UPDATE: Hartford To Sell Bank It Bought To Get Crisis-Era Bailout

Hartford Financial Services Group Inc. (HIG) on Monday said it would sell a tiny Florida bank it had purchased at the height of the financial crisis to qualify for a federal bailout.

Hartford will record a second-quarter charge of about $70 million after taxes on its agreement to sell the bank, Federal Trust Corp., to CenterState Banks Inc. (CSFL), Hartford said in a statement.

The sale comes as banks begin to face added scrutiny under the Dodd-Frank financial overhaul bill enacted last year. Hartford's insurance operations are overseen by state regulators, but its banking unit will soon face oversight from the Office of the Comptroller of the Currency and the Federal Reserve rather than the Office of Thrift Supervision, which was considered a more lenient regulator and will now be folded into the OCC.

Rival insurer Allstate Corp. (ALL) sold the deposits of its bank to Discover Financial Services (DFS) earlier this year. Chief Executive Tom Wilson said the sale was to help avoid additional Fed capital requirements and other requirements that would have created a "potential conflict" with existing oversight.

Hartford has been selling off units it considers to be outside its main operations in recent months, including its Canadian mutual fund business and a claims-administration operation called Specialty Risk Services.

"The sale of Federal Trust is consistent with The Hartford's recent sales of other non-core operations," spokesman David Snowden said. "The Hartford is focusing its resources on its core businesses and operations."

The sale of Federal Trust, which requires regulatory approval, is expected to close by the end of the year.

CenterState will assume all of Federal Trust's deposits, totalling about $230 million, and purchase about $170 million of its performing loans. CenterState said in a separate statement that it isn't paying a premium to assume the deposits and will receive a 27% discount on the loans. CenterState said it also has the option to put back any purchased loan for a year after closing if it becomes 30 days past due or meets other standards.

Hartford acquired Federal Trust in 2009 for $10 million as it sought to become a savings and loan holding company. The U.S. Treasury required companies seeking federal funds under its Trouble Asset Relief Program to be banks, and both Hartford and rival insurer Lincoln National Corp. (LNC) purchased tiny, troubled lenders to meet that standard.

Before Federal Trust was acquired by Hartford, regulators had imposed curbs on it to limit the types of loans it could make. The lender went looking for a merger after being battered by defaults tied to the slumping Florida real estate market.

Buying the lender allowed Hartford to get $3.4 billion from the federal bailout program. It repaid the bailout last year.

-By Erik Holm, Dow Jones Newswires; 212-416-2892; erik.holm@dowjones.com

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