Bank Analysis School Case Study eBook

Bank Analysis School Case Study

April 15-19, 2024 San Diego, CA

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CONFERENCE OF STATE BANK SUPERVISORS 1300 I Street NW / Suite 700 / Washington, DC 20005 / (202) 296-2840

The Uniform Financial Institutions Rating System Introduction

The Uniform Financial Institutions Rating System (UFIRS) was adopted by the Federal Financial Institutions Examination Council (FFIEC) on November 13, 1979. In December 1996, the FFIEC updated the UFIRS. The revised system was effective January 1, 1997. Over the years, the UFIRS has proven to be an effective internal supervisory tool for evaluating the soundness of financial institutions on a uniform basis and for identifying those institutions requiring special attention or concern. A number of changes occurred in the banking industry and in the Federal supervisory agencies' policies and procedures that prompted a review and revision of the 1979 rating system. The 1996 revisions to UFIRS include the addition of a sixth component addressing sensitivity to market risk, the explicit reference to the quality of risk management processes in the management component, and the identification of risk elements within the composite and component rating descriptions. The UFIRS takes into consideration certain financial, managerial, and compliance factors that are common to all institutions. Under this system, the supervisory agencies endeavor to ensure that all financial institutions are evaluated in a comprehensive and uniform manner, and that supervisory attention is appropriately focused on the financial institutions exhibiting financial and operational weaknesses or adverse trends. The UFIRS also serves as a useful vehicle for identifying problem or deteriorating financial institutions, as well as for categorizing institutions with deficiencies in particular component areas. Further, the rating system assists Congress in following safety and soundness trends and in assessing the aggregate strength and soundness of the financial industry. As such, the UFIRS assists the agencies in fulfilling their collective mission of maintaining stability and public confidence in the nation's financial system. Overview Under the UFIRS, each financial institution is assigned a composite rating based on an evaluation and rating of six essential components of an institution's financial condition and operations. These component factors address the adequacy of capital, the quality of assets, the capability of management, the quality and level of earnings, the adequacy of liquidity, and the sensitivity to market risk. Evaluations of the components take into consideration the institution’s size and sophistication, the nature and complexity of its activities, and its risk profile. Composite and component ratings are assigned based on a 1 to 5 numerical scale. A 1 indicates the highest rating, strongest performance and risk management practices, and least degree of supervisory concern, while a 5 indicates the lowest rating, weakest performance, inadequate risk management practices, and, therefore, the highest degree of supervisory concern. The composite rating generally bears a close relationship to the component ratings assigned. However, the composite rating is not derived by computing an arithmetic average of the component ratings. Each component rating is based on a qualitative analysis of the factors comprising that component and its interrelationship with the other components. When assigning a composite rating, some components may be given more weight than others depending on the situation at the institution. In general, assignment of a composite rating may incorporate any factor that bears significantly on the overall condition and soundness of the financial institution. Assigned composite and component ratings are disclosed to the institution’s board of directors and senior management. The ability of management to respond to changing circumstances and to address the risks that may arise from changing business conditions, or the initiation of new activities or products, is an important factor in evaluating a financial institution's overall risk profile and the level of supervisory attention warranted. For this reason, the management component is given special consideration when assigning a composite rating. The ability of management to identify, measure, monitor, and control the risks of its operations is also taken into account when assigning each component rating. It is recognized, however, that appropriate

management practices vary considerably among financial institutions, depending on their size, complexity, and risk profile. For less complex institutions engaged solely in traditional banking activities and whose directors and senior managers, in their respective roles, are actively involved in the oversight and management of day-to-day operations, relatively basic management systems and controls may be adequate. At more complex institutions, on the other hand, detailed and formal management systems and controls are needed to address their broader range of financial activities and to provide senior managers and directors, in their respective roles, with the information they need to monitor and direct day-to-day activities. All institutions are expected to properly manage their risks. For less complex institutions engaging in less sophisticated risk taking activities, detailed or highly formalized management systems and controls are not required to receive strong or satisfactory component or composite ratings. Foreign Branch and specialty examination findings and the ratings assigned to those areas are taken into consideration, as appropriate, when assigning component and composite ratings under UFIRS. The specialty examination areas include: Compliance, Community Reinvestment, Government Security Dealers, Information Technology (IT), Municipal Security Dealers, Transfer Agent, and Trust. The following two sections contain the composite rating definitions and the descriptions and the definitions for the six component ratings.

