EXHIBIT (c)(ii)
Zachary Bancshares, Inc.
Fairness Opinion
TABLE OF CONTENTS
<Table>
Table of Contents........................................................................................i
1 Introduction.......................................................................................1
1.1 Description of the Engagement................................................................1
1.2 Standard of Value............................................................................1
1.3 Summary of the Company.......................................................................1
1.4 Sources of Information.......................................................................2
1.5 Assumptions and Limiting Conditions..........................................................2
1.6 Summary and Conclusion.......................................................................3
2 Economic Conditions and Industry Data..............................................................4
2.1 National Economic Profile....................................................................4
2.2 Regional and Local Economic and Demographic Profiles.........................................4
2.3 Industry Conditions..........................................................................4
2.4 Relevant Risks...............................................................................4
2.4.1 Macro Environmental Risks..............................................................4
2.4.2 Industry-Specific Risks................................................................5
2.4.2.1 Threat of New Entrant...............................................................5
2.4.2.1.1 Acquisition......................................................................5
2.4.2.1.2 Penetration......................................................................5
2.4.2.1.3 De Novo Formation................................................................5
2.4.2.2 Competitor Rivalry..................................................................6
2.4.2.3 Threat of Substitutes...............................................................6
2.4.2.4 Bargaining Power of Suppliers and Customers.........................................6
2.4.3 Company-Specific Risks.................................................................6
3 Analysis of the Subject Company....................................................................7
3.1 General Description..........................................................................7
3.2 Ownership....................................................................................7
3.3 Suppliers....................................................................................7
3.4 Customers....................................................................................7
3.5 Management...................................................................................8
3.6 Facilities...................................................................................8
3.7 Company-Specific Risks.......................................................................8
3.8 Other Relevant Information...................................................................8
4 Financial Statement Analysis.......................................................................9
4.1 Historical Financial Statements..............................................................9
4.2 Comparative Statistics.......................................................................9
4.2.1 Uniform Bank Performance Report........................................................9
4.3 Normalizing Adjustments.....................................................................11
5 Valuation of the Subject Company..................................................................11
5.1 Factors to be Considered....................................................................11
5.2 Valuation Approaches........................................................................12
5.3 Asset Based Approaches......................................................................13
5.4 Market Based Approach - Comparable Transactions Method......................................13
5.4.1 Comparable Sales - Whole Bank Transactions............................................14
</Table>
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<Table>
5.4.2 Publicly Traded Comparable Companies - Share Exchange.................................14
5.4.3 Publicly Traded Comparable Companies - Price to Earnings..............................15
5.4.4 Historical Transactions in Company Stock..............................................15
5.5 Income Based Approaches.....................................................................16
5.5.1 Discounted Future Returns Method......................................................16
5.5.2 Capitalization of Historical Earnings Method..........................................16
6 Valuation Adjustments.............................................................................18
6.1 Common Adjustments..........................................................................18
6.2 Control Premium / Minority Discount.........................................................18
6.2.1 The Minority Stockholder's Situation..................................................18
6.2.2 Application of the Control Premium / Minority Discount................................20
6.3 Marketability...............................................................................21
6.4 Application of Adjustments..................................................................21
7 Conclusion........................................................................................22
8 Valuator's Certification..........................................................................23
9 Valuator's Qualifications.........................................................................24
</Table>
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Zachary Bancshares, Inc.
Fairness Opinion
1 INTRODUCTION
1.1 DESCRIPTION OF THE ENGAGEMENT
National Capital, L.L.C. ("National Capital") has been engaged to provide a
Fairness Opinion to Zachary Bancshares, Inc. (the "Company") in connection with
the merger of New ZBI, Inc., a wholly-owned subsidiary of the Company, with and
into the Company as contemplated by the merger agreement currently in final
draft form.
1.2 STANDARD OF VALUE
Revenue Ruling 59-60 defines fair market value as:
...the price at which the property would change hands between a willing
buyer and a willing seller when the former is not under any compulsion
to buy and the latter is not under any compulsion to sell, both parties
having reasonable knowledge of relevant facts. Court decisions
frequently state in addition that the hypothetical buyer and seller are
assumed to be able, as well as willing, to trade and to be well
informed about the property and concerning the market for such
property.
For the purpose of this engagement, Fair Market Value is not appropriate due to
the involuntary surrender of certain shareholders' interests in exchange for
cash that will occur as part of the merger agreement. Fair Market Value is,
however, an appropriate starting point from which to define a standard of value
that acknowledges the premium due to an involuntary participant in a
transaction. The concept of Fair Value, while not well defined in Louisiana case
law, can be described as Fair Market Value without the "seller not under any
compulsion" phrase. As the seller is being forced to transact, some incremental
value is generally recognized to be appropriate as compensation for the
involuntary nature of the transaction. This incremental value is often
recognized in the valuation process through the exclusion of all or part of the
minority discount usually applied to minority shareholder interests under the
Fair Market Value standard.
Fair Value will be used as the standard of value when considering the fairness
of the proposed transaction
1.3 SUMMARY OF THE COMPANY
The Company's primary activity is the operation of its sole subsidiary, Bank of
Zachary (the "Bank"). The Bank is a community bank servicing the financial needs
of customers in Zachary, Louisiana as well as East Baton Rouge Parish.
The Company was founded in 1904. Detailed corporate information can be found in
Section 3: Analysis of the Subject Company.
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1.4 SOURCES OF INFORMATION
In preparing this valuation report, we obtained various financial documents and
other information pertaining to the Company from its owners, management and
other representatives. We have considered, among other items, the following:
1. The Bank's Call Reports for the years ended December 31, 1997, through
December 31, 2001, and for the quarters ended March 31, June 30 and
September 30, 2002;
2. Audited financial statements for fiscal years 1999 through 2001; and
3. The Bank's Business Plan and current financial projections.
In addition to the information provided by the Company, we reviewed and analyzed
a number of public documents and databases, including the following:
1. Federal Reserve Board Beige Book dated September 11, 2002
(www.federalreserve.gov/fomc/BeigeBook/2002);
2. "The National Economy", National Association of Certified Valuation
Analysts, August 2002;
3. Stocks, Bonds, Bills and Inflation: Valuation Edition 2002 Yearbook;
Ibbotson Associates, 2002 (data updated through December 31, 2001); and
4. Numerous internet resources, including the sites maintained by the
following:
Federal Reserve Bank of Atlanta (www.frbatlanta.org), Federal Reserve
Bank of Dallas (www.dallasfed.org), Federal Deposit Insurance
Corporation (www.fdic.gov), Hoover's Online (www.hoovers.com), MSN
MoneyCentral (www.moneycentral.msn.com), Bloomberg L.P.
(www.bloomberg.com), Multex.com (www.multexusa.com), U.S. Census Bureau
(www.census.gov), Dun & Bradstreet Marketplace Database (www.dnb.com),
Sheshunoff BankSource (banksource.sheshunoff.com).
1.5 ASSUMPTIONS AND LIMITING CONDITIONS
This valuation report is subject to the following assumptions and limiting
conditions:
1. All financial information was supplied by the Company or its agents. The
financial statements were compiled by the Company's accountants and, as
such, no opinion was expressed on these statements. This information has
been accepted by National Capital as having been prepared in accordance
with generally accepted accounting principles and has not been subject
to further verification, except as otherwise described in this report.
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2. National Capital has relied on the accuracy and completeness of all
information provided by the Company and its agents. Any material
misstatements or omissions could significantly alter our conclusion of
value.
3. Except as noted herein, no attempts were made to verify the validity of
the information provided by or obtained from any external source. All
third-party sources are considered reputable providers of accurate data.
4. No verification of legal title has been conducted in relation to the
real and personal property of the Company. All rights and claims to
these assets are assumed to be valid and no consideration has been given
to any liens or encumbrances other than those specifically identified in
this report.
5. All liabilities of the Company are assumed valid and legally
enforceable. No consideration has been given to contingent liabilities
except as specifically identified in this report.
6. This fairness opinion and report are for the specific use identified in
Section 1.1, and may not be quoted in whole or in part or otherwise
referred to in any document, or furnished or otherwise communicated to
any person for any other purpose without our prior written consent.
7. This fairness opinion and report are limited only by the above factors
and reflect the unbiased, professional opinion of National Capital.
1.6 SUMMARY AND CONCLUSION
Based on all factors that we deem relevant and assuming the accuracy and
completeness of the information and data provided to us, we conclude that the
cash consideration of $70.00 per share to be paid by the Company is fair, from a
financial point of view, to all shareholders of the Company, including those
shareholders receiving the cash consideration.
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2 ECONOMIC CONDITIONS AND INDUSTRY DATA
2.1 NATIONAL ECONOMIC PROFILE
Articles discussing the current U.S. economic outlook are included as Exhibit A.
2.2 REGIONAL AND LOCAL ECONOMIC AND DEMOGRAPHIC PROFILES
Regional and local economic data are included as Exhibit B.
2.3 INDUSTRY CONDITIONS
The banking industry is currently sailing through uncharted waters. Since
January 2001, the Federal Reserve has lowered its Federal Funds Target Rate from
6.5% to 1.25%, the fastest and largest series of adjustments in the past forty
years. Many banks have seen interest margins open significantly during 2002, as
deposit costs have fallen more rapidly than asset yields. This trend is expected
to reverse itself as rates begin to rise. Currently, no material rate increases
are expected until the second or third quarter of 2003.
The U.S. banking system's total loan to deposit ratio has been at or near
historical highs for the past three years. While this increase in loan volume
and/or decrease in deposit volume has created the opportunity for higher
earnings in the industry, the potential credit exposure generated by these
lending levels looms large on the horizon.
Due to the recent interest rate environment, the industry has experienced high
residential mortgage refinancing volumes. Deposit growth has been assisted by
the lack of alternate investments but hindered by the general economic malaise
of the last year. Many banks continue to turn toward non-core funding sources to
support loan growth and replace high-cost local deposits.
Please refer to Exhibit C for additional information on industry conditions.
2.4 RELEVANT RISKS
The valuation of a business enterprise is based on the theory of economic
indifference and the existence of a fair risk-adjusted value at which an
investor would be equally content owning or investing in the subject company or
any one of a number of alternative assets. In order to determine the appropriate
value of the subject, several types of risks must be evaluated. These risks are
generally classed as follows:
2.4.1 MACRO ENVIRONMENTAL RISKS
Macro environmental risks are those risks that apply to the economy as a whole.
These risks include economic factors, political factors, technological factors
and social factors. The need to account for each of these types of risk depends
on the valuation method used. Income Approach valuation methods usually begin
with a risk-free rate of return (most
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often, U.S. Treasury Securities) that already includes certain risk factors.
Building from the risk free rate, a variety of widely accepted risk factors can
be applied based on the facts and circumstances of the valuation. Market
Approach methods may or may not adequately capture macro economic risk factors,
based on the period(s) from which comparable data is drawn and the relative risk
characteristics at the time of the subject valuation. For a detailed discussion
of risk factors and required rates of return, see Ibbotson's Stocks, Bonds,
Bills and Inflation: Valuation Edition 2002 Yearbook.
2.4.2 INDUSTRY-SPECIFIC RISKS
Michael Porter's framework(1) identifies the following industry-specific risk
factors that should be considered when analyzing industries and companies:
2.4.2.1 THREAT OF NEW ENTRANT
The threat of new entrants into the Company's existing market is low. In this
industry, new entrants generally come via acquisition, penetration or de novo
formation.
2.4.2.1.1 ACQUISITION
The banking industry in Louisiana has seen a high level of acquisition activity
over the past ten years. As a result, there are very few attractive acquisition
targets available to most interested acquirers. Only the largest regional and
money-center banks have the size and strength to make significant acquisitions
in the Company's market. While acquisition of an existing competitor is not
unlikely, the results of such a transaction would most likely benefit the
Company as customers of the acquired entity become dissatisfied with the results
of the acquisition.
2.4.2.1.2 PENETRATION
Given the Company's location in Zachary, Louisiana and the Baton Rouge MSA, the
threat of material entry through penetration is relatively low. Most major
Louisiana and regional banks already have a presence in the Baton Rouge MSA.
2.4.2.1.3 DE NOVO FORMATION
Since 1996, nineteen new banks have opened in Louisiana. Three of those banks
are based in the Baton Rouge MSA. Significant regulatory barriers to entry exist
in this industry, and potential competitors must be able to raise large amounts
of capital ($7-15 Million each) in order to seriously consider de novo
formation. The subject market is not well suited for additional de novo activity
due to the number of existing financial institutions.
- ----------
(1) Michael Porter, Competitive Strategy: Techniques for Analyzing Industries
and Companies (New York, NY: The Free Press, 1980).
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2.4.2.2 COMPETITOR RIVALRY
Competition within the industry comes from many different sources: national and
state chartered banks, credit unions, savings banks, investment companies and
non-traditional lenders. Over the past twenty years, the share of the average
consumer's wealth held in commercial banks has steadily declined. Competitor
rivalry is strong in the Company's market due to the size of the market and its
attractiveness to banks and non-bank financial service providers.
Statistical information on the Company's market and competitors is included as
Exhibit D.
2.4.2.3 THREAT OF SUBSTITUTES
There are few substitutes for the banking needs of the Company's target client
base. While other opportunities exist for potential customers to satisfy
portions of their financial needs, core banking services are still primarily
delivered through brick and mortar service facilities of local financial
institutions.
2.4.2.4 BARGAINING POWER OF SUPPLIERS AND CUSTOMERS
The key raw material for financial institutions is money. Traditionally, these
funds came from local depositors. As the financial marketplace has become more
complex over the past decade, banks have been forced to find alternative funding
sources. Because of the availability of non-local funds (overnight and term
borrowings, national market certificates of deposit, public deposit pools,
etc.), the Company is able to be less reliant on the limited volume of local
funds available at reasonable rates.
The main output of a financial institution is, like its key input, money. The
demand for funds in the local market strong and is expected to remain strong
despite a weak national economy. The Company's average loan rates are generally
dictated by external forces (macro economic activity and local competitive
pricing), rather than by any significant bargaining power held by specific
customers or customer groups.
2.4.3 COMPANY-SPECIFIC RISKS
Company-specific risks include the reliance on key personnel or customers,
exposure to litigation, liquidity, interest rate risk, etc. Risks related to the
Company are discussed in Section 3: Analysis of the Subject Company.
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3 ANALYSIS OF THE SUBJECT COMPANY
3.1 GENERAL DESCRIPTION
Zachary Bancshares, Inc.'s primary business is the operation of The Bank of
Zachary. The Bank is a provider of financial services for consumers, businesses
and public entities in East Baton Rouge Parish and the surrounding area. The
Company, founded in October 1904, currently has over $101 million in total
assets.
3.2 OWNERSHIP
The Company is a Louisiana Corporation. The Company had 2,000,000 shares
authorized as of September 30, 2002. On that date, there were 600 shareholders
holding 193,667 outstanding shares. Currently, no single shareholder owns over
5% of the shares outstanding.
3.3 SUPPLIERS
No significant supplier relationships or dependencies exist.
3.4 CUSTOMERS
The Bank's primary market is relatively stable, although demand does fluctuate
with general economic conditions of the area. The Company maintains working
relationships with major business leaders and companies within the area's
communities.
3.5 MANAGEMENT
Mr. Harry S. Morris, Jr., age 56, is the Bank's President and Chief Executive
Officer, and has been employed with the bank for the past 32 years.
Mr. Winston E. Canning, age 57, serves as the Bank's Executive Vice President
and Secretary of Zachary Bancshares, Inc. Mr. Canning has worked for the bank
for the past 31 years.
Mr. J. Larry Bellard, age 50, serves as the Bank's Vice President and Cashier.
Mr. Bellard has over 29 years experience, with the past five at the Bank of
Zachary.
Mr. Preston L. Kennedy, age 45, serves as the Bank's Vice President and
Investment Officer. Mr. Kennedy has 24 years of experience.
As a group, Executive Management is considered sufficient for the current and
future needs of the Company and the Bank.
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3.6 FACILITIES
The Company and the Bank operate from a main office located at 4743 Main Street,
Zachary, Louisiana. The Bank also operates at 2110 Church Street, Zachary and
13444 Hooper Road, Baton Rouge. All facilities are considered adequate for
current and future operations of the Company and the Bank.
3.7 COMPANY-SPECIFIC RISKS
No material risk exposures were noted.
3.8 OTHER RELEVANT INFORMATION
The Company's primary SIC Code is 6022: State Commercial Banks. The related NAIC
Code is 52211. Financial statements are prepared annually on an accrual basis by
an outside CPA firm. Income tax returns are filed on an accrual basis.
Regulatory financial reports are prepared quarterly. Tax planning is done
annually, and the Company's financial plan is updated regularly.
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4 FINANCIAL STATEMENT ANALYSIS
4.1 HISTORICAL FINANCIAL STATEMENTS
The Bank's historical accrual basis balance sheets and income statements for the
fiscal years ended 1997 through 2001 and the Company's consolidated balance
sheets and income statements for the years ended 1999 through 2001 are included
behind the tab labeled "Selected Financial Results".
The Bank had Total Deposits of $94.112MM and Total Assets of $106.524MM as of
September 30, 2002. Deposits have grown by 5.15% since December 31, 2000. Over
the previous five years, asset growth has averaged 5.61% annually. Deposit
growth has averaged 5.36% annually over the same period. The Bank's Loan to
Deposit ratio was 54.64% on September 30, 2002, compared to a Uniform Bank
Performance Report peer group average of 79.43%. The Bank has experienced steady
loan growth over the past five years. For additional peer comparisons, see
Section 4.2: Comparative Statistics.
The Bank reported Total Capital of $11.749MM on September 30, 2002, while the
Company reported Total Capital of $12.250MM. The Company's book value per common
share was $63.26 as of September 30, 2002.
The Bank's Income from Operations, excluding provision for loan losses and
income taxes, has been stable over the past five years, averaging $1,118,000.
Projections of future financial performance are discussed in Section 5.5.1:
Discounted Future Returns Method.
4.2 COMPARATIVE STATISTICS
4.2.1 UNIFORM BANK PERFORMANCE REPORT
The Uniform Bank Performance Report (UBPR) is an analytical tool created for
bank supervisory, examination, and management purposes. In a concise format, it
shows the impact of management decisions and economic conditions on a bank's
performance and balance-sheet composition. The performance and composition data
contained in the report can be used as an aid in evaluating the adequacy of
earnings, liquidity, capital, asset and liability management, and growth
management. Bankers and examiners alike can use this report to further their
understanding of a bank's financial condition, and through such understanding,
perform their duties more effectively.2
A copy of the Bank's latest UBPR Report in attached as Exhibit E. Some of the
key ratios are presented below.
- ----------
(2) Federal Financial Institutions Examination Council website
(http://www.ffiec.gov/UBPR.htm)
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UBPR REPORT
<Table>
<Caption>
9/30/2002
Bank Peer Percentile
------ ------ ----------
Capital Adequacy
Tier One Risk-Based Capital / Risk-Weighted Assets 22.34 13.59 87
Total Risk-Based Capital / Risk-Weighted Assets 23.60 14.71 87
Tier One Leverage Capital 10.85 9.58 73
Asset Quality
Past Due Loans / Total Loans 2.18 0.66 88
90+ Days Past Due (Nonaccrual) / Total Loans 1.44 0.46 86
90+ Days Past Due (Total) / Total Loans 2.18 0.66 88
30-89 Days Past Due / Total Loans 5.79 0.83 98
Net Loan Losses / Average Total Loans & Leases 0.65 0.13 91
Management
Average Earning Assets / Average Assets 92.86 94.14 31
Assets per Employee ($Million) 2.37 4.42 7
Personnel Expense / Average Assets 1.81 1.51 75
Total Overhead Expense / Average Assets 3.41 2.81 79
Asset Growth Rate 10.97 17.08 42
Earnings
Return on Assets (Net Income / Average Assets) 1.13 1.18 46
Return on Equity (Net Income / Average Equity) 10.33 12.36 42
Liquidity
Short Term Non-Core Funding Sources / Total Assets 11.18 15.13 41
Short Term Investments / Short Term Non-Core Funds 47.14 77.05 47
Net Loans / Total Deposits 54.64 79.43 13
Net Loans / Core Deposits 70.65 100.45 17
Net Loans / Average Assets 53.73 66.22 21
Core Deposits / Average Assets 67.71 67.83 44
</Table>
4.3 NORMALIZING ADJUSTMENTS
Given the highly regulated nature of the banking industry, there are few
normalizing adjustments to be considered when valuing a financial institution.
No normalizing adjustments were made in the course of this valuation.
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5 VALUATION OF THE SUBJECT COMPANY
5.1 FACTORS TO BE CONSIDERED
Discussing the valuation process, Revenue Ruling 59-60 states:
In valuing the stock of closely held corporations or the stock of
corporations where market quotations are not available, all other
available financial data, as well as all relevant factors affecting the
fair market value must be considered for estate tax and gift tax
purposes. No general formula may be given that is applicable to the many
different valuation situations arising in the valuation of such stock.
Revenue Ruling 59-60 also outlines the following factors that "require careful
analysis" in business valuations: 1. The nature of the business and the history
of the enterprise from its inception.
2. The economic outlook in general and the condition and outlook of the
specific industry in particular.
3. The book value of the stock and the financial condition of the business.
4. The earning capacity of the company.
5. The dividend-paying capacity of the company.
6. Whether or not the enterprise had goodwill or other intangible value.
7. Sales of the stock and the size of the block of stock to be valued.
8. The market price of stocks of corporations engaged in the same or a
similar line of business having their stocks actively traded in a free
and open market, either on an exchange or over-the-counter.
Each of these factors is addressed in this valuation report. The following index
provides a quick reference to the discussion of each:
Factor 1..........Section 3: Analysis of the Subject Company
Factor 2..........Section 2: Economic Conditions and Industry Data
Factors 3-5.......Section 4: Financial Statement Analysis
Factor 6..........Section 5.3: Asset Based Approach
Factor 7..........Section 5.4.4: Historical Transactions in Company
Stock
Factor 8..........Section 5.4: Market Based Approach - Comparable
Transactions Method
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5.2 VALUATION APPROACHES
There are three main categories of valuation methods: Asset Based Approaches,
Market Based Approaches and Income Based Approaches. Each method examines the
value of a subject entity from a slightly different perspective, and each method
has its own strengths and weaknesses in general and in specific application. In
most cases, the values determined by each method will differ as a result of the
varying inputs and assumptions required under each approach. It is up to the
analyst to determine which method provides the most accurate value of the
subject.
Methods within the Asset Based Approaches presume that the value of the subject
entity is represented by the market values of the assets owned by the entity,
less that market value of any liabilities. The net asset value method assumes
that the values of all assets are realized through the course of normal business
operations, while the liquidation method assumes that all assets are liquidated
in an orderly fashion.
The comparative transaction method represents the common application of the
Market Based Approach. By using one or more sets of statistics drawn from
comparable completed whole-entity sales (public company mergers and
acquisitions, private transactions) and/or partial interest transactions
(publicly-traded stocks, mutual funds, partnership interests, REITs, etc.), the
value of the subject can be estimated using multiples of the subject's revenues,
earnings, dividends, cash flow, capital or other relevant financial attributes.
In addition, historical information on actual transactions in the subject's
stock can provide highly valuable information as to the true value of the
subject, provided that the transactions were conducted at arm's length and
occurred in the relatively recent past.
Within the Income Based Approaches, methods are differentiated based on the use
of historical or projected income streams. Under the capitalized returns method,
an estimation of value is based on historical data. This method is most suitable
for use when the subject's recent historical normalized returns can be
reasonably expected to continue into the future and can be expected to grow at a
predictable rate. By contrast, the discounted future returns method is based on
the present value of expected future earnings. This method is more applicable if
the subject's earnings fluctuate greatly, if the subject has no history of
earnings, or if the subject has recently undergone major changes in operating
characteristics. Both of these methods require a reasonable and supportable
estimation of future earnings prospects.
Other methods exist that do not fit neatly within one of the approaches
discussed above. While a number of methods are applicable only to specific
industries or circumstances, two of the more common "other" methods, the excess
earnings method and the rules of thumb method, are worthy of note due to their
widespread use in a range of circumstances.
The excess earnings method, rooted in Treasury Department revenue rulings, is a
hybrid of income and asset approaches. Like the capitalized returns method, the
excess earnings method is based on the theory that the rate of return on
investment should be
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commensurate with the risks associated with the assets represented by the
investment. In theory, the weighted average of the returns expected on tangible
and intangible assets should approximate the overall capitalization rate for the
entire company. Revenue Ruling 68-609 cautions, "(this) 'formula' approach may
be used for determining the fair market value of intangible assets of a business
only if there is no better basis therefore available".3
The rules of thumb method is often used in an attempt to easily estimate the
value for a "typical" company within a given industry. These rules of thumb
might state that a company is worth one quarter's gross sales or one year's net
income. Unfortunately, most rules of thumb do not provide enough data about the
"normal" or "typical" company in the industry for an accurate assessment of
their applicability in a given situation. Due to this limitation, the rules of
thumb method is excluded from further consideration in this analysis.
The reconciliation of the values derived from the various methods discussed
above is addressed in Section 7:
Conclusion.
5.3 ASSET BASED APPROACHES
The Company's Equity totaled $12.250MM as of September 30, 2002. Absent any
goodwill, and assuming that all of the Company's assets and liabilities are
carried at or near their reasonable market values, this amount should be the
minimum at which the Company should be sold. At any lower transaction value, the
current owner could liquidate the Company and walk away with over $12MM.
In reality, FDIC-insured financial institutions are rarely liquidated except in
cases of near failure. These failure situations are usually a result of
long-term mismanagement, high-risk lending practices and/or illegal activity
(fraud, embezzlement, etc.). Absent these problems, banks generally carry a
significant intangible value (goodwill or franchise value) that is recognized in
the event of a sale. This goodwill value is most readily evident in the Market
Based Approaches discussed below.
5.4 MARKET BASED APPROACH - COMPARABLE TRANSACTIONS METHOD
The comparable transactions method is based on the financial theory of
substitution or economic indifference. By obtaining data related to actual sales
transactions of similar entities or interests and making appropriate adjustments
to recognize the differences between the subject and its comparables, an
estimate of the market value of the subject can be obtained.
The selection of financial attributes to be valued and the selection of
appropriate comparables are critical in developing a market-based valuation
estimate. While this method can be extremely useful due to its use of actual
transaction data as source of value determination, it is often difficult (or
even impossible) to find truly comparable
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(3) Rev. Rul. 68-609, 1968-2 C.B. 327.
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companies that have sold or that are traded in a public market. It should be
noted that comparables do not have to be identical to the subject company, but
should be similar enough to withstand scrutiny. Courts have criticized valuators
for excluding reasonably comparable entities from consideration and have
objected to the use of transaction data that was drawn from too wide a set of
comparables, which were, in fact, incomparable.
The following methods were used to develop comparable-based valuations:
5.4.1 COMPARABLE SALES - WHOLE BANK TRANSACTIONS
The Sheshunoff BankSource database provides detailed information on whole bank
transactions and allows for searches based on multiple criteria. A search for
transactions announced from July 1, 2001 through October 22, 2002, where the
selling bank's total assets were between $75-125 Million generated the following
results:
<Table>
<Caption>
Number of Qualified Transactions 33
80% Trim
Average Median Average
-------- -------- --------
Book Value Multiple 1.85 1.71 1.78
Earnings Multiple 18.51 16.15 17.40
Price to Deposits 19.48 19.09 19.08
Price to Assets 16.89 16.48 16.48
Premium to Core Deposits 10.71 8.79 9.74
</Table>
Terminated transactions, distressed institution sales and transactions where
material data were unavailable were excluded from the analysis. A complete
listing of the transaction dataset is included in Exhibit F.
By applying averages of key valuation factors to the relevant factors from the
Company's current financial statements, we determined an entity value, before
appropriate adjustments, of $20,769,393. Exhibit F includes details of this
valuation process.
5.4.2 PUBLICLY TRADED COMPARABLE COMPANIES - SHARE EXCHANGE
The Publicly Traded Comparable Companies - Share Exchange Method is founded on
the premise that a rational, publicly-traded potential buyer of a bank or bank
holding company would be willing to execute a share exchange only if such an
exchange would be non-dilutive (or minimally dilutive) to the acquirer's pro
forma per share earnings.
The NASDAQ website (www.nasdaq.com) was used to gather pricing information on
publicly traded banks and bank holding companies domiciled and operating in
Louisiana and Mississippi, as well as two Alabama banks active in the Louisiana
market. Excluding companies with total assets under $250MM resulted in a
comparable data set of 15 companies with assets of $273MM to 16.6B. Based on
size, financial strength, operating history and geographic proximity, it is
reasonable to assume that each of these institutions is able to consummate a
transaction with the Company. A listing of the comparable companies is included
in Exhibit G.
14
Zachary Bancshares, Inc.
Fairness Opinion
One of the key motivating factors for acquisition of a community bank by a
larger institution is the potential for significant cost savings through the
consolidation of back office and executive-level functions. Various estimates of
cost savings are used by acquirers, with most projections resulting in at least
a 15-20% cost savings based on the existing profitability of the target entity.
By dividing the Company's modified trailing twelve month earnings by the
earnings per share (EPS) of each potential acquirer, multiplying the result by
the acquirer's per share trading price and then taking the average of the
results, we can estimate the value of the Company based on the number of shares
an acquirer could issue in exchange for the shares of the Company without
diluting EPS. Using this formula, we determine an entity value, before
adjustments, of $19,688,854 to $22,430,193.
Details of the calculations used in this valuation method are included in
Exhibit G.
5.4.3 PUBLICLY TRADED COMPARABLE COMPANIES - PRICE TO EARNINGS
Working from the same dataset as in Section 5.4.2, we can develop an average
price to earnings ratio demanded by the buyers of bank and bank holding company
stocks. As of September 30, 2002, this ratio 12.87, with a standard deviation of
1.71. Applying this data to the Company's trailing twelve month earnings of
$1,193,000 results in a value, before adjustments, of $17,120,743 to
$19,504,516. Details of this analysis are included in Exhibit G.
5.4.4 HISTORICAL TRANSACTIONS IN COMPANY STOCK
The following table includes all of the stock sales recorded on the books of the
Company between October 1, 2000 and September 30, 2002. In the most recent sale,
the seller accepted sealed bids for the shares sold.
<Table>
<Caption>
DATE SHARES PRICE
10/06/00 220 N/A
11/20/00 32 20.00
01/26/01 50 N/A
02/26/01 50 N/A
03/23/01 246 N/A
11/05/01 50 20.00
12/17/01 50 20.00
03/14/02 50 20.00
05/03/02 36 20.00
09/17/02 219 32.53
Total 1,003
</Table>
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Zachary Bancshares, Inc.
Fairness Opinion
5.5 INCOME BASED APPROACHES
5.5.1 DISCOUNTED FUTURE RETURNS METHOD
As discussed in Section 5.2: Valuation Approaches, this method has as its basic
premise the theory that a business is worth the present value of all the
expected future benefits of ownership. Proper application of this theory
requires the analyst to select the appropriate measure of return to the owner
(cash flow vs. net earnings) and select the appropriate discount rate and/or
capitalization rate to be applied to the selected measure of returns. The method
also requires the analyst to make certain assumptions regarding prospective
earnings and anticipated earnings growth rates.
The two primary components of the value estimate developed using the discounted
future returns method are:
o The present value of operations from the valuation date until a stable
and sustainable level of growth and profit is established, and
o The present value of the company's value in the terminal year, defined
as the year after stable and sustainable growth and profit are
established.
For this method, we selected cash dividends paid as the appropriate measure of
return. Exhibit H includes a table of the projected balance sheet growth,
earnings and dividends of the Company. These estimated are based on trend lines
developed from an analysis of historical results. The earnings and balance sheet
volumes projected for 2007 were used in determining the terminal value via the
calculations described in Section 5.4.1.
After projecting the future values of the Company, it is necessary to determine
the present value of those future returns using a discount rate. The Ibbotson
Buildup Method was used to determine this discount rate. Exhibit H includes a
detailed description of the components of this rate.
After consideration of all factors, the value of the Company using the
Discounted Future Returns Value, prior to the application of appropriate
valuation adjustments, is $13,531,090.
5.5.2 CAPITALIZATION OF HISTORICAL EARNINGS METHOD
Following much of the same logic as the Discounted Future Returns Method, the
Capitalization of Historical Earnings relies on historical data rather than
estimates of future performance as the basis for valuation. In many cases,
courts have indicated a preference for the use of historical financial
information due to the actual, verifiable nature of the data. While it has often
been said that past performance is not always an indication of future results,
the Historical Earnings Method can provide a reasonable indication of value,
especially in cases where the subject company has a history of stable earnings
or growth and such stability or growth can be reasonably expected to continue in
a similar manner.
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Zachary Bancshares, Inc.
Fairness Opinion
The Company has experienced stable earnings over a relative long period. As
indicated in Exhibit I, a weighted trend line of earnings from 1997 through 2001
was used to establish the earnings level to be capitalized. An average
Price/Earnings multiple of comparable public companies was used to calculate the
appropriate capitalization rate.
After consideration of all appropriate factors, the value of the Company using
the Capitalization of Historical Earnings method, prior to the application of
appropriate valuation adjustments, is $13,150,940.
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Zachary Bancshares, Inc.
Fairness Opinion
6 VALUATION ADJUSTMENTS
6.1 COMMON ADJUSTMENTS
The purpose of a valuation adjustment is to reflect differences between the
characteristics of the subject and those of the comparable dataset(s) from which
the indications of value are derived. As valuations are based on the financial
principle of substitution, these adjustments are an attempt to account for the
varying degrees of risk associated with the subject interest vis a vis
"comparable" investments.
The following adjustments were considered during the valuation process. Not all
are applicable for the given situation, but all were reviewed for applicability.
Those discounts considered appropriate are discussed in detail below.
>> Control premium / minority discount
>> Marketability discount
>> Block discount
>> Voting vs. non-voting stock adjustment
>> Key person discount
>> Discount for trapped-in capital gains
>> Discount for known or potential environmental liability
>> Discount for pending litigation
>> Portfolio discount (for unattractive assemblage of assets)
>> Concentration of customer or supplier base
6.2 CONTROL PREMIUM / MINORITY DISCOUNT
6.2.1 THE MINORITY STOCKHOLDER'S SITUATION
Minority stock interests in a "closed" corporation are usually worth
much less than the proportionate share of the assets to which they
attach...(4)
The above statement, from a 1935 stock valuation case that is still widely
quoted, captures the essence of the minority stockholder's situation. This
revelation comes as a shock to many people, who may have always assumed that a
partial interest is worth a pro rata portion of the value of the total
enterprise.
H. Calvin Coolidge, a former bank trust officer with extensive experience in
dealing with and selling (or attempting to sell) minority interests in closely
held companies, presents a cogent summary of the minority stockholder's
position.
- ----------
(4) Cravens v. Welch, 10 Fed. Supp. 94 (1935)
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Zachary Bancshares, Inc.
Fairness Opinion
The holder of a minority interest can at best elect only a minority of
the directors, and for corporations chartered in states which do not
permit cumulative voting, he may not be able to elect even one director.
Lacking control of the board of directors, he cannot compel payment of
dividends which must be declared equally and which would give him his
pro rata share of earnings. Lacking control of the board of directors,
he cannot compel his election as an officer or his employment by the
corporation, which the holders of the controlling interest can do, often
with resultant handsome compensation. In short, the holder of a minority
interest has no voice in corporate affairs and is at the mercy of the
holders of the controlling interest who have no reason to pay anything
but a token dividend, if any, and no reason to buy out the minority
holder except at a nominal price.
A willing buyer contemplating purchase from a willing seller of a
minority interest, being under no compulsion to buy (which would exclude
a buyer already owning some shares whose new purchase would cover
control), would suffer the same disadvantage of lack of control. The
buyer is asked to make an investment with no assurance as to the
certainty of current yield or as to when, or the amount at which, he may
be able to liquidate his investment. Regardless, therefore, of the value
of 100% of the corporation, the buyer will not purchase a minority
interest except at a discount from its proportionate share of the value
of 100% of the corporation.(5)
The lack of concurrence between the value of stock and the corporation's
underlying assets was clearly established by the U.S. Supreme Court back in
1925:
The capital stock of a corporation, its net assets, and its shares of
stock are entirely different things... the value of one bears no fixed
or necessary relation to the value of the other.(6)
An oft-cited U.S. Tax Court case quoted the above, adding:
This is particularly true as to minority interests in a closed
corporation...(7)
That minority shareholders often find themselves disadvantaged compared to
controlling shareholders is attested to by the fact that the oft-quoted,
lengthy, and scholarly two-volume treatise O'Neal's Oppression of Minority
Shareholders is doing well in its second edition, published in 1985. In the
preface to that edition, the authors comment on the growing amount of minority
shareholder litigation:
Most American lawyers do not realize the tremendous amount of litigation
in this country arising out of shareholder disputes. Since the
publication of the first edition of this treatise, the volume of
litigation grounded on minority shareholder oppression - actual,
fancied, or fabricated - has grown enormously, and the flood
- ----------
(5) H. Calvin Coolidge, "Discount for Minority Interest: Rev. Rul. 79-7's Denial
of Discount Is Erroneous," Illinois Bar Journal 68 (July 1980), p. 744
(6) Ray Consol. Copper Co. v. United States, 45 S. Ct. 526 (1925)
(7) Drayton Cochran et al., 7 T.C.M. 325 (1948)
19
Zachary Bancshares, Inc.
Fairness Opinion
of litigation shows no sign of abating. The increase in litigation has
been pronounced in both federal and state courts, with an especially
large number of suits challenging the validity of "cash-out" mergers.
Also worthy of note is that in the last four or five years there has
been a substantial increase in the number of suits minority shareholders
have brought for involuntary dissolution of their corporation or to
force majority shareholders to purchase their shares.(8)
6.2.2 APPLICATION OF THE CONTROL PREMIUM / MINORITY DISCOUNT
Due to the involuntary nature of the subject transaction, no minority discount
will be applied to valuation methods that initially yield a whole company value.
For methods that initially yield a marketable minority value, we will attempt to
remove the minority discount through the application of a control premium.
The precise determination of an appropriate minority discount (or inversely, a
control premium) can be extremely difficult, if not impossible. Two major bodies
of empirical evidence are often used to estimate minority discounts:(9)
1. Prices at which controlling interests are acquired in the public market
compared with the preannouncement minority stock trading prices, and
2. Prices at which holding company interests sell compared with their
underlying net asset values.
a. REITs
b. SEC-registered limited partnership interests
c. Closed-end mutual funds
The Mergerstat/Shannon Pratt's Control Premium Study is widely used to quantify
minority discounts and control premiums used in the business valuation, business
appraisal, venture capital, and merger and acquisition (M & A) professions. The
database currently contains information on over 2,850 total transactions
involving the acquisition of controlling interests in publicly traded companies.
A search on SIC Codes 6021 and 6022 returned 353 transactions with a mean
control premium of 31.7% and a median premium of 27.0%.
Given the nature of the block of stock being valued and after consideration of
the various discount studies and bodies of empirical evidence appropriate to
this valuation, it is our determination that a 27.0% control premium is
appropriate for use in methods that require such an adjustment. Please refer to
Exhibit J for additional information.
- ----------
(8) F. Hodge O'Neal and Robert B. Thompson, O'Neal's Oppression of Minority
Shareholders, 2nd ed., vol. 1 (Wilmette, Ill.: Callaghan & Company, 1985), p.
iii. The term cash-out merger is sometimes used to mean a squeeze-out or
freeze-out merger, in which minority shareholders receive cash for their shares.
They cannot block the merger or demand consideration other than cash. If they
are not satisfied with the amount of cash offered, their remedy is to demand an
appraisal of the stock under dissenter's appraisal rights statutes. See, for
example, Roland International Corp. v. Najjar, 407 A.2d 1032, 1033 (Del. S. Ca.
1979)
(9) Pratt, Discounts and Premiums, p. 62
20
Zachary Bancshares, Inc.
Fairness Opinion
6.3 MARKETABILITY
Generally, minority interests in privately held corporations command significant
marketability discounts due to the difficulty associated with liquidating such
interests. Several of the key factors in determining the appropriate
marketability discount include:
o The size and stability of dividends
o Prospects for liquidity (probably length of holding period)
o The pool of potential buyers
o Growth prospects
Based on a careful analysis of a number of factors, including historical
transactions and share volumes (as retailed in Section 5.4.4), our experience in
the community banking marketplace and multiple marketability studies detailed in
Exhibit K, it is our opinion that a 35% marketability discount is appropriate in
this situation.
6.4 APPLICATION OF ADJUSTMENTS
As identified above, two valuation adjustments are warranted in this valuation.
It is important to note, however, that not all valuation methods require the
application of all adjustments. The following table shows the application of
valuation adjustments to the various values determined using the methods
discussed above.
ZACHARY BANCSHARES, INC.
VALUATION METHODS SUMMARY
<Table>
<Caption>
ENTITY VALUE UNDISCOUNTED
BEFORE VALUE PER MARKETABILITY FAIR VALUE BOOK EARNINGS
VALUATION METHOD ADJUSTMENTS SHARE DISCOUNT PER SHARE MULTIPLE MULTIPLE
- ------------------------------------- ---------- ------------ ------------- ---------- ---------- ----------
Book Value 12,250,889 63.26 63.26 1.00 10.27
Comparable Sales - Whole Bank 20,769,393 107.24 35.0% 69.71 1.10 11.32
Public Bank Exchange Value - Low 19,688,854 101.66 35.0% 66.08 1.04 10.73
Public Bank Exchange Value - High 22,430,193 115.82 35.0% 75.28 1.19 12.22
Public Company P/E Multiple - Low 17,120,743 88.40 35.0% 57.46 0.91 9.33
Public Company P/E Multiple - High 19,504,516 100.71 35.0% 65.46 1.03 10.63
Discounted Future Returns 13,531,090 69.87 69.87 1.10 11.34
Capitalization of Historical Earnings 13,150,940 67.90 67.90 1.07 11.02
Actual Transactions - Low 20.00 0.32 3.25
Actual Transactions - High 32.53 0.51 5.28
</Table>
21
Zachary Bancshares, Inc.
Fairness Opinion
7 CONCLUSION
After considering all relevant information and the results of various valuation
methods, it falls to the valuator to use judgment and experience to analyze the
results and determine the ultimate fairness of the proposed transaction.
Based on all factors that we deem relevant and assuming the accuracy and
completeness of the information and data provided to us, we conclude that the
cash consideration of $70.00 per share to be paid by the Company is fair, from a
financial point of view, to all shareholders of the Company, including those
shareholders receiving the cash consideration.
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Zachary Bancshares, Inc.
Fairness Opinion
8 VALUATOR'S CERTIFICATION
I certify that, to the best of my knowledge and belief:
1. The statements of fact in this report are true and correct.
2. Neither the valuator, nor any officer, agent or employee of National
Capital, L.L.C. has any present or contemplated interest in the Company, nor
any personal bias with respect to the parties involved.
3. National Capital, L.L.C. has received a fee for the preparation of this
fairness opinion report. The fee paid to National Capital, L.L.C. was not
contingent on any action or event resulting from the analysis, opinions or
conclusions in the report.
4. This report is valid only for the period indicated in the report and only
for the express purpose stated herein.
5. The report analyses, opinions and conclusions are limited only by the
reported assumptions and limiting conditions, and are my personal, unbiased
professional analyses, opinions and conclusions.
6. The valuator's analyses, opinions and conclusion were developed, and this
report was prepared, in conformity with the National Association of
Certified Valuation Analysts' standards for conducting and reporting on
business valuations.
- --------------------------
T. Jefferson Fair
December 2, 2002
23
Zachary Bancshares, Inc.
Fairness Opinion
9 VALUATOR'S QUALIFICATIONS
<Table>
<Caption>
T. Jefferson Fair
- ------------------------------------------------------------------------------------------------------------
Experience 1993-Present National Capital, L.L.C. Baton Rouge, LA
Principal
o Perform business valuations for purposes including ESOP Formation, Contribution
and Dissolution; Family Limited Partnership Formation and Gifting, Estate
Valuation; Merger/Acquisition; Subchapter-S Conversion; Private Placements; etc.
o Provide investment banking and financial advisory services to publicly traded
and privately held companies across a wide range of industries.
o Act as Buyer's, Seller's or Third-Party Representative in merger transactions.
---------------------------------------------------------------------------------------
1993-Present American Planning Corporation Baton Rouge, LA
Principal
o Act as a Financial Consultant to Financial Institutions and Financial Holding
Companies.
o Provide short- and long-range financial planning services based on
value-enhancement strategies.
o Develop and value long-range strategic business plans.
---------------------------------------------------------------------------------------
1996-2000 American Medical Management Services Baton Rouge, LA
Principal
o Provide financial analysis and cost reporting services to medical service
providers including home health agencies, durable medical equipment providers,
hospitals and nursing homes.
- ------------------------------------------------------------------------------------------------------------
Education 1999-Present Louisiana State University Baton Rouge, LA
o Postgraduate Studies toward M.S. - Finance
---------------------------------------------------------------------------------------
1989-1993 Baylor University Waco, TX
o B.B.A. - Management Information Systems
- ------------------------------------------------------------------------------------------------------------
Memberships and National Association of Certified Valuation Analysts (AVA Designation)
Designations Louisiana Bankers Association (Associate Member)
Mississippi Bankers Association (Associate Member)
</Table>
24
Zachary Bancshares, Inc.
Fairness Opinion
EXHIBIT A
NATIONAL ECONOMIC DATA AND ANALYSES
[THE FEDERAL RESERVE BOARD LOGO]
================================================================================
[THE BEIGE BOOK LOGO]
SEPTEMBER 11, 2002
SUMMARY
-----------------------------------------------------------------------
PREPARED AT THE FEDERAL RESERVE BANK OF ST. LOUIS AND BASED ON
INFORMATION COLLECTED BEFORE SEPTEMBER 3, 2002. THIS DOCUMENT
SUMMARIZES COMMENTS RECEIVED FROM BUSINESS AND OTHER CONTACTS OUTSIDE
THE FEDERAL RESERVE AND IS NOT A COMMENTARY ON THE VIEWS OF THE FEDERAL
RESERVE OFFICIALS.
-----------------------------------------------------------------------
District reports suggest that the growth of economic activity has
slowed in recent weeks, with a good deal of variation across sectors.
Although Atlanta and San Francisco reported modest improvement, most
Districts indicated slow and uneven economic growth, with mixed or
scattered experiences across sectors of the economy. Boston and Dallas
reported little change in the overall level of economic activity.
Retail sales were generally mixed, although seven Districts reported
strong sales of home furnishings or appliances. Three Districts
attributed slow apparel sales to unseasonably warm weather. Back-to-
school supplies were reported to have sold well in three Districts,
although another District reported disappointing sales. All Districts
noted that retail inventories were at desired levels, with some
reporting that inventories are being kept leaner than in the past.
Almost all Districts reported an increase in auto sales over 2001
levels, mostly due to aggressive financing and rebate incentives.
On the whole, manufacturing activity was sluggish, with a good deal of
variation by industry and region. In particular, some Districts
reported weakness in the high-tech and building materials industries,
although other Districts reported strength in the auto and steel
industries. The strength of the tourism sector varied across the
Districts, with six indicating an increase in business and four
reporting low or mixed activity. Almost all Districts noted that
business travel has remained at a low level.
Most Districts reported little or no gain in employment in July and
August, although three noted that the demand for temporary workers has
strengthened. In most Districts, the prices of inputs and final goods
increased slightly or remained flat. Despite few signs of pressures on
wages, there was widespread concern about the effect that rising health
care costs might have on labor costs.
Nearly all Districts reported strong residential sales and construction
activity. On the other hand, commercial real estate markets remained
weak. Banks in all Districts report strong demand for residential
mortgages and refinancing, although business lending continued to be
weak across the board. Credit quality was described as good and
delinquency rates as either stable or declining.
Drought conditions have been adversely affecting crops and livestock
through most of the West and large areas along the East Coast. The
experience elsewhere was more mixed, with yields severely reduced in
some areas and near-record levels in others. Oil prices have risen
while natural gas prices have been largely unchanged. Natural gas
inventories are expected to be at record high levels when the heating
season begins.
CONSUMER SPENDING
The retail sales picture was mixed for the nation as a whole in July
and August, with some Districts posting declines in sales and others
noting slight gains over 2001 levels. Home furnishings and other home
products were strong sellers in Kansas City, Atlanta, St. Louis,
Cleveland, and New York. Some Districts noted robust sales of back-
to-school items while others have been disappointed with sales so far.
San Francisco and Boston reported strong demand for large appliances.
Several Districts, including Cleveland, New York, and Philadelphia,
noted that warm weather was responsible for sluggish sales of fall
apparel; others reported that apparel sold well. All Districts noted
that retail inventories are in line with expectations, although a few
heard that retailers are maintaining leaner inventories than in the
past. Chicago, Dallas, and Boston reported that discount stores have
continued to register stronger sales than general merchandisers. While
Minneapolis noted that mall traffic was strong in August, other
Districts reported a drop-off. Overall, retailers are cautiously
optimistic about the fall, expecting sales to be flat or slightly up
from their 2001 levels.
Almost all Districts reported an increase in auto sales over 2001
levels, mostly due to the aggressive financing and rebate incentives
offered. Inventories are at desired levels for most contacts, although
many dealers are clearing out 2002 models to make room for 2003 models.
Most Districts report that dealers are optimistic about sales for the
next few months.
MANUFACTURING AND OTHER BUSINESS ACTIVITY
Reports of manufacturing activity indicate that there was little to no
growth in July and August, although Atlanta and St. Louis reported
modest improvement. Some industries have struggled with sluggish orders
while others have experienced moderate gains. Although several
Districts noted that overall orders in the high-tech industry are still
weak, demand for semiconductors has continued to improve in Dallas and
San Francisco. Boston and Cleveland reported that residential appliance
activity was up. While Philadelphia reported strong demand for
construction materials, Dallas, Minneapolis, and
Atlanta have seen declines in demand for these products. According to
contacts in the Chicago, St. Louis, and Cleveland Districts, activity
in the steel industry continued to increase. These Districts, along
with Atlanta, also saw higher production of automobiles and automobile
components. Richmond and Atlanta saw increases in orders and shipments
of packing materials. New York reported a mild rebound in manufacturing
activity in August after a dip in July, while the Kansas City
manufacturing sector saw fewer signs of improvement in July and August.
Several reports noted that positive attitudes still prevail, but
manufacturers have become less optimistic than they were earlier in
2002.
Reports from the tourism sector were also mixed across Districts. St.
Louis, Minneapolis, Atlanta, Kansas City, Chicago, and New York
reported an increase in business, while Boston, Philadelphia, San
Francisco, and Richmond observed low or mixed overall activity. Most
Districts noted that the duration of leisure visits has declined and
that visitors are spending less money per trip. Almost all Districts
noted that the level of business travel is low, as is demand for air
travel, which has been affecting hotel occupancy rates in some areas.
Dallas reported that auditing activity was strong, as was the demand
for some legal services. The Atlanta District noted that Mississippi
gaming activity has been strong. Boston reported that the temporary
employment industry and the majority of software and information
technology services have seen flat-to-modest increases in sales and
revenue this summer. Trucking firms in Maryland and North Carolina
reported soft demand.
LABOR MARKETS AND PRICES
Labor markets in several Districts -- Cleveland, Atlanta, Chicago, and
Minneapolis -- showed little change since the last Beige Book. In New
York, hiring remained sluggish, although some signs of a pickup were
noted for August. Firms in Kansas City expressed little interest in new
hiring as they wait for further signs of improvement in the economy.
Many contacts in Chicago indicated a downward trend in the demand for
workers in the retail sector while retail payrolls in Boston and
Richmond held steady. Manufacturers in Richmond and St. Louis reported
little new hiring, although one manufacturing contact in Chicago
reported a modest increase between June and July. The majority of
manufacturers in Boston expect only small changes in employment for the
rest of 2002. The Boston and Richmond markets for temporary employment
experienced stronger demand in recent weeks. In Dallas, call centers
and light industrial and manufacturing firms have the most need for
temporary labor. Overall, wages were reported to be flat, with
virtually no reports of upward pressure on wages. Contacts in San
Francisco, however, reported an abundant supply of labor and
flat-to-slightly elevated wages.
Prices, too, remained unchanged, on average, although Atlanta, Dallas,
Kansas City, and Boston reported an increase in steel prices. Prices of
inputs and final goods increased slightly or remained flat in most
Districts. The prices of building materials were said to be up in
Atlanta, although San Francisco and Kansas City reported that these
prices remained low in July and August. In almost all Districts there
was concern about the rising cost of health insurance, which is leading
some businesses to have higher labor costs.
REAL ESTATE AND CONSTRUCTION
Despite the weakness in commercial markets, most Districts, except for
Dallas and Philadelphia, reported strong residential sales and
construction activity. Contacts in Richmond and Cleveland attributed
this vigorous activity to a favorable interest rate environment. In the
Atlanta District, strong sales in some Florida markets have created a
shortage of homes. July saw the highest number of monthly home closings
for the Minneapolis-St. Paul area in five years. Existing home sales
for July and August picked up in some Chicago markets. Prices for
single-family homes in New York and Minneapolis were up in the second
quarter from a year earlier, but apartment rents were reported to be
lower than a year ago. Philadelphia and Dallas are the only Districts
reporting less than robust residential sales. Real estate agents in
Philadelphia reported an easing in the rate of sales in both new and
existing homes for July and August. Total home sales remained unchanged
in Dallas. Homes priced below $150,000 in Dallas continue to sell, but
sales for higher-priced homes are slow. In Kansas City, sales and
starts were also stronger for entry-level homes than for higher-priced
homes.
Commercial real estate markets remained soft in Boston, Philadelphia,
Chicago, Minneapolis, Kansas City, Dallas, and San Francisco. Boston,
Philadelphia, Minneapolis, and Kansas City noted increased office
vacancy rates for portions of their Districts while San Francisco
reported unchanged vacancy rates for commercial and industrial space.
New York, Richmond, Atlanta, and St. Louis indicated little or no
overall change in commercial markets. Commercial construction
opportunities slowed in Cleveland, St. Louis, Kansas City, and San
Francisco. Commercial realtors and contractors in Kansas City and
Boston do not see any signs of improvement in the near future.
BANKING AND FINANCE
Bank loan demand was generally mixed. However, Richmond, Atlanta, and
Chicago reported a moderate rise and New York, Kansas City, and San
Francisco reported an uneven experience. Demand for mortgages and
refinancing remained high across the nation, with Richmond noting a
marked increase. Contacts in Philadelphia expressed concern about the
sustainability of real estate lending in the absence of growth in other
sectors. Business lending continued to be weak in all of the reporting
Districts. Demand for consumer loans has been strong in Chicago and
Atlanta but mixed in New York and Philadelphia.
Delinquency rates were reported to be either stable or declining.
However, credit standards have been tightened for commercial and
industrial loans. St. Louis noted that such tightening has only
occurred for small firms. Credit standards for other loans remained
largely unchanged, except in Atlanta, which reported a tightening.
Cleveland and Chicago reported no change in the quality of consumer or
business loans; Philadelphia, however, noted a mild slippage.
Atlanta noted a surge in the number of borrowers looking to shorten the
term of their loans. Cleveland reported increased competition across
all lines of lending while San Francisco noted an increase only for
low-risk lending.
AGRICULTURE AND NATURAL RESOURCES
Drought conditions across much of the West and portions of the eastern
United States have adversely affected both crops and livestock.
Although recent rains have improved crop conditions in some areas, hot
and dry weather during the middle of the year reduced the corn,
soybean, and hay crops in parts of the Richmond, Chicago, Minneapolis,
Dallas, and Kansas City Districts. As a result, bankers in the Kansas
City District expect crop insurance payments to be a significant source
of producers' income this year. Chicago noted that moisture conditions
were notably less favorable for crops in Illinois and Indiana than
elsewhere in the District, with contacts in central Illinois observing
potential corn yields one-third lower than a year ago. In contrast,
other portions of the Chicago District expect near-record corn and
soybean yields; in addition, San Francisco reported that sales of
fruits, vegetables, and nuts were high, spurred in part by strengthened
export demand. Prospects for the cotton crop are good in Dallas and St.
Louis, and the wheat harvest in Montana is expected to exceed
significantly 2001's drought-ravaged crop.
Livestock producers in the Kansas City, Richmond, and Dallas Districts
have been providing supplemental feed to livestock due to dry weather
and poor pasture conditions. Richmond also indicated instances of
hauling water to livestock. Richmond, Dallas, and San Francisco
reported that livestock farmers were paring herds, with liquidation
under way in some areas of the Dallas District.
Oil producers in the Dallas and Kansas City Districts reported
increased oil prices, while natural gas prices, on average, were
largely unchanged. Natural gas inventories declined slightly in the
Dallas District but are expected to be at record high levels when the
heating season begins. Reports from Dallas, Kansas City, and
Minneapolis indicate that the count of active oil and gas drilling rigs
remained unchanged in July and August. The Dallas District also noted
that foreign drilling activity was down slightly but that revenues were
up due to the complexity of the projects.
THE NATIONAL ECONOMY
2ND QUARTER 2002 AND OUTLOOK THROUGH 2002
The following discussion and analysis of the national economy for the second
quarter of 2002 is based upon a review of current economic statistics, articles
in the financial press and economic reviews from current business periodicals.
The purpose of the review is to provide a representative "consensus" on the
condition of the national economy and its general outlook through 2002.
ECONOMIC PERSPECTIVES
The sputtering rebound which initially surfaced in the first quarter of 2002 has
now been likened to an automobile engine misfiring or needing new sparkplugs.
Unfavorable adjectives abound, as the previously promising environment has given
way to falling equities prices, proliferating corporate scandals and continuing
layoffs ("right-sizings"?). While recession has not returned, the confusion is
slowly eroding confidence of imminent recovery, despite the statistical
evidence. For several months last winter, as the output of goods and services
(Gross Domestic Product, all told) rebounded rapidly, the United States economy
seemed to be oblivious to the damage of overvalued stock markets and excessive
corporate expansion. As these markets held their own during the first quarter,
many forecasters branded fears of a "bursting bubble" as unfounded. Almost
simultaneously, the Enron accounting scandal spread, followed by WorldCom's and
the restating of earnings downward by a landslide of other companies; this
scenario contributed heavily to consumer and institutional disenchantment with
our financial markets, and the "reality checks" continue into the next quarter.
In his public statements, Federal Reserve Board Chairman Greenspan appears
"up-ticked." When the life of an economic upturn seems threatened, the Fed
usually has been able and willing to sustain it by reducing interest rates under
its purview. This time, however, the central bank has limited "wiggle room" in
which to exercise, having committed itself to statements and policies implying
we are in recovery mode. Last quarter, most corporate forecasters expected
interest rates to be raised as early as the third quarter, in anticipation of
up-ramping inflation; now the prognosis is postponed as much as a half-year. The
bellwether Industry Panel Survey recently released by the National Association
for Business Economics ("NABE") reveals a modest recovery is underway, even
though current capital spending among its members fell notably from last
quarter's survey. This marks the fifth consecutive quarter NABE corporate
spending has fallen, and a record streak in the survey's 20 year life span.
Furthermore, while reported profit margins continued to improve (at a slower
pace than last quarter), NABE respondents' employment trends declined again, and
hiring plans remain weak through year-end 2002. Validating these panelists'
views, the U.S. Department of Commerce's GDP [advance] Report showed growth
easing in the second quarter --while it included sweeping revisions to
historical data as far back as 1999. These revisions reveal growth for the year
2001 was much weaker than the prevailing economic media thought: only 0.3%
(versus 1.2%), attributed to three consecutive quarters of contraction. As last
year's revised retrospective now shows a deeper recession, many analysts have
begun to expect a milder recovery this year.
Following is a retrospective by major industry sector, derived from Federal
Reserve Bank surveys.
GEOGRAPHICAL DISPERSION OF THE FEDERAL RESERVE BANKING SYSTEM
The twelve Federal Reserve Districts are geographically divided, straddling
states and regions of the U.S.:
<Table>
<Caption>
DISTRICT # BANKING CENTER REGIONS SERVICED
ONE Boston New England
</Table>
<Table>
TWO New York NY State, Northern New Jersey, Puerto Rico, Virgin Islands
THREE Philadelphia Delaware, Eastern Pennsylvania, Southern New Jersey
FOUR Cleveland Ohio, Western Pennsylvania, Eastern Kentucky
FIVE Richmond Maryland, Virginia, W. Virginia, N. Carolina, S. Carolina
SIX Atlanta Georgia, Eastern Tennessee, Alabama, Southern Mississippi,
Florida, Southern Louisiana
SEVEN Chicago Illinois, Northern Indiana, Southern Wisconsin, Iowa,
Southern Michigan
EIGHT St. Louis Missouri, Arkansas, Western Kentucky, Southern Indiana,
Western Tennessee, Northern Mississippi
NINE Minneapolis Northern Wisconsin, Northern Michigan, N.Dakota, S.Dakota,
Minnesota, Montana
TEN Kansas City Kansas, Nebraska,Oklahoma,Colorado,Northern New Mexico,
Wyoming
ELEVEN Dallas Texas, Southern New Mexico, Northern Louisiana
TWELVE San Francisco California, Oregon, Washington, Idaho, Nevada, Utah, Alaska,
Arizona, Hawaii, Guam, Samoa, other U.S. Pacific territories
</Table>
CONSUMER SPENDING
Most Districts reported retail sales as "mixed" but similar to year-on-year
levels. Some rebound in non-automotive sales surfaced in the Cleveland, New
York, Richmond, St. Louis and San Francisco Districts, anecdotally driven by
weather conditions. On the downside, Atlanta, Boston, Chicago and Dallas noted
some weakening in spending. Across the country, nonetheless, home-related
procurement --building materials, hardware and furnishings-- were reported
strong by local contacts. Despite mass media emphasis on inventory levels, there
were no indications of retail drawdowns, but New York and San Francisco shared
deliberate inventory accumulation as they anticipated a longshoremen's labor
action on the Pacific Coast. Automobile sales were characterized as
"disappointing" at quarter's end without a resumption of generous incentive
plans.
MANUFACTURING
Modest improvements were reported in general across all Districts during the
quarter. None of the twelve indicated any overall declines; many noted some
moderate expansion, while others recognized struggling sectors. The automotive
vehicle assembly and parts supply sub-sectors showed expansion in the Atlanta,
Boston, Chicago, Cleveland and St. Louis Districts, for example. Semiconductor
production continued to improve, as noted by Boston, Dallas and San Francisco.
Responding to strength in consumer sub-sectors, production of residential
construction-related materials remained up-beat in the Chicago and Dallas
Districts, brisk in Philadelphia and relatively strong in Atlanta. Minneapolis
and New York reported a general increase in activity through June, while
Richmond had mixed conditions as tobacco and paper rose, but furniture and
textiles slipped. Kansas City indicated a continuation of manufacturing
recovery, despite some weakening in the volume of new orders. Overall,
inventories remained steady or declined slightly.
REAL ESTATE AND CONSTRUCTION
Nearly all Districts showed strength in residential real estate activity, but
the commercial sector continued suffering from a spate of overbuilt environments
and hesitation. The vast majority described their housing markets as "robust,"
reflecting "sturdy" gains in sales volume and a spectrum of price appreciation.
As expected, however, the hard-hit telecommunications and energy sectors
continued to suppress residential activity in the Dallas District. Weaknesses
were also identified in the higher-priced markets of Chicago, Kansas City,
Richmond, St. Louis and San Francisco. The trough in equity markets has had its
impact, although several Districts noted declines in the stock market have
actually diverted investments to real estate as relatively savvy consumers
capitalized on persistently low interest rates. Residential construction
activity was, accordingly, mixed to strong; strong or rising activity was
reported by Atlanta, Kansas City, Minneapolis, St. Louis and San Francisco.
Constraints on construction were realized in the Boston and Chicago Districts,
where shortages of developable land were pushing up prices.
Sustained weakness was the watchword in commercial real estate across most
Districts, as conditions slackened in Atlanta, Chicago, Dallas, Kansas City,
Minneapolis, New York, Richmond and San Francisco. Cleveland, however, noted an
improvement from a previously depressed market. Defying pervasive weakness in
office markets, Richmond signaled scattered strength in its retail and warehouse
sectors. Commercial construction volume remained "sluggish" in most regions of
the country, for reasons stated above.
