Credit Union Exam Solutions Presents With Flying Colors

Treichel: Hey everyone.

This is Mark with a special archive
episode of With Flying Colors.

I hope you enjoy.

audioMarkTreichel21792836880: Today,
I'm joined by VIN Viton who previously

was on to talk about credit culture.

Today, VI and I are going to talk
about financial analysis, credit

proposals, and a philosophical
discussion on global cash flow.

And of course, all three of these
relate to commercial lending

or member business lending VI.

Before we jump in for people who are just
meeting you for the first time, could

you share a little bit about who you are
and your career and your experience at N.

audiovvcomputer11792836880: Sure.

Good morning, mark and everyone.

Yeah, I was the senior credit specialist
at the NCO for about 11 years.

I retired last.

February.

And prior to that, I had actually worked
for a concrete company as controller

managing the banking relationships.

And then prior to that, I was
a senior loan officer in some

community banks in new England.

So I've been able to
experience blending from.

The lender's point perspective,
the borrower's perspective,

and then as a regulator.

So that's all three of those experiences
were just great to give me gr to give

me and confirm my perspective on the
importance of commercial lending and

supporting your borrower's needs.

audioMarkTreichel21792836880: Very good.

Yeah.

So then you've really
done it from every angle.

So you have a very unique perspective.

You've applied for business
loans when you were.

At the concrete company,

audiovvcomputer11792836880: Yeah.

audioMarkTreichel21792836880: you
reviewed business loans when you were at

the bank and then you wrote regulation
and guidance at NCO as the regulators.

So you really touched it all
which re again, really provides

you with the perspective that
not many people out there have.

So let's jump in.

Let's let's talk about financial analysis
as it relates to commercial lending.

And then the floor is yours.

audiovvcomputer11792836880: The
financial analysis and credit approval

document are really the Mo are very
important pieces of commercial lending.

Of course, the financial analysis allows
you to understand the financial strength

and condition of the borrower and then
the credit propo approval document.

Documents the loan request and
support for the credit decision

and the financial analysis.

We did find there was a many different
approaches to financial analysis

in the credit union industry.

So with the rule was
rewritten five years ago.

We emphasize the importance of consistent
and accurate financial analysis.

You'll find in the preamble to the
proposed rule and mark, you will

have links to these documents.

Correct?

audioMarkTreichel21792836880: Yes.

So I will put anything that you think
needs to be put in the show notes.

I can link.

To the show notes for the show.

So someone wants to go to that link.

They can find it.

There will also be a transcript of our
interview on my website, mark tril.com,

which will also have the links.

audiovvcomputer11792836880:
There'll be two.

Then the two important links
that I'd like people to reference

would be the link to the.

Examiner's guide regarding financial
analysis and credit approval document.

And then also to two or
three pages in the preamble.

To the proposed rule, which
was issued in July of 2015,

though, it's a few years back.

It's still the standard that the board,
the N C board set as expectations for

financial analysis and risk assessment.

audioMarkTreichel21792836880:
Let me pause you right there.

So you you're referencing
the preamble to the rule.

The preamble often is almost
more revealing than the actual

regulation, because it tells you
what staff was thinking and more.

Importantly, what the board was thinking.

So it can actually provide examples
that credit unions can look to and

apply to the regulation and really
understand, what was meant by the

words that are in the regulation.

Even though what we're going to reference
is the proposed rule the language,

that's something that you can look to
to make sure that you're complying with

the intent of what N C a is thinking and
what the board was thinking at that time.

audiovvcomputer11792836880: Yes, exactly.

And the reason why the proposed
rule is acceptable in this case,

there's a two step process.

As I think most people are aware
of you propose a rule there's

reaction from the stakeholders,
and then there's a final rule.

The proposed rule that we issued.

Did not change very much
and not in a material way.

Therefore, any of the discussion
that you'll find in the proposed rule

generally still applies and was the
intent of the board and the staff.

It's very important, especially in this
case, the proposed rule will out and

in the other sections of the rule two,
and it does, it explains very well.

What the board expectations were.

