BANKERS BANK CORRESPONDENT DAY WOODLAND COUNTRY CLUB MONDAY, JUNE 11, 2012

1. BANKERS BANK CORRESPONDENT DAYWOODLAND COUNTRY CLUBMONDAY, JUNE 11, 2012 • A SUPERVISOR’S PERSPECTIVE • RANDALL L. ROWE • BANK AND TRUST DIVISION SUPERVISOR • J. DERON THOMPSON • REGIONAL FIELD SUPERVISOR • INDIANA DEPARTMENT OF FINANCIAL INSTITUTIONS Indiana Department of Financial Institutions

2. The Department of Financial Institutions • 22 field staff examiners - 16 years average experience • Employ CPC (Central Point of Contact) program – each supervised institution is assigned to a specific examiner • CPC monitors financial condition and performance in addition to any other relevant events • Gains an understanding of business plan and banks market • Maintains ongoing contact and communication Indiana Department of Financial Institutions

3. Department of Financial Institutions (continued) • Familiarity with institution enhances efficiency and effectiveness of examination process • Work closely with Chicago Federal Reserve, Chicago Region of FDIC, and Federal Reserve St. Louis • State chartered institutions benefit from the “second opinion” provided by state and federal examiner vetting and collaboration Indiana Department of Financial Institutions

4. Department of Financial Institutions (continued) • Supervisory responsibility for: • 93 FDIC insured depository institutions - $38.9 billion • 8 Corporate Fiduciaries - $6.1 billion administered assets • 5 industrial authorities and 1 savings association • Supervised institutions range in size from $20 million to $4.3 billion • Have recently approved the conversion of 6 federal thrifts to state charters Indiana Department of Financial Institutions

5. State Chartered institutions Performance Summary • As of 3.31.12 • Deposits $32.1 billion (increasing) • Net Interest Margin 3.78% (steady) • Net charge offs to loans and leases .45% (declining) • Return on Assets 1.04% (increasing),ROE 9.50% • ALLL/Loans – 2.00% ALLL/Non-current – 89% • Tier 1 Leverage Ratio – 10.13% • Total Capital/Risk Weighted Assets – 15.35% Indiana Department of Financial Institutions

6. Delivery Channels • Brick and Mortar Branch Approvals • 2005 35 • 2006 33 • 2007 29 • 2008 18 • 2009 10 • 2010 11 • 2011 9 • 2012 4 ( 4 pending) • Above totals include de novo and acquired branches Indiana Department of Financial Institutions

7. Delivery Channels (continued) • On line banking • Mobile banking • Remote Deposit Capture Indiana Department of Financial Institutions

8. THE GREAT RECESSION • December of 2007 to June of 2009 • Longest and worst economic recession since the Great Depression • October 2008 – TARP – Capital Purchase Program • Revive Banking Sector and fight global credit crunch • Initially TARP perceived as sign of strength – Ultimately became a negative for those who did not repay Indiana Department of Financial Institutions

9. Indiana Department of Financial Institutions

10. Indiana Department of Financial Institutions

11. Indiana Department of Financial Institutions

12. Indiana Department of Financial Institutions

13. Adversely Classified/Capital and ALLL Indiana Department of Financial Institutions

14. Indiana Department of Financial Institutions

15. Asset Quality Ratings Indiana Department of Financial Institutions

16. Indiana Bank Failures • (9-18-2009) Irwin Union Bank, Columbus – Acquired by First Financial Bank, NA • (7-29-2011 ) Integra Bank, Evansville – Acquired by Old National Bank • (2-10-2012) SCB Bank, Shelbyville – Acquired by First Merchants Bank, NA • 24 Bank Failures nationally in 2012 (as of May 18, 2012) Indiana Department of Financial Institutions

17. Bank Failures Nationally • 2007 3 • 2008 30 • 2009 148 • 2010 157 • 2011 92 Indiana Department of Financial Institutions

18. Lessons Learned • Concentrations of Credit – Especially CRE • Reliance on non-core funding • Increased balance sheet leverage – lower capital ratios • Out of market lending • Participation interests in out of territory CRE projects • Private label mortgage backed securities • Trust Preferred issues • FNMA/FHLMC Preferred Stock • Liberal underwriting and weak credit risk management Indiana Department of Financial Institutions

19. Where are we today? • More supervisory focus on large banks – TBTF • SIFI’s, Dodd Frank, CFPB • Agency recognition of importance of community banks • Regulatory burden could drive consolidation • Excess balance sheet liquidity – inadequate loan demand or other satisfactory yielding assets • Maintaining expertise in the compliance area • Economic viability of rural markets • Management and board succession Indiana Department of Financial Institutions

20. Other Matters: • ALLL – reserve releases (negative provisions) • TAG – expires 12.31.12 • Section 993 A Dodd-Frank – Determination of “Investment Grade” Securities • Stress Testing – Credit, liquidity, etc. Indiana Department of Financial Institutions

21. Randall L. Rowe 317 232 5852 rrowe@dfi.in.gov J. Deron Thompson 317 453 2175 dthompson@dfi.in.gov Indiana Department of Financial Institutions 30 South Meridian, Suite 300 Indianapolis, Indiana 46204 Indiana Department of Financial Institutions