Credit Evaluation School Instructor eBook - Oct 2023

Internal Use Only

Dennis Barnes, Inc. – Substandard • Dennis Barnes was an employee in the oil field pipeline industry. After his marriage to Dr. Vin Belcher’s daughter, Dr. Belcher agreed to pledge 1,000 shares of the competitor bank for Dennis to use in his startup business in the oil field pipeline industry. • Dennis Barnes and his wife are now separated and loans are past due. People: Dennis Barnes, Inc. is an oil field pipeline business started last year by Dennis Barnes, who was formerly an employee in the same industry. Dennis Barnes is married to Dr. Vin Belcher’s daughter, but they are currently separated. Dr. Vin Belcher is a local surgeon. Purpose: Purchase equipment and working capital for oil field pipeline business Payment: Two notes require quarterly interest (purchase equipment and working capital notes). The third note required monthly payments of 5,000. Structure of these notes should spark question/discussion. One possibility is that loan officer wanted the interest at least paid quarterly to coincide with dividend payments on the stock. Protection: The stock has a verified value of 750M, nearly double the outstanding balance of the line, so risk of loss is very low. Students often question whether the loan officer would foreclose on the stock if Belcher doesn’t pay and if there is a ready market for the stock and as the banker, I always say that the “other” bank is town is not going to allow its competitor to become an owner. Performance: All three notes are past due, with one severely past due at 189 days and the other two approaching 90 days. Students should ask about placing line on nonaccrual. As banker, I try to push back because of the collateral value but usually concede.