BANKING AND FINANCE
Little change was reported by the banking community during the quarter, as
continued strong demand for home mortgages and weak activity in business loans
persisted. Some "softening" in consumer loan demand was indicated by Dallas and
New York, but Atlanta had a moderate increase. Home mortgage lending was robust
in most Districts, as conditions improved again in Chicago, Kansas City,
Philadelphia and Richmond. Refinancing activity increased in the Chicago and
Kansas City Districts, but declined in Cleveland and New York. Stability
prevailed in loan payment delinquency rates, and overall credit quality was
described as "strong" and "stable" in most areas. St. Louis, however, stood out
with an increase in bankruptcy and past-due filings. Lending standard
constrictions were increased in the Kansas City and New York Districts. In money
centers, Philadelphia's investment firm revenues have been "adversely affected"
by consumers' fund migration from equities to money markets, while San
Francisco's financial sector remains "healthy."
AGRICULTURE, ENERGY AND NATURAL RESOURCES
Poor agricultural conditions continued in most areas, as a season of drought or
near-drought persisted in the Chicago, Cleveland, Kansas City and Richmond
Districts and some States in the Atlanta, Minneapolis and St. Louis Districts.
Most soybean and corn -producing areas endured "oppressive" dry conditions. A
desiccating drought continued in the Carolinas and Virginia, and areas with
livestock reported deteriorated pasture conditions.
Dallas and Kansas City described energy activity as "strong," but oil and gas
extraction in both Districts stagnated later in June, following a robust May.
Smaller energy firms in the Dallas District began pulling back late in the
quarter, anticipating lower demand for petroleum and gas products. Earnings
experienced downward pressure in Kansas City's natural gas industry; prices fell
sharply in Wyoming.
SERVICES AND TOURISM
On the heels of slow return to stability during the first quarter, signs of
improvement in travel and tourism were noted across the western area of the
country during the second quarter. Kansas City, Minneapolis and San Francisco
Districts reported increases in activity, attributable to unexpectedly favorable
weather conditions in these markets. Nonetheless, in the east, weaknesses
surfaced in Atlantic Coast Districts: Atlanta and New York had slippage in hotel
room occupancies; reports of shorter stays and curtailed spending by Florida
tourists contributed to Atlanta District slackness.
Other service sub-sectors reported mixed conditions. Boston's insurers noted
strong demand for life products, but scattered declines in health plan
membership, attributed to weakening labor markets. Shipping and trucking showed
robustness in the Richmond District, while Dallas's telecommunications and
energy sector weaknesses rippled through its service industries.
LABOR MARKETS, WAGES & PRICES
The continuing labor market stagnation kept wage pressures from rising during
the quarter, with the exception of a threatened strike by longshoremen. Sporadic
reports of increased hiring in skilled occupations like engineers, nurses and
specialty trade construction workers were reported across all Districts. While
the net change indicated stability, Kansas City and New Yo rk had some softening
and most contacts in the Cleveland and Minneapolis Districts signaled no
intentions to increase hiring. The temporary staffing service sub-sector showed
some signs of rising activity; Chicago and New York had weaknesses, but Atlanta,
Cleveland, Dallas and Richmond had increases. As mentioned above, Chicago and
Richmond experienced some weakening in the manufacturing sector, while Kansas
City and New York had pickups in light manufacturing segments. Richmond reported
increases in service and retail hiring, but Boston experienced declines. In the
Dallas District, continuing airline industry problems resulted in more layoffs.
Overall, wages were reported steady, with a contagion of non-wage benefit cost
pressures.
Prices were characterized as "steady" for most goods and services, except
building materials and health/insurance services. Other input prices remained
flat or fell, especially in manufacturing across the country. Continued
discounting in the retail sector was mentioned in widely scattered areas. The
San Francisco District experienced "spikes" in wholesale spot electricity prices
due to unseasonably warm weather. Boston reported "firming" of semiconductor
prices but declining prices for other high-technology goods. A weakening energy
market (mentioned above) contributed to inventory build-up in natural gas and
consequent price decreases in the Dallas District. Chicago's developable land
shortage supported prices for residential construction. Richmond had a moderate
increase in service sector and manufactured goods prices.
OUTLOOK
While the nation's unemployment rate has been between 5.5% and 6.0% in recent
months, it is up 1.5% from the average of the previous 30 months. Many
forecasters expect it to rise above 6.0% before we recognize a recovery is again
underway, probably topping out as the year ends. Increasing attention is being
diverted to INVENTORY LEVELS and inventory/sales ratios as a harbinger of
economic recovery. (For the most recent ratios, visit the Institute for Supply
Management --formerly the National Association of Purchasing Management--
website www.ism.ws/ISMReport/ROB072002.cfm and the U.S. Department of Commerce's
website www.census.gov/mrts/www/mrts.html.) As inventory drawdowns continue, it
is important to recognize inventory "corrections" have accounted for about a
quarter of the slowdown in Gross Domestic Product during post-World War II
recessions, on average. The modest manufacturing inventory glut which emerged in
the fourth quarter of 2001 is expected to reduce and reverse itself in the
fourth quarter, even as real BUSINESS INVESTMENT trails. Business investment
during the second quarter continued to contract in quarter-on-quarter annualized
terms, but at a much slower pace than the previous few quarters. This could
portend a turnaround is already underway. However, the "seed money" which
created grass-roots growth in our last economic rebound has been largely
withheld at this juncture. The drought otherwise unmentioned above has worsened
to the extent INITIAL PUBLIC OFFERINGS are at their lowest volume in nearly ten
years. This means "real" companies (not dot-coms) are withdrawing their
offerings and postponing of product development plans, preferring to tap
overseas markets or parking cash on the sidelines. Investors simply don't trust
the current markets enough to buy IPOs. Previously, strengths in the housing
market and other measures of CONSUMER ACTIVITY had shielded consumption and
investment from some of the burden of equity market corrections. Instead,
CAPITAL SPENDING indicators appear more affected by the decline in stock market
prices. Indeed, business sentiment has fallen, credit conditions have changed,
investment decisions have been put off and the SEC has imposed new corporate
accountabilities. In a reflection of international disincentive, recent news
media leaks suggest the IMF (read: World Bank) may be preparing to cut its 2002
and 2003 growth forecasts for the United States. As the quarter ended, concerns
about a major, prolonged U.S. military commitment in Iraq loomed larger as the
"wild card" in the deck of this economic recovery.
August 2002
Information contained in this report has been obtained by CEIR from sources
believed to be reliable. CEIR is not able to guarantee the accuracy or
completeness of this information, nor is NACVA responsible for any errors,
omissions or damages arising from the use of this information.
(C)2002 NACVA and Center for Economic & Industry Research(TM), 1111 Brickyard
Road, Salt Lake City, Utah 84106; ALL RIGHTS RESERVED.
CONSENSUS OF ANNUAL ECONOMIC FORECASTS
Average % Change on Previous Calendar Year
<Table>
<Caption>
THIS MONTH'S MEAN LAST QUARTER'S MEAN
CATEGORY 2002 2003 2002 2003
- -------- ---- ---- ---- ----
Real Gross Domestic Product 2.3 3.1 2.6 3.5
Real Disposable Personal Income 4.5 3.1 3.0 3.4
Real Personal Consumption 3.1 2.8 3.1 3.0
Real Business Investment -5.3 5.0 -3.3 7.8
Industrial Production -0.1 4.2 -0.1 4.8
Consumer Prices 1.6 2.4 1.5 2.4
Producer Prices -1.1 1.5 -0.8 1.8
Employment Costs 3.7 3.6 3.6 3.5
Nominal Pre-tax Profits 9.0 9.7 11.5 9.0
</Table>
Absolute Values
<Table>
<Caption>
THIS MONTH'S MEAN LAST QUARTER'S MEAN
CATEGORY 2002 2003 2002 2003
- -------- ---- ---- ---- ----
Ann'l Change in Bus. Invent. ($ bn) 0.6 35.7 7.2 43.5
Ann'l Total Auto & Lt Truck Sls (mm units) 16.5 16.5 16.2 16.4
Annual Total Housing Starts (mm units) 1.65 1.60 1.60 1.56
Annual Average Unemployment Rate (%) 5.9 5.8 5.7 5.4
</Table>
TABLES EXPLAINED:
AVERAGE % CHANGE ON PREVIOUS CALENDAR YEAR:
Shows the mean value of our monthly consensus on the % movement of Indicators
over the next two years
ABSOLUTE VALUES:
Shows the mean value of our monthly consensus on the magnitude of Indicators
over the next two years
Source: Consensus Forecasts - USA Aug-
02
QUARTERLY ECONOMIC PERFORMANCE TRENDS
Year-on-Year Percentage Change Trend
<Table>
<Caption>
2001a 2001a 2002a 2002e 2002f 2002f 2003f 2003f 2003f 2003f
3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
CATEGORY
Real Gross Dom Prod -0.4 0.1 1.4 2.1 2.9 2.9 2.5 3.1 3.3 3.5
Real Disp Pers Inc 2.8 0.3 3.9 5.0 3.1 5.9 3.3 3.0 3.0 3.0
Real Pers Consump 1.8 2.8 3.0 3.1 3.6 2.6 2.6 2.9 2.8 3.0
Real Business Invest -7.4 -9.3 -9.4 -6.1 -4.4 -0.7 2.3 4.4 6.2 7.5
Indust Production -4.8 -5.9 -3.7 -1.2 0.9 3.7 4.2 4.1 4.3 4.4
Consumer Prices 2.7 1.9 1.1 1.2 1.6 2.3 2.5 2.3 2.3 2.4
Producer Prices 1.6 -1.0 -2.4 -2.3 -0.8 1.1 1.5 1.5 1.6 1.6
</Table>
Absolute Values
<Table>
<Caption>
2001a 2001a 2002a 2002e 2002f 2002f 2003f 2003f 2003f 2003f
Other Indicators 3Q(end) 4Q(end) 1Q(end) 2Q(end) 3Q(end) 4Q(end) 1Q(end) 2Q(end) 3Q(end) 4Q(end)
Change in Bus Invent
($bn)* -61.8 -98.4 -28.9 1.0 7.9 22.3 30.6 35.2 38.3 39.2
Unemployment Rate
(%) 4.8 5.6 5.6 5.9 6.0 6.0 5.9 5.8 5.6 5.7
3 mo Treas Bill Rate
(%) 2.4 1.7 1.8 1.7 1.7 1.8 2.0 2.2 2.6 3.1
10 yr Treas Bond Yld
(%) 4.6 4.2 5.4 4.8 4.5 4.6 4.8 5.0 5.2 5.4
</Table>
*chained 1996 prices; annual rate
TABLES EXPLAINED:
YEAR-ON YEAR PERCENTAGE CHANGE TREND:
Shows the past actual and mean values of our consensus on quarterly movement of
Indicators over a two-year period (a=actual, e=estimate, f=forecast)
ABSOLUTE VALUES:
Shows the past actual and mean values of our consensus on quarterly movement of
Indicators over a two-year period (a=actual, e=estimate, f=forecast)
Source: Consensus Forecasts - USA Aug-02
BIBLIOGRAPHY FOR "THE NATIONAL ECONOMY: 2ND QUARTER 2002"
Summary of Commentary on Current Economic Conditions by Federal Reserve
District; Board of Governors of the Federal Reserve System; June 12, 2002 and
July 31, 2002
Consensus Forecasts - USA; Consensus Economics Inc.; August 12, 2002
"U.S. Economic Outlook"; InSight; Zions First National Bank; Summer 2002
BEA News Release; U.S. Department of Commerce/Bureau of Economic Analysis; July
31, 2002
"Industry Panel: Economic Recovery to Stay Weak While Employment and Capital
Spending Slip"; NABE News; National Association for Business Economics;
July/August 2002
"2nd Quarter Shapes Up Much Like The First"; Kenneth Gilpin; The New York Times;
June 30, 2002
"Call It the (Pick Your Poison) Recovery"; Louis Uchitelle; The New York Times;
July 7, 2002
"This Time, The Fed Is Boxed In On Rates"; Louis Uchitelle; The New York Times;
June 16, 2002
"Snail's Pace of IPO Market Is Hampering Companies' Plans to Expand"; Matt
Krantz; USA Today; August 17, 2002
"June Construction Plunges to 2-Year Low As All Major Segments Slip, AGC
Economist Says"; Data DIGest; Associated General Contractors of America; August
1, 2002
"Inventory: How Much is Too Much?"; US Economic Digest; Credit Suisse/First
Boston; August 19, 2002
June Manufacturing ISM Report On Business(R); Institute for Supply Management;
July 1, 2002
Zachary Bancshares, Inc.
Fairness Opinion
EXHIBIT B
REGIONAL ECONOMIC DATA AND ANALYSES
ECONSOUTH (THIRD QUARTER 2002)
COVER STORY
[PHOTO]
Are We Running Out of Oil?
BOTH THE AVAILABILITY AND THE COST OF OIL CONCERN AMERICANS ACROSS THE COUNTRY.
CONSUMERS ARE ANXIOUS NOT ONLY ABOUT PRICES AT THE GAS PUMP BUT ALSO ABOUT
WHETHER OIL WILL BE AROUND FOR THE NEXT GENERATION.
Increased unrest and instability in the Middle East and in the oil-producing
countries of Latin America have again raised concerns about recurring and
persistent energy price increases. Oil prices have moved widely over recent
years-- from below $10 a barrel in 1998 to over $35 a barrel in 2000 (see chart
1), and the threat to future supplies is again becoming a high-profile issue in
the United States.
At stake are not only consumers' pocketbooks but also the health of both the
U.S. and world economies, made even more tenuous by the recent downturn in
business activity. Beyond these shorter-term concerns is the recognition that
available supplies of oil are being depleted as oil use increases. As supplies
become scarcer, prices will inevitably rise, and many analysts wonder about the
consequences for the U.S. economy.
WHAT'S HAPPENED TO OIL SUPPLIES?
Several factors affect both the long- and short-term oil supply conditions, and
these conditions, in turn, affect the U.S. economy. The first factor is what the
world's oil reserves look like and what the prospects are for adding to those
reserves. The second consideration is where those reserves are and who has
access to them. The final component is U.S. refineries' ability to refine oil
and get it to market.
At the end of World War II, known oil supplies stood at about 600 billion
barrels, according to the U.S. Energy Information Administration. Following the
war, the economies of both the United States and the rest of the world expanded
rapidly, and consumption of these known supplies accelerated. However, as the
result of new discovery, drilling and recovery technologies, exploitable oil
reserves increased even more rapidly than demand. In 2000 a U.S. Geological
Survey reported that known recoverable oil amounted to about 3 trillion barrels,
a 20 percent increase over 1990 estimates of undiscovered oil (see chart 2).
Even more impressive is the fact that an additional three trillion barrels of
known supply exist that are as yet unrecoverable given current extraction
technologies. To put this number in perspective, consider that -- with
reasonable assumptions about world economic growth -- the known recoverable
supplies of oil would sustain the current rate of consumption for somewhere
between 63 and 95 years. Of course, the ability to tap these reserves is
critically dependent upon who possesses them and how willing the owners are to
sell their oil.
WHERE DOES U.S. OIL COME FROM?
The United States currently imports about 60 percent of the oil that it
consumes. About 50 percent of that oil comes from OPEC (Organization of
Petroleum Exporting Countries). Persian Gulf OPEC countries account for about 26
percent of U.S. imports, with Iraq supplying slightly under half of the oil the
United States gets from this region. Interestingly, oil from Iraq today makes up
a much larger portion of U.S. oil imports than it did before the Gulf War.
Non-Gulf OPEC countries, and specifically Venezuela, account for about 14
percent of U.S. imports. With such a high degree of dependence on foreign oil,
it is no wonder that the United States is concerned about conditions in the
Middle East. The nation has a great deal at risk if oil supplies from that
region, especially from Iraq, are disrupted for even a short time.
CHART 1
CRUDE OIL SPOT PRICE
[CHART]
Source: U.S. Energy Information Administration, dated
brent crude oil spot prices
Not only are the United States, Europe and the Far East dependent upon the
Middle East for oil, but that area accounts for the bulk of the world's known
reserves (see chart 3). Without a change in U.S. energy usage patterns,
dependence on the Middle East for future oil supplies will continue to increase
as supplies are drawn down.
THE UPS AND DOWNS OF OIL PRICES
Currently oil is in plentiful supply (see chart 2), and the world is in no
immediate danger of running out of this resource. The United States' inability
to convert crude oil into usable product, however, may have played a significant
role in the run-up in domestic oil and gasoline prices during the summer of 2000
and again in 2001.
Refinery capacity has lagged behind demand in the United States, with existing
refineries running at full or nearly full capacity since the late 1990s. The
roots of this capacity problem were long in the making. Largely as result of the
elimination of price controls and allocations in 1981, relatively small and
inefficient refineries exited the industry, and refinery capacity in the United
States fell dramatically. Capacity utilization of the remaining refineries
increased, but virtually no new capacity was built.
Despite the rapid increase in demand for new refinery capacity during the 1990s,
the combination of regulations, legal questions and economic considerations
limits the attractiveness of such investment for investors and oil companies.
The principal response to increased demand has been to increase capacity
utilization. In 1998 measured capacity utilization reached 96 percent, a number
that may even understate actual utilization given that a certain proportion of
capacity is routinely sidelined for maintenance and improvements.
When U.S. oil prices spiked in the summer of 2001, the situation wasn't really
an oil-supply problem. Even if more oil had arrived on U.S. shores, there was no
easy way to convert it into gasoline. And varying environmental constraints on
emissions meant that refined gasoline in surplus areas couldn't always be
transferred to where it was needed. For example, oil refined in Texas could not
necessarily be shipped to places like Chicago because the Texas refining process
might not be compatible with Chicago's emission requirements. Therefore, because
of capacity constraints, last summer's high oil prices were probably
unavoidable.
Unfortunately, current data from the U.S. Energy Information Administration
suggest that the capacity utilization problem hasn't improved. As of June 2002,
U.S. refineries were running at 95 percent capacity, which is virtually
identical to capacity utilization in June 2001. Operable refinery capacity in
2002 is about 16.8 million barrels of oil input per day, which is only 0.3
million barrels of oil per day greater than in 2001. Inventories are on par with
the midpoint of last year's levels.
A SLIPPERY ISSUE
Even a cursory look at the oil supply and refining problems facing the United
States suggests that a complex web of structural, production and political
issues interacts to affect short-run prices of gasoline and oil-related
products. The long-run dependence on the Middle East for oil remains a fact of
life. A harmonious settlement of local political problems in the Middle East, as
well as improvement of U.S. relations with that part of the world, is essential
if shocks to energy supplies are to be avoided.
While there is clearly no demonstrable shortage of oil in the world, it is
apparent that by the end of this century, alternative sources of cheap energy
need to be found in order to maintain the current U.S. standard of living.
This article was written by Robert Eisenbeis, senior vice president and research
director of the Atlanta Fed.
CHART 2
HYPOTHETICAL SIX TRILLION BARREL WORLD OIL-IN-PLACE
RESOURCES BASE, 2000
[CHART]
Source: U.S. Geological Survey (2000)
CHART 3
GLOBAL CONSUMPTION, PRODUCTION AND RESERVES OF OIL
[CHART]
Source: U.S. Energy Information Administration, Weekly
Petroleum Status Report
ECONSOUTH (THIRD QUARTER 2002)
COVER STORY
[PHOTO]
Energy Helps Power the Southeastern Economy
WITH ENERGY USE DECLINING IN THE NATION OVER THE PAST YEAR, SOUTHEASTERN STATES
THAT DEPEND ON PRODUCING AND SELLING ENERGY COULD BEGIN TO FEEL THE PINCH.
As the economy powered down in 2001, energy consumption in the United States
declined for the first time since 1990. According to the U.S. Energy Information
Administration (EIA), energy consumption in the United States totaled 96.51
quadrillion Btus (British thermal units) in 2001, down from 98.77 quadrillion
Btus in 2000 and 96.76 quadrillion Btus in 1999.
Petroleum remains the largest source of energy in the United States, accounting
for 38.23 quadrillion Btus, or nearly 40 percent of all energy consumed. Natural
gas and coal provide much of the rest at just over 22 quadrillion Btus -- about
23 percent of consumption -- each. Even so, except for nuclear electric power,
"wood, waste, alcohol" energy (mostly a corn-derivative called ethanol that is
blended into gasoline), and solar and wind power, energy consumption declined
last year for every source. Not surprisingly, the decline in energy consumption
has had the greatest impact on fossil fuel-producing states, especially those
whose economies are less diversified and therefore more dependent on energy
companies for jobs and tax revenues. In the Sixth Federal Reserve District,
every state except Georgia produces oil and gas. But the industry's greatest
presence, by far, is in Louisiana.
LEADING THE WAY
Louisiana is one of the nation's leading energy-producing states: It ranks
fourth in crude oil production and fourth in production of natural gas
(excluding federal offshore drilling areas). The state's extensive natural
resources make it an important player in the energy industry, but the industry
has a disproportionate impact on the state's economy.
According to a March study published by the Louisiana State University Center
for Energy Studies, oil and gas drilling and production activities on state
leases have a direct economic impact of $733 million and an indirect impact of
$249 million on the state in a typical year. The study also reported that
drilling and production on state leases in Louisiana produced 3,467 jobs with
energy producers as well as an estimated 3,118 jobs in related fields. The
industry had a significant effect on government revenues too, according to the
study, generating $432.4 million for state coffers and $57.3 million for local
governments.
Still, even allowing for the millions of dollars and thousands of jobs created
by the oil and gas industry, Louisiana's inability to develop additional,
non-energy-related industries remains its biggest economic challenge. The
state's dependence on the oil and gas industry means that when energy prices and
production decline, so does Louisiana's economy. For example, from 1999 to 2000,
when the U.S. economy grew well over 4 percent, Louisiana's economy contracted
2.7 percent, according to the U.S. Bureau of Economic Analysis. Only Louisiana
and Alaska, another major energy producer, suffered such fates.
Considered apart from the state's economy, however, Louisiana's oil and gas
industry seems to be in very good shape. The state's proven oil reserves have
been revised downward in recent years, but federal offshore reserves in the Gulf
of Mexico are significant, and Louisiana-based companies and employees will
continue to play a major role in extracting them.
A recent report by the EIA noted that after a long decline in the 1980s, natural
gas accounted for 52 percent of the major firms' oil and natural gas production
in the United States in 1999, driven by natural gas' clean -burning properties
and its profitability relative to oil. Louisiana's dominance as a natural gas
producer preceded this shift toward the use of natural gas.
TAKING CREDIT
In addition to noting environmental concerns and profitability considerations,
the EIA's report on natural gas production finds that a tax code provision has
contributed to the major energy producers' shift to natural gas. This provision,
Section 29 of the 1980 Windfall Profit Tax Act, makes tax credits available to
firms that produce certain qualifying fuels from wells drilled between 1980 and
1992. Qualifying fuels include oil from shale and tar sands, wood fuels and
synthetics from oil. The most commonly claimed Section 29 credit, however, is
for gas from coal seams, also called coalbed methane.
According to the EIA, the Section 29 credit, which is scheduled to expire this
year, averaged $1.02 per thousand cubic feet of gas in the 1990s, increasing the
effective price received for eligible production by 53 percent. The effect on
gas production in the United States has been dramatic. The EIA reports that
Section 29 companies increased U.S. natural gas production by 26 percent between
1990 and 1999 while production by other major companies not seeking the tax
credits declined 14 percent over the same period.
SIXTH DISTRICT ENERGY CONSUMPTION AND PRODUCTION
<Table>
<Caption>
CONSUMPTION PRODUCTION
------------------------------------------- --------------------------------------------
Per Capita
Population Total Energy Energy Crude Oil Natural Gas
(in Rank (Quadrillion Rank (Million Rank (Thousands of Rank (Million Rank
State Millions) (2000) BTUs) (1999) BTUs) (1999) Barrels/Day) (2000) Cubic Feet) (2001)
Alabama 4.447 23 2.0 17 459 10 29 15 349,114 10*
Florida 15.982 4 3.9 6 255 47 13 19 5,706 16
Georgia 8.186 10 2.8 10 359 25 0 NA 0 NA
Louisiana 4.469 22 3.6 8 827 3 288 4 1,497,201 4*
Mississippi 2.845 31 1.2 27 437 11 54 10 107,540 13
Tennessee 5.689 16 2.1 16 378 21 1 27 0 NA
</Table>
*Onshore and state offshore only; does not include federal offshore
Sources: Energy Information Administration, Louisiana Department of Natural
Resources, Alabama State Oil and Gas Board
A HOT MARKET
Section 29 seems to have had a particularly dramatic effect on gas production in
Alabama, the nation's 10th leading natural gas-producing state. As one of three
states (along with Colorado and New Mexico) holding 75 percent of proved coalbed
methane reserves, Alabama's coalbed methane production increased from 36.4
billion cubic feet in 1990 to 113.5 billion cubic feet last year, when it
accounted for 28 percent of the state's natural gas production.
Alabama gas production has also received a strong boost from so-called state
offshore (within three miles of the shore) drilling, which increased from 19.9
billion cubic feet in 1990 to 201.9 billion cubic feet last year. The increase
in coalbed methane and state offshore production generated strong growth in
Alabama's natural gas production. Total natural gas marketed production grew
from 136 billion cubic feet in 1990 to 349 billion cubic feet last year. As for
petroleum, the state ranks 15th in crude oil production.
Unlike Alabama and Louisiana, Mississippi does not rank among the American
Petroleum Institute's top 10 oil and gas -producing states. But its oil and gas
production is not insignificant. The state ranks 10th in crude oil production
and 13th in natural gas production.
Tennessee and Florida also produce energy, but the sector is not significant to
the economy of either state. Florida, which ranked 16th in natural gas
production with 5.7 billion cubic feet of gas marketed production in 2001 and
19th in crude oil production, is perhaps more notable for its relative energy
efficiency; the state ranks 47th in per capita energy consumption. Tennessee
produces no gas at all and ranks 27th in crude oil production.
For more information about energy consumption and production in the Sixth
District, see the table above.
ENERGY AS PART OF A DIVERSE ECONOMY
One of the most significant national developments of the last 50 years has been
the transformation of the Southeastern economy. As millions of Americans made
their way south for new jobs and new homes, the region's economy began to
resemble the national economy in almost every respect, including, of course,
energy consumption. The Southeast, like the nation, now consumes far more gas
and oil than it produces, adding to U.S. dependence on external oil production.
Nonetheless, for states such as Louisiana and, to some extent, Alabama and
Mississippi, oil and gas production remain significant influences on the
economy, and their importance is unlikely to be diminished any time soon.
ECONSOUTH (THIRD QUARTER 2002)
Southeastern Economic Indicators
<Table>
<Caption>
6TH
ALABAMA FLORIDA GEORGIA LOUISIANA MISSISSIPPI TENNESSEE DISTRICT [ILLEGIBLE]
TOTAL PAYROLL
EMPLOYMENT
(THOUSANDS)(a) 2002Q2 1,898.7 7,178.7 3,890.4 1,929.0 1,129.5 2,703.4 18,729.7 130,716._
% change from 2002Q1 -0.1 0.0 0.3 -0.1 -0. -0.6 0.0 0._
% change from 2001Q2 -0.8 -0.2 -2.2 0.0 -0.2 -0.2 -0.6 -_._
MANUFACTURING
PAYROLL
EMPLOYMENT
(THOUSANDS)(a) 2002Q2 329.1 448.0 538.9 177.2 207.7 466.0 2,166.9 16,776._
% change from 2002Q1 -0.8 -0.6 0.5 0.1 -0.1 -0.4 -0.2 -_._
% change from 2001Q2 -3.2 -5.6 -2.3 -3.1 -3.2 -2.7 -3.4 -_._
CIVILIAN
UNEMPLOYMENT
RATE(a) 2002Q2 5.6 5.2 4.7 6.1 6.8 5.0 5.3 5._
Rate as of 2002Q1 5.6 5.4 4.6 5.8 6.5 5.5 5.4 _._
Rate as of 2001Q2 5.1 4.5 3.9 5.8 5.1 4.4 4.6 _._
SINGLE-FAMILY
BUILDING
PERMITS
(UNITS)(b) 2002Q2 15,747 115,206 77,975 14,858 8,637 28,496 260,918 1,304,282._
% change from 2002Q1 -8.2 -14.7 6.8 -3.9 2.5 4.1 -5.6 _._
% change from 2001Q2 14.5 -1.9 1.9 10.9 -0.3 5.9 1.7 _._
MULTIFAMILY
BUILDING
PERMITS
(UNITS)(b) 2002Q2 12,700 63,132 25,343 3,473 3,158 3,614 111,421 450,618._
% change from 2002Q1 209.6 2.4 10.4 90.8 -26.7 -17.7 12.3 _._
% change from 2001Q2 399.9 38.8 15.0 9.8 150.1 -51.0 36.1 12._
PERSONAL
INCOME
($ BILLIONS)(b) 2002Q1 110.4 476.5 242.5 109.2 63.4 155.6 1,157.7 8,705._
% change from 2001Q4 1.3 1.3 1.6 0.8 2.3 2.1 1.5 _._
% change from 2001Q1 2.3 3.5 2.9 3.0 3.3 2.3 3.1 _._
</Table>
<Table>
<Caption>
NEW
ATLANTA BIRMINGHAM JACKSONVILLE MIAMI NASHVILLE ORLEANS ORLANDO TAMPA
TOTAL PAYROLL
EMPLOYMENT
(THOUSANDS)(a) 2002Q2 2,144.9 485.2 572.3 1,041.9 686.1 622.5 904.0 1,223._
% change from 2002Q1 0.1 0.0 0.0 0.6 0.1 -1.0 -0.1 -_._
% change from 2001Q2 -2.8 -0.1 0.9 0.7 0.5 -0.8 -1.0 -_._
CIVILIAN
UNEMPLOYMENT
RATE(a) 2002Q2 4.9 4.1 5.1 7.3 3.8 5.4 5.2 4._
Rate as of 2002Q1 4.8 4.0 4.9 7.6 4.1 5.2 5.7 __
Rate as of 2001Q2 3.2 3.1 4.0 6.5 3.2 5.0 3.5 __
</Table>
(a) Seasonally adjusted
(b) Seasonally adjusted annual rate
SOURCES: Payroll employment and civilian unemployment rate: U.S. Department of
Labor, Bureau of Labor Statistics. Initial unemployment claims: U.S. Department
of Labor, Employment and Training Administration. Single- and multifamily
building permits: U.S. Bureau of the Census, Construction Statistics Division.
Personal income: Bureau of Economic Analysis. Quarterly estimates of a
construction data reflect annual benchmark revisions. All the data were obtained
and seasonally adjusted by Regional Financial Associates. Small differences from
previously published data reflect revisions of seasonal factors.
For more extensive information on the data series shown here, see the Atlanta
Fed's World Wide Web site at
www.frbatlanta.org/publica/econ_south/2002/q3/dist_data.htm.
TOTAL PAYROLL EMPLOYMENT MANUFACTURING PAYROLL EMPLOYMENT
[CHART] [CHART]
CIVILIAN UNEMPLOYMENT RATE SINGLE-FAMILY BUILDING PERMITS
[CHART] [CHART]
MULTIFAMILY BUILDING PERMITS PERSONAL INCOME
[CHART] [CHART]
RETURN TO INDEX
Zachary Bancshares, Inc.
Fairness Opinion
EXHIBIT C
INDUSTRY ECONOMIC DATA AND ANALYSIS
SECOND QUARTER 2002
[FDIC LETTERHEAD]
THE FDIC QUARTERLY BANKING PROFILE
Donald E. Powell, Chairman
COMMERCIAL BANK PERFORMANCE - SECOND QUARTER 2002
O EARNINGS CLIMB TO RECORD-HIGH $23.4 BILLION
O HIGHER NONINTEREST INCOME, NONRECURRING GAINS LIFT PROFITS
O ASSET GROWTH SETS QUARTERLY RECORD
O NET INTEREST MARGINS IMPROVE AT COMMUNITY BANKS
O TROUBLED COMMERCIAL & INDUSTRIAL LOANS CONTINUE TO RISE
IMPROVED PROFITABILITY IS WIDESPREAD
Continued strength in consumer loan demand, plus a favorable interest-rate
environment outweighed the negative effects of weakness in commercial loans for
banks in the second quarter of 2002. Commercial banks' earnings rose to $23.4
billion in the second quarter, eclipsing the quarterly earnings record of $21.7
billion that was set in the first quarter by $1.7 billion (7.8 percent).
Improved noninterest income, lower provisions for loan losses, increased gains
from securities sales, and relatively low growth in noninterest expenses all
contributed to the earnings record. Second-quarter earnings were $4.3 billion
(22.7 percent) higher than in the same quarter of last year.(1) Net interest
income was $5.6 billion (10.6 percent) higher than a year ago, noninterest
income was up by $3.5 billion (8.9 percent), and gains from securities sales and
other extraordinary items added $283 million (51.3 percent) more to after-tax
earnings.
INDUSTRY EARNINGS CONTINUE
TO EXHIBIT STRENGTH
[CHART]
COMMUNITY BANKS' MARGINS SHOW
IMPROVEMENT
[CHART]
While the industry's loan-loss provisions were $688 million (6.0 percent) below
the level of the first quarter, they were still $2.0 billion (22.8 percent) more
than in the second quarter of 2001, limiting the year-to-year improvement in net
income. The average return on assets (ROA) rose to 1.41 percent in the second
quarter, matching the all-time high reached in the third quarter of 1999. The
industry's ROA was 1.33 percent in the first quarter and 1.21 percent in the
second quarter of 2001. Almost two out of every three commercial banks (62.8
percent) reported an ROA of 1 percent or higher in the second quarter, and a
similar proportion (62.1 percent) reported a higher quarterly ROA than a year
ago.
(1) Year-to-year increases in the number and size of directly-owned
subsidiary banks accounted for $269 million of the increase in net
income. See Computation Methodology, p.21.
Requests for copies of and subscriptions to the FDIC Quarterly Banking Profile
should be made through the FDIC's Public Information Center, 801 17th Street,
NW, Washington, DC 20434; telephone (202) 416-6940 or (800) 276-6003; or Email:
pub-licinfo@fdic.gov.
Also available on the Internet at www.fdic.gov. Comparable financial data for
individual institutions can now be obtained from the FDIC's Institution
Directory (I.D.) System on this Web site.
DIVERSIFICATION IS EVIDENT IN BANKING PROFITS
A combination of strength in both transaction-based revenues and
market-sensitive revenues contributed to the improvement in noninterest income.
Higher securitization income at credit-card lenders, continued growth in service
charges on deposit accounts, and increased income from trading activities were
the main areas of strength. Income from securitization activities totaled $4.6
billion, an increase of $941 million (25.4 percent) over the second quarter of
2001. Service charges on deposit accounts added $7.5 billion to non-interest
revenues, $710 million (10.5 percent) more than a year earlier. Trading revenue
was $656 million (24.2 percent) higher. Higher net interest income (up $5.6
billion, or 10.6 percent) was partly the result of wider net interest margins in
a more favorable interest-rate environment. The overall low level of interest
rates contributed to loan growth, while the steep yield curve helped net
interest margins. The industry's net interest margin of 4.11 percent was 8 basis
points lower than in the first quarter, but was 21 basis points above the level
of 2001's second quarter. After four successive quarters of no improvement,
average margins at commercial banks with less than $100 million in assets rose
for the first time in two years, increasing by 14 basis points, to 4.40 percent,
from 4.26 percent in both the first quarter and in the second quarter of 2001.
FAVORABLE RATE ENVIRONMENT HELPS YEAR-TO-YEAR COMPARISONS
In the first six months of 2002, commercial banks earned $45.3 billion, a
$6.5-billion (16.7 percent) improvement over their performance in the first half
of 2001. The industry's six-month ROA was 1.37 percent, up from 1.23 percent a
year earlier. A majority of banks - 59.8 percent - reported higher ROA's in the
first half of 2002, compared to the same period in 2001, and more than two out
of three banks (68.9 percent) reported higher net income. One of the main
contributions to the earnings improvement came from net interest income, which
was up by $12.8 billion (12.2 percent). A more favorable interest rate
environment helped lift net interest margins in the first six months of 2002.
The average margin was 4.13 percent, compared to 3.86 percent a year earlier.
Increased noninterest income also contributed to the higher earnings.
Noninterest revenues were $5.2 billion (6.5 percent) more than in the first half
of 2001. Service charges on deposit accounts were up by $1.6 billion (12.4
percent), and securitization income was $2.0 billion (27.5 percent) higher. The
improvement in earnings was limited by a $5.6-billion (33.7-percent) increase in
provisions for loan losses. More than one-fourth of this increase ( $1.6
billion, or 27.5 percent) was attributable to higher provisions for credit
losses in banks' foreign operations. Even with these increased credit expenses,
net income from international operations was down by only $44 million (1.2
percent), compared to the first half of 2001.
COMMERCIAL LOANS STILL LEAD ARISING TREND IN CHARGE-OFFS
The quarter's net charge-offs of $10.6 billion were $2.6 billion (33.1 percent)
higher than a year earlier. Commercial and industrial (C&I) loans registered the
largest increase; charge-offs were up by $1.1 billion (34.6 percent), as net
losses on C&I loans to non-U.S. borrowers increased by $405 million (206
percent). Other loan categories had smaller increases in net charge-offs.
Credit-card charge-offs were $894 million (31.6 percent) above the level of a
year ago, and charge-offs on other consumer loans were $256 million (24.7
percent) higher. Net charge-offs on leases increased by $200 million (89.3
percent).
TROUBLED C&I LOANS ARE STILL GROWING
[CHART]
CREDIT QUALITY OF DOMESTIC C&I LOANS SHOWS POSITIVE SIGNS
Growth in noncurrent loans (loans 90 days or more past due or in nonaccrual
status) slowed for the second consecutive quarter. Total noncurrent loans
increased by only $1.3 billion, the smallest quarterly increase since the fourth
quarter of 1999, and would have declined but for a $1.7-billion (41.2 percent)
jump in noncurrent loans to non-U.S. C&I borrowers. Noncurrent loans to domestic
C&I borrowers declined for the first time since the second quarter of 1998,
falling by $79.4 million (0.4 percent). After rising by $294 million in the
first quarter, noncurrent loans to foreign governments and official institutions
increased by an additional $119 million (36.6 percent) in the second quarter.
The percentage of commercial banks' total loans that were noncurrent remained
unchanged at 1.47 percent, marking the first time since the fourth quarter of
1999 that the industry's noncurrent rate did not increase.
RESERVES FALL, EQUITY GROWS
Commercial banks' reserves for loan losses fell by $756 million in the second
quarter, the first time in three years (since the second quarter of 1999) that
FDIC Quarterly Banking Profile
FDIC-Insured Commercial Banks 2 Second Quarter 2002
CREDIT CARD LOSSES REMAIN HIGH
[CHART]
reserves have declined. In contrast, equity capital registered fairly robust
growth, rising by $19.4 billion (3.2 percent), with retained earnings and
accumulated comprehensive income(2) contributing almost equal shares ( $9.3
billion and $9.7 billion, respectively) of the increase. A substantial increase
in assets caused the industry's equity-capital-to-assets ratio to dip slightly
during the quarter, from the 61-year high of 9.30 percent to 9.24 percent.
SURGE IN REFINANCING HELPS PROPEL INDUSTRY GROWTH
Total assets increased by $245.3 billion (3.8 percent) in the second quarter,
after declining by $64.8 billion in the first quarter. This is the largest
quarterly increase in industry assets on record, surpassing the $222.1-billion
increase posted by the industry in the fourth quarter of 1999. Total loans and
leases grew by $78.2 billion (2.0 percent) during the quarter. Assets in trading
accounts increased by $66.4 billion (21.1 percent), as revaluation gains grew by
$35.1 billion. Foreign office assets increased by $71.4 billion (9.7 percent).
SMALL-BUSINESS LOANS GREW SLOWLY, WHILE
LARGE BUSINESS LENDING CONTRACTED
[CHART]
Reflecting the continued strength in mortgage refinancing activity, banks'
holdings of mortgage-backed securities increased by $45.4 billion (7.4 percent),
while their residential mortgage loans rose by $30.5 billion (3.8 percent).
During the 12 months ending June 30, commercial banks' mortgage-backed
securities grew by $152.7 billion (30.0 percent). Home equity loans continued to
exhibit strong growth, rising by $21.8 billion (13.1 percent) in the quarter.
C&I loans declined for the sixth consecutive quarter, falling by $27.4 billion
(2.8 percent). The industry's C&I loan portfolio is now $113.3 billion (10.8
percent) below its peak level at the end of 2000. Annual data on C&I loans to
small businesses show that during the 12 months ending June 30, these loans
increased by $7.5 billion (3.1 percent), while larger C&I loans fell by $79.7
billion (13.0 percent).
SAVINGS DEPOSIT GROWTH SLOWS, BUT REMAINS STRONG
The largest share of funding for the increase in bank assets came from savings
deposits, which grew by $50.9 billion (2.6 percent). Over the past 12 months,
savings deposits have increased by $325.4 billion (19.2 percent). Deposits in
foreign offices ended a string of three consecutive quarterly declines, rising
by $37.4 billion (6.2 percent) in the second quarter. Short-term nondeposit
borrowings were another significant contributor to commercial bank funding.
Other borrowed money with a remaining maturity of less than one year increased
by $35.6 billion (12.4 percent). Banks increased their borrowings from Federal
Home Loan Banks by $13.7 billion during the quarter, with all of the growth
occurring in longer-term (over 1 year) borrowings. Trading liabilities jumped by
$46.4 billion (26.1 percent), as revaluation losses on derivatives contracts
increased by $43.5 billion (43.6 percent). Brokered deposits fell by $1.2
billion (0.5 percent) during the quarter, only the second time in the last 14
quarters that these deposits have decreased.
NUMBER OF INSURED COMMERCIAL BANKS FALLS BELOW 8,000
The number of insured commercial banks reporting financial results declined from
8,005 to 7966 during the second quarter. One insured commercial bank failed
during the quarter, while 66 were absorbed in mergers with other institutions.
There were 26 new banks reporting financial results. The number of commercial
banks on the FDIC's "Problem List" increased from 102 to 115 during the quarter,
but assets of "problem" banks declined from $36.7 billion to $35.9 billion.
(2) Accumulated comprehensive income includes net unrealized gains/losses
on available-for-sale securities, accumulated net gains/losses on cash
flow hedges, cumulative foreign currency translation adjustments, and
minimum pension liability adjustments.
FDIC Quarterly Banking Profile
Second Quarter 2002 3 FDIC-Insured Commercial Banks
TABLE I-A. SELECTED INDICATORS, FDIC-INSURED COMMERCIAL BANKS
<Table>
<Caption>
2002* 2001* 2001 2000 1999 1998 1997
--------- --------- --------- --------- --------- --------- ---------
Return on assets (%) .............................. 1.37 1.23 1.15 1.19 1.31 1.19 1.23
Return on equity (%) .............................. 14.85 14.24 13.05 14.02 15.31 13.93 14.68
Core capital (leverage) ratio (%) ................. 8.00 7.73 7.79 7.70 7.79 7.54 7.56
Noncurrent assets plus
other real estate owned to assets (%) ........... 0.96 0.82 0.92 0.74 0.63 0.65 0.66
Net charge-offs to loans (%) ...................... 1.10 0.78 0.95 0.67 0.61 0.67 0.64
Asset growth rate (%) ............................. 6.13 6.29 5.20 8.88 5.38 8.53 9.54
Net interest margin (%) ........................... 4.13 3.86 3.90 3.95 4.07 4.07 4.21
Net operating income growth (%) ................... 16.73 6.52 -1.97 1.80 20.42 2.26 12.42
Number of institutions reporting .................. 7,966 8,178 8,080 8,315 8,579 8,773 9,142
Percentage of unprofitable institutions (%) 6.24 .. 7.23 8.09 7.34 7.51 6.11 4.85
Number of problem institutions .................... 115 80 95 76 66 69 71
Assets of problem institutions (in billions) ...... $ 36 $ 17 $ 36 $ 17 $ 4 $ 5 $ 5
Number of failed/assisted institutions ............ 7 2 3 6 7 3 1
</Table>
* Through June 30, ratios annualized where Asset growth rates are for 12 months
appropriate. ending June 30.
TABLE II-A. AGGREGATE CONDITION AND INCOME DATA, FDIC-INSURED COMMERCIAL BANKS
<Table>
<Caption>
(dollar figures in millions) Preliminary
2nd Quarter 1st Quarter 2nd Quarter %Change
2002 2002 2001 01:2-02:2
------------ ------------ ------------ ------------
Number of institutions reporting ................. 7,966 8,005 8,178 -2.6
Total employees (full-time equivalent) ........... 1,738,770 1,722,882 1,690,443 2.9
CONDITION DATA
Total assets ..................................... $ 6,749,662 $ 6,504,315 $ 6,360,020 6.1
Loans secured by real estate ................... 1,886,961 1,811,380 1,736,990 8.6
Commercial & industrial loans .................. 938,726 966,125 1,027,834 -8.7
Loans to individuals ........................... 662,454 649,136 610,682 8.5
Farm loans ..................................... 47,647 45,083 49,070 -2.9
Other loans & leases ........................... 439,578 425,419 437,194 0.5
Less: Unearned income .......................... 3,830 3,845 2,768 38.4
Total loans & leases ........................... 3,971,537 3,893,297 3,859,003 2.9
Less: Reserve for losses ....................... 74,325 75,081 65,757 13.0
Net loans and leases ............................. 3,897,212 3,818,216 3,793,246 2.7
Securities ....................................... 1,237,108 1,185,937 1,056,279 17.1
Other real estate owned .......................... 3,874 3,810 3,204 20.9
Goodwill and other intangibles ................... 129,568 131,798 103,447 25.3
All other assets ................................. 1,481,900 1,364,548 1,403,843 5.6
Total liabilities and capital .................... 6,749,662 6,504,315 6,360,020 6.1
Noninterest-bearing deposits ................... 826,577 805,421 753,533 9.7
Interest-bearing deposits ...................... 3,621,321 3,546,787 3,491,194 3.7
Other borrowed funds ........................... 1,191,061 1,136,083 1,135,921 4.9
Subordinated debt .............................. 93,716 92,983 89,580 4.6
All other liabilities .......................... 392,993 318,493 332,689 18.1
Equity capital ................................. 623,994 604,551 557,102 12.0
Loans and leases 30-89 days past due ............. 46,528 49,057 46,778 -0.5
Noncurrent loans and leases ...................... 58,424 57,100 48,684 20.0
Restructured loans and leases .................... 1,637 1,871 1,004 63.0
Direct and indirect investments in real estate ... 270 259 267 0.9
1-4 Family residential mortgages ................. 1,012,887 960,565 943,806 7.3
Mortgage-backed securities ....................... 661,372 615,947 508,638 30.0
Earning assets ................................... 5,796,777 5,619,535 5,478,426 5.8
Long-term assets (5+ years) ...................... 1,397,859 1,324,901 1,241,881 12.6
Volatile liabilities ............................. 2,128,517 2,043,698 2,157,858 -1.4
Foreign office deposits .......................... 640,905 603,522 682,411 -6.1
FHLB Advances .................................... 217,801 204,058 184,098 18.3
Unused loan commitments .......................... 5,183,234 5,066,653 4,646,279 11.6
Derivatives ...................................... 50,577,822 46,508,825 48,212,888 4.9
</Table>
<Table>
<Caption>
Preliminary Preliminary
First Half First Half 2nd Quarter 2nd Quarter %Change
INCOME DATA 2002 2001 %Change 2002 2001 01:2-02:2
------------ ------------ ------------ ------------ ------------ ------------
Total interest income .................. $ 179,782 $ 213,515 -15.8 $ 90,405 $ 104,315 -13.3
Total interest expense ................. 62,158 108,695 -42.8 31,562 51,113 -38.3
Net interest income .................. 117,624 104,820 12.2 58,843 53,202 10.6
Provision for loan and lease losses .... 22,432 16,782 33.7 10,861 8,847 22.8
Total noninterest income ............... 84,184 79,029 6.5 42,541 39,050 8.9
Total noninterest expense .............. 113,396 110,026 3.1 57,035 55,202 3.3
Securities gains (losses) .............. 1,718 2,031 -15.4 1,008 861 17.1
Applicable income taxes ................ 22,431 19,890 12.8 11,216 9,951 12.7
Extraordinary gains, net ............... 39 -350 N/M 159 -17 N/M
Net income ........................... 45,305 38,831 16.7 23,440 19,097 22.7
Net charge-offs ...................... 21,636 14,887 45.3 10,561 7,934 33.1
Cash dividends ......................... 33,901 25,893 30.9 14,169 12,519 13.2
Net operating income ................. 44,102 37,780 16.7 22,605 18,545 21.9
</Table>
N/M - Not meaningful
FDIC Quarterly Banking Profile
FDIC-Insured Commercial Banks 4 Second Quarter 2002
TABLE III-A. FIRST HALF 2002, FDIC-INSURED COMMERCIAL BANKS
<Table>
<Caption>
Asset Size Distribution
-------------------------------------------------
Less $100 Million $1 Billion Greater
FIRST HALF Preliminary All than $100 to to than $10
(THE WAY IT IS...) Institutions Million $1 Billion $10 Billion Billion
----------- ---------- ---------- ---------- ----------
Number of institutions reporting ................... 7,966 4,374 3,194 320 78
Total assets (in billions) ......................... $ 6,749.7 $ 219.6 $ 831.5 $ 935.2 $ 4,763.4
Total deposits (in billions) ....................... 4,448.1 185.2 677.7 638.6 2,946.7
Net income (in millions) ........................... 45,305 1,135 5,106 6,798 32,265
% of unprofitable institutions ..................... 6.2 9.5 2.4 1.6 2.6
% of institutions with earnings gains .............. 68.9 63.3 75.9 75.3 76.9
PERFORMANCE RATIOS (ANNUALIZED, %)
Yield on earning assets ............................ 6.32 6.84 6.85 6.51 6.15
Cost of funding earning assets ..................... 2.18 2.52 2.41 2.18 2.12
Net interest margin ................................ 4.13 4.32 4.44 4.32 4.03
Noninterest income to earning assets ............... 2.96 1.22 1.64 2.66 3.36
Noninterest expense to earning assets .............. 3.99 3.79 3.78 3.95 4.04
Loan and lease loss provision to assets ............ 0.68 0.27 0.35 0.54 0.78
Net operating income to assets ..................... 1.33 1.03 1.25 1.45 1.33
Pretax return on assets ............................ 2.04 1.36 1.76 2.22 2.09
Return on assets ................................... 1.37 1.05 1.26 1.48 1.38
Return on equity ................................... 14.85 9.55 12.89 14.69 15.57
Net charge-offs to loans and leases ................ 1.10 0.28 0.37 0.82 1.34
Loan and lease loss provision to net charge-offs ... 103.68 156.82 144.97 105.31 100.73
Efficiency ratio ................................... 55.03 68.19 61.85 55.65 53.35
CONDITION RATIOS (%)
Earning assets to total assets ..................... 85.88 91.58 91.47 90.00 83.84
Loss allowance to:
Loans and leases ................................. 1.87 1.44 1.45 1.81 1.99
Noncurrent loans and leases ...................... 127.22 123.08 151.26 173.24 118.51
Noncurrent assets plus
other real estate owned to assets ................ 0.96 0.88 0.75 0.73 1.04
Equity capital ratio ............................... 9.24 11.12 9.91 10.29 8.84
Core capital (leverage) ratio ...................... 8.00 10.72 9.33 9.06 7.42
Tier 1 risk-based capital ratio .................... 10.14 15.88 13.04 12.45 9.05
Total risk-based capital ratio ..................... 12.95 16.99 14.24 14.37 12.33
Net loans and leases to deposits ................... 87.61 72.37 78.92 89.10 90.25
STRUCTURAL CHANGES (YTD)
New Charters ..................................... 42 41 1 0 0
Banks absorbed by mergers ........................ 152 63 73 12 4
Failed banks ..................................... 7 4 2 1 0
PRIOR FIRST HALVES
(THE WAY IT WAS...)
Number of institutions..........................2001 8,178 4,685 3,101 313 79
...........................................1999 8,673 5,301 2,978 317 77
...........................................1997 9,308 6,047 2,888 306 67
Total assets (in billions)......................2001 $ 6,360.0 $ 227.9 $ 789.8 $ 899.6 $ 4,442.6
...........................................1999 5,468.6 246.9 736.6 872.7 3,612.3
...........................................1997 4,771.4 273.5 711.3 916.0 2,870.6
Return on assets (%)............................2001 1.23 0.98 1.24 1.32 1.22
...........................................1999 1.28 1.08 1.38 1.56 1.21
...........................................1997 1.24 1.24 1.36 1.25 1.21
Net charge-offs to loans & leases (%)
...........................................2001 0.78 0.23 0.33 0.84 0.88
...........................................1999 0.58 0.21 0.33 0.74 0.62
...........................................1997 0.60 0.21 0.35 0.99 0.55
Noncurrent assets plus
OREO to assets (%).........................2001 0.82 0.79 0.69 0.73 0.87
...........................................1999 0.64 0.75 0.61 0.62 0.65
...........................................1997 0.69 0.79 0.72 0.82 0.64
Equity capital ratio (%)........................2001 8.76 11.13 9.80 9.50 8.30
...........................................1999 8.52 10.82 9.41 9.53 7.94
...........................................1997 8.44 10.84 9.69 9.14 7.68
<Caption>
Geographic Distribution by Region
---------------------------------------------------------------------------
East West
------------------------------------ ------------------------------------
FIRST HALF Preliminary North- South- Mid- South-
(THE WAY IT IS...) east east Central west west West
---------- ---------- ---------- ---------- ---------- ----------
Number of institutions reporting ................... 634 1,371 1,708 2,074 1,315 864
Total assets (in billions) ......................... $ 2,323.3 $ 1,658.6 $ 1,379.0 $ 377.0 $ 280.1 $ 731.8
Total deposits (in billions) ....................... 1,457.1 1,126.1 882.0 253.5 227.9 501.6
Net income (in millions) ........................... 13,679 11,448 9,268 3,080 1,823 6,007
% of unprofitable institutions ..................... 9.9 8.5 4.5 4.1 4.9 10.5
% of institutions with earnings gains .............. 70.5 74.8 72.5 66.8 64.7 63.1
PERFORMANCE RATIOS (ANNUALIZED, %)
Yield on earning assets ............................ 6.18 6.22 6.10 7.27 6.49 6.78
Cost of funding earning assets ..................... 2.38 2.14 2.23 2.20 2.00 1.68
Net interest margin ................................ 3.80 4.09 3.87 5.07 4.49 5.11
Noninterest income to earning assets ............... 3.85 2.66 2.20 3.04 1.64 2.86
Noninterest expense to earning assets .............. 4.41 3.89 3.28 4.44 3.80 4.10
Loan and lease loss provision to assets ............ 0.91 0.42 0.54 0.94 0.31 0.79
Net operating income to assets ..................... 1.17 1.36 1.30 1.63 1.29 1.67
Pretax return on assets ............................ 1.82 2.08 2.02 2.41 1.82 2.63
Return on assets ................................... 1.21 1.40 1.36 1.65 1.32 1.67
Return on equity ................................... 13.90 14.73 15.89 16.51 13.53 15.65
Net charge-offs to loans and leases ................ 1.75 0.65 0.80 1.33 0.37 1.17
Loan and lease loss provision to net charge-offs ... 102.01 104.61 102.50 104.48 144.72 105.35
Efficiency ratio ................................... 56.46 56.27 53.04 53.19 61.44 50.60
CONDITION RATIOS (%)
Earning assets to total assets ..................... 82.85 85.60 88.10 90.45 89.91 88.08
Loss allowance to:
Loans and leases ................................. 2.25 1.58 1.75 1.77 1.51 1.98
Noncurrent loans and leases ...................... 111.11 133.85 119.70 159.30 145.90 179.68
Noncurrent assets plus
other real estate owned to assets ................ 1.12 0.81 1.04 0.84 0.73 0.78
Equity capital ratio ............................... 8.64 9.50 8.66 10.31 10.02 10.84
Core capital (leverage) ratio ...................... 7.48 7.93 7.81 9.39 8.79 9.15
Tier 1 risk-based capital ratio .................... 9.95 9.61 9.33 12.55 12.92 11.40
Total risk-based capital ratio ..................... 12.98 12.48 12.42 13.90 14.37 14.02
Net loans and leases to deposits ................... 77.62 89.51 99.87 99.70 70.82 92.34
STRUCTURAL CHANGES (YTD)
New Charters ..................................... 6 12 3 5 4 12
Banks absorbed by mergers ........................ 18 39 20 25 26 24
Failed banks ..................................... 1 2 2 0 1 1
PRIOR FIRST HALVES
(THE WAY IT WAS...)
Number of institutions..........................2001 653 1,413 1,744 2,118 1,356 894
...........................................1999 684 1,439 1,880 2,243 1,485 942
...........................................1997 738 1,543 2,048 2,357 1,648 974
Total assets (in billions)......................2001 $ 2,233.6 $ 1,612.5 $ 1,144.2 $ 406.9 $ 264.2 $ 698.6
...........................................1999 1,910.4 1,233.1 901.7 374.6 304.3 744.5
...........................................1997 1,810.7 855.1 795.9 289.3 342.1 678.4
Return on assets (%)............................2001 1.18 1.21 1.05 1.32 1.17 1.73
...........................................1999 1.15 1.27 1.31 1.56 1.18 1.50
...........................................1997 1.16 1.29 1.26 1.45 1.24 1.31
Net charge-offs to loans & leases (%)
...........................................2001 0.92 0.59 0.60 0.94 0.36 1.21
...........................................1999 0.75 0.44 0.35 0.71 0.42 0.72
...........................................1997 0.69 0.43 0.44 0.79 0.30 0.83
Noncurrent assets plus
OREO to assets (%).........................2001 0.81 0.88 0.86 0.75 0.70 0.76
...........................................1999 0.73 0.57 0.58 0.61 0.66 0.63
...........................................1997 0.75 0.61 0.62 0.69 0.60 0.79
Equity capital ratio (%)........................2001 8.14 9.13 8.10 9.84 9.68 9.99
...........................................1999 7.83 8.89 8.36 8.72 8.72 9.72
...........................................1997 7.38 8.93 8.56 9.21 9.54 9.66
</Table>
REGIONS: NORTHEAST - Connecticut, Delaware, District of Columbia, Maine,
Maryland, Massachusetts, New Hampshire, New Jersey, New
York, Pennsylvania, Puerto Rico, Rhode Island, Vermont,
U.S. Virgin Islands
SOUTHEAST - Alabama, Florida, Georgia, Mississippi, North Carolina,
South Carolina, Tennessee, Virginia, West Virginia
CENTRAL - Illinois, Indiana, Kentucky, Michigan, Ohio, Wisconsin
MIDWEST - Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota,
South Dakota
SOUTHWEST - Arkansas, Louisiana, New Mexico, Oklahoma, Texas
WEST - Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana,
Nevada, Oregon, Pacific Islands, Utah, Washington, Wyoming
FDIC Quarterly Banking Profile
Second Quarter 2002 5 FDIC-Insured Commercial Banks
TABLE IV-A. SECOND QUARTER 2002, FDIC-INSURED COMMERCIAL BANKS
<Table>
<Caption>
Asset Size Distribution
-------------------------------------------------
Less $100 Million $1 Billion Greater
SECOND QUARTER Preliminary All than $100 to to than $10
(THE WAY IT IS...) Institutions Million $1 Billion $10 Billion Billion
------------ ---------- ---------- ---------- ----------
Number of institutions reporting .................. 7,966 4,374 3,194 320 78
Total assets (in billions) ........................ $ 6,749.7 $ 219.6 $ 831.5 $ 935.2 $ 4,763.4
Total deposits (in billions) ...................... 4,448.1 185.2 677.7 638.6 2,946.7
Net income (in millions) .......................... 23,440 595 2,669 3,407 16,769
% of unprofitable institutions .................... 6.7 9.9 2.8 3.4 2.6
% of institutions with earnings gains ............. 70.2 65.8 75.8 73.4 75.6
Performance Ratios (annualized, %)
Yield on earning assets ........................... 6.32 6.83 6.83 6.46 6.16
Cost of funding earning assets .................... 2.21 2.44 2.34 2.14 2.18
Net interest margin ............................... 4.11 4.40 4.49 4.32 3.98
Noninterest income to earning assets .............. 2.97 1.25 1.66 2.57 3.40
Noninterest expense to earning assets ............. 3.99 3.81 3.81 3.92 4.04
Loan and lease loss provision to assets ........... 0.65 0.29 0.36 0.51 0.75
Net operating income to assets .................... 1.36 1.08 1.28 1.45 1.37
Pretax return on assets ........................... 2.09 1.41 1.81 2.20 2.14
Return on assets .................................. 1.41 1.09 1.30 1.47 1.43
Return on equity .................................. 15.24 9.92 13.29 14.44 16.10
Net charge-offs to loans and leases ............... 1.07 0.32 0.39 0.79 1.30
Loan and lease loss provision to net charge-offs .. 102.84 150.42 139.13 103.38 100.03
Efficiency ratio .................................. 55.04 67.27 61.51 55.98 53.35
Structural Changes (QTR)
New charters .................................... 26 26 0 0 0
Banks absorbed by mergers ....................... 66 32 30 1 3
Failed banks .................................... 1 0 1 0 0
PRIOR SECOND QUARTERS
(THE WAY IT WAS...)
Return on assets (%)...........................2001 1.21 0.95 1.24 1.28 1.20
..........................................1999 1.24 1.08 1.30 1.68 1.14
..........................................1997 1.24 1.27 1.37 1.23 1.21
Net charge-offs to loans & leases (%)
..........................................2001 0.83 0.27 0.37 0.95 0.91
..........................................1999 0.56 0.24 0.34 0.74 0.57
..........................................1997 0.62 0.25 0.38 1.01 0.58
<Caption>
Geographic Distribution by Region
---------------------------------------------------------------------------
East West
------------------------------------ ------------------------------------
SECOND QUARTER Preliminary North- South- Mid- South-
(THE WAY IT IS...) east east Central west west West
---------- ---------- ---------- ---------- ---------- ----------
Number of institutions reporting .................. 634 1,371 1,708 2,074 1,315 864
Total assets (in billions) ........................ $ 2,323.3 $ 1,658.6 $ 1,379.0 $ 377.0 $ 280.1 $ 731.8
Total deposits (in billions) ...................... 1,457.1 1,126.1 882.0 253.5 227.9 501.6
Net income (in millions) .......................... 7,178 5,845 4,722 1,573 961 3,161
% of unprofitable institutions .................... 9.8 9.3 5.0 5.0 4.9 10.4
% of institutions with earnings gains ............. 72.2 75.6 71.8 67.5 68.4 66.0
Performance Ratios (annualized, %)
Yield on earning assets ........................... 6.21 6.19 6.08 7.26 6.48 6.78
Cost of funding earning assets .................... 2.51 2.12 2.20 2.16 1.94 1.64
Net interest margin ............................... 3.71 4.08 3.88 5.10 4.54 5.14
Noninterest income to earning assets .............. 3.87 2.71 2.21 3.06 1.69 2.80
Noninterest expense to earning assets ............. 4.35 3.91 3.34 4.44 3.85 4.11
Loan and lease loss provision to assets ........... 0.87 0.42 0.54 0.94 0.31 0.70
Net operating income to assets .................... 1.23 1.38 1.29 1.66 1.34 1.71
Pretax return on assets ........................... 1.84 2.12 2.05 2.45 1.90 2.73
Return on assets .................................. 1.26 1.43 1.39 1.68 1.38 1.75
Return on equity .................................. 14.47 15.04 16.05 16.53 14.03 16.14
Net charge-offs to loans and leases ............... 1.68 0.69 0.77 1.33 0.36 1.09
Loan and lease loss provision to net charge-offs .. 102.50 98.29 106.48 104.07 146.61 99.62
Efficiency ratio .................................. 56.12 56.19 53.83 52.66 61.21 50.98
Structural Changes (QTR)
New charters .................................... 4 5 3 4 3 7
Banks absorbed by mergers ....................... 5 14 11 11 14 11
Failed banks .................................... 1 0 0 0 0 0
PRIOR SECOND QUARTERS
(THE WAY IT WAS...)
