EXHIBIT 2
Presentation to:
Yadkin Valley Company
| William J. Wagner, CPA | Matthew H. Paramore | |
| Managing Director | Assistant Vice President |
HOWE BARNES INVESTMENTS, INC.
4000 WestChase Boulevard, Suite 110
Raleigh, NC 27607
Phone: 800-638-4250
Fax: 919-424-0110
bwagner@howebarnes.com
September 28, 2005
 |
Table of Contents
Contents
1 | Yadkin Valley Company Overview | 3 | ||
2 | Valuation | 9 | ||
3 | Pro Forma Analysis | 21 | ||
| 2 | |
1. Yadkin Valley Company Overview
| 3 | |
Company Overview
| • | Yadkin Valley Company (“YAVL”) is the parent holding company of Yadkin Valley Life Insurance Company, which is engaged in the business of reinsuring credit life insurance policies |
| • | It assumes the risks of up to $25,000 on each credit life insurance policy |
| • | It reinsures Triangle Life Insurance Company policies sold through: |
| • | Southern Bank and Trust Company, Mount Olive, North Carolina |
| • | The Fidelity Bank, Fuquay-Varina, North Carolina |
| • | The Heritage Bank, Lucama, North Carolina |
| • | 100% of YAVL’s non-investment revenue is derived from the 3 affiliated banks above |
| • | Nearly all of YAVL’s assets are equity securities of the following companies: |
| • | First Citizens BancShares Inc., Raleigh, North Carolina |
| • | First Citizens Bancorporation, Inc., Columbia, South Carolina |
| • | Heritage BancShares, Inc., Lucama, North Carolina |
| • | YAVL does not have any employees |
| • | The company is managed by American Guaranty Insurance Company |
| • | All of the companies referenced above are controlled by the Holding family |
| • | The Holding family owns or controls over 68% of YAVL’s shares (per Management) |
| 4 | |
Selected Financial Trends
Source: SNL Financial, LC and public filings
| 5 | |
Selected Financial Trends Per Share
Source: SNL Financial, LC and public filings
| 6 | |
Investment Considerations
| • | YAVL is a small company in terms of assets and revenue |
| • | YAVL’s assets are significantly greater than its revenue and net income |
| • | YAVL’s business is reinsuring an insurance product that is out of favor |
| • | It is our understanding that many banks have replaced or are replacing credit life insurance with debt cancellation insurance to mitigate certain regulatory issues |
| • | YAVL’s policy revenue has declined significantly and is expected to continue to decline as banks have not focused on credit life insurance sales |
| • | YAVL offers only one product and operates in only one state |
| • | YAVL relies on three banks, with which it shares a common control relationship, for 100% of its business |
| • | YAVL’s assets have a low current yield |
| • | The weighted average yield is 0.27% |
| • | YAVL has never paid a dividend |
| • | YAVL has large inside ownership (greater than 68%) |
| • | YAVL has very limited liquidity |
| 7 | |
Trading Market
| • | YAVL is dually listed on the OTC Bulletin Board and the pink sheets |
| • | A review of transfer records for the last two years indicates that all activity is either: |
| • | Transfers in or out of street name |
| • | Transfers to related parties |
| • | Purchases by YAVL or related entities |
| • | Management is unaware of a sale between unrelated parties on the open market |
| • | Although there are three recorded trades on the open market in the last two years, the data is unreliable |
| • | Trades on the OTC Bulletin Board are often double counted (once for a sale into a dealer’s inventory and again for a sale to a third party) |
| • | The only significant or known buyer for YAVL’s common stock is the company itself |
| • | Below is a schedule of the YAVL’s repurchases in 2005: |
Date | Shares | Price | |||
04/20/05 | 2 | $ | 53.00 | ||
04/21/05 | 2 | $ | 53.00 | ||
05/19/05 | 36 | $ | 54.00 | ||
06/21/05 | 62 | $ | 62.00 | ||
Total / Wtd. Avg. | 102 | $ | 58.82 | ||
| 8 | |
2. Valuation
| 9 | |
Valuation Overview
| • | YAVL has engaged Howe Barnes Investments, Inc. (“HBI”) to assist it in a going private transaction. YAVL intends to deregister its common stock from the SEC to avoid the filing requirements of the SEC and avoid the large expected increase in compliance costs due to Sarbanes-Oxley. |
| • | YAVL anticipates reducing its shareholders of record below 300 by executing a reverse stock split (the “Transaction”). All fractional shares created in the reverse stock split would be cashed out. |
| • | YAVL has asked us as investment bankers to (i) render an opinion as to the fairness, from a financial point of view, to the Company’s common shareholders of the consideration to be received in the Transaction or (ii) advise the Board of Directors that it is unable to render such an opinion due to the inadequacy of the consideration. |
| • | HBI considered the following three valuation methodologies: |
| • | Market |
| • | Income |
| • | Net asset value |
| • | In addition, HBI considered an appropriate discount for lack of marketability as well as: |
| • | Recent prices paid by the company to repurchase shares of its common stock |
| • | Premiums paid over the trading price by financial services companies in going private transactions |
| 10 | |
Market Approach to Value
| • | Comparable Publicly Traded Companies Methodology |
