Profitabilty

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  • Published on Dec 2, 2025
  • 3 minute(s) read
  • Stephanie Schmidt
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Profitability Analytics

Profitability Analytics helps credit unions evaluate how profitable their products and portfolios are by comparing them to market-based benchmarks using Fund Transfer Pricing (FTP).

Key Benefits

  • Identifies key profitability drivers: funding cost, credit reserve, and option cost provision.
  • Supports pricing decisions with market-relative insights.
  • Enables “cheap/rich” analysis to guide investment and lending strategies.

Product Profitability

The Product Profitability application helps credit unions evaluate the performance and risk of their loan products using the THC Lambda (λ) Model, which integrates interest rate and credit risk analytics.

Key Benefits

  • Supports strategic decisions on:
  • Rate and volume planning.
  • Secondary market buy/sell decisions.
  • Product design and pricing.
  • Provides a comprehensive view of profitability across loan types.
  • Aligns loan performance with institutional risk and return goals.

How to Use Product Profitability

  1. Navigate to Profitability Analytics > Product Profitability
  2. Upload your portfolio using a PATH file or select an existing one
  3. Run the analysis to view profitability breakdowns by product, sector, and funding source
  4. Use the output to adjust pricing, product design, or funding strategies

Subsections and How to Use Them

Loan Offer Rates: Evaluate the competitiveness and profitability of current loan pricing

How to Use Loan Offer Rates

  1. Access the Loan Offer Rates section from the Product Profitability tab
  2. Review the rates offered across different loan products
  3. Compare against the Fund Transfer Pricing (FTP) curve to assess margin
  4. Adjust pricing strategies based on profitability insights

Key Benefit

  • Helps ensure loan pricing is aligned with market conditions and institutional profitability targets.

Loan Trends: Monitor changes in loan portfolio characteristics and performance over time

How to Use Loan Trends

  1. Click on Loan Trends to view metrics for current and prior cycles
  2. Analyze trends in interest rate exposure, credit risk, yield attribution, and portfolio composition
  3. Use visual graphs and tables to identify shifts in performance

Key Benefit

  • Enables proactive portfolio management and early identification of risk or opportunity areas.

Funds Transfer Pricing (FTP): Helps credit unions evaluate the relative profitability of products by comparing them against the institution’s internal cost of funds. It is a foundational component of the ALM model that supports strategic pricing, product design, and profitability analysis.

How to use Funds Transfer Pricing

  1. Access the Funds Transfer Pricing section from the Product Profitability tab
  2. Review Profitability Breakdown:
    1. View how each product performs relative to the FTP curve
    2. Analyze the impact of funding cost, credit reserve, and option cost on net interest income
  3. Apply Insights:
    1. Use the analysis to adjust pricing, design new products, or evaluate buy/sell decisions in the secondary market

Key Benefits

  • Market-Relative Profitability: FTP enables “cheap/rich” analysis by comparing product yields to the institution’s transfer pricing curve.
  • Risk-Based Pricing Optimization: Helps credit unions set rates that reflect funding costs, credit risk, and embedded options.
  • Integrated Decision Support: Aligns pricing strategies with ALM, CECL, and performance simulations for holistic balance sheet management.
  • Transparency and Accountability: Breaks down profitability into clear components—funding cost, credit reserve, and option cost provision.

Combined Risk Analytics: Provide a detailed breakdown of profitability by combining interest rate and credit risk analytics.

How to Use Combined Risk Analytics

  1. Navigate to Combined Risk Analytics within the Product Profitability tab
  2. Review yield attribution across loan segments
  3. Assess how credit risk and funding costs impact overall profitability

Key Benefit

  • Offers a holistic view of loan performance, helping credit unions balance risk and return effectively.

Risk-Based ROE: Calculate Return on Equity (ROE) at the loan level, adjusted for credit and option risks.

How to Use Risk-Based ROE

  1. Open the Risk-Based ROE section from within the Product Profitability tab
  2. View ROE calculations based on net interest income, servicing costs, credit loss provisions, and option cost reserves
  3. Compare ROE across loan types to identify high-performing segments

Key Benefit

  • Supports capital allocation and product prioritization decisions.
  • Helps optimize portfolio composition for maximum risk-adjusted returns.

Dynamic Stress Testing: Evaluate how loan portfolios respond to interest rate and credit stress scenarios.

How to Use Dynamic Stress Testing

  1. Access Dynamic Stress Testing from the Product Profitability tab
  2. Select stress scenarios based on policy limits or historical data
  3. Run simulations to see how portfolio metrics shift under stress

Benefit:

  • Enhances risk management by identifying vulnerabilities.
  • Supports regulatory compliance and internal stress testing requirements.

Loan Structurer

Loan Structurer helps loan officers design optimal loan terms before origination by analyzing profitability and risk.

Key Benefits

  • Provides yield and price attribution for proposed loan structures.
  • Ensures loans are profitable and aligned with institutional strategy.
  • Reduces risk by modeling performance before commitment.

How to Use Loan Structurer

  1. Navigate to Profitability Analytics > Loan Structurer
  2. Input proposed loan terms or select a template
  3. Run the analysis to view profitability metrics
  4. Adjust terms as needed to meet customer needs and institutional goals


Loan Pipeline Management

This tool tracks and evaluates the performance of your loan pipeline, including approved and pending loans.

Key Benefits

  • Provides real-time visibility into pipeline profitability and volume.
  • Supports ALCO and loan committee decisions.
  • Helps align loan production with funding and strategic goals.

How to Use Loan Pipeline Management

  1. Navigate to Profitability Analytics > Loan Pipeline Management
  2. View the Pipeline Snapshot, P&L Monitor, and Origination Volume
  3. Filter by loan status, type, or profitability
  4. Use the insights to guide approvals, pricing, and funding strategies