First City Bank | Proactively Managing Risk with CRE Stress Tests
The Challenge: Automating Complex Stress Testing Scenarios
Stress testing is widely discussed in banking, and First City Bank in Columbus, Ohio, wanted to stay ahead of the curve. Regulations have not required stress testing for banks of First City Bank’s size at this point; however, management at the bank knows guidance requirements are coming and wants to be forward-looking, especially given the uncertainty in the economy and the portfolio’s heavy concentration in CRE loans.
First City Bank purchased Sageworks Stress Testing to better understand and proactively manage its risk. Management, including Jim Bush, Vice President at First City Bank, now uses Sageworks Stress Testing to 1) stress individual loans at the time of underwriting and annually for loan review and 2) stress its CRE portfolio. Jim and his team stress vacancy rate, cap rate, and several other factors to examine what effects changes in the market will have on the bank’s portfolio and where the exposure points are. They use the results of the individual loan stress tests to re-evaluate their loan ratings as necessary and can use portfolio or concentration level stress tests to diversify their portfolio in segments of high exposure.