Composite Ratings Composite ratings are based on a careful evaluation of an institution’s managerial, operational, financial, and compliance performance. The six key components used to assess an institution’s financial condition and operations are: capital adequacy, asset quality, management capability, earnings quantity and quality, liquidity adequacy, and sensitivity to market risk. The composite ratings are defined as follows: Composite 1 Financial institutions in this group are sound in every respect and generally have components rated 1 or 2. Any weaknesses are minor and can be handled in a routine manner by the board of directors and management. These financial institutions are the most capable of withstanding the vagaries of business conditions and are resistant to outside influences such as economic instability in their trade area. These financial institutions are in substantial compliance with laws and regulations. As a result, these financial institutions exhibit the strongest performance and risk management practices relative to the institution’s size, complexity, and risk profile, and give no cause for supervisory concern. Composite 2 Financial institutions in this group are fundamentally sound. For a financial institution to receive this rating, generally no component rating should be more severe than 3. Only moderate weaknesses are present and are well within the board of directors’ and management’s capabilities and willingness to correct. These financial institutions are stable and are capable of withstanding business fluctuations. These financial institutions are in substantial compliance with laws and regulations. Overall risk management practices are satisfactory relative to the institution’s size, complexity, and risk profile. There are no material supervisory concerns and, as a result, the supervisory response is informal and limited. Composite 3 Financial institutions in this group exhibit some degree of supervisory concern in one or more of the component areas. These financial institutions exhibit a combination of weaknesses that may range from moderate to severe; however, the magnitude of the deficiencies generally will not cause a component to be rated more severely than 4. Management may lack the ability or willingness to effectively address weaknesses within appropriate time frames. Financial institutions in this group generally are less capable of withstanding business fluctuations and are more vulnerable to outside influences than those institutions rated a composite 1 or 2. Additionally, these financial institutions may be in significant noncompliance with laws and regulations. Risk management practices may be less than satisfactory relative to the institution’s size, complexity, and risk profile. These financial institutions require more than normal supervision, which may include formal or informal enforcement actions. Failure appears unlikely, however, given the overall strength and financial capacity of these institutions. Composite 4 Financial institutions in this group generally exhibit unsafe and unsound practices or conditions. There are serious financial or managerial deficiencies that result in unsatisfactory performance. The problems range from severe to critically deficient. The weaknesses and problems are not being satisfactorily addressed or resolved by the board of directors and management. Financial institutions in this group generally are not capable of withstanding business fluctuations. There may be significant noncompliance with laws and regulations. Risk management practices are generally unacceptable relative to the institution’s size, complexity, and risk profile. Close supervisory attention is required, which means, in most cases, formal enforcement action is necessary to address the problems. Institutions in this group pose a risk to the deposit insurance fund. Failure is a distinct possibility if the problems and weaknesses are not satisfactorily addressed and resolved. Composite 5 Financial institutions in this group exhibit extremely unsafe and unsound practices or conditions; exhibit a critically deficient performance; often contain inadequate risk management practices relative to the institution’s size, complexity, and risk profile; and are of the greatest supervisory concern. The volume and severity of problems are beyond management’s ability or willingness to control or correct. Immediate outside financial or other assistance is needed in order for the financial institution to be viable. Ongoing supervisory attention is necessary. Institutions in this group pose a significant risk to the deposit insurance fund and failure is highly probable.

Component Ratings Each of the component rating descriptions is divided into three sections: an introductory paragraph; a list of the principal evaluation factors that relate to that component; and a brief description of each numerical rating for that component. Some of the evaluation factors are reiterated under one or more of the other components to reinforce the interrelationship between components. The listing of evaluation factors for each component rating is in no particular order of importance. Capital Adequacy A financial institution is expected to maintain capital commensurate with the nature and extent of risks to the institution and the ability of management to identify, measure, monitor, and control these risks. The effect of credit, market, and other risks on the institution’s financial condition should be considered when evaluating the adequacy of capital. The types and quantity of risk inherent in an institution's activities will determine the extent to which it may be necessary to maintain capital at levels above required regulatory minimums to properly reflect the potentially adverse consequences that these risks may have on the institution's capital. The capital adequacy of an institution is rated based upon, but not limited to, an assessment of the following evaluation factors: • The level and quality of capital and the overall financial condition of the institution. • The ability of management to address emerging needs for additional capital. • The nature, trend, and volume of problem assets, and the adequacyof allowances for loan and lease losses and other valuation reserves. • Balance sheet composition, including the nature and amount of intangible assets, market risk, concentration risk, and risksassociated with nontraditional activities. • Risk exposure represented by off-balance sheet activities. • The quality and strength of earnings, and the reasonableness of dividends. • Prospects and plans for growth, as well as past experience inmanaging growth. • Access to capital markets and other sources of capital, includingsupport provided by a parent holding company. 1. A rating of 1 indicates a strong capital level relative to the institution’s risk profile. 2. A rating of 2 indicates a satisfactory capital level relative to the financial institution’s risk profile. 3. A rating of 3 indicates a less than satisfactory level of capital that does not fully support the institution's risk profile. The rating indicates a need for improvement, even if the institution's capital level exceedsminimum regulatory and statutory requirements. 4. A rating of 4 indicates a deficient level of capital. In light of the institution’s risk profile, viability of the institution may be threatened. Assistance from shareholders or other external sources of financial support may be required. 5. A rating of 5 indicates a critically deficient level of capital such that the institution's viability is threatened. Immediate assistance from shareholders or other external sources of financial support is required. Ratings