| • | Could not identify any publicly traded company comparable to YAVL due to its unique attributes discussed earlier |
| • | YAVL has one highly specialized line of business, no employees and minimal profitability |
| • | YAVL is a very small company relative to other publicly traded insurance and reinsurance companies |
| • | Management was unaware of any other comparable companies, publicly traded or private |
| • | Comparable Sales Methodology |
| • | Could not identify a sale of a similar company |
| • | Management was unaware of any sales of comparable companies |
| • | Acquisition Value |
| • | YAVL is unattractive to another buyer due to the fact that 100% of its revenue is derived from one product sold by related parties |
| • | As such, it is our opinion that YAVL does not possess any goodwill or intrinsic value, and any acquisition value would be based on the value of the Company’s assets as discussed later |
| • | We concluded that the market approach to valuation would not result in meaningful values to use in valuing the common stock of YAVL |
| 11 | |
Income Approach to Value
| • | The income valuation analysis discounts future cash flows of the company at an appropriate discount rate in order to determine the present value of such cash flows |
| • | There are two types of income valuation analyses: |
| • | A dividend discount analysis discounts the cash flows available to shareholders |
| • | It assumes a minority interest perspective |
| • | A discounted cash flow analysis discounts the cash flows available to the company |
| • | It assumes a control perspective |
| • | YAVL has never paid a dividend, does not anticipate beginning to pay a dividend, and would appear not to have the ability to pay a dividend out of earnings; so a dividend discount model is not applicable |
| • | YAVL does not have significant income, so the discounted cash flow method does not suggest a meaningful value for YAVL |
| • | YAVL’s historical net income has vacillated between an insignificant level of earnings to small losses |
| • | Since 2000, YAVL’s cumulative profitability is $9,000 |
| • | Management expects YAVL’s policy revenue to continue to decline and the Company to continue to operate at break-even profitability |
| • | According to management, one $25,000 claim would cause YAVL to report a loss |
| • | The unpredictability and insignificance of YAVL’s earnings in comparison to its assets render a discounted cash flow analysis of little value |
| • | The income method is not useful in valuing the common stock of YAVL |
| 12 | |
Net Asset Approach to Value
| • | Net asset value is the market value of the company’s assets less the market value of the company’s liabilities |
| • | Net asset value represents the net worth of a company adjusted to reflect current market values |
| • | We adjusted the carrying values of investment securities from YAVL’s 6/30/2005 financial statements to reflect material changes in the prices of certain securities |
| Per Share | Market Value | Increase in Carrying | |||||||||||||||
Company | Shares | 6/30/2005 10-Q(4) | 09/21/05 | 06/30/05 | 09/21/05 | ||||||||||||
First Citizens Bancorporation, Inc. - voting common stock(1) | 35,000 | $ | 540.00 | $ | 685.00 | $ | 18,900,000 | $ | 23,975,000 | $ | 5,075,000 | ||||||
First Citizens Bancorporation, Inc. - nonvoting common stock(2) | 5,631 | $ | 47.50 | $ | 513.75 | 267,473 | 2,892,926 | 2,625,453 | |||||||||
Heritage BancShares, Inc.(3) | 7,401 | $ | 61.60 | $ | 75.00 | 455,933 | 555,075 | 99,142 | |||||||||
Total | $ | 19,623,406 | $ | 27,423,001 | $ | 7,799,595 | |||||||||||
| (1) | First Citizens Bancorporation, Inc. announced a going private transaction, and its stock price has increased dramatically. The price used in this calculation is as of the market close on 9/21/2005. |
| (2) | First Citizens Bancorporation, Inc. has maintained a policy of valuing its non-voting common stock at 25% less than the market value of its voting common stock. First Citizens Bancorporation, Inc. is expected to repurchase YAVL’s shares of its nonvoting common stock to fund YAVL’s contemplated going private transaction at this price. |
| (3) | Reflects the increase in carrying value of Heritage BancShares, Inc. due to the price that Heritage’s board has set for redemptions of stock this year per Management. |
| (4) | We understand that YAVL is in the process of restating its financial statements as filed in its 6/30/2005 10-Q and other financial statements filed with the SEC. It is our opinion that the net asset value would not change as a result of the anticipated restatements. |
| 13 | |
Net Asset Value Methodology
| • | The table below shows the calculation of YAVL’s net asset value as of 6/30/05 with adjustments |
| Net Asset Value(1) | |||||||||
| As Stated per 6/30/2005 10-Q | Change | As Adjusted 9/21/2005 | |||||||
Assets | |||||||||
Cash | $ | 71,838 | — | $ | 71,838 | ||||
Investments in equity securities(2) | 22,605,851 | 7,799,595 | 30,405,446 | ||||||
Certificates of deposit | 322,000 | — | 322,000 | ||||||
Accrued investment income | 588 | — | 588 | ||||||
Other assets | 100 | — | 100 | ||||||
Total assets | $ | 23,000,377 | 7,799,595 | $ | 30,799,972 | ||||
