Each quarter we consider trends in loan quality at publicly traded commercial banks. With all eyes on Commercial Real Estate (ComRe), we present the summary stock and flow of underperforming ComRe loans for publicly traded banks with assets over $10 billion (119 commercial banks).¹

Levels and trends in underperforming ComRe loans continue to be most concerning at banks over $10 billion (See Chart 1). The stock of underperforming loans increased for most large banks this quarter, and the ongoing formation of new underperforming loans was positive for all but a few banks (a negative formation rate indicates that credit quality may be improving).

Chart 1

This quarter we also reveal more of our modeling results for a sample of these large banks.

Table 1 shows several datapoints for the sample of large banks that meet the following criteria:

• Total assets over $10 billion
• Concentration in ComRe loans² greater than 100% of Tangible Common Equity
• The bank has either an Underperforming Loan Ratio greater than 1% OR has an annualized formation rate greater than 1%

Table 1

While the Underperforming Total ComRe Ratio measures the point-in-time level of degradation in the loan book, the Formation Rate is a flow measure that, if positive, indicates the rate at which assets continue to deteriorate or, if negative, the rate at which loan performance is improving.³

We also provide Cybiont’s CECL model output for the banks. This ratio gives our modeled estimate of the dollar amount in excess or needed to bring reserve levels to our estimated required levels as a percentage of TCE. For example, we estimate that Eagle Bancorp would need a provision expense of about 5% of TCE (tax adjusted) to bring its reserve levels up to our estimated requirement.

1. See: Cybiont’s Granular View of Bank Credit Quality ↩︎
2. For this analysis we include Owner Occupied, Non-Owner Occupied, Multi Family, and Farm Loans ↩︎
3. Importantly, the Formation Rate incorporates chargeoffs, which do not remain in the Underperforming Ratio. ↩︎