Return on assets (%)...........................2001 1.17 1.27 1.02 1.38 1.18 1.39
..........................................1999 0.98 1.29 1.28 1.60 1.30 1.59
..........................................1997 1.14 1.28 1.25 1.50 1.27 1.32
Net charge-offs to loans & leases (%)
..........................................2001 0.97 0.62 0.63 1.02 0.39 1.31
..........................................1999 0.70 0.45 0.31 0.73 0.41 0.68
..........................................1997 0.72 0.44 0.47 0.84 0.29 0.87
</Table>
FDIC Quarterly Banking Profile
FDIC-Insured Commercial Banks 6 Second Quarter 2002
TABLE V-A. LOAN PERFORMANCE, FDIC-INSURED COMMERCIAL BANKS
<Table>
<Caption>
Asset Size Distribution
-------------------------------------------------
Less $100 Million $1 Billion Greater
All than $100 to to than $10
JUNE 30, 2002 Institutions Million $1 Billion $10 Billion Billion
----------- ---------- ---------- ---------- ----------
PERCENT OF LOANS 30-89 DAYS PAST DUE
All loans secured by real estate .............. 1.03 1.30 0.92 0.87 1.09
Construction and development ................ 1.03 1.38 0.91 0.94 1.10
Commercial real estate ...................... 0.72 0.96 0.73 0.77 0.66
Multifamily residential real estate ......... 0.43 0.66 0.45 0.46 0.40
Home equity loans ........................... 0.57 0.75 0.53 0.55 0.57
Other 1-4 Family residential ................ 1.34 1.66 1.24 1.03 1.41
Commercial and industrial loans ............... 1.13 1.81 1.38 1.35 1.04
Loans to individuals .......................... 2.05 2.43 2.23 1.97 2.03
Credit card loans ........................... 2.55 2.36 5.32 2.46 2.49
Other loans to individuals .................. 1.74 2.43 1.86 1.70 1.70
All other loans and leases (including farm) ... 0.62 0.97 0.97 0.69 0.57
Total loans and leases ........................ 1.17 1.48 1.13 1.13 1.17
Memo: Commercial RE loans not secured by RE ... 1.00 0.62 0.30 0.76 1.06
PERCENT OF LOANS NONCURRENT*
All real estate loans ......................... 0.95 1.00 0.83 0.83 1.02
Construction and development ................ 1.08 0.98 0.99 1.12 1.11
Commercial real estate ...................... 0.97 1.11 0.91 0.86 1.05
Multifamily residential real estate ......... 0.38 0.65 0.48 0.28 0.38
Home equity loans ........................... 0.32 0.30 0.28 0.33 0.32
Other 1-4 Family residential ................ 1.00 0.87 0.74 0.81 1.11
Commercial and industrial loans ............... 2.87 1.82 1.43 1.75 3.28
Loans to individuals .......................... 1.40 0.94 0.83 1.01 1.55
Credit card loans ........................... 2.02 1.43 3.07 1.74 2.03
Other loans to individuals .................. 1.02 0.92 0.56 0.61 1.20
All other loans and leases (including farm) ... 0.89 1.31 1.26 0.82 0.85
Total loans and leases ........................ 1.47 1.17 0.96 1.04 1.68
Memo: Commercial RE loans not secured by RE ... 0.80 0.70 0.28 0.63 0.84
PERCENT OF LOANS CHARGED-OFF (NET, YTD)
All real estate loans ......................... 0.15 0.08 0.08 0.13 0.18
Construction and development ................ 0.12 0.13 0.09 0.18 0.12
Commercial real estate ...................... 0.14 0.11 0.10 0.16 0.16
Multifamily residential real estate ......... 0.06 0.04 0.04 0.08 0.05
Home equity loans ........................... 0.20 0.03 0.04 0.14 0.23
Other 1-4 Family residential ................ 0.14 0.07 0.07 0.09 0.18
Commercial and industrial loans ............... 1.60 0.63 0.65 1.30 1.80
Loans to individuals .......................... 3.49 0.83 1.73 2.73 3.93
Credit card loans ........................... 7.05 3.76 9.05 5.64 7.23
Other loans to individuals .................. 1.36 0.74 0.82 1.11 1.55
All other loans and leases (including farm) ... 0.52 0.17 0.34 0.43 0.55
Total loans and leases ........................ 1.10 0.28 0.37 0.82 1.34
Memo: Commercial RE loans not secured by RE ... 0.09 0.80 0.16 0.22 0.08
LOANS OUTSTANDING (IN BILLIONS)
All real estate loans ......................... $ 1,887.0 $ 80.6 $ 365.3 $ 329.4 $ 1,111.7
Construction and development ................ 198.6 7.4 45.8 42.5 102.9
Commercial real estate ...................... 532.7 24.3 145.5 119.2 243.7
Multifamily residential real estate ......... 69.4 1.9 13.0 14.8 39.8
Home equity loans ........................... 188.3 2.4 17.2 21.9 146.9
Other 1-4 Family residential ................ 824.6 34.3 128.1 126.4 535.8
Commercial and industrial loans ............... 938.7 23.1 94.8 115.8 704.9
Loans to individuals .......................... 662.5 16.3 55.1 96.1 494.9
Credit card loans ........................... 250.4 0.5 6.0 34.1 209.9
Other loans to individuals .................. 412.1 15.9 49.1 62.0 285.0
All other loans and leases (including farm) ... 487.2 16.1 28.1 38.6 404.5
Total loans and leases ........................ 3,975.4 136.1 543.3 579.9 2,716.0
Memo: Commercial RE loans not secured by RE ... 38.8 0.3 1.4 3.5 33.6
MEMO: OTHER REAL ESTATE OWNED (IN MILLIONS)
All other real estate owned ................... $ 3,873.7 $ 323.5 $ 1,008.0 $ 651.9 $ 1,890.2
Construction and development ................ 351.9 34.3 169.3 74.0 74.3
Commercial real estate ...................... 1,806.1 143.2 466.3 329.1 867.5
Multifamily residential real estate ......... 68.9 9.9 39.1 7.4 12.5
1-4 Family residential ...................... 1,457.2 110.5 291.0 231.8 823.9
Farmland .................................... 79.1 25.7 40.5 7.8 5.0
Other real estate owned in foreign offices .. 110.5 0.0 1.7 1.8 107.0
<Caption>
Geographic Distribution by Region
---------------------------------------------------------------------------
East West
------------------------------------ ------------------------------------
North- South- Mid- South-
JUNE 30, 2002 east east Central west west West
---------- ---------- ---------- ---------- ---------- ----------
PERCENT OF LOANS 30-89 DAYS PAST DUE
All loans secured by real estate .............. 1.07 0.91 1.30 0.98 0.99 0.78
Construction and development ................ 0.67 0.65 1.31 1.14 1.08 1.61
Commercial real estate ...................... 0.76 0.62 0.92 0.84 0.77 0.48
Multifamily residential real estate ......... 0.24 0.50 0.63 0.42 0.63 0.22
Home equity loans ........................... 0.46 0.54 0.68 0.57 0.48 0.52
Other 1-4 Family residential ................ 1.26 1.26 1.83 1.13 1.25 0.91
Commercial and industrial loans ............... 1.03 1.01 1.26 1.55 1.27 1.18
Loans to individuals .......................... 2.24 1.85 1.81 2.45 1.81 1.79
Credit card loans ........................... 2.66 3.48 1.94 2.83 1.42 1.95
Other loans to individuals .................. 1.86 1.60 1.80 1.74 1.82 1.53
All other loans and leases (including farm) ... 0.54 0.36 0.79 1.05 0.91 0.63
Total loans and leases ........................ 1.24 0.99 1.28 1.45 1.16 1.04
Memo: Commercial RE loans not secured by RE ... 0.59 0.47 2.02 1.72 1.91 0.95
PERCENT OF LOANS NONCURRENT*
All real estate loans ......................... 1.09 0.76 1.32 0.73 0.88 0.64
Construction and development ................ 1.03 0.96 1.27 0.94 0.82 1.26
Commercial real estate ...................... 0.94 0.88 1.31 0.92 0.93 0.72
Multifamily residential real estate ......... 0.29 0.37 0.50 0.38 0.78 0.22
Home equity loans ........................... 0.27 0.26 0.43 0.32 0.43 0.27
Other 1-4 Family residential ................ 1.10 0.76 1.70 0.55 0.79 0.42
Commercial and industrial loans ............... 3.83 2.63 2.47 1.46 1.50 2.27
Loans to individuals .......................... 2.05 0.76 0.66 1.61 0.69 1.21
Credit card loans ........................... 2.23 1.86 1.39 2.04 0.86 1.70
Other loans to individuals .................. 1.88 0.59 0.56 0.82 0.69 0.39
All other loans and leases (including farm) ... 0.88 0.78 0.85 1.11 1.45 1.05
Total loans and leases ........................ 2.02 1.18 1.46 1.11 1.03 1.10
Memo: Commercial RE loans not secured by RE ... 0.20 1.28 1.09 1.44 0.33 0.38
PERCENT OF LOANS CHARGED-OFF (NET, YTD)
All real estate loans ......................... 0.10 0.11 0.29 0.08 0.09 0.08
Construction and development ................ 0.15 0.09 0.16 0.17 0.05 0.14
Commercial real estate ...................... 0.04 0.09 0.32 0.14 0.11 0.10
Multifamily residential real estate ......... 0.06 0.05 0.10 0.00 0.04 0.01
Home equity loans ........................... 0.05 0.18 0.38 0.10 0.15 0.07
Other 1-4 Family residential ................ 0.08 0.12 0.31 0.05 0.09 0.04
Commercial and industrial loans ............... 1.81 1.64 1.40 0.80 0.70 1.97
Loans to individuals .......................... 4.94 1.50 1.86 4.58 0.95 3.72
Credit card loans ........................... 8.54 4.09 5.40 6.87 3.15 5.14
Other loans to individuals .................. 1.81 1.11 1.33 0.45 0.89 1.34
All other loans and leases (including farm) ... 0.59 0.25 0.68 0.21 0.38 0.62
Total loans and leases ........................ 1.75 0.65 0.80 1.33 0.37 1.17
Memo: Commercial RE loans not secured by RE ... 0.02 0.18 0.10 0.02 0.22 0.03
LOANS OUTSTANDING (IN BILLIONS)
All real estate loans ......................... $ 376.8 $ 579.3 $ 454.8 $ 121.2 $ 94.5 $ 260.4
Construction and development ................ 21.0 70.4 49.7 10.8 14.7 32.1
Commercial real estate ...................... 87.3 161.0 125.6 33.1 36.4 89.3
Multifamily residential real estate ......... 15.6 17.2 19.1 3.4 2.9 11.1
Home equity loans ........................... 37.5 58.8 60.9 6.1 1.7 23.3
Other 1-4 Family residential ................ 181.3 261.6 190.5 56.3 34.6 100.3
Commercial and industrial loans ............... 317.0 227.0 218.7 42.5 37.6 96.0
Loans to individuals .......................... 266.4 122.9 102.2 63.6 22.0 85.4
Credit card loans ........................... 125.5 16.5 13.3 41.4 0.6 53.1
Other loans to individuals .................. 140.8 106.4 88.9 22.2 21.4 32.3
All other loans and leases (including farm) ... 199.3 95.6 121.1 30.1 10.0 31.1
Total loans and leases ........................ 1,159.5 1,024.7 896.8 257.3 164.0 472.9
Memo: Commercial RE loans not secured by RE ... 9.1 11.7 9.0 0.8 0.7 7.4
MEMO: OTHER REAL ESTATE OWNED (IN MILLIONS)
All other real estate owned ................... $ 584.9 $ 1,326.1 $ 896.1 $ 297.1 $ 332.4 $ 437.1
Construction and development ................ 42.7 119.0 56.9 32.9 45.2 55.1
Commercial real estate ...................... 269.8 696.0 287.2 138.1 168.1 246.9
Multifamily residential real estate ......... 11.9 15.2 10.4 13.1 5.8 12.5
1-4 Family residential ...................... 151.8 480.9 531.6 92.2 92.0 108.7
Farmland .................................... 1.6 14.9 9.9 20.7 21.3 10.6
Other real estate owned in foreign offices .. 107.3 0.0 0.0 0.0 0.0 3.2
</Table>
* Noncurrent loan rates represent the percentage of loans in each category that
are past due 90 days or more or that are in nonaccrual status.
N/A - Not Available
FDIC Quarterly Banking Profile
Second Quarter 2002 7 FDIC-Insured Commercial Banks
SAVINGS INSTITUTION PERFORMANCE--SECOND QUARTER, 2002
O GAINS ON SALES OF SECURITIES CONTRIBUTE TO RECORD EARNINGS
O ASSET QUALITY IMPROVED FOR THE FIRST TIME AFTER SIX QUARTERS OF
DETERIORATION
O INDUSTRY ASSETS DECLINE AS THE NUMBER OF INSTITUTIONS FALLS BELOW 1,500
EARNINGS HIT A RECORD $3.9 BILLION
A favorable interest rate environment enabled the thrift industry to sustain
relatively wide net interest margins and supplement earnings with gains on
securities sales. FDIC-insured savings institutions earned a record $3.9 billion
in the second quarter, up $236 million from last quarter and $519 million higher
than a year ago. Gains on sales of securities of $1.3 billion drove earnings to
record levels. These gains were $656 million higher than in the first quarter
and $264 million higher than a year ago. Several factors limited the rise in
earnings. Net interest income was $265 million lower than in the first quarter,
but $1.1 billion higher than a year ago. Provision expenses for loan losses were
$127 million higher than in the first quarter and $214 million higher than a
year ago. Noninterest income was $164 million lower than in the first quarter,
primarily because of a decline in servicing fees. The annualized return on
assets (ROA) for the industry rose to a record 1.21 percent for the second
quarter, from the first quarter's 1.12 percent and the 1.06 percent reported a
year ago. Almost three fourths of all savings institutions reported earnings
gains from year-ago levels
THE 6 PERCENT DECLINE IN NONINTEREST INCOME WAS DRIVEN BY MORTGAGE BANKING
ACTIVITIES
Lower mortgage rates continue to spur refinancings and drive down
mortgage-servicing rights' values at some institutions. A year ago, noninterest
income was $439 million higher. Servicing fee income--which
EARNINGS REACH RECORD LEVELS
[CHART]
includes changes in the valuations of mortgage servicing rights--contributed
$175 million to earnings in the first quarter. During the second quarter the
industry had servicing fee income that was a negative $1.1 billion, primarily
because of declines in the values of mortgage servicing rights. This resulted in
a $1.3-billion swing in servicing fees.(1) Apart from servicing losses, other
noninterest income rose by $1.1 billion compared to the first quarter. The
increase included gains from successful hedging strategies that offset some of
the decline in the value of mortgage servicing rights.
NET INTEREST MARGINS SLIPPED JUST 2 BASIS POINTS DURING THE QUARTER
The decline in short term interest rates over the past year has helped the
industry maintain net interest margins that are close to the peak of 3.58
percent reached in early 1993. A steep yield curve helped keep net interest
margins at 3.50 percent, down only 2 basis points from 3.52 percent in the first
quarter. A year ago margins were 35 basis points lower, at 3.15 percent. The
decline in net interest margins was concentrated in large institutions with over
$5 billion in assets. This group reported a 9-basis-point decline, while the
other asset size groups reported increases ranging from 6 to 15 basis points.
Smaller institutions tend to lag the rest of the industry in reducing their
funding costs and thus their margins are still improving as a result of interest
rate cuts.
PERSISTENTLY LOW LONG-TERM RATES RESULTS IN LOWER ASSET YIELDS
Long-term interest rates have been persistently low over the last two years and
this has led to a mortgage-refinancing boom, but has reduced the industry's
asset yields. Asset yields fell 12 basis points during the second quarter to
6.38 percent, while the cost of funding earning assets declined just 10 basis
points to 2.88 percent. This was the first time since rates began to fall last
year that asset yields fell faster than the cost of funding earning assets. If
short-term rates do not con-
(1) Much of the decline in servicing fees was caused by a write-down in the
value of mortgage servicing rights reported by Washington Mutual Bank,
FA, which reported servicing fees of minus $1.1 billion. This loss was
partially offset by gains on derivatives, which can serve to hedge
changes in mortgage servicing rights' values.
FDIC Quarterly Banking Profile
FDIC-Insured Savings Institutions 8 Second Quarter 2002
NET INTEREST MARGINS TAPERED OFF
FOR LARGE THRIFTS
[CHART]
tinue to fall and drive down costs, the industry's net interest margin may have
reached a peak at 3.52 percent last quarter.
SMALL THRIFTS REPORTED A SLIGHT IMPROVEMENT IN PROFITABILITY
Small thrifts, 542 institutions with less than $100 million in assets, reported
a 4 basis point improvement in ROA, compared to the first quarter, to 0.86
percent. A 14 basis point improvement in the group's net interest margin, which
rose to 3.48 percent, helped drive the earnings improvement. Noninterest income
as a percentage of earning assets declined 2 basis points to 2.21 percent, while
noninterest expense increased 6 basis points to 4.29 percent. Specialized small
thrifts that obtain more than 90 percent of their operating revenue from
noninterest income heavily influence the group's results. Without 11 specialized
small thrifts, the remaining 531 institutions with less than $100 million in
PROFITABILITY WAS DRIVEN BY NET INTEREST
MARGINS INSTEAD OF FEE INCOME
[CHART]
assets reported a 5 basis point improvement in ROA, primarily because of the 14
basis point improvement in their net interest margin. At these institutions,
noninterest income was equal to 0.88 percent of earning assets, 8 basis points
higher than last quarter. While most small thrifts reported improved ROAs, 15
percent of the group reported losses for the quarter, which was the same as last
quarter, but down from 18 percent a year ago.
ASSET QUALITY IMPROVED AFTER SIX CONSECUTIVE QUARTERLY DECLINES
Noncurrent assets plus other real estate owned equaled 0.65 percent of assets at
the end of the quarter, a slight improvement from 0.68 percent at the end of
the first quarter. This was the first improvement after 6 consecutive quarterly
increases in the level of troubled assets. All real estate and consumer loan
categories showed improvement and other real estate owned declined. Commercial
and industrial (C&I) loans were the only loan category to show deterioration.
Noncurrent C&I loans rose from 2.21 percent to 2.27 percent of all C&I loans
during the second quarter.
NONCURRENT REAL ESTATE RATES IMPROVED
IN ALL CATEGORIES
[CHART]
PROVISION EXPENSES OUTPACE NET CHARGE-OFFS
Provision expenses for loan losses exceeded net charge-offs during the second
quarter to a degree not seen since 1990. Loan loss provisions were 193 percent
of net charge-offs, up from 141 percent in the first quarter and just below the
211 percent recorded in the third quarter of 1990. Provision expenses were $930
million while net charge-offs were about half as much at $481 million. One third
of the industry reported higher provision expenses, but one institution, Capital
One
FDIC Quarterly Banking Profile
Second Quarter 2002 9 FDIC-Insured Savings Institutions
FSB, accounted for almost one third (31 percent) of the provision expenses for
the second quarter. The net charge-off rate fell 4 basis points to 0.23 percent,
primarily because of improvements in home mortgages. The only dark spot was
charge-offs on loans secured by non-residential (commercial) property, which
rose 7 basis points to 0.11 percent during the quarter. The net charge-off rate
for C&I loans declined to 1.36 percent from 1.39 percent last quarter.
LOAN LOSS RESERVES RISE WITH HIGHER PROVISIONS AND LOWER NET CHARGE-OFFS
Strong provisions for loan losses helped boost reserves for loan losses by $183
million, to $8 billion. Noncurrent loans declined $521 million to $7.4 billion.
Last quarter, noncurrent loans exceeded reserves slightly, by $56 million, but
during the second quarter reserves pulled ahead of noncurrent loans. As a
result, the coverage ratio--loan loss reserves to noncurrent loans--rose to 109
percent from 99 percent during the second quarter with more than half the
industry reporting an improvement.
RESERVES IMPROVE RELATIVE TO
NONCURRENT LOANS
[CHART]
INDUSTRY ASSETS SHRINK BY $30.3 BILLION, BUT DEPOSITS CONTINUE TO FLOW IN
Industry assets fell by $30.3 billion in the second quarter, primarily because
of a charter transfer. Charter One Bank, FSB, with $38 billion in assets,
converted to a national bank during the second quarter. This institution held
over $25 billion in deposits last quarter and was the fourth largest savings
institution as ranked by total assets. The industry's decline in deposits in the
second quarter was just $14.5 billion, as over two-thirds of institutions
reported increases. Federal Home Loan Bank Advances were also down by a similar
amount, $14.4 billion. A decline in securities portfolios at the two largest
thrifts led to a $9.3-billion decline for the industry. One of these
institutions, World Savings Bank, FSB reported a $5.9 billion rise in home
mortgages which was caused by conversions of mortgage backed securities into
loans.
CAPITAL RISES TO HIGHEST LEVEL EVER
Reductions in interest rates have raised the value of thrifts' investment
securities and these gains have boosted equity capital ratios. Equity capital
increased $2.4 billion to $119.6 billion or 9.29 percent of assets, the highest
level seen since data are available, back to 1940. Unrealized gains on
available-for-sale securities accounted for $2.2 billion (90 percent) of the
increase in capital. Core capital, which excludes these gains, improved to 8.18
percent of average assets from 7.89 percent last quarter. This is its highest
level since reporting on this ratio began in 1990.
THE COUNT OF SAVINGS INSTITUTIONS FELL BELOW 1,500 FOR THE FIRST TIME SINCE 1935
At the end of June there were 1,498 savings institutions, which was 17 fewer
than at the end of the first quarter. During the quarter 8 institutions with
assets of $1.6 billion were absorbed by commercial banks and 3 with $207 million
were absorbed by thrifts. One institution with $52 million in assets failed and
merged, with assistance, into a commercial bank. There were 3 institutions with
$37.9 billion in assets that converted their charter to a commercial bank
charter during the quarter. The number of "problem" thrifts fell slightly to 21
from 22 at the end March. The assets of "problem" thrifts fell to $3.8 billion
from $15.0 billion at the end of March.
CAPITAL HITS A RECORD
[CHART]
FDIC Quarterly Banking Profile
FDIC-Insured Savings Institutions 10 Second Quarter 2002
TABLE I-B. SELECTED INDICATORS, FDIC-INSURED SAVINGS INSTITUTIONS
<Table>
<Caption>
2002* 2001* 2001 2000 1999 1998 1997
--------- --------- --------- --------- --------- --------- ---------
Return on assets (%) ........................... 1.22 1.01 1.09 0.92 1.00 1.01 0.93
Return on equity (%) ........................... 13.65 11.95 12.73 11.14 11.73 11.35 10.84
Core capital (leverage) ratio (%) .............. 8.18 7.76 7.80 7.80 7.86 7.85 7.95
Noncurrent assets plus
other real estate owned to assets (%) ........ 0.65 0.60 0.66 0.56 0.58 0.72 0.95
Net charge-offs to loans (%) ................... 0.24 0.25 0.28 0.20 0.17 0.22 0.25
Asset growth rate (%) .......................... 1.04 8.13 6.76 5.99 5.52 6.06 -0.28
Net interest margin ............................ 3.52 3.10 3.23 2.96 3.10 3.10 3.23
Net operating income growth (%) ................ 28.55 -7.80 7.14 3.05 16.62 7.71 19.98
Number of institutions reporting ............... 1,498 1,569 1,533 1,589 1,642 1,690 1,780
Percentage of unprofitable institutions (%) .... 8.21 10.07 8.55 8.56 8.28 5.27 4.10
Number of problem institutions ................. 21 22 19 18 13 15 12
Assets of problem institutions (in billions) ... $ 4 $ 7 $ 4 $ 7 $ 6 $ 6 $ 2
Number of failed/assisted institutions ......... 1 0 1 1 1 0 0
</Table>
* Through June 30, ratios annualized where Asset growth rates are for 12 months
appropriate. ending June 30.
TABLE II-B. AGGREGATE CONDITION AND INCOME DATA, FDIC-INSURED SAVINGS
INSTITUTIONS
<Table>
<Caption>
(DOLLAR FIGURES IN MILLIONS) Preliminary
2nd Quarter 1st Quarter 2nd Quarter %Change
2002 2002 2001 01:2-02:2
---------- ---------- ---------- ----------
Number of institutions reporting ................. 1,498 1,515 1,569 -4.5
Total employees (full-time equivalent) ........... 262,460 271,259 263,814 -0.5
CONDITION DATA
Total assets ..................................... $1,288,032 $1,318,304 $1,274,768 1.0
Loans secured by real estate .................... 740,572 746,302 751,645 -1.5
1-4 Family Residential ......................... 575,912 583,105 593,596 -3.0
Multifamily residential property ............... 60,449 59,648 58,246 3.8
Commercial real estate ......................... 66,963 65,766 63,058 6.2
Construction, development, and land ............ 37,247 37,783 36,746 1.4
Commercial & industrial loans ................... 37,978 38,423 37,671 0.8
Loans to individuals ............................ 66,316 68,904 65,031 2.0
Other loans & leases ............................ 4,706 6,787 6,591 -28.6
Less: Unearned income & contra accounts ......... 158 158 177 -10.8
Total loans & leases ............................ 849,413 860,258 860,760 -1.3
Less: Reserve for losses ........................ 8,040 7,857 7,627 5.4
Net loans & leases ............................... 841,373 852,402 853,133 -1.4
Securities ....................................... 293,041 302,325 279,262 4.9
Other real estate owned .......................... 1,030 1,065 1,031 -0.1
Goodwill and other intangibles ................... 23,948 26,217 23,048 3.9
All other assets ................................. 128,639 136,295 118,293 8.7
Total liabilities and capital .................... 1,288,032 1,318,304 1,274,768 1.0
Deposits ........................................ 805,633 820,099 775,695 3.9
Other borrowed funds ............................ 337,703 355,194 364,972 -7.5
Subordinated debt ............................... 3,304 3,747 3,896 -15.2
All other liabilities ........................... 21,792 22,053 21,657 0.6
Equity capital .................................. 119,600 117,210 108,548 10.2
Loans and leases 30-89 days past due ............. 7,696 8,682 8,250 -6.7
Noncurrent loans and leases ...................... 7,391 7,912 6,557 12.7
Restructured loans and leases .................... 1,661 1,622 1,502 10.5
Direct and indirect investments in real estate ... 434 429 614 -29.3
Mortgage-backed securities ....................... 194,064 198,146 207,935 -6.7
Earning assets ................................... 1,177,550 1,205,159 1,170,058 0.6
FHLB Advances .................................... 224,121 238,516 254,116 -11.8
Unused loan commitments .......................... 331,451 316,479 288,575 14.9
</Table>
<Table>
<Caption>
Preliminary Preliminary
First Half First Half 2nd Quarter 2nd Quarter %Change
INCOME DATA 2002 2001 %Change 2002 2001 01:2-02:2
------------ ------------ ------------ ------------ ------------ ------------
Total interest income ................. $ 37,555 $ 44,398 -15.4 $ 18,708 $ 22,119 -15.4
Total interest expense ................ 17,063 26,701 -36.1 8,450 12,972 -34.9
Net interest income ................. 20,492 17,697 15.8 10,258 9,147 12.2
Provision for loan and lease losses ... 1,693 1,397 21.3 930 716 29.8
Total noninterest income .............. 5,891 6,187 -4.8 2,802 3,242 -13.6
Total noninterest expense ............. 14,835 14,501 2.3 7,514 7,452 0.8
Securities gains (losses) ............. 1,982 1,874 5.8 1,310 1,045 25.4
Applicable income taxes ............... 4,080 3,532 15.5 2,005 1,891 6.0
Extraordinary gains, net .............. 6 -47 N/M -42 -15 N/M
Net income .......................... 7,763 6,281 23.6 3,880 3,361 15.5
Net charge-offs ....................... 1,009 1,051 -4.0 481 543 -11.4
Cash dividends ........................ 3,468 2,920 18.8 2,064 1,766 16.9
Net operating income ................ 6,428 5,001 28.6 3,054 2,599 17.5
</Table>
N/M - Not Meaningful
FDIC Quarterly Banking Profile
Second Quarter 2002 11 FDIC-Insured Savings Institutions
TABLE III-B. FIRST HALF 2002, FDIC-INSURED SAVINGS INSTITUTIONS
<Table>
<Caption>
Asset Size Distribution
-------------------------------------------------
Less $100 Million $1 Billion Greater
FIRST HALF Preliminary All than $100 to to than $5
(THE WAY IT IS...) Institutions Million $1 Billion $5 Billion Billion
----------- ---------- ------------ ---------- ----------
Number of institutions reporting ................... 1,498 542 808 104 44
Total assets (in billions) ......................... $ 1,288.0 $ 27.8 $ 252.0 $ 198.4 $ 809.9
Total deposits (in billions) ....................... 805.6 22.2 191.8 140.0 451.6
Net income (in millions) ........................... 7,763 118 1,096 1,064 5,486
% of unprofitable institutions ..................... 8.2 15.3 4.1 5.8 2.3
% of institutions with earnings gains .............. 75.7 71.4 78.0 78.8 79.5
PERFORMANCE RATIOS (ANNUALIZED, %)
Yield on earning assets ............................ 6.45 6.53 6.58 6.56 6.38
Cost of funding earning assets ..................... 2.93 3.11 3.05 2.97 2.88
Net interest margin ................................ 3.52 3.42 3.53 3.58 3.50
Noninterest income to earning assets ............... 1.01 2.17 0.94 0.81 1.04
Noninterest expense to earning assets .............. 2.55 4.24 2.99 2.72 2.31
Loan and lease loss provision to assets ............ 0.27 0.14 0.15 0.19 0.32
Net operating income to assets ..................... 1.01 0.70 0.82 0.95 1.09
Pretax return on assets ............................ 1.86 1.34 1.34 1.56 2.11
Return on assets ................................... 1.22 0.86 0.89 1.11 1.36
Return on equity ................................... 13.65 6.98 8.51 11.91 16.44
Net charge-offs to loans and leases ................ 0.24 0.14 0.15 0.15 0.29
Loan and lease loss provision to net charge-offs ... 167.85 153.97 150.77 194.30 167.49
Efficiency ratio ................................... 55.46 75.53 66.48 60.93 49.89
CONDITION RATIOS (%)
Earning assets to total assets ..................... 91.42 93.91 93.38 92.59 90.44
Loss allowance to:
Loans and leases ................................. 0.95 0.77 0.89 1.10 0.93
Noncurrent loans and leases ........................ 108.78 83.08 118.06 109.59 107.02
Noncurrent assets plus
other real estate owned to assets ................ 0.65 0.76 0.59 0.79 0.64
Noncurrent RE loans to RE loans .................... 0.83 0.87 0.70 0.92 0.85
Equity capital ratio ............................... 9.29 12.39 10.49 9.36 8.79
Core capital (leverage) ratio ...................... 8.18 11.99 10.00 8.57 7.39
Tier 1 risk-based capital ratio .................... 13.32 21.68 16.68 13.72 11.93
Total risk-based capital ratio ..................... 14.64 22.74 17.74 14.80 13.40
Gross real estate assets to gross assets ........... 72.22 68.58 69.70 72.97 72.94
Gross 1-4 family mortgages to gross assets ......... 44.43 46.60 41.13 35.38 47.60
Net loans and leases to deposits ................... 104.44 82.26 85.06 91.45 117.78
Structural Changes (YTD)
New Charters ..................................... 1 1 0 0 0
Thrifts absorbed by mergers ...................... 29 9 18 1 1
Failed Thrifts ................................... 1 1 0 0 0
PRIOR FIRST HALVES
(THE WAY IT WAS...)
Number of institutions..........................2001 1,569 603 822 102 42
............................................1999 1,654 683 828 108 35
............................................1997 1,852 808 887 121 36
Total assets (in billions)......................2001 $ 1,274.8 $ 30.6 $ 254.1 $ 197.7 $ 792.3
............................................1999 1,126.0 35.2 241.4 220.8 628.7
............................................1997 1,028.6 42.1 263.4 246.3 476.8
Return on assets (%)............................2001 1.01 0.67 0.71 0.82 1.17
............................................1999 1.01 0.68 0.92 1.14 1.01
............................................1997 0.94 0.80 0.96 1.12 0.85
Net charge-offs to loans & leases (%)
............................................2001 0.25 0.11 0.11 0.24 0.31
............................................1999 0.17 0.09 0.09 0.39 0.13
............................................1997 0.28 0.10 0.13 0.36 0.35
Noncurrent assets plus
OREO to assets (%)*.........................2001 0.60 0.68 0.54 0.83 0.55
............................................1999 0.62 0.70 0.59 0.91 0.53
............................................1997 1.02 0.89 0.90 1.35 0.92
Equity capital ratio (%)........................2001 8.52 12.99 10.56 8.82 7.61
............................................1999 8.55 12.22 10.71 8.87 7.40
............................................1997 8.53 11.65 10.08 8.52 7.41
<Caption>
Geographic Distribution by Region
---------------------------------------------------------------------------
East West
------------------------------------ ------------------------------------
FIRST HALF Preliminary North- South- Mid- South-
(THE WAY IT IS...) east east Central west west West
---------- ---------- ---------- ---------- ---------- ----------
Number of institutions reporting ................... 600 193 378 118 104 105
Total assets (in billions) ......................... $ 439.0 $ 101.0 $ 134.3 $ 43.6 $ 76.6 $ 493.6
Total deposits (in billions) ....................... 295.5 70.8 97.5 26.7 41.9 273.3
Net income (in millions) ........................... 2,546 285 747 190 604 3,391
% of unprofitable institutions ..................... 7.0 9.8 10.3 11.0 6.7 2.9
% of institutions with earnings gains .............. 76.8 75.6 74.3 67.8 75.0 83.8
PERFORMANCE RATIOS (ANNUALIZED, %)
Yield on earning assets ............................ 6.46 6.70 6.95 6.62 6.39 6.24
Cost of funding earning assets ..................... 2.93 3.47 3.50 3.32 2.62 2.68
Net interest margin ................................ 3.53 3.23 3.45 3.29 3.77 3.56
Noninterest income to earning assets ............... 0.86 1.78 1.36 0.84 1.23 0.88
Noninterest expense to earning assets .............. 2.37 3.37 3.37 2.72 2.76 2.27
Loan and lease loss provision to assets ............ 0.15 1.08 0.40 0.16 0.34 0.17
Net operating income to assets ..................... 1.12 0.28 0.60 0.74 1.47 1.13
Pretax return on assets ............................ 1.83 0.91 1.73 1.35 1.94 2.14
Return on assets ................................... 1.20 0.59 1.14 0.88 1.64 1.35
Return on equity ................................... 12.23 6.86 10.98 9.90 19.57 16.88
Net charge-offs to loans and leases ................ 0.18 0.70 0.33 0.18 0.33 0.16
Loan and lease loss provision to net charge-offs ... 142.98 221.01 164.05 133.87 168.31 148.45
Efficiency ratio ................................... 52.83 66.66 69.62 65.10 54.92 50.35
CONDITION RATIOS (%)
Earning assets to total assets ..................... 92.36 92.83 92.68 92.76 93.16 89.57
Loss allowance to:
Loans and leases ................................. 0.97 1.35 0.83 0.77 1.11 0.87
Noncurrent loans and leases ........................ 134.45 157.08 83.19 120.04 77.05 97.99
Noncurrent assets plus
other real estate owned to assets ................ 0.49 0.71 0.86 0.61 0.98 0.69
Noncurrent RE loans to RE loans .................... 0.66 0.64 0.99 0.60 1.68 0.87
Equity capital ratio ............................... 9.90 8.88 10.70 8.92 8.37 8.61
Core capital (leverage) ratio ...................... 8.84 8.62 9.48 8.39 8.24 7.14
Tier 1 risk-based capital ratio .................... 14.69 13.28 15.18 14.44 13.36 11.54
Total risk-based capital ratio ..................... 15.94 14.76 16.12 15.48 14.37 13.06
Gross real estate assets to gross assets ........... 71.71 64.56 72.57 75.53 61.47 75.52
Gross 1-4 family mortgages to gross assets ......... 38.41 38.36 50.30 44.12 24.93 52.49
Net loans and leases to deposits ................... 87.82 96.53 101.35 110.16 109.31 124.24
Structural Changes (YTD)
New Charters ..................................... 0 1 0 0 0 0
Thrifts absorbed by mergers ...................... 10 8 7 1 1 2
Failed Thrifts ................................... 0 0 1 0 0 0
PRIOR FIRST HALVES
(THE WAY IT WAS)
Number of institutions..........................2001 618 207 401 123 109 111
............................................1999 644 227 431 127 113 112
............................................1997 704 271 478 139 126 134
Total assets (in billions)......................2001 $ 421.8 $ 91.0 $ 189.6 $ 42.0 $ 69.3 $ 461.2
............................................1999 372.9 68.9 179.5 39.2 72.3 393.2
............................................1997 341.5 65.8 175.9 41.8 64.7 338.9
Return on assets (%)............................2001 1.01 0.55 0.71 0.80 1.23 1.22
............................................1999 0.98 0.92 1.08 0.82 1.15 1.01
............................................1997 0.99 0.91 1.00 0.84 1.11 0.85
Net charge-offs to loans & leases (%)
............................................2001 0.17 0.38 0.54 0.18 0.34 0.15
............................................1999 0.10 0.22 0.25 0.16 0.20 0.17
............................................1997 0.31 0.46 0.22 0.05 0.40 0.26
Noncurrent assets plus
OREO to assets (%)*.........................2001 0.52 0.59 0.77 0.72 1.03 0.52
............................................1999 0.66 0.58 0.66 0.51 0.86 0.54
............................................1997 1.20 0.93 0.64 0.66 1.01 1.09
Equity capital ratio (%)........................2001 9.82 8.67 8.54 9.19 8.48 7.22
............................................1999 9.59 10.30 9.12 10.21 8.17 6.89
............................................1997 9.29 9.64 9.27 8.73 8.30 7.19
</Table>
* 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.
FDIC Quarterly Banking Profile
FDIC-Insured Savings Institutions 12 Second Quarter 2002
TABLE IV-B. SECOND Quarter 2002, FDIC-INSURED SAVINGS INSTITUTIONS
<Table>
<Caption>
Asset Size Distribution
------------------------------------------------
Less $100 Million $1 Billion Greater
SECOND QUARTER PRELIMINARY All than $100 to to than $5
(THE WAY IT IS...) Institutions Million $1 Billion $5 Billion Billion
------------ --------- ----------- ----------- --------
Number of institutions reporting ................... 1,498 542 808 104 44
Total assets (in billions) ......................... $ 1,288.0 $ 27.8 $ 252.0 $ 198.4 $ 809.9
Total deposits (in billions) ....................... 805.6 22.2 191.8 140.0 451.6
Net income (in millions) ........................... 3,880 59 565 530 2,725
% of unprofitable institutions ..................... 7.8 15.1 3.5 5.8 2.3
% of institutions with earnings gains .............. 74.2 70.1 76.6 75.0 79.5
PERFORMANCE RATIOS (ANNUALIZED, %)
Yield on earning assets ............................ 6.38 6.49 6.53 6.54 6.29
Cost of funding earning assets ..................... 2.88 3.01 2.96 2.89 2.85
Net interest margin ................................ 3.50 3.48 3.57 3.65 3.44
Noninterest income to earning assets ............... 0.96 2.21 0.94 0.78 0.96
Noninterest expense to earning assets .............. 2.56 4.29 2.98 2.76 2.32
Loan and lease loss provision to assets ............ 0.29 0.17 0.16 0.25 0.34
Net operating income to assets ..................... 0.95 0.69 0.84 0.93 1.00
Pretax return on assets ............................ 1.83 1.36 1.37 1.51 2.07
Return on assets ................................... 1.21 0.86 0.91 1.08 1.34
Return on equity ................................... 13.24 6.97 8.69 11.66 15.66
Net charge-offs to loans and leases ................ 0.23 0.15 0.17 0.13 0.27
Loan and lease loss provision to net charge-offs ... 193.28 170.71 145.24 282.18 192.33
Efficiency ratio ................................... 56.73 75.01 65.63 61.10 51.91
STRUCTURAL CHANGES (QTR)
New charters ..................................... 0 0 0 0 0
Thrifts absorbed by mergers ...................... 11 5 6 0 0
Failed Thrifts ................................... 1 1 0 0 0
PRIOR SECOND QUARTERS
(THE WAY IT WAS...)
Return on assets (%)............................2001 1.06 0.70 0.71 0.85 1.24
........................................1999 1.03 0.66 0.88 1.18 1.05
........................................1997 0.95 0.83 0.97 1.15 0.84
Net charge-offs to loans & leases (%)
........................................2001 0.25 0.15 0.11 0.23 0.31
........................................1999 0.17 0.11 0.10 0.31 0.16
........................................1997 0.30 0.12 0.16 0.33 0.37
<Caption>
Geographic Distribution by Region
---------------------------------------------------------------------------
East West
------------------------------------ ------------------------------------
SECOND QUARTER PRELIMINARY North- South- Mid- South-
(THE WAY IT IS...) east east Central west west West
---------- ---------- ---------- ---------- ---------- ----------
Number of institutions reporting ................... 600 193 378 118 104 105
Total assets (in billions) ......................... $ 439.0 $ 101.0 $ 134.3 $ 43.6 $ 76.6 $ 493.6
Total deposits (in billions) ....................... 295.5 70.8 97.5 26.7 41.9 273.3
Net income (in millions) ........................... 1,319 89 349 100 342 1,681
% of unprofitable institutions ..................... 6.8 9.3 10.3 9.3 6.7 1.0
% of institutions with earnings gains .............. 76.2 75.6 70.4 66.9 76.9 80.0
PERFORMANCE RATIOS (ANNUALIZED, %)
Yield on earning assets ............................ 6.44 6.61 6.86 6.56 6.45 6.12
Cost of funding earning assets ..................... 2.86 3.38 3.41 3.26 2.55 2.67
Net interest margin ................................ 3.57 3.22 3.46 3.30 3.90 3.45
Noninterest income to earning assets ............... 0.87 1.79 1.30 0.77 1.31 0.73
Noninterest expense to earning assets .............. 2.36 3.39 3.39 2.66 2.78 2.30
Loan and lease loss provision to assets ............ 0.15 1.46 0.40 0.16 0.31 0.16
Net operating income to assets ..................... 1.15 0.03 0.55 0.75 1.68 0.98
Pretax return on assets ............................ 1.87 0.55 1.61 1.40 2.14 2.11
Return on assets ................................... 1.22 0.36 1.05 0.93 1.83 1.34
Return on equity ................................... 12.44 4.14 9.87 10.36 21.83 16.03
Net charge-offs to loans and leases ................ 0.16 0.72 0.27 0.16 0.27 0.17
Loan and lease loss provision to net charge-offs ... 161.18 295.22 197.09 150.34 187.03 133.48
Efficiency ratio ................................... 52.10 66.72 70.84 64.62 53.09 54.26
STRUCTURAL CHANGES (QTR)
New charters ..................................... 0 0 0 0 0 0
Thrifts absorbed by mergers ...................... 1 4 4 0 1 1
Failed Thrifts ................................... 0 0 1 0 0 0
PRIOR SECOND QUARTERS
(THE WAY IT WAS...)
Return on assets (%)............................2001 1.04 0.55 0.73 0.84 1.31 1.31
......................................1999 1.05 0.82 1.06 0.89 1.23 1.00
......................................1997 1.00 0.92 1.09 0.68 1.16 0.82
Net charge-offs to loans & leases (%)
......................................2001 0.14 0.44 0.53 0.25 0.43 0.16
......................................1999 0.12 0.21 0.19 0.19 0.20 0.20
......................................1997 0.35 0.46 0.19 0.17 0.37 0.28
</Table>
REGIONS: NORTHEAST - Connecticut, Delaware, District of Columbia, Maine,
Maryland, Massachusetts, New Hampshire, New Jersey, New
York, Pennsylvania, Puerto Rico, Rhode Island, Vermont,
U.S. Virgin Islands
SOUTHEAST - Alabama, Florida, Georgia, Mississippi, North Carolina,
South Carolina, Tennessee, Virginia, West Virginia
CENTRAL - Illinois, Indiana, Kentucky, Michigan, Ohio, Wisconsin
MIDWEST - Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota,
South Dakota
SOUTHWEST - Arkansas, Louisiana, New Mexico, Oklahoma, Texas
WEST - Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana,
Nevada, Oregon, Pacific Islands, Utah, Washington, Wyoming
FDIC Quarterly Banking Profile
Second Quarter 2002 13 FDIC-Insured Savings Institutions
TABLE V-B. LOAN PERFORMANCE, FDIC-INSURED SAVINGS INSTITUTIONS
<Table>
<Caption>
Asset Size Distribution
-------------------------------------------------
Less $100 Million $1 Billion Greater
All than $100 to to than $5
JUNE 30, 2002 Institutions Million $1 Billion $5 Billion Billion
----------- ---------- ---------- ---------- ----------
PERCENT OF LOANS 30-89 DAYS PAST DUE
All loans secured by real estate ................... 0.83 1.69 0.94 0.76 0.78
Construction, development, and land .............. 1.01 1.74 1.26 0.73 0.97
Commercial real estate ........................... 0.62 1.07 0.72 0.73 0.42
Multifamily residential real estate .............. 0.18 0.99 0.33 0.26 0.11
Home equity loans ................................ 0.18 0.48 0.35 0.21 0.11
Other 1-4 Family residential ..................... 0.96 1.85 1.06 0.92 0.91
Commercial and industrial loans .................... 1.22 2.32 1.88 0.90 1.06
Loans to individuals ............................... 1.61 2.31 1.72 1.26 1.63
Credit card loans ................................ 1.57 1.39 2.28 0.89 1.52
Other loans to individuals ....................... 1.63 2.37 1.66 1.29 1.70
Total loans and leases ............................. 0.91 1.76 1.03 0.80 0.86
PERCENT OF LOANS NONCURRENT*
All real estate loans .............................. 0.83 0.87 0.70 0.92 0.85
Construction, development, and land .............. 1.52 1.04 1.10 1.42 1.87
Commercial real estate ........................... 1.26 0.94 0.82 1.48 1.52
Multifamily residential real estate .............. 0.34 0.90 0.36 0.86 0.15
Home equity loans ................................ 0.09 0.18 0.12 0.11 0.07
Other 1-4 Family residential ..................... 0.83 0.88 0.71 0.77 0.87
Commercial and industrial loans .................... 2.27 1.96 1.84 2.93 2.19
Loans to individuals ............................... 0.54 1.04 0.63 0.54 0.51
Credit card loans ................................ 1.00 0.77 0.86 0.74 1.02
Other loans to individuals ....................... 0.38 1.07 0.60 0.53 0.25
Total loans and leases ............................. 0.87 0.93 0.75 1.01 0.87
PERCENT OF LOANS CHARGED-OFF (NET, YTD)
All real estate loans .............................. 0.05 0.04 0.04 0.05 0.05
Construction, development, and land .............. 0.10 0.01 0.08 0.13 0.11
Commercial real estate ........................... 0.07 0.05 0.06 0.01 0.12
Multifamily residential real estate .............. 0.00 -0.05 0.01 0.05 -0.02
Home equity loans ................................ 0.05 0.02 0.01 0.09 0.06
Other 1-4 Family residential ..................... 0.05 0.04 0.04 0.04 0.05
Commercial and industrial loans .................... 1.37 1.12 0.92 0.83 1.72
Loans to individuals ............................... 1.78 0.85 1.09 0.80 2.17
Credit card loans ................................ 3.35 2.39 3.01 1.97 3.41
Other loans to individuals ....................... 1.22 0.80 0.80 0.75 1.51
Total loans and leases ............................. 0.24 0.14 0.15 0.15 0.29
LOANS OUTSTANDING (IN BILLIONS)
All real estate loans .............................. $ 740.6 $ 16.3 $ 146.0 $ 111.2 $ 467.0
Construction, development, and land .............. 37.2 1.1 10.4 9.0 16.7
Commercial real estate ........................... 66.7 1.7 22.4 18.6 24.0
Multifamily residential real estate .............. 60.4 0.5 8.8 12.9 38.3
Home equity loans ................................ 34.7 0.5 7.2 5.4 21.6
Other 1-4 Family residential ..................... 541.2 12.5 97.0 65.3 366.3
Commercial and industrial loans .................... 38.0 0.8 7.6 7.6 22.0
Loans to individuals ............................... 66.3 1.2 10.5 9.4 45.3
Credit card loans ................................ 17.3 0.0 1.5 0.4 15.4
Other loans to individuals ....................... 48.6 1.2 8.9 8.9 29.7
Total loans and leases ............................. 849.6 18.4 164.7 129.5 536.9
MEMO: OTHER REAL ESTATE OWNED (IN MILLIONS)**
All other real estate owned ........................ $ 1,029.9 $ 37.1 $ 241.7 $ 254.4 $ 496.7
Construction, development, and land .............. 141.6 2.8 33.3 28.3 77.2
Commercial real estate ........................... 295.5 7.5 65.0 146.6 76.4
Multifamily residential real estate .............. 35.9 1.4 10.9 21.7 1.9
1-4 Family residential ........................... 577.6 25.8 134.0 74.0 343.8
TROUBLED REAL ESTATE ASSET RATES***
(OF TOTAL RE ASSETS)
All real estate loans .............................. 0.97 1.10 0.87 1.15 0.95
Construction, development, and land .............. 1.90 1.29 1.42 1.73 2.32
Commercial real estate ........................... 1.70 1.34 1.11 2.26 1.84
Multifamily residential real estate .............. 0.40 1.20 0.49 1.03 0.16
1-4 family residential ........................... 0.88 1.04 0.79 0.83 0.92
<Caption>
Geographic Distribution by Region
---------------------------------------------------------------------------
East West
------------------------------------ ------------------------------------
North- South- Mid- South-
JUNE 30, 2002 east east Central west west West
---------- ---------- ---------- ---------- ---------- ----------
PERCENT OF LOANS 30-89 DAYS PAST DUE
All loans secured by real estate ................... 0.67 0.84 1.25 1.02 1.14 0.79
Construction, development, and land .............. 0.62 0.85 1.71 0.94 0.62 1.43
Commercial real estate ........................... 0.50 0.75 1.16 0.82 1.38 0.30
Multifamily residential real estate .............. 0.18 0.58 0.52 1.32 0.38 0.08
Home equity loans ................................ 0.28 0.24 0.19 0.28 0.01 0.09
Other 1-4 Family residential ..................... 0.78 0.91 1.38 1.09 1.41 0.93
Commercial and industrial loans .................... 1.01 1.98 1.75 1.73 1.26 0.94
Loans to individuals ............................... 1.35 2.14 1.29 1.62 0.76 2.31
Credit card loans ................................ 1.72 3.91 0.88 3.45 0.61 1.53
Other loans to individuals ....................... 1.29 1.50 1.70 1.48 0.90 2.39
Total loans and leases ............................. 0.73 1.16 1.27 1.09 1.06 0.85
PERCENT OF LOANS NONCURRENT*
All real estate loans .............................. 0.66 0.64 0.99 0.60 1.68 0.87
Construction, development, and land .............. 1.01 0.69 2.05 0.92 1.54 2.40
Commercial real estate ........................... 0.86 1.04 1.25 0.69 3.51 1.60
Multifamily residential real estate .............. 0.23 0.52 0.79 0.44 9.17 0.05
Home equity loans ................................ 0.11 0.17 0.11 0.06 0.00 0.05
Other 1-4 Family residential ..................... 0.68 0.62 0.96 0.59 0.94 0.93
Commercial and industrial loans .................... 1.77 3.45 2.48 1.89 2.42 2.55
Loans to individuals ............................... 0.55 0.81 0.64 0.48 0.37 0.33
Credit card loans ................................ 1.52 2.04 0.57 1.15 0.56 0.72
Other loans to individuals ....................... 0.39 0.36 0.72 0.43 0.20 0.31
Total loans and leases ............................. 0.72 0.86 0.99 0.65 1.44 0.89
PERCENT OF LOANS CHARGED-OFF (NET, YTD)
All real estate loans .............................. 0.03 0.06 0.10 0.04 0.09 0.04
Construction, development, and land .............. 0.04 0.11 0.14 0.01 0.06 0.19
Commercial real estate ........................... 0.02 0.14 0.10 0.10 0.39 0.02
Multifamily residential real estate .............. 0.00 0.00 0.16 -0.06 0.00 -0.02
Home equity loans ................................ 0.02 0.26 0.06 0.11 0.06 0.02
Other 1-4 Family residential ..................... 0.04 0.03 0.09 0.03 0.04 0.04
Commercial and industrial loans .................... 0.95 2.91 1.07 1.19 1.20 1.63
Loans to individuals ............................... 1.35 2.54 1.92 1.37 0.78 2.32
Credit card loans ................................ 4.20 6.96 2.62 9.12 1.12 4.02
Other loans to individuals ....................... 0.88 0.97 1.20 0.81 0.44 2.19
Total loans and leases ............................. 0.18 0.70 0.33 0.18 0.33 0.16
LOANS OUTSTANDING (IN BILLIONS)
All real estate loans .............................. $ 226.0 $ 51.0 $ 85.3 $ 26.2 $ 32.0 $ 320.0
Construction, development, and land .............. 8.4 5.9 5.1 2.0 7.1 8.8
Commercial real estate ........................... 30.5 4.8 7.6 3.7 4.5 15.6
Multifamily residential real estate .............. 17.5 1.1 4.6 1.2 1.1 34.9
Home equity loans ................................ 10.6 3.2 5.6 0.9 1.2 13.2
Other 1-4 Family residential ..................... 159.1 35.9 62.3 18.4 18.1 247.4
Commercial and industrial loans .................... 17.4 4.8 2.8 1.2 3.7 8.0
Loans to individuals ............................... 15.9 13.0 11.3 2.1 10.2 13.8
Credit card loans ................................ 2.4 3.4 5.6 0.1 5.0 0.8
Other loans to individuals ....................... 13.4 9.5 5.7 2.0 5.2 12.8
Total loans and leases ............................. 262.2 69.3 99.7 29.6 46.3 342.6
MEMO: OTHER REAL ESTATE OWNED (IN MILLIONS)**
All other real estate owned ........................ $ 233.3 $ 118.6 $ 169.7 $ 76.0 $ 87.1 $ 345.0
Construction, development, and land .............. 17.4 48.2 10.4 29.5 14.6 21.5
Commercial real estate ........................... 126.5 16.2 28.8 14.1 31.5 78.4
Multifamily residential real estate .............. 6.5 2.6 7.9 1.1 16.9 1.0
1-4 Family residential ........................... 98.4 52.4 123.0 32.5 24.6 246.8
TROUBLED REAL ESTATE ASSET RATES***
(OF TOTAL RE ASSETS)
All real estate loans .............................. 0.76 0.87 1.18 0.89 1.95 0.98
Construction, development, and land .............. 1.21 1.49 2.25 2.36 1.74 2.64
Commercial real estate ........................... 1.27 1.37 1.62 1.07 4.16 2.10
Multifamily residential real estate .............. 0.27 0.74 0.96 0.54 10.57 0.05
1-4 family residential ........................... 0.70 0.72 1.07 0.73 1.01 0.98
</Table>
* Noncurrent loan rates represent the percentage of loans in each category that
are past due 90 days or more or that are in nonaccrual status.
** TFR filers report "All other real estate owned" net of valuation allowances,
while individual categories of OREO are reported gross.
*** Noncurrent real estate loans plus other real estate owned as a percent of
total real estate loans plus OREO.
FDIC Quarterly Banking Profile
FDIC-Insured Savings Institutions 14 Second Quarter 2002
ALL FDIC-INSURED INSTITUTIONS
O INSURED DEPOSIT GROWTH SLOWS IN SECOND QUARTER TO 0.1 PERCENT
O BIF RESERVE RATIO RISES TO 1.26 PERCENT
O SAIF RESERVE RATIO INCREASES TO 1.38 PERCENT
O TWO INSURED INSTITUTIONS FAIL DURING QUARTER
Total assets of the nation's 9,480 FDIC-insured depository institutions
increased by $215 billion from March 31 to June 30, 2002. Deposits, which
increased $81.5 billion during the period, funded about 38 percent of this
growth. Deposits from domestic offices grew by $44.1 billion (1 percent) while
deposits from foreign offices increased by $37.3 billion (6.2 percent). Domestic
deposits in accounts greater than $100 thousand grew by $45.2 billion while
domestic deposits in accounts less than $100 thousand shrank by $1.1 billion.
Quarterly growth was strongest for money market deposit accounts, which grew by
$29.5 billion (2 percent), and other savings deposits which increased by $17.2
billion (2.7 percent).
Insured deposits increased by 0.1 percent during the second quarter, the slowest
rate of growth since the second quarter of 1999. Insured deposits increased at
5,050 institutions, remained unchanged at 60 institutions, and declined at 4,328
institutions. Deposits insured by the Bank Insurance Fund (BIF) decreased by 0.1
percent during the quarter, after increasing in the first quarter by 3.2
percent.(1) Deposits insured by the Savings Association Insurance Fund (SAIF)
rose by 1.0 percent, following a first quarter increase of 1.3 percent.
The Bank Insurance Fund (BIF) grew by 1.6 percent ( $490 million) during the
second quarter of 2002, ending the quarter with a balance of $31.19 billion
(unaudited). The BIF's second quarter growth was $232 million greater than the
previous quarter's. The second quarter's faster growth was attributable to a
greater amount of interest income from investments and a larger amount of
unrealized gains on securities. The increase to the Bank Insurance Fund plus the
decrease in BIF-insured deposits caused the BIF reserve ratio to rise from 1.23
percent on March 31 to 1.26 percent on June 30.
The Savings Association Insurance Fund (SAIF) increased during the second
quarter of 2002 by 2.5 percent to $11.32 billion (unaudited). Increased income
from investments, unrealized gains on securities, and a negative provision for
insurance losses made the second quarter growth for the SAIF the largest since
it was recapitalized in the third quarter of 1996. The growth of SAIF more than
offset the quarterly increase in SAIF insured deposits, and the reserve ratio
rose from 1.36 on March 31 to 1.38 percent on June 30. This was the largest
increase in the SAIF reserve ratio since the third quarter of 2000.
Sweeps of brokerage-originated cash management funds to FDIC-insured accounts of
affiliate banks lost momentum during the quarter. Among insured institutions
whose brokerage affiliates sweep cash management accounts into FDIC-insured
accounts, insured brokered deposits decreased by $2.1 billion during the second
quarter of 2002. At these institutions, BIF-insured brokered deposits fell by
$1.2 billion and SAIF-insured brokered deposits dropped by $900 million. During
the same period, fully insured brokered deposits increased by 2.3 percent at all
other BIF-insured institutions and decreased at all other SAIF-insured
institutions by .6 percent.
Two FDIC insured institutions failed during the second quarter of 2002, one BIF
member commercial bank and one SAIF member savings bank. At the time of failure
the BIF-member commercial bank had $379 million in assets, and the SAIF-member
savings bank had $50 million in assets. For the first six months of 2002 seven
BIF member institutions have failed with combined assets of $2,403 million at an
estimated cost of $611 million. During the same period one SAIF-member
institutions failed with assets of $50 million and an estimated cost of $11
million.
QUARTERLY PERCENTAGE CHANGE IN
INSURANCE FUND BALANCES, 1999-2002
[CHART]
(1) About two-thirds of the first quarter's deposit growth was due to a
reporting change for institutions filing Call reports. Starting in
March 2002 all institutions filing the Call Report are required to
report estimated uninsured deposits. Prior to March 2002 reporting
estimated uninsured deposits was voluntary for these institutions. If
uninsured deposits were not reported then they were estimated using a
simple formula ((Amount of domestic deposits> $100K) less (number of
deposit accounts> $100K times $100K)). An institution's insured
deposits are estimated by subtracting estimated uninsured deposits from
total domestic deposits.
FDIC Quarterly Banking Profile
Second Quarter 2002 15 All FDIC-Insured Institutions
TABLE I-C. SELECTED INDICATORS, FDIC-INSURED INSTITUTIONS*
<Table>
<Caption>
(DOLLAR FIGURES IN MILLIONS) 2002** 2001** 2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
Number of institutions reporting .......... 9,464 9,747 9,6139,904 10,221 10,463 10,922
Total assets .............................. $ 8,037,6 $7,634,788 $7,868,670 $7,461,95 $6,883,68 $6,530,951 $6,041,128
Total deposits ............................ 5,253,776 5,020,422 5,189,418 4,914,827 4,538,085 4,386,298 4,125,862
Number of problem institutions ............ 136 102 114 94 79 84 92
Assets of problem institutions
(in billions) .......................... $ 40 $ 24 $ 40 $ 24 $ 10 $ 11 $ 6
Number of failed/assisted institutions .... 8 2 4 7 8 3 1
Assets of failed/assisted institutions
(in billions) .......................... $ 2.45 $ 0.03 $ 2.25 $ 0.41 $ 1.56 $ 0.37 $ 0.03
</Table>
** As of June 30.
TABLE II-C. AGGREGATE CONDITION AND INCOME DATA, ALL FDIC-INSURED INSTITUTIONS*
<Table>
<Caption>
(DOLLAR FIGURES IN MILLIONS) Preliminary
2nd Quarter 1st Quarter 2nd Quarter %Change
2002 2002 2001 01:2-02:2
----------- ----------- ----------- ----------
Number of institutions reporting ................. 9,464 9,520 9,747 -2.9
Total employees (full-time equivalent) ........... 2,001,230 1,994,141 1,954,257 2.4
CONDITION DATA
Total assets ..................................... $8,037,693 $7,822,61 $7,634,788 5.3
Loans secured by real estate ................... 2,627,533 2,557,682 2,488,635 5.6
1-4 Family residential ....................... 1,588,799 1,543,669 1,537,402 3.3
Home equity loans .......................... 223,062 198,960 160,995 38.6
Multifamily residential property ............. 129,830 125,478 118,733 9.3
Commercial real estate ....................... 599,344 585,036 540,931 10.8
Construction, development, and land .......... 235,887 232,222 221,412 6.5
Other real estate loans ...................... 73,672 71,277 70,157 5.0
Commercial & industrial loans .................... 976,704 1,004,547 1,065,505 -8.3
Loans to individuals ............................. 728,769 718,040 675,713 7.9
Credit cards & related plans ................. 267,743 264,393 242,311 10.5
Other loans & leases ............................. 491,931 477,289 492,855 -0.2
Less: Unearned income & contra accounts ...... 3,988 4,003 2,945 35.4
Total loans & leases ........................... 4,820,950 4,753,556 4,719,763 2.1
Less: Reserve for losses ....................... 82,365 82,938 73,384 12.2
Net loans and leases ............................. 4,738,585 4,670,618 4,646,380 2.0
Securities ....................................... 1,530,149 1,488,262 1,335,542 14.6
Other real estate owned .......................... 4,904 4,875 4,235 15.8
Goodwill and other intangibles ................... 153,516 158,015 126,495 21.4
All other assets ................................. 1,610,539 1,500,843 1,522,136 5.8
Total liabilities and capital .................... 8,037,693 7,822,619 7,634,788 5.3
Deposits ....................................... 5,253,776 5,172,305 5,020,422 4.6
Other borrowed funds ........................... 1,528,765 1,491,277 1,500,893 1.9
Subordinated debt .............................. 97,020 96,731 93,476 3.8
All other liabilities .......................... 414,537 340,546 354,346 17.0
Equity capital ................................. 743,595 721,761 665,650 11.7
Loans and leases 30-89 days past due ............. 54,224 57,739 55,028 -1.5
Noncurrent loans and leases ...................... 65,816 65,012 55,240 19.1
Restructured loans and leases .................... 3,298 3,492 2,506 31.6
Direct and indirect investments in real estate ... 704 688 881 -20.1
Mortgage-backed securities ....................... 855,436 814,093 716,572 19.4
Earning assets ................................... 6,974,327 6,824,694 6,648,484 4.9
FHLB Advances .................................... 441,614 442,551 438,214 0.8
Unused loan commitments .......................... 5,514,685 5,383,133 4,934,854 11.7
</Table>
<Table>
<Caption>
Preliminary Preliminary
First Half First Half 2nd Quarter 2nd Quarter %Change
INCOME DATA 2002 2001 %Change 2002 2001 01:2-02:2
------------ ------------ ------------ ------------ ------------ ------------
Total interest income ................. $ 217,337 $ 257,913 -15.7 $ 109,113 $ 126,434 -13.7
Total interest expense ................ 79,221 135,396 -41.5 40,012 64,085 -37.6
Net interest income ................. 138,116 122,517 12.7 69,102 62,349 10.8
Provision for loan and lease losses ... 24,125 18,179 32.7 11,791 9,563 23.3
Total noninterest income .............. 90,075 85,215 5.7 45,343 42,292 7.2
Total noninterest expense ............. 128,230 124,528 3.0 64,549 62,654 3.0
Securities gains (losses) ............. 3,700 3,905 -5.2 2,319 1,907 21.6
Applicable income taxes ............... 26,511 23,421 13.2 13,221 11,842 11.6
Extraordinary gains, net .............. 45 -397 N/M 117 -31 N/M
Net income .......................... 53,068 45,112 17.6 27,320 22,458 21.6
</Table>
* Excludes insured branches of foreign banks (IBAs). N/M - Not meaningful
FDIC Quarterly Banking Profile
All FDIC-Insured Institutions 16 Second Quarter 2002
TABLE III-C. SELECTED INSURANCE FUND INDICATORS*
<Table>
<Caption>
(DOLLAR FIGURES IN MILLIONS) Preliminary
2nd Quarter 1st Quarter 2nd Quarter %Change
2002 2002 2001 01:2-02:2
------------ ------------ ------------ ------------
BANK INSURANCE FUND
Reserve ratio (%) .................... 1.26 1.23 1.33 -5.6
Fund balance (unaudited) ............. $ 31,187 $ 30,697 $ 31,681 -1.6
Estimated insured deposits ........... 2,482,836 2,485,809 2,381,111 4.3
SAIF-member Oakars ................. 83,732 80,944 61,558 36.0
BIF-members ........................ 2,399,104 2,404,865 2,319,553 3.4
Assessment base ...................... 3,631,687 3,590,199 3,415,156 6.3
SAIF-member Oakars ................. 85,215 82,366 62,628 36.1
BIF-members ........................ 3,546,472 3,507,833 3,352,528 5.8
SAVINGS ASSOCIATION INSURANCE FUND
Reserve ratio (%) .................... 1.38 1.36 1.40 -1.4
Fund balance (unaudited) ............. $ 11,323 $ 11,049 $ 10,792 4.9
Estimated insured deposits ........... 820,464 812,769 772,428 6.2
BIF-member Oakars .................. 345,912 340,770 317,907 8.8
SAIF-member Sassers ................ 95,688 78,717 71,625 33.6
Other SAIF members ................. 378,864 393,283 382,896 -1.1
Assessment base ...................... 925,679 913,145 861,252 7.5
BIF-member Oakars .................. 348,400 343,129 318,963 9.2
SAIF-member Sassers ................ 114,598 94,765 88,412 29.6
Other SAIF members ................. 462,682 475,250 453,876 1.9
</Table>
INSURANCE FUND RESERVE RATIOS*
Percent of Insured Deposits
[CHART]
FUND BALANCES AND INSURED DEPOSITS*
($Millions)
<Table>
<Caption>
BIF BIF-INSURED SAIF SAIF-INSURED
BALANCE DEPOSITS BALANCE DEPOSITS
12/97 28,293 2,056,558 9,368 689,915
12/98 29,612 2,134,425 9,840 716,029
12/99 29,414 2,151,454 10,281 717,591
12/00 30,975 2,299,932 10,759 755,156
3/01 31,426 2,371,197 10,973 768,580
6/01 31,681 2,381,111 10,792 772,428
9/01 31,834 2,403,880 10,815 778,880
12/01 30,439 2,408,350 10,935 802,358
3/02 30,697 2,485,809 11,049 812,769
6/02 31,187 2,482,836 11,323 820,464
</Table>
* A reserve ratio is the fund balance as a percentage of estimated insured
deposits. As with other Call Report items, prior periods may reflect
adjustments. As a result, prior period reserve ratios may differ from
previously reported values. Only year end fund balances are audited by GAO.