Liabilities | |||||||||
Life policy claims reserves | $ | 6,374 | — | $ | 6,374 | ||||
Deferred income taxes(3) | 7,812,062 | 3,041,842 | 10,853,904 | ||||||
Notes payable | 899,205 | — | 899,205 | ||||||
Accrued interest payable | 3,376 | — | 3,376 | ||||||
Total liabilities | $ | 8,721,017 | 3,041,842 | $ | 11,762,859 | ||||
Net Asset Value | $ | 14,279,360 | 4,757,753 | $ | 19,037,113 | ||||
Shares outstanding | 180,598 | — | 180,598 | ||||||
Net Asset Value Per Share | $ | 79.07 | $ | 26.34 | $ | 105.41 | |||
| • | Given that 98% of YAVL’s assets are equity securities, YAVL’s net asset value has the potential to fluctuate to a greater degree than many companies |
| (1) | Based on the YAVL’s financial statements at 6/30/2005 with adjustments to “Investments in equity securities” and “Deferred income taxes.” Assumes that all assets and liabilities are carried at market value per Management. |
| (2) | The earlier investment portfolio schedule details the adjustments to investments. |
| (3) | Deferred income taxes are assumed to grow at 39% of the increase in unrealized gain on investments related to their increase in market value |
| 14 | |
Lack of Marketability Discount
| • | Of the three generally accepted approaches to value, only the Net Asset Value methodology yielded a meaningful result |
| • | Although YAVL is listed on the OTC Bulletin Board and on the pink sheets, there is very limited liquidity in the stock |
| • | There are few, if any, other buyers for YAVL’s stock than the YAVL or related entities |
| • | The valuation indicated by the Net Asset Value should be reduced by a lack of marketability discount in order to reflect the limited liquidity available to holders of YAVL common stock |
| • | Generally, the magnitude of a lack of marketability discount is affected by the following items: |
| • | “Put” rights |
| • | Dividends or distributions to shareholders |
| • | Size of potential market of buyers |
| • | Prospects for being acquired |
| • | Size and financial strength of company |
| • | Size of position |
| 15 | |
Lack of Marketability Discount
| • | The series of Pre-IPO studies provides the best quantitative evidence for the lack of marketability discount for YAVL |
| • | These studies value transfers of the shares of private companies and compare them to an IPO price |
| • | YAVL’s trading is so limited that it is more like a private company before an initial public offering than a public company |
| • | The table below shows a synopsis of the most significant Pre-IPO studies |
Source(1) | Time Period | Transactions | Mean Discount (%) | Median Discount (%) | ||||
WMA | 1975-1978 | 31 | 34 | 53 | ||||
WMA | 1979 | 17 | 56 | 63 | ||||
WMA | 1980-1982 | 113 | 48 | 57 | ||||
WMA | 1983 | 214 | 50 | 61 | ||||
WMA | 1984 | 33 | 43 | 73 | ||||
WMA | 1985 | 25 | 41 | 43 | ||||
WMA | 1986 | 74 | 39 | 47 | ||||
WMA | 1987 | 40 | 37 | 44 | ||||
WMA | 1988 | 19 | 42 | 52 | ||||
WMA | 1989 | 19 | 47 | 50 | ||||
WMA | 1990 | 23 | 31 | 49 | ||||
WMA | 1991 | 34 | 24 | 32 | ||||
WMA | 1992 | 75 | 42 | 52 | ||||
WMA | 1993 | 110 | 47 | 53 | ||||
WMA | 1994 | 48 | 32 | 42 | ||||
WMA | 1995 | 66 | 32 | 59 | ||||
WMA | 1996 | 22 | 32 | 44 | ||||
WMA | 1997 | 44 | 28 | 35 | ||||
Emory | 1995-1997 | 91 | 43 | 43 | ||||
Emory | 1994-1995 | 46 | 45 | 45 | ||||
Emory | 1991-1993 | 54 | 45 | 44 | ||||
Emory | 1990-1992 | 35 | 42 | 40 | ||||
Emory | 1989-1990 | 23 | 45 | 40 | ||||
Emory | 1987-1989 | 27 | 45 | 45 | ||||
Emory | 1985-1986 | 21 | 43 | 43 | ||||
Emory | 1980-1981 | 13 | 60 | 66 | ||||
Mean | 1,317 | 41 | 49 | |||||
Median | 1,317 | 43 | 46 |
| (1) | Reproduced fromBusiness Valuation Discounts and Premiumsby Shannon Pratt. WMA – Willamette Management Associates study. Emory – John Emory study. |
| 16 | |
Lack of Marketability Discount
| • | Of the 26 Pre-IPO studies, the median discounts ranged from 32% to 73% with a median discount of the studies of 46% and a mean discount of 49% |
| • | Based on a review of the Pre-IPO studies and in consideration of the investment merits of YAVL, we have selected a lack of marketability discount range of 40% to 60% |
| • | In our opinion, YAVL warrants a lack of marketability discount equal to or greater than the average pre-IPO company |
| • | The net asset value of $105.41 per share adjusted for a lack of marketability discount, suggests that the value of YAVL’s common stock would fall in the following range: |
Lack of Marketability Discount | NAV Adjusted for Marketability Discount | ||
| 40% | $ | 63.25 | |
| 45% | $ | 57.98 | |
| 50% | $ | 52.71 | |
| 55% | $ | 47.44 | |
| 60% | $ | 42.16 | |
| • | Implied range of fair value - $42.00 - $63.00 per share |
| 17 | |
Similar Transaction Premium Analysis
| • | The table below details premiums paid in going private transactions in the financial services industry in the last year |
Company | Ticker | Industry | Announce Date | Transaction Structure | Assets ($000’s) | Transaction Value | % of Shares | Premium | ||||||||||
Illini Corporation | ILIN | Bank / Thrift | 08/23/05 | Cash Out Merger | 253,463 | NA | NA | 3.8 | % | |||||||||
Iowa First Bancshares Corp. | IFST | Bank / Thrift | 07/22/05 | Cash Out Merger | 376,429 | 2,478,132 | 4.7 | % | 10.9 | % | ||||||||
