What is the Function of Bank Capital?For regulators, bank capital serves to protect the deposit insurance fund in case of bank failuresBank capital reduces bank risk by:Providing a cushion for firms to absorb losses and remain solventProviding ready access to financial markets, which provides the bank with liquidityConstraining growth and limits risk taking

*

What Constitutes Bank Capital?Capital (Net Worth)The cumulative value of assets minus the cumulative value of liabilitiesRepresents ownership interest in a firmTotal Equity CapitalEquals the sum of:Common stockSurplusUndivided profits and capital reservesNet unrealized holding gains (losses) on available-for-sale securitiesPreferred stock

Risk-Based CapitalHistorically, the minimum capital requirements for banks were independent of the riskiness of the bankPrior to 1990, banks were required to maintain:a primary capital-to-asset ratio of at least 5% to 6%, and a minimum total capital-to-asset ratio of 6%Primary CapitalCommon stockPerpetual preferred stockSurplusUndivided profitsContingency and other capital reservesMandatory convertible debtAllowance for loan and lease lossesSecondary CapitalLong-term subordinated debtLimited-life preferred stockTotal CapitalPrimary Capital + Secondary CapitalCapital requirements were independent of a banks asset quality, liquidity risk, interest rate risk, operational risk, and other related risks

Risk-based capital standards two measures of qualifying bank capitalTier 1 (Core) CapitalEquals the sum of:Common equity Non-cumulative perpetual preferred stock Minority interest in consolidated subsidiaries, less intangible assets such as goodwillTier 2 (Supplementary) CapitalEquals the sum of:Cumulative perpetual preferred stockLong-term preferred stockLimited amounts of term-subordinated debtLimited amount of the allowance for loan loss reserves (up to 1.25 percent of risk-weighted assets)

The Basel AgreementIn 1986, U.S. bank regulators proposed that U.S. banks be required to maintain capital that reflects the riskiness of bank assetsThe Basel Agreement grew to include risk-based capital standards for banks in 12 industrialized nationsRegulations apply to both banks and thrifts and have been in place since the end of 1992A banks minimum capital requirement is linked to its credit riskThe greater the credit risk, the greater the required capitalStockholders' equity is deemed to be the most valuable type of capitalMinimum capital requirement increased to 8% total capital to risk-adjusted assetsCapital requirements were approximately standardized between countries to level the playing fieldRisk-Based Elements of the PlanClassify assets into one of four risk categoriesClassify off-balance sheet commitments into the appropriate risk categoriesMultiply the dollar amount of assets in each risk category by the appropriate risk weightThis equals risk-weighted assetsMultiply risk-weighted assets by the minimum capital percentages, currently 4% for Tier 1 capital and 8% for total capital

General Description Of Assets In Each Of The Four Risk Categories

Asset Category

Risk Weight

Effective Total Capital Requirement*

Obligor, Collateral, or Guarantor of the Asset

1

0%

0%

Generally, direct obligations of OCED central government or the U.S. federal government; e.g., currency and coin, government securities, and unconditional government guaranteed claims. Also, balances due or guaranteed by depository institutions.

2

20%

1.6%

Generally, indirect obligations of OCED central government or the U.S. federal government; e.g., most federal agency securities, full faith and credit municipal securities, and domestic depository institutions. Also, assets collateralized by federal government obligations are generally included in this category; e.g., repurchase agreements (when Treasuries serve as collateral) and CMOs backed by government agency securities.

3

50%

4%

Generally, loans secured by 14 family properties and municipal bonds secured by revenues of a specific project (revenue bonds).

4

100%

8%

All other claims on private borrowers; e.g., most bank loans, premises, and other assets.

*Equals 8% of equivalent risk-weighted assets and represents the minimum requirement to be adequately capitalized.

Regional National Bank (RNB), Risk-based Capital (Millions Of Dollars): Category 1 & 2

Assets

$ 1,000

Risk Weight

Risk Weighted Assets

Category 1: Zero Percent

Cash & reserve

104,525

0.00%

0

Trading Account

830

0.00%

0

U.S. Treasury & agency secs.

45,882

0.00%

0

Federal Reserve stock

5,916

0.00%

0

Total category 1

157,153

0

Category 2: 20 percent

Due form banks / in process

303,610

20.00%

60,722

Int. bearing Dep./F.F.S.

497,623

20.00%

99,525

Domestic dep. institutions

38,171

20.00%

7,634

Repurchase agreements (U.S. Treas & agency)

329,309

20.00%

65,862

U.S. Agencies (gov. sponsored)

412,100

20.00%

82,420

State & Muni's secured tax auth

87,515

20.00%

17,503

C.M.O. backed by agency secs.

90,020

20.00%

18,004

SBAs (govt. guaranteed portion)

29,266

20.00%

5,853

Other category 2 assets

0

20.00%

0

Total category 2

1,787,614

357,523

Regional National Bank (RNB), Risk-based Capital (Millions Of Dollars): Category 3 & 4

Assets

$ 1,000

Risk Weight

Risk Weighted Assets

Category 3: 50 percent

C.M.O. backed by mtge loans

10,000

50.00%

5,000

State & Muni's / all other

68,514

50.00%

34,257

Real estate: 1-4 family

324,422

50.00%

162,211

Other category 3 assets

0

50.00%

0

Total category 3

402,936

201,468

Category 4: 100 percent

Loans: comm/ag/inst/leases

1,966,276

100.00%

1,966,276

Real estate, all other

388,456

100.00%

388,456

Allowance for loan and lease losses

(70,505)

0.00%

0

Other investments

168,519

100.00%

168,519

Premises, eq. other assets

194,400

100.00%

194,400

Other category 4 assets

0

100.00%

0

Total category 4

2,647,146

2,717,651

Total Assets before Off-Balance Sheet

4,994,849

3,276,642

Regional National Bank (RNB), Risk-based Capital (Millions Of Dollars): Off Balance Sheet

Assets

$ 1,000

Risk Weight

Risk Weighted Assets

Total Assets before Off-Balance Sheet

4,994,849

3,276,642

Off-Balance Sheet Contingencies

0% collateral category

0

0.00%

0

20% collateral category

0

20.00%

0

50% collateral category

364,920

50.00%

182,460

100% collateral category

290,905

100.00%

290,905

Total Contingencies

655,825

473,365

Total Assets and Contingencies before allowance for loan and lease losses and ATR

5,650,674

3,750,007

Less: Excess allowance for loan and lease losses

(2,152)

Total Assets and Contingencies

5,650,674

3,747,855

Capital requirements

Actual Capital

Minimum Required Capital (%)

Required Capital (Minimum)

Tier I @ 4%

199,794

4.00%

149,914

Total capital @ 8%

399,588

8.00%

299,828

Regional National Bank (RNB), Off-balance Sheet Conversion Worksheet

$ Amount

Credit Conversion Factor

Credit Equivalent $ Amount

Contingencies 100% conversion factor

Direct Credit substitutes

165,905

100.00%

165,905

Acquisition of participations in BA, direct credit substitutes

0

100.00%

0

Assets sold w/ recourse

0

100.00%

0

Futures & forward contracts

50,000

100.00%

50,000

Interest rate swaps

75,000

100.00%

75,000

Other 100% collateral category

0

100.00%

0

Total 100% collateral category

290,905

290,905

Contingencies 50% conversion factor

Transaction-related contingencies

0

50.00%

0

Unused commitments > 1 year

364,920

50.00%

182,460

Revolving underwriting facilities (RUFs)

0

50.00%

0

Other 50% collateral category

0

50.00%

0

Total 50% collateral category

364,920

182,460

Contingencies 20% conversion factor

Short-term trade-related contingencies

0

20.00%

0

Other 20% collateral category

0

20.00%

0

Total 20% collateral category

0

0

Contingencies 0% conversion factor

Loan commitments < 1 year

0

0.00%

0

Other 0% collateral category

0

100.00%

0

Total 0% collateral category

0

0

Total off-balance sheet commitment

655,825

473,365

*BA refers to bankers acceptance.

