If you reviewed some of the terms of CenterState Banks Inc.'s latest acquisition deal without knowing the seller's identity, you might well guess it's the Federal Deposit Insurance Corp.
In fact CenterState, of Davenport, Fla., is buying Federal Trust Corp. of Sanford, Fla., from a life insurer, Hartford Financial Services Group Inc. But the hallmarks of FDIC-assisted takeovers of failed banks are there: a bidding process, assets sold at a steep discount, protection for the buyer against future problems, even additional capital for CenterState.
The $2.2 billion-asset company was inventive in finding a way to grow on the cheap without having to worry about all the strings that so often come with failed-bank deals, observers said.
"It is a darn good deal" for CenterState, said Randy Dennis, president of DD&F Consulting in Little Rock, Ark., which helps banks buy failed banks. "It is definitely on par with an FDIC deal, but there is no loss sharing to put up with."
Given the paucity of organic growth opportunities, and the increasingly competitive bidding for failed institutions and bankers' wariness of traditional acquisitions, banks have had to consider unorthodox strategies.
"With the anemic loan growth, management teams have to be far more creative than one would have expected," said Brett Scheiner, an analyst at FBR Capital Markets. "While deals like this are certainly one-off, I think more deals like this — dispositions, orphaned subsidiaries — are going to come up."
Analysts expect the deal to result in a bargain purchase gain ranging from $16 million to $30 million. Such gains were common with failed-bank deals in the earlier part of the cycle but have largely subsided.
"The FDIC deals are so competitively bid now that there is oftentimes not even a gain," said Brady Gailey, an analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc.
Hartford, of Hartford, Conn., acquired Federal Trust, then an undercapitalized company, in early 2009 to get a $3.4 billion investment from the Treasury Department's Troubled Asset Relief Program. The insurer left Tarp last year and has said it considers Federal Trust a noncore business.
The deal calls for CenterState to assume all of Federal Trust's $230 million in deposits and buy $170 million of performing loans at a 27% discount. The average bid discount on FDIC deals since 2009 has been 18%, Dennis said.
Hartford has agreed to take back any loans that fall 30 days past due or are adversely classified by regulators for up to a year. Hartford said it would take a $70 million charge on the sale.
"Federal Trust has a great core deposit franchise and the location of the branches helps us build out or presence along" key interstate corridors, said Steve Young, CenterState's chief operating officer. "We looked at it three or four years ago and couldn't make it work. But Hartford has done a good job of working down the problems and what you have left is really the core."
This would be CenterState's second acquisition of this sort. In January it bought four branches from Toronto-Dominion Bank's U.S. bank. The deal included $113 million in deposits, $125 million in performing loans at 10% discount, and a two-year put-back clause.
Hartford's ability to act as a backstop makes this deal rare.
"You have a solvent seller that has the ability to stand behind the loans," said Brennan Ryan, a lawyer with Nelson Mullins. "There are not many companies that can do that."
