community bank options for raising capital aba telephone briefing tuesday, january 25, 2011

Community Bank Options for Raising Capital

ABA Telephone BriefingTuesday, January 25, 20112:00 – 3:30 p.m. ET

2

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

3

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

Executive Summary

5

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

Current Bank Equity Valuations

7

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

8

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

9

0.00

5.00

10.00

15.00

20.00

25.00

12/1/2010 12/16/2010 12/31/2010 1/15/2011

SNL Bank SNL Thrift S&P 500

Recent Market Performance

Relative Price Performance Since December 1, 2010

Index %∆

SNL Bank 17.9

SNL Thrift 13.1

S&P 500 7.4

Source: SNL FinancialSNL Bank Index: All major exchange banks in SNL’s coverage universeSNL Thrift Index: All major exchange thrifts in SNL’s coverage universe

10

Pricing Drivers for Bank Stock Valuations

Asset Quality

Capital Levels

Size and Liquidity

Profitability

11

Bank & Thrift Valuations: Landscape

Includes all publicly traded banks and thriftsData as of 1/14/2011Source: SNL Financial

56

177

260

225

138

96

153

-

50

100

150

200

250

300

# o

f In

stit

uti

on

s

Price/ Tangible Book Value

12

Valuation Drivers: Asset Quality

Values represent median of each respective groupIncludes all publicly traded banks and thriftsData as of 1/14/2011Source: SNL Financial

10.8%

5.8%

3.1%2.1% 1.9% 1.9%

1.4%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

NP

As

/ A

sset

s


13

Valuation Drivers: Capital Levels

6.0%

7.2%

8.8% 9.0% 8.9% 8.8%8.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

TC

E /

TA



14

128.5%

56.2%

30.6%21.5% 18.4% 19.0% 16.4%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%

Tex

as R

atio


Valuation Drivers: Balance Sheet Strength

100% P / TB

20% TX Ratio

Note: Texas Ratio = (NPAs + Loans 90+) / (TCE + LLR)Values represent median of each respective groupIncludes all publicly traded banks and thriftsData as of 1/14/2011Source: SNL Financial

15

Valuation Drivers: Size & Liquidity

68.583.0

121.2

154.9

-

20

40

60

80

100

120

140

160

180

Pri

ce /

Tan

gib

le B

oo

k (%

)

Assets


16

Valuation Drivers: Size & Liquidity

1.8 9.4 15.432.7

63.5

163.3

347.0

-

50

100

150

200

250

300

350

400

Mar

ket

Cap

ital

izat

ion

($M

M)



17

Valuation Drivers: Profitability

(0.15%)

0.51%

0.94%1.14%

1.36%1.46%

1.78%

(0.2%)

0.3%

0.8%

1.3%

1.8%

2.3%

LT

M P

re.

Pro

v. R

OA

A



The Migration of Capital Raising

19

Equity Capital Raising Trends: 2008 – PresentCapital Raised by Banks & Thrifts

Source: SNL FinancialSNL Bank & Thrift Index: All major exchange banks and thrifts in SNL’s coverage universe

(90)

(80)

(70)

(60)

(50)

(40)

(30)

(20)

(10)

0

10

20

0

50

100

150

200

250

1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11

SN

L B

ank

& T

hri

ft P

rice

Ch

ang

e (%

)

Cap

ital

Rai

sed

($B

)

Common Equity Preferred Equity TARP Trust Preferred SNL Bank and Thrif t

20

0

50

100

150

200

250

300

350

0

50

100

150

200

250

1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11

SN

L B

ank

& T

hri

ft P

/ T

B (

%)

Cap

ital

Rai

sed

($B

)

Common Equity Preferred Equity TARP Trust Preferred SNL Bank and Thrif t


Source: SNL FinancialSNL Bank & Thrift Index: All major exchange banks and thrifts in SNL’s coverage universe

21


Source: SNL Financial

-

50

100

150

200

250

300

350

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 YTD

Cap

ital

Rai

sed

($B

)

Common Equity Preferred Equity TARP Trust Preferred

Beginning in the 2nd Quarter of 2009, companies began shifting from TARP to common equity

