powerpoint presentation loan portfolio … presentation loan portfolio management – year 2 michael...

48
PowerPoint Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear Senior Credit Analyst First National Bank of Omaha Credit Administration Omaha, Nebraska & Owner 39 Acres Corporation Omaha, Nebraska [email protected] 402-871-9067 August 5, 2016

Upload: vuongtuyen

Post on 09-Mar-2018

226 views

Category:

Documents


2 download

TRANSCRIPT

Page 1: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

PowerPoint Presentation

LOAN PORTFOLIO MANAGEMENT – YEAR 2

Michael Wear Senior Credit Analyst

First National Bank of Omaha Credit Administration

Omaha, Nebraska

&

Owner 39 Acres Corporation

Omaha, Nebraska

[email protected] 402-871-9067

August 5, 2016

Page 2: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio
Page 3: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

LOAN PORTFOLIO MANAGEMENT:STRATEGIES & TOOLSMICHAEL WEARSECTION LEADER: LOAN PORTFOLIO MANAGEMENTGRADUATE SCHOOL OF BANKING - WISCONSINAUGUST, 2016

© 39 Acres Corporation 1

Page 4: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

CREDIT QUALITY

© 39 Acres Corporation 2

FDIC: Quarterly Bank Profile 1Q2016

Page 5: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

CREDIT QUALITY

© 39 Acres Corporation 3

FDIC: Quarterly Bank Profile 1Q2016

Page 6: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

CREDIT QUALITY

© 39 Acres Corporation 4

FDIC: Quarterly Bank Profile 1Q2015

Page 7: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

CREDIT QUALITY

© 39 Acres Corporation 5

FDIC: Quarterly Bank Profile 1Q2016

Page 8: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

CREDIT QUALITY

© 39 Acres Corporation 6

PayNet: Small Business Credit Outlook 1Q2015

2015

Page 9: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

CREDIT QUALITY

© 39 Acres Corporation 7

PayNet: Small Business Credit Outlook 1Q2016

2016

Page 10: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

THESE ARE (CONTINUING) DIFFICULT TIMES…“I doubt there’s been a more difficult time for a bank risk manager in a good many years—certainly not in my lifetime.”“While reserves remain at a high level industry-wide, quarterly provisions are smaller than charge-offs.”

• Thomas J. CurryComptroller of the CurrencyRMA Risk Management Conference (11/2013)

© 39 Acres Corporation 8

Page 11: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

ALLL PROVISIONS & CHARGE-OFFS

© 39 Acres Corporation 9

FDIC: Quarterly Bank Profile 1Q2016

Page 12: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

ARE WE GETTING LOOSE (AGAIN)?“Some of the loans we see banks making today are going to customers who almost certainly would not have qualified for the same loan 4 to 5 years ago.”

• Thomas J. CurryComptroller of the CurrencyRMA Risk Management Conference (11/2015)

© 39 Acres Corporation 10

Page 13: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

TROUBLED INDUSTRIESHistorical Volatility:Budget motelsTruckingLoggingGolf CoursesRetail Strip & Big Box RetailContractors/DevelopersRestaurants

Ever-present:Leveraged Lending

© 39 Acres Corporation 11

Recent Volatility:Oil & GasAg (commodity-based)Taxi Services

Leveraged BuyoutsESOP Loans“Enterprise Value”

