I. Management's Discussion and Analysis - The Year in Review
Supervision and Consumer Protection
Supervision and consumer protection are cornerstones of the FDIC's efforts to ensure the
stability of and public confidence in the nation's financial system. The FDIC's supervision
program promotes the safety and soundness of FDIC-supervised insured depository institutions,
protects consumers' rights, and promotes community investment initiatives. In addition to
carrying out its established examination program and other supervisory activities, the FDIC
initiated in 2006 a substantial expansion of its programs to promote economic inclusion and
confronted difficult policy issues regarding industrial loan companies.
The FDIC's strong bank examination program is the core component of its supervisory program.
At year-end 2006, the Corporation was the primary federal regulator for 5,237 FDIC-insured
state-chartered institutions that are not members of the Federal Reserve System (generally
referred to as "state nonmember" institutions). Through safety and soundness, consumer
compliance and the Community Reinvestment Act (CRA), and various specialty examinations,
the FDIC assesses their operating condition, management practices and policies, and compliance
with applicable laws and regulations. The FDIC also educates bankers and consumers on matters
of interest and addresses consumers' questions and concerns.
In 2006, the Corporation conducted 2,388 statutorily-required safety and soundness
examinations, including a review of Bank Secrecy Act compliance, and all required follow-up
examinations for FDIC-supervised problem institutions within prescribed timeframes. The FDIC
also conducted 1,959 CRA/Compliance examinations (777 joint compliance-CRA examinations,
1,177 compliance-only examinations,2 and five CRA-only examinations) and 3,052 specialty
examinations. All compliance/CRA examinations were also conducted within the time frames
established by FDIC policy, including required follow-up examinations of problem institutions.
The accompanying table compares the number of examinations conducted in 2004, 2005 and
2006 by type.
FDIC Examinations 2004-2006
Safety and Soundness:
State Nonmember Banks
State Member Banks
Subtotal - Safety and Soundness Examinations
Compliance - Community Reinvestment Act
Subtotal CRA/Compliance Examinations
Data Processing Facilities
As of December 31, 2006, there were 51 insured institutions with total assets of $8.5 billion
designated as problem institutions for safety and soundness purposes (defined as those
institutions having a composite CAMELS3 rating of "4" or "5"), compared to the same number
of problem institutions with total assets of $6.6 billion on December 31, 2005. This constituted a
28.7 percent year-over-year increase in the total assets in problem institutions. During 2006, 38
institutions with aggregate assets of $4.7 billion were removed from the list of problem financial
institutions, while 38 institutions with aggregate assets of $7.8 billion were added to the list of
problem financial institutions. The FDIC is the primary federal regulator for 27 of the 51
During 2006, the Corporation issued the following formal and informal corrective actions to
address safety and soundness concerns: 29 Cease and Desist Orders; one Written Agreement;
and 146 Memoranda of Understanding. Of these actions issued, eight Cease and Desist Orders,
one Written Agreement and 21 Memoranda of Understanding were issued based on apparent
violations of the Bank Secrecy Act.
As of December 31, 2006, four FDIC-supervised institutions were assigned a "4" rating for
compliance; no institutions were assigned a "5" rating. All of the "4"-rated institutions were
examined in 2006, and Memoranda of Understanding are currently being finalized to address the
FDIC's examination findings. In addition, the FDIC developed and began using new screening
tools in 2006 to identify those FDIC-supervised institutions with mortgage lending disparities,
based upon "higher rate" pricing information supplied by these institutions under the Home
Mortgage Disclosure Act (HMDA), and to assess whether the disparities in loan pricing and
denial rates resulted from discriminatory lending or reflected other factors, such as
creditworthiness, underwriting or other non-discriminatory criteria.4 Compliance examinations
were scheduled for all of the institutions with identified lending disparities to determine whether
those disparities were the result of discriminatory lending. Although those examinations
indicated that the majority of the institutions were not engaging in discriminatory lending, a
small number of institutions were referred to the U.S. Department of Justice for engaging in an
apparent pattern and practice of discriminatory lending.
