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Furthermore, each subsidiary bank must periodically report all loans made to directors and other insiders to the
bank regulators, and these loans are closely scrutinized by the regulators for compliance with Sections 22(g) and
22(h) of the Federal Reserve Ace and Regulation O.
Capital
Bank Holding Companies and Financial Holding Companies .  The Federal Reserve Board has adopted risk-
based capital guidelines for bank holding companies and financial holding companies. The ratio of total capital to
risk weighted assets (including certain off-balance-sheet activities, such as standby letters of credit) must be a
minimum of eight percent. At least half of the total capital is to be composed of common shareholders’ equity,
minority interests in the equity accounts of consolidated subsidiaries and a limited amount of perpetual preferred
stock, less goodwill, which is collectively referred to as Tier 1 Capital. The remainder of total capital may consist of
subordinated debt, other preferred stock and a limited amount of loan loss reserves.
In addition, the Federal Reserve Board has established minimum leverage ratio guidelines for bank holding
companies and financial holding companies.  Bank holding companies and financial holding companies that meet
certain specified criteria, including having the highest regulatory rating, must maintain a minimum Tier 1 Capital
leverage ratio (Tier 1 Capital to average assets for the current quarter, less goodwill) of three percent.  Bank holding
companies and financial holding companies that do not have the highest regulatory rating will generally be required
to maintain a higher Tier 1 Capital leverage ratio of three percent plus an additional cushion of 100 to 200 basis
points. The Federal Reserve Board has not advised us of any specific minimum leverage ratio applicable to us. The
guidelines also provide that bank holding companies and financial holding companies experiencing internal growth
or making acquisitions will be expected to maintain strong capital positions. Such strong capital positions must be
kept substantially above the minimum supervisory levels without significant reliance on intangible assets (e.g.,
goodwill, core deposit intangibles and purchased mortgage servicing rights). As of December 31, 2002, our capital
ratios were as follows: (1) Tier 1 Capital to Risk-Weighted Assets Ratio, 18.50%; (2) Total Capital to Risk-
Weighted Assets Ratio, 19.52%; and (3) Tier 1 Capital Leverage Ratio, 10.51%.
Banks .  The Federal Deposit Insurance Corporation Improvement Act of 1991, or FDICIA established five
capital tiers with respect to depository institutions: “well-capitalized,” “adequately capitalized,” “undercapitalized,”
“significantly undercapitalized,” and “critically undercapitalized.” A depository institution’s capital tier will depend
upon where its capital levels are in relation to various relevant capital measures, including (1) risk-based capital
measures, (2) a leverage ratio capital measure and (3) certain other factors. Regulations establishing the specific
capital tiers provide that a “well-capitalized” institution will have a total risk-based capital ratio of ten percent or
greater, a Tier 1 risk-based capital ratio of six percent or greater, and a Tier 1 leverage ratio of five percent or
greater, and not be subject to any written regulatory enforcement agreement, order, capital directive or prompt
corrective action derivative. For an institution to be “adequately capitalized,” it will have a total risk-based capital
ratio of eight percent or greater, a Tier 1 risk-based capital ratio of four percent or greater, and a Tier 1 leverage ratio
of four percent or greater (in some cases three percent). For an institution to be “undercapitalized,” it will have a
total risk-based capital ratio that is less than eight percent, a Tier 1 risk-based capital ratio less than four percent or a