Where Does Community Banking Go From Here? Bank Financial Officers Conference

Transcription

1 Where Does Community Banking Go From Here? Bank Financial Officers Conference November 16, 2011

2 Questions abound How will Dodd/Frank Impact my Bank? Will deal prices for banks bounce back? How large will banks have to be to compete? When will merger activity for banks pick up? Should I be a buyer or a seller? Page 2

3 Presentation Guide Industry Direction Government Activity Mergers and Acquisitions What is Next? Profitability Public Stocks Asset Quality FDIC Failures TARP and SBLF Recent Transactions Pricing Trends Deal Volume Deal Pricing Page 3

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5 Asset Distribution Total Industry Assets = $14.6 Trillion Top 4 Banks: $7.7T in Assets 53% of Industry Assets Citigroup 13% Wells Fargo 9% Greater than 10B 65 Companies 31% JP Morgan 15% 1B-10B 460 Companies 8% Bank of America 16% 100MM-1B 3,605 Companies 7% June 30, 2011 Data Consolidated by HC Excludes any bank larger than $1 billion in assets with a deposits to assets ratio of less than 10% 0-100M 2,057 Companies 1% Page 5

6 All Banks < $10B vs. Bank of America Bank of America $2.28 Trillion $1B-$10B 46 Companies $1.21 Trillion $100MM-$1B 3,605 Companies $1.07 Trillion $0-$100M 2,057 Companies $126 Billion Page 6 June 30, 2011 Data Consolidated by HC Excludes any bank larger than $1 billion in assets with a deposits to assets ratio of less than 10% Page 6

7 Percent of Industry: Assets vs. Noninterest Income 70% 60% 53% 54% 50% 40% 30% 31% 37% 17% Amex, Mellon, State Street & Ally 20% 10% 20% 16% 9% 0% Top 4 > 10B <10 B Assets Non-Interest Income Page 7 For the quarter ending 6/30/11

8 Comparison of Earnings Components (% of average assets) 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% 2.09% > $10 Billion $1 Billion - $10 Billion 1.44% 1.30% 1.16% $500 Million - $1 Billion $100 Million - $500 Million 0.91% < $100 Million Net Interest Income Non-Interest Expense Non-Interest Income Pre-Prov, Pre-Tax, Net Income Page 8 Median Data, % of Average Assets, LTM 06/30/11 Page 8

9 Net Noninterest Expense by Size LTM 06/30/ Difference of 1.44% Noninterest Inc. Noninterest. Exp. Net expense 0.00 >$10B $1B to $10B $500M to $1B $100M to $500M <$100M Median Data, % of Average Assets Page 9 Page 9

10 Bank and Thrift ROAAs % of the industry by bank % 90.00% 20% 80.00% 70.00% 24% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% <0.0% 0.0% - 0.5% 0.5% - 1.0% >1.0% 0.00% Page 10 35% Tax Rate Applied to S-Corps Last Twelve Months Data Page 10

11 Challenges Facing Smaller Banks Mobile banking technology is already in place at large banks Few options to replace declining OD and Interchange fees Dodd/Frank standardization favors wholesale providers Larger banks have more access to capital Increased regulatory burden favors larger banks with more economies of scale Page 11

12 Publicly Traded Price Distribution Price/Book (x) Page 12 Financial Data as of June 30, 2011, Stock Prices as of September 28, 2011, Intervals of 0.05x;

13 Publicly Traded Banks and Thrifts Greater than $2 Billion in Assets Price to Tangible Book as of September 28, > 2.0x >1.0x < 2.0x >0.5x < 1.0x < 0.5x Page 13

14 Publicly Traded Banks and Thrifts Greater than $2 Billion in Assets 6.00% Comparison of Median ROA, NPA s and Dividend Yield 6.38% 4.00% 2.44% 2.92% 2.00% 1.27% 0.90% 1.99% 0.87% 1.67% 0.52% 1.19% 0.00% ROAA NPA's 0.00% Dividend -0.95% -2.00% -4.00% > 2.0x >1.0x < 2.0x >0.5x < 1.0x < 0.5x Page 14 Price to Tangible Book As of September 28, 2011

15 Publicly Traded Banks and Thrifts Price-to-Tangible Book > 2.0x Page 15 As of September 28, 2011

16 Publicly Traded Banks and Thrifts Price-to-Tangible Book > 1.50x Page 16 Company Name City State Total Assets ($000) Price / Tang. Book ROAA (%) NPAs/ Assets (%) Dividend Yield (%) BankAtlantic Bancorp, Inc. Fort Lauderdale FL 3,863, Westamerica Bancorporation San Rafael CA 4,876, Prosperity Bancshares, Inc. Houston TX 9,657, U.S. Bancorp Minneapolis MN 320,874, Bank of New York Mellon Corporation New York NY 304,706, Community Bank System, Inc. De Witt NY 6,390, First Financial Bankshares, Inc. Abilene TX 3,841, Bank of the Ozarks, Inc. Little Rock AR 4,026, M&T Bank Corporation Buffalo NY 77,727, Signature Bank New York NY 13,084, Valley National Bancorp Wayne NJ 14,469, United Bankshares, Inc. Charleston WV 7,133, Bank of Hawaii Corporation Honolulu HI 13,161, F.N.B. Corporation Hermitage PA 9,857, Cullen/Frost Bankers, Inc. San Antonio TX 18,478, New York Community Bancorp, Inc. Westbury NY 40,602, City Holding Company Cross Lanes WV 2,713, Texas Capital Bancshares, Inc. Dallas TX 6,709, UMB Financial Corporation Kansas City MO 12,770, Kearny Financial Corp. (MHC) Fairfield NJ 2,904, NA 2.20 Investors Bancorp, Inc. (MHC) Short Hills NJ 10,206, Home BancShares, Inc. Conway AR 3,694, Commerce Bancshares, Inc. Kansas City MO 19,570, As of September 28, 2011

