Patrick Hayes

Earnings pressure increasing – Some banks are finding it difficult to generate adequate earnings. In assessing long-term profitability, many are looking to merge to either flourish or survive. Others will look to short-term acquisitions to make themselves more attractive future acquisition targets.

Regulatory scrutiny on the rise – Many smaller community bank owners, even those operating healthy institutions, are finding the regulatory environment much more challenging. Some are choosing to exit the industry by looking for buyers or investors with strong balance sheets to complete a transaction.

Attractiveness of FDIC-assisted transactions decreasing – These transactions are much less attractive now compared to a year ago, due in part to less favorable loss-share arrangements and increased competition amongst bidders.

Valuations stabilizing – While nowhere near the highs of 2007, unassisted bank transactions and their accompanying valuation statistics are beginning to improve slightly from their recent lows. According to Highline Financial for YTD 2010, the price to tangible book multiple is 1.20, compared to 1.16 in 2009.

Investor groups looking for bank transactions – Investor groups are forming to capitalize on opportunities in today’s banking environment. While some are looking to invest in a minority position, others are hiring top bank executives to join their teams with the intent of buying out institutions to create new banking franchises or expand existing banks into new markets.

M&A Activity – BKD Service Area*
There were seven bank/thrift transactions announced in the BKD service area during the second quarter of 2010. The data showed an upward trend regarding valuation statistics. The median price to tangible equity multiple was 1.21, a 53.2 percent increase from first-quarter 2010. Meanwhile, the median price to 7 percent equity multiple increased 87.4 percent from 0.95 to 1.78 during Q2 2010. A summary of this information is provided in Chart 1.

Publicly Traded Bank Metrics – BKD Service Area*

Three of four publicly traded bank valuations have increased from Q1 2010 to Q2 2010. Price to tangible book, along with return on average assets and average equity, has increased for this time period. Price to earnings has decreased slightly during the same period. Chart 2 and Chart 3 provide more detail.

*The charts above illustrate recent valuation trends in the BKD service area: Arkansas, Colorado, Illinois, Indiana, Kansas, Kentucky, Mississippi, Missouri, Nebraska, Ohio, Oklahoma and Texas.

Failed Bank Statistics

About BKD Corporate Finance, LLC

BKD Corporate Finance, LLC, a wholly owned subsidiary of BKD, LLP, provides merger and acquisition, sales, management buyout, ESOP, recapitalization, financing and IPO advisory services. Our experience covers a variety of industries, including financial institutions, health care, communications, defense, food processing, manufacturing, retail, software, technology, transportation and distribution. Member FINRA and SIPC.