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1© 2019 Lender Performance Group LLC | CONFIDENTIAL
Title Only
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2© 2019 Lender Performance Group LLC | CONFIDENTIAL
Agenda
1. Forecasting
2. The Steering Mechanism
3. Monitoring
4. Taking Action
What we’ll be covering…
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3© 2019 Lender Performance Group LLC | CONFIDENTIAL
ForecastingCan we see what’s coming in time?
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4© 2019 Lender Performance Group LLC | CONFIDENTIAL
The Folly of Forecasting
Yesterday’s Yield: 1.81%
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5© 2019 Lender Performance Group LLC | CONFIDENTIAL
The Folly of Forecasting
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6© 2019 Lender Performance Group LLC | CONFIDENTIAL
Downturn Preparedness SurveyDo you feel like your bank’s portfolio is ready to withstand a recession?
A. My bank is not ready
B. My bank is ready and is better positioned than our peers
C. My bank is ready, and is behind our peers
D. My bank is ready, and so are our peers
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7© 2019 Lender Performance Group LLC | CONFIDENTIAL
Downturn Preparedness SurveyDo you feel like your bank’s portfolio is ready to withstand a recession?
A. My bank is not ready
B. My bank is ready and is better positioned than our peers
C. My bank is ready, and is behind our peers
D. My bank is ready, and so are our peers
16%
50%
5%
29%
0% 10% 20% 30% 40% 50% 60%
A
B
C
D
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8© 2019 Lender Performance Group LLC | CONFIDENTIAL
The Steering MechanismHow do we quickly make changes?
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9© 2019 Lender Performance Group LLC | CONFIDENTIAL
Downturn Preparedness SurveyHow well can your bank quickly change course in the event of a downturn?
A. By the time we change strategies and tactics, it’s too late to have an impact
B. It’s very difficult for our bank to change course at all
C. We can change strategies and tactics, but it takes a while
D. We’re a nimble bank and can quickly change strategies and tactics
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10© 2019 Lender Performance Group LLC | CONFIDENTIAL
Downturn Preparedness SurveyHow well can your bank quickly change course in the event of a downturn?
A. By the time we change strategies and tactics, it’s too late to have an impact
B. It’s very difficult for our bank to change course at all
C. We can change strategies and tactics, but it takes a while
D. We’re a nimble bank and can quickly change strategies and tactics
4%
3%
40%
53%
0% 10% 20% 30% 40% 50% 60%
A
B
C
D
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11© 2019 Lender Performance Group LLC | CONFIDENTIAL
You can measure at the portfolio level, but you can only take action at the customer level.
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12© 2019 Lender Performance Group LLC | CONFIDENTIAL
Downturn Preparedness SurveyHow well can your bank proactively spot changes or weaknesses in a customer and take action accordingly?
A. We can spot potential problems and act quickly
B. We can spot potential problems but it takes a while to do something about it
C. We struggle to identify red flags until they’ve really become a problem
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13© 2019 Lender Performance Group LLC | CONFIDENTIAL
Downturn Preparedness SurveyHow well can your bank proactively spot changes or weaknesses in a customer and take action accordingly?
A. We can spot potential problems and act quickly
B. We can spot potential problems but it takes a while to do something about it
C. We struggle to identify red flags until they’ve really become a problem
50%
33%
17%
0% 10% 20% 30% 40% 50% 60%
A
B
C
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14© 2019 Lender Performance Group LLC | CONFIDENTIAL
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15© 2019 Lender Performance Group LLC | CONFIDENTIAL
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16© 2019 Lender Performance Group LLC | CONFIDENTIAL
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17© 2019 Lender Performance Group LLC | CONFIDENTIAL
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18© 2019 Lender Performance Group LLC | CONFIDENTIAL
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19© 2019 Lender Performance Group LLC | CONFIDENTIAL
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20© 2019 Lender Performance Group LLC | CONFIDENTIAL
MonitoringWhat should we be looking for?
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21© 2019 Lender Performance Group LLC | CONFIDENTIAL
Typical Commercial Portfolio• Concentrations
o Producto Geographyo Durationso Industryo Customer
• Past Due Trends
• Prepay speeds
• Capital Allocation
• PD Migrations
• LGD Assumptions
• Stress Tests0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
Up to $10B $10B to $50B $50B to $250B Over $250B
Loan Mix at 6/30/19
Other
Consumer
Commercial & Industrial
Agricultural
CRE + Multifamily
1-4 Family
Construction & Development
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22© 2019 Lender Performance Group LLC | CONFIDENTIAL
You can measure at the portfolio level, but you can only take action at the customer level.
