BANKERS BANK CORRESPONDENT DAYWOODLAND COUNTRY CLUBMONDAY, JUNE 11, 2012

A SUPERVISOR’S PERSPECTIVE

RANDALL L. ROWEBANK AND TRUST DIVISION SUPERVISOR

J. DERON THOMPSONREGIONAL FIELD SUPERVISOR

INDIANA DEPARTMENT OF FINANCIAL INSTITUTIONS

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The Department of Financial Institutions22 field staff examiners - 16 years average

experienceEmploy CPC (Central Point of Contact) program –

each supervised institution is assigned to a specific examiner

CPC monitors financial condition and performance in addition to any other relevant events

Gains an understanding of business plan and banks market

Maintains ongoing contact and communication

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Department of Financial Institutions (continued)Familiarity with institution enhances

efficiency and effectiveness of examination process

Work closely with Chicago Federal Reserve, Chicago Region of FDIC, and Federal Reserve St. Louis

State chartered institutions benefit from the “second opinion” provided by state and federal examiner vetting and collaboration

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Department of Financial Institutions (continued)Supervisory responsibility for:

93 FDIC insured depository institutions - $38.9 billion

8 Corporate Fiduciaries - $6.1 billion administered assets

5 industrial authorities and 1 savings association Supervised institutions range in size from $20

million to $4.3 billion

Have recently approved the conversion of 6 federal thrifts to state charters

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State Chartered institutions Performance SummaryAs of 3.31.12Deposits $32.1 billion (increasing)Net Interest Margin 3.78% (steady)Net charge offs to loans and leases .45%

(declining)Return on Assets 1.04% (increasing),ROE

9.50%ALLL/Loans – 2.00% ALLL/Non-current – 89% Tier 1 Leverage Ratio – 10.13%Total Capital/Risk Weighted Assets – 15.35%

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Delivery ChannelsBrick and Mortar Branch Approvals2005 352006 332007 292008 182009 102010 112011 92012 4 ( 4 pending)Above totals include de novo and acquired branches

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Delivery Channels (continued)On line bankingMobile bankingRemote Deposit Capture

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THE GREAT RECESSIONDecember of 2007 to June of 2009Longest and worst economic recession since

the Great DepressionOctober 2008 – TARP – Capital Purchase

ProgramRevive Banking Sector and fight global credit

crunchInitially TARP perceived as sign of strength –

Ultimately became a negative for those who did not repay

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Adversely Classified/Capital and ALLL

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Asset Quality Ratings

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Indiana Bank Failures

(9-18-2009) Irwin Union Bank, Columbus – Acquired by First Financial Bank, NA

(7-29-2011 ) Integra Bank, Evansville – Acquired by Old National Bank

(2-10-2012) SCB Bank, Shelbyville – Acquired by First Merchants Bank, NA

24 Bank Failures nationally in 2012 (as of May 18, 2012)

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Bank Failures Nationally2007 3

2008 30

2009 148

2010 157

2011 92

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Lessons LearnedConcentrations of Credit – Especially CREReliance on non-core fundingIncreased balance sheet leverage – lower capital

ratiosOut of market lendingParticipation interests in out of territory CRE projectsPrivate label mortgage backed securitiesTrust Preferred issuesFNMA/FHLMC Preferred StockLiberal underwriting and weak credit risk

management

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Where are we today?More supervisory focus on large banks – TBTFSIFI’s, Dodd Frank, CFPBAgency recognition of importance of community

banksRegulatory burden could drive consolidationExcess balance sheet liquidity – inadequate loan

demand or other satisfactory yielding assetsMaintaining expertise in the compliance areaEconomic viability of rural marketsManagement and board succession

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Other Matters:ALLL – reserve releases (negative provisions)TAG – expires 12.31.12Section 993 A Dodd-Frank – Determination of

“Investment Grade” SecuritiesStress Testing – Credit, liquidity, etc.

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Randall L. Rowe317 232 5852

rrowe@dfi.in.gov

J. Deron Thompson317 453 2175

dthompson@dfi.in.gov

Indiana Department of Financial Institutions30 South Meridian, Suite 300Indianapolis, Indiana 46204