8 92 0 0 2 0 0 Banking in the Last Frontier

First National Bank Alaska

The State of BankingMarch 31, 2009

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First National Bank Alaska

David LawerSenior Vice President

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First National Bank Alaska

~ More than doubled

~ Call reports of 8,300 U.S. banks

~ Troubled assets totaled $261 billion

~ Up from $123 billion prior year

Nonperforming loans and foreclosed properties on banks’ books:

8 92 0 0 2 0 0 Banking in the Last Frontier

First National Bank Alaska

~ As a group, lost money in 4th Q 2008

~ First time since 1990

~ Product of writing off bad loans

Bank profits fell dramatically.

8 92 0 0 2 0 0 Banking in the Last Frontier

First National Bank Alaska

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

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First National Bank Alaska

Smaller, community banks continueto 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

8 92 0 0 2 0 0 Banking in the Last Frontier

First National Bank Alaska

Likely increase in delinquentconsumer loans.

~ Recession

~ Rise in unemployment rate

~ Currently around 8%

~ 10%? Higher?

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First National Bank Alaska

Number of institutions on FDIC’sProblem 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

8 92 0 0 2 0 0 Banking in the Last Frontier

First National Bank Alaska

~ High proportion of troubled assets to capital

~ How? Raise new capital

Merge with stronger banks

Hang on long enough until economy improves

Most banks eventually recover.

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First National Bank Alaska

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

8 92 0 0 2 0 0 Banking in the Last Frontier

First National Bank Alaska

~ 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)

Real estate lending causing difficulty.

8 92 0 0 2 0 0 Banking in the Last Frontier

First National Bank Alaska

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.

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First National Bank Alaska

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

8 92 0 0 2 0 0 Banking in the Last Frontier

First National Bank Alaska

“It ain’t over ‘til it’s over.”~Yogi Berra~

8 92 0 0 2 0 0 Banking in the Last Frontier

First National Bank Alaska

Jason L. RothSenior Vice President

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First National Bank Alaska

Dear Sirs,

In view of what seems to behappening internationally with banksat the moment, I was wonderingif you could advise me:

If one of my checks is returnedmarked “Insufficient Funds,” howdo I know whether that refers to me,or to you?

Sincerely,Concerned Customer

A letter to my bank.

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First National Bank Alaska

Banking in the Last Frontier

AK USAAK USAvsvs

How do Alaska banks compareto those in the “States?”

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First National Bank Alaska

12/08 09/08

Performing Mortgages 89.9% 93.3%

Prime Mortgages (2/3 Loans) 2.4% 1.1%

Alt – A 9.10% 5.18%

Sub-Prime Loans 16.4% 10.7%

Re-Default Rate 43% 37%

Source: FDIC

U. S. Mortgage Metrics

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First National Bank Alaska

12/08 12/07

Performing Loans 98.9% 99.3%

Default Rate 0.31% 0.31%

1 – 4 Family Serviced Loans

Source: FDIC

Alaska Mortgage Metrics

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First National Bank Alaska

2008 2007 Unemployment 6.8% 6.1% Single Family Permits -60.0% -33.4% Home Price Index 0.1% 5.1%

– Fourth Quarter 2008 -0.8%

– Source: Alaska Department of Labor & Workforce Development

Alaska Indicators

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First National Bank Alaska

2008 2007

Loans to Assets 62.8% 58.4%

Non-current / Total Loans 4.12% 3.77%

ALLL / Non-current Loans 0.55% 1.11%

Source: FDIC Uniform Bank Performance Reports 12/31/08

Alaska Banking Indicators

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First National Bank Alaska

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

1.60%

1.80%

2.00%

2004 2005 2006 2007 2008

Alaska Banks

First National Bank Alaska

National Average

Source FDIC

`

Return on AssetsMeasures overall effectiveness of managing and investing bank assets