Asset Quality The asset quality rating reflects the quantity of existing and potential credit risk associated with the loan and investment portfolios, other real estate owned, and other assets, as well as off- balance sheet transactions. The ability of management to identify, measure, monitor, and control credit risk is also reflected here. The evaluation of asset quality should consider the adequacy of the Allowance for Loan and Lease Losses (ALLL)and weigh the exposure to counter-party, issuer, or borrower default under actual or implied contractual agreements. All other risks that may affect the value or marketability of an institution's assets, including, but not limited to, operating, market, reputation, strategic, or compliance risks, should also be considered. The asset quality of a financial institution is rated based upon, but not limited to, an assessment of the following evaluation factors: • The adequacy of underwriting standards, soundness of credit administration practices, and appropriateness of risk identification practices. • The level, distribution, severity, and trend of problem, classified, nonaccrual, restructured, delinquent, and nonperforming assets forboth on- and off-balance sheet transactions. • The adequacy of the allowance for loan and lease losses and other asset valuation reserves. • The credit risk arising from or reduced by off-balance sheet transactions, such as unfunded commitments, credit derivatives, commercial and standby letters of credit, and lines of credit. • The diversification and quality of the loan and investment portfolios. • The extent of securities underwriting activities and exposure tocounter- parties in trading activities. • The existence of asset concentrations. • The adequacy of loan and investment policies, procedures, and practices. • The ability of management to properlyadminister its assets, including the timely identification and collection of problemassets. • The adequacy of internal controls and management informationsystems. • The volume and nature of credit documentationexceptions. 1. A rating of 1 indicates strong asset quality and credit administration practices. Identified weaknesses are minor in nature and risk exposure is modest in relation to capital protection and management’s abilities.Asset quality in such institutions is of minimal supervisory concern. 2. A rating of 2 indicates satisfactory asset quality and credit administration practices. The level and severity of classifications and otherweaknesses warrant a limited level of supervisory attention. Risk exposure is commensurate with capital protection and management’s abilities. 3. A rating of 3 is assigned when asset quality or credit administration practices are less than satisfactory. Trends may be stable or indicate deterioration in asset quality or an increase in risk exposure. The level and severity of classified assets, other weaknesses, and risks requirean elevated level of supervisory concern. There is generally a need to improve credit administration and risk management practices. 4. A rating of 4 is assigned to financial institutions with deficient asset quality or credit administration practices. The levels of risk and problem assets are significant, inadequately controlled, and subject the financial institution to potential losses that, if left unchecked, may threaten its viability. 5. A rating of 5 represents critically deficient asset quality or credit administration practices that present an imminent threat to the institution's viability. Ratings

Management The capability of the board of directors and management, in their respective roles, to identify, measure, monitor, and control the risks of an institution’s activities and to ensure a financial institution’s safe, sound, and efficient operation in compliance with applicable laws and regulations is reflected in this rating. Generally, directors need not be actively involved in day-to- day operations; however, they must provide clear guidance regarding acceptable risk exposure levels and ensure that appropriate policies, procedures, and practices have been established. Senior management is responsible for developing and implementing policies, procedures, and practices that translate the board’s goals, objectives, and risk limits into prudent operating standards. Depending on the nature and scope of an institution’s activities, management practices may need to address some or all of the following risks: credit, market, operating or transaction, reputation, strategic, compliance, legal, liquidity, and other risks. Sound management practices are demonstrated by active oversight by the board of directors and management; competent personnel; adequate policies, processes, and controls taking into consideration the size and sophistication of the institution; maintenance of an appropriate audit program and internal control environment; and effective risk monitoring and management information systems. This rating should reflect the board’s and management’s ability as it applies to all aspects of banking operations as well as other financial service activities in which the institution is involved. The capability and performance of management and the board of directors is rated based upon, but not limited to, an assessment of the following evaluation factors: • The level and quality of oversight and support of all institutionactivities by the board of directors and management. • The ability of the board of directors and management, in their respective roles, to plan for, and respond to, risks that may arise from changing business conditions or the initiation of new activities or products. • The adequacies of, and conformance with, appropriate internal policies and controls addressing the operations and risks of significant activities. • The accuracy, timeliness, and effectiveness of management information and risk monitoring systems appropriate for the institution’s size, complexity, and risk profile. • The adequacy of audits and internal controls to: promote effective operations and reliable financial and regulatory reporting; safeguard assets; and ensure compliance with laws, regulations, and internal policies. • Compliance with laws and regulations. • Responsiveness to recommendations from auditors and supervisory authorities. • Management depth and succession. • The extent that the board of directors and management is affected by, or susceptible to, dominant influence or concentration of authority. • Reasonableness of compensation policies and avoidance of self-dealing. • Demonstrated willingness to serve the legitimate banking needs of the community. • The overall performance of the institution and its risk profile. Ratings 1. A rating of 1 indicates strong performance by management and the board of directors and strong risk management practices relative to the institution’s size, complexity, and risk profile. All significant risks are consistently and effectively identified, measured, monitored, and controlled. Management and the board have demonstrated the ability to promptly and successfully address existing and potential problems and risks. 2. A rating of 2 indicates satisfactory management and board performance and risk management practices relative to the institution’s size, complexity, and risk profile. Minor weaknesses may exist, but are not material to the safety and soundness of the institution and are being addressed. In general, significant risks and problems are effectively identified, measured, monitored, and controlled. 3. A rating of 3 indicates management and board performance that need improvement or risk management practices that are less than satisfactory given the nature of the institution’s

activities. The capabilities of management or the board of directors may be insufficient for the type, size, or condition of the institution. Problems and significant risks may be inadequately identified, measured, monitored, or controlled. 4. A rating of 4 indicates deficient management and board performance or risk management practices that are inadequate considering the natureof an institution’s activities. The level of problems and risk exposure is excessive. Problems and significant risks are inadequately identified, measured, monitored, or controlled and require immediate action by the board and management to preserve the soundness of the institution. Replacing or strengthening management or the board may be necessary. 5. A rating of 5 indicates critically deficient management and board performance or risk management practices. Management and theboard of directors have not demonstrated the ability to correct problems and implement appropriate risk management practices. Problems and significant risks are inadequately identified, measured, monitored, or controlled and now threaten the continued viability of the institution. Replacing or strengthening management or the board of directors is necessary.

