--- title: "Special Mention Loans: definition, formula, and thresholds" description: "Special Mention is the lowest rung of the criticized-loans framework, loans with potential weaknesses that deserve management's close attention but do not yet expose the bank to enough credit risk to warrant a classification of Substandard or worse." canonical_url: https://www.bankregreports.com/glossary/special-mention-loans/ source: BankRegReports category: "Asset Quality" units: "$" schedule: "Exam workpapers (not publicly reported)" --- # Special Mention Loans > Special Mention is the lowest rung of the criticized-loans framework, loans with potential weaknesses that deserve management's close attention but do not yet expose the bank to enough credit risk to warrant a classification of Substandard or worse. ## Formula ``` Criticized Loans = Special Mention + Substandard + Doubtful + Loss ``` Special Mention captures loans where borrower weaknesses (declining cash flow, leverage breach, collateral deterioration) are visible but the loan is still performing and the bank's risk of loss is not imminent. The classification is applied by examiners during the on-site exam cycle. ## Why it matters Special Mention is the earliest formal warning sign in the supervisory toolkit. A rising Special Mention book typically precedes classified-asset migration by 1-3 quarters. Banks track migration rates from Special Mention to Substandard closely as a credit-trend indicator. ## How to read it Special Mention is not 'bad' per se. Every active commercial bank has some loans at this rating. The signal is the trend and the migration rate to Substandard. A sustained rise in Special Mention, especially in concentrated asset classes (CRE, construction), is what analysts and examiners watch. ## Thresholds | Range | Reading | What it means | |---|---|---| | Stable / Falling | Improving | Resolved or upgraded faster than newly identified. | | Modest rise | Watch | Normal cyclical credit migration. | | Sustained rise | Elevated | Persistent buildup; examine sector concentration. | | Rapid migration to Substandard | Concern | Early signal of classified-asset deterioration. | ## Worked example A regional bank reported Special Mention loans of $250M at year-end 2023, rising to $420M at year-end 2024, concentrated in office CRE. By Q2 2025 roughly $180M of the Special Mention book had migrated to Substandard, which for a bank with about $2 billion of Tier 1 capital plus allowance would add roughly 9 percentage points to its classified-asset ratio. ## Questions ### Is Special Mention the same as a watchlist loan? Bank internal watchlists often include Special Mention loans but may also include earlier-stage concerns. Special Mention is the specific supervisory rating defined by interagency guidance. ### Are Special Mention loans included in classified assets? No. Classified assets begin at Substandard. Special Mention is the criticized-but-not-classified category, a step before classification but still flagged. ### Does Special Mention require additional loss reserves? Under CECL, every loan has a lifetime expected loss reserve regardless of rating. Special Mention typically carries higher lifetime PDs in the bank's model, increasing the reserve, but there is no specific Special Mention reserve add-on rule. ## Sources - [Comptroller's Handbook: Rating Credit Risk](https://www.occ.gov/publications-and-resources/publications/comptrollers-handbook/files/rating-credit-risk/pub-ch-rating-credit-risk.pdf) (PDF) - Interagency Uniform Loan Classification Standards ## Related metrics - [Classified Assets](https://www.bankregreports.com/glossary/classified-assets/): Classified assets are loans and other assets that bank examiners have rated Substandard, Doubtful, or Loss under the interagency credit classification framework. The classified-assets ratio is a leading indicator of credit losses and a primary input to the CAMELS asset-quality rating. - [Nonperforming Loans Ratio](https://www.bankregreports.com/glossary/npl-ratio/): A nonperforming loan (NPL) is a loan whose borrower has stopped paying as agreed: the bank has put it on nonaccrual because full collection is doubtful, or it is 90 or more days past due. The NPL ratio divides those loans by total loans. Regulators call them noncurrent loans. - [Allowance for Credit Losses](https://www.bankregreports.com/glossary/allowance-credit-losses/): The allowance for credit losses (ACL), called the allowance for loan and lease losses (ALLL) before the CECL standard, is the reserve a bank holds against losses it expects on its loans. It is deducted from gross loans on the balance sheet, and under CECL it covers expected losses over each loan's whole life. - [CAMELS Rating](https://www.bankregreports.com/glossary/camels-rating/): CAMELS is the supervisory rating system examiners use to grade a bank's safety and soundness across six components (Capital, Asset quality, Management, Earnings, Liquidity, and Sensitivity to market risk) on a 1 (best) to 5 (worst) scale. ## About this document This is the markdown twin of the page named in `canonical_url` above. Source filings are public record; the cleaning, normalization, cross-source linkage, and derived metrics are BankRegReports' own. Attribute with a link to the canonical URL. Markdown twins are published for editorial content only. Institution data pages do not have them. For data at scale use the API, which is documented at https://www.bankregreports.com/api/ and specified at https://www.bankregreports.com/openapi.json. It returns typed JSON with explicit units and periods, and one call replaces hundreds of page fetches. ## Sitemap - [Glossary](https://www.bankregreports.com/glossary/): every metric, with formula and thresholds - [Blog](https://www.bankregreports.com/blog/): analysis and explainers - [API documentation](https://www.bankregreports.com/api/): the programmatic way to get this data - [XML sitemap](https://www.bankregreports.com/sitemap.xml): the complete crawlable index