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Non-Control Equity Options for Community Banks

. Joshua S. Siegel, Managing Principal . Day with the Superintendent:Non-control Equity Options for Community Banks. 2. New York-based investment management company providing private capital to U.S. community banks Manages $3.1 billion Investments in over 220 community banks across 43 States Pioneered use of hybrid capital to invest in community banks Owns a minority interest in StoneCastle Partners Manages $1.5 billion of private equity Spinout of Harvard endowment private equity u32688

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Non-Control Equity Options for Community Banks

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    1. 0 Non-Control Equity Options for Community Banks Joshua Siegel Managing Principal StoneCastle Partners, LLC

    3. 2 New York-based investment management company providing private capital to U.S. community banks Manages $3.1 billion Investments in over 220 community banks across 43 States Pioneered use of hybrid capital to invest in community banks Owns a minority interest in StoneCastle Partners Manages $1.5+ billion of private equity Spinout of Harvard endowment private equity unit

    4. 3 Investment team has invested $5.8 billion in over 400 banks across 47 States

    5. 4 Invested $32.9 million in five banks having a significant presence in Iowa Exchange State Bank, Great Western Bancorp, Liberty Bank, River Valley Bancorp, TierOne Bank

    6. 5 Market Overview Regulatory Capital Federal Government Initiatives and the Private Market Non-control Equity Options Outlook

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    8. 7 Consolidation has resulted in improved credit quality Weaker banks typically acquired by stronger banks or have failed

    9. 8 Highly fragmented industry - 8,199 community banks have less than $10 billion of assets 98.6% of total U.S. banks $3.0 trillion of combined assets $319 billion of combined equity capital

    10. 9 Money Center Banks Capital markets activities Available-for-sale securitiesFAS 157 Alternative mortgage products Regional Banks First come Innovators, followed by Imitators, and then come the Idiots, whose avarice undoes the very innovations they are trying to use to get rich. -- Paraphrase of Warren Buffett Community Banks Deviation from core banking strategy Expansion into higher risk loans without enough capital Expansion out of footprint, rapid growth, bad markets

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    22. 21 Did not experience runaway growth in home prices relative to income Dallas County had an increase in population which drove housing prices Population of 25-34 year olds has increased 23% over the last 5 years

    23. 22 Below average Unemployment Rate compared to the National average Winnebago and Hancock County have seen an increase in unemployment due to stress at Winnebago Industries as a result of last years high gas prices and the current lack of financing for their products due to the credit crisis

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    50. 49 Banks need capital in weak markets Acquire weaker banks Acquire divested branches Grow loan portfolio and deposits organically due to competitors weaknesses Raise capital to absorb potential loan losses Banks also need capital in strong markets Acquire strategically aligned banks Expand branch network Grow loan portfolio and deposits Acquire value-added businesses

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