Large Complex Financial Institution Program
The FDIC's Large Bank Program was established to address the unique challenges associated
with supervising and insuring the deposits of large and complex institutions. A significant share
of the assets and insured deposits of the banking industry are today held in a small number of
large institutions. The Program ensures a consistent approach to large bank supervision and risk
analysis on a national basis by compiling key data and performing analyses of large-bank
operations for use by various FDIC divisions and offices and by providing specialists to support
supervisory activities for large banks. In 2006, guidelines were developed to enhance the FDIC's
risk-monitoring program for large banks with assets greater than $50 billion. Monitoring and
assessment activities also continued in 2006 to ensure internal and industry preparedness for the
implementation of Basel II. Training on credit and operational risk was conducted for regional
and interagency personnel, and numerous "supervisory working group" meetings were held with
foreign regulatory authorities to address Basel II home-host and cross-border issues.
Industrial Loan Companies
In 2006, an application for deposit insurance filed by a very large retailer on behalf of a proposed
Utah industrial loan company (ILC) generated significant public interest. In April, the FDIC held
three days of public hearings on the application. Nearly 70 representatives of financial
institutions, trade associations, advocacy groups, the retailer, and others made presentations at
the hearing. In addition, the FDIC received written statements from 16 parties who did not
request an opportunity to present during the hearings.
As a result of that interest as well as congressional interest and reviews by the GAO and OIG,
the FDIC initiated a comprehensive policy review of ILCs. On July 28, 2006, the Board imposed
a moratorium extending through January 31, 2007, on the acceptance, approval, or denial of
deposit insurance applications and change in control notices submitted by, or on behalf of, any
ILC. The purpose of the moratorium was to permit the Corporation to evaluate industry
developments; the various issues, facts and arguments raised regarding the ILC charter; whether
there are emerging safety and soundness issues or policy issues involving ILCs or other risks to
the insurance fund; and whether statutory, regulatory or policy changes should be made in the
FDIC's oversight of ILCs in order to protect the Deposit Insurance Fund or important
The FDIC believes that public participation provides valuable insight into the issues presented by
the recent trends and changes in the ILC industry. Accordingly, in order to obtain the public's
insights, the FDIC invited comments on the ILC industry during a 45-day period that ended on
October 10, 2006. In its Request for Public Comment, the FDIC posed 12 questions that sought
public input on various topics, including the current legal framework of ILCs as well as the
possible benefits, risks and supervisory issues associated with ILCs. At year-end 2006, eight
ILC-related applications for deposit insurance and two change in control notices were pending.
Promoting Economic Inclusion
The FDIC pursued a number of new initiatives in 2006 to promote broader access to banking
services by traditionally underserved populations and to ensure adequate consumer protection in
the provision of these services.
Advisory Committee on Economic Inclusion
On November 2, 2006, the FDIC announced the establishment of an Advisory Committee on
Economic Inclusion. The Committee will provide the FDIC with advice and recommendations
on important initiatives focused on expanding access to banking services by underserved
populations. It will also explore ways to encourage the banking industry to adopt suitable
products and marketing strategies to compete with alternative high-cost providers. The
Committee members will represent a cross section of interests from the banking industry, state
regulatory authorities, government, academia, consumer or public advocacy organizations,
community-based groups and others impacted by banking-related practices.
Alliance for Economic Inclusion
In 2006, the FDIC created the Alliance for Economic Inclusion (AEI), a broad-based coalition of
banks, community organizations, foundations, educators, and local, state, and federal agencies in
each of the FDIC's six regions. The goal of the AEI initiative is to work with financial
institutions and other partners to bring those currently unbanked and underserved into the
financial mainstream. The AEI will focus on expanding banking services in all underserved
markets, including low- and moderate-income neighborhoods, minority communities and rural
Affordable Small-Dollar Loan Guidelines
To help meet consumer demand for affordable small loans, the FDIC issued a draft of its
Affordable Small-Dollar Loan Guidelines, targeted to the banking industry, for public comment
on December 4, 2006. Many consumers with bank accounts turn to high-cost payday or other
non-bank lenders because they are accessible and can quickly provide small loans to cover
unforeseen circumstances. The draft guidelines suggest ways the banking industry can make
affordable short-term loan products more accessible to these customers, helping to build long-
term, profitable multiple-account relationships. The guidelines focus on product development
and underwriting, and include information on tools such as consumer financial education and
savings that may address longer term financial issues. The FDIC expects to finalize the guidance
in early 2007.