Summary of Risk Categories and Risk Weights for Risk-based Capital Requirements

Asset Category

Risk Weight

EffectiveTotal CapitalRequirement

Obligor, Collateral, or Guarantor of the Asset

1

0%

0%

Generally, direct obligations of the federal government; e.g., currency and coin, government securities, and unconditional government guaranteed claims. Also balances due or guaranteed by depository institutions.

2

20%

1.6%

Generally, indirect obligations of the federal government; e.g.; most federal agency securities, full faith and credit municipal securities, and domestic depository institutions. Also assets collaterlized by federal government obligations are generally included in this category; e.g., repurchase agreements (when Treasuries serve as collateral) and CMOs backed by government agency securities.

3

50%

4%

Generally, loans secured by one to four family properties and municipal bonds secured by revenues of a specific project (revenue bonds).

4

100%

8%

All other claims on private borrowers.

Risk-based Capital Ratios For Different-sized U.S. Commercial Banks, 19952008*

Leverage Capital Ratio

Leverage Capital RatioEquals:Tier 1 capital divided by total assets net of goodwill and disallowed intangible assets and deferred tax assetsRegulators are concerned that a bank could acquire practically all low-risk assets such that risk-based capital requirements would be virtually zeroTo prevent this, regulators have also imposed a 3 percent leverage capital ratio

Minimum Capital Requirements across Capital Categories

Total Risk- Based Ratio

Tier 1 Risk- Based Ratio

Tier 1 Leverage Ratio

Capital Directive / Requirement

Well capitalized

10%

&

6%

&

5%

Not subject to a capital directive to meet a specific level for any capital measure

Adequately capitalized

8%

&

4%

&

4%

Does not meet the definition of well capitalized

Undercapitalized

< 8%

or

< 4%

or

< 4%

Significantly undercapitalized

< 6%

or

< 3%

or

< 3%

Critically undercapitalized

Ratio of tangible equity to total assets is ( 2%

Provisions for Prompt Corrective Action

Category

Mandatory Provisions

Discretionary Provisions

Well capitalized

None

None

Adequately capitalized

1.No brokered deposits, except with FDIC approval

None

Undercapitalized

1.Suspend dividends and management fees

2Require capital restoration plan

3.Restrict asset growth

4.Approval required for acquisitions, branching, and new activities

5.No brokered deposits

Order recapitalization

2.Restrict interaffiliate transactions

3.Restrict deposit interest rates

4.Restrict certain other activities

5.Any other action that would better carry out prompt corrective action

Significantly undercapitalized

1.Same as for Category 3

2.Order recapitalization

3.Restrict interaffiliate transaction

4.Restrict deposit interest rates

5.Pay of officers restricted

1.Any Zone 3 discretionary actions

2.Conservatorship or receivership if fails to submit or implement plan or recapitalize pursuant to order

3.Any other Zone 5 provision, if such action is necessary to carry out prompt corrective action

Critically undercapitalized

1.Same as for Category 4

2.Receiver/conservator within 90 daysd

3.Receiver if still in Category 5 four quarters after becoming critically undercapitalized

4.Suspend payments on subordinated debtd

5.Restrict certain other activities

Tier 3 Capital Requirements for Market RiskMany large banks have increased the size and activity of their trading accounts, resulting in greater exposure to market riskMarket risk is the risk of loss to the bank from fluctuations in interest rates, equity prices, foreign exchange rates, commodity prices, and exposure to specific risk associated with debt and equity positions in the banks trading portfolioMarket risk exposure is, therefore, a function of the volatility of these rates and prices and the corresponding sensitivity of the banks trading assets and liabilitiesRisk-based capital standards now require all banks with significant market risk to measure their market risk exposure and hold sufficient capital to mitigate this exposureA bank is subject to the market risk capital guidelines if its consolidated trading activity equals 10% or more of the banks total assets or $1 billion or more in total dollar valueBanks subject to the market risk capital guidelines must maintain an overall minimum 8 percent ratio of total qualifying capital to risk-weighted assets and market risk equivalent assets

Capital Requirements for Market Risk Using Internal ModelsValue-at-Risk (VAR)An internally generated risk measurement model to measure a banks market risk exposureIt estimates the amount by which the value of a banks position in a risk category could decline due to expected losses in the banks portfolio because of market movements during a given period, measured with a specified confidence level

How Much Capital is Adequate?Regulators prefer more capitalReduces the likelihood of bank failures and increases bank liquidityBankers prefer less capitalLower capital increases ROE, all other things the sameRiskier banks should hold more capital while low-risk banks should be allowed to increase financial leverage

How much is enough capital?A well capitalized bank: 5% Core (leverage) capital 6% Tier 1 risk-based capital 10 % total risk-based capitalClearly, additional capital is needed for higher risk assets and future growth.

Full Year: 2004 Source: FDIC

Bank Table

Insured0000000State Table000

Less$100 Million$1 BillionGreater0

Than $100ToToThan $10000City0Francisco0

00000

0All Commercial Banks - State = MTAll Commercial Banks - Assets less than $100M - State = MT0

National Industry AverageFirstBank Southwest, National AssociationAmarillo National BankMT Industry Average

TABLE III-A. Full Year 2004, FDIC-Insured Commercial BanksAll Comm Banks< $100 Mil$100 Mil - $1 Bil$1 - $10 Bil> $10 BilNeastSeastCentralMWestSwestWestFBSWANBJun-04Dec-03Dec-02Dec-01Jun-04Dec-03Dec-02Dec-01Trend with SizeAll$1B

Number of institutions reportingNumber of institutions reporting7,6303,6553,530360855951,0731,6031,9881,70466711Number of institutions reporting11111111Number of institutions reporting7752241

Total assets (in billions)Total assets ($bills and $mills)8,4131899539736,2972,2692,0302,2347245106484141,503Total assets4144194114021,5031,5021,5271,423Average assets173472933,861

Total deposits (in billions)Total deposits ($bills and $mills)5,5931587716673,9971,4691,3971,3885143954303561,214Total deposits355.8360.3349.7345.81,213.51,207.51,238.41,129.5

Net income (in millions)Net income (in millions)104,7241,80211,63713,42177,86429,72426,48818,99211,4025,59412,5232.9213.84Net income2.926.356.195.9013.8426.7628.6626.47

% of unprofitable institutions% of unprofitable institutions5.709.802.001.901.208.109.203.803.106.109.600.000.0000.000.000.000.000.000.000.000.0000.000.000.000.00

% of institutions with earnings gains% of institutions with earn gains65.3059.3070.7071.9068.2067.6075.6056.1062.8065.8074.400.000.0000.000.000.000.000.000.000.000.00 then 00.000.000.000.00

Performance ratios (%)Performance ratios (%) Performance and Condition Ratios

Return on equityReturn on equity13.828.4612.8813.4814.2413.6616.3010.4115.4611.3517.3013.2219.18Return on equity (ROE)13.2214.4214.1915.1819.1819.3221.8521.44generally Return on equity (ROE)14.8811.6417.2012.63

Return on assetsReturn on assets1.310.991.281.461.301.431.400.861.621.162.031.411.85Return on assets (ROA)1.411.551.551.501.851.812.031.94 then Return on assets (ROA)1.411.221.671.08

Pretax return on assetsPretax ROA1.921.241.732.211.932.112.021.252.401.593.151.361.85Pretax return on assets1.361.551.551.761.851.812.031.94 then Pretax return on assets1.911.542.181.64

Equity capital ratioEquity capital ratio10.1011.5210.0010.909.9511.248.769.2210.7111.1911.8610.739.71Equity capital to assets10.7310.4510.8910.229.719.468.808.98Equity capital to assets9.6110.639.808.62

Net interest marginNet interest margin3.614.184.224.003.433.663.552.734.663.885.233.964.00Net interest margin3.964.224.254.524.004.134.344.20Net interest margin4.514.624.534.42

