Analysis of Loan Quality and Losses for Direct Auto-Marine and Direct Real Estate Loans • Prepared for Hibernia National Bank Management . May 2nd, 2000. • Presented by: • Soad Abuhawas • Fabiana Cardetti • Susan Russell • Scott Sorrell
Contents: • Identification of Loan Originations and Loan Prepayments • Static Pool Analysis with illustrations • Revenue and Charge-off Activity by Tier for each month • Summary
Direct Auto-Marine Loan Originations • A and B tiers have the highest percentage of originations. • Each quarter originates more B customers than A customers.
Direct Auto-Marine Loan Prepayments • B tier has the highest prepayment percentage in each quarter. • B tier prepayments increase remarkably with time. • A tier prepayments are somewhat stable.
B and C tiers demonstrate a quick and consistent increase • of charge-offs since origination. • B Tier’s most rapid increase of charge-off percentage occurred • typically in Quarter 3 or 4 . • C Tier experiences steady increases over loan life.
SINCE M23 • C Tier decreased from 3.8% to 3.2% over first 7 • quarters since origination • B Tier increased from 1% to 1.6% over first 7 • quarters since origination
SINCE M26 • C Tier decreased from 3.2% to 2.6% over first 7 • quarters since origination. • B Tier remains about 1.6% over first 7 • quarters since origination.
SINCE M30 : • C Tier losses have decreased from 2.6% to about 1.8% • B Tier losses have decreased from 1.6% to less than (1/3)%
Static Pool Conclusions : • C Tier’s Static Pool tends to improve in time, thus • relative loss over the life of the loan for C Tier • loan types decreases. • B Tier’s Static Pool, over same months, worsened, • and then improved . • The overall trend is the Static Pools of B and C Tier • suggest that the bank’s corrective measures have • proven to be successful.
C tier has a higher cumulative loss than B tier when comparing the • loss as a percentage of originations within the tier.
B Tier has the highest rate of increase of Net Profit. • C Tier has a lower rate of increase, but C Tier still contributes to bank’s earnings. • A Tier has most consistent rate of increase of Net Profit.
The total losses of all tiers by month increases • only slightly. • The total combined profit is growing at a higher • rate. • The continuation of this trend ensures success.
Direct Real Estate Loan Originations • A high percentage of loan originations occur in A and B. • After the 6th quarter the origination percentage of unscored loans seem to decrease; while it increases for A & B.
Direct Real Estate Loan Prepayments • A & B tiers has the highest prepayment percentage. • The growth of both tiers volume seem to be almost the same in most quarters. • The volume of both tiers increases from quarter to quarter.
In general there are very few charge-offs. They primarily occur in either B or C tier. • B tier seem to mostly start to charge-off in the 4th quarter since origination.
Summary • C Tier contributes heavily to bank’s losses, but still earns money for the bank in both loan types • A Tier is well-behaved as expected • B Tier contributes the most to bank’s revenue • D Tier loans are so infrequent that the data support no conclusions. Based on delinquency and charge-off ratios, however, we do not recommend that the bank increase originations of D tier loans. • The Bank’s corrective measures have proven to be successful.