Writing Effective Credit Memos and Loan Narratives

Why Should You Attend:

Anything you write in a credit memorandum will become public record. In writing effective credit memoranda, it is not what you say that commands attention, but how you say it. Credit memoranda serve three functions:

• They provide information on the condition and status of a customer relationship.
• They provide a record of thoughts and actions.
• They support or recommend action.

This course will impart skills required to write an effective credit memorandum, which places emphasis upon factors or trends that are important without the need to state the obvious. In short, the credit memo should present relevant, material facts and the writers’ thoughts and opinions.

The webinar will also explore the underwriting and reporting on commercial real estate, construction loans, acquisition and development loans and multi-family unit loans. In doing so, several samples of proven credit memos will be examined to insure bankers are covering the areas required by the banking regulators.

Learning Objectives:

At the end of this course, the participant will be able to:

• Strengthen their understanding of credit analysis.
• Clearly describe the financial impact of changes in financial factors and not just report on what changed.
• Interpret financial trends and financial ratios.
• Write succinct and focused credit memoranda.
• Meet with management armed with relevant questions and issues to be addressed.
• Feel more confident in defending a recommended course of action based upon relevant facts and not instinct.
• Identifying strengths and weakness in the writing process and evaluating the lender. Margin change analysis and liquidity along with debt to income ratios.
• Potential gross income
• Sources of repayment
• Key risk and structuring issues
• How to summarize the credit memorization process in these categories: leverage, liquidity, cash flow, financial ratios, asset management and operation/performance ratios.

Areas Covered in the Webinar:

Essence of Credit

1. Purpose and basis of the credit
2. Primary and secondary source of repayment
3. Written repayment program
4. Collateral valuations
5. Conformity to credit policy
6. The five Cs of credit
7. Strengths and weaknesses
8. Justification for exceptions to underwriting
9. Makes recommendation

Credit Memos

1. Primary means of communication within banking industry
2. Serves three functions:
• Supports or recommends action
• Provides information on the condition and status of a customer relationship
• Provides a record of thoughts and actions relative to a customer relationship
3. Violate the succinct and to the point structure of a memo
4. Writing credit memos for skilled bankers
5. Presenting relevant material facts and writer’s thoughts and opinions in the memo
6. Supporting the written opinions with facts
7. The importance of writing a memo, which will become public record and can be used in court to settle disputes with a customer

The Write Up Process

• The purpose of a paragraph
• Breaking writing into single ideas
• Maintaining a uniform and orderly pattern - paragraph structure
• Writing topic sentences which represent the main idea
• How to ensure each sentence contributes to the purpose
• Balance sheet analysis, income statement analysis, cash flow analysis
• Calculating and interpreting financial ratios and cash flow
• Using analysis to determine the financial impact of changes in financial factors
• Questions to raise with the customer after the credit analysis is complete
• Outline of relevant factors to include in a credit memorandum
• How to report your findings efficiently and effectively in the credit memorandum
• Apply the concepts to a study case
• Purpose and basis of the credit
• Primary and secondary source of repay, written repayment program
• Conformity to credit policy and addressing the five Cs of credit
• Identifies strengths and weaknesses

Who Will Benefit:

• Commercial Loan Officers
• Consumer Loan Officers
• Credit Analysts
• Loan Review Personnel
• Compliance Officers
• Internal Auditors
• Branch Managers

Instructor Profile:

Jeffery Johnson’s banking career spans 36 years working for large, regional and community banks. He started his career with SunTrust National Bank in Atlanta as a management trainee and progressed to vice president and senior lender for SouthTrust Bank (a large Southeastern regional bank) and senior vice president and commercial banking division manager for Citizens Trust Bank of Atlanta (community bank).

Most of his career has been spent in credit administration, lending (commercial, consumer and real estate), business development, loan review, management, and training and development. He has managed loan portfolios representing a cross section of loan types including: large corporate, high net worth individuals, middle market companies, small businesses, real estate and non-profit organizations and managed several loan officers with portfolio management responsibilities.

Mr. Johnson is now a training professional in the industry leading various banking seminars, both within the US and internationally. He teaches actively for twenty-two state banking associations and community banking associations in the United States, and for the Risk Management Association (RMA) and individual banks nationwide. He co-authored a training course entitled “Lending to Service and Other Professional Organizations” for RMA in 2001.

In order to stay abreast of issues facing banks, Mr. Johnson engages in loan reviews for his client banks. During an engagement, he reviews loans of all sizes to determine creditworthiness; compliance with banking rules and regulations; compliance with the bank’s internal credit policy; accuracy of the loan grade; completeness of the documentation file and other aspects such as portfolio trends, performance and capital adequacy.

Mr. Johnson earned his B.A. in Accounting degree from Morehouse College in Atlanta, GA; MBA in Finance from John Carroll University in Cleveland, Ohio; and his banking diploma and certification from the Prochnow School of Banking at the University of Wisconsin-Madison and the First American Management Institute at the University of Pennsylvania’s Wharton School of Business.

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