3rd quarter 2016 credit risk benchmarks...3rd quarter 2016 we are pleased to provide third-quarter...
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March 2017 The RMA Journal 43
CREDIT RISK BENCHMARKS
3RD QUARTER 2016
WE ARE PLEASED to provide third-quarter 2016 metrics for this Journal feature, which provides an up-to-date view of C&I and Com-mercial Real Estate credit quality and trends. Comparing portfolio composition and per-formance to industry benchmarks is a key aspect of effective credit risk management. The graphs presented on the following pages are based on data reported in the RMA/AFS Risk Analysis Service, global banking’s only comprehensive credit risk benchmark. RAS is currently offered in U.S. Commercial and Industrial and U.S. Commercial Real Estate
versions. The service is an industry-led credit-data consortium benchmarking key credit risk metrics including risk ratings (PD and LGD), expected loss, delinquencies, nonaccruals, charge-offs, and line utilization rates.
The RMA/AFS Risk Analysis Service in-cludes analytical capabilities for portfolio segmentation and in-depth analysis by line of business, vintage, industry, location, deal size, collateral, and product type. The specialized Commercial Real Estate module includes ad-ditional segmentations such as property type, location, value, and debt service coverage.
For more information, please contact Stacy Germano at RMA at +1 215-446-4089 or Doug Skinner at AFS at +1 484-875-1562, or visit rmahq.org or afsvision.com.
The RMA Journal March 2017 44
C&I LOAN QUALITY
Percentage of C&I Loans Outstanding
The ratios of loans rated classified and criticized to total C&I outstandings declined modestly in the third quarter from the prior quarter. However, problem loan levels were above the averages reported in the same period a year ago.
Note: Classified loans are loans rated Substandard, Doubtful, or Loss. Criticized loans are classified loans plus loans rated Special Mention.
WEIGHTED-AVERAGE PROBABILITY OF DEFAULT TREND All Loans vs. Nondefaulted Loans
The C&I weighted-average probability of default ticked up during the third quarter of 2016, while the nondefaulted average displayed a comparatively modest increase.
Probability of default (PD) reflects the bank’s estimate of the likelihood that the borrower will default on the loan, over a one-year time horizon.
CLASSIFIED
5.5%
4.5%
3.5%
2.5%
1.5%
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q
152Q
153Q
154Q
151Q
162Q
163Q
16
20%
15%
10%
5%
0%
On P
revi
Ous
Pag
e: s
hutt
erst
Ock
.cO
m
WAPD - ALL LOANS
ND_WAPD - ACCRUING LOANS ONLY
3.81%
7.29%
PERC
ENTA
GE
OF
OUT
STAN
DIN
GS
CRITICIZED
2.8
1.9
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
March 2017 The RMA Journal 45
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
PERCENTAGE OF UNSECURED LOANS OUTSTANDING
CRE: PERCENT NONACCRUAL BY PROPERTY TYPE
PERC
ENTA
GE
OF
OUT
STAN
DIN
GS
PERC
ENT
NO
NAC
CRUI
NG
The percentage of CRE loans on nonaccrual continued to decline in the third quarter, marking the 20th straight quarter of improvement. Mirroring the CRE average, nonaccruing loans declined broadly across the five largest property types for CRE balances. Office and industrial exhibited the largest quarter-over-quarter improvements.
ALL RETAIL
RESIDENTIAL (1-4 FAMILY)
ALL PROPERTY TYPES
MULTIFAMILY
OFFICE
INDUSTRIAL
16.1%
3Q2015 4Q2015 1Q2016 2Q2016 3Q2016
1.0%
0.8%
0.6%
0.4%
0.2%
0.0%
PERCENT UNSECURED
The percentage of unsecured loans to total outstanding balances continued to decline in the third quarter, falling to a ratio of 16.1%. The availability of unsecured credit continues to vary widely across the C&I industry spectrum, with sectors such as hospitals and telecommunications exhibiting high levels of unsecured loan balances compared with the C&I average.
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
0.59%
0.53%
0.48%
0.42%
0.28%0.24%
The RMA Journal March 2017 46
EXPECTED LOSS BY INDUSTRIES
The industry makeup of the RAS database is represented by the blue bars.The horizontal line graph represents the expected loss estimates. Thus, for the industries where the line graph is greater than the blue bars, the expected loss for that sector is greater than the relative contribution of the sector in terms of exposure. The industries depicted by the red markers are currently bearing a disproportionate amount of expected losses.
CREDIT QUALITY COMPARISON BY MARKET SEGMENT
Within the Risk Analysis Service, the business banking segment represents loans to companies with annual sales of less than $20 million, the middle market segment represents companies with annual sales of between $20 million and $200 million, and the large corporate segment represents companies with annual sales greater than $200 million. Commercial Real Estate (CRE) loans represent investor CRE, including land acquisition, development, and construction, multifamily, nonfarm nonresidential, etc.
