Banks' Loan Loss Reserve Ratio Falls to Lowest Level in 8 Years Reports Weiss; Loan Loss Provisions Rise 42%, But Loan Charge-Offs Jump 50% and Nonperforming Loans Rise 21%.

Business Editors

PALM BEACH GARDENS, Fla.--(BUSINESS WIRE)--Jan. 16, 2002

With the nation's economy in decline and bad loans on the rise, the average loan loss reserve at U.S. banks fell to a mere 129 percent of nonperforming loans as of September 30, 2001, the lowest level in eight years, according to Weiss Ratings, Inc., a leading bank rating agency.

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         Loan Loss Reserve as a % of Total Nonperforming Loans

                         1993   109%
                         1994   149%
                         1995   152%
                         1996   161%
                         1997   171%
                         1998   171%
                         1999   170%
                         2000   146%
                   Sept. 2001   129%

"Banks are still dragging their feet when it comes to adequately recognizing the surge in defaults and bad loans," commented Martin D. Weiss, Ph.D., chairman of Weiss Ratings. "The industry has started to acknowledge the need for higher reserves to cover the losses, but it's too little, too late as the growth in problem loans continues to outpace the growth in reserves."

The nation's 9,701 banks and thrifts set aside a collective $30.2 billion in the first three quarters of 2001 for potential loan losses, a 42 percent increase over the $21.3 billion set aside in the same period last year.

At the same time, however, the industry's net loan charge-offs during the first three quarters of 2001 totaled $25.4 billion, a 50% increase over the $17.0 billion in loans charged off in the first three quarters of 2000. The net result was a small $4.7 billion increase in the reserve for bad loans during the first nine months of 2001 compared to a $10.1 billion net increase in nonperforming loans.

Nonperforming loans up 20.8% from last year

Nonperforming loans at banks and thrifts jumped 20.8% during the first three quarters of the year, from $48.8 billion at year-end 2000 to $59.0 billion at the end of the third quarter. This puts the industry's nonperforming loan growth rate slightly ahead of the 26.6% rise experienced in 2000, a sharp acceleration from the 2.9% increase in 1999.

"Until there is concrete evidence of an economic recovery, it's safe to say that banks' loan quality will continue to deteriorate over the coming year," added Dr. Weiss. "Fortunately, most banks and thrifts are still generally well-capitalized thanks to the last 10 years of strong earnings."

Notable Upgrades and Downgrades

In evaluating the nation's 9,701 commercial banks, savings banks, and savings and loans, Weiss Ratings recently issued the following notable upgrades:

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      --  MBNA America Bk NA        Wilmington, Del.       from C+ to B-

      --  Bank One Arizona NA       Phoenix, Ariz.         from C+ to B-

      --  Dime Savings Bank of NY   New York, N.Y.         from C+ to B-

Notable downgrades include:

      --  Merrill Lynch Bk USA      Salt Lake City, Utah   from B- to C+

      --  Keybank NA                Cleveland, Ohio        from B- to C+

      --  Harris T&SB               Chicago, Ill.          from B- to C+

Weiss issues safety ratings on more than 15,000 financial institutions, including banks and thrifts, securities brokers, life and health insurers, HMOs, and property and casualty insurers. Weiss also issues investment ratings on more than 11,000 mutual funds and 9,000 common stocks.

Consumers can purchase a rating for as little as $7.95 through the Weiss Ratings web site at www.WeissRatings.com, or starting at $15 by calling [phone].

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