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23© 2019 Lender Performance Group LLC | CONFIDENTIAL
Typical Commercial Portfolio
$0
$1,000,000,000
$2,000,000,000
$3,000,000,000
$4,000,000,000
$5,000,000,000
$6,000,000,000
M1 M2 M3 M4 M5 M6 M7 M8 M9 M10 M11 M12
Cumulative Production
Existing Balances
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24© 2019 Lender Performance Group LLC | CONFIDENTIAL
Typical Commercial Portfolio
$0
$1,000,000,000
$2,000,000,000
$3,000,000,000
$4,000,000,000
$5,000,000,000
$6,000,000,000
M1 M2 M3 M4 M5 M6 M7 M8 M9 M10 M11 M12
Cumulative Production
Existing Balances
$2B (38% of year end portfolio)
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25© 2019 Lender Performance Group LLC | CONFIDENTIAL
Monitoring Deal Flow
• Customer/Relationship ID
• Owner
• Product
• Deal Termso Balanceo Maturityo Rateo Rate Typeo Repricing dateo Risk ratingo Collateralo Guarantorso Feeso Etc
TODAY
HISTORICAL PRODUCTION PIPELINE
• Customer/Relationship ID
• Owner
• Product
• Deal Termso Balanceo Maturityo Rateo Rate Typeo Repricing dateo Risk ratingo Collateralo Guarantorso Feeso Etc
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26© 2019 Lender Performance Group LLC | CONFIDENTIAL
265%
270%
275%
280%
285%
290%
295%
300%
305%
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Proj 1 Proj 2 Proj 3 Proj 4
Commercial Real Estate Concentration
Warning Zone
CRE/Capital
POLICY LIMIT
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27© 2019 Lender Performance Group LLC | CONFIDENTIAL
Taking ActionHow do we change the trajectory?
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28© 2019 Lender Performance Group LLC | CONFIDENTIAL
Downturn Preparedness SurveyHow much (if any) has your bank relaxed credit standards in the past two years?
A. Our credit standards have tightened this year
B. We haven’t changed our credit standards this year
C. We’re approving credits and customers we wouldn’t have approved 2 years ago
D. We’re approving the same customers as before, but at more favorable terms and pricing
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29© 2019 Lender Performance Group LLC | CONFIDENTIAL
Downturn Preparedness SurveyHow much (if any) has your bank relaxed credit standards in the past two years?
A. Our credit standards have tightened this year
B. We haven’t changed our credit standards this year
C. We’re approving credits and customers we wouldn’t have approved 2 years ago
D. We’re approving the same customers as before, but at more favorable terms and pricing
27%
45%
6%
22%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
A
B
C
D
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30© 2019 Lender Performance Group LLC | CONFIDENTIAL
Coaching RMsGive actionable, in-the-moment guidance
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31© 2019 Lender Performance Group LLC | CONFIDENTIAL
What kind of coaching?
• Use dynamic profitability targets instead of static hurdle rates• Targets become the way that you communicate appetiteTargets
• Adjust critical assumptions like PD, LGD, capital, funding costs, etc• Riskier deals now won’t clear targetsAssumptions
• Add approval steps for specific high risk transactions• A manager must actively say YES to every new dollar of exposureApproval requirements
• Add restrictions to terms that add risk like collateral, maturities, etc• Only deals that are able to fit neatly into policy/risk profile are bookedStructure restrictions
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32© 2019 Lender Performance Group LLC | CONFIDENTIAL
Coaching for a CRE Concentration
• Increase targets on non-owner occupied CRE
• Increase targets on all CRE in high risk markets
• Add approval requirements for CRE loans over a size threshold
• Restrict limits on LTV, maturity, amortization schedules, guarantors, etc for CRE loans
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33© 2019 Lender Performance Group LLC | CONFIDENTIAL
Negotiate deals that work for both the client and the bank, while providing a better customer experience.
Deliver custom coaching via Andi. Use the Andi Skills
Gallery and Andi Skills Builder to get enhanced control over the insights
your RMs receive.
AndiConsolidate your bank’s data into one location,
analyze it, and generate insights that can be
integrated into your sales and negotiation process.
PrecisionLender L3
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34© 2019 Lender Performance Group LLC | CONFIDENTIAL
Let’s see a demo…
I found some Lines of Credit that are maturing and have recent credit downgrades:
Cheers,
Client Name Maturity Balance CommitmentLOC ROE
Relationship ROE
Menlo Park 9/15/2019 $459,985 $1,200,000 8.23% 20.09%
Antrans Enterprises
9/20/2019 $800,000 $1,000,000 19.40% 9.91%
Megalomart 10/1/2019 $600,150 $750,000 11.36% 19.02%
: Banker
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35© 2019 Lender Performance Group LLC | CONFIDENTIAL
Downturn Preparedness SurveyIf/when a downturn occurs, my bank’s primary focus will be to:
A. Be aggressive and take market share
B. Look for places where we can cut costs
C. Stay the course. Our long-term strategy won’t be affected.
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36© 2019 Lender Performance Group LLC | CONFIDENTIAL
Downturn Preparedness SurveyIf/when a downturn occurs, my bank’s primary focus will be to:
A. Be aggressive and take market share
B. Look for places where we can cut costs
C. Stay the course. Our long-term strategy won’t be affected.
16%
17%
66%
0% 10% 20% 30% 40% 50% 60% 70%
A
B
C
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© 2019 Lender Performance Group LLC | CONFIDENTIAL