1. Project 1 Introduction

2. Bank Loans Two types of loans: - Personal - Commercial

3. Personal Loans Borrower pays monthly installments Payments are a combination of outstanding principal and interest

4. Commercial Loans Borrower pays monthly installments Payment is interest only Principal is paid in full at end of set time period Project revolves around commercial loan

5. Commercial Loans Who receives a loan? Monitored by bank once loan is made Failure to make payments may result in foreclosure

6. Foreclosure - taking over ownership of some assets & selling these in some market Owner loses business Decision must be made on quantifiable items

7. Foreclosure vs. Work Out Bank makes decision to foreclose or work out a new payment schedule Why is borrower unable to make payments? - temporary or permanent situation? Use historical factors to aid decision Use specific characteristics of borrower to aid decision

8. Project 1 Background Acadia Bank has just formed Merger between 3 Banks: - BR Bank, Cajun Bank, and DuPont Bank Commercial loan with John Sanders

9. Project 1 Background Loan is for $4.0 million Interest rate is 10.0% Loan is one year old - scheduled for 4 more years

10. Decision Mr. Sanders missed his last payment - Cannot make next 3 payments Should Acadia Bank foreclose on his business? Should Acadia Bank work out a new payment schedule?

11. Monetary Values Foreclosure value - Amount Acadia Bank would receive if they seized control of Mr. Sanders assets - Forces Mr. Sanders out of business - Guaranteed value of $2.1 million

12. Monetary Values Work out value - Risky for Acadia Bank - Possibility of receiving full amount: $4.0 million - Possibility of receiving default amount: $250,000 as assets diminish in value

13. Monetary Values Benefits of a loan work out: - Mr. Sanders keeps his business - Bank could receive full amount: $4.0 M Risk of a loan work out: - Bank could receive default amount: $250,000

14. Bank Information Acadia Bank formed through merger of 3 Banks: - BR Bank, Cajun Bank, and DuPont Bank Each bank kept separate records on their borrowers characteristics Each bank dealt with similar populations

15. Bank Information BR Bank - records for years in business Cajun Bank - records for educational status DuPont Bank - records for economic status

16. Bank Information Several thousand records from each bank exist Records from banks exist in Excel file Loan Records.xls Years of experience, education level, and economic conditions are independent from each other

17. Borrower’s Information Seven years of experience Bachelor’s Degree Normal economic status

18. Team’s Information You will receive information about your borrower at: http://math.arizona.edu/~sreyes/ Several pieces of information given

19. Team’s Information Years of experience, Education level, Economic status Full amount of loan, foreclosure amount, default amount Use this information to decide: foreclose or work out

20. Hints for Preliminary Report Present using PowerPoint Dress professionally Explain your purpose for presenting Clearly state your solution (foreclose or work out a new payment schedule)

21. Hints for Preliminary Report Avoid slides that are too wordy: 5 and 5 rule Every member should present something substantial Keep presentation to 3-5 minutes