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Optimizing Loan Portfolio for Future Growth: Strategic Insights by Steven Houle, CFA

This presentation by Steven Houle, CFA, explores industry loan trends, lending decision processes, allocation strategies, and strategic considerations for maximizing future loan portfolio allocations. It covers loan growth trends, allocation patterns, loan quality indicators, interest rate risk management, and strategic insights. The presentation delves into lending opportunities, risk-reward assessments, allocation profiles, and strategic considerations for effective loan portfolio management. Insights on monitoring loan yields, evaluating historical credit risk profiles, and developing risk matrices are discussed. The presentation also highlights strategic considerations for assessing loan categories with high risk concentrations, reviewing performance under stressed conditions, and ensuring capital adequacy and earnings performance. The presentation emphasizes the importance of evaluating loan portfolio performance and making strategic adjustments to optimize future loan allocations.

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Optimizing Loan Portfolio for Future Growth: Strategic Insights by Steven Houle, CFA

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Presentation Transcript

  1. Evaluating your Loan Portfolio to Maximize Future Allocations Steven Houle, CFA Director, Advisory Services

  2. Presentation Overview • Industry loan trends • Lending decision process • Allocation strategies • Strategic considerations

  3. Loan Growth Loan growth is improving for larger CUs Source: NCUA

  4. Loan Growth Growth is primarily from vehicle loans Source: NCUA

  5. Loan Allocations Allocations are concentrated in real estate Source: NCUA

  6. Loan Quality Delinquencies and charge-offs are improving Source: NCUA

  7. Interest Rate Risk IRR seems to be within the larger CUs Source: NCUA

  8. Observations • Loan growth is concentrated within the larger credit unions • Real estate loans are the major allocation for larger credit unions whereas smaller credit unions focus on vehicle and unsecured loans • Larger credit unions seem to have more interest rate risk whereas small have more credit risk

  9. Lending Decision Process

  10. Lending Opportunities

  11. Risk/Reward Interest Rate Risk Spread Credit Risk Yield

  12. Risk/Reward Monitor loan yields relative to other asset alternatives

  13. Risk/Reward Evaluate yield, spread and price change

  14. Risk/Reward Assess historical credit risk profile Source: NCUA

  15. Risk/Reward Assess historical credit risk profile Source: NCUA

  16. Risk/Reward Develop a risk matrix

  17. Risk/Reward Monitor your risk relative to net worth

  18. Allocation Profile Loan / Asset Ratio Loan Allocation Current Allocations & Risk Profile Capital Profile Earnings Profile Opportunities & Infrastructure

  19. Allocation Strategies

  20. Allocation Strategies

  21. Strategic Considerations • Loan opportunities exist but determine appropriate allocation levels • Evaluate the impact of new methodologies before making strategic and/or policy changes • Risk and complexity dictates level of review and analysis

  22. Strategic Considerations • Evaluate the loans categories that make-up the highest concentration of risk but don’t forget to aggregate risks from all lending activities • Monitor the direction of risk (credit and rate) and perform attribution analysis when significant changes occur • Determine if/what adjustments need to be made when risk levels get too high

  23. Strategic Considerations • Evaluate performance under stressed conditions: • Single factor analysis • Multi factor analysis • Reverse engineering scenario testing • Risk taking is a function of: • Capital Adequacy • Earnings performance

  24. Closing Comment Make sure the pieces of the puzzle fit

  25. Comments and Questions Steven Houle, CFA Director, Advisory Services 800-442-6427 214-703-7882 shoule@catalystcorp.org

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