presents presents FDIC-Assisted Asset Sales Leveraging Opportunities and Minimizing Risks in FDIC Loan Sales Leveraging Opportunities and Minimizing Risks in FDIC Loan Sales and Loss-Share Transactions A Live 90-Minute Teleconference/Webinar with Interactive Q&A A Live 90-Minute Teleconference/Webinar with Interactive Q&A Today's panel features: Mark C. Kanaly, Partner, Alston & Bird , Atlanta C. Robert Monroe, Partner, Stinson Morrison Hecker, Kansas City, Mo. , , y, , Steve Stone, General Counsel, Community & Southern Bank , Carrollton, Georgia Wednesday, June 30, 2010 The conference begins at: The conference begins at: 1 pm Eastern 12 pm Central 11 am Mountain 10 am Pacific 10 am Pacific You can access the audio portion of the conference on the telephone or by using your computer's speakers. Please refer to the dial in/ log in instructions emailed to registrations.
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Failed Bank Bid Process Failed Bank Bid Process
Presenter C. Robert Monroe, Chairman, Financial Services Division, Stinson Morrison Hecker LLP 1201 Walnut, Kansas City, Missouri , y, 816.691.3351 bmonroe@stinson.com 5
Bid Process • History History • The resolution process • Failed bank deal structures Failed bank deal structures • Legal issues • Linked Bids • Post-failure opportunities os a u e oppo u es 6
A Little History • Between 1930 & 1933, more than Between 1930 & 1933, more than 9,000 of the nation’s 24,000 banks failed failed • FDIC created in 1933 • 18,727 banks and thrifts in 1979 18 727 banks and thrifts in 1979 • 2,912 banks and thrifts failed from 1980 1994 1980-1994 • 11,070 banks and thrifts in 1995 7
Total Failures (Banks and S&L’s) 1980 - 1994 (Banks and S&L s) 1980 1994 600 500 sactions 400 mber of Trans 300 200 Nu 100 0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 22 40 119 99 106 180 204 262 470 534 382 271 181 50 15 Totals Source: FDIC Failures and Assistance Transactions Source: FDIC Failures and Assistance Transactions. 8
Total Failures (Banks and S&L’s) 2005 - 2009 (Banks and S&L s) 2005 2009 150 120 actions mber of Transa 90 60 Num 30 0 2005 2006 2007 2008 2009 2010 Totals 0 0 3 25 140 84 Source: FDIC Failures and Assistance Transactions. il d i i 9
2009 Failures by Loan Mix 12/31/08 Loan Mix 12/31/08 Loan Mix for All for 2009 Failed Banks Profitable Banks for the YTD 09/09 Period 5.1% 10.1% 25.0% 56.3% 18.7% 84.8% C&D Loans Other CRE Guidance Loans All Other C&D Loans Other CRE Guidance Loans All Other Loan Mix information based on median loan mix data as of 12/31/2008. C&D Loans = Construction & Development. O h Other CRE Guidance Loans = Non-Owner Occupied CRE Loans + Multifamily + Unsecured CRE Loans. C G id O O i d C l if il d C 10
Warning: Pay Attention to the “Texas” Ratio E l Early warning signal for bank failure risk i i l f b k f il i k Texas Ratio = NPA’s/Capital (tangible equity + ALLL) Texas Ratio > 100% = elevated risk of failure The 165 bank failures in 2008 and 2009 reported a median Texas ratio of 51% four quarters prior di T i f 51% f i to failure Source: SNL 11
Texas Ratio Migration (Median Statistics) All 2008 & 2009 Bank Failures All 2008 & 2009 Bank Failures 300.0% 271.4% 250.0% 200.0% 168.1% 150.0% 108.5% 100 0% 100.0% 71.6% 51.3% 50.0% 29.9% 19.8% 13.8% 0.0% MRQ-7 MRQ-6 MRQ-5 MRQ-4 MRQ-3 MRQ-2 MRQ-1 MRQ MOST RECENT QUARTER PRIOR TO FAILURE * *Texas Ratio: NPAs+90Days PD / (Tangible Equity + LLR). i / ( ibl i ) 12
Interested in Becoming a Bidder for a Failed Bank Failed Bank Register with FDIC (www2.fdicconnect.gov) Establish your own failed bank team Determine what you want (size, product mix and geography for a target, etc.) a target, etc.) Meet with your primary regulators to determine if you are approvable Know supervisory criteria to become a bidder (e.g., CAMELS 1 or 2, CAMELS 3 case-by-case, CRA rating, BSA rating, etc.) Know total asset size and geographic criteria (e g you must Know total asset size and geographic criteria (e.g., you must have double core deposits of failing bank or higher if not in your market, etc.) B Be ready and able to react quickly d d bl t t i kl 13