JB Oxford Holdings, Inc. | JBOH | Broker / Dealer | 07/07/05 | Reverse Stock Split | 31,271 | 450,000 | 4.2 | % | 34.5 | % | ||||||||
Cherokee Banking Company | CHKJ | Bank / Thrift | 07/01/05 | Cash Out Merger | 164,843 | 3,398,664 | 15.4 | % | 14.5 | % | ||||||||
FC Banc Corp. | FCBQ | Bank / Thrift | 06/24/05 | Cash Out Merger | 162,234 | 1,881,152 | 9.9 | % | 2.2 | % | ||||||||
Guaranty Bancshares, Inc. | GNTY | Bank / Thrift | 06/07/05 | Cash Out Merger | 564,295 | 1,481,976 | 2.2 | % | 24.0 | % | ||||||||
FFD Financial Corporation | FFDF | Bank / Thrift | 05/24/05 | Reverse Stock Split | 139,705 | 1,482,000 | 6.6 | % | 23.0 | % | ||||||||
Community Investors Bancorp Inc. | CIBI | Bank / Thrift | 05/17/05 | Reverse Stock Split | 122,762 | 602,280 | 3.8 | % | 13.2 | % | ||||||||
USHEALTH Group, Inc. | USHE | Insurance Underwriter | 04/18/05 | Cash Out Merger | 139,444 | 1,101,570 | 7.0 | % | (18.4 | %) | ||||||||
United Tennessee Bankshares, Inc. | UTBI | Bank / Thrift | 04/14/05 | Cash Out Merger | 122,659 | 5,713,400 | 21.9 | % | 20.5 | % | ||||||||
Northeast Indiana Bancorp, Inc. | NIDB | Bank / Thrift | 03/16/05 | Reverse Stock Split | 232,611 | 331,867 | 1.0 | % | 17.5 | % | ||||||||
ASB Financial Corp. | ASBP | Bank / Thrift | 03/03/05 | Reverse Stock Split | 172,961 | 1,985,659 | 5.0 | % | 11.4 | % | ||||||||
First Manitowoc Bancorp, Inc. | FWBW | Bank / Thrift | 02/25/05 | Cash Out Merger | 606,753 | 1,844,700 | 1.4 | % | 27.9 | % | ||||||||
Benchmark Bankshares, Inc. | BMBN | Bank / Thrift | 12/23/04 | Reverse Stock Split | 284,623 | 11,796,169 | 20.9 | % | 11.8 | % | ||||||||
KS Bancorp, Inc. | KSBI | Bank / Thrift | 12/22/04 | Reverse Stock Split | 223,208 | 1,418,040 | 4.9 | % | 23.1 | % | ||||||||
Commercial National Financial Corp. | CEFC | Bank / Thrift | 11/18/04 | Cash Out Merger | 243,859 | 8,750,000 | 17.1 | % | 13.6 | % | ||||||||
Fidelity Federal Bancorp | FDLB | Bank / Thrift | 11/11/04 | Reverse Stock Split | 201,842 | 2,000,000 | 10.0 | % | 6.3 | % | ||||||||
Blackhawk Bancorp, Inc. | BHWB | Bank / Thrift | 10/22/04 | Reverse Stock Split | 415,911 | 995,566 | 2.6 | % | 27.1 | % | ||||||||
Sturgis Bancorp, Inc. | STBI | Bank / Thrift | 09/29/04 | Cash Out Merger | 312,431 | 588,832 | 1.3 | % | 18.1 | % | ||||||||
Southern Michigan Bancorp Inc. | SOMC | Bank / Thrift | 09/03/04 | Cash Out Merger | 310,815 | 1,213,215 | 5.1 | % | 20.3 | % | ||||||||
Low | 20 | 31,271 | 331,867 | 1.0 | % | (18.4 | %) | |||||||||||
Average | 20 | 254,106 | 2,605,959 | 7.6 | % | 15.3 | % | |||||||||||
Median | 20 | 227,910 | 1,482,000 | 5.0 | % | 16.0 | % | |||||||||||
High | 20 | 606,753 | 11,796,169 | 21.9 | % | 34.5 | % | |||||||||||
| • | A study of premiums paid in similar transactions indicates a median and average premium over the prior day’s closing price of 16.0% and 15.3% respectively, with a high of 34.5% |
| • | The study shows that the vast majority of premiums paid in similar transactions range from 5% to 25% |
| 18 | |
Similar Transaction Premium Analysis
| • | Based on YAVL’s most recent repurchases, these premiums would correspond to the following cash-out prices: |
| Premium over Prior Day’s Closing Price | ||||||||||||||||||
| 0% | 5% | 10% | 15% | 20% | 25% | |||||||||||||
Last Purchase(1) | $ | 62.00 | $ | 65.10 | $ | 68.20 | $ | 71.30 | $ | 74.40 | $ | 77.50 | ||||||
Weighted Average Purchases 2005(2) | $ | 58.82 | $ | 61.76 | $ | 64.71 | $ | 67.65 | $ | 70.59 | $ | 73.53 | ||||||
| (1) | Last repurchase of stock by YAVL |
| (2) | Weighted average of 2005 stock repurchases by YAVL |
| 19 | |
Valuation Range Conclusion
| • | The valuation methodologies that we used suggested the following ranges of value for YAVL’s common stock |
| • | Market Approach – not meaningful |
| • | Income Approach – not meaningful |
| • | Net asset value – $42.00 – $63.00 |
| • | Premiums paid in similar transactions – $65.00 – $78.00 |
| • | In addition, the last price paid by the YAVL to purchase its shares was $62.00 per share on 6/21/2005 |
| • | Based on our analysis, it is our opinion that the range of fair value for the common stock of YAVL is between $62.00 and $78.00 |
| 20 | |
3. Pro Forma Analysis
| 21 | |
Shareholder List Analysis
| Stratification of Ownership | Shareholders | |||||||||
Shares Held | Share- holders | Shares | Cumulative Shares | Remaining | Eliminated | |||||
Registered | 776 | |||||||||
0 - 9 | 384 | 1,416 | 1,416 | 392 | 384 | |||||
10 - 19 | 108 | 1,528 | 2,944 | 284 | 492 | |||||
20 - 29 | 59 | 1,400 | 4,344 | 225 | 551 | |||||
30 - 39 | 26 | 898 | 5,242 | 199 | 577 | |||||
40 - 49 | 33 | 1,427 | 6,669 | 166 | 610 | |||||
50 - 59 | 7 | 384 | 7,053 | 159 | 617 | |||||
60 - 69 | 12 | 782 | 7,835 | 147 | 629 | |||||
70 - 79 | 8 | 586 | 8,421 | 139 | 637 | |||||
80 - 99 | 13 | 1,130 | 9,551 | 126 | 650 | |||||
100 + | 102 | 154,845 | 164,396 | |||||||
Total Registered | 752 | 164,396 | ||||||||
Street Name | ||||||||||
NOBO | 12,112 | |||||||||
OBO | 4,090 | |||||||||
Total Street Name | 24 | 16,202 | ||||||||
Total | 776 | 180,598 | ||||||||
Based on the shareholder list provided by the Company on 8/16/2005 and the NOBO list provided by the Company as of 3/31/2005.
