JPMorgan, U.S. Bancorp Grow as Banks Fail

BOSTON ( TheStreet) -- JPMorgan Chase ( JPM), U.S. Bancorp ( USB) and eight other holding companies have boosted their deposits by more than a third in the past two years by acquiring failed banks.

With the Federal Deposit Insurance Corp. offering generous deals for acquirers of failed banks, holding companies of all sizes are emerging as big winners from the credit crisis. In addition to the Troubled Assets Relief Program, or TARP, which propped up hundreds of banks with capital infusions from the government, FDIC agreements buffer acquirers from losses on bad loans and prevent the widespread withdrawals that hobbled failed banks.

The FDIC has increased insurance limits on individual deposits to $250,000 through 2013 and waived all caps for business checking accounts until June 30. For acquiring companies, the regulator agreed to cover 80% of losses from commercial loans for five years and 80% of residential-loan losses for 10 years. The FDIC will reimburse 95% of losses that exceed agreed-upon thresholds.

Acquisitions of Failed Banks Boost Deposits
- Sep. 30 ($Mil)
Company City Domestic Deposits 2-year Deposit Growth Total Assets
JPMorgan Chase (JPM) New York $610,683 30% $2,041,009
U.S. Bancorp (USB) Minneapolis, Minn. $154,051 36% $265,058
BB&T Corp. (BBT) Winston-Salem, N.C. $110,912 38% $165,329
Zions Bancorporation (ZION) Salt Lake City $40,997 24% $53,425
First Citizens Bancshares (FCNCA) Raleigh, N.C. $15,349 18% $18,513
MB Financial (MBFI) Chicago $11,430 95% $14,135
East West Bancorp (EWBC) Pasadena, Calif. $8,425 13% $12,486
Prosperity Bancshares (PRSP) Houston $7,119 48% $8,961
First Citizens Bancorp (FCBN) Columbia, S.C. $7,013 42% $8,336
First Financial Bancorp (FFBC) Cincinnati, Ohio $5,836 105% $7,260
Iberiabank (IBKC) Lafayette, La. $4,776 38% $6,467
PacWest Bancorp (PACW) San Diego $4,049 17% $5,481
CVB Financial (CVBF) Ontario, Calif $4,040 18% $6,547
Westamerica Bancorp (WABC) San Rafael, Calif $4,028 21% $4,970
First Bancorp (FBNC) Troy, N.C. $2,923 61% $3,530
Great Southern Bancorp (GSBC) Springfield, Mo. $2,743 54% $3,728
First Financial Holdings (FFCH) Charleston, S.C. $2,428 29% $3,481
TIB Financial (TIBB) Naples, Fla. $1,335 31% $1,721
First California Financial (FCAL) Westlake Village, Calif $1,125 47% $1,470
Stonegate Bank Fort Lauderdale, Fla. $361 92% $466
Source: Regulatory data from consolidated financial statements for bank holding companies (FR Y-9C) provided by SNL Financial.

Data for First Financial Holdings comes from the Thrift Financial Report for main subisidiary First Federal FS&LA.

Data for Stonegate Bank comes from the institution's regulatory call report.

When you factor in the loss-sharing agreements with the minimal premiums paid by acquirers, banks are staring at a rare opportunity to increase deposits with limited risk and the possibility of a big payoff years later. As a result, the FDIC has found buyers for most failed banks.

The three largest acquirers on the list -- JPMorgan, U.S. Bancorp and BB&T ( BBT) -- have increased deposits by more 30% during the past two years. All three have improved their net interest margins and repaid TARP funds. Despite the run-up in bank stocks since the S&P 500 Financials bottomed on March 6, these companies could rise further when the economy recovers.

JPMorgan has been the biggest beneficiary, acquiring Washington Mutual for $1.9 billion in September 2008 after it became the largest U.S. bank failure ever. JPMorgan bought the thrift's deposits, including uninsured balances.

U.S. Bancorp has acquired a dozen failed institutions, including the nine subsidiaries of FBOP of Chicago, which regulators closed on Oct. 30. BB&T has acquired two failed institutions, including Colonial Bank, which had $20 billion in deposits when it shut down on Aug. 14.

Looking for bargains among troubled regional holding companies hasn't been a bad strategy this year. Shares of Fifth Third Bancorp ( FITB), which has questionable asset quality and owes $3.4 billion in TARP money, have risen seven-fold since March 6. The stock is trading for more than its tangible book value.

Not all of the acquiring companies are out of the woods. Zions Bancorp ( ZION), for example, has bought three banks, including Vineyard National Bank, which closed on July 18. Zions subsidiary California Bank & Trust of San Francisco purchased $1.5 billion in deposits and $1.8 billion in assets from the failed institution, with the FDIC agreeing to share the losses on $1.5 billion of the acquired assets.

Excluding government-guaranteed balances, Zions' nonperforming assets ratio, which includes loans past due 90 days and repossessed real estate, was 4.9% as of September 30. The average ratio for all banks was 2.8% as of June 30, according to the most recent data available. Its annualized ratio of net charge-offs, or actual losses, to average loans was 3.6%, compared with 2.6% for the industry. The company owes the government $1.4 billion in TARP aid.

Still, Zions could offer a buying opportunity for risk-tolerant investors. Zions shares have dropped 55% in the past year, closing at $13.46 on Tuesday, which is 64% of its tangible book value, according to SNL Financial.

Many analysts expect regional holding companies to fall prey to stronger competitors through acquisitions. The companies most likely to survive will have stable funding sources and solid deposit growth.

-- Reported by Philip van Doorn in Jupiter, Fla.
Philip W. van Doorn joined Ratings., Inc., in February 2007. He is the senior analyst responsible for assigning financial strength ratings to banks and savings and loan institutions. He also comments on industry and regulatory trends. Mr. van Doorn has fifteen years experience, having served as a loan operations officer at Riverside National Bank in Fort Pierce, Florida, and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a Bachelor of Science in business administration from Long Island University.