Yield on earning assetsYield on earning assets5.025.655.735.394.835.225.064.105.855.116.364.704.73Yield on earning assets4.705.195.687.314.735.005.747.23Yield on earning assets5.825.995.915.52

Cost of funding earning assetsCost of funding earn assets1.411.471.511.391.401.571.521.371.201.241.140.730.72Cost of funding earning assets0.730.981.442.780.720.871.403.02Cost of funding earning assets1.301.371.391.10

Earning assets to total assetsEarning assets to total assets86.1891.8691.9391.0184.3983.8386.9185.2387.9688.7391.3587.3386.40Earning assets87.3386.9387.5786.5986.4087.2285.0283.68Calculated90.1190.8691.1687.72

Efficiency ratioEfficiency ratio57.9669.5462.2255.5457.4257.3758.1764.8457.4663.6042.4567.7758.85Efficiency ratio67.7766.8066.3860.6958.8557.9057.4160.46Efficiency ratio58.0765.6453.1662.07

Burden ratio1.062.602.071.210.82-0.65-1.18-1.12-1.37-1.91-0.86-2.26-1.56-2.26-2.41-2.42-2.33-1.56-1.51-1.64-1.75-2.24-2.78-2.04-2.26

Noninterest income to earning assetsNoninterest inc to earn assets2.661.031.542.462.933.712.282.063.361.632.511.391.94Noninterest income to earning assets1.391.291.251.271.942.092.012.05Noninterest income to earning assets0.950.730.821.35

Noninterest expense to earning assetsNoninterest exp to earn assets3.723.633.613.673.754.363.463.184.733.543.373.653.50Noninterest expense to earning assets3.653.703.673.603.503.603.653.80Noninterest expense to earning assets3.193.512.863.61

Loan and lease loss provision to assetsNet charge-offs to LN&LS0.630.270.310.430.731.090.270.400.780.270.850.000.33Net charge-offs to loans0.000.050.000.200.330.640.380.38Net charge-offs to loans0.110.030.080.21

Loan and lease loss provision to assetsLN&LS loss provision to assets0.330.220.260.340.340.490.150.160.490.190.850.130.29Provision for loan and lease losses0.130.030.070.160.290.450.290.15=0.980.930.971.03

Net operating income to assetsNet oper income to assets1.280.981.271.451.261.411.310.841.611.142.020.010.02Net operating income to assets0.010.020.020.020.020.020.020.02Net operating income to assets1.401.211.651.08

Pretax return on assetsPretax return on assets1.921.241.732.211.932.112.021.252.401.593.151.361.85Pretax return on assets1.361.361.361.361.851.851.851.85Pretax return on assets1.911.542.181.64

Asset QualityAsset Quality

Net charge-offs to loans and leasesNet charge-offs to LN&LS0.630.270.310.430.731.090.270.400.780.271.070.000.33Net charge-offs to loans0.000.050.000.200.330.640.380.38Net charge-offs to loans0.110.030.080.21

Noncurrent loans and leasesLoss allow to Noncurr LN&LS174.6151.5196.2206.0168.0160.8221.8162.6142.7168.4240.5200191Loss allowance to noncurrent loans200214104107191134475238 then Loss allowance to noncurrent loans12089122144

Loan and lease loss provision to net charge-offsLN&LS provision to net charge-offs89.9134.2125.7125.583.084.891.973.887.5116.3116.4-88.331.36Credit loss provision to net charge-offs-88.330.9199.671.411.361.151.250.62Credit loss provision to net charge-offs225.5687.9229.9177.8

Loss allowance to:Loss allowance to:0.000.00

Loans and leasesLoss allowance to LN&LS1.501.441.391.471.531.891.151.391.491.281.831.261.43Loss allowance to loans1.261.171.171.151.431.401.371.29Loss allowance to loans1.521.511.501.56

Net loans and leases to depositsNet LN&LS to deposits86.3872.6782.1192.8286.6880.7383.5786.60101.679.37102.569.1878.9269.18%69.1869.1869.1869.1878.9278.9278.9278.92 then Net loans and leases to deposits82.4672.1187.8280.57

December 31, 1899Noncurrent assets plus other real estate owned to assets0.550.730.590.510.540.650.350.520.830.600.570.460.500.46%0.460.460.460.460.500.500.500.50Noncurrent assets plus other real estate owned to assets0.941.190.950.77

Condition Ratios (%)Condition Ratios (%)N/A10.00Earnings coverage of net loan charge-offs (x)N/A56.002,139.0017.0010.006.0010.009.00

Capital RatiosCapital Ratios

Core capital (leverage) ratioCore capital (leverage) ratio7.8311.319.479.367.238.097.107.098.668.5910.1810.479.81Core capital (leverage) ratio10.4710.0310.249.779.819.358.958.95Core capital (leverage) ratio8.8410.418.957.64

Tier 1 risk-based capital ratioTier 1 risk-based capital ratio10.0416.8312.8512.349.1110.689.108.9410.5611.9112.5514.9013.33Tier 1 risk-based capital ratio14.9014.4814.7014.9013.3312.5411.8512.04Tier 1 risk-based capital ratio12.0415.1112.349.78

Total risk-based capital ratioTotal risk-based capital ratio12.6217.9314.0613.9212.0713.7611.3911.9812.5213.3914.3515.9814.58Total risk-based capital ratio15.9815.4915.7215.9114.5813.7412.9913.17Total risk-based capital ratio13.2216.2513.5111.03

Structural ChangesStructural Changes

New ChartersNew Charters1221182111644892025

Banks absorbed by mergersBanks absorbed by mergers264102125307373753584138

Failed banksFailed banks33000110001

December 31, 1899

December 31, 1899

December 31, 1899

December 31, 1899

December 31, 1899

December 31, 1899

December 31, 1899

December 31, 1899

December 31, 1899

December 31, 1899

December 31, 1899

December 31, 1899

December 31, 1899

December 31, 1899

December 31, 1899

December 31, 1899

December 31, 1899

December 31, 1899

December 31, 1899

December 31, 1899

December 31, 1899

December 31, 1899

December 31, 1899

December 31, 1899

December 31, 1899

December 31, 1899

December 31, 1899

December 31, 1899

December 31, 1899

December 31, 1899

December 31, 1899

December 31, 1899

December 31, 1899

December 31, 1899

December 31, 1899

Bank Data

TABLE III-A. Full Year 2004, FDIC-Insured Commercial BanksTABLE III-A. Full Year 2004, FDIC-Insured Commercial Banks

FULL YEARAllAsset Size DistributionGeographic RegionsFULL YEARAllAsset Size DistributionGeographic Regions

(The way it is...)Insured(The way it is...)Insured

InstitutionsLess$100 Million$1 BillionGreaterNew YorkAtlantaChicagoKansasDallasSanInstitutionsLess$100 Million$1 BillionGreaterNew YorkAtlantaChicagoKansasDallasSan

Than $100ToToThan $10CityFranciscoThan $100ToToThan $10CityFrancisco

Million$1 Billion$10 BillionBillionMillion$1 Billion$10 BillionBillion

Number of institutions reporting7,6303,6553,530360855951,0731,6031,9881,704667Number of institutions reporting7,6303,6553,530360855951,0731,6031,9881,704667

Total assets (in billions)$8,412.80$189.00$953.40$973.00$6,297.30$2,268.70$2,029.60$2,233.50$723.60$509.90$647.50Total assets (in billions)$8,412.80$189.00$953.40$973.00$6,297.30$2,268.70$2,029.60$2,233.50$723.60$509.90$647.50

Total deposits (in billions)5,592.80158.2770.9666.53,997.201,469.101,397.201,388.20513.5395429.8Total deposits (in billions)5,592.80158.2770.9666.53,997.201,469.101,397.201,388.20513.5395429.8

Net income (in millions)104,7241,80211,63713,42177,86429,72426,48818,99211,4025,59412,523Net income (in millions)104,7241,80211,63713,42177,86429,72426,48818,99211,4025,59412,523