Military Bank Initiative
In late 2006, the FDIC began working closely with the banking industry to explore ways to make
affordable short-term loan products more accessible to military personnel who frequently turn to
high-cost providers for their financial services needs and to encourage individual and household
savings by these borrowers. The FDIC established contact with the Association of Military
Banks of America (AMBA) and more than 125 banks located near military bases. Many of these
banks have indicated a willingness to work with the FDIC in developing and providing an
affordable small-denomination loan product, possibly with a savings component.
The FDIC hosted a conference with these banks in December 2006 in Washington, DC, to
provide information and share ideas on successful product and marketing strategies for
consumers in the military. Approximately 60 banks and more than 150 other participants –
including press, bankers, trade associations and representatives of the Department of Defense –
attended the conference on "Affordable, Responsible Loans for the Military: Programs and
Prototypes." The program was organized with the assistance of the AMBA and featured
Congressman Barney Frank and Kelvin Boston, host of PBS' Moneywise. The main focus of the
event was the discussion of loan products targeted to or that have features that would benefit
military borrowers. Following a discussion of regulatory issues, the participants attended
workshops aimed at developing an affordable loan template. The FDIC intends to distribute this
template to FDIC-supervised institutions in 2007 for use as a possible prototype in developing
their own affordable loan programs.
Nontraditional Mortgage Products
In 2006, the FDIC became increasingly concerned with the expansion of nontraditional mortgage
products and the potential risk posed by these products to the DIF. While these products, which
are also referred to as "alternative" or "exotic" mortgage loans, have been available for many
years, the number of institutions offering them has expanded rapidly in recent years. To address
these concerns, the FDIC implemented certain enhancements to the supervisory oversight of
nontraditional mortgage banking activities and, with the other financial institution regulatory
agencies, developed and issued guidance to address the growing risks associated with these loan
products. The agencies are concerned that some borrowers may not fully understand the risks of
these products. The agencies are also concerned about the lack of principal amortization and the
potential for negative amortization. Moreover, institutions are increasingly combining these
loans with other features that may compound risk.
The guidance covers three primary areas: loan terms and underwriting standards, portfolio and
risk management practices, and consumer protection issues. It focuses on qualification standards
for borrowers, and portfolio management and communication with consumers and makes clear
that the FDIC and the other regulatory agencies expect institutions to effectively assess and
manage the risks posed by nontraditional mortgage products. The guidance recommends that
promotional materials and other product descriptions provide consumers with full and balanced
information about the costs, terms, features and risks - particularly payment shock and negative
amortization – of nontraditional mortgage products. To help consumers shop wisely and decide
whether such a product is right for them, the FDIC also published information about
nontraditional mortgages in its quarterly FDIC Consumer News and joined the other regulatory
agencies in publishing a consumer handbook on interest-only and payment-option mortgages.
Guidance on Concentrations in Commercial Real Estate Lending
The federal banking regulatory agencies (agencies) recognized that financial institutions serve a
vital role in their communities by supplying credit for business and real estate development.
However, the agencies have observed that commercial real estate (CRE) concentrations have
been rising over the past several years and may expose institutions to earnings and capital
volatility in the event of economic downturn. To address these concerns, the agencies published
for comment the proposed interagency Guidance on Concentrations in Commercial Real Estate
Lending, Sound Risk Management Practices (CRE Guidance) on January 10, 2006. After
carefully reviewing over 4,400 comment letters, the agencies issued the final CRE Guidance on
December 12, 2006. The CRE Guidance reminded institutions that strong underwriting
standards, portfolio management practices, and capital levels are important elements of a sound
CRE lending program.
Hurricane Recovery Assistance
Since the Gulf Coast hurricanes of 2005, the FDIC has worked with other federal and state
regulatory agencies to address policy issues that arose due to the severity and scale of those
events. In 2006, the agencies issued examiner guidance that outlines examination procedures for
assessing the financial condition of institutions adversely affected by the hurricanes. Working
through the Federal Financial Institutions Examination Council (FFIEC), the agencies also
published and distributed to insured financial institutions a booklet entitled Lessons Learned
from Hurricane Katrina: Preparing Your Institution for a Catastrophic Event. This booklet
compiles the experiences of bank officials in the aftermath of these hurricanes and offers insights
to those who are responsible for devising and implementing an institution's disaster recovery and
business continuity plans.
