Atlantic Southern Bank in Macon and First Georgia Banking Co. in Franklin, adding nearly $1.5 billion of assets and 26 branches.

Blue Ridge initially filed its application in January 2010 and then took a year to buy its first failed bank. Walter Davis, a principal at Blue Ridge and vice chairman of CertusBank, said the delay has not harmed his firm.

The lapse gave "us the opportunity to take a good look at the landscape and how deals and purchasers were going," he said.

Blue Ridge, of Atlanta, raised $500 million from a blind pool of investors last May. But it did not get off the ground until January, when it bought the failed CommunitySouth Bank and Trust, a six-branch bank in Easley, S.C.

The latest shelf charter to receive regulatory approval and strike a bank deal after Blue Ridge is AloStar Bank of Commerce, which won Nexity Bank in April.

Some observers agreed with Blue Ridge that there would be a good amount of deals within its targeted region, which includes the Carolinas, Georgia and north Florida.

"As I look at … what I understand that Blue Ridge is looking for, I think there are still going to be plenty of opportunities," said Walter Moeling 4th, a partner at the Atlanta law firm Bryan Cave. "It's competitive, and we're out of the period when the FDIC was overpaying for someone to take it [a failed bank], but there are still a fair number of banks that are either going to be a FDIC deals or some [other] kind of deal for Blue Ridge."

Analysts said that Blue Ridge and other acquirers of failed banks will increasingly need to look at the deals outside of the FDIC's list to fill in franchise gaps.

The good news for Blue Ridge is that it has more critical mass with its new deals, said Chris Marinac, an analyst at FIG Partners LLC. "The bad news is there are three integrations … in different geographies. That doesn't mean it's impossible; they just have to do a lot to make things work."

Like the handful of shelf charters approved by regulators before Blue Ridge was approved, those that have bought banks have rapidly grown assets and crossed state lines. The concern among some analysts is how these well-heeled bankers will fill in the franchise gaps at a time when FDIC-assisted deals are relatively scarce and unpredictable.

A majority of the well-known, heavily capitalized new charter groups are widely spread out. North American Financial Holdings Inc. in Charlotte, N.C., for example, started out buying several banks in Florida and has since expanded through recapitalizations of existing banks in North Carolina and more recently Tennessee.

On a smaller geographic scale, Boston's NBH Holdings Corp., which raised $1 billion, acquired two banks in Kansas City, Mo., and a failed bank in Kansas. BankUnited did one large FDIC-assisted deal in May 2009 and plans an organic expansion in Manhattan next.

Walter said Blue Ridge came into being when the group set up a distressed asset management unit in May 2009. From the start it planned to do both FDIC-assisted and open-bank deals, he said.

"Our strategy has always been one not singularly focused on failed institutions," Davis said. "There's going to be consolidation in the industry and our goal is to be one of those consolidators."

Five out of the nine shelf charters that have done bank deals have gone outside the FDIC, according to SNL Financial.

As FDIC deals have become less lucrative and existing banks have recognized a majority of their loan losses, the price differentiator between the two prospects has been shrinking, Moeling said.

"The difference between [an FDIC deal] and buying a bank that made it through the recession but just doesn't have the power to restart … is not going to be that great," he said. An open-bank deal "may not be like having the FDIC's loan-loss protection, but it's going to be a great deal by any historical terms."

"What's unknown is what regulators allow them to do now," Marinac said. "I can envision Blue Ridge making additional acquisitions … but what sort of appetite do regulators have for blessing them to buy other banks, even small banks, to fill in their geography?"

Countered Moeling: "These are classic free-market entrepreneurs who see the opportunities for significant gains in an environment of significant risks. There's no reassurance this game works for them, but if it does, the reward can be great. That's in essence a free market."

Until doing its last two deals, CertusBank's assets had actually shrunk by $100 million. Davis said its ultimate goal is to build a retail-oriented community bank with about 30% of its portfolio in commercial and industrial loans. But taking over a bank like it's first deal, which concentrated 90% of its portfolio in construction and land development loans, requires a lot of restructuring and consolidation.

Davis said Blue Ridge has about $300 million left from its initial capital to fund other bank acquisitions in FDIC and open-bank deals in a bid to reach $5 billion in assets in two years. "Just because there's a failed bank out there doesn't mean we're going to bid," he said. "We're not going to make snap judgments."