Slide1: 20 Church Street  Liberty Corner, NJ 07938  P: (908) 604-9336  F: (908) 604-5951  finpro@finpronj.com  www.finpronj.com America’s Community Bankers January 23, 2007


Let me start the day with a reality check of the current environment . . .: Let me start the day with a reality check of the current environment . . . Economic downturn is highly likely. Technological changes, spurred by Check 21, is beginning to fundamentally change the banking business. Competition, particularly from Credit Unions and De Novo’s, are impacting the face of the business. Growth (both deposits and loans) is becoming more difficult, necessitating creative new solutions. The housing boom is over. Earnings levels have fallen from record levels. This slide could be steep for some institutions. The outlook for banks and thrift stocks is bearish. Political unrest is a certainty.


Hopefully, that is the last negative thing you will hear today . . .: Hopefully, that is the last negative thing you will hear today . . . TODAY, we want to look to the future, not lament the past. TODAY, we want practical solutions to difficult issues. TODAY, we want innovation. TODAY, we intend to eliminate


The U.S. population is estimated to grow to 400 million by 2035 from 300 million today . . .: The U.S. population is estimated to grow to 400 million by 2035 from 300 million today . . . This is good, NO GREAT NEWS. These new 100 million (a 33% increase from today) must bank somewhere. The reality, however, is that this means significant continued immigration.


If deposit and loan dollars grow at the same rate as population during this period they will reach a total of $8.6 trillion and $9.3 trillion, respectively . . .: If deposit and loan dollars grow at the same rate as population during this period they will reach a total of $8.6 trillion and $9.3 trillion, respectively . . . If average balances increase, however, deposit and loan dollars will reach a total of $12 trillion and $14 trillion. $ 30,000 $ 35,000 12,000 14,000


Plans should be built around the reasons de novo banks are formed . . .: Plans should be built around the reasons de novo banks are formed . . . Opportunity to serve a distinct ethnic or business niche market Ability to play a different brand Local founder and management group have identified a business opportunity Ability to provide better service to the community Consolidation of a market through acquisition Ability to make a good return on the investment through stock appreciation, stock options, warrants, and possible cash dividends in the distant future


Based upon direct FinPro experience, the top three characteristics of a successful de novo institution are . . .: Based upon direct FinPro experience, the top three characteristics of a successful de novo institution are . . . Compiling a well connected board of directors/founders group that: Has a following in the marketplace Can generate sustainable business referrals Will bring capital to the Bank when needed Should provide diverse experience and expertise Has experience in Banking Hiring an experienced management team that has the ability to multi task Locating a market with positive segment and competitive characteristics


Today we intend to focus on four key themes. FinPro believes that those of you that “get it” will win big in next few years . . .: Today we intend to focus on four key themes. FinPro believes that those of you that “get it” will win big in next few years . . . Adopt customer centric model Modernize delivery channels Grow organically Acquire intelligently


1. Adopting a customer centric model . . . : People Product Place Process Price Purchase Promotion Market Customer Franchise Governance Regulatory Risk Build Value Segment Brand Geography Delivery Needs Service Quality Competition Grow deposits & diversify the mix Grow loans & diversify the mix Grow and diversify non interest income Control expenses Enhance the branch network and alternative delivery options Increase number of, and penetration within, customers Utilize capital market tools 1. Adopting a customer centric model . . .