Page 14: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

FIRE! ANALOGY

1. Where is the risk of fire? Identify Early

2. What would a fire do to the bank? Expected Loss (EL)

3. How likely is a fire to happen? Probability of Default (PD)

4. Are we doing things to increase the risk of fire?Re-evaluate: CRM/ERM, Credit Policy (Exceptions), Loan Review

5. What needs to take place to help prevent a fire?Refine: Risk Culture, Policies/Procedures

6. What do we need to put the fire out? Capital Planning, Manage Underlying Causes

© 39 Acres Corporation 12

Page 15: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

A DIFFERENT PERSPECTIVETraditional Credit

Risk Mgmt.Loan Portfolio

Risk Mgmt.Scope Product Type One PortfolioIncentive Loan Volume Economic Profit

Philosophy Originate & Hold Underwrite & Distribute Risk

Evaluate Transaction, Customer

Loan Segments, Co-variance of

RiskPricing By Product Type Risk-based

© 39 Acres Corporation 13

Page 16: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

LOSS EMERGENCE TIME LINEForward-Looking

• Change in Demand• Economic Cycles• Decline in Sources of Income

Loss Event• Loss of Major Customer• Job Losses• Property Values Decline

Discovery• Financial Statement Monitoring• Covenant Violation• Delinquency

Response/Outcome

• Risk Rating Criticism• Work-out• Charge-off

© 39 Acres Corporation 14

Page 17: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

HOW TO STEP-UP YOUR BANK’S LPM

© 39 Acres Corporation 15

Page 18: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

ROOT LPM IN CREDIT CULTURE

Risk Culture

Policy & Procedures

Loan Portfolio Management

© 39 Acres Corporation 16

Page 19: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

TRUE LOAN PORTFOLIO RISK MANAGEMENT

A profound shift...From: Managing Credit Risk Upon DiscoveryTo: Scenario Testing & Capital Planning

© 39 Acres Corporation 17

Page 20: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

STRENGTHEN YOUR 3 LINES OF DEFENSE1. Business Unit

• Individual accountability and responsibility for actions and decisions? Consequences?

• Are bank objectives weighed more than individual or profit center goals?

• Do we truly take the time to instill our values?

© 39 Acres Corporation 18

Page 21: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

3 LINES OF DEFENSE2. Management

• Board governance• CCO should not be alone to enforce discipline• A culture of “Everyone is responsible for risk.”• Establishment of CRO or risk committees (board or

management levels)

© 39 Acres Corporation 19

Page 22: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

EXAMPLE: A MORE GRANULAR RISK RATING MATRIX

© 39 Acres Corporation 20

Page 23: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

3 LINES OF DEFENSE3. Loan Review

• Models are no substitute for hands-on review • Traditionally aligned with (external) audit• Current trend to align with risk management

• Reviewer’s skill sets and experience; outsource benefits• More proactive with Business Unit:

• Economic & competitive industry drivers• Loan underwriting (collateral monitoring & covenants)• Pre-closing (documentation, approval terms)• Post-closing• Periodic (annual) reviews

© 39 Acres Corporation 21

Page 24: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

FILE REVIEW VS. LOAN REVIEWFile Review

• Compliance with approval terms & credit policy• Financials, DSCR, LTV

Loan Review (risk identification)Cash Flow analysisCollateral valuation Loan structure & documentation Industry trends Identify training needs

© 39 Acres Corporation 22

Page 25: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

LOAN REVIEW VALUE ADDSBehavior alignment with credit policy, stated risk appetiteApproving authority structure

• Checks and balances, Incentive plan basis• Individual lender tendencies

Risk Rating accuracyPolicy & Underwriting Exception managementLoan monitoring commensurate with risk trendsAdequacy of ALLL

On your Student Website: Top 10 Characteristics of a successful Loan Review function

© 39 Acres Corporation 23

Page 26: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

EXCEPTION TRACKING(4 KEY AREAS)

© 39 Acres Corporation 24

Risk Ratings

Technical Exceptions

Underwriting Exceptions

Policy Exceptions

Page 27: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

EXCEPTION TRACKING

Risk Ratings• Individual loans (material borrower changes vs. bank errors)• “Double-dips”• Aggregate Risk Ratings

• By loan segment• Direction• Overall accuracy

Technical Exceptions• Financials not received per approval• Documentation shortfalls (e.g. missing info, signatures)• Covenant violation without acknowledgment/waiver

© 39 Acres Corporation 25

Page 28: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

EXCEPTION TRACKINGPolicy Exceptions

• Compliance with policy & regulations• Guaranty coverage• Outside market• Concentration limit exceeded• Approval authority

Underwriting Exceptions• DSCR, DTI guidelines exceeded• Collateral documentation issues• Inspections do not meet approval requirements• Loan term exceeds guideline• LTV exceeds guideline• Weak quality or timing of financial information• Unsecured lending guidelines not met

© 39 Acres Corporation 26

Page 29: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

CONCENTRATIONS CAN KILLCorrelated credit exposure

• Borrowers• Industries (co-variance)

• Supply chain risk (interest rates: developers, homebuilders)• Common factor risk (fuel cost: trucking, ag production)

• Product Type (first mortgages, HELOC’s)Community (smaller) banks are inherently less diversified than large banksRegulatory Guidance:

• OCC Comptroller’s Handbook: Concentrations of Credit (2011) [located in Student Website for this course]

© 39 Acres Corporation 27

Page 30: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

MANAGING CONCENTRATIONSRisk Appetite Statement [Policy]

