Canada’s TD Bank agreed to buy South Financial , a struggling Greenville, S.C.-based bank holding company with $12 billion in assets and 176 branches in the Carolinas and Florida.

Toronto-based TD, which previously purchased the Commerce Bank chain in the mid-Atlantic states and owns the TD Ameritrade online broker, said the deal is just the sort of transaction it has been searching for as it expands on the U.S. East Coast.

“We’re gaining established commercial banking assets and a solid network of stores in attractive and growing markets within our Maine-to-Florida footprint,” said TD Bank chief Ed Clark.

The deal also comes just weeks after South Financial promised to raise capital in a consent agreement with regulators at the Federal Reserve. The terms strongly suggest the clock was ticking for South Financial to find a buyer.

TD will pay just $61 million, or 28 cents a share, to acquire South Financial’s stock. That’s less than half the price the stock fetched Friday.

South Financial shareholders won’t  be overjoyed at the prospect of trading their shares for just over a quarter in cash or 0.004 TD share. The shares traded as high as $6.50 in November 2008, the month South Financial took $347 million of TARP funds and named H. Lynn Harton CEO.

But it’s better than the alternative in an FDIC resolution proceeding, which is no cash and no shares. And there’s the silver lining for the Federal Deposit Insurance Corp., which has been under financial pressure of its own as its prepares to spend $100 billion cleaning up bank failures.

South Financial shareholders won’t be the only ones taking a hit. So will taxpayers: TD will pay $131 million to retire South Financial’s borrowings from Treasury under the Troubled Asset Relief Program. South Financial got $347 million from TARP in November 2008.

So TARP will take a $216 million loss on the deal, though it will officially be called “unassisted” in the sense that the FDIC didn’t have to agree to share any losses on the bank’s loan book.

“This is a relatively small acquisition and exactly the kind of unassisted transaction that we’ve said we’re comfortable doing,” Clark said. “After undertaking extensive due diligence, we’re confident that this is an attractive opportunity that fits within our framework of only taking risks that we can clearly understand and manage.”

That said, not everyone is equally confident. Analysts at Barclays Capital, who rate TD overweight, note that almost 60% of South Financial’s $8 billion loan portfolio is related to commercial real estate – where values have fallen sharply but are widely expected to decline further before any recovery begins.

“TD is taking on incremental credit exposure, in the U.S. Southeast, which has been one of the hardest hit regions, and this time without any loss sharing agreement with the government,” analyst John Aiken wrote in a note to clients Monday. TD shares dropped 3%.

With any luck we’ll be seeing more sales of struggling banks without FDIC help in the future.