State of Banking Web

Banking in the Last Frontier 200 8 200 9 March 31, 2009 The State of Banking First National Bank Alaska

Banking in the Last Frontier 200 8 200 9 Senior Vice President David Lawer First National Bank Alaska

Banking in the Last Frontier 200 8 200 9 Nonperforming loans and foreclosed properties on banks’ books: ~ More than doubled ~ Call reports of 8,300 U.S. banks ~ Troubled assets totaled $261 billion ~ Up from $123 billion prior year First National Bank Alaska

Banking in the Last Frontier 200 8 200 9 Bank profits fell dramatically. ~ As a group, lost money in 4th Q 2008 ~ First time since 1990 ~ Product of writing off bad loans First National Bank Alaska

Banking in the Last Frontier 200 8 200 9 163 banks had more troubled assets than capital and loan loss reserves, end of 2008. ~ Troubled assets = Nonperforming loans + foreclosed property ~ 97% (holding 98% of industry assets) were well capitalized ~ Highest regulatory designation First National Bank Alaska

Banking in the Last Frontier 200 8 200 9 Smaller, community banks continue to perform well. ~ Those that avoided dealing in riskiest types of mortgage lending ~ Losses concentrated among large banks ~ In states with highest rate of mortgage-related problems/foreclosures First National Bank Alaska

Banking in the Last Frontier 200 8 200 9 Likely increase in delinquent consumer loans. ~ Recession ~ Rise in unemployment rate ~ Currently around 8% ~ 10%? Higher? First National Bank Alaska

Banking in the Last Frontier 200 8 200 9 Number of institutions on FDIC’s Problem List tripled. ~ 252 insured institutions ~ Combined assets of $159 billion ~ Up from 76 institutions, $22 billion in assets ~ No change in criteria ~ Just bad loans First National Bank Alaska

Banking in the Last Frontier 200 8 200 9 Most banks eventually recover. ~ High proportion of troubled assets to capital ~ How? Raise new capital Merge with stronger banks Hang on long enough until economy improves First National Bank Alaska

Banking in the Last Frontier 200 8 200 9 20 banks failed last year. 17 banks already failed this year. ~ 15 = troubled asset ratio greater than 100% ~ Small number compared to 1986 - 1992 ~ More than 180 failed each year ~ 534 in 1989 alone ~ Total = 2,500 ~ ABA predicts 120 failures in 2009 First National Bank Alaska

Banking in the Last Frontier 200 8 200 9 Real estate lending causing difficulty. ~ Primarily loans for 1– 4 family residences ~ 45 percent of nonperforming loans ~ First mortgages, second mortgages, home equity lines and other loans secured by homes ~ (Indicates value of mortgage backed securities banks are trying to unload on fed. gov’t. …. taxpayers) First National Bank Alaska

Banking in the Last Frontier 200 8 200 9 We haven’t even begun to see the beginning of the end. ~ $27 billion = real estate (most acquired through foreclosure) ~ $11.5 billion in 1- 4 family homes ~ $8.7 billion construction/dev. property ~ $7.8 billion commercial R.E. First National Bank Alaska

Banking in the Last Frontier 200 8 200 9 Troubled commercial real estate loans just starting to surface. ~ New rules of examination ~ Special rules and treatment for banks with commercial R.E. concentrations 500% or more of capital; many of them ~ Lower default rate can still equal catastrophic results First National Bank Alaska

Banking in the Last Frontier 200 8 200 9 “It ain’t over ‘til it’s over.” ~Yogi Berra~ First National Bank Alaska

Banking in the Last Frontier 200 8 200 9 Senior Vice President Jason L. Roth First National Bank Alaska

Banking in the Last Frontier 200 8 200 9 A letter to my bank. Dear Sirs, In view of what seems to be happening internationally with banks at the moment, I was wondering if you could advise me: If one of my checks is returned marked “Insufficient Funds,” how do I know whether that refers to me, or to you? Sincerely, Concerned Customer First National Bank Alaska

Banking in the Last Frontier 200 8 200 9 How do Alaska banks compare to those in the “States?” AK vs USA Banking in the Last Frontier First National Bank Alaska

Banking in the Last Frontier 200 8 200 9 U. S. Mortgage Metrics s 12/0809/08 s Performing Mortgages 89.9% 93.3% s Prime Mortgages (2/3 Loans) 2.4% 1.1% s Alt – A 9.10% 5.18% s Sub-Prime Loans 16.4% 10.7% s Re-Default Rate 43% 37% Source: FDIC First National Bank Alaska

Banking in the Last Frontier 200 8 200 9 Alaska Mortgage Metrics s 12/08 12/07 s Performing Loans 98.9% 99.3% s Default Rate 0.31% 0.31% s 1 – 4 Family Serviced Loans s Source: FDIC First National Bank Alaska

Banking in the Last Frontier 200 8 200 9 Alaska Indicators 2008 2007 s Unemployment 6.8% 6.1% s Single Family Permits -60.0% -33.4% s Home Price Index 0.1% 5.1% – Fourth Quarter 2008 -0.8% – Source: Alaska Department of Labor & Workforce Development First National Bank Alaska

Banking in the Last Frontier 200 8 200 9 Alaska Banking Indicators 2008 2007 s Loans to Assets 62.8% 58.4% s Non-current / Total Loans 4.12% 3.77% s ALLL / Non-current Loans 0.55% 1.11% s Source: FDIC Uniform Bank Performance Reports 12/31/08 First National Bank Alaska

