Bank Nonperforming Loans Reach Highest Level in 10 Years, According to Weiss Ratings; Loan Charge-Offs Jump 37%, On Pace for a Record Year.

Business & Banking Editors

PALM BEACH GARDENS, Fla.--(BUSINESS WIRE)--Jan. 22, 2003

Nonperforming loans at the nation's 9,414 banks and thrifts reached $68.9 billion at September 30, 2002, representing a 16.8 percent increase over the $58.9 billion in nonperforming loans reported one year prior, according to Weiss Ratings, Inc., the nation's leading independent provider of ratings and analyses of financial services companies, mutual funds, and stocks.

From a historical perspective, this is the highest dollar amount of nonperforming loans in the banking industry since 1992 when the figure reached $79.2 billion following the savings and loan (S&L) crisis.

Driving the increase in nonperforming loans, troubled commercial loans surged 22.7 percent over the last year to $33.8 billion at the end of the third quarter. Meanwhile, nonperforming residential mortgage loans climbed 13.4 percent to $13.8 billion during the same period.

Institutions showing the largest year-over-year increase in nonperforming loans include:

                                        Nonperforming Loans
                                               ($Mil)
                                        -------------------
                               Weiss   Sept.  Sept.
                               Safety   30,    30,
Institution      Headquarters  Rating  2002   2001  Change % Change
---------------  ------------ ------- ------ ------ ------ ---------
--  Citibank NA  New York, N.Y.  B-   8,380  5,236  3,144    60.05
--  J.P. Morgan
     Chase Bank  New York, N.Y.  C-   4,065  1,825  2,240   122.74
--  Bank One NA  Chicago, Ill.   C+   2,512  1,326  1,186    89.47
--  Fleet NB     Providence,
                  R.I.           C+   3,136  2,190    946    43.20
--  Deutsche Bk
     TC Americas New York, N.Y.  C    1,577    900    677    75.22

Weiss Safety Rating: A = Excellent; B = Good; C = Fair; D = Weak;
E = Very Weak; F=Failed

"The go-go lending days of the late '90s are coming back to haunt many banks," commented David Lackey, president of Weiss Ratings, Inc. "As nonperforming loans continue their steady rise, it's only a matter of time before higher charge-off levels take their toll on bank stability."

Bank Charge-offs on Record Pace

The rising nonperforming loan levels fueled a 36.9 percent jump in loan charge-offs during the first three quarters of 2002 compared to the same period a year ago. That put charge-offs for the nine-month period at $34.8 billion compared to the $25.4 billion charged off a year earlier. The industry is now on pace to shatter its record charge-off level of $37.7 billion set in 1991 following the S&L crisis.

Institutions showing the largest year-over-year increase in net charge-offs include:

                                      Net Charge-offs ($Mil)
                                      ----------------------
                               Weiss   Sept.  Sept.
                               Safety   30,    30,
Institution      Headquarters  Rating  2002   2001  Change % Change
---------------  ------------ ------- ------ ------ ------ ---------
--  Citibank NA  New York, N.Y.  B-    4,810  1,405  3,405   242.4
--  J.P. Morgan
     Chase Bank  New York, N.Y.  C-    1,646    543  1,103   203.1
--  Fleet NB     Providence,
                  R.I.           C+    1,717    917    800    87.2
--  Providian NB Tilton, N.H.    C+    1,795  1,027    768    74.9
--  Bank One NA  Chicago, Ill.   C+    1,182    655    527    80.5

Weiss Safety Rating: A = Excellent; B = Good; C = Fair; D = Weak;
E = Very Weak; F=Failed

Vulnerable institutions (those rated D+ and lower) reporting the largest year-over-year increase in net charge-offs include:

                                      Net Charge-offs ($Mil)
                                      ----------------------
                              Weiss   Sept.  Sept.
                              Safety   30,    30,
Institution     Headquarters  Rating  2002   2001  Change % Change
--------------- ------------  ------- ------ ------ ------ ---------
--  Discover
     Bank       Greenwood, Del.  D+     900    710    190    26.8
--  Providian   Salt Lake
     Bank        City, Utah      D      126     72     54    74.2
--  Southern
     Pacific    Los Angeles,
     Bank        Calif.          E-      72     45     27    60.7
--  Fremont
     Investment &
     Loan       Anaheim, Calif.  D       34     10     24   246.6
--  BSB B&TC    Binghamton, N.Y. D+      36     16     19   120.3

Weiss Safety Rating: A = Excellent; B = Good; C = Fair; D = Weak;
E = Very Weak; F=Failed

"All indicators point to an industry headed for tough times, especially for smaller banks that are already financially weak," cautioned Mr. Lackey. "The beneficial effect of falling interest rates will eventually play out, leaving nothing left to compensate for the industry's poor asset quality and rising loan defaults."

Strong Interest Rate Margin Sustains Industry Earnings

The banking industry's annualized net interest margin narrowed to 3.56 percent at the end of the third quarter compared to 3.33 percent a year earlier. Despite the deterioration, the relatively high margin boosted the industry's earnings to $27.2 billion in the third quarter of 2002, a 22.5 percent increase over the third quarter of 2001 and the second highest quarterly net income on record.

Notable Upgrades and Downgrades

In evaluating the nation's 9,414 commercial banks, savings banks, and S&Ls, Weiss Ratings issued the following notable upgrades:

--  Bank of Hawaii              Honolulu, Hawaii         from B+ to A-
--  ING Bank FSB                Wilmington, Del.         from D+ to C-
--  Lehman Brothers Bank FSB    Wilmington, Del.         from D+ to C-

Notable downgrades include:

--  Deutsche Bank TC Americas   New York, N.Y.           from B- to C
--  Citizens Bank Rhode Island  Providence, R.I.         from B- to C+
--  First Bank                  St. Louis, Mo.           from B- to C+

Weiss issues safety ratings on more than 15,000 financial institutions, including banks and thrifts, HMOs, life and health insurers, Blue Cross Blue Shield plans, property and casualty insurers, and securities brokers. Weiss also rates the risk-adjusted performance of more than 11,000 mutual funds and 9,000 stocks. Weiss Ratings is the only major rating agency that receives no compensation from the companies it rates.

Consumers can purchase a rating and summary analysis for as little as $7.95 through www.WeissRatings.com, or starting at $15 by calling 800-289-9222.

Note to Editors: National and state-specific tables of banks and thrifts receiving the highest and lowest Weiss Safety Ratings are available.