All of us are familiar with the weather and the economy. We are dependent on a force much greater
than ourselves to determine what weather will come our way and it is the same for the economy
only there the forces are multiple.

With regard to the weather; the most devastating effects in recent years have been the result of
hurricanes. With a hurricane, there are warnings and we can flee to safety.

As I look out at the economic clouds on the horizon, I see something so massive and global that I
don’t see where one can retreat. In Charlotte we all have to prepare as best we can to sit and ride
out the storm. Intentionally, I say ride out the storm because all we have experienced here in
Charlotte so far are the initial outer bands of wind and rain if we keep the weather comparison in
mind.

In focusing on weather it is possible to get current data such as barometric pressure, speed and size
of waves, but it is not that way in the economy. With the economy, you only receive measurements
from the past and only then we can interpolate the data, unfortunately all in arrears. The prime
example is the declaration last week that we are in a recession and that it started in December,
2007. I don’t think anyone has any idea of the depth or the intensity of the recession, which I
believe will be deeper than any of us have ever seen or anticipated.

In our immediate past, we have experienced the greatest boom in residential home prices in history
where values were increased by the availability of credit in the form of easy to get
mortgages. Home ownership increased from approximately 60% of families in the early ‘90s to a
much higher percentage. Virtually anybody who wanted to buy a home could do so with very little in
the way of qualifications. The valuation of all mortgage debt is $10 trillion, the valuation of all credit
card debt is only $900 billion and by looking at this, you can see a tremendous
differential. Mortgage debt was packaged and then rated by the rating agencies as prime; sliced and
diced so that nobody really understood who owned what mortgages and these packages of assets
were virtually fought over by investors and financial institutions.

All the while this was going on, the consumer was spending like there was no tomorrow and the
economy churned along at a pace which pleased virtually every investor.

With the ready availability of low priced credit, the economic engine purred and investors depended
on massive amounts of historically low priced credit to leverage returns tremendously.

Back up to late 2006 and early 2007 chinks in the housing market armor began to show because of
over building and the easy credit and mortgage instruments which had automatic upward
adjustments in pockets such as California, Arizona and Florida and the handwriting was on the
wall. Too much – too fast. Supply had outstripped demand and prices were headed down. In some
areas this had been going on since the end of 2005.

In our area there were only the beginnings of problems starting to show in the last half of ’07 and
they have accelerated as we entered ’08 more in the form of sales slowing or stopping due to over
supply and lack of credit; a great deal of this by not being able to sell one home to purchase
another.

In the stock market virtually everybody made money. The individual investor was doing well, people
were moving their 401(k) percentages of equities versus fixed income to higher levels and more risk
was the byword; everyone wanted to join in on the party.

Then at the end of the first quarter the meltdown was becoming evident with investment banks
teetering and eventually failing. A flight out of risky assets was everyone’s goal, but somehow
nothing was safe.

Locally, we were blessed with a rising housing market according to the Case Shiller Index until the
middle of this year. We were the poster child to the country as we were the only market with rising
prices out of the 20 making up the index.

At the end of the third quarter as financial institutions were under siege around the country, we
experienced our first real jolt with Wells Fargo taking over Wachovia. Life savings were lost and the
stock value plummeted over 90% in a little over a year such that an owner of a share of stock in
Wachovia owns a stock that is valued at approximately two times what the annual dividend was in
the first quarter of 2008. Absolutely unheard of!

While all this goes on, job loss in the region has been diminimus. I have asked virtually anyone who
will listen to tell me if they know of anybody on their street or in their church who has been laid off
and only within the last week to ten days I have spoken to one person who has answered this
question affirmatively.

However, as you go into the Christmas season, you are hearing that Circuit City is in bankruptcy,
major corporations announcing more job cuts along with some small retailers going out of business,
but nothing showing in unemployment locally.

The key to survival in the good times to this point has been the consumer is in the economy. I
believe the numbers are going to show that the consumer has been very penurious during this
holiday shopping season.

More importantly, the consumer, the entrepreneur and the small business owner has been
gored. Their investments outside of their business namely in the equity market. 401(k’s) have
declined by some 35 to 50% in value. Now all are even more threatened with escalating business
drop offs.

The hearings in Washington for the automakers has to scare even the bravest. It appears that
everyone realizes their business model is flawed and everyone realizes what a bankruptcy of one or
more of those manufacturers would mean to the country.

The one bright spot has been fuel prices and for them to cascade downward as they have is beyond
anyone’s wildest dreams. A true blessing as those high fuel prices were tremendously regressive in
terms of it took more of the disposable income of the lower wage earners. This drop has been a
godsend to everyone.

Let’s look at the scenario now. There is no one thing that has created this tremendous storm. In this
storm with all that has happened, fear at every level is at an all time high. Banks not wanting to
lend to banks. The only safety seems to be government instruments and the flight has drained
banks of deposits. Credit to the average consumer is totally unavailable.

Real estate of all types is virtually illiquid. All residential construction is drastically slowed or
stopped. The consumer numbers are sure to be down. The net worth of individuals and endowments
has already been hit and both categories will cut spending which will hurt dramatically.

In Charlotte this will cause cascading unemployment and at the same time banks are going to have
to make their decisions on what cuts they are going to make. In my opinion, we are going to be in
a turmoil the likes of which we have never seen.