In October 2006, the FDIC and NeighborWorks® America jointly released a new
homeownership and financial counseling guide called Navigating the Road to Housing Recovery
in the Gulf Coast. The guide is designed for evacuees who are now beginning to receive federal
and state financial assistance to rebuild or relocate. It was a focal point of two conferences held
in late 2006, the "Gulf Coast Housing Summit – Strategies for Redeveloping Communities and
Rebuilding Lives," jointly sponsored by the FDIC and NeighborWorks® America in New
Orleans, LA, and another housing conference sponsored by Back Bay Mission in Biloxi, MS.
More than 400 bankers, housing experts, homeownership counselors and others attended the two
conferences to discuss local issues, match development resources with needs, and learn more
about the "just-in-time" counseling program.
The FDIC, in cooperation with NeighborWorks® and an array of local partners, will schedule
train-the-trainer sessions through early 2007 to develop 300 potential homeownership
counselors. Counselor trainees will be drawn from banks, churches, government agencies,
employers, nonprofits and other groups working with hurricane evacuees. This comprehensive
counseling program will assist individuals to plan carefully and make informed decisions to
avoid costly mistakes at this difficult time in their lives. The FDIC envisions that the counseling
program will become a template for consumers to "navigate the road to housing recovery" in
other areas of the country following major natural disasters or other catastrophic events.
Minority Depository Institutions
The FDIC has long recognized the importance of minority depository institutions in promoting
the economic viability of minority and underserved communities. As a reflection of the FDIC's
commitment to minority depository institutions, the FDIC issued a "Policy Statement Regarding
Minority Depository Institutions" on April 9, 2002. The policy statement implements an outreach
program designed to preserve and encourage minority ownership of financial institutions.
Since the adoption of that policy statement, the FDIC has maintained contact with various
minority depository institution trade associations; met periodically with the other federal banking
regulators to discuss initiatives underway at the FDIC and identify opportunities for the federal
banking agencies to work together to assist minority institutions; held regional outreach meetings
and five Minority Bankers Roundtables; and extended offers to each FDIC-supervised minority
depository institution to meet and discuss issues of interest.
In August 2006, the FDIC hosted the first "National Minority Depository Institution Conference"
in Miami, FL, with attendance from more than 100 bankers; representatives from the Office of
the Comptroller of the Currency, the Federal Reserve and the Office of Thrift Supervision; and
several private-sector and industry trade group representatives. The conference addressed topics
of interest to the minority banking community, with particular emphasis on a shared commitment
to expanding financial services available to minority and underserved communities; developing
coalitions to improve minority community infrastructures by partnering with organizations such
as NeighborWorks(r) America; and fostering a better understanding by the regulatory community
of the unique challenges minority depository institutions face. A second national conference is
planned for 2007.
During 2006, an FDIC task force also assisted three minority institutions headquartered in New
Orleans, LA, and severely impacted by Hurricane Katrina in improving their liquidity by
securing $22 million in deposit pledges from Utah-based ILCs. The ILCs also provided $123,000
in direct cash donations to assist these institutions in meeting the housing and other needs of their
The FDIC has taken a leadership role in ensuring that the financial sector – a critical part of the
infrastructure of the United States – is prepared for a financial emergency. As a member of the
Financial and Banking Information Infrastructure Committee (FBIIC), the FDIC has sponsored a
series of outreach meetings titled "Protecting the Financial Sector: A Public and Private
Partnership." During 2006, these Homeland Security meetings were held in 22 cities across the
United States. These meetings provided members of the financial sector with the opportunity to
communicate with senior government officials, law enforcement personnel, emergency
management personnel and private sector leaders about emergency preparedness. Homeland
Security meetings are planned for 11 cities in 2007.
Bank Secrecy Act
The FDIC chairs the FFIEC Bank Secrecy Act/Anti-Money Laundering (BSA/AML) Working
Group. Under the auspices of the BSA/AML Working Group, the FDIC, the other federal
banking agencies, and FinCEN updated the FFIEC BSA/AML Examination Manual in July
2006. The revised manual reflects the ongoing commitment of the federal banking agencies and
FinCEN to provide current and consistent guidance on risk-based policies, procedures, and
processes for banking organizations to comply with the BSA and safeguarding operations from
money laundering and terrorist financing. Following the release of the manual, the FDIC
coordinated and hosted four interagency conference calls for the banking industry and
examination staff regarding changes to the manual. Over 1,500 examiners and 10,650 bankers
and industry representatives participated in those outreach events. During 2006, the FDIC also
participated in more than 145 additional industry outreach and regulatory training events
nationwide relating to BSA/AML topics.