Earnings This rating reflects not only the quantity and trend of earnings, but also factors that may affect the sustainability or quality of earnings. The quantity as well as the quality of earnings can be affected by excessive or inadequately managed credit risk that may result in loan losses and require additions to the ALLL, or by high levels of market risk that may unduly expose an institution's earnings to volatility in interest rates. The quality of earnings may also be diminished by undue reliance on extraordinary gains, nonrecurring events, or favorable tax effects. Future earnings may be adversely affected by an inability to forecast or control funding and operating expenses, improperly executed or ill-advised business strategies, or poorly managed or uncontrolled exposure to other risks. The rating of an institution's earnings is based upon, but not limited to, an assessment of the following evaluation factors: • The level of earnings, including trends and stability. • The ability to provide for adequate capital through retainedearnings. • The quality and sources of earnings. • The level of expenses in relation to operations. • The adequacy of the budgeting systems, forecasting processes, and management information systems in general. • The adequacy of provisions to maintain the allowance for loan and lease losses and other valuation allowance accounts. • The earnings exposure to market risk such as interest rate, foreign exchange, and price risks. Ratings 1. A rating of 1 indicates earnings that are strong. Earnings are more than sufficient to support operations and maintain adequate capital and allowance levels after consideration is given to asset quality, growth, and other factors affecting the quality, quantity, and trend of earnings. 2. A rating of 2 indicates earnings that are satisfactory. Earnings are sufficient to support operations and maintain adequate capital and allowance levels after consideration is given to asset quality, growth, and other factors affecting the quality, quantity, and trend of earnings. Earnings that are relatively static, or even experiencing a slight decline, may receive a 2 rating provided the institution’s level of earnings is adequate in view of the assessment factors listed above. 3. A rating of 3 indicates earnings that need to be improved. Earningsmay not fully support operations and provide for the accretion of capital and allowance levels in relation to the institution's overall condition, growth, and other factors affecting the quality, quantity, and trend of earnings. 4. A rating of 4 indicates earnings that are deficient. Earnings are insufficient to support operations and maintain appropriate capital and allowance levels. Institutions so rated may be characterized by erratic fluctuations in net income or net interest margin, the development of significant negative trends, nominal or unsustainable earnings, intermittent losses, or a substantive drop in earnings from theprevious years. 5. A rating of 5 indicates earnings that are critically deficient. A financial institution with earnings rated 5 is experiencing losses that represent a distinct threat to its viability through the erosion of capital.

Liquidity In evaluating the adequacy of a financial institution’s liquidity position, consideration should be given to the current level and prospective sources of liquidity compared to funding needs, as well as to the adequacy of funds management practices relative to the institution’s size, complexity, and risk profile. In general, funds management practices should ensure that an institution is able to maintain a level of liquidity sufficient to meet its financial obligations in a timely manner and to fulfill the legitimate banking needs of its community. Practices should reflect the ability of the institution to manage unplanned changes in funding sources, as well as react to changes in market conditions that affect the ability to quickly liquidate assets with minimal loss. In addition, funds management practices should ensure that liquidity is not maintained at a high cost, or through undue reliance on funding sources that may not be available in times of financial stress or adverse changes in market conditions. Liquidity is rated based upon, but not limited to, an assessment of the following evaluation factors: • The adequacy of liquidity sources compared to present and futureneeds and the ability of the institution to meet liquidity needs without adversely affecting its operations or condition. • The availability of assets readily convertible to cash without undue loss. • Access to money markets and other sources of funding. • The level of diversification of funding sources, both on- andoff-balance sheet. • The degree of reliance on short-term, volatile sources of funds, including borrowings and brokered deposits, to fund longer termassets. • The trend and stability of deposits. • The ability to securitize and sell certain pools of assets. • The capability of management to properly identify, measure, monitor, and control the institution’s liquidity position, including theeffectiveness of funds management strategies, liquidity policies, management information systems, and contingency funding plans. Ratings 1. A rating of 1 indicates strong liquidity levels and well-developed funds management practices. The institution has reliable access to sufficient sources of funds on favorable terms to meet present and anticipated liquidity needs. 2. A rating of 2 indicates satisfactory liquidity levels and funds management practices. The institution has access to sufficient sources of funds on acceptable terms to meet present and anticipated liquidity needs.Modest weaknesses maybe evident in funds management practices. 3. A rating of 3 indicates liquidity levels or funds management practices in need of improvement. Institutions rated 3 may lack ready access to funds on reasonable terms or may evidence significant weaknesses in funds management practices. 4. A rating of 4 indicates deficient liquidity levels or inadequate funds management practices. Institutions rated 4 may not have or be able to obtain a sufficient volume of funds on reasonable terms to meet liquidity needs. 5. A rating of 5 indicates liquidity levels or funds management practices so critically deficient that the continued viability of the institution is threatened. Institutions rated 5 require immediate external financial assistance to meet maturing obligations or other liquidity needs.