• Board-driven (top-down support)• Goal: To ensure aggregate risks do not exceed the bank’s

risk capacity (capital base)• Separate Statement or made part of Credit Policy• Need to define:

• Geography – primary and secondary market territories • Industry or sector [first 2-digits of NAICS codes]• Roles & responsibilities of management, lenders, staff• Report types & frequency

© 39 Acres Corporation 28

Page 31: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

MANAGING CONCENTRATIONS• Concentration Reporting

• Graphs/Output are NOT the sole focus of managing concentrations

• Longer-term trends• Notable recent developments• Peer comparisons, if available

• Macro-economic Correlation• Chart loss history of industry/loan type with changes in GDP,

local unemployment, housing starts, or business conditions surveys, such as:

• Creighton University’s Economic Outlook (business.creighton.edu/economicoutlook/)

• Aruoba-Diebold-Scotti Business Conditions Index (philadelphiafed.org)

© 39 Acres Corporation 29

Page 32: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

© 39 Acres Corporation 30

Page 33: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

MANAGING CONCENTRATIONSSetting Concentration Limits

• Loan Type• Geography• Borrower (related entities)• Bank’s house limit (< legal lending limit)

• Exceeding the 100% or 300% CRE thresholds:• triggers for regulatory scrutiny & robust risk management.

• Approvals required to go over Concentration Limits.

© 39 Acres Corporation 31

Page 34: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

MANAGING CONCENTRATIONSStrategies for:• Organic Growth

• Address existing concentrations when prospecting• Discourage additional lending in over-limit areas

• Communicate credit expectations• Tighten credit quality standards• Inherent risk in just increasing loan pricing

• Purchased Loan Participations• Evaluate in-house expertise• Lead bank’s culture, covenants, and monitoring• Background checks on borrowers/principals

© 39 Acres Corporation 32

Page 35: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

STRESS TESTING• Identify triggers or key variables for potential losses

• Develop Scenarios and Test impact on DSCR & LTV• Combine data variables for scenarios—some examples:

• C&I = DSCR and LTV• CRE = Cap Rate and LTV• Consumer = Credit Bureau Score and LTV

• Assess bank’s vulnerability to downside scenarios, using:• Market (Economic) Analysis

• Correspondent Bank• Follow favorite Economists• American Bankers Association

• External sources of information• Local/state government, industry trade magazines• Real estate transactions, taxable sales data

• Google News – Specific Industry info • Personalize Google News

© 39 Acres Corporation 33

Page 36: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

STRESS TESTING

• Using Stress Testing to Test Capital Adequacy • Vulnerability x Likelihood = potential Qualitative Factor in

ALLL• Historical relationship between changes in Non-accruals

and Charge-offs (time lag)• What happens to ability to make Provisions with step

increases in Non-Accruals?• Shift in underwriting strategy and expected effect on loan

volume• Effect of losing major customer relationship(s)

© 39 Acres Corporation 34

Page 37: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

HOW TO GET THE MOST OUT OF YOUR LPM*Avoid These:• Focusing on outcomes, not causes

• Portfolio quality ratios reflect results of past lending decisions (possibly 3-5 years ago).

• Mergers & acquisitions’ affect on portfolio mix and dynamics

• Failure to adapt• Not growing the portfolio monitoring with the growth of the

bank• Specialized lending (e.g. residential construction, trucking,

hotel/motel) require different key variables to track.

© 39 Acres Corporation 35

*Source: Barrickman, John and Stein, Gary, RMA Journal (July-August, 2005)

Page 38: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

HOW TO GET THE MOST OUT OF YOUR LPM*Avoid These (continued):• Present Snapshot only

• Limited focus, lacking perspective (historical comparisons)• Numbers without Analyzing

• Lots of graphs, tables and data…but no:• Interpretation of results• Discussion of trends• Recommendations

© 39 Acres Corporation 36

*Source: Barrickman, John and Stein, Gary, RMA Journal (July-August, 2005)

Page 39: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

HOW TO GET THE MOST OUT OF YOUR LPM*Minimum LPM Reports:• Portfolio Composition

• Borrower (related) relationships• Call Report categories; Industries; Geography; Loan types

• Portfolio Risk• Risk Ratings• Large Loans• Policy Exceptions

• Portfolio Quality• Delinquencies (new, migration), Non-performing• DSCR, DTI, LTV, monitoring defaults

© 39 Acres Corporation 37

*Source: Barrickman, John and Stein, Gary, RMA Journal (July-August, 2005)

Page 40: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

HOW TO GET THE MOST OUT OF YOUR LPM*Minimum Types of LPM Reports to include:• Loan Officer Assessments

• Addresses portfolio management (e.g. past dues, monitoring exceptions, maturity extensions, etc.)