In fact, I always find the proposed
preamble more insightful because the

preamble to the final rule generally
is just comments from stakeholders

and reactions from the agency.

But the actual specific instructions
and intent are generally better.

And especially in this case
outlined in the proposed rule.

audioMarkTreichel21792836880:
Then that's a great point.

So if the proposal.

If the final rule is similar to the
proposal, you're gonna find more meat in

the proposed preamble in a situation where
there was a material change that the board

made in the final rule that preamble might
have a little bit more meat, but that,

I never really thought of it in that way
that the proposal probably has more meat.

So that's a good thing to

audiovvcomputer11792836880: Yeah, sure.

And again One, one of the
problems with preambles are, is

nobody knows where to find them.

So we're hoping to make this a little
bit easier for you by establishing a link

on the website for you to just click on.

audioMarkTreichel21792836880:
You're good at finding them.

And Steve far is good at finding
them another person who helps me on

topics other than commercial ending.

Although actually he helped me on a
commercial ending project that you

and I were working on for a client.

But yeah, it's, they're not
the easiest things to find, but

once you find the tricks of how
to do it, they are out there.

And we, again, we will post them
in the show notes so that you

can see what Vin's referring to.

So what else on financial analysis is.

audiovvcomputer11792836880: It should
be well organized market and that's and.

And a structured approach that
all lenders, hopefully follow

now, every deal's different.

So you do have to be able to amend
it and as you need to based on the

borrower, but I always found in
my financial analysis, you want to

you're little to establish what are
the trends of the business, really?

What are the, for all the financial.

Strength of the business but
mostly the trends of the business.

So you're gonna need, a reasonable
amount of financial performance.

And that means the, how many years
back are you gonna take a look

at the financial performances?

Standard is three years worth of act
to plus current financial information

for that year, the current year.

However, That of course you can only, if
it's only been in business for two years,

you can only get two years worth, but
sometimes you may need more than that and

use your judgment to what's sufficient,
but ultimately you should be able to

establish the trends that a business
the financial trends of that business.

You're gonna, that's
gonna lead to following.

The financial analysis, you're gonna
have a debt service ability, which

is some type of cashflow analysis.

You can use traditional cashflow, you
can use the UCCA, which is uniform

credit analysis two, two different
methods of, and these other methods

of cash, but be careful if you,
whatever you choose to loo to use, make

sure that you understand what it's.

What the analysis is telling you and
also that it Accu accurately represents

that borrows ability to service the debt.

I know with the U C cash flow that, that
does a good job of establishing some.

Influence of changes on the balance sheet
which sh should not just be listed, but

understood what's causing those changes.

There should be income and
expense trends discussed.

And again, balance sheet changes.

Like I just mentioned and the bar should
have a satisfactory payment history.

So when looking at the analysis,
I always, and this is my personal.

Preference how you just make, I think the
important thing is that it's consistent.

I always looked at the income statement
first to see what the trend is in revenue.

Then look at the gross profit trends,
expense trends and then net profit trends.

And then look at those influences
on the balance sheet and then did

a discussion on the balance sheet.

So I think it's very important that.

The lending institution has a consistent
approach and logical approach to the

way they approach their credit analysis.

audioMarkTreichel21792836880: So VI a
as you're talking, I'm think of thinking

of some of the conversations we've
had with my clients who have had some

commercial lending and were wanting.

That wanting to improve their
processes for their members

and also to satisfy N CUA.

And I'm thinking of a couple of
examples where you talked about,

when you look at this financial
analysis, like owner draws, or owner

influxes of cash into the business.

And I, I remember some interesting
convers, where owners were having

to put money in, and as you were
looking at a particular credit.

What that meant to you?

Do you remember that situation?

Is there any color you can add to,
to, to what I just threw on the.

audiovvcomputer11792836880:
yeah, yes I will.

But I just thought of something else,
as you said that mark it's real.

What's I went to work at a
bank as a senior lender and

the lenders all had different
approaches to, and those structure.

And then we'll talk about that
a little bit more in the credit

proposal, but no structure of their
presentation or their approach to.

