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May-22-02 15:03 From-ECHO BAY MINES 3037148995 T-087 P.07/07 F-369 <br />Note 21: Legal Actions <br />i In the normal course of business, the Company is at aB times <br />subject co numerous pending and threstencd legal scriom, <br />some for which the rdief or damages sought are substantial. <br />AEte[ roview;ag pending and threatcacd actions with costnsd, <br />managrmrnr 6clieves chat the outcome of such ae[ions will <br />not have a material adverse effe¢ oa [he nsulte of operazions <br />or stodcholden' equity of she Company. The Company is aoc <br />able w predict whether the outcome of such actions may or <br />may nor have a matuial adverse effect on resvha of operations <br />in a particular future period as chc timing and amount of any <br />resolution of each acrions and its rela[ionship to the future <br />result; of opzratons are nor known <br />Note 22: Risk-Based Capital <br />The Company and tech of the subsidiary banks arc subject co <br />various regulatory capiml adequacy [equ;remtnsa adminis- <br />tered by the FF:A and the OCC, respectively. The Federal <br />Deposit lasumnce Cotporarioa Improvement Act of 1991 <br />(FDICIA) rcquircd Mat else federal agulamry agearies adopt <br />regulations defudng five tapirs! tiers for banks: well apical- <br />ized, adegssatzly capisalized, undcaapitalizcd, signifityndy <br />undutypinlized and uiticelly ssndercapiraliaed. Failu[c ro <br />meet minimum capital requiremems tan initiate certain <br />mendazory sad poceibly additional disaedoanry actions by <br />ragulaeots that, if undermken, mssld have a direct matuial <br />effza on the Company's fmatscial sra[emenu. <br />Quanriearive tneatures, established by nc~ regulators ro <br />Crossett capital adequacy, requ;re that the Company and each <br />of the subsidiary banks maintain minimum ratios (set foreh <br />• in the table oa she following page} of capital to risk-weighted <br />assc[s. There are three categories of cap;tsl under rise guide- <br />l;nes. Tiu 1 capital includes common scockholden' equity, <br />qualifying prcfa[nd stock and trust preferred ieLVritiea, <br />less goodwill and certain other deductions (inducting [he <br />unrealized net gains and losses, afar appl;eable caxu, <br />on scaritics available for sale carried at fair value). Tier 2 <br />capital inclsdes preferred stock not qualifying as Tier 1 <br />typical, snbordinated debt, the allowance for loan Iwscs and <br />net unrtalized gains an msrkembk equity sectsr;ties, subjen <br />ro limitations try tits guidelines. Tiu 2 capital is iimiocd to <br />rhz amount of Tia 1 capiml (i.c., err lease half of the coral <br />capital moat be ;a the form of Tia 7 capital). Tiu 3 upiml <br />includes cesmin qualifying unsecured subordinated debt. <br />Undo nc~ guidelines, capital ;s rompued w the relative <br />risk refaced w the balance ahea. To derive the risk ioeluded <br />in cha balance ahret, one of [our risk weights (0%, 20%, <br />50% and 100%) is applied to the difkrrnt balance sheer and <br />off•balatue sheet enacts, primarity based on the rdativc ¢edit <br />risk of the rounterparty. For example, Claims guarantzcd by <br />the U.S. govunmenr or one of its agencies aze risl'•weighred <br />at 0%.Off-balance shezt Tams, such as roan commitments <br />and duivativc financial insttumencs, are also applied a risk <br />weight after calculating balance sheet oquivalrnt amounts. <br />Ont of four credit convusion factors (0'y°, 20%, SOY° and <br />100%) is assigsted to loan wmmirmancs based on [he <br />likelihood of she off-balancz shm ;tan becoming art assn. <br />For example, certain loan coanatiaaents arc converted ac <br />SO°~ and then risk-weighted err 100%. Duivauvz financial <br />insmsments arc convemd co balance sheer equivalents based <br />on notioml values, replacement coact and remaining conrrac- <br />[ua! roan. (See Notes S and 23 for further diuuuion of <br />off-balance shc¢ items.) The csPinl amounts and rlassiftcnrion <br />are also subject to qualitative judgments 6y the mgulatocs <br />about components, risk weight;ngs and othu factors. <br />Management bc(ievu that, as of December 3t, 2001, the <br />Company and each of the covucd subsidiary bank mat <br />all tapirs! adtquary requirements m which they are subject. <br />Under the FDIGA prompt ror[urive attion provisions <br />applicable to baakt, [he most rarnt aotificarion from the <br />OCC eacegorized each of the covered subsidiary banks as <br />well capitalized. To be catcgorizcd as well capitalized, she <br />iaaricution mutt maintain a coral risk-based capita! ratio as <br />set fot[h ;n the folowing able and not be subject m a <br />capital directive osdrr. There are no wnditiosu or evtnes <br />since cha[ nodScation that managtsnrnt believes bane <br />changed rite risk-based apinl category of any of the <br />wve[ed subsidiary banks. <br />• 90 FINANCIAL STATEMENTS <br />