CRE Loan Stress Testing: Why Community Banks Aren't Off the Hook

Don Hancock, After His Bank's Recent Implementation of Crest From Banker's Toolbox, Talks About the Benefits of an Automated System and Why Stress Testing is Still Important for Smaller Banks


AUSTIN, Texas, Aug. 20, 2012 (GLOBE NEWSWIRE) -- In light of the combined FDIC, Federal Reserve, and OCC final guidance on Stress Testing for Banking Organizations Over $10 Billion in Assets released in May, Don Hancock, the Senior Vice President at John Marshall Bank, voiced his opinions on why it remains important as ever for small- to mid- size banks to stress test. "Stress testing is important," Don says, "and the new guidance may affect many institutions in some manner, not just the bigger banks." His bank is a $484 million institution in Falls Church, VA that just recently implemented Crest, the ABA-endorsed CRE loan stress testing solution from Banker's Toolbox.

How does the new guidance affect banks under $10 billion in assets? It reemphasizes the stress testing and portfolio concentration management requirements previously issued in the December 2006 interagency guidance. This guidance still applies, and always has applied, to any bank with construction/land development loans exceeding 100% of risk-based capital or total covered CRE loans exceeding 300% of risk-based capital.

Don stated that regulators and examiners closely monitor banks with high concentration ratios. "It's not unusual for banks under $10 billion in assets have high CRE loan concentration ratios because that is one of the most significant sources of business for an institution of this size. So if a community bank has concentrations in commercial real estate, regulators would expect more analysis, review, and oversight--regardless of their asset size."

Don also noted the importance of preparing for the unknown. "For a growing institution, it can be very difficult if you wait until you reach the concentration threshold and then suddenly have to re-work the infrastructure of how you derive data and reports, and it makes a lot of sense to plan a step or two ahead by putting a framework in place that will grow with you and meet your needs. Loan portfolio analysis is a critical component of a bank's risk management strategy, and an important tool in identifying risk areas where policies and procedures can be employed to reduce potential losses."

When asked why his institution chose to stress test with Crest, Don stated, "We had been using a combination of home-grown analysis methods based in Microsoft Excel and Access, and we saw Crest as an effective platform that would allow us to periodically import our loan data, and then test it against market conditions and economic data. Further, we can now set up stress scenarios to run against the loans in our real estate portfolio, and also incorporate regional data for property value and CAP rate trends. The other critical factor for us is that loan segment data and stress test results can be illustrated very effectively with the reporting capability in Crest.

"Every bank needs to be able to talk about what the components of risk are in their portfolio and how they might change based on different economic conditions." Don shared. "Crest is saving us time and allowing us to do things we never could have done before."

About John Marshall Bank

Since opening their doors in Falls Church, VA, in 2006, ensuring customer satisfaction and success has inspired everything John Marshall Bank does. In a region dominated by larger banks headquartered outside of the Washington, DC, area, they know the difference that a community-based bank can make for the businesses that drive the local economy. For more information, visit the company's website at

About Banker's Toolbox, Inc.

Austin, TX-based Banker's Toolbox, Inc. helps community financial institutions manage risk and streamline compliance examinations. The company's product suite consists of proven solutions for money laundering detection and reporting, risk management through fraud and kite prevention, secure wire processing automation, and commercial real estate loan portfolio risk assessment. The Banker's Toolbox team is a unique combination of seasoned bankers, former regulators, and information technology consultants who specialize in designing, developing, and implementing risk management solutions while providing unparalleled customer service. For more information, visit the company's website at

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