Community Bank Options for
Raising Capital
ABA Telephone Briefing
Tuesday, January 25, 2011
2:00 – 3:30 p.m. ET
Speakers
 Robert P. Hutchinson, Head of Depository Institutions,
Investment Banking, Sterne, Agee & Leach, Inc., Boston, MA
 Dave M. Muchnikoff, Partner, Silver Freedman and Taff,
LLP, Washington, DC
 Keary Colwell, Chief Financial Officer, Bay Commercial
Bank, Walnut Creek, CA
2
Discussion Items
Section
Executive Summary
1
Current Bank Equity Valuations
2
The Migration of Capital Raising
3
Capital Raising Options
4
Capital Raising Process
5
Investor Profiles & Requirements
6
Appendix:
Sample Term Sheets
7
Presenter Profiles
8
3
Executive Summary
Executive Summary
 Bank valuations have improved, but are still trading
primarily off of tangible book value as it relates to balance
sheet strength
 Offering types and structures have varied widely and
evolved since the credit crunch began in 2007
 Bias has shifted to common equity: from the perspective of
the regulators and investors
 Investor requirements are ever evolving and demanding
5
Current Bank Equity Valuations
Recent Market Developments
 Confidence has returned to the market place
 Unemployment has peaked
 Inflation remains low
 Consumer spending has increased at a rapid pace
 Stocks have reached their highest closing levels in 2.5 years
 Investors have sought out discounted bank stocks with strong fundamentals
 Earnings are improving
 Companies are flush with cash on their balance sheets
7
Structural Headwinds Remain
 High unemployment, budget deficits and subdued housing market remain
a drag on recovery
 Housing prices: Where is the bottom?
 Many more bank failures expected
 At September 30, 2010, “Problem List” consisted of 860 institutions with total assets of
$379.2 billion
 Many banks are facing slow balance sheet growth, flat fee revenue and
rising regulatory expense burden
 Significant industry-wide capital need
 Regulatory reform has injected further uncertainty
8
Recent Market Performance
Relative Price Performance Since December 1, 2010
25.00
20.00
15.00
10.00
5.00
0.00
12/1/2010
12/16/2010
SNL Bank
12/31/2010
SNL Thrift
Source: SNL Financial
SNL Bank Index: All major exchange banks in SNL’s coverage universe
SNL Thrift Index: All major exchange thrifts in SNL’s coverage universe
S&P 500
9
1/15/2011
Index
%∆
SNL Bank
17.9
SNL Thrift
13.1
S&P 500
7.4
Pricing Drivers for Bank Stock Valuations
 Asset Quality
 Capital Levels
 Size and Liquidity
 Profitability
10
Bank & Thrift Valuations: Landscape
300
260
# of Institutions
250
225
200
177
150
96
100
56
50
-
Price/ Tangible Book Value
Includes all publicly traded banks and thrifts
Data as of 1/14/2011
Source: SNL Financial
153
138
11
Valuation Drivers: Asset Quality
12.0%
10.8%
NPAs / Assets
10.0%
8.0%
6.0%
4.0%
5.8%
3.1%
2.1%
2.0%
1.9%
0.0%
Price/ Tangible Book Value
Values represent median of each respective group
Includes all publicly traded banks and thrifts
Data as of 1/14/2011
Source: SNL Financial
12
1.9%
1.4%
Valuation Drivers: Capital Levels
10.0%
8.8%
9.0%
TCE / TA
8.9%
8.8%
8.0%
8.0%
7.0%
9.0%
7.2%
6.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
Price/ Tangible Book Value
Values represent median of each respective group
Includes all publicly traded banks and thrifts
Data as of 1/14/2011
Source: SNL Financial
13
Valuation Drivers: Balance Sheet Strength
140.0%
100% P / TB
128.5%
Texas Ratio
120.0%
100.0%
80.0%
60.0%
40.0%
56.2%
30.6%
20.0%
21.5% 18.4% 19.0%
16.4%
0.0%
Price/ Tangible Book Value
Note: Texas Ratio = (NPAs + Loans 90+) / (TCE + LLR)
Values represent median of each respective group
Includes all publicly traded banks and thrifts
Data as of 1/14/2011
Source: SNL Financial
14
20% TX Ratio
Valuation Drivers: Size & Liquidity
Price / Tangible Book (%)
180
154.9
160
140
121.2
120
100
80
83.0
68.5
60
40
20
-
Assets
Values represent median of each respective group
Includes all publicly traded banks and thrifts
Data as of 1/14/2011
Source: SNL Financial
15
Valuation Drivers: Size & Liquidity
Market Capitalization ($MM)
400
347.0
350
300
250
200
163.3
150
100
50
63.5
1.8
9.4
15.4
32.7
-
Price/ Tangible Book Value
Values represent median of each respective group
Includes all publicly traded banks and thrifts
Data as of 1/14/2011
Source: SNL Financial
16
Valuation Drivers: Profitability
LTM Pre. Prov. ROAA
2.3%
1.78%
1.8%
1.36%
1.14%
1.3%
0.94%
0.8%
0.51%
0.3%
(0.15%)
(0.2%)
Price/ Tangible Book Value
Values represent median of each respective group
Includes all publicly traded banks and thrifts
Data as of 1/14/2011
Source: SNL Financial
17
1.46%
The Migration of Capital Raising
