Read the case and answer the following questions.

1. How would you classify united bank of denver? - a community bank, a regional bank, a super-regional bank, a wholesale or retail bank, etc.

2. How does the performance of the economy in a banks market region typically affect that bank? How did the economy affect the performance of the united bank of Denver?

3. Evaluate the risks united bank has taken over the last several years. Identify strengths and weaknesses in profit performance.

4. What strategic plan would you suggest for a bank like united bank of Denver and its holding company in the rapidly changing banking environment.

Best of luck.

CASE UNITED NATIONAL BANK OF DENVER In early 1988 Mr. Martin Klop was prohibited in Colorado. Most Colorado bankers, offered the position of Senior Vice- however, believed that legislation enabling re- President-Funds and Financial Mangional banking and complete Interstate banking agement at United National Bank of might pass the Colorado legislature by the late Denver. Klop had been serving in a similar posi 1980s and early 1990s, respectively. First Inter- tion for a much smaller bank in western Colo State Bank was part of a California-based holding rado. The new position represented a potentially company that had acquired troubled American attractive career opportunity with a larger bank National Bank in the early 1980s and that was and at a higher salary. Klop was quite comfort- grandfathered before interstate banking was pro- able, however, in his current position, and the Kibited president of his bank had urged him to stay. Klop A booming economy had produced rapid was concerned that the new position might rep growth in Colorado and the Denver area during resent some higher risks to him personally. Ac the late 1970s and early 1980s. By the mid-1980s, cordingly, he decided to do a thorough financial however, falling energy, agriculture, and real es. analysis of the United National Bank of Denver tate prices had resulted in a significant slowing of before accepting the offered position the Denver and Colorado economies Klop had The United National Bank of Denver was a been told that United National Bank's most re- wholly owned subsidiary of United Banks of Col cent profit plan assumed a bottoming of the en orado, a holding company that also had whole ergy recession by late 1987 but a deteriorating or majority interests in approximately 45 other commercial real estate market in 1987 and 1988. Colorado banks and bank-related entities. The Clearly, such plans would affect the bank's funds assets of United National Bank represented ap and financial management decisions for the next proximately 60 percent of the holding company's couple of years. Although Klop believed the long- total assets. Klop's major responsibility would be term outlook for Denver and Colorado was for funds and financial management at United Na good, he was concerned that it might be at least tional Bank of Denver. In his interviews, Klop 1999 before economic growth would return to learned that decisions for this bank could be made satisfactory levels. somewhat independently of the holding company To help reach his career decision, Klop ob- and the other holding company banks. tained financial information from the bank and The United National Bank of Denver was the from a UBPR comparing United National Bank largest bank in Denver. Because branching was with Peer Group 3 (all banks in the United States not allowed in Colorado, there were bank hold with assets from $1 to $5 billion), ing companies, franchised banks, loan production offices (LPOs), and Edge Act Offices in the state. In 1988, 52 Colorado-chartered banks, 5 foreign banks. 3 franchised banks, several Edge Act cor Although Klop realized there could be compa- porations, non-bank banks, and LPOS operated ability problems between a peer group of U.S. offices in the Denver SMSA. There were four banks, many of which are in branching states, and banks in Denver (and Colorado) with assets of a nonbranching Colorado bank that was part of over $1 billion in early 1988- United National a holding company, he assumed the comparisons Bank, with assets of $2.9 billion; First Interstate would still prove helpful in evaluating the perfor- Bank, $2.2 billion, Colorado National Bank. $1.3 mance of United National Bank. He also hoped bilion; and Central Bank, NA, $1.3 billion Inter that his analysis would allow him to identify many state banking and regional compacts were still of the bank's principal strengths and weaknesses EXHIBITI United National Bank of Denver Consolidated Statement of income For Three Months Ended March 31, 1988 1987 $ 4,371 32.422 $ 2,583 30,679 4,758 287 4,320 21 3,960 3,605 125 93 163 395 2,306 928 426 847,015 401 341,828 17.572 18,880 7,356 1.324 (dollars in thousands) Interest Income Deposits with bunks Interest and fees on louns Interest securities: U.S. Treasury U.S. government agencies States and political subdivisions Other investment securities Trading account securities Federal funds sold and securities purchased under agreements to resell Lease financing Total Interest Income Interest