Private Equity Acquirers Goal to attract non-traditional investors, with appropriate safeguards f d Regulations require adequate capital, stability in management, prudent lending and business strategies • Capital support – 10% leverage ratio first three years • Cross guarantees – apply if 80% owned by common investors • Transactions with affiliates – new extension of credit prohibited for p 10%+ investor • Continuity of investment – three-year holding period requirement 14
Failed Bank Acquisition Opportunities Recommendations Your Failed Bank Team Needs to Be Prepared ― Due diligence (credit) ― Integration (technology; marketing and PR; human I i ( h l k i d PR h resources) ― Legal g ― Financial advisory ― Accounting Identify Target Banks ― Texas ratio ― Tangible common equity/Tier 1 leverage ratio g b e co o equ y/ e eve ge o ― NPAs/Assets ― Pre-provision net revenue/average assets 15
Resolutions Timeline (1-2 Months) Action Timing 1. Interested acquirers register with FDIC Before process 2. Primary regulator sends FDIC a failing notice Day 1 3. FDIC assembles information/transaction structure 1-2 weeks 4. FDIC e-mails potential bidders (interested acquirers sign confidentiality agreement) 1-2 weeks 5. Due diligence (learn how to use IntraLinks) team allowed 2-3 days 2-8 weeks 6. Bidder Board must adopt resolutions When bid is submitted 7. File regulatory application With bid 8. 8 Bids due Bids due Monday/Tuesday Monday/Tuesday 9. Winning bidder signs documents Wednesday/Thursday 10. Closing date Friday 16
The Resolution Process FDIC has “virtually complete responsibility for resolving failed federally insured depository institutions” with “expansive powers to ensure the efficiency of the process” Least cost test Least cost test We won – now what? Assemble your team (public relations component of team Assemble your team (public relations component of team very important now) Employment Agency p y g y Sign P&A Agreement (know excluded assets because you own the rest) Be ready to assemble your team on site for Black Friday 17
FDIC Action on “Black Friday” A Assumes control of premises, records, loans and t l f i d l d other assets Posts notices Posts notices Changes locks C Counts the cash h h Resolution team may number 50-100 people for a “typical” community bank “typical” community bank 18
Priority of Payment 1 st 1 st Ad i i t ti Administrative expenses of FDIC f FDIC 2 nd Insured Depositors 3 rd Other general/senior liabilities 4 th Subordinated obligations 5 th Shareholders are last in line and nothing is left 19
Legal Issues Anti-Injunction 12 USC 1821(j) S Stay of remedies 12 USC 1821(e)(13)(C)(i) f di 12 USC 1821( )(13)(C)(i) Side agreements 12 USC 1823(e) Contract repudiation/enforcement 12 USC 1821(e)(1) Contract repudiation/enforcement 12 USC 1821(e)(1) Removal 12 USC 1819(b)(2)(B) Exemptions 12 USC 1821(b) p ( ) • State and local taxes levy, garnishment, attachment or foreclosure • Penalties or fines Improperly documented agreements unenforceable 12 USC 1821(e) 20
Failed Bank Deal Structures P&A (P P&A (Purchase of Assets and Assumption of Liabilities) h f A t d A ti f Li biliti ) Deposit Payoff Open Bank Assistance (“OBA”) 2009 Failed Bank Structures • P&A All Deposits with Loss Share 90 • P&A All Deposits without Loss Share 36 • P&A Insured Deposits Only without Loss Share 2 • Deposit Payout D it P t 11 11 • Insured Deposit Transfer 1 21
Failed Bank Deal Structures 22 Linked Bids • Linked Bids
Failed Bank Deal Structures Deposit payoff • No bidders or • No bidders, or • Discount on assets is so great that a payoff is the “least cost alternative” • FDIC pays off depositors directly p y p y Open bank assistance • Technically still available, but not used anymore • FDI Act of 1993 prohibited FDIC from using insurance money to FDI A t f 1993 hibit d FDIC f i i t benefit any shareholder of an institution that had failed or was in danger of failing Bridge bank • Temporary bank created by FDIC to facilitate a resolution 23
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