1ST QUARTER 2017 CREDIT RISK BENCHMARKS...CREDIT RISK BENCHMARKS 1ST QUARTER 2017 WE ARE PLEASED to...
Transcript of 1ST QUARTER 2017 CREDIT RISK BENCHMARKS...CREDIT RISK BENCHMARKS 1ST QUARTER 2017 WE ARE PLEASED to...
September 2017| Copyright 2017 by RMA The RMA Journal 35
CREDIT RISK BENCHMARKS
1ST QUARTER 2017
WE ARE PLEASED to provide first-quarter 2017 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 perfor-mance 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 includes analytical capabilities for portfolio segmenta-tion and in-depth analysis by line of business, vintage, industry, location, deal size, collateral, and product type. The specialized Commercial Real Estate module includes additional seg-mentations 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 September 2017 36
C&I LOAN QUALITY
Percentage of C&I Loans Outstanding
The percentage of criticized C&I loans varied little in the first quarter of 2017 compared to the prior quarter, while the percentage of classified C&I loans declined. Shaded area indicates length of recession.
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
Following a significant decline in the prior quarter, the nondefaulted weighted- average probability of default ticked up in the first quarter of 2017. The weighted-average probability of default for all C&I loans (accruing and nonaccruing) was down slightly compared to the prior quarter. Shaded area indicates length of recession.
Note: 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
164Q
161Q
17
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
3.62%
7.04%
PERC
ENTA
GE
OF
OUT
STAN
DIN
GS
CRITICIZED
2.71%
1.94%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
September 2017| Copyright 2017 by RMA The RMA Journal 37
TOTAL LOAN GROWTH BY INDUSTRY SUBSECTOR
PERCENT NONACCRUAL BY INDUSTRY SUBSECTOR
GROWTH IN OUTSTANDINGS: DEC. 2016 TO MARCH 2017ALL LOAN TYPES
1.94%
This chart ranks the 20 largest three-digit NAICS industry subsectors in descending order according to their 1Q17 quarter-over-quarter C&I loan growth rates. Industries shaded blue represent the top quartile of this group.
Note: The 20 subsectors in this chart represent the largest concentrations of loan outstanding balances in the RAS database.
4.5%
2.6% 2.6%
1.3% 0.9% 0.7% 0.4% 0.2% 0.1%
-0.2% -0.2% -0.8% -1.0% -1.2%
-2.2% -2.3% -2.5%
-3.6%
-9.3%
-10.9%
525
Fund
s, T
rust
s
& F
inan
cial
Veh
icle
s
424
Mer
chan
t W
hole
sale
rs, N
ondu
rabl
e
721
Acc
omm
odat
ion
622
Hos
pita
ls
623
Nur
sing
C
are
Faci
litie
s
522
Cre
dit
Inte
rmed
iatio
n
441
Mot
or V
ehic
le
& P
arts
Dea
lers
561
Adm
inis
trat
ive
&
Sup
port
Ser
vice
s
722
Food
Ser
vice
s
& D
rinki
ng P
lace
s
523
Secu
ritie
s &
C
omm
odity
Con
trac
ts
423
Mer
chan
t W
hole
sale
rs, D
urab
le
813
Rel
igio
us &
C
ivic
Org
aniz
atio
ns
531
Rea
l Est
ate
621
Am
bula
tory
H
ealth
Car
e Se
rvic
es
221
Util
ities
541
Prof
essi
onal
, Sc
ient
ific
& T
ech
611
Educ
atio
nal
Serv
ices
532
Ren
tal &
Le
asin
g Se
rvic
es
211
Oil
& G
as E
xtra
ctio
n
334
Com
pute
r &
Elec
tron
ic M
anuf
actu
ring
525
Fund
s, T
rust
s &
Fina
ncia
l Veh
icle
s
424
Mer
chan
t Who
lesa
lers
, Non
dura
ble
721
Acco
mm
odat
ion
622
Hosp