Equity Capital Raising Trends: 2008 – Present
Capital Raised by Banks & Thrifts
20
10
0
Capital Raised ($B)
200
(10)
(20)
150
(30)
(40)
100
(50)
(60)
50
(70)
(80)
0
(90)
1Q08
2Q08
Common Equity
3Q08
4Q08
1Q09
Pref erred Equity
2Q09
3Q09
4Q09
TARP
19
Source: SNL Financial
SNL Bank & Thrift Index: All major exchange banks and thrifts in SNL’s coverage universe
1Q10
2Q10
Trust Pref erred
3Q10
4Q10
1Q11
SNL Bank and Thrif t
SNL Bank & Thrift Price Change (%)
250
Equity Capital Raising Trends: 2008 – Present
Capital Raised by Banks & Thrifts
350
300
Capital Raised ($B)
200
250
150
200
150
100
100
50
50
0
0
1Q08
2Q08
Common Equity
3Q08
4Q08
1Q09
Pref erred Equity
2Q09
3Q09
4Q09
TARP
20
Source: SNL Financial
SNL Bank & Thrift Index: All major exchange banks and thrifts in SNL’s coverage universe
1Q10
2Q10
Trust Pref erred
3Q10
4Q10
1Q11
SNL Bank and Thrif t
SNL Bank & Thrift P / TB (%)
250
Equity Capital Raising Trends: 2000 – Present
Capital Raised by Banks & Thrifts
Beginning in the 2nd Quarter of 2009, companies began shifting
from TARP to common equity
Capital Raised ($B)
350
300
250
200
150
100
50
2000
2001
2002
Common Equity
Source: SNL Financial
2003
2004
2005
Pref erred Equity
21
2006
2007
TARP
2008
2009
Trust Pref erred
2010
2011
YTD
Equity Capital Raising Trends: 2000 – 2007
Aggregate Capital Raised
140
$122.6
Capital Raised ($B)
120
100
80
60
$41.0
40
$21.2
20
$-
Common Pref erred
Equity
Equity
Source: SNL Financial
22
TARP
Trust
Pref erred
Equity Capital Raising Trends: 2008 – Present
Aggregate Capital Raised
Capital Raised ($B)
250
$217.8
$212.1
200
$152.5
150
100
$55.5
50
-
Common Pref erred
Equity
Equity
Source: SNL Financial
23
TARP
Trust
Pref erred
Common Equity Raises by Asset Size:
Number of Transactions
90
80
70
60
50
40
30
20
10
0
168
165
77
76
60
76
26 23
22
35
33
17 15
20
5
2008
2009
2010
Asset Size ($)
< 0.5 B
Values represent median of each respective group
Source: SNL Financial
0.5 B – 1.0 B
1.0 B – 10.0 B
24
> 10.0 B
Common Equity Raises by Asset Size:
Premium / (Discount) to Stock Price
5%
0%
(5%)
(10%)
(15%)
(20%)
2008
2009
2010
Asset Size ($)
< 0.5 B
Values represent median of each respective group
Source: SNL Financial
0.5 B – 1.0 B
1.0 B – 10.0 B
25
> 10.0 B
Common Equity Raises by Asset Size
Price / Tangible Book Value
Offering / Market Cap
180%
160%
140%
120%
100%
80%
60%
40%
20%
0%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2008
2009
2010
2008
2009
 Small cap valuations driven by size of capital raise
Asset Size ($)
< 0.5 B
Values represent median of each respective group
Source: SNL Financial
0.5 B – 1.0 B
1.0 B – 10.0 B
26
> 10.0 B
2010
Impact of Relative Offering Size on Valuation
Historical Financials
Pro Forma Financials
Tangible Equity ($000)
Current Shares Outstanding
$
15,000
1,000,000
Tg. Book Value per Share
$
Current Stock Price
$
Price / Tg. Book Value
Pro Forma Tangible Equity ($000)
Pro Forma Shares Outstanding
$
48,000
4,500,000
15.00
Tg. Book Value per Share
$
10.67
12.50
Offer Price
$
10.00
83.3%
Offer Price / Tg. Book Value
Offering Assumptions
Offer Price
Shares Offered
Fixed Offering Expenses ($000)
Gross Spread
$
10.00
3,500,000
250
5.0%
Gross Proceeds ($000)
Offering Expenses ($000)
Net Proceeds ($000)
$
35,000
(2,000)
33,000
$
27
93.8%
Regulatory Considerations
Capital is King
 Collins Amendment requires regulators to apply leverage and risk-based capital requirements for holding
companies and significant non-bank subsidiaries at no less than current PCA levels
 Consolidated holding company capital must be at least at bank levels, certain debt/trust preferred/hybrid
capital (but not REIT Preferred securities) no longer qualify as “Tier 1” capital (subject to phase-out
period or grandfathered for holding companies with less than $15 billion in total consolidated assets)
 Does not apply to small bank holding companies (assets under $500 million) not engaged in significant
nonbanking activities, do not conduct significant off-balance sheet activities (including securitization and
asset management), and do not have a material amount of debt or equity securities outstanding (other
than trust preferred securities)
 Regulators to establish “countercyclical capital principles” so that the amount of capital required to be
maintained increases in times of economic expansion and decreases in times of economic contraction
 Perpetual non-cumulative preferred and REIT Preferred still qualify as Tier 1 capital – rarely issued in the
past because its terms were less attractive than previously-viable hybrids such as trust preferred
securities
29
Basel III

