NIFCU Loan Memo: Other Comments Page 2

B-31-LN-Sample.doc

Date:
Relationship Manager: Branch Mgr or BS Calling Officer / Loan Officer: BS Officer / Underwriter: Analyst/ Memo Author
Member: Legal name of borrowing entity / Number: Member number / Opened: Member since
Address: Mailing address
Guarantors Business Activity: Individuals- Primary source of income/ Business- type of industry

Proposed Offering:

No. /

Major

/ Minor / Amount / Rate / Fees / Terms
1. / Department
(usually Bus Serv.) / Product or Collateral Code / $ Loan Amount / Interest %* / Points and/or Doc Fee / ARM, 5/1, 5+5 or Custom, margin amortization and maturity
2. / Either a second loan is detailed or a cross sell is offered
* the rate may be reduced with new deposit relationships

Existing Liabilities:

No. /

Major

/ Minor / Amount / Rate / Fees / Terms
1. / All current Business, Consumer and Real Estate loans with North Island are disclosed
Total: / Total North Island Exposure

Collateral: Value LTV%

1. / Street address of collateral / $ Estimate or Purchase Price / Estimated %

Guarantors: If the borrower is an entity, all individual’s that own 20% of the entity must guarantee

1. / 2. / 3.

Shares: Details borrowers and/or guarantors North Island deposit relationships

Draft: / Total: / 3mos Average: / Affiliated:

Financial Summary: Summary of the guarantor’s and/or business entities Personal Financial Statement / Balance Sheet

Personal
/ Stmt Date: /
Business
/ Stmt Date: /
TOTAL
Assets: $ / Net Worth: $ / Assets: $ / Net Worth: $ / Net Worth: $

Loan Purpose:

/ Purchase or refinance? Basic type of collateral

Repayment Source:

/ 1. Investment property- Net Rental Income / Owner/ User- Net Business Income
2. Guarantors’ personal cash flow
Request:
Loan Committee is being requested to provide (final or subject to) approval of a (more details on the purpose and collateral), Purchase? 1031 Exchange? Construction Take Out? Rate and Term? Cash out?
Attached documents: 1) Loan Memo: Other Comments, 2) Photos, 3) Rate Worksheet, 4) Risk Rating, 5) Real Estate Qualifiers, 6) Credit Report Overview, 7) Sponsor Tax Analysis.

Policy Exceptions:

·  Details of any exceptions to Loan “Policy”, usually an advance that is temporarily over our house limit. Any item in this section must be approved by the Board, unless the authority has been specifically delegated to the Special Loan Committee.

Procedural Exceptions:

·  This could include an item that is either an exception to various “Procedures”, or it could just be an exception to our informal practice that the committee may have gotten use to. It could even be an exception to one of our internal “rules of thumb”. Since several loan officers could speak to the same broker we often discuss and clarify how certain wrinkles will be handled, thus hopefully preventing the brokers from obtaining different answers from different loan officers.

Director/ Officer Relationship:

·  Usually this would apply on a loan to a non-profit where a member of North Island’s management serves on the board.

Source:

§  This could be a broker, a branch staff member, a former client of a Business Services Officer, or direct request. We even had one Internet request.

Background, Business History, & Management:

·  Educational and professional experience of the principal.

·  Real Estate management experience.

·  For a business we would discuss the product or service. We might also discuss the history and competitive advantages of the business.

·  If the transaction is a 1031 exchange we might discuss the details of the “down leg” and “up leg”

·  The details of a rehab plan might be discussed.

Collateral:

·  The results of the drive by inspection will be discussed.

·  If the appraisal has been completed then it will be discussed.

·  The Valuation Model is also discussed. The left side is generally the broker’s presentation and the right side usually includes the underwriter’s adjustments. Sometimes the two sides will show the historic versus the current, or the current versus the projected. All of which will be discussed in detail.

·  The Valuation Models also show the NOI, LTV and DCR. The Memo will indicate the limits that are being approved, subject to review of the appraisal. If the limits to be approved are beyond the normal guidelines it will also be mentioned in the Procedures Exception section.

Tenants/Leases:

·  In addition to the chart below we might discuss the credit worthiness of a tenant. This would be important for single tenant investment properties. We obtain information from the borrower; the broker or sometimes we will run a D&B report. For larger companies we can often get some information off the Internet.

Tenant / Original
Lease Date / Lease
Expiration / Extension
Options / Lease Terms / Square
Footage / Annual Base Rent
TOTAL

Guarantors:

·  Personal Financial Statement

Personal Financial Statement of: / Date:
Assets / Stated / Adjusted / Liabilities / Stated / Adjusted
Cash / Taxes Payable
Securities / Revolving Charge
IRAs/Pension Plans / Installment Loans
Real Estate / Lines of Credit
Autos / Real Estate Mortgages
Personal Assets / Other
Value of Business / Other
Other
Other
Total Assets: / Total Liabilities:
Net Worth:
Notes:
1. 
2. 

·  Liquid Assets:

·  This information usually comes from the Personal Financial Statement, as verified with copies of bank/ brokerage statements. We only waive receipt of the copies if the interest and dividend income on the tax returns obviously supports the amount claimed on the PFS. The results of this chart are then used on the Risk Rating model, subject to the footnoted discounting factors.

