Thesis on "Credit Risk Management"

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Stocker / Feeder Cattle

Crop Production

Agri-Business

Grain Facility

Feedlot Facility

Equipment

Ag Real Estate

Consumer Loans

Vehicle (Cars, Trucks, SUV's)

Recreational (Motorcycles, Boats, Motor-Homes)

Debt Consolidation

Personal Unsecured

Heating & Air Conditioning

Commercial Loans

Financing working capital

Machinery & Equipment

Capital Asset

Acquisition

Construction

Expansion

Inventory

Real Estate Loans

Primary Residence, Second & Investment

Interim Construction

Competitive Interest Rates

Low Closing Costs

In-House Servicing (OSB)

Past figures above from Federal Financial Institutions Examination Council (FFIEC).

As one might suspect, Agri-business is one of the main driving forces of Oklahoma. Recent statistics show the following information:

Farms Livestock Inventory

Number of Farms 86,600 Cattle and Calves - All (Jan. 1, 2009) 5,400,000

Land in Farms (acres) 35,100,000 Hogs & Pigs - All ( Dec. 1, 2008) 2,390,000

Average Farm Size (acres) 405 Sheep (Jan. 1, 2009) 80,000

Milk

Milk Cows (Average head) 64,000

Milk Production per Cow (lbs) 16,672

Production (lbs) 1,067,000,000 (Oklahoma's Official Website)

The demographics for the main branch in Harper County is as follows: County population in July 2007: 3,254 (all rural), County owner-occupied houses and condos: 1,188; Renter-occupied apartments: 321; percentage of renters here si 21% as compared to the state at 32%. The population density is 3 people per square mile and the median resident age is 43.1 years as compared to the state median age of35.5 years. The population composition is Males: 1,750 (49.1%) and Females: 1,812 (50.9%). The average wage per job in 2003: $22,312. The county population in 2003 was 3,385 and the jobs in 2003 was 1,106. (Oklahoma's Official Website)

The town demographics for Buffalo, OK is as follows: The town population in 2008 was 1,087 composed of males: 519 (47.8%) and females: 568 (52.3%). The median resident age: 42.6 years as compared to the state at 35.5 years. The estimated median household income in 2007 was $40,181 (it was $30,433 in 2000) and as compared to the state at $41,567. The estimated median house or condo value in 2007 was $55,640 (it was $33,200 in 2000) and as compared to the state at $103,000. The mean prices in 2007:for all housing units was $65,756; detached houses: $66,364; Townhouses or other attached units: $124,808; 2-unit structures: $63,126; 3-to-4-unit structures: $25,809; Mobile homes: $17,586. (Oklahoma's Official Website)

The demographics for the branch located in Ellis county is as follows: the population in July 2007: 3,911 (all rural) and the county owner-occupied houses and condos: 1,427. Renter-occupied apartments were at 342. The percentage of renters here is19% as compared to the state at 32%. The population density is again 3 people per square mile. The median resident age is 45.3 years as compared to the state at 35.5 years and is composed of males: 2,014 (49.4%) and females: 2,061 (50.6%). Estimated median household income in 2007 was $34,785 ($27,951 in 1999) as compared to the state at $41,567. The average wage per job in 2003 was $22,702 and the county population in 2003 was 3,963. The Jobs in 2003 were 1,099. (Oklahoma's Official Website)

The city demographics for Gage, OK are as follows: population in July 2008: 405. Population change since 2000: -5.6% and is compose of males: 198 (49.0%) and females: 207 (51.0%). The median resident age is 43.3 years as compared to the state at 35.5 years. The estimated median household income in 2007 was $34,057 (it was $25,795 in 2000) as compared to the state at $41,567. The estimated median house or condo value in 2007 was$44,244 (it was $26,400 in 2000) as compared to the state at $103,000. The mean prices in 2007 for all housing units: $48,581; Detached houses: $50,814; Mobile homes: $8,333. (Oklahoma's Official Website)

Top employeres in the state:

(Oklahoma's Official Website)

Additional information regarding Oklahoma is in Appendix I

Agribusiness has taken a drastic turn over the last decade and smaller banks are having a difficult time keeping up. The "Gentleman Farmer" has become history and there has been an increase in both the size and number of large farms and decrease in the number of smaller farms. This has also been accompanied by divergence in specific production. The market share of sales by the largest 5% of producers has steadily increased from 38.3% in 1939 to 54.5% by 1987. Agribusiness firms have expanded through vertical integration but more typically by production contracts through which farmers become the equivalent of factory home-workers, raising commodities to be turned over to agribusiness that they generally do not own. While only about 3% of farms operate under production contracts, they produce almost all poultry, half of all hogs, and a quarter of cattle. At the same time, most farms have become marginal production units that cannot fully employ or sustain families. To survive in farming, families take off-farm jobs. Almost 90% of farmers' household income now comes from non-farm sources. A USDA commission recently determined that annual gross sales below $250,000 cannot adequately support a family, and that survival of farms below that size is most endangered. About 94% of U.S. farms fall into this category. (Lobao, and Meyer 103)

However, rising commodity prices, including grains and corn has led to a boom in the agriculture industry during 2007, which proved to be a boon for lenders who focused on this industry. This was most evident among institutions with assets of less than $100 million. For example, agricultural production loans represented 14% of loans made by the top 25 non-S corps of this size, compared to 7% of loans made by other small non-S institutions. Agricultural production loans and farm loans combined accounted for over 30% of the loan portfolio at 20 of the 50 top performers under $100 million. A full 95% of loans made by Nebraska State Bank, Oshkosh, Nebraska fell into one of these two categories. Nebraska State is the largest lender of Farm Service Agency guaranteed loans in the Midwest. The bank also makes direct loans to businesses in the agriculture industry for equipment, livestock, and land. (Mambrino)

Banks with less than $3 billion in assets increased their focus on commercial and construction lending over the past few years as larger institutions captured greater shares of the residential mortgage and consumer loan markets. In some cases, smaller institutions responded by shifting to a pure commercial focus, for example:

Excel National Bank, Beverly Hills, Calif. (#10 among non-S corps with less than $100 million), commercial real estate and commercial and industrial loans comprised 78% of the loan portfolio. A similar strategy was also used by the top-ranked non-S bank under $100 million -- Farmers Bank, Hamburg, Ark. CRE and C&I loans together made up approximately 51% of its loan portfolio. The bank also benefited from a $4.4 million payment from the U.S. Department of Agriculture relating to a disputed loan guarantee. (Mambrino)

At banks and savings and loans with total assets of under $100 million, restructuring initiatives can have a significant impact on net income. For instance in the case of Oklahoma state bank the sale its second branch may generate an extensive one time gain which may allow them to enter more commercial loan lines. Either that or selling a line of loans that may not be their best performers to another institutions may be an alternative strategy. There is also the unexplored avenue of lease financing that may help to produce greater revenues in the future.

The following tables illustrate the past four-years of actual income performance bye Oklahoma State bank. As one can see while not a robust institution it has faired well during turbulent economic times. Its… READ MORE