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Qualified, experienced BKD client service professionals write the contents of these articles. We urge you to carefully consider all of the facts and circumstances of your situation before applying specific information in our articles. Consult your BKD advisor before acting on any matter covered in these articles.
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April 2010
Financial Services Market Update, April 2010
 Patrick Hayes  Josh Lewis Initial and secondary equity offerings in the financial sector are beginning to re-emerge after an extended period of little to no activity because of market conditions. A $70 million initial public offering (IPO) for 1st United Bancorp, Boca Raton, Florida, in September 2009, and a more recent initial offering in March of $145 million for First Interstate BancSystem, Inc., Billings, Montana, are the first bank IPOs since July 2007. Secondary equity offerings, while starting slowly in the first quarter of 2010, are expected to increase over the coming months, according to banking professionals. These expectations are based on increased purchases of these offerings in recent months by positive investors who feel the worst of the market weakness has passed. Many banks are using proceeds from these offerings to repay the federal Troubled Asset Relief Program (TARP), issue loans or make acquisitions. FDIC May Consider New Structures for Failed Bank Transactions Changes in the economic landscape, insight from past deal structures and a growing list of interested buyers have prompted the Federal Deposit Insurance Corporation (FDIC) to consider, and in some cases implement, deal structures other than the popular loss-share agreements for a failed bank’s assets and deposits. A majority of FDIC-assisted transactions since the start of 2009 have included a loss-share provision of 80 percent of losses to a defined threshold and 95 percent of losses beyond that threshold. Industry professionals see the FDIC’s repeal of the 95 percent protection option as a signal the agency may shift its view of proposed transactions, namely considering structures that will result in smaller losses to the Deposit Insurance Fund. Packaging multiple banks in one transaction is a structure that could make sense in certain markets and may emerge as a useful tool in the coming months. Some options the FDIC has used include selling assets to investors after being held in receivership, allowing limited investment from private equity buyers through bidding banks and selling bonds backed by the assets of failed banks. Failed Bank Totals by Month – September 2008 to March 2010
Market Valuation Data – BKD Service Area* There were 11 bank/thrift transactions announced during the first quarter (Q1) of 2010. The data showed a downward trend in deal volume and mixed results regarding valuation statistics. The median price to tangible equity multiple decreased 33.6 percent to 0.79 from the fourth quarter (Q4) 2009, but remained relatively flat from the 0.78 recorded during Q1 2009. Meanwhile, the median price to 7 percent equity multiple decreased 34.0 percent from 1.44 to 0.95 during Q1 2010 and increased 13.1 percent from its Q1 2009 level of 0.84. A summary of this information is provided in Chart 1. Publicly traded bank valuations are mixed. Price to earnings and tangible book, along with return on average equity, have decreased from Q4 2009 to Q1 2010. Return on average assets has increased slightly during the same period. Chart 2 and Chart 3 provide more detail. *The charts below illustrate recent valuation trends in the BKD service area. Chart 1 - M&A Purchase Price Multiples
Chart 2 - Publicly Traded Bank Values
Chart 3 - Publicly Traded Bank Values
For more information on the market update or related matters, please consult your BKD advisor. About BKD Corporate Finance, LLC
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BKD Corporate Finance, LLC
