insured depository institutions. As a consequence, over a phase-in period of three years, the components of holding  company permanent capital known as “Tier 1 capital” are being restricted to capital instruments that are considered  to be Tier 1 capital for insured depository institutions. A result of this change is that the proceeds of trust preferred  securities are being excluded from Tier 1 capital unless such securities were issued prior to May 19, 2010 by bank  holding companies with less than $15 billion of assets. Because the Company has assets of less than $15 billion, it is  able to maintain its trust preferred proceeds as Tier 1 capital but will have to comply with new capital mandates in  other respects, and will not be able to raise Tier 1 capital in the future through the issuance of trust preferred  securities. In addition, the Basel III proposal, discussed below, includes a phase-out of trust preferred securities for  all bank holding companies, including the Company.  Under current federal regulations, the Bank is subject to, and, after the phase-in period, the Company will  be subject to, the following minimum capital standards:  The capital standards described above are minimum requirements. Federal law and regulations provide  various incentives for banking organizations to maintain regulatory capital at levels in excess of minimum regulatory  requirements. For example, a banking organization that is “well-capitalized” may: (i) qualify for exemptions from  prior notice or application requirements otherwise applicable to certain types of activities; (ii) qualify for expedited  processing of other required notices or applications; and (iii) accept brokered deposits. Under the capital regulations  of the Federal Reserve, in order to be “well-capitalized,” a banking organization must maintain a ratio of total capital  to total risk-weighted assets of 10% or greater, a ratio of Tier 1 capital to total risk-weighted assets of 6% or greater  and a ratio of Tier 1 capital to total assets of 5% or greater. The Federal Reserve’s guidelines also provide that bank  holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital  positions substantially above the minimum supervisory levels without significant reliance on intangible assets.  Furthermore, the guidelines indicate that the Federal Reserve will continue to consider a “tangible Tier 1 leverage  ratio” (deducting all intangibles) in evaluating proposals for expansion or to engage in new activity.  Higher capital levels may also be required if warranted by the particular circumstances or risk profiles of  individual banking organizations. For example, the Federal Reserve’s capital guidelines contemplate that additional  capital may be required to take adequate account of, among other things, interest rate risk, or the risks posed by  concentrations of credit, nontraditional activities or securities trading activities. Further, any banking organization  experiencing or anticipating significant growth would be expected to maintain capital ratios, including tangible  capital positions ( i.e. , Tier 1 capital less all intangible assets), well above the minimum levels.  Prompt Corrective Action . A banking organization’s capital plays an important role in connection with  regulatory enforcement as well. Federal law provides the federal banking regulators with broad power to take  prompt corrective action to resolve the problems of undercapitalized institutions. The extent of the regulators’  powers depends on whether the institution in question is “adequately capitalized,” “undercapitalized,” “significantly  undercapitalized” or “critically undercapitalized,” in each case as defined by regulation. Depending upon the capital  category to which an institution is assigned, the regulators’ corrective powers include: (i) requiring the institution to  submit a capital restoration plan; (ii) limiting the institution’s asset growth and restricting its activities; (iii) requiring  the institution to issue additional capital stock (including additional voting stock) or to be acquired; (iv) restricting  transactions between the institution and its affiliates; (v) restricting the interest rate the institution may pay on  deposits; (vi) ordering a new election of directors of the institution; (vii) requiring that senior executive officers or  directors be dismissed; (viii) prohibiting the institution from accepting deposits from correspondent banks; (ix)  requiring the institution to divest certain subsidiaries; (x) prohibiting the payment of principal or interest on  subordinated debt; and (xi) ultimately, appointing a receiver for the institution. • a leverage requirement, consisting of a minimum ratio of Tier 1 capital to total assets of 3% for the most  highly-rated banks with a minimum requirement of at least 4% for all others, and  • a risk-based capital requirement, consisting of a minimum ratio of total capital to total risk-weighted assets  of 8% and a minimum ratio of Tier 1 capital to total risk-weighted assets of 4%. For this purpose, “Tier 1  capital” consists primarily of common stock, noncumulative perpetual preferred stock and related surplus  less intangible assets (other than certain loan servicing rights and purchased credit card relationships). Total capital consists primarily of Tier 1 capital plus “Tier 2 capital,” which includes other non-permanent  capital items, such as certain other debt and equity instruments that do not qualify as Tier 1 capital, and a  portion of the Bank’s allowance for loan and leases losses. 17 