After all of This, Where do We go from Here?? West Virginia Bankers Association 118th Annual Convention July 17th=19th, 2011 Bankers Management, Inc.

Bankers Management, Inc.

Appreciation Rates State Peak % Decline Next 12 MThs Nevada Mar 06 -55.5% -7.7% West VA May 06 -28.2% +3.1% Negative Equity: 23.8% REO + Short Sales 38.8% Washington, Arlington, Alexandria Foreclosure Rate: 1.76%; (41); 90+ day 4.4% Bankers Management, Inc.

What Will Drive Growth? A. Increase cross-selling for current customers WF - 5.4 services: Avg. Bank – 2.3 services B. Expand presence on the internet Facebook, Twitter C. Provide customers with mobile banking 70% of banking is being done outside of banks D. Acquire another bank Does the growth fit the strategic plan? Is there sufficient management talent? Is there sufficient Capital? Bankers Management, Inc.

Foundation of a Great Bank A clear and measurable strategic plan Board participation Setting major objectives (2 – 3) Data gathering Interviewing Board Members & Key Senior Officers Independent feedback, Outsider to the board Review of Regulatory reports, Financials, Policies Facilitation of retreat Use an outsider: To ask key sensitive questions Development of plan Follow-up metrics Bankers Management, Inc.

Introduction, Asset Quality Today’s Safety & Soundness Examination is not your mother’s/ father’s Exam! The credit that was a Pass loan for the last several exams, is now a Substandard loan Given that you fell short on the above, We have to downgrade Earnings, Management, & Capital Bankers Management, Inc.

Regulatory Environment Quotes from Bankers; RE: Regulators “UNREASONABLE” “CONFRONTATIONAL ” “WITH an AGENDA” “NO COMMON SENSE” Bankers Management, Inc.

The keys to higher ROA’s & ROE’s Management and the Board are responsible to the Shareholders of the bank for enhancing the value of their investment. Increasing value of the stock Dividend payouts Net Interest Margin (NIM) Top 25 Banks: 2009 – 5.01% : 2010 – 4.58% WV Banks: 2009– 4.07% : 2010 – 3.98% Bankers Management, Inc.

Net Interest Margin Interest Income is driven by the Yield on your earning Assets: Loans 40 – 50BP +, vs. Peer Group Consumer Loans are generally 20% - 30% of total loans Investment Securities Yield is 20 – 25BP+ vs. Peer Group Instruments are a mix of yield and Liquidity Bankers Management, Inc.

Financial Keys A. Lower Cost of Funds B. Operating Cost Top 10% of banks: 43 basis points lower cost of funds Higher level of Transaction Accounts: 55% - 60% vs. 45% - 50% B. Operating Cost Increasing personnel cost (Compliance Officers) Occupancy expense Remote Capture In-Store Branches Loan Production Offices Retail Store Fronts Bankers Management, Inc.

Financial Keys C. Non Interest Income D. Productivity Top 25 Banks 1.03% Declining NSF fees Interchange fees (24bp ?) D. Productivity Efficiency Ratio Assets per FTE Earnings per FTE Bankers Management, Inc.

Non Interest Income Non Interest income has an ROA of infinity The sources of NII include Deposit fees (Overdraft, ATM, Debit Cards) Loan fees (Late fees, Facility fees, Closing fees) Services (Insurance, Safe Deposit, Travelers Checks, Wire, Check Cashing) Prepaid Visa/MasterCard The goal is 20% of revenue Bankers Management, Inc.

Key Statistical Measures, 2009 Non-S Corp Banks $100M - $3B Measurement Top 25 Banks WV Banks ROAE 13.78 7.19 ROAA 1.60 0.75 Tier One 8.55 10.23 Loan/Dep. 86.84 73.27 Int. Inc. 6.02 4.69 Int. Exp. 1.83 0.99 Bankers Management, Inc.

Key Statistical Measures Non-S Corp Banks $100M - $3B Measurement Top 25 Banks WV Banks Non Int. Income 1.03 0.62 Non Int. Exp 3.64 2.82 NIM 4.49 3.98 Non Per. Loans 0.49 1.95 ALLL 1.49 Bankers Management, Inc.

Conducting the Exam 1. Set aside a work space There may be a need for space that allows confidentiality 2. Assign a staff member to retrieve files & reports 3. Set a daily meeting time to interview key staff members It limits customer interruptions 4. Invite members of the board to attend exit Bankers Management, Inc.

Responding to an Admin. Order Form a Compliance Committee ( outside directors) Check any promises listed in the last ROE Nightmare opening sentence “The Board and Management have failed to respond to the concerns raised in our last exam” Be sure the Board minutes reflect all discussions concerning the Order Bankers Management, Inc.

Avoid 2:00 Friday telephone approvals Minimum loan package requirements Complete analysis of financial statements Company financial statements Tax returns Personal financial statements Credit memo recommending approval Officer assigned initial risk rating A signed approval document Account officer, Senior lender, Chief credit officer, Loan Com Bankers Management, Inc.

Capital Old Capital levels do not apply! If you are under an administrative action 9% Tier One 12% Risk Based Loan Loss Reserve FASB 5 may not be enough “Enough reserves to cover all anticipated losses and all unanticipated losses” What is “Economic Risk”? Bankers Management, Inc.

Concentration Reports Develop a board report that begins with Industry & Borrower Types as a percentage of Capital Draft a policy that sets limits as a percentage of capital Submit to the board for approval Methods of reduction Participation Sales Move Loans to other Lenders Bankers Management, Inc.

OREO; Other Real Estate Owned Quarterly reports to the board Date in inventory Latest appraised value Estimated holding cost Maintenance, Taxes, Opportunity cost Write down dollars Insurance coverage Marketing & Sales efforts Bankers Management, Inc.

CEO Evaluations Rate on a scale of 1-5 Set Performance Management targets at the beginning of the year: ROA , ROE, Budget Net interest Ratio & Income Non Interest Income Cost of Funds Yield; Loans & Investments Overhead Cost; Personnel & Facilities Bankers Management, Inc.

CEO Evaluations Staff Development Growth Regulatory Exams Selection Effectiveness Training Performance Management System Secession Planning Growth Assets, EPS, Capital, Regulatory Exams Composite CAMEL Rating Bankers Management, Inc.

Bankers Management, Inc. David L. Kemp Bankers Management, Inc. Bankers3@inbox.com (770) 909-6004 Bankers Management, Inc.