Trends In Asset QualityThe below information is derived from data collected from Steve H. Powell & Company clients during the Fourth Quarter of 2023.
Based on Steve H. Powell & Company client data, during the Fourth Quarter 2023, the average level of adversely graded assets increased as a percentage of total assets and capital. The average level of adversely graded loans increased as a percentage of total loans. Problem assets averaged 0.55% of total assets and 4.62% of tier-one capital plus loan loss reserve as compared to 0.54% of total assets and 4.61% of tier-one capital plus loan loss reserve while problem loans averaged 0.82% of total loans as compared to 0.81% of total loans during the Third Quarter 2023.
The median level of problem assets as of Q4 2023 has decreased to 2.9% of tier-one capital plus loan loss reserve as compared to 3.50% during Q3 2023. Note the downward trend as overall asset quality continues to improve.
During Q4 2023, increases in problem assets, as measured by adversely graded assets divided by tier-one capital plus loan loss reserve, were noted in approximately 19% of our clients. This quarter’s increase compares to:
• 20% during the Third Quarter 2023 • 18% during the Second Quarter 2023 • 13% during the First Quarter 2023 • 11% during the Fourth Quarter 2022 • 8% during the Third Quarter 2022 A higher level of volatility in the percentage of increases may be expected as overall asset quality stabilizes; however, increases may indicate a rise in portfolio risk. The above graph again shows the trend in asset quality over the past three years as measured by adversely graded assets to total assets, adversely graded loans to total loans, and adversely graded assets to tier-one capital plus LLR.
The above graph shows the pace of asset quality deterioration or improvement. The calculation is based on the percent change of problem asset levels from one quarter to the next. The graph indicates a favorable trend in asset quality ratios. Please note any data points below 0% indicate improvement in asset quality.
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