IDCs CAMEL analysis utilizes a series of ratios to rank financial institutions.

1. CAMEL Analysis of
IDC Rank of Financial Ratios
The financial condition of your institution depends on a number of
factors; from the balance sheet (How large a capital cushion have
you been able to build up over the years? What is the quality of your
loan and investment portfolios?)…and from the income statement
(Was your Return on Equity for the most recent reporting period
larger than your Cost of Equity? What percent of your net operating
revenues are consumed by operating expenses? And so on).

2. The best way to understand the impact of all these factors is to
consider them relative to a defining factor for your particular
institution...most often, asset size. The result of such an analysis is a
series of ratios which provide important clues about how well
managed your bank is, and about how well you’re positioned to deal
with potentially adverse economic conditions...or to profit from good
times. These financial ratios are used by management to measure
progress towards specific goals or as a comparison to peers.

3. IDC has gone a step further. By considering all of these ratios, and
weighting them to reflect their relative importance to the health of your
institution, we’ve devised a method of producing one overall rank number
(on a scale of 1 to 300, with 300 the top rank attainable). We’ve
computed an IDC rank for every financial institution in the country that
reports to the federal government. This number allows direct comparison
of any institution with any (or all) others, in terms of financial soundness.
And we have a remarkable track record of being able to identify
deteriorating or improving performance many months, and sometimes
years, before it becomes apparent to less-sophisticated companies. Since
1989, 99% of bank and savings institutions failures were ranked less than
75, for the reporting quarter prior to failure, using IDC’s methodology. In
consequence, IDC's ranks have become the standard for those who need
to know about the health of a given institution.

4. IDC’s CAMEL analysis evaluates risk in a one-number rank of financial
ratios, which includes (C) capital ratios, (A) adequacy of capital to cover
loan losses, (M) margins, including ROE less COE, as well as, level and
stability of profitability to measure management, (E) earnings from
operations and leverage, and (L) liquidity. Each of the financial ratios
used to calculate a summary rating of safety has absolute multiples or
relative weights to the universe of competing institutions.

5. Capital risk is determined by Tier I capital as a percent of assets and as a
percent of risk-based assets. Tier I & II capital as a percent of risk-based
assets (risk-based capital ratios) measure credit and interest rate risk as
well as estimate risk in the asset base. IDC uses government standards, as
well as, enforcement actions to evaluate well, or less than well, capitalized
institutions.
Adequacy of Capital and reserves measures asset quality as the levels of
delinquent loans, nonaccrual loans, restructured and foreclosed assets
relative to loan loss reserves and Tier I capital.
Margins are the best measurement of management's financial controls.
Margins represent the spreads between 1) operating profit and net
operating revenues or the operating profit margin, 2) after-tax return on
earning assets and cost of funding, and 3) most important, the return on
equity compared to estimated cost of equity capital. Stability of
profitability measures the variation of the operating profit margin.

6. Earning returns measure the success of the bank's operating strategy.
Ratios of revenue yields from investments, loans, and noninterest
income compared to operating costs before interest expense are the
major components of the after-tax net operating return on earning
assets (ROEA). ROEA is a measure of operating strategy as if the
institution was wholly funded by equity capital. Earnings from
financial leverage (ROFL) measures the level of leverage and after-tax
cost of funding compared to the after-tax return on earning assets
(ROEA). Leverage returns measure the efficiency of the bank's
financial strategy.
Liquidity measures (1) balance sheet cash flow as a percent of Tier I
capital and (2) loans compared to stable deposits and borrowings
plus estimated unused lines of credit at the Federal Home Loan Bank.

7. IDC is going ONLINE! IDC Financial Publishing, Inc. is
excited about the launch of its online platform for
presenting the IDC Rank of Financial Ratios and the
CAMEL Analysis. Over 13,000 institutions will be
readily available with rank, financial ratios, and
commentary… all within the CAMEL Analysis.