Banking in the Last Frontier 200 8 200 9 Return on Assets Measures overall effectiveness of managing and investing bank assets 2.00% 1.80% 1.60% 1.40% 1.20% 1.00% ` 0.80% Alaska Banks 0.60% First National Bank Alaska 0.40% National Average 0.20% 0.00% 2004 2005 2006 2007 2008 First National Bank Alaska Source FDIC

Banking in the Last Frontier 200 8 200 9 Return on Equity Measures the net after-tax return provided to shareholders 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% Alaska Banks First National Bank Alaska 4.00% National Average 2.00% 0.00% 2004 2005 2006 2007 2008 SWS Associates LLC First National Bank Alaska

Banking in the Last Frontier 200 8 200 9 Risk-Based Capital Ratio Alaska Banks Measures the level of capital relative to credit risk First National Bank Alaska National Average 35.00% Regulatory Minimum 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 2004 2005 2006 2007 2008 First National Bank Alaska SWS Associates LLC

Banking in the Last Frontier 200 8 200 9 Leverage Ratio Measures capital relative to bank’s total assets Alaska Banks First National Bank Alaska 25.00% National Average 20.00% 15.00% 10.00% 5.00% 0.00% 2004 2005 2006 2007 2008 Source FDIC First National Bank Alaska

Banking in the Last Frontier 200 8 200 9 Loan Loss Provision to Average Loans Charge taken to establish reserves for possible future loan losses 1.40% 1.20% Alaska Banks First National Bank Alaska 1.00% National Average 0.80% 0.60% 0.40% 0.20% 0.00% 2004 2005 2006 2007 2008 SWS Associates LLC First National Bank Alaska

Banking in the Last Frontier 200 8 200 9 Efficiency Ratio Measures a bank’s operating expenses as a percentage of income 75.00 70.00 65.00 Alaska Banks First National Bank Alaska 60.00 National Average 55.00 50.00 2004 2005 2006 2007 2008 First National Bank Alaska SWS Associates

Banking in the Last Frontier 200 8 200 9 Just what’s up and why do we care: Mark-to-Market Devaluation of the U.S. Dollar Won’t all this lead to inflation? First National Bank Alaska

Banking in the Last Frontier 200 8 200 9 First National Bank Alaska

Banking in the Last Frontier 200 8 200 9 How is First National Bank Alaska doing? First National Bank Alaska

Banking in the Last Frontier 200 8 200 9 Total Loans Outstanding $1,300,000,000 $1,200,000,000 $1,100,000,000 $1,000,000,000 $900,000,000 $800,000,000 $700,000,000 $600,000,000 First National Mar-00 Mar-01 Mar-02 $500,000,000 Mar-99 Bank Alaska Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09

Banking in the Last Frontier 200 8 200 9 Net Charge-Offs & Reserve for Loan Losses $25,000,000 $20,000,000 Net Charge-Offs Reserve Balance $15,000,000 $10,000,000 $5,000,000 $0 ($5,000,000) First National Bank Alaska Mar-99 Mar-01 Mar-03 Mar-05 Mar-07 Mar-09

Banking in the Last Frontier 200 8 200 9 Quarterly Net Charge-Offs vs. Net Income $14,000,000 $12,000,000 $10,000,000 $8,000,000 $6,000,000 Net Charge-Offs $4,000,000 Quarterly Income $2,000,000 $0 ($2,000,000) Mar-99 Mar-01 Mar-03 Mar-05 Mar-07 Mar-09 First National Bank Alaska

Banking in the Last Frontier 200 8 200 9 Total Average Assets $2,600,000,000 $2,500,000,000 $2,400,000,000 $2,300,000,000 TOTAL ASSETS $2,200,000,000 $2,100,000,000 $2,000,000,000 $1,900,000,000 $1,800,000,000 $1,700,000,000 $1,600,000,000 $1,500,000,000 $1,400,000,000 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 First National Bank Alaska

Banking in the Last Frontier 200 8 200 9 Total Deposits $2,200,000,000 $2,000,000,000 $1,800,000,000 $1,600,000,000 $1,400,000,000 $1,200,000,000 $1,000,000,000 First National Bank Alaska Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08

Banking in the Last Frontier 200 8 200 9 Net Income $45,000,000 $40,000,000 $35,000,000 $30,000,000 $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 $0 1965 1970 1975 1980 1985 1990 1995 2000 2005 First National Bank Alaska

Banking in the Last Frontier 200 8 200 9 Two different banking models: Produce and sell (Investment bank) Produce and hold (Community bank) First National Bank Alaska

Banking in the Last Frontier 200 8 200 9 Sometimes …. what you don’t have is as important as what you do have. First National Bank Alaska

Banking in the Last Frontier 200 8 200 9 What First National doesn’t have: Leveraged balance sheet Loans outside of Alaska Toxic investments (Legacy Assets) First National Bank Alaska

Banking in the Last Frontier 200 8 200 9 What’s the future look like for Alaska? Commodity prices & worldwide demand - Gas line - Mineral development Federal dollars? Tax & royalty payments to State Stateside economy – tourism? First National Bank Alaska

Banking in the Last Frontier 200 8 200 9 If the company does well--- it’s because of good management. First National Bank Alaska

Banking in the Last Frontier 200 8 200 9 If the company does poorly--- it’s because of the economy. First National Bank Alaska

Banking in the Last Frontier 200 8 200 9 Bottom line: First National Bank Alaska has the capacity and strength to support business in Alaska. Our success will reflect the success of our customers. First National Bank Alaska

Banking in the Last Frontier 200 8 200 9 We view this as an opportunity. First National Bank Alaska

Banking in the Last Frontier 200 8 200 9 March 31, 2009 The State of Banking First National Bank Alaska

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State of Banking Web

by First National Bank Alaska on Jul 20, 2009

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State of Banking Web — Webinar Transcript