Page 39 - June 20, 2024 Bulletin

those investments to roll into cash. With the inversion in the The key to selling loan participations is having a portfolio that is
yield curve, income may not be suffering, but we are losing some priced to market conditions, hence the importance of proactive
of the hedges our portfolio provides. pricing strategies mentioned earlier.

• Liquidity: The portfolio not only provides liquidity from Improving and Empowering Board/
cash flows or selling investments, but they are also the ALCO Discussions
easiest assets to pledge to secure lines of credit.
• Gains in Times of Falling Rates: The gains from With the size and complexity of most institutions increasing,
investments purchased in a higher rate environment can there is a growing importance to make sure all key decision
offset losses or supplement income as rates fall. makers engage in the strategic conversations going on in board
• Margin Protection: Probably the most important aspect and ALCO meetings. Personnel who are making decisions on
of the investment portfolio is the ability to add protection our loan and deposit pricing as well as investments should all
that our loans cannot give us. We can offset the risks be included to understand the impact of their decisions on the
of falling rates by locking in longer term yields with balance sheet and ALM.
investments designed with less optionality or features that At the end of the day, institutions need to focus on our core
protect against falling rates.
business lines and ALM results. The ALM should drive
Loan Participations discussions on which risks/opportunities need to be addressed.
We need to realign those conversations so that they are
The loan participation market has long been used as a tool to happening proactively. This ensures that the decisions being
help manage the risks associated with our retail loan portfolio. made are done so in the context of our individual balance sheet
and not reactively to outside forces. In this way, institutions can
For Sellers: better position themselves for the more dynamic environment
facing us in 2024 and beyond.
• Additional Liquidity Source: The ability to sell loans
allows institutions to generate ongoing liquidity to
support loan growth, without affecting net worth.
Greg Tomaszewicz is an Associate Partner and Senior Financial
• Improve IRR Positioning: Institutions can shorten or Analyst with The Baker Group. Prior to joining the firm in
lengthen the duration of their portfolio by altering their 2018, Greg spent twelve years working for a fixed income
broker/dealer in New York, where he helped financial
loan portfolio mix. institutions across the country in evaluating their balance sheet
risks and opportunities. In addition, he worked to develop new
• Improved Lending Flexibility: The ability to write loans analytics to aid those clients in meeting the challenges of an
outside of lending or concentration limits and add off- ever-changing economic environment. Greg holds a bachelor’s
balance sheet revenue sources. degree in economics from Stony Brook University. Contact:
800-937-2257, GregT@GoBaker.com.
For Buyers:

• Increase Net Loan Yields: The ability to buy loans at a
rate the local market may not support.

• Improve IRR Positioning: Institutions can shorten or
lengthen the duration of their portfolio by altering their
loan portfolio mix.
• Improve Loan Diversification: Add or grow loan
products not supported by the retail market and diversify
credit or geographic concentrations.

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