Accounts / Totals / Risk Rated Totals
Checking/Savings
Securities
IRA’s/Pensions/Annuities
TOTAL

Securities are risk rated at 85% of value and Retirement Accounts are rated at 50% of value.

·  Real Estate Equity:

·  This is a summary of the guarantors Real Estate Schedule. For multiple guarantors there would be additional charts.

Property
/ % / Value / Lien / Equity
Residence / 100%
TOTAL

·  Tax Analysis:

·  This section details all the underwriter’s observations from spreading the personal tax returns and the reasoning behind the cash flow projections. The historic columns on the spread show any cash flow from the tax returns, both the recurring and non-recurring. In the projection column we include just the recurring portions of the cash flow.

·  In this section we follow the Personal Summary page of the spread line by line. The first discussion point would be salary, the next Interest/Dividends and so on.

·  Often the projection will be based on a 2-4 year average of the historic results.

·  If the projection column is significantly different than the historic it will be discussed. Perhaps the interest income will be going down because the borrower is using the reserves for a down payment. Gross Rental Income may be different due to a property that has either been recently purchased or sold. Historic Partnership Income may have included some non-recurring contributions.

·  Debt to Income Ratio:

·  In the first bullet point we will often discuss the Personal Debt Servicing Percentage from the Personal Summary Page, which is basically the percentage before the proposed transaction.

·  The Combo Spread includes the New Proposed Income and the New Proposed P+I. We also incorporate the excess (deficit) cash flow from any business entity. As discussed in the Spread Sheet Review, we also apply a threshold/ reserve to all the business and investment cash flows. The resulting projected (after threshold) Personal Debt Servicing Percentage is a major underwriting criteria. We will generally require that the percentage does not exceed 40%.

·  Discretionary Cash Flow:

·  Usually just the projected figure from the spread is listed.

·  Trade Reports & Credit Scores:

·  Summary from the credit report. Any unusual or derogatory items will be discussed. Additional details will be in the package on the Credit Report Overview.

Profile / Beacon / FICO / BK / Comments

Environmental Assessment & Site Inspection:

·  The drive by inspector will generally indicate what type of report (if any) is indicated (Vista, Phase I or II, or Environmental Insurance)

·  If the Questionnaire has not yet been received it will be disclosed as a subject to condition.

Current Financing & Depository Arrangements:

·  Theoretically we should be getting direct information from subject’s current lender. This will be the case on business loans and other full relationship loans. In the past borrowers have been mostly investors through wholesale channels. We have discussed current banking/credit union relationships and the efforts, results or potential for more North Island deposit relationships.

Industry Comments:

Financial Analysis:

Operating Results:

Cash Flow & Debt Service:

Current Position:

Leverage and Asset Quality:

Business Plan & Projections:

·  One or more of these headings will apply for business loans and/or owner/user properties, when the borrowing entity is a business. These sections detail the results of the business section of the spread, including the ratio and cash flow pages. The discussion should include trends and how the subject compares to industry standards.

Business Credit Reports/Trade Checks &Credit Score:

·  Details of the Dun and Bradstreet or Experian Business Report.

Strengths:

·  Why is this an acceptable credit risk? Usually the areas on the Risk Rating with the lowest (best) scores are detailed.

· 

Weaknesses & Mitigating Factors:

·  This is usually the hardest section for the underwriter. Again it can include the discussion of the Risk Rating with the highest (worst) score. We may also discuss any point of concern that was noted in the review process.

·  Despite the concern, for approved loans, there is always a mitigating factor.

Covenants:

Borrower is to:

Covenant / Next follow-up date
Provide annual company prepared business financial statements within 60 days of their fiscal year end.
Provide annual CPA Compiled/Reviewed/Audited business financial statements within 90 days of their fiscal year end.
Provide quarterly company prepared business financial statements within 60 days of each fiscal quarter.
Provide quarterly company prepared accounts receivable and accounts payable agings within 60 days of each fiscal quarter.
Provide annual business Tax Returns concurrent with filing
Provide annual personal financial statements.
Provide annual personal tax returns concurrent with filing
Maintain a debt coverage ratio of
Maintain a tangible net worth of $75,000
Maintain a ratio of total debt to tangible net worth of
Maintain a current ratio of
Provide annual Rent Roll and Operating Statements on the subject property.
Maintain a minimum xxxx DCR
Other covenant
Other covenant
Loan officer/Underwriter: Check appropriate boxes for required loan covenants and complete field for date follow-up. (Example: Check box for CPA Audit FS within 90 days of FYE. If FYE is 12-31-05 fill in 3-31-2006 as follow-up date). To make check in box double click box then select :Checked”on pop-up window.
.

Recommendations & “Subject To” Conditions:

·  Type appraisal required.

·  Limits on LTV and DCR.

·  Type of Environmental Report.

·  Receipt of missing documents

·  Legal Entity Documents

·  Environmental Questionnaire

·  Certificate of Financial Accuracy

·  Leases/ Subordination Agreements

·  Current Rent Roll

·  Participant Approval

Miscellaneous Footnotes, Assumptions and Comments:

·  The underwriter may disclose any minor adjustments or assumptions that they may have been made in either spreading the statements or creating the projections. This could also include an adjustment to the net worth figures disclosed on the cover page of the memo.