C&I Loans: Do Community Banks Have a Competitive Advantage?


3-14-13_CI.pngGrowth in commercial and industrial (C&I) lending is generating a lot of buzz in the industry. As reported in the fourth quarter banking profile released by the Federal Deposit Insurance Corp. (FDIC), C&I loans rose 12 percent during the last year to $1.5 trillion.  A recent phone survey conducted by Bank Director of 142 community bank CEOs and chairmen in the southern United States confirms this growth, with 64 percent revealing plans to grow through C&I lending this year, compared to 29 percent that plan to grow through consumer lending and 7 percent through specialty finance.

Paul Merski, executive vice president, congressional relations and chief economist at the Independent Community Bankers of America (ICBA) explains that while the lending environment as a whole is highly competitive, C&I lending is a growth area where community banks with the right expertise can have an advantage over larger banks.  “It’s highly competitive, and it’s really something that the community banks shouldn’t cede to the larger banks,” says Merski, as community banks have the relationships within the local business community to place themselves at a competitive advantage.  

Cadence Bank, a $5.4-billion asset privately owned regional bank based in Birmingham, Alabama, with locations across Alabama, Florida, Georgia, Mississippi, Tennessee and Texas, saw the highest growth in C&I loans in the nation for the fourth quarter, as reported by SNL Financial.  As the result of three bank acquisitions, Cadence saw overall loan growth, including the bank’s C&I portfolio, which grew 41 percent to $1.79 billion, according to Paul Murphy Jr., CEO of Cadence Bancorp and chairman of Cadence Bank.  Additionally, Cadence “hired 65 people with extensive lending experience,” Murphy says.  “That would be the formula for more growth than normal.”

According to Merski, C&I loans can offer a higher rate of return than standardized loans, like mortgage loans, as these types of loans allow for greater customization and flexibility in the terms and rates offered to the borrower.  In turn, this can help increase profitability for banks squeezed by net interest margins. At Cadence, C&I loans generate additional deposits, and the fee income opportunities that these loans provide are a significant benefit. Cadence has also seen advantages in cross-selling other products like treasury management, “which is also good business, and helps fund the bank,” says Murphy.

The focus of bankers on C&I has, naturally, raised the interest of regulators, who question whether terms are growing too flexible and rates are dipping too low. As with any product, having the proper risk management controls in place is key, says Merski, adding that a diverse loan portfolio that includes C&I can benefit a bank.  “For community banks, not being overly concentrated in one lending area” can help improve a bank’s risk profile, he says.

Murphy stresses that banks wanting to enter the C&I fray should have lenders with the right skill set.  The recent hires at Cadence hold an average of 18 years of C&I lending experience, and Murphy views C&I as the bank’s core business.  “We’re not doing it because it’s en vogue,” he says.  “We’re doing it because this is what we’ve always done.”

Bank Director also surveyed bank CEOs about plans to increase spending in branch technology, branch expansion, mobile applications and ATMs.  Fifty-two percent do not plan additional spending in any of these areas. Twenty-one percent plan to upgrade branch technology, and 19 percent plan increased investment in mobile apps.  “The mobile banking app utilization is just going through the roof,” says Murphy.  “People love it.” 

Cadence Bank is building an automated branch using video tellers near its Birmingham, Alabama, headquarters. The branch will feature one video teller, without in-person staff like tellers and loan officers. Murphy explains that video banking will allow Cadence to extend hours as well as save on man power by having one person handle transactions at several branches.  “I think we can actually do a better job for customers,” says Murphy. 

Thirteen percent of the bankers surveyed plan to open new branches, while just 2 percent plan increased investment in ATMs.

ABOUT THE SURVEY 
Bank Director conducted a brief survey by phone in February and March, polling 142 community bank CEOs and chairmen in Alabama, Arkansas, Florida, Louisiana, Mississippi, Oklahoma, Tennessee and Texas.  The survey focused on growth in that region in advance of Bank Director’s Growth Conference to be held in New Orleans, Louisiana, on April 30 and May 1. Ninety-nine percent of the respondents were bank CEOs; most of the respondents represented the states of Texas (29 percent), Oklahoma (25 percent) and Alabama (15 percent).   

