[ScottieK]

After taking my banking class for my MBA, I didn't want to have anything to do with a commercial bank. Most of it was bond portfolio stuff and an occasional loan decision exercise. Now that I work for a commercial bank doing loan underwriting, I've changed my perspective.

This is what I've been doing for eighteen months. I conduct the due diligence on commercial and real estate loans that range from $100,000 to $50 million in size. It's my job to collect the relevant financial statements, tax returns, and any other information I need from a client. I send them to our credit department to be formatted in a standard way, which comes complete with ratios and a risk score. I plug that score and other information into our risk rating model. We also have a profitability model that we use to determine the ROE and Net Income to the bank. Then I do the memorandum, what we call "the writeup."

The writeup is the hardest part. This is the analysis and justification for extending the loan. Depending on the size of the credit, it may be approved by one, two, or three levels of authority. The largest loans go to credit committee, a panel of senior credit officers in the bank who decide whether or not to do a deal.

The writeup begins with a description of the terms of the deal, such as rate, form of credit, maturity terms, purpose, etc. Then there is a description of the borrower's main source of revenue, how they do business. After that, I analyze the borrower's financial condition for things like continuing profitability, liquidity, activity, and compare those to industry averages. If there is a guarantor on the loan, I also analyze his financial condition and income from tax returns. If there is collateral on the loan, I analyze the quality and value of the collateral. If there are any loan covenants the borrower must comply with (like a certain debt to net worth ratio, liquidity ratio, or submission of financial information) I check to make sure they are in compliance. If I need to get further information, I may contact the borrower, their accountant, consultants, or anyone I need to talk to.

Then I conduct a debt service coverage analysis to determine whether or not the borrower can be expected to pay the loan down according to the terms. If the loan is for constructing a new business or new homes, I use the borrower's projected income statements to see whether they are reasonable and can be expected to pay off the loan. These usually get a stress test to see how bad things can get before they are unable to repay the loan (e.g., drop expected revenue to a breakeven point, raise COGS to breakeven, etc.) If everything looks good, I make a recommendation to approve the credit. If not so good, then I can suggest changes to the structure of the deal or not recommend the credit.

Once I'm done with the writeup, I slap the entire credit package together and submit it for review. After my bosses and I are confident in the quality of the package, we submit it to whatever levels of authority are required for approval.

I enjoy it because I get to see how businesses and wealthy people make their money and how they structure their assets. It's business school up close and personal. Every deal is unique. I've done writeups for deals for home builders, tribal enterprises, property owners, hotels, mortgage companies, racetrack and casino owners, franchise builders, manufacturers, golf courses, churches, shopping malls, gas station owners, all sorts of businesses. I get to help our clients build something new, improve an existing property, or just improve their business overall. Hours are standard 40 a week, no overtime, no travel, good vacation and benefits.

If I want, I can eventually move into a loan officer position, the guy who goes out and brings clients into the bank. I have considered specializing in Native American tribal credits. I could also head our analysis department. Or if I see a business opportunity, I could leave the bank and open my own business.

Feel free to ask or PM any questions to me.

ScottieK