Transcript Slide 1

Community Bankers
Association of Alabama
24th Annual Convention & Trade Show
May 23 – 26, 2010
Disney’s Yacht & Beach Club
babc.com ALABAMA I DISTRICT OF COLUMBIA I MISSISSIPPI I NORTH CAROLINA I TENNESSEE
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FDIC Receivership
Transactions
May 24, 2010
Presented by
Paul Compton
babc.com ALABAMA I DISTRICT OF COLUMBIA I MISSISSIPPI I NORTH CAROLINA I TENNESSEE
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Paul Compton
 Education
He received his B.S. in Commerce and Business Administration,
summa cum laude, in 1985 from The University of Alabama, studied at
the London School of Economics and Political Science, and received his
J.D. from the University of Virginia School of Law in 1989. He is a 1983
Truman Scholar. He is listed in Chambers USA: America’s Leading
Lawyers for Business in the Banking and Finance category, and in The
Best Lawyers in America for Banking Law, Corporate Law, Insurance
Law and Securities Law. He is a native of Georgiana, Alabama.
 Experience
– Over 60 acquisitions and sales of depository institutions
– Over 200 transactions involving low income housing tax credits
– Over 15 de novo formations of banks, bank holding companies
and insurance companies
© 2010 Bradley Arant Boult Cummings LLP
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“History does not repeat itself,
but it sure does rhyme”. –
Mark Twain
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Bank Failures 1980-2010
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Bank Failures 1980-2010
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Failed Bank Impact
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Regulatory Analysis
Ratio of
Borrowed
Money +
Brokered
Deposits to
Deposits
Loans Past
Due
Percentage
Average of CAMELS
Ratings 1 & 2
CAMELS Rating 3
11.12%
12.0%
4.00%
5.60%
CAMELS Rating 4
24.0%
12.0%
Allowance
for Loan
Losses
Tier 1
Leverage
Capital
Acquisition,
Total
Construction Commercial
and
Real Estate
Development Percentage
1.40% 11.21% 74.10%
1.83% 8.81% 125%
168%
1.93% 7.14%
(1)
Nonowner
Occupied
CRE
238% 160.81%
320% 215%
387%
278%
Asset Rating
3
4 or 5
Adversely
Classified
Assets to
Capital
26.93%
73%
147%
(2)
(1) 150% is a 4 rating indicator.
(2) This is the indicator for a 5 rating.
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Failed Bank vs. Live Bank Deals
General Considerations
 Advantage of Failed Bank Deals
– Loss sharing agreements provide significant downside
protection
– Possibly some selection of assets
– Generally little, if any, premium for assets/liabilities
– In 2009
• Virtually zero average deposit premium
• Approximately 10% average asset discount
 Advantage of Live Bank Deal
– One-on-one selection of target – no bidding process
– Targeted growth strategy
– Can be strong infrastructure/management
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Kabuki
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FDIC Resolution Process-Alabama
0
DAYS
10
20
30
40
50
60
70
80
90
Capital Call
PCA
Charter Authority Requests FDIC Resolution
Information Package
Asset Valuation Review (least cost analysis)
AVR Approved
Notice of Banking Board Meeting
Secure Website
Due Diligence
Banking Board Meeting
Bid Acceptance
Bid Selection
Closing
Source: FDIC
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Failed Bank Timing
 Generally the process takes about 90 days from the
commencement of involvement of DRR to receivership
but can be shorter or longer
 The bidding window is about 30 days out from planned
closure (the date of which is never disclosed)
 Historically, bidders notified 3 to 5 days after the bid
deadline and 7 – 10 days before closing
 If an investor wishes to propose a new deal structure,
generally the investor posts the terms on the website
and/or discusses with FDIC
 New structures posted for other bidders
 Closing occurs over a weekend
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Failed Bank Market
 Over 165 bank failures this cycle through 2009
 41 failures through Q1 in 2010
- Expected to surpass 2009 failures
 As of March 31, 2010, the FDIC “problem list” contains
775 banks – assets of $431B
 Market has evolved from deposit-only transactions to
whole bank transactions with loss sharing agreement
 Various private investor structures:
– Shelf Charters
– Inflatable Charters
– Blind Pools
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Bid List Criteria
•
Supervisory Criteria
-
Total Risk Based Capital ratio of 10% or higher
Tier 1 Risk Based Capital ratio of 6% or higher
Tier 1 Leverage Capital ratio of 4% or higher
