FBR Capital
p Markets & Co.
Financial Institutions Investment Banking
Troubled Banks 2011
April 1, 2011
Strictly Private and Confidential
Cautionary
y Statement
The following document (the “Presentation”) was prepared solely for discussion purposes for the party (“the Company”) to whom FBR Capital Markets & Co. (“FBR”) has provided it and is not to be
reprinted or redistributed without the permission of FBR.
In preparing this Presentation, we have relied upon information provided by the Company and/or other publicly available information. We have (i) not independently verified any of such information,
and (ii) assumed such information is complete and accurate in all material respects.
This Presentation may contain statements that are forward-looking statements. Such forward-looking statements are based upon information provided by the Company and/or publicly available
information. Actual results may differ from those set forth in the forward-looking statements and are subject to significant risks and uncertainties. These risks and uncertainties could cause the
results to differ materially from those set forth in the forward-looking statements.
Please note that this Presentation is also based on economic, market and other conditions as in effect on, and the information regarding the business and operations of companies in the
Presentation as represented to FBR by the Company and/or public information as of the date hereof, and does not purport to take into consideration any information or events arising subsequent to
such date. It should be understood that subsequent developments may affect this Presentation and that we do not have any obligation to update, revise, or reaffirm this Presentation. FBR makes no
representation or warranty that there has been no material change in the information provided or reviewed by us in connection herewith.
The information contained herein is confidential and has been prepared exclusively for the benefit and use of the Company,
Company and may not be used for any other purpose or be discussed,
discussed reproduced,
reproduced
disseminated, quoted or referred to at anytime, in any manner or for any purpose without FBR’s express prior written consent. This Presentation is not for the benefit of, and does not convey any
rights or remedies to, any holder of securities of the Company or any other person.
This Presentation should not be construed as providing an opinion to the Company and does not constitute a recommendation by FBR to the Company, or security holders of the Company, on the
business, the corporate strategy, the valuation, the regulatory environment nor the competitive environment in which the Company or its affiliates operates. Any information included herein
concerning valuation of the Company is hypothetical and is based on certain assumptions discussed with management. These assumptions may not be valid, and may also change over time. This
presentation should not be construed as a fairness opinion. A fairness opinion would contain additional financial information, models and methodologies. In addition, a fairness opinion is based on
the specific terms of a proposed transaction, including many “non-financial” terms and conditions that actually do provide or limit value to the shareholders of the Company. The information
contained herein should not be relied upon to determine if any given transaction would be “fair” to the Company.
All references to “FBR
FBR Capital Markets
Markets” refer to FBR Capital Markets Corporation and its subsidiaries as appropriate.
appropriate Investment banking,
banking sales,
sales trading and research services are provided by FBR Capital Markets &
Co. (FBRC), and those services in the U.K. and Europe are provided by FBR Capital Markets International, Ltd. (FBRIL). FBRC is a broker-dealer registered with the SEC and is a member of FINRA, the Nasdaq
Stock Market and the Securities Investor Protection Corporation. FBRIL, based in the UK, is authorized and regulated by the Financial Services Authority. Asset management services, including managed hedge
funds, mutual funds, private equity and venture capital funds, are provided by FBR Capital Markets subsidiaries FBR Investment Management, Inc. (FBRIM) and FBR Fund Advisers, Inc., which are investment
advisers registered with the SEC.