Significantly increases Tier 1 Capital requirements for banks
 Tier 1 raised from 4% to 6%
 New capital conservation buffer calibrated at 2.5%
 Countercyclical buffer: 0-2.5%
 Final implementation deferred many years: Tier 1 minimums phased in by January 1,
2015, however, regulators may impose earlier deadlines

New requirements for large US banks will be stricter than Basel III – Sheila Bair,
FDIC, 10/20/10

FRB to adopt capital standard for Large BHCs/Significant Non-banks in
consultation with Financial Stability Oversight Council

These may trickle down to all

Higher than normal minimum capital requirements already being imposed through
examination/application process – most regulators want 8 – 10% Tier 1 and 10 –
12% (Risk-based)
30
Significance of Small BHC Policy

Permits debt levels at small BHCs that are far higher than those permitted for larger BHCs

Policy permits a small BHC (at $500 million or less in assets) to incur debt and to
downstream proceeds to its subsidiary banks as low cost, non-dilutive Tier 1 capital to fund
acquisitions or critical ownership restructuring transactions

BHC debt incurred to acquire original bank or additional banks cannot exceed 75% of
purchase price

BHC debt must be retired in 25 years

BHC debt to equity ratio must be reduced to .30 to 1.0 within 12 years

Each subsidiary bank must be well capitalized or expected to be soon

BHC may not pay dividends if BHC debt to equity ratio is greater than 1.0 to 1.0

Small BHC policy does not apply to BHCs if the BHC Is engaged in significant non-banking
activities directly or through a subsidiary; conducts significant off-balance sheet activities,
including securitizations or asset management, directly or through a subsidiary; or has a
significant amount of debt or equity securities (other than trust preferred securities) that
are registered with the SEC
31
Capital Raising Options
Reasons for Raising Capital
 Increased Capital Requirements
 Structural Regulatory Changes
 Liquidity
 Growth Opportunities
 Organic
 Acquisitions
33
Equity Capital Raising Trends: 2000 – Present
Capital Raises of Less than $50 MM
Number of Transactions
450
400
350
300
250
200
150
100
50
2000
2001
2002
2003
Common Equity
Source: SNL Financial
2004
2005
Pref erred Equity
34
2006
2007
TARP
2008
2009
Trust Pref erred
2010
2011
YTD
Equity Capital Raising Trends: 2000 – Present
Capital Raises of Less than $50 MM
Capital Raised by Banks & Thrifts ($B)
6
5
4
3
2
1
2000
2001
2002
2003
Common Equity
Source: SNL Financial
2004
2005
2006
Pref erred Equity
35
2007
TARP
2008
2009
Trust Pref erred
2010
2011
YTD
Types and Sources of Capital
Types
Sources
Sources:
 Common Stock
 Rights Offering
 Preferred Stock
 Private Offering
 Debt
 Regulation D or Rule 144A
 Underwritten
 Public Markets
 Private Equity Investors
 Institutional Investors
 Correspondent Banks
 Stockholders
 Customers
 Directors
36
Capital Structure Influences
 How much additional capital is needed?
 Regulatory requirements: What type of “qualified capital”
do you need and at what level?
 Corporate structure
 Financial condition
 Capital structure
 Market demand: Who is investing?
37
Summary of Types of Capital
Pros
Senior Debt
Cons
 Non-dilutive to ownership
 Not permanent capital
 Down-streamed as Tier 1 capital
 Not treated as capital
 Interest payments tax deductible
 Non-dilutive to ownership
Sub Debt
Sub Debt
Preferred
Preferred
Unregistered
Offering
Common
 Not permanent capital
 Down-streamed as Tier 1 capital
 Interest payments tax deductible
 Tier 1 capital at holding company
 Cost
 Flexible structure
 Dividends are after-tax
 Non-dilutive to common ownership
 Permanent capital
 Dilutive to ownership
Common
38
Senior Debt
Considerations
Benefits
 Issued by holding company with
proceeds down-streamed to subsidiary
bank
 Can you raise enough?
 Not permanent capital, must have ability
to repay or refinance
Registered
 Maturity
typically up to 10 years
Offering
 Must be able to dividend funds from
bank to service debt
 Down-streamed proceeds count as Tier
1 capital at bank level, no capital
treatment at holding company level
 Will not solve capital issued at the
holding company level
 Interest payments are tax-deductible
 Earnings dilutive unless leveraged to
break even or better
 No change to ownership structure
 Usually obtained as a loan from another
financial institution
39
Subordinated Debt
Considerations
Benefits
 May be issued by holding company or
bank
 Can you raise enough?
 Not permanent capital, must have ability
to repay or refinance
 Maturity
must be minimum of 5 years,
Registered
typically
10-15 years
Offering
 If Tier 2 capital, sub debt limit equals
50% of Tier 1 capital; capital
qualification is reduced 20% annually
during last 5 years to maturity
 If issued by holding company, is
generally considered Tier 2 capital at