Financial analysis.

So I would read these writeups and
I'd have to read 'em two or three

times to get a sense of what, the
quality of the financial analysis was.

And usually I had to do my own
financial analysis and the way I think

about it in order to get a sense,
whether it was a good deal or not.

And, but what I, what was,
what I learned from that is.

Boy, it really dependent on who your
lender is on whether you get proper

financing or not, because each lender had
their, a separate approach to analysis.

So if you have a consistent approach,
it's going to do a number of things.

It's going to first big.

Sure.

That.

You're fair to all your borrowers
and they're all being looked at

in a consistent and accurate way.

It's gonna help train those individuals
at the financial institution, the credit

union, such as the board, and maybe
some of the other senior management who

are involved with commercial lending,
but not well versed in co they'll, be

trained in how to look at a credit.

So it's important that consistency.

And completeness, the comprehensive
review is really fair to the

borrower and also to those involved
with making that credit decision.

Yeah.

And it's, there's, there was a
number of you, you see sometimes

that the cash flow, those.

Or document it.

But there was no, no attention
paid to the balance sheet and the

balance sheet had the leverage.

Had increased over the year and
the money went out to the borrower

through a stockholder loan.

So it's important that
you tie the two together.

I like that.

I always like to look at the income
and expense trends and then whatever

that cash net cash number is.

Where does it show up
in the balance sheet?

Is it being funded from receivables
reduction, inventory reduction,

or an increase in debt or is it
being funded through the proper

operations of the business?

So there's a lot to think about
when you bring those together and

do you bring the balance sheet?

The balance sheet is especially
important when there's activity in the

working assets of the business, meaning
usually a manufacturer you're gonna

see inventory and receivables change
significantly, and some people will

argue it's really not that important
when you're looking at rental real

eight because they just collect rents.

And there's generally not much balance
sheet activity, but as you said, mark,

There should be some discussion of the
balance sheet in every financial analysis,

because things can be happening on even
more straightforward cash businesses like

rental real estate, especially if they
have a receivable, their receivables are

increasing in their more than 30 days.

That may is they're not getting paid.

So it's really important
that there's some reasonable.

Check to the balance sheet and
then, and any changes to the balance

sheet, if it's within reason and
in line with the income statement.

audioMarkTreichel21792836880: Got it.

So then I, a, as you talk
through that I had two takeaways

getting the financial analysis.

It's not just a paper exercise it
you have to understand what those.

Documents or financial statements say
how it flows through and what that

means good or bad for the borrower.

And then the other thing is, the
word that words that came to mind

were standard operating procedures.

You need some consistency within the
organization, so that if I walk into

loan officer a versus loan officer B.

That essentially the results should
be the same because we have such

good procedures and policies and
standard operating procedures that

the members all get treated the same.

audiovvcomputer11792836880: Exactly.

That's exactly it.

And this is, as we've talked
about in the credit culture

discussion lending commercial
lending is a value added business.

It means qualified people.

To evaluate the borrower's ability,
cuz there'd be, there are so

many influences on a business.

The lender needs to be needs to be well
qualified and capable of understanding

those changes in the business.

And that's the value
added piece I always felt.

And I think it should be explained
to borrowers once a year.

Hopefully you're visiting your
borrowers at least once a year.

That borrower for free, really their
interest payment gets a financial expert

to do a thorough review of their business.

And that's really a very important
service you can offer to your

members and your borrowers.

And

to follow up.

It's really important then that if
there are problems in your analysis

or you recognize some problems with
the business in your analysis to share

those observations with the borrower.

And obviously that's gonna build a much
and said, and apply and respectful.

But help that borrower understand
where there's some areas in their

business and financial performance
that they should be addressing.

And again, like I said, so once
a year that borrower will get a

financial review of their business
by a financial expert, I think that's

a pretty good value added service.

audioMarkTreichel21792836880:
That's great VI very well said.

And you reminded me of, so I, so
back when I was an examiner and a

problem case officer, I did get a
little bit of expertise on member,

business lending, at least, on
par for what we knew of back then.

