ACQUIRING CAPITALFOR GROWTH:

MYTH VS. REALITYPart 1

Colorado Bankers Association

140 E. 19th Avenue, Suite 400

Denver, CO 80203

303-825-1575

www.ColoradoBankers.org

Deposits in All Banks Grow; in CO Based Banks Decline

CO Based BanksGood News

CO Based BanksMore Good News

CO Based BanksMore Good News

CO Based BanksReal Estate Lending

CO Based BanksNon-RE Lending

4 Regulatory Forces on Lending

4 major forces (+ shareholders) impacting lending – increasingly heavy/complex

•1-Safety & soundness, compliance regulation (Fair Lending, Truth in Lending, ECOA…) – Consumer Financial Protection Bureau (DFA)

•2-Harsh economy of last few years – weak loan demand, borrowers’ problems…

4 Forces on Lending (cont’d)

• 3-Hyper regulation – Regulators over-reaction to bad economy

– Backdrop: career damage if too lax; not if too harsh – impacts bank, customers & community

– 3 regulatory issues –classifications, concentrations, capital

4 Forces on Lending (cont’d)• 3-Hyper regulation – 3 regulatory issues

– Loan classifications – regulators’ grade counts; worst case; force bank to take action bad for customer when never missed a payment – substantially worked out

• “Insufficient collateral” then bank ordered to write down (using a “fiction” that loan is worth less or worthless)

• Appraisals – regulators override without local knowledge

– Concentrations – “guidance” now firm limits (CRE) –managed around regulators’ requirements

• If bank noncompliant (over limits) then sell loans to comply, but forced to sell best loans

– Capital requirements – grew; managed to meet regulators’requirements

• Banks would be delighted if regulatory requirements were firm/final, but regulators always want more

• Technical requirement of 8%• Regulators require 12-13%• 16% in CO (+ some loan loss reserves) – profitability challenge