Sensitivity to Market Risk The sensitivity to market risk component reflects the degree to which changes in interest rates, foreign exchange rates, commodity prices, or equity prices can adversely affect a financial institution’s earnings or economic capital. When evaluating this component, consideration should be given to: management’s ability to identify, measure, monitor, and control market risk; the institution’s size; the nature and complexity of its activities; and the adequacy of its capital and earnings in relation to its level of market risk exposure. For many institutions, the primary source of market risk arises from nontrading positions and their sensitivity to changes in interest rates. In some larger institutions, foreign operations can be a significant source of market risk. For some institutions, trading activities are a major source of market risk. Market risk is rated based upon, but not limited to, an assessment of the following evaluation factors: • The sensitivity of the financial institution's earnings or the economic value of its capital to adverse changes in interest rates, foreignexchange rates, commodity prices, or equity prices. • The ability of management to identify, measure, monitor, and control exposure to market risk given the institution’s size, complexity, and risk profile. • The nature and complexity of interest rate risk exposure arising from nontrading positions. • Where appropriate, the nature and complexity of market riskexposure arising from trading and foreign operations. Ratings 1. A rating of 1 indicates that market risk sensitivity is well controlled and that there is minimal potential that the earnings performance or capital position will be adversely affected. Risk management practices are strong for the size, sophistication, and market risk accepted by the institution. The level of earnings and capital provide substantial support for the degree of market risk taken by the institution. 2. A rating of 2 indicates that market risk sensitivity is adequately controlled and that there is only moderate potential that the earnings performance or capital position will be adversely affected. Risk management practices are satisfactory for the size, sophistication, and market risk accepted by the institution. The level of earnings and capital provide adequate support for the degree of market risk taken by the institution. 3. A rating of 3 indicates that control of market risk sensitivity needs improvement or that there is significant potential that the earnings performance or capital position will be adversely affected. Risk management practices need to be improved given the size, sophistication, and level of market risk accepted by the institution. The level of earnings and capital maynot adequately support the degree of market risk taken by the institution. 4. A rating of 4 indicates that control of market risk sensitivity is unacceptable or that there is high potential that the earnings performance or capital position will be adversely affected. Risk management practices are deficient for the size, sophistication, and level of market risk accepted by the institution. The level of earnings and capital provide inadequate support for the degree of market risk taken by the institution. 5. A rating of 5 indicates that control of market risk sensitivity is unacceptable or that the level of market risk taken by the institution is an imminent threat to its viability. Risk management practices are wholly inadequate for the size, sophistication, and level of market risk accepted by the institution.

Disclosure of Ratings It is the FDIC's view that disclosure of the CAMELS component and composite ratings to bank management is appropriate. The broad range of financial products offered through the financial services industry magnifies the importance of sound risk management policies and procedures. In this environment, the examination process is incomplete if it focuses solely on the institution’s current financial condition, and fails to assess its ability to identify and adapt to changing economic, competitive, and other factors. Disclosure of the component and composite ratings encourages a more complete and open discussion of examination findings and recommendations, and therefore provides management with useful information to assist in making risk management procedures more effective. Additionally, open discussion of the CAMELS component ratings provides institutions with a better understanding of how ratings are derived, and enables management to better address any weaknesses in specific areas. Discussions with Management The Examiner-in-Charge (EIC) should discuss the recommended component and composite ratings with senior management, and when appropriate the board of directors, within as close proximity to the conclusion of the examination as possible. Examiners should clearly explain that the ratings are tentative and subject to final approval by the Regional Director. Examiners should discuss the factors they considered when assigning the component and composite ratings. Examiners should also indicate that the composite rating is not based on a numerical average, but rather that it is based on a qualitative evaluation of an institution's overall managerial, operational, and financial performance. The rating of the management component will be particularly sensitive and important. The quality of management is often the single most important element in the successful operation of an insured institution, and is usually the factor that is most indicative of how well risk is identified, measured, monitored, and controlled. For this reason, examiners should thoroughly review and explain the factors considered when assigning the management rating. Written comments in support of the management rating should include an assessment of the effectiveness of existing policies and procedures in identifying, monitoring, and managing risk. Finally, management should be reminded that the composite and component ratings, whether disclosed verbally or in the written report of examination, are subject to the confidentiality rules imposed by Part 309 of the FDIC's Rules and Regulations.

SUNNY STATE BANK December 31, 20 X 5 Uniform Bank Performance Report

FDIC Certificate # XXXX OCC Charter # 0 Public Report

Table of Contents

Information

Table of Contents Section Summary Ratios--Page 1 Income Statement $--Page 2 QTR Income Statement--Page 2A

Introduction This uniform bank performance report covers the operations of a bank and that of a comparable group of peer banks. It is provided as a bank management tool by the Federal Financial Institutions Examination Council. Detailed information concerning the content of this report is provided in the Users Guide for the Uniform Bank Performance Report found online at www.ffiec.gov. 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. The information contained in this report are not to be construed as a rating or other evaluation of a financial institution by a federal banking regulator. The quarterly report of condition and income is the principal source of information for this report. Please refer to that document for additional financial information and an explanation of the accounting standards that underlie data shown herein. For questions regarding content of reports contact: 1-888-237-3111 or email: cdr.help@cdr.ffiec.gov

Noninterest Income and Expenses--Page 3 Asset Yields and Funding Costs--Page 3A Balance Sheet $--Page 4

Off Balance Sheet Items--Page 5 Derivative Instruments--Page 5A Derivative Analysis--Page 5B