| 22 | |
Reverse Stock Split Analysis – All Fractional Shares Cashed Out
Total | Reverse Stock Split at | |||||||||||||||||||||
| 1:25 | 1:50 | 1:75 | 1:100 | 1:180 | ||||||||||||||||||
Registered Shareholders | ||||||||||||||||||||||
Cashed Out | 776 | 524 | 610 | 634 | 650 | 677 | ||||||||||||||||
Remaining | 776 | 252 | 166 | 142 | 126 | 99 | ||||||||||||||||
Shares Cashed Out | ||||||||||||||||||||||
Registered | ||||||||||||||||||||||
Shareholders Below Threshold | 3,627 | 6,669 | 8,195 | 9,551 | 13,029 | |||||||||||||||||
Fractional Shares | 2,594 | 3,427 | 3,951 | 4,645 | 5,927 | |||||||||||||||||
Total Registered | 164,396 | 6,221 | 10,096 | 12,146 | 14,196 | 18,956 | ||||||||||||||||
NOBO | ||||||||||||||||||||||
Shareholders Below Threshold | 463 | 1,291 | 1,465 | 2,309 | 4,342 | |||||||||||||||||
Fractional Shares | 599 | 921 | 1,197 | 703 | 930 | |||||||||||||||||
Total NOBO | 12,112 | 1,062 | 2,212 | 2,662 | 3,012 | 5,272 | ||||||||||||||||
OBO | ||||||||||||||||||||||
Total OBO | 4,090 | 359 | 747 | 899 | 1,017 | 1,780 | ||||||||||||||||
Total | 180,598 | 7,642 | 13,055 | 15,707 | 18,225 | 26,008 | ||||||||||||||||
Percent of Outstanding Shares Cashed Out | ||||||||||||||||||||||
Registered | 164,396 | 3.4 | % | 5.6 | % | 6.7 | % | 7.9 | % | 10.5 | % | |||||||||||
NOBO | 12,112 | 0.6 | % | 1.2 | % | 1.5 | % | 1.7 | % | 2.9 | % | |||||||||||
OBO | 4,090 | 0.2 | % | 0.4 | % | 0.5 | % | 0.6 | % | 1.0 | % | |||||||||||
Total | 180,598 | 4.2 | % | 7.2 | % | 8.7 | % | 10.1 | % | 14.4 | % | |||||||||||
Estimated Cost ($000’s) | ||||||||||||||||||||||
| $ 70.00 | $ | 535 | $ | 914 | $ | 1,099 | $ | 1,276 | $ | 1,821 | ||||||||||||
| $ 80.00 | $ | 611 | $ | 1,044 | $ | 1,257 | $ | 1,458 | $ | 2,081 | ||||||||||||
| $ 90.00 | $ | 688 | $ | 1,175 | $ | 1,414 | $ | 1,640 | $ | 2,341 | ||||||||||||
| $100.00 | $ | 764 | $ | 1,305 | $ | 1,571 | $ | 1,823 | $ | 2,601 | ||||||||||||
| $110.00 | $ | 841 | $ | 1,436 | $ | 1,728 | $ | 2,005 | $ | 2,861 | ||||||||||||
Based on the shareholder list provided by the Company on 8/16/2005 and the NOBO list provided by the Company as of 3/31/2005. The percentage of OBO shares cashed out is assumed to be the same percent of NOBO shares cashed out.
| 23 | |
Pro Forma Analysis
| As of 6/30/2005 | Pro Forma 1:50 Reverse stock split at | |||||||||||||||
| $62.00 | $68.00 | $73.00 | $78.00 | |||||||||||||
Shares purchased | 13,055 | 13,055 | 13,055 | 13,055 | 13,055 | |||||||||||
Cost ($000s) | 809 | 888 | 953 | 1,018 | ||||||||||||
Shares outstanding | 180,598 | 167,543 | 167,543 | 167,543 | 167,543 | |||||||||||
Assets ($000’s)(1) | 23,000 | 22,191 | 22,112 | 22,047 | 21,982 | |||||||||||
Equity ($000’s)(1) | 14,279 | 13,370 | 13,291 | 13,226 | 13,161 | |||||||||||
Change in net income(2) | 26 | 26 | 26 | 26 | ||||||||||||
LTM net income ($000’s)(2) | (9 | ) | 17 | 17 | 17 | 17 | ||||||||||
LTM EPS(2) | ($0.04 | ) | $ | 0.10 | $ | 0.10 | $ | 0.10 | $ | 0.10 | ||||||
Book value(1) | $ | 79.07 | $ | 79.80 | $ | 79.33 | $ | 78.94 | $ | 78.55 | ||||||
| (1) | Based YAVL’s financial statements per the 6/30/2005 10-Q. We understand that YAVL is in the process of restating its financial statements as filed in its 6/30/2005 10-Q and other financial statements filed with the SEC. It is our opinion that the pro forma impact of the Transaction would not change as a result of the anticipated restatements. Assumes that the transaction costs are $100,000. |
| (2) | Assumes cost savings of $50,000 from going private and a 39% tax rate. Also assumes that YAVL liquidates its First Citizens BancCorporation, Inc. non-voting stock to fund the transaction, which would cause its earnings to decline by approximately $8,000 from lost dividend income |
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These materials are for discussion purposes only. They should not be construed as an offer or solicitation with respect to the purchase or sale of any security or to enter into any particular transaction and may not be relied on in evaluating the merits of investing in any security or entering into any transaction.
The information contained herein and any supplemental information or other documents provided in connection herewith are submitted to you on a strictly confidential basis, should be kept confidential and should not be used other than in connection with your evaluation of a proposed structure or transaction. By accepting a copy of this presentation, the recipient agrees that neither it nor any of its employees or advisors shall use the information for any purpose other than evaluating a proposed structure or transaction or divulge the information to any other party. The information contained herein shall not be photocopied, reproduced or distributed to others, in whole or in part, without the prior written consent of Howe Barnes Investments, Inc.
The opinion set forth in this presentation is subject to the written opinion of Howe Barnes Investments, Inc. to be delivered in connection with the proposed transaction.