22

Equity Capital Raising Trends: 2000 – 2007Aggregate Capital Raised


$41.0

$21.2

$-

$122.6

-

20

40

60

80

100

120

140

Common Equity

Preferred Equity

TARP Trust Preferred

Cap

ital

Rai

sed

($B

)

23

Equity Capital Raising Trends: 2008 – PresentAggregate Capital Raised


$217.8

$152.5

$212.1

$55.5

-

50

100

150

200

250

Common Equity

Preferred Equity

TARP Trust Preferred

Cap

ital

Rai

sed

($B

)

24

2217

33

5

1520

26

76 77

23

60

35

0

10

20

30

40

50

60

70

80

90

2008 2009 2010

Common Equity Raises by Asset Size:Number of Transactions

< 0.5 B 0.5 B – 1.0 B 1.0 B – 10.0 B > 10.0 B

Asset Size ($)

Values represent median of each respective groupSource: SNL Financial

76

168 165

25

(20%)

(15%)

(10%)

(5%)

0%

5%

2008 2009 2010

Common Equity Raises by Asset Size:Premium / (Discount) to Stock Price

< 0.5 B 0.5 B – 1.0 B 1.0 B – 10.0 B > 10.0 B

Asset Size ($)


26

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2008 2009 2010

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

2008 2009 2010

Common Equity Raises by Asset Size

Price / Tangible Book Value Offering / Market Cap

< 0.5 B 0.5 B – 1.0 B 1.0 B – 10.0 B > 10.0 B

Asset Size ($)

Small cap valuations driven by size of capital raise


27

Impact of Relative Offering Size on Valuation

Historical Financials Pro Forma Financials

Tangible Equity ($000) 15,000$ Pro Forma Tangible Equity ($000) 48,000$ Current Shares Outstanding 1,000,000 Pro Forma Shares Outstanding 4,500,000

Tg. Book Value per Share 15.00$ Tg. Book Value per Share 10.67$

Current Stock Price 12.50$ Offer Price 10.00$

Price / Tg. Book Value 83.3% Offer Price / Tg. Book Value 93.8%

Offering Assumptions

Offer Price 10.00$ Shares Offered 3,500,000 Fixed Offering Expenses ($000) 250 Gross Spread 5.0%

Gross Proceeds ($000) 35,000$ Offering Expenses ($000) (2,000) Net Proceeds ($000) 33,000$

Regulatory Considerations

29

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

30

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)

31

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

Capital Raising Options

33

Reasons for Raising Capital

Increased Capital Requirements

Structural Regulatory Changes

Liquidity

Growth Opportunities

Organic

Acquisitions

34

-

50

100

150

200

250

300

350

400

450

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 YTD


Equity Capital Raising Trends: 2000 – Present Capital Raises of Less than $50 MM

Number of Transactions


35

Equity Capital Raising Trends: 2000 – PresentCapital Raises of Less than $50 MM

Capital Raised by Banks & Thrifts ($B)


-

1

2

3

4

5

6

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 YTD


36

Types and Sources of Capital

Sources:Rights OfferingPrivate OfferingRegulation D or Rule 144AUnderwrittenPublic MarketsPrivate Equity InvestorsInstitutional InvestorsCorrespondent BanksStockholdersCustomersDirectors

Sources

Common StockPreferred StockDebt

Types

37

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?

38

Summary of Types of Capital

Pros Cons

Senior Debt

Unregistered Offering

Non-dilutive to ownership

Down-streamed as Tier 1 capital

Interest payments tax deductible

Sub Debt

Preferred

Common

Sub Debt

Preferred

Common

Non-dilutive to ownership

Down-streamed as Tier 1 capital

Interest payments tax deductible

Tier 1 capital at holding company

Flexible structure

Non-dilutive to common ownership

Permanent capital

Not permanent capital

Not treated as capital

Not permanent capital

Cost

Dividends are after-tax

Dilutive to ownership

39

Senior Debt

Benefits

Registered Offering

Issued by holding company with proceeds down-streamed to subsidiary bank

Maturity typically up to 10 years

Down-streamed proceeds count as Tier 1 capital at bank level, no capital treatment at holding company level

Interest payments are tax-deductible

No change to ownership structure

Considerations Can you raise enough?