• Ideally additionally addresses key drivers for incentive plans (e.g. portfolio profitability, loss rates, etc.)

© 39 Acres Corporation 38

*Source: Barrickman, John and Stein, Gary, RMA Journal (July-August, 2005)

Page 41: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

MONITORING PORTFOLIO PERFORMANCE• Typical LPM Key Metrics:

• Past Dues / Total Loans & Leases

• Non-Performing Loans** / Total Loans & Leases• Non-Performing Loans / ALLL• Non-Performing Loans / Capital & Reserves [Tier 1 + ALLL]

• Classified Loans / Total Loans & Leases (+ OREO)• Classified Loans / Capital & Reserves

• Net Charge-offs / Total Loans & Leases• ALLL Provisions / Net Charge-offs

**Total loans and leases > 90-days past due + non-accrual loans and leases + other real estate owned [OREO]

© 39 Acres Corporation 39

Page 42: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

MONITORING PORTFOLIO PERFORMANCESample Scorecard

© 39 Acres Corporation 40

2016Goal Very Good Satisfactory

Needs Improvement Unsatisfactory 12/31/2013 12/31/2014 12/31/2015 Trend

Past Dues / Total Loans & Leases < 1.00% < 0.75% 1.50% 2.00% 3.00% 1.75% 1.32% 1.02%

NPL / Total Loans & Leases < 1.00% < 0.25% 0.75% 1.50% 2.50% 1.30% 1.10% 0.88%

NPL / ALLL < 20.00% 20.00% 40.00% 60.00% 80.00% 42.00% 26.00% 19.00%

NPL / Capital & Reserves < 30.00% 25.00% 40.00% 50.00% 60.00% 29.00% 16.00% 9.00%

Key Credit Risk Portfolio Metrics Actual Results

Page 43: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

USE LEADING INDICATORS1. Use Vintage in Reporting

• Example: Past Dues by Loan Type and Number of Months since Origination (not calendar year/quarter)

• Apply to upcoming marketing blitzes or loan ‘specials’• Compare with changes made in underwriting (policy &

procedures)2. Line of Credit Utilization

• Individual Customer and/or Industry Concentration• Compare with other Customers in same Industry

3. Upgrade (Downgrade) Activity – with specific reasons• Risk Ratings • Non-Accruals

© 39 Acres Corporation 41

Page 44: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

USE LEADING INDICATORS4. Review New Application Trends

• Approval & Declination Volume & Trends• Reasons for Turn-downs• Average Credit Bureau (FICO) scores on approved and

declined• Trends in types of requests or inquiries

5. Review Sales Call Trends• Credit-worthiness of Prospects• Reasons for not obtaining their business• Lenders gravitating to ‘lower-hanging fruit’ when lagging

in production

© 39 Acres Corporation 42

Page 45: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

USE LEADING INDICATORS6. Peer Group Comparisons

• Custom Peer Group (similar portfolio mix, demographics)• Volume changes in Loan Types (Call Report segments)• Charge-off history during good/bad economic times.

7. Learn from Others• Spilled Milk articles• FDIC: Material Loss Reviews

• Reasons for failed institutions• Networking & Risk Management Conferences

© 39 Acres Corporation 43

Page 46: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

LPM: A CONTINUAL PROCESS

Credit Culture

Policy & Procedures

Assess Risk

Report Exceptions

Manage Risk

© 39 Acres Corporation 44

Page 47: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

TRUE LOAN PORTFOLIO RISK MANAGEMENT

A profound shift...From: Managing Credit Risk Upon DiscoveryTo: Scenario Testing & Capital Planning

“It’s not too late to start, but it’s later than you think.”

-Mike Wear(an old Credit Guy)

© 39 Acres Corporation 45

Page 48: PowerPoint Presentation LOAN PORTFOLIO … Presentation LOAN PORTFOLIO MANAGEMENT – YEAR 2 Michael Wear ... Retail Strip & Big Box Retail ... Risk Mgmt. Loan Portfolio

THANK YOU

ADDITIONAL MATERIAL PROVIDED – SEE STUDENT WEBSITE

© 39 Acres Corporation 46