And one of the things I used to do
when I went in to do a commercial

on review, other than getting.

A sample of loans to look at, I
would get, I would ask them to show

me a handful of loans that they
had denied, which was telling, it,

you can see something on a denial.

And in some instances, when I
asked that question and they'd only

approved loans, that also gave me
some Intel potentially as I was

doing the exam relative to the risk.

Great discussion, odd financial analysis.

Anything else on this before we jump into

Proposals?

audiovvcomputer11792836880: you
brought up denials and I think that's

another great area where you can
provide this expertise to that member.

Hopefully they are a member they're
gonna become a member to explain to them.

I was just to explain my denials to
the borrower for two reasons the first

make sure I didn't miss anything.

And give them an opportunity to react
to the reasons for the denial, but also

to help educate them on how they should
position their business to be in a, to

be in a better position to borrow from
at that time I was working at a bank and

the same would apply for credit unions.

I think you're doing a
number of real service.

If you take the time, not just
send a declination letter, but.

If they're important to you and they're
already members of your credit union take

the time to explain why you made your
decision and what you would need to see

in order to approve alone in the future.

audioMarkTreichel21792836880: Got it.

Got it.

All right.

So let's jump into credit proposals.

audiovvcomputer11792836880: Right?

audioMarkTreichel21792836880:
what would you like to share

relative to credit proposals?

audiovvcomputer11792836880: It's
very similar comments, make sure

it's well organized and consistent.

Again, if you go to the guidance the
examiner's guidance, which you'll be able

to click on it does a real good job of.

Explaining how important a standard
logical format is, again, for what we

had talked about earlier to make sure
there's a consistent view in your,

and your credit culture for approving
credit and your approach to credit.

But when it's well organized, I
think let's just talk about some

of the important things that
should be included in the proposal.

Yeah.

And again there's a sequence
outlined in the guidance.

I think it makes sense.

Obviously I was involved with writing
it and it's the way I used to approach

the organization of our, my proposals.

But it, these are things that are
important to have in your credit proposal.

But doesn't have to follow this specific
order, but I think if you see the order

makes sense, and the first section
should discuss who the borrower is.

Explain the ownership
structure, the type of business.

It is the number of employee employees,
what they do to produce revenue.

The products and services are
offered, who their customers are.

How long they've been in business.

Are there any concentrations of sales
with the limited number of customers?

Do they, are they dependent on.

Just a few suppliers.

These are all things that are not all
these need to be explained in the writeup,

but things you should be thinking about
when you're evaluating the credit, who

the principles are, the manage, discuss
management's abilities and structure.

Discussion of the industry they're in and
the repayment ability and of the borrower

along with and it's real important here.

The next thing I think guidance
asked for is a relationship between

the entities and that's really
important and a very important

when we discuss pH philosophically.

Global cashflow.

So it's, I important to understand who
the principles are and any entities

they own and how all these entities
inter interrelate to each other.

And how do you get that information?

That's visiting the borrower and
spending some time walking through

there for facilities in their operations
and getting to know them over time.

audioMarkTreichel21792836880:
So when you, oh, go

audiovvcomputer11792836880: go ahead.

Mark, that's fine.

audioMarkTreichel21792836880:
So when you were at the.

In your time at the bank serving as
a loan officer, what was the longest

term relationship that you had with
some of the borrowers at that bank?

audiovvcomputer11792836880: Some.

There, there was, 10 year relationships.

And then prior to that, they
had already been with the bank.

So they stayed there.

They recognized the value.

Hopefully they recognized that value.

You add as an experience lender and how
important that is to their business.

And they don't always Shop for the
lowest rate, but any business will,

there's probably loyalties up to 50
basis points after that it's going,

you're competing against price.

audioMarkTreichel21792836880: Sure.

audiovvcomputer11792836880: And but
I think it's very important that

they trust you and know that you
care about their business and take

the time to make the recommendations
and structured to their loans.

That's in their best interest.

audioMarkTreichel21792836880:
No, that makes sense.

That makes sense.

audiovvcomputer11792836880: Yeah.

