exploded from 17% to 27% just since the pandemic. While the smaller banks have increased their CRE loans, investors and larger institutions have shed CRE exposures due to credit quality concerns and heightened regulatory scrutiny. ▶ Weaknesses in the trucking sector were at the heart of a recent Midwest bank failure2 – the first credit qualityfocused closure in quite a while. ▶ There’s a growing dichotomy between consumers living paycheck-to-paycheck (and running up credit card levels to historic heights) and those with strong balance sheets and investment resources. While this issue may be primarily affecting the credit union industry, it could impact bank performance as well. ▶ The below chart of historical data from the QwickAnalytics® National Performance Trends Report3 (based on the proprietary QwickAnalytics Community Bank Index (QCBI) of true community banks) clearly indicates an approximate two-year lag between the end of rate hikes and the peak of non-performing loans (NPLs). This may be the most telling data supporting the continuing need for credit risk management vigilance! The Now It’s clear that, given all the data listed above, those directly responsible for your bank’s credit portfolio performance must stay vigilant. Consider directing attention to these key areas: ▶ Accept that regulatory scrutiny is increasing significantly, particularly in the CRE arena. Be sure to reinforce your adherence to both the December 2006 “Interagency Guidance on CRE Concentrations” (Fed SR7-1)4 and the more recent June 2023 “Prudent CRE Loan Accommodations and Workouts” (Fed SR235)5. Be proactive in anticipating CRE repricing and performance, monitoring concentrations unique to your bank, and ensure that management and the board are fully informed. ▶ Enhance all aspects of loan review – whether performed internally (annually) or by an external independent provider – and ensure the quality and experience levels of those performing the reviews are up to the task. Remember, loan review is one of the most reliable tools for early detection of credit risk – a proven corollary to reduce loan losses. LENDING & CREDIT CONT. 40 HOOSIERBANKER
RkJQdWJsaXNoZXIy MTg3NDExNQ==