Balance Sheet Percentage Composition--Page 6 Analysis of Loan Allowance and Loan Mix--Page 7 Analysis of Loan Allowance and Loan Mix--Page 7A Analysis of Concentrations of Credit--Page 7B Analysis of Past Due, Nonaccrual & Restructured--Page 8 Analysis of Past Due, Nonaccrual & Restructured--Page 8A Interest Rate Risk Analysis as a Percent of Assets--Page 9 Liquidity & Funding--Page 10 Liquidity & Investment Portfolio--Page 10A Capital Analysis--Page 11 Capital Analysis--Page 11A Capital Analysis--Page 11B Capital Analysis--Page 11C One Quarter Annualized Income Analysis--Page 12

Financial Institution Address:

The Current Federal Regulator is: Federal Deposit Insurance Corporation

The bank was established on: 1 3 /0 1 /1 87 28

The current peer group for this bank is: 10 Insured commercial banks having assets between $50 million and $100 million, with 3 or more full service banking offices and located in a metropolitan statistical area Footnotes: Financial data in the Uniform Bank Performance Report may have been adjusted as a result of information shown in footnotes below.Please refer to the Uniform Bank Performance Report Users Guide online for details.

Securitization & Asset Sale Activities--Page 13 Securitization & Asset Sale Activities--Page 13A Securitization & Asset Sale Activities--Page 13B

Fiduciary & Related Services--Page 1 Fiduciary & Related Services--Page 1A State Average

Bank Holding Company Information:

YEAR END FIGURES UNLESS OTHERWISE NOTED

FDIC Certificate # XXXX OCC Charter # 0 Public Report Earnings and Profitability Percent of Average Assets: Interest Income (TE)

SUNNY STATE BANK Summary Ratios--Page 1

Summary Ratios

12/31/20X5

12/31/20X4

12/31/20 X 3

12/31/20X2

12/31/20X1

BANK PG 10 PCT

BANK PG 10 PCT

BANK PG 10 PCT

BANK PG 10 PCT

BANK PG 10 PCT

3.70 0.47 3.23 0.50 3.48 0.24 0.25 N/A -0.01 0.00 -0.01 0.04 0.00 0.04 0.04 88.92 79.12 4.16 0.53 3.63 N/A

4.17 0.47 3.69 0.57 3.31 1.00 0.12 0.00 0.86 0.00 0.00 0.86 0.76 0.00 0.70 0.76

25 53 20 45 70 10 81 10 87 10 14 98 14 14 10 93 29 60 31 76 17 21 27 50 65 57 82

3.68 0.38 3.29 0.46 3.70 0.06 0.24 N/A -0.18 0.04 -0.14 -0.32 0.00 -0.32 -0.32 87.93 80.14 4.18 0.44 3.74 N/A

4.05 0.36 3.68 0.73 3.51 0.97 0.10 0.00 0.82 0.00 0.00 0.82 0.59 0.00 0.48 0.59

30 61 26 36 68

3.78 0.38 3.40 0.60 3.72 0.29 0.15 N/A 0.14 0.06 N/A 0.20 0.15 0.00 0.15 0.15

3.98 0.35 3.61 0.70 3.45 0.93 0.12 0.00 0.79 0.02 0.00 0.81 0.63 0.00 0.54 0.63

34 60 38 51 72 15 68 14 83 15 16 98 18 16 12 96 48 65 46 60 26 13 42 28 71 84 84

3.82 0.39 3.43 0.53 3.61 0.34 0.06 N/A 0.28 0.27 N/A 0.55 0.37 0.00 0.37 0.37

3.92 0.34 3.56 0.72 3.53 0.83 0.09 0.00 0.72 0.02 0.00 0.75 0.60 0.00 0.51 0.60

41 65 40 44 63 22 51 26 96 31 28 98 28 28 22 96 53 66 51 73 22 22 31 67 83 83 8

4.02 0.53 3.49 0.46 3.45 0.49 0.15 N/A 0.35 0.34 N/A 0.69 0.46 0.00 0.46 0.46

4.01 0.39 3.61 0.71 3.49 0.86 0.08 0.00 0.77 0.01 0.00 0.78 0.63 0.00 0.54 0.63

50 77 38 38 57 26 73 25 99 33 32 99 36 32 22 94 57 79 47 68 29 19 31 42 76 86 81

- Interest Expense

Net Interest Income (TE) + Noninterest Income - Noninterest Expense

Pre-Provision Net Revenue (TE) - Provision: Loan & Lease Losses - Provision: Credit Loss Oth Assets Pretax Operating Income (TE) + Realized Gains/Losses Sec + Unrealized Gains / Losses Equity Sec Pretax Net Operating Income (TE)

9

85

N/A

N/A

N/A

N/A

N/A

11 94 11 13 98 13 13

N/A

N/A

N/A

N/A

N/A

Net Operating Income Net Inc Attrib to Min Ints Net Income Adjusted Sub S

Net Income

Margin Analysis: Avg Earning Assets to Avg Assets Avg Int-Bearing Funds to Avg Assets Int Inc (TE) to Avg Earn Assets Int Expense to Avg Earn Assets Net Int Inc-TE to Avg Earn Assets Loan & Lease Analysis: Net Loss to Average Total LN&LS Earnings Coverage of Net Losses (X) LN&LS Allowance to LN&LS Not HFS LN&LS Allowance to Net Losses (X) LN&LS Allowance to Nonaccrual LN&LS (X) Total LN&LS-90+ Days PD & Nonaccrual Non-Curr Lns+OREO to Lns+OREO Liquidity Net Non Core Fund Dep New $250M 30-89 Days Past Due

