1 What You Need to Know About Bidding on Failed Banks ABA Community Bank Investor Conference March 2, 2011 Presented By: Barry Taff, Silver, Freedman & Taff, L.L.P (202) – Condensed Version of Materials Prepared by: Barry Taff, Silver, Freedman & Taff, L.L.P. (202) – Jeanne McBride, Regional Manager, San Francisco, FDIC Division of Resolutions and Receivership – (415) – Gregory K. Watson, Regional Manager, Chicago, FDIC Division of Resolutions and Receivership – (312) –

2 AGENDA Current Pace of Transactions How do I get on the Bid List? What is the Marketing Process? Whole Bank and WB with Loss Share Transaction Questions

3 Current Pace of Transactions 2011 FDIC transactions on pace with March and April 2010 were large volume months for deal activity. 23 Failed Bank transactions during January and February 2011, of which 2 failed banks did not have an acquirer 22 Failed Bank transactions during January and February 2010, of which 1 failed bank did not have an acquirer 42 Failed Bank transactions during March and April 2010, of which 4 failed banks did not have an acquirer.

4 Interested in Bidding? Banks can use FDICconnect to provide M&A contact information for invitations to bid occurs Banks may complete a survey to record their areas of geographic interest Submitting geographic preferences does not imply that a bank will be notified or all potential failing institutions in that state. Banks may also send an to provide contact information to

5 Bid List Criteria Supervisory Criteria Healthy, well capitalized Institutions No Compliance, CRA, BSA or Anti-Money Laundering Issues 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

6 Bid List Criteria Example Failing bank located in X State with $100 million in Total Deposits, $20 million in Brokered Deposits Bid List Criteria Used: Insured financial institutions in X State with at least $160 million in total assets (roughly double core deposits of failing bank) Insured financial institutions in contiguous states with at least $300 million in total assets (roughly double criteria used above for bidders located farther away from failing bank) Insured institutions nationwide with at least $400 million in total assets that have expressed an interest in acquiring institutions in X state. Criteria used will vary from project to project based on characteristics of potentially failing bank, time available for marketing, and other factors.

7 Marketing via IntraLinks Marketing Process starts with to Prospective Bidders 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 Projects data room for information about failing bank & transaction terms Deposit & Loan Downloads (Customer identifiable information redacted) Premises, IT and Other Operational Information Legal Documents (bid forms, instructions, P&A documents, etc.) Regulatory Contact information Key dates, Bid Instructions

8 On-Site Due Diligence Opportunities for On-Site Due Diligence is not always available, depends upon Resolution Timeline. Due Diligence scheduled First Come, First Serve. Time allowed averages one to two days Team sizes average three to five Affords the review of more detailed information Structured Program with FDIC hosting bidder access.

9 Bid Submission FDIC establishes deadline for bid package Bid Packages include: Bid (on bid form provided) Purchaser Eligibility Certificate Board Resolution Reaffirmation of Confidentiality Agreement FDIC selects winning Bid using Least Cost Test (proprietary). Additionally, FDIC is required by FDICIA to complete the Least Costly Resolution. Once winning bidder is selected you will be notified by the Marketing Specialist and Receiver in Charge/Closing Manager

10 Marketing: Transaction Structures Purchase and Assumption (P&A) Whole Bank Whole Bank with Loss Share Modified Whole Bank with Loss Share P&A with Optional Loan Pools Clean P&A Other Resolution Methods Bridge Bank Deposit Payout Deposit Insurance National Bank (DINB) Straight Payout

11 Whole Bank with Loss Share Whole Bank is a misnomer Transfers assets (including loans, ORE, securities) to Assuming Bank unless items are specifically excluded Transfers related, bank-owned, businesses (Credit Cards, Safe Deposit Box, Trust, Acquired Subsidiaries, etc.) Franchise acquisitions can be for All Deposits or Insured Deposits Only FDIC offers up to 80% credit loss coverage in transactions with Loss Sharing, except in transactions where the assets of the Failed Banks are $500 million or more (Large Loss Sharing Transactions). In Large Loss Sharing Transactions there are three loss tranches. The 1 st and 3 rd tranches provide up to 80% credit loss coverage but the 2 nd tranche is normally a fixed percentage ranging from 0 to 30% in credit loss coverage.

