The Strongest Banks Out There

Now more than ever, it's a good idea to find out if your bank or savings and loan association is in good shape.

Each quarter, TheStreet.com Ratings publishes financial-strength ratings for the nation's approximately 8,500 banks and thrifts. As one might expect, the ratings for many institutions have drifted downward over the past year. You can look up your institution's rating, free of charge, using the Banks and Thrifts Screener.

TheStreet.com's ratings model places the strongest weighting on capital adequacy, earnings and asset quality. The following table includes common ratios in these categories for the past five quarters:

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Source: Regulatory filings, provided by Highline Financial, Inc.

The year-over-year comparison is useful because it matches up the industry's distressed state to a reasonably normal "pre-crisis" quarter a year ago.

Industry net income for the second quarter of 2008 was $5.1 billion, down from $36.8 billion a year earlier. Earnings performance moved in line with efforts of banks and S&Ls to boost loan loss reserves. The aggregate quarterly provision for reserves (which directly affects earnings) was $50.3 billion in the second quarter, way up from $11.4 billion in the second quarter of 2007.

While preliminary numbers for most banks and thrifts for the third quarter will not be available for several weeks, TheStreet.com Ratings expects many institutions to come under significant further earnings pressure following losses on investments in preferred stock in Fannie Mae (FNM Quote) and Freddie Mac (FRE Quote), which were pretty much wiped out when the Treasury Department took over the mortgage giants.

Looking at industry loan quality, the nonperforming assets ratio was 1.25% as of June 30, rising steadily from 0.52% a year earlier. Net charge-offs (actual loan losses) totaled $26.4 billion in the second quarter, up from just $8.9 billion in the second quarter of 2007. In its Quarterly Banking Profile, the Federal Deposit Insurance Corp. said the annualized ratio of net charge-offs to average loans of 1.32% for the second quarter was the highest since the fourth quarter of 1991.