using planning to build value: a roadmap

11

© 2014 – FinPro, Inc.020 Church Street Liberty Corner, NJ 07938 P: (908) 604-9336 F: (908) 604-5951 [email protected] www.finpro.us

Using Planning to Build Value:A Roadmap

Washington Bankers AssociationJune 27, 2014

© 2014 – FinPro, Inc.

Building value in banks requires an integrated approach . . .

1

RegulationGovernanceRisk

Market Multiple

TBVS or

EPS

Strategy

Value

Risk, Governance and Regulation drives strategy drives value

Market Multiples are “the market’s perception of the risk profile of the bank”

Strategy is executed both organically and via acquisition

M&A Organic

22


Risk, Governance and Regulation (RGR) drives strategy drives value can be encapsulated utilizing the following chart . . .

2

1. Grow deposits & diversify the mix.2. Grow loans and diversify the mix.3. Grow and diversify non interest

income.4. Control expenses.

5. Enhance the branch network and alternative delivery options.

6. Increase number of, and penetration within, customers.

7. Utilize capital markets tools.

Segment

Needs

Delivery

ServiceQuality Geography

Competition

Brand

SalesChannels

Services

Systems

Structure

Staff


To build value, banks must follow an integrated planning process . . .

1. Manage risk on an integrated basis

2. Have strong corporate governance

3. Stay ahead of regulation

4. Assess markets

5. Obtain and keep the right customers

6. Analyze the franchise

7. Grow organically

8. Utilize capital markets

9. Drive earnings

10. Build value

3

RGR

Strategy

Execute

Value

33


1. Manage risk on an integrated basis

The best way to understand the risk profile is to use the regulatory CAMELS + format, integrate using a single model and test by stressing assumptions . . .

4

Enterprise Risk Management

CCapital Plan

ACredit Concentration Plan Loan Migration AnalysisLoan-to-one-borrower Analysis

Management Succession PlanCompensation Plans

BudgetBusiness Plan

M

E

Contingency Funding PlanWholesale Funding and Funds Management PlanL

Interest Rate Risk AnalysisS

Litigation Mitigation PlanResponse to Regulatory Order+

Public Relations PlanInvestor Relations Plan+

Internal AuditInternal Controls and Procedures+

IT Controls and Testing Plan+

Compliance Plan+


Measure the risk quarterly . . .

Definition Tier I (Core) capital as a percentage of adjusted tangible assets.

Tier 1 (Core) Capital / Average Total Assets ( % )Historical Projections

Significance This ratio is the second ratio utilized by the regulators as a base indicator of capital adequacy. Not enough Tier I (Core) capital will cause regulatory scrutiny while too much Tier I (Core) capital would indicate that a financial institution has not leveraged its capital effectively.

8.77

8.88

9.23

8.99

9.09

9.07

9.33

9.698.95

9.18

9.25

9.39

9.51

9.69

9.83

10.018.50

8.32

7.95

7.89

12.74

12.18

11.75

10.71

-

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15

High Moderate Low Peer Group 1 Median Peer Group 2 Median

ConnectOne Bank Plan Base Pro Forma Combined Stress Test Capital Stress Test Asset Qual

Stress Test Earnings Stress Test Liquidity Stress Test Sensitivity Trigger Point

5

Steps:1. Set threshold and peer group2. Set trigger point3. Set Bands4. Establish forward looking projections




8.77

8.88

9.23

8.99

9.09

9.07

9.33

9.698.95

9.18

9.25

9.39

9.51

9.69

9.83

10.018.50

8.32

7.95

7.89

12.74

12.18

11.75

10.71

-

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00





A trigger point may be set at 8%




8.77

8.88

9.23

8.99

9.09

9.07

9.33

9.698.95

9.18

9.25

9.39

9.51

9.69

9.83

10.018.50

8.32

7.95

7.89

12.74

12.18

11.75

10.71

-

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00





A band might also be set




8.77

8.88

9.23

8.99

9.09

9.07

9.33

9.698.95

9.18

9.25

9.39

9.51

9.69

9.83

10.018.50

8.32

7.95

7.89

12.74

12.18

11.75

10.71

10.309.88 9.57 9.31 9.13 9.02

-

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00





Look forward projections

44


The “stress test scorecard” allows the Bank to view the results of the base case, the stress tests, and all alternative scenarios over a period of time . . .

6

Of the alternative scenarios run, the asset quality stress test significantly increases the overall risk profile of the Bank.


The result of the ERM process is a current and projected enterprise wide risk rating of the Bank with identifiable goals and projected trends . . .

7

Note: + = positive trend ↔ = neutral trend - = negative trend

Historical Trend Dec-13 Prospective Trend Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15

Capital + 3 ↔

Asset Quality + 2 ↔

Earnings - 4 + 3

Liquidity + 2 -

Sensitivity + 2 ↔

Management + 3 + 2

Legal / Reg. - U + S

Reputation ↔ S ↔

Operational ↔ S ↔

IT ↔ S ↔

Compliance ↔ S ↔

Valuation - S +

Overall 3 2

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2. Have strong corporate governance

Director and Officer liability is changing . . .

• FDIC is suing Directors and attempting to change the standard from gross negligence to simple negligence

• The amount of areas that Senior Officers are responsible for is rapidly growing

• Board meetings are taking way too long

• Boards are talking about routine things rather than strategy

• Board and Senior Officer training is generic and ethereal rather than Bank specific

• Corporate Governance has focused on audits and history rather than on processes and prevention

8


There have been an incredible number of regulatory enforcement actions recently that have targeted inadequate Corporate Governance activities. Our review of these actions reveals that, in most cases, the breakdown is with the tactical aspect of Corporate Governance . . .

• FinPro has identified a number of Corporate Governance tactical areas that deserve attention and improvement. To address these issues, we broke Tactical Corporate Governance into 5 major modules:

Document Library

Process Management

Meeting Management

Vendor Management

Talent Management

Leadership and

Education Management

CGMT

FinPro’s Corporate Governance Management Tool was built specifically to address these 5 modules as well as the points above. It is the most robust and integrated Corporate Governance system on the market, and it is custom built for community banks.

• Each module is critical to the ability of an institution to properly practice Corporate Governance.

• Linking the 5 modules together in a single system that is both secure and easily accessible is vital.

• The system should be significantly more robust and integrated then a simple board portal.

66


The top 10 takeaways on Governance at a Financial Institution . . .

1. Use Consent Agendas

2. Invest in a Board Tool (Board Portals Are Not Enough)

3. Approve Management actions through Policies instead of Board Meetings (e.g. Loan approvals, Investment purchases)

4. Spread Policy Approval dates throughout the year in a Laddered Approach

5. Use Video Conferencing when unable to attend in-person

6. Schedule Committee Meetings on the same day as Board Meetings

7. Invite Industry Experts to present on a regular basis

8. Conduct regular Board Training using your bank specific data

9. Ensure an Independent Board that provides Credible Challenge

10. Create and Maintain Management Succession and Talent Management Plans

10


Board training programs must be institution specific . . .

11

Education Modules Industry Specific

Bank Specific

Banking

101: Banking

Basics

Banking

201: Value

Creation

ALCO Committee

Risk Committee

Corporate Governance Committee

Compensation and

Nominating

Committee

Audit Committee

Loan

Committee

1 Role of a Board Member X 1 1 1 1 1 1 1

2 Banking 101 X 2

3 Financial Statements and Ratios X 3

4 Regulations and Exams X 4

5 Corporate Governance X 5 2 2

6 Capital X 6

7 Investments X 7

8 Loans X 8 2

9 Funding and Liquidity X 9

10 Management Compensation X 10 2

11 Talent Management X 11 3

12 ALCO X 12 2

13 Bank Strategy X 13

14 ERM and CAMELS+ X 14 2

15 Value Creation X 15

16 Bank Specific ERM Review X 1 3 3

17 Bank Specific Corporate Governance X 2 3

18 Bank Specific Regulatory Review X 3

19 Bank Specific Bank Strategy X 4 3

20 Bank Specific Value Creation X 5

21 Bank Specific ALCO Review X 3

Time Commitment 2 Days 1 Day 2‐3 Hours 2‐3 Hours 2‐3 Hours 2‐3 Hours 2‐3 Hours 2‐3 Hours

Note: program combinations are available upon request. FinPro also offers a CEO mentorship program and individual banker training on an as needed basis.

77


12 things that Board Members should DO . . .

1) Do focus on value creation (TBVS, EPS)

2) Do understand that Risk drives Strategy drives Value

3) Do conduct ERM

4) Do stay informed on regulatory issues

5) Do build value creation/detractor matrix

6) Do adopt governing principles

7) Do validate corporate infrastructure

8) Do undertake talent management

9) Do conduct beta, decay, and deposit disintermediation studies

10) Do focus on corporate governance

11) Do adopt customer segmentation

12) Do have an M&A Plan

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Talent Management is the most important element of banking . . .

Investors don’t invest in banks, they invest in management teams

Many Senior Managers are contemplating retirement in the next few years

A management review is a good thing

Staff must have clear and achievable goals

True staff planning is essential

Migrate to organizational structure for the future, not today

Matrix organizations make a lot of sense

Organization wide management succession is a necessity, and

Individual management succession is critical

“Build” talent

“Buy” talent

Human Branches and relationship bankers are the future

Must identify training needs and build it in house

We should hire outside the industry, we need new ideas

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88


The next step is to assess technical skills . . .

14


It is also critical to assess core competencies . . .

15

99


Strong performance does not always ensure success at the next level . . .

16


The FinPro Talent Evaluation Matrix identifies strengths and weaknesses . . .