93.57 67.86 4.47 0.50 3.95 0.17 41.76 1.32 28.97

92.87 68.68 4.37 0.39 3.97 0.14 29.06 1.36 23.81

9

87.91 80.30 4.30 0.43 3.87

92.31 68.76 4.33 0.38 3.92 0.17 12.60 1.39 11.47

88.86 80.01 4.29 0.44 3.85

91.79 68.75 4.27 0.37 3.89 0.20 36.55 1.44 33.39

89.04 80.09 4.51 0.60 3.91

91.93 69.91 4.37 0.42 3.93 0.16 15.97 1.48 16.70

90 36 63 38

0.30 1.43 0.84 2.77 1.58 1.64 1.18 3.39

0.50 0.21 0.70 1.38 1.24 1.12 2.32 3.65

86

0.19 1.94 0.76 4.19 0.84 1.70 2.57 4.05

0.32 1.16 0.72 2.30 0.79 1.24 2.99 5.13

0.18 2.79 0.97 5.25 1.43 1.88 2.90 4.45

9 7 5

4.34 1.06 1.19 1.67

2.77 1.10 1.12 1.68

45 56 78 85

2.73 1.03 1.15 1.96

4.32 0.97 1.27 2.36

3.60 0.91 1.06 2.27

10.78 55.82 68.25

-7.00 61.89 71.79

92 28 39

8.98 52.79 65.07

-6.36 62.20 72.31

89 22 30

9.14 54.37 64.90

-7.78 61.17 70.95

86 28 30

7.70 54.37 65.13

-7.19 60.35 69.86

86 31 34

5.97 50.38 59.80

-6.24 60.12 69.89

80 25 28

Net Loans & Leases to Assets Net Loans & Leases to Deposits

Capitalization Leverage Ratio Total Capital Ratio

8.1692 14.4207

10.70 18.12 38.42 8.81

12 21 23 85

7.6913 15.2295 -20.30

10.52 17.68 41.94 9.15

3

8.4359 15.3238 140.68

10.37 17.49 37.43 10.73

16 32 93 85 59 13 60 96 37

8.8800 16.4900

10.22 17.70 33.15 13.11

27 46 72 85

8.5500 17.5200

10.00 17.09 30.76 12.90

26 57 63 83 10 69 14 96 18

30

Cash Dividends to Net Income

0.00 23.02

1

60.27 31.19

46.37 25.16

Non-Curr Lns+OREO to T1 Capital+Allowance

24.63

89

26.20

Growth Rates Total Assets Tier 1 Capital

-4.51 0.40 0.97 -73.91 -0.71

2.08 4.62 3.20

10 15 39

2.31 -4.83 -0.67

2.35 2.88 4.88 8.93

48

3.93 -3.41 3.94

1.94 2.93 2.87

-0.99 0.93 6.86 -97.16 -20.04

1.59 3.53 3.01

32 18 67

-4.98 5.19 -2.70

3.29 4.05 5.67 2.78 8.33

9

Net Loans & Leases Short Term Investments

22 97 88

26.25 32.79

6

1,176.21

267.86 -31.69

32.16 -5.90

23.16 -10.57

2

436.14 -44.69

Short Term Non Core Funding

52

128.12

15.58

49

Average Total Assets

82,589

84,215

81,327

80,260

83,949

Net Income

31

-271

118

297

386

Number of banks in Peer Group

63

75

82

97

106

SUNNY STATE BANK Income Statement $--Page 2

FDIC Certificate # XXXX OCC Charter # 0 Public Report

Income Statement $

Percent Change

12/31/20X5

12/31/20X4

12/31/20X3

12/31/20X2

12/31/20X1

1 Year

2,402

2,481

2,433

2,289

2,337

-3.18

Interest and Fees on Loans Income From Lease Financing

0 0 0

0 0 0

0 0 0

0 1 1

0 2 1

N/A N/A N/A

Tax-Exempt

Estimated Tax Benefit

Income on Loans & Leases (TE)

2,402

2,481

2,433

2,290

2,338

-3.18

US Treas & Agency (Excl MBS) Mortgage Backed Securities

156 318 148 148 622 0

152 294 140 140 586 0

133 261 138 138 603 71

186 232 114 221 221 753

210 219 199 386 386

2.63 8.16 N/A 5.71 5.71 6.14

Estimated Tax Benefit

All Other Securities

Tax-Exempt Securities Income Investment Interest Income (TE) Interest on Due From Banks Int on Fed Funds Sold & Resales

1,014

4 3

2 6

1 5 0

0 2 0

0 1 0

100.00 -50.00

Trading Account Income Other Interest Income

N/A

N/A

N/A

26

22

31

18

19

18.18

Total Interest Income (TE)

3,057

3,097

3,073

3,062

3,372

-1.29

Int on Deposits in Foreign Off Interest on Domestic Deposits Int on Fed Funds Purch & Repos Int Trad Liab & Oth Borrowings Int on Sub Notes & Debentures

N/A 300

N/A 255

N/A 242

N/A 256

N/A 362

N/A

17.65 280.00 12.50

19 72

5

1

3

3

64

62

54

81

0

0

0

0

0

N/A N/A

Other Interest Expense

N/A

N/A

N/A

N/A

N/A

Total Interest Expense

391

324

305

313

446

20.68

Net Interest Income (TE)