1
Failures by State
2008 - PRESENT
0
Bank Failures Per State
1-2
3-4
5-9
≥10
Total
14
WA
6
OR
ME
ND
MT
15
1
SD
ID
WY
CA
1
NE
10
1
IA
1
CO
KS
11
IL
41
8
OH
IN
11
KY
AZ
10
OK
NM
3
8
TX
1
1
AL
4
3
SC
5
57
47
FL
Source: FDIC as of March 28, 2011
MA
3 CT
NJ
2
6 MD
DC
GA
MS
VA
WV
NC
AR
LA
1
4
DE
1
TN
2
PA 3
4
1
MO
3
NY
MI
6
2
1
NH
WI
5
UT
37
MN
UPDATE
6
NV
VT
RI
GA
FL
IL
CA
MN
WA
MO
MI
NV*
NV
AZ
TX
KS
OR
MD
UT*
WI
CO
SC
OH
AL
NY
NJ
PR
PA
NC
NM
OK
VA
AR
NE
KY
IA
LA
IN
ID
SD
MA
WV
WY
MS
Total:
57
47
41
37
15
14
11
11
10
10
8
8
6
6
6
6
5
5
4
4
4
3
3
3
3
3
3
2
2
2
1
1
1
1
1
1
1
1
1
1
349*
2
Problem Banks
Problem Banks by State
1-5
0
> 15
6-15
733 banks in the U.S. with Adjusted Texas Ratios(1) above 75%
23
WA
6
4
8
5
OR
SD
ID
WY
CA
1
6
29
NE
52
MN
4
CO
KS
IL
IN
OH
KY
TN
2
6
OK
NM
9
8
AL
TX
5
16
3
VA
11
19
NC
GA
MS
LA
9
SC
21
90
87
AK
FL
HI
PR
2
7
MA
CT
RI
7 3
NJ
DE
2
WV
24
AR
19
13
5
MO
AZ
6
PA
27
13
NY
15
66
26
UT
MI
24
12
4
NH
WI
1
IA
1
VT
UPDATE
13
NV
ME
ND
MT
MD
DC
1
1
12
AK
AL
AR
AZ
CA
CO
CT
DC
DE
FL
GA
HI
IA
ID
IL
IN
KS
KY
LA
MA
MD
ME
MI
MN
MO
MS
0
16
8
6
29
26
3
1
1
87
90
1
12
5
66
5
13
9
5
4
12
1
15
52
27
3
MT
NC
ND
NE
NH
NJ
NM
NV
NY
OH
OK
OR
PA
PR
RI
SC
SD
TN
TX
UT
VA
VI
VT
WA
WI
WV
WY
8
19
4
4
0
7
2
6
7
13
9
6
6
2
0
21
1
24
19
13
11
1
0
23
23
2
1
729
1
Source: SNL Financial
Note: Adjusted Texas Ratio excludes government guaranteed delinquent loans.
(1) Adjusted Texas Ratio = (Adjusted NPAs + Adjust Loans 90PD) / (Tangible Equity + LLR)
3
Large
g Problem Banks
Problem Banks by State
0
1-2
≥6
3-5
65 banks in the U.S. with deposits over $1 Billion and Adjusted Texas Ratios(1) above 75%
3
WA
2
ME
ND
MT
1
OR
MN
SD
ID
VT
CA
IA
NE
CO
IN
KY
MO
NM
1
1
AL
MS
3
2
1
VA
1
SC
1
1
TX
6
AK
1
1 MD
DC
2
NC
GA
AR
LA
WV
3
TN
OK
AZ
1
DE
1
1
MA
NJ
1
OH
2
CT
PA
IL
3
KS
NY
4
6
4
UT
2
2
UPDATE
1
MI
3
WY
NV
NH
WI
FL
RI
1
AK
AL
AR
AZ
CA
CO
CT
DC
DE
FL
GA
HI
IA
ID
IL
IN
KS
KY
LA
MA
MD
ME
MI
MN
MO
MS
0
2
1
0
2
4
0
0
1
6
1
1
2
0
6
1
0
1
0
0
1
0
4
1
3
1
MT
NC
ND
NE
NH
NJ
NM
NV
NY
OH
OK
OR
PA
PR
RI
SC
SD
TN
TX
UT
VA
VT
WA
WI
WV
WY
0
2
0
0
0
1
0
0
2
1
1
2
0
2
0
1
0
3
3
1
1
0
3
3
1
0
65
HI
1
PR
Source: SNL Financial
Note: Adjusted Texas Ratio excludes government guaranteed delinquent loans.
(1) Adjusted Texas Ratio = (Adjusted NPAs + Adjust Loans 90PD) / (Tangible Equity + LLR)
2
4
FDIC Problem Institutions
1990 - 2010
FDIC Problem Institutions 1990-2010
$900
$
1,500
,
2009
$800
Q1
Total Assets ($ in Billions)
Total Assets ($B)
Number of Institutions
$700
Number of
Q3
Q4
Q1
Q2
Q3
1,400
Q4
1,300
$220 $300 $346 $403 $431 $403 $379 $390
305
Institutions
Q2
2010
416
552
702
775
829
860
1,200
884
1,100
1,000
$600
900
$500
800
700
$400
600
500
$300
400
$200
300
200
$100
100
$0
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1 Q2 Q3 Q4
2010 2010 2010 2010
Q1 Q2 Q3 Q4
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2010 2010 2010
Total Assets
$647 $837 $601 $346 $73
($B)
$31
$12
$6
$11
$10
$24
$40
$39
$30
$28
$7
$8
$22 $159 $403 $431 $403 $379 $390
Number of
Institutions
193
117
92
84
79
94
114
136
116
80
52
50
76
1,496 1,430 1,066 575
318
252
702
775
829
860
884
Source: FDIC Quarterly Banking Profile
5
Evolution of FDIC Assisted Transactions
The FDIC continues to add and modify structures for its resolution process both to facilitate sales and to
minimize cost to the DIF
FDIC Assisted Transactions with Loss Share
($ in billions)
Assumed Assets
$40
$20
March 2010
Structured Sale
Guaranteed Notes
BB&T / BBVA deals
First Clawback
July 2009
State Bank
First Contingent
March 2009
IndyMac
PE Sale
(# of deals)
Updated rules on PE involvement
Number of Deals
$30
April 2010
