Brazos Community Bank

1. Brazos Community Bank By Kathrine Beakley: Senior VP for Portfolio Management

2. Brazos Community Bank • Located in Navasota, TX • Falls under the Dallas Federal Reserve • Established in 1901 as an Agricultural Lender

3. Brazos Community Bank Today • Personal Banking • Business Banking • Agricultural Banking • e-Banking

4. Where Our Money Comes From

5. Our Loan Portfolio

6. Loan Decision Factors By Katie Parrish: VP for Credit

7. Loan Decision Factors • Financial Indicators • Liquidity • Solvency • Profitability • Debt Repayment Capacity • Credit Scoring

8. The ability to generate cash quickly to meet claims on the business without disrupting the ongoing operations of the business. • Current Ratio • CA/CL • Ability to cover CL with CA without disrupting ongoing operations & still have cash left over. • Should exceed 1.0 • Working Capital • CA-CL • Liquidity in dollars instead of ratio. • Should be positive. • LIQUIDITY • Current Ratio • Working Capital Financial Indicator: SOLVENCY • Debt Ratio • Leverage Ratio PROFITABILITY • ROA • ROE DEBT REPAYMENT CAPACITY • Term Debt & Capital Lease Coverage Ratio • Debt Burden Ratio

9. Financial Indicator: • LIQUIDITY • Current Ratio • Working Capital • PROFITABILITY • ROA • ROE • DEBT REPAYMENT CAPACITY • Term Debt & Capital Lease Coverage Ratio • Debt Burden Ratio • The ability of the firm to convert all its assets, retire all of its liabilities, and have cash left over. • Debt Ratio • Debt/Assets • Ability to liquidate firm, cover all liabilities out of all assets, and have cash left over. • Should not exceed 0.5 • Leverage Ratio • Debt/Equity • Often used in loan decisions • Should not exceed 1.0 • SOLVENCY • Debt Ratio • Leverage Ratio

10. Financial Indicator: • LIQUIDITY • Current Ratio • Working Capital • SOLVENCY • Debt Ratio • Leverage Ratio • DEBT REPAYMENT CAPACITY • Term Debt & Capital Lease Coverage Ratio • Debt Burden Ratio • The ability of a firm to generate a level of revenue that exceeds its total costs of production • Return on Assets • NI/TA • How efficient management is at using assets to generate earnings • Should be positive & high • Return on Equity • NI/E • How much profit company makes with money from shareholders • Should be positive & high • PROFITABILITY • ROA • ROE

11. The ability of the firm to meet its scheduled term debt and capital lease payments and have cash left over. • Term Debt & Capital Lease Coverage Ratio • (EBIT-Taxes)/Term Debt & Capital Lease Payments • Ability to cover term debt & capital lease payments due • Non-farm income often included • Should exceed 1.0 • Debt Burden Ratio • Debt/NI • Number of years to retire debt based on net cash income • Should be low & falling • Financial Indicator: • LIQUIDITY • Current Ratio • Working Capital • SOLVENCY • Debt Ratio • Leverage Ratio • PROFITABILITY • ROA • ROE • DEBT REPAYMENT CAPACITY • Term Debt & Capital Lease Coverage Ratio • Debt Burden Ratio

13. Credit Scoring A number that shows us the risk we would be taking by lending to potential borrower Shows histprical ability to repay loan Fast, objective way to justify loans Use FICO (Fair Isaac Company) scores FICO Sources: Experian TransUnion Equifax

14. Components of Credit Score

15. National Scores

16. Character Intention to repay, responsibility, truthfulness, purpose, intention. The 6 C’s of Creditworthiness

17. Character Capacity Legal authority to sign contract. The 6 C’s of Creditworthiness

18. Character Capacity The 6 C’s of Creditworthiness Cash Ability to generate cash to repay loan.

19. Character Capacity The 6 C’s of Creditworthiness Cash Adequate net worth/assets to provide support for loan. Collateral

20. Character Capacity The 6 C’s of Creditworthiness Conditions Cash Economic conditions in customer’s industry. Collateral

21. Character Control Capacity Whether changes in the law would adversely affect the customer. The 6 C’s of Creditworthiness Conditions Cash Collateral

22. Weight of Importance Since this is a large loan, we will consider credit score but place more emphasis on the financial indicators. Assuming satisfactory (above 725) credit score for Brad Roberson.

23. Market Analysis By Ryan Allen: VP for Operations & Marketing

24. Brazos County • 84,000 head of cattle • 52,000 beef cows • Beef Cattle production is the top income producing agriculture enterprise in county

25. Cattle Market

26. Cattle Market • Main inputs are feed for cattle • Pasture grazing, hay, and feed derived from grains are most common ways of feeding cattle • Cattlemen are heavily dependent on inputs

27. Feed Prices • Corn is the most common grain feed used for cattle • Range cubes used for cattle and creep pellets for calves • Both of these are made partly of feed grains • U.S. biofuel production has driven cost of corn up • Corn prices expected to continue to rise unless the government intervenes

28. Corn Prices

29. Grazing and Hay • Pasture grazing and hay usage heavily dependent on local rain fall • Brazos county averages 39 inches of rainfall per year • Limited pasture grazing in winter, must rely more on hay and grain feeds

30. Drought • A drought causes major problems for cattle producers • No grass for cattle in pasture grazing • Due to a drought, hay becomes scarce and price goes up • Hay may even have to be trucked in from out of state

31. Other Inputs • Vaccinations and medication for cattle • Fertilizer costs • Fuel costs • Labor

32. Overview of Risk • Cattle prices dropping due to volatility of market • Input costs increasing • Animal health • Weather related problems

33. Competition

34. Overview of Market Analysis • Market is volatile, buy in winter • Input costs are most likely to increase • Having to compete with pork and chicken for smaller market share • Buy Low Sell High

35. Costs and Returns • Estimate bred heifer costs to be between $180,000 and $228,000 for 200 units • Estimate bull costs to be between $6800 and $7400 for 5 2000 lbs bulls • Estimate returns per calf cycle if calves raised to 500 lbs and no deaths to be between $85,000 to $111,100

36. Evaluating Sleepy B Ranch By Amanda Fort: Member of the Board of Directors

37. Borrower Information:Sleepy B Ranch President/CEO/Owner: Brad Roberson

38. Sleepy B Ranch Background Information: • Location: Brazos County • Operation: Cow-Calf • Total Acreage Currently Owned: 1,000 acres • Has been in operation for 5 years • Cattle contracted from stocker operation in Amarillo, Texas

39. About the Requested Loan Type: Small Business Loan Amount Requested: $135, 520 Use: Wants to buy 5 bulls & 200 bred heifers

40. Financial & Shock Analysis By Bradley Schmidt & Courtney Buerger: Co-VPs for Research & Credit Analysis

41. Baseline-Liquidity

42. Baseline-Profitability

43. Baseline-Debt Repayment Capacity

44. Baseline-Efficiency

45. Baseline – NPV

46. Shock 1-Expected Lowered 1st year price by $9 per cwt Increased sales prices by 3% per year Lowered expected calf crop from 90% to 85% Increased direct materials expense by 3% per year

47. Shock 1-Financial Ratios

48. Shock 1-NPV

49. Shock 2-Pessimistic Lowered expected calf crop to 80%. Used shock 1’s first year sales price and then decreased sales price by 5% per year. Increase direct materials expense by 10% per year. Lowered terminal value by approx. $20,000

50. Shock 2 – Financial Ratios