4. Strong Technician 2. Strong Performer 1. OutstandingPerformer

7. Adequate Performer 5. Solid Performer 3. Future Star

9. Poor Performer 8. Under Performer 6. Raw Talent

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Per

form

ance

Potential

1010


The Matrix is also effective in determining which employees to retain . . .

4. Strong Technician 2. Strong Performer 1. Outstanding

7. Adequate Performer 5. Solid Performer 3. Future Star

9. Poor Performer 8. Under Performer 6. Raw Talent

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Per

form

ance

Potential


3. Stay ahead of regulation

Banks must be aware of regulations, have a compliance plan in place, monitor the compliance and plan forward to avoid regulatory problems . . .

• The regulators are an important member of your bank’s constituent base

• Your relationship with the regulators should be similar to your relationship with the bank’s best loan customers

• Frequent communication

• Open and honest dialogue

• Estimate their needs so you can fill them

• Need to know and understand all regulatory ratings

• Should conduct own internal CAMELS + assessment quarterly

• Must have a dynamic capital planning process• Without this process your bank is at high risk of receiving an IMCR

• Work with the regulators pro-actively, they hate surprises!

• Be wary of terms like “Unfair, Deceptive or Abusive Acts or Practices” and “Disparate Impact”

• Know your rights and understand the appeals process

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1111


4. Assess markets

Community banks need to be able to identify the most attractive markets based upon their desired strategic goals . . .

Geocode accountsGeocode accountsMap customersMap customers

Segment customer baseSegment customer base

IdentifyIdentifyMarket Market AreaArea

DemographicDemographicDataData

CustomerCustomerSegmentsSegments

ProductProductPropensityPropensity

BusinessBusinessDataData

Bank DataBank Data

CompetitionCompetition

InteractiveInteractiveMarket AreaMarket AreaAssessmentAssessment

MarketMarketRankingsRankings

““MPG GridMPG Grid””

MarketMarketSummarySummary““BIG GridBIG Grid””

Data SourcesData Sources

For any geographyCompare multiple areas

Over 1,200 variablesSelect criteriaWeight Criteria

Rank marketsSelect top markets

Market summariesMarket toursWeight BIG criteriaBIG grid top markets

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© 2014 – FinPro, Inc.21

Then map the most attractive markets (shaded yellow) based on both market and competitive characteristics . . .

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Each market can be ranked by analytical criteria . . .

weighting 1 2 2 1

ZIP County Market Co

mb

ined

S

core

De

mog

rap

hic

S

core

Re

tail

Sco

re

Bus

ine

ss S

core

Co

mpe

titiv

e S

core

Mar

ket S

core

Co

mpe

titiv

e S

core

Qu

art

ile

63376 St. Charles County 63376 Saint Peters 100 71 100 71 93 100 93 1st63301 St. Louis County 63301 Saint Charles 91 33 65 75 100 76 100 1st63129 St. Louis County 63129 Saint Louis 90 47 89 42 98 75 98 1st63141 St. Louis County 63141 Saint Louis 87 19 64 100 85 84 85 1st63123 St. Louis County 63123 Saint Louis 84 40 74 43 95 66 95 1st63021 St. Louis County 63021 Ballwin 82 43 98 30 87 72 87 1st63131 St. Louis County 63131 Saint Louis 82 17 67 48 98 59 98 1st63017 St. Louis County 63017 Chesterfield 81 29 91 70 70 85 70 1st63031 St. Louis County 63031 Florissant 79 33 73 39 92 61 92 1st63011 St. Louis County 63011 Ballwin 79 27 82 66 75 78 75 1st63122 St. Louis County 63122 Saint Louis 78 32 79 67 73 79 73 1st63026 St. Louis County 63026 Fenton 78 48 76 56 76 75 76 1st63119 St. Louis city 63119 Saint Louis 76 37 69 53 78 68 78 1st63366 St. Charles County 63366 O Fallon 76 86 72 63 60 86 60 1st63146 St. Louis County 63146 Saint Louis 73 25 62 51 81 60 81 1st63033 St. Louis County 63033 Florissant 72 35 66 31 84 55 84 1st63126 St. Louis County 63126 Saint Louis 72 26 51 29 94 44 94 1st63109 St. Louis city 63109 Saint Louis 71 61 55 27 84 53 84 1st63128 St. Louis County 63128 Saint Louis 70 30 69 34 78 57 78 1st63132 St. Louis County 63132 Saint Louis 70 24 40 47 87 48 87 1st63114 St. Louis city 63114 Saint Louis 69 29 49 44 83 51 83 1st63043 St. Louis County 63043 Maryland Heights 68 23 54 39 81 50 81 1st63130 St. Louis County 63130 Saint Louis 68 46 52 27 81 49 81 1st63010 Jefferson County 63010 Arnold 67 33 61 37 73 55 73 1st63385 St. Charles County 63385 Wentzville 65 100 53 30 62 64 62 1st63139 St. Louis County 63139 Saint Louis 65 48 44 28 80 46 80 1st

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5. Obtain and keep the right customers

We must undertake customer segmentation . . .

07307 Jersey City MKTDESCRIPTION HSHLDS PCT HSHLDS PCT SHARE HSHLDS PCTGlobetrotters 8 0.1% 26 2 0.0% 24.0% 6 0.1%Business Class 1 0.0% 34 0 0.0% 12.0% 1 0.0%Golden Agers 4 0.0% 31 1 0.0% 14.0% 3 0.0%Civic Spirits 3 0.0% 32 1 0.0% 32.0% 2 0.0%Retiree Chic 37 0.2% 22 10 0.2% 28.0% 27 0.2%Big Spenders 35 0.2% 23 6 0.2% 18.0% 29 0.3%Jumbo Mortgagees 18 0.1% 25 6 0.1% 32.0% 12 0.1%Prosperous Parents 94 0.6% 16 23 0.5% 24.0% 71 0.6%Leisure Land 73 0.5% 17 16 0.4% 22.0% 57 0.5%Home Sweet Equity 7 0.0% 27 1 0.0% 8.0% 6 0.1%Travel & Antiques 6 0.0% 29 0 0.0% 6.0% 6 0.0%New Money 5 0.0% 30 1 0.0% 28.0% 4 0.0%Comfortably Retired 41 0.3% 21 11 0.3% 28.0% 30 0.3%Active Empty Nesters 406 2.6% 13 85 2.0% 21.0% 321 2.8%Suburban Scramble 7 0.0% 27 2 0.0% 27.0% 5 0.0%Early-Bird Specials 68 0.4% 18 15 0.4% 22.0% 53 0.5%Conservative Couples 49 0.3% 20 15 0.4% 31.0% 34 0.3%Senior Solitaire 25 0.2% 24 4 0.1% 15.0% 21 0.2%Retirement Ready 0 0.0% 35 0 0.0% 0.0% 0 0.0%Fiscal Rookies 1,023 6.6% 6 256 6.1% 25.0% 767 6.7%Khakis & Credit 1,052 6.8% 5 158 3.8% 15.0% 894 7.8%Family Sprawl 662 4.2% 9 132 3.2% 20.0% 530 4.6%Old Homesteaders 140 0.9% 15 25 0.6% 18.0% 115 1.0%Urbanistas 628 4.0% 10 75 1.8% 12.0% 553 4.8%Forever Young 569 3.7% 11 40 1.0% 7.0% 529 4.6%Settling Down 2,140 13.7% 3 556 13.4% 26.0% 1,584 13.9%Loan Rangers 959 6.2% 7 201 4.8% 21.0% 758 6.6%Urban Essentials 2,409 15.5% 2 964 23.2% 40.0% 1,445 12.7%Country Cottages 2 0.0% 33 0 0.0% 9.0% 2 0.0%Social Insecurity 416 2.7% 12 42 1.0% 10.0% 374 3.3%City Strivers 700 4.5% 8 203 4.9% 29.0% 497 4.4%Young & Thrifty 2,446 15.7% 1 832 20.0% 34.0% 1,614 14.1%Economizers 65 0.4% 19 20 0.5% 31.0% 45 0.4%Young Urban Renters 1,235 7.9% 4 383 9.2% 31.0% 852 7.5%Bottom-Line Blues 252 1.6% 14 76 1.8% 30.0% 176 1.5%

15,585 100.0% 4,162 100.0% 26.7% 11,423 100.0%

BANK DIST POTENTIAL

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• Fiscal Rookies Segment:

– Young couples and families.

– Relatively high incomes

– 25- to 44-year-olds

– Not saving a lot of money

– Average levels of income-producing assets.

– Carry debt from student and auto loans

– First home mortgages

– Dabbling in investment-style insurance and mutual funds for their 401(k)s.

1313


The key to customer segmentation is getting the relationship . . .