Commercial & Industrial LoansCommercial Real Estate
Business Banking
Middle Market
Large Corporate
Percentage 30–89 Days Past Due 0.44% 0.15% 0.27% 0.33%
Percentage on Nonaccrual 1.01% 1.81% 0.88% 0.59%
Percentage Noncurrent(90 Days + Nonaccrual)
1.15% 1.82% 0.88% 0.61%
Weighted-Average Risk Rating (10 pt RMA Scale)
5.16 4.68 4.29 5.12
Weighted-Average PD 3.45% 3.48% 2.37% 3.20%
Weighted-Average PD: Nondefaulted Portfolio
2.67% 2.49% 1.73% 2.83%
Percentage Classified 5.55% 4.42% 1.49% 6.06%
Percentage Criticized 9.93% 7.20% 5.60% 8.89%
LOC Utilization Rate 54.51% 47.65% 49.16% 65.34%
PERCENTAGE OF TOTAL EXPECTED LOSS
PERCENTAGE OF EXPOSURE
Agric
ultu
re, F
ores
try,
Fish
ing
& Hu
ntin
g
Min
ing
Utili
ties
Man
ufac
turin
g(F
ood,
Bev
erag
e, A
ppar
el)
Man
ufac
turin
g(W
ood,
Pap
er, P
last
ic)
Man
ufac
turin
g(M
etal
s, M
achi
nery
, Ele
ctric
)
Reta
il Tr
ade
(Mot
or, E
lect
ric, B
uild
ing)
Reta
il Tr
ade
(Hob
by, G
ener
al, M
isc.
)
Tran
spor
tatio
n(A
ir, W
ater
, Tru
ck)
Tran
spor
tatio
n(P
osta
l, Co
urie
r)
Info
rmat
ion
Fina
nce
& In
sura
nce
Real
Est
ate
Man
agem
ent o
f Co
mpa
nies
& E
nter
pris
es
Prof
essi
onal
, Sci
entif
ic &
Te
chni
cal S
ervi
ces
Adm
in.,
Supp
ort,
Was
te
Man
agem
ent &
Rem
edia
tion
Educ
atio
nal S
ervi
ces
Heal
th C
are
& S
ocia
l Ass
ista
nce
Arts
, Ent
erta
inm
ent &
Re
crea
tion
Acco
mm
odat
ions
&
Food
Ser
vice
s
Othe
r Ser
vice
s
Publ
ic A
dmin
istra
tion
Who
lesa
le T
rade
18%17%16%15%14%13%12%11%10%9% 8%7%6%5%4%3%2%1%0%
March 2017 The RMA Journal 47
While the deterioration in credit quality for the oil and gas industry has moderated, the Southwest continues to bear high levels of classified and criticized loans in this particular sector. For the Southwest region, the percentage of criticized loans to total C&I outstandings was up 43% in the third quarter compared to the same period a year ago. Conversely, criticized loan balances decreased 8% for the West region year-over-year in September.
PROBLEM C&I LOANS BY STATE
Criticized Loans (%)
Slightly more than half of the states reported a reduction in criticized loans quarter-over-quarter in September. Criticized levels in Oklahoma and Texas remain elevated due to problem oil and gas loans. When loans in this industry are excluded from the mix, the criticized ratios for Oklahoma and Texas are close to the national C&I average.
PROBLEM C&I LOANS BY GEOGRAPHIC REGION
BETTER THAN AVG.
WORSE THAN AVG.
criticiZeD ratiO, usa = 7.29%
CLASSIFIED RATIO, USA = 3.81%
CRITICIZED RATIO, USA = 7.29%
sOuthwest
8.73%
western miDwest
4.33%
sOuth
2.67%
eastern miDwest
3.60%
nOrtheast
2.50%
miDDle atlantic
2.44%
CLASSIFIED
CRITICIZED
sOuthwest
13.23%
western miDwest
8.99%
sOuth
5.44%
eastern miDwest
8.31%
nOrtheast
6.39%
miDDle atlantic
4.95%
BETTER THAN NAT’L AVG
WORSE THAN NAT’L AVG
11.78%wa
10.43%Or
6.81%ca
10.40%iD
9.96%nv
7.02%aZ
8.32%ut
19.46%wY
11.19%nm
10.44%ks
22.07%Ok
14.22%mi
5.44%kY
3.99%tn
5.28%Fl
3.71%sc
2.03%me
0.63%ak
4.06%hi
13.06%mt
9.27%cO
15.73%tX
17.51%nD
9.79%sD
3.52%ne
9.47%mn
11.64%ia
7.47%mO
4.18%ar
11.20%la
9.31%wi
7.07%il
6.54%ms
9.49%in
11.05%al 3.86%
ga
3.68%nc
3.75%va
11.34%wv
6.14%Oh
4.81%Pa
7.37%nY
3.93%nh
3.62%vt
3.63%ma8.43%
ri6.89%
ct10.67%nJ
3.23%De
2.11%Dc5.33%
mD
west
3.96%
west
7.64%