CAMELS composite rating of 1 or 2
CAMELS Management component rating 1 or 2
Compliance rating of 1 or 2
RFI/C rating of 1 or 2
CRA rating of Satisfactory or Outstanding
Satisfactory Anti-Money Laundering Record
• Total Asset Size & Geographic Criteria
-
Total asset size threshold established for invitation is roughly double core
deposits of failing bank when bidder is in geographic proximity to failing bank
Larger total asset size requirements when bidder is located in other states
Bidders may express preferences for invitation by state
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DRR Regional Manager Contact Info
Atlanta Region
Pebble Connelly
678 – 916 – 2246
[email protected]
Mike Sewicki
678-916-2378
West Virginia
Virginia
North Carolina
South Carolina
Georgia
Alabama
Florida
Chicago Region
Gregory Watson
312 382 7594
[email protected]
Dallas Region
Mike Houston
972 761 8204
[email protected]
Wisconsin
Michigan
Illinois
Indiana
Ohio
Kentucky
Colorado
Oklahoma
New Mexico
Texas
Arkansas
Louisiana
Mississippi
Tennessee
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Bidder Contacts
 Banks can use FDICconnect to provide M&A contact
information for invitations to bid.
– FDICconnect can be accessed through www.fdic.gov or at
https://www2.fdicconnect.gov/.
 Banks may complete a survey to record their areas of
geographic interest.
 Submitting geographic preferences does not imply that an
institution will be notified of all potential failing
institutions in that state.
 Banks may also send an email to provide contact
information [email protected].
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Marketing via IntraLinks
 Marketing process starts with email to prospective bidder inviting
them to IntraLinks for a specific resolution project
 After executing electronic Confidentiality Agreement, bidders may
read an Executive Summary & Transaction Recap
 If interested, may request access to Project’s data room for
information about failing bank & transaction terms
 Deposit & Loan Downloads (Customer identifiable information
redacted)
 Premises
 IT
 Legal documents (bid forms, instructions, P&A documents, etc.)
 Regulatory contact information
 Key dates, bid instructions
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Failed Bank Process
 Insured bank placed into receivership by primary
federal regulator
 FDIC becomes receiver of assets/liabilities
 FDIC solicits bids from listed acquirors
 By statute, FDIC selects winning bidder(s) based
on least cost (proprietary) to the DIF
 Winning bidder(s) enter into P&A, and generally
loss sharing agreements with FDIC
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Failed Bank Deal Documents/Terms
 Loss Sharing Agreements (revised March 2010)
–
–
–
–
Generally cover a substantial majority of assets
10 years for residential assets
5 years for commercial assets
80% of losses to a defined “stated threshold” (historically, now
generally)
– 95% of losses above threshold (historically)
• Although phasing out
– “True-Up” calculations
– “Give back” a portion of asset discount if losses less than the
expected at end of 10 years
 Document generally not heavily negotiated
 P&A covers assets/liabilities (not necessarily all)
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Typical FDIC Failed Bank Bid Construction
 Determine deposit premium (as a % of deposits)
 Determine asset premium/(discount) (as a % of assets)
 Determine first loss tranche bid (as a percentage of loss
share), can be zero or positive
Cash Paid/Received Calculation:
 Net book value of assets acquired minus liabilities
assumed
 Deposit premium (if any)
 Asset premium/discount
 Wired on Monday following closure
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Sample Bid
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Sample Bid Numbers
Assumptions
Total estimated amount of capital raised
From issuance of common stock
From long term debt
$
$
$
5,000
2,500
2,500
(in 000's)
Acquiring Bank
Pre-Acquisition
$
20,000
52,000
160,000
(1,875)
7,500
10,000
Cash and cash equivalents
Securities
Loans
Allowance for loan losses
Premises and equipment
Other assets
Other real estate owned
Core deposit intangible
Goodwill
Indemnification asset
Total assets
Deposits
FHLB Advances
Other liabilities
Deferred tax liability
Total liabilities
$
247,625
$
200,000
18,000
7,625
$
$
225,625
$
Equity
100,000
3,000
214
103,214
22,000
Total liabilities and equity
$
247,625
Tier 1 leverage ratio
Tier 1 risk based capital
Total risk based capital
Risk weight
Risk weight
Risk weight
Risk weight
Tier 1 leverage ratio uses total assets versus period end assets.