expense Deposito Federal funds purchased and securities sold under repurchase agreements Borrowed money Less capitalized interest Total interest expense Net Interest Margin Provision for losses Net interest margin after provision for losses Noninterest Income Trust Service charges on deposits Other service charges, commissions and fees Securities gains Other income Total noninterest income Noninterest Expense Salaries Pension and employee benefits Net occupancy Furniture and equipment Marketing and community relations Data processing services purchased Other expense Total noninterest expense Income before income taxes Income tax (provision) benefit Net Income $27,560 19,455 2,343 $17,112 7,3444 1,589 (24) $26,481 18,347 3,750 $14.597 5,650 3,605 4,584 4,714 3,365 3,866 277 2,608 $14,830 3,176 $17,015 9,457 1,540 3,154 1.808 562 5,523 5,513 $27,557 6,570 (951) $ 5,619 9,389 1,353 2,776 1,816 675 5,201 4,741 $25.951 3,476 237 $ 3.713 EXHIBITI (continued) Consulated Statement of Conclusion (dollar in thousando) Assets A. of March 31. 1988 1987 As of March 31. 1988 1987 $ 456,008 187.641 $ 334,321 238.211 281,669 26,623 184.828 13,288 506,408 274.831 1.381 199,082 9,289 $ 484.583 26,733 4,269 EXHIBITI (continued) Consolidated Statement of Condition (dollar in thousande) Assets Cash and due from banks Interest-bearing deposits with banks Investment securities: U.S. Treasures U.S. government agencies States and political subdivisions Other investment securities Total investment securities Truding account securities Federal funds sold and securities purchased under agreements to resell Loans Lease financing Less allowance for losses Net loans and lease financing Real estate acquired through foreclosure Customers' liability on acceptances outstanding Other assets Total assets Liabilities and Shareholders' Equity Deposits: Demand Interest with checking Regular savings Money market CDs over $100.000 Other time deposits Foreign Lime deposits Total deposits Federal funds purchased and securities sold under repurchase agreements Liabilities for borrowed money Accrued income taxes payable Acceptances outstanding Other liabilities Total liabilities Subordinated notes Shareholders' equity: Common stock, $10 par value, 1.325,000 shares authorized and 1,156,000 shares issued Surplus Undivided profits Less Treasury stock at cost: 4,133 shares Total shareholdersequity Total liabilities und shareholders' equity 54,240 1,308,406 31,961 (35,733) $1,304,634 14,303 80, 180 807 61,778 $2,599,151 164,245 1,302,104 33,840 (26,606) $1,309,338 11,107 80,971 762 56,568 $2,777,956 $ 615,800 121,326 45,633 297,664 557,053 121,423 74,287 $1,633,186 491,894 64,750 16,176 807 20.346 $2,427,159 7,000 762,795 111,048 41,986 321,016 477,147 105,799 106.802 $1,926.593 580,029 49,237 19,025 762 29.145 $2,605,491 7,000 11,560 34,468 119,437 11,560 34,468 119,843 (879) $164.992 $2,599,151 $ 165,465 $2,777,956 CASE UNITED NATIONAL BANK OF DENVER In early 1988 Mr. Martin Klop was prohibited in Colorado. Most Colorado bankers, offered the position of Senior Vice- however, believed that legislation enabling re- President-Funds and Financial Mangional banking and complete Interstate banking agement at United National Bank of might pass the Colorado legislature by the late Denver. Klop had been serving in a similar posi 1980s and early 1990s, respectively. First Inter- tion for a much smaller bank in western Colo State Bank was part of a California-based holding rado. The new position represented a potentially company that had acquired troubled American attractive career opportunity with a larger bank National Bank in the early 1980s and that was and at a higher salary. Klop was quite comfort- grandfathered before interstate banking was pro- able, however, in his current position, and the Kibited president of his bank had urged him to stay. Klop A booming economy had produced rapid was concerned that the new position might rep growth in Colorado and the Denver area during resent some higher risks to him personally. Ac the late 1970s and early 1980s. By the mid-1980s, cordingly, he decided to do a thorough financial however, falling energy, agriculture, and real es. analysis of the United National Bank of Denver tate prices had resulted in a significant slowing of before accepting the offered position the Denver and Colorado economies Klop had The United National Bank of Denver was a been told that United National Bank's most re- wholly owned subsidiary of United Banks of Col cent profit plan assumed a bottoming of the en orado, a holding company that also had whole ergy recession by late 1987 but a deteriorating or majority interests in approximately 45 other commercial real estate market in 1987 and 1988. Colorado banks and bank-related entities. The Clearly, such plans would affect the bank's funds assets of United National Bank represented ap and financial management decisions for the next proximately 60 percent of the holding company's couple of years. Although Klop believed the long- total assets. Klop's major responsibility would be term outlook for Denver and Colorado was for funds and financial management at United Na