The Risk Management Association and Automated Financial Systems’ Risk Analysis Service Metrics Show Further Deterioration in U.S. Middle Market Credit Quality

The industry’s credit risk benchmark revealed no sign of relief as nonaccruals, delinquencies continue to rise

The Risk Management Association (RMA),in alliance with Automated Financial Systems, Inc. (AFS), this week released its Risk Analysis Service (RAS) data. Representing the industry’s only comprehensive credit risk benchmark, today’s RAS metrics on commercial credit risk reveal ongoing deterioration in the middle market through the second quarter of 2008. These results reflect portfolio data for middle market exposure provided by 17 top-tier participating institutions, estimated to represent more than half of all middle market commercial loans in the U.S.

“The data clearly shows that delinquencies and nonaccruals are rising. We are in the downward swing of the business cycle, so we can expect continued asset quality deterioration for a period of time,” said Kevin Blakely, RMA president and CEO.

The percentage of middle market loans on nonaccrual rose for the sixth consecutive quarter and is now 0.98% of total outstanding balances. This figure represents a 20% increase over the prior quarter and a 78% increase from one year ago. Delinquency data also suggests that U.S. middle market credit quality has yet to crest. Middle market loans past due between 30 and 89 days now represent 0.83% of total outstanding balances, the highest level since the inception of the program in September 2003. Delinquent loan levels have increased 73% from year-ago levels.

From an industry perspective, middle market loans with ties to the construction sector continue to lead the deterioration, with 3.4% of these loans now being reported as nonaccruing, up 35% from the prior quarter and 233% year over year. Other prominent industry sectors’ nonaccrual levels were arts, entertainment, and recreation (1.6%); retail trade (1.4%); manufacturing (0.7%); wholesale trade (0.6%); and health care (0.3%).

About RAS

These findings come from the RMA/AFS Risk Analysis Service, global banking’s only comprehensive, industry-standard credit risk benchmark. Representing an industry-led consortium, RAS members perform actionable comparisons of their own data and that of the industry and peer banks for meaningful segments of the portfolio. Today’s announcement reflects data from the U.S. commercial middle market. Consistent with its “global reach, local markets” approach, RAS is currently offered in U.S. Commercial and Industrial, U.S. Commercial Real Estate, and European versions of the service. Through its multiple offerings, RAS allows participants to gain real-time insights into changing credit quality and portfolio concentrations, and answers the critical question of “How do we compare?” which is especially important in these turbulent times.

Institutions participating in the service now have access to an expanded set of risk-rating metrics. In addition to borrower risk ratings, institutions are now able to segment their portfolios by measures of default probability, loss given default, and expected loss, risk parameters mandated by the international Basel II rules.

About RMA

Founded in 1914, The Risk Management Association is a not-for-profit, member-driven professional association whose sole purpose is to advance the use of sound risk principles in the financial services industry. RMA promotes an enterprise-wide approach to risk management that focuses on credit risk, market risk, and operational risk. Headquartered in Philadelphia, Pennsylvania, RMA has 3,000 institutional members that include banks of all sizes as well as nonbank financial institutions. They are represented in the Association by 20,000 risk management professionals who are chapter members in financial centers throughout North America, Europe, and Asia/Pacific. Visit RMA on the Web at www.rmahq.org.

About Automated Financial Systems, Inc.

Automated Financial Systems, Inc. (AFS) is the global leader in providing commercial lending solutions to top-tier financial institutions. AFS works with a majority of the world’s 50 largest financial institutions to build lending processes based on a straight-through model and on-demand technology and services. In doing so, AFS partners with client banks to understand their strategic goals and works proactively to achieve their business and technology objectives. AFS also partners with The Risk Management Association (RMA) to power the Risk Analysis Service, banking’s industry-standard credit risk benchmark that gauges risk exposure among peer banks while enabling continuous improvement. AFS is headquartered in Exton, Pennsylvania, a suburb of Philadelphia; its European subsidiary, Automated Financial Systems GmbH, is based in Vienna, Austria. For further information, visit www.afsvision.com.

For additional information on the Risk Analysis Service, please contact Suzanne Wharton at RMA at +1 (215) 446-4089 or Doug Skinner at AFS at +1 (484) 875-1562.

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Meg McBride
Regulatory and Public Relations Manager

The Risk Management Association
1801 Market Street, Suite 300 | Philadelphia, PA 19103-1628 215-446-4110 | 215-446-4101 - fax www.rmahq.org