Entity Type: Bank holding companies and FDIC-insured commercial banks and savings institutions; each typically with less than $10 billion of total assets; public and private entities.
Instruments: Non-cumulative convertible preferred equity, non-cumulative preferred equity with warrants, subordinated debt (with or without warrants), bank stock loans (with or without warrants), convertible trust preferred securities and to a lesser extent, common equity
Investment Size: $2 - $15 million, smaller or larger by exception, with maximum pro-forma ownership limited to 24.9%
Dividend or Interest Payment Frequency: Quarterly
Investment Process Timeframe: Typically 4 - 8 weeks; variable by institution and structure
Typical Terms represents hypothetical data based upon prior experience of StoneCastle Asset Management's Senior Management team and certain information provided and will vary on a case-by-case basis.
StoneCastle Financial Corp's investment process has been refined over the past decade to provide for the efficient investment in community banks. Our Advisor's typical evaluation period for each prospective investment is 4-8 weeks. Each situation is unique and the process and requirements will vary. A brief overview of the key stages in our process is noted below.
- The Advisor reviews publicly available data to determine if proceeding to due diligence is warranted, and if so, StoneCastle Financial Corp sends a due diligence questionnaire to be completed by the bank.
- Due Diligence:
- Analysis of the completed due diligence questionnaire; verification of corporate documents; market review; local visit; perform management interviews and background checks; and loan, security and deposit tape review.
- Investment Committee:
- Investment Committee review of due diligence package and terms of investment; Investment Committee may request additional information if needed. A unanimous decision by the Investment Committee is required to proceed to final due diligence and closing.
- Documentation and Funding:
- If approved, StoneCastle Financial Corp will execute a letter of intent with the bank; definitive agreements are drafted and upon completion, StoneCastle Financial Corp invests funds into the bank on the settlement date.
We focus on investing in community banks that exhibit the following characteristics:
- Experienced Management.
- We invest in community banks with management teams or sponsors that are experienced in running local banking businesses and managing risk. Further, we look for senior management teams with significant ties to their local communities.
- Stability of Earnings.
- We focus on identifying community banks with the potential to generate stable cash flows over long periods of time. Therefore we will seek out institutions that have a defined lending strategy and predictable sources of interest revenues, stable sources of deposits and predictable expenses.
- Stability of Market.
- Our experience leads us to identify community banks whose core business is conducted in one or more geographic markets that have sustainable local economics. The market characteristics we desire include stable or growing employment bases and favorable long-term demographic trends, among other characteristics.
- Growth Opportunities.
- Healthy community banks operating in markets which provide significant organic growth opportunities or in highly fragmented markets where industry consolidation is likely to provide the opportunity for growth through acquisitions of smaller competitors are a primary focus for us.
- Strong Competitive Position.
- We also look for community banks that have developed strong market positions in their markets and are well positioned to capitalize on growth opportunities. Candidate banks should demonstrate competitive advantages that should help to protect and potentially expand their market position and profitability. Typically, we would not expect to invest in newly-formed institutions or community banks having highly speculative business plans.