% of unprofitable institutions5.79.821.91.28.19.23.83.16.19.6% of unprofitable institutions5.79.821.91.28.19.23.83.16.19.6

% of institutions with earnings gains65.359.370.771.968.267.675.656.162.865.874.4% of institutions with earnings gains65.359.370.771.968.267.675.656.162.865.874.4

Performance ratios (%)Performance ratios (%)

Yield on earning assets5.025.655.735.394.835.225.064.15.855.116.36Yield on earning assets5.025.655.735.394.835.225.064.15.855.116.36

Cost of funding earning assets1.411.471.511.391.41.571.521.371.21.241.14Cost of funding earning assets1.411.471.511.391.41.571.521.371.21.241.14

Net interest margin3.614.184.2243.433.663.552.734.663.885.23Net interest margin3.614.184.2243.433.663.552.734.663.885.23

Noninterest income to earning assets2.661.031.542.462.933.712.282.063.361.632.51Noninterest income to earning assets2.661.031.542.462.933.712.282.063.361.632.51

Noninterest expense to earning assets3.723.633.613.673.754.363.463.184.733.543.37Noninterest expense to earning assets3.723.633.613.673.754.363.463.184.733.543.37

Loan and lease loss provision to assets0.330.220.260.340.340.490.150.160.490.190.85Loan and lease loss provision to assets0.330.220.260.340.340.490.150.160.490.190.85

Net operating income to assets1.280.981.271.451.261.411.310.841.611.142.02Net operating income to assets1.280.981.271.451.261.411.310.841.611.142.02

Pretax return on assets1.921.241.732.211.932.112.021.252.41.593.15Pretax return on assets1.921.241.732.211.932.112.021.252.41.593.15

Return on assets1.310.991.281.461.31.431.40.861.621.162.03Return on assets1.310.991.281.461.31.431.40.861.621.162.03

Return on equity13.828.4612.8813.4814.2413.6616.310.4115.4611.3517.3Return on equity13.828.4612.8813.4814.2413.6616.310.4115.4611.3517.3

Net charge-offs to loans and leases0.630.270.310.430.731.090.270.40.780.271.07Net charge-offs to loans and leases0.630.270.310.430.731.090.270.40.780.271.07

Loan and lease loss provision to net charge-offs89.88134.16125.72125.5282.9584.7691.9473.8187.51116.29116.43Loan and lease loss provision to net charge-offs89.88134.16125.72125.5282.9584.7691.9473.8187.51116.29116.43

Efficiency ratio57.9669.5462.2255.5457.4257.3758.1764.8457.4663.642.45Efficiency ratio57.9669.5462.2255.5457.4257.3758.1764.8457.4663.642.45

Condition Ratios (%)Condition Ratios (%)

Earning assets to total assets86.1891.8691.9391.0184.3983.8386.9185.2387.9688.7391.35Earning assets to total assets86.1891.8691.9391.0184.3983.8386.9185.2387.9688.7391.35

Loss allowance to:Loss allowance to:

Loans and leases1.51.441.391.471.531.891.151.391.491.281.83Loans and leases1.51.441.391.471.531.891.151.391.491.281.83

Noncurrent loans and leases174.64151.46196.18206.01168.01160.83221.83162.59142.72168.37240.52Noncurrent loans and leases174.64151.46196.18206.01168.01160.83221.83162.59142.72168.37240.52

Noncurrent assets plus other real estate owned to assets0.550.730.590.510.540.650.350.520.830.60.57Noncurrent assets plus other real estate owned to assets0.550.730.590.510.540.650.350.520.830.60.57

Equity capital ratio10.111.521010.99.9511.248.769.2210.7111.1911.86Equity capital ratio10.111.521010.99.9511.248.769.2210.7111.1911.86

Core capital (leverage) ratio7.8311.319.479.367.238.097.17.098.668.5910.18Core capital (leverage) ratio7.8311.319.479.367.238.097.17.098.668.5910.18

Tier 1 risk-based capital ratio10.0416.8312.8512.349.1110.689.18.9410.5611.9112.55Tier 1 risk-based capital ratio10.0416.8312.8512.349.1110.689.18.9410.5611.9112.55

Total risk-based capital ratio12.6217.9314.0613.9212.0713.7611.3911.9812.5213.3914.35Total risk-based capital ratio12.6217.9314.0613.9212.0713.7611.3911.9812.5213.3914.35

Net loans and leases to deposits86.3872.6782.1192.8286.6880.7383.5786.6101.5879.37102.48Net loans and leases to deposits86.3872.6782.1192.8286.6880.7383.5786.6101.5879.37102.48

Structural ChangesStructural Changes

New Charters1221182111644892025New Charters1221182111644892025

Banks absorbed by mergers264102125307373753584138Banks absorbed by mergers264102125307373753584138

Failed banks33000110001Failed banks33000110001

PRIOR FULL YEARSPRIOR FULL YEARS

(The way it was...)(The way it was...)

Number of institutions7,7703,9123,434341836121,0711,6502,0211,731685Number of institutions7,7703,9123,434341836121,0711,6502,0211,731685

20032003

20018,0804,4863,195320796511,1041,7202,0941,80770420018,0804,4863,195320796511,1041,7202,0941,807704

19998,5805,1553,031318766791,1501,8592,2051,94474319998,5805,1553,031318766791,1501,8592,2051,944743

Total assets (in billions)$7,601.10$200.80$910.00$947.20$5,543.10$2,557.40$1,751.80$1,550.20$411.70$471.50$858.60Total assets (in billions)$7,601.10$200.80$910.00$947.20$5,543.10$2,557.40$1,751.80$1,550.20$411.70$471.50$858.60

20032003

20016,552.40221.7819.4915.24,596.102,241.901,498.401,322.70363.2462.3663.820016,552.40221.7819.4915.24,596.102,241.901,498.401,322.70363.2462.3663.8

19995,735.10242.5755.1915.13,822.402,009.701,411.70952.5389.6475.8495.919995,735.10242.5755.1915.13,822.402,009.701,411.70952.5389.6475.8495.9

Return on assets (%)1.40.941.261.451.431.31.41.311.721.31.75Return on assets (%)1.40.941.261.451.431.31.41.311.721.31.75

20032003

20011.150.891.181.281.131.051.111.031.491.241.6120011.150.891.181.281.131.051.111.031.491.241.61

19991.311.011.341.481.281.241.291.281.481.231.6219991.311.011.341.481.281.241.291.281.481.231.62

Net charge-offs to loans & leases (%)Net charge-offs to loans & leases (%)

20030.890.330.430.661.041.410.480.751.190.40.8820030.890.330.430.661.041.410.480.751.190.40.88

20010.950.350.411.041.061.220.770.80.880.451.320010.950.350.411.041.061.220.770.80.880.451.3

19990.610.380.360.680.660.80.460.360.760.430.9819990.610.380.360.680.660.80.460.360.760.430.98

Noncurrent assets plus OREO to assets (%)0.770.830.720.650.80.850.560.850.860.750.82Noncurrent assets plus OREO to assets (%)0.770.830.720.650.80.850.560.850.860.750.82

20032003

20010.920.810.730.730.990.970.881.020.770.750.8320010.920.810.730.730.990.970.881.020.770.750.83

19990.630.660.580.580.660.720.580.550.60.60.6919990.630.660.580.580.660.720.580.550.60.60.69

Equity capital ratio (%)9.111.279.910.588.648.848.778.3110.759.7410.85Equity capital ratio (%)9.111.279.910.588.648.848.778.3110.759.7410.85

20032003

20019.0610.99.679.718.738.529.78.438.939.4810.4720019.0610.99.679.718.738.529.78.438.939.4810.47

19998.3610.699.249.087.877.728.598.038.848.4810.5119998.3610.699.249.087.877.728.598.038.848.4810.51

REGIONS:REGIONS:

