1. MAY 20, 2009 BANKING: A PRIVATE EQUITY PERSPECTIVE SunTrust Private Equity Panel

2. 2 Private Equity and Capgen (Don’t tell Mom I am a private equity banker….) CapGen: Focus on financial institutions – community banks (7500+) in particular Value Creation Entry Price Earning growth Financial engineering Exit Price Private Equity Performance: luck, skill or risk? Problems Overpaid Reliance on leverage Hoped prices would continue to increase Strategy drift Concentration

3. Results Markdowns – 40-80% especially for 2005-2007 funds Investors Defaulting Rebalancing Fundraising Context: Alternative Investments Alleged benefits Issues Diversification Skill or risk 3 (…she thinks I am a piano player at a honkey tonk) Private Equity and Capgen (continued)

4. 4 Bank Valuation 101 (Value is an opinion…) Cash flow: Net income less asset growth times required tangible common equity ratio (TCE) Balance Sheet: Switch from income statement to balance sheet M = ROE – gM B Ke – gB - Dropped from 2.5-3X in 2006 to 1.0-1.5x for performing banks (… Price is a fact) - Factors underlying drop - decline in earnings due to charge offs - decline in g (growth) - increase in Ke (cost of equity)

5. Issues Balance Sheet Value Size of the Need Due Diligence Debt Overhang Inverted Capital Structures Negative Equity Political Risk 5

6. Situation I: Zombie Bank Bank A Total Assets2,750,000 NPLs/Loans10 % NPLs225,000 Reserves(54,000) Shortfall to 100% Coverage171,000 Tangible Equity-Reported90,000 Tangible Equity Adjusted(81,000) Tangible Equity Needed (6%)165,000 Tangible Equity Shortfall246,000 TARP to Repay- Total Capital Needed-100% Coverage246,000 Capital Needed per Burn down Analysis230,000 Tarp to Repay- Total Capital Needed-per Burn down230,000 Holding Co Debt90,000 6

7. Situation II: Walking Wounded Returns  Purchase Price & Recapitalization$230 mln  Terminal Value in Year 5$450 mln  Year 5 ROA of 1%$ 30 million  Exit P/E of 16  IRR – 100% Burn down – 9%  - 100% coverage – 8% 7

8. Conclusion 8