itals
623
Nur
sing
Car
e Fa
cilit
ies
522
Cred
it In
term
edia
tion
441
Mot
or V
ehic
le &
Par
ts D
eale
rs
561
Adm
inis
trat
ive
& Su
ppor
t Ser
vice
s
722
Food
Ser
vice
s &
Drin
king
Pla
ces
523
Secu
ritie
s &
Com
mod
ity C
ontr
acts
423
Mer
chan
t Who
lesa
lers
, Dur
able
813
Relig
ious
& C
ivic
Org
aniz
atio
ns
531
Real
Est
ate
621
Ambu
lato
ry H
ealth
Car
e Se
rvic
es
221
Utilit
ies
541
Prof
essi
onal
, Sci
entifi
c &
Tech
611
Educ
atio
nal S
ervi
ces
532
Rent
al &
Lea
sing
Ser
vice
s
211
Oil
& G
as E
xtra
ctio
n
334
Com
pute
r &
Elec
troni
c M
anuf
actu
ring
4.5%
2.6% 2.6%1.3% 0.9% 0.7% 0.4% 0.2% 0.1%
-0.2% -0.2% -0.8% -1.0% -1.2%-2.2% -3.2% -2.5%
-3.6%
-9.3%
-10.9%
PERCENT NONACCRUAL: FIRST QUARTER 2017ALL LOAN TYPES
525
Fund
s, T
rust
s
& F
inan
cial
Veh
icle
s
424
Mer
chan
t W
hole
sale
rs,
Non
dura
ble
721
Acc
omm
odat
ion
622
Hos
pita
ls
623
Nur
sing
C
are
Faci
litie
s
522
Cre
dit
Inte
rmed
iatio
n
441
Mot
or V
ehic
le
& P
arts
Dea
lers
561
Adm
inis
trat
ive
&
Sup
port
Ser
vice
s
722
Food
Ser
vice
s
& D
rinki
ng P
lace
s
523
Secu
ritie
s &
C
omm
odity
Con
trac
ts
423
Mer
chan
t W
hole
sale
rs, D
urab
le
813
Rel
igio
us &
C
ivic
Org
aniz
atio
ns
531
Rea
l Est
ate
621
Am
bula
tory
H
ealth
Car
e Se
rvic
es
221
Util
ities
541
Prof
essi
onal
, Sc
ient
ific
& T
ech
611
Educ
atio
nal
Serv
ices
532
Ren
tal &
Le
asin
g Se
rvic
es
211
Oil
& G
as E
xtra
ctio
n
334
Com
pute
r &
Elec
tron
ic
Man
ufac
turin
g
This chart presents the 1Q17 nonaccrual rates for the same industry subsectors listed on the total loan growth chart above. In general, the subsectors with the highest rates of total loan growth, represented by the blue and green bars, display lower nonaccrual rates compared with the average C&I industry.
Note: The 20 subsectors in this chart represent the largest concentrations of loan outstanding balances in the RAS database.
525
Fund
s, T
rust
s &
Fina
ncia
l Veh
icle
s
424
Mer
chan
t Who
lesa
lers
, Non
dura
ble
721
Acco
mm
odat
ion
622
Hosp
itals
623
Nur
sing
Car
e Fa
cilit
ies
522
Cred
it In
term
edia
tion
441
Mot
or V
ehic
le &
Par
ts D
eale
rs
561
Adm
inis
trat
ive
& Su
ppor
t Ser
vice
s
722
Food
Ser
vice
s &
Drin
king
Pla
ces
523
Secu
ritie
s &
Com
mod
ity C
ontr
acts
423
Mer
chan
t Who
lesa
lers
, Dur
able
813
Relig
ious
& C
ivic
Org
aniz
atio
ns
531
Real
Est
ate
621
Ambu
lato
ry H
ealth
Car
e Se
rvic
es
221
Utilit
ies
541
Prof
essi
onal
, Sci
entifi
c &
Tech
611
Educ
atio
nal S
ervi
ces
532
Rent
al &
Lea
sing
Ser
vice
s
211
Oil
& G
as E
xtra
ctio
n
334
Com
pute
r &
Elec
troni
c M
anuf
actu
ring
0.2%
0.6%
0.2% 0.3%
0.5%
0.1%0.2%
0.8%
0.5%
0.2%
1.5%
0.8%
1.0% 1.0%
1.4%
0.8% 0.8%
0.2%
19.1%
0.2%
The RMA Journal September 2017 38
CRE: PERCENT NONACCRUAL BY PROPERTY TYPE
CREDIT QUALITY COMPARISON BY MARKET SEGMENT
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.
PERCENTAGE OF TOTAL EXPECTED LOSS
PERCENTAGE OF EXPOSURE
Agric
ultur
e, Fo
restry
, Fis
hing &
Hunti
ng
Minin
g, Oil
& Ga
s
Utilit
ies
Manu
factur
ing(Fo
od, B
evera
ge, A
ppare
l)Ma
nufac
turing
(Woo
d, Pa
per,
Plasti
c)Ma
nufac
turing
(Meta
ls, M
achin
ery, E
lectri
c)
Retai
l Trad
e(M
otor,
Electr
ic, Bu
ilding
)
Retai
l Trad
e(H
obby
, Gen
eral, M
isc.)
