Expert overview of recent condition of banks in the nation and in Alaska, and of First National Bank Alaska

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March 31, 2009
The State of Banking
First National Bank Alaska

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Senior Vice President
David Lawer
First National Bank Alaska

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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

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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

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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

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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

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Likely increase in delinquent
consumer loans.
~ Recession
~ Rise in unemployment rate
~ Currently around 8%
~ 10%? Higher?
First National Bank Alaska

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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

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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

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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

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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

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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

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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

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“It ain’t over ‘til it’s over.”
~Yogi Berra~
First National Bank Alaska

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Senior Vice President
Jason L. Roth
First National Bank Alaska

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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

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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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First National Bank Alaska

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How is First National Bank Alaska doing?
First National Bank Alaska

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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

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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

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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

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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

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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

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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

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Two different banking models:
Produce and sell
(Investment bank)
Produce and hold
(Community bank)
First National Bank Alaska

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Sometimes ….
what you don’t have
is as important as
what you do have.
First National Bank Alaska

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What First National doesn’t have:
Leveraged balance sheet
Loans outside of Alaska
Toxic investments
(Legacy Assets)
First National Bank Alaska

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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

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If the company does well---
it’s because of good management.
First National Bank Alaska

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If the company does poorly---
it’s because of the economy.
First National Bank Alaska

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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

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We view this as an opportunity.
First National Bank Alaska

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March 31, 2009
The State of Banking
First National Bank Alaska