12 Typically Excluded Assets Bank Premises (offered under Separate 90-Day Options) D&O Liability Claims Prepaid Regulatory Assessments Tax Receivables Loss Reserves (General and Specific) Private Label Asset Backed Securities Assets that may be involved in fraud

13 What is Loss Share (LS)? Receiver & Assuming Bank share in losses & recoveries on Loss Share assets (80%/20%) unless Assuming Banks Bid provides that Receivers share is less than 80% or its a Large Loss Share Transaction (i.e., Receivers credit loss is fixed at a lower percentage on the 2 nd loss tranche) Generally 50/50 split between the Receiver and Assuming Bank on recoveries of fully charged off assets of the Failed Bank Applies to loans, ORE & (infrequently) certain securities Single Family LS – 10 year term Commercial LS – 5 year term + 3 years for recoveries only Cannot (currently) obtain loss share without a deposit franchise

14 What is Loss Share? – Cont. Permits Assuming Bank to formulate bid to recover all or portions of at least the following (subject to competitive conditions): credit losses (Assuming Banks percentage of loss share, generally 20%) Future income statement vulnerabilities from acquisition of impaired ORE/Loans Asset management expenses not otherwise reimbursable under the Loss Share Other

15 WBwLS – Bid Format Type of Deposits Assumed (all/insured) Deposit Premium Bid (stated as a % of core deposits - All brokered, CDARS and listing service deposits excluded from calculation). Asset Premium/(Discount Bid (stated as a positive or negative dollar amount). Loss Share Percentage – 80% Receiver and 20% Assuming Bank unless Assuming Bank decreases Receivers Percentage on Bid Form (or in the case of Large Loss Sharing Transactions (assets of $500 million or more), Receivers loss share percentage is up to 80% on bid tranches 1 and 3 and generally fixed between 0 and 30% on tranche 2) Value Appreciation Instrument (optional)

16 Type of Loss Share Bids Aggressive Conservative Other

17 Loss Share Transaction Documents Type of Documents P&A Agreement Single Family Loss Share Agreement Commercial (Non-Single Family) Loss Share Agreement Certain Key Provisions in Transaction Documents FDIC as Receiver (not in its corporate capacity) is the party to the Agreements. FDIC corporate only guarantees indemnification obligations of the Receiver. Consumer Loans not covered by loss share Neither investment in nor loans to or assets of an acquired subsidiary are covered by loss share If Assuming Bank or its holding company is sold (including by asset sale or otherwise), or Assuming Bank or its holding company experiences a more than 1/3 change in ownership in a merger or consolidation or a change in control by sale of shares by shareholders, the Receiver must consent to the transaction to preserve loss sharing. Mistake in complying with Permitted Advance and/or Permitted Amendment Provisions of Commercial Loss Share Agreement results in forfeiture of FDIC loss coverage with respect to the affected loan. True - Up Payment to FDIC

18 Closing Process when Bidding under the Whole Bank with Loss Share At Closing, FDIC Pro Forma – Prepares balance sheet of acquired assets and assumed liabilities at book value after reversal of loan reserves with selected investments valued at fair market value Net of same is Equity Adjustment (EA) Then nets EA with asset premium/discount bid and deposit premium bid If result is positive, Assuming Bank will wire the FDIC that amount on first business day following bank closing If result is negative, FDIC wires the Assuming Bank amount on first business day following bank closing

19 Loss Share Bid Example Bid All Deposits Deposit Premium of 1% (core deposits) Asset Discount of $11 million Assumptions Acquired assets minus assumed liabilities $1 million Core Deposits $200 million

20 Loss Share Bid Example – Cont. The calculation of the initial wire would be (in 000s): Thus the FDIC would pay the Assuming Bank $8 million on the first business day after bank closing Equity Adjustment 1,000 Franchise bid: Franchise %1.0% Core deposits 200,000 Total 2,000 2,000 Asset premium (discount) bid: (11,000) (11,000) Total (8,000)

21 Closing Procedures Prior to bank closing, the FDIC and the Assuming Bank will execute the transaction documents. At bank closing, the Chartering Authority will close the Failed Bank and appoint the FDIC, Receiver. FDIC will have personnel available to cover the branches and they will coordinate coverage with the Assuming Bank. Assuming Bank personnel will be needed over the weekend and FDIC will work with the Assuming Bank on who and when needed.