Atlanta: Alabama, Florida, Georgia, North Carolina, South Carolina, Virginia, West VirginiaAtlanta: Alabama, Florida, Georgia, North Carolina, South Carolina, Virginia, West Virginia

Chicago: Illinois, Indiana, Kentucky, Missouri, Ohio, WisconsinChicago: Illinois, Indiana, Kentucky, Missouri, Ohio, Wisconsin

Dallas: Arkansas, Colorado, Louisiana, Mississippi, New Mexico, Oklahoma, Tennessee, TexasDallas: Arkansas, Colorado, Louisiana, Mississippi, New Mexico, Oklahoma, Tennessee, Texas

Kansas City: Iowa, Kansas, Minnesota, Missouri, North Dakota, Nebraska, South DakotaKansas City: Iowa, Kansas, Minnesota, Missouri, North Dakota, Nebraska, South Dakota

New York: Connecticut, District of Columbia, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont, Puerto Rico, Virgin IslandsNew York: Connecticut, District of Columbia, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont, Puerto Rico, Virgin Islands

San Francisco: Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, Pacific Islands, Utah, Washington, WyomingSan Francisco: Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, Pacific Islands, Utah, Washington, Wyoming

Last Updated 05/27/2004Questions, Suggestions & Requests

Questions, Suggestions & Requests

State

FDIC - Statistics on Depository Institutions ReportAll Commercial Banks - State = MTAll Commercial Banks - Assets less than $100M - State = MTAll Commercial Banks - Assets $100M to $1B - State = MTAll Commercial Banks - Assets more than $1B - State = MT

3/31/043/31/043/31/043/31/04

$ in 000's$ in 000's$ in 000's$ in 000's

Note: Go to the end to obtain a key report for the column selections. Go to KeyAverage (W)Average (W)Average (W)Average (W)

1Number of institutions reporting7752241

Performance and Condition Ratios(Year-to-date)(Year-to-date)(Year-to-date)(Year-to-date)

2% of unprofitable institutions2.60%3.85%N/AN/A

3% of institutions with earnings gains64.94%61.54%70.83%N/A

Performance Ratios (%, annualized)(Year-to-date)(Year-to-date)(Year-to-date)(Year-to-date)

4Yield on earning assets5.82%5.99%5.91%5.52%

5Cost of funding earning assets1.30%1.37%1.39%1.10%

6Net interest margin4.51%4.62%4.53%4.42%

7Noninterest income to earning assets0.95%0.73%0.82%1.35%

8Noninterest expense to earning assets3.19%3.51%2.86%3.61%

9Net operating income to assets1.40%1.21%1.65%1.08%

10Return on assets (ROA)1.41%1.22%1.67%1.08%

11Pretax return on assets1.91%1.54%2.18%1.64%

12Return on equity (ROE)14.88%11.64%17.20%12.63%

13Retained earnings to average equity (YTD only)4.95%4.90%4.79%5.34%

14Net charge-offs to loans0.11%0.03%0.08%0.21%

15Credit loss provision to net charge-offs225.51%687.88%229.93%177.79%

16Earnings coverage of net loan charge-offs (x)28.8877.7245.6213.41

17Efficiency ratio58.07%65.64%53.16%62.07%

18Assets per employee ($ millions)2.952.453.033.22

19Cash dividends to net income (YTD only)66.71%57.87%72.15%57.74%

Condition Ratios (%)

20Loss allowance to loans1.52%1.51%1.50%1.56%

21Loss allowance to noncurrent loans119.70%88.88%122.12%143.82%

22Noncurrent assets plus other real estate owned to assets0.94%1.19%0.95%0.77%

23Noncurrent loans to loans1.27%1.70%1.22%1.08%

24Net loans and leases to deposits82.46%72.11%87.82%80.57%

25Net loans and leases to core deposits94.00%83.26%99.55%91.92%

26Equity capital to assets9.61%10.63%9.80%8.62%

27Core capital (leverage) ratio8.84%10.41%8.95%7.64%

28Tier 1 risk-based capital ratio12.04%15.11%12.34%9.78%

29Total risk-based capital ratio13.22%16.25%13.51%11.03%

Memoranda:(Year-to-date)(Year-to-date)(Year-to-date)(Year-to-date)

30Average assets13,339,9692,456,9447,021,8073,861,218

31Average earning assets12,020,6002,232,3776,401,1293,387,094

32Average equity1,267,595257,413681,038329,145

33Average loans8,612,6011,511,5024,539,8442,561,256

Key for Column Selections:

Column 1 Selections

Standard Peer Group: All Commercial Banks - State = MT

as of 3/31/2004

Column 2 Selections

Standard Peer Group: All Commercial Banks - Assets less than $100M - State = MT

as of 3/31/2004

Column 3 Selections

Standard Peer Group: All Commercial Banks - Assets $100M to $1B - State = MT

as of 3/31/2004

Column 4 Selections

Standard Peer Group: All Commercial Banks - Assets more than $1B - State = MT

as of 3/31/2004

Note: Go to the end to obtain a key report for the column selections. Go to Key

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Sheet1

SL table

0000000

Asset Size Distribution0000

Less$100 Million$1 BillionGreaterNewAtlantaChicagoKansasDallasSan

than $100totothan $5York0City0Francisco00

00000

East

0All Instits< $100 Mill$100 Mill - $1 Bill$1 - $10 Billion< $10 BillNortheastSoutheastCentralMidwestSWWestVillage

Number of institutions reportingNumber of institutions reportingNumber of institutions reporting1,46751280410744586161374115140910.0

Total assets (in billions)Total assets (in billions)Total assets (in billions)1,360272552118664871201314588488

Total deposits (in billions)Total deposits (in billions)Total deposits (in billions)8792119415351133183982752289

Net income (in millions)Net income (in millions)Net income (in millions)15,2432282,1482,08310,7845,4441,0191,0064221,3506,003

% of unprofitable institutions% of unprofitable institutions% of unprofitable institutions6.7012.103.903.702.306.1011.208.606.102.901.100.0

% of institutions with earnings gains% of institutions with earn gains% of institutions with earn gains79.1077.1079.9080.4084.1079.2081.4077.5079.1077.9082.400.0

Performance ratios (%)Performance ratios (%)Performance ratios (%)

Return on equityReturn on equityReturn on equity12.367.007.8211.3714.5211.829.667.5810.8718.6614.180.00.000.00

Return on assetsReturn on assetsReturn on assets1.160.890.841.051.291.190.850.760.971.601.260.00.000.00

Equity capital ratioPretax ROAPretax ROA1.771.391.261.591.981.821.331.121.471.952.01

Net interest marginEquity capital ratioEquity capital ratio9.4712.5910.669.349.0510.069.119.429.078.709.140.00.000.00

Yield on earning assetsNet interest marginNet interest margin3.353.413.543.493.253.513.323.293.213.693.160.00.000.00

Cost of funding earning assetsYield on earning assetsYield on earning assets6.036.356.526.315.806.266.316.666.476.225.470.00.000.00

Earning assets to total assetsCost of funding earn assetsCost of funding earn assets2.692.942.982.822.552.752.993.373.262.532.310.00.000.00

Efficiency ratioEarning assets to total assetsEarning assets to total assets90.6693.6992.9692.8389.3692.2592.6392.4892.4493.2487.4795.05

Noninterest income to earning assetsEfficiency ratioEfficiency ratio58.1579.1969.1064.2351.9154.0263.1379.9564.9957.5853.900.00.000.00

Noninterest expense to earning assetsNoninterest inc marginNoninterest inc margin-1.59-1.99-2.24-1.99-1.29-1.53-1.52-2.51-1.85-1.58-1.400.00.000.00

Loan and lease loss provision to assetsNoninterest inc to earn assetsNoninterest inc to earn assets0.933.510.760.820.920.921.660.810.751.290.720.00.000.00

Net operating income to assetsNoninterest exp to earn assetsNoninterest exp to earn assets2.525.503.002.812.212.453.183.322.602.872.120.38

