Sources and Uses: Historical cont’d and Planning

Sources and Uses Stmts End Yr. 2 Qtr. 1

Basics of Sources and Uses S ( + ) U ( - ) A L A L

Sources and Uses in more detail Not just Net Securities, but Securities maturing, Securities Purchased and Market Value Change. Not just Net Securities, but Securities maturing, Securities Purchased and Market Value Change. Not Just Loans, but each class of loan. Not Just Loans, but each class of loan. Not just Deposits and Savings, but each class of deposit and savings with Brokered Deposits (CDs) separate. Not just Deposits and Savings, but each class of deposit and savings with Brokered Deposits (CDs) separate.

Disaggregated S&U S (+)U ( - ) Actual QTR.#_2.1_ Results Securities Maturing New Securities Securities Sold Loans Commercial DD's Prime Regular DD's High Other DD's (Public + DTB) Med Money Market TD's Synd. 10 Public TD's R.E Subtotal Cons New Securities = 10 USTs C.C Forced Purch to balance pledge, (see Pg. 38 Pledged Securities) Subtotal

S (+)U ( - ) Disaggregated S&U Actual QTR.#_2.1_ Results Subtotal Subtotal Total New CDs 310 Less 3 Mo. CDs Mat -105 Less 6 Mo. CDs Mat Less 1 Yr. CDs Mat Total CD's Net Change Prov fo LL +0.2 Fed funds Purchased FF Sold 0.0 Dividend payable0 Premises -0.8 Accrued taxes-0.5 Other Assets +0.2 Other liabilities-1.2 Cash -0.1 Capital Notes-0.6 Ret. Earnings + 9.5MV Chg Secs+1.8 TOTAL TOTAL-234.7

Be Clear About What You Control Direct Decision Control: Securities, Loans, Premises, Deposits, Dividends and Capital Direct Decision Control: Securities, Loans, Premises, Deposits, Dividends and Capital Indirect Decision Control: Fed Funds Indirect Decision Control: Fed Funds No Control: Cash, Other Assets, Accrued Taxes, Other Liabilities No Control: Cash, Other Assets, Accrued Taxes, Other Liabilities

Initial Decision Framework Assume some public deposit levels Assume some public deposit levels Track securities for pledge requirements, taking account of current maturities Track securities for pledge requirements, taking account of current maturities Track other deposit and loan changes Track other deposit and loan changes Balance with CDs & Fed Funds Balance with CDs & Fed Funds Prepare decision form Prepare decision form

Decisions Loan Rates (Industrial) Loan Rates (Industrial) You cannot offer less than 1.5% below mkt. You cannot offer less than 1.5% below mkt. Rate over mkt: P, +.2%; H, +.3%; M, +.4% Rate over mkt: P, +.2%; H, +.3%; M, +.4% (Consumer) (Consumer) You cannot offer less than 2.5% below mkt. You cannot offer less than 2.5% below mkt. Rate over mkt: 3% Rate over mkt: 3% Credit Card Loans not a decision Credit Card Loans not a decision

Decisions Loan Rates (Real Estate) Loan Rates (Real Estate) Rate a 20 Yr. Floating Rate Decision Rate a 20 Yr. Floating Rate Decision Ability to sell old loans; Pro-rata last 5 yrs. Ability to sell old loans; Pro-rata last 5 yrs. Ability to sell up to 80% of new origination Ability to sell up to 80% of new origination In all cases, you keep servicing In all cases, you keep servicing Credit Policy/Letter of Credit Credit Policy/Letter of Credit More Aggressive; More Loans/Fees, More Loan Losses/Non-accruals More Aggressive; More Loans/Fees, More Loan Losses/Non-accruals Less Aggressive; Less of All…. Less Aggressive; Less of All….

Decisions Service Charges and Fees Service Charges and Fees Commercial: Per check taken in deposit and cents of svc chg credit per $100 bal kept Commercial: Per check taken in deposit and cents of svc chg credit per $100 bal kept Retail: Per check written and cents of svc chg credit per $100 bal kept Retail: Per check written and cents of svc chg credit per $100 bal kept Credit Card Processing Fee Credit Card Processing Fee Percent of $ CC transaction Percent of $ CC transaction Requires a comm’l ckg acct (so affects DDs!) Requires a comm’l ckg acct (so affects DDs!)

Decisions CDs $ Amt of 3mo, 6 mo and 1Yr from S/U form CDs $ Amt of 3mo, 6 mo and 1Yr from S/U form Syndicated Loans Purchased Syndicated Loans Purchased $ Amt to keep up portfolio $ Amt to keep up portfolio Futures Position (See Pg ) Futures Position (See Pg ) Bought futures: speculative! Bought futures: speculative! Sold futures = (DW value of Secs *.68) * (3/12) Sold futures = (DW value of Secs *.68) * (3/12) Sell > 110% or Buy > 10% and Capital Requirement will change Sell > 110% or Buy > 10% and Capital Requirement will change

Decisions Expenses and Allocations Expenses and Allocations MM Rate: No more than +/- 1.5% from mkt. MM Rate: No more than +/- 1.5% from mkt. Branches: Close or Open Branches: Close or Open Bus Dev Budget: Advtg (More effect on Retail) Bus Dev Budget: Advtg (More effect on Retail) Salary: Indicator Salary: Indicator ROE > 20%, they expect COLA + 7.5% ROE > 20%, they expect COLA + 7.5% Loss, they’ll take keeping their jobs….. Loss, they’ll take keeping their jobs….. Percentage Effort and Allocations Percentage Effort and Allocations Read Pgs closely and strategize! Read Pgs closely and strategize! Dividends: Payout 25%! Dividends: Payout 25%!

