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Portfolio Stress Testing Before Budget Season: Why October Is Prime Time

Posted on October 10, 2025 Published by

As we turn the corner into the fourth quarter, budget season is top of mind for many institutions. October, in particular, is a prime window to run portfolio stress tests that can feed directly into 2026 budgets. Stress testing now allows management teams to evaluate potential risks before assumptions are locked into next year’s financial plans. 

At Enlighten Financial, we view this process not as a compliance exercise, but as a forward-looking tool to guide strategic decision-making. The key is leveraging the most recent loan review data, a resource that often contains fresh insights into borrower performance and industry trends. By aligning updated loan-level observations with stress scenarios, you gain a sharper, more realistic view of how your portfolio might behave under pressure. 

What to Stress Test This October 

Three areas deserve particular focus as you prepare for 2026: 

  1. Interest Rate Shifts
    While rate cuts have been widely discussed, uncertainty remains. Test how incremental rate reductions, or a “higher-for-longer” environment, would affect loan yields, deposit costs, and overall net interest margin. 
  1. CRE Market Softening
    Commercial real estate remains a sector of concern, especially for office and certain retail segments. Stress scenarios should include potential declines in collateral values, rising vacancy rates, and the impact of refinancing risk as loans mature. 
  1. Borrower Cash Flow Stress
    Rising labor and operating costs continue to weigh on borrowers across industries. Use your updated loan review findings to identify which borrowers are already showing signs of margin compression, and test how further pressure could affect repayment capacity. 

Why Timing Matters

Running stress scenarios in October ensures that results can be incorporated directly into the budget process, rather than being considered as an afterthought. This timing provides management with the ability to adjust assumptions about loan growth, credit costs, and margin expectations before those numbers are finalized. 

Early stress testing also gives lending and credit teams the opportunity to align on strategy. If a scenario reveals heightened sensitivity in CRE or certain borrower segments, management has time to discuss appropriate risk mitigants, whether that means adjusting loan loss reserves, refining pricing models, or tightening credit standards for 2026 originations. 

Moving Forward

Stress testing doesn’t eliminate uncertainty, but it does provide clarity. By identifying potential vulnerabilities now, your institution can approach 2026 with eyes wide open, armed with strategies to strengthen portfolio performance and protect earnings. The insights gained can guide a range of decisions, from refining lending standards and adjusting loan loss reserves to engaging early with borrowers who may be more sensitive to cash flow pressures or market shifts. 

Beyond internal planning, robust stress testing also builds credibility with boards, regulators, and stakeholders. Demonstrating that your institution is not only monitoring current performance but also proactively modeling future scenarios underscores a commitment to sound governance and forward-thinking leadership. 

Most importantly, stress testing in October turns planning into preparation. Instead of being surprised by shifting rates, CRE headwinds, or borrower strain in the year ahead, your institution can enter 2026 with a budget that accounts for risks, and a strategy that is flexible enough to seize opportunities as they arise. 

As budget season gets underway, leveraging updated loan review data for portfolio stress testing is one of the most effective ways to connect today’s realities with tomorrow’s decisions. Taking the time to run these scenarios now will pay dividends in confidence, resilience, and results in the year ahead. 

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“The staff at Enlighten have been available for questions, in addition to the engaged work that they do. They've been very helpful as a resource beyond the major audit.”
— Meghann Kasper, Chief Credit Officer, Bank First
“Enlighten gives us a very good second set of eyes on our transactions. They're not afraid to challenge us on some of the work that we've done, which is what is needed. I don't need to pay somebody to tell me I'm good, I need to pay somebody to tell me where I've made mistakes.”
— Robert McPherson, VP of Risk Management, Peoples State Bank
“Enlighten provided industry best practices that weren’t going to show up in an audit report. They would say, ‘Hey, I noticed you do this. This is really unique, you do a really great job of it.’ And then they might add, ‘Some other clients that I have are doing something like this.’”
— Bill Beardsley, President, Michigan Business Connection
“By questioning some of our methodologies, Enlighten has helped us say, ‘Okay, this is where we need to train staff better and focus on so that they understand what they're doing better.”
— Robert McPherson, VP of Risk Management, Peoples State Bank
“The organization of the communication — before, during, and after the reporting process — was certainly better with Enlighten than what I've experienced with a lot of auditors.”
— Bill Beardsley, President, Michigan Business Connection
“The staff at Enlighten have been available for questions, in addition to the engaged work that they do. They've been very helpful as a resource beyond the major audit.”
— Meghann Kasper, Chief Credit Officer, Bank First
“Enlighten gives us a very good second set of eyes on our transactions. They're not afraid to challenge us on some of the work that we've done, which is what is needed. I don't need to pay somebody to tell me I'm good, I need to pay somebody to tell me where I've made mistakes.”
— Robert McPherson, VP of Risk Management, Peoples State Bank
“Enlighten provided industry best practices that weren’t going to show up in an audit report. They would say, ‘Hey, I noticed you do this. This is really unique, you do a really great job of it.’ And then they might add, ‘Some other clients that I have are doing something like this.’”
— Bill Beardsley, President, Michigan Business Connection
“By questioning some of our methodologies, Enlighten has helped us say, ‘Okay, this is where we need to train staff better and focus on so that they understand what they're doing better.”
— Robert McPherson, VP of Risk Management, Peoples State Bank
“The organization of the communication — before, during, and after the reporting process — was certainly better with Enlighten than what I've experienced with a lot of auditors."
— Bill Beardsley, President, Michigan Business Connection