FDIC Lawsuits Increase in Fourth Quarter, Many Target Smaller Banks and Thrifts


cstone-dec12-wp.pngThis is the fourth in a series of reports that analyzes the characteristics of professional liability lawsuits filed by the Federal Deposit Insurance Corporation (FDIC) against directors and officers of failed financial institutions.

Report Summary

  • The pace of FDIC D&O lawsuit filings has increased in the fourth quarter of 2012 compared to earlier in the year. The number of lawsuits filed in 2012 exceeds the total filed in 2010 and 2011.
  • On December 7, three former officers of IndyMac’s Homebuilder Division were found liable for $169 million in damages in connection with 23 loans. This was the first FDIC D&O lawsuit associated with the 2008 financial crisis to go to trial.
  • While there has been a continued decline in FDIC seizures throughout 2012, the number of problem financial institutions has not declined as rapidly.
  • Institutions that are subject to D&O litigation have historically been larger (in terms of assets) with higher estimated costs of failure than the average failed financial institution. The FDIC’s recently filed D&O lawsuits have targeted smaller institutions.
  • Named defendants primarily continue to be CEOs, then (in declining order of frequency) chief credit officers, chief loan officers, chief operating officers, chief financial officers, and chief banking officers. Outside directors continue to be named along with inside directors in a large majority of the new filings.
  • Regulatory management ratings and composite CAMELS (capital adequacy, asset quality, management, earnings, liquidity, sensitivity to market risk) ratings of institutions that are subject to D&O lawsuits do not appear to have deteriorated until one to two years before failure.

Fewer Directors and Officers Get Sued; Pace of Bank Failures has Slowed


cornerstone-0912-wp.pngThis is the third in a series of reports that examines statistics and offers commentary on the characteristics of professional liability lawsuits filed to date by the Federal Deposit Insurance Corporation against directors and officers of failed financial institutions.

  • In our May 2012 report, we had observed a decline in the seizures of banks and thrifts by the FDIC in 2012 relative to 2011 and 2010 levels. This decline has continued during the past four months. In the past four months, the FDIC seized 19 financial institutions. The pace of seizures in May through August is slightly less than the first four months of 2012, when the FDIC seized 22 institutions.
  • FDIC seizures in 2012 continue to be concentrated in the Southeast. Nine of the 41 institutions that failed this year were in Georgia. Since 2007, 84 institutions in Georgia have been seized, representing 18 percent of all failures. Florida has the second highest financial institution failure rate, with five failures in 2012 and 63 failures since 2007. Illinois and California follow, with 53 and 39 failures, respectively, since 2007.
  • Based on the FDIC’s estimates at the time of seizure, California—where financial institution failures have cost $21 billion since 2007—has the highest total estimated failure cost. Florida and Georgia each have more than $10 billion in estimated failure costs, followed by Illinois, Puerto Rico, and Texas.
  • While the pace of D&O lawsuits has increased in 2012 relative to previous years, the FDIC has filed new lawsuits in the past four months at a significantly slower rate than in the first four months of the year. Only three lawsuits were filed in the last four months compared with 11 in the first four months of the year.
  • To date, 7 percent of financial institutions that have failed since 2007 have been the subject of FDIC lawsuits. These lawsuits generally have targeted larger failed institutions and those with a higher estimated cost of failure. The 31 financial institutions targeted in lawsuits had median total assets of $836 million, more than 3.5 times the median size of all failed institutions and more than five times the median size of institutions active at mid-year 2012.
  • Defendants named in the 32 lawsuits the FDIC has filed since 2007 included 266 former officers and directors.

For a full copy of the latest report, click here.

