Trust Preferred Program
By Financial Strategies Group
Published: 3/6/2007

Trust Preferred Securities (TPS)
The Baker Group, LP assists banks nationwide with the issuance of Trust Preferred Securities and subordinated debt as instruments for raising capital.
The Baker Group LP
Since 1979, The Baker Group has provided investment portfolio and interest rate risk management services to community banks nationwide. The Baker Group is registered under the Securities Exchange Act of 1934 as a general securities broker and dealer.  The Baker Group works with more than 650 community banks in more than 30 states.  The Firm also provides consulting in addition to operating as a broker-dealer and is a member of the NASD.  The Baker Group has offices in Oklahoma City, OK; Austin, TX; Springfield, IL; Indianapolis, IN; and Salt Lake City, UT.
Merits of Issuing Trust Preferreds
Tier 1 Capital Treatment from the Federal Reserve Board
		§          Since 1996, Trust Preferred Securities have been approved as Tier 1 capital by the Federal Reserve at the Holding Company level.  Trust preferred Securities may comprise up to 25% of a bank holding company’s Tier 1 capital.  Excess Trust Preferred issuance is treated as Tier 2 capital, but may “roll up” to Tier 1 as the Tier 1 capital grows, subject to the 25% limit.
Tax-Deductible Periodic Payments
		§          Trust Preferred Securities are viewed as debt for federal income tax purposes.  Therefore, period interest payments are tax-deductible and usually pay quarterly.
Non-Dilutive
		§          Trust Preferred Securities neither represent, nor convert into, the common shares of a Bank Holding Company, and therefore the issuance of Trust Preferred Securities does not increase the number of common shares outstanding for purposes of calculating earnings per share (EPS).
Flexible Pricing Alternatives
		§          Floating Rate – priced at a spread over 3-month LIBOR (quarterly re-pricing) §          Fixed/Floating – fixed for first 5 years; then quarterly re-pricing §          Fixed Rate – Fixed for 30 years
Opportunity to Enhance Shareholder Value
		§          Repurchase Stock - Repurchase outstanding stock to increase ROE, EPS, lower overall cost of capital §          Fund External Growth - Provide cash and capital to fund the Company’s growth through acquisitions §          Fund Internal Growth - Provide cash and capital to fund internal growth in excess of capital generation rate §          Reduce Debt - Convert debt to capital
Bank Holding Companies also have the added flexibility to redeem TPS at par after 5 years.
Underwriting Process
Streamlined Underwriting Process
		§          Streamlined Due Diligence Process                   Fewer demands on Management’s time                   No need for individual offering memorandum §          Standardized Documentation §          Overall Lower Transaction Costs
What are the Costs Associated with a Trust Preferred Transaction?
		Traditionally, the initial out-of-pocket expenses required for a trust preferred transaction are approximately $10,000 for legal fees (depending on choice of counsel), $4,250 for initial trustee fees, and $3,000 trustee fees annually thereafter.  For certain issuers, the underwriters may reimburse the issuer for out-of-pocket expenses up to $10,000 and arrange to pay for the initial trustee set-up fee, the trustee’s upfront counsel fee, and the annual trustee fees for the life of the securities.
Trust Preferred Security  Relationships
		The Baker Group acts as the referring agent to the top TPS underwriters in an effort to ensure competitive rates for our clients.
TRUST PREFERRED SECURITIES VS. COMMON EQUITY
Why Issue Trust Preferred Securities vs. Common Equity?
Trust Preferred Securities Common Stock Time to Issue: As soon as one week Undetermined   Cost to Issue: 0%-3% Placement Fee Approximately $10,000 for legal. Initial Trustee fees of $4,250 and $3,000 annually, thereafter.  Certain issuers may be eligible for the underwriters to reimburse legal costs (up to $10,000) and pay for trustee fees for life of security.   Up to 6-7% Placement Fee Documentation for public common offering can cost up to $300,000 Shareholder Dilution: Trust Preferred Securities are not convertible into common stock and therefore are a non-dilutive form of Tier 1 capital.       -No control issues       -No negative impact on ROE Existing Shareholders are diluted by the amount of the offering         Filing Requirements: No filing requirements Public filing required   Tax Deductibility: Trust Preferred Securities are a tax-deductible form of Tier 1 regulatory capital for Bank Holding Companies.   No tax deductibility for dividend payments Regulatory Capital Treatment: Trust Preferreds can account for up to 25% of Tier 1 capital 100% counts as Tier 1 capital Documentation: Standardized documentation with short turnaround Requirement for offering memorandum for investors   Due Diligence Process: No on-site due diligence required On-site due diligence with counsel generally required
Baker Group Contacts for Additional Information
	Contact Your Baker Registered Representative     Mr. Chris S. Wilson Financial Strategist The Baker Group LP 1601 Northwest Expressway, 20th Floor Oklahoma City, OK  73118   Mr. Phil Stenseth, CFA Managing Director The Baker Group LP 1601 Northwest Expressway, 20th Floor Oklahoma City, OK  73118		Ph: Em:   Ph: Fx: Em:       Ph: Fx: Em:	(800) 937-2257 tps@gobaker.com   (405) 415-7252 (405) 415-7293 cwilson@gobaker.com       (405) 415-7280 (405) 415-7293 phil@gobaker.com