BIF-insured deposit totals include U.S. branches of foreign banks.
TABLE IV-C. CLOSED/ASSISTED INSTITUTIONS
<Table>
<Caption>
(DOLLAR FIGURES IN MILLIONS)
2002** 2001** 2001 2000 1999 1998 1997
------ ------ ------ ------ ------ ------ ------
BIF MEMBERS
Number of institutions ... 7 2 3 6 7 3 1
Total assets ............. $2,403 $ 28 $ 54 $ 378 $1,490 $ 371 $ 27
SAIF MEMBERS
Number of institutions ... 1 0 1 1 1 0 0
Total assets ............. $ 50 $ 0 $2,200 $ 30 $ 71 $ 0 $ 0
</Table>
**Through June 30.
FDIC Quarterly Banking Profile
Second Quarter 2002 17 All FDIC-Insured Institutions
TABLE V-C. SELECTED INDICATORS, BY FUND MEMBERSHIP*
<Table>
<Caption>
(DOLLAR FIGURES IN MILLIONS) 2002** 2001** 2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
BIF MEMBERS
Number of institutions reporting ........... 8,208 8,430 8,326 8,571 8,834 9,031 9,404
BIF-member Oakars ........................ 785 748 763 743 744 745 778
Other BIF-members ........................ 7,423 7,682 7,563 7,828 8,090 8,286 8,626
Total assets ............................... $6,974,962 $6,641,201 $6,856,933 $6,509,796 $5,980,153 $5,702,774 $5,285,403
Total deposits ............................. 4,586,933 4,411,904 4,567,594 4,337,727 3,987,382 3,843,816 3,611,453
Net income ................................. 46,738 40,467 76,697 73,637 73,967 64,335 61,459
Return on assets (%) ....................... 1.36 1.23 1.14 1.18 1.30 1.18 1.22
Return on equity (%) ....................... 14.78 14.19 12.94 13.90 15.11 13.80 14.44
Noncurrent assets plus OREO to assets (%) .. 0.93 0.80 0.90 0.72 0.62 0.64 0.67
Number of problem institutions ............. 111 76 90 74 66 68 73
Assets of problem institutions ............. $ 32,028 $ 12,152 $ 31,881 $ 10,787 $ 4,450 $ 5,326 $ 4,598
Number of failed/assisted institutions ..... 7 2 3 6 7 3 1
Assets of failed/assisted institutions ..... $ 2,403 $ 28 $ 54 $ 378 $ 1,490 $ 371 $ 27
SAIF MEMBERS
Number of institutions reporting ........... 1,256 1,317 1,287 1,333 1,387 1,432 1,518
SAIF-member Oakars ....................... 132 128 130 123 123 116 112
Other SAIF-members ....................... 1,124 1,189 1,157 1,210 1,264 1,316 1,406
Total assets ............................... $ 1,062,73 $ 993,587 $1,011,7 $ 952,161 $ 903,532 $ 828,177 $ 755,724
Total deposits ............................. 666,843 608,518 621,823 577,100 550,703 542,481 514,409
Net income ................................. 6,330 4,646 10,622 8,070 8,450 7,598 6,486
Return on assets (%) ....................... 1.21 0.96 1.11 0.89 0.99 0.98 0.94
Return on equity (%) ....................... 13.86 11.64 13.46 11.12 11.97 11.34 11.13
Noncurrent assets plus OREO to assets (%) .. 0.73 0.68 0.75 0.65 0.64 0.80 0.98
Number of problem institutions ............. 25 26 24 20 13 16 19
Assets of problem institutions ............. $ 7,673 $ 11,537 $ 7,923 $ 13,053 $ 5,524 $ 5,992 $ 1,662
Number of failed/assisted institutions ..... 1 0 1 1 1 0 0
Assets of failed/assisted institutions ..... $ 50 $ 0 $ 2,200 $ 30 $ 71 $ 0 $ 0
</Table>
* Excludes insured branches of foreign banks (IBAs).
** Through June 30, ratios annualized where appropriate.
TABLE VI-C. ESTIMATED FDIC-INSURED DEPOSITS BY FUND MEMBERSHIP AND TYPE OF
INSTITUTION
<Table>
<Caption>
Estimated Insured Deposits
(DOLLAR FIGURES IN MILLIONS) Number of Total Domestic ----------------------------------------
Institutions Assets Deposits* BIF SAIF Total
------------ ------------ ------------ ------------ ------------ ------------
JUNE 30, 2002
COMMERCIAL BANKS AND SAVINGS INSTITUTIONS
FDIC-Insured Commercial Banks ............ 7,966 6,749,662 3,807,239 2,252,225 370,710 2,622,935
BIF-member ............................. 7,859 6,597,875 3,704,477 2,225,967 312,442 2,538,409
SAIF-member ............................ 107 151,787 102,762 26,258 58,268 84,526
FDIC-Supervised ........................ 4,932 1,247,657 930,844 618,486 79,045 697,531
OCC-Supervised ......................... 2,118 3,739,495 2,025,600 1,195,169 213,560 1,408,729
Federal Reserve-Supervised ............. 955 1,762,509 850,795 438,571 78,105 516,675
FDIC-Insured Savings Institutions ........ 1,498 1,288,032 805,633 229,375 449,754 679,129
OTS-Supervised Savings Institutions ...... 995 972,225 581,499 101,807 388,520 490,326
BIF-member ............................. 38 123,303 61,808 46,750 9,656 56,406
SAIF-member ............................ 957 848,921 519,691 55,057 378,864 433,921
FDIC-Supervised State Savings Banks ...... 503 315,807 224,133 127,568 61,234 188,802
BIF-member ............................. 311 253,784 179,842 125,151 23,814 148,965
SAIF-member ............................ 192 62,023 44,291 2,417 37,420 39,837
TOTAL COMMERCIAL BANKS AND
SAVINGS INSTITUTIONS ................... 9,464 8,037,693 4,612,871 2,481,600 820,464 3,302,063
BIF-member ............................... 8,208 6,974,962 3,946,127 2,397,867 345,912 2,743,779
SAIF-member .............................. 1,256 1,062,732 666,744 83,732 474,552 558,284
OTHER FDIC-INSURED INSTITUTIONS
U.S. Branches of Foreign Banks ........... 18 9,998 5,321 1,237 0 1,237
TOTAL FDIC-INSURED INSTITUTIONS ............ 9,482 8,047,692 4,618,193 2,482,836 820,464 3,303,300
</Table>
* Excludes $641 billion in foreign office deposits, which are uninsured.
FDIC Quarterly Banking Profile
All FDIC-Insured Institutions 18 Second Quarter 2002
TABLE VII-C. ASSESSMENT BASE DISTRIBUTION AND RATE SCHEDULES
BIF ASSESSMENT BASE DISTRIBUTION
ASSESSABLE DEPOSITS IN MILLIONS AS OF JUNE 30, 2002
SUPERVISORY AND CAPITAL RATINGS FOR SECOND SEMIANNUAL ASSESSMENT PERIOD, 2002
<Table>
<Caption>
SUPERVISORY RISK SUBGROUP
---------------------------------------------------------------------------
CAPITAL GROUP A B C
----------------------- ----------------------- -----------------------
1. Well-capitalized
Number of institutions .... 7,542 91.7 433 5.3 90 1.1
Assessable deposit base ... $3,470,795 95.6 $ 109,516 3.0 $ 22,641 0.6
2. Adequately capitalized
Number of institutions .... 125 1.5 13 0.2 13 0.2
Assessable deposit base ... $ 23,407 0.6 $ 1,270 0.0 $ 2,340 0.1
3. Undercapitalized
Number of institutions .... 3 0.0 0 0.0 7 0.1
Assessable deposit base ... $ 451 0.0 $ 0 0.0 $ 1,267 0.0
</Table>
Note: "Number" reflects the number of BIF members; "Base" reflects the
BIF-assessable deposits held by both BIF and SAIF members. Institutions
are categorized based on capitalization and a supervisory subgroup rating,
which is generally determined by on-site examinations.
SAIF ASSESSMENT BASE DISTRIBUTION
ASSESSABLE DEPOSITS IN MILLIONS AS OF JUNE 30, 2002
SUPERVISORY AND CAPITAL RATINGS FOR SECOND SEMIANNUAL ASSESSMENT PERIOD, 2002
<Table>
<Caption>
SUPERVISORY RISK SUBGROUP
---------------------------------------------------------------------------
CAPITAL GROUP A B C
----------------------- ----------------------- -----------------------
1. Well-capitalized
Number of institutions .... 1,139 90.7 78 6.2 17 1.4
Assessable deposit base ... $ 878,998 95.0 $ 38,382 4.1 $ 5,471 0.6
2. Adequately capitalized
Number of institutions .... 7 0.6 6 0.5 7 0.6
Assessable deposit base ... $ 1,814 0.2 $ 490 0.1 $ 451 0.0
3. Undercapitalized
Number of institutions .... 0 0.0 0 0.0 2 0.2
Assessable deposit base ... $ 0 0.0 $ 0 0.0 $ 73 0.0
</Table>
Note: "Number" reflects the number of SAIF members; "Base" reflects the
SAIF-assessable deposits held by both BIF and SAIF members. Institutions
are categorized based on capitalization and a supervisory subgroup rating,
which is generally determined by on-site examinations.
ASSESSMENT RATE SCHEDULES
SECOND SEMIANNUAL 2002 ASSESSMENT PERIOD
CENTS PER $100 of ASSESSABLE DEPOSITS
<Table>
<Caption>
SUPERVISORY RISK SUBGROUP
------------------------------------
CAPITAL GROUP A B C
---------- ---------- ----------
1. Well Capitalized .......... 0 3 17
2. Adequately Capitalized .... 3 10 24
3. Undercapitalized .......... 10 24 27
</Table>
Note: Rates for the BIF and the SAIF are set separately by the FDIC.
Currently, the rate schedules are identical.
FDIC Quarterly Banking Profile
Second Quarter 2002 19 All FDIC-Insured Institutions
NUMBER OF FDIC-INSURED "PROBLEM" INSTITUTIONS,
1994-2002
[CHART]
Number of Institutions
<Table>
SAVING INSTITUTIONS 71 49 35 21 15 13 15 16 15 18 17 22 20 19 22 21
COMMERCIAL BANKS 247 144 82 71 69 66 72 73 75 76 78 80 74 95 102 115
</Table>
ASSETS OF FDIC-INSURED "PROBLEM" INSTITUTIONS,
1994-2002
[CHART]
$ Billions
<Table>
SAVING INSTITUTIONS 39 14 7 2 6 6 5 8 7 7 6 7 4 4 15 4
COMMERCIAL BANKS 33 17 5 5 5 4 5 11 12 17 17 17 14 36 37 36
</Table>
FDIC Quarterly Banking Profile
All FDIC-Insured Institutions 20 Second Quarter 2002
NOTES TO USERS
This publication contains financial data and other information for depository
institutions insured by the Federal Deposit Insurance Corporation (FDIC). These
notes are an integral part of this publication and provide information regarding
the comparability of source data and reporting differences over time. The
information presented in the FDIC Quarterly Banking Profile is divided into the
following groups of institutions:
FDIC-INSURED COMMERCIAL BANKS (TABLES I-ATHROUGH V-A.)
This section covers commercial banks insured by the FDIC either through the Bank
Insurance Fund (BIF) or through the Savings Association Insurance Fund (SAIF).
These institutions are regulated by and submit financial reports to one of the
three federal commercial bank regulators (the Board of Governors of the Federal
Reserve System, the FDIC or the Office of the Comptroller of the Currency).
FDIC-INSURED SAVINGS INSTITUTIONS (TABLES I-B THROUGH V-B.)
This section covers savings institutions insured by either BIF or SAIF that
operate under state or federal banking codes applicable to thrift institutions.
Savings institutions in conservatorships are excluded from these tables while
in conservatorship, where applicable. The institutions covered in this section
are regulated by and submit financial reports to one of two Federal regulators
- -- the FDIC or the Office of Thrift Supervision (OTS).
FDIC-INSURED INSTITUTIONS BY INSURANCE FUND (TABLES I-C THROUGH VII-C.)
Summary balance-sheet and earnings data are provided for commercial banks and
savings institutions according to insurance fund membership. BIF-member
institutions may acquire SAIF-insured deposits, resulting in institutions with
some deposits covered by both insurance funds. Also, SAIF members may acquire
BIF-insured deposits. The insurance fund membership does not necessarily reflect
which fund insures the largest percentage of an institution's deposits.
Therefore, the BIF-member and the SAIF-member tables each include deposits from
both insurance funds. Depository institutions that are not insured by the FDIC
through either the BIF or SAIF are not included in the FDIC Quarterly Banking
Profile. U.S. branches of institutions headquartered in foreign countries and
non-deposit trust companies are not included unless otherwise indicated. Efforts
are made to obtain financial reports for all active institutions. However, in
some cases, final financial reports are not available for institutions that have
closed or converted their charter.
DATASOURCES
The financial information appearing in this publication is obtained primarily
from the Federal Financial Institutions Examination Council (FFIEC) Call Reports
and the OTS Thrift Financial Reports submitted by all FDIC-insured depository
institutions. This information is stored on and retrieved from the FDIC's
Research Information System (RIS) data base.
COMPUTATION METHODOLOGY
Certain adjustments are made to the OTS Thrift Financial Reports to provide
closer conformance with the reporting and accounting requirements of the FFIEC
Call Reports. Parent institutions are required to file consolidated reports,
while their subsidiary financial institutions are still required to file
separate reports. Data from subsidiary institution reports are included in the
Quarterly Banking Profile tables, which can lead to double-counting. No
adjustments are made for any double-counting of subsidiary data.
All asset and liability figures used in calculating performance ratios represent
average amounts for the period (beginning-of-period amount plus end-of-period
amount plus any interim periods, divided by the total number of periods). For
"pooling-of-interest" mergers, the assets of the acquired institution(s) are
included in average assets since the year-to-date income includes the results of
all merged institutions. No adjustments are made for "purchase accounting"
mergers. Growth rates represent the percentage change over a 12-month period in
totals for institutions in the base period to totals for institutions in the
current period.
All data are collected and presented based on the location of each reporting
institution's main office. Reported data may include assets and liabilities
located outside of the reporting institution's home state. In addition,
institutions may change their charters, resulting in an inter-industry
migration, e.g., savings institutions can convert to commercial banks or
commercial banks may convert to savings institutions. These situations can
affect state and regional statistics.
ACCOUNTING CHANGES
GOODWILL AND INTANGIBLE ASSETS -- FAS 141 terminates the use of
pooling-of-interest accounting for business combinations after 2001 and requires
purchase accounting. Under FAS 142 amortization of goodwill is eliminated. Only
intangible assets other than goodwill are amortized each quarter. In addition
companies are required to test for impairment of both goodwill and other
intangibles once each fiscal year. The year 2002, the first fiscal year affected
by this accounting change, has been designated a transitional year and the
amount of initial impairments are to be recorded as extraordinary losses on a
"net of tax" basis (and not as noninterest expense). Subsequent annual review of
intangibles and goodwill impairment may require additional noninterest expense
recognition.
FASB STATEMENT NO. 133 ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES -- establishes new accounting and reporting standards. Derivatives
were previously off-balance sheet items, but beginning in 2001 all banks must
recognize derivatives as either assets or liabilities on the balance sheet,
measured at fair value. A derivative may be specifically designated as a "fair
value hedge," a "cash flow hedge," or a hedge of a foreign currency exposure.
The accounting for changes in the value of a derivative (gains and losses)
depends on the intended use of the derivative, its resulting designation, and
the effectiveness of the hedge. Derivatives held for purposes other than trading
are reported as "other assets" (positive fair values) or "other liabilities"
(negative fair values). For a fair value hedge, the gain or loss is recognized
in earnings and "effectively" offsets loss or gain on the hedged item
attributable to the risk being hedged. Any ineffectiveness of the hedge could
result in a net gain or loss on the income statement. Accumulated net gains
(losses) on cash flow hedges are recorded on the balance sheet as "accumulated
other comprehensive income" and the periodic change in the accumulated net gains
(losses) for cash flow hedges is reflected directly in equity as the value of
the derivative changes. Initial transition adjustments upon adoption of FAS 133
are reported as adjustments to net income in the income statement as
extraordinary items. Upon implementing FAS 133, a bank may transfer any debt
security categorized as held-to-maturity into the available-for-sale category or
the trading category. Unrealized gains (losses) on transferred held-to-maturity
debt securities on the date of initial application must
FDIC Quarterly Banking Profile
Second Quarter 2002 21 Notes to Users
be reflected as an adjustment to net income if transferred to the trading
category or an adjustment to equity if transferred to the available-for-sale
category.
SUBCHAPTER S CORPORATIONS -- The Small Business Job Protection Act of 1996
changed the Internal Revenue Code to allow financial institutions to elect
Subchapter S corporation status, beginning in 1997. A Subchapter S corporation
is treated as a pass-through entity, similar to a partnership, for federal
income tax purposes. It is generally not subject to any federal income taxes at
the corporate level. Its taxable income flows through to its shareholders in
proportion to their stock ownership, and the shareholders generally pay federal
income taxes on their share of this taxable income. This can have the effect of
reducing institutions' reported taxes and increasing their after-tax earnings.
The election of Subchapter S status may result in an increase in shareholders'
personal tax liability. Therefore, some S corporations may increase the amount
of earnings distributed as dividends to compensate for higher personal taxes.
DEFINITIONS (IN ALPHABETICAL ORDER)
ACCUMULATED OTHER COMPREHENSIVE INCOME -- includes net unrealized gains/losses
on available-for-sale securities, accumulated net gains/losses on cash flow
hedges, cumulative foreign currency translation adjustments, and minimum pension
liability adjustments.
ALL OTHER ASSETS -- total cash, balances due from depository institutions,
premises, fixed assets, direct investments in real estate, investment in
unconsolidated subsidiaries, customers' liability on acceptances outstanding,
assets held in trading accounts, federal funds sold, securities purchased with
agreements to resell, fair market value of derivatives, and other assets.
ALL OTHER LIABILITIES -- bank's liability on acceptances, limited-life preferred
stock, allowance for estimated off-balance sheet credit losses, fair market
value of derivatives, and other liabilities.
ASSESSMENT BASE DISTRIBUTION -- assessable deposits consist of BIF and SAIF
deposits in banks' domestic offices with certain adjustments. Each institution's
assessment depends on its assigned risk-based capital category and supervisory
risk subgroup:
<Table>
<Caption>
Total Tier 1
Risk-Based Risk-Based Tier 1 Tangible
(Percent) Capital* Capital* Leverage Equity
Well-capitalized >10 AND >6 AND >5 --
- - -
Adequately
capitalized >8 AND >4 AND >4 --
- - -
Undercapitalized >6 AND >3 AND >3 --
- - -
Significantly
undercapitalized <6 OR <3 OR <3 AND >2
Critically
undercapitalized -- -- -- <2
</Table>
- ----------
*As a percentage of risk-weighted assets.
For purpose of BIF and SAIF assessments, risk-based assessment rules combine the
three lowest capital rating categories into a single "undercapitalized" group.
Supervisory risk subgroup assignments are based on supervisory ratings.
Generally, the strongest institutions (those rated 1 or 2) are in subgroup A,
those rated 3 are in subgroup B, and those rated 4 or 5 are in subgroup C.
BIF-INSURED DEPOSITS (estimated) -- the portion of estimated insured deposits
that is insured by the BIF. For SAIF-member "Oakar" institutions, it represents
the adjusted attributable amount acquired from BIF members.
CONSTRUCTION AND DEVELOPMENT LOANS -- includes loans for all property types
under construction, as well as loans for land acquisition and development.
CORE CAPITAL -- common equity capital plus noncumulative perpetual preferred
stock plus minority interest in consolidated subsidiaries, less goodwill and
other ineligible intangible assets. The amount of eligible intangibles
(including servicing rights) included in core capital is limited in accordance
with supervisory capital regulations.
COST OF FUNDING EARNING ASSETS -- total interest expense paid on deposits and
other borrowed money as a percentage of average earning assets.
DERIVATIVES (NOTIONAL AMOUNT) -- represents the sum of the following:
interest-rate contracts (defined as the "notional" value of interest-rate swap,
futures, forward and option contracts), foreign-exchange-rate contracts,
commodity contracts and equity contracts (defined similarly to interest-rate
contracts).
FUTURES AND FORWARD CONTRACTS -- a contract in which the buyer agrees to
purchase and the seller agrees to sell, at a specified future date, a
specific quantity of an underlying variable or index at a specified price or
yield. These contracts exist for a variety of variables or indices,
(traditional agricultural or physical commodities, as well as currencies and
interest rates). Futures contracts are standardized and are traded on
organized exchanges which set limits on counterparty credit exposure. Forward
contracts do not have standardized terms and are traded over the counter.
OPTION CONTRACTS -- a contract in which the buyer acquires the right to buy
from or sell to another party some specified amount of an underlying variable
or index at a stated price (strike price) during a period or on a specified
future date, in return for compensation (such as a fee or premium). The
seller is obligated to purchase or sell the variable or index at the
discretion of the buyer of the contract.
SWAPS -- an obligation between two parties to exchange a series of cash flows
at periodic intervals (settlement dates), for a specified period. The cash
flows of a swap are either fixed, or determined for each settlement date by
multiplying the quantity (notional principal) of the underlying variable or
index by specified reference rates or prices. Except for currency swaps, the
notional principal is used to calculate each payment but is not exchanged.
DIRECT AND INDIRECT INVESTMENTS IN REAL ESTATE -- excludes loans secured by real
estate and property acquired through foreclosure.
EARNING ASSETS -- all loans and other investments that earn interest or dividend
income.
EFFICIENCY RATIO -- Noninterest expense less amortization of intangible assets
as a percent of net interest income plus noninterest income. This ratio measures
the proportion of net operating revenues that are absorbed by overhead expenses,
so that a lower value indicates greater efficiency.
ESTIMATED INSURED DEPOSITS -- in general, insured deposits are total domestic
deposits minus estimated uninsured deposits. While the uninsured estimate is
calculated as the sum of the excess amounts in accounts over $100,000, beginning
June 30, 2000 the amount of estimated uninsured deposits was adjusted to
consider a financial institution's better estimate. Since March 31, 2002, all
institutions provide a reasonable estimate of uninsured deposits from their
systems and records.
FAILED/ASSISTED INSTITUTIONS -- an institution fails when regulators take
control of the institution, placing the assets and liabilities into a bridge
bank, conservatorship, receivership, or
FDIC Quarterly Banking Profile
Notes to Users 22 Second Quarter 2002
another healthy institution. This action may require the FDIC to provide funds
to cover losses. An institution is defined as "assisted" when the institution
remains open and receives some insurance funds in order to continue operating.
FHLB ADVANCES -- all borrowings by FDIC insured institutions from the Federal
Home Loan Bank System (FHLB), as reported by Call Report filers and by TFR
filers.
GOODWILL AND OTHER INTANGIBLES -- intangible assets include servicing rights,
purchased credit card relationships and other identifiable intangible assets.
LOANS SECURED BY REAL ESTATE -- includes home equity loans, junior liens secured
by 1-4 family residential properties and all other loans secured by real estate.
LOANS TO INDIVIDUALS -- includes outstanding credit card balances and other
secured and unsecured consumer loans.
LONG-TERM ASSETS (5+ YEARS) -- loans and debt securities with remaining
maturities or repricing intervals of over five years.
MORTGAGE-BACKED SECURITIES -- certificates of participation in pools of
residential mortgages and collateralized mortgage obligations issued or
guaranteed by government-sponsored or private enterprises. Also, see
"Securities", below.
NET CHARGE-OFFS -- total loans and leases charged off (removed from balance
sheet because of uncollectibility), less amounts recovered on loans and leases
previously charged off.
NET INTEREST MARGIN -- the difference between interest and dividends earned on
interest-bearing assets and interest paid to depositors and other creditors,
expressed as a percentage of average earning assets. No adjustments are made for
interest income that is tax exempt.
NET OPERATING INCOME -- income excluding discretionary transactions such as
gains (or losses) on the sale of investment securities and extraordinary items.
Income taxes subtracted from operating income have been adjusted to exclude the
portion applicable to securities gains (or losses).
NONCURRENT ASSETS -- the sum of loans, leases, debt securities and other assets
that are 90 days or more past due, or in nonaccrual status.
NONCURRENT LOANS & LEASES -- the sum of loans and leases 90 days or more past
due, and loans and leases in nonaccrual status.
NUMBER OF INSTITUTIONS REPORTING -- the number of institutions that actually
filed a financial report.
OTHER BORROWED FUNDS -- federal funds purchased, securities sold with agreements
to repurchase, demand notes issued to the U.S. Treasury, FHLB advances, other
borrowed money, mortgage indebtedness, obligations under capitalized leases and
trading liabilities, less revaluation losses on assets held in trading accounts.
OTHER REAL ESTATE OWNED -- primarily foreclosed property. Direct and indirect
investments in real estate ventures are excluded. The amount is reflected net of
valuation allowances. For institutions that file a Thrift Financial Report
(TFR), the valuation allowance subtracted also includes allowances for other
repossessed assets. Also, for TFR filers the components of other real estate
owned are reported gross of valuation allowances.
PERCENT OF INSTITUTIONS WITH EARNINGS GAINS -- the percent of institutions that
increased their net income (or decreased their losses) compared to the same
period a year earlier.
"PROBLEM" INSTITUTIONS -- federal regulators assign a composite rating to each
financial institution, based upon an evaluation of financial and operational
criteria. The rating is based on a scale of 1 to 5 in ascending order of
supervisory concern. "Problem" institutions are those institutions with
financial, operational, or managerial weaknesses that threaten their continued
financial viability. Depending upon the degree of risk and supervisory concern,
they are rated either a "4" or "5". For all BIF-member institutions, and for all
SAIF-member institutions for which the FDIC is the primary federal regulator,
FDIC composite ratings are used. For all SAIF-member institutions whose primary
federal regulator is the OTS, the OTS composite rating is used.
RESERVES FOR LOSSES -- the allowance for loan and lease losses on a consolidated
basis. Prior to March 31, 2001 reserves for losses included the allocated
transfer risk reserve, which is no longer included as part of the loss reserve,
but netted from loans and leases.
RESTRUCTURED LOANS AND LEASES -- loan and lease financing receivables with terms
restructured from the original contract. Excludes restructured loans and leases
that are not in compliance with the modified terms.
RETURN ON ASSETS -- net income (including gains or losses on securities and
extraordinary items) as a percentage of average total assets. The basic
yardstick of bank profitability.
RETURN ON EQUITY -- net income (including gains or losses on securities and
extraordinary items) as a percentage of average total equity capital.
RISK-WEIGHTED ASSETS -- assets adjusted for risk-based capital definitions which
include on-balance-sheet as well as off-balance-sheet items multiplied by
risk-weights that range from zero to 100 percent. A conversion factor is used to
assign a balance sheet equivalent amount for selected off-balance-sheet
accounts.
SAIF-INSURED DEPOSITS (ESTIMATED) -- the portion of estimated insured deposits
that is insured by the SAIF. For BIF-member "Oakar" institutions, it represents
the adjusted attributable amount acquired from SAIF members.
SECURITIES -- excludes securities held in trading accounts. Banks' securities
portfolios consist of securities designated as "held-to-maturity", which are
reported at amortized cost (book value), and securities designated as
"available-for-sale", reported at fair (market) value.
SECURITIES GAINS (LOSSES) -- realized gains (losses) on held-to-maturity and
available-for-sale securities, before adjustments for income taxes. Thrift
Financial Report (TFR) filers also include gains (losses) on the sales of assets
held for sale.
TROUBLED REAL ESTATE ASSET RATE -- noncurrent real estate loans plus other real
estate owned as a percent of total real estate loans and other real estate
owned.
UNEARNED INCOME & CONTRA ACCOUNTS -- unearned income for Call Report filers
only.
UNUSED LOAN COMMITMENTS -- includes credit card lines, home equity lines,
commitments to make loans for construction, loans secured by commercial real
estate, and unused commitments to originate or purchase loans.
VOLATILE LIABILITIES -- the sum of large-denomination time deposits,
foreign-office deposits, federal funds purchased, securities sold under
agreements to repurchase, and other borrowings.
YIELD ON EARNING ASSETS -- total interest, dividend and fee income earned on
loans and investments as a percentage of average earning assets.
FDIC Quarterly Banking Profile
Second Quarter 2002 23 Notes to Users
<Table>
FDIC-INSURED COMMERCIAL BANKS
Quarterly Net Income and Margins ............................................. 1
Quarterly Return on Assets and Equity ........................................ 2
Quarterly Return on
Risk-Weighted Assets ....................................................... 3
Quarterly Efficiency Ratios .................................................. 4
Noninterest Income as a Percentage
of Net Operating Revenue ................................................... 5
Composition of Noninterest Income ............................................ 6
Changes in Number of
FDIC-Insured Commercial Banks .............................................. 7
Bank Mergers: Interstate vs. Intrastate ...................................... 8
Capital Ratios ............................................................... 9
Utilization Rates of Loan Commitments ........................................ 10
Loan Portfolio Composition ................................................... 11
Loan Portfolio Composition by Asset Size ..................................... 12
Noncurrent Loan and Quarterly
Net Charge-off Rates ....................................................... 13
Noncurrent Loan and Quarterly Net
Charge-off Rates on C&I Loans .............................................. 14
Reserve Coverage Ratio ....................................................... 15
Loan Quality ................................................................. 16
Credit Quality of C&I Loans .................................................. 17
Credit Card Loss Rates and
Personal Bankruptcy Filings ................................................ 18
Credit Card Loss Rates and
Personal Bankruptcy Filings Table .......................................... 19
Expansion of Credit Card Lines ............................................... 20
Total Securities by Category ................................................. 21
Real Estate Assets by Type ................................................... 22
Number and Amount of
Banks with FHLB Advances ................................................... 23
Debt Securities by Maturity and Region
and Total Securities (Debt and Equity) ..................................... 24
Net Loans and Leases to Deposits ............................................. 25
Commercial and Industrial
Loans to Small Businesses .................................................. 26
Credit Risk Diversification .................................................. 27
Quarterly Change in Loans Outstanding
and Unused Loan Commitments ................................................ 28
Derivatives .................................................................. 29
Concentration and Composition of
Derivatives ................................................................ 30
Purpose of Derivatives ....................................................... 31
Positions of Derivatives ..................................................... 32
Return on Assets by State .................................................... 33
FDIC-INSURED SAVINGS INSTITUTIONS
Noninterest Income as a Percentage
of Net Operating Revenue ................................................... 34
Quarterly Return on Assets and Equity ........................................ 35
Quarterly Return
on Risk-Weighted Assets .................................................... 36
Quarterly Efficiency Ratios .................................................. 37
Noncurrent Loan Rates by State ............................................... 38
Changes in Number of
FDIC-Insured Savings Institutions .......................................... 39
Return on Assets by Asset Size ............................................... 40
Noncurrent Loan Rates and
Net Charge-off Rates ....................................................... 41
Loan Quality ................................................................. 42
Noncurrent Real Estate Loans by Type ......................................... 43
Noncurrent Real Estate Loans by Region ....................................... 43
Loan Utilization Rates ....................................................... 44
Total Securities by Category ................................................. 45
Real Estate Assets by Type ................................................... 46
Number and Amount of
Institutions with FHLB Advances ............................................ 47
Assets and Number of Mutual and
Stock Savings Institutions ................................................. 48
Return on Assets by State .................................................... 49
ALL FDIC-INSURED INSTITUTIONS
Number and Assets of FDIC-Insured
Banking Organizations ...................................................... 50
Number and Assets of
FDIC-Insured Institutions .................................................. 51
Offices and Branches of
FDIC-Insured Institutions .................................................. 52
Credit Risk Diversification .................................................. 53
Interstate Branches as a
Percent of Total Offices ................................................... 54
Capital Category Distribution ................................................ 55
Total Liabilities and Equity Capital ......................................... 56
Insurance Fund Reserve Ratios
and Insured Deposits ....................................................... 57
U.S. Treasury Yield Curve .................................................... 58
NOTES TO USERS ............................................................... 59
</Table>
QUARTERLY NET INCOME
1998 - 2002
$ Billions
[CHART]
<Table>
<Caption>
1998 1999 2000 2001 2002
Quarter 1 15.9 18.0 19.5 19.8 21.7
Quarter 2 16.1 16.9 14.6 19.1 23.4
Quarter 3 15.1 19.4 19.3 17.4 N/A
Quarter 4 14.8 17.7 17.6 18.5 N/A
</Table>
QUARTERLY NET INTEREST MARGINS, ANNUALIZED
1998 - 2002
[CHART]
FDIC Quarterly Banking Profile
Second Quarter 2002 1 FDIC-Insured Commercial Banks
QUARTERLY RETURN ON ASSETS (ROA), ANNUALIZED
1993 - 2002
[CHART]
ROA %
<Table>
<Caption>
5 HIGHEST VALUES
Jun 2002 1.41
Sep 1999 1.41
Mar 2000 1.35
Mar 2002 1.33
Mar 1999 1.32
</Table>
QUARTERLY RETURN ON EQUITY (ROE), ANNUALIZED
1993 - 2002
[CHART]
ROE %
<Table>
<Caption>
5 HIGHEST VALUES
Sep 1999 16.57
Sep 1995 16.31
Sep 1993 16.13
Mar 1993 16.10
Mar 2000 16.04
</Table>
FDIC Quarterly Banking Profile
Second Quarter 2002 2 FDIC-Insured Commercial Banks
QUARTERLY RETURN ON RISK-WEIGHTED ASSETS (RWA)*
AND RWA TO TOTAL ASSETS
1995 - 2002
[CHART]
* Assets weighted according to risk categories used in regulatory capital
computations.
FDIC Quarterly Banking Profile
Second Quarter 2002 3 FDIC-Insured Commercial Banks
QUARTERLY EFFICIENCY RATIOS*
1999 - 2002
Efficiency Ratio (%)
[CHART]
<Table>
<Caption>
1999 2000 2001 2002
Assets<$1 Billion 62.61 62.83 62.22 64.95 62.41 61.06 61.67 64.60 63.85 63.90 63.07 64.92 63.53 62.64
Assets>$1 Billion 57.59 59.07 55.28 59.29 55.76 61.54 56.30 57.29 57.01 56.67 57.65 54.87 53.71 53.79
Total 58.42 59.71 56.43 60.22 56.82 61.46 57.14 58.40 58.01 57.74 58.46 56.33 55.08 55.04
</Table>
*Noninterest expenses less amortization of intangible assets as a percent of net
interest income plus noninterest income.
FDIC Quarterly Banking Profile
Second Quarter 2002 4 FDIC-Insured Commercial Banks
NONINTEREST INCOME AS A
PERCENTAGE OF NET OPERATING REVENUE*
1994 - 2002
Quarterly Noninterest Income, % of net Operating Revenue*
[CHART]
TRENDS IN COMMERICAL BANK INCOME & EXPENSES
1994 - 2002
% of Net Operating Revenue*
[CHART]
*Net operating revenue equals net interest income plus total noninterest income.
FDIC Quarterly Banking Profile
Second Quarter 2002 5 FDIC-Insured Commercial Banks
COMPOSITION OF NONINTEREST INCOME
FIRST HALF 2002
[CHART]
<Table>
Service Charges on Deposit Accounts 17.2%
Trading Gains & Fees 7.7%
Investment Banking/Brokerage Fees 5.6%
Fiduciary Income 12.6%
Net Servicing Fees 8.3%
Net Gains On Asset Sales 3.8%
Net Securitization Income 10.9%
Insurance Commissions & Fees 2.1%
Other Noninterest Income 31.8%
</Table>
<Table>
<Caption>
Noninterest Number of
Income Banks Reporting Percent of
Noninterest Income Source $ Millions Non-Zero Balances All Banks
- ----------------------------------------- ------------ ----------------- ------------
Fiduciary Income $ 10,586 1,565 19.5%
Service Charges on Deposit Accounts $ 14,498 7,800 97.1%
Trading Gains & Fees $ 6,518 149 1.9%
Investment Banking/Brokerage Fees $ 4,696 2,062 25.7%
Venture Capital Revenue $ $-45 48 0.6%
Net Servicing Fees $ 7,028 1,641 20.4%
Net Securitization Income $ 9,213 81 1.0%
Insurance Commissions & Fees $ 1,726 3,828 47.6%
Net Gains On Asset Sales
Net Gains/Losses On Loan Sales $ 3,206 1,695 21.1%
Net Gains/Losses On OREO Sales $ 15 1,708 21.3%
Net Gains/Losses On Sales Of Other Assets $-4 1,688 21.0%
Other Noninterest Income $ 26,745 7,855 97.8%
Total Noninterest Income $ 84,183 7,938 98.8%
</Table>
FDIC Quarterly Banking Profile
Second Quarter 2002 6 FDIC-Insured Commercial Banks
CHANGES IN THE NUMBER OF FDIC-INSURED
COMMERCIAL BANKS
QUARTERLY, 1998 - 2002
[CHART]
Number of Banks
<Table>
<Caption>
1998 1999 2000
New Charters 26 49 49 65 62 54 59 55 56 51 33 51 32
Mergers 144 91 124 198 114 103 109 91 118 91 135 109 104
Failures 0 1 2 0 1 1 3 2 1 1 2 2 1
Other Changes, Net* -2 3 4 -3 1 2 0 -3 -1 1 2 2 -4
No. of banks at
end of quarter 9,023 8,983 8,910 8,773 8,722 8,674 8,621 8,579 8,516 8,477 8,375 8,315 8,238
Net Change during
quarter -119 -40 -73 -137 -52 -48 -53 -41 -64 -39 -102 -59 -76
<Caption>
2001 2002
New Charters 30 30 37 17 26
Mergers 88 58 107 86 66
Failures 1 1 0 6 1
Other Changes, Net* -1 -1 2 0 2
No. of banks at
end of quarter 8,178 8,149 8,080 8,005 7,966
Net Change during
quarter -60 -29 -70 -75 -39
</Table>
* Includes charter conversions, voluntary liquidations, adjustments for
open-bank assistance transactions and other changes.
FDIC Quarterly Banking Profile
Second Quarter 2002 7 FDIC-Insured Commercial Banks
BANK MERGERS: INTERSTATE VS. INTRASTATE
QUARTERLY, 1998 - 2002
Number of Banks
[CHART]
<Table>
<Caption>
1998 1999 2000 2001 2002
INTRASTATE MERGERS 98 69 87 132 86 77 82 61 82 62 85 76 79 68 40 69 54 49
INTERSTATE MERGERS 46 22 37 66 28 26 27 30 36 29 50 33 25 20 18 37 32 17
</Table>
FDIC Quarterly Banking Profile
Second Quarter 2002 8 FDIC-Insured Commercial Banks
CAPITAL RATIOS
1996 - 2002
Ratios (%)
[CHART]
<Table>
<Caption>
12/96 12/97 12/98 12/99 12/00 12/01 6/02
TOTAL RISK-BASED CAPITAL 12.53 12.23 12.23 12.16 12.12 12.72 12.95
TIER 1 RISK-BASED CAPITAL 9.95 9.59 9.48 9.49 9.41 9.89 10.14
EQUITY TO ASSETS 8.20 8.33 8.49 8.36 8.50 9.09 9.24
CORE CAPITAL (LEVERAGE) 7.64 7.56 7.54 7.79 7.70 7.79 8.00
</Table>
FDIC Quarterly Banking Profile
Second Quarter 2002 9 FDIC-Insured Commercial Banks
UTILIZATION RATES OF LOAN COMMITMENTS*
1997-2002
Utilization Rate (%)
[CHART]
* Utilization rates represent outstanding loan amounts as a percentage of unused
loan commitments plus outstanding loan amounts.
** Includes on-balance-sheet loans and off-balance-sheet securitized
receivables.
FDIC Quarterly Banking Profile
Second Quarter 2002 10 FDIC-Insured Commercial Banks
COMPOSITION OF COMMERCIAL BANKS' LOAN PORTFOLIOS
JUNE 30, 2002
[CHART]
<Table>
Commercial Real Estate 13%
Credit Cards 6%
Residential Mortgages 21%
Other Consumer 10%
Agriculture 1%
Leases 4%
Construction 5%
Commercial & Industrial 24%
All Other Loans 15%
</Table>
FDIC Quarterly Banking Profile
Second Quarter 2002 11 FDIC-Insured Commercial Banks
LOAN PORTFOLIO COMPOSITION OF INSURED COMMERCIAL BANKS
JUNE 30, 2002
ASSETS < $1 BILLION
[CHART]
<Table>
Commercial Real Estate 25%
Credit Cards 1%
Residential Mortgages 24%
Other Consumer 10%
Agriculture 5%
Leases 1%
Construction 8%
Commercial & Industrial 17%
All Other Loans 10%
</Table>
ASSETS > $1 BILLION
[CHART]
<Table>
Commercial Real Estate 11%
Credit Cards 7%
Residential Mortgages 20%
Other Consumer 11%
Agriculture 1%
Leases 5%
Construction 4%
Commercial & Industrial 25%
All Other Loans 16%
</Table>
FDIC Quarterly Banking Profile
Second Quarter 2002 12 FDIC-Insured Commercial Banks
NONCURRENT LOAN RATES
BY ASSET SIZE
1992 - 2002
[CHART]
QUARTERLY NET CHARGE-OFF RATES
BY ASSET SIZE
1992 - 2002
[CHART]
FDIC Quarterly Banking Profile
Second Quarter 2002 13 FDIC-Insured Commercial Banks
NONCURRENT C&I LOAN RATES
BY ASSET SIZE
1992 - 2002
[CHART]
QUARTERLY NET CHARGE-OFF RATES ON C&I LOANS
BY ASSET SIZE
1992 - 2002
[CHART]
FDIC Quarterly Banking Profile
Second Quarter 2002 14 FDIC-Insured Commercial Banks
RESERVE COVERAGE RATIO*
1998-2002
$ Billions Coverage Ratio (%)
[CHART]
<Table>
3/98 6/98 9/98 12/98 3/99 6/99 9/99 12/99 3/00 6/00 9/00 12/00 3/01 6/01 9/01 12/01 3/02 6/02
NONCURRENT LOANS ($ BILLIONS)
29.5 29.1 29.5 31.3 32.2 31.2 33.0 33.0 34.6 36.7 38.9 42.9 46.1 48.7 51.7 55.0 57.1 58.4
LOAN-LOSS RESERVES ($ BILLIONS)
55.2 56.4 57.3 57.3 57.9 57.6 58.4 58.8 59.9 62.0 62.6 64.1 64.7 65.8 68.2 72.4 75.1 74.3
COVERAGE RATIO (%)
187 194 194 183 180 185 177 178 173 169 161 149 140 135 132 132 131 127
</Table>
* Loan-loss reserves to noncurrent loans.
FDIC Quarterly Banking Profile
Second Quarter 2002 15 FDIC-Insured Commercial Banks
LOAN QUALITY
1998-2002
30-89 Day Past Due Loans
[CHART]
Noncurrent Loans*
[CHART]
Quarterly Net Charge-offs (Annualized)
[CHART]
*Loans past due 90 or more days or in nonaccrual status.
**Includes loans to foreign governments, depository institutions and lease
receivables.
FDIC Quarterly Banking Profile
Second Quarter 2002 16 FDIC-Insured Commercial Banks
CREDIT QUALITY OF COMMERCIAL BANKS' C&I LOANS
1997 - 2002
[CHART]
FDIC Quarterly Banking Profile
Second Quarter 2002 17 FDIC-Insured Commercial Banks
CREDIT CARD LOSS RATES AND PERSONAL BANKRUPTCY FILINGS
1984-2002
Net Charge - Off Rate(%) Number of Bankruptcy Filings
(Thousands)
[CHART]
Sources: Bankruptcies - Administrative Offices of the United States Courts
Charge-Off Rates - Commercial Bank Call Reports
FDIC Quarterly Banking Profile
Second Quarter 2002 18 FDIC-Insured Commercial Banks
CREDIT CARD LOSS RATES AND PERSONAL BANKRUPTCY FILINGS
1984 - 2002
<Table>
<Caption>
NET NUMBER OF NET NUMBER OF
CHARGE-OFF BANKRUPTCY CHARGE-OFF BANKRUPTCY
DATE RATE FILINGS DATE RATE FILINGS
3/31/84 1.37 71,697 3/31/94 3.25 192,707
6/30/84 1.48 71,955 6/30/94 3.07 202,596
9/30/84 1.59 71,201 9/30/94 2.93 195,308
12/31/84 1.81 69,554 12/31/94 3.00 189,695
3/31/85 1.98 72,887 3/31/95 2.89 199,503
6/30/85 2.31 84,243 6/30/95 3.33 222,086
9/30/85 2.65 87,727 9/30/95 3.58 220,945
12/31/85 2.95 96,376 12/31/95 3.98 231,603
3/31/86 3.21 103,088 3/31/96 4.18 252,761
6/30/86 3.28 114,384 6/30/96 4.48 283,170
9/30/86 3.35 116,037 9/30/96 4.41 290,111
12/31/86 3.38 116,204 12/31/96 4.66 298,244
3/31/87 3.46 116,578 3/31/97 4.92 321,242
6/30/87 3.37 122,689 6/30/97 5.22 353,177
9/30/87 3.10 123,868 9/30/97 5.37 340,059
12/31/87 3.26 127,409 12/31/97 5.34 335,032
3/31/88 3.18 133,712 3/31/98 5.15 341,708
6/30/88 3.22 138,245 6/30/98 5.42 361,908
9/30/88 3.12 136,561 9/30/98 5.15 350,859
12/31/88 3.17 139,215 12/31/98 5.26 343,220
3/31/89 3.10 144,711 3/31/99 4.93 321,604
6/30/89 3.21 157,955 6/30/99 4.25 335,578
9/30/89 3.01 152,696 9/30/99 4.44 314,564
12/31/89 3.28 161,404 12/31/99 4.48 309,614
3/31/90 3.08 166,694 3/31/00 4.55 302,879
6/30/90 3.34 179,943 6/30/00 4.18 312,486
9/30/90 3.50 177,351 9/30/00 4.27 300,507
12/31/90 3.86 193,872 12/31/00 4.70 301,756
3/31/91 4.16 212,913 3/31/01 4.44 356,836
6/30/91 4.78 227,853 6/30/01 5.11 390,064
9/30/91 4.79 214,174 9/30/01 5.20 349,981
12/31/91 4.64 217,160 12/31/01 6.34 354,694
3/31/92 4.84 233,973 3/31/02 8.09 369,237
6/30/92 4.97 232,657 6/30/02 5.98 390,991
9/30/92 4.31 220,021
12/31/92 4.57 212,112
3/31/93 4.03 206,271
6/30/93 4.02 212,982
9/30/93 3.59 200,329
12/31/93 3.42 192,617
</Table>
FDIC Quarterly Banking Profile
Second Quarter 2002 19 FDIC-Insured Commercial Banks
EXPANSION OF CREDIT CARD LINES
2000 - 2002
[CHART]
LOANS OUTSTANDING ($ BILLIONS)
<Table>
<Caption>
3/00 6/00 9/00 12/00 3/01 6/01 9/01 12/01 3/02 6/02
Held on-balance-sheet * 207.6 219.0 228.7 249.4 216.4 226.3 218.4 232.8 247.7 250.4
Securitized & sold ** 290.9 295.5 294.7 299.3 308.2 315.0 328.5 341.3 358.1 367.1
Unused commitments ** 2,210.7 2,291.6 2,420.2 2,527.7 2,604.5 2,700.7 2,776.8 2,875.9 3,170.2 3,228.6
Total 2,709.2 2,806.1 2,943.5 3,076.4 3,129.1 3,242.0 3,323.7 3,450.0 3,776.1 3,846.1
</Table>
* Includes check credit and other revolving credit plans before 3/31/01.
** Off-balance-sheet
FDIC Quarterly Banking Profile
Second Quarter 2002 20 FDIC-Insured Commercial Banks
TOTAL SECURITIES*
JUNE 30, 2002
[CHART]
HELD-TO-MATURITY
8%
$96 BILLION
(AMORTIZED COST)
AVAILABLE-FOR-SALE
92%
$1,141 BILLION
(FAIR VALUE)
TOTAL SECURITIES*
JUNE 30, 2002
($ MILLIONS)
<Table>
<Caption>
Held-to-Maturity Available-for-Sale
---------------------------- ----------------------------
Fair Value Fair Value Fair Value
Amortized to Amortized Fair to Amortized Total to Amortized
Cost Cost (%) Value Cost (%) Securities Cost (%)
U.S. Government Obligations
U.S. Treasury $ 4,439 101.5 $ 47,507 101.2 $ 51,946 101.2
U.S. Government Agencies 1,782 100.7 5,737 101.1 7,519 101.0
Government Sponsored Enterprises 27,679 101.5 175,326 101.7 203,005 101.7
Mortgage Pass-through Securities 17,674 102.8 420,466 101.5 438,140 101.6
Collateralized Mortgage Obligations 15,598 101.9 207,635 101.7 223,233 101.8
State, County, Municipal Obligations 21,994 103.3 76,276 103.3 98,269 103.3
Asset Backed Securities 510 100.9 96,446 100.8 96,956 100.8
Other Debt Securities 6,574 99.6 91,201 103.7 97,776 120.6
Equity Securities ** ** 20,264 109.0 20,264 109.0
------------ ------------ ------------ ------------ ------------ ------------
Total Securities $ 96,250 102.1 $ 1,140,858 101.6 $ 1,237,108 101.7
Memoranda***
Structured Notes 6,931 7,006 101.1
</Table>
* Excludes trading account assets.
** Equity Securities are classified as 'Available-for-Sale'.
*** Structured notes are included in the 'Held-to-Maturity' or
'Available-for-Sale' accounts.
FDIC Quarterly Banking Profile
Second Quarter 2002 21 FDIC-Insured Commercial Banks
REAL ESTATE ASSETS AS A PERCENT OF TOTAL ASSETS
JUNE 30, 2002
[CHART]
<Table>
CONSTRUCTION & LAND
DEVELOPMENT LOANS: 2.94%
COMMERCIAL REAL ESTATE LOANS: 7.89%
Mortgage-Backed Securities: 9.80%
Other Assets
Net of Reserves: 61.61%
1-4 FAMILY RESIDENTIAL
PROPERTY LOANS: 15.01%
ALL OTHER REAL ESTATE LOANS &
INVESTMENTS IN REAL ESTATE:
(INCLUDING OREO): 2.75%
</Table>
REAL ESTATE LOAN GROWTH RATES
1993-2002
[CHART]
FDIC Quarterly Banking Profile
Second Quarter 2002 22 FDIC-Insured Commercial Banks
NUMBER OF COMMERICAL BANKS WITH FHLB ADVANCES*
1991 - 2002
Number of Banks
<Table>
<Caption>
6/02
3,9743
</Table>
[CHART]
AMOUNT OF FHLB ADVANCES OUTSTANDING*
1991 - 2002
[CHART]
$ Billions
<Table>
<Caption>
12/91 12/92 12/93 12/94 12/95 12/96 12/97 12/98 12/99 12/00 12/01 6/02
$ 2 $ 6 $ 16 $ 26 $ 33 $ 38 $ 60 $106 $155 $175 $199 $218
</Table>
*Source: Call Report and FHFB prior to 3/31/01.
FDIC Quarterly Banking Profile
Second Quarter 2002 23 FDIC-Insured Commercial Banks
DEBT SECURITIES BY MATURITY OR REPRICING FREQUENCY...
[CHART]
Percent of Total Assets
<Table>
<Caption>
12/98 12/99 3/00 6/00 9/00 12/00 3/01 6/01 9/01 12/01 3/02 6/02
Over 1 Year 15.11 15.48 15.24 14.66 14.43 14.27 14.32 14.59 15.00 15.98 16.26 16.48
Less than 1 Year 2.28 2.10 2.15 2.15 2.41 2.33 2.00 1.73 1.59 1.69 1.64 1.53
Total 17.39 17.58 17.39 16.81 16.84 16.61 16.31 16.32 16.60 17.63 17.89 18.01
</Table>
...AND BY REGION
JUNE 30, 2002
[CHART]
Percent of Total Assets
<Table>
<Caption>
ALL BANKS NORTHEAST SOUTHEAST CENTRAL MIDWEST SOUTHWEST WEST
Over 1 Year 16.48 14.88 16.87 17.85 14.35 24.33 16.23
Less than 1 Year 1.53 2.15 0.83 1.28 2.17 1.87 1.17
Total 18.01 17.03 17.69 19.13 16.52 26.20 17.40
</Table>
TOTAL SECURITIES (DEBT AND EQUITY)
($ BILLIONS)
<Table>
<Caption>
6/00 9/00 12/00 3/01 6/01 9/01 12/01 3/02 6/02
U.S. Government Obligations:
U.S. Treasury 102 94 76 56 55 48 45 51 52
U.S. Agencies 5 5 5 6 4 4 6 6 8
Government Sponsored Enterprises 219 229 225 204 183 181 190 199 203
Mortgage Pass-through Securities 285 284 296 317 330 365 383 381 438
Collateralized Mortgage Obligations 168 166 175 178 178 195 231 235 223
State, County, Municipal Obligations 90 90 93 94 94 96 96 97 98
Asset Backed Securities * * * 71 88 94 108 100 97
Other Debt Securities * * * 107 105 105 100 97 98
Equity Securities 40 40 41 18 18 18 21 22 20
------ ------ ------ ------ ------ ------ ------ ------ ------
Total Securities $1,047 $1,062 $1,079 $1,049 $1,056 $1,107 $1,180 $1,186 $1,237
</Table>
* Not reported prior to 3/01
FDIC Quarterly Banking Profile
Second Quarter 2002 24 FDIC-Insured Commercial Banks
NET LOANS AND LEASES TO DEPOSITS
(DOMESTIC AND FOREIGN)
1993 - 2002
[CHART]
QUARTERLY CHANGE IN DOMESTIC LOANS VS DOMESTIC DEPOSITS
1993 - 2002
[CHART]
FDIC Quarterly Banking Profile
Second Quarter 2002 25 FDIC-Insured Commercial Banks
COMMERCIAL AND INDUSTRIAL
LOANS TO SMALL BUSINESSES
1998-2002
AS OF JUNE 30
[CHART]
<Table>
<Caption>
$ Billions
1998 1999 2000 2001 2002
SMALL BUSINESSES
(ORIGINAL LOAN AMOUNTS < $1 MILLION) 200.7 212.0 232.5 243.4 250.9
MEDIUM/LARGE BUSINESSES
(ORIGINAL LOAN AMOUNTS > $1 MILLION) 477.5 547.4 629.4 611.1 531.4
</Table>
FDIC Quarterly Banking Profile
Second Quarter 2002 26 FDIC-Insured Commercial Banks
CREDIT RISK DIVERSIFICATION
CONSUMER LOANS VERSUS LOANS TO COMMERCIAL BORROWERS
(AS A PERCENT OF TOTAL LOANS)
1993 - 2002
[CHART]
Percent of Loans
<Table>
<Caption>
12/93 12/95 12/97 12/99 12/01 6/02
Commercial Borrowers 57 55 57 60 59 58
Consumer Loans 43 45 43 40 41 42
</Table>
LOANS ($ BILLIONS):
<Table>
<Caption>
12/93 12/95 12/97 12/99 12/01 6/02
Commercial Borrowers $1,222 $1,447 $1,695 $2,097 $2,301 $2,300
Consumer Loans 935 1,161 1,280 1,398 1,598 1,675
</Table>
LOANS TO COMMERICAL BORROWERS (CREDIT RISK CONCENTRATED) - These are loans that
can have relatively large balances at risk to a single borrower. A single loan
may represent a significant portion of an institution's capital or income.
Therefore, a relatively small number of defaults could impair an institution's
capital or income. These loans include commercial and industrial loans,
commercial real estate, construction loans, and agricultural loans.
CONSUMER LOANS (CREDIT RISK DIVERSIFIED) - These are loans that typically have
relatively small balances spread among a large number of borrowers. A number of
defaults are likely but typically do not impair an institution's capital or
income. These loans include consumer and credit card loans, 1-4 family
residential mortgages and home equity loans.
FDIC Quarterly Banking Profile
Second Quarter 2002 27 FDIC-Insured Commercial Banks
QUARTERLY CHANGE IN REPORTED LOANS OUTSTANDING
($ BILLIONS)
[CHART]
<Table>
<Caption>
12/98 3/99 6/99 9/99 12/99 3/00 6/00 9/00 12/00 3/01 6/01 9/01 12/01 3/02 6/02
$ 92.4 $ 12.5 $ 57.2 $ 54.0 $129.3 $ 75.8 $136.7 $ 74.3 $ 40.3 $ 11.6 $ 27.7 $ 1.7 $ 35.2 $-1.5 $ 78.2
</Table>
In the second quarter of 2002, 1-4 family loans increased by $52 billion and
consumer loans increased by $13 billion, while commercial and industrial loans
decreased by $27 billion.
QUARTERLY CHANGE IN UNUSED LOAN COMMITMENTS
($ BILLIONS)
[CHART]
<Table>
<Caption>
12/98 3/99 6/99 9/99 12/99 3/00 6/00 9/00 12/00 3/01 6/01 9/01 12/01 3/02 6/02
$ 84.1 $ 34.8 $-28.3 $ 59.2 $146.1 $ 92.0 $108.9 $156.2 $137.9 $ 80.0 $ 97.1 $ 86.2 $ 96.4 $237.8 $116.6
</Table>
In the second quarter of 2002, unused credit card commitments increased by $58
billion and unused commitments for loans to businesses increased by $34 billion.
FDIC Quarterly Banking Profile
Second Quarter 2002 28 FDIC-Insured Commercial Banks
DERIVATIVES
1998 - 2002 (NOTIONAL AMOUNTS)
[CHART]
<Table>
<Caption>
12/98 12/99 12/00 12/01 3/02 6/02
Total Derivatives $ 32,863 $ 34,533 $ 40,145 $ 44,647 $ 45,899 $ 49,582
(Notional Amounts, in billions of dollars)
FUTURES AND FORWARD CONTRACTS 10,924 9,390 9,877 9,313 10,087 10,269
Interest rate contracts 5,521 5,096 5,302 5,310 6,221 6,458
Foreign exchange rate contracts 5,308 4,175 4,425 3,862 3,714 3,620
Other futures and forwards* 95 119 150 141 152 191
OPTION CONTRACTS 7,592 7,361 8,301 9,689 9,594 10,242
Interest rate options 5,679 5,795 6,744 8,252 8,041 8,470
Foreign currency options 1,393 965 775 743 841 1,014
Other option contracts* 520 601 782 693 712 758
SWAPS 14,347 17,781 21,968 25,645 26,218 29,071
Interest rate swaps 13,592 16,884 20,920 24,401 25,020 27,768
Foreign exchange rate swaps 686 774 899 1,129 1,071 1,176
Other swaps* 69 123 148 115 127 127
Memoranda
Spot Foreign Exchange Contracts 375 66 189 111 172 504
Credit Derivatives 144 287 426 411 438 492
Number of banks reporting derivatives 447 418 401 370 381 392
Replacement cost of interest rate and
foreign exchange rate contracts ** 471 361 449 598 500 720
</Table>
* Not reported by banks with less than $300 million in assets.
** Reflects replacement cost of interest rate and foreign exchange contracts
covered by risk-based-capital requirements. Does not include foreign exchange
rate contracts with an original maturity of 14 days or less or futures
contracts.
FDIC Quarterly Banking Profile
Second Quarter 2002 29 FDIC-Insured Commercial Banks
CONCENTRATION OF DERIVATIVES*
NOTIONAL AMOUNTS
JUNE 30, 2002
[PIE CHART]
<Table>
7 Largest Participants $47.6 Trillion (96%)
All Other Participants (385 Banks) $2.0 Trillion (4%)
</Table>
COMPOSITION OF DERIVATIVES*
NOTIONAL AMOUNTS
JUNE 30, 2002
[PIE CHART]
<Table>
Interest Rate Contracts $42.7 Trillion (86%)
Foreign Exchange Contracts $5.8 Trillion (12%)
Equity Derivative Contracts $0.9 Trillion (2%)
Commodity & Other Contracts $0.2 Trillion (0%)
</Table>
* Amounts do not represent either the net market position or the credit exposure
of banks' derivative activities.
They represent the gross value of all contracts written. Spot foreign exchange
contracts of $452 billion for the seven largest participants and $52 billion for
all others are not included.
FDIC Quarterly Banking Profile
Second Quarter 2002 30 FDIC-Insured Commercial Banks
PURPOSE OF DERIVATIVES*
HELD FOR TRADING
NOTIONAL AMOUNTS
JUNE 30, 2002
[PIE CHART]
<Table>
Interest Rate Contracts $40.7 Trillion (86%)
Foreign Exchange Contracts $5.8 Trillion (12%)
Equity Derivative Contracts $0.9 Trillion (2%)
Commodity & Other Contracts $0.2 Trillion (0%)
</Table>
NOT HELD FOR TRADING
NOTIONAL AMOUNTS
JUNE 30, 2002
[PIE CHART]
<Table>
Interest Rate Contracts $2.0 Trillion (97%)
Foreign Exchange Contracts $53.6 Billion (3%)
Equity Derivative Contracts, Commodity & Other Contracts $2.5 Billion (0%)
</Table>
* Notional amounts do not represent either the net market position or the credit
exposure of banks' derivative activities. They represent the gross value of all
contracts written. Spot foreign exchange contracts of $504 billion are not
included.