Regulators to bankers: We Hear You


Federal regulators are feeling the heat from community bankers fed up with the burden of increased regulations, and two of them made efforts to appease a crowd in Nashville last week attending the Independent Community Bankers of America National Convention and Techworld. More than 3,000 people attended the convention.

gruenberg-icba.jpgThe Federal Deposit Insurance Corp.’s Acting Chairman Martin Gruenberg said he has begun a series of roundtables with small banks in each of the six FDIC districts across the country, and will review the exam and supervision process to make it better and more efficient.

“We are going to work very hard to understand community banks better,’’ he said. He added that he didn’t want to raise expectations unrealistically, but he thinks the agency can do better.

Bankers have been bristling under the weight of increased regulation following the financial crisis, including the passage of the Dodd-Frank Act in 2010 that has new rules for everything from compensation practices to the creation of a new Consumer Financial Protection Bureau that will define and forbid “abusive practices” among financial institutions.

Although many of the new regulations are supposed to apply only to large institutions, with the CFPB applying to banks and thrifts with more than $10 billion in assets, Eric Gaver, a director at $500-million asset Sturdy Savings Bank in New Jersey, said he’s skeptical.

“The general trend is [regulations meant for big banks] become a best practice for small institutions on future exams,’’ he said.

Regulatory exams have been a crucial point of frustration, as more than 800 banks and thrifts are on the FDIC’s list of “problem” institutions requiring special supervision. In response, U.S. Rep. Shelley Moore Capito (R-West Virginia), and Carolyn Maloney (D-New York) introduced last year the Financial Institutions Examination Fairness and Reform Act (H.R. 3461), which would allow bankers to appeal exam decisions to a separate ombudsman.

The ICBA is supporting the idea of a separate appeals process and ombudsman.

walsh-icba.jpgHowever, Acting Comptroller of the Currency John Walsh stood up before the ICBA crowd Tuesday and defended the existing review process in the face of the proposed legislation.

“We have long supported the notion that bankers deserve a fair and independent review,’’ he said, adding that the Office of the Comptroller of the Currency (OCC) Ombudsman Larry Hattix is independent of the supervisory process and reports directly to Walsh.

Appeals can be viewed on the OCC’s web site, which lists only five appeals since the start of 2011. Of those, the ombudsman sided with examiners in four of the five.

Walsh said that “as regulators, we don’t expect to be loved,” but that he can promise there shouldn’t be any surprises about how the OCC approaches the exam.

Walsh disputed rumors that regulators want to reduce the number of community banks and thrifts in the country.

“I can assure you the OCC is deeply committed to community banks and thrifts and the goal of our institution is to make sure your institutions remain safe and sound and able to serve your communities,’’ he said.

Why We Need the CFPB


capitol.jpgFew pieces of legislation in recent years have riled up the financial services industry as thoroughly as the Dodd-Frank Act. And the white hot center of that controversial law is probably the new Consumer Financial Protection Bureau (CFPB), which the Act created to police the marketplace for personal financial services. If you’ve been reading the news lately, you know that the CFPB has a new director—former Ohio Attorney General Richard Cordray—who received a sharply-criticized recess appointment recently from President Obama. Senate Republicans had refused to hold confirmation hearings on Cordray until certain changes were made to the agency’s organizational structure, and Obama finally lost his patience and made Cordray’s appointment official while Congress was in recess.

If you have been paying attention, you also know there’s a difference of opinion between Senate Republicans like Majority Leader Mitch McConnell (R-Kentucky) and the White House over whether Congress was technically still in session, so the legality of Cordray’s appointment might be challenged in court. It’s also entirely possible—perhaps even likely—that the CFPB will be legislated out of existence should the Republican Party recapture the White House and both houses of Congress this fall. No doubt many bankers, their trade associations and the U.S. Chamber of Commerce would like to see that happen.