The FDIC continued in 2006 to play a critical role in the international fight against money
laundering and terrorist financing. Its efforts included the following:
With the other federal banking agencies, negotiated and signed an information-sharing memorandum of understanding (MOU) with the Office of Foreign Assets Control (OFAC) in April 2006.
Conducted AML/Counter-Financing of Terrorism (CFT) training for 20 central bank representatives from Afghanistan, Iraq, Kenya, South Africa, and Yemen in September 2006.
Provided guidance and resources for the international AML/CFT financial system assessments and training. The FDIC participated in reviews of South Africa's existing AML policies and draft AML legislation for Paraguay; provided technical assistance in Bosnia to evaluate AML controls and existing legislation; delivered a presentation at the Eurasian Group (Financial Action Task Force-style regional body) seminar in Russia; and provided guidance to the Russian central bank, financial intelligence unit, and legislature regarding amendments to Russia's AML law.
Continued to enhance the skills of its BSA/AML subject-matter experts, with 34 BSA/AML subject-matter experts attaining certification during 2006 under the Association of Certified Anti-Money Laundering Specialist certification program.
Conducted AML examination training courses for representatives from the Albanian financial intelligence unit, the Indian financial intelligence unit, and Malaysian government officials.
Cyber Fraud and Financial Crimes
The FDIC continued to take a leadership role in consumer education initiatives related to identity
theft with a public education campaign that included sponsoring identity theft symposia focusing
on e-commerce. The symposia, held in San Francisco, CA, Mesa, AZ, and Miami Beach, FL,
brought together representatives from federal and state governments, industry, consumer and
community organizations, and law enforcement to discuss issues related to identity theft and e-
Other major accomplishments during 2006 in combating identity theft included the following:
Assisted financial institutions in identifying and shutting down approximately 900 "phishing" Web sites. The term "phishing"– as in fishing for confidential information – refers to a scam that encompasses fraudulently obtaining and using an individual's personal or financial information.
Issued 342 special alerts of reported cases of counterfeit or fraudulent bank checks.
Released an online training tool entitled "Don't Be an On-line Victim: How to Guard Against Internet Thieves and Electronic Scams" (available through the FDIC's Web site and on CD-ROM).
Participated in the President's Identity Theft Task Force and five of its primary subgroups.
Office of International Affairs
Increasing globalization and interdependence heighten the potential for financial and economic
instability to transcend national geographic boundaries. The promotion of sound, stable banking
systems abroad is a key ingredient for greater global prosperity and stability which, in turn, will
benefit the U.S. financial system and the banking public. The FDIC created the Office of
International Affairs in 2006 to coordinate the FDIC's international activities with a focus on
building strong relationships with foreign regulators and deposit insurers, other U.S. government
entities and international organizations. The programs overseen by the office provide training,
expert consultation, and technical assistance to foreign deposit insurers, bank supervisory
authorities and other foreign government agencies to support the development and maintenance
of effective deposit insurance programs and stable, sound banking systems worldwide.
Consumer Complaints and Inquiries
The FDIC investigates consumer complaints about FDIC-supervised institutions and answers
inquiries from the public about consumer protection laws and banking practices. In 2006, the
FDIC received 9,652 written complaints, of which 3,442 were against state nonmember
institutions. The Corporation responded to over 97 percent of these complaints within corporate
timeliness standards. The FDIC also responded to 3,870 written and 4,188 telephone inquiries
from consumers and members of the banking community about consumer protection issues.
In April 2006, the FDIC hosted the first Interagency Consumer Affairs Conference in Arlington,
VA, with approximately 140 attendees, including representatives from the Federal Reserve
Board, Office of Thrift Supervision, Office of the Comptroller of the Currency, National Credit
Union Administration, and the Federal Trade Commission. Discussions included best practices
for investigating and responding to consumer complaints, banking practices, and financial trends
that have and will continue to challenge consumers in 2006 and beyond.