2,666

2,773

2,768

2,749

2,926

-3.86 6.19 -2.63

Non-interest Income

412

388

492

422

386

Adjusted Operating Income (TE)

3,078

3,161

3,260

3,171

3,312

Non-Interest Expense

2,878

3,113

3,026

2,897

2,897

-7.55 316.67

Pre-Provision Net Revenue (TE) Provision: Loan & Lease Losses Provision: Credit Losses Other Assets Pretax Operating Income (TE) Realized G/L Hld-to-Maturity Sec Realized G/L Avail-for Sale Sec Unrealized G/L Equity Securities Pretax Net Operating Inc (TE)

200 208 N/A

48

234 119 N/A 115

274

415 122 N/A 293

200 N/A -152

52

4.00 N/A N/A

N/A 222

-8

0 0

0

0

0

0

N/A

37

46

218 N/A 440

284 N/A 577

-100.00

N/A

N/A -115

N/A 161 -28 71

N/A N/A

-8

Applicable Income Taxes Current Tax Equiv Adjustment Other Tax Equiv Adjustments Applicable Income Taxes (TE)

-39

156

29

-9

-125.00

0 0

0 0

114

200

N/A N/A

0

0

0

-39

156

43

143

191

-125.00

Net Operating Income

31

-271

118

297

386

N/A

Net Discontinued / Extraordinary Items Net Inc Noncontrolling Minority Interests

0 0

0 0

0 0

0 0

0 0

N/A N/A N/A

Net Income

31

-271

118

297

386

Cash Dividends Declared

0

55

166 -48 N/A

179 118 N/A

179 207 N/A 106

-100.00

Retained Earnings

31

-326 N/A

N/A N/A

Memo: Net International Income Memo: Interest on Time Dep Over Ins Limit

N/A

20

21

52

63

-4.76

FDIC Certificate # XXXX OCC Charter # 0 Public Report

SUNNY STATE BANK QTR Income Statement --Page 2a

QTR Income Statement $

Percent Change Prior Year QTR

12/31/20X5

12/31/20X4

12/31/20X3

12/31/20X2

12/31/20X1

603

621

618

602

587

-2.90

Interest and Fees on Loans Income From Lease Financing

0 0 0

0 0 0

0 0 0

0 0 0

0 1 1

N/A N/A N/A

Tax-Exempt

Estimated Tax Benefit

Income on Loans & Leases (TE)

603

621

618

602

588

-2.90

US Treas & Agency (Excl MBS) Mortgage Backed Securities

42 79 35 35 0

38 78 38 38 -34 120

35 61 36 33 33

43 65 69 49 49

53 53 91 82 82

10.53 1.28 100.00

Estimated Tax Benefit

All Other Securities

-7.89 -7.89 30.00

Tax-Exempt Securities Income Investment Interest Income (TE) Interest on Due From Banks Int on Fed Funds Sold & Resales

156

165

226

279

2 0

1 0

0 2 0 4

0 1 0 5

0 0 0 6

100.00

N/A N/A

Trading Account Income Other Interest Income

N/A

N/A

7

6

16.67

Total Interest Income (TE)

768

748

789

835

872

2.67

Int on Deposits in Foreign Off Interest on Domestic Deposits Int on Fed Funds Purch & Repos Int Trad Liab & Oth Borrowings Int on Sub Notes & Debentures

N/A

N/A

N/A

N/A

N/A

N/A

75

64

59

60

79

17.19 166.67

8

3

0

0

0

13

12

18

12

18

8.33 N/A N/A

0

0

0

0

0

Other Interest Expense

N/A

N/A

N/A

N/A

N/A

Total Interest Expense

96

79

77

72

97

21.52

Net Interest Income (TE)

672 105 777 633 144 148 N/A

669

712 214 926

763 137 900 678 222 N/A 218 4

775

0.45

Non-interest Income

90

94

16.67 2.37

Adjusted Operating Income (TE)

759

869

Non-Interest Expense

839 -80 108 N/A -188

827

687 182 N/A 111 71 146 N/A 257 -14 91 0

-24.55

Pre-Provision Net Revenue (TE) Provision: Loan & Lease Losses Provision: Credit Losses Other Assets Pretax Operating Income (TE) Realized G/L Hld-to-Maturity Sec Realized G/L Avail-for Sale Sec Unrealized G/L Equity Securities Pretax Net Operating Inc (TE)

99 15

N/A

37.04

N/A

N/A N/A N/A N/A N/A N/A

-4

84

0 0

0 0

0 1

0

91

N/A

N/A -188 185 -34

N/A

N/A 309

-4

85

Applicable Income Taxes Current Tax Equiv Adjustment Other Tax Equiv Adjustments Applicable Income Taxes (TE)

-15

4

29 70

-108.11 100.00

0 0

36

0

0

0

0

N/A

-15

151

40

99

77

-109.93

Net Operating Income

11

-339

45

210

180

N/A

Net Discontinued / Extraordinary Items Net Inc Noncontrolling Minority Interests

0 0

0 0

0 0

0 0

0 0

N/A N/A N/A N/A N/A N/A

Net Income

11

-339

45

210

180

Cash Dividends Declared

0

0

83 -38 N/A

82

96 84

Retained Earnings

11

-339 N/A

128 N/A

Memo: Net International Income Memo: Interest on Time Dep Over Ins Limit

N/A

N/A

5

6

12

14

21

-16.67