Despite an anticipated surge of transactions within the banking industry, bank merger and acquisition activity declined in 2011 compared to the prior year, hindered by a weak economic recovery, mounting regulatory pressures, and, according to some analysts, excessive seller expectations. This article from the professionals of Mercer Capital reviews the M&A landscape for community banks in both 2011 and the 1st quarter of 2012. ----------------------------------- Mercer Capital is one of the nation’s leading financial institutions valuation firms. The firm assists community banks with significant corporate valuation issues. In addition, Mercer Capital has a wealth of transaction experience helping clients with mergers, acquisitions, recapitalizations and other substantial transactions. Core services include: » Financial Institution Valuation » M&A Representation & Consulting » Bank ESOP Valuation » Fairness Opinions » Valuation for Tax Compliance » Loan Portfolio Valuation » Goodwill Impairment Testing » Capital Raising Consulting For more information about Mercer Capital, visit www.mercercapital.com.

1. Bank Merger &
Acquisition Review
For Year 2011 & Q1 2012
M&A Activity in 2011
Despite an anticipated surge of transactions within the banking industry, bank merger and acquisition activity declined in
2011 compared to the prior year, hindered by a weak economic recovery, mounting regulatory pressures, and, according
to some analysts, excessive seller expectations. Deal volume excluding government assisted transactions decreased
15.8% in 2011 from 2010 levels and approximated 2008 levels. It appears deal volumes bottomed out in 2009 at a total
of 104 for the year. Unfortunately, the number of transactions not reporting a deal value has increased in recent periods
(from 39 in 2009 to 51 in 2011), making a comparison of trends in deal values difficult. The number of deals presented
is exclusive of FDIC-assisted transactions, which decreased to 92 in 2011 from 157 during 2010.
Deal value (for those transactions which reported it) totaled $6.8 billion in 2011 versus $11.7 billion in the prior year.
Total deal value included PNC’s $3.5 billion acquisition of RBC Bank, which was announced in the second quarter of
2011, completed in the first quarter of 2012, and represented 51% of total reported deal value in 2011. Comerica’s $1.0
billion acquisition of Sterling Bancshares (announced in the first quarter and completed in the third quarter) accounted
for 15% of total deal value during the year.
Notably, total deal value for transactions in 2010 included several sizeable acquisitions, such as BMO’s purchase of
Marshall & Ilsley Corporation ($5.8 billion), Hancock Holding Company’s purchase of Whitney Holding Corporation
($1.8 billion), and First Niagara Financial Group’s purchase of NewAlliance Bancshares, Inc. ($1.5 billion). The
following table provides additional perspective with regard to transaction activity in the banking industry since 2006.
M&A: 2006-2011
2006 2007 2008 2009 2010 2011
Total Number of Deals (Excl. Gov’t Assisted) 234 243 128 104 177 123
Total Deal Value (Millions): * $74,126 $67,779 $28,408 $1,321 $11,987 $6,761
* Includes only those transactions for which deal value was reported
Transactions not reporting deal value 40 50 28 39 66 51
Period-to-Period Change 06-’07 07-’08 08-’09 09-’10 ‘10-’11
Number of Deals 3.8% -47.3% -18.8% 70.2% -30.5%
Mercer Capital’s ability to understand and Andrew K. Gibbs, CFA, CPA/ABV Jay D. Wilson, Jr., CFA
determine the value of a financial institution is 901.322.9726 901.322.9725
the cornerstone of the firm’s services and has gibbsa@mercercapital.com wilsonj@mercercapital.com
been its core expertise since its founding. Connect on LinkedIn Connect on LinkedIn

