Less than two years after it became the first "blank-check" acquirer to take over failed banks, Community Bankers Trust Corp. is reeling.

Last week the Glen Allen, Va., company missed a quarterly payment to the government on its $17.7 million Troubled Asset Relief Program funds. The $1.2 billion-asset Community Bankers has reported five consecutive quarterly losses.

Its struggles largely stem from credit deterioration at the failed banks it absorbed, in one case without a loss-sharing agreement from the Federal Deposit Insurance Corp. Loss-sharing has protected many buyers of failed institutions during this downturn. Community Bankers' provenance as a blank-check company also contributed to its current predicament, analysts said.

"They kind of took on more than they could chew comfortably," said Bert Ely, a bank consultant in Alexandria, Va. "The challenge they face is preserving capital when they've got issues inherited when they bought the two failed banks." Community Bankers did not return calls seeking comment.

Special-purpose acquisition companies, or SPACs, also known as blank checks, typically raise capital by going public without an operating entity. They then look to buy an operating company.

Blank checks face two hurdles in acquiring banks: a tight time frame for making deals and regulators' preference for more banking experience than their executives tend to have. "SPACs [have] had a more difficult time in being involved in the bank space," said Brett Rabatin, an analyst at Sterne, Agee & Leech Inc.

Blank-check companies typically have only two years to buy something or liquidate. Of the few bank deals made by SPACs in recent years, most have not gone well.

A deal by Frontier Financial Corp. in Everett, Wash., to sell itself to SP Acquisition Holdings Inc. was terminated soon after it was announced in 2009. Frontier's subsidiary bank failed in April.

The SPAC that became Community Bankers, originally known as Community Bankers Acquisition Corp., made it "just by the skin of its teeth," said Chip MacDonald, a partner at Jones Day in Atlanta.

It went public in 2006 and in May 2008 bought two bank holding companies: TransCommunity Financial Corp. and BOE Financial Services of Virginia Inc., which were merged and renamed Community Bankers Trust.

Community Bankers leveraged its subsidiary, the $1.2 billion-asset Essex Bank, to buy the failed Community Bank in Loganville, Ga., in 2008 and Suburban Federal Savings Bank in Crofton, Md., in January 2009. The purchases boosted Essex's assets by 60%. The bank entered into a loss-sharing agreement with the FDIC on the Maryland bank but not on the Georgia one. With a large chunk of its assets coming from the failed banks, Essex was vulnerable.

The loss-sharing agreement on the Maryland bank "still may have not been enough, and they are still taking losses," Ely said. If the loan problems persist, he said, the company may have to sell branches or raise capital, which would require the Treasury to convert its preferred shares to common equity.

The two failed banks were heavily concentrated in real estate loans. The Georgia bank had about 99.5% percent of its nonaccruing loans secured by real estate before it failed. This means most of Community Bankers' $563 million loan portfolio is in real estate and 89.3% of its real estate loans are not covered by the FDIC.

In the second quarter, the company took a $5.7 million impairment charge on goodwill from acquiring TransCommunity and BOE Financial in 2008.

MacDonald said the company grew too quickly across a broad swath that includes Virginia, Maryland and Georgia. "There is not much synergy between those markets," he said. "They're probably looking at consolidating what they've got."

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