Profit Drivers in the New Normal

1. Profit Drivers in the New Normal Shay Financial ServicesInvestment Education Conference March 25, 2013 T. Jefferson Fair jfair@americanplanning.com 225.281.2998

2. Industry Overview • 470+ bank and thrift failures since Sept. 2007 • 7,083 FDIC-insured institutions as of 12/31/1212 • Down from 8,533 as of 12/31/2007 (down 17%) • Over 650 “Problem Institutions” remain • System is awash in liquidity • Quality loan demand still low • Economy will continue to be a drain on earnings • Mergers and acquisition activity is picking up • Basel III standards will probably increase capital requirements

3. U.S. Banking Landscape Sources: FDIC and SNL Financial, compiled by American Planning Corporation

4. Cumulative % of Total Assets in US Banks The 90 /10 Solution Top 4 Banks = 41% of Industry Assets 6,621 (91%) < $1B = 10% of Industry Assets 5,943 (81%) < $500MM = 6.6% of Industry Assets 2,589 institutions (33%) < $100MM = 0.97% of Industry Assets 4,719 (65%) < $250MM = 3.7% of Industry Assets June 2012 Call Report Data

5. Commercial Bank Net Income ($MM) Inflation: $10,000 in 1993 = $15,650 in 2011 Sources: FDIC, BLS and SNL Financial, compiled by American Planning Corporation

6. Eisenhower JFK Johnson Nixon Ford Carter Reagan Bush I Clinton Bush II Obama Source: Federal Reserve, compiled by American Planning Corporation

7. Economic Situation • Longest bottom of an economic cycle in 60 years • Lowest rates at the bottom of the cycle • Borrowers not borrowing, investors not investing • Federal Reserve willing to risk future inflation to avoid current recession • Every week brings a new poli-fiscal crisis • Don’t bet against the Fed

8. Current Regulatory Environment • Regulatory attitude has changed: • from supervisory to enforcement posture • from risk-based to legalistic analysis • Compliance costs are high, but noncompliance costs are higher • The key to dealing with an enforcement action is to avoid getting one • Aggressively deal with all Matters Requiring Attention • Communicate with your regulators and avoid surprises • Act as if you are already under an enforcement order • Don’t agree to implement changes

9. Banking Industry Outlook • Economic recovery slower than expected • Enhanced regulatory regime will remain • Higher minimum capital requirements • Yield chasing and poor risk/return relationships • Consolidation will occur

10. Enhancing Profits in this New Normal • Marginal loan growth • Aggressive deposit cost reduction • Good relationship with regulators • Active investment portfolio management • Effective capital deployment • Acquisition or merger of equals • P&L control • Ancillary services • Marketing and Image

11. Marginal Loan Growth • Look for good loan participations • Steal good relationship lending teams • Price aggressively • Understand your IRR position • Avoid cannibalization • Price for risk • Revisit and revise traditional roles of loan and investment portfolios

12. Aggressive Deposit Cost Reduction • Trim the fat, not the core • The bank is not a charity • Be a leader on rate reductions, if you can • Review fee schedules • Improve product set and features, branding • Mobile apps

13. Good Relationship with Regulators • Protect CAMELS rating • 3 rating = 10bp additional expense ≈ 10bp ROA • Current, effective policies and procedures • Lending • Investments • ALCO (Funds Management, Liquidity and Interest Rate Risk) • Predatory lending or disparate impact allegation • Legal fees, lost time, distraction • Consent Order = $100K to $500K • Management review ≈ $30,000 • Regulatory consultant ≈ $50,000+ • Lawyers ≈ $20,000+

14. Active Investment Portfolio Management • Trusted advisor vs. bond salesman • Effective ALCO policies, processes, reports, minutes • Good pre- and post-purchase analysis and documentation • Take gains that the Treasury gives you • Trim tails

15. Effective Capital Deployment • Have a capital plan – .doc and .xls • You can do more with your capital than your shareholders can • Regulators will demand more capital – be prepared • Be prepared to reduce debt when rates go up • Be prepared for growth when markets recover

16. Acquisition or Merger of Equals • Cost savings in an acquisition can be huge • Tired, frustrated seller = lower asking price • Make a trial run for experience • Have response plans • If you are approached by a suitor • If a competitor is acquired

17. P&L Control • Look for redundancies • Consider outsourcing • Reduce fee leakage • Tier pricing based on customer behavior and costs • Ask vendors for discounts before contract renewal • Negotiate to remove fees and penalties from contracts • Offer rewards to employees • Improve communication

18. Ancillary Services • Mortgage lending • Acquire mortgage company • Add servicing department • Escrow services • Investments • Partner with professionals (IPI, LPL) • Avoid deposit cannibalization • Insurance • Finance company • Products for the unbanked / underbanked

19. Marketing and Image • Bankers are not good at marketing • Bankers are not graphic designers • Let experts help you with: • Marketing • Advertising • Web design (to graphic designer standards, not banker standards) • Clean up your buildings • Ask for the business

20. Contact Information T. Jefferson Fair jfair@americanplanning.com 106 Waters Edge Drive Shreveport, LA 71106 225.281.2998 (direct) 225.765.7200 (fax) American Planning Corporation www.americanplanning.com National Capital, L.L.C. www.ncval.com Curative Advisors, L.L.C. www.curativeadvisors.com

21. Disclosure: This presentation is provided by T. Jefferson Fair with American Planning Corporation. (“APC”) and is intended for your private use and does not constitute an offer or solicitation with respect to the purchase or sale of any security.  This presentation is not prepared or intended to be investment advice and is issued without regard to the specific investment objectives, financial situation or particular needs of any specific recipient.  The information was obtained from sources we believe to be reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such.  The information was based in part on current market indicators, which may vary over time.  APC makes no representation, express or implied, as to the accuracy, timeliness, completeness or correct sequencing of any such information or with regard to the results to be obtained from its use.  All expressions of opinion are subject to change without notice, and APC does not undertake any responsibility to update or supplement the information contained herein. In no event should APC or any affiliated party be liable for any direct or indirect investment or trading losses directly or indirectly caused by, or resulting from, the information presented.  Investors should do their own research and due diligence.  This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. APC may from time to time buy or sell or have long or short positions in securities identical or related to those identified herein, if any. The individual presenting may have received compensation for his or her participation in this event. The views expressed are those of APC. These views do not necessarily reflect the opinions of any other firm.