Assets acquired liabilities assumed are est. FV of 12/31/09 balances
Acquiring bank balances are are as of 12/31/09.
#
#
No Addtl Capital
Assets Acquired
Pro Forma
Liabilities Assumed
Combined
$
21,389
$
41,389
$
16,000
68,000
63,750
223,750
(1,875)
2,168
9,668
10,000
250
250
10,752
10,752
$
114,308
$
361,933
$
- 0%
- 20%
- 50%
- 100%
$
$
$
$
11,094
$
114,308
300,000
21,000
7,625
214
328,839
33,094
$
361,933
8.88%
11.99%
13.24%
Total Assets
11,125
50,000
22,000
162,500
245,625
Total equity
Net unrealized (gains) losses on AFS sec
Disallowed intangible assets
Total Tier 1 Capital
Allowance for loan losses (1.25% limit)
Total Risk Based Capital
Capital Ratio Calculations
Total Assets
$
23,514
10,000
139,500
11,000
25,000
162,500
171,919
183,500
$
359,933
$
$
$
22,000
22,000
2,294
24,294
300,000
21,000
7,625
214
328,839
38,094
$
366,933
9.14%
15.59%
16.67%
Weighted
$
$
With Addtl Capital
Pro Forma
Combined
46,389
68,000
223,750
(1,875)
9,668
10,000
250
10,752
366,933
10.38%
17.94%
19.02%
Weighted
$
$
$
$
Weighted
27,900
12,500
171,919
212,319
$
33,094
33,094
2,294
35,387
$
$
$
27,900
12,500
171,919
212,319
38,094
38,094
2,294
40,387
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Special Considerations
 Fair value accounting under FAS 157 (ASC 820) for the
loss sharing agreement with the FDIC (aka
Indemnification Asset)
 Application of SOP 03-3 (ASC 310-30). No allowance
for loan and lease losses is established initially.
 The complexity of administering the loss sharing
agreement with the FDIC. Many tricks and traps.
Complying with it is not merely following “What Would
Jesus Do”.
 Rejection of ordinary course contracts.
 Employment decisions.
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FDIC Website Where Sample
Agreement Can Be Obtained
 Generally, may access the “failed bank”
list on the www.fdic.gov website, select a
bank and under the index for the bank
resolution choose “Purchase and
Assumption Agreement”
 Or, for a recent specific sample, go to
http://www.fdic.gov/bank/individual/failed/bonifay_p_and_a.pdf
30A
Questions?
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Contact Information
J. Paul Compton, Jr.
Bradley Arant Boult Cummings LLP
1819 Fifth Avenue North
Birmingham, Alabama 35203-2119
Direct: (205) 521-8381
Fax: (205) 488-6381
Email: [email protected]
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Community Bankers
Association of Alabama
24th Annual Convention & Trade Show
May 23 – 26, 2010
Disney’s Yacht & Beach Club
babc.com ALABAMA I DISTRICT OF COLUMBIA I MISSISSIPPI I NORTH CAROLINA I TENNESSEE
2037510