Strategies Designed and Steps Implemented by the New Management

The following is a list of the strategies developed and the steps that management took to achieve its goals of restructuring the bank and operating it as a successful and as a preferred RF bank.

1. Determine the appropriate optimum size of deposits needed for the bank to serve its clients while reducing the cost of retaining expensive- to-keep deposits. In doing so, we reduced deposits and at the same time gradually increased the credit (loan) portfolio to improve profitability and operating ratios. The strategy called for reducing the rates paid on all existing interest-bearing accounts first, and then, as the credit (loan) portfolio grew, we could grow the deposits accordingly. This strategy resulted in the closing of all those accounts that were classified as interest-rate-sensitive liabilities. In a matter of a few months, asset size had decreased from $29.2 million at December 31, 2003, to $25.0 million at December 31, 2004, resulting in reduced interest expense and positioned the bank to start and chart a new RF path for the Bank of Whittier.

2. Renovate the bank's facilities and automate its operations to improve the bank's image and operating efficiency.

3. Improve the bank's website and offer full Internet banking, online bill pay service of the highest quality, and mobile phone banking, free of charge. Here, it is worth giving the reader our intent of using the Internet at the bank. We were aware of the many risks involved with using the Internet to open accounts, transfer money, and/or to provide loans online using the Internet. That is why we decided to use the Internet in a different way than the way it has been used by major banks. We observed that the objective of the major banks is to drive customers away from the bank lobby at the branch to reduce in-branch traffic and overhead. In order to achieve this, the major banks used high-tech ATMs outside the branch, remote capture check-scanning machines for customers who process large volume of checks, and the other Internet banking facilities. We at the Bank of Whittier, as a small community bank, had a different goal and vision. That goal was to use the Internet to encourage our customers and prospective clients to know who we are and what products and services we offer, and encourage them to call us in person and to come and visit us if they live close to the bank. That was why the Internet was used as a means of connecting with the customers. Our website was designed to fulfill that goal. Internet banking was used to serve customers and make it easy for them to bank without the risk of compromising their accounts. The Internet banking service was highly rated by our customers when compared with that of larger size banks.

4. Prohibit board members and senior managers from taking loans or benefiting directly or indirecdy because of their position. In this way there would not be the slightest concern of violating Regulation O, which requires close proctoring and disclosure of any insider activity in the bank operations. That voluntary restriction approved by the board of directors of the Bank of Whittier reinforces the goal of the bank's board and management to underline its commitment to serve the community and not to personally benefit in any way from that service.

5. Offer new Bank of Whittier products and services, like the FDIC- insured certificate of deposit (CD) accounts, which are insured up to $50 million through a strategic alliance with the Certificate of Deposit Account Registry Service (CDARS).^[1]

6. Employ highly qualified and educated professionals with extensive banking experience, and train a new generation of bankers by hiring new business school graduates, preferably from the immediate neighborhood and the local universities around the city. In addition, hire tellers who are business school students. They are hired as part-time employees and are cultivated by management to be future bank employees to meet our long-term growth plans.

7. Provide exceptional banking services by splitting the traditional bank function of a “loan officer” into two functions.

■ RF private banker. This function was designed to provide each customer with a well-trained and seasoned RF banker who is well educated professionally trained to become the point of contact between the client and the bank. In addition, the RF private banker is responsible for knowing the family and its members, understanding their aspirations, and articulating their financial state of affairs and specific short- and long-term goals. This allows the RF banker to integrate its services with the client's needs. The RF private banker aspires to add new family members to the RF Bank of Whittier's expanding family. The services of the RF private banker are available to customers 24 hours a day, 7 days a week.

■ RF credit analyst. The analysts hired at the bank are among the better educated in the field of financial analysis; some have MBA degrees, and all hold business school degrees from some of the better business schools in the United States with a grade point average that is higher than 3.5 and preferably 3.75. The goal of the RF credit analyst is to conduct a thorough analysis of the financing application at hand, to perform sensitivity analyses with different assumptions and to develop a number of scenarios and recommendations for whether or not to finance the proposed financing using the RF discipline. We train our RF credit analysts not only to protect bank interests but also to be sensitive and caring about providing what is in the best interests of our customers. During the Bank of Whittier Open University training program, we drill the candidates to understand that we are in service not to rent money and produce loans and pay commissions. All of our associates — the staff of the Bank — are salaried employees who are not motivated by collecting a commission on a sale of loan or banking service. We are in the business of investing in our clients.

8. Provide all bank employees with the best training available through in-house training programs conducted by expert bank executives and senior managers, video training programs, Web-based programs, and live training presentations by outside experts. Training also is done continually on a daily basis through direct encounters, meetings, joint analysis sessions and discussions with the chief executive officer and senior management. It is the team work that will produce positive results. In addition, we train our employees on being socially responsible. Our simple focus is to train every one of our staff to watch RF banking in action and to emulate the ethics, service, attitude, and commitment of the first RF banker in America George Bailey in the movie It's a 'Wonderful Life. In fact, every employee is required to watch a 20-minute short version of this movie at least once a year, and it is discussed in bank training forums to improve the spirit of serving our clients in an RF way and at the same time share with our clients the aspects of RF lifestyle. In addition, the bank encourages and in some cases finances further continuing education of distinguished and promising staff contributors in the area of special banking topics as well as in MBA banking programs at some of the best schools and universities in the nation.

9. Expand bank services through a strategic alliance with a major bank. This alliance allows our business customers to access the services of the Bank of Whittier at any of the hundreds of the major bank branches in the United States.

10. Expand our business hours; we are open from 9:00 a.m. until 5:00 p.m. every weekday except on Friday, when we close at 6:00 p.m. On Saturdays and Sundays we are ready to open by appointment for customers who are interested in applying for credit (loans) or for financial advice.

11. Develop bank policies for all aspects of bank operations, as well as a procedures and an operations manual.

12. Focus on improving the quality of the credit (loan) portfolio. Perhaps this is the most important aspect of the strategy in order to reduce losses and to transform the portfolio from a riba-based portfolio into an RF portfolio. This was done by:

■ Contacting our community members in our CRA assessment area, especially those who have been underserved.

■ Closing and declining renewal of those loans which were below our conservative credit underwriting standards, and increasing the size of the bank's RF credit (loan) portfolio through RF marketing and promotion by cross-marketing the existing customers and our existing network of personal and business contacts.

■ Developing new RF credits (loans) using strict and conservative RF underwriting standards.

■ Activating RF mortgage financing to attract new customers and increase bank income. The bank pass-through mortgage business has been an important contributor to its income and turn around.

13. Offer integrated banking services on both the asset and liability sides of the customers' ledger. This is done through the services offered by the bank's private bankers and business development managers.

• [1] CDARS stands for “Certificate of Deposit Account Registry Service,” which offers CD investments insured up to $50 million by capitalizing on the network of member banks accepting tranches of the deposit and swapping it with a deposit from that bank in the originating bank. This allows the originating bank to access the FDIC coverage of the corresponding bank.