Modified Loss Share
Modified Bid Discount
FDIC Financing
August 2009
Announcement of white paper on PE
FBR Capital Markets
Sept 2009
NBH
First Blind Pool
December 2009
AmTrust Bank
First Equity Warrants
May 2010
Blue Ridge Holdings
First 90/10 Contingent
October 2009
Corus Bank
May 2009
BankUnited
PE Sale
20
18
September 2010
Introduction of
3 tranche
loss sharing
16
14
12
10
8
6
$10
4
2
$0
0
Jan-09 Feb-09 Mar-09 Apr-09 May-09Jun-09 Jul-09 Aug-09Sep-09 Oct-09 Nov-09Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10Jun-10 Jul-10 Aug-10Sep-10 Oct-10 Nov-10Dec-10 Jan-11 Feb-11 Mar-11
Jan 2009 – Aug 2009
Loss share
Asset transfer
First contingent transaction
completed by State Bank & Trust
Aug 2009 – Dec 2009
Good bank / bad bank
Modified bids
Linked bids
Clawback structure
Equity appreciation
instrument
NBH Holdings
completes
$1 billion blind pool
offering
Dec 2009 – Aug 2010
Retention of NPLs for LLCs
Blind pools
Elimination of 95/5 tranche
“Clustering”
50/50 loss share up to stated threshold
FDIC asset-based funding
North American completes blind pool offering
Blue Ridge Holdings completes first 90/10
contingent deal
Source: FDIC, FBR Research
Sept 2010
3 tranches
loss sharing
6
Key
y Recent Transactions
Commentary
Tangible Book Value Transaction Multiples1
Dialogue increasing, small bank MOE’s in particular
3.50x
3.00x
“Clean” banks trading around 1.40x tangible book (unadjusted)
3.22x
2.64x
2.94x
2.76x
2.62x
2 50x
2.50x
“Broken” banks still at a discount to book
Detailed credit analysis heavily highlighted in communication with
investors
2.00x
1.50x
1.00x
2.10x
2.18x
2.21x
2.31x
2003
2004
2005
2006
1.40x
1.63x
0.50x
0.00x
2002
Source: SNL Financial.
1.
Median of all transactions per year
2.
Median of acquisitions listed below
Deals > $50mm
New Normal
All Deals
Recent Large Transactions*
Acquirer
Target
IBERIABANK Corp.
IBERIABANK Corp.
Susquehanna
Bancshares Inc.
People’s United
Financial
Comerica
Incorporated
Hancock Holding
Company
Berkshire Hills
Bancorp Inc.
BMO Financial
Group
Cameron
Bancshares, Inc.
Omni Bancshares,
Inc.
Abington Bancorp
Inc.
Danvers Bancorp,
Inc.
Sterling Bancshares,
Inc.
Whitney Holding
Company
Legacy Bancorp, Inc.
Marshall & Isley
Corporation
Announce Date
3/10/2011
2/21/2011
1/26/2011
1/20/2011
1/16/2011
12/22/2010
12/21/2010
12/17/2010
Deal Value ($M)
$134.8
$40.0
$273.8
$488.9
$1,027.8
$1,496.3
$113.0
$4,096.0
Deal Status
Pending
Pending
Pending
Pending
Pending
Pending
Pending
Pending
Price/ LTM
Earnings
14.6x
NM
33.4x
28.5x
NM
NM
NM
NM
Price/ Book
1.7x
1.2x
1.2x
1.6x
1.6x
1.1x
1.0x
0.8x
Price/ Tangible
Book
1.7x
1.2x
1.2x
1.8x
2.3x
1.6x
1.1x
1.0x
Core Deposit
Premium
11.9%
1.39%
NA
13.37%
16.71%
3.91%
1.90%
NA
Target Assets
($M)
$706
$746
$1,247
$2,631
$5,192
$11,517
$972
$51,887
Target Deposits
($M)
$575
$653
$900
$1,766
$4,257
$8,866
$695
$38,201
Target Branches
22
15
20
28
60
168
20
390
Target NPAs /
Assets
1.34%
8.71%
3.18%
0.71%
3.81%
4.51%
2.26%
4.86%
Target TE / TA
10.96%
4.42%
16.99%
10.17%
8.77%
10.78%
10.68%
11.46%
Source: SNL Financial
* Includes most recent transactions with deal values over $40 million
7
The Shifting
g Depository
y Landscape
M&A Drivers
Solid Q4 results, regulatory reforms, and other features are supporting
the shift to traditional M&A
FDIC assisted deal competition is suppressing returns
–
Becoming less “attractive”
–
Three tranche loss share structure
–
Average size of problem institutions declining
FDIC Premiums
Regulators are providing troubled institutions more time
–
Continued investor interest in banks supporting recaps
–
US Treasury open to restructuring TARP
Capital