And another section on the, I did
not see this a lot in credit unions,

but I did see it in, I worked for a
number of banks in the crazy nineties.

But in most of the bank credit
proposals, they had a section

listing all direct and related debt.

And as the NCAA restricts the total
relationship of associated members to 15%

for any one relationship to not exceed
15% of the credit union's net worth.

So instead of mean others Calculate
that I believe it's up to the lender to

list that so that the improving bodies,
whether that's a senior manager or.

The credit committee or the board
sees the total relationship and

understands the total level of
risk associated with that borrow.

So it's a regulatory
requirement under 7 23 0.4

C.

Therefore it makes sense to list
that either on the front page of

the credit proposal or a separate
schedule, but that should be very clear.

What the total relationship is and
considered as part of the credit approval.

So I don't I believe it's a
requirement for a credit proposal.

And like I said, often you
don't see that summary of the

relationship on the credit per

audioMarkTreichel21792836880: Got it.

And yeah, so NCO would like to
see that, cause it shows that the

thought process went in and that you
are aware of the materiality as it

relates to the member and also to the
balance sheet of the credit union.

audiovvcomputer11792836880: Sure.

And the board should care because it could
be a violation of a reg that's serious.

As we know it's not a dis safety and
well safety and status is important, but

it's a direct regulatory requirement.

Therefore I, it should be confirmed
on with each appro approval

that it's within the regulation.

audioMarkTreichel21792836880: sense.

So I pulled up the link that you provided
me that we're gonna put in the show notes.

And as I'm looking.

At it, I see a reference to the
document assigning an appropriate risk

rating is that some is risk rating,
something that you want to talk to

relative to credit proposals, or is
that a future podcast in and of itself?

audiovvcomputer11792836880: I think
that's a future podcast, but again

that's important that the risk
rating be assigned as part of the

credit proposal and also justified.

So it should require, that it's rated.

Four.

And for the following reasons, it doesn't
have to be long, but it has to be clear

why it's being rated at that level.

And I'm glad you brought that up.

Mark often credit proposal has a cover
page and a lot of what we've talked about.

That sort of, that justification should
probably be on the front page as, so the

reader then knows what the risk rate is.

The level of risk
associated with that credit.

I think a summary of.

The relationship that we just talked about
is important to have on the front page.

And another thing that's important
to have on that front page

is any exceptions to policy.

And again, a brief explanation why
it's an exception to P why it's

an acceptable exception to policy.

And what that does.

If the cover page has.

Important information like that,
then the reader, as they review the

cover page, they're gonna they're
gonna have a good sense for the deal,

the risk associated with the deal.

And if there are those policy exceptions,
you don't want somebody to read

something on page two and they, and say,
Hey, wait, that's a policy exception.

And then.

Not explain what it is
for another two pages.

When you get into the financial
section and cuz they've just

read two pages saying, Hey, what
else is wrong with this credit?

Lay out all those issues on that front
page with a summary justification, I think

sets the reader up to better understand
that credit as they read through it.

audioMarkTreichel21792836880:
Yeah, that makes good sense.

I wrote down exceptions to policy.

I think that might be
something we can expand on.

At a later date as well.

audiovvcomputer11792836880: Sure.

audioMarkTreichel21792836880: there's
a lot of nuances to commercial lending

and, in a podcast like this, we can't
go into every piece of it, but I think

we're gonna be digging down over time
and taking on some of these individually.

So very good.

Go ahead.

audiovvcomputer11792836880: right mark.

We can't get into everything
on a podcast, but if we've

got the right references that.

The listeners can click it on into,
I think that would be helpful,

audioMarkTreichel21792836880: You got it.

And at the end too, I'll give my contact
information where they can reach out

if they have particular questions
on some of these things as well.

So very good.

So let's segue and have a philosophical
discussion on global cash flow.

What is it and what is it
and why is it important?

audiovvcomputer11792836880: Obviously
you, and the way we say it in the

rule is to see if there are any other
influences on the bar or the guarantor

that could influence the the bar, the
entity that you're lending to it's.

So much can happen.