FDIC Quarterly Banking Profile
Second Quarter 2002 31 FDIC-Insured Commercial Banks
POSITION OF DERIVATIVES
GROSS FAIR VALUES
June 30, 2002
($ Millions)
HELD FOR TRADING
91 BANKS HELD DERIVATIVE CONTRACTS FOR TRADING
7 LARGEST PARTICIPANTS HELD 98% OF TOTAL (NOTIONAL AMOUNT)
(MARKED TO MARKET)
<Table>
<Caption>
INTEREST FOREIGN EQUITY COMMODITY
RATE EXCHANGE DERIVATIVES & OTHER TOTAL NET
------- -------- ----------- --------- ------- ------
SEVEN LARGEST PARTICIPANTS
Gross positive fair value 520,288 157,209 32,249 11,360 721,105 14,598
Gross negative fair value 504,194 159,430 32,380 10,504 706,508
ALL OTHER PARTICIPANTS
Gross positive fair value 9,056 8,202 1,156 865 19,278 (797)
Gross negative fair value 9,225 9,429 550 871 20,075
TOTAL
Gross positive fair value 529,344 165,410 33,405 12,224 740,384 13,801
Gross negative fair value 513,419 168,859 32,930 11,375 726,583
</Table>
HELD FOR PURPOSES OTHER THAN TRADING
341 BANKS HELD DERIVATIVE CONTRACTS FOR PURPOSES OTHER THAN TRADING
7 LARGEST PARTICIPANTS HELD 75% OF TOTAL (NOTIONAL AMOUNT)
<Table>
<Caption>
INTEREST FOREIGN EQUITY COMMODITY
RATE EXCHANGE DERIVATIVES & OTHER TOTAL NET
-------- -------- ----------- --------- ------ -----
SEVEN LARGEST PARTICIPANTS
Gross positive fair value 17,395 494 0 0 17,889 7,974
Gross negative fair value 8,897 1,011 7 0 9,915
ALL OTHER PARTICIPANTS
Gross positive fair value 7,020 429 180 1 7,630 842
Gross negative fair value 5,898 651 238 1 6,789
TOTAL
Gross positive fair value 24,415 923 180 1 25,519 8,815
Gross negative fair value 14,795 1,662 245 1 16,704
</Table>
FDIC Quarterly Banking Profile
Second Quarter 2002 32 FDIC-Insured Commercial Banks
RETURN ON ASSETS (ROA)
2002 (YTD, ANNUALIZED)
[MAP]
ROA RANKINGS BY STATE
<Table>
<Caption>
No. of Inst.
as of 6/30/02 YTD 2002 YTD 2001 Change*
------------- -------- -------- -------
1 Nevada 35 3.99 3.87 12
2 Delaware 31 2.92 2.22 70
3 South Dakota 93 2.80 2.42 38
4 Arizona 40 2.45 2.08 37
5 Virginia 128 2.01 1.91 10
6 New Hampshire 14 1.92 4.28 (236)
7 Wyoming 45 1.79 1.81 (2)
8 Oregon 32 1.78 1.49 29
9 North Dakota 104 1.75 1.31 44
10 Colorado 175 1.68 1.39 29
11 Utah 56 1.67 1.23 44
12 Ohio 201 1.65 1.15 50
13 Minnesota 472 1.63 1.21 42
14 Indiana 154 1.53 1.03 50
15 Tennessee 190 1.51 1.27 24
16 New Jersey 82 1.46 0.97 49
17 Michigan 161 1.43 1.04 39
18 California 288 1.41 1.77 (36)
19 Alaska 6 1.40 0.82 58
20 North Carolina 72 1.40 1.15 25
21 Vermont 15 1.40 1.48 (8)
22 Maine 15 1.39 1.21 18
23 Louisiana 142 1.38 1.22 16
24 Pennsylvania 177 1.38 1.30 8
25 Alabama 153 1.36 1.19 17
26 Mississippi 98 1.36 1.12 24
27 Texas 675 1.36 1.24 12
28 Wisconsin 279 1.36 1.11 25
29 Georgia 324 1.34 1.49 (15)
30 Hawaii 7 1.31 1.26 5
31 New Mexico 52 1.31 0.66 65
32 Iowa 414 1.30 1.13 17
33 Nebraska 273 1.29 1.18 11
34 Montana 80 1.28 1.34 (6)
35 Connecticut 25 1.27 0.73 54
36 Kansas 368 1.27 1.33 (6)
37 District of Col. 4 1.22 0.75 47
38 Oklahoma 276 1.22 1.17 5
39 Arkansas 170 1.19 1.04 15
40 Missouri 350 1.19 1.19 0
41 South Carolina 77 1.18 1.16 2
42 Washington 79 1.18 1.10 8
43 Puerto Rico 12 1.14 1.12 2
44 Idaho 17 1.13 1.00 13
45 Massachusetts 41 1.13 1.55 (42)
46 Kentucky 227 1.11 1.20 (9)
47 Maryland 72 1.11 0.89 22
48 West Virginia 70 1.10 0.68 42
49 Rhode Island 7 1.03 1.12 (9)
50 Florida 259 1.02 0.82 20
51 Illinois 686 1.02 0.95 7
52 New York 137 1.01 0.99 2
U.S. and Terr. 7,966 1.37 1.23 14
</Table>
*YTD ROA minus ROA for the same period one year ago equals change in basis
points. Basis point = 1/100 of a percent. Results for four of the states with
the highest ROAs (SD, NV, DE, & NH) were significantly influenced by the
presence of large credit card operators.
FDIC Quarterly Banking Profile
Second Quarter 2002 33 FDIC-Insured Commercial Banks
QUARTERLY NET INCOME
1998 - 2002
[BAR CHART]
$ Billion
<Table>
<Caption>
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
$ Billions
1 2.6 2.7 2.9 2.9 3.6
2 2.8 2.9 2.7 3.4 3.9
3 3.0 2.8 2.5 3.5
4 2.0 2.7 2.6 3.7
</Table>
QUARTERLY NET INTEREST MARGINS, ANNUALIZED
1998 - 2002
[GRAPH]
Net Interest Margin (%)
<Table>
Assets > $100 Million 3.50
Assets < $100 Million 3.48
</Table>
FDIC Quarterly Banking Profile
Second Quarter 2002 34 FDIC-Insured Saving Institutions
QUARTERLY RETURN ON ASSETS (ROA), ANNUALIZED
1993 - 2002
[GRAPH]
<Table>
<Caption>
5 HIGHEST VALUES
Jun 2002 1.21
Dec 2001 1.16
Sep 1998 1.14
Mar 2002 1.12
Jun 1998 1.09
</Table>
QUARTERLY RETURN ON EQUITY (ROE), ANNUALIZED
1993 - 2002
[GRAPH]
<Table>
<Caption>
5 HIGHEST VALUES
Dec 2001 13.5
Jun 2002 13.2
Mar 1993 13.1
Mar 2002 12.9
Sep 1998 12.7
</Table>
FDIC Quarterly Banking Profile
Second Quarter 2002 35 FDIC-Insured Saving Institutions
QUARTERLY RETURN ON RISK-WEIGHTED ASSETS (RWA)*
AND RWA TO TOTAL ASSETS
1993 - 2002
[GRAPH]
<Table>
Return on Risk-Weighted Assets 2.0
Risk-Weighted Assets to Assets 59.9
</Table>
* Assets weighted according to risk categories used in regulatory capital
computations.
FDIC Quarterly Banking Profile
Second Quarter 2002 36 FDIC-Insured Saving Institutions
QUARTERLY EFFICIENCY RATIOS*
1999 - 2002
[QUARTERLY EFFICIENCY RATIOS* GRAPH]
<Table>
Assets < $100 Million 77.14 77.43 76.37 81.70 79.32 78.51 84.13 81.27 82.79 80.19 77.58 89.20 77.75 75.01
Assets > $100 Million 57.39 55.07 54.57 55.59 54.60 55.09 56.90 58.26 58.51 57.50 57.89 56.96 54.66 56.20
Total 58.13 55.89 55.38 56.50 55.46 55.93 57.96 59.19 59.40 58.26 58.50 58.03 55.30 56.73
</Table>
*Noninterest expenses less amortization of intangible assets as a percent of net
interest income plus noninterest income.
FDIC Quarterly Banking Profile
Second Quarter 2002 37 FDIC-Insured Saving Institutions
NONINTEREST INCOME AS A
PERCENTAGE OF NET OPERATING REVENUE*
1993 - 2002
[NONINTEREST INCOME AS A PERCENTAGE OF
NET OPERATING REVENUE* (1993 - 2002) GRAPH]
<Table>
<Caption>
2002
----
Assets < $100 Million 38.8
Assets > $100 Million 21.0
</Table>
* Net operating revenue equals net interest income plus noninterest income.
FDIC Quarterly Banking Profile
Second Quarter 2002 38 FDIC-Insured Saving Institutions
CHANGES IN THE NUMBER OF FDIC-INSURED
SAVINGS INSTITUTIONS
QUARTERLY, 1998 - 2002
<Table>
New Charters 4 5 12 7 8 9 12 9 5
Mergers 26 29 26 33 28 19 17 16 13
Failures 0 0 0 0 0 0 1 0 1
Other Changes, Net* -1 -3 -2 2 -1 -5 2 -2 3
No. of banks at
end of quarter 1,756 1,729 1,713 1,690 1,668 1,653 1,649 1,642 1,635
Net Change during
quarter -23 -27 -16 -24 -21 -15 -4 -8 -6
<Caption>
New Charters 12 7 8 6 3 3 5 1 0
Mergers 23 17 29 11 18 18 18 18 11
Failures 0 0 0 0 0 1 0 0 1
Other Changes, Net* 1 -1 -2 -1 0 -1 -5 -1 -5
No. of banks at
end of quarter 1,624 1,613 1,589 1,584 1,569 1,552 1,533 1,515 1,498
Net Change during
quarter -11 -11 -23 -6 -15 -17 -18 -18 -17
</Table>
* Includes charter conversions, voluntary liquidations, adjustments for
open-bank assistance transactions and other changes.
FDIC Quarterly Banking Profile
Second Quarter 2002 39 FDIC-Insured Saving Institutions
CAPITAL RATIOS
1996 - 2002
[CAPITAL RATIOS (1996 - 2002) GRAPH]
<Table>
<Caption>
12/96 12/97 12/98 12/99 12/00 12/01 6/02
TOTAL RISK-BASED CAPITAL 15.17 15.14 15.02 14.48 13.96 14.01 14.64
TIER 1 RISK-BASED CAPITAL 13.85 13.80 13.68 13.24 12.70 12.66 13.32
EQUITY TO ASSETS 8.34 8.71 8.68 8.27 8.45 8.49 9.29
CORE CAPITAL (LEVERAGE) 7.76 7.95 7.85 7.86 7.80 7.80 8.18
</Table>
FDIC Quarterly Banking Profile
Second Quarter 2002 40 FDIC-Insured Saving Institutions
RESERVE COVERAGE RATIO*
1998-2002
[RESERVE COVERAGE RATIO* 1998-2002 GRAPH]
<Table>
NONCURRENT LOANS ($ BILLIONS)
7.2 6.8 6.3 6.2 6.0 5.6 5.7 5.5 5.4 5.2 5.5 5.9 6.3 6.6 7.2 7.5 7.9 7.4
LOAN-LOSS RESERVES ($ BILLIONS)
7.0 7.0 7.0 6.9 7.0 7.0 7.0 6.9 6.9 7.0 7.2 7.3 7.5 7.6 7.9 7.7 7.9 8.0
COVERAGE RATIO (%)
97 103 110 111 115 124 123 125 127 134 132 124 119 116 110 102 99 109
</Table>
* Loan-loss reserves to noncurrent loans.
FDIC Quarterly Banking Profile
Second Quarter 2002 41 FDIC-Insured Saving Institutions
LOAN QUALITY
1998-2002
[30-89 DAY PAST DUE LOANS GRAPH]
[NONCURRENT LOANS* GRAPH]
[QUARTERLY NET CHARGE-OFFS (ANNUALIZED) GRAPH]
* Loans past due 90 or more days or in nonaccrual status.
FDIC Quarterly Banking Profile
Second Quarter 2002 42 FDIC-Insured Saving Institutions
NONCURRENT REAL ESTATE LOAN RATES BY TYPE*
2000-2002
[GRAPH]
<Table>
CONSTRUCTION
AND LAND 0.73 0.74 0.80 1.08 1.20 1.28 1.54 1.39 1.70 1.52
1-4 FAMILY 0.69 0.63 0.62 0.65 0.66 0.69 0.74 0.78 0.83 0.79
MULTIFAMILY 0.34 0.30 0.28 0.27 0.28 0.34 0.34 0.36 0.38 0.34
COMMERCIAL 0.85 0.82 0.83 0.87 1.03 1.03 1.18 1.37 1.36 1.26
TOTAL 0.68 0.62 0.62 0.66 0.69 0.72 0.78 0.83 0.89 0.83
</Table>
*Noncurrent loan rates represent the percentage of loans in each category that
are past due 90 days or more or in nonaccrual status.
FDIC Quarterly Banking Profile
Second Quarter 2002 43 FDIC-Insured Saving Institutions
UTILIZATION RATES OF LOAN COMMITMENTS*
1997-2002
[GRAPH]
* Utilization rates represent outstanding loan amounts as a percentage of unused
loan commitments plus outstanding loan amounts.
** Includes on-balance-sheet loans and off-balance-sheet securitized
receivables.
FDIC Quarterly Banking Profile
Second Quarter 2002 44 FDIC-Insured Saving Institutions
TOTAL SECURITIES* AS A PERCENT OF ASSETS
JUNE 30, 2002
[BAR CHART]
Percent of Assets
<Table>
Northeast 30.6
Southeast 20.4
Central 14.8
Midwest 21.4
Southwest 22.4
West 18.6
</Table>
TOTAL SECURITIES*
($ BILLIONS)
<Table>
<Caption>
6/00 9/00 12/00 3/01 6/01 9/01 12/01 3/02 6/02
U.S. Government Obligations (non-mortgage) $ 40 $ 39 $ 40 $ 41 $ 41 $ 37 $ 57 $ 73 $ 67
Mortgage-Backed Securities (excluding CMO's) 116 115 118 122 122 122 115 113 110
Collateralized Mortgage Obligations 95 93 95 89 86 85 82 85 84
All Other Securities 28 28 29 28 30 32 31 32 32
----- ----- ----- ----- ----- ----- ----- ----- -----
Total Securities 279 276 282 280 279 276 285 302 293
Securities as a Percent of Assets 23.6% 23.0% 23.2% 22.3% 21.9% 21.4% 21.9% 22.9% 22.8%
Memoranda:
Amortized Cost of Total Held-to-Maturity Sec 95 93 94 72 71 68 67 71 68
Fair Value of Total Available-for-Sale Sec 184 182 188 208 208 208 218 232 225
</Table>
TOTAL SECURITIES*
JUNE 30, 2002
[PIE CHART]
<Table>
Mortgage-Backed Securities: (excluding CMO's) 37.53%
Collateralized Mortgage Obligations: 28.69%
U.S. Government Obligations (non-mortgage): 22.88%
All Other Securities: 10.89%
</Table>
*Excludes trading account assets for savings institutions filing a Call Report.
Trading account assets for savings institutions filing a TFR are netted out of
'All Other Securities'.
FDIC Quarterly Banking Profile
Second Quarter 2002 45 FDIC-Insured Saving Institutions
REAL ESTATE ASSETS AS A PERCENT OF TOTAL ASSETS
JUNE 30, 2002
[PIE CHART]
<Table>
1-4 Family Residential Property Loans: 44.71%
Other Assets
Net of Reserves: 27.30%
Mortgage-Backed Securities: 15.07%
COMMERCIAL REAL ESTATE LOANS: 5.18%
MULTIFAMILY RESIDENTIAL LOANS: 4.69%
CONSTRUCTION & LAND DEVELOPMENT LOANS: 2.89%
ALL OTHER REAL ESTATE LOANS &
INVESTMENTS IN REAL ESTATE: (INCLUDING OREO): 0.16%
</Table>
REAL ESTATE LOAN GROWTH RATES
1993-2002
[GRAPH]
Annual Growth Rate (%)
<Table>
<Caption>
6/02*
-----
Construction and Land Development Loans 1.4
Commercial Real Estate Loans 6.3
1-4 Family Residential Property Loans 3.8
Multifamily Residential Loans -3.0
</Table>
* Beginning in March 1997, TFR filers report balances net of loans in process.
FDIC Quarterly Banking Profile
Second Quarter 2002 46 FDIC-Insured Saving Institutions
NUMBER OF SAVINGS INSTITUTIONS WITH FHLB ADVANCES*
1991 - 2002
[CHART]
Number of Banks
<Table>
<Caption>
6/02
-----
Number of Banks 1,044
</Table>
AMOUNT OF FHLB ADVANCES OUTSTANDING*
1991 - 2002
[BAR CHART]
$ Billions
<Table>
<Caption>
12/91 12/92 12/93 12/94 12/95 12/96 12/97 12/98 12/99 12/00 12/01 6/02
- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----
$ Billions
$76 $72 $85 $102 $100 $121 $140 $175 $231 $261 $255 $224
</Table>
*Source: TFR and Call Reports, FHFB prior to 3/31/01.
FDIC Quarterly Banking Profile
Second Quarter 2002 47 FDIC-Insured Saving Institutions
ASSETS OF MUTUAL AND STOCK
SAVINGS INSTITUTIONS
1993 - 2002
[CHART]
$ Billions
<Table>
<Caption>
2002
-----
STOCK 1,139
MUTUAL 149
</Table>
NUMBER OF MUTUAL AND STOCK
SAVINGS INSTITUTIONS
1993 - 2002
Number of Institutions
<Table>
<Caption>
2002
----
STOCK 811
MUTUAL 687
</Table>
FDIC Quarterly Banking Profile
Second Quarter 2002 48 FDIC-Insured Saving Institutions
RETURN ON ASSETS (ROA)
2002 (YTD, ANNUALIZED)
[MAP]
RANKINGS BY ROA
<Table>
<Caption>
No. of Inst.
as of 6/30/02 YTD 2002 YTD 2001 Change*
------------- -------- -------- -------
1 Oklahoma 7 2.72 2.19 53
2 Delaware 7 1.93 1.40 53
3 Arizona 3 1.84 2.83 (99)
4 Texas 48 1.61 1.19 42
5 New York 76 1.50 1.28 22
6 Illinois 112 1.48 0.61 87
7 New Hampshire 18 1.41 1.19 22
8 Washington 22 1.38 1.21 17
9 California 42 1.36 1.24 12
10 Nevada 2 1.29 (0.08) 137
11 Tennessee 23 1.29 1.03 26
12 Michigan 20 1.25 0.10 115
13 North Dakota 3 1.23 0.70 53
14 Wisconsin 41 1.13 0.86 27
15 Arkansas 8 1.11 0.89 22
16 Minnesota 22 1.11 0.83 28
17 Alaska 2 1.09 0.72 37
18 Iowa 22 1.07 0.68 39
19 South Dakota 4 1.07 0.80 27
20 South Carolina 26 1.06 0.94 12
21 Utah 4 1.06 1.15 (9)
22 New Jersey 71 1.04 0.87 17
23 Colorado 10 1.03 0.76 27
24 New Mexico 9 1.03 0.88 15
25 Hawaii 2 1.02 0.81 21
26 Connecticut 43 1.00 1.10 (10)
27 Pennsylvania 111 1.00 0.70 30
28 North Carolina 38 0.99 0.67 32
29 Florida 42 0.94 0.79 15
30 Rhode Island 7 0.94 0.83 11
31 Kansas 17 0.92 0.93 (1)
32 Louisiana 32 0.92 0.71 21
33 Ohio 118 0.92 0.96 (4)
34 Vermont 5 0.91 0.83 8
35 Massachusetts 179 0.90 0.83 7
36 Oregon 5 0.87 0.91 (4)
37 Kentucky 27 0.86 0.59 27
38 Maryland 58 0.84 0.68 16
39 West Virginia 7 0.82 0.58 24
40 Indiana 60 0.80 0.85 (5)
41 Maine 24 0.78 0.64 14
42 Nebraska 15 0.78 0.84 (6)
43 Missouri 35 0.72 0.50 22
44 Alabama 11 0.68 0.93 (25)
45 Wyoming 4 0.65 0.41 24
46 Idaho 3 0.62 0.50 12
47 Montana 4 0.58 0.98 (40)
48 Mississippi 8 0.31 1.26 (95)
49 Virginia 15 0.31 0.39 (8)
50 District of Col 1 (0.20) 0.20 (40)
51 Georgia 23 (0.46) (0.68) 22
52 Puerto Rico 0 NA NA NM
U.S. and Terr 1,498 1.22 1.01 21
</Table>
*YTD ROA minus ROA for the same period one year ago equals change in basis
points. Basis point = 1/100 of a percent.
FDIC Quarterly Banking Profile
Second Quarter 2002 49 FDIC-Insured Saving Institutions
NUMBER OF FDIC-INSURED BANKING ORGANIZATIONS
1986 - 2002
[GRAPH]
Number
<Table>
<Caption>
12/86 12/88 12/90 12/92 12/94 12/96 12/98 12/00 6/02
Thrifts* and Indpt Banks 8,351 7,394 6,290 5,488 4,692 3,967 3,383 3,153 2,915
One-Bank Holding Co.'s 5,001 4,918 4,870 4,803 4,521 4,427 4,396 4,395 4,482
Multi-Bank Holding Co.'s 960 973 963 877 839 823 745 700 626
Total 14,312 13,285 12,123 11,168 10,052 9,217 8,524 8,248 8,023
</Table>
ASSETS OF FDIC-INSURED BANKING ORGANIZATIONS
1986 - 2002
[GRAPH]
$ Billions
<Table>
<Caption>
12/86 12/88 12/90 12/92 12/94 12/96 12/98 12/00 6/02
Thrifts* and Indpt Banks 1,592 1,798 1,405 1,188 1,132 1,128 1,115 1,330 1,448
One-Bank Holding Co.'s 501 516 619 672 691 777 931 1,292 1,445
Multi-Bank Holding Co.'s 2,234 2,423 2,625 2,676 3,196 3,702 4,485 4,840 5,145
Total 4,328 4,737 4,649 4,536 5,019 5,607 6,531 7,462 8,038
</Table>
* Includes thrifts owned by unitary thrift holding companies or multi-thrift
holding companies.
FDIC Quarterly Banking Profile
Second Quarter 2002 50 ALL FDIC-Insured Institutions
NUMBER OF FDIC-INSURED INSTITUTIONS
1986 - 2002
[GRAPH]
Number
<Table>
<Caption>
12/86 12/88 12/90 12/92 12/94 12/96 12/98 12/00 6/02
SAVINGS INSTITUTIONS 3,677 3,438 2,815 2,390 2,152 1,926 1,690 1,589 1,498
COMMERCIAL BANKS 14,199 13,123 12,343 11,462 10,451 9,527 8,773 8,315 7,966
TOTAL 17,876 16,561 15,158 13,852 12,603 11,453 10,463 9,904 9,464
</Table>
ASSETS OF FDIC-INSURED INSTITUTIONS
1986 - 2002
[GRAPH]
$ Billions
<Table>
<Caption>
12/86 12/88 12/90 12/92 12/94 12/96 12/98 12/00 6/02
SAVINGS INSTITUTIONS 1,387 1,606 1,259 1,030 1,009 1,029 1,088 1,217 1,288
COMMERCIAL BANKS 2,941 3,131 3,389 3,506 4,011 4,578 5,443 6,245 6,750
TOTAL 4,328 4,737 4,649 4,536 5,019 5,607 6,531 7,462 8,038
</Table>
FDIC Quarterly Banking Profile
Second Quarter 2002 51 ALL FDIC-Insured Institutions
OFFICES OF FDIC-INSURED INSTITUTIONS
1986 - 2002
[GRAPH]
Number
<Table>
<Caption>
12/86 12/88 12/90 12/92 12/94 12/96 12/98 12/00 6/02
Savings Institutions
Main Offices 3,677 3,438 2,815 2,390 2,152 1,926 1,690 1,589 1,498
Branches 21,466 22,167 18,810 15,428 13,939 13,830 12,952 12,685 11,977
Total Offices 25,143 25,605 21,625 17,818 16,091 15,756 14,642 14,274 13,475
Commercial Banks*
Main Offices 14,199 13,123 12,376 11,500 10,488 9,553 8,793 8,331 7,982
Branches 44,319 46,332 50,343 51,771 54,582 57,214 61,272 63,571 65,654
Total Offices 58,518 59,455 62,719 63,271 65,070 66,767 70,065 71,902 73,636
All FDIC-Insured Institutions*
Main Offices 17,876 16,561 15,191 13,890 12,640 11,479 10,483 9,920 9,480
Branches 65,785 68,499 69,153 67,199 68,521 71,044 74,224 76,256 77,631
Total Offices 83,661 85,060 84,344 81,089 81,161 82,523 84,707 86,176 87,111
</Table>
* Includes insured branches of foreign banks that file a Call Report.
FDIC Quarterly Banking Profile
Second Quarter 2002 52 ALL FDIC-Insured Institutions
NUMBER OF FDIC-INSURED "PROBLEM" INSTITUTIONS
1994-2002
[BAR CHART]
Number of Institutions
<Table>
<Caption>
12/94 12/95 12/96 12/97 12/98 12/99 3/00 6/00 9/00 12/00 3/01 6/01 9/01 12/01 3/02 6/02
SAVINGS INSTITUTIONS 71 49 35 21 15 13 15 16 15 18 17 22 20 19 22 21
COMMERCIAL BANKS 247 144 82 71 69 66 72 73 75 76 78 80 74 95 102 115
</Table>
ASSETS OF FDIC-INSURED "PROBLEM" INSTITUTIONS
1994-2002
[BAR CHART]
$ Billions
<Table>
<Caption>
12/94 12/95 12/96 12/97 12/98 12/99 3/00 6/00 9/00 12/00 3/01 6/01 9/01 12/01 3/02 6/02
SAVINGS INSTITUTIONS 39 14 7 2 6 6 5 8 7 7 6 7 4 4 15 4
COMMERCIAL BANKS 33 17 5 5 5 4 5 11 12 17 17 17 14 36 37 36
</Table>
FDIC Quarterly Banking Profile
Second Quarter 2002 53 ALL FDIC-Insured Institutions
INTERSTATE BRANCHES AS A PERCENT OF TOTAL OFFICES
JUNE 30, 2002
[MAP]
<Table>
AK 12.7 MT 5.1
AL 6.4 NC 12.6
AR 25.3 ND 11.7
AZ 53.8 NE 8.2
CA 19.9 NH 44.0
CO 30.1 NJ 50.1
CT 35.2 NM 24.2
DC 93.4 NV 38.7
DE 7.3 NY 21.0
FL 64.1 OH 3.9
GA 43.2 OK 13.1
HI 1.6 OR 69.2
IA 16.6 PA 19.8
ID 75.1 PR 2.8
IL 21.3 RI 22.2
IN 13.0 SC 35.3
KS 16.6 SD 10.5
KY 20.7 TN 31.5
LA 24.4 TX 27.8
MA 28.9 UT 21.5
MD 39.9 VA 40.9
ME 21.1 VT 34.1
MI 29.0 WA 42.3
MN 13.4 WI 9.5
MO 23.9 WV 32.0
MS 20.4 WY 32.8
</Table>
Note: Figures reflect percent of branches owned by out-of-state commercial banks
and savings institutions.
FDIC Quarterly Banking Profile
Second Quarter 2002 54 ALL FDIC-Insured Institutions
CAPITAL CATEGORY DISTRIBUTION
JUNE 30, 2002
BIF-MEMBER INSTITUTIONS
<Table>
<Caption>
Institutions Assets
--------------------- -----------------------
Number Percent of In Percent of
of Total Billions Total
------ ---------- -------- ----------
Well Capitalized 8,024 97.8% $6,943.2 99.5%
Adequately Capitalized 172 2.1% $ 28.1 0.4%
Undercapitalized 7 0.1% $ 1.6 0.0%
Significantly Undercapitalized 4 0.0% $ 0.3 0.0%
Critically Undercapitalized 1 0.0% $ 1.6 0.0%
</Table>
SAIF-MEMBER INSTITUTIONS
<Table>
<Caption>
Institutions Assets
------------------------ ------------------------
Number Percent of In Percent of
of Total Billions Total
------ ---------- -------- ----------
Well Capitalized 1,234 98.2% $1,060.4 99.8%
Adequately Capitalized 21 1.7% $ 2.2 0.2%
Undercapitalized 1 0.1% $ 0.0 0.0%
Significantly Undercapitalized 0 0.0% $ 0.0 0.0%
Critically Undercapitalized 0 0.0% $ 0.0 0.0%
</Table>
Note: Excludes U.S. branches of foreign banks.
CAPITAL CATEGORY DEFINITIONS
<Table>
<Caption>
Total Tier 1
Risk-Based Risk-Based Tier 1 Tangible
Capital* Capital* Leverage Equity
---------- ---------- -------- ------
Well Capitalized >=10% and >=6% and >=5% --
Adequately Capitalized >=8% and >=4% and >=4% --
Undercapitalized >=6% and >=3% and >=3% --
Significantly Undercapitalized <6% or <3% or <3% and >2%
Critically Undercapitalized -- -- -- <=2%
</Table>
* As a percentage of risk-weighted assets.
FDIC Quarterly Banking Profile
Second Quarter 2002 55 ALL FDIC-Insured Institutions
TOTAL LIABILITIES AND EQUITY CAPITAL
JUNE 30, 2002
<Table>
INSURED DEPOSITS 41.1%
UNINSURED DEPOSITS 24.3%
OTHER BORROWED FUNDS* 19.0%
EQUITY CAPITAL 9.3%
ALL OTHER LIABILITIES 6.4%
</Table>
<Table>
<Caption>
($ Billions) 6/30/01 6/30/02 % Change
Insured Deposits (estimated) 3,152 3,302 4.8
BIF - Insured 2,382 2,482 4.2
SAIF - Insured 773 820 6.1
Uninsured Deposits 1,868 1,952 4.5
In Foreign Offices 682 641 -6.0
Other Borrowed Funds* 1,501 1,529 1.9
All Other Liabilities 448 512 14.3
Subordinated Debt 93 97 4.3
Equity Capital 666 744 11.7
Total Liabilities and Equity Capital 7,635 8,038 5.3
</Table>
* Other borrowed funds include federal funds purchased, securities sold under
agreement to repurchase, FHLB and FRB borrowings and indebtedness.
FDIC Quarterly Banking Profile
Second Quarter 2002 56 ALL FDIC-Insured Institutions
INSURANCE FUND RESERVE RATIOS
DECEMBER 31, 1995 - JUNE 30, 2002
[BAR CHART]
Funds per $100 Est. Insured Deposits
Target Ratio
1.25
<Table>
<Caption>
12/95 12/96 12/97 12/98 12/99 12/00 12/01 3/02 6/02
BIF Coverage 1.30 1.34 1.38 1.39 1.37 1.35 1.26 1.23 1.26
SAIF Coverage 0.47 1.31 1.36 1.37 1.43 1.43 1.36 1.36 1.38
</Table>
<Table>
($ BILLIONS)
BIF
Fund Balance 25.5 26.9 28.3 29.6 29.4 31.0 30.4 30.7 31.2
Est. Insured Deposits 1,951.7 2,007.0 2,056.6 2,134.4 2,151.5 2,299.9 2,408.3 2,485.8 2,482.8
SAIF
Fund Balance 3.4 8.9 9.4 9.8 10.3 10.8 10.9 11.0 11.3
Est. Insured Deposits 711.9 683.4 689.9 716.0 717.6 755.2 802.4 812.8 820.5
</Table>
Note: Includes insured branches of foreign banks. 2002 fund balances are
unaudited. Insured deposits for prior periods may reflect adjustments.
FDIC Quarterly Banking Profile
Second Quarter 2002 57 ALL FDIC-Insured Institutions
U.S. TREASURY YIELD CURVES
JUNE 30, 2001 - JUNE 30, 2002
[CHART]
Spot Yield (%)
<Table>
<Caption>
Maturity 3-Month 6-Month 1 Year 2 Year 3 Year 5 Year 7 Year 10 Year 30 Year
- -------- ------- ------- ------ ------ ------ ------ ------ ------- -------
6/30/02 1.74 1.86 2.25 3.12 3.64 4.33 4.72 5.02 5.61*
3/31/02 1.78 1.96 2.41 3.31 3.88 4.53 4.94 5.12 5.52
12/31/01 1.86 1.86 2.10 2.78 3.25 4.04 4.47 4.72 5.21
9/30/01 3.10 3.05 3.14 3.43 3.73 4.32 4.65 4.84 5.47
6/30/01 3.71 3.70 3.72 4.21 4.47 4.91 5.21 5.36 5.74
</Table>
Source: Federal Reserve's H.15 Statistical Release. The quarterly average rates
shown above represent a 3-month average of the monthly average rates published
by the Federal Reserve.
* Source: 3 month average daily closes of CBOE 30 year T-Bond index (from Yahoo,
Commodity Systems,Inc.).
FDIC Quarterly Banking Profile
Second Quarter 2002 58 ALL FDIC-Insured Institutions
NOTES TO USERS
This publication contains financial data and other information for depository
institutions insured by the Federal Deposit Insurance Corporation (FDIC). These
notes are an integral part of this publication and provide information regarding
the comparability of source data and reporting differences over time. The
information presented in the FDIC Quarterly Banking Profile is divided into the
following groups of institutions:
FDIC-INSURED COMMERCIAL BANKS
This section covers commercial banks insured by the FDIC either through the Bank
Insurance Fund (BIF) or through the Savings Association Insurance Fund (SAIF).
These institutions are regulated by and submit financial reports to one of the
three federal commercial bank regulators (the Board of Governors of the Federal
Reserve System, the FDIC or the Office of the Comptroller of the Currency).
FDIC-INSURED SAVINGS INSTITUTIONS
This section covers savings institutions insured by either BIF or SAIF that
operate under state or federal banking codes applicable to thrift institutions.
Savings institutions in conservator-ships, are excluded from these tables while
in conservatorship, where applicable. The institutions covered in this section
are regulated by and submit financial reports to one of two Federal regulators -
the FDIC or the Office of Thrift Supervision (OTS).
FDIC-INSURED INSTITUTIONS BY INSURANCE FUND
Summary balance-sheet and earnings data are provided for commercial banks and
savings institutions according to insurance fund membership. BIF-member
institutions may acquire SAIF-insured deposits, resulting in institutions with
some deposits covered by both insurance funds. Also, SAIF members may acquire
BIF-insured deposits. The insurance fund membership does not necessarily reflect
which fund insures the largest percentage of an institution's deposits.
Therefore, the BIF-member and the SAIF-member tables each include deposits from
both insurance funds. Depository institutions that are not insured by the FDIC
through either the BIF or SAIF are not included in the FDIC Quarterly Banking
Profile. U.S. branches of institutions headquartered in foreign countries and
non-deposit trust companies are not included unless otherwise indicated. Efforts
are made to obtain financial reports for all active institutions. However, in
some cases, final financial reports are not available for institutions that have
closed or converted their charter.
DATASOURCES
The financial information appearing in this publication is obtained primarily
from the Federal Financial Institutions Examination Council (FFIEC) Call Reports
and the OTS Thrift Financial Reports submitted by all FDIC-insured depository
institutions. This information is stored on and retrieved from the FDIC's
Research Information System (RIS) data base.
COMPUTATION METHODOLOGY
Certain adjustments are made to the OTS Thrift Financial Reports to provide
closer conformance with the reporting and accounting requirements of the FFIEC
Call Reports. Parent institutions are required to file consolidated reports,
while their subsidiary financial institutions are still required to file
separate reports. Data from subsidiary institution reports are included in the
Quarterly Banking Profile tables, which can lead to double-
counting. No adjustments are made for any double-counting of subsidiary data.
All asset and liability figures used in calculating performance ratios represent
average amounts for the period (beginning-of-period amount plus end-of-period
amount plus any interim periods, divided by the total number of periods). For
"pooling-of-interest" mergers, the assets of the acquired institution(s) are
included in average assets since the year-to-date income includes the results of
all merged institutions. No adjustments are made for "purchase accounting"
mergers. Growth rates represent the percentage change over a 12-month period in
totals for institutions in the base period to totals for institutions in the
current period.
All data are collected and presented based on the location of each reporting
institution's main office. Reported data may include assets and liabilities
located outside of the reporting institution's home state. In addition,
institutions may change their charters, resulting in an inter-industry
migration, e.g., savings institutions can convert to commercial banks or
commercial banks may convert to savings institutions. These situations can
affect state and regional statistics.
RECENT ACCOUNTING CHANGES
FASB STATEMENT NO. 133 ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES -- establishes new accounting and reporting standards. Derivatives
were previously off-balance sheet items, but beginning in 2001 all banks must
recognize derivatives as either assets or liabilities on the balance sheet,
measured at fair value. Aderiva-tive may be specifically designated as a "fair
value hedge," a "cash flow hedge," or a hedge of a foreign currency exposure.
The accounting for changes in the value of a derivative (gains and losses)
depends on the intended use of the derivative, its resulting designation, and
the effectiveness of the hedge. Derivatives held for purposes other than trading
are reported as "other assets" (positive fair values) or "other liabilities"
(negative fair values). For a fair value hedge, the gain or loss is recognized
in earnings and "effectively" offsets loss or gain on the hedged item
attributable to the risk being hedged. Any ineffectiveness of the hedge could
result in a net gain or loss on the income statement. Accumulated net gains
(losses) on cash flow hedges are recorded on the balance sheet as "accumulated
other comprehensive income" and the periodic change in the accumulated net gains
(losses) for cash flow hedges is reflected directly in equity as the value of
the derivative changes.
Initial transition adjustments upon adoption of FAS 133 are reported as
adjustments to net income in the income statement as extraordinary items. Upon
implementing FAS 133, a bank may transfer any debt security categorized as
held-to-maturity into the available-for-sale category or the trading category.
Unrealized gains (losses) on transferred held-to-maturity debt securities on the
date of initial application must be reflected as an adjustment to net income if
transferred to the trading category or an adjustment to equity if transferred to
the available-for-sale category.
SUBCHAPTER S CORPORATIONS -The Small Business Job Protection Act of 1996 changed
the Internal Revenue Code to allow financial institutions to elect Subchapter S
corporation
FDIC Quarterly Banking Profile
Second Quarter 2002 59 Notes to Users
status, beginning in 1997. ASubchapter S corporation is treated as a
pass-through entity, similar to a partnership, for federal income tax purposes.
It is generally not subject to any federal income taxes at the corporate level.
Its taxable income flows through to its shareholders in proportion to their
stock ownership, and the shareholders generally pay federal income taxes on
their share of this taxable income. This can have the effect of reducing
institutions' reported taxes and increasing their after-tax earnings.
The election of Subchapter S status may result in an increase in
shareholders' personal tax liability. Therefore, some S corporations may
increase the amount of earnings distributed as dividends to compensate for
higher personal taxes.
DEFINITIONS (IN ALPHABETICAL ORDER)
BIF-INSURED DEPOSITS (estimated) - the amount of deposits in accounts of less
than $100,000 insured by the BIF. For SAIF-member "Oakar" institutions, it
represents the adjusted attributable amount acquired from BIF members.
CONSTRUCTION AND DEVELOPMENT LOANS - includes loans for all property types under
construction, as well as loans for land acquisition and development.
DERIVATIVE CONTRACTS, GROSS FAIR VALUES (POSITIVE/NEGATIVE) -are reported
separately and represent the amount at which a contract could be exchanged in a
transaction between willing parties, other than in a forced or liquidation sale.
If a quoted market price is available for a contract, the fair value reported
for that contract is calculated using this market price. If quoted market prices
are not available, the reporting banks use the best estimate of fair value based
on quoted market prices of similar contracts or on valuation techniques such as
discounted cash flows. This information is reported only by banks with assets
greater than $100 million.
DERIVATIVES (NOTIONAL AMOUNT) - represents the sum of the following:
interest-rate contracts (defined as the "notional" value of interest-rate swap,
futures, forward and option contracts), foreign-exchange-rate contracts,
commodity contracts and equity contracts (defined similarly to interest-rate
contracts).
FUTURES AND FORWARD CONTRACTS - a contract in which the buyer agrees to
purchase and the seller agrees to sell, at a specified future date, a
specific quantity of an underlying variable or index at a specified price or
yield. These contracts exist for a variety of variables or indices,
(traditional agricultural or physical commodities, as well as currencies and
interest rates). Futures contracts are standardized and are traded on
organized exchanges which set limits on counterparty credit exposure.
Forward contracts do not have standardized terms and are traded over the
counter.
OPTION CONTRACTS - a contract in which the buyer acquires the right to buy
from or sell to another party some specified amount of an underlying
variable or index at a stated price (strike price) during a period or on a
specified future date, in return for compensation (such as a fee or
premium). The seller is obligated to purchase or sell the variable or index
at the discretion of the buyer of the contract. SWAPS - an obligation
between two parties to exchange a series of cash flows at periodic intervals
(settlement dates), for a specified period. The cash flows of a swap are
either fixed, or determined for each settlement date by multiplying the
quantity (notional principal) of the underlying variable or index by
specified reference rates or prices. Except for currency swaps, the
notional principal is used to calculate each payment but is not exchanged.
EFFICIENCY RATIO - Noninterest expense less amortization of intangible assets as
a percent of net interest income plus non-interest income. This ratio measures
the proportion of net operating revenues that are absorbed by overhead expenses,
so that a lower value indicates greater efficiency.
LOANS SECURED BY REAL ESTATE - includes home equity loans, junior liens secured
by 1-4 family residential properties and all other loans secured by real estate.
LOANS TO INDIVIDUALS - includes outstanding credit card balances and other
secured and unsecured consumer loans. MORTGAGE-BACKED SECURITIES - certificates
of participation in pools of residential mortgages and collateralized mortgage
obligations issued or guaranteed by government-sponsored or private enterprises.
Also, see "Securities", below.
NET CHARGE-OFFS - total loans and leases charged off (removed from balance sheet
because of uncollectibility), less amounts recovered on loans and leases
previously charged off. NET INTEREST MARGIN - the difference between interest
and dividends earned on interest-bearing assets and interest paid to depositors
and other creditors, expressed as a percentage of average earning assets. No
adjustments are made for interest income that is tax exempt.
NET OPERATING INCOME - income excluding discretionary transactions such as gains
(or losses) on the sale of investment securities and extraordinary items. Income
taxes subtracted from operating income have been adjusted to exclude the portion
applicable to securities gains (or losses).
NONCURRENT ASSETS - the sum of loans, leases, debt securities and other assets
that are 90 days or more past due, or in nonaccrual status.
NONCURRENT LOANS & LEASES - the sum of loans and leases 90 days or more past
due, and loans and leases in nonaccrual status.
OTHER REAL ESTATE OWNED - primarily foreclosed property. Direct and indirect
investments in real estate ventures are excluded. The amount is reflected net of
valuation allowances. For institutions that file a Thrift Financial Report
(TFR), the valuation allowance subtracted also includes allowances for other
repossessed assets. Also, for TFR filers the components of other real estate
owned are reported gross of valuation allowances.
"PROBLEM" INSTITUTIONS - federal regulators assign a composite rating to each
financial institution, based upon an evaluation of financial and operational
criteria. The rating is based on a scale of 1 to 5 in ascending order of
supervisory concern. "Problem" institutions are those institutions with
financial, operational, or managerial weaknesses that threaten their continued
financial viability. Depending upon the degree of risk and supervisory concern,
they are rated either a "4" or "5". For all BIF-member institutions, and for all
SAIF-member institutions for which the FDIC is the primary federal regulator,
FDIC composite ratings are used. For all SAIF-member institutions whose primary
federal regulator is the OTS, the OTS composite rating is used.
FDIC Quarterly Banking Profile
Second Quarter 2002 60 Notes to Users
RESERVES FOR LOSSES - the allowance for loan and lease losses on a consolidated
basis. Prior to March 31, 2001 reserves for losses included the allocated
transfer risk reserve, which is no longer included as part of the loss reserve,
but netted from loans and leases.
RETURN ON ASSETS - net income (including gains or losses on securities and
extraordinary items) as a percentage of average total assets. The basic
yardstick of bank profitability.
RETURN ON EQUITY - net income (including gains or losses on securities and
extraordinary items) as a percentage of average total equity capital.
RISK-WEIGHTED ASSETS - assets adjusted for risk-based capital definitions which
include on-balance-sheet as well as off-balance-sheet items multiplied by
risk-weights that range from zero to 100 percent. A conversion factor is used to
assign a balance sheet equivalent amount for selected off-balance-sheet
accounts.
SAIF-INSURED DEPOSITS (ESTIMATED) - the amount of deposits in accounts of less
than $100,000 insured by the SAIF. For BIF-member "Oakar" institutions, it
represents the adjusted attributable amount acquired from SAIF members.
SECURITIES - excludes securities held in trading accounts. Banks' securities
portfolios consist of securities designated as "held-to-maturity", which are
reported at amortized cost (book value), and securities designated as
"available-for-sale", reported at fair (market) value.
TROUBLED REAL ESTATE ASSET RATE - noncurrent real estate loans plus other real
estate owned as a percent of total real estate loans and other real estate
owned.
REGIONS
NORTHEAST-- Connecticut, Delaware, District of Columbia, Maine, Maryland,
Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Puerto Rico,
Rhode Island, Vermont, U.S. Virgin Islands
SOUTHEAST-- Alabama, Florida, Georgia, Mississippi, North Carolina, South
Carolina, Tennessee, Virginia, West Virginia
CENTRAL-- Illinois, Indiana, Kentucky, Michigan, Ohio, Wisconsin
MIDWEST-- Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota,
South Dakota
SOUTHWEST-- Arkansas, Louisiana, New Mexico, Oklahoma, Texas
WEST-- Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada,
Oregon, Pacific Islands, Utah, Washington, Wyoming
FDIC Quarterly Banking Profile
Second Quarter 2002 61 Notes to Users
Zachary Bancshares, Inc.
Fairness Opinion
EXHIBIT D
MARKET AND COMPETITOR INFORMATION
ZACHARY MARKET SHARE
DATE OF FINANCIAL DATA: JUNE 30, 2001
<Table>
<Caption>
% TOP
NUMBER TOTAL CITY INSTITUTION
OF DEPOSITS MARKET TOTAL
NAME CITY STATE BRANCHES (000'S) SHARE DEPOSITS
Zachary Bancshares, Inc. Zachary LA 2 71,289 42.03 84.96
Regions Financial Corporation Birmingham AL 1 45,198 26.65 0.15
Bank One Corporation Chicago IL 2 33,760 19.9 0.02
GP Louisiana FCU Zachary LA 1 10,488 6.18 100
Clinton Bancshares, Inc. Clinton LA 1 5,831 3.44 13.72
Lane Memorial FCU Zachary LA 1 2,876 1.7 100
Zachary Community FCU Zachary LA 1 179 0.11 100
TOTALS FOR ZACHARY 9 169,621 100
</Table>
Notes:
Deposit Weightings
Bank Deposits = 100%
Thrift Deposits (Savings Bank and S&L) = 100%
Credit Union Deposits = 100%
Source: Sheshunoff Banksource (banksource.sheshunoff.com)
ZACHARY MARKET SNAPSHOT
<Table>
Total Deposits: 169,621
Number of Branches: 9
Average Deposits per Branch ($000): 18,847
3 Year CAGR (%): 5.32
5 Year CAGR (%): 3.81
</Table>
<Table>
<Caption>
BASE YEAR CURRENT YEAR PROJECTED YEAR
1990 2001 2006
Total Population 9,036 10,784 11,399
TOTAL POPULATION BY AGE
0 - 14 2,503 2,749 2,779
15 - 34 2,718 2,970 3,279
35 - 54 2,283 3,070 2,992
55+ 1,532 1,995 2,349
Number of Total Households 2,940 3,692 3,963
NUMBER TOTAL HOUSEHOLDS BY INCOME
0 - 24,999 1,179 919 851
25,000 - 49,999 922 844 815
50,000+ 827 1,929 2,297
Average Household Income ($) 38,381 69,792 89,617
Median Household Income ($) 31,850 52,911 63,079
Per Capita Income ($) 12,348 24,121 31,476
Total Deposits Per Person ($) 15,729
Total Deposits Per Household ($) 45,943
Total Deposits Per Average Household Income ($) 2.43
</Table>
Source: Sheshunoff Banksource (banksource.sheshunoff.com)
BATON ROUGE MARKET SHARE
DATE OF FINANCIAL DATA: JUNE 30, 2001
<Table>
<Caption>
% TOP
NUMBER TOTAL MSA INSTITUTION
OF DEPOSITS MARKET TOTAL
NAME CITY STATE BRANCHES (000'S) SHARE DEPOSITS
Hibernia Corporation New Orleans LA 25 1,718,533 23.29 14.22
Bank One Corporation Chicago IL 39 1,576,804 21.37 1.07
Hancock Holding Company Gulfport MS 23 678,119 9.19 22.2
Union Planters Corporation Memphis TN 17 555,869 7.53 2.47
Whitney Holding Corporation New Orleans LA 15 441,639 5.99 8.01
Regions Financial Corporation Birmingham AL 10 321,623 4.36 1.08
AmSouth Bancorporation Birmingham AL 9 221,351 3 0.87
Campus FCU Baton Rouge LA 1 174,560 2.37 100
Baton Rouge Teachers FCU Baton Rouge LA 1 157,485 2.13 100
Louisiana Capitol FCU Baton Rouge LA 1 149,761 2.03 100
West Baton Rouge Bancshares Port Allen LA 12 148,328 2.01 100
Exxon FCU Baton Rouge LA 1 86,313 1.17 100
Zachary Bancshares, Inc. Zachary LA 3 83,912 1.14 100
FBT Bancorp Baton Rouge LA 1 76,929 1.04 100
Business Holding Corp. Baton Rouge LA 1 75,793 1.03 100
First National Bankers Banks Baton Rouge LA 1 58,983 0.8 87.66
Pelican State Baton Rouge LA 1 58,606 0.79 100
Louisiana Dotd FCU Baton Rouge LA 1 52,463 0.71 100
Baton Rouge Telco FCU Baton Rouge LA 1 50,366 0.68 100
Alliance Bk of Baton Rouge Baton Rouge LA 1 46,508 0.63 100
Department of Corrections CU Baton Rouge LA 1 45,495 0.62 100
Louisiana State CU Baton Rouge LA 1 39,005 0.53 100
United Comm Bancshares Inc Gonzales LA 2 37,449 0.51 100
Exxon Baton Rouge FCU Baton Rouge LA 1 33,661 0.46 100
Citizens Bancorporation, Inc Plaquemine LA 3 33,501 0.45 33.58
Britton & Koontz Capital Corporation Natchez MS 2 32,855 0.45 15.56
Ascension School Empl CU Gonzales LA 1 30,226 0.41 100
Louisiana USA FCU Baton Rouge LA 1 30,182 0.41 100
A. Wilbert's Sons L & S Co. Plaquemine LA 3 28,563 0.39 21.02
Baton Rouge City Parish FCU Baton Rouge LA 1 26,781 0.36 100
Bayou FCU Baton Rouge LA 1 26,126 0.35 100
Postal CU Baton Rouge LA 1 24,081 0.33 100
First Bnchr of Bat Rouge Inc Baton Rouge LA 1 23,131 0.31 45.8
Southern Tchrs & Parents FCU Baton Rouge LA 1 19,987 0.27 100
LES FCU Baton Rouge LA 1 19,775 0.27 100
Breco Baton Rouge LA 1 18,427 0.25 100
Burnside FCU Gonzales LA 1 17,799 0.24 100
COPO FCU Baton Rouge LA 1 16,077 0.22 100
Liberty Financial Services New Orleans LA 2 14,928 0.2 8.73
Central Progressive Bncshrs Lacombe LA 1 12,569 0.17 7.45
Baton Rouge Fire Dept FCU Baton Rouge LA 1 12,546 0.17 100
</Table>
BATON ROUGE MARKET SHARE
DATE OF FINANCIAL DATA: JUNE 30, 2001
<Table>
<Caption>
% TOP
NUMBER TOTAL MSA INSTITUTION
OF DEPOSITS MARKET TOTAL
NAME CITY STATE BRANCHES (000'S) SHARE DEPOSITS
Capital City Press FCU Baton Rouge LA 1 11,668 0.16 100
GP Louisiana FCU Zachary LA 1 10,488 0.14 100
Allied Plastics FCU Baton Rouge LA 1 8,705 0.12 100
S.A.I.F. FCU Baton Rouge LA 1 8,065 0.11 100
A L E C FCU Baton Rouge LA 1 5,848 0.08 100
Clinton Bancshares, Inc. Clinton LA 1 5,831 0.08 13.72
L P E A FCU Denham Springs LA 1 5,544 0.08 100
One American Corporation Vacherie LA 1 5,404 0.07 1.48
Loup Employees Gonzales LA 1 4,346 0.06 100
C-F LA CU Donaldsonville LA 1 4,074 0.06 100
Bank of Greensburg Greensburg LA 1 3,683 0.05 7.28
OLOL Regional FCU Baton Rouge LA 1 3,634 0.05 100
Louisiana Farm Bureau CU Baton Rouge LA 1 3,048 0.04 100
East Baton Rouge Tchrs FCU Baton Rouge LA 1 2,919 0.04 100
Lane Memorial FCU Zachary LA 1 2,876 0.04 100
Blue Cross-Baton Rouge FCU Baton Rouge LA 1 2,277 0.03 100
Lawilifie CU Baton Rouge LA 1 2,211 0.03 100
Ladai FCU Baton Rouge LA 1 2,044 0.03 100
Gulf Coast CU Baton Rouge LA 1 1,931 0.03 100
Barnard and Burk FCU Baton Rouge LA 1 1,850 0.03 100
Kaiser Employees CU Baton Rouge LA 1 1,753 0.02 100
W B R T Port Allen LA 1 1,045 0.01 100
Homestead Bancorp, Inc. Ponchatoula LA 1 907 0.01 1.9
Zachary Community FCU Zachary LA 1 179 0 100
Shiloh Baptist Church Br FCU Baton Rouge LA 1 120 0 100
Dillard NB Baton Rouge LA 1 100 0 100
TOTALS FOR BATON ROUGE, LA 218 7,377,659 100
</Table>
Notes:
Deposit Weightings
Bank Deposits = 100%
Thrift Deposits (Savings Bank and S&L) = 100%
Credit Union Deposits = 100%
Source: Sheshunoff Banksource (banksource.sheshunoff.com)
BATON ROUGE MARKET SNAPSHOT
<Table>
Total Deposits: 7,377,659
Number of Branches: 218
Average Deposits per Branch ($000): 33,842
3 Year CAGR (%): 3.43
5 Year CAGR (%): 3.11
</Table>
POPULATION AND INCOME
<Table>
<Caption>
BASE YEAR CURRENT YEAR PROJECTED YEAR
1990 2001 2006
Total Population 528,264 608,549 635,854
TOTAL POPULATION BY AGE
0 - 14 127,837 141,565 142,169
15 - 34 184,112 179,350 182,458
35 - 54 131,535 177,284 180,080
55+ 84,780 110,350 131,147
Number of Total Households 188,377 228,970 243,281
NUMBER TOTAL HOUSEHOLDS BY INCOME
0 - 24,999 79,099 71,040 64,701
25,000 - 49,999 53,765 60,607 61,305
50,000+ 36,241 97,323 117,275
Average Household Income ($) 34,239 56,835 69,982
Median Household Income ($) 27,249 42,300 48,061
Per Capita Income ($) 12,305 21,580 27,023
Total Deposits Per Person ($) 12,123
Total Deposits Per Household ($) 32,221
Total Deposits Per Average Household Income ($) 129.81
</Table>
Source: Sheshunoff Banksource (banksource.sheshunoff.com)
STATE BANKING PERFORMANCE SUMMARY
FDIC-Insured Institutions
<Table>
<Caption>
COMMERCIAL BANKS COMMERICAL BANKS COMMERICAL BANKS
LOUISIANA LOUISIANA LOUISIANA
JUNE 30, 2002 JUNE 30, 2001 JUNE 30, 2000
ASSETS ASSETS ASSETS ASSETS ASSETS ASSETS
LESS GREATER LESS GREATER LESS GREATER
THAN THAN THAN THAN THAN THAN
ALL $100 $100 ALL $100 $100 ALL $100 $100
(dollar figures in millions) INSTITUTIONS MILLION MILLION INSTITUTIONS MILLION MILLION INSTITUTIONS MILLION MILLION
---------------------------- ------------ ------- ------- ------------ ------- ------- ------------ ------- -------
Number of institutions reporting 142 81 61 144 91 53 153 102 51
Total employees (full-time
equivalent) 16,577 2,361 14,216 16,360 2,593 13,767 18,460 2,897 15,563
AGGREGATE CONDITION
AND INCOME DATA
Net income (year-to-date) 294 32 261 249 30 219 256 31 225
Total assets 42,662 4,786 37,876 41,052 5,299 35,753 50,493 5,553 44,939
Earning assets 38,868 4,388 34,479 37,503 4,862 32,640 46,017 5,095 40,921
Total loans & leases 27,693 2,774 24,919 26,958 3,043 23,914 33,089 3,212 29,877
Other real estate owned 37 6 30 31 7 24 38 8 30
Total deposits 34,865 4,055 30,810 33,563 4,519 29,044 40,814 4,736 36,077
Equity capital 4,214 561 3,653 4,027 590 3,437 4,569 621 3,948
PERFORMANCE RATIOS
(YTD, %)
Yield on earning assets 6.70 7.09 6.65 8.09 8.22 8.07 8.08 8.36 8.04
Cost of funding earning assets 2.00 2.25 1.96 3.63 3.60 3.64 3.68 3.43 3.71
Net interest margin 4.70 4.83 4.69 4.46 4.61 4.44 4.40 4.93 4.33
Noninterest income to avg.
earning assets 1.53 1.13 1.58 1.51 1.10 1.57 1.31 1.09 1.34
Noninterest expense to avg.
earning assets 3.63 3.98 3.58 3.65 3.90 3.61 3.37 4.14 3.27
Net charge-offs to loans &
leases 0.39 0.14 0.41 0.42 0.28 0.43 0.37 0.24 0.38
Credit-loss provision to net
charge-offs 152.32 182.16 151.21 129.65 123.69 130.12 172.74 146.88 174.40
Net operating income to
average assets 1.37 1.35 1.37 1.20 1.16 1.21 1.15 1.12 1.16
Retained earnings to average
equity 8.03 8.47 7.96 7.08 7.03 7.09 6.11 7.58 5.89
Pre tax return on assets 2.01 1.68 2.05 1.78 1.49 1.82 1.51 1.55 1.50
Return to assets 1.38 1.35 1.38 1.22 1.18 1.22 1.02 1.14 1.00
Return on equity 14.37 12.06 14.71 12.68 10.61 13.03 11.33 10.24 11.50
Percent of unprofitable
institutions 2.78 4.40 6.54 9.80
Percent of institutions with
earning gains 75.35 69.14 83.61 48.61 45.05 54.72 69.28 73.53 60.78
CONDITION RATIOS (%)
Net loans and leases to assets 63.84 57.07 64.69 64.69 56.54 65.90 64.63 56.95 65.58
Loss allowance to:
Loans and leases 1.66 1.54 1.67 1.48 1.55 1.47 1.37 1.54 1.36
Noncurrent loans and leases 191.79 119.22 204.53 173.56 113.57 186.74 143.60 129.48 145.55
Noncurrent loans & leases to
total loans & leases 0.86 1.29 0.82 0.85 1.36 0.79 0.96 1.19 0.93
Nonperforming assets to assets 0.65 0.87 0.62 0.64 0.91 0.60 0.70 0.83 0.69
Core deposits to total liabilities 75.14 78.77 74.69 74.27 78.34 73.68 73.36 79.10 72.67
Equity capital to total assets 9.88 11.72 9.64 9.81 11.12 9.61 9.05 11.18 8.78
Core capital (leverage) ratio 8.97 11.28 8.68 8.81 10.99 8.49 8.17 11.62 7.74
Total capital to risk-weighted
assets 13.79 19.45 13.17 13.44 19.10 12.74 12.93 19.97 12.21
Gross 1-4 family mortgages to
gross assets 19.29 17.09 19.57 19.71 17.19 20.08 18.30 17.73 18.37
Gross real estate assets to
gross assets 49.91 41.52 50.97 46.41 40.36 47.31 40.86 40.37 40.91
</Table>
Source: Call Report and Thrift Financial Report:
Prepared by the FDIC-Division of Research and Statistics
STATE BANKING PERFORMANCE SUMMARY
FDIC-Insured Institutions
<Table>
<Caption>
COMMERICAL BANKS COMMERCIAL BANKS COMMERCIAL BANKS
NATIONAL NATIONAL NATIONAL
JUNE 30, 2002 JUNE 30, 2001 JUNE 30, 2000
ASSETS ASSETS ASSETS ASSETS ASSETS ASSETS
LESS GREATER LESS GREATER LESS GREATER
THAN THAN THAN THAN THAN THAN
ALL $100 $100 ALL $100 $100 ALL $100 $100
(dollar figures in millions) INSTITUTIONS MILLION MILLION INSTITUTIONS MILLION MILLION INSTITUTIONS MILLION MILLION
- ------------------------------ ------------ ------- --------- ------------ ------- --------- ------------ ------- ---------
Number of institutions
reporting 7,966 4,374 3,592 8,178 4,685 3,493 8,476 5,036 3,440
Total employees (full-time
equivalent) 1,738,770 88,815 1,649,955 1,690,443 96,010 1,594,433 1,661,894 105,505 1,556,389
AGGREGATE CONDITION
AND INCOME DATA
Net income (year-to-date) 45,305 1,135 44,170 38,831 1,090 37,742 34,144 1,381 32,763
Total assets 6,749,662 219,576 6,530,085 6,360,020 227,949 6,132,071 5,983,430 237,224 5,746,206
Earning assets 5,796,777 201,099 5,595,678 5,478,426 209,229 5,269,198 5,181,050 217,855 4,963,195
Total loans & leases 3,971,537 136,003 3,835,534 3,859,003 141,373 3,717,630 3,704,674 146,553 3,558,121
Other real estate owned 3,874 324 3,550 3,204 269 2,935 2,781 265 2,516
Total deposits 4,448,144 185,233 4,262,911 4,244,727 192,498 4,052,229 3,974,183 199,320 3,774,864
Equity capital 623,994 24,426 599,568 557,102 25,380 531,722 503,333 25,925 477,408
PERFORMANCE RATIOS
(YTD, %)
Yield on earning assets 6.32 6.84 6.30 7.86 8.21 7.84 8.14 8.29 8.14
Cost of funding earning
assets 2.18 2.52 2.17 4.00 3.95 4.00 4.15 3.71 4.17
Net interest margin 4.13 4.32 4.13 3.86 4.26 3.84 3.99 4.58 3.96
Noninterest income to avg.
earning assets 2.96 1.22 3.02 2.91 1.15 2.98 2.92 1.33 2.99
Noninterest expense to avg.
earning assets 3.99 3.79 3.99 4.05 3.76 4.06 4.23 3.90 4.25
Net charge-offs to loans &
leases 1.10 0.28 1.13 0.78 0.23 0.80 0.58 0.24 0.59
Credit-loss provision to net
charge-offs 103.68 156.82 103.23 112.73 179.02 112.02 126.30 178.49 125.44
Net operating income to
average assets 1.33 1.03 1.34 1.20 0.96 1.21 1.21 1.18 1.21
Retained earnings to average
equity 3.74 3.93 3.73 4.75 3.15 4.82 4.62 4.41 4.63
Pre tax return on assets 2.04 1.36 2.07 1.86 1.29 1.88 1.81 1.59 1.82
Return to assets 1.37 1.05 1.38 1.23 0.98 1.24 1.16 1.19 1.16
Return on equity 14.85 9.55 15.07 14.24 8.74 14.51 13.86 10.84 14.03
Percent of unprofitable
institutions 6.24 9.47 2.31 7.23 10.82 2.40 6.68 9.95 1.89
Percent of institutions with
earning gains 68.94 63.26 75.86 50.98 45.06 58.92 69.69 69.02 70.67
CONDITION RATIOS (%)
Net loans and leases to assets 57.74 61.05 57.63 59.64 61.15 59.59 60.88 60.91 60.88
Loss allowance to:
Loans and leases 1.87 1.44 1.89 1.70 1.40 1.72 1.67 1.40 1.68
Noncurrent loans and leases 127.22 123.08 127.33 135.07 129.33 135.25 168.91 149.69 169.65
Noncurrent loans & leases to
total loans & leases 1.47 1.17 1.48 1.26 1.08 1.27 0.99 0.93 0.99
Nonperforming assets to assets 0.96 0.88 0.96 0.82 0.79 0.82 0.67 0.69 0.67
Core deposits to total
liabilities 52.99 80.25 52.10 51.38 79.82 50.35 50.27 80.56 49.05
Equity capital to total assets 9.24 11.12 9.18 8.76 11.13 8.67 8.41 10.93 8.31
Core capital (leverage) ratio 8.00 10.72 7.91 7.73 10.86 7.61 7.73 11.16 7.58
Total capital to risk-weighted
assets 12.95 16.99 12.83 12.41 17.13 12.26 12.18 17.66 12.00
Gross 1-4 family mortgages to
gross assets 14.83 16.52 14.78 14.68 16.74 14.60 14.94 16.98 14.86
Gross real estate assets to
gross assets 37.38 42.49 37.21 34.99 40.79 34.77 34.44 39.83 34.22
</Table>
Source: Call Report and Thrift Financial Report:
Prepared by the FDIC-Division of Research and Statistics
Zachary Bancshares, Inc.