Trans
porta
tion
(Air,
Water
, Tru
ck)
Trans
porta
tion
(Pos
tal, C
ourie
r)
Inform
ation
Finan
ce &
Insu
rance
Real
Estat
e
Mana
geme
nt of
Comp
anies
& En
terpri
ses
Profe
ssion
al, Sc
ientif
ic &
Tech
nical
Servi
ces
Admi
n., Su
pport
, Was
te Ma
nage
ment
& Re
media
tion
Educ
ation
al Se
rvice
s
Healt
h Care
& So
cial A
ssist
ance
Arts,
Enter
tainm
ent &
Re
creati
onAc
comm
odati
ons
& Fo
od Se
rvice
s
Othe
r Serv
ices
Publi
c Adm
inistr
ation
Whole
sale
Trade
12.5%
10%
7.5%
5%
2.5%
0%
The percentage of CRE loans on nonaccrual declined in the first quarter of 2017, marking the 22nd consecutive quarter of improvement in the CRE nonaccrual rate. From a property type perspective, the decrease in CRE nonaccruals was driven predominantly by the residential segment.
ALL RETAIL
RESIDENTIAL (1-4 FAMILY)
ALL PROPERTY TYPES
MULTIFAMILY
OFFICE
INDUSTRIAL
Note: The five property types in this chart represent the largest segments in terms of total CRE outstanding balances in the RAS database.
PERC
ENT
NO
NAC
CRUI
NG
2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17
1.2%
1.0%
0.8%
0.6%
0.4%
0.2%
0.0%
0.56%
0.53%
0.46%
0.35%
0.26%
0.21%
September 2017| Copyright 2017 by RMA The RMA Journal 39
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 0.45% 0.18% 0.18% 0.42%
Percentage on Nonaccrual 1.08% 1.46% 0.60% 0.53%
Percentage Noncurrent(90 Days + Nonaccrual)
1.15% 1.47% 0.75% 0.55%
Weighted-Average Risk Rating (10 pt RMA Scale)
5.12 4.64 4.11 5.05
Weighted-Average PD 3.05% 2.79% 1.88% 3.25%
Weighted-Average PD: Nondefaulted Portfolio
2.29% 1.92% 1.48% 2.91%
Percentage Classified 5.13% 3.45% 0.93% 5.26%
Percentage Criticized 9.27% 5.99% 4.86% 7.42%
LOC Utilization Rate 53.49% 47.80% 48.64% 66.45%
PROBLEM C&I LOANS BY STATE
Criticized Loans (%)
All geography-based data in the Risk Analysis Service is based on the ZIP Code of the borrower (for C&I loans) or the property (for Commercial Real Estate).
The reduction in criticized loan balances in the first quarter of 2017 was driven by a relatively small number of states, with California displaying a large quarter-over-quarter decline in criticized loans. For C&I loans, credit quality profiles vary both across and within states. For example, within Pennsylvania, the criticized loan ratio for Philadelphia was better than the national average, whereas Pittsburgh, Allentown, Lancaster, and York all reported criticized loan rates well above the national average.
CRE: PERCENT NONACCRUAL BY PROPERTY TYPE
BETTER THAN AVG.
WORSE THAN AVG.
criticiZeD ratiO, usa = 7.04%
9.55%Wa
10.40%Or
6.03%ca
10.04%iD
9.85%nv
5.58%aZ
10.16%ut
40.90%WY
15.10%nm
11.90%ks
14.21%Ok
9.38%mi
6.69%kY
4.31%tn
4.84%FL
4.99%sc
1.51%me
1.02%ak
8.25%hi
8.12%mt
7.36%cO
13.06%tX
13.55%nD
9.45%sD
5.73%ne
8.95%mn
11.24%ia
6.14%mO
7.25%ar
10.06%La
11.92%Wi
8.75%iL
5.61%ms
9.26%in
6.64%aL 3.81%
ga
4.20%nc
2.16%va
16.23%Wv
9.11%Oh
7.99%Pa
6.21%nY
3.52%nh
3.09%vt
4.81%ma9.03%
ri6.27%
ct10.87%nJ
5.60%De
3.08%Dc4.87%
mD