On the other hand, if the president wins reelection, I am sure he would veto any such bill that might emerge from a Republican controlled Congress, should the Republicans hold the House and retake the Senate this fall, which is possible but by no means assured. And if you give Obama a 50/50 chance of being reelected—which is my guess at this point having watched the Republican presidential race closely—then you can reasonably assume the CFPB has a 50/50 chance of surviving at least until January 2016.

And I think that’s a good thing.

cfpb-richard-cordray.jpgThis probably puts me at odds with most of Bank Director magazine’s readers. There’s no question that Dodd-Frank, combined with a variety of recent initiatives that have come directly from agencies like the Federal Reserve, will drive up compliance costs for banks and thrifts. And the CFPB‘s information demands alone will be a component of those higher costs. However, I have a hunch that what scares some people the most is the specter of a wild-eyed liberal bureaucrat imposing his or her consumer activist agenda on the marketplace. I don’t think Cordray quite fits that description, based on what I’ve read about him, but obviously we won’t know for sure until he’s been in the job for a while, so the naysayers’ apprehension is understandable. At the very least he seems determined to get on with the job, so we should know soon enough what kind of director he will be.

Here’s my side of the argument. Among the primary causes of the global financial crisis of 2008, which was precipitated by the collapse of the residential real estate market in the United States, were some of the truly deplorable practices that occurred during—and contributed to—the creation of a housing bubble. Chief among them were the notorious option-payment adjustable rate mortgages and similar permutations that allowed borrowers to pay less than the amortization rate that would have paid down their mortgages, which essentially allowed them to buy more house and take out a bigger mortgage than they could afford to repay. Some of these buyers were speculators who didn’t care about amortization because they planned on flipping the house in two years. But many of them were just people who wanted a nicer, more expensive house than they could afford and figured optimistically that things would work out. And the expansion of the subprime mortgage market brought millions of new home buyers into the market just when housing prices were becoming over inflated.

I’m not suggesting that the CFPB, had it been in existence during the home mortgage boom, could have single-handedly prevented the housing bubble. The causes of the bubble and the financial panic that eventually ensued were many and varied, including the interest rate policies of the Federal Reserve, the laxness on the bank regulatory agencies when it came to supervising the commercial banks and thrifts, the laxness of the Securities and Exchange Commission when it came to supervising the Wall Street investment banks and the fact that no one regulated the securitization market. But an agency like the CFPB, had it been doing its job, would have cracked down on dangerous practices like the so-called liar loans, or loans that didn’t require borrowers to verify their income. It would have put an end to phony real estate appraisals that overstated a home’s worth, making it easier for borrowers to qualify for a mortgage. And it would have been appropriately suspicious of option-ARMs if a super-low teaser rate and negative amortization were the only way that a borrower could afford to buy a home.

The CFPB is not a prudential bank regulator and will not focus on bank safety and soundness like the Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. But in cracking down on some of these dangerous marketplace practices, the CFPB might have reigned in institutions like Wachovia, Washington Mutual, IndyMac and Countrywide that ultimately failed, or were forced to sell out, because it would have discouraged many of the shenanigans that helped feed the housing bubble.

Of course, many of the unsound practices that helped inflate the bubble were widespread outside the banking industry, and one of the CFPB’s principal—and I would say most important—duties will be to regulate the mortgage brokers and nonbank mortgage originators who accounted for a significant percentage of origination volume during the housing boom. Banks and thrifts should benefit greatly from this effort if it leads to the creation of a level playing field where nonbank lenders can no longer exploit the advantages of asymmetrical regulation.

A truism of our financial system is that money and institutional power will always be attracted to those sectors that have the least amount of regulation. For all intents and purposes, both the gigantic secondary market and the large network of mortgage brokers and nonbank mortgage lenders went unregulated during the boom years, and this is where the greatest abuses occurred. (Dodd-Frank also addressed the secondary market, although the jury is out whether its prescribed changes will work. Indeed, at this point it’s unclear whether the secondary market for home mortgages will ever recover.)

In hindsight, having two mortgage origination markets—one highly regulated, the other unregulated—was asking for trouble. And that’s exactly what we got.

