Turn Your Third-Party Credit Risk Review into a Touchdown
by Phil Love, Pactola President/CEO
CAP Senior Member

As I write today, we are only a few days removed from the tremendous victory of the Kansas City Chiefs in the Superbowl! As a Missouri boy, this is such a tremendous accomplishment that is 50 years in the making. My family and friends from the area had such excitement over the game!

This week our team at Pactola completed a third-party credit risk review for a credit union in the Midwest. In our wrap up session, they cited several actions we accomplished that really made our work a scoring play in their eyes. I thought this article would be valuable to touch on a few of these items.

You see, many third-party credit reviews are a high expense to the institution. Sometimes the money is spent on a file that is thrown into a file drawer just to be drawn out at exam or audit time. The quality of many reviews is lacking as the worker may be only copying your data into their spreadsheet or program to compare their risk they find in the loan with what you say. This may provide no actionable intel for how to properly assess and improve their department. This is a sure way to fumble a lot of money and have no return on the expense.

They also may not test your systems. As an example, I once saw a risk rating model that would still give a pass grade even if you took the debt service coverage ratio to zero. The model had so much weight on collateral that it could not be broken. This grossly understated the risk in the portfolio.

So back to our recent work, when asked which features we completed gave the most value to them, this credit union listed several. The first was an accurate assessment of the overall good and bad of their department’s credit management skills. Multiple reviewed files reveal overall trends which can then show where the institution needs to improve. The institution may have messed up on an individual file, but if this trend is not repeated over and over, it is truly an exception to their normal actions. Figuring out how to improve the basic blocking and tackling skills of the group from where they are today is huge. 

Next is identifying missing training areas which need to be addressed. Deficiencies can point to areas of ignorance or blind spots. Strengths can show areas that they need to continue to go to the next level. In either case, we identified areas of training and provided them with a day of training that was customized to their group.

The group liked our analysis on their staff set up and how they could improve in the future. The group had two senior loan officers who were only a few years from retirement and had not started a mentoring program to bring younger officers up to speed. This strategy could help avoid disruption or using a costly headhunter to land a person to move into the area. 

The biggest feature they liked was the Gantt chart we helped them create to identify areas they needed to improve, set individuals or teams who are primarily and secondarily responsible for completing the tasks and also setting up target dates for completion of each task. Items on the chart of cause and effect were mentioned (for example, item G can’t be started until A and B are completed). This management tool provided them with a game plan to go forward to improve their shop overall. 

These are some features of credit risk advisory services which can score a touchdown compared to those who fumble. Contact us if you are considering needing credit risk advisory services or a third-party loan review. We look forward to creating a customized plan for you!


Pactola is a CUAD CAP Senior Member and a subsidiary of Midwest Business Solutions. We are a Credit Union Service Organization that is dedicated to commercial and agricultural lending and serving multiple credit unions and banks throughout the United States with our services. We help our partners increase their earning assets and profitability. By doing so, we help them become a relevant financial force in their community increasing social good through helping businesses and farmers. Visit our website to learn more. You can contact Phil Love, Pactola CEO at phil.love@pactola.com or 605.223.5154.




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