In addition to taking a customer centric approach to the market, some other characteristics of a successful de novo institution include . . .: In addition to taking a customer centric approach to the market, some other characteristics of a successful de novo institution include . . . Finding a site location that has local retail draws and is located along major traffic patterns Focusing on growth instead of spread Constructing a business plan that focuses the Bank on building shareholder value Raising the appropriate level of capital Raising too much capital at the start of business causes limited stock appreciation Raising too little capital will limit the Bank’s ability to grow and retain the correct management team and infrastructure Pricing products with flexibility – not saddled with a current deposit or loan base Embracing new technology – remote data capture, new ATMs, internet banking Managing the timeline to limit excess use of at-risk capital – usually 9 to 12 months Wide shareholder distribution – shareholders become customers


In examining the customer centric model, we must understand . . . : In examining the customer centric model, we must understand . . . Segmentation Affinity Multiple brands Niche Ascertain Needs Link Products to Needs S A L E S Segment Identification Effective Delivery of Products Sales Culture Senior Citizens Income Security CDs Trust Services Easy to Read Statements Coffee & Doughnuts


Branding is the key to the customer centric model . . .: Branding is the key to the customer centric model . . . As Bankers, we need to learn to brand to: Retail customer segments Life cycle Wealth Product propensity Business segments Not for profits Municipal Geographical markets Ethnic markets Utilize affinity services and products


Some recent innovative examples . . .: Some recent innovative examples . . . Geographic expansion East Boston/Hampshire First Ethnic expansion Hispanic/Asian etc. Brand expansion Roma/RomAsia Service niche Esquire Bank Strategic investment/right of first refusal on loan participations


The Roma/RomAsia Structure . . .: The Roma/RomAsia Structure . . .


2. Modernize delivery channels . . .: 2. Modernize delivery channels . . . Branch Customer driven Brand specific Branch of the future – Prototypes Technology Remote image capture Direct.coms New generation ATMs


The basic branching prototypes . . . : The basic branching prototypes . . . Electronic Kiosk Portable Branch – Micro Branch Service Model – BCP, WAMU Wealth Branch – Private Banking Free Standing Brick and Mortar


“Hub and Spoke” & convenience will be the basic financial services model and will follow the airline industry model . . .: “Hub and Spoke” & convenience will be the basic financial services model and will follow the airline industry model . . .


Single brand recognition has become a symbol of American culture. These corporations and franchises have not only sold products but have sold a culture to its customers. They have done so by creating a consistent brand across all areas of its business . . .: Single brand recognition has become a symbol of American culture. These corporations and franchises have not only sold products but have sold a culture to its customers. They have done so by creating a consistent brand across all areas of its business . . . I’m Loving It! Grande Double Mocha Latte Just Do It! iPod America’s Most Convenient Bank


The LL Bean branding model focuses on targeting specific customer segments (hunting, women, businesses, children, etc.) However, each catalog is tied to the company’s overall branding image of providing outdoor gear and outerwear . . .: The LL Bean branding model focuses on targeting specific customer segments (hunting, women, businesses, children, etc.) However, each catalog is tied to the company’s overall branding image of providing outdoor gear and outerwear . . .


Recently-formed Madison National Bank has developed three separate color schemes to target three specific service lines . . . : Recently-formed Madison National Bank has developed three separate color schemes to target three specific service lines . . .


American Express offers brand differentiation through a number of different cards catering to customer segments and customer lifestyles. Their website also offers a customer questionnaire that will direct customers to certain cards based upon their responses . . .: American Express offers brand differentiation through a number of different cards catering to customer segments and customer lifestyles. Their website also offers a customer questionnaire that will direct customers to certain cards based upon their responses . . . Customer Segments Customer Lifestyles


In Las Vegas, there are over 100 hotels and casinos that are all selling the same product. Unique branding is what distinguishes each hotel and casino from one another in a highly competitive and small geographic market . . . : In Las Vegas, there are over 100 hotels and casinos that are all selling the same product. Unique branding is what distinguishes each hotel and casino from one another in a highly competitive and small geographic market . . . Affluent Family Oriented Generation X Once inside a casino, branding is broken down into customer segments with separate “players club” cards catering from the casual gambler to the high roller. The level of service and incentives is dependent upon the “relationship” the customer has with the casino.