Greater differentiation in the market between the “haves” and the “havenots”
Economic Growth
Loan Growth
Healthy banks demonstrating improving credit, increased earnings, strong
capital, and superior valuation
Margins
Unhealthy banks experiencing credit, capital, and earnings pressure
resulting in depressed valuations
–
Regulators providing more aggressive reviews and required actions
C dit Quality
Credit
Q lit
Smaller institutions remain the most vulnerable
–
Still battling credit issues
–
Management & board fatigue
Compliance & Legal Costs
8
Current Evolution of Bank M&A
FDIC - Assisted
Increasingly
New
competitive
three tranche loss
Chapter 11:
Pre-pack + 363
Recapitalizations
Private
sector alternative
Unconventional
approach
to FDIC-assisted
to resolving problem
transactions
institutions
share structure
sizeable troubled
Opportunistic
investor
interest
363:
SKBHC /
AmericanWest
deals to
expand and fill-in footprint
Selected
institutions
seeking to expand through
some
shareholder value to
sellers
Rationale
includes ability
to enter new markets, gain
incremental market share,
institutions already
seized
Unassisted
acquisitions
Provides
Continued
Most
Pre-Receivership,
Distressed
Limited
cost to US
Government
Pre-pack
to support a
recap: Nexity Financial
Ability
to asses credit risk
is critical
add new products, and
eliminate redundancies
Corporation
US
Treasury and FDIC
h
have
b
been supportive
ti
9
The Pace of Traditional M&A Activity
y Has Picked Up from Low’s of ‘09
Buyer uncertainty, internal focus, and a “wait for the FDIC approach” has slowed M&A.
Deals Announced Annually (Since 2001)1
($ in billions)
101
$13
120
103
100
Transac
ction Value
$120
78
85
$90
51
$8
$8
$30
$30
$8
$7
2001
2002
$76
$62
$10
$17
2004
2005
2006
Banks
$66
24
21
$7
$27
2007
7
$1 $0
2008
2009
$9
$3
$5
$2
2010
40
20
0
2011 YTD
Annualized
Number of Deals
2010 Quarterly & 2011 YTD Transaction Volume2
$600
35
$500
30
11
22
25
12
20
7
20
$400
10
16
$300
9
12
8
15
23
10
7
16
12
8
18
19
18
13
6
$200
9
10
14
7
12
12
8
2
Average Deal Size ($mm)
A
40
5
28
Thrifts
Monthly Transactions and 3 Month Rolling Average Deal Size2
15
60
$4
$115
2003
80
$31
75
$60
$0
Number of Deals
99
Numb
ber of Deals
$150
$100
6
0
$0
Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10Dec-10 Jan-11 Feb-11March11 YTD
Unassisted
FDIC Assisted
3 Month Rolling Avg Deal Value
Source: FDIC; SNL Financial as of March 22, 2011.
1.
Includes only transactions with a deal value of at least $40 million.
2.
Includes all banks and thrifts transactions announced since 2010; does not include terminated transactions
Assisted
Unassisted
Q1
38
26
Q2
41
53
Q3
39
45
Q4
29
42
2010
147
166
2011 YTD
23
26
2010 2011 YTD
T t l
Total
170
192
10
Boston
100 Federal Street, 29th Floor Boston, MA 02110
617.757.2900
Dallas
2100 McKinney Avenue, Suite 1940 Dallas, TX 75201
469.341.1200
FBR Capital Markets Corporation
Metropolitan Washington, D.C. Headquarters
1001 Nineteenth Street North . Arlington, VA 22209
p
703.312.9500 T . 703.312.9501 F . www.fbrcapitalmarkets.com
Houston
600 Travis Street, Suite 6070 Houston, TX 77002
713.343.1000
Irvine (Los Angeles)
18101 Von Karman Ave., Suite 950 Irvine, CA 92612
949.477.3100
NOTE: Not all services are available from all offices.
New York
299 Park Avenue, 7th Floor New York, NY 10171
212.457.3300
237 Park Avenue, 19th Floor New York, NY 10017
212 457 3300
212.457.3300
San Francisco
4 Embarcadero Center, Suite 1950 San Francisco, CA 94111
415.248.2900
London, UK
FBR Capital Markets International Ltd.
8th Floor
Floor, Berkeley Square House
Berkeley Square
London WIJ 6DB
011.44.20.7409.5300
11