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18 Non-Performing Assets / Assets % of the industry by bank % 90.00% 80.00% 70.00% 60.00% 50.00% 40.00% > 4.0% 2.0% - 4.0% 1.0% - 2.0% 0.5% - 1.0% < 0.5% 30.00% 20.00% 10.00% 0.00% Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 Page 18

19 Non-Performing Assets One Year Trend Second Quarter 2010 to Second Quarter ,500 4,000 3,500 15% of the sick healed up over past year 4,204 11% of the healthy got the virus 3,000 2,500 2,097 2,000 1,500 1, Were > 3% Now < 3% Were < 3% Now > 3% June 30, 2011 Data Page 19 Page 19

20 Non-Current Loans / Totals Loans Banks & Thrifts Under $10B with Highest Level of Non-Current Lns 12.0% -7.0% 10.0% 8.0% 2.4% 0.5% -3.1% 2.8% 6.0% 4.0% 2.0% 0.0% NV GA FL OK OR 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 Page 20

21 Non-Current Loans / Totals Loans Banks & Thrifts Under $10B with Lowest Level of Non-Current Lns 3.0% 2.5% 2.0% 3.8% -3.3% -4.2% -1.3% -3.1% 1.5% 1.0% 0.5% 0.0% VT ND NE RI NH 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 Page 21

22 Non-Current Loans / Totals Loans Banks & Thrifts Under $10B Level of Non-Current Loans 5.0% 4.5% 4.0% -1.1% -3.7% -2.1% -0.4% 3.5% 3.0% 2.5% -3.3% -4.2% -2.2% 2.0% 1.5% 1.0% 0.5% 0.0% US MN ND SD NE IA WI 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 Page 22

23 Non-Current Loans / Totals Loans Banks & Thrifts Under $10B Level of Non-Current Loans 10.0% 4.2% 9.0% 8.0% 2.6% 7.0% 7.0% 6.0% -2.9% -4.5% 4.1% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Minneapolis Atlanta Chicago Denver Kansas City Milwaukee 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 Page 23

24 Modified Texas Ratio Definition Texas Ratio = Loans 90+ Days Past Due + Non Accrual Loans + OREO - Gov t Guaranteed Loans and OREO Covered by FDIC L/S Tangible Equity + Loan Loss Reserves Page 24

25 Modified Texas Ratio: Quarterly Trend 700 Modified Texas Ratio Breakdown by Number of Institutions % - 75% 75% - 100% 100% - 150% 150% - 200% >200% 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 Modified Texas Ratio Definition: Nonperforming assets plus loans 90 days or more past due net of delinquent government guaranteed loans and OREO covered by loss-sharing agreements with the FDIC as a percent of tangible equity and reserves. Page 25

26 Institutions with Modified Texas Ratio Above 200% June 30, 2011 Data Page 26

27 Institutions w/modified Texas Ratio 100%-200% States with more than three institutions June 30, 2011 Data Page 27

28 Number of Institutions with Modified Texas Ratio > 100% Metro Areas With Five or More Seattle 10 Minn-St. Paul 21 Las Vegas 5 Kansas City 11 STL 9 Chicago 43 Philly 7 NYC 9 Atlanta 33 DFW 5 Destin 5 Tampa 5 Miami 15 Page 28

29 How Many Distressed Banks are Saleable? Begin with all banks with modified Texas Ratio between 50 and 150 Pre-tax, pre-provision ROA >1.00%? Yes = Saleable, No = continue NIM > 4.00%? Yes = Saleable, No = continue Other factors: Cost of deposits, DDA as % of total deposits; CD s as % of total deposits, etc. Page 29

30 Saleable Distressed Banks (saleable / too distressed) States with 20 or More Banks with a Modified Texas Ratio B/W 50% and 150% 42 / / / 7 32 / / 8 13 / 9 35 / / 22 8 / / / 8 9 / / 7 17 / / / / 45 June 30, 2011 Data Page 30

31 Unofficial Regulatory Response to Classified Loans Ratio of Classified Loans to Tier 1 Capital plus Reserves 50% 100% 125% Life gets unpleasant Unlikely to be approved to buy C&D for banks with an established loan concentration (likely real estate) C&D for banks without an established loan concentration Page 31

