Footnote 1: The Uniform Financial Institutions Rating System is
based on a scale of 1 through 5. Banks with component capital adequacy ratings of 1 or 2 are
considered to presently have adequate capital and are expected to continue to maintain adequate
capital in future periods. A 3 rating should be assigned when the relationship of the capital structure
to the various qualitative and quantitative factors comprising the analysis is adverse or is expected to
become adverse in the relatively near future (12 to 24 months), even after giving weight to management
as a mitigating factor. Banks rated 4 or 5 are clearly inadequately capitalized, the latter representing a
situation of such gravity as to threaten viability and solvency.
Footnote 2: According to the Formal and Informal Action Procedures Manual, informal
actions are voluntary commitments made by an insured financial institution’s board of directors. Such actions are designed to correct
noted safety and soundness deficiencies or ensure compliance with federal and state banking laws. Informal actions are not legally
enforceable and are undisclosed to the public. Informal action is generally appropriate for institutions that receive a composite rating of 3
for safety and soundness. This rating indicates that an institution has weaknesses that, if left uncorrected, could cause the institution’s
condition to deteriorate. As an informal action, the FDIC can recommend that a bank adopt a Bank Board Resolution that commits itself
to addressing specific noted deficiencies, or the FDIC can sign a Memorandum of Understanding with the bank.
Footnote 3: According to the Formal and Informal Action Procedures Manual, formal actions
are notices or orders issued by the FDIC against insured financial institutions and/or individuals. The purpose of a formal action is to correct noted
safety and soundness deficiencies, ensure compliance with federal and state banking laws, and/or enforce removal proceedings. Formal actions
are legally enforceable and available to the public after issuance. A formal action is generally initiated against an institution with a composite rating
of 4 or 5 for safety and soundness. The FDIC can issue the following formal actions: termination of federal deposit insurance; cease-and-desist action;
removal, prohibition, and suspension actions; and civil money penalties. In addition, the FDIC can issue prompt corrective action directives to
undercapitalized institutions.
Footnote 4: In accordance with the Formal and Informal Action Procedures Manual, provisions
are specific corrective measures an institution or individual is required to take under a corrective action.
Footnote 5: According to the Federal Financial Institutions Examination Council’s A User’s Guide for
the Uniform Bank Performance Report, banks are assigned to one primary peer group from which average ratios are calculated. Peer
group averages are included in the Uniform Bank Performance Report to show the average performance of a group of banks with similar
characteristics. This information can be used as a benchmark against which an individual bank’s assets and liability structure and earnings may be
measured. The peer group average for a given ratio is adjusted to eliminate the effect of banks above the 95th and below the 5th percentile.
The resulting average in most cases is very close to the median or mid-point value for a given group of banks. Peer groups are defined by up to
three criteria: asset size, number of banking offices, and location. Most banks are assigned to 1 of the 15 primary insured commercial bank peer
groups. In addition, several primary line-of-business peer groups have been established, and these peer groups include Savings Banks, Credit Card
Specialty Banks, and Bankers Banks.
Footnote 6: The Basel Committee on Banking Supervision has developed and proposed a new capital adequacy
framework (Basel II) to update and improve the internationally recognized capital standards embodied in the 1988 Basel Capital Accord. Basel II brings
a new approach to the regulatory capital framework and creates incentives for advancement in risk measurement and management processes at large
and complex, internationally-active financial institutions. Although one of the goals of Basel II is to focus on internationally active banks, the underlying
principles should be suitable for application to banks of varying levels of complexity and sophistication. The Basel Committee is comprised of representatives
of the central bank and supervisory authorities from the G-10 countries (Belgium, Canada, France, Germany, Italy, Japan, Netherlands, Sweden, Switzerland,
the United Kingdom, and the United States) and Luxembourg and Spain.
Footnote 7: Under the risk-based capital framework, a bank’s balance sheet assets and credit equivalent amounts of
off-balance sheet items are generally assigned to one of four broad risk categories (0, 20, 50, and 100 percent) according to the obligor, or if relevant, the
guarantor or the nature of the collateral. Although the majority of assets and off-balance sheet items fall within one of the four broad risk categories, there
are exceptions that fall outside of the general categories. In addition, in 1999, the agencies introduced a 200 percent risk-weighted category. This category
applies to externally rated recourse obligations, direct credit substitutes, residual interest (other than credit-enhancing interest-only strips), and asset- and
mortgage-backed securities that are rated one category below the lowest investment grade category or non-rated positions for which the bank deems that the
credit risk is equivalent to one category below investment grade (e.g., BB).
Footnote 8: The Tier 1 Leverage Capital ratio is computed by taking a bank’s Tier 1 Capital and dividing it by Total Assets.
Tier 1 Capital is composed of a bank’s core capital elements, such as common stockholders’ equity, noncumulative perpetual preferred stock, and minority interest
in consolidated subsidiaries, less various exclusions and disallowed items.
Footnote 9: The Total Risk-Based Capital ratio is computed by adding a bank’s Tier 1 Capital, Tier 2 Capital, and Tier 3 Capital and
dividing the sum by Total Risk-Weighted Assets. Tier 2 Capital is composed of a bank’s supplementary capital elements, such as a portion of the allowance for loan and
lease losses, cumulative perpetual preferred stock, long-term preferred stock, and net unrealized holding gains on equity securities. Tier 3 Capital is capital allocated for
market risk.