Similar to casinos, the airline industry has taken brand differentiation and customer segmentation one step further by classifying their customers into “classes” based on their usage of service . . . : Similar to casinos, the airline industry has taken brand differentiation and customer segmentation one step further by classifying their customers into “classes” based on their usage of service . . . For example, Continental Airlines offers three levels of “status” rewards to frequent flyers (silver, gold, platinum). The more you fly with Continental, the higher your “status” becomes and the more benefits you receive. A person’s level of “elite status” has become another form of status in our society. It is not uncommon for people to talk about their flying “status”.


3. Grow organically . . .: 3. Grow organically . . . People – Madison National Bank Place – Millennium Bank (bcp) Price – North Jersey Community Bank Product – Tax ID and 40 Year Mortgages Promotion - Direct marketing not Global Process – Remote Data Capture Purchase – Acquisitions or Invest in branded de novos


4. Acquire intelligently . . .: Seek low competition markets Acquire people not balance sheets Acquire for market entrance Acquire for purpose 4. Acquire intelligently . . .


Acquire for purpose . . .: Acquire for purpose . . . Acquire geographies – Northwest/Equinox (FL), Community Bank/Bucs Md Acquire Business Lines – Oneida/Insurance subs Acquire Growth/People - National Penn/ Nittany Financial Acquire Fee Generators –Nittany Financial/ Vantage Investment Advisors Acquire Service Niche (Loan Generation) – Kearney/South Bergen Acquire Retail vs Commercial – Provident/ First Morris Bank and Trust Be Bold Remutualizations MHC/MHC MHC/Mutual Mutual/Mutual


As an illustration, a mapping of where de novo banks have formed since December 31, 2000 . . .: As an illustration, a mapping of where de novo banks have formed since December 31, 2000 . . .


A mapping of where de novo banks have formed since December 31, 2000 . . .: A mapping of where de novo banks have formed since December 31, 2000 . . .


When considering point of entry for de novo branching into new markets, its important to understand the level of competition in that market as a way to anticipate deposit pricing . . . : When considering point of entry for de novo branching into new markets, its important to understand the level of competition in that market as a way to anticipate deposit pricing . . . Cost of Funds (%)


Break down of cost of funds by county in NY . . .: Break down of cost of funds by county in NY . . .


Institutions that leverage their capital outperform those who don’t in terms of ROAA and ROAE. Leveraged institutions also have higher trading and acquisition multiples on a tangible book basis . . . : Institutions that leverage their capital outperform those who don’t in terms of ROAA and ROAE. Leveraged institutions also have higher trading and acquisition multiples on a tangible book basis . . . Note: FinPro utilized an 8.00% equity/asset ratio as the measure for differentiating leveraged vs non leveraged institutions and targets. Trading Multiples Acquisition Multiples


Conclusion . . .: Conclusion . . . Adopt customer centric model Let customers drive strategy React to customer needs Modernize delivery channels New technology Portable branches Grow organically Understand need for customer share now Creative products geared to customer needs Acquire intelligently Look to acquire for purpose Understand acquisition metrics


Conclusion . . .: Conclusion . . . Grow, grow, grow – Manage to pre-determined spread targets Make sure everyone, directors, officers, tellers and shareholders act as salespeople for the bank Incent people to perform Pay up to hire the best Lock up key employees with employee agreements that include a non competes Relationship and service trump price Customers bank where they are comfortable and gravitate toward an organization that KNOWS their specific needs Brand your organization – do not allow it to be branded by the market Just do it.


FinPro, Inc . . .: FinPro, Inc . . . Works with over 300 financial institutions nationwide. Is an industry leader in working with start-up banks. Nationally, FinPro is advising over twenty-five organizing groups. Advising on Roma/RomAsia Advising on East Boston/Hampshire First Leading edge on Regulatory issues Leader in innovative M&A. Standard deals MHC/MHC MHC/Mutual Mutual/Mutual Serves over fifty retainer clients providing ongoing relationship and results oriented solutions. FinPro is working with over 70 de novo institutions having displaced other firms after charter approvals were received.