On April 28, 1996, Michael Stewart, senior loan officer at the Hudson National Bank of New York, was reviewing the credit file of SureCut Shears, Inc. in preparation for a luncheonmeeting with the company’s president and treasurer. David Fischer, treasurer of SureCut Shears,had recently informed Mr. Stewart that the company would be unable to liquidate its outstandingseasonal loan as initially anticipated. While agreeing to extend the outstanding $1.14 millionloan, Mr. Stewart had suggested that he would like to stop by and discuss the company’s recentprogress when he was next in the vicinity of Savannah, Georgia, where SureCut Shears’s homeplant and offices were located.SureCut Shears manufactured a complete line of household scissors and industrial shears.Its qua1ity lines were distributed through wholesalers to specialty, hardware, and departmentstores located throughout the country. Cheaper products were sold directly to large varietychains. Although competition was severe, particularly from overseas companies, SureCut Shearshad made profits in every year since 1958. Sales and profits had grown fairly steadily, if notdramatically, throughout the period.Hudson National Bank had been soliciting the SureCut Shears account for several yearsprior to early 1995. After several unsuccessful calls, Mr. Stewart finally convinced the officers of SureCut Shears that association with a large New York bank offered several advantages not to befound with local banks. He was particularly pleased with the success of his efforts, becauseSureCut Shears historically held fairly sizable deposit balances in its principal banks.The company had sufficient capital to cover its permanent requirements over theimmediate future. Its short-term borrowings from banks were typically confined to the periodJuly—December of each year, when additional working capital was needed to support a seasonalsales peak. As a matter of policy, the company attempted to produce at an even rate throughoutthe year, and this accounted in good part for the sizable need for seasonal funds.In June 1995 Mr. Fischer arranged a line of credit of $3.5 million with the HudsonNational Bank to cover requirements for the fall. At the time, he anticipated that the loan wouldbe completely paid off by December 1995. He gave Mr. Stewart a pro forma estimate of the