With the combination of these three factors:
- Greater than 1/3 of all banks in the country having commercial loan portfolios meet the 300% of capital threshold for non-owner occupied CRE or Ag, or the 100% of capital threshold for ADC loans and are considered by the Regulators to be concentrated,
- The growing regulatory concern over total CRE exposures, and
- The forecast for multiple interest rate increase over the next 12 months ...
Stress testing your portfolio is more important than ever. The presentation will focus on a cost effective way community banks can meet this requirement.
The regulatory guidance from both the FDIC (Supervisory Insights, Summer 2012) and the OCC (OCC Bulletin 2012 – 33) provides that migration analysis is an acceptable methodology for stress testing. The OCC has provided certain additional guidance for Banks to complete stress testing. The following excerpts from OCC 2012-33 are applicable to Community Banks. The guidance includes the following on the use of migration analysis for stress testing:
“Banks with an ability to perform migration analysis of credit risk ratings may be able to use that knowledge in evaluating changes in credit quality across different loan portfolios, because higher grade credits typically withstand market stresses better than lower grade credits.”
“Loan migration analysis can be used by banks with larger portfolios and more comprehensive internal databases to evaluate how a downward migration in internal loan ratings, consistent with migrations that might be expected during adverse economic conditions, would impact asset quality, earnings, and capital. This analysis would also assist banks in determining possible actions to address potential deterioration in their portfolios.”
Please join our expert, David Etter, as he demonstrates this cost effective approach to meeting regulatory requirements and practical issues for required stress testing for community banks.
WHAT YOU'LL LEARN
Some of the topics that will be discussed include:
- How to complete a stress test that will effectively meet regulatory expectations
- How to perform a migration analysis on a cost effective basis for community banks
- How to efficiently incorporate a change in interest rates in addition to the economic stress
- How to utilize the data to demonstrate impact on the following as required
- Asset Quality
- Allowance for Loan and Lease Loss (ALLL)
- The use of loan migration analysis as a stress testing methodology
- Using loan migration analysis to produce reliable predictions of the impact of economic conditions' impact on your loan portfolio
- Integrating stress testing into your Strategic Plan as many regulators are requiring
- Using stress testing to provide quantitative support in justifying CRE and other concentrations ND
- AND MUCH MORE!
YOUR CONFERENCE LEADER
Your conference leader for "Required Stress Testing for Community Bank Commercial Loan Portfolios" is David J. Etter. David Etter, the director of loan review for Sheshunoff Consulting + Solutions/Bennington Partners, has over 35 years' experience in financial services and has held credit and lending positions with community, regional and large banks. He has held senior management positions including president of the small business commercial lending subsidiary of one the world’s largest companies, as well as chief credit officer of a large community bank. Other assignments have included management of commercial loan workout departments, management of commercial lending teams, and the management of underwriting departments. He has experience in small and mid-market commercial lending, commercial real estate, SBA lending, commercial finance, leasing and international trade finance. He speaks at multiple conferences each year on commercial lending and credit relate topics. Mr. Etter graduated with a BS in finance with a concentration in accounting from the University of Connecticut.