Background on the Current Climate and the SecondMarket Model

After years of successfully facilitating secondary liquidity programs for VC-backed private technology companies, SecondMarket looked to other markets that could also benefit from our model. After some thoughtful discussions, we turned our attention toward private community banks. Before we launched our pilot program for private community banks in February 2012, SecondMarket spent a lot of time engaging with community bank management, associations and trusted advisors. We traveled the country talking to the key players in the industry to hear from them directly about the greatest liquidity and capital raising challenges facing community banks today.

As part of our efforts to gather information on community banks, SecondMarket also consulted the Independent Community Bankers of America (ICBA), which conducted a survey of community banks to better understand the capital and liquidity needs of private community banks. The results of the survey confirmed what we expected, that banks are facing difficulties providing secondary liquidity to their shareholders and could benefit from our model.

After nearly a year of countless conversations and research, it became clear that many community banks across the country do not have a means to provide liquidity for their investors in a systematic manner, and that investors and shareholders in private community banks could benefit immensely from a secondary market for bank stock.

This means that thousands of community bank shareholde rs do not have access to liquidity on a regular basis – and that institutions facing difficulty providing secondary liquidity to their shareholders could benefit from liquidity programs facilitated by SecondMarket.

And the community bank pilot program was born.

The SecondMarket Pilot Program

In February 2012, SecondMarket launched its pilot program for private community banks. Over the course of a year, SecondMarket worked with a diverse set of community banks from around the country to establish a customized secondary market for each bank’s shares, enabling shareholders to gain desired liquidity and investors to access unique investment opportunities.

On SecondMarket, banks control their secondary market, including who and how much someone can buy or sell of its stock and the frequency with which shares were sold. SecondMarket creates customized, private liquidity programs for the private community banks, provide shareholders with liquidity and maintain control over their shareholder base.

Here’s what we learned:

  • SecondMarket’s model is applicable to any bank, regardless of its age, structure, asset size, or number of shareholders. Because our liquidity programs are customizable, we can help a diverse group of private community banks provide liquidity for their shareholders and potentially raise capital.
  • Our company-controlled model allows private community banks to enjoy the benefits of being a public company (access to capital, shareholder liquidity, communication with their shareholders) with the flexibility of a private company.
  • SecondMarket is an attractive option for community banks considering deregistering and going private as a result of the JOBS Act of 2012, which made it easier for banks to go private. More than 100 community banks have already taken advantage of this opportunity, including First Advantage Bank, a Tennessee-based bank that left NASDAQ and joined SecondMarket in April 2013.

Without a centralized secondary market, private community bank management are often caught in the middle of discussions between buyers and sellers of their bank’s stock, as the shareholder first seeks to identify a buyer and then both parties struggle to determine a fair price for the shares.

Following the first round of liquidity programs for the banks that participated in our pilot program, we are proud to say that each bank has plans to work with SecondMarket on reoccurring programs. While we have only just begun to understand the nature of community bank liquidity needs, the success of our pilot program supported our initial theory that a diverse set of community banks facing difficulty providing secondary liquidity to their shareholders can benefit from SecondMarket. And the early feedback from our community bank clients has been overwhelmingly positive.

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Important Disclosures

Please note that the information in this report does not constitute an offer to sell to, nor a solicitation of an offer to buy from, nor shall any securities be offered or sold to, any person in any jurisdiction in which such an offer, solicitation or sale would be unlawful. There is not enough information contained in this message in which to make an investment decision and any information contained herein should not be used as a basis for this purpose.

To the best of our knowledge, this report and relevant pages are: current as of the date of distribution and subject to change without notice.
SecondMarket does not: produce in-house research; make recommendations to purchase or sell specific securities; provide investment advisory services; or conduct a general retail business.

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