A Letter from our President & CEO
- John Poole

September 30, 2008

Dear Carolina Alliance Bank Customers and Friends:

Given the disruption in the financial markets due to continuing fallout from the mortgage and real estate “crisis” and especially in light of the rejection of the Emergency Economic Stabilization Act of 2008 yesterday by the U.S. House of Representatives, I wanted to provide a brief update to my July 25th letter.  The national media has done a poor job, in my opinion, in getting out information that is totally factual, is not riddled with “hype,” and is understandable.  Even the past week’s discussions and debates of the market stabilization plan by and between elected officials and regulators have been difficult for bankers and financial experts to understand and nearly incomprehensible for many American citizens.  Our July 25th letter was quite detailed and the purpose of this letter is not to repeat it, but to highlight a few key points from that letter and to provide updates as appropriate. 

• I want to remind you that FDIC insurance protects depositors against the loss of their insured deposits if an FDIC-insured institution fails.  Deposits are insured by the FDIC for up to $100,000 per depositor per insured bank and up to $250,000 for retirement accounts.  Higher limits may be available through alternative account titling as discussed in our July 25th letter.  No customer has ever lost any money in insured deposits when a bank has failed.  There have been recent articles and editorials in the news media questioning the soundness of the FDIC fund.  In a recent open letter to Bloomberg News in response to a September 25th news story, Andrew Gray, Director of the Office of Public Affairs of the FDIC stated “The FDIC has all the tools and resources necessary to meet our commitment to insured depositors, which we view as sacred.  I do not foresee … that taxpayers [will] have to foot the bill for a “bailout.”  The entire letter can be viewed on the FDIC website under “Press Releases” at www.fdic.gov.

• The vast majority of America’s banks are highly capitalized, with a cushion of $1.3 trillion as a backstop against possible losses.  Also, please be aware that the media has used a broad definition in their use of the word “bank.”  Fannie Mae, Freddie Mac, Lehman Brothers, Morgan Stanley, Merrill Lynch and AIG were not banks.  Also note that banks must hold far more capital to support their assets in order to provide this loss cushion than many of these types of entities that are often referred to as “investment banks.”

• Carolina Alliance holds none of the risky mortgages or mortgage-related securities that have lost value and consequently caused massive losses and insolvency of some of those entities listed above as well as some of the banks that have recently failed or have been acquired by stronger institutions.

• Carolina Alliance remains “well capitalized” based on the FDIC’s definition with nearly twice the capital needed to maintain that classification.  This excess capital serves as a reserve in case it is needed in the future to support the bank.

• Our bank may be “young” as an organization, but has a very seasoned banking team.  This team has combined banking experience in excess of 485 years with over 440 years of experience in managing bank customers in Spartanburg County.  We have 7 bankers with over 25 years of individual experience.

• We believe our lending philosophy and underwriting is very conservative as evidenced by the fact that we continue to have no non-performing loan relationships and have not experienced any loans thirty days or more past due at any month-end.

• Bank revenues, loans, core deposits, and fee income continue to grow.  Customers understand the benefit of community banking and are taking advantage of our customer service and overall relationship pricing on a daily basis.

• Also, as described in our July 25th letter, Carolina Alliance has a relatively new program that customers have begun to utilize to obtain additional FDIC insurance without having to go to multiple banks.  This product offers “pooled” FDIC insurance coverage through the services of Promontory Interfinancial Network’s Certificate of Deposit Account Registry Service®, or CDARS®.  This deposit placement network enables banks to offer up to $50 million in federal deposit insurance coverage to its customers to allow them to keep their banking relationship with one bank and has been very well received by our customers who have desired additional FDIC insurance yet also desire to do business only with our bank.  We anticipate continuing growth of this service given the current market turmoil.

The Board and management of Carolina Alliance are pleased with our bank’s growth and development and we feel we are poised to weather the current storm and continue growing our franchise in the immediate future and for years to come.

We appreciate this opportunity to provide this update and we thank those of you who are our customers and shareholders for your continuing support.  Also, if you would like another copy of the July 25th letter, please call us at 208-BANK (2265) or email us at info@carolinaalliancebank.com.

Please contact me at any time at 542-2615 or jpoole@carolinaalliancebank.com should you have additional questions and comments.  Should you wish to discuss additional business opportunities with our bank, we welcome the opportunity.

Yours truly,

John S. Poole
President and CEO