Which is why we need the CFPB.

Living Wills for Large Banks and Systemically Important Institutions: a Blueprint


BASICS

Each U.S. bank holding company and foreign banking organization with more than $50 billion in consolidated assets and each nonbank financial institution deemed systemically important by the Financial Stability Oversight Council must submit a resolution plan, or “living will” for the “rapid and orderly resolution in the event of material financial distress or failure.” A likely deadline is July 21, 2012.

Each institution required to submit a resolution plan also must submit, on a periodic basis, a credit exposure report. These reports will be critical in the assessment of systemic risk.

The Federal Reserve and Federal Deposit Insurance Corp. have proposed rules with more detailed plan requirements and specifics on credit exposure reports. A final rule is due by January 21, 2012.

The plan must explain:

  • The structures and procedures in place to protect an insured depository institution subsidiary from the risks arising from activities of any nonbank affiliate
  • Ownership structure, assets, liabilities, and contractual obligations
  • Cross-guarantees tied to different securities, major counterparties, and a process for determining to whom the collateral of the company is pledged
  • Reorganization or liquidation in bankruptcy

The plan should anticipate the needs and duties of the Federal Reserve and the FDIC and support two functions:

  • Ongoing supervision

    • Identify material exposures to major counterparties
    • Describe the riskier components of the institution
    • Identify market and liquidity risks
    • Gather information to perform horizontal supervision
    • Develop stress scenarios and potential solutions
  • Resolution planning

    • Describe a hypothetical Chapter 7 and Chapter 11 proceeding
    • Consider which businesses to market pre-liquidation
    • Analyze the usefulness of a bridge bank
    • Assess short-term liquidity needs
    • Identify and prepare for impact of failure on other institutions

CHECKLIST

Planning

  • Appoint full-time living will team
  • Establish a reporting and oversight structure that includes input from enterprise risk management, treasury and finance, and legal
  • Designate board members to monitor process
  • Organize data collection

Major Tasks
Strategic analysis

  • Identify likely stressors
  • Analyze failure of particular entities, and that of the whole institution
  • Assess private sector solutions
  • Devise bankruptcy alternatives
  • Establish methods for protection of the bank

Corporate governance structure for resolution planning

  • Develop central planning function headed by senior management
  • Coordinate communications and reporting to board of directors

Overall organizational structure

  • Describe material entities and core business lines
  • Explain inter-affiliate relationships, including risk transfers
  • Provide financials, including on- and off-balance sheet items 

Management information systems

  • Develop a process for efficient and timely data gathering
  • Determine who will maintain access to specific data

External risks

  • Describe capital and liquidity sources
  • Identify exposures to major counterparties, including short-term funding, derivatives and other “qualified financial contracts,” and collateral arrangements
  • Determine the effect of a failure of a major counterparty

Internal risks

  • Analyze reliance of one affiliate on another for capital, funding, or services
  • Identify cross-guarantees
     

SELECT LEGAL ISSUES

 Bank Regulatory

  • Does the plan sufficiently address management of the institution’s risks, especially liquidity, counterparty, and market risks?
  • How would other supervisory tools affect execution of the plan?
  • How will emerging regulations affect the operations of the institution?
  • Should any restructuring be considered?
  • How will cross-border operations be addressed in the plan?

Bankruptcy and Restructuring

  • How would the institution be liquidated under Chapter 7 or restructured under Chapter 11 of the U.S. Bankruptcy Code?
  • What authority and duties would current directors and officers have?
  • How would counterparty rights in bankruptcy differ from those under Title II of the Dodd-Frank Act?
  • How does the institution avoid a replay of the Lehman bankruptcy?
  • What should the plan include in order to minimize the likelihood that Title II’s Orderly Liquidation Authority will apply?

Capital Markets

  • What are the creditor relationships underlying outstanding debt instruments?
  • Which instruments are realistically available to recapitalize the institution?