Deposit Insurance Education
An important part of the FDIC's role in insuring deposits and protecting the rights of depositors
is its responsibility to ensure that bankers and consumers have access to accurate information
about the FDIC's deposit insurance rules. The FDIC has an extensive deposit insurance education
program consisting of seminars for bankers, electronic tools for estimating deposit insurance
coverage, and written and electronic information targeting both bankers and consumers. The
FDIC also responds directly to inquiries from bankers and the public about deposit insurance.
During 2006, the FDIC responded to over 86,134, or 99 percent, of written and telephone
inquiries from bankers and consumers about the FDIC's deposit insurance program and insurance
coverage issues within the time frames established by policy. This was an increase of
approximately 34 percent over the number of inquiries received in 2005, in large part due to the
enactment of new coverage limits as part of deposit insurance reform.
Following enactment of deposit insurance reform legislation, the FDIC initiated a multi-pronged
effort to inform the public and banking industry about the increase in coverage for retirement
savings. As part of this effort, the FDIC updated its numerous publications and educational tools
for consumers and bankers on FDIC insurance coverage, including updated editions of Insuring
Your Deposits, the FDIC's basic deposit insurance brochure for consumers; Your Insured
Deposit, the FDIC's comprehensive deposit insurance guide; and the Electronic Deposit
Insurance Estimator (EDIE), the FDIC's user-friendly Internet application that helps bank
customers calculate insurance coverage on their deposit accounts at FDIC-insured institutions.
The FDIC also published other promotional materials, including a special edition of the FDIC
Consumer News that included information on the new coverage limits, and worked with the
banking industry, national consumer organizations and the media to publicize the availability of
this information. More than 8,200 bankers participated in a series of national teleconferences on
the new coverage limits conducted by the FDIC during the summer of 2006. In addition, the
FDIC used a variety of formats to conduct 28 seminars for financial institution employees and
consumer organizations on changes to deposit insurance coverage rules that were effective on
April 1, 2006.
In 2006, the FDIC also completed development of Spanish-language versions of two of its most
popular educational resources for consumers and bankers, a Spanish language version of EDIE
(available on the FDIC's Web site beginning in early 2007) and a 30-minute Spanish-language
video for bank employees and customers (now available on the FDIC's Web site) that provides
an overview of the FDIC's rules and requirements for deposit insurance coverage, with specific
emphasis on the most common account ownership categories used by individuals and families.
The FDIC continued publication of its quarterly consumer newsletter, FDIC Consumer News,
which covers a wide range of financial topics of interest to consumers. Three special age-based
issues of FDIC Consumer News – for seniors, young adults and teens – were published during
the year. The how-to financial guide for seniors won an Achievement in Consumer Education
Award from the National Association of Consumer Agency Administrators. Current and past
issues of FDIC Consumer News are available online at www.fdic.gov/consumernews.
Financial Education and Community Development
Five years ago, the FDIC – recognizing the need for enhanced financial education across the
country – inaugurated its award-winning Money Smart curriculum, which is now available in seven languages as well as in a computer-based instruction version. In 2006, the FDIC
introduced the Russian language, large print and Braille versions of Money Smart. The large
print and Braille versions are the first financial education program specifically targeted for
individuals with visual impairments. Since its inception, over 864,000 individuals (including
approximately 207,000 in 2006) have participated in Money Smart classes and approximately
128,000 of these participants have subsequently established new banking relationships.
During 2006, the FDIC also undertook 370 community development, technical assistance and
outreach activities. These activities were designed to promote: awareness of investment
opportunities to financial institutions, access to capital within communities, knowledge-sharing
among the public and private sector, and wealth building opportunities for families.
Representatives throughout the financial industry and their stakeholders collaborated with FDIC
on a broad range of initiatives structured to meet local and regional needs for financial products
and services, credit, asset-building, affordable housing, small business and micro-enterprise
development and financial education.
2Compliance-only examinations are conducted for most institutions at or near the mid-point between joint compliance-CRA examinations under the Community Reinvestment Act of 1977, as amended by the Gramm-Leach-Bliley Act of 1999. CRA examinations of financial institutions with aggregate assets of $250 million or less are subject to a CRA examination no more than once every five years if they receive a CRA rating of "Outstanding" and no more than once every four years if they receive a CRA rating of “Satisfactory” on their most recent examination. 3The CAMELS composite rating represents 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, and ranges from "1" (strongest) to "5" (weakest). 4The Federal Reserve Board began requiring covered institutions to report “higher rate” pricing information in their HMDA reports in 2004.