holding company level; proceeds can be
contributed to bank as Tier 1 capital
 Impact on earnings of interest cost;
must be able to service debt at issuer
level
 If issued by bank, is considered Tier 2
capital
 Interest payments are tax-deductible
 Usually privately placed with
stockholders, another community
financial institution or private investors
 No change to ownership structure
40
Preferred Stock
Considerations
Benefits
 Increases tangible equity without
increasing common shares
 Higher current cash cost relative to
issuance of common stock
 Non-cumulative
Registered perpetual preferred
counts
as Tier 1 capital
Offering
 Dividends are paid in after-tax dollars
except REIT Preferred is paid from pretax earnings
 Can structure to be convertible into
common stock, either mandatorily or at
the option of the holder
 Less dilutive to shareholders than
common stock
 Fixed or floating rate coupon
 Not available to Subchapter S
corporations; usually privately placed
with stockholders, another community
financial institution or a private investor
41
Common Stock
Considerations
Benefits
 All proceeds count as Tier 1 capital
 Concerns about dilution to existing
shareholders
 Represents permanent capital
 Typically priced at a discount to market
Registered
Offering
 Potential concerns over ability to
effectively deploy “excess” capital
 Negative impact on performance ratios
42
Alternative Sources of Capital Creation
 Branch Sales
 Securitizations (Denominator Trade)
 Sale/Leaseback Transactions
 Cut Dividends
 Constrain Balance Sheet Growth
 Capital Accretive Stock Transactions
43
The Capital Raising Process
Registered vs. Unregistered Offering
Pros
Registered
Offering
Cons
 Pricing
 More reporting
 Broader distribution
 More expensive
 Greater liquidity
 Less reporting
 Lack of liquidity
 Less expensive
Unregistered
Offering
 Flexibility
45
Capital Raising Process
Pre-Offering
Weeks
0
1
2
Discussions with Advisers (Investment Banker, Attorney)
Establish Terms of Instrument
Establish Terms of Offering
Board Approval of Offering
Prepare Prospectus / Private Placement Memo
Regulatory Filings (Banking and Securities)
Roadshow Dry-Runs with Investment Banker
Coordination of Roadshow
Roadshow
Closing
46
3
4
Marketing
5
6
7
8
9
10
Investor Profiles and Requirements
Who Are the Investors
 Institutional Money Managers
 Private Equity Investors
 Bank Focused Hedge Funds
 Insiders (Management, Board Members)
 Retail Investors
48
Desired Issuer Characteristics of Bank Stock
Investors
 Proven management teams
 Strong asset quality or ability to manage asset quality issues
 Demonstrated ability to execute M&A transactions and to
opportunistically take advantage of assisted bank transactions
 Pricing discipline
 Proven ability to grow organically
 Prudent capital allocation
 High insider ownership
49
Investor Considerations
Potential lead investors (9.9% or more) in banks are typically
looking for the following investment characteristics:
 20%+ internal rate of return
 Discount to current trading price / peers
 Board of Directors representation
 Liquidity event in 3 to 7 years
 IPO
 Refinancing
 Sale of the company
50
Investor Expectations After the Offering
 Open dialogue with bank management
 Serve as a sounding board for all transformational ideas
 Possible board positions
 Aggressive deployment of excess capital
51
Bay Commercial (BCML) Private Placement:
Case Study
Company Overview
 Headquartered in Walnut Creek, CA, Bay
Commercial Bank is a DeNovo bank started in
2004 focused on the San Francisco Bay area
Offering Process/Structure
Background
 Bay Commercial Bank recognized an opportunity to
capitalize on the economic disruption in its marketplace
via failed bank acquisitions, distressed open bank M&A
and branch acquisitions
 Company Highlights: Assets $143MM, Deposits
$127MM, Tangible Equity $16MM
 To execute its roll-up strategy, Bay Commercial chose
$30,000,000
Sterne Agee to structure a capital raise to meet it’s
needs
Structure
 Raised $18MM at $9.00 per share in permanent capital
that immediately capitalized the balance sheet
PRIVATE PLACEMENT OF
COMMON STOCK AND
WARRANTS
Sole Placement Agent
August 2010: $18MM Closed
Pending: Contingent Capital
 $12MM received in signed contingent subscription
agreements at a $10.00 per share price
 Potential to receive an additional $23MM at a $10.00 per
share price
 10% immediately exercisable warrant coverage at a strike
equal to the sale price given to “Anchor Group”
investors in exchange for satisfying the lock-up provision
of FDIC Policy Statement regarding failed bank
acquisitions
 $35MM in contingent capital is callable until July 15, 2011
52
Questions?
53
Appendix: Sample Term Sheets
Your Series A Non-Cumulative Perpetual Convertible
Preferred Stock
Issuer
Your Bank (or Holding Company)
Title of Securities
