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DiCom Software Newsletter
May, 2013  
2013 Loan Review Industry Survey
Many thanks to all who participated in our 2013 Industry Survey on Loan Review statistics and trends, which closed on April 30.  Results of this survey are being compiled now and will be presented via a webinar in June.  If you would like to register for that webinar, please register here.  If you would like to see the results of the 2012 survey please view that webinar presentation here. 

CQS News
CQS 7.5 
CQS 7.5 is now available for all clients to download.  If you have not made plans to implement this release at your institution and would like to contact our technical service team to get that process started, please follow the link here and request a contact from our client technical service team.   We highly encourage everyone to take advantage of the new functionality, which includes the personal financial template as well as the ability to capture multiple financials related to each note for borrowers, co-borrowers and guarantors.
CQS 8.0
Work is beginning on CQS 8.0, which will provide users with a report writing tool, as well as including other improvements to overall functionality.  To sign up for the User Group for 8.0, please complete the form attached here and indicate that you would like to participate in that group.

Learn More and 


Welcome to the third edition of DiCom's e-newsletter!  We hope to use this tool to keep you informed of the latest credit risk and loan review industry updates.  Your input on topics for future newsletters, as well as suggestions for enhancements to our suite of credit risk management software solutions is encouraged!

Commercial Real Estate Portfolios: 
What have we learned?


In April of this year the OCC and Federal Reserve Board jointly published a review of bank performance in the most recent economic downturn using the interagency guidance for CRE lending from 2006 as a basis for the analysis. This guidance is officially titled "Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices".  Since it was in place and being enforced during the entire recessionary period, the statistics are now available to confirm how well those banks which were within the guidelines performed, versus how well those outside the guidelines did. This is essentially an opportunity for a referendum on how well the criteria within the document were designed.


The guidelines break down into two primary categories, Construction or 'CLD' lending, and Total CRE lending. Both had supervisory criteria associated with them.

  • Construction or CLD loans were recommended to be 100% or less of a bank's total risk-based capital.
  • The Total CRE portfolio, including CLD but not owner-occupied CRE loans, was recommended to be under 300% of total risk-based capital, AND there was to be growth of no more than 50% in this portfolio during the prior 36 months.
The article points out that in 2006 when these guidelines were first published, 31% of all commercial banks exceeded at least one of them.  After 2006, CRE concentrations began to decline and by Q4 2011 only 11% of institutions exceeded one of them.  The focus in the article is on what happened to the banks in the 31%, as compared to the rest of the industry:  
       May Newsletter chart
  • 23% of banks that exceeded both criteria failed during the three years of the downturn, vs. 0.5% of banks which exceeded neither.
  • 35% of banks exceeded the CLD criteria in 2008, but 97% of these banks contracted their CLD portfolios through 2011, on average by 51%.
  • 13% of banks that exceeded the CLD criteria failed, and represented 80% of the losses to the FDIC insurance fund between 2007 and 2011.
  • Bank Holding Companies that exceeded at least one of the guidelines experienced a 4% greater decline in market capital ratio during the downturn than Holding Companies that were below in both categories.

It is pointed out in the analysis that these are in fact only guidelines. A bank can choose to exceed the levels indicated here, however the regulators will then expect the bank to demonstrate a higher level of credit risk management, with more sophisticated tools and strategies appropriate to the size of the portfolio and the institution.


The conclusions drawn by the regulators in this analysis are that the concerns which led to the issuance of the guidance were valid.  The results prove that there was in fact a correlation between exceeding these thresholds and bank failure rate, which bankers will also recognize. 


Additionally, although not surprising to either group, the dominant risk is in the CLD portfolio.  The challenge for bankers and regulators is to incorporate this understanding of the risks represented in these types of CRE and CLD loans into portfolio strategy going forward, so the sins of the past are not repeated.


For a more complete review, go to the published report on the OCC website at the location below:


As many of you know, CQS 7.5 was released this month and features personal financial templates as well as the ability to attach multiple templates to each note for co-borrowers, guarantors, etc.

CQS 8.0 is being developed now and will feature a user-friendly report writing tool.  We hope all our clients will participate in the user group meetings in coming months to get a preview of that tool and have input on the final design!
Look for our next newsletter in August 2013!




Doug Latare
DiCom Software
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