Fairness Opinion
EXHIBIT E
UNIFORM BANK PERFORMANCE REPORT
SEPTEMBER 30, 2002
CERT #306 DIST/RSSD: 06/860334 BANK OF ZACHARY ZACHARY, LA
CHARTER # NA COUNTY: EAST BATON ROUGE
SEPTEMBER 30, 2002 UNIFORM BANK PERFORMANCE REPORT
INFORMATION
INTRODUCTION
THIS UNIFORM BANK PERFORMANCE REPORT COVERS THE OPERATIONS OF YOUR BANK AND THAT
OF A COMPARABLE GROUP OF PEER BANKS. IT IS PROVIDED FOR YOUR USE AS A MANAGEMENT
TOOL BY THE FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL. DETAILED
INFORMATION CONCERNING THIS REPORT IS PROVIDED IN "A USER'S GUIDE FOR THE
UNIFORM BANK PERFORMANCE REPORT" FORWARDED TO YOUR BANK UNDER SEPARATE COVER. TO
OBTAIN ADDITIONAL USER'S GUIDE OR OTHER UBPR MATERIALS, CALL THE NUMBER
INDICATED AT RIGHT FOR ORDERING ASSISTANCE.
AS OF THE DATE OF PREPARATION OF THIS REPORT, YOUR BANK'S FEDERAL REGULATOR WAS
THE FEDERAL DEPOSIT INSURANCE CORPORATION
YOUR CURRENT PEER GROUP #9
INCLUDES ALL INSURED COMMERCIAL BANKS HAVING ASSETS BETWEEN $100 MILLION AND
$300 MILLION, WITH 2 OR LESS BANKING OFFICES, AND LOCATED IN A METROPOLITAN
AREA.
PEER GROUPS BY REPORTING PERIOD:
09/30/2002: 9, 09/30/2001: 13, 12/31/2001: 13, 12/31/2000: 13, 12/31/1999: 13.
FOR THE DEFINITION OF OTHER UBPR PEER GROUPS, REFER TO THE UBPR USER'S GUIDE.
ADDRESSEE CHIEF EXECUTIVE OFFICER
BANK OF ZACHARY
P.O. BOX 497
ZACHARY, LA -0000
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
SECTIONS NUMBER
- -------- ------
SUMMARY RATIOS ......................................................... 01
INCOME INFORMATION:
INCOME STATEMENT - REVENUES AND EXPENSES ($000) ..................... 02
NONINTEREST INCOME AND EXPENSES ($000) AND YIELDS ................... 03
BALANCE SHEET INFORMATION:
BALANCE SHEET - ASSETS, LIABILITIES & CAPITAL ($000) ................ 04
OFF- BALANCE SHEET ITEMS ............................................ 05
BALANCE SHEET - % COMPOSITION OF ASSETS & LIABILITIES ............... 06
ANALYSIS OF CREDIT ALLOWANCE AND LOAN MIX ........................... 07
ANALYSIS OF PAST DUE, NONACCRUAL & RESTRUCTURED LN&LS ............... 08
INTEREST RATE RISK ANALYSIS ......................................... 09
LIQUIDITY AND INVESTMENT PORTFOLIO .................................. 10
CAPITAL ANALYSIS .................................................... 11
ONE QUARTER ANNUALIZED INCOME ANALYSIS .............................. 12
SECURITIZATION AND ASSET SALE ACTIVITIES ............................ 13
STATE AVERAGE SUMMARY .................................................. STAVG
</Table>
FOR ORDERING ASSISTANCE PHONE: (800) 276-6003
(IN THE WASHINGTON, DC AREA: (202) 898-7108)
QUESTIONS REGARDING CONTENT OF REPORTS: (202) 872-7500
BANK AND BANK HOLDING COMPANY INFORMATION
CERTIFICATE #306 CHARTER #NA
DIST/RSSD: 06/860334
ZACHARY BANCSHARES, INC.
(HOLDING CO. #1086056 )
ZACHARY LA
(HOLDING COMPANY REFERS TO TOP HOLDER)
NOTE
THIS REPORT HAS BEEN PRODUCED FOR THE USE OF THE FEDERAL REGULATORS OF FINANCIAL
INSTITUTIONS IN CARRYING OUT THEIR SUPERVISORY RESPONSIBILITIES. ALL INFORMATION
CONTAINED HEREIN WAS OBTAINED FROM SOURCES DEEMED RELIABLE. HOWEVER NO GUARANTEE
IS GIVEN AS TO THE ACCURACY OF THE DATA OR OF THE CALCULATIONS DERIVED
THEREFROM. THE DATA AND CALCULATIONS IN THIS REPORT DO NOT INDICATE APPROVAL OR
DISAPPROVAL OF ANY PARTICULAR INSTITUTION'S PERFORMANCE AND ARE NOT TO BE
CONSTRUED AS A RATING OF ANY INSTITUTION BY FEDERAL BANK REGULATORS. USERS ARE
CAUTIONED THAT ANY CONCLUSIONS DRAWN FROM THIS REPORT ARE THEIR OWN AND ARE NOT
TO BE ATTRIBUTED TO THE FEDERAL BANK REGULATORS.
THE REPORTS OF CONDITION AND INCOME FOR THIS BANK CONTAIN ADDITIONAL INFORMATION
NOT INCLUDED IN THIS PERFORMANCE REPORT, SUCH AS AN OPTIONAL NARRATIVE STATEMENT
BY THE BANK.
<Table>
CERT #306 DIST/RSSD: 06/860334 BANK OF ZACHARY ZACHARY, LA PAGE 01
CHARTER # NA COUNTY: EAST BATON ROUGE SUMMARY RATIOS 1/20/03 5:20:51 PM
</Table>
<Table>
<Caption>
09/30/2002 09/30/2001 12/31/2001 12/31/2000 12/31/1999
---------- ---------- ---------- ---------- ----------
AVERAGE ASSETS ($000) 101,868 92,845 93,990 87,383 85,807
NET INCOME ($000) 867 905 1,231 1,147 1,223
NUMBER OF BANKS IN PEER GROUP 339 495 497 482 488
</Table>
<Table>
<Caption>
EARNINGS AND PROFITABILITY BANK PEER9 PCT BANK PEER13 PCT BANK PEER13 PCT BANK PEER13 BANK PEER13
PERCENT OF AVERAGE ASSETS:
INTEREST INCOME (TE) 6.39 6.18 60 7.34 7.57 36 7.21 7.34 41 7.73 8.05 7.45 7.50
- INTEREST EXPENSE 1.95 2.21 37 2.99 3.58 23 2.84 3.35 25 2.93 3.74 2.66 3.24
NET INTEREST INCOME (TE) 4.45 3.95 77 4.36 4.00 70 4.37 3.99 71 4.79 4.34 4.79 4.27
+ NONINTEREST INCOME 1.02 0.70 77 1.59 0.70 91 1.48 0.67 90 1.30 0.69 1.23 0.69
- NONINTEREST EXPENSE 3.41 2.81 79 3.72 3.30 69 3.62 3.29 67 3.78 3.43 3.50 3.33
- PROVISION: LOAN&LEASE LOSSES 0.34 0.25 69 0.26 0.24 58 0.29 0.29 57 0.32 0.28 0.21 0.22
= PRETAX OPERATING INCOME (TE) 1.72 1.67 50 1.97 1.21 79 1.95 1.12 82 2.00 1.38 2.31 1.50
+ REALIZED GAINS/LOSSES SEC 0.00 0.02 59 0.00 0.02 64 0.04 0.03 75 0.00 0.00 -0.12 0.00
= PRETAX NET OPERATING INC (TE) 1.72 1.71 48 1.97 1.25 79 1.98 1.16 82 2.00 1.38 2.19 1.50
NET OPERATING INCOME 1.13 1.19 45 1.30 0.91 74 1.31 0.84 77 1.31 1.01 1.43 1.05
ADJUSTED NET OPERATING INCOME 1.12 1.34 35 1.48 1.07 75 1.44 1.02 75 1.55 1.19 1.55 1.19
NET INCOME ADJUSTED SUB S 1.10 N/A 0.84 N/A 0.77 N/A 0.92 0.98
NET INCOME 1.13 1.18 46 1.30 0.91 74 1.31 0.84 77 1.31 1.01 1.43 1.05
MARGIN ANALYSIS:
AVG EARNING ASSETS TO AVG ASSETS 92.86 94.12 31 92.62 93.52 33 92.62 93.45 34 92.13 93.51 92.17 93.21
AVG INT-BEARING FUNDS TO AVG AST 67.88 77.39 13 67.49 76.05 13 67.62 76.03 13 65.92 75.43 67.16 75.24
INT INC (TE) TO AVG EARN ASSETS 6.88 6.58 63 7.93 8.11 41 7.78 7.86 45 8.39 8.63 8.08 8.07
INT EXPENSE TO AVG EARN ASSETS 2.10 2.35 37 3.22 3.83 22 3.06 3.58 25 3.18 4.00 2.89 3.48
NET INT INC -TE TO AVG EARN ASSET 4.79 4.21 77 4.70 4.28 70 4.72 4.27 73 5.20 4.65 5.20 4.60
LOAN & LEASE ANALYSIS
NET LOSS TO AVERAGE TOTAL LN&LS 0.65 0.13 91 0.12 0.12 64 0.24 0.19 70 0.12 0.16 0.13 0.15
EARNINGS COVERAGE OF NET LOSS(X) 5.77 35.69 40 29.26 25.45 72 14.60 22.87 63 26.67 25.00 29.23 32.55
LN&LS ALLOWANCE TO NET LOSSES(X) 3.57 17.01 40 18.36 14.26 73 9.01 13.46 62 15.39 12.80 13.04 14.74
LN&LS ALLOWANCE TO TOTAL LN&LS 2.44 1.29 92 2.13 1.25 94 2.21 1.28 94 1.87 1.26 1.58 1.28
NON-CUR LN&LS TO GROSS LN&LS 2.18 0.66 88 1.38 0.68 77 2.52 0.69 90 1.07 0.51 0.36 0.50
LIQUIDITY
NET NON CORE FUND DEPENDENCE 17.08 15.54 55 14.47 9.65 58 21.61 10.74 73 12.38 10.55 18.75 9.97
NET LOANS & LEASES TO ASSETS 48.27 66.59 14 62.00 65.22 39 59.37 65.01 35 68.11 64.88 70.68 62.96
CAPITALIZATION
TIER ONE LEVERAGE CAPITAL 10.85 9.58 73 11.18 9.52 76 10.96 9.44 77 11.08 9.84 10.50 9.60
CASH DIVIDENDS TO NET INCOME 29.99 21.94 64 24.53 20.82 65 38.99 23.77 69 41.41 24.37 36.79 27.97
RETAIN EARNS TO AVG TOTAL EQUITY 7.23 8.12 45 8.77 5.60 70 7.17 4.78 66 7.13 6.13 8.82 6.17
RESTR+NONAC+RE ACQ TO EQCAP+ALLL 6.69 4.13 70 6.10 4.02 71 10.52 4.23 82
GROWTH RATES
ASSETS 10.97 17.08 42 8.48 18.89 38 7.31 17.73 35 5.66 21.22 1.96 13.27
TIER ONE CAPITAL 6.44 13.68 33 7.06 8.45 52 7.56 7.88 56 7.27 9.51 9.11 9.36
NET LOANS & LEASES -13.59 18.91 3 -6.94 22.30 5 -6.45 21.50 7 1.81 27.66 17.05 21.67
SHORT TERM INVESTMENTS -16.60 18.96 40 168.46 64.64 82 -88.68 23.16 5 333.49 71.22 -85.95 -27.88
SHORT TERM NON CORE FUNDING -20.43 11.62 18 15.56 29.42 49 19.46 26.24 54 4.74 42.64 -1.50 42.16
</Table>
<Table>
CERT #306 DIST/RSSD: 06/860334 BANK OF ZACHARY ZACHARY, LA PAGE 02
CHARTER # NA COUNTY: EAST BATON ROUGE INCOME STATEMENT - REVENUE AND EXPENSES ($000) 1/20/03 5:20:53 PM
</Table>
<Table>
<Caption>
PERCENT CHANGE
09/30/2002 09/30/2001 12/31/2001 12/31/2000 12/31/1999 1 YEAR
---------- ---------- ---------- ---------- ---------- --------------
INTEREST AND FEES ON LOANS 3,422 4,025 5,299 5,569 5,116 -14.98
INCOME FROM LEASE FINANCING 0 0 0 0 0 NA
TAX-EXEMPT 0 0 0 0 0 NA
ESTIMATED TAX BENEFIT 0 0 0 0 0
INCOME ON LOANS & LEASES (TE) 3,422 4,025 5,299 5,569 5,116 -14.98
U S TREAS & AGENCY (EXCL MBS) 587 550 780 NA NA 6.73
MORTGAGE BACKED SECURITIES 746 244 364 NA NA 205.74
ESTIMATED TAX BENEFIT 16 0 0 0 0
ALL OTHER SECURITIES 30 0 0 NA NA NA
TAX EXEMPT SECURITIES INCOME 30 0 0 0 0 NA
INVESTMT INTEREST INCOME (TE) 1,379 794 1,144 998 1,032 73.63
INTEREST ON DUE FROM BANKS 3 74 74 3 61 -95.95
INT ON FED FUNDS SOLD & RESALES 57 191 227 182 185 -70.16
TRADING ACCOUNT INCOME 0 0 0 0 0 NA
OTHER INTEREST INCOME 24 29 31 NA NA -17.24
TOTAL INTEREST INCOME (TE) 4,885 5,113 6,775 6,752 6,394 -4.47
INT ON DEPOSITS IN FOREIGN OFF NA NA NA NA NA NA
INTEREST ON TIME DEP OVER $100M 547 779 989 880 778 -29.78
INTEREST ON ALL OTHER DEPOSITS 940 1,301 1,676 1,620 1,480 -27.75
INT ON FED FUNDS PURCH & REPOS 0 0 0 0 0 NA
INT TRAD LIAB & OTH BORROWINGS 0 0 0 63 24 NA
INT ON MORTGAGES & LEASES NA NA NA NA NA NA
INT ON SUB NOTES & DEBENTURES 0 0 0 0 0 NA
TOTAL INTEREST EXPENSE 1,487 2,080 2,665 2,563 2,282 -28.51
NET INTEREST INCOME (TE) 3,398 3,033 4,110 4,189 4,112 12.02
NONINTEREST INCOME 780 1,108 1,394 1,138 1,053 -29.60
ADJUSTED OPERATING INCOME (TE) 4,178 4,141 5,504 5,327 5,165 0.88
NON-INTEREST EXPENSE 2,605 2,590 3,402 3,300 3,002 0.58
PROVISION: LOAN & LEASE LOSSES 259 180 271 281 180 43.89
PRETAX OPERATING INCOME (TE) 1,314 1,371 1,831 1,746 1,983 -4.19
REALIZED G/L HLD-TO-MATURITY SEC 0 0 0 0 0 NA
REALIZED G/L AVAIL-FOR SALE SEC 0 0 34 0 -105 NA
PRETAX NET OPERATING INC (TE) 1,314 1,371 1,865 1,746 1,878 -4.19
APPLICABLE INCOME TAXES 431 466 634 599 655
CURRENT TAX EQUIV ADJUSTMENT 16 0 0 0 0
OTHER TAX EQUIV ADJUSTMENTS 0 0 0 0 0
APPLICABLE INCOME TAXES(TE) 447 466 634 599 655
NET OPERATING INCOME 867 905 1,231 1,147 1,223 -4.20
NET EXTRAORDINARY ITEMS 0 0 0 0 0
NET INCOME 867 905 1,231 1,147 1,223 -4.20
CASH DIVIDENDS DECLARED 260 222 480 475 450 17.12
RETAINED EARNINGS 607 683 751 672 773 -11.13
MEMO: NET INTERNATIONAL INCOME NA NA NA NA NA NA
</Table>
<Table>
CERT #306 DIST/RSSD: 06/860334 BANK OF ZACHARY ZACHARY, LA PAGE 03
CHARTER # NA COUNTY: EAST BATON ROUGE NONINTEREST INCOME AND EXPENSES ($000) AND YIELDS 1/20/03 5:20:54 PM
</Table>
<Table>
<Caption>
09/30/2002 09/30/2001 12/31/2001 12/31/2000 12/31/1999
---------- ---------- ---------- ---------- ----------
NONINTEREST INCOME & EXPENSES
FIDUCIARY ACTIVITIES 0 0 0 NA NA
DEPOSIT SERVICE CHARGES 523 487 646 607 514
TRADING REVENUE 0 0 0 NA NA
OTHER FOREIGN TRANSACTIONS NA NA NA NA NA
OTHER NONINTEREST INCOME 257 621 748 531 539
NONINTEREST INCOME 780 1,108 1,394 1,138 1,053
PERSONNEL EXPENSE 1,386 1,340 1,799 1,800 1,643
OCCUPANCY EXPENSE 420 647 806 751 617
OTHER OPER EXP(INCL INTANGIBLES) 799 603 797 749 742
TOTAL OVERHEAD EXPENSE 2,605 2,590 3,402 3,300 3,002
DOMESTIC BANKING OFFICES(#) 2 2 2 2 2
FOREIGN BRANCHES (#) NA NA NA NA NA
ASSETS PER DOMESTIC OFFICE 53,262 47,996 48,357 45,061 42,647
NUMBER OF EQUIVALENT EMPLOYEES 45 46 45 46 43
</Table>
<Table>
<Caption>
PERCENT OF AVERAGE ASSETS BANK PEER9 PCT BANK PEER13 PCT BANK PEER13 PCT BANK PEER13 BANK PEER13
PERSONNEL EXPENSE 1.81 1.51 75 1.92 1.75 66 1.91 1.74 67 2.06 1.81 1.91 1.75
OCCUPANCY EXPENSE 0.55 0.36 85 0.93 0.49 94 0.86 0.48 92 0.86 0.49 0.72 0.47
OTHER OPER EXP(INCL INTANGIBLES) 1.05 0.91 71 0.87 1.04 33 0.85 1.04 33 0.86 1.12 0.86 1.08
TOTAL OVERHEAD EXPENSE 3.41 2.81 79 3.72 3.30 69 3.62 3.29 67 3.78 3.43 3.50 3.33
OVERHEAD LESS NONINT INC 2.39 2.03 71 2.13 2.52 29 2.14 2.55 29 2.47 2.66 2.27 2.54
OTHER INCOME & EXPENSE RATIOS:
AVG PERSONNEL EXP PER EMPL($000) 41.07 58.42 10 38.84 48.03 20 39.98 48.33 23 39.13 46.46 38.21 43.88
ASSETS PER EMPLOYEE ($MILLION) 2.37 4.42 7 2.09 3.05 14 2.15 3.14 16 1.96 2.95 1.98 2.79
MARGINAL TAX RATE 34.00 34.00 34.00 34.00 34.00
YIELD ON OR COST OF:
TOTAL LOANS & LEASES (TE) 8.26 7.37 87 8.76 9.09 35 8.71 8.89 43 8.93 9.61 8.98 9.21
LOANS IN DOMESTIC OFFICES 8.26 7.35 87 8.76 9.08 35 8.71 8.88 43 8.93 9.59 8.98 9.20
REAL ESTATE 8.14 7.33 83 8.60 8.90 38 8.54 8.10 45 8.74 8.21 8.65 8.20
COMMERCIAL & INDUSTRIAL 9.27 7.13 87 9.36 9.11 60 8.35 8.22 36 9.16 8.70 9.40 8.46
INDIVIDUAL 10.07 7.66 80 10.53 9.54 73 11.28 8.76 84 9.77 8.47 10.09 8.74
CREDIT CARD NA 2.10 74 NA 2.51 74 NA 2.51 74 11.49 6.68 11.13 6.92
AGRICULTURAL NA 0.17 92 NA 0.99 83 NA 1.05 82 NA 1.55 NA 1.62
LOANS IN FOREIGN OFFICES NA N/A 98 NA N/A 99 NA N/A 99 NA N/A NA N/A
TOTAL INVESTMENT SECURITIES(TE) 5.32 5.07 60 6.25 6.16 56 6.12 6.03 53 6.59 6.40 6.05 6.04
TOTAL INVESTMENT SECURITIES(BOOK) 5.26 4.80 70 6.25 5.93 72 6.12 5.78 72 6.59 6.16 6.05 5.76
U S TREAS & AGENCY (EXCL MBS) 5.51 4.12 77 6.01 5.68 51 5.96 5.87 54 NA N/A NA N/A
MORTGAGE BACKED SECURITIES 5.13 3.77 55 6.88 4.21 86 6.53 4.14 82 NA N/A NA N/A
ALL OTHER SECURITIES 4.12 3.54 43 0.00 3.58 30 0.00 3.58 27 NA N/A NA N/A
INTEREST-BEARING BANK BALANCES 3.18 1.39 78 4.49 3.24 57 4.47 3.04 65 7.19 3.90 4.81 3.01
FEDERAL FUNDS SOLD & RESALES 1.62 1.54 38 4.58 4.05 78 3.87 3.74 59 6.11 6.22 4.88 4.91
TOTAL-INT BEARING DEPOSITS 2.87 2.81 51 4.43 4.67 37 4.19 4.38 38 4.41 4.89 3.95 4.29
TRANSACTION ACCOUNTS 1.48 0.94 78 2.71 1.93 82 2.49 1.79 80 3.81 2.23 3.13 2.08
OTHER SAVINGS DEPOSITS 1.48 1.78 31 1.99 3.32 5 1.93 3.02 6 2.02 2.78 2.04 2.63
TIME DEPS OVER $100M 3.47 3.64 40 5.82 5.77 50 5.46 5.49 45 5.85 5.94 5.42 5.19
ALL OTHER TIME DEPOSITS 3.77 3.78 46 5.37 5.77 22 5.16 5.54 23 5.10 5.77 4.66 5.17
FOREIGN OFFICE DEPOSITS NA N/A 98 NA N/A 99 NA N/A 99 NA N/A NA N/A
FEDERAL FUNDS PURCHASED & REPOS NA 1.03 42 NA 1.88 54 NA 1.90 49 0.00 3.69 NA 2.54
OTHER BORROWED MONEY NA 2.23 38 NA 2.37 52 NA 2.25 50 7.00 2.88 6.00 1.84
SUBORD NOTES & DEBENTURES NA N/A 96 NA N/A 98 NA N/A 98 NA N/A NA N/A
ALL INTEREST-BEARING FUNDS 2.87 2.84 47 4.43 4.69 36 4.19 4.39 37 4.45 4.94 3.96 4.30
</Table>
<Table>
CERT #306 DIST/RSSD: 06/860334 BANK OF ZACHARY ZACHARY, LA PAGE 04
CHARTER # NA COUNTY: EAST BATON ROUGE BALANCE SHEET - ASSETS, LIABILITIES AND CAPITAL ($000) 1/20/03 5:20:56 PM
</Table>
<Table>
<Caption>
PERCENT CHANGE
----------------
09/30/2002 09/30/2001 12/31/2001 12/31/2000 12/31/1999 1 QTR 1 YEAR
---------- ---------- ---------- ---------- ---------- ----- ------
ASSETS:
REAL ESTATE LOANS 41,595 49,303 46,722 51,450 51,315 -5.37 -15.63
COMMERCIAL LOANS 4,070 6,251 6,823 6,318 5,966 1.34 -34.89
INDIVIDUAL LOANS 6,947 5,088 5,015 4,479 3,845 -3.02 36.54
AGRICULTURAL LOANS 0 19 18 26 35 NA -100.00
OTHER LN&LS IN DOMESTIC OFFICES 97 148 142 277 92 -53.59 -34.46
LN&LS IN FOREIGN OFFICES NA NA NA NA NA NA NA
GROSS LOANS & LEASES 52,709 60,809 58,720 62,550 61,253 -4.76 -13.32
LESS: UNEARNED INCOME 0 0 0 0 0
LN&LS ALLOWANCE 1,286 1,297 1,297 1,170 965 3.96 -0.85
NET LOANS & LEASES 51,423 59,512 57,423 61,380 60,288 -4.96 -13.59
U S TREASURY & AGENCY SECURITIES 38,162 21,682 30,585 13,686 14,820 7.70 76.01
MUNICIPAL SECURITIES 2,324 0 0 0 0 62.18 NA
FOREIGN DEBT SECURITIES 0 0 0 NA NA NA NA
ALL OTHER SECURITIES 0 0 0 647 613 NA NA
1,157.58
INTEREST-BEARING BANK BALANCES 415 33 33 24 29 1,704.35
FEDERAL FUNDS SOLD & RESALES 5,200 6,700 925 6,950 1,425
TRADING ACCOUNT ASSETS 0 0 0 0 0 NA NA
TOTAL INVESTMENTS 46,101 28,415 31,543 21,307 16,887
TOTAL EARNING ASSETS 97,524 87,927 88,966 82,687 77,175
NONINT CASH & DUE FROM BANKS 3,066 2,938 2,719 2,785 3,162 12.93 4.36
ACCEPTANCES 0 0 0 0 0
PREMISES, FIX ASSTS, CAP LEASES 4,033 3,594 3,558 3,888 4,157 12.97 12.21
OTHER REAL ESTATE OWNED 113 0 28 0 0 -0.88 NA
INV IN UNCONSOLIDATED SUBS 0 0 0 0 0
OTHER ASSETS 1,788 1,534 1,443 762 801 24.17 16.56
TOTAL ASSETS 106,524 95,993 96,714 90,122 85,295 4.76 10.97
AVERAGE ASSETS DURING QUARTER 104,020 94,821 97,426 89,627 88,149 2.37 9.70
LIABILITIES
DEMAND DEPOSITS 22,215 19,730 18,858 17,904 18,296 14.50 12.60
ALL NOW & ATS ACCOUNTS 12,431 11,738 10,790 12,446 12,299 4.01 5.90
MONEY MARKET DEPOSIT ACCOUNTS 2,625 1,950 2,494 2,184 3,232 19.81 34.62
OTHER SAVINGS DEPOSITS 10,643 9,331 10,529 8,263 8,825 0.59 14.06
TIME DEP UNDER $100M 24,867 23,035 22,912 21,297 17,306 4.15 7.95
CORE DEPOSITS 72,781 65,784 65,583 62,094 59,958 7.03 10.64
TIME DEP OF $100M OR MORE 21,331 18,480 19,979 17,656 14,056 -2.90 15.43
DEPOSITS IN FOREIGN OFFICES 0 0 0 0 0 NA NA
TOTAL DEPOSITS 94,112 84,265 85,562 79,750 74,014 4.61 11.69
FEDERAL FUNDS PURCH & RESALE 0 0 0 0 0
OTHER BORROWINGS INCL MAT < 1 YR 0 0 0 0 2,000 NA NA
MEMO: SHT TERM N CORE FUNDING 11,911 14,970 18,132 15,178 14,491 -35.50 -20.43
OTHER BORROWINGS WITH MAT > 1 YR 0 0 0 0 0 NA NA
ACCEPTANCES & OTHER LIABILITIES 663 743 323 451 316 47.01 -10.77
TOTAL LIABILITIES (INCL MORTG) 94,775 85,008 85,885 80,201 76,330 4.82 11.49
SUBORD NOTES AND DEBENTURES 0 0 0 0 0 NA NA
ALL COMMON & PREFERRED CAPITAL 11,749 10,985 10,829 9,921 8,965 4.27 6.95
TOTAL LIABILITIES & CAPITAL 106,524 95,993 96,714 90,122 85,295 4.76 10.97
MEMORANDA:
OFFICER, SHAREHOLDER LOANS (#) 1 0 0 0 0
OFFICER, SHAREHOLDER LOANS ($) 705 541 566 527 499 80.31 30.31
NON-INVESTMENT ORE 113 0 28 0 0 -0.88 NA
LOANS HELD FOR SALE 0 0 0 0 0 NA NA
HELD-TO-MATURITY SECURITIES 0 0 0 0 0 NA NA
AVAILABLE-FOR -SALE-SECURITIES 40,486 21,682 30,585 14,333 15,433 9.82 86.73
ALL BROKERED DEPOSITS 0 0 0 0 0 NA NA
</Table>
<Table>
CERT #306 DIST/RSSD: 06/860334 BANK OF ZACHARY ZACHARY, LA PAGE 05
CHARTER # NA COUNTY: EAST BATON ROUGE OFF BALANCE SHEET ITEMS & DERIVATIVES ANALYSIS 1/20/03 5:20:58 PM
</Table>
<Table>
<Caption>
PERCENT CHANGE
----------------
09/30/2002 09/30/2001 12/31/2001 12/31/2000 12/31/1999 1 QTR 1 YEAR
---------- ---------- ---------- ---------- ---------- ----- ------
OUTSTANDING ($000)
HOME EQUITY (1-4 FAMILY) 0 0 0 0 0
CREDIT CARD 0 0 0 0 0
COMMERCIAL RE SECURED BY RE 454 372 561 593 450 -40.34 22.04
COMMERCIAL RE NOT SECURED BY RE 0 500 140 0 0 -100
ALL OTHER 5,384 4,924 6,641 3,784 7,398 59.05 9.34
SECURITIES UNDERWRITING 0 0 0 0 0
MEMO: UNUSED COMMIT W/MAT GT 1 YR 0 0 0 0 0
STANDBY LETTERS OF CREDIT 57 157 158 128 69 0 -63.69
AMOUNT CONVEYED TO OTHERS 0 0 0 0 0
COMMERCIAL LETTERS OF CREDIT 0 0 0 0 0
ASSETS SECURITIZED OR SOLD W REC 0 0 0 0 0
AMOUNT OF RECOURSE EXPOSURE 0 0 0 0 0
CREDIT DERIVS BANK AS GTR 0 0 0 0 0
CREDIT DERIVS BANK AS BENEF 0 0 0 0 0
ALL OTH OFF-BALANCE SHEET ITEMS 0 0 0 0 0
OFF-BALANCE SHEET ITEMS 5,895 5,953 7,500 4,505 7,917 40.26 -0.97
</Table>
<Table>
<Caption>
OUTSTANDING (% OF TOTAL) BANK PEER9 PCT BANK PEER13 PCT BANK PEER13 PCT BANK PEER13 BANK PEER13
HOME EQUITY (1-4 FAMILY) 0.00 1.76 24 0.00 1.19 30 0.00 1.19 30 0.00 0.96 0.00 0.97
CREDIT CARD 0.00 0.17 73 0.00 0.21 71 0.00 0.21 72 0.00 0.25 0.00 0.29
COMMERCIAL RE SECURED BY RE 0.43 3.24 20 0.39 3.35 20 0.58 3.02 25 0.66 2.97 0.53 2.73
COMMERCIAL RE NOT SECURED BY RE 0.00 0.00 90 0.52 0.01 95 0.14 0.01 91 0.00 0.01 0.00 0.01
ALL OTHER 5.05 5.13 53 5.13 4.82 55 6.87 4.74 70 4.20 5.15 8.67 5.32
TOTAL LN&LS COMMITMENTS 5.48 12.60 20 6.04 11.28 25 7.59 10.82 35 4.86 10.60 9.20 10.86
SECURITIES UNDERWRITING 0.00 0.00 99 0.00 0.00 99 0.00 0.00 99 0.00 0.00 0.00 0.00
STANDBY LETTERS OF CREDIT 0.05 0.39 28 0.16 0.30 50 0.16 0.29 50 0.14 0.29 0.08 0.31
AMOUNT CONVEYED TO OTHERS 0.00 0.00 97 0.00 0.00 98 0.00 0.00 98 0.00 0.00 0.00 0.00
COMMERCIAL LETTERS OF CREDIT 0.00 0.02 84 0.00 0.01 86 0.00 0.02 86 0.00 0.01 0.00 0.01
ASSETS SECURITIZED OR SOLD W REC 0.00 0.00 95 0.00 0.00 98 0.00 0.00 98 0.00 0.00 0.00 0.00
AMOUNT OF RECOURSE EXPOSURE 0.00 0.00 97 0.00 0.00 98 0.00 0.00 98 0.00 0.00 0.00 0.00
CREDIT DERIVS BANK AS GTR 0.00 0.00 99 0.00 0.00 99 0.00 0.00 99 0.00 0.00 0.00 0.00
CREDIT DERIVS BANK AS BENEF 0.00 0.00 99 0.00 0.00 99 0.00 0.00 99 0.00 0.00 0.00 0.00
ALL OTH OFF-BALANCE SHEET ITEMS 0.00 0.00 97 0.00 0.00 98 0.00 0.00 98 0.00 0.00 0.00 0.00
OFF-BALANCE SHEET ITEMS 5.53 13.63 18 6.20 11.87 23 7.75 11.45 33 5.00 11.12 9.28 11.35
</Table>
<Table>
CERT #306 DIST/RSSD: 06/860334 BANK OF ZACHARY ZACHARY, LA PAGE 06
CHARTER # NA COUNTY: EAST BATON ROUGE BALANCE SHEET - PERCENTAGE COMPOSITION OF ASSETS AND LIABILITIES 1/20/03 5:21:02 PM
</Table>
<Table>
<Caption>
09/30/2002 09/30/2001 12/31/2001 12/31/2000 12/31/1999
---------- ---------- ---------- ---------- ----------
ASSETS, PERCENT OF AVG ASSETS BANK PEER9 PCT BANK PEER13 PCT BANK PEER13 PCT BANK PEER13 BANK PEER13
TOTAL LOANS 55.01 66.67 22 65.73 65.28 48 64.70 64.82 47 71.68 64.35 66.84 61.46
LEASE FINANCING RECEIVABLES 0.00 0.04 85 0.00 0.03 85 0.00 0.03 85 0.00 0.02 0.00 0.02
LESS: LN&LS ALLOWANCE 1.27 0.86 89 1.32 0.81 94 1.32 0.81 94 1.23 0.80 1.07 0.78
NET LOANS & LEASES 53.73 66.22 21 64.41 64.71 46 63.37 64.26 45 70.46 63.89 65.77 60.89
INTEREST-BEARING BANK BALANCES 0.12 0.68 55 1.10 1.03 71 0.88 0.99 67 0.03 0.69 1.23 0.72
FEDERAL FUNDS SOLD & RESALES 3.08 4.21 44 7.27 5.67 65 5.97 5.91 57 3.50 4.35 4.15 5.26
TRADING ACCOUNT ASSETS 0.00 0.00 99 0.00 0.00 99 0.00 0.00 99 0.00 0.00 0.00 0.00
HELD-TO-MATURITY SECURITIES 0.00 1.65 60 0.00 2.16 57 0.00 2.31 55 0.00 2.77 0.00 3.44
AVAILABLE-FOR -SALE SECURITIES 34.94 15.39 89 18.59 15.32 63 21.27 15.84 66 17.05 17.16 19.76 18.31
TOTAL EARNING ASSETS 91.87 93.05 31 91.37 92.41 30 91.49 92.41 32 91.04 92.24 90.91 92.26
NONINT CASH & DUE FROM BANKS 2.83 3.19 44 3.24 3.64 43 3.15 3.66 41 3.41 3.81 3.64 3.88
PREMISES, FIX ASSTS & CAP LEASES 3.64 1.39 92 4.03 1.87 91 3.96 1.87 90 4.58 1.98 4.56 1.85
OTHER REAL ESTATE OWNED 0.07 0.06 72 0.00 0.05 66 0.01 0.05 64 0.00 0.05 0.05 0.06
ACCEPTANCES & OTHER ASSETS 1.59 1.87 50 1.36 1.67 41 1.39 1.65 44 0.98 1.60 0.85 1.57
SUBTOTAL 8.12 6.92 68 8.63 7.59 69 8.51 7.59 67 8.97 7.76 9.10 7.74
TOTAL ASSETS 99.99 100.00 100.00 100.00 100.00 100.00 100.01 100.00 100.01 100.00
STANDBY LETTERS OF CREDIT 0.10 0.38 31 0.15 0.30 46 0.16 0.31 48 0.12 0.31 0.13 0.32
LIABILITIES, PERCENT OF AVG ASST
DEMAND DEPOSITS 19.93 11.55 87 20.87 13.10 84 20.59 13.05 85 21.60 13.70 21.77 13.83
ALL NOW & ATS ACCOUNTS 11.62 7.02 76 12.63 8.86 76 12.33 9.01 73 14.35 8.92 14.77 9.72
MONEY MARKET DEPOSIT ACCOUNTS 2.31 15.43 8 2.12 12.71 9 2.22 13.09 9 3.04 12.29 4.05 11.93
OTHER SAVINGS DEPOSITS 10.43 5.99 75 9.44 5.86 75 9.74 6.04 75 9.89 6.21 10.26 7.15
TIME DEP LESS THAN $100M 23.42 21.74 52 23.55 27.07 35 23.58 26.56 37 20.86 26.90 19.93 27.59
CORE DEPOSITS 67.71 67.83 44 68.62 70.86 40 68.45 71.01 38 69.75 71.25 70.78 74.03
TIME DEP OF $100M OR MORE 20.74 15.28 75 19.68 14.74 75 19.88 14.44 76 17.76 13.72 18.04 12.01
DEPOSITS IN FOREIGN OFFICES 0.00 0.00 98 0.00 0.00 99 0.00 0.00 99 NA 0.00 NA 0.00
TOTAL DEPOSITS 88.44 84.51 72 88.30 86.25 63 88.33 86.08 63 87.51 85.76 88.82 86.74
FEDERAL FUNDS PURCH & REPOS 0.00 0.91 48 0.00 0.53 58 0.00 0.63 54 0.23 0.81 0.00 0.60
OTHER BORROWINGS INCL < 1 YR 0.00 0.77 45 0.00 0.52 58 0.00 0.55 55 1.02 0.63 0.47 0.30
MEMO: SHT TER N CORE FUNDING 16.78 15.63 58 16.70 14.54 65 17.12 14.50 66 16.54 14.28 16.72 12.14
OTHER BORROWINGS > 1 YR 0.00 1.54 51 0.00 0.86 65 0.00 0.89 63 0.00 0.72 0.00 0.68
ACCEPTANCES & OTHER LIABILITIES 0.48 0.66 34 0.58 0.72 39 0.53 0.68 37 0.51 0.68 0.44 0.67
TOTAL LIABILITIES (INCL MORTG) 88.92 90.20 27 88.88 90.10 29 88.86 90.01 30 89.27 89.94 89.72 90.22
SUBORDINATED NOTES & DEBENTURES 0.00 N/A 96 0.00 N/A 98 0.00 N/A 98 0.00 N/A 0.00 N/A
ALL COMMON & PREFERRED CAPITAL 11.08 9.71 73 11.12 9.86 71 11.14 9.97 69 10.73 10.03 10.28 9.77
TOTAL LIABILITIES & CAPITAL 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.01 100.00
MEMO: ALL BROKERED DEPOSITS 0.00 1.38 64 0.00 0.61 76 0.00 0.64 76 0.00 0.45 0.00 0.21
INSURED BROKERED DEP 0.00 1.09 68 0.00 0.49 78 0.00 0.47 78 0.00 0.37 0.00 0.16
DIRECT & INDIRECT INV IN RE 0.00 0.00 98 0.00 0.00 97 0.00 0.00 97 0.00 0.00 0.00 0.00
LOANS HELD FOR SALE 0.00 0.30 75 0.00 0.13 80 0.00 0.16 79 0.00 0.05 0.00 0.12
</Table>
<Table>
CERT #306 DIST/RSSD: 06/860334 BANK OF ZACHARY ZACHARY, LA PAGE 07
CHARTER # NA COUNTY: EAST BATON ROUGE ANALYSIS OF CREDIT ALLOWANCE AND LOAN MIX 1/20/03 5:21:05 PM
</Table>
<Table>
<Caption>
09/30/2002 09/30/2001 12/31/2001 12/31/2000 12/31/1999
---------- ---------- ---------- ---------- ----------
CHANGE: CREDIT ALLOWANCE ($000)
BEGINNING BALANCE 1,297 1,170 1,170 965 859
GROSS CREDIT LOSSES 280 71 162 102 109
MEMO: LOANS HFS WRITEDOWN 0 0 0 0 0
RECOVERIES 10 18 18 26 35
NET CREDIT LOSSES 270 53 144 76 74
PROVISION FOR CREDIT LOSS 259 180 271 281 180
OTHER ADJUSTMENTS 0 0 0 0 0
ENDING BALANCE 1,286 1,297 1,297 1,170 965
AVERAGE TOTAL LOANS & LEASES 55,209 61,290 60,853 62,338 56,975
</Table>
<Table>
<Caption>
ANALYSIS RATIOS BANK PEER9 PCT BANK PEER13 PCT BANK PEER13 PCT BANK PEER13 BANK PEER13
LOSS PROVISION TO AVERAGE ASSETS 0.34 0.25 69 0.26 0.24 58 0.29 0.29 57 0.32 0.28 0.21 0.22
RECOVERIES TO PRIOR CREDIT LOSS 8.23 17.92 48 23.53 22.82 68 17.65 27.22 56 23.85 24.40 23.33 24.76
NET LOSS TO AVERAGE TOTAL LN&LS 0.65 0.13 91 0.12 0.12 64 0.24 0.19 70 0.12 0.16 0.13 0.15
GROSS LOSS TO AVERAGE TOT LN&LS 0.68 0.17 90 0.15 0.16 63 0.27 0.22 67 0.16 0.20 0.19 0.20
RECOVERIES TO AVERAGE TOT LN&LS 0.02 0.04 60 0.04 0.03 71 0.03 0.04 65 0.04 0.04 0.06 0.05
LN&LS ALLOWANCE TO TOTAL LN&LS 2.44 1.29 92 2.13 1.25 94 2.21 1.28 94 1.87 1.26 1.58 1.28
LN&LS ALLOWANCE TO NET LOSSES (X) 3.57 17.01 40 18.36 14.26 73 9.01 13.46 62 15.39 12.80 13.04 14.74
LN&LS ALL TO NONACCURAL LN&LS (X) 1.69 3.97 1.73 3.08 1.04 4.37 1.78 4.24 4.33 5.56
EARN COVER OF NET LN&LS LOSS (X) 5.77 35.69 40 29.26 25.45 72 14.60 22.87 63 26.67 25.00 29.23 32.55
NET LOSSES BY TYPE OF LN&LS
REAL ESTATE LOANS 0.02 0.01 79 0.00 0.01 82 0.00 0.02 74 0.03 0.01 0.00 0.01
LOANS TO FINANCE COMML REAL EST 0.00 0.00 99 0.00 0.00 99 0.00 0.00 99 NA 0.00 NA 0.00
CONSTRUCTION & LAND DEV 0.00 0.00 93 0.00 0.00 97 0.00 0.00 94 0.00 0.00 0.00 0.00
SECURED BY FARMLAND NA 0.00 98 NA 0.00 99 NA 0.00 98 NA 0.00 NA 0.00
SINGLE & MULTI FAMILY MORTGAGE 0.04 0.01 84 0.00 0.01 87 0.00 0.02 80 0.04 0.01 0.00 0.01
HOME EQUITY LOANS NA 0.00 95 NA 0.00 98 NA 0.00 97 NA 0.00 NA 0.00
1-4 FAMILY NON-REVOLVING 0.04 0.01 85 0.00 0.01 88 0.00 0.02 81 0.04 0.01 0.00 0.01
MULTIFAMILY LOANS NA 0.00 98 NA 0.00 99 NA 0.00 99 0.00 0.00 0.00 0.00
NON-FARM NON-RESIDENTIAL MTG 0.00 0.00 95 0.00 0.00 94 0.00 0.00 92 0.00 0.00 0.00 0.00
RE LOANS IN FOREIGN OFFICES NA 0.00 99 NA 0.00 99 NA 0.00 99 NA 0.00 NA 0.00
AGRICULTURAL LOANS NA 0.00 97 NA 0.00 98 NA 0.00 97 NA 0.00 NA 0.00
COMMERCIAL AND INDUSTRIAL LOANS 0.00 0.27 52 0.00 0.19 66 0.00 0.35 55 0.00 0.24 0.00 0.21
LEASE FINANCING NA 0.00 96 NA 0.00 97 NA 0.00 97 NA 0.00 NA 0.00
LOANS TO INDIVIDUALS 5.29 0.44 97 1.05 0.38 85 2.28 0.45 93 1.50 0.34 2.08 0.40
CREDIT CARD PLANS NA 0.18 85 NA 0.11 87 NA 0.20 85 0.00 0.35 0.00 0.45
ALL OTHER LOANS & LEASES 0.00 0.01 90 0.00 0.00 93 0.00 0.01 90 NA 0.00 NA 0.00
LOANS TO FOREIGN GOVERNMENTS NA 0.00 99 NA 0.00 99 NA 0.00 99 NA 0.00 NA 0.00
</Table>
<Table>
CERT #306 DIST/RSSD: 06/860334 BANK OF ZACHARY ZACHARY, LA PAGE 07A
CHARTER # NA COUNTY: EAST BATON ROUGE ANALYSIS OF LOAN AND LEASE ALLOWANCE AND LOAN MIX 1/20/03 5:21:06 PM
</Table>
<Table>
<Caption>
09/30/2002 09/30/2001 12/31/2001 12/31/2000 12/31/1999
---------- ---------- ---------- ---------- ----------
LOAN MIX, % AVERAGE GROSS LN&LS BANK PEER9 PCT BANK PEER13 PCT BANK PEER13 PCT BANK PEER13 BANK PEER13
CONSTRUCTION & DEVELOPMENT 13.07 7.91 74 11.22 8.04 69 11.53 7.87 70 12.00 7.23 12.69 6.07
1 - 4 FAMILY RESIDENTIAL 43.07 23.98 82 45.57 24.96 87 45.23 25.14 86 47.02 24.47 45.03 26.36
HOME EQUITY LOANS 0.00 3.29 21 0.00 2.26 25 0.00 2.29 25 0.00 1.94 0.00 1.83
OTHER REAL ESTATE LOANS 23.14 31.45 30 24.65 27.88 41 24.33 27.86 41 24.34 27.91 25.83 26.45
FARMLAND 0.00 0.52 50 0.00 1.37 43 0.00 1.45 42 0.00 1.49 0.00 1.61
MULTIFAMILY 0.00 2.30 17 0.00 1.68 22 0.00 1.66 22 0.01 1.66 0.01 1.47
NON-FARM NON-RESIDENTIAL 23.14 25.64 40 24.65 23.11 54 24.33 23.06 54 24.33 23.03 25.83 21.77
TOTAL REAL ESTATE 79.28 69.13 71 81.44 64.89 85 81.08 64.93 85 83.36 63.53 83.55 62.77
FINANCIAL INSTITUTION LOANS 0.00 0.00 94 0.00 0.00 96 0.00 0.00 96 0.00 0.00 0.00 0.00
AGRICULTURAL LOANS 0.01 0.30 71 0.08 1.23 59 0.07 1.36 56 0.05 1.42 0.10 1.70
COMMERCIAL & INDUSTRIAL LOANS 9.62 18.00 28 10.36 20.69 22 10.60 20.80 22 9.86 20.64 9.85 19.41
LOANS TO INDIVIDUALS 10.77 5.53 78 7.77 9.24 50 7.92 9.28 51 6.51 9.78 6.11 10.93
CREDIT CARD LOANS 0.00 0.06 74 0.08 0.13 65 0.06 0.13 64 0.29 0.24 0.23 0.28
MUNICIPAL LOANS 0.08 0.11 76 0.00 0.16 71 0.00 0.15 71 0.00 0.12 0.00 0.16
ACCEPTANCES OF OTHER BANKS NA 0.00 99 0.00 0.00 99 0.00 0.00 99 0.00 0.00 0.00 0.00
FOREIGN OFFICE LOANS & LEASES 0.00 0.00 98 0.00 0.00 99 0.00 0.00 99 0.00 0.00 0.00 0.00
ALL OTHER LOANS 0.24 0.24 72 0.35 0.24 75 0.33 0.22 77 0.23 0.27 0.39 0.27
LEASE FINANCING RECEIVABLES 0.00 0.05 85 0.00 0.04 85 0.00 0.04 85 0.00 0.03 0.00 0.03
SUPPLEMENTAL:
LOANS TO FOREIGN GOVERNMENTS 0.00 0.00 98 0.00 0.00 99 0.00 0.00 98 NA 0.00 NA 0.00
LOANS TO FINANCE COMML REAL EST 0.72 0.05 93 0.20 0.06 86 0.33 0.05 88 0.00 0.05 0.00 0.04
MEMORANDUM (% OF AVG TOT LOANS):
LOAN & LEASE COMMITMENTS 10.97 18.92 23 9.43 17.54 23 12.33 17.14 36 7.15 16.99 12.85 17.89
OFFICER, SHAREHOLDER LOANS 1.32 1.91 47 0.88 2.43 28 0.95 2.42 30 0.86 2.41 0.82 2.17
OFFICER, SHAREH LOANS TO ASSETS 0.66 1.25 43 0.56 1.55 29 0.59 1.54 30 0.58 1.51 0.59 1.29
OTHER REAL ESTATE OWNED % ASSETS
CONSTRUCTION & LAND DEVELOPMENT 0.01 0.00 88 0.00 0.00 89 0.01 0.00 91 0.00 0.00 0.05 0.00
FARMLAND 0.00 0.00 98 0.00 0.00 98 0.00 0.00 98 0.00 0.00 0.00 0.00
1-4 FAMILY 0.05 0.01 85 0.00 0.01 79 0.00 0.01 76 0.00 0.01 0.00 0.01
MULTIFAMILY 0.00 0.00 97 0.00 0.00 98 0.00 0.00 98 0.00 0.00 0.00 0.00
NON-FARM-NON-RESID 0.00 0.01 82 0.00 0.02 83 0.00 0.02 79 0.00 0.01 0.00 0.01
FOREIGN OFFICES NA 0.00 99 NA 0.00 99 NA 0.00 99 NA 0.00 NA 0.00
SUBTOTAL 0.07 0.05 73 0.00 0.05 66 0.01 0.05 64 0.00 0.05 0.05 0.06
DIRECT AND INDIRECT INV 0.00 0.00 98 0.00 0.00 98 0.00 0.00 98 0.00 0.00 0.00 0.00
TOTAL 0.07 0.06 72 0.00 0.05 66 0.01 0.05 64 0.00 0.05 0.05 0.06
ASSET SERVICING % ASSETS
MORTG SERV W RECOURSE 0.00 0.00 97 0.00 0.00 98 0.00 0.00 98 NA 0.00 NA 0.00
MORTG SERV WO RECOURSE 0.00 0.15 89 0.00 0.00 94 0.00 0.00 95 NA 0.00 NA 0.00
OTHER FINANCIAL ASSETS 0.00 0.00 95 0.00 0.00 97 0.00 0.00 97 NA 0.00 NA 0.00
TOTAL 0.00 1.21 85 0.00 0.05 92 0.00 0.02 93 NA 0.00 NA 0.00
</Table>
<Table>
CERT #306 DIST/RSSD: 06/860334 BANK OF ZACHARY ZACHARY, LA PAGE 08
CHARTER # NA COUNTY: EAST BATON ROUGE ANALYSIS OF PAST DUE, NONACCRUAL & RESTRUCTURED LOANS & LEASES 1/20/03 5:21:09 PM
</Table>
<Table>
<Caption>
09/30/2002 09/30/2001 12/31/2001 12/31/2000 12/31/1999
---------- ---------- ---------- ---------- ----------
NON-CURRENT LN&LS ($000)
90 DAYS AND OVER PAST DUE 392 93 231 12 0
TOTAL NONACCRUAL LN&LS 759 749 1,248 657 223
TOTAL NON-CURRENT LN&LS 1,151 842 1,479 669 223
LN&LS 30-89 DAYS PAST DUE 3,054 1,666 1,998
RESTRUCTURED LN&LS 90+ DAYS P/D 0 0 0 0 0
RESTRUCTURED LN&LS NONACCRL 0 0 0 0 0
RESTRUCTURE LN&LS 30-89 DAYS PD 0 0 0
CURRENT RESTRUCTURED LN&LS 0 0 0 0 0
ALL OTHER REAL ESTATE OWNED 113 0 28 0 0
</Table>
<Table>
<Caption>
% OF NON-CURR LN&LS BY LN TYPE BANK PEER9 PCT BANK PEER13 PCT BANK PEER13 PCT BANK PEER13 BANK PEER13
REAL ESTATE LNS-90+ DAYS P/D 0.72 0.11 91 0.12 0.12 76 0.19 0.12 76 0.00 0.08 0.00 0.10
-NONACCRUAL 1.76 0.33 92 1.40 0.34 87 2.56 0.34 94 1.45 0.21 0.45 0.28
-TOTAL 2.49 0.51 92 1.52 0.55 83 2.75 0.54 92 1.45 0.35 0.45 0.44
-30-89 DAYS P/D 6.30 0.62 99 1.49 0.91 74 2.37 0.93 83
LNS FIN COML RE -90+ DAYS P/D 0.00 0.00 99 0.00 0.00 99 0.00 0.00 99 NA 0.00 NA 0.00
-NONACCRUAL 0.00 0.00 99 0.00 0.00 99 0.00 0.00 99 NA 0.00 NA 0.00
-TOTAL 0.00 0.00 99 0.00 0.00 99 0.00 0.00 99 NA 0.00 NA 0.00
-30-89 DAYS P/D 0.00 0.00 99 0.00 0.00 99 0.00 0.00 99
CONST & LAND DEV -90+ DAYS P/D 0.00 0.01 93 0.00 0.00 95 0.00 0.00 95 0.00 0.00 0.00 0.00
-NONACCRUAL 7.45 0.08 98 6.77 0.06 97 12.09 0.06 98 0.00 0.00 0.00 0.00
-TOTAL 7.45 0.20 96 6.77 0.14 96 12.09 0.14 98 0.00 0.01 0.00 0.01
-30-89 DAYS P/D 3.84 0.23 94 1.05 0.37 85 0.57 0.52 80
SINGLE & MULTI MTG-90+ DAYS P/D 1.36 0.12 95 0.20 0.09 82 0.35 0.11 83 0.00 0.06 0.00 0.08
-NONACCRUAL 0.97 0.26 85 0.66 0.27 80 1.10 0.27 86 0.62 0.14 0.66 0.22
-TOTAL 2.32 0.46 90 0.87 0.45 75 1.46 0.47 83 0.62 0.25 0.66 0.38
-30-89 DAYS P/D 5.27 0.66 96 2.35 0.91 82 4.13 0.99 90
NON-FARM/RESI MTG-90+ DAYS P/D 0.00 0.03 87 0.00 0.04 89 0.00 0.03 88 0.00 0.01 0.00 0.02
-NONACCRUAL 0.00 0.26 71 0.00 0.25 79 0.00 0.26 79 2.46 0.13 0.00 0.11
-TOTAL 0.00 0.39 65 0.00 0.45 73 0.00 0.43 73 2.46 0.23 0.00 0.21
-30-89 DAYS P/D 9.51 0.42 99 0.00 0.52 66 0.00 0.53 66
RE LNS FOR OFF-90+ DAYS P/D NA 0.00 99 NA 0.00 99 NA 0.00 99 NA 0.00 NA 0.00
-NONACCRUAL NA 0.00 99 NA 0.00 99 NA 0.00 99 NA 0.00 NA 0.00
-TOTAL NA 0.00 99 NA 0.00 99 NA 0.00 99 NA 0.00 NA 0.00
-30-89 DAYS P/D NA 0.00 99 NA 0.00 99 NA 0.00 99
COML & INDUST LNS-90+ DAYS P/D 0.74 0.13 88 0.16 0.16 77 1.55 0.17 91 0.00 0.11 0.00 0.06
-NONACCRUAL 0.00 0.56 46 0.91 0.52 76 0.79 0.57 74 0.49 0.37 0.25 0.30
-TOTAL 0.74 0.88 63 1.07 0.88 70 2.35 0.92 81 0.49 0.58 0.25 0.44
-30-89 DAYS P/D 5.85 0.92 94 12.17 1.20 98 10.04 1.20 97
LOANS TO INDIVDLS -90+ DAYS P/D 0.46 0.09 87 0.51 0.12 86 0.68 0.14 88 0.28 0.09 0.00 0.09
-NONACCRUAL 0.37 0.24 74 0.00 0.18 64 0.00 0.16 66 0.00 0.15 0.00 0.14
-TOTAL 0.83 0.40 77 0.51 0.38 69 0.68 0.39 74 0.28 0.31 0.00 0.29
-30-89 DAYS P/D 2.95 0.99 85 3.36 1.36 82 4.15 1.36 87
</Table>
<Table>
CERT #306 DIST/RSSD: 06/860334 BANK OF ZACHARY ZACHARY, LA PAGE 08A
CHARTER # NA COUNTY: EAST BATON ROUGE ANALYSIS OF PAST DUE, NONACCRUAL & RESTRUCTURED LOANS & LEASES 1/20/03 5:21:11 PM
</Table>
<Table>
<Caption>
09/30/2002 09/30/2001 12/31/2001 12/31/2000 12/31/1999
---------- ---------- ---------- ---------- ----------
% OF NON-CURR LN&LS BY LN TYPE BANK PEER9 PCT BANK PEER13 PCT BANK PEER13 PCT BANK PEER13 BANK PEER13
CREDIT CARD PLANS-90+ DAYS P/D NA 0.04 90 NA 0.02 91 NA 0.03 91 0.00 0.03 0.00 0.04
-NONACCRUAL NA 0.00 98 NA 0.00 98 NA 0.00 98 0.00 0.00 0.00 0.00
-TOTAL NA 0.05 89 NA 0.03 91 NA 0.04 90 0.00 0.05 0.00 0.06
-30-89 DAYS P/D NA 0.16 85 NA 0.17 86 NA 0.21 84
FOREIGN GOVT LNS-90+ DAYS P/D NA 0.00 99 NA 0.00 99 NA 0.00 99 NA 0.00 NA 0.00
-NONACCRUAL NA 0.00 99 NA 0.00 99 NA 0.00 99 NA 0.00 NA 0.00
-TOTAL NA 0.00 99 NA 0.00 99 NA 0.00 99 NA 0.00 NA 0.00
-30-89 DAYS P/D NA 0.00 99 NA 0.00 99 NA 0.00 99
LEASE FINANCING-90+ DAYS P/D NA 0.00 98 NA 0.00 98 NA 0.00 99 NA 0.00 NA 0.00
-NONACCRUAL NA 0.00 96 NA 0.00 98 NA 0.00 98 NA 0.00 NA 0.00
-TOTAL NA 0.00 96 NA 0.00 98 NA 0.00 98 NA 0.00 NA 0.00
-30-89 DAYS P/D NA 0.00 95 NA 0.00 97 NA 0.00 97
AGRICULTURAL LNS-90+ DAYS P/D NA 0.00 97 0.00 0.00 97 0.00 0.00 98 0.00 0.00 0.00 0.00
-NONACCRUAL NA 0.00 97 0.00 0.00 97 0.00 0.00 97 0.00 0.00 0.00 0.00
-TOTAL NA 0.00 96 0.00 0.00 95 0.00 0.00 96 0.00 0.00 0.00 0.02
-30-89 DAYS P/D NA 0.00 96 0.00 0.00 94 0.00 0.00 95
OTHER LN&LS-90+ DAYS P/D 11.03 0.01 98 0.00 0.00 93 0.00 0.00 95 NA 0.00 NA 0.00
-NONACCRUAL 0.00 0.00 93 0.00 0.00 95 0.00 0.00 95 NA 0.00 NA 0.00
-TOTAL 11.03 0.05 98 0.00 0.02 90 0.00 0.01 92 NA 0.00 NA 0.00
-30-89 DAYS P/D 0.00 0.10 83 0.00 0.10 83 0.00 0.10 84
GROSS LN&LS-90+ DAYS P/D 0.74 0.14 90 0.15 0.17 69 0.39 0.17 78 0.02 0.14 0.00 0.11
-NONACCRUAL 1.44 0.46 86 1.23 0.44 83 2.13 0.44 91 1.05 0.32 0.36 0.33
-TOTAL 2.18 0.66 88 1.38 0.68 77 2.52 0.69 90 1.07 0.51 0.36 0.50
-30-89 DAYS P/D 5.79 0.83 98 2.74 1.15 84 3.40 1.15 89
OTHER PERTINENT RATIOS:
NON-CUR LN&LS TO-LN&LS ALLOWANCE 89.50 46.76 77 64.92 52.59 65 114.03 53.15 79
-EQUITY CAPITAL 9.80 4.51 80 7.66 4.65 71 13.66 4.92 85
%TOTAL P/D LN&LS-INCL NONACCRUAL 7.98 1.54 97 4.12 1.92 83 5.92 1.92 93
IENC-LOANS TO TOTAL LOANS NA 0.00 99 NA 0.00 99 NA 0.00 99 0.65 0.77 0.58 0.68
NON CURR LNS+OREO TO LNS+OREO 2.39 0.78 88 1.38 0.82 71 2.57 0.84 87
NON-CURR RESTRUCT DEBT/GR LN&LS 0.00 0.00 95 0.00 0.00 96 0.00 0.00 97
CURR+NON-CURR RESTRUCT/GR LN&LS 0.00 0.00 95 0.00 0.00 96 0.00 0.00 97
CURRENT RESTRUCT LN&LS 0.00 0.02 87 0.00 0.00 91 0.00 0.01 90
</Table>
<Table>
CERT #306 DIST/RSSD: 06/860334 BANK OF ZACHARY ZACHARY, LA PAGE 09
CHARTER # NA COUNTY: EAST BATON ROUGE INTEREST RATE RISK ANALYSIS AS A PERCENT OF ASSETS 1/20/03 5:21:13 PM
</Table>
<Table>
<Caption>
09/30/2002 09/30/2001 12/31/2001 12/31/2000 12/31/1999
---------- ---------- ---------- ---------- ----------
LONG ASSETS INSTS W/ OPTIONS BANK PEER9 PCT BANK PEER13 PCT BANK PEER13 PCT BANK PEER13 BANK PEER13
MORTGAGE LOANS & PASS THRUS 41.05 15.56 95 31.06 15.21 90 37.44 15.63 93 30.55 14.88 30.51 15.72
LOANS & SECURITIES OVER 15 YRS 1.99 1.72 69 1.82 1.54 70 2.17 1.66 69 2.21 1.23 4.87 1.28
LOANS & SECURITIES 5-15 YRS 9.68 2.56 92 4.96 2.13 81 9.20 2.38 90 2.34 1.81 2.32 2.05
OTHER LOANS AND SECURITIES 45.73 68.34 7 54.10 66.99 16 53.60 67.41 15 53.23 69.39 58.13 68.86
LOANS & SECURITIES OVER 15 YRS 0.55 0.65 63 0.02 0.56 44 0.02 0.54 44 0.00 0.49 0.19 0.51
LOANS & SECURITIES 5-15 YRS 6.92 5.72 66 12.12 6.23 82 12.13 6.43 80 6.42 6.16 6.07 7.32
TOTAL LOANS & SECURITIES OVR 15 2.54 2.70 62 1.84 2.30 57 2.19 2.41 60 2.21 1.91 5.06 2.00
CMO`S TOTAL 0.00 1.40 51 0.00 0.98 58 0.00 1.05 59 0.08 0.65 0.29 0.84
AVG LIFE OVER 3 YEARS 0.00 0.17 76 0.00 0.43 69 0.00 0.41 71 0.00 0.35 0.16 0.38
STRUCTURED NOTES 0.00 0.10 82 0.00 0.00 93 0.00 0.01 92 0.00 0.01 0.00 0.02
HIGH RISK SECURITIES NA 0.00 99 NA 0.00 99 NA 0.00 99 NA 0.00 NA 0.00
MORTGAGE SERVICING 0.00 0.00 95 0.00 0.00 97 0.00 0.00 97 0.00 0.00 0.00 0.00
TOTAL 0.00 0.12 79 0.00 0.01 91 0.00 0.02 90 0.00 0.02 0.00 0.03
OVERALL RISK INDICATORS
AVAILABLE FOR SALE 38.01 15.17 89 22.59 14.32 71 31.62 15.26 85 15.90 16.53 18.09 17.89
HELD TO MATURITY 0.00 1.52 62 0.00 1.96 62 0.00 2.09 61 0.00 2.41 0.00 3.28
OFF BALANCE SHEET 5.53 13.63 18 6.20 11.87 23 7.75 11.45 33 5.00 11.12 9.28 11.35
UNREALIZED APPN/DEPN 0.00 0.03 70 0.00 0.04 67 0.00 0.02 70 0.00 0.01 0.00 -0.04
UNREAL APP/DEP % TIER ONE CAP 0.00 0.33 67 0.00 0.40 66 0.00 0.26 68 0.00 0.07 0.00 -0.44
CONTRACTUAL MAT/REPRICE DATA
LOANS/SECURITIES OVER 3 YEARS 47.35 28.77 87 48.41 28.96 89 54.13 30.20 92 46.63 29.39 50.52 32.76
LIABILITIES OVER 3 YEARS 6.06 2.81 79 1.07 1.63 55 1.08 1.68 55 1.23 1.50 0.00 1.65
NET 3 YEAR POSITION 41.29 25.10 80 47.34 26.67 89 53.04 27.89 92 45.41 27.35 50.52 30.53
LOANS/SECURITIES OVER 1 YEAR 66.49 49.29 84 69.36 49.08 91 75.47 50.92 94 64.92 49.77 65.95 52.17
LIABILITIES OVER 1 YEAR 16.31 12.19 66 8.95 9.74 49 5.69 9.44 34 9.28 9.26 5.16 9.03
NET OVER 1 YEAR POSITION 50.18 36.11 74 60.41 38.60 91 69.78 40.79 96 55.64 39.84 60.79 42.44
NON-MATURITY DEPOSITS 44.98 44.19 52 44.53 43.47 55 44.12 45.18 49 45.27 42.82 50.01 45.39
NON-MATURITY DEPS % LONG ASSETS 94.99 185.60 22 91.99 179.48 20 81.51 182.11 15 97.08 176.77 98.98 163.06
NET OVER 3 YEAR POSITION 2.37 -14.92 80 3.88 -14.03 81 10.01 -14.34 86 1.36 -13.23 0.51 -12.36
AS % TIER 1 CAPITAL
STRUCTURED NOTES 0.00 1.13 82 0.00 0.04 93 0.00 0.11 92 0.00 0.14 0.00 0.26
HIGH RISK SECURITIES NA 0.00 99 NA 0.00 99 NA 0.00 99 NA 0.00 NA 0.00
MORTGAGE SERVICING (FV) 0.00 0.00 94 0.00 N/A 97 0.00 N/A 97 0.00 N/A 0.00 N/A
TOTAL 0.00 1.35 78 0.00 0.10 91 0.00 0.20 90 0.00 0.22 0.00 0.37
</Table>
<Table>