Pretax return on assetsNet charge-offs to LN&LSNet charge-offs to LN&LS0.290.130.290.180.320.200.690.390.190.340.230.00.000.00

Asset QualityLN&LS loss provision to assetsLN&LS loss provision to assets0.250.140.190.180.290.150.860.290.190.340.170.00.000.00

Net charge-offs to loans and leasesNet oper income to assetsNet oper income to assets0.870.730.680.780.961.090.520.270.701.310.86

Noncurrent loans and leasesPretax return on assetsPretax return on assets1.771.391.261.591.981.821.331.121.471.952.010.00.000.00

Loan and lease loss provision to net charge-offsAsset QualityAsset Quality0.00.000.00

Loss allowance to:Net charge-offs to LN&LSNet charge-offs to LN&LS0.290.130.290.180.320.200.690.390.190.340.230.00.000.00

Loans and leasesLoss allow to Noncurr LN&LSLoss Reserve to Noncurrent LN&LS98.9176.41107.22146.0488.84126.48162.2372.51109.0776.3580.79

Gross real estate assets to gross assetsLoan and lease loss provision to net charge-offsLN&LS loss provision to net charge-offs133.80165.57102.41144.55140.55128.95179.90102.13142.67164.19110.190.00.000.00

Noncurrent RE loans to RE loansLoss allowance to:Loss allowance to:77.24

December 31, 1899Loss allowance to LN&LSLoss allowance to LN&LS0.920.790.921.080.880.971.360.750.821.110.80

Net LN&LS to depositsNet LN&LS to deposits101.1479.7183.0292.59111.4585.7999.1996.91108.84106.30119.04

Condition Ratios (%)Noncurrent assets plus other real estate owned to assetsNoncurrent assets plus other real estate owned to assets0.690.790.650.570.730.500.660.880.661.050.790.00.000.00

Capital RatiosReal Estate assets to gross assets72.5866.6068.7572.9673.8070.9466.0974.5075.1860.7077.22

Core capital (leverage) ratioCondition Ratios (%)Noncurrent RE loans to RE loans0.900.990.820.630.980.730.560.980.711.650.99

Tier 1 risk-based capital ratioCapital RatiosCapital Ratios0.00.000.00

Total risk-based capital ratioCore capital (leverage) ratioCore capital (leverage) ratio8.0512.1610.098.497.208.598.868.948.638.536.910.00.000.00

Gross 1-4 family mortgages to gross assetsTier 1 risk-based capital ratioTier 1 risk-based capital ratio13.1022.4816.9613.4711.6314.5113.3914.5314.6813.6811.030.00.000.00

Net loans and leases to depositsTotal risk-based capital ratioTotal risk-based capital ratio14.4323.5518.0314.5313.1215.6914.6915.4215.7414.7212.73

Structural ChangesStructural ChangesStructural Changes

New ChartersNew ChartersNew Charters101808393111869997109106119

Banks absorbed by mergersBanks absorbed by mergers00000000000

Thrifts absorbed by mergersFailed banksFailed banks32001011001

Failed Thrifts0.00.00

PRIOR FULL YEARS (The way it was)57.0018.0032.005.002.0023.0010.0012.003.006.003.000.00.00

Number of institutions1.001.000.000.000.000.000.001.000.000.000.000.00.00

June 23, 19050.000.000.000.000.000.000.000.000.000.000.00

June 21, 19050.000.000.000.000.000.000.000.000.000.000.00

June 19, 19051,534.00577.00811.00101.0045.00612.00169.00387.00122.00148.0096.000.00.00

Total assets (in billions)1,642.00666.00829.00113.0034.00636.00192.00426.00126.00160.00102.000.00.00

June 23, 19051,780.00765.00858.00122.0035.00687.00216.00462.00134.00167.00114.000.00.00

June 21, 19050.000.000.000.000.000.000.000.000.000.000.000.00.00

June 19, 19051,316.8029.50251.20191.10844.90461.6088.30170.2043.2081.00472.50

Return on assets (%)1,148.5033.80244.40230.30640.00383.9069.00187.7041.4084.50382.00

June 23, 19051,026.2039.90250.40239.70496.10342.8059.10174.2033.6072.20344.30

June 21, 19050.000.000.000.000.000.000.000.000.000.000.00

June 19, 19051.070.590.761.191.150.820.581.430.831.281.250.00.0

Net charge-offs to loans & leases (%)1.000.620.861.041.061.020.740.990.831.131.020.00.0

June 23, 19050.930.750.951.060.871.000.830.901.010.990.860.00.0

June 21, 19050.000.000.000.000.000.000.000.000.000.000.000.00.0

June 19, 19050.280.140.140.170.350.180.480.690.200.330.160.00.0

Noncurrent assets plus OREO to assets (%)*0.170.090.100.290.150.110.250.220.150.260.160.00.0

June 23, 19050.250.100.170.350.260.220.500.240.070.420.220.00.0

June 21, 19050.000.000.000.000.000.000.000.000.000.000.000.00.0

June 19, 19050.650.780.600.800.630.520.680.760.731.010.670.00.0

Equity capital ratio (%)0.580.650.540.900.470.620.560.630.490.780.480.00.0

June 23, 19050.950.870.821.310.841.120.880.670.571.030.95

June 21, 19050.000.000.000.000.000.000.000.000.000.000.00

June 19, 19058.6012.4210.459.327.769.968.218.838.928.797.21

* Beginning with June 1996, TFR filers report noncurrent loans net of specific reserves Accordingly, specific reserves have been subtracted from loan-loss reserves, beginning with June 1996, to make the ratio more closely comparable to prior periods.8.2712.5110.348.567.159.529.208.489.678.426.55

December 31, 18998.7111.9110.498.737.549.6210.059.209.448.677.25

Last Updated 03/04/2003

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S&L

Quarterly Banking Profile

Quarterly Banking ProfileQuarterly Banking Profile

TABLE III-B. Full Year 2002, FDIC-Insured Savings InstitutionsTABLE III-B. Full Year 2002, FDIC-Insured Savings Institutions

Asset Size DistributionGeographic Distribution by RegionAsset Size DistributionGeographic Distribution by Region

Full Year2002All InstitutionsLess$100 Million$1 BillionGreaterNewAtlantaChicagoKansasDallasSanFull Year2002All InstitutionsLess$100 Million$1 BillionGreaterNewAtlantaChicagoKansasDallasSan

(The way it is...)than $100totothan $5YorkCityFrancisco(The way it is...)than $100totothan $5YorkCityFrancisco

Million$1 Billion$5 BillionBillionMillion$1 Billion$5 BillionBillion

Number of institutions reporting1,4675128041074458616137411514091Number of institutions reporting1,4675128041074458616137411514091

Total assets (in billions)$1,359.50$26.50$255.40$211.10$866.40$487.40$119.90$131.20$44.80$88.30$487.90Total assets (in billions)$1,359.50$26.50$255.40$211.10$866.40$487.40$119.90$131.20$44.80$88.30$487.90

Total deposits (in billions)879.121.1194.1152.5511.4330.582.598.127.351.7288.9Total deposits (in billions)879.121.1194.1152.5511.4330.582.598.127.351.7288.9

Net income (in millions)15,2432282,1482,08310,7845,4441,0191,0064221,3506,003Net income (in millions)15,2432282,1482,08310,7845,4441,0191,0064221,3506,003

% of unprofitable institutions6.712.13.93.72.36.111.28.66.12.91.1% of unprofitable institutions6.712.13.93.72.36.111.28.66.12.91.1

% of institutions with earnings gains79.177.179.980.484.179.281.477.579.177.982.4% of institutions with earnings gains79.177.179.980.484.179.281.477.579.177.982.4

Performance ratios (%)Performance ratios (%)

Yield on earning assets6.036.356.526.315.86.266.316.666.476.225.47Yield on earning assets6.036.356.526.315.86.266.316.666.476.225.47

Cost of funding earning assets2.692.942.982.822.552.752.993.373.262.532.31Cost of funding earning assets2.692.942.982.822.552.752.993.373.262.532.31

