A.M. Best Special Report: The Texas Ratio Falls Short As a Measure of Banks` Health

OLDWICK, N.J.--(Business Wire)--
The U.S. banking industry saw its Texas ratio spiking up in third quarter 2008,
but return on average assets remained positive for the majority of banks (81%),
though on a declining trend since the start of the current recession in fourth
quarter 2007. The Texas ratio-nonperforming loans divided by the sum of total
equity and loan loss reserves-has its strengths as an analytical tool, but since
earnings are banks` first line of defense, earnings capacity in addition to
capital provides an important gauge of a bank`s health.

* Credit risk has dominated this downturn, particularly for about 27% of the
industry with ROAs of 0.5% or less.
* Many other factors also adversely affected banks` ROAs, including margin
compression driven by competition; declining operating efficiencies as banking
revenues fell; and lower fee and other noninterest income.
* Even in an extremely stressed banking market, 81% of banks achieved positive
ROAs.
* Generally, the states with the worst ROA medians also experienced the most
pronounced decline in ROAs since December 2007.
* Approximately 22% of banks with weak ROAs show very high Texas ratios.

* The housing market and the economy at large are unlikely to rebound for
several more quarters, so banks` Texas ratios and ROAs likely will deteriorate
further from third-quarter levels.
* Nonperforming assets in relation to capital do not correlate directly with low
ROAs; even in troubled markets, healthy banks still exist, and their viability
cannot be judged by any one ratio.
* Profitability is holding up for the majority of banks to date, as the most
troubled markets are concentrated in a few states.

For access to data, special reports, analytical methodologies and news on the
U.S. banking industry, please visit www.ambest.com/banks.

Founded in 1899, A.M. Best Company is a global full-service credit rating
organization dedicated to serving the financial and health care service
industries, including insurance companies, banks, hospitals and health care
system providers. For more information, visit www.ambest.com.

A.M. Best Company
Analysts
Khanh Vuong, 908-439-2200, ext. 5633
khanh.vuong@ambest.com
OR
Anthony McSwieney, 908-439-2200, ext. 5715
anthony.mcswieney@ambest.com
OR
Public Relations
Jim Peavy, 908-439-2200, ext. 5644
james.peavy@ambest.com
OR
Rachelle Morrow, 908-439-2200, ext. 5378
rachelle.morrow@ambest.com

Copyright Business Wire 2008