Not permanent capital, must have ability to repay or refinance

Must be able to dividend funds from bank to service debt

Will not solve capital issued at the holding company level

Earnings dilutive unless leveraged to break even or better

Usually obtained as a loan from another financial institution

40

Subordinated Debt

Benefits

Registered Offering

May be issued by holding company or bank

Maturity must be minimum of 5 years, typically 10-15 years

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

If issued by bank, is considered Tier 2 capital

Interest payments are tax-deductible

No change to ownership structure

Considerations Can you raise enough?

Not permanent capital, must have ability to repay or refinance

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

Impact on earnings of interest cost; must be able to service debt at issuer level

Usually privately placed with stockholders, another community financial institution or private investors

41

Preferred Stock

Benefits

Registered Offering

Increases tangible equity without increasing common shares

Non-cumulative perpetual preferred counts as Tier 1 capital

Can structure to be convertible into common stock, either mandatorily or at the option of the holder

Fixed or floating rate coupon

Considerations Higher current cash cost relative to

issuance of common stock

Dividends are paid in after-tax dollars except REIT Preferred is paid from pre-tax earnings

Less dilutive to shareholders than common stock

Not available to Subchapter S corporations; usually privately placed with stockholders, another community financial institution or a private investor

42

Common Stock

Benefits

Registered Offering

All proceeds count as Tier 1 capital

Represents permanent capital

Considerations Concerns about dilution to existing

shareholders

Typically priced at a discount to market

Potential concerns over ability to effectively deploy “excess” capital

Negative impact on performance ratios

43

Alternative Sources of Capital Creation

Branch Sales

Securitizations (Denominator Trade)

Sale/Leaseback Transactions

Cut Dividends

Constrain Balance Sheet Growth

Capital Accretive Stock Transactions

The Capital Raising Process

45

Registered vs. Unregistered Offering

Pros Cons

Registered Offering

Unregistered Offering

Pricing

Broader distribution

Greater liquidity

Less reporting

Less expensive

Flexibility

More reporting

More expensive

Lack of liquidity

46

Weeks

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

0 1 2 3 4 5 6 7 8 9 10

Capital Raising Process

Pre-Offering Marketing

Investor Profiles and Requirements

48

Who Are the Investors

Institutional Money Managers

Private Equity Investors

Bank Focused Hedge Funds

Insiders (Management, Board Members)

Retail Investors

49

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

50

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

51

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

52

Bay Commercial (BCML) Private Placement:Case Study

$30,000,000

PRIVATE PLACEMENT OF COMMON STOCK AND

WARRANTS

Sole Placement Agent

August 2010: $18MM ClosedPending: Contingent Capital

Company Overview Headquartered in Walnut Creek, CA, Bay

Commercial Bank is a DeNovo bank started in 2004 focused on the San Francisco Bay area

Company Highlights: Assets $143MM, Deposits $127MM, Tangible Equity $16MM

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

To execute its roll-up strategy, Bay Commercial chose 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 $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

53

Questions?

Appendix: Sample Term Sheets

55

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).

56

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.

57


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.

58


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.

59


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.

60


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.

61

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

62

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; andEffectively 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).

63


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, andcertain 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.

64


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.

Appendix: Presenter Profiles

66

Sterne, Agee & Leach, Inc.

Broad based national full service Investment Banking and Brokerage firm founded in 1901

• 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• Headquartered in New York• Investment Banking, Research, Sales & Trading

Fixed-Income Capital Markets• 1,000+ clients (banks, insurance companies, other)• High yield, high grade, rate products

Retail Brokerage• 400+ financial advisors• 22 office locations

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

Sterne Agee OverviewFull Service Investment Bank

67

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

68

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.

69

Contact Information

Bob HutchinsonHead of Depository Institutions

Sterne Agee617.478.5011

[email protected]

Dave Muchnikoff Partner

Silver Freedman & Taff, L.L.P.202.295.4513

[email protected]

community bank options for raising capital aba telephone briefing tuesday, january 25, 2011

Documents

traded banks

valuation drivers

snl financialsnl bank

bank thrift valuations

snl bank17

snl thrift13

respective groupincludes

billionmany banks