X.XX% Series A Non-Cumulative Perpetual Convertible Preferred Stock (the “Preferred Stock”)
Number of shares
issued
10,000 shares of Series A Preferred Stock
Price to Public
Anticipate 100% of liquidation preference ($1,000 per share)
Aggregate liquidation
preference offered
$10,000,000 of liquidation preference
Annual dividend rate
(Non-Cumulative)
X.XX% on the per share liquidation preference of $1,000 per share
Dividend Payment
Dates
Quarterly
Maturity
Perpetual
Liquidation preference
per share
$1,000 plus unpaid dividends, if any
Liquidation Rights
In the event of voluntary or involuntary liquidation, dissolution or winding-up, holders of the Series A
Preferred Stock will be entitled to receive a liquidating distribution in the amount of $1,000 per share
of the Series A Preferred Stock plus any declared or unpaid dividends, without accumulation of any
undeclared dividends (before any distributions to holders of any junior securities).
55
Your Series A Non-Cumulative Perpetual Convertible
Preferred Stock (continued)
Voting Rights
Except as otherwise required by law, a holder of Series A Preferred Stock will have voting rights only
in the case of certain dividend arrearages and any proposal to (i) amend, alter, repeal or otherwise
change any provision of our Articles of Incorporation or Certificate of Determination in a manner that
would adversely affect the rights, preferences, powers or privileges of the Series A Preferred Stock or
(ii) create, authorize, issue or increase the authorized or issued amount of any class or series or
equity securities that is senior or equal to the Series A Preferred Stock as to dividend rights, or rights
upon our liquidation, dissolution or winding-up.
Ranking
The Series A Preferred Stock will rank, with respect to the payment of dividends and distributions
upon liquidation, dissolution or winding-up junior to all our existing and future debt obligations, each
class of capital stock or series of preferred stock, the terms of which expressly provide that it ranks
senior to the Series A Preferred Stock and senior to all classes of common stock or series of preferred
stock, the terms of which do not expressly provide that it ranks senior to or on a parity with the Series
A Preferred Stock.
56
Your Series A Non-Cumulative Perpetual Convertible
Preferred Stock (continued)
Dividends
Dividends are payable semi-annually, when, as and if declared, on the last day of March and
September of each year, commencing March 31, 2011. Dividends are non-cumulative and are
payable if, when and as authorized by Board of Directions. Therefore, if no dividend is declared by
our board of directors on the Series A Preferred Stock for a dividend period, dividends for that
period will not be accrued and payable when dividends are declared for any subsequent period.
Dividends may not be paid on our common stock or any other capital security which ranks junior to
the Series A Preferred Stock for any dividend period until full dividends with respect to the Series A
Preferred Stock have been declared and paid or set apart for payment. So long as any shares of
Series A Preferred Stock are outstanding, if we declare any dividends on our common stock or
make any other distribution to our common shareholders, the holders of the Series A Preferred
Stock will be entitled to participate in such distribution on an as-converted basis.
Dividend Stopper
So long as any share of Series A Preferred Stock remains outstanding no dividend will be declared
and paid or set aside for payment and no distribution will be declared and made or set aside for
payment on any junior securities (other than a dividend payable solely in shares of junior securities)
and no shares of junior securities will be repurchased, redeemed, or otherwise acquired for
consideration by us, directly or indirectly (other than (a) as a result of a reclassification of junior
securities for or into other junior securities, or the exchange or conversion of one share of junior
securities for or into another share of junior securities, (b) repurchases in support of our employee
benefit and compensation programs and (c) through the use of proceeds of a substantially
contemporaneous sale of other shares of junior securities), unless, in each case, the full dividends
for the most recent dividend payment date on all outstanding shares of the Series A Preferred Stock
and parity securities have been paid or declared and a sum sufficient for the payment of those
dividends has been set aside.
Lock-ups
The Issuer and each of its executive officers and directors will agree not to sell any Series A
Preferred Stock or common stock for 90 days following the issuance date.
57
Your Series A Non-Cumulative Perpetual Convertible
Preferred Stock (continued)
Redemption
With prior regulatory approval, if required, the Series A Preferred Stock is
