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Financing Options for Financial Institutions

November 14, 2006
Michael Iannaccone

Possibly the largest and most difficult challenge that senior management of financial institutions face is managing and financing growth. The capital or financing alternative to choose could be a daunting task involving issuance cost, flexibility, EPS dilution, and capital treatment. Among the financing alternatives available to banks and bank holding companies are correspondent bank debt, senior debt, subordinated debt, trust preferred securities, convertible securities, preferred and common equity. In the following pages, Performance Trust provides an overview of each type of financing instrument, the advantages and disadvantages of each as a means to finance growth, and the capital implications in relation to regulatory capital requirements.

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