COPYRIGHT Wachovia CONFIDENTIAL Surviving the Credit Crunch October 22 nd 2008

How Did We Get Here 1. Social Engineering by Government 2. Wall Street Creativity in Creating Money Supply 3. Mortgage Lending Standards Reduced 4. Consumer Frenzy for Real Estate 5. Accounting Rules Change for Banks (M to M)

Where Are We Today? $700 Billion Rescue Plan Placed in Force a. $250 Billion in Capital being injected into banks b. Mark to Market adjusted to change valuing assets in disorderly market away from lowest price paid to discounted cash value, if cash flow exists c. Bad mortgage pools bought by Government d. $250,000 guarantee amount on CD’s and interest bearing accounts e. Unlimited guarantee on NI checking accounts f. Temporary insurance for Money Market funds g. Unlimited guarantee of interbank loans

Where are we today? Availability of Capital and Debt Less than Certain Underwriting and standards for Debt are being tightened Cost of Capital and Debt is going up What is “cost of capital” Why is it going up? Many industries are challenged Residential Developers Retail and Wholesale to Homeowners Discretionary Goods and Services

10 year history of Libor

Where are we headed? Certainly, a period of global economic slowdown A time when many businesses will be severely tested Poor plans or no plans will be deadly Need for closer communication with your banker Companies that make careful decisions can emerge stronger than before

Sources of Financing Pros and Cons Commercial Finance (Factoring) SBA 7a and 504 Conventional Bank lending Lines and term loans Private Equity

Your Banking Partnership-Credit Factors and Best Practices Environment: -Economic Condition and Outlook -How does the banking industry view that outlook? -Today Capital and Liquidity are vital to banks -Bank portfolio concentrations affect credit appetite (real estate) Your Industry: -Trends -Challenges -Key success drivers -Opportunities (Niches, growth, new markets, innovation) -Regulatory or technology impacts

Your Banking Partnership-Credit Factors and Best Practices Your Company: -Positioning in competitive landscape -Operating model (Markets, Customers, Suppliers, Fixed Costs, Inventory, Key Drivers) -Financial condition, profitability -Ownership structure -Succession -Management team Capital Structure: -Balance Sheet components -Optimize returns -Support existing operating model effectively -Support your strategic and tactical goals -What role can bank play in optimizing structure?

Your Banking Partnership-Credit Factors and Best Practices Management Team (Most Important Factor): - Experience -Functional strength of org chart in key areas: finance, marketing, production, technology, human resources -Clear identification of opportunities and challenges -Clear, open, timely communication of same -Strategy and tactics -Written Business Plan

Your Banking Partnership- Credit Factors and Best Practices Information-The Basics: -Timely, quality financial reporting: -CPA prepared statements/tax returns -A/R Aging -Projections -Key Ratios (Cash flow/debt service, liquidity, leverage, return percentages) -Collateral/Guarantees (LTV, Lendable Value, advance rates, guarantor strength, credit enhancement) Information-Best Practices -Early notice of material change -Shared business plan -Advisory Team Meetings (Banker, CPA, Legal, Insurance)

Conclusion Action plan -Meet with your banker -Assemble a quality advisory team -Communicate often and fully -Expect value, ideas, and advice More… Our panel will stay for a few minutes afterwards to answer more questions. In addition we have a number of Wachovia Bankers here today that are also available.