redeemable at the Bank’s option at any time, in whole or in part, on or after five years
from the date of issuance, at the liquidation preference per share, plus accrued and
unpaid dividends, if any. Holders of the Series A Preferred Stock will have no right to
require redemption of the Series A Preferred Stock.
Conversion right at Holder’s
Option
Each share of the Series A Preferred Stock may be converted at any time, at the
option of the holder, into shares of common stock (which reflects an approximate
initial conversion price of $XX.XX per share of common stock) plus cash in lieu of
fractional shares, subject to anti-dilution adjustments.
Mandatory conversion at
Issuer’s option
On or after Month XX, 2013, the Bank may, at its option, at any time or from time to
time cause some or all of the Series A Preferred Stock to be converted into shares of
common stock at the then applicable conversion rate if, for 20 trading days within any
period of 30 consecutive trading days, including the last trading day of such period,
ending on the trading day preceding the date the Bank gives notice of mandatory
conversion, the closing price of common stock exceeds 130% of the then applicable
conversion price of the Series A Preferred Stock.
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Your Series A Non-Cumulative Perpetual Convertible
Preferred Stock (continued)
Anti-Dilution Adjustments
The conversion rate may be adjusted in the event of, among other things:
 dividends or distributions in common stock or cash, debts or other property;
 certain issuances of stock purchase rights;
 certain self tender or exchange offers; or
 increases in cash dividends on our common stock;
 subdivisions, splits and combinations of the common stock;
 declines in the tangible book value of the issuer.
Limitation on Beneficial
Ownership
No holder of the Series A Preferred Stock will be entitled to receive shares of our
common stock upon conversion to the extent (but only to the extent) that such receipt
would cause such converting holder to become, directly or indirectly, a “beneficial
owner” (within the meaning of Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder) or more than 9.9% of the shares of our common
stock outstanding at such time. Any purported delivery of shares of our common stock
upon conversion of the Series A Preferred Stock shall be void and have no effect to the
extent (but only to the extent) that such delivery would result in the converting holder
becoming the beneficial owner of more than 9.9% of the shares of common stock
outstanding at such time.
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Your Series A Non-Cumulative Perpetual Convertible
Preferred Stock (continued)
Reorganization Events
Upon:
(1) any consolidation or merger of us with or into another person in each case pursuant to which
our common stock will be converted into cash, securities or other property;
(2) any sale, transfer, lease or conveyance to another person of all or substantially all of our
property and assets in each case pursuant to which our common stock will receive a distribution of
cash, securities or other property; or
(3) certain reclassifications of our common stock or statutory exchanges of our securities;
each share of the Series A Preferred Stock outstanding immediately prior to such reorganization
event, without the consent of the holders of the Series A Preferred Stock, will become convertible
into the kind and amount of securities, cash and other property or assets that a holder (that was not
the counterparty to the reorganization event or an affiliate of such other party) of a number of
shares of our common stock equal to the conversion rate per share of Series A Preferred Stock
prior to the reorganization event would have owned or been entitled to receive upon the
reorganization event.
Preemptive Rights
Holders of the Series A Preferred Stock have no preemptive rights.
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Your Corporation Senior Debt
Debentures Offered
Convertible Senior Debentures due 2030.
Maturity Date
December 1, 2030
Interest Payment
Dates
June 1 and December 1 of each year, commencing December 1, 2010.
Conversion Rights
The debentures are convertible into common stock at any time prior to maturity, unless previously
redeemed. The debentures are convertible into our common stock at a conversion rate of 100 shares of
common stock for each $1,000 principal amount of debentures (equivalent to a conversion price of
$10.00 per share), subject to adjustment in certain events described herein, unless previously redeemed.
Optional Redemption
by us
Subject to any required prior regulatory approval, the debentures may be redeemed at our option, whole
or in part, at any time on or after December 1, 2021 at the redemption price equal to 100% of the principal
