The graph below portrays the expected impact of stress to single bank holding companies. It shows 366 banks traded on the NASDAQ & NYSE/AMEX exchanges.

Understanding this graph:

• Each bank within a publicly-traded single bank holding company is plotted along the x- axis.
• The zero baseline establishes the point from which each bank is stressed, in this case each bank’s currently reported risk-based Tier 1 capital.
• Using publicly available data, each bank’s loan portfolio undergoes a uniform two year stress test.
• The relative impact on capital, inclusive of the earnings contribution from the remaining performing loans, is plotted along the y-axis as a percentage of capital increase or erosion resulting from the stress test.
• Positive figures indicate the overall elevation of capital ratios due to surplus earnings that offset any post-stress capital declines.
• The black dots on the graph represent those banks that fall below an 8% risk-based post stress Tier 1 capital ratio.
• All banks are presented in a randomized order.

The post stress information is critical in the valuation of banks both on an absolute basis and relative to each other. When incorporated into existing analytical methodologies, by inserting forward-looking projected capital* in place of currently reported capital, a very different picture emerges than can be obtained using traditional analyses that rely only on currently reported data. Metrics such as return on capital, earnings, P/E ratios, dividends, competitive positioning, and liability structure all change dramatically for banks when measured on a post-stress basis.

In this forward-looking analysis, the Invictus stress test methodology is not assuming a worst case economic scenario, but rather assumes that the existing stresses impacting banks will not significantly improve or deteriorate over the two-year stress horizon.

In the near future, Invictus is planning to offer an Invictus Approval Rating™ (IAR) product for publicly traded banks that will have two components:

1. Bank Sustainability
2. Relative Impact of Stress for Individual Banks

* “capital” in this analysis refers to risk-based Tier 1 capital