32 Unofficial Removal of C&D Ratio of Classified Loans to Tier 1 Capital plus Reserves 75% With new money With new management 40% to 50% Without new money Same management Page 32

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34 $ Billions Failed Bank Transactions Number of Failures and Total Assets at Failure $400 $350 $ $ $250 $200 $150 $ $ $ $50 $ $ YTD Assets ($Billions) Volume As of November 4, 2011 Page 34

35 TARP Summary TARP # of Oustanding Institutions ($000) Banks & Thrifts with TARP 232 $20,496,673 Banks & Thrifts Suspending Dividends 147 $3,500,000 % Suspended 63.4% 17.1% Source: SNL Financial, As of October 2011 Page 35

36 TARP Summary $245 Billion: TARP investment in banks $257 Billion: Repayments to date $ billions $25 $20 $15 $10 $5 Page 36 $0 Source: U.S. Treasury Estimated Lifetime Profit on Bank TARP Profit from Citigroup TARP

37 SBLF Summary There are 332 SBLF participants with just over $4 billion outstanding 137 institutions used SBLF to repay TARP, representing just over $2 billion of SBLF outstanding SBLF Participants by 4 th Qtr Rates Under 1% 1% to 2% 2% to 3% 3% to 4% 4% to 5% Over 5% Source: SNL Financial, As of October 2011 Page 37

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39 National Bank and Thrift Acquisition Pricing Deal Volume & Price / Book Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q Deal Volume Price/Book (x) Page 39

40 2010 & 2011 Deal Volume by Month Jan 10 Feb 10 Mar 10 Apr 10 May 10 Jun 10 Jul 10 Aug 10 Sep 10 Oct 10 Nov 10 Dec 10 Jan 11 Feb 11 Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Page 40

41 2011 Deal Activity Map > 1.7x Tg Book 1.0x 1.7x Tg Book < 1.0x Tg Book Note: Recapitalizations and deals without pricing are not included on map Page 41 As of September 30, 2011

42 Recent Minnesota Transactions Deals (Non-FDIC) announced since January 1, Total Annc. Assets Price/ Target City Date ($000) Tg Book(x) 1 Financial Bancshares Co. Becker 04/22/ ,906 NA 2 Farmers St Bk of Sherburn Sherburn 03/24/ , First NB of the North Sandstone 01/20/ , Island Financial Corp. Bird Island 10/08/ ,928 NM 5 Kelliher Bancshares Inc. Kelliher 09/18/ ,106 NA Vision Bancshares Inc St Louis Park 06/21/ , First Resource Bank Savage 06/07/ ,813 NA White Rock Bank Cannon Falls 05/01/ , Starbuck Bancshares Inc. Starbuck 02/12/ ,610 NA Shakopee Bancorp Inc. Shakopee 11/30/ ,491 NA 11 Community Bk Plymouth Plymouth 07/02/ ,065 NA 12 EastBank Minneapolis 01/31/ ,915 NA 13 Peregrine Corp. Chaska 04/17/ ,578 NA 2 14 Anderson Fncl Group Inc. 11 Wayzata 03/13/ , Tower Bancshares Inc. Cloquet 03/13/ , Page 42

43 Price to Tangible Book by Asset Quality U.S. Deals Between July 31, 2010 and July 31, 2011 (Excludes Recaps) Page 43

44 Recent M&A Cycles Post S&L Consolidation Boom (Pooling of Interest) & Tech Bubble End of Pooling of Interest and Tech Bubble Bursts Post 9/11 Expansion The Housing Crisis ? Page 44 Count P/TB Page 44

45 Effect of Dodd-Frank on Community Banks? Wait and see approach No rush for the exits..yet Optimist View Largest banks impacted most Might get repealed Oppressive compliance costs Further restricts product development Creates uneven playing field Pessimist View Page 45

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47 Why M&A Activity Could Remain Sluggish High level of NPA s and classified loans on buyer s books Purchase accounting effect on tangible book value Paralysis from Dodd/Frank What is going to happen? Renewed volatility in financial markets from sovereign debt levels Page 47

48 Why Merger Activity Could Accelerate Buyers are Motivated Need size for economies of scale Perception that we have hit bottom only way is up Urgency to shop before other buyers crowd the market Sellers are Motivated Many have been waiting for years Fun is gone regulator exasperation Feel future earnings will not be as strong as historical earnings Capital gains tax changing? Page 48

49 Downward Pressures on Deal Prices Slower projections of economic growth Lower projections of banking profits Publicly-traded banks have depressed currency Analyst scrutiny of tangible book ratios Regulatory pressure on capital ratios Regulatory pressure on problem assets Page 49

50 Factors Behind Recent Premium Transactions Target offered core profitability and a growth market Readily achievable cost reductions New or greatly improved position in strategic market Page 50

51 Short-Term Tensions Sellers Buyers Pressure from regulators to exit market VS Fear of regulatory consequences for acquiring NPA s Backlog of banks wishing to exit VS Insufficient number of buyers with capital, asset quality and management Seller s desire for a fair price VS Buyer s low stock price Page 51

52 For questions or copies of slides: Curtis Carpenter Managing Director John Adams Director of Mergers and Acquisitions Page