Bank of the Ozarks was named the top performing regional bank in the nation by SNL Financial based on financials for the year 2011.  To read more about this great [...]]]> It has been a great week for Arkansas banks as several top performers received accolades and recognition for their great work in the field of banking:

Bank of the Ozarks was named the top performing regional bank in the nation by SNL Financial based on financials for the year 2011.  To read more about this great honor click here.

First Security Bancorp of Searcy was named the No. 2 top performing regional bank in the nation by SNL Financial based on financials for the year 2011.  To read more about this great honor click here.

Arvest Bank ranked highest for the South Central and Southwest regions in J.D. Power and Associates 2012 Retail Banking Satisfaction Study.  This is the fourth year that Arvest has been recognized with a regional award.  You can read more by clicking here.  To find out more about how the award is determined, click here.

Home BancShares, Inc., the parent of Centennial Bank, recently reported their most profitable quarter ever.  The first quarter of 2012 set a new company record for net earnings and net interest income as well as improvements in many other aspects of the bank.  To read more about this announcement, click here.

By Nathan Stovall

The FDIC has increasingly asked bidders of failed banks to sweeten their offers to soften the blow to the deposit insurance fund.

The practice is called the best and final round and has been used in 14 failed-bank [...]]]> SNL Financial l March 8, 2012

By Nathan Stovall

The FDIC has increasingly asked bidders of failed banks to sweeten their offers to soften the blow to the deposit insurance fund.

The practice is called the best and final round and has been used in 14 failed-bank transactions since July 2011, or about 25% of the time, said Sharon Yore, manager, franchise and asset marketing at the FDIC.

Although the FDIC sells failed banks through a blind auction, where bidders are unaware of competing offers, Yore said the agency has in some cases asked bidders to submit another round of bids when the process is competitive.

The FDIC receives bids, it analyzes their cost to the deposit insurance fund, and, in cases where bids from two or more banks are the same or close to one another and the agency has time on its side, it reaches out to the bidders in the tight range and asks them to submit their best and final offer. If a bidder’s highest offer does not meet the FDIC’s least cost test, it will not proceed to the best and final round.

Yore said the FDIC has recently tried to take bids earlier due to the complexity of the transactions and the amount of time required to analyze the offers.  Taking bids earlier, as well as greater competition among bidders, has allowed the agency to use the best and final round process more often.

“It has saved us some money,” Yore said. “In any bidding situation where you get bids that are tight, you’d be silly not to go out and get best and final.”

The best and final round of bidding is a case of the FDIC acting like a “businessperson,” said Walt Moeling, a partner in the financial institutions practice at Bryan Cave LLP. Moeling said the FDIC says the varying factors — such as premiums or discounts to assets and
deposits and variance on loss share agreements that go into each bid for a failed bank make it difficult to choose the best offer.

But some bankers are skeptical. Bankers that have received phone calls asking them to increase their bids have expressed frustration to SNL over the process. They say the FDIC might just be trying to limit the hit to the deposit insurance fund, but they have questioned the agency’s motives because they cannot see just how close the first round of bidding was. Some bankers have even questioned if the agency has picked
favorites in the bidding process by selecting banks they want to participate in the best and final round.

Randy Dennis, president of DD&F Consulting, which has advised on numerous buyers on FDIC-assisted transactions, said banks are “very suspicious” and often think they are being “gamed.” However, Dennis said selecting the winning bidder is purely a financial decision for the FDIC’s Division of Resolutions and Receivership, or DRR. Once the agency’s supervisory office deems a bank an eligible bidder, Dennis said, it comes down to price.

“As long as they are approved to bid, DRR doesn’t care,” Dennis said.

Moeling believes the FDIC is paying great attention to the bids it is receiving now because he thinks that loss share agreements, particularly those put in place earlier in the credit cycle, will end up costing the agency much more than it originally expected. He noted that asset values have remained under pressure and fallen further than anyone thought they would a few years ago.

“They’re charged with getting the best price. They’ve done this some all along. I don’t think it’s truly exceptional but I think they’re very focused on the fact that they have a deposit insurance fund valuation issue here,” Moeling said.

The FDIC said it is always focused on limiting hits to the fund and that asking bidders for their best and final offers has been successful in that aim thus far.  Yore said the decision to use a best and final round of bidding is not dependent on the failed institution but usually occurs when the institution is a “fairly good franchise.” She said the use of the best and final round might have increased because bidders are getting more competitive, believing that there could be fewer failed-bank transaction in the future. Yore further noted that the FDIC has some internal
parameters set for how close bids must be to have a best and final round, though said the agency has told all bidders that it has the right to conduct the best and final round.

The best and final round of bidding might help soften hits to the deposit insurance fund, and it is not necessarily bad news for all buyers, either. Dennis said he likes it when buyers have the opportunity to sharpen their pencils and make another effort to win the auction of a failed bank.

“I’ve lost before on very short margins,” Dennis said. “You don’t know where you are, above or below, but it gives you a chance to re-up your bidding.”