amount of the debentures to be redeemed, plus accrued and unpaid interest, if any, to by excluding the
redemption date.
Mandatory
Redemption
None
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Your Corporation Senior Debt (continued)
Fundamental
change
If at any time after the earlier of (i) December 19, 2013 and (ii) the date on which all of the shares of the
TARP Preferred Stock have been redeemed by us or transferred by Treasury to third parties, we
undergo a fundamental change (as defined below), holders may require us to repurchase all or a
portion of their debentures at a repurchase price equal to 101% of the principal amount of the
debentures to be repurchased plus any accrued and unpaid interest, if any, to, but excluding, the
repurchase date.
Ranking
The debentures will rank:
Senior in right of payment to all our existing and future subordinated indebtedness;
Equal in right of payment to all of our present and future unsecured indebtedness that is not expressly
subordinated; and
Effectively subordinated to all of our subsidiaries’ obligations (including secured and unsecured
obligations) and subordinated in right of payment to our secured obligations, to the extent of the assets
securing such obligations.
As of December 31, 2010, we had no indebtedness senior or equal in right of payment to the
debentures. While the indentures governing the terms and conditions of the debentures prohibits us
from incurring unsecured indebtedness that would be senior in right of payment to the debentures, it
does not preclude us from incurring indebtedness that is collateralized, regardless of whether ranking
senior in right of payment to the debentures and does not otherwise prohibit or limit the incurrence of
additional indebtedness. Because the Corporation is a corporation without significant assets, other
than its equity interest in the Bank, in a bankruptcy or liquidation proceeding, claims of holders of the
debentures may be satisfied solely from the equity interest in the Bank remaining after satisfaction of
all claims of creditors of the Bank (including depositors).
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Your Corporation Senior Debt (continued)
Sinking Fund
None.
Covenants
The debentures and related indenture do not contain any financial maintenance or similar
covenants. However, the indenture, among its other provisions, restricts our ability to grant liens
on Bank stock, enter into certain transactions with affiliates, dispose of the Bank or its assets, pay
dividends on, or repurchase our common stock if debt is not current and incur non-collateralized
indebtedness that ranks senior to the debentures and prohibits us from consolidating or merging
with another entity unless:
the other entity assumes our obligations under the indenture,
immediately after the merger or consolidation takes effect, we will not be in default and no event
which, after notice or lapse of time or both, would become a default, under the indenture, and
certain other conditions are met including delivery by us to the indenture trustee of an appropriate
opinion of counsel.
Rights of Acceleration
If an event of default has occurred and is continuing, the trustee or the holders of at least 25% in
principal amount of the then outstanding debentures may declare the principal amount of all the
debentures, together with accrued but unpaid interest thereon, to be immediately due and
payable, subject in certain circumstances to rescission or waiver by the holders of at least a
majority in principal amount of debentures.
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Your Corporation Senior Debt (continued)
Use of Proceeds
We intend to utilize the net proceeds for general corporate purposes, which may include future
acquisitions as well as investments in or extensions of credit to the Bank and our other existing or
future subsidiaries.
Common Stock
Outstanding
At December 31, 2010, there were XX shares of Your Corporation common stock issued and
outstanding and YY shares of our preferred stock issued and outstanding, all of which consisted of
our Series A Preferred Stock, which we issued, along with a ten-year warrant to purchase shares of
our common stock, to Treasury pursuant to Treasury’s Troubled Asset Relief Program Capital
Purchase Program. In addition, an aggregate of 100,000 shares of common stock were issuable
upon exercise of outstanding stock options at December 31, 2010, none of which had an exercise
price less than the market price of the common stock as of that date.
Listing
It is not our intention to list the debentures on any securities exchange.
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Appendix: Presenter Profiles
Sterne, Agee & Leach, Inc.
Full Service Investment Bank
Sterne Agee Overview

