Hudson Library and Historical Society 4/28/09 Meeting Current Banking Credit Issues Jim Hojnacki - Executive Vice President and Chief Lending Officer, Liberty Bank

Hudson Library and Historical Society 4/28/09 Meeting Introduction/Agenda Section I Overview of Liberty Bank Section II State of the Economy Section III The Current Banking/Credit Situation Section IV Effect on Small Business Credit Section V Wrap-Up/Discussion

Hudson Library and Historical Society 4/28/09 Meeting Overview of Liberty Bank –History/Capitalization –Locations –Markets Served –Types of Lending

Hudson Library and Historical Society 4/28/09 Meeting State of the Economy –U.S. Economy Has the U.S. economy suffered a recession or depression? What are the underlying causes of the economy's problems? When will the housing market find a bottom? What other financial shoes could drop? Have oil and other commodity prices moderated? Just how decoupled is the global economy from the U.S.? Is credit available to businesses and consumers? –World Economy Just how decoupled is the global economy from the U.S.?

Hudson Library and Historical Society 4/28/09 Meeting New data show the U.S. economy’s troubles deepening, with nonfarm payroll declining sharply in March reaching their highest level since the 2001 recession and factory orders tumbling sharply. Unemployment rate rose from 8.1% to 8.5%. Since the recession began in December, 2007, 5.1 million jobs have been lost, with almost two-thirds (3.3 million) of the decrease occurring in the last five months (source: U.S. Labor Department). According to the IMF, the world economy is now expected to experience slower growth. The 2009 forecast was slashed from 3.9% to 3%, which would be the weakest level since 2002 and around the threshold of what the IMF considers a global recession.

Hudson Library and Historical Society 4/28/09 Meeting Bruce Bittles, chief investment strategist at R.W. Baird, writes:R.W. Baird The combination of falling home values and a drop in mortgage rates will dramatically improve housing affordability and along with plunging energy prices improve consumer discretionary income. This is the first step in the recovery process that is expected to stabilize the economy by mid April 28 (Bloomberg) -- Consumer confidence in the U.S. jumped by the most since 2005 this month as stocks rallied, mortgage rates dropped and Americans anticipated more jobs would become available. “There certainly is starting to be a shift here, where the data is either less bad or even starting to improve,” according to Michael Darda, chief economist at MKM Partners LP in New York. While “we certainly haven’t turned the corner yet” the economy “could bottom out between June and October of this year and then start” growing. Michael Darda

Hudson Library and Historical Society 4/28/09 Meeting The Current Banking Situation –Significant write-downs and capital erosion. –Increased rate of bank failures (e.g.- IndyMac, etc.). FDIC presently has over 100 banks on its Watch List. –Some banks have exited certain lending segments (e.g. – construction and student lending) and tightened lending standards. Many loans downgraded. –Those institutions with weaker capital positions are cutting back on lending and/or seeking to raise capital. –Well capitalized institutions are increasing market share as other banks are pulling back. Many community banks are increasing lending activities. –Government has invested in preferred shares of large banks and is initiating the purchase illiquid securities. –Temporary increase in FDIC insurance limits through 12/31/09.

Hudson Library and Historical Society 4/28/09 Meeting Effects on Small Business Credit Certain types of credit less available (e.g. – unsecured, etc.). Credit standards tightened (e.g.- higher credit scores, larger capital requirements, evidence of ability to service debt based upon historic cash flow, shorter amortization periods, stronger guarantees, etc.). Higher rates and fees resulting from greater pricing for risk and higher levels of loan loss reserves. Requirement of additional sources of repayment (e.g. – SBA guarantees). Credit freeze has negatively impacted business and created the need for stronger capital bases, well documented business plans and solid cash flow as a means of demonstrating repayment ability.

Hudson Library and Historical Society 4/28/09 Meeting Outlook –Rough ride expected for economy through –Continued deleveraging of corporate and personal balance sheets. –U.S. government infusion of capital into banks and purchase of illiquid securities will help instill confidence. –Coordinated efforts to reduce interest rates will aid businesses and consumers. –Massive worldwide government actions and infusion of liquidity will help. –2009 Recovery Act provisions will provide for (i) improvement in the secondary market for 7(a) and first lien 504 loans (ii) temporary increase in SBA guarantee levels and (iii) temporary elimination of certain SBA fees for borrowers and third party lender. –New business formation and wealth creation opportunities.

Hudson Library and Historical Society 4/28/09 Meeting