And the interrelationship
between companies.

Is very important and you need to
know what the stresses are on the Gur.

Cuz obviously if they've got other
operations that are stressed, they may

need the help from your borrower and that
could eventually impact the borrower.

So overall you need know the
overall risk associated with

that Reddit and other entities.

Related entities could
be some of those risks.

So how deep do you go?

It really depends on the
complexity and the level of risk

associated with the transaction.

If you have a large loan and
there's other business is similar

and there's movement between those.

Companies, you need to
analyze each company.

There's like I said, philosophically
there's many different approaches

me personally, when I was
analyzing loans, I always wanted

to know those related entities.

I didn't want to just
take K one information.

I wanted to know exactly how
well they were operating.

I generally, at the very least.

Asked for tax returns for those related

entities and then also
get a debt schedule.

So instead of just
seeing distributions and.

Profit did an actual cash flow analysis.

See how mu if those businesses were
under stress or not, and then once all

that analysis is done, you have to, and
again, this is up to the institution, find

way, some way to bring it all together.

So you can a reliable evaluation of the
CLO global cash flow and global coverage.

audioMarkTreichel21792836880: So
Ben let me give you an example.

So you've got a member,
let's say new member.

They come in, they apply, they
wanna buy a rental a home for.

Rental and they have 15 other
rental properties in the same city.

And this is the first they're
new to the credit union.

This is the first time
they've come to see you.

And they might have these 15.

Rental companies all set
up in their own LLCs.

I know a lot of times people will do that.

So they come in, they
apply for the one loan.

They say, it's a hundred thousand
dollars and I'm gonna put 30%

down and it should cash flow.

And you're looking at
it saying that great.

But in that scenario, what's
the, but what would it.

You're putting your loan
officer hat back on.

What would you expect to
see from where you sit?

And then obviously as it relates to the
N regulation on member business loans

audiovvcomputer11792836880: you're gonna
have a Gur most likely, hopefully because

, although it's not specifically required
it's implied that each loan be guaranteed.

So you're gonna need to know.

What those influences are on the
guarantor that could impact yeah,

again, like I said earlier, that could
add some stress to their operations.

Are there other businesses that they
have that are not as successful as you

borrower and then can those, that those,
the needs of those other businesses.

Will a guarantor need to
take that from your borrower.

So you gotta be careful that
you understand the relationship

between all the borrowers and then
then properly structure the loan.

To protect your borrower.

And if I'm not saying that you don't do
business with a borrower whose guarantor

has some other stresses, but if there
are other stresses and the global tell

you this, you may wanna structure year
loan a little differently and add some

covenants to restrict disbursements
and distributions from your borrower.

So that's a one reason
for global cash flow.

So you can properly structure
your borrower to protect them.

And other reasons are obviously is
this borrower or a house of cards?

And if it's a house of cards, you may
not, even though the not the borrower

so much, the overall relationship
is that a house of card, including.

Including the guarantor you may wanna
limit or not get involved because the

rest of the operation is very stressed.

audioMarkTreichel21792836880:
Yeah, I think that's the

essence of the global cash flow.

This particular deal may cash flow.

But if other businesses that
are owned by that borrower are

not positively cash flowing.

What happens to the entirety of
it, which is the global cash flow.

audiovvcomputer11792836880:
And getting back to the

philosophical part of this market.

So there's a lot of articles on
global cashflow and I ask people to

go out and research it themselves.

But ultimately it shouldn't be done for
the sake of the N C nothing should ever,

should be done for the sake of the N C.

It should be done.

To evaluate the risk that you're taking
on your credit union's balance sheet.

And that's what should drive
the extent of the analysis.

However, can't ignore the reg because
it's a regulation and you have to follow

those specific things the reg requires.

But what I always used to tell at
unions and when I used to speak,

I'd tell 'em, I first always do.

A thorough risk assessment of the
borrower and the borrower's relationships,

make your decision based on that.

Then check the reg to
see if you've complied.

And I think if you've done
your job and your complete reg

compliance will not be an issue.

So it.

Always focus on, do I really
understand this borrower?