Net interest margin3.353.413.543.493.253.513.323.293.213.693.16Net interest margin3.353.413.543.493.253.513.323.293.213.693.16

Noninterest income to earning assets0.933.510.760.820.920.921.660.810.751.290.72Noninterest income to earning assets0.933.510.760.820.920.921.660.810.751.290.72

Noninterest expense to earning assets2.525.532.812.212.453.183.322.62.872.12Noninterest expense to earning assets2.525.532.812.212.453.183.322.62.872.12

Loan and lease loss provision to assets0.250.140.190.180.290.150.860.290.190.340.17Loan and lease loss provision to assets0.250.140.190.180.290.150.860.290.190.340.17

Net operating income to assets0.870.730.680.780.961.090.520.270.71.310.86Net operating income to assets0.870.730.680.780.961.090.520.270.71.310.86

Pretax return on assets1.771.391.261.591.981.821.331.121.471.952.01Pretax return on assets1.771.391.261.591.981.821.331.121.471.952.01

Return on assets1.160.890.841.051.291.190.850.760.971.61.26Return on assets1.160.890.841.051.291.190.850.760.971.61.26

Return on equity12.3677.8211.3714.5211.829.667.5810.8718.6614.18Return on equity12.3677.8211.3714.5211.829.667.5810.8718.6614.18

Net charge-offs to loans and leases0.290.130.290.180.320.20.690.390.190.340.23Net charge-offs to loans and leases0.290.130.290.180.320.20.690.390.190.340.23

Loan and lease loss provision to net charge-offs133.8165.57102.41144.55140.55128.95179.9102.13142.67164.19110.19Loan and lease loss provision to net charge-offs133.8165.57102.41144.55140.55128.95179.9102.13142.67164.19110.19

Efficiency ratio58.1579.1969.164.2351.9154.0263.1379.9564.9957.5853.9Efficiency ratio58.1579.1969.164.2351.9154.0263.1379.9564.9957.5853.9

Condition Ratios (%)Condition Ratios (%)

Earning assets to total assets90.6693.6992.9692.8389.3692.2592.6392.4892.4493.2487.47Earning assets to total assets90.6693.6992.9692.8389.3692.2592.6392.4892.4493.2487.47

Loss allowance to:Loss allowance to:

Loans and leases0.920.790.921.080.880.971.360.750.821.110.8Loans and leases0.920.790.921.080.880.971.360.750.821.110.8

Noncurrent loans and leases98.9176.41107.22146.0488.84126.48162.2372.51109.0776.3580.79Noncurrent loans and leases98.9176.41107.22146.0488.84126.48162.2372.51109.0776.3580.79

Noncurrent assets plus other real estate owned to assets0.690.790.650.570.730.50.660.880.661.050.79Noncurrent assets plus other real estate owned to assets0.690.790.650.570.730.50.660.880.661.050.79

Noncurrent RE loans to RE loans0.90.990.820.630.980.730.560.980.711.650.99Noncurrent RE loans to RE loans0.90.990.820.630.980.730.560.980.711.650.99

Equity capital ratio9.4712.5910.669.349.0510.069.119.429.078.79.14Equity capital ratio9.4712.5910.669.349.0510.069.119.429.078.79.14

Core capital (leverage) ratio8.0512.1610.098.497.28.598.868.948.638.536.91Core capital (leverage) ratio8.0512.1610.098.497.28.598.868.948.638.536.91

Tier 1 risk-based capital ratio13.122.4816.9613.4711.6314.5113.3914.5314.6813.6811.03Tier 1 risk-based capital ratio13.122.4816.9613.4711.6314.5113.3914.5314.6813.6811.03

Total risk-based capital ratio14.4323.5518.0314.5313.1215.6914.6915.4215.7414.7212.73Total risk-based capital ratio14.4323.5518.0314.5313.1215.6914.6915.4215.7414.7212.73

Gross real estate assets to gross assets72.5866.668.7572.9673.870.9466.0974.575.1860.777.22Gross real estate assets to gross assets72.5866.668.7572.9673.870.9466.0974.575.1860.777.22

Gross 1-4 family mortgages to gross assets44.5344.9739.1437.3547.8737.1341.0750.7242.128.754.22Gross 1-4 family mortgages to gross assets44.5344.9739.1437.3547.8737.1341.0750.7242.128.754.22

Net loans and leases to deposits101.1479.7183.0292.59111.4585.7999.1996.91108.84106.3119.04Net loans and leases to deposits101.1479.7183.0292.59111.4585.7999.1996.91108.84106.3119.04

Structural ChangesStructural Changes

New Charters32001011001New Charters32001011001

Thrifts absorbed by mergers57183252231012363Thrifts absorbed by mergers57183252231012363

Failed Thrifts11000001000Failed Thrifts11000001000

PRIOR FULL YEARS (The way it was)PRIOR FULL YEARS (The way it was)

Number of institutionsNumber of institutions

20011,534577811101456121693871221489620011,5345778111014561216938712214896

19991,6426668291133463619242612616010219991,64266682911334636192426126160102

19971,7807658581223568721646213416711419971,78076585812235687216462134167114

Total assets (in billions)Total assets (in billions)

2001$1,316.80$29.50$251.20$191.10$844.90$461.60$88.30$170.20$43.20$81.00$472.502001$1,316.80$29.50$251.20$191.10$844.90$461.60$88.30$170.20$43.20$81.00$472.50

19991,148.5033.8244.4230.3640383.969187.741.484.538219991,148.5033.8244.4230.3640383.969187.741.484.5382

19971,026.2039.9250.4239.7496.1342.859.1174.233.672.2344.319971,026.2039.9250.4239.7496.1342.859.1174.233.672.2344.3

Return on assets (%)Return on assets (%)

20011.070.590.761.191.150.820.581.430.831.281.2520011.070.590.761.191.150.820.581.430.831.281.25

199910.620.861.041.061.020.740.990.831.131.02199910.620.861.041.061.020.740.990.831.131.02

19970.930.750.951.060.8710.830.91.010.990.8619970.930.750.951.060.8710.830.91.010.990.86

Net charge-offs to loans & leases (%)Net charge-offs to loans & leases (%)

20010.280.140.140.170.350.180.480.690.20.330.1620010.280.140.140.170.350.180.480.690.20.330.16

19990.170.090.10.290.150.110.250.220.150.260.1619990.170.090.10.290.150.110.250.220.150.260.16

19970.250.10.170.350.260.220.50.240.070.420.2219970.250.10.170.350.260.220.50.240.070.420.22

Noncurrent assets plus OREO to assets (%)*Noncurrent assets plus OREO to assets (%)*

20010.650.780.60.80.630.520.680.760.731.010.6720010.650.780.60.80.630.520.680.760.731.010.67

19990.580.650.540.90.470.620.560.630.490.780.4819990.580.650.540.90.470.620.560.630.490.780.48

19970.950.870.821.310.841.120.880.670.571.030.9519970.950.870.821.310.841.120.880.670.571.030.95

Equity capital ratio (%)Equity capital ratio (%)

20018.612.4210.459.327.769.968.218.838.928.797.2120018.612.4210.459.327.769.968.218.838.928.797.21

19998.2712.5110.348.567.159.529.28.489.678.426.5519998.2712.5110.348.567.159.529.28.489.678.426.55

19978.7111.9110.498.737.549.6210.059.29.448.677.2519978.7111.9110.498.737.549.6210.059.29.448.677.25

* Beginning with June 1996, TFR filers report noncurrent loans net of specific reserves Accordingly, specific reserves have been subtracted from loan-loss reserves, beginning with June 1996, to make the ratio more closely comparable to prior periods.* Beginning with June 1996, TFR filers report noncurrent loans net of specific reserves Accordingly, specific reserves have been subtracted from loan-loss reserves, beginning with June 1996, to make the ratio more closely comparable to prior periods.