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First National Bank Alaska

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

2004 2005 2006 2007 2008

Alaska Banks

First National Bank Alaska

National Average

SWS Associates LLC

Return on EquityMeasures the net after-tax return provided to shareholders

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First National Bank Alaska

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

2004 2005 2006 2007 2008

Alaska Banks

First National Bank Alaska

National Average

Regulatory Minimum

SWS Associates LLC

Risk-Based Capital RatioMeasures the level of capital relative to credit risk

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First National Bank Alaska

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

2004 2005 2006 2007 2008

Alaska Banks

First National Bank Alaska

National Average

Source FDIC

Leverage RatioMeasures capital relative to bank’s total assets

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First National Bank Alaska

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

2004 2005 2006 2007 2008

Alaska Banks

First National Bank Alaska

National Average

SWS Associates LLC

Loan Loss Provision to Average LoansCharge taken to establish reserves for possible future loan losses

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First National Bank Alaska

50.00

55.00

60.00

65.00

70.00

75.00

2004 2005 2006 2007 2008

Alaska Banks

First National Bank Alaska

National Average

Efficiency RatioMeasures a bank’s operating expenses as a percentage of income

SWS Associates

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First National Bank Alaska

Mark-to-Market

Devaluation of the U.S. Dollar

Won’t all this lead to inflation?

Just what’s up and why do we care:

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First National Bank Alaska

8 92 0 0 2 0 0 Banking in the Last Frontier

First National Bank Alaska

How is First National Bank Alaska doing?

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First National Bank Alaska

Total Loans Outstanding

$500,000,000

$600,000,000

$700,000,000

$800,000,000

$900,000,000

$1,000,000,000

$1,100,000,000

$1,200,000,000

$1,300,000,000

Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09

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First National Bank Alaska

Net Charge-Offs & Reserve for Loan Losses

($5,000,000)

$0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

Mar-99 Mar-01 Mar-03 Mar-05 Mar-07 Mar-09

Net Charge-Offs

Reserve Balance

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First National Bank Alaska

Quarterly Net Charge-Offs vs. Net Income

($2,000,000)

$0

$2,000,000

$4,000,000

$6,000,000

$8,000,000

$10,000,000

$12,000,000

$14,000,000

Mar-99 Mar-01 Mar-03 Mar-05 Mar-07 Mar-09

Net Charge-Offs

Quarterly Income

8 92 0 0 2 0 0 Banking in the Last Frontier

First National Bank Alaska

Total Average Assets

$1,400,000,000

$1,500,000,000

$1,600,000,000

$1,700,000,000

$1,800,000,000

$1,900,000,000

$2,000,000,000

$2,100,000,000

$2,200,000,000

$2,300,000,000

$2,400,000,000

$2,500,000,000

$2,600,000,000

Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09

TOTAL ASSETS

8 92 0 0 2 0 0 Banking in the Last Frontier

First National Bank Alaska$1,000,000,000

$1,200,000,000

$1,400,000,000

$1,600,000,000

$1,800,000,000

$2,000,000,000

$2,200,000,000

Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08

Total Deposits

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First National Bank Alaska

$0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

$35,000,000

$40,000,000

$45,000,000

1965 1970 1975 1980 1985 1990 1995 2000 2005

Net Income

8 92 0 0 2 0 0 Banking in the Last Frontier

First National Bank Alaska

Produce and sell (Investment bank)

Produce and hold (Community bank)

Two different banking models:

8 92 0 0 2 0 0 Banking in the Last Frontier

First National Bank Alaska

Sometimes ….what you don’t have

is as important as what you do have.

8 92 0 0 2 0 0 Banking in the Last Frontier

First National Bank Alaska

Leveraged balance sheet

Loans outside of Alaska

Toxic investments (Legacy Assets)

What First National doesn’t have:

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First National Bank Alaska

Commodity prices & worldwide demand

- Gas line

- Mineral development

Federal dollars?

Tax & royalty payments to State

Stateside economy – tourism?

What’s the future look like for Alaska?

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First National Bank Alaska

If the company does well---

it’s because of good management.

8 92 0 0 2 0 0 Banking in the Last Frontier

First National Bank Alaska

If the company does poorly---

it’s because of the economy.

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First National Bank Alaska

First National Bank Alaska has the capacity and strength to support

business in Alaska.

Our success will reflectthe success of our customers.

Bottom line:

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First National Bank Alaska

We view this as an opportunity.

8 92 0 0 2 0 0 Banking in the Last Frontier

First National Bank Alaska

The State of BankingMarch 31, 2009