2. As in 2010, the majority of acquisitions involved sellers with assets less than $500 million. As shown below, for deals
for which pricing multiples and deal value were available (a total of 72 transactions), 56 transactions, or more than 75%,
involved targets with assets less than $500 million.
Asset target Size
Median Median
Median Median Median
Median Price/ Tang. No. of % of
Price/ Price/ Price/
Asset Size LTM Prem/Core Trans. Trans.
Book TBV Assets
EPS Deposits
Assets < $500 Million $127,202 25.32 101.00 103.74 10.51 0.01 56 77.8%
Assets $500 Million to $2 Billion $714,973 23.32 121.34 121.34 11.27 3.65 12 16.7%
Assets $2 Billion to $10 Billion $2,616,014 NM 134.53 149.26 13.08 6.03 3 4.2%
Assets > $10 Billion $27,375,539 NM 87.46 97.29 12.60 -0.54 1 1.4%
Twenty-one of the 72 transactions for which pricing information was available were all-cash transactions, 35 deals
involved some mixture of cash and other consideration (generally common stock), and 10 transactions involved common
stock as currency. The remaining deals were unclassified or not reported.
Regional economic viability again affected transaction volume during the year. Deal volume was highest in the Midwest
and West regions1, which reported 24 and 19, respectively, of the 72 total transactions with pricing multiples. The
Atlantic Coast and Northeast regions followed with 11 deals each in 2011. Seven transactions occurred in the Southeast
region. For comparison, FDIC-assisted transactions, which totaled 92 in 2011 compared to 157 in 2010, continued to
be concentrated in states with severely depressed real estate markets, such as Florida and Georgia (both in the Southeast
region), which had 13 and 23 bank failures, respectively, during 2011. Illinois and Colorado followed with 9 and 5
failures, respectively, and all remaining states reported less than 5 failures each during the year.
REGION
Median
Median Median
Median Median Median Tang. No. of
Price/LTM Price/ % of Trans.
Asset Size Price/Book Price/TBV Prem/Core Trans.
EPS Assets
Deposits
Atlantic Coast $247,009 16.39 77.69 81.25 6.92 -1.03 11 15.3%
Midwest $72,594 19.21 114.07 118.76 11.32 2.64 24 33.3%
Northeast $283,277 35.42 137.26 142.91 15.01 6.41 11 15.3%
Southeast $116,160 14.55 63.72 63.72 3.07 -2.01 7 9.7%
West $186,970 33.64 91.79 91.79 10.61 -0.95 19 26.4%
1 The regions include the following states:
◉◉ Atlantic Coast – Delaware, Florida, Maryland, North Carolina, South Carolina, Virginia, West Virginia, Washington, D.C.
◉◉ Midwest – Iowa, Illinois, Indiana, Kansas, Michigan, Minnesota, Nebraska, North Dakota, Ohio, Oklahoma, South Dakota, Texas, Wisconsin
◉◉ Northeast – Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont
◉◉ Southeast – Alabama, Arkansas, Georgia, Kentucky, Louisiana, Missouri, Mississippi, Tennessee
◉◉ West – Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, Wyoming
© 2012 Mercer Capital 2 www.mercercapital.com

3. First Quarter 2012 Activity
Through March of 2012, a total of 16 bank failures were reported with eight attributable to the Southeast region.
Florida and Tennessee each reported two failures, while Georgia reported four, and Illinois reported three failures.
For comparison, through March of 2012, transaction volume was higher with 56 total deals reported (compared to 47
in the first quarter of 2011). Total reported deal value through the first quarter of 2012 was also higher at $3.0 billion
(compared to $1.5 billion in the first quarter of 2011) and included Mitsubishi UFJ Financial Group’s $1.5 billion
acquisition of Pacific Capital Bancorp as well as Prosperity Bancshares’ $529 million acquisition of American State
Financial Corp. Deal volume in the first quarter of 2012 was weakest in the Northeast, where four transactions occurred,
while deal volume was higher in the Midwest and Southeast, which reported 25 and 13 transactions, respectively.
Some analysts have attributed the heightened transaction activity in the first quarter of 2012 to the improved economy
BANK WATCH
and an increased confidence among buyers, and, in particular, confidence with regard to loan portfolio assessment.
Transaction activity going forward is expected to remain concentrated among smaller institutions in light of revenue
Mercer Capital’s
and regulatory challenges. However, uncertainty concerning regulatory changes and the resulting burdens placed on
complimentary
institutions (smaller ones in particular), coupled with market volatility and the heated political climate, still looms,
monthly newsletter
threatening any impending, potential surge of transaction activity.
for bankers and
those serving the
Furthermore, capital raising remains difficult, and lackluster market activity caused many institutions to look to private
banking industry
equity firms as a source of capital in 2011. Preferred stock issuances were successful for several firms during the year,
and some analysts expect more buyers to utilize such issuances to finance acquisitions when consolidation activity
resumes. Focusing on bank
activity in five U.S.
regions: Atlantic Coast,
Midwest, Northeast,
Southeast, and West
About Mercer Capital
The Financial Institutions Group of Mercer Capital provides a broad range of specialized advisory services to the financial services View Archives
industry. Mercer Capital assists financial institutions with significant corporate valuation, transactions, and other strategic decisions.
Mercer Capital is one of the nation’s leading financial institutions valuation firms. In addition, the firm has a wealth of transaction
experience helping clients with mergers, acquisitions, recapitalizations and other substantial transactions. Core services include:
» Financial Institution Valuation » M&A Representation & Consulting
» Bank ESOP Valuation » Fairness Opinions
» Valuation for Tax Compliance » Loan Portfolio Valuation
» Goodwill Impairment Testing » Capital Raising Consulting
Contact Us
Andrew K. Gibbs, CFA, CPA/ABV Jay D. Wilson, Jr., CFA
Leader, Financial Institutions Group Vice President
HEADQUARTERS 901.322.9726 901.322.9725
5100 Poplar Avenue, Suite 2600 gibbsa@mercercapital.com wilsonj@mercercapital.com
Memphis, Tennessee 38137 Connect on LinkedIn Connect on LinkedIn
901.685.2120 (p)
901.685.2199 (f)
www.mercercapital.com
© 2012 Mercer Capital 3 www.mercercapital.com