Decision Mechanics #1: Pledge of Securities Assume Public and Trust Deposits Changes: Assume Public and Trust Deposits Changes: Easy Answer 1.4  2.1 will be 2.1  2.2 Easy Answer 1.4  2.1 will be 2.1  2.2 Public DD ( – ) = Public DD ( – ) = Public TD ( – ) = Public TD ( – ) = Trust Reqm’t ( – ) = Trust Reqm’t ( – ) = Public DD , TD Public DD , TD Trust Reqm’t Trust Reqm’t

Projected Pledge (Pg. 56 & 57) Muni’s Muni’s [.25 * 1.10 * ( )] = = Munis are – = Good Futures Futures (DW Value of Secs *.68 ) * 3/12 (DW Value of Secs *.68 ) * 3/12 ( *.68) * 3/12 = …so 60 more ( *.68) * 3/12 = …so 60 more But we will not take a position for this decision, so 0 contracts But we will not take a position for this decision, so 0 contracts

Projected Pledge USTs USTs [.75 * 1.10 * ( )]+.15*(0*10) = = Still Held T-Bills 0168 maturing UST 1yr90 28 maturing UST 5yr258 6 maturing maturing We are currently about 74 under the pledge!

#2: Deposit/Loan Production Assume all deposits change by 1.4  2.1 Assume all deposits change by 1.4  2.1 From text: Prime +15.3, High +21.4, Medium +27 due to rates and commitm’t usage. From text: Prime +15.3, High +21.4, Medium +27 due to rates and commitm’t usage. Synd, refill; RE, Cons and CC same change (although RE seems a bit high……) Synd, refill; RE, Cons and CC same change (although RE seems a bit high……)

S (+)U ( - ) Prop’d QTR.#_2.2_Goals Securities Maturing+207.6New Securities Securities Sold+ 0.0Loans(Spread) Commercial DD's+ 8.6Prime( 0 ) Regular DD's- 24.3High( 0 ) Other DD's (Public + DTB)- 0.3Med.( -.15 ) Money Market TD's+ 14.8Synd.0 Public TD's+ 18.6R.E Subtotal Cons.-3.0 C.C.-5.2 Total Other Subtotal

#3: Balancing Assets and Liabilities through CDs & Fed Funds Maturing CDs: FF Maturing CDs: FF 3mo185 6mo200 1 Yr120 Balance from Right-side = Balance from Right-side = Balance from Left-side = Balance from Left-side = Don’t Need 44.1 fin’g to balance Don’t Need 44.1 fin’g to balance Total = Mat’g + Bal = – 44.1 = or 546 Total = Mat’g + Bal = – 44.1 = or 546 If we want FF of 48m, then 450 in CDs and let Sim cast about 48m in FF and an addt’l 48 in 3 mo CDs. If we want FF of 48m, then 450 in CDs and let Sim cast about 48m in FF and an addt’l 48 in 3 mo CDs.

S (+)U ( - ) Prop’d QTR.#_2.2_Goals Subtotal Subtotal CD's Total New498 Less 3 Mo. Mat-185 Less 6 Mo. Mat.-200 Less 1 Yr. Mat.-120 Total CD's Net Change- 7.0 Fed funds PurchasedFed funds Sold (Total )- 37.4(Total ) FRB Borrowings (Total ) Ret. Earnings & OtherCash TOTAL+180.6TOTAL

Decision Form Rates: P 10.31%; H 11.24%; M, -15BP, 12.20%; Cons 12.85%; R/E 10.65%, Sell No Old or New Loans Maintain Loan and Letter of Credit Policies Rates: P 10.31%; H 11.24%; M, -15BP, 12.20%; Cons 12.85%; R/E 10.65%, Sell No Old or New Loans Maintain Loan and Letter of Credit Policies Leave CC Fee, Comm’l and Reg Ckg Acct Chgs and Credits Leave CC Fee, Comm’l and Reg Ckg Acct Chgs and Credits 3 mo CDs $200m; 6 mo CDs $150m; 1 Yr. CDs $100m; Extra $48m added w/ FF Pur of $48m 3 mo CDs $200m; 6 mo CDs $150m; 1 Yr. CDs $100m; Extra $48m added w/ FF Pur of $48m MM Svgs 7.9%; Maintain Bus Dev Budget at $3.2m MM Svgs 7.9%; Maintain Bus Dev Budget at $3.2m Don’t change branches and give Salary Policy of Zero (ROE < 20%) Don’t change branches and give Salary Policy of Zero (ROE < 20%) Don’t change Off’r Effort or Time Allocations Don’t change Off’r Effort or Time Allocations Buy Synd Loans to Refill, $ m ($115m) Buy Synd Loans to Refill, $ m ($115m) No Fut Contracts No Fut Contracts Pay Dividend $1.10/sh. Pay Dividend $1.10/sh. USTs 74; T-Bills 74, 1yr 0, 5yr 0 USTs 74; T-Bills 74, 1yr 0, 5yr 0 and 5 each of 3 & 10 Yr. Munis to refill and 5 each of 3 & 10 Yr. Munis to refill No Maximum Limits; No Securities Sales No Maximum Limits; No Securities Sales