MARKET AREA (Retail only)

New JerseyHSHLDS W/ACCT

AVG BALANCE

POTENTIAL MARKET % MIX

MKT INDEX

DEPOSIT PRODUCTS:

Non-interest DDA 1,614,071 $6,630 $10,701,290,730 7.4% 1.00

Interest DDA 1,648,758 $11,676 $19,250,898,408 13.4% 1.05

Total Transaction/DDA 2,887,208 $10,374 $29,951,895,792 20.8% 1.01

Savings - Regular 2,315,965 $20,067 $46,474,469,655 32.3% 1.00

Money Market 814,849 $32,125 $26,177,024,125 18.2% 1.25

CD 627,829 $54,862 $34,443,954,598 23.9% 1.31

IRA-CD 140,107 $49,541 $6,941,040,887 4.8% 1.53 Total Savings 2,543,451 $44,835 $114,035,625,585 79.2% 1.02

TOTAL DEPOSIT PRODUCTS 3,032,770 $47,477 $143,986,821,290 100.0% 1.00

LOAN PRODUCTS:

1st Mortgage 1,374,188 $138,409 $190,199,986,892 71.4% 0.92

2nd Mortgage 191,652 $41,057 $7,868,656,164 3.0% 1.06

Home Equity LOC 411,960 $27,508 $11,332,195,680 4.3% 1.23

Total Real Estate Secured 1,558,051 $134,399 $209,400,496,349 78.6% 0.97

Auto 981,805 $15,174 $14,897,909,070 5.6% 0.81

Student 305,347 $41,057 $12,536,631,779 4.7% 0.91

Other Personal Loans 151,713 $14,513 $2,201,810,769 0.8% 0.67

Total Installment Credit 1,301,224 $24,341 $29,636,351,618 11.1% 0.86

Bank Credit Card 2,653,564 $4,309 $11,434,207,276 4.3% 1.07

Overdraft 463,704 $6,177 $2,864,299,608 1.1% 0.90

Other PLOC 882,019 $14,886 $13,129,734,834 4.9% 0.98 Total Revolving Credit 2,693,342 $10,209 $27,428,241,718 10.3% 1.05

TOTAL LOAN PRODUCTS 2,847,849 $93,567 $266,465,089,685 100.0% 1.01

MARKET AREA (Retail only)

New JerseyHSHLDS W/ACCT

AVG BALANCE

POTENTIAL MARKET % MIX

MKT INDEX

INVESTMENT PRODUCTS:

Mutual Funds (exc IRAs) 463,029 $82,671 $38,279,070,459 10.6% 1.23

Stock 1,106,365 $102,407 $113,299,520,555 31.4% 1.28

Corporate/Municipal Bonds 247,304 $70,857 $17,523,219,528 4.9% 1.37

Futures/Warrants/Options 67,798 $44,291 $3,002,841,218 0.8% 1.32

US Saving Bond/T-Bills/Notes 1,057,772 $9,461 $10,007,580,892 2.8% 1.41

Government Securities 70,974 $31,651 $2,246,398,074 0.6% 1.09

Unit Investment Trusts 22,033 $72,292 $1,592,809,636 0.4% 1.26

401k Plans 1,524,054 $83,407 $127,116,771,978 35.2% 1.06

IRA in Mutual Funds 372,359 $82,731 $30,805,632,429 8.5% 1.19IRA in Other Investment 162,985 $106,081 $17,289,611,785 4.8% 1.26

TOTAL INV PRODUCTS 2,326,126 $155,264 $361,163,627,264 100.0% 1.11

OTHER PRODUCTS:

Collectibles/Precious Metals/Other 553,185 $27,131 $15,008,462,235 1.03

Real Estate Investments 319,573 $324,206 $103,607,484,038 0.94

Asset/Cash Management Accounts 248,817 $254,385 $63,295,312,545 1.45

Annuity Fixed Rate 128,802 $85,720 $11,040,907,440 1.23

Annuity Variable Rate 107,714 $91,766 $9,884,482,924 1.10

24

Bank

Direct.com

Mortgage Company

Broker/Wall Street Firm

Bank

Bank GSE

BankCredit Card Company

Bank

One customer is being pulled apart and nobody is getting the whole customer.


The needs profile for the Fiscal Rookies looks like this . . .

25

Offer some form of custom loan, a term loan secured by real estate for borrowers with good credit but little or no equity to use as an alternative to costly student loans or for other debt consolidation.

Consider higher LTV loans with approach of underwriting borrower vs. collateral, when direct payment is made from a bank checking account. Also consider offering interest only periods and some fixed number of options for the customer to convert some or all of the outstanding line into a fixed term loan.

A checking account with a low minimum or no minimum balance requirement, no fees, free internet banking, unlimited check writing, automatic overdraft protection, and tied to a savings account.

1414


Product delivery . . .

Technology, Technology, Technology: Internet and Electronic banking – low usage rate of

traditional brick and mortar Link all accounts together and offer some form of a

unified statement as well a free and unlimited electronic access to accounts

These customers have high ATM usage rates (next generation ATMs)

Convenience, Convenience, Convenience: Direct deposit of payroll checks into a Bank account Location near retail draws, walking patterns, and

stops for the Bergen Hudson Light Rail Free ATM usage at any Bank locations A dual credit card/debit/ATM card should be offered

Type of Media: Radio Entertainment, Fitness, and Airline Magazines Affinity relationships Business Finance section of the newspaper Search Engine NO Television

26

TOP 10 Lifestyle IndexProf Furniture Clnrs LstYr (1.8%) 278Used Baby Foods Last 6 Mos (5.8%) 271Go Downhill Skiing (3.6%) 269Go Scuba/Skin Dive/Snorkel (2.5%) 244Play Softball (5.3%) 238In-Home Preg Test Lst 12Mos (5.9%) 237Rntd Fam/Kid Videos Lst Mo (10.0%) 233Exercise at Club 2x a Week (6.5%) 231Buy Medium Rock Music (8.7%) 230Buy Hard Rock Music (5.9%) 215

TOP 10 Media IndexBaby Mags: Net Aud (3.8%) 268Entertain/Perf Art Mag (3.8%) 268Classic Rock: Net Audience (8.5%) 233Progressive Rock: Net Aud (13.7%) 215Fitness Mags: Net Aud (4.0%) 188Computer Mags: Net Aud (6.6%) 158VH1: Net Audience (11.7%) 156TV Col Basketball: NetAud (15.6%) 154Airline Mags: Net Aud (4.6%) 151Radio Col/Pro Bsktbl:NetAud(5.8%) 148


And we should get even more detailed . . .

NEWSPAPER Index RADIO Index Programming IndexTop 20% Newspaper: Net Aud (20.0%) 92 Top 20% Radio: Net Audience(20.0%) 132 Adult Contemp: Net Aud(20.6%) 134Bottom 20% Newsppr: Net Aud(20.0%) 68 Bottom 20% Radio: Net Aud (19.8%) 44 News: Net Audience (4.8%) 81

Progressive Rock: Net Aud (13.7%) 215Read Business/Finance Sec (30.3%) 128 Radio M-F 6am-10am: Net Aud(55.8%) 127 Black: Net Audience (1.5%) 27Read Classified Section (35.5%) 124 Radio M-F 10am-3pm: Net Aud(36.9%) 113 CHR/Rock: Net Aud (12.0%) 136Read Comics Section (34.2%) 113 Radio M-F 3pm-7pm: Net Aud (42.7%) 144 Classic Rock: Net Audience (8.5%) 233Read Editorial Section (34.7%) 90 Radio M-F 7pm-12am: Net Aud(16.4%) 105 Classical: Net Aud (2.1%) 85Read Fashion Section (18.2%) 99 Radio M-F 12am-6am: Net Aud(5.2%) 112 Country: Net Aud (21.4%) 124Read Food/Cooking Section (28.9%) 98 Radio S-S 6am-10am: Net Aud(29.5%) 112 Easy List: Net Aud (1.3%) 54Read General News Section (59.8%) 110 Radio S-S 10am-3pm: Net Aud(38.0%) 126 Golden Oldies: Net Aud(12.8%) 123Read Home/Furn/Garden Sec (23.0%) 119 Radio S-S 3pm-7pm: Net Aud(28.5%) 131 Jazz: Net Audience (3.7%) 68Read Movie Listngs&Reviews (29.9%) 115 Radio S-S 7pm-12am: Net Aud(14.0%) 92 Nostalgia: Net Aud (2.6%) 38Read Science/Tech Section (19.0%) 111 Radio S-S 12am-6am: Net Aud(3.2%) 85 News/Talk: Net Aud (17.9%) 112Read Sports Section (32.5%) 126 Relig/Gospel: Net Aud (4.5%) 91Read TV/Radio Listings (34.0%) 90 Soft Contemp: Net Aud (2.5%) 144

Spanish: Net Aud (2.2%) 18

MAGAZINE Index Urban Contemp: Net Aud(6.5%) 54

Top 20% Magazines: Net Aud (20.0%) 107 Variety: Net Aud (1.5%) 73Bottom 20% Mags: Net Aud (20.1%) 75