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 * William J. Wagner, CPA, Managing Director HOWE BARNES INVESTMENTS, INC. 4000 WestChase Boulevard, Suite 110 Raleigh, NC 27607 Phone: 800-638-4250 Fax: 919-424-0110 bwagner@howebarnes.com August 18, 2005 Presentation to: Yadkin Valley Company |
 2 2 Table of Contents Contents Going Private Overview Going Private Methods Shareholder List Analysis Recorded Trading Activity 1 2 3 4 |
 3 3 1. Going Private Overview * |
 4 4 Introduction In many cases, a company may be deriving little benefit from being a registered company Despite being listed on a national exchange, the company’s stock suffers from a low valuation and / or a limited trading volume In some cases, the company’s stock may not even be listed on an exchange, but is subject to registration with the SEC Going private allows the company to de-register with the SEC The goal of going private is to reduce the number of registered shareholders below 300 and eliminate all future SEC filings Once de-registered, the company cannot be listed on the NASDAQ National and Small Cap Markets Shares can trade on the OTC Bulletin Board or the Pink Sheets The company can remain private as long as registered shareholders do not exceed 300 (500 in certain circumstances) |
 5 5 Selected Going Private Transactions Note: Highlighted transactions involved a representative of Howe Barnes Source: SNL Financial, LC and public filings Assets Announce Closing Transaction % of Shares Transaction Company Ticker City State ($000s) Date Date Type Purchased Value FC Banc Corp. FCBQ Bucyrus OH 162,234 6/24/05 Pending Cash Out Merger NA Community Financial Holding Company, Inc. Duluth GA 256,806 6/17/05 Pending 2nd Class Stock 10.1% $1,844,355 Luxemburg Bancshares, Inc. Luxemburg WI 173,749 6/14/05 Pending Reverse Stock Split 16.6% $5,012,766 First Southern Bancorp Statesboro GA 94,616 6/7/05 Pending 2nd Class Stock NA FFD Financial Corporation FFDF Dover OH 139,705 5/24/05 Pending Reverse Stock Split 6.6% $1,482,000 Home Loan Financial Corporation HLFC Coshocton OH 160,342 5/18/04 Pending Reverse Stock Split 5.0% $1,754,164 Community Investors Bancorp Inc. CIBI Bucyrus OH 122,762 5/17/05 Pending Reverse Stock Split 3.8% Community Banks of Georgia, Inc. Jasper GA 152,783 5/3/05 Pending Cash Out Merger 5.1% $1,204,859 State of Franklin Bancshares, Inc. Johnson City TN 298,960 4/23/05 Pending Cash Out Merger 34.9% $12,625,000 Heartland Bancshares, Inc. Sebring FL 147,835 4/20/05 Pending 2nd Class Stock NA United Tennessee Bankshares, Inc. UTBI Newport TN 122,659 4/14/05 Pending Cash Out Merger 21.9% NA Northeast Indiana Bancorp, Inc. NIDB Huntington IN 232,611 3/16/05 Pending Reverse Stock Split 1.0% $331,867 Community Bankshares, Inc. Cornelia GA 830,173 3/11/05 Pending Reverse Stock Split 3.9% $5,088,704 ASB Financial Corp. ASBP Portsmouth OH 172,961 3/3/2005 Pending Reverse Stock Split 5.0% $1,985,659 First Manitowoc Bancorp, Inc. FWBW Manitowoc WI 606,753 2/25/05 Pending Cash Out Merger 1.4% $1,844,700 Decatur First Bank Group, Inc. Decatur GA 126,183 2/9/05 Pending Cash Out Merger 14.0% $2,268,403 Benchmark Bankshares, Inc. BMBN Kenbridge VA 284,623 12/23/04 3/31/05 Reverse Stock Split 20.9% $11,796,169 KS Bancorp, Inc. KSBI Smithfield NC 223,208 12/22/04 3/23/05 Reverse Stock Split 4.9% $1,418,040 Logan County Bancshares, Inc. Logan WV 184,561 12/17/04 Pending Cash Out Merger 2.3% $807,900 Nicolet Bankshares, Inc. Green Bay WI 375,215 12/15/04 3/21/05 Cash Out Merger 7.8% $4,256,429 The Republic Corporation Houston TX 189,049 12/6/04 5/13/05 Cash Out Merger 25.9% $5,010,620 Big Lake Financial Corporation BGFC Okeechobee FL 295,698 11/23/04 3/24/200 2nd Class Stock NA $722,692 Commercial National Financial Corp. CEFC Ithaca MI 243,859 11/18/04 3/8/05 Cash Out Merger 17.1% $8,750,000 Mississippi River Bank Belle Chasse LA 96,815 11/18/04 1/21/05 Reverse Stock Split 9.1% $1,435,725 Gateway Bancshares, Incorporated Ringgold GA 165,550 11/18/04 3/28/05 Cash Out Merger 9.5% $2,297,478 Fidelity Federal Bancorp FDLB Evansville IN 201,842 11/11/04 3/11/05 Reverse Stock Split 10.0% $2,000,000 First Commerce Community Bshrs Inc. Douglasville GA 85,037 10/26/04 12/22/04 Reverse Stock Split 2.3% $344,652 Blackhawk Bancorp, Inc. BHWB Beloit WI 415,911 10/22/04 3/22/05 Reverse Stock Split 2.6% $995,566 Sturgis Bancorp, Inc. STBI Sturgis MI 312,431 9/29/04 2/23/05 Cash Out Merger 1.3% $588,832 Wells Financial Corp. WEFP Wells 223,353 9/28/04 2/22/05 TO & Reverse Stock Split 8.5% $4,725,000 Southern Michigan Bancorp Inc. SOMC Coldwater MI 310,815 9/3/04 1/14/05 Cash Out Merger 5.1% $1,213,215 Darlington County Bancshares, Inc. Darlington SC 36,134 9/1/04 12/23/04 Cash Out Merger 3.3% $161,355 West Metro Financial Services, Inc. Dallas GA 101,632 8/30/04 Pending Cash Out Merger NA NA Georgian Bancorp. Inc. Powder Springs GA 370,111 8/25/04 12/21/04 Cash Out Merger NA $3,707,700 First Banking Center, Inc. FBCI Burlington WI 565,408 8/20/04 12/21/04 Reverse Stock Split 24.2% $21,660,000 First Southern Bancshares, Inc. FSTH Florence AL 95,164 7/8/04 2/1/05 Cash Out Merger NA $1,241,190 Hemlock Federal Financial Corp. HMLK Oak Forest IL 312,468 6/1/04 6/30/04 Reverse Stock Split 0.8% $232,000 Logansport Financial Corp. LOGN Logansport IN 153,868 5/27/04 7/15/04 Odd Lot Tender Offer NA $207,496 American Bancorp, Inc. ABNC Opelousas LA 100,781 4/16/04 9/30/04 Cash Out Merger NA $5,374,838 Coddle Creek Financial Corp. CDLX Mooresville NC 137,652 3/30/04 5/18/04 Reverse Stock Split 2.0% $500,000 Hemlock Federal Financial Corp. HMLK Oak Forest IL 312,468 3/16/04 5/14/04 Tender Offer NA $5,800,000 Easton Bancorp Inc. EASB Easton MD 101,837 1/2/04 6/17/04 Cash Out Merger 24.3% $3,013,650 IBW Financial Corp. IBWF Washington DC 302,720 12/31/03 7/2/04 Reverse Stock Split 1.9% $470,230 Huron National Bancorp, Inc. Rogers City MI 44,503 11/7/03 3/24/03 Reverse Stock Split NA $492,600 First National Bankshares Corp. Ronceverte WV 177,815 11/6/03 2/24/03 Cash Out Merger NA $3,720,574 HFB Financial Corporation HFBA Middlesboro KY 256,689 10/28/03 3/9/04 Cash Out Merger 1.6% $468,400 Crazy Woman Creek Bancorp, Inc. CRZY Buffalo WY 77,669 10/3/03 11/17/03 Modified Dutch TO NA $6,387,500 Coddle Creek Financial Corp. CDLX Mooresville NC 137,652 10/1/03 11/21/03 Odd Lot Tender Offer NA $250,800 |
