Tag: Loan Underwriting

The Top and Bottom 10 Industries For Credit Selection Risk

Credit Selection Risk

Many community banks don’t underwrite with enough granularity to take into account major differences in credit between borrowers. This can hurt banks as credit spreads get tighter and banks add even more leverage to their balance sheets.  When banks underwrite a particular borrower, the actual probability of default is usually within a defined range. Some industries, such as banking itself, have a very homogeneous set of companies.

How to Draft a Better Credit Memo

Better Credit Memos

We review hundreds of credit memorandums every month from a wide variety of community banks across the country.  Generally, the credit memos are carefully considered, well planned and appropriately formatted.  We read memos from banks ranging in asset size from $100mm to over $10B and loans ranging from $250k up to just over $50mm.  We look at memos for annual reviews and submission for new CRE and C&I loans.  While most bankers are skilled and proficient at form

Powerball And The Reason Why Banks Need To Tighten Underwriting Standards

Tightening Bank Underwriting

Tomorrow night’s Powerball lottery will be the world’s richest at an estimated $1.4B. Bankers, despite the odds, are even buying tickets both individually and in syndicates. The ironic part is that with such a big pot, the odds of you winning don’t change (still 1 in 292 million, or about the same as a quarter coming up heads 28 times in a row), but the expected winnings actually go down with a larger jackpot, not up. The higher number of players increases the odds of you splitting the jackpot.

Your Bank’s Credit Ratings Shouldn’t Be Like Toenails - Part I

Bank Credit Analytics

If truth be told, community bank credit ratings are like toenails. You see them a lot, you occasionally think about them, every now and then you maintain them, you make sure they look good when you know they are going to be seen, and you only have a vague awareness of their practical use. The underutilization of community bank credit ratings is about to change over the next five years as rates go up and more sophisticated models help bankers get more quantitative about how they classify credit, price risk and allocate capital.

 

Why Every Banker Should Understand Benford’s Law [Calculator]

Bank Analytics

A good banker can sometimes tell that a number set is wrong just by looking at it. Today, we are going to teach you a trick that all bankers should know in order to help stop fraud, help in credit analysis and will be invaluable in M&A. We have even attached a calculator at the end to help you put it into practice. It doesn’t matter if the banker is a loan officer, a teller or a CEO.

Why Smaller Loans Can Create More Risks For Banks

Loan Profitability

Most banks feel comfortable making smaller sized loans. The obvious reasoning is that a smaller loan will present less of a loss should it go into default - less of a loss means less risk, and, therefore, higher return.  That reasoning could be faulty and could end up getting your bank into trouble as often times it is the larger loan that presents less risk. There are three reasons for this. First, the acquisition cost of a larger loan is just slightly more from a dollar value perspective (and lower on a percentage basis) than that of a small loan.

Change Maturity (Slightly) to Win More Loans

Loan Underwriting

If you want to win more loan business here is a tactic that experienced bankers know that many loan officers don’t. This should be part of every loan officers training (we work it in) and is handy to have in your back pocket for those rate-focused borrowers.

 

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