CERT #306 DIST/RSSD: 06/860334 BANK OF ZACHARY ZACHARY, LA PAGE 10
CHARTER # NA COUNTY: EAST BATON ROUGE LIQUIDITY AND INVESTMENT PORTFOLIO 1/20/03 5:21:15 PM
</Table>
<Table>
<Caption>
09/30/2002 09/30/2001 12/31/2001 12/31/2000 12/31/1999
---------- ---------- ---------- ---------- ----------
SHORT TERM INVESTMENTS 5,615 6,733 958 8,466 1,953
SHORT TERM ASSETS 19,823 19,740 14,022 22,352 19,903
SHORT TERM NON CORE FUNDING 11,911 14,970 18,132 15,178 14,491
NON CORE LIABILITIES 21,331 18,480 19,979 17,656 16,056
DEBT SECURITIES 90+ DAYS P/D 0 0 0 0 0
TOTAL NON-CURRENT DEBT SEC 0 0 0 0 0
FAIR VALUE HIGH-RISK MTG SECS 0 0 0 0 0
FAIR VALUE STRUCTURED NOTES 0 0 0 0 0
</Table>
<Table>
<Caption>
PERCENT OF TOTAL ASSETS BANK PEER9 PCT BANK PEER13 PCT BANK PEER13 PCT BANK PEER13 BANK PEER13
SHORT TERM INVESTMENTS 5.27 8.20 38 7.01 9.93 37 0.99 8.71 9 9.39 9.33 2.29 7.63
MARKETABLE EQUITY SEC (MES) 0.00 0.05 84 0.00 0.05 88 0.00 0.05 88 0.00 0.01 0.00 0.02
CORE DEPOSITS 68.32 67.54 46 68.53 70.94 37 67.81 71.42 34 68.90 70.93 70.29 73.23
S T NON CORE FUNDING 11.18 15.13 41 15.59 14.33 60 18.75 14.19 73 16.84 14.79 16.99 13.23
LIQUIDITY RATIOS
NET S T NONCORE FUND DEPENDENCE 6.84 7.83 48 10.14 4.67 65 19.51 5.80 83 9.04 5.98 16.67 6.17
NET NON CORE FUND DEPENDENCE 17.08 15.54 55 14.47 9.65 58 21.61 10.74 73 12.38 10.55 18.75 9.97
BROKERED DEPOSITS TO DEPOSITS 0.00 2.02 66 0.00 0.78 78 0.00 0.83 79 0.00 0.58 0.00 0.26
BROKER DEP MAT < 1YR TO BKR DEPS NA 14.50 69 NA 7.46 81 NA 7.84 80 NA 8.87 NA 6.81
SHORT TRM INV TO S T NCORE FUND 47.14 77.05 47 44.98 96.06 36 5.28 88.68 8 55.78 87.63 13.48 84.05
SHORT TERM ASSET TO S T LIABS 68.78 106.35 27 59.96 98.41 21 37.50 95.45 8 73.07 94.52 69.34 91.08
NET S T LIAB TO ASSETS 8.45 0.65 70 13.73 3.16 73 24.16 3.86 89 9.14 4.52 10.32 5.39
NET LOANS & LEASES TO DEPOSITS 54.64 79.43 13 70.62 75.98 35 67.11 76.10 31 76.97 75.80 81.45 73.36
NET LN&LS TO CORE DEPOSITS 70.65 100.45 17 90.47 93.26 46 87.56 92.62 45 98.85 93.06 100.55 87.46
NET LN&LS & SBLC TO ASSETS 48.33 67.11 13 62.16 65.62 38 59.54 65.41 35 68.25 65.30 70.76 63.39
SECURITIES MIX
HELD-TO-MATURITY % TOTAL SECS
US TREAS & GOVT AGENCIES 0.00 5.34 79 0.00 5.17 78 0.00 5.02 78 0.00 6.47 0.00 8.09
MUNICIPAL SECURITIES 0.00 1.01 78 0.00 1.75 76 0.00 1.85 76 0.00 1.99 0.00 2.36
PASS-THROUGH MTG BACKED SECS 0.00 0.19 85 0.00 0.21 86 0.00 0.25 85 0.00 0.15 0.00 0.29
CMO & REMIC MTG BACKED SECS 0.00 0.00 94 0.00 0.00 96 0.00 0.00 96 0.00 0.00 0.00 0.01
ASSET BACKED SECURITIES 0.00 0.00 98 0.00 0.00 99 0.00 0.00 99 NA 0.00 NA 0.00
OTHER DOMESTIC DEBT SECS 0.00 0.10 90 0.00 0.01 93 0.00 0.01 93 0.00 0.02 0.00 0.04
FOREIGN DEBT SECURITIES 0.00 0.00 97 0.00 0.00 98 0.00 0.00 98 NA 0.00 NA 0.00
TOTAL HELD -TO-MATURITY 0.00 9.95 62 0.00 10.61 62 0.00 11.12 61 0.00 12.73 0.00 15.60
AVAILABLE-FOR -SALE % TOTAL SECS
US TREASURY & GOVT AGENCIES 36.02 31.52 57 71.53 38.16 75 53.35 38.58 64 65.70 47.27 62.24 44.52
MUNICIPAL SECURITIES 5.74 7.82 59 0.00 6.57 60 0.00 6.37 59 0.00 6.23 0.00 7.09
PASS-THROUGH MTG BACKED SECS 58.24 16.04 90 28.47 13.20 75 46.65 13.97 87 29.30 9.17 32.18 8.73
CMO & REMIC MTG BACKED SECS 0.00 6.17 55 0.00 4.73 60 0.00 4.74 61 0.49 2.62 1.61 2.77
ASSET BACKED SECURITIES 0.00 0.01 93 0.00 0.00 95 0.00 0.00 95 NA 0.00 NA 0.00
OTHER DOMESTIC DEBT SECS 0.00 2.63 67 0.00 1.83 73 0.00 1.95 74 0.00 1.43 0.00 1.18
FOREIGN DEBT SECURITIES 0.00 0.00 97 0.00 0.00 98 0.00 0.00 99 NA 0.00 NA 0.00
INV MUT FND & OTH MKTBL 0.00 0.32 84 0.00 0.22 87 0.00 0.23 87 0.00 0.03 0.00 0.07
OTHER EQUITY SECURITIES NA 0.00 99 NA 0.00 99 NA 0.00 99 4.51 2.20 3.97 1.70
TOTAL AVAILABLE -FOR-SALE 100.00 52.53 99 100.00 53.99 99 100.00 55.36 99 100.00 65.02 100.00 65.38
OTHER SECURITIES RATIOS:
STRUC NOTE TO T1CAP 0.00 1.15 82 0.00 0.04 93 0.00 0.11 92 0.00 0.12 0.00 0.25
APP (DEP) HI RISK & STRUC/T1CAP NA 0.00 99 NA 0.00 99 NA 0.00 99 NA 0.00 NA 0.00
APP (DEP) IN HTM SEC TO HTM SEC NA 0.77 67 NA 0.70 66 NA 0.42 68 NA 0.15 NA -0.46
APP (DEP) IN HTM SEC TO EQY CAP 0.00 0.32 67 0.00 0.40 66 0.00 0.25 68 0.00 0.07 0.00 -0.45
PLEDGED SECURITIES TO TOT SEC 29.85 33.06 46 38.37 33.99 55 31.31 32.10 51 72.33 33.37 87.62 32.29
</Table>
<Table>
CERT #306 DIST/RSSD: 06/860334 BANK OF ZACHARY ZACHARY, LA PAGE 11
CHARTER # NA COUNTY: EAST BATON ROUGE CAPITAL ANALYSIS 1/20/03 5:21:18 PM
</Table>
<Table>
<Caption>
09/30/2002 09/30/2001 12/31/2001 12/31/2000 12/31/1999
---------- ---------- ---------- ---------- ----------
END OF PERIOD CAPITAL ($000)
PERPETUAL PREFERRED 0 0 0 0 0
+ COMMON STOCK 720 720 720 720 720
+ SURPLUS 2,280 1,480 1,480 1,480 1,480
+ UNDIVIDED PROFITS 8,288 8,405 8,481 7,730 7,057
+ ACCUM OTHER COMP INCOME 461 380 148 -9 -292
+ OTHER EQUITY CAPITAL COMP 0 0 0 0 0
TOTAL EQUITY CAPITAL 11,749 10,985 10,829 9,921 8,965
SUBORD NOTES & DEBENTURES 0 0 0 0 0
CHANGES IN TOTAL EQUITY ($000)
BALANCE AT BEGINNING OF PERIOD 10,829 9,921 9,921 8,965 8,490
+ NET INCOME 867 905 1,231 1,147 1,223
+ SALE OR PURCHASE OF CAPITAL 0 0 0 0 0
+ MERGER & ABSORPTIONS 0 0 0 0 0
+ RESTATE DUE TO ACCTG ERROR&CHG 0 0 0 0 0
+ TRANS WITH PARENT 0 0 0 0 0
- - DIVIDENDS 260 222 480 475 450
+ OTHER COMPREHENSIVE INCOME 313 381 157 284 -298
BALANCE AT END OF PERIOD 11,749 10,985 10,829 9,921 8,965
INTANGIBLE ASSETS
MORTGAGE SERVICING RIGHTS 0 0 0 0 0
+ PURCH CRED CARD RELATION 0 0 0 0 0
+ OTHER INTANGIBLES 0 0 0 0 0
+ GOODWILL 0 0 0 0 0
TOTAL INTANGIBLES 0 0 0 0 0
MEMO: GRANDFATHERED INTANG 0 0 0 0 0
</Table>
<Table>
CAPITAL RATIOS BANK PEER9 PCT BANK PEER13 PCT BANK PEER13 PCT BANK PEER13 BANK PEER13
PERCENT OF TOTAL EQUITY:
NET LOANS & LEASES (X) 4.38 7.19 19 5.42 6.94 27 5.30 7.05 24 6.19 6.98 6.72 7.04
SUBORD NOTES & DEBENTURES 0.00 N/A 97 0.00 N/A 98 0.00 N/A 98 0.00 N/A 0.00 N/A
LONG TERM DEBT 0.00 N/A 97 0.00 N/A 98 0.00 N/A 98 0.00 N/A 0.00 N/A
COM RE & RELATED VENTURES 168.95 291.77 32 199.98 243.48 45 198.95 249.10 45 211.26 229.12 272.97 221.88
PERCENT OF AVERAGE TOTAL EQUITY:
NET INCOME 10.33 12.36 42 11.62 9.32 65 11.76 8.74 67 12.17 10.67 13.96 11.24
DIVIDENDS 3.10 3.33 63 2.85 2.90 66 4.58 3.22 71 5.04 3.60 5.14 4.17
RETAINED EARNINGS 7.23 8.12 45 8.77 5.60 70 7.17 4.78 66 7.13 6.13 8.82 6.17
OTHER CAPITAL RATIOS:
DIVIDENDS TO NET OPER INCOME 29.99 21.88 64 24.53 20.68 65 38.99 23.57 69 41.41 24.04 36.79 27.80
EQUITY CAPITAL TO ASSETS 11.03 9.79 72 11.44 9.74 76 11.20 9.57 76 11.01 9.75 10.51 9.42
GROWTH RATES:
TOTAL EQUITY CAPITAL 6.95 14.38 31 13.55 13.83 60 9.15 9.21 56 10.66 13.56 5.59 4.52
EQUITY GROWTH LESS ASST GROWTH -4.02 -2.72 37 5.07 -4.73 65 1.84 -8.03 66 5.00 -7.15 3.63 -8.28
INTANG ASSETS % TOTAL EQUITY
MORTGAGE SERVICING RIGHTS 0.00 0.00 94 0.00 N/A 97 0.00 N/A 97 0.00 N/A 0.00 N/A
GOODWILL 0.00 0.09 90 0.00 0.11 90 0.00 0.08 91 0.00 0.11 0.00 0.24
PURCH CREDIT CARD RELATION 0.00 N/A 97 0.00 N/A 99 0.00 N/A 98 0.00 N/A 0.00 N/A
ALL OTHER INTANGIBLES 0.00 0.00 93 0.00 0.00 94 0.00 0.00 94 0.00 0.00 0.00 0.00
TOTAL INTANGIBLES 0.00 0.42 80 0.00 0.30 84 0.00 0.25 85 0.00 0.33 0.00 0.57
</Table>
<Table>
CERT #306 DIST/RSSD: 06/860334 BANK OF ZACHARY ZACHARY, LA PAGE 11A
CHARTER # NA COUNTY: EAST BATON ROUGE CAPITAL ANALYSIS 1/20/03 5:21:20 PM
</Table>
<Table>
<Caption>
09/30/2002 09/30/2001 12/31/2001 12/31/2000 12/31/1999
------------ ------------ ------------ ------------ ------------
RISK BASED CAPITAL ($000)
TIER ONE CAPITAL
TOTAL EQUITY CAPITAL ADJUSTED 11,288 10,605 10,681 9,930 9,257
- - INELIGIBLE DEF TAX ASSETS 0 0 0 0 0
- - INELIGIBLE INTANGIBLES 0 0 0 0 0
NET TIER ONE 11,288 10,605 10,681 9,930 9,257
TIER TWO CAPITAL
+ QUALIF DEBT AND REDEEM PFD 0 0 0 0 0
+ CUMULATIVE PREFERRED STOCK 0 0 0 0 0
+ ALLOWABLE LN&LS LOSS ALLOW 640 710 697 750 738
+ UNRL GAIN MKTBL EQY SEC (45%) 0 0 0 0 0
+ OTHER TIER 2 CAPITAL COMP 0 0 0 0 0
NET ELIGIBLE TIER TWO 640 710 697 750 738
TOTAL RBC BEFORE DEDUCTIONS
TIER ONE & TIER TWO 11,928 11,315 11,378 10,680 9,995
TIER THREE & FIN SUB ADJ 0 0 0 0 0
- - RECRIPROCAL CAPITAL HOLDINGS 0 0 0 0 0
- - DEDUCTIONS FOR TOTAL RBC 0 0 0 0 0
TOTAL RISK -BASED-CAPITAL 11,928 11,315 11,378 10,680 9,995
RISK-WEIGHTED ASSETS
ON-BALANCE SHEET
CATEGORY TWO - 20% 8,189 5,713 6,567 3,841 2,780
CATEGORY THREE - 50% 13,950 13,520 12,669 11,763 10,584
CATEGORY FOUR - 100% 28,981 37,472 36,515 44,321 45,656
TOTAL ON -BALANCE SHEET 51,120 56,705 55,751 59,925 59,020
MEMO: CATEGORY ONE - 0% 9,283 3,636 3,098 4,250 5,978
OFF- BALANCE SHEET
CATEGORY TWO - 20% 0 0 0 0 0
CATEGORY THREE - 50% 0 0 0 0 0
CATEGORY FOUR - 100% 57 157 158 128 69
TOTAL OFF -BALANCE SHEET 57 157 158 128 69
MEMO: CATEGORY ONE - 0% 0 0 0 0 0
ADJUSTMENTS TO RISK-WGT ASSETS
RISK-WIEGHTED ASSET BEFORE DED 51,177 56,862 55,909 60,053 59,089
- - INELIGIBLE DEF TAX ASSETS 0 0 0 0 0
- - INELIGIBLE INTANGIBLES 0 0 0 0 0
- - RECIPROCAL CAPITAL HOLDINGS 0 0 0 0 0
- - EXCESS ALLOWABLE LN&LS LOSS AL 646 587 600 419 226
- - ALLOCATED TRANSFER RISK RESERV 0 0 0 0 0
+ MKT RISK ASSETS & FIN SUB ADJ 0 0 0 0 0
TOTAL RISK -WEIGHTED ASSETS 50,532 56,276 55,309 59,634 58,863
</Table>
<Table>
<Caption>
RISK-BASED CAPITAL BANK PEER9 PCT BANK PEER13 PCT BANK PEER13 PCT BANK PEER13 BANK PEER13
- ------------------------------- ----- ----- ----- ----- ------ ----- ----- ------ ----- ----- ------ ----- -----
TIER ONE RBC TO RISK-WGT ASSETS 22.34 13.59 87 18.84 13.60 84 19.31 13.57 85 16.65 13.99 15.73 14.26
TOTAL RBC TO RISK-WEIGHT ASSETS 23.60 14.71 87 20.11 14.69 85 20.57 14.70 86 17.91 15.09 16.98 15.37
TIER ONE LEVERAGE CAPITAL 10.85 9.58 73 11.18 9.52 76 10.96 9.44 77 11.08 9.84 10.50 9.60
OTHER CAPITAL RATIO:
DEF TAX ASSET TO T1 CAP 0.00 1.19 43 0.00 0.73 57 0.41 0.94 57 0.95 1.20 2.23 2.06
</Table>
NOTE: FROM MARCH 31, 2001 FORWARD RISK BASED CAPITAL RATIOS AND DATA DO INCLUDE
ADJUSTMENT FOR FINANCIAL SUBSIDIARIES. FOR BANKS WITH FINANCIAL SUBSIDIARIES
PLEASE REFER TO CALL REPORT FOR INFORMATION ON THE ADJUSTMENT.
<Table>
CERT #306 DIST/RSSD: 06/860334 BANK OF ZACHARY ZACHARY, LA PAGE 12
CHARTER # NA COUNTY: EAST BATON ROUGE ONE QUARTER ANNUALIZED INCOME ANALYSIS 1/20/03 5:21:22 PM
</Table>
<Table>
<Caption>
09/30/2002 6/30/2002 3/31/2002 12/31/2001 9/30/2001
EARNINGS AND PROFITABILITY N/A
PERCENT OF AVERAGE ASSETS: BANK PEER9 PCT NA 0.00 NA BANK PEER13 PCT BANK PEER13 BANK PEER13
INTEREST INCOME (TE) 6.26 6.11 56 NA 0.00 NA 6.69 6.36 72 6.82 6.76 7.10 7.26
- INTEREST EXPENSE 1.87 2.11 35 NA 0.00 NA 2.09 2.36 32 2.40 2.77 2.81 3.30
NET INTEREST INCOME (TE) 4.39 3.99 73 NA 0.00 NA 4.60 3.98 81 4.42 3.99 4.29 3.97
+ NONINTEREST INCOME 1.03 0.73 76 NA 0.00 NA 1.05 0.65 81 1.17 0.70 2.64 0.70
- NON-INTEREST EXPENSE 3.48 2.82 79 NA 0.00 NA 3.38 3.18 63 3.33 3.30 3.92 3.23
- PROVISION: LOAN&LEASE LOSSES 0.36 0.27 69 NA 0.00 NA 0.30 0.21 67 0.37 0.35 0.26 0.23
PRETAX OPERATING INCOME (TE) 1.59 1.73 40 NA 0.00 NA 1.98 1.27 79 1.89 1.06 2.75 1.26
+ REALIZED GAINS/LOSSES SECS 0.00 0.03 72 NA 0.00 NA 0.00 0.01 82 0.14 0.03 -0.02 0.02
PRETAX NET OPERATING INC (TE) 1.59 1.79 38 NA 0.00 NA 1.98 1.29 79 2.03 1.12 2.73 1.31
NET OPERATING INCOME 1.07 1.26 41 NA 0.00 NA 1.30 0.93 72 1.34 0.79 1.80 0.95
ADJUSTED NET OPERATING INCOME 1.25 1.42 41 NA 0.00 NA 1.39 1.09 68 1.34 0.97 1.97 1.10
NET INCOME ADJUSTED SUB S 1.16 N/A 0.00 N/A 0.86 N/A 0.72 0.87
NET INCOME 1.07 1.26 41 NA 0.00 NA 1.30 0.93 72 1.34 0.79 1.80 0.95
MARGIN ANALYSIS: NA 0.00 N/A
INT INC (TE) TO AVG EARN ASSETS 6.76 6.51 61 NA 0.00 NA 7.19 6.82 72 7.37 7.25 7.66 7.78
INT EXPENSE TO AVG EARN ASSETS 2.01 2.25 35 NA 0.00 NA 2.25 2.54 33 2.59 2.97 3.04 3.53
NET INT INC -TE TO AVG EARN ASST 4.74 4.25 74 NA 0.00 NA 4.95 4.29 80 4.77 4.29 4.63 4.25
0.00 0.00 N/A
LOAN & LEASE ANALYSIS NA 0.00 N/A
NET LOSS TO AVERAGE TOTAL LN&LS 0.33 0.14 81 NA 0.00 NA 0.37 0.10 86 0.61 0.28 0.14 0.14
EARNINGS COVERAGE OF NET LOSS(X) 11.30 8.55 64 NA 0.00 NA 10.72 -0.17 72 6.05 7.59 33.90 6.37
LN&LS ALLOWANCE TO NET LOSSES(X) 7.31 3.07 67 NA 0.00 NA 6.22 -0.38 71 3.56 4.34 15.44 2.28
0.00 0.00 N/A
CAPITALIZATION NA 0.00 N/A
CASH DIVIDENDS TO NET INCOME 0.00 15.32 63 NA 0.00 NA 0.00 20.57 65 79.14 22.94 0.00 13.85
RETAIN EARNS TO AVG TOT EQUITY 9.63 9.65 49 NA 0.00 NA 11.96 5.74 81 2.49 3.81 16.04 6.76
0.00 0.00 N/A
YIELD ON OR COST OF: NA 0.00 N/A
TOTAL LOANS & LEASES (TE) 8.42 7.33 90 NA 0.00 NA 8.46 7.81 81 8.56 8.32 8.48 8.81
LOANS IN DOMESTIC OFFICES 8.42 7.32 90 NA 0.00 NA 8.46 7.79 81 8.56 8.31 8.48 8.80
REAL ESTATE 8.14 7.25 85 NA 0.00 NA 8.17 7.68 72 8.37 7.62 8.30 8.60
COMMERCIAL & INDUSTRIAL 14.69 7.13 97 NA 0.00 NA 9.66 7.72 87 6.02 7.59 9.39 8.86
INDIVIDUAL 9.35 7.57 72 NA 0.00 NA 13.87 8.89 95 14.24 8.54 13.89 9.45
CREDIT CARD PLANS NA 2.08 75 NA 0.00 NA NA 2.25 75 NA 2.12 NA 2.12
AGRICULTURAL NA 0.17 92 NA 0.00 NA NA 0.89 83 NA 0.98 NA 0.96
LOANS IN FOREIGN OFFICES NA N/A 99 NA 0.00 NA NA N/A 99 NA N/A NA N/A
TOTAL INVESTMENT SECURITIES(TE) 5.03 4.96 53 NA 0.00 NA 5.60 5.33 57 5.86 5.59 5.76 5.89
TOTAL INVESTMENT SECURITIES(BOOK) 4.92 4.67 60 NA 0.00 NA 5.60 5.09 74 5.86 5.29 5.76 5.65
U S TREAS & AGENCY (EXCL MBS) 5.12 3.87 73 NA 0.00 NA 5.79 4.55 79 5.83 4.88 5.93 5.20
MORTGAGE BACKED SECURITIES 4.87 3.63 52 NA 0.00 NA 5.40 3.78 57 5.93 3.81 6.50 4.05
ALL OTHER SECURITIES 4.06 3.45 45 NA 0.00 NA 8.33 3.29 97 NA 3.19 NA 3.26
INTEREST-BEARING BANK BALANCES 3.74 1.18 85 NA 0.00 NA 0.00 1.51 49 0.00 1.86 10.81 2.58
FEDERAL FUNDS SOLD & RESALES 1.62 1.50 36 NA 0.00 NA 1.54 1.46 33 2.12 1.92 3.38 3.15
TOTAL INT-BEARING DEPOSITS 2.75 2.68 52 NA 0.00 NA 3.09 3.06 49 3.53 3.61 4.18 4.30
TRANSACTION ACCOUNTS 1.45 0.93 79 NA 0.00 NA 1.48 1.08 74 1.83 1.28 2.39 1.72
OTHER SAVINGS DEPOSITS 1.51 1.77 36 NA 0.00 NA 1.43 1.83 21 1.75 2.20 2.00 2.93
TIME DEPS OVER $100M 3.32 3.41 41 NA 0.00 NA 3.91 3.97 42 4.44 4.70 5.39 5.39
ALL OTHER TIME DEPOSITS 3.51 3.55 45 NA 0.00 NA 4.09 4.18 42 4.57 4.88 5.15 5.46
DEPOSITS IN FOREIGN OFFICES NA N/A 98 NA 0.00 NA NA N/A 99 NA N/A NA N/A
FEDERAL FUNDS PURCHASED & REPOS NA 0.86 50 NA 0.00 NA NA 0.63 64 NA 0.75 NA 0.91
OTHER BORROWED MONEY NA 2.16 41 NA 0.00 NA NA 1.82 52 NA 1.86 NA 2.12
SUBORD NOTES & DEBENTURES NA N/A 97 NA 0.00 NA NA N/A 98 NA N/A NA N/A
ALL INTEREST-BEARING FUNDS 2.75 2.73 47 NA 0.00 NA 3.09 3.08 48 3.53 3.64 4.18 4.34
</Table>
<Table>
CERT #306 DIST/RSSD: 06/860334 BANK OF ZACHARY ZACHARY, LA PAGE 13
CHARTER # NA COUNTY: EAST BATON ROUGE SECURITIZATION AND ASSET SALE ACTIVITIES 1/20/03 5:21:24 PM
</Table>
<Table>
<Caption>
PERCENT CHANGE
-------------------------
09/30/2002 09/30/2001 12/31/2001 12/31/2000 12/31/1999 1 QTR 1 YEAR
----------- ----------- ----------- ----------- ----------- ----------- -----------
SECURITIZATION ACTIVITIES 0 0 0 NA NA NA NA
1-4 FAMILY RESIDENTIAL LOANS 0 0 0 NA NA NA NA
HOME EQUITY LINES 0 0 0 NA NA NA NA
CREDIT CARD RECEIVABLES 0 0 0 NA NA NA NA
AUTO LOANS 0 0 0 NA NA NA NA
COMMERCIAL & INDUSTRIAL LOANS 0 0 0 NA NA NA NA
ALL OTHER LOANS AND LEASES 0 0 0 NA NA NA NA
RETAINED INTEREST-ONLY STRIPS 0 0 0 NA NA NA NA
1-4 FAMILY RESIDENTIAL LOANS 0 0 0 NA NA NA NA
HOME EQUITY LOANS 0 0 0 NA NA NA NA
CREDIT CARD RECEIVABLES 0 0 0 NA NA NA NA
AUTO LOANS 0 0 0 NA NA NA NA
COMMERCIAL & INDUSTRIAL LOANS 0 0 0 NA NA NA NA
ALL OTHER LOANS AND LEASES 0 0 0 NA NA NA NA
RETAINED CREDIT ENHANCEMENTS 0 0 0 NA NA NA NA
1-4 FAMILY RESIDENTIAL LOANS 0 0 0 NA NA NA NA
HOME EQUITY LOANS 0 0 0 NA NA NA NA
CREDIT CARD RECEIVABLES 0 0 0 NA NA NA NA
AUTO LOANS 0 0 0 NA NA NA NA
COMMERCIAL & INDUSTRIAL LOANS 0 0 0 NA NA NA NA
ALL OTHER LOANS AND LEASES 0 0 0 NA NA NA NA
UNUSED LIQUIDITY COMMITMENTS 0 0 0 NA NA NA NA
SELLERS INTEREST IN SECS & LOANS 0 0 0 NA NA NA NA
HOME EQUITY LINES 0 0 0 NA NA NA NA
CREDIT CARD RECEIVABLES 0 0 0 NA NA NA NA
COMMERCIAL & INDUSTRIAL LOANS 0 0 0 NA NA NA NA
TOTAL RETAINED CREDIT EXPOSURE 0 0 0 NA NA NA NA
ASSET BACKED COMML PAPER COND 0 0 0 NA NA NA NA
CR EXP SPONS BY BANK & OTHER 0 0 0 NA NA NA NA
LIQUID COMM BY BANK & OTHER 0 0 0 NA NA NA NA
ACTIVITY %TOTAL ASSETS
SECURITIZATION ACTIVITIES 0.00 0.00 0.00 NA NA
1-4 FAMILY RESIDENTIAL LOANS 0.00 0.00 0.00 NA NA
HOME EQUITY LINES 0.00 0.00 0.00 NA NA
CREDIT CARD RECEIVABLES 0.00 0.00 0.00 NA NA
AUTO LOANS 0.00 0.00 0.00 NA NA
COMMERCIAL & INDUSTRIAL LOANS 0.00 0.00 0.00 NA NA
ALL OTHER LOANS AND LEASES 0.00 0.00 0.00 NA NA
ASSET BACKED COMML PAPER COND 0.00 0.00 0.00 NA NA
CR EXP SPONS BY BANK & OTHER 0.00 0.00 0.00 NA NA
LIQUID COMM BY BANK & OTHER 0.00 0.00 0.00 NA NA
PERCENT OF TOT MANAGED ASSETS ON
BALANCE SHEET & SEC ASSETS
1-4 FAMILY RESIDENTIAL LOANS 42.13 45.77 43.78 NA NA
HOME EQUITY LINES 0.00 0.00 0.00 NA NA
CREDIT CARD RECEIVABLES 0.00 0.00 0.00 NA NA
AUTO LOANS 12.82 8.05 8.17 NA NA
COMMERCIAL & INDUSTRIAL LOANS 7.39 10.28 11.62 NA NA
ALL OTHER LOANS AND LEASES 37.66 35.90 36.43 NA NA
</Table>
<Table>
SUMMARY INFORMATION FOR BANKS IN STATE OF LOUISIANA STAVG
AVERAGE FOR ALL INSURED COMMERCIAL BANKS IN STATE BANKS WITH ASSETS - $MILL 09/30/2002
</Table>
<Table>
<Caption>
09/30/2002 9/30/2001 12/31/2001 12/31/2000 12/31/1999 0-25 25-100 100+
---------- --------- ---------- ---------- ---------- ---- ------ ----
NA NA NA
EARNINGS AND PROFITABILITY
PERCENT OF AVERAGE ASSETS:
INTEREST INCOME (TE) 6.45 7.53 7.34 7.84 7.48 6.12 6.50 6.35
- INTEREST EXPENSE 1.99 3.24 3.07 3.32 2.98 1.99 1.99 1.95
NET INTEREST INCOME (TE) 4.46 4.30 4.29 4.53 4.50 4.12 4.49 4.40
+ NONINTEREST INCOME 0.99 0.95 0.96 0.95 0.93 20.95 0.91 1.07
- NON-INTEREST EXPENSE 3.54 3.53 3.61 3.72 3.67 23.02 3.46 3.53
- PROVISION: LOAN&LEASE LOSSES 0.19 0.18 0.21 0.23 0.21 0.37 0.16 0.23
= PRETAX OPERATING INCOME (TE) 1.73 1.56 1.44 1.55 1.59 1.67 1.73 1.74
+ SECURITIES GAINS (LOSSES) 0.02 0.01 0.02 0.00 0.00 0.03 0.02 0.02
= PRETAX NET OPERATING INC (TE) 1.75 1.58 1.48 1.55 1.58 1.70 1.74 1.76
NET OPERATING INCOME 1.23 1.11 1.04 1.05 1.05 1.25 1.28 1.19
ADJUSTED NET OPERATING INCOME 1.34 1.20 1.10 1.15 1.10 1.51 1.35 1.29
NET INCOME ADJUSTED SUB S 1.17 1.07 0.99 1.03 1.03 1.21 1.17 1.17
NET INCOME 1.23 1.11 1.04 1.05 1.05 1.25 1.28 1.19
MARGIN ANALYSIS:
AVG EARNINGS ASSETS TO AVG ASSETS 92.07 92.48 92.36 92.67 92.29 91.50 92.38 91.69
AVG INT-BEARING FUNDS TO AVG AST 73.10 73.09 73.03 72.29 72.55 66.86 71.88 74.23
INT INC (TE) TO AVG EARN ASSETS 7.03 8.16 7.96 8.48 8.12 6.65 7.05 6.95
INT EXPENSE TO AVG EARN ASSETS 2.17 3.51 3.33 3.59 3.24 2.17 2.18 2.13
NET INT INC -TE TO AVG EARN ASSET 4.86 4.66 4.67 4.89 4.88 4.48 4.87 4.81
LOAN & LEASE ANALYSIS:
NET LOSS TO AVERAGE TOTAL LN&LS 0.20 0.21 0.26 0.24 0.30 0.25 0.18 0.21
EARNINGS COVERAGE OF NET LOSS(X) 28.21 22.59 18.06 23.31 18.07 39.43 41.58 22.76
LN&LS ALLOWANCE TO NET LOSSES(X) 14.04 12.04 9.49 10.87 8.97 26.88 22.97 10.49
LN&LS ALLOWANCE TO TOTAL LN&LS 1.54 1.53 1.55 1.56 1.59 1.84 1.60 1.44
LIQUIDITY:
NET NON CORE FUNDING DEPENDENCE 11.58 8.45 8.26 7.04 9.38 8.43 8.15 14.80
NET LOANS & LEASES TO ASSETS 58.26 57.76 56.02 57.45 55.41 49.00 57.20 59.54
CAPITALIZATION
TIER ONE LEVERAGE CAPITAL 10.83 10.78 10.43 10.99 10.56 21.75 11.30 10.00
CASH DIVIDENDS TO NET INCOME 19.00 21.97 40.41 36.30 34.86 1.22 19.85 21.63
RETAIN EARNS TO AVG TOTAL EQUITY 8.51 7.24 5.05 5.02 5.33 7.80 8.34 8.68
GROWTH RATES:
ASSETS 7.82 11.71 12.11 7.66 5.39 9.38 7.08 8.62
TIER ONE CAPITAL 7.48 6.94 6.88 6.45 7.80 3.94 6.88 8.65
NET LOANS & LEASES 8.41 10.67 9.54 13.09 10.52 2.93 8.46 8.80
SHORT TERM INVESTMENTS -10.50 92.32 48.54 45.39 -27.65 74.91 -6.46 -22.41
SHORT TERM NON CORE FUNDING 6.22 17.95 20.83 9.26 23.64 135.12 3.75 5.10
NON-CURRENT LOANS & LEASES:
TOTAL LN&LS-90+ DAYS PAST DUE 0.33 0.29 0.29 0.27 0.34 0.94 0.41 0.22
- NONACCRUAL 0.60 0.62 0.60 0.61 0.53 1.26 0.61 0.67
- TOTAL 1.07 1.00 1.03 0.94 1.02 2.20 1.14 0.96
TOTAL ASSETS ($MILLIONS) 43,396 41,731 42,650 51,520 50,655 109 4,899 38,387
EQUITY CAPITAL ($MILLIONS) 4,300 4,086 3,973 4,588 4,524 15 573 3,712
NET INCOME ($ MILLIONS) 443 379 502 456 547 0 48 394
NUMBER OF BANKS IN TABULATION 141 142 142 148 152 7 75 59
</Table>
Zachary Bancshares, Inc.
Fairness Opinion
EXHIBIT F
VALUATION CALCULATIONS
COMPARABLE TRANSACTIONS METHOD
COMPARABLE WHOLE BANK TRANSACTIONS METHOD
NATIONAL COMPOSITE
ASSETS 75-125MM
7/1/01 TO10/22/02
NUMBER OF TRANSACTIONS 33
<Table>
<Caption>
80% TRIM
AVERAGE MEDIAN AVERAGE
BOOK VALUE MULTIPLE 1.85 1.71 1.78
EARNINGS MULTIPLE 18.51 16.15 17.40
PRICE TO DEPOSITS 19.48 19.09 19.08
PRICE TO ASSETS 16.89 16.48 16.48
PREMIUM TO CORE DEPOSITS 10.71 8.79 9.74
</Table>
NATIONAL CAPITAL, L.L.C.
COMPARABLE WHOLE BANK TRANSACTIONS METHOD
INDICATION OF VALUE
MARKET VALUATION
METHOD
<Table>
<Caption>
RELEVANT MARKET
AVERAGE FACTOR VALUE WEIGHT
BOOK VALUE MULTIPLE 1.85 11,749 $ 21,789 15%
EARNINGS MULTIPLE 18.51 1,193 $ 22,082 40%
PRICE TO DEPOSITS 19.48 94,112 $ 18,332 20%
PRICE TO ASSETS 16.89 106,524 $ 17,987 15%
PREMIUM TO CORE DEPOSITS 10.71 58,543 $ 18,019 10%
TOTAL WEIGHTS 100%
MARKET VALUE $ 20,267
</Table>
NATIONAL CAPITAL, L.L.C.
COMPARABLE WHOLE BANK TRANSACTIONS METHOD
REALITY CHECK
<Table>
TOTAL ASSETS $ 106,524
4 YR. RETURN ON AVERAGE ASSETS 1.34
4 YR. RETURN ON EQUITY 12.69
COMPARABLE
WHOLE BANK SALES PRICE 20,267
BOOK VALUE MULTIPLE 1.73 1.78
EARNINGS MULTIPLE 16.99 17.40
PRICE TO DEPOSITS 21.54 19.08
PRICE TO ASSETS 19.03 16.48
PREMIUM TO CORE DEPOSITS 14.55 9.74
</Table>
NATIONAL CAPITAL, L.L.C.
COMPARABLE WHOLE BANK TRANSACTIONS METHOD
SHARE VALUATION
<Table>
COMMON SHARES 193,667
BANK INDICATED VALUE $ 20,267
PERCENTAGE OF BANK OWNED 100.00%
PER SHARE
INDICATED VALUE OF BANK $ 104.65
PLUS CASH AT BANCSHARES $ 502 $ 2.59
LESS DEBT AT BANCSHARES $ -- $ --
BANCSHARES INDICATED VALUE/SHARE $ 107.24
</Table>
NATIONAL CAPITAL, L.L.C.
COMPARABLE WHOLE BANK TRANSACTIONS METHOD
SHARE VALUATION
<Table>
COMMON SHARES OUTSTANDING 193,667
WHOLE COMPANY VALUATION $ 20,769,393
PER SHARE
INDICATED WHOLE COMPANY VALUE $ 107.24
MINORITY DISCOUNT 0.0%
MINORITY VALUE/SHARE $ 107.24
MARKETABILITY DISCOUNT 35.00%
ILLIQUID MINORITY SHARE VALUE $ 69.71
</Table>
NATIONAL CAPITAL, L.L.C.
COMPARABLE TRANSACTION REPORT
SELLER ASSETS $75-125MM
ANNOUNCED 7/1/01 TO 10/23/02
<Table>
<Caption>
BUYER BUYER BUYER TARGET TARGET TARGET
NAME CITY STATE NAME CITY STATE
Charter Financial Corporation West Point GA EBA Bancshares, Inc. Opelika AL
Community Bankshares, Inc. Orangeburg SC Ridgeway Bancshares, Inc. Ridgeway SC
Putnam-Greene Financial Corp. Eatonton GA Citizens Bank of Cochran Cochran GA
Mahaska Investment Company Oskaloosa IA Belle Plaine Service Corp. Belle Plaine IA
ITLA Capital Corporation La Jolla CA Asahi Bank of California Los Angeles CA
First Delta Bankshares, Inc. Blytheville AR Bank of Trumann Trumann AR
First Community Capital Corp. Houston TX Express Bank Alvin TX
First Capital, Inc. Corydon IN Hometown Bancshares, Inc. New Albany IN
Main Street Banks, Inc. Kennesaw GA First National Bank of Johns Creek Suwanee GA
Aviston Financial Corporation Trenton IL Aviston Bancorp, Inc. Aviston IL
Schaumburg Bancshares, Inc. Hinsdale IL First Schaumburg Bancorporation, Inc. Schaumburg IL
GB&T Bancshares, Inc. Gainesville GA HomeTown Bank of Villa Rica Villa Rica GA
Horizons Bancorp, Inc. Monroe LA American National Bancshares Ruston LA
Provident Bancorp, Inc. Montebello NY National Bank of Florida Florida NY
Sunflower Banks, Inc. Salina KS First Canon Bancorp, Inc. Canon City CO
Banc Corp (The) Birmingham AL CF Bancshares, Inc. Port St Joe FL
Westamerica Bancorporation San Rafael CA Kerman State Bank Kerman CA
Grupo Caixa Geral de Depositos Lisbon Crown Bank, NA Ocean City NJ
Regions Financial Corporation Birmingham AL Independence Bank Houston TX
Citizens Bancshares Corporation Atlanta GA CFS Bancshares, Inc. Birmingham AL
National Bancshares Corporation Orrville OH Peoples Financial Corporation Massillon OH
First Community Bancorp Rancho Santa Fe CA Marathon Bancorp Los Angeles CA
First Community Bancorp Rancho Santa Fe CA Upland Bank Upland CA
Umpqua Holdings Corporation Portland OR Linn-Benton Bank Albany OR
Investor Group ND North Star Holding Company Jamestown ND
Frandsen Financial Corporation Forest Lake MN Community National Corp. Grand Forks ND
First Citizens Bancshares Dyersburg TN Metropolitan Bancshares, Inc. Munford TN
Pinnacle Bancorp, Inc. Central City NE Keene Bancorp, Inc. Keene TX
FNB Corp. Asheboro NC Rowan Bancorp, Inc. China Grove NC
FBOP Corporation Oak Park IL American Home Loan Corporation Phoenix AZ
Sterling Bancshares, Inc. Houston TX Community Bancshares, Inc. Katy TX
Second Bancorp, Inc. Warren OH Commerce Exchange Corp. Beachwood OH
Abington Bancorp, Inc. Abington MA Massachusetts Fincorp, Inc. Quincy MA
Count
Average
Median
Trim Mean (80%)
Minimum
Maximum
<Caption>
BUYER ANNOUNCE COMPLETION TRANS CONSIDER REASON
NAME DATE DATE STATUS TYPE FOR TRANS
Charter Financial Corporation 9/10/2002 Pending Cash In-market expansion
Community Bankshares, Inc. 11/21/2001 7/1/2002 Completed Cash, Stock Entry into new market
Putnam-Greene Financial Corp. 9/5/2002 Pending Cash, Debt Entry into new market
Mahaska Investment Company 10/4/2002 Pending Cash Entry into new market
ITLA Capital Corporation 11/2/2001 1/31/2002 Completed Cash In-market expansion
First Delta Bankshares, Inc. 4/12/2002 8/30/2002 Completed Cash Entry into new market
First Community Capital Corp. 1/10/2002 5/10/2002 Completed Cash In-market expansion
First Capital, Inc. 9/26/2002 Pending Cash, Stock In-market expansion
Main Street Banks, Inc. 7/18/2002 Pending Cash, Stock Entry into new market
Aviston Financial Corporation 6/26/2002 Pending Cash, Debt Alternative to starting new bank
Schaumburg Bancshares, Inc. 4/19/2002 Pending Cash, Other Alternative to starting new bank
GB&T Bancshares, Inc. 1/31/2002 Pending Cash, Stock In-market expansion
Horizons Bancorp, Inc. 2/21/2002 Pending Cash, Stock Entry into new market
Provident Bancorp, Inc. 11/2/2001 4/23/2002 Completed Cash In-market expansion
Sunflower Banks, Inc. 8/9/2001 11/7/2001 Completed Entry into new market
Banc Corp (The) 8/9/2001 2/15/2002 Completed Cash, Stock In-market expansion
Westamerica Bancorporation 2/25/2002 6/21/2002 Completed Stock In-market expansion
Grupo Caixa Geral de Depositos 10/4/2001 Pending Cash Entry into new market
Regions Financial Corporation 12/21/2001 5/16/2002 Completed Cash In-market expansion
Citizens Bancshares Corporation 5/30/2002 Pending Cash Entry into new market
National Bancshares Corporation 10/2/2001 4/3/2002 Completed Cash Entry into new market
First Community Bancorp 5/14/2002 8/23/2002 Completed Cash, Stock In-market expansion
First Community Bancorp 4/18/2002 8/22/2002 Completed Cash, Stock In-market expansion
Umpqua Holdings Corporation 8/21/2001 12/27/2001 Completed Cash, Stock In-market expansion
Investor Group 6/10/2002 Pending Cash Entry into new market
Frandsen Financial Corporation 1/5/2002 4/4/2002 Completed Cash In-market expansion
First Citizens Bancshares 3/4/2002 5/31/2002 Completed Cash, Debt Entry into new market
Pinnacle Bancorp, Inc. 5/24/2002 Pending Entry into new market
FNB Corp. 2/12/2002 8/1/2002 Completed Cash, Stock Entry into new market
FBOP Corporation 6/24/2002 Pending Cash Entry into new market
Sterling Bancshares, Inc. 10/2/2001 12/17/2001 Completed Cash, Stock In-market expansion
Second Bancorp, Inc. 7/23/2001 10/25/2001 Completed Cash In-market expansion
Abington Bancorp, Inc. 4/10/2002 9/13/2002 Completed Cash, Stock In-market expansion
Count
Average
Median
Trim Mean (80%)
Minimum
Maximum
<Caption>
PRICE
BUYER ACCOUNTING MERGER OF HOSTILE/ TOTAL PRICE TO TO TANG
NAME TYPE EQUALS? UNSOLIC? PRICE EQUITY(X) EQUITY(X)
Charter Financial Corporation Purchase No No 8,446 1.64 1.64
Community Bankshares, Inc. Purchase No No 15,950 1.86 1.93
Putnam-Greene Financial Corp. Purchase No No 14,000 2.30 2.30
Mahaska Investment Company Purchase No No 6,800 1.71 1.71
ITLA Capital Corporation Purchase No No 14,900 1.20 1.20
First Delta Bankshares, Inc. Purchase No No 14,280 1.30 1.30
First Community Capital Corp. Purchase No No 15,000 2.23 2.23
First Capital, Inc. Purchase No No 11,301 1.59 1.59
Main Street Banks, Inc. Purchase No No 27,013 2.51 2.51
Aviston Financial Corporation Purchase No No 15,000 1.43 1.43
Schaumburg Bancshares, Inc. Purchase No No 16,000 2.49 2.49
GB&T Bancshares, Inc. Purchase No No 13,531 1.74 1.74
Horizons Bancorp, Inc. Purchase No No 8,500 1.35 1.35
Provident Bancorp, Inc. Purchase No No 28,100 1.66 1.66
Sunflower Banks, Inc. Purchase No No 16,500 1.79 1.79
Banc Corp (The) Purchase No No 15,250 1.88 1.88
Westamerica Bancorporation Purchase No No 16,129 1.36 1.36
Grupo Caixa Geral de Depositos Purchase No No 17,916 1.50 1.50
Regions Financial Corporation Purchase No No 20,000 2.10 2.10
Citizens Bancshares Corporation Purchase No No 9,500 1.09 1.09
National Bancshares Corporation Purchase No No 15,118 1.45 1.45
First Community Bancorp Purchase No No 19,109 1.55 1.55
First Community Bancorp Purchase No No 18,358 1.57 1.57
Umpqua Holdings Corporation Purchase No No 20,026 1.95 1.95
Investor Group Purchase No No 16,494 1.55 1.55
Frandsen Financial Corporation Purchase No No 21,590 1.55 1.55
First Citizens Bancshares Purchase No No 19,000 1.94 1.94
Pinnacle Bancorp, Inc. Purchase No No 17,600 1.95 1.95
FNB Corp. Purchase No No 21,797 1.99 1.99
FBOP Corporation Purchase No No 14,697 2.49 2.49
Sterling Bancshares, Inc. Purchase No No 34,000 4.64 4.64
Second Bancorp, Inc. Purchase No No 26,500 2.11 2.11
Abington Bancorp, Inc. Purchase No No 16,701 1.66 1.66
Count 33 33 33
Average 17,124 1.85 1.85
Median 16,129 1.71 1.71
Trim Mean (80%) 16,750 1.77 1.78
Minimum 6,800 1.09 1.09
Maximum 34,000 4.64 4.64
<Caption>
PRICE PRICE PRICE PREMIUM SELLER
BUYER TO LTM NET TO TOTAL TO TOTAL TO CORE TANG
NAME INCOME(X) ASSETS(%) DEP(%) DEP(%) EQUITY
Charter Financial Corporation 20.96 10.83 12.80 7.33 5,078
Community Bankshares, Inc. 15.79 20.81 24.57 13.53 8,264
Putnam-Greene Financial Corp. 9.23 18.14 21.46 15.79 6,089
Mahaska Investment Company 13.39 8.75 10.15 4.90 5,898
ITLA Capital Corporation 26.65 29.80 25.80 5.09 22,766
First Delta Bankshares, Inc. 20.40 17.13 21.22 5.77 10,999
First Community Capital Corp. 9.24 17.90 19.63 12.15 6,738
First Capital, Inc. 24.04 12.99 14.22 7.00 7,109
Main Street Banks, Inc. 44.33 26.70 31.57 28.06 9,366
Aviston Financial Corporation 18.75 15.95 18.16 6.04 10,506
Schaumburg Bancshares, Inc. 5.44 14.94 16.36 10.33 7,593
GB&T Bancshares, Inc. 31.32 13.45 15.45 7.98 7,467
Horizons Bancorp, Inc. 40.48 8.60 9.25 3.15 6,278
Provident Bancorp, Inc. 24.65 28.22 34.43 14.69 16,924
Sunflower Banks, Inc. 9.62 16.32 20.54 9.81 9,216
Banc Corp (The) 16.15 14.49 19.02 10.83 7,469
Westamerica Bancorporation 17.24 15.03 17.08 7.62 11,698
Grupo Caixa Geral de Depositos 20.22 16.91 19.20 8.79 11,944
Regions Financial Corporation 18.98 18.71 20.92 13.35 9,514
Citizens Bancshares Corporation 14.30 8.30 11.42 1.84 9,403
National Bancshares Corporation 32.23 13.84 19.98 6.99 10,406
First Community Bancorp 15.50 16.92 19.47 7.77 11,932
First Community Bancorp 14.36 16.48 18.91 8.52 11,534
Umpqua Holdings Corporation 13.26 16.69 19.09 9.95 9,707
Investor Group 11.27 14.42 15.99 6.41 10,658
Frandsen Financial Corporation 18.14 18.87 20.94 7.87 9,257
First Citizens Bancshares 12.40 16.54 19.00 11.82 9,799
Pinnacle Bancorp, Inc. 9.23 15.18 17.18 10.18 9,029
FNB Corp. 29.11 17.23 20.61 13.21 9,801
FBOP Corporation 10.25 12.65 15.53 16.56 9,800
Sterling Bancshares, Inc. 11.76 28.71 30.92 32.08 7,324
Second Bancorp, Inc. 14.66 22.23 25.52 20.40 12,570
Abington Bancorp, Inc. 17.47 13.48 16.40 7.61 10,038
Count 33 33 33 33 33
Average 18.51 16.89 19.48 10.71 9,763
Median 16.15 16.48 19.09 8.79 9,514
Trim Mean (80%) 17.40 16.48 19.08 9.74 9,365
Minimum 5.44 8.30 9.25 1.84 5,078
Maximum 44.33 29.80 34.43 32.08 22,766
<Caption>
SELLER SELLER
BUYER LTM NET SELLER SELLER TOTAL SELLER
NAME INCOME EQUITY TOT ASSETS DEPOSITS CORE DEP
Charter Financial Corporation 403 5,078 76,326 63,895 45,086
Community Bankshares, Inc. 1,010 8,586 76,629 64,904 56,808
Putnam-Greene Financial Corp. 1,517 6,089 77,178 65,226 50,111
Mahaska Investment Company 508 5,898 77,748 67,006 57,639
ITLA Capital Corporation 559 22,766 80,966 57,749 48,793
First Delta Bankshares, Inc. 700 10,999 83,355 67,293 56,912
First Community Capital Corp. 1,623 6,738 83,807 76,428 67,983
First Capital, Inc. 470 7,109 86,982 79,474 59,886
Main Street Banks, Inc. 531 9,366 88,183 74,565 50,517
Aviston Financial Corporation 800 10,506 94,023 82,601 74,369
Schaumburg Bancshares, Inc. 2,611 7,593 95,054 86,792 82,278
GB&T Bancshares, Inc. 414 7,467 96,442 83,955 68,913
Horizons Bancorp, Inc. 210 6,278 98,891 91,881 69,516
Provident Bancorp, Inc. 1,140 16,924 99,569 81,619 76,096
Sunflower Banks, Inc. 1,716 9,216 101,108 80,323 74,234
Banc Corp (The) 944 7,469 103,712 79,127 65,868
Westamerica Bancorporation 920 11,698 105,535 92,878 54,617
Grupo Caixa Geral de Depositos 886 11,944 105,941 93,305 67,967
Regions Financial Corporation 1,054 9,514 106,922 95,600 78,522
Citizens Bancshares Corporation 629 9,403 108,177 78,721 38,385
National Bancshares Corporation 469 10,406 109,203 75,647 67,384
First Community Bancorp 1,193 11,932 109,304 95,008 84,413
First Community Bancorp 1,260 11,534 109,836 95,736 77,058
Umpqua Holdings Corporation 1,430 9,707 113,630 99,380 93,030
Investor Group 1,463 10,658 114,400 103,152 90,977
Frandsen Financial Corporation 1,190 9,257 114,415 103,083 97,250
First Citizens Bancshares 1,532 9,799 114,890 100,006 77,838
Pinnacle Bancorp, Inc. 1,906 9,029 115,952 102,431 84,190
FNB Corp. 687 9,801 116,033 97,005 75,369
FBOP Corporation 1,434 9,800 116,177 94,636 53,110
Sterling Bancshares, Inc. 2,892 7,324 118,408 109,969 83,161
Second Bancorp, Inc. 1,808 12,570 119,225 103,851 68,288
Abington Bancorp, Inc. 956 10,038 123,865 101,805 87,500
Count 33 33 33 33 33
Average 1,117 9,773 101,269 86,214 69,214
Median 1,010 9,514 105,535 86,792 68,913
Trim Mean (80%) 1,053 9,377 101,861 86,723 69,280
Minimum 210 5,078 76,326 57,749 38,385
Maximum 2,892 22,766 123,865 109,969 97,250
</Table>
Zachary Bancshares, Inc.
Fairness Opinion
EXHIBIT G
VALUATION CALCULATIONS
PUBLICLY TRADED COMPARABLE BANK METHODS
PUBLIC BANK STOCK COMPARABLES
REALLY PUBLIC COMPANY COMPARABLES
<Table>
<Caption>
6/30/2002 10/22/2002
TOTAL CLOSING PRICE TO DIVIDEND
SYMBOL COMPANY ASSETS PRICE EPS EARNINGS YIELD
RF Regions Financial Corporation 46,146,477 33.85 2.64 12.80 3.40%
ASO AmSouth Bancorporation 38,499,103 20.23 1.64 12.30 4.50%
HIB Hibernia Corporation 16,285,678 18.99 1.52 12.50 2.90%
BXS BancorpSouth, Inc. 9,931,826 19.38 1.47 13.20 3.00%
WTNY Whitney Holding Corporation 6,924,792 34.05 2.24 15.20 3.10%
TRMK Trustmark Corporation 6,846,350 22.69 1.92 11.80 2.90%
HBHC Hancock Holding Company 3,875,080 46.80 2.91 16.10 1.70%
IBKC IBERIABANK Corporation 1,434,914 35.65 2.85 12.50 2.20%
PHC Peoples Holding Company 1,310,844 43.75 3.02 14.50 2.30%
FMFC First M & F Corporation 1,014,588 26.93 2.09 12.90 3.70%
NBY NBC Capital Corporation 1,042,450 24.80 1.76 14.10 3.50%
AVERAGE 13.45 3.02%
TRIM MEAN 13.33 3.00%
</Table>
BARELY PUBLIC COMPANY COMPARABLES
<Table>
<Caption>
6/30/2002 10/22/2002
TOTAL CLOSING PRICE TO DIVIDEND
SYMBOL COMPANY ASSETS PRICE EPS EARNINGS YIELD
TSH Teche Holding Company 506,900 23.25 2.50 9.30 2.10%
CIZ Citizens Holding Company 514,018 16.55 1.23 13.50 3.30%
MSL MidSouth Bancorp, Inc. 379,031 13.20 1.22 10.80 1.50%
BKBK Britton & Koontz Capital Corporation 295,581 13.60 1.17 11.60 4.40%
AVERAGE 11.30 2.83%
AVERAGE OF ALL COMPARABLES 12.87 2.97%
</Table>
NATIONAL CAPITAL, L.L.C.
PUBLICLY TRADED COMPARABLE COMPANIES-PRICE TO EARNINGS
<Table>
Target Annual Earnings: $ 1,193,000
Shares Outstanding: 193,667
</Table>
<Table>
<Caption>
Estimated
Estimated Value
Comp Group P/E Value per Share
- ---------- ---------- ---------- ----------
"Barely Public" Comparables 11.30 13,480,900 69.61
All Comparables 12.87 15,357,887 79.30
"Really Public" Comparables 13.45 16,040,427 82.82
</Table>
NATIONAL CAPITAL, L.L.C.
PUBLICLY TRADED COMPARABLE COMPANIES-PRICE TO EARNINGS
SHARE VALUATION
<Table>
<Caption>
BARELY
PUBLIC ALL
COMPS COMPS
EXCHANGE METHOD MARKETABLE MINORITY VALUE PER SHARE $ 69.61 $ 79.30
Control Premium 27.0% 27.0%
Indicated Whole Bank Value per Share $ 88.40 $ 100.71
Marketability Discount 35.00% 35.00%
ILLIQUID FAIR VALUE PER SHARE $ 57.46 $ 65.46
INDICATED WHOLE BANK VALUE 17,120,743 19,504,516
</Table>
NATIONAL CAPITAL, L.L.C.
<Table>
2002 Estimated Net Profit $ 1,193,000
Plus: Est. Enhancement by Acquirer 178,950 (15%)
Equals: Target Annual Earnings: $ 1,371,950
</Table>
<Table>
<Caption>
Close Earnings Projected
Bank 6/28/2002 Per Share P/E Shares Value
- ---- --------- --------- ----- --------- ----------
Regions Financial Corporation 33.85 2.64 12.80 518,788 17,560,960
AmSouth Bancorporation 20.23 1.64 12.30 834,156 16,874,985
Hibernia Corporation 18.99 1.52 12.50 903,074 17,149,375
BancorpSouth, Inc. 19.38 1.47 13.20 934,455 18,109,740
Whitney Holding Corporation 34.05 2.24 15.20 612,478 20,853,640
Trustmark Corporation 22.69 1.92 11.80 713,487 16,189,010
Hancock Holding Company 46.80 2.91 16.10 471,974 22,088,395
IBERIABANK Corporation 35.65 2.85 12.50 481,116 17,149,375
Peoples Holding Company 43.75 3.02 14.50 454,703 19,893,275
First M & F Corporation 26.93 2.09 12.90 657,191 17,698,155
NBC Capital Corporation 24.80 1.76 14.10 780,020 19,344,495
Teche Holding Company 23.25 2.50 9.30 548,780 12,759,135
Citizens Holding Company 16.55 1.23 13.50 1,119,113 18,521,325
MidSouth Bancorp, Inc. 13.20 1.22 10.80 1,122,505 14,817,060
Britton & Koontz Capital Corporation 13.60 1.17 11.60 1,170,193 15,914,620
Average 12.87 17,661,570
Trim Avg. 12.90 17,698,155
Shares Outstanding 193,667
Average Price / Share 91.20
Trim Avg. Price / Share 91.38
</Table>
NATIONAL CAPITAL, L.L.C
PUBLICLY TRADED COMPARABLE COMPANIES-SHARE EXCHANGE
<Table>
2002 Estimated Net Profit $ 1,193,000
Plus: Est. Enhancement by Acquirer 178,950 (15%)
Equals: Target Annual Earnings: $ 1,371,950
</Table>
<Table>
<Caption>
Close Earnings Projected
Bank 6/28/2002 Per Share P/E Shares Value
- ---- --------- --------- ----- --------- ----------
Teche Holding Company 23.25 2.50 9.30 548,780 12,759,135
Citizens Holding Company 16.55 1.23 13.50 1,119,113 18,521,325
MidSouth Bancorp, Inc. 13.20 1.22 10.80 1,122,505 14,817,060
Britton & Koontz Capital Corporation 13.60 1.17 11.60 1,170,193 15,914,620
Average 11.30 15,503,035
Trim Avg. 11.30 15,503,035
Shares Outstanding 193,667
Average Price / Share 80.05
Trim Avg. Price / Share 80.05
</Table>
NATIONAL CAPITAL, L.L.C.
PUBLICLY TRADED COMPARABLE COMPANIES-SHARE EXCHANGE
SHARE VALUATION
<Table>
<Caption>
BARELY
PUBLIC ALL
COMPS COMPS
EXCHANGE METHOD MARKETABLE MINORITY VALUE PER SHARE $ 80.05 $ 91.20
Control Premium 27.0% 27.0%
Indicated Whole Bank Value per Share $ 101.66 $ 115.82
Marketability Discount 35.00% 35.00%
ILLIQUID FAIR VALUE PER SHARE $ 66.08 $ 75.28
INDICATED WHOLE BANK VALUE 19,688,854 22,430,193
</Table>
NATIONAL CAPITAL, L.L.C.
Zachary Bancshares, Inc.