Corporate Governance

  • What duties do directors and officers owe in preparing the plan?
  • What duties apply when an institution is failing?

Derivatives

  • What are the material counterparty relationships?
  • Are there unusual considerations in unwinding particular positions?
  • What law governs each of the trading agreements and any credit support arrangements?
  • To what extent are close-out and netting provisions enforceable in the relevant jurisdictions?

Tax

  • What is the effect of a restructuring on deferred tax assets?
  • How do intercompany tax sharing agreements work in stress scenarios?

Technology Transactions

  • Do technology contracts provide maximum protection in a liquidation or restructuring?

© 2011 Morrison & Foerster LLP. All rights reserved.

Enterprise risk management: what it is and what to do about it


When the Federal Deposit Insurance Corp. sued Washington Mutual’s executives in March over the bank’s failure, the government’s lawyers said they “took on enormous risk without proper risk management,” marginalized the chief risk officer, and pursued an aggressive lending policy despite being warned against it.

In part because of the financial meltdown at banks such as Wamu, regulators and bank boards are more interested in how risk is handled throughout an organization.

About 78 percent of financial institutions have adopted some kind of enterprise risk management program, according to the 2011 Deloitte Global Risk Management Survey, up from 36 percent who said so in the 2009 survey.

Regulators are asking more questions about what bankers are doing about risk, and more banks are starting the process of implementing an enterprise-wide program, according to speakers at Bank Director’s Bank Audit Committee conference in Chicago June 13-15.

bacc11-erm.jpg

Enterprise risk management is about more than just insuring against known risks. It’s about what could happen in the future that you don’t even know about, said Pat Langiotti, chairman of National Penn Bancshares enterprise-wide risk committee in Boyertown, Pennsylvania.

“What are you not monitoring? What is not on the agenda that could happen and what would the impact be, and what are we doing about that?” she said. “What risk are you taking and is there a reward for taking on that risk that’s adequate to the risk?”

Enterprise risk is about assessing all the risks of the institution, from operational, to information technology to reputational risk on an ongoing basis, establishing an appetite for risk, and making sure conformity to that risk appetite is monitored and pervades the institution.

Some banks, such as National Penn Banchsares, a $9.4 billion-asset publicly traded bank Boyertown, Pennsylvania, have a separate risk committee of the board to take responsibility for their enterprise risk management program, but some others handle it on the audit committee.

 “I don’t think a risk committee is operating to make sure there’s no risk,’’ said Tony LeVecchio, the audit committee chairman of ViewPoint Financial Group, a $2.8 billion publicly traded bank in Dallas, Texas. “It’s more of an understanding of what risk you’ve agreed to take. What you don’t want is to find out ‘oh my goodness, I didn’t know we had a risk here?’”

The risk appetite has to be factored into the bank’s strategic planning, said Christina Speh, director of new markets, enterprise risk management at Wolters Kluwer Financial Services in Washington, D.C.

“There is nothing more frustrating than having a process and spending energy and time on something that doesn’t do anything,’’ she said. “If you have no idea how this fits into your strategic plan, it’s possible you’re just doing paperwork for regulatory agencies.”

“At the end of the day, the reason you’re doing this is because you want to ensure your bank is successful and meets your strategic plan,’’ she said. “You have a plan and you want your bank to reach this in five or 10 years. But how do you get there? And how do you put processes in place to make sure that if risks are realized, you’re able to handle that?”

 

Buying into trouble? Experts give their advice on FDIC acquisitions


Buying a failed bank can be a brutal experience. There may be opportunity to grow your bank, but there also is risk and hard work to do in a short amount of time. Plus, all that work can feel like a waste, if you lose the bid to buy. As the final post in a series on FDIC-assisted bank acquisitions, we’ve summarized advice for those considering such a deal from the final session of Bank Director’s May 2nd conference in Chicago:

fdic-recap-chicago.jpg

Walt Moeling, partner in law firm Bryan Cave, says that bankers looking to do transactions “really need to focus on strategic planning in the big picture sense.”  Are you large enough to handle the acquisitions you want to do? If you double in size, how many people on your team have ever worked at a bank that size? “You can see banks struggling with the staffing issue two years out,’’ Moeling says. He also tells bankers to communicate regularly, or start networks, with other bankers who have done FDIC-assisted deals. If you run into a problem, they might have advice. Also, remember that communication isn’t great between all the different regulatory agencies. Don’t assume your regulator knows what the FDIC knows, and vice versa.

