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Credit Risk 2012: Answers to inquiring questions

Credit Risk 2012: Answers to inquiring questions. Dr. David M. Kohl Professor Emeritus, Agricultural and Applied Economics Virginia Tech, Blacksburg, VA. (540) 961-2094 (Alicia Morris) | (540) 719-0752 (Angela Meadows) | sullylab@vt.edu .

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Credit Risk 2012: Answers to inquiring questions

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  1. Credit Risk 2012: Answers to inquiring questions Dr. David M. Kohl Professor Emeritus, Agricultural and Applied Economics Virginia Tech, Blacksburg, VA (540) 961-2094 (Alicia Morris) | (540) 719-0752 (Angela Meadows) | sullylab@vt.edu Weekly Columns: Ag Globe Trotter: www.farm-credit.com Road Warrior of Agriculture: www.cornandsoybeandigest.com November 4, 2011

  2. Trends in Ag Banking • 250/500 million mutation • customer too large to finance • 3000/1000 family owned • rural community dynamics • young lenders • Dodd-Frank • consumer lending • Rabobank 4 time increase • other

  3. Trends in Farm Credit System • national movement • corporate/funding issues • consolidation • 25-40 • three funding banks • young farmers/ranchers • 100th year

  4. What are the actions of lenders that do risky lending? • collateral-based lending • no sensitivity testing: • cash flow/profitability • liquidity • equity/collateral • concentration • growing too fast - customer & lender • producer/lender fraud • chasing hot markets • Lenders’ Top Questions for Dr. Kohl

  5. What are the behaviors & actions of successful agricultural lenders? • strong credit culture with sound financial analysis • knows the customers and industries • culture of lifelong learning • the “what if” lender • marketing culture of relationship lending • board and management team understand agriculture • Lenders’ Top Questions for Dr. Kohl

  6. What are proactive practices of regulators? • staff that are quick learners of the industry, lenders, and customers • encourage strong financials • encourage accrual-adjusted records for producers that are growing, highly-leveraged, or above $250,000 in sales • encourage bank boards and CEO to have employee training metrics • two to six hours of education per week for examiners/regulators • think globally but act locally • Lenders’ Top Questions for Dr. Kohl

  7. Family Living Summary

  8. Farm Family Living Expense Increases

  9. What are your thoughts on family living costs? • family living withdrawals are like concrete; once set, they are difficult to change • averages: • 2011: $80,000 • 1986: $20,000 • 1967: $4,000 • monthly basis plus 25% • 25% of expenses are commingled in the business • Lenders’ Top Questions for Dr. Kohl

  10. Financial & Management Benchmarking Dashboard (Top of Cycle)

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