Fairness Opinion
EXHIBIT H
VALUATION CALCULATIONS
DISCOUNTED FUTURE RETURNS METHOD
DISCOUNTED FUTURE RETURNS METHOD
TREND ESTIMATION
<Table>
<Caption>
DEC94 DEC95 DEC96 DEC97 DEC98 DEC99 DEC00 DEC01
-------- -------- -------- -------- -------- -------- -------- --------
EOY Assets 64,408 66,858 76,026 77,806 83,655 85,295 90,122 96,714
Avg. Assets 65,633 71,442 76,916 80,731 84,475 87,709 93,418 98,487
Deposits 58,661 59,678 68,551 69,611 74,864 74,014 79,750 85,562
Capital 5,422 6,846 7,220 7,811 8,490 8,965 9,921 10,829
Income 728 786 829 937 1,054 1,223 1,147 1,231
Dividend 267 375 400 360 384 450 475 480
Jumbo Deposits 17,092 18,297 25,814 28,014 29,088 28,030 28,316 31,177
Payout 36.7% 47.7% 48.3% 38.4% 36.4% 36.8% 41.4% 39.0%
Core Dep 70.9% 69.3% 62.3% 59.8% 61.1% 62.1% 64.5% 63.6%
ROA 1.13% 1.18% 1.09% 1.20% 1.26% 1.43% 1.27% 1.27%
ROAA 1.20% 1.16% 1.22% 1.31% 1.45% 1.31% 1.32%
C/A 8.42% 10.24% 9.50% 10.04% 10.15% 10.51% 11.01% 11.20%
<Caption>
DEC02 DEC03 DEC04 DEC05 DEC06 DEC07 DEC08
-------- -------- -------- -------- -------- -------- --------
EOY Assets 100,260 104,737 109,215 113,692 118,170 122,648 127125.3
Avg. Assets 102,498 106,976 111,454 115,931 120,409 124886.5
Deposits 87,960 91,654 95,348 99,043 102,737 106,431 110125
Capital 11,658 12,537 13,463 14,438 15,462 16,534 17655.42
Income 1,347 1,426 1,505 1,583 1,662 1,741 1820
Dividend 517 548 578 608 638 669 699.0728
Jumbo Deposits 31,486 32,808 34,131 35,453 36,775 38,098 39420.1
Payout 38.4% 38.4% 38.4% 38.4% 38.4% 38.4% 0.384106
Core Dep 64.2% 64.2% 64.2% 64.2% 64.2% 64.2% 0.642042
ROA 1.34% 1.36% 1.38% 1.39% 1.41% 1.42% 0.014317
ROAA 1.37% 1.39% 1.41% 1.42% 1.43% 1.45% 0.014573
C/A 11.63% 11.97% 12.33% 12.70% 13.08% 13.48% 0.138882
</Table>
<Table>
<Caption>
SLOPE INTERCEPT
ASSETS 4,478 59,961
DEPOSITS 3,694 54,713
INCOME 79 637
</Table>
NATIONAL CAPITAL, L.L.C.
[CHART]
y=4477.6x + 59961
2
R =0.9797
<Table>
<Caption>
DEC94 DEC95 DEC96 DEC97 DEC98 DEC99 DEC00 DEC01
EOY Assets 64,408 66,858 76,026 77,806 83,655 85,295 90,122 96,714
</Table>
[CHART]
y=3694.2x + 54713
2
R =0.9551
<Table>
<Caption>
DEC94 DEC95 DEC96 DEC97 DEC98 DEC99 DEC00 DEC01
Deposits 58,661 59,678 68,551 69,611 74,864 74,014 79,750 85,562
</Table>
[CHART]
y=78,869x + 636.96
2
R =0.9328
<Table>
<Caption>
DEC94 DEC95 DEC96 DEC97 DEC98 DEC99 DEC00 DEC01
Income 728 786 829 937 1,054 1,223 1,147 1,231
</Table>
DISCOUNTED FUTURE RETURNS METHOD
PRESENT VALUE CALCULATIONS
<Table>
<Caption>
DISCOUNT
RATE EARNINGS EARNINGS SALE SALE
YR 16.80% FV PV FV PV
0 100.00% --
1 85.62% 548 469
2 73.30% 578 424
3 62.76% 608 382
4 53.73% 638 343
5 46.00% 669 308
6 39.3861% 699 275 28,769
8 28.8707% 0 --
9 24.7181% 0 --
10 21.1627% 0 --
Present Value 2,200 11,331
Sum of Present Values 13,531
Shares Outstanding 193,667 Per Share $69.87
</Table>
NATIONAL CAPITAL, L.L.C.
DISCOUNTED FUTURE RETURNS METHOD
PRESENT VALUE CALCULATIONS
Ibbotson Build Up Method
September 2002
<Table>
Riskless Rate 4.26%
Equity Risk Premium 7.40%
Industry Risk Premium -0.16%
Size Premium 3.30%
Specific Company Premium 2.00%
------
Cost of Equity Estimate 16.80%
======
</Table>
NATIONAL CAPITAL, L.L.C.
COMPARABLE WHOLE BANK TRANSACTIONS METHOD
NATIONAL COMPOSITE
ASSETS 100-150MM
7/1/01 TO 10/22/02
NUMBER OF TRANSACTIONS 34
<Table>
<Caption>
80% TRIM
AVERAGE MEDIAN AVERAGE
BOOK VALUE MULTIPLE 1.92 1.86 1.85
EARNINGS MULTIPLE 18.35 15.83 16.74
PRICE TO DEPOSITS 18.99 19.01 18.72
PRICE TO ASSETS 16.33 16.34 16.03
PREMIUM TO CORE DEPOSITS 10.78 9.88 10.36
</Table>
NATIONAL CAPITAL, L.L.C.
COMPARABLE WHOLE BANK TRANSACTIONS METHOD
INDICATION OF VALUE
MARKET VALUATION
METHOD
<Table>
<Caption>
RELEVANT MARKET
AVERAGE FACTOR VALUE WEIGHT
BOOK VALUE MULTIPLE 1.92 17,655 $ 33,892 15%
EARNINGS MULTIPLE 18.35 1,820 $ 33,395 40%
PRICE TO DEPOSITS 18.99 110,125 $ 20,914 20%
PRICE TO ASSETS 16.33 127,125 $ 20,763 15%
PREMIUM TO CORE DEPOSITS 10.78 70,705 $ 25,278 10%
TOTAL WEIGHTS 100%
MARKET VALUE $ 28,267
</Table>
NATIONAL CAPITAL, L.L.C.
COMPARABLE WHOLE BANK TRANSACTIONS METHOD
REALITY CHECK
<Table>
TOTAL ASSETS $ 127,125
4 YR. RETURN ON AVERAGE ASSETS --
4 YR. RETURN ON EQUITY --
COMPARABLE
WHOLE BANK SALES PRICE 28,267
BOOK VALUE MULTIPLE 1.60 1.85
EARNINGS MULTIPLE 15.53 16.74
PRICE TO DEPOSITS 25.67 18.72
PRICE TO ASSETS 22.24 16.03
PREMIUM TO CORE DEPOSITS 15.01 10.36
</Table>
NATIONAL CAPITAL, L.L.C.
COMPARABLE WHOLE BANK TRANSACTIONS METHOD
SHARE VALUATION
<Table>
COMMON SHARES 193,667
BANK INDICATED VALUE $ 28,267
PERCENTAGE OF BANK OWNED 100.00%
PER SHARE
INDICATED VALUE OF BANK $ 145.96
PLUS CASH AT BANCSHARES $ 502 $ 2.59
LESS DEBT AT BANCSHARES $ -- $ --
BANCSHARES INDICATED VALUE/SHARE $ 148.55
BANCSHARES INDICATED VALUE 28,768,847
</Table>
NATIONAL CAPITAL, L.L.C.
Zachary Bancshares, Inc.
Fairness Opinion
EXHIBIT I
VALUATION CALCULATIONS
CAPITALIZATION OF HISTORICAL EARNINGS METHOD
CAPITALIZATION OF HISTORICAL EARNINGS METHOD
<Table>
<Caption>
DEC94 DEC95 DEC96 DEC97 DEC98 DEC99 DEC00 DEC01
------- ------- ------- ------- ------- ------- ------- -------
EOY Assets 64,408 66,858 76,026 77,806 83,655 85,295 90,122 96,714
Deposits 58,661 59,678 68,551 69,611 74,864 74,014 79,750 85,562
Capital 5,422 6,846 7,220 7,811 8,490 8,965 9,921 10,829
Income 728 786 829 937 1,054 1,223 1,147 1,231
Dividend 267 375 400 360 384 450 475 480
Jumbo Deposits 17,092 18,297 25,814 28,014 29,088 28,030 28,316 31,177
Payout 36.7% 47.7% 48.3% 38.4% 36.4% 36.8% 41.4% 39.0%
Core Dep 70.9% 69.3% 62.3% 59.8% 61.1% 62.1% 64.5% 63.6%
ROA 1.13% 1.18% 1.09% 1.20% 1.26% 1.43% 1.27% 1.27%
C/A 8.42% 10.24% 9.50% 10.04% 10.15% 10.51% 11.01% 11.20%
Weighting 1 2 3 4 5
</Table>
<Table>
Weighted Average Historical Earnings 1,164
Capitalization Rate 8.85% based on Barely Public Company P/E
Indicated Value 13,150,940 (1 / 11.30%)
Shares Outstanding 193,667
Indicated Value per Share 67.90
</Table>
NATIONAL CAPITAL, L.L.C.
Zachary Bancshares, Inc.
Fairness Opinion
EXHIBIT J
CONTROL PREMIUM STUDIES AND EVIDENCE
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CONTROL PREMIUMS AND MINORITY INTEREST DISCOUNTS(1)
The existence of control premiums has been documented in numerous studies of
publicly traded stocks.(2) For example, in the Mergerstat Review 1990, published
by Merrill Lynch, the average control premium derived from the acquisition of
185 public companies in 1990 was 42 percent.(3) The Mergerstat Review was based
on the differences between market prices of each of the publicly traded acquired
companies five days before buyout announcements and the actual buyout prices.
Based upon the Mergerstat Review reports and other studies, control premiums are
generally in the range of 20 to 50 percent or more from the freely tradable
pricing of the public markets. In other words, control premiums are applied to
freely tradable minority interest (or as-if-freely-tradable) valuation bases.
As noted above, a minority interest discount is applied to the value of the
enterprise to reflect the absence of control. In other words, the purpose of a
minority interest discount is to eliminate the control premium from a
controlling interest valuation base. An example using a hypothetical company
will explain the relationships.
<Table>
<Caption>
I. APPLICATION OF CONTROL PREMIUM
Market Price (freely tradable, minority interest) $ 100.00 per share
+ Control Premium (assume 40%) 40.00 per share
-----------
= Controlling Interest Price 140.00 per share
II. APPLICATION OF MINORITY INTEREST DISCOUNT
Controlling Interest Price $ 140.00 per share
- Minority Interest Discount
[1-(1/ 1.40)% = 28.6%] (40.00) per share
-----------
= Minority Interest Price
(freely tradable, minority interest) 100.00 per share
</Table>
In the first example, we began with the freely tradable minority interest price
(for example, the publicly traded price) and added a control premium of 40
percent. The minority interest discount, which in this case is 28.6 percent, is
defined as the elimination
- ----------
(1) The information contained in this document is based heavily on Shannon P.
Pratt's book Valuating a Business, 2d ed. (Homewood, Ill.: Business One-Irwin,
1989) and Z. Christopher Mercer's book Valuing Financial Institutions,
(Homewood, Ill.: Business One-Irwin, 1992).
(2) For further references on these concepts, see Appendix D of Valuating a
Business, p. 705. Dr. Pratt's staff periodically updates this bibliography as a
courtesy to the appraisal profession. These updates are published by the
Business Valuation Committee of the American Society of Appraisers in regular
issues of Business Valuation Review, which is a current source of theoretical
and practical articles on topics related to business appraisal.
(3) Mergerstat Review 1990, 1991, pp. 100-101. (Mergerstat Review was published
by W.T. Grimm & Co. until 1987, when it was acquired by Merrill Lynch.) The
publication, prepared each year, is a common reference source related to control
premiums and other aspects of market transactions.
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of the control premium, so it is calculated as shown in the second example.
While the relationship between the controlling interest price and the freely
tradable minority interest price - and the corollary relationship between the
control premium and the minority interest discount - are fairly straightforward,
they are the subject of much confusion by appraisers, courts, and other users of
business appraisals.
MARKETABILITY DISCOUNTS
Readers should not confuse the minority interest discount with the marketability
discount. They are separate discounts and are applied to different valuation
bases. We have just seen that the minority interest discount is applied to a
controlling interest valuation base to eliminate the value attributable to
elements of control. The marketability discount is applied to a freely tradable
valuation base to penalize a subject valuation interest for its comparative lack
of marketability or liquidity.
Theoretically, the marketability discount is the discount necessary to generate
a sufficient increment in return to the holder of a minority interest of an
entity's closely-held shares to induce the purchaser to make this particular
investment, rather than an alternative investment identical in all respects save
marketability.(4) Stated alternatively, if predictable and observable returns
can be obtained from the two similar investments - one in a marketable stock and
the other in a nonmarketable stock - other things being equal, a rational
investor will pay somewhat less for the nonmarketable shares than for the freely
tradable shares.
Marketability discounts can range from very small (in the range of 5-10 percent)
to quite large (60-70 percent or more). The basic logic for the marketability
discount lies in illiquidity and the inherent riskiness this implies; therefore,
all else equal, a marketable interest is worth more than a nonmarketable but
otherwise identical interest.
Risks associated with illiquidity include the inability to dispose of an
interest in the face of deteriorating company or industry conditions, as well as
the inability to sell the interest if the investor's personal situation requires
liquidity. Illiquidity, then, can pose substantial risks to investors. In
addition, most closely-held companies do not pay regular dividends to
shareholders. Consequently, the expectation of achieving a reasonable rate of
return from an investment in a minority interest of a closely-held company is
often extended until ultimate disposition, over which the shareholder has no
control. It is no small wonder, then, that marketability discounts can be quite
large.
- ----------
(4) The marketability discount provides the incremental return (reward)
necessary to offset the risks associated with a long or indeterminable holding
period until liquidity can be achieved. The concept of developing values based
upon comparisons with alternate investments is inherent in the definition of
fair market value. The hypothetical willing buyer makes comparisons with
alternative investment opportunities before engaging in a transaction. At the
same time, the hypothetical willing seller must also make similar comparisons in
order to evaluate the reasonableness of an offer for his or her closely-held
business interest. Revenue Ruling 59-60, which defines fair market value,
outlines several ways that hypothetical investors (and real-life appraisers) can
look at alternative investments.
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MINORITY INTEREST DISCOUNTS VERSUS MARKETABILITY DISCOUNTS
Minority discounts and marketability discounts are separate and distinct
valuation discounts. They are applied to different valuation bases and are
designed to account for different valuation factors. Nevertheless, one of the
more common mistakes that appraisers (and, unfortunately, courts) make is to
confuse, mix or combine the two discounts.
There is no such measurable adjustment factor as a "discount for marketability
and minority interest." Unfortunately, this mysterious discount has been applied
in numerous valuations prepared by business appraisers (or would-be business
appraisers) and in all too many court decisions.
The use of the minority interest and marketability discounts in combination in
the same valuation presumes that the base valuation reference point is a
controlling interest value, that a minority interest discount is applied to
eliminate the control element in the valuation, and that therefore a
marketability discount is applied to derive the value on a nonmarketable
minority interest basis.
It is important to note that minority interest and marketability discounts are
successive and multiplicative rather than additive. Following through from the
example of discount applications above, the sequential application of the two
discounts is shown below, beginning from a controlling interest value base.
<Table>
<Caption>
III. APPLICATION OF SUCCESSIVE MINORITY INTEREST AND MARKETABILITY DISCOUNTS
Controlling Interest Price (per Example II) $ 140.00 per share
- Minority Interest Discount
(28.6% discount to eliminate a 40% control premium) (40.00) per share
---------
= As-if-freely-tradable price
(minority interest basis) 100.00 per share
- Marketability discount
(assume 35% is appropriate) $ (35.00) per share
---------
= Nonmarketable minority interest value 65.00 per share
</Table>
The combined discounts total 53.6 percent from the controlling interest base
value in the example. The total discount can be calculated in two ways. First,
dividing the nonmarketable minority interest discount by the controlling
interest price and subtracting from 1 (or 100%) yields a total discount of 53.6
percent:
($ 65)
1 - ------% = 53.6%
($140)
Second, the successive and multiplicative nature of the discounts can be seen by
the following calculation, which yields the same result. Using the discounts
shown above for
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the minority interest discount (28.6 percent) and the marketability discount (35
percent), the total effective discount is calculated:
1 - [(1-28.6%)x(1-35%)]%=53.6%
In the present example, a total discount from the controlling interest base
value of well over 50 percent is established after applying successive minority
interest discounts (to eliminate control) and marketability discounts (to
account for illiquidity). This example is not at all unrealistic and is in the
(wide) range of typical discounts for nonmarketable minority interests in
relationship to controlling interest vales for closely-held business interests.
THE MINORITY STOCKHOLDER'S SITUATION
Minority stock interests in a "closed" corporation are usually worth
much less than the proportionate share of the assets to which they
attach(5)
The above statement, from a 1935 stock valuation case that is still widely
quoted, captures the essence of the minority stockholder's situation. This
revelation comes as a shock to many people, who may have always assumed that a
partial interest is worth a pro rata portion of the value of the total
enterprise.
H. Calvin Coolidge, a former bank trust officer with extensive experience in
dealing with and selling (or attempting to sell) minority interests in closely
held companies, presents a cogent summary of the minority stockholder's
position.
The holder of a minority interest can at best elect only a minority of
the directors, and for corporations chartered in states which do not
permit cumulative voting, he may not be able to elect even one
director. Lacking control of the board of directors, he cannot compel
payment of dividends which must be declared equally and which would
give him his pro rata share of earnings. Lacking control of the board
of directors, he cannot compel his election as an officer or his
employment by the corporation, which the holders of the controlling
interest can do, often with resultant handsome compensation. In short,
the holder of a minority interest has no voice in corporate affairs and
is at the mercy of the holders of the controlling interest who have no
reason to pay anything but a token dividend, if any, and no reason to
buy out the minority holder except at a nominal price.
A willing buyer contemplating purchase from a willing seller of a
minority interest, being under no compulsion to buy (which would
exclude a buyer already owning some shares whose new purchase would
cover control), would suffer the same disadvantage of lack of control.
The buyer is asked to make an investment with no assurance as to the
certainty of current yield or as to when, or the amount at which, he
may be able to liquidate his investment. Regardless, therefore, of the
value of 100% of the corporation, the buyer will not purchase a
minority
- ----------
(5) Cravens v. Welch, 10 Fed. Supp. 94 (1935)
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interest except at a discount from its proportionate share of the
value of 100% of the corporation.(6)
The lack of concurrence between the value of stock and the corporation's
underlying assets was clearly established by the U.S. Supreme Court back in
1925:
The capital stock of a corporation, its net assets, and its shares of
stock are entirely different things... the value of one bears no fixed
or necessary relation to the value of the other.(7)
An oft-cited U.S. Tax Court case quoted the above, adding:
This is particularly true as to minority interests in a closed
corporation...(8)
That minority shareholders often find themselves disadvantaged compared to
controlling shareholders is attested to by the fact that the oft-quoted,
lengthy, and scholarly two-volume treatise O'Neal's Oppression of Minority
Shareholders is doing well in its second edition, published in 1985. In the
preface to that edition, the authors comment on the growing amount of minority
shareholder litigation:
Most American lawyers do not realize the tremendous amount of
litigation in this country arising out of shareholder disputes. Since
the publication of the first edition of this treatise, the volume of
litigation grounded on minority shareholder oppression - actual,
fancied, or fabricated - has grown enormously, and the flood of
litigation shows no sign of abating. The increase in litigation has
been pronounced in both federal and state courts, with an especially
large number of suits challenging the validity of "cash-out" mergers.
Also worthy of note is that in the last four or five years there has
been a substantial increase in the number of suits minority
shareholders have brought for involuntary dissolution of their
corporation or to force majority shareholders to purchase their
shares.9
Pratt, in Valuing a Business, suggests three broad approaches to the valuation
of minority interests:
1. Determine the value of the total enterprise on a control basis, and
deduct any discounts appropriate for minority interest and/or lack of
marketability.
2. Value the interest by direct comparison with other minority interest
transactions. (Since most available data on minority interest
transactions deal with publicly traded stocks, this approach usually
requires the further step of
- ----------
(6) H. Calvin Coolidge, "Discount for Minority Interest: Rev. Rul. 79-7's Denial
of Discount Is Erroneous," Illinois Bar Journal 68 (July 1980), p. 744
(7) Ray Consol. Copper Co. v. United States, 45 S. Ct. 526 (1925)
(8) Drayton Cochran et al., 7 T.C.M. 325 (1948)
(9) F. Hodge O'Neal and Robert B. Thompson, O'Neal's Oppression of Minority
Shareholders, 2nd ed., vol. 1 (Wilmette, Ill.: Callaghan & Company, 1985), p.
iii. The term cash-out merger is sometimes used to mean a squeeze-out or
freeze-out merger, in which minority shareholders receive cash for their shares.
They cannot block the merger or demand consideration other than cash. If they
are not satisfied with the amount of cash offered, their remedy is to demand an
appraisal of the stock under dissenter's appraisal rights statutes. See, for
example, Roland International Corp. v. Najjar, 407 A.2d 1032, 1033 (Del. S. Ca.
1979)
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deducting a discount for the lack of marketability but no further
deduction for minority interest.)
3. Value the interest with a "bottom-up" approach based on the discounted
future returns the shareholder may expect to realize through dividends
and/or liquidation of the interest at some future date.
PROBLEMS IN LIQUIDATING MINORITY SHARES OF CLOSELY HELD COMPANIES
A corollary to the disadvantages associated with lack of control is lack of
marketability. Although the minority interest status and degree of liquidity
(marketability) of the investment are two different concepts, they are
interrelated. The disadvantages associated with the minority status make it very
difficult to find buyers for minority shares of nonpublic companies, further
reducing the value of such shares. In fact, unless there is some provision for
sale of the shares through either the articles of incorporation or a contract,
the minority shareholder may be unable to find anyone willing to buy the shares
at any price.
RESTRICTIVE AGREEMENTS
Many minority shares are subject to restrictions on transfer. The typical
restriction gives the company and/or each of the company's stockholders a right
to first refusal, thus putting any potential sale on hold for two or three
months or longer. As a practical matter, few potential buyers would make a firm
offer to buy and leave their offers open for that length of time. Thus, such
restrictive agreements further reduce the marketability, and, hence, the value
of the shares. Some restrictions on sale are far more onerous than a simple
right of first refusal, thus limiting the shares' marketability even further.
LACK OF RIGHT TO PARTITION
Discounts for minority interests in direct investment in real estate, when taken
at all, usually are only about 15 to 20 percent below a pro rata proportion of
the value of the total parcel. Sometimes people more familiar with direct
investments in real estate than with investments in business accord similarly
low minority interest discounts to investments in business interests.
As discussed earlier, the controlling owner of a business enterprise has an
extremely wide diversity of options available, some of which may benefit control
owners without benefiting minority owners. Of particular importance in
protecting the interest of minority owners of real estate is the legal right to
partition, the right to demand that the property be divided up and the majority
owner given title to his or her share (or to demand sale of property if
partitioning is impractical.) With a few exceptions (noted subsequently in the
Rights to Dissolution or Sale of Stock section), no such rights are available to
minority stockholders.
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LACK OF RIGHT TO PARTICIPATE IN A SALE
Many minority stockholders assume that if a controlling interest is sold, they
have the right to receive the same price for their shares as the controlling
shareholders. Generally speaking, however, unless there are special state laws
or protective provisions in the articles of incorporation, this is not true.
There have been many situations on which controlling stockholders sold out and
minority shareholders subsequently accepted offers for their shares at a
fraction of the price per share the controlling shareholders received.
O'Neal and Thompson make the following statement regarding the traditional
doctrine on sale of control:
The traditional view is that a shareholder, irrespective of whether he
is also a director, officer, or both, may sell his shares, just as
other kinds if personal property, for whatever price he can obtain,
even if his shares constitute a controlling block and the price per
share is enhanced by that fact. Further, he is under no obligation to
obtain for other shareholders an opportunity to sell their shares on
the same favorable terms he is receiving or even to inform them of that
price or the terms of the sale. (10)
There has been much bitter litigation over this point, and the authors footnote
many court case citations. The flavor of the decisions is captured in their
paraphrasing of the findings in two cases:
Majority shareholder has no duty to see that minority shareholders are
allowed to join in a sale of stock at the same price per share and on
the same terms offered for shares constituting the controlling interest
[Claget v. Hutchinson, 583 F.2d 1259 (CA4, 1978)].
------------------------------------------------------------
Majority shareholders did not breach their fiduciary duty by selling
control at a premium, by inviting some (but not all) minority
shareholders to sell also and share in the premium, or by failing to
disclose these facts to the other minority shareholders [Richie v.
McGrath, 1 Kan App.2d 481, 571 P2d 17 (1977)].(11)
STATE STATUTES AFFECTING MINORITY STOCKHOLDER RIGHTS
Statutes affecting minority stockholders' rights vary greatly from state to
state. These statutes, and the case law developed pursuant to each, can have an
extremely important bearing on the values of certain minority interests in many
situations.
REQUIREMENTS FOR SUPERMAJORITY VOTES
In some states, a simple majority can approve major actions such as a merger or
a sale of a company. Other states require a two-thirds or even greater majority
to approve such
- ----------
(10) O'Neal and Thompson, O'Neal's Oppression. p. 4
(11) Ibid., p.10.
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actions, which means that a minority of just over one third has the power to
block them thus giving large majority interests a form of "blocking power."
Both types of actions that require a supermajority vote and the size of the
supermajority required for each action vary considerably from state to state,
and many states are undergoing processes of review and change. The tendency is
toward requiring only a simple majority (anything above 50 percent) rather than
a supermajority to authorize most or all corporate actions.
RIGHT TO DISSOLUTION OR SALE OF STOCK
An increasing number of states are enacting statutes enabling minority shares
aggregating some specified percentage of the total outstanding to petition the
courts to force dissolution of the corporation under certain circumstances. Such
statutes generally provide that controlling stockholders can prevent dissolution
in such cases by paying the petitioners for dissolution the fair value of their
shares. By far the largest amount of litigation regarding the value of shares
under such statutes has been pursuant to California Corporation Code Section
2000.
DISSENTING-STOCKHOLDER APPRAISAL RIGHTS
Most states have statutes allowing minority stockholders to dissent if a company
merges, sells all or nearly all of its assets, or undergoes some other
fundamental change. In most cases, the dissenters' remedy is to have their
shares appraised and be paid that value in cash. In most states, the standard of
value for dissenting-stockholder actions is "fair value." A few states
(including Louisiana) still specify "fair market value," but recently several
have changed their dissenting-stockholder statutory standard of value to "fair
value."
Most states require that if a minority stockholder wishes to dissent to a
corporate action, the decision to dissent must be registered in writing at or
within a few days following the stockholder meeting at which the action is
approved by the majority of stockholders. This registration of dissent often is
referred to as perfecting dissenters' appraisal rights. The courts are virtually
unanimous in prohibiting dissenters' appraisal rights unless they have been
perfected within the amount of time specified in the statute.
EFFECT OF DISTRIBUTION OF OWNERSHIP
If one person owns 49 percent of a company's stock and another owns 51 percent,
the 49 percent holder has little or no control of any kind. However, if two
stockholders own 49 percent and a third owns 2 percent, the 49 percent
stockholders may be on a par with each other depending on who owns the other 2
percent. The 2 percent stockholder may be able to command a premium over the
normal minority interest value for that particular block of stock because of its
swing vote power.
If each of the three stockholders or partners owns a one-third interest, no one
has complete control. However, no one is in a relatively inferior position,
unless two of the
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three have close ties with each other that the third does not share. Each of
equal individual interests normally are worth less than a pro rata portion of
the total enterprise's worth; thus, the sum of the values of the individual
interests usually is less than what the total enterprise could be sold for to a
single buyer. However, the percentage discount from pro rata value for each such
equal interest normally would be smaller than that for a minority interest with
no control whatsoever.
Each situation must be analyzed individually with respect to the degree of
control, or lack of it, and the implications for the minority interest's value.
VOTING VERSUS NONVOTING SHARES
The difference in value, if any, between voting and nonvoting minority shares
depends largely on the size of the block and the distribution of ownership. In
general, the greater the extent to which the issue of control is involved, the
greater the impact of voting rights on the stock's value. As noted earlier, when
swing votes are involved, the value impact can be considerable.
There have been several empirical studies on the price differentials between
voting and nonvoting publicly traded stocks. The market data indicate that for
small minority interests, the market generally accords very little or no value
to voting rights. Where differentials in favor of voting stock exist, they
generally have been under 5 percent, and no study has indicated a differential
of over 10 percent. Again, the distribution of stock can have a bearing. If one
stockholder has total control anyway and there is no cumulative voting, the
question of whether the minority shares are voting or nonvoting is academic
unless a split-up of the control block is foreseeable.
Restrictive agreements also can have a bearing. Some voting stocks are subject
to an agreement that causes them to be converted to nonvoting stock in the event
of a transfer. Such a provision can render voting rights virtually impotent for
valuation purposes.
HOW THE APPLICABLE STANDARD OF VALUE AFFECTS MINORITY INTERESTS
The applicable standard of value for the vast majority of valuation situations
falls into one of four categories: (1) fair market value, (2) investment value,
(3) intrinsic value, or (4) fair value. The applicable standard of value is
determined primarily by the purpose and circumstances of the valuation. In some
situations, the applicable standard of value is mandated by law. In others, the
choice of standard of value lies within the discretion of the parties involved.
FAIR MARKET VALUE
The fair market value standard implies a price at which an arm's-length
transaction would be expected to take place between normally motivated investors
under open market conditions, without considering any special benefits for any
particular buyer or seller. Considering the unattractiveness of minority
interests in closely held companies to
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investors at large, the discount from a proportionate share of enterprise value
under the fair market value standard normally is quite large.
INVESTMENT VALUE
The investment value standard is the value to a particular investor considering
that investor's cost of capital, perception of risk and other unique
characteristics. Because of the particular attributes of ownership that may have
unique appeal to any specific investor, the investment value of a minority
interest in a certain enterprise may be equal to, greater than, or less than
fair market value and also equal to, greater than, or less than a pro rata
portion of the total enterprise value.
INTRINSIC VALUE
Intrinsic value (sometimes called fundamental value) is the value inherent in
the characteristics of the investment itself. It is rarely used as a standard of
value in and of itself. More commonly, the term is referred to, and some of the
notions it implies used, in the context of one of the other three standards of
value.
FAIR VALUE
The fair value standard suffers from lack of consistent definition from one
context to another. It most often crops up as the statutory standard of value
applicable to appraisals under dissenting-stockholders' rights or rights to
dissolution. Such valuations by their nature are valuations of minority
interests. The need to interpret the meaning of this standard of value from a
study of the legal precedents in minority stockholder actions in each of the 50
states and Canada poses a continuing challenge to the appraisal profession.
Certain precedents - including, for example, those pursuant to California
Corporations Code Section 2000 - have suggested that fair value be interpreted
to mean fair market value without a minority interest discount (a proportionate
share of enterprise value). However, research of the specifically applicable
legal precedents is very important in each context to which the fair value
standard is determined to apply.
Even when a proportionate share of enterprise value is an indicated
interpretation of "fair value," precedents as to which factors to consider and
the relative weights to accord to each vary considerably. Generally, but not
always, unless liquidation is in prospect, emphasis will be on factors that bear
on the enterprise's going-concern value rather than on its liquidation value.
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Investment Bankers Since 1986
10
Zachary Bancshares, Inc.
Fairness Opinion
EXHIBIT K
MARKETABILITY DISCOUNT STUDIES AND EVIDENCE
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DISCOUNT FOR LACK OF MARKETABILITY(1)
An adjustment is warranted for lack of marketability to reflect the lack of a
recognized market for closely held business interests. Investors prefer
investments that have access to a liquid secondary market and may be readily
sold. Interests without such marketability characteristics would normally sell
at a discount from prices of comparable publicly traded interests. It is
important to recognize that there are degrees of marketability. These degrees of
marketability depend on the circumstances in each case.
In selecting a discount for lack of marketability, we considered several
subjective factors, some of which include:
o Stocks with no or low dividends suffer more from lack of
marketability than stocks with high dividends.
o Generally, the most powerful factor that could reduce or eliminate
a discount for lack of marketability would be the existence of a
"put" right.
o The existence of a reasonable number of potential buyers or even
one strong potential buyer (often demonstrated by past activity in
the company's stock) could dampen the discount for lack of
marketability. For example, if an ESOP regularly purchases shares,
the possibility of sometime selling shares to the ESOP may cause
the discount to be less than if the ESOP did not exist.
o The more restrictions attached to the interests, the higher the
discount.
MARKETABILITY STUDIES
There are two general types of empirical studies designed to quantify the
valuation adjustments associated with the lack of marketability of minority
ownership interests in closely held businesses:
1. Discounts on the sale of restricted shares of publicly traded companies,
and
2. Discounts on the sale of closely held company shares - compared to prices
of subsequent initial public offerings of the same company's shares.
- ----------
(1) Much of the following information was excerpted from Shannon P. Pratt,
Robert F. Reilly, Robert P. Schweihs "Discount for Lack of Marketability,"
Valuing Small Businesses & Professional Practices, Third Edition, McGraw-Hill
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Investment Bankers Since 1986
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MARKETABILITY DISCOUNTS EXTRACTED FROM PRICES OF RESTRICTED STOCKS
One body of empirical specifically isolates the pricing implications of
marketability from all other valuation-related factors: the body of data on
transactions in letter stocks. A letter stock is identical in all respects buy
one to the freely traded stock of a public company. It is restricted from
trading on the open stock market for a certain period of time. The duration of
the restrictions varies from one situation to another. Since marketability is
the only difference between the letter stock and its freely traded counterpart,
the analyst may quantify differences in the price at which letter stock
transactions take place compared with open market transactions in the same stock
on the same date. This difference will provide some evidence of the price spread
between (1) a readily marketable security and (2) one that is otherwise
identical but subject to certain restrictions on its marketability.
SEC Institutional Investor Study
In a major SEC study of institutional investor actions, one topic was the amount
of discount at which transactions in restricted stock (or letter stock) occurred
compared to the prices of identical but unrestricted stock on the open
market.(2) The letter stock transactions were segregated into the markets in
which their unrestricted counterparts traded. The four markets used in the study
were the New York Stock Exchange, American Stock Exchange, over-the-counter
(OTC) reporting companies, and over-the-counter non-reporting companies. Because
most small businesses are much smaller than the typical well-known public
companies, the smaller non-reporting public companies may have characteristics
that are more comparable to the subject small business. However, since these
non-reporting public need not report to the SEC, one may have difficulty in
obtaining information about them.
Compared to their free-trading counterparts, the price discounts on the letter
stocks were the least for NYSE companies and increased, in order, for
AMEX-listed stocks, OTC reporting companies, and OTC non-reporting companies.
For OTC non-reporting companies, the largest number of observations fell in the
30 to 40 percent price discount range, with the average being 32.6 percent.
Slightly over 56 percent of the OTC non-reporting companies had price discounts
greater than 30 percent on the sale of their restricted stock, compared with the
stock market price of their free-trading stock. Slightly over 30 percent of the
OTC reporting companies were discounted over 30 percent, and over 52 percent had
price discounts over 20 percent.
Considering all transactions across all four exchanges, the overall average
price discount was 25.8 percent and the median price discount was about the
same.
- ----------
(2) "Discounts Involved in Purchases of Common Stock," in U.S. 92nd Congress,
1st Session, House, Institutional Investor Study Report of the Securities and
Exchange Commission.
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Gelman Study
In 1972, Milton Gelman published the results of his study of prices paid for
restricted securities by four closed-end investment companies specializing in
restricted securities investments.3 From 89 transactions between 1968 and 1970,
Gelman found that (1) both the arithmetic average and median price discounts
were 33 percent and that (2) almost 60 percent of the purchases were at price
discounts of 30 percent and higher. The distribution of price discounts found in
the Gelman study is presented on the following page.
<Table>
<Caption>
NUMBER OF PERCENT OF
SIZE OF DISCOUNT COMMON STOCKS TOTAL
- ------------------------ -------------------------- ---------------
Less than 15.0% 5 6
15.0% - 19.9% 9 10
20.0% - 24.9% 13 15
25.0% - 29.9% 9 10
30.0% - 34.9% 12 13
35.0% - 39.9% 9 10
40.0% and Over 32 36
TOTAL 89 100
</Table>
Trout Study
In a study of letter stocks purchased by mutual funds from 1968 to 1972, Robert
Trout attempted to construct a financial model that would provide an estimate of
the price discount appropriate for a private company's stock.4 His multiple
regression model involved 60 purchases and found an average price discount of
33.45 percent for restricted stock from freely traded stock. As the SEC study
previously showed, Trout also found that companies with stock listed on national
exchanges had lower discounts on their restricted stock transactions than did
companies with stock traded over-the-counter.
Moroney Study
In an article published in the March 1973 issue of Taxes, Robert E. Moroney
presented the results of a study of the prices paid for restricted securities by
10 registered investment companies. The study reflected 146 purchases. The
average price discount for the 146 transactions was 35.6 percent and the median
discount was 33.0 percent.
- ----------
(3) Milton Gelman, "An Economist-Financial Analyst's Approach to Valuing Stock
of a Closely Held Company," Journal of Taxation, June 1972
(4) Robert R. Trout, "Estimation of the Discount Associated with the Transfer of
Restricted Securities," Taxes, June 1977.
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Maher Study
Another well-documented study on lack of marketability discounts for closely
held business ownership interests was performed by J. Michael Maher and
published in the September 1976 issue of Taxes. Maher's analytical method was
similar to Moroney's in that it compared prices paid for restricted stocks with
the market prices of their unrestricted counterparts. Maher found that mutual
funds were not purchasing restricted securities during 1974 and 1975, which were
very depressed years for the stock market. Therefore, the data actually used
covered the five-year period from 1969 through 1973. The study showed, "The mean
discount for lack of marketability for the years 1969-73 amounted to 35.43
percent." Maher further eliminated the top and bottom 10 percent of purchases in
an effort to remove especially high and low risk situations. The result was
almost identical with the outliers removed, with the average price discount of
34.73 percent.
Standard Research Consultants Study
In 1983, Standard Research Consultants analyzed recent private placement of
common stock to test the current applicability of the SEC study.(5) Standard
Research Consultants studied 28 private placements of restricted common stock
from October 1978 through June 1982. Price discounts ranged from 7 percent to 91
percent, with a median of 45 percent.
Willamette Management Associates Study
Willamette Management Associates analyzed private placements of restricted
stocks for the period January 1, 1981 through May 31, 1984. The early part of
this study overlapped the last part of the SRC study, buy few transactions took
place during the period of overlap. Most of the transactions in the Willamette
Management Associates study occurred in 1983.
Willamette Management Associates identified 33 transactions during that period
(1) that could reasonably be classified as arm's length and (2) for which the
price of the restricted shares could be compared directly with the price of
trades in identical buy unrestricted shares of the same company at the same
time. The median price discount for the 33 restricted stock transactions
compared to the prices of their freely tradable counterparts was 31.2 percent.
The slightly lower percentage price discounts for private placements during this
time may be attributable to the somewhat depressed pricing in the public stock
market. This, in turn, reflected the recessionary economic conditions prevalent
during most of the period of the study. This study supports the long-term
average price discount of 35 percent for transactions in restricted stock
compared with the prices of their freely tradable counterparts.
- ----------
(5) William F. Pittock and Charles H. Stryker, "Revenue Ruling 77-287
Revisited," SRC Quarterly Reports, Spring 1983
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Silber Study
In a 1991 article in the Financial Analysts Journal, William L. Silber presented
the results of analysis of 69 private placements of common stock of publicly
traded companies between 1981 and 1988.(6) He found that the average price
discount was 33.75 percent, very consistent with earlier studies.
Silber also found that the size of the price discount tended to be higher for
private placements that were larger as a percentage of the shares outstanding.
FMV Opinions, Inc. Study
An article in the January/February 1994 issue of Estate Planning referenced a
study by FMV Opinions, Inc., that "examined over 100 restricted stock
transactions from 1979 through April 1992."(7) The FMV study found a mean price
discount of only 23 percent.
Management Planning, Inc. Study
Management Planning performed a study titled "Analysis of Restricted Stocks of
Public Companies: 1980 - 1995," which covered a total of 49 transactions after
eliminations for various factors.(8) The elimination factors included the
following:
1. Any company that suffered a loss in the fiscal year preceding
the private transaction.
2. Any company defined as a "start-up" company (defined as having
revenues of less than $3 million).
3. Any transactions that were known to have registration rights.
There was clear size effect, with smaller companies tending to have larger
discounts, as shown in the following table.
- ----------
(6) William L. Silber, "Discounts on Restricted Stock: The Impact of Illiquidity
on Stock Prices," Financial Analysts Journal, July-August 1991.
(7) Lance S. Hall and Timothy C. Polacek, "Strategies for Obtaining the Largest
Valuation Discounts," Estate Planning, January/February 1994.
(8) See Chapter 12 in Z. Christopher Mercer, Quantifying Marketability Discounts
(Memphis: Peabody Publishing, 1997).
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ANALYSIS OF RESTRICTED STOCK DISCOUNTS BY REVENUE SIZE
<Table>
<Caption>
AVERAGE RANGE OF DISCOUNTS
% OF REVENUES AVERAGE ------------------------------
REVENUES SAMPLE ($ MILLIONS) DISCOUNTS LOW HIGH
- ------------------------------ ------------ ------------ ------------ ------------ ------------
Under $10 million 28.6% 6.6 32.9% 2.8% 57.6%
$10 - $30 million 22.4% 22.5 30.8% 15.3% 49.8%
$30 - $50 million 20.4% 35.5 25.2% 5.2% 46.3%
$50 - $100 million 16.3% 63.5 19.4% 11.6% 29.3%
Over $100 million (adjusted)(a) 8.2% 224.9 14.9% 0.0% 24.1%
OVERALL SAMPLE AVERAGES 95.9% 47.5 27.7% 0.0% 57.6%
</Table>
NOTE:
- ----------
(a.) Excludes Sudbury Holdings, Inc. whose private placement consisted of 125%
of the pre-transaction shares outstanding. Also excludes Starrett Housing Corp.
which is one of the five most thinly traded companies in the sample.
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Investment Bankers Since 1986
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SUMMARY OF EMPIRICAL STUDIES ON RESTRICTED STOCK TRANSACTIONS
The ten empirical studies of restricted stock transactions reported above cover
several hundred transactions spanning the late 1960s through 1995. Considering
the number of independent researchers and the very long time span encompassing a
wide variety of market conditions, the results are remarkably consistent, as set
forth in the table below.
<Table>
<Caption>
YEARS COVERED AVERAGE
STUDY IN STUDY DISCOUNT (%)
- ----- ------------- ------------
SEC Overall Average 1966-1969 25.8%
SEC Non-reporting OTC companies 1966-1969 32.6%
Gelman 1968-1970 33.0%
Trout 1968-1972 33.5%
Moroney (a) 35.6%
Maher 1969-1973 35.4%
Standard Research Consultants 1978-1982 45.0%(b)
Willamette Management Associates 1981-1984 31.2%(b)
Silber 1981-1988 33.8%
FMV Opinions, Inc. 1979-April 1992 23.0%
Management Planning, Inc. 1980-1995 27.7%
Average 32.4%
</Table>
NOTES:
- ----------
(a) Although the years covered in this study are likely to be 1969-1972, no
specific years were given in the published account.
(b) Median discount
STUDIES OF PRIVATE TRANSACTIONS BEFORE INITIAL PUBLIC OFFERINGS
Before the 1980s, virtually all the empirical research directed at quantifying
the value impact of marketability (or the discount for lack of marketability)
focused on comparisons between the prices (1) of freely tradable shares of stock
and (2) of restricted buy otherwise identical shares of stock. Observers agreed
that price discounts for lack of marketability for ownership interests of
closely held companies were greater than those for restricted shares of publicly
held companies. This is because the closely held ownership interests had no
established market in which they could eventually sell following the removal of
certain trading restrictions. However, data for quantifying how much greater
this price discount should be had not yet been developed and analyzed.
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During the 1980s, an investment banking firm and a valuation firm independently
undertook development of data with which to address this question. Both firms
used data from registration statements.
Emory Studies
Eight separate studies were undertaken by John D. Emory of Robert W. Baird &
Company, an investment banking firm headquartered in Milwaukee, Wisconsin. The
studies reviewed the securities of companies undertaking an IPO and covered
various time periods from 1981 through 1997. The IPO prices of the securities
were compared with the price of the last private transaction of the security.
This transaction occurred as long as five months before the IPO.
After eliminating companies with no transactions within the five months before
their IPO and those companies that had a history of operating losses, 310
qualifying transactions remained in the eight studies.
The mean and median price discounts for the 310 transactions were 45 and 44
percent. A summary of each study appears in the table below.
<Table>
<Caption>
DISCOUNT
NUMBER OF -------------------------
QUALIFYING TRANSACTIONS DATE AVERAGE MEDIAN
13 1980 - 1981 60% 66%
21 1985 - 1986 43% 43%
27 1987 - 1989 45% 45%
23 1989 - 1990 45% 40%
35 1990 - 1992 42% 40%
54 1992 - 1993 45% 44%
46 1994 - 1995 45% 45%
91 1995 - 1997 43% 42%
310 45% 44%
</Table>
Willamette Management Associates Studies
Willamette Management Associates, Inc. has conducted a series of studies on the
prices of private stock transactions relative to those of subsequent public
offerings of stock of the same companies. The studies covered the years 1975
through 1993.
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The Willamette studies differed from the Emory studies in several respects. One
important difference was that the source documents for the Willamette studies
were complete SEC registration statements primarily on Form S-1 and Form S-18.
By contrast, the source documents for the Emory studies were prospectuses.
Although the prospectus constitutes a portion of the registration statement, it
is required to disclose only transactions with affiliated parties. Form S-1 and
Form S-18 registration statements require disclosure of all private transactions
in the stock within the three years before the public offering, in a section of
the registration statement separate from the prospectus portion. The Willamette
Management Associates studies attempted to include only transactions that were
on an arm's length basis. The data analyzed included sales of stock in private
placements and repurchases of treasury stock by the companies. All stock option
transactions and sales of stock to corporate insiders were eliminated unless
there was sufficient evidence showing the transaction occurred at fair market
value.
A summary of the Willamette Management Associates studies is shown below.
<Table>
<Caption>
NUMBER OF NUMBER OF TRIMMED
TIME COMPANIES TRANSACTIONS AVERAGE AVERAGE MEDIAN
PERIOD ANALYZED ANALYZED DISCOUNT DISCOUNT DISCOUNT
------ --------- ------------ -------- -------- --------
1975-77 19 31 34.0% 43.4% 52.5%
1970s 9 17 55.6% 56.8% 62.7%
1980-88 58 113 48.0% 51.9% 56.5%
1983 85 214 50.1% 55.2% 60.7%
1984 20 33 43.2% 52.9% 73.1%
1985 18 25 41.3% 47.3% 42.6%
1986 47 74 38.5% 44.7% 47.4%
1987 25 40 36.9% 44.9% 43.8%
1988 13 19 41.5% 42.5% 51.8%
1989 9 19 47.3% 46.9% 50.3%
1990 17 23 30.5% 33.0% 48.5%
1991 27 34 24.2% 28.9% 31.8%
1992 36 75 41.9% 47.0% 51.7%
1993 51 110 46.9% 49.9% 53.3%
Average 41.4% 46.1% 51.9%
</Table>
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Investment Bankers Since 1986
Zachary Bancshares, Inc.
Fairness Opinion
EXHIBIT L
GLOSSARY
8-06-01
INTERNATIONAL GLOSSARY OF BUSINESS
VALUATION TERMS
To enhance and sustain the quality of business valuations for the benefit of the
profession and its clientele, the below identified societies and organizations
have adopted the definitions for the terms included in this glossary.
The performance of business valuation services requires a high degree of skill
and imposes upon the valuation professional a duty to communicate the valuation
process and conclusion, in a manner that is clear and not misleading. This duty
is advanced through the use of terms whose meanings are clearly established and
consistently applied throughout the profession.
If, in the opinion of the business valuation professional, one or more of these
terms needs to be used in a manner that materially departs from the enclosed
definitions, it is recommended that the term be defined as used within that
valuation engagement.
This glossary has been developed to provide guidance to business valuation
practitioners by further memorializing the body of knowledge that constitutes
the competent and careful determination of value and, more particularly, the
communication of how that value was determined.
Departure from this glossary is not intended to provide a basis for civil
liability and should not be presumed to create evidence that any duty has been
breached.
AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
AMERICAN SOCIETY OF APPRAISERS
CANADIAN INSTITUTE OF CHARTERED BUSINESS VALUATORS
NATIONAL ASSOCIATION OF CERTIFIED VALUATION ANALYSTS
THE INSTITUTE OF BUSINESS APPRAISERS
ADJUSTED BOOK VALUE METHOD - a method within the asset approach whereby all
assets and liabilities (including off-balance sheet, intangible, and contingent)
are adjusted to their fair market values (NOTE: In Canada on a going concern
basis).
ADJUSTED NET ASSET METHOD - see ADJUSTED BOOK VALUE METHOD.
APPRAISAL - see VALUATION.
INTERNATIONAL GLOSSARY OF BUSINESS 2
VALUATION TERMS
APPRAISAL APPROACH - see VALUATION APPROACH.
APPRAISAL DATE - see VALUATION DATE.
APPRAISAL METHOD - see VALUATION METHOD.
APPRAISAL PROCEDURE - see VALUATION PROCEDURE.
ARBITRAGE PRICING THEORY - a multivariate model for estimating the cost of
equity capital, which incorporates several systematic risk factors.
ASSET (ASSET-BASED) APPROACH - a general way of determining a value indication
of a business, business ownership interest, or security using one or more
methods based on the value of the assets net of liabilities.
BETA - a measure of systematic risk of a stock; the tendency of a stock's price
to correlate with changes in a specific index.
BLOCKAGE DISCOUNT - an amount or percentage deducted from the current market
price of a publicly traded stock to reflect the decrease in the per share value
of a block of stock that is of a size that could not be sold in a reasonable
period of time given normal trading volume.
BOOK VALUE - see NET BOOK VALUE.
BUSINESS - see BUSINESS ENTERPRISE.
BUSINESS ENTERPRISE - a commercial, industrial, service, or investment entity
(or a combination thereof) pursuing an economic activity.
BUSINESS RISK - the degree of uncertainty of realizing expected future returns
of the business resulting from factors other than financial leverage. See
FINANCIAL RISK.
BUSINESS VALUATION - the act or process of determining the value of a business
enterprise or ownership interest therein.
CAPITAL ASSET PRICING MODEL (CAPM) - a model in which the cost of capital for
any stock or portfolio of stocks equals a risk-free rate plus a risk premium
that is proportionate to the systematic risk of the stock or portfolio.
CAPITALIZATION - a conversion of a single period of economic benefits into
value.
CAPITALIZATION FACTOR - any multiple or divisor used to convert anticipated
economic benefits of a single period into value.
INTERNATIONAL GLOSSARY OF BUSINESS 3
VALUATION TERMS
CAPITALIZATION OF EARNINGS METHOD - a method within the income approach whereby
economic benefits for a representative single period are converted to value
through division by a capitalization rate.
CAPITALIZATION RATE - any divisor (usually expressed as a percentage) used to
convert anticipated economic benefits of a single period into value.
CAPITAL STRUCTURE - the composition of the invested capital of a business
enterprise, the mix of debt and equity financing.
CASH FLOW - cash that is generated over a period of time by an asset, group of
assets, or business enterprise. It may be used in a general sense to encompass
various levels of specifically defined cash flows. When the term is used, it
should be supplemented by a qualifier (for example, "discretionary" or
"operating") and a specific definition in the given valuation context.
COMMON SIZE STATEMENTS - financial statements in which each line is expressed as
a percentage of the total. On the balance sheet, each line item is shown as a
percentage of total assets, and on the income statement, each item is expressed
as a percentage of sales.
CONTROL - the power to direct the management and policies of a business
enterprise.
CONTROL PREMIUM - an amount or a percentage by which the pro rata value of a
controlling interest exceeds the pro rata value of a non-controlling interest
in a business enterprise, to reflect the power of control.
COST APPROACH - a general way of determining a value indication of an individual
asset by quantifying the amount of money required to replace the future service
capability of that asset.
COST OF CAPITAL - the expected rate of return that the market requires in order
to attract funds to a particular investment.
DEBT-FREE - WE DISCOURAGE THE USE OF THIS TERM. See INVESTED CAPITAL.
DISCOUNT FOR LACK OF CONTROL - an amount or percentage deducted from the pro
rata share of value of 100% of an equity interest in a business to reflect the
absence of some or all of the powers of control.
DISCOUNT FOR LACK OF MARKETABILITY - an amount or percentage deducted from the
value of an ownership interest to reflect the relative absence of marketability.
DISCOUNT FOR LACK OF VOTING RIGHTS - an amount or percentage deducted from the
per share value of a minority interest voting share to reflect the absence of
voting rights.
INTERNATIONAL GLOSSARY OF BUSINESS 4
VALUATION TERMS
DISCOUNT RATE - a rate of return used to convert a future monetary sum into
present value.
DISCOUNTED CASH FLOW METHOD - a method within the income approach whereby the
present value of future expected net cash flows is calculated using a discount
rate.
DISCOUNTED FUTURE EARNINGS METHOD - a method within the income approach whereby
the present value of future expected economic benefits is calculated using a
discount rate.
ECONOMIC BENEFITS - inflows such as revenues, net income, net cash flows, etc.
ECONOMIC LIFE - the period of time over which property may generate economic
benefits.
EFFECTIVE DATE - see VALUATION DATE.
ENTERPRISE - see BUSINESS ENTERPRISE.
EQUITY - the owner's interest in property after deduction of all liabilities.
EQUITY NET CASH FLOWS - those cash flows available to pay out to equity holders
(in the form of dividends) after funding operations of the business enterprise,
making necessary capital investments, and increasing or decreasing debt
financing.
EQUITY RISK PREMIUM - a rate of return added to a risk- free rate to reflect the
additional risk of equity instruments over risk free instruments (a component of
the cost of equity capital or equity discount rate).
EXCESS EARNINGS - that amount of anticipated economic benefits that exceeds an
appropriate rate of return on the value of a selected asset base (often net
tangible assets) used to generate those anticipated economic benefits.
EXCESS EARNINGS METHOD - a specific way of determining a value indication of a
business, business ownership interest, or security determined as the sum of a)
the value of the assets derived by capitalizing excess earnings and b) the value
of the selected asset base. Also frequently used to value intangible assets. See
EXCESS EARNINGS.
FAIR MARKET VALUE - the price, expressed in terms of cash equivalents, at which
property would change hands between a hypothetical willing and able buyer and a
hypothetical willing and able seller, acting at arms length in an open and
unrestricted market, when neither is under compulsion to buy or sell and when
both have reasonable knowledge of the relevant facts. {NOTE: In Canada, the term
"price" should be replaced with the term "highest price"}
INTERNATIONAL GLOSSARY OF BUSINESS 5
VALUATION TERMS
FAIRNESS OPINION - an opinion as to whether or not the consideration in a
transaction is fair from a financial point of view.
FINANCIAL RISK - the degree of uncertainty of realizing expected future returns
of the business resulting from financial leverage. See BUSINESS RISK.
FORCED LIQUIDATION VALUE - liquidation value, at which the asset or assets are
sold as quickly as possible, such as at an auction.
FREE CASH FLOW - WE DISCOURAGE THE USE OF THIS TERM. See NET CASH FLOW.
GOING CONCERN - an ongoing operating business enterprise.
GOING CONCERN VALUE - the value of a business enterprise that is expected to
continue to operate into the future. The intangible elements of Going Concern
Value result from factors such as having a trained work force, an operational
plant, and the necessary licenses, systems, and procedures in place.
GOODWILL - that intangible asset arising as a result of name, reputation,
customer loyalty, location, products, and similar factors not separately
identified.
GOODWILL VALUE - the value attributable to goodwill.
GUIDELINE PUBLIC COMPANY METHOD - a method within the market approach whereby
market multiples are derived from market prices of stocks of companies that are
engaged in the same or similar lines of business, and that are actively traded
on a free and open market.
INCOME (INCOME-BASED) APPROACH - a general way of determining a value indication
of a business, business ownership interest, security, or intangible asset using
one or more methods that convert anticipated economic benefits into a present
single amount.
INTANGIBLE ASSETS - non-physical assets such as franchises, trademarks, patents,
copyrights, goodwill, equities, mineral rights, securities and contracts (as
distinguished from physical assets) that grant rights and privileges, and have
value for the owner.
INTERNAL RATE OF RETURN - a discount rate at which the present value of the
future cash flows of the investment equals the cost of the investment.
INTRINSIC VALUE - the value that an investor considers, on the basis of an
evaluation or available facts, to be the "true" or "real" value that will become
the market value when other investors reach the same conclusion. When the term
applies to options, it is the
INTERNATIONAL GLOSSARY OF BUSINESS 6
VALUATION TERMS
difference between the exercise price or strike price of an option and the
market value of the underlying security.
INVESTED CAPITAL - the sum of equity and debt in a business enterprise. Debt is
typically a) all interest bearing debt or b) long-term interest-bearing debt.
When the term is used, it should be supplemented by a specific definition in the
given valuation context.
INVESTED CAPITAL NET CASH FLOWS - those cash flows available to pay out to
equity holders (in the form of dividends) and debt investors (in the form of
principal and interest) after funding operations of the business enterprise and
making necessary capital investments.
INVESTMENT RISK - the degree of uncertainty as to the realization of expected
returns.
INVESTMENT VALUE - the value to a particular investor based on individual
investment requirements and expectations. {NOTE: in Canada, the term used is
"Value to the Owner"}.
KEY PERSON DISCOUNT - an amount or percentage deducted from the value of an
ownership interest to reflect the reduction in value resulting from the actual
or potential loss of a key person in a business enterprise.
LEVERED BETA - the beta reflecting a capital structure that includes debt.
LIMITED APPRAISAL - the act or process of determining the value of a business,
business ownership interest, security, or intangible asset with limitations in
analyses, procedures, or scope.
LIQUIDITY - the ability to quickly convert property to cash or pay a liability.
LIQUIDATION VALUE - the net amount that would be realized if the business is
terminated and the assets are sold piecemeal. Liquidation can be either
"orderly" or "forced."
MAJORITY CONTROL - the degree of control provided by a majority position.
MAJORITY INTEREST - an ownership interest greater than 50% of the voting
interest in a business enterprise.
MARKET (MARKET-BASED) APPROACH - a general way of determining a value indication
of a business, business ownership interest, security, or intangible asset by
using one or more methods that compare the subject to similar businesses,
business ownership interests, securities, or intangible assets that have been
sold.
INTERNATIONAL GLOSSARY OF BUSINESS 7
VALUATION TERMS
MARKET CAPITALIZATION OF EQUITY - the share price of a publicly traded stock
multiplied by the number of shares outstanding.
MARKET CAPITALIZATION OF INVESTED CAPITAL - the market capitalization of equity
plus the market value of the debt component of invested capital.
MARKET MULTIPLE - the market value of a company's stock or invested capital
divided by a company measure (such as economic benefits, number of customers).
MARKETABILITY - the ability to quickly convert property to cash at minimal cost.
MARKETABILITY DISCOUNT - see DISCOUNT FOR LACK OF MARKETABILITY.
MERGER AND ACQUISITION METHOD - a method within the market approach whereby
pricing multiples are derived from transactions of significant interests in
companies engaged in the same or similar lines of business.
MID-YEAR DISCOUNTING - a convention used in the Discounted Future Earnings
Method that reflects economic benefits being generated at midyear, approximating
the effect of economic benefits being generated evenly throughout the year.
MINORITY DISCOUNT - a discount for lack of control applicable to a minority
interest.
MINORITY INTEREST - an ownership interest less than 50% of the voting interest
in a business enterprise.
MULTIPLE - the inverse of the capitalization rate.
NET BOOK VALUE - with respect to a business enterprise, the difference between
total assets (net of accumulated depreciation, depletion, and amortization) and
total liabilities as they appear on the balance sheet (synonymous with
Shareholder's Equity). With respect to a specific asset, the capitalized cost
less accumulated amortization or depreciation as it appears on the books of
account of the business enterprise.
NET CASH FLOWS - when the term is used, it should be supplemented by a
qualifier. See EQUITY NET CASH FLOWS and INVESTED CAPITAL NET CASH FLOWS.
NET PRESENT VALUE - the value, as of a specified date, of future cash inflows
less all cash outflows (including the cost of investment) calculated using an
appropriate discount rate.
NET TANGIBLE ASSET VALUE - the value of the business enterprise's tangible
assets (excluding excess assets and non-operating assets) minus the value of its
liabilities.
INTERNATIONAL GLOSSARY OF BUSINESS 8
VALUATION TERMS
NON-OPERATING ASSETS - assets not necessary to ongoing operations of the
business enterprise. {NOTE: in Canada, the term used is "Redundant Assets"}.
NORMALIZED EARNINGS - economic benefits adjusted for nonrecurring, noneconomic,
or other unusual items to eliminate anomalies and/or facilitate comparisons.
NORMALIZED FINANCIAL STATEMENTS - financial statements adjusted for nonoperating
assets and liabilities and/or for nonrecurring, noneconomic, or other unusual
items to eliminate anomalies and/or facilitate comparisons.
ORDERLY LIQUIDATION VALUE - liquidation value at which the asset or assets are
sold over a reasonable period of time to maximize proceeds received.
PREMISE OF VALUE - an assumption regarding the most likely set of transactional
circumstances that may be applicable to the subject valuation; e.g. going
concern, liquidation.
PRESENT VALUE - the value, as of a specified date, of future economic benefits
and/or proceeds from sale, calculated using an appropriate discount rate.
PORTFOLIO DISCOUNT - an amount or percentage deducted from the value of a
business enterprise to reflect the fact that it owns dissimilar operations or
assets that do not fit well together.
PRICE/EARNINGS MULTIPLE - the price of a share of stock divided by its earnings
per share.
RATE OF RETURN - an amount of income (loss) and/or change in value realized or
anticipated on an investment, expressed as a percentage of that investment.
REDUNDANT ASSETS - see NON-OPERATING ASSETS.
REPORT DATE - the date conclusions are transmitted to the client.
REPLACEMENT COST NEW - the current cost of a similar new property having the
nearest equivalent utility to the property being valued.
REPRODUCTION COST NEW - the current cost of an identical new property.
REQUIRED RATE OF RETURN - the minimum rate of return acceptable by investors
before they will commit money to an investment at a given level of risk.
RESIDUAL VALUE - the value as of the end of the discrete projection period in a
discounted future earnings model.
INTERNATIONAL GLOSSARY OF BUSINESS 9
VALUATION TERMS
RETURN ON EQUITY - the amount, expressed as a percentage, earned on a company's
common equity for a given period.
RETURN ON INVESTMENT - see RETURN ON INVESTED CAPITAL and RETURN ON EQUITY.
RETURN ON INVESTED CAPITAL - the amount, expressed as a percentage, earned on a
company's total capital for a given period.
RISK-FREE RATE - the rate of return available in the market on an investment
free of default risk.
RISK PREMIUM - a rate of return added to a risk-free rate to reflect risk.
RULE OF THUMB - a mathematical formula developed from the relationship between
price and certain variables based on experience, observation, hearsay, or a
combination of these; usually industry specific.
SPECIAL INTEREST PURCHASERS - acquirers who believe they can enjoy post-
acquisition economies of scale, synergies, or strategic advantages by combining
the acquired business interest with their own.
STANDARD OF VALUE - the identification of the type of value being used in a
specific engagement; e.g. fair market value, fair value, investment value.
SUSTAINING CAPITAL REINVESTMENT - the periodic capital outlay required to
maintain operations at existing levels, net of the tax shield available from
such outlays.
SYSTEMATIC RISK - the risk that is common to all risky securities and cannot be
eliminated through diversification. The measure of systematic risk in stocks is
the beta coefficient.
TANGIBLE ASSETS - physical assets (such as cash, accounts receivable, inventory,
property, plant and equipment, etc.).
TERMINAL VALUE. see RESIDUAL VALUE.
TRANSACTION METHOD - see MERGER AND ACQUISITION METHOD.
UNLEVERED BETA - the beta reflecting a capital structure without debt.
UNSYSTEMATIC RISK - the risk specific to an individual security that can be
avoided through diversification.
VALUATION - the act or process of determining the value of a business, business
ownership interest, security, or intangible asset.
INTERNATIONAL GLOSSARY OF BUSINESS 10
VALUATION TERMS
VALUATION APPROACH - a general way of determining a value indication of a
business, business ownership interest, security, or intangible asset using one
or more valuation methods.
VALUATION DATE - the specific point in time as of which the valuator's opinion
of value applies (also referred to as "Effective Date" or "Appraisal Date").
VALUATION METHOD - within approaches, a specific way to determine value.
VALUATION PROCEDURE - the act, manner, and technique of performing the steps of
an appraisal method.
VALUATION RATIO - a fraction in which a value or price serves as the numerator
and financial, operating, or physical data serves as the denominator.
VALUE TO THE OWNER - see INVESTMENT VALUE.
VOTING CONTROL - de jure control of a business enterprise.
WEIGHTED AVERAGE COST OF CAPITAL (WACC) - the cost of capital (discount rate)
determined by the weighted average, at market value, of the cost of all
financing sources in the business enterprise's capital structure.