Jeffrey Brand, principal and an investment banker at Keefe, Bruyette & Woods, says figure out what the costs of bidding for a bank will be, emotionally and financially, and develop a team with clear responsibilities. “It’s a very intense, two-week period,’’ he says. “You get very invested in the process. You might not win (the bid), and you need to be prepared if the wind comes out of the bag.”

Rick Bennett, a partner at accounting firm PricewaterhouseCoopers, tells bankers that FDIC-assisted deals continue to be highly accretive to bank balance sheets. The more acquisitions a bank makes, the easier the process becomes. But some bankers underestimate the amount of people and resources needed to acquire failed banks. “Ask yourself, if I am successful, what does that mean for me from a resource perspective as well?” he says.

With few growth opportunities, Ameris Bancorp went on a shopping spree


Ameris Bancorp sits squarely in ground zero for the bank financial crisis: Georgia. But unlike its peers getting gobbled up by the FDIC and competitors, Ameris Bancorp is growing after buying six of its weakened peers since the fall of 2009, taking branches and market share in Georgia and Florida.

The Moultrie-based bank has gone from having $2.4 billion in assets at the end of 2008 to $2.97 billion in the first quarter, essentially driven by acquisitions of failed banks in the region at a time when traditional banking had come to a standstill.

“We couldn’t find any good customers to grow the balance sheet,’’ said Dennis Zember, executive vice president and chief financial officer of Ameris, at a Bank Director conference May 2nd in Chicago.


ameris-fdic.jpg Left: Jeff Schmid; Right: Dennis Zember

With the acquisitions, the bank took $1 billion in assets at fair value and $52.4 million of bargain purchase gains, essentially the value of the assets beyond what was paid for.

The FDIC took 80 percent of the losses for each failed bank, while Ameris is responsible for disposing of the bad assets over time.

It hasn’t been a cake walk.

In one instance, the FDIC allowed only five Ameris bankers two and a half days to walk into a failing bank’s branches and assess what they were buying before the sale. One Ameris banker wrote down the addresses for every piece of real estate on the loan books and emailed them to colleagues so they could drive around and look at them.

Other bankers have had unwelcome surprises.

One of the clients of attorney Jim McAlpin of Bryan Cave bought a failed bank, but found out after the closing that half of the drive-through teller infrastructure and half of the parking lot had been sold by the bank in a last ditch effort to raise capital.

The FDIC will tell you what it knows about the bad bank, but it doesn’t know everything, he said.

Jeff Schmid, the chairman and chief executive officer of Mutual of Omaha Bank, which has become a $5 billion bank in five years after buying failed banks, said a lot of banks aren’t worth buying, but his bank still looks at every institution that comes up for sale. Many banks have little value because they’re only a few years old and funded real estate loans almost exclusively through brokered deposits, so do not have a sustainable deposit gathering franchise.

He urged bankers to be strategic in their acquisitions, identifying what they wanted and where to grow, before jumping after every failed bank that comes up for sale.

“You’ve got to decide where you want to go rather than fall in love with something that falls out on a sheet,” he said.

Schmid suggested doing research before banks end up on the FDIC’s for-sale list, finding out which banks have high Texas ratios, a sign of stress, in the regions where you want to grow. Then, go visit the executives.

“They’re worn out and their boards are worn out,’’ he said. “If a (traditional) sale doesn’t go forward, you’ll have so much more intelligence when the FDIC does put it on their list.”