good, he was concerned that it might be at least tional Bank of Denver. In his interviews, Klop 1999 before economic growth would return to learned that decisions for this bank could be made satisfactory levels. somewhat independently of the holding company To help reach his career decision, Klop ob- and the other holding company banks. tained financial information from the bank and The United National Bank of Denver was the from a UBPR comparing United National Bank largest bank in Denver. Because branching was with Peer Group 3 (all banks in the United States not allowed in Colorado, there were bank hold with assets from $1 to $5 billion), ing companies, franchised banks, loan production offices (LPOs), and Edge Act Offices in the state. In 1988, 52 Colorado-chartered banks, 5 foreign banks. 3 franchised banks, several Edge Act cor Although Klop realized there could be compa- porations, non-bank banks, and LPOS operated ability problems between a peer group of U.S. offices in the Denver SMSA. There were four banks, many of which are in branching states, and banks in Denver (and Colorado) with assets of a nonbranching Colorado bank that was part of over $1 billion in early 1988- United National a holding company, he assumed the comparisons Bank, with assets of $2.9 billion; First Interstate would still prove helpful in evaluating the perfor- Bank, $2.2 billion, Colorado National Bank. $1.3 mance of United National Bank. He also hoped bilion; and Central Bank, NA, $1.3 billion Inter that his analysis would allow him to identify many state banking and regional compacts were still of the bank's principal strengths and weaknesses EXHIBITI United National Bank of Denver Consolidated Statement of income For Three Months Ended March 31, 1988 1987 $ 4,371 32.422 $ 2,583 30,679 4,758 287 4,320 21 3,960 3,605 125 93 163 395 2,306 928 426 847,015 401 341,828 17.572 18,880 7,356 1.324 (dollars in thousands) Interest Income Deposits with bunks Interest and fees on louns Interest securities: U.S. Treasury U.S. government agencies States and political subdivisions Other investment securities Trading account securities Federal funds sold and securities purchased under agreements to resell Lease financing Total Interest Income Interest expense Deposito Federal funds purchased and securities sold under repurchase agreements Borrowed money Less capitalized interest Total interest expense Net Interest Margin Provision for losses Net interest margin after provision for losses Noninterest Income Trust Service charges on deposits Other service charges, commissions and fees Securities gains Other income Total noninterest income Noninterest Expense Salaries Pension and employee benefits Net occupancy Furniture and equipment Marketing and community relations Data processing services purchased Other expense Total noninterest expense Income before income taxes Income tax (provision) benefit Net Income $27,560 19,455 2,343 $17,112 7,3444 1,589 (24) $26,481 18,347 3,750 $14.597 5,650 3,605 4,584 4,714 3,365 3,866 277 2,608 $14,830 3,176 $17,015 9,457 1,540 3,154 1.808 562 5,523 5,513 $27,557 6,570 (951) $ 5,619 9,389 1,353 2,776 1,816 675 5,201 4,741 $25.951 3,476 237 $ 3.713 EXHIBITI (continued) Consulated Statement of Conclusion (dollar in thousando) Assets A. of March 31. 1988 1987 As of March 31. 1988 1987 $ 456,008 187.641 $ 334,321 238.211 281,669 26,623 184.828 13,288 506,408 274.831 1.381 199,082 9,289 $ 484.583 26,733 4,269 EXHIBITI (continued) Consolidated Statement of Condition (dollar in thousande) Assets Cash and due from banks Interest-bearing deposits with banks Investment securities: U.S. Treasures U.S. government agencies States and political subdivisions Other investment securities Total investment securities Truding account securities Federal funds sold and securities purchased under agreements to resell Loans Lease financing Less allowance for losses Net loans and lease financing Real estate acquired through foreclosure Customers' liability on acceptances outstanding Other assets Total assets Liabilities and Shareholders' Equity Deposits: Demand Interest with checking Regular savings Money market CDs over $100.000 Other time deposits Foreign Lime deposits Total deposits Federal funds purchased and securities sold under repurchase agreements Liabilities for borrowed money Accrued income taxes payable Acceptances outstanding Other liabilities Total liabilities Subordinated notes Shareholders' equity: Common stock, $10 par value, 1.325,000 shares authorized and 1,156,000 shares issued Surplus Undivided profits Less Treasury stock at cost: 4,133 shares Total shareholdersequity Total liabilities und shareholders' equity 54,240 1,308,406 31,961 (35,733) $1,304,634 14,303 80, 180 807 61,778 $2,599,151 164,245 1,302,104 33,840 (26,606) $1,309,338 11,107 80,971 762 56,568 $2,777,956 $ 615,800 121,326 45,633 297,664 557,053 121,423 74,287 $1,633,186 491,894 64,750 16,176 807 20.346 $2,427,159 7,000 762,795 111,048 41,986 321,016 477,147 105,799 106.802 $1,926.593 580,029 49,237 19,025 762 29.145 $2,605,491 7,000 11,560 34,468 119,437 11,560 34,468 119,843 (879) $164.992 $2,599,151 $ 165,465 $2,777,956