Last Updated 03/04/2003research@fdic.govLast Updated 03/04/2003research@fdic.gov

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Weakness of the Risk-Based Capital StandardsStandards only consider credit riskIgnores interest rate risk and liquidity riskIt ignores:Changes in the market value of assetsUnrealized gains (losses) on held-to-maturity securitiesThe value of the banks charterThe value of deposit insurance99% of banks are considered well capitalized in 2004-2005Not a binding constraint for most banks

Operating Policies Effect on Capital RequirementsChanging the Capital MixInternal versus External capitalChange Asset CompositionHold fewer high-risk category assetsPricing PoliciesRaise rates on higher-risk loansShrinking the BankFewer assets requires less capital

Characteristics of External Capital SourcesSubordinated DebtAdvantagesInterest payments are tax-deductibleNo dilution of ownership interestGenerates additional profits for shareholders as long as earnings before interest and taxes exceed interest paymentsDisadvantagesDoes not qualify as Tier 1 capitalInterest and principal payments are mandatoryMany issues require sinking funds Common StockAdvantagesQualifies as Tier 1 capitalIt has no fixed maturity and thus represents a permanent source of fundsDividend payments are discretionaryLosses can be charged against equity, not debt, so common stock better protects the FDICDisadvantagesDividends are not tax-deductible, Transactions costs on new issues exceed comparable costs on debtShareholders are sensitive to earnings dilution and possible loss of control in ownershipOften not a viable alternative for smaller banks

Characteristics of External Capital SourcesPreferred StockA form of equity in which investors' claims are senior to those of common stockholdersDividends are not tax-deductibleCorporate investors in preferred stock pay taxes on only 20 percent of dividendsMost issues take the form of adjustable-rate perpetual stock

Characteristics of External Capital SourcesTARP Capital Purchase ProgramThe Troubled Asset Relief Programs Capital Purchase Program (TARP-CPP), allows financial institutions to sell preferred stock that qualifies as Tier 1 capital to the TreasuryQualified institutions may issue senior preferred stock equal to not less than 1% of risk-weighted assets and not more than the lesser of $25 billion, or 3%, of risk-weight assets*

*

Characteristics of External Capital SourcesTrust Preferred StockA hybrid form of equity capital at banksIt effectively pays dividends that are tax deductibleTo issue the security, a bank establishes a trust companyThe trust company sells preferred stock to investors and loans the proceeds of the issue to the bankInterest on the loan equals dividends paid on preferred stockThe interest on the loan is tax deductible such that the bank deducts dividend paymentsCounts as Tier 1 capital

Characteristics of External Capital SourcesLeasing ArrangementsMany banks enter into sale and leaseback arrangementsExample:The bank sells its headquarters and simultaneously leases it back from the buyerThe bank receives a large amount of cash and still maintains control of the propertyThe net effect is that the bank takes a fully depreciated asset and turns it into a tax deduction

Federal Deposit InsuranceFederal Deposit Insurance CorporationEstablished in 1933Coverage is currently $100,000 per depositor per institutionOriginal coverage was $2,500Initial Objective:Prevent liquidity crises caused by large-scale deposit withdrawalsProtect depositors of modes means against a bank failure. The large number of failures in the late 1980s and early 1990s put pressure on the FDIC by slowly depleting the reserve fund

Federal Deposit Insurance*

The Deposit Insurance Funds Act of 1996 (DIFA)Included both a one-time assessment on SAIF deposits to capitalize the SAIF fund Mandated the ultimate elimination of the BIF and SAIF funds by merging them into a new Deposit Insurance Fund

Risk-Based Deposit Insurance

FDIC insurance premiums are based on a risk-based deposit insurance systemThe deposit insurance fund reserve ratios are maintained at or above the target Designated Reserve Ratio of 1.25% of insured depositsDeposit insurance premiums are assessed as basis points per $100 of insured deposits

The Current Assessment Rate Schedule For BIF Insured And SAIF-insured InstitutionsSeptember 2008Subgroup A - Financially sound institutionsSubgroup B - Institutions that demonstrate weaknesses that could result in significant deterioration of the institutionSubgroup C - Institutions that pose a substantial probability of loss to the BIF or SAIF

Insurance Premiums

Supervisory Subgroups

Capital Group

A

B

C

Well capitalized

5-7 bp

10 bp

28 bp

Adequately capitalized

10 bp

10 bp

28 bp

Undercapitalized

28 bp

28 bp

43 bp

bp = basis point, which equals 1/100 of one percent. An FDIC assessment of 20 basis points amount to 20 cents per $100 of insured deposits

Federal Deposit InsuranceProblems with Deposit InsuranceDeposit insurance acts similarly to bank capitalIn banking, a large portion of borrowed funds come from insured depositors who do not look to the banks capital position in the event of default A large number of depositors, therefore, do not require a risk premium to be paid by the bank since their funds are insuredNormal market discipline in which higher risk requires the bank to pay a risk premium does not apply to insured fundsToo-Big-To-FailMany large banks are considered to be too-big-to-fail As such, any creditor of a large bank would receive de facto 100 percent insurance coverage regardless of the size or type of liabilityDeposit insurance has historically ignored the riskiness of a banks operations, which represents the critical factor that leads to failureTwo banks with equal amounts of domestic deposits paid the same insurance premium, even though one invested heavily in risky loans and had no uninsured deposits while the other owned only U.S. government securities and just 50 percent of its deposits were fully insured. The creates a moral hazard problem.

Problems with Deposit InsuranceMoral hazard problem, whereby bank managers have an incentive to increase risk. For example, suppose that a bank had a large portfolio of problem assets that was generating little revenue. Managers could use deposit insurance to access funds via brokered CDs in $100,000 blocks.They might invest the funds in risky assets knowing that any profits would offset losses on the problem assets. Losses would be absorbed by the insurance fund in the event of default.

Deposit insurance funds were always viewed as providing basic insurance coverageHistorically, there has been fundamental problem with the pricing of deposit insurance Premium levels were not sufficient to cover potential payouts The FDIC and FSLIC were initially expected to establish reserves amounting to 5 percent of covered deposits funded by premiumsActual reserves never exceeded two percent of insured deposits as Congress kept increasing coverage while insurance premiums remained constantThe high rate of failures during the 1980s and the insurance funds demonstrate that premiums were inadequateHistorically, premiums were not assessed against all of a banks insured liabilitiesInsured deposits consisted only of domestic deposits while foreign deposits were exempt. Too-big-to-fail doctrine toward large banks means that large banks would have coverage on 100 percent of their deposits but pay for the same coverage as if they only had $100,000 coverage as smaller banks do This means that regulators were much more willing to fail smaller banks and force uninsured depositors and other creditors to take losses.

BASEL II Capital StandardsThe Basel Accords approach to capital requirements was primarily based on credit risk, it did not address operational or other types of riskThree Pillars of RegulationMinimum Capital RequirementsSupervisory ReviewMarket Discipline

BASEL II Capital StandardsCredit RiskBanks are allowed to choose between two approaches to calculate minimum capitalExternal Credit AssessmentsRating AgenciesInternal Rating SystemsThe banks own assessmentOperational RiskThe risk of loss resulting from inadequate or failed internal processes, people, systems, for from external eventsExample: 9/11/01Look at occurrences of fraudTrading Book (Including Market Risk)Management must demonstrate an ability to value the positions with an emphasis on marking-to-market exposures

BASEL II Capital StandardsSupervisory ReviewBanks should have a process for assessing overall capital adequacy in relation to their risk profile and a strategy for maintaining their capital levelsSupervisors should:Review and evaluate banks internal capital adequacy assessments and strategiesExpect banks to operate with capital above the minimum regulatory ratiosIntervene at an early stage to prevent capital from falling below regulatory minimumsMarket DisciplineRegulators will encourage market discipline for banks by forcing disclosure of key information pertaining to riskMarket participants will be provided with information regarding specific risk exposures, risk assessment practices, actual capital, and required capital so that they can assess the adequacy of capital