 6 6 Going Private Strategic Considerations What is the Company’s strategic plan? Future capital needs Acquisition strategy Increase visibility of the company Image |
 7 7 General Considerations to Going Private Reaction of local community How will the community react to the transaction? Are many small shareholders customers? Would a voluntary method of going private be better received? Reaction of institutional investors Will / can they continue to hold shares? Reaction from other companies Will going private encourage acquisition offers from other companies? How many shareholders must be eliminated? How many shares do they own? |
 8 8 General Considerations to Going Private Financial impact on the Company Cost of purchasing shares plus transaction costs Pro-forma capital ratios Impact on future growth Financing alternatives Impact on the trading market Volume Listing Ability to obtain favorable shareholder vote Insider ownership Past history of difficulty Shareholder sentiment |
 9 9 Reasons for Going Private Decreases legal and accounting expenses as well as certain shareholder-related costs Eliminates management time and resources devoted to SEC compliance and reporting Eliminates requirement to comply with Sarbanes-Oxley Section 404 creating significant expense and burden on small companies Eliminates audit committee and auditor independence requirements of Sarbanes-Oxley Eliminates personal liability of CEO and CFO due to certification of 10-Qs and 10-Ks Increases privacy Allows management to take longer term perspective Reduces vulnerability to lawsuits Improves shareholder composition If considering S-Corp status Discourages stock ownership by professional investors Increases ability to stay independent Easier to buy back shares |
 10 10 Reasons for Not Going Private Reduces visibility of Company Possible negative reactions by shareholders and customers May reduce liquidity of stock Requires significant amount of time and expense If the Company expects to sell additional shares If the Company expects to make stock acquisitions May require shareholder and / or regulatory approval If registration statement filed within twelve months Makes stock-based compensation less attractive to employees May invite a hostile or competing offer from another company May be forced to re-register due to forces beyond company’s control Rule 144 safe harbor for insider transactions is not available ESOP’s and employer securities held in 401k plans create additional issues |
 11 11 Ongoing Issues with Being Private Continue to monitor shareholder base Be aware of the broker “kick-out” rule Consider continuing to make quarterly financial data publicly available to shareholders Shareholder base is accustomed to it Helps with insider trades Helps with broker “kick-out” rule Maintain a stock repurchase plan to provide additional liquidity Maintain relationships with market makers |
 12 12 Evaluate Shareholder Base Understand the composition of the company’s shareholders Identify which small shareholders are also customers Determine exact number of shareholders Registered versus street name NOBO versus OBO |
 13 13 2. Going Private Methods * |
 14 14 Alternative Methods for Going Private Voluntary: Open market share repurchases Tender offers Involuntary: Reverse stock split Cash-out merger Create a new class of preferred stock Other: Management buyout/leveraged buyout ESOP Form 13E(3) must be filed with the SEC if any of the above options are used to de- register. Sets forth the Board’s reasons for going private and the impact on the company and its shareholders. |
 15 15 Voluntary Methods Voluntary Methods * |
 16 16 Open Market Share Repurchase Program Board authorizes repurchase plan Typically less than 10% of outstanding shares Company makes press release Company follows rules set forth by SEC Rule 10b-18 No guarantee that enough shareholders will sell shares to go private No guarantee that a shareholder will sell all of their shares New block purchase rules have made it more difficult to buy large blocks of stock in a short period of time Difficult to predict how long it will take |
 17 17 Tender Offers Company offers to buy back a set number of shares for a certain amount of time Basically, a tender offer is just a large share repurchase at a premium with a deadline Open to all shareholders Shareholder participation is voluntary There are several types of tender offers Odd-lot Fixed price Dutch auction A tender offer document must be mailed to shareholders setting forth the offer and its financial impact on the company No guarantee that shareholders will tender shares or tender all shares owned Oversubscription may result in very few shareholders being eliminated Many small shareholders may not make the effort to tender shares Sales by large shareholders can create problems |
 18 18 Other Alternatives Other Alternatives * |
 19 19 Other Alternatives Used primarily to acquire control of a company (or a significant block of stock) and not as a method to de-register LBO / MBO: Leveraged buyout (LBO) - Buyout of public shareholders by outside investor group Shell company formed and buyout financed with the assets of the company Management buyout (MBO)– Buyout of public shareholders by the management of the company Similar in structure to LBO Shares typically acquired through tender offer ESOP: Company uses ESOP (existing or new) to purchase company shares ESOP borrows funds guaranteed by company Purchased stock is pledged to lender Shares purchased can be new shares or publicly held shares purchase through a tender offer Certain tax benefits are available if enough shares are purchased |
 20 20 Involuntary Methods Involuntary Methods * |
