1. NW Banking Crisis Financial Executives International and Financial Executives Networking Group November 11, 2008

2. NW Banks – Before the Crisis No activity in sub-prime lending Limited holdings of residential mortgage loans, except balances held for sale –Pipeline to Freddie, Fannie, Countrywide, etc. –Limited exposure to risk of loss within loans held for sale Carried significant holdings in commercial real estate and construction and development loans Commonly held investments in securitized mortgage and other debt securities –CMOs, MBSs and CDOs Regulatory environment focused primarily on concentrations in commercial real estate loans (FIL 12/06) 2

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5. NW Banks – When the Crisis Hit Mortgage pipeline into the secondary market was suddenly and completely shut off for alternative mortgage products, followed by traditional products Home buying population went “on strike” and housing inventories ballooned Contractors and builders continued projects, depleting interest reserves and using available funds committed to projects Banking regulators demonstrated no increased, targeted concern toward NW Banks Appraisals continued to represent the historical market trends Residential foreclosures of sub-prime loans had little, if any, direct effect on NW Banks 5

6. NW Banks – As the Crisis Unfolded Contractors and builders showed inability to carry projects as housing and land sales ceased Bank internal resources got redirected to the identification of impaired loans –Loan loss reserves for construction and development real estate loan portfolios escalate –Foreclosures and troubled debt restructurings rise – OREO properties increase –FAS 114 valuations become problematic as appraisal values become immediately outdated and spiraling downward –Increased loan loss provisions move Banks to net loss positions and stress regulatory capital levels Regulators redirect attention and examinations to construction and development loan concentrations (FIL 3/08) –Reaction in regulatory exams is forceful and swift –CAMELS ratings drop multiple levels –C&Ds, MOUs, and Written Agreements become much more prevalent 6

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10. NW Banks – Internal Focus Following the Outset of the Crisis Concentration placed upon the determination of fair value for impaired loan, other real estate owned and investment portfolios (FAS 114, FAS 157, EITF 99-20, etc.) Attention given to Step 1 and 2 assessments of goodwill impairment (FAS 142) –Expected earnings, market cap and comparable deal analyses become suspect indicators, if information is even available Impact of greater loan loss reserves, impairment charges and fair value adjustments creates an issue of capital adequacy 10

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14. NW Banks – Capital Adequacy Issues Tier 1 Capital to Risk Weighted Assets is approaching less than “well capitalized” status for many Banks –Capital adequacy impacts the extent of regulatory oversight and restrictions upon bank operations/activities –Some Banks become “under capitalized”; regulators call for robust capital and liquidity plans Avenues for the acquisition of new capital are limited if not almost non- existent –Limited access to public markets through new offerings –“Family and Friends” or “Accredited Investor” offerings are difficult to accomplish –Trust Preferred Securities market is gone –Institutional investors will apply significant leverage in any deal –De-leveraging the Bank provides a limited optional solution –Sale of loan portfolio, branch networks, cost restructuring etc. Cash dividends are suspended or curtailed 14

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16. NW Banks – Liquidity Issues Regulators place restrictions on the holding of “brokered deposits” for Banks less than “well capitalized” –Non-local, brokered deposits have provided an important function for loan funding and liquidity –Competition for core deposits is intense and expensive Correspondent Banks significantly reduce or not renew inter-bank lines of credit “Run on the Bank”, if it occurred, could trigger an FDIC- assisted takeover 16

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18. NW Banks – “The Toxic Cocktail” High C&LD/CRE Concentrations in Weakening Markets CREDIT CAPITALLIQUIDITY High Dependence on Noncore Funds or TPS Narrow Capital Cushion 18

19. NW Banks – What’s Next? Liquidity and Capital planning have become priority issues –Deposit competition will be intense, although net interest margins remain historically thin –Access to traditional capital sources will remain limited for some time Government “Bail-out” Programs are being evaluated and applied for –Initial tranches of Treasury’s Capital Purchase Program funds (TARP) have been allocated to public institutions Preferred shares with attached warrants will be treated as Tier 1 capital Next tranches for non-public Banks will require further analysis/guidance by Treasury – some notifications of award are going out –FDIC’s Temporary Liquidity Guarantee Program is intended to strengthen liquidity –FDIC insurance coverage limit increased to $250K is intended to bolster consumer confidence, hence liquidity 19

20. NW Banks – The Re-opening of Credit Markets Treasury’s TARP Program is intended to be used to open the credit markets –The force and impact Treasury will now have on Banks is not yet known –Merger and acquisition activity will be recommended to strong institutions; implementation considerations of FAS 141R may spur activity Banks will again price loans based on credit risk rather than competitive assessments Bank credit will open up when balance sheets are cleared of impaired real estate related assets (loans, investments, OREO) –Common thinking suggest 2 nd half of 2009 or later –Concern that non-owner occupied commercial real estate loan portfolios could be the next “shoe to drop” and delay recovery –Key interest rate will remain low while Banks employ interest rate floors 20

21. NW Banking Crisis Questions and Comments 21