Broad based national full service Investment
Banking and Brokerage firm founded in 1901
•
•
•
•
•

•
•
Asset/Liability &
Reporting
Investment
Portfolio Analysis &
Execution
Equity Research
1,000+ clients (banks, insurance companies, other)
High yield, high grade, rate products
Retail Brokerage
•
•

Stock Market
Making
Headquartered in New York
Investment Banking, Research, Sales & Trading
Fixed-Income Capital Markets
•

Based in Birmingham, Alabama with offices in 23 states
1,000+ employees and 250 independent financial advisors
100% employee ownership
Member NYSE and SIPC
$100 million in capital; $300+ million in revenue
Equity Capital Markets
•

Investment Banking
400+ financial advisors
22 office locations
Equity Buy-Back &
Distribution
Funding & Hedging
Analytics/Execution
Public Finance
•
•
Municipal bond issuances and financial advisory services
1,300 tax-exempt and taxable issues totaling $128.1 B in par
amount since 2004
Balance Sheet &
Investment
Analysis
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Silver Freedman & Taff, L.L.P.
Washington, D.C. based law firm specializing in financial institutions:
 Debt and Equity Securities Offerings
 Mergers and Acquisitions
 Regulatory and Enforcement Matters
 Recapitalizations
 Compensation and Employee Benefit Matters
 Securitizations
 Credit Union to Thrift Conversions
 Mutual to Stock Conversions
 Charter Conversions
 Holding Company and MHC Formations/Reorganizations
 Bank and Thrift De Novo Formations
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Presenter Biographies
Robert Hutchinson,
Head of Depository Institutions, Sterne Agee
Mr. Hutchinson has over 13 years of investment banking experience working primarily with financial institutions. Bob joined
Sterne Agee in August 2009 as a Managing Director and was promoted to Head of Depository Institutions in October 2010.
As Head of Depository Institutions, Bob is responsible for coordinating nationwide client coverage of banks and thrifts. In
addition to his role as Head of Depository Institutions, Bob leads the firm’s coverage of Mortgage REITs. Previously Mr.
Hutchinson was a Managing Director with Keefe, Bruyette and Woods (“KBW”) where he spearheaded their Boston
corporate finance practice. During his tenure at KBW, Mr. Hutchinson lead in the execution of mergers & acquisitions,
equity offerings, trust preferred offerings and mutual to stock conversion offerings. In 2006, Mr. Hutchinson brought in the
first Mortgage REIT deal to KBW, establishing that new business line. Mr. Hutchinson was formerly an Associate for RBC
Capital Markets where he focused in an investment banking capacity on financial institutions to include leasing companies,
specialty lenders, mortgage REITs, equity REITs and traditional banks and thrifts. Mr. Hutchinson served four years as an
Officer in the United States Marine Corps achieving the rank of Captain. He holds a Masters Degree in Investment
Finance from the Fisher College of Business at The Ohio State University and received his B.A. in English Literature from
Boston College. He holds a Series 24, a Series 7 and 63 License.
Dave Muchnikoff, Partner, Silver Freedman & Taff, L.L.P.
Mr. Muchnikoff was a Senior Attorney and Assistant Branch Chief with the Division of Corporation Finance at the SEC and
specialized in overseeing real estate related entities. Mr. Muchnikoff has specialized in both public and private common
and preferred stock offerings, debt offerings and asset-backed securities transactions, as well as providing guidance on
mergers and acquisitions and other general corporate and securities matters. He has also spoken at various national and
state seminars on the subject of capital raising and has published several related articles in industry publications. Mr.
Muchnikoff was also selected to the 2005 BTI Client Service All-Star Team based on a survey of Fortune 1000 companies
and the world ’ s largest financial services firms and is a former director of the Home Improvement Lender ’ s
Association. Mr. Muchnikoff also formerly worked for Ernst & Young and a Fortune 500 company as a CPA.
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Contact Information
Bob Hutchinson
Dave Muchnikoff
Head of Depository Institutions
Sterne Agee
617.478.5011
rhutchinson@sterneagee.com
Partner
Silver Freedman & Taff, L.L.P.
202.295.4513
dmm@sftlaw.com
69