 21 21 Reverse Stock Split Method whereby the number of outstanding shares is reduced, with shareholders owning any fraction of a share receiving cash for their fractional shares Transaction must be approved by shareholders Shareholders with fewer shares than the exchange ratio receive cash and are eliminated Shareholders with shares above the exchange ratio remain shareholders but receive cash for any fractional share created as a result of the transaction Can choose to include or exclude beneficial shareholders Establish exchange ratio to guarantee reducing remaining shareholders below 300 Offer price for shares is determined by Board and must be considered “fair” Typically, Board receives a fairness opinion The financial advisor studies the trading market for the company’s equity securities, apprises the Board of the current market conditions and evaluates the financial impact of the transaction on the company Hiring a financial advisor helps the Board fulfill its fiduciary obligations |
 22 22 Reverse Stock Split vs. Cash out Merger Example Example 1 for 100 Exchange Ratio $10.00 per share price (pre-split) Shareholder A owns 50 shares Shareholder B owns 125 shares Cash-out merger Shareholder A receives $500 cash (for 0.5 post-split shares) and retains no shares Shareholder B unaffected, retains all 125 shares Reverse stock split Shareholder A receives $500 cash and retains no shares Shareholder B receives 1 share and is paid $250 cash for 25 shares Typically followed by forward split to put shareholders back in similar position; a subsequent 100:1 forward split would give Shareholder B 100 shares |
 23 23 Cash-Out Merger Procedurally very similar to a reverse stock split, except that not all fractional shares are cashed out Only those shareholders with fewer shares than the exchange ratio are cashed out Shareholders owning more shares than the exchange ratio are unaffected Not available in all states |
 24 24 Create New Class of Stock Registration of securities is based on the number of holders per security Objective is to split shareholders into two groups by exchanging the shares held by some existing common shareholders for a new security (typically preferred stock) so that the number of registered shareholders of common stock falls below 300 Newly created security cannot have more than 500 holders Advantages: May be perceived as a more “friendly” way of going private Relatively inexpensive as no capital is used to buyout shareholders Preferred stock can count towards Tier 1 capital if structured properly Disadvantages: Relatively new and untested The new security may be fairly illiquid The benefits of repurchasing shares are not realized Since no shareholders are eliminated, the potential for re-registration is higher Has been used in two Florida transactions (one pending) and one Georgia transaction (pending) |
 25 25 3. Shareholder List Analysis * |
 26 26 Shareholder List Analysis Based on the shareholder list provided by the Company on 8/16/2005 and the NOBO list provided by the Company as of 3/31/2005. Stratification of Ownership Shareholders Shares Share- Cumulative Held holders Shares Shares Remaining Eliminated Registered 776 0 - 9 384 1,416 1,416 392 384 10 - 19 108 1,528 2,944 284 492 20 - 29 59 1,400 4,344 225 551 30 - 39 26 898 5,242 199 577 40 - 49 33 1,427 6,669 166 610 50 - 59 7 384 7,053 159 617 60 - 69 12 782 7,835 147 629 70 - 79 8 586 8,421 139 637 80 - 99 13 1,130 9,551 126 650 100 + 102 154,845 164,396 Total Registered 752 164,396 Street Name NOBO 12,112 OBO 4,090 Total Street Name 24 16,202 Total 776 180,598 |
 27 27 Reverse Stock Split Analysis Based on the shareholder list provided by the Company on 8/16/2005 and the NOBO list provided by the Company as of 3/31/2005. The percentage of OBO shares cashed out is assumed to be the same percent of NOBO shares cashed out. Reverse Stock Split at Total 1:25 1:50 1:75 1:100 Registered Shareholders Cashed Out 776 524 610 634 650 Remaining 776 252 166 142 126 Shares Cashed Out Registered Shareholders Below Threshold 3,627 6,669 8,195 9,551 Fractional Shares 2,594 3,427 3,951 4,645 Total Registered 164,396 6,221 10,096 12,146 14,196 NOBO Shareholders Below Threshold 463 1,291 1,465 2,309 Fractional Shares 599 921 1,197 703 Total NOBO 12,112 1,062 2,212 2,662 3,012 OBO Total OBO 4,090 359 747 899 1,017 Total 180,598 7,642 13,055 15,707 18,225 Percent of Outstanding Shares Cashed Out Registered 164,396 3.4% 5.6% 6.7% 7.9% NOBO 12,112 0.6% 1.2% 1.5% 1.7% OBO 4,090 0.2% 0.4% 0.5% 0.6% Total 180,598 4.2% 7.2% 8.7% 10.1% Estimated Cost ($000's) $60.00 $458 $783 $942 $1,094 $70.00 $535 $914 $1,099 $1,276 $80.00 $611 $1,044 $1,257 $1,458 $90.00 $688 $1,175 $1,414 $1,640 $100.00 $764 $1,305 $1,571 $1,823 |
 28 28 4. Recorded Trading Activity * |
 29 29 Recorded Trading Activity Date Volume Price 4/18/2005 138 $56.56 4/15/2005 139 $56.51 7/13/2004 102 $53.00 5/6/2004 322 $50.00 3/22/2004 149 $48.00 7/21/2003 100 $42.52 6/25/2003 1,100 $42.01 1/24/2003 3,200 $39.01 11/13/2002 100 $35.00 11/5/2002 100 $34.00 Total / Avg. 5,450 $41.56 Source: SNL Financial, LC |
 These materials are for discussion purposes only. They should not be construed as an offer or solicitation with respect to the purchase or sale of any security or to enter into any particular transaction and may not be relied on in evaluating the merits of investing in any security or entering into any transaction. The information contained herein and any supplemental information or other documents provided in connection herewith are submitted to you on a strictly confidential basis, should be kept confidential and should not be used other than in connection with your evaluation of a proposed structure or transaction. By accepting a copy of this presentation, the recipient agrees that neither it nor any of its employees or advisors shall use the information for any purpose other than evaluating a proposed structure or transaction or divulge the information to any other party. The information contained herein shall not be photocopied, reproduced or distributed to others, in whole or in part, without the prior written consent of Howe Barnes Investments, Inc. * |