Do I really know what's
going on with the guarantor?

What do I need to do to understand
the guarantor's relationships and

the relationship and the risks
associated with that relationship?

That's what should be driving you not
to comply with or making the examiner

happy, do it for your own because it's
it ultimately beyond Issues with an exam.

The real issue is this
a risky transaction?

And is it too risky?

For for us to finance?

audioMarkTreichel21792836880: Sure.

Is it good for the credit union?

Is it good for the.

Borrower.

And then NQA isn't always, should be
secondary or even last on that list.

You wanna comply with the regulation, but
you're not serving N you're serving the.

audiovvcomputer11792836880: And,
there's, it gets com it gets very

complicated global how far you should go.

And I, this is not the forum to decide
what's appropriate and what's not,

it's really just to discuss what
you should be thinking about, for

a, an operating company that has a
separate real estate holding company.

And maybe the guarantor
has a couple of rental.

Those are pretty easy to bring together.

It's when you get into those large
real estate transactions where there's

multiple entities and those are the
hard ones to decide how deep do I go?

And the answer is deep enough
to fully understand the

associated with your transaction.

audioMarkTreichel21792836880: So the
an so it sounds like a legal answer.

So the answer is, it depends
on the full body of work of

audiovvcomputer11792836880: We were,
sometimes you've got a good bar you've

done business with, for years, they
summarize their whole operation and send

you cash flows and other information,
I, if you're gonna accept something

like that, I do recommend that maybe
you test a few of them, just so you

can say this is reliable information.

And because we know the
borrower, obviously, and he's.

They've always performed as agreed
and also did some additional due

diligence and we checked a few
of them and they were accurate.

So we're gonna assume that the rest
of this information is accurate.

It all, again, it depends
on your relationship, the

complexity of the relationship.

Think about it and make sure that when
you step back that you're comfortable,

that you've covered and fully understand
the risk associated with the transaction.

audioMarkTreichel21792836880: Got it.

Got it.

So then before we wrap up, I wanna
push back on one thing you said.

We have caught some attention.

And you said that guarantees are implied.

The regulation doesn't
indicate that they're required.

So I believe in the old days you
could actually ask for waivers

relative to that, but it was my
understanding under the new rule that.

It's nice to have, but not a need
and defining need as the regulation

required, it, there are situations
and the regulation does allow

for their not to be a guarantee.

Am I correct?

In what I just said?

audiovvcomputer11792836880: Yes, but
if the way it's written and I don't

have it in front of me right now,
mark, but essentially what it says is

if you do not get a guarantee, then
you need to document the reasons.

Why it's, it's the reasons that offset
the risk of not having a guarantee.

So it says, if you do not get a guarantee,
so that implies, you should start by

getting the guarantee, but if you do
not get the guarantee, then you've

gotta have good reason and they all to
be documented in the credit proposal.

audioMarkTreichel21792836880:
Set another way.

Default should be, yes, we are going to
get guarantees and on occasion we won't.

And when we don't, we'll have a
really good reason and we will

document that as opposed to default
is we don't get guarantees and on

occasion we will get guarantees.

audiovvcomputer11792836880: Yeah, and
it was interesting cuz the reaction was.

That oh, you don't need
guarantees anymore.

Oh yes you do.

But if you don't get one, we don't
have to go through a waiver process.

Essentially.

You document in your credit proposal,
what you would have had you been

requesting that waiver for the guarantee.

So there's gotta be good reasons.

Obviously the borrower, a strong
balance sheet got good cash flow.

Been in business for a while,
all that kind of stuff.

And those are the types of reasons
you need to waive the guarantee.

But one reason you can't waive is one
reason that's not appropriate is because

the competition doesn't want one.

audioMarkTreichel21792836880: Okay.

Great.

Excellent.

audiovvcomputer11792836880: We don't want
you going over the cliff for the rest of.

audioMarkTreichel21792836880: Makes sense.

So VI let's wrap this up.

This was great.

I wanna thank you for
being my guest today.

Everybody that's it for today.

I'm mark Trico and I hope
you join me again next time