1. BA441 – 1/14/08  Dean’s Lecture Series –January 10 –Hand in notes (put name on paper)

2. BA441 – 1/14/08  Current Events –Earnings warnings –Mergers and acquisitions

3. Current Events  Large LLR provisions announced… –West Coast - $27.8 million –Bank of the Cascades - $7.5 million –Sterling Savings - $13 million –Umpqua Bank - $18 million –Washington Mutual - $806 million –Merrill Lynch - $15 billion –Citigroup - $14 billion

4. Stock Affects WFC USB BAC KEY WCBO UMPQ CACB WFC USB BAC KEY WCBO UMPQ CACB STOCK PRICE Current 28.20 29.85 38.50 23.23 13.00 12.99 12.81 Current 28.20 29.85 38.50 23.23 13.00 12.99 12.81 52 wk hi 37.99 36.84 54.21 39.90 34.26 29.50 30.80 52 wk hi 37.99 36.84 54.21 39.90 34.26 29.50 30.80 52 wk low 25.79 27.86 37.16 21.04 12.85 12.90 11.61 52 wk low 25.79 27.86 37.16 21.04 12.85 12.90 11.61 PE 10.60 11.40 8.70 8.90 6.53 9.90 9.20 PE 10.60 11.40 8.70 8.90 6.53 9.90 9.20 EPS 2.65 2.61 4.41 2.61 1.99 1.31 1.40 EPS 2.65 2.61 4.41 2.61 1.99 1.31 1.40

5. Acquisition B of A buys Countrywide Countrywide gets…  $4 billion B of A stock  Escapes bankruptcy

6. Acquisition B of A gets…  1000+ new offices  15,000 added sales force  Loan origination offices  Servicing capacity  $408 billion originations in 2007  $1.5 trillion in servicing  9 million loans  High tech mortgage platform

7. Acquisition “affirms our position as the nation’s premier lender to consumers” Ken Lewis, Chairman & CEO, BAC

8. Cost of Funds Pacific Coast Bankers’ Bank Why deposit specials? –Rates decreasing –Maturities –Adjust liability rate sensitivity Klamath Falls Special??

9. Fundamental Analysis: Ratios

10. Ratio Analysis  G&K: Chp. 3 (Skip RAROC & EVA)  http://www2.fdic.gov/ubpr/ http://www2.fdic.gov/ubpr/ –“View Reports” –“Uniform Bank Performance Reports” –Enter Bank Name  www.ffiec.gov www.ffiec.gov –Handbooks & Catalogs –UBPR Handbook  UBPR -- CAMELS Ratings

11. Corporate vs. Fin’l Institution  Corporate –Liquidity –Asset Utilization –Leverage –Profitability  Concentration on use of assets to provide return and continuation  Banks –Profitability –Capital/Risks –Liquidity  Concentration on risks to provide return, stability and continuation

12. Areas of Concentration  Credit Risk Loans and Secs quality & type  Liquidity Risk S/T to L/T composition of Assets and Liabs  Market Risk Int Rate sensitivity of Assets & Liabs (GAP)  Operating Risk Employee usage and efficiency (A/#Emps, EmpExp/#Emps)  Legal Risk Lawsuits, Contract Exposure, negative publicity  Capital/Solvency Risk Eq Capital used and avail vs. Risk categories of usage

13. Main Model  ROE (return on equity) DuPont: NI/S * S/A * A/Eq PM * ATO * Lev ROA * Lev Banks: NI / (Inc Before Tax, Sec G/L) *(Inc Before Tax, Sec G/L) / Tot Optg Rev * Tot Optg Rev / A * A / Eq * A / Eq Tax Eff * Exp Eff * Asset Eff * Fund’g Eff

14. Main Model: Standards  Corporate: ROE = ROA * Lev 10-20% = 5-10% * 2  Banks: 10-20% =.7 – 1.4% * 14

15. Return on Assets  ROA = NI / A NI = NII + NNonII - Other Things (OT)  ROA = NII / A + NNonII / A – OT / A NII / A + NNonII / A – OT / A Spread + Burden - OT Spread + Burden - OT +4% + -2% - +1% (Roughly) Spread = Better credit than customers Burden = Return from providing Svcs.

16. Leverage/Credit Risk  Asset Quality  Loan Quality/Quantity  Credit Risk  Market (Interest-Rate) Risk (Later in Gap Analysis) (Later in Gap Analysis)

17. Leverage/Credit Risk  Asset Quality –Provision for Loan Losses / Loans (<.8%) –Non-Accruals / Loans (< 1%) –Charge-Offs / Loans (Hopefully < ProvLL)  Loan Ratios –Loans / Assets(60-80%) –Loans / Deposits (70% Small, 100+% Big)

18. Credit Risk  Capital Note Rate vs. Gov’t Sec Yld –Should be of same maturity –Time Series trend, widening  More risk

19. Liquidity  Temporary Investments: FF sold+T-Bills+DueFrom / A  Volatile Liability Dependency: –1) JumboCDs -TempInvmts / Loans –2) Jumbos+FFPurch / Assets –3) Jumbos+FFPurch / Total Liabs (% of funding)

20. Selected UBPR Ratios 9/30/07 WFC USB BAC KEY WCBO UMPQ CACB CZBC WFC USB BAC KEY WCBO UMPQ CACB CZBC ROA 1.54 2.00 1.16 1.15 1.37 1.00 2.00 1.69 ROE 15.76 21.03 13.37 14.88 14.29 5.61 13.76 13.76 Net Int Margin 4.40 5.56 2.46 3.55 5.12 4.59 5.53 5.47 Prov/ Loans 0.86 1.28 0.60 1.30 1.26 1.18 1.21 0.99 Lns/A 66.42 65.25 51.06 77.96 81.65 73.20 84.06 77.60 Lns/ Dep 89.76 110.71 85.34 111.99 101.83 91.82 112.59 99.54 Eff Ratio 60.27 46.27 53.26 61.95 55.82 56.20 44.34 52.50 Net non core fund dependency 30.40 44.28 44.21 31.33 21.53 16.57 21.90 6.92 30.40 44.28 44.21 31.33 21.53 16.57 21.90 6.92

21. CAMELS Ratings  C - Capital Adequacy  A - Asset Quality  M - Mgmt Quality, Mgmt & BofD ability and systems (policies & procedures)  E - Earnings, not just quantity, but quality, sustainability quality, sustainability  L - Liquidity  S - Sensitivity to market fluctuations, Int rates, FX, Commod prices (thru loans) rates, FX, Commod prices (thru loans)