We last discussed SNCs during the fourth quarter 2015. With the updated SNC review, published during July 2016, we performed the same comparison as in the Q4 2015.
For reference: the SNC portfolio included ~10,800 credits and totaled $4.1 trillion.
SHP & Co. average classified loans to total loans 3.74%
SHP & Co. median classified loans to total loans 2.84%
Classified SNCs to the total portfolio 6.9%
Also of note, oil and gas related credits represent 27% of total SNC classified loans. Assuming a 27% reduction in total SNC classification, roughly 5.0% of the portfolio would still be adversely classified.
Again, a crude comparison, it would appear as based on average and median volume of classified loans, the ‘average community bank’ loan portfolio within the Powell & Co. client base contains a lower volume of classified loans as compared to the SNC portfolio.
The July 2016 SNC review highlights included:
Examiners again raised concerns about borrowers’ capacity to repay certain new originations—both underwritten and refinanced loans—if economic conditions deteriorated, or if interest rates rose to historical norms
Examiners observed structures with ineffective or no covenants, liberal repayment terms
FOR REFERENCE: The percentages of non-pass and classified commitments increased to 10.3 percent and 6.9 percent compared with 9.5 percent and 5.8 percent in 2015, respectively. SNC examination data showed classified O&G borrowers totaled $77.0 billion or 27.0 percent of total classified commitments in first quarter 2016, compared with $38.2 billion or 16.7 percent in 2015.