TELEVISION Index Programming IndexAirline Mags: Net Aud (4.6%) 151 Top 20% Total TV: Net Aud (19.8%) 42 A&E: Net Audience (32.8%) 86Automotive Mags: Net Aud (10.7%) 130 Bottom 20% Total TV: NetAud(19.9%) 122 Amer Movie Classics: NetAud(19.0%) 64Baby Mags: Net Aud (3.8%) 268 BET: Net Audience (6.2%) 71Boating Mags: Net Aud (2.5%) 132 TV M-F 6am-7am: Net Aud (5.1%) 80 Bravo: Net Audience (2.2%) 64Bridal Mags: Net Aud (3.7%) 59 TV M-F 7am-9am: Net Aud (7.8%) 62 Cartoon Network: Net Aud (6.6%) 140Bus/Finance Mags: Net Aud (22.7%) 139 TV M-F 9am-10am: Net Aud (8.8%) 52 CNBC: Net Audience (14.0%) 90Computer Mags: Net Aud (6.6%) 158 TV M-F 10am-1pm: Net Aud (10.3%) 32 CNN: Net Audience (58.8%) 97Entertain/Perf Art Mag (3.8%) 268 TV M-F 1pm-4pm: Net Aud (12.1%) 30 Comedy Central: Net Aud (10.9%) 146Epicurean Mags: Net Aud(5.1%) 102 TV M-F 4pm-4:30pm: Net Aud (12.2%) 31 Country Music TV: Net Aud (11.7%) 103Fish/Hunt Mags: Net Aud (14.2%) 103 TV M-F 4:30pm-5pm: Net Aud (12.4%) 35 Court TV: Net Audience (4.6%) 80Fitness Mags: Net Aud (4.0%) 188 TV M-F-5pm-5:30pm: Net Aud (16.8%) 53 C-Span: Net Audience (12.8%) 95Fraternal Mags: Net Aud (2.8%) 32 TV M-F 5:30pm-6pm: Net Aud (18.4%) 56 Discovery Channel: Net Aud (47.3%) 95Gardening Mags: Net Aud (4.1%) 60 TV M-F 6pm-6:30pm: Net Aud (28.6%) 55 E!: Net Audience (9.9%) 121Gen Editorial Mags: Net Aud(53.9%) 90 TV M-F 6:30pm-7pm: Net Aud (30.2%) 58 ESPN: Net Audience (40.3%) 119Health Mags: Net Aud (9.6%) 74 TV M-F 7pm-7:30pm: Net Aud (34.9%) 63 ESPN2: Net Audience (5.8%) 131Home Svcs Mags: Net Aud (33.0%) 122 TV M-F 7:30pm-8pm: Net Aud (35.3%) 67 Family Channel: Net Aud (28.1%) 89Mens Mags: Net Aud (16.1%) 127 TV M-F 8pm-11pm: Net Aud (52.3%) 96 Headline News: Net Aud (28.9%) 103Motorcycle Mags: Net Aud (3.1%) 106 TV M-F-11pm-11:30pm: NetAud(27.3%) 89 Home Shopping Club:Net Aud (5.5%) 115Music Mags: Net Aud (9.3%) 112 TV M-F 11:30pm-12am: NetAud(15.0%) 87 Learning Channel: Net Aud (12.2%) 104News Weekly Mags: Net Aud (50.7%) 100 TV M-F 12am-12:30am: NetAud(7.7%) 82 Lifetime: Net Audience (25.0%) 96Newspaper-Distrib Mags: NetAud(61.4%) 107 TV M-F 12:30am-1am: Net Aud(4.2%) 74 MTV: Net Audience (18.5%) 114Parenthood Mags: Net Aud (8.7%) 125 TV M-F 1am-2am: Net Aud (1.9%) 63 Nick at Nite: Net Audience (16.7%) 132Photographic Mags: Net Aud (1.3%) 77 TV Sat 7am-10am: Net Aud (3.5%) 74 Nickelodeon: Net Audience (15.8%) 124Science/Tech Mags: Net Aud (7.4%) 99 TV Sat 10am-1pm: Net Aud (7.0%) 74 Nostalgia TV: Net Aud (1.5%) 0Sports Mags: Net Aud (13.5%) 139 TV Sat 1pm-4:30pm: Net Aud (11.7%) 67 Prevue Guide Channel:NetAud(9.4%) 119Travel Mags: Net Aud (7.2%) 99 TV Sat 4:30pm-6pm: Net Aud (14.1%) 73 QVC: Net Audience (5.1%) 88Womens Mags: Net Aud (45.4%) 114 TV Sat 6pm-7:30pm: Net Aud (19.5%) 63 TBS: Net Audience (36.0%) 105Womens Fashion Mags: NetAud(6.2%) 84 TV Sat 7:30pm-8pm: Net Aud (22.7%) 61 TNN: Net Audience (25.6%) 82

TV Sat 8pm-11pm: Net Aud (36.8%) 77 TNT: Net Audience (35.4%) 94TV Sat 11pm-11:30pm: NetAud(14.4%) 72 Travel Channel: Net Aud (3.5%) 137TV Sat 11:30pm-1am: Net Aud(4.8%) 108 USA Network: Net Audience (39.2%) 102TV Sunday 7am-10am: Net Aud(3.3%) 76 VH1: Net Audience (11.7%) 156TV Sun 10am-1pm: Net Aud (6.9%) 87 Weather Channel: Net Aud (41.4%) 96TV Sun 1pm-4:30pm: Net Aud (16.0%) 106 WGN-TV: Net Audience (18.9%) 105TV Sun 4:30pm-6pm: Net Aud (17.2%) 85 Cinemax: Net Audience (11.3%) 87TV Sunday 6pm-7pm: Net Aud (22.2%) 73 Disney Channel: Net Aud (8.3%) 106TV Sun 7pm-11pm: Net Aud (40.0%) 93 HBO: Net Audience (26.2%) 92TV Sun 11pm-11:30pm: NetAud(14.4%) 92 Movie Channel: Net Audience(5.3%) 55TV Sun 11:30-1am: Net Aud (3.1%) 74 Showtime: Net Audience (10.9%) 83

27

TELEVISION Index Programming Index

Top 20% Total TV: Net Aud (19.8%) 42 A&E: Net Audience (32.8%) 86Bottom 20% Total TV: NetAud(19.9%) 122 Amer Movie Classics: NetAud(19.0%) 64

BET: Net Audience (6.2%) 71TV M-F 6am-7am: Net Aud (5.1%) 80 Bravo: Net Audience (2.2%) 64TV M-F 7am-9am: Net Aud (7.8%) 62 Cartoon Network: Net Aud (6.6%) 140TV M-F 9am-10am: Net Aud (8.8%) 52 CNBC: Net Audience (14.0%) 90TV M-F 10am-1pm: Net Aud (10.3%) 32 CNN: Net Audience (58.8%) 97TV M-F 1pm-4pm: Net Aud (12.1%) 30 Comedy Central: Net Aud (10.9%) 146TV M-F 4pm-4:30pm: Net Aud (12.2%) 31 Country Music TV: Net Aud (11.7%) 103TV M-F 4:30pm-5pm: Net Aud (12.4%) 35 Court TV: Net Audience (4.6%) 80TV M-F-5pm-5:30pm: Net Aud (16.8%) 53 C-Span: Net Audience (12.8%) 95TV M-F 5:30pm-6pm: Net Aud (18.4%) 56 Discovery Channel: Net Aud (47.3%) 95TV M-F 6pm-6:30pm: Net Aud (28.6%) 55 E!: Net Audience (9.9%) 121TV M-F 6:30pm-7pm: Net Aud (30.2%) 58 ESPN: Net Audience (40.3%) 119TV M-F 7pm-7:30pm: Net Aud (34.9%) 63 ESPN2: Net Audience (5.8%) 131TV M-F 7:30pm-8pm: Net Aud (35.3%) 67 Family Channel: Net Aud (28.1%) 89TV M-F 8pm-11pm: Net Aud (52.3%) 96 Headline News: Net Aud (28.9%) 103TV M-F-11pm-11:30pm: NetAud(27.3%) 89 Home Shopping Club:Net Aud (5.5%) 115TV M-F 11:30pm-12am: NetAud(15.0%) 87 Learning Channel: Net Aud (12.2%) 104TV M-F 12am-12:30am: NetAud(7.7%) 82 Lifetime: Net Audience (25.0%) 96TV M-F 12:30am-1am: Net Aud(4.2%) 74 MTV: Net Audience (18.5%) 114TV M-F 1am-2am: Net Aud (1.9%) 63 Nick at Nite: Net Audience (16.7%) 132TV Sat 7am-10am: Net Aud (3.5%) 74 Nickelodeon: Net Audience (15.8%) 124TV Sat 10am-1pm: Net Aud (7.0%) 74 Nostalgia TV: Net Aud (1.5%) 0TV Sat 1pm-4:30pm: Net Aud (11.7%) 67 Prevue Guide Channel:NetAud(9.4%) 119TV Sat 4:30pm-6pm: Net Aud (14.1%) 73 QVC: Net Audience (5.1%) 88TV Sat 6pm-7:30pm: Net Aud (19.5%) 63 TBS: Net Audience (36.0%) 105TV Sat 7:30pm-8pm: Net Aud (22.7%) 61 TNN: Net Audience (25.6%) 82TV Sat 8pm-11pm: Net Aud (36.8%) 77 TNT: Net Audience (35.4%) 94TV Sat 11pm-11:30pm: NetAud(14.4%) 72 Travel Channel: Net Aud (3.5%) 137TV Sat 11:30pm-1am: Net Aud(4.8%) 108 USA Network: Net Audience (39.2%) 102TV Sunday 7am-10am: Net Aud(3.3%) 76 VH1: Net Audience (11.7%) 156TV Sun 10am-1pm: Net Aud (6.9%) 87 Weather Channel: Net Aud (41.4%) 96TV Sun 1pm-4:30pm: Net Aud (16.0%) 106 WGN-TV: Net Audience (18.9%) 105TV Sun 4:30pm-6pm: Net Aud (17.2%) 85 Cinemax: Net Audience (11.3%) 87TV Sunday 6pm-7pm: Net Aud (22.2%) 73 Disney Channel: Net Aud (8.3%) 106TV Sun 7pm-11pm: Net Aud (40.0%) 93 HBO: Net Audience (26.2%) 92TV Sun 11pm-11:30pm: NetAud(14.4%) 92 Movie Channel: Net Audience(5.3%) 55TV Sun 11:30-1am: Net Aud (3.1%) 74 Showtime: Net Audience (10.9%) 83

NEWSPAPER Index

Top 20% Newspaper: Net Aud (20.0%) 92Bottom 20% Newsppr: Net Aud(20.0%) 68

Read Business/Finance Sec (30.3%) 128Read Classified Section (35.5%) 124Read Comics Section (34.2%) 113Read Editorial Section (34.7%) 90Read Fashion Section (18.2%) 99Read Food/Cooking Section (28.9%) 98Read General News Section (59.8%) 110Read Home/Furn/Garden Sec (23.0%) 119Read Movie Listngs&Reviews (29.9%) 115Read Science/Tech Section (19.0%) 111Read Sports Section (32.5%) 126Read TV/Radio Listings (34.0%) 90

RADIO Index Programming Index

Top 20% Radio: Net Audience(20.0%) 132 Adult Contemp: Net Aud(20.6%) 134Bottom 20% Radio: Net Aud (19.8%) 44 News: Net Audience (4.8%) 81

Progressive Rock: Net Aud (13.7%) 215Radio M-F 6am-10am: Net Aud(55.8%) 127 Black: Net Audience (1.5%) 27Radio M-F 10am-3pm: Net Aud(36.9%) 113 CHR/Rock: Net Aud (12.0%) 136Radio M-F 3pm-7pm: Net Aud (42.7%) 144 Classic Rock: Net Audience (8.5%) 233Radio M-F 7pm-12am: Net Aud(16.4%) 105 Classical: Net Aud (2.1%) 85Radio M-F 12am-6am: Net Aud(5.2%) 112 Country: Net Aud (21.4%) 124Radio S-S 6am-10am: Net Aud(29.5%) 112 Easy List: Net Aud (1.3%) 54Radio S-S 10am-3pm: Net Aud(38.0%) 126 Golden Oldies: Net Aud(12.8%) 123Radio S-S 3pm-7pm: Net Aud(28.5%) 131 Jazz: Net Audience (3.7%) 68Radio S-S 7pm-12am: Net Aud(14.0%) 92 Nostalgia: Net Aud (2.6%) 38Radio S-S 12am-6am: Net Aud(3.2%) 85 News/Talk: Net Aud (17.9%) 112

Relig/Gospel: Net Aud (4.5%) 91Soft Contemp: Net Aud (2.5%) 144Spanish: Net Aud (2.2%) 18

Urban Contemp: Net Aud(6.5%) 54

Variety: Net Aud (1.5%) 73

MAGAZINE Index

Top 20% Magazines: Net Aud (20.0%) 107Bottom 20% Mags: Net Aud (20.1%) 75

Airline Mags: Net Aud (4.6%) 151Automotive Mags: Net Aud (10.7%) 130Baby Mags: Net Aud (3.8%) 268Boating Mags: Net Aud (2.5%) 132Bridal Mags: Net Aud (3.7%) 59Bus/Finance Mags: Net Aud (22.7%) 139Computer Mags: Net Aud (6.6%) 158Entertain/Perf Art Mag (3.8%) 268Epicurean Mags: Net Aud(5.1%) 102Fish/Hunt Mags: Net Aud (14.2%) 103Fitness Mags: Net Aud (4.0%) 188Fraternal Mags: Net Aud (2.8%) 32Gardening Mags: Net Aud (4.1%) 60Gen Editorial Mags: Net Aud(53.9%) 90Health Mags: Net Aud (9.6%) 74Home Svcs Mags: Net Aud (33.0%) 122Mens Mags: Net Aud (16.1%) 127Motorcycle Mags: Net Aud (3.1%) 106Music Mags: Net Aud (9.3%) 112News Weekly Mags: Net Aud (50.7%) 100Newspaper-Distrib Mags: NetAud(61.4%) 107Parenthood Mags: Net Aud (8.7%) 125Photographic Mags: Net Aud (1.3%) 77Science/Tech Mags: Net Aud (7.4%) 99Sports Mags: Net Aud (13.5%) 139Travel Mags: Net Aud (7.2%) 99Womens Mags: Net Aud (45.4%) 114Womens Fashion Mags: NetAud(6.2%) 84

1515


And create a culture which rewards service quality, but separates service from sales . . .

Implement tracking system Create appropriate metrics to monitor

performance, for example: Total Accounts Total Households Accounts per Household Products per Household Loan $ per Household Deposit $ per Household

Create incentive compensation for the branch manager based on selected metrics.

Utilize data mining of current customers to identify cross sell potential and calling lists for branch staff

28

Fiscal Rookies

07307 Jersey CityHSHLDS W/ACCT

% MKT HSHLDS

AVG BALANCE

POTENTIAL MARKET % MIX INDEX

DEPOSIT PRODUCTS:

Non-interest DDA 603 58.9% $7,121 $4,292,576 20.2% 1.22

Interest DDA 524 51.3% $7,888 $4,136,514 19.4% 1.07

Total Transaction/DDA 992 97.0% $8,497 $8,429,090 39.6% 1.12

Savings - Regular 903 88.3% $10,354 $9,349,599 43.9% 1.28

Money Market 192 18.8% $10,873 $2,090,229 9.8% 1.07

CD 110 10.8% $11,315 $1,248,288 5.9% 0.78

IRA-CD 18 1.8% $9,842 $179,420 0.8% 0.63 Total Savings 937 91.6% $13,735 $12,867,536 60.4% 1.24

TOTAL DEPOSIT PRODUCTS 1,020 99.7% $20,885 $21,296,626 100.0% 1.08

LOAN PRODUCTS:

Mortgage 618 60.4% $115,379 $71,322,198 334.9% 1.49

2nd Mortgage 60 5.9% $28,111 $1,683,804 7.9% 1.20

Home Equity LOC 97 9.5% $18,577 $1,807,602 8.5% 1.09

Total Real Estate Secured 630 61.6% $118,708 $74,813,604 351.3% 1.40

Auto 620 60.6% $16,602 $10,286,481 48.3% 1.79

Student 356 34.8% $22,138 $7,888,164 37.0% 3.03

Other Personal Loans 77 7.6% $10,945 $847,348 4.0% 1.44

Total Installment Credit 769 75.2% $26,910 $19,021,994 89.3% 1.73

Bank Credit Card 944 92.3% $4,359 $4,116,864 19.3% 1.27

Overdraft 234 22.9% $3,865 $905,882 4.3% 1.37

Other PLOC 52 5.1% $8,160 $423,096 2.0% 1.50 Total Revolving Credit 960 93.8% $7,559 $5,445,842 25.6% 1.24

TOTAL LOAN PRODUCTS 1,008 98.5% $98,485 $99,281,440 466.2% 1.18


The Bank’s commercial customers have the following segment distribution (based on all commercial customers in the US) . . .

The United StatesDESCRIPTION COUNT PCTAgriultural Production - Crops 2 0.1%Agricultural Production - Livestock 0 0.0%Agricultural Services 0 0.0%Forestry 0 0.0%Fishing, Hunting, and Trapping 2 0.1%Metal Mining 4 0.3%Coal Mining 0 0.0%Oil and Gas Extraction 2 0.1%Nonmetallic Mining 0 0.0%Building Cnstrctn - General Contractors & Operative Builders 37 2.6%Heavy Cnstrctn, Except Building Construction - Contractors 6 0.4%Construction - Special Trade Contractors 32 2.3%Food and Kindred Products 9 0.6%Tobacco Products 0 0.0%Textile Mill Products 4 0.3%Apparel & Textiles 12 0.9%Lumber and Wood Products 2 0.1%Furniture and Fixtures 3 0.2%Paper and Allied Products 3 0.2%Printing, Publishing and Allied Industries 1 0.1%Chemicals and Allied Products 1 0.1%Petroleum Refining and Related Industries 4 0.3%Rubber and Miscellaneous Plastic Products 2 0.1%Leather and Leather Products 2 0.1%Stone, Clay, Glass, and Concrete Products 12 0.9%Primary Metal Industries 5 0.4%Fabricated Metal Prdcts, Except Machinery & Transport Eqpmnt 4 0.3%Industrial and Commercial Machinery and Computer Equipment 4 0.3%Electronic, Elctrcl Eqpmnt & Cmpnts, Excpt Computer Eqpmnt 7 0.5%Transportation Equipment 1 0.1%Instruments & Related 0 0.0%Miscellaneous Manufacturing Industries 11 0.8%Raiload Transportation 0 0.0%Local, Suburban Transit & Interurbn Hgwy Passenger Transport 3 0.2%Motor Freight Transportation 8 0.6%United States Postal Service 0 0.0%Water Transportation 16 1.1%Transportation by Air 4 0.3%

Bank Dist Pipelines, Except Natural Gas 1 0.1%Transportation Services 10 0.7%Communications 6 0.4%Electric, Gas and Sanitary Services 10 0.7%Wholesale Trade - Durable Goods 7 0.5%Wholesale Trade - Nondurable Goods 8 0.6%Building Matrials, Hrdwr, Garden Supply & Mobile Home Dealrs 7 0.5%General Merchandise Stores 68 4.8%Food Stores 28 2.0%Automotive Dealers and Gasoline Service Stations 30 2.1%Apparel and Accessory Stores 8 0.6%Home Furniture, Furnishings and Equipment Stores 8 0.6%Eating and Drinking Places 41 2.9%Miscellaneous Retail 43 3.0%Depository Institutions 13 0.9%Nondepository Credit Institutions 6 0.4%Security & Commodity Brokers, Dealers, Exchanges & Services 12 0.9%Insurance Carriers 2 0.1%Insurance Agents, Brokers and Service 10 0.7%Real Estate 56 4.0%Holding and Other Investment Offices 11 0.8%Hotels, Rooming Houses, Camps, and Other Lodging Places 13 0.9%Personal Services 36 2.6%Business Services 9 0.6%Automotive Repair, Services and Parking 27 1.9%Miscellaneous Repair Services 10 0.7%Motion Pictures 1 0.1%Amusement and Recreation Services 22 1.6%Health Services 73 5.2%Legal Services 25 1.8%Educational Services 36 2.6%Social Services 22 1.6%Museums, Art Galleries and Botanical and Zoological Gardens 4 0.3%Membership Organizations 303 21.5%Engineering, Accounting, Research, Management & Related Svcs 10 0.7%Services, Not Elsewhere Classified 80 5.7%Government 87 6.2%Nonclassifiable Establishments 65 4.6%

1,411 100.0%

29

1616

© 2014 – FinPro, Inc.30

6. Analyze the franchise

Once the markets and customers are identified, banks must ensure that they have the right people, systems and delivery channels in place . . .

Segment

Identi-fication

Ascertain

Needs

Link

ProductsTo Needs

Effective

Delivery ofProducts

Sales

Culture

Sales Process


And must always consider what’s coming down the pike and prepare for the future . . .

Human branches

Less tellers and more relationship managers who are better educated but higher paid

Strong systems with detailed data capture and integrity

More reliance on technology for transactions, people for relationship

31

1717


Ensure the Bank has the appropriate services and sales channels to meet each targeted segment . . .

32


7. Grow organically

Every bank MUST HAVE an organic growth strategy . . .

Grow and diversify loans

Grow and diversify deposits

Branches versus electronic means

Use investments and wholesale funding to manage interest rate risk

33

1818


The threat of rising rates has arrived. The last time rates rose quickly was from 2004 to 2007 and bank cost of funds tripled . . .

Total Interest Expense for Industry (In Millions)

128,786

102,060 102,455

171,530

271,443

317,097

218,055

126,190

93,664 75,094 65,927

‐

50,000

100,000

150,000

200,000

250,000

300,000

350,000

2002Y 2003Y 2004Y 2005Y 2006Y 2007Y 2008Y 2009Y 2010Y 2011Y 2012Y

34Source: SNL Financial

Implied Beta = 55%

1.00%

3.00%

5.00%5.25%

1.78%

2.72%

3.94%4.11%

2.75%

4.38%

5.00%4.71%

4.24% 4.39%

4.71%

4.04%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

2004Y 2005Y 2006Y 2007Y

Fed Funds Interest Expense to Average Costing Liabilities 1 Year Treasury Rate 10 Year Treasury Rate


We need to not only grow deposits and diversify the mix, we need to avoid the rapid rise in funding costs . . .

• Conduct deposit loyalty study

Relationship

Transactions

Tenure

Location

Price

Size

• Minimize non core funding but some, in moderation, is acceptable

Brokered deposits are preferable to wholesale borrowings

35

FDIC - Statistics on Depository Institutions Report in (000's)

2007Y 2008Y 2009Y 2010Y 2011Y 2012Y

Transaction accounts 786,653,638$ 924,718,053$ 983,511,046$ 1,048,325,569$ 1,401,141,927$ 1,586,458,938$ Money market deposit accounts (MMDAs) 2,695,036,295 2,876,802,186 3,283,086,020 3,586,758,445 4,029,255,861 4,315,419,516 Other savings deposits (excluding MMDAs) 832,266,809 870,962,858 1,065,307,646 1,259,875,003 1,505,890,420 1,817,372,457 Total time deposits 2,598,896,528 2,823,780,238 2,364,766,203 1,978,335,575 1,821,712,372 1,727,746,993 Total Domestic Deposits 6,912,853,270$ 7,496,263,335$ 7,696,670,915$ 7,873,294,592$ 8,758,000,580$ 9,446,997,904$

1919


As FinPro has over 400 Community Bank clients across 42 states, it is uniquely qualified to provide the industry with market intelligence data and benchmarks for all ALCO modeling . . .

Interest Rate Scenarios, including rate ramps

Betas and decays for each deposit type

Prepayment speeds, pricing ranges and mark-to-markets for all loan categories by pricing range

Deposit loyalty analytics

36


8. Utilize capital markets

Every bank should have a capital markets plan with at least the following components . . .

Value Assessment

Capital Plan

Stock Repurchase Strategy

Dividend Policy

Acquisition Principles

37

2020


The value assessment should address . . .

Trading Value

Sale Value

Currency

Value creators/detractors

38


Assess trading value relative to a comparable group . . .

39

Decomposition of Valuation Drivers

Rationale:

• Asset size is modestly below the comparable group median• Modestly higher loan/asset ratio than comparables

• Tangible equity levels inline with comparables

• NPA levels, as a percentage of total assets and tangible capital, are low and inline with the comparables

• Core profitability was well below peer median• Lower profitability driven by higher efficiency ratio

• Significantly lower reliance on wholesale funding• High level of transaction accounts and short duraton portfolio indicates minimal

interest rate risk

• Strong, double digit loan growth compared to comparables• Deposit growth was negative, while comparables were modestly positive

• Projected population and income growth is inline with the comparables• Lower median income levels

• More than half of the comparables pay a cash dividend• Estimated dividend payout ratio of approximately 20% is below the peers

• Shares do not actively trade compared to a more liquid peer• For minority shareholders, there is an additional minority discount

Capitalization No Adjustment

Asset Quality No Adjustment

Profitablity & Earnings Composition

Strong Downward

Growth Modest Upward

Dividends Modest Downward

Trading Liquidity / Other

Liquidity & Sensitivity Upward

Downward

Market Demogrpahics No Adjustment

Balance Sheet Size & Strength Modest Downward

AdjustmentFactor:

Overall, FinPro assigned a 5% to 15% range of discounts to the comparable median

2121


Capital raising needs to be a well-thought out process . . .

Investors invest in Management first and foremost

Risk profile and ability to grow and execute will determine the pricing of a raise

Communication of a liquidity event is key

Everyone doesn’t need to do an IPO

Raise what you can lever over a 1-3 year period

Utilize preferred stock or debt

Convertible preferred yielding 5-9% is attractive to high net worth investors and the community banks selling them

Maintain shareholder communications

Current shareholders

Compile institutional investor list

Draw new customers to be shareholders

40

© 2014 – FinPro, Inc.41

The M&A process is undergoing revolutionary changes . . .

1a. Strategic Plan

2b. DevelopBidder List

3a. DistributeConfidentiality

Agreement

3b. DistributeProcess LetterAnd Bid Book

1g. DetermineDeal Team

3d. Receive,Analyze, and

Rank Bids

2c. Build Bid Book

1. Background1. Background 2. Preparation2. Preparation 3. Bid Process3. Bid Process 4. Legal/Reg.4. Legal/Reg.

5. Implementation5. Implementation

2a. DetermineSale Approach

1e. DevelopWish List

1b. M&A Plan andStrategic Alternative

Review

1f. (Sell-Side) Pre-Due Diligence & ERM

1c. Run Initial Pro Formas

2e. (Buy Side) If Private Negotiation;

Perform Pre-Due Diligence and

Negotiate Term Sheet

4g. DealAnnouncement

3f. Pro Forma Refinement withManagement

Sign Off

4b. DraftDefinitive

Agreement & Investor

Presentation

4f. Fairness Opinion

4c. Regulatory “Fly By”

4a. Negotiate Deal Terms

4e. Detailed Budget Projection

4d. Develop Integration Plan

4h. DraftProxy

Statement

5a. ExecuteIntegration

Plan

5b. RegulatoryApproval

5c. ObtainShareholder Vote

5d. Close theDeal

2d. Organization Of Credit

Documentation& Other Due

Diligence Items

1d. BuildValue Book

3e. DueDiligence

3c. Update Pro Formas and

Mark-to-Market B/S

Old World New World

2222


Pro formas have to be detailed from the start and need to be continuously updated and understood by management and the Board throughout the process . . .

42

Balance Sheet

Buyer and seller should be adjusted for non-recurring items or pre-deal capital raises and balance sheet restructuring

Income Statement

Breakdown of “true” core earnings

Sensitivity Analysis

Sensitivities provided on price/exchange ratio, credit mark, cost savings

Contribution analysis

DCF and IRR

Loan, deposit, investment and wholesale funding composition and concentrations

Interest rate risk

Economic Value of Equity (EVE)

Net interest income sensitivity

Itemized one-time restructuring expenses Buyer professional expenses Target professional expenses Social & contract expenses Integration charges

Cost savings Based off general ledger line items

Fee income revenue enhancements or adjustments Independent P&L’s of fee income business

units Credit mark

Initially through a loss severity analysis Refined through credit file and collateral

review Bulk sale vs. workout should be assessed

Balance sheet mark-to-market Pricing and amortization schedule

Net Operating Loss IRS Section 382 computations

Pro Forma Outputs AssumptionsBuyer Co. / Seller Co. Transaction Assumption Overview

Structure/Exchange:• Consideration of $12.00 per share or $56.5 million including options• 50% Cash / 50% Stock• Exchange Ratio of 1.3333• Buyer Co. share price in exchange valued at $9.00 per share

Acquisition Price to:• Premium to Current Stock Price ($7.65 per share) 56.9%• Tangible Book Value (TBVS) 137.1%• Historical Adjusted EPS 17.9x• Core Deposit Premium 3.9%

Value of Buyer Co. Stock Price In Exchange Compared To:• Tangible Book Value (TBVS) 143.1%• Historical Adjusted EPS 37.5x

Pro Forma Ownership:• Buyer Co.: 89.3% / Seller Co.: 10.7%

Mark to Market Assumptions:• Gross Credit Mark: $10,121 (2.56% of Loans ex. HFS & OREO)• Provision expense was adjusted by removing Target's historical level and replacing it with the projected ASC 450 (FAS 5) level• 20% of the net credit mark is amortized in on the pro forma income statement• CDI Created in Transaction: $3,000 (1.00% of core deposits) / Amortization Method: SOYD over 10 years•

Transaction Expenses and Synergies:• One-time Restructuring Charges: $4,451 (7.87% of deal value)• Cost savings equal to 38% of Seller Co. Operating Expenses

Other Assumptions:•••

Tax rate for all purchase accounting adjustements: 40%Pre-tax opportunity cost of cash: 2.3%82 thousand Seller Co. restricted shares accelerate upon change in control (per proxy)

Pro Forma Historical Balance Sheet

50% Cash / 50% Stock A B C A+B+C

Buyer Co. 12/31/13 MRQA +

Seller Co. 12/31/13 MRQA +

Transaction Adjustments =

Pro Forma Combined 12/31/13

Balance SheetTotal Cash and Cash Equivalents 34,750$ 12,000$ 7,433$ 54,183$ MBS and Investments 455,000 100,000 (39,973) 515,027 Gross Loans (Including HFS) 556,750 392,500 (2,005) 947,245 ALLL (5,000) (6,000) 6,000 (5,000) Loans, Net 551,750 386,500 3,995 942,245 Total Intangibles - 2,000 21,444 23,444 - Total Other Assets 58,500 29,500 6,738 94,738 Total Assets 1,100,000 530,000 (364) 1,629,636

Total Deposits 840,000 392,500 2,863 1,235,363 Borrowings and Senior Debt 90,000 25,000 13,130 128,130 Trust Preferred - - - - Other Liabilities 5,000 70,000 - 75,000 Total Liabilities 935,000 487,500 15,993 1,438,493

Preferred Stock - - - - Total Common Equity 165,000 42,500 (16,356) 191,144 Total Equity 165,000 42,500 (16,356) 191,144

Total Liabilities and Equity 1,100,000$ 530,000$ (364)$ 1,629,636$

Accretion/(Dilution)Tangible Common Equity 165,000$ 40,500$ (37,800) 167,700$ Common Shares Outstanding 26,248 4,629 (1,488) 29,389 Book Value Per Share 6.29$ 9.18$ 6.50$ 0.21$ 3.34%Tangible Book Value Per Share 6.29 8.75 5.71 (0.58)$ -9.22%TBVS Workback - Based on Historical Cash EPS

Key RatiosBank Level CapitalBank Lvl. Tier 1 Leverage Ratio 15.03% 10.42% 11.14%Bank Lvl. Total RBC Ratio 28.05% 15.01% 18.35%Consolidated CapitalTangible Common Equity / Tangible Assets 15.00% 7.67% 10.44%Asset QualityNPAs ex. TDRs / Total Assets 0.52% 3.72% 1.17%NPAs ex. TDRs / Bank Level Tier 1 + ALLL 3.38% 32.29% 10.33%

1.9 Years

Acc/(Dil)Buyer Co.

Sensitivity Analysis - Consideration Price Range50% Cash / 50% StockCost savings equal to 38% of Seller Co. Operating Expenses, phased in 100% in Year 1 and 100% in Year 2

Consideration Price Per Share 9.00$ 10.00$ 11.00$ 12.00$ 13.00$ 14.00$ 15.00$ Deal Value ($000s) 42,400$ 47,111$ 51,822$ 56,533$ 61,245$ 65,956$ 70,667$

Price / Book 98.0% 108.9% 119.8% 130.7% 141.6% 152.5% 163.4%Price / Tangible Book 102.9% 114.3% 125.7% 137.1% 148.6% 160.0% 171.4%Premium to Current Stock Price ($7.65 per share) 17.65% 30.72% 43.79% 56.86% 69.94% 83.01% 96.08%Implied Exchange Ratio 1.0000 1.1111 1.2222 1.3333 1.4444 1.5556 1.6667

Pro Forma OwnershipBuyer Co. Ownership 91.76% 90.93% 90.12% 89.31% 88.52% 87.75% 86.99%Seller Co. Ownership 8.24% 9.07% 9.88% 10.69% 11.48% 12.25% 13.01%

TBVS Accretion/(Dilution)Pro Forma TBVS 6.05$ 5.91$ 5.77$ 5.64$ 5.51$ 5.38$ 5.25$ Acc/(Dil) $ to Buyer Co. (0.24) (0.38) (0.52) (0.65) (0.78) (0.91) (1.04) Acc/(Dil) % to Buyer Co. -3.82% -6.04% -8.27% -10.33% -12.40% -14.47% -16.53%Workback to Buyer Co. (Based on Cash EPS) <1 Year 1 Years 2 Years 2 Years 3 Years 3 Years 4 Years

EPS Accretion/(Dilution)Pro Forma EPS 0.52$ 0.51$ 0.51$ 0.50$ 0.50$ 0.49$ 0.49$ Acc/(Dil) $ to Buyer Co. 0.28 0.27 0.27 0.26 0.26 0.25 0.25 Acc/(Dil) % to Buyer Co. 116.67% 112.50% 112.50% 108.33% 108.33% 104.17% 104.17%

Pro Forma CapitalBank Lvl. Tier 1 Leverage Ratio 11.48% 11.35% 11.21% 11.08% 10.94% 10.81% 10.67%Bank Lvl. Tier 1 RBC Ratio 18.64% 18.41% 18.17% 17.94% 17.70% 17.46% 17.23%Bank Lvl. Total RBC Ratio 18.94% 18.70% 18.47% 18.23% 18.00% 17.76% 17.53%Tangible Common Equity / Tangible Assets 10.74% 10.60% 10.47% 10.33% 10.20% 10.06% 9.92%Tangible Equity / Tangible Assets 10.74% 10.60% 10.47% 10.33% 10.20% 10.06% 9.92%

Pro Forma Asset QualityNPAs ex. TDRs / Total Assets 0.52% 0.52% 0.52% 0.52% 0.52% 0.52% 0.52%NPAs ex. TDRs / Bank Level Tier 1 + ALLL 3.38% 3.38% 3.38% 3.38% 3.38% 3.38% 3.38%

Pro Forma Deposit Composition

($000's)

Deposit Portfolio Balance % of Mix % of Capital Balance % of Mix % of Capital Balance % of Mix % of Capital

Noninterest Bearing 75,000$ 8.9% 44.6% 60,000$ 15.3% 100.0% 135,000$ 10.9% 74.2%Interest Checking 95,000 11.3% 56.5% 40,000 10.2% 66.6% 135,000 10.9% 74.2%Savings and MMDA 180,000 21.4% 107.0% 200,000 51.0% 333.2% 380,000 30.8% 208.9%Time Deposits <$100k 250,000 29.8% 148.6% 62,500 15.9% 104.1% 315,363 25.5% 173.4%Time Deposits >$100k 240,000 28.6% 142.6% 30,000 7.6% 50.0% 270,000 21.9% 148.4%Total Deposits 840,000$ 100.00% 499.18% 392,500$ 100.00% 653.88% 1,235,363$ 100.00% 679.13%

Wholesale Funding Composition Balance % of Mix % of Capital Balance % of Mix % of Capital Balance % of Mix % of Capital

Brokered Deposits -$ 0.0% 0.0% 194$ 0.0% 0.3% 194$ 0.0% 0.1%Listing Service Deposits - 0.0% 0.0% - 0.0% 0.0% - 0.0% 0.0%

Borrowings and Senior Debt 90,000 10.7% 53.5% 25,000 6.4% 41.6% 128,130 10.4% 70.4%Subordinated Debt - 0.0% 0.0% - 0.0% 0.0% - 0.0% 0.0%Trust Preferred - 0.0% 0.0% - 0.0% 0.0% - 0.0% 0.0%Total Debt and Borrowings 90,000$ 10.71% 53.48% 25,000$ 6.37% 41.65% 128,130$ 10.37% 70.44%

*all numbers include purchase accounting adjustments**% of Capital = % of Bank Level RBC

Buyer Co. Seller Co. Pro Forma

Noninterest Bearing

Interest Checking

Savings and MMDA

Time Deposits <$100k

Contribution Analysis

67%59%

54%

80% 80%

69%

40%

89%81%

33%41%

46%

20% 20%

31%

60%

11%19%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Total Assets GrossLoans (ex.

HFS)

CoreDeposits

TangibleEquity

TangibleCommon

Equity

HistoricalAdjusted

Net Income

HistoricalNet Income,

WithSynergies

Pro FormaOwnership:50% Cash /50% Stock

Pro FormaOwnership:

Stock -100%

Buyer Co. Seller Co.

Credit Mark Loss Severity Analysis

A B C A x B x C A B C A x B x CDefault Default

Balance Rate Loss Rate Credit Mark Balance Rate Loss Rate Credit MarkResidential Mortgages 2,500$ 100% 35% 875$ 100$ 50% 35% 18$ CRE - Owner Occ. 7,000 100% 35% 2,450 - 50% 35% - CRE - Non Owner Occ. 3,500 100% 35% 1,225 - 50% 35% - Multifamily - 100% 35% - - 50% 35% - Construction & Land 2,000 100% 35% 700 - 50% 35% - Home Equity 200 100% 35% 70 100 50% 35% 18 Consumer - 100% 35% - 25 50% 35% 4 Commercial & Industrial - 100% 35% - 100 50% 35% 18 Other 1,500 100% 35% 525 - 50% 35% - OREO 3,000 100% 20% 600 - 0% 0% - Total 19,700$ 100.0% 32.7% 6,445$ 325$ 100.0% 35.0% 57$

A B C A x B x C A B C A x B x CDefault Default

Balance Rate Loss Rate Credit Mark Balance Rate Loss Rate Credit MarkResidential Mortgages 500$ 25% 35% 44$ 81,900$ 1.5% 35% 430$ CRE - Owner Occ. 1,500 25% 35% 131 76,500 3.0% 35% 803 CRE - Non Owner Occ. - 25% 35% - 146,500 3.0% 35% 1,538 Multifamily - 25% 35% - 20,000 2.5% 35% 175 Construction & Land - 25% 35% - 8,000 5.0% 35% 140 Home Equity - 25% 35% - 19,700 1.5% 35% 103 Consumer 200 25% 35% 18 275 2.0% 35% 2 Commercial & Industrial - 25% 35% - 19,900 3.0% 35% 209 Other 300 25% 35% 26 200 0.0% 35% - OREO - 0% 0% - - 0.0% 0% - Total 2,500$ 25.0% 35.0% 219$ 372,975$ 2.6% 35.0% 3,401$

Nonperforming Assets (ex. Performing TDRs) 90+ Days Past Due

30-89 Days Past Due Performing Loans ex. HFS & Delinquencies

One-Time Restructuring Expenses

Expensed As Part of Purchase

Price

Expensed Post

Closing% Tax

Deduct. Notes:

Buyer Co Mgt. Sign

Off

Seller Co Mgt. Sign

OffFinancial Advisor - Variable -$ 565$ 70% 1.00% of Deal Value xAccounting - 50 100% Proposal from Accountant xLegal Fees - 300 70% Estimate by Legal TeamLoan Review - 25 70% Proposal from Management xBuyer Professional Expenses - 960

Financial Advisor 565 - 70% 1.00% of Deal ValueAccounting 50 - 100% FCA EstimateLegal Fees 300 - 70% FCA EstimateRegulatory & SEC Filing Fees 25 - 100% FCA EstimateTarget Professional Expenses 940 -

Employment Agreement - 1 - - 100% No Payout; Retention Assumed xEmployment Agreement - 2 - 350 100% CFO: 2x Base Salary - Source: Proxy filing xEmployment Agreement - 3 - - 100% - Non-Contract Employee Severance - 200 100% Based on Prelim Estimated Cost SavesUnder Funded Pension - - 100% - Break Up Fee - - 100% - System Conversion - 150 100% Estimate by Buyer Co. Head of IT xData Processing Contract - 1 - 1,500 100% 2 Years x Current EDP Run RateData Processing Contract - 2 - - 100% - Data Processing Contract - 3 - - 100% - Social & Other Expenses - 2,200

Write-off of Capitalized Assets - - 100% - Outplacement - - 100% - Change Checks - 50 100% FCA Assumption; Peer EstimateBranch Closings - - 100% - Retention Bonuses - 200 100% Lending Team Lock Up; Buyer Co Estimate xMisc. - 100 100% FCA AssumptionIntegration Expenses - 350 0%

Total % of Deal ValueTotal 940$ 3,510$ 4,451$ 7.9%


9. Drive earnings

Strong earnings usually results in strong currency and better multiples . . .

Utilize excess cash

Loans over investments

BOLI

OREO reserves NOT write downs

Deposit loyalty

Expense Control

Fee Income

Tax management

43

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10. Build value

Building value requires integrated planning . . .

Must understand life cycle of banks

Must understand value creators and detractors

Must understand drivers of multiples

Must be able to model numerous scenarios

44


The asset size of a Bank dictates whether tangible book value per share (TBVS) or earnings per share (EPS) metric takes precedence . . .

0 $200MM $500 MM $750 MM $5 Bil

Trading on an Earnings Basis

Grow th

Assets

Franchise

Earnings

Trading on a Book Basis

Diversification

45

2424


Creators and detractors . . .

Creators

Strong core earnings

Loan growth

Deposit growth

Good markets

Strong customer base

Alternate sources of fee income

Strong relationship managers

Leveraged capital

Detractors

Regulatory agreements/compliance issues

Poor corporate governance

Weak asset quality

Declining markets

Excess capital

High non core funding dependency

Bad loan and deposit mix

High level of interest rate risk

Volatile earnings

Unfunded liabilities (pensions)

Large penalty clauses for systems

Overly generous employment agreements

46


Value is driven by EPS and TBVS . . .

47

Stock price has a strong correlation to Earnings Per Share as the R2 value of

79.64% is approaching 1.0.

Stock price has a strong correlation to Tangible Book Value Per Share as the R2

value of 85.32% is approaching 1.0.

Source: SNL Securities

2525


Value is measured primarily by stock price . . .

Stock Price (SP) = Tangible Book Value Per Share (TBVS) times TBVS multiple

Stock Price (SP) = Earnings Per Share (EPS) times EPS multiple

Since:

• Market multiples are “the market’s perception of the risk profile of the bank”.

• Banks can influence the multiple by changing its risk profile and communicating the appropriate risk profile to the public.

48

Indicates average risk

Indicates lower risk

Indicates higher risk

Stock Price TBVS Multiple

$ 7.00 $ 10.00 0.70

$ 10.00 $ 10.00 1.00

$ 13.00 $ 10.00 1.30


And all strategic decisions should utilize a decision tree methodology with identified trigger events . . .

Strategies

Loan Generation Capability

Yes

No

Today

Strong Capital Position

Strategies

- Demonstrate ability to manage risk- Hire lenders or lending teams- Evaluate accretion/dilution of cash

dividends or repurchases- Evaluate acquisition opportunities with

a focus on loan growth capability

1. Funding Strategies

- Run off wholesale funding- If possible, lower offering rates- Eliminate certain CD product offerings- Run off “hot money” (high rate municipal

deposits for many institutions)

2. Investment Portfolio Management

- Stay in plain vanilla instruments- Look at corporates selectively (ensure pre-

purchase analysis)- Evaluate short term ladder strategies- Keep duration short to intermediate term

3. Deleveraging/Cost Reduction

- Consider branch sales/closings- Org. chart review and analysis- Consider eliminating Holding Co.- Outsource problem asset services- Manage risk for lower FDIC insurance

- Continue growth- Keep/hire the right team- Setup buckets to manage

portfolio concentrations- Consider match funding

strategies- Consider sales if quota filled

Constrained Capital Position

Evaluate Other Strategies

4. Consider Sale or Merger

- Evaluate synergies - Potential “double dip” for shareholders

49

2626


The market’s perception of the bank risk profile drives the multiple. Poor asset quality, no earnings and modest capital indicates an elevated risk profile . . .

Decomposition of Valuation Drivers - Stage 1

Rationale:

• Asset size is modestly below the comparable group median• Modestly higher loan/asset ratio than comparables

• Tangible equity levels are slightly below comparables

• NPA levels, as a percentage of total assets and tangible capital, are significantly higher than the comparables

• Core profitability was well below peer median• High levels of noninterest expense driving earnings issues

• Shrinking balance sheet with limited loan growth• Comparables had modest growth YoY


• Most of the comparables did not pay a cash dividend• Given asset quality issues, regulators will not permit dividends or buybacks

• Shares do not actively trade compared to a more liquid peer

TBVS @ $8.00 x Multiple @ 60% = $4.80 per share35-40% Downward Adjustment is Warranted

Trading Liquidity / Other Downward


Dividends No Adjustment


Strong Downward

Growth Modest Downward

Capitalization Modest Downward

Asset Quality Strong Downward

AdjustmentFactor:

Balance Sheet Strength & Composition

Modest Downward

50


As the risk profile improves, primarily due to a reduction in problem asset through a bulk sale and noninterest expense reductions, the overall valuation improves even though TBVS declines . . .


Rationale:

• Asset size is modestly below the comparable group median• Improved funding & liquidity after restructuring

• Tangible equity levels are slightly below comparables

• NPA levels are more inline with comparables after bulk asset sale

•

• Clean up of balance sheet has enabled modest growth• Comparables had modest growth YoY




TBVS @ $7.00 x Multiple @ 80% = $5.60 per share

TBVS declined to $7.00 from $8.00 in Stage 1 due to the bulk asset sale the Company undertook

Core profitability improved with problem asset removal and targeted expense reductions; ratios more inline with comparables


15-20% Downward Adjustment is Warranted




Modest Downward

Growth No Adjustment

Capitalization Modest Downward

Asset Quality Modest Downward

AdjustmentFactor:


No Adjustment

51

2727


When the risk profile is strong enough, the Company can raise capital and begin to grow . . .


Rationale:

• Asset size is modestly below the comparable group median• Improved funding & liquidity after restructuring

• Tangible equity levels are now higher than comparables post capital raise

• Asset quality is cleaner than comparable group after full completion of bulk asset sale and improvement in credit admin

•

• Capital has enabled growth at a faster pace than comparables• Comparables had modest growth YoY




TBVS @ $7.00 x Multiple @ 100% = $7.00 per share


No Downward Adjustment is Warranted




Modest DownwardCore profitability improved with problem asset removal and targeted expense reductions; ratios more inline with comparables

Growth Modest Upward

Capitalization Modest Upward

Asset Quality No Adjustment

AdjustmentFactor:


No Adjustment

52


If you integrate your planning, you will build value . . .

• Weak asset quality, low earnings, modest capital, MOU or Consent

$8.00 x 60% = $4.80

• Fix asset quality via bulk sale, remove regulatory agreement

$7.00 x 80% = $5.60

• Achieve core earnings, raise capital, modest growth

$7.00 x 100% = $7.00

Value has improved by $2.20 or 46%. All of it is risk profile driven.

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To contact us . . .

Don Musso Scott Polakoff

President Executive Managing Director

FinPro Inc. FinPro Inc